Community Reinvestment Act, 6574-7222 [2023-25797]
Download as PDF
6574
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
FOR FURTHER INFORMATION CONTACT:
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 25
[Docket ID OCC–2022–0002]
RIN 1557–AF15
FEDERAL RESERVE SYSTEM
12 CFR Part 228
[Regulation BB; Docket No. R–1769]
RIN 7100–AG29
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 345
RIN 3064–AF81
Community Reinvestment Act
Office of the Comptroller of the
Currency, Treasury; Board of Governors
of the Federal Reserve System; and
Federal Deposit Insurance Corporation.
ACTION: Final rule.
AGENCY:
The Office of the Comptroller
of the Currency (OCC), Board of
Governors of the Federal Reserve
System (Board), and the Federal Deposit
Insurance Corporation (FDIC) are
adopting final amendments to their
regulations implementing the
Community Reinvestment Act of 1977
(CRA) to update how CRA activities
qualify for consideration, where CRA
activities are considered, and how CRA
activities are evaluated.
DATES:
Effective date: This rule is effective on
April 1, 2024, except for amendment
nos. 29, 52, and 75, which are effective
April 1, 2024, through January 1, 2031,
and amendment nos. 7, 11, 18, 20, 25,
35, 39, 43, 45, 49, 58, 62, 66, 68, and 72,
which are delayed indefinitely. The
agencies will publish a document in the
Federal Register announcing an
effective date for the delayed
amendments.
Applicability date: Sections ll.12
through ll.15, ll.17 through
ll.30, and ll.42(a); the data
collection and maintenance
requirements in § ll.42(c) through (f);
and appendices A through F of the
common rule text as adopted by the
OCC, Board, and FDIC are applicable on
January 1, 2026. Section ll.42(b) and
(g) through (i) and the reporting
requirements in § ll.42(c) through (f)
of the common rule text as adopted by
the OCC, Board, and FDIC are
applicable on January 1, 2027.
ddrumheller on DSK120RN23PROD with RULES2
SUMMARY:
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
OCC: Heidi M. Thomas, Senior
Counsel, or Emily Boyes, Counsel, Chief
Counsel’s Office, (202) 649–5490; or
Vonda Eanes, Director for CRA and Fair
Lending Policy, or Cassandra
Remmenga, CRA Modernization
Program Manager, Bank Supervision
Policy, (202) 649–5470, Office of the
Comptroller of the Currency, 400 7th
Street SW, Washington, DC 20219. If
you are deaf, hard of hearing, or have a
speech disability, please dial 7–1–1 to
access telecommunications relay
services.
Board: Taz George, Senior
Supervisory Policy Analyst; Dorian
Hawkins, Counsel; S. Caroline (Carrie)
Johnson, Manager; Matthew Lambert,
Senior Supervisory Analyst; Eric Lum,
Senior Supervisory Analyst; Cayla
Matsumoto, Supervisory Policy Analyst;
or Lisa Robinson, Lead Supervisory
Policy Analyst; Lorna Neill, Senior
Counsel; Amal Patel, Senior Counsel; or
Jaydee DiGiovanni, Counsel; Division of
Consumer and Community Affairs or
David Alexander, Special Counsel; Cody
Gaffney, Senior Attorney; or Gavin
Smith, Senior Counsel; Legal Division,
Board of Governors of the Federal
Reserve System at (202) 452–2412 or.
For users of TDD–TYY, (202) 263–4869
or dial 711 from any telephone
anywhere in the United States.
FDIC: Pamela A. Freeman, Senior
Examination Specialist, Compliance and
CRA Examinations Branch, Division of
Depositor and Consumer Protection,
(202) 898–3656; Patience R. Singleton,
Senior Policy Analyst, Supervisory
Policy Branch, Division of Depositor
and Consumer Protection, (202) 898–
6859; Sherry Ann Betancourt, Counsel,
Legal Division, (202) 898– 6560; Alys V.
Brown, Senior Attorney, Legal Division,
(202) 898–3565, Federal Deposit
Insurance Corporation, 550 17th Street
NW, Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Summary of the Final Rule
II. Background
III. General Comments Received
IV. Section-by-Section Analysis
Section ll.11 Authority, Purposes, and
Scope
Section ll.12 Definitions
Section ll.13 Consideration of
Community Development Loans,
Community Development Investments,
and Community Development Services
Section ll.14 Community Development
Illustrative List; Confirmation of
Eligibility
Section ll.15 Impact and
Responsiveness Review of Community
Development Loans, Community
Development Investments, and
Community Development Services
PO 00000
Frm 00002
Fmt 4701
Sfmt 4700
Section ll.16 Facility-Based Assessment
Areas
Section ll.17 Retail Lending Assessment
Areas
Section ll.18 Outside Retail Lending
Areas
Section ll.19 Areas for Eligible
Community Development Loans,
Community Development Investments,
and Community Development Services
Section ll.21 Evaluation of CRA
Performance in General
Section ll.22 Retail Lending Test
Section ll.23 Retail Services and
Products Test
Section ll.24 Community Development
Financing Test
Section ll.25 Community Development
Services Test
Section ll.26 Limited Purpose Banks
Section ll.27 Strategic Plan
Section ll.28 Assigned Conclusions and
Ratings
Section ll.29 Small Bank Performance
Evaluation
Section ll.30 Intermediate Bank
Performance Evaluation
Section ll.31 Effect of CRA Performance
on Applications
Section ll.42 Data Collection, Reporting,
and Disclosure
Section ll.43 Content and Availability of
Public File
Section ll.44 Public Notice by Banks
Section ll.45 Publication of Planned
Examination Schedule
Section ll.46 Public Engagement
Section ll.51 Applicability Dates and
Transition Provisions
V. Regulatory Analysis
I. Summary of the Final Rule
The CRA 1 is a seminal piece of
legislation that requires the OCC, the
Board, and the FDIC (together referred
to as the agencies, and each,
individually, the agency) to assess a
bank’s 2 record of meeting the credit
needs of its entire community,
including low- and moderate-income
neighborhoods, consistent with the
bank’s safe and sound operation. Upon
completing this examination, the statute
requires the agencies to ‘‘prepare a
written evaluation of the institution’s
record of meeting the credit needs of its
entire community, including low- and
moderate-income neighborhoods.’’ 3 The
statute further provides that each agency
must consider a bank’s CRA
performance ‘‘in its evaluation of an
application for a deposit facility by such
institution.’’ 4 The agencies implement
1 12
U.S.C. 2901 et seq.
purposes of this SUPPLEMENTARY
INFORMATION, the term ‘‘bank’’ includes insured
national and State banks, Federal and State savings
associations, Federal branches as defined in 12 CFR
part 28, insured State branches as defined in 12
CFR 345.11(c), and State member banks as defined
in 12 CFR part 208, except as provided in 12 CFR
ll.11(c).
3 12 U.S.C. 2906(a).
4 12 U.S.C. 2903(a)(2).
2 For
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
the CRA and establish the framework
and criteria by which the agencies
assess a bank’s performance through
their individual CRA regulations, which
are supplemented by supervisory
guidance.5 Under the CRA regulations,
the agencies apply different evaluation
standards for banks of different asset
sizes and types.
The agencies issued a notice of
proposed rulemaking published in the
Federal Register on June 3, 2022 (NPR,
proposal, or the proposed rule),6 seeking
comment on updates to their respective
CRA regulations to achieve the
following objectives:
• Strengthen the achievement of the
core purpose of the statute;
• Adapt to changes in the banking
industry, including the expanded role of
mobile and online banking;
• Provide greater clarity and
consistency in the application of the
regulations;
• Tailor performance standards to
account for differences in bank size and
business models and local conditions;
• Tailor data collection and reporting
requirements and use existing data
whenever possible;
• Promote transparency and public
engagement;
• Confirm that CRA and fair lending
responsibilities are mutually
reinforcing; and
• Promote a consistent regulatory
approach that applies to banks regulated
by all three agencies.7
The agencies believe that each
objective is met through the
promulgation of this final rule.
Additional discussion of, and
commenter feedback received regarding,
the agencies’ objectives can be found in
section III.B of this SUPPLEMENTARY
INFORMATION.
This section provides a summary of
the final rule and highlights certain key
elements and changes as compared to
the proposal. For a more detailed
discussion, including the agencies’
considerations of the comments
received, see sections III and IV of this
SUPPLEMENTARY INFORMATION.
5 See 12 CFR parts 25 (OCC), 228 (Regulation BB)
(Board), and 345 (FDIC). For clarity and to
streamline references, citations to the agencies’
existing common CRA regulations are provided in
the following format: current 12 CFR ll.xx. For
example, references to 12 CFR 25.12 (OCC), 228.12
(Board), and 345.12 (FDIC) would be streamlined as
follows: ‘‘current 12 CFR ll.12.’’ Likewise,
references to the agencies’ proposed and final
common CRA regulations are provided in the
following formats, respectively: ‘‘proposed
§ ll.xx’’ and ‘‘final § ll.xx.’’
6 87 FR 33884 (June 3, 2022).
7 The agencies have revised this objective for the
final rule, to recognize that the agencies currently
have common regulations.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Bank Asset Size Categories and Limited
Purpose Banks
The final rule implements a revised
regulatory framework for the CRA that,
like the current framework, is based on
bank asset size and business model.
This tailoring of the framework
recognizes the capacity and resource
differences among banks. Under the
final rule, banks are classified as either
a large bank, an intermediate bank, a
small bank, or a limited purpose bank.
Pursuant to the final rule: large banks
are those with assets of at least $2
billion as of December 31 in both of the
prior two calendar years; intermediate
banks are those with assets of at least
$600 million as of December 31 in both
of the prior two calendar years and less
than $2 billion as of December 31 in
either of the prior two calendar years;
and small banks are those with assets of
less than $600 million as of December
31 in either of the prior two calendar
years. These asset-size thresholds will
be adjusted annually for inflation.
The final rule revises the definition of
limited purpose bank to include both
those banks currently considered
‘‘limited purpose banks’’ and those
currently considered ‘‘wholesale
banks,’’ as those terms are defined
under the current regulation and were
defined under the proposal.
Specifically, the final rule defines a
limited purpose bank as a bank that is
not in the business of extending certain
loans, except on an incidental and
accommodation basis, and for which a
designation as a limited purpose bank is
in effect. The final rule therefore does
not reference ‘‘wholesale banks’’
because a separate definition is no
longer necessary. The agencies have also
clarified that limited purpose banks are
not evaluated as small, intermediate, or
large banks.
Evaluation Framework
Overview. The final rule’s
performance evaluation framework
utilizes performance tests to evaluate a
bank’s performance in meeting the
credit needs of its entire community. In
finalizing this evaluation framework,
the agencies seek to meet the objectives
described above, including:
strengthening the achievement of the
core purpose of the statute; tailoring to
account for differences in bank size,
business model, and local conditions;
and adapting to changes in the banking
industry, including the rise of mobile
and online banking. Depending on a
bank’s asset size or limited purpose
bank designation, the agencies will
evaluate banks under one or a
combination of the following seven
PO 00000
Frm 00003
Fmt 4701
Sfmt 4700
6575
performance tests: the Retail Lending
Test; the Retail Services and Products
Test; the Community Development
Financing Test; the Community
Development Services Test; the
Intermediate Bank Community
Development Test; the Small Bank
Lending Test; and the Community
Development Financing Test for Limited
Purpose Banks. The agencies have also
retained the strategic plan option, with
revisions, as an alternative method for
evaluation under the CRA.
The agencies will evaluate large banks
under four performance tests: the Retail
Lending Test, the Retail Services and
Products Test, the Community
Development Financing Test, and the
Community Development Services Test.
The agencies will evaluate intermediate
banks under the Retail Lending Test and
either the current community
development test, referred to in the final
rule as the Intermediate Bank
Community Development Test, or, at the
bank’s option, the Community
Development Financing Test. The
agencies will evaluate small banks
under either the current small bank test,
referred to in the final rule as the Small
Bank Lending Test or, at the bank’s
option, the Retail Lending Test. Finally,
the agencies will evaluate limited
purpose banks, under the Community
Development Financing Test for Limited
Purpose Banks.
The final rule also provides that
relevant activities of a bank’s operations
subsidiaries or operating subsidiaries
are included in a bank’s performance
evaluation. Relevant activities of other
affiliates would be considered at a
bank’s option.
For each applicable performance test,
the agencies will assign conclusions
reflecting the bank’s performance in its
facility-based assessment areas, and in
the case of the Retail Lending Test,
certain other geographic areas. In most
instances, including for small banks that
opt to be evaluated under the Retail
Lending Test, the agencies will assign
one of five conclusions to the bank:
‘‘Outstanding’’; ‘‘High Satisfactory’’;
‘‘Low Satisfactory’’; ‘‘Needs to
Improve’’; or ‘‘Substantial
Noncompliance.’’ For small banks
evaluated under the Small Bank
Lending Test, the agencies will assign
one of four conclusions: ‘‘Outstanding’’;
‘‘Satisfactory’’; ‘‘Needs to Improve’’; or
‘‘Substantial Noncompliance.’’
The conclusions assigned in
connection with each of the applicable
performance tests are combined to
develop a bank’s CRA ratings. The
agencies may assign a bank one of the
four ratings, as indicated in the statute:
‘‘Outstanding’’; ‘‘Satisfactory’’; ‘‘Needs
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6576
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
to Improve’’; or ‘‘Substantial
Noncompliance.’’
For banks that are evaluated under
more than one performance test, specific
weights are applied to each performance
test conclusion, with weighting varying
by bank asset size. For large banks: the
Retail Lending Test is weighted at 40
percent; the Retail Services and
Products Test is weighted at 10 percent;
the Community Development Financing
Test is weighted at 40 percent; and the
Community Development Services Test
is weighted at 10 percent. Relative to the
proposal, this large bank weighting
reflects a decrease in the percentages
assigned to the Retail Lending Test and
the Retail Services and Products Test
and a resulting increase in the
percentage assigned to the Community
Development Financing Test. For
intermediate banks, each applicable
performance test is weighted at 50
percent.
As noted above, banks of all sizes will
maintain the option to elect to be
evaluated under an approved strategic
plan. Among other revisions, the final
rule updates the standards for obtaining
approval for such plans. The final rule
clarifies the proposal to explain the
circumstances in which banks must
include the performance tests that
would apply in the absence of a
strategic plan, the modifications and
additions that banks may make to those
tests, and the justifications that banks
must provide for their draft plans.
Retail Lending Test. The Retail
Lending Test evaluates a bank’s record
of helping to meet the credit needs of its
entire community through the bank’s
origination and purchase of home
mortgage loans, multifamily loans, small
business loans, and small farm loans, as
well as through automobile lending if
the bank is a majority automobile
lender. Specifically, the Retail Lending
Test includes an evaluation of how
banks are serving low- and moderateincome individuals, small businesses,
small farms, and low- and moderateincome census tracts in the bank’s
facility-based assessment areas and, as
applicable, retail lending assessment
areas and outside retail lending areas.
As noted above, under the final rule,
intermediate and large banks are
required to be evaluated under the
Retail Lending Test, and small banks
may opt to be evaluated under this
performance test.
The Retail Lending Test includes two
sets of metrics, as well as additional
factors that are used to complement the
use of metrics. First, the Retail Lending
Volume Screen measures the volume of
a bank’s retail lending relative to its
deposit base in a facility-based
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
assessment area and compares that ratio
to a Retail Lending Volume Threshold
based on the aggregate ratio for all
reporting banks with at least one branch
in the same facility-based assessment
area.
Second, the agencies evaluate the
geographic distribution and borrower
distribution of a bank’s major product
lines in its Retail Lending Test Areas
(facility-based assessment areas, retail
lending assessment areas, and outside
retail lending area) using a series of
metrics and benchmarks. For example,
for a bank’s closed-end home mortgage
lending in a Retail Lending Test Area,
the geographic distribution analysis
evaluates the bank’s percentage of
lending (1) in low-income census tracts
and (2) in moderate-income census
tracts, while the borrower distribution
analysis evaluates the bank’s percentage
of lending (3) to low-income borrowers
and (4) to moderate-income borrowers.
Under the final rule, the agencies
evaluate the distribution of a large
bank’s major product lines in its facilitybased assessment areas, any retail
lending assessment areas the bank is
required to delineate, and its outside
retail lending area. For intermediate
banks, and small banks that opt to be
evaluated under the Retail Lending Test,
the agencies evaluate the distribution of
the bank’s major product lines in its
facility-based assessment areas and any
outside retail lending area, if applicable.
Regardless of the geographic area in
which a bank is evaluated, for most
major product lines, a bank’s
performance relative to the retail
lending distribution benchmarks is
translated into a recommended
conclusion using performance ranges
that establish the level of performance
needed to achieve a particular
conclusion, such as ‘‘High Satisfactory.’’
In addition, in the final rule the
agencies consider a list of additional
factors that are intended to account for
circumstances in which the retail
lending distribution metrics and
benchmarks may not accurately or fully
reflect a bank’s retail lending
performance, or in which the
benchmarks may not appropriately
represent the credit needs and
opportunities in an area.
In response to commenter feedback,
the agencies sought ways to ensure that
the final rule’s Retail Lending Test
appropriately balances the agencies’
objectives. For example, the agencies
adjusted some of the multipliers utilized
as part of the Retail Lending Test to
make ‘‘Outstanding’’ and ‘‘High
Satisfactory’’ Retail Lending Test
supporting conclusions more attainable
relative to the proposal, while
PO 00000
Frm 00004
Fmt 4701
Sfmt 4700
maintaining an appropriate degree of
rigor. Moreover, as compared to the
proposal, the final rule reduces the
number of product lines potentially
evaluated under the Retail Lending Test
from six to three (closed-end home
mortgage loans, small business loans,
and small farm loans) for most banks. In
addition, the agencies will only evaluate
a bank’s automobile loans if automobile
loans represent a majority of the bank’s
retail lending, or if the bank opts to have
its automobile loans evaluated under
the Retail Lending Test.
Retail Services and Products Test. The
Retail Services and Products Test
utilizes a tailored approach to evaluate
the availability of a bank’s retail banking
services and retail banking products and
the responsiveness of those services and
products to the credit needs of the
bank’s entire community, including
low- and moderate-income individuals,
low- and moderate-income census
tracts, small businesses, and small
farms. Under the final rule, this
performance test maintains the overall
approach set out in the NPR, with
certain modifications, and incorporates
benchmarks to evaluate the availability
of a bank’s branch and remote service
facilities. In addition, the agencies will
evaluate the digital and other delivery
systems of some banks.
Evaluation of the retail banking
services of a large bank with assets
greater than $10 billion includes a
review of the bank’s branch availability
and services, remote service facilities
(including automated teller machines
(ATMs)), and digital delivery systems
and other delivery systems. The
agencies will also consider the digital
delivery systems and other delivery
systems of large banks with assets less
than or equal to $10 billion if the bank
does not operate any branches or, for
banks that operate at least one branch,
at the bank’s option.
Evaluation of a bank’s retail banking
products includes a review of the
responsiveness of the bank’s credit
products and programs, and availability
and usage of responsive deposit
products. Both deposit products and
credit products and programs are
evaluated at the institution level and, in
a change from the proposal, are given
only positive consideration and may not
negatively impact a bank’s Retail
Services and Products Test conclusion.
This aspect of the performance test is
designed to evaluate a bank’s efforts to
provide products that are responsive to
the needs of low- and moderate-income
communities. The agencies will not
evaluate the availability and usage of
responsive deposit products in
connection with large banks with assets
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
less than or equal to $10 billion, unless
the bank opts in.
Community Development Financing
Test. The Community Development
Financing Test evaluates how well large
banks and intermediate banks that opt
into the performance test meet the
community development financing
needs in each facility-based assessment
area, each State or multistate
metropolitan statistical area (MSA), as
applicable, and for the institution. The
test is not assessed in retail lending
assessment areas.
The Community Development
Financing Test includes the following
elements: (1) a community development
financing metric used to evaluate the
dollar volume of a bank’s community
development loans and investments
relative to the bank’s deposit base; (2)
standardized benchmarks to aid in
evaluating performance; and (3) an
impact and responsiveness review to
ensure consideration of community
development loans and investments that
are particularly impactful or responsive.
The final rule also includes a metric for
banks with assets greater than $10
billion to measure the bank’s
community development investments
relative to deposits. This metric is
intended to ensure a focus on certain
bank community development
investments (including Federal LowIncome Housing Tax Credit (LIHTC) and
New Market Tax Credit (NMTC)
investments). This metric is applied at
the institution level and may only
contribute positively to a bank’s
Community Development Financing
Test conclusion.
Community Development Services
Test. The Community Development
Services Test considers the importance
of community development services in
fostering partnerships among different
stakeholders, building capacity, and
creating conditions for effective
community development, including in
rural areas. The agencies will evaluate
large banks under this performance test
in facility-based assessment areas, in
States, multistate MSAs, and
nationwide.
Under the final rule, the evaluation
includes a qualitative review of relevant
community development services data,
and an impact and responsiveness
review to assess services that are
particularly responsive to community
needs. After considering commenter
feedback, the performance test does not
require a metric of community
development service hours per full-time
employee for banks with assets greater
than $10 billion. Moreover, the final
rule maintains the existing requirement
that volunteer services considered
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
under this performance test must be
related to the provision of financial
services or the expertise of bank staff
and must have a community
development purpose. The performance
test will provide consideration for
activities that promote financial literacy
for low- or moderate-income
individuals, households, and families,
even if the activities benefit individuals,
households, and families of other
income levels as well.
Geographic Areas in Which a Bank’s
Activities Are Considered
Facility-based assessment areas. As
under the current CRA regulations, the
final rule maintains facility-based
assessment areas as the cornerstone of
the CRA evaluation framework. The
final rule adopts the delineation
requirements for facility-based
assessment areas mostly as set out in the
proposal with clarifying changes.
Specifically, banks will continue to
delineate facility-based assessment areas
in the MSAs or nonmetropolitan areas
of States in which the following
facilities are located: main offices,
branches, and deposit-taking remote
service facilities. As under the proposal,
large banks are required to delineate
facility-based assessment areas
composed of whole counties, while
intermediate and small banks will
continue to be permitted to delineate
facility-based assessment areas
consisting of partial counties. The final
rule continues to provide that facilitybased assessment areas may not reflect
illegal discrimination and may not
arbitrarily exclude low- or moderateincome census tracts.
Retail lending assessment areas. The
final rule requires a large bank to
delineate a new type of assessment area,
referred to as retail lending assessment
areas, in an MSA or the
nonmetropolitan area of a State in
which the large bank has a
concentration of closed-end home
mortgage or small business lending
outside of its facility-based assessment
area(s). Large banks are evaluated under
the Retail Lending Test, but not the
other performance tests, in retail
lending assessment areas. Relative to the
proposal, the final rule tailors the retail
lending assessment area requirement by
exempting large banks that conduct
more than 80 percent of their retail
lending within facility-based assessment
areas.
Upon consideration of commenter
feedback regarding the retail lending
assessment area proposal, the final rule
increases, relative to the proposal, the
loan count thresholds that trigger the
retail lending assessment area
PO 00000
Frm 00005
Fmt 4701
Sfmt 4700
6577
delineation requirement to at least 150
closed-end home mortgage loans or at
least 400 small business loans in each
year of the prior two calendar years. The
final rule also simplifies the evaluation
of a large bank’s retail lending
performance by reducing the number of
product lines potentially evaluated in a
retail lending assessment area from six
to two product lines, and only
evaluating a product line if the bank
exceeds the relevant loan count
threshold.
Outside retail lending areas. Under
the final rule, the agencies will evaluate
the retail lending performance of all
large banks, certain intermediate banks,
and certain small banks that opt to be
evaluated under the Retail Lending Test
in the outside retail lending area, which
consists of the nationwide area outside
of the bank’s facility-based assessment
areas and applicable retail lending
assessment areas, excluding certain
nonmetropolitan counties. Evaluation in
these areas is designed to facilitate a
comprehensive evaluation of a bank’s
retail lending to low- and moderateincome individuals and communities
under the Retail Lending Test, and to
adapt to changes in the banking
industry, such as mobile and online
banking. For an intermediate bank or a
small bank that opts to be evaluated
under the Retail Lending Test, the
agencies evaluate the bank’s retail
lending performance in the outside
retail lending area on a mandatory basis
if the bank conducts a majority of its
retail lending outside of its facilitybased assessment areas. If the
intermediate or small bank does not
conduct a majority of its retail lending
outside of its facility-based assessment
areas, the bank may opt to have its retail
lending in its outside retail lending area
evaluated.
Areas for eligible community
development activities. Like the
proposal, the final rule provides that all
banks will receive consideration for any
qualified community development
loans, investments, or services,
regardless of location. In assessing a
large bank’s Community Development
Financing Test performance, the final
rule includes a focus on performance
within facility-based assessment areas.
Specifically, when developing
conclusions for a State, multistate MSA,
or for the institution overall, the final
rule combines two components through
a weighted average calculation: (1)
performance within the bank’s facilitybased assessment areas in the State,
multistate MSA, or for the institution
overall; and (2) performance across the
entire State, multistate MSA, and for the
institution. The weights of the two
E:\FR\FM\01FER2.SGM
01FER2
6578
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
components are based on the percentage
of a bank’s retail lending and deposits
inside its facility-based assessment
areas. For example, for a bank with a
relatively low percentage of retail
lending and deposits inside its facilitybased assessment areas, the bank’s
performance within its facility-based
assessment areas receives less weight
than its performance across the entire
State, multistate MSA, or nationwide
area. In this way, the Community
Development Financing Test recognizes
differences in bank business models.
ddrumheller on DSK120RN23PROD with RULES2
Categories of Community Development
Updated community development
definition. Under the current CRA
regulations, in evaluating a bank’s CRA
performance, banks may receive
community development consideration
for community development loans,
investments, and services under various
tests. The final rule updates the
definition of community development
to provide banks with additional clarity
regarding the loans, investments, and
services that the agencies have
determined support community
development. The agencies believe
these activities are responsive to the
needs of low- and moderate-income
individuals and communities,
designated distressed or underserved
nonmetropolitan areas, Native Land
Areas,8 small businesses, and small
farms. Specifically, the agencies have
defined the following eleven
community development categories in
the final rule:
• Affordable housing, which has five
components: (1) rental housing in
conjunction with a government
affordable housing plan, program,
initiative, tax credit, or subsidy; (2)
multifamily rental housing with
affordable rents; (3) one-to-four family
rental housing with affordable rents in
a nonmetropolitan area; (4) affordable
owner-occupied housing for low- or
moderate-income individuals; and (5)
mortgage-backed securities.
• Economic development, which
includes loans, investments, and
services undertaken in conjunction or in
syndication with government programs;
loans, investments, and services
provided to intermediaries; and other
forms of assistance to small businesses
and small farms. Unlike the proposal,
this category includes direct loans to
small businesses and small farms in
conjunction or in syndication with
government programs that meet a size
and purpose test.
8 The final rule defines ‘‘Native Land Areas’’ in
final § ll.12.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
• Community supportive services,
which includes activities that assist,
benefit, or contribute to the health,
stability, or well-being of low- or
moderate-income individuals, and
replaces the current rule’s ‘‘community
services targeted to low- or moderateincome individuals’’ category.
• Six categories of place-based
activities, which replace the
revitalization and stabilization activities
component of the current rule. Each of
the final place-based categories adopts a
focus on targeted geographic areas and
includes common place-based eligibility
criteria that must be met. The six placebased categories are:
Æ Revitalization or stabilization
activities;
Æ Essential community facilities;
Æ Essential community infrastructure;
Æ Recovery activities that promote the
recovery of a designated disaster area;
Æ Disaster preparedness and weather
resiliency activities; and
Æ Qualifying activities in Native Land
Areas.
• Activities with minority depository
institutions (MDIs), women’s depository
institutions (WDIs), low-income credit
unions (LICUs), and community
development financial institutions
(CDFIs).
• Financial literacy, which retains the
proposed approach of qualifying
activities assisting individuals, families,
and households of all income levels,
including low- or moderate-income
individuals, families, and households.
Illustrative list and confirmation
process. To promote clarity and
consistency, the final rule also provides
that the agencies will issue, maintain,
and periodically update a publicly
available illustrative list of nonexhaustive examples of loans,
investments, and services that qualify
for community development
consideration. In addition, the final rule
includes a process through which banks
can confirm with the appropriate
Federal financial supervisory agency
whether a particular loan, investment,
or service is eligible for community
development consideration.9
9 The CRA defines ‘‘appropriate Federal financial
supervisory agency’’ as (1) the Comptroller of the
Currency with respect to national banks and
Federal savings associations (the deposits of which
are insured by the Federal Deposit Insurance
Corporation); (2) the Board of Governors of the
Federal Reserve System with respect to State
chartered banks which are members of the Federal
Reserve System, bank holding companies, and
savings and loan holding companies; (3) the Federal
Deposit Insurance Corporation with respect to State
chartered banks and savings banks which are not
members of the Federal Reserve System and the
deposits of which are insured by the Corporation,
and State savings associations (the deposits of
which are insured by the Federal Deposit Insurance
Corporation). 12 U.S.C. 2902(1).
PO 00000
Frm 00006
Fmt 4701
Sfmt 4700
Impact and responsiveness review. To
promote clarity and consistency in the
final rule, the agencies will evaluate the
extent to which a bank’s community
development loans, investments, and
services are impactful and responsive in
meeting community development
needs, through the application of a nonexhaustive list of review factors. Such
factors were referred to as impact review
factors in the agencies’ proposal but are
referred to as impact and responsiveness
factors in the final rule.
Data Collection, Maintenance, and
Reporting
Consistent with the proposal, the
agencies are not imposing any new data
collection and reporting requirements
for small and intermediate banks. For
large banks, the final rule leverages
existing data where possible and
introduces updated data collection,
maintenance, and reporting
requirements to fill gaps in the current
regulation and facilitate implementation
of the final rule. For example, the final
rule requires certain large banks to
collect, maintain, and report data that
would enable the agencies both to
implement the metrics and benchmarks
included in the Retail Lending Test and
Community Development Financing
Test, and to evaluate activities under the
Retail Services and Products Test. These
data requirements are intended to
support greater clarity and consistency
in the application of the CRA
regulations and are tailored by bank
size, such as by introducing certain data
requirements only for those large banks
with assets over $10 billion dollars.
The final rule requires the agencies to
publish on their respective websites
certain information related to the
distribution by borrower income level,
race, and ethnicity of a large bank’s
home mortgage loan originations and
applications in each of the bank’s
assessment areas. This disclosure would
leverage existing data available under
the Home Mortgage Disclosure Act
(HMDA).10
Transition
Although the effective date of the
final rule is April 1, 2024, the
applicability date for the majority of the
provisions is January 1, 2026.
Specifically, the following provisions of
the final rule will become applicable on
January 1, 2026: final §§ ll.12 through
ll.15; final §§ ll.17 through
ll.30; final § ll.42(a); the data
collection and maintenance
requirements in final § ll.42(c)
through (f); and appendices A through
10 12
E:\FR\FM\01FER2.SGM
U.S.C. 2801 et seq.
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
F. Banks will have until January 1, 2027,
to comply with the reporting
requirements of § ll.42(b) through (f),
with data reporting requirements every
April 1 beginning in 2027. In final
§ ll.51, the agencies have also
included transition provisions relating
to: applicability of the current CRA
regulations; HMDA data disclosures;
CRA consideration of eligible loans,
investments, services, or products;
strategic plans; and a particular ratings
standard relating to minimum
performance requirements applicable to
large banks. Until the applicability dates
for these provisions, banks will follow
the current CRA regulations, included
as appendix G to the revised CRA
regulations.
Transition to Section 1071 Data
As discussed in the section-by-section
analysis of §§ ll.12, ll.22, and
ll.42, the agencies have included
amendments to transition to the use of
Consumer Financial Protection Bureau’s
(CFPB) final rule under section 1071 of
the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank
Act) 11 (Section 1071 Final Rule) 12
small business and small farm lending
data (section 1071 data) once the data
are available. The section 1071 data
would replace CRA small business and
small farm lending data required to be
collected, maintained, and reported
pursuant to final § ll.42(a)(1) and
(b)(1).
With respect to the agencies’
transition to using section 1071 data, as
indicated in the section-by-section
analysis of § ll.12, the agencies have
removed proposed references to section
1071 data in the final rule’s regulatory
text. Instead, each agency is adopting
separate agency-specific amendatory
text that provides for a transition to
section 1071 data. These transition
amendments implement the intent of
the agencies articulated in the proposal
to leverage section 1071 data while
accounting for the current uncertainty
surrounding the availability of that data.
Specifically, when effective, these
transition amendments will add
appropriate references to the section
1071 rulemaking, remove references to
Call Report-based small business and
small farm data, and make other
corresponding changes to the final rule
regulatory text.
The agencies are not including an
effective date for these section 1071related transition amendments in the
final rule. Instead, once the availability
11 Public
Law 111–203, 124 Stat. 1376 (2010).
FR 35150 (May 31, 2023); see also 12 CFR
part 1002.
12 88
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
of section 1071 data is clarified, the
agencies will take steps to provide
appropriate notice in the Federal
Register of the effective date of the
transition amendments. The agencies
expect that the effective date will be on
January 1 of the relevant year to align
with the final rule’s data collection and
reporting, benchmark calculations, and
performance analysis, which all are
based on whole calendar years.
Implementation
The agencies expect to issue
supervisory guidance, including
examination procedures, to promote
clarity and transparency regarding
implementation of the final rule. In
addition, the agencies will conduct
outreach and training to facilitate
implementation of the final rule. For
instance, the agencies expect to develop
data reporting guides and technical
assistance materials to assist banks in
understanding supervisory expectations
with respect to the final rule’s data
reporting requirements. In addition, the
agencies expect to develop templates,
such as for the submission of digital and
other delivery systems data as well as
for responsive deposit products data, to
increase consistency, and will continue
to explore other tools to improve
efficiency and reduce burden. The
agencies are also planning to develop
data tools for banks and the public that
will increase familiarity with the
operation of the performance tests and
allow for monitoring of performance
relative to benchmarks based on
historical data.
Each of the topics highlighted through
this Summary of the Final Rule are
discussed in greater detail in the
section-by-section analysis in section IV
of this SUPPLEMENTARY INFORMATION. The
agencies are setting forth in this
SUPPLEMENTARY INFORMATION the final
rule using common regulation text for
ease of review. The agencies have also
included agency-specific amendatory
text 13 where necessary to account for
differing agency authority and
terminology.14
13 The OCC notes that current 12 CFR part 25
includes subpart E, Prohibition Against Use of
Interstate Branches Primarily for Deposit
Production. This subpart implements section 109 of
the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994, 12 U.S.C. 1835a, which only
applies to certain national banks and Federal
branches of a foreign bank. As proposed, this final
rule redesignates this subpart as subpart F but does
not amend it.
14 In addition to the changes described in this
SUPPLEMENTARY INFORMATION, the agencies have
made conforming and technical changes throughout
the final rule. The agencies will evaluate at a later
date other rules that cross-reference to the CRA
regulations to identify conforming changes that may
be appropriate.
PO 00000
Frm 00007
Fmt 4701
Sfmt 4700
6579
II. Background
A. General Statutory Background
The CRA was passed by Congress as
part of the Housing and Community
Development Act of 1977 15 and is
designed to encourage regulated banks
to help meet the credit needs of the
communities in which they are
chartered. Specifically, Congress found
that (1) regulated financial institutions
are required by law to demonstrate that
their deposit facilities serve the
convenience and needs of the
communities in which they are
chartered to do business; (2) the
convenience and needs of communities
include the need for credit services as
well as deposit services; and (3)
regulated financial institutions have a
continuing and affirmative obligation to
help meet the credit needs of the local
communities in which they are
chartered.16
The CRA requires the agencies to
‘‘assess the institution’s record of
meeting the credit needs of its entire
community, including low- and
moderate-income neighborhoods,
consistent with the safe and sound
operation of such institution.’’17 Upon
completing this assessment, the statute
requires the agencies to ‘‘prepare a
written evaluation of the institution’s
record of meeting the credit needs of its
entire community, including low- and
moderate-income neighborhoods.’’18
The statute further provides that each
agency must consider a bank’s CRA
performance ‘‘in its evaluation of an
application for a deposit facility by such
institution.’’19
Since its enactment, Congress has
amended the CRA several times,
including through: the Financial
Institutions Reform, Recovery, and
Enforcement Act of 1989 20 (which
required public disclosure of a bank’s
CRA written evaluation and rating); the
Federal Deposit Insurance Corporation
Improvement Act of 1991 21 (which
required the inclusion of a bank’s CRA
examination data in the determination
of its CRA rating); the Resolution Trust
Corporation Refinancing, Restructuring,
and Improvement Act of 1991 (which
permits the agencies to provide
favorable consideration where the bank
has donated, sold on favorable terms, or
15 Public Law 95–128, 91 Stat. 1111 (Oct. 12,
1977).
16 12 U.S.C. 2901(a).
17 12 U.S.C. 2903(a)(1).
18 12 U.S.C. 2906(a).
19 12 U.S.C. 2903(a)(2).
20 Public Law 101–73, 103 Stat. 183 (Aug. 9,
1989).
21 Public Law 102–242, 105 Stat. 2236 (Dec. 19,
1991).
E:\FR\FM\01FER2.SGM
01FER2
6580
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
made available rent-free any branch of
the bank ‘‘located in any predominantly
minority neighborhood to any minority
depository institution or women’s
depository institution’’); 22 the Housing
and Community Development Act of
1992 23 (which included assessment of
the record of nonminority-owned and
nonwomen-owned banks in cooperating
with minority-owned and womenowned banks and LICUs); the RiegleNeal Interstate-Banking and Branching
Efficiency Act of 1994 24 (which (1)
required an agency to consider an outof-State national bank’s or State bank’s
CRA rating when determining whether
to allow interstate branches, and (2)
prescribed certain requirements for the
contents of the written CRA evaluation
for banks with interstate branches); and
the Gramm-Leach-Bliley Act of 1999 25
(which, among other things, provided
regulatory relief for smaller banks by
reducing the frequency of their CRA
examinations).
Additionally, Congress directed the
agencies to publish regulations to carry
out the CRA’s purposes.26 In 1978, the
agencies promulgated the first CRA
regulations, which included evidence of
prohibited discriminatory or other
illegal credit practices as a performance
factor as discussed further in the next
section.27 Since then, the agencies have
together significantly revised and sought
to clarify their CRA regulations twice—
in 1995 28 and 2005 29—with the most
substantive interagency update
occurring in 1995. In addition, the
agencies have periodically jointly
published the Interagency Questions
and Answers Regarding Community
Reinvestment (Interagency Questions
22 Public Law 102–233, 105 Stat. 1761 (Dec. 12,
1991).
23 Public Law 102–550, 106 Stat. 3874 (Oct. 28,
1992).
24 Public Law 103–328, 108 Stat. 2338 (Sept. 29,
1994).
25 Public Law 106–102, 113 Stat. 1338 (Nov. 12,
1999).
26 12 U.S.C. 2905.
27 43 FR 47144 (Oct. 12, 1978). Congress also
charged, in addition to the agencies, the Office of
Thrift Supervision (OTS) and its predecessor
agency, the Federal Home Loan Bank Board, with
implementing the CRA. The OTS had CRA
rulemaking and supervisory authority for all
savings associations. Pursuant to Title III of the
Dodd-Frank Wall Street Reform and Consumer
Protection Act, Public Law 111–203, 124 Stat. 1376,
1522 (2010) (Dodd-Frank Act), the OTS’s CRA
rulemaking authority for all savings associations
transferred to the OCC and the OTS’s CRA
supervisory authority for State savings associations
transferred to the FDIC. As a result, the OCC’s CRA
regulation applies to both State and Federal savings
associations, in addition to national banks, and the
FDIC enforces the OCC’s CRA regulations with
respect to State savings associations.
28 60 FR 22190 (May 4, 1995).
29 70 FR 44268 (Aug. 2, 2005).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
and Answers) 30 to provide guidance on
the CRA regulations.
B. CRA, Illegal Discrimination, and Fair
Lending
The CRA was one of several laws
enacted in the 1960s and 1970s to
address fairness and financial inclusion
in access to housing and credit.31
During this period Congress passed the
Fair Housing Act 32 to prohibit
discrimination in the sale or rental of
housing,33 and the Equal Credit
Opportunity Act (ECOA) in 1974 34
(amended in 1976), to prohibit creditors
from discriminating against an applicant
in any aspect of a credit transaction on
the basis of race, color, religion, national
origin, sex, marital status, and age,
because all or part of the applicant’s
income derives from any public
assistance program, or because the
applicant has in good faith exercised
any right under the Consumer Credit
Protection Act.35 These fair lending, fair
housing, and other similar laws provide
the legal basis under Federal law for
prohibiting discriminatory lending
practices by creditors based on race,
ethnicity, and other protected
characteristics.36
The agencies have long recognized
that CRA and fair lending are mutually
reinforcing. For example, starting with
the original CRA regulations issued in
1978, the agencies have taken evidence
of discrimination or other illegal credit
practices into account when evaluating
a bank’s CRA performance.37 Other
provisions in the original 1978
regulations similarly expressed the
agencies’ view that the exclusion of
certain segments of a bank’s community
is ‘‘contrary to’’ and ‘‘in conflict with’’
the CRA’s purpose of requiring banks to
30 See 81 FR 48506 (July 25, 2016). ‘‘Interagency
Questions and Answers’’ refers to the ‘‘Interagency
Questions and Answers Regarding Community
Reinvestment’’ guidance in its entirety. ‘‘Q&A’’
refers to an individual question and answer within
the Interagency Questions and Answers.
31 See, e.g., Board, Gov. Lael Brainard,
‘‘Strengthening the Community Reinvestment Act
by Staying True to Its Core Purpose’’ (Jan. 8, 2020),
https://www.federalreserve.gov/newsevents/speech/
brainard20200108a.htm (‘‘The CRA was one of
several landmark pieces of legislation enacted in
the wake of the civil rights movement intended to
address inequities in the credit markets.’’). See also
123 Cong. Rec. 17630 (1977) (statement of Sen.
Proxmire) (discussing enactment of CRA and
addressing banks taking deposits from a community
without reinvesting them in that community).
32 42 U.S.C. 3601 et seq.
33 42 U.S.C. 3604 through 3606.
34 15 U.S.C. 1691 et seq.
35 15 U.S.C. 1691(a).
36 See Federal Financial Institutions Examination
Council (FFIEC), ‘‘Interagency Fair Lending
Examination Procedures’’ (Aug. 2009), https://
www.ffiec.gov/pdf/fairlend.pdf.
37 See 43 FR 47144, 47146 (Oct. 12, 1978); current
appendix A, paragraph (a)(1).
PO 00000
Frm 00008
Fmt 4701
Sfmt 4700
meet the credit needs of their entire
communities.38 Specifically, the
agencies provided for ‘‘assessment of an
institution’s lending patterns to see if
the institution discriminates between
geographic areas or excludes qualified
borrowers from low- and moderateincome neighborhoods.’’ 39 Factors
identified as warranting unfavorable
treatment were ‘‘practices intended to
discourage applications,’’ evidence of
‘‘violations of the Equal Credit
Opportunity Act and the Fair Housing
Act,’’ and ‘‘failure to provide usual
services—such as not accepting
mortgage applications—at certain
branches.40
C. Overview of Current CRA Regulations
and Guidance for Performance
Evaluations
CRA Performance Evaluations
The current CRA regulations provide
different methods to evaluate a bank’s
CRA performance depending on the
asset size and business strategy of the
bank.41 Under the current framework:
Æ Small banks—currently, those with
assets of less than $376 million as of
December 31 of either of the prior two
calendar years—are evaluated under a
lending test and may receive an
‘‘Outstanding’’ rating based only on
their retail lending performance.
Qualified investments, services, and
delivery systems that enhance credit
availability in a bank’s assessment areas
may be considered for an ‘‘Outstanding’’
rating, but only if the bank meets or
exceeds the lending test criteria in the
small bank performance standards.
Æ Intermediate small banks—
currently, those with assets of at least
$376 million as of December 31 of both
of the prior two calendar years and less
than $1.503 billion as of December 31 of
either of the prior two calendar years—
are evaluated under the lending test for
small banks and a community
development test. The intermediate
small bank community development
test evaluates all community
development activities together.
Æ Large banks—currently, those with
assets of at least $1.503 billion as of
December 31 of both of the prior two
calendar years—are evaluated under
separate lending, investment, and
38 See
43 FR 47144, 47146 (Oct. 12, 1978).
39 Id.
40 Id.
41 See generally current 12 CFR ll.21 through
ll.27. The agencies annually adjust the CRA
asset-size thresholds based on the annual
percentage change in a measure of the Consumer
Price Index for Urban Wage Earners and Clerical
Workers. The current bank asset-size thresholds set
forth in this SUPPLEMENTARY INFORMATION are
accurate through December 31, 2023.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
service tests. The lending and service
tests consider both retail and
community development activities, and
the investment test focuses on qualified
community development investments.
To facilitate the agencies’ CRA analysis,
large banks are required to report
annually certain data on community
development loans, small business
loans, and small farm loans (small banks
and intermediate small banks are not
required to report these data unless they
opt into being evaluated under the large
bank lending test).
Æ Designated wholesale banks (those
engaged in only incidental retail
lending) and limited purposes banks
(those offering a narrow product line to
a regional or broader market) are
evaluated under a standalone
community development test.
Æ Banks of any size may elect to be
evaluated under a strategic plan that
sets out measurable, annual goals for
lending, investment, and service
activities in order to achieve a
‘‘Satisfactory’’ or an ‘‘Outstanding’’
rating. A strategic plan must be
developed with community input and
approved by the appropriate Federal
financial supervisory agency.
The agencies also consider applicable
performance context information to
develop their analysis and conclusions
when conducting CRA examinations.
Performance context comprises a broad
range of economic, demographic, and
bank- and community-specific
information that examiners review to
calibrate a bank’s CRA evaluation to its
communities.
ddrumheller on DSK120RN23PROD with RULES2
Assessment Areas
The current CRA regulations require a
bank to delineate one or more
assessment areas in which the bank’s
record of meeting its CRA obligations is
evaluated.42 The regulations require a
bank to delineate assessment areas
generally consisting of one or more
MSAs or metropolitan divisions, or one
or more contiguous political
subdivisions 43 in which the bank has its
main office, branches, and deposittaking ATMs, as well as the surrounding
geographies (i.e., census tracts) 44 in
which the bank has originated or
purchased a substantial portion of its
loans (including home mortgage loans,
small business and small farm loans,
and any other loans the bank chooses,
such as consumer loans on which the
bank elects to have its performance
assessed).
The statute instructs the agencies to
assess a bank’s record of meeting the
credit needs of its ‘‘entire community,
including low- and moderate-income
neighborhoods, consistent with the safe
and sound operation of such institution,
and . . . [to] take such record into
account in its evaluation of an
application for a deposit facility by such
institution.’’ 45 The statute does not
prescribe the delineation of assessment
areas, but they are an important aspect
of the regulation because the agencies
use assessment areas to determine what
constitutes a bank’s ‘‘community’’ for
purposes of the evaluation of a bank’s
CRA performance.
Qualifying Activities
The CRA regulations and the
Interagency Questions and Answers
provide detailed information, including
applicable definitions and descriptions,
respectively, regarding activities that are
eligible for CRA consideration in the
evaluation of a bank’s CRA
performance. Banks that are evaluated
under a performance test that includes
a review of their retail activities are
assessed in connection with retail
lending activity (e.g., home mortgage
loans, small business loans, small farm
loans, and consumer loans) 46 and,
where applicable, retail banking service
activities (e.g., the current distribution
of a bank’s branches in geographies of
different income levels, and the
availability and effectiveness of the
bank’s alternative systems for delivering
banking services to low- and moderateincome geographies and individuals).47
Banks evaluated under a performance
test that includes a review of their
community development activities are
assessed with respect to community
development lending, qualified
investments, and community
development services, which must have
a primary purpose of community
development.48
Guidance for Performance Evaluations
In addition to information included in
their CRA regulations, the agencies also
provide information to the public
regarding how CRA performance tests
are applied, where CRA activities are
considered, and what activities are
eligible through publicly available CRA
45 12
current 12 CFR ll.41.
43 Political subdivisions include cities, counties,
towns, townships, and Indian reservations. See
Q&A § ll.41(c)(1)—1.
44 See current 12 CFR ll.12(k).
42 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
U.S.C. 2903(a).
current 12 CFR ll.12(j), (l), (v), and (w).
47 See generally current 12 CFR ll.21 through
ll.27; see also current 12 CFR ll.24(d).
48 See current 12 CFR ll.12(g) through (i) and
(t); see also current 12 CFR ll.21 through ll.27.
46 See
PO 00000
Frm 00009
Fmt 4701
Sfmt 4700
6581
performance evaluations,49 the
Interagency Questions and Answers,
interagency CRA examination
procedures,50 and interagency
instructions for writing performance
evaluations.51
D. Stakeholder Feedback and Recent
Agency Rulemaking Efforts
The financial services industry has
undergone transformative changes since
the CRA was enacted, including the
removal of national bank interstate
branching restrictions and the expanded
role of mobile and online banking. Prior
to publishing the NPR, and to better
understand how these developments
impact both consumer access to banking
products and services and a bank’s CRA
performance, the agencies sought,
received, and reviewed feedback from
the banking industry, community
groups, academics, and other
stakeholders on several occasions.
Economic Growth and Regulatory
Paperwork Reduction Act of 1996
(EGRPRA)
From 2013 to 2016, the agencies
solicited feedback on the CRA as part of
the EGRPRA review process.52
Stakeholders raised issues related to:
assessment area definitions; incentives
for banks to serve low- and moderateincome, unbanked, underbanked, and
rural communities; regulatory burdens
associated with recordkeeping and
reporting requirements, and asset
thresholds for the various CRA
examination methods; the need for
clarity regarding performance measures
and better examiner training to ensure
consistency and rigor in examinations;
and refinement of CRA ratings
methodology.53
OCC CRA Advance Notice of Proposed
Rulemaking and OCC and Federal
Reserve Outreach Sessions
On September 5, 2018, the OCC
published an advance notice of
proposed rulemaking (ANPR) to solicit
ideas for a new CRA regulatory
framework.54 More than 1,500 comment
letters were submitted in response. The
49 See, e.g., Board ‘‘Search: Evaluations & Ratings
(Federal Reserve Supervised Banks),’’ https://
www.federalreserve.gov/apps/CRAPubWeb/CRA/
BankRating; FDIC, ‘‘Community Reinvestment Act
(CRA) Performance Ratings,’’ https://
crapes.fdic.gov/; OCC, ‘‘CRA Performance
Evaluations,’’ https://occ.gov/publications-andresources/tools/index-cra-search.html.
50 See, e.g., FFIEC, ‘‘Community Reinvestment
Act: CRA Examinations,’’ https://www.ffiec.gov/cra/
examinations.htm.
51 Id.
52 See, e.g., 80 FR 7980 (Feb. 13, 2015).
53 See 82 FR 15900 (Mar. 30, 2017).
54 See 83 FR 45053 (Sept. 5, 2018).
E:\FR\FM\01FER2.SGM
01FER2
6582
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
OCC held more than 40 meetings and
outreach events after its ANPR. To
augment that input, the Board and the
Federal Reserve Banks held about 30
outreach meetings with representatives
of banks, community organizations, and
the FDIC and OCC.55
OCC–FDIC CRA Notice of Proposed
Rulemaking and OCC CRA Final Rule
On December 12, 2019, the FDIC and
the OCC issued a joint notice of
proposed rulemaking to revise and
update their CRA regulations.56 In
response, the FDIC and the OCC
received over 7,500 comment letters.
On May 2020, the OCC issued a CRA
final rule (OCC 2020 CRA Final Rule),
retaining the most fundamental
elements of the joint proposal but also
making adjustments to reflect
stakeholder input.57 The OCC deferred
establishing the metrics-framework for
evaluating banks’ CRA performance
until it was able to assess additional
data,58 with the final rule having an
October 1, 2020, effective date and
January 1, 2023, and January 1, 2024,
compliance dates for certain
provisions.59
Board CRA Advance Notice of Proposed
Rulemaking
On September 21, 2020, the Board
issued a CRA ANPR (Board CRA ANPR)
requesting public comment on an
approach to modernize the CRA
regulations by strengthening, clarifying,
and tailoring the regulations to reflect
the current banking landscape and
better meet the core purpose of the
CRA.60 The Board CRA ANPR sought
feedback on ways to evaluate how banks
meet the needs of low- and moderateincome communities and address
inequities in credit access. The Board
received over 600 comment letters in
response.
ddrumheller on DSK120RN23PROD with RULES2
Interagency Statement and Other
Developments
On July 20, 2021, the agencies issued
an interagency statement indicating
their commitment to work collectively
55 For a summary of the Federal Reserve outreach
session feedback, see ‘‘Perspectives from Main
Street: Stakeholder Feedback on Modernizing the
Community Reinvestment Act’’ (June 2019), https://
www.federalreserve.gov/publications/files/
stakeholder-feedback-on-modernizing-thecommunity-reinvestment-act-201906.pdf.
56 85 FR 1204 (Jan. 9, 2020).
57 85 FR 34734 (June 5, 2020).
58 See OCC, News Release 2020–63, ‘‘OCC
Finalizes Rule to strengthen and Modernize
Community Reinvestment Act Regulations’’ (May
20, 2020), https://www.occ.gov/news-issuances/
news-releases/2020/nr-occ-2020-63.html; see also
85 FR 34736.
59 85 FR 34784.
60 85 FR 66410 (Oct. 19, 2020).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
to, in a consistent manner, strengthen
and modernize their CRA regulations.61
On December 15, 2021, the OCC issued
a final rule, effective January 1, 2022, to
rescind the OCC 2020 CRA Final Rule
and replace it with CRA regulations
based on those that the agencies jointly
issued in 1995, as amended. The OCC’s
final rule also integrated the OCC’s CRA
regulation for savings associations into
its national bank CRA regulation at 12
CFR part 25.62
E. The Agencies’ Proposal
Community development definitions.
The NPR included a proposal to revise
the community development definitions
to clarify eligibility criteria for a broad
range of community development
activities and incorporate certain
guidance currently provided through
the Interagency Questions and Answers.
The agencies also proposed using a
primary purpose standard for
determining eligibility of community
development activities, with pro rata
consideration for certain affordable
housing activities.
Qualifying activities confirmation and
illustrative list of community
development activities. The agencies
proposed to maintain a publicly
available illustrative, non-exhaustive
list of community development
activities eligible for CRA consideration,
which the agencies would periodically
update. In addition, the agencies
proposed a process, open to banks, for
confirming eligibility of community
development activities in advance.
Impact review of community
development activities. To promote
clearer and more consistent evaluation
procedures, the agencies proposed to
include impact and responsiveness
factors (referred to in the NPR as impact
review factors) in the regulation. The
impact review factors would inform the
agencies’ evaluation of the impact and
responsiveness of a bank’s activities
under the proposed community
development tests.
Assessment areas and areas for
eligible community development
activity. The agencies offered a series of
proposals on delineating facility-based
assessment areas for main offices,
branches, and deposit-taking remote
service facilities (to include ATMs). The
NPR sought to maintain facility-based
assessment areas as the cornerstone of
61 See ‘‘Interagency Statement on Community
Reinvestment Act, Joint Agency Action’’ (July 20,
2021), https://www.occ.gov/news-issuances/newsreleases/2021/nr-ia-2021-77.html (OCC); https://
www.federalreserve.gov/newsevents/pressreleases/
bcreg20210720a.htm (Board); https://www.fdic.gov/
news/press-releases/2021/pr21067.html (FDIC).
62 86 FR 71328 (Dec. 15, 2021).
PO 00000
Frm 00010
Fmt 4701
Sfmt 4700
the CRA evaluation framework. Under
the proposal, large banks would
delineate assessment areas comprised of
full counties, metropolitan divisions, or
MSAs. Intermediate and small banks
could continue to delineate partial
county facility-based assessment areas,
consistent with current practice.
The agencies also proposed that large
banks would delineate retail lending
assessment areas where the bank has
concentrations of home mortgage and/or
small business lending outside of its
facility-based assessment areas. Under
that aspect of the proposal, a large bank
would delineate retail lending
assessment areas where it had an annual
lending volume of at least 100 home
mortgage loan originations or at least
250 small business loan originations in
an MSA or nonmetropolitan area of a
State for two consecutive years.
The agencies also proposed to allow
banks to receive CRA credit for any
qualified community development
activity, regardless of location, although
performance within facility-based
assessment areas would be emphasized.
Performance tests, standards, and
ratings in general. The agencies
proposed an evaluation framework that
would include a Retail Lending Test, a
Retail Services and Products Test, a
Community Development Financing
Test, and a Community Development
Services Test. Under the proposal, large
banks would be evaluated under all four
tests. Intermediate banks would be
evaluated under the Retail Lending Test
and the status quo community
development test, unless they opted into
the Community Development Financing
Test. Small banks would be evaluated
under the status quo small bank lending
test, unless they opted into the Retail
Lending Test. Wholesale and limited
purpose banks would be evaluated
under a tailored version of the
Community Development Financing
Test.
Under this proposed framework, large
banks would be banks that had average
quarterly assets, computed annually, of
at least $2 billion in both of the prior
two calendar years; intermediate banks
would be banks that had average
quarterly assets, computed annually, of
at least $600 million in both of the prior
two calendar years and less than $2
billion in either of the prior two
calendar years; and small banks would
be banks that had average quarterly
assets, computed annually, of less than
$600 million in either of the prior two
calendar years.63 The agencies also
63 Of particular relevance to the agencies’ CRA
regulations, the SBA revised the size standards
applicable to small commercial banks and savings
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
proposed adding a new definition of
‘‘operations subsidiary’’ to the Board’s
CRA regulation and ‘‘operating
subsidiary’’ to the FDIC’s and OCC’s
CRA regulations to identify those bank
affiliates whose activities would be
required to be attributed to a bank’s
CRA performance (together, bank
subsidiaries). The agencies proposed to
maintain the current flexibilities that
would allow a bank to choose to include
or exclude the activities of other bank
affiliates that are not considered bank
subsidiaries. The NPR also discussed
performance context, and the
requirement for activity in accordance
with safe and sound operations.
Retail Lending Test product categories
and major product lines. The agencies
proposed categories and standards for
determining when a bank’s retail
lending product lines are evaluated
under the proposed Retail Lending Test.
The agencies proposed the following
retail lending product line categories:
closed-end home mortgage, open-end
home mortgage, multifamily, small
business, and small farm lending. The
agencies also proposed including
automobile lending as an eligible retail
lending product line. In addition, the
agencies proposed a 15 percent major
product line standard to determine
when a retail lending product line
would be evaluated.
Retail Services and Products Test. The
agencies proposed to evaluate large
banks under the Retail Services and
Products Test, which would use a
predominantly qualitative approach,
incorporating quantitative measures as
guidelines, as applicable. The agencies
proposed that the evaluation of digital
and other delivery systems would be
required for large banks with assets of
over $10 billion, and not required for
large banks with assets of $10 billion or
less.
Furthermore, the credit products and
deposit products part of the proposed
Retail Services and Products Test aimed
to evaluate a bank’s efforts to offer
products that are responsive to the
needs of low- and moderate-income
communities. The agencies proposed
that the evaluation of deposit products
responsive to the needs of low- or
moderate-income individuals would be
required for large banks with assets of
over $10 billion, and not required for
large banks with assets of $10 billion or
less.
institutions, respectively, from $600 million to $750
million, based upon the average assets reported on
such a financial institution’s four quarterly
financial statements for the preceding year. The
final rule had a May 2, 2022, effective date. See 87
FR 18627, 18830 (Mar. 31, 2022).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Community Development Financing
Test. The agencies proposed to evaluate
large banks as well as intermediate
banks that opt into the test under the
proposed Community Development
Financing Test. As proposed, the
Community Development Financing
Test would consist of a Community
Development Financing Metric,
benchmarks, and an impact review.
These components would be assessed at
the facility-based assessment area, State,
multistate MSA, and institution levels,
and would inform conclusions at each
of those levels.
Community Development Services
Test. The agencies proposed to assess a
large bank’s community development
services, underscoring the importance of
these activities for fostering
partnerships among different
stakeholders, building capacity, and
creating the conditions for effective
community development. The agencies
proposed that in nonmetropolitan areas,
banks may receive community
development services consideration for
volunteer activities that meet an
identified community development
need, even if unrelated to the provision
of financial services. The proposed test
would consist of a primarily qualitative
assessment of the bank’s community
development service activities. For large
banks with assets of over $10 billion,
the agencies proposed also using a
metric to measure the hours of
community development services
activity per full time employee of a
bank.
Wholesale and limited purpose banks.
The agencies proposed a Community
Development Financing Test for
Wholesale and Limited Purpose Banks,
which would include a qualitative
review of a bank’s community
development lending and investments
in each facility-based assessment area
and an institution level-metric
measuring a bank’s volume of activities
relative to its capacity. The agencies
also proposed giving wholesale and
limited purpose banks the option to
have examiners consider community
development service activities that
would qualify under the Community
Development Services Test.
Strategic plans. The agencies
proposed to maintain a strategic plan
option as an alternative method for
evaluation. Banks that elect to be
evaluated under a strategic plan would
continue to request approval for the
plan from their appropriate Federal
financial supervisory agency. The
agencies proposed more specific criteria
to ensure that all banks meet their CRA
obligation to serve low- and moderateincome individuals and communities.
PO 00000
Frm 00011
Fmt 4701
Sfmt 4700
6583
As proposed, banks approved to be
evaluated under a strategic plan option
would have the same assessment area
requirements as other banks and would
submit plans that include the same
performance tests and standards that
would otherwise apply unless the bank
is substantially engaged in activities
outside the scope of these performance
tests. In seeking approval for a plan that
does not adhere to requirements and
standards that are applied to other
banks, the plan would be required to
include an explanation of why different
standards would be more appropriate in
meeting the credit needs of the bank’s
communities.
Assigned conclusions and ratings.
The agencies proposed to provide
greater transparency and consistency on
assigning ratings for a bank’s overall
performance. The proposed approach
would produce performance scores for
each applicable test, at the State,
multistate MSA, and institution levels
based on a weighted average of
assessment area conclusions, as well as
consideration of additional test-specific
factors at the State, multistate MSA, or
institution level. These performance
scores would be mapped to conclusion
categories to assign test-specific
conclusions at each level. The agencies
further proposed to combine these
performance scores across tests to assign
ratings at each level.
The agencies proposed to determine a
bank’s overall rating by taking a
weighted average of the applicable
performance test scores. For large banks,
the agencies proposed the following
weights: 45 percent for Retail Lending
Test performance score; 15 percent for
Retail Services and Products Test
performance score; 30 percent for
Community Development Financing
Test performance score; and 10 percent
for Community Development Services
Test performance score. For
intermediate banks, the agencies
proposed to weight the Retail Lending
test at 50 percent and the community
development test, or if the bank opted
into the Community Development
Financing Test, at 50 percent.
The agencies also proposed updating
the criteria to determine how
discriminatory and other illegal
practices would adversely affect a
rating, as well as what rating level
(State, multistate MSA, and institution)
would be affected.
Performance standards for small and
intermediate banks. The agencies
proposed to continue evaluating small
banks under the small bank
performance standards in the current
CRA framework. However, under the
proposal, small banks could opt into the
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6584
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Retail Lending Test and could continue
to request additional consideration for
other qualifying CRA activities. The
agencies would evaluate intermediate
banks under the proposed Retail
Lending Test, and would evaluate an
intermediate bank’s community
development activity pursuant to the
criteria under the current intermediate
small bank community development
test. Intermediate banks could also opt
to be evaluated under the proposed
Community Development Financing
Test.
Effect of CRA performance on
applications. The agencies proposed no
substantive changes to the regulatory
provisions concerning the effect of CRA
performance on bank applications, such
as those for mergers, acquisitions, or
consolidation of assets, deposit
insurance requests, and the
establishment of domestic branches.
Data collection, reporting, and
disclosure. The agencies proposed to
revise data collection and reporting
requirements to increase the clarity,
consistency, and transparency of the
evaluation process through the use of
standard metrics and benchmarks. The
proposal recognized the importance of
using existing data sources where
possible, and tailoring data
requirements, where appropriate.
In addition to leveraging existing data,
however, the proposal would have
required large banks to collect,
maintain, and report additional data.
The data requirements under the
proposal for intermediate banks and
small banks would remain the same as
the current requirements. All large
banks under the proposal would have
new requirements for certain categories
of data, (including community
development financing data, branch
location data, and remote service facility
location data); however, some new data
requirements would only apply to large
banks with assets of over $10 billion.
The agencies also proposed updated
standards for all large banks to report
the delineation of their assessment
areas.
Content and availability of public file,
public notice by banks, publication of
planned examination schedule, and
public engagement. The agencies
proposed to provide more transparent
information to the public on CRA
examinations and encourage
communication between members of the
public and banks. The agencies
proposed to make a bank’s CRA public
file more accessible to the public by
allowing any bank with a public website
to include its CRA public file on its
website. The agencies also proposed
publishing a list of banks scheduled for
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
CRA examinations for the next two
quarters at least 60 days in advance in
order to provide additional notice to the
public. Finally, the agencies proposed to
establish a way for the public to provide
feedback on community needs and
opportunities in specific geographies.
Transition. The agencies proposed a
phased-in timeline that would facilitate
the transition from the current
regulatory and supervisory framework
to the updated CRA regulatory and
supervisory framework.
III. General Comments Received
The agencies received approximately
950 unique comment letters regarding
the proposal from a wide range of
commenters, including: financial
institutions; non-financial institution
and financial institution trade
associations; CDFIs; financial and nonfinancial businesses; community
development organizations; consumer
advocacy groups; civil rights groups;
other nonprofit organizations; Federal,
State, local, and tribal government
commenters; tribal organizations;
academics; individuals; and other
interested parties. The agencies have
carefully considered all the commenter
feedback in developing the final rule.
Comments received by the agencies
cover a wide-ranging set of topics across
the entire proposal. General public
comments on the NPR are summarized
below. Comments relating to specific
regulatory provisions of the agencies’
proposal and the final rule are discussed
in detail in the section-by-section
analyses of the specific provisions on
which commenters shared their views.
A. General Comments Regarding the
NPR
Modernizing the CRA performance
evaluation framework. Many
commenters expressed appreciation for
the agencies’ unified efforts to
modernize the CRA framework. Some
commenters noted support for the
objective of providing transparency and
consistency for banks covered by CRA
and the communities they serve. In
addition, several commenters, expressed
support for various aspects of the NPR,
including the proposal’s metrics-driven
approach and attention to climate
resiliency.
Some commenters stated that while
the agencies’ proposal is a step in the
right direction, more could be done to
improve the CRA regulations, such as
requiring the agencies to consult with a
diverse set of community
representatives when evaluating an
institution’s CRA performance. A few
commenters also suggested that the final
rule should encourage both meaningful
PO 00000
Frm 00012
Fmt 4701
Sfmt 4700
action to help low- and moderateincome communities and collaboration
between banks and financial technology
(fintech) companies. Another
commenter recommended that the
agencies view the military community
as a community deserving of CRA
support. The commenter further stated
that bank activities that serve the
military community should generally
receive CRA credit.
Other commenters opposed or
expressed concerns about the proposal
for various reasons, asserting that
aspects of the NPR could result in, for
example: decreased bank competition;
undue burden and costs; less credit
availability; gentrification of urban
Black neighborhoods; and fewer
services in low- and moderate-income
communities.
Complexity of the proposed rule.
Numerous commenters expressed
concern that the agencies’ proposal was
too complex and difficult to
understand—primarily related to the
proposed performance test measures
and ratings methodology requiring
significant resources and costs to
implement—and recommended that the
agencies develop a simpler final rule to
avoid unintended negative
consequences. Some commenters
recommended the agencies develop
tools, guidance, and training for
examiners and allow banks to consult
with the agencies as needed.
Coordination of the CRA regulations
with State and Federal agencies. A few
commenters expressed concerns
regarding the lack of coordination
between the agencies, the CFPB, and the
States and suggested the agencies work
together with these other entities to
improve consistency and further the
mission of CRA. Other commenters
noted that given shifts in the banking
industry, the agencies should extend
CRA regulations to nonbank lenders
and, some commenters recommended,
work with the CFPB to do so.
Length of the comment period and
other rulemakings. Several commenters
objected to the length of the comment
period stating that it was too short and
did not provide sufficient time for
analysis and comment, with some
commenters recommending that the
agencies withdraw the proposal, issue a
revised set of proposed rules, or open a
new comment period. A few
commenters suggested that the agencies
should delay issuance of a final rule
given uncertainty in the industry and
the status of other rulemakings such as
the CFPB’s Section 1071 Final Rule and
the agencies’ separate rulemaking on
capital requirements for certain banks.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Application of the proposed
regulations to different business models.
Some commenters expressed concern
that the agencies’ proposal did not
address the needs of different business
models and could create a one-size-fitsall approach that favors particular
business models, which would not
reflect the ever-changing banking
landscape. These commenters indicated
that the final rule should do more to
recognize the inherently diffuse nature
of digital banking and that more
flexibility is necessary to account for
different business models.
Promoting activities in local
communities, including rural and
underserved areas. Some commenters
asserted that the NPR would be more
effective in boosting reinvestment
activity in underserved areas if the
evaluations and ratings were more
rigorous. Other commenters expressed
concerns regarding the proposed use of
metrics and certain data, suggesting that
they could lead to disinvestment in hard
to serve areas and overinvestment in
urban areas due to the use of census
data.
The agencies also received comments
outlining different methods of
promoting activities and investments at
the local level, including specific
recommendations: on how to promote
investments in underserved rural and
native communities; that the agencies
should incentivize affordable small
dollar loans and other products; and
that the agencies should seek to end
‘‘rent-a-bank’’ partnerships.
A few other commenters suggested
that the final rule should address the
issue of appraisal bias to ensure lenders
are fulfilling the needs of the
communities they serve, and
recommended that bank lenders should
complete additional due diligence on
the appraisers they work with.
The agencies also received several
comments regarding the importance of
performance context, suggesting that
performance context and examiner
discretion is necessary to understand
the metrics embedded in the CRA exam.
Legal issues. Some commenters
provided general comments raising legal
concerns with the proposal. For
example, some commenters stated that
if the proposal is finalized as proposed,
the final rule could be challenged as
arbitrary and capricious because it was
not supported by a reasoned analysis.
Several commenters expressed the view
that the agencies lack the authority to
adopt the proposal. Finally, a
commenter questioned the FDIC Board’s
authority to issue the NPR and to adopt
a final rule based on certain aspects of
the FDIC’s organic statute and the FDIC
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Board’s composition at the time the NPR
was issued.
Other comments. The agencies also
received suggestions about how the
agencies could evaluate the impact of
the final rule, including five-year
lookback reviews and an impact study.
Commenter feedback also included
noting that performance evaluations
should be published as soon as
reasonably possible. Some commenters
urged the agencies to expand the
coverage of CRA to credit unions to
ensure low- and moderate-income
communities are adequately served.
6585
and Servicemembers Civil Relief Act
may constitute discriminatory or other
illegal credit practices that may
adversely affect a bank’s CRA
performance. More generally, the
agencies believe that many bank
activities that serve the military
community may receive community
development consideration under the
final rule. For further discussion of
these provisions, see the section-bysection analyses of §§ ll.12,
ll.16(d), ll.21(a)(5), and ll.28(d).
The agencies appreciate comments
encouraging the agencies to coordinate
with States, the CFPB, and other Federal
Final Rule
regulators to improve consistency and
The agencies have carefully
efficiency of CRA examinations, and the
considered the general commenter
agencies note that they currently, and
feedback regarding ways in which the
will continue to, coordinate with other
NPR could be improved and believe the regulators when appropriate on CRA
final rule strikes the proper balance
examinations. Further, the agencies are
between the stated objectives, including not able to extend the CRA regulations
to update the CRA regulations to
to cover nonbank lenders and credit
strengthen the achievement of the core
unions. Such an expansion is outside
purpose of the statute and adapt to
the scope of this rulemaking and the
changes in the banking industry. For
agencies’ current authority.
additional discussion regarding the
In response to comments regarding
agencies’ objectives, see section III.B of
the length of the comment period, the
this SUPPLEMENTARY INFORMATION. The
agencies note that the NPR’s comment
agencies also carefully considered
period was 90 days, which is consistent
commenters’ concerns regarding the
with the requirements of the
complexity of the proposed rule and
Administrative Procedure Act and
have made modifications to various
provided sufficient time for public
aspects of the final rule to reduce
consideration and comment, as
complexity as explained in more detail
demonstrated by the number of detailed
in section IV of this SUPPLEMENTARY
and thoughtful comments the agencies
INFORMATION. In addition, with respect to received on the proposal.
the Retail Lending Test, the agencies
One of the objectives of the CRA
believe that the final rule ensures that
proposal was to tailor performance
CRA evaluations of retail lending are
standards to account for differences in
appropriately robust and
bank size, business models, and local
comprehensive, provides greater
conditions. The agencies have carefully
consistency and transparency, and
considered commenter feedback, and
reduces overall complexity relative to
while the agencies believe the proposal
the approach set out in the NPR. The
provided flexibility to accommodate
institutions with different business
agencies note that any evaluation
models, the agencies have made various
approach leveraging metrics and
changes in response to commenter
benchmarks that captures the different
feedback to provide additional
ways that banks may serve the credit
flexibility in the final rule as outlined in
needs of an area will necessarily entail
the section-by-section analyses in
a degree of complexity.
The agencies appreciate commenter
section IV of this SUPPLEMENTARY
feedback that the military community
INFORMATION. The agencies also note the
should be considered a community
final rule retains the strategic plan
deserving of CRA support. The agencies option for banks to adjust the
believe that the final rule encourages
performance tests or weighting based on
banks to meet the credit needs of
their business model.
After carefully considering
military communities. For example, the
commenter suggestions on how to
final rule codifies ‘‘military bank’’ as a
encourage reinvestment activity through
defined term in final § ll.12, and
rigorous evaluations and standards, the
clarifies the assessment area and
evaluation approach to military banks in agencies are declining to adopt these
specific commenter recommendations.
final §§ ll.16(d) and ll.21(a)(5),
respectively.64 In addition, the agencies The agencies believe the final rule’s
evaluation framework is appropriately
are specifying in final § ll.28(d) that
rigorous and encourages reinvestment
violations of the Military Lending Act
activity, while maintaining flexibility
64 See also 12 U.S.C. 2902(4).
and allowing room for consideration of
PO 00000
Frm 00013
Fmt 4701
Sfmt 4700
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6586
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
performance context. The agencies have
considered the views from some
commenters raising concerns on the
potential negative impacts of the use of
metrics and data in the proposal. As
discussed further in section IV of this
SUPPLEMENTARY INFORMATION, the
agencies believe the use of metrics and
data in the final rule is appropriately
tailored to encourage, rather than deter,
reinvestment in hard to serve areas.
While the agencies appreciate
commenters’ suggestions on additional
methods to encourage activities and
investments at the local level, the
agencies are declining to adopt these
recommendations and believe the final
rule adequately evaluates activities and
investments in underserved and native
communities. The agencies appreciate
the comments highlighting the
importance of performance context in
CRA examinations, and the agencies are
retaining the use of performance context
in the final rule, as explained in the
section-by-section analysis of
§ ll.21(d).
The agencies appreciate commenters’
suggestions to address appraisal bias,
and the agencies note that if such bias
were found to evidence discrimination
by an institution evaluated under CRA,
the agencies may consider this as the
basis for a downgrade as discussed in
the section-by-section analysis of
§ ll.28.
The agencies believe that the NPR
adequately explained the agencies’
rationale for the proposed changes. The
NPR contains detailed analysis of the
current CRA regulations, the need for
modernization, and an in-depth review
of the proposed rule and alternatives the
agencies considered, which are all
supported by extensive data.
The agencies acknowledge that
commenters provided general comments
raising legal concerns with the proposal.
The agencies note that the CRA
authorizes the agencies to adopt
regulations to carry out the purposes of
the statute,65 and requires the agencies
to assess the institution’s record of
meeting the credit needs of its entire
community, including low- and
moderate-income neighborhoods,
consistent with the safe and sound
operation of the bank.66 The final rule
furthers the purposes of the CRA and is
consistent with the agencies’
rulemaking authority. The agencies also
considered the points raised by the
commenter questioning the FDIC
Board’s authority but find no such
impediment to adoption of the final
rule. Legal issues concerning particular
B. General Comments Regarding the
Agencies’ CRA Modernization
Objectives
As noted in section I of this
SUPPLEMENTARY INFORMATION, the
agencies’ updates to their CRA
regulations in this final rule are guided
by eight objectives. These objectives
were set out in the NPR, and some
general comments received on the
objectives are summarized below.
Throughout this SUPPLEMENTARY
INFORMATION, the agencies provide
additional information and discussion
regarding the ways in which this final
rule accomplishes the objectives,
including in the section-by-section
analysis in section IV.
The Agencies’ Proposal, Comments
Received, and the Final Rule
Strengthen the achievement of the
core purpose of the statute. As provided
for in the statute, the CRA states that
‘‘[i]t is the purpose of this chapter to
require each appropriate Federal
financial supervisory agency to use its
authority when examining financial
institutions, to encourage such
institutions to help meet the credit
needs of the local communities in
which they are chartered consistent
with the safe and sound operation of
such institutions.’’ 67 The CRA requires
the agencies to ‘‘assess the institution’s
record of meeting the credit needs of its
entire community, including low- and
moderate-income neighborhoods,
consistent with the safe and sound
operation of such institution.’’68
Commenter feedback on this objective
included: support for updating the CRA
regulations to achieve this purpose; that
CRA modernization should result in a
net increase in the quantity and quality
of financial products and services
available in low- and moderate-income
areas; and, that the burden is on the
agencies to demonstrate that
modernization efforts would meet these
baseline goals for reform. Additional
commenter feedback included: that the
sole criterion for extending CRA
consideration to a business activity
should be its direct, significant, and
exclusive benefit to low- and moderateincome individuals; that by ignoring
race during CRA exams, the agencies’
proposal falls far short of this objective;
and that to achieve the goal of serving
communities with the greatest needs,
the agencies must maintain a balance
between the qualitative and quantitative
aspects of the tests and, specifically, to
align the twin tracks of CRA compliance
and CDFI certification.
The agencies believe that the final
rule updates the CRA regulations to
strengthen the achievement of the core
purpose of the statute. The agencies
believe the final rule accomplishes this
in various ways, for example, by:
establishing a tailored and rigorous
approach for the performance tests used
to assess a bank’s record of meeting the
credit needs of its entire community;
evaluating the responsiveness of certain
bank’s credit products and deposit
products, including an impact and
responsiveness review for community
development activities; and including
community development definitions
that reflect an emphasis on activities
that are responsive to community needs,
especially the needs of low- and
moderate-income individuals and
communities. With respect to a
commenter’s assertion that the agencies
should not ignore race during CRA
examinations, the agencies note that the
final rule retains the conditions that
facility-based assessment areas are
prohibited from reflecting illegal
discrimination and must not arbitrarily
exclude low- or moderate-income
census tracts. Additionally, banks’
performance under the CRA can be
adversely affected by evidence of
discriminatory or other illegal credit
practices, including violations of ECOA
and the Fair Housing Act. The agencies
also believe the final rule appropriately
balances the qualitative and quantitative
aspects of the performance tests by
65 See
66 12
12 U.S.C. 2905.
U.S.C. 2903(a)(1).
aspects of the proposal are discussed in
the section-by-section analysis in
section IV of this SUPPLEMENTARY
INFORMATION.
In response to comments regarding
lookback reviews, the agencies often do
reviews of their examinations after
implementation of revised or new rules.
While the agencies will keep these
recommendations in mind, the agencies
are not committing to adopt such
recommendations in a specific
timeframe or through a specified
method. Regarding the development of
tools, including for small banks, as
noted in section I of this SUPPLEMENTARY
INFORMATION, the agencies expect to
develop various materials for banks
including data reporting guides, data
reporting templates, and technical
assistance to assist banks in
understanding supervisory expectations
with respect to the final rule’s
performance evaluation standards and
data reporting requirements. The
agencies will continue to explore other
tools to provide transparent information
to the public, improve efficiency, and
reduce burden.
VerDate Sep<11>2014
18:11 Jan 31, 2024
67 12
Jkt 262001
PO 00000
U.S.C. 2901(b).
Frm 00014
Fmt 4701
68 12
Sfmt 4700
E:\FR\FM\01FER2.SGM
U.S.C. 2903(a)(1).
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
incorporating standardized metrics and
benchmarks in several of the
performance tests, and retaining the
ability for the agencies to consider
performance context.
Adapt to changes in the banking
industry, including the expanded role of
mobile and online banking. Many
commenters expressed general support
for this objective with several of these
commenters noting that now is the time
to update the CRA regulations, given
advances in banking technology. A few
of these commenters also stated that the
CRA has not kept up with the way
consumers expect to use technology to
access financial products and services
and that the current CRA regulations
and guidance do not recognize the wide
diversity in business practices of banks
or the changes in the financial services
industry that have occurred since the
CRA was enacted in 1977.
While some commenters believed the
agencies met this objective, particularly
in response to the expanded role of
mobile and online banking, other
commenters did not believe the
proposal sufficiently met the objective,
noting: efforts to modernize the CRA
regulations should account for current
and future ranges of banking and
financial service business models; the
NPR emphasizes physical bank
branches, which the commenter
asserted will require the agencies to
update the CRA rule once digital
banking becomes more common; the
proposal may adversely impact how
banks are able to respond to innovations
in the marketplace, explaining that
banks should have the ability to comply
with the letter and spirit of the CRA
within their chosen business models;
the agencies should request additional
authority from Congress to maintain the
integrity and vibrancy of the CRA; and,
CRA modernization must recognize and
address the critical importance of digital
equity for creating opportunities and
upward mobility for low- and moderateincome, minority, and rural
communities. Also, a commenter stated
that adapting to advances in banking
technology should be the one and only
objective of CRA reform, and that the
other seven objectives can be
accomplished within the current
regulatory framework and through more
effective examinations.
The agencies believe that the final
rule takes into account changes in the
banking industry. For example,
evaluating retail lending outside of
facility-based assessment areas accounts
for current and future ranges of banking
business models. The agencies also
believe that the final rule strikes the
appropriate balance by maintaining the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
importance of physical branches, while
including consideration of digital and
other delivery systems for large banks in
recognition of the trend toward greater
use of online and mobile banking. The
section-by-section analysis provides
additional discussion regarding the
agencies’ decision to maintain the
importance of physical branches in this
final rule. See section IV of this
SUPPLEMENTARY INFORMATION.
Provide greater clarity and
consistency in the application of the
CRA regulations. Some commenters
expressed general support for this
objective, with a commenter stating, for
example, that the CRA regulations and
supervision have become overly
complex and unpredictable. Another
commenter asserted that the proposal
promotes this objective by establishing
a framework that would lead to many
positive changes but asserted that
certain revisions to the proposal are
required to effectively meet the
objective.
The agencies believe that the final
rule meets this objective in several
ways, including, for example, by
clarifying eligibility requirements for
community development activities,
providing that the agencies will
maintain a publicly available illustrative
list of non-exhaustive examples of
qualifying activities, and updating
certain performance tests to incorporate
standardized metrics, benchmarks, and
thresholds and performance ranges, as
applicable.
Better tailor performance standards to
account for differences in bank size,
business models, and local conditions,
and better tailor data collection and
reporting requirements and use existing
data whenever possible. Commenter
sentiments on this objective included
support for tailoring the performance
standards and data requirements of the
final rule, as well as concerns that the
agencies’ proposal failed to meet these
objectives. The agencies believe the
final rule tailors the performance
standards based on bank size, business
models, and local conditions in
multiple ways. For example, small
banks may continue to be evaluated
under the Small Bank Lending Test,
unless they opt into the Retail Lending
Test; and intermediate and large banks,
which have more resources than small
banks, will be evaluated under the
Retail Lending Test. The final rule also
tailors data collection and reporting
requirements because, as further
explained in the section-by-section
analysis of § ll.42, the new data
collection and maintenance
requirements in the final rule do not
apply to small and intermediate banks,
PO 00000
Frm 00015
Fmt 4701
Sfmt 4700
6587
and certain new requirements apply
only to large banks with more than $10
billion in assets.
Promote transparency and public
engagement. Commenter feedback on
this objective included statements that
the CRA regulations must enhance
community participation so that CRA
activity is tied to community needs, and
concerns that the proposal may not
expand community participation. The
agencies believe the final rule advances
this objective. For example, as
explained in more detail in the sectionby-section analysis of § ll.46, the final
rule specifically provides a process
whereby the public can provide input
on community credit needs and
opportunities in connection with a
bank’s next scheduled CRA
examination. Further, the strategic plan
provision provides an opportunity for
the public to provide input on a bank’s
strategic plan. See the section-by-section
analysis of § ll.27.
Confirm that the CRA and fair lending
responsibilities of banks are mutually
reinforcing. The agencies received an
array of comments on this objective.
Some commenters, for example,
asserted that robustly enforcing current
and future CRA requirements relating to
race and ethnicity, in addition to other
relevant Federal, State, and local laws
and regulations, is essential to
addressing racial and ethnic inequality.
Many commenters asserted that greater
coordination between CRA
examinations and fair lending
examinations is needed, including, for
example, through development of a CRA
examination racial discrimination
assessment that would identify
disparate trends, such as in marketing,
originations, pricing and terms, default
rates, and collections. In turn, these
commenters indicated that any adverse
findings from this assessment should
trigger and support fair lending
examinations. A few commenters
indicated that such CRA discrimination
assessments should include an
affordability analysis and an analysis of
the quality of lending for all major
product lines that includes, for example,
a review of delinquency and default
rates. Other commenters asserted that,
in CRA examinations, the agencies
should assess whether banks employ
discriminatory algorithm-driven models
or other assessment criteria that
disproportionately screen out low- and
moderate-income and minority
consumers. Additional commenters
indicated that, likewise, when a fair
lending examination is pending,
appropriate CRA follow-up activity and
corrective action must ensue once it has
concluded.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6588
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Several commenters suggested
incorporating additional information
related to discrimination into banks’
CRA examinations. In this regard, a few
commenters noted that public
information about fair lending
examinations included in CRA
performance evaluations has typically
been cursory. Several commenters
specified that the agencies should use
race-based HMDA data and, once
available, race-based section 1071 data
as a screen in CRA examinations for fair
lending reviews. Some commenters
suggested that the agencies should
consider evidence of discrimination
obtained by State and local agencies.
On fair lending examinations
specifically, commenter feedback
included: that the agencies should
bolster fair lending reviews
accompanying CRA exams for banks
that perform poorly in the HMDA data
analysis of lending by race; that fair
lending examinations should solicit and
rely on feedback from all relevant
Federal and State agencies, as well as
community group stakeholders; that
both section 1071 data and HMDA data
by race should be utilized in bank fair
lending examinations; that fair lending
examinations should include a
quantitative analysis of lending to
minority individuals and communities
and incorporate an analysis of access to
services; and that disparate impact
related to climate change should be
incorporated into the existing fair
lending supervisory framework.
The agencies reiterate their view that
CRA and fair lending requirements are
mutually reinforcing. Both regimes
recognize the importance of ensuring
that the credit markets are inclusive.
Accordingly, and as noted above and
discussed further in the section-bysection analysis of § ll.16, the final
rule retains the provisions that
delineations of a bank’s facility-based
assessment areas are prohibited from
reflecting illegal discrimination and
must not arbitrarily exclude low- and
moderate-income census tracts. As
discussed further in the section-bysection analysis of § ll.23, the
agencies are specifying in the final rule
that all special purpose credit programs
under ECOA can be a type of responsive
credit program. As discussed further in
the section-by-section analysis of
§ ll.28, the agencies are also retaining
the provision that allows downgrading a
bank for discriminatory or other illegal
credit practices. For more information
and discussion regarding the agencies’
consideration of comments
recommending adoption of additional
race- and ethnicity-related provisions in
the final rule, see section III.C of this
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
SUPPLEMENTARY INFORMATION. Moreover,
although the agencies appreciate
suggestions to enhance the rigor of fair
lending examinations, such
examinations are outside the scope of
this rulemaking. The agencies are
nevertheless committed to upholding
their regulatory responsibilities for both
fair lending and CRA examinations, and
the agencies will seek to coordinate
those examinations where practicable.
Additionally, and in furtherance of
the agencies’ objective to promote
transparency, as discussed in the
section-by-section analysis of
§ ll.42(j), the final rule requires the
agencies to provide additional
information to the public for large banks
related to the distribution by borrower
income, race, and ethnicity of the bank’s
home mortgage loan originations and
applications in each of the bank’s
assessment areas. This disclosure would
leverage existing data available under
HMDA. As discussed in the section-bysection analysis of § ll.42(j),
providing data about borrower and
applicant race and ethnicity in this
disclosure would have no independent
impact on the conclusions or ratings of
the bank and would not on its own
reflect any fair lending finding or
violation. Instead, this provision of the
final rule is intended to enhance the
transparency of information available to
the public.
Promote a consistent regulatory
approach that applies to banks
regulated by all three agencies.
Commenter feedback on this objective
included support for a coordinated
interagency approach to CRA
modernization and a unified CRA rule,
with a commenter stating that the CRA’s
purpose is more fully realized when the
agencies work in concert. Some
commenters expressed support for
coordination between Federal and State
CRA regulatory requirements and
between Federal and State agencies for
CRA exams.
The agencies appreciate these
comments, believe the final rule meets
this objective, and will continue to
coordinate their implementation of the
final rule as appropriate.
C. General Comments Regarding the
Consideration of Race and Ethnicity in
the CRA Regulatory Framework
Comments Received
The agencies received many
comments regarding consideration of
race and ethnicity in the CRA regulatory
and supervisory framework from a wide
range of commenters. General comments
on this topic are summarized below, in
this section of the SUPPLEMENTARY
PO 00000
Frm 00016
Fmt 4701
Sfmt 4700
INFORMATION.
Furthermore, the agencies
received comments regarding the
consideration of race and ethnicity with
respect to the agencies’ proposed
approach to an array of specific topics,
such as: bank size categories; 69
assessment areas; 70 the Retail Lending
Test; 71 the Retail Services and Products
Test, including the consideration of
special purpose credit programs; 72
affordable housing; 73 economic
development; 74 activities with MDIs
and CDFIs; 75 disaster preparedness and
climate resiliency; 76 impact factors; 77
data on race and ethnicity in the CRA
regulatory framework; 78 discriminatory
or other illegal practices; 79 bank
applications; 80 public files; 81 and
public engagement.82 The agencies have
carefully considered this commenter
feedback in developing the final rule.
Comments relating to specific
regulatory provisions of the agencies’
proposal and the final rule, referenced
above, are discussed in detail in the
section-by-section analyses of the
specific provisions on which
commenters shared their views. Those
discussions cross-reference this section
of the SUPPLEMENTARY INFORMATION
where appropriate.
General comments. Many commenters
providing input on the consideration of
race and ethnicity under the CRA
asserted that the agencies’ proposal
represented a missed opportunity to
make racial equity a central focus of the
CRA and to maximize what some
commenters viewed as the statute’s
potential impact on advancing minority
69 See the section-by-section analysis of final
§ ll.12 (asset size).
70 See, e.g., the section-by-section analysis of final
§ ll.16 (facility-based assessment areas).
71 See the section-by-section analysis of final
§ ll.22 (Retail Lending Test), including the
section-by-section analyses of final
§ ll.22(d)(1)(ii)(A)(1), (d)(4), and (e).
72 See the section-by-section analysis of final
§ ll.23 (Retail Services and Products Test).
73 See the section-by-section analysis of final
§ ll.13(b) (affordable housing).
74 See the section-by-section analysis of final
§ ll.13(c) (economic development)
75 See the section-by-section analysis of final
§ ll.13(j) (activities with MDIs, WDIs, LICUs, or
CDFIs).
76 See the section-by-section analysis of final
§ ll.13(i) (disaster preparedness/weather
resiliency).
77 See the section-by-section analysis of final
§ ll.15 (impact and responsiveness review).
78 See the section-by-section analysis of final
§ ll.42(j) (HMDA disclosure).
79 See the section-by-section analysis of final
§ ll.28(d) (conclusions and ratings).
80 See the section-by-section analysis of final
§ ll.31 (effect of CRA performance on
applications).
81 See the section-by-section analysis of final
§ ll.43 (public file).
82 See the section-by-section analysis of final
§ ll.46 (public engagement).
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
access to lending, investment, and
services through the mainstream
financial system. Most of these
commenters stated that the CRA was
enacted as a response to the history of
redlining, other systemic
discrimination, and structural racism,
and that the agencies’ current and
proposed CRA regulations do not
adequately address the need to advance
racial equality, reduce racial wealth and
homeownership gaps, and address
intergenerational poverty in minority
communities. In this regard, commenter
feedback included that there has been
little progress in closing the racial
wealth gap since the enactment of the
CRA, and that the racial wealth gap has
actually worsened since that time.
Commenter feedback also included that
approximately 98 percent of banks pass
their CRA examinations and that
expanded consideration of race and
ethnicity would be appropriate to
increase the rigor of CRA examinations.
Additional views included that the
agencies should use the CRA to broaden
access to credit for racial and ethnic
minorities in much the same way that
the statute has broadened access to
credit for low- and moderate-income
individuals and communities.
Some of these commenters also urged
greater consideration of race in a
modernized CRA evaluation framework
due to racial inequality related to land
use policies, and unjust and inequitable
lending practices, all of which, these
commenters indicated, have contributed
to persistent disparities in home
ownership rates, wealth accumulation,
and educational and health outcomes
for racial and ethnic minorities. In this
regard, some commenters drew
attention particularly to the lack of
affordable housing opportunities for
racial and ethnic minorities in
metropolitan and rural communities
alike. For instance, one commenter
asserted that racial and ethnic
minorities who are more likely to live in
low-cost neighborhoods as part of the
legacy of historical residential
segregation and decades of
discriminatory real estate practices are
not adequately served due to unmet
demand for low-cost housing, including
but not limited to small-dollar home
mortgage loans. In addition to the
housing concerns, another commenter
asserted that low-income minority
communities disproportionately do not
have access to the banking services and
products that they need to build wealth,
and further stated that not requiring
banks to better address these needs
leads to increased potential for
predatory lending and reduced wealth
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
in these communities. Some
commenters also asserted that robustly
enforcing current and future CRA
requirements relating to race and
ethnicity, in addition to other relevant
Federal, State, and local laws and
regulations, is essential to addressing
racial and ethnic inequality.
A few commenters asserted that
explicit consideration of race and
ethnicity in the CRA evaluation
framework would provide a buffer
against displacement of minority
consumers, which these commenters
indicated leads to the loss of important
local resources, such as healthcare and
social services. In this regard,
commenter feedback included:
advocating for a greater focus on loans
to minority consumers and not simply
loans in minority communities, where
the loans might be made largely to white
consumers; an assertion that banks’
lending practices in connection with
minority consumers and minority
communities were impacted by the lack
of diversity among bank employees,
particularly at senior and executive
levels; an assertion that all banks should
be positioned to work with non-English
speaking consumers; and a
recommendation that banks be given
consideration for offering linguistically
and culturally appropriate services and
resources to consumers with limited
English proficiency so that such
consumers may access safe and
affordable credit.
Some commenters suggested that the
agencies adopt forms of quantitative
analyses to consider race and ethnicity
as part of CRA evaluations. For
example, a commenter recommended
that the agencies conduct periodic
statistical analyses to identify areas
where discrimination or ethnic and
racial disparities in credit access exist.
This commenter further recommended
that in areas where significant
disparities exist, the agencies should
incorporate performance measures
based on race and ethnicity into bank
performance evaluations, with separate
race- and ethnicity-based performance
measures contributing to bank ratings
on individual performance tests and
overall.
On the subject of terminology, a
commenter urged the agencies not to
use the term ‘‘minority’’ in the CRA
regulations but rather to use the term
BIPOC (Black, Indigenous, and People
of Color), which the commenter asserted
better acknowledges different types of
prejudice and discrimination.83
83 The agencies acknowledge the commenter
suggestion to use the term ‘‘BIPOC’’ throughout the
final rule but are electing to use the term
PO 00000
Frm 00017
Fmt 4701
Sfmt 4700
6589
Comments on legal basis for express
consideration of race and ethnicity in
the CRA regulatory framework. Several
commenters provided input supporting
the permissibility of express
consideration of race and ethnicity
under the statute. Some of these
commenters asserted that the CRA is a
civil rights law and that, accordingly,
the agencies have authority to expressly
consider race and ethnicity in their CRA
regulations to address redlining and
other racial discrimination in banking.
Moreover, several commenters stated
that addressing racial inequities is a
core ‘‘remedial’’ purpose of the CRA as
part of a ‘‘suite’’ of laws enacted to
address racial inequities in housing and
credit. A few commenters pointed to the
CRA’s focus on encouraging banks to
serve their ‘‘entire community’’ 84
suggesting that the agencies should
therefore focus specifically on the
minority constituencies who are part of
the entire community in evaluating each
bank’s CRA performance. Another
commenter provided legal analysis
arguing that the agencies could
incorporate express consideration of
race and ethnicity in CRA regulations in
various ways that the commenter stated
were consistent with requirements
applicable to race-based government
action under the Equal Protection
Clause of the U.S. Constitution.
Relatedly, the commenter indicated
that, to satisfy constitutional
requirements and appropriately target
the effects of discrimination, the
agencies should conduct and
periodically update a study to
determine with specificity where, and
regarding which financial products,
discrimination continues to have an
impact. Other commenters asserted that
express references to race in the statute,
such as the provision allowing
investments with MDIs to count for
CRA,85 indicate that an explicit focus on
race is within the purview of the CRA.
Conversely, a few commenters
cautioned against expanding
consideration of race and ethnicity in
the CRA regulatory framework due to
legal concerns. Some of these
commenters expressed their perspective
that the law is limited in its capacity to
address racial equity, even though they
view the CRA as a civil rights law and
acknowledge that racial equity is central
to equal opportunity, social cohesion,
and prosperity. Another commenter
‘‘minority,’’ which is used expressly in the CRA
statute, and to clarify, where practicable, when the
agencies intend to refer specifically to racial and
ethnic minorities. See 12 U.S.C. 2907(b)(3).
84 See 12 U.S.C. 2903 and 2906.
85 See, e.g., 12 U.S.C. 2903(b).
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6590
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
suggested that the CRA is a race-neutral
law designed to combat race-based
discriminatory policies and practices.
Additionally, commenter feedback
included that, although structural
racism is a reality, incorporating racial
equity into the CRA evaluation process
could lead to both legal and practical
issues and undermine the valuable
contribution that CRA can make to lowand moderate-income consumers and
communities.
Low-and moderate-income status and
race. Many commenters advocating for
greater consideration of race and
ethnicity under the CRA indicated that,
in addition to focusing on low- and
moderate-income consumers and
communities, the agencies should
explicitly focus on minority consumers
and communities. For example, a
commenter asserted that racial
discrimination will persist if income
categorizations continue to be used to
rate bank performance without
considering race. Some commenters also
noted that low- and moderate-income
communities and minority communities
are not the same, so closing racial
wealth gaps requires express
consideration of race. To illustrate this
point, a commenter stated that about
two-thirds of low-income communities
are predominantly minority, but only
about one-third of moderate-income
neighborhoods are predominantly
minority. Another commenter similarly
indicated that nearly two-thirds of lowand moderate-income households are
White, while nearly 40 percent of Black
households and more than half of
Hispanic households are not low- or
moderate-income.
Consequently, many commenters
urged that racial equity should be
incorporated comprehensively into the
agencies’ CRA regulations, including
through both incentives and affirmative
obligations for banks to serve racial and
ethnic minority consumers, businesses,
and communities. Many of these
commenters asserted that doing so
would have a direct, positive impact on
such minorities’ economic inclusion,
quality of life, and health outcomes.
Closing the racial wealth gap, a
commenter stated, would also make the
U.S. economy substantially stronger. To
facilitate the incorporation of racial
equity into the CRA regulations, a
commenter asserted that the agencies
could employ the ‘‘other targeted
population’’ framework already
provided for in the Riegle Community
Development and Regulatory
Improvement Act’s definition of
‘‘targeted populations,’’ which the
commenter explained can include either
individuals who are low-income or
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
others who ‘‘lack adequate access to
Financial Products or Financial Services
in the entity’s Target Market,’’ to
include certain minority groups.
Final Rule
The agencies have considered and
appreciate the many comments asserting
that the agencies should incorporate
additional regulatory provisions
regarding race and ethnicity into the
CRA regulatory and supervisory
framework. These comments raise
important and significant considerations
about financial inclusion,
discrimination, and broader economic
issues. The agencies have carefully
considered these comments, including
those summarized in this section and in
the section-by-section analysis of the
final rule (see section IV of this
SUPPLEMENTARY INFORMATION), as well as
the statutory purposes and text of the
CRA. The agencies have also assessed
other relevant legal and supervisory
considerations, including, in particular,
the constitutional considerations and
implementation challenges associated
with adopting regulatory provisions that
expressly address race and ethnicity
when implementing statutory text that
does not expressly address race or
ethnicity. Based upon these
considerations, the agencies have
determined not to include additional
race- and ethnicity-related provisions
other than what is adopted in this final
rule and discussed in more detail
throughout this Introduction and
section IV of the SUPPLEMENTARY
INFORMATION.
The agencies believe that the final
rule strengthens the CRA’s emphasis on
encouraging banks to engage in
activities that better achieve the core
purpose of the CRA, and thereby meet
the credit needs of their entire
communities, including low- and
moderate-income individuals and
communities. Relatedly, the agencies
continue to recognize that the CRA and
fair lending requirements are mutually
reinforcing, including by specifying in
the final rule that special purpose credit
programs under ECOA can be a type of
responsive credit program, and by
reaffirming that violations of the Fair
Housing Act and ECOA can be the basis
of a CRA rating downgrade. As noted,
for example, in section III.B of this
SUPPLEMENTARY INFORMATION, the final
rule also retains the current rule’s
prohibition against banks delineating
facility-based assessment areas in a
manner that reflects illegal
discrimination or arbitrarily excludes
low- and moderate-income census
tracts, and provides that the CRA
performance of banks that engage in
PO 00000
Frm 00018
Fmt 4701
Sfmt 4700
discriminatory or other illegal credit
practices can be adversely affected by
such practices. For more information
and discussion regarding how the final
rule strengthens the achievement of the
core purpose of the statute, and
confirms that CRA and fair lending
responsibilities are mutually reinforcing
(see sections III.B and IV of this
SUPPLEMENTARY INFORMATION).
IV. Section-by-Section Analysis
Section ll.11 Authority, Purposes,
and Scope
Current Approach and the Agencies’
Proposal
Current § ll.11 sets forth the
authority, purposes, and scope of the
CRA regulations. Paragraphs (a) and (c)
of the section are agency-specific
regulatory text, with paragraph (a)
outlining the legal authority for each
agency to implement the CRA and
paragraph (c) providing the scope of
each agency’s CRA regulations.
Common rule text in § ll.11(b)
provides that this part implements the
CRA by establishing the framework and
criteria by which the agencies assess a
bank’s record of helping to meet the
credit needs of its entire community,
including low- and moderate-income
neighborhoods, consistent with the safe
and sound operation of the bank; and
providing that the agencies take that
record into account in considering
certain applications.
Consistent with the current rule,
proposed § ll.11 sets forth the
authority, purposes, and scope of the
CRA regulations, with the authority and
scope paragraphs (proposed § ll.11(a)
and (c)) including agency-specific
regulatory text. Proposed § ll.11(b)
included technical, non-substantive
edits to the current regulatory text, such
as adding CRA’s legal citation.
The OCC proposed to amend its
authority section, § 25.11(a) by
referencing part 25 in its entirety
instead of each subpart, and by
removing paragraph (a)(2), Office of
Management and Budget (OMB) control
number, as such information is
unnecessary for regulatory text. The
OCC also proposed technical edits to its
scope section, § 25.11(c), to reflect the
organization of the proposed common
rule text.
The Board did not propose any
amendments to its authority section,
§ 228.11(a), and proposed to amend its
scope section, proposed § 228.11(c), to
replace references to ‘‘special purpose
banks’’ with ‘‘exempt banks’’ to avoid
any potential confusion with the OCC’s
special purpose bank charter.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
The FDIC proposed to amend its
authority section, § 345.11(a), by
removing paragraph (a)(2), OMB control
number, as such information is
unnecessary for regulatory text. The
FDIC did not propose any amendments
to its scope section in § 345.11(c).
Comments Received and Final Rule
The agencies did not receive
comments specific to the language in
proposed § ll.11(b) or the agencyspecific language in proposed
§ ll.11(a) and (c). Therefore, the
agencies are adopting § ll.11(b) as
proposed, and the Board is adopting its
agency-only provisions, paragraphs (a)
and (c), as proposed.
The OCC adopts paragraph (a) as
proposed, and paragraph (c) as proposed
with technical edits. Specifically, the
OCC has moved the definition of
‘‘appropriate Federal banking agency’’
in proposed § 25.11(c)(1)(iii) to final
§ 25.12 (Definitions), where it more
appropriately belongs. As in the current
rule and as proposed, ‘‘appropriate
Federal banking agency’’ in the final
rule means, with respect to subparts A
(except in the definition of minority
depository institution in § 25.12)
through E and appendices A through G,
the OCC with respect to a national bank
or Federal savings association and the
FDIC with respect to a State savings
association.86 In addition, the OCC has
added Federal branches of foreign banks
to paragraph (c)(1)(i), which lists the
types of entities for which the OCC has
authority to prescribe CRA regulations,
to more accurately describe this
authority. The OCC has also made
minor technical edits to the listing of
part 25 subparts in final paragraph (c).
The FDIC is adopting paragraph (a) as
proposed and paragraph (c) with
technical edits. In the proposed rule, the
FDIC’s paragraph (c)(2) maintained
references to current § 345.41. The FDIC
is adopting paragraph (c)(2) to reflect
the final rule’s new assessment area
provisions. Thus, final paragraph (c)(2)
provides that, for insured State branches
of a foreign bank established and
operating under the laws of any State,
their facility-based assessment area and,
as applicable, retail lending assessment
areas and outside retail lending
assessment area, are the community or
communities located within the United
States, served by the branch as
described in § 345.16 and, applicable,
§§ 345.17 and 345.18.
86 Final subpart F of part 25, Prohibition Against
Use of Interstate Branches Primarily for Deposit
Production, applies only to certain national banks
and Federal branches of a foreign bank and includes
‘‘OCC’’ instead of ‘‘appropriate Federal banking
agency.’’
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Section ll.12 Definitions
In proposed § ll.12 (Definitions),
the agencies proposed many terms
defined in the current CRA regulations,
some with substantive or technical
revisions. The agencies also proposed
new definitions that the agencies
considered necessary to clarify and
implement proposed revisions to the
CRA evaluation framework, some of
which reflect understandings of terms
long used in the CRA evaluation
framework or that are consistent with
the Interagency Questions and Answers.
The agencies received numerous
comments on some of these definitions.
These comments and the definitions as
included in the final rule are discussed
below.
Affiliate
Under the current CRA regulations,
the term ‘‘affiliate’’ means any company
that controls, is controlled by, or is
under common control with another
company. The term ‘‘control’’ has the
same meaning given to that term in
section 2 of the Bank Holding Company
Act, 12 U.S.C. 1841(a)(2), and a
company is under common control with
another company if both companies are
directly or indirectly controlled by the
same company.87 The agencies
proposed to retain their current
definitions of ‘‘affiliate,’’ with the Board
including one technical change to the
definition in its regulation to add a
reference to its bank holding company
regulations, Regulation Y, 12 CFR part
225. Specifically, the Board proposed to
define affiliate as any company that
controls, is controlled by, or is under
common control with another company.
The term ‘‘control’’ has the meaning
given to that term in 12 U.S.C.
1841(a)(2), as implemented by the Board
in 12 CFR part 225, and a company is
under common control with another
company if both companies are directly
or indirectly controlled by the same
company. The FDIC and the OCC did
not propose any revisions to the
definition of ‘‘affiliate’’ in the agencies’
respective CRA regulations.88
The agencies did not receive any
comments on the proposed definitions
of ‘‘affiliate’’ and adopt the definitions
as proposed in the final rule.
Accordingly, the Board is adopting the
proposed definition of ‘‘affiliate’’ in the
final rule, which will be contained
solely in its CRA regulations. The FDIC
and the OCC are retaining the current
definition of ‘‘affiliate’’ in their
respective CRA regulations, which
current 12 CFR ll.12(a).
current 12 CFR 25.12(a) (OCC) and
345.12(a) (FDIC).
87 See
88 See
PO 00000
Frm 00019
Fmt 4701
Sfmt 4700
6591
define affiliate as any company that
controls, is controlled by, or is under
common control with another company.
The term ‘‘control’’ has the same
meaning given to that term in 12 U.S.C.
1841(a)(2), and a company is under
common control with another company
if both companies are directly or
indirectly controlled by the same
company.89
Affordable Housing
The agencies proposed to add a
definition of ‘‘affordable housing’’ to
mean activities described in proposed
§ ll.13(b). See the section-by-section
analysis of § ll.13(b) for a detailed
discussion of affordable housing. The
agencies did not receive any comments
on the proposed ‘‘affordable housing’’
definition and adopt it as proposed in
the final rule.
Area Median Income
The agencies proposed to retain the
current definition of ‘‘area median
income,’’ 90 with one conforming change
to replace the term ‘‘geography’’ with
‘‘census tract,’’ but keep the same
meaning (see the discussion of ‘‘census
tract’’ in § ll.12 of this section-bysection analysis).91 Under the proposal,
‘‘area median income’’ would mean: (1)
the median family income for the
metropolitan statistical area (MSA), if a
person or census tract is located in an
MSA, or for the metropolitan division,
if a person or census tract is located in
an MSA that has been subdivided into
metropolitan divisions; or (2) the
statewide nonmetropolitan median
family income, if a person or census
tract is located outside an MSA.
The agencies did not receive any
comments on the proposed ‘‘area
median income’’ definition. However,
the agencies are adopting the definition
in the final rule as proposed with
conforming and clarifying edits. First, in
paragraph (1), the agencies have made a
minor conforming change by replacing
‘‘metropolitan statistical area (MSA)’’
with ‘‘MSA.’’ Second, in paragraphs (1)
and (2), the agencies have replaced the
phrase ‘‘if a person’’ with ‘‘if an
individual, family, household.’’ Third,
in paragraph (1), the agencies have
added the phrase ‘‘that has not been
subdivided into metropolitan divisions’’
after ‘‘located in an MSA’’ to
differentiate the first and second prongs
of this paragraph. Fourth, in paragraph
(2), as a conforming change, the
89 See
id.
current 12 CFR ll.12(b).
91 See current 12 CFR ll.12(k) (defining
‘‘geography’’ to mean ‘‘a census tract delineated by
the United States Bureau of the Census in the most
recent decennial census’’).
90 See
E:\FR\FM\01FER2.SGM
01FER2
6592
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
agencies have replaced the phrase
‘‘outside an MSA’’ with ‘‘in a
nonmetropolitan area.’’ Final § ll.12
defines ‘‘nonmetropolitan area’’ to mean
any area that is not located in an MSA.
Accordingly, the final rule defines
‘‘area median income’’ to mean: (1) the
median family income for the MSA, if
an individual, family, household, or
census tract is located in an MSA that
has not been subdivided into
metropolitan divisions, or for the
metropolitan division, if an individual,
family, household, or census tract is
located in an MSA that has been
subdivided into metropolitan divisions;
or (2) the statewide nonmetropolitan
median family income, if an individual,
family, household, or census tract is
located in a nonmetropolitan area.
Assets
The final rule includes a new
definition for ‘‘assets,’’ not included in
the proposal. This term means total
assets as reported in Schedule RC of the
Consolidated Reports of Condition and
Income as filed under 12 U.S.C. 161,
324, 1464, or 1817, as applicable (Call
Report), or as reported in Schedule RAL
of the Report of Assets and Liabilities of
U.S. Branches and Agencies of Foreign
Banks (Report of Assets and Liabilities),
as filed under 12 U.S.C. 1817(a),
3102(b), or 3105(c)(2), as applicable.
Although the agencies did not propose
this definition, they have added it to the
final rule to clarify the intended
meaning of this term in the CRA
regulations.
ddrumheller on DSK120RN23PROD with RULES2
Assessment Area
The current CRA regulations define
‘‘assessment area’’ to mean a geographic
area delineated in accordance with 12
CFR ll.41.92 Current § ll.41 sets
out the criteria for banks to delineate
assessment areas. The agencies
proposed to replace ‘‘assessment area’’
with three new terms in proposed
§ ll.12: ‘‘facility-based assessment
area,’’ ‘‘retail lending assessment area,’’
and ‘‘outside retail lending area,’’ as
these new terms are used in the
proposal. These new definitions are
discussed below. The agencies did not
receive any comments concerning the
removal of the ‘‘assessment area’’
definition and have removed this term
in the final rule.
Bank
Under the current CRA regulations,
the Board and FDIC have separate
definitions for the term ‘‘bank.’’ Each
agency defines ‘‘bank’’ to refer to the
entities regulated by the agency for
92 See
current 12 CFR ll.12(c).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
which the agency evaluates CRA
performance. The FDIC and Board did
not propose changes to the current
definitions of ‘‘bank’’ in their respective
CRA regulations and received no
comments on their proposed definitions
of ‘‘bank.’’ Accordingly, the final rule
retains the current definitions of ‘‘bank’’
in the FDIC’s and the Board’s
regulations.93
As such, for the FDIC, the term
‘‘bank’’ means a State nonmember bank,
as that term is defined in section 3(e)(2)
of the Federal Deposit Insurance Act
(FDIA) (12 U.S.C. 1813(e)(2)), with
federally insured deposits, except as
defined in final § 345.11(c). The term
‘‘bank’’ also includes an insured State
branch as defined in final § 345.11(c).
For the Board, the term ‘‘bank’’ means
a State member bank as that term is
defined in section 3(d)(2) of the FDIA
(12 U.S.C. 1813(d)(2)), except as
provided in final § 228.11(c)(3) and
includes an uninsured State branch
(other than a limited branch) of a foreign
bank described in final § 228.11(c)(2).
Accordingly, consistent with the
Board’s current CRA regulations, the
term ‘‘bank’’ in final § 228.12 includes
an uninsured State branch (other than a
limited branch) of a foreign bank that
results from an acquisition described in
section 5(a)(8) of the International
Banking Act of 1978 (12 U.S.C.
3103(a)(8)). Also, generally consistent
with the current CRA regulations,
‘‘bank’’ in final § 228.12 does not
include banks that do not perform
commercial or retail banking services by
granting credit to the public in the
ordinary course of business, other than
as incident to their specialized
operations and done on an
accommodation basis.94 This exception
for banks that do not perform
commercial or retail banking services
aligns with the current CRA regulations,
including that performing commercial
and retail banking services solely ‘‘on an
accommodation basis’’ will not qualify
an entity as a ‘‘bank.’’
The OCC’s current CRA regulation
provides that ‘‘bank or savings
association’’ means, except as provided
in § 25.11(c), a national bank (including
a Federal branch as defined in part 28)
with federally insured deposits or a
savings association. Further, the OCC
93 The agencies’ definitions of ‘‘bank’’ are
included in the agency-specific amendatory text,
outside of the common rule text.
94 See final § 228.12 (defining ‘‘bank’’ to exclude
institutions described in final § 228.11(c)(3)). These
institutions include bankers’ banks, as defined in 12
U.S.C. 24(Seventh), and banks that engage only in
one or more of the following activities: providing
cash management-controlled disbursement services
or serving as correspondent banks, trust companies,
or clearing agents.
PO 00000
Frm 00020
Fmt 4701
Sfmt 4700
regulation provides that ‘‘bank and
savings association’’ means, except as
provided in § 25.11(c), a national bank
(including a Federal branch as defined
in part 28) with federally insured
deposits and a savings association.95
For clarity and conciseness, the OCC
proposed separate definitions of ‘‘bank’’
and ‘‘savings association,’’ without
changing the substance of the current
definitions. The OCC received no
comments on this technical change and
adopts the definitions as proposed in
the final rule. As a result, in the final
rule, ‘‘bank’’ means a national bank
(including a Federal branch as defined
in part 28) with federally insured
deposits, except as provided in
§ 25.11(c); and ‘‘savings association’’
means a Federal savings association or
a State savings association.
Bank Asset-Size Definitions
Current Approach
Under the current CRA regulations,
the agencies define ‘‘small bank’’ to
mean ‘‘a bank that, as of December 31
of either of the prior two calendar years,
had assets of less than $1.503 billion.’’ 96
The agencies defined ‘‘intermediate
small bank’’ to mean ‘‘a small bank with
assets of at least $376 million as of
December 31 of both of the prior two
calendar years and less than $1.503
billion as of December 31 of either of the
prior two calendar years.’’ 97 The
agencies adjust these terms annually for
inflation based on the year-to-year
change in the average of the Consumer
Price Index for Urban Wage Earners and
Clerical Workers (CPI–W), not
seasonally adjusted, for each 12-month
period ending in November, with
rounding to the nearest million.98 The
current CRA regulations do not define
the term ‘‘large bank,’’ but any bank
with assets exceeding those defining an
‘‘intermediate small bank’’ is
understood to be a large bank (otherwise
referred to as a ‘‘large institution’’).
The Agencies’ Proposal
The agencies proposed raising the
asset-size threshold for the ‘‘small bank’’
definition to provide more clarity,
consistency, and transparency in the
95 See current 12 CFR 25.12(e). Pursuant to title
III of the Dodd-Frank Act, and as described in
footnote 2 of this SUPPLEMENTARY INFORMATION, the
OCC’s CRA regulation applies to both State and
Federal savings associations, in addition to national
banks. The FDIC enforces the OCC’s CRA
regulations with respect to State savings
associations.
96 The current asset-size threshold for a ‘‘small
bank’’ reflects the annual dollar adjustment to the
figures contained in current 12 CFR ll.12(u)(1).
See current 12 CFR ll.12(u)(2).
97 See current 12 CFR ll.12(u)(1).
98 See current 12 CFR ll.12(u)(2).
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
evaluation process, and in recognition
of the potential challenges associated
with regulatory changes and data
collection requirements for banks with
more limited capacity. Under the
proposal, a small bank would be a bank
that had average assets of less than $600
million in either of the prior two
calendar years, based on the assets
reported on its four quarterly Call
Reports for each of those calendar years.
The agencies also proposed to add a
new definition for ‘‘intermediate bank’’
that would replace the current
‘‘intermediate small bank’’ definition.
Under the proposal, intermediate bank
would mean a bank that had average
assets of at least $600 million in both of
the prior two calendar years and less
than $2 billion in either of the prior two
calendar years, based on the assets
reported on its four quarterly Call
Reports for each of those calendar years.
The agencies intended the proposed
‘‘intermediate bank’’ definition to
comprise a category of banks that have
meaningful capacity to engage in CRArelated activities under the proposed
Retail Lending Test and conduct
community development activities, but
that might have more limited capacity
regarding data collection and reporting
requirements than large banks.
Finally, the agencies proposed to add
a new ‘‘large bank’’ definition that
would mean a bank that had average
assets of at least $2 billion in both of the
prior two calendar years, based on the
assets reported on its four quarterly Call
Reports for each of those calendar years.
This proposed definition reflects the
agencies’ view that banks of this size
generally have the capacity to conduct
the range of activities that would be
evaluated under each of the four
performance tests proposed to apply to
large banks.
The agencies proposed to make
annual adjustments to the asset-size
thresholds for all three categories of
banks based on the same CPI–W
inflation measure used in the current
CRA regulations for small and
intermediate banks.99
As under the current CRA regulations,
asset-size classification is relevant
because it determines a bank’s CRA
evaluation framework. Consistent with
the proposal, under the final rule, large
banks are evaluated under the Retail
Lending Test in final § ll.22, the
Retail Services and Products Test in
final § ll.23, the Community
Development Financing Test in final
§ ll.24, and the Community
Development Services Test in final
§ ll.25. Intermediate banks are
99 See
current 12 CFR ll.12(u)(2).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
evaluated under the Retail Lending Test
in § ll.22, and either the current
Intermediate Bank Community
Development Test, in final
§ ll.30(a)(2),100 or, at the bank’s
option, the Community Development
Financing Test in final § ll.24.101
Small banks are evaluated under the
small bank lending test, in final
§ ll.29(a)(2),102 or, at the bank’s
option, the Retail Lending Test in final
§ ll.22.
Comments Received
The agencies received numerous
comments on the proposed ‘‘small
bank,’’ ‘‘intermediate bank,’’ and ‘‘large
bank’’ definitions. Given that the
current and proposed definitions are
interconnected, the agencies believe it is
appropriate to discuss the comments
collectively.
Many commenters expressed general
support for the proposal to increase the
asset-size thresholds for small,
intermediate, and large banks. Many of
these commenters indicated that the
proposed thresholds are reasonable and
would represent appropriate burden
relief for banks that would qualify as
small or intermediate banks under the
proposed definitions. Several
commenters stated that the proposed
asset-size thresholds are appropriate to
ensure that smaller banks with more
limited staff and other resources are not
subjected to the same performance
expectations or data collection and
reporting requirements as larger banks.
Several other commenters supported the
proposed asset-size thresholds based not
only on other regulatory burden they
anticipate under the proposal but also
on the principle that community banks
already experience significant
regulatory burden unrelated to the CRA.
Another commenter approved of the
increased asset-size thresholds on the
basis that they would permit smaller
banks to expand to meet the needs of
their communities without necessarily
subjecting themselves to new CRA
requirements that the commenter stated
were likely to have onerous costs.
Many commenters specifically
expressed support for increasing the
asset-size threshold for a small bank to
$600 million. These commenters noted
that the asset-size threshold would
apply to approximately the same
percentage of banks as were classified as
100 In the proposal, the Intermediate Bank
Community Development Test, referred to as the
‘‘intermediate bank community development
evaluation,’’ is in proposed § ll.29(b).
101 See final § ll.30(a)(1).
102 In the proposal, the Small Bank Lending Test,
referred to as the ‘‘status quo small bank lending
test,’’ is in proposed § ll.29(a).
PO 00000
Frm 00021
Fmt 4701
Sfmt 4700
6593
small banks when the agencies’
amended their CRA regulations in 2005.
Several other commenters explained
that the asset-size threshold increases
would be a timely and welcome
adjustment because of changes in the
banking industry and the
unprecedented growth of bank balance
sheets and excess liquidity that has
resulted from Federal Government
stimulus in response to the COVID–19
pandemic. Another commenter
indicated that raising the asset-size
threshold as proposed was a timely
action on the part of the agencies due to
recent trends in inflation that are
beyond banks’ control. One commenter
stated that the current asset-size
thresholds are too low and reflected
prior conditions.
Many other commenters expressed
opposition to the proposed asset-size
threshold increases and advocated for
the agencies to maintain the current
thresholds. Some of these commenters
stated that the proposed changes were
inappropriate because reclassified banks
would be subject to less rigorous
performance standards and diminished
agency oversight, which would
minimize transparency and
accountability and reduce those banks’
CRA obligations and reinvestment.
Other commenters noted that raising the
asset-size thresholds would result in
missed opportunities for reclassified
banks to expand and improve their CRA
activity under more rigorous
performance standards. These
commenters also asserted that the
proposed changes to the asset-size
thresholds are not justified because
banks already perform successfully
under the current, lower thresholds for
small, intermediate small, and large
banks.
Many commenters focused on the
number of banks that would be
reclassified into a smaller asset-size
category and the adverse effect this
reclassification could have on
community development financing,
with a few commenters stating that
increasing the small bank asset-size
threshold would reduce the amount of
community development activity,
especially in smaller and more rural
communities. Some commenters
highlighted the agencies’ statement in
the proposal that approximately 778
current intermediate small banks would
be reclassified as small banks and 216
current large banks would be
reclassified as intermediate banks.103
These commenters expressed their
belief that the reclassified banks would
no longer be held accountable (or would
103 See
E:\FR\FM\01FER2.SGM
87 FR 33884, 33924 (June 3, 2022).
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6594
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
be held accountable to a lesser degree)
for community development financing
activity. Many of these commenters
suggested that this loss of accountability
would cause significant reductions in
community development financing,
with some commenters citing estimated
annual losses of $1 billion to $1.2
billion. These commenters argued that,
if these forecasted losses in community
development financing are remotely
accurate, the change in asset-size
thresholds would amount to a
significant failure on the part of the
agencies. Many commenters indicated
that although the impact of reduced
community development financing
would be experienced in low- and
moderate-income communities
nationwide, the losses are likely to be
most acute in less populated
communities, such as rural,
micropolitan, and small-town areas,
where a substantial number of the
reclassified banks are located. A few
commenters specified that any loss of
community development financing
could adversely affect the availability of
affordable housing and bank
responsiveness to other important
community needs.
Several commenters explained that
reductions in community development
financing as a result of asset-size
threshold changes could adversely affect
CDFIs by diminishing bank-CDFI
relationships, and the flow of capital
from banks to CDFIs—especially CDFIs
located in smaller or rural communities.
Noting that the agencies stated in the
proposal that raising the asset-size
thresholds would impact only two
percent of bank assets in the banking
system, some commenters indicated that
a reclassified bank may be the only
lender or one of a small number of
banks with any presence in a geographic
area.
Some commenters stated that
reclassifying some current large banks
as intermediate banks could negatively
impact the availability of banking
services in low- and moderate-income
and rural communities because the
proposed Retail Services and Products
Test and Community Development
Services Test would only apply to large
banks. Several other commenters stated
that reclassifying a large bank as an
intermediate bank would effectively
eliminate agency evaluation of
applicable service considerations such
as the operation of bank branches in
their communities.
A few commenters expressed
concerns about the impact of the
agencies’ proposal to revise asset-size
thresholds on racial or ethnic minority
communities. A commenter stated that
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
a number of Black communities would
be significantly adversely impacted by
the reclassification of certain large
banks as intermediate banks and certain
intermediate small banks as small
banks. The commenter asserted that
these changes would reduce these
banks’ incentives to engage with Black
communities, given the specific
performance tests that would be
applicable to small banks and
intermediate banks under the agencies’
proposal. Another commenter raised
concerns that small banks and
intermediate banks would not be subject
to a retail services test. In the
commenter’s view, an evaluation of
retail services is critical to ensure that
bank branches are located in both lowand moderate-income communities and
minority communities.
A few commenters stated that raising
the large bank asset-size threshold could
result in diminished bank investment in
New Markets Tax Credits (NMTC) and
other community tax credit investments
given that, under the proposal,
intermediate and small banks would not
have corresponding community
development requirements. These
commenters also indicated that
relieving banks of these requirements
could negatively impact overall demand
for community tax credit investments,
for which the majority of investors are
CRA-motivated banks.
Many of the commenters opposing the
proposed asset-size threshold increases
asserted that regulatory relief for banks
was not a sufficient justification for
changes that would adversely impact
local communities. Several commenters
argued that the potential burden on
banks from being classified as a larger
institution would not outweigh the need
for accountability and equity. Another
commenter indicated that the agencies
did not produce estimates or data
indicating that the proposed regulatory
approach would be so prohibitively
burdensome that significant increases in
asset-size thresholds were necessary.
Several other commenters stated that
the agencies’ proposal should, at a
minimum, provide for the same range of
community development financing
activity for all current intermediate
small banks and large banks as under
the current CRA regulations. A
commenter asserted that the proposal
goes backwards with no justification for
how the reduction in compliance
burden for banks reclassified as smaller
banks would offset the loss of
reinvestment activity from a public
benefits perspective. Some commenters
added that the impacted banks are
engaging in community development
under the current asset-size thresholds
PO 00000
Frm 00022
Fmt 4701
Sfmt 4700
without any apparent deleterious
impacts. Other commenters asserted
that maintaining the current asset-size
thresholds would be more consistent
with the agencies’ goal of strengthening
the CRA framework.
A few commenters suggested that the
current asset-size thresholds could
remain in place and continue to be
adjusted for inflation. A commenter
indicated that, based on the application
of inflation adjustments to the current
asset-size thresholds, the proposed
small bank asset-size threshold was too
large in comparison. The commenter
explained that if the agencies’ proposed
asset-size thresholds for small,
intermediate, and large banks were
adjusted for inflation, the asset-size
thresholds would be approximately
$375 million for small banks and
approximately $1.5 billion for large
banks.
A commenter opposed the proposed
asset-size threshold changes on the
grounds that the thresholds for
intermediate and large banks are
arbitrary and not based on any relevant
data or analysis. The commenter also
asserted that the proposed intermediate
bank threshold is similarly unsupported
and would subject reclassified
intermediate banks to considerably
increased compliance costs without
commensurate benefit. Another
commenter stated that the agencies did
not provide documentation supporting
the increase in the proposed asset-size
thresholds.
Alternate asset-size thresholds. Many
commenters recommended that the
agencies adopt asset-size thresholds for
small, intermediate, and large banks that
are higher than those proposed. These
commenters suggested asset-size
thresholds of $750 million to $5 billion
for intermediate banks and from $2.5
billion to $20 billion for large banks.
Commenters asserted that higher assetsize thresholds are necessary to provide
regulatory relief and limit the significant
compliance burdens that the agencies’
proposal would otherwise impose on
smaller banks. A commenter stated that
increasing the small bank asset-size
threshold to $750 million would avoid
placing unnecessary regulatory burden
on smaller mission-driven institutions.
Another commenter stated that
regulatory burden considerations
justified a variety of small bank assetsize thresholds of up to $3 billion.
Another commenter stated that it lacked
the financial and human resources to
monitor performance under the
proposed Retail Lending Test and
requested a significantly higher assetsize threshold for large banks. Other
commenters suggested asset-size
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
thresholds for large banks ranging from
$3.3 billion to $20 billion, based on
compliance burden as well as inflation
adjustments.
A few commenters specifically drew
attention to smaller banks’ resource
capacities in advocating for higher assetsize thresholds. A commenter suggested
an asset-size threshold of $750 million
for small banks and an asset-size
threshold of $3 billion for large banks
based on resource capacity. Another
commenter expressed support for a large
bank asset-size threshold of $3 billion.
Several other commenters
recommended an asset-size threshold of
$1 billion for small banks and an assetsize threshold of $5 billion for large
banks to better reflect resource capacity
and the ability to comply with the
proposed performance test
requirements. A commenter suggested
that a $1 billion asset-size threshold for
small banks would prove beneficial to
many community banks located in rural
areas with few low- and moderateincome census tracts. A few
commenters suggested that asset-size
thresholds of $1 billion and $10 billion
for small and large banks, respectively,
would better reflect bank capacity and
compliance resource availability.
Another commenter stated that an assetsize threshold cap on intermediate
banks of $3 billion would be a better
representation of the median large bank
in its State and region. One commenter
argued that setting the asset-size
thresholds for small banks and
intermediate banks at $1 billion and $3
billion, respectively, would provide
significant regulatory relief for smaller
banks and free up resources for the
agencies to focus on the largest banks
and banks with poor CRA performance.
Similarly, another commenter stated
that any bank with assets between $1
billion and $15 billion should be
classified as an intermediate bank to
reduce regulatory burden.
A commenter cited rapid growth in
bank balance sheets due to bank
consolidation and monetary and fiscal
policy as reasons to further raise the
small and intermediate bank asset-size
thresholds, to a small bank threshold of
$750 million and a large bank threshold
of $2.5 billion. Another commenter
cited similar reasons in support of a $1
billion asset-size threshold for small
banks. Another commenter suggested a
small bank asset-size threshold ranging
anywhere between $2 billion and $5
billion and a large bank asset-size
threshold of $10 billion due to the
growth in bank balance sheets.
Further, some commenters stated that
the asset-size thresholds should better
reflect the distribution of small,
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
intermediate, and large banks when
these categories were originally
established. Many commenters stated
that, to maintain a similar percentage
distribution of banks in the intermediate
bank category to the distribution of
intermediate small banks when that
category was established in 2005, an
intermediate bank should be any bank
with assets between $600 million and
$3.3 billion. Another commenter agreed
that the agencies should attempt to
maintain a similar percentage
distribution of intermediate-sized
institutions as in 2005. The commenter
also indicated that a large bank
threshold of $5 billion would likewise
achieve this outcome. A different
commenter suggested that any bank
with assets between $1 billion and $5
billion should be categorized as an
intermediate bank to adjust for inflation
since the asset-size thresholds were
originally set.
Some commenters noted that setting
the intermediate bank asset-size
threshold at $10 billion would serve to
eliminate the proposal’s distinction
between two tiers of large banks.104 For
example, a commenter stated that a $10
billion asset-size threshold for large
banks would eliminate the confusion
associated with the agencies’ proposal
to designate two tiers of large banks in
which only the largest large banks
would have comprehensive data
collection and reporting requirements.
Another commenter suggested that the
agencies create an additional ‘‘large
community bank’’ evaluation tier for
banks with $2 billion to $10 billion in
assets; alternatively, the commenter
suggested that the agencies expand the
intermediate bank tier to banks with
assets of $10 billion or less.
Similarly, several commenters stated
that the agencies should consider
raising the asset-size threshold for large
banks because the proposal is based on
an incorrect perception that a bank with
assets slightly over $2 billion is the peer
of a significantly larger regional bank
with $50 billion in assets—or an even
larger institution with a nationwide
presence. A few commenters also noted
that financial regulators often consider a
bank with less than $10 billion in assets
a ‘‘community bank’’ for supervisory
purposes. A few other commenters
concurred that banks with assets
between $2 billion and $10 billion are
typically considered to be community
banks. Another commenter,
recommending a large bank asset-size
104 The proposed and final rule apply certain
aspects of the final rule to large banks with assets
greater than $10 billion. See the section-by-section
analysis discussion of §§ ll.22 and ll.42.
PO 00000
Frm 00023
Fmt 4701
Sfmt 4700
6595
threshold of $5 billion, asserted that
raising the asset-size threshold for large
banks would minimize unfair
comparison of larger intermediate-size
institutions with significantly larger
banks. One other commenter suggested
raising the intermediate bank asset-size
threshold so that more banks would
have the option of being evaluated
under the status quo community
development test, as the agencies
proposed for intermediate banks
(referred to in the proposal as the
intermediate bank community
development evaluation).
A few commenters suggested that the
agencies conform increased asset-size
thresholds with other existing
thresholds. A commenter stated that the
agencies should set the asset-size
threshold for small banks at $750
million to conform with the U.S. Small
Business Administration’s (SBA) size
standard for small banks.105 The
commenter also stated that the asset-size
threshold for intermediate banks should
be increased to $2.5 billion, an amount
that would more closely approximate
the Board’s threshold of $3 billion to
distinguish between small and large
bank holding companies. Several
commenters stated that the small bank
asset-size threshold should be $1
billion, to be consistent with the
proposed definition of ‘‘community
bank’’ in the 2012 FDIC Community
Banking Study.106 A few other
commenters suggested that large banks
should have assets of $10 billion or
more to maintain consistency with
regulatory definitions in the Dodd-Frank
Act. Another commenter suggested that
the agencies follow the National Credit
Union Administration’s (NCUA)
position that institutions that it
supervises are ‘‘large’’ when they have
greater than $15 billion in assets.
Final Rule
The agencies considered commenters’
concerns and recommendations related
to the proposed asset-size thresholds. As
a part of that process, the agencies
observed that commenters did not
coalesce around a particular asset-size
framework that would address their
respective concerns related to the
proposed asset-size framework. In fact,
the opposite was true, as commenters’
recommendations as to how to structure
the asset-size framework were varied
and frequently unique. The agencies
conclude that the myriad comments and
recommendations reflect an absence of
105 See
infra note 113.
FDIC, ‘‘Community Banking Study’’ (Dec.
2012), https://www.fdic.gov/resources/communitybanking/report/2012/2012-cbi-study-full.pdf.
106 See
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6596
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
consensus around an asset-size
framework that would address all, or a
majority of, the commenters’ concerns.
The agencies continue to believe that
the proposed framework strikes the
appropriate balance between
recognizing the capacity differences
between banks of varying size and
maintaining a strong CRA evaluation
framework that benefits communities
served by banks of all sizes and
capacities.
The agencies also considered
commenter input that the proposed
asset-size thresholds are arbitrary and
not based on relevant data analysis. The
agencies believe increasing the assetsize threshold for small banks to $600
million is appropriate based on an
analysis of industry asset data, current
CRA asset-size thresholds, supervisory
experience with those thresholds, and
bank asset-size standards employed by
other agencies. First, as discussed in the
proposal, the agencies analyzed Call
Report and the FDIC’s Summary of
Deposits data to estimate how the
proposed asset-size thresholds would
redistribute banks throughout the
proposed categories. The agencies
estimated that the proposed change to
the small bank asset threshold would
result in approximately 778 banks,
representing two percent of all deposits,
transitioning from the current
intermediate-small bank category to the
proposed small bank category. The
agencies further estimated that the
proposed increase in the large bank
asset-size threshold would result in
approximately 216 banks representing
approximately two percent of all
deposits transitioning from the current
large bank category to the proposed
intermediate bank category.107 The
agencies communicated the findings of
this analysis as a part of the proposal to
ensure that the public was apprised of
the potential redistribution of banks
across the proposed framework.108
Second, the agencies, over the multidecade period since the CRA was
enacted, have developed supervisory
experience related to the asset-size
thresholds and an understanding of the
capacity of banks in each class of bank
to engage in CRA activity, and
incorporated that understanding into
the consideration of the proposed assetsize thresholds. Based on this
supervisory experience, the agencies
calibrated the level of CRA requirements
to bank size, consistent with the
107 The agencies based these estimates on average
assets from 2020 and 2021 Call Report data and the
FDIC’s 2021 Summary of Deposits data. These
statistics included some banks with no CRA
obligations, such as banker’s banks.
108 See 87 FR 33884, 33924 n. 162 (June 3, 2022).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
statutory purpose and the agencies’
objective of encouraging banks to meet
the credit needs of their communities.
Third, the agencies considered adopting
the SBA’s ‘‘small bank’’ definition, but
ultimately elected to adopt the $600
million asset-size threshold because it is
better aligned with the CRA’s policy
goals, and the agencies believe that
banks with assets between $600 and
$850 million have the capacity to
engage in community development
activity.
The agencies believe that the assetsize framework in the final rule
strengthens the agencies’
implementation of the CRA statute and
furthers the CRA statute’s emphasis on
assessing the records of banks of all
asset sizes in meeting the credit needs
of their entire communities, including
low- and moderate-income
neighborhoods. The final rule also
implements the CRA statutory
provisions that focus specifically on
MDIs, WDIs, and LICUs.109 As
discussed above, CRA and fair lending
laws such as ECOA and the Fair
Housing Act are mutually reinforcing.
Specifically, under the CRA, the
agencies assess banks’ records of
helping meet the credit needs of the
entire community,110 while fair lending
laws serve to identify and address
lending discrimination for protected
classes, such as race and ethnicity.
Under the final rule, intermediate
banks and small banks may receive
additional consideration at the
institution level for activities with
MDIs, WDIs, and LICUs, which, as
noted, reflects CRA statutory provisions.
For example, under the final rule a
small or intermediate bank can receive
consideration for a capital investment,
loan participation or other venture with
an MDI. An intermediate bank or small
bank that opts into the Retail Services
and Products Test may receive CRA
consideration for bank credit products
and programs that are conducted in
cooperation with MDIs and Special
Purpose Credit Programs as examples of
credit products and programs that are
responsive to the needs of the
communities in which the bank
operates, including the needs of lowand moderate-income individuals,
families, and households; small
businesses; and small farms. The final
rule also retains the current prohibition
against banks, including intermediate
banks and small banks, delineating
109 See
12 U.S.C. 2903(b) and 2907(a).
more information and discussion
regarding the agencies’ consideration of comments
recommending adoption of additional race- and
ethnicity-related provisions in this final rule, see
section III.C of this SUPPLEMENTARY INFORMATION.
110 For
PO 00000
Frm 00024
Fmt 4701
Sfmt 4700
facility-based assessment areas in a
manner that reflects illegal
discrimination or that arbitrarily
excludes low- and moderate-income
census tracts; and retains the current
provision regarding discriminatory or
other illegal credit practices that can
adversely affect a bank’s CRA
performance.
Further, both intermediate banks and
small banks continue to have retail
lending requirements. Under the final
rule, intermediate banks are evaluated
under the Retail Lending Test in final
§ ll.22, and either the Intermediate
Bank Community Development Test in
final § ll.30(a)(2) or, at the bank’s
option, the Community Development
Financing Test in final § ll.24.111
Likewise, under the final rule, small
banks are evaluated under the Small
Bank Lending Test, in final
§ ll.29(a)(2) or, at the bank’s option,
the Retail Lending Test in final
§ ll.22.112
Additional bank asset-size categories.
A few commenters suggested that the
agencies create a new category for banks
with assets much higher than the
proposed $2 billion large bank asset-size
threshold and apply the most
demanding performance tests or data
reporting and collection requirements
solely to those banks. According to
commenters, including a category for
the largest banks would help the
agencies to better tailor CRA
requirements for smaller large banks. A
commenter explained that the agencies
could impose the most demanding
requirements on ‘‘super large’’ banks
with greater than $50 billion in assets.
Similarly, another commenter suggested
the creation of a ‘‘mega bank’’ category
for banks with assets greater than $100
billion on which the agencies could
impose unique performance test
structures and standards. Another
commenter questioned why the agencies
did not apply the large bank
requirements exclusively to banks with
greater than $100 billion in assets, a
decision that according to the
commenter, would capture 75 percent of
total industry assets. One other
commenter recommended that the
agencies combine the proposed
intermediate bank and large bank
categories, so that there would only be
categories for small and large banks in
the final rule.
The agencies considered the
commenters’ concerns but are not
adopting additional asset-size categories
111 See the section-by-section analysis of final
§ ll.30.
112 See the section-by-section analysis of final
§ ll.29.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
for banks with assets significantly
greater than the proposed asset-size
threshold for large banks—e.g., ‘‘super
large’’ or ‘‘mega bank’’ categories for
institutions with assets over $50 billion
and $100 billion, respectively. Applying
certain aspects of the large bank
performance test only to very large
banks in the manner suggested by
commenters would reduce the number
of banks subject to certain aspects of the
performance tests and could thereby
discourage CRA activity by some banks.
Similarly, the agencies did not adopt
commenters’ suggestion to eliminate the
intermediate bank category in the final
rule. The agencies believe that the three
size categories of banks in the final rule
effectively balance bank capacity with
the obligation of a bank to meet the
needs of its community. Removing an
asset-size category would reduce
tailoring of the CRA performance tests
based on bank capacity. Depending on
which asset-size category were removed,
for example, more banks might be
classified as small banks, potentially
countering the agencies’ goal of
encouraging banks with a meaningful
capacity to engage in community
development activities, or more
performance tests would apply to banks
that potentially lack the capacity to
meet those tests’ parameters, increasing
regulatory burden.
SBA size standards for small banks.
The agencies specifically requested
feedback on whether they should adopt
an asset-size threshold for small banks
that differs from the SBA’s then small
bank asset-size standard of $750
million.113 Several commenters
supported the agencies conforming to
the SBA’s small bank asset-size
standard, with some specifically stating
that consistency across Federal agencies
should be maintained wherever
possible. In contrast, some commenters
found the SBA’s small bank asset-size
standard of $750 million too high, for
the same reasons provided by
commenters who found the proposed
size standards of $600 million too high,
as discussed above.
The agencies recognize that
consistency across Federal agencies is
113 The SBA’s applicable asset-size standards are
set forth in 13 CFR 121.201, Sector 52—Finance and
Insurance, Subsector 522—Credit Intermediation
and Related Activities (specifically, North
American Industry Classification System (NAICS)
codes 522110 and 522180). At the time of the
proposed rule’s publication date, the SBA’s small
bank asset-size threshold was $750 million. The
SBA revised this asset-size standard, as of
December 19, 2022, from $750 million to $850
million in assets, determined by averaging the
assets reported on the depository institution’s four
quarterly financial statements for the preceding
year. See 87 FR 69118, 69128 (Nov. 17, 2022).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
generally desirable, but the agencies
believe that deviating from the SBA’s
small bank asset-size standard is
appropriate to meet the CRA’s statutory
purpose. In particular, applying the
SBA’s $850 million small bank assetsize standard in the CRA framework
would significantly increase the number
of banks that would be classified as
small banks. This might, in turn, result
in less community development activity
relative to the current CRA regulations
or proposal because fewer banks would
be evaluated under the status quo
community development test.114 Such a
development would be counter to the
CRA statute’s purposes and the
agencies’ CRA modernization objectives.
Inflation adjustments to asset-size
thresholds. Several commenters
expressed support for the agencies’
proposal to adjust the asset-size
thresholds for small, intermediate, and
large banks annually for inflation.
However, a few commenters expressed
concerns. A commenter stated that,
although the proposed inflation
adjustments may seem reasonable, they
could have the unintended consequence
of decreasing investments in low- and
moderate-income communities when
banks are reclassified to a smaller assetsize category. A few other commenters
stated that inflation adjustments tied to
the CPI–W do not take into account
major changes, including consolidation,
that have occurred in the banking
industry over the past decade.
The agencies considered the
commenters’ feedback and elected to
maintain the proposed annual inflation
adjustment methodology in the final
rule. The agencies believe the proposed
methodology, whereby asset-size
thresholds would be adjusted annually
for inflation based on the annual
percentage change in the CPI–W, is
preferable due to its alignment with the
current CRA regulations’ annual
inflation adjustments to the asset-size
thresholds. With respect to commenters’
concerns about unintended
consequences associated with banks
moving into lower asset-size categories,
114 Based on an analysis of current bank size
characteristics, the agencies estimate that the $600
million small bank asset-size threshold would
result in approximately 609 banks that are required
to comply with the CRA rule—representing
approximately 13 percent of all banks—
transitioning to the small bank category. However,
if the agencies were to incorporate an $850 million
asset-size standard in the CRA regulations, the
agencies estimate that this would lead to
approximately 957 current intermediate small
banks that are required to comply with the CRA
rule, representing approximately 21 percent of all
banks, transitioning from the current intermediate
small bank category to the small bank category.
Estimates are based on year-end assets from 2021
and 2022 Call Report data.
PO 00000
Frm 00025
Fmt 4701
Sfmt 4700
6597
the agencies recognize that this is a
potential outcome associated with
employing an annual inflation
adjustment to the asset-size thresholds.
However, the agencies believe the
benefits of employing an annual
inflation adjustment mechanism
outweigh this concern, because it
mitigates the risk of needing to employ
large or unpredictable increases to
realign the asset-size thresholds with
conditions in the banking industry.
Further, utilizing ad hoc adjustments to
the asset-size thresholds, which would
be less predictable and less stable, could
mean more movement of banks from
one size category to another from yearto-year, which inherently creates
uncertainty for banks and stakeholders.
Moreover, if the agencies declined to
include an annual inflation adjustment
mechanism, a scenario could develop
where institutions would graduate into
higher size categories due to inflation
regardless of whether their financial
condition or capabilities to engage in
CRA activity have changed. Finally, the
agencies note that the annual asset-size
threshold adjustment methodology is
not designed to account for industry
changes such as consolidation. Rather,
the methodology is designed to ensure
that the asset-size thresholds evolve
with economic conditions.
Asset-size threshold alternatives. A
few commenters cautioned against the
agencies placing too much reliance on
asset-size thresholds to determine
which performance tests apply to a
particular bank. These commenters
stated that the agencies should consider
various factors such as a bank’s business
model, risk profile, areas of
specialization, communities served,
assessment area sizes, presence in an
assessment area, staffing levels, and
technology limitations. A few other
commenters suggested that, under an
‘‘alternate prong’’ in the large bank
definition, the agencies should
designate a bank as a large bank if it
makes a certain amount of loans in an
evaluation period, even if its asset size
would otherwise qualify it as a small or
intermediate bank. These commenters
asserted that this alternate prong would
account for situations where a bank
claims to be the ‘‘true lender’’ for loans
that it makes with support from a third
party.
The agencies considered commenter
feedback that the final rule should
include alternative formulations to
determine which performance tests
apply to a bank. The agencies believe
that alternative formulations for the
baseline determination of which
performance tests apply to a bank,
including adding factors such as risk
E:\FR\FM\01FER2.SGM
01FER2
6598
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
profile, areas of specialization,
technology limitations, and others,
would increase the complexity of the
final rule and its administration without
meaningfully furthering the agencies’
CRA objectives. Therefore, the agencies
are maintaining asset size as the sole
factor for purposes of categorizing most
institutions in the final rule. However,
as discussed throughout this
SUPPLEMENTARY INFORMATION, the
agencies have incorporated performance
context information into performance
test metrics and benchmarks, as well as
express consideration of qualitative
factors in evaluating a bank’s
performance, which include, among
others, business model.115 In addition,
the agencies have retained a distinct
evaluation approach for limited purpose
banks,116 as well as the option for banks
to be evaluated under a strategic
plan.117
Asset-size threshold calculations. A
commenter requested clarification
regarding how the agencies propose to
determine a bank’s asset size. The
commenter noted that the proposal
defines a small bank as a bank that had
average assets of less than $600 million
in either of the prior two calendar years,
based on the assets reported on its four
quarterly Call Reports for each of those
calendar years. The commenter
requested that the agencies clarify
whether a bank must have average
assets of less than $600 million at each
quarter-end versus the current method
that considers year-end values.
After considering this comment, the
agencies have decided to retain the
asset-size calculation methodology in
the current CRA regulations, which
provides that asset size is calculated as
of the end of a calendar year without
reference to quarterly Call Report
figures.118 This methodology is simpler
than the proposed formula, it is widely
understood,119 and retaining it will
minimize complexity in the final rule.
115 See, e.g., final §§ ll.21(d) and ll.22(g) and
the accompanying section-by-section analyses.
116 See final §§ ll.12 (definition of ‘‘limited
purpose bank’’) and ll.26 and the accompanying
section-by-section analyses.
117 See final § ll.27 and the accompanying
section-by-section analysis.
118 As a result of retaining the current year-end
asset-size calculation, the agencies estimate that the
number of small banks will decrease from 3252
(NPR asset-size calculation methodology) to 3219
banks, the number of intermediate banks will
increase from 883 (NPR asset-size calculation
methodology) to 889, and the number of large banks
will increase from 492 (NPR asset-size calculation
methodology) to 519. Numbers are for banks that
are required to comply with the CRA regulation;
estimates are based on year-end assets from 2021
and 2022 Call Report data.
119 See current 12 CFR ll.12(u)(1).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
For the reasons discussed above, the
agencies are adopting the proposed
definitions of ‘‘small bank,’’
‘‘intermediate bank,’’ and ‘‘large bank’’
in the final rule, with two substantive
changes. First, the agencies are adding
the clause, ‘‘excluding a bank
designated as a limited purpose bank 120
pursuant to § ll.26,’’ to each of the
three definitions to clarify that a bank
designated as a limited purpose bank
that also falls into one of the asset-size
categories is evaluated as a limited
purpose bank and not a small,
intermediate, or large bank, with the
attendant requirements of the
performance tests that would otherwise
be applicable to such a bank.121 Second,
the agencies have changed the asset-size
calculation methodology to reflect assets
held at year-end, instead of at each
quarter-end, as proposed. The agencies
have also made minor technical
wording changes.
Accordingly, in the final rule, ‘‘small
bank’’ means a bank, excluding a bank
designated as a limited purpose bank
pursuant to § ll.26, that had assets of
less than $600 million as of December
31 in either of the prior two calendar
years. ‘‘Intermediate bank’’ means a
bank, excluding a bank designated as a
limited purpose bank pursuant to
§ ll.26, that had assets of at least $600
million as of December 31 in both of the
prior two calendar years and less than
$2 billion as of December 31 in either
of the prior two calendar years. ‘‘Large
bank’’ means a bank, excluding a bank
designated as a limited purpose bank
pursuant to § ll.26, that had assets of
at least $2 billion as of December 31 in
both of the prior two calendar years. For
all three definitions, the agencies adjust
and publish the asset-size thresholds
annually, based on the year-to-year
change in the average of the CPI–W, not
seasonally adjusted, for each 12-month
period ending in November, with
rounding to the nearest million.
As indicated above, and in the
proposal, the agencies believe that these
asset-size thresholds appropriately
balance the agencies’ objectives of
meeting the CRA’s purpose of
encouraging banks to meet the credit
needs of their communities and
recognizing differences in bank capacity
based on asset size.
In accordance with the Small
Business Act 122 and its implementing
120 As
discussed below, in the definition of
‘‘limited purpose bank,’’ the agencies have
combined limited purpose banks and wholesale
banks into one category, ‘‘limited purpose banks.’’
121 For limited purpose bank evaluations, see
final §§ ll.21(a)(4) and ll.26 and the
accompanying section-by-section analyses.
122 15 U.S.C. 632(a)(2)(C).
PO 00000
Frm 00026
Fmt 4701
Sfmt 4700
regulations,123 the agencies sought and
received approval from the SBA to
deviate from the SBA’s asset-size
standard applicable to small depository
institutions—i.e., small banks.
Branch
Current Approach and the Agencies’
Proposal
The agencies proposed to update the
current definition of ‘‘branch’’ without
materially changing the substantive
meaning of this term. The current CRA
regulations define ‘‘branch’’ to mean a
staffed banking facility authorized as a
branch, whether shared or unshared,
including, for example, a mini-branch in
a grocery store or a branch operated in
conjunction with any other local
business or nonprofit organization.124
Under the proposal, ‘‘branch’’ would
mean a staffed banking facility, whether
shared or unshared, that is approved or
authorized as a branch by the
appropriate Federal financial
supervisory agency and that is open to,
and accepts deposits from, the general
public.
As noted in the proposal, the agencies
did not intend for the removal of the list
of examples from the definition to
change or narrow the meaning of the
term ‘‘branch’’ and believed that these
examples did not fully reflect the
breadth of shared space locations that
might exist, particularly as new bank
business models emerge in the future. In
addition, the agencies proposed to add
the language ‘‘open to, and accepts
deposits from, the general public’’ to the
definition of ‘‘branch’’ to underscore
that this definition would capture new
bank business models, with different
types of staffed physical locations, when
those locations are open to the public
and collect deposits from customers.
Similarly, the agencies added that a
branch must be approved or authorized
as a branch by the agency to clarify that
the agencies have varying processes for
branch designation and that the name
that a bank assigns to a facility is not
determinative of whether an agency
considers it a ‘‘branch’’ for CRA
purposes. The agencies did not view
these revisions as a change from the
current standards.
For the reasons stated below, the
agencies are adopting the proposed
definition of ‘‘branch’’ in the final rule.
Comments Received
The agencies received several
comments concerning the proposed
definition of ‘‘branch.’’ A commenter
recommended that the agencies adopt a
123 13
CFR 121.903.
current 12 CFR ll.12(f).
124 See
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
flexible definition of ‘‘branch’’ that can
adjust with changes in the industry.
Other commenters offered views on
what the agencies should and should
not consider a branch for purposes of
delineating a facility-based assessment
area. A commenter requested that the
agencies clarify whether the proposed
definition of ‘‘branch’’ (and ‘‘remote
service facility,’’ discussed below)
would include a financial institution
taking deposits at a school or
community organization facility.
Another commenter recommended
stating explicitly, either in the
regulation or in guidance, that a staffed
physical location in a shared space in
which a financial institution has
partnered with a nonprofit organization
is a branch. This commenter also
suggested that the agencies specify that
any examples of shared physical
locations in the regulation are
illustrative and not exhaustive. Another
commenter requested that a trust office
be specifically excluded from the
definition of ‘‘branch’’ if the office is not
open to or does not accept deposits from
the general public.
Final Rule
After reviewing the comments
received on this definition, the agencies
are adopting the definition of ‘‘branch’’
as proposed. Accordingly, ‘‘branch’’
means a staffed banking facility,
whether shared or unshared, that the
appropriate Federal financial
supervisory agency approved or
authorized as a branch and that is open
to, and accepts deposits from, the
general public. The agencies believe the
proposed definition of ‘‘branch’’
provides adequate flexibility to adapt to
the continuous evolution of the banking
industry by relying on the agencies’
authority to approve and authorize
branches. As the banking industry
evolves, the agencies have the authority
to adjust their rules, regulations, and
guidance to accommodate industry
developments.
The agencies decline to opine on
whether the scenarios presented by the
commenters would qualify as a branch
under the definition, because branching
decisions are analyzed on a case-by-case
basis and subject to the agencies’
respective statutory authority,
regulations, and guidance, which may
be modified in the future and render
some or all of the examples contained
in the list inaccurate.
The agencies do not believe that trust
offices that are not open to the public
or do not accept deposits from the
general public need to be explicitly
excluded from the definition of
‘‘branch,’’ because a trust office
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
exhibiting those characteristics would
likely not satisfy the elements of the
definition of ‘‘branch’’ in the final rule.
However, as discussed above, branching
decisions are fact-specific inquiries, so
the agencies are not opining on whether
trust offices are generally excluded
under the definition of ‘‘branch’’ in the
final rule.
Census Tract
The current rule defines ‘‘geography’’
to mean a census tract delineated by the
U.S. Bureau of the Census in the most
recent decennial census.125 To simplify
and clarify the CRA regulations, the
agencies proposed to use the term
‘‘census tract’’ in place of the term
‘‘geography,’’ without changing the
substantive meaning. As proposed,
‘‘census tract’’ would mean a census
tract delineated by the U.S. Census
Bureau in the most recent decennial
census. In addition, the agencies
proposed to substitute the word ‘‘census
tract’’ for the word ‘‘geography’’
wherever ‘‘geography’’ appears in the
regulatory text.
The agencies did not receive any
comments concerning the proposed
‘‘census tract’’ definition and are
adopting the definition as proposed
with one change. The agencies are
removing the phrase ‘‘in the most recent
decennial census’’ from the definition in
the final rule to conform this definition
to current agency practice. The U.S.
Census Bureau periodically updates
census tract boundaries and numbering
during the years between decennial
censuses, and the Federal Financial
Institutions Examination Council
(FFIEC) compiles these changes to
provide one update between decennial
censuses, after five years. Under current
practice, the agencies have been using
the census tract boundaries and
numbering posted on the FFIEC website.
This practice balances between the
benefit of using updated census tract
definitions between decennial censuses
and the benefit of having a substantial
period of stability (five years) between
adjustments to census tract delineations
and numbering. The agencies believe
that the revised definition would allow
for the current practice of using interdecennial changes to census tract
delineations, which would not be
possible under the proposed language
because the definition would be
confined to the census tract delineations
included in the decennial census.
125 See current 12 CFR ll.12(k) (‘‘Geography
means a census tract delineated by the United
States Bureau of the Census in the most recent
decennial census.’’).
PO 00000
Frm 00027
Fmt 4701
Sfmt 4700
6599
Accordingly, the final rule defines
‘‘census tract’’ to mean a census tract
delineated by the U.S. Census Bureau.
The U.S. Census Bureau publishes
census tract data and information at
census.gov.126
Closed-End Home Mortgage Loan
For a discussion of the definition of
‘‘closed-end home mortgage loan,’’ see
the discussion below for MortgageRelated Definitions.
Combination of Loan Dollars and Loan
Count
To provide clarity and consistency,
and to simplify the text of the CRA
regulations, the agencies are adopting a
new definition for ‘‘combination of loan
dollars and loan count,’’ not included in
the proposal, that means, when applied
to a particular ratio, the average of: (1)
the ratio calculated using loans
measured in dollar volume; and (2) the
ratio calculated using loans measured in
number of loans. This term is employed
in calculations for the Retail Lending
Test in final § ll.22, as provided in
final appendix A; the calculations for
the Community Development Financing
Test in final § ll.24, as provided in
final sections II and IV of appendix B,
and the Community Development
Services Test in final § ll.25, as
provided in final section IV of appendix
B; and the Retail Services and Products
Test in final § ll.23, as provided in
final appendix C. These calculations are
discussed in more detail in the sectionby-section analysis of §§ ll.22
through ll.25.
For the Retail Lending Test in
particular, the combined loan dollars
and loan count approach for various
calculations better tailors the Retail
Lending Test to accommodate
individual bank business models. The
agencies determined that use of this
combination helps to account for
differences across product lines, bank
strategies, and geographic areas, relative
to an approach that uses only loan
dollars or only loan count. Loan size can
vary among different product lines (e.g.,
home mortgage loans versus automobile
loans), and this approach seeks to
balance the value of dollars invested in
a community with the number of
borrowers served. In particular, the
agencies believe that both loan dollars
and loan count reflect different aspects
of how a bank has served the credit
needs of a community. For example, in
the agencies’ supervisory experience,
employing a combination of loan dollars
126 See U.S. Census Bureau, ‘‘TIGER/Line
Shapefiles,’’ https://www.census.gov/cgi-bin/geo/
shapefiles/index.php.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6600
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
and loan count recognizes the continued
importance of home mortgage lending to
low-income and moderate-income
communities, which has been a focus of
the CRA, while also accounting for the
importance of typically smaller dollar
small business, small farm, and
automobile lending to low- and
moderate-income communities. The
loan dollars represent the total amount
of credit provided, while the loan count
represents the number of borrowers
served. The agencies believe this is a
balanced approach that ensures
consideration of lending that would be
significant to the bank by either dollar
or number.
Specifically, the agencies believe that
use of this term will improve
understanding and readability of the
following calculations in the Retail
Lending Test: (1) the retail lending
assessment area 80 percent exemption
threshold, as provided in final
paragraph II.a.1 of appendix A; (2) the
outside retail lending area 50 percent
exemption threshold for intermediate
banks, as provided in final paragraph
II.a.2 of appendix A; (3) the 15 percent
major product line threshold for facilitybased assessment areas and outside
retail lending areas, as provided in final
paragraph II.b.1 of appendix A; (4) the
standard for determining whether a
bank is a majority automobile lender, as
provided in final paragraph II.b.3 of
appendix A; (5) weighted performance
conclusions for major product lines in
facility-based assessment areas, retail
lending assessment areas, and outside
retail lending areas to develop
corresponding area performance
conclusions, as provided in final
paragraph VII.b of appendix A; and (6)
weighted average performance scores for
different areas in which banks are
evaluated to develop performance test
conclusions for States, multistate MSAs,
and the institution, as provided in final
paragraph VIII.b.2 of appendix A.
Similarly, the agencies believe that,
for purposes of consistency throughout
the final rule and to provide clarity, it
is appropriate to incorporate the term
into the calculations related to the
Community Development Financing
Test in final § ll.24 and the
Community Development Services Test
in final § ll.25, as provided in final
appendix B, as well as the Retail
Services and Products Test in final
§ ll.23, as provided in final appendix
C. As with the Retail Lending Test in
final § ll.22, this definition helps to
improve understanding and readability
in the calculations for the: (1) weighting
of benchmarks in final paragraph II.o of
appendix B; (2) combined score for
facility-based assessment area
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
conclusions and the metrics and
benchmarks analyses and the impact
and responsiveness reviews in final
paragraph II.p of appendix B; (3) the
weighting of conclusions in final section
IV of appendix B; and (4) the weighting
of conclusions in final paragraph c of
appendix C.
Community Development
The current CRA regulations include
a detailed definition of ‘‘community
development.’’127 The agencies
proposed to move this definition, with
substantive additions and clarifications,
to a separate new section, proposed
§ ll.13, Community Development
Definitions, and to define this term in
§ ll.12 by cross-referencing to
proposed § ll.13. The agencies did
not receive any comments on the
proposed definition of ‘‘community
development’’ and adopt it as proposed
in the final rule. Final § ll.13, as
discussed in the section-by-section
analysis of § ll.13, describes activities
that constitute community
development, as proposed, but is
retitled ‘‘Consideration of community
development loans, community
development investments, and
community development services.’’
Community Development Financial
Institution
The agencies proposed to add the
definition of ‘‘Community Development
Financial Institution (CDFI)’’ to the CRA
regulations. This term would have the
same meaning given to that term in
section 103(5)(A) of the Riegle
Community Development and
Regulatory Improvement Act of 1994
(RCDRIA) (12 U.S.C. 4701 et seq.).128
The agencies proposed this definition to
promote clarity in the CRA regulations
and consistency across Federal
programs addressing CDFIs, particularly
the CDFI Fund established by
RCDRIA.129
The agencies did not receive any
comments concerning the proposed
definition of ‘‘Community Development
current 12 CFR ll.12(g).
103(5)(A) of RCDRIA defines ‘‘CDFI’’
to mean a person (other than an individual) that:
(1) has a primary mission of promoting community
development; (2) serves an investment area or
targeted population; (3) provides development
services in conjunction with equity investments or
loans, directly or through a subsidiary or affiliate;
(4) maintains, through representation on its
governing board or otherwise, accountability to
residents of its investment area or targeted
population; and (5) is not an agency or
instrumentality of the United States, or of any State
or political subdivision of a State. See 12 U.S.C.
4702(5)(A).
129 See U.S. Dept. of the Treasury, ‘‘Community
Development Financial Institutions Fund,’’ https://
www.cdfifund.gov/about; see also 12 U.S.C. 4703.
127 See
128 Section
PO 00000
Frm 00028
Fmt 4701
Sfmt 4700
Financial Institution’’ and are adopting
the definition as proposed in the final
rule with several technical and
clarifying edits. First, the agencies are
replacing the phrase ‘‘has the same
meaning given to that term’’ with
‘‘means an entity that satisfies the
definition.’’ Second, the agencies are
changing the cross-reference to the
RCDRIA to the more specific
‘‘Community Development Banking and
Financial Institutions Act of 1994,’’
which is title I, subtitle A of RCDRIA.
Third, in conjunction with the revised
cross-reference to the Community
Development Banking and Financial
Institutions Act of 1994, the agencies
have revised the citation from ‘‘12
U.S.C. 4701 et seq.’’ to ‘‘12 U.S.C.
4702(5).’’ Finally, in order to clarify that
references to CDFIs in the final rule
pertain to those entities that are
determined to be CDFIs by the U.S.
Department of the Treasury’s CDFI
Fund, the definition has been amended
by adding the clause ‘‘and is certified by
the U.S. Department of the Treasury’s
Community Development Financial
Institutions Fund as meeting the
requirements set forth in 12 CFR
1805.201(b).’’ This definitional change
affirms the agencies’ intent to ensure
that, beyond MDIs, WDIs, and LICUs,
the entities with which a bank may
engage for automatic consideration of
loans, investments, and services have
undergone the U.S. Department of the
Treasury’s CDFI certification process
and meet requirements for maintaining
that certification. The agencies consider
this a critical guardrail to ensuring that
community development on an
inclusive community basis is the focus
of bank loans, investments, and services
in cooperation with these CDFIs. See
discussion of CDFIs in the section-bysection analysis of § ll.13.
Accordingly, the final rule defines
‘‘Community Development Financial
Institution (CDFI)’’ to mean an entity
that satisfies the definition in section
103(5)(A) of the Community
Development Banking and Financial
Institutions Act of 1994 (12 U.S.C.
4702(5)) and is certified by the U.S.
Department of the Treasury’s
Community Development Financial
Institutions Fund as meeting the
requirements set forth in 12 CFR
1805.201(b).
Community Development Investment
The agencies proposed to replace the
term ‘‘qualified investment’’ in the
current CRA regulations 130 with the
term ‘‘community development
130 See
E:\FR\FM\01FER2.SGM
current 12 CFR ll.12(t).
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
investment.’’ 131 The current CRA
regulations define ‘‘qualified
investment’’ to mean ‘‘a lawful
investment, deposit, membership share,
or grant that has as its primary purpose
community development.’’ 132 The
agencies believe the term ‘‘community
development investment’’ is better
aligned with the other types of
community development activities
discussed in the proposal—i.e.,
community development loans and
community development services. (The
definitions for these terms are discussed
below). The agencies based the
proposed ‘‘community development
investment’’ definition on the current
‘‘qualified investment’’ definition and
incorporated several additions. First, the
proposed ‘‘community development
investment’’ definition clarified that a
lawful investment includes a legally
binding commitment to invest that is
reported on Schedule RC–L of the Call
Report if its primary purpose is
community development. Second, the
proposed definition expressly included
a ‘‘monetary or in-kind donation’’ if its
primary purpose is community
development in order to increase
certainty and clarity as to what activities
would qualify under the definition.
Finally, the agencies added a crossreference to proposed § ll.13(a),
Community Development Definitions.
The agencies did not receive any
comments concerning the proposed
definition of ‘‘community development
investment’’ and are adopting the
definition as proposed, with technical
edits to conform to the changes made to
§ ll.13 in the final rule and adjust
punctuation. Specifically, the agencies
are changing ‘‘has a primary purpose of
community development’’ to ‘‘supports
community development’’ and revising
the cross-reference to ‘‘§ ll.13(a)’’ to
‘‘§ ll.13.’’ A payment to a third party
that is not an affiliate to perform
community development service hours
qualifies as a ‘‘monetary or in-kind
donation’’ under the definition of
‘‘community development investment’’
in § ll.12.
ddrumheller on DSK120RN23PROD with RULES2
Community Development Loan
The current CRA regulations define
‘‘community development loan’’ to
mean a loan that: (1) has as its primary
purpose community development; and
131 As discussed, the change in the final rule from
‘‘qualified investment’’ to ‘‘community
development investment’’ is a change in
nomenclature only; for purposes of simplifying the
discussion, this SUPPLEMENTARY INFORMATION
hereafter refers to ‘‘qualified investments’’ under
the current rule as ‘‘community development
investments.’’
132 Id.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
(2) except in the case of a wholesale or
limited purpose bank, has not been
reported or collected by the bank or an
affiliate for consideration in the bank’s
assessment as a home mortgage, small
business, small farm, or consumer loan,
unless the loan is for a multifamily
dwelling (as defined in § 1003.2(n) of
this title); and benefits the bank’s
assessment area(s) or a broader
statewide or regional area(s) that
includes the bank’s assessment
area(s).133
The agencies proposed several
revisions to this definition to add
greater specificity and to reflect
consideration of community
development loans and retail loans
under the proposed CRA evaluation
framework. First, the proposed
definition included the clause, ‘‘a
legally binding commitment to extend
credit, such as a standby letter of
credit,’’ to clarify that these types of
commitments could be considered
‘‘community development loans’’ if
their primary purpose is community
development pursuant to proposed
§ ll.13(a). Second, the agencies
removed the reference to assessment
areas because this part of the current
definition caused uncertainty as to
whether an otherwise eligible activity
would qualify. Finally, the proposed
definition reflected the proposed CRA
framework’s consideration of certain
loans solely under the proposed Retail
Lending Test, with an option for certain
intermediate banks to have a home
mortgage loan, a small business loan, or
a small farm loan considered as either
a retail loan or a community
development loan.
Specifically, the agencies proposed to
define ‘‘community development loan’’
to mean a loan, including a legally
binding commitment to extend credit,
such as a standby letter of credit, that:
(1) has a primary purpose of community
development, as described in
§ ll.13(a); and (2) has not been
considered by the bank, an operations
subsidiary or operating subsidiary of the
bank or an affiliate of the bank under
the Retail Lending Test as an
automobile loan, closed-end home
mortgage loan, open-end home mortgage
loan, small business loan, or small farm
loan unless (1) the loan is for a
multifamily dwelling (as defined in 12
CFR 1003.2(n)); or (2) in the case of an
intermediate bank that is not required to
report a home mortgage loan, a small
business loan, or a small farm loan, the
bank may opt to have the loan
considered under the Retail Lending
Test in § ll.22, or under the
133 See
PO 00000
current 12 CFR ll.12(h).
Frm 00029
Fmt 4701
Sfmt 4700
6601
intermediate bank community
development performance standards in
§ ll.29(b)(2), or, if the bank opts in,
the Community Development Financing
Test in § ll.24.134
The agencies did not receive any
comments concerning the proposed
‘‘community development loan’’
definition and are adopting the
definition in the final rule with changes
to reflect revisions to the final rule
regarding consideration of certain home
mortgage loans, small business loans,
and small farm loans as community
development loans. First, the agencies
are changing ‘‘has a primary purpose of
community development’’ to ‘‘supports
community development’’ and revising
the cross-reference from ‘‘§ ll.13(a)’’
to ‘‘§ ll.13’’ to conform to the changes
made to § ll.13 in the final rule. Next,
the agencies removed proposed
paragraph (2) and added text intended
to clarify that a one-to-four family home
mortgage loan for rental housing with
affordable rents in nonmetropolitan
areas under § ll.13(b)(3) (as discussed
in the section-by-section analysis of
final § ll.13(b)(3)) may be considered
in a bank’s CRA evaluation under both
the Retail Lending Test in § ll.22, if
applicable, and under the applicable
community development tests in the
final rule. Under the final definition of
‘‘community development loan,’’ a
small business loan or a small farm loan
that has a community development
purpose, as described in § ll.13, may
also be considered in a bank’s CRA
evaluation under both the Retail
Lending Test in § ll.22, if applicable,
and under the applicable community
development test in the final rule. For
example, as discussed in the section-bysection analysis of final § ll.13(c)(3),
certain loans to small businesses and
small farms may fall within the
economic development category of
community development.
The changes regarding consideration
of certain home mortgage loans, small
business loans, and small farm loans as
community developments loans are
discussed in more detail in the sectionby-section analyses of § ll.13(b) and
(c).
Accordingly, the final rule defines
‘‘community development loan’’ as a
loan, including a legally binding
commitment to extend credit, such as a
standby letter of credit, that supports
community development, as described
in § ll.13. A community development
loan does not include any home
mortgage loan considered under the
Retail Lending Test in § ll.22, with
the exception of one-to-four family
134 See
E:\FR\FM\01FER2.SGM
proposed § ll.12.
01FER2
6602
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
home mortgage loans for rental housing
with affordable rents in
nonmetropolitan areas under
§ ll.13(b)(3).
Community Development Services
ddrumheller on DSK120RN23PROD with RULES2
Current Approach and the Agencies’
Proposal
The agencies proposed to replace the
current term ‘‘community development
service,’’ with the term, ‘‘community
development services,’’ and revise the
definition. The current CRA regulations
define ‘‘community development
service’’ to mean a service that: (1) has
as its primary purpose community
development; (2) is related to the
provision of financial services; and (3)
has not been considered in the
evaluation of the bank’s retail banking
services under § ll.24(d).135 Under
current guidance, activities related to
the provision of financial services
include services of the type generally
provided by the financial services
industry, which often involves
informing community members about
obtaining or using credit.136 Further,
community development service
includes, but is not limited to, serving
on the board of directors for a
community development organization,
serving on a loan committee, developing
or teaching financial literacy curricula
for low- and moderate-income
individuals, providing technical
assistance on financial matters to a
small business, and providing services
reflecting a bank employee’s
professional expertise at the bank (e.g.,
human resources, information
technology, legal).137 Personal
charitable activities provided by an
employee or director outside the
ordinary course of their employment do
not qualify for community development
consideration.138 Instead, services must
be performed in the capacity of a
representative of the bank.139
The agencies proposed to replace the
current term ‘‘community development
service,’’ with the term, ‘‘community
development services’’ and revise the
definition. Specifically, the agencies
proposed to define ‘‘community
development services’’ to mean
‘‘activities described in § ll.25(d).’’
The agencies, generally, proposed in
§ ll.25(d) to incorporate the existing
135 Under current 12 CFR ll.24(d), the agencies
evaluate ‘‘the availability and effectiveness of a
bank’s systems for delivering retail banking
services. . . .’’ See also Q&A § ll.24(d)—1 and
—2; Q&A § ll.24(d)(3)—1 and —2; and Q&A
§ ll.24(d)(4)—1.
136 See Q&A § ll.12(i)—1.
137 See Q&A § ll.12(i)—3.
138 See Q&A § ll.12(i)—2.
139 Id.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
definition of community development
services while codifying existing
guidance on the meaning of ‘‘related to
the provision of financial services.’’
Proposed § ll.25(d) defined
community development services as: (1)
activities that have a primary purpose of
community development, as defined in
proposed § ll.13(a)(1); (2) volunteer
activities performed by bank board
members or employees; and (3)
activities related to the provision of
financial services as described in
proposed § ll.25(d)(3), unless
otherwise indicated in proposed
§ ll.25(d)(4).140 Proposed
§ ll.25(d)(2) excluded volunteer
services performed by bank board
members or employees of the bank who
are not acting in their capacity as
representatives of the bank. Proposed
§ ll.25(d)(3) provided that activities
related to the provision of financial
services are generally activities that
relate to credit, deposit, and other
personal and business financial
services, and included a non-exhaustive
list of examples. Proposed
§ ll.25(d)(4) provided that banks may
receive community development
services consideration for volunteer
activities undertaken in
nonmetropolitan areas that otherwise
meet the criteria for one or more of the
community development definitions, as
described in § ll.13, even if unrelated
to financial services. The agencies
reasoned that banks operating in
nonmetropolitan areas may have fewer
opportunities to provide community
development services related to the
provision of financial services. Proposed
§ ll.25(d)(4) provided that examples
of qualifying activities not related to
financial services include, but are not
limited, to assisting an affordable
housing organization to construct
homes; volunteering at an organization
that provides community support such
as a soup kitchen, a homeless shelter, or
a shelter for victims of domestic
violence; and organizing or otherwise
assisting with a clothing drive or a food
drive for a community service
organization.
Comments Received
The agencies received numerous
comments concerning the proposed
definition of ‘‘community development
services’’ that are discussed below.
Community development purpose for
community development services. A few
commenters stressed that the final rule
should require community development
services to have or be related to a
community development purpose.
140 See
PO 00000
proposed § ll.25(d).
Frm 00030
Fmt 4701
Sfmt 4700
Related to the provision of financial
services. As described above, proposed
§ ll.25(d)(3) provided that
‘‘[a]ctivities related to the provision of
financial services’’ are those that relate
to credit, deposit, and other personal
and business financial services and
included the following non-exhaustive
list of examples: serving on the board of
directors of an organization that has a
primary purpose of community
development; providing technical
assistance on financial matters to
nonprofit, government, or tribal
organizations or agencies supporting
community development activities;
providing support for fundraising to
organizations that have a primary
purpose of community development;
providing financial literacy education as
described in proposed § ll.13(k); or
providing services reflecting other areas
of expertise at the bank, such as human
resources, information technology, and
legal services.
A few commenters supported the
inclusion of volunteer activities
reflecting expertise of the employee,
such as human resources, legal services,
and information technology. A few
other commenters specifically noted
that activities related to the provision of
financial services should include
financial literacy or financial education.
One of these commenters also suggested
the provision of financial services
should include volunteering at
Volunteer Income Tax Assistance sites
managed by nonprofit organizations.
Performed on behalf of the bank.
Regarding the proposed exclusion of
volunteer activities by bank board
members or employees of the bank who
are not acting in their capacity as
representatives of the bank, a
commenter requested clarification that
the proposed exclusion would not
require the volunteer to act as an agent
of the bank when serving on a
community organization’s board of
directors. This commenter believed that
if the volunteer must act as an agent, it
could create a conflict of interest.
Another commenter stated that banks
should only receive CRA credit for
volunteer activities performed during
bank business hours.
Volunteer activities in
nonmetropolitan areas. The agencies
received many comments on the
proposed expansion to allow CRA
consideration for volunteer service
hours in nonmetropolitan areas that are
unrelated to the provision of financial
services. Only a few commenters
supported the provision as proposed. A
majority of commenters on this topic
opposed the inclusion of volunteer
activities unrelated to the provision of
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
financial services in any location. A few
commenters disputed the premise stated
in the proposal that there are
insufficient volunteer opportunities in
nonmetropolitan areas, and one
commenter urged the agencies to collect
data to verify the premise before
expanding to include services unrelated
to the provision of financial services in
nonmetropolitan areas. Several other
commenters stated that although
nonfinancial volunteer activities benefit
communities, the inclusion of such
services loses sight of the CRA’s intent
to provide financial services to
underserved communities. These
commenters believed that the CRA
should increase services related to the
provision of financial services and
should not include all types of
volunteer activities.
A few commenters supported the
provision to include volunteer activities
unrelated to the provision of financial
services in all areas, not just
nonmetropolitan areas. These
commenters highlighted the benefit
general volunteerism provides to lowand moderate-income communities and
stressed that there is need in both
metropolitan and nonmetropolitan
areas. A few commenters said that
limiting the provision of services
unrelated to financial services to only
nonmetropolitan areas would restrict
community organizations from directing
the service hours where needed.
Another commenter believed the
restriction would be inappropriate at
this time because community
organizations continue to experience
challenges in recruiting volunteers as a
result of the COVID–19 pandemic. Other
commenters said the expansion to
consider volunteer activities unrelated
to the provision of financial services in
all communities could help reduce the
number of CRA ‘‘hot spots.’’ A
commenter conveyed that some bank
employees are not well positioned for or
comfortable providing services related
to the provision of financial services.
Another commenter questioned the
delineation of nonmetropolitan versus
metropolitan areas because the
delineation would exclude certain rural
areas that are on the outskirts of
metropolitan areas.
A commenter stated bank employees
volunteering services unrelated to
financial services be given CRA
consideration in all communities, at
least in instances when it involves
helping an affordable housing
organization build homes for
homeownership. In support of this
position, the commenter highlighted the
connection between the creation of
affordable housing built for
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
homeownership and expanding credit
and homeownership opportunities for
low- and moderate-income
communities.
If the agencies allow CRA
consideration for volunteer service
hours in nonmetropolitan areas that are
unrelated to the provision of financial
services, a few commenters offered
other requirements or limitations to the
evaluation of these service hours, such
as weighting the provision of financial
services more heavily than those
unrelated to financial services; granting
pro rata consideration for services
unrelated to the provision of financial
services based on the percent of lowand moderate-income recipients;
establishing a limit for receiving CRA
consideration for services unrelated to
financial services; establishing a
separate metric; limiting the expansion
to those community development
services that satisfy basic needs like
shelter, safety, and food; or requiring the
bank to show it made a demonstrated
effort to provide the provision of
financial services before it may receive
credit for services unrelated to financial
services.
Final Rule
In response to commenter feedback
and for the reasons described below, the
agencies are adopting a definition of
‘‘community development services’’ in
§ ll.12 that includes substantive
changes as well as technical and
conforming edits. Specifically, the final
rule defines ‘‘community development
services’’ to mean the performance of
volunteer services by a bank’s or
affiliate’s board members or employees,
performed on behalf of the bank, where
those services: (1) support community
development, as described in § ll.13;
and (2) are related to the provision of
financial services, which include credit,
deposit, and other personal and
business financial services, or services
that reflect a board member’s or
employee’s expertise at the bank or
affiliate, such as human resources,
information technology, and legal
services. The agencies agree with
commenters that a community
development purpose is fundamental to
eligibility as a community development
service. Thus, with non-substantive
conforming edits, the agencies are
adopting the proposed requirement that
a community development service must
support community development as
described in § ll.13.
The agencies removed the examples
of what qualifies as ‘‘related to the
provision of financial services’’ from the
final definition. Instead, the agencies
believe the examples are more
PO 00000
Frm 00031
Fmt 4701
Sfmt 4700
6603
appropriate for future agency guidance.
In addition, the agencies will consider
these examples as they develop the
illustrative list described in final
§ ll.14. The agencies note that the
removal of examples of community
development services from the
‘‘community development services’’
definition in the final rule should not be
interpreted as a statement on what
qualifies or does not qualify as relating
to the provision of financial services.
The examples provided in the proposal
and restated in the preceding discussion
would still be considered ‘‘related to the
provision of financial services.’’
Further, the agencies determined that
references to specific programs, like the
suggestion to identify Volunteer Income
Tax Assistance sites as related to the
provision of financial services, in the
text of the regulation could be overly
limiting and possibly inconsistent with
the durability of the rule over time. Free
tax preparation is likely to qualify as
‘‘related to the provision of financial
services’’ and may receive community
development service consideration if it
otherwise meets the definition of
community development services.
In response to commenter feedback
that the proposed exclusion—excluding
volunteer services performed by bank
board members or employees of the
bank who are not acting in their
capacity as representatives of the bank—
could be misinterpreted to require or
establish an agency relationship, the
agencies removed the exclusion.
Instead, the agencies require that the
services must be ‘‘performed on behalf
of the bank.’’ The agencies do not intend
to require that an employee or director
must be acting as a bank’s agent in the
legal sense of the term, nor do the
agencies intend to suggest that
volunteering on behalf of the bank
necessarily creates an agency
relationship.
The agencies also considered the
comment that banks should only receive
CRA credit for volunteer activities
performed during bank business hours.
The agencies believe that the nature of
community development services may
vary depending on community needs
and seek to give banks flexibility to
address those needs regardless of the
timing of projects and other community
development-related activities. Thus,
consistent with the proposal, the final
rule provides that a service may still
qualify as ‘‘volunteer’’ where the service
is performed during an employee’s offduty hours if that service otherwise
meets the ‘‘community development
services’’ definition. Conversely,
volunteer activities conducted by an
employee or board member in their
E:\FR\FM\01FER2.SGM
01FER2
6604
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
personal capacity are generally not
considered performed on behalf of the
bank if the activity is not sponsored or
organized by the bank.
A service can also be considered
‘‘volunteer’’ for purposes of the
‘‘community development services’’
definition even if an employee is paid
in the normal course of employment.
For example, volunteer hours could
include those hours associated with a
bank employee performing an economic
development service activity, such as
completing tax returns for small
businesses, during the employee’s work
hours. Even though the bank pays the
employee in the regular course of
employment, the bank essentially
donates those hours because the bank
employee is performing economic
development for the small business,
rather than performing that employee’s
regular bank duties.
The agencies have not adopted the
proposal to include volunteer activities
unrelated to the provision of financial
services in nonmetropolitan areas. The
agencies believe that volunteer service
hours, even if unrelated to financial
services, can provide a meaningful
benefit in nonmetropolitan areas, but
have determined that, by focusing on
activities related to the provision of
financial services, this provision is more
consistent with the CRA’s statutory
focus and also emphasizes activities that
examiners have competency and
expertise to evaluate. The removal of
this proposed expansion in
nonmetropolitan areas also is intended
more generally to address commenter
requests that the agencies reduce the
final rule’s complexity.
Finally, the agencies made
conforming edits to clarify that service
hours performed by the employees or
board members of a bank’s affiliate may
qualify as community development
services, as provided for in final
§ ll.21(b).
Consumer Loan
ddrumheller on DSK120RN23PROD with RULES2
Current Approach
The current CRA regulations define
‘‘consumer loan’’ to mean a loan to one
or more individuals for household,
family, or other personal expenditures,
but does not include a home mortgage,
small business, or small farm loan.
Further, ‘‘consumer loan’’ includes the
following categories of loans: (1) a motor
vehicle loan, which is a consumer loan
extended for the purchase of and
secured by a motor vehicle; (2) a credit
card loan, which is a line of credit for
household, family, or other personal
expenditures that is accessed by a
borrower’s use of a credit card, as this
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
term is defined in 12 CFR 1026.2; (3) an
other secured consumer loan, which is
a secured consumer loan that is not
included in one of the other categories
of consumer loans; and (4) an other
unsecured consumer loan, which is an
unsecured consumer loan that is not
included in one of the other categories
of consumer loans.141
The Agencies’ Proposal
The agencies proposed to modify the
‘‘consumer loan’’ definition to refine its
scope, simplify and clarify it, and align
it with revisions to related Call Report
definitions as well as proposed
revisions to the CRA regulations.
Specifically, the proposed definition
replaced the term ‘‘home mortgage’’
with ‘‘home mortgage loan’’ (both a
closed-end home mortgage loan, and an
open-end home mortgage loan) and a
‘‘multifamily loan’’ to use terms
included in the proposal, discussed
below. The proposal also modified the
reference to ‘‘motor vehicle loan’’ to
‘‘automobile loan,’’ and specified that
an automobile loan includes new or
used passenger cars or other vehicles,
providing examples, such as a minivan,
a pickup truck, a sport-utility vehicle, a
van, or a similar light truck for personal
use, as defined in Schedule RC–C of the
Call Report. The agencies proposed this
change to conform with the proposal to
add a definition for ‘‘automobile loan’’
to the CRA regulations, discussed above,
and to align the term with the definition
of ‘‘automobile loan’’ in Schedule RC–
C of the Call Report. The proposed
‘‘consumer loan’’ definition also added
‘‘other revolving credit plan,’’ to mean
a revolving credit plan that is not
accessed by credit card. This change
conforms to Call Report revisions,
which now distinguishes between
revolving and non-revolving credit
rather than secured and unsecured
credit. The proposal also combined the
‘‘other secured consumer loan’’ and
‘‘other unsecured consumer loan’’
categories into the ‘‘other consumer
loan’’ category to simplify the
definition.
Comments Received
The agencies received several
comments related to the proposed
‘‘consumer loan’’ definition. A
commenter supported the agencies’
inclusion of an automobile loan as a
consumer loan. The commenter
believed that including automobile
loans as a type of consumer loan is
important for areas where employment
and economic opportunities are
significant distances from where
141 See
PO 00000
current 12 CFR ll.12(j).
Frm 00032
Fmt 4701
Sfmt 4700
individuals reside, and public
transportation may not be available or
reliable. Another commenter supported
the proposed definition of ‘‘automobile
loan,’’ likewise in the definition of
‘‘consumer loan,’’ because it eliminates
uncertainty around direct versus
indirect loan inclusion.
A commenter suggested that the
agencies define ‘‘unsecured personal
loans,’’ as they do with credit cards,
separately from the general category of
‘‘other secured and unsecured loans,’’
because unsecured personal loans are a
fairly uniform credit class.
Final Rule
The agencies are adopting the
proposed definition of ‘‘consumer loan’’
in the final rule with several edits
designed to simplify the definition and
avoid the possibility of future
misalignment of the definition with the
Call Report. Specifically, ‘‘consumer
loan’’ in the final rule means a loan to
one or more individuals for household,
family, or other personal expenditures
and that is one of the following types of
loans: (1) automobile loan as reported in
Schedule RC–C of the Call Report; (2)
credit card loan, as reported as ‘‘credit
card’’ in Schedule RC–C of the Call
Report; (3) other revolving credit plan,
as reported in Schedule RC–C of the
Call Report; and (4) other consumer
loan, as reported in Schedule RC–C of
the Call Report.
For clarity, the agencies have elected
to refer only to these loans as reported
in Schedule RC–C of the Call Report for
each category of loan covered in the
definition. Referring only to loans
reported in schedule RC–C of the Call
Report better aligns the categories of
loans with how banks report those
classes of loans on the Call Report. As
a result, ‘‘automobile loan,’’ ‘‘credit card
loan,’’ ‘‘other revolving credit plan,’’
and ‘‘other consumer loan’’ are now
described as those loans reported in
Schedule RC–C of the Call Report and
do not include specific examples.142
The agencies appreciate commenter
concerns about any generality
associated with the term ‘‘other secured
and unsecured loans,’’ labeled ‘‘other
consumer loans’’ in the proposal. The
final definition of ‘‘consumer loan’’ is
designed to address those concerns not
only with the addition of the new
category of ‘‘other revolving credit
plan,’’ but also with references to the
loans reported in Schedule RC–C. To
provide additional clarity about the
scope of the term ‘‘consumer loan,’’ the
agencies also revised the definition to
142 The agencies note that the Call Report uses the
term ‘‘credit card’’ and not ‘‘credit card loan.’’
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
make the list of categories of loans
considered consumer loans exhaustive.
With this change, the agencies made a
technical edit to no longer exclude
home mortgage loans, multifamily
loans, small business loans, and small
farm loans because these loans would
not otherwise fall within the final
definition of ‘‘consumer loan.’’
County
The agencies proposed adding a
definition for ‘‘county’’ and defining it
to mean any county or statistically
equivalent entity as defined by the U.S.
Census Bureau. The agencies proposed
this definition to increase clarity and
consistency in the CRA regulations by
aligning the term with the scope of the
applicable U.S. Census Bureau
definition.143
The agencies did not receive any
comments concerning this proposed
definition and are adopting the
definition with one conforming change
and one technical change. The agencies
are revising the definition to include the
phrase, ‘‘county equivalent,’’ to provide
additional clarity and further align the
definition of ‘‘county’’ in the CRA
regulations with the applicable terms
used by the U.S. Census Bureau. The
U.S. Census Bureau utilizes the term
‘‘county equivalents’’ to refer to those
geographic areas comparable to
counties—i.e., parishes in Louisiana,
boroughs, independent cities in certain
States, Census Areas, cities in Alaska;
municipios in Puerto Rico, districts and
islands in American Samoa,
municipalities in the Commonwealth of
the Northern Mariana Islands, islands in
the U.S. Virgin Islands, the District of
Columbia, and Election Districts in
Guam.144 The agencies believe the
addition of ‘‘county equivalent’’ clarifies
that the definition of ‘‘county’’ captures
those areas that are geographically
comparable to counties, but are not
identified as such, and that these areas
will receive the same treatment under
the CRA regulations.
The agencies are also referring to
these terms as used by the U.S. Census
Bureau, instead of as defined, and
including a cross-reference to the
authority of the U.S. Census Bureau to
more accurately provide a source for
these terms.
Accordingly, the definition of
‘‘county’’ in the final rule means any
county, county equivalent, or
143 See U.S. Census Bureau, ‘‘Glossary,’’ https://
www.census.gov/glossary/?term=County%20
and%20equivalent%20entity (defining ‘‘county and
equivalent entity’’).
144 See U.S. Census Bureau, ‘‘Geographic Levels,’’
https://www.census.gov/programs-surveys/
economic-census/guidance-geographies/levels.html.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
statistically equivalent entity as used by
the U.S. Census Bureau pursuant to title
13 of the U.S. Code. The agencies have
made conforming changes throughout
the final rule to remove references to
‘‘county equivalent’’ that are now
unnecessary.
Deposit Location
The agencies proposed to add a
definition of ‘‘deposit location’’ to the
CRA regulations as a clarifying corollary
to the proposed definition of ‘‘deposits.’’
Specifically, the agencies proposed to
define ‘‘deposit location’’ to mean: (1)
for banks that collect and maintain
deposits data as provided in proposed
§ ll.42, the census tract or county, as
applicable, in which the consumer
resides, or the census tract or county, as
applicable, in which the business is
located if it has a local account; (2) for
banks that collect and maintain, but that
do not report, deposits data as provided
in proposed § ll.42, the census tract
or county, as applicable, in which the
consumer resides, or the census tract or
county, as applicable, in which the
business is located if it has a local
account except that, for purposes of the
Market Volume Benchmark and for all
community development financing
benchmarks, the county of the bank
branch to which the deposits are
assigned in the FDIC’s Summary of
Deposits data; and (3) for banks that do
not collect and maintain deposits data
as provided in proposed § ll.42, the
county of the bank branch to which the
deposits are assigned in the Summary of
Deposits.
Some commenters stated that the
definition of ‘‘deposit location’’ for
banks that collect and maintain deposits
data under the proposal is vague. A
commenter noted that the proposed
definition would leave significant
questions unresolved, including what it
means for a business to be ‘‘located’’ in
a place and whether a business can be
‘‘located’’ in multiple places.
The agencies are adopting the
definition of ‘‘deposit location’’ with
revisions consistent with the revisions
to the definition of ‘‘deposits,’’
discussed below, as well as revisions to
address commenter concerns.
Specifically, the definition in the final
rule removes the category of banks that
collect and maintain, but do not report,
deposits data. As explained in the
discussion of the ‘‘deposits’’ definition,
this category is no longer necessary. The
agencies also agree with commenters’
suggestions that the proposed definition
could be clarified, and does not clearly
indicate where deposits are located.
Therefore, the agencies are removing the
references to census tracts and counties
PO 00000
Frm 00033
Fmt 4701
Sfmt 4700
6605
from the part of the definition that
applies to banks that collect, maintain,
and report deposits data as provided in
§ ll.42, and replacing them with ‘‘the
address on file with the bank for
purposes of the Customer Identification
Program required by 31 CFR 1020.220 or
another documented address at which
the depositor resides or is located.’’ The
agencies also made a clarifying change
to replace the terms ‘‘consumer’’ and
‘‘business’’ used in the proposal with
‘‘depositor’’ and a technical change to
replace ‘‘branch’’ with ‘‘facility’’ to refer
to the term used in the FDIC’s Summary
of Deposits.
Accordingly, the final rule provides
that ‘‘deposit location’’ means: (1) for
banks that collect, maintain, and report
deposits data as provided in § ll.42,
the address on file with the bank for
purposes of the Customer Identification
Program required by 31 CFR 1020.220 or
another documented address at which
the depositor resides or is located; and
(2) for banks that do not collect,
maintain, and report deposits data as
provided in § ll.42, the county of the
bank facility to which the deposits are
assigned in the FDIC’s Summary of
Deposits data.
Depository Institution
The final rule includes a new
definition for ‘‘depository institution,’’
not included in the proposal, to mean
any institution subject to CRA, as
described in 12 CFR 25.11, 228.11, and
345.11. The agencies are adopting this
definition as a technical clarification to
effectuate their intent that ‘‘bank’’ or
‘‘banks’’ in certain provisions of the
proposal was meant to include
institutions evaluated by any of the
agencies under part 25, 228, or 345.145
For example, in the Community
Development Financing Test, the
145 The agencies integrated the term ‘‘depository
institution’’ or ‘‘large depository institution’’ into
the final rule in final §§ ll.21(b)(1) (consideration
of affiliate activities); ll.22(g)(1) (Retail Lending
Test additional factors); ll.23(b)(2)(i)(B) (Retail
Services and Products Test benchmark);
ll.24(b)(2)(i) and (ii), (c)(2)(ii); (d)(2)(ii); and
(e)(2)(ii) and (iv) (benchmarks related to the
Community Development Financing Test);
ll.26(f)(2)(ii) and (iv) (benchmarks related to the
Community Development Financing Test for
Limited Purpose Banks); ll.27(c)(4)
(consideration of affiliate activities for strategic
plans); ll.42(h) (aggregate disclosure statements);
ll.44 (public notice by banks); the Market
Volume Benchmark in appendix A, paragraph I.b;
appendix B, paragraph I.a (numerator and
denominator for final § ll.24 and final § ll.26
calculations); and the benchmarks in appendix B,
as applicable. Throughout the remainder of this
SUPPLEMENTARY INFORMATION the agencies use the
terms ‘‘banks’’ and ‘‘large banks’’ to simplify the
discussion. When discussing the above provisions,
certain references to ‘‘banks’’ or ‘‘large banks’’ are
references to all ‘‘depository institutions’’ or ‘‘large
depository institutions,’’ as applicable.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6606
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
benchmarks would include the lending,
investments, and deposits of all banks
in the applicable geographic area
regardless of regulator. The final rule
replaces those references to the term
‘‘bank’’ with the term ‘‘depository
institution’’ or ‘‘large depository
institution,’’ discussed below. The
agencies also made other conforming
edits to integrate these terms into the
final rule.146
meaning as in the FDIC’s Summary of
Deposits Reporting Instructions.
For banks that do not collect and
maintain deposits data as provided in
proposed § ll.42, the proposal
provided that ‘‘deposits’’ would have
the same meaning as in the FDIC’s
Summary of Deposits Reporting
Instructions.
Deposits
Several commenters stated that the
agencies should exclude corporate
deposits from the definition of
‘‘deposits’’ and recommended defining
‘‘deposits’’ as the sum of total deposits
intended primarily for personal,
household, or family use, as reported on
Schedule RC–E of the Call Report, items
6.a, 6.b, 7.a(1), and 7.b(1). One of the
commenters made the same comment
with specific reference to large banks.
Another commenter explained that
including corporate deposits in the
proposed definition of ‘‘deposits’’ could
reduce incentives for banks to address
the community development needs of
underserved communities, particularly
rural communities, where few corporate
deposits are attributed. This commenter
also expressed concern that including
corporate deposits could lead to
distorted or inconsistent results due to
fluctuations in corporate deposits that
could in turn lead to CRA focus and
resource challenges for banks. Another
commenter explained that using the
suggested items in the Call Report
would more accurately reflect a bank’s
capacity to engage in qualifying
activities for individuals, small
businesses, and small farms, because the
items collect information on deposits
maintained primarily for personal,
household, or family use. The
commenter further explained that use of
these suggested items would also
eliminate the potential for large
corporate deposits to skew the
allocation of deposits across different
geographies, thereby better capturing
the amount of deposits collected from
specific assessment areas. Another
commenter supported this position,
referencing the proposal’s potential to
exacerbate CRA hot spots in urban
centers where deposits are concentrated,
fluctuations in the working capital
needs of corporate depositors, and the
potential challenges of assigning a
location for corporate deposits in
locations spanning multiple
geographies. If not removed, the
commenter warned that corporate
deposits could distort the calculation of
the retail lending volume screen, the
calculation of the Community
Development Financing Metric, and the
The Agencies’ Proposal
The agencies proposed to add a
definition of ‘‘deposits’’ to the CRA
regulations to support and clarify the
proposal to use deposits data for several
evaluation metrics, benchmarks, and
weights under the proposed
performance tests. This definition
would be based on whether a bank had
to collect, maintain, or report deposits
data. As discussed further in the
section-by-section analysis of § ll.42,
the agencies proposed to require large
banks with assets greater than $10
billion to collect, maintain, and report
county-level deposits data based on the
county in which the depositor’s address
is located to allow for more precise
measurement of a bank’s local deposits
by county.147 For these banks, the
agencies proposed a definition of
‘‘deposits’’ based on deposits in
domestic offices of individuals,
partnerships, and corporations, and of
commercial banks and other depository
institutions in the United States as
defined in Schedule RC–E of the Call
Report, which constitute the majority of
deposit dollars captured overall in the
Call Report categories of Deposits in
Domestic Offices. The proposed
definition excluded U.S. Government
deposits, State and local government
deposits, domestically held deposits of
foreign governments or official
institutions, or domestically held
deposits of foreign banks or other
foreign financial institutions.
For banks that collect and maintain,
but that do not report, deposits data as
provided in proposed § ll.42, the
proposal provided that ‘‘deposits’’
would have the same meaning as for
banks that must report deposits data
except that, for purposes of the Retail
Lending Test’s Market Volume
Benchmark and for all community
development financing benchmarks,
‘‘deposits’’ would have the same
146 For example, the agencies replaced references
to the common rule text sections with specific pin
cites to all three agencies final regulations as
appropriate.
147 See proposed § ll.42(a)(7) and (b)(5); see
also final § ll.42(a)(7) and (b)(3) and the
accompanying section-by-section analysis.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Comments Received
PO 00000
Frm 00034
Fmt 4701
Sfmt 4700
weighting of banks’ performance
conclusions across assessment areas.
Other commenters stated that the
agencies should broaden the definition
of ‘‘deposits’’ to include deposits from
limited liability companies (LLCs) and
trusts, and not just individuals,
partnerships, and corporations. One of
these commenters noted that LLC
deposits are domestic deposits in
substance and another commenter
suggested that the definition be
broadened to include deposits from all
entities. The commenters stated that the
agencies should specifically include
these deposits in the final rule for
clarification.
One of these commenters also
requested the agencies clarify that the
‘‘deposits’’ definition does not include
deposits from foreign persons or entities
that are made in U.S. branches. The
commenter explained that these
deposits do not come from a bank’s
assessment area and are not related to
the CRA’s purpose of returning money
to the community. The commenter also
expressed concern that including these
types of deposits in the definition may
incentivize some banks to keep the
funds outside of the United States
entirely.
Another commenter indicated that the
agencies should include State and local
government deposits in the definition
because banks can lend against these
deposits and some State and local
jurisdictions have developed public
policies designed to promote
reinvestment goals by tying their
deposits to bank community
performance. The organization stated
that CRA rules should not undermine
these local efforts by lowering the
reinvestment bar for banks with which
State and local governments do
business.
Final Rule
The agencies are adopting the
proposed definition of ‘‘deposits’’ in the
final rule with substantive revisions and
technical changes. Specifically, the
agencies are collapsing the three
categories of institutions under the
proposed definition—(1) banks that
collect, maintain, and report deposits
data; (2) banks that collect and
maintain, but do not report, deposits
data; and (3) banks that do not collect
and maintain deposits data—into two
categories. Thus, under the final rule,
the definition would address: (1) banks
that collect, maintain, and report
deposits data; and (2) banks that do not
collect, maintain, and report that data.
The agencies elected to simplify the
definition of ‘‘deposits’’ in response to
comments about both the overall
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
complexity of the proposal and the
complexity of the provisions related to
deposits data collection and reporting.
Further, because the final rule provides
that institutions that collect and
maintain deposits data, whether
required or opting to do so, must also
report deposits data, the category for
banks that collect and maintain but do
not report is unnecessary. By removing
this category, the agencies believe the
final rule provides a less complex and
more workable definition. The agencies
are also making a technical change to
refer to deposits as reported in the
FDIC’s Summary of Deposits as required
under 12 CFR 304.3(c), instead of
referring to the instructions, to more
accurately provide a source for this
term. The agencies have also replaced
‘‘U.S.’’ with ‘‘United States.’’
The agencies have declined to remove
corporate deposits from the ‘‘deposits’’
definition because the agencies believe
that utilizing both personal and
corporate deposits results in a more
comprehensive representation of the
community that an institution serves.
The agencies understand concerns that
including corporate deposits in the
proposed ‘‘deposits’’ definition could
reduce incentives for banks to address
the community development needs of
underserved communities, because, for
example, reporting banks could have
higher proportions of their deposits in
other areas and, under the Community
Development Financing Test,
commensurately higher expectations for
activity in those areas. However, the
agencies believe that other aspects of the
rule will encourage banks to focus more
on these areas. Specifically, under
§ ll.15, the agencies consider whether
an institution serves geographic areas
with low levels of community
development financing. Further,
‘‘targeted census tracts’’ are used in the
final rule to consider whether certain
place-based community development
activities qualify, and the definition of
this term, discussed below, includes
underserved communities. Lastly, the
agencies are addressing the concern
related to CRA hot spots where deposits
are concentrated by evaluating bank
community development financing and
retail lending outside of facility-based
assessment areas.148
The agencies also declined to modify
the ‘‘deposits’’ definition to include
deposits from LLCs and trusts. The
agencies note that because LLCs are a
form of corporation, they are captured
under corporate deposits on the Call
148 See final §§ ll.17 through ll.19 and the
accompanying section-by section analyses.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Report.149 Further, institutions holding
trust account deposits have a fiduciary
obligation to invest those deposits in
accordance with the trust’s instructions.
As a result, those deposits are generally
not available to be reinvested into the
community and should not be included
in ‘‘deposits.’’
The agencies also decided not to
exclude deposits from foreign persons
or entities that are made in U.S.
branches. The exclusions in the deposit
definition are limited to whole
categories in the Call Report definition
of deposit. Excluding foreign
individuals or companies would
exclude only a partial category in the
Call Report. This partial exclusion
would increase burden because these
categories are known and understood by
the industry and, the agencies believe,
would not offer significant benefit.
Second, as explained in the proposal,
the agencies elected to exclude State
and local government deposits, along
with foreign government deposits,
because these deposits are sometimes
subject to restrictions and may be
periodically rotated among different
banks causing fluctuations in the level
of deposits over time.150 These
government entities make up one whole
category under the Call Report
definition. This determination is based
on the agencies’ supervisory experience,
which also considered that restricted
funds may also misrepresent a bank’s
ability to reinvest funds in the local
community.
The agencies have elected to maintain
deposits data collection from banks with
assets greater than $10 billion and
decline to expand this collection
requirement to other banks. The
agencies believe the collection of
deposits data is important, but that data
collection should be limited to large
banks with assets greater than $10
billion due to the burden associated
with this requirement.151 Further, the
agencies have declined to expand the
use of the FDIC’s Summary of Deposits
data to all banks because of the
limitations of Summary of Deposits
data. In particular, Summary of Deposits
data is tied to a bank’s branches. As
banks’ business models continue to
evolve, there is the possibility that
branches will be less representative of
the communities that banks serve. As a
result, Summary of Deposits data may
also be less representative of the
communities a bank serves. The
149 See
Call Report, Schedule RC–E.
87 FR 33884, 33995 (June 3, 2022).
151 For additional discussion of this issue, see the
discussion on deposits in the section-by-section
analysis of § ll.42.
150 See
PO 00000
Frm 00035
Fmt 4701
Sfmt 4700
6607
agencies note, however, that banks that
opt into deposits data collection and
maintenance must report these data.152
Accordingly, the definition of
‘‘deposits’’ in the final rule provides
that: (1) for banks that collect, maintain,
and report deposits data as provided in
§ ll.42, ‘‘deposits’’ means deposits in
domestic offices of individuals,
partnerships, and corporations, and of
commercial banks and other depository
institutions in the United States as
defined in Schedule RC–E of the Call
Report; deposits does not include U.S.
Government deposits, State and local
government deposits, domestically held
deposits of foreign governments or
official institutions, or domestically
held deposits of foreign banks or other
foreign financial institutions; and (2) for
banks that do not collect, maintain, and
report deposits data as provided in
§ ll.42, ‘‘deposits’’ means a bank’s
deposits as reported in the FDIC’s
Summary of Deposits as required under
12 CFR 304.3(c).
Digital Delivery System
The final rule includes a new
definition for ‘‘digital delivery systems,’’
not included in the proposal, to mean a
channel through which banks offer
retail banking services electronically,
such as online banking or mobile
banking. The agencies are adopting this
definition to clarify the agencies’
intended meaning of this term, which is
to reflect the common understanding of
this term. This term is used in § ll.23,
Retail Services and Products Test. For
additional discussion of digital delivery
systems, see the section-by-section
analysis of § ll.23.
Dispersion of Retail Lending
The agencies proposed to add a
definition of ‘‘dispersion of retail
lending’’ to § ll.12 in support of the
proposal to assess a bank’s retail lending
performance in a facility-based
assessment area based not only on a
bank’s Retail Lending Volume Screen
(see proposed § ll.22(c)) and
geographic and borrower distribution
metrics (see proposed § ll.22(d)), but
also in consideration of several other
factors, including the dispersion of
retail lending in the facility-based
assessment area to determine whether
there are gaps in lending in the facilitybased assessment area that are not
explained by performance context.
Specifically, the agencies proposed to
define ‘‘dispersion of retail lending’’ to
mean how geographically diffuse or
widely spread such lending is across
152 See final rule § ll.42(b)(3)(i) and the sectionby-section analysis of § ll.42.
E:\FR\FM\01FER2.SGM
01FER2
6608
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
census tracts of different income levels
within a facility-based assessment area,
retail lending assessment area, or
outside retail lending area.
The agencies did not receive any
comments on this definition. However,
after further review, the agencies have
elected not to adopt a definition of
‘‘dispersion of retail lending’’ in
§ ll.12 because this term is used only
once, in § ll.22. Instead, the agencies
have incorporated this concept into
§ ll.22(g) of the final rule.
Distressed or Underserved
Nonmetropolitan Middle-Income
Census Tract
In the current CRA regulations, the
definition of ‘‘community development’’
includes activities that revitalize or
stabilize ‘‘distressed or underserved
nonmetropolitan middle-income
geographies’’ as designated by the
agencies based on: (1) rates of poverty,
unemployment, and population loss; or
(2) population size, density, and
dispersion. Further, this provision states
that activities revitalize and stabilize
geographies designated based on
population size, density, and dispersion
if they help to meet essential
community needs, including the needs
of low- and moderate-income
individuals.153
The agencies proposed to include a
definition of ‘‘distressed or underserved
nonmetropolitan middle-income census
tract’’ in § ll.12, based on the
language in the current definition of
‘‘community development,’’ with
certain edits. Specifically, the agencies
proposed to add clarity and consistency
by incorporating additional detail from
the Interagency Questions and Answers
into the proposed definition.154 The
agencies also proposed technical and
conforming changes, such as replacing
the term ‘‘geography’’ with the term
‘‘census tract,’’ reflecting the change to
this term discussed above, and
restructuring the definition. As
proposed, ‘‘distressed or underserved
nonmetropolitan middle-income census
tract’’ would mean a census tract
publicly designated as such by the
agencies and compiled in a list
published annually by the FFIEC. The
agencies would designate a
nonmetropolitan middle-income census
tract as distressed if it is in a county that
has: (1) an unemployment rate of at least
1.5 times the national average; (2) a
poverty rate of 20 percent or more; or (3)
a population loss of 10 percent or more
between the previous and most recent
decennial census or a net migration loss
153 See
154 See
current 12 CFR ll.12(g)(4)(iii).
Q&A § ll.12(g)(4)(iii)—1.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
of five percent or more over the fiveyear period preceding the most recent
census. The agencies would designate a
nonmetropolitan middle-income census
tract as underserved if it meets the
criteria for population size, density, and
dispersion that indicate the area’s
population is sufficiently small, thin,
and distant from a population center
that the census tract is likely to have
difficulty financing the fixed costs of
meeting essential community needs,
based on the Urban Influence Codes
established by the U.S. Department of
Agriculture’s (USDA) Economic
Research Service numbered ‘‘7,’’ ‘‘10,’’
‘‘11,’’ or ‘‘12.’’ 155
The agencies did not receive any
comments on the proposed definition of
‘‘distressed or underserved
nonmetropolitan middle-income census
tract,’’ and are adopting the definition as
proposed with two technical changes,
referencing the official name of the
Board, and replacing the word
‘‘migration’’ with ‘‘population.’’
Distribution of Retail Lending
The agencies proposed to add a
definition of ‘‘distribution of retail
lending’’ to § ll.12 to increase clarity
and consistency regarding the
evaluation of a bank’s retail lending
under the proposed Retail Lending Test.
As proposed, ‘‘distribution of retail
lending’’ would refer to how retail
lending is apportioned among borrowers
of different income levels, businesses or
farms of different sizes, or census tracts
of different income levels. The agencies
did not receive any comments on this
definition. However, after further
review, the agencies have elected not to
adopt this definition in the final rule
because the distribution analysis is
explained extensively in the Retail
Lending Test in the final rule.156
Evaluation Period
The agencies proposed to add a
definition of ‘‘evaluation period’’ to
increase clarity and consistency in the
CRA regulations. Specifically, proposed
§ ll.12 defined ‘‘evaluation period’’ to
mean the period of time between CRA
examinations, generally in calendar
years, in accordance with the agency’s
guidelines and procedures. The agencies
received no comments concerning the
proposed definition of ‘‘evaluation
period.’’ Accordingly, the agencies are
adopting this term in the final rule with
several technical changes designed to
enhance the clarity and accuracy of the
155 See
U.S. Dept. of Agriculture, ‘‘Urban
Influence Codes,’’https://www.ers.usda.gov/dataproducts/urban-influence-codes/.
156 See final § ll.22 and appendix A and
accompanying section-by-section analysis.
PO 00000
Frm 00036
Fmt 4701
Sfmt 4700
definition. Specifically, the agencies
revised the phrase ‘‘period of time’’ to
‘‘the period’’ and moved the clause
‘‘generally in calendar years’’ so that it
now follows ‘‘the period,’’ and replaced
the phrase ‘‘time between CRA
examinations’’ with ‘‘during which a
bank conducted the activities that the
[Agency] evaluates in a CRA
examination.’’ Accordingly, ‘‘evaluation
period,’’ in the final rule means the
period, generally in calendar years,
during which a bank conducted the
activities that the agency evaluates in a
CRA examination, in accordance with
the agency’s guidelines and procedures.
Facility-Based Assessment Area
As discussed above, the agencies
proposed to replace the term
‘‘assessment area’’ in § ll.12 with the
terms ‘‘facility-based assessment area,’’
‘‘retail lending assessment area,’’ and
‘‘outside retail lending area.’’ The
agencies proposed to define ‘‘facilitybased assessment area’’ to mean a
geographic area delineated in
accordance with § ll.16.157 Section
ll.16 describes the bases for
delineating this type of assessment area.
For information regarding facility-based
assessment area delineation
requirements in the final rule, see the
section-by-section analysis of § ll.16.
A commenter suggested clarifying that
an ATM not owned and operated
exclusively by a bank would not trigger
a new facility-based assessment area,
consistent with the current regulation.
The agencies agree that a nonproprietary remote service facility, such
as a network ATM, does not constitute
a bank facility because such ATMs are
owned and operated by a third party
and are not operated exclusively for the
bank. Further, a bank participating in
such an ATM network may have limited
control over where an ATM is located.
Therefore, such ATMs would not by
themselves trigger a new facility-based
assessment area.
For the reasons stated above, the
agencies are adopting the ‘‘facility-based
assessment area’’ definition as proposed
in the final rule with a minor wording
change. Specifically, the agencies
replaced the phrase ‘‘in accordance
with’’ with ‘‘pursuant to’’ in the final
rule.
157 Similarly, as discussed above, the current CRA
regulations define ‘‘assessment area’’ to mean ‘‘a
geographic area delineated in accordance with
§ ll.41’’—the section of the current CRA
regulations that describes the bases for delineating
an assessment area. See current 12 CFR ll.12(c).
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
High Opportunity Area
ddrumheller on DSK120RN23PROD with RULES2
The Agencies’ Proposal
The agencies proposed to add a
definition of ‘‘High Opportunity Area’’
to mean: (1) an area designated by the
U.S. Department of Housing and Urban
Development (HUD) as a ‘‘Difficult
Development Area’’ (DDA); or (2) an
area designated by a State or local
Qualified Allocation Plan as a High
Opportunity Area, and where the
poverty rate falls below 10 percent (for
metropolitan areas) or 15 percent (for
nonmetropolitan areas).
As discussed further in the sectionby-section analysis of § ll.15, the
agencies proposed to define ‘‘High
Opportunity Area’’ in relation to the
proposal to conduct an impact review of
community development activities.158
One of the proposed factors that the
agencies would consider in assessing
the impact and responsiveness of a
community development activity would
be whether the activity ‘‘[d]irectly
facilitate[s] the acquisition,
construction, development,
preservation, or improvement of
affordable housing in High Opportunity
Areas.’’ 159 The proposed definition
would align with the Federal Housing
Finance Agency’s (FHFA) definition of
‘‘High Opportunity Areas,’’ 160 and was
intended to demarcate areas where
efforts to increase affordable housing
could be especially beneficial for lowand moderate-income individuals.
The agencies solicited comment on
whether the proposed approach to use
the FHFA’s definition of ‘‘High
Opportunity Areas’’ is appropriate, and
whether there are other options for
defining High Opportunity Areas.
Comments Received
Most commenters that provided input
on this definition supported the
proposal to align the ‘‘High Opportunity
Areas’’ definition with the FHFA’s
definition, for example, because the
high cost of housing in otherwise low
poverty areas can absorb significant
resources from large portions of the
population. A commenter observed that
low poverty rates are an important
component of identifying high
opportunity areas. This commenter
supported limiting the variability of
definitions promulgated in State
Qualified Allocation Plans but
proposed § ll.15.
proposed § ll.15(b)(6).
160 See FHFA, ‘‘Overview of the 2020 High
Opportunity Areas File’’ (2020), https://
www.fhfa.gov/DataTools/Downloads/Documents/
Enterprise-PUDB/DTS_Residential-EconomicDiversity-Areas/DTS_High%20Opportunity_Areas_
2020_README.pdf.
158 See
159 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
suggested there may also be other
relevant opportunity or social
vulnerability indices. Another
commenter suggested the agencies
clarify the definition to allow for
variation in terminology used from State
to State.
Some commenters offered various
suggestions for expanding the ‘‘High
Opportunity Areas’’ definition, such as
to include Qualified Census Tracts to
allow communities concerned about
displacement of low- and moderateincome residents the ability to access
CRA-motivated financing. Another
commenter recommended expanding
the definition to include Empowerment
Zone and Enterprise Communities,
transit-oriented areas, and census tracts
where 40 percent or more of the homes
meet the definition of affordable
housing, and a different commenter
suggested the definition should be
expanded to include certain climate
resilience factors. Another commenter
stated that, in addition to aligning with
the FHFA definition, the agencies
should permit flexibility in how
financial institutions identify affordable
housing needs, gaps, and opportunities,
utilizing data analytics tools.
A few commenters opposed the
proposed ‘‘High Opportunity Areas’’
definition. Some of these commenters
opposed using the FHFA’s definition
because it would include DDAs, which
these commenters asserted were created
to permit higher levels of housing tax
credit subsidies in areas with high
construction, land, and utility costs and
are not directly related to higher income
areas with low rates of poverty. Another
commenter expressed some concern
about including DDAs and suggested
that the agencies consider eliminating
DDAs or adding criteria to ensure that
in-scope DDAs include features
supporting economic mobility, such as
strong transit connectivity of the
housing to schools and childcare
facilities, health facilities, employment
centers, and green space. Similarly,
another commenter stated that the
proposed FHFA definition is limited to
quantifiable poverty measures and State
Qualification Allocation Plan
definitions but may not address a more
holistic view of ‘‘opportunity,’’ and
suggested that incorporating
service-enriched housing could be a
good counterbalance. A commenter also
stated that the FHFA definition may be
too restrictive for some communities
and recommended that the agencies be
open to other options where high cost
of living relative to local wages and
income demonstrates a need.
PO 00000
Frm 00037
Fmt 4701
Sfmt 4700
6609
Final Rule
The agencies are adopting the
definition of ‘‘High Opportunity Areas’’
in the final rule with substantive
revisions. As discussed above, the
agencies intended the proposed
definition of ‘‘High Opportunity Area’’
to align with the FHFA’s definition of
‘‘High Opportunity Area.’’ However, the
FHFA maintains a ‘‘High Opportunity
Areas File’’ that designates the specific
census tracts that qualify as high
opportunity areas for purposes of
residential economic diversity
activities.161 In consideration of the fact
that the FHFA maintains a ‘‘High
Opportunity Areas File,’’ the agencies
believe it is prudent to defer to the
FHFA’s interpretation of its regulation
and guidance in the identification of
‘‘High Opportunity Areas.’’ 162 Further,
the agencies believe reliance on the
FHFA’s identification of ‘‘High
Opportunity Areas’’ will eliminate any
potential ambiguity in the definition.
For these reasons, the agencies have
modified the proposed definition of
‘‘High Opportunity Area’’ to mean an
area identified by the FHFA for
purposes of the Duty to Serve
Underserved Markets regulation in 12
CFR part 1282, subpart C. This
definition generally includes geographic
areas where the cost of residential
development is high 163 and affordable
housing opportunities can be limited.
While the agencies considered
commenters’ concerns about the
definition and suggestions for
alternatives, the agencies continue to
believe the ‘‘High Opportunity Area’’
definition included in the final rule
provides the best option for the
purposes of the impact and
responsiveness factor in § ll.15(b)(7)
because, as defined by FHFA, these
areas are intended to capture areas that
provide strong opportunities for lowand moderate-income individuals,
families, and households. The definition
captures both DDAs and also areas
designated as High Opportunity Areas
where the poverty rate is low. The
agencies agree that increasing affordable
housing opportunities in these areas
helps to provide low- or moderateincome individuals, families, and
households with more choices to live in
neighborhoods with economic
161 See FHFA, ‘‘Overview of the 2023 High
Opportunity Areas File,’’ https://www.fhfa.gov/
DataTools/Downloads/Documents/EnterprisePUDB/DTS_Residential-Economic-Diversity-Areas/
DTS_High_Opportunity_Areas_2023.pdf.
162 See 12 CFR 1282.1, 1282.36(c)(3).
163 See, e.g., HUD, Office of Policy Development
and Research, ‘‘Qualified Census Tracts and
Difficult Development Areas’’ (2022), https://
www.huduser.gov/portal/datasets/qct.html.
E:\FR\FM\01FER2.SGM
01FER2
6610
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
opportunities. The agencies considered
various alternative options, including
commenter suggestions to expand the
definition to other types of geographic
areas or exclude DDAs from the
definition but continue to believe the
definition provides a clear set of
standards related to where additional
affordable housing may be both needed
and hard to develop and is in alignment
with an already in-use Federal agency
definition with readily available
geographic classifications.
ddrumheller on DSK120RN23PROD with RULES2
Home Mortgage Loan
For a discussion of the definition of
‘‘home mortgage loan,’’ see the
discussion for Mortgage-Related
Definitions in this section-by-section
analysis of § ll.12.
Income Level
To increase clarity, the agencies
proposed non-substantive and minor
structural revisions to the current
definition of ‘‘income level’’ 164 and, as
in other definitions, to replace the term
‘‘geography’’ with the more precise term
‘‘census tract.’’ Specifically, the
agencies proposed that ‘‘income level’’
include the following definitions:
• Low-income would mean: (1) for
individuals within a census tract, an
individual income that is less than 50
percent of the area median income; or
(2) for a census tract, a median family
income that is less than 50 percent of
the area median income.
• Moderate-income would mean: (1)
for individuals within a census tract, an
individual income that is at least 50
percent and less than 80 percent of the
area median income; or (2) for a census
tract, a median family income that is at
least 50 percent and less than 80 percent
of the area median income.
• Middle-income would mean: (1) for
individuals within a census tract, an
individual income that is at least 80
percent and less than 120 percent of the
area median income; or (2) for a census
tract, a median family income that is at
least 80 percent and less than 120
percent of the area median income.
• Upper-income would mean: (1) for
individuals within a census tract, an
individual income that is 120 percent or
more of the area median income; or (2)
for a census tract, a median family
income that is 120 percent or more of
the area median income.
Comments Received
The agencies received several
comments on the proposed definition of
‘‘income level.’’ A commenter requested
that the agencies include persons with
164 See
current 12 CFR ll.12(m).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
vision loss—and persons with
disabilities in general—in the CRA
regulation’s ‘‘low-income’’ population,
explaining that persons with vision loss
or other disabilities often experience
high unemployment, average income
that is lower than the general
population, less access to technology
and the internet, and are more likely to
be persons of color. Another commenter
suggested the agencies include persons
with disabilities in the low- and
moderate-income designation even if
their incomes exceed that designation
because of the financial vulnerabilities
and high costs associated with living
with a disability, such as the expenses
of accessible van conversions, assistive
technology, and home renovations.
Another commenter suggested that
the agencies revise the income levels in
an upward direction so that ‘‘lowincome’’ is less than 60 percent of area
median income, ‘‘moderate-income’’ is
between 60 percent and 100 percent of
area median income, ‘‘middle-income’’
is between 100 percent and 125 percent
of area median income, and ‘‘upperincome’’ is more than 125 percent of
area median income. The commenter
stated that this upward revision of the
income levels could provide additional
support for middle-class home
ownership and assist more middleincome households that have lost
ground after the COVID–19 pandemic
and due to high inflation and would be
consistent with the change in the
agencies’ special designation of
distressed or underserved
nonmetropolitan middle-income census
tracts (a designation referencing
between 80 percent and 120 percent of
area median income) and in the Federal
Housing Enterprises Financial Safety
and Soundness Act of 1992, which
defines low-income as 80 percent of
area median income and moderateincome as income ‘‘not in excess of area
median income.’’
Another commenter stated that it
welcomes the agencies providing more
examples on how to identify low- and
moderate-income individuals and
families, and requested that the agencies
consider a broader, more flexible
framework that uses enrollment status
in the USDA National School Lunch
Program and Medicaid as part of the
definition of low- and moderate-income.
Final Rule
The agencies are adopting the
proposed definition of ‘‘income levels’’
in the final rule with several revisions
to the first prong of each income level.
Specifically, the agencies removed the
reference to ‘‘census tracts’’ because
inclusion of the term is unnecessary.
PO 00000
Frm 00038
Fmt 4701
Sfmt 4700
The agencies also expanded the
definition so that it applies to
individuals, families, and households,
instead of only individuals, as
proposed. The agencies added families
and households in recognition of the
fact that the measurement of income
would be incomplete if each income
levels excluded families or households.
Accordingly, the agencies are
adopting the following definition of
‘‘income levels’’:
• ‘‘Low-income,’’ which means: (1)
for individuals, families, or households,
income that is less than 50 percent of
the area median income; or (2) for a
census tract, a median family income
that is less than 50 percent of the area
median income.
• ‘‘Moderate-income,’’ which means:
(1) for individuals, families, or
households, an income that is at least 50
percent and less than 80 percent of the
area median income; or (2) for a census
tract, a median family income that is at
least 50 percent and less than 80 percent
of the area median income.
• ‘‘Middle-income,’’ which means: (1)
for individuals, families, or households,
an income that is at least 80 percent and
less than 120 percent of the area median
income; or (2) for a census tract, a
median family income that is at least 80
percent and less than 120 percent of the
area median income.
• ‘‘Upper-income,’’ which means: (1)
for individuals, families, or households,
an income that is 120 percent or more
of the area median income; or (2) for a
census tract, a median family income
that is 120 percent or more of the area
median income.
The agencies considered the
commenters’ recommendations and
suggestions to consider a broader and
more flexible framework and to revise
the income levels upwards but have
elected to maintain the income levels as
proposed in the final rule. The income
levels in the proposed definition mirror
the income levels in the current
definition, so the income levels
standards are well known and
understood within the banking industry.
Further, the agencies believe a
framework that relies on quantitative
income factors provides for the most
workable definition and minimizes
complexity.
Intermediate Bank
For a discussion of the definition of
‘‘intermediate bank,’’ see the discussion
above for Bank Asset-Size Definitions.
Large Bank
For a discussion of the definition of
‘‘large bank,’’ see the discussion above
for Bank Asset-Size Definitions.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Large Depository Institution
The final rule includes a new
definition for ‘‘large depository
institution,’’ not included in the
proposal, to mean any depository
institution, excluding depository
institutions designated as limited
purpose banks or savings
associations 165 pursuant to 12 CFR
25.26(a), or designated as limited
purpose banks pursuant to 12 CFR
228.26(a) or 345.26(a), that meets the
asset size threshold of a large bank. The
agencies are adopting this definition as
a technical clarification to effectuate
their intent that ‘‘large bank’’ in certain
proposed benchmarks in the
Community Development Financing
Test includes all large banks and
savings associations evaluated under 12
CFR parts 25, 228, and 345. The
agencies also made other conforming
edits to integrate these terms into the
final rule.166
Limited Purpose Bank
ddrumheller on DSK120RN23PROD with RULES2
The current CRA regulations define
‘‘limited purpose bank’’ to mean a bank
that offers only a narrow product line
(such as credit card or motor vehicle
loans) to a regional or broader market
and for which a designation as a limited
purpose bank is in effect, in accordance
with § ll.25(b).167 The agencies
proposed to revise the illustrative list of
loan types from ‘‘credit card or motor
vehicle loans’’ to ‘‘credit cards, other
revolving consumer credit plans, other
consumer loans, or other non-reported
commercial and farm loans’’ and to
change the cross-reference. The agencies
proposed this change to more
specifically identify the types of product
lines that might be offered by a bank
eligible for a ‘‘limited purpose bank’’
designation. Additionally, the agencies
proposed to remove the reference to
‘‘motor vehicle loans’’ (replaced in the
proposal by the proposed term
‘‘automobile loans,’’ as discussed above)
as an illustrative type of a narrow retail
product line, because the agencies
proposed to evaluate automobile
165 As provided in the OCC’s agency-specific
amendments, below, final 12 CFR part 25 generally
replaces the term ‘‘bank’’ in the common rule text
with the term ‘‘bank or savings association.’’ As
such, in the definition of ‘‘large depository
institution’’ the phrase ‘‘limited purpose’’ modifies
both ‘‘banks’’ and ‘‘savings associations’’ and
should be read as ‘‘limited purpose banks’’ and
‘‘limited purpose savings associations.’’ More
generally, any modifiers that precede the terms
‘‘bank(s) or savings association(s)’’ or ‘‘bank(s) and
savings association(s)’’ modify both ‘‘bank(s)’’ and
‘‘savings association(s).’’
166 See supra note 145.
167 See current 12 CFR ll.12(n).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
lending under the proposed Retail
Lending Test.
In addition, the current CRA
regulations define ‘‘wholesale bank’’ to
mean a bank that is not in the business
of extending home mortgage, small
business, small farm, or consumer loans
to retail customers, and for which a
designation as a wholesale bank is in
effect, in accordance with
§ ll.25(b).168 To determine whether a
bank meets this definition, the agencies
consider whether a bank holds itself out
to the retail public as providing such
loans; and may consider the bank’s
revenues from extending such loans
compared to its total revenue, including
off-balance sheet activities.169 The
proposal included the same definition
as the current rule, with a technical
change to the cross-reference.
Comments Received
The agencies received a number of
comments concerning the proposed
definitions of ‘‘limited purpose bank’’
and ‘‘wholesale bank.’’ A few
commenters stated that these definitions
should be reevaluated so that a bank
without a material amount of its balance
sheet loan originations or loan volume
subject to the proposed major product
line standard could qualify for the
designation. A group of commenters
supported maintaining existing
guidance for wholesale and limited
purpose banks from the Interagency
Questions and Answers, with a
commenter specifically identifying
guidance addressing the amount of
unrelated lending in which a bank may
engage while retaining its designation.
Other commenters expressed concern
with designating banks that engage in
extensive credit card lending as
wholesale or limited purpose banks.
These commenters asserted that the
proposal to apply the Community
Development Financing Test for
Wholesale or Limited Purpose Banks to
wholesale or limited purpose banks
(discussed in greater detail in the
section-by-section analysis of § ll.26)
would eliminate the possibility of these
banks’ credit card lending being
evaluated; this raised concerns for these
commenters, who noted that credit card
lending is an important source of credit
to individuals and small businesses.
Instead, most of these commenters
urged the agencies to exclude credit
card banks from the option to seek a
wholesale or limited purpose bank
designation or otherwise ensure the
distribution of credit card loans is
current 12 CFR ll.12(x).
169 See Q&A § ll.12(x)—1.
168 See
PO 00000
Frm 00039
Fmt 4701
Sfmt 4700
6611
evaluated pursuant to the proposed
Retail Lending Test.
Final Rule
The agencies are adopting a revised
‘‘limited purpose bank’’ definition and
eliminating the ‘‘wholesale bank’’
definition in the final rule. Specifically,
the agencies have revised the ‘‘limited
purpose bank’’ definition to be similar
in structure to the current ‘‘wholesale
bank’’ definition. To that end, the
agencies are changing the definition of
‘‘limited purpose bank’’ from indicating
that these banks offer only a narrow
product line to indicating that these
banks do not extend to retail customers
the loan types evaluated under the final
Retail Lending Test. Further, the
agencies no longer believe it is
necessary to impose the limitation that
limited purpose banks may only operate
in a ‘‘regional or broader market.’’ The
removal of this language equips the
definition with the ability to
accommodate new or future market
participants, such as fintech banks.
Finally, the agencies are also adding
language to indicate that these banks
may extend to retail customers—i.e., the
retail public, including, but not limited
to, individuals and businesses 170—
those loan types evaluated under the
final Retail Lending Test on an
incidental and an accommodation basis
without losing the limited purpose bank
designation, as requested by some
commenters.
Therefore, the final rule defines a
‘‘limited purpose bank’’ as a bank that
is not in the business of extending
closed-end home mortgage loans, small
business loans, small farm loans, or
automobile loans evaluated under
§ ll.22 to retail customers, except on
an incidental and accommodation basis,
and for which a designation as a limited
purpose bank is in effect, in accordance
with § ll.26. Because this definition,
generally, includes banks considered
either ‘‘limited purpose banks’’ or
‘‘wholesale banks’’ under the current or
proposed regulations, a separate
definition of ‘‘wholesale bank’’ is not
necessary. Overall, the changes to
‘‘limited purpose bank’’ in the final rule
and the removal of the term ‘‘wholesale
bank’’ in the CRA regulations, are
intended to improve clarity, minimize
complexity, and provide for new and
future market participants.
Because the current and proposed
CRA regulations apply the same
performance test to each bank type, the
change in nomenclature does not
170 The meaning of retail customers is consistent
with current guidance for wholesale banks. See
Q&A § ll.12(x)—1.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6612
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
substantively affect the application of
performance tests. In other words, a
wholesale bank under the proposal
would have been subject to proposed
§ ll.26; a limited purpose bank
(which includes wholesale banks under
the proposed definition) under the final
rule remains subject to the performance
test in § ll.26. The agencies believe
that most banks that meet the current
definition of a ‘‘wholesale bank’’ or
‘‘limited purpose bank’’ will continue to
meet the ‘‘limited purpose bank’’
definition in the final rule. However, the
agencies acknowledge that a bank that
primarily offers automobile loans (and
therefore meets the majorityautomobile-lender standard discussed
below) may have qualified as a limited
purpose bank under the current rule or
the proposal but will not qualify as a
limited purpose bank under the final
rule because they are in the business of
extending loans evaluated under
§ ll.22 to retail customers.
The agencies declined to revise the
definition of ‘‘limited purpose bank’’ to
exclude consumer credit card banks or
evaluate credit card banks under the
Retail Lending Test, as requested by
some commenters. First, based on the
agencies’ supervisory experience, credit
card banks often have unique business
models and do not have extensive
branch systems. Second, evaluating
credit card banks under the Retail
Lending Test would require significant
additional data collection from these
banks. Credit card underwriting may not
rely on a customer’s income, and banks
do not have an obligation to collect and
routinely update credit card customers’
income data. As a result, credit card
customer data collected from these
banks would not be complete and could
vary widely among banks, posing
significant challenges to performing the
borrower distributions that are central to
the Retail Lending Test. The agencies
recognize, however, the importance of
credit card lending to low- and
moderate-income individuals, small
businesses, and small farms. For further
discussion of the evaluation of credit
card and other non-automobile
consumer loans under the final rule, see
the section-by-section analyses of
§§ ll.22(d) (Retail Lending Test; major
product lines) and ll.23 (Retail
Services and Products Test). In this
regard, for example, the agencies note
that small business credit card lending
is included in the small business loan
product line evaluated under the final
Retail Lending Test.
In response to some commenters’
recommendations, the agencies note
that guidance included in the
Interagency Questions and Answers on
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
wholesale and limited purpose banks
will no longer be relevant guidance for
the final rule, unless the agencies
specifically include this guidance in
subsequent issuances.
Loan Location
Under the current CRA regulation, the
definition of ‘‘loan location’’ provides
that a consumer loan is located in the
geography where the borrower resides; a
home mortgage loan is located in the
geography where the property to which
the loan relates is located; and a small
business or small farm loan is located in
the geography where the main business
facility or farm is located or where the
loan proceeds otherwise will be applied,
as indicated by the borrower.171 The
agencies proposed technical revisions to
this definition to add greater precision
and clarity. As discussed above, the
agencies proposed a conforming change
across many definitions to replace the
term ‘‘geography’’ with the more precise
term ‘‘census tract.’’ Additionally, to
clarify the point in time when a
consumer loan’s location is assigned,
the agencies proposed that the location
of a consumer loan is based on where
the borrower resides at the time the
consumer submits the loan application.
Further, the agencies proposed to clarify
that a home mortgage loan’s location is
based on where the property securing
the loan is located, instead of where the
property related to the loan is located.
The agencies did not receive any
comments concerning the proposed
‘‘loan location’’ definition and are
adopting the definition as proposed
with the following changes. First, the
agencies have replaced the term
‘‘consumer’’ with the term ‘‘borrower’’
in the first prong, to conform with the
reference to ‘‘borrower’’ earlier in the
sentence. Second, the agencies have
included multifamily loan in the second
prong to clarify the location of
multifamily loans, which the agencies
recognize was not specified in the
proposal. Third, the agencies made a
non-substantive change to the sentence
structure of the third prong to remove
the passive tense in one clause.
As adopted, the definition of ‘‘loan
location’’ in the final rule provides that:
(1) a consumer loan is located in the
census tract where the borrower resides
at the time that the borrower submits
the loan application; (2) a home
mortgage loan or a multifamily loan is
located in the census tract where the
property securing the loan is located;
and (3) a small business loan or small
farm loan is located in the census tract
where the main business facility or farm
is located or where the borrower will
otherwise apply the loan proceeds, as
indicated by the borrower.
Loan Production Office
The current CRA regulations define
‘‘loan production office’’ to mean a
staffed facility, other than a branch, that
is open to the public and that provides
lending-related services, such as loan
information and applications.172 The
agencies proposed to remove this
definition given the limited focus on,
and consideration of, loan production
offices in the agencies’ proposal. The
agencies did not receive any comments
concerning the removal of this
definition, and the agencies are
removing this definition in the final rule
as proposed.
Low Branch Access Census Tract; Very
Low Branch Access Census Tract
The agencies proposed to define ‘‘low
branch access census tract’’ to mean a
census tract with one bank, thrift, or
credit union branch, and a ‘‘very low
branch access census tract’’ to mean a
census tract with no bank, thrift, or
credit union branches, within: (1) 10
miles of the census tract center of
population or within the census tract in
nonmetropolitan areas; (2) five miles of
the census tract center of population or
within the census tract in a census tract
located in an MSA but primarily outside
of the principal city components of the
MSA; or (3) two miles of the census
tract center of population or within the
census tract in a census tract located in
an MSA and primarily within the
principal city components of the MSA.
The agencies proposed to evaluate a
bank’s branch distribution in, among
other geographic areas, ‘‘low branch
access census tracts or very loan branch
access census tracts.’’ 173 Upon further
consideration of comments received on
this topic, the agencies have elected to
not consider the availability of branches
in low branch access census tracts or
very low branch access census tracts in
the Retail Services and Products Test.
For additional discussion, see the
section-by-section analysis of § ll.23,
Retail Services and Products Test. As a
result, the CRA regulations no longer
require definitions of ‘‘low branch
access census tracts’’ or ‘‘very low
branch access census tracts’’ and the
agencies are adopting the final rule
without them.
Low-Cost Education Loan
Current § ll.21(e), Low-cost
education loans provided to low-income
172 See
171 See
PO 00000
current 12 CFR ll.12(o).
Frm 00040
Fmt 4701
Sfmt 4700
173 See
E:\FR\FM\01FER2.SGM
current 12 CFR ll.12(p).
proposed § ll.23(b)(1)(i)(C)(1).
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
borrowers, provides that, for purposes of
that paragraph, ‘‘low-cost education
loans’’ means any education loan, as
defined in section 140(a)(7) of the Truth
in Lending Act (15 U.S.C. 1650(a)(7))
(including a loan under a State or local
education loan program), originated by
the bank for a student at an ‘‘institution
of higher education,’’ as that term is
generally defined in sections 101 and
102 of the Higher Education Act of 1965
(20 U.S.C. 1001 and 1002) and the
implementing regulations published by
the U.S. Department of Education, with
interest rates and fees no greater than
those of comparable education loans
offered directly by the U.S. Department
of Education. It further provides that
such rates and fees are specified in
section 455 of the Higher Education Act
of 1965 (20 U.S.C. 1087e).
The agencies proposed to add this
definition of ‘‘low-cost education loan’’
to § ll.12, with changes to update a
citation, applying the definition only to
private loans, as provided in section
140(a)(7) of the Truth in Lending Act
(15 U.S.C. 1650(a)(8)), and other minor
wording changes. This definition was
needed for the proposal to consider the
responsiveness of credit products and
programs to the needs of low- and
moderate-income individuals, including
through low-cost education loans, in the
proposed Retail and Products Service
Test.174 As with the current rule, this
proposed definition leveraged the
statutory definitions of related terms.
Specifically, the agencies proposed to
define ‘‘low-cost education loan’’ to
mean any private education loan, as
defined in section 140(a)(7) of the Truth
in Lending Act (15 U.S.C. 1650(a)(8))
(including a loan under a State or local
education loan program), originated by
the bank for a student at an ‘‘institution
of higher education,’’ as generally
defined in sections 101 and 102 of the
Higher Education Act of 1965 (20 U.S.C.
1001 and 1002) and the implementing
regulations published by the U.S.
Department of Education, with interest
rates and fees no greater than those of
comparable education loans offered
directly by the U.S. Department of
Education. Such rates and fees are
specified in section 455 of the Higher
Education Act of 1965 (20 U.S.C.
1087e). The agencies did not receive any
comments concerning the proposed
174 See proposed § ll.23(c)(1). This aspect of
the proposal was intended to incorporate into the
CRA regulations the statutory requirement that the
agencies consider low-cost education loans
provided to low-income borrowers as a factor in
evaluating a bank’s record of helping to meet the
credit needs of its entire community. See 12 U.S.C.
2903(d). For further discussion, see the section-bysection analysis of § ll.23.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
definition of ‘‘low-cost education loan’’
and adopt it as proposed in the final
rule with one technical change to
replace the reference to U.S. Department
of Education regulations with the
regulatory citation, 34 CFR part 600.
Low-Income Credit Union
The agencies proposed to add a
definition for ‘‘low-income credit union
(LICU)’’ in support of various proposed
provisions related to community
development. As discussed further in
the section-by-section analysis of
§ ll.13, Consideration of community
development loans, investments, and
services, the agencies proposed to create
a category of ‘‘community
development’’ that would comprise
activities with MDIs, WDIs, LICUs, or
CDFIs.175 In addition, the agencies
proposed to consider, as a factor in
evaluating the impact and
responsiveness of any community
development activity, whether the
activity supports an MDI, WDI, LICU, or
Treasury Department-certified CDFI.176
The agencies proposed to define LICU
as having the same meaning given to
that term in NCUA’s regulations, 12 CFR
701.34. The NCUA’s regulations
provide, in part, that based on data
obtained through examinations, the
NCUA will notify a Federal credit union
that it qualifies for designation as a
LICU if a majority of its membership
qualify as low-income members.177
The agencies did not receive any
comments concerning the proposed
definition of ‘‘LICU’’ and adopt it as
proposed in the final rule.
Low-Income Housing Tax Credit
The final rule includes a new
definition for ‘‘Low-Income Housing
Tax Credit (LIHTC),’’ not included in
the proposal, to clarify that ‘‘LowIncome Housing Tax Credit’’ in the CRA
regulations is a reference to a Federal
program. This term is utilized in
§§ ll.13, ll.15, and ll.42.
Accordingly, the agencies are adopting
a definition of ‘‘Low-Income Housing
Tax Credit (LIHTC)’’ in the final rule to
mean a Federal tax credit for housing
persons of low income pursuant to
section 42 of the Internal Revenue Code
of 1986 (26 U.S.C. 42).
Major Product Line
The final rule includes a new
definition for ‘‘major product line,’’ not
included in § ll.12 of the proposal. In
the proposal, the agencies described the
concept of major product line in
proposed § ll.13(j).
proposed § ll.15(b)(3).
177 See 12 CFR 701.34(a)(1).
175 See
176 See
PO 00000
Frm 00041
Fmt 4701
Sfmt 4700
6613
§ ll.22. In the final rule, instead of
including the concept solely in
§ ll.22, the agencies are also adding a
definition for ‘‘major product line’’ in
§ ll.12 because the term is used
outside of § ll.22 and the agencies
recognized it was more appropriate as a
defined term. However, in the final rule
the agencies are modifying what
constitutes a ‘‘major product line.’’ The
new definition explains that ‘‘major
product line’’ means a product line that
the appropriate Federal financial
supervisory agency evaluates in a
particular Retail Lending Test Area,
pursuant to § ll.22(d)(2) and
paragraphs II.b.1 and II.b.2 to appendix
A of the final rule. This definition is
intended to identify the product lines
with the greatest importance to the bank
and its community and that,
accordingly, are subject to evaluation
under the Retail Lending Test. As
described in the section-by-section
analysis of § ll.22, Retail Lending
Test, closed-end home mortgage loans,
small business loans, and small farm
loans are major product lines in a
facility-based assessment area or outside
retail lending area if the bank’s loans in
the respective product line represent at
least 15 percent of the bank’s reported
loans and other loans considered across
all product lines in the same geographic
area during the evaluation period. This
15 percent standard is calculated based
on a combination of loan dollars and
loan count (see above for a discussion
of the definition of ‘‘combination of loan
dollars and loan count’’). The same 15
percent standard is used to determine
whether automobile loans are a major
product line in a facility-based
assessment area or outside retail lending
area, if the bank is a majority
automobile lender for the institution as
a whole or opts into having its
automobile lending evaluated. In
addition, closed-end home mortgage
loans and small business loans are a
major product line in a particular
calendar year for a retail lending
assessment area if the product line
meets or exceeds the threshold requiring
delineation of a retail lending
assessment area pursuant to § ll.17
(i.e., 150 reported closed-end home
mortgage loans, or 400 reported small
business loans, in each of the prior two
calendar years). As discussed in the
section-by-section analysis of § ll.22,
the agencies determined that it was not
appropriate to include open-end home
mortgage loans or multifamily loans in
the major product line definition in the
final rule, as the agencies proposed.
E:\FR\FM\01FER2.SGM
01FER2
6614
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Majority Automobile Lender
The final rule includes a new
definition for ‘‘majority automobile
lender,’’ not included in the proposal,
defined to mean a bank for which more
than 50 percent of its home mortgage
loans, multifamily loans, small business
loans, small farm loans, and automobile
loans were automobile loans, as
determined pursuant to paragraph II.b.3
of appendix A. Paragraph II.b.3 of
appendix A includes the provisions of
the final rule that identify the banks for
which evaluation of automobile lending
is mandatory in each facility-based
assessment area or in an outside retail
lending area in which automobile
lending represents a major product line.
As described in the section-by-section
analysis of § ll.22, a bank is
considered a majority automobile lender
if its automobile loans originated and
purchased over the combined twocalendar-year period preceding the first
year of the evaluation period exceeded
50 percent, based on a combination of
loan dollars and loan count, of the
bank’s lending across specified
categories. Specifically, the final rule
calculates the 50 percent standard based
on the following loan categories: home
mortgage loans; 178 multifamily loans;
small business loans; small farm loans;
and automobile loans originated and
purchased overall.
The agencies intend this new
definition to be a clarifying change and
have added it to make the regulatory
text in § ll.22 and appendix A less
complex and readable.
Metropolitan Area
ddrumheller on DSK120RN23PROD with RULES2
The agencies proposed to add a
definition of ‘‘metropolitan area’’
because the term is used throughout the
rule to describe areas where the
agencies will evaluate a bank.
Specifically, the agencies proposed to
define ‘‘metropolitan area’’ to mean any
MSA, combined MSA, or metropolitan
division as that term is defined by the
Director of the Office of Management
and Budget (Director of the OMB).179
178 See the definition of ‘‘home mortgage loan’’ in
final § ll.12.
179 The CRA statute defines the term
‘‘metropolitan area’’ to mean ‘‘any primary
metropolitan statistical area, metropolitan statistical
area, or consolidated metropolitan statistical area,
as defined by the Director of the OMB, with a
population of 250,000 or more, and any other area
designated as such by the appropriate Federal
financial supervisory agency.’’ 12 U.S.C. 2906(e)(2).
The agencies did not propose to include ‘‘primary
metropolitan statistical area’’ or ‘‘consolidated
metropolitan area’’ because the Director of the OMB
no longer uses these terms. The agencies exercised
their discretion to define this term in the final rule
to include all MSAs, without regard to whether it
has a population of 250,000 or more.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
The agencies did not receive any
comments related to the proposed
‘‘metropolitan area’’ definition.
However, the agencies are adopting this
definition with several revisions. First,
the agencies are removing reference to
‘‘combined MSA’’ from the definition
because ‘‘combined MSA’’ is not a term
defined by the Director of the OMB.
Second, the agencies are removing
reference to ‘‘metropolitan division’’
from the definition. Metropolitan
divisions are parts of certain populous
MSAs, so the agencies determined that
the term is not necessary and that it
added complexity to separately list both
terms in the ‘‘metropolitan area’’
definition. For example, any county in
a metropolitan division would also be in
an MSA. Finally, the agencies are
removing the phrase ‘‘as defined by the
Director of the Office of Management
and Budget’’ from the definition. As
discussed below, the term ‘‘MSA’’ is
defined in the final rule to mean a
metropolitan statistical area defined by
the Director of the OMB. Accordingly,
‘‘metropolitan area’’ in the final rule
means any MSA.
Metropolitan Division
The current CRA regulations define
‘‘metropolitan division’’ to mean a
metropolitan division as defined by the
Director of the OMB.180 The agencies
proposed this same definition, with a
minor technical change. Specifically,
the agencies replaced the phrase ‘‘means
a metropolitan division as defined’’
with the phrase ‘‘has the same meaning
given to that term.’’ The agencies did
not receive any comments related to the
proposed definition of ‘‘metropolitan
division,’’ and are adopting the
definition as proposed in the final rule.
Military Bank
The agencies proposed to add a new
definition of ‘‘military bank’’ in support
of proposed § ll.16, which would
provide an exception to certain facilitybased assessment area delineation
requirements for military banks.181
Specifically, the agencies proposed to
define ‘‘military bank’’ to mean a bank
whose business predominately consists
of serving the needs of military
personnel who serve or have served in
the Armed Forces (including the U.S.
Air Force, U.S. Army, U.S. Coast Guard,
U.S. Marine Corps, and U.S. Navy) or
dependents of military personnel,
basing this definition on language in the
current 12 CFR ll.12(q).
proposed § ll.16(d). See also the
section-by-section analysis of § ll.16 for further
discussion of this provision.
180 See
181 See
PO 00000
Frm 00042
Fmt 4701
Sfmt 4700
CRA statute.182 The agencies proposed
this definition to increase clarity and
consistency in the CRA regulations.
A commenter provided input on the
proposed definition of ‘‘military bank.’’
Although expressing support for
inclusion of a definition of ‘‘military
bank,’’ the commenter expressed
concern that the agencies’ proposed
definition is too narrow and
recommended that the word
‘‘predominantly’’ be defined to include
‘‘a bank whose most important customer
group is military personnel or their
dependents,’’ as in the OCC 2020 CRA
Final Rule. The commenter noted that
this qualification should lead to the
extension of the ‘‘military bank’’
definition to all financial institutions
with a commitment, mission, or
business model to serve the military
community exclusive of all other
communities. The commenter also
suggested that the definition of
‘‘military bank’’ should include on-base
branches of financial institutions that do
not otherwise fit within the definition
so that branches on military bases could
benefit from the CRA’s geographic
assessment area exception without
extending this treatment to the larger,
non-military financial institution of
which they are part. Further, this
commenter expressed support for the
proposed definition’s inclusion of those
who serve or have served in the Armed
Forces or dependents of military
personnel. Finally, the commenter
noted that the definition of ‘‘military
bank’’ should include the U.S. Space
Force, established in 2019, in the
definition’s listing of military service
branches.
The agencies have made substantive
edits to the proposed definition of
‘‘military bank’’ in response to these
comments. First, the agencies agree that
‘‘predominantly’’ should be defined to
clarify that a ‘‘military bank’’ is a bank
whose most important customer group
is military personnel or their
dependents. This added language is
consistent with the interpretation of
‘‘predominantly’’ in the preamble to the
1979 CRA rulemaking 183 and codifies a
decades-old interpretation that
‘‘predominantly’’ is not based on a
numerical standard.184 Additionally, the
182 See 12 U.S.C. 2902(4) (‘‘A financial institution
whose business predominately consists of serving
the needs of military personnel who are not located
in a defined geographic area may define its ‘entire
community’ to include its entire deposit customer
base without regard to geographic proximity.’’). The
agencies note that the statute uses the term
‘‘predominately,’’ however, the more common
spelling is ‘‘predominantly,’’ and accordingly, the
agencies have used that term instead.
183 44 FR 18163, 18164 (Mar. 27, 1979).
184 Id.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
agencies believe this final rule
regulatory text comports with the
language in the CRA statute. Second, the
agencies agree with the commenter that
the new U.S. Space Force should be
included in the definition as a branch of
the U.S. Armed Forces.
The agencies, however, declined to
adopt the commenter’s suggestion that
the definition should include on-base
branches of financial institutions that do
not otherwise fit within the definition.
The agencies believe such revision
would be inconsistent with the CRA
statute’s provision regarding military
banks, which refers to the business of
the financial institution as
predominantly consisting of serving the
needs of military personnel, and not
branches of a financial institution.185
For the reasons stated above, the
agencies are adopting a definition of
‘‘military bank’’ to mean a bank whose
business predominantly consists of
serving the needs of military personnel
who serve or have served in the U.S.
Armed Forces (including the U.S. Air
Force, U.S. Army, U.S. Coast Guard,
U.S. Marine Corps, U.S. Navy, and U.S.
Space Force) or their dependents. A
bank whose business predominantly
consists of serving the needs of military
personnel or their dependents means a
bank whose most important customer
group is military personnel or their
dependents.
ddrumheller on DSK120RN23PROD with RULES2
Minority Depository Institution
Current Approach and the Agencies’
Proposal
The agencies proposed to add a
definition of ‘‘minority depository
institution (MDI)’’ to support the
provisions in the proposal related to
community development. As discussed
above, and further in the section-bysection analysis of § ll.13(k), the
agencies proposed to create a category of
‘‘community development’’ that would
comprise activities with MDIs, WDIs,
LICUs, or CDFIs.186 In addition, the
agencies proposed to consider, as a
factor in evaluating the impact and
responsiveness of any community
development activity, whether the
activity supports an MDI, WDI, LICU, or
Treasury Department-certified CDFI.187
The proposed definitions also account
for a provision in the CRA statute
providing that the amount of any bank
contribution or loss in connection with
donating, selling on favorable terms, or
making available on a rent-free basis any
185 See
12 U.S.C. 2902(4).
proposed § ll.13(j).
187 See proposed § ll.15(b)(3) and the
accompanying section-by-section analysis of
§ ll.15.
186 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
branch of the bank located in a
predominantly minority neighborhood
to an MDI or WDI may be a factor in
determining whether the bank is
meeting the credit needs of its
community, which includes specific
definitions of MDI and WDI.188
The agencies structured the proposed
‘‘MDI’’ definition to provide two
avenues through which an institution
may qualify as an MDI. The agencies
pursued this dual track structure to both
ensure consistency with the CRA statute
and incorporate the agencies’ current
policies for determining what
institutions qualify as ‘‘minority-owned
financial institutions’’ under 12 U.S.C.
2903(b). First, the agencies determined
that the proposed ‘‘MDI’’ definition
should incorporate the statutory
definition of ‘‘minority depository
institution’’ to ensure consistency with
the CRA statute, which applies to
certain transactions involving branches.
Specifically, under 12 U.S.C. 2907 (i.e.,
the statutory provision concerning
donating, selling on favorable terms, or
making certain branches available on a
rent-free basis to a minority depository
institution), ‘‘minority depository
institution’’ is defined as a depository
institution (as defined in 12 U.S.C.
1813(c)): (1) more than 50 percent of the
ownership or control of which is held
by 1 or more minority individuals; and
(2) more than 50 percent of the net
profit or loss of which accrues to 1 or
more minority individuals. The agencies
note that this definition is required for
the narrow set of branching activities
referenced in 12 U.S.C. 2907.
More broadly, 12 U.S.C. 2903 states
that, in assessing an institution’s record
of helping to meet the credit needs of
the entire community, the agencies may
consider, ‘‘as a factor capital
investment, loan participation, and
other ventures undertaken by the
institution in cooperation with
minority- and women-owned financial
institutions and LICUs provided that
these activities help meet the credit
needs of local communities in which
such institutions and credit unions are
chartered.’’ 189 Unlike 12 U.S.C. 2907,
12 U.S.C. 2903 does not define the terms
‘‘minority-owned financial institution’’
or ‘‘women-owned financial
institution.’’ Given the absence of
statutory definitions, the agencies,
through their respective supervisory
authority, have applied criteria for
determining which institutions are
considered minority- or women-owned
financial institutions when interpreting
188 See
189 12
PO 00000
12 U.S.C. 2907.
U.S.C. 2903(b) (emphasis added).
Frm 00043
Fmt 4701
Sfmt 4700
6615
CRA.190 Therefore, the second aspect of
the proposed ‘‘MDI’’ definition was
designed to capture those institutions
that the agencies recognize as
‘‘minority-owned financial institutions’’
pursuant to their current policies.
Specifically, the agencies proposed to
define an ‘‘MDI,’’ for purposes other
than the specified branch-related
transactions under 12 U.S.C. 2907, as a
bank that: (1) meets the definition under
12 U.S.C. 2907(b)(1); 191 (2) is a minority
depository institution as defined in
section 308 of the Financial Institutions
Reform, Recovery, and Enforcement Act
of 1989 (FIRREA) (12 U.S.C. 1463
note); 192 or (3) is considered to be a
minority depository institution by the
appropriate Federal banking agency.
This proposed definition is derived in
part from the definition of ‘‘minority
depository institution’’ in the
190 Generally, the agencies have considered
institutions that qualify under their MDI policies to
qualify under section 2903. See OCC, News Release
2013–94, ‘‘Comptroller Curry Tells Minority
Depository Institutions OCC Rules Make It Easier
for Minority Institutions to Raise Capital,’’ ‘‘Policy
Statement on Minority National Banks and Federal
Savings Associations’’ (June 13, 2013), https://
www.occ.gov/news-issuances/news-releases/2013/
nr-occ-2013-94.html (permits a bank that no longer
meet the minority ownership requirement to
continue to be considered a minority depository
institution if it primarily serves the credit and
economic needs of the community in which it is
chartered and serves a predominantly minority
community); Board, SR 21–6/CA 21–4:
‘‘Highlighting the Federal Reserve System’s
Partnership for Progress Program for Minority
Depository Institutions and Women’s Depository
Institutions’’ (Mar. 5, 2021), https://
www.federalreserve.gov/supervisionreg/srletters/
SR2106.htm (permits designation as a minority
depository institution if the majority of a bank’s
board of directors consists of minority individuals
and the community that the bank serves is
predominantly minority); and FDIC, Statement of
Policy Regarding Minority Depository Institutions,
86 FR 32728, 32732 (June 23, 2021) (permits
designation as a minority depository institution if
a majority of the bank’s board of directors consists
of minority individuals and the community that the
bank serves is predominantly minority).
191 The agencies incorporated section 2907 into
this second prong of the definition to ensure that
banks are not limited to the engaging in the
specified branch-related activities with institutions
that meet the statutory definition but are not
otherwise consistent with the agencies’ MDI
designation policies.
192 The agencies’ MDI designation policies are
based on section 308 of the FIRREA, and the
agencies determined it was appropriate to expressly
reference that statute in the definition for further
consistency. Under section 308, ‘‘minority financial
institution’’ means any depository institution that—
(A) if a privately owned institution, 51 percent is
owned by one or more socially and economically
disadvantaged individuals; (B) if publicly owned,
51 percent of the stock is owned by one or more
socially and economically disadvantaged
individuals; and (C) in the case of a mutual
institution where the majority of the Board of
Directors, account holders, and the community
which it services is predominantly minority.
Further, under section 308, the term ‘‘minority’’
means any black American, Native American,
Hispanic American, or Asian American.
E:\FR\FM\01FER2.SGM
01FER2
6616
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Emergency Capital Investment
Program 193 enacted as part of the
Consolidated Appropriations Bill of
2021,194 revised to be appropriate for
the CRA. The agencies stated that using
this statutory-based definition for
purposes of CRA promotes further
consistency across government
programs.
ddrumheller on DSK120RN23PROD with RULES2
Comments Received
A number of commenters addressed
the proposed ‘‘MDI’’ definition. For
example, a commenter supported a
definition that would include both
banks owned by minority individuals
and minority-operated banks. According
to the commenter, successful and
growing banks need to raise outside
capital, which could result in the bank
no longer meeting the minority-owned
definition and would therefore have the
unintended consequence of keeping
minority banks small.
In response to the agencies’ question
on whether to include minority insured
credit unions recognized by the NCUA
in the ‘‘MDI’’ definition, most
commenters stated that such credit
unions should be included. In addition,
some commenters recommended that
State-insured MDI credit unions and
Puerto Rico’s cooperativas also be
included in this category. Commenters
generally noted that such credit unions
and related entities share the same
purpose as MDIs, are insured and
supervised, and accordingly should be
treated the same as MDI banks. A
commenter stated that this addition
could expand the number of MDIs
available to partner with banks on CRA
activities. Although no commenters
expressed opposition to including MDI
credit unions in the definition, a
commenter did suggest that smaller
credit union MDIs could be included,
but those with more than 50,000
members or more should be subject to
additional scrutiny to ensure that 51
percent of its owners are people of
color.
Final Rule
The agencies are adopting the
proposed ‘‘MDI’’ definition in the final
rule with several technical edits. First,
in paragraph (1), the agencies removed
the parenthetical, ‘‘(i.e., donating,
selling on favorable terms (as
determined by the [Agency]), or making
available on a rent-free basis any branch
of the bank, which is located in a
predominately minority
neighborhood).’’ This language
193 See
12 U.S.C. 4703a.
Public Law 116–260, 134 Stat. 1182 (Dec.
27, 2020).
194 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
paraphrased the cited statute, 12 U.S.C.
2907(b)(1), and is therefore not
necessary. Second, the agencies made
non-substantive wording changes to the
definition to improve its structure and
readability and to promote consistency
with the statutes cited in the definition.
Accordingly, the final rule defines
‘‘minority depository institution (MDI)’’
to mean: (1) for purposes of activities
conducted pursuant to 12 U.S.C.
2907(a), ‘‘minority depository
institution’’ as defined in 12 U.S.C.
2907(b)(1); and (2) for all other
purposes: (i) a ‘‘minority depository
institution’’ as defined in 12 U.S.C.
2907(b)(1); (ii) a ‘‘minority depository
institution’’ as defined in section 308 of
the FIRREA (12 U.S.C. 1463 note); or
(iii) a depository institution considered
to be a minority depository institution
by the appropriate Federal banking
agency. For purposes of this definition,
‘‘appropriate Federal banking agency’’
has the meaning given to it in 12 U.S.C.
1813(q).
As also discussed in the section-bysection analysis of § ll.13(k), the
agencies considered but are not
including minority credit unions in the
‘‘MDI’’ definition. Unlike MDIs, which
are independently reviewed by each
agencies’ staff, credit unions self-certify
MDI status and the NCUA does not
verify or certify the accuracy of this
status.195 The agencies also note that
there is a large overlap between
minority credit unions and LICUs.196
Thus, a large percentage of minority
credit unions will be eligible under the
rule for community development
consideration based on their LICU
status.
In response to comments about
including banks that are owned by
minority individuals and minorityoperated banks in the ‘‘MDI’’ definition,
the agencies recognize that banks have
varied ownership structures and need to
raise capital and have considered these
issues when designating MDIs. The
proposed and final rule both include as
a component of the definition of ‘‘MDI’’
banks that are considered to be minority
depository institutions by the
appropriate Federal banking agency.
This component of the definition
provides flexibility and incorporates
each agency’s applicable policies
regarding the designation of MDIs.
195 See
80 FR 36356, 36357 (June 24, 2015).
NCUA, ‘‘Minority Depository Institutions
Annual Report to Congress,’’ 2 (2021), https://
ncua.gov/files/publications/2021-mdicongressional-report.pdf (approximately 81% of
MDIs also held a designation as LICUs as Dec. 31,
2021 (i.e., 412 out of 509 MDIs)).
196 See
PO 00000
Frm 00044
Fmt 4701
Sfmt 4700
Mission-Driven Nonprofit Organization
The agencies are adding a new
definition for ‘‘mission driven nonprofit
organization,’’ not included in the
proposal, to support this term’s use in
§§ ll.13 and ll.42 in the final rule.
Specifically, the final rule defines
‘‘mission-driven nonprofit organization’’
to mean an organization described in
section 501(c)(3) of the Internal Revenue
Code of 1986 (26 U.S.C. 501(c)(3)) and
exempt from taxation under section
501(a) of such Code that benefits or
serves primarily low- or moderateincome individuals or communities,
small businesses, or small farms.
The agencies are adopting this
definition primarily to support revisions
made in the final rule, based on
consideration of comments, to expand
the government plan eligibility criteria
in the place-based community
development categories to include
plans, programs, or initiatives of
mission-driven nonprofit
organizations.197 The final rule also
provides services that are conducted
with a mission-driven nonprofit
organization as one example of a
qualifying community supportive
service in § ll.13(d). These aspects of
the final rule are discussed in greater
detail in the section-by-section analysis
of § ll.13. The final rule also uses the
term mission-driven nonprofit
organization for consistency as an
example of detail that could be provided
about a community development loan or
community development investment in
final § ll.42.
The agencies included the first part of
this definition to explicitly state that an
organization must be a 501(c)(3)
organization to qualify as a missiondriven nonprofit organization. Further,
the definition specifies that these
organizations benefit or serve primarily
low- or moderate-income individuals,
small businesses, or small farms. The
agencies believe that, with these two
core components, the definition of
mission-driven nonprofit organization is
appropriately tailored to capture entities
that are dedicated to benefiting and
serving low- and moderate-income
individuals or communities, small
businesses, or small farms while being
sufficiently narrow not to permit a
broad expansion of eligibility criteria
under the place-based community
development categories. The agencies
also believe that this definition is
consistent with the types of
organizations that the agencies proposed
would be partners with banks in
conducting community development.
197 See
E:\FR\FM\01FER2.SGM
final § ll.13(e) through (j).
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
For example, the proposal included a
discussion of nonprofit organizations in
reference to the proposed affordable
housing category of community
development in proposed § ll.13(b),
as well as in relation to community
supportive services in proposed
§ ll.13(d).198
MSA
Under the current CRA regulations,
the agencies define ‘‘MSA’’ to mean a
metropolitan statistical area as defined
by the Director of the OMB.199 The
agencies proposed maintaining this
definition but changing the defined term
from ‘‘MSA’’ to ‘‘metropolitan statistical
area (MSA)’’ and with minor technical
wording changes. The agencies did not
receive any comments on this proposed
definition. However, after further
consideration, the agencies are reverting
back to the current defined term ‘‘MSA’’
in the final rule because ‘‘MSA’’ is the
term known and understood by the
industry. The agencies are also reverting
the wording of the definition back to its
current form to be consistent with the
wording of other definitions and making
minor technical changes to reference
OMB delineation and to add OMB
authority citations. Accordingly, the
agencies are defining ‘‘MSA’’ to mean a
metropolitan statistical area delineated
by the Director of the Office of
Management and Budget, pursuant to 44
U.S.C. 3504(e)(3) and (10), 31 U.S.C.
1104(d), and Executive Order 10253
(June 11, 1951).
ddrumheller on DSK120RN23PROD with RULES2
Mortgage-Related Definitions
Under the current CRA regulations,
the agencies define ‘‘home mortgage
loan’’ to mean a closed-end mortgage
loan or an open-end line of credit as
defined under 12 CFR 1003.2
(Regulation C), the CFPB’s HMDA
implementing regulations, that is not an
excluded transaction under 12 CFR
1003.3(c)(1) through (10) and (13).200
198 See proposed § ll.13(b)(2)(ii) and (d)(1); see
also 87 FR 33884, 33896 (June 3, 2022).
199 See current 12 CFR ll.12(r).
200 See current 12 CFR ll.12(l). Excluded
transactions under 12 CFR 1003.3(c)(1) through (10)
and (13) are as follows: (1) a closed-end mortgage
loan or open-end line of credit originated or
purchased by a financial institution acting in a
fiduciary capacity; (2) a closed-end mortgage loan
or open-end line of credit secured by a lien on
unimproved land; (3) temporary financing; (4) the
purchase of an interest in a pool of closed-end
mortgage loans or open-end lines of credit; (5) the
purchase solely of the right to service closed-end
mortgage loans or open-end lines of credit; (6) the
purchase of closed-end mortgage loans or open-end
lines of credit as part of a merger or acquisition, or
as part of the acquisition of all of the assets and
liabilities of a branch office as defined in
§ 1003.2(c); (7) a closed-end mortgage loan or openend line of credit, or an application for a closedend mortgage loan or open-end line of credit, for
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
The agencies proposed to amend the
current ‘‘home mortgage loan’’
definition to refer to an ‘‘open-end home
mortgage loan’’ rather than an ‘‘openend line of credit,’’ with no intent to
change the meaning. The agencies also
proposed to remove the cross-reference
to the CFPB’s Regulation C and add new
definitions for ‘‘closed-end home
mortgage loan’’ and ‘‘open-end home
mortgage loan,’’ which would have the
same meanings given to ‘‘closed-end
mortgage loan’’ and ‘‘open-end line of
credit’’ in 12 CFR 1003.2(d) and (o),
respectively, excluding multifamily
loans as defined in proposed
§ ll.12.201 ‘‘Closed-end home
mortgage loan’’ is defined in 12 CFR
1003.2(d) to mean an extension of credit
that is secured by a lien on a dwelling
and that is not an open-end line of
credit under the HMDA regulations.
‘‘Open-end line of credit’’ is defined in
12 CFR 1003.2(o) to mean an extension
of credit that is secured by a lien on a
dwelling and is an open-end credit plan
as defined in CFPB’s Regulation Z, 12
CFR 1026.2(a)(20),202 but without regard
to whether the credit is consumer credit,
as defined in 12 CFR 1026.2(a)(12),203 is
extended by a creditor, as defined in 12
which the total dollar amount is less than $500; (8)
the purchase of a partial interest in a closed-end
mortgage loan or open-end line of credit; (9) a
closed-end mortgage loan or open-end line of credit
used primarily for agricultural purposes; (10) a
closed-end mortgage loan or open-end line of credit
that is or will be made primarily for a business or
commercial purpose, unless the closed-end
mortgage loan or open-end line of credit is a home
improvement loan under § 1003.2(i), a home
purchase loan under § 1003.2(j), or a refinancing
under § 1003.2(p); and (11) a transaction that
provided or, in the case of an application, proposed
to provide new funds to the applicant or borrower
in advance of being consolidated in a New York
State consolidation, extension, and modification
agreement classified as a supplemental mortgage
under New York Tax Law section 255; the
transaction is excluded only if final action on the
consolidation was taken in the same calendar year
as final action on the new funds transaction.
201 As discussed further below, the agencies
proposed to define ‘‘multifamily loan’’ as ‘‘a loan
for a ‘multifamily dwelling’ as defined in 12 CFR
1003.2(n).’’ Multifamily dwelling is defined in 12
CFR 1003.2(n) as ‘‘a dwelling, regardless of
construction method, that contains five or more
individual dwelling units.’’
202 ‘‘Open-end credit’’ means consumer credit
extended by a creditor under a plan in which: (1)
The creditor reasonably contemplates repeated
transactions; (2) The creditor may impose a finance
charge from time to time on an outstanding unpaid
balance; and (3) The amount of credit that may be
extended to the consumer during the term of the
plan (up to any limit set by the creditor) is generally
made available to the extent that any outstanding
balance is repaid. See 12 CFR 1003.2(o) and
100.1026.2(a)(20).
203 ‘‘Consumer credit’’ means credit offered or
extended to a consumer primarily for personal,
family, or household purposes. See 12 CFR
1026.2(a)(12).
PO 00000
Frm 00045
Fmt 4701
Sfmt 4700
6617
CFR 1026.2(a)(17),204 or is extended to
a consumer, as defined in 12 CFR
1026.2(a)(11).205
The agencies proposed to add
separate definitions for ‘‘closed-end
home mortgage loan’’ and ‘‘open-end
home mortgage loan,’’ because, as
discussed further in the section-bysection analysis of § ll.22, given their
distinct characteristics, these types of
loans would be considered separately
under the proposed Retail Lending Test.
The agencies’ proposed definitions of
these terms are consistent with the
current ‘‘home mortgage loan’’
definition, which cross-references 12
CFR 1003.2 to define closed-end home
mortgage loans and open-end lines of
credit. The agencies excluded
multifamily loans from the definitions
of ‘‘closed-end home mortgage loan’’
and ‘‘open-end home mortgage loan’’
because the proposal included a
separate definition for ‘‘multifamily
loan’’ that covers different transactions
(as discussed below in the section-bysection analysis). This exclusion was
204 ‘‘Creditor’’ means a person who regularly
extends consumer credit that is subject to a finance
charge or is payable by written agreement in more
than four installments (not including a down
payment), and to whom the obligation is initially
payable, either on the face of the note or contract,
or by agreement when there is no note or contract.
For purposes of §§ 1026.4(c)(8) (Discounts),
1026.9(d) (Finance charge imposed at time of
transaction), and 1026.12(e) (Prompt notification of
returns and crediting of refunds), a person that
honors a credit card. For purposes of subpart B, any
card issuer that extends either open-end creditor
credit that is not subject to a finance charge and is
not payable by written agreement in more than four
installments. For purposes of subpart B (except for
the credit and charge card disclosures contained in
§§ 1026.60 and 1026.9(e) and (f), the finance charge
disclosures contained in §§ 1026.6(a)(1) and (b)(3)(i)
and 1026.7(a)(4) through (7) and (b)(4) through (6)
and the right of rescission set forth in § 1026.15)
and subpart C, any card issuer that extends closedend credit that is subject to a finance charge or is
payable by written agreement in more than four
installments. A person regularly extends consumer
credit only if it extended credit (other than credit
subject to the requirements of § 1026.32) more than
25 times (or more than 5 times for transactions
secured by a dwelling) in the preceding calendar
year. If a person did not meet these numerical
standards in the preceding calendar year, the
numerical standards shall be applied to the current
calendar year. A person regularly extends consumer
credit if, in any 12-month period, the person
originates more than one credit extension that is
subject to the requirements of § 1026.32 or one or
more such credit extensions through a mortgage
broker. See 12 CFR 1026.2(a)(17).
205 ‘‘Consumer’’ means a cardholder or natural
person to whom consumer credit is offered or
extended. However, for purposes of rescission
under §§ 1026.15 and 1026.23, the term also
includes a natural person in whose principal
dwelling a security interest is or will be retained or
acquired, if that person’s ownership interest in the
dwelling is or will be subject to the security
interest. For purposes of §§ 1026.20(c) through (e),
1026.36(c), 1026.39, and 1026.41, the term includes
a confirmed successor in interest. See 12 CFR
1026.2(a)(11).
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6618
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
necessary because, under the proposal,
the agencies could consider multifamily
loans, unlike other closed-end home
mortgage loans, under the Community
Development Financing Test in
§ ll.24.206 The agencies also proposed
this exclusion of multifamily loans
because multifamily loans were a
distinct category of retail loan which
could qualify as a major product line
under the Retail Lending Test in
§ ll.22.
A commenter requested that the
excluded transaction language in the
definition of ‘‘home mortgage loan’’
referencing 12 CFR 1003.3(c)(1) through
(10) and (13) be narrowed to 12 CFR
1003.3(c)(1),207 (5),208 (7) through
(10),209 and (13).210 In particular, the
commenter objected to the current
definition’s exclusion of loans secured
by unimproved land (12 CFR
1003.3(c)(2)), expressing the view that
this would penalize financial
institutions for lending to builders or
individuals seeking to build in low- and
moderate-income communities.
Similarly, the commenter objected to
the exclusion of temporary financing (12
CFR 1003.3(c)(3)), such as bridge
financing or a loan for home
construction, asserting that this could
undermine a financial institution’s
ability to finance the construction of
homes in low- and moderate-income
communities, even if the financing is
only on a temporary basis. The
commenter objected to excluding from
the ‘‘home mortgage loan’’ definition
purchased closed-end home mortgage
loans and open-end lines of credit,
whether as a pool of credits or through
an acquisition or merger (12 CFR
1003.3(c)(4) and (6)), explaining that
financial institutions are purchasing
whole loans and servicing rights and not
merely purchasing an investment
vehicle, and that purchasing loan pools
also permits financial institutions to
meet the credit needs of their
communities despite not having the
resources to generate these loans one
transaction at a time.
The agencies decline to revise the
excluded transactions language. As
under the current CRA regulations, the
agencies intend to leverage HMDA data
in the final rule, i.e., data reported
pursuant to 12 CFR part 1003, which
allows for sufficient data for analysis
while not increasing the data collection
or reporting burden on these banks, as
part of the CRA evaluation framework.
proposed § ll.22(a)(5)(ii).
12 CFR 1003.3(c)(1).
208 See 12 CFR 1003.3(c)(5).
209 See 12 CFR 1003.3(c)(7) through (10).
210 See 12 CFR 1003.3(c)(13).
206 See
207 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
If the agencies narrowed the number of
excluded transactions as requested by
the commenter, HMDA reporters would
be required to produce additional data
that exceeds their current HMDA
reporting obligations, which would both
increase burden for banks and add
complexity to CRA examinations.
Further, the agencies note that the
exclusion of purchased closed-end
home mortgage loans and open-end
lines of credit from the ‘‘home mortgage
loan’’ definition does not mean that they
are not considered under the CRA
regulations. For a more detailed
discussion of the CRA regulations’
consideration of purchased loans, see
the section-by-section analysis of final
§ ll.22, Retail Lending Test.
After consideration of commenters’
concerns and recommendations and
further review of the proposed
definitions in light of other aspects of
the final rule, the agencies are adopting
the definitions of ‘‘home mortgage
loan,’’ ‘‘closed-end home mortgage
loan,’’ and ‘‘open-end home mortgage
loan’’ with technical changes. First, the
agencies have moved the HMDA
exclusions from the definition of ‘‘home
mortgage loan’’ to the definitions of
‘‘closed-end home mortgage loan’’ and
‘‘open-end home mortgage loan,’’ where
the exclusions are more appropriately
located. Second, the agencies have
removed the specific paragraph
designations in the cross-references to
the HMDA definitions so that they now
read ‘‘12 CFR 1003.2’’ instead of 12 CFR
1003.2(d) and (o) so that these crossreferences remain accurate if the CFPB
modifies this section in the future.
Accordingly, under the final rule:
• ‘‘home mortgage loan’’ means a
closed-end home mortgage loan or an
open-end home mortgage loan as these
terms are defined in final § ll.12;
• ‘‘closed-end home mortgage loan’’
has the same meaning given to the term
‘‘closed-end mortgage loan’’ in 12 CFR
1003.2, excluding loan transactions set
forth in 12 CFR 1003.3(c)(1) through
(10) and (13) and multifamily loans as
defined in final § ll.12; and
• ‘‘open-end home mortgage loan’’
has the same meaning as given to the
term ‘‘open-end line of credit’’ in 12
CFR 1003.2, excluding loan transactions
set forth in 12 CFR 1003.3(c)(1) through
(10) and (13) and multifamily loans as
defined in final § ll.12.
Multifamily Loan
The agencies proposed to add a new
definition of ‘‘multifamily loan’’ and
define it to mean a loan for a
‘‘multifamily dwelling’’ as defined in 12
CFR 1003.2(n) in the CFPB’s Regulation
C, which implements HMDA.
PO 00000
Frm 00046
Fmt 4701
Sfmt 4700
Multifamily dwelling is defined in 12
CFR 1003.2(n) to mean a dwelling,
regardless of construction method, that
contains five or more individual
dwelling units. The agencies intended
the proposed definition to correspond to
the proposal to treat multifamily loans
separately from closed-end and openend home mortgage loans, given their
distinct characteristics. The proposal for
considering ‘‘multifamily loans’’ is
discussed in detail in the section-bysection analyses of §§ ll.22 (Retail
Lending Test) and ll.13(b) (affordable
housing category of community
development).
The agencies did not receive any
comments on this definition and are
adopting it as proposed, with two
changes. First, the agencies are
replacing ‘‘loan’’ with ‘‘an extension of
credit that is secured by a lien’’ in the
final rule to make this term consistent
with HMDA. Second, the agencies have
removed the specific paragraph
designations in the cross-references to
the CFPB’s definition so that it now
reads ‘‘12 CFR 1003.2’’ instead of ‘‘12
CFR 1003.2(n).’’ Accordingly,
‘‘multifamily loan’’ is defined in the
final rule to mean an extension of credit
that is secured by a lien on a
‘‘multifamily dwelling’’ as defined in 12
CFR 1003.2.
Multistate MSA
The agencies proposed to add a new
definition of ‘‘multistate metropolitan
statistical area (multistate MSA)’’ and
define it to have the same meaning
given to that term by the Director of the
OMB. As discussed in detail in the
section-by-section analysis of § ll.28,
under the proposal, the agencies would
assign conclusions for a bank’s
performance under each applicable
performance test and ratings for a bank’s
overall CRA performance across
performance tests at the State, multistate
MSA, and institution levels.211 The
agencies did not receive any comments
related to the proposed ‘‘multistate
metropolitan statistical area’’ definition.
The agencies are adopting a definition
of this term in the final rule with
technical changes. First the agencies
revised the definition to remove the
cross-reference to the OMB definition
and instead are defining the term to
mean an MSA that crosses a State
boundary, which is the agencies’
intended meaning of this term. The
agencies made this revision to reflect
the fact that ‘‘multistate metropolitan
statistical area’’ is not a term defined by
the Director of the OMB. Instead, the
211 See, e.g., proposed § ll.28 and appendices
C, D, and E.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Director of OMB defines the term
‘‘MSA,’’ and the final rule defines
‘‘MSA’’ by cross-referencing to this
OMB definition. Second, consistent
with the change discussed above under
the definition of ‘‘MSA,’’ the agencies
are replacing ‘‘metropolitan statistical
area’’ with ‘‘MSA.’’ Thus, the resulting
defined term will be ‘‘multistate MSA’’
instead of ‘‘multistate metropolitan
statistical area.’’ Accordingly,
‘‘multistate MSA’’ is defined in the final
rule to mean an MSA that crosses a
State boundary.
ddrumheller on DSK120RN23PROD with RULES2
Nationwide Area
The agencies proposed to add a new
definition for ‘‘nationwide area’’ to
support the proposal to evaluate a
bank’s community development
financing activities in a ‘‘nationwide
area,’’ as discussed below in the sectionby-section analyses of §§ ll.24
through ll.27; the proposal to
evaluate large banks’ and certain
intermediate banks’ retail lending
performance in ‘‘outside retail lending
areas,’’ as discussed in the section-bysection analysis of § ll.18, which
would include the ‘‘nationwide area’’
outside of a bank’s assessment areas; the
proposal’s impact and responsiveness
review, as discussed in the section-bysection analysis of § ll.15; and the
proposal’s data collection, maintenance,
and reporting requirements, as
discussed in the section-by-section
analysis of § ll.42. Specifically, the
agencies proposed that ‘‘nationwide
area’’ would mean ‘‘the entire United
States and its territories.’’
The agencies received one comment
requesting clarity on what the agencies
meant by the term ‘‘nationwide area,’’
recommending that the agencies define
this term to include the broader regional
areas beyond defined multistate MSAs.
In this way, the commenter theorized
that banks could receive credit for
financing activities like affordable
housing in a particular region of the
United States that cover multiple States
but where that region is not a defined
multistate MSA. This commenter
misunderstands the scope of the
proposed ‘‘nationwide area’’ definition.
‘‘Nationwide area’’ includes the entirety
of the United States and its territories,
and is not limited to multistate areas.
The allocation of community
development financing activities,
including how an activity that benefits
more than one State but not the entire
nation will be attributed, is discussed in
the section-by-section analysis of
§ ll.24. Thus, the agencies are
adopting the definition of ‘‘nationwide
area’’ as proposed in the final rule.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Native Land Area
The Agencies’ Proposal
The agencies proposed to add a new
definition of ‘‘Native Land Area’’ to
provide clarity in support of the
proposal’s encouragement of activities
that address the significant and unique
community development challenges in
these areas. The proposal sought to
encourage these activities through the
proposed establishment of a category of
community development for qualifying
activities in Native Land Areas,212
discussed in the section-by-section
analysis of § ll.13(j), and by
considering the impact and
responsiveness of a bank’s community
development activities that benefit
Native communities, such as
community development activities in
Native Land Areas under § ll.13(j),213
discussed in the section-by-section
analysis of § ll.15(b)(8).
Native American land ownership is
complex, and lands can have a
complicated and intermingled mix of
land ownership status involving various
statutes, regulations, titles, and
restrictions.214 The agencies intended
the proposed ‘‘Native Land Area’’
definition to be responsive to
stakeholder feedback provided during
outreach prior to the issuance of the
proposal indicating support for a
geographic definition broader than the
definition of Indian country under 18
U.S.C. 1151, and to include lands such
as Hawaiian Home Lands, as well as
other lands typically considered Native
and tribal lands with unique political
status under established Federal Indian
law. The proposed ‘‘Native Land Area’’
definition leveraged other Federal and
State designations of Native and tribal
lands, as well as the OCC 2020 CRA
Final Rule, and included areas typically
considered by the Bureau of Indian
Affairs (BIA) and the U.S. Census
Bureau as Native geographic areas.
Accordingly, the proposed ‘‘Native Land
Area’’ definition included all geographic
areas delineated as U.S. Census Bureau
American Indian/Alaska Native/Native
Hawaiian (AIANNH) Areas and/or BIA
Land Area Representations. For
example, the proposed definition
included State American Indian
reservations established through a
governor-appointed State liaison that
provides the names and boundaries for
proposed § ll.13(l).
proposed § ll.15(b)(7).
214 See, e.g., Congressional Research Service,
‘‘Tribal Land and Ownership Statuses: Overview
and Selected Issues for Congress’’ (July 2021),
https://sgp.fas.org/crs/misc/R46647.pdf.
212 See
213 See
PO 00000
Frm 00047
Fmt 4701
Sfmt 4700
6619
State-recognized American Indian
reservations to the Census Bureau.
Specifically, under the proposal,
‘‘Native Land Area’’ would mean: (1) all
land within the limits of any Indian
reservation under the jurisdiction of the
U.S. Government, as described in 18
U.S.C. 1151(a); (2) all dependent Indian
communities within the borders of the
United States whether within the
original or subsequently acquired
territory thereof, and whether within or
without the limits of a State, as
described in 18 U.S.C. 1151(b); (3) all
Indian allotments, the Indian titles to
which have not been extinguished,
including rights-of-way running through
the same, as defined in 18 U.S.C.
1151(c); (4) any land held in trust by the
United States for Native Americans, as
described in 38 U.S.C. 3765(1)(A); (5)
reservations established by a State
government for a tribe or tribes
recognized by the State; (6) any Alaska
Native Village as defined in 43 U.S.C
1602(c); (7) lands that have the status of
Hawaiian Home Lands as defined in
section 204 of the Hawaiian Homes
Commission Act, 1920 (42 Stat. 108), as
amended; (8) areas defined by the U.S.
Census Bureau as Alaska Native Village
Statistical Areas, Oklahoma Tribal
Statistical Areas, Tribal-Designated
Statistical Areas, or American Indian
Joint-Use Areas; and (9) land areas of
State-recognized Indian tribes and
heritage groups that are defined and
recognized by individual States and
included in the U.S. Census Bureau’s
annual Boundary and Annexation
Survey.
Comments Received
The agencies received many
comments concerning the proposed
‘‘Native Land Area’’ definition,
discussed below.
Geographic areas included in the
definition. Some commenters expressed
support for the geographic areas
included in the proposed definition. For
example, a commenter supported such
an inclusive list given the past and
ongoing discrimination against
Indigenous people and communities.
Another commenter recognized the
proposal’s relatively comprehensive list
of defined Native American lands,
further indicating that accurately and
comprehensively identifying Native
lands is difficult because of the
fragmented ownership of Native lands
arising from historical Federal land
allotment policies. This commenter also
recommended that the agencies provide
a single source file made available once
the definition is agreed on. Another
commenter expressed support for
ensuring that all Native people in
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6620
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Alaska and Hawaii would be covered
under the definition.
In contrast, some commenters
recommended broadening the definition
to include additional geographic areas.
Several other commenters supported the
ability for tribes to designate lands
eligible for CRA qualification, with
some supporting the inclusion of
‘‘unceded’’ lands, i.e., lands without a
formal agreement with the government
and controlled by non-tribal interests
but that tribes consider historically
Native lands, as part of the definition in
light of prior Federal dispossession
policies. Another commenter suggested
that the definition should be connected
to census geographies.
Several other comments
recommended that the ‘‘Native Land
Area’’ definition should include Native
American Pacific Islands including
Guam, American Samoa, and the
Commonwealth of the Mariana Islands.
A few commenters expressed support
for adding tribal fee lands citing the loss
of tribal lands due to earlier Federal
policies aimed at dispossessing tribes,
with one commenter stating that this
would be consistent with the current
Federal policy of encouraging tribal selfdetermination and with principles of
tribal sovereignty. This commenter also
noted that the process of gaining Federal
trust status for tribal fee lands (which
would then meet the definition of
‘‘Native Land Area’’ pursuant to
proposed § ll.12, addressing lands
held in trust) is expensive and time
consuming.
Geographic areas outside of the
proposed definition. Many commenters
supported broadening the ‘‘Native Land
Area’’ definition to include activities
benefiting Native individuals and
communities outside of proposed
geographic areas. Several commenters
asserted that activities benefiting Native
Americans should qualify anywhere and
cited that the majority of American
Indian, Alaska Native, and Native
Hawaiian people live outside the Native
Land Areas covered by the proposed
definition. A group of commenters
further stated that the proposed
definition would limit the ability of
Native CDFIs, tribal governments, and
other entities to secure CRA-qualified
investments to support Native
communities residing within their
respective service areas but outside of
the proposed ‘‘Native Land Area’’
definition. A commenter supported
including service areas adjacent to
reservations, where a large number of
tribal members live or tribal programs
are distributed, to help facilitate better
community revitalization activities.
However, alternatively, a commenter
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
asserted that qualification for activities
should not extend past designated
geographic areas.
Alternative approaches for
designating geographic areas. A
commenter suggested that, rather than
focusing on activities in Native Land
Areas, the agencies consider a metricbased determination for where activities
could qualify, in conjunction with
Native-led organizations and CDFIs, that
would consider capital access in Native
American communities. This
commenter suggested that the agencies
additionally include a weighting factor
for banks investing in rural and remote
Native American communities that
might not have any credit or capital
access. In support of these ideas, the
commenter indicated that some
populations covered in the ‘‘Native
Land Area’’ definition have access to
credit and successful economic
development opportunities, while some
Native American communities not in
Native Land Areas as defined under the
proposal do not. Another commenter
asserted that the definition of ‘‘Native
Land Area’’ should use an alternative
geographic criterion for qualifying
activities, instead including
qualification for activities in census
tracts with a greater than 40 percent
Native American population and
earning less than 100 percent of the
average median family income.
Final Rule
The agencies are adopting the ‘‘Native
Land Area’’ definition as proposed with
a few technical changes. First, the
agencies have revised paragraph (4) of
the definition to include any land held
in trust by the United States for tribes
or Native Americans or tribally-held
restricted fee land. This change more
clearly effectuates the agencies’ intent in
the proposal to include in the definition
both individually- and tribally-owned
restricted fee lands as well as land held
in trust by the United States for both
tribes and individuals. This change also
aligns the definition with available BIA
data, which covers both individuallyheld and tribally-held restricted fee and
trust lands.215 The agencies are also
removing the cross-reference to ‘‘38
U.S.C. 3765(1)(A)’’ in paragraph (4) as
redundant.216 Finally, the agencies are
making a technical change to paragraph
(6), which covers Alaska Native villages,
to use the term defined in the cited
statute; as a result, the final rule
215 See Bureau of Indian Affairs, Branch of
Geospatial Support, ‘‘General Information for
Geospatial Questions’’ (Sept. 5, 2023), https://
biamaps.geoplatform.gov/faq.html.
216 See 38 U.S.C. 3765(1)(A).
PO 00000
Frm 00048
Fmt 4701
Sfmt 4700
references ‘‘Any Native village, as
defined in 43 U.S.C. 1602(c), in Alaska.’’
The ‘‘Native Land Area’’ definition in
the final rule is intended to align with
existing and established Federal Indian
law regarding lands and communities
with unique political status. The final
rule is also intended to be responsive to
stakeholder feedback received at all
stages of this rulemaking, indicating
support for a comprehensive geographic
definition of ‘‘Native Land Areas.’’ The
final definition focuses on lands and
communities that, as noted by
commenters, have generally
experienced little or no benefits from
bank access or investments.
The agencies have carefully
considered commenters’ suggestions for
expanding the geographic areas
included in the definition, and are
sensitive to the many complexities
underlying the development of a
‘‘Native Land Area’’ definition,
including the impacts of varying
historical policies regarding land
ownership and political status.217
However, the agencies are concerned
that substantively expanding the
‘‘Native Land Area’’ definition could
inadvertently create new precedent by
incorporating lands without a similar
unique political status as those lands
included under the definition, and
further could be impracticable where
data is not currently collected, reported,
or readily available. The agencies
believe it is important for stakeholders
and examiners to have access to and
utilize a consistent and comparable data
set.
The agencies also decline to expand
the ‘‘Native Land Area’’ definition to
incorporate areas outside of the
proposed geographic areas where Native
individuals may also reside, or to use
alternative metrics for defining Native
Land Areas. The agencies are concerned
about precedential impact, as well as
the practicality of implementation, such
a change would have, particularly with
a highly dispersed population. Further,
complex land ownership structures
associated with the lands falling within
the final definition can make economic
development in those lands particularly
difficult, which the agencies believe
support a more specific focus on those
lands. The agencies note that activities
benefiting Native individuals and
217 See, e.g., U.S. Dept. of Interior, ‘‘Land BuyBack Program for Tribal Nations,’’ https://
www.doi.gov/buybackprogram/fractionation
(discussing fractionation resulting from Federal
allotment policies); Congressional Research Service,
‘‘Tribal Land and Ownership Statuses: Overview
and Selected Issues for Congress’’ (July 2021),
https://sgp.fas.org/crs/misc/R46647.pdf (discussing
historical land policies).
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
communities outside a designated
Native Land Area may qualify for CRA
consideration under another community
development purpose as provided in
§ ll.13. (For a detailed discussion of
these community development
categories under the final rule, see the
section-by-section analysis of § ll.13.)
For example, a loan to support the
development of a multifamily housing
project to benefit low- and moderateincome tribal individuals outside of a
Native Land Area would qualify for
consideration under § ll.13(b)
(affordable housing) if a portion of the
project’s housing units are affordable.218
The agencies also note that the final rule
incorporates various impact and
responsiveness review factors under
§ ll.15 for examiners to consider in
evaluating a bank’s community
development activities. This includes an
impact and responsiveness factor for
areas with low levels of community
development financing and activities
serving low-income individuals and
families that may apply to activities
benefiting Native Americans living
adjacent to or otherwise outside a
Native Land Area.219
Finally, as noted in the proposal,
robust, publicly available data files
(‘‘shapefiles’’), defining the boundaries
of the geographic areas adopted in the
final rule are actively maintained by the
U.S. Census Bureau and BIA,
respectively.220 The agencies anticipate
making this data readily available to
stakeholders as part of the agencies’
regulatory implementation efforts,
which, among other benefits, the
agencies anticipate will facilitate
stakeholders’ ability to engage with
confidence in CRA-eligible activities
and enhance the transparency of the
agencies’ consideration of those
activities.
In adopting the ‘‘Native Land Area’’
definition, the agencies sought to
maintain consistency with established
categories of Native Land Areas. On
balance, the agencies believe the final
rule’s definition is as comprehensive as
feasible to ensure alignment with
current Federal Indian law and to
support the rule with durable, publicly
available data sources. This, in turn,
will make identifying Native Land Areas
practicable for stakeholders and
218 See final § ll.13(b)(1) and (2), discussed in
the section-by-section analysis of these provisions
below.
219 See final § ll.15(b)(2) and (7), discussed in
the section-by-section analysis of these provisions
below.
220 See U.S. Census Bureau, ‘‘AIANNH shapefile,’’
https://www2.census.gov/geo/tiger/TIGER2021/
AIANNH/; Bureau of Indian Affairs, ‘‘BIA Tract
Viewer,’’ https://biamaps.geoplatform.gov/BIAopendata/.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
facilitate their ability to engage in and
track CRA-eligible activities.
New Markets Tax Credit
As a clarification, the final rule
includes a definition for ‘‘New Markets
Tax Credit (NMTC),’’ not included in
the proposed rule, to mean a Federal tax
credit pursuant to section 45D of the
Internal Revenue Code of 1986 (26
U.S.C. 45D). The final rule uses this
term in § ll.15(b)(10) as one of the
impact and responsiveness factors and
in § ll.42(a)(5)(ii) as part of the data
collection of community development
loans and community development
investments, including whether the
community development loan or
community development investment is
an investment in a project financed by
NMTCs. The proposal used this term in
proposed § ll.42 but did not define it.
Nonmetropolitan Area
The agencies proposed no changes to
the current ‘‘nonmetropolitan area’’ 221
definition, which would continue to
mean any area that is not located in an
MSA. The agencies did not receive any
comments concerning the
‘‘nonmetropolitan area’’ definition and
are adopting it as proposed in the final
rule.
Open-End Home Mortgage Loan
For a discussion of the definition of
‘‘open-end mortgage loan,’’ see the
discussion above for Mortgage-Related
Definitions.
Operations Subsidiary or Operating
Subsidiary
The Board proposed to add a
definition of ‘‘operations subsidiary’’ to
its CRA regulations, and the OCC and
FDIC proposed to add a definition of
‘‘operating subsidiary’’ to their
respective CRA regulations. The
agencies each proposed their own
definitions because of differences in
their supervisory authority. The
agencies proposed these changes to
identify those bank affiliates whose
activities would be required to be
attributed to a bank’s CRA performance
pursuant to proposed § ll.21,
Performance Tests, standards, and
ratings, and § ll.28, Assigned
conclusions and ratings.222
Specifically, the Board proposed to
define ‘‘operations subsidiary’’ to mean
an organization designed to serve, in
effect, as a separately incorporated
department of the bank performing at
locations at which the bank is
authorized to engage in business,
functions that the bank is empowered to
perform directly.223
The FDIC proposed to define
‘‘operating subsidiary’’ to mean an
operating subsidiary as described in 12
CFR 5.34.224 The OCC proposed to
define ‘‘operating subsidiary’’ to mean
an operating subsidiary as described in
12 CFR 5.34 in the case of an operating
subsidiary of a national bank or an
operating subsidiary as described in 12
CFR 5.38 in the case of a savings
association.225
Regarding comments concerning the
definitions of ‘‘operations subsidiary’’
and ‘‘operating subsidiary,’’ a
commenter stated that the proposed
definition of an ‘‘operations subsidiary’’
and ‘‘operating subsidiary’’ appear
reasonable. The commenter stated that,
generally, there should be uniformity in
these and other definitions across all
Federal agencies that receive financial
institution data or reports. Another
commenter recommended that the
agencies avoid defining operations
subsidiary and operating subsidiary too
broadly. The commenter stated that it is
not correct that financial institutions
universally exercise ‘‘a high level of
ownership, control, and management’’
of all affiliates, which in some
circumstances may be considered as
‘‘subsidiaries.’’ As an example, the
commenter stated that numerous CDFI
banks have nonprofit affiliates that
provide substantial mission support, but
these nonprofit organizations often have
their own boards of directors, have been
capitalized in a variety of ways, and
control is exercised in different manners
as well.
For the reasons stated below, the
Board is adopting the proposed
definition of ‘‘operations subsidiary,’’
and the FDIC and OCC are adopting the
proposed definitions of ‘‘operating
subsidiary.’’ The agencies believe that
the proposed definitions of ‘‘operations
subsidiary’’ and ‘‘operating subsidiary’’
are sufficiently consistent based on the
agencies’ respective statutory authorities
and mandates. In addition, the agencies
do not believe these proposed
definitions are too broad. If an entity
meets the definition of affiliate, and not
the definition of operation subsidiary or
operating subsidiary, it will not be
treated as an operations subsidiary or
operating subsidiary under the CRA
regulations. Further, the agencies
elected not to change these definitions
because the description of these terms
in the agencies’ CRA regulation should
223 See
current 12 CFR ll.12(s).
222 See proposed § ll.21(c).
221 See
PO 00000
Frm 00049
Fmt 4701
Sfmt 4700
6621
proposed 12 CFR 228.12.
proposed 12 CFR 345.12.
225 See proposed 12 CFR 25.12.
224 See
E:\FR\FM\01FER2.SGM
01FER2
6622
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
not differ from the description of these
terms in other contexts.
Other Delivery System
The agencies are adopting a new
definition of ‘‘other delivery system,’’
not included in the proposal, to mean a
‘‘channel, other than branches, remote
services facilities, or digital delivery
systems, through which banks offer
retail banking services.’’ This may
include telephone banking, bank-bymail, or bank-at-work.
For a more detailed discussion of the
meaning of other delivery system, see
the section-by-section analysis of
§ ll.23(b)(4).
ddrumheller on DSK120RN23PROD with RULES2
Outside Retail Lending Area
As discussed above, the agencies
proposed to replace the term
‘‘assessment area’’ in § ll.12 with the
terms ‘‘facility-based assessment area,’’
‘‘retail lending assessment areas,’’ and
‘‘outside retail lending areas.’’ The
agencies proposed to define the new
term ‘‘outside retail lending area’’ to
mean the nationwide area outside of a
bank’s facility-based assessment areas
and, as applicable, retail lending
assessment areas. The agencies
proposed this new term as part of the
proposed Retail Lending Test.226 In
particular, under the proposed Retail
Lending Test, the agencies would
evaluate the retail lending performance
of large banks and certain intermediate
banks in areas outside of facility-based
assessment areas and retail lending
assessment areas, as applicable.
The final rule now includes a new
section that describes the bases for
delineating outside retail lending areas.
Therefore, the more detailed proposed
definition of outside retail lending areas
is not necessary, and instead the final
rule defines ‘‘outside retail lending
area’’ to mean the area delineated
pursuant to § ll.18. Comments
pertaining to the proposed outside retail
lending area provisions, as well as
detailed information regarding the final
rule’s outside retail lending area
delineation requirements, are described
in the section-by-section analysis of
§ ll.18.
Persistent Poverty County
The agencies included in proposed
§ ll.15(b)(1) a definition of ‘‘persistent
poverty county’’ to mean a county or
county-equivalent that had poverty rates
of 20 percent or more for the past 30
years, as measured by the most recent
decennial censuses. This definition
appeared in proposed § ll.15(b) in
connection with a list of factors (termed
226 See
proposed § ll.22.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
‘‘impact review’’ factors in the proposal)
relevant for evaluating the impact and
responsiveness of community
development activities.
In the final rule, the agencies are
moving the ‘‘persistent poverty county’’
definition to § ll.12 for ease of
reference, as the term appears in both
final § ll.15(b)(1) (finalized as an
impact and responsiveness review
factor) and the corresponding data
collection provision in final
§ ll.42(a)(5) and (6). Further,
consistent with the revision to the
definition of ‘‘county,’’ discussed above,
‘‘county-equivalents’’ has been removed
from the definition of ‘‘persistent
poverty county’’ in the final rule. Lastly,
the agencies are replacing the phrase ‘‘as
measured by the most recent decennial
censuses’’ with reference to a list of
counties designated by the Board, FDIC,
and OCC and published by the FFIEC.
Among other things, this change will
provide for statistical reliability while
also allowing for regular data updates as
conditions change. For a more detailed
discussion of the definition of
‘‘persistent poverty county,’’ comments
received on the definition, and the final
impact and responsiveness review factor
associated with this term, see the
section-by-section analysis of
§ ll.15(b).
Accordingly, the agencies are
adopting a definition of ‘‘persistent
poverty county’’ in the final rule that
means as a county that has had poverty
rates of 20 percent or more for 30 years,
as publicly designated by the Board,
FDIC, and OCC, compiled in a list, and
published annually by the FFIEC.
Product Line
The agencies are adopting a new
definition of ‘‘product line’’ in the final
rule, not included in the proposal. The
final rule defines ‘‘product line’’ to
mean a bank’s loans in one of the
following, separate categories in a
particular Retail Lending Test Area: (1)
closed-end home mortgage loans; (2)
small business loans; (3) small farm
loans; and (4) automobile loans, if a
bank is a majority automobile lender or
opts to have its automobile loans
evaluated pursuant to § ll.22. As
discussed in greater detail in the
section-by-section analysis of § ll.22,
the definition of ‘‘product line’’ is
intended to increase clarity regarding
identifying those bank product lines
that may potentially be subject to
evaluation under the Retail Lending
Test, as applicable.
Remote Service Facility
The Board’s and OCC’s current CRA
regulations define the term ‘‘automated
PO 00000
Frm 00050
Fmt 4701
Sfmt 4700
teller machine (ATM)’’ to mean an
automated, unstaffed banking facility
owned or operated by, or operated
exclusively for, the bank at which
deposits are received, cash dispersed, or
money lent.227 The FDIC’s CRA
regulation instead contains a definition
for ‘‘remote service facility,’’ which has
the same definition as the Board’s and
OCC’s definition of ATM but also
includes a list of examples, specifically,
automated teller machine, cash
dispensing machine, point-of-sale
terminal, or other remote electronic
facility. The proposal would replace the
Board’s and OCC’s ‘‘ATM’’ definitions
with a definition of ‘‘remote service
facility’’ that would include ATMs and
update the FDIC’s existing definition of
‘‘remote service facility.228
Specifically, the proposal defined
‘‘remote service facility’’ to mean an
automated, virtually staffed, or
unstaffed banking facility owned or
operated by, or operated exclusively for,
a bank, such as an ATM, interactive
teller machine, cash dispensing
machine, or other remote electronic
facility at which deposits are received,
cash dispersed, or money lent. The
agencies believed the proposed
definition better reflects changes in the
way that banks deliver banking services.
The agencies requested feedback as to
whether the proposed ‘‘remote service
facility’’ definition includes sufficient
specificity for the types of facilities and
circumstances under which banks
would be required to delineate facilitybased assessment areas, or whether
other changes to the CRA regulations are
necessary to better clarify when the
delineation of facility-based assessment
areas would be required. A commenter
suggested that the ‘‘remote service
facility’’ definition should include
ATMs that are not owned or operated
by, or operated exclusively for financial
institutions, noting the importance of
low- and moderate-income individuals’
access to independent ATMs. Several
commenters recommended that deposittaking remote service facilities should
include any bank partnerships with
third parties involving remote or virtual
banking services, with another
commenter suggesting ATM networks
operated by a third party. The agencies
have declined to explicitly incorporate
remote services facilities that are not
owned or operated by, or operated
exclusively for, a bank into the ‘‘remote
service facility’’ definition because of
the tenuous connections of these ATMs
to a bank. The agencies do not believe
that a non-proprietary remote service
227 See
228 See
E:\FR\FM\01FER2.SGM
current 12 CFR 25.12(d) and 228.12(d).
current 12 CFR 245.12(d).
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
facility, such as a network ATM,
constitutes a bank facility because such
ATMs are owned and operated by a
third party. Further, a bank participating
in such an ATM network may have
limited control over where an ATM is
located. The agencies note that the
current definition of ‘‘ATM’’ requires
that the ATM be owned or operated by,
or operated exclusively for, the bank.229
Therefore, the agencies are adopting
the proposed definition of ‘‘remote
service facility’’ in the final rule with
two clarifying changes. First, the
definition now provides that a remote
service facility must be open to the
general public. The agencies believe this
substantive change clarifies that this
definition only captures those remote
deposit facilities that benefit the credit
needs of the bank’s local community by
having a public facing presence.
Second, the definition in the final rule
now provides that deposits are
‘‘accepted’’ instead of ‘‘received.’’ This
change was made to describe the
facility’s interaction more accurately
with the public.
Accordingly, the final rule provides
that ‘‘remote service facility’’ means an
automated, virtually staffed, or
unstaffed banking facility owned or
operated by, or operated exclusively for,
a bank, such as an automated teller
machine (ATM), interactive teller
machine, cash dispensing machine, or
other remote electronic facility, that is
open to the general public and at which
deposits are accepted, cash dispersed, or
money lent.
Reported Loan
To enhance clarity in the final rule,
the agencies are adding a new definition
of ‘‘reported loan,’’ not included in the
proposal, defined to mean: (1) a home
mortgage loan or a multifamily loan
reported by a bank pursuant to HMDA,
as implemented by 12 CFR part 1003; or
(2) a small business loan or a small farm
loan reported by a bank pursuant to
§ ll.42. This term is primarily used in
the Retail Lending Test (final § ll.22
and appendix A) to specify where only
reported loans are used in certain
benchmarks. In addition, the term is
used in defining when a retail lending
assessment area must be delineated
pursuant to final § ll.17. For a
detailed discussion of the Retail
Lending Test, see the section-by-section
analysis of final § ll.22 (also
addressing appendix A), and for a
discussion of retail lending assessment
areas, see the section-by-section analysis
of § ll.17.
229 See current 12 CFR ll.12(d) (definition of
‘‘automated teller machine (ATM)’’).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
The agencies have included an
amendment to transition the definition
of ‘‘reported loan’’ to reference small
business loans and small farm loans
reported by a bank pursuant to the CFPB
Section 1071 Final Rule after the section
1071 data is available.230
Retail Banking Products
The final rule includes a new
definition of ‘‘retail banking products,’’
not included in the proposed rule, to
clarify the agencies’ intended meaning
of the term in final § ll.23 (Retail
Services and Products Test).
Specifically, the final rule defines
‘‘retail banking products’’ to mean credit
and deposit products or programs that
facilitate a lending or depository
relationship between the bank and
consumers, small businesses, or small
farms. For additional discussion of retail
banking products, see the section-bysection analysis of § ll.23.
Retail Banking Services
The agencies proposed to add a new
definition of ‘‘retail banking services’’ to
increase clarity and consistency in the
CRA regulations, particularly with
respect to the proposed Retail Services
and Products Test.231 The agencies
proposed to define ‘‘retail banking
services’’ to mean retail financial
services provided by a bank to
consumers, small businesses, and small
farms, and to include a bank’s systems
for delivering retail financial services.
The agencies did not receive any
comments concerning the proposed
‘‘retail banking service’’ definition and
are adopting the definition as proposed
in the final rule with a non-substantive
wording change.
Retail Lending Assessment Area
As discussed above, the agencies
proposed to replace the term
‘‘assessment area’’ in § ll.12 with the
terms ‘‘facility-based assessment area,’’
‘‘retail lending assessment areas,’’ and
‘‘outside retail lending areas.’’ The
agencies proposed to define the term
‘‘retail lending assessment area’’ to
mean a geographic area, separate and
distinct from a facility-based assessment
area, delineated in accordance with
§ ll.17. The agencies proposed this
new term as part of the proposed Retail
Lending Test.232
230 Specifically, the transition amendments
included in this final rule will amend the
definitions of ‘‘reported loan’’ to mean a small
business loan or small farm loan reported by a bank
pursuant to subpart B of 12 CFR part 1002. The
agencies will provide notice of the effective date of
these transition amendments in the Federal
Register after section 1071 data is available.
231 See proposed § ll.23.
232 See proposed § ll.22.
PO 00000
Frm 00051
Fmt 4701
Sfmt 4700
6623
The agencies did not receive any
comments specific to the proposed
definition of ‘‘retail lending assessment
area.’’ However, the agencies received
numerous comments regarding the retail
lending assessment area approach,
which are discussed in the section-bysection analysis of § ll.17. To be
consistent with the ‘‘facility-based
assessment area’’ and ‘‘outside retail
lending area’’ definitions in the final
rule, the agencies are revising the ‘‘retail
lending assessment area’’ definition in
the final rule. Specifically, the agencies
are removing the phrase ‘‘separate and
distinct from a facility-based assessment
area’’ and replacing ‘‘in accordance
with’’ with ‘‘pursuant to.’’ Accordingly,
the final rule defines ‘‘retail lending
assessment area’’ to mean ‘‘a geographic
area delineated pursuant to § ll.17.’’
Detailed information regarding the final
rule’s retail lending assessment area
delineation requirements is included in
the section-by-section analysis of
§ ll.17.
Retail Lending Test Area
In the final rule, the agencies are
adding a new definition of ‘‘Retail
Lending Test Area,’’ not included in the
proposal, to mean a facility-based
assessment area, a retail lending
assessment area, or an outside retail
lending area. The agencies believe this
definition will increase the final rule’s
consistency and improve its readability
with respect to referencing retail
lending assessment areas, facility-based
assessment areas, and outside retail
lending areas, both individually and
collectively, for purposes of the Retail
Lending Test.
Retail Loan
In relation to the proposed Retail
Lending Test,233 the agencies proposed
to add a new definition of ‘‘retail loan’’
to mean, for purposes of the Retail
Lending Test in § ll.22, an
automobile loan, closed-end home
mortgage loan, open-end home mortgage
loan, multifamily loan, small business
loan, or small farm loan. For all other
purposes, retail loan would mean a
consumer loan, home mortgage loan,
small business loan, or small farm loan.
The agencies did not receive any
comments concerning this proposed
definition. However, after further
review, the agencies have elected not to
adopt a definition of ‘‘retail loan’’ in
§ ll.12 in the final rule. Instead, the
agencies are adopting a definition of
‘‘product line’’ in the final rule, which
233 See
E:\FR\FM\01FER2.SGM
proposed § ll.22.
01FER2
6624
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
references loan categories relevant to the
Retail Lending Test.
Small Bank
For a discussion of the definition of
‘‘small bank,’’ see the discussion above
for Bank Asset-Size Definitions.
Small Business and Small Farm
Current Approach and the Agencies’
Proposal
The agencies proposed to add
definitions of ‘‘small business’’ and
‘‘small farm,’’ as they are not defined in
the current CRA regulations. Instead,
the current CRA regulations define
‘‘community development’’ to be
activities that promote economic
development by financing businesses or
farms that meet the size eligibility
standards of the SBA’s Development
Company or Small Business Investment
Company programs (13 CFR 121.301) or
have gross annual revenues of $1
million or less. The current regulations
also consider the borrower distribution
of small business loans and small farm
loans to businesses and farms with gross
annual revenues of $1 million or less.
The proposal would define ‘‘small
business’’ to mean ‘‘a business that had
gross annual revenues for its preceding
fiscal year of $5 million or less’’ and
‘‘small farm’’ to mean ‘‘a farm that had
gross annual revenues for its preceding
fiscal year of $5 million or less.’’ The
agencies proposed these definitions to
support the evaluation of retail lending
under the proposed Retail Lending
Test 234 and community development
loans and investments supporting small
businesses and small farms that would
be evaluated under the proposed
Community Development Financing
Test.235 These proposed definitions
were consistent with the definitions for
‘‘small business’’ proposed by the CFPB
in its section 1071 rulemaking.236
Comments Received
ddrumheller on DSK120RN23PROD with RULES2
The agencies received numerous
comments related to the proposed
‘‘small business’’ and ‘‘small farm’’
definitions. Some commenters
expressed support for the proposed
definitions, while other commenters
recommended the agencies adopt the
definitions with various changes or
implement new definitions that
incorporate different criteria.
proposed § ll.22.
proposed §§ ll.13(c)(2) and (3); ll.24;
and ll.26.
236 The CFPB section 1071 regulation does not
separately define ‘‘small farm,’’ rather it includes
them as types of small businesses identifiable by
the of the NAICS codes 111–115. See 88 FR 35150,
35271, 35295 (May 31, 2023).
234 See
235 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Specifically, many commenters
supported the proposal to adopt size
standards for small businesses and
small farms that would be consistent
with the proposed small business size
standard in the CFPB’s section 1071
rulemaking (i.e., gross annual revenues
of $5 million or less for the preceding
fiscal year). In general, these
commenters asserted that consistent
definitions across regulations and
regulators would provide for reporting
consistency and efficiency with less
burden. Several other commenters
stated that, although they believed that
the gross annual revenues of $5 million
or less proposed by the CFPB was too
high, they supported aligning the
definitions with the CFPB’s section
1071 rulemaking even if the CFPB later
adopted the larger size threshold in its
Section 1071 Final Rule. Some
commenters suggested that the small
business size standard should be as
consistent as possible with both the
CFPB’s section 1071 rulemaking and the
SBA’s small business size standards.
However, other commenters opposed
the proposal to align the size standards
for small businesses and small farms
with the proposed small business size
standard in the CFPB’s section 1071
rulemaking. Many of these commenters
generally stated that the proposed small
business and small farm size standards
are unusually high because the vast
majority of small businesses have gross
annual revenues significantly below $5
million. Moreover, a few of these
commenters stated that CRA’s focus
should be on the credit needs of the
smallest businesses, with some
commenters expressing concern that the
proposed $5 million threshold would
result in capital being redirected to
larger businesses. Several commenters
also emphasized that aligning the
‘‘small business’’ and ‘‘small farm’’
definitions with the CFPB’s size
standard would be inappropriate
because section 1071 serves a different
purpose than the CRA; namely, the
threshold proposed by the CFPB
establishes reporting requirements that
would facilitate enforcement of fair
lending laws. A few commenters also
stated that it was not prudent for the
agencies to propose a size standard
based on a proposed rule.
Many commenters that opposed
aligning the small business and small
farm size standards with the CFPB’s
section 1071 proposed small business
size standard recommended a range of
alternative thresholds for consideration.
A commenter recommended that the
agencies adopt the SBA’s small business
size standards. Another commenter
recommended that a small business
PO 00000
Frm 00052
Fmt 4701
Sfmt 4700
definition should encompass
manufacturing businesses with 500 or
fewer employees and other businesses
with gross annual revenues up to $8
million. One other commenter argued in
favor of an $8 million gross annual
revenues threshold, asserting that this
figure is the most common size standard
threshold for average annual business
receipts and would capture a majority of
small businesses. Another commenter
recommended that the agencies define
‘‘small business’’ and ‘‘small farm’’
based on loan size rather than gross
annual revenues but did not specify an
amount. One other commenter
supported a threshold of gross annual
revenues of $1 million or less because
many large banks only have system
codes for gross annual revenues that
indicate whether a business is above or
below $1 million, but not the actual
threshold.
Other commenters requested
clarifications of the definitions of ‘‘small
business’’ and ‘‘small farm’’ or offered
additional comments regarding these
definitions. A commenter requested
clarity on the treatment of revenues for
affiliated businesses and guarantors, and
how to calculate the revenues of small
businesses or small farms when a line
of credit is renewed (and updated
revenue information is not collected). A
few other commenters noted that
defining small business and small farm
by reference to gross annual revenues
could create difficulty at the beginning
of a calendar year, when borrowers may
not have reliable revenue figures for the
preceding year. Both commenters
suggested that banks should be able to
use prior-year revenue figures under
these circumstances. Another
commenter stated there should be clear
guidance on how gross annual revenues
should be determined to better provide
reporting and examination consistency.
A commenter suggested that the
agencies adopt a consistent definition of
‘‘small business’’ and ‘‘small farm’’
across the regulation, including for the
borrower distribution metrics under the
Retail Lending Test.237 A few
commenters pointed out that even if the
agencies align the ‘‘small business’’ and
‘‘small farm’’ definitions with the
CFPB’s size standard in its section 1071
rulemaking, there would still be
opportunity to improve consistency
across banking regulations because
237 Under proposed § ll.22(d)(2)(iii)(D), the
agencies would review bank lending to, among
other borrowers, small businesses, and small farms
with gross annual revenues of $250,000 or less and
small businesses and small farms with gross annual
revenues of more than $250,000 but less than or
equal to $1 million.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
these definitions would not be reflected
in Call Report requirements.
ddrumheller on DSK120RN23PROD with RULES2
Final Rule
After considering the varied
perspectives and recommendations on
the proposed ‘‘small business’’ and
‘‘small farm’’ definitions, the agencies
are adopting the definitions as
proposed.238 The final rule defines
‘‘small business’’ to mean a business
that had gross annual revenues for its
preceding fiscal year of $5 million or
less and ‘‘small farm’’ to mean a farm
that had gross annual revenues for its
preceding fiscal year of $5 million or
less.239
The agencies declined to use the
SBA’s small business size standards
because they believe that these
standards would not serve the CRA’s
purposes well. The SBA small business
size standards are based on gross annual
revenues or the average number of
employees for a wide range of business
entities, resulting in over 1,000 North
American Industry Classification
System (NAICS) codes. In addition, the
agencies also considered the fact that
the SBA has recently increased many of
its size standards and no longer employs
a $1 million average annual receipts size
standard for any industry.240 In
particular, many of the SBA’s gross
annual revenues standards are much
larger than the gross annual revenues
thresholds included in the proposed
‘‘small business’’ and ‘‘small farm’’
definitions. The SBA’s size standards
238 The agencies requested and received
permission from the SBA to use size standards for
small businesses and small farms that differ from
the SBA’s size standards, as required by 15 U.S.C.
632(a)(2)(C) and 13 CFR 121.903.
239 The final rule’s transition amendments will
amend the definitions of ‘‘small business’’ and
‘‘small farm’’ to instead cross-reference to the
definition of ‘‘small business’’ in the CFPB section
1071 regulation. This will allow the CRA
Regulatory definitions to adjust if the CFPB
increases the threshold in the CFPB section 1071
regulatory definition of ‘‘small business.’’ This is
consistent with the agencies’ intent articulated in
the preamble to the proposal and elsewhere in this
final rule to conform these definitions with the
definition in the CFPB section 1071 regulation. The
agencies will provide the effective date of these
amendments in the Federal Register once section
1071 data is available.
240 Through a series of rules that became effective
on May 2, 2022, the SBA implemented revised size
standards for 229 industries (all using average
annual receipts standards) to increase eligibility for
its Federal contracting and loan programs. See 87
FR 18607 (Mar. 31, 2022); 87 FR 18627 (Mar. 31,
2022); 87 FR 18646 (Mar. 31, 2022); 87 FR 18665
(Mar. 31, 2022). The SBA did not reduce any size
standards—it either maintained or increased the
size standards for all 229 industries, in many cases
with size standard increases of 50 percent or more.
Effective July 14, 2022, the SBA also increased size
standards for 22 wholesale trade industries and 35
retail trade industries. 87 FR 35869 (June 14, 2022).
See SBA Small Business Size Standards by NAICS
Industry, 13 CFR 121.201.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
for agricultural industries now range
from $2.25 million to $34 million, and
the size standards for non-agricultural
industries now range from $8 million to
$47 million.241 Therefore, applying the
SBA size standards under the CRA
regulations would undermine the focus
on smaller small businesses and farms.
Further, the agencies believe it is not
appropriate to set a lower threshold,
particularly when considering how the
final rule will use the terms. A lower
size standard may unduly restrict the
type of lending and investment that the
agencies have historically considered
under economic development (i.e., the
current rule considers as loans and
investments that support businesses and
farms that meet the size eligibility
standards of the SBA’s Development
Company or Small Business Investment
Company programs (13 CFR 121.301)).
In addition, the agencies believe that
size standards that draw on a single data
point—i.e., gross annual revenues of $5
million or less in the preceding year—
are easy for institutions to understand
and implement and minimize the data
banks are required to collect and report.
If the agencies adopted definitions that
introduced additional criteria, as
suggested by some commenters—e.g.,
average number of employees, average
revenue, or industry codes—institutions
would be required to collect and report
additional data points, which would
increase banks’ collection and reporting
burden.
The agencies also believe that $5
million is the appropriate threshold for
small businesses and small farms. As
discussed above, commenters advocated
for both lowering the threshold to focus
the regulations on the smallest small
business and raising the threshold to
capture larger small businesses, but the
agencies believe that the proposed
‘‘small business’’ and ‘‘small farm’’
definitions strike a proper balance. As
such, the definitions in the final rule
capture entities all along the small
business spectrum, from the smallest
small businesses and farms through
larger small businesses and farms.
Further, a $5 million threshold is
consistent with the definition of ‘‘small
business’’ in the CFPB’s section 1071
rulemaking. As explained in more detail
below in the discussion of the
definitions of ‘‘small business loans’’
and ‘‘small farm loans,’’ leveraging the
CFPB’s ‘‘small business’’ definition for
purposes of the Retail Lending Test will
reduce the data collection and reporting
burden under the CRA regulations
because banks will not have to report
241 See SBA Small Business Size Standards by
NAICS Industry, 13 CFR 121.201.
PO 00000
Frm 00053
Fmt 4701
Sfmt 4700
6625
small business loan data to two different
agencies with two different thresholds
once the agencies transition to using
section 1071 data.242 In addition, as also
explained below, aligning the CRA’s
‘‘small business’’ and ‘‘small farm’’
definitions with the CFPB’s ‘‘small
business’’ definition will enable the
agencies to expand and improve the
analysis of CRA small business and
small farm lending for all banks subject
to the Retail Lending Test.
The agencies understand that the
CFPB’s section 1071 rulemaking,
although finalized, is not yet applicable,
and, therefore, the agencies will not yet
be able to leverage the CFPB’s section
1071 rulemaking’s ‘‘small business’’
definition for purposes of the Retail
Lending Test at this time. However, the
final rule’s ‘‘small business’’ and ‘‘small
farm’’ definitions are also necessary for
determining which loans, investments,
or services meet the community
development criteria under final
§ ll.13 for purposes of the
Community Development Financing
Test in § ll.24, the Community
Development Services Test in § ll.25,
and the Community Development
Financing Test for Limited Purpose
Banks in § ll.25, and for evaluating a
bank’s retail banking services and retail
banking products under the Retail
Services and Products Test in final
§ ll.23. As explained above, the
current regulations do not explicitly
define ‘‘small business’’ and ‘‘small
farm,’’ and defining ‘‘small business’’
and ‘‘small farm’’ to mean those
businesses and farms with $5 million or
less in gross annual revenues is
preferable to using the SBA’s small
business size standards, which can be
significantly larger, and would
undermine the CRA’s focus on smaller
small businesses and farms. Therefore,
to be consistent throughout the CRA
regulations, the agencies believe it is
important to include this definition in
the final rule.
With regard to commenters’ concerns
related to the treatment of revenues, the
agencies anticipate updating the CRA
data collection and reporting guidance
to reflect the new collection and
reporting obligations related to the
reporting of gross annual revenues. In
developing that guidance, the agencies
will consider the commenters’
suggestions and recommendations.
With respect to the commenter’s
concern regarding the agencies
proposing a size standard based on the
242 As discussed in the section-by-section analysis
of § ll.42, the agencies will eliminate the current
CRA small business and small farm data collection
and reporting requirements once the agencies
transition to using section 1071 data.
E:\FR\FM\01FER2.SGM
01FER2
6626
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
CFPB proposed rule under section 1071
of the Dodd-Frank Act (Section 1071
Proposed Rule),243 the agencies note
that the $5 million size standard for a
small business or small farm was
included in the proposal; the agencies
did not cross-reference to the CFPB
section 1071 rulemaking. Therefore,
commenters were able to comment on
the exact threshold proposed.
The agencies appreciate commenters’
concern that inconsistencies with
respect to size standards for small
businesses and small farms would
remain because the CRA definitions
would not be reflected in the Call
Report. However, revisions to Call
Report requirements are outside the
scope of this rulemaking.
Small Business Loan and Small Farm
Loan
ddrumheller on DSK120RN23PROD with RULES2
Current Approach
The current CRA regulations define
‘‘small business loan’’ to mean ‘‘a loan
included in ‘loans to small businesses,’
as defined in the instructions for
preparation of the Consolidated Report
of Condition and Income.’’ 244 Likewise,
‘‘small farm loan’’ means ‘‘a loan
included in ‘loans to small farms,’ as
defined in the instructions for
preparation of the Consolidated Report
of Condition and Income.’’ 245 The
current approach captures loans of $1
million or less to businesses, and loans
of $500,000 or less to farms, as reported
in the Call Report.246
The Agencies’ Proposal
The agencies proposed to retain these
definitions with two technical changes.
First, the proposed ‘‘small business
loan’’ and ‘‘small farm loan’’ definitions
included a provision indicating that the
proposed ‘‘small business loan’’ and
‘‘small farm loan’’ definitions should be
read independently from the ‘‘small
business’’ and ‘‘small farm’’ definitions.
This distinction is relevant because,
until the agencies transition to using
small business lending data derived
from the CFPB Section 1071 Final Rule,
the CRA regulations need to continue to
use the current rule’s ‘‘small business
loan’’ and ‘‘small farm loan’’ definitions
in evaluating bank performance under
the proposed Retail Lending Test in
§ ll.22. The agencies indicated in the
proposal that once section 1071 data on
small business loans become available,
the agencies will transition to ‘‘small
business loan’’ and ‘‘small farm loan’’
definitions that are consistent with the
243 See
86 FR 56356 (Oct. 8, 2021).
current 12 CFR ll.12(v).
245 See current 12 CFR ll.12(w).
246 See Call Report, Schedule RC–C, Part II.
244 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
definition of ‘‘small business’’ in the
CFPB Section 1071 Final Rule.
Second, the agencies proposed to
substitute ‘‘Consolidated Report of
Condition and Income’’ in each
definition for the shorter term, ‘‘Call
Report,’’ which would have the same
meaning and be established as the term
used throughout the regulation earlier in
the regulatory text. (See the ‘‘assets’’
definition discussion above.)
With these technical changes, the
agencies proposed to define ‘‘small
business loan’’ to mean,
notwithstanding the definition of ‘‘small
business’’ in § ll.12, a loan included
in ‘‘loans to small businesses’’ as
defined in the instructions for
preparation of the Call Report, and
‘‘small farm loan’’ to mean
notwithstanding the definition of ‘‘small
farm’’ in § ll.12, a loan included in
‘‘loans to small farms’’ as defined in the
instructions for preparation of the Call
Report.’’
Comments Received
The agencies received numerous
comments related to the proposed
‘‘small business loan’’ and ‘‘small farm
loan’’ definitions. Some commenters
expressed support for the proposed
definitions and intended transition to
the CFPB section 1071 rulemaking
definition of ‘‘small business,’’ while
other commenters recommended the
agencies adopt definitions with various
changes or implement entirely new
definitions that incorporate different
criteria.
Specifically, a few commenters stated
that using the proposed small business
size standard in the CFPB’s section 1071
rulemaking will provide a more accurate
picture of lending to small entities than
the current threshold, which measures
lending based on loan size as opposed
to business revenue size.
However, other commenters opposed
the proposed changes to the ‘‘small
business loan’’ and ‘‘small farm loan’’
definitions and recommended
continuing using the Call Report
definitions, with a commenter stating
that retaining these definitions is
necessary to ensure that smaller dollar
loans are targeted to businesses with
capital gaps. Another commenter
recommended continuing to use the
current Call Report definitions of ‘‘loans
to small businesses’’ and ‘‘loans to small
farms,’’ and reevaluating after a full year
of section 1071 data are available. Some
commenters contended that the
proposed threshold would impose
considerable new data collection and
reporting requirements for community
banks that elect to be evaluated under
the proposed Retail Lending Test.
PO 00000
Frm 00054
Fmt 4701
Sfmt 4700
Another commenter proposed a
hybrid approach that would define
‘‘small business loan’’ to include both:
(1) a loan to a business with gross
annual revenues of $1 million or less;
and (2) a commercial loan in an amount
of $1 million or less. Some commenters
suggested using certain size standards
adopted by the SBA and USDA to
encourage lending to socially
disadvantaged businesses and farms
owned by persons of color. Another
commenter questioned whether the
‘‘small business loan’’ and ‘‘small farm
loan’’ definitions include loans made to
individuals because of the use of the
term ‘‘revenue’’ as opposed to
‘‘income.’’ This commenter claimed that
the exclusion of small business and
small farm loans to individuals would
cause underreporting and could
negatively affect a bank’s Retail Lending
Test results, metrics, benchmarks, and
possibly other areas. Further, the
commenter suggested the ‘‘small
business loan’’ and ‘‘small farm loan’’
definitions should include renewals and
credit limit increases, as set forth in the
Interagency Questions and Answers.247
Another commenter suggested that
the agencies should not give CRA
consideration for all loans to businesses
that meet the SBA standards for small
businesses. This commenter reasoned
that the SBA standards for employee
size represent too high a threshold to
meaningfully segment the small
business lending market.
Final Rule
The agencies appreciate the
commenters’ varied perspectives and
recommendations related to the
proposed ‘‘small business loan’’ and
‘‘small farm loan’’ definitions. However,
after consideration of these comments,
the agencies are adopting the ‘‘small
business loan’’ and ‘‘small farm loan’’
definitions as proposed in the final rule,
with technical changes, and have
included amendments to transition to
‘‘small business loan’’ and ‘‘small farm
loan’’ definitions leveraged off of the
CFPB section 1071 regulation’s ‘‘small
business’’ definition once section 1071
data is available.248 Specifically, the
final rule provides that ‘‘small business
loan’’ and ‘‘small farm loan’’ mean those
loans included in ‘‘loans to small
businesses’’ or ‘‘loans to small farms’’ as
Q&A § ll.42(a)–5.
final rule’s transition amendments will
amend the definitions of ‘‘small business loan’’ and
‘‘small farm loan’’ to mean a loan to a small
business or small farm, respectively, as defined in
§ ll.12 of the CRA regulations. The agencies will
provide notice of the effective date of this
amendment in the Federal Register once section
1071 data is available.
247 See
248 The
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
reported in Schedule RC–C of the Call
Report. The agencies are referring to
these terms as reported in the Call
Report, instead of as defined in the
instructions, to more accurately provide
a source for these terms. As indicated
above, maintaining the current rule’s
definitions of ‘‘small business loan’’ and
‘‘small farm loan’’ based on the Call
Report is necessary until the agencies
transition to using section 1071 data.
Further, transitioning to section 1071
data will enable the agencies to use
borrower and geographic distribution
metrics and benchmarks that provide
more insight into banks’ performance
relative to the demand for small
business loans in a given geographic
area. It also will allow for an analysis
that uses an expanded data set
measuring loans to small businesses of
different revenue sizes, including—
importantly—to the businesses and
farms with gross annual revenues of
$250,000 or less, as discussed in the
section-by-section analysis of § ll.22,
the Retail Lending Test. In sum, these
definitions will enable the agencies to
expand and improve the analysis of
CRA small business and small farm
lending for all banks, as applicable,
since section 1071 data will also enable
expanded analysis for intermediate and
small banks that are subject to reporting
pursuant to the CFPB’s section 1071
rulemaking. Further, because a large
business may obtain small dollar loans,
and a small business may obtain large
dollar loans, the agencies believe the
size of a business obtaining the loan is
a better factor than the size of the loan
to a business for determining whether a
loan is made to a small business that
warrants CRA consideration.
For the same reasons as noted in the
‘‘small business’’ and ‘‘small farm’’
definitions discussion, the agencies do
not find it appropriate to adopt
definitions of ‘‘small business loan’’ or
‘‘small farm loan’’ based on the SBA’s
small business size standards. As noted
above, the SBA currently employs
varying small business standards which
are based on various factors, including
industry, average annual receipts, and
average number of employees. As a
result, capturing all loans to businesses
that qualify as small businesses under
the SBA’s standards would necessitate
the collection and reporting of
additional data, including NAICS codes
to determine the industry in which a
business operates, average employee
headcount, and average receipts over a
multi-year period. This would impose
increased compliance and operational
burden and costs in negotiating what,
for many or most banks, would be a
complicated overlay on their lending
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
activity (e.g., use of NAICS codes) that
could reduce efficiencies in their small
business and small farm lending
programs.
In response to comments about the
inclusion of loans to individuals as
small business loans or small farm loans
based on income of the individual as
opposed to business revenues and how
renewals and other credit limit
increases are considered, the agencies
intend to continue historical practices
with respect to these issues.
Specifically, pursuant to Call Report
instructions and certain limitations,
loans to sole proprietorships for
commercial or agricultural purposes are
included in the ‘‘small business loan’’
and ‘‘small farm loan’’ definitions,
respectively. Banks have historically
reported the gross annual revenues
relied on in making credit decisions.
This reporting included affiliate
revenues when relied on, but never
combined individual income with
business revenues even if the bank
relied on the individual income of a sole
proprietor in making the credit decision.
The agencies continue to believe this is
appropriate, because irrespective of
whether the bank relied on individual
income in making a credit decision, it
keeps the focus on the size of the
business for purposes of considering the
loan under the performance tests.
Therefore, under the final rule, banks
will report only the gross annual
revenues of the business benefiting from
the loan proceeds.249
It is also notable that once the
transition to section 1071 data is
complete, the small business loan data
used for the Retail Lending Test will
capture business credit transactions that
are secured by real estate. For example,
section 1071 data will capture business
loans secured by an applicant’s primary
residence or residential investment
property as collateral for inventory
financing or working capital. Such loans
would not be captured under HMDA
because they do not involve a home
purchase, home improvement, or
refinancing and would not be captured
in the Call Report definition of ‘‘loans
to small businesses’’ because they are
secured by residential real estate.
For the reasons discussed above, the
agencies are adopting in the final rule a
definition of ‘‘small business loan’’ that
249 The agencies intend to make one change from
the current guidance regarding the treatment of
affiliate revenues, pursuant to the final rule and any
guidance issued, gross annual revenue reporting
will be limited to the business revenues of the
benefiting business regardless of whether affiliate
revenues are considered in a credit decision to more
accurately identify the size of a business under the
performance tests.
PO 00000
Frm 00055
Fmt 4701
Sfmt 4700
6627
means, notwithstanding the definition
of ‘‘small business’’ in this section, a
loan included in ‘‘loans to small
businesses’’ as defined in the
instructions for preparation of the Call
Report. Similarly, the agencies are
adopting in the final rule a definition of
‘‘small farm loan’’ that means,
notwithstanding the definition of ‘‘small
farm’’ in this section, a loan included in
‘‘loans to small farms’’ as defined in the
instructions for preparation of the Call
Report. Amendments included in the
final rule will transition these
definitions to reflect the final rule’s
definitions of ‘‘small business’’ and
‘‘small farm,’’ which leverages the
definition of ‘‘small business’’ in the
CFPB’s section 1071 rulemaking, once
small business data reported pursuant to
that rulemaking becomes available and
the agencies announce an effective date
for this transition in the Federal
Register.
State
To increase clarity and consistency in
the CRA regulations, the agencies
proposed to add a definition of ‘‘State’’
to mean a U.S. State or territory, and the
District of Columbia. The agencies did
not receive any comments on this
definition and are adopting the
definition as proposed in the final rule.
Targeted Census Tract
The agencies proposed to add a
definition of ‘‘targeted census tract’’ for
purposes of certain community
development categories in proposed
§ ll.13. As proposed, this term would
mean: (1) a low-income census tract or
a moderate-income census tract; or (2) a
distressed or underserved
nonmetropolitan middle-income census
tract. This definition was intended to
reflect the current CRA regulations
regarding community development
activities now categorized as
revitalization and stabilization
activities,250 as well as accompanying
guidance in the Interagency Questions
and Answers regarding relevant
geographic areas for these activities.251
The agencies did not receive any
comments concerning the proposed
definition of ‘‘targeted census tract’’ and
adopt it as proposed in the final rule.
Tribal Government
The final rule includes a new
definition for ‘‘tribal government,’’ not
included in the proposal, to clarify the
agencies’ intended meaning of ‘‘tribal
government’’ where referenced in the
current 12 CFR ll.12(g)(4).
generally 81 FR 48506, 48526–48528 (July
25, 2016).
250 See
251 See
E:\FR\FM\01FER2.SGM
01FER2
6628
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
final rule (see, e.g., community
development categories in proposed and
final § ll.13 and the accompanying
section-by-section analysis). As
discussed above, the proposed and final
community development place-based
categories, including activities in Native
Land Areas, include as eligibility
criterion that activities be ‘‘conducted in
conjunction with a Federal, State, local,
or tribal government plan, program, or
initiative.’’ 252 However, the proposal
did not define ‘‘tribal government,’’
although the agencies sought feedback
on various aspects of the government
plan criterion. Some commenters
addressed the types of entities that
should be included in the government
plan requirement, including tribal
governments, associations, and other
designees. A commenter expressed
support for defining ‘‘tribal
government’’ to mean the recognized
governing body of any Indian, or Alaska
Native tribe, band, nation, pueblo,
village, community, component band, or
component reservation, individually
identified (including parenthetically) in
the list most recently published
pursuant to section 104 of the Federally
Recognized Indian Tribe List Act of
1994.253
Based on comments and on further
consideration, the agencies believe that
a definition of ‘‘tribal government’’ will
provide needed clarity and certainty for
banks and other stakeholders seeking to
determine whether activities meet the
required eligibility criterion.
Accordingly, the final rule defines
‘‘tribal government’’ to mean the
recognized governing body of any
Indian, or Alaska Native tribe, band,
nation, pueblo, village, community,
component band, or component
reservation, individually identified
(including parenthetically) in the list
most recently published pursuant to
section 104 of the Federally Recognized
Indian Tribe List Act of 1994 (25 U.S.C.
5131). As with the definition of ‘‘Native
Land Areas,’’ this definition is derived
from and intended to align with existing
Federal Indian law.
Wholesale Bank
As detailed in the ‘‘limited purpose
bank’’ definition discussion above, the
agencies are adopting the single term,
‘‘limited purpose bank,’’ and
eliminating the ‘‘wholesale bank’’
definition in the final rule. This change
is intended to improve clarity, minimize
complexity, and provide for new and
future market participants.
252 See
253 See
final § ll.13(j)(2)(i).
Public Law 103–454, 108 Stat. 4791 (Nov.
2, 1994).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Women’s Depository Institution
The agencies proposed to define
‘‘women’s depository institution (WDI)’’
as having the same meaning given to
that term in 12 U.S.C. 2907(b)(2). The
cross-referenced provision of the CRA
statute defines ‘‘WDI’’ to mean a
depository institution, as defined in the
FDI Act, with: (1) more than 50 percent
of the ownership or control of which is
held by 1 or more women; (2) more than
50 percent of the net profit or loss of
which accrues to 1 or more women; and
(3) a significant percentage of senior
management positions of which are held
by women. The agencies did not include
an alternate definition of WDI because
their policies with respect to
designating WDI’s vary. The FDIC does
not specifically designate or define
WDIs under its MDI policy statement,
however, it does recognize WDIs for
purposes of the CRA. The Board defines
WDI consistent with the CRA statute
and institutions that meet the definition
are eligible to access resources under
the Federal Reserve System’s
Partnership for Progress program.254
The OCC, in contrast, considers WDIs to
be MDIs under its MDI Policy
Statement, and, therefore, womenowned institutions that do not meet the
statutory definition of WDI in section
2907 would be considered MDIs if the
institution otherwise meets the
requirements of the OCC’s MDI Policy
Statement.
The agencies did not receive any
comments on the proposed definition of
WDI and are adopting the definition as
proposed with non-substantive
revisions for conformity with the
structure of other definitions in final
§ ll.12. Accordingly, under the final
rule, ‘‘Women’s depository institution
(WDI)’’ means ‘‘women’s depository
institution’’ as defined in 12 U.S.C.
2907(b)(2).
Section ll.13 Consideration of
Community Development Loans,
Community Development Investments,
and Community Development Services
Current Approach and the Agencies’
Proposal
The current CRA regulations define
‘‘community development’’ as
comprising four broad categories:
affordable housing, community services,
economic development, and
revitalization and stabilization.255 The
254 See Board, SR 21–6/CA 21–4: ‘‘Highlighting
the Federal Reserve System’s Partnership for
Progress Program for Minority Depository
Institutions and Women’s Depository Institutions’’
(Mar. 25, 2021), https://www.federalreserve.gov/
supervisionreg/srletters/SR2106.htm.
255 See current 12 CFR ll.12(g).
PO 00000
Frm 00056
Fmt 4701
Sfmt 4700
agencies proposed to update the
community development definition in
current § ll.12 by creating a new
§ ll.13 that would define community
development as including eleven
different categories of activities and
would establish standards for when
community development activities
would receive full and partial
consideration. Proposed § ll.13
incorporated aspects of the current
Interagency Questions and Answers into
the regulation and established specific
eligibility standards for a broad range of
community development activities.
Proposed § ll.13 was also designed to
provide more clarity regarding the kinds
of activities the agencies consider to be
community development, as well as
regarding eligibility for community
development consideration.
Comments Received
Commenters provided general
feedback on the agencies’ proposal to
adopt a definition of community
development with eleven categories of
activities, as well as on the specific
proposed categories (which are
discussed in the section-by-section
analysis of each individual category
below). Many commenters were
generally supportive of the proposal,
with several noting that the proposed
approach for defining community
development would provide more
clarity for all stakeholders on the types
of activities that qualify and the
eligibility requirements for different
activity types. Several commenters were
particularly supportive of adding new
categories to the current community
development definition, such as the
proposed categories for disaster
preparedness and climate resiliency
activities, activities with MDIs, WDIs,
LICUs, and CDFIs, and activities in
Native Land Areas. Other commenters
noted that proposed changes to the
community development definition
would increase the responsiveness of
banks to community needs and
expressed the view that the changes
would help to more effectively target
community development activities.
In contrast, a few commenters
opposed the proposed changes to the
community development definition.
Commenter feedback included: that the
activities that could be considered
under the new categories could be
considered under the four existing
categories of community development;
concern that the new community
development categories were too rigid
and complex, including that it would be
difficult to obtain the data needed to
show activities meet the new
requirements; and that the definition of
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
community development would lead to
a narrowing of what could qualify,
which might result in fewer or less
impactful activities in low- and
moderate-income communities.
Additionally, several commenters
provided suggestions for additional
categories of activities that should be
considered under community
development, such as equitable media,
activities focused on arts and culture,
broadband and digital inclusion,
activities benefiting military
communities, and activities that are
designed to support individuals with
disabilities.
ddrumheller on DSK120RN23PROD with RULES2
Final Rule
The agencies are adopting proposed
§ ll.13, with revisions from the
proposal and retitled as ‘‘Consideration
of community development loans,
community development investments,
and community development services.’’
The final rule updates the current
definition of community development
to provide banks with additional clarity
regarding the loans, investments, and
services that the agencies have
determined support community
development that is responsive to the
needs of low- and moderate-income
individuals and communities, certain
distressed or underserved
nonmetropolitan areas, and small
businesses and small farms.
Consistent with the structure of the
proposal, final § ll.13 adopts
standards for when community
development loans, community
development investments, and
community development services will
receive full and partial consideration
(final § ll.13(a)), and replaces the
current definition of community
development with the following eleven
categories:
Section ll.13(b) Affordable housing;
Section ll.13(c) Economic
development;
Section ll.13(d) Community
supportive services;
Section ll.13(e) Revitalization or
stabilization;
Section ll.13(f) Essential
community facilities;
Section ll.13(g) Essential
community infrastructure;
Section ll.13(h) Recovery of
designated disaster areas;
Section ll.13(i) Disaster
preparedness and weather resiliency;
Section ll.13(j) Revitalization or
stabilization, essential community
facilities, essential community
infrastructure, and disaster
preparedness and weather resiliency in
Native Land Areas;
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Section ll.13(k) Activities with
MDIs, WDIs, LICUs, or CDFIs; and
Section ll.13(l) Financial literacy.
Final § ll.13(a) has been revised to
clarify the standards within each
category for determining full or partial
consideration. Final § ll.13(b)
through (l) have also been revised to
address comments, improve clarity, and
promote greater internal consistency.
Revisions to these categories are
discussed in greater detail in the
corresponding section-by-section
analyses below.
The final rule incorporates aspects of
the guidance that is currently provided
in the Interagency Questions and
Answers and provides more specificity,
relative to the current rule, on the kinds
of activities that the agencies consider to
be community development. By
building on the current rule and
expanding the categories of community
development, the agencies believe that
final § ll.13 will emphasize activities
that are responsive to community needs,
and especially the needs of low- and
moderate-income individuals, families,
and households and small businesses
and small farms. Further, the agencies
believe that the final rule will provide
increased transparency and consistency
by providing stakeholders with a better
upfront understanding how loans,
investments, and services supporting
community development can receive
consideration. Overall, the agencies
believe that the final rule will reduce
uncertainty and facilitate banks’ ability
to identify community development
opportunities.
In adopting final § ll.13, the
agencies considered comments
regarding each proposed category of
community development, and on
appropriate standards for providing full
and partial consideration for community
development activities. These
comments and the final rule are
discussed below in the section-bysection analyses of § ll.13(a) through
(l). In addition, the agencies are
adopting a variety of clarifying and
conforming technical edits across final
§ ll.13. For example, across all
community development categories, the
agencies are revising the term ‘‘low- and
moderate-income individuals’’ to ‘‘lowand moderate-income individuals,
families, and households’’ for
consistency across the various
paragraphs in § ll.13, to provide more
clarity and to comprehensively include
the beneficiaries of different community
development activities. Similarly, where
appropriate, the final rule replaces
‘‘activities’’ with ‘‘loans, investments,
and services,’’ consistent with revisions
made elsewhere in the regulation to
PO 00000
Frm 00057
Fmt 4701
Sfmt 4700
6629
more accurately capture the distinction
between community development
activities, and a bank’s loans,
investments, and services that support
those activities (for which CRA
consideration is granted).
The agencies considered commenter
feedback that revising community
development to include eleven
categories could be too rigid or complex,
and comments that activities under
proposed § ll.13(b) through (l) could
be included under the four existing
community development categories.
The agencies believe, however, that
additional community development
categories, with specific eligibility
requirements for each, will provide
stakeholders with better clarity.
Additionally, as previously noted and
consistent with the proposal, the final
rule incorporates existing guidance into
the definition, which represents an
evolution towards a more
comprehensive and transparent
regulation. The agencies note that, while
banks subject to the rule are permitted
to qualify loans, investments, and
services under any applicable
community development category, and
that some activities may meet the
criteria of multiple categories, activities
may count only once for the purposes of
calculating the Community
Development Financing Metric.
The agencies also appreciate
comments suggesting additional
categories for inclusion under
community development and note that
these are generally discussed in the
section-by-section analyses of final
§ ll.13(b) through (l). The agencies
have considered these comments but
believe that the adopted categories most
clearly and specifically align with the
scope of community development under
the CRA regulations. The agencies note
that loans, investments, and services
supporting additional activities
suggested by commenters could still
receive consideration if they otherwise
meet the required criteria under any
category included in final § ll.13.
Finally, the agencies believe that the
establishment in final § ll.14 of an
illustrative list of qualifying community
development activities and of a
confirmation process, available if a bank
wants to request review in advance, will
help to provide additional clarity and
transparency for banks regarding the
consideration of community
development loans, investments, and
services. For more information, see the
section-by-section analysis of § ll.14.
E:\FR\FM\01FER2.SGM
01FER2
6630
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Section ll.13(a) Full and Partial
Credit for Community Development
Loans, Community Development
Investments, and Community
Development Services
ddrumheller on DSK120RN23PROD with RULES2
Current Approach
Under the current CRA rule, a bank
may, depending on its size and business
model, be evaluated for its community
development lending, investments, and
services under the lending, investment,
or service tests, as applicable.256 To be
eligible for CRA community
development consideration, a loan,
service, or investment must have
community development as its primary
purpose.257
The Interagency Questions and
Answers explain that a loan,
investment, or service is considered to
have a primary purpose of community
development ‘‘when it is designed for
the express purpose of’’ the following:
• ‘‘Revitalizing or stabilizing low- or
moderate-income areas, designated
disaster areas, or underserved or
distressed nonmetropolitan middleincome areas;’’
• ‘‘Providing affordable housing for,
or community services targeted to, lowor moderate-income persons;’’ or
• ‘‘Promoting economic development
by financing small businesses or small
farms that meet the requirements set
forth in 12 CFR ll.12(g).’’ 258
The Interagency Questions and
Answers explain that the agencies use
one of two approaches to determine
whether an activity is ‘‘designed for an
express community development
purpose.’’ An activity meets the primary
purpose standard, and the entire activity
may be eligible for CRA considerations
if:
• ‘‘[A] majority of the dollars or
beneficiaries of the activity are
identifiable to one or more of the
enumerated community development
purposes;’’ 259 or
• Less than a majority of the dollars
or benefits is identifiable to one or more
community development purposes, but:
(1) ‘‘the express, bona fide intent of the
activity . . . is primarily one or more of
256 See, e.g., current 12 CFR ll.22 through
ll.26.
257 See current 12 CFR ll.12(h)(1) (for
community development loans), (i)(1) (for
community development services), and (t) (for
community development or ‘‘qualified’’
investments).
258 See Q&A § ll.12(h)–8. The referenced
requirements for small businesses and small farms
are that they ‘‘meet the size eligibility standards of
the Small Business Administration’s Development
Company or Small Business Investment Company
programs (12 CFR 121.301) or have gross annual
revenues of $1 million or less.’’ 12 CFR
ll.12(g)(3).
259 Q&A § ll.12(h)–8.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
the enumerated community
development purposes’’; (2) ‘‘the
activity is specifically structured . . . to
achieve the expressed community
development purpose’’; and (3) the
activity accomplishes, or is reasonably
certain to accomplish, the community
development purpose involved.’’ 260
Even where those standards have not
been met, loans, investments, or
services involving the provision of
mixed-income housing that incudes
affordable housing may be deemed to
have a primary purpose of community
development as specified in the
Interagency Questions and Answers.261
Specifically, at a bank’s option, these
activities may be considered to have a
primary purpose of community
development and be eligible for CRA
credit on a pro rata basis; a bank may
receive pro rata consideration for the
portion of the activity that helps to
provide affordable housing to low- or
moderate-income individuals.262 For
example, a bank could receive CRA
consideration for 20 percent of the
dollar amount of a loan or investment
for a mixed-income development, if 20
percent of the units are set aside for
affordable housing for low- or moderateincome individuals.263
The Agencies’ Proposal
The agencies proposed to define the
standards for determining whether a
community development activity has a
‘‘primary purpose’’ of community
development to clarify eligibility criteria
for different community development
loans, investments, or services
(proposed § ll.13(a)). To this end,
proposed § ll.13(a)(1) established
specific standards based on the
interagency guidance described
above 264 for eleven categories of
community development. These
categories were listed in proposed
§ ll.13(a)(2) and described in detail in
proposed § ll.13(b) through (l). With
the proposed categories, the agencies
intended to reflect an emphasis on
activities that are responsive to
community needs, especially the needs
of low- and moderate-income
individuals and communities and small
businesses and small farms.
Specifically, proposed § ll.13(a)
stated that ‘‘[a] bank may receive
community development consideration
for a loan, investment, or service that
260 Id. Q&A § ll.12(h)–8 specifies that the
‘‘express, bona fide intent’’ of the activity may be
‘‘as stated, for example, in a prospectus, loan
proposal, or community action plan.’’ Id.
261 See id.
262 See id.
263 See id.
264 See id.
PO 00000
Frm 00058
Fmt 4701
Sfmt 4700
has a primary purpose of community
development.’’ The agencies proposed
several ways in which an activity could
be determined to have a primary
purpose of community development.265
First, under proposed § ll.13(a)(1)(i),
if a majority of the dollars, applicable
beneficiaries, or housing units of the
activity were identifiable to one or more
of the community development
purposes listed in proposed
§ ll.13(a)(2), then the activity would
meet the requisite primary purpose
standard and would receive full CRA
credit.
Second, and alternatively, under
proposed § ll.13(a)(1)(i)(A), where an
activity supported rental housing
purchased, developed, financed,
rehabilitated, improved, or preserved in
conjunction with a Federal, State, local,
or tribal government (see proposed
§ ll.13(b)(1)), and fewer than 50
percent of the housing units supported
by that activity were affordable, the
activity would be considered to have a
primary purpose of community
development only in proportion to the
percentage of total housing units in the
development that were affordable.
Third, under proposed
§ ll.13(a)(1)(i)(B), where an activity
involved low-income housing tax
credits to support affordable housing
under proposed § ll.13(b), the activity
would be considered to have a primary
purpose of community development for
the full value of the investment, even if
fewer than 50 percent of the housing
units supported by that activity were
affordable.
Finally, under proposed
§ ll.13(a)(1)(ii), a loan, investment, or
service would be considered to have a
primary purpose of community
development if the express bona fide
intent of the activity was one or more
of the proposed community
development purposes and the activity
was specifically structured to achieve,
or was reasonably certain to accomplish,
the community development purpose.
Pro rata consideration for other
community development activities.
Although the proposal did not specify
any other application of partial credit,
the agencies sought feedback on
whether such consideration would be
appropriate for other community
development activities (for example,
financing broadband infrastructure,
health care facilities, or other essential
infrastructure and community facilities).
If so, the agencies also sought feedback
on whether the activity should be
eligible for partial consideration only if
a minimum percentage of the
265 See
E:\FR\FM\01FER2.SGM
proposed § ll.13(a)(1).
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
community development purpose it
supported served low- or moderateincome individuals or census tracts or
small businesses and small farms, such
as 25 percent. Further, if partial
consideration were provided for certain
types of community development
activities, the agencies sought feedback
on whether to require a minimum
percentage standard greater than 51
percent to receive full consideration—
such as a threshold between 60 and 90
percent.
Comments Received
The agencies received several
comments generally supporting the
proposed standard for determining
whether an activity has a ‘‘primary
purpose’’ of community development.
For example, one commenter offered the
general comment that it found the
proposed clarifications to the primary
purpose standard to be helpful and
clear. As discussed in this section, many
comments focused on the specific
components of the proposed primary
purpose standard and provided
responses to the questions on which the
agencies requested feedback.
A majority of dollars, applicable
beneficiaries or housing units are
identifiable to one or more of the
community development categories
(proposed § ll.13(a)(1)(i)). Many
commenters supported the agencies’
proposal to determine that an activity
has a primary purpose of community
development if a majority of dollars,
applicable beneficiaries or housing units
of the activity are identifiable to one or
more community development purposes
set out in proposed § ll.13(a)(2). A
few commenters supported this aspect
of the proposal without changes, while
others asserted that CRA credit
generally should not be granted unless
the majority of beneficiaries are low- or
moderate-income people and
communities, or people and
communities of color and indigenous
people and communities.
The express, bona fide intent of the
activity is one or more of the community
development categories and the activity
is specifically structured to achieve, or
is reasonably certain to accomplish, the
community development purpose
(proposed § ll.13(a)(1)(ii)). A few
commenters expressed concern with the
agencies’ proposal to determine that an
activity has a primary purpose of
community development if the express,
bona fide intent of the activity is one or
more of the community development
categories or the activity is specifically
structured to achieve, or is reasonably
certain to accomplish, the community
development purpose. One of these
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
commenters suggested that this could
lead to abuses where only a small
percentage of dollars are dedicated to
community development. To mitigate
this potential problem, the commenter
suggested eliminating this basis for
determining whether an activity has a
primary purpose of community
development or, alternatively, pairing
this consideration with a minimum
threshold for the percentage of the
activity that corresponds with
community development, such as 40
percent, below which no consideration
would be available.
Another commenter asserted that the
agencies should revise this prong to
retain only the proposed language
regarding whether ‘‘[t]he express, bona
fide intent of the activity is one or more
of the community development
purposes.’’ This commenter stated that
that language regarding the activity
being ‘‘specifically structured to
achieve’’ the community development
purpose was redundant in light of the
‘‘intent’’ requirement. The commenter
further expressed the view that
determining whether an activity is
‘‘reasonably certain to accomplish’’ a
community development purpose
would result in bank and examiner
speculation regarding the results of an
activity. According to this commenter,
the resulting uncertainty of both the
‘‘specifically structured to achieve’’ and
‘‘reasonably certain to accomplish’’
components of this proposed standard
could be confusing and discourage
innovative community development
activities.
Affordable housing-related provisions
(proposed § ll.13(a)(1)(i)(A) and (B)).
Many commenters addressed the two
proposed clarifications to the primary
purpose standard for affordable rental
housing. As described above, these
included: (1) a provision allowing for
pro rata consideration of activities in
conjunction with a Federal, State, local,
or tribal government plan, program,
initiative, tax credit, or subsidy, when
fewer than 50 percent of housing units
supported by the activity are affordable
(proposed § ll.13(a)(1)(i)(A)); and (2)
a provision allowing for full
consideration of any affordable housing
activity involving low-income housing
tax credits (proposed
§ ll.13(a)(1)(i)(B)).
Subsidized affordable rental housing
(proposed § ll.13(a)(1)(i)(A)). Many
commenters supported providing pro
rata consideration for affordable rental
housing activities based on the
percentage of housing units that are
affordable. Several commenters
supporting pro rata consideration for
affordable housing cited the benefits of
PO 00000
Frm 00059
Fmt 4701
Sfmt 4700
6631
mixed-income housing for sustaining
needed services and amenities in lowand moderate-income communities and
for low- and moderate-income residents,
as well as for promoting economic
stability for low- and moderate-income
individuals and communities. A
commenter also noted that in rural
areas, mixed-income housing is needed
to accommodate projects of a sufficient
scale to achieve development and
operating efficiencies.
Some commenters expressed the view
that the pro rata consideration proposal
was too narrow. In this regard,
commenter suggestions included
changes to the proposal to enhance
incentives for investments and loans in
affordable housing, e.g., that the
agencies should afford full credit for
subsidized affordable housing if 20
percent of the units were affordable, a
level some commenters stated would
align with the eligibility thresholds of
certain other Federal affordable housing
programs. A few commenters noted,
however that, when less than 20 percent
of the units are affordable, affordability
may be incidental to the project and
immaterial to financing. Commenter
feedback also included the view that
properties developed without
government funding should receive pro
rata consideration if the percentage of
units affordable to low- or moderateincome households were 50 percent or
lower, and full consideration if the
percentage of units affordable to low- or
moderate-income households were
greater than 50 percent.
A few commenters conveyed that the
proposal for pro rata consideration was
too broad. In this regard, for example, a
commenter expressed concern that the
proposal could lead to providing CRA
consideration for projects that do not
preserve long-term affordability for lowor moderate-income individuals.
Instead, the commenter stated that pro
rata consideration should be limited to
affordable housing projects that are: (1)
owned by mission-driven affordable
housing nonprofit organizations or
public entities; (2) restricted to remain
affordable at the lesser of 80 percent of
area median income or HUD’s Small
Area Fair Market Rent;266 and (3)
subject to compliance monitoring by a
public entity. One commenter urged
caution with pro rata consideration for
affordable housing, stating that
displacement pressure associated with
new market rate housing in a low- and
moderate-income community could
266 See, HUD, Office of Policy Development and
Research, ‘‘Small Area Fair Market Rents,’’ https://
www.huduser.gov/portal/datasets/fmr/smallarea/
index.html.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6632
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
offset the benefit of providing the
additional affordable units. Another
commenter suggested that banks should
not receive credit for affordable housing
lending if the percentage of affordable
units falls meets only the minimum
required under a local inclusionary
ordinance.
LIHTCs (proposed
§ ll.13(a)(1)(i)(B)). Many of the
commenters addressing the affordable
housing component of the primary
purpose standard strongly supported the
proposal to provide full consideration
for activities that involve LIHTCs to
support affordable housing. A few
commenters referenced the important
role that LIHTC-financed projects have
in addressing the need for affordable
housing and noted that the LIHTC
program drives most privately financed
construction and rehabilitation of
affordable housing. Other commenters
asserted that the statutory and
regulatory restrictions of the LIHTC
program ensured that these activities
were in the interest of public welfare.
Several commenters, however,
suggested changes to this component.
Some commenters stated that banks
should receive full consideration for
investments in mixed-income LIHTC
projects, noting that the tax credits for
investments under the LIHTC program
is already prorated based on the
percentage of units that are affordable.
However, these commenters urged that
lending to these projects should be
prorated, asserting that lending to
mixed-income LIHTC projects could
include significant financing for marketrate housing, and expressed the view
that banks should not get community
development credit for this portion.
Several commenters suggested that
full consideration for affordable housing
projects should apply more broadly to
include other types of affordable
housing, in addition to LIHTC projects.
A few commenters recommended that
full consideration be given for
investments through nonprofit
organizations with a mission or primary
purpose of providing affordable
housing, regardless of the purpose of the
underlying collateral. One of these
commenters asserted that bank
investments supporting affordable
housing projects through communitybased development organizations
(CBDOs) with a history of serving the
needs of low- and moderate-income
people and communities should also
receive full consideration. This
commenter maintained that full
consideration for these projects would
be warranted regardless of the income
levels targeted by the project because
CBDOs have the ‘‘mission and
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
experience’’ to consider community
mixed-income housing needs. Another
commenter questioned why full
consideration would not also be
extended to all affordable housing
developed with Federal housing
subsidies, such as HUD’s HOME
Investment Partnerships Program
(HOME) or project-based section 8
rental assistance.
Pro rata consideration for other
community development categories. As
noted previously, the agencies sought
commenter perspectives on whether a
partial consideration framework should
be extended to some, or all, community
development categories, in addition to
affordable rental housing. Some
commenters supported limiting partial
consideration to only affordable
housing. These commenters noted
several common reasons for this,
including the documented benefits of
mixed-income housing for low- and
moderate-income individuals and
communities; the additional financing
challenges for affordable housing
compared to other types of projects; and
the concern that expanding partial
consideration beyond housing could
divert limited resources away from
projects that target low- and moderateincome individuals or communities.
One commenter stated that
approximately one-third of the national
population is low- and moderateincome, so many activities could receive
approximately that amount of credit if
pro rata consideration were based on the
population of low- and moderateincome individuals, without specifically
targeting this population. This
commenter asserted that any percentage
of low- and moderate-income
beneficiaries set for pro rata
consideration would have therefore
have to be substantially higher than the
share of the low- and moderate-income
population to demonstrate that the
activity had the actual intent of serving
that population, at which point the level
would approach the existing 50 percent
threshold. Thus, the commenter
believed that there is little to be gained
and much to be lost in offering partial
consideration outside of affordable
housing activities, where income mixing
is often part of an intentional strategy or
necessary condition for creating new
affordable homes.
Other commenters supported
allowing partial credit for certain types
of larger-scale community development
projects that might benefit low- or
moderate-income individuals and
communities. In general, these
commenters noted that some projects
might not be limited to a specific
geographic area and would still benefit
PO 00000
Frm 00060
Fmt 4701
Sfmt 4700
low- and moderate-income people and
communities within the area affected.
One commenter suggested that
providing pro rata credit for a wider
range of community development
activities would acknowledge the
complexities of delivering services to a
large geographic area and could
incentivize more financing in
economically struggling or rural areas.
The community development activity
most often cited by commenters urging
more extensive partial consideration
was expanding access to broadband,
with commenters noting the critical
need for these services that are lacking
in many rural and low- and moderateincome communities. Examples of other
community development activities
referenced by commenters for partial
credit included: (1) infrastructure and
community facilities; (2) projects that
increase access to transportation, health
care or renewable energy; or (3) projects
that help to revitalize vacant and
abandoned land or buildings. One
commenter expressed general
opposition to partial consideration but
conveyed support for exceptions for
projects in rural areas, using access to
broadband as an example.
Several commenters suggested that, if
partial consideration is provided,
certain guardrails should be in place to
ensure that low- or moderate-income
individuals and communities benefit.
One commenter stated that partial
consideration should be allowed only
for activities that specifically target lowand moderate-income areas, and that
merely benefiting these areas was not
sufficient. A few commenters similarly
expressed concerns about granting
partial credit for activities that support
community development but do not
intentionally target benefits to low- and
moderate-income people and
communities; specifically they
recommended that, for activities
supporting community facilities and
essential infrastructure to qualify for
partial credit, the primary beneficiaries
of the project should be low- and
moderate-income persons or residents of
low- and moderate-income
communities. Another commenter
supported partial credit for
infrastructure projects that benefit
‘‘rural and other socially disadvantaged
communities,’’ citing as an example the
educational benefits to low- and
moderate-income populations afforded
by access to broadband. However, this
commenter stated that no credit should
be given to projects that would happen
even without the incentive of CRA
credit and that do not have a
demonstrable benefit for low- or
moderate-income communities. This
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
commenter further recommended that
partial CRA credit be given in
proportion with the demonstrated
impact on low- and moderate-income
communities, suggesting that this might
be based on the income levels of the
census tracts a project spans. Finally, a
commenter suggested that partial
consideration could be warranted for
community development activities other
than support for affordable housing, as
communities might have other
community development needs but
recommended, however, that the
community development activities,
among other criteria: (1) ‘‘significantly
improve’’ factors impacting the health of
residents in low- and moderate-income
communities; (2) be undertaken with a
U.S. Treasury-certified CDFI; (3) be
widely supported by the community;
and (4) ‘‘contribute directly’’ to a range
of potential community benefits.
Numerous other commenters favored
expansion of partial consideration for
all community development categories.
Several commenters asserted that partial
consideration would encourage banks to
expand the geographic reach of their
community development activities and
encourage more community
development activity that benefits lowand moderate-income individuals and
communities. One commenter
expressed the view that extending
partial consideration to all community
development categories would not
dilute community development
resources for low- or moderate-income
communities and asserted that partial
credit could incentivize more large-scale
projects addressing infrastructure needs
beyond affordable housing. Another
commenter added that a partial credit
framework would appropriately account
for the complexities that can be
associated with bringing services to
geographically dispersed populations.
Similarly, several commenters stated
that partial consideration of community
development activities would be
particularly beneficial in rural areas,
where the population is more widely
dispersed and there are fewer low- or
moderate-income tracts and individuals.
One commenter expressed support for
partial consideration for all community
development activities but indicated
that the ‘‘majority’’ standard for primary
purpose should also be retained,267
since some banks might not have the
capacity to document partial
consideration levels with more
specificity.
Threshold for partial consideration.
Many commenters who supported
267 See proposed § ll.13(a)(1)(i). See also Q&A
§ ll.12(h)–8.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
partial consideration for activities in
some or all community development
categories also thought that a minimum
threshold for the percentage of the
activity that serves low- or moderateincome individuals and geographic
areas or small businesses and small
farms should apply for a bank to be
eligible to receive partial consideration
for the activity. Numerous commenters
suggested a minimum threshold ranging
from 10 percent to over 50 percent for
partial consideration eligibility, with a
minimum of 25 percent being the
threshold most frequently suggested.
For example, a commenter suggested
that a threshold of 10 percent would be
appropriate, allowing for projects with
complex development and construction
markets, including higher-income
markets.
A number of commenters asserted
that no minimum threshold should be
required for partial consideration
eligibility, as long as some benefit of the
activity to low- or moderate-income
individuals or communities or small
businesses or small farms could be
documented. For example, a commenter
stated that excluding loans or
investments that do not meet a 50
percent threshold presents an
incomplete picture of a bank’s overall
community development activities. This
commenter further asserted that a pro
rata framework for all community
development activities would further
the CRA goals of expanding lending and
investment in low- and moderateincome communities because all of a
bank’s community development efforts
would count.
Finally, regarding when full
consideration of an activity should be
given, some commenters expressed the
view that, for an activity to receive full
credit, the percentage of benefits to lowor moderate-income individuals or
communities or small businesses and
small farms should be higher than 51
percent (see discussion of comments on
the ‘‘majority’’ standard above). The
thresholds suggested by these
commenters ranged from 60 percent to
80 percent for full consideration. For
example, one commenter recommended
a 75 percent threshold and cautioned
against activities that do not in fact
serve communities but sustain poverty
over the long term, such as, among other
examples, infrastructure projects that
cause affordable housing losses. This
commenter also urged the agencies to
consider a standard based on whether
the activity is supported or requested by
the community itself. Another
commenter suggested that a 60 percent
threshold would strike an appropriate
balance between incentivizing a focus
PO 00000
Frm 00061
Fmt 4701
Sfmt 4700
6633
on low- and moderate-income needs
and allowing for a range of projects that
could benefit a wider range of residents,
such as in a mixed-income community.
Final Rule
The agencies are finalizing the
proposal to clarify eligibility criteria for
different community development
activities, with several changes and
restructuring. The agencies carefully
considered comments received
regarding standards for determining
whether an activity has the primary
purpose of a community development.
Based on the agencies’ review of the
comments and supervisory experience,
the agencies concluded that ‘‘primary
purpose’’ does not accurately describe
when a bank will receive full or partial
credit and resulted in some confusion in
this regard. Thus, under the final rule,
the agencies are modifying the proposal
that focused on a primary purpose
standard by adopting specific standards
for full and partial consideration of
community development activities, to
clarify when activities will receive such
consideration. To streamline the
regulation, the agencies are eliminating
the list of community development
categories in proposed § ll.13(a)(2)
and instead adding new language in
final § ll.13(a) that a bank may
receive community development
consideration for a loan, investment, or
service that supports one of eleven
categories of community development
described in final § ll.13(b) through
(l), as outlined above. The agencies also
reorganized proposed § ll.13(a) into
two distinct sections: final
§ ll.13(a)(1), which details the
circumstances in which a bank receives
full credit; and final § ll.13(a)(2),
which details the circumstances in
which a bank receives partial credit for
a community development loan,
investment, or service.
Also as noted above, the agencies are
replacing ‘‘primary purpose’’
terminology and setting forth a
framework consistent with the current
and proposed primary purpose
standard, but delineated for each
category of community development to
convey more clearly and transparently
the parameters for community
development loans, investments, and
services to receive full or partial credit,
as discussed in more detail below in the
section-by-section analysis of final
§ ll.13(a)(1) and (2).
Overall, the agencies believe that the
final rule provides meaningful
clarification of the standards for
consideration of community
development loans, investments, and
services, in response to comments and
E:\FR\FM\01FER2.SGM
01FER2
6634
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
on further deliberation by the agencies.
The section-by-section analysis below
provides additional detail.
ddrumheller on DSK120RN23PROD with RULES2
Section ll.13(a)(1) Full credit
The agencies are adopting final
§ ll.13(a)(1) to identify four
circumstances under which a bank will
receive credit for the entire community
development loan, investment, or
service. More specifically, banks will
receive full credit for these types of
activities if they:
• Meet the majority standard in
§ ll.13(a)(1)(i);
• Meet the bona fide intent standard
in § ll.13(a)(1)(ii);
• Involve an MDI, WDI, LICU, or
CDFI as provided in § ll.13(a)(1)(iii);
or
• Involve LIHTCs as provided in
§ ll.13(a)(1)(iv).
The agencies intend with this
reorganization to address comments
seeking clarification about standards for
community development consideration.
By categorizing and clarifying the types
of community development activities
that receive full credit, the agencies are
emphasizing activities that are
responsive to community needs.
Section ll.13(a)(1)(i) Majority
Standard
Similar to proposed § ll.13(a)(1)(i),
the agencies are finalizing a majority
standard with additional criteria that
more specifically address how the
standard is applied with respect to each
of the community development
categories. Final § ll.13(a)(1)(i)(A),
states that any loan, investment, or
service must support community
development under one or more of the
categories outlined in final § ll.13(b)
through (l). Further, final
§ ll.13(a)(1)(i)(B) provides that the
loan, investment, or service must meet
one or more of the other criteria
established under the majority standard
that correspond to each of the
community development purposes.
Specifically, under
§ ll.13(a)(1)(i)(B)(1), for a community
development loan, investment or service
that supports any of the categories of
affordable housing under final
§ ll.13(b)(1) through (3) to meet the
majority standard, the majority of the
housing units supported by the bank’s
loan, investment or service must be
affordable to low- or moderate-income
individuals. The agencies believe that,
for these categories of community
development, the housing unit standard
for measuring whether the majority
standard is met (or the appropriate
proportion of partial credit) is objective
and consistent with the impact that the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
project will have on the community.
Regarding other categories of
community development, final
§ ll.13(a)(1)(i)(B)(2) through (6)
provide that a loan, investment, or
service meets the majority standard if
the majority of beneficiaries are, or the
majority of dollars benefit or serve, the
following:
• Low- and moderate-income
individuals, with respect to affordable
housing and community supportive
services pursuant to final § ll.13(b)(4)
and (5) and (d), respectively; 268
• Small businesses and small farms,
with respect to economic development
pursuant to final § ll.13(c); 269
• Residents of targeted census tracts,
with respect to revitalization or
stabilization, essential community
facilities, essential community
infrastructure, and disaster
preparedness and weather resiliency
pursuant to final § ll.13(e) through (g)
and (i); 270
• Residents of designated disaster
areas with respect to recovery of
designated disaster areas pursuant to
final § ll.13(h); 271
• Residents of Native Land Areas,
with respect to revitalization or
stabilization, essential community
facilities, essential community
infrastructure, and disaster
preparedness and weather resiliency in
Native Land Areas pursuant to final
§ ll.13(j).272
Lastly, final § ll.13(a)(1)(i)(B)(7)
provides that loans, investments, and
services supporting community
development under final § ll.13(b)(l)
meet the majority standard if they
primarily support financial literacy.
The agencies considered comments
that suggested establishing a threshold
greater than a majority (i.e., over 50
percent) (ranging from 60 to 80 percent)
to receive full credit for a community
development activity. However, the
agencies believe that the majority
standard, which has a longstanding
history in the current rule, appropriately
identifies those activities that primarily
have a community development
purpose, while acknowledging that
many important community
development initiatives and projects are
not solely dedicated to the community
development purposes in final
§ ll.13(b) through (l).
While a few commenters suggested
that the majority standard should be
applied to beneficiaries that are racial
final § ll.13(a)(1)(i)(B)(2).
final § ll.13(a)(1)(i)(B)(3).
270 See final § ll.13(a)(1)(i)(B)(4).
271 See final § ll.13(a)(1)(i)(B)(5).
272 See final § ll.13(a)(1)(i)(B)(6).
268 See
and ethnic minorities in addition to
those elements that were identified in
the proposal, the agencies did not add
these beneficiaries to the majority
standard, although the agencies expect
that the clarified majority standard will
better facilitate banks meeting the
community development needs of their
entire communities. For more
information and discussion regarding
the agencies’ consideration of comments
recommending adoption of additional
race- and ethnicity-related provisions in
this final rule, see section III.C of this
SUPPLEMENTARY INFORMATION.
Section ll.13(a)(1)(ii) Bona Fide
Intent Standard
Consistent with proposed
§ ll.13(a)(l)(ii), the agencies are
adopting final § ll.13(a)(l)(ii), with
restructuring and a technical change
from the proposal. The final rule
confirms loans, investments, and
services that meet the bona fide intent
standard receive full community
development credit. A loan, investment,
or service meets the bona fide intent
standard if:
• The housing units, beneficiaries, or
proportion of dollars necessary to meet
the majority standard are not reasonably
quantifiable; 273
• The loan, investment, or service has
the express, bona fide intent of one or
more of the community development
purposes in final § ll.13(b) through
(l); 274 and
• The loan, investment, or service is
specifically structured to achieve one or
more of the community development
purposes in final § ll.13(b) through
(l).275
In addition to reorganizing final
§ ll.13(a)(l)(ii) from the proposal for
clarity and to confirm that a bank may
receive full credit for meeting the bona
fide intent standard, the agencies are
clarifying that the bona fide intent
standard applies when the ‘‘housing
units, beneficiaries, or proportion of
dollars necessary to meet the majority
standard are not reasonably
quantifiable.’’ For example, this
standard could be appropriate when
considering a loan to an organization
that has a bona fide intent of serving
low- or moderate-income individuals
but does not track data on the income
of every individual served, such that
demonstrating an activity meets the
majority standard would be highly
challenging. Additionally, the agencies
removed the language in the proposal
that the activity must also be
269 See
PO 00000
Frm 00062
Fmt 4701
Sfmt 4700
final § ll.13(a)(1)(ii)(A).
final § ll.13(a)(1)(ii)(B).
275 See final § ll.13(a)(1)(ii)(C).
273 See
274 See
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
‘‘reasonably certain to accomplish’’ a
community development purpose. The
agencies appreciated the commenter
concern that the ‘‘reasonably certain to
accomplish’’ criterion could produce
uncertainty and inconsistency in
application, based on conjectures
regarding the outcomes of the activity.
However, the agencies are retaining the
criterion that an activity must be
‘‘specifically structured to achieve’’ a
community development purpose,
which the agencies believe helps to
ensure that any activities that do not
meet the majority standard
appropriately receive consideration
under the bona fide intent standard, as
an activity focused on a community
development purpose.
The agencies also considered the
commenter suggestion that the bona fide
intent standard should be removed from
the final rule, but based on supervisory
experience, believe that this would
eliminate from consideration numerous
beneficial initiatives that have a
community development purpose, but
do not meet the majority standard in
final § ll.13(a)(l)(i). Further, the
agencies believe the three required
criteria for the bona fide intent standard
will help to eliminate any potential
abuse in the application of this
standard. With the revisions to the
language regarding the bona fide intent
standard, the agencies believe that the
standard is a balanced approach to
encouraging community development
activities, while eliminating from
consideration any activities that are not
predominantly focused on a community
development purpose.
Section ll.13(a)(1)(iii) Community
Development Related to MDIs, WDIs,
LICUs, and CDFIs
As the proposal did not specifically
address how the primary purpose
consideration would be applied with
respect to a loan, investment, or service
to an MDI, WDI, LICU, or CDFI that
supports community development
under proposed § ll.13(a)(2)(ix) and
(j), the agencies added and are finalizing
§ ll.13(a)(l)(iii) to clarify that
activities conducted in conjunction with
these four types of entities are eligible
for full credit. As discussed in more
detail in the section-by-section analysis
of final § ll.13(k), community
development under final § ll.13(k)
(renumbered from proposed § ll.13(j))
differs somewhat from the other types of
community development under final
§ ll.13(b) through (j) and (l) in that
the credit a bank receives is based
exclusively on the entity to which the
bank is providing the loan, investment,
or service, rather than looking at a
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
measurable benefit using the
corresponding dollars, beneficiaries, or
housing units associated with the
activity. The provision of full credit to
these types of activities is also
consistent with how the agencies
currently consider loans, investments,
and services that support MDIs, WDIs,
and LICUs.276
Section ll.13(a)(1)(iv) Community
Development Related to LIHTCFinanced Projects
The agencies are adopting proposed
§ ll.13(a)(1)(i)(B), renumbered as final
§ ll.13(a)(1)(iv), with certain revisions
for clarity. This provision clarifies the
agencies’ intent, consistent with the
current CRA framework, that a loan,
investment or service involving a
project financed by LIHTCs under final
§ ll.13(b)(1) will receive full
community development credit. Under
proposed § ll.13(a)(1)(i)(B), full
consideration was limited to only
investments in projects financed by
LIHTCs. Many commenters supported
providing full community development
credit for all activities that involve
LIHTCs to finance affordable housing.
Therefore, in response to these
commenters and considering past
supervisory practice, the agencies
adopted final § ll.13(a)(1)(iv), to state
that a loan, investment or service
involving LIHTCs to finance the
development of affordable housing
under final § ll.13(b)(1) will receive
full community development credit.
The agencies considered commenter
concerns that lending to mixed income
housing projects that include units
financed by LIHTCs could also include
financing for market-rate housing that
does not benefit or serve low- and
moderate-income individuals. However,
the agencies determined that granting
full credit for these loans under
§ ll.13(a)(1)(iv) is appropriate for
ensuring certainty regarding existing
approaches to financing LIHTC projects,
as full credit for these loans is
consistent with current guidance.277
The agencies also considered that
projects developed with LIHTCs have
the expressed intent of providing
affordable housing, regardless of the
percentage of affordable units that are
supported, and believe that providing
credit for LIHTC-related lending aligns
with the statutory purpose of
encouraging banks to meet the credit
needs of their communities, including
276 See
current § ll.21(f) and Q&A § ll.21(f)–
277 See
Q&A § ll.12(t)–4.
1.
PO 00000
Frm 00063
Fmt 4701
Sfmt 4700
6635
low- and moderate-income
populations.278
The agencies also considered
comments suggesting that full credit for
loans, investments, or services should
be extended to all affordable housing
developed with Federal housing
subsidies or to all affordable housing
projects developed through CBDOs with
a history of serving low- and moderateincome populations. The agencies
recognize the importance of all Federal
housing programs in financing
affordable housing and the important
role that CBDOs play in developing
affordable housing. However, on further
review of these suggestions, the agencies
have determined that loans,
investments, and services for projects
financed by Federal housing subsidies
or developed by CBDOs should not
automatically receive full consideration
because the scope and target of these
subsidies and projects may vary greatly.
While the agencies believe that most of
the affordable housing projects
developed in conjunction with Federal
subsidies and CBDOs will likely warrant
consideration as a community
development activity, the agencies
believe that they should be considered
individually, and not universally
provided full credit; rather, given the
wide variety of subsidies and projects,
the corresponding loans, investments,
and services will be more appropriately
considered under the full or partial
credit criteria in final § ll.13(a)(1) and
(2), as applicable to these types of
projects.
Section ll.13(a)(2) Partial Credit
Partial consideration for affordable
housing. A second category
implemented as part of the restructuring
reflected in final § ll.13(a) includes
loans, investments, and services that
will receive partial credit. The agencies
are adopting proposed
§ ll.13(a)(l)(i)(A), renumbered as final
§ ll.13(a)(2), and reworded for clarity.
Final § ll.13(a)(2) memorializes
current interagency guidance related to
the provision of mixed-income housing
with an affordable housing set-aside
required by a Federal, State, or local
government.279 Under this construct, a
bank will receive partial credit for any
loan, investment, or service that
supports affordable housing under final
§ ll.13(b)(1) and does not meet the
majority standard under final
§ ll.13(a)(1)(i). This partial credit will
278 For further discussion of final rule provisions
regarding LIHTCs, see the section-by-section
analysis of § ll.15(b)(10) (impact and
responsiveness review factor for investments in
LIHTC).
279 See Q&A § ll.12(h)–8.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6636
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
be calculated in proportion to the
percentage of total housing units in any
development that are affordable to lowor moderate-income individuals. For
example, if a bank makes a $10 million
loan to finance a mixed-income housing
development in which 10 percent of the
units will be set aside as affordable
housing for low- and moderate-income
individuals according to a local
government set-aside requirement, the
bank may elect to treat $1 million of
such loan as a community development
loan. This provision will provide
flexibility for banks to engage in
affordable housing even if rental
housing purchased, developed,
financed, rehabilitated, improved, or
preserved in conjunction with a Federal,
State, local, or tribal government
affordable housing plan, program,
initiative, tax credit, or subsidy does not
include a majority of housing units that
are affordable to low- or moderateincome individuals.
The final rule is intended to be
responsive to the numerous commenters
that supported the proposal to provide
pro rata consideration for affordable
rental housing based on the percentage
of housing units that are affordable.
While commenter suggestions included
that banks receive full credit for
subsidized affordable housing that
represented at least 20 percent of the
bank’s financing, the agencies believe
that such treatment could
inappropriately dilute the consideration
of community development loans and
investments by providing significant
amounts of credit for housing that is not
affordable to low- and moderate-income
people. The agencies have also decided
not to provide partial credit to loans or
investments in affordable housing
projects that are developed without
government support if less than 50
percent of the units are affordable. This
type of affordable housing may not have
protections to preserve the housing as
affordable to low- and moderate-income
individuals during the term of the loan
or investment, which are typical of
government-supported affordable
housing.
As mentioned previously, the
agencies considered comments
suggesting that partial credit for
affordable housing was too broad and
should be limited to provide partial
credit only for those projects that
maintain at least 20 percent of the units
as affordable. However, the agencies do
not believe that such a limitation is
necessary. The final rule restricts partial
consideration to only rental housing in
conjunction with a government
affordable housing plan, program,
initiative, tax credit, or subsidy
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
pursuant to § ll.13(b)(1), which will
help ensure that there is an intent of
providing affordable housing and will
limit the consideration of housing units
that may be incidental. The agencies
believe it is appropriate to defer to the
Federal, State, local, or tribal
government to set minimum standards
for participating in affordable housing
programs, plans, initiatives, tax credits,
or subsidies that are responsive to their
respective communities.
The agencies also contemplated the
suggestion that banks should not receive
credit for lending for affordable housing
if the housing is associated with a local
inclusionary zoning ordinance and
provides only the minimum amount of
affordable housing required. While the
agencies acknowledge the compulsory
nature of these ordinances and concerns
with providing community
development credit for loans and
investments that support this housing,
the agencies believe that affordable
housing associated with inclusionary
zoning should be included. The
agencies recognize that inclusionary
zoning represents an important tool
utilized by local jurisdictions to create
and preserve affordable housing for lowand moderate-income individuals,
especially in higher-income areas. In
addition, under the final rule, if
affordable housing provided through
these programs does not meet the
majority standard, the credit afforded to
a bank is limited to only the percentage
of units that are considered affordable.
Partial consideration for other
community development categories. As
discussed above, the agencies received a
wide range of comments in response to
the request for feedback on whether
partial credit should be extended to
some, or all, community development
categories, in addition to affordable
housing. After consideration of these
comments, the agencies are adopting
final § ll.13(a)(2) without extending
partial credit to other categories of
community development. The agencies
share commenter concerns that
expanding partial consideration beyond
mixed-income rental housing could
divert limited community development
resources away from the projects that
target low- or moderate-income people
and communities, as well as small
businesses and small farms. To this end,
the agencies are not adopting
suggestions that the final rule provide
partial credit for certain larger-scale
community development projects that
have the potential to impact low- or
moderate-income individuals and
communities but are not primarily
targeted to these populations. Unless
these projects are associated with
PO 00000
Frm 00064
Fmt 4701
Sfmt 4700
LIHTCs or are conducted with MDIs,
WDIs, LICUs, or CDFIs, the agencies
believe that these projects should
receive credit only when they meet the
majority or bona fide intent standards.
The full and partial credit criteria in
§ ll.13(a) serve as sufficient guardrails
to ensure that low- or moderate-income
individuals and communities, as well as
other underserved segments of the
community identified in community
development categories in § ll.13(b)
through (l), benefit.
The agencies also considered
feedback from some commenters that
supported some degree of expansion of
the partial credit standard with certain
qualifications, limitations, and
additional criteria. However, the
agencies determined that the consistent
and transparent application of an
expansion with these qualifications
would be untenable, such as limiting
partial credit to projects that would only
happen without CRA recognition or that
are widely supported by the
community. The agencies also
considered suggestions to allow partial
consideration with a minimum
threshold for the percentage (ranging
from 10 to 50 percent and most often
cited as 25 percent) of the activity that
served low- or moderate-income
individuals and geographic areas, small
businesses, and small farms. The
agencies carefully considered the many
varying views on extending a partial
credit framework to other community
development categories, and the
suggested thresholds for doing so. On
balance, the agencies believe that
applying the majority and bona fide
intent standards to other categories of
community development affords the
consistency and clarity that can foster a
predictable and transparent framework
for bank partnerships and engagement
in community development within the
communities they serve. For the reasons
discussed above, the agencies believe
that government-related mixed-income
affordable housing is distinguishable
from other types of community
development in ways that make a partial
credit framework appropriate for
facilitating bank involvement in these
projects, consistent with government
assessments of the affordable housing
needs of their communities. Further, the
agencies note that banks will receive
full credit for any loan, investment, or
service that is not entirely dedicated to
a community development purpose, as
long as it meets the majority or bona
fide intent standard pursuant to
§ ll.13(a)(1).
As mentioned previously, several
commenters suggested the expansion of
partial credit consideration for
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
broadband, noting that the need for this
infrastructure is particularly critical in
many rural and low- and moderateincome communities. The agencies have
considered these comments but
determined that outside of affordable
housing, it is difficult to single out
unique treatment for specific activities.
Therefore, the agencies have decided to
retain the final rule as proposed, and all
activities beyond affordable housing
will have to meet the majority or bona
fide intent standard pursuant to
pursuant to § ll.13(a)(1). The agencies
recognize that a need for broadband
exists in rural and low- or moderateincome communities and seek to
address this need under § ll.13(g), the
community development category for
essential community infrastructure,
which allows consideration for
infrastructure activities, including those
expanding broadband access, that
benefit or serve targeted census tracts
(which includes low-income, moderateincome, or distressed or underserved
middle-income nonmetropolitan tracts)
and meets other specified criteria. For
further discussion, including additional
comments on broadband access and
other types of essential community
infrastructure, see the section-by-section
analysis of § ll.13(g). The agencies
intend that consideration for activities
under several community development
categories, including revitalization or
stabilization, essential community
facilities, essential community
infrastructure, and disaster
preparedness and weather resiliency 280
that benefit or serve residents of targeted
census tracts, including distressed and
underserved nonmetropolitan middleincome census tracts, will help to
address commenters’ concern that
partial credit is necessary to ensure that
the community development needs of
rural areas, which are often more widely
dispersed and have fewer low- or
moderate-income tracts and individuals,
are met.
Section ll.13(b) Affordable Housing
In proposed § ll.13(b), the agencies
proposed a definition for affordable
housing that included four components:
(1) affordable rental housing developed
in conjunction with Federal, State,
local, and tribal government programs;
(2) multifamily rental housing with
affordable rents; (3) activities supporting
affordable low- or moderate-income
homeownership; and (4) purchases of
mortgage-backed securities that finance
affordable housing. The agencies
intended the proposed definition to
clarify the eligibility of affordable
280 See
final § ll.13(e) through (i).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
housing as well as to recognize the
importance of promoting affordable
housing for low- or moderate-income
individuals.281 Specifically, the
agencies stated their belief that the
proposal would, first, add greater clarity
around the many types of subsidized
activities that currently qualify for CRA
consideration.282 Second, the agencies
sought to provide clear and consistent
criteria in order to qualify affordable
low- or moderate-income multifamily
rental housing that does not involve a
government plan, program, initiative,
tax credit, or subsidy (also referred to in
the agencies’ proposal as ‘‘naturally
occurring affordable housing’’ or
‘‘affordable multifamily rental
housing’’).283 Third, the agencies stated
their intention to ensure that activities
that support affordable low- and
moderate-income homeownership are
sustainable and beneficial to low- or
moderate-income individuals and
communities.284 Finally, the agencies,
through the proposal, sought to
appropriately consider qualifying
mortgage-backed security investments,
so as to emphasize community
development financing activities that
are most responsive to low- or
moderate-income community needs.285
Comments on the overall structure of
the agencies’ affordable housing
proposal varied, with some commenters
commending the breadth of housing
activities included in the proposal,
while others viewed the proposal as too
narrow or rigid, or questioned whether
the proposal would add burden on
banks that may constrain banks’
capacities to meet affordable housing
needs.
Commenters also provided feedback
on specific aspects of the affordable
housing community development
category proposal, including feedback
on which affordable housing activities
should be required to meet an agencydetermined affordability standard,
which affordability standard or
standards the agencies should adopt,
and what, if any, geographical
considerations should be factored in
when determining whether affordable
housing activities should be eligible for
community development consideration.
For the reasons discussed in this
section, the agencies have adopted an
approach to defining the affordable
housing category of community
development that aligns closely with the
agencies’ proposal, as well as key
281 87
FR 33884, 33892 (June 3, 2022).
id. at 33894.
283 See id. at 33895.
284 See id. at 33897.
285 See id.
282 See
PO 00000
Frm 00065
Fmt 4701
Sfmt 4700
6637
aspects of current practice and
interpretations under the CRA.
Importantly, in response to commenter
feedback, the agencies are adopting
modifications to the affordable housing
community development category to
ensure that the criteria are sufficiently
flexible to account for a variety of
housing models that address community
needs. The final rule adds a component
for consideration of activities that
finance one-to-four family rental
housing with affordable rents in
nonmetropolitan areas. In addition, the
final rule incorporates revisions
designed to clarify the eligibility of
rental housing in conjunction with a
government affordable housing program,
initiative, tax credit or subsidy. The
final rule also revises and clarifies the
affordability standard for naturally
occurring affordable housing, clarifies
the requirements for affordable owneroccupied housing activity, and revises
and clarifies the requirements for
purchases of mortgage-backed
securities.
Current Approach
The current CRA regulations define
‘‘community development’’ to include
‘‘affordable housing (including
multifamily rental housing) for low- or
moderate-income individuals.’’ 286 The
agencies have stated in the Interagency
Questions and Answers that, for
housing to be considered community
development, low- or moderate-income
individuals must benefit or be likely to
benefit from the housing.287 In this
regard, the Interagency Questions and
Answers provide that, for example,
consideration for a ‘‘project that
exclusively or predominately houses
families that are not low- or moderateincome simply because the rents or
housing prices are set according to a
particular formula’’ would not be
appropriate.288
Under the current regulation, singlefamily (i.e., one-to-four family) home
mortgage loans are generally considered
as part of the large bank and small bank
lending tests, but may be considered as
community development loans under
the community development test for
intermediate small banks that do not
report such loans under HMDA (at the
bank’s option and if for affordable
housing).289 Multifamily affordable
CFR ll.12(g)(1).
Q&A § ll.12(g)(1)–1.
288 See id.
289 See current 12 CFR ll.22(b)(1) (lending test)
and ll.26 (small bank performance standards).
See also Q&A § ll.12(h)–2 (consideration of retail
loans for small institutions) and Q&A § ll.12(h)–
286 12
287 See
E:\FR\FM\01FER2.SGM
Continued
01FER2
6638
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
housing loans may qualify for both retail
lending and community development
consideration if those loans also meet
the definition of a ‘‘community
development loan.’’ 290 Housing that is
financed or supported by a government
affordable housing program or a
government subsidy is considered
subsidized affordable housing and is
generally viewed as qualifying under
affordable housing if the government
program or subsidy has a stated purpose
of providing affordable housing to lowor moderate-income individuals.
Multifamily housing with affordable
rents that is not financed or supported
by a government affordable housing
program or a government subsidy, is
generally considered unsubsidized
affordable housing (and is also referred
to in this SUPPLEMENTARY INFORMATION as
naturally occurring affordable housing).
Such housing can qualify as affordable
housing under the current definition of
‘‘community development’’ if the rents
are affordable to low- or moderateincome individuals, and if low- or
moderate-income individuals benefit, or
are likely to benefit, from this
housing.291 Current interagency
guidance mentions certain information
that examiners may consider in making
this determination.292
Regarding affordability, no specific
standard exists under the current
regulatory framework for determining
when a property or unit is considered
affordable to low- or moderate-income
individuals, for either multifamily or
single-family housing.293 One approach
used by some examiners is to calculate
an affordable rent based on what a
moderate-income renter could pay if
they allocated 30 percent of their
income to rent. Alternatively, some
examiners use HUD’s Fair Market Rents
as a standard for measuring
affordability.294
Purchases of mortgage-backed
securities qualify as affordable housing
activity if they demonstrate a primary
purpose of community development.295
3 (home mortgage loan consideration for
intermediate small banks).
290 See Q&A § ll.42(b)(2)–2; see also Q&A
§ ll.12(h)–2 and –3 (regarding multifamily loan
consideration for intermediate small banks).
291 See Q&A § ll.12(g)(1)–1.
292 See id. (providing, for example, that for
projects where the income of the occupants cannot
be verified, ‘‘examiners will review factors such as
demographic, economic, and market data to
determine the likelihood that the housing will
‘primarily’ accommodate low- or moderate-income
individuals’’).
293 See, e.g., Q&A § ll.12(g)(1)–1.
294 See HUD, Office of Policy Development and
Research, ‘‘Fair Market Rents,’’ https://
www.hud.gov/program_offices/public_indian_
housing/programs/hcv/landlord/fmr.
295 See Q&A § ll.12(t)–2.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Specifically, the security must contain a
majority of single-family mortgage loans
to low- or moderate-income borrowers,
or of loans financing multifamily
affordable housing, to qualify as an
investment with a primary purpose of
affordable housing.296
Overall Affordable Housing Category
Structure
The Agencies’ Proposal
The NPR stated in proposed
§ ll.13(a)(2)(i) that loans, investments,
or services that ‘‘promote . . .
[a]ffordable housing that benefits lowor moderate-income individuals’’ would
have the requisite community
development purpose for CRA
consideration. This provision crossreferenced proposed § ll.13(b) for
greater detail about which activities
qualify as ‘‘affordable housing that
benefits low- or moderate-income
individuals.’’ To this end, the agencies
proposed four types of activities that
would qualify under the affordable
housing category of community
development: (1) affordable rental
housing developed in conjunction with
Federal, State, local, and tribal
government programs; (2) multifamily
rental housing with affordable rents; (3)
activities supporting affordable low- or
moderate-income homeownership; and
(4) purchases of mortgage-backed
securities that finance affordable
housing.
The agencies sought feedback on what
changes, if any, should be made to
ensure that the proposed affordable
housing category is clearly defined and
appropriately inclusive of activities that
support affordable housing for low- or
moderate-income individuals, including
activities that involve complex or novel
solutions such as community land
trusts, shared equity models, and
manufactured housing.
Comments Received
Structure of affordable housing
category. Many commenters provided
feedback on the overall structure of the
proposed affordable housing category of
community development. Several
commenters suggested that the agencies
should not distinguish between
government-subsidized and naturally
occurring affordable housing. These
commenters supported combining the
first and second components of the
proposed affordable housing category
into one, with a universally applied
affordability standard. In this regard,
some commenters suggested that
creating separate affordable housing
standards based on the presence or
296 See
PO 00000
id.
Frm 00066
Fmt 4701
Sfmt 4700
absence of government support would
be mistaken and urged the agencies to
establish a uniform standard that would
apply to all affordable multifamily
housing—other than housing financed
with LIHTCs—regardless of whether it
has government support. These
commenters proposed focusing on rent
affordability as a percent of area median
income, or the HUD Fair Market Rents
standard, and a combination of other
criteria such as: location in low- or
moderate-income census tracts or in
census tracts where the median renter is
low- or moderate-income; nonprofit or
CDFI ownership or control; documented
occupancy by low- or moderate-income
individuals; or an owner commitment to
maintain the affordability of housing
units for low- or moderate-income
individuals for at least five years. These
commenters also asserted that the
agencies should include a requirement
to periodically confirm the continued
affordability of housing activities that
receive community development
consideration.
Scope of affordable housing category.
Many commenters urged the agencies to
provide additional support for difficultto-finance housing projects by
narrowing the agencies’ proposal. For
example, one commenter expressed the
view that, by incorporating a wide
variety of housing models, the proposed
affordable housing category could
reward banks that gravitate to easier-tofinance projects, versus projects for
which banks may need further
incentives to provide financing. Other
commenters, for example, suggested that
the agencies should prioritize
consideration of activities that finance
owner-occupied homes over investorowned housing, with one of these
commenters conveying that the agencies
should evaluate any investor-related
lending to determine whether it helps to
build wealth for minority consumers or,
alternatively, displaces them. This
commenter also asserted that the
agencies needed to comprehensively
analyze banks’ multifamily lending to
provide consideration for beneficial
activities and to impose sanctions for
adverse behavior, such as financing
landlords who are harassing and
displacing tenants. Along those same
lines, several commenters emphasized
that the agencies should scrutinize
banks’ multifamily lending programs,
including those conducted in
partnership with third-party non-bank
institutions, for illegal practices.
Another commenter asserted that
insufficient regulation of low-income
housing tax credit investments has
contributed, nationally, to over-
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
concentration and racial and ethnic
segregation of low-income housing tax
credit projects in minority communities,
and that the agencies should address
this dynamic in the final rule.
A variety of commenters addressed
the agencies’ request for feedback on
what changes, if any, the agencies
should consider to ensure that the
proposed affordable housing category of
community development is clearly and
appropriately inclusive of activities that
support affordable housing for low- or
moderate-income individuals. Many
commenters requested that the agencies
add provisions specific to community
land trusts, shared equity models, land
banks, accessory dwelling units (ADUs),
and manufactured housing to the
proposed affordable housing category.
In support of this view, a commenter
asserted that adding these housing
initiatives would help strengthen
communities and reduce social barriers
such as unemployment, lack of
education, and limited transportation.
Another commenter recommended that
the agencies specifically include
supportive housing that provides both
affordable housing and wrap-around
services for people with complex
medical needs. Commenters further
requested that the agencies allow a
guidance line of credit, which is a form
of credit pre-approval from a lender, to
be eligible for CRA consideration, as
this financing method is used by
nonprofit organizations in the affordable
housing space.
Other general comments on affordable
housing category. Some comments
touched on affordable housing in
conjunction with other community
development activities. Commenter
feedback included requests that the
agencies: promote co-development of
disaster preparedness and climate
resiliency activities with affordable
housing and other activities to mitigate
the risk of displacement; provide more
support specifically for governmentsubsidized housing; and provide more
quantitative and qualitative
consideration of the value of lowincome housing tax credit and NMTC
syndications and sponsorship activities.
Final Rule
The agencies are adopting final
§ ll.13(b), which establishes criteria
for consideration of affordable housing
activities, substantially as proposed but
with targeted revisions discussed in the
section-by-section analysis that follows.
Overall, the agencies are adopting a
final rule that maintains the multipronged approach to the affordable
housing category. As part of this, the
agencies have decided to retain in the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
final rule separate prongs for
government-related programs, including
subsidized affordable housing, and
naturally occurring affordable housing.
Under this approach, the agencies can
better tailor the standards for each
affordable housing prong. Moreover, for
information and discussion regarding
the agencies’ consideration of comments
recommending adoption of additional
race- and ethnicity-related provisions in
this final rule, see section III.C of this
SUPPLEMENTARY INFORMATION.
Section ll.13(b)(1) Rental Housing in
Conjunction With a Government
Affordable Housing Plan, Program,
Initiative, Tax Credit, or Subsidy
The Agencies’ Proposal
In proposed § ll.13(b)(1), the
agencies proposed that a rental housing
unit be considered affordable housing if
it is purchased, developed, financed,
rehabilitated, improved, or preserved in
conjunction with a Federal, State, local,
or tribal government affordable housing
plan, program, initiative, tax credit, or
subsidy with a stated purpose or the
bona fide intent of providing affordable
housing for low- or moderate-income
individuals. The agencies intended this
proposed provision to cover a broad
range of government-related affordable
multifamily and single-family rental
housing activities for low- or moderateincome individuals, including lowincome housing tax credits.
To qualify under this component of
the affordable housing category, a
government-related affordable housing
plan, program, initiative, tax credit, or
subsidy would have needed ‘‘a stated
purpose or bona fide intent of
supporting affordable rental housing for
low- or moderate-income
individuals.’’ 297 The agencies did not
propose a separate affordability
standard for this prong and would rely
upon the affordability standards set in
each respective government affordable
housing plan or program.
The agencies sought feedback on
whether additional requirements should
be included to ensure that activities
qualifying under this category of
community development support
housing that is both affordable to and
occupied by low- or moderate-income
individuals. In this regard, the agencies
sought feedback on whether to include
in this component a specific rent
affordability standard based on 30
percent of 80 percent of area median
income, or a requirement that programs
must verify that occupants of affordable
units are low- or moderate-income
297 Proposed
PO 00000
Frm 00067
§ ll.13(b)(1).
Fmt 4701
Sfmt 4700
6639
individuals or families. The agencies
also sought feedback on whether
activities involving governmentsponsored programs that have a stated
purpose or bona fide intent to provide
affordable housing that serves middleincome individuals, in addition to lowor moderate-income individuals, should
qualify under this prong in certain
circumstances. For example, the
agencies sought feedback on
government-sponsored programs that
support housing affordable to middleincome individuals if the housing is
located in nonmetropolitan counties or
in high opportunity areas.298
Comments Received
Many commenters offered general
views on the proposed standards of the
first component of the affordable
housing category. Some commenters
believed the proposed component was
overly broad, expressing concerns: that
government programs and tax credits do
not always benefit low-income
individuals and people of color and,
therefore, the agencies should
reconsider the presumption that any
government plan benefits local
communities; that the agencies should
address the over-concentration and
racial and ethnic segregation of lowincome housing tax credit projects in
minority communities by imposing
additional requirements for low-income
housing tax credit investments to be
eligible for community development
consideration; that it is not clear how a
plan can require and enforce affordable
housing; and that the component should
be removed entirely, asserting that it is
overly restrictive and could hinder bank
investments.
Several commenters asked the
agencies to broaden the proposed
government-related rental housing
standard by permitting activities that are
‘‘consistent with’’ or ‘‘in alignment
with’’ government program guidelines,
so that such guidelines could be
considered but not required. Other
commenter feedback included: support
for an automatic presumption that
activities with State or Federal lowincome housing tax credits or other
affordable housing tax credits or
incentives qualify for community
development consideration; and
requests that the agencies recognize
activities undertaken in conjunction
with additional program sponsors such
as community-focused entities with a
stated mission and record of providing
affordable housing and Tribally
Designated Housing Entities (TDHEs).
298 See
E:\FR\FM\01FER2.SGM
proposed § ll.12.
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6640
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Stated purpose or bona fide intent of
providing affordable housing for low- or
moderate-income individuals. Some
commenters supported the agencies’
proposal to require that government
plans, programs, initiatives, tax credits,
or subsidies must have a ‘‘stated
purpose or bona fide intent’’ of
providing affordable housing for low- or
moderate-income individuals in order
for associated bank activities to receive
community development consideration.
In this regard, a commenter noted that
the proposal allows State and local
governments to tailor their affordable
housing programs to meet the specific
needs of their constituents.
Other commenters expressed a variety
of concerns about the ‘‘stated purpose or
bona fide intent’’ standard, including:
that the standard would not adequately
target activities that benefit low- or
moderate-income households; and that
government programs should not need
to have a stated purpose or bona fide
intent of providing affordable housing to
low- or moderate-income individuals.
Affordability standard. Some
commenters supported the agencies’
proposal to not include an affordability
standard in proposed § ll.13(b)(1) and
recommended that the agencies refrain
from establishing any affordability
standards for this component.
However, the majority of commenters
that addressed this component of the
proposal supported establishing an
affordability standard that would be
based on 30 percent of 80 percent of
area median income for rents. This
affordability standard would be separate
from the affordability standard proposed
for naturally occurring affordable
housing (which is addressed in the
section-by-section analysis of final
§ ll.13(b)(2)). Commenter feedback
also included suggestions that the
agencies: establish a lower affordability
threshold in order to serve a lower
income population; utilize hybrid
approaches whereby the agencies adopt
an area median income-based threshold
for all units and require that a portion
of the units serve lower income
populations, such as very low-income
individuals; and use the HUD Fair
Market Rents standard to establish
affordability standards.
Verification of low- or moderateincome status. Commenters expressed
differing views about the use of
verification measures to ensure the lowand moderate-income status of renter
occupants of housing units. Some
commenters supported the inclusion of
verification measures in the
government-related rental housing
component of the final rule to ensure
that low- and moderate-income
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
individuals occupy a majority of the
affordable units in government-related
housing. For example, several
commenters suggested that a majority
standard was not enough, and that 100
percent of the units should be occupied
by low- or moderate-income individuals
in order to qualify under § ll.13(b)(1).
A different commenter supported
verifying the income of occupants in
circumstances where funding did not
occur under government housing
programs with income guidelines.
However, several other commenters
stated that additional verification of
occupant income would be unnecessary,
given that it is reasonable to assume
government programs would collect and
verify this information.
Expanding the proposal to cover
certain affordable housing to middleincome individuals. Many commenters
expressed views regarding whether the
agencies should expand CRA
consideration in the affordable housing
category to include activities in
conjunction with government-related
rental housing in certain geographic
areas that is affordable to middleincome individuals. Some commenters
opposed such an expansion, indicating
that CRA resources should be targeted to
low- or moderate-income families, not
middle-income families. For example, a
few commenters opposed providing
consideration for middle-income
housing, noting that the low- or
moderate-income housing needs in high
opportunity areas are immense and
raised a concern that giving
consideration for middle-income
housing in such areas would dilute the
incentive to meet those needs.299 Some
commenters expressed concern that
consideration in the affordable housing
category for lending that benefits
middle- or high-income households
would result in banks receiving CRA
consideration for financing
developments that could price low- and
moderate-income families out of their
current communities.
Among the commenters that
supported expanding CRA
consideration to government-related
rental housing activities that provide
affordable housing to middle-income
individuals, most qualified their
recommendation by stating that such
activities should be limited to high
299 The term ‘‘high opportunity area’’ has not
been uniformly defined within the housing
industry. The agencies proposed to define a ‘‘high
opportunity area’’ as (1) An area designated by HUD
as a ‘‘Difficult Development Area’’; or (2) An area
designated by a State or local Qualified Allocation
Plan as a High Opportunity Area, and where the
poverty rate falls below 10 percent (for metropolitan
areas) or 15 percent (for nonmetropolitan areas).
PO 00000
Frm 00068
Fmt 4701
Sfmt 4700
opportunity areas, rural and
nonmetropolitan counties, high-cost
markets, or a combination thereof.
Citing the need for rental housing
affordable to middle-income individuals
in high opportunity areas and
nonmetropolitan areas, one commenter
urged the agencies to further explore
and consider providing CRA
consideration for affordable housing
that serves individuals and families
with a range of incomes. Another
commenter suggested that government
programs serving middle-income—as
well as low- and moderate-income—
individuals in rural and
nonmetropolitan areas should be
included. A different commenter
suggested that CRA consideration may
be appropriate in nonmetropolitan and
rural areas where median income
measurements can distort market
characteristics in a way that is unique
to rural areas, and that partial credit
could be considered for housing
benefiting middle-income people if the
housing is developed or maintained by
a CBDO with a history of serving the
needs of low- and moderate-income
people and places.
Some commenters urged
consideration for housing where the
cost of rent is up to HUD’s Fair Market
Rents standard in the relatively few,
particularly unaffordable markets where
Fair Market Rents exceeds the
affordability standard of 30 percent of
80 percent of area median income. One
commenter suggested that housing for
middle-income individuals should be
considered where there is a documented
need by the local government or
housing agencies due to the high cost of
housing in the area compared to local
wages. Another commenter suggested
that activities in middle-income census
tracts and low- to moderate-income
adjacent tracts should be considered.
Other commenters recommended that
the agencies use a high-cost areas
standard rather than a high opportunity
areas criterion.
Final Rule
The agencies are adopting final
§ ll.13(b)(1) with some substantive
and technical revisions. Under final
§ ll.13(b)(1), rental housing for lowor moderate-income individuals that is
purchased, developed, financed,
rehabilitated, improved, or preserved in
conjunction with a Federal, State, local,
or tribal government affordable housing
plan, program, initiative, tax credit, or
subsidy will receive consideration
under the affordable housing category.
This component is intended to enable
consideration of the full range of
government-related affordable rental
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
housing activities for low- and
moderate-income individuals, including
programs, plans, initiatives, tax credits,
and subsidies pertaining to both
multifamily and single-family
properties. The examples in the
following discussion demonstrate how
this affordable housing component is
designed to add greater clarity
concerning the many types of
government-related rental housing
activities that qualify for consideration.
The final rule retains the requirement
set out in the NPR that an activity be
conducted ‘‘in conjunction with’’ a
government plan, program, initiative,
tax credit, or subsidy to ensure that
there is a direct link between activities
that are given consideration under this
affordable housing prong and
government-sponsored programs or
initiatives. While the agencies have not
adjusted the ‘‘in conjunction with’’
language in the final rule to expand the
proposed standard as requested by some
commenters, the agencies believe that
the range of covered activities is broad.
For example, consistent with the
agencies’ proposal, qualification under
this component of the final rule
includes activities with rental properties
receiving low-income housing tax
credits or subsidized by government
programs that provide affordable rental
housing for low- or moderate-income
individuals, such as project-based
section 8 rental assistance and the
HOME Investment Partnerships
Program. In addition, this component
includes Federal, State, local, and tribal
government affordable housing plans,
programs, initiatives, tax credits, or
subsidies that support affordable
housing for low- or moderate-income
individuals. Examples include
affordable multifamily housing
programs offered by State housing
finance agencies and affordable housing
trust funds managed by a local
government to support the development
of affordable housing for low- or
moderate-income individuals.
Qualification under this component also
includes affordable rental units for lowor moderate-income individuals created
as a result of local government
inclusionary zoning programs, which
often provide requirements or
incentives for developers to set aside a
portion of housing units within a
property for occupancy by low- or
moderate-income individuals.
Stated purpose or bona fide intent of
providing affordable housing for low- or
moderate-income individuals. As also
discussed in the section-by-section
analysis of final § ll.13(a), the final
rule removes the specific requirement
within proposed § ll.13(b)(1) that a
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
government plan, program, initiative,
tax credit, or subsidy must have a
‘‘stated purpose or bona fide intent of
providing affordable housing for low- or
moderate-income individuals.’’ The
agencies are making this change in part
to avoid potential confusion regarding
how the activities eligible for
consideration under this component
differ from activities that qualify for
consideration under the bona fide intent
standard in final § ll.13(a)(1)(ii).
Additionally, the agencies have
considered commenter feedback that
there are government plans, programs,
initiatives, tax credits, and subsidies
that provide access to rental housing for
low- and moderate-income individuals
but that do not have a stated mission of
providing affordable housing for lowand moderate-income individuals.
Removal of this specific requirement is
intended to affirm that activities
conducted in conjunction with such
government plans, programs, initiatives,
tax credits, or subsidies nonetheless
may be considered under this
component of the affordable housing
category. Regarding commenter
suggestions that certain government
programs, including a low-income
housing tax credit program, may not
benefit, or may negatively affect, lowincome or minority communities, the
agencies believe that it is appropriate to
recognize and defer to the expertise and
priorities of Federal, State, and local
government entities responsible for the
design and implementation of affordable
housing programs, plans, initiatives, tax
credits, and subsidies. For more
information and discussion regarding
the agencies’ consideration of comments
recommending adoption of race- and
ethnicity-related provisions in this final
rule, see section III.C of this
SUPPLEMENTARY INFORMATION.
Affordability standard. While the NPR
sought feedback on whether to include
an affordability standard for activities
under § ll.13(b)(1), the final rule
implements the proposed approach
without applying a uniform affordability
standard. Instead, the final rule
accommodates the various affordability
standards across government affordable
housing plans, programs, and
initiatives. Consistent with concerns
expressed by many commenters, the
agencies are of the view that assessing
affordability using the standards set in
the applicable government program
helps to ensure that the affordability
determination reflects local needs and
priorities that accommodate unique
economic conditions, particularly in
high-cost and rural areas. In addition,
the agencies believe that adopting a
PO 00000
Frm 00069
Fmt 4701
Sfmt 4700
6641
uniform affordability standard in this
context could create undue complexity
by requiring additional evaluation to
determine whether some loans,
investments, or services supporting
rental housing in connection with
government programs could receive
consideration under other components
of the affordable housing category.
Accordingly, under final § ll.13(b)(1),
any loan, investment, or service
supporting rental housing in
conjunction with a government program
will be eligible for consideration. The
agencies note that in determining the
amount of credit the bank will receive
under final § ll.13(a), the agencies
will defer to the government program’s
affordability standard. To illustrate, if a
government program defines
affordability as rent that does not exceed
40 percent of a low- or moderate-income
renter’s income, the agencies would
consider the percentage of units with
rents that do not exceed 40 percent of
a low- or moderate-income renter’s
income to determine under final
§ ll.13(a) whether the project meets
the majority standard. For more
information on the majority standard
and partial credit under CRA, see the
section-by-section analysis of
§ ll.13(a).
Verification of low- or moderateincome status. As with the proposal, the
final rule does not require, for activities
under final § ll.13(b)(1), verification
that a majority of occupants of
affordable units are low- or moderateincome individuals. The agencies
considered feedback on this issue and
note that community development
consideration will be based on the pro
rata share of affordable units pursuant to
final § ll.13(a) unless a majority of the
units are affordable to low- or moderateincome individuals. See the section-bysection analysis of § ll.13(a).
Ultimately, the agencies will be able to
determine eligibility under final
§ ll.13(b)(1) by leveraging information
demonstrating that the housing is in
conjunction with a government plan,
program, initiative, tax credit, or
subsidy, and the rent amounts being
charged to renters.
Housing affordable to middle-income
individuals. As previously stated, the
agencies sought feedback on whether
activities involving government
programs that have a stated purpose or
bona fide intent to provide affordable
housing serving low-, moderate-, and
middle-income individuals should
qualify for affordable housing
consideration in certain circumstances,
such as when these activities are located
in high opportunity areas or
nonmetropolitan geographic areas.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6642
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
While the agencies recognize that there
are government programs that target
affordable housing for middle-income
individuals, the agencies have decided
not to adopt a provision that would
extend § ll.13(b)(1) to include
housing affordable solely to middleincome individuals in certain
geographic areas. Consistent with the
proposal, and as discussed further in the
section-by-section analysis of final
§ ll.13(a)(2), bank support for projects
and programs that include housing that
is affordable to low-, moderate-, and
middle-income individuals would be
eligible for pro rata consideration based
on the portion of the project affordable
to low- and moderate-income
individuals.
The agencies acknowledge feedback
from some commenters raising concerns
about the limited supply of affordable
housing in high opportunity areas and
nonmetropolitan areas and expressing
the view that consideration of support
for housing affordable to middle-income
individuals could provide additional
flexibility for banks to identify
opportunities to address community
needs. However, the agencies are
persuaded by commenter concerns that
broadening this category could reduce
the emphasis on activities that directly
contribute to housing for low- and
moderate-income individuals, for whom
housing options in high opportunity
areas and nonmetropolitan areas are
equally important and may be more
difficult to attain.
Under current CRA interagency
guidance, examiners have flexibility to
consider a bank’s lending and
investments in high-cost areas,
including those activities that address
the housing needs of middle-income
individuals in addition to low- or
moderate-income individuals.300 In
developing the final rule, the agencies
considered whether this flexibility
should be incorporated into the
evaluation of multifamily rental housing
activities in conjunction with a
government plan, but decided to retain
the proposed rule’s focus on housing
units that are affordable to low- and
moderate-income individuals. The
agencies considered that additional
regulatory provisions would be needed
to designate high-cost markets and to
ensure that low- and moderate-income
individuals are also likely to benefit
from the housing (generally consistent
with standards for affordable housing in
high-cost market under current
guidance) 301 and found these
Q&A § ll.12(g)–3.
id. (noting, for example, that with respect
to loans or investments addressing a middle-income
300 See
301 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
requirements would add undue
complexity to the final rule while also
adding significant uncertainty in terms
of how this would impact affordable
housing opportunities for low- and
moderate-income individuals.
Relatedly, the agencies considered that
the structure of the Community
Development Financing Metric would
not distinguish between housing
affordable to low- and moderate-income
individuals, as opposed to middleincome households in high-cost
markets, and have considered concerns
that including all of these activities in
the metric could impact the degree to
which activities focus on housing
affordable to low- and moderate-income
individuals who likely also face acute
housing needs in such high-cost areas.
The agencies further considered the role
of the impact and responsiveness review
and whether it could address such
complexities; however, the agencies
determined that such an approach
would be uncertain and that the more
appropriate approach, on balance, was
to focus this component on housing
affordable to low- and moderate-income
households. The agencies note that
government affordable housing
programs may benefit low-, moderate-,
and middle-income individuals, even in
high-cost markets. Accordingly, for an
activity to receive full consideration
under the final rule, the majority of the
housing units must be affordable to lowor moderate-income individuals. If the
housing units that are affordable to lowand moderate-income individuals
represent less than a majority of the
housing units, then the activity will
receive pro rata consideration under the
final rule.
For nonmetropolitan areas, the
agencies considered—as expressed by
some commenters—that these
geographies may have limited
opportunities for affordable housing.
However, the agencies have determined
that, as in other geographies, the best
approach in nonmetropolitan areas is to
focus on units affordable to low- or
moderate-income individuals under this
component of affordable housing. As
credit shortage due to housing costs, the agencies
consider ‘‘whether an institution’s loan to or
investment in an organization that funds affordable
housing for middle-income people or areas, as well
as low- and moderate-income people or areas, has
as its primary purpose community development’’).
See also Q&A § ll.12(g)(1)–1 (‘‘The concept of
‘affordable housing’ for low- or moderate-income
individuals does hinge on whether low- or
moderate-income individuals benefit, or are likely
to benefit, from the housing. It would be
inappropriate to give consideration to a project that
exclusively or predominately houses families that
are not low- or moderate income simply because the
rents or housing prices are set according to a
particular formula.’’)
PO 00000
Frm 00070
Fmt 4701
Sfmt 4700
discussed above, under the alternative
approach of allowing housing affordable
to middle-income individuals in
nonmetropolitan areas, bank activities
for affordable housing could consist of
activities solely or mostly focused on
housing affordable to middle-income
individuals, with an eliminated or
reduced focus on housing affordable to
low- or moderate-income individuals in
these communities. Accordingly, under
the final rule, activities in conjunction
with government programs in
nonmetropolitan areas that may include
middle-income renters such as the
USDA Section 515 Rural Rental Housing
or Multifamily Guaranteed Rural Rental
Housing programs could be eligible for
consideration to the extent such
activities create units affordable to lowand moderate-income individuals. In
addition, the agencies note the addition
of a component focused on affordable
single-family rental housing in
nonmetropolitan census areas, as
discussed further in the section-bysection analysis of § ll.13(b)(3).
While the agencies have declined to
expand consideration of rental housing
activities in conjunction with a
government affordable housing plan,
program, initiative, tax credit, or
subsidy that targets middle-income
individuals, the agencies believe that
including an impact and responsiveness
factor that supports affordable housing
in High Opportunity Areas in final
§ ll.15(b)(7) will support
encouragement of affordable housing in
geographic areas where the cost of
residential development is high and
affordable housing opportunities can be
limited. Additional impact and
responsiveness factors, such as the
geographic impact and responsiveness
factors discussed in the section-bysection analysis of § ll.15(b)(1)
through (3), may also help encourage
more affordable housing in
nonmetropolitan areas. These and other
impact and responsiveness factors are
discussed further in the section-bysection analysis of final § ll.15.
Section ll.13(b)(2) Multifamily Rental
Housing With Affordable Rents
The Agencies’ Proposal
Proposed § ll.13(b)(2) provided
criteria to define affordable low- or
moderate-income multifamily rental
housing that does not involve a
government program, initiative, tax
credit, or subsidy (also referred to as
naturally occurring affordable housing
in this SUPPLEMENTARY INFORMATION).
With the proposed criteria in
§ ll.13(b)(2), the agencies sought to
provide clear and consistent standards
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
to identify naturally occurring
affordable housing that may receive
affordable housing consideration under
the CRA. First, under this component,
the agencies proposed that the rent for
the majority of the units in a
multifamily property could not exceed
30 percent of 60 percent of the area
median income for the metropolitan
area or nonmetropolitan county.
Second, the agencies proposed that
naturally occurring affordable housing
would also be required to satisfy one or
more of the following additional
eligibility criteria in order to increase
the likelihood that units benefit low- or
moderate-income individuals: (1) the
housing is located in a low- or
moderate-income census tract; (2) the
housing is purchased, developed,
financed, rehabilitated, improved, or
preserved by a nonprofit organization
with a stated mission of, or that
otherwise directly supports, providing
affordable housing; (3) there is an
explicit written pledge by the property
owner to maintain rents affordable to
low- or moderate-income individuals for
at least five years or the length of the
financing, whichever is shorter; or (4)
the bank provides documentation that a
majority of the residents of the housing
units are low- or moderate-income
individuals or families.
Comments Received
Overall, commenters supported the
inclusion of naturally occurring
affordable housing in the affordable
housing category. Many commenters
generally expressed the view that
naturally occurring affordable housing
is an important part of the affordable
housing ecosystem and serves many
low- or moderate-income individuals.
Several commenters supported the
inclusion of naturally occurring
affordable housing-related activity but
expressed concerns that the proposal as
written would be either too restrictive or
too lenient to provide assurance that the
activity would actually support
affordable housing for low- or moderateincome individuals. One commenter
that opposed the inclusion of naturally
occurring affordable housing in the
affordable housing category asserted
that doing so would divert CRA-eligible
capital from traditional incomerestricted, subsidized affordable housing
that provides permanently affordable
apartments to low- or moderate-income
families, while another expressed
concern that the proposal would not
provide sufficient protection to
residents in gentrifying areas and
suggested additional affordability
restrictions. Commenters who were
concerned with the requirements being
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
too restrictive expressed, for example,
that the proposed standards would not
account for any of the naturally
occurring affordable housing in their
local markets.
Final Rule
The agencies are adopting in final
§ ll.13(b)(2) a component for
naturally occurring affordable housing
with some substantive revisions.
Specifically, as described in detail in
the section-by-section analyses that
follow, the final rule recognizes that
multifamily rental housing purchased,
developed, financed, rehabilitated,
improved, or preserved can be
considered under final § ll.13(b)(2) if
for the majority of units, the monthly
rent as underwritten by the bank,
reflecting post-construction or postrenovation changes, does not exceed 30
percent of 80 percent of the area median
income and if the housing also meets
one or more of the criteria in final
§ ll.13(b)(2)(ii). The agencies believe
that naturally occurring affordable
housing provides a meaningful
contribution to the stock of available
affordable housing and believe that the
criteria discussed in more detail below
will help to address commenter
concerns that including consideration
for such housing will divert resources
from other types of affordable housing
projects.
As noted previously, some
commenters urged the agencies to
implement a single category for all
affordable rental housing, including
housing that is developed in
conjunction with a government
affordable housing plan, program,
initiative, tax credit, or subsidy and
naturally occurring affordable housing.
Upon consideration of commenter
feedback, the agencies have determined
to retain a separate component in the
final rule for multifamily rental housing
that has rents affordable to low- and
moderate-income individuals. Naturally
occurring affordable housing is not
already subject to the requirements of a
government plan, program, initiative,
tax credit, or subsidy, and the agencies
believe that by including adequate
affordability criteria and the additional
criteria in § ll.13(b)(2)(ii), the final
rule will help to ensure that activities
qualifying under this prong will
meaningfully benefit low- and
moderate-income individuals.
PO 00000
Section ll.13(b)(2)(i) Affordability
Standard for Multifamily Rental
Housing With Affordable Rents
The Agencies’ Proposal
The agencies proposed an
affordability standard to determine if
multifamily rental housing had
affordable rents and therefore would be
considered naturally occurring
affordable housing. The agencies
proposed that rents would be
considered affordable if the rent for the
majority of the units in a multifamily
property did not exceed 30 percent of 60
percent of the area median income for
the metropolitan area or
nonmetropolitan county.302 This
proposed standard would have
established narrower affordability
criteria than what is often used today to
determine whether rents are affordable
for low- or moderate-income
individuals, which is 30 percent of 80
percent of the area median income.
Under the agencies’ proposal, the rent
amount used to determine whether the
affordability standard is met would be
the monthly rental amounts as
underwritten by the bank, reflecting any
post-construction or post-renovation
rents considered as part of the bank’s
underwriting for financing.303 The
agencies’ objective in including this
provision was to target community
development consideration to properties
that are likely to remain affordable and
to minimize the likelihood of providing
consideration for activities that may
result in displacement of low- or
moderate-income individuals. The
agencies intended to reinforce these
objectives by requiring that a majority of
the units meet the affordability
standard. The agencies sought feedback
on whether there were alternative ways
to ensure that CRA consideration for
support of naturally occurring
affordable housing is targeted to
properties where rents remain
affordable for low- or moderate-income
individuals.
Comments Received
Many commenters addressed the
affordability threshold for naturally
occurring affordable housing under
proposed § ll.13(b)(2). The majority
of commenters on the issue opposed the
proposed affordability threshold of 30
percent of 60 percent of area median
income and supported raising the
affordability threshold to 30 percent of
80 percent of area median income.
Commenters cited several reasons for
adopting a higher affordability standard,
302 See
303 See
Frm 00071
Fmt 4701
Sfmt 4700
6643
E:\FR\FM\01FER2.SGM
proposed § ll.13(b)(2).
id.
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6644
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
including that doing so would align
with other affordable housing programs
and would better account for affordable
housing needed to address housing
shortages and provide workforce
housing. Some commenters expressed
concern that a 30 percent of 60 percent
of area median income affordability
standard could have a negative impact
on the availability of debt financing for
affordable rental housing. Other
commenters supported the proposed 30
percent of 60 percent of area median
income affordability threshold, citing
that it would preserve resources for lowor moderate-income renters who are
most in need of housing support. Other
commenters suggested that the
affordability standard should be closer
to 30 percent of 30 to 50 percent of area
median income in high-cost areas. In
contrast, some commenters asserted that
the affordability threshold should be
higher and more flexible in high-cost
markets. Lastly, a few commenters
recommended that the agencies adopt
the HUD Fair Market Rents standard to
determine rental affordability for
naturally occurring affordable
housing.304
Several commenters expressed
support for the proposal that monthly
rents, for the purposes of determining
affordability, be determined as
underwritten by the bank, reflecting
post-construction or post-renovation
changes, as applicable. However, these
same commenters noted that, to ensure
continuing affordability, consideration
for prior-year financings should be
conditioned on periodic documentation
that the units remain affordable. For
example, one commenter suggested that
examiners should evaluate rent rolls
annually to confirm ongoing
affordability of properties financed in
prior years and examination cycles.
The agencies received comments
supporting the requirement that a
majority of units in a naturally
occurring affordable housing property
must meet the affordability standard.
One commenter suggested that the
agencies consider a higher standard for
the percent of units that must meet the
affordability criteria to ensure long term
affordability of most units. Another
commenter expressed concerns that the
proposed requirement does not
adequately incentivize mixed income
and inclusionary housing. Rather, the
commenter suggested the final rule
should provide pro rata credit based on
304 See HUD, Office of Policy Research and
Development, ‘‘Fair Market Rents,’’ https://
www.hud.gov/program_offices/public_indian_
housing/programs/hcv/landlord/fmr.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
the percentage of affordable units among
market rate units in a property.
Final Rule
Final § ll.13(b)(2)(i) is revised from
the proposal and adopts an affordability
standard stating that naturally occurring
affordable housing purchased,
developed, financed, rehabilitated,
improved, or preserved will be
considered affordable housing under
final § ll.13(b) if, for the majority of
the units, the monthly rent as
underwritten by the bank, reflecting
post-construction or post-renovation
changes as applicable does not exceed
30 percent of 80 percent of the area
median income. The affordability
standard adopted in the final rule does
not include the proposed 30 percent of
60 percent of the area median income
affordability standard, which the
agencies proposed in recognition that,
historically, a substantial percentage of
occupied rental units with affordability
between 61 and 80 percent of area
median income were occupied by
middle- or upper-income households.305
However, the agencies have determined
that the proposed affordability standard
would have restricted eligibility for
properties with affordability levels at 80
percent of area median income even in
cases where many of the units are
occupied by low- or moderate-income
households. Additionally, the agencies
are sensitive to the concerns expressed
by some commenters that the proposed
affordability standard could have had a
negative impact on the availability of
debt financing for this type of affordable
housing. The overwhelming majority of
commenters favored the adoption of a
more flexible affordability standard than
the proposal, with most commenters
supporting the use of the 30 percent of
80 percent of area median income
affordability standard adopted in final
§ ll.13(b)(2)(i).
The final rule retains the agencies’
proposal to use the monthly rental
amounts as underwritten by the bank to
determine whether the rental housing
meets the affordability standard. The
prong further specifies that rent
amounts should reflect any postconstruction or post-renovation changes
considered as part of the bank’s
underwriting for providing financing.
The agencies’ objective in including this
provision is to target community
development consideration to properties
that are likely to remain affordable and
to avoid providing consideration for
activities that may result in
displacement of low- or moderateincome individuals.
305 See
PO 00000
87 FR 33884, 33895 (June 3, 2022).
Frm 00072
Fmt 4701
Sfmt 4700
Though some commenters suggested
that the agencies require documentation
(such as rent rolls or an annual review
of rents) to confirm ongoing
affordability, the agencies are not
adopting an annual verification process
as part of the final rule. In this context,
the agencies view evaluation of the loan
underwriting, which contains a forwardlooking assessment of projected rent
amounts and rental income, along with
the requirement to meet one of the four
additional criteria, described below, as
sufficient to promote the agencies’
objective of ensuring that a bank intends
to finance properties where rent remains
affordable to low- or moderate-income
individuals.
Final § ll.13(b)(2)(i) requires the
majority of units in naturally occurring
affordable housing to meet the
affordability standard. The prong does
not award pro rata consideration for
activities related to properties in which
fewer than 50 percent of housing units
are affordable. The agencies believe that
this requirement will help to ensure
activities that qualify under this prong
support housing that is both affordable
and likely to be occupied by low- and
moderate-income individuals. As
discussed further in the section-bysection analysis of final § ll.13(a)
above, this majority standard in
§ ll.13(b)(2) is consistent with similar
majority criteria for other categories of
community development in § ll.13(a),
which are intended to emphasize
activities that are responsive to
community needs, especially the needs
of low- and moderate-income
individuals and communities.
Section ll.13(b)(2)(ii) Additional
Eligibility Standards for Multifamily
Rental Housing With Affordable Rents
The Agencies’ Proposal
The agencies proposed that one of
four additional criteria would have to be
met for multifamily housing to qualify
as naturally occurring affordable
housing under proposed
§ ll.13(b)(2).306 These criteria were
intended to increase the likelihood that
multifamily housing under this
component of affordable housing would
benefit low- or moderate-income
individuals and that the rents would
likely remain affordable for low- or
moderate-income individuals.
Specifically, in addition to the
requirement that rents for a majority of
the units meet the affordability
standard, multifamily housing would
have to meet at least one of the
following criteria:
306 See
E:\FR\FM\01FER2.SGM
proposed § ll.13(b)(2)(i) through (iv).
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(1) The housing is located in a lowor moderate-income census tract;
(2) The housing is purchased,
developed, financed, rehabilitated,
improved, or preserved by any nonprofit
organization with a stated mission of, or
that otherwise directly supports,
affordable housing;
(3) The property owner has made an
explicit written pledge to maintain
affordable rents for low- or moderateincome individuals for at least five years
or the length of the financing,
whichever is shorter; or
(4) The bank provides documentation
that the majority of the housing units
are occupied by low- or moderateincome individuals or families.307
ddrumheller on DSK120RN23PROD with RULES2
Comments Received
The agencies received a number of
comments on this aspect of the
proposal, with some commenters
objecting generally to the proposed
additional criteria, suggesting that
naturally occurring affordable housing
should be simplified into a single
requirement that the housing meet an
affordability standard. Comments
specific to each of the additional
eligibility criteria are discussed in the
respective section-by-section analyses
for those sections.
Final Rule
The agencies are adopting proposed
§ ll.13(b)(2)(i) through (iv) in a
revised and reorganized final
§ ll.13(b)(2)(ii), which requires
naturally occurring affordable housing
to meet one or more eligibility criteria
in addition to the affordability standard
in § ll.13(b)(2)(i). Specifically, the
final rule requires that a project meet at
least one of the following eligibility
criteria: (1) the housing is located in a
low- or moderate-income census tract;
(2) the housing is located in a census
tract in which the median income of
renters is low- or moderate-income and
the median rent does not exceed 30
percent of 80 percent of the area median
income; (3) the housing is purchased,
developed, financed, rehabilitated,
improved, or preserved by any nonprofit
organization with a stated mission of, or
that otherwise directly supports,
providing affordable housing; or (4) the
bank provides documentation that a
majority of the housing units are
occupied by low- or moderate-income
individuals or families.
The agencies have adopted several
changes to the proposed eligibility
criteria based on commenter feedback,
as described below. The agencies
believe that the eligibility criteria
adopted in the final rule will ensure that
naturally occurring affordable housing
is likely to benefit low- or moderateincome individuals and increase the
likelihood that rents will remain
affordable for low- or moderate-income
individuals. By offering multiple criteria
to demonstrate that rental housing with
affordable rents is likely to benefit lowand moderate-income individuals, the
agencies sought to provide flexibility
and balance the objectives of
encouraging banks to support naturally
occurring affordable housing with
ensuring that this housing is likely to
benefit low- and moderate-income
individuals.
Section ll.13(b)(2)(ii)(A) and (B) Lowor Moderate-Income Census Tracts and
Low- and Moderate-Renter Median
Income Census Tracts
The Agencies’ Proposal
The first proposed additional criterion
was that the location of the multifamily
housing be in a low- or moderateincome census tract.308 This criterion
was based in part on the agencies’
recognition that verifying tenant income
might be infeasible for many property
owners or developers, whereas median
census tract income is readily available.
This criterion is also consistent with
current guidance providing that
examiners may consider economic and
related factors associated with a
particular geographic area to determine
whether the housing is likely to benefit
low- or moderate-income individuals.309
The agencies also sought feedback on
whether to include a geographic
criterion to encompass middle- and
upper-income census tracts in which at
least 50 percent of renters are low- or
moderate-income. The agencies
considered that affordable rental
housing in a neighborhood in which the
majority of renters are low- or moderateincome would also be likely to benefit
low- or moderate-income individuals.
Incorporating this standard into the
CRA regulation could result in
multifamily housing in certain middleand upper-income census tracts
qualifying as naturally occurring
affordable housing under proposed
§ ll.13(b)(2).
Further, the agencies sought feedback
on not including a geographic criterion.
Under this option, to qualify under this
component of affordable housing, the
multifamily housing would have had to
meet one of the other criteria in addition
to the proposed affordability standard of
rents not exceeding 30 percent of 60
percent of the area median income.
308 See
307 Proposed
VerDate Sep<11>2014
§ ll.13(b)(2)(i) through (iv).
18:11 Jan 31, 2024
Jkt 262001
309 See
PO 00000
proposed § ll.13(b)(2)(i).
Q&A § ll.12(g)(1)–1.
Frm 00073
Fmt 4701
Sfmt 4700
6645
Comments Received
The agencies received some
comments that supported requiring all
naturally occurring affordable housing
to be located in a low- or moderateincome census tract. Alternatively, some
commenters urged the agencies to
eliminate this criterion, with viewpoints
including: that multifamily loans should
be evaluated on the affordability of the
housing and not simply the location of
the housing; that this criterion could
present a risk of providing consideration
for units that are not serving low- or
moderate-income residents soon after
the financing occurs; and that this
criterion could incentivize
concentrating affordable housing in lowor moderate-income areas.
Some commenters addressed the
agencies’ request for comment on
whether to expand this proposed
geographic criterion. Of these, several
commenters indicated a preference to
prioritize other criteria (e.g.,
affordability and low- or moderateincome occupancy) over the location of
a property. However, other commenters
supported qualifying naturally
occurring affordable housing
specifically in census tracts in which
the majority of renters were low- or
moderate-income. One commenter
supported expansion of the geographic
criteria into census tracts in which the
majority of renters were low- or
moderate-income if the agencies also
increased the required percentage of
units in naturally occurring affordable
housing properties from the proposed
50 percent to 60 or 67 percent. Some
commenters supported qualifying
naturally occurring affordable housing
in other geographic areas, including
distressed and underserved census
tracts, and others supported expansion
of the geographic criteria to
nonmetropolitan and rural census tracts.
Final Rule
In final § ll.13(b)(2)(ii)(A), the
agencies are adopting the proposed
geographic criterion (see proposed
§ ll.13(b)(2)(i)), that the housing be
located in a low- or moderate-income
census tract, as one of the ways of
demonstrating that naturally occurring
affordable housing is likely to benefit
low- and moderate-income individuals.
This approach is consistent with
existing guidance, under which
examiners may review factors such as
demographic, economic, and market
data in surrounding geographies to
determine the likelihood that housing
will ‘‘primarily’’ accommodate low- or
moderate-income individuals. For
example, examiners look at median
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6646
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
rents of the assessment area and the
project; the median home value of either
the assessment area, and the project; the
median home value of either the
assessment area, low- or moderateincome geographies, or the project; the
low- or moderate-income population in
the area of the project; or the past
performance record of the
organization(s) undertaking the
project.310 In addition, retaining the
geographic criterion provides a
streamlined option for determining
whether housing qualifies as naturally
occurring affordable housing that is
likely to benefit low- and moderateincome individuals or families, as
census tract income data is readily
available and verifiable information.
The final rule also adopts a new
geographic criterion in final
§ ll.13(b)(2)(ii)(B), indicating that
naturally occurring affordable housing
may qualify for consideration if it is
located in a census tract in which the
median income of renters is low or
moderate, and the median rent does not
exceed 30 percent of 80 percent of the
area median income. In doing so, the
agencies intend to help address the
concern commenters noted, that
restricting naturally occurring affordable
housing to low- and moderate-income
census tracts could promote geographic
concentrations of poverty, and the
agencies recognize the importance of
locating affordable housing in
communities of all income levels.
The agencies acknowledge concern
expressed by some commenters that
naturally occurring affordable housing
in middle- and upper-income tracts
could be more likely to attract higherincome renters and could contribute to
the involuntary displacement of lowerincome renters. The agencies evaluated
several alternatives to this geographic
criterion to better ensure that low- and
moderate-income renters were likely to
benefit from this housing and
determined that adding the requirement
that the median rent in the census tracts
must not exceed 30 percent of 80
percent of the area median income
would increase the likelihood that lowand moderate-income individuals
would benefit from the housing.
Moreover, adding these census tracts
increases the number of qualifying
census tracts (compared to only lowand moderate-income tracts) by over
100 percent—adding about 23,000
middle- and upper-income census
tracts—in addition to the approximately
22,500 low- and moderate-income
census tracts that would be eligible
310 See
Q&A § ll.12(g)(1)–1.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
currently.311 This criterion also aligns
with current guidance in the
Interagency Questions and Answers on
the information that may be considered
when determining the likelihood that
the housing will primarily
accommodate low- or moderate-income
individuals or families.312
Section ll.13(b)(2)(ii)(C) Nonprofit
Organizations With a Stated Mission of,
or That Otherwise Directly Support,
Providing Affordable Housing
The Agencies’ Proposal
The agencies proposed a second
criterion for determining whether
multifamily housing qualifies as
naturally occurring affordable housing
under proposed § ll.13(b)(2).
Specifically, the agencies proposed that
if housing is purchased, developed,
financed, rehabilitated, improved, or
preserved by any ‘‘nonprofit
organization with a stated mission of, or
that otherwise directly supports,
providing affordable housing,’’ then the
activity could be considered naturally
occurring affordable housing.313 The
agencies intended this provision to
encompass organizations that have a
mission to serve individuals and
communities especially vulnerable to
housing instability or that otherwise
target services to low- or moderateincome individuals and communities.
Multifamily housing that met this
criterion in addition to the affordability
standard in proposed § ll.13(b)(2)(i)
would qualify as naturally occurring
affordable housing under proposed
§ ll.13(b)(2) in any census tract,
including middle- and upper-income
census tracts.
Comments Received
Most of the commenters who
commented on the second proposed
criterion for naturally occurring
affordable housing supported its
inclusion and stated that it was well
tailored to providing CRA consideration
for units that meet the purposes of the
CRA. A few commenters suggested that
this criterion should be a requirement
for CRA consideration for naturally
occurring affordable housing. In
addition, some commenters
311 Based on including census tracts where the
median rent is below 30 percent of 80 percent of
the area median income and where the median
renter’s income is below 80 percent of the area
median income in the 2015–2019 American
Community Survey.
312 See, e.g., Q&A § ll.12(g)(1)–1. Under
existing guidance, examiners may look at median
rents of an assessment area and other factors to
determine the likelihood that housing will
primarily accommodate low- and moderate-income
individuals.
313 Proposed § ll.13(b)(2)(ii).
PO 00000
Frm 00074
Fmt 4701
Sfmt 4700
recommended additional
requirements—for example, that the
nonprofits should be led by people of
color, a majority of residents should be
low- or moderate-income, or the
property must be compliant with antidisplacement principles.
Several other commenters opposed
the proposed criterion. For example, a
commenter opposing this criterion
stated that it would impede banks from
garnering community development
financing consideration because
affordable housing often comes from
partnerships with small developers, as
well as nonprofit organizations.
Final Rule
Under final § ll.13(b)(2)(ii)(C), the
agencies are adopting the proposed
additional eligibility criterion for
affordable multifamily housing activity
in conjunction with a nonprofit
organization with a stated mission of, or
that otherwise directly supports,
providing affordable housing
substantially as proposed (see proposed
§ ll.13(b)(2)(ii)). The agencies observe
that many of these nonprofit
organizations serve individuals and
communities that are especially
vulnerable to housing instability or
otherwise target services to low- or
moderate-income individuals and
communities. The agencies do not
anticipate that this criterion will impede
community development financing
consideration for banks working with
small property developers that are not
nonprofit organizations, as this criterion
is only one of four criteria for qualifying
naturally occurring affordable housing
activities. The agencies also considered
commenter recommendations for
additional requirements, and the
agencies do not believe such additional
requirements are necessary given the
agencies’ view that the proposed
criterion is adequate to provide
consideration for loans, investments,
and services supporting housing units
that are likely to be occupied by low- or
moderate-income individuals.
Proposed § ll.13(b)(2)(iii) Written
Affordability Pledge
The Agencies’ Proposal
The agencies proposed a third
criterion for determining whether
multifamily housing would qualify as
naturally occurring affordable housing
under proposed § ll.13(b)(2). This
criterion would have required the
property owner’s explicit written pledge
to maintain rents that are affordable for
at least five years or for the length of the
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
financing, whichever is shorter,314 and
was intended to address concerns about
the likelihood of rents in an eligible
property increasing in the future and
potentially displacing low- or moderateincome households. Multifamily
housing that met this criterion in
addition to the baseline affordable rent
standard discussed above would qualify
as naturally occurring affordable
housing under proposed § ll.13(b)(2)
in any census tract, including middleand upper-income census tracts.
Comments Received
Several commenters supported this
proposed criterion. Of those
commenters, a few supported the
proposed five-year time period for the
affordability pledge. Most commenters
addressing this aspect of the proposal
suggested extending the duration of the
pledge—to 10, 15, or 20 years—or
ensuring that the pledge is binding.
Other commenter sentiment included:
that the effectiveness of the criterion
would depend on the legal
enforceability of such a written pledge
and the ability of an entity to monitor
compliance; that this criterion should be
required of all naturally occurring
affordable housing lending and should
not be optional; and that the pledge
should be to keep the rents affordable
for low- and moderate-income renters
for the life of the investment or loan.
Another commenter suggested that the
agencies should publish best-practice
examples of documents that outline the
affordability restrictions, time period for
those restrictions, and applicable tenant
protections.
Some commenters, however, opposed
the additional criterion for an owner’s
explicit written pledge altogether on the
grounds that it would be unappealing to
property owners and unrealistic in
many markets.
ddrumheller on DSK120RN23PROD with RULES2
Final Rule
In the final rule, the agencies have
determined to not adopt the proposed
additional eligibility criterion that
would allow consideration based on an
explicit written pledge by the property
owner to maintain affordable rents for
low- or moderate-income individuals for
at least five years or the length of the
financing, whichever is shorter. In
proposing this additional eligibility
criterion, the agencies sought to increase
proposed § ll.13(b)(2)(iii). The agencies
noted in the NPR their expectation that the length
of financing would often go beyond the five-year
written affordability pledge. The agencies further
stated that they would scrutinize short-term
financing (less than five years) to ensure such
financing is not a way to avoid the affordability
commitment. See 87 FR 33884, 33896 n. 72 (June
3, 2022).
314 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
the number of options for demonstrating
the likelihood that housing will benefit
low- and moderate-income persons,
while recognizing that requiring such a
pledge would necessitate additional
documentation.
In determining not to adopt this part
of the proposal, the agencies considered
the views of many commenters who
supported the written affordability
pledge proposal, a longer affordability
period, or a mandatory pledge on the
belief that such requirements would
help to ensure that housing remains
affordable and would limit the risk of
renter displacement due to increasing
rents. The agencies also considered
feedback that the effectiveness of such
a pledge would depend on its legal
enforceability and that enforcing the
pledge could be impracticable and
potentially require an entity to monitor
compliance.
The agencies evaluated the proposed
additional criterion in light of feedback
from commenters and determined that,
because neither the agencies nor the
banks would be in a position to
effectively oversee the enforceability of
these pledges, which may not be
recorded in the public record, the
impact of these pledges could be
limited. In addition, the proposed
criterion would have required the
pledge to be in effect for either five
years or the length of the financing,
which could have had the unintended
result of providing consideration for,
and possibly unintentionally
encouraging, one-year loans that would
not contribute to ongoing affordability.
Finally, by retaining the criterion that
naturally occurring affordable housing
be purchased, developed, financed,
rehabilitated, improved, or preserved by
any nonprofit organization with a stated
mission of, or that otherwise directly
supports, providing affordable housing,
the agencies believe that including a
pledge criterion would likely be
superfluous for nonprofit owners, and
not a clear means to capture activity that
is outside other criteria that would
apply to naturally occurring affordable
housing.
Section ll.13(b)(2)(ii)(D) Tenant
Income Documentation
The Agencies’ Proposal
A fourth additional criterion proposed
by the agencies for determining whether
multifamily housing would qualify as
naturally occurring affordable housing
under proposed § ll.13(b)(2) was that
the bank provided documentation that
the majority of the housing units were
occupied by low- or moderate-income
PO 00000
Frm 00075
Fmt 4701
Sfmt 4700
6647
individuals or households.315
Multifamily housing that met this
criterion in addition to the affordability
standard in § ll.13(b)(2)(i) would
qualify as naturally occurring affordable
housing under proposed § ll.13(b)(2)
in any census tract, including middleand upper-income census tracts.
Comments Received
Of those commenters who weighed in
on the criterion that the bank provide
documentation that the majority of the
housing units were occupied by low- or
moderate-income individuals or
households, most supported retaining it
as a criterion in the final rule and
suggested ways that the criterion could
be successfully implemented. However,
one commenter asserted that banks do
not have the authority to collect tenant
income information, while another
indicated that the documentation could
be impossible to obtain if units remain
vacant after the project is completed.
Another commenter suggested that the
acceptance of Housing Choice Vouchers
should be included as a way of
demonstrating that rents will be
affordable for low- and moderateincome individuals. A few commenters
raised objections, stating that the
proposed criterion is unnecessary,
overreaching, and impractical as
proposed and could lead banks that seek
CRA consideration to impose new
burdensome administrative
requirements on multifamily borrowers.
Final Rule
The final rule adopts
§ ll.13(b)(2)(iv) as proposed,
renumbered as final
§ ll.13(b)(2)(ii)(D), which allows a
bank to demonstrate the eligibility of
multifamily housing by, in addition to
meeting the affordability standard,
providing documentation that a majority
of the housing units in an unsubsidized
multifamily affordable housing project
are occupied by low- or moderateincome individuals or families. For
example, in the case of a multifamily
rental property with a majority of rents
set at 30 percent of 80 percent of area
median income, the activity could
receive consideration under this
additional criterion where the bank can
document that the majority of occupants
receive Housing Choice Vouchers.316
proposed § ll.13(b)(2)(iv).
housing choice voucher program is the
Federal Government’s major program for assisting
very low-income families, the elderly, and the
disabled to afford decent, safe, and sanitary housing
in the private market. See 24 CFR part 982 (program
requirements for the tenant-based housing
assistance program under section 8 of the United
315 See
316 The
E:\FR\FM\01FER2.SGM
Continued
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6648
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
The agencies observe that such
documentation would demonstrate that
the activity was benefiting low- or
moderate-income individuals. The
agencies acknowledge commenters’
assertion that tenant income
documentation might be unobtainable,
unnecessary, or impractical. However,
the agencies ultimately believe this
criterion provides a useful alternative
for banks that are able to obtain such
documentation through the process of
originating or renewing a loan. Banks
retain the flexibility to demonstrate
eligibility using the other criteria in
final § ll.13(b)(2)(ii)
their CRA activities, and downgrade
banks for incidents of harm and
displacement of low- or moderateincome and racial and ethnic minority
tenants; that incentivizing
mixed-income housing developments
with a focus on racial and income
integration would help address
displacement concerns; and that loans
to finance rental housing should only
receive consideration if they are
structured to tangibly improve the lives
of tenants and do not permit landlords
to pull money away from operations to
pay for greater debt service.
Other Comments on Naturally
Occurring Affordable Housing
Commenters offered a variety of
suggestions for alternative ways to
ensure that CRA consideration for
naturally occurring affordable housing
would be targeted to properties where
rents remain affordable for low- or
moderate-income individuals. Some
commenters indicated that the rule
should emphasize one or more of the
proposed criteria in different
combinations, while other commenters
offered suggestions for criteria that were
not expressly contemplated in the
proposal. A few commenters asserted
that the agencies should take steps to
limit consideration for financing that
may not provide long-term affordable
housing, citing, for example, concern
regarding the long-term intentions of
certain institutional investors and
private developers. Several commenters
requested that the agencies require
contracts or land use agreements that
ensure a specific level and length of
affordability, especially, at least one
commenter noted, for properties where
a renovation is occurring.
Some commenters suggested that the
agencies create anti-displacement
requirements, quality of housing
requirements, or both, in order for
activities supporting naturally occurring
affordable housing properties to qualify
for CRA consideration. Commenter
feedback along these lines included:
that the agencies should require banks
to demonstrate that landlord borrowers
are complying with tenant protection,
habitability, local health code, civil
rights, credit reporting act, unfair,
deceptive, or abusive acts and practices,
and other laws; that the agencies should
give credit to banks for adopting and
adhering to anti-displacement and
responsible lending best practices in
Final Rule
States Housing Act of 1937 (42 U.S.C. 1437f); the
tenant-based program is the housing choice voucher
program). See also HUD, ‘‘Choice Vouchers Fact
Sheet,’’ https://www.hud.gov/topics/housing_
choice_voucher_program_section_8.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
For the reasons stated in the
preceding discussion of the affordability
standard and additional eligibility
requirements, the agencies are adopting
the component for naturally occurring
affordable housing under final
§ ll.13(b)(2) with revisions. The
agencies are not adopting commenter
suggestions to restrict CRA
consideration for financing provided to
institutional investors and private
developers, because the basis for doing
so is not clear, especially if the
affordability requirements of this
section are met, and because such
parties play an important role in adding
to the overall supply of needed
affordable housing. Instead, the agencies
are relying on the criteria adopted to
ensure that the multifamily housing
with affordable rents is likely to benefit
low- or moderate-income individuals.
Similarly, the agencies considered, but
are not requiring contracts or land use
agreements that ensure a specific level
and period of affordability, as these
would be challenging for a bank to
enforce efficiently. Additionally, the
agencies are not including an additional
criterion in this component regarding
resident displacement and responsible
lending best practices. The agencies
believe that such a criterion is less
needed in the naturally occurring
affordable housing context given that
such activities will create units or
facilitate maintenance of existing units
of affordable housing, and examiners
will retain the discretion to consider
whether an activity reduces the number
of housing units affordable to low- or
moderate-income individuals. The
agencies believe the adopted criteria
will appropriately encourage activities
beneficial to low- and moderate-income
individuals and families.
PO 00000
Section ll.13(b)(3) One-to-Four
Family Rental Housing With Affordable
Rents in Nonmetropolitan Census Tracts
The Agencies’ Proposal
In the NPR, the agencies sought
feedback on whether single-family
rental housing should be considered
under the naturally occurring affordable
housing category, provided that it meets
the same combination of criteria
proposed for multifamily rental
housing.317 This alternative would have
expanded the affordable housing
category to include single-family rental
housing that meets the affordability
threshold and the additional eligibility
criteria under proposed § ll.13(b)(2)(i)
and (ii), respectively. The agencies also
sought feedback on whether such an
alternative should be limited to rural
geographies, or eligible in all
geographies.318 In seeking feedback on
the potential expansion to include
unsubsidized single-family affordable
rental housing, the agencies
acknowledged that single-family rental
housing can be an important source of
affordable housing, especially in
geographies, such as rural communities,
where multifamily housing is less
common.
Comments Received
Many commenters offered views on
whether single-family rental housing
should be considered under the
naturally occurring affordable housing
category, provided such housing meets
the requirements of proposed
§ ll.13(b)(2). Some commenters
generally opposed expanding the
naturally occurring affordable housing
proposal to include single-family
homes, noting: that this expansion
could incentivize investors buying
single-family homes to serve as
investment properties rather than
encouraging homeownership amongst
low- or moderate-income individuals
and families; that such an expansion
could inadvertently reinforce racial
segregation and concentrated poverty;
and that permanent home mortgage
loans for single-family rental housing
were already covered as part of the
proposed Retail Lending Test.
Most of the commenters that
remarked on this alternative supported
broadening the eligibility of naturally
occurring affordable housing to include
single-family rental housing in some or
all geographies. For example, one
commenter noted that affordable singlefamily rentals are a critical part of the
multipronged approach to address
317 See
87 FR 33895.
318 Id.
Frm 00076
Fmt 4701
Sfmt 4700
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
affordable housing in this country and
should be included in the affordable
housing category.
Imposing higher standards for singlefamily rental housing. Although several
commenters suggested applying the
exact same naturally occurring
affordable housing criteria to both
multifamily and single-family housing,
some commenters suggested that
activities relating to single-family
rentals be held to a higher standard or
subject to additional restrictions as
compared to activities relating to
multifamily naturally occurring
affordable housing. Commenters
supporting higher standards raised a
number of considerations including:
that single-family rental housing should
be limited to homes that either are
eligible for purchase (e.g., lease-to-own),
are prioritized for low- or moderateincome families enrolled in first-time
homeowner programs through HUD, or
are part of a State program that will
remain permanently affordable through
a community land trust or other vehicle
to sustain affordability; that singlefamily rental housing should be limited
to housing owned or developed by a
nonprofit organization; and that, if forprofit ownership and development is
allowed, there should be mechanisms to
ensure that the property is in decent
physical condition and that bank
financing is not supporting abusive
property owners, landlords,
management companies, or investors.
Other commenters expressed
concerns about investor activity. For
example, a commenter suggested that
the agencies restrict CRA consideration
to properties whose owners own fewer
than 50 single-family rental units unless
the owner is a nonprofit with a bona
fide mission of providing affordable
housing. Another commenter
recommended that, to prevent
speculative activity or corporate
ownership, the agencies could exclude
from consideration single-family rental
housing in any low- or moderate-income
or predominantly minority census tract
in which more than one-third of the
single-family housing stock became
rental housing in last five years.
Geographic considerations in
recognizing affordable single-family
rental activity. A few commenters
addressed the agencies’ request for
comment on whether to limit any
inclusion of single-family rental
properties in the proposed naturally
occurring affordable housing component
to properties located in rural areas. The
majority of these commenters opposed
limiting single-family rentals to rural
areas. In this regard, a commenter stated
that affordable housing is needed
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
everywhere and, therefore, the category
should not be limited to rural
communities. A few commenters
supported limiting single-family rentals
to rural areas, noting the large
percentage of occupied rental units in
rural areas that are single-family homes.
Another commenter suggested
eliminating all geographic criteria and
allowing single-family rentals to receive
CRA consideration anywhere.
Final Rule
The final rule adopts as final
§ ll.13(b)(3) a component in the
affordable housing category for singlefamily rental housing in
nonmetropolitan areas. The component
applies in instances where such housing
is purchased, developed, financed,
rehabilitated, improved, or preserved,
and the housing meets the affordability
criterion in final § ll.13(b)(2)(i) and at
least one of the additional eligibility
criteria in final § ll.13(b)(2)(ii). This
component is intended to address
single-family rental housing with
affordable rents in nonmetropolitan
areas. As previously noted, the agencies
inquired whether the proposed
approach to considering naturally
occurring affordable housing should be
broadened to include single-family
rental housing that meets the
requirements in proposed
§ ll.13(b)(2), and if so, whether
consideration of single-family rental
housing should be limited to rural
geographies, or eligible in all
geographies. In making this
determination, the agencies have
considered the views from commenters
on this request for feedback.
Standards for single-family rental
housing. Currently, the lack of a
consistent standard for affordability,
combined with unclear methods for
determining whether low- or moderateincome individuals are likely to benefit,
leads to inconsistent consideration of
unsubsidized affordable housing,
including single-family rental housing.
The agencies sought feedback on the
potential application of the criteria in
proposed § ll.13(b)(2)(i) and (ii) to
single-family rental housing because
those criteria aim to provide a
consistent methodology for determining
benefit for low- or moderate-income
individuals. After considering
commenter feedback, the agencies
believe that the revised criteria for
naturally occurring affordable housing
for multifamily rental housing under
§ ll.13(b)(2), which include a defined
affordability standard and a requirement
that rents be determined based on the
amounts used by the bank for purposes
of underwriting, are suitable for
PO 00000
Frm 00077
Fmt 4701
Sfmt 4700
6649
adoption in the single-family
nonmetropolitan area rental housing
context. The agencies carefully
considered commenter suggestions for a
more stringent or more lenient
affordability standard, and determined
that adopting the criteria in final
§ ll.13(b)(2) for both multifamily
rental housing and single-family rental
housing in nonmetropolitan areas will
provide a clear and consistent option
that is likely to benefit low- and
moderate-income individuals and
families.
Geographic considerations in
recognizing affordable single-family
rental activity. Although the agencies
considered the assertion by some
commenters that affordable rental
housing is needed in all geographic
areas, as noted previously, this
component supports consideration only
for single-family rental housing in
nonmetropolitan areas. The agencies
also considered that the composition of
the housing stock varies across
geographies, and that in some areas,
such as in certain nonmetropolitan
areas, it may be difficult to develop
affordable multifamily rental housing at
scale, either in conjunction with a
government program or as naturally
occurring affordable housing. An agency
analysis of data from the 2016–2020
American Community Survey showed
that 22 percent of occupied rental units
in nonmetropolitan areas are structures
with more than 4 units, compared to 47
percent of occupied rental units in
metropolitan areas.319 In reaching their
determination, the agencies believe that
the final rule approach appropriately
balances adding a component specific to
affordable single-family rental housing
and tailoring it to the unique affordable
housing needs in nonmetropolitan
areas. The agencies also considered that
not including this component could
otherwise limit opportunities for
affordable housing in nonmetropolitan
areas.
This component is designed to
address the single-family affordable
housing needs in nonmetropolitan
areas, including the particular needs in
rural areas. Accordingly, although the
agencies recognize that single-family
affordable housing is important to
319 Multifamily housing is also less common in
rural areas where a smaller 12 percent of occupied
rental units are in structures with more than 4 units
according to the same data source. Rural areas are
conceptually distinct from nonmetropolitan areas,
however, and this final rule relies upon the
nonmetropolitan area designation. The Census
Bureau uses a distinct methodology of designating
urban and rural census blocks relative to the Office
of Management and Budget’s methodology for
determining if a county is within a metropolitan
statistical area.
E:\FR\FM\01FER2.SGM
01FER2
6650
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
addressing the affordable housing needs
for low- and moderate-income
individuals in metropolitan areas, the
agencies have determined not to expand
this component to apply to single-family
rental housing in metropolitan areas.
Such units may still be eligible for
consideration under final § ll.13(b)(1)
to the extent that the unit(s) and
associated loan, investment, or service
meet the requirements under that
component.
Section ll.13(b)(4) Affordable OwnerOccupied Housing for Low- or
Moderate-Income Individuals
ddrumheller on DSK120RN23PROD with RULES2
The Agencies’ Proposal
Proposed § ll.13(b)(3) provided a
component for the affordable housing
category of community development for
‘‘activities that support affordable
owner-occupied housing for low- or
moderate-income individuals.’’ This
component included activities that: (1)
‘‘directly assist low- or moderateincome individuals to obtain, maintain,
rehabilitate, or improve affordable
owner-occupied housing’’; or (2)
‘‘support programs, projects, or
initiatives that assist low- or moderateincome individuals to obtain, maintain,
rehabilitate, or improve affordable
owner-occupied housing.’’ 320 Owneroccupied housing referenced in the
agencies’ proposal included both singlefamily and multifamily owner-occupied
housing.
Activities under proposed
§ ll.13(b)(3) would have expressly
excluded single-family home mortgage
loans considered under the Retail
Lending Test in proposed § ll.22.321
Instead, as discussed in the agencies’
proposal, activities eligible for
consideration under proposed
§ ll.13(b)(3) included, for example,
construction loan financing for a
nonprofit housing developer building
single-family owner-occupied homes
affordable to low- or moderate-income
individuals; financing or a grant
provided to a nonprofit community land
trust focused on providing affordable
housing to low- or moderate-income
individuals; a loan to a resident-owned
manufactured housing community with
homes that are affordable to low- or
moderate-income individuals; a sharedequity program operated by a nonprofit
organization to provide long-term
affordable homeownership; and
financing or grants for organizations that
provide down payment assistance to
low- or moderate-income homebuyers.
Other activities eligible for
320 Proposed
321 See
§ ll.13(b)(3).
id.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
consideration under this proposed
component include: activities with a
governmental or nonprofit organization
with a stated purpose of, or that
otherwise directly supports, providing
affordable housing; and activities
conducted by the bank itself, or with
other for-profit partners, provided that
the activity directly supports affordable
homeownership for low- or moderateincome individuals.
The agencies sought feedback on what
conditions or terms, if any, should be
added to this component to ensure that
qualifying activities are affordable,
sustainable, and beneficial for low- or
moderate-income individuals and
communities.
Comments Received
Nearly all commenters that
commented on the affordable
homeownership component of the NPR
expressed support for CRA
consideration for such activities. Some
of the commenters suggested a different
definition for this component under
which the financing, construction, or
rehabilitation of owner-occupied homes
would qualify if: (1) the homes are
located in a low- or moderate-income
census tract or a distressed or
underserved middle-income
nonmetropolitan census tract; and (2)
the sales price does not exceed four
times the area median income. One
commenter noted that this definition
should explicitly include government
programs with a ‘‘stated purpose or
bona fide intent’’ of providing affordable
housing or housing assistance for low, moderate-, or middle-income
individuals.
Many commenters offered specific
suggestions regarding the activities that
should be eligible for consideration
under this component. Commenter
suggestions included: that the agencies
should explicitly include financing for
the rehabilitation or reconstruction of an
already owner-occupied home if the
owner is a low- or moderate-income
individual; that investments and
interests in early buyout loans should
receive CRA consideration because they
enable servicers to work with and buy
delinquent loans with government
insurance or guarantees without
foreclosing on the properties, thereby
allowing residents to remain in their
homes; and that the agencies should
provide CRA consideration for the costs
of transporting housing materials to
remote areas.
A few commenters encouraged the
agencies to use this component to
encourage affordable homeownership
for specific populations. For example, a
commenter suggested that the agencies
PO 00000
Frm 00078
Fmt 4701
Sfmt 4700
increase and preserve affordable
homeownership for low- or moderateincome individuals from racial and
ethnic groups that were subjected to
redlining and other discriminatory
practices. Similarly, a commenter
recommended that the agencies
emphasize activities that expand
homeownership for first-time buyers
who are individuals with disabilities or
represent other underserved
populations.
Some commenters encouraged the
agencies to include specific products or
programs in this component of
affordable housing. These suggestions
include first-look homebuyer
programs,322 home repair programs that
help homeowners bring homes into
building code compliance, participation
in specific pilot programs offered by the
Federal National Mortgage Association
(Fannie Mae) or the Federal Home Loan
Mortgage Corporation (Freddie Mac)
(collectively, the Government-sponsored
enterprises or the GSEs),323 real estateowned note sales, education on and
resolution of heirs’ property titles, low
balance loans for homeowners, use of
alternative credit models, limited equity
housing cooperatives, and property tax
abatements to assist low- or moderateincome owners whose taxes have risen
rapidly. Other commenters suggested
that the agencies provide CRA
consideration for activities related to
lender fee-for-service payments,
investment, grants, and developing fees
for service programming by HUDcertified housing counseling agencies.
Lastly, some commenters recommended
that the agencies encourage banks to
partner with nonprofit affordable
housing groups to provide or support
affordable homeownership options.
These commenters explained that
nonprofit affordable housing groups—
including developers, owners,
counselors, and others—provide
products and services that are
appropriately tailored to low- and
322 For example, Freddie Mac’s First Look
Initiative offers homebuyers and select nonprofit
organizations an exclusive opportunity to purchase
certain homes prior to competition from investors.
See Freddie Mac, ‘‘Freddie Mac First Look
Initiative,’’ https://www.homesteps.com/homesteps/
offer/firstlook.html.
323 GSE pilot programs are designed to target a
wide range of housing access issues. GSE pilot
programs may help renters establish and improve
their credit scores, defray or decrease the cost of
security deposits for renters, or take other actions
to help renters and homeowners. For example,
Fannie Mae’s Multifamily Positive Rent Payment
Reporting pilot program is aimed at helping renters
build their credit history and improve their credit
score. See Fannie Mae, ‘‘Fannie Mae Launches Rent
Payment Reporting Program to Help Renters Build
Credit’’ (Sept. 27, 2022), https://
www.fanniemae.com/newsroom/fannie-mae-news/
rent-payment-reporting-program-launch.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
moderate-income borrowers and help
guard against predatory or
unsustainable homeownership
activities.
Final Rule
The agencies are adopting proposed
§ ll.13(b)(3), renumbered as final
§ ll.13(b)(4), with clarifying revisions
to provide community development
consideration for activities that support
affordable owner-occupied housing for
low- and moderate-income individuals.
Specifically, in final § ll.13(b)(4),
affordable housing includes ‘‘assistance
for low- or moderate-income individuals
to obtain, maintain, rehabilitate, or
improve affordable owner-occupied
housing, excluding loans by a bank
directly to one or more owner-occupants
of such housing.’’ The agencies believe
that adopting this component facilitates
consideration of a variety of the
affordable housing models suggested by
commenters. The agencies also note that
some of the activities suggested by
commenters, such as use of alternative
credit scores, special purpose credit
programs, and use of other credit
products that assist low- or moderateincome individuals with purchasing a
home could be considered responsive
credit products under the Retail
Services and Products Test, described in
the section-by-section analysis of
§ ll.23. Owner-occupied one-to-fourfamily home mortgage loans, including
but not limited to owner-occupied oneto-four-family home mortgage loans
considered under the Retail Lending
Test in § ll.22, are excluded from
consideration under this component.
Relative to the agencies’ proposal, the
final rule combines the two prongs
(‘‘direct’’ support and support for
‘‘plans, programs, and initiatives’’) into
a single component that covers all forms
of assistance for affordable
homeownership. By creating a single
component, the agencies seek to
streamline the requirement and clarify
that a bank may receive community
development consideration for activities
that support any qualifying assistance
under the component regardless of
whether the support is provided directly
to a low- or moderate-income individual
or indirectly, through a third-party
organization. As a result, under the final
rule, a down payment grant provided by
a bank to a low- or moderate-income
individual is evaluated using the same
standards as those standards that apply
to a down payment grant to a nonprofit
organization that provides affordable
housing assistance to low- or moderateincome individuals. This parallel
treatment is consistent with the
agencies’ objectives, including the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
objective seeking to provide greater
clarity and consistency in the
application of the regulations, and the
criteria in the proposal.
Assistance for low- or moderateincome individuals to obtain, maintain,
rehabilitate, or improve affordable
owner-occupied housing. Under final
§ ll.13(b)(4), activities that assist lowor moderate-income individuals to
obtain, maintain, rehabilitate, or
improve affordable owner-occupied
housing are considered. The proposal
would have recognized activity that
‘‘directly’’ assists with these functions.
The agencies removed ‘‘directly’’ to
better align this component with the
majority standard outlined in final
§ ll.13(a)(1)(i)(B)(1).
As noted in the proposal, activities
under this component could be
conducted in conjunction with a variety
of financing types. For example, this
component would include activities
such as construction loan financing for
a nonprofit housing developer
constructing single-family owneroccupied homes affordable to low- or
moderate-income individuals; a grant to
a nonprofit organization that provides
home rehabilitation and weatherization
improvements for low- and moderateincome homeowners; financing or a
grant to a nonprofit community land
trust focused on providing affordable
housing to low- or moderate-income
individuals; a loan to a resident-owned
manufactured housing community with
homes that are affordable to low- or
moderate-income individuals; a sharedequity program operated by a nonprofit
organization to provide long-term
affordable homeownership; and
financing or grants for organizations that
provide down payment assistance to
low- or moderate-income
homebuyers.324
Furthermore, under this component,
eligible activities may include those
involving assistance to a government
agency or nonprofit organization that
provides access to affordable
homeownership, and assistance
provided by the bank itself, or by other
for-profit entities. Accordingly, each of
the following may qualify for
consideration under final § ll.13(b):
participation in first-look homebuyer
programs or home repair programs that
help homeowners bring homes into
building code compliance; a down
payment grant offered directly by a bank
to help low- or moderate-income
individuals purchase a home; an
investment in a government bond that
finances home mortgage loans for low324 See
PO 00000
proposed § ll.13(b)(3).
Frm 00079
Fmt 4701
Sfmt 4700
6651
or moderate-income borrowers; 325 and
activities supporting a program that
conducts free home repairs or
maintenance for low- or moderateincome homeowners.
Exclusion of loans by a bank directly
to owner-occupants. The proposal
specifically excluded any home
mortgage loans considered under the
Retail Lending Test in § ll.22. The
agencies were concerned that, as
written, the requirement could suggest
that a bank might receive consideration
for such loans under either performance
test, but not both. To minimize
confusion and to clarify the agencies’
intent, final § ll.13(b)(4) replaces the
reference to the Retail Lending Test
with language that excludes any loan
directly to an owner-occupant,
regardless of whether the loan is
considered under the Retail Lending
Test. Consistent with the proposal, this
clarification ensures that banks will not
receive CRA consideration under both
final § ll.13(b)(4) and final § ll.22
for a single loan.
Section ll.13(b)(5) Mortgage-Backed
Securities
The Agencies’ Proposal
Under proposed § ll.13(b)(4), the
agencies proposed to define standards
for investments in mortgage-backed
securities related to affordable housing
that qualify for community development
consideration. Specifically, the agencies
proposed that mortgage-backed
securities would qualify as affordable
housing when the security contained ‘‘a
majority of either loans financing
housing for low- or moderate-income
individuals or loans financing housing
that otherwise qualifies as affordable
housing under [proposed
§ ll.13(b)].’’ 326 This proposed
component of affordable housing was
intended to be generally consistent with
current practice and to recognize that
purchases of qualifying mortgagebacked securities that contain home
mortgage loans to low- or moderateincome borrowers or that otherwise
contain loans that qualify as affordable
housing are investments in affordable
housing.
The agencies sought feedback on
alternative approaches that would create
a more targeted definition of qualifying
mortgage-backed securities. One
alternative approach would be to
consider investments in mortgageQ&A § ll.12(t)–2.
Q&A § ll.12(t)–2. See also, e.g., Q&A
§ ll.23(b)–2 (indicating that CRA credit for MBS
investments is conferred only if the MBS is ‘‘not
backed primarily or exclusively by loans that the
same institution originated or purchased.’’).
325 See
326 See
E:\FR\FM\01FER2.SGM
01FER2
6652
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
backed securities only in proportion to
the percentage of loans in the security
secured by affordable properties. For
example, if 60 percent of a qualifying
mortgage-backed security consists of
single-family home mortgage loans to
low- or moderate-income borrowers,
and 40 percent of the security consists
of loans to middle- or upper-income
borrowers, the mortgage-backed security
would receive consideration only for the
dollar value of the loans to low– or
moderate-income borrowers.
Additionally, the agencies sought
feedback on whether to limit
consideration of mortgage-backed
securities to the initial purchase of a
mortgage-backed security from the
issuer, and not to consider subsequent
purchases of the security. This change
would have been intended to reduce the
possibility of multiple banks receiving
CRA consideration for purchasing the
same security.
Comments Received
The majority of commenters
recognized the important role mortgagebacked security purchases play in
creating liquidity for the mortgage
market and enabling banks to originate
more loans and favored retaining this
component of affordable housing.
However, many of these commenters
supported restrictions on the types of
eligible securities as well as the amount
of CRA consideration received relative
to other activities. Other commenters
suggested eliminating consideration for
purchases of mortgage-backed securities
altogether because of the view that such
investments are low impact or add little
value to communities.
Scope. Some commenters requested
that the agencies clarify or modify the
scope of this component. For example,
a commenter sought clarification
regarding the treatment of purchases of
securities collateralized by mortgage
loans in low- and moderate-income
census tracts. Separately, several
commenters recommended that the
proposed mortgage-backed securities
component include purchases of other
affordable housing investment vehicles
issued by State housing finance
authorities or municipalities, such as
mortgage revenue bonds. In contrast,
other commenters supported restricting
consideration to certain types of
purchases of mortgage-backed
securities, such as loans or mortgagebacked securities purchased from a
certified CDFI, or loans or mortgagebacked securities that meet certain
requirements but that are not guaranteed
by the Federal Government. Other
commenters proposed limitations that
would provide CRA consideration only
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
for the first or second purchase of a
mortgage-backed security.
Amount of consideration for
mortgage-backed securities. The
majority of commenters addressing the
agencies’ request for comment on
whether to consider investment in
mortgage-backed securities only in
proportion to the percentage of loans in
the security secured by affordable
properties favored the proportional
consideration alternative. In contrast, a
couple of commenters addressing this
alternative opposed using proportional
consideration, asserting that it would
increase complexity without material
benefit to the volume and scope of
affordable housing activities in low- or
moderate-income communities. Other
commenters suggested a hybrid
approach whereby full CRA
consideration would be granted for
investments in mortgage-backed
securities comprised of 50 percent or
more affordable housing loans and pro
rata credit would be granted for
investments in mortgage-backed
securities comprised of less than 50
percent affordable housing loans.
Another commenter suggested that the
full value of a mortgage-backed security
only be considered when at least 50
percent of the underlying loans were
used to finance supportive affordable
housing developments.
Other commenters recommended that
CRA consideration for purchases of
mortgage-backed securities be
discounted relative to other community
development investments. These
commenters suggested that mortgagebacked securities investments be
discounted by 50 percent in comparison
to more traditional lending or
investment in qualified CRA activities
because these securities remain liquid
and provide comparably less public
benefit than other qualifying CRA
activities. Similarly, some commenters
suggested that the agencies limit
consideration for mortgage-backed
securities investments to a percentage of
a bank’s nationwide community
development activity, with some of
these commenters suggesting either a 20
or 25 percent cap. Other commenters
requested that consideration be limited
to the percentage of loans to low- or
moderate-income individuals.
Other restrictions or limitations.
Finally, several commenters suggested
that the agencies consider or set a
minimum threshold for the time period
that a bank must hold the mortgagebacked securities on its books, such as
two or more years. Some commenters
also opposed limiting mortgage-backed
securities consideration to only the
initial purchase from the issuer, citing
PO 00000
Frm 00080
Fmt 4701
Sfmt 4700
that this limitation would add
complexity and could negatively impact
the market for mortgage-backed
securities.
Final Rule
In the final rule, the agencies are
adopting the proposal related to
mortgage-backed securities, renumbered
as final § ll.13(b)(5) and reorganized
to include final § ll.13(b)(5)(i) and
(ii), with both substantive and clarifying
edits. Specifically, the final rule
includes as a component of affordable
housing purchases of mortgage-backed
securities that are collateralized by
loans, a majority of which are not loans
that the bank originated or purchased,
and which are either home mortgage
loans made to low- or moderate-income
individuals or loans financing
multifamily affordable housing that
meets the requirements of final
§ ll.13(b)(1). For clarity, the two
subcategories (home mortgage loans to
low- or moderate-income individuals
and loans secured by multifamily
affordable housing) form two separate
prongs under the overall mortgagebacked security component.
The agencies are also revising final
§ ll.13(b)(5) to confirm that the
component only applies to mortgagebacked securities where a majority of
the underlying loans are not loans that
the bank originated or purchased. This
limitation is consistent with current
interagency guidance and ensures that
banks are not likely to receive
consideration under both final
§ ll.13(b)(5) and the Retail Lending
Test in final § ll.22 for the same
loan(s).327
Section ll.13(b)(5)(i)
Section ll.13(b)(5)(i). Final
§ ll.13(b)(5)(i) specifies that
affordable housing includes purchases
of mortgage-backed securities where a
majority of the underlying loans are not
loans that the bank originated or
purchased and ‘‘[a]re home mortgage
loans made to low- or moderate-income
individuals.’’ This provision adopts the
proposal to consider purchases of
mortgage-backed securities that contain
a majority of ‘‘loans financing housing
for low- or -moderate income
individuals’’ (proposed § ll.13(b)(4)).
On further review, the agencies
determined that ‘‘loans financing
housing for low- or -moderate income
individuals’’ could be read broadly to
include single-family loans and
multifamily loans. The agencies
intended, however, to refer with this
language solely to loans secured by
327 Q&A
E:\FR\FM\01FER2.SGM
§ ll.23(b)–2.
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
single-family homes. Thus, final
§ ll.13(b)(5)(i) refers more specifically
to ‘‘home mortgage loans made to lowor moderate-income individuals.’’ As
discussed further in the section-bysection analysis of § ll.12, ‘‘home
mortgage loan’’ is defined to mean a
‘‘closed-end home mortgage loan’’ or an
‘‘open-end home mortgage loan,’’ which
are in turn defined to exclude
multifamily loans.328
The agencies also note that final
§ ll.13(b)(5)(i) only allows
consideration based on the income of
the individuals to whom the loans are
made and does not allow consideration
for mortgage-backed securities solely
because the underlying loans are
secured by property in low- and
moderate-income census tracts. This
approach, which is consistent with the
agencies’ proposal, is intended to
maintain the component’s focus on lowor moderate-income individuals. The
agencies do not believe that providing
consideration for mortgage-backed
securities where the underlying loans
are made to middle- or upper-income
individuals residing in low- or
moderate-income census tracts is likely
to further the agencies’ goal of
encouraging affordable housing lending
to low- and moderate-income
individuals.
Section ll.13(b)(5)(ii)
Under final § ll.13(b)(5)(ii), the
agencies replaced phrasing that referred
to loans that finance housing that
‘‘otherwise qualifies’’ as affordable
housing with a direct reference to final
§ ll.13(b)(1). This revision clarifies
that, as it relates to multifamily housing,
the agencies intend to provide
community development consideration
only for those mortgage-backed
securities where a majority of the
underlying loans are secured by
multifamily rental housing purchased,
developed, financed, rehabilitated,
improved, or preserved in conjunction
with government affordable housing
plans, programs, initiatives, tax credits,
and subsidies. The agencies believe that
this clarification will facilitate
consistency in evaluating mortgagebacked securities. The agencies note
that purchases of tax-exempt bonds
issued by Freddie Mac and Fannie Mae,
which finance affordable housing
projects, and tax-exempt bond issuances
that finance affordable housing projects
sponsored by State housing authorities
or municipalities, may be eligible for
community development consideration
328 See final § ll.12 (defining ‘‘home mortgage
loan,’’ ‘‘closed-end home mortgage loan,’’ and
‘‘open-end home mortgage loan’’).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
under the final rule, provided that the
bond is a mortgage-backed security that
meets the requirements in final
§ ll.13(b)(5)(ii).
Amount of consideration for
mortgage-backed securities. Under final
§ ll.13(a) mortgage-backed securities
that meet the requirements in final
§ ll.13(b)(5) (i.e., a majority of the
underlying loans are not loans that the
bank originated or purchased, and are
either home mortgage loans made to
low- or moderate-income individuals or
loans financing multifamily affordable
housing that meets the requirements of
final § ll.13(b)(1)) will be eligible to
receive consideration for the full value
of the security.329 The agencies carefully
considered commenter feedback
regarding the amount of consideration
that mortgage-backed securities should
be eligible to receive under CRA,
including ideas for partial consideration
of bank investments in mortgage-backed
securities. On further deliberation, the
agencies are not adopting a partial
consideration framework for bank
investments in mortgage-backed
securities. The agencies believe that the
final rule’s majority approach for
mortgage-backed securities will
facilitate compliance and supervision,
as it is less complex than other
alternatives suggested and considered,
and consistent with the majority
standard employed in most other
categories of community
development.330 While generally
aligned with current guidance on bank
investments in mortgage-backed
securities noted earlier, the final rule
will provide greater clarity,
transparency, and uniformity in how
bank investments in mortgage-backed
securities are considered under CRA.
The agencies believe that the
requirements in final § ll.13(b)(5),
including the majority requirement, the
home mortgage loan limitation, and the
express tie to final § ll.13(b)(1) for
multifamily affordable housing,
appropriately balance considerations of
current guidance; the benefits of greater
consistency and clarity in the treatment
of investments in mortgage-backed
securities under CRA; and the
recognition that purchases of mortgagebacked securities containing home
mortgage loans to low- or moderateincome borrowers or loans that finance
multifamily affordable housing can
improve liquidity, in turn supporting
more loans to low- and moderatefinal § ll.13(a)(1)(i)(A)(2).
discussion of the final rule on full and
partial credit for community development loans,
investments, and services, see the section-bysection analysis of final § ll.13(a).
329 See
330 For
PO 00000
Frm 00081
Fmt 4701
Sfmt 4700
6653
income borrowers and more affordable
housing development. The agencies
remain sensitive to commenter views
that mortgage-backed securities are
lower in impact and responsiveness to
community credit needs than other
qualifying affordable housing activities
more directly supporting housing for
low- or moderate-income individuals.
Accordingly, the agencies will continue
to monitor the impact of including
mortgage-backed securities in the
affordable housing category.
Other restrictions or limitations. After
carefully considering commenter
feedback, the agencies have decided not
to limit consideration of mortgagebacked securities to the initial purchase
of a mortgage-backed security from the
issuer under this component. The
agencies sought feedback on limiting
consideration to the initial purchase in
order to emphasize activities that may
more directly serve low- or moderateincome individuals and communities
and to reduce the possibility of multiple
banks receiving CRA consideration for
purchasing the same security. However,
the agencies believe that this potential
limitation is mitigated as examiners will
be able to use information regarding the
amount of time a mortgage-backed
security was owned by the bank to
determine the appropriate amount of
consideration. For more information
regarding the agencies’ use of
performance context, see the section-bysection analysis of § ll.21(d).
Complex, Specialized, and Novel Topics
in Affordable Housing
As previously noted, the agencies
sought feedback on how to ensure that
the proposed affordable housing
category is clearly defined and
appropriately inclusive of activities that
support affordable housing for low- or
moderate-income individuals, including
activities that involve complex,
specialized, or novel solutions, such as
community land trusts, shared equity
models, and manufactured housing. The
agencies considered the wide array of
commenter responses that identified
particular activities that help to further
access to affordable housing for lowand moderate-income individuals.
However, the agencies have declined to
revise the affordable housing category to
explicitly list such activities, because
the agencies believe that many of the
activities identified in comments would
be eligible for community development
consideration under the various
components of the affordable housing
category. This outcome is consistent
with the agencies’ objective for the
affordable housing category, which is to
create standards and identify
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6654
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
characteristics that may be used to
evaluate a broad range of affordable
housing activities and programs, both
current and future, and identify those
that meet the standards for
consideration. The following is a
discussion of the ways in which several
activities cited by commenters are
captured within the various affordable
housing components or may otherwise
receive consideration under the final
rule.
Manufactured housing. In the NPR,
the agencies stated that a loan to a
resident-owned manufactured housing
community with homes that are
affordable to low- or moderate-income
individuals could be eligible for
community development consideration
as an activity that supports affordable
homeownership for low- and moderateincome individuals. As noted
previously, the agencies also requested
feedback about the inclusion of
manufactured housing in the proposed
affordable housing category.
The agencies received several
comments related to manufactured
housing, and commenters provided
feedback on a variety of approaches for
affordable manufactured housing
eligibility. For example, some
commenters supported special
consideration of financing for affordable
manufactured housing that is on tribal
land, while other commenters
supported a broader approach to
include all loans that finance affordable
manufactured housing. Some
commenters urged the agencies to
provide consideration only for residentowned manufactured housing
communities or to nonprofit
organizations that provide land for
manufactured housing. In contrast,
other commenters urged the agencies to
include consideration for for-profit
manufactured home communities, with
one commenter suggesting that loans to
manufactured housing communities
with homes that are affordable to lowor moderate-income individuals should
not be restricted to only resident-owned
communities, because for-profit entities
play an essential role in purchasing
older communities and making
significant infrastructure repairs, such
as roads, sewer, and water. Another
commenter suggested that community
development consideration should be
extended for loans to manufactured
home dealers that commit to providing
more favorable financing terms to lowor moderate-income buyers.
The agencies have considered these
comments and recognize that
manufactured housing can provide
important affordable housing options for
low- and moderate-income individuals
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
and families. Nonetheless, the agencies
intend and expect that some
manufactured housing activity will meet
the requirements under a component of
affordable housing adopted in the final
rule. For example, an acquisition loan
made to a manufactured housing
community with homes that are
affordable to low- or moderate-income
individuals could help fill a housing
gap and may qualify under final
§ ll.13(b)(4) as assistance supportive
of affordable owner-occupied housing
for low- or moderate-income
individuals.331 Alternatively, financing
provided to a nonprofit, in conjunction
with a government program, to develop
manufactured housing and buy land for
use as affordable rental housing for lowand moderate-income individuals and
families could qualify under final
§ ll.13(b)(1) (rental housing in
conjunction with a government
affordable housing plan, program,
initiative, tax credit, or subsidy).332 As
discussed further in the section-bysection analysis of final § ll.22(d)(1),
below, single-family home mortgage
loans meeting the HUD code for
manufactured housing are generally
reportable under HMDA, and will
therefore receive consideration under
the Retail Lending Test in final
§ ll.22.333
Shared equity housing programs and
community land trusts. In the NPR, the
agencies stated that a shared-equity
program operated by a nonprofit
organization to provide long-term
affordable homeownership could be
eligible for community development
consideration as an activity that
supports affordable homeownership for
low- and moderate-income
individuals.334 In addition, the agencies
stated that an activity that provides
financing for the acquisition of land for
a shared equity housing project that
brings permanent affordable housing to
a community could meet the impact
review factor for activities that result in
a new community development
financing product or service under the
Community Development Financing
Test or the Community Development
Financing Test for Limited Purpose
Banks, to the extent that it involves a
new strategy to meet a community
development need.335
331 Final § ll.13(b)(4) is discussed in greater
detail in the section-by-section analysis of
§ ll.13(b)(4), below.
332 Final § ll.13(b)(1) is discussed in greater
detail in the section-by-section analysis of
§ ll.13(b)(1), below.
333 See HUD Manufactured Home Construction
and Safety Standards, 24 CFR part 3280.
334 87 FR 33884, 33897 (June 3, 2022).
335 See 87 FR 33915.
PO 00000
Frm 00082
Fmt 4701
Sfmt 4700
The NPR also specifically addressed
community land trusts, which typically
operate a specific type of shared-equity
program. The agencies stated that
providing financing to, or a grant for a
nonprofit community land trust focused
on providing affordable owner-occupied
housing to low- or moderate-income
individuals could be eligible for
community development consideration
as an activity that supports affordable
homeownership for low- and moderateincome individuals.336 Several
commenters noted that activities, such
as those conducted in coordination with
community land trusts, can prevent
displacement of vulnerable residents.
It is the agencies’ view that shared
equity housing programs, including but
not limited to community land trust
activities, provide opportunities to
support long-term affordable housing.
Commenters generally supported
qualification of these activities under
the affordable housing category, with
some commenters noting that such
activities can make homeownership
affordable for low- or moderate-income
individuals who might be otherwise
unable to afford to purchase a home.
The agencies agree that shared equity
housing and community land trusts are
important tools to promote
homeownership. Although the final rule
does not create a separate component or
prong for qualification of shared equity
housing as affordable housing, the
agencies highlight that loans,
investments, and services involving
shared equity programs and community
land trusts may be eligible for
consideration under final
§ ll.13(b)(4), when they involve
assistance for low- or moderate-income
individuals to obtain affordable owneroccupied housing. As another example,
to the extent that a community land
trust operates rental housing meeting
the requirements under final
§ ll.13(b)(1) or (2), loans, investments,
and services to support such housing
would qualify for consideration under
the applicable component. Moreover,
mortgage loans that allow homeowners
to purchase a home through these
programs may be considered under the
Retail Lending Test in final § ll.22, or
under the responsive credit product
evaluation in the Retail Services and
Products Test in final § ll.23.337
Accessory dwelling units (ADUs).
Several commenters requested
consideration for banks supporting
development of ADUs under the
affordable housing category. For
example, commenters requested
336 See
337 See
E:\FR\FM\01FER2.SGM
87 FR 33897.
final § ll.22.
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
consideration for loans extended to
finance ADUs that are intended to help
low- and moderate-income homeowners
develop an income-producing property
that could offset the cost of a mortgage
or rising property taxes, or to encourage
affordability by creating additional
housing supply.338 One commenter
suggested that the agencies provide
community development consideration
to ADUs and small multifamily
buildings and asked the agencies to
clarify that banks can receive
consideration for loans to support
improvements and repairs to existing
dwellings, including for small dollar
loans and to install accessibility
features.
As adopted under final § ll.13(b),
certain activities related to ADUs could
be considered affordable housing, such
as those that contribute to the provision
of housing affordable to low- and
moderate-income individuals and
families. For example, a loan to a
nonprofit organization that supports the
creation of an ADU on the property of
a low- or moderate-income homeowner
could qualify under final § ll.13(b)(4).
Alternatively, a loan or investment in a
fund operated in conjunction with a
government program to support the
construction of ADUs could qualify
under final § ll.13(b)(1), if the
resulting ADUs were rental housing for
low- or moderate-income individuals
(and not considered under the Retail
Lending Test).
Land banks. The NPR did not
specifically address the consideration of
land banks under the various prongs of
the affordable housing category, and a
number of commenters requested that
the agencies explicitly address land
banks and land bank-related activities in
the final rule. Commenters stated that
land bank-related activities often help to
address the need for affordable housing
for low- and moderate-income
individuals and in low- and moderateincome communities. The agencies
recognize that land banks, which are
typically established by a government
entity or a nonprofit organization, can
help to facilitate the development of
affordable housing by acquiring and
holding land until some future time
when it can be developed as affordable
housing. The agencies acknowledge that
many of these activities could be
considered under the affordable housing
category if they have the bona fide
338 Accessory dwelling units or ADUs are
additional living quarters on single-family lots that
are independent of the primary dwelling unit. See
HUD, Office of Policy Development and Research,
‘‘Accessory Dwelling Units: Case Study’’ (June
2008), https://www.huduser.gov/portal/
publications/adu.pdf.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
intent and are specifically structured to
provide affordable housing for low- and
moderate-income individuals, and the
agencies believe that these activities
could qualify under several components
of the affordable housing category under
the final rule. For example, a loan to a
land bank created by a government
entity to hold land for the development
of affordable rental housing could
qualify under final § ll.13(b)(1).
Alternatively, a loan to a land bank
operated by a nonprofit organization for
the purpose of acquiring land on which
to develop and sell single-family
housing to low- and moderate-income
individuals could qualify under final
§ ll.13(b)(4).
Special purpose credit programs. In
the proposal, the agencies sought
feedback on whether special purpose
credit programs 339 should be listed as
an example of a responsive credit
product or program that facilitates
mortgage and consumer lending targeted
to low- or moderate-income borrowers
under the Retail Services and Products
Test.340 Several commenters instead
recommended qualification for these
activities under the affordable housing
category of community development. In
response to these comments, the
agencies note that under the final rule,
special purpose credit programs can be
considered in the evaluation of
responsive credit products and services
pursuant to final § ll.23(c)(2)(v). In
addition, although specific special
purpose credit programs are not
expressly listed as qualifying programs
under the affordable housing category in
final § ll.13(b), the agencies recognize
that it would be possible for the
objectives of specific special purpose
credit programs to align with one or
more affordable housing category
components, and in such cases, these
activities may be eligible for
consideration within the affordable
housing category of community
development. For example, a grant to a
nonprofit who is implementing a special
purpose credit program that provides
down payment assistance to low- or
moderate-income individuals may
qualify for consideration under final
§ ll.13(b)(4).
Down payment assistance. In the
NPR, the agencies stated that financing
or grants for organizations that provide
339 See HUD, ‘‘Office of General Counsel
Guidance on the Fair Housing Act’s Treatment of
Certain Special Purpose Credit Programs That Are
Designed and Implemented in Compliance with the
Equal Credit Opportunity Act and Regulation B’’
(Dec. 6, 2021), https://www.hud.gov/sites/dfiles/GC/
documents/Special_Purpose_Credit_Program_OGC_
guidance_12-6-2021.pdf.
340 87 FR 33966.
PO 00000
Frm 00083
Fmt 4701
Sfmt 4700
6655
down payment assistance to low- or
moderate-income homebuyers could be
eligible for community development
consideration as an activity that
supports affordable homeownership for
low- and moderate-income individuals
under proposed § ll.13(b)(3).341
Several commenters suggested that the
agencies provide consideration for
activities that provide down payment
assistance to low- and moderate-income
individuals. Nonetheless, the agencies
note that direct grants and other
programs offered by banks that help
low- and moderate-income homebuyers
make a down payment are eligible for
consideration as an activity that
supports affordable homeownership for
low- and moderate-income individuals
under final § ll.13(b)(4), as long as the
down payment assistance is not
provided as a loan by the bank directly
to the owner-occupant of the home.
Other suggested housing programs.
Commenters requested that the agencies
explicitly address many additional
activities, including but not limited to
home repair for low- and moderateincome individuals and families,
supportive housing models, and firstlook homebuyer programs. The agencies
have considered these recommendations
and acknowledge that there are many
types of investments, loans, and services
provided by banks in connection with
such activities that may qualify under
the affordable housing category of
community development. As previously
noted, many activities recommended by
commenters would qualify under one or
more of the five affordable housing
components adopted in final
§ ll.13(b), when the activity meets the
qualifying criteria and thereby supports
affordable housing for low- and
moderate-income individuals and
families. In addition, to provide
increased certainty on what community
development activities will qualify for
CRA consideration, pursuant to final
§ ll.14, the agencies will maintain a
publicly available, non-exhaustive
illustrative list of examples of
community development activities that
qualify for CRA consideration,
including examples of qualifying
affordable housing activities. The list
will be periodically updated. Final
§ ll.14 also provides a formal
confirmation process through which any
bank could request a determination as to
whether a proposed community
development activity would be eligible
for CRA consideration.
341 See
E:\FR\FM\01FER2.SGM
87 FR 33897.
01FER2
6656
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Section ll.13(c) Economic
Development
ddrumheller on DSK120RN23PROD with RULES2
Current Approach
Under the current regulation,
community development is defined to
include ‘‘[a]ctivities that promote
economic development by financing
businesses or farms that meet the size
eligibility standards of the U.S. Small
Business Administration Development
Company (SBDC) or Small Business
Investment Company (SBIC) programs
or have gross annual revenues of $1
million or less.’’ 342 Under the current
Interagency Questions and Answers,
activities qualify as economic
development if they meet both a ‘‘size’’
test and a ‘‘purpose’’ test.343
Size test. An institution’s loan,
investment, or service meets the ‘‘size’’
test if it finances, directly or through an
intermediary, businesses or farms that
either meet, as noted, the size eligibility
standards of the SBDC or SBIC
programs, or have gross annual revenues
of $1 million or less.344 The term
‘‘financing’’ is considered broadly and
includes technical assistance that
readies a business that meets the size
eligibility standards to obtain
financing.345
Currently, small business loans and
small farm loans that meet the
definition of ‘‘loans to small businesses’’
or ‘‘loans to small farms,’’ based on the
Call Report definitions—loans with
original amounts of $1 million or less to
businesses and loans with original
amounts of $500,000 or less to
farms 346—are generally evaluated as
retail loans and not as community
development loans. Loans that exceed
these amounts, as applicable, can be
considered as community development
loans if the business or farm borrower
either meets the size eligibility
standards of the SBDC or SBIC programs
or has gross annual revenues of $1
million or less.
Purpose test. A bank’s loans,
investments, or services can meet the
‘‘purpose’’ test if they ‘‘promote
economic development’’ by supporting
either:
(1) Permanent job creation, retention,
and/or improvement:
342 See current 12 CFRll.12(g)(3). See also 13
CFR 120.10 (SBDC program) and 13 CFR part 107
(SBIC program).
343 See Q&A § ll.12(g)(3)–1.
344 See id.
345 See id.
346 See current 12 CFR ll.12(v) (defining a
small business loan as a loan included in ‘‘loans to
small businesses’’ as defined in the instructions for
preparation of the Call Report). See also 12 CFR
ll.12(w) (defining a small farm loan as a loan
included in ‘‘loans to small farms’’ as defined in the
instructions for preparation of the Call Report).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
• For low- or moderate-income
persons, in low- or moderate-income
census tracts, in areas targeted for
redevelopment by Federal, State, local,
or tribal governments;
• By financing intermediaries that
lend to, invest in, or provide technical
assistance to start-ups or recently
formed small businesses or small farms;
or
• Through technical assistance or
supportive services for small businesses
or farms, such as shared space,
technology, or administrative
assistance; 347 or
(2) Federal, State, local, or tribal
economic development initiatives that
include provisions for creating jobs or
improving access by low- or moderateincome persons to jobs or to job training
or workforce development programs.348
The agencies will presume that loans,
investments, or services in connection
with the following specific government
programs promote economic
development, thereby satisfying the
purpose test: SBDCs, SBICs, USDA
Rural Business Investment
Companies 349 (RBICs), New Markets
Venture Capital Companies,350 NMTCeligible Community Development
Entities 351 (CDEs), or CDFIs that finance
small businesses or small farms.352
Currently, an intermediate small bank
that is not required to report small
business or small farm loans may opt to
have its small business and small farm
loans considered as community
development loans, as long as they meet
the definition of community
development. An intermediate small
bank that opts to have such small
business and small farm loans
considered as community development
loans cannot also choose to have these
loans evaluated under the current
lending test.353
The Agencies’ Proposal
The agencies proposed several
revisions to the economic development
category of community development
that were intended to provide clarity to
stakeholders about the activities that
qualify under this category and to
encourage activities supportive of small
businesses and small farms.
Specifically, the agencies proposed that
the economic development category of
community development would
comprise three types of activities:
Q&A § ll.12(g)(3)–1.
id.
349 See 7 CFR 4290.50.
350 See 13 CFR part 108.
351 See 26 U.S.C. 45D(c).
352 See Q&A § ll.12(g)(3)–1.
353 See Q&A § ll.12(h)–3.
347 See
348 See
PO 00000
Frm 00084
Fmt 4701
Sfmt 4700
• Activities undertaken consistent
with Federal, State, local, or tribal
government plans, programs, or
initiatives that support small
businesses, as defined in the plans,
programs, or initiatives. This prong
expressly included lending to, investing
in, or providing services to an SBDC,
SBIC, New Markets Venture Capital
Company, qualified CDE, or RBIC
(proposed § ll.13(c)(1)).
• Support for financial intermediaries
that lend to, invest in, or provide
technical assistance to businesses or
farms with gross annual revenues of $5
million or less (proposed
§ ll.13(c)(2)); or
• Providing technical assistance to
support businesses or farms with gross
annual revenues of $5 million or less, or
providing services such as shared space,
technology, or administrative assistance
to such businesses or farms or to
organizations that have a primary
purpose of supporting such businesses
or farms (proposed § ll.13(c)(3)).
Gross annual revenue threshold for
small businesses and small farms under
economic development. The agencies
proposed alternative size standards for
defining small businesses and small
farms, as discussed in the section-bysection analysis of § ll.12.354
Specifically, the agencies proposed a
gross annual revenue threshold for the
businesses and farms supported under
proposed § ll.13(c)(2) and (3) of $5
million or less. For government-related
support of small businesses and small
farms, the size standards of the relevant
government plan, program, or initiative
would apply, with the proposed $5
million gross annual revenue threshold
applying in the absence of a definition
in the plan, program, or initiative. As
discussed in the proposal, the $5
million size standard was intended in
part to align the meaning of small
business and small farm across the CRA
regulation, including under the
proposed Retail Lending Test, with the
definition of small business under the
CFPB’s Section 1071 Proposed Rule,
subsequently adopted in the Section
1071 Final Rule.
Purpose of job creation, retention, and
improvement for low- and moderateincome individuals under economic
development. Under the proposal, the
current purpose test described above
would not be required for loans,
investments, and services to qualify as
supporting economic development, as
long as the proposed criteria in
354 See final § ll.12 (‘‘small business’’ and
‘‘small farm’’ definitions); see also, e.g., final
§ ll.22(d) and the accompanying section-bysection analysis.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
proposed § ll.13(c)(1), (2), or (3) were
met. The agencies requested feedback
on whether the proposed economic
development category should retain a
separate component of economic
development to consider activities that
support job creation, retention, and
improvement for low- and moderateincome individuals. Moreover, the
agencies sought feedback on whether
activities conducted with businesses or
farms of any size and that create or
retain jobs for low- or moderate-income
individuals should be considered.
Additionally, the agencies requested
feedback on criteria that could be
included to demonstrate that the
activities satisfied this component and
that ensure activities are not qualified
solely because they offer low wage jobs.
Evaluation of direct loans to small
businesses and small farms. As
discussed in greater detail in the
section-by-section analysis of § ll.22,
the agencies proposed that a bank’s
reported loans to small businesses and
small farms, regardless of the loan
amount, generally would be evaluated
under the proposed Retail Lending
Test.355 Relatedly, under proposed
§ ll.13(c), the agencies proposed that
reported loans directly to small
businesses and small farms would not
be included in the economic
development category of community
development and, therefore, would not
be considered in the proposed
Community Development Financing
Test. Consistent with current guidance,
the agencies proposed that intermediate
banks would retain flexibility to have
certain retail loans—small business,
small farm, and home mortgage loans—
be considered as community
development loans. This option was
proposed to be available to an
intermediate bank if those loans have a
primary purpose of community
development and are not required to be
reported by the bank (under HMDA or
CRA).356
The agencies proposed this approach
to reflect the agencies’ belief that loans
to small businesses and small farms are
primarily retail lending products for
banks, and therefore would be more
appropriately considered under the
proposed Retail Lending Test. Under the
proposed Retail Lending Test, described
in detail in the section-by-section
analysis of § ll.22 below, small
business loans and small farm loans
355 See proposed § ll.22(a); see also, e.g., final
§ ll.22(d) and the accompanying section-bysection analysis.
356 See proposed § ll.22(a)(5)(iii); compare with
Q&A § ll.12(h)—3 (small business, small farm,
home mortgage, and consumer loan consideration
for intermediate small banks).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
would be evaluated based on the
distribution metrics and would not be
subject to additional requirements such
as the current community development
criterion for economic development.357
Accordingly, the proposed revisions to
the economic development category of
community development were designed
to emphasize other activities that would
promote access to financing for small
businesses and small farms, as
discussed in greater detail below.
However, as also discussed further
below, the agencies also sought
feedback on whether the proposed
approach to evaluating direct small
business and small farm lending solely
under the Retail Lending Test would
sufficiently recognize activities that
support job creation, retention, and
improvement for low- or moderateincome individuals and communities.
Under the proposal, for retail loans
evaluated under the proposed Retail
Lending Test, the agencies proposed to
transition from the current CRA
definitions of small business loans and
small farm loans to the definitions of
loans to small businesses and small
farms with gross annual revenues of $5
million or less—with the focus on the
size of the small business or small farm,
not the size of the loan. Hence, whereas
currently, as noted, small business and
small farm loans are generally evaluated
under the lending test if they are loans
with origination amounts of $1 million
or less to a business (of any size) and
loans with origination amounts of
$500,000 or less to a farm (of any
size),358 small business and small farm
357 As further discussed in the section-by-section
analysis of final § ll.42, under the current rule,
for each census tract in which a bank (other than
a small bank) originated or purchased a small
business or small farm loan, the bank must report
the aggregate number and amount of the loans with
an amount at origination of: (1) $100,000 or less; (2)
more than $100,000 but less than $250,000; and (3)
more than $250,000. See current 12 CFR
ll.42(b)(1)(i) through (iii). These banks must also
report small business and small farm loans to
businesses and farms with gross annual revenues of
$1 million or less (based on the revenue size used
by the bank in making the credit decision). See
current 12 CFR ll.42(b)(1)(iv). Subject to changes
discussed in the proposal pertaining to the
transition to using section 1071 data, the proposed
Retail Lending Test distribution metrics would
evaluate a bank’s small business loans and small
farm loans to businesses and farms with gross
annual revenues of less than $1 million. The
proposal also would evaluate loans to small
businesses and small farms of more than $250,000
but less than or equal to $1 million, and of $250,000
or less. See proposed § ll.22(d); see also final
§ ll.22(e) and the accompanying section-bysection analysis. See also, e.g., current 12 CFR
ll.12(g)(3) and Q&A § ll.12(g)(3)–1.
358 See 12 CFR ll.12(v) (defining a small
business loan as a loan included in ‘‘loans to small
businesses’’ as defined in the instructions for
preparation of the Call Report). See also 12
CFRll.12(w) (defining a small farm loan as a loan
PO 00000
Frm 00085
Fmt 4701
Sfmt 4700
6657
lending evaluated under the proposed
Retail Lending Test would consider
loans of any size, as long as they were
to businesses or farms with gross annual
revenues of $5 million or less.
As proposed, the transition to this
evaluation approach for small business
and small farm lending would be based
on the availability of data under the
CFPB Section 1071 Final Rule on small
business loan data collection. In the
interim, to evaluate small business and
small farm loans under the Retail
Lending Test, the agencies proposed to
use the current definitions of small
business loan and small farm loan.359
The agencies sought feedback on this
aspect of the proposal and on whether
to continue considering bank loans to
small businesses and small farms that
currently qualify under the economic
development criteria as community
development loans during the period
between when the final rule becomes
applicable and when the agencies begin
to use section 1071 data for bank CRA
evaluations.
Comments Received
Many commenters provided a variety
of views on the proposal overall and
offered feedback on the issues on which
the agencies specifically requested
comment, as discussed in further detail
below. Several commenters expressed
general support for the proposed
changes to the economic development
category and the proposed components.
Many commenters expressed concerns,
however, that the proposed changes to
the economic development category
would limit the activities that would
have qualified under the current rule for
this category and/or limit the range of
small businesses that could be
supported. Generally regarding a ‘‘size’’
and ‘‘purpose’’ test for the economic
development category of community
development, multiple commenters
supported retaining the current size and
purpose tests because, in these
commenters’ view, these tests highlight
women- and minority-owned
businesses. A commenter suggested that
the ‘‘size’’ test and ‘‘purpose’’ test be
retained but that a qualifying activity
under the economic development
category should be required to satisfy
only one of these tests, not both.
Comments discussed below address
the following topics regarding the
proposed economic development
category of community development: (1)
proposed size standards for small
included in ‘‘loans to small farms’’ as defined in the
instructions for preparation of the Call Report).
359 See 12 CFR ll.12(v) (defining small business
loan) and (w) (defining small farm loan).
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6658
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
businesses and small farms; (2) the
proposal to eliminate the existing
‘‘purpose’’ test for qualifying economic
development activities; (3) criteria to
demonstrate job creation, retention, and
improvement; and (4) the proposed
evaluation of direct loans to small
businesses and small farms. As relevant,
comments on these topics are also
included in the section-by-section
analysis of the individual components
of the final rule (final § ll.13(c)(1)
through (3)).
Gross annual revenue threshold for
small businesses and small farms under
economic development. Numerous
commenters addressed the proposal to
include a gross annual revenue
threshold for businesses and farms that
could be considered under the
economic development category. Some
commenters generally supported the
proposed size threshold of gross annual
revenues of $5 million or less for
businesses and farms, with some
asserting the proposed size threshold
would allow a greater number of small
businesses to be supported under this
category. A few commenters supported
the $5 million gross annual revenue
threshold but suggested that support for
intermediaries that target the smallest
businesses (with gross annual revenues
of $1 million or less) should receive
enhanced credit, while another
commenter expressly supported using
the $5 million gross annual revenue
threshold for the intermediary prong
(proposed § ll.13(c)(2)).
On the other hand, many commenters
opposed or expressed concerns about
the proposed size thresholds for small
businesses and small farms.
Commenters generally expressed
concerns that the proposed approach
would eliminate credit or stifle growth
for many businesses, including
minority-owned businesses and midsized companies, and would limit or
omit many projects that impact low- and
moderate-income areas or individuals.
A commenter asserted that the proposed
$5 million gross annual revenue
threshold failed to account for the
significant positive impact larger
businesses have on job creation,
retention, and improvement. Some
commenters suggested maintaining the
current ‘‘size’’ standards to qualify
activities that support small businesses
and small farms under the economic
development category, with some
expressing concerns that activities
directly supporting small businesses
that meet the size eligibility standards
established by the SBA and affiliated
programs (but that have gross annual
revenues of greater than $5 million), as
well as support for the financial
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
intermediaries assisting these
businesses, would no longer qualify
under this proposed economic
development category. A commenter
asserted that setting a specific revenue
threshold for small businesses fails to
recognize differences among businesses
across different industries and suggested
that the agencies adopt a business size
index and standard like the one used by
the SBA.360 A few commenters asserted
that the proposed threshold of $5
million in gross annual revenues would
be too low. A few other commenters
expressed concern that the proposal did
not provide a clear rationale for the
proposal to use a $5 million gross
annual revenues threshold for small
businesses and farms supported under
the proposed economic development
category. One commenter recommended
that banks of any size should be allowed
to receive consideration for loans to any
small business or small farm loan,
regardless of gross annual revenue,
under any category of community
development.361
Some commenters asserted that the
proposed threshold of $5 million in
gross annual revenues for small
businesses and small farms would be
too high. A commenter suggested that
the size standard should be $1 million
gross annual revenues or less, consistent
with current CRA small business loan
reporting, without consideration for the
size standards established by the SBA
and affiliated programs and noted that
most small, minority-owned, and
women-owned businesses have gross
annual revenues of $1 million or lower.
Several commenters indicated that a $5
million gross annual revenue threshold
would create a disincentive for banks to
support very small businesses and
minority-owned businesses. Another
commenter suggested that a size
standard of $750,000 in gross annual
revenues would target an appropriate
business size, particularly in rural areas,
but also supported retaining the
flexibility to use the size standards
established by the SBA for economic
development loans.
A few commenters suggested that, if
the agencies adopt the small business
and small farm gross annual revenue
threshold as proposed, exceptions
should also be adopted. A commenter
suggested that activities that support
minority-owned businesses, including
those with more than $5 million in gross
360 See, e.g., SBA, ‘‘Table of Size Standards’’
(effective March 17, 2023), https://www.sba.gov/
document/support-table-size-standards.
361 This commenter specifically suggested
merging the proposed economic development
category with the proposed revitalization category.
See proposed § ll.13(e).
PO 00000
Frm 00086
Fmt 4701
Sfmt 4700
annual revenues, should also qualify
without having to document job
creation, retention, or improvement.
Another commenter similarly suggested
that any loan or investment in a
certified minority business enterprise
should qualify.
Purpose of job creation, retention, and
improvement for low- and moderateincome individuals under economic
development. The agencies received
many comments related to the proposal
to eliminate the ‘‘purpose’’ test from the
economic development category of
community development. Some
commenters supported the expansion of
possible eligible loan purposes; for
example, a commenter favorable noted
that the removal of the jobs-focused
‘‘purpose’’ test would enable banks to
receive CRA consideration for making
loans to small businesses or farms for
new equipment or facilities that could
support their growth. Another
commenter asserted that the proposal
would allow a greater number of small
businesses to be supported, expressing
the view that the ‘‘purpose’’ test
required by current CRA regulations
under the economic development
definition limited support for some
small businesses, particularly sole
proprietors that generally do not create
jobs for low- and moderate-income
individuals, and therefore do not meet
the current ‘‘purpose’’ test standard. A
commenter stressed that an important
reason to retain the existing ‘‘purpose’’
test is that it provides consideration for
jobs to low- and moderate-income
individuals and communities as well as
areas targeted for revitalization.
Many commenters supported
retaining job creation, retention, and
improvement as a component of the
economic development category. Some
commenters raised concerns that the
proposed approach to evaluate loans to
small businesses and farms under the
Retail Lending Test would not
sufficiently recognize job creation,
retention, and improvement benefits for
low- and moderate-income individuals.
Commenters expressed concern that
eliminating the current purpose test
focused on job creation, retention or
improvement for low- and moderateincome individuals and would
disincentivize banks from investing in
certain funds, programs, and other
activities that focus on these objectives.
A commenter noted that retaining the
purpose requirement would improve
transparency and noted that they did
not believe demonstrating that a loan’s
purpose is to create, retain, or improve
jobs is difficult. Several commenters
highlighted that the requirements for
qualifying a Public Welfare Investment
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(PWI) include demonstrating that the
investment is designed ‘‘primarily’’ to
promote the public welfare, including
the welfare of low- or moderate-income
communities or families (such as by
providing housing, services, or jobs) 362
and that the emphasis on job creation
should be similarly retained in the
economic development category of
community development under CRA. A
few commenters expressed concerns
about the possibility of materially
different standards for community
development investments versus
permissible PWIs.
Many commenters also suggested that
the economic development category
include consideration for loans and
investments to small businesses and
small farms that demonstrate job
creation, retention, and improvement
not only for low- and moderate-income
individuals, but also in low- and
moderate-income areas and areas
targeted for redevelopment by Federal,
State, local, or tribal governments,
consistent with current guidance.363
Several commenters suggested that
loans to or investments in any size small
business or small farm that could
demonstrate job creation, retention, or
improvement for low- and moderateincome individuals should be
considered. One of these commenters
also suggested that additional
consideration should be given to
activities that support businesses owned
by persons of color, women or veterans,
and small family-owned farms. Finally,
a commenter suggested that if the jobsfocused requirement were not included
in the economic development category,
then it should be considered as part of
the impact review for the Community
Development Financing Test.364
In contrast, some commenters viewed
a separate component for activities
supporting job creation, retention, or
improvement as unnecessary. For
example, a commenter thought that the
proposed approach for considering
direct loans to small businesses and
small farms under the Retail Lending
Test was simpler and that other
proposed components for the economic
development category would support
job creation and retention.
Criteria to demonstrate job creation,
retention, and/or improvement for lowor moderate-income individuals.
Commenters also provided input on
criteria that could be included to
362 See 12 U.S.C. 24(Eleventh) (OCC), 12 U.S.C.
338a (Board), 12 CFR 345.12(g)(1) through (4),
(h)(1), (i)(1), and (t)(1) (FDIC).
363 See Q&A § ll.12(g)(3)–1.
364 See proposed §§ ll.15 and ll.24,
discussed in the section-by-section analyses of final
§§ ll.15 and ll.24.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
demonstrate that the purpose of an
activity is job creation, retention, or
improvement for low- or moderateincome individuals. Many commenters
highlighted the CRA Interagency
Questions and Answers and noted that
banks have successfully followed this
guidance to provide examiners with
information that demonstrates the
purpose of the activity to be job
creation, improvement, or retention and
that this approach should be sufficient.
A commenter suggested any
documentation about the type of job,
training offered or outreach to low- and
moderate-income individuals or areas
should be considered.
Commenters provided suggestions on
resources that a bank can use to
demonstrate that the purpose of an
activity is for job creation, retention, or
improvement for low- or moderateincome individuals. For example,
suggestions included relying on the
recipient’s credit profile, public
websites, such as glassdoor.com, and
criteria established by the HUD
Community Development Block Grant
Program.365 A commenter suggested that
if the anticipated or documented wages
exceed 80 percent of area median
income, the location of the job should
be considered, particularly if the
company has committed to hire from a
low- or moderate-income or
underserved area. This commenter did
not support the development of a
prescriptive standard or requirement for
documentation, however, and suggested
that a bank should be allowed to
demonstrate, with or without
documentation from the business, that
the activity is likely to create or retain
jobs.
Many commenters on this topic
offered specific views on criteria that
could be considered to evaluate the
quality of the job. Commenters offered
suggestions examiners should consider,
such as the type of job, compensation,
access to job training and other support
for career advancement as well as
quality specific factors, such as whether
the job provides at least three employee
benefits including health insurance,
dental insurance, 401(k) or other
retirement plan, sick leave, vacation
leave, and disability, as well as
consideration of whether the job offers
at least a living wage and cited the
‘‘living wage calculator’’ developed by
the Massachusetts Institute of
365 See 24 CFR 570.208(a)(4). The comment cited
HUD Office of Block Grant Assistance, ‘‘Basically
CDBG,’’ https://files.hudexchange.info/resources/
documents/Basically-CDBG-Chapter-3-Nat-Obj.pdf.
PO 00000
Frm 00087
Fmt 4701
Sfmt 4700
6659
Technology.366 A commenter suggested
using the same standards for assessing
job quality as the Community Economic
Development Program within the Office
of Community Services at the U.S.
Department of Health and Human
Services 367 to ensure that activities are
not given credit if they offer only low
wage jobs.
Several commenters did not support
considering wages provided by the job
as a measure of job quality. These
commenters asserted that all jobs are
valuable and should be considered
regardless of the wages offered and
indicated that jobs that offer lower
wages may still be important entry level
jobs. Additionally, a commenter noted
that jobs created by small businesses
provide important opportunities in
historically marginalized communities
and stated that the importance of
creating jobs of all salary levels should
be recognized.
Evaluation of direct loans to small
businesses and small farms.
Commenters had differing views on
whether loans made by banks directly to
small businesses and small farms
should be considered under the
economic development category of
community development or should only
be considered under the Retail Lending
Test, as proposed. Some commenters
raised concerns that the proposed
approach to evaluate loans to small
businesses and farms under the Retail
Lending Test would not sufficiently
recognize job creation, retention, and
improvement benefits for low- to
moderate-income individuals. For
example, a commenter supported
continuing to include loans to small
businesses and small farms that satisfy
the size and purpose tests as community
development loans, asserting that
considering them under the Retail
Lending Test would fail to incentivize
small business lending. Another
commenter expressed concerns that this
approach would limit community
development activities not associated
with government programs, such as
activities undertaken through nonprofit
affiliates of CDFIs, that CDFIs can
leverage to meet economic development
goals without some of the challenges of
participating in a government program.
On the other hand, some commenters
suggested that a bank should have the
option of choosing whether to have a
loan to a small business or small farm
366 See Massachusetts Institute of Technology,
‘‘Living Wage Calculator,’’ https://
livingwage.mit.edu/.
367 See U.S. Dept. of Health & Human Svcs.,
Office of Community Svcs., ‘‘Community Economic
Development (CED),’’ https://www.acf.hhs.gov/ocs/
programs/ced.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6660
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
considered either under the proposed
Community Development Financing
Test or the proposed Retail Lending
Test. A commenter recommended that
the proposed flexibility for intermediate
banks to have certain retail loans
considered community development
loans should be extended to large banks
with under $10 billion in assets. A few
commenters suggested that, in general,
loans to small businesses or small farms
should be considered under the
proposed Community Development
Financing Test if they have a purpose of
community development.
Some commenters asserted that the
proposed approach would sufficiently
recognize loans to small businesses and
small farms and that may also support
job creation, retention, and
improvement for low- or moderateincome individuals or communities. A
commenter asserted that the proposed
approach would be more inclusive of all
small business lending compared to the
current approach, noting that only loans
to small businesses that are greater than
$1 million and that also satisfy the size
and purpose test qualify as community
development loans. Another commenter
expressed the view that removing the
requirement that activities demonstrate
job creation, retention, and
improvement for low- and moderateincome individuals would incentivize
banks to provide more support to microbusinesses.
Commenters provided several other
suggestions for how direct lending to
small businesses and small farms that
demonstrates job creation, retention or
improvement for low- and moderateincome individual could be considered
if not included in the economic
development category. A few
commenters suggested that the agencies
include a qualitative review of loans
considered under the Retail Lending
Test to determine whether they
demonstrate job creation, retention, or
improvement for low- and moderateincome individuals and communities.
Another commenter suggested that only
loans to small businesses and small
farms that demonstrate job creation,
retention, or improvement for low- and
moderate-income individuals or areas
should be considered under the
proposed Retail Lending Test. This
commenter further recommended that,
of those loans, only loans that can
demonstrate the creation of ‘‘good jobs,’’
supporting economic mobility, such as
those that provide apprenticeships or
shared equity, should qualify.
A few commenters suggested that the
agencies eliminate the exclusion set
forth in proposed § ll.24(a)(2)(i) for
considering retail loans with a
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
community development purpose under
the Community Development Financing
Test with commenters suggesting that
this could produce unintended results
once the agencies replace the CRA
definition of ‘‘small business loan’’ with
a definition based on the CFPB’s Section
1071 Final Rule. One of the commenters
explained that many community
development loans are made to special
purpose, startup, or nonprofit entities
that do not have gross annual revenues
of more than $5 million. The commenter
suggested that the proposed Retail
Lending Test would incentivize banks
to distribute their small business loans
in a particular way but would not
provide incentives for banks to make
small business loans that satisfy the
community development definition,
which can be especially impactful
loans. The commenter further explained
that there would be no ‘‘double
counting’’ of small business loans if the
Community Development Financing
Test allowed for certain small business
loans to qualify as community
development loans, since the Retail
Lending Test and the Community
Development Financing Test would
evaluate different aspects of the same
qualifying small business loan.
A commenter suggested that, for
direct loans to small businesses and
small farms, job creation, retention, or
improvement should be considered as
part of a qualitative review under the
proposed Retail Services and Products
Test for large and intermediate banks 368
and suggested that for small banks, this
criterion could be considered as part of
the qualitative review under the Retail
Lending Test. Another commenter also
suggested that for large banks, job
creation, retention, and improvement
could be considered as part of a
qualitative review under the proposed
Retail Services and Products Test, but
for intermediate and small banks it
could be considered as part of a
qualitative review under the Retail
Lending Test.
finalized, the provisions for this
category are intended to provide greater
clarity, to promote activities that
support small businesses and small
farms, and to recognize the role of
intermediaries that provide assistance to
small businesses and small farms.
Final § ll.13(c) establishes three
components for the economic
development category. For clarity and
overall organization of this section, the
final rule includes section headers for
each of these three components. Under
the final rule, the three components are:
• Government-related support for
small businesses and small farms (final
§ ll.13(c)(1)), which includes
activities undertaken in conjunction or
in syndication with Federal, State, local,
or tribal governments and comprises
two subcomponents:
Æ Loans, investments, and services
other than direct loans to small
businesses and small farms (final
§ ll.13(c)(1)(i)); and
Æ Direct loans to small businesses
and small farm (final § ll.13(c)(1)(ii)).
• Intermediary support for small
businesses and small farms (final
§ ll.13(c)(2)), which provides for
support to small businesses or small
farms through intermediaries.
• Other support for small businesses
and small farms (final § ll.13(c)(3)),
which addresses for other assistance to
small businesses or small farms, such as
financial counseling, shared space,
technology, or administrative assistance,
to small businesses or small farms.
Relative to the proposal, the final rule
broadens the scope of eligible activities
under the economic development
category and expands the range of small
businesses and small farms that could
be supported, while providing greater
clarity to stakeholders regarding the
economic development category. Each
component of the final rule is discussed
in turn in the section-by-section
analysis below.
Final Rule
Section ll.13(c)(1) GovernmentRelated Support for Small Businesses
and Small Farms
Overview
The Agencies’ Proposal
The agencies are adopting, with
revisions, the proposed economic
development category in § ll.13(c). As
Under proposed § ll.13(c)(1),
activities ‘‘undertaken consistent with
Federal, [S]tate, local, or tribal
government plans, programs, or
initiatives that support small businesses
or small farms as those entities are
defined in the plans, programs, or
initiatives’’ would be considered
community development loans as
discussed in greater detail below.369
Consistent with current interagency
368 Under the proposal, small banks and
intermediate banks would not be subject to the
proposed Retail Services and Products Test. See
proposed § ll.21(b)(2) and (3). As discussed in
the section-by-section analysis of § ll.21, the
agencies proposed that small banks would be
evaluated under the performance standards for
small banks under proposed § ll.29(a), but could
opt to be evaluated under the Retail Lending Test.
See proposed § ll.21(b)(3); see also final
§ ll.21(a)(3).
PO 00000
Frm 00088
Fmt 4701
Sfmt 4700
369 Proposed
E:\FR\FM\01FER2.SGM
§ ll.13(c)(1).
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
guidance,370 this proposed provision
was intended to encourage support for
highly responsive activities that are
relevant to small businesses and small
farms, as well as coordination among
banks, government agencies, and other
program participants. The proposed
gross annual revenue threshold of $5
million or less for qualifying businesses
or farms would not be required for
activities that support business or farms
through these government plans,
programs, or initiatives, or through the
specified entities. Instead, the size
standards used by the respective
government plans, programs, or
initiatives to qualify business or farms
as small would apply.371
The agencies also proposed to specify
that lending to, investing in, or
providing services to an SBDC, SBIC,
New Markets Venture Capital Company,
qualified CDE, or RBIC would qualify as
economic development. With certain
technical differences, this aspect of the
proposal generally would memorialize
existing guidance which presumes that
activities with these entities promote
economic development.372 By including
this list in the proposed regulation, the
agencies intended to provide greater
clarity and encourage the continued
participation in, and support of,
programs offered through these key
providers of small business and small
farm financing.
New Markets Venture Capital
Companies, as well as Federal, State,
local, or tribal government plans or
programs.373 Commenters also
suggested that loans and investments
should be considered if they finance,
either directly or through an
intermediary, businesses or farms that
either meet the size eligibility standards
of the SBDC or SBIC programs or have
$5 million in gross annual revenues or
less.
On the other hand, a commenter
objected to the proposal to rely on the
small business and small farm size
standards of the applicable government
plan, program, or initiative, asserting
that government programs often do a
poor job of targeting businesses owned
by low- and moderate-income
individuals. This commenter urged the
agencies to adopt a $5 million
maximum gross annual revenue
threshold for small businesses and
farms under this component, asserting
that this would be important for
consistency in small business and small
farm size standards across the
regulation.
A few commenters expressed
concerns about the presumption of
qualifications for SBICs. For example,
one of these commenters raised doubts
as to how well SBICs serve targeted
groups and suggested that SBICs should
not automatically garner CRA credit.
Comments Received
Final Rule
The agencies are finalizing proposed
§ ll.13(c)(1) with revisions to the
proposed activities undertaken with
government plans, programs or
initiatives for specificity and clarity.
Final § ll.13(c)(1) adopts
‘‘Government-related support for small
businesses and small farms’’ as the
paragraph header for this component;
this provision encompasses loans,
investments, or services that are
undertaken in conjunction or in
syndication with Federal, State, local, or
tribal government plans, programs, or
initiatives. Such loans, investments, or
services can be made or provided
directly or indirectly to or in small
businesses or small farms, as described
below.
ddrumheller on DSK120RN23PROD with RULES2
Several commenters supported
§ ll.13(c)(1) as proposed, with
multiple commenters specifically
supporting the agencies’ inclusion of
SBDCs in this component of the
economic development category. A few
commenters supported relying on the
size standards used by the respective
government programs to qualify
activities, with a commenter noting that
the proposal to allow consideration for
activities that meet the size standards of
the applicable government program
would allow support for some larger
businesses and would accommodate
some level of intentional job creation.
Commenter feedback also included a
suggestion that the agencies include an
express ‘‘presumption’’ of qualification
for CRA credit for activities in
connection with SBDCs, SBICs, RBICs,
370 See, e.g., Q&A § ll.12(g)(3)–1 and Q&A
§ ll.12(g)(4)(i)–1.
371 See id.
372 See Q&A § ll.12(g)(3)–1 (stating that ‘‘the
agencies will presume that any loan or service to
or investment in a SBDC, SBIC, [RBIC], New
Markets Venture Capital Company, New Markets
Tax Credit-eligible [CDE], or [CDFI] that finances
small businesses or small farms, promotes
economic development’’).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
373 As noted earlier in this section-by-section
analysis, the proposal specifies that ‘‘[e]conomic
development activities are: (1) Activities
undertaken consistent with Federal, State, local, or
tribal government plans, programs, or initiatives
that support small businesses or small farms as
those entities are defined in the plans, programs, or
initiatives, . . . including lending to, investing in,
or providing services to an [SBCD] (13 CFR 120.10),
[SBIC] (13 CFR 107), New Markets Venture Capital
Company (13 CFR 108), qualified [CDE] (26 U.S.C.
45D(c)), or [RBIC] (7 CFR 4290.50).’’ See also Q&A
§ ll.12(g)(3)–1.
PO 00000
Frm 00089
Fmt 4701
Sfmt 4700
6661
The final rule under § ll.13(c)(1)
replaces the proposed rule text
referencing activities undertaken
‘‘consistent with’’ Federal, State, local,
or tribal government, plans, programs,
or initiatives with the phrase ‘‘in
conjunction or in syndication with’’
these plans, programs, or initiatives. In
this way, the final rule emphasizes the
intended link between loans,
investments, or services that will qualify
as economic development under this
prong with Federal, State, local, or tribal
government, plans, programs, or
initiatives. The final rule adds ‘‘in
syndication with’’ for clarity, to refer to
those loans extended to a single
borrower by a group of entities. The
agencies believe that qualifying
activities in conjunction with or in
syndication with government plans,
programs, or initiatives helps ensure
that activities are responsive to the
credit needs of small businesses and
small farms, in alignment with the goals
of CRA. In this regard, the agencies
believe that government plans,
programs, or initiatives are general
indicators of community needs, and
thus provide a mechanism for ensuring
that activities are intentional and
support the needs of small businesses
and small farms. In addition, the nexus
to government plans, programs, and
initiatives provides transparency
regarding program requirements and
certainty for qualification, which the
agencies believe is important for all
stakeholders.
As noted above and as described
below, final § ll.13(c)(1) is organized
into two subcomponents: loans,
investments, and services other than
direct loans to small businesses and
small farms (final § ll.13(c)(1)(i)); and
direct loans to small businesses and
small farms (final § ll.13(c)(1)(ii)).
Section ll.13(c)(1)(i) Loans,
Investments, and Services Other Than
Direct Loans to Small Businesses and
Small Farms
The final rule in § ll.13(c)(1)(i)
provides that loans, investments, and
services, excluding direct loans to small
businesses and small farms, that are
undertaken in conjunction or in
syndication with Federal, State, local, or
tribal governments are eligible for
consideration as economic
development. Consistent with the
proposal, under final § ll.13(c)(1)(i),
loans, investments, and services may
support small businesses or small farms
in accordance with how small
businesses and small farms are defined
in the applicable plan, program, or
initiative. If the government plan,
program, or initiative does not identify
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6662
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
a standard for the size of the small
businesses or small farms supported by
the plan, program, or initiative, the
small businesses or small farms
supported must meet the definition of
small business or small farm in final
§ ll.12. Also consistent with the
proposal, loans to, investments in, or
services provided to the following are
presumed to meet the criteria of final
§ ll.13(c)(1)(i): SBICs; New Markets
Venture Capital Companies; qualified
CDEs; and RBICs.
Under final § ll.13(c)(1)(i), for
example, an investment in a microloan
program operated by a local government
could be considered provided that this
activity met the required criteria. The
agencies are finalizing the provision
regarding certain Federal programs to
memorialize current interagency
guidance and, as noted in the proposal,
provide greater clarity and encourage
the continued participation in, and
support of, plans, programs or
initiatives offered through these key
providers of small business and small
farm financing.374
The agencies understand that some
commenters oppose the express
presumption of qualification for
activities in connection with SBICs
because of concerns regarding how well
SBICs serve certain groups of business
owners, but the agencies believe that it
is important to recognize them in the
final rule because they offer an
opportunity for banks to provide an
important source of capital to grow
small businesses.375 The agencies note
that specifying SBICs and other entities
in the final rule provides greater clarity
and certainty about the types of loans,
investments and services that may
receive consideration under this
subcomponent.
The final rule also provides
consistency for stakeholders with the
current framework. As noted, this
subcomponent of the economic
development final rule generally
memorializes current interagency
guidance, which provides that any loan
or service to or investment in an SBDC,
SBIC, RBIC, New Markets Venture
Capital Company, NMTC-eligible CDE,
or CDFI that finances small businesses
or small farms, is presumed to promote
economic development. 376 As the
proposal, final § ll.13(c)(1)(i) does not
mention CDFIs, as activities with CDFIs
are considered under a separate category
Q&A § ll.12(g)(3)–1.
generally, SBA, ‘‘The Small Business
Investment Company (SBIC) Program Overview’’
(Oct. 1, 2018), https://www.sba.gov/sites/sbagov/
files/2019-02/2018%20SBIC%20Executive%20
Summary.pdf.
376 See Q&A § ll.12(g)(3)–1.
374 See
375 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
the government program or as provided
in the definition for small business and
small farms in § ll.12 will capture
activities that support a broad range of
small businesses and small farms, while
providing clarity. The agencies also note
that support for small businesses and
small farms under final § ll.13(c)(2)
and (3) is more targeted, to small
businesses and small farms with gross
annual revenues of $5 million or less,
which the agencies believe will
appropriately focus those activities on
smaller businesses. In addition, the
impact and responsiveness review
under final § ll.15 includes as a
review factor support for small
businesses or small farms with gross
annual revenues of $250,000 or less.378
of community development in the final
rule.377
Size eligibility standard under final
§ ll.13(c)(1)(i). As noted, for this
subcomponent of economic
development, the agencies are adopting
a size standard for businesses or farms
that are supported by government plans,
programs, or initiatives that aligns with
relevant size standards for small
businesses and small farms intended to
be the beneficiaries of the applicable
government plan, program, or initiative.
The size standard could be lower or
higher than the $5 million gross annual
revenue threshold that would otherwise
apply under the category, or it could be
expressed in terms of employee size or
some other measure. However, if the
government plan, program, or initiative
does not define a size standard for small
businesses or small farms that it
supports then the gross annual revenue
consistent with the small business and
small farm definitions in § ll.12
(gross annual revenue of $5 million or
less), would apply.
The agencies are not adopting a
maximum gross annual revenue
threshold of $5 million for all small
businesses and small farms under
§ ll.13(c)(1)(i) because the agencies
believe that standards vary across
different government plans, programs,
and initiatives to address various
community development and small
business or farm needs; the standards in
the final rule are designed to
accommodate the ways in which these
plans, programs, and initiatives may be
tailored to respond to community needs.
The agencies understand that
government plans, programs, and
initiatives will likely identify the
standard for the size of business or farm
supported and believe it is appropriate
to maintain flexibility. However, for
clarity, the final rule provides that, in
the absence of a size standard
established by the government program,
plan, or initiative, the business or farm
supported by the government program,
plan, or initiative must meet the
definition of ‘‘small business’’ or ‘‘small
farm’’ as defined in § ll.12.
The agencies considered the feedback
provided by commenters advocating for
a higher or lower threshold for various
reasons, including views that the
proposed approach would eliminate
credit or stifle growth for many
businesses or would create a
disincentive for banks to support very
small businesses and minority-owned
businesses. The agencies, however,
believe the size standards established by
Section ll.13(c)(1)(ii) Direct Loans to
Small Businesses and Small Farms
The agencies are adopting a second
subcomponent in final § _.13(c)(1)(ii) to
provide consideration of certain direct
loans to small businesses and small
farms. Specifically, under final
§ ll.13(c)(1)(ii), the economic
development category of community
development would include loans by a
bank directly to businesses or farms,
including, but not limited to, loans in
conjunction or syndicated with an
SBDC or SBIC, that meet the following
size and purpose criteria:
• Size eligibility standard. The loans
must be to businesses and farms that
meet the size eligibility standards of the
SBDC or SBIC programs or that meet the
definition of small business or small
farm in § ll.12 (final
§ ll.13(c)(1)(ii)(A)).
• Purpose test. The loans must have
the purpose of promoting permanent job
creation or retention for low- or
moderate-income individuals or in lowor moderate-income census tracts (final
§ ll.13(c)(1)(ii)(B)).
The agencies considered broad
commenter feedback that loans made to
small businesses and small farms
should be considered under economic
development and that a ‘‘size’’ and
‘‘purpose’’ test should be retained for
various reasons. The agencies
understand commenter concerns that
certain loans to small businesses do
have a community development
purpose and should be considered as
community development loans. The
agencies are also sensitive to expressed
concerns about the potential reduction
in qualifying loans if direct lending to
small businesses is not included in the
economic development category of the
final rule. As stated in the proposal, the
377 See final § ll.13(k) and the accompanying
section-by-section analysis.
378 See final § ll.15(b)(6) and the accompanying
section-by-section analysis.
PO 00000
Frm 00090
Fmt 4701
Sfmt 4700
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
agencies believe that loans to small
business and small farm are generally
more suitable for consideration under
the Retail Lending Test. However, the
agencies have carefully considered the
many comments on this issue, and
believe there are certain loans to small
businesses and small farms that would
align with the goals of community
development.
The first eligibility criterion—that the
loans are made in conjunction or in
syndication with a government plan,
program, or initiative—is the same
standard that applies to activities under
final § ll.13(c)(1)(i) that are not direct
loans to small businesses and small
farms. As stated previously, the agencies
believe that this criterion helps to
demonstrate that the loans are
responsive to identified community
needs and support articulated
community development goals. In
addition, this criterion will increase
certainty and transparency by setting a
clear standard for determining that an
activity qualifies as community
development. This provision further
specifies that loans in conjunction or
syndication with SBDCs and SBICs, and
that meet the size and purpose criteria,
are considered to qualify as economic
development under final
§ ll.13(c)(1)(ii). As similarly
discussed in the section-by-section
analysis of final § ll.13(c)(1)(i), the
agencies believe that noting these
programs in the rule text provides
helpful clarity and transparency, as well
as assurance that loans in conjunction
or syndication with these programs,
which serve an important role within
the ecosystem of small business and
small farm lending, will continue to
qualify as economic development under
the final rule.
Size eligibility standard. On
consideration of the comments on a size
eligibility standard for economic
development and further deliberation,
the agencies are adopting a size
eligibility standard for direct loans to
small businesses or small farms that
aligns with the current CRA
framework’s size standard, discussed
above—namely, the size standards of
the SBDC or SBIC programs—in
addition to including loans supporting
businesses of gross annual revenues of
$5 million or less. The agencies believe
that adopting these size standards for
direct lending to small businesses under
the economic development category of
community development will provide
consistency with the current CRA
framework, which will foster certainty
and predictability for banks engaging in
this lending.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Purpose test. The agencies are also
adopting a purpose test to qualify
certain direct loans to small businesses
and small farms under final
§ ll.13(c)(1)(ii)(B). As previously
noted, loans that may be considered to
be economic development under final
§ ll.13(c)(1)(ii) must have the purpose
of promoting permanent job creation or
retention for low- or moderate-income
individuals or in low- or moderateincome census tracts. The agencies
carefully considered commenter
feedback on a purpose test for qualifying
economic development activities. As
discussed above, many commenters
supported retaining job creation,
retention, and improvement as a
component of the economic
development category. The agencies
acknowledge feedback indicating that
the current purpose test is helpful for
encouraging jobs-focused activities, and
have deliberated further on commenter
concerns that the proposed approach to
evaluate loans to small businesses and
farms under the Retail Lending Test
might not sufficiently recognize jobrelated activities benefiting low- and
moderate-income individuals and
communities. At the same time, the
agencies have considered feedback that
elimination of the purpose test provides
greater flexibility and opens up the
possibility of more activities meeting a
wider range of small business and small
farm credit needs to qualify as economic
development.
On balance, the agencies determined
it appropriate to retain consideration of
direct loans to small businesses and
small farms, in conjunction or
syndication with a government plan,
program, or initiative, and to apply a
purpose test to this subcomponent of
economic development, which is
intended generally to align with the
current purpose test and to be
responsive to suggestions and concerns
raised by commenters. Recognizing the
benefits that commenters have noted of
removing the purpose test from the
economic development category of
community development, however, the
agencies are not applying the purpose
test to final § ll.13(c)(1)(i) or (c)(2) or
(3).
In adopting the purpose test for
permanent job creation and retention for
final § ll.13(c)(1)(ii)(B), the agencies
sought to recognize the contributions of
small businesses and small farms in
communities, particularly with respect
to long-term job opportunities for lowor moderate-income individuals. In
addition to considering prior
stakeholder feedback and comments on
the proposal, the agencies considered
their own supervisory experience
PO 00000
Frm 00091
Fmt 4701
Sfmt 4700
6663
regarding the complexities involved
under the current purpose test in
determining whether small business and
small farm loans support permanent job
creation, retention, or improvement for
low- or moderate-income individuals
and low- or moderate-income census
tracts. In addition, the agencies
considered feedback that eliminating
the purpose test from the final rule on
economic development entirely could
result in different standards for
community development investments
versus PWIs.379
The purpose test adopted in final
§ ll.13(c)(1)(ii)(A) requires that the
loan proceeds are applied for the
purpose of promoting permanent job
creation or retention for low- or
moderate-income individuals or in lowor moderate-income census tracts. As
noted, loans that are made by a bank
directly to small businesses or small
farms in conjunction or in syndication
with an SBDC or SBIC presumptively
qualify under this prong but are not the
exclusive loans that qualify; other loans
that are made in conjunction or in
syndication with other government
programs, plans, or initiatives and that
meet the size and purpose criteria could
also qualify. For example, an SBA 7(a)
loan380 extended for the purpose of
purchasing new long-term machinery
and that would allow a small business
to hire additional employees could
qualify, provided it also met other
required criteria. A loan to support a
facility improvement in conjunction
with a State loan guarantee program
associated with the State Small Business
Credit Initiative could qualify provide it
met all necessary criteria.381 A working
capital loan in conjunction with a State
program that is for the purpose of
retaining employees could qualify
provided other required criteria are met.
However, loans that fund general
business operations would be less likely
to qualify without additional
information on whether the loan
proceeds would be applied for the
purpose of job creation or retention. The
agencies believe that the purpose test
under the final rule aligns appropriately
with the current purpose test, with
clarifying modifications discussed
below, to provide continued
encouragement of banks in extending
379 The agencies have noted comments on the
proposal related to PWIs, and will continue to be
aware of intersections between the CRA and PWI
frameworks in supervising banks.
380 See SBA, ‘‘7(a) Loans,’’ https://www.sba.gov/
funding-programs/loans/7a-loans.
381 See U.S. Dept. of Treasury, ‘‘State Small
Business Credit Initiative,’’ https://
home.treasury.gov/policy-issues/small-businessprograms/state-small-business-credit-initiativessbci.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6664
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
loans to small businesses and small
farms as a community development
activity.
In keeping with current guidance, the
purpose test in the final rule focuses on
job-related benefits for low- or
moderate-income individuals and lowor moderate-income census tracts.382
Other items mentioned in the
guidance—areas targeted for
redevelopment by Federal, State, local,
or tribal governments; intermediaries
supporting small businesses and small
farms; and technical assistance to small
business and small farms—are
incorporated elsewhere in the final rule
provisions regarding community
development.383
As explained above, under the current
purpose test, a loan for the purpose of
job improvement could qualify under
economic development as long the loan
met other criteria. The agencies are not
adopting ‘‘job improvement’’ as a factor
under the purpose test in this final rule.
Although the agencies did not receive
comments specific only to ‘‘job
improvement’’ in feedback concerning
the purpose test or economic
development in general, based on
supervisory experience, the agencies
believe that difficulties arise in
demonstrating and determining whether
a loan promotes job improvement,
presenting challenges to establishing
predictable and workable standards for
both compliance and supervision. In
addition, the amount of time, resources,
and expertise needed to fairly evaluate
the quality of jobs could be overly
burdensome for both the bank and
examiners. However, job improvement
is closely tied to workforce development
and training programs and the agencies
believe in the importance of the
contributions these programs make into
communities. Therefore, the final rule
provides that workforce development or
training programs can be considered
community development as a
community supportive service pursuant
to § ll.13(d), discussed in more detail
in the section-by-section analysis of
§ ll.13(d).
Relatedly, the final rule does not
incorporate particular standards
regarding the quality of jobs for lowand moderate-income individuals,
including wage levels and other wagerelated considerations. The agencies
considered views and suggestions
offered by commenters on this topic,
Q&A § ll.12(g)(3)–1.
id. See also, e.g., final § ll.13(e) and
(j)(2) (revitalization or stabilization activities in
targeted census tracts and in Native Land Areas,
respectively), (c)(2) (intermediary support for small
businesses and small farms), and (c)(3) (other
assistance for small businesses and small farms).
382 See
383 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
and have determined that it would be
difficult to address job quality in the
rule in a manner that would effectively
and consistently account for the many
diverse types of small businesses and
small farms in different industry sectors.
The agencies believe that the final
rule’s purpose test, focused on job
creation and retention, will provide
greater clarity relative to the current
purpose test, thereby facilitating bank
lending under this subcomponent of the
final rule on economic development,
and improved consistency and
transparency in the agencies’
evaluations of this lending.
Lending Test’s distribution analysis, the
share of loans (based on loan count) to
small businesses and small farms at
different revenue levels is
considered,385 while under the
Community Development Financing
Test, the dollar volume of loans is
considered, as well as their impact and
responsiveness.386 With respect to
direct loans to small businesses and
small farms that qualify as economic
development under final
§ ll.13(c)(1)(ii), the agencies believe
that this approach allows for a holistic
evaluation of bank engagement in this
lending.
Consideration of Loans to Small
Businesses and Small Farms Under the
Retail Lending Test and Community
Development Financing Test
Final § ll.13(c)(1)(ii) recognizes
certain direct loans to small businesses
and small farms that benefit local
communities and have specific
community development goals, but that
are not evaluated under the Retail
Lending Test.384 In addition, the final
rule provides that certain direct loans by
banks to small businesses or small farms
may be considered under both the
Community Development Financing
Test and the Retail Lending Test, if they
qualify for consideration under both
tests. This approach is a change from
the current rule where, as discussed
above, loans to businesses with an
origination amount of $1 million or less
and loans to farms with an origination
amount of $500,000 or less generally are
evaluated only under the lending test,
while loans that exceed the applicable
loan amount can be considered as a
community development loan if they
meet the current size and purpose test.
However, unlike under the current rule,
which provides that the same loan
cannot be counted as both a retail loan
and a community development loan, the
final rule allows small business and
small farm loans to qualify under both
the Retail Lending Test and Community
Development Financing Test. This is
also different from the agencies’
proposal, which would have considered
reported loans made directly to small
businesses and small farms under the
Retail Lending Test.
The agencies believe that this
approach is appropriate because the
Retail Lending Test and Community
Development Financing Test generally
focus on a different aspect of a bank’s
direct lending to small businesses and
small farms: in general, under the Retail
Section ll.13(c)(2) Intermediary
Support for Small Businesses and Small
Farms
384 For discussion of the standards for evaluating
loans under the Retail Lending Test, see the sectionby-section analysis of § ll.22.
PO 00000
Frm 00092
Fmt 4701
Sfmt 4700
The Agencies’ Proposal
Under proposed § ll.13(c)(2), the
second component of the proposed
economic development category would
comprise ‘‘[s]upport for financial
intermediaries that lend to, invest in, or
provide technical assistance to
businesses or farms with gross annual
revenues of $5 million or less.’’ This
provision was intended to promote and
facilitate access to capital for smaller
businesses and farms. The agencies
proposed to use the same gross annual
revenue standard for small businesses
and farms in this provision as in other
parts of the proposal for simplicity and
consistency.
The current regulation and
interagency guidance on community
development activities does not
specifically address financial
intermediaries that increase access to
capital for small businesses and small
farms; proposed § ll.13(c)(2) was
intended to respond to stakeholder
feedback emphasizing, and the agencies’
recognition of, the importance of these
intermediaries. Examples of financial
intermediaries that the agencies
intended this provision to cover
included a Community Development
Corporation that provides technical
assistance to recently formed small
businesses, or a CDFI that provides
lending to support sustainability of
small farms.
Comments Received
Many commenters provided a range of
views on proposed § ll.13(c)(2),
385 See final § ll.22(e) and the accompanying
section-by-section analysis. The agencies note that,
consistent with the proposal, the dollar volume of
small business and small farm lending would be
considered in the Retail Lending Volume Screen of
the final rule. See final § ll.22(c) and the
accompanying section-by-section analysis.
386 See final § ll.24 and the accompanying
section-by-section analysis.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
including a variety of suggestions for
revisions. Some commenters expressly
supported proposed § ll.13(c)(2)
without any further suggestions for
additions or clarifications. Several
commenters suggested that CDFIs be
considered an eligible financial
intermediary under this component.
Several other commenters raised
concerns that the removal of the current
‘‘size’’ test and ‘‘purpose’’ test would
result in certain financial intermediaries
being excluded from the economic
development category and that this
would limit access to capital for small
businesses. Some of these commenters
suggested including support for
financial intermediaries or loan funds
that are not licensed or certified by the
SBA but that lend to or invest in small
businesses that meet the size eligibility
standards of the SBA’s SBIC or SBDC
programs (which might exceed $5
million in gross annual revenues).
Another commenter similarly and more
specifically requested that the agencies
include in the definition of economic
development financial intermediaries
that lend to, invest in, or provide
technical assistance to businesses that:
(1) have more than $5 million in gross
annual revenues but still meet the size
eligibility standards of the SBDC or
SBIC Programs; and (2) support
permanent job creation, retention, and/
or improvement for low- and moderateincome individuals, in low- and
moderate-income areas, or in areas
targeted for redevelopment.
Some commenters who supported
retaining job creation, retention, or
improvement suggested that the final
rule should clearly include
consideration of investments and loans
to financial intermediaries that support
small business and small farms for the
demonstrable purposes of job creation,
retention, or improvement for low- and
moderate-income individuals. Another
commenter suggested that this
component should also consider loans
and investments made to CDFIs to
support small businesses with less than
$5 million gross annual revenues, as
these also help to create jobs. A
commenter suggested that consideration
for loans and investments to
Community Action Agencies 387 be
presumed to advance economic
development through workforce
development, indicating that workforce
development has been central to the
creation and function of these
entities.388 Another commenter
387 See Economic Opportunity Act of 1964, tit. II,
Public Law 88–452, 78 Stat. 516–24 (1964).
388 See Q&A § ll.12(g)(3)–1 (providing that
activities are considered to promote economic
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
suggested that the proposal for financial
intermediary support should also
recognize loans and investments made
to support projects using NMTCs,389 as
well as activities that support economic
development initiatives of universities
and local chambers of commerce.
Some commenters emphasized that
many financial intermediaries that are
not certified SBICs, are minority-led and
women-led and that such entities play
an important role in providing access to
capital for minority- and women-owned
businesses. One of these commenters
noted that many of these companies that
fund small businesses in underserved
communities face challenges becoming
SBICs and suggested that the agencies
provide consideration for non-SBICs
that are owned by minorities and
women as long as these companies
adhere to SBIC net worth and after-tax
income size limits. Another commenter
suggested that loans to minority-owned
small businesses should be presumed to
promote economic development and
receive CRA credit.
An additional commenter similarly
suggested that the agencies should
clarify that banks can receive credit for
economic development activities that
include investments and loans in a
minority-owned small business or
minority-owned financial
intermediaries and that, at a minimum,
these activities should count for credit
if they achieve impact outcomes like job
creation, retention, or improvement for
low- to moderate-income persons or
areas. Other feedback included concerns
that, without more clarifications about
the intended coverage of proposed
§ ll.13(c)(2), banks would tend to
favor activities with SBICs under
proposed § ll.13(c)(1), and that this
would disadvantage minority-owned
enterprises and first-time fund
managers. At least one commenter
supported coverage of activities with
financial intermediaries that are not
SBICs in the economic development
category if these activities create, retain
or improve jobs. A commenter suggested
that this prong also include investments
in Qualified Opportunity Funds that
include low- and moderate-income
census tracts in designated Opportunity
Zones.390
development if they support ‘‘Federal, state, local,
or tribal economic development initiatives that
include provisions for creating or improving access
by low- or moderate-income person to jobs or to job
training or workforce development programs’’).
389 See, e.g., Internal Revenue Service (IRS),
LMSB–04–0510–016, ‘‘New Markets Tax Credits’’
(May 2010), https://www.irs.gov/pub/irs-utl/
atgnmtc.pdf.
390 See, e.g., IRS, ‘‘Opportunity Zones,’’ FS–2020–
13 (updated Apr. 2022), https://www.irs.gov/
newsroom/opportunity-zones (discussing both
PO 00000
Frm 00093
Fmt 4701
Sfmt 4700
6665
On a technical note, a commenter
requested that the term ‘‘support’’ in the
proposed regulatory text be further
clarified to mean loans, investments,
and services to financial intermediaries.
Another commenter stated that the
proposal did not specifically address
financial intermediaries that increase
access to capital for small businesses,
asserting that determining business size
later in the process would be
inappropriate. Both industry and
community group stakeholders have
stressed the importance of financial
intermediaries, such as loan funds, in
providing access to financing for small
businesses that are not ready for
traditional bank financing. In addition,
some commenters recommended
clarifying that the size of the small
business or small farm be determined at
the time of the investment by the
financial intermediary, noting that
because the purpose of these
investments is to support the growth of
the business.
Final Rule
For the reasons discussed below, the
agencies are finalizing proposed
§ ll.13(c)(2) to include in the
economic development category
intermediaries that support small
businesses and small farms; however,
the final rule expands the type of
intermediaries considered under this
component and adopts several revisions
for clarity and consistency with other
prongs in the economic development
category. Additionally, the final rule
provides examples of the types of
support an intermediary can provide to
a small business or small farm.
Specifically, final § ll.13(c)(2)
provides that loans, investments, or
services provided to intermediaries that
lend to, invest in, or provide assistance,
such as financial counseling, shared
space, technology, or administrative
assistance, to small businesses or small
farms can be considered under
economic development.
The final rule broadens the types of
intermediaries that may be considered
under this category beyond financial
intermediaries, by removing the word
‘‘financial’’ from the description of this
category. Instead, under the final rule,
non-financial intermediaries such as
business incubators and small business
assistance providers can be considered
along with financial intermediaries such
as nonprofit revolving loan funds. The
agencies intend that the expansion of
the types of intermediaries that can be
included under this component will
Opportunity Zones and Qualified Opportunity
Funds).
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6666
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
help address commenter concerns about
some intermediaries that could be
covered under the current rule
potentially being excluded under the
proposal, such as those that support
primarily support businesses with gross
annual revenue above $5 million, and
better ensure recognition of the range of
intermediaries providing support for
small businesses and small farms. The
agencies intend that many of the
intermediaries that could be considered
under the current rule would continue
to qualify under this component if they
support small businesses and farms
through loans, services, and
investments. The agencies recognize
that there are many types of
intermediaries, including those that
support minority-owned small
businesses, as mentioned by
commenters, and that financial
intermediaries play a critical role in
providing access to capital for small
businesses and small farms when
traditional bank financing might not be
possible. For more information and
discussion regarding the agencies’
consideration of comments
recommending adoption of additional
race- and ethnicity-related provisions in
this final rule, see section III.C of this
SUPPLEMENTARY INFORMATION.
To address commenter requests for
clarification regarding the coverage of
the proposed financial intermediary
prong, the agencies note that, consistent
with the proposal, the intermediaries
under final § ll.13(c)(2) are distinct
from intermediaries that provide
government-related support to small
businesses and small farms under final
§ ll.13(c)(1)(i); this allows for nonSBIC and other non-government-related
intermediaries to be included in the
economic development category. The
agencies also recognize that
intermediaries can provide support to
businesses or farms of all sizes;
however, consistent with the proposal,
support for intermediaries under final
§ ll.13(c)(2) is focused on
intermediary lending to, investments in,
and services to businesses and farms
with gross annual revenues of $5
million or less.391 The agencies believe
that, for non-government-related aspects
of economic development, a gross
annual revenue threshold of $5 million
for supported businesses and farms will
foster clarity regarding the availability
and consistency in application. The
agencies also believe that this size
391 The standards for banks to receive full credit
for these loans, investments, and services are
discussed further in the section-by-section analysis
of final § ll.13(a). See, e.g., final
§ ll.13(a)(1)(i)(B)(3).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
standard will allow support for a wide
range of financing, including the
smallest businesses. For further
discussion of the definition of the
definition of small business and small
farm in the final rule, see final § ll.12
(‘‘small business’’ and ‘‘small farm’’)
and accompanying section-by-section
analysis.
The final rule also clarifies that
‘‘support’’ for intermediaries means
loans, investments, or services provided
to intermediaries that lend to, invest in,
or provide assistance to small
businesses or small farms. As noted, in
response to commenter concern that the
term ‘‘support’’ in the proposal was not
clear. Examples of activities that could
be considered under this category are
provided in the final rule and include
financial counseling, shared space,
technology, or administrative assistance.
The agencies did not adopt in the
final rule a specific criterion for the
point in time when the size of the small
business or small farm should be
determined, as suggested by some
commenters. However, the agencies
generally believe that this determination
should be based on the size of the small
business or small farm at the time of the
activity undertaken by the intermediary.
The agencies also decline to specify
that CDFIs are considered an eligible
financial intermediary under this prong.
The agencies recognize that CDFIs are
important financial intermediaries, but
rather than list them as qualified
intermediaries for multiple community
development categories, the agencies
have adopted in the final rule that a
bank will receive community
development consideration if a loan,
investment, or service involves a CDFI
as specified under final § ll.13(k). In
addition, the final rule establishes, as an
impact and responsiveness review
factor, consideration of whether a loan,
investment, or services supports a
CDFI.392
The agencies decline to include in
this prong investments in Qualified
Opportunity Funds that support projects
in designated Opportunity Zones.393
The agencies do not believe that such
activities are specifically designed or
structured to support small businesses
and small farms and therefore, loans or
investments in Qualified Opportunity
Funds would not likely meet criteria for
392 For further discussion of the final rule
provisions on CDFIs, see the section-by-section
analysis of final § ll.13(k) and final
§ ll.15(b)(4).
393 See IRS, ‘‘Opportunity Zones,’’ FS–2020–13
(Aug. 2020; updated Apr. 2022) (discussing both
Opportunity Zones and Qualified Opportunity
Funds), https://www.irs.gov/newsroom/opportunityzones.
PO 00000
Frm 00094
Fmt 4701
Sfmt 4700
economic development. However, the
activity may qualify for community
development credit under other
categories of community development,
such as revitalization and stabilization
under § ll.13(e), so long as the
activity meets the criteria for the
relevant community development
category.
Section ll.13(c)(3) Other Support for
Small Businesses and Small Farms
The Agencies’ Proposal
Proposed § ll.13(c)(3) would have
established a third prong of the
economic development category:
‘‘[p]roviding technical assistance to
support businesses or farms with gross
annual revenues of $5 million or less, or
providing services such as shared space,
technology, or administrative assistance
to such businesses or farms or to
organizations that have a primary
purpose of supporting such businesses
or farms.’’ This provision would have
included services such as ‘‘shared
space, technology, or administrative
assistance’’ and codified current
guidance highlighting these services.394
The agencies proposed this provision in
recognition that some small businesses
and small farms might not be prepared
to obtain traditional bank financing and
might need technical assistance and
other services, including technical
assistance and services provided
directly by a bank, to obtain credit in
the future.
Comments Received
Commenters on proposed
§ ll.13(c)(3) broadly supported it. A
commenter asserted that this component
would fill a gap in needed services for
small businesses and small farms and
play a critical role in helping a small
business and small farm grow and
thrive. Another commenter suggested
including consideration in this
economic development category for
financial literacy training, communityowned real estate financing, and
financial products and programs for
immigrant and immigrant-owned
businesses.
Final Rule
For the reasons discussed below, the
final rule adopts, with clarifying edits,
proposed § ll.13(c)(3) to provide
clarity regarding support for small
394 See Q&A § ll.12(g)(3)–1 (providing that
loans, investments, or services are considered to
‘‘promote economic development’’ if they ‘‘support
permanent job creation, retention, and/or
improvement . . . through technical assistance or
supportive services for small businesses or farms,
such as shared space, technology, or administrative
assistance’’).
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
businesses and small farms that is not
provided through intermediaries.
Specifically, final § ll.13(c)(3) states
that assistance, such as financial
counseling, shared space, technology, or
administrative assistance, provided to
small businesses and small farms can be
considered economic development. To
distinguish these activities from
government-related support and
intermediary support, these activities
are referred to as ‘‘other support for
small businesses and small farms’’
under the final rule, and are intended to
include such services that are provided
directly by a bank.
The agencies made several clarifying
edits to the proposal for this component
in the final rule. First, the agencies
removed ‘‘technical’’ from the rule text
out of recognition that providing access
to space or technology goes beyond
technical assistance and that this term
might be applied and understood
inconsistently. Second, the agencies
removed the $5 million gross annual
revenues when referring to small
businesses and small farms because
these terms are defined in final § ll.12
(discussed further in the section-bysection analysis of final § ll.12).
Finally, the agencies removed ‘‘primary
purpose’’ to reference the level of
support to businesses or farms to be
consistent with the majority standard as
described in final § ll.13(a), discussed
further in the section-by-section
analysis of final § ll.13(a).
The agencies acknowledge commenter
feedback that some small businesses
and small farms may not be in a
position to obtain traditional bank
financing and, as such, may need
assistance to obtain credit in the future.
The agencies believe that providing
CRA consideration for assistance that
supports small businesses and small
farms will afford banks with recognition
for the positive role they play in
facilitating small business and small
farm credit access. The agencies have
noted through past experience that
banks can play an important role in
supporting, and directly providing the
types of assistance that help small
businesses and small farms obtain
financing, which in turn strengthens
small businesses and small farms,395
fostering their growth and durability.
395 See, e.g., OCC, ‘‘Community Development
Loan Funds: Partnership Opportunities for Banks,’’
Community Development Insights (Oct. 2014),
https://www.occ.gov/publications-and-resources/
publications/community-affairs/communitydevelopments-insights/pub-insights-oct-2014.pdf;
Financial Services Forum, ‘‘Supporting Historically
Underserved Communities,’’ https://fsforum.com/
our-impact/supporting-underserved-communities.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
In response a commenter’s suggestion
that banks should receive consideration
for providing financial literacy training,
community-owned real estate financing,
and financial products and programs for
immigrant and immigrant-owned
businesses, the agencies note that
financial counseling is specified as an
example of the type of assistance that
could be considered under final
§ ll.13(c)(3). Additionally, the final
rule provides that banks may receive
community development consideration
for other types of financial literacy
programs under final § ll.13(l),
discussed further in the section-bysection analysis of § ll.13(l). The
other items suggested by the commenter
could also be considered under the
economic development category, or
other community development
categories, assuming that the activities
meet the appropriate criteria.
Evaluation Approach Prior to Section
1071 Data Availability
The Agencies’ Proposal and Comments
Received
The agencies sought feedback on
whether loans made directly by banks to
small businesses and small farms that
are currently evaluated as community
development loans should continue to
be considered community development
loans until these loans are assessed as
reported loans under the Retail Lending
Test. Most commenters who opined on
this question asserted that loans to small
businesses and small farms should be
considered community development
loans during this transition period. For
example, a commenter suggested that
current guidance should be used to
qualify loans to small businesses and
small farms under the Community
Development Finance Test until loans
are evaluated as reported loans under
the proposed Retail Lending Test.396
Similarly, a few commenters suggested
that loans larger than $1 million to
small businesses and small farms
should be considered community
development loans, as they are
currently, until section 1071 data are
available, and these loans are evaluated
as reported loans under the proposed
Retail Lending Test.397 A few
commenters suggested that during the
transition period, banks should have the
option of having loans evaluated under
the proposed Community Development
Financing Test or under the proposed
Retail Lending Test. Another
commenter suggested that banks should
always have the option to report small
396 Q&A
§ ll.12(g)(3)–1.
397 Id.
PO 00000
Frm 00095
Fmt 4701
Sfmt 4700
6667
business loans as community
development loans if the economic
development criteria are met.
Other commenters expressed concern
with allowing banks to receive
community development credit for
loans that will be considered under the
Retail Lending Test once section 1071
data are available and used in CRA
evaluations. A commenter suggested
that a bank should not be allowed to
have these loans considered as
community development loans only if
the majority of the bank’s examination
cycle took place before the final rule
was implemented. Along the same lines,
a commenter expressed concern that
evaluating loans to small businesses and
small farms as community development
activities until they are assessed as
reported loans under the Retail Lending
Test could allow banks to receive credit
for the same activity multiple times, and
suggested that the loans should count
only once, unless there is some change
or expansion of the activity, such as an
increased loan amount or new loan
payment deferment option.
Final Rule
The agencies appreciate feedback
from commenters regarding whether to
continue to evaluate loans to small
businesses and small farms as
community development loans, if such
loans meet the current specified criteria,
prior to the availability of section 1071
data. The agencies considered the
comments, including those that
suggested providing banks the option to
select consideration for these loans
under either the proposed Community
Development Financing Test or
proposed Retail Lending Test during
this interim period, or continuing to
evaluate the loans under current
interagency guidance until the CFPB
section 1071 data are available and the
reported loans can be evaluated under
the proposed Retail Lending Test. On
further consideration of this issue, the
agencies have determined that
continuing with the current evaluation
approach or developing an interim
approach for evaluating loans to small
businesses and small farms loans during
the interim period between the
applicability date for final § ll.13(c)
and availability and use in CRA
evaluations of section 1071 data is not
necessary. As discussed above regarding
final § ll.13(c)(1)(ii), the final rule
provides consideration of certain direct
loans to small businesses and small
farms as community development loans.
This approach would enable certain
government-related direct loans to
businesses and farms that meet the
criteria in final § ll.13(c)(1)(ii)
E:\FR\FM\01FER2.SGM
01FER2
6668
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
considered under economic
development as soon as this provision
of the final rule becomes effective. The
agencies believe that this approach will
provide greater clarity and reduce
potential confusion and complexity
during the interim period rather than
continuing to apply current standards
for considering loans to small
businesses and small farms to be
community development loans.398 The
agencies note that, except for certain
loans to small businesses and small
farms as explained above, most lending
to small businesses and small farms will
be evaluated under the Retail Lending
Test, and that the definitions for small
business and small farm loans are
subject to the final rule’s transition
amendments.399
Regarding the concern expressed by a
commenter that evaluating loans to
small businesses and small farms as
community development until such
loans are assessed under the Retail
Lending Test would allow banks to get
credit for the same activity multiple
times, the agencies acknowledge, as
discussed above, that some loans to
small businesses and small farms that
meet the criteria under final
§ ll.13(c)(1)(ii) will be considered
under both the Retail Lending Test and
Community Development Financing
Test. However, the agencies do not
believe that this would result in double
counting because the final rule provides
that different aspects of such loans
would be considered under the
applicable test.
ddrumheller on DSK120RN23PROD with RULES2
Workforce Development and Job
Training
The current regulations do not
mention workforce development and
training programs in the definition of
community development 400 (including
the economic development category of
398 For a discussion of the final rule’s
incorporation of loans to small businesses and
small farms into the economic development
category of community development, see the
section-by-section analysis of final
§ ll.13(c)(1)(ii). For a discussion of the final rule’s
consideration of small business and small farm
lending under the Retail Lending Test, see the
section-by-section analysis of final § ll.22(d).
399 The final rule’s transition amendments will
amend the definitions of ‘‘small business’’ and
‘‘small farm’’ to instead cross-reference to the
definition of ‘‘small business’’ in the CFPB section
1071 regulation. This will allow the CRA regulatory
definitions to adjust if the CFPB increases the
threshold in the CFPB section 1071 regulatory
definition of ‘‘small business.’’ This is consistent
with the agencies’ intent articulated in the preamble
to the proposal and elsewhere in this final rule to
conform these definitions with the definition in the
CFPB section 1071 regulation. The agencies will
provide the effective date of these amendments in
the Federal Register once section 1071 data are
available.
400 See 12 CFR ll.12(g).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
that definition 401), but the Interagency
Questions and Answers provide that
loans, investments, and services
supporting these activities for
businesses and farms that meet the
‘‘size’’ test discussed above are
considered to ‘‘promote economic
development.’’ 402 The agencies
proposed to consider workforce
development and job training program
activities under the community
supportive services category of
community development and this was
generally supported by commenters
who opined on this issue. Therefore, the
agencies are adopting workforce
development and job training as
proposed as a community supportive
services category under final
§ ll.13(d). See the section-by-section
analysis of community supportive
services in final § ll.13(d) below for
additional discussion of the comments
received and final rule.
Additional Issues
The agencies received other
comments related to the economic
development category. A few
commenters suggested adding certain
types of activities to those that could be
considered for CRA credit under the
economic development category. For
example, a commenter suggested that
loan referrals made by banks to CDFIs
for small business loans should qualify
and also suggested that loan referrals
made by banks to non-bank lenders or
fintech companies that have a mission
of economic development that is
consistent with the goals of the CRA
should also qualify as economic
development; this commenter asserted
that partnerships between traditional
and non-traditional lenders could
increase access to capital for lowincome geographic areas.
A few commenters suggested that if
loans to small business and small farms
are considered under the proposed
Retail Lending Test, loans to minorityowned small businesses should
nonetheless be considered separately as
a qualifying activity under the economic
development category of community
development. Lastly, a commenter
stated that the agencies’ proposal was
innovative but suggested that training
for nonprofit organizations could be
needed, as activities that are currently
considered as community development
might be considered under different
performance tests.
The agencies decline to add a prong
to the economic development category
under final § ll.13(c) to provide
401 See
402 See
PO 00000
12 CFR ll.12(g)(3).
Q&A § ll.12(g)(3)–1.
Frm 00096
Fmt 4701
Sfmt 4700
specific consideration for additional
types of activities, such as loan referrals
made by banks to CDFIs or those made
by banks to nonbank lenders, as
suggested by commenters. The agencies
understand from commenters that
partnerships between traditional and
nontraditional lenders are important
because of the potential to increase
capital to small businesses and small
farms. As discussed further in the
section-by-section analysis of final
§ ll.23(c), such activities may qualify
for consideration under the Retail
Services and Products Test as such
activities may help facilitate responsive
credit products and programs.403
Regarding commenter suggestions that
loans to minority-owned small
businesses should be considered
separately as a qualifying activity under
the economic development category of
community development, the agencies
note that the final rule adopts a
provision that certain direct loans to
small businesses and small farms,
which includes direct loans made to
minority-owned small businesses, will
be considered under the economic
development category. See the sectionby-section analysis of final
§ ll.13(c)(1)(ii) above. Additionally,
the agencies have adopted an impact
factor described in final § ll.15 for
activities that benefit small businesses
with gross annual revenue under
$250,000, which will serve to highlight
activities with smaller businesses,
which would include minority-owned
businesses with gross annual revenue
under $250,000. For more information
and discussion regarding the agencies’
consideration of comments
recommending adoption of additional
race- and ethnicity-related provisions in
this final rule, see section III.C of this
SUPPLEMENTARY INFORMATION.
The agencies appreciate commenter
feedback regarding the potential need
for examiner training as the proposed
approach to the evaluation of certain
activities that would currently be
considered only under community
development may be considered under
a different test or multiple tests. The
agencies will take this feedback under
advisement as the agencies develop
implementation plans.
Section ll.13(d) Community
Supportive Services
Current Approach
The CRA regulations currently define
community development to include
‘‘community services targeted to low- or
403 See final § ll.23 and the accompanying
section-by-section analysis.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
moderate-income individuals,’’ 404 but
the regulations do not further define
community services. The Interagency
Questions and Answers provide several
examples of community services and
characteristics of those services to assist
institutions in determining whether the
service is ‘‘targeted to low- or moderateincome individuals.’’ 405 Interagency
guidance also clarifies that
‘‘investments, grants, deposits, or shares
in or to . . . [f]acilities that . . .
provid[e] community services for lowand moderate-income individuals, such
as youth programs, homeless centers,
soup kitchens, health care facilities,
battered women’s shelters, and alcohol
and drug recovery centers’’ are
considered community development
investments eligible for CRA credit.406
The Agencies’ Proposal
In proposed § ll.13(d), the agencies
replaced the current community
development category of ‘‘community
services targeted to low- or moderateincome individuals’’ with ‘‘community
supportive services.’’ 407 Specifically,
incorporating and building on aspects of
current guidance noted above, proposed
§ ll.13(d) defined community
supportive services as ‘‘general welfare
services that serve or assist low- or
moderate-income individuals,
including, but not limited to, childcare,
education, workforce development and
job training programs, and health
services and housing services
programs.’’
The agencies proposed to consider
workforce development and job training
program activities under the community
supportive services category of
community development, rather than
under economic development (where
workforce development and job training
programs are generally considered
today). Existing guidance regarding
economic development generally limits
what can be considered an economic
development activity (including
workforce development and job
training) to support for small businesses
meeting certain size standards.408 Under
the proposal to consider these activities
under the reconfigured ‘‘community
12 CFR ll.12(g)(2).
Q&A § ll.12(g)(2)–1.
406 Q&A § ll.12(t)–4.
407 The proposed term ‘‘community supportive
services’’ encompassed different activities than
those proposed under the concept of ‘‘community
development services,’’ which is described further
in the section-by-section analysis of § ll.25(d)
(proposed Community Development Services Test),
below, and generally refers to volunteer service
hours that meet any one of the community
development purposes in final § ll.13.
408 See proposed § ll.13(d); compare with 12
CFR ll.12(g)(3) and Q&A § ll.12(g)(3)–1.
404 See
ddrumheller on DSK120RN23PROD with RULES2
405 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
supportive services’’ category, activities
that support workforce development
and job training programs would receive
consideration if the program’s
participants are low- or moderateincome individuals, without regard to
the size of any business associated with
the activity.409
The agencies also proposed to build
on current guidance by both clarifying
and expanding upon a non-exclusive
list of examples of community services
and characteristics of those services that
banks can use to demonstrate that a
program or organization primarily
serves low- or-moderate income
individuals. Seven of the eight examples
in proposed § ll.13(d) reflected
current guidance with certain technical
edits, as follows:
• Activities conducted with a
nonprofit organization that has a
defined mission or purpose of serving
low- or moderate-income individuals or
is limited to offering community
supportive services exclusively to lowor moderate-income individuals
(proposed § ll.13(d)(1));
• Activities conducted with a
nonprofit organization located in and
serving low- or moderate-income census
tracts (proposed § ll.13(d)(2));
• Activities conducted in low- or
moderate-income census tracts and
targeted to the residents of the census
tract (proposed § ll.13(d)(3));
• Activities offered to individuals at a
workplace where the majority of
employees are low- or moderate-income,
based on readily available U.S. Bureau
of Labor Statistics data for the average
wage for workers in that particular
occupation or industry (proposed
§ ll.13(d)(4));
• Services provided to students or
their families through a school at which
the majority of students qualify for free
or reduced-price meals under the
USDA’s National School Lunch Program
(proposed § ll.13(d)(5));
• Services that have a primary
purpose of benefiting or serving
individuals who receive or are eligible
to receive Medicaid (proposed
§ ll.13(d)(6)); and
• Activities that benefit or serve
recipients of government assistance
plans, programs, or initiatives that have
income qualifications equivalent to, or
stricter than, the definitions of low- and
moderate-income (as defined in the
proposed rule). Examples include, but
are not limited to, HUD’s section 8, 202,
515, and 811 programs or the USDA’s
section 514, 516, and Supplemental
409 See
PO 00000
id.
Frm 00097
Fmt 4701
Sfmt 4700
6669
Nutrition Assistance programs
(proposed § ll.13(d)(8)).410
The agencies also proposed an
additional example not reflected in
current guidance: activities that benefit
or serve individuals who receive or are
eligible to receive Federal Supplemental
Security Income, Social Security
Disability Insurance, or support through
other Federal disability assistance
programs.411 This proposed example
reflected a suggested additional example
raised in the Board CRA ANPR that
received wide stakeholder support.412
Comments Received
The agencies received comments on
the community supportive services
proposal from many different
commenter types, raising a wide range
of issues. Most of these commenters
generally supported the agencies’
proposal. A few commenters, for
example, expressed that the community
development services proposal would
elevate the importance of community
services and provide more clarity about
what types of activities are included. In
contrast, a commenter that disagreed
with the proposal stated that the
proposal would create unnecessary
confusion and complexity and limit
flexibility. This commenter expressed
the view that the current community
services definition should be retained,
asserting that it better allows banks to
tailor the provision of services to the
specific needs of each community.
Regarding the general definition of
community supportive services in
proposed § ll.13(d), many
commenters expressed their support for
including ‘‘health’’ or ‘‘healthcare
services.’’ Several commenters also
expressed support for the proposal to
include workforce development and job
training as community supportive
services. A few of these commenters
noted that doing so could allow banks
to receive credit for supporting activities
in connection with a wider range of
businesses than under the current CRA
framework.
Commenters also shared views on the
list of examples in proposed
§ ll.13(d)(1) through (8). For example,
a commenter that expressed support for
the proposal to include ‘‘[a]ctivities
conducted with a nonprofit organization
located in and serving low- or moderateincome census tracts,’’ 413 noted that
these types of organizations often serve
the community in which they are
§ ll.12(g)(2)–1.
§ ll.13(d)(7).
412 See 85 FR 66410, 66446 (Oct. 19, 2020). The
example was also adopted in the illustrative list
published with the OCC 2020 CRA Final Rule.
413 Proposed § ll.13(d)(2).
410 Q&A
411 Proposed
E:\FR\FM\01FER2.SGM
01FER2
6670
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
located. With respect to proposed
§ ll.13(d)(7), regarding activities that
benefit or serve individuals who receive
or are eligible to receive Federal
disability assistance, many civil rights
and consumer advocacy groups for
individuals with disabilities requested
that the agencies also explicitly include
vocational rehabilitation services and
Medicaid-waiver funded home and
community-based services. One
commenter stated that, as not all
individuals with disabilities receive
Federal benefits, the agencies should
consider including other activities that
support individuals with disabilities,
such as a loan to upgrade equipment in
a public library to accommodate lowand moderate-income disabled
individual patrons.
Commenters also encouraged the
agencies to add a variety of examples to
the list in § ll.13(d)(1) through (8).
For instance, a few commenters
suggested adding activities that promote
digital inclusion or digital literacy,
indicating that those activities can
improve access to important community
services. Additional examples suggested
included, among others: food access and
sustainability projects; activities that
house the homeless; higher education
career courses or programming;
activities that support service members,
veterans, and their families; and
activities that support consumers with
limited English proficiency.
Final Rule
As discussed in more detail below,
the final rule revises the general
definition of ‘‘community supportive
services’’ in proposed § ll.13(d) to
provide greater clarity about the
meaning of this community
development category. The final rule
also adopts the non-exhaustive list of
examples in § ll.13(d)(1) through (8)
generally as proposed, with certain
technical revisions.
Specifically, the final rule defines
‘‘community supportive services’’ as
activities that assist, benefit, or
contribute to the health, stability, or
well-being of low- or moderate-income
individuals, such as childcare,
education, workforce development and
job training programs, health services
programs, and housing services
programs. The definition in proposed
§ ll.13(d) is thus revised by replacing
the phrase ‘‘general welfare activities
that serve or assist low- or moderateincome individuals’’ with ‘‘activities
that assist, benefit, or contribute to the
health, stability, or well-being of low- or
moderate-income individuals.’’ As
noted in the proposal, the agencies
believe that adopting a community
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
supportive services category that revises
the existing ‘‘community services’’
category and associated guidance will
provide clearer standards in the
regulation for identifying the kind of
activities that qualify as community
development. Upon further
consideration and in light of comments
received, the agencies are concerned
about potential confusion as to what
constitutes ‘‘general welfare activities’’
in the proposed provision. The final
rule’s revised language focusing on the
‘‘health, stability, or well-being’’ of lowor moderate-income individuals is
intended to better achieve the agencies’
goal of providing clarity in outlining the
kinds of activities that are eligible for
consideration under this category,
accounting for the types of benefits and
services that many commenters
highlighted.
The agencies are adopting as
proposed the community supportive
services listed in the proposed general
definition—childcare, education,
workforce development and job training
programs, health services programs, and
housing services programs; these are
intended to be illustrative of the kinds
of services that can meet the criterion of
assisting, benefiting, or contributing to
the health, stability, or well-being of
low- or moderate-income individuals
and, as noted above, were generally
supported by commenters. As also
discussed above, considering workforce
development and job training activities
under the community supportive
services category of community
development clarifies that bank support
for workforce development and job
training, whose participants are low- or
moderate-income individuals, is eligible
for CRA consideration, regardless of the
size of the businesses that may be
associated with those activities.
The final rule also adopts the nonexclusive list of examples of community
supportive services in § ll.13(d)(1)
through (8), generally as proposed, with
certain revisions as follows:
• Proposed § ll.13(d)(1) is revised
to refer to activities that are ‘‘conducted
with a mission-driven nonprofit
organization.’’ This change in final
§ ll.13(d)(1) reflects that the final rule
adopts a new definition of ‘‘missiondriven nonprofit organization’’ in
§ ll.12, in order to support the term’s
use across multiple provisions in
§ ll.13. As noted in the section-bysection analysis of § ll.12 above, the
final definition is intended to be
consistent with the types of
organizations that the agencies proposed
would be partners with banks in
conducting community development.
PO 00000
Frm 00098
Fmt 4701
Sfmt 4700
• Proposed § ll.13(d)(2) through (5)
are adopted generally as proposed, with
non-substantive technical edits to align
the regulatory text structure.
• Proposed § ll.13(d)(6),
referencing activities that ‘‘have a
primary purpose of benefiting or serving
individuals who receive or are eligible
to receive Medicaid’’ (emphasis added)
is revised to reference activities that
‘‘Primarily benefit or serve individuals
who receive or are eligible to receive
Medicaid’’ (emphasis added), with no
substantive change intended. This
revision is a conforming change
consistent with proposed § ll.13(a)
that eliminates proposed references to
the phrase ‘‘primary purpose of
community development,’’ as discussed
in the section-by-section analysis of
§ ll.13(a).
• Proposed § ll.13(d)(7) and (8) are
revised to add the term ‘‘primarily,’’ so
that, as adopted, they refer to activities
that ‘‘Primarily benefit or serve
individuals who receive or are eligible
to receive’’ Federal disability assistance
(final § ll.13(d)(7)) and ‘‘Primarily
benefit or serve recipients of
government assistance plans, programs,
or initiatives . . . .’’ (final
§ ll.13(d)(8)). This addition is
intended to provide consistency with
the language in final § ll.13(d)(6)
described above, and to align with the
agencies’ intent to provide examples of
activities that are specifically focused
on benefiting or serving the individuals
described in these examples.
As discussed above, the examples in
§ ll.13(d)(1) through (6) and (8) are
adapted from existing guidance to
promote clarity and consistency
regarding the types of services that
could be considered to be targeted to
low- or moderate-income individuals.
The agencies believe that the adopted
examples will facilitate banks’ ability to
document and demonstrate that a
program or organization assists,
benefits, or contributes to the health,
stability, or well-being of low- or
moderate-income individuals as set
forth in § ll.13(d). For example, with
respect to § ll.13(d)(2), the agencies
believe that qualified activities
performed in conjunction with ‘‘a
nonprofit organization located in and
serving low- or moderate-income census
tracts’’ are likely to assist, benefit, or
contribute to the health, stability, or
well-being of low- or moderate-income
individuals due to the geographic
location and service-orientation of the
nonprofit organization on low- or
moderate-income census tracts.
Accordingly, the agencies believe that
this example will facilitate banks’
identification of qualified community
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
supportive services and opportunities to
serve needs in their communities.414
In adopting the example in proposed
§ ll.13(d)(7), related to activities for
individuals receiving or eligible to
receive Federal disability assistance, the
agencies understand that many
disability programs are means-tested,
and that and research has found that
households that include any workingage people with disabilities are more
likely to have substantially lower
incomes than those without any
disabilities.415 Accordingly, the
agencies believe that the example in
§ ll.13(d)(7) will serve as another key
proxy for activities that assist, benefit,
or contribute to the health, stability, or
well-being of low- or moderate-income
individuals, and will facilitate banks’
ability to identify clear and consistent
examples of community supportive
services.
The agencies also considered and
appreciate additional examples of
community supportive services offered
by commenters, including additional
suggestions noted above to supplement
§ ll.13(d)(7) regarding other activities
that benefit or serve individuals with
disabilities. As discussed above, the list
of examples in § ll.13(d)(1) through
(8) is non-exclusive. The agencies
believe that the list of examples adopted
in the final rule address a wide range of
qualified community supportive
services and do not believe that it would
be possible or practicable to capture
every kind of community supportive
service in the regulation. The agencies
note that, to the extent that any other
activity meets the general definition set
forth in § ll.13(d), it would be
considered a community supportive
service. While the agencies are not
adding mention of specific additional
community supportive services
activities to the final rule, the agencies
will take commenters’ recommended
examples under advisement as the
agencies develop the illustrative list
anticipated by § ll.14(a).
414 Final § ll.13(d)(2) is distinguishable from
final § ll.13(d)(1). Section ll.13(d)(1)
references the narrower defined term of missiondriven nonprofit organizations, but is not
geographically focused; while § ll.13(d)(2)
references nonprofit organizations more broadly,
but is focused on particular census tracts. Both
examples are intended to facilitate banks’ ability to
identify and document that an activity is a qualified
community supportive service.
415 See, e.g., William Erickson, Camille Lee, and
Sarah von Schrader, ‘‘2021 Disability Status Report:
United States,’’ Cornell University Yang-Tan
Institute on Employment and Disability, 40 (2023),
https://www.disabilitystatistics.org/report/pdf/
2021/2000000.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Section ll.13(e) Through (j) PlaceBased Community Development
Current Approach
The current regulation defines
‘‘community development’’ to include
‘‘activities that revitalize or stabilize’’
the following four types of geographic
areas:
• Low- or moderate-income census
tracts;
• Designated disaster areas;
• Distressed nonmetropolitan middleincome census tracts; and
• Underserved nonmetropolitan
middle-income census tracts.416
The Interagency Questions and
Answers further elaborate on
revitalization and stabilization activities
in these geographic areas.417 With
respect to low- and moderate-income
census tracts, designated disaster areas,
and distressed nonmetropolitan middleincome census tracts, current guidance
states that revitalization and
stabilization activities are those that
help to ‘‘attract new, or retain existing,
businesses or residents’’ in that
geographic area.418 Current guidance for
the same three targeted geographic areas
also states that an activity will be
presumed to revitalize or stabilize a
geographic area if the activity is
consistent with a government plan for
the revitalization or stabilization of the
area.419
416 12 CFR ll.12(g)(4). The current regulation
provides that distressed or underserved
nonmetropolitan middle-income census tracts are
‘‘designated by [the Board, FDIC, and OCC] based
on—(A) Rates of poverty, unemployment, and
population loss; or (B) Population size, density, and
dispersion.’’ 12 CFR ll.12(g)(4)(iii). The
regulation further provides that ‘‘[a]ctivities
revitalize and stabilize [census tracts] designated
based on population size, density, and dispersion
if they help to meet essential community needs,
including needs of low- and moderate-income
individuals.’’ Id.
417 See Q&A § ll.12(g)(4)(i)–1 (regarding low- or
moderate-income census tracts), Q&A
§ ll.12(g)(4)(ii)–2 (regarding designated disaster
areas), Q&A § ll.12(g)(4)(iii)–3 (regarding
distressed nonmetropolitan middle-income census
tracts), and Q&A § ll.12(g)(4)(iii)–4 (regarding
underserved nonmetropolitan middle-income
census tracts). Activities considered to revitalize
and stabilize a designated disaster area must also
be ‘‘related to disaster recovery.’’ See Q&A
§ ll.12(g)(4)(ii)–2.
418 See Q&A § ll.12(g)(4)(i)–1 (regarding low- or
moderate-income geographies), Q&A
§ ll.12(g)(4)(ii)–2 (regarding designated disaster
areas), and Q&A § ll.12(g)(4)(iii)–3 (regarding
distressed nonmetropolitan middle-income census
tracts). The ‘‘attract new or retain existing
businesses or residents’’ language is not in the
guidance on revitalization and stabilization
activities for underserved nonmetropolitan middleincome census tracts. See Q&A § ll.12(g)(4)(iii)–
4.
419 See Q&A § ll.12(g)(4)(i)–1 (regarding low- or
moderate-income census tracts), Q&A
§ ll.12(g)(4)(ii)–2 (regarding designated disaster
areas), and Q&A § ll.12(g)(4)(iii)–3 (regarding
PO 00000
Frm 00099
Fmt 4701
Sfmt 4700
6671
Further, in designated disaster areas
and distressed nonmetropolitan middleincome census tracts, current guidance
specifies that examiners will consider
all activities that revitalize or stabilize a
census tract but give greater weight to
those activities that are most responsive
to community needs, including the
needs of low- or moderate-income
individuals or neighborhoods.420 In
determining whether an activity
revitalizes or stabilizes a low- or
moderate-income census tract, in the
absence of a Federal, State, local, or
tribal government plan, guidance
instructs examiners to evaluate
activities based on the actual impact on
the census tract, if that information is
available.421 If not, examiners will
determine whether the activity is
consistent with the community’s formal
or informal plans for the revitalization
and stabilization of the low- or
moderate-income census tract.422
Regarding underserved
nonmetropolitan middle-income census
tracts, current guidance focuses on
clarifying the regulatory provision
stating that activities in census tracts
designated by the agencies as
underserved based on ‘‘population size,
density, and dispersion’’ are considered
to be revitalization and stabilization
activities ‘‘if they help to meet essential
community needs, including needs of
low- and moderate-income
individuals.’’ 423 To this end, the
Interagency Questions and Answers
state that activities such as ‘‘financing
for the construction, expansion,
improvement, maintenance, or
operation of essential infrastructure or
facilities for health services, education,
public safety, public services, industrial
parks, affordable housing, or
communication services’’ in
underserved nonmetropolitan middleincome census tracts will be evaluated
to determine whether they meet
essential community needs.424 The
guidance also provides several examples
of projects that may be considered to
meet essential community needs, such
as hospitals, industrial parks,
rehabilitated sewer lines, mixed-income
housing, and renovated schools—as
long as the population served includes
distressed nonmetropolitan middle-income census
tracts).
420 See Q&A § ll.12(g)(4)(ii)–2 (regarding
designated disaster areas) and Q&A
§ ll.12(g)(4)(iii)–3 (regarding distressed
nonmetropolitan middle-income census tracts).
421 See Q&A § ll.12(g)(4)(i)–1.
422 See id.
423 12 CFR ll.12(g)(4)(iii)(B).
424 Q&A § ll.12(g)(4)(iii)–4.
E:\FR\FM\01FER2.SGM
01FER2
6672
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
low- and moderate-income
individuals.425
Overview of the Proposal
The agencies’ proposal replaced the
current revitalization and stabilization
activities component of the community
development definition with six
separate categories of activities:
• Revitalization activities undertaken
in conjunction with a government plan,
program, or initiative; 426
• Essential community facilities
activities; 427
• Essential community infrastructure
activities; 428
• Recovery activities in designated
disaster areas; 429
• Disaster preparedness and climate
resiliency activities; 430 and
• Qualifying activities in Native Land
Areas.431
Each of the proposed categories
included requirements to benefit
residents of targeted geographic areas, as
discussed in more detail below, and
thus are referred to as ‘‘place-based
categories’’ (and the activities defined
within the categories as ‘‘place-based
activities’’) throughout this
SUPPLEMENTARY INFORMATION. Each of
the proposed place-based categories also
generally shared three other common
required eligibility criteria (with
adjustments specific to certain
categories). Specifically, relevant
activities must:
• Benefit or serve residents of the
targeted geographic area, including lowor moderate-income individuals;
• Not displace or exclude low- or
moderate-income individuals; and
• Be conducted in conjunction with a
Federal, State, local, or tribal
government plan, program, or initiative
that includes an explicit focus on
benefiting or serving the targeted
geographic area.
These criteria are generally referred to
as ‘‘place-based criteria’’ throughout this
SUPPLEMENTARY INFORMATION. By
refining and further clarifying the
current regulation and guidance
regarding the revitalization and
stabilization category of community
development, the agencies intended to
provide greater certainty about what
activities are considered to revitalize
and stabilize communities, and thus be
considered community development.
This section-by-section analysis first
discusses the three place-based criteria
425 See
id.
proposed § ll.13(e).
427 See proposed § ll.13(f).
428 See proposed § ll.13(g).
429 See proposed § ll.13(h).
430 See proposed § ll.13(i).
431 See proposed § ll.13(k).
426 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
noted above, including general
comments received and general
revisions made in the final rule. An
analysis of each of the six place-based
community development categories
follows, under which specific final
place-based criteria provisions and
revisions are discussed. As will be
discussed below, the final rule generally
retains the three common place-based
criteria proposed for each of the six
place-based categories, with some
modifications. The analysis of the placebased criteria below generally follows
the order of the proposal; as discussed
under the analysis of each of the
specific place-based categories, the final
rule reorganizes the common placebased criteria to establish a consistent
parallel structure across the categories.
Benefits or Serves Residents, Including
Low- or Moderate-Income Individuals,
of Targeted Geographic Areas
The Agencies’ Proposal
Across all place-based categories, the
agencies proposed that activities
supported by a bank’s loans,
investments, or services would be
considered community development
only in relation to particular geographic
areas. Specifically, revitalization
activities in conjunction with a
government plan, program or initiative,
essential infrastructure activities,
essential community facilities activities,
and disaster preparedness and climate
resiliency activities would be
community development under the
proposal if they benefited or served
residents, including low- or moderateincome residents, of one or more
‘‘targeted census tracts,’’ defined in
proposed § ll.12 to mean low- or
moderate-income census tracts and
distressed or underserved
nonmetropolitan middle-income census
tracts.432 Similarly, essential
community facilities, essential
infrastructure, and disaster
preparedness and climate resiliency
activities would also be required to be
‘‘conducted in’’ targeted census
tracts.433
Under the proposal, recovery
activities in designated disaster areas
qualified in census tracts of all income
432 See proposed § ll.13(e) (revitalization
activities), (f) (essential community facilities
activities), (g) (essential community infrastructure
activities), and (i) (disaster preparedness and
climate resiliency activities). For further discussion
of the definition of ‘‘targeted census tract,’’ see the
section-by-section analysis of § ll.12 (‘‘targeted
census tract’’).
433 See proposed § ll.13(f) (essential
community facilities activities), (g) (essential
community infrastructure activities), and (i)
(disaster preparedness and climate resiliency
activities).
PO 00000
Frm 00100
Fmt 4701
Sfmt 4700
levels, provided that the activities
benefited or served residents, including
low- or moderate-income residents, in
an area subject to a Federal Major
Disaster Declaration (excluding Major
Disaster Categories A and B).434
Activities in Native Land Areas would
qualify as community development if
they were ‘‘specifically targeted to and
conducted in Native Land Areas’’ and
‘‘benefited residents of Native Land
Areas, including low- or moderateincome residents.’’ 435
The agencies also proposed
requirements regarding the beneficiaries
of place-based activities—specifically,
that they benefit or serve residents of
the relevant targeted geographic area,
including low- or moderate-income
residents. The express inclusion of
‘‘low- or moderate-income residents’’
incorporated an emphasis on benefits
for low- and moderate-income
individuals reflected in the current
regulation and guidance on
revitalization and stabilization
activities, as well as the CRA statute.436
The agencies sought feedback on how
place-based activities can focus on
benefiting residents in targeted census
tracts and ensure that the activities
benefit low- or moderate-income
residents.
Comments Received
Commenters offered various views on
how to focus place-based activities on
benefiting residents in targeted
geographic areas, and how to ensure
that the activities benefit low- or
moderate-income residents. Comments
specific to whether activities should be
directly conducted in targeted
geographic areas are generally discussed
under the section-by-section analyses
for the respective place-based
categories, where applicable. Several
commenters suggested that the agencies
adopt quantitative measures for
evaluating benefits, such as requiring a
majority of the beneficiaries to be lowor moderate-income in the targeted
geographic area, or requiring a majority
of beneficiaries to be low- or moderateincome minorities. Some commenters
recommended that data on benefits to
low- and moderate-income residents
proposed § ll.13(h)(1).
proposed § ll.13(l). The definition of
‘‘Native Land Area’’ is discussed further in the
section-by-section analysis of § ll.12.
436 See, e.g., 12 CFR ll.12(g)(4); Q&A
§ ll.12(g)(4)(i)–1 (regarding low- or moderateincome geographies), Q&A § ll.12(g)(4)(ii)–2
(regarding designated disaster areas), Q&A
§ ll.12(g)(4)(iii)–3 (regarding distressed
nonmetropolitan middle-income census tracts), and
Q&A § ll.12(g)(4)(iii)–4 (regarding underserved
nonmetropolitan middle-income census tracts); 12
U.S.C. 2903(a) and 2906(a)(1).
434 See
435 See
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
should be part of community
development data submissions, such as
documentation regarding the number
and percent of low- and moderateincome persons in the census tract(s) of
the target area and a narrative
explaining how the activity would
benefit them, or other evidence of
community benefit such as job creation,
living wages, fair lease payments, or
sound land-use planning practices. In
contrast, a commenter suggested that the
agencies also allow for consideration of
activities where benefits to low- or
moderate-income individuals are not
readily quantifiable, but otherwise
demonstrable. This commenter
cautioned that ‘‘means testing’’ would
complicate community development
financing and might not be possible,
potentially discouraging bank
investment, but suggested that projects
located in low- and moderate-income or
distressed census tracts were likely to
serve residents of those tracts and others
in the area.
Some commenters suggested requiring
community input to demonstrate that
activities benefit residents, including
low- or moderate-income residents, of
targeted census tracts. For instance,
commenters recommended that banks
document (and the agencies consider)
public feedback provided by community
groups; public attestations; or
community benefit agreements (CBAs).
Several commenters recommended that
examiners use their judgment to
determine whether qualifying activities
benefit low- and moderate-income
residents, indicating, for example, that
different types of activities will warrant
different types of evidence to
demonstrate benefit to low- and
moderate-income residents. Other
commenters suggested that a statement
from a bank’s public or nonprofit
organization partners could provide
evidence of a place-based activity’s
impact on low- and moderate-income
communities.
ddrumheller on DSK120RN23PROD with RULES2
Final Rule
The final rule generally retains the
three common place-based criteria
proposed for each of the six place-based
categories, with some modifications.
Generally applicable language and
revisions are addressed here, with
category-specific language described
under each category below in this
section-by-section analysis.
Consistent with the proposal, each of
the final place-based categories adopts a
specific focus on targeted geographic
areas, discussed in each of the sectionby-section analyses of the place-based
categories below. Under the final rule,
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
6673
the geographic area focus for each
category is as follows:
• For revitalization or stabilization
(§ ll.13(e)), essential community
facilities (§ ll.13(f)), essential
community infrastructure (§ ll.13(g)),
and disaster preparedness and weather
resiliency (§ ll.13(i)): ‘‘targeted
census tracts.’’ Consistent with the
proposal, targeted census tracts are
defined in final § ll.12 as low- and
moderate-income census tracts, as well
as distressed or underserved
nonmetropolitan middle-income census
tracts;
• For recovery of designated disaster
areas (§ ll.13(h)): ‘‘areas subject to a
Federal Major Disaster Declaration,
excluding Major Disaster Categories A
and B’’; and
• For qualified activities in Native
Land Areas (§ ll.13(j)): ‘‘residents of
Native Land Areas.’’ 437
For each place-based category, the
final rule also adopts substantially as
proposed the place-based criterion that
activities benefit or serve residents,
including low- or moderate-income
individuals, in the targeted geographic
areas, including the proposed criterion
that revitalization activities in Native
Land Areas must have ‘‘substantial
benefits for low- and moderate-income
residents.’’ 438 The final rule revises the
proposed language of this criterion, with
no substantive change intended, to
reference ‘‘low- or moderate-income
individuals’’ rather than ‘‘low- or
moderate-income residents,’’ which
aligns with usage of the word
‘‘individuals’’ in the definitions of lowincome and moderate-income in final
§ ll.12 and is generally consistent
with usage of the term ‘‘low- or
moderate-income individuals’’
throughout the rule. As discussed in the
proposal, this criterion establishes a
consistent expectation that residents in
the relevant targeted geographic areas
will benefit from the qualifying activity
and that the residents benefiting from
the activity will include low- and
moderate-income individuals. To
further the purposes of CRA, the
agencies believe it important that loans,
investments, and services considered in
a bank’s community development
performance evaluation support placebased activities that provide direct
benefit to the people living in targeted
geographic areas rather than solely
supporting redevelopment these
geographic areas more generally.
Together with the other common placebased criteria discussed in more detail
below, the agencies believe that this
criterion will ensure a strong connection
between activities and community
needs.
The agencies have considered, but are
not adopting, additional quantitative
standards or criteria in final § ll.13(e)
through (j), including a requirement that
a majority of the beneficiaries of a
qualifying activity in the proposed (and
final) targeted geographic areas be lowor moderate-income individuals,
minorities, or other underserved
individuals. The agencies understand
and appreciate the concerns giving rise
to commenter suggestions for more
precisely defining qualifying
community development activities to
focus on these individuals and
communities. For this reason, as noted
in the proposal, the agencies also
considered a criterion that place-based
activities benefit or serve solely low- or
moderate-income individuals.
On further consideration, however,
the agencies believe that the final
criterion (‘‘benefits or serves residents,
including low- or moderate-income
residents’’ 439) is appropriately
adaptable, providing needed flexibility
to address the wide range of community
development needs that may exist in the
areas targeted in the proposed and final
rule’s place-based community
development categories. Rather than
adding quantitative limitations or other
parameters to this proposed criterion,
the agencies intend, in adopting this
criterion generally as proposed, to
maintain flexibility for activities to meet
multiple types of community needs in
the areas targeted by place-based
activities—while also requiring the
inclusion of low- or moderate-income
individuals as beneficiaries. This
flexibility remains particularly
important in distressed and underserved
nonmetropolitan middle-income census
tracts, which can have fewer low- or
moderate-income residents. The
agencies further believe that this
criterion, as adopted, is consistent with
the CRA statute, which is focused on
meeting the credit needs of an entire
community, including low- and
moderate-income needs.440 In addition,
437 The term ‘‘Native Land Area’’ is separately
defined in section § ll.12 and discussed in detail
in the accompanying section-by-section analysis.
438 See proposed § ll.13(l)(1)(i)(A)
(‘‘revitalization activities in Native Land Areas’’)
and final § ll.13(j)(2)(ii) (revised to refer to
‘‘revitalization or stabilization activities in Native
Land Areas’’).
439 The final rule adopts different language for
revitalization or stabilization activities in Native
Land Areas, which must benefit or serve residents
of Native Land Areas, ‘‘with substantial benefits for
low- or moderate-income individuals’’ (emphasis
added). See final § ll.13(j)(2)(ii), discussed in the
section-by-section analysis of § ll.13(j).
440 See 12 U.S.C. 2903(a) and 2906(a)(1).
PO 00000
Frm 00101
Fmt 4701
Sfmt 4700
E:\FR\FM\01FER2.SGM
01FER2
6674
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
the agencies note that, under the
majority standard discussed in the
section-by-section analysis of
§ ll.13(a), loans, investments, or
services supporting placed-based
community development may receive
community development consideration
only if the majority of the beneficiaries
are, or the majority of the dollars benefit
or serve, residents of the targeted
geographic areas.441
The agencies are also not adopting
additional criteria, recommended by
some commenters, for demonstrating
and evaluating the benefits of placebased activities, such as through
suggested data points or requiring
community input. On further
deliberation, the agencies are concerned
that requiring specific ways of
demonstrating benefits to residents
could add complexity and burden,
potentially dissuading banks from
supporting place-based activities. The
agencies further believe that
maintaining some flexibility in the
regulation is necessary to accommodate
varying community needs and
relationships that banks have with
communities. At the same time, the
agencies recognize that data and
community input could be helpful in
demonstrating and evaluating benefits
of activities to residents of targeted
geographic areas, including low- and
moderate-income individuals; the final
rule does not preclude banks and
examiners from using an array of useful
information in this regard.
As was noted by commenters,
examiner judgment will continue to
have a role in agency determinations
regarding whether activities benefit
residents of targeted geographic areas,
including low- or moderate-income
individuals. However, by adopting the
criterion requiring activities to benefit
or serve residents, including low- or
moderate-income individuals, in
combination with other place-based
criteria, the agencies intend to clarify
expectations and to promote
consistency in application across placebased categories of community
development.
Comments Received
The Agencies’ Proposal
The agencies proposed that eligible
place-based activities could not lead to
the displacement or exclusion of low- or
moderate-income residents in relevant
geographic areas.442 For example, the
Most commenters supported requiring
that qualifying place-based activities not
displace or exclude low- and moderateincome residents. Many of these
commenters asserted that the antidisplacement and anti-exclusion
criterion should be extended to other
categories of community development,
with a number of commenters
advocating for an extension of the
criterion to the proposed category for
affordable housing under proposed
§ ll.13(b), including the naturally
occurring affordable housing prong in
proposed § ll.13(b)(2).443
A variety of commenters asserted that
the criterion should be strengthened,
and offered suggestions for
demonstrating or measuring nondisplacement and non-exclusion for
activities supported by a bank’s loans,
investments, or services. Suggestions
included, for example, that a bank:
• Demonstrate compliance with
tenant protections, local health and
habitability codes, civil rights and other
relevant laws;
• Conduct due diligence to determine
whether a project involves any concerns
relating to eviction, harassment,
complaints, rent increases, or
habitability violations;
• Demonstrate that projects did not
reduce affordable housing units or
displace small businesses or farms;
• Evidence support for resident
retention through lending in low- and
moderate-income communities or
minority communities to ensure nondisplacement of those communities; or
• Provide attestations from public
sector or nonprofit partners that
displacement did not occur, or require
final § ll.13(a)(1)(i)(B)(4) through (6).
proposed § ll.13(e)(2) (revitalization),
(f)(2) (essential community facilities), (g)(2)
(essential community infrastructure), (h)(2)
(recovery in designated disaster areas), proposed
(i)(2) (disaster preparedness and climate resiliency),
and (l)(1)(i)(B) and (l)(2)(i) (Native Land Areas).
443 See proposed § ll.13(b), discussed above.
Prohibits Displacement or Exclusion of
Low- or Moderate-Income Individuals
ddrumheller on DSK120RN23PROD with RULES2
proposal noted that, if a project to build
commercial development to revitalize
an area involved demolishing housing
occupied by low- or moderate-income
individuals, then the project would not
meet this criterion and loans,
investments, or services supporting it
would be ineligible for CRA credit. In
proposing this criterion, the agencies
sought to ensure that qualifying
activities do not have a detrimental
effect on low- or moderate-income
individuals or communities or on other
underserved communities. The agencies
sought feedback on how considerations
about whether an activity would
displace or exclude low- or moderateincome residents should be reflected in
the rule.
441 See
442 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00102
Fmt 4701
Sfmt 4700
other documentation of the community
engagement process.
Other commenters focused on
gentrification concerns more expressly.
For example, commenters
recommended that the agencies: (1)
consider whether an activity would
promote gentrification and
displacement of existing low- and
moderate-income residents through
increased rents.; (2) recognize both
physical displacement, such as in the
proposal’s example of affordable
housing being demolished to create
housing serving higher-income
households, and more general
displacement from inflationary
pressures caused by rapid growth or
gentrification; and (3) closely evaluate
the demographics of financial
institutions’ financing practices in
relation to gentrification. Other
commenters indicated that impact on
minorities within identified census
tracts should be accounted for, or that
the agencies should expand CRA
discrimination downgrade criteria to
include incidents of displacement of, or
harm to, low- and moderate-income
communities and/or minorities.
Some commenters supported the goal
of preventing displacement but
suggested that the proposed criterion
was too broad and thus might
inadvertently disqualify activities that
would otherwise align with community
development goals. Accordingly, some
commenters recommended that the
criterion be revised to, for instance: (1)
allow for activities that result in
displacement, if mitigation of
displacement is incorporated into the
project, such as voluntary agreements
that provide for compensation,
alternative housing in or near the
relevant community, or other similar
benefits to displaced residents; (2)
provide other carve-outs from the
criterion, such as for temporary
relocations or limited displacement; or
(3) include only involuntary or forced
displacement, to permit, for example,
voluntary relocation from climateimpacted areas.
Other commenters opposed the
proposal to include an antidisplacement or anti-exclusion criterion
as part of place-based community
development activities, with some
explicitly opposed to a criterion
disallowing exclusion of low- and
moderate-income individuals. Some of
these commenters expressed concern
about an undefined, overbroad, or
subjective standard, with some
suggesting that the proposed criterion
would be difficult to demonstrate and
for examiners to evaluate. A commenter
suggested that meeting this criterion
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
would be especially difficult in advance
of, or shortly after the completion of, the
activity, and indicated that banks might
not be able to predict or control the
long-term effects of projects. This
commenter asserted that the proposal
would add inconsistency and
uncertainty to CRA evaluations and
potentially chill beneficial community
development projects in low- or
moderate-income communities.
Several commenters suggested that
the agencies omit the displacement and
exclusion prohibition and instead weigh
the overall impact of activities on
targeted census tracts (and other
relevant geographic areas, as
applicable). For example, commenters
suggested that activities could have
larger community benefits even if some
displacement results, such as a
commercial mixed-use project that
results in some displacement of lowand moderate-income residents but
includes housing for low- and moderateincome residents. A commenter also
suggested that the proposed antidisplacement criterion was inconsistent
with the criterion that a project be ‘‘in
conjunction with’’ a government plan,
indicating that government
revitalization plans sometimes involve
the removal of apartment buildings that
have sub-standard units.
Final Rule
In the final rule, the agencies are
adopting a revised version of the
proposal to include a place-based
criterion that activities may not
‘‘directly result in the forced or
involuntary relocation of low- or
moderate-income individuals’’ in the
targeted geographic areas. This criterion
is designed to ensure that qualifying
activities do not have a direct
detrimental effect on low- or moderateincome individuals or communities in
the relevant targeted geographic areas.
The agencies believe that qualifying
place-based community development
activities that deny such populations
the benefits of those activities through
forced or involuntary relocation out of
the targeted geographic area would be
inconsistent with the purpose of the
CRA to encourage banks to help serve
the credit needs of their communities,
including low- or moderate-income
populations.
The agencies have considered and are
persuaded by comments that
refinements to the proposed criterion
are appropriate so as not to disqualify
responsive community development
activities that align with the purpose of
the CRA. In particular, the agencies
have considered concerns raised by
some commenters based on their view
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
of the breadth of the proposed standard.
The agencies recognize, for example,
that otherwise qualifying disaster
recovery or disaster preparedness
activities with widespread benefits for a
community could involve voluntary
relocation residents due to
environmental conditions such as an
increased risk of significant flooding.
Therefore, the agencies have revised the
proposal to focus the final rule’s
criterion on prohibiting activities that
would result in the forced or
involuntary physical displacement of
low- or moderate-income individuals as
a direct result of the activity.
The final rule’s criterion on
displacement does not include the
proposal’s specific prohibition on
‘‘exclud[ing]’’ low- and moderateincome residents. As noted above, the
final rule includes a criterion that placebased activities must benefit or serve
residents of a targeted geographic area,
including low- or moderate-income
individuals (with revitalization or
stabilization activities in Native Land
Areas requiring ‘‘substantial benefits for
low- or moderate-income
individuals’’ 444). Given that the
requirement to benefit or serve a
targeted geographic area must include
low- or moderate-income individuals
(and therefore cannot exclude those
individuals), on further consideration,
the agencies believe that the exclusion
language is redundant. However, the
agencies do not intend a substantive
change relative to the proposal. Thus, if
low- or moderate-income individuals
were not able to access or benefit from
an activity, then the activity would not
include low- or moderate-income
individuals and therefore would not
qualify as community development
under the final rule.
Under the final rule, ‘‘forced or
involuntary relocation’’ could
encompass both overt activities such as
demolishing a building, as well as
actions directly resulting in conditions
for remaining in place being infeasible
or undesirable, such as uninhabitable
conditions. Accordingly, under the final
rule, a project that involves demolishing
a multifamily building in which low- or
moderate-income individuals reside,
thereby forcibly removing residents,
would not qualify as community
development under the place-based
categories. In contrast, projects
involving relocation of individuals
could conceivably qualify as community
development where residents agree to
voluntary relocation. Regarding the
concern that the proposed antidisplacement standard could conflict
444 See
PO 00000
final § ll.13(j)(2)(ii).
Frm 00103
Fmt 4701
Sfmt 4700
6675
with government plans, the agencies
believe that the revisions to the
proposal—to focus on ‘‘forced or
involuntary relocation’’—will help
mitigate this concern by adding greater
specificity to the provision. For
example, if a government plan involves
demolishing a building that has suffered
substantial hurricane damage, and all
tenants are willing to relocate, the
relocation of those tenants would not be
disqualifying under this place-based
criterion.
Additionally, the final rule states that
activities may not ‘‘directly’’ result in
forced or involuntary relocation.
Accordingly, to be disqualified, an
activity must directly relate to the
involuntary relocation. For example, if a
commercial development project to
revitalize an area involved demolishing
housing occupied by low- or moderateincome individuals, this project would
directly result in the relocation of those
occupants. Depending on the facts and
circumstances, if the relocation were
forced or involuntary, then the loans,
investments, or services supporting the
project would be ineligible for CRA
consideration. In contrast, while the
agencies note commenter feedback
regarding future market pressures on
rents and other costs resulting from
neighborhood redevelopment and share
these concerns, the agencies do not
believe such pressures generally would
directly result in forced or involuntary
relocation, and thus generally would not
be disqualifying under the final
criterion. Further, the agencies believe
that evaluating the impact of a
particular project on the broader market
in the future, such as the possibility of
general rent increases across the market,
could be challenging or speculative,
resulting in inconsistencies in
application and decreased certainty as
to which projects may qualify as
community development.
For similar reasons, the agencies are
not incorporating specific displacement
and relocation mitigation options as part
of this criterion in the final rule. The
agencies are concerned that doing so
could create a need for a complex set of
parameters regarding appropriate
mitigation for otherwise qualifying
activities. Further, determining when
mitigation efforts are sufficient in all
cases could be difficult or impracticable,
as facts and circumstances can vary
widely.
Likewise, on further consideration,
the agencies are not adopting additional
commenter-recommended standards or
criteria to measure or otherwise
demonstrate or determine whether an
activity displaces residents. As with the
above place-based criterion to benefit or
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6676
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
serve residents of a targeted geographic
area, including low- and moderateincome individuals, the agencies are
concerned that specific evidentiary
requirements or required methods to
demonstrate or determine whether an
activity displaces residents could add
complexity and burden, potentially
dissuading banks from engaging in
place-based activities. The agencies
further recognize that the range of
circumstances and contexts of
potentially qualifying projects could
have implications for whether specific
measures pertaining to displacement
determinations are appropriate, and
might not be foreseeable.
The agencies have also considered
commenter suggestions to incorporate
this particular criterion into other
community development categories, but
believe that this criterion is most
appropriate for place-based activities.
The agencies believe that the criterion is
appropriate specifically for place-based
activities to ensure that activities
designed to benefit a targeted
geographic area do not have direct
detrimental impacts on the residents the
activities are intended to serve. Further,
the relocation impacts of a particular
activity can be more easily identified
relative to a particular targeted
geographic area, which are well-defined
in, and the focus of, place-based
community development activities in
the final rule. Regarding comments
encouraging expansion of the criterion
to the affordable housing category,
particularly naturally occurring
affordable housing in § ll.13(b)(2), the
agencies note that, under the final rule,
this type of affordable housing is
designed to create units or facilitate
maintenance of existing units of
affordable housing, and examiners will
retain discretion to consider whether an
activity reduces the number of housing
units affordable to low- or moderateincome individuals. This design thus
indirectly includes anti-displacement
guardrails.445 The criterion is also less
appropriate for other community
development categories, such as
community supportive services and
financial literacy, that are unlikely to
result in the direct relocation of
residents.446
Regarding comments that the rule
should permit downgrades for activities
that result in displacement, the agencies
note that under the final rule, as
currently, evidence of illegal credit
practices is the basis of a rating
445 For further discussion, see final § ll.13(b)(2)
and the accompanying section-by-section analysis.
446 See final § ll.13(d) and (k), respectively, and
the accompanying section-by-section analyses.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
downgrade.447 The agencies have given
serious consideration to the types of
practices that should result in a ratings
downgrade, in light of significant
comments on this topic. For further
discussion of the types of practices that
can lead to a ratings downgrade under
the final rule, see the section-by-section
analysis of final § ll.28(d). The
agencies also emphasize that, under the
final rule, no place-based activity
directly resulting in forced or
involuntary relocation of low- or
moderate-income individuals will
qualify as community development, so
no bank may receive community
development consideration for loans,
investments, or services supporting
those activities.
Finally, the agencies are not removing
this criterion from the final rule or
revising the rule to weigh overall
impacts to a market, such as net benefits
of an activity to a particular market,
accounting for displacement. The
agencies have considered comments
suggesting removal or revision in this
regard, but believe that granting
consideration for loans, investments, or
services that support projects directly
resulting in forced or involuntary
relocation of low- or moderate-income
residents of targeted geographic areas,
even in conjunction with a government
plan, would be inconsistent with the
express focus of the CRA on the needs
of low- or moderate-income
populations.
Overall, the agencies believe that the
final criterion as adopted offers a more
precise standard relative to the proposal
that appropriately balances encouraging
activities that provide community
benefits to residents of a targeted
geographic area, including low- and
moderate-income residents of targeted
geographic areas, while discouraging
activities that have detrimental effects
on the residents of those targeted
geographic areas, including low- or
moderate-income individuals. The
agencies recognize commenter concerns
that the proposed rule was overbroad or
could be difficult to evaluate, and
believe that the final rule regulatory text
on this criterion more accurately
expresses the intent of the proposal and
will be more practicable to establish
than the proposed language.
Conducted in Conjunction With a
Government Plan, Program, or Initiative
The Agencies’ Proposal
The agencies proposed that activities
eligible under the place-based
community development categories
447 See current 12 CFR ll.28(c), proposed
§ ll.28(d), and final § ll.28(d).
PO 00000
Frm 00104
Fmt 4701
Sfmt 4700
would need to be undertaken ‘‘in
conjunction with a [F]ederal, [S]tate,
local, or tribal government plan,
program, or initiative’’ that, for most
proposed placed-based activities, would
have to include ‘‘an explicit focus’’ on
benefiting the relevant targeted
geographic area.448 The agencies sought
feedback on whether any or all placebased definition activities should be
required to be conducted in conjunction
with a government plan, program, or
initiative and include an explicit focus
of benefiting the targeted geographic
area. In addition, the agencies sought
feedback on appropriate standards for
government plans, programs, or
initiatives and asked about alternative
options for determining whether placebased activities meet identified
community needs.
Comments Received
Some commenters supported the
proposed common criterion to require
that place-based community
development be conducted in
conjunction with a government plan,
program, or initiative. These comments
included, for example, a commenter
asserting that banks’ lending should be
aligned with government efforts to
ensure investments reach underserved
communities and have the highest
impact, and expressing the view that the
proposed language ‘‘in conjunction
with’’ would ensure that alignment.
Several commenters supportive of the
proposed criterion suggested adding
other criteria as well, such as showing
that a plan, program, or initiative has
broad community support, to ensure
that the government plan, program or
initiative is responsive to community
needs, or involves consultation and
partnership with community- and faithbased organizations in targeted
communities to determine how best to
tailor activities. Commenter
recommendations also included that
banks should have to demonstrate that
the underlying government plan or
program includes goals and standards
appropriately aligned with a community
development category under CRA; and
that qualifying plans should be included
in an official government document that
is readily available to the public and has
448 See proposed § ll.13(e) (revitalization), (f)(3)
(essential community facilities), (g)(3) (essential
community infrastructure), (h)(3) (recovery in
designated disaster areas), (i)(3) (disaster
preparedness and climate resiliency), and (l)(1)(i)
(revitalization in Native Land Areas). Proposed
§ ll.13(l)(2)(ii) (essential community facilities
and essential community infrastructure in Native
Land Areas) and (l)(3)(ii) (disaster preparedness and
climate resiliency in Native Land Areas) did not
include the ‘‘explicit focus’’ language.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
been subject to a formal community
review process.
However, a majority of commenters
opposed or expressed concerns about
requiring place-based activities to be
conducted in conjunction with a
government plan, program, or initiative
as proposed, with some commenters
suggesting eliminating the requirement
altogether, or expanding the government
plan, program, or initiative criteria to
include other options for defining
eligible activities. Some commenters
viewed the criterion as too limiting,
given that communities do not always
have government plans, programs, or
initiatives in place for community
development. Commenters stated, for
example, that: local governments in
areas most in need of stabilization and
revitalization, including small towns
and rural areas, might not always have
a plan, program, or initiative for the
targeted census tract; consolidated plans
developed at the State level often do not
target rural areas at the census tract
level; the requirement could prevent
activities where banks are unable to find
a government partner or to know in
advance if one will be available for a
prospective project; and, more
generally, the requirement could lead to
a contraction rather than an expansion
of community development activities. A
few commenters expressed concern that
the proposed criterion would exclude
impactful activities with nonprofit
organizations or in the private sector
that are not associated with a formal
government plan but could effectuate
the same community development
purposes. A commenter expressed
concern that banks could be penalized
for supporting activities in areas
without a plan and suggested that, at a
minimum, the agencies should instead
require only that an activity be
conducted ‘‘consistent with’’ such a
government plan, program, or initiative.
Particularly regarding the proposed
disaster preparedness and climate
resiliency category of community
development,449 a commenter suggested
that if the government plan requirement
were retained, the final rule should
clarify that plans developed by local
utilities are included.
Other commenters asserted that
government plans that do exist do not
always match community goals or,
similar to comments mentioned above,
may unevenly address community
needs. For instance, a commenter
suggested that a local agency plan or
initiative might not be responsive to
needs of modest-income residents or
449 See final § ll.13(i), discussed in detail in the
accompanying section-by-section analysis.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
minorities, or might be harmful to their
interests. With respect to climate
activities, a number of commenters
argued that government plans may be
inadequate or slow to respond to
community needs. A few commenters
noted that government programs
regarding climate change often lack a
racial justice focus.
Some commenters supported
broadening this criterion to include
place-based activities in partnership
with not only governments, but also
local community organizations with
plans, programs, or initiatives,
particularly organizations that have
knowledge of, and a successful record of
working within, the relevant
community; or, similarly, communityled plans and plans conducted in
conjunction with community
development organizations and
nonprofit organizations that benefit lowand moderate-income individuals and
communities. For example, a
commenter recommended that bank
lending and investment in low- and
moderate-income communities working
with mission-driven lenders should
receive community development
consideration. Another commenter
emphasized the importance of including
in any criterion the activities of Black
developers or community organizers
that engage in place-based activities
outside of government plans—as long as
such activities still meet the explicit
focus of benefiting the targeted census
tract, including low- and moderateincome residents.
Other commenters suggested that
place-based activities should instead
simply qualify as community
development if clearly supported by
documentation that the activity meets a
need in the community. For example, a
commenter expressing concern
regarding the level of required
government engagement advocated for
giving banks more flexibility to engage
with non-government partners in
projects that also met community needs,
without the need to have a government
plan in place. Several commenters
suggested that the key qualification
standard for place-based activities
should be whether intended
beneficiaries are low- and moderateincome census tract residents or other
low- and moderate-income individuals.
Some commenters supported the
agencies’ goals to create clear standards
for qualification of place-based
activities, but recommended alternatives
to a requirement that place-based
activities be conducted in conjunction
with a government plan, program, or
initiative. For example, several
commenters suggested that, rather than
PO 00000
Frm 00105
Fmt 4701
Sfmt 4700
6677
requiring a nexus to a government, plan,
program, or initiative, the final rule
should incorporate impact scoring to
boost consideration of activities
undertaken in conjunction with a
government plan, or that government
plans should serve as evidence that an
activity is responsive to local needs.
A few commenters recommended a
qualitative approach to assessing the
value of place-based activities to the
community, such as through examiner
analysis of performance context or a
CBA to determine community needs
and whether activities respond to them.
Additionally, a few commenters
suggested that the agencies consider
activities with a race-conscious
objective or develop a ranking of
activities that emphasize working in
conjunction with government plans,
programs, and initiatives that have a
race conscious objective.
Final Rule
The final rule adopts the proposed
criterion that activities be conducted in
conjunction with a government plan,
program, or initiative, with revisions to:
(1) broaden the criterion to include
activities undertaken in conjunction
with a mission-driven nonprofit
organization; and (2) to generally delete
the word ‘‘explicit’’ where applicable
when referencing the focus of the
government plan on the relevant
community development activity in a
particular geographic area.450
Accordingly, the final rule generally
adopts as a criterion that activities be
undertaken in conjunction with a
Federal, State, local, or tribal
government or a mission-driven
nonprofit organization, where the plan,
program, or initiative includes a focus
on, for example, ‘‘revitalizing or
stabilizing targeted census tracts.’’ 451
In general. As discussed in the
proposal, the agencies intend this
criterion to achieve several objectives.
First, the criterion will help ensure that
place-based activities are responsive to
identified community needs.
Government plans, programs, or
initiatives provide a mechanism for
ensuring that activities are intentional
450 As noted, the ‘‘explicit focus’’ language for the
government plan, program, or initiative appeared
the provisions for all proposed placed-based
categories of community development, other than
essential community facilities, essential community
infrastructure, and disaster preparedness and
climate resiliency activities in Native Land Areas.
451 See final § ll.13(e)(1)(i) (revitalization and
stabilization), (f)(1) (essential community facilities),
(g)(1) (essential community infrastructure), (h)(1)(i)
(disaster recovery), and (i)(1) (disaster preparedness
and weather resiliency). The ‘‘explicit focus’’
language is adopted regarding qualifying activities
in Native Land Areas. See final § ll.13(j)(2)(i) and
(j)(3)(i).
E:\FR\FM\01FER2.SGM
01FER2
6678
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
and support articulated community
development goals, with a specific tie to
the relevant geographic areas. The
agencies believe that these plans,
programs, and initiatives are general
indicators of community needs. As
discussed in more detail below,
expanding the criterion to plans,
programs, and initiatives of missiondriven nonprofit organizations will
provide another mechanism to ensure a
nexus between an activity and
community needs in a particular
geographic area, given these
organizations’ knowledge and record of
working within, and with residents of,
targeted geographic areas. Including
mission-driven nonprofit organizations
in the criterion also will help address
commenter feedback that government
plans, programs, and initiatives are not
always available or are not always
responsive to or inclusive of all of the
needs in a particular geographic area.
Second, the final rule is intended to
improve consistency, certainty, and
transparency, which will give banks and
other stakeholders more upfront clarity
on how activities may qualify, prior to
banks engaging in those activities. The
criterion will increase consistency
relative to current practice, where
standards are complex and vary across
geographic areas, including related to
how banks can rely on a government
plan to demonstrate qualification.452
The rule will also increase certainty and
transparency in that this criterion sets
forth a clear standard for determining
whether a place-based activity qualifies
as community development and a
bank’s community development loans,
investments, or services supporting it
could receive community development
consideration.
Finally, the agencies believe that the
final rule will provide additional clarity
relative to current guidance by
permitting consideration for activities in
conjunction with a program or
initiative, even if not part of a plan. The
agencies believe that the adopted
criterion will allow for consideration of
452 For example, under current guidance an
activity in a distressed nonmetropolitan middleincome geography is presumed to revitalize or
stabilize the area if the activity is consistent with
a bona fide government revitalization or
stabilization plan (see Q&A § ll.12(g)(4)(iii)–3),
while an activity in a low- or moderate-income
census tract is presumed to revitalize or stabilize
the area if the activity has been approved by the
governing board of an Enterprise Community or
Empowerment Zone (designated pursuant to 26
U.S.C. 1391) and is consistent with the board’s
strategic plan, or if the activity has received similar
official designation as consistent with a Federal,
State, local, or tribal government plan for the
revitalization or stabilization of the low- or
moderate-income census tract. See Q&A
§ ll.12(g)(4)(i)–1.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
activities related to a wide range of
government plans, programs, and
initiatives, including those found in all
types of communities within the
targeted geographic areas of the placebased community development
categories. For example, a grant to
support a park in a low-income census
tract could qualify if undertaken in
conjunction with a citywide government
program or initiative to expand green
space in low- or moderate-income areas,
even if support for that park is not
outlined in a particular plan. The final
rule does not further specify the kinds
of plans, programs, or initiatives that
meet the criterion, nor the types of
government entities, as these can vary
by community and Federal, State, or
local law.
Mission-driven nonprofit organization
plan, program, or initiative. The final
rule broadens the proposed criterion to
include activities undertaken in
conjunction with plans, programs, or
initiatives of not only governments, but
also mission-driven nonprofit
organizations. (For a more detailed
discussion of the definition of missiondriven nonprofit organization, see the
section-by-section analysis of § ll.12
(‘‘mission-driven nonprofit
organization’’)). In reaching a
determination on this final rule
provision, the agencies considered
commenter views that the proposed
government plan, program, or initiative
criterion is too narrow or limited. The
agencies are persuaded by points raised
by some commenters that not all
communities have government plans,
programs, or initiatives in place or that
plans may vary in their level of
application to different geographic
areas. The agencies also considered
comments that government plans do not
always match the goals of all members
of the community. Further, the agencies
considered commenter views that the
proposed requirement for activities to be
conducted in conjunction with a
government plan, program, or initiative
could exclude impactful activities that
are not associated with a formal
government plan but that could also
bring benefits to residents of a targeted
geographic area.
As defined in the final rule, missiondriven nonprofit organizations have
knowledge of geographic areas that are
the focus of place-based activities under
the final rule, and a successful record of
working within and with residents of
these areas to meet community needs.
Further, these organizations can be
identified and evaluated through
demonstrable and consistent standards
(as discussed in more detail in the
section-by-section analysis of § ll.12).
PO 00000
Frm 00106
Fmt 4701
Sfmt 4700
The agencies believe that expanding
this criterion to include mission-driven
nonprofit organizations will facilitate
community partnerships between banks
and these organizations. Moreover, the
agencies believe that this expansion is
consistent with ensuring that activities
remain place-based and benefit or serve
residents of targeted census tracts,
designated disaster areas, and Native
Land Areas, as applicable. In addition,
the agencies believe that many
commenters’ specific suggestions will
be addressed through this revision, such
as suggestions to broaden the rule to
allow for qualifying activities in
connection with community
organizations or community plans,
programs, or initiatives.
The agencies also recognize
commenter suggestions to include
activities with a range of organizations
and entities, such as Black developers,
community organizers, or other specific
groups other than government entities,
for determining qualification under the
place-based categories. While not
specifically included in the final rule,
the agencies believe that the revised
adopted criterion will both allow for
and encourage partnerships with many
such organizations. The final rule does
not expand this criterion to include all
private sector partners, as the agencies
believe that these entities can have
varying goals and missions that do not
always align with the goals of CRA.
Instead, by adding mission-driven
nonprofit organizations as defined in
the final rule, the agencies believe that
the final rule will appropriately broaden
the kinds of plans, programs, and
initiatives that can count for place-based
activities, while continuing to ensure a
focus on activities that are aligned with
the goals of CRA.
Additional considerations. The
agencies have carefully considered but
are not adopting further revisions
related to commenter feedback
regarding whether to require this
criterion; the appropriate standards for
this criterion; and alternative options.
This includes comments suggesting
additional requirements for this
criterion such as demonstrations related
to formal community review; advocating
for a more qualitative approach
emphasizing examiner judgment for
assessing the value of place-based
activities to the community in lieu of
this criterion; or suggesting that
proposed government plans, programs,
or initiatives be a method for
demonstrating that an activity meets
community needs rather than a
requirement.
Regarding comments that any plan be
included in a publicly available
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
document and/or be subject to formal
community review process, or requiring
community inputs as an additional
criterion, the agencies are concerned
that specific requirements of these types
could be overly burdensome and
limiting, and dissuade banks from
engaging in place-based activities.
However, the agencies expect that many
government plans, programs, and
initiatives will involve a public input
process.
Regarding comments advocating for a
more qualitative approach or that a
government plan, program, or initiative
be considered on an evidentiary rather
than a mandatory basis, the agencies
believe that including the adopted
criterion—expanded to allow for
activities in conjunction with missiondriven nonprofit organization plans,
programs, and initiatives—is important
to ensuring that activities qualifying
under place-based community
development categories are strongly
linked to relevant local community
needs in the targeted geographic areas.
In addition, as noted regarding other
place-based criteria discussed above, the
agencies recognize commenter feedback
to consider activities with a raceconscious objective or to develop a
ranking that favors encouraging work in
conjunction with government plans,
programs, and initiatives that are
‘‘racially-conscious.’’ While these
provisions are not included in the final
rule, the agencies intend that the revised
adopted criterion provides standards for
ensuring that a broad range of residents
in targeted geographic areas benefit and
are served by place-based activities. For
more information and discussion
regarding the agencies’ consideration of
comments recommending adoption of
additional race- and ethnicity-related
provisions in this final rule, see section
III.C of this SUPPLEMENTARY
INFORMATION. On balance, the agencies
believe the adopted criterion achieves
an appropriate balance between a
flexible standard that will ensure that
place-based activities are designed to
benefit or serve residents of targeted
geographic areas, while also promoting
clarity and consistency about eligible
place-based activities.
‘‘Explicit focus’’ and ‘‘in conjunction
with’’—in relation to a plan, program, or
initiative. Other than for plans,
programs, or initiatives related to
activities in Native Land Areas,453 the
final rule removes the term ‘‘explicit’’
from the proposed regulatory text,
which would have required that the
‘‘explicit focus’’ of the government plan,
program, or initiative be on, for
453 See
final § ll.13(j)(2)(i) and (j)(3)(i).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
example, revitalizing targeted census
tracts.454 The agencies recognize that
plans, programs, or initiatives may
cover broader range of community
development needs than those related to
a specific category of place-based
activities. In addition, the agencies are
concerned that too narrow a focus on
the specific wording in the type of plan,
program, or initiative could potentially
and inadvertently disqualify otherwise
eligible activities that align with the
community development goals of CRA.
The agencies do not intend that removal
of the word ‘‘explicit’’ has any
substantive implications for the
requirement that a plan, program, or
initiative under this criterion include a
focus on, for example, revitalizing or
stabilizing a targeted census tract, or on
disaster preparedness or weather
resiliency activities in a targeted census
tract. For further discussion of the
inclusion of ‘‘explicit focus’’ in the final
rule provisions on activities in Native
Land Areas, see the section-by-section
analysis of § ll.13(j).
Finally, the agencies considered
feedback to change the proposed
requirement that an activity be ‘‘in
conjunction with’’ a government plan,
program, or initiative, to ‘‘consistent
with’’ a plan, program, or initiative, but
determined that ‘‘consistent with’’
would not provide sufficient clarity in
determining when an activity meets the
required standard. The agencies believe
that finalizing a requirement for
activities to be ‘‘in conjunction with’’ a
government or mission-driven nonprofit
organization plan, program, or initiative
will provide greater clarity relative to
current guidance by expressly
connecting the eligible activity to the
applicable plan, program, or initiative.
Currently, as noted, standards are
complex and vary across the targeted
geographic areas, including guidance
related to how banks can rely on a
government plan to demonstrate that an
activity helps to attract or retain
residents. Under the final rule, a
uniform standard will apply to all
activities, with flexibility to cover a
range of government and nonprofit
entities, as well as varying types of
plans, programs, and initiatives.
Regarding comments that any plan be
included in a publicly available
document and/or be subject to formal
community review process, or requiring
community inputs as an additional
criterion, the agencies are concerned
that a specific requirement in the
regulation could be overly burdensome
and limiting, and dissuade banks from
engaging in place-based activities.
454 See
PO 00000
proposed § ll.13(e).
Frm 00107
Fmt 4701
Sfmt 4700
6679
However, the agencies expect that many
government plans, programs, and
initiatives will involve a public input
process.
Section ll.13(e) Revitalization or
Stabilization Activities
The Agencies’ Proposal
In proposed § ll.13(e), the agencies
proposed a category of community
development for revitalization activities
undertaken in conjunction with a
Federal, State, local, or tribal
government plan, program, or initiative
that includes an explicit focus on
revitalizing or stabilizing targeted
census tracts.455 The plan, program, or
initiative would also specifically need
to include the targeted census tracts,
although the goals of a plan, program or
initiative could include stabilization or
revitalization of other geographic areas.
In addition to the targeted geographic
focus and government plan, program, or
initiative common criterion, the
agencies proposed that activities under
this category would need to meet the
two other common place-based
elements: proposed § ll.13(e)(1)
required activities to benefit or serve
residents, including low- or moderateincome residents, in one or more of the
targeted census tracts, while proposed
§ ll.13(e)(2) required that activities
not displace or exclude low- or
moderate-income residents in the
targeted census tracts. Proposed
§ ll.13(e) also provided several
representative examples to clarify the
type of activities that could be
considered under this category,
including adaptive reuse of vacant or
blighted buildings, brownfield
redevelopment, or activities consistent
with a plan for a business improvement
district or main street program.
The agencies proposed to exclude
housing-related activities from the
category of revitalization activities in
proposed § ll.13(e). Currently,
pursuant to interagency guidance,
activities that support housing for
middle- and upper-income residents can
receive community development credit
if they revitalize or stabilize a distressed
nonmetropolitan middle-income census
tract or a designated disaster area, with
greater weight given to activities that are
most responsive to community needs,
including needs of low- or moderateincome individuals or
455 See proposed § ll.12 (defining ‘‘targeted
census tract’’ to mean: ‘‘(1) A low-income census
tract or a moderate-income census tract; or (2) A
distressed or underserved nonmetropolitan middleincome census tract’’).
E:\FR\FM\01FER2.SGM
01FER2
6680
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
neighborhoods.456 Based in part on
prior stakeholder feedback that housing
that benefits middle- or upper-income
individuals, particularly in a low- or
moderate-income census tract, can lead
to displacement of existing residents,457
the agencies proposed that, under the
‘‘affordable housing’’ category of
community development in § ll.13(b),
as discussed above, activities that
promote housing exclusively for
middle- or upper-income residents
would not be eligible for CRA credit as
affordable housing, regardless of the
type of geographic area benefited.458
The agencies considered that additional
clarity could come from qualifying most
housing-related community
development activities under the
affordable housing category. The
agencies also recognized that affordable
housing activities are often components
of government plans, programs, and
initiatives to revitalize communities,
and therefore sought feedback on
whether housing-related revitalization
activities should be considered under
the affordable housing category or the
revitalization activities category, and
under what circumstances.
ddrumheller on DSK120RN23PROD with RULES2
Comments Received
Comments regarding the three
common place-based criteria are
discussed above. Remaining comments
on proposed § ll.13(e) primarily
focused on the agencies’ request for
feedback on whether certain housing
activities should be considered eligible
under the revitalization category of
community development. Many
commenters supported including
consideration for housing activities
under § ll.13(e), consistent with
current guidance.459 Some commenters
asserted that these activities are central
to overall community revitalization
efforts, without specifying which
housing activities should be included. A
commenter suggested that limiting
housing activities to the affordable
housing category would create
uncertainty for banks considering
mixed-use revitalization projects that
include both affordable housing and
commercial revitalization. A few
commenters suggested that affordable
housing should be allowed to count
under categories such as revitalization
Q&A § ll.12(g)(4)–2.
457 See 87 FR 33884, 33904 (June 3, 2022).
Stakeholder feedback considered for the proposal
also included that revitalization or stabilization
activities do not always provide direct benefits to
low- or moderate-income individuals. See id. at
33902.
458 See proposed § ll.13(b).
459 See 12 CFR ll.12(g)(4) and Q&A
§ ll.12(g)(4)–2.
456 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
and climate resiliency, but should not
be double-counted, as counting twice
could lead to decreases in investment. A
commenter suggested that housing
should be included as an eligible
revitalization activity and should be
counted in all geographic areas, while
another commenter stated that limiting
consideration of housing activities
under the revitalization category to
activities serving high poverty or high
vacancy geographic areas may not be
necessary, as pockets of distress exist in
otherwise prosperous communities.
Some commenters seeking to include
housing under § ll.13(e) expressed
support for including a variety of types
of housing activities under the
revitalization category as a crucial
component of comprehensive, equitable
neighborhood revitalization.
Suggestions included, for example,
eligibility for activities that support: (1)
the construction or rehabilitation of
owner-occupied homes (including
condominiums and cooperatives), if the
homes are in certain census tracts and
the sales price is capped; (2)
rehabilitation or reconstruction of
owner-occupied homes if the owner is
low-, moderate-, or middle-income; (3)
the disposition, rehabilitation, or
replacement of vacant and foreclosed
homes, to create new opportunities for
affordable homeownership for low- and
moderate-income households; (4)
supportive housing development,
operation, and services in any
geographic area, because the need for
supportive housing outweighs supply
(citing the impact of supportive housing
due to lack of stable affordable housing
with wrap-around services); and (5)
home repair and mitigation activities for
low- and moderate-income
homeowners.
Other commenters supported
including mixed-income or mixed-used
housing under the revitalization
category. For example, a commenter
suggested that mixed-income and
mixed-use housing developments
should qualify: (1) if in low- and
moderate-income census tracts, and (2)
if in higher-cost areas, and rent is
limited to 60 percent of the area median
income. This commenter suggested that
high-cost neighborhoods are often the
least accessible to low- and moderateincome individuals, but because these
neighborhoods often offer the greatest
access to jobs, higher performing
schools, transportation, and other
necessities, increasing access to these
neighborhoods should be considered a
revitalization activity. A few
commenters recommended including
housing developments that have onsite
or co-located childcare and early
PO 00000
Frm 00108
Fmt 4701
Sfmt 4700
education programs as eligible
revitalization activities.
Alternatively, several commenters
stated that place-based revitalization
activities and housing activities should
be separately considered under the rule,
or with limited exceptions. For
example, a commenter suggested that
considering housing activities solely as
part of the affordable housing category
would help clarify whether disparities
in non-housing resources and
investments are being adequately
addressed, which this commenter
asserted is particularly important
because affordable and subsidized
housing is often concentrated in lowresourced areas. A few commenters
similarly indicated that areas targeted
for revitalization activities are often
areas where low-income housing is
already concentrated, and housing
activities undertaken as part of
revitalization efforts can risk
perpetuating economic and racial
segregation. A commenter generally
supportive of qualifying housing
activities outside of the revitalization
category also supported an exception for
housing being removed or demolished
as part of a broader community
revitalization effort.
Commenters also addressed proposed
§ ll.13(e) beyond the question of
whether to include housing. For
example, a commenter expressed the
view that the proposed rule’s definitions
of revitalization and stabilization
activities would help direct more of the
benefits of CRA-focused investment to
low- and moderate-income communities
and individuals. Another commenter
suggested that any community
revitalization plan or activity should
include assurances that low- and
moderate-income households will be
able to remain in the neighborhood and
enjoy the benefits of revitalization
(through CBAs, support of community
land trusts, or inclusionary zoning).
A few commenters suggested certain
activities that should be considered
revitalization activities, such as
broadband; sustainability projects
including those related to food access,
food and water source protection;
renewable energy investments; and
private investment in land banking
activities.
Final Rule
The agencies are adopting proposed
§ ll.13(e), reorganized for clarity and
consistency with the structures of other
place-based categories, and further
modified as described below. The final
rule makes a technical revision to the
name of the proposed community
development category from
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
‘‘revitalization’’ to ‘‘revitalization or
stabilization’’ for consistency with the
current regulation and to reflect the
agencies’ intent to retain the concept of
‘‘stabilization’’ in this community
development category. Final
§ ll.13(e)(1) provides the general
definition of the types of activities
included in this category of community
development. These activities must also
meet specific place-based eligibility
criteria in § ll.13(e)(i) through (iii).
Final § ll.13(e)(2) adds a new
provision for mixed-use revitalization or
stabilization projects.
Section ll.13(e)(1) In General
Similar to the proposal, under final
§ ll.13(e)(1), revitalization or
stabilization comprises activities that
support revitalization or stabilization of
targeted census tracts, including
adaptive reuse of vacant or blighted
buildings, brownfield redevelopment,
support of a plan for a business
improvement district or main street
program, or any other activity that
supports revitalization or stabilization.
Final § ll.13(e)(1) incorporates the
technical revision from ‘‘revitalization’’
to ‘‘revitalization or stabilization’’ and
other non-substantive edits.
Consistent with the proposal, the final
rule incorporates some aspects of
existing guidance for revitalization and
stabilization, but no longer focuses
eligibility of activities on the extent to
which an activity helps to attract or
retain residents or businesses in targeted
geographic areas. Consistent with prior
stakeholder feedback and as noted in
the proposal, the agencies have
determined that the standard in current
interagency guidance that an activity
‘‘attract new, or retain existing,
businesses or residents’’ has proven
difficult for banks, community groups,
and the agencies to apply, resulting in
inconsistent outcomes. Under the
‘‘attract or retain’’ standard, banks and
other stakeholders lacked upfront clarity
about which loans, services, or
investments would be eligible for
consideration, and the standard also
sometimes allowed for development
that did not align with the purpose of
the CRA, such as housing for higherincome individuals, without benefits to
low- or moderate-income individuals.
Thus, the final rule focuses instead on
revitalization and stabilization activities
benefiting or serving targeted census
tracts, and includes the other placebased criterion discussed in detail
above. As further discussed below, the
agencies believe that final § ll.13(e)
will provide stakeholders with a better
upfront understanding of the types of
activities that will qualify as
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
revitalization and stabilization, and
result in more consistency in
community development consideration
for loans, investments, and services
supporting these activities.
The final rule adopts the proposed
focus on activities in targeted census
tracts, in alignment with current
guidance. The agencies considered
commenter suggestions to qualify
revitalization or stabilization activities
in all geographic areas, but believe that
the geographic nexus to targeted census
tracts—defined in final § ll.12 to
include low-income census tracts,
moderate-income census tracts, or
distressed or underserved
nonmetropolitan middle-income census
tracts—is an important standard to align
the final rule with a longstanding
geographic focus of CRA
implementation, consistent with the
CRA’s emphasis on communities of
need. The agencies believe that final
§ ll.13(e) will allow activities to
qualify across a range of community
types with varying needs, including
distressed and underserved
nonmetropolitan middle-income census
tracts without significant low- or
moderate-income populations, as well
as more densely populated metropolitan
census tracts with a greater
concentration of low- or moderateincome individuals.
The examples of revitalization or
stabilization in the final rule (as
described above, adaptive reuse of
vacant or blighted buildings, brownfield
redevelopment, and support of a plan
for a business improvement district or
main street program) are drawn from
current guidance and intended to clarify
the types of activities that might be
considered eligible under this category.
However, these illustrative examples are
intended to be non-exhaustive; the final
rule clarifies that eligible activities
include ‘‘any other activity that
supports revitalization or stabilization.’’
The agencies recognize commenter
suggestions to include specific activities
under the revitalization or stabilization
category, such as food access, renewable
energy projects, or other sustainability
projects, and believe that many of these
types of projects could be included for
consideration within this category upon
meeting the required criteria. For
example, a project to build a new
supermarket within a low- or moderateincome census tract of a small town
would qualify as a revitalization or
stabilization activity if the activity met
the required criteria. Similarly, the
agencies recognize commenter support
for including land banking and
disposition of vacant or foreclosed land
under revitalization, and believe that
PO 00000
Frm 00109
Fmt 4701
Sfmt 4700
6681
these activities would qualify provided
they met other criteria in § ll.13(e), as
these are often central elements of
neighborhood redevelopment efforts.
The agencies note that some activities
raised by commenters might qualify in
other categories; for example, broadband
is provided as an example under final
§ ll.13(g) regarding essential
community infrastructure. Other
activities suggested by commenters
might qualify under final § ll.13(b)
regarding affordable housing, such as
financing that assists low- or moderateincome individuals to rehabilitate or
reconstruct their owner-occupied homes
(excluding loans by a bank directly to
one or more owner-occupants of such
housing),460 or alternatively, the
financing of a supportive housing
development and operation that meets
applicable requirements in
§ ll.13(b).461 In response to comments
suggesting co-located childcare and
early education should qualify, the
agencies believe this activity may,
depending on the circumstances, qualify
as a community supportive service
(final § ll.13(d)) or an essential
community facility (final § ll.13(f)),
provided the activity meets all relevant
criteria.
Section ll.13(e)(1)(i) Through (iii)
Place-Based Criteria
The final rule adopts the three
proposed common place-based
eligibility criteria for revitalization or
stabilization activities, reorganized to be
in a consistent parallel order across all
place-based categories, and with the
revisions described in the discussion of
the place-based criteria above in this
section-by-section analysis.
Accordingly, under the final rule,
revitalization or stabilization activities
are those that: are undertaken in
conjunction with a plan, program, or
initiative of a Federal, State, local, or
tribal government or a mission-driven
nonprofit organization, where the plan,
program, or initiative includes a focus
on revitalizing or stabilizing targeted
census tracts (final § ll.13(e)(1)(i));
benefit or serve residents, including
low- or moderate-income individuals, of
targeted census tracts (final
§ ll.13(e)(1)(ii)); and do not directly
result in the forced or involuntary
relocation of low- or moderate-income
individuals in targeted census tracts
(final § ll.13(e)(1)(iii)).
As noted, the reasons for adopting
these final criteria, and for revisions to
460 See final § ll.13(b)(4) and the accompanying
section-by-section analysis.
461 See final § ll.13(b)(1) and (2) and the
accompanying section-by-section analyses.
E:\FR\FM\01FER2.SGM
01FER2
6682
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
the proposed criteria, are collectively
discussed above in this section-bysection analysis. With respect to the
revitalization or stabilization category in
particular, the agencies note that final
§ ll.13(e)(1)(iii) is revised from the
proposal to prohibit activities that
directly result in forced or involuntary
relocation of low- and moderate-income
individuals in targeted census tracts.
Accordingly, the agencies are not
incorporating into the final rule a
commenter suggestion that community
revitalization plans include assurances
that low- and moderate-income
households will not be displaced. The
agencies believe that adopting the
common place-based criteria, combined
with the majority standard set forth in
§ ll.13(a),462 will adequately ensure
that qualifying revitalization or
stabilization activities benefit and serve
the residents of targeted tracts,
including low- and moderate-income
individuals.
Section ll.13(e)(2) Mixed Use
Revitalization or Stabilization Project
On consideration of feedback
regarding whether housing-related
revitalization activities should be
considered under the revitalization
category, the agencies are adopting a
provision that brings certain mixed-used
revitalization or stabilization projects
under the revitalization and
stabilization category of community
development. Specifically,
§ ll.13(e)(2) incorporates into this
community development category
projects to revitalize or stabilize targeted
census tracts that include both
commercial and residential
components, if: (1) the project meets all
other criteria in § ll.13(e)(1),
including all place-based criteria (final
§ ll.13(e)(2)(i)); and (2) more than 50
percent of the project is non-residential,
as measured by the percentage of total
square footage or dollar amount of the
project (final § ll.13(e)(2)(i)).
The final rule is designed to take into
account some commenters’ views that
mixed-use housing can be central to
revitalization projects. However, the
agencies do not intend to include in this
category projects that are primarily
comprised of housing, particularly
mixed-use developments with housing
that is targeted to middle- or upperincome individuals, including such
projects in low- or moderate-income
census tracts. The agencies have
considered that this type of
462 For a detailed discussion of the majority
standard in relation to when community
development loans, investments, and services are
eligible for full or partial credit, see the section-bysection analysis of final § ll.13(a).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
development might not clearly benefit
existing residents of the targeted census
tracts, particularly low- or moderateincome residents, and can sometimes
lead to displacement of existing
residents. On further consideration of
comments, the agencies are adopting
this revision to better allow for needed
comprehensive redevelopment efforts in
targeted census tracts that involve
mixed-use properties comprised of
some, but not primarily, housing.
The agencies considered several
alternative thresholds for the percentage
of a mixed-use comprehensive
redevelopment project that can be
residential for the project to qualify as
under § ll.13(e), and are adopting a
threshold requiring that more than 50
percent of the project must be nonresidential as measured by the
percentage of total square footage or
dollar amount of the project
(corresponding to a threshold of 50
percent or lower for the residential
component of the project). The agencies
believe that the adopted percentage
threshold provides appropriate
additional flexibility for mixed-use
development under the final rule’s
revitalization and stabilization category.
In this regard, the agencies considered
that a lower residential percentage
threshold would exclude several types
of mixed-use projects central to overall
community revitalization efforts. On the
other hand, the agencies believe that
activities inclusive of a higher
percentage threshold of housing within
a project (i.e., above 50 percent) are
more appropriately considered under
the affordable housing category in
section § ll.13(b), as those projects are
primarily housing.
An example of housing activity that
could qualify under final § ll.13(e)(2),
as long as all criteria are met, would be
a main street mixed-use project to
revitalize a series of vacant buildings to
include 60 percent commercial space
and 40 percent apartments serving
middle-income residents. An example
that would not qualify under
§ ll.13(e)(2) would include a
condominium project that is 100
percent apartments that are affordable
exclusively to higher-income residents
in a targeted census tract. Likewise, the
agencies recognize comments regarding
supportive housing in any geographic
area, and reconstruction or
rehabilitation of owner-occupied homes
in low- or moderate-income census
tracts or distressed or underserved
middle-income census tracts. These
activities may qualify as affordable
housing (final § ll.13(b)) and would
qualify under § ll.13(e) if they meet
criteria as part of a comprehensive
PO 00000
Frm 00110
Fmt 4701
Sfmt 4700
mixed-use revitalization project. Banks
subject to the rule are permitted to
qualify activities under any applicable
category, but those activities may count
only once for the purposes of
calculating the Community
Development Financing Metric.
Section ll.13(f) Essential Community
Facilities
Current Approach and the Agencies’
Proposal
Currently, in low- or moderateincome census tracts, distressed
nonmetropolitan middle-income census
tracts, and designated disaster areas,
bank support for community facilities
and infrastructure generally can receive
community development consideration
to the extent that these activities help to
attract or retain residents or
businesses.463 However, among these
three geographic areas, these activities
are only explicitly mentioned in current
guidance for distressed nonmetropolitan
middle-income areas 464 (with guidance
on designated disaster areas mentioning
‘‘essential community-wide
infrastructure’’ but not facilities 465).
Regarding underserved nonmetropolitan
middle-income census tracts, as noted
earlier, the current CRA regulation
provides that activities qualify for
community development consideration
in these areas ‘‘if they help to meet
essential community needs, including
needs of low- and moderate-income
individuals.’’466 To clarify this
provision, the Interagency Questions
and Answers states that activities such
as ‘‘financing for the construction,
expansion, improvement, maintenance,
or operation of essential infrastructure
or facilities for health services,
education, public safety, public
services, industrial parks, affordable
housing, or communication services’’ in
underserved nonmetropolitan middleincome census tracts will be evaluated
to determine whether they meet
essential community needs.467
463 See Q&A § ll.12(g)(4)(i)—1 (regarding lowor moderate-income census tracts), Q&A
§ ll.12(g)(4)(ii)—2 (regarding designated disaster
areas), and Q&A § ll.12(g)(4)(iii)—3 (for
distressed nonmetropolitan middle-income census
tracts).
464 See Q&A § ll.12(g)(4)(iii)—3 (‘‘Qualifying
activities may include, for example, . . . activities
that provide financing or other assistance for
essential infrastructure or facilities necessary to
attract or retain businesses or residents.’’).
465 See Q&A § ll.12(g)(4)(ii)—2.
466 12 CFR ll.12(g)(4)(iii)(B).
467 Q&A § ll.12(g)(4)(iii)—4. As also noted, the
guidance provides several examples of projects that
may be considered to meet essential community
needs in underserved nonmetropolitan middleincome census tracts, such as hospitals, industrial
parks, rehabilitated sewer lines, mixed-income
housing, and renovated schools—as long as the
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
The agencies’ proposal aimed to
provide more clarity, certainty, and
consistency regarding CRA
consideration for activities that support
essential community facilities and
infrastructure. To this end, proposed
§ ll.13(f) (essential community
facilities) and proposed § ll.13(g)
(essential community infrastructure,
discussed further below in this sectionby-section analysis) built on the current
Interagency Questions and Answers to
clarify that essential community
facilities and essential community
infrastructure would be considered
community development if they were
conducted in and benefit or serve
residents of targeted census tracts,
defined in proposed § ll.12 to mean
low- or moderate-income census tracts,
as well as distressed or underserved
nonmetropolitan middle-income census
tracts.
Specifically, the agencies proposed a
category of community development for
essential community facilities, defined
as activities that provide financing or
other support for public facilities that
provide essential services generally
accessible by a local community.
Proposed § ll.13(f) included the
following non-exhaustive examples of
the types of facilities that would fall
into this category: schools, libraries,
childcare facilities, parks, hospitals,
healthcare facilities, and community
centers. The proposal further defined
essential community facilities as
activities conducted in targeted census
tracts (as defined in proposed § ll.12)
that also meet the other place-based
criteria discussed above: that activities
benefit or serve residents, including
low- or moderate-income residents
(proposed § ll.13(f)(1)); that activities
do not displace or exclude low- or
moderate-income residents in the
targeted census tracts (proposed
§ ll.13(f)(2)); and that an activity that
finances or supports essential
community facilities must be conducted
in conjunction with a Federal, State,
local, or tribal government plan that
includes an explicit focus on benefiting
or serving the targeted census tracts
(proposed § ll.13(f)(3)).
Comments Received
Most commenters offering feedback
on the agencies’ proposal regarding
essential community facilities were
generally supportive. A few commenters
supported the agencies’ decision not to
propose the current requirement that
community facilities must also attract or
retain businesses and residents.
population served includes low- and moderateincome individuals. See id.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Commenters offered different views
on the examples in the proposed
essential community facilities category.
Some commenters expressly supported
the proposed examples of essential
community facilities. Others sought
clarity on the types of activities that
would qualify under this community
development category, or advocated for
including additional types of activities
in the regulation. For example, a
number of commenters highlighted the
proposed examples of hospitals and
other healthcare-related facilities, noting
this may encourage new investment in
healthcare access, while others noted
the inclusion of childcare facilities,
citing a wide variety of community
benefits.
Others sought clarity on the types of
activities that would qualify under this
community development category, or
advocated for including additional types
of activities in the regulation. Several
commenters suggested that the agencies
add supermarkets and other food-related
facilities to the proposed list of
examples, including because low- and
moderate-income communities are
disproportionately more likely to be
food deserts.468 Other comments
included: a suggestion to clarify that the
financing of retail service businesses,
including grocery stores, pharmacies,
and other neighborhood-scale services,
are eligible facilities, regardless of the
size of the occupant business, as these
facilities bring convenience, jobs,
physical revitalization, and lower prices
for consumers; and suggested eligibility
for financing grocery stores larger than
the size standards in the proposed Retail
Lending Test or proposed economic
development category of community
development. Another commenter
cautioned the agencies against defining
all examples of essential community
facilities and essential community
infrastructure in the regulation, stating
that doing so could cause banks to limit
activities based on the list and limit
creativity in responding to local needs.
A number of commenters also
responded to the agencies’ request for
feedback regarding whether the
proposed category should incorporate
additional requirements to help ensure
that essential community facilities
activities include a benefit to low- or
moderate-income residents in the
communities served by these projects.
Several commenters asserted that CRA
468 Suggestions also included adding support for
grocery stores to the illustrative list of eligible
activities in proposed § ll.14(a). For discussion of
the proposed and final rules regarding the
illustrative list of eligible community development
loans, investments, and services, see the section-bysection analysis of final § ll.14(a).
PO 00000
Frm 00111
Fmt 4701
Sfmt 4700
6683
credit should be given only to essential
community facilities activities that serve
critical community needs directly in
low- and moderate-income areas that are
otherwise unable to attract funding. One
of these commenters stated that CRA
credit should be limited if the market is
already fully able to serve such needs.
Another commenter recognized the
challenges of determining the specific
population of people who benefit from
a public investment, but argued for
identifying a set of characteristics or
parameters to distinguish certain
projects beneficial to low- and
moderate-income residents from those
where financing would be readily
available at reasonable terms
notwithstanding CRA eligibility.
Other commenters emphasized that
the goal for qualifying activities under
this category should be to provide
benefits to low- and moderate-income
residents. Commenter recommendations
in support of this goal included, among
others, that the final rule should: require
banks to explain how low- and
moderate-income residents benefit from
an activity; include a primary purpose
standard for qualifying bank support for
essential community facilities under
which a majority of the dollars invested
by the bank would have to be directed
toward supporting low- and moderateincome residents; and establish
guardrails to ensure financing goes
directly to low- and moderate-income
communities, including metrics to
measure benefits of these projects, such
as jobs created for low- and moderateincome individuals and contracts with
local companies, and growth in median
income for census tract residents. A
commenter recommended that any
facility be presumed to serve low- and
moderate-income residents if it is open
to all residents of a targeted census tract,
with fees (if any) that are affordable to
low- and moderate-income persons.
A few commenters opposed adding
other criteria to the essential community
facilities category to ensure that lowand moderate-income communities and
residents benefit. These commenters
asserted that activities should qualify if
they benefit the entire community,
including but without a specific focus
on low- and moderate-income residents.
A commenter recommended that
essential community facilities should
qualify, at least for partial credit, if
located outside of targeted census tracts,
if and to the extent they benefit lowand moderate residents of the targeted
geographic areas.
Final Rule
The agencies are adopting proposed
§ ll.13(f), reorganized for clarity and
E:\FR\FM\01FER2.SGM
01FER2
6684
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
consistency with the structures of other
place-based categories and modified as
described below. Consistent with the
proposal, final § ll.13(f) provides the
general definition of the types of
activities included in this category of
community development, and requires
that these activities must also meet
specific place-based eligibility criteria
in final § ll.13(f)(1) through (3).
Section ll.13(f) In General
Under final § ll.13(f), essential
community facilities are public facilities
that provide essential services generally
accessible by a local community,
including, but not limited to, schools,
libraries, childcare facilities, parks,
hospitals, healthcare facilities, and
community centers that benefit or serve
targeted census tracts. The final rule
reflects technical edits for readability,
but is substantively consistent with the
proposal. As noted in the discussion of
the revitalization or stabilization
category in § ll.13(e) above, the
agencies believe that the final rule, with
the common place-based criteria
discussed throughout the section-bysection analysis of § ll.13(e) through
(j), will provide stakeholders with a
better upfront understanding of the
types of essential community facilities
that will qualify as community
development relative to an ‘‘attract or
retain’’ standard, resulting in more
consistency in application. Further, the
agencies believe that, relative to current
practice, the final rule will better ensure
that loans, investments, and services
support activities aligned with the
purposes of CRA to meet the credit
needs of entire communities, including
low- or moderate-income individuals.
The proposed rule defined essential
community facilities as those that are
‘‘conducted in’’ targeted census tracts;
the final rule revises the proposal to
define essential community facilities as
those that ‘‘benefit or serve’’ residents of
targeted census tracts, including lowand moderate-income individuals. The
agencies proposed the ‘‘conducted in’’
standard to facilitate a bank’s
demonstration that activities are
benefiting and serving the residents of a
targeted census tract. Based on
comments and on further consideration,
however, the agencies believe that the
‘‘conducted in’’ standard could exclude
facilities located in close proximity to a
targeted census tract that nonetheless
benefit and serve residents of that
census tract, including low- and
moderate-income individuals. For
example, under the proposal, a
construction loan to build a fire station
located just outside but primarily
serving residents of a targeted census
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
tract would have not qualified for
consideration. Under the final rule, that
construction loan could be considered,
provided the rule’s other criteria are
met. The agencies believe that the
requirement as revised—to require that
essential community facilities benefit or
serve targeted census tracts—will ensure
a strong connection between essential
community facilities and community
needs in targeted census tracts, and that
this connection will be further bolstered
by the other two place-based criteria
(e.g., undertaken with a plan, program,
or initiative that includes a focus on
benefiting or serving the targeted census
tract and not directly resulting in the
forced or involuntary displacement of
low- or moderate-income individuals in
the targeted census tract). The agencies
note that banks will be expected to be
able to demonstrate that a project
benefits the targeted census tracts in
accordance with the rule.
The agencies considered but are not
adopting the suggestion for a
presumption that any facility open to all
residents of targeted census tracts with
affordable fees serves low- and moderate
residents, given the variety of potential
facts and circumstances. The agencies
believe, however, that a facility will
qualify for consideration if a bank
demonstrates that the facility is public
and provides essential services, serves
low- or moderate-income residents in
the targeted census tract, and meets the
rule’s other required criteria. Similarly,
the agencies are not adopting the
commenter suggestion that activities
qualify if they benefit the entire
community without specific inclusion
of low- and moderate-income
individuals. The agencies believe that
qualifying essential community facility
activities should be demonstrably
inclusive of low- and moderate-income
individuals, in alignment with the
CRA’s express focus on encouraging
banks to meet low- and moderateincome community needs in the
communities they serve.
Final § ll.13(f) adopts the proposed
list of examples of essential community
facilities: schools, libraries, childcare
facilities, parks, hospitals, healthcare
facilities, and community centers,
which are generally consistent with
examples found in current guidance.
The agencies believe that these
examples provide adequate clarity to
illustrate the types of activities that may
qualify under this category. The list is
intended to help clarify, for instance,
that a loan to help build a public school
or a community center that serves
residents of a targeted census tract
would qualify for community
development consideration, provided
PO 00000
Frm 00112
Fmt 4701
Sfmt 4700
all other criteria of § ll.13(f) are met.
While the final rule does not adopt
other examples raised by commenters,
the agencies note that the list of
examples is illustrative and nonexhaustive. The final rule does not
preclude agency consideration of
investments, loans, or services
supporting other types of essential
community facilities meeting the
criteria set forth in § ll.13(f). The
agencies do not believe that identifying
every kind of essential community
facility in the regulation is practicable
or possible. However, the agencies will
take commenters’ suggestions under
advisement as the agencies develop the
illustrative list contemplated by
§ ll.14(a).
Additionally, activities mentioned by
commenters that might not qualify as
essential community facilities under the
final rule might qualify under other
categories of community development.
For example, a loan to finance a public
road or sewer could qualify for
consideration as supportive of essential
community infrastructure under
§ ll.13(g), if all of the rule’s criteria
were met, while a grant to support a
food bank that opens a food pantry
could qualify under § ll.13(d) as
supportive of a community supportive
service. Financing of retail service
businesses such as grocery stores, retail
pharmacies, and other neighborhoodscale services are generally private
sector facilities, and thus are not
considered essential community
facilities, which are defined as public
facilities. However, these retail services
may qualify as revitalization or
stabilization activities under
§ ll.13(e), should they meet the
criteria of that provision.
On consideration of the comments
and further deliberation, the agencies
are not adopting additional or
alternative requirements to help ensure
that essential community facilities
include a benefit to low- or moderateincome residents in the communities
served by these projects. For example,
regarding comments that the rule should
qualify only activities supporting
critical community needs, the agencies
believe that this approach could be
overly limiting in light of communities’
varying needs and different views about
which needs are critical. The agencies
intend the final rule to maintain
sufficient flexibility for banks and
communities to address a wide range of
needs that communities consider
important.
Regarding comments that the rule
should require activities to have a
primary purpose of serving low- and
moderate-income residents in targeted
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
census tracts, the final rule seeks to
maintain flexibility for activities to meet
a range of community needs, while also
requiring the inclusion of low- or
moderate-income individuals as
beneficiaries. As noted, this flexibility
remains particularly important in
distressed and underserved
nonmetropolitan middle-income census
tracts, which can have fewer low- or
moderate-income residents. On the
other hand, the agencies are also not
adopting the suggestion to qualify
facilities open to the entire community
without specific inclusion of low- and
moderate-income individuals. The
agencies believe that the final criterion,
as adopted, is tailored and consistent
with the CRA statute, which focuses on
benefits to communities, including to
low- or moderate-income populations.
The agencies believe that the rule as
finalized, combined with the majority
standard set forth in § ll.13(a),469
appropriately ensures inclusion of lowor moderate-income residents.
For similar reasons, the agencies are
also not incorporating into final
§ ll.13(f) metrics for measuring the
benefits of essential community facility
activities to low- and moderate-income
individuals. The agencies are concerned
that specific metrics-related
requirements or methodologies for
demonstrating low- or moderate-income
benefits of essential community
facilities could be overly burdensome
and complex to apply, potentially
dissuading banks from supporting
essential community facilities and
limiting the adaptability of the rule to
accommodate a variety of activities over
time. However, banks will be expected
to demonstrate that essential
community facilities benefit or serve
residents of targeted census tracts,
including low- and moderate-income
individuals. Finally, as discussed
further in the section-by-section
analysis of § ll.13(a), the agencies are
not adopting a partial consideration
option in § ll.13(f). The agencies
believe the primary focus of activities
should be to benefit or serve residents
of targeted tracts and an alternative
option providing partial consideration
would allow for qualification of
469 For further discussion of the standards for
receiving full credit for a loan, investment, or
service supportive of essential community facilities
or essential community infrastructure, and related
public comments, see the section-by-section
analysis of § ll.13(a). Loans, investments, or
services supporting community development under
final § ll.13(f) meet the ‘‘majority standard’’ for
receiving full credit it the majority of the
beneficiaries are, or the majority of dollars benefit
or serve, residents of targeted census tracts. See
final § ll.13(a)(1)(i)(B)(4).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
activities that do not share this focus as
an intentional goal.
Section ll.13(f)(1) Through (3)
Place-Based Criteria
The final rule adopts the three
common place-based eligibility criteria
for essential community facilities,
reorganized to be in a consistent parallel
order across all place-based categories,
and with the revisions described in the
discussion of the place-based criteria
above in this section-by-section
analysis. Accordingly, under the final
rule, essential community facilities are
public facilities that: are undertaken in
conjunction with a plan, program, or
initiative of a Federal, State, local, or
tribal government or a mission-driven
nonprofit organization, where the plan,
program, or initiative includes a focus
on benefiting or serving targeted census
tracts (final § ll.13(f)(1)); benefit or
serve residents, including low- or
moderate-income individuals, of
targeted census tracts (final
§ ll.13(f)(2)); and do not directly
result in the forced or involuntary
relocation of low- or moderate-income
individuals in targeted census tracts
(final § ll.13(f)(3)). As noted, the
reasons for adopting these final criteria,
and for revisions to the proposed
criteria, are collectively discussed above
in this section-by-section analysis.
Section ll.13(g) Essential
Community Infrastructure
The Agencies’ Proposal
In proposed § ll.13(g), the agencies
proposed a category of community
development for essential community
infrastructure activities, defined as
activities that provide financing and
other support for infrastructure,
including, but not limited to broadband,
telecommunications, mass transit, water
supply and distribution, and sewage
treatment and collection systems. The
proposal further defined essential
community infrastructure as activities
conducted in targeted census tracts (as
defined in proposed § ll.12 and
discussed above) that also meet the
other place-based criteria discussed
above: that activities benefit or serve
residents, including low- or moderateincome residents (proposed
§ ll.13(g)(1)); that activities do not
displace or exclude low- or moderateincome residents in the targeted census
tracts (proposed § ll.13(g)(2)); and
that an activity that finances or supports
essential community infrastructure must
be conducted in conjunction with a
Federal, State, local, or tribal
government plan that includes an
explicit focus on benefiting or serving
PO 00000
Frm 00113
Fmt 4701
Sfmt 4700
6685
the targeted census tracts (proposed
§ ll.13(g)(3)). Thus, under the
proposal, support for larger
infrastructure projects could be eligible
for community development
consideration if the project is conducted
in relevant targeted census tracts,
demonstrably benefits the residents of
the targeted census tracts, and it is
evident that, in particular, low- or
moderate-income residents, of the
targeted census tracts would benefit and
not be excluded from the larger-scale
improvements.
Comments Received
Many comments on proposed
§ ll.13(g) provided feedback on the
types of infrastructure that should be
considered essential community
infrastructure, with a number requesting
clarification about specific types of
infrastructure projects. Many
commenters expressly supported the
proposed consideration for broadband
activities, emphasizing, among other
things, the importance of broadband
access in community resilience, closing
the digital divide, and creating access to
financial services, jobs, healthcare, and
education, and noting the role of CRA
in overcoming broadband investment
costs. Additional commenter feedback
included support for qualification of
broadband infrastructure only if
reliable, affordable, and locally
controlled; and support for qualifying
only the infrastructure examples
included as part of the proposal. Other
commenters generally highlighted the
importance of investments made in
functioning roadways, internet, health,
and safety, with additional suggestions
that the regulation specify a range of
activities that qualify as essential
community infrastructure, including
renewable energy projects; transitoriented infrastructure, including road
and technology infrastructure; hospital
construction; jail renovations; and
refuse services.
The agencies also received a number
of comments in response to the
agencies’ request for feedback regarding
whether the proposed category should
incorporate additional criteria to help
ensure that essential community
infrastructure activities include a
benefit to low- or moderate-income
residents in the communities served by
these projects. Some commenters
opposed additional criteria for
community development consideration
of infrastructure projects (or community
facilities), indicating that activities
benefiting all residents, including
persons of any income level, should
qualify. As discussed in more detail
below, other commenters on this aspect
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6686
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
of the proposal supported an emphasis
on benefits to low- and moderateincome residents, with some suggesting
additional criteria for ensuring that
community infrastructure projects
qualifying as community development
under the CRA benefit low- and
moderate-income residents.
Some commenters asserted that
essential community infrastructure
activities should be focused on
benefiting low- and moderate-income
residents of targeted census tracts (or
other relevant geographic areas). For
example, a commenter expressed
concerns about certain proposed
infrastructure examples such as
broadband, water, and sewage, as
greatly expanding the number and types
of eligible activities without a clear
benefit to low- and moderate-income
people and places. A few commenters
recommended that essential community
infrastructure be limited to activities
with a clear and demonstrable benefit
to, or primary purpose of serving, lowand moderate-income people and
geographic areas. Several commenters
suggested that CRA credit for
infrastructure should be limited based
on a strong correlation with benefits to
low- and moderate-income individuals
and families because reasonable
financing is already available for most
essential infrastructure projects.
Commenters also asserted that CRA
credit should be given only to essential
community infrastructure activities that
serve critical community needs directly
in low- and moderate-income areas and
are otherwise unable to attract funding.
A few commenters recommended that
essential community infrastructure be
limited to activities with a clear and
demonstrable benefit to, or primary
purpose of serving, low- and moderateincome people and geographies.
Another commenter emphasized that
qualifying activities in this category
should have a clear objective of meeting
needs in targeted communities.
Other comments on ensuring benefits
for ensuring benefit for low- and
moderate-income individuals and
communities included support for
limiting CRA consideration to those
activities with a strong correlation to
benefits for low- and moderate-income
individuals and families, such as a
project in a majority low- and moderateincome population census tract.
Suggestions for measuring the benefits
of infrastructure projects to low- and
moderate-income communities included
considering jobs created for low- and
moderate-income individuals; contracts
with local companies; economic growthrelated metrics such as growth in
median income for census tract
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
residents; and environmental
improvements, such as greenhouse gas
emissions and/or pollution reductions,
increases in the amount of greenspace,
community health benefits, and climate
adaptation strategies.
Citing the impact of historical
disinvestment in basic infrastructure on
many low- and moderate-income
communities, particularly minority
communities, a commenter suggested
that the CRA framework should
prioritize ensuring that all communities
have a minimum standard of
infrastructure, including protective
infrastructure, over enhancing
infrastructure in areas that already have
a standard level of investment. Another
commenter suggestion was that the
agencies consider a bank’s activities
supporting essential community
infrastructure in light of the overall
balance of activities that comprise a
bank’s portfolio, to ensure that a
significant portion of the bank’s
community development activities are
targeting places and populations of high
need with products that are not
otherwise likely to be offered by the
bank. This commenter further suggested
that that agencies cap the volume of
essential community infrastructure that
could be included in the proposed
Community Development Financing
Metric,470 asserting that essential
community infrastructure projects are
often relatively safe investments to
make but might not necessarily be
directly targeted to low- and moderateincome persons or communities.
As also discussed above in the
section-by-section analysis of
§ ll.13(a), a few commenters
expressed support for giving partial
credit for essential community
infrastructure activities. Citing the largescale nature of many infrastructure
projects and concerns about the
potential difficulty of applying the
proposed primary purpose standard,471
commenters recommended various
approaches to a partial credit framework
for essential community infrastructure.
These included partial credit based on
the percentage of low- and moderateincome census tracts served by the
activity, or based on whether the
infrastructure project meets or exceeds a
minimum threshold of serving low- and
moderate-income census tracts,
residents, or small businesses or farms.
A commenter separately suggested
granting at least partial credit for
470 See proposed § ll.24. See also final
§ ll.24 and the accompanying section-by-section
analysis.
471 See proposed § ll.13(a). See also final
§ ll.13(a) and the accompanying section-bysection analysis.
PO 00000
Frm 00114
Fmt 4701
Sfmt 4700
infrastructure (and facilities) located
outside of targeted census tracts, as long
as the infrastructure benefits residents
of those census tracts. In contrast, at
least one commenter expressly opposed
providing partial credit for bank support
of essential community infrastructure,
noting concerns that these activities
tend to be large dollar transactions that
are not necessarily targeted at low- and
moderate-income residents with
intentionality, and thus partial credit
could allow for more projects to qualify
and potentially comprise a significant
portion of a bank’s community
development finance metric numerator
at the expense of smaller, more
impactful investments. However, this
commenter recommended an exception
for partial credit for activities in rural
communities and cities with low bond
ratings and thus that might not
otherwise receive financing support.
Final Rule
The agencies are adopting proposed
§ ll.13(g), reorganized for clarity and
consistency with the structures of other
place-based categories and modified as
described below. Consistent with the
proposal, final § ll.13(g) provides the
general definition of the types of
activities included in this category of
community development, and requires
that they meet specific place-based
eligibility criteria in final § ll.13(g)(1)
through (3).
Section ll.13(g) In General
Under final § ll.13(g), essential
community infrastructure comprises
activities benefiting or serving targeted
census tracts, including but not limited
to broadband, telecommunications,
mass transit, water supply and
distribution, and sewage treatment and
collection systems. Thus, final
§ ll.13(g) makes no substantive
changes to the proposal other than
technical edits for readability. As with
other place-based categories, the
agencies believe that final § ll.13(g),
with the common place-based criteria
discussed in more detail elsewhere in
the section-by-section analysis of
§ ll.13, will provide stakeholders
with a better upfront understanding of
the types of essential community
infrastructure that will qualify as
community development relative to the
current approach based on an ‘‘attract or
retain’’ standard. Additionally,
consistent with the proposal, the final
rule clarifies that essential community
infrastructure is a community
development category that applies
across all targeted census tracts (i.e.,
low-income, moderate-income,
distressed or underserved middle-
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
income census tracts), whereas, as
noted, current guidance explicitly
references infrastructure only in the
context of distressed or underserved
nonmetropolitan middle-income census
tracts. Further, the agencies believe that,
relative to current practice, the final rule
will better ensure that loans,
investments, and services support
activities that align with the purposes of
CRA to meet the credit needs of entire
communities, including low- or
moderate-income individuals.
As noted, proposed § ll.13(g)
defined essential community
infrastructure as those that are
‘‘conducted in’’ targeted census tracts;
the final rule revises the proposal to
define essential community
infrastructure activities as those that
‘‘benefit or serve’’ residents of targeted
census tracts, including low- or
moderate-income individuals, similar to
revisions made with respect to the
essential community facilities category
under § ll.13(f). As with proposed
§ ll.13(f), the agencies proposed the
‘‘conducted in’’ standard to facilitate a
bank’s demonstration that essential
community infrastructure activities are
benefiting and serving the residents of a
targeted census tract. Based on
comments and on further consideration,
the agencies believe that the ‘‘conducted
in’’ standard could exclude
infrastructure projects located in close
proximity to a targeted census tract that
nonetheless benefit and serve residents
of that tract, including low- and
moderate-income individuals. The
agencies also intend this revision to
strengthen the emphasis on benefits to
residents of targeted census tracts,
including low- or moderate-income
individuals, in the event that
infrastructure projects ‘‘conducted in’’ a
targeted census tract might have only
ancillary if any benefits for the targeted
census tract. For example, a project to
build a sewer line that connects services
to a middle- or upper-income housing
development but passes through a lowor moderate-income census tract
without connecting needed sewer
services to that community generally
would not qualify as essential
community infrastructure under the
final rule.472 In contrast, a project to
improve water supply to residents of
targeted census tracts could qualify as
community development even if the
water supply improvements were made
outside of those census tracts, provided
that the bank could demonstrate the
project benefits the targeted census
tracts in accordance with the rule. The
agencies believe that the requirement as
472 See
also Q&A § ll.12(g)(4)(iii)—4.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
revised—to require that essential
community infrastructure benefit or
serve targeted census tracts—will ensure
a strong connection between essential
community infrastructure and
community needs in targeted census
tracts, and that this connection will be
further bolstered by the other two
common place-based criteria. The
agencies further note that banks will be
expected to be able to demonstrate that
a project benefits the targeted census
tracts in accordance with the rule.
As noted above, the final rule adopts
the proposed non-exhaustive list of
examples of essential community
infrastructure: broadband,
telecommunications, mass transit, water
supply and distribution, and sewage
treatment and collection systems. On
consideration of the comments and
further review, the agencies continue to
believe that the proposed examples
provide adequate clarity for the types of
activities that could be considered
essential community infrastructure
under final § ll.13(g), and also note
that they generally align with current
guidance, discussed above. Accordingly,
examples of the types of loans,
investments, and services that support
essential community infrastructure
under § ll.13(g) could include a
municipal bond to help fund a transit
improvement within targeted census
tracts, or financing of a project to
provide residents of targeted census
tracts access to broadband, subject to the
other criteria being met.
Regarding other examples raised by
commenters, the agencies note that the
list of examples is illustrative and nonexhaustive. Thus, the final rule does not
preclude agency consideration of
investments, loans, or services
supporting other types of essential
community infrastructure that meet the
criteria set forth in § ll.13(g). The
agencies do not believe that identifying
every kind of essential community
infrastructure in the regulation is
practicable or possible. However, the
agencies will take commenters’
suggestions under advisement as the
agencies develop the illustrative list
contemplated by § ll.14(a).
The agencies also considered the
suggestion to limit the provision to only
those activities listed in § ll.13(g), but
believe that this approach would be too
restrictive; communities may have
differing infrastructure needs, and
limitations could deter new or
innovative essential community
infrastructure projects. Additionally,
activities that are not essential
community infrastructure may qualify
under other categories of community
development. For example, a project to
PO 00000
Frm 00115
Fmt 4701
Sfmt 4700
6687
redevelop vacant brownfield lots into
buildable land would not qualify as
essential community infrastructure in
section § ll.13(g), but might qualify as
a revitalization or stabilization activity
pursuant to section § ll.13(e).
On consideration of the comments
and further deliberation, the agencies
believe that final § ll.13(g), combined
with the majority standard set forth in
§ ll.13(a),473 appropriately ensures a
focus on low- or moderate-income
residents of targeted census tracts.
Accordingly, the agencies have
determined not to adopt additional or
alternative requirements to help ensure
that essential community infrastructure
activities include a benefit to low- or
moderate-income residents in the
communities served by these projects.
Having carefully reviewed commenter
suggestions, the agencies are concerned
that additional criteria might be overly
limiting, such as qualifying only
activities supporting critical community
needs, or particular activities only
under specified conditions, such as
limited costs or local control. The
agencies recognize that community
needs can vary widely across
communities, and therefore intend the
final rule to be sufficiently adaptable for
banks and communities to address those
needs. While the agencies note that
infrastructure projects in higher income
areas tend to be sufficiently resourced,
the agencies believe that the final rule
will provide recognition of bank support
for a variety of needed activities in
targeted census tracts, including those
projects that would be less likely to be
funded otherwise.
In addition, the agencies are not
adopting comments suggesting that the
rule should require activities to
primarily serve low- and moderateincome residents in targeted census
tracts; to strongly correlate to the benefit
to low- and moderate-income
individuals; or to limit eligible activities
to census tracts with majority low- or
moderate-income populations. The final
rule seeks to maintain flexibility for
activities to meet a range of community
needs, while also requiring the
inclusion of low- or moderate-income
individuals as beneficiaries. As noted in
the discussion of essential community
facilities (final § ll.13(f)), the agencies
believe that this flexibility remains
particularly important in distressed or
473 See final § ll.13(a)(1)(i)(B)(4) (providing that
loans, investments, or services supporting
community development under final § ll.13(f)
and (g) meet the ‘‘majority standard’’ for receiving
full credit it the majority of the beneficiaries are, or
the majority of dollars benefit or serve, residents of
targeted census tracts), discussed in the section-bysection analysis of final § ll.13(a)(1).
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6688
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
underserved nonmetropolitan middleincome census tracts, which can have
fewer low- or moderate-income
residents. Thus, the final rule is
intended to balance a number of
considerations by specifically requiring
that essential community infrastructure
under § ll.13(g) benefit or serve
residents of these census tracts, or lowor moderate-income census tracts, but
also requiring that low- or moderateincome individuals within those census
tracts benefit from the project. At the
same time, the agencies are declining to
expand the rule to qualify activities
benefiting all residents without regard
to income level, as the agencies believe
it is important that there be some
demonstrated benefit to low- and
moderate-income individuals.
For similar reasons, the agencies are
also not adopting in the regulation
recommended methods for measuring
the benefits of these projects to low- and
moderate-income individuals. The
agencies are concerned that specific
requirements in this regard could be
overly burdensome and add a level of
complexity to the rule that could run
counter to facilitating partnerships
between banks and communities to
meet essential community infrastructure
needs. The agencies further believe that
there is a need to maintain flexibility in
the rule, as noted above, for qualifying
a range of infrastructure projects that
meet varying community needs.
However, banks will be expected to
demonstrate that all of the criteria in
§ ll.13(g) have been met, notably the
criterion in § ll.13(g)(2) that essential
community infrastructure benefits or
serves residents of targeted census
tracts, including low- and moderateincome individuals.
The agencies have also considered
comments suggesting an option to
provide partial credit for activities
under § ll.13(g), but continue to
believe that not including a partial
credit option for essential community
infrastructure will better facilitate
clarity and consistency in the
consideration of essential community
infrastructure. In addition, the agencies
are concerned that providing partial
credit could allow for qualification of
projects without a specific focus on
benefiting and serving residents of
targeted census tracts, and might allow
for activities with only tangential
benefits to the targeted census tracts.
The agencies recognize commenter
concerns that the criteria for essential
community infrastructure could result
in support for larger infrastructure
projects not qualifying for CRA credit,
but believe that these larger projects are
likely to have financing options even if
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
they have only ancillary benefits to
residents of targeted census tracts. The
place-based criteria adopted under the
final rule thus are designed to help
ensure that community development
under the CRA includes larger
infrastructure projects that provide clear
and meaningful benefits to residents of
targeted census tracts, and that smaller
projects benefiting residents of targeted
census tracts have needed financial
support. Larger scale infrastructure
projects will qualify if they meet all
required criteria, including that there is
a demonstrated majority benefit for
residents of targeted census tracts.474
Thus, a bank could purchase a bond to
fund improvements for a citywide water
treatment project that is consistent with
a city’s capital improvement plan; this
bond purchase would qualify if the
majority of the project benefits or serves
residents in the eligible census tracts,
includes low- or moderate-income
residents, and meets the other criteria of
§ ll.13(g).
Section ll.13(g)(1) Through (3) PlaceBased Criteria
The final rule adopts the three
common place-based eligibility criteria
for essential community infrastructure,
reorganized to be in a consistent parallel
order across all place-based categories,
and with the revisions described in the
discussion of the place-based criteria
above in this section-by-section
analysis. Accordingly, under the final
rule, essential community infrastructure
are activities that: are undertaken in
conjunction with a plan, program, or
initiative of a Federal, State, local, or
tribal government or a mission-driven
nonprofit organization, where the plan,
program, or initiative includes a focus
on benefiting or serving targeted census
tracts (final § ll.13(g)(1)); benefit or
serve residents, including low- or
moderate-income individuals, of
targeted census tracts (final
§ ll.13(g)(2)); and do not directly
result in the forced or involuntary
relocation of low- or moderate-income
individuals in targeted census tracts
(final § ll.13(g)(3)). As noted, the
reasons for adopting these final criteria,
and for revisions to the proposed
criteria, are collectively discussed above
in this section-by-section analysis.
Section ll.13(h) Recovery Activities in
Designated Disaster Areas
Current Approach and the Agencies’
Proposal
Similar to the current CRA regulations
and guidance regarding support for
474 See final § ll.13(a)(1)(i)(B)(4) and the
accompanying section-by-section analysis.
PO 00000
Frm 00116
Fmt 4701
Sfmt 4700
designated disaster areas,475 proposed
§ ll.13(h) would establish recovery
activities in designated disaster areas as
a category of community development.
Specifically, proposed § ll.13(h)(1)
stated that these recovery activities
comprised activities that revitalize or
stabilize geographic areas subject to a
Major Disaster Declaration administered
by the Federal Emergency Management
Agency (FEMA). Consistent with
current guidance, the proposed
provision expressly excluded activities
that revitalize or stabilize counties
designated to receive only FEMA Public
Assistance Emergency Work Category A
(Debris Removal) and/or Category B
(Emergency Protective Measures), but
modified the exclusion by providing
that the agencies may determine to grant
a temporary exception for these areas.476
Also aligned with current guidance, the
proposal provided that activities
promoting the revitalization or
stabilization of designated disaster areas
would be eligible for CRA consideration
for 36 months after a Major Disaster
Declaration unless that period is
extended by the agencies.477
The proposal further defined recovery
activities in designated disaster areas as
activities that also meet the other placebased criteria discussed above: that
activities benefit or serve residents,
including low- or moderate-income
residents (proposed § ll.13(h)(2)); not
displace or exclude low- or moderateincome residents, of these geographic
areas (proposed § ll.13(h)(2)); be
conducted in conjunction with a
Federal, State, local, or tribal
government disaster plan that includes
an explicit focus on benefiting the
designated disaster area (proposed
§ ll.13(h)(3)). Under the proposal,
activities in designated disaster areas
that meet these eligibility standards
could be considered regardless of the
income level of the designated census
tracts.
Comments Received
Comments on the proposal regarding
recovery activities in designated disaster
areas generally focused on the agencies’
specific request for feedback on whether
they should consider any additional
criteria to ensure that activities in this
category benefit low- or moderateincome individuals and communities.
Some commenters, for example,
indicated support for additional criteria
for this category to focus the benefits of
475 See 12 CFR ll.12(g)(4)(ii). See also Q&A
§ ll.12(g)(4)(ii)–1 and –2.
476 See proposed § ll.13(h)(1); compare with
Q&A § ll.12(g)(4)(ii)–1.
477 See id.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
recovery activities in disaster areas on
low- and moderate-income individuals
and communities and to avoid recovery
efforts being concentrated in higherincome areas. Commenters noted that
disasters disproportionately impact lowincome communities, and pointed to the
inequitable distribution of recovery
resources following a disaster. Several
of these commenters recommended
metrics to help ensure low- and
moderate-income community benefit of
disaster recovery activities, such as: (1)
requiring that a specific percentage of
benefits inure to low- and moderateincome residents; (2) use of a Social
Vulnerability Index to help determine
and assess low- and moderate-income
benefit; or (3) consideration of criteria
used in the Census Bureau’s Community
Resilience Estimates, which focus on
various factors that could impact a
community’s ability to survive and
rebound from declared disasters.478 A
few commenters further suggested that
the agencies give credit for activities
that serve displaced residents who were
forced to migrate, as well as the census
tracts that receive those displaced
residents; or require that recovery
activities in designated disaster areas
benefit low- and moderate-income
communities, minority communities, or
both, in order to be eligible for CRA
consideration. Another commenter
similarly suggested that the focus of
disaster recovery should be expanded to
include minority communities, to
ensure the agencies are fulfilling their
obligation under the Fair Housing Act’s
affirmatively furthering fair housing
provision.479 This commenter suggested
that minority individuals and
communities are especially vulnerable
to disasters and are also the least likely
to have access to the resources needed
to recover from disasters. Commenter
feedback also included a
recommendation to qualify activities
that primarily benefit low- and
moderate-income communities affected
by a natural disaster without requiring
a FEMA declaration or disaster plan for
that community.
In lieu of additional criteria, a few
commenters advocated for using the
proposed impact review to give positive
treatment for bank financing activities
for disaster recovery based on the extent
to which low- and moderate-income
478 See, e.g., U.S. Census Bureau, ‘‘Community
Resilience Estimates’’ (May 30, 2023), https://
www.census.gov/programs-surveys/communityresilience-estimates.html.
479 See 42 U.S.C. 3608. See also, e.g., 24 CFR
5.150 through 5.180, as proposed to be amended in
88 FR 8516 (Feb. 9, 2023).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
individuals or neighborhoods benefit.480
For instance, a commenter suggested
that CRA performance evaluations
should specifically factor in the degree
to which these activities benefit lowand moderate-income populations, with
higher scores assigned to projects
benefiting low- and moderate-income
residents than other projects.
Some commenters supported
qualifying recovery activities in
designated disaster areas, regardless of
income level, or otherwise opposed
additional criteria to ensure benefits for
low- and moderate-income individuals
and communities in designated disaster
areas. For example, a commenter
supported considering disaster recovery
activities as responsive to community
needs and suggested that such activities
in middle- and upper-income areas can
benefit low- and moderate-income
persons. A few commenters suggested
that the agencies rely on the expertise of
the bank’s CRA professional to create a
case for the activity and demonstrate
that the activity is in direct response to
a natural disaster. Another commenter
referenced current guidance on disaster
recovery activities under the CRA that
are not income-limited,481 and asserted
that, to ensure that disaster recovery
efforts are effective, all members of any
community who have experienced
economic dislocation due to a disaster
must continue to be able to benefit from
the community development activities
undertaken by the financial institution,
regardless of income.
Final Rule
Final § ll.13(h) adopts proposed
§ ll.13(h), reorganized for clarity and
consistency with the structures of other
place-based categories, and modified as
described below. Consistent with the
proposal, final § ll.13(h)(1) provides
the general definition of the types of
activities included in this category of
community development and specifies
that they must also meet the common
place-based eligibility criteria (final
§ ll.13(h)(1)(i) through (iii)). Final
§ ll.13(h)(2) contains the proposed
exclusion from consideration for loans,
investments, and services supporting
disaster recovery in counties designated
to receive only FEMA Public Assistance
Emergency Work Category A (Debris
Removal) and/or Category B (Emergency
Protective Measures), and the timeframe
for eligibility for consideration.
480 See proposed § ll.15(b). See also final
§ ll.15(b) and the accompanying section-bysection analysis.
481 See Q&A § ll.12(g)(4)(ii)–1 and –2.
PO 00000
Frm 00117
Fmt 4701
Sfmt 4700
6689
Section ll.13(h)(1) Recovery of
Designated Disaster Areas
Under final § ll.13(h)(1), activities
that promote recovery of a designated
disaster area are those that revitalize or
stabilize geographic areas subject to a
Major Disaster Declaration administered
by FEMA. The final rule relocates the
proposed additional parameters for
qualification from proposed
§ ll.13(h)(1) to final § ll.13(h)(2),
described below. The final rule is
intended to describe eligible disaster
recovery activities more clearly, as a
stand-alone community development
category of community development in
the regulation, rather than including
disaster recovery activities as a
subcategory of revitalization and
stabilization. Examples of bank
activities for CRA credit as supportive of
disaster recovery activities under final
§ ll.13(h) include, but are not limited
to, assistance with rebuilding
infrastructure; financing to retain
businesses that employ local residents;
and recovery-related housing or
financial assistance to individuals in the
designated disaster areas. As with the
other place-based categories, the
agencies believe that the final rule on
disaster recovery activities, with the
common place-based criteria discussed
in more detail above, will provide
stakeholders with a better upfront
understanding of the types of disaster
recovery activities that will qualify as
community development relative to the
current ‘‘attract or retain’’ standard.
The agencies have considered
commenter suggestions for additional or
alternative criteria to help ensure that
designated disaster recovery activities
include a benefit to low- or moderateincome residents in the communities
served by these projects. In particular,
the agencies are sensitive to commenter
concerns that disasters can often more
severely impact low- and moderateincome individuals. At the same time,
given the disparate and widespread
impacts that major disasters can
involve, the agencies are concerned
about unduly limiting qualification of
activities under this category and
possibly qualifying fewer disaster
recovery activities than under the
current rule. Thus, the agencies are not
adopting commenter suggestions that
the rule should require that a majority
of, or all, of disaster recovery activity
benefits go to low- or moderate-income
residents and communities, or other
similar limitations noted in the
summary of comments above. The
agencies continue to believe that
activities that promote the recovery of
designated disaster areas should benefit
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6690
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
the entire community, including, but
not limited to, low- or moderate-income
individuals and communities,
consistent with the purposes of CRA.
Further, the agencies believe that the
common place-based criteria adopted
under the final rule will ensure a strong
connection to community needs in
designated disaster areas. Specifically,
while activities in all census tract
income levels may be considered, these
activities must benefit or serve residents
of the census tracts included in the
designated disaster area, including lowor moderate-income individuals, and
must not directly result in forced or
involuntary relocation of individuals in
designated disaster areas.
The agencies are also not adopting the
suggestion to include under disaster
recovery those activities that are not tied
to specific FEMA Major Disaster
Declarations or disaster recovery plans.
The agencies believe that revising the
current (and proposed) rule to take a
more expansive approach to designating
eligibility under the disaster recovery
category would be overbroad and could
require supplemental eligibility criteria
that would add complexity to the final
rule, potentially detracting from the
increased clarity and transparency for
stakeholders and examiners that the
final rule is designed to achieve.
Incorporating State disaster
declarations, for example, would pose
compliance and implementation
challenges due to varying standards and
the large volume of such declarations.
The agencies believe that generally
retaining current and proposed
parameters related to disaster recovery
activities, including the focus on
federally designated disaster areas and a
nexus to a plan, program, or
initiative,482 benefits stakeholders by
providing consistency and
predictability. The agencies also believe
that the final rule’s tie to geographic
areas subject to a FEMA Major Disaster
Area Declaration will provide
recognition for a wide range of projects
benefiting communities in crisis across
the United States within appropriately
far-reaching, yet clearly defined,
geographic areas. The agencies also note
that there have been a significant
number of FEMA Major Disaster
Declarations in recent years, further
indicating that the final rule approach
has an appropriate scope for considering
a wide range of activities assisting many
specifically impacted communities.
Finally, the agencies are declining to
adopt specific methods to measure
benefits as suggested by some
482 See proposed § ll.13(h); see also Q&A
§ ll.12(g)(4)(ii)–1 and –2.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
commenters. As with similar
suggestions for other place-based
categories, the agencies are concerned
that specific requirements could be
difficult to implement and dissuade
banks from engaging in these activities.
The agencies further aim to support
adaptability of the rule and recognize
that different facts and circumstances
could give rise to a wide range of
appropriate ways to demonstrate that an
activity meets the disaster recovery
standards in final § ll.13(h). As noted
elsewhere, however, banks will be
expected to demonstrate that they have
met all of the criteria in § ll.13(h) for
activities in designated disaster areas,
notably that the activities benefit
residents, including low- or moderateincome individuals, of designated
disaster areas.
Section ll.13(h)(1)(i) Through (iii)
Place-Based Criteria
The final rule adopts the three
common place-based eligibility criteria
for disaster recovery activities,
reorganized to be in a consistent parallel
order across all place-based categories,
and with the revisions described in the
discussion of the place-based criteria
above in this section-by-section
analysis. Under the final rule, activities
that promote recovery from a designated
disaster are activities that: are
undertaken in conjunction with a
disaster plan, program, or initiative of a
Federal, State, local, or tribal
government or a mission-driven
nonprofit organization, where the plan,
program, or initiative includes a focus
on benefiting or serving the designated
disaster area (final § ll.13(h)(1)(i));
benefit or serve residents, including
low- or moderate-income individuals, of
the designated disaster area (final
§ ll.13(h)(1)(ii)); and do not directly
result in the forced or involuntary
relocation of low- or moderate-income
individuals in the designated disaster
area (final § ll.13(h)(1)(iii)). As noted,
the reasons for adopting these final
criteria, and for revisions to the
proposed criteria, are collectively
discussed above in this section-bysection analysis.
Section ll.13(h)(2) Eligibility
Limitations for Loans, Investments, or
Services Supporting Recovery of a
Designated Disaster Area
Final § ll.13(h)(2) relocates and
adopts, with non-substantive
clarifications, the additional eligibility
parameters in proposed § ll.13(h)(1).
Specifically, under § ll.13(h)(2)(i),
loans, investments, or services that
support activities promoting recovery
from a designated disaster in counties
PO 00000
Frm 00118
Fmt 4701
Sfmt 4700
designated to receive only FEMA Public
Assistance Emergency Work Category A
(Debris Removal) and/or Category B
(Emergency Protective Measures) are not
eligible for consideration under
§ ll.13(h), unless the agencies
announce a temporary exception.
Section ll.13(h)(2)(ii) states that
loans, investments, and services that
support activities under § ll.13(h) are
eligible for consideration up to 36
months after a Major Disaster
Declaration, unless that time period is
extended by the agencies.
The agencies continue to believe that
activities covered under Categories A
and B are generally short-term recovery
activities that would significantly
expand the number of designated
disaster areas,483 and that longer-term
activities are more likely to provide
sustained benefits to impacted
communities and thus are a more
appropriate focus under the CRA. The
agencies are therefore generally
adopting the definition of designated
disaster areas included in the
Interagency Questions and Answers,484
and permitting the agencies to consider
exceptions on a case-by-case basis, such
as disaster declarations for the COVID–
19 pandemic. Similarly, consistent with
the proposal and current guidance, the
agencies are adopting a time frame in
§ ll.13(h)(2)(ii) making loans,
investments, and services that support
activities under § ll.13(h) eligible for
consideration up to 36 months after a
Major Disaster Declaration. Thus, for
example, providing a loan for rebuilding
a commercial property 24 months after
a declaration could qualify, even if the
project continues to be financed past 36
months. Overall, the agencies believe
that adopting these criteria will
recognize comments that supported a
continuance of current practice for this
category and provide clarity for banks
on the qualification of activities.
Section ll.13(i) Disaster Preparedness
and Weather Resiliency Activities
Current Approach
The agencies’ CRA regulations have
allowed CRA consideration for certain
activities that help communities recover
from natural disasters, including
activities that help to revitalize and
stabilize designated disaster areas, as
discussed above. On a limited basis,
activities that help designated disaster
areas mitigate the impact of future
disasters may be considered under CRA
483 See, e.g., FEMA, ‘‘Public Assistance Fact
Sheet’’ (Oct. 2019), https://www.fema.gov/sites/
default/files/2020-07/fema_public-assistance-factsheet_10-2019.pdf.
484 See Q&A § ll.12(g)(4)(ii)–1.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
if Hazard Mitigation Assistance is
included in the FEMA disaster
declaration.485 Outside of activities
related to disaster recovery, the
Interagency Questions and Answers
provide examples of ‘‘community
development loans’’ that include loans
financing ‘‘renewable energy, energyefficient, or water conservation
equipment or projects that support the
development, rehabilitation,
improvement, or maintenance of
affordable housing or community
facilities.’’ 486 However, the current
regulations and guidance do not
expressly identify as eligible for CRA
credit activities related to helping lowor moderate-income individuals, low- or
moderate-income communities, small
businesses, or small farms prepare for
disasters or build resilience to future
weather-related events.
The Agencies’ Proposal
In proposed § ll.13(i), the agencies
proposed to establish a separate
category of community development for
activities that assist individuals and
communities to prepare for, adapt to,
and withstand natural disasters,
weather-related disasters, or climaterelated risks. As with other proposed
place-based categories of community
development, eligibility under this
category would be conditioned on
meeting the proposed common placebased criteria. Specifically, the proposal
stated that disaster preparedness and
climate resiliency activities are those
conducted in targeted census tracts and
that: benefit or serve residents,
including low- or moderate-income
residents, in one or more of the targeted
census tracts (proposed § ll.13(i)(1));
do not displace or exclude low- or
moderate-income residents in the
targeted census tracts (proposed
§ ll.13(i)(2)); and are conducted in
conjunction with a Federal, State, local,
or tribal government plan, program, or
initiative focused on disaster
preparedness or climate resiliency that
includes an explicit focus on benefiting
a geographic area that includes the
targeted census tracts (proposed
§ ll.13(i)(3)).
ddrumheller on DSK120RN23PROD with RULES2
Comments Received
General comments. Most commenters
addressing proposed § ll.13(i)
generally supported adding this
category of activities under the
community development definition, as
an appropriate step to encourage
485 See Q&A § ll.12(g)(4)(ii)–1 and FEMA,
‘‘How a Disaster Gets Declared’’ (Apr. 25, 2023),
https://www.fema.gov/disaster/how-declared.
486 Q&A § ll.13(h)–1.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
financial institutions to support disaster
preparedness and climate resilience
activities. A number of commenters
asserted that these activities can
mitigate risks that disproportionately
impact low- and moderate-income
communities, as well as indigenous
communities and communities of color.
For example, a commenter stated that
low- and moderate-income communities
are particularly vulnerable to extreme
weather and other natural disasters
because they are more likely to be sited
in locations that have not benefited from
investment in hazard mitigation. A few
commenters highlighted the importance
of proactive investment in communities
as consistent with mission of the CRA,
in addition to post-disaster funding. A
few commenters asserted that climate
resilience is a critical foundation for
community health and economic
stability and growth, while another
noted that the proposed category could
help communities understand what
kinds of climate-related investments
they can seek financing for, and help
financial institutions understand which
activities can receive CRA credit. In
contrast, a commenter opposed the
proposal to include this category of
activities in the community
development definition, arguing that
such activities are inconsistent with the
CRA.
As discussed in more detail below,
while most commenters expressed
general support for proposed
§ ll.13(i), many of these commenters
urged the agencies to clarify or broaden
the scope and types of activities that
would qualify under the proposed
category as a way to strengthen the rule.
Commenters also offered suggestions for
revising the proposed category’s
required elements for place-based
activities under proposed § ll.13(i)(1)
through (3), described in more detail
below. Commenters also addressed
miscellaneous topics outside the scope
of the proposed provisions, discussed at
the end of this section-by-section
analysis.
Qualifying activities: scope and
examples. The agencies requested
comment on whether the proposed
disaster preparedness and climate
resiliency category appropriately
defined qualifying activities in proposed
§ ll.13(i) as those that assist
individuals and communities to prepare
for, adapt to, and withstand natural
disasters, weather-related disasters, or
climate-related risks. The proposal also
provided various examples of eligible
activities contemplated by this proposed
provision. While commenters generally
supported proposed § ll.13(i), many
of those commenters requested the
PO 00000
Frm 00119
Fmt 4701
Sfmt 4700
6691
agencies provide additional clarity;
provide additional, non-exhaustive
examples of eligible qualifying
activities; and/or broaden the types of
eligible activities.
For example, some commenters
supported the term ‘‘climate-related
risks,’’ but asserted that the agencies
should interpret the term to include not
only natural hazards or weather-related
risks, but also environmental health and
other risks exacerbated by climate
change, such as those related to air
quality, pest increases, and warming
waters. A few commenters suggested
State law climate mitigation frameworks
as reference points. Other commenters
suggested that the final rule specify, or
provide as examples, a variety of
activities they recommended should
qualify, such as development of
community solar and microgrids,
battery storage, residential
electrification, energy and water
efficiency measures, green technology,
broad environmental initiatives such as
the creation and expansion of green
jobs, greenhouse emission mitigation
and decarbonization, and toxic waste
and industrial site clean-up, among
others. One commenter cautioned the
agencies against being overly
prescriptive, recommending that the
final rule maintain definitions broadly
associated with essential infrastructure,
rather than list specific activities that
could become obsolete.
Categorizing activities that promote
energy efficiency. The agencies sought
comment on whether activities that
promote energy efficiency should be
included as a component of the disaster
preparedness and climate resiliency
category, or whether those activities
should be considered under other
categories, such as affordable housing
(§ ll.13(b)) and essential community
facilities (§ ll.13(f)). The agencies also
sought feedback on whether certain
activities that support energy efficiency
should be included as an explicit
component of the definition. Most
commenters addressing the question
supported the agencies’ inclusion of
energy efficiency-promoting activities as
a component of the disaster
preparedness and climate resiliency
category. For example, a commenter
stated that energy efficiency activities
can insulate low-income individuals
from price inflation and fluctuations
resulting from disasters and climate
change impacts. Another commenter
noted that in addition to decreased
utility costs, many energy-efficient
techniques support climate resiliency
because they help maintain habitable
conditions when power is disrupted. A
commenter recommended that energy
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6692
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
efficiency promoting activities be
included as a component of the rule, but
consideration for the activities should
be conditioned on whether the activities
benefited low- or moderate-income
individuals or communities. In contrast,
one commenter expressed that the
agencies should not include activities
that promote energy efficiency as a
component of disaster preparedness and
climate resiliency, asserting that these
activities are outside the scope of the
CRA and are more appropriate for
environmental, social, and corporate
governance guidance.
Several commenters also suggested
that the agencies should take a broad
view of what constitutes an eligible
energy efficiency-promoting activity,
with some suggesting mitigation efforts
be considered. Examples include,
among others: energy-efficient upgrades
(or new installation) for residential and
commercial buildings, such as
appliance and fixture replacements,
weatherization, improved insulation,
window replacements, heat pump and
HVAC system purchase and installation;
and electrification or decarbonization
measures that would help stabilize
home energy costs; and water efficiency
measures.
A number of commenters suggested
that energy efficiency-promoting
activities should be considered a
component of other proposed
community development categories,
such as affordable housing, community
facilities, and/or community
infrastructure. For example, several
commenters observed that there will be
circumstances where energy efficiency
improvements can benefit affordable
housing and community facilities and
this approach would ensure such
activities are targeted to the most
underserved populations.
In contrast, a few commenters
supported including energy efficiencypromoting activities only under the
proposed disaster preparedness and
resiliency category, to facilitate
initiatives that co-optimize the use of
energy efficiency and weatherization
with other related activities, to reduce
confusion, or to prevent doublecounting.
Other energy-related activities. The
agencies sought comment on whether,
distinct from energy efficiency
improvements, other energy-related
activities should be included in the
disaster preparedness and climate
resiliency category. Of those that
responded, many commenters
supported including other energyrelated activities as activities that assist
individuals and communities in
preparing for, adapting to, and
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
withstanding weather, natural disasters,
and climate-related risks. Commenters
offered various examples of such
activities including, among others:
renewable energy (including financing
of solar panels in low- and moderateincome census tracts or on homes for
low- and moderate-income
homeowners, community solar
installation, or a neighborhood-wide
microgrid or district energy system);
flood control and water run-off
measures; decarbonization activities;
energy storage systems; distribution grid
modernization; and electric vehicle
charging infrastructure. A commenter
suggested that the CRA should prioritize
clean energy related lending and
investment and do so in a manner akin
to how LIHTCs are prioritized under the
current rule.
Utility-scale projects. While the
agencies noted in the proposal that
proposed § ll.13(i) was not intended
to include utility-scale projects, the
agencies also sought comment on
whether to include utility-scale projects,
such as certain solar projects, that
would benefit residents in targeted
census tracts.
Some commenters asserted that
utility-scale projects could benefit lowand moderate-income areas through
expanded capital investment and likely
displacement of fossil fuel burning
plants, which are more likely to be
located in such areas; or to give clean
energy options to residents who cannot
install renewable energy on their homes
(e.g., due to cost or because they are
renters). A few commenters asserted
that utility-scale projects such, as
renewable energy plants developed
outside of a targeted geography, should
still be eligible for credit, if benefits
accrue to residents of targeted census
tracts. A commenter suggested that by
definition, utility-scale clean energy
should be considered to benefit
residents in targeted census tracts,
noting that clean energy, regardless of
location, benefits the climate
everywhere and that even utility-scale
clean energy projects located physically
outside the geographical borders of a
low- and moderate-income community
still benefits the environment, health,
and welfare of low- and moderateincome persons and communities.
Other commenters supported
including utility-scale projects,
conditioned on criteria such as a certain
percentage of benefits accruing to lowand moderate-income census tracts;
physical location in low- and moderateincome communities; or if
documentation showed specific benefits
to targeted geographies or to low- or
moderate-income individuals. A few
PO 00000
Frm 00120
Fmt 4701
Sfmt 4700
commenters raised offering partial
credit for dollars going to low- or
moderate-income neighborhoods or
benefiting low- or moderate-income
individuals, or for projects providing
demonstrable financial benefits to those
communities.
In contrast, some commenters
responded that utility-scale projects
should not be included as eligible
activities. These commenters offered
various reasons for this view, including
that the benefits of utility-scale projects
are not sufficiently directed to low- and
moderate-income communities and
conventional financing is more likely to
be available for these projects (i.e., these
projects would occur without a CRA
incentive). Another commenter
expressed the view that including
utility-scale projects would dilute the
intended core focus of the CRA, due to
the broad application of such projects,
and the large dollar amounts involved.
Final Rule
Section ll.13(i) In General
The final rule adopts proposed
§ ll.13(i), renamed and reorganized
from the proposal for clarity, including
for consistency with the structure of
other place-based categories, and with
other modifications discussed below.
Final § ll.13(i) uses the term ‘‘weather
resiliency’’ instead of ‘‘climate
resiliency’’ to clarify the types of
activities that qualify under this
category of community development.
Under final § ll.13(i), disaster
preparedness and weather resiliency
activities are defined as those that assist
individuals and communities to prepare
for, adapt to, and withstand natural
disasters or weather-related risks or
disasters. As discussed below, final
§ ll.13(i) is revised to state that
disaster preparedness and weather
resiliency activities benefit or serve
targeted census tracts and meet the
common place-based criteria in
§ ll.13(i)(1) through (3).
As noted by commenters and
highlighted in a growing body of
487 See, e.g., Federal Reserve Bank of New York,
‘‘Reducing Climate Risk for Low-Income
Communities’’ (Nov. 19, 2020), https://
www.newyorkfed.org/newsevents/events/regional_
outreach/2020/1119-2020 (referencing, for example,
low-income communities’ vulnerability to weatherrelated events such as wildfires and hurricanes);
Jesse M. Keenan and Elizabeth Mattiuzzi, ‘‘Climate
Adaptation Investment and the Community
Reinvestment Act,’’ Community Development
Research Briefs (June 16, 2019), https://
www.frbsf.org/community-development/wpcontent/uploads/sites/3/climate-adaptationinvestment-and-the-community-reinvestmentact.pdf (stating that ‘‘shocks from extreme weather
. . . exacerbate existing vulnerabilities associated
with,’’ for example, affordable housing, household
wealth and savings, and economic mobility).
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
literature, lower-income households and
communities are especially vulnerable
to the impact of natural disasters and
weather-related risks and disasters.487
Low- and moderate-income
communities are more likely to be
located in areas or buildings that are
particularly vulnerable to disasters or
weather-related risks, such as storm
shocks or drought.488 Because residents
of affordable housing are more likely to
be low-income, and affordable housing
tends to be older and of poorer quality,
low- and moderate-income households
are more likely to have housing that is
susceptible to disaster-related
damage.489 Additionally, lower-income
households tend to have fewer financial
resources, making them less resilient to
the temporary loss of income, property
damage, displacement costs, and health
challenges they face from disasters.490
Finally, low- and moderate-income
communities are often
disproportionately affected by the
health impacts associated with natural
disasters and weather-related events.491
488 See, e.g., Eleanor Kruse and Richard V.
Reeves, ‘‘Hurricanes hit the poor the hardest,’’
Brookings Institute (Sept. 18, 2017), https://
www.brookings.edu/blog/social-mobility-memos/
2017/09/18/hurricanes-hit-the-poor-the-hardest/;
Bev Wilson, ‘‘Urban Heat Management and the
Legacy of Redlining,’’ 86 J. Am. Planning Ass’n
443–57(2020), https://www.tandfonline.com/doi/
full/10.1080/01944363.2020.1759127.
489 See, e.g., Maya K. Buchanan et al., ‘‘Sea level
rise and coastal flooding threaten affordable
housing,’’ Environ. Res. Lett. 15 124020 (2020),
https://iopscience.iop.org/article/10.1088/17489326/abb266/pdf (providing estimates of the
expected number of affordable housing units that
may be at risk of flooding due to exposure to
extreme coastal water levels); Patrick Sisson, ‘‘In
Many Cities, Climate Change Will Flood Affordable
Housing’’ Bloomberg (Dec. 1, 2020), https://
www.bloomberg.com/news/articles/2020-12-01/
how-climate-change-is-targeting-affordable-housing
(referencing significant projected losses of
affordable housing in the United States due to
repeated flooding and noting, for example, that
‘‘[o]lder homes tend to be poorer quality, suffer
from deferred maintenance, and are more
physically vulnerable to flooding damage (not to
mention rising heat), all while housing a
disproportionate amount of disabled, elderly and
otherwise at-risk residents’’).
490 See, e.g., U.S. Global Change Research
Program, ‘‘Fourth National Climate Assessment,
Volume II: Impacts, Risks, and Adaptation in the
United States’’ (2018), https://nca2018.
globalchange.gov/(‘‘People who are already
vulnerable, including lower-income and other
marginalized communities, have lower capacity to
prepare for and cope with extreme weather and
climate-related events and are expected to
experience greater impacts.’’); and Eleanor Kruse
and Richard V. Reeves, ‘‘Hurricanes hit the poor the
hardest,’’ Brookings Institution (Sept. 18, 2017),
https://www.brookings.edu/blog/social-mobilitymemos/2017/09/18/hurricanes-hit-the-poor-thehardest.
491 Eleanor Kruse and Richard V. Reeves,
‘‘Hurricanes hit the poor the hardest,’’ Brookings
Institution (Sept. 18, 2017), https://
www.brookings.edu/blog/social-mobility-memos/
2017/09/18/hurricanes-hit-the-poor-the-hardest;
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
For these reasons, the agencies believe
adding a disaster preparedness and
weather resiliency category furthers the
purpose of the CRA.
While the proposed rule defined
disaster preparedness and climate
resiliency activities as those that are
‘‘conducted in’’ targeted census tracts,
final § ll.13(i) is revised to define
‘‘disaster preparedness and weather
resiliency’’ activities as those that
‘‘benefit or serve’’ targeted census tracts.
The agencies recognize that while a
‘‘conducted in’’ standard could facilitate
a bank’s demonstration that activities
are benefiting and serving the residents
of targeted census tracts, it could
exclude disaster preparedness and
weather resiliency activities located in
close proximity to a targeted census
tract that nonetheless are demonstrably
designed to benefit and serve residents
of that census tract, including low- or
moderate-income individuals. Thus,
under the final rule, a project to finance
a levee specifically intended to prevent
flooding in a targeted census tract could
qualify for consideration, even if the
levee were not located directly within
the census tract, presuming all criteria
of the rule were met.
Qualifying activities under the final
rule; examples; additional criteria. The
agencies have considered commenter
feedback on the scope and types of
activities that might qualify under this
category, and commenter responses to
whether activities that promote energyefficiency and other energy-related
activities should be explicitly included
in the definition. For the reasons
discussed below, the agencies are
finalizing the proposal’s high-level,
comprehensive approach regarding the
scope and types of activities that qualify
under this category, such as activities
that assist individuals and communities
to prepare for, adapt to, and withstand
natural disasters or weather-related risks
or disasters. The agencies believe the
final rule will encompass a wide variety
of activities that help low- or moderateincome individuals and communities
proactively prepare for, adapt to, or
withstand the effect of natural disasters
or weather-related risks or disasters,
such as earthquakes, severe storms,
droughts, flooding, and forest fires. For
example, potentially eligible activities
under the final rule, include, but are not
limited to, the construction of flood
U.S. Global Change Research Program, ‘‘Fourth
National Climate Assessment, Volume II: Impacts,
Risks, and Adaptation in the United States’’ (2018),
https://nca2018.globalchange.gov/(referencing
increasing impacts from extreme weather on ‘‘the
health and well-being of the American people,
particularly populations that are already
vulnerable’’).
PO 00000
Frm 00121
Fmt 4701
Sfmt 4700
6693
control systems in a flood prone low- or
moderate-income or underserved or
distressed nonmetropolitan middleincome census tract; and retrofitting
multifamily affordable housing to
withstand future disasters or weatherrelated events. Additional examples of
potentially eligible qualifying activities
include, but are not limited to:
promoting green space in targeted
census tracts in order to mitigate the
effects of extreme heat, particularly in
urban areas; weatherization upgrades to
affordable housing such as more
efficient heating and air-cooling systems
or more energy-efficient appliances;
community solar projects, microgrid
and battery projects that could help
ensure access to power to an affordable
housing project in the event of severe
storms; financing community centers
that serve as cooling or warming centers
in low- or moderate-income census
tracts that are more vulnerable to
extreme temperatures; and assistance to
small farms to adapt to drought
challenges.
The agencies believe that the final
definition provides banks the flexibility
needed to encourage investments in a
range of activities that promote disaster
preparedness and weather resiliency,
particularly given that communities face
different types of risks across the
country. To the extent that activities
meet the definition and the common
place-based criteria in final § ll.13(i),
as well as meet the majority standard in
final § ll.13(a), such activities would
qualify for community development
consideration. For this reason, while the
agencies intend that the final rule will
encompass some energy-efficiency and
other energy-related activities (e.g.,
those mentioned above), the agencies
believe it is unnecessary to more
specifically reference those activities in
the final rule. With respect to these and
other activities raised by commenters,
the agencies are concerned that a more
prescriptive rule that either designates
or provides examples of precise
qualifying activities could be overly
limiting for this category, become
obsolete, or discourage innovative
activities in an evolving area of
community development. However, the
agencies will take commenters’
suggestions under advisement as the
agencies develop the illustrative list
contemplated by § ll.14.
While the agencies believe the final
rule provides broad flexibility, the
agencies are also declining to further
expand community development under
this category, for example, to
incorporate all environmental health
threats and other risks that could be
exacerbated by climate conditions, all
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6694
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
activities to mitigate climate risks, such
as those that promote decarbonization,
or activities that facilitate the transition
to clean energy generally. The agencies
believe it is important that the final rule
clearly link qualifying disaster
preparedness and weather resiliency
activities to those activities that benefit
or serve residents of a targeted census
tract, to ensure that these activities
provide the community benefit in
alignment with the CRA. The agencies
are concerned that broadening the rule
as suggested by some commenters
would make it difficult for banks to
demonstrate that nexus, as well as to
meet the majority standard in
§ ll.13(a).
Energy efficiency activities and other
community development categories. The
agencies have also considered
comments on whether to include
activities that promote energy efficiency
in the disaster preparedness and
weather resiliency category, or under
other community development
categories, such as affordable housing or
essential community facilities. On
further consideration, the agencies
believe that energy efficiency-promoting
activities are generally consistent with
the final definition of disaster
preparedness and weather resiliency,
and therefore should be included within
this category. However, the agencies do
recognize that some energy efficiencypromoting activities could potentially
be considered under other community
development categories. For example,
and as discussed in more detail in the
proposal, certain weatherization
improvements might also benefit
affordable housing or essential
community facilities. Banks subject to
the rule are permitted to qualify
activities under any applicable
community development category, but
those activities may count only once for
the purposes of calculating the
Community Development Financing
Metric.
Utility-scale projects. Relatedly, the
agencies appreciate the varying views
on whether to include utility-scale
projects that benefit residents of targeted
census tracts within the scope of the
rule. After considering the comments,
the agencies reaffirm that final
§ ll.13(i) is not intended to include
utility-scale projects. Utility-scale
projects tend to be large, even regional
projects. In addition, given their nature
and function, the agencies believe it
would be difficult for utility-scale
projects to meet the definition and
place-based criteria described below; in
particular, the agencies believe it would
be difficult for banks to clearly
demonstrate such projects benefit or
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
serve specific groups of residents in
targeted census tracts. The agencies
further believe it would be difficult for
utility-scale projects to meet the
majority standard described in
§ ll.13(a).
The agencies also considered
comments suggesting partial
consideration be available for those
utility-scale activities benefiting low- or
moderate-income individuals or
communities, but are not revising the
rule in that regard. The agencies believe
that partial consideration could allow
for qualification of activities that are not
primarily focused on benefiting or
serving residents of targeted census
tracts, and could allow for activities
with only accessory benefits to targeted
census tracts.
Section ll.13(i)(1) Through (3)
Placed-Based Criteria
The Agencies’ Proposal
The proposal defined disaster
preparedness and climate resiliency
activities as those conducted in targeted
census tracts and that: benefit or serve
residents, including low- or moderateincome residents, in one or more of the
targeted census tracts (proposed
§ ll.13(i)(1)); do not displace or
exclude low- or moderate-income
residents in the targeted census tracts
(proposed § ll.13(i)(2)); and are
conducted in conjunction with a
Federal, State, local, or tribal
government plan, program, or initiative
focused on disaster preparedness or
climate resiliency that includes an
explicit focus on benefiting a geographic
area that includes the targeted census
tracts (proposed § ll.13(i)(3)).
Comments Received
Comments regarding the common
place-based criteria are generally
discussed in the introduction to this
section-by-section analysis. The
agencies additionally sought comment
on questions specific to this category, as
noted below.
Criteria to ensure targeted benefits.
The agencies sought feedback on other
options for determining whether
disaster preparedness and climate
resiliency activities are appropriately
targeted; how qualifying activities
should be tailored to directly benefit
low- or moderate-income communities
and distressed or underserved
nonmetropolitan middle-income areas;
and whether other criteria are needed to
ensure those activities benefit low- or
moderate-income individuals and
communities. Additionally, the agencies
sought feedback on whether energy
efficiency standards should be used to
PO 00000
Frm 00122
Fmt 4701
Sfmt 4700
determine if an activity provides
sufficient benefit to targeted census
tracts, including low- and moderateincome residents. Several commenters
concurred that the proposal would
appropriately require activities to be
targeted to ensure benefits to low- and
moderate-income individuals and
communities. Some commenters further
recommended that qualifying activities
be evaluated to ensure that they provide
clear, direct, targeted, meaningful, and/
or proven benefit to low- and moderateincome and historically disinvested
individuals or communities. Other
commenters expressed concern that the
proposal was not sufficiently targeted,
and urged the rule be revised to state
that activities must directly benefit lowand moderate-income communities,
Native communities, and minority
communities to be eligible for CRA
consideration, to prevent funding from
going to higher-income areas.
Some commenters offered specific
views on whether additional tailoring is
needed for eligible activities that benefit
or serve low- and moderate-income
individuals. A commenter encouraged
the agencies to consider socially and
environmentally beneficial activities
even if the transaction does not directly
involve a low- and moderate-income
party, such as investments in broad
environmental initiatives, green
technology, and State programs to
combat climate change. The commenter
asserted that this would allow for
financial institutions to more
holistically serve low- and moderateincome communities. Another
commenter noted that, as disasters do
not target low- and moderate-income
communities and impact all income
levels, further tailoring is unnecessary.
In contrast, a commenter stated that
activities that are generically responsive
to climate change such as wind farms or
carbon capture efforts should not be
eligible for CRA consideration as they
lack the targeted benefit.
Commenters also suggested various
criteria for the agencies to consider
including in the final rule to ensure
disaster preparedness and climate
resiliency activities benefit low- or
moderate-income individuals and
communities. Examples of criteria
suggested included, among others,
considering the mission or focus of the
organization owning or controlling the
project and whether they have a focus
on serving residents of low- and
moderate-income communities; whether
a project leads to expected energy
reduction for low- and moderate-income
individuals and communities; or
whether a project expands low- and
moderate-income household access to
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
renewable energy. Other commenters
suggested eligibility criteria, such as
requiring renewable energy projects to
have a certain percentage of low- and
moderate-income subscribers, or
prorating CRA credit for activities based
on the portion of funds dedicated to
low- and moderate-income individuals
and communities.
Additional prong for activities
benefiting low- and moderate-income
individuals regardless of geographic
location. The agencies also sought
comment on whether to include a
separate prong of the disaster
preparedness and climate resiliency
category for activities that benefit lowand moderate-income individuals,
regardless of whether they reside in one
of the targeted census tracts; and if so,
what types of activities should be
included in this component. In
response, commenters generally
supported including a prong to qualify
activities that benefit low- and
moderate-income individuals,
regardless of where they live, if there is
a clear benefit to low- and moderateincome individuals or communities or
minority communities. Various
commenters noted that not all low- and
moderate-income individuals live in
low- and moderate-income areas and so
may be subject to increased
displacement risk or physical and
financial impacts. Another commenter
observed that poverty is not
concentrated in rural regions in the
same way as in metropolitan areas. In
contrast, a commenter suggested that
fewer and more inclusive prongs would
avoid confusion.
Examples of activities that might fit
under such a prong submitted by
commenters included, among others:
activities that promote energy efficiency
activities for low- or moderate-income
individuals, regardless of where they
live, and activities that facilitate
improvements and recovery assistance
for homes owned or rented by low- and
moderate-income households.
Consideration of activities in
designated disaster areas. The agencies
also requested feedback on whether to
qualify activities related to disaster
preparedness and climate resiliency in
designated disaster areas, and if so,
whether additional criteria are needed
to ensure benefits accrue to
communities with fewest resources to
address the impacts of future disasters
and climate-related risks. Most
commenters addressing this question
opposed including designated disaster
areas as targeted geographic areas for
these activities. These commenters
noted that Federal disaster areas often
include higher-income census tracts that
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
have access to greater resources to
finance activities that promote disaster
preparedness and climate resiliency,
and that CRA should encourage
resources to go to communities with
limited resources and greater needs. A
few commenters offered support, but
only if low- and moderate-income
individuals or targeted census tracts
would be the beneficiaries, with defined
constraints, such as demonstrable
requirements to have low- and
moderate-income census tracts comprise
a high percentage of the total geography
for the project financed. A few
commenters offered support for
specified activities in designated
disaster areas (such as emergency
protective measures), and one
commenter suggested that credit could
be pro-rated based on the portion of
low- and moderate-income census tracts
that benefit.
Final Rule
The final rule adopts the common
place-based eligibility criteria,
reorganized to be in a consistent parallel
order across all place-based categories,
and with the revisions described in the
discussion of the place-based criteria
above in this section-by-section
analysis. Under the final rule, disaster
preparedness and weather resiliency
activities benefit or serve targeted
census tracts and: are undertaken in
conjunction with a plan, program, or
initiative of a Federal, State, local, or
tribal government or a mission-driven
nonprofit organization, where the plan,
program, or initiative includes a focus
on benefiting or serving targeted census
tracts (final § ll.13(i)(1)); benefit or
serve residents, including low- or
moderate-income individuals, of
targeted census tracts (final
§ ll.13(i)(2)); and do not directly
result in the forced or involuntary
relocation of low- or moderate-income
individuals residing in targeted census
tracts (final § ll.13(i)(3)).
As discussed in more detail above, the
final rule expands the government plan
criterion adopted in § ll.13(i)(1) to
include mission-driven nonprofit
organizations and deletes ‘‘explicit’’
from the requirement for the plan,
program, or initiative to have a focus on
benefiting or serving targeted census
tracts. In particular, the agencies
recognize that, consistent with feedback
from some commenters, the Federal,
State or local governments may not have
disaster preparedness or weather
resiliency plans or programs currently
in place for some targeted census tracts.
Additionally, some government plans
may not be specifically focused on, or
described as, disaster preparation or
PO 00000
Frm 00123
Fmt 4701
Sfmt 4700
6695
weather resiliency. The agencies also
note that the Federal Government as
well as more State and local
governments are developing disaster
preparedness or weather resiliencyrelated plans, and the agencies
anticipate these plans will become more
widespread over time.
The criterion adopted in
§ ll.13(i)(2) is substantially similar to
the proposed criterion, with a revision
from ‘‘low- or moderate-income
residents’’ to ‘‘low- or moderate-income
individuals.’’ The criterion adopted in
§ ll.13(i)(3) is revised to prohibit
activities that directly result in forced or
involuntary relocation of low- and
moderate-income individuals residing
in the targeted census tracts. The
agencies believe that the common placebased criteria, combined with the
majority standard set forth in
§ ll.13(a), will adequately ensure that
disaster preparedness and weather
resiliency activities benefit and serve
the residents of targeted census tracts,
including low- and moderate-income
individuals. Reasons for adopting these
final criteria, and for the revisions
made, are generally discussed above in
this section-by-section analysis.
Responses to comments on specific
questions asked regarding this
community development category
follow below.
Criteria to ensure targeted benefits.
The agencies appreciate commenters’
thoughtful responses on potential
additional eligibility criteria to ensure
targeted benefits to low- or moderateincome individuals and communities of
activities under this category of
community development. The agencies
have considered the suggestions and
believe the adopted standard is
adequately calibrated to provide needed
flexibility for qualifying activities to
support varying community
development needs across different
types of communities. In addition, the
agencies are concerned that it may be
burdensome to have to demonstrate that
a project meets suggested criteria and
could deter investments under this
category. Therefore, the agencies are not
adopting additional eligibility criteria.
The agencies believe that the final rule
is appropriately tailored to ensure a
focus on low- and moderate-income
residents in targeted census tracts and
will facilitate banks’ ability to find
opportunities to serve targeted
communities.
The agencies are also not adopting the
suggestion to condition consideration of
energy efficiency activities under the
rule on specific benefits to low- or
moderate-income individuals or
communities, or specific energy
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6696
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
efficiency standards. The agencies have
considered that such standards are
continuously evolving and believe it
would be impracticable to incorporate
and enforce such standards in the final
rule over time. In addition, the agencies
have considered that, given the many
different types of activities that could
qualify, setting energy efficiency
standards could result in standards that
are not calibrated to the full breadth of
qualifying activities. However, banks
may find information showing that
activities meet energy efficiency
standards to be helpful in demonstrating
that a particular activity meets the
relevant criteria in § ll.13(i).
Additional prong for targeted
activities, regardless of geographic
location. Similarly, the agencies are
declining to expand the proposed rule
to adopt an additional prong for
activities directed to low- or moderateincome individuals, regardless of
geographic location. Although the
agencies recognize that not all low- and
moderate-income individuals live in
targeted census tracts, as discussed
above, the agencies believe that this
category should remain place-based and
thus focused on activities that benefit or
serve targeted census tracts. Adopting
an additional basis for qualifying
activities in this category would also
reduce consistency across the placebased categories and in that regard
could increase the final rule’s
complexity.
Consideration of activities in
designated disaster areas. The agencies
are also declining to expand the
criterion in final § ll.13(i)(2) to
include activities in designated disaster
areas. In response to commenter
concerns and upon further
consideration, the agencies believe that
the rule as finalized, combined with the
majority standard in § ll.13(a), will
appropriately help ensure a focus on
low- or moderate-income residents and
targeted census tracts. The agencies also
note that, to the extent a designated
disaster area already encompasses one
or more targeted census tracts, that area
would already be eligible under final
§ ll.13(i)(2). The agencies are
concerned that expanding this category
beyond targeted census tracts to include
designated disaster areas would detract
from ensuring that these activities
continue to have a benefit for all
residents, including low- and moderateincome residents, since designated
disaster areas often include higherincome census tracts. The agencies also
believe that many activities with longterm benefits for designated disaster
areas could qualify under the separate
category of community development
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
focused on recovery for designated
disaster areas.492 The agencies believe
the rule as finalized, combined with the
majority standard set forth in
§ ll.13(a), sufficiently and
appropriately ensures a focus on low- or
moderate-income residents.
Additional comments. Beyond the
specific elements of proposed
§ ll.13(i), commenters also offered a
variety of other suggestions related to
the proposed disaster preparedness and
climate resiliency category of
community development. For example,
a few commenters suggested the final
rule should indicate the kinds of public
data and tools available for banks to
identify and/or quantify climate
vulnerable communities and risks, to
assess whether proposed investments
align with known demographic and
environmental conditions, and to
prioritize investments to maximize
benefits to targeted communities. For
example, some commenters suggested
leveraging the U.S. EPA’s
Environmental Justice Screening and
Mapping Tool (EJScreen) and White
House Council on Environmental
Quality’s Climate and Economic Justice
Screening Tool (CEJST). While the
agencies appreciate these suggestions,
the agencies are aware that public data
and tools are continuously evolving,
and therefore are declining to adopt or
reference specific tools in the final rule.
As the agencies note in the section-bysection analysis of § ll.21, the
agencies intend to make tools and
information available to banks and the
public on performance context related
information and will take these
comments into consideration as the
agencies implement the final rule.
Commenters also addressed topics
such as how the climate impacts of a
bank’s activities should be factored into
a bank’s CRA performance evaluation.
For example, some commenters stated
that banks should be scrutinized and/or
downgraded for financing activities that
increase greenhouse gas emissions,
asserting that such activities
disproportionately impact low- and
moderate-income communities or
minority communities, while at least
one commenter expressed concern
about such an approach. A few
commenters suggested that the agencies
should avoid awarding CRA credit to
programs or products that may take
advantage of or otherwise be
unaffordable to low- and moderateincome or other underserved
homeowners or consumers. In this
regard, the agencies note that under the
final rule, as currently, evidence of
illegal credit practices can be the basis
of a rating downgrade.493 For more
information on the final rule’s approach
to rating downgrades, see the sectionby-section analysis of § ll.28.
Several commenters suggested that
the final rule encourage banks to
provide financial services for climate
resiliency activities in low-income,
indigenous, and minority communities.
Specifically, one commenter suggested
that the agencies develop a race and
ethnicity disclosure framework for
community development activities,
similar to the proposed disclosure of
race and ethnicity data for mortgage
lending under the Retail Lending Test.
Another commenter asserted that race
should be explicitly used as a metric to
ensure that climate vulnerable
communities receive improved access to
credit and services. For more
information and discussion regarding
the agencies’ consideration of comments
recommending adoption of additional
race- and ethnicity-related provisions in
this final rule, see section III.C of this
SUPPLEMENTARY INFORMATION.
A few commenters suggested that an
impact factor for climate resiliencyrelated activities could be developed, to
recognize, among others, activities such
as energy efficiency improvements that
also benefit affordable housing and
essential community facilities (if not
explicitly eligible under those
categories); decarbonization features of
otherwise qualified activities; or
activities undertaken in line with
community-based plans or in
collaboration with public agencies. For
example, a commenter suggested that
the final rule offer additional CRA credit
specifically for making investments in
CDFIs or other institutions that directly
invest in rural-based resilience and
adaptation programs or projects. The
commenter observed that rural
communities, particularly rural coastal
regions, face a greater threat from
climate change than more-urbanized
areas because they often lack the
resources, infrastructure and adaptive
capacity of city centers.
While the final rule does not adopt a
specific impact factor for these types of
activities, as suggested above, the
agencies note that certain activities
associated with commenterrecommended impact factors could
potentially already be counted under
one of the twelve impact and
responsiveness factors adopted in final
§ ll.15(b). These could include, for
example, factors for community
492 See final § ll.13(h), discussed further in the
accompanying section-by-section analysis.
493 See current § ll.28(c), proposed
§ ll.28(d), and final § ll.28(d).
PO 00000
Frm 00124
Fmt 4701
Sfmt 4700
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
development loans, investments, and
services in specific geographic areas
with significant community
development needs (§ ll.15(b)(1)
through (3)), that support an MDI, WDI,
LICU, or CDFI (§ ll.15(b)(4)), or that
serve low-income individuals or
families (§ ll.15(b)(5)). Impact and
responsiveness factors are discussed in
more detail in the section-by-section
analysis of § ll.15.
Section ll.13(j) Revitalization or
Stabilization, Essential Community
Facilities, Essential Community
Infrastructure, and Disaster
Preparedness and Weather Resiliency in
Native Land Areas
Current Approach
ddrumheller on DSK120RN23PROD with RULES2
The current CRA regulations do not
include a specific category of
community development for activities
in Native or tribal lands, although
current guidance encompasses
‘‘revitalization and stabilization’’
activities consistent with a tribal
government plan if the activities are
located in low- or moderate-income
census tracts.494 The OCC 2020 CRA
Final Rule adopted definitions of both
‘‘Indian country’’ and ‘‘other tribal and
Native lands,’’ and designated certain
activities as qualifying for consideration
in these geographic areas.495
Discussed in greater detail below, to
help address challenges specific to
Native lands, the agencies proposed in
§ ll.13(l), a new category of qualifying
community development activities
related to revitalization, essential
community facilities, essential
community infrastructure, and disaster
preparedness and climate resiliency that
are specifically targeted to and
conducted in Native Land Areas (as
defined in § ll.12, discussed in the
corresponding section-by-section
analysis above). The final rule
renumbers proposed § ll.13(l) as
§ ll.13(j), revises and reorganizes the
section for clarity, and makes other
modifications described below.
494 See 12 CFR ll.12(g)(4) and Q&A
§ ll.12(g)(4)(i)–1 (regarding activities in low- or
moderate-income census tracts designated ‘‘as
consistent with a Federal, state, local, or tribal
government plan for the revitalization or
stabilization of the low- or moderate-income
[census tract]’’). See also Q&A § ll.12(g)(4)(ii)–2
(regarding activities in designated disaster areas
‘‘consistent with a bona fide government
revitalization or stabilization plan’’) and Q&A
§ ll.12(g)(4)(iii)–3 (regarding activities in
distressed nonmetropolitan middle-income census
tracts ‘‘consistent with a bona fide government
revitalization or stabilization plan’’).
495 See, e.g., 85 FR 34734, 34771, 34794–34796
(June 5, 2020).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
The Agencies’ Proposal
Under proposed § ll.13(l), activities
in Native Land Areas related to the
following would comprise a distinct
category of community development:
revitalization, essential community
facilities; 496 essential community
infrastructure; and disaster
preparedness and climate resiliency.497
Consistent with other proposed placebased categories of community
development, the agencies proposed
that essential community facilities,
essential community infrastructure, and
disaster preparedness and climate
resiliency activities in Native Land
Areas must: benefit or serve residents of
Native Land Areas, including low- or
moderate-income residents of Native
Land Areas; 498 not displace or exclude
low- or moderate-income residents of
Native Land Areas; 499 and be conducted
in conjunction with a Federal, State,
local, or tribal government plan,
program, or initiative that benefits or
serves residents of Native Land
Areas.500
Separately, the agencies proposed that
revitalization activities in Native Land
Areas have a more specific focus on
low- and moderate-income individuals.
Specifically, the agencies proposed that
revitalization activities must benefit or
serve residents of Native Land Areas,
with substantial benefits for low- or
moderate-income residents; 501 and
must not displace or exclude low- or
moderate-income residents.502
Revitalization activities in Native Land
Areas also would need to be undertaken
in conjunction with a Federal, State,
local, or tribal government plan,
program, or initiative with ‘‘an explicit
focus on revitalizing or stabilizing
Native Land Areas and a particular
focus on low- or moderate-income
households.’’ 503
Comments Received
Commenters offered views on
establishing a category of community
development for activities in Native
Land Areas, as well as feedback on the
496 The proposal’s regulatory text used the term
‘‘eligible’’ community infrastructure, which was a
typographical error. The final rule corrects the
language to ‘‘essential community infrastructure.’’
497 Under the proposal, other community
development activities (i.e., affordable housing or
economic development) could still qualify for
consideration if those activities took place in Native
Land Areas, provided that they otherwise meet the
eligibility standards for that particular activity
under another paragraph of § ll.13.
498 See proposed § ll.13(l)(2)(i) and (l)(3)(i).
499 See proposed § ll.13(l)(2)(i) and (l)(3)(i).
500 See proposed § ll.13(l)(2)(ii) and (l)(3)(ii).
501 See proposed § ll.13(l)(1)(i)(A).
502 See proposed § ll.13(l)(1)(i)(B).
503 Proposed § ll.13(1)(1)(i).
PO 00000
Frm 00125
Fmt 4701
Sfmt 4700
6697
types of activities that would qualify for
CRA consideration under the Native
Land Areas category of community
development and additional ways to
facilitate activities in Native Land
Areas. Comments on the proposed
definition of Native Land Areas are
discussed in the section-by-section
analysis of that definition in § ll.12.
General comments. Overall,
commenters generally expressed wide
support for including a new community
development category for activities in
Native Land Areas, with some
indicating that the proposal would
facilitate addressing unmet credit needs
in geographical areas that have
traditionally lacked access to CRA loans
and investments, as well as bank
branches in those areas. Comments
included that the CRA should ensure
capital is deployed to Native Land
Areas, given persistent lending gaps in
these areas; that the proposal could be
an important step toward addressing
housing needs and persistent poverty in
these communities; and that a
strengthened and targeted provision
would incentivize banks to do more to
promote prosperity in rural and Native
communities throughout the country.
Additional eligibility requirements.
Commenters expressed a range of views
in response to the agencies’ request for
feedback on whether the agencies
should consider additional eligibility
requirements for activities in Native
Land Areas to ensure that community
development activities benefit or serves
low- or moderate-income residents of
Native Land Areas. A few commenters
expressed general support for additional
criteria to ensure that community
development benefits accrue to low- and
moderate-income residents of Native
Land Areas. One such commenter,
however, also wanted to ensure that
CRA requirements do not place more
burden on Native persons than others.
Another commenter expressed support
for focusing activities on low- and
moderate-income residents, but asserted
that low- and moderate-income resident
benefit should not be a requirement for
qualification.
A number of commenters more
specifically objected to including
income limits on beneficiaries for
activities to receive CRA consideration
in Native Land Areas. Reasons offered
included, among others, that: (1) AMI in
these areas is often very low and credit
challenges are not limited to those with
below 80 percent AMI; (2) middleincome Native communities often
experience gaps in services and funding
opportunities; (3) income limits could
deter investments; and (4) revitalization
across the income spectrum can have
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6698
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
far-reaching positive community
impacts across Native communities.
Additional commenter feedback
included: urging the agencies to make
eligibility requirements as inclusive as
possible, with various commenters
noting the Federal Government’s trust
and treaty obligations or the historic
underinvestment in tribal communities;
stating that consideration of activities
should focus on how an investment
benefits the tribal community, and
expressing concern that additional
requirements would add to the
complexity of determining whether a
project would qualify prior to a CRA
examination; and emphasizing that
investments in businesses owned by
higher-income Native individuals with a
broader impact on tribal community and
economic development can help avoid
an unintended consequence of
maintaining islands of poverty without
amenities.
Finally, on the topic of requirements
for qualifying activities on Native Land
Areas more generally, a commenter
asserted that tribal organizations are
best positioned to determine community
development needs of their
communities and advocated that the
agencies incorporate into the CRA
framework the ability for tribal nations
to determine what constitutes a
qualifying community development
activity in tribal communities. This
commenter also recommended that the
rule focus on loans to individuals as
well as investments in tribal nations, as
individual tribal citizens residing on
tribal lands have difficulty obtaining
lines of credit, loans, and other financial
services.
Tribal association or tribal designee
plans, programs, or initiatives. As
discussed in the proposal, tribal
government designees such as tribal
housing authorities, tribal associations
and intertribal consortiums are central
to economic development and
community planning efforts in many
Native Land Areas. Accordingly, the
agencies sought feedback on whether to
expand the government plan eligibility
criteria to activities in Native Land
Areas undertaken in conjunction with
tribal association or tribal designee
plans, programs, or initiatives. Most
commenters on this topic expressed
support for broadening qualification to
include an option for activities in
conjunction with tribal associations or
designees. For example, a commenter
stated that tribal associations and tribal
designees offer and manage many
services and programs on tribal lands
and for tribal members. Another
commenter noted the lack of capacity of
tribal governments and indicated that
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
full consent to these proposed activities
may therefore be unreasonable; this
commenter suggested that broader
investment opportunities would be
possible if they did not have to be
undertaken in conjunction with an
explicitly established tribal government
initiative.
Commenters also offered views on
how the rule could define what tribal
associations or designees would be
included in an expanded government
plan eligibility criterion. Some
suggested requiring that a tribal
designee be led by or work closely with
tribal members, or requiring that tribal
association and designee plans be
majority Native-led and endorsed by the
tribal government or at least not actively
opposed by a tribal government. A few
commenters asserted that consortia
should be included, while other
commenters suggested that tribal
charters, other Native-led organizations,
Native CDFIs and TDHEs could fall
within this category, with a commenter
noting that tribes rely on federally
funded TDHEs to drive housing
development. One commenter suggested
that regulators should be prepared to
allow banks to invest in the activities of
Native organizations even though the
organizations may have an unfamiliar
legal structure.
Other recommendations for Native
Land Area activities. Commenters also
requested various clarifications or
additions to the proposed rule.
Suggestions included ensuring
consideration for (1) activities that
impactfully improve access to Native
business loans, mortgage loans, and
disaster loans; (2) investments in Native
CDFIs to help make more micro loans
and provide financing for larger, more
complex development projects; and (3)
high impact activities in Native Land
Areas, such as bond and debt issuances
for tribal government entities. Other
recommendations included
emphasizing climate resiliency or
renewable energy with regard to
activities in Native communities, as
well as broadband and digital equity
access for Native Americans.
A few commenters suggested that the
agencies provide express presumptions
of eligibility for activities such as those
carried out by or in conjunction with a
tribal government or its agencies, tribal
associations or designee plans, or where
the primary beneficiaries are members
of a federally or State-recognized Indian
tribe. Several commenters, including
tribal commenters, further asserted that
the agencies should consult with tribes
to exchange information, build
relationships, and receive guidance and
recommendations on reforming and
PO 00000
Frm 00126
Fmt 4701
Sfmt 4700
implementing the CRA framework.
Other commenters addressed tribal
consultations with respect to activities
that potentially would qualify under
proposed § ll.13(l). Comments
included, for example, a suggestion that
the agencies explicitly state that
meaningful consultation should always
be undertaken with the goal of obtaining
tribal informed consent when a project
would have an impact on tribal lands or
resources, either on or off the
reservation.
Final Rule
General Rule (§ ll.13(j)(1))
The agencies are adopting proposed
§ ll.13(l), renumbered as § ll.13(j),
with revisions as follows. The final rule
is reorganized for clarity and
consistency with the structures of other
place-based categories. Final
§ ll.13(j)(1) sets forth the types of
activities included in this category of
community development: generally
consistent with the proposal, this
provision states that revitalization or
stabilization (termed ‘‘revitalization’’ in
the proposal), essential community
facilities, essential community
infrastructure, and disaster
preparedness and weather resiliency
activities in Native Land areas are
activities specifically targeted to and
conducted in Native Land Areas. The
final rule also adopts a conforming
change from ‘‘climate resiliency’’ to
‘‘weather resiliency’’ for consistency
with final § ll.13(i).These activities
must also meet specific place-based
eligibility criteria in § ll.13(j)(2) or
(3), as applicable: final § ll.13(j)(2)
describes place-based eligibility criteria
for revitalization or stabilization
activities in Native Land Areas, while
final § ll.13(j)(3) collectively
describes place-based eligibility criteria
for essential community facilities,
essential community infrastructure, and
disaster preparedness and weather
resiliency in Native Land Areas. These
place-based eligibility criteria are
discussed in more detail below.
The final rule also makes other
technical edits. Section ll.13(j)(1) and
(2) now reference ‘‘revitalization or
stabilization,’’ instead of
‘‘revitalization’’ as proposed, for
consistency with revisions to
§ ll.13(e). Further, for clarity and to
simplify the regulatory text,
§ ll.13(j)(3) now cross-references the
definitions of essential community
facilities, essential community
infrastructure, and disaster
preparedness and weather resiliency
found in final § ll.13(f), (g), and (i),
respectively.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
The agencies believe that adopting a
community development category for
specified activities in Native Land Areas
will further the purpose of the CRA to
encourage banks to meet the credit
needs of their entire communities,
including those of low- and moderateincome communities. Available data
indicate that Native and tribal
communities face significant and
unique community development
challenges. For example, the poverty
rate among Native individuals on
reservations is 35 percent, and exceeds
50 percent in some communities.504
Banking and credit access remains a
chronic barrier for tribal economic
inclusion. Seven percent of American
Indian or Alaska Native households
were unbanked in 2021, much higher
than the 2.1 percent among White, nonHispanic households.505 MajorityNative American counties have an
average of two bank branches compared
to the nine-branch average in
nonmetropolitan counties and well
below the 27-branch overall average for
all counties.506 In addition, basic
infrastructure in tribal areas
significantly lags behind that of the rest
of the country, with over one-third of
Native households in tribal areas
affected by major physical problems
with their housing, including
deficiencies with plumbing, heating, or
electric—a share nearly five times
greater than for the United States
population as a whole.507 In addition,
rates of broadband and cellular access
are low in many tribal lands, with 21
percent of all tribal lands and 35 percent
of rural tribal lands lacking broadband
and cellular access.508 Given these
504 The Federal Reserve Bank of Minneapolis’
Center for Indian Country Development (CICD)
calculated poverty rates for the American Indian
and Alaska Native population living on federally
recognized reservations and off-reservation trust
lands using the U.S. Census Bureau’s American
Community Survey 5-Year 2017–2021 data.
Twenty-five of these land units had American
Indian and Alaska Native poverty rates above 50
percent. Under the more expansive U.S. Census
Bureau definition of Native lands, this number
grows to 56 land units.
505 FDIC, ‘‘National Survey of Unbanked and
Underbanked Households,’’ Table 3.1 (2021),
https://www.fdic.gov/analysis/household-survey/
2021report.pdf.
506 Information calculated using FDIC’s Summary
of Deposits (2020).
507 HUD, ‘‘Housing Needs of American Indians
and Alaska Natives in Tribal Areas: A Report from
the Assessment of American Indian, Alaska Native,
and Native Hawaiian Housing Needs’’ (2017),
https://www.huduser.gov/portal/publications/
HNAIHousingNeeds.html. This study is based on a
survey of 38 ‘‘tribal areas’’ that are considered
Native Land Areas under the final rule.
508 Federal Communications Commission,
‘‘Fourteenth Broadband Deployment Report’’ 28
(2021), https://docs.fcc.gov/public/attachments/
FCC-21-18A1.pdf. As calculated by the Federal
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
challenges, and as noted in more detail
in the place-based criteria discussion,
the agencies believe it is particularly
important that community development
consideration under this category be
directly linked to Native Land Areas.
For this reason, the agencies are
finalizing in § ll.13(j)(1) the proposed
requirement that all qualifying activities
under § ll.13(j) be ‘‘targeted to and
conducted in’’ Native Land Areas, even
where the cross-referenced community
development category (e.g., essential
community facilities in § ll.13(f))
does not itself have a ‘‘targeted to and
conducted in’’ requirement.
Based on comments received and
upon further consideration, the agencies
are not adopting additional eligibility
requirements for activities in Native
Land Areas to ensure that community
development activities benefit or serve
low- or moderate-income individuals
residing in those areas, beyond those
proposed and finalized. As discussed
above, tribal communities in Native
Land Areas face particular challenges
related to access to credit. The agencies
are concerned that additional income
limitations or requirements could deter
investments under this category. The
agencies further believe that the rule as
finalized is sufficiently tailored to
ensure a focus on low- and moderateincome residents in Native Land Areas,
and will accordingly encourage banks to
find opportunities to serve low- and
moderate-income communities in areas
that can be more difficult to serve.
The agencies are also not expanding
the regulation to address commenter
suggestions that tribal organizations
determine what constitutes qualifying
community development activities in
Native Land Areas. The final rule is
intended in part to ensure that
stakeholders have a clear upfront
understanding of what constitutes a
qualifying activity, in order to
encourage investment and greater
certainty for banks and those they serve
in undertaking community
development. However, the final rule
incorporates as an eligibility criterion
that activities must be undertaken in
conjunction with plans, programs, or
initiatives of governments (including
tribal governments) or mission-driven
Reserve Bank of Minneapolis’ CICD using U.S.
Census Bureau American Community Survey 5Year 2017–2021 data, nearly 1 in 5 households
(17%) in Native geographic areas do not have access
to the internet, compared to 1 in 10 households
(10%) nationally. See also, e.g., Matthew T. Gregg,
Anahid Bauer, and Donn. L. Feir, ‘‘The Tribal
Digital Divide: Extent and Explanations’’ (revised
June 2022), https://www.minneapolisfed.org/-/
media/assets/papers/cicdwp/2021/cicd-wp-202103.pdf (providing more detail on internet access
challenges in Native geographic areas).
PO 00000
Frm 00127
Fmt 4701
Sfmt 4700
6699
nonprofit organizations, as discussed
further below, and in the section-bysection analysis of the common criteria
for placed-based activities, above. In
this way, the final rule better
incorporates recognition of the
importance of tribal government and
tribal nonprofit organizations in
identifying, understanding, and
addressing the needs of their
communities, relative to the proposal.
The agencies have also considered
comments recommending additions or
clarifications to the rule, such as to
provide additional emphasis on various
specific impactful activities or to
provide presumptions of eligibility as
described above. The agencies have
decided not to adopt these
recommendations specifically, but note
that activities meeting the eligibility
criteria in the full range of community
development categories adopted in final
§ ll.13, and that meet the majority
standard in § ll.13(a), would qualify
for community development
consideration. For the reasons explained
in this section-by-section analysis, the
agencies believe that the common placebased criteria are all important to
ensuring that the place-based categories
provide the intended community
benefit, and thus are not adopting
presumptions of eligibility in final
§ ll.13(j) for select activities on Native
Land Areas that might not satisfy those
criteria. The agencies also emphasize
that the final rule adopts twelve impact
and responsiveness factors under
§ ll.15 that highlight key areas of
concern raised by stakeholders,
including an impact and responsiveness
factor expressly focused on activities
that benefit or serve residents of Native
Land Areas (final § ll.15(b)(8),
discussed in the accompanying sectionby-section analysis below).
Regarding comments seeking
consultation with tribal stakeholders,
the agencies engaged in significant
outreach prior to issuing the NPR and
received feedback from many
stakeholders that informed the proposal
and final rule, including from those that
would be affected by the inclusion of
activities in Native Land Areas.
Moreover, ongoing engagement with the
wide range of stakeholders, including
tribes, related to community
reinvestment and community
development is a central element of
agency practice and will continue to be
over the course of CRA implementation.
Further, the agencies continue to believe
that limiting qualification under
§ ll.13(j) to only those activities
where tribal governments had been
consulted could be overly restrictive
and impractical to implement, and
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6700
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
could diminish the scope of the
activities that would qualify as
community development, due to the
time and resource constraints of tribal
governments. However, as discussed in
more detail below, the final rule
recognizes the importance of tribal
governments and other tribal
organizations; in particular, and as
discussed below, the agencies are
adopting the proposal to require that
activities in Native Land Areas must be
conducted in conjunction with a
government plans, programs, and
initiatives, including a tribal
government plan, program, or initiative,
as well as by expanding the ways that
this requirement can be met by allowing
for activities undertaken in conjunction
with a mission-based nonprofit
organization.509
Definitions and place-based criteria
(§ ll.13(j)(2) (revitalization or
stabilization activities) and (3) (essential
community facilities, essential
community infrastructure, and disaster
preparedness and weather resiliency)).
The final rule adopts place-based
eligibility criteria for the community
development category focused on
activities in Native Land Areas in
§ ll.13(j)(2) (revitalization or
stabilization activities) and (3) (essential
community facilities, essential
community infrastructure, and disaster
preparedness and weather resiliency).
These sections are reorganized from the
proposal to be in a consistent parallel
order with other place-based categories,
with certain features specific to the
Native Land Areas category that are
substantially similar to those in the
proposal.
Government plan, program, or
initiative (§ ll.13(j)(2)(i) and (j)(3)(i)).
Consistent with other place-based
community development categories, the
final rule adopts a criterion in each of
§ ll.13(j)(2)(i) and (j)(3)(i) requiring an
activity to be undertaken ‘‘in
conjunction with a plan, program, or
initiative of a Federal, State, local, or
tribal government or a mission-driven
nonprofit organization.’’ For clarity, and
as described in the section-by-section
analysis for § ll.12, the final rule
adopts a definition of ‘‘tribal
government.’’ The agencies believe that
including a government plan criterion
in each of § ll.13(j)(2)(i) and (j)(3)(i)
will help ensure that community
development activities under
§ ll.13(j) remain responsive to
identified community needs, and that
the addition of allowing activities with
mission-driven nonprofit organizations
will appropriately allow for and
509 See
final § ll.13(j)(2)(i) and (j)(3)(i).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
recognize the value and importance of
targeted non-government-related
activities that can serve communities in
Native Land Areas.
Final § ll.13(j)(2)(i) adopts the
proposed requirement that the relevant
plan, program, or initiative include an
‘‘explicit focus’’ on revitalizing or
stabilizing Native Land Areas, while
final § ll.13(j)(3)(i) is revised to
include the requirement that the
relevant plan, program, or initiative
include an ‘‘explicit focus’’ on
benefiting or serving Native Land Areas.
While other final place-based categories
are adopted without an ‘‘explicit focus’’
requirement (as described elsewhere in
the section-by-section analysis of
§ ll.13), the agencies believe this
standard is important for this category
of community development, to establish
that plans, programs, or initiatives have
an intentional link to Native Land
Areas, which as discussed above are
particularly underserved geographic
areas. Thus, for example, this category
would qualify a flood mitigation project
that is specifically designed to benefit
residents of a Native Land Area
(presuming all other criteria are met).
Regarding revitalization or
stabilization activities, final
§ ll.13(j)(2)(i) further requires that the
plan, program, or initiative include ‘‘a
particular focus on low- or moderateincome households.’’ As discussed in
the proposal, the agencies are adopting
a more targeted criterion for
revitalization or stabilization activities,
because Native Land Areas include
some middle- and upper-income census
tracts that are not designated as
distressed or underserved
nonmetropolitan middle-income census
tracts. This criterion allows
consideration for activities conducted in
geographic areas that include middleand upper-income census tracts, but
retains the focus on low- and moderateincome households. Based on
supervisory experience, the agencies
believe that the types of projects that
could qualify as revitalization and
stabilization activities are more feasibly
and likely to be developed to target
specific income levels than other
categories of place-based activities
covered in final § ll.13(j) (i.e.,
community facilities, infrastructure, and
disaster preparedness and weather
resiliency activities), which are more
likely to be utilized by the community
as a whole. Therefore, the agencies
believe that it is appropriate to establish
an express nexus between these
activities and benefits to low- and
moderate-income households in Native
Land Areas, to better ensure direct
PO 00000
Frm 00128
Fmt 4701
Sfmt 4700
benefits to low- and moderate-income
components of the community.
As discussed above, the final rule
expands the government plan criterion
in each of § ll.13(j)(2)(i) and (j)(3)(i)
from the proposal to include plans,
programs, or initiatives of missiondriven nonprofit organizations.
Regarding the Native Land Area
category of community development in
particular, the agencies believe that this
expanded government plan criterion
will generally capture plans, programs,
and initiatives of qualifying Native
CFDIs, Native Hawaiian organizations,
TDHEs, Indian Health Centers,
consortia, and other key Native
designees focused on low- and
moderate-income individuals and
communities. For this reason, the
agencies do not believe that expanding
this criterion to include tribal
associations or designees specifically is
necessary. Further, based on the
agencies’ research and commenter views
on the proposal, the agencies are
concerned that defining qualifying tribal
associations or designees appropriately
for the rule would be difficult. Rather,
the agencies believe that defining and
adding to this criterion mission-driven
nonprofit organizations will remove
potential ambiguity regarding which
organizations would be eligible tribal
associations or designees under this
criterion, increasing clarity and
transparency for stakeholders.
Benefit or serve residents, including
low- or moderate-income individuals
(§ ll.13(j)(2)(ii) and (j)(3)(ii)). Final
§ ll.13(j)(2)(ii) and (j)(3)(ii) each
contain the place-based criterion
generally requiring benefits to residents
in Native Land Areas. For the same
reasons discussed above with respect to
the government plan criterion, the
agencies are adopting a more targeted
criterion for revitalization or
stabilization activities. Specifically,
under § ll.13(j)(2)(ii), revitalization or
stabilization activities ‘‘must benefit or
serve residents of Native Land Areas
and must include substantial benefits
for low- or moderate-income residents.’’
For example, a bank’s purchase of a
bond to fund a distribution center in a
Native Land Area, where a substantial
number of employment opportunities
are expected to be filled by low- or
moderate-income residents of the Native
Land Area, may qualify for
consideration if the activity met other
required criteria.
Under final § ll.13(j)(3)(ii),
essential community facilities, essential
community infrastructure, and disaster
preparedness and weather resiliency
activities in Native Land Areas must
benefit or serve residents, including
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
low- or moderate-income individuals, in
Native Land Areas. The reasons for
adopting this criterion and general
revisions from the proposal are
discussed above in this section-bysection analysis regarding the common
place-based criteria.
Forced or involuntary relocation
(§ ll.13(j)(2)(iii) and (j)(3)(iii)). Final
§ ll.13(j)(2)(iii) and (j)(3)(iii) require
that revitalization or stabilization
activities and essential community
facilities, essential community
infrastructure, and disaster
preparedness and weather resiliency
activities in Native Land Areas,
respectively, do not directly result in
the forced or involuntary relocation of
low- or moderate-income individuals
residing in Native Land Areas. The
reasons for adopting this criterion and
general revisions from the proposal are
discussed above in this section-bysection analysis regarding the common
place-based criteria.
Section ll.13(k) Activities With MDIs,
WDIs, LICUs, or CDFIs
Current Approach
Under the CRA statute and current
regulations, nonminority- and
nonwomen-owned banks can receive
CRA credit for ‘‘capital investment, loan
participation, and other ventures’’
undertaken in cooperation with MDIs,
WDIs, and LICUs, provided that these
activities help meet the credit needs of
local communities in which the MDIs,
WDIs, and LICUs are chartered.510
These activities need not also benefit
the bank’s assessment areas or the
broader statewide or regional area that
includes the bank’s assessment areas.511
While CDFIs are not separately
highlighted in the statute or regulations,
activities with CDFIs can qualify as
community development under various
provisions of the current regulations
pursuant to current guidance.512
ddrumheller on DSK120RN23PROD with RULES2
The Agencies’ Proposal
The agencies proposed to establish a
category of community development for
activities with MDIs, WDIs, LICUs, and
U.S. Treasury Department-certified
CDFIs. Specifically, a community
development category in proposed
§ ll.13(j) included:
• Investments, loan participations,
and other ventures undertaken by any
bank, including by MDIs and WDIs, in
510 See 12 U.S.C. 2903(b), implemented at 12 CFR
ll.21(f).
511 See 12 CFR ll.21(f); see also Q&A
§ ll.21(f)–1.
512 See, e.g., Q&A § ll.12(t)(4) and § ll.21(h)–
1.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
cooperation with other MDIs, other
WDIs, or LICUs;513 and
• Lending, investment, and service
activities undertaken in connection with
a U.S. Treasury Department-certified
CDFI,514 which the proposed rule
expressly indicated would be presumed
to qualify for favorable community
development consideration.515
As discussed above in the section-bysection analysis of § ll.12, the
proposal defined the term MDI to ensure
consistency with the CRA statute and
incorporate existing flexibility for each
agency to define MDI as it determines
appropriate. In this way, the agencies
intended the proposal to ensure that
activities conducted in cooperation with
banks owned by minority individuals
would receive consideration, and also
provided consideration for activities
conducted in cooperation with banks
that the agencies have long considered
to be MDIs.516 The agencies sought
comment on whether the MDI definition
should include insured credit unions
considered to be MDIs by the NCUA. As
also discussed in the section-by-section
analysis of § ll.12, the proposal
defined WDI by cross-reference to the
definition of the term in the CRA.517
In the proposal, the agencies noted
stakeholder feedback indicating support
for a stronger emphasis on community
development financing and services that
support these institutions, including
equity investments, long-term debt
financing, technical assistance, and
contributions to nonprofit affiliates.
Some stakeholders previously suggested
the need to increase certainty
surrounding the treatment of activities
in partnership with MDIs, WDIs, LICUs,
and CDFIs. For example, stakeholders
noted that examiners might require
extensive documentation that a CDFI
513 Proposed
514 Proposed
§ ll.13(j)(1).
§ ll.13(j)(2).
515 Id.
516 See OCC, ‘‘Policy Statement on Minority
Depository Institutions’’ (July 26, 2022), https://
www.occ.gov/news-issuances/news-releases/2022/
nr-occ-2022-92a.pdf; Board, SR 21–6/CA 21–4,
‘‘Highlighting the Federal Reserve System’s
Partnership for Progress Program for Minority
Depository Institutions and Women’s Depository
Institutions’’ (Mar. 5, 2021), https://www.federal
reserve.gov/supervisionreg/srletters/SR2106.htm;
FDIC, ‘‘Statement of Policy Regarding Minority
Depository Institutions,’’ 86 FR 32728 (June 23,
2021).
517 12 U.S.C. 2907(b)(2), defining the term
‘‘women’s depository institution’’ to mean a
depository institution (as defined in 12 U.S.C.
1813(c)) in which: (i) more than 50 percent of the
ownership or control is held by one or more
women; (ii) more than 50 percent of the net profit
or loss of which accrues to one or more women; and
(iii) a significant percentage of senior management
positions are held by women. See also the sectionby-section analysis of final § ll.12 (‘‘women’s
depository institution’’).
PO 00000
Frm 00129
Fmt 4701
Sfmt 4700
6701
assists low-income populations, even
though CDFI certification by the U.S.
Treasury Department’s Community
Development Financial Institutions
Fund is an indication of having a
mission of community development.518
In the proposal, the agencies also noted
stakeholder support for conferring
automatic CRA community
development consideration for
community development activities with
U.S. Treasury Department-certified
CDFIs, to provide a stronger incentive
and reduce burden.
The proposal clarified that
investments, loan participations, and
other ventures undertaken not only by
nonminority institutions, but also by
MDIs and WDIs, in cooperation with
other MDIs, WDIs, and LICUs, would
qualify for consideration under this
category. This would expand on the
current rule, which focuses on
providing consideration for these
activities when conducted by
nonminority institutions.519
The agencies also sought feedback on
whether activities undertaken by an
MDI or WDI to promote its own
sustainability and profitability should
qualify for consideration. The agencies
considered that allowing these activities
to qualify could encourage new
investments to bolster the financial
positions of these banks, allowing them
to deploy additional resources to help
meet the credit needs of their
communities. The agencies further
sought comment on whether additional
eligibility criteria should be considered
to ensure investments by MDIs or WDIs
in themselves would ultimately benefit
low- and moderate-income and other
underserved communities.
The proposal to provide a
presumption of favorable CRA
consideration for lending, investment,
and service activities with U.S. Treasury
Department-certified CDFIs was based
on the agencies’ recognition that these
CDFIs already undergo specific
certification processes and evaluations
of CDFIs’ ongoing outputs and outcome
goals in award-making processes to
demonstrate that they have a mission of
promoting community development and
providing financial products and
services to low- or moderate-income
individuals and communities.520
518 See U.S. Dept. of Treasury, Community
Development Financial Institutions Fund, ‘‘CDFI
Certification,’’ https://www.cdfifund.gov/programstraining/certification/cdfi.
519 See 12 CFR ll.21(f) (implementing 12 U.S.C.
2903(b)).
520 See U.S. Dept. of Treasury, Community
Development Financial Institutions Fund, ‘‘CDFI
Certification,’’ https://www.cdfifund.gov/programstraining/certification/cdfi.
E:\FR\FM\01FER2.SGM
01FER2
6702
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
Comments Received
General. The agencies received
comments on proposed § ll.13(j) from
a wide range of commenters. Overall,
most commenters addressing proposed
§ ll.13(j) supported including this
category of community development
under proposed § ll.13, and most
commenters supported both prongs of
the proposal. Commenters noted, for
example, that these organizations’
missions to serve (and record of serving)
underserved or historically
disadvantaged communities, is
consistent with the goals of CRA; that
the proposed category would provide
clarity regarding the treatment of bank
activities with MDIs, WDIs, LICUs, and
CDFIs under the CRA; and that the
proposal would encourage activities that
would reinforce and build the capacity
of these entities. As discussed in more
detail below, some commenters
recommended that the agencies apply
additional eligibility criteria to
proposed § ll.13(j), while others
suggested that additional entities be
included within the scope of proposed
§ ll.13(j). As discussed in more detail
below, some commenters sought
additional clarity on the types of
activities included in the rule.
Comments regarding MDIs, WDIs, and
LICUs (proposed § ll.13(j)(1)). Most
commenters addressing proposed
§ ll.13(j)(1) supported recognizing
‘‘investments, loan participations, and
other ventures’’ undertaken by any
bank, including by MDIs and WDIs, in
cooperation with other MDIs, other
WDIs, or LICUs, as community
development. Similarly, several
commenters noted that these entities are
mission-driven and share a focus
consistent with the purpose of CRA. For
example, a commenter stated that MDIs
have proven to advance economic
mobility in Black communities, citing
an FDIC study that included findings
that an estimated 6 out of 10 people
living in the service area of Blackowned banks are Black, and that MDIs
originate a greater share of mortgage
loans than non-MDIs to borrowers in
low- and moderate-income census tracts
and in census tracts with larger shares
of minority populations.521 Another
commenter stated that in many minority
communities, MDIs offer safe and
affordable banking services where other
institutions may not, and that most
MDIs provide vital deposit and credit
521 FDIC, ‘‘Minority Depository Institution:
Structure, Performance, and Social Impact’’ (May
2019), https://www.fdic.gov/regulations/resources/
minority/2019-mdi-study/full.pdf.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
access services in communities that
large financial institutions avoid.
Commenters asserted that MDIs need
increased capital investments to serve
their communities and that the agencies
should incentivize bank activities with
MDIs that have a proven record of
lending to minority consumers and in
low- and moderate-income and minority
communities. In this regard, a few
commenters asserted that the agencies
should specifically encourage activities
with MDIs and minority-led or
minority-owned CDFIs and credit
unions in order to increase racial equity
in historically underserved
communities.
Several commenters suggested
additional eligibility criteria for
activities with MDIs and WDIs, based on
concerns that MDIs and WDIs might not
always serve low- or moderate-income
individuals or communities. A few
commenters suggested that CRA credit
for activities with MDIs be connected to
the MDI’s record of serving borrowers in
minority communities. For example, to
ensure that minority communities are
served, a commenter suggested that
activities with MDIs or WDIs with assets
over $1 billion be subject to additional
data requirements for transparency, as
well as other guardrails. Another
commenter suggested incorporating into
the CRA regulations a Federal statutory
definition of ‘‘minority lending
institution,’’ requiring that a majority of
both the number and dollar volume of
arm’s-length, on-balance sheet financial
products be directed at minorities or
majority minority census tracts or
equivalents.522 Another commenter
asserted that activities with CDFIs are
more responsive and impactful than
deposits or investments into MDIs and
WDIs, and that automatic consideration
should not be conferred for activities
with MDIs or WDIs; instead, examiners
should consider what the MDI or WDI
does with a deposit or investment prior
to granting CRA credit.
Commenters separately addressed the
proposed definition of MDI, including
in response to the agencies’ question on
whether to include in the definition
minority insured credit unions
recognized by the NCUA. These
comments and the agencies’ response
are addressed in the section-by-section
analysis for the MDI definition in
§ ll.12.
Comments regarding CDFIs (proposed
§ ll.13(j)(2)). Most commenters
addressing proposed § ll.13(j)(2)
supported qualifying ‘‘lending,
522 Consolidated Appropriations Act, 2021, tit. V,
subtitle B, section 523(c)(4)(A), Public Law 116–
260, 134 Stat. 2088–89 (Dec. 27, 2020).
PO 00000
Frm 00130
Fmt 4701
Sfmt 4700
investment, and service activities’’
undertaken in connection with a U.S.
Treasury Department-certified CDFI as
community development under the rule,
including the proposed presumption
that such activities qualify for favorable
community development consideration.
Commenters supporting the provision
noted that CDFIs are responsible,
mission-based lenders and investors.
For example, a commenter stated that
CDFIs are very active in the NMTC
program and work closely with banks to
produce the thoughtful and impactful
revitalization efforts. Some commenters
emphasized that CDFIs can help support
small businesses, especially minorityand women-owned small businesses,
and continue to partner with banks to
make credit accessible in low- and
moderate-income communities across
the country.
Some commenters sought
clarifications in the final rule related to
CDFIs. Several commenters
recommended that the final rule clarify
that a bank’s activities with CDFIs
would receive equal consideration to
activities with MDIs, WDIs and LICUs,
with some noting that this should apply
regardless of a CDFI’s location relative
to a bank’s assessment area. As noted
above, one commenter suggested CDFIs
are more impactful than MDIs, WDIs, or
LICUs, and, accordingly, that only
activities with CDFIs should receive
automatic consideration. Some
commenters also suggested that the final
rule ensure uniform treatment of all
kinds of CDFIs (e.g., loan funds, banks,
and credit unions). A number of
commenters suggested that the final rule
explicitly include ‘‘CDFI banks,’’ based
on concerns that the proposal was not
clear that CDFI banks were ‘‘banks’’ and
that activities between CDFI banks and
MDIs, WDIs, and LICUs would be
covered for CRA consideration under
this category. Other commenters raised
concerns about the potential impact of
giving similar community development
consideration to all CDFIs. For example,
a few commenters expressed concern
that allowing CRA consideration for
bank activities in conjunction with a
CDFI regardless of where the CDFI
exists could have the effect of
encouraging bank activities with only
the largest CDFIs, thus redirecting
capital resources away from smaller
CDFIs with a primary mission of serving
local communities. Thus, a commenter
recommended that regulators should
incentivize substantial participation
with local CDFIs, as a condition
precedent to an ‘‘Outstanding’’ rating.
Activities undertaken by an MDI or
WDI to promote its own sustainability
and profitability; eligibility criteria.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Most commenters responding to the
question of whether the agencies should
consider activities undertaken by an
MDI or WDI to promote its own
sustainability and profitability stated
that these activities should be
considered. Commenters cited the
importance of keeping these institutions
in business so that they may better serve
their communities. Commenters further
suggested clear language expressly
allowing CDFI banks to receive CRA
consideration for activities that promote
their own sustainability and
profitability.
A few commenters responded to a
related question posed by the agencies
on whether additional eligibility criteria
should be considered to ensure that
investments by an MDI or WDI in itself
provide benefit to low- and moderateincome and other underserved
communities. A commenter stated that
the investments should show an
ancillary benefit to low- and moderateincome populations or low- and
moderate-income areas served by the
institution. Some commenters stated
that no additional eligibility criteria
should apply to WDI and MDI
investments in themselves, but
suggested that enhanced consideration
should be given to investments that
directly benefit low- and moderateincome and underserved communities.
A few commenters opposed giving
CRA consideration to activities
undertaken by an MDI or WDI to
promote its own sustainability and
profitability, or suggested limits on
consideration of these types of
investments. For example, a commenter
stated that MDIs or WDIs that are small
or intermediate banks should receive
CRA consideration for well-defined
investments in building their capacity,
but that this should not extend to large
banks that are MDIs or WDIs.
Other requests for clarification.
Commenters also sought clarification on
various other aspects of the rule. A
commenter suggested that the proposal
generally did not clearly articulate what
activities would be eligible for
consideration under proposed
§ ll.13(j), and thus would not provide
sufficient incentive for banks to engage
in these partnerships. Some commenters
sought clarity on whether specific types
of activities would qualify, such as,
among others, CDFI products designed
to address racial inequity, or loan
participations that banks sold to or
purchased from MDIs and CDFIs. Some
commenters suggested that all bank
investments or loans, including equity
investments in or to certified CDFIs be
eligible to receive CRA credit, and that
the final rule provide full CRA credit for
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
loans originated to unbanked and
underbanked borrowers that are
originated by nonbank CDFIs (even if
sold immediately to third-party
investors). Commenters also
recommended clarifying that
investments, loans, or grants, and other
support to subsidiaries or entities
controlled or wholly-owned by U.S.
Treasury Department-certified CDFIs be
given the same CRA consideration as
those supporting the CDFI.
Additional entities. Some commenters
recommended that community
development consideration under
proposed § ll.13(j) be extended to
activities with other entities, such as
those undertaken with chartered
NeighborWorks organizations, HUDdesignated Community Housing
Development Organizations, HUDapproved Housing Counseling
Organizations, and Certified
Development Companies (CDCs). In
particular, commenters highlighted the
rigor required for entities to maintain
these certifications. Commenters also
suggested adding a wide range of other
entities that offer important community
supports, such as Community Action
Agencies (CAAs), Housing Partnership
Network partners, Mutual Self-Help
Housing grantees under the USDA Rural
Development section 523 program, and
other community-based organizations.
Some commenters expressed concern
that the proposal to grant automatic
consideration to CDFIs could discourage
similar support to CDCs and other nonCDFI-certified community-based
organizations. A commenter suggested
that providing CRA consideration for
activities with community development
venture capital funds and formative
funds or entities seeking certified CDFI
status would encourage bank support of
valuable CDEs prior to certification,
while another expressed support for the
agencies’ clarification in the proposal
that non-CDFI certified activities could
be considered under another
community development category
(assuming criteria are met).
Final Rule
The final rule renumbers proposed
§ ll.13(j) as § ll.13(k) and revises it
as discussed below. Under the final
rule, activities with MDIs, WDIs, LICUs,
or CDFIs are ‘‘loans, investments, or
services undertaken by any bank,
including by an MDI, WDI, or CDFI
bank evaluated under [the agencies’
CRA regulations], in cooperation with
an MDI, WDI, LICU, or CDFI.’’ Final
§ ll.13(k) covers activities with the
same types of entities as those proposed,
but the language referencing eligible
types of activities with those entities is
PO 00000
Frm 00131
Fmt 4701
Sfmt 4700
6703
revised and simplified, with no
substantive change intended, to refer to
‘‘loans, investments, and services.’’ This
change is a clarification for consistency
with the activities considered under the
Community Development Financing
Test in final § ll.24, the Community
Development Services Test in final
§ ll.25, and the Community
Development Financing Test for Limited
Purpose Banks in final § ll.26.
Additionally, the final rule states that
these activities do not include
investments by an MDI, WDI, or CDFI
bank in itself.
The final rule is intended to build on
and clarify important community
development financing and services
through MDIs, WDIs, LICUs, and CDFIs
that qualify under the current CRA
framework. The agencies believe that,
by establishing a clear and
straightforward standard that allows a
bank’s loans, investments, and services
with MDIs, WDIs, LICUs, and CDFIs to
receive community development
consideration, the final rule will
increase certainty and transparency
concerning treatment of activities in
partnership with these entities relative
to current practice. The final rule is also
expected to reduce documentation
burden associated with demonstrating,
for example, that CDFIs serve low- and
moderate-income populations or
otherwise have a community
development mission, as commenters
noted this can create challenges in
engaging in these activities. Instead, the
final rule is intended to streamline
banks’ engagement with MDIs, WDIs,
LICUs, and CDFIs by providing
automatic community development
consideration for loans, investment, and
services with these entities.523
The agencies believe that the mission
of MDIs, WDIs, LICUs, and CDFIs in
meeting the credit needs of low- and
moderate-income and other underserved
individuals, communities, and small
businesses is highly aligned with CRA’s
core purpose of encouraging banks to
meet the credit needs of their entire
community, including low- and
moderate-income populations.
Emphasizing partnerships with MDIs,
WDI, and LICUs in the final rule is
consistent with the CRA’s express
provision highlighting ‘‘capital
investment, loan participation, and
other ventures’’ by banks in cooperation
with MDIs, WDIs and LICUs.524 As
reflected in the current CRA framework,
523 See also final § ll.13(a)(1)(iii) regarding
credit for community development activities under
final § ll.13(k) and the accompanying section-bysection analysis.
524 12 U.S.C. 2903(b).
E:\FR\FM\01FER2.SGM
01FER2
6704
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
CDFIs have long been recognized by the
agencies as financial institutions that,
like MDIs, WDIs, and LICUs, are critical
to the lending and capital access
ecosystem of low- or moderate-income
communities.525 Based on the agencies’
supervisory experience, stakeholder
feedback over the years of rulemaking
leading to this final rule, and other
relevant sources, the agencies believe
that MDIs, WDIs, LICUs, and CDFIs
often have intimate knowledge of local
community development needs and
opportunities, allowing them to conduct
highly responsive activities.526 These
entities also generally undergo rigorous
and verifiable certification processes.527
Loans, investments, or services
include, for instance, equity
investments in and loan participations
with MDIs, WDIs, and LICUs, and
CDFIs. Consistent with current
guidance, this would include, for
example, loan participations that a bank
purchased from a CDFI, loaning an
officer or providing other technical
expertise to assist an MDI in improving
its lending policies and practices, or
providing financial support for a WDI to
partner with a local educational
institution to provide financial literacy
programming.528 The rule takes this
broad approach in order to provide
flexibility for banks to engage in a range
of activities that will meet differing
local needs across communities.
525 See, e.g., Q&A § ll.12(t)(4) and § ll.21(h)–
1. See also, e.g., 81 FR 48506, 48508–48510 (July
25, 2016).
526 See also, e.g., U.S. Government Accountability
Office (GAO), ‘‘Paycheck Protection Program:
Program Changes Increased Lending to Small
Businesses and Underserved Businesses,’’ 13 (Mar.
16, 2022), https://www.gao.gov/assets/gao-22105788.pdf (estimating, for example, that 69 percent
of Paycheck Protection Loans by MDIs and CDFIs
went to businesses in high-minority counties).
527 See, e.g., OCC, ‘‘Policy Statement on Minority
Depository Institutions’’ (July 26, 2022), https://
www.occ.gov/news-issuances/news-releases/2022/
nr-occ-2022-92a.pdf; Board, SR 21–6/CA 21–4,
‘‘Highlighting the Federal Reserve System’s
Partnership for Progress Program for Minority
Depository Institutions and Women’s Depository
Institutions’’ (Mar. 5, 2021), https://
www.federalreserve.gov/supervisionreg/srletters/
SR2106.htm; FDIC, ‘‘Statement of Policy Regarding
Minority Depository Institutions,’’ 86 FR 32728
(June 23, 2021); U.S. Dept. of Treasury, Community
Development Financial Institutions Fund, ‘‘CDFI
Certification,’’ https://www.cdfifund.gov/programstraining/certification/cdfi. See also 12 CFR 701.34
(NCUA standards for designating a Federal credit
union as a ‘‘low-income credit union’’).
528 See Q&A § ll.21(f)–1. The final rule expands
on current guidance to include CDFIs. Donating a
branch, selling a branch on favorable terms, or
making branches available on a rent-free basis to
MDIs, WDIs, and LICUs pursuant to section 801 of
the CRA would also qualify for consideration under
this prong, based on the final rule’s definition of
‘‘community development investment,’’ discussed
further in the section-by-section analysis of that
definition in final § ll.12.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Inclusion of CDFIs. The agencies have
also considered comments regarding
how CDFIs should be considered
relative to MDIs, WDIs, and LICUs. The
agencies believe that creating a single
standard for CDFIs, MDIs, WDIs, and
LICUs is not only simpler, but also
serves to acknowledge the importance of
CDFIs as critical providers of capital to
low- or moderate-income communities.
The agencies also believe that the
construction of the final rule as it relates
to activities with CDFIs is preferable
since it more directly states that these
activities are eligible under final
§ ll.13(k), as compared to the
proposed rule’s approach of providing a
presumption of credit for CDFIs in
proposed § ll.13(j)(2). The agencies
determined that the presumption
language raised unintended uncertainty
about whether activities with CDFIs
would actually count for community
development consideration.
The final rule also references CDFIs
instead of U.S. Treasury Departmentcertified CDFIs, as the definition of
CDFI in the final rule is clarified to
mean U.S. Treasury Departmentcertified CDFIs. See the section-by
section analysis of § ll.12 for
discussion of the definition of
‘‘Community Development Financial
Institution (CDFI)’’. This definitional
change affirms the agencies’ intent to
ensure that, beyond MDIs, WDIs, and
LICUs, the entities with which a bank
may engage for automatic consideration
of loans, investments, and services have
undergone the U.S. Treasury
Department’s CDFI certification process
and meet requirements for maintaining
that certification. The agencies consider
this a critical guardrail to ensuring that
community development on an
inclusive community basis is the focus
of bank loans, investments, and services
in cooperation with these CDFIs.
Activities conducted by MDIs, WDIs,
and CDFI banks with other MDIs, WDIs,
LICUs, and CDFIs. Under final
§ ll.13(k), any loans, investments, or
services undertaken by any bank,
including by an MDI, WDI, or CDFI
bank, in cooperation with an MDI, WDI,
LICU, or CDFI will qualify as
community development. As noted in
the proposal, in this regard the final rule
expands on the current rule, which
focuses on crediting these activities
when conducted by nonminority
institutions.529 As MDI, WDI, and CDFI
banks are themselves subject to CRA
evaluations, the agencies believe that
this expansion is appropriate to ensure
that the loans, investments, and services
current 12 CFR ll.21(f) (implementing
12 U.S.C. 2903(b)).
529 See
PO 00000
Frm 00132
Fmt 4701
Sfmt 4700
of these institutions receive the same
treatment as nonminority institutions.
CDFI banks. The final rule also clarifies
that loans, investments, and services by
‘‘any bank’’ include not only majority
institutions, but also those by an MDI,
WDI, or ‘‘CDFI bank’’ that is evaluated
under the CRA. The definition of
‘‘CDFI’’ in final (and proposed) § ll.12
is general and thus includes both
depository and non-depository CDFIs;
however, the agencies intend with the
reference to a ‘‘CDFI bank’’ in final
§ ll.13(k) to address commenter
concerns that the proposal was not clear
that CDFI bank loans, investments, and
services in cooperation with MDIs,
WDIs, LICUs, and other CDFIs could
qualify for consideration under this
provision.
Additional eligibility criteria. The
agencies have considered commenter
suggestions to add additional eligibility
criteria for MDIs and WDIs under the
final rule, such as criteria concerning
how investments in MDIs and WDIs are
used, or an MDI’s record of service to
minority communities. On further
deliberation, the agencies believe that
an additional layer of criteria would be
overly complex to define and apply,
potentially dampening the range and
quantity of activities beneficial to
communities that could otherwise
qualify under this provision. For similar
reasons, the agencies also are using their
statutory authority not to include in
final § ll.13(k) the reference in the
statute and current regulation to
activities that help meet the credit needs
of ‘‘local communities in which [MDIs,
WDIs, and LICUs] are chartered.’’ 530 As
discussed above, based on the agencies’
supervisory experience, stakeholder
feedback over the years of rulemaking
leading to this final rule, and other
relevant sources, MDIs, WDIs, LICUs,
and CDFIs have robust knowledge about
the needs of their local communities
and records of serving these needs. The
agencies believe that the structure and
orientation of these entities provide
needed guardrails to ensure that
activities in cooperation with them will
be consistent with the CRA’s
community focus in the final regulation.
Relatedly, under the final rule,
activities with CDFIs are treated
similarly to those with MDIs, WDIs, and
LICUs, regardless of a CDFI’s location or
size. The agencies are mindful of
concerns expressed by some
commenters that this approach could
direct bank investment away from
smaller, local CDFIs in favor of larger
530 See 12 U.S.C. 2903(b), implemented by current
12 CFR ll.21(f). See also 12 U.S.C. 2901(b),
2903(a) and (b), and 2905.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
CDFIs. On further consideration, the
agencies believe that adding size or
location criteria regarding CDFIs with
which banks may engage for CRA credit
under this provision would diminish
the flexibility needed for a range of
activities meeting differing local needs
across communities. The agencies also
note the final rule’s adoption of an
impact and responsiveness review
under § ll.15, including an impact
and responsiveness factor under
§ ll.15(b)(4) for loans, investments,
and services that support an MDI, WDI,
LICU, or CDFI (excluding certificates of
deposit with a term of less than one
year) will allow the agencies to consider
the extent to which such activities are
highly impactful or responsive to the
needs of underserved areas and
populations.531
Activities undertaken by an MDI or
WDI to promote its own sustainability
and profitability. The agencies have
considered comments responding to the
question on whether an MDI or WDI
should receive consideration for
activities that promote an MDI’s or
WDI’s own sustainability and
profitability, and are adopting a final
rule that excludes investments by MDIs,
WDIs, or CDFI banks in themselves.532
The agencies appreciate commenter
views on the importance of investment
support for these entities to bolster their
financial position so that they can better
serve their communities, as well as the
need to consider ways to ensure that
these investments benefit low- and
moderate-income and underserved
communities. On further consideration,
the agencies are concerned that the
linkage between such investments and
benefits to low- or moderate-income
communities may be attenuated and
thus difficult to determine, in turn
making establishment and application
of clear and consistent guardrails to
ensure benefits to low- and moderateincome communities unduly
challenging. At the same time, the
agencies believe that the final rule
provides robust avenues of support for
the sustainability and profitability of
MDIs and WDIs through other CRAevaluated banks, including other MDIs
and WDIs.
Definition of MDIs; minority credit
unions. The agencies considered
comments in response to the agencies’
request for feedback regarding whether
minority credit unions should be
included in the definition of MDI for the
531 See final § ll.15 and the accompanying
section-by-section analysis.
532 While the agencies requested comment only
on investments by MDIs and WDIs, the final rule
also excludes similar investments by CDFIs for
parity.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
final rule and conducted further
research on this matter. The agencies
note that there is a large overlap
between minority credit unions and
LICUs.533 Thus, a bank’s loans,
investments, and services with a large
percentage of minority credit unions
will be eligible for community
development consideration under final
§ ll.13(k), based on the minority
credit union’s LICU status. For this and
other reasons, the agencies have decided
not to add minority credit unions to the
proposed definition of MDI. The
question of whether to include minority
credit unions in the final rule’s
definition of MDI, as well as other
aspects of the final rule’s definition of
MDI, is discussed in more detail in the
section-by-section analysis of § ll.12
(‘‘minority-depository institution
(MDI)’’).
Additional entities. The agencies have
also considered comments
recommending that the final rule
include additional types of entities with
which banks could collaborate in order
to receive community development
consideration, and have decided not to
include additional entities in
§ ll.13(k). The agencies have
considered that entities such as
NeighborWorks America’s network
organizations, HUD’s Community
Housing Development Organizations,
and other community-based
organizations perform important
functions in communities, as do
community development venture funds
and formative funds, or other entities
seeking certified CDFI status. However,
because qualifying activities under
§ ll.13(k) are eligible for community
development consideration without
additional eligibility criteria, the
agencies believe that narrowly tailoring
the entities considered under the final
rule is especially important and,
accordingly, that focusing final
§ ll.13(k) on MDIs, WDIs, LICUs, and
CDFIs is appropriate. As outlined above,
MDIs, WDIs, LICUs, and CDFIs
generally have missions and track
records that directly align with the
CRA’s mandate of providing credit to
entire communities, including to low- or
moderate-income communities; undergo
rigorous and verifiable certification
processes; and are financial institutions
that provide critical capital access and
credit to underserved communities. The
agencies further believe that
emphasizing partnerships with the
533 NCUA, ‘‘Minority Depository Institutions
Annual Report to Congress,’’ 2 (2021), https://
ncua.gov/files/publications/2021-mdicongressional-report.pdf (indicating that 81 percent
of minority credit unions are designated as LICUs).
PO 00000
Frm 00133
Fmt 4701
Sfmt 4700
6705
entities covered by final § ll.13(k) is
consistent with the CRA’s express
emphasis on cooperation with MDIs,
WDIs and LICUs, as well as with the key
role CDFIs play in the capital and
financial ecosystem in low- or
moderate-income communities. The
agencies also note and expect that loans,
investments, and services supporting
activities performed by other entities
suggested by commenters may be
eligible for community development
consideration under other provisions in
§ ll.13.
The agencies have also considered
comments that activities with
subsidiaries or entities controlled or
wholly-owned by CDFIs be eligible for
community development consideration
under § ll.13(k). The agencies note
that subsidiaries or entities controlled or
wholly-owned by MDIs, WDIs, or LICUs
are not referenced in current § ll.21(f)
or proposed § ll.13(j) 534 Similarly,
final § ll.13(k) does not include
activities with these subsidiaries or
affiliates, as the agencies believe an
automatic grant of community
development consideration should
remain narrowly tailored. However,
activities with subsidiaries or affiliates
could be considered under other
categories of community development,
to the extent they would meet the
criteria of those categories.
Section ll.13(l) Financial Literacy
Current Approach
Currently, activities related to
financial literacy may qualify for CRA
credit as ‘‘community development
services.’’ 535 These activities must be
targeted to low- or moderate-income
individuals.536 Examples of community
development services provided in
current guidance include, among others:
(1) ‘‘[p]roviding credit counseling,
home-buyer and home maintenance
counseling, financial planning or other
financial services education to promote
community development and affordable
housing, including credit counseling to
assist low- or moderate-income
borrowers in avoiding foreclosure on
their homes,’’ as well as (2)
‘‘[e]stablishing school savings programs
or developing or teaching financial
education or literacy curricula for lowor moderate-income individuals.’’ 537
534 The relevant CRA statutory provision also
does not reference subsidiaries or controlled
entities of MDIs, WDIs, or LICUs. See 12 U.S.C.
2903(b).
535 See 12 CFR ll.12(i) (defining ‘‘community
development service’’).
536 See Q&A § ll.12(i)–3, Q&A § ll.12(h)–8.
537 See Q&A § ll.12(i)–3.
E:\FR\FM\01FER2.SGM
01FER2
6706
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
The Agencies’ Proposal
Proposed § ll.13(k) established a
separate category of community
development for ‘‘[a]ctivities that
promote financial literacy,’’ defined as
activities that ‘‘assist individuals and
families, including low- or moderateincome individuals and families, to
make informed financial decisions
regarding managing income, savings,
credit, and expenses, including with
respect to homeownership.’’ Under the
proposed rule, a bank would receive
consideration for these activities
without requiring them to focus
specifically on low- and moderateincome beneficiaries. The proposed
approach was intended to encourage
investments that have broad benefits
across income levels and that support
the economic well-being of entire
communities, as well as to simplify
qualification by limiting the need for
banks to obtain documentation to
demonstrate that the activity is targeted
to low- or moderate-income individuals
or families, which can be particularly
difficult to obtain for non-customers.
However, proposed § ll.13(k)
specified that the individuals and
families assisted by financial literacy
activities must ‘‘includ[e] low- or
moderate-income individuals and
families.’’ The agencies requested
comment on whether CRA
consideration of financial literacy
activities should be expanded from
current practice to include activities
that benefit individuals and families of
all income levels, or be limited to
activities that have a primary purpose of
benefiting low- or moderate-income
individuals or families.
ddrumheller on DSK120RN23PROD with RULES2
Comments Received
The agencies received many
comments on the proposed financial
literacy category of community
development from a variety of
commenters, as discussed in more detail
below.
Financial literacy activities that
benefit individuals and families of all
income levels, including low- and
moderate-income. Commenters
generally supported creating a
community development category for
financial literacy activities. In response
to the agencies’ request for comment on
whether the financial literacy category
should apply to all income levels or
only to low- and moderate-income
individuals and families, some
commenters supported applying the
community development category to all
income levels as proposed. Commenters
asserted, for example, that financial
literacy is useful and important to
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
peoples of all income levels; that the
proposed approach would ensure that
other underserved populations,
including seniors, veterans, and rural
communities, would benefit from
financial literacy activities; and that the
proposed approach would allow banks
to expand financial literacy activities
more broadly and efficiently to schools
and students, without restricting
activities to only those students that are
low- or moderate-income. In this regard,
one commenter asserted that targeting
financial literacy activities to only lowor moderate-income students can be
difficult in rural areas because there are
very few schools with a majority of
students that meet this criterion. A few
commenters also noted that expanding
the provision to all income levels would
allow banks to better reach low- or
moderate-income populations,
including by providing an incentive for
bank employees to offer financial
literacy sessions to mixed-income
groups, and by reducing burden for
banks by streamlining the process for
determining whether financial literacy
activities qualify.
In contrast, other commenters raised a
range of concerns regarding the
proposed approach to consider financial
literacy activities that benefit
individuals and families of all income
levels. Of those commenters, many
asserted that there is a scarcity of
resources and support for financial
literacy activities, and expressed
concern that expanding eligible
financial literacy activities to include
those for all income levels would divert
resources from low- and moderateincome individuals and families that are
in greater need. Commenter feedback
included, for example: that the
proposed approach would not be
aligned with the intention and goals of
the CRA to ensure that low- and
moderate-income consumers are
adequately served by the banking
system; disagreement with assertions
that income level documentation is a
significant burden to financial
institutions, noting that nonprofit
organizations track the income level of
their clientele; and that banks should be
required to demonstrate that the
primary purpose of the financial literacy
activities it supports is benefiting lowand moderate-income individuals or
families.
Some commenters suggested that
financial literacy activities for other
populations or in other specific areas
should qualify. Suggestions included
financial literacy activities serving
underserved populations, first-time
homebuyers, small businesses,
minorities or minority-owned
PO 00000
Frm 00134
Fmt 4701
Sfmt 4700
businesses of all income levels, Native
communities, or activities in and
around Native Land Areas. A
commenter suggested that the agencies
consider any financial literacy activity
provided by a HUD-approved housing
counseling agency or intermediary, as a
way to address concerns about income
verification burden on banks.
Financial literacy activities. While
many commenters supported the
proposal without suggested changes or
revisions to the activities indicated as
qualifying under this category, other
commenters suggested the agencies
clarify or add a range of other activities
considered eligible under this category,
such as financial coaching, various
digital education products, and other
specific financial literacy education
programs, products, and services. For
example, a commenter suggested that
the agencies clarify that credit
counseling is an eligible activity under
the financial literacy category, asserting
that nonprofit credit counseling and
debt management counseling are critical
to support low- and moderate-income
consumers. A few commenters
suggested that the agencies specify that
grants and loans made to nonprofit
organizations that support eligible
activities under the proposed financial
literacy category qualify for
consideration.
Housing-related comments. A number
of commenters had suggestions
regarding consideration for housing and
homeownership-related counseling
activities. In particular, several
commenters suggested that additional
emphasis be given to activities that
focus on housing counseling.
Commenters generally noted the unique,
vital, and effective role housing
counseling can play in helping
consumers meet their financial goals. A
few commenters noted that HUDcertified housing counselors provide
several critical services to renters and
first-time homebuyers that help mitigate
barriers related to income, race, and
ethnicity, and asserted that the agencies
should recognize and provide additional
credit for activities that support those
counselors. A group of commenters
separately suggested that housing
counseling should be recognized as a
community development activity
distinct from the financial literacy
category. These commenters expressed
concern that including activities related
to housing counseling along with other
activities in a single financial literacy
category could result in banks focusing
on non-housing activities in that
category.
Some commenters recommended that
the final rule specifically recognize
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
lender fee-for-service payments for
housing counseling services by HUDapproved housing counseling agencies
as an eligible activity, with some
commenters recommending recognition
of fee-for-service payments for housing
counseling services specifically
assisting low- and moderate-income
borrowers. For example, one commenter
asserted that consideration for lender
fee-for-service payments to housing
counseling providers serving low- or
moderate-income clientele would help
ensure that those organizations would
be able to continue providing housing
counseling services. This commenter
indicated that such organizations
traditionally rely on grants to fund those
activities, which can present a challenge
for their long-term stability. Another
commenter suggested that fee-forservice payments for housing
counseling services should be
recognized as an eligible activity if the
bank can demonstrate that this service
is being offered to low- or moderateincome borrowers.
Additional approaches to qualifying
eligible financial literacy activities.
Several commenters emphasized that
the rule should encourage banks to
partner with nonprofit organizations to
ensure that financial literacy activities
are relevant to the community and
marketed successfully, and suggested
that qualifying programs or activities
should have a stated purpose of
engaging low- and moderate-income
residents. A few commenters suggested
that banks should receive enhanced
credit for supporting financial literacy
activities targeted to low- and moderateincome individuals and families,
including through a multiplier scoring
system correlated to the percentage of
low- and moderate-income beneficiaries
supported by an eligible activity.
Final Rule
The final rule adopts the proposal on
financial literacy substantially as
proposed, renumbered as § ll.13(l).
Under the final rule, activities that
promote financial literacy are those that
‘‘assist individuals, families, and
households, including low- or
moderate-income individuals, families,
and households, to make informed
financial decisions regarding managing
income, savings, credit, and expenses,
including with respect to
homeownership.’’ The final rule makes
technical edits from the proposal by
adding ‘‘and households’’ as a
conforming edit consistent with edits
made in other community provisions in
final § ll.13. The agencies that believe
incorporating financial literacy
activities into the regulation as a
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
separate regulatory category of
community development will provide
banks with certainty and clarity
regarding how these activities will
qualify for CRA consideration, and that
this, in turn, will benefit a wide range
of individuals and families in need of
financial literacy services.
The agencies have carefully
considered commenter views on
whether the financial literacy category
should be limited to activities targeted
to low- and moderate-income
individuals and families. On balance,
for the reasons discussed below, the
agencies believe that the rule as
finalized, without such limitation, will
ensure low- and moderate-income
individuals, families, and households
benefit from financial literacy activities,
while further encouraging banks’
involvement in such activities. The final
rule will reduce barriers to offering
financial literacy activities by
permitting a broader range of mixedincome activities to qualify relative to
current practice, and will reduce burden
by limiting the need for banks to track
income levels of participants (which, as
noted above, can be particularly
difficult with respect to non-customers).
As discussed in the proposal, prior
stakeholder feedback also has suggested
that financial literacy activities are, in
practice, primarily delivered to low- or
moderate-income individuals, which
may be another factor that reduces the
need to obtain income documentation.
The language of the final rule providing
that individuals, families, and
households assisted by financial literacy
activities must include low- or
moderate-income individuals, families,
and households will also ensure that
financial literacy activities will not be
eligible for CRA credit if they solely
benefit middle- and upper-income
individuals, families, or households.
The agencies further believe that
financial literacy can build economic
resilience at all income levels,
particularly where there may be
evidence that financial literacy is
lacking, or financial instability exists.
The agencies are sensitive to concerns
about the scarcity of available resources
for financial literacy activities, and
believe that the final rule’s approach
will more broadly share the benefits of
these activities across communities and
open up greater opportunities for
underserved populations, including
seniors, students, veterans, and rural
communities to benefit from financial
literacy activities. In the agencies’
experience, financial literacy activities
can provide important tools for all
individuals and families to maintain or
improve upon their financial status,
PO 00000
Frm 00135
Fmt 4701
Sfmt 4700
6707
which benefit communities as a whole.
As such, the agencies believe that the
final rule is consistent with the intent of
CRA to serve the credit needs of a
bank’s entire community, including
low- and moderate-income
communities.538
Regarding commenters’ suggestions
that the agencies revise the regulation to
explicitly qualify specific activities, the
agencies believe that the broader
approach in the final rule will allow
banks more flexibility, as any activities
meeting the criteria in § ll.13(l) will
qualify. Activities that the agencies view
as consistent with the language in
§ ll.13(l) will generally include
activities such as financial education,
financial coaching and counseling,
small business education, and housing
counseling. For example, a financial
planning seminar with senior citizens,
including low- and moderate-income
seniors, or a financial education
program for children in a middleincome school district would both be
activities that would qualify for
consideration. Similarly, credit
counseling for residents of a rural area
or grants and loans to nonprofits related
to financial literacy would generally
qualify for consideration. The agencies
will take commenters’ recommended
examples under advisement as the
agencies develop the illustrative list
anticipated by § ll.14(a), discussed
below.
The agencies do not believe that
direct marketing of specific bank
products alone would constitute a
financial literacy activity that ‘‘assist[s]
individuals, families, and households,
including low- or moderate-income
individuals, families, and households,
to make informed financial decisions,’’
and therefore would not meet the
criteria for qualification in § ll.13(l).
However, a lender fee-for-service
financial education program focused on
savings and the benefits of savings,
through which a bank provides
information on its low-cost savings
accounts (such as through a BankOn
program539) or allows participants to
prepare for and access a sustainable
home mortgage, as is done in many
homebuyer programs with HUDcertified housing counselors, would
likely qualify for consideration under
§ ll.13(l). The agencies note that
when engaging in activities under
§ ll.13(l), banks are expected to
comply with all applicable laws,
538 See,
e.g., 12 U.S.C. 2903(a)(1).
BankOn, ‘‘Account Standards,’’ https://
bankon.wpenginepowered.com/wp-content/
uploads/2022/08/Bank-On-National-AccountStandards-2023-2024.pdf.
539 See
E:\FR\FM\01FER2.SGM
01FER2
6708
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
including, among others, section 8 of
the Real Estate Settlement Procedures
Act of 1974.540
The agencies have also considered
commenter suggestions that various
specific activities related to housing
counseling should be recognized within
a separate category of qualifying
activities or that they should otherwise
be given extra emphasis on
examinations, including suggestions to
give enhanced credit for activities
targeted to low- and moderate-income
individuals. The agencies understand
the importance of housing-related
financial literacy activities and, on
further deliberation, believe that the
final rule appropriately recognizes
housing counseling activities by
expressly identifying activities that
assist individuals, families, and
households to making informed
financial decisions regarding
‘‘homeownership’’ as one key type of
qualifying activity within a new,
separate community development
category for financial literacy overall.
The agencies note that activities that
assist individuals, families, and
households to make informed financial
decisions about homeownership are part
of a wide range of available qualifying
financial literacy activities that offer
critical support for the economic wellbeing of communities. With respect to
comments suggesting extra emphasis,
the agencies also note that the final rule
creates a non-exhaustive list of specific
impact and responsiveness factors that
will recognize certain activities,
including factors for activities serving
persistent poverty counties and higher
poverty census tracts (§ ll.15(b)(1)
and (2)), low-income individuals,
families, and households
(§ ll.15(b)(5)), and affordable housing
in High Opportunity Areas
(§ ll.15(b)(7)). See the section-bysection analysis of § ll.15, below.
Section ll.14 Community
Development Illustrative List;
Confirmation of Eligibility
ddrumheller on DSK120RN23PROD with RULES2
Current Approach
Under the current regulations, the
agencies do not jointly maintain a
standalone list of examples of loans,
investments, and services that qualify
for CRA community development
consideration. However, the OCC
maintains an illustrative list of activities
as a reference for determining whether
activities conducted while the OCC
2020 CRA Final Rule was in effect were
eligible for consideration under that
540 12
U.S.C. 2607.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
rule.541 The Interagency Questions and
Answers also include certain examples
of eligible community development
loans, investments, and services.542
Relatedly, the OCC previously
established a confirmation process, not
currently codified in its CRA regulation,
through which national banks, Federal
savings associations, and other
interested parties may request
confirmation that a loan, investment, or
service qualifies for CRA
consideration.543 The Board and the
FDIC do not currently have similar
mechanisms for State banks or State
savings associations. Currently, as part
of their CRA examinations, banks
submit community development
activities that were undertaken without
an assurance these activities are eligible.
Knowing that an activity previously
qualified can frequently provide banks
with some confidence that the same
types of activities are likely to receive
consideration in the future. However,
banks assessing a new, less common,
more complex, or innovative activity
may not know whether that activity is
eligible for CRA consideration until a
determination is made by an examiner
as part of the bank’s CRA examination—
after the bank has made a decision about
whether to provide a loan, investment,
or service. The determination requires
examiner judgment and the use of
performance context, which may further
complicate a bank’s ability to predict
what activities could qualify.
Section ll.14(a)
Illustrative List
Section ll.14(a)(1) Issuing and
Maintaining The Illustrative List
The Agencies’ Proposal
To provide increased certainty
regarding what community
development activities qualify for CRA
consideration, the agencies proposed in
§ ll.14(a) to maintain a publicly
available, non-exhaustive illustrative
541 The OCC maintains an illustrative list on its
website as a reference for national banks, Federal
savings associations, and other interested parties to
determine whether activities that they conducted
while the OCC 2020 CRA Final Rule was in effect
were eligible for CRA consideration. Activities on
this illustrative list may not receive consideration
if conducted after January 1, 2022, when the
rescission of the OCC 2020 CRA Final Rule became
effective. See OCC, ‘‘CRA Illustrative List of
Qualifying Activities,’’ https://www.occ.treas.gov/
topics/consumers-and-communities/cra/craillustrative-list-of-qualifying-activities.pdf.
542 See, e.g., Q&A § ll.12(g)–1 through
ll.12(g)(4)(iii)–4, Q&A § ll.12(h)–1 through
ll.12(h)–8, and Q&A § ll.12(i)–1 through
ll.12(i)–3.
543 See OCC, ‘‘CRA Qualifying Activity
Confirmation Request,’’ https://www.occ.treas.gov/
topics/consumers-and-communities/cra/qualifyingactivity-confirmation-request/index-cra-qualifyingactivities-confirmation-request.html.
PO 00000
Frm 00136
Fmt 4701
Sfmt 4700
list of examples of community
development activities that qualify for
CRA consideration. As noted in the
proposal, prior stakeholders had
indicated broad support for an
illustrative list similar to the list
associated with the OCC 2020 CRA
Final Rule. In the proposal, the agencies
indicated that stakeholders supported
this approach as a way to highlight
loans, investments, and services that
meet the CRA community development
criteria, while also noting that those
criteria remain the determinative factors
in qualifying community development
activities (as opposed to whether a
particular activity appears on the
illustrative list). The agencies sought
feedback on whether the benefit of
greater certainty would outweigh the
potential that the list might limit
innovation by unintentionally leading
banks to focus primarily on activities on
the list. The agencies sought comment
on whether, in addition to maintaining
an illustrative list of qualifying activities
under § ll.14(a), the agencies should
also maintain a non-exhaustive list of
activities that do not qualify for CRA
consideration as a community
development activity.
Comments Received
General. Most commenters on this
aspect of the proposal expressed
support for the agencies maintaining a
non-exhaustive illustrative list of
qualifying activities, as set forth in
proposed § ll.14(a). In general,
commenters stated that an illustrative
list would simplify compliance, and
provide more regulatory certainty
regarding community development
activities that meet the requirements for
CRA credit. Commenters also generally
stated that an illustrative list would
promote consistency among agencies
and examiners, with at least one
commenter stating that the list should
be universally accepted across all
agencies and deployed consistently
across examiners. Other commenters
highlighted the benefits of an
illustrative list in connection with a
timely pre-approval process. For
example, a commenter indicated that a
clearly-articulated illustrative list could
allow transactions to be structured
between banks and partner
organizations with more information
earlier in the process. Commenters also
suggested that the agencies clarify
further that the list is not exhaustive.
Some commenters expressed concerns
about the potential breadth and impact
of the proposed illustrative list. For
instance, some commenters stated their
concern that a lengthy list of qualifying
activities could encourage banks to
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
participate in the easiest and least
impactful community development
activities. Accordingly, commenters
emphasized that the list should be
focused on those activities that are most
impactful to low- and moderate-income
communities or closely tied to local
needs, or that a listed activity would not
automatically qualify if it resulted in
displacement of low- and moderateincome individuals or minorities.
Several commenters raised concerns
that providing an illustrative list could
stifle innovation to the extent that banks
default to engaging only in listed
activities. Another commenter stated
that examiner judgment and the use of
performance context would still be
warranted as new, innovative activities
arise. Several other commenters
proposed that the agencies instead
adopt a principles-based list, with a few
raising concerns that an extensive list
could evolve into an overwhelming ad
hoc list.
Many commenters offered a variety of
suggestions regarding how the agencies
should develop, issue, and maintain an
illustrative list. For example, a few
commenters recommended that the list
be published in the Federal Register. In
addition, several commenters
recommended that the agencies
maintain an interactive database with
various features, including, among
others, topical organization and
searchability; case studies; or guidance
and examples of documentation. Several
commenters suggested that any list be
developed and updated in coordination
with relevant stakeholders.
Finally, commenters also offered a
variety of suggestions on specific
activities that should be included or
expanded upon in an illustrative list.
Several commenters recommended that
the agencies adopt the list of qualifying
activities found in the OCC 2020 CRA
Final Rule. Other commenters offered
specific suggested activities, including,
among many others, various activities
pertaining to environmental and climate
resilience; impacting disabled persons,
as relevant to the community supportive
services category; and promoting digital
inclusion. At least one commenter
suggested that an illustrative list be
expanded to include innovative and
responsive retail product and service
offerings in addition to community
development activities.
List of activities that do not qualify for
CRA consideration. As noted above, the
agencies sought comment on whether,
in addition to maintaining an
illustrative list of qualifying activities
under § ll.14(a), the agencies should
also maintain a non-exhaustive list of
activities that do not qualify for CRA
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
consideration as a community
development activity. Many
commenters supported maintaining a
non-exhaustive illustrative list of
activities that do not qualify for CRA
consideration, with several arguing, for
example, that a list of non-qualifying
activities would provide increased
transparency and prevent banks from
allocating time to non-qualifying
activities. Commenters also shared
suggestions on how the agencies might
develop a non-qualifying illustrative
list. However, other commenters
opposed or expressed concerns about
maintaining a non-exhaustive list of
non-qualifying activities. For example,
one commenter cautioned that a list of
ineligible activities could be
misinterpreted, causing banks to avoid
partnerships with entire entities instead
of certain activities. Another commenter
noted that eligibility for CRA
consideration can depend on specific
circumstances and unique facts,
detracting from the usefulness of
maintaining a list of non-qualifying
activities.
Final Rule
The final rule renumbers proposed
§ ll.14(a) as § ll.14(a)(1), and
reflects the technical edits and revisions
from the proposal discussed below. The
final rule clarifies that the agencies not
only will maintain, but will jointly issue
a publicly available illustrative list of
non-exhaustive examples of loans,
investments, and services that qualify
for community development
consideration as provided in § ll.13.
For the reasons stated in the proposal
and on consideration of comments, the
agencies believe that establishing an
illustrative list will promote
transparency and consistency, provide
banks and other stakeholders with
greater certainty, and help clarify the
application of criteria for community
development categories. These
examples are intended to help banks
make more informed decisions
regarding what loans, investments, and
services would qualify for community
development consideration.
The revision in the final rule
confirming that the list will be jointly
issued by the OCC, Board, and FDIC is
partly intended to support commenters’
interest in consistency across agencies
and examinations. Whether to include
(or add under final § ll.14(a)(2),
discussed below) an activity to the
illustrative list is subject to the agencies’
discretion. The final rule also makes
conforming edits to replace ‘‘community
development activities that qualify for
CRA consideration’’ with ‘‘loans,
investments, and services that qualify
PO 00000
Frm 00137
Fmt 4701
Sfmt 4700
6709
for community development
consideration,’’ consistent with other
revisions in the final rule, and edits to
clarify that § ll.14(a) is specifically
applicable to the types of activities that
are described in § ll.13.
In adopting the final rule, the agencies
considered feedback on whether the
benefit of greater certainty would
outweigh the potential that the list
might limit innovation by
unintentionally leading banks to focus
primarily on examples on the list. The
agencies believe that, on balance, the
benefit of greater certainty,
transparency, and clarity outweigh this
potential concern. The agencies also
believe that updating the illustrative list
periodically pursuant to final
§ ll.14(a)(2)(i), described below, will
further mitigate concerns by allowing
for new, innovative examples to be
added over time.
The agencies similarly considered
commenter concerns and
recommendations related to the
potential breadth of the illustrative list.
The agencies are concerned that
adopting a principles-based list as
suggested would not provide sufficient
clarity or specificity, which would limit
the informational benefits of an
illustrative list for banks regarding what
kinds of loans, investments, and
services would qualify as community
development. In developing the
illustrative list, the agencies expect to
consider what steps the agencies can
take to promote ease of use by banks
and the public, and to provide context
to complex issues as feasible. Regarding
the suggestion that the agencies clarify
further that the list is not exclusive, the
agencies reaffirm that the illustrative list
is intended to be non-exhaustive;
accordingly, the final rule retains
proposed language expressly stating that
the illustrative examples are nonexhaustive.
The agencies also appreciate
commenters’ thoughtful views on how
the agencies should develop and issue
an illustrative list, as well as the types
of activities that should populate the
list. Subsequent to this rulemaking, the
agencies expect to jointly develop the
process for issuing, maintaining, and
updating the illustrative list. The
agencies will continue to take all of
these comments under advisement as
this process moves forward.
The agencies are not adopting
suggested revisions to final
§ ll.14(a)(1), as follows. Regarding
commenter concerns that activities on
the list be focused on particular
community needs and not result in
displacement, the agencies note that, as
a threshold matter, any activity on the
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6710
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
illustrative list would still need to
qualify under the relevant criteria of a
particular community development
category in § ll.13, including any
applicable criteria for any place-based
community development activity. As
discussed in the section-by-section
analyses of § ll.13(e) through (j),
above, one placed-based criteria is that
the activity ‘‘not directly result in the
forced or involuntary relocation of lowor moderate-income individuals’’ in the
relevant geographic area.544 Further, as
needed, examiners will still exercise
judgment and review performance
context in evaluating an activity under
the applicable facts and circumstances.
The agencies also considered the
suggestion to expand the illustrative list
to include innovative and responsive
retail services and products offerings, in
addition to community development
activities. The agencies are not
expanding the illustrative list in this
manner, as the agencies have not
observed as many questions
necessitating upfront clarification
regarding eligible retail services and
products. In deliberating further on this
matter in light of the comments, the
agencies determined that, at this time,
the illustrative list will best serve the
purpose of clarity and transparency by
being focused on community
development activities as the area in
which the agencies observe and hear
from stakeholders there is the most need
for clarity.
Finally, the agencies considered
commenter feedback on whether to
maintain a separate list of activities that
do not qualify for community
development consideration. Upon
further consideration of comments
received, the agencies are concerned
that such a list might inadvertently
deter banks from pursuing eligible
loans, investments, and services, and
accordingly, the agencies are not
adopting a provision to maintain a list
of non-qualifying activities. The
agencies also believe that resources will
be more effectively and efficiently
deployed if focused on providing a
resource for banks seeking new
opportunities to serve community
needs. Nonetheless, the agencies note
that the confirmation process adopted in
final § ll.14(b), discussed below, will
provide a related venue for confirming
eligibility, which should help banks
reduce unintended allocation of time
and resources to non-qualifying loans,
investments, and services.
544 See final § ll.13(e)(1)(iii), (f)(3), (g)(3),
(h)(1)(iii), (i)(3), (j)(2)(iii), and (j)(3)(iii).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Section ll.14(a)(2) Modifying the
Illustrative List
The Agencies’ Proposal
To ensure flexibility and
incorporation of new activities, the
agencies proposed in § ll.14(b)(1) to
update the illustrative list periodically.
The agencies also proposed in
§ ll.14(b)(2) that, if the agencies
determine that an activity on the
illustrative list is no longer eligible for
CRA community development
consideration, the owner of the loan or
investment at the time of the
determination would continue to
receive CRA consideration for the
remaining term or period of the loan or
investment. However, the loan or
investment would not be eligible for
consideration for any purchasers of that
loan or investment post-determination.
Comments Received and Final Rule
Commenters provided views on
various aspects of proposed § ll.14(b),
addressing how the agencies might
update and remove items from the
illustrative list, and the timeline for
doing so. Commenters generally
suggested regular monitoring and
updating, with several offering
suggested timelines (for example: as
new innovations arise and
circumstances warrant; biannually; or
triennially). Commenter feedback
included that: the agencies should
regularly seek public comment as the
most transparent and fair way to update
the illustrative list; all stakeholders
should be permitted to submit
suggestions for issuing and modifying
the illustrative list; banks should work
with their primary regulator to provide
submissions to the illustrative list, and
agency staff should also be allowed to
submit activities to the list arising
through outreach or the examination
process; and banks should still receive
consideration for any previous
investment that remains on the bank’s
books even if the activity is deemed
ineligible later.
The final rule adopts § ll.14(b)
substantially as proposed, renumbered
as § ll.14(a)(2), with technical edits to
replace ‘‘activities’’ with ‘‘loans,
investments, or services’’ and other
conforming edits. Final § ll.14(a)(2)(i)
provides that the agencies will
periodically update the illustrative list
in § ll.14(a)(1). Consistent with the
proposal, final § ll.14(a)(2)(ii) states
that, in the event the agencies determine
that a loan or investment on the
illustrative list is no longer eligible for
community development consideration,
the owner of the loan or investment at
the time of the determination will
PO 00000
Frm 00138
Fmt 4701
Sfmt 4700
continue to receive community
development consideration for the
remaining term or period of the loan or
investment. However, these loans or
investments will not be considered
eligible for community development
consideration for any purchasers of that
loan or investment after the
determination.
The agencies believe that providing
for periodic updates to the illustrative
list under § ll.14(a)(2)(i) offers the
agencies flexibility and will promote
innovation by allowing the agencies to
add new and innovative examples over
time. This provision also will allow the
agencies’ understanding of community
development activities to evolve as
banks’ activities and community
development needs shift. The agencies’
ability to update the list periodically is
also intended to help address some
commenter concerns regarding
§ ll.14(a)(1), that an illustrative list
could limit innovation by leading banks
to focus primarily on examples found
on the list.
As noted above, subsequent to this
rulemaking, the agencies expect to
jointly develop the process for issuing,
maintaining, and updating the
illustrative list, and will consider
commenter suggestions for that process,
including those regarding modifying
and removing items from the illustrative
list, and the timeline for doing so.
Regarding commenter concerns about
treatment of loans and investments later
removed from the list, the agencies note
that final § ll.14(a)(2)(ii) is intended
to provide certainty that a bank (albeit
not subsequent purchasers) will
continue to receive consideration for
their loans and investments even if
those examples are later removed from
the list. Accordingly, in circumstances
where examples are later removed from
the list, a bank’s credit for those loans
and investments would not be
retroactively impacted.
Section ll.14(b) Confirmation of
Eligibility
The Agencies’ Proposal
The agencies proposed in § ll.14(c)
and (d) a formal mechanism for banks
subject to the CRA regulations to request
confirmation that an activity is eligible
for CRA consideration. Under proposed
§ ll.14(c), a bank could submit a
request to its appropriate Federal
financial supervisory agency for
confirmation that an activity is eligible
for CRA consideration. When the
agencies confirmed that an activity is or
is not eligible for CRA consideration,
the supervisory agency would notify the
requestor, and the agencies might add
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
the activity to the publicly available
illustrative list of activities,
incorporating any conditions imposed,
if applicable.
Proposed § ll.14(d)(1) provided that
a bank could request that the
appropriate Federal financial
supervisory agency confirm that an
activity is eligible for CRA consideration
by submitting a request to its Federal
financial supervisory, in a format
prescribed by the agency. Proposed
§ ll.14(d)(2) provided that, in
responding to a confirmation request,
the agencies would consider: (1) the
information provided to describe and
support the request; (2) whether the
activity is consistent with the safe and
sound operation of the bank; and (3) any
other information that the agencies
deem relevant. The agencies further
proposed in § ll.14(d)(3) that the
agencies may impose any conditions on
that confirmation, in order to ensure
consistency with the requirements of
the CRA and the CRA regulations. The
agencies solicited comment on the
process for accepting submissions for
confirming qualifying community
development activities, and on
establishing a timeline for review. The
agencies also solicited comment on
processes involving joint actions by the
agencies, as well as alternative
processes and actions, such as
consultation among the agencies, that
would be consistent with the purposes
of the CRA.
Comments Received
Commenters generally supported the
agencies’ proposal in § ll.14(c) and
(d) to create an established process for
banks to request confirmation that an
activity is eligible for CRA
consideration. Commenters noted that
such a process could help banks focus
their community development
activities, increase clarity, reduce
uncertainty, improve transparency, and
offer a centralized resource for vetting
projects. For example, a commenter
noted that an illustrative list, coupled
with a confirmation process, would give
banks the tools to plan community
development activities and still be
innovative when warranted. Some
commenters stated that the agencies
should expand the scope of proposed
§ ll.14(c) and (d)(1) to permit
submissions by stakeholders other than
banks, so as not to deter the
development of qualified, responsive,
and innovative activities. Another
commenter suggested that financial
institutions should be allowed to
request confirmation of activities that
may have been presented to them by
other stakeholders.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Commenters shared a variety of
suggestions in response to the agencies’
request for feedback on the process for
accepting submissions for confirming
qualifying community development
activities. For example, a commenter
emphasized the importance of a
confirmation process that is published
and public, while another
recommended that the agencies adopt a
clear process for frequency of updates,
factors considered in adding new
activities, and the process for alerting
banks to any modifications. Another
commenter recommended that there be
a process for confirming eligibility of
qualifying activities both in advance
and after an activity is completed.
Commenters further offered feedback
on processes involving joint actions by
the agencies. Several commenters
offered ideas for the review process,
including establishing a joint
interagency review and determination
process; involving stakeholders (e.g.,
through a stakeholder advisory board or
through a joint agency and stakeholder
committee); and/or an automated review
and approval process. A few
commenters suggested coordination
with State agencies or consideration of
State CRA frameworks in the
confirmation process. Several other
commenters underscored the need for
consistency among regulators’ approval
or denial for similar opportunities. A
commenter that encouraged interagency
coordination also recommended that
only a requestor’s primary Federal
regulator should make the
determination, rather than the feedback
being a joint undertaking of the three
agencies.
Commenters also addressed timelines
for the review and confirmation process.
Some commenters stated that the
process would need to be timely to be
helpful, including because competition
and customer expectations require
institutions to move quickly, and
because slow feedback can hinder
projects and investments. A few
commenters cautioned that a
preapproval process should not require
major investments of time or effort.
Commenters suggested different
review timeline ranges. Many
commenters recommended a maximum
30-day timeframe for answering
preapproval requests, with some noting
this timeframe would allow for dialogue
between the agency and financial
institution, as well as time for regulators
to coordinate with one another for
purposes of consistency. Another group
of commenters suggested that a 60-day
timeframe would be appropriate. Other
suggested timelines generally ranged
from 24 hours to six months, with a
PO 00000
Frm 00139
Fmt 4701
Sfmt 4700
6711
commenter suggesting that a lack of
response from the agency within a
standard time should be taken as an
approval of the activity.
Commenters also addressed technical
aspects of the submission process, such
as submission through an email system,
portal, and/or template, with details
regarding acknowledgment and
response times. Some commenters
offered ideas to increase transparency,
including, for example, making requests
and decisions public, and implementing
technology such as an online request
tracking system. Among other processrelated topics, commenters encouraged
training and expectation-setting for
agency staff to promote expertise and
consistency, and suggested
documentation of the structure and flow
of the confirmation process.
Final Rule
Consistent with the proposal, the final
rule establishes a formal mechanism for
banks to submit a request for
confirmation that an activity is eligible
for community development
consideration. Proposed § ll.14(c) and
(d) are renumbered as § ll.14(b)(1)
through (3), reflecting reorganization of
the proposed regulatory text to follow a
more chronological order of the
confirmation process. As described
more specifically below, final
§ ll.14(b)(1) describes how banks
subject to the CRA regulations may
request a confirmation of eligibility from
the appropriate Federal financial
supervisory agency. Final § ll.14(b)(2)
describes the process for determining
eligibility of an activity, which includes
the types of information the appropriate
Federal financial supervisory agency
will consider and a statement that the
appropriate Federal financial
supervisory agency will work in close
coordination with the other agencies to
make eligibility determinations. Final
§ ll.14(b)(2) also includes the
proposal clarifying that the supervisory
agency may impose limitations or
requirements on a determination for
consistency with the requirements of
the CRA final rule. Final § ll.14(b)(3)
reflects proposed § ll.14(c), stating
that the appropriate Federal financial
supervisory agency will notify the
requestor and other agencies of its
determination.
The agencies believe that establishing
a confirmation process as set forth in
final § ll.14(b) will accomplish the
desired goal of increased certainty and
clarity for banks by allowing them to
seek an upfront determination that a
loan, investment, or service will be
eligible for community development
consideration (subject to limitations or
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6712
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
conditions set by agencies in the
confirmation process, such as the
legality of the activity). Together with
the illustrative list process in
§ ll.14(a), the agencies believe that
the confirmation process in § ll.14(b)
will assist banks with planning and will
facilitate banks’ support of newer, less
common, more complex, or innovative
activities. The agencies further believe
that the confirmation process will
improve a bank’s transparency into its
supervisory agency’s views on a
particular request, and will help banks
focus their community development
resources and engagements. The
agencies have considered comments on
the confirmation submission and review
process, including views on joint
confirmation determinations, and have
adopted a revised rule taking that
feedback into account, as described in
more detail below.
The agencies note that the
confirmation process anticipated by
§ ll.14(b) is an optional tool designed
to provide more upfront certainty to
banks. However, the final rule does not
prevent banks from seeking informal,
nonbinding feedback from the
appropriate Federal financial
supervisory agency on particular
activities, or prevent an examiner from
affirming in the normal course of an
examination that an activity does or
does not qualify for community
development consideration based upon
review of all facts and circumstances.
Section ll.14(b)(1) Request for
confirmation of eligibility. As noted,
final § ll.14(b)(1) provides that a bank
subject to the CRA regulations may
request that the appropriate Federal
financial supervisory agency confirm
that a loan, investment, or service is
eligible for community development
consideration by submitting a request
to, and in a format prescribed by, that
agency. To streamline the regulation
and reduce redundancy, the final rule
combines proposed § ll.14(c) and (d)
in final § ll.14(b)(1) through (3). Final
§ ll.14(b) does not include the
reference in proposed § ll.14(c) to
updating the illustrative list, as
duplicative of final § ll.14(a)(2). The
agencies expect to consider whether to
add confirmed eligible loans,
investments, and services to the
illustrative list as part of the periodic
list update process.
The agencies are declining to expand
the confirmation process to permit
stakeholders beyond banks subject to
the CRA regulations to submit
confirmation requests to the agencies, as
suggested by some commenters. The
agencies appreciate the strong interest
that other stakeholders such as
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
community groups may have in
confirming whether particular activities
qualify for CRA consideration; at the
same time, they are not subject to CRA
examinations. The agencies believe that
limiting the confirmation submission
process to banks will ensure that agency
resources are most efficiently deployed
to considering eligibility for activities
with confirmed interest from the banks
that would be seeking CRA
consideration. Additionally, the
agencies emphasize that public input,
including community contacts, and
other tools for stakeholder involvement
remain a key part of the CRA
examination process.545
Section ll.14(b)(2) Determination of
eligibility. Final § ll.14(b)(2) describes
the eligibility determination process,
which has been revised from proposed
§ ll.14(d)(2). Final § ll.14(b)(2)(i)
provides the criteria the agencies will
use in determining the eligibility of a
loan, investment, or service for a request
submitted under § ll.14(b)(1).
Specifically, the appropriate Federal
financial supervisory agency will
consider information that describes and
supports the bank’s request (final
§ ll.14(b)(2)(i)(A)) and any other
information that the agency deems
relevant (final § ll.14(b)(2)(i)(B)).
Final § ll.14(b)(2)(i) clarifies
proposed § ll.14(d)(2) by stating that
the appropriate Federal financial
supervisory agency will consider these
factors ‘‘[t]o determine the eligibility of
a loan, investment, or service for which
a request has been submitted under
paragraph (b)(1)’’ (as opposed to
considering these factors ‘‘[i]n response
to a request for confirmation’’ 546). In
final § ll.14(b)(2)(i)(A) and (B), the
agencies are adopting provisions
proposed regarding information that the
appropriate Federal financial
supervisory agency will consider in
determining whether an activity is
eligible for CRA consideration under the
individualized confirmation process.547
Final § ll.14(b)(2)(i) does not
incorporate the proposed provision
stating that the agencies will consider
‘‘[w]hether the activity is consistent
with the safe and sound operation of the
bank.’’ 548 On further consideration, the
agencies believe that information in
relation to the safe and sound operation
of the bank is covered under the
language ‘‘any other information that
the [Agency] deems relevant’’ in final
545 See, e.g., final § ll.46, regarding public
engagement, and the accompanying section-bysection analysis.
546 See proposed § ll.14(d)(2).
547 See proposed § ll.14(d)(2)(i) and (iii).
548 Proposed § ll.14(d)(2)(ii).
PO 00000
Frm 00140
Fmt 4701
Sfmt 4700
§ ll.14(b)(2)(i)(B), so is unnecessary.
However, the agencies do not intend to
substantively change the final rule in
this regard, and note that the CRA
emphasizes meeting community credit
needs ‘‘consistent with the safe and
sound operation of such
institutions.’’ 549
Final § ll.14(b)(2)(ii) states that the
agencies expect and are presumed to
jointly determine eligibility of a loan,
investment, or service to promote
consistency across the agencies. This
provision further states that, before
making a determination of eligibility,
the appropriate Federal financial
supervisory agency will consult with
the other agencies regarding the
eligibility of a loan, investment, or
service. On further deliberation, the
agencies determined that it was
important to clarify the provisions
regarding confirmation of eligibility to
reflect each agency’s authority to make
decisions about its own supervised
entities. At the same time, the final rule
incorporates the agencies’ obligation to
consult with one another and work
together in making eligibility
determinations.
Proposed § ll.14(d)(3) is finalized
as § ll.14(b)(2)(iii), with technical
edits and revisions to clarify that the
appropriate Federal financial
supervisory agency (rather than all three
agencies) may impose limitations or
requirements on a determination of the
eligibility of a loan, investment, or
service of its regulated bank, to ensure
consistency with the CRA regulations.
In considering the appropriate
provisions for final § ll.14(b)(2), the
agencies particularly noted commenters’
views on the importance of an efficient,
timely confirmation process, as well as
commenters’ interest in promoting
consistency across the agencies
concerning similar opportunities. The
agencies also considered that
confirmation requests may be highly
varied by type, complexity, and scope.
The final rule thus emphasizes the
agencies’ commitment to jointly
consider and make decisions on
confirmation requests in consultation
with one another, while allowing the
Federal financial supervisory agency to
consider relevant factors and make a
final determination based on its
particular supervisory knowledge of the
requesting bank and the agency’s
supervisory experience with the CRA.
Based on that knowledge and
experience, the agencies believe it
appropriate to clarify that the
appropriate Federal financial
supervisory agency (as opposed to all
549 12
E:\FR\FM\01FER2.SGM
U.S.C. 2901(b).
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
three agencies together, as proposed)
may impose limitations or requirements
on any determination. The agencies
believe that the final rule thus
appropriately balances commenters’
interests in efficiency and consistency.
The agencies note that any
determination of eligibility under final
§ ll.14(b) is not a determination of
legal permissibility or compliance with
applicable laws and regulations. A bank
requesting a determination remains
responsible for ensuring that the loan,
investment, or service is legally
permissible and complies with
applicable laws and regulations.
Section ll.14(b)(3) Notification of
eligibility. Final § ll.14(b)(3) states
that the Federal financial supervisory
agency will provide a written
notification to the requestor and to the
other agencies of any eligibility
determination, as well as the rationale
for such determination. The final rule
expands on the proposal (proposed
§ ll.14(c)) to clarify that a requestor
can expect to receive the rationale for an
agency’s determination, and to ensure
that the agencies remain collectively
informed of the final dispensation of
requests, which will help promote
interagency consistency and support
future confirmation request
determinations. As each confirmation
request is dependent on individual facts
and circumstances, and could contain
confidential information from the
requesting bank, the agencies do not
intend to make their confirmation
decisions public. However, as noted
above, the agencies will consider
confirmation decisions when
periodically updating the illustrative list
contemplated by § ll.14(a).
Additional process issues. The final
rule does not adopt specific timelines or
other more detailed points of process at
this time. The agencies appreciate
commenters’ additional feedback in
response to questions on the
confirmation submission process and
timelines, including regarding process
development, stakeholder engagement,
and technical suggestions. As with the
illustrative list in § ll.14(a),
subsequent to this rulemaking, the
agencies expect to jointly develop the
confirmation process in connection with
final § ll.14(b). The agencies in
particular recognize commenter
feedback on timelines, and intend to
implement a timely and efficient
process. The agencies will take these
comments under advisement as that
process development moves forward.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Section ll.15 Impact and
Responsiveness Review of Community
Development Loans, Community
Development Investments, and
Community Development Services
Current Approach
Currently, the agencies’ qualitative
assessment of a bank’s community
development performance takes into
account the responsiveness of the bank’s
activities to credit and community
development needs and, if applicable,
the innovativeness and complexity of
the activities.550 As part of these
considerations, examiners also consider
the degree to which the activities serve
as a catalyst for other community
development activities.551
The terms ‘‘responsiveness’’ and
‘‘innovativeness’’ are generally
described in the Interagency Questions
and Answers. Regarding
‘‘responsiveness,’’ for example, the
Interagency Questions and Answers
explains that an examiner will consider
both quantitative and qualitative aspects
of a bank’s community development
activities.552 Thus, in addition to
considering the volume and type of
activities, examiners may consider some
activities to be more responsive than
others if an activity effectively meets
identified credit and community
development needs.553
‘‘Innovativeness’’ takes into account, for
example, whether a bank implements
meaningful improvements to products,
services, or delivery systems to respond
to community needs.554 These
qualitative aspects of the bank’s
community development activities can
be assessed based on information
provided by the bank and other sources
about the performance context and
information about credit and
community development needs and
opportunities.555
While current guidance emphasizes
the importance of a qualitative review of
a bank’s community development
activities and recognizes that certain
activities are more responsive than
others, there are no clear standards for
how these factors are identified or
Q&A § ll.21(a)–2.
id.
552 See Q&A § ll.21(a)—3.
553 See id.
554 See Q&A § ll.21(a)—4. The Interagency
Questions and Answers also indicate that
‘‘innovativeness’’ may include banks introducing
existing products, services, or delivery systems to
‘‘low- or moderate-income customers or segments of
consumers or markets not previously served.’’ Id.
This guidance further states, ‘‘Practices that cease
to be innovative may still receive qualitative
consideration for being flexible, complex, or
responsive.’’ Id.
555 See id.
550 See
551 See
PO 00000
Frm 00141
Fmt 4701
Sfmt 4700
6713
measured. As a result, the qualitative
evaluation currently relies heavily on
examiner judgment.
As the agencies discussed in the
proposal, some stakeholders have
suggested that the current approach for
the qualitative evaluation of community
development activities could be more
transparent and consistent, and
stakeholders have expressed that the
qualitative assessment could have a
stronger focus on the impact and
responsiveness of a bank’s community
development activities and, relatedly,
that it could be more clearly linked to
CRA’s core purpose of serving low- and
moderate-income individuals and
communities.
Section ll.15(a) Impact and
Responsiveness Review, in General
The Agencies’ Proposal
Proposed § ll.15(a) would
incorporate into the regulation an
impact review of community
development activities under the
Community Development Financing
Test,556 the Community Development
Services Test,557 and the Community
Development Financing Test for
Wholesale or Limited Purpose Banks.558
The impact review would qualitatively
evaluate the impact and responsiveness
of qualifying activities with respect to
community credit needs and
opportunities through the application of
a series of review factors. Specifically,
as proposed in § ll.15(b) and
discussed below, the evaluation of a
community development activity’s
impact and responsiveness would
include, but would not be limited to, a
set of ten specific qualitative factors. In
addition, proposed § ll.15(a) stated
that the agencies would consider, as
applicable, performance context
information set forth in proposed
§ ll.21(e), which would include
information demonstrating an activity’s
impact on and responsiveness to local
community development needs, such as
detailed information about a bank’s
activities, local data regarding
community needs, and input from
community stakeholders.559 The impact
and responsiveness review would
provide appropriate community
development recognition for loans,
investments, and services that are
considered to be especially impactful
and responsive to community needs,
including loans and investments that
§ ll.24.
§ ll.25.
558 Proposed § ll.26.
559 Proposed § ll.21(e) is renumbered final
§ ll.21(d), discussed in detail in the
accompanying section-by-section analysis below.
556 Proposed
557 Proposed
E:\FR\FM\01FER2.SGM
01FER2
6714
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
may be relatively small in dollar
amount.
ddrumheller on DSK120RN23PROD with RULES2
Comments Received
Commenters on the proposed
community development impact review
generally supported adding an impact
review as proposed in § ll.15(a). As
discussed in more detail below,
commenters also generally favored
adopting the proposed impact review
factors in proposed § ll.15(b), while
expressing a range of views regarding
how particular proposed impact factors
should be implemented. Numerous
commenters also recommended that the
agencies adopt a variety of additional
impact factors.
Scope of impact factor review. Several
commenters urged the agencies to
expand the scope of the impact factor
review to include activities under the
proposed Retail Lending Test and Retail
Services and Product Test. These
comments are discussed in the sectionby-section analysis of final §§ ll.22
and ll.23.
Clarifications and impact factor
review process.560 Some commenters
recommended that the agencies provide
further clarity and processes concerning
how the agencies would review, weigh,
and apply impact factors in
examinations and ratings
determinations. A number of
commenters highlighted the need for a
clear and transparent impact factor
review process, with commenters
offering a range of suggestions,
including recommending additional
public engagement, such as a public
comment process. Some commenters
expressed concern about what they
viewed as a lack of specificity,
regulatory uncertainty, and the risk of
examination inconsistency in the
proposed impact factor review process,
while others emphasized the need for
examiner training to promote rigorous
analysis, development of requisite
expertise, and consistency. A number of
commenters also offered views on
whether the agencies also should permit
activities with harmful features to be
evaluated negatively. Other commenters
suggested that the impact review also
consider the impact of a bank’s
historical discriminatory practices. A
few commenters recommended that the
agencies clarify that institutions would
not be penalized if they do not conduct
a sufficient number of activities
560 See the section-by-section analysis of § ll.24
for further discussion of the commenters’ requested
clarifications to the impact and responsiveness
review component in the final rule, other than those
noted herein.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
associated with an enumerated impact
factor.
Some commenters suggested that the
agencies consider a quantitative,
metrics-based approach to an impact
review in addition to a qualitative
review. Various commenters suggested
that impact factor reviews include
points, weighting, and ratings, such as
score weighting for the most impactful
investments, and a few commenters
provided examples of potential metrics
for consideration. A few commenters, in
suggesting an analytical framework for
evaluating the impact factors in
proposed § ll.15(b)(1) and (2) relating
to persistent poverty areas and areas
with low levels of community
development financing (discussed
below), noted that it would take several
years before the agencies would have
sufficient data to incorporate impact
factors as a quantitative element of the
examination process. Separately,
another commenter cautioned that a
quantitative approach could lead to
unrealistic activity targets in some
instances.
Final Rule
The final rule adopts proposed
§ ll.15(a) with clarifying and
technical revisions. The final rule states
that, under the Community
Development Financing Test in
§ ll.24, the Community Development
Services Test in § ll.25, and the
Community Development Financing
Test for Limited Purpose Banks in
§ ll.26, the relevant agency evaluates
the extent to which a bank’s community
development loans, investments, and
services are impactful and responsive in
meeting community development needs
in each facility-based assessment area
and, as applicable, each State, multistate
MSA, and the nationwide area. The
final rule renames the review as the
‘‘impact and responsiveness review’’ to
clarify the agencies’ intent that impact
should be considered in conjunction
with how responsive an activity is to
community needs. As discussed below,
the final rule is further revised from the
proposal to clarify the agencies’ intent
for the impact and responsiveness
review and associated factors.
Additionally, the final rule makes
technical edits to: (1) remove the
reference to ‘‘Wholesale Banks’’ to
conform with revisions made elsewhere
in the regulation; (2) replace ‘‘activities’’
with ‘‘loans, investments, and services,’’
consistent with revisions made
elsewhere in the regulation (with
parallel edits made in § ll.15(b)); and
(3) update the performance context
cross-reference to § ll.21(d).
PO 00000
Frm 00142
Fmt 4701
Sfmt 4700
As discussed in more detail in the
section-by-section analysis of § ll.24,
the approach of identifying specific
impact and responsiveness review
factors as part of the qualitative
evaluation is intended to promote clear
and consistent criteria. As a result, the
agencies believe that providing the
impact and responsiveness review
factors in final § ll.15(b) will result in
a more standardized qualitative
evaluation relative to current practices,
in combination with the standardized
Community Development Financing
Metrics and benchmarks adopted in the
final rule. In addition, this approach is
intended to foster transparency by
providing the categories the agencies
will consistently review in considering
the impact and responsiveness of a
bank’s community development loans,
investments, and services. The agencies
believe that this approach will advance
the purpose of the CRA by ensuring a
strong emphasis on the impact and
responsiveness of community
development loans, investments, and
services in meeting community needs,
including loans and investments that
may be relatively small in dollar
amount.
Consistent with the proposal, the final
rule also states that the relevant agency
evaluates the impact and responsiveness
of a bank’s community development
loans, investments, or services based on
§ ll.15(b), discussed in detail below,
and may also take into account
performance context information
pursuant to § ll.21(d).561 The
agencies recognize that assessing the
impact and responsiveness of a bank’s
community development loans,
investments, and services may
necessitate considering activities and
factors outside of § ll.15(b), and the
agencies have provided for this through
the reference to § ll.21(d).
Accordingly, the final rule’s approach of
considering the standardized categories
in § ll.15(b) in conjunction with the
ability to consider broader performance
context information pursuant to
§ ll.21(d) is intended to help ensure
recognition of activities with a high
degree of impact on and responsiveness
to the needs of low- or moderate-income
communities. Consistent with the
proposal, the final list of impact and
responsiveness factors in § ll.15(b) is
non-exhaustive, which will also allow
examiners to consider other highly
impactful or responsive loans,
investments, or services that support
561 For further discussion of final § ll.21, see
the corresponding section-by-section analysis
below.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
community development under
§ ll.13.
The agencies have considered
comments requesting additional detail
on the impact review process, various
specific suggestions for the process, and
how the impact review might enhance
or lower the bank’s performance
conclusion. The final rule clarifies the
agencies’ intent that, for purposes of the
community development tests in
§§ ll.24 through ll.26, the relevant
agency will evaluate the extent to which
a bank’s community development loans,
investments, and services are impactful
and responsive in meeting community
development needs. As part of this
evaluation, the agencies may consider
the volume and type of activities
undertaken by a bank, applying the
factors in § ll.15(b) and performance
context considerations. However, the
agencies also recognize that some
community development activities that
are considered especially impactful and
responsive to community needs may be
comparatively smaller in dollar amount.
As such, the agencies may consider
more than the dollar volume or
percentage of activities meeting an
impact and responsiveness factor
category in § ll.15(b) when assessing
the extent to which a bank’s community
development activities are impactful
and responsive. The agencies will
provide a summary of a bank’s impact
and responsiveness review data, such as
the volume of activities by impact and
responsiveness review category, and
incorporate the impact and
responsiveness review into the
performance conclusions and the
written performance evaluation.
The agencies view the impact and
responsiveness review as one
component of a comprehensive
evaluation in the community
development tests under §§ ll.24
through ll.26. Under the final rule,
metrics, benchmarks, and impact and
responsiveness reviews are considered,
as applicable, holistically in arriving at
a performance conclusion for each of
these community development-focused
tests. As a result, the impact and
responsiveness evaluation is not
designed to raise or lower a conclusion
that is based solely on other
components of the performance tests
under §§ ll.24 through ll.26, such
as the bank’s Community Development
Financing Metric under § ll.24.
Rather, pursuant to the final rule, the
impact and responsiveness evaluation is
one of several components of the
applicable tests, and all of these
components are considered together to
result in any of the five conclusion
categories.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
The agencies have considered, but
decline to adopt, an approach that
would assign a separate impact score.
The agencies believe that developing a
consistent and consistently applied
method of scoring the impact and
responsiveness of a bank’s community
development activities factors could be
particularly challenging without
additional data, as also noted below,
and given that the list of factors in
§ ll.15(b) is non-exhaustive. When
considering a bank’s performance under
the Community Development Financing
Test in § ll.24, the final rule specifies
that the agency must consider the
applicable Community Development
Financing Metric, benchmark(s), and
impact and responsiveness review. As a
result, the impact and responsiveness
review is directly incorporated into a
Community Development Financing
Test conclusion, which reflects the
agencies’ view that it is important to
consider both quantitative data points
and more qualitative considerations in
assessing a bank’s community
development performance. See the
section-by-section analysis of § ll.24
for additional discussion regarding the
overall qualitative nature of the
Community Development Financing
Test evaluation.
The agencies also considered
commenter suggestions to implement a
quantitative, metrics-based approach to
conducting an impact review. The
agencies are not in this final rule adding
any specific impact and responsiveness
metrics, thresholds, or multipliers for
community development financing or
services activity due to a lack of relevant
community development data. The
agencies will continue to consider what
additional guidance may be provided in
the future regarding the impact and
responsiveness review, and will take
these comments under advisement.
The agencies have considered, but are
not adopting, a commenter
recommendation to include in the
impact and responsiveness review an
assessment of a bank’s historical
discriminatory practices on the
communities that it serves. In making
this determination, the agencies
considered that, under the final rule, as
currently, evidence of discrimination
and other illegal credit practices can be
the basis of a rating downgrade.562
Regarding comments recommending
that the impact and responsiveness
review be expanded to the proposed
Retail Lending Test and Retail Services
562 See current § ll.28(c), proposed
§ ll.28(d), and final § ll.28(d), discussed in the
section-by-section analysis of final § ll.28(d)
below.
PO 00000
Frm 00143
Fmt 4701
Sfmt 4700
6715
and Products Test, the agencies are not
revising the final rule in that regard. As
is discussed in the section-by-section
analyses of §§ ll.22 and ll.23, the
Retail Lending Test and the Retail
Services and Products Test, taken
together, have other mechanisms in
place to evaluate qualitative aspects of
responsive products and programs and
incorporate factors appropriate for those
evaluations.
Section ll.15(b) Impact and
Responsiveness Review Factors
Section ll.15(b)(1) Benefits or Serves
One or More Persistent Poverty Counties
Section ll.15(b)(2) Benefits or Serves
One or More Census Tracts With a
Poverty Rate of 40 Percent or Higher
Section ll.15(b)(3) Benefits or Serves
One or More Geographic Areas With
Low Levels of Community Development
Financing
The Agencies’ Proposal
In § ll.15(b)(1) and (2), the agencies
proposed impact factors for activities
serving specific geographic areas with
significant community development
needs: ‘‘persistent poverty counties,’’
(proposed § ll.15(b)(1)); and ‘‘areas
with low levels of community
development financing’’ (proposed
§ ll.15(b)(2)). The agencies
considered that serving these geographic
areas would reflect a high level of
responsiveness because the activities
could increase economic opportunity in
areas with high needs and such
activities may involve a high degree of
complexity and more intensive
engagement on the part of the bank.
Under proposed § ll.15(b)(1),
whether an activity serves ‘‘persistent
poverty counties’’ would be an impact
factor. The agencies proposed to define
persistent poverty counties as counties
or county-equivalents with a poverty
rate of at least 20 percent for the past 30
years as measured by the most recent
decennial censuses.563 Under proposed
§ ll.15(b)(2), whether an activity
serves ‘‘areas with low levels of
community development financing’’
would be an impact factor. By
incorporating local CRA community
development financing data into the
designation, this approach would
highlight areas where CRA capital is
most limited. Because comprehensive
563 The Congressional Research Service identifies
407 counties that meet the criteria for persistent
poverty county using poverty rate estimates from
the 1990 Census, the 2000 Census, and the 2019
Small Area Income and Poverty Estimates. See
Congressional Research Service, ‘‘The 10–20–30
Provision: Defining Persistent Poverty Counties’’
(Apr. 2022), https://sgp.fas.org/crs/misc/R45100.
pdf.
E:\FR\FM\01FER2.SGM
01FER2
6716
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
CRA community development financing
data is not currently available at local
levels, the proposal noted that the
agencies would first collect and analyze
data under a revised CRA regulation and
would then determine the appropriate
approach for identifying areas with low
levels of qualified community
development activities. The agencies
also sought feedback on whether to
include activities in census tracts with
a current poverty rate of at least 40
percent (as referenced in the proposal,
a ‘‘high poverty census tract’’) as an
impact factor. As noted in the proposal,
the agencies considered that this
approach would draw attention to
economically distressed geographic
areas that are smaller than an entire
county and not located in a persistent
poverty county, such as high poverty
neighborhoods in densely populated
urban areas. The agencies noted that a
census tract approach would offer the
advantage of emphasizing activities that
specifically serve communities,
including individual neighborhoods,
with significant community
development needs, and where barriers
to credit access and opportunity are
often the greatest.
The agencies sought feedback on
whether the proposed impact review
factors for activities serving geographic
areas with high community
development needs should include
persistent poverty counties, high
poverty census tracts, areas with low
levels of community development
financing, or some combination thereof.
The agencies also sought feedback on
what considerations should be taken in
defining these categories and in
updating a list of geographic areas for
these categories. The agencies indicated
in the proposal that expressly
highlighting both persistent poverty
counties and high poverty census tracts
may be appropriate to capture a balance
of high needs areas in both metropolitan
and nonmetropolitan areas.
Comments Received
Commenters on this aspect of the
proposal generally supported proposed
§ ll.15(b)(1) and (2), and offered
views on whether to include high
poverty census tracts as an impact
factor. Several commenters argued that
all three areas have significant needs
and would benefit from community
development activities. Other
commenters emphasized the importance
of including both persistent poverty
counties and high poverty census tracts,
asserting that persistent poverty
counties are largely rural, and that
focusing only on such counties would
neglect many urban and suburban
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
neighborhoods. Another commenter
stated that the inclusion of an impact
factor for both persistent poverty
counties and high poverty census tracts
might help address racial and ethnic
inequities. One commenter raised
concerns that a high poverty census
tract approach focused on a 40 percent
poverty rate might not encourage
activities in less dense rural areas where
poverty is diluted in census tracts.
Some commenters recommended
alternative geographic impact factors to
those proposed. For example,
commenters suggested that incomebased measures for delineating
geographic areas for impact factors
might be a more equitable and
consistent approach than poverty-based
measures. These commenters explained
that focusing on ‘‘low-income’’
geographic areas would result in
investment opportunities that are more
equally spread out across the nation
because income levels are set relative to
the area median income of each
geographic area, whereas poverty levels
are based on a nationwide standard.
Thus, these commenters asserted that
areas with lower area median incomes
would have greater shares of highpoverty census tracts than areas with
higher area median incomes, and
investments in high-cost areas (that
nonetheless might have high
community development needs) would
not be incentivized. In this regard,
commenters recommended that the
agencies recognize activities serving
low-income census tracts, which the
commenters stated are more challenging
to serve than moderate-income census
tracts.
Other commenters proposed that the
agencies expand on or add to the
geographic areas included under
proposed § ll.15(b)(1) and (2), or
select alternative definitions.
Commenters recommended, for
example, that the agencies include or
give more emphasis to activities in
particular communities, regardless of
assessment area, such as activities in
majority-minority geographic areas, or
activities in the following areas with
persistent poverty: Native communities,
the Mississippi Delta, Central
Appalachia, and the Texas/Mexico
Border. Several other commenters
recommended that ‘‘rural’’ communities
be a separate impact category, and
emphasized that ‘‘rural’’ is not
synonymous with ‘‘nonmetropolitan
areas.’’ These commenters noted that
some experts are turning to alternative
density-based measures like population
per square mile to better identify
communities.
PO 00000
Frm 00144
Fmt 4701
Sfmt 4700
Commenters also provided other
suggestions related to proposed
§ ll.15(b)(1) and (2). Comments
included, for instance, that: counties in
all U.S. territories, such as Puerto Rico
and the U.S. Virgin Islands, be included
on a list of persistent poverty counties;
high poverty census tracts, areas of low
community development financing, and
persistent poverty counties should all be
evaluated separately so that projects that
meet multiple criteria receive more
credit; and the agencies should consider
giving additional consideration for
grants and donations to CDCs in
persistent poverty counties.
Lastly, commenter feedback regarding
the inclusion of areas with low levels of
community development financing in
proposed § ll.15(b)(2) included, for
example: opposing or expressing
concern, in part because these low
levels may be related to extenuating
factors; suggesting that a demonstration
of responsiveness to unmet needs
should also be required; and
encouraging the agencies to provide
additional credit for community
development activities in especially
vulnerable census tracts, such as those
that are low income, highly segregated,
have distressed housing stock, or have
significantly lower levels of community
development financing than other areas
within designated areas of need.
Final Rule
For the reasons discussed below, the
agencies are adopting in the final rule:
• Proposed § ll.15(b)(1), with
revisions discussed below, providing as
an impact and responsiveness factor
whether a bank’s qualifying community
development loan, investment, or
service benefits or serves one or more
persistent poverty counties. The
definition of persistent poverty counties
has been revised and relocated to the
definitions section § ll.12, as
discussed below; 564
• A new impact and responsiveness
factor in § ll.15(b)(2) for whether a
loan, investment, or service benefits or
serves one or more census tracts with a
poverty rate of 40 percent or higher; and
• Proposed § ll.15(b)(2)
substantially as proposed, renumbered
as final § ll.15(b)(3), providing as an
impact and responsiveness factor
whether a loan, investment, or service
benefits or serves one or more
geographic areas with low levels of
community development financing.
The final rule makes technical
revisions from ‘‘serves’’ to ‘‘benefits or
serves’’ in each of final § ll.15(b)(1)
564 See § ll.12 (‘‘persistent poverty county’’)
and the corresponding section-by-section analysis.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
through (3) for consistency with the
language used in the community
development categories under § ll.13.
Each of these factors is discussed in
more detail below.
The agencies believe that these factors
capture three distinct, though
interrelated, aspects of unmet
community development needs. The
impact and responsiveness factors in
final § ll.15(b)(1) and (2) in the final
rule cover different dimensions of
poverty, as discussed in more detail in
each section below. Persistent poverty
counties, as covered under
§ ll.15(b)(1), represent more
dispersed, often nonmetropolitan areas
where a substantial share of residents
have experienced poverty over many
years. Census tracts with a poverty rate
of 40 percent or higher, as covered
under § ll.15(b)(2), are
disproportionately located in
metropolitan areas. These census tracts
also represent areas with highly
concentrated poverty within a more
recent timeframe that might not
otherwise be captured by the persistent
poverty county definition. The agencies
believe that expressly adopting impact
and responsiveness factors regarding
both persistent poverty counties and
census tracts with a poverty rate of 40
percent or higher appropriately captures
a balance of high need areas in both
metropolitan and nonmetropolitan
areas, as well as a balance of more longstanding and more recent, higher levels
of economic hardship.
Additionally, the impact and
responsiveness factor in final
§ ll.15(b)(3) highlights areas where
there is a low level of community
development financing, which could be
found in both metropolitan and
nonmetropolitan areas. Collectively, the
agencies believe the final impact and
responsiveness factors in § ll.15(b)(1)
through (3) will recognize loans,
investments, and services in
communities with significant
community development needs. The
agencies have considered comments,
but for the reasons discussed below, are
not adopting additional or alternative
geographic designations, such as an
impact and responsiveness factor based
on area median income.
Benefits or serves one or more
persistent poverty counties
(§ ll.15(b)(1)). With respect to
persistent poverty counties under final
§ ll.15(b)(1), final § ll.12 defines
the term as meaning a county that has
had poverty rates of 20 percent or more
for 30 years, as publicly designated by
the Board, FDIC, and OCC, compiled in
a list, and published annually by the
FFIEC. Under the final rule, the agencies
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
are adopting a standard for measuring
persistent poverty counties that is
consistent with common practice at
other Federal agencies,565 and that is
designed to provide for statistical
reliability while also allowing for
regular data updates as conditions
change. The final rule has been revised
from the proposal (referencing the
decennial census) to provide the
agencies additional flexibility to adapt
to changing or new data sources,
including the ability to recognize how
data on poverty rates may change over
time, without having to modify the
regulation. Doing so will also allow the
agencies to adapt to a more standardized
Federal agency definition of persistent
poverty county over time, as
recommended by the Government
Accountability Office.566 The agencies
intend to base an initial standard on
data from the U.S. Census Bureau’s
American Community Survey and
decennial censuses. In addition, the
agencies expect to use equivalent
statistical products to measure
persistent poverty in areas not covered
by both the American Community
Survey and decennial census, such as
Puerto Rico, the U.S. Virgin Islands,
Guam, the Marshall Islands, and
American Samoa, which should address
the commenter recommendation to
include U.S. territories in the definition.
Currently, the agencies estimate that
5.6 percent of the U.S. population lives
in persistent poverty counties.567
Persistent poverty counties are
disproportionately nonmetropolitan,
with an estimated 13.6 percent of the
population of nonmetropolitan areas
living in persistent poverty counties.568
Mapping of persistent poverty counties
shows that many are in the Mississippi
Delta, Appalachia, ‘‘colonias’’ in the Rio
Grande River valley, and American
Indian and Alaska Native Areas as
designated by the U.S. Census
Bureau.569 As noted in the proposal,
Congress has directed other agencies,
565 See, e.g., USDA Economic Research Service,
‘‘Poverty Area Measures’’ (Aug. 8, 2023), https://
www.ers.usda.gov/data-products/poverty-areameasures/.
566 GAO, ‘‘Areas with High Poverty: Changing
How the 10–20–30 Funding Formula Is Applied
Could Increase Impact in Persistent Poverty
Counties’’ (May 2021), https://www.gao.gov/assets/
gao-21-470.pdf.
567 Statistics used to characterize persistent
poverty counties and census tracts with a poverty
rate of 40 percent or higher are based on data in
the 2015–2019 American Community Survey and
classifications of persistent poverty counties from
Poverty Area Measures published by the USDA
Economic Research Service in November 2022.
568 See id.
569 Id.; T. M. Tonmoy Islam, Jenny Minier, and
James P. Ziliak, ‘‘On Persistent Poverty in a Rich
Country,’’ 81 S. Econ. J. 653–78 (2015).
PO 00000
Frm 00145
Fmt 4701
Sfmt 4700
6717
including the U.S. Department of the
Treasury’s Community Development
Financial Institutions Fund, the USDA,
the U.S. Economic Development
Administration, and the U.S.
Environmental Protection Agency, to
allocate funding to persistent poverty
counties.
The agencies continue to believe that
the impact and responsiveness factor for
persistent poverty counties as adopted
will recognize and encourage loans,
investments, and services in areas that
have experienced high levels of
economic hardship over many years,
and where community development
needs can be significant. Additionally,
the agencies believe that designating
geographic areas at the county level
offers a high degree of clarity and
simplicity regarding which qualifying
activities would meet the criterion.
Benefits or serves one or more census
tracts with a poverty rate of 40 percent
or higher (§ ll.15(b)(2)). For the
reasons noted above and upon
consideration of comments received, the
agencies are adopting as an additional
impact and responsiveness factor in
final § ll.15(b)(2) to consider whether
a loan, investment, or service benefits or
serves one or more census tract with a
poverty rate of 40 percent or higher.
This impact and responsiveness factor is
intended to complement the impact and
responsiveness factor regarding
persistent poverty counties. The
agencies believe that expressly
including census tracts with a poverty
rate of 40 percent or higher captures
high need areas with particularly high
levels of spatially concentrated poverty.
Census tracts covered by this factor
might not be captured by the persistent
poverty definition for various reasons.
For example, these census tracts might
have experienced high levels of poverty
only in more recent years rather than
over the past 30 years; or these census
tracts might experience high poverty
levels but are located in a county that
is not a persistent poverty county, such
as a high poverty neighborhood in a
densely populated urban area. Census
tracts with a poverty rate of 40 percent
or higher are severely disadvantaged to
a degree that is reflected in several
outcomes, even when compared with
persistent poverty counties. The
agencies estimate that employment rates
are lower, a higher share of housing
units are vacant, and median household
incomes are lower than they are in
persistent poverty counties, on
average.570 The agencies further believe
570 Statistics on employment rates, housing
vacancies, and median household incomes are from
E:\FR\FM\01FER2.SGM
Continued
01FER2
6718
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
40 percent is an appropriate benchmark
for the impact and responsiveness
factor, as it is double the 20 percent
threshold used in the persistent poverty
definition in § ll.15(b)(1),571 is
consistent with readily available
statistical measures,572 and has been
used in research on the effects of
concentrated poverty.
Adopting an impact and
responsiveness factor for census tracts
with more than 40 percent poverty is
intended in part to help address
commenter concerns that persistent
poverty counties are disproportionately
nonmetropolitan. Relative to persistent
poverty counties, which as noted above
are disproportionately nonmetropolitan,
agency staff estimate that census tracts
with a poverty rate of 40 percent or
higher are disproportionately
metropolitan; 3.1 percent of the
population of metropolitan areas lives
in one of these extreme poverty census
tracts, compared with 2.4 percent of the
population of nonmetropolitan areas.573
Overall, 3.0 percent of the population
lives in census tracts with a poverty rate
of 40 percent or higher.574
The agencies acknowledge that there
is some overlap between persistent
poverty counties and census tracts with
a poverty rate of 40 percent or higher.
Accounting for this overlap, 7.8 percent
of the U.S. population lives in either a
persistent poverty county or a census
tract with a poverty rate of 40 percent
or higher.575 Thus, the agencies believe
that adopting both of these impact and
responsiveness review factors will more
comprehensively recognize activities in
areas of economic distress where loans,
investments, or services will be
particularly impactful or responsive.
Benefits or serves one or more
geographic areas with low levels of
community development financing
(§ ll.15(b)(3)). Finally, to highlight
areas where CRA community
development capital is more limited, the
the 2015–2019 American Community Survey and
are reported as weighted averages across tracts.
Statistics used to characterize persistent poverty
counties and census tracts with a poverty rate of 40
percent or higher are based on data in the 2015–
2019 American Community Survey and
classifications of persistent poverty counties from
Poverty Area Measures published by the USDA
Economic Research Service in November 2022.
571 USDA Economic Research Service, ‘‘Poverty
Area Measures’’ (Aug. 8, 2023), https://
www.ers.usda.gov/data-products/poverty-areameasures/.
572 See, e.g., HUD Office of Policy Development
and Research, ‘‘Moving to Opportunity for Fair
Housing Demonstration Program: Interim Impacts
Evaluation’’ (Sept. 2003), https://www.huduser.gov/
portal//Publications/pdf/MTOFullReport.pdf.
573 See id.
574 See id.
575 Id.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
agencies are adopting the proposed
impact and responsiveness factor for
areas with low levels of community
development financing, renumbered
from the proposal as § ll.15(b)(3). As
discussed in the proposal, because
comprehensive CRA community
development financing data is not
currently available at local levels, the
agencies expect first to analyze data
collected pursuant to the final rule, and
will then determine the appropriate
approach for identifying areas with low
levels of community development loans,
investments, and services, and making
that information available. The agencies
acknowledge commenter views that
extenuating circumstances may
contribute to low levels of community
development financing, such as limited
opportunities or few organizations
actively engaged in community
development. Additionally, some areas
could be areas with few needs.
However, the agencies believe it is
important to highlight these geographic
areas as areas where there may be
opportunities to try to develop the
community development ecosystem
needed to effectively deploy community
development financing resources when
appropriate.
Additional commenter suggestions on
geographic designations. The agencies
have considered comments suggesting
additional or alternative geographic
designations, but are not adopting
alternative or expanded definitions such
as those based on incomes relative to
area median income, or adopting
alternative impact and responsiveness
factors such as a separate factor for rural
communities. The agencies believe that
the impact and responsiveness factors
adopted in § ll.15(b)(1) through (3)
appropriately capture high needs areas
taking into account both areas with
either high and persistent or
exceptionally high levels of poverty and
areas with low levels of community
development financing activity.
The agencies believe that using
poverty rates appropriately captures
areas where incomes are low, since
poverty is itself defined based on
household incomes. As census tracts
with a poverty rate of 40 percent or
higher contain a substantial share of
households earning low incomes, the
agencies believe that adopting this
impact and responsiveness factor is
responsive to comments emphasizing
that it is more challenging to serve areas
where incomes are generally low.
Furthermore, area median incomes may
be depressed across broad areas with
high levels of need.
On balance, the agencies believe that
poverty measures are a useful and
PO 00000
Frm 00146
Fmt 4701
Sfmt 4700
appropriate measure, as shown by their
widespread use. At the same time, the
agencies acknowledge commenter
concerns about high needs areas in
higher income areas. The agencies
believe that the inclusion of an impact
and responsiveness factor for areas with
low levels of community development
financing activity also should mitigate
commenter concerns about a lack of
incentives in high cost areas, because
this impact and responsiveness factor is
not tied to determinations of income or
poverty levels,576 and a low level of
community development financing
could be a reflection of its high cost in
a particular area. As relevant data will
inform the identification of these areas,
the agencies believe that a separate
demonstration that activities in these
areas meet unmet needs should not be
necessary.
With respect to rural areas, the
agencies believe that the approach
adopted in the final rule multiple
impact and responsiveness factors
addressing community development
needs on a geographic and demographic
basis recognizes activities benefiting
many rural areas. As discussed above
and below, these include factors
focusing on areas where there is a
demonstrated high level of need, such
as persistent poverty counties. The
agencies recognize that there are many
ways to define ‘‘rural,’’ and are sensitive
to the diversity of experiences in rural
areas. However, the agencies do not
believe that an impact and
responsiveness factor for activities in all
rural areas would be appropriate, since
a designation as rural is not necessarily
synonymous with having a high level of
need.
The agencies have determined not to
adopt an impact factor for activities in
majority-minority census tracts as
suggested by commenters. For more
information and discussion regarding
the agencies’ consideration of comments
recommending adoption of additional
race- and ethnicity-related provisions in
this final rule, see section III.C of this
SUPPLEMENTARY INFORMATION.
Additionally, to the extent that
community development loans,
investments, and services in a particular
geographic area do not fall under one of
the adopted geographic-based impact
and responsiveness factors, the agencies
note that those activities could
potentially be considered under other
576 Bank loans, investments, and services subject
to the impact and responsiveness review would
need, prima facie, to support community
development under final § ll.13, incorporating
relevant criteria for the applicable community
development category. See final § ll.13 and the
corresponding section-by-section analysis.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
impact and responsiveness factors, such
as those serving low-income
individuals, families, or households
(§ ll.15(b)(5)) or supporting small
businesses or small farms
(§ ll.15(b)(6)). Finally, as noted above,
the list of impact and responsiveness
factors is non-exhaustive. To the extent
that an activity in a particular
geographic area is not directly covered
by one of the adopted impact and
responsiveness factors, yet is still highly
impactful or responsive, it could still be
considered as such under § ll.15.
Section ll.15(b)(4) Supports an MDI,
WDI, LICU, or CDFI, Excluding
Certificates of Deposit With a Term of
Less Than One Year
ddrumheller on DSK120RN23PROD with RULES2
The Agencies’ Proposal
In § ll.15(b)(3), the agencies
proposed an impact factor for bank
activities that support MDIs, WDIs,
LICUs, and U.S. Treasury Departmentcertified CDFIs.577 The agencies
highlighted in the proposal these
organizations’ missions of meeting the
credit needs of low- and moderateincome and other underserved
individuals, communities, and small
businesses; the community
development needs and communities
served by these organizations; as well as
the statute’s express emphasis on
cooperation with MDIs, WDIs, and
LICUs.
The agencies solicited comment on
whether proposed § ll.15(b)(3) should
exclude placements of short-term
deposits or other activities. The agencies
also solicited feedback on whether
criteria for review under this proposed
impact factor should specifically
emphasize equity investments, longterm debt financing, donations, and
services, and whether other activities
should be emphasized.
Comments Received
Commenters generally supported the
proposed impact factor for activities
supporting MDIs, WDIs, LICUs, and
CDFIs. A number of commenters
emphasized their support for including
CDFIs, highlighting the critical role that
these institutions play in meeting the
unique credit and capital needs of
underserved communities, and
emphasizing the need for CDFIs to raise
capital for community development
projects. A few commenters stated that
the rule should incentivize investments
into CDFIs that are minority lending
institutions.
577 See U.S. Dept. of Treasury, Community
Development Financial Institutions Fund, ‘‘CDFI
Certification,’’ https://www.cdfifund.gov/programstraining/certification/cdfi.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Additional entities in scope. Some
commenters suggested that additional
entities be included in the proposed
impact factor, given the communities
and needs served by some other entities.
Commenter suggestions included, for
example, extending eligibility in this
impact factor for activities supporting or
in partnership with nonprofit
organizations holding a NeighborWorks
charter, land banks and land banking
activities, minority credit unions,
community development credit unions,
cooperatives with a focus on revenue
share or dividend-based equity
investments, SBICs, and RBICs.
Activities in scope. Commenters
offered varying views on whether
proposed § ll.15(b)(3) should exclude
placements of short-term deposits or
other activities. Several commenters
supported including short-term
deposits, asserting, for example, that
short-term deposits can offer important
and needed liquidity to lend, maintain
asset size, and represent a commitment
of capital to under-resourced
institutions that can have a positive
community benefit. In contrast, other
commenters asserted that short-term
deposits should not be considered in the
impact factor, in part because
underwriting community development
activities often requires long-term and
patient debt capital, and projects can
take several years to become
economically viable. Further, these
commenters asserted that short-term
deposits do not add as much value to
communities compared to equity and
equity-like investments. Many
commenters stated that all types of
investments should be considered as
part of the proposed impact factor,
although some of these commenters
suggested that long-term investments,
including long-term deposits, should
receive greater impact consideration.
A number of commenters supported
an emphasis on equity investments, and
long-term debt financing, donations,
and services as particularly responsive,
noting the greater impact of these forms
of support on low- and moderateincome individuals and communities.
Some commenters also suggested that
particular activities within the proposed
impact factor should receive more
emphasis to recognize their impact and
value, such as investments in smaller
MDIs, WDIs, LICUs, and CDFIs, equity
investments in MDIs and equity
investments in LICUs serving lowincome minority communities or
communities with significant unmet
community development needs.
PO 00000
Frm 00147
Fmt 4701
Sfmt 4700
6719
Final Rule
The final rule adopts proposed
§ ll.15(b)(3), renumbered as
§ ll.15(b)(4), as an impact and
responsiveness factor considering
whether loans, investments, and
services support an MDI, WDI, LICU, or
CDFI, but revised from the proposal to
exclude certificates of deposit with a
term of less than one year. The final rule
also makes a conforming edit to
eliminate the express reference to
‘‘Treasury Department-certified’’ CDFIs,
because CDFI is now defined in final
§ ll.12, meaning a U.S. Treasury
Department-certified CDFI.578 As noted
in the proposal, and as also discussed in
the section-by-section analysis of final
§ ll.13(k), the agencies believe that
these organizations’ missions of and
track record in meeting the credit needs
of low- or moderate-income and other
underserved individuals and
communities, as well as small
businesses, are highly aligned with
CRA’s core purpose of encouraging
banks to meet the credit needs of their
entire community, including low- and
moderate-income populations. These
organizations often also have intimate
knowledge of local community
development needs and opportunities,
allowing them to conduct highly
responsive activities.
The agencies have considered
comments but are not adding additional
entities to the final impact and
responsiveness factor, for reasons also
discussed in the section-by-section
analysis to § ll.13(k). In addition to
their mission and track record, noted
above, MDIs, WDIs, LICUs, and CDFIs
generally undergo rigorous and
verifiable certification processes 579 and
are financial institutions that provide
critical capital access and credit to
underserved communities. The agencies
further believe that emphasizing
partnerships with the entities covered
by § ll.15(b)(4) is consistent with the
CRA’s express emphasis on cooperation
578 See final § ll.12 (‘‘Community Development
Financial Institution (CDFI)’’) and the
corresponding section-by-section analysis above.
579 See, e.g., OCC, ‘‘Policy Statement on Minority
Depository Institutions’’ (July 26, 2022), https://
www.occ.gov/news-issuances/news-releases/2022/
nr-occ-2022-92a.pdf; Board, SR 21–6/CA 21–4,
‘‘Highlighting the Federal Reserve System’s
Partnership for Progress Program for Minority
Depository Institutions and Women’s Depository
Institutions’’ (Mar. 5, 2021), https://www.federal
reserve.gov/supervisionreg/srletters/SR2106.htm;
FDIC, ‘‘Statement of Policy Regarding Minority
Depository Institutions,’’ 86 FR 32728 (June 23,
2021); U.S. Dept. of Treasury, Community
Development Financial Institutions Fund, ‘‘CDFI
Certification,’’ https://www.cdfifund.gov/programstraining/certification/cdfi. See also 12 CFR 701.34
(NCUA standards for designating a Federal credit
union as a ‘‘low-income credit union’’).
E:\FR\FM\01FER2.SGM
01FER2
6720
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
with MDIs, WDIs and LICUs,580 as well
as with the key role that CDFIs—like
MDIs, WDIs, and LICUs—play in the
capital and financial ecosystem in lowor moderate-income communities.581
The agencies also considered
comments received that discussed
whether to exclude short-term deposits
from this impact and responsiveness
factor. On consideration of the
comments and further deliberation, the
agencies are excluding certificates of
deposit with terms of less than one year
from this impact and responsiveness
review factor in the final rule. The
agencies recognize that certificates of
deposit with terms of less than one year
may provide less benefit for community
development projects financed by
CDFIs, MDIs, WDIs and LICUs than do
other types of capital investment
structures, as some commenters noted.
Limiting consideration under the impact
and responsiveness review factor in this
manner is intended to recognize
activities that are more impactful and
responsive to community credit needs,
including other types of certificates of
deposit that provide more stable, longerterm funding to CDFIs, MDIs, WDIs and
LICUs. In addition, the agencies believe
that, as some commenters noted, certain
short-term deposits can provide
important needed liquidity to lend and
maintain asset size, and can represent a
commitment of capital to underresourced institutions that can have a
positive community benefit.
Accordingly, the final rule provides the
flexibility to provide recognition under
the impact and responsiveness review
factor for other forms of short-term
deposits. The agencies also note that
exclusion from this impact and
responsiveness factor does not preclude
certificates of deposits with a term of
less than one year that support a MDI,
WDI, LICU, or CDFI from qualifying for
community development consideration
under § ll.13(k).582
580 See 12 U.S.C. 2903(b) (providing that the
agencies may consider, in assessing a bank’s record
of meeting the credit needs of its community, the
bank’s activities in cooperation with MDIs, WDIs,
and LICUs). See also 12 U.S.C. 2907(a) (providing
that CRA credit may be granted to banks for
donating, selling on favorable terms, or making
available on a rent-free basis to any branch that is
located in a predominantly minority neighborhood
of an MDI or WDI).
581 See, e.g., Anna Alvarez Boyd, Board of
Governors of the Federal Reserve System, and
Charlene Van Dijk, Federal Reserve Bank of Atlanta,
‘‘An Overview of Community Development
Financial Institutions,’’ Consumer Compliance
Outlook, Federal Reserve System (2022), https://
www.consumercomplianceoutlook.org/2022/firstissue/overview-of-community-developmentfinancial-institutions/.
582 The agencies note that certificates of deposit
may also qualify for community development
consideration if they meet of one or more of the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Further, the agencies considered
commenter feedback regarding adopting
specific criteria within § ll.15(b)(4) to
further emphasize equity investments,
long-term debt financing, donations,
and services. The agencies appreciate
that these types of activities can be
important to community development
efforts; on balance, however, the
agencies believe that the final rule
should provide flexibility to encourage
a range of activities that will meet
differing local needs across
communities. In addition, the final rule
emphasizes some of these community
development loans, investments, and
services in other parts of the CRA
evaluation. For example, the
Community Development Financing
Test (§ ll.24) is adopting a Bank
Nationwide Community Development
Investment Metric for large banks with
assets over $10 billion, which will
specifically measure the dollar volume
of the bank’s community development
investments, excluding mortgage-backed
securities, that benefit or serve all or
part of the nationwide area compared to
the deposits located in the nationwide
area for the bank.583
Comments Received
Section ll.15(b)(5) Benefits or Serves
Low-Income Individuals, Families, or
Households
The final rule adopts proposed
§ ll.15(b)(4), renumbered as
§ ll.15(b)(5), and revised to state that
the agencies consider whether a
community development loan,
investment, or service ‘‘benefits or
serves low-income individuals, families,
or households.’’ The final rule makes
technical edits from the proposal from
‘‘serves’’ to ‘‘benefits or serves’’ for
consistency with the language used in
the community development categories
under § ll.13, and adds ‘‘or
households’’ for clarity, to conform with
edits made to other community
development provisions in the final
rule. The definition of ‘‘low-income’’
has been revised, as discussed in the
section-by-section analysis of § ll.12,
but still generally references an income
that is less than 50 percent of the area
median income.
The agencies note that, by focusing on
low-income individuals, families, and
households, final § ll.15(b)(5) is
intended to be consistent with the Retail
Lending Test approach, in that the
Retail Lending Test evaluates closedend home mortgage lending and
automobile lending using borrower
distribution metrics that separately
consider lending to low-income
individuals.585 The agencies are also
The Agencies’ Proposal
Proposed § ll.15(b)(4) established
an impact factor for activities that serve
low-income individuals and families,
generally defined under proposed
§ ll.12 as those with an income of less
than 50 percent of the area median
income in a census tract.584 The
agencies sought feedback on an
alternative approach of defining this
factor to include only those activities
that serve individuals with an income of
less than 30 percent of the area median
income. The alternative would have
been intended to ensure that the focus
of this factor is on activities that serve
the individuals that are most vulnerable
to the challenges described above, such
as housing instability and
unemployment.
other community development categories in
§ ll.13, regardless of term length.
583 For further detail regarding this provision, see
final § ll.24(e)(2)(iii) and the accompanying
section-by-section analysis below. See also, e.g.,
final § ll.15(b)(10) and the accompanying
section-by-section analysis below, regarding the
impact and responsiveness factor for investments in
projects financed with LIHTCs or NMTCs.
584 See also final § ll.12 (definition of ‘‘income
level’’ and, within that definition, ‘‘low-income’’)
and the accompanying section-by-section analysis
above.
PO 00000
Frm 00148
Fmt 4701
Sfmt 4700
Of those commenting on this aspect of
the proposal, some supported the
impact factor as proposed, including
because households with incomes
below 50 percent of the area median
income are harder to serve and,
relatedly, the 50 percent threshold fills
a gap that is often unmet by the market.
A few commenters expressed concern
with the proposed 50 percent threshold
and the 30 percent alternative as both
being potentially too low, with a
commenter suggesting a multiplier to
recognize activities reaching individuals
or families with incomes at 30 percent
of the area median income or below.
Relatedly, a few other commenters
noted that the thresholds could exclude
the share of units within a LIHTC
property that are affordable at 60
percent or 80 percent of the area median
income. Some commenters stated that
the agencies should not lower the
threshold to 30 percent of area median
income because providing affordable
housing opportunities to very lowincome families is especially difficult in
high-cost markets.
Final Rule
585 See final § ll.22(d) and the accompanying
section-by-section analysis below, discussing the
separate analyses under the Retail Lending Test of
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
adopting this impact and
responsiveness factor in order to take
into account that low-income
individuals, families, and households
have high community development
needs and can experience challenges
obtaining basic financial products and
services, securing stable employment
opportunities, finding affordable
housing, and accessing digital
infrastructure.586 The agencies also
recognize that community development
loans, investments, and services
supporting activities that serve lowincome individuals, families, or
households often entail a high level of
effort and complexity on the part of the
bank and community partners.
The agencies have considered
comments that the 50 percent area
median income threshold used for this
impact and responsiveness factor in the
final rule will exclude some impactful
and responsive activities from
consideration under this provision,
including certain LIHTC activity
designed for affordability at 60 percent
or 80 percent of the area median
income. However, the agencies continue
to believe that using a 50 percent area
median income standard for low-income
throughout the regulation is important
to reduce complexity and confusion,
and that a 50 percent of area median
income appropriately tailors the impact
and responsiveness factor to address
hard-to-serve community development
needs, as discussed above. Additionally,
the agencies note that such activities
may be included under other impact
and responsiveness factors, such as the
added impact and responsiveness factor
in § ll.15(b)(10) regarding projects
financed with LIHTCs and NMTCs.
retail lending to low-income individuals and to
middle-income individuals.
586 See, e.g., FDIC, ‘‘How America Banks:
Household Use of Banking and Financial Services,
2019 FDIC Survey’’ (Oct. 2020) (hereinafter ‘‘How
America Banks’’), https://www.fdic.gov/analysis/
household-survey/2019report.pdf; Federal Reserve
Bank of Dallas, ‘‘Closing the Digital Divide: A
Framework for Meeting CRA Obligations’’ (July
2016), https://www.dallasfed.org/∼/media/
documents/cd/pubs/digitaldivide.pdf; Joint Center
for Housing Studies of Harvard University,
‘‘America’s Rental Housing 2022’’ (2022), https://
www.jchs.harvard.edu/sites/default/files/reports/
files/Harvard_JCHS_Americas_Rental_Housing_
2022.pdf; Nicole Bateman and Martha Ross, ‘‘The
Pandemic Hurt Low Wage Workers the Most and
So-Far, the Recovery has Helped Them the Least’’
Brookings Institution (July 2021), https://
www.brookings.edu/articles/the-pandemic-hurtlow-wage-workers-the-most-and-so-far-the-recoveryhas-helped-them-the-least/; Kelly D. Edmiston,
Federal Reserve Bank of Kansas City, ‘‘Why Aren’t
More People Working in Low- and ModerateIncome Areas?’’ (Jan. 2, 2020), https://
www.kansascityfed.org/Economic%20Review/
documents/919/2019-Why%20Aren’t%20
More%20People%20Working%20in%20Low%20and%20Moderate-Income%20Areas%3F.pdf/.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
The agencies have also considered the
alternative approach of setting an
income threshold of less than 30 percent
of the area median income. In
determining not to adopt this approach,
the agencies have considered that, while
a lower threshold could put more of a
focus on the activities that serve the
most vulnerable, there also might be
comparatively fewer community
development opportunities for banks
that would primarily serve individuals,
families, or households in this income
category. The agencies have also
considered that a lower threshold could
exclude from consideration under this
impact and responsiveness factor
activities that are responsive to needs of
low-income communities, such as
affordable housing opportunities to lowincome (30–50 percent area median
income) families in high-cost markets.
Similar to the discussion above, such
activities may be included under other
impact and responsiveness factors, such
as the impact and responsiveness factor
addressing High Opportunity Areas in
§ ll.15(b)(7) and discussed further
below.
Section ll.15(b)(6) Supports Small
Businesses or Small Farms with Gross
Annual Revenues of $250,000 or Less
The Agencies’ Proposal
Proposed § ll.15(b)(5) set forth an
impact factor for activities that support
small businesses or small farms with
gross annual revenues of $250,000 or
less. This factor was intended to
recognize bank activities that address
the unique credit needs of the smallest
businesses and farms, in alignment with
the Retail Lending Test approach in
proposed § ll.22(d)(2)(iii), which
would separately evaluate a bank’s
distribution of loans to small businesses
and small farms with gross annual
revenues of $250,000 or less.587 The
agencies sought feedback on whether
this impact factor should instead be set
at a higher gross annual revenue
threshold, for example at $500,000; or
lower, for example at $100,000. The
agencies also solicited comment on how
to weigh the importance of using a
consistent threshold for identifying
smaller businesses and smaller farms
both for the Retail Lending Test and for
this proposed impact factor.
587 The proposed Retail Lending Test approach in
§ ll.22(d)(2) would also separately evaluate a
bank’s distribution of loans to small businesses and
farms with gross annual revenues of more than
$250,000, but less than or equal to $1 million. See
final § ll.22(d) and the accompanying section-bysection analysis.
PO 00000
Frm 00149
Fmt 4701
Sfmt 4700
6721
Comments Received
Commenters generally supported
including an impact factor for activities
supporting small businesses or small
farms, but commenters provided a
variety of views on the proposed gross
annual revenue threshold. Some
commenters expressed support for the
proposed standard of gross annual
revenue of $250,000 or less because, for
instance, the threshold would
incorporate many family care and
childcare businesses into this impact
factor. Other commenters expressed
support for the proposed standard, but
urged the agencies to consider a tiered
approach under which the agencies
would separately evaluate activities that
support businesses with revenues less
than $100,000 and that support
businesses with revenues between
$100,000 to $250,000 in order to help
ensure that the smallest businesses are
served, an approach they favored as
consistent with current CRA small
business lending reporting
requirements.588 Several commenters
noted that businesses with revenues
under $100,000 are more likely to be
startups and owned by women or
people of color.
A few commenters expressed support
for the lower alternative threshold of
$100,000 or less, to allow the agencies
to better target very small businesses
and small farms. One commenter
recommended the proposed standard
align with SBA criteria for Small
Disadvantaged Businesses 589 and the
USDA definition for socially
disadvantaged farm or farmer.590
Some commenters expressed support
for higher thresholds, such as the
alternative contemplated in the proposal
of $500,000 gross annual revenues or
less, or higher thresholds ranging from
$1 million to $5 million. In this regard,
one commenter stated, for example, that
a higher threshold would be more
appropriate from the standpoint of risk
to the bank.
Finally, a commenter urged
consistency between the impact factor
threshold and the threshold used in the
Retail Lending Test, stating there would
be no discernable benefit from having
different thresholds, and that
consistency would promote compliance.
e.g., current 12 CFR ll.42(b)(1).
e.g., SBA, ‘‘Small Disadvantaged
Business’’ (Sept. 28, 2023), https://www.sba.gov/
federal-contracting/contracting-assistanceprograms/small-disadvantaged-business.
590 See, e.g., USDA Economic Research Service,
‘‘Socially Disadvantaged, Beginning, Limited
Resource, and Female Farmers and Ranchers’’ (Mar.
22, 2023), https://www.ers.usda.gov/topics/farmeconomy/socially-disadvantaged-beginning-limitedresource-and-female-farmers-and-ranchers/.
588 See,
589 See,
E:\FR\FM\01FER2.SGM
01FER2
6722
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
More generally, a commenter suggested
that small business-related provisions
should focus on the number of small
business loans made, rather than the
total dollar volume.591
Final Rule
The final rule adopts proposed
§ ll.15(b)(5), renumbered as
§ ll.15(b)(6), establishing an impact
and responsiveness factor for loans,
investments, or services that support
small businesses or small farms with
gross annual revenues of $250,000 or
less. In deliberating on whether to
finalize this impact and responsiveness
factor, the agencies considered
commenter feedback regarding the
appropriate threshold as well as the
feedback on the threshold used in the
Retail Lending Test.592 As is also
discussed in the section-by-section
analysis of § ll.22, on balance, the
agencies believe that the $250,000 gross
annual revenue threshold adopted
under the final rule will recognize
activities that are particularly
responsive and impactful to smaller
businesses and farms. The impact and
responsiveness factor under final
§ ll.15(b)(6) will apply to a small
business loan or small farm loan that
qualifies as a community development
loan under § ll.13 (which could
include a loan that is also separately
considered under the Retail Lending
Test).
The adopted threshold is intended to
recognize a focus on the small business
and small farm borrowers with high
credit needs and that can be the most
difficult to serve. The agencies believe
that a higher threshold might not
sufficiently encourage banks to seek out
activities serving smaller businesses or
farms. At the same time, the agencies
considered that, while a lower gross
annual revenue threshold might focus
on businesses and farms with the
greatest unmet credit needs, the adopted
threshold will encourage banks to help
meet the credit needs of a larger share
and greater diversity of small businesses
with significant credit needs in their
communities.
The agencies also considered
commenter feedback suggesting
alternative criteria or a tiered evaluation
approach for this impact and
responsiveness factor, but, on further
deliberation, decided not to adopt these
suggestions. The agencies believe that
uniform thresholds across the final rule
591 For further discussion of the consideration of
dollar volume under the Community Development
Financing Test, see the section-by-section analysis
of § ll.24.
592 See final § ll.22(e)(2)(ii) and the
accompanying section-by-section analysis below.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
will promote clarity, align bank data
requirements, and facilitate identifying
opportunities and needs for CRA
activity. The impact and responsiveness
factor in final § ll.15(b)(6) will help
accomplish these objectives by aligning
with the lowest tier threshold adopted
under the Retail Lending Test,
evaluating bank lending to smaller
businesses and smaller farms, identified
as those having gross annual revenues of
$250,000 or less.593 The agencies also
believe that the final rule’s simple and
straightforward impact and
responsiveness factor regarding smaller
businesses and farms will support
greater certainty and transparency for
banks and other stakeholders.
Section ll.15(b)(7) Directly Facilitates
the Acquisition, Construction,
Development, Preservation, or
Improvement of Affordable Housing in
High Opportunity Areas
The Agencies’ Proposal
The agencies also proposed an impact
factor for activities that directly
facilitate the acquisition, construction,
development, preservation, or
improvement of affordable housing in
High Opportunity Areas (proposed
§ ll.15(b)(6)). The proposal defined
High Opportunity Areas to align with
the FHFA definition of High
Opportunity Areas, including: (1) areas
designated by HUD as a ‘‘Difficult
Development Area’’ (DDA); or (2) areas
designated by a State or local Qualified
Allocation Plan as High Opportunity
Areas, and where the poverty rate falls
below 10 percent (for metropolitan
areas) or 15 percent (for
nonmetropolitan areas).594 The agencies
also solicited comment on whether the
proposed approach to use the FHFA
definition of ‘‘High Opportunity Areas’’
is appropriate, and whether there are
other options for defining High
Opportunity Areas. Responsive
comments are discussed in the sectionby-section analysis of final § ll.12
regarding the definition of High
Opportunity Area.
Comments Received
Commenters addressing this aspect of
the proposed rule generally supported
it, with feedback including that High
Opportunity Areas feature better
schools, jobs, and opportunities, and
that affordable housing in such areas
represents an important step in
593 See final § ll.22(e)(2)(ii)(C) and (E) and the
accompanying section-by-section analysis below.
594 See proposed § ll.12 (‘‘High opportunity
area’’); see also final § ll.12 (‘‘High Opportunity
Area’’) and the accompanying section-by-section
analysis.
PO 00000
Frm 00150
Fmt 4701
Sfmt 4700
addressing neighborhood segregation.
One commenter supportive of the
proposal nonetheless cautioned against
designing the CRA final rule in a way
that diminishes support for housing
developments in areas that are not
designated as high opportunity, but that
are typically in dire need of
investments.
Various commenters also suggested
that specific activities be given
increased consideration under the
proposed impact factor, including,
among others, homeownership
opportunities for low- and moderateincome individuals in High Opportunity
Areas and financing that supports units
with higher percentages of low-income
tenants in high-cost-burdened
geographic areas and areas with low
vacancy rates. Some commenters offered
suggestions for additional impact factors
related to affordable housing, such as
projects that are especially affordable or
have longer affordability terms and
covenants; and housing counseling and
mobility counseling designed to connect
consumers with these housing
opportunities, among others.
Final Rule
The final rule adopts proposed
§ ll.15(b)(6), renumbered as
§ ll.15(b)(7), which provides an
impact and responsiveness review factor
that considers whether loans,
investments, or services directly
facilitate the acquisition, construction,
development, preservation, or
improvement of affordable housing in
High Opportunity Areas. As explained
in more detail in the section-by-section
analysis of § ll.12, under the final
rule, a High Opportunity Area is defined
as an area identified by the FHFA for
purposes of the Duty to Serve
Underserved Markets regulation in 12
CFR part 1282, subpart C. This
definition generally includes geographic
areas where the cost of residential
development is high 595 and affordable
housing opportunities may be limited.
As noted by the agencies in the
proposal, the agencies consider
affordable housing in High Opportunity
Areas to have a high level of impact and
responsiveness. This impact and
responsiveness factor is intended to
recognize qualifying homeownership
opportunities for low- and moderateincome individuals in High Opportunity
Areas and also to include qualifying
loans, investments, and services that
support projects with high percentages
595 See, e.g., HUD, Office of Policy Development
and Research, ‘‘Qualified Census Tracts and
Difficult Development Areas’’ (2022), https://
www.huduser.gov/portal/datasets/qct.html.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
of low-income tenants in high-costburdened geographic areas or areas with
low vacancy rates in High Opportunity
Areas.
The agencies do not believe that
inclusion of this impact and
responsiveness factor diminishes
support for housing developments in
areas that are not designated as High
Opportunity Areas, particularly in light
of other aspects of the proposal. The
final rule includes a separate category of
community development focused more
broadly on loans, investments, and
services that support affordable housing,
discussed in detail in the section-bysection analysis of final § ll.13(b). In
addition, the agencies believe that other
impact and responsiveness factors will
recognize affordable housing in other
ways, such as the impact and
responsiveness factor adopted in
§ ll.15(b)(10) regarding investments
in projects financed with LIHTCs or
NMTCs, and the impact and
responsiveness factors in § ll.15(b)(1)
through (3) for loans, investments, and
services in specific geographic areas
with significant community
development needs. The agencies also
believe that these aspects of the
proposal may help to address
suggestions by other commenters for
additional impact factors related to
affordable housing.
Section ll.15(b)(8) Benefits or Serves
Residents of Native Land Areas
ddrumheller on DSK120RN23PROD with RULES2
The Agencies’ Proposal
Under § ll.15(b)(7), the agencies
proposed as an impact factor whether
bank activities ‘‘[b]enefit Native
communities, such as qualifying
activities in Native Land Areas under
[proposed] § ll.13(l).’’ This factor was
intended to recognize the credit and
community development needs of
Native and tribal communities as
discussed in the proposal, which make
bank activities that serve these
communities especially responsive.
This proposed impact factor would
include all eligible community
development activities taking place in
Native Land Areas. This includes
activities as defined under proposed
§ ll.13(l) (finalized as § ll.13(j)), as
well as other eligible community
development activities that benefit or
serve Native Land Areas and meet other
eligibility criteria in § ll.13. For
example, an affordable housing project
that is located in a Native Land Area or
an activity in a Native Land Area
undertaken with a CDFI would be
included under this proposed impact
factor.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
The agencies sought feedback on
whether this proposed impact factor
should be defined to include activities
benefiting Native communities not
located in Native Land Areas, and if so,
how to define those activities. Such an
approach would be intended to
recognize that many tribal members
reside in areas outside of the proposed
definition of Native Land Areas, as a
result of a number of factors, including
past Federal policies.596
Comments Received
Commenters generally supported
proposed § ll.15(b)(7). Commenters
noted, among other reasons, that Native
communities and tribal lands are
consistently underserved and have
unique priorities and needs, which can
make lenders more reluctant to serve
those areas. Commenters also generally
supported including activities
benefiting Native and tribal
communities that are not located in
Native Land Areas. For example, a
commenter stated that the proposed
approach is an effective way to provide
certainty to lenders in the evaluation
and ‘‘scoring’’ process, while
encouraging projects that may require
investments both on and off Native
Land Areas. Another commenter
observed that some tribal citizens reside
in areas outside of Tribal Nation
jurisdictional boundaries, but still
receive essential services provided by
the commenter, and that tribal
governments, businesses, or
corporations are the main employers of
those residents not living in Native
Land Areas.
A few commenters suggested other
ways to provide an increased emphasis
for activities benefiting Native Land
Areas, as defined in the proposed rule.
For instance, a commenter suggested
that in order to incentivize projects in
Native Land Areas, activities that
benefit Native Land Areas should be
given greater weight than those that
benefit Native communities. Other
commenters suggested alternative ways
to define activities that could be
considered under the impact factor,
such as activities that primarily benefit
low- or moderate-income Native
individuals; or that primarily benefit
tribal members in general (in that
regardless of income, activities should
be considered high-impact and
responsive). Other commenters
suggested partial consideration be
provided for activities provided to
596 See, e.g., The Indian Relocation Act of 1956,
Public Law 84–959, 70 Stat. 986; National Archives,
‘‘American Indian Urban Relocation,’’ https://
www.archives.gov/education/lessons/indianrelocation.html.
PO 00000
Frm 00151
Fmt 4701
Sfmt 4700
6723
Native communities and Black Native
Freemen, regardless of residence, even if
less than 50 percent of beneficiaries are
low- and moderate-income; or greater
emphasis for activities in hard-to-reach
areas, given barriers to entry due to land
ownership, tax status, and other
constraints.
Some commenters gave suggestions
on how to define ‘‘Native
communities.’’ Among suggestions,
commenters suggested defining
‘‘community’’ to include membership in
a government-recognized Native or
tribal community, and/or otherwise
qualifying for government resources;
organizations that are recipients of
Federal funds intended to enroll Natives
in urban areas; or U.S. territories.597
Final Rule
The final rule, renumbered as
§ ll.15(b)(8), adopts as an impact and
responsiveness factor whether loans,
investments, and services benefit or
serve residents of Native Land Areas.
The final rule revises the proposed
impact factor from ‘‘Native
communities’’ to ‘‘residents of Native
Land Areas,’’ (as defined in § ll.12),
and does not adopt the cross-reference
to § ll.13(j).
In arriving at the final rule, the
agencies considered the unique status of
and credit and community development
needs in Native Land Areas. As
discussed in more detail elsewhere in
this SUPPLEMENTARY INFORMATION, Native
Land Areas in particular have often
experienced limited benefits from bank
access or investments, which the
agencies believe make bank loans,
investments, and services in these
geographic areas particularly impactful
and responsive. For example, complex
land ownership structures associated
with Native Land Areas can make
economic development in those lands
particularly difficult, which the
agencies believe supports incorporating
a more specific focus and emphasis on
those geographic areas in modernized
CRA regulations. For further discussion
on these challenges, see the section-bysection analysis of the Native Land
Areas category of community
development in § ll.13(j). The final
rule is thus revised to clarify and
strengthen the nexus to residents of
Native Land Areas.
Additionally, as discussed in more
detail in the section-by-section analysis
of § ll.12 (‘‘Native Land Area’’), the
Native Land Area definition is designed
to be comprehensive, to align with
597 For a more detailed discussion of public
comments on the definition of ‘‘Native Land Area,’’
see the section-by-section analysis of § ll.12.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6724
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
existing Federal Indian Law regarding
lands and communities with unique
political status, and to support
application of the rule with durable,
publicly available data sources. The
proposed impact factor contained an
undefined term (‘‘Native
communities’’), which comments
suggested could have different
meanings. Rather than defining ‘‘Native
communities’’ in one or a combination
of several ways some commenters
suggested, the agencies believe that
revising the final rule with reference to
Native Land Areas, a term used
elsewhere in the rule consistent with
existing law, will facilitate compliance
and supervision and make banks’ ability
to engage in and track activities that
might be considered under this impact
and responsiveness factor more
practicable.
The final rule also no longer crossreferences the Native Land Areas
community development category
finalized in § ll.13(j), for simplicity
and to ensure clarity that the impact and
responsiveness review factor is available
with respect to any community
development loan, investment, or
service that qualifies under § ll.13,
provided that the loan, investment, or
service benefits or serves residents of
Native Land Areas. Examples of
activities that might be considered
under this impact factor include: a
project to finance a tribal health care
facility 598 that qualifies as an essential
community facility under § ll.13(f)
and that benefits or serves residents of
a Native Land Area, or a housing project
financed with a Native CDFI that
qualifies under § ll.13(k) and that
benefits or serves residents of a Native
Land Area.
The agencies have carefully
considered comments suggesting that
the proposed impact and responsiveness
factor be defined in the final rule to
include loans, investments, or services
benefiting or serving Native
communities located outside of Native
Land Areas. The agencies recognize that
many Native communities live outside
of Native Land Areas, and are sensitive
to the many complexities and needs
underlying and associated with these
communities. However, for the reasons
discussed above, the agencies believe
that adopting an impact and
responsiveness factor recognizing loans,
investments, and services addressing
the particular and significant
community development needs in
598 See U.S. Dept. of Health & Human Svc, Indian
Health Service, ‘‘Health Facilities Construction’’
(Oct. 2016), https://www.ihs.gov/newsroom/
factsheets/healthfacilitiesconstruction/.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Native Land Areas is appropriate and
will provide a greater degree of clarity
and consistency across the rule and in
its application. Relatedly, the agencies
have taken into account potentially
considerable practical challenges of
implementing a broader impact and
responsiveness factor focused on a
highly dispersed population.599
The agencies believe that other impact
and responsiveness factors adopted
under the final rule will recognize
activities that benefit or serve Native
communities more broadly. These
include impact and responsiveness
factors discussed above focused on
activities in other geographic areas with
high community development needs
(final § ll.15(b)(1) through (3)); lowincome individuals, families, and
households (final § ll.15(b)(5)); and
businesses and farms with gross annual
revenues of $250,000 or less (final
§ ll.15(b)(6)). These also include the
impact and responsiveness factor
adopted in § ll.15(b)(4) regarding
loans, investments, and services
supporting an MDI, WDI, LICU, or CDFI,
a subset of which are focused on serving
Native communities, such as Native
MDIs or Native CDFIs as designated by
the CDFI Fund.600
The agencies have also considered
comments encouraging additional
emphasis for other particular activities
within this impact and responsiveness
factor, but are not otherwise revising the
rule. The agencies believe that the
combination of the new community
development category for loans,
investments, and services in Native
Land Areas in final § ll.13(j) and the
final impact and responsiveness factor
in § ll.15(b)(8), along with other
provisions in the final rule that would
recognize bank investments benefiting
Native communities, such as the impact
and responsiveness factors noted above,
appropriately help encourage banks to
meet credit needs in these harder to
serve parts of banks’ communities. The
agencies believe that these components
of the final rule facilitate flexibility to
address the diverse and myriad needs of
Native communities.
Section ll.15(b)(9) Is a Grant or
Donation
The Agencies’ Proposal
Proposed § ll.15(b)(8) included
qualifying grants or contributions as an
599 See also the section-by-section analysis of
final § ll.12 (‘‘Native Land Area’’), regarding
consideration of incorporating into the definition of
Native Land Area areas outside of geographic areas
enumerated in the final rule definition.
600 See CDFI Fund, ‘‘Native Initiatives,’’ https://
www.cdfifund.gov/programs-training/programs/
native-initiatives.
PO 00000
Frm 00152
Fmt 4701
Sfmt 4700
impact factor. As noted in the proposal,
the Community Development Financing
Metric in proposed § ll.24(b) would
be based on the dollar amount of
financing activities (including loans,
investments, and grants or
contributions) relative to deposits, and
thus would not account for the fact that
a grant has no repayment obligation,
unlike a typical community
development loan or qualifying
investment. The impact factor was
designed to account for high-impact,
smaller dollar transactions to
complement their inclusion in the
Community Development Financing
Metric, recognizing that grants or
donations are often smaller dollar
volumes than community development
loans or investments. Additionally, the
impact factor was intended to recognize
banks that provide important sources of
capital that help community
development organizations to build
capacity and maintain sustainability.
Comments Received
Commenters offered varying views on
the agencies’ proposal to include as an
impact factor activities that are a
qualifying grant or donation. Some
commenters supported including
qualifying grant contributions as an
impact factor. A few commenters noted
that grants are especially impactful,
while another highlighted the
importance of grant capital for funding
CDFIs. One commenter noted that grant
interventions can be particularly
effective during crises for small
businesses. Other commenters,
however, raised questions about the
proposed impact factor. For example,
one commenter expressed concern
about an over-emphasis on grants,
asserting that grants do not directly
expand access to credit, while loans are
directly related to credit.
Some commenters also offered
suggested modifications or clarifications
to the proposal. A few commenters
remarked that the current CRA
framework values loans over grants and
donations and suggested additional
emphasis, an outcome-based metric, or
multipliers that would better account
for the impact of grants to the
organizations that depend on them.
Commenters further suggested that to
best encourage making grants, separate
impact factors should be created for
grants to nonprofit organizations,
community-based organizations, CDFIs,
and grant investments that serve low- or
moderate-income households.
Final Rule
For the reasons described in the
proposal and as noted above, the final
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
rule adopts proposed § ll.15(b)(8),
renumbered as § ll.15(b)(9), generally
as proposed, to recognize whether a
loan, investment, or service is a grant or
donation. As noted above and consistent
with comments received, this final rule
impact and responsiveness factor is
intended to recognize that grants or
donations tend to be smaller in dollar
amount relative to larger-dollar volume
financing activities, but often are
particularly impactful. The agencies
believe that an impact and
responsiveness factor is appropriate to
ensure grants continue to receive
appropriate recognition when
considered along with all other
community development financing
activities. The final rule deletes the
word ‘‘qualifying’’ from the proposal as
superfluous, as the impact and
responsiveness review only considers
grants or donations that qualify as
community development under
§ ll.13.
The agencies have considered
comments suggesting modifications or
clarifications to the proposed rule,
including that the rule should give
special emphasis to or create separate
impact factors for various kinds of
grants or donations. The agencies
believe that the broader impact and
responsiveness factor in the final rule is
appropriate to afford flexibility needed
to address the different needs of various
communities. On balance, the agencies
believe that the simplicity of the final
impact and responsiveness factor for
grants or donations will better foster
clarity and certainty than alternatives
suggested. The agencies have also
considered that identifying for special
emphasis grants or donations to specific
types of organizations or that meet
specific community development
categories would be challenging or
impracticable, noting that different
stakeholders may have varying and
equally valid views on which grants or
donations, organizations, or community
development categories are more
impactful than others.
ddrumheller on DSK120RN23PROD with RULES2
Section ll.15(b)(10) Is an Investment
in Projects Financed With LIHTCs or
NMTCs
Comments Received
As discussed in more detail below,
commenters suggested a wide variety of
additional types of activities that should
be included as impact factors. Among
these, a number of commenters
recommended adding investments in
LIHTCs and NMTCs. Among other
points, commenters asserted that the
LIHTC program is one of the most
important policy tools for creating
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
affordable rental housing. Commenters
noted that LIHTCs are distributed
through a highly competitive process to
the most impactful properties meeting
the State or locality’s affordable housing
needs. One commenter raised concerns
that insufficient CRA credit has deterred
investors from LIHTC investments. A
few commenters stated that creating a
separate impact factor recognizing
LIHTC investments would increase
investor demand for these investments
and thus increase equity yield for
projects to offset rising construction
costs. Other commenters noted that
including an impact factor focused on
LIHTC and NMTC investments could
also be an important mitigating factor to
counteract removal of the separate
investment test or lack of a Community
Development Financing Investment
subtest for investments.601
Several commenters stated that banks
should receive extra consideration for
syndicating and/or sponsoring funds
supporting LIHTC and NMTC projects,
consistent with the OCC 2020 CRA
Final Rule. Commenters also suggested
other types of investments designed to
meet community needs for inclusion as
impact factor categories, including
Opportunity Zone investments and
Historic Tax Credits.
Final Rule
Upon consideration of commenter
feedback, the final rule adopts a new
impact and responsiveness review factor
in § ll.15(b)(10) for an investment in
projects financed with LIHTCs or
NMTCs. The agencies believe that
adding an impact and responsiveness
factor for these investments will
mitigate commenter concerns about the
final rule potentially discouraging tax
credit transactions relative to the
current CRA regulations, by eliminating
the separate investment test in the
current CRA evaluation framework for
large banks, in favor of evaluating
community development loans and
investments together in the Community
Development Financing Metric.602 As
discussed further in the section-bysection analysis of § ll.24, the
agencies appreciate concerns about the
importance of and need for community
development investments. In addition,
the agencies understand that, as some
commenters suggested, CRA-motivated
capital is one of the primary sources of
funding for LIHTC and NMTC
transactions. Accordingly, the agencies
601 See final § ll.24 and the accompanying
section-by-section analysis below.
602 For further discussion of the final rule’s
approach to community development investments,
see final § ll.24 and the accompanying sectionby-section analysis.
PO 00000
Frm 00153
Fmt 4701
Sfmt 4700
6725
are adopting an impact and
responsiveness factor for these project
types to recognize these investments.
This impact and responsiveness factor is
part of a holistic consideration of a
bank’s community development
financing performance, which also
includes, for banks with assets greater
than $10 billion, a Bank Nationwide
Community Development Investment
Metric and a Nationwide Community
Development Benchmark.603 The
investment metric and benchmark are
designed to better understand the level
of community development investments
that banks are making, as discussed
further in the section-by-section
analysis of § ll.24.
The agencies have considered but are
not adopting commenter suggestions to
adopt an impact and responsiveness
factor addressing tax credits and
investments other than LIHTCs and
NMTCs. LIHTCs and NMTCs, as defined
in final § ll.12, are Federal programs
that the agencies believe are clearly
aligned with the intent of the CRA, and
have a demonstrated impact in
providing affordable housing and
encouraging community development
and economic growth.604 While other
types of tax credits or investments, such
as Historic Tax Credits or investments
in Opportunity Zone funds can help
finance projects that have important
community benefits, these programs
have varying criteria that may not
always align with the intent of CRA. For
example, Historic Tax Credits can be
used to finance the renovation of
historic properties in any community,
and there is no requirement that these
projects be located in low- or moderateincome tracts or benefit low- or
moderate-income individuals or small
businesses.605 However, the agencies
note that projects financed by other
types of tax credits or investments might
be covered by other impact and
responsiveness factors, depending on
603 See final § ll.24(e)(2)(iii) and (iv) and the
accompanying section-by-section analysis.
604 See OCC, ‘‘Low-Income Housing Tax Credits:
Affordable Housing Investment Opportunities for
Banks,’’ Community Development Insights (Mar.
2014), https://www.occ.gov/publications-andresources/publications/community-affairs/
community-developments-insights/pub-insightsmar-2014.pdf (2014); NYU Furman Center, ‘‘The
Effects of the Low-Income Housing Tax Credit
(LIHTC)’’ (May 2017) https://furmancenter.org/files/
NYUFurmanCenter_LIHTC_May2017.pdf; U.S.
Dept. of Treasury, Community Development
Financial Institutions Fund, ‘‘The Urban Institute’s
New Markets Tax Credit Program Evaluation: Key
Findings and Lessons for Future Evaluations,’’
https://www.cdfifund.gov/sites/cdfi/files/
documents/urban-institute-summary-covermemo.pdf.
605 See U.S. National Park Svc., ‘‘Historic
Preservation Tax Incentives,’’ https://www.nps.gov/
subjects/taxincentives/index.htm.
E:\FR\FM\01FER2.SGM
01FER2
6726
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
the geographic area in which they are
located and the purpose of the project
or the population served. For example,
a community development project
financed with Historic Tax Credits
located in a census tract with greater
than 40 percent poverty could be
covered by § ll.15(b)(3) if it otherwise
met the criteria in § ll.13, such as if
the project is done in conjunction with
LIHTCs under § ll.13(b)(1) or if it is
a revitalization or stabilization project
that meets the criteria of § ll.13(e).
Section ll.15(b)(11) Reflects Bank
Leadership Through Multi-Faceted or
Instrumental Support
The Agencies’ Proposal
The agencies proposed to consider as
an impact factor whether bank activities
reflect bank leadership through multifaceted or instrumental support
(proposed § ll.15(b)(9)). The agencies
explained that multi-faceted support
would include activities that entail
multiple forms of support provided by
the bank for a particular program or
initiative, such as a loan to a
community-based organization that
serves low- or moderate-income
individuals, coupled with a service
supporting that organization in the form
of technical assistance that leverages the
bank’s financial expertise. Instrumental
support would include activities that
involve a level of support or engagement
on the part of the bank such that a
program or project would not have come
to fruition, or the intended outcomes
would not have occurred, without the
bank’s involvement.
ddrumheller on DSK120RN23PROD with RULES2
Comments Received
Commenters offering views on
proposed § ll.15(b)(9) supported this
impact factor. For example, one
commenter emphasized the role that
deeper technical assistance and capacity
building can play for organizations that
serve low- or moderate-income
communities, and that these efforts
cannot be adequately captured by
looking solely at the associated dollar
value. The commenter asserted that an
impact factor is critical to ensuring that
financial institutions are adequately
incentivized. Another commenter stated
that emphasizing multi-faceted support
would help encourage financial
institutions to engage in activities that
can make a lasting impact on a
community’s development and
affordable homeownership
opportunities. A separate commenter
stated that an impact review should
recognize activities that reflect multifaceted partnerships, leadership, and
innovation, based on data relating to
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
whether the activity involved one or
more forms of financing or technical
assistance, whether the bank was in a
leadership position, or whether the
activity was innovative for the bank or
geographic area.
Final Rule
The final rule, renumbered as
§ ll.15(b)(11), adopts as proposed an
impact and responsiveness factor for
loans, investments, and services that
reflect bank leadership through multifaceted or instrumental support. In
adopting this impact and
responsiveness factor, the agencies
intend to incorporate into the final rule
considerations regarding complexity
and leadership under the current CRA
regulations, but with greater specificity
and a more direct tie to impact and
responsiveness. The agencies note that
activities involving multi-faceted or
instrumental support often require
significant efforts by the bank, reflect a
high degree of engagement with
community partners, and are highly
responsive to community needs.
Further, as noted by a commenter, bank
efforts cannot always be adequately
captured by looking solely at the
associated dollar value of an activity.
Section ll.15(b)(12) Is a New
Community Development Financing
Product or Service That Addresses
Community Development Needs for
Low- or Moderate-Income Individuals,
Families, or Households
The Agencies’ Proposal
Under proposed § ll.15(b)(10), the
agencies would consider whether an
activity results in a new community
development financing product or
service that addresses community
development needs for low- or
moderate-income individuals and
families. This proposed impact factor
built upon the emphasis on the
innovativeness of activities under the
current community development
evaluation framework,606 and was
intended to ensure that bank activities
are also impactful and responsive to the
needs of low- and moderate-income
populations. Consideration afforded
under this proposed impact factor
would help to encourage banks and
community partners to conceive of new
strategies for addressing community
development needs, especially needs
that existing products and services do
not adequately address. The proposed
emphasis on activities that support
606 See current 12 CFR ll.24(e)(2) and Q&A
§ ll.24(e)–2. See also current 12 CFR
ll.22(b)(5) and Q&A § ll.21(a)–2 and (a)–4 and
Q&A § ll.22(b)(5)–1.
PO 00000
Frm 00154
Fmt 4701
Sfmt 4700
developing new products and services
was intended to ensure that the CRA
continually improves the landscape of
product offerings for low- or moderateincome individuals and families.
Comments Received
Commenters that addressed proposed
§ ll.15(b)(10) generally supported the
proposal, but suggested modifications.
For example, one commenter stated that
the proposed impact factor would
encourage innovation and solutionoriented CRA activities, and suggested
that financial institutions helping to
create or commit to a new fund or
activity, with greater risks and benefits,
should receive more favorable CRA
consideration. Another commenter
suggested that the agencies clarify that
activities currently considered to be
‘‘innovative,’’ ‘‘complex,’’ or ‘‘flexible’’
under the existing CRA regulations
would receive a greater impact score
even though the proposal used different
terminology. On the other hand, one
commenter cautioned that the proposed
review factor should include safeguards
to ensure that predatory or usurious
products are not given consideration,
while another commenter stated that
consideration should be explicitly
granted for products that assist low- and
moderate-income borrowers to reduce
their reliance on predatory products.
Final Rule
The final rule adopts proposed
§ ll.15(b)(10), renumbered as
§ ll.15(b)(12), to establish an impact
and responsiveness factor for loans,
investments, and services that result in
a new community development
financing product or service that
addresses community development
needs for low- or moderate-income
individuals, families, or households.
The final rule makes technical edits
from the proposal by adding ‘‘or
households’’ for clarity, to conform with
edits made to other community
development provisions in the final
rule. The agencies believe that the
impact and responsiveness factor as
adopted will appropriately help
encourage banks to meet the credit
needs of their entire communities by
continually improving the landscape of
product offerings for low- or moderateincome individuals, families, and
households that are new to the bank or
to a particular market. Further, the
agencies believe that this impact and
responsiveness factor will facilitate
bank-community partnerships to
identify new strategies for addressing
community development needs,
especially those not adequately
addressed by existing products. For
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
example, a loan or investment that
provides financing for the acquisition of
land for a shared equity housing project
that brings permanent affordable
housing to a community could meet this
impact and responsiveness factor, to the
extent that it involves a new strategy to
meet a community development need.
The final rule is also consistent with the
current CRA framework to provide
consideration for activities that are
innovative.
The agencies intend for this particular
impact and responsiveness factor to
recognize innovation broadly, but are
sensitive to commenter concerns
regarding predatory or usurious
products. Under the final rule, the
agencies determine whether a loan or
investment supports community
development when the loan or
investment is originated, made, or
purchased. If the agencies later identify
that the community development loan
or investment involves evidence of
discriminatory or other illegal credit
practices pursuant to § ll.28(d), the
agencies will consider that information
in the bank’s CRA evaluation.607
Further, loans, investments, or services
that assist low- and moderate-income
borrowers in reducing reliance on
predatory products could qualify under
this impact and responsiveness factor if
such products are new and meet
community needs.
Additional Comments on Proposed
§ ll.15
In addition to the impact and
responsiveness factors discussed above,
commenters recommended that the
agencies adopt a wide range of
additional factors. For example, a
number of commenters recommended
adding an impact factor for special
purpose credit programs, such as those
that focus on consumer or home
mortgage lending, and community
development special purpose credit
programs. The agencies note that special
purpose credit programs are largely
covered under the Retail Services and
Products Test in § ll.23(c)(2)(v) in the
evaluation of credit products and
programs, as discussed in greater detail
in the section-by-section analysis of
§ ll.23(c)(2).
Other commenter recommendations
included adding an impact factor for
activities benefiting low- or moderateincome individuals with disabilities,
with commenters offering this idea also
suggesting that specific weighting of the
607 See current § ll.28(c), proposed
§ ll.28(d), and final § ll.28(d). See also the
section-by-section analysis of final § ll.28(d) for
further discussion of practices that can lead to a
ratings downgrade.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
impact factors analysis in comparison to
community development metrics would
be helpful; an impact factor related to
health initiatives, with the agencies
encouraged to improve data collection
and pursue routine partnerships with
healthcare and public health entities to
obtain data; and an impact factor for
activities that support increasing the
supply of high quality, affordable early
childhood education and care facilities,
which were emphasized as having
compounding consequences for family
stability, economic opportunity, and
child health and development.
Regarding these recommendations
from commenters, the agencies note that
many of these activities may qualify for
CRA consideration under § ll.13, to
the extent that they meet the relevant
eligibility criteria. For instance, the
above-noted activities benefiting low- or
moderate-income individuals with
disabilities may qualify under the
community supportive services category
in § ll.13(d), and healthcare and
childcare facilities may qualify under
the essential community facilities
category in § ll.13(f). Additionally,
depending on the particular facts and
circumstances, other impact and
responsiveness factors adopted under
the final rule may already cover these
kinds of activities, such as
§ ll.15(b)(5) for loans, investments,
and services that serve low-income
individuals, families, or households,
and § ll.15(b)(9) for grants or
donations.
Similar considerations apply to other
potential impact factors recommended
by commenters. These include, among
others, impact factors recognizing: land
bank investments; disaster preparedness
and climate resiliency activities
(including those in the most vulnerable
low- and moderate-income minority
communities); local community needs;
deep impact lending; military
communities and qualifying activities
on military installations; collaboration
with public agencies; broadband and
digital inclusion projects; community
engagement strategies; activities that
support mission-driven nonprofit
developers; loans for first generation
homebuyers; and particularly
responsive community development
activities that fight involuntary
relocation. Some commenters
recommended impact factors for
activities that close wealth gaps and
promote economic activities, with
suggestions including, among others,
impact factors for engaging in activities
that are particularly impactful for
borrowers and minorities; for
investments in historically redlined
communities or that impact racial
PO 00000
Frm 00155
Fmt 4701
Sfmt 4700
6727
segregation; and for activities that close
wealth gaps for racial, ethnic, national
origin, limited English proficiency,
lesbian, gay, bisexual, transgender, and
queer (LGBTQ), or other underserved
groups.
The agencies have considered these
recommendations from commenters and
acknowledge that there are many types
of loans, investments, or services that
may be responsive or impactful to a
community. As suggested above, many
activities associated with commenterrecommended impact factors could
potentially already be recognized under
one of the twelve impact and
responsiveness factors adopted in final
§ ll.15(b). In addition, the agencies
believe that the impact and
responsiveness factor categories
specified in § ll.15(b) reflect an
appropriate set of categories to consider
as part of evaluating a bank’s
community development performance,
in furtherance of the purpose of the
CRA. The adopted factors are ones that
are supported by clear standards, tend
to involve a higher degree of complexity
and effort by a bank, and as noted
above, tend to be particularly responsive
and impactful. For more information
and discussion regarding the agencies’
consideration of comments
recommending adoption of additional
race- and ethnicity-specific provisions
in this final rule, see section III.C of this
SUPPLEMENTARY INFORMATION.
The list of impact and responsiveness
factors adopted in the final rule covers
a wide range of potentially impactful
and responsive activities but, as noted
above, is not intended to be exhaustive.
The agencies do not believe that
identifying every kind of impactful and
responsive activity in this section of the
regulation is practicable or possible. The
adopted impact and responsiveness
factors are intended to standardize a set
of categories that will be consistently
reviewed as a part of an impact and
responsiveness review, but they do not
preclude agency consideration of other
factors and activities.
Sections ll.16 Through ll.19
Assessment Areas and Areas for Eligible
Community Development Activity
Current Approach
Under the CRA, banks have a
continuing and affirmative obligation to
help meet the credit needs of the local
communities in which they are
chartered,608 and the agencies are
required to assess a bank’s record of
meeting the credit needs of its entire
community, including low- and
608 See
E:\FR\FM\01FER2.SGM
12 U.S.C. 2901(a)(3).
01FER2
6728
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
moderate-income neighborhoods.609
Accordingly, one of the CRA
regulations’ core requirements is that
each bank delineate areas within which
its CRA performance will be assessed,
referred to in the current CRA
regulations as the bank’s assessment
areas.610
Current CRA regulations require a
bank, other than a wholesale or limited
purpose bank, to delineate one or more
assessment areas that include the
geographies in which the bank’s main
office, branches, and deposit-taking
ATMs are located, as well as the
surrounding geographies in which the
bank has originated or purchased a
substantial portion of its loans.611 These
assessment areas are generally required
to consist of one or more MSAs or
metropolitan divisions, or one or more
contiguous political subdivisions, such
as counties, cities, or towns.612
For a wholesale or limited purpose
bank, the current CRA regulations
require such a bank to delineate
assessment areas generally consisting of
one or more MSAs or metropolitan
divisions or one or more contiguous
political subdivisions, such as counties,
cities, or towns, in which the bank has
its main office, branches, and deposittaking ATMs.613
Within certain limitations, a bank
may adjust the boundaries of an
assessment area to include only the
portion of a political subdivision that it
reasonably can be expected to serve.614
Limitations applicable to the
delineation of assessment areas include
that each bank assessment area: (1) must
consist only of whole geographies (i.e.,
census tracts), and (2) may not extend
substantially beyond an MSA boundary
or beyond a State boundary unless the
assessment area is located in a
multistate MSA.615 Further, the current
CRA regulations provide that each
assessment area may not reflect illegal
discrimination and may not arbitrarily
exclude low- or moderate-income
census tracts.616 These provisions work
609 See 12 U.S.C. 2903(a)(1). See also 12 U.S.C.
2906(a)(1).
610 See current 12 CFR ll.41(a).
611 See current 12 CFR ll.41(c)(2). For this
purpose, the agencies define geography as a census
tract delineated by the U.S. Bureau of the Census
in the most recent decennial census. See current 12
CFR ll.12(k). Loans considered for determining
assessment areas under this provision ‘‘includ[e]
home mortgage loans, small business and small
farm loans, and any other loans the bank chooses,
such as those consumer loans on which the bank
elects to have its performance assessed.’’ See
current 12 CFR ll.41(c)(2).
612 See current 12 CFR ll.41(c)(1).
613 See current 12 CFR ll.41(b).
614 See current 12 CFR ll.41(d).
615 See current 12 CFR ll.41(e)(1) and (4).
616 See current 12 CFR ll.41(e)(2) and (3).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
congruently with ECOA and the Fair
Housing Act, to combat redlining.
Consequently, it is crucial that a bank
delineate assessment areas that
accurately reflect the communities it
serves.
As an exception to these
requirements, a bank whose business
model predominantly consists of
serving the needs of military personnel
or their dependents who are not located
within a defined geographic area may
delineate its entire deposit customer
base as its assessment area.617
The agencies use the assessment areas
delineated by a bank in the evaluation
of the bank’s performance unless the
agencies determine that the assessment
areas do not comply with the
requirements of the current
regulation.618
Currently, assessment areas are used
in different ways in CRA examinations.
Examiners evaluate a bank’s retail
lending and retail services performance
within assessment areas under the
lending test; retail lending outside of a
bank’s assessment areas is not evaluated
using the lending test criteria. However,
under existing guidance, examiners will
give consideration for loans to low- and
moderate-income persons and small
business and farm loans outside of a
bank’s assessment area(s) provided that
the bank has adequately addressed the
needs of borrowers within its
assessment area(s). Pursuant to the
guidance, such loans will not
compensate for poor lending
performance within the bank’s
assessment areas.619 With respect to the
evaluation of a bank’s community
development performance—including
community development loans,
investments, and services—examiners
consider a bank’s activities within its
assessment area(s) or within the broader
statewide or regional area that includes
the bank’s assessment area(s).620
Broader consideration of a bank’s
community development performance
reflects the agencies’ view that
community development organizations
and programs are efficient and effective
ways for banks to promote community
development, and that these
organizations and programs often
617 Current 12 CFR ll.41(f); see also 12 U.S.C.
2902(4).
618 See current 12 CFR ll.41(g).
619 See Q&A § ll.22(b)(2) and (3)–4.
620 See current 12 CFR ll.12(h)(2)(ii)
(community development loans); ll.23(a)
(community development investments); ll.24(b)
(community development services); see also current
12 CFR ll.25(e)(2) (community development
loans, investments, and services made by wholesale
or limited purpose banks); Q&A § ll.26(d)–2
(community development loans, investments, and
services made by intermediate small banks).
PO 00000
Frm 00156
Fmt 4701
Sfmt 4700
operate on a statewide or even
multistate basis.621 For this reason, the
bank’s assessment area(s) need not
receive an immediate or direct benefit
from the bank’s participation in the
organization or activity, provided that
the purpose, mandate, or function of the
organization or activity includes serving
geographies or individuals located
within the bank’s assessment area(s).622
In addition, the agencies may consider
community development activities in
broader statewide or regional areas that
do not benefit the assessment area if the
bank has been responsive to community
development needs and opportunities in
its assessment area(s).623
The agencies proposed to revise the
current assessment area framework by
requiring all banks evaluated under the
CRA to continue to delineate facilitybased assessment area(s) as discussed in
the section-by-section analysis of final
§ ll.16, and requiring large banks to
delineate a new type of assessment area
referred to as retail lending assessment
area(s), as discussed in the section-bysection analysis of final § ll.17. In
addition, the agencies proposed to
evaluate the retail lending performance
of large banks, and certain intermediate
banks, in their outside retail lending
areas, as discussed in the section-bysection analysis of final § ll.18. The
agencies also proposed to consider
qualifying community development
loans, investments, and services outside
of a bank’s facility-based assessment
areas within the states and multistate
MSAs in which the bank has a facilitybased assessment area, and in the
nationwide area, as discussed in the
section-by-section analysis of final
§ ll.19.
Section ll.16 Facility-Based
Assessment Areas
The agencies proposed generally to
maintain the current requirement that a
bank delineate assessment areas where
the bank has its main office, branches,
and deposit-taking ATMs, with certain
modifications.624 The agencies intended
the proposal to reflect the fact that a
bank’s facilities remain an essential way
of defining the local communities that
are part of a bank’s entire community.
Accordingly, the agencies referred to
these assessment areas in the proposal
as ‘‘facility-based assessment areas,’’
distinguishing them from the retail
lending assessment areas in proposed
§ ll.17.
Q&A § ll.12(h)–6.
id.
623 See id.
624 See current 12 CFR ll.41.
621 See
622 See
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
Relative to the current rule, the
modifications proposed by the agencies
included: (1) replacing the term
‘‘deposit-taking ATM’’ with ‘‘deposittaking remote service facility;’’ and (2)
requiring a large bank to delineate a
facility-based assessment area consisting
of a single MSA, one or more contiguous
counties within an MSA, or one or more
contiguous counties within the
nonmetropolitan area of a State, but
consistent with the current rule,
permitting a small or intermediate bank
to delineate a facility-based assessment
area that includes part of, but not the
entirety of, one or more counties.
The agencies received numerous
comments on the facility-based
assessment area proposal from many
different types of commenters. As
discussed in greater detail below, many
commenters supported the facilitybased assessment area proposal,
including the modifications relative to
the current rule. However, other
commenters expressed concerns,
especially regarding the types of bank
facilities that would trigger the facilitybased assessment area requirement, and
the requirement for large banks to
delineate facility-based assessment areas
composed of whole counties.
The agencies are adopting the facilitybased assessment area proposal with
certain changes, as discussed below.
Section ll.16(a) In General
As under the current rule, proposed
§ ll.16(a) required that a bank
delineate one or more facility-based
assessment areas within which the
agencies evaluate the bank’s record of
helping to meet the credit needs of its
community pursuant to the standards in
the proposed rule. Further, proposed
§ ll.16(a) stated that the agencies do
not evaluate the bank’s delineation of its
facility-based assessment areas as a
separate performance criterion, but the
agencies review the delineation for
compliance with the requirements of
this section.
A number of commenters expressed
general support for the agencies’
facility-based assessment area proposal.
However, the agencies generally did not
receive comments on the specific
language of § ll.16(a).
The agencies are finalizing the first
sentence of § ll.16(a) substantially as
proposed, with some technical changes.
Specifically, final § ll.16(a) refers to a
bank’s record of helping to meet the
credit needs of its entire community
(rather than just its ‘‘community’’ as
proposed) to better track the language of
the statute.625 In addition, final
625 See
12 U.S.C. 2903(a)(1).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
§ ll.16(a) states more precisely that
the agencies evaluate a bank within in
its facility-based assessment areas
pursuant to the performance tests and
strategic plan described in § ll.21
(rather than pursuant to ‘‘the standards
in this part’’ as proposed).
The agencies determined that the
second sentence of proposed
§ ll.16(a) is not necessary because, as
discussed below, final § ll.16(e)
specifies that the agencies use the
facility-based assessment areas
delineated by a bank in its evaluation of
the bank’s CRA performance unless the
agencies determine that a facility-based
assessment areas does not comply with
the requirements of § ll.16. For this
reason, the agencies are not adopting the
second sentence of proposed
§ ll.16(a). The agencies note that this
change is not intended to alter any
requirement pertaining to facility-based
assessment areas or how these areas are
used in CRA evaluations.
Section ll.16(b)(1) Geographic
Requirements for Facility-Based
Assessment Areas—Facilities Triggering
Delineation
The Agencies’ Proposal
Proposed § ll.16(b)(1) provided that
banks must delineate facility-based
assessment areas that include each
county in which a bank has a main
office, a branch, any other staffed bank
facility that accepts deposits, or a
deposit-taking remote service facility, as
well as the surrounding geographies in
which the bank has originated or
purchased a substantial portion of its
loans (including home mortgage loans,
small business loans, small farm loans,
and automobile loans). In addition, the
proposal specified that facilities in
paragraph (b) refers to those that are
open to the general public and excludes
nonpublic facilities. The agencies stated
that the addition of other staffed bank
facilities, together with proposed
changes to the ‘‘branch’’ definition,
were intended to capture new bank
business models, regardless of how the
bank refers to such staffed physical
locations, when those locations are open
to the public and collect deposits from
customers. The agencies requested
comment on how to treat bank business
models where staff assist customers to
make deposits on their phone or mobile
device while the customer is onsite.
The proposal did not require
delineation of a facility-based
assessment area based solely on the
existence of a loan production office.
PO 00000
Frm 00157
Fmt 4701
Sfmt 4700
6729
Comments Received
A number of commenters provided
feedback on the types of facilities that
should trigger the facility-based
assessment area requirement.
Main office and branches. Several
commenters expressed support for
retaining the current rule’s requirement
that a bank must delineate facility-based
assessment areas based on the location
of its main office and branches. In
addition, several commenters addressed
what should constitute a branch for
purposes of the CRA regulations. These
comments are discussed in the sectionby-section analysis of § ll.12.
Any other staffed bank facilities that
accept deposits. In general, commenters
who addressed this aspect of the
proposal supported the proposal to
require banks to delineate facility-based
assessment areas in counties in which
the bank has any other staffed bank
facility that accepts deposits, other than
a main office, branch, or deposit-taking
remote service facility. Commenters that
supported this aspect of the proposal
noted that requiring banks to delineate
facility-based assessment areas based on
the location of other staffed bank
facilities that accept deposits aligns
with the premise of the CRA that a bank
absorbing deposits from a community
has certain obligations to serve that
community.
A number of commenters responded
to the agencies’ request for comment on
the treatment of business models where
bank staff assist customers with making
deposits on their phones or mobile
devices while customers are onsite at a
staffed physical location. A few
commenters noted generally that this
business model represents an
innovation in banking that allows bank
employees to spend more time on
customer services (such as financial
education, consulting, and investment
services) rather than engaged in
transactions.
Many of the commenters that
addressed this issue stated that the
agencies should require a bank to
delineate a facility-based assessment
area around locations where bank staff
assist on-site customers with making
deposits on the customers’ phones or
mobile devices. For example, a few
commenters emphasized that bank staff
at such locations acquire knowledge of
community needs, and thus that the
bank should be held accountable for
serving those needs. At least one
commenter went further, stating that
any remote location at which bank staff
offer products and services available at
a branch should be considered a branch
for purposes of delineating facility-
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6730
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
based assessment areas. On the other
hand, a commenter warned against
strictly construing any requirement to
delineate a facility-based assessment
area where bank staff assist on-site
customers with making deposits on the
customers’ mobile devices so as not to
discourage community development
activities, such as mobile branches on
wheels.
However, many other commenters
opposed requiring delineation of a
facility-based assessment area where
bank staff assist on-site customers with
making deposits on the customers’
phones or mobile devices. For example,
one commenter noted that it was not
aware of any instances of bank staff
assisting a customer with making a
deposit on a customer-owned mobile
device while the customer is on-site,
and thus believed that requiring the
delineation of facility-based assessment
areas on this basis was unnecessary.
Other commenters that opposed
requiring delineation of a facility-based
assessment area in this situation stated
that if bank staff assist customers in
making deposits on their mobile
devices, these deposits should be
treated as originating from the
customer’s home or business address if
the deposits are sent electronically.
Deposit-taking remote service facility.
A number of commenters addressed the
proposed requirement to delineate
facility-based assessment areas based on
the location of deposit-taking remote
service facilities.626 Some of these
commenters expressed support for the
agencies’ proposal to require banks to
delineate facility-based assessment areas
around deposit-taking remote services
facilities. A few commenters
recommended that, for purposes of
delineating facility-based assessment
areas, the definition of remote service
facility should be sufficiently broad to
capture innovations in banking services
traditionally offered through physical
branches.
However, a few commenters opposed
requiring a bank to delineate a facilitybased assessment area based solely on
the location of its deposit-taking remote
service facilities. A few commenters
asserted that a deposit-taking remote
service facilities should not trigger the
full lending, service, and community
development obligations of a facilitybased assessment area because, among
other reasons, banks typically do not
have staff physically present in those
areas to be able to generate loans or
626 Commenters also discussed the proposed
definition of ‘‘remote service facility.’’ These
comments are discussed in greater detail in the
section-by-section analysis of final § ll.12.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
carry out community development
financing activities or services. A
commenter noted that requiring
delineation of a facility-based
assessment area based solely on a
remote service facility would limit a
bank’s ability to place a deposit-taking
remote service facility in a market as
part of a strategy to transition toward a
broader range of services in that market,
or to serve only a specific market
segment, such as business customers at
a loan production office.
Other commenters suggested placing
certain limitations on when a remote
service facility would trigger a facilitybased assessment area. For example, a
few commenters recommended that a
deposit-taking remote service facility in
a county that is immediately adjacent to
a county where the bank already has a
branch presence should not require the
delineation of a new facility-based
assessment area because the remote
service facility was likely placed there
in order to serve existing bank
customers who work in or travel to the
neighboring county. However, these
commenters noted that where a bank
establishes deposit-taking remote
service facilities in a county that is not
adjacent to the county where the bank
has an existing facility-based assessment
area, then the bank should be required
to delineate a facility-based assessment
area in that county based solely on the
presence of deposit-taking remote
service facilities.
A few commenters recommended that
a bank should have the option, rather
than be required, to delineate a facilitybased assessment area based on the
location of its deposit-taking remote
service facilities. At least one of these
commenters reasoned that requiring
delineation of a facility-based
assessment area provides a strong
disincentive against establishing
temporary remote deposit facilities,
such as in the case of a natural disaster
or a special event.
Non-proprietary remote service
facilities. As discussed in the sectionby-section analysis of § ll.12,
commenters disagreed on whether the
proposed requirement to delineate
facility-based assessments areas based
on where a bank maintains deposittaking remote service facilities should
extend to remote service facilities not
owned or operated by, or operated
exclusive for, a bank, such as third-party
ATM networks.
Loan production offices. Several
commenters noted that the proposal for
delineating facility-based assessment
areas would generally exclude loan
production offices, insofar as such
facilities do not accept deposits or are
PO 00000
Frm 00158
Fmt 4701
Sfmt 4700
not open to the general public. A
majority of these commenters
recommended including loan
production offices as a facility for
purposes of delineating facility-based
assessment areas. These commenters
noted that loan production offices factor
into a bank’s overall lending
performance in low- or moderateincome communities. These
commenters also noted that loan
production offices are often the only
lending or banking-related presence in
rural areas and small towns, suggesting
their presence should confer a CRA
obligation. Some of these commenters
argued that, alternatively, if loan
production offices do not trigger the
delineation of a facility-based
assessment area, the presence of loan
production offices should trigger the
delineation of at least a retail lending
assessment area.
However, a few commenters
supported the agencies’ proposal not to
include loan production offices as a
facility for purposes of delineating a
facility-based assessment area. At least
one of these commenters noted that loan
production offices are not branches and
are sometimes used by a bank to help
determine whether a branch should be
established in a new area.
Final Rule
The agencies are adopting a modified
version of proposed § ll.16(b)(1).
Final § ll.16(b)(1) provides that,
except as provided in paragraph (b)(3),
a bank’s facility-based assessment areas
must include each county in which a
bank has a main office, a branch, or a
deposit-taking remote service facility, as
well as the surrounding counties in
which the bank has originated a
substantial portion of its loans
(including home mortgage loans,
multifamily loans, small business loans,
small farm loans, and automobile loans).
Unlike under the proposal, final
§ ll.16(b)(1) does not require a bank
to delineate a facility-based assessment
area based on the location of any other
staffed bank facility that accepts
deposits (other than a main office,
branch, or deposit-taking remote service
facility).
In addition to this substantive change,
final § ll.16(b)(1) incorporates several
technical changes relative to the
proposal. Specifically, final
§ ll.16(b)(1) clarifies that paragraph
(b)(3) (which, as discussed below,
permits small and intermediate banks to
delineate facility-based assessment areas
composed of partial counties) is an
exception to the ‘‘each county’’
requirement. Further, the final rule adds
multifamily loans to the parenthetical
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
list of loan types so that this list
includes all of the product lines
included in the retail lending volume
screen portion of the Retail Lending
Test; these same types of loans may also
be considered under the Small Bank
Lending Test.627 Finally, the final rule
refers to ‘‘surrounding counties,’’ rather
than ‘‘surrounding geographies’’ as
proposed, consistent with the countybased geographic requirements
described below.
Any other staffed bank facilities that
accept deposits. The final rule does not
include the proposed requirement that a
bank’s facility-based assessment areas
include each county in which the bank
has any other staffed bank facility that
accepts deposits (other than a main
office, branch, or deposit-taking remote
service facility). The agencies believe
that the remaining list of bank facilities
that trigger facility-based assessment
area delineation requirements (i.e., main
office, branch, deposit-taking remote
service facility) is sufficiently
comprehensive that it is not necessary
to include other staffed bank facilities
that accept deposits. In particular, the
agencies are not aware of the existence
of a staffed bank facility that accepts
deposits that would not qualify as a
main office or branch. The agencies will
continue to monitor whether other types
of deposit-taking facilities emerge in the
future that do not qualify as a main
office, branch, or deposit-taking remote
service facility, and that may warrant
addition to the list of facilities that
trigger the facility-based assessment area
delineation requirement.
For similar reasons, the agencies are
declining to specify whether a facility
where bank staff assist customers with
making a deposit on a mobile phone or
other mobile device triggers the facilitybased assessment area delineation
requirement. The agencies believe that,
depending on the facts and
circumstances, such a facility may
qualify as a branch pursuant to the
appropriate agency’s licensing policies.
Further, to the extent that such a facility
does not qualify as a branch, the
agencies do not want to disincentive
bank staff from providing incidental
support to customers at non-branch
facilities. The agencies will continue to
monitor banking developments and
provide additional guidance as
appropriate.
Deposit-taking remote service
facilities. The final rule also retains the
proposed requirement that a bank’s
facility-based assessment areas include
each county in which the bank has a
627 See
final § ll.22(c) and final § ll.29.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
deposit-taking remote service facility.628
The agencies believe that requiring a
bank to delineate a facility-based
assessment area based on where it
maintains a deposit-taking remote
service facility is consistent with the
statute because of the statutory
definition of ‘‘domestic branch,’’
discussed above, which includes other
deposit-taking facilities.629
The agencies have considered
concerns raised by some commenters
that a bank may need to delineate two
separate facility-based assessment areas
if it maintains, for example, a branch in
one county and a deposit-taking remote
service facility in an adjacent county.
However, under the geographic
requirements of the final rule discussed
below, this result would be required
only in cases where (1) one county is a
metropolitan county (i.e., located within
an MSA) and the other county is a
nonmetropolitan county, or (2) the
counties are nonmetropolitan counties
in adjoining states. By contrast, if both
counties are located in the same MSA,
or if both counties are located in the
nonmetropolitan area of the same State,
then the bank could delineate a single
facility-based assessment area that
includes both counties. The agencies
note that the CRA statute requires the
agencies, in the written evaluation of a
bank for each State in which it
maintains one or more branches, to
separately present conclusions for each
metropolitan area in which the bank
maintains a branch, and conclusions for
the nonmetropolitan area of the State if
the bank maintains a branch in such
nonmetropolitan area.630 The agencies
believe that allowing a single facilitybased assessment area to consist of both
metropolitan and nonmetropolitan
areas, as in the case described above,
would create challenges in assigning
conclusions consistent with this
statutory requirement because the
agencies would not be able to
distinguish between a bank’s
metropolitan area and nonmetropolitan
area performance within a State.
Non-proprietary remote service
facilities. As discussed in the sectionby-section analysis of § ll.12, the term
‘‘remote service facility’’ includes only
those remote service facilities that are
owned or operated by, or operated
exclusively for, a bank. As such, the
final rule does not require a bank to
delineate a facility-based assessment
area based on the location of other
628 The final rule’s definition of ‘‘remote service
facility’’ is discussed in greater detail in the sectionby-section analysis of final § ll.12.
629 12 U.S.C. 2906(e)(1).
630 See 12 U.S.C. 2906(d)(3)(A).
PO 00000
Frm 00159
Fmt 4701
Sfmt 4700
6731
remote service facilities, such as a
network ATM operated by third party.
Loan production offices. The final
rule does not require banks to delineate
facility-based assessment areas based
solely on the location of loan
production offices. The agencies
considered commenter feedback that
indicated a loan production office
should trigger a facility-based
assessment area delineation because it is
a bank facility and may be part of the
bank’s strategy to meet the credit needs
of the community it serves. However,
based on the agencies’ supervisory
experience, the agencies believe that
loan production offices vary widely in
terms of service and product offerings,
the number of customers served, and the
capacity and resources to meet
community credit needs. For example, a
loan production office may not offer the
types of loans evaluated under the
Retail Lending Test, may not accept
deposits, and may not be open to the
public. For this reason, the agencies are
declining to apply the facility-based
assessment area requirement based
solely on the location of a loan
production office. However, under the
final rule Retail Lending Test, the
agencies will evaluate the major product
lines of certain large banks in retail
lending assessment areas where they
have concentrations of closed-end home
mortgage and small business loans.631
Similarly, the agencies will evaluate the
major product lines of large and certain
intermediate and small banks in the
bank’s outside retail lending area (i.e.,
the nationwide area outside of the
bank’s facility-based assessment areas
and retail lending assessment areas).632
Thus, under the final rule, a geographic
area in which a bank maintains loan
production offices may be delineated as
a retail lending assessment or included
in the bank’s outside retail lending area,
as applicable.
Section ll.16(b)(2) and (3) Geographic
Requirements for Facility-Based
Assessment Areas—Boundaries
The Agencies’ Proposal
Proposed § ll.16(b)(2) required that
a bank’s facility-based assessment area
consist of one or more MSAs or
metropolitan divisions or one or more
contiguous counties within an MSA, a
metropolitan division, or the
nonmetropolitan area of a State. In
addition, consistent with current
631 Retail lending assessment areas are discussed
in the section-by-section analysis of final § ll.17.
632 Outside retail lending areas are discussed in
the section-by-section analysis of final § ll.18.
E:\FR\FM\01FER2.SGM
01FER2
6732
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
guidance,633 proposed § ll.16(b)(2)
specified that a facility-based
assessment area may not extend beyond
an MSA boundary or beyond a State
boundary unless the facility-based
assessment area is located in a
multistate MSA or combined statistical
area.
However, proposed § ll.16(b)(3)
provided an exception for an
intermediate or small bank by which
such a bank may adjust the boundaries
of its facility-based assessment areas to
include only the portion of a county that
it reasonably can be expected to serve,
provided that a facility-based
assessment area that includes a partial
county consists only of whole census
tracts, and complies with the limitations
discussed below in § ll.16(c). As a
result, under the proposal, large banks
would no longer be allowed to delineate
a partial county for facility-based
assessment areas, as under the current
rule.634 The agencies reasoned that this
change would create a more consistent
delineation standard for the delineation
of assessment areas for large banks;
encourage these banks to serve low- or
moderate-income individuals and
census tracts in counties where their
deposit-taking facilities are located; help
safeguard and support fair lending; and
support the proposed use of metrics and
associated data to evaluate bank
performance. The agencies requested
feedback on whether both small and
intermediate banks should continue to
have the option of delineating partial
counties or whether they should be
required to delineate whole counties as
facility-based assessment areas to
increase consistency across banks.
Comments Received
Numerous commenters offered views
on the proposed geographic
requirements that would apply to the
delineation of facility-based assessment
areas.
Whole-county requirement for large
banks. Many commenters addressing
the proposed geographic requirements
for large banks’ facility-based
assessment areas supported this aspect
of the proposal, including the proposed
requirement that large banks’ facilitybased assessment areas consist of one or
more MSAs, metropolitan divisions, or
contiguous counties within an MSA,
metropolitan division, or the
nonmetropolitan area of a State. In
general, these commenters expressed
that partial-county delineations may
result in the geographic scope of a
633 See current 12 CFR ll.41(e)(4); see also Q&A
§ ll.41(e)(4)–1 and –2.
634 See current 12 CFR ll.41(d).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
bank’s CRA evaluation not accurately
reflecting the area that a large bank can
reasonably be expected to serve, and
that partial-county delineations could
allow a large bank to reduce its lending
in low- or moderate- income and
majority-minority census tracts. A
commenter stated that requiring large
banks to delineate facility-based
assessment areas composed of whole
counties would facilitate peer
comparison and simplify analysis from
a metrics standpoint.
However, most commenters that
addressed the proposed geographic
requirement for large banks’ facilitybased assessment areas opposed this
aspect of the proposal, with some
suggesting that some or all large banks
should continue to have the option to
delineate facility-based assessment areas
composed of partial counties. These
commenters pointed to a variety of
reasons supporting the view that large
banks should retain the ability to
delineate a facility-based assessment
area composed of partial counties. For
example, some commenters noted that
certain bank characteristics, including a
limited capacity to serve an entire
county, a limited branch network in a
county, and the location of the bank’s
branch or branches, could make it
challenging to serve an entire county. In
another example, a commenter
suggested that serving a facility-based
assessment area composed of whole
counties would be so challenging that it
would require the bank to divert
resources from other programs,
including those that serve low- or
moderate-income communities.
Commenters also noted that
characteristics of a county could make
it challenging to serve the entirety of
that county, including the geographic
size or other geographic characteristics,
economic characteristics, the population
and population density, and the level of
competition among other banks in the
county. A commenter described the
proposed whole-county delineation
requirement for large banks as
mandating an unrealistic facility-based
assessment area, which would lead to
unrealistic benchmarks and
conclusions. Specifically, the
commenter cited the example of Los
Angeles County, stating that several
large banks operate three or fewer
branches in the county, and that those
banks would be required to delineate
the whole county as a facility-based
assessment area. The commenter stated
that the county consists of
approximately 2,500 census tracts, and
questioned how these large banks can be
asked to serve a whole county of this
size with so few branches.
PO 00000
Frm 00160
Fmt 4701
Sfmt 4700
Some commenters that criticized the
proposed whole-county delineation
requirement for large banks suggested
that the whole-county requirement
could be appropriate for large banks of
a higher asset threshold, but that large
banks of a smaller asset size, such as
those below $5 billion or $10 billion in
assets, should have the flexibility to
define assessment area using partial
counties.
Partial-county allowance for small
and intermediate banks. A majority of
commenters that addressed the
proposed geographic requirements for
facility-based assessment areas of small
and intermediate banks supported the
proposal to continue to allow these
banks to delineate facility-based
assessment areas that include only the
portion of a county that such a bank
reasonably can be expected to serve.
These commenters generally noted that
small and intermediate banks are less
likely to have the capacity and resources
to serve an entire county.
However, many other commenters
recommended that small and
intermediate banks be held to the same
whole-county delineation standard for
facility-based assessment area
delineation as proposed for large banks.
In general, these commenters expressed
that partial-county delineations may
result in the geographic scope of the
bank’s CRA evaluation not accurately
reflecting the area the bank can
reasonably be expected to serve. In
addition, some commenters expressed
concerns that partial-county
delineations could result in redlining by
allowing a bank to exclude low- or
moderate-income and majority-minority
census tracts. In addition, a few
commenters noted that small and
intermediate banks are often the only
banks present in rural counties, and that
partial-county delineations for these
banks could result in underserved rural
areas being excluded from facility-based
assessment areas.
Final Rule
The agencies are adopting the
geographic requirements for facilitybased assessment areas in proposed
§ ll.16(b)(2) and (3) with some
modifications. Final § ll.16(b)(2)
provides that, except as provided in
paragraph (b)(3), each of a bank’s
facility-based assessment areas must
consist of a single MSA, one or more
contiguous counties within an MSA, or
one or more contiguous counties within
the nonmetropolitan area of a State.
Relative to the proposal, final
§ ll.16(b)(2) incorporates some
clarifications and non-substantive
changes to streamline the drafting of
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
proposed § ll.16(b)(2). First, the final
rule specifies that the geographic
requirements of this paragraph apply to
each of a bank’s facility-based
assessment areas. Second, the final rule
omits the proposed references to
metropolitan divisions; the agencies
believe these references are superfluous
because metropolitan divisions consist
of whole counties, and banks are not
required to follow metropolitan division
boundaries when delineating facilitybased assessment areas. Third, and as
discussed below, the final rule
eliminates the proposed language
concerning the circumstances under
which a facility-based assessment area
is permitted to extend beyond an MSA
boundary or a State boundary. As a
result, under the final rule, a facilitybased assessment may not extend
beyond an MSA boundary and may not
extend beyond a State boundary unless
the facility-based assessment area is
located within a multistate MSA.
Final § ll.16(b)(3) provides that an
intermediate or a small bank may adjust
the boundaries of its facility-based
assessment areas to include only the
portion of a county that it reasonably
can be expected to serve, subject to the
limitations in paragraph (c). Final
§ ll.16(b)(3) also provides that a
facility-based assessment area that
includes a partial county must consist of
contiguous whole census tracts. The
agencies believe that the requirement
that partial-county delineations must
consist of contiguous census tracts was
implicit in the proposal, but that it is
appropriate to make this requirement
explicit in the final rule, paralleling the
contiguous county requirement in final
§ ll.16(b)(2).
MSA and State boundaries. Under the
final rule, a bank may not delineate a
facility-based assessment area that
extends beyond an MSA boundary, and
a bank may not delineate a facilitybased assessment area that extends
beyond a State boundary unless the
facility-based assessment area is located
in a multistate MSA. By contrast, the
proposal would have permitted facilitybased assessment areas located in
combined statistical areas to extend
beyond an MSA or State boundary. The
agencies have reconsidered the issue
and, for the reasons discussed below,
are adopting a final rule that is
consistent with current § ll.41(e)(4),
which provides that an assessment area
may not extend substantially beyond an
MSA boundary or beyond a State
boundary unless the assessment area is
located in a multistate MSA.635
635 The agencies acknowledge that current
guidance suggests that banks may delineate
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
The agencies believe that allowing a
facility-based assessment area to consist
of an entire combined statistical area
would create challenges in assigning
conclusions consistent with statutory
requirements. Specifically, the statute
requires the agencies, in the written
evaluation of a bank, to present
conclusions separately for each
metropolitan area in which the bank
maintains a branch.636 Further, the
statute requires the agencies to present,
in the written evaluation of an interstate
bank’s performance within a State,
conclusions separately for each
metropolitan area in which the bank
maintains a branch, and for the
remainder of the nonmetropolitan area
of the State if the bank maintains one or
more branches in such nonmetropolitan
area.637 Because a combined statistical
area may include a combination of
metropolitan and nonmetropolitan
counties, or may contain multiple
distinct MSAs, the agencies would need
to assign conclusions to one or more
subparts of a facility-based assessment
area consisting of a combined statistical
area. For similar reasons, the agencies
believe that applying the Community
Development Financing Test in a
facility-based assessment area consisting
of a combined statistical area would be
challenging because the Community
Development Financing Test involves
separate benchmarks for metropolitan
and nonmetropolitan areas.638
Whole- and partial-county
delineations. Under the final rule, large
banks must delineate facility-based
assessment areas composed of whole
counties, but small and intermediate
banks are permitted to adjust the
boundaries of their facility-based
assessment areas to include only those
contiguous census tracts within a
county that such banks can reasonably
be expected to serve. The agencies’
determination that large banks, but not
small and intermediate banks, should be
required to delineate facility-based
assessment areas composed of whole
counties balances multiple competing
considerations.
On the one hand, the agencies believe
that requiring large banks to delineate
facility-based assessment areas
composed of whole counties helps to
encourage those banks to serve low- or
moderate-income individuals and
census tracts in counties where the
assessment areas that extend beyond MSA
boundaries in a combined statistical area. See Q&A
§ ll.41(e)(4)–1.
636 See 12 U.S.C. 2906(b)(1)(B).
637 See 12 U.S.C. 2906(d)(2).
638 These benchmarks are discussed in greater
detail in the section-by-section analysis of
§ ll.24(b)(2).
PO 00000
Frm 00161
Fmt 4701
Sfmt 4700
6733
bank’s deposit-taking facilities are
located and helps to safeguard and
support fair lending. In particular,
requiring a bank to delineate facilitybased assessment areas composed of
whole counties could reduce the risk
that a facility-based assessment area
may exclude low- or moderate-income
or majority-minority census tracts from
the facility-based assessment area. In
addition, and as discussed in greater
detail in the section-by-section analysis
of final § ll.24, whole-county
delineations facilitate the application of
the Community Development Financing
Test because the relevant metrics and
benchmarks are calculated at the county
level, and cannot be calculated at the
census tract level without increasing the
reporting burden on banks. Similarly,
and as discussed in the section-bysection analysis of § ll.28, wholecounty delineations for large banks
facilitate the final rule’s approach to
weighting facility-based assessment area
conclusions because these weights are
based on a combination of a bank’s
retail loan and deposits data, and
deposits data are reported at the county
level for large banks with assets of over
$10 billion, pursuant to final
§ ll.42(b)(3). Under an alternative
approach in which large banks are able
to delineate partial-county facility-based
assessment areas, to calculate a weight
for each area, large banks with assets
over $10 billion would need to report
deposits data at a more granular
geographic level, such as census tracts,
which the agencies believe would
increase burden and privacy concerns.
On the other hand, the agencies have
considered that requiring banks to
delineate facility-based assessment areas
composed of whole counties could
result in facility-based assessment areas
that are challenging for some large
banks to serve, and may have an impact
on compliance burden, such as costs
associated with monitoring the bank’s
performance in and relevant
benchmarks across the entire county,
rather than a smaller geographic area.
This is particularly the case with very
large counties or counties with dividing
geographic features (e.g., a large body of
water that divides the county in two) in
which a bank has a limited presence.
The agencies believe that the final
rule strikes an appropriate balance
between these competing
considerations. In circumstances in
which large banks cannot serve their
whole counties due to geographic
barriers, limited presence, or other
factors, the agencies would take these
factors into consideration as
performance context when evaluating a
large bank’s performance in such a
E:\FR\FM\01FER2.SGM
01FER2
6734
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
facility-based assessment area, as is
generally the case under existing
standards. Accordingly, the agencies
believe that the application of
performance context appropriately
mitigates these concerns with respect to
this final rule’s whole-county
delineation requirement for large banks,
while retaining the benefits of the
overall approach as described above.
For these reasons, final § ll.16(b)(2)
requires large banks to delineate facilitybased assessment areas composed of
whole counties.
By contrast, final § ll.16(b)(3)
allows small and intermediate banks to
delineate partial-county facility-based
assessment areas, as under the current
rule, because these banks generally have
less capacity than large banks to serve
whole counties and to adapt to new
regulatory requirements. The agencies
have considered commenters’ concerns
that allowing partial-county
delineations could result in the
exclusion of low- or moderate-income,
majority-minority, underserved, or rural
census tracts from a facility-based
assessment area. However, the agencies
believe that other provisions of the final
rule, including the limitations in final
§ ll.16(c), discussed below,
sufficiently address this risk.
Section ll.16(c) Other Limitations on
the Delineation of a Facility-Based
Assessment Area
The Agencies’ Proposal
Proposed § ll.16(c) would retain
the current rule that a bank’s facilitybased assessment areas may not reflect
illegal discrimination and may not
arbitrarily exclude low- or moderateincome census tracts, taking into
account the bank’s size and financial
condition. The agencies stated in the
proposal that these prohibitions affirm a
bank’s CRA obligation to serve its entire
community, including low- or
moderate-income individuals and
census tracts, and should remain a vital
component of the assessment area
framework.
ddrumheller on DSK120RN23PROD with RULES2
Comments Received
Several commenters provided
feedback regarding the proposed
limitations on the delineation of facilitybased assessment areas in proposed
§ ll.16(c). These commenters
generally recommended that the
agencies strengthen the prohibitions
that a bank’s facility-based assessment
areas may not reflect illegal
discrimination and may not arbitrarily
exclude low- or moderate-income
census tracts. For example, a commenter
recommended clarifying under what
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
circumstances a bank’s assessment areas
would be deemed to reflect illegal
discrimination and suggested that the
agencies establish a rebuttable
presumption that a bank’s facility-based
assessment area reflects illegal
discrimination where its facility-based
assessment area consists of a partial
political subdivision that excludes
contiguous neighborhoods of color.
Many commenters stated that racial
demographics should be considered
when delineating facility-based
assessment areas, emphasizing that
minority communities should not be
arbitrarily excluded. For example, a
commenter suggested that where a small
or intermediate bank delineates a
facility-based assessment areas
containing part of a county, examiners
should review the partial-county
delineation to ensure that it does not
unreasonably exclude minority
communities; if examiners determine
the bank has unreasonably excluded
minority communities, this finding
should adversely impact the bank’s CRA
rating.
Final Rule
The agencies are adopting the
limitations on the delineation of facilitybased assessment areas in proposed
§ ll.16(c) substantially as proposed.
Relative to the proposal, the final rule
includes drafting changes to clarify that
the bank’s capacity and constraints,
including its size and financial
condition, are considerations that the
agencies will take into account in
determining whether a facility-based
assessment area arbitrarily excludes
low- or moderate-income census
tracts.639
The agencies acknowledge comments
that recommended more specific and
stringent standards to safeguard against
illegal discrimination and arbitrary
exclusion. Whether a facility-based
assessment area reflects illegal
discrimination is a fact-andcircumstances-specific determination,
and for this reason, the agencies are not
adopting more specific standards, such
as the rebuttable presumption suggested
by some commenters, within the
regulatory text. The agencies note that
other parts of the final rule, such as the
adverse effect of discriminatory or other
illegal credit practices provided in final
§ ll.28(d), help safeguard and support
fair lending, consistent with the
agencies’ goal of confirming that CRA
and fair lending responsibilities are
mutually reinforcing. Moreover,
consistent with current CRA
examination procedures, examiners will
639 See
PO 00000
Q&A § ll.41(e)(3)–1.
Frm 00162
Fmt 4701
Sfmt 4700
continue to review a bank’s delineation
of any facility-based assessment areas,
whether composed of partial or whole
counties, for compliance with the
requirements of § ll.16, which
includes ensuring that the facility-based
assessment area does not reflect illegal
discrimination and does not arbitrarily
exclude any low- or moderate-income
areas.640
Section ll.16(d) Military Banks
The Agencies’ Proposal
Proposed § ll.16(d) would retain
the flexibility in the current rule
afforded to a military bank whose
customers are not located within a
defined geographic area to delineate its
entire deposit customer base as its
assessment area, consistent with the
CRA statute.641
Comments Received
As discussed in the section-by-section
analysis of § ll.12, a commenter
recommended expanding the proposed
definition of ‘‘military bank’’ to include
a branch located on a military
installation so that such a branch could
delineate its entire deposit customer
base as an assessment area, as provided
in proposed § ll.16(d), regardless of
whether the bank as a whole qualifies as
a military bank. As an alternative to
expanding the ‘‘military bank’’
definition in this way, the commenter
suggested allowing a bank that operates
a branch on a military installation to
delineate a geographic-based facilitybased assessment area defined by the
boundaries of the military installation.
The commenter explained that one of
these alternatives is necessary because it
can be challenging for a branch located
on a military installation to serve a
broader geographic area given
640 See, e.g., Large Institution CRA Examination
Procedures (April 2014) at 4. In addition, examiners
review a bank’s CRA assessment areas as part of the
redlining analysis in fair lending examinations.
Specifically, the redlining analysis considers the
following indicators of potential discriminatory
redlining, among others: (1) explicit demarcation of
credit product markets that excludes MSAs,
political subdivisions, census tracts, or other
geographic areas within the bank’s lending market
or CRA assessment areas and having relatively high
concentrations of minority residents, and (2) the
bank’s CRA assessment area appears to have been
drawn to exclude areas with relatively high
concentrations of minority residents. See
Interagency Fair Lending Examination Procedures
(August 2009) at 10–11.
641 See 12 U.S.C. 2902(4). See also current 12 CFR
ll.41(f). The agencies proposed to define
‘‘military bank’’ to mean a bank whose business
predominately consists of serving the needs of
military personnel who serve or have served in the
Armed Forces (including the U.S. Air Force, U.S.
Army, U.S. Coast Guard, U.S. Marine Corps, and
U.S. Navy) or dependents of military personnel. See
proposed § ll.12.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
restrictions on public access to military
installations.
Section ll.16(e) Use of Facility-Based
Assessments Areas
Final Rule
As under the current rule, proposed
§ ll.16(e) stated that the agencies use
the facility-based assessment areas
delineated by a bank in their evaluation
of the bank’s CRA performance unless
the agencies determine that the facilitybased assessment areas do not comply
with the requirements of proposed
§ ll.16.
The agencies did not receive any
comments on this aspect of the
proposal. As such, the agencies are
finalizing § ll.16(e) as proposed.
The agencies are finalizing a modified
version of proposed § ll.16(d). The
final rule provides that, notwithstanding
the other requirements of § ll.16, a
military bank whose customers are not
located within a defined geographic area
may delineate the entire United States
and its territories as its sole facilitybased assessment area. The final rule
uses the defined term ‘‘facility-based
assessment area,’’ rather than
‘‘assessment area’’ as proposed, to
clarify that the area is not a retail
lending assessment area or outside retail
lending area, which would be evaluated
only under the Retail Lending Test. In
addition, the agencies believe that the
term ‘‘sole’’ clarifies that a military bank
that elects to delineate its facility-based
assessment area pursuant to § ll.16(d)
would have only one facility-based
assessment area, and would not
delineate other geographic areas for
evaluation.642
The agencies considered the
challenges identified by commenters
regarding the operation of branches on
military installations. However, the
agencies have determined not to modify
the facility-based assessment area
delineation requirements for these
branches. The agencies believe that the
final rule approach is sufficiently
flexible such that banks that operate
branches on military installations, or in
other areas where public access is
restricted, would not be penalized for
doing so. In particular, the agencies
expect that examiners would consider
the public accessibility of a branch as
performance context when evaluating
the bank’s performance in the facilitybased assessment area surrounding the
branch. Other areas of the final rule also
permit examiners the flexibility to
consider the unique circumstances of
branches on military installations. For
example, pursuant to final § ll.22(c),
in the case of a bank that operates a
branch on a military installation but that
does not meet or surpass the Retail
Lending Volume Screen threshold in the
facility-based assessment area,
examiners could consider the
restrictions on public access to the
branch as part of the bank’s institutional
capacity and constraints.643
642 The evaluation of military banks under the
final rule is discussed in greater detail in the
section-by-section analysis of final § ll.21(a)(5).
643 See final § ll.22(c)(3)(i)(B).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Section ll.17 Retail Lending
Assessment Areas
In proposed § ll.17, the agencies
proposed a new requirement for large
banks to delineate retail lending
assessment areas where a large bank has
concentrations of home mortgage or
small business loans outside of its
facility-based assessment areas. The
agencies proposed to evaluate a large
bank’s performance in retail lending
assessment areas under the proposed
Retail Lending Test, but not under other
performance tests. As stated in the
proposal, the agencies intended the
proposed retail lending assessment area
approach, as with facility-based
assessment areas, to establish local
communities in which a bank is
evaluated for its CRA performance, and
to reflect ongoing changes in the
banking industry. The agencies further
stated in the proposal that evaluating
large banks’ retail lending performance
on a local basis in retail lending
assessment areas would accord with
CRA’s focus on a bank’s local
performance in helping to meet
community credit needs, promote
transparency by providing useful
information to the public and banks
regarding their performance in specific
markets, and improve parity between
banks that lend primarily through
branches and those banks with different
business models.
The agencies received a significant
amount of feedback related to the retail
lending assessment area proposal from a
wide array of commenters. Commenters
expressed a range of views regarding the
overall retail lending assessment area
approach, with many commenters
supporting the proposal, and many
other commenters opposing it,
especially due to concerns about the
compliance burden of the proposal.
Commenters also provided feedback on
specific aspects of the retail lending
assessment area proposal, including
which large banks should be required to
delineate retail lending assessment
PO 00000
Frm 00163
Fmt 4701
Sfmt 4700
6735
areas, geographic requirements for retail
lending assessment areas, and the
number and types of retail loans that
would trigger the retail lending
assessment area requirement.
For the reasons discussed below, the
agencies are including the retail lending
assessment area approach in the final
rule. However, in response to
commenter feedback, the agencies are
adopting several modifications to the
retail lending assessment area proposal
to better align the retail lending
assessment area approach with the
agencies’ policy objectives. In
particular, and as described below, the
final rule (1) tailors the retail lending
assessment area requirement by
exempting large banks that conduct
more than 80 percent of their retail
lending in facility-based assessment
areas from the retail lending assessment
area requirement; (2) reduces the
number of retail lending assessment
areas that affected large banks will need
to delineate by increasing the proposed
home mortgage loan and small business
loan count thresholds for triggering
retail lending assessment areas; (3)
reduces the number of product lines
evaluated in retail lending assessment
areas by modifying the evaluation of a
large bank’s retail lending performance
in retail lending assessment areas so
that only closed-end home mortgage
loans and small business loans are
evaluated, and only if they exceed the
applicable loan count threshold; and (4)
narrows the geographic scope of certain
retail lending assessment areas by
tailoring the proposed geographic
requirements for retail lending
assessment areas in the nonmetropolitan
area of a State to exclude any counties
in which a large bank did not originate
any reported closed-end home mortgage
loans or small business loans.
Overall Retail Lending Assessment Area
Approach
The Agencies’ Proposal
To facilitate evaluation of whether
and to what extent banks are meeting
the credit needs of their entire
communities, proposed § ll.17
complemented the existing framework
for evaluating large banks’ retail lending
in facility-based assessment areas by
requiring large banks to delineate retail
lending assessment areas where they
have concentrations of certain retail
loans (i.e., home mortgage loans or
small business loans) outside of facilitybased assessment areas. The agencies
proposed to evaluate a large bank’s
performance in retail lending
assessment areas under the proposed
E:\FR\FM\01FER2.SGM
01FER2
6736
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
Retail Lending Test, but not under other
performance tests.
Comments Received
Numerous commenters addressed the
overall retail lending assessment area
approach. Many commenters expressed
support for establishing retail lending
assessment areas, but many others either
opposed the concept altogether or
recommended changes to reduce the
compliance burden associated with
retail lending assessment areas.
Additionally, some commenters offered
views on alternative ways to evaluate
retail lending outside of facility-based
assessment areas.
Support for retail lending assessment
areas. A number of commenters
expressed support for the agencies’
proposal to require retail lending
assessment areas where large banks do
not maintain deposit-taking facilities
but have concentrations of home
mortgage loans and/or small business
loans. Many of these commenters
asserted that the agencies’ proposal
represents an appropriate response to
changes in banking over time, such as
the increase in retail lending offered via
non-branch-based delivery channels and
would improve parity in the same
geographic area between banks that
operate via branches and banks that
begin to make loans in the same market
without establishing a branch. For
example, some commenters stated that
the proliferation of online lending and
other non-branch-based delivery
channels increasingly allows for a bank
to serve a local community without the
presence of a deposit-taking facility
located within the community, and that
the CRA evaluation framework should
evolve to reflect this development.
Other commenters noted that the retail
lending assessment area approach
would ensure that a large bank that
closes its deposit-taking facilities in a
geographic area but continues to
conduct a significant volume of retail
lending through online or other
channels in that area, would continue to
have that retail lending evaluated on a
local basis. A few commenters also
stated that evaluating banks in retail
lending assessment areas would be
consistent with the purpose and
principles of the CRA statute.
Commenters that supported the
overall retail lending assessment area
approach also pointed to various
benefits that they believe would follow
from the approach. For example, some
commenters noted that the proposed
retail lending assessment area approach,
together with the proposed outside
retail lending area approach, would
result in the majority of bank retail
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
lending being evaluated under the CRA,
and would increase bank accountability
for serving low- and moderate-income
communities as a result. A number of
commenters stated that the proposed
retail lending assessment area approach
would improve CRA coverage in
underserved geographic areas, with
various commenters suggesting that
rural areas, banking deserts,
impoverished communities, majorityminority communities, and Native Land
areas would particularly benefit from
the proposed approach. A few
commenters stated that expanding
assessment areas beyond facility-based
assessment areas would likely result in
more lending to low- and moderateincome borrowers and communities,
noting that research demonstrates that
banks make a higher percentage of their
loans to low- and moderate-income
borrowers and in low- and moderateincome census tracts in their assessment
areas compared to areas not designated
as assessment areas.
Policy concerns with retail lending
assessment areas. Conversely, many
commenters opposed or raised
significant concerns with the proposed
retail lending assessment area approach.
First, many of the commenters that
opposed or expressed concerns with the
proposed retail lending assessment area
approach asserted that the addition of
retail lending assessment areas would
introduce significant complexity into
CRA evaluations and impose substantial
compliance burdens on banks. Several
of these commenters estimated that,
under the proposal, some banks would
be required to delineate large numbers
of new retail lending assessment areas
and expressed that monitoring where a
bank might trigger retail lending
assessment areas, including retail
lending performance metrics and
performance ranges in those areas,
would entail significant compliance
costs. A few commenters stated that the
compliance burden associated with the
retail lending assessment area proposal
would be particularly acute for smaller
large banks (e.g., large banks with assets
under $10 billion), which these
commenters said are not currently
staffed or equipped with appropriate
technology to satisfy CRA requirements
in retail lending assessment areas. At
least one commenter stated that the
compliance burden of the proposed
retail lending assessment area approach
was not worth the relatively low weight
that retail lending assessment areas
would typically receive under the
proposed Retail Lending Test, based on
lower levels of bank retail lending and
deposit dollar volumes in these markets.
PO 00000
Frm 00164
Fmt 4701
Sfmt 4700
Some commenters that emphasized
the compliance burdens associated with
the retail lending assessment area
proposal offered suggestions for how the
agencies could modify the proposal to
reduce the compliance impact. For
example, many of these commenters
supported an exemption from the retail
lending assessment area requirements
for primarily branch-based banks and
increased loan count thresholds for
triggering retail lending assessment
areas, as described below. At least one
commenter suggested including a cap
on the number of retail lending
assessment areas that a large bank must
delineate to mitigate concerns that some
banks would be required to delineate a
large number of retail lending
assessment areas. At least one other
commenter suggested that the agencies
should create data and mapping tools to
assist banks with delineating assessment
areas.
Second, some commenters that
opposed or expressed concerns with the
proposed retail lending assessment area
approach warned of unintended
consequences that they believed would
result from retail lending assessment
areas. For example, many commenters
expressed concerns that the proposed
retail lending assessment areas could
result in banks limiting retail lending
activity, which some of these
commenters asserted would be contrary
to the intent of the CRA and the
agencies’ proposal. In particular,
commenters warned that banks might
curtail their retail lending outside of
facility-based assessment areas, such as
by closing loan production offices and
reducing indirect lending, to avoid
surpassing the loan count thresholds
that would trigger the delineation of
retail lending assessment areas. Further,
commenters warned that banks that
have already surpassed the loan count
thresholds and would therefore be
required to delineate retail lending
assessment areas might withdraw from
these geographic areas, particularly if it
would be too challenging to meet
performance standards in a retail
lending assessment area without a
physical presence or local community
knowledge or expertise.
Other commenters identified other
potential unintended consequences of
retail lending assessment areas. For
example, several commenters asserted
that the addition of retail lending
assessment areas would competitively
disadvantage banks relative to nonbank
lenders and credit unions who are not
subject to the CRA, thereby exacerbating
trends of home mortgage and small
business lending shifting outside the
regulated banking system. A few
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
commenters stated that as banks
dedicate more resources to serve retail
lending assessment areas, banks’
capacity to be responsive to community
needs within facility-based assessment
areas would necessarily be reduced. A
few commenters suggested that the
proposed retail lending assessment area
approach could cause banks to rethink
their business models, including by
slowing their deposit and loan growth
through digital channels. Another
commenter stated that expanding
assessment areas would make it even
harder for low-income areas that need
banking services to be served, noting
that many low-income individuals are
disadvantaged when relying on online
services.
Third, some commenters expressed
concerns that the retail lending
assessment area proposal would not
target geographic areas with the greatest
needs and would not benefit low- or
moderate-income and underserved
communities. For example, a few
commenters made the point that
subjecting digital banks to retail lending
assessment areas would not target
underserved geographies with the
greatest credit needs, with at least one
such commenter recommending that the
agencies focus on incentivizing digital
lenders to conduct CRA activities where
there is the most need. Other
commenters asserted that retail lending
assessment areas would be located
predominantly in large cities and would
not benefit underserved areas outside of
these cities. At least one commenter
indicated that retail lending assessment
areas would not address the problem of
a bank taking deposits from a market but
not lending in that market, and would
not prevent a bank from engaging in
redlining.
Legal concerns regarding retail
lending assessment area proposal. Some
commenters opposed to the proposed
retail lending assessment area approach
raised legal concerns regarding this
aspect of the proposal. First, some
commenters questioned whether the
agencies’ analysis supporting the retail
lending assessment area proposal was
legally adequate under the
Administrative Procedure Act. Several
commenters suggested that the agencies’
justification for the retail lending
assessment area proposal did not
demonstrate that the agencies engaged
in reasoned decision-making, for
example, stating that the agencies failed
to demonstrate the potential benefits of
retail lending assessment areas would
exceed the significant burden they
would impose on banks or otherwise
did not provide an adequate rationale
for specific aspects of the retail lending
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
assessment area proposal. A few
commenters stated that the proposal did
not include enough information for
commenters to be able to assess the
impact of the retail lending assessment
area proposal, such as where particular
retail lending assessment areas would
be located.
Second, some commenters questioned
whether the agencies have the legal
authority under the CRA to evaluate
banks’ retail lending in geographic areas
where they do not maintain deposittaking facilities. For example, these
commenters pointed to certain
provisions of the statute to support the
proposition that a bank’s community
refers only to the geographic areas
around deposit-taking facilities,
including references to banks’ local
communities in the findings and
purpose section of the statute,644 the
provisions of the statute regarding
written evaluations,645 and the
provision concerning banks that serve
military personnel.646
Alternatives to retail lending
assessment areas. Some commenters
that opposed or expressed concerns
with retail lending assessment areas
suggested a variety of alternative
approaches for evaluating banks’ retail
lending outside of facility-based
assessment area.
First, some commenters suggested
evaluating all of a large bank’s retail
lending outside of its facility-based
assessment areas at a broader geographic
level, such as at the State or institution
level only. In general, these commenters
stated that an institution-wide
evaluation would: (1) provide a more
complete view of a bank’s retail lending
distributions; (2) maximize geographic
coverage; and (3) afford neutral
treatment to a bank’s business model,
consistent with the agencies’ goals for
CRA modernization. At least one of
these commenters suggested that an
institution-level evaluation could be
supplemented by providing banks
positive consideration for strong lending
performance in underserved geographic
areas.
644 See, e.g., 12 U.S.C. 2901(a)(3) (referring to
banks’ obligation to ‘‘help meet the credit needs of
the local communities in which they are
chartered’’).
645 See, e.g., 12 U.S.C. 2906(b)(1)(B) (requiring the
agencies to present certain information related to a
bank’s performance ‘‘separately for each
metropolitan area in which a regulated depository
institution maintains one or more domestic
branches’’).
646 See 12 U.S.C. 2902(4) (permitting a bank
‘‘whose business predominately consists of serving
the needs of military personnel who are not located
within a defined geographic’’ to ‘‘define its ‘entire
community’ to include its entire deposit customer
base without regard to geographic proximity’’).
PO 00000
Frm 00165
Fmt 4701
Sfmt 4700
6737
Second, other commenters suggested
evaluating large banks in retail lending
assessment areas only at a bank’s
option, emphasizing the compliance
burden of the retail lending assessment
area proposal.
Third, some commenters suggested
that banks should be required to
delineate assessment areas in
geographic areas with the greatest need,
such as rural areas, majority-minority
areas, and Native Land areas. These
commenters generally expressed
concerns that, under the proposed
approach, retail lending assessment
areas would not necessarily cover these
geographic areas, and thus would not
necessarily incentivize banks to increase
lending in the areas of greatest need.
Finally, many commenters
recommended requiring banks to
delineate an assessment area where they
have concentrations of deposits outside
of facility-based assessment areas, either
as an alternative or in addition to the
agencies’ proposed retail lending
assessment areas. Some of these
commenters provided the view that,
compared to retail lending assessment
areas, deposit-based assessment areas
would be more consistent with the
CRA’s emphasis on banks’ reinvesting
in the communities from which they
draw deposits. Some commenters added
that deposit-based assessment areas
would be especially important for
capturing banks whose business models
involve collecting deposits through nonbranch channels, but that do not
necessarily engage in lending in the
communities from which those deposits
are drawn. A few commenters suggested
that the agencies could wait until the
proposed deposit data collection and
reporting provisions are implemented,
and then revisit the issue of whether to
require delineation of deposit-based
assessment areas. In contrast, another
commenter opposed establishing
deposit-based assessment areas because
it would require deposit data collection
and reporting requirements for all large
banks.
Final Rule
For the reasons discussed below, the
agencies are including the retail lending
assessment area approach in the final
rule. However, in response to
commenter feedback and in
consideration of the agencies’ policy
objectives, the agencies are also
adopting several modifications to the
retail lending assessment area proposal.
Specifically, the final rule: (1) tailors the
retail lending assessment area
requirement to a narrower subset of
large banks by exempting large banks
that conduct more than 80 percent of
E:\FR\FM\01FER2.SGM
01FER2
6738
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
their retail lending in facility-based
assessment areas from the retail lending
assessment area requirement; (2)
reduces the number of retail lending
assessment areas that affected large
banks will need to delineate by
increasing the proposed home mortgage
loan and small business loan count
thresholds for triggering retail lending
assessment areas; (3) reduces the
number of product lines evaluated in
retail lending assessment areas by
modifying the evaluation of a large
bank’s retail lending performance in
retail lending assessment areas so that
only closed-end home mortgage loans
and small business loans are evaluated,
and only if they exceed the applicable
loan count threshold; and (4) narrows
the geographic scope of certain retail
lending assessment areas by tailoring
the proposed geographic requirements
for retail lending assessment areas in the
nonmetropolitan area of a State to
exclude any counties in which a large
bank did not originate any reported
closed-end home mortgage loans or
small business loans. These
modifications to the proposal are
discussed in detail below.
Legal authority. The agencies have
considered all of the issues raised by
commenters regarding their legal
authority to require large banks to
delineate retail lending assessment areas
and to evaluate the retail lending
performance of large banks in those
areas. Consistent with the agencies’
views stated in the proposal, and upon
further deliberation and consideration,
the agencies have concluded that the
CRA authorizes the agencies to evaluate
large banks’ retail lending performance
in geographic areas where banks have
concentrations of retail loans. In
particular, the CRA requires the
agencies to assess a bank’s record of
meeting the credit needs of its entire
community, without defining what
constitutes a bank’s entire
community.647 Further, the references to
a bank’s local communities in the
congressional findings and purpose
section of the statute do not define what
geographic areas constitute a bank’s
local communities.648
ddrumheller on DSK120RN23PROD with RULES2
647 See
12 U.S.C. 2903(a)(1) (requiring that the
agencies ‘‘assess [an] institution’s record of meeting
the credit needs of its entire community’’).
648 See 12 U.S.C. 2901(a)(3) (finding that
‘‘regulated financial institutions have continuing
and affirmative obligation to help meet the credit
needs of the local communities in which they are
chartered’’) and 12 U.S.C. 2901(b) (stating that the
purpose of the CRA is ‘‘encourage such institutions
to help meet the credit needs of the local
communities in which they are chartered consistent
with the safe and sound operation of such
institutions.’’).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
The CRA includes provisions that
specifically relate to the preparation of
written evaluations that support the
conclusion that the geographic areas
where a bank maintains deposit-taking
facilities are considered part of the
bank’s entire community.649 However,
nothing in these provisions indicates
that a bank’s entire community consists
of only these geographic areas.
Similarly, the provision of the statute
concerning banks that serve the needs of
military personnel, also cited by some
commenters, does not support the view
that other types of banks’ local
communities or entire communities are
limited to areas with geographic
proximity to a deposit-taking facility.650
The CRA delegates authority to the
agencies to prescribe regulations to
carry out the purposes of the CRA.651 To
achieve its purposes, the CRA requires
the agencies to assess whether a bank is
meeting the credit needs of all parts of
the communities it serves, without
excluding the low- and moderateincome neighborhoods in those
communities.652 The agencies have
determined, based on their supervisory
experience and expertise, that a large
bank’s ‘‘entire community’’ can
reasonably be considered to include
areas where the bank is conducting
meaningful banking activity by making
a substantial number of retail loans. The
agencies have concluded that retail
lending assessment areas fall within the
requirements imposed on the agencies
by the CRA to assess a bank’s record of
meeting the credit needs of its entire
community, and properly further the
purpose of the statute to encourage
banks to meet the credit needs of all
parts of communities in which they
meaningfully operate and that they
serve.
Policy objectives of retail lending
assessment areas. In developing the
overall retail lending assessment area
approach in the proposed and final
rules, the agencies seek to achieve
several different policy objectives.
First, the overall retail lending
assessment area approach adapts to
ongoing changes to the banking
industry. The current CRA regulations
649 E.g., 12 U.S.C. 2906 (requiring the agencies to
prepare a written evaluation of a bank’s CRA
performance for each metropolitan area and, in the
case of an interstate bank, each State and/or
multistate metropolitan area in which the bank
maintains a branch).
650 See 12 U.S.C. 2902(4) (authorizing a bank
whose business predominately consists of serving
the needs of military personnel who are not located
within a defined geographic area to define ‘‘its
entire deposit customer base without regard to
geographic proximity’’ as ‘‘its ‘entire community’ ’’).
651 See 12 U.S.C. 2905.
652 See 12 U.S.C. 2903(a).
PO 00000
Frm 00166
Fmt 4701
Sfmt 4700
generally define assessment areas in
connection with a bank’s main office,
branches, and deposit-taking ATMs.
However, the agencies recognize that
changes in technology and in bank
business models have resulted in banks’
entire communities extending beyond
the geographic footprint of the bank’s
main office, branches, and other
deposit-taking facilities. To reflect these
changes in banking, and to make the
assessment area framework more
durable over time, the agencies are
complementing the existing facilitybased assessment area framework in the
final rule with a retail lending
assessment area requirement tailored to
certain large banks.
Second, the retail lending assessment
area approach improves parity in the
evaluation framework for large banks
with different business models. For
example, under the current approach, a
bank that maintains branches in
multiple States and conducts retail
lending in the geographic areas served
by those branches would have its retail
lending evaluated in multiple
assessment areas based on the location
of its branches; however, an online bank
that conducts a similar amount of retail
lending in the same geographic areas
would not be required to delineate
assessment areas in these areas under
current standards, and would only be
evaluated in one assessment area based
on the location of the bank’s main
office. Under the retail lending
assessment area approach of the final
rule, however, the online bank may be
required to delineate retail lending
assessment areas in the geographic areas
where it makes a concentration of retail
loans, or these loans may be included in
the bank’s outside retail lending area
evaluation, resulting in more
comparable CRA evaluations for both
banks despite their different business
models.
Third, in accounting for ongoing
changes to the banking industry and
improving parity in the evaluation
framework for large banks with different
business models, the agencies also seek
to retain an emphasis on a large bank’s
performance in meeting the credit needs
of the local communities it serves,
consistent with the focus of the CRA.
Specifically, the agencies seek to
emphasize performance in specific
geographic areas by assigning
conclusions that reflect the large bank’s
retail lending performance in those
areas, rather than only assigning
conclusions at an aggregate level. For
example, under the retail lending
assessment area approach, a bank that is
not meeting the retail credit needs of a
specific geographic area in which it has
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
made a significant volume of retail loans
will receive a conclusion of ‘‘Needs to
Improve’’ or ‘‘Substantial
Noncompliance’’ in that retail lending
assessment area, reflecting the bank’s
performance in that specific geographic
area. As discussed below, the agencies
considered an alternative approach in
which all of a large bank’s retail lending
outside of its facility-based assessment
areas would only be evaluated in the
aggregate (i.e., assigning a single
conclusion that reflects the bank’s
performance with respect to all of its
retail lending outside of its facilitybased assessment areas), rather than
assigning conclusions that reflect the
bank’s performance in specific
geographic areas outside of the bank’s
facility-based assessment areas where
the bank has concentrations of retail
lending. For the reasons discussed
below, the agencies are not adopting
this alternative approach.
Fourth, the retail lending assessment
area approach, in combination with the
outside retail lending area approach
discussed in the section-by-section
analysis of final § ll.18, increases the
share of retail lending by large banks
that is considered in CRA evaluations.
Under the current approach, retail
lending conducted outside of a bank’s
assessment areas is not evaluated using
the Lending Test criteria; this lending is
only considered if the bank has
adequately addressed the needs of
borrowers within its assessment areas,
and does not compensate for poor
lending performance within the bank’s
assessment areas.653 The retail lending
assessment area approach in the final
rule applies a metrics-based evaluation
approach to retail loans in retail lending
assessment areas (and outside retail
lending areas) and generally increases
the share of retail lending by banks that
is evaluated in this manner.
Finally, the agencies seek to achieve
the policy objectives described above
while also appropriately adjusting for
the level of complexity and impact on
large banks that would have new retail
lending assessment area evaluations.
The agencies acknowledge that the retail
lending assessment area approach may
result in additional compliance costs for
large banks; in particular, the agencies
have considered feedback from industry
commenters that the compliance costs
related to the retail lending assessment
area approach include costs associated
with identifying and delineating retail
lending assessment areas, costs
associated with reporting the location of
retail lending assessment areas,
potential costs associated with
653 See
Q&A § ll.22(b)(2) and (3)–4.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
monitoring performance in retail
lending assessment areas, and potential
costs associated with meeting
performance standards in retail lending
assessment areas. The agencies believe
that aggregate compliance costs related
to the retail lending assessment area
approach is correlated with the number
of large banks that are required to
delineate one or more retail lending
assessment areas, the total number of
retail lending assessment areas overall,
and the number of product lines
evaluated within retail lending
assessment areas. The retail lending
assessment area approach in the final
rule is intended to address compliance
cost concerns, while simultaneously
ensuring that the agencies’ other
objectives, described above, are
achieved.
Modifications to the proposed retail
lending assessment area approach. In
developing the final rule, the agencies
have considered the proposed retail
lending assessment area approach in
light of the policy objectives described
above and public comments on this
aspect of the proposal. The agencies
continue to believe that evaluating the
retail lending performance of certain
large banks in geographic areas where
they have concentrations of retail loans
accomplishes the agencies’ policy
objectives; accordingly, the final rule
includes a retail lending assessment
area approach. However, as noted
above, the final rule includes several
modifications to the retail lending
assessment area proposal to better align
the retail lending assessment area
approach with the agencies’ policy
objectives.
First, and as described below in the
section-by-section analysis of final
§ ll.17(a), the agencies are adopting
the alternative approach discussed in
the proposal of exempting from the
retail lending assessment area
requirement large banks that conduct
more than 80 percent of their retail
lending in facility-based assessment
areas.654 The agencies believe that this
exemption appropriately narrows the
scope of the retail lending assessment
area requirement to large banks that
conduct a significant portion (i.e., 20
percent or more) of their retail lending
outside of facility-based assessment
areas. This exemption further recognizes
that conclusions assigned to the retail
lending performance of predominantly
branch-based banks in their facilitybased assessment areas typically already
capture a large majority of these banks’
retail lending. In addition, the agencies
654 See final § ll.17(a)(2) and final appendix A,
paragraph II.a.1.
PO 00000
Frm 00167
Fmt 4701
Sfmt 4700
6739
believe this exemption aligns with the
other objectives of adapting to changes
in the banking landscape, improving
parity in the evaluation framework for
branch-based and non-branch based
large banks, and minimizing the number
of retail lending assessment areas and
the number of affected large banks while
still achieving the agencies’ other policy
objectives.
Second, and as described below in the
section-by-section analysis of final
§ ll.17(c), the agencies are increasing,
relative to the proposal, the respective
loan count thresholds in the final rule
for triggering the requirement to
delineate retail lending assessment areas
from the proposed levels to 150 closedend home mortgage loans and 400 small
business loans. In response to changes
to the major product lines evaluated
under the Retail Lending Test discussed
in the section-by-section analysis of
final § ll.22(d), the agencies are also
limiting the proposed home mortgage
loan count threshold to closed-end
home mortgage loans only. In
comparison to the proposal, which
would have required a large bank to
delineate a retail lending assessment
area if it originated at least 100 home
mortgage loans (i.e., open-end home
mortgage loans or closed-end home
mortgage loans) or 250 small business
loans in a geographic area, the final rule
increases these loan count thresholds by
50 percent (for closed-end home
mortgage loans only) and 60 percent for
small business loans. The agencies
believe that these revised loan count
thresholds in the final rule strike an
appropriate balance between, on the one
hand, increasing the share of retail
lending that is considered in CRA
evaluations and the share of retail
lending with respect to which a bank’s
performance is assigned a conclusion in
a specific geographic area, and on the
other hand, minimizing the number of
retail lending assessment areas and
affected large banks while still
achieving the agencies’ other policy
objectives.
Third, and as described below in
connection with the section-by-section
analysis of final § ll.17(d), the
agencies are modifying the evaluation of
a large bank’s retail lending
performance in retail lending
assessment areas so that the only retail
product lines that may evaluated as a
major product line in a retail lending
assessment area are closed-end home
mortgage loans and small business
loans. Further, closed-end home
mortgage loans or small business loans
are major product lines in a retail
lending assessment area only if the
product line exceeds the applicable loan
E:\FR\FM\01FER2.SGM
01FER2
6740
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
count threshold in the retail lending
assessment area (i.e., 150 closed-end
home mortgage loans, and 400 small
business loans). As a result, the number
of product lines evaluated in retail
lending assessment areas will decrease
relative to the proposed approach. The
agencies believe that this modification
will appropriately focus the retail
lending evaluation in retail lending
assessment areas on the particular
concentration of retail loans responsible
for triggering the retail lending
assessment area and, in so doing, will
reduce the potential compliance costs
associated with monitoring performance
in these areas.
Finally, and as described below with
the section-by-section analysis of final
§ ll.17(b), the agencies are tailoring
the geographic requirements for retail
lending assessment areas located in the
nonmetropolitan area of a State to
exclude any counties in which a large
bank did not originate any reported
closed-end home mortgage loans or
small business loans during the
calendar year. As a result, the
geographic scope of these retail lending
assessment areas will be more focused
in comparison to the proposed approach
and will limit the evaluation of a large
bank’s performance in these retail
lending assessment areas to the counties
in which a bank has conducted retail
lending.
Impact of modifications to the
proposed retail lending assessment area
approach. To assess the cumulative
impact of the modifications to the
proposed retail lending assessment area
approach, the agencies conducted an
analysis of the proposed retail lending
assessment area approach and the final
rule approach using data from the 2018,
2019, and 2020 calendar years.655
Specifically, assuming that the proposed
approach and the final rule approach
had been in effect during those years,
the agencies calculated the number and
share of large banks that would have
had to delineate one or more retail
lending assessment areas in any of those
three years (‘‘affected large banks’’), and
the number of retail lending assessment
areas that would have been delineated
in aggregate across all affected large
banks under the proposed and final rule
approaches, respectively. This analysis,
shown in Table 1, showed that the
modifications adopted in the final rule,
relative to the proposal, would have
reduced the number and percentage of
affected large banks by about half, from
125 to 63 large banks, and from 33.5
percent to 16.9 percent of large banks in
the sample. In addition, the
modifications adopted in the final rule
approach would have reduced the
number of retail lending assessment
areas delineated across all affected large
banks by almost half, from 1,591 to 863
retail lending assessment areas.
The agencies also analyzed the
distribution of the number of retail
lending assessment areas across affected
large banks that would have been
delineated had the proposed approach
and the final rule approach been in
effect during the 2018, 2019, and 2020
calendar years. As shown in Table 2,
among large banks that would have had
been required to delineate one or more
retail lending assessment areas during
the period from 2018 to 2020, most
affected large banks would have been
required to delineate five or fewer retail
lending assessment areas. Under the
final rule approach, 24 affected large
banks would have been required to
delineate more than five retail lending
assessment areas, compared to 38
affected large banks under the proposed
approach.
BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P
Table 1 of§ _.17: Comparison of Proposed and Final Rule Retail Lending
Assessment Area Approaches Using 2018-2020 Historical Data
ddrumheller on DSK120RN23PROD with RULES2
Final Rule Approach
Number of Affected Large
Banks
63
125
Percentage of Large Banks
that are Affected Large Banks
16.9
33.5
Number of Retail Lending
Assessment Areas
863
1591
655 The agencies used closed-end home mortgage
and small business data from the CRA Analytics
Data Tables for the years 2016–2020 to perform an
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
analysis of the final rule retail lending assessment
area approach and potential alternative approaches.
The sample for the analysis included all CRA
PO 00000
Frm 00168
Fmt 4701
Sfmt 4725
reporters, except for wholesale, limited purpose,
and strategic plan banks which are excluded.
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.000
Proposed Rule
Approach
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
6741
Table 2 of§ _.17: Distribution of Retail Lending Assessment Areas Across
Affected Large Banks under Proposed and Final Rule Approaches (2018-2020)
Number of Retail
Lending Assessment Areas
Proposed Rule
Approach
Final Rule Approach
310
0
248
1
19
54
2-5
20
33
6-10
11
11
11-49
8
21
50+
5
6
Note to Tables 1 and 2: Figures reflect hypothetical retail lending assessment area delineations for the 20182020 calendar years under the final rule approach and proposed approach. The analysis used data from the CRA
Analytics Data Tables. "Affected Large Banks" are those that would have been required to delineate at least
one retail lending assessment area in at least one year. A geographic area was counted as a retail lending
assessment area for a large bank if the bank would have been required to delineate a retail lending assessment
area in that geographic area in at least one calendar year from 2018-2020. The analysis applied the proposed
and final rule approaches of requiring retail lending assessment areas to be delineated based on originated loan
count thresholds that are applied to the two calendar years prior to each calendar year. The analysis included
open-end home mortgages in 2016 and 2017, but not 2018, 2019, and 2020, because HMDA data do not
distinguish between open-end and closed-end home mortgage loans prior to 2018. The analysis included all
CRA-reporting large banks, except for wholesale, strategic plan, and limited purpose banks, which are excluded.
ddrumheller on DSK120RN23PROD with RULES2
BILLING CODE 4810–33–C; 6210–01–C; 6714–01–C
Availability of data tools. The
agencies recognize that large banks that
are not exempt from the requirement to
delineate retail lending assessment areas
will bear some compliance costs, such
as costs associated with identifying and
delineating retail lending assessment
areas, and the costs associated with
reporting the location of retail lending
assessment areas. In addition, large
banks may expend further resources to
monitor their performance and meet
performance standards in retail lending
assessment areas. The agencies will
develop and make freely available tools
that would leverage reported loan data
to help banks identify geographic areas
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
where retail lending assessment areas
may be required, and to calculate the
retail lending distribution benchmarks
that applied to those retail lending
assessment areas in recent years. The
agencies believe that such tools would
also be responsive to some commenters’
concerns that large banks may lack the
technology and staffing necessary to
satisfy CRA requirements in retail
lending assessment areas.
Impact of retail lending assessment
areas on retail lending outside of
facility-based assessment areas. The
agencies acknowledge that commenters
disagreed on the likely impact of the
proposed overall retail lending
assessment area approach. In particular,
PO 00000
Frm 00169
Fmt 4701
Sfmt 4700
some commenters stated that the
approach would incentivize banks to
improve their retail lending
performance in retail lending
assessment areas. Other commenters
predicted that banks would reduce their
retail lending outside of facility-based
assessment areas to avoid the
requirement to delineate retail lending
assessment areas.
As further described in the section-bysection analysis of final § ll.22, the
agencies conducted an analysis using
historical data to estimate the
recommended conclusions that banks
would have received had the final rule
Retail Lending Test been in effect in
2018–2020. Regarding large banks’
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.001
The analysis included a total of373 large banks.
ddrumheller on DSK120RN23PROD with RULES2
6742
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
performance in retail lending
assessment areas, the agencies estimate
that 77.7 percent of retail lending
assessment areas delineated by large
banks included in the analysis would
have received either a ‘‘Low
Satisfactory,’’ ‘‘High Satisfactory,’’ or
‘‘Outstanding’’ recommended
conclusion, which the agencies believe
demonstrates that a ‘‘Low Satisfactory’’
or higher conclusion is generally
attainable for large banks in retail
lending assessment areas. The agencies
further note that, while an estimated
20.6 percent of retail lending assessment
areas would have received
recommended conclusions of ‘‘Needs to
Improve,’’ and 1.8 percent would have
received a recommended conclusion of
‘‘Substantial Noncompliance,’’ only
approximately 7 percent of large banks
included in the analysis would have
received a ‘‘Needs to Improve’’ Retail
Lending Test conclusion when overall
retail lending performance is calculated
at the institution level (and no large
banks included in the analysis would
have received a ‘‘Substantial
Noncompliance’’ conclusion at the
institution level). This analysis informs
the agencies’ belief that the retail
lending assessment area approach is
reasonable and not unduly burdensome,
because the retail lending of a
significant majority of affected banks in
this analysis is consistent with a ‘‘Low
Satisfactory,’’ ‘‘High Satisfactory,’’ or
‘‘Outstanding’’ estimated conclusion,
both for retail lending assessment areas,
and at the institution level.
Alternatives to retail lending
assessment areas. In developing the
overall retail lending assessment area
approach in the proposed and final
rules, the agencies considered
alternative ways of modernizing the
CRA evaluation framework to provide a
more comprehensive evaluation of a
large bank’s retail lending, including in
areas outside of facility-based
assessment areas.656
First, as suggested by some
commenters, the agencies considered an
approach under which a large bank’s
retail lending outside of its facilitybased assessment areas would be
evaluated only at a broader geographic
level, such as at the State or institution
level. The agencies decided not to adopt
this approach for large banks for several
reasons. Under this approach, a bank
would not receive a conclusion
656 This discussion focuses on approaches to
evaluating the retail lending of large banks outside
of facility-based assessment areas. The final rule
approach for evaluating intermediate and small
banks’ retail lending outside of facility-based
assessment areas is discussed further in the sectionby-section analysis of final § ll.18.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
reflecting its retail lending performance
in any specific geographic area outside
of its facility-based assessment areas,
including specific geographic areas in
which it originated a significant number
of loans. Compared to such an aggregate
approach, the agencies believe that
assigning conclusions that reflect a large
bank’s retail lending performance in
retail lending assessments area
comports with the CRA’s focus on a
bank meeting the credit needs of the
local communities it serves. Further,
assigning conclusions that reflect a large
bank’s performance in geographic areas
where it has concentrations of retail
loans provides more specific
information to the bank and the public
regarding the bank’s performance
particular geographic areas.
Additionally, an institution-level only
approach to evaluating a large bank’s
retail lending outside of its facilitybased assessment areas would not
achieve the agencies’ objective of
improving parity in the CRA evaluation
framework for large banks with different
business models. For example, under
the institution-level only approach, a
large branch-based bank would have
much of its retail lending evaluated
within its facility-based assessment
areas, and would be assigned
conclusions reflecting the bank’s retail
lending performance in those areas,
with only its remaining retail lending
evaluated on an aggregate basis at the
institution level. By contrast, a large
online bank with a similar volume and
geographic dispersion of retail lending
would have most of its retail lending
(i.e., all of its retail lending outside the
sole assessment area around the bank’s
main office) evaluated on an aggregate
basis, with no conclusions that reflect
performance in specific areas. Under the
retail lending assessment area approach
of the final rule, however, the large
online bank may be required to
delineate retail lending assessment
areas, and the agencies would assign
conclusions reflecting the large bank’s
retail lending performance in these
retail lending assessment areas,
resulting in more comparable CRA
evaluations for both banks despite their
different business models.
Second, the agencies considered
making retail lending assessment areas
optional but not required, as some
commenters requested. However, the
agencies believe that an optional
evaluation approach would not achieve
the agencies’ policy objectives since
banks could opt out of retail lending
assessment areas entirely under this
alternative. The agencies are concerned
that over time, an optional retail lending
PO 00000
Frm 00170
Fmt 4701
Sfmt 4700
assessment area approach would make
the assessment area framework less
durable to ongoing changes in the
banking industry, particularly with any
expansion of digital banking.
Specifically, if an increasing share of
large bank retail lending occurs outside
of facility-based assessment areas, and if
the agencies could evaluate that lending
in retail lending assessment areas only
at a bank’s option, the policy objectives
of increasing the share of retail lending
that is considered in CRA evaluations
and that is evaluated in specific
geographic areas would be undermined.
Further, the policy objective of
improving parity in the evaluation
framework for banks with different
business models would be undermined
if, for example, non-branch-based banks
could opt out of the retail lending
assessment area approach.
Third, as suggested by some
commenters, the agencies considered
requiring large banks to delineate
assessment areas in geographic areas
with the greatest credit needs, rather
than delineating retail lending
assessment areas. However, the agencies
note that CRA encourages banks to help
meet the credit needs of the local
communities they serve, and does not
require banks to begin serving
communities they do not already
serve.657 In addition, the agencies
believe it is appropriate to evaluate
banks’ retail lending performance in the
communities it serves, regardless of the
presence of other banks in those
communities. Further, regarding the
concern expressed by commenters that
retail lending assessment areas would
only be located in large cities, the
agencies’ analysis of the impact of the
final rule Retail Lending Test using
historical data indicates that there
would have been a mixture of both
metropolitan and nonmetropolitan areas
in which one or more retail lending
assessment areas were located.658
Finally, the agencies considered
requiring large banks to delineate
deposit-based assessment areas in
geographic areas outside of facilitybased assessment areas where the bank
draws a certain volume of deposits. The
agencies have considered that there may
be benefits to deposit-based assessment
areas. However, the deposits data
necessary to assess the potential impact
of a potential deposit-based assessment
area approach are not currently
available because the FDIC’s Summary
657 See
12 U.S.C. 2901(b).
agencies’ analysis using historical data
estimated that 18 percent of the RLAAs that would
have been delineated during the 2018–2020
evaluation period would have been located in the
nonmetropolitan area of a State.
658 The
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
of Deposits, which is the only source of
information available on the geographic
dispersion of bank deposits, apportions
each bank’s total deposits across its
main office and its branches, all of
which are located within its facilitybased assessment areas, even when the
deposits are collected from depositors
outside of the bank’s facility-based
assessment areas. As a result, deposits
collected from beyond a bank’s facilitybased assessment areas are assigned in
the Summary of Deposits to branches
within its facility-based assessment
areas, making it impossible to determine
how much of a bank’s deposits were
sourced outside of its facility-based
assessment areas or from where those
deposits were collected. Without such
data, the agencies cannot determine,
under various potential thresholds, the
number of deposit-based assessment
areas, the number of affected large
banks, or the degree to which depositbased assessment areas may capture
retail lending outside of facility-based
assessment areas. In addition, due to the
lack of deposits data, the agencies are
not able to analyze different policy
options related to deposit-based
assessment areas, such as whether the
threshold for requiring delineation of a
deposit-based assessment area should be
a certain percentage of a large bank’s
total deposits in a geographic area, a
certain dollar volume of deposits in a
geographic area, a certain number of
depositors in a geographic area, or based
on other factors. For these reasons, the
agencies did not adopt the depositbased assessment area approach.
ddrumheller on DSK120RN23PROD with RULES2
Section ll.17(a) In General—Banks
Subject to the Retail Lending
Assessment Area Requirement
The Agencies’ Proposal
The agencies proposed to apply the
retail lending assessment area
requirement solely to large banks,
including large banks that elect to be
evaluated under an approved strategic
plan.659 In addition, the agencies also
sought feedback on an alternative
approach that would tailor the retail
lending assessment area requirement by
exempting large banks from the
requirement to delineate retail lending
assessment areas if such banks conduct
a significant majority of their retail
lending, such as more than 80 or 90
percent of their retail loans, inside their
facility-based assessment areas. This
exemption would exclude banks that are
primarily branch-based from the retail
lending assessment area requirement,
reflecting the view that such banks’
659 See
proposed § ll.17(a).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
overall Retail Lending Test conclusion
could be reasonably derived by focusing
on the activity within their facilitybased assessment areas. Under this
alternative, the retail loans of an exempt
bank outside of the bank’s facility-based
assessment areas would not be
evaluated within a retail lending
assessment area, but the agencies would
evaluate this lending under the
proposed outside retail lending area
approach discussed in the section-bysection analysis of final § ll.18.
Comments Received
Numerous commenters addressed the
types of banks that should be subject to
the proposed requirement to delineate
retail lending assessment areas.
Tailoring of retail lending assessment
area requirement by bank size. Some
commenters supported the proposal not
to apply the retail lending assessment
area requirement to small and
intermediate banks. As noted
previously, a few commenters stated
that the compliance burden associated
with the retail lending assessment area
proposal would be particularly acute for
smaller large banks, with at least one
such commenter recommending that the
retail lending assessment area
requirement should apply only to large
banks with at least $10 billion in assets.
Conversely, a few commenters
suggested expanding the universe of
banks subject to retail lending
assessment area requirement. Some of
these commenters favored requiring at
least some intermediate banks to
delineate retail lending assessment
areas. For example, at least one
commenter asserted that intermediate
banks, especially those with over $1
billion in assets, have sufficient capacity
and knowledge of local markets to serve
retail lending assessment areas. A few
other commenters suggested that
intermediate banks should be required
to delineate retail lending assessment
areas if they are not primarily branchbased. A few commenters asserted that
all banks, including small banks and
intermediate banks, should be evaluated
in retail lending assessment areas
because banks of any size may conduct
a significant amount of lending activity
outside of their facility-based
assessment areas.
Tailoring of retail lending assessment
area requirement by business model.
Many commenters favored some form of
an exemption from the requirement to
delineate retail lending assessment areas
for large banks that lend primarily
within their facility-based assessment
areas. In general, these commenters
stated that it is not necessary to evaluate
primarily branch-based banks in retail
PO 00000
Frm 00171
Fmt 4701
Sfmt 4700
6743
lending assessment areas because their
retail lending is already concentrated in
facility-based assessment areas. These
commenters also stated that the retail
lending assessment area requirement is
appropriately applied to online banks
but should not impose additional
burden on traditional branch-based
banks. These commenters offered
various suggestions in terms of the
percentage of retail lending that a large
bank must conduct within its facilitybased assessment areas to benefit from
any exemption, with commenter
suggestions generally ranging from 50 to
90 percent.
However, several other commenters
opposed providing any exemption from
the retail lending assessment area
requirement for large banks that
primarily lend within facility-based
assessment areas. These commenters
generally stated that large banks should
be evaluated for their retail lending
performance in all areas where they
conduct a meaningful amount of
lending, and that an exemption could
result in substantial amounts of retail
lending for which a conclusion is not
assigned in a specific geographic area,
especially in rural areas. At least one
commenter stated that it is not
necessary to exempt primarily branchbased banks from the retail lending
assessment area requirement because
the proposed approach would
appropriately account for differences in
bank business models by giving more
weight to those assessment areas where
a bank’s retail lending is concentrated,
while still holding banks accountable
for performance wherever they conduct
retail lending business.
Beyond an exemption for primarily
branch-based banks, a few commenters
offered alternative approaches for
tailoring the retail lending assessment
area requirement based on a large bank’s
business model. A few commenters
suggested that the agencies should
qualitatively assess a large bank’s
business model and practices to identify
and exempt those banks whose lending
and account-opening activities are not
conducted through a branch network. At
least one commenter asserted that the
agencies should exempt strategic plan
banks from the retail lending assessment
area requirement to preserve the
flexibility of the strategic plan option.
Final Rule
The agencies are adopting a modified
version of proposed § ll.17(a). Similar
to the proposal, final § ll.17(a)(1)
provides that, based upon the criteria
described in § ll.17(b) and (c), a large
bank must delineate retail lending
assessment areas within which the
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6744
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
agencies evaluate the bank’s record of
helping to meet the credit needs of its
entire community pursuant to the Retail
Lending Test.
However, as discussed below, the
agencies are adopting an exemption
from the retail lending assessment area
requirement for large banks that conduct
a substantial majority of their retail
lending in facility-based assessment
areas. Specifically, final § ll.17(a)(2)
provides that a large bank is not
required to delineate retail lending
assessment areas for a particular
calendar year if, in the prior two
calendar years, the large bank originated
or purchased within its facility-based
assessment areas more than 80 percent
of its home mortgage loans, multifamily
loans, small business loans, small farm
loans, and automobile loans (if
automobile loans are a product line for
the large bank), as described in
paragraph II.a.1 of final appendix A.
In addition, final § ll.17(a)(3)
provides that if, in a retail lending
assessment area delineated pursuant to
§ ll.17(c), the large bank did not
originate or purchase any reported loans
in any of the product lines that formed
the basis of the retail lending
assessment area delineation pursuant to
§ ll.17(c)(1) or (2) (i.e., the closedhome mortgage loan and small business
loan count thresholds), the agencies will
not consider the retail lending
assessment area to have been delineated
for that calendar year. The agencies
believe this limitation was implicit in
the proposal, but that it is helpful for
the final rule to explicitly state that the
agencies will not evaluate a bank’s retail
lending performance in a retail lending
assessment area in which a large bank
did not originate or purchase any
reported closed-end home mortgage
loans or small business loans, as
applicable, in the calendar year.
Application to large banks. The
agencies continue to believe that it is
appropriate to apply the retail lending
assessment area requirement to large
banks, but not small or intermediate
banks. The agencies see significant
benefits to increasing the share of retail
lending for which a conclusion is
assigned reflecting the bank’s
performance in a specific geographic
area. However, the agencies believe that
these benefits must be weighed against
the potential additional compliance
burden of the approach, such as
compliance costs associated with
identifying and delineating retail
lending assessment areas, and reporting
the location of retail lending assessment
areas. On balance, the agencies believe
it is appropriate to tailor the retail
lending assessment area requirement to
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
large banks, recognizing that large banks
generally have more resources and
therefore greater capacity than small
and intermediate banks to adapt to new
regulatory provisions such as retail
lending assessment areas. The agencies
note that, as discussed in the section-bysection analysis of final § ll.18, under
the final rule, the agencies will evaluate
the retail lending performance of an
intermediate bank, and a small bank
that opts to be evaluated under the
Retail Lending Test, in its outside retail
lending area if the bank conducts a
majority of its retail lending outside of
its facility-based assessment areas.
The agencies have carefully
considered comments regarding the
potential burden that the retail lending
assessment area approach may impose
on large banks, including specific
commenter suggestions for further
tailoring the proposed requirement to a
narrower subset of large banks. The
agencies appreciate these concerns and
suggestions and, as described below, are
adopting an exemption to the retail
lending assessment area requirements
for primarily branch-based large banks.
Exemption for primarily branch-based
large banks. To further tailor the
application of the retail lending
assessment area requirement, final
§ ll.17(a)(2) sets forth an exemption
from the retail lending assessment area
requirement for certain large banks.
Specifically, a large bank is not required
to delineate retail lending assessment
areas in a particular calendar year if, in
the previous two calendar years, the
large bank originated or purchased
within its facility-based assessment
areas more than 80 percent of its home
mortgage loans, multifamily loans, small
business loans, small farm loans, and
automobile loans (if automobile loans
are a product line for the large bank).
The 80 percent calculation is further
described in paragraph II.a.1 of final
appendix A.
The agencies believe that it is
appropriate to exempt primarily branchbased large banks from the retail lending
assessment area requirement for two
main reasons. First, such an exemption
would tailor the approach by focusing
the retail lending assessment area
framework on those large banks for
which facility-based assessment area
evaluations alone do not capture the
vast majority of the bank’s retail
lending. For large banks conducting 80
percent or less of their retail lending
within facility-based assessment areas,
the agencies believe that evaluating
retail lending performance in retail
lending assessment areas is an
appropriate way to update where large
banks are locally evaluated for their
PO 00000
Frm 00172
Fmt 4701
Sfmt 4700
retail lending performance. For large
banks that conduct more than 80
percent of their retail lending within
facility-based assessment areas, the
agencies believe that a sufficient share
of the bank’s retail lending is already
evaluated, and conclusions are already
assigned reflecting the bank’s retail
lending performance, in specific
geographic areas. The agencies note
that, under the final rule, large banks
that are exempt from the retail lending
assessment area requirement will still be
evaluated for their retail lending
performance outside of their facilitybased assessment areas through the
outside retail lending area evaluation, as
discussed in the section-by-section
analysis of final § ll.18.
Second, such an exemption would
have the benefit of resulting in a
significant number of large banks no
longer having any retail lending
assessment area requirement, compared
to the proposed approach. The agencies
believe this will reduce the aggregate
compliance burden associated with the
retail lending assessment area approach,
as discussed above.
80 percent threshold. Under the final
rule, as discussed above, large banks
that conduct more than 80 percent of
their retail lending, based on a
combination of loan dollars and loan
count as defined in § ll.12, within
their facility-based assessment areas are
exempt from the retail lending
assessment area requirement. In
determining the level of the 80 percent
threshold, the agencies considered a
number of factors. The agencies
considered commenter suggestions for
lower thresholds and, as a preliminary
matter, considered that a threshold
below 50 percent would mean that, for
up to half of a large bank’s retail
lending, the bank would not be assigned
any conclusions that reflect the bank’s
retail lending performance in specific
geographic areas. The agencies believe
that evaluating up to half of a large
bank’s retail lending (i.e., the retail
lending outside of the large bank’s
facility-based assessment areas) only in
the aggregate through the outside retail
lending area evaluation could provide a
misleading picture of the large bank’s
overall retail lending performance if, for
example, strong performance in parts of
the outside retail lending area obscured
poor performance in other parts of the
outside retail lending area. For this
reason, the agencies are adopting a
heightened standard rather than a
simple majority standard.
In addition, the agencies believe that
the 80 percent threshold, compared to
other potential threshold levels,
achieves an appropriate balance of
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
increasing the share of a large bank’s
retail lending for which a conclusion is
assigned reflecting the bank’s
performance in a specific geographic
area while limiting the number of large
banks required to delineate retail
lending assessment areas. In making this
determination, the agencies considered,
for a range of potential thresholds, the
number of large banks that would be
required to delineate at least one retail
lending assessment area, the total share
of retail lending across large banks that
would have been evaluated within retail
lending assessment areas, and the share
of closed-end home mortgage and small
business lending across large banks
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
outside of their facility-based
assessment areas that would have been
evaluated in retail lending assessment
areas had the final rule retail lending
assessment area approach been in effect
in the 2018, 2019, and 2020 calendar
years. The agencies noted that a 90
percent threshold, relative to an
approach with no exemption, only
slightly reduced the number of affected
large banks, from 88 to 83 large banks,
while an 80 percent threshold provided
a more significant reduction to 63 large
banks. The agencies further noted that
the 80 percent threshold reduced the
percentage of closed-end home mortgage
lending outside of facility-based
PO 00000
Frm 00173
Fmt 4701
Sfmt 4700
6745
assessment areas that would have been
evaluated within retail lending
assessment areas from 35.9 to 23.0
percent, and for small business lending,
a more modest reduction from 45.3 to
39.3 percent. While threshold options of
50, 60, and 70 percent would have
further reduced the number of affected
banks, these thresholds would also have
resulted in lower percentages of closedend home mortgage and small business
lending outside of facility-based
assessment areas being evaluated within
retail lending assessment areas.
BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P;
E:\FR\FM\01FER2.SGM
01FER2
6746
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Table 3 of§ _.17: Impact of Different Retail Lending Assessment Area Exemption
Thresholds Using 2018-2020 Historical Data
Number of
Affected Large
Banks
Percentage of
Large Banks that
are Affected Large
Banks
Percentage of
Outside Closed-End
Home Mortgage
Lending Evaluated
in Retail Lending
Assessment Areas
50%
31
8.3
15.1
14.4
60%
42
11.3
16.2
30.9
70%
49
13.1
21.4
35.5
80% (final rule)
63
16.9
23.0
39.3
90%
83
22.3
35.7
44.2
100% (no
threshold)
88
23.6
35.9
45.3
Threshold
Percentage of
Outside Small
Business Lending
Evaluated in Retail
Lending
Assessment Areas
Note: Figures reflect hypothetical retail lending assessment area delineations for the 2018-2020 calendar years
under the final rule approach using different retail lending assessment area exemption threshold options. The
analysis used data from the CRA Analytics Data Tables. "Affected Large Banks" are those that would have been
required to delineate at least one retail lending assessment area in at least one year. "Outside" lending refers to
closed-end home mortgage and small business lending by large banks outside of their facility-based assessment
areas; these columns show the percentage, by loan count, of outside lending that would have been evaluated in retail
lending assessment areas. The analysis applied the final rule approach of requiring retail lending assessment areas
to be delineated based on originated loan count thresholds that are applied to the two calendar years prior to each
calendar year. The analysis included open-end home mortgages in 2016 and 2017, but not 2018, 2019, and 2020,
because HMDA data do not distinguish between open-end and closed-end loans prior to 2018. The analysis
included all CRA-reporting large banks, except for wholesale, strategic plan, and limited purpose banks, which are
BILLING CODE 4810–33–C; 6210–01–C; 6714–01–C
Calculation of 80 percent threshold.
Under the final rule, and as specified in
paragraph II.a.1 of final appendix A, the
80 percent threshold is calculated based
on the share of a large bank’s retail loans
originated or purchased in its facilitybased assessment areas, out of the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
bank’s retail loans originated and
purchased overall over the prior two
calendar years. The retail loans
included in this calculation are the large
bank’s originated and purchased home
mortgage loans, multifamily loans, small
business loans, small farm loans, and
PO 00000
Frm 00174
Fmt 4701
Sfmt 4700
automobile loans if automobile loans are
a product line for the large bank.660 The
660 Under the final rule, and as discussed in the
section-by-section analysis of final § ll.12
(definition of ‘‘product line’’), automobile loans are
a product line for a bank if the bank is a majority
automobile lender or opts to have its automobile
loans evaluated pursuant to the Retail Lending Test.
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.002
ddrumheller on DSK120RN23PROD with RULES2
excluded. The analysis included a total of373 large banks.
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
retail loans included in the calculation
of the 80 percent threshold are thus
identical to the loans included in the
numerator of the Bank Volume Metric
calculated for purposes of the Retail
Lending Volume Screen in final
§ ll.22(c). The agencies believe that it
is important to harmonize the measures
of a bank’s retail lending used for
various calculations where appropriate
to simplify the final rule to the extent
possible. Further, the agencies believe
that these retail product lines can be
viewed as a reasonable reflection of a
bank’s overall business model for a bank
that is not a limited-purpose bank, and
thus, it is appropriate to look to these
loans for purposes of determining
whether a large bank is primarily
branch-based.
Under the final rule, the 80 percent
threshold is calculated over the two
calendar years preceding each calendar
year. The agencies believe that
calculating the 80 percent threshold
over the two preceding calendar years
will provide greater certainty to large
banks regarding whether they qualify for
the exemption, compared to a
calculation based on a one-year
lookback period.
The 80 percent threshold is calculated
based on a combination of loan dollars
and loan count as defined in final
§ ll.12. Specifically, the agencies
calculate the share of the large bank’s
retail lending within its facility-based
assessment areas based on loan dollars,
and the same percentage based on loan
count, then take the simple average of
the two percentages. Using a
combination of loan dollars and loan
count is consistent with various other
calculations in the final rule, and is
intended to reflect both the total dollars
of loans originated and purchased as
well as the number of borrowers served,
which the agencies believe
appropriately reflects the degree to
which a bank is serving a geographic
area.
Alternative methods of identifying
primarily branch-based banks. The
agencies considered the alternative
methods suggested by commenters for
identifying primarily branch-based large
banks. In particular, the agencies
considered adopting a qualitative
approach to identifying large banks that
rely on non-branch delivery channels.
However, the agencies believe that such
an approach would be inconsistent with
the agencies’ goal of providing greater
clarity and consistency in the
application of the CRA regulations.
The agencies also considered
exempting strategic plan banks from the
retail lending assessment area
requirement but decline to do so in the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
final rule. As discussed above, the
agencies intend the retail lending
assessment area approach, together with
facility-based assessment areas, to
establish the local communities in
which a large bank is evaluated for its
CRA performance, and the agencies
believe that inconsistency with respect
to such a core aspect of the CRA
evaluation framework would not be
desirable. The agencies do not believe it
would be appropriate to create an
incentive for banks to seek approval
under a strategic plan to avoid
otherwise applicable requirements to
delineate retail lending assessment
areas. As described in the section-bysection analysis of final § ll.27, the
final rule includes other provisions that
facilitate a customized approach to
evaluating strategic plan banks;
however, the retail lending performance
of strategic plan banks will still be
evaluated in retail lending assessment
areas where applicable.661
Section ll.17(b) Geographic
Requirements for Retail Lending
Assessment Areas
The Agencies’ Proposal
Under proposed § ll.17(b)(1), large
banks would be required to delineate
retail lending assessment areas
consisting of either: (1) the entirety of a
single MSA, excluding counties inside
their facility-based assessment areas; or
(2) all of the counties in a single State
that are not included in an MSA,
excluding counties inside their facilitybased assessment areas, aggregated into
a single retail lending assessment area.
Similar to the proposal for facility-based
assessment areas,662 and consistent with
the current regulations,663 proposed
§ ll.17(b)(2) specified that a retail
lending assessment area may not extend
beyond an MSA boundary or beyond a
State boundary unless the assessment
area is located in a multistate MSA or
combined statistical area.
The agencies sought feedback on what
should happen if a bank’s retail lending
assessment area is located in the same
MSA (or nonmetropolitan area of a
State) where a smaller facility-based
assessment area is located. Specifically,
the agencies asked whether a bank in
this case should be required to expand
its facility-based assessment area to the
whole MSA (or nonmetropolitan area of
a State), or whether the bank should
have the option to designate the portion
of the MSA that excludes the facilityfinal § ll.27(c)(3) and (g)(1).
proposed § ll.16(b)(2).
663 See current 12 CFR ll.41(e)(4).
661 See
662 See
PO 00000
Frm 00175
Fmt 4701
Sfmt 4700
6747
based assessment area as a new retail
lending assessment area.
Comments Received
Geographic requirements. Some
commenters expressed concerns that the
proposed geographic requirements for
retail lending assessment areas may not
accurately reflect where a bank
conducts retail lending business,
potentially leading to unrealistic and
misleading performance conclusion. For
example, a few commenters
recommended that only those counties
within which a bank has a certain
minimum number or percentage of retail
loans should be included in a retail
lending assessment area.
Several commenters provided views
specific to retail lending assessment
areas located in the nonmetropolitan
area of a State. For example, at least one
commenter expressed support for the
proposed requirement that a retail
lending assessment area in the
nonmetropolitan area of a State must
consist of that entire area, noting that
this approach would help capture
underserved nonmetropolitan areas.
However, a few commenters suggested
that the entire nonmetropolitan area of
a State would often be too large for a
bank to serve, especially in states with
large rural geographic areas, due to
limited bank capacity. At least one
commenter indicated that it would be
challenging for the agencies to consider
performance context for an entire
nonmetropolitan area of a State because
these areas may vary considerably.
Retail lending assessment areas and
facility-based assessment areas in the
same MSA or nonmetropolitan area of
a State. Some commenters addressed
what should happen if a large bank’s
retail lending assessment area is located
in the same MSA or the
nonmetropolitan area of a State where a
facility-based assessment area is located.
Some of these commenters supported
allowing banks to designate the portion
of the MSA or the nonmetropolitan area
of the State that is not part of the bank’s
existing facility-based assessment area
as a new retail lending assessment area,
consistent with the proposal. Other
commenters supported the alternative
approach of requiring banks that
maintain a facility-based assessment
area in the same MSA or
nonmetropolitan area of a State where a
retail lending assessment area is located
to expand their facility-based
assessment areas to encompass the
entire MSA or nonmetropolitan area of
a State. Some of these commenters
favorably noted that the alternative
approach would mean that a large bank
would be evaluated under all four
E:\FR\FM\01FER2.SGM
01FER2
6748
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
applicable performance tests in the
entire MSA or nonmetropolitan area of
the State due to expansion of its facilitybased assessment area, rather than only
evaluating the large bank in the retail
lending assessment area under the
proposed Retail Lending Test. At least
one commenter recommended that the
agencies apply either the proposed or
the alternative approach depending, in
each case, on which option would
increase retail lending to underserved
communities.
Legal concerns regarding geographic
requirements. Some commenters raised
legal concerns that the geographic
requirements for retail lending
assessment areas may not be consistent
with the CRA. For example, at least one
commenter stated that the agencies did
not explain in the proposal how an
MSA or the nonmetropolitan area of a
State would constitute a ‘‘local
community.’’ Commenter feedback
included the observation that these
retail lending assessment areas often
cover relatively large geographic areas.
The commenter also noted that the
agencies did not discuss why smaller
geographic base units for retail lending
assessment areas were not considered.
Final Rule
The agencies are adopting, with
revisions, the proposed geographic
requirements for retail lending
assessment areas. Specifically, final
§ ll.17(b)(1) provides that a retail
lending assessment area must consist of
either:
1. The entirety of a single MSA (using
the MSA boundaries that were in effect
as of January 1 of the calendar year in
which the delineation applies),
excluding any counties inside the large
bank’s facility-based assessment areas,
or
2. All of the counties in the
nonmetropolitan area of a State (using
the MSA boundaries that were in effect
as of January 1 of the calendar year in
which the delineation applies),
excluding any counties included in the
large bank’s facility-based assessment
areas, and excluding any counties in
which the large bank did not originate
any closed-end home mortgage loans or
small business loans that are reported
loans during that calendar year.
In addition, the agencies are
modifying the proposed prohibition on
retail lending assessment areas
extending beyond a State boundary.
Specifically, final § ll.17(b)(2)
provides that a retail lending assessment
area may not extend beyond a State
boundary unless the retail lending
assessment area consists of counties in
a multistate MSA. Final § ll.17(b)(2)
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
does not permit a retail lending
assessment area to extend beyond a
State boundary on the basis that the
retail lending assessment area consists
of counties located in a combined
statistical area.
Legal considerations. The agencies
considered commenter feedback that
requiring retail lending assessment areas
to consist of an entire MSA or the entire
nonmetropolitan area of a State may not
be consistent with the statute. However,
the agencies concluded that the
geographic requirements for retail
lending assessment areas in the final
rule are within the scope of authority
granted to the agencies under the CRA.
As noted above, the CRA requires the
agencies to assess a bank’s record of
meeting the credit need of its entire
community, without defining what
geographic areas constitute a bank’s
‘‘entire community.’’ 664 The statute
further does not define what geographic
units the agencies should use in
assessing a bank’s record of meeting the
credit needs of its entire community.
References to a bank’s local
communities in the congressional
findings and purpose section of the
statute, cited by some commenters,
similarly do not specify what
geographic area or geographic units
constitute a local community.665
Accordingly, the agencies conclude
that it is reasonable to interpret ‘‘entire
community’’ for a large bank to include
retail lending assessment areas
consisting of an entire MSA or the
nonmetropolitan area of a State. The
agencies note that the statute clearly
demonstrates that Congress intended the
agencies to distinguish between a bank’s
performance in metropolitan areas and
nonmetropolitan areas.666 Further,
Congress explicitly contemplated
assigning conclusions that reflect a
bank’s performance in an entire MSA or
in the entire nonmetropolitan area of a
State, notwithstanding that the
geographic scope of these areas.667 As
such, the agencies believe that using
MSAs and the nonmetropolitan areas of
States as the geographic base units for
delineating retail lending assessment
areas is consistent with the statute.
Geographic base units. In addition to
these legal considerations, the agencies
believe that using MSAs and
nonmetropolitan areas of States as the
geographic base units for delineating
retail lending assessment areas is
appropriate for other reasons. Using
MSAs and the nonmetropolitan area of
664 See
12 U.S.C. 2903(a)(1).
12 U.S.C. 2901(a)(3) and 2901(b).
666 See 12 U.S.C. 2906(b)(1)(B) and 2906(d)(3)(A).
667 See id.
665 See
PO 00000
Frm 00176
Fmt 4701
Sfmt 4700
a State as geographic base units avoids
having multiple retail lending
assessment areas in a single MSA or in
the nonmetropolitan area of a single
State, which the agencies believe would
add complexity. Further, and
particularly in the case of the
nonmetropolitan area of a State, using
larger geographic base units (as opposed
to counties or census tracts) ensures that
a larger number of retail loans,
including loans across multiple
counties, are captured in a retail lending
assessment area and helps to ensure that
credit needs and opportunities in
nonmetropolitan areas are taken into
account when the agencies evaluate a
bank’s retail lending performance.
Relatedly, the agencies considered that
larger geographic base units may
provide banks with greater flexibility
and more opportunities to originate and
purchase small business loans and small
farm loans, and loans made to low- and
moderate-income borrowers and in lowand moderate-income census tracts.
Entire-MSA retail lending assessment
areas. The agencies believe it is
appropriate to require retail lending
assessment areas to consist of an entire
MSA, excluding any counties inside
facility-based assessment areas.
Although some commenters expressed
concern that a retail lending assessment
area consisting of an entire MSA may
not accurately reflect where a bank
conducts retail lending business, the
agencies believe that the benchmarks
used to evaluate a large bank’s retail
lending performance should reflect the
lending opportunities and credit needs
of the entire MSA. For example, if a
large bank makes loans only in an
upper-income portion of an MSA, then
excluding other portions of the MSA
from the retail lending assessment area
would result in relatively low
benchmarks, even if the remainder of
the MSA has significant lending
opportunities and credit needs. Further,
the agencies note that unlike in facilitybased assessment areas (which are
evaluated using the Retail Lending
Volume Screen), a large bank is not
required to conduct a certain amount of
lending in a retail lending assessment
area to achieve a particular performance
conclusion, and the agencies will not
consider as an additional factor the
dispersion of a bank’s closed-end home
mortgage or small business lending
within the retail lending assessment
area. Thus, requiring a retail lending
assessment area to consist of an entire
MSA should not result in a requirement
for a large bank to serve an area larger
than its capacity to serve. Finally, the
agencies note that the entire MSA
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
approach for retail lending assessment
areas is analogous to the approach
under the current CRA regulations that
permit assessment areas to consist of an
entire MSA.
Retail lending assessment areas in the
nonmetropolitan area of a State. Upon
consideration of the comments, the
agencies have decided in the final rule
to exclude from all retail lending
assessment areas in the nonmetropolitan
area of a State any counties in which a
large bank did not originate any
reported closed-end home mortgage
loans or small business loans during
that calendar year. As a result, retail
lending assessment areas in the
nonmetropolitan area of a State will be
more targeted, relative to the proposal,
to where a large bank conducts retail
lending business in nonmetropolitan
areas. In making this change, the
agencies have considered feedback from
some commenters that the proposed
requirement to delineate a retail lending
assessment area consisting of the entire
nonmetropolitan area of a State may
result in retail lending assessment areas
that are very expansive, particularly in
geographically large states. The agencies
have also considered commenter
feedback that the proposed approach
could result in benchmarks that are
based on an entire nonmetropolitan area
of a State that is not aligned with the
actual geographies served by the bank.
For example, the agencies considered
that a bank might have a retail lending
assessment area in the nonmetropolitan
area of a State due to lending across two
counties where it does not maintain
deposit-taking facilities and that are
adjacent to a facility-based assessment
area of the bank. In this example, the
agencies believe that benchmarks based
on the entire nonmetropolitan area of
the State would not accurately reflect
the lending opportunities reasonably
available to the bank, and that setting
benchmarks based on only the counties
in which the bank made loans is more
appropriate. Further, the agencies have
also considered that it could be
challenging for the agencies to consider
performance context in evaluating a
large bank’s retail lending performance
in the entire nonmetropolitan area of a
State. In light of these considerations,
the agencies believe it may not be
reasonable to evaluate a bank’s retail
lending performance in
nonmetropolitan counties in which it
did not originate any reported closedend home mortgage loans or small
business loans in a retail lending
assessment area.
Combined statistical area retail
lending assessment areas. Unlike under
the proposal, the final rule does not
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
permit a large bank to delineate a retail
lending assessment area consisting of a
combined statistical area. As with the
proposal regarding retail lending
assessment areas in the nonmetropolitan
area of a State, the agencies have
determined that retail lending
assessment areas consisting of a
combined statistical area may be too
expansive—both for the appropriateness
of the benchmarks used to evaluate the
bank, and for the agencies to
appropriately consider performance
context. Further, evaluating a large
bank’s performance at the combined
statistical area level may not provide as
useful information regarding the bank’s
performance in specific geographic
areas if, for example, the combined
statistical area included multiple
distinct MSAs. Finally, and as described
in the section-by-section analysis of
final § ll.16(b), allowing a retail
lending assessment area to extend
beyond an MSA boundary in a
combined statistical area would create
challenges in assigning conclusions
consistent with statutory requirements.
Retail lending assessment areas and
facility-based assessment areas in the
same MSA or nonmetropolitan area of
a State. Where a large bank’s retail
lending assessment area is located in the
same MSA or nonmetropolitan area of a
State where a smaller facility-based
assessment area is located, the agencies
considered requiring the large bank to
expand its facility-based assessment
area to include the entire MSA or entire
nonmetropolitan area of the State.
However, the final rule retains the
proposed approach of allowing the large
bank to designate the portion of the
MSA or nonmetropolitan area of the
State that excludes the facility-based
assessment area as a retail lending
assessment area. The agencies believe
that this approach adequately captures
the bank’s retail lending performance in
the MSA or nonmetropolitan area of a
State. Further, in retaining the proposed
approach, the agencies sought to
preserve the current standard for
delineating assessment areas around a
bank’s deposit-taking facilities, under
which standard a bank must include the
surrounding geographies in which the
bank has originated or purchased a
substantial portion of its loans. In
particular, a bank might originate or
purchase a substantial portion of its
loans around a deposit-taking facility
located in an MSA or the
nonmetropolitan area of a State, and
also originate or purchase a significant,
but comparably smaller, portion of its
loans in the remaining portion of the
MSA or nonmetropolitan area of a State.
PO 00000
Frm 00177
Fmt 4701
Sfmt 4700
6749
Requiring such a large bank to expand
its facility-based assessment area to
include these remaining portions of the
MSA or the nonmetropolitan area of the
State would result in the large bank
becoming subject to all four large bank
performance tests in the entire MSA or
nonmetropolitan area of the State,
including in geographic areas where the
large bank does not maintain deposittaking facilities. The agencies believe
this may result in additional burden,
and that the final rule approach
adequately captures a large share of
retail lending within CRA evaluations
without imposing this additional
burden.
Section ll.17(c) Delineation of Retail
Lending Assessment Areas
The Agencies’ Proposal
Under proposed § ll.17(c), a large
bank would be required to delineate a
retail lending assessment area in any
MSA or in the nonmetropolitan area of
any State in which it originated, as of
December 31 of each of the two
preceding calendar years, in that
geographic area: (1) at least 100 home
mortgage loans outside of its facilitybased assessment areas; or (2) at least
250 small business loans outside of its
facility-based assessment areas. In
proposing these loan count thresholds,
the agencies considered what thresholds
would appropriately align with the
amount of lending typically evaluated
in a facility-based assessment area. The
agencies also considered what loan
count thresholds would result in a
substantial percentage of loans that a
bank makes outside of facility-based
assessment areas being evaluated within
a retail lending assessment area. The
agencies stated that retail lending
should be evaluated within a local
context wherever feasible, based on a
sufficient volume of loans and the size
and business model of the bank.
Comments Received
A number of commenters provided
feedback on whether the requirement to
delineate a retail lending assessment
area should be triggered by loan count
thresholds or an alternative type of
trigger. In addition, with respect to the
proposed loan count thresholds,
numerous commenters discussed the
number and types of loans that should
trigger the retail lending assessment
area.
Use of loan count thresholds. Several
commenters supported the proposed use
of loan counts thresholds to trigger the
retail lending assessment area
requirement. However, numerous
commenters opposed using loan count
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6750
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
thresholds to trigger the retail lending
assessment area requirement. For
example, a few commenters stated that
loan count thresholds could be
manipulated and that large banks would
cap their lending just below these
thresholds to avoid triggering a retail
lending assessment area. At least one
commenter recommended that, if the
final rule retains the use of loan count
thresholds, the agencies should penalize
banks that manipulate their retail
lending activity to avoid triggering retail
lending assessment areas. A few
commenters asserted that using loan
count thresholds could make it
challenging for banks to identify which
markets might trigger retail lending
assessment areas due to fluctuations in
retail lending volume.
Many commenters opposed to using
loan count threshold offered alternative
approaches for consideration, with some
such commenters advocating for hybrid
versions of the alternative approaches
described below.
First, a number of commenters
recommended a market share approach
to triggering the retail lending
assessment area requirement. These
commenters suggested requiring
delineation of a retail lending
assessment area only when a bank’s
market share of retail lending surpasses
a certain percentage, with some
commenters suggesting 1 or 2 percent of
aggregate lending. Arguments
supporting this approach centered on
eliminating retail lending assessment
areas where a bank’s lending was not
material to the local market and
decreasing the number of retail lending
assessment areas required and the
associated compliance burden for banks.
Some commenters that supported the
market share approach asserted that
using a market share measure instead of
the proposed loan count thresholds to
trigger retail lending assessment area
delineation would help to create retail
lending assessment areas in smaller
communities. At least one commenter
stated that the market share approach is
preferable to using loan count threshold
because the latter might trigger retail
lending assessment areas in areas that
are already well-served by other lenders.
Second, some commenters suggested
requiring a retail lending assessment
area only when a bank’s retail lending
in the geographic area constitutes a
certain minimum percentage of the
bank’s overall retail lending nationwide,
with commenter suggestions ranging
from 0.5 percent to 10 percent. In
general, these commenters emphasized
that such an approach would
appropriately target retail lending
assessment areas to those geographic
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
areas where banks conduct material
levels of lending activity. In addition,
some of these commenters indicated
that this approach would eliminate
retail lending assessment areas where a
bank’s retail lending volume was not
high enough to impact the bank’s
overall CRA retail lending performance,
which would in turn reduce associated
compliance burden for banks.
Finally, some commenters suggested
other alternative standards for requiring
delineation of retail lending assessment
areas. For example, at least one
commenter suggested that a threshold
based on the dollar amount of retail
lending, would better ensure that retail
lending assessment areas were
delineated in areas where banks have a
material level of activity. At least one
other commenter suggested that a bank
should not be required to delineate a
retail lending assessment area unless it
draws a certain level of deposits from
the geography, pointing to the CRA’s
focus on banks reinvesting in
communities from which banks draw
deposits. A few commenters suggested
replacing the loan count thresholds with
what they described as a clearer and
more stable indicator of a bank’s
relevant activity, such as the presence of
a loan production office. Similarly,
some commenters recommended that if
the agencies do not require a facilitybased assessment area based on the
presence of a loan production office
then, at a minimum, the presence of a
loan production office should trigger
delineation of a retail lending
assessment area.
Loan types considered in loan count
thresholds. A number of commenters
expressed views about the types of loans
that should be included in or excluded
from the proposed loan counts
thresholds used to trigger retail lending
assessment areas. For example, many
commenters requested that the agencies
count loans made by non-bank partners
of the bank toward the proposed loan
counts thresholds to hold banks more
accountable for serving low- and
moderate-income borrowers. A few
commenters similarly recommended
that loans of bank affiliates should
count toward the loan count thresholds
for triggering a retail lending assessment
area.
With respect to the proposed home
mortgage loan count threshold, a few
commenters recommended excluding
certain types of home mortgage loans
from the threshold. For example, at least
one commenter stated that counting
second mortgage loans toward the loan
count threshold for triggering a retail
lending assessment area could
discourage banks from engaging in this
PO 00000
Frm 00178
Fmt 4701
Sfmt 4700
activity, which would be detrimental
because many banks offer second
mortgages to cover down payment and
closing costs in conjunction with
affordable home mortgage programs,
such as State housing finance agency
programs. A few commenters noted that
home mortgage refinance lending
volume is highly sensitive to interest
rates and cannot reasonably be
controlled by a bank, making these
loans unsuitable for counting toward the
home mortgage loan count threshold. At
least one of these commenters stated
that the lower interest rates of recent
years have resulted in significant
refinance activity, which could result in
more banks being required to delineate
retail lending assessment areas.
With respect to the proposed small
business loan count threshold, a few
commenters suggested not counting
indirect small business loans. These
commenters stated that delineating a
retail lending assessment area based on
a loan count threshold that includes
indirect small business loans would be
inappropriate because a third-party
dealer or seller markets and originates
these loans. Further, at least one of these
commenters asserted that banks do not
have control over the geographic
distribution of these borrowers, nor are
they in a position to conduct outreach
to low- or moderate-income borrowers
in the areas where the dealers are
located. At least one other commenter
recommended that the agencies
consider whether to count small
business credit card loans toward the
small business loan count threshold,
cautioning that this type of lending can
be predatory and that distinguishing
small business credit card accounts
from personal credit card accounts may
be difficult.
Some commenters suggested that the
loan count thresholds for triggering
retail lending assessment requirement
should include other types of loans
beyond home mortgage and small
business loans. A few commenters
recommended that the agencies adopt a
consumer loan count threshold for
triggering retail lending assessment
areas (in addition to the proposed home
mortgage and small business loan count
thresholds), with one such commenter
stating that 100 consumer loans should
trigger the retail lending assessment area
requirement. In general, these
commenters asserted that adopting a
consumer loan count threshold would
result in retail lending assessment areas
that more accurately reflect where a
bank conducts business. Another
commenter stated that the agencies
should adopt separate loan count
thresholds for credit card loans and
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
non-credit card consumer loans. At least
one commenter stated that the agencies
did not provide sufficient justification
in the proposal as to why home
mortgage and small business loans, but
not other types of retail loans, were
appropriate for triggering retail lending
assessment areas.
Loan count threshold levels. A
number of commenters discussed the
level of home mortgage and small
business lending that should trigger the
retail lending assessment area
requirement. A few commenters
asserted that the agencies did not
provide sufficient rationale for why the
proposed loan count thresholds were set
at 100 home mortgage loans and 250
small business loans, and requested that
the agencies provide more supporting
data and analysis.
A few commenters suggested that the
proposed loan count thresholds of 100
home mortgage loans and 250 small
business loans were too high. Some of
these commenters suggested lower loan
count thresholds, such as 50 home
mortgage loans and 100 small business
loans, stating that lower thresholds
would incorporate more rural
geographic areas into retail lending
assessment areas. Other commenters
suggested that large banks should be
evaluated in every geographic area in
which they conduct any volume of retail
lending and that, accordingly, no loan
count thresholds are necessary.
However, many commenters
recommended increasing the proposed
home mortgage and small business loan
count thresholds to decrease the number
of retail lending assessment areas
required, and to ensure that retail
lending assessment areas reflect those
geographic areas where a bank conducts
a meaningful amount of retail lending.
Most of these commenters suggested
alternative loan count thresholds
ranging from 250 to 500 home mortgage
loans, and 350 to 750 small business
loans.
Final Rule
Section ll.17(c) of the final rule
provides that, subject to the geographic
requirements in § ll.17(b), a large
bank must delineate, for a particular
calendar year, a retail lending
assessment area in any MSA or the
nonmetropolitan area of any State in
which it originated at least 150 closedend home mortgage loans that are
reported loans in each year of the prior
two calendar years, or at least 400 small
business loans that are reported loans in
each year of the prior two calendar
years. The final rule thus differs from
the proposal in that it: (1) includes only
closed-end home mortgage loans in,
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
excludes open-end home mortgage loans
from, the home mortgage loan count
threshold; and (2) increases the loan
count thresholds from the proposed
loan count thresholds of 100 home
mortgage loans and 250 small business
loans.
Use of loan count thresholds. After
considering public comments, the
agencies believe that it is appropriate to
use loan count thresholds to trigger the
retail lending assessment area
requirement. The agencies believe that
loan count thresholds remain the most
transparent and straightforward
approach to identifying geographic areas
in which a large bank has
concentrations of closed-end home
mortgage and small business lending
outside of its facility-based assessment
areas. The number of loans is a
reasonable proxy for a large bank’s
presence in a particular market, as each
loan generally corresponds to one or
more borrowers served by the bank.
The agencies considered comments
about the potential variability of retail
lending assessment area delineations
over time. However, the agencies
believe that the proposed approach of
requiring a large bank to delineate a
retail lending assessment area only
when it has met the applicable loan
count threshold in each year of the two
prior calendar years will generally
provide greater certainty and reduce
variability, relative to an approach in
which a single year of lending is
sufficient to trigger a retail lending
assessment area. In addition, the
agencies intend to explore the
development of data tools to help large
banks monitor those geographic areas
where they may be required to delineate
a retail lending assessment area and
monitor the retail lending distribution
benchmarks for such geographic areas.
The agencies considered several
alternatives to the use of loan count
thresholds suggested by commenters.
First, the agencies considered, but did
not adopt, a market share approach in
place of or in combination with the
proposed loan count thresholds. Under
such an approach, a large bank would
be required to delineate a retail lending
assessment area only if the bank’s
market share of retail lending in the
geographic area met a certain threshold.
The agencies believe that such an
approach would be more complex to
administer relative to the loan count
threshold approach. In addition, under
a market share approach, whether a
bank is required to delineate a retail
lending assessment area would depend
on factors outside of the bank’s control,
namely the activity of other lenders in
the market. Further, the threshold for
PO 00000
Frm 00179
Fmt 4701
Sfmt 4700
6751
triggering delineation of a retail lending
assessment area could vary considerably
from year to year depending on the total
number of loans in the market, making
retail lending assessment area
delineations less predictable. Finally,
under the market share approach, the
number of loans that would be sufficient
to trigger the retail lending assessment
area requirement in particular MSAs or
the nonmetropolitan areas of States
could differ drastically depending on
the total number of loans in the market.
As a result, the retail lending
performance of a large bank could be
assigned a conclusion in one specific
geographic area, but not another
geographic area, despite having a
similar number of loans in both
geographic areas. The agencies believe
that it is more desirable to have
consistency in the number of loans used
to designate retail lending assessment
areas. For these reasons, the agencies
have decided to not adopt a market
share approach to delineating retail
lending assessment areas.
Second, the agencies considered, but
are not adopting, a bank-specific
lending share approach in place of or in
combination with the proposed loan
count thresholds. Under such an
approach, a large bank would be
required to delineate a retail lending
assessment area only if the bank’s loans
in the geographic area represented a
certain percentage of the bank’s overall
retail lending nationwide. The agencies
believe that the lending share approach
would be somewhat more complex than
using loan count thresholds, and would
result in inconsistent standards for
different banks. For example, under the
lending share approach, two large banks
could make the same number of closedend home mortgage or small business
loans within the same geographic area,
but only one such bank could be
required to delineate a retail lending
assessment area. The agencies believe
that banks engaged in a similar volume
of lending in the same market should
generally be evaluated in a consistent
manner. For these reasons, the agencies
have decided not to adopt the lending
share approach.
Third, the agencies considered, but
are not adopting, a deposit share
approach in combination with the
proposed loan count thresholds. Under
such an approach, a large bank would
be required to delineate a retail lending
assessment area only if it meets an
applicable loan count threshold and has
a certain number of depositors in or
draws a certain volume of deposits from
a geographic area. However, as
discussed above in connection with the
potential deposit-based assessment area
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6752
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
approach, the full range of deposits data
needed to assess the potential impact of
a deposit share approach to triggering
the retail lending assessment area
requirement is not currently available.
However, the agencies note that, under
the final rule, for large banks over $10
billion in assets and other banks that
elect to report deposits data, the amount
of the bank’s deposits in a retail lending
assessment area will affect the
weighting of the retail lending
assessment area in assigning
conclusions at the State, multistate
MSA, and institution levels, pursuant to
section VIII of final appendix A. As a
result, the weight assigned to each retail
lending assessment area will reflect the
volume of deposits that the bank draws
from the geographic area.
Finally, the agencies considered
requiring a large bank to delineate a
retail lending assessment area in
geographic areas where it maintains
loan production offices. The final rule
does not adopt this approach. The
agencies believe that the products and
services offered in, and the number of
borrowers served by, a bank’s loan
production offices vary widely, and as
such, it is preferable to use established
loan count thresholds to delineate retail
lending assessment areas. For example,
the agencies note that a bank may
establish a loan production office as an
initial step to gain a foothold in a new
market where the bank has made few or
no loans. The agencies also note that,
once a loan production office outside of
a bank’s facility-based assessment area
becomes established and the office
originates closed-end home mortgage
loans or small business loans in a
particular area, the final rule loan count
thresholds will ultimately capture the
loans originated from the office in a
retail lending assessment area if the loan
count thresholds are met.
Loan types considered. Under the
final rule, only a large bank’s closed-end
home mortgage and small business
loans would be considered for purposes
of determining whether the retail
lending assessment area requirement is
triggered. Regarding feedback from some
commenters that additional types of
loans, particularly consumer loans,
should count toward the loan count
thresholds, the agencies have
considered this feedback and
determined that adopting additional
loan count thresholds would necessitate
additional data collection and reporting
requirements. For example, the agencies
believe that individual loan data
collection and reporting for consumer
loans, or potentially only automobile
loans, would be necessary in order to
use those product lines to establish loan
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
count thresholds for the purposes of
establishing retail lending assessment
areas. As discussed further in the
section-by-section analysis of final
§ ll.42, the agencies have determined
to only require automobile lending data
collection and maintenance, but not
reporting, for large banks for which
automobile loans are a product line (i.e.,
majority automobile lenders, and banks
that opt to have their automobile loans
evaluated pursuant to the Retail
Lending Test). Further, the agencies
believe that the focus on closed-end
home mortgage and small business
lending is appropriate given the central
importance of these products to meeting
community credit needs and given the
agencies’ objective to minimize
compliance costs by limiting data
collection and reporting requirements.
The agencies also note that consumer
loans other than automobile loans will
generally not be evaluated under the
Retail Lending Test, but rather, will be
considered under the responsive credit
products component of the Retail
Services and Products Test, as discussed
in the section-by-section analysis of
final § ll.23(c).
With respect to the home mortgage
loan count threshold, the final rule
would only consider a bank’s closedend home mortgage loans, and not openend home mortgage loans as proposed.
As discussed in the section-by-section
analysis of final § ll.22(d), under the
final rule, the geographic and borrower
distributions of a bank’s open-end home
mortgage loans will not be evaluated
under the Retail Lending Test. For this
reason, the agencies removed open-end
home mortgage loans from the home
mortgage loan count threshold for
purposes of triggering the retail lending
assessment area requirement. For a large
bank that originates open-end home
mortgage loans, this change has the
effect of making it less likely that the
large bank’s home mortgage lending
meets any particular loan count
threshold triggering the retail lending
assessment area delineation
requirement. For example, a large bank
that originated 150 home mortgage loans
in an MSA in each year of the prior two
calendar years, 100 of which were openend home mortgage loans and 50 of
which were closed-end home mortgage
loans, would have been required to
delineate a retail lending assessment
area under the proposed approach, but
would not be required to delineate a
retail lending assessment area under the
final rule approach due to the exclusion
of open-end home mortgage loans from
the final rule loan count thresholds.
However, beyond the exclusion of
open-end home mortgage loans, the
PO 00000
Frm 00180
Fmt 4701
Sfmt 4700
agencies are not excluding other types
of home mortgage or small business
loans from the respective loan count
thresholds, as some commenters
suggested. The agencies believe that
excluding certain types of loans—such
as affordable housing loans, home
mortgage refinance loans, indirect small
business loans, or small business credit
card loans—from the loan count
thresholds would produce a less
comprehensive picture of a large bank’s
lending in a particular geographic area.
Finally, the agencies believe that
aligning the closed-end home mortgage
and small business loans considered in
the loan count thresholds with reported
loan data simplifies the loan count
threshold calculation.
The agencies are also not adopting the
suggestions by some commenters to
require that loans originated by a large
bank’s affiliates or non-bank partners,
other than a bank’s operations
subsidiaries or operating subsidiaries,
count toward the loan count thresholds
in final § ll.17(c). However, as
discussed further in the section-bysection analysis of final § ll.21(b), the
final rule does include the activities of
a bank’s operations subsidiaries or
operating subsidiaries in a bank’s
evaluation, including with respect to
loan counts for determining a large
bank’s retail lending assessment area
delineations.
In addition, final § ll.21(b)(3)(iv)
provides that if a large bank opts to have
the agencies consider the closed-end
home mortgage loans or small business
loans that are originated or purchased
by any of the bank’s affiliates in any
Retail Lending Test Area, the agencies
will consider the closed-end home
mortgage loans or small business loans
originated by all of the bank’s affiliates
in the nationwide area toward the loan
count thresholds in final § ll.17(c).
The agencies believe that this approach
affords an appropriate degree of
flexibility for bank business models that
involve affiliates other than operations
subsidiaries or operating subsidiaries, as
discussed in the section-by-section
analysis of § ll.21(b).
Loan count threshold levels. Under
the final rule, a large bank that is not
exempt from the retail lending
assessment area requirement must
delineate a retail lending assessment
area in an MSA or the nonmetropolitan
area of a State in which it has originated
at least 150 closed-end home mortgage
loans that are reported loans or at least
400 small business loans that are
reported loans in each year of the prior
two calendar years. The loan count
thresholds in the final rule represent an
increase from the proposed loan count
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
thresholds of 100 home mortgage loans
and 250 small business loans.
As discussed above, in determining
the loan count thresholds in the final
rule, the agencies considered
commenter feedback as well as different
objectives. Specifically, the agencies
considered how to balance the objective
of increasing the share of retail lending
outside of facility-based assessment
areas that would be evaluated within
retail lending assessment areas, with the
objective of limiting the number of retail
lending assessment areas and the
number of affected large banks. The
agencies also considered that retail
lending assessment areas would help to
adapt the CRA evaluation framework to
changes in the banking landscape, and
noted the potential challenges
associated with monitoring where retail
lending assessment areas are required,
and monitoring performance within
those areas.
The agencies also analyzed data from
the 2018, 2019, and 2020 calendar years,
summarized in Table 4, to assess how
different loan count thresholds would
have impacted (1) the number and
percentage of affected large banks, (2)
the number of retail lending assessment
areas, (3) the percentage of lending
outside of facility-based assessment
areas that would have been evaluated
within retail lending assessment areas,
and (4) the number of large banks that
would have had to delineate at least 100
retail lending assessment areas over the
three calendar years. For all threshold
options included in Table 4, the
analysis assumed that the final rule
retail lending assessment area approach
had been in effect during those calendar
years, including the exemption for large
banks that conduct more than 80
percent of their retail lending within
their facility-based assessment areas, the
inclusion of only closed-end home
mortgage loans (and not open-end home
mortgage loans), and the final rule
approach to identifying major product
lines in retail lending assessment areas.
Based on this analysis, the agencies
believe that the increased loan count
thresholds in the final rule
appropriately tailor the retail lending
assessment area requirement while also
ensuring that the overall retail lending
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
assessment area approach continues to
cover a meaningful percentage of retail
lending taking place outside of facilitybased assessment areas. Relative to an
alternative approach that retained the
proposed loan count threshold levels
but incorporated the final rule’s other
modifications to the retail lending
assessment area proposal, the final rule
loan count thresholds would have
significantly decreased the number of
affected large banks, from 81 to 63, and
the total number of retail lending
assessment areas, from 1,301 to 863. In
addition, relative to the proposed loan
count threshold levels, the historical
analysis shows that the final rule loan
count thresholds would have decreased
the percentage of retail lending outside
of facility-based assessment areas that is
evaluated in retail lending assessment
areas by about 4 percentage points for
closed-end home mortgage lending, and
by about 5 percentage points for small
business lending. The agencies note
that, under the final rule, a large bank’s
retail lending outside of its facilitybased assessment areas and retail
lending assessment areas is evaluated
on an aggregate basis through the
outside retail lending area evaluation,
discussed in the section-by-section
analysis of final § ll.18.
Table 4 also includes the loan count
threshold option of 50 closed-end home
mortgages and 100 small business loans,
as suggested by some commenters. The
agencies note that while these decreased
thresholds would have increased the
share of retail lending outside of
facility-based assessment areas that is
captured in retail lending assessment
areas, they also would have significantly
increased the number of affected banks
relative to the proposed threshold
levels, from 81 to 114, and the total
number of retail lending assessment
areas, from 1,301 to 2,421. Based on the
results of this analysis, and in light of
comments regarding the compliance
burden associated with retail lending
assessment areas, the agencies do not
believe that these lower loan count
thresholds would appropriately balance
the agencies’ objectives.
In addition, Table 4 includes two loan
threshold options higher than the ones
adopted in the final rule. For the
PO 00000
Frm 00181
Fmt 4701
Sfmt 4700
6753
potential loan count thresholds of 250
closed-end home mortgage loans or 500
small business loans, the agencies’
historical analysis found that, compared
to the final rule thresholds, these
thresholds would have further
decreased the number of affected large
banks, from 63 to 50, and the total
number of retail lending assessment
areas, from 863 to 629. Furthermore,
these thresholds would have resulted in
a decrease in the percentage of closedend home mortgage lending outside of
facility-based assessment areas that
would have been evaluated within retail
lending assessment areas, from 23.0
percent to 17.2 percent, relative to the
proposed levels, and would have
decreased to a lesser extent the
percentage of small business lending
outside of facility-based assessment
areas that would have been evaluated
within retail lending assessment areas,
from 39.3 percent to 37.3 percent,
relative to the proposed levels. While on
the one hand, these loan count
thresholds would have further reduced
the number of affected large banks and
the total number of retail lending
assessment areas, the agencies do not
believe that these thresholds would
evaluate a sufficient share of large
banks’ retail lending outside of facilitybased assessment areas in specific
geographic areas.
Finally, Table 4 also included loan
thresholds of 500 closed-end home
mortgage loans or 750 small business
loans. The agencies’ historical analysis
indicates that these loan count
thresholds would have resulted in only
10.7 percent of large banks’ closed-end
home mortgage lending outside of
facility-based assessment areas being
evaluated in retail lending assessment
areas, and only 32.7 percent of small
business lending. As with the higher
potential loan count threshold
discussed above, the agencies do not
believe that these threshold levels, or
any higher threshold levels, would
achieve the objective of modernizing the
assessment area framework to account
for changes in banking.
BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P
E:\FR\FM\01FER2.SGM
01FER2
6754
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Table 4 of§ _.17: Impact of Different Retail Lending Assessment Area Loan
Count Thresholds under Final Rule Approach (2018-2020)
Loan Count
Thresholds
(Closed-End
Home
Percentage
Mortgage
of Large
Loans/ Number of Banks that
Small
Affected are Affected
Business
Large
Large
Loans)
Banks
Banks
Number of
Retail
Lending
Assessment
Areas
Percentage
of Outside
Closed-End
Home
Mortgage
Lending
Evaluated
in Retail
Lending
Assessment
Areas
Percentage
of Outside
Small
Business
Lending
Evaluated
in Retail
Lending
Assessment
Areas
Number of
Large
Banks with
100+ Retail
Lending
Assessment
Areas
50/100
114
30.6
2,421
32.4
51.0
6
100/250
81
21.7
1,301
26.9
43.9
5
150/400
63
16.9
863
23.0
39.3
2
250/500
50
13.4
629
17.2
37.3
1
500/750
33
8.8
365
10.7
32.7
1
BILLING CODE 4810–33–C; 6210–01–C; 6714–01–C
Section ll.17(d) Use of Retail Lending
Assessments Areas
The Agencies’ Proposal
The agencies proposed in § ll.17(d)
to use retail lending assessment areas
delineated by a large bank in the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
evaluation of the bank’s retail lending
performance unless the agencies
determine that the retail lending
assessment areas do not comply with
requirements of § ll.17. The agencies
did not propose to evaluate other
aspects of a bank’s performance,
including its community development
PO 00000
Frm 00182
Fmt 4701
Sfmt 4700
activities, in retail lending assessment
areas.
To create parity between the
evaluation of a large bank’s major
product lines in facility-based
assessment areas and retail lending
assessment areas, the agencies proposed
to use the same approach to identify
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.003
ddrumheller on DSK120RN23PROD with RULES2
Note: Figures reflect hypothetical retail lending assessment area delineations for the 2018-2020 calendar years
under the fmal rule approach using different potential loan count threshold options. The analysis used data from the
CRA Analytics Data ls. "Affected Large Banks" are those that would have been required to delineate at least one
retail lending assessment area. "Outside" lending refers to closed-end home mortgage and small business lending by
large banks outside of their facility-based assessment areas; these columns show the percentage, by loan count, of
outside lending that would have been evaluated in retail lending assessment areas. A geographic area was counted
as a retail lending assessment area for a large bank if the bank would have been required to delineate a retail lending
assessment area in that geographic area in at least one calendar year from 2018-2020. The analysis applied the fmal
rule approach of requiring retail lending assessment areas to be delineated based on originated loan count thresholds
that are applied to the two calendar years prior to each calendar year. The analysis included open-end home
mortgages in 2016 and 2017, but not 2018, 2019, and 2020, because HMDA data do not distinguish between openend and closed-end home mortgage loans prior to 2018. The analysis included all CRA-reporting large banks,
except for wholesale, strategic plan, and limited purpose banks, which are excluded. The analysis included a total of
373 large banks.
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
major product lines in both geographic
areas, as discussed in the section-bysection analysis of final § ll.22(d).
The agencies intended for this approach
to ensure that the retail loans that would
be evaluated under the distribution
analysis component of the Retail
Lending Test in both facility-based
assessment areas and retail lending
assessment areas are those product lines
in which the bank specialized locally.
However, the agencies sought
feedback on alternative approaches to
evaluating a large bank’s retail lending
performance in retail lending
assessment areas. Specifically, the
agencies suggested an alternative
approach under which the retail lending
performance of large banks would be
evaluated in retail lending assessment
areas with respect to home mortgage
lending only if the bank met the
proposed 100 home mortgage loans
threshold, and with respect to small
business lending only if the bank met
the proposed 250 small business loans
threshold. This alternative approach
would differ from the proposed
approach in that, under the proposed
approach, all of a bank’s major product
lines would be evaluated under the
distribution analysis component of the
Retail Lending Test in a retail lending
assessment area if the bank surpassed at
least one of the proposed loan count
thresholds.668 The agencies explained
that the alternative approach would
more narrowly tailor the evaluation of a
large bank’s retail lending performance
in retail lending assessment areas.
Comments Received
Product lines evaluated in retail
lending assessment areas. Numerous
commenters addressed the product lines
that should be evaluated in retail
lending assessment areas under the
distribution analysis component of the
Retail Lending Test.
A few commenters supported the
proposal to evaluate the geographic and
borrower distributions of all of a large
bank’s major product lines in retail
lending assessment areas. In general,
these commenters stated that a large
bank that meets either of the proposed
loan count thresholds would be a major
lender in the particular market, and that
evaluating all of the bank’s major
product lines would be necessary to
fully assess the bank’s retail lending
impact. At least one commenter, noted
that the proposed approach to weighting
different major product lines would
ensure that there is an appropriate
emphasis on a bank’s most relevant
product lines in CRA evaluations.
668 See
proposed §§ ll.17(c) and ll.22(a)(4).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
However, most commenters on this
topic recommended evaluating the
geographic and borrower distributions a
more limited set of product lines in
retail lending assessment areas. Of these
commenters, most recommended only
evaluating home mortgage loans or
small business loans in a retail lending
assessment area, and only if the bank
met the relevant loan count threshold,
as contemplated as an alternative in the
proposal.
Some commenters suggested other
approaches for determining which of a
large bank’s product lines should be
evaluated under the distribution
analysis component of the Retail
Lending Test in a retail lending
assessment area. For example, one
commenter suggested evaluating the
geographic and borrower distributions
of only the top two product lines in
each retail lending assessment area.
Many of the commenters that
recommended using a market share or
lending share approach for triggering
the retail lending assessment area
requirement also recommended
applying the same standard for purposes
of determining what product lines are
evaluated in a retail lending assessment
area.
Evaluation of activities beyond retail
lending. A number of commenters
recommended that CRA evaluations in
retail lending assessment areas should
go further than the proposal by
including an assessment of not only
retail lending activities evaluated under
the proposed Retail Lending Test, but
also other types of bank activities,
particularly community development
lending. Several of these commenters
stated that evaluating a bank’s
community development activities in
retail lending assessment areas would
improve bank responsiveness to the
needs of rural communities. At least one
commenter stated that banks acquire
knowledge of the markets and needs of
their retail lending assessments by
virtue of doing business there, and thus,
it would be appropriate to evaluate a
large bank’s community development
activities in these areas. At least one
other commenter stated that banks
should not be required to conduct
community development activities in
retail lending assessment areas, but
should receive CRA credit if they do
conduct activities in these areas.
Final Rule
The agencies are adopting with
revisions, the proposed use of retail
lending assessment areas in final
§ ll.17(d). As under the proposal, the
final rule states that the agencies use the
retail lending assessment areas
PO 00000
Frm 00183
Fmt 4701
Sfmt 4700
6755
delineated by a large bank, unless the
agencies determine that a retail lending
assessment area does not comply with
the requirements of final § ll.17.
However, the agencies are narrowing the
scope of the evaluation of a large bank’s
retail lending performance in retail
lending assessment areas, relative to the
proposal. Specifically, under the final
rule approach, only a large bank’s
closed-end home mortgage loans and
small business loans could be evaluated
under the distribution analysis
component of the Retail Lending Test in
a retail lending assessment area.
Further, under the final rule approach,
the agencies will evaluate these product
lines in a retail lending assessment area
only to the extent that the large bank
meets the applicable loan count
thresholds in the retail lending
assessment area.
Product lines evaluated. The agencies
proposed to evaluate the geographic and
borrower distributions of all of a large
bank’s major product lines in retail
lending assessment areas to
comprehensively assess whether a bank
is meeting the credit needs of the
entirety of its retail lending assessment
areas. As discussed above, the agencies
are persuaded that the benefits of the
retail lending assessment approach are
outweighed by the complexity of, and
compliance burden associated with, the
approach as proposed. To simplify the
retail lending assessment area
framework and reduce the compliance
burden associated with retail lending
assessment areas, the final rule adopts
the alternative approach contemplated
in the proposal under which only a
large bank’s closed-end home mortgage
lending and small business lending
could be evaluated under the
distribution analysis component of the
Retail Lending Test in a retail lending
assessment area, and only to the extent
that the large bank meets the applicable
loan count threshold for triggering the
retail lending assessment area
requirement. In other words, if a large
bank meets the loan count thresholds
for either or both closed-end home
mortgage loans or small business loans
and thus must delineate a retail lending
assessment area, the product lines
responsible for triggering the retail
lending assessment area are
automatically considered a major
product line in the retail lending
assessment area.
The agencies also considered
alternative approaches suggested by
commenters. In particular, the agencies
considered only evaluating the
geographic and borrower distributions
of a large bank’s top two product lines
in a retail lending assessment area, but
E:\FR\FM\01FER2.SGM
01FER2
6756
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
determined that this approach would
add complexity and could undermine
predictability, particularly if a large
bank has several product lines of a
similar size in a retail lending
assessment area. The agencies also
considered using a market share or
lending share threshold to determine
which of a large bank’s product lines to
evaluate under the distribution analysis
component of the Retail Lending Test in
a retail lending assessment area.
However, as discussed above in
connection with the use of loan count
thresholds, the agencies determined
these approaches would add complexity
and may fail to capture product lines
consisting of a significant number of
loans in a retail lending assessment
area.
In determining whether to apply the
same major product line standard for
facility-based assessment areas and
outside retail lending areas to retail
lending assessment areas as proposed,
or whether to adopt the alternative
approach of evaluating the geographic
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
and borrower distributions of only the
product line or product lines that
triggered the retail lending assessment
area requirement, the agencies analyzed
data from the 2018, 2019, and 2020
calendar years, summarized in Table 5,
to assess the percentage of large banks’
retail lending outside of facility-based
assessment areas that would have been
evaluated within retail lending
assessment areas, and the average
number of major product lines per retail
lending assessment area, had either
approach been in effect during those
calendar years. In comparing the
options, the agencies note that the final
rule approach of evaluating only the
product line or product lines that
triggered the retail lending assessment
area would have resulted in a small
reduction in the percentage of closedend home mortgage lending outside of
facility-based assessment areas that
would have been evaluated within retail
lending assessment areas from 27.5 to
23.0 percent. The final rule approach
would have resulted in the same
PO 00000
Frm 00184
Fmt 4701
Sfmt 4700
percentage of small business lending
outside of facility-based assessment
areas that would have been evaluated in
retail lending assessment areas (39.3
percent) but a decrease in the share of
small farm lending that would have
been evaluated, from 0.7 to 0 percent.
Finally, the final rule approach would
have resulted in a significant decrease
in the average number of product lines
that would have been evaluated in a
retail lending assessment area, from 1.4
to 1.1. The agencies believe that
lowering the number of product lines
evaluated in retail lending assessment
areas will decrease the potential
complexity and burden of the retail
lending assessment area approach, and
that this decreased complexity and
burden outweighs the potential loss of
coverage for closed-end home mortgage,
small business, and small farm lending
evaluated within retail lending
assessment areas.
BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P
E:\FR\FM\01FER2.SGM
01FER2
6757
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Table 5 of§ _.17: Impact of Different Methods of Determining Major Product Lines in
Retail Lending Assessment Areas
Method
15% by Loan
Dollars (proposed
approach)
15% by Average
of Loan
Count/Loan
Dollars
Percentage of
Outside Closed-End
Home Mortgage
Lending Evaluated
in Retail Lending
Assessment Areas
Percentage of
Outside Small
Business Lending
Evaluated in Retail
Lending Assessment
Areas
Percentage of
Outside Small Farm
Lending Evaluated
in Retail Lending
Assessment Areas
Average
Number of
Product Lines
Evaluated in a
Retail Lending
Assessment Area
27.6
32.1
0.6
1.4
27.5
39.3
0.7
1.4
23.0
39.3
0.0
1.1
Only Evaluate
Product Lines that
Meet Loan Count
Thresholds (final
rule approach)
Note: Figures reflect hypothetical retail lending assessment area delineations for the 2018-2020 calendar years
using different approaches for determining major product lines in retail lending assessment areas. The analysis used
data from the CRA Analytics Data Tables. "Outside" lending refers to closed-end home mortgage, small business,
and small farm lending by large banks outside of their facility-based assessment areas; these columns show the
percentage, by loan count, of outside lending that would have been evaluated in retail lending assessment areas. The
analysis included open-end home mortgages in 2016 and 2017, but not in 2018, 2019, and 2020, because HMDA
data do not distinguish between open-end and closed-end home mortgage loans prior to 2018. The analysis included
all CRA-reporting large banks, except for wholesale, strategic plan, and limited purpose banks, which are excluded.
ddrumheller on DSK120RN23PROD with RULES2
BILLING CODE 4810–33–C; 6210–01–C; 6714–01–C
Performance tests applied in retail
lending assessment areas. The agencies
acknowledge comments that CRA
evaluations in retail lending assessment
areas should not be limited to the Retail
Lending Test, and that evaluations in
these areas should also consider large
banks’ community development
activities. However, the agencies believe
that retail lending assessment area
evaluations should be specific to retail
lending, and that the proposed Retail
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Services and Products Test, Community
Development Financing Test, and
Community Development Services Test
appropriately consider other large bank
activities outside of facility-based
assessment areas. Under the final rule,
and as discussed in the section-bysection analysis of final § ll.19, a
large bank will receive consideration for
community development loans,
community development investments,
and community development services
outside of the facility-based assessment
PO 00000
Frm 00185
Fmt 4701
Sfmt 4700
areas when determining the bank’s
conclusion at the State, multistate MSA,
and institution levels. In addition, and
as discussed in the section-by-section
analysis of final § _.23, a large bank may
receive consideration for applicable
retail banking services outside of its
facility-based assessment areas as
certain components of the Retail
Services and Products Test are not
restricted to a bank’s facility-based
assessment areas. Specifically, in the
case of a large bank with assets greater
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.004
The analysis included a total of373 large banks.
6758
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
than $10 billion in both of the prior two
calendar years, a large bank with assets
less than or equal to $10 billion in either
of the prior two calendar years and that
does not operate branches, or any other
large bank at the bank’s option, the
agencies will evaluate the large bank’s
digital and other delivery systems at the
institution level. In addition, at the
institution level, a large bank may
receive positive consideration for its
credit products and programs, and a
large bank with assets of $10 billion or
more in both of the prior two calendar
years, or any other large bank at the
bank’s option, may receive positive
consideration for its responsive deposit
products. The agencies believe that it is
appropriate to consider these activities
at the State, multistate MSA, and
institution levels rather than within
specific retail lending assessment areas
because it provides greater flexibility for
a large bank to identify areas with
unmet community development and
retail services needs that the bank has
the capacity and expertise to address. In
contrast, a large bank conducting retail
lending in a retail lending assessment
area has demonstrated capacity to lend
in that geographic area, and therefore,
the agencies believe that it is
appropriate to evaluate the extent to
which the bank is meeting the credit
needs of the entirety of its retail lending
assessment areas.
ddrumheller on DSK120RN23PROD with RULES2
Section ll.18
Areas
Outside Retail Lending
In proposed § ll.22(a)(2)(ii) and
(a)(3), respectively, the agencies
proposed to evaluate large banks and
certain intermediate banks 669 under the
Retail Lending Test in ‘‘outside retail
lending areas.’’ Under the proposal, a
bank’s outside retail lending area would
consist of the nationwide area outside of
the bank’s facility-based assessment
areas and, as applicable, retail lending
assessment areas. In proposing the
outside retail lending area approach, the
agencies intended to comprehensively
assess large banks’ and certain
intermediate banks’ lending to low- and
moderate-income census tracts and
borrowers, and small businesses and
small farms, by ensuring that retail
lending that is too geographically
dispersed to be evaluated within a
facility-based assessment area or retail
lending assessment area would still be
669 The proposal provided that an intermediate
bank that originates and purchases more than 50
percent of its retail loans (by dollar amount) outside
of its facility-based assessment areas over the
relevant evaluation period would be evaluated in its
outside retail lending area. See proposed
§ ll.22(a)(3).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
considered under the Retail Lending
Test.
Numerous commenters provided
feedback on the proposed outside retail
lending area approach. Commenters
expressed a variety of views regarding
the outside retail lending area proposal,
with some commenters supporting the
proposed approach and others opposing
the proposed approach. Commenters
also provided feedback on specific
aspects of the outside retail lending area
proposal, especially views on which
banks should be evaluated under the
outside retail lending area approach.
For the reasons discussed below, the
final rule adopts the proposed outside
retail lending area approach with some
modifications. Consistent with the
proposal, the final rule provides that the
agencies evaluate on a mandatory basis
the retail lending performance of a large
bank, and certain other banks, in the
bank’s outside retail lending area. The
final rule also provides that the outside
retail lending area generally consists of
the nationwide area outside of the
bank’s facility-based assessment areas
and retail lending assessment areas.
However, in a change from the proposal,
and as described below, the final rule:
(1) adjusts the standard used to
determine when an intermediate bank’s
outside retail lending area is evaluated
on a mandatory basis, and applies the
same standard to a small bank that opts
to be evaluated under the Retail Lending
Test; (2) permits an intermediate bank
or small bank that does not meet this
standard to opt to have its outside retail
lending area evaluated; and (3) tailors
the proposed geographic standard for
outside retail lending areas to exclude
those nonmetropolitan counties in
which a bank did not originate or
purchase any closed-end home mortgage
loan, small business loan, small farm
loan, or automobile loan (if automobile
loans are a product line for the bank).
In addition, the agencies are codifying
the outside retail lending area approach
is new § ll.18 for better clarity and
organization.
Overall Outside Retail Lending Area
Approach
The Agencies’ Proposal
To complement the agencies’
evaluation of a bank’s retail lending in
its facility-based assessment areas and
retail lending assessment areas, as
applicable, the agencies proposed in
§ ll.22(a) to evaluate the retail
lending performance of large banks and
certain intermediate banks in the bank’s
outside retail lending area. As defined
in proposed § ll.12, the bank’s
outside retail lending area would be the
PO 00000
Frm 00186
Fmt 4701
Sfmt 4700
nationwide area outside of the bank’s
facility-based assessment areas and
retail lending assessment area.
Comments Received
Several commenters supported the
agencies’ proposal to evaluate the retail
lending of certain banks in their outside
retail lending areas as an appropriate
complement to the proposed facilitybased assessment area and retail lending
assessment area frameworks. At least
one of these commenters stated that
evaluating a bank’s retail lending in its
outside retail lending area was
necessary to develop a complete picture
of the bank’s retail lending performance.
Another commenter favorably noted
that the outside retail lending area
approach would increase CRA coverage
of rural lending activity outside of a
bank’s facility-based assessment areas.
Some commenters opposed or
expressed significant concerns with the
proposed outside retail lending area
approach. These commenters opposed
the outside retail lending area proposal
for several reasons, including
commenter views that: the outside retail
lending area approach is not aligned
with the CRA statute’s purpose of
encouraging reinvestment of deposits in
local communities where banks are
chartered to do business; evaluation of
a bank’s retail lending performance in
its outside retail lending area could
offset or distract from the bank’s retail
lending performance in its facility-based
assessment areas; and the benefits of
evaluating a bank’s retail lending in its
outside retail lending area would not
outweigh the complexity and
compliance burden associated with the
outside retail lending area evaluation,
particularly because the share of the
bank’s retail loans originated outside of
facility-based assessment areas or retail
lending assessment areas is small for
most banks.
At least one commenter stated that the
outside retail lending area evaluation
should include not only a bank’s retail
loans made outside of its facility-based
assessment areas and retail lending
assessment areas, but also retail loans
made within its facility-based
assessment areas and retail lending
assessment areas that are not evaluated
as major product lines.
A few commenters recommended that
the evaluation of a bank’s retail lending
performance in its outside retail lending
area include consideration of qualitative
factors and performance context,
including the bank’s ability and
opportunities to serve the markets in
this area.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Final Rule
For the reasons discussed below, the
agencies are adopting the outside retail
lending area approach in the final rule.
However, in response to commenter
feedback and in consideration of the
agencies’ policy objectives, the agencies
are also adopting several modifications
to the outside retail lending area
proposal. Specifically, the final rule (1)
adjusts the calculation of the 50 percent
standard used to determine when an
intermediate bank’s outside retail
lending area is evaluated on a
mandatory basis, and applies the same
standard to a small bank that opts to be
evaluated under the Retail Lending Test;
(2) permits an intermediate bank or
small bank that does not meet this
standard to opt to have its outside retail
lending area evaluated; and (3) tailors
the proposed geographic standard for
outside retail lending areas to exclude
those nonmetropolitan counties in
which a bank did not originate or
purchase any closed-end home mortgage
loan, small business loan, small farm
loan, or automobile loan (if automobile
loans are a product line for the bank).
In addition, the agencies are codifying
the outside retail lending area approach
is new § ll.18 for better clarity and
organization.670 These modifications to
the proposal are discussed throughout
this section-by-section analysis of
§ ll.18.
Legal authority. The agencies have
considered all of the issues raised by
commenters regarding their legal
authority to evaluate the retail lending
performance of certain banks in their
outside retail lending areas. Consistent
with the agencies’ views stated in the
proposal, and upon further deliberation
and consideration, the agencies have
concluded that the CRA authorizes the
agencies to evaluate at least certain
banks’ retail lending performance in
their outside retail lending areas. As
discussed above in the section-bysection analysis of § ll.17, the CRA
requires the agencies to assess a bank’s
record of meeting the credit needs of its
entire community, without defining
what constitutes a bank’s ‘‘entire
community.’’ 671 Moreover, as described
in the section-by-section analysis of
§ ll.17, although the CRA includes
provisions that specifically relate to the
preparation of written evaluations that
support the conclusion that the
geographic areas where a bank
maintains deposit-taking facilities are
670 The agencies are renumbering proposed
§ ll.18 as final § ll.19.
671 See 12 U.S.C. 2903(a)(1) (requiring that the
agencies ‘‘assess [an] institution’s record of meeting
the credit needs of its entire community’’).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
considered part of the bank’s entire
community,672 the statute does not
indicate that a bank’s entire community
consists of only these geographic areas.
The CRA delegates authority to the
agencies to prescribe regulations to
carry out the purposes of the CRA.673 To
achieve its purposes, the CRA requires
the agencies to assess whether a bank is
meeting the credit needs of all parts of
the communities it serves, without
excluding the low- and moderateincome neighborhoods in those
communities.674 The agencies have
determined, based on their supervisory
experience and expertise, that for at
least certain banks, the bank’s ‘‘entire
community’’ can reasonably be
considered to include those geographic
areas where the bank’s retail loan
borrowers are located. The agencies
have concluded that evaluating the
retail lending performance of such
banks in their outside retail lending
areas falls within the requirements
imposed on the agencies by the CRA to
assess a bank’s record of meeting the
credit needs of its entire community,
and properly furthers the purpose of the
statute to encourage banks to meet the
credit needs of all parts of the
communities they serve. In addition, the
agencies believe that the combination of
facility-based assessment areas, retail
lending assessment areas, and outside
retail lending areas will allow the
agencies to achieve a more
comprehensive evaluation of the bank’s
performance across its entire
community.
Policy objectives of outside retail
lending areas. In developing the overall
outside retail lending area approach in
the proposed and final rules, the
agencies seek to achieve several
different policy objectives. First, the
outside retail lending area approach
adapts to ongoing changes to the
banking industry. The current CRA
regulations generally define assessment
areas in connection with a bank’s main
office, branches, and deposit-taking
ATMs. However, the agencies recognize
that changes in technology and in bank
business models have resulted in banks’
entire communities extending beyond
the geographic footprint of the bank’s
main office, branches, and other
deposit-taking facilities. To reflect these
changes in banking, and to make the
assessment area framework more
672 See, e.g., 12 U.S.C. 2906 (requiring the
agencies to prepare a written evaluation of a bank’s
CRA performance for each metropolitan area and,
in the case of an interstate bank, each State and/
or multistate metropolitan area in which the bank
maintains a branch).
673 See 12 U.S.C. 2905.
674 See 12 U.S.C. 2903(a).
PO 00000
Frm 00187
Fmt 4701
Sfmt 4700
6759
durable over time, the agencies are
complementing the existing facilitybased assessment area framework in the
final rule with a retail lending
assessment area and outside retail
lending area requirements tailored to
certain banks.
Second, the outside retail lending area
approach improves parity in the
evaluation framework for banks with
different business models. For example,
under the current approach, a bank that
maintains branches in multiple States
and conducts retail lending in the
geographic areas served by those
branches would have its retail lending
evaluated in multiple assessment areas
based on the location of its branches;
however, a bank that operates
exclusively online would only have its
retail lending performance evaluated in
one assessment area based on the
location of the bank’s main office,
which may not be representative of the
bank’s overall retail lending
performance. Under the final rule
approach, however, the online bank’s
retail lending performance in other
areas may be evaluated as part of the
retail lending assessment area
evaluation or outside retail lending area
evaluation, resulting in more
comparable CRA evaluations for both
banks despite their different business
models.
Third, the outside retail lending area
approach, in combination with the retail
lending assessment area approach for
large banks discussed in the section-bysection analysis of final § ll.17,
increases the share of retail lending that
is considered in CRA evaluations for
certain banks. Under the current
approach, retail lending conducted
outside of a bank’s assessment areas is
not evaluated using the lending test
criteria; this lending is only considered
if the bank has adequately addressed the
needs of borrowers within its
assessment areas, and does not
compensate for poor lending
performance within the bank’s
assessment areas.675 The outside retail
lending area approach in the final rule
applies a metrics-based evaluation
approach to retail loans in certain
banks’ outside retail lending areas, and
generally increases the share of retail
lending by banks that is evaluated in
this manner.
Finally, the agencies seek to achieve
the policy objectives described above
while also appropriately adjusting for
the level of complexity and impact on
banks that would be evaluated in new
outside retail lending areas. The outside
retail lending area approach in the final
675 See
E:\FR\FM\01FER2.SGM
Q&A § ll.22(b)(2) and (3)–4.
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6760
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
rule is intended to address compliance
cost concerns, while simultaneously
ensuring that the agencies’ other
objectives, described above, are
achieved.
The agencies have considered
comments that the outside retail lending
area approach will add complexity and
compliance burden to CRA evaluations,
as well as commenter views that the
outside retail lending area approach
may result in banks redirecting
resources from serving their facilitybased assessment areas. The agencies
recognize that banks that are evaluated
in outside retail lending areas under the
final rule approach may bear some
potential compliance costs, such as the
potential costs associated with
monitoring their performance and
meeting performance standards in
outside retail lending areas. However,
the agencies believe that the final rule
outside retail lending area approach is
appropriately calibrated to achieve the
agencies’ policy objectives described
above. In addition, the agencies believe
that the compliance costs associated
with the final rule outside retail lending
area approach are reasonable because
the outside retail lending area
evaluation consolidates all of a bank’s
retail lending outside of its facilitybased assessment areas and retail
lending assessment areas into one
evaluation area, such that there is one
set of metrics and benchmarks for the
entire outside retail lending area.
Further, because the outside retail
lending area does not assign
conclusions to specific areas, the
agencies believe that this approach
provides flexibility by allowing a bank
to compensate for relatively lower
performance in one component
geographic area with stronger
performance in another component
geographic area, without receiving a
conclusion that reflects poor
performance in any specific area.
As discussed further in the sectionby-section analysis of § ll.17, the
agencies will develop and make freely
available tools that would leverage
reported loan data to calculate the retail
lending distribution benchmarks that
applied to a bank’s outside retail
lending area in recent years. The
agencies believe that these data tools
will help to address commenter
concerns regarding the potential
complexity and compliance burden
associated with the outside retail
lending area approach.
Retail loans included in the outside
retail lending area. The agencies
considered, but have determined not to
adopt, the alternative suggested by at
least one commenter of including
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
additional retail loans in the outside
retail lending area. Specifically, in
addition to the retail lending conducted
outside of facility-based assessment
areas and retail lending assessment
areas, the agencies considered including
in the outside retail lending area those
retail loans within facility-based
assessment areas and retail lending
assessment areas that are not evaluated
as a major product line. Although the
agencies have considered that such an
approach would increase the total
amount of retail lending that is
evaluated under the Retail Lending Test,
the agencies believe the increase in
coverage is likely to be minimal in
comparison to the final rule
approach.676 In addition, the agencies
believe that such an approach would
add complexity because it would result
in distinct outside retail lending areas
for each product line (i.e., closed-end
home mortgage loans, small business
loans, small farm loans, and automobile
loans if automobile loans are a product
line for the bank). Instead, the agencies
believe that a single outside retail
lending area for all product lines would
be reduce complexity for both the
agencies and affected banks and
potential compliance burden for
affected banks, while still achieving the
agencies’ policy objectives.
Codification in § ll.18. The
agencies determined that it is
appropriate to codify the outside retail
lending area approach in new § ll.18
to increase clarity and improve
organization of the final rule. Describing
the details of the outside retail lending
area approach in a separate section of
regulatory text reflects that the outside
retail lending area is one type of Retail
Lending Test Area that is used in the
Retail Lending Test evaluation,
alongside facility-based assessment
areas (as described in § ll.16) and
retail lending assessment areas (as
described in § ll.17).
Section ll.18(a) In General—Banks
Evaluated in Outside Retail Lending
Areas
The Agencies’ Proposal
In proposed § ll.22(a)(2)(ii), the
agencies proposed to evaluate the retail
lending performance of all large banks
676 The agencies performed an analysis of retail
lending data using the CRA Analytics Data Tables
for 2018–2020 and determined that over 98 percent
of both closed-end home mortgage and small
business lending would have been evaluated under
the proposed final rule major product line approach
had the approach been in effect during those years.
The figure for small farm lending would have been
considerably lower, at around 40 percent, but the
agencies note that the number of small farm loans
and the weight assigned to the small farm loan
product line is generally small overall.
PO 00000
Frm 00188
Fmt 4701
Sfmt 4700
in their outside retail lending areas. The
agencies sought feedback on whether all
large banks should have their retail
lending in their outside retail lending
areas evaluated, or whether the agencies
should exempt large banks that make
more than a certain percentage, such as
80 percent, of their retail loans within
facility-based assessment areas and
retail lending assessment areas.
In proposed § ll.22(a)(3), the
agencies proposed to evaluate the retail
lending performance of certain
intermediate banks in their outside
retail lending areas. Specifically, the
agencies proposed to evaluate an
intermediate bank’s retail lending
performance in its outside retail lending
area if the intermediate bank originated
and purchased over 50 percent of its
retail loans, by dollar amount, outside of
its facility-based assessment areas over
the relevant evaluation period.
Comments Received
Application to large banks. Some
commenters addressed the applicability
of the outside retail lending area
approach to large banks. For example, at
least one commenter suggested only
evaluating a large bank on a mandatory
basis in its outside retail lending area if
the large bank has at least $10 billion in
assets, but that a large bank with less
than $10 billion in assets should have
the option to have its outside retail
lending area evaluated. Another
commenter stated that the outside retail
lending area evaluation should be
optional for all banks.
Several commenters recommended
exempting large banks that lend
primarily or predominantly within their
facility-based assessment areas, or
within their facility-based assessment
areas and retail lending assessment
areas, from evaluation in their outside
retail lending areas. These commenters
offered a range of suggestions regarding
the percentage at which such an
exemption should apply (measured in
terms of the percentage of the bank’s
retail loans that must be within facilitybased assessment areas, or within their
facility-based assessment areas and
retail lending assessment areas), ranging
from 50 to 98 percent. Some of these
commenters emphasized that if the
majority or substantial majority of a
bank’s retail lending is within its
facility-based assessment areas, the
evaluation of retail lending in outside
retail lending areas would have little
bearing on the bank’s overall evaluation,
and yet would require the bank to
spread its CRA resources outside of its
local footprint.
In contrast, several commenters
opposed providing large banks that lend
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
primarily within their facility-based
assessment areas, or within their
facility-based assessment areas and
retail lending assessment areas, an
exemption from being evaluated on
their retail lending in outside retail
lending areas. Commenters opposed to
exempting banks from the outside retail
lending area evaluation asserted that the
proposal would not be unduly
burdensome because the agencies’
proposed approach for weighting
assessment area and outside retail
lending area retail lending performance
to determine institution-level
performance would appropriately tailor
the outside retail lending area
evaluation to different business models.
These commenters further noted that
banks that make significant numbers of
home mortgage or small business loans
outside of their facility-based
assessment areas and/or retail lending
assessment areas should have an
obligation to low- and moderate-income
communities in those areas.
Application to intermediate banks. A
commenter recommended that all
intermediate banks should be evaluated
in outside retail lending areas, rather
than limiting the outside retail lending
area evaluation to those intermediate
banks that originate or purchase at least
50 percent of their retail loans outside
of their facility-based assessment areas.
Another commenter stated that the
outside retail lending area evaluation
should be optional for all banks.
Final Rule
Overview. With respect to large banks,
the agencies are adopting the proposal
to evaluate the retail lending
performance of all large banks in their
outside retail lending area. As such,
final § ll.18(a)(1) provides that the
agencies evaluate a large bank’s record
of helping to meet the credit needs of its
entire community in its outside retail
lending area pursuant to § ll.22. Final
§ ll.18(a)(1) clarifies that the agencies
will not evaluate a large bank in its
outside retail lending area if it did not
originate or purchase loans in any
products lines in the outside retail
lending area during the evaluation
period. The agencies believe that this
limitation was implicit in the proposal,
but believe that it is appropriate to make
this limitation explicit in the final rule
to promote clarity and transparency.
With respect to other banks, the
agencies are adjusting the standard used
to determine when an intermediate
bank’s outside retail lending area is
evaluated on a mandatory basis, and are
applying this same standard to a small
bank that opts to be evaluated under the
Retail Lending Test. In addition, the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
agencies are permitting an intermediate
bank or small bank that does not meet
this standard to opt to have its outside
retail lending area evaluated. As such,
final § ll.18(a)(2) provides that the
agencies evaluate the record of an
intermediate bank, or a small bank that
opts to be evaluated under the Retail
Lending Test, of helping to meet the
credit needs of its entire community in
its outside retail lending area pursuant
to § ll.22, for a particular calendar
year, if either (1) the bank opts to have
its major product lines evaluated in its
outside retail lending area, or (2) in the
prior two calendar years, the bank
originated or purchased outside the
bank’s facility-based assessment areas
more than 50 percent of the bank’s
home mortgage loans, multifamily
loans, small business loans, small farm
loans, and automobile loans if
automobile loans are a product line for
the bank, as described in paragraph
II.a.2 of final appendix A.
Application to large banks. The
agencies continue to believe that it is
appropriate to evaluate the retail
lending performance of all large banks
in their outside retail lending areas. The
agencies believe that evaluating large
banks in their outside retail lending
areas is important to achieving the
agencies’ policy objectives of adapting
to ongoing changes to the banking
industry, improving parity in the
evaluation framework for banks with
different business models, and
increasing the share of retail lending
that is considered in CRA evaluations,
discussed above. Further, the agencies
believe that the final rule outside retail
lending area approach is appropriately
calibrated to achieve the agencies’
policy objectives while minimizing the
additional complexity and compliance
burden associated with outside retail
lending areas. On balance, the agencies
believe it is appropriate to tailor the
outside retail lending area requirement
to all large banks, but only certain other
banks, recognizing that large banks
generally have more resources and
therefore greater capacity than small
and intermediate banks to adapt to new
regulatory provisions such as outside
retail lending areas.
To complement the facility-based
assessment area approach and retail
lending assessment area approach, the
outside retail lending area approach
would evaluate a large bank’s retail
lending that is too dispersed to be
evaluated within a specific geographic
area (i.e., in a facility-based assessment
area or outside retail lending area). For
example, if a large bank originated 50
closed-end home mortgages and 300
small business loans in an MSA in each
PO 00000
Frm 00189
Fmt 4701
Sfmt 4700
6761
year of the prior two years, the large
bank would not be required to delineate
a retail lending assessment area in the
MSA pursuant to the loan count
thresholds in final § ll.17(c), but the
MSA would be included in the large
bank’s outside retail lending area. As a
result, this lending would be considered
as part of the large bank’s Retail Lending
Test evaluation. However, a conclusion
would be assigned to the entirety of the
bank’s outside retail lending area, rather
than for the specific MSA. The agencies
believe that this approach is appropriate
because, the sum of the large bank’s
retail lending outside of its facilitybased assessment areas and retail
lending assessment areas may constitute
a significant percentage of a bank’s
overall lending, and that this retail
lending should be considered under the
Retail Lending Test to ensure a
comprehensive evaluation of a large
bank’s retail lending performance. The
agencies emphasize that the outside
retail lending area approach is
especially important for
comprehensively evaluating the retail
lending performance of predominantly
branch-based large banks that qualify for
the exemption from the retail lending
assessment area requirement pursuant
to final § ll.17(a)(2).
The agencies considered, but are not
adopting, the alternative approach
suggested by commenters to exempt
large banks that conduct at least a
certain percentage, such as 50 percent,
of their retail lending within their
facility-based assessment areas, or
within their facility-based assessment
areas and retail lending assessment
areas, from the outside retail lending
area evaluation. For the reasons stated
above, the agencies believe it is
appropriate to evaluate the retail
lending performance of all large banks
in their outside retail lending areas. The
agencies note that the final rule
approach accounts for cases where a
bank has only a small amount of retail
lending in its outside retail lending area,
because the amount of retail lending in
the bank’s outside retail lending area is
one component of the weighting that the
outside retail lending area performance
conclusion receives in determining the
bank’s overall Retail Lending Test
conclusion, as discussed in the sectionby-section analysis of § ll.22(h).
Finally, the agencies note that a large
bank with a relatively small share of
lending in its outside retail lending area
overall could still have a significant
number of loans in one or more
component geographic areas of its
outside retail lending area; the agencies
believe that it is important to evaluate
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6762
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
the extent to which the bank has met the
retail lending credit needs of those
areas.
The agencies also considered, but are
not adopting, the alternative approach
suggested by commenters to make the
evaluation of all or certain large banks
in their outside retail lending areas
optional. However, the agencies believe
that an optional evaluation approach
would not achieve the agencies’ policy
objectives since some or all large banks
could opt out of outside retail lending
areas entirely under this alternative. The
agencies are concerned that over time,
an optional outside retail lending area
approach would make the assessment
area framework less durable to ongoing
changes in the banking industry,
particularly with any expansion of
digital banking. Specifically, if an
increasing share of large bank retail
lending occurs outside of facility-based
assessment areas and retail lending
assessment areas, and if the agencies
could evaluate that lending in outside
retail lending areas only at a bank’s
option, the policy objectives of
increasing the share of retail lending
that is considered in CRA evaluations
and would be undermined.
Application to intermediate banks
and small banks. The final rule retains
the proposed approach evaluating
intermediate banks in their outside
retail lending areas on a mandatory
basis if the intermediate bank conducts
a majority of its retail lending outside of
its facility-based assessment areas. This
tailored approach recognizes that
intermediate banks generally have fewer
resources and therefore less capacity
than large banks to adapt to new
regulatory provisions such as a Retail
Lending Test evaluation in outside retail
lending areas. At the same time, the
agencies believe that evaluating certain
intermediate banks in their outside
retail lending areas is important to
achieving the agencies’ policy objectives
of adapting to ongoing changes to the
banking industry, improving parity in
the evaluation framework for banks with
different business models, and
increasing the share of retail lending
that is considered in CRA evaluations,
discussed above.
The final rule’s 50 percent threshold,
the calculation of which is discussed
below, reflects the agencies’ belief that
an intermediate bank’s CRA evaluation
should capture at least a majority of the
bank’s retail lending. The agencies
believe that evaluating less than a
majority of an intermediate bank’s retail
lending could result in Retail Lending
Test conclusions that are not
representative of the intermediate
bank’s overall retail lending
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
performance. The agencies also
considered that a threshold level higher
than 50 percent would result in more
comprehensive evaluations for more
intermediate banks; however, a higher
exemption threshold level would also
increase the number of affected
intermediate banks, including
intermediate banks that already have a
majority of their retail lending evaluated
within facility-based assessment areas.
In addition, the agencies considered that
for these intermediate banks, the outside
retail lending area evaluation would
generally carry less weight in
determining the intermediate bank’s
overall Retail Lending Test conclusion.
While the proposed rule did not
provide that a small bank would be
evaluated in its outside retail lending
area, the agencies determined that it is
appropriate to treat small banks that opt
into the Retail Lending Test consistently
with intermediate banks under the final
rule. In reaching this determination, the
agencies considered that it is important
that the Retail Lending Test evaluation
capture at least a majority of a bank’s
lending. If a small bank that opts into
the Retail Lending Test conducts a
majority of its retail lending outside of
its facility-based assessment areas, the
agencies believe that the outside retail
lending area evaluation should apply to
the small bank to ensure that the Retail
Lending Test conclusion for the
institution is representative of the
bank’s overall retail lending
performance. The agencies do not
believe that this approach should
significantly increase the compliance
burden of the final rule on small banks
because the Retail Lending Test
evaluation remains optional for these
banks.
Finally, the agencies determined that
intermediate banks, and small banks
that opt into the Retail Lending Test,
should have the option to be evaluated
in their outside retail lending areas even
if they do not conduct a majority of their
retail lending outside their facilitybased assessment areas. The agencies
believe this option provides flexibility
for an intermediate bank or small bank
to consider the potential complexity and
compliance burden associated with the
outside retail lending area evaluation,
and the impact on the bank’s retail
lending performance. The agencies also
considered that without providing this
option, an intermediate bank, or a small
bank that opts into the Retail Lending
Test, that does not conduct a majority of
its retail lending outside of its facilitybased assessment areas that prefers to
have its outside retail lending area
evaluated could need to seek approval
of a strategic plan, which could increase
PO 00000
Frm 00190
Fmt 4701
Sfmt 4700
the complexity of the final rule
approach. In addition, the agencies
considered that making the outside
retail lending area evaluation optional
for these banks would be consistent
with current evaluation practices,
whereby banks may receive
consideration for retail lending outside
of their assessment areas.677
Calculation of 50 percent standard.
The final rule adopts a modified version
of the proposed 50 percent standard
used to determine when an intermediate
bank (or a small bank that opts into the
Retail Lending Test) is evaluated on a
mandatory basis in its outside retail
lending area. As specified in paragraph
II.a.2 of final appendix A, the 50 percent
threshold is calculated over the prior
two calendar years, and is based on a
combination of loan dollars and loan
count, as defined in final § ll.12. The
agencies are adopting these changes to
conform the calculation of the 50
percent outside retail lending area
standard to the calculation approach
used for the 80 percent threshold to
identify those predominantly branchbased large banks that are exempt from
the retail lending assessment area
requirement. In addition, the agencies
note that the calculation of the 50
percent standard, like the calculation of
the 80 percent standard for retail
lending assessment areas, includes
originated or purchased home mortgage
loans, multifamily loans, small business
loans, small farm loans, and automobile
loans if automobile loans are a product
line for the bank. The agencies’ rationale
for this calculation is further described
in the section-by-section analysis of
final § ll.17(a).
Section ll.18(b) Geographic
Requirements of Outside Retail Lending
Areas
The Agencies’ Proposal
In proposed § ll.12, the agencies
defined the outside retail lending area
as the nationwide area outside of a
bank’s facility-based assessment areas
and, as applicable, retail lending
assessment areas. To evaluate a bank’s
retail lending performance in its outside
retail lending area, and as discussed
further in the section-by-section
analysis of § ll.22(e), the agencies
proposed in § ll.22(b)(2)(ii) and
paragraphs III.2.c and d and IV.2.c and
d of proposed appendix A, to calculate
tailored retail lending distribution
benchmarks for a bank’s outside retail
lending area, by taking a weighted
average of the benchmarks calculated
for each MSA and the nonmetropolitan
677 See
E:\FR\FM\01FER2.SGM
Q&A § ll.22(b)(2) and (3)–4
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
area of each State included in the bank’s
outside retail lending area.
ddrumheller on DSK120RN23PROD with RULES2
Comments Received
The agencies did not receive
comments that specifically discussed
the geographic requirements for outside
retail lending areas. However, as
discussed above, the agencies received a
number of comments on the overall
outside retail lending area approach. In
addition, the agencies received
comments on the proposed approach to
calculating tailored distribution
benchmarks for a bank’s outside retail
lending area; these comments are
discussed further in the section-bysection analysis of final § ll.22(e).
Final Rule
For the reasons discussed below, the
agencies are adopting a tailored version
of the proposed geographic
requirements for outside retail lending
areas. Specifically, relative to the
proposal, a bank’s outside retail lending
area no longer includes
nonmetropolitan counties in which the
bank did not conduct any retail lending.
As such, final § ll.18(b)(1) provides
that a bank’s outside retail lending area
consists of the nationwide area,
excluding (1) the bank’s facility-based
assessment areas and retail lending
assessment areas; and (2) any county in
a nonmetropolitan area in which the
bank did not originate or purchase any
closed-end home mortgage loans, small
business loans, small farm loans, or
automobile loans (if automobile loans
are a product line for the bank). In
addition, the agencies are specifying in
final § ll.18(b)(2) that the outside
retail lending area is comprised of
component geographic areas, and that a
component geographic area is any MSA
or the nonmetropolitan area of any
State, or portion thereof, included
within the outside retail lending area.
Exclusion of certain nonmetropolitan
counties. Upon consideration of
commenter feedback, the agencies
believe it is appropriate to exclude
nonmetropolitan counties in which a
bank did not originate or purchase any
retail loans from the bank’s outside
retail lending area. As a result, outside
retail lending areas are more targeted,
relative to the proposal, to where a bank
conducts retail lending business in
nonmetropolitan areas. The agencies
note that the final rule adopts a similar
exclusion of these counties from retail
lending assessment areas located in the
nonmetropolitan area of a State, and
that the agencies’ rationale for the retail
lending assessment area exclusion,
described further in the section-bysection analysis of final § ll.17(b),
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
generally also applies to outside retail
lending areas.
Component geographic areas. The
agencies determine that specifying the
component geographic areas of the
outside retail lending area in regulatory
text in final § ll.18(b)(2) provides
clarity. The agencies note that sections
III and IV of final appendix A
consistently use the term ‘‘component
geographic areas’’ in describing the
calculation of the retail lending
distribution benchmarks for a bank’s
outside retail lending area. This
calculation is discussed further in the
section-by-section analysis of final
§ ll.22(e).
Section ll.19 Areas for Eligible
Community Development Loans,
Community Development Investments,
and Community Development Services
Current Approach
Under the current rule, in addition to
considering a bank’s community
development loans, investments, and
services conducted within the bank’s
assessment areas, the agencies may
provide consideration for loans,
investments, and services conducted in
a broader statewide or regional area that
includes one or more assessment
areas.678 Whether an activity receives
consideration and the geographic level
to which the activity is allocated
depends on whether the organization or
activity has a purpose, mandate, or
function of serving one or more
assessment areas. Specifically, an
activity that has a purpose, mandate, or
function that includes serving one or
more assessment areas is considered as
part of the evaluation of: (1) one
assessment area, when it benefits and is
targeted to a single assessment area; (2)
the State or multistate MSA, when the
activity benefits or is targeted to two or
more assessment areas, or the State or
multistate MSA; and (3) the institution
level, when the activity benefits or is
targeted to a regional area of two or
more States not in a multistate MSA or
a regional area that includes but is larger
than one multistate MSA. An activity
that does not have a purpose, mandate,
or function that includes serving an
assessment area may enhance
performance at the State, multistate
MSA, or institution level if: (1) the bank
has been responsive to community
development needs and opportunities in
its assessment areas; and (2) the activity
benefits census tracts or individuals
located in a State, multistate MSA, or
broader regional area that includes one
678 See 12 CFR ll.12(h); see also Q&A
§ ll.12(h)–6.
PO 00000
Frm 00191
Fmt 4701
Sfmt 4700
6763
or more of a bank’s assessment areas
(even though the activity does not
benefit, and is not targeted to, one or
more assessment areas).679
The Agencies’ Proposal
Under proposed § ll.18, a bank
would receive consideration for
community development loans,
community development investments,
and community development services
(which the proposal referred to
collectively as ‘‘community
development activities’’) conducted in
its facility-based assessment areas. In
addition, proposed § ll.18 provided
that a bank would also receive
consideration for community
development loans, community
development investments, and
community development services
provided outside of its facility-based
assessment areas within the States and
multistate MSAs in which the bank has
a facility-based assessment area and in
a nationwide area, as provided in
proposed §§ ll.21, ll.24 through
ll.26, and ll.28 and proposed
appendices C and D. The crossreferences in proposed § ll.18 did not
include proposed § ll.29; as a result,
the consideration of community
development activities outside of
facility-based assessment areas would
not have applied to small banks or
intermediate banks that did not opt into
the Community Development Financing
Test. Under the proposal, community
development loans, community
development investments, and
community development services
conducted outside of a bank’s facilitybased assessment areas would be
considered to inform conclusions for the
State, multistate MSA, and institution.
Recognizing that the current approach
to considering community development
loans, investments, and services in
broader statewide and regional areas has
afforded banks flexibility but sometimes
contributed to uncertainty about
whether such loans, investments, or
services will qualify, the agencies aimed
with the proposal to retain and enhance
this flexibility while also providing
greater certainty. To this end, the
agencies included a clear statement in
proposed § ll.18 that a bank will also
receive consideration for community
development loans, investments, and
services conducted outside of a bank’s
facility-based assessment areas—not
only within the States and multistate
MSAs in which the bank has a facility679 See
E:\FR\FM\01FER2.SGM
Q&A § ll.21(a)–3.
01FER2
6764
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
based assessment area, but also in the
nationwide area.680
The agencies sought feedback on the
proposed approach, and on alternative
approaches that would encourage banks
that choose to conduct community
development activities outside of their
facility-based assessment areas, such as
requiring banks to delineate specific
geographic areas where they would
focus their community development
outside of facility-based assessment
areas. The agencies also asked whether
all banks, including all intermediate
banks, small banks, and banks that elect
to be evaluated under an approved
strategic plan, should have the option to
have community development activities
outside of facility-based assessment
areas considered.
ddrumheller on DSK120RN23PROD with RULES2
Comments Received
General feedback. The agencies
received numerous comments on the
proposal regarding the areas eligible for
community development loans,
investments, or services outside of
facility-based assessment areas, under
proposed § ll.18. Many commenters
supported the proposal. In general,
these commenters expressed that
broadening the geographic eligibility of
community development activities will
allow banks to target community
development loans, investments, and
services to areas with the greatest
community development needs,
regardless of whether they are in
proximity to a bank branch. For
example, a number of commenters
stated that the proposal would increase
community development activities in
underserved areas such as economically
distressed areas, rural areas, and Native
lands where there are few banks.
Similarly, some commenters supported
the proposal because they noted that
bank branches do not always align with
the neighborhoods in need of
investment and that the flexibility of the
proposal can help bring community
development capital to these
neighborhoods. Another commenter
suggested that consideration of
community development activities
anywhere in the United States would
allow banks to conduct community
development activities that best align
with the bank’s mission, and to seek out
the most advantageous financial
investments.
Other commenters supported the
proposal because it provided flexibility
for banks that have limited control over
680 See proposed § ll.18. See also proposed
§§ ll.21, ll.24 through ll.26, and ll.28
and proposed appendices C and D (cross-referenced
in proposed § ll.18).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
the availability of community
development projects in their facilitybased assessment areas. For example,
commenters noted that in some areas,
opportunities to conduct community
development loans, investments, and
services are subject to intense
competition between lenders and
investors.
Commenters also described other
benefits of the proposed approach.
Some commenters noted that credit for
community development activities
outside of facility-based assessment
areas would be particularly helpful for
the growing number of banks with a
limited number of branches. One of
these commenters also noted that
smaller State and regional development
organizations would also benefit from
this aspect of the proposal. Other
commenters indicated that the proposal
provides much-needed certainty to
banks because it allows banks to get
credit for community development
activities outside of their facility-based
assessment areas without first having to
demonstrate that they have been
responsive to the needs of their
assessment areas.
Other commenters suggested
additional analysis or other
modifications to the approach. A
commenter requested that the agencies
track banks’ community development
activities conducted outside of its
assessment area to see if banks take
advantage of the proposed changes.
Another commenter indicated that
community development activities
outside of assessment areas should be
optional for positive consideration.
Other commenters expressed
concerns regarding the proposal, with
some suggesting alternatives that would
limit or give less emphasis to
community development activities
outside of facility-based assessment
areas relative to activities within
facility-based assessment areas. These
commenters generally stated that it
would be important to maintain a focus
on banks meeting local community
needs. Commenters provided a range of
specific recommendations including
that: (1) community development
activities should receive CRA credit
only in facility-based assessment areas
and anywhere the bank has a CRA
obligation to serve a local community
under an applicable performance test;
(2) the agencies should provide only
partial credit for community
development activities conducted
outside of a bank’s assessment areas; (3)
credit for outside facility-based
assessment area community
development activities should be
weighted or emphasized less than what
PO 00000
Frm 00192
Fmt 4701
Sfmt 4700
is provided inside facility-based
assessment areas; and (4) consideration
should be given only for community
development activities outside of a
bank’s assessment areas if the bank
received a certain rating, such as
‘‘Satisfactory’’ or ‘‘Low Satisfactory,’’ on
its previous CRA exam. Some
commenters expressed the sentiment
that to receive any credit for community
development activities outside of a
bank’s assessment areas, banks should
be required to first meet the credit needs
of their assessment areas. For example,
a commenter suggested that banks
provide evidence to the agencies that
they had unsuccessfully bid on multiple
community development financing
activities within their facility-based
assessment areas before receiving
consideration for their community
development activities outside of its
facility-based assessment areas.
Consideration of specific types of
community development loans,
community development investments,
or community development services. A
few commenters stated that allowing
banks to receive CRA consideration for
investments outside of facility-based
assessment areas would support and
expand affordable housing investments
in underserved CRA markets. Some
commenters pointed out that expanding
consideration for community
development financing outside of
facility-based assessment areas would
help smooth existing LIHTC pricing
discrepancies between CRA hotspots
and CRA deserts. A commenter further
recommended that credit for LIHTC
investments outside of assessment areas
should be limited to the greater
statewide or regional area in which the
bank has an assessment area.
Other commenters requested that the
agencies support CRA credit for
investments or loans with multistate
CDFIs, with CDFI loan funds, or
generally with CDFIs or MDIs outside of
a bank’s assessment areas. However,
another commenter voiced concern that
full consideration of investments with
CDFIs regardless of geographic location
could drain capital away from local
CDFIs to large national CDFIs. Other
activities that commenters suggested
should receive CRA community
development credit include lending
outside of assessment areas conducted
through a fintech partnership, activities
relating to digital inclusion that target or
benefit underserved urban and rural
communities, and bank employee
volunteer activities unrelated to the
provision of financial services if the
services are provided in any low- or
moderate-income area.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Geographic areas in which
community development loans,
investments, and services are
considered. Some commenters
recommended specific geographic areas
in which a bank’s community
development activities should be
considered. Some commenters
suggested limiting consideration of
community development activities that
are beyond facility-based assessment
areas to low- and moderate-income
communities where a bank conducts
business, or to four categories of
geographic areas where commenters
stated that community development
needs are greater: Native lands, the
Mississippi Delta, Central Appalachia,
and the Texas-Mexico border.
Several commenters also stated that
consideration of a bank’s community
development activities should be
restricted to specific geographic areas
identified under the proposed
community development impact and
responsiveness review factors.681 One of
these commenters further suggested that
the agencies should apply this
restriction specifically to branch-based
banks when they seek to invest outside
of a State where they have branches.
Conversely, another commenter noted
that the community development
impact and responsiveness factors
would incentivize banks to focus on
underserved and other high-priority
communities, so any geographic
restriction on making community
development loans, investments, and
services outside of facility-based
assessment areas would be unnecessary
and counterproductive.
Delineation of specific geographic
areas outside of facility-based
assessment areas for community
development loans, investments, and
services. Some commenters addressed
the agencies’ request for views on
whether banks should be required to
delineate specific geographic areas
where they will focus their outside
facility-based assessment area
community development loans,
investments, and services. A few
commenters stated that banks should
not be required to delineate specific
geographic areas because it would
reduce flexibility for banks and it may
not be feasible for banks to anticipate
where there will be community
development opportunities. In addition,
some commenters raised concerns that
requiring banks to designate areas for
community development loans,
investments, and services outside of
facility-based assessment areas could
681 See
proposed § ll.15(b).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
give banks too much latitude to
designate easy-to-invest areas.
However, some commenters
supported the idea of requiring banks to
delineate specific geographic areas for
community development activities. For
example, a commenter supported the
delineation of geographic areas for
community development activities as an
alternative to providing full
consideration for activities in the entire
statewide area for States in which a
bank has one or more branches. This
commenter further recommended that
community development areas, if
adopted, should be composed primarily
of distressed, underserved, or low- or
moderate-income census tracts. Another
commenter stated generally that the
approval of such community
development geographic areas should be
public, consistent, and transparent
across banks, and that an impact review
process should be developed that
identifies a specific community need
and requires banks to explain how they
plan to meet those needs. Yet another
commenter suggested that the agencies
develop a way to define ‘‘credit deserts’’
where banks can receive extra credit
even if the bank does not maintain a
branch office in that community.
Credit for outside assessment area
community development loans,
investments, and services—small banks,
intermediate banks, and strategic plan
banks. Commenters also responded to
the agencies’ request for comment on
whether all banks should have the
option to have community development
loans, investments, and services outside
of facility-based assessment areas
considered, including intermediate
banks, small banks, and banks that elect
to be evaluated under a strategic plan.
All commenters addressing this
question supported giving banks the
option to have CRA consideration
outside of facility-based assessment
areas regardless of a bank’s size or
whether the bank elects to be evaluated
under a strategic plan. Many of these
commenters stated that the final rule
should encourage as much community
development activity as possible,
indicating that there is little or no
reason to limit consideration of
community development activities
outside of assessment areas only to
large, wholesale, and limited purpose
banks.
A few commenters emphasized that
consideration of community
development activities outside of a
bank’s assessment areas would be
beneficial to small banks. A commenter
indicated that small lenders are often in
the best position to engage in loans,
investments, or services in underserved
PO 00000
Frm 00193
Fmt 4701
Sfmt 4700
6765
areas. Another commenter stated that
smaller banks may struggle to find
community development opportunities,
particularly when they have smaller
assessment areas.
Final Rule
The agencies are adopting proposed
§ ll.18, renumbered as final § ll.19,
with certain revisions discussed below.
Final § ll.19 states that the agencies
may consider a bank’s community
development loans, community
development investments, and
community development services
provided outside of its facility-based
assessment areas, as provided in the
agencies’ CRA regulations. Relative to
the proposal, the final rule expands
application of this provision to include
small and intermediate banks that do
not opt into the Community
Development Financing Test. With this
expanded eligibility, the final rule in
§ ll.19 eliminates the proposed cross
references to proposed §§ ll.21,
ll.24 through ll.26, and ll.28
and proposed appendices C and D in
proposed § ll.18. This change, which
is also discussed in the section-bysection analysis of § ll.29 (regarding
small bank performance evaluation) and
the section-by-section analysis of
§ ll.30 (regarding intermediate bank
performance evaluation), allows any
bank the ability to receive consideration
for qualifying community development
activities outside of its facility-based
assessment areas without regard to asset
size or business model.
In adopting the final rule approach,
the agencies considered several
potential benefits of broadening the
geographic scope of community
development loans, investments, and
services relative to the current
approach. As noted by some
commenters, the agencies are aware that
community development opportunities
in certain areas may be limited or
subject to competition among banks.
Principally, the agencies believe that the
final rule approach will: (1) allow
appropriate flexibility for banks to
conduct community development loans,
investments, and services in a variety of
geographic areas; (2) help banks receive
consideration for community
development activities in areas with
significant unmet credit needs,
including areas where few banks
maintain deposit-taking facilities; and
(3) allow banks to identify community
development opportunities that align
with their business model and expertise,
including opportunities outside of a
bank’s facility-based assessment areas.
The final rule approach builds on and
provides greater certainty than the
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6766
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
current approach, which, as noted,
considers a bank’s community
development activities outside of
facility-based assessment areas only for
activities with a purpose, mandate, or
function that includes serving
geographic areas or individuals in the
bank’s assessment areas; or if activities
benefit a broader statewide or regional
area and the bank has been responsive
to community development needs and
opportunities in its assessment areas.682
Under the final rule approach, banks
evaluated under the Community
Development Financing Test in
§ ll.24 or Community Development
Financing Test for Limited Purpose
Banks in § ll.26 will receive
consideration for eligible community
development activities, regardless of the
geographic scope of the activities. These
performance tests emphasize meeting
the community development needs of
facility-based assessment areas while
also considering activities outside of
these areas. Thus, the agencies do not
believe that a condition of having met
the needs of facility-based assessment
areas is necessary because a bank’s
performance within facility-based
assessment areas will always be
separately taken into account under the
Community Development Financing
Test and Community Development
Financing Test for Limited Purpose
Banks.683 In contrast, for small banks,
the final rule retains conditions on the
consideration of community
development activities outside of
facility-based assessment areas that are
similar to the current approach, as
discussed further below. Under the final
rule, community development activities
for intermediate banks will also be
considered regardless of the geographic
scope of the activities. However, the
extent of that consideration will depend
on how well the intermediate bank has
met the needs of their facility-based
assessment areas.
The agencies also considered the
benefits of the final rule approach of
considering community development
activities outside of facility-based
assessment areas for banks with a
variety of business models. For
example, the agencies believe that
expanded geographic eligibility of
community development activities will
support banks that operate primarily or
entirely without branches since these
banks may have fewer community
Q&A § ll.12(h)–6.
further detail on these tests, see the
section-by-section analyses of final §§ ll.24 and
ll.26. See also final § ll.25 (Community
Development Services Test) and the accompanying
section-by-section analysis.
682 See
683 For
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
development opportunities within their
facility-based assessment areas.
The final rule approach revises the
proposed language from stating that a
bank ‘‘will’’ receive consideration for
activities outside of its facility-based
assessment areas in proposed § ll.18
to instead stating that a bank ‘‘may’’
receive consideration for these activities
in final § ll.19. This change reflects
the consideration of community
development activities for small banks.
For these banks, consideration of
community development loans,
investments, and services outside of
facility-based assessment areas is
dependent on other factors. Under
§ ll.29(b), the agencies may adjust the
rating of a small bank evaluated under
the Small Bank Lending Test from
‘‘Satisfactory’’ to ‘‘Outstanding’’ at the
institution level based on making
community development investments
and providing community development
services without regard to whether the
activity is in one or more of the bank’s
facility-based assessment areas. Thus, in
effect, the small bank would have to
perform well in serving community
credit needs in its facility-based
assessment areas before receiving
additional credit for community
development activities irrespective of
geographic location. Accordingly, for a
small bank with an institution rating of
‘‘Needs to Improve,’’ community
development investments and services
would not be considered, including
those outside of the bank’s facility-based
assessment areas. Moreover, as detailed
in § ll.30(a)(2)(ii) of the final rule for
intermediate banks evaluated under the
Intermediate Bank Community
Development Test, the extent of the
consideration of community
development activities outside of the
bank’s facility-based assessment area(s)
will depend on the adequacy of the
bank’s responsiveness to the needs and
opportunities for community
development activities within the
bank’s facility-based assessment areas
and applicable performance context
information.
Final § ll.19 does not limit the
geographic areas outside of facilitybased assessment areas in which
community development loans,
investments, and services can receive
consideration, as suggested by some
commenters noted above. For example,
final § ll.19 does not restrict
consideration for community
development to only specific geographic
areas identified under the proposed
community development impact and
responsiveness review factors, or to only
Native lands, the Mississippi Delta,
Central Appalachia, and the Texas-
PO 00000
Frm 00194
Fmt 4701
Sfmt 4700
Mexico border, as some commenters
suggested. The agencies believe that this
suggested approach would limit
community development opportunities,
particularly for banks without access or
relationships with community
development providers in these areas.
More generally, the agencies believe that
limiting consideration of community
development loans, investments, and
services outside of facility-based
assessment areas to any geographic
areas could restrict the flow of
community development financing to
any area that has not been designated as
eligible to receive consideration for
community development.
Relatedly, under final § ll.19 banks
will not be required to delineate specific
geographic areas outside facility-based
assessment areas in which to make
community development loans,
investments, and services, as suggested
by some commenters. The agencies
believe that prescriptive delineated
areas would inappropriately constrain
bank flexibility to pursue community
development activities where the need
is greatest. In determining not to adopt
this suggestion, the agencies also
weighed the comments that banks may
not be able to fully anticipate in
advance where community
development needs and opportunities
may be available.
Under final § ll.19, the agencies are
also not establishing restrictions on the
consideration of community
development loans, investments, or
services conducted outside of facilitybased assessment areas for certain types
of activities, as suggested by some
commenters. For example, the final rule
does not limit credit for LIHTC
investments outside of facility-based
assessment areas to the greater statewide
or regional area in which the bank has
a presence, and does not limit
consideration of activities outside of
facility-based assessment areas to those
that expand affordable housing
investments in underserved CRA
markets. The agencies believe that the
final rule approach allows banks to
identify community development
opportunities where its business model,
strategy, and expertise are well aligned
with a community need.
The agencies considered, but are not
adopting, commenter suggestions to
allow consideration of activities outside
of facility-based assessment areas only if
the bank provides evidence to the
agencies that the bank had
unsuccessfully bid on multiple
community development financing
activities within their facility-based
assessment areas. The agencies
considered that this approach may help
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
to encourage banks to prioritize seeking
out opportunities within their facilitybased assessment areas. However, the
agencies determined that the approach
might be difficult to enforce and
increase burden as a result of additional
documentation requirements, and may
result in banks expending resources
pursuing community development
opportunities that are already being met
by other banks in the area.
The agencies also considered
suggestions to limit consideration of
community development activities
outside of facility-based assessment
areas to instances in which a bank
received a certain overall rating, or
Community Development Financing
Test conclusion on its previous CRA
examination, such as ‘‘Satisfactory’’ or
‘‘Low Satisfactory.’’ As noted above and
in the section-by-section analyses of
§§ ll.29 and ll.30, the final rule
includes similar provisions for
evaluating community development
performance under the small and
intermediate bank performance
evaluations, but applied to the bank’s
current, rather than prior, evaluation
period. Specifically, for a small bank,
community development investments
and services inside or outside of a
bank’s facility-based assessment area are
considered only for potentially
enhancing the bank’s overall rating from
a ‘‘Satisfactory’’ to an ‘‘Outstanding.’’
For intermediate banks evaluated under
the Intermediate Bank Community
Development Test, community
development activities outside of
facility-based assessment areas are
considered without regard to whether
the activity is made in one or more of
the bank’s facility-based assessment
areas; any additional consideration to
adjust a bank’s rating will depend on
the adequacy of the bank’s
responsiveness to community
development needs and opportunities
within its facility-based assessment
areas and applicable performance
context information. The agencies
believe that it is preferable to apply
these conditions to the current
evaluation period, rather than the prior
evaluation period, to ensure that a
bank’s community development
activities are evaluated in relation to the
needs and opportunities that existed
when the bank conducted these
activities.
The final rule approach does not
adopt alternative suggestions to assign
only partial credit for community
development activities conducted
outside of a bank’s facility-based
assessment areas, or to weight such
activities less than activities inside
facility-based assessment areas.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
However, the final rule includes specific
weighting of facility-based assessment
area conclusions on the Community
Development Financing Test, the
Community Development Financing
Test for Limited Purpose Banks, and the
Community Development Services Test,
as described further in the section-bysection analysis of final § ll.28.
Section ll.21 Evaluation of CRA
Performance in General
Under the current CRA regulations,
the examination process is tailored to a
bank’s asset size and business model.684
Large banks are evaluated under three
performance tests: 685 a lending test,
which assesses retail and community
development loans; 686 an investment
test,687 which assesses community
development investments; and a service
test, which assesses retail services and
community development services.688
Intermediate small banks are evaluated
under a lending test and a community
development test, which assesses
community development loans,
community development investments,
and community development
services.689 Small banks are evaluated
under a single lending test.690 Both
intermediate small banks and small
banks may elect to be evaluated under
the large bank performance tests if they
collect and report the CRA data required
of large banks.691 Wholesale and limited
purpose banks are evaluated under a
single community development test,
which assesses community
development loans, community
development investments, and
community development services.692 In
addition, any bank may seek agency
approval to be evaluated under a
strategic plan.693
In recognition of the importance that
bank size, business model, and local
conditions play when evaluating a
bank’s CRA performance, the agencies
proposed tailoring the CRA evaluation
framework based on three updated bank
size categories for large banks,
intermediate banks, and small banks.
The agencies also proposed a tailored
approach to evaluations for wholesale
banks, limited purpose banks, and
684 See generally current 12 CFR ll.12 and
ll.21 through ll.27.
685 See current 12 CFR ll.21(a)(1).
686 See current 12 CFR ll.22.
687 See current 12 CFR ll.23.
688 See current 12 CFR ll.24.
689 See current 12 CFR ll.21(a)(1) and
ll.26(a)(2).
690 See current 12 CFR ll.21(a)(1) and
ll.26(a)(1).
691 See current 12 CFR ll.21(a)(3).
692 See current 12 CFR ll.21(a)(2) and ll.25.
693 See current 12 CFR ll.21(a)(4) and ll.27.
PO 00000
Frm 00195
Fmt 4701
Sfmt 4700
6767
banks operating under an approved
strategic plan. Overall, proposed
§ ll.21 described the following:
performance standards for each bank
category; treatment of bank subsidiaries,
affiliates, consortia, and third parties;
performance context information that
would be considered in CRA
evaluations; categories for bank
conclusions and ratings; and the
requirement that bank CRA activities be
conducted in a safe and sound manner.
The agencies are finalizing § ll.21
with non-substantive changes.
Specifically, the agencies are: revising
the section heading and, as necessary,
paragraph headings; streamlining the
regulation text, including removing
proposed § ll.21(a) from the final rule
as duplicative; removing duplicative
information from final § ll21(e);
adding section headings and crossreferences for clarity and ease of
reference; and making other clarifying
and conforming changes.
Section ll.21(a) Application of
Performance Tests and Strategic Plans
Current Approach
Similar to the current CRA
regulations, the agencies set out an
evaluation framework in proposed
§ ll.21(a) and (b) that is tailored to a
bank’s asset size and business model.694
As explained below, the agencies are
finalizing the broader evaluation
framework as proposed, with
modifications to the individual
performance tests and standards.
Section ll.21(a)(1) Large Banks
The Agencies’ Proposal
In § ll.21(b)(1), the agencies
proposed to apply four performance
tests to large banks: the Retail Lending
Test in proposed § ll.22; the Retail
Services and Products Test in proposed
§ ll.23; the Community Development
Financing Test in proposed § ll.24;
and the Community Development
Services Test in proposed § ll.25. The
agencies intended that each of these
performance tests would measure a
different aspect of how responsive a
bank’s retail and community
development activities are to the credit
needs of the bank’s communities.
As discussed in more detail in the
section-by-section analysis of the Retail
Lending Test in § ll.22, the agencies
proposed that the Retail Lending Test
rely on a set of metrics and community
and market benchmarks grounded in
local data to measure how well a bank’s
retail lending meets the credit needs of
694 See proposed § ll.21(a) and (b); see also
proposed §§ ll.12 and ll.22 through ll.29.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6768
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
low- and moderate-income individuals,
small businesses and small farms, and
low- and moderate-income geographies
through an analysis of lending volume
and geographic and borrower lending
distributions.695 More specifically, the
agencies proposed that the bank’s retail
lending distribution metrics, calculated
using the bank’s number of loans, be
compared to community and market
benchmarks.696 The agencies also
proposed that additional factors be
considered when evaluating a bank’s
retail lending performance.697 The
agencies proposed that conclusions for
the Retail Lending Test be assigned for
each of a large bank’s facility-based
assessment areas, retail lending
assessment areas, and outside retail
lending area, as well as at the State,
multistate MSA, and institution levels,
as applicable.698
The agencies proposed that the
Community Development Financing
Test assess how well a bank meets
community development financing
needs, using dollar-based metrics and
benchmarks to standardize the review of
community development loans and
community development investments,
while also incorporating a qualitative
impact review of community
development financing activities to
complement the metrics and
benchmarks.699 Conclusions would
reflect the agencies’ qualitative
assessments of a bank’s community
development financing metric relative
to the benchmarks and the impact
review. The proposed conclusions for
the Community Development Financing
Test would be assigned for each of a
bank’s facility-based assessment areas,
States, and multistate MSAs, and at the
institution level, as applicable.700
The agencies’ proposed Retail
Services and Products Test and
Community Development Services Test
would evaluate how well a bank’s
products and services, respectively,
meet community credit and community
development needs.701 The agencies
proposed revised standards for these
performance tests to reflect changes in
banking over time and to introduce
standardized metrics,702 as well as
benchmarks for the Retail Services and
Products Test,703 to allow a more
consistent evaluation approach. For
both performance tests, the proposed
conclusions would be assigned for each
of a bank’s facility-based assessment
areas, States, and multistate MSAs, and
at the institution level, as applicable.704
To reflect the increased resources and
capacity of large banks that had assets
greater than $10 billion, the agencies
proposed additional tailoring of the
Retail Services and Products Test, the
Community Development Services Test,
and the data collection and reporting
requirements.705 For large banks that
had assets greater than $10 billion, the
agencies proposed requiring a full
evaluation under the Retail Services and
Products Test, including the bank’s
digital and other delivery systems 706
and deposit products responsive to the
needs of low- and moderate-income
individuals.707 Similarly, for the
Community Development Services Test,
the agencies proposed that only large
banks that had assets of more than $10
billion would be required to be
evaluated under a community
development service hours metric.708
In addition to requiring large banks
that had assets greater than $10 billion
to collect and maintain data for digital
and other delivery systems and
responsive deposit products,709 the
agencies also proposed that these banks
collect, maintain, and report
deposits,710 community development
services,711 and automobile lending
data.712
695 See proposed § ll.22(d) and proposed
appendix A.
696 See id.
697 See proposed § ll.22(e).
698 See proposed § ll.22(f)(1).
699 See generally proposed § ll.24 and
proposed appendix B.
700 See proposed § ll.24(d)(1).
701 See generally proposed § ll.23, proposed
appendix A, proposed § ll.25, and proposed
appendix B.
702 See generally proposed §§ ll.23 and ll.25.
proposed § ll.23(b)(1)(i)(B).
proposed §§ ll.23(d)(1) and
ll.25(e)(1).
705 See generally proposed §§ ll.23, ll.25,
and ll.42.
706 See proposed § ll.23(b)(3).
707 See proposed § ll.23(c)(2).
708 See proposed § ll.25(b)(2).
709 See proposed § ll.42(a)(4)(ii) and (iii).
710 See proposed § ll.42(a)(7) and (b)(5).
711 See proposed § ll.42(a)(6) and (b)(4).
712 See proposed § ll.42(a)(2) and (b)(2).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Comments Received
The agencies received numerous
comments on the application of the four
proposed tests to large banks. Many
commenters offered general support for
the proposed four-test framework, with
reasons for support including increased
test rigor, additional quantitative
standards for assessing performance,
and permitting a more comprehensive
evaluation of CRA activities.
Many commenters also stated that the
proposed four-performance test
framework for large banks offered
significant improvements in
performance test rigor, but that the
improvements are not consistent. In
703 See
704 See
PO 00000
Frm 00196
Fmt 4701
Sfmt 4700
particular, some commenters were
concerned that the Retail Services and
Products Test, the Community
Development Financing Test, and the
Community Development Services Test
may replicate the high pass rates and
ratings that banks currently receive,
leading to ‘‘grade inflation,’’ and may
not necessarily reveal significant
distinctions in performance. These
commenters suggested that the agencies
extend the rigor of the Retail Lending
Test to the other three performance
tests. To guard against ratings inflation
and ensure test rigor, several
commenters recommended that the
agencies develop guidelines for
examiners on how to use the
performance measures for some of the
large bank performance tests such as the
Community Development Financing
Test and the Community Development
Services Test.
Some commenters made
recommendations to the agencies to
revise the proposed large bank
framework of performance tests by
adding to, eliminating, or reconfiguring
one or more of the four performance
tests. A commenter expressed support
for the current large bank threeperformance-test evaluation regime with
distinct lending, investment, and
service tests, stating that this threeperformance-test regime is a more
equitable method to measure CRA
performance; prevents bank lending,
investment, and services from
competing against each other for
supremacy; and ensures that banks
continue to have a focused incentive to
meet the needs of low- and moderateincome communities.
Some commenters suggested that the
agencies eliminate the Community
Development Services Test after
combining it with the Retail Lending
Test, the Community Development
Financing Test, the Retail Services and
Products Test, or a combination of the
performance tests. These commenters
explained that: the proposed
Community Development Services Test
was not sufficiently weighted by itself to
incentivize bank performance; the
proposed eligible service activities are
limited and had minimal impacts; and
the activities that would be evaluated
under the performance test would be
better allocated to either the Community
Development Financing Test or the
Retail Services and Products Test. For
large banks, a commenter suggested that
the agencies should consider combining
the Community Development Financing
Test and the Community Development
Services Test, and separately combining
the Retail Lending Test and the Retail
Services and Products Test, with each
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
combined performance test having a 50
percent weight.
Another commenter suggested that
the agencies make the Community
Development Services Test more of a
‘‘tie-breaker’’ by providing minimal
credit for community development
services. Another commenter suggested
that the agencies eliminate the
Community Development Services Test
in full and instead evaluate these
services as an impact review factor.
A few commenters suggested that the
agencies maintain separate evaluations
for community development lending
and community development
investments. The commenters stated
that, by combining community
development lending and community
development investment into a single
performance test, banks may retreat
from investments because they can be
more complex and provide a lower rate
of return than community development
lending. For similar reasons, a
commenter recommended that the
agencies create a lending subtest and an
equity investment subtest within the
Community Development Financing
Test with equal weighting for both
subtests.
Many commenters offered suggestions
on additional tailoring for the large bank
performance test framework. For
example, a few commenters suggested
that large banks that had less than $10
billion in assets should have the ability
to choose an evaluation under the
proposal or under the current
examination framework.
Many commenters objected to the fact
that, under the proposal, large banks
that had assets between $2 billion and
$10 billion would have different and
lesser obligations compared to banks
that had over $10 billion in assets.
These differences existed within: (1) the
Retail Services and Products Test with
respect to the evaluation of digital and
other delivery systems and the
evaluation of deposit products
responsive to the needs of low- and
moderate-income individuals; (2) the
Community Development Services Test
with respect to the metric for
community development services hours;
and (3) the related data requirements for
retail services and products, community
development services, and deposits.
These commenters stated that financial
institutions classified as a large bank
should have all the CRA responsibilities
of a large bank with no differential
treatment.
Final Rule
After considering these comments, the
agencies are finalizing the overall
evaluation framework for large banks as
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
proposed with the four performance
tests described above. Under
§ ll.21(a)(1) of the final rule, large
banks are subject to: the Retail Lending
Test in final § ll.22; the Retail
Services and Products Test in final
§ ll.23; the Community Development
Financing Test in final § ll.24; and
the Community Development Services
Test in final § ll.25. However, as
discussed in the section-by-section
analysis to final § ll.28, ‘‘Assigned
Conclusions and Ratings,’’ the agencies
are revising the weight of each of the
four performance tests so that the two
retail performance tests and the two
community development performance
tests collectively each have a respective
weight of 50 percent.
The agencies note that, rather than
three performance tests under the
current rule, they proposed the four
performance tests for large banks to
more easily tailor examinations by bank
asset size and business model. This
tailoring allows the agencies to use
specific data for each performance test,
including data which are already
available. Further, the agencies believe
that each individual performance test
measures a unique aspect of how
responsive a bank’s retail and
community development activities are
to the credit needs of their communities,
and that collapsing one or more of the
performance tests to evaluate lending,
investment, and services would result in
a less robust large bank evaluation
framework. Retaining the Community
Development Services Test and the
Retail Services and Products Test as
separate performance tests for large
banks appropriately emphasizes large
bank service performance under each
respective performance test.
Maintaining the Community
Development Financing Test and
Community Development Services Test
as separate performance tests
underscores the importance of
community development services for
fostering partnerships among different
stakeholders, building capacity, and
creating the conditions for effective
community development, including in
rural areas. Further, the Community
Development Financing Test and the
Community Development Services Test
each evaluate different aspects of the
responsiveness of a bank’s community
development activities to the credit
needs of its local communities.
Maintaining two separate community
development performance tests in the
final rule emphasizes the benefits and
importance of community development
financing activities and community
development services and acknowledges
PO 00000
Frm 00197
Fmt 4701
Sfmt 4700
6769
that, in comparison to smaller banks,
large banks have additional capacity to
conduct both types of activities.
The agencies are not adopting the
suggestions to make the Community
Development Services Test more of a
‘‘tie-breaker’’ or to instead evaluate
community development services as an
impact review factor because these
suggestions are inconsistent with the
agencies’ intent to emphasize the
significance of community development
service activities, as noted above.
The agencies are keeping the
evaluation of both community
development lending and community
development investments activities
under the Community Development
Financing Test. The agencies
acknowledge the importance of
investments, such as the LIHTC, to help
support the creation of affordable rental
housing. For that reason, as discussed in
the section-by-section analysis of
§ ll.24, the final rule establishes a
separate community development
investment metric in § ll.24(e)(2)(iii)
and (iv) to identify and consider these
types of investment activities within the
broader performance test. With this
addition, the agencies believe that these
activities can be evaluated in a single
performance test without a diminution
of either lending or investments. In
addition, if the agencies observe any
developments in which banks favor
community lending or community
investments to a point where there is an
appreciable decline in one type of
activity in favor of the other, the
agencies will reevaluate whether any
additional measures are needed, such as
separate tests or distinct evaluations of
each activity under the same test.
However, agency experience does not
indicate that the de-emphasis of
community development lending or
community investment under a single
test is likely to be a significant concern
as evidenced by the current
intermediate small bank community
development test which evaluates both
loans and investments.
Further, the agencies believe that the
proposed four performance test
framework for large banks, which uses
objective and quantitative measures to
inform bank performance conclusions
and ratings and reduces potential
opportunities for subjective judgment, is
appropriately calibrated to evaluate the
performance of large banks. Specifically,
the framework uses metrics and
benchmarks to evaluate community
development loans and investments
under the Community Development
Financing Test and bank delivery
systems under the Retail Services and
Products Test. The Retail Lending Test
E:\FR\FM\01FER2.SGM
01FER2
6770
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
uses distribution metrics and
benchmarks to make evaluations more
transparent, including by specifying
quantitative standards for lending
consistent with achieving, for example,
a ‘‘Low Satisfactory’’ or ‘‘Outstanding’’
conclusion in a Retail Lending Test
Area. Although the Community
Development Services Test adopted in
the final rule does not include any
metrics or benchmarks, the agencies’
supervisory experience will permit the
use of the information and data
evaluated under the performance test to
make meaningful distinctions in bank
performance. Further explanation of this
change is discussed in the section-bysection analysis of § ll.25.
The agencies agree with commenters’
perspective with respect to developing
guidelines for examiners on how to use
the performance measures for some of
the large bank performance tests. As the
agencies implement the final rule, they
will consider what internal guidance
will be helpful for agency staff to
accurately evaluate bank performance.
In connection with each applicable
performance test, the agencies
considered the possibility of fully
eliminating the proposed distinctions
between large banks that had assets
greater than $10 billion and large banks
that had assets between $2 billion and
$10 billion in the final rule, as requested
by some commenters. While all of these
proposed distinctions are not
finalized,713 the agencies are adopting
some of the proposed distinctions in the
final rule because the agencies find that,
although it is appropriate to apply all
four performance tests to large banks
that had assets less than $10 billion in
assets, large banks that had assets
between $2 billion and $10 billion have
a more limited capacity to comply with
some requirements and data provisions
in comparison to their counterparts that
had assets greater than $10 billion.
These provisions include the
consideration of digital delivery
systems, other delivery systems, and
deposit products responsive to the
needs of low and moderate-income
individuals under the Retail Services
and Products Test 714 as well as the data
requirements with respect to digital
713 Provisions include the Bank Assessment Area
Community Development Service Hours Metric for
the Community Development Services Test that the
agencies did not adopt from the proposal, along
with the associated data collection, maintenance,
and reporting requirements. The agencies also did
not adopt the proposed distinction with respect to
the requirement to collect, maintain, and report
automobile lending data and replaced it instead
with a requirement to collect the data if automobile
loans are a product line for the bank.
714 See final § ll.23(b)(1)(iii), (b)(4), (c)(1)(ii),
and (c)(3).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
delivery systems, other delivery
systems, and deposits.715 Further, the
agencies believe that large banks that
had assets greater than $10 billion is an
appropriate threshold at which to apply
the additional requirements described
above. All three of the agencies have
considerable experience in using $10
billion in bank assets as a demarcating
boundary for heightened supervisory
expectations or additional
requirements.716 Furthermore, the
agencies note that Federal legislation
also uses $10 billion in bank assets on
a frequent basis as a threshold for
making certain requirements applicable
to financial institutions.717 Finally, the
agencies note that, under the final rule,
large banks that had assets between $2
billion and $10 billion may opt into any
of the proposed requirements applicable
to large banks that had assets greater
than $10 billion. For example, a large
bank with assets between $2 billion and
$10 billion may opt to collect and
maintain deposits data that is required
for large banks that had assets greater
than $10 billion.
The agencies also considered the
suggestion that large banks that had
assets less than $10 billion should have
the ability to choose an evaluation
under the proposal or under the current
examination framework. However,
implementing this suggestion could
remove a significant number of large
banks that play a significant role in
fulfilling low- and moderate-income
credit needs in local areas from the
more comprehensive evaluation
included in the final rule’s large bank
715 See final § ll.42(a)(4)(ii) and (iii), (a)(7), and
(b)(3).
716 See, e.g., Board, ‘‘Community & Regional
Financial Institutions’’ (Sept. 15, 2021), https://
www.federalreserve.gov/supervisionreg/communityand-regional-financial-institutions.htm (indicating
that the Board ‘‘defines community banking
organizations as those with less than $10 billion in
assets’’ for general supervisory purposes); OCC,
‘‘Community Bank Supervision’’ (Sept. 30, 2019),
https://www.occ.gov/publications-and-resources/
publications/comptrollers-handbook/files/
community-bank-supervision/pub-ch-communitybank-supervision.pdf (providing that ‘‘banks with
assets of $10 billion or less are’’ typically
‘‘characterized as community banks’’ as a general
supervision category); 12 CFR 327.8(f) and
327.16(b) (FDIC regulations generally defining a
large institution as a ‘‘depository institution with
assets of $10 billion or more’’ and using a separate
methodology to calculate risk-based deposit
insurance assessments for the Deposit Insurance
Fund).
717 See, e.g., 12 U.S.C. 1851(h)(1)(B) (making the
Volcker Rule requirements applicable to banks with
more $10 billion in total consolidated assets) and
12 U.S.C. 5515 (providing the CFPB with authority
to examine banks with more than $10 billion to
assess compliance with Federal consumer finance
laws); 15 U.S.C. 1693o–2(a)(6) (exempting banks
with less than $10 billion in assets from regulations
on interchange transaction fees with respect to an
electronic debit transaction).
PO 00000
Frm 00198
Fmt 4701
Sfmt 4700
evaluation approach. The agencies
estimate that there are approximately
372 banks that had assets between $2
billion and $10 billion, representing
approximately 8.0 percent of all banks
with CRA obligations and 7.3 percent of
deposits.718 In addition, the agencies
continue to believe that, with
appropriate tailoring incorporated in the
final rule for large banks that had assets
between $2 billion and $10 billion,
these banks otherwise have the requisite
capacity to engage in the range of
activities that will be evaluated under
the proposed four performance test
framework.
Section ll.21(a)(2) Intermediate Banks
The Agencies’ Proposal
In § ll.21(b)(2), the agencies
proposed that intermediate banks be
evaluated under the following tests: (1)
the Retail Lending Test applicable to all
intermediate banks; and (2) either the
current intermediate small bank
community development test in
proposed § ll.29(b)(2) as a default or,
at the bank’s option, the Community
Development Financing Test. The
agencies explained in the proposal that
intermediate banks would be evaluated
under the Retail Lending Test to
improve clarity, consistency, and
transparency in the evaluation of retail
lending, and provided options for
community development evaluation in
recognition of the fact that, in
comparison to large banks, intermediate
banks have a relatively more limited
capacity to conduct community
development activities.
Under proposed § ll.21(b)(2)(ii)(A),
if an intermediate bank chose to be
evaluated under the Community
Development Financing Test, the
agencies would continue to evaluate the
bank under the performance test until
the bank opted out. Proposed
§ ll.21(b)(2)(ii)(B) provided that the
agencies may adjust an intermediate
bank’s institution rating from
‘‘Satisfactory’’ to ‘‘Outstanding’’ if the
bank: (1) chose to be evaluated under
the Community Development Financing
Test; (2) requested additional
consideration for activities that qualify
under the Retail Services and Products
Test or the Community Development
Services Test; and (3) the bank would
have received a ‘‘Satisfactory’’ before
the additional consideration.
Similar to the current CRA
requirements, the proposal would not
have required intermediate banks to
collect or report any additional data.719
718 These numbers are based on 2021 and 2022
Call Report data.
719 See proposed § ll.42.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
However, when an intermediate bank
chose to be evaluated under the
Community Development Financing
Test, it would be required to collect and
maintain the same data required of large
banks for community development
loans and community development
investments, but in the format used by
the bank in the normal course of
business, until the completion of the
bank’s next CRA examination.720
ddrumheller on DSK120RN23PROD with RULES2
Comments Received
The agencies received numerous
comments on the application of the tests
to intermediate banks. Some
commenters supported the agencies’
proposal for intermediate banks because
it provided important flexibilities,
specifically stating that the ability to opt
into the Community Development
Financing Test appropriately balances
regulatory burden.
Other commenters suggested
additional changes for the intermediate
bank performance evaluation
framework. A few commenters
requested that the final rule give
intermediate banks the ability to also
opt into the Retail Lending Test. Some
commenters recommended that
intermediate banks should have the
option to continue to be evaluated
under all of the current standards
applicable to intermediate small banks,
including the current small bank
lending test.
With respect to the evaluation of
intermediate bank community
development loans, investments, and
services, commenters offered a variety
of perspectives. A few commenters
stated that community development
services should be a mandatory part of
the intermediate bank community
development evaluation. Some
commenters stated that the same
community development obligations
that apply to large banks should apply
to all banks, an approach that would
include all intermediate banks under
the Community Development Financing
Test and Community Development
Services Test. A commenter suggested
that intermediate banks should be
required to be evaluated under a
Community Development Financing
Test and a Community Development
Services Test that are customized for
intermediate banks.
A commenter stated that all banks,
including intermediate banks, should
have essential retail service activities
reviewed, including but not limited to
the accessibility of their products,
services, and branch network for low720 See
proposed § ll.42(a)(5)(i)(B).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
and moderate-income individuals and
communities.
Another commenter recommended
that the agencies provide more guidance
on how community development
services could optionally be
incorporated into the evaluations of
intermediate banks.
Final Rule
After considering the comments, the
agencies are adopting the evaluation
framework for intermediate banks as
proposed. Specifically, § ll.21(a)(2)(i)
of the final rule provides that the
agencies will evaluate intermediate
banks under the Retail Lending Test in
§ ll.22 and the Intermediate Bank
Community Development Test in
§ ll.30(a)(2) (renamed from the
‘‘intermediate bank community
development evaluation’’ in the
proposal), unless an intermediate bank
chooses to have its community
development loans and investments
evaluated under the Community
Development Financing Test in
§ ll.24. Final § ll.21(a)(2)(ii)
provides that, if an intermediate bank
opts to be evaluated under the
Community Development Financing
Test, the agencies will continue to
evaluate the bank under the
performance test until the bank opts out;
if the intermediate bank opts out of the
Community Development Financing
Test, the agency reverts to evaluating
the bank pursuant to the Intermediate
Bank Community Development Test,
starting with the evaluation period
preceding the bank’s next CRA
examination. Furthermore, final
§ ll.21(a)(2)(iii) provides that,
pursuant to final § ll.30(b),
intermediate banks may request
additional consideration for the services
and products that qualify under the
Retail Services and Products Test or the
Community Development Services Test.
In contrast to proposed
§ ll.21(b)(2)(ii)(B), which provided
additional consideration only to
intermediate banks choosing an
evaluation under the Community
Development Financing Test, final
§ ll.21(a)(2)(iii) permits additional
consideration for any intermediate bank
and references the substantive
provisions concerning the evaluation of
intermediate banks.
As proposed, intermediate banks
generally do not have any required data
collection, maintenance, or reporting
requirements under the final rule.721
721 The only exception is the requirement that if
an intermediate bank chooses to be evaluated under
the Community Development Financing Test, it
must collect and maintain community development
PO 00000
Frm 00199
Fmt 4701
Sfmt 4700
6771
The agencies believe that applying the
Retail Lending Test to intermediate
banks will improve the clarity,
consistency, and transparency of retail
lending evaluations. Further, the
agencies believe it is appropriate to
apply the Retail Lending Test to
intermediate banks because they
generally have fewer capacity
constraints than small banks, putting
them in a better position to comply with
Retail Lending Test requirements.
The agencies also note that various
aspects of the Retail Lending Test are
tailored in the final rule to
accommodate intermediate banks. For
example, relative to large banks, the
final rule minimizes the data
intermediate banks must collect and
maintain for evaluation under the Retail
Lending Test; 722 limits the geographic
scope in which the performance test
applies; 723 and provides additional
accommodations for intermediate banks
on various components of the test, such
as the Retail Lending Volume Screen.724
Commenters noted that the proposed
the Retail Lending Test would apply to
some intermediate small banks that are
currently evaluated under the small
bank lending test. However, the
agencies are finalizing the proposal to
apply the Retail Lending to all
intermediate banks to confer greater
clarity, consistency, and transparency to
evaluations of retail lending. The
agencies believe this approach is
appropriate considering that some
aspects of the Retail Lending Test are
tailored to intermediate banks. In
making this decision, the agencies
considered whether banks with assets of
more than $600 million in assets but
less than $1.503 billion could
reasonably be expected to transition
from the status quo small bank lending
test to the Retail Lending Test and have
determined that, based on supervisory
experience, these banks have the
capacity and resources to comply with
all applicable aspects of the test.
loans and community development investments
data. See final § ll.42(a)(5)(i)(B).
722 See generally final § ll.42(a) and (b)
(primarily exempting intermediate banks from the
requirements to collect, maintain, or report data
used to assess Retail Lending Test performance).
723 See final §§ ll.17 (making retail lending
assessment applicable to large banks only) and
ll.18 (exempting intermediate banks and small
banks that opt into the Retail Lending Test from the
outside retail lending area evaluation requirements
if more than 50 percent of the relevant loans were
purchased or originated inside the bank’s facilitybased assessment areas over the previous two
calendar years).
724 See final § ll.22(c)(3)(iii)(B) (intermediate
banks lacking an acceptable basis for not meeting
the Retail Lending Volume Screen in the facilitybased assessment area receive a Retail Lending Test
recommended conclusion).
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6772
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
The agencies considered whether they
should require intermediate banks to be
evaluated under the Community
Development Financing Test as
suggested by commenters. Although the
agencies concluded that requiring
intermediate banks to participate in the
Community Development Financing
Test provided the added benefit of
metrics and benchmarks for community
development activities, the agencies
also believe that the additional burden
from requiring the transition to the
Community Development Financing
Test could not be justified for all
intermediate banks, some of which have
more limited capacity.
The agencies also considered
whether, similar to the approach taken
for the Retail Lending Test, they could
tailor the Community Development
Financing Test for intermediate banks
so that the performance test could be
applied to all intermediate banks.
Although the agencies saw potential in
this approach, they were unable to make
modifications to the point that could
simultaneously accommodate the
capacity constraints of some
intermediate banks and maintain a set of
metrics and benchmarks that permitted
a meaningful comparison amongst all
banks under the test. The agencies
believe that the more prudent approach
in the final rule is to retain the
Intermediate Bank Community
Development Test as the default
evaluation method for intermediate
banks.
The agencies also considered whether
the Community Development Services
Test should apply to intermediate banks
as a required part of their CRA
performance evaluation. The agencies
decided that the application was not
necessary. For intermediate banks
subject to the default Intermediate Bank
Community Development Test,
‘‘community development services’’ is
already one of the four criteria described
in final § ll.30(a)(2), making
simultaneous evaluation under the
Community Development Services Test
redundant. The agencies also explained
in the proposal that, for the default
evaluation, they would retain the
expectation that intermediate banks may
not ignore one or more of the categories
of community development activities
covered by the criteria, such as
community development services, and
that the appropriate levels of each
activity would depend on the bank’s
capacity and business strategy, along
with community development needs
and opportunities that are identified by
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
the bank.725 This expectation also
applies under the final rule.
For intermediate banks choosing an
evaluation under the Community
Development Financing Test, although
community development services are
not evaluated under the performance
test, the final rule permits these banks
to submit activities that qualify under
the Community Development Services
Test for additional consideration if the
bank has an overall institution rating of
‘‘Satisfactory.’’ Although this does not
make the evaluation of community
development services mandatory, the
agencies have decided that this tailoring
is appropriate to avoid the application
of an additional new performance test
for intermediate banks with more
pronounced capacity constraints than
their large bank counterparts. The
agencies agree that additional guidance
on how community development
services could optionally be
incorporated into the evaluations of
intermediate banks may be appropriate,
and will consider issuing such guidance
in the future.
Although the agencies do not believe
that the Retail Services and Products
Test should be applied to all
intermediate banks because of capacity
constraints, the agencies have created an
evaluation framework that allows the
agencies to consider any retail services
an intermediate bank may conduct
when certain conditions are met. An
intermediate bank evaluated under
either the Intermediate Bank
Community Development Test or the
Community Development Financing
Test may request additional
consideration for retail banking services
and retail products and programs that
qualify under the Retail Services and
Products Test, provided the bank
achieves an overall institution rating of
at least ‘‘Satisfactory.’’ 726
Section ll.21(a)(3) Small Banks
The Agencies’ Proposal
In § ll.21(b)(3)(i), the agencies
proposed to evaluate small banks under
the current lending test for small banks
as the default evaluation method;
however, small banks could opt instead
to be evaluated under the Retail Lending
Test. The agencies explained in the
preamble to the proposed rule that this
approach not only recognized that small
banks have capacity constraints and a
more targeted focus on retail lending
than larger banks, but it also made a
metrics-based approach available to
small banks as an option to increase the
clarity, consistency, and transparency of
how their retail lending is evaluated.
If a small bank chose to be evaluated
under the Retail Lending Test, the
agencies proposed in
§ ll.21(b)(3)(ii)(A) to evaluate the
small bank under all Retail Lending Test
provisions applicable to an intermediate
bank, with the exception that no small
bank would be evaluated on its retail
lending outside of its facility-based
assessment areas. This exception was
intended by the agencies to tailor the
Retail Lending Test to small banks’
more limited capacities. Proposed
§ ll.21(b)(3)(ii)(B) provided that the
agencies would continue to evaluate a
small bank that chose to be evaluated
under the Retail Lending Test under
that performance test until the bank
opted out. If a small bank opted out of
the Retail Lending Test, the agency
would revert to evaluating the bank
under the small bank performance
standards as provided in proposed
§ ll.29(a), starting with the entire
evaluation period preceding the bank’s
next CRA examination.727
In addition, proposed
§ ll.21(b)(3)(ii)(C) provided that a
small bank that chose to be evaluated
under the Retail Lending Test may
request additional consideration for
activities that qualify under the Retail
Services and Products Test, the
Community Development Financing
Test, or the Community Development
Services Test and, after considering the
activities, the agencies may adjust the
bank’s rating from ‘‘Satisfactory’’ to
‘‘Outstanding’’ at the institution
level.728 Guidance for the current
regulations contains a similar provision
with respect to community development
activities or retail services activities.729
Similar to current CRA requirements,
the agencies proposed that small banks
would have no prescribed data
collection or reporting requirements.730
Comments Received
The agencies received many
comments on the application of the
proposed test to small banks. Although
some commenters supported the
proposed evaluation framework for
small banks, other commenters
suggested alternative or additional
performance tests. A commenter
suggested that the agencies apply the
Retail Lending Test to all small banks
and, if necessary, provide
accommodations, such as a longer
transition period. Another commenter
proposed § ll.21(b)(3)(ii)(B).
also proposed § ll.29(a)(2).
729 See Q&A § ll.26(d)–1.
730 See proposed § ll.42.
727 See
728 See
725 See
726 See
PO 00000
Q&A § ll.26(c)–1.
final §§ ll.21(a)(2)(iii) and ll.30(b)(2).
Frm 00200
Fmt 4701
Sfmt 4700
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
suggested that the final rule require the
evaluation of small bank retail service
activities. A commenter requested that
the final rule apply the same
community development obligations to
small banks as to large banks. Another
commenter stated that the agencies
should scale community development
activities appropriately for small banks,
which should not be totally exempt
from having these activities evaluated.
A commenter recommended that the
agencies provide more guidance on how
community development services could
optionally be incorporated into the
evaluations of small banks. A
commenter suggested that all banks,
including small banks, should have
incentives to engage in community
development financing. Another
commenter suggested that, at a
minimum, intermediate small banks
under the current CRA regulations that
become small banks under the proposal
should continue to have their
community development activities
evaluated.
ddrumheller on DSK120RN23PROD with RULES2
Final Rule
After considering the comments, the
agencies are adopting the performance
test framework for small banks with
some modifications to accommodate
other changes in the final rule.
Specifically, § ll.21(a)(3)(i) of the
final rule provides that the agencies
apply the Small Bank Lending Test
(renamed from the ‘‘small bank
performance standards’’ in the proposal)
in final § ll.29(a)(2), unless the bank
opts to be evaluated under the Retail
Lending Test in final § ll.22. If a
small bank opts to be evaluated under
the Retail Lending Test, final
§ ll.21(a)(3)(ii)(A) specifies that the
agencies use the same provisions used
to evaluate intermediate banks pursuant
to the Retail Lending Test. As discussed
further in the section-by-section
analysis of § ll.18 and, in comparison
to the proposal, this provision modifies
the treatment of small banks evaluated
under the Retail Lending Test by
extending uniform treatment to small
banks and intermediate banks with
respect to the bank’s outside retail
lending area.731 This modification
ensures that small banks with
significant concentrations of home
mortgage loans, multifamily loans, small
business loans, small farm loans, or
automobile loans outside of their
facility-based assessment areas are
subject to evaluation of any product
lines which meet the major product line
731 See final § ll.18(a)(2); see also final
appendix A, paragraph II.a.2.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
standards, described further in the
section-by-section analysis of § ll.22.
Final § ll.21(a)(3)(ii)(B) indicates
that small banks that opt to be evaluated
under the Retail Lending Test will be
evaluated under this test for the
evaluation period preceding the bank’s
next CRA examination and will
continue to be evaluated under that
performance test until the bank opts out;
if the small bank opts out, the bank will
be evaluated under the Small Bank
Lending Test, starting with the
evaluation period preceding the bank’s
next CRA examination.
In addition, final § ll.21(a)(3)(iii)
provides that, pursuant to final
§ ll.29(b), a small bank may request
additional consideration for loans,
investments, services, products, and
other activities described in that
paragraph. In contrast to proposed
§ ll.21(b)(3)(ii)(C), which would have
provided additional consideration only
to small banks choosing an evaluation
under the Retail Lending Test, final
§ ll.21(a)(3)(iii) permits additional
consideration for any small bank and
references the substantive provisions
concerning the evaluation of small
banks.
As proposed, and similar to the
current CRA requirements, small banks
have no required data collection,
maintenance, or reporting requirements
under the final rule.732
The agencies decline to apply the
Retail Lending Test to all small banks
because the agencies believe that
providing small banks the option to
have their retail lending evaluated
under either the Retail Lending Test or
the Small Bank Lending Test better
recognizes the capacity constraints of
small banks. If a particular small bank
prefers to be evaluated under the Retail
Lending Test’s metrics-based approach,
the final rule provides the flexibility for
that bank to be evaluated under that
performance test in a manner which
accommodates the bank’s asset size.
The agencies also decline to apply the
Community Development Financing
Test and the Community Development
Services Test to small banks because
these performance tests are specifically
tailored to evaluate the community
development loans, investments, and
services of larger banks. The
Community Development Financing
Test in the final rule includes metrics
and benchmarks primarily focused on
the performance of large banks; and
both the Community Development
Financing Test and the Community
Development Services Test require
banks to collect, maintain, or report data
732 See
PO 00000
final § ll.42.
Frm 00201
Fmt 4701
to assess bank performance. The
agencies do not believe that the benefit
of imposing new community
development investment or community
development service requirements on
small banks outweighs the potential
burden that this change would impose
on those banks. However, in recognition
of their limited capacities, the agencies
continue to believe that any
considerations of small bank
community development loans,
investments, or services should be
optional and that the better approach is
to allow small banks the ability to
request additional consideration for any
community development loans,
investments, or services they conduct.
As described in final § ll.29, the
optional consideration of these
community development loans,
community development investments,
and community development services
will result in positive consideration
only, so that small banks that do not
engage in (or do not receive additional
consideration for) these activities will
not experience an adverse assessment of
their CRA performance.
The agencies note that they will
consider providing guidance with
respect to how community development
services could optionally be
incorporated into the evaluations of
small banks, as recommended by a
commenter.
For similar reasons, the final rule does
not require the evaluation of a small
bank’s retail banking services or retail
banking products. Instead, small banks
may request that the agencies consider
retail banking services or retail banking
products that they provide. However,
given the limited capacity of small
banks the agencies believe that it would
not be appropriate to impose a
mandatory evaluation with respect to
small bank retail banking services or
retail banking products performance.
Section ll.21(a)(4) Limited Purpose
Banks
The Agencies’ Proposal
The agencies proposed in
§ ll.21(b)(4)(i) to evaluate wholesale
and limited purpose banks under a
Community Development Financing
Test for Wholesale and Limited Purpose
Banks.733 The agencies proposed in
§ ll.21(b)(4)(ii) to give wholesale and
limited purpose banks the option to
have activities that qualify under the
Community Development Services Test
considered for a possible adjustment
from ‘‘Satisfactory’’ to ‘‘Outstanding’’
for the bank’s overall institution rating.
733 See
Sfmt 4700
6773
E:\FR\FM\01FER2.SGM
also proposed § ll.26.
01FER2
6774
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Comments Received
The agencies received many
comments on the application of the
proposed test to wholesale and limited
purpose banks. Commenters expressed a
variety of views on whether the
wholesale and limited purpose bank
designations should continue with an
independent test. Several commenters
expressed support for continued
designations and evaluations under a
Community Development Financing
Test for Wholesale and Limited Purpose
Banks because some banks have
business models that do not align with
the proposal’s otherwise generally
applicable performance tests based on
asset size. These commenters also
explained that they supported
continuation of the wholesale and
limited purpose bank category because
these types of banks frequently have
retail products that represent minimal
amounts in comparison to the bank’s
loans or assets. Other commenters
expressed concern that the proposed
wholesale and limited purpose bank
designation and proposed performance
test could permit some banks to avoid
evaluation of retail products, such as
credit cards.
ddrumheller on DSK120RN23PROD with RULES2
Final Rule
After considering the comments, the
agencies are adopting as proposed the
limited purpose bank provision in
§ ll.21(a)(4)(i) of the final rule, with
technical edits. As noted in the sectionby-section analysis to § ll.12, the
agencies have combined the ‘‘wholesale
bank’’ definition with the ‘‘limited
purpose bank’’ definition and
eliminated the former definition. Final
§ ll.21(a)(4)(i) provides that limited
purpose banks are evaluated pursuant to
the Community Development Financing
Test for Limited Purpose Banks in
§ ll.26. In § ll.21(a)(4)(ii), the final
rule provides that, pursuant to
§ ll.26(b)(2), a limited purpose bank
may request additional consideration for
low-cost education loans and services
described in that paragraph. In contrast
to proposed § ll.21(b)(4)(ii), which
provided additional consideration for
wholesale or limited purpose bank
activities qualifying under the
community development services test,
final § ll.21(a)(4)(ii) references the
substantive provisions concerning the
evaluation of limited purpose banks.
The agencies believe the limited
purpose bank category and test
appropriately accommodates banks with
unique business models and the
particular products they offer under
those models by accurately measuring a
bank’s volume of community
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
development loans and investments
relative to its capacity. Because limited
purpose banks do not typically offer the
loans evaluated under the Retail
Lending Test, the evaluation of the bank
focused primarily on community
development loans and community
development investments represents an
effective means to assess the bank’s
record of serving the credit needs of its
communities.
The agencies are sensitive to
commenter concerns that the
Community Development Financing
Test for Limited Purpose Banks should
not become a means for banks to avoid
an evaluation of their retail lending
products that would otherwise be
subject to an evaluation under the Retail
Lending Test. For that reason, the
agencies have revised the definition of
‘‘Limited purpose bank’’ in § ll.12 to
only include banks that do not offer the
types of loans evaluated under the
Retail Lending Test or otherwise
provide the loans solely on an
incidental and accommodation basis.
Section ll.21(a)(5) Military Banks
The Agencies’ Proposal
In addition to proposing a definition
for the term ‘‘military bank’’ in
§ ll.12, the agencies proposed in
§ ll.16(d) that they would continue
the practice of allowing a bank to
delineate its entire customer deposit
base as its assessment area, provided
that the bank’s business predominantly
consists of serving the needs of military
personnel or their dependents who are
not located within a defined geographic
area. While this aspect of the proposal
preserved a flexibility available to these
banks that exists in the current CRA
regulations 734 and is required by CRA
statute,735 the agencies did not
comprehensively explain how this
option would be operationalized with
respect to the applicable performance
tests and standards. The agencies also
did not describe how they would
approach the evaluation of a military
bank with a single assessment area.
Comments Received
On the issue of military banks as they
relate to the overall evaluation
framework, a commenter stated that
while military banks should not
necessarily be given a distinct bank
classification, such as was done in the
proposal for wholesale and limited
purpose banks, the agencies should
clarify that, in comparison to other
banks, the military banks’ business
models may be significantly more
current 12 CFR ll.41(f).
735 See 12 U.S.C. 2902(4).
734 See
PO 00000
Frm 00202
Fmt 4701
Sfmt 4700
narrow in scope. The commenter also
indicated that the agencies should
accommodate the unique business
models of military banks that are often
tailored to the specific needs of military
and veteran communities.
Final Rule
In response to this comment, and to
provide additional clarity regarding the
treatment of military banks in the final
rule, the agencies are adopting a new
paragraph (a)(5) in § ll.21 of the final
rule.736 First, to clarify that military
banks are not a distinct bank category
with their own unique set of
performance tests, final § ll.21(a)(5)(i)
provides that the agencies evaluate a
military bank pursuant to the applicable
performance tests described in
§ ll.21(a); military banks are
evaluated as a large bank, intermediate
bank, small bank, or limited purpose
bank, as appropriate. The agencies also
note that, as with other banks, a military
bank may be evaluated pursuant to an
approved strategic plan. Second, if a
military bank delineates the entire
United States and its territories as its
sole facility-based assessment area
pursuant to final § ll.16(d), final
§ ll.21(a)(5)(ii) provides that the
agencies evaluate the bank exclusively
at the institution level based on its
performance in its sole facility-based
assessment area. This provision is
intended by the agencies to minimize
potential ambiguity regarding how the
performance evaluation is conducted.
The agencies considered commenter
suggestions to accommodate military
bank business models. The agencies
believe that by permitting military
banks to continue to designate a single
facility-based assessment area when
their customer base is dispersed
accommodates the unique business
model of these banks that is primarily
focused on meeting the credit needs of
servicemembers, veterans, or their
dependents. In addition, the agencies
believe that the performance tests
applicable to military banks permit a
comprehensive evaluation of the
military bank’s record of serving its
communities. The agencies’ approach in
the final rule also accommodates the
ability of military banks to designate a
single facility-based assessment area.
Section ll.21(a)(6) Banks Operating
Under a Strategic Plan
The Agencies’ Proposal
Proposed § ll.21(b)(5) retained the
current rule’s strategic plan option by
736 See also the section-by-section analysis of
final § ll.12 (discussing definition of ‘‘military
bank’’).
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
providing that the agencies would
evaluate the CRA performance of a bank
that chooses to be evaluated under a
CRA strategic plan approved under
§ ll.27 in accordance with the goals
set forth in such plan.737 The agencies
explained that retaining this alternative
evaluation method would give banks
flexibility to meet their CRA obligations
in a manner that is tailored to
community needs and opportunities as
well as to their own capacities, business
strategies, and expertise. To ensure that
banks evaluated under a strategic plan
meet their CRA obligations, the agencies
proposed that the plans: (1) in most
circumstances, incorporate the metricsbased analysis of all of the performance
tests that would otherwise apply
without a plan; 738 (2) include the same
geographic areas that would be included
in the absence of a plan; 739 and (3)
require banks to report the same data
required in § ll.42 as would be
required in the absence of a plan.740
ddrumheller on DSK120RN23PROD with RULES2
Comments Received
Many commenters provided feedback
on the proposed framework for strategic
plans. Almost all of these commenters
expressed support for the strategic plan
option and recommended that the
option remain available to banks in a
final rule. These commenters believed
that the strategic plan could be useful
for many banks, especially banks with
unique business models or particular
business strategies.
Another commenter, however,
suggested that the agencies fully
eliminate the strategic plan option
because it adds complexity to the
evaluation framework. This commenter
questioned whether the option should
be kept if banks must keep the same
assessment areas and performance test
requirements that would otherwise
apply without a strategic plan. Another
commenter suggested that the strategic
plan option should only be made
available to banks that persuade their
regulator that they would fail the
traditional examination process through
no fault of their own.
Final Rule
After considering comments on the
proposed strategic plan framework, the
agencies are retaining the option for
banks to be evaluated under an
approved strategic plan in
§ ll.21(a)(6) of the final rule. The
agencies believe this approach provides
banks additional flexibility to meet their
proposed §§ ll.21(b)(5) and ll.27.
proposed § ll.27(f)(1).
739 See proposed § ll.27(f)(2).
740 See proposed § ll.27(b).
737 See
738 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
CRA obligations in a manner that is
tailored to community credit needs and
opportunities and the bank’s own
capacity, business strategy, and
expertise. The agencies believe that
retaining this flexibility outweighs any
concern regarding potential complexity
associated with an additional
performance standard. The agencies
note that they have revised the strategic
plan provision in the final rule based on
comments received, as discussed in the
section-by-section analysis to § ll.27,
Strategic Plans.
The agencies have made clarifying
and technical changes to final
§ ll.21(a)(6) to conform with the
strategic plan provisions in final
§ ll.27. Specifically, the agencies are
indicating that they evaluate the
performance of a bank that has an
approved strategic plan as provided in
§ ll.27. The agencies have also
removed references to strategic plan
goals that were previously included
because, under final § ll.27, although
a bank may include goals in its plan,
goals are not required in plans.
Additional Comments on the Evaluation
Framework
A few commenters suggested that the
final rule evaluation framework should
be further tailored to account for other
types of financial institutions.
A commenter recommended that the
agencies consider the business model of
CDFI banks in the CRA framework,
stating that it would be appropriate to
tailor evaluation aspects for CDFI banks
given the complementary goals of CRA
and the CDFI program. Although the
agencies agree that the CRA and CDFI
program have complementary goals,
they also believe that the applicable
performance tests and strategic plan in
the final rule are drafted to apply
appropriately to CDFI banks that
provide financial services in low- and
moderate-income communities and to
persons with limited access to
financing. Consequently, the agencies
anticipate minimal benefits from
introducing additional complexity in
the form of provisions specific to CDFI
banks.
Another commenter suggested that
specific CRA consideration should be
given for banks organized under mutual
holding companies because their
depositors are ultimately the members
or owners of the bank, and these
institutions provide unique services for
their customers and communities. As
with CDFI banks, the agencies do not
believe that tailored evaluations are
required for these banks. Instead, the
final rule performance tests and
standards are appropriate for evaluating
PO 00000
Frm 00203
Fmt 4701
Sfmt 4700
6775
whether these institutions meet the
credit needs of their communities.
Section ll.21(b) Loans, Investments,
Services, and Products of [Operations
Subsidiaries or Operating Subsidiaries]
and Other Affiliates
Current Approach
Under the current CRA regulations,
the agencies define an ‘‘affiliate’’ as a
company that controls, is controlled by,
or is under common control with
another company.741 In subsequent
guidance, the agencies have clarified
that bank subsidiaries are a type of
affiliate.742
The current evaluation framework
provides large banks the option to
include affiliate lending,743 community
development investments,744 and
community development services,745 as
applicable, in the bank’s evaluation.
Similar options to include affiliate
loans, investments, and services are also
available for wholesale and limited
purpose banks,746 banks evaluated
under an approved strategic plan,747
and small and intermediate small
banks.748 If a bank elects to include
affiliate lending, investments, or
services in its evaluation, the bank must
collect, maintain, and report the affiliate
data if the bank is subject to the data
collection and reporting
requirements,749 or maintain sufficient
information for examiners to evaluate
the activity if it is not subject to those
requirements.750
The Agencies’ Proposal
The agencies proposed in § ll.21(c)
to require the inclusion of relevant
activities of a State member bank’s
‘‘operations subsidiaries’’ and the
‘‘operating subsidiaries’’ of a national
bank, Federal savings association, State
non-member bank, or State savings
association in the evaluation of the
relevant bank’s CRA performance,
unless the bank subsidiary is
independently subject to its own CRA
12 CFR ll.12(a).
Q&A § ll.12(a)–1.
743 See current 12 CFR ll.22(c). A bank may
elect to have only a particular category of its
affiliate’s lending considered. The basic categories
of loans that can be considered are home mortgage
loans, small business loans, small farm loans,
community development loans and the five
categories of consumer loans (automobile loans,
credit card loans, home equity loans, other secured
loans, and other unsecured loans). See Q&A
§ ll.22(c)(1)–1.
744 See current 12 CFR ll.23(c).
745 See current 12 CFR ll.24(c).
746 See current 12 CFR ll.25(d).
747 See current 12 CFR ll.27(c)(3).
748 See Q&A § ll.26–1.
749 See current 12 CFR ll.42(d).
750 See Q&A § ll.26–1.
741 Current
742 See
E:\FR\FM\01FER2.SGM
01FER2
6776
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
requirements or another bank claims, for
purposes of CRA, the same qualifying
activity.751 The agencies explained that
because banks exercise a high level of
ownership, control, and management of
their subsidiaries, the activities of those
subsidiaries should reasonably be
attributable to the bank.
The agencies also proposed to
maintain the current flexibility for
banks to choose to include the relevant
activities of other bank affiliates that are
not operations subsidiaries or other
subsidiaries unless the affiliate is
independently subject to its own CRA
requirements or another bank claims, for
purposes of CRA, the same qualifying
activity.752 The agencies also proposed
that, with respect to the activities of
other bank affiliates, if a bank elected to
have the agencies consider retail loans
within a particular retail loan category
made by one or more of the bank’s
affiliates in a particular facility-based
assessment area, retail lending
assessment area, or its outside retail
lending area, the bank must elect to
have the agencies consider all of the
retail loans within that loan category
made by all of the bank’s affiliates in
that particular facility-based assessment
area, retail lending assessment area, or
in its outside retail lending area.753
The proposal also required banks to
collect, maintain, and report data on the
activities of operations subsidiaries and
operating subsidiaries and pursuant to
proposed § ll.42.754 Pursuant to
proposed § ll.42, if the bank chose to
include other affiliate activity in its
evaluation, the proposal required banks
to collect, maintain, and report data on
the activities of the other affiliate.755
The agencies sought feedback on what
other factors, if any, the agencies should
consider with respect to requiring the
inclusion of activities of a bank’s
operations subsidiaries and operating
subsidiaries as part of its CRA
evaluation. The agencies also requested
feedback regarding whether, when a
bank chooses to have the agencies
consider retail loans within a retail loan
category that are made or purchased by
one or more of the bank’s affiliates in a
particular assessment area, the agencies
should consider: (1) all of the retail
loans within that retail loan category
751 See proposed § ll.21(c) introductory text
and (c)(1).
752 See proposed § ll.21(c) introductory text
and (c)(2). The terms ‘‘operating subsidiary’’ and
‘‘operations subsidiary’’ were defined in the
Board’s, the FDIC’s, and the OCC’s respective
versions of proposed § ll.12.
753 See proposed § ll.21(c)(2)(iii).
754 See proposed § ll.21(c)(1); see also
proposed § ll.42(c).
755 See proposed § ll.21(c)(2)(ii); see also
proposed § ll.42(d).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
made by all of the bank’s affiliates only
in that particular assessment area; or (2)
all of the retail loans made by all of the
bank’s affiliates within that retail loan
category in all of the bank’s assessment
areas.
Comments Received
The agencies received numerous
comments addressing the proposed
treatment of operations subsidiaries,
operating subsidiaries, and other
affiliates.
Operations Subsidiaries and
Operating Subsidiaries. Some
commenters supported the proposal’s
automatic inclusion of the activities of
bank operations subsidiaries and
operating subsidiaries in CRA
examinations. A commenter stated that
when the degree of separation between
banks and their subsidiaries is
nonexistent, the activities of the
subsidiary should be considered
activities of the bank. Another
commenter suggested that the agencies
should allow the subsidiaries sufficient
time to obtain a level of operating
efficiency with respect to new products
and services before including them in a
bank’s performance evaluation. The
commenter indicated that it takes a bank
about two years to achieve efficient,
mature operations for new products and
markets. A commenter recommended
that loans made or purchased via
subsidiaries should automatically count
towards the major product line
calculations and towards the
delineation of retail lending assessment
areas. Another commenter
recommended that, when multiple
options are available, banks should
retain the flexibility to elect which
performance test applies to the activities
of an evaluated subsidiary.
A few commenters did not support
the mandatory inclusion of activities
conducted by a bank’s applicable
subsidiaries because, from their
perspective, it reduces flexibility in
comparison to the current regulations.
Another commenter argued that the
agencies should exempt functionally
regulated subsidiaries from the
mandatory inclusion of operating or
operations subsidiary activities in a
bank’s performance evaluation and data
collection and reporting requirements
because the mandatory inclusion of
these subsidiaries within CRA
examinations would exceed the
agencies’ statutory authority under 12
U.S.C. 1831v(a). A commenter suggested
that the final rule should not expand
data collection and reporting
requirements to operations subsidiaries
or operating subsidiaries that are
required by other regulations. Another
PO 00000
Frm 00204
Fmt 4701
Sfmt 4700
commenter stated that it was not clear
in the proposal how community
development financing would be
considered in the context of
subsidiaries.
Other Affiliates. A few commenters
expressed support for the agencies’
proposal to continue the current
practice of providing banks with the
option to have the CRA activities of
other affiliates (that are not operations
subsidiaries or operating subsidiaries)
considered because it provides banks
with flexibility and accommodates
different bank business models.
However, other commenters stated that
the agencies should require all bank
affiliates to be subject to CRA
evaluations, with no optionality,
because the affiliates are engaging in
particular types of activities on behalf of
the bank and banks should not be able
to choose which affiliate activities they
include or exclude from an evaluation.
A few commenters stated that, when
a bank chooses to have the agencies
consider qualifying retail loans by one
or more of a bank’s affiliates, loans
purchased by the affiliate should not be
able to compensate for the absence of
bank loan origination activity. The
commenters suggested that these loans
purchased by an affiliate should have
less relevance in evaluating a bank’s
CRA performance than loans that were
actually made by its affiliates. A
commenter suggested that a bank’s
affiliate’s loans should be given a lower
qualitative weight in the CRA
evaluation. Some commenters noted
that because the agencies did not
propose evaluating limited purpose
credit card banks on the distribution or
impact of their credit card loans, these
banks should not be allowed to exclude
those activities by affiliate lenders.
Another commenter stated that it is not
clear in the proposal how community
development financing would be
considered in the context of affiliates
and recommended that any community
development financing activity engaged
in by an affiliate should be included at
the bank’s request.
Some commenters supported the
alternative suggested by the agencies
that would consider all of the retail
loans within a particular retail loan
category made by all bank affiliates
within all of the bank’s assessment
areas, if a bank elects to have an
affiliate’s retail lending considered.
Commenters stated that this alternative
would include a more comprehensive
evaluation of retail lending activity and
would limit opportunities for banks to
conceal poor performance. Another
commenter stated that it preferred the
agencies’ proposal to consider all of an
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
affiliate’s retail loans within a particular
retail loan category made in specific
assessment areas. Another commenter
recommended that loans made or
purchased via subsidiaries and affiliates
should automatically count towards the
major product line calculations and
towards the delineation of retail lending
assessment areas.
Some commenters addressed thirdparty activities with respect to affiliates.
A commenter suggested that the
agencies clarify that their proposal does
not prohibit consideration for a loan
that an affiliate originates and a third
party purchases, or vice versa,
consistent with the treatment of
activities conducted directly by the
bank. A number of commenters stated
that the agencies should extend CRA
requirements to third-party
partnerships, such as those between
banks and non-bank entities to make
loans and offer other services. Other
commenters similarly stated that CRA
requirements should extend to any retail
lending that uses the bank’s
underwriting or benefits from use of the
bank’s charter. Other commenters stated
that considering third-party bank
lending relationships could help to
address ‘‘rent-a-bank’’ schemes or
situations where a lender collaborates
with a bank to offer products or services
in order to avoid State interest rate
limits.
Final Rule
Operations Subsidiaries and
Operating Subsidiaries. The agencies
are adopting the proposal’s approach to
operations subsidiaries and operating
subsidiaries in paragraphs (b)(1) and (2)
of § ll.21 of the final rule with
technical and conforming changes.756
For example, the agencies are referring
to the loans, investments, services, and
products of subsidiaries to conform to
paragraphs (c) and (d) of final § ll.42
and more precisely describe the
‘‘qualifying activities’’ the agencies
indicated that they would consider
under the proposal. The agencies are
also adding an ‘‘as applicable’’ indicator
after the first reference to operations
subsidiaries, operating subsidiaries, and
other affiliates in final § ll.21(b)(1) to
indicate that the substantive provisions
apply to either subsidiaries or other
affiliates that are not subsidiaries.
Furthermore, the agencies are
integrating the definition of ‘‘depository
institution’’ in final § ll.21(b)(1) so
that a bank does not receive
consideration for loans, investments,
services, or products if they are already
claimed by another depository
756 See
supra note 145.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
institution. Additional discussion of
‘‘depository institution’’ is included in
the section-by-section analysis of
§ ll.12.
In final § ll.21(b)(2), the agencies
provide that they will consider the
loans, investments, services, and
products of a bank’s operations
subsidiaries or operating subsidiaries
unless the bank’s subsidiary is
independently subject to the CRA.757 To
prevent the simultaneous allocation of a
particular loan, investment, service, or
product across multiple bank charters,
the agencies specify in final
§ ll.21(b)(1) that this consideration
does not apply if a different bank,
operations subsidiary, operating
subsidiary, or other affiliate already
claims the loan, investment, service, or
product in a CRA performance
evaluation. In final § ll.21(b)(2), the
bank must collect, maintain, and report
data on the loans, investments, services,
and products of its operations
subsidiaries or operating subsidiaries, as
provided in final § ll.42(c) so that
relevant loans, investments, services,
and products of the subsidiaries are
included in the CRA evaluation.
In a technical edit to final
§ ll.21(b)(2), the agencies are
correcting the second reference to
operations subsidiaries and operating
subsidiaries to read as ‘‘[operations
subsidiary or operating subsidiary].’’
The proposed regulation text in
§ ll.21(c)(1) errantly referred to
‘‘operations subsidiary’’ twice.
The agencies believe that their final
rule approach appropriately captures
the activities of bank operations
subsidiaries and operating subsidiaries
over which the bank exerts a significant
degree of ownership, control, and
management. The agencies acknowledge
that evaluating the loans, investments,
services, and products of an operations
subsidiary or an operating subsidiary in
a bank’s performance evaluation
reduces some flexibilities available to
banks relative to the current CRA
regulations, which permit banks to
optionally include the activities under
the affiliate activities provisions.
However, the agencies believe that this
concern is outweighed by the benefits of
including these subsidiaries as part of a
more comprehensive review of a bank’s
record of serving the credit needs of its
communities through both activities
conducted by the bank and activities
757 If an operations subsidiary or operating
subsidiary is independently subject to the CRA
because it is a financial institution, the agencies are
required by CRA statute to assess the subsidiaries’
record of meeting the credit needs of its entire
community. See 12 U.S.C. 2903(a).
PO 00000
Frm 00205
Fmt 4701
Sfmt 4700
6777
that are appropriately ascribed to the
bank.
The agencies disagree with
commenter suggestions to provide
subsidiaries more time to become
operationally familiar with new
products and services before including
them in a bank’s CRA evaluation. The
agencies believe that this would be
inconsistent with the final rule’s
approach to evaluating loans,
investments, services, and products
conducted during an evaluation period
and would delay a more holistic
consideration of a bank’s activities. The
agencies also believe that, as
appropriate, they may consider through
performance context the concerns
identified by the commenter, such as
information that a subsidiary has
recently entered a market or is offering
a new product or service.
The agencies agree with commenter
recommendations that, for banks subject
to the Retail Lending Test, loans made
or purchased by an operations
subsidiary or operating subsidiary
should count towards the thresholds for
delineation of retail lending assessment
areas and identifying major product
lines. Subject to the requirements of the
regulation text in paragraphs (b)(1) and
(2) in final § ll.21, as well as § ll.17
and appendix A, the closed-end home
mortgage loans and small business loans
of a bank’s operations subsidiary or
operating subsidiary are considered in
the delineation of Retail Lending
Assessment Areas. And subject to the
requirements of paragraphs (b)(1) and
(2) in final § ll.21, as well as the
§ ll.12 definition of ‘‘product line’’,
§ ll.22, and appendix A, the closedend home mortgage loans, small
business loans, small farm loans, and
automobile loans of a bank’s operations
subsidiary or operating subsidiary are
considered in determining a bank’s
major product lines in a Retail Lending
Test Area.
Regarding commenter input that the
agencies lack statutory authority under
12 U.S.C. 1831v(a) to include the CRA
activities of functionally regulated
subsidiaries in a bank’s evaluation, the
agencies note that as written, 12 U.S.C.
1831v(a) makes the provisions of 12
U.S.C. 1844(c) applicable to the Board,
the FDIC, and the OCC with respect to
functionally regulated subsidiaries.758
758 See 12 U.S.C. 1831v(a) (providing that the
provisions of 12 U.S.C. 1844(c) that limit the
authority of the Board of Governors of the Federal
Reserve System to require reports from, to make
examinations of, or to impose capital requirements
on holding companies and their functionally
regulated subsidiaries or that require deference to
other regulators shall also limit whatever authority
E:\FR\FM\01FER2.SGM
Continued
01FER2
6778
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
While 12 U.S.C. 1844(c) limits the
authority of the Board ‘‘to require
reports, make examinations, impose
capital requirements, or take any other
direct or indirect action with respect to
any functionally regulated affiliate of a
depository institution, subject to the
same standards and requirements as are
applicable to the Board under those
provisions,’’ section 1844(c) itself does
not prohibit the Board from examining
functionally regulated subsidiaries.
Instead, the statute requires the Board
to, whenever possible, minimize the
duplication of efforts with other
relevant State and Federal regulators by
using existing reports and other
supervisory information.759 Section
1844(c) also provides that the Board
must coordinate with the appropriate
State and Federal regulators by
providing notice to, and consulting
with, them before beginning an
examination of an entity that is a
functionally regulated subsidiary.760
Because the requirements applicable to
the Board in section 1844(c) also apply
to the FDIC and the OCC due to the
requirements of section 1831v(a), all
three agencies will comply with these
statutory requirements when
considering the loans, investments,
services, and products provided by
operations subsidiaries and operating
subsidiaries that are functionally
regulated subsidiaries.
The agencies note that final
§ ll.21(b) does not expand the data
collection, maintenance, or reporting
requirements for operations subsidiaries
or operating subsidiaries by imposing
requirements that are required by other
regulations. The final rule only imposes
parallel data requirements in
§ ll.42(c) that align with the data
requirements applicable to banks under
§ ll.42(a) and (b).
With respect to commenter
uncertainty regarding how community
development financing will be
considered in the context of operations
subsidiaries or operating subsidiaries,
the agencies’ position is that because all
of their relevant activities are attributed
to the bank itself, they will be
considered in the bank’s performance
that a Federal banking agency might otherwise have
under any statute or regulation to require reports,
make examinations, impose capital requirements, or
take any other direct or indirect action with respect
to any functionally regulated affiliate of a
depository institution, subject to the same standards
and requirements as are applicable to the Board
under those provisions.); see also 12 U.S.C. 1813(z)
(defining ‘‘Federal banking agency’’ to mean ‘‘the
Comptroller of the Currency, the Board of
Governors of the Federal Reserve System, or the
Federal Deposit Insurance Corporation’’).
759 See 12 U.S.C. 1844(c)(1) and (c)(2).
760 12 U.S.C. 1844(c)(2)(C).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
evaluation, pursuant to final
§ ll.21(b)(2). Specifically, community
development loans and community
development investments made by a
bank’s operations subsidiary or
operating subsidiary would be
combined and collectively evaluated
with the bank’s loans and investments
pursuant to the community
development performance test
applicable to the bank.
With respect to commenter concerns
regarding the need for flexibility in the
application of performances tests to a
bank’s operations subsidiary or
operating subsidiary, the agencies
believe that the final rule approach that
applies the same performance tests
which apply to the bank is the better
approach. The significant degree of
ownership, control, and management a
bank exerts over an operations
subsidiary or operating subsidiary
makes the inclusion of the subsidiary’s
loans, investments, services or products
under the bank’s applicable
performance tests a reasonable
requirement. For that reason, the
agencies do not believe the usage of
alternative performance tests is
warranted to evaluate the loans,
investments, services, or products
conducted in the subsidiary.
Other Affiliates. The agencies are
finalizing the proposed provisions
regarding the optional evaluation of a
bank’s other affiliates that are not
operations subsidiaries or operating
subsidiaries in the bank’s evaluation,
with some technical and conforming
changes noted below. As with
paragraphs (b)(1) and (2) of final
§ ll.21, the agencies are referring to
the loans, investments, services, and
products of affiliates in final
§ ll.21(b)(3) to conform with final
§ ll.42(d) and more precisely describe
the ‘‘qualifying activities’’ the agencies
indicated that they would consider
under the proposal.
Pursuant to final § ll.21(b)(3), the
agencies will consider the loans
investments, services, and products of
affiliates of a bank that are not
operations subsidiaries or operating
subsidiaries, at the bank’s option. This
optional consideration is subject to
three primary requirements applicable
to the loans, investments, services, and
products. First, as required by final
§ ll.21(b)(1), a different depository
institution may not claim the loan,
investment, service, or product in a CRA
evaluation. This requirement prevents
the simultaneous allocation of a
particular loan, investment, service, or
product across multiple bank charters.
Second, as required by final
§ ll.21(b)(3)(i), the affiliate may not be
PO 00000
Frm 00206
Fmt 4701
Sfmt 4700
independently subject to the CRA.761
Third, as required by final
§ ll.21(b)(3)(ii), the bank must collect,
maintain, and report data on the loans,
investments, services, and products of
its affiliate, as provided in § ll.42(d).
For banks that opt to have affiliate
loans that are closed-end home
mortgage loans, small business loans,
small farm loans, or automobile loans
considered under the Retail Lending
Test, the agencies are adopting final
§ ll.21(b)(3)(iii) with conforming
changes to maintain consistency with
the Retail Lending Test. Final
§ ll.21(b)(3)(iii) provides that, under
the Retail Lending Test, a bank may opt
to have an agency consider closed-end
home mortgage loans, small business
loans, small farm loans, or automobile
loans that the bank’s affiliate originated
or purchased.762 When a bank opts for
this consideration, the particular loans
are included in all aspects of the Retail
Lending Test.763
More specifically, final
§ ll.21(b)(3)(iii) provides that the
agencies consider the loans in the
bank’s particular Retail Lending Test
Area, as defined in final § ll.12, that
potentially includes a bank’s facilitybased assessment areas, and, as
applicable, retail lending assessment
areas and outside retail lending area.764
Furthermore, as proposed, final
§ ll.21(b)(3)(iii) specifies that for a
given bank product line (closed-end
home mortgage loans, small business
loans, small farm loans, or automobile
loans) in a particular Retail Lending
Test Area, the agencies will consider all
of the loans made by all of the bank’s
761 This requirement is informed by the
consideration that if a bank’s affiliate is
independently subject to the CRA because it is a
financial institution, the agencies are required by
CRA statute to assess the affiliates’ record of
meeting the credit needs of its entire community.
See 12 U.S.C. 2903(a).
762 To conform with the Retail Lending Test, the
agencies revised ‘‘retail loans within a retail lending
category’’ in proposed § ll.21(c)(2)(iii) to specify
the particular types of loans evaluated under the
Retail Lending Test in final § ll.21(b)(3)(iii):
closed-end home mortgage loans, small business
loans, small farm loans, or automobile loans. The
agencies also revised proposed § ll.21(c)(2)(iii) to
indicate that the loans can be ‘‘originated or
purchased’’ as opposed to ‘‘made or purchased,’’
another change intended to conform to the
applicable test.
763 This approach is the same as in proposed
§ ll.21(c)(2)(iii).
764 The agencies revised the two references to
‘‘facility-based assessment area, retail lending
assessment area, outside retail lending area, state,
or multistate MSA, or nationwide’’ in proposed
§ ll.21(c)(2)(iii) to refer instead to ‘‘Retail
Lending Test Area’’ in final § ll.21(b)(3)(iii). This
change covers the same geographic areas that
contribute to the bank’s ratings at the state,
multistate MSA, and for the institution.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
affiliates in that product line and in that
particular Retail Lending Test Area.765
Based on commenter input, the
agencies are making an additional
substantive and clarifying change by
adding final § ll.21(b)(3)(iv). The
agencies are specifying that, if a large
bank opts to have an affiliate’s closedend home mortgage loans or small
business loans considered in any Retail
Lending Test Area, the agencies will
consider all of the closed-end home
mortgage loans or small business loans
originated by all of the bank’s affiliates
in the nationwide area when delineating
retail lending assessment areas pursuant
to final § ll.17(c). This change
ensures that, if a bank opts to have an
affiliate’s closed-end home mortgage
loans or small business loans
considered, then the closed-end home
mortgage loans or small business loans
of all of its affiliates are also attributed
to the bank and are used to determine
the bank’s obligations to delineate retail
lending assessment areas.
The agencies also considered the
commenter suggestion that affiliate
loans considered by the agencies should
be used to determine the bank’s major
product lines in the geographic area
evaluated. The agencies note that
because major product line
determinations are part of the Retail
Lending Test, § ll.21(b)(3)(iii) of the
final rule incorporates affiliate loans in
those determinations.
Further, in response to commenter
input requesting additional clarity
regarding consideration of affiliate
community development financing
activity, the agencies are adding
§ ll.21(b)(3)(v) to the final rule, which
specifies that, at the bank’s option, the
agencies will consider community
development loans or investments that
are originated, purchased, refinanced, or
renewed by one or more of the bank’s
affiliates in the bank’s evaluation
pursuant to the community
development performance test or
strategic plan applicable to the bank.
This provision also indicates that the
consideration only applies if the affiliate
is not independently subject to the CRA
and the bank collects, maintains, and
reports the data as provided in
§ ll.42(d).
The agencies believe the final rule
approach regarding affiliates preserves
765 This requirement substantively adopts the
same requirement contained in proposed
§ ll.21(c)(2)(iii). The requirement also reflects
agency practice in the current CRA regulations
requiring agency consideration of all affiliate loans
from all affiliates with respect to a particular
lending category in a particular assessment area.
See current 12 CFR ll.22(c)(2)(ii); see also Q&A
§ ll.22(c)(2)(ii)–1.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
important flexibility for banks that is
available under the current CRA rule.
The agencies do not believe a
mandatory approach to considering
affiliate loans, investments, services,
and products is appropriate because,
relative to operations subsidiaries and
operating subsidiaries, a bank may have
a lesser degree of ownership, control,
and management over a non-subsidiary
affiliate. Requiring mandatory
evaluation of every affiliate loan,
investment, service, or product could
also potentially include activities that
cannot reasonably be attributed to the
bank in every circumstance. The
agencies believe that, as under the
current CRA regulations, banks should
continue to have the ability to
determine whether affiliate loans,
investments, services, and products are
evaluated, in order to accommodate
diverse bank corporate structures and
business models.
The agencies considered, but are not
adopting, the more stringent alternative
described in the proposal that would
consider all affiliate retail loans for a
select product line within all of the
bank’s Retail Lending Test Areas if a
bank elects to have an affiliate’s retail
lending considered. The agencies
believe the proposed approach to
include all affiliate loans for a select
product line within a selected facilitybased assessment area, retail lending
assessment area, or outside retail
lending area provides banks with
appropriate flexibility while
safeguarding against a bank ‘‘cherrypicking’’ affiliate loans for
consideration.766
The agencies also decline to alter the
weight attributed to loans evaluated
under the Retail Lending Test on the
basis of whether they were originated or
purchased by a bank or an affiliate. The
agencies believe that such an approach
would introduce unnecessary
complexity into the evaluation process.
Further, the agencies do not agree with
altering the weight of an otherwise
identical loan, investment, service, or
product solely on the basis that it was
conducted by the bank itself or by an
affiliate; the agencies do not believe
alteration of the weights is warranted in
the situation described because the loan,
investment, service, or product has an
equivalent impact, regardless which
entity originated or purchased the loan
or investment or performed the service.
Likewise, the agencies do not agree with
commenter input that loans purchased
by an affiliate are less relevant to
evaluating a bank’s CRA performance
than loans that were originated by that
766 See
PO 00000
Q&A § ll.22(c)(2)(ii)–1.
Frm 00207
Fmt 4701
Sfmt 4700
6779
or another bank affiliate. An affiliate’s
purchased loans, like any institution’s
purchased loans, can provide liquidity
to banks and other lenders and increase
their ability to originate additional retail
loans. In addition, the agencies believe
that they have established adequate
safeguards in the final rule to discourage
‘‘loan churning’’ and similar practices
that could manipulate Retail Lending
Test conclusions. The final rule allows
for consideration of retail loans
purchased by a bank affiliate.
Further, while the agencies
understand commenter suggestions that
it would be preferable to evaluate all or
most of the loans, investments, services,
and products in a bank’s affiliates to the
fullest extent possible (such as the
consideration of affiliate credit card
loans in the context of a limited purpose
bank), the final rule does not except
affiliates’ relevant loans, investments,
services, or products from consideration
under any applicable performance tests
or otherwise treat the activity differently
than it would be considered if the bank
had performed the same activity. The
agencies believe that a simplified
approach where all relevant affiliate
loans, investment, services, or products
may be considered at a bank’s option is
preferable to a more complex approach
where some affiliate activities receive
differential treatment based on a
particular bank type, applicable
performance test or standard, or affiliate
activity.
In response to commenter input, the
agencies are confirming that the final
rule does not prohibit consideration for
a loan that an affiliate originates and a
third party purchases, or vice versa,
provided that no other bank claims that
loan for CRA consideration.
Additionally, with respect to comment
sentiment regarding third-party
relationships, the agencies note that
although third-party risk management is
outside the scope of this rulemaking,
they do expect banks to have an
appropriate third-party risk
management compliance framework and
controls.
Section ll.21(c) Community
Development Lending and Community
Development Investment by a
Consortium or a Third Party
Current Approach
Under the current CRA regulations,
community development loans
originated or purchased by a consortium
in which the bank participates or by a
third party in which the bank has
invested are considered at the bank’s
E:\FR\FM\01FER2.SGM
01FER2
6780
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
option.767 If the bank requests
consideration for these activities, the
bank must report the data pertaining to
these loans.768
The Agencies’ Proposal
The agencies proposed to retain the
current flexibility regarding
consideration for community
development loans and investments by
a consortium in which the bank
participates or by a third party in which
the bank has invested. Consistent with
current regulations, the agencies
proposed that a bank’s community
development loans or community
development investments as part of a
consortium or by a third party in which
the bank invests may be considered, at
a bank’s option,769 subject to the
following requirements: (1) the activity
may not be claimed by another
participant or investor; 770 (2) the bank
may claim only its percentage share of
the total activity made by the
consortium or third party; 771 and (3) the
bank must collect, maintain, and report
the lending and investments data.772
Comments Received
The agencies received several
comments on the treatment of
community development loans and
community development investments
by a consortium or a third party. A
number of commenters supported the
agencies’ proposed approach to
community development financing by a
consortium or a third party. A
commenter specifically stated that it
supported the aspect of the proposal
that provides banks the option to choose
to take pro rata credit for the
investments or loans of a fund into
underlying portfolio companies or
projects. Another commenter stated that
it supported retaining CRA
consideration on a pro rata basis
according to a bank’s percentage share
of community development loans and
investments made by third-party
entities.
Some commenters suggested that the
agencies clarify certain issues
current 12 CFR ll.22(d) and
ll.25(d)(2); see also Q&A § ll.26(b)–3
(indicating that small and intermediate small banks
may also receive consideration of community
development loans originated or purchased by a
consortium or third party).
768 See current 12 CFR ll.42(e); see also Q&A
§ ll.26(b)—3 (indicating that, to receive
consideration, small and intermediate small banks
must maintain sufficient information for examiners
to evaluate community development loans
originated or purchased by a consortium or third
party).
769 See proposed § ll.21(d).
770 See proposed § ll.21(d)(ii).
771 See proposed § ll.21(d)(iii).
772 See proposed §§ ll.21(d)(i) and ll.42(e).
ddrumheller on DSK120RN23PROD with RULES2
767 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
surrounding community development
financing by a consortium or a third
party. A few commenters recommended
that the agencies permit the bank or
recipient to identify a reasonable
geographic allocation for the loan or
investment such as location of the
recipient, where the recipient has
historically worked, or where the
recipient intends to work. Some
commenters recommended that, for
community development financing by a
consortium or third party, the agencies
preserve the practice of allowing banks
to rely on the use of side letters from the
CDFI, consortium, or fund sponsor to
provide additional detail on the
geographic distribution of activities
allocated to the bank.
A commenter suggested that, when
banks provide working capital to CDFIs
through a consortium or third party, the
working capital provided to the CDFI
should count at the point in time when
the commitment of funds to the
recipient is made, irrespective of when
the funds are deployed. The commenter
explained that their suggested approach
would give banks certainty that they
will receive CRA consideration and
provide CDFIs with flexibility to use
funds consistent with business needs
and avoid pressure to draw on specific
lines by specific dates.
Another commenter suggested that
the agencies clarify that, in relation to
consortia and third parties, the agencies
are not restricting two financial
institutions from receiving CRA
consideration for the same loan or
investment if the loan or investment is
sold from one institution to the other.
Final Rule
The agencies are finalizing as
proposed the provisions on the
consideration of community
development loans and investments by
a consortium in which the bank
participates or by a third party in which
the bank has invested, with technical
and conforming changes. In final
§ ll.21(c), the agencies are adding
‘‘invests in’’ to the regulation text in
recognition that a bank may invest in a
consortium that engages in community
development loans or community
development investments. Similarly, the
agencies are revising ‘‘makes’’ in
§ ll.21(c) to ‘‘originates, purchases,
refinances, or renews’’ to conform with
the applicable community development
financing performance tests and more
precisely indicate that a consortium or
a third party that a bank invests in or
participates in may originate, purchase,
refinance, or renew community
development loans or community
development investments.
PO 00000
Frm 00208
Fmt 4701
Sfmt 4700
Accordingly, final § ll.21(c)
provides that if a bank invests in or
participates in a consortium that
originates, purchases, refinances, or
renews community development loans
or community development
investments, or if a bank invests in a
third party that originates, purchases,
refinances, or renews such loans or
investments, either those loans or
investments may be considered, at the
bank’s option. The consideration is
subject to certain limitations: (1) the
bank must collect, maintain, and report
the data pertaining to these community
development loans and community
development investments pursuant to
§ ll.42(e), as applicable; 773 (2) if the
participants or investors choose to
allocate the community development
loans or community development
investments among themselves for
consideration under this section, no
participant or investor may claim a loan
origination, loan purchase, or
investment for community development
consideration if another participant or
investor claims the same loan
origination, loan purchase, or
investment; and (3) the bank may not
claim community development loans or
community development investments
accounting for more than its percentage
share, based on the level of its
participation or investment, of the total
loans or investments made by the
consortium or third party.774 Under
final § ll.21(c), the agencies do not
intend to provide CRA consideration for
particular community development
loans or community development
investments in a manner that would
consider the same loan or investment
more than once or provide
consideration in excess of the bank’s
share or level of participation in the
consortium or third party.
The agencies believe that this
approach, as with the current
regulations, provides banks with
flexibility to make community
development loans and community
773 In final § ll.21(c)(1), the agencies are
making a conforming edit to state that a bank must
‘‘collect, maintain, and report’’ data as required in
final § ll.42(e). Furthermore, in recognition that
final § ll.42(e) only requires the bank to collect,
maintain, and report data on community
development financing by a consortium or a third
party if the data must be collected, maintained or
reported pursuant to paragraph (a)(5) or (b)(2) of
final § ll.42, the agencies are adding an ‘‘as
applicable’’ indicator.
774 In paragraphs (c)(2) and (3) of final § ll.21,
the agencies are removing the word ‘‘qualifying’’
from the proposed regulation text that preceded
‘‘loans or investments.’’ The agencies are making
this change because community development loans
and community development investments are
defined terms that have a fixed meaning under the
final rule.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
development investments while
maintaining the safeguards against more
than one institution claiming CRA
consideration for the same loan or
investment at the same time.
The agencies are not adding specific
provisions regarding the allocation of
community development financing
activities in § ll.21(c) of the final rule,
as requested by a commenter, because
the allocation of these loans and
investments is already addressed in
appendix B of the final rule. Further, the
agencies do not believe that it is
appropriate to make alternative
provisions that depart from the uniform
rules of allocation for community
development loans or investments. The
agencies believe that the methodology
described in appendix B provides a
reasonable methodology for the
geographic allocation of community
development loans or investments by a
consortium or a third party.
With respect to commenter input
regarding side letters, the agencies are
maintaining their current practice with
respect to side letters, which are not
required but remain a permissible
means through which to facilitate
receiving CRA consideration for a loan
or investment. The agencies also note
that allocations made via side letters
must conform with the allocation
requirements for community
development loans or investments
described in appendix B of this final
rule.
Regarding input on timing
considerations around commitment of
funds to a recipient, the agencies agree
with commenter sentiment that working
capital provided to a CDFI by a bank
through a consortium or third party
should count at the point in time when
the commitment of funds to the
recipient is made, irrespective of when
the funds are deployed. This is why
final appendix B includes a reference to
legally binding commitments to extend
credit or to invest.775 The definitions of
‘‘community development investment’’
and ‘‘community development loan’’ in
the final rule also leverage the concept
of a legally binding commitment to
determine whether a particular loan or
investment qualifies for CRA
consideration.
Regarding commenter concerns about
the agencies restricting two or more
financial institutions from receiving
CRA consideration for the same
community development loan or
community development investment if
the loan or investment is sold from one
institution to the other, the agencies’
intent in the proposal was to prevent
banks from simultaneously claiming
and receiving credit for the same loan or
investment. The agencies did not intend
to eliminate CRA credit for sequential
transactions in such a way that one bank
could not receive any CRA credit for a
loan or investment if the loan or
investment was purchased from another
bank. Final § ll.21(c)(2) provides that,
if participants or investors choose to
allocate loans or investments among
themselves for consideration, no
participant or investor may claim a loan
origination, loan purchase, or
investment for community development
consideration if another participant or
investor claims the same loan or
investment. However, if one participant
or investor transfers the loan or
investment to another participant or
investor and relinquishes any ongoing
claim to the loan or investment for CRA
purposes, the participant to which the
loan or investment is transferred may
then receive agency consideration of the
loan or investment. As with other types
of loans or investments, the agencies
may consider whether loans and
investments are purchased or sold a
number of times for purposes of
artificially inflating CRA
performance.776
Section ll.21(d) Performance Context
Information Considered
Current Approach
Under the current CRA regulations,
the agencies consider specific
performance context factors in the
application of relevant performance
tests and standards and in the decision
to approve a bank’s strategic plan.777
The factors encompass a broad range of
economic, demographic, and
institution- and community-specific
information that an examiner reviews to
understand the context in which a
bank’s record of performance should be
evaluated.778
The Agencies’ Proposal
In proposed § ll.21(e), the agencies
identified the performance context
information that they would consider in
applying performance tests and
standards, as well as in determining
whether to approve a strategic plan.779
Consistent with performance context
information considered under the
current CRA framework, the agencies
proposed that consideration may be
given to: (1) a bank’s institutional
capacity and constraints; (2) a bank’s
final § ll.21(d)(7).
current 12 CFR ll.21(b).
778 See Q&A § ll.21(b)–1.
779 See proposed § ll.21(e).
776 See
6781
past performance; (3) demographic data
pertaining to the geographic areas in
which the bank is evaluated; (4) retail
banking and community development
needs in the geographic area in which
the bank is evaluated; (5) the bank’s
business strategy and product offerings;
(6) information in the bank’s public file,
including oral and written comments
submitted to the bank or the agency; and
(7) any other information deemed
relevant by the agency.780 Given that the
proposed performance tests, including
relevant metrics and benchmarks, were
designed to incorporate certain key
performance context considerations, the
agencies expressly proposed to consider
performance context information to the
extent that it is not otherwise
considered as part of a proposed
performance test.781 For example, the
proposed community benchmarks for
the Retail Lending Test metrics, as
described in section IX of the preamble
to the proposed rule, would reflect
information about an assessment area,
such as the percentage of owneroccupied housing units, the percentage
of low-income families, and the
percentage of small businesses or small
farms. Similarly, the proposed market
benchmarks for the Retail Lending Test
would reflect the aggregate lending to
targeted geographic areas or targeted
borrowers by all lenders operating in the
same assessment area.
The agencies requested feedback on
the performance context factors in
proposed § ll.21(e), including ways to
bring greater clarity to the use of
performance context factors as applied
to different performance tests.
Comments Received
The agencies received many
comments with respect to the agencies’
proposal to consider performance
context information. Many of these
commenters expressed general support
for the agencies’ proposal to apply
performance context information in
performance tests, standards, and
strategic plan approval determinations.
A commenter stated that the agencies
should not direct examiners to consider
performance context information only to
the extent that it is not otherwise
considered as part of a proposed
performance test. The commenter
indicated that this approach appears to
deemphasize performance context by
implying that a broad range of
information and circumstances are
already covered by the applicable
performance tests and standards; to
address this issue, the commenter
777 See
775 See final paragraph of appendix B, paragraph
I.a.1.i.A.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00209
Fmt 4701
Sfmt 4700
780 See
781 See
E:\FR\FM\01FER2.SGM
proposed § ll.21(e)(1) through (7).
proposed § ll.21(e).
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6782
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
recommended removing this language
from the proposal and clarifying that
performance context factors are
considered in addition to the proposed
performance tests and standards,
consistent with the current regulations.
Other commenters made related
suggestions, stating that the proposal’s
emphasis on quantitative factors such as
metrics and thresholds deemphasized
performance context in potentially
undesirable ways.
A commenter suggested that the
agencies should fully integrate
performance context into all bank
conclusions and ratings.
Some commenters offered suggestions
on additional performance context
factors that the agencies could
potentially add to proposed § ll.21(d).
For example, a commenter requested
that the agencies allow examiners to
consider innovative and responsive
credit products and programs as
beneficial performance context across
any of the performance tests to which
they are relevant. Another commenter
requested that the agencies incorporate
a measure of the availability and
affordability of childcare facilities as
performance context. A commenter
stated that a final rule should explicitly
document that CDFI certification must
be considered as a fundamental and
essential element of CRA performance
context for a CDFI bank and the factor
should be considered before and after
the application of performance tests.
Another commenter suggested that the
agencies use performance context to
determine whether an activity qualifies
for CRA purposes, especially for newer,
less common, more complex, or
innovative activities. The commenter
also suggested that examiner judgment
and performance context could be
helpful when a bank engages in an
activity that is not already on the
agencies’ proposed illustrative list of
activities eligible for CRA consideration.
A commenter recommended that the
agencies apply the following
performance context factors: whether a
substantial majority or a significant
portion of the bank’s retail activities are
loan products and services not defined
as major product lines for purposes of
the Retail Lending Test and, therefore,
not included in the quantitative metrics
and benchmarks; the bank’s business
strategy; geographic dispersion of retail
loan products and services; data
anomalies; and institutional capacity
and constraints.
Some commenters requested that the
agencies leverage performance context
data that succinctly summarizes
conditions in localities and suggested
these could include measures such as:
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
housing vacancy rates; housing cost
burden ratios; unemployment levels;
poverty rates; levels of segregation; and
measures of health and environmental
quality standards. Similarly, to clarify
the use of performance context factors,
a commenter suggested that the agencies
implement models that measure a
community’s capacity and demand for
investment, financial services, and
financial products and publish the
results in banks’ performance
evaluations.
A number of commenters suggested
that performance context should be
used by the agencies as an additional
means to encourage stakeholder
participation in CRA examinations and
that the agencies could solicit comment
from local stakeholders, including
historically underserved groups, on
local community needs and whether
banks are meeting those needs. The
commenters noted that responses to
those questions could then be
considered by the agencies as additional
performance context information that
enables examiners to conduct additional
analysis if significant concerns are
raised that impact a bank’s ratings.
A commenter stated that performance
context should be defined and updated
in real time in conjunction with banks,
with a particular emphasis on researchbased understanding of the credit and
community development needs and
opportunities. The commenter stated
this could help banks evaluate their
own performance and tailor their
services.
Some commenters noted that the
agencies will need dedicated staff with
specific training to correctly apply
performance context. A few commenters
stated that trained experienced staff
would be able to consider performance
context and evaluate CRA performance
relative to a bank’s size, business
strategy, and other relevant information.
Another of these commenters asked the
agencies to centralize performance
context with a comprehensive
community needs assessment; the
commenter also suggested that the
agencies could have dedicated staff to
analyze public input, local data, and
local studies.
A commenter requested that the
agencies limit examiner discretion to
adjust scores downward based on
performance context factors, such as by
requiring the agencies to provide a bank
with prior notice and the opportunity to
respond if such downward adjustments
would adversely affect the bank’s
institution rating.
A commenter expressed concern that
the proposed performance context
factors do not offer assurances that
PO 00000
Frm 00210
Fmt 4701
Sfmt 4700
banks with unique business models will
be able to pass their CRA examinations
under the proposed framework.
A commenter indicated that it
supported the creation of a data-driven
performance context dashboard.
Final Rule
After considering the comments, the
agencies are adopting the proposed
performance context factors in the final
rule, with technical and conforming
changes. In final § ll.21(d), the
agencies are clarifying that performance
context may be considered when
applying the performance tests or
strategic plans pursuant to final
§ ll.21(a) and when determining
whether to approve a strategic plan
pursuant to final § ll.27(h). In final
§ ll.21(d)(1), the agencies are also
clarifying that the ‘‘retail banking or
community development activities’’
described in the proposal include ‘‘retail
lending, retail banking services and
retail banking products, community
development loans, community
development investments, or
community development services.’’
In final § ll.21(d)(1), the agencies
are removing the reference to ‘‘facilitybased assessment areas’’ that was
included in the proposal. Similarly, in
paragraphs (d)(3) and (4) of final
§ ll.21, the agencies are removing the
references to ‘‘the geographic areas in
which the bank is evaluated.’’ By
removing all three of these references to
specific geographic areas, the agencies’
intention is to permit the consideration
of all of the performance factors in any
relevant geographic area. Similar to the
current CRA regulations, this approach
allows the consideration of performance
context factors where a bank’s actual
performance is evaluated. The agencies
believe that this approach preserves
important flexibility for the agencies to
consider relevant performance context
as needed.
In final § ll.21(d)(6), with respect to
performance context related to the
bank’s public file, the agencies are
removing the reference to ‘‘oral’’
comments that was included in the
proposal. After further consideration,
the agencies have decided that,
consistent with the current CRA
regulations, it is preferable to only
accept written comments submitted to
the bank or the agency for the bank’s
public file. The agencies believe that use
of written comments in relation to the
public file better ensures the accuracy of
the comments and eliminates additional
processing steps associated with oral
comments. The agencies note that this
change from the proposal does not affect
the use of community contacts and
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
other oral sources of public feedback
used in CRA examinations.
With these changes, final § ll.21(d)
provides that, when applying
performance tests and strategic plans
pursuant to final § ll.21(a), and when
determining whether to approve a
strategic plan pursuant to final
§ ll.27(h), the agencies may consider
the following performance context
information to the extent that it is not
considered as part of the tests and
standards: (1) a bank’s institutional
capacity and constraints, including the
size and financial condition of the bank,
safety and soundness limitations, or any
other bank-specific factors that
significantly affect the bank’s ability to
provide retail lending, retail banking
services and retail banking products,
community development loans,
community development investments,
or community development services; (2)
the bank’s past performance; (3)
demographic data on income levels and
income distribution, nature of housing
stock, housing costs, economic climate,
or other relevant data; (4) any
information about retail banking and
community development needs and
opportunities provided by the bank or
other relevant sources, including but not
limited to members of the community,
community organizations, State, local,
and tribal governments, and economic
development agencies; (5) the bank’s
business strategy and product offerings;
(6) the bank’s public file, including any
written comments about the bank’s CRA
performance submitted to the bank or
appropriate agency and the bank’s
responses to those comments; and (7)
any other information deemed relevant
by the agency.
The agencies have considered
commenter suggestions to remove
proposed language stating that the
agencies will consider performance
context factors to the extent they are not
already considered as part of
performance tests or standards. The
agencies are retaining this language in
the final rule because certain
performance context information is now
incorporated in the tests and standards,
and the agencies believe that this
practice places an appropriate emphasis
on performance context information.
For example, the Retail Lending Test
metrics and benchmarks incorporate
data on income levels and income
distribution, as is also noted in
§ ll.21(d)(3). The agencies emphasize,
however, that performance context will
continue to be considered by the
agencies in evaluating all banks, as the
agencies recognize that diverse banks
operate in a wide variety of
circumstances that quantitative
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
measures alone might not capture.
Similarly, while data about an economic
downturn or economic conditions
precipitating a decline in lending would
fall within the scope of § ll.21(d)(3),
the agencies anticipate that this
information would usually not be used
to adjust a Retail Lending Test
conclusion because it generally would
already be reflected in the relevant
Retail Lending Test market benchmarks;
however, the agencies also believe there
might be some unique circumstances in
which data about economic conditions
are not fully reflected in the relevant
Retail Lending Test market benchmarks.
The agencies acknowledge that the
current CRA regulations consider
performance context in addition to the
applicable performance tests and
standards. However, to accommodate
new aspects of the final rule framework,
such as the quantitative approach
implemented through standardized
metrics and benchmarks, the agencies
believe that performance context should
fully yield to an applicable performance
test when a performance context factor
considers the same information that is
incorporated in the performance test or
standard. This approach ensures that
performance context and the applicable
tests function in a complementary and
consistent manner. The agencies believe
that this approach better maintains the
integrity of the performance tests and
standards and prevents similar or even
redundant information from obfuscating
analysis included in the performance
tests or standards.
Regarding commenter sentiment that
performance context should be fully
integrated into conclusions and ratings,
the agencies agree with this suggestion
and have integrated the consideration of
final § ll.21(d) performance context
factors in each applicable performance
test. To accomplish this, the agencies
have expressly described the role that
the final § ll.21(d) performance
context factors play in the ‘‘conclusions
and ratings’’ paragraph of each
respective performance test adopted
under the final rule framework.
Regarding commenter suggestions that
innovative and responsive credit
products should be considered under
performance context considerations, the
agencies note that the final rule
incorporates assessments of
responsiveness in the Retail Services
and Products Test, the Community
Development Financing Test, the
Community Development Financing
Test for Limited Purpose Banks and the
Community Development Services Test.
Specifically, the final Retail Services
and Products Test considers the
responsiveness of a bank’s credit
PO 00000
Frm 00211
Fmt 4701
Sfmt 4700
6783
products and programs. For this reason,
the final Retail Lending Test does not
also consider the responsiveness of a
bank’s credit products. Similarly, an
impact and responsiveness review
pursuant to final § ll.15 is captured in
the evaluations of the Community
Development Financing Test in final
§ ll.24, the Community Development
Services Test in final § ll.25, and the
Community Development Financing
Test for Limited Purpose Banks in final
§ ll.26. As discussed elsewhere in
this SUPPLEMENTARY INFORMATION, the
final rule does not adopt the term
‘‘innovative’’ or otherwise use the term.
The agencies have considered
commenter feedback with respect to
including the availability and
affordability of childcare facilities as
performance context, and the agencies
have determined not to adopt this
suggestion because bank activities that
support childcare or childcare facilities
qualify as community development
activities, as described in the section-bysection analysis of § ll.13. Similarly,
the agencies believe that it is not
necessary to make CDFI certification a
performance context factor because final
§ ll.21(d)(5) considers the business
strategy and product offerings of a bank.
The agencies also decline to adopt
commenter suggestions to use
performance context to determine
whether an activity qualifies for CRA
purposes, especially for newer, less
common, more complex, or innovative
activities that may not be already on the
agencies’ proposed illustrative list of
activities eligible for CRA consideration.
The agencies note that other final rule
provisions specify the particular retail
and community development activities
that qualify for CRA consideration. The
agencies believe that the use of
performance context to create
exceptions to these requirements for
qualifying activities would compromise
the clarity and transparency of the
framework, introduce additional
complexity, and potentially minimize
the incentive for banks to meet the
requirements of the regulations.
However, the agencies agree with
commenter sentiment that if a
significant portion of a bank’s retail
lending activities are loan products that
are potentially evaluated under the
Retail Lending Test but that do not
qualify as major product lines, the loan
products could be considered as part of
performance context information under
§ ll.21(d)(5) of the final rule.
With respect to commenter
suggestions that the agencies consider a
bank’s business strategy and a bank’s
institutional capacity and constraints as
performance context, the agencies note
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6784
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
that these considerations are included
as performance context factors under
paragraphs (d)(1) and (5) of final
§ ll.21.
The agencies considered whether they
should add performance context factors
for the geographic dispersion of retail
loan products and data anomalies. The
agencies are not adding a performance
context factor for the geographic
dispersion of retail loans and products
because the Retail Lending Test and
Small Bank Lending Test already
evaluate the distribution of the loan
products under each respective test.
With respect to data anomalies, the
Retail Lending Test already considers
missing or faulty data as an additional
factor under § ll.22(g)(4). With
respect to other applicable tests, data
anomalies may be considered as other
potentially relevant information under
§ ll.21(d)(7) of the final rule.
In response to commenter suggestions
that the agencies should consider
localized data focused on particular
community needs, the agencies note
that under final § ll.21(d)(4), State,
local, and tribal governments, and
economic development agencies may
submit any information regarding retail
banking and community development
needs and opportunities. Under this
approach, the agencies would consider
this variety of information to the extent
that it is not already considered in
relevant performance tests.
After considering comments on the
importance of stakeholder feedback, the
agencies have decided to preserve
feedback from stakeholders as part of a
bank’s relevant performance context as
proposed. To achieve this, paragraphs
(d)(4) and (6) of final § ll.21 permit
the agencies to consider relevant
stakeholder feedback submitted: directly
to the agencies on retail banking and
community development needs and
opportunities; directly to the agencies
via written comments on the bank’s
CRA performance; indirectly via
comments included in the bank’s public
file; or indirectly via bank response to
a written comment.
With respect to commenter
suggestions that the performance
context should be updated with the
most recent information possible, the
agencies note that they intend to apply
the most recent performance context
information that is available at the time
of the examination.
In relation to suggestions that the
agencies should have dedicated staff
with specific training on applying
performance context, the agencies plan
to provide dedicated training to
supervisory staff on all aspects of the
final rule, including performance
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
context. As the final rule is
implemented, the agencies will make
determinations as to which particular
staff are best situated to consider and
apply performance context information
and what specific, additional training
would be helpful to achieve agency
objectives.
The agencies also expect that their
quantitative approach to assessing bank
performance will provide additional
transparency and consistency in the
examination process. To provide further
predictability and transparency, the
agencies will consider the possibility of
additional interagency guidance with
respect to their discretion to adjust a
bank’s conclusions or ratings through
performance context consistent with
§ ll.21(d). However, at this time, the
agencies do not find it appropriate to
limit examiner discretion in the final
rule to adjust scores downward. In
relation to a comment that the proposed
performance context factors do not offer
assurances that banks with unique
business models will be able to pass
their CRA examinations under the
proposed framework, the agencies note
that the proposed performance context
factors were not intended to provide
assurances of how a bank will perform
in a CRA examination. In addition, the
final rule also provides banks with the
option to seek approval to be evaluated
under a strategic plan, and the option to
seek limited purpose bank designations,
both of which are a means of
accommodating banks with unique
business models that might otherwise
experience challenges with being
evaluated under otherwise applicable
performance tests or standards.
The agencies will work together to
provide greater performance context
information to the public, including to
banks. This will include tools to provide
information on factors that may impact
community credit needs. As noted in
the SUPPLEMENTARY INFORMATION of the
agencies’ proposal, the agencies believe
that this information will help provide
greater consistency and transparency,
while also enhancing public
participation. In addition, as noted
elsewhere, the agencies will provide
online tools that will leverage reported
data and provide information related to
metrics and benchmarks.
Section ll.21(e) Conclusions and
Ratings
Current Approach
Pursuant to the CRA statute,782 the
current CRA regulations provide that a
bank is assigned a rating of
782 See
PO 00000
12 U.S.C. 2906(b)(2).
Frm 00212
Fmt 4701
Sfmt 4700
‘‘Outstanding,’’ ‘‘Satisfactory,’’ ‘‘Needs
to Improve,’’ or ‘‘Substantial
Noncompliance’’ at the institution
level.783 The assigned rating reflects the
bank’s record of helping to meet the
credit needs of its entire community,
including low- and moderate-income
neighborhoods.
The Agencies’ Proposal
In proposed § ll.21(f), the agencies
proposed to assign banks conclusions,
ratings, and performance scores.
Specifically, pursuant to § ll.21(f)(1),
the agencies would assign conclusions
to banks for the bank’s performance on
applicable performance tests and
standards. For large banks, intermediate
banks, and wholesale and limited
purpose banks, these conclusions would
be ‘‘Outstanding,’’ ‘‘High Satisfactory,’’
‘‘Low Satisfactory,’’ ‘‘Needs to
Improve,’’ or ‘‘Substantial
Noncompliance.’’ For small banks, these
conclusions would be ‘‘Outstanding,’’
‘‘Satisfactory,’’ ‘‘Needs to Improve,’’ or
‘‘Substantial Noncompliance.’’
Pursuant to proposed § ll.21(f)(2),
the agencies would assign a bank a
rating of ‘‘Outstanding,’’ ‘‘Satisfactory,’’
‘‘Needs to Improve,’’ or ‘‘Substantial
Noncompliance’’ regarding its overall
CRA performance, as applicable, in each
State, in each multistate MSA, and for
the institution that reflected the bank’s
record of helping to meet the credit
needs of its entire community,
including low- and moderate-income
neighborhoods, consistent with the safe
and sound operation of the bank. This
paragraph retained existing language
from the current CRA rule.
Proposed § ll.21(f)(3) provided that
the agencies would develop
performance scores in connection with
assigning conclusions and ratings for a
bank, other than a small bank evaluated
under the small bank performance
standards, a wholesale or limited
purpose bank evaluated under the
Community Development Financing
Test for Wholesale or Limited Purpose
Banks, or a bank evaluated based on an
approved strategic plan. As described
further in appendices C and D of the
proposal, the agencies proposed a
scoring system based on the following
10-point scale: ‘‘Outstanding’’ (10
points); ‘‘High Satisfactory’’ (7 points);
‘‘Low Satisfactory’’ (6 points); ‘‘Needs to
Improve’’ (3 points); or ‘‘Substantial
Noncompliance’’ (0 points). The
agencies intended for the performance
scores to provide greater transparency
regarding a bank’s overall performance.
783 See
E:\FR\FM\01FER2.SGM
current 12 CFR ll.21(c).
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Comments Received
The agencies received many
comments on the agencies’ proposal
with respect to conclusions, ratings, and
performance scores. Some commenters
supported the conclusions, ratings, and
performance score approach in the
proposed rule. A few commenters stated
that they appreciated the additional
transparency and precision that the
agencies proposed regarding ratings by
assigning both a conclusion and a score
for each performance test at the
assessment area level, with one of these
commenters noting that the change will
provide additional clarity as to how
well banks are performing. A
commenter supported the proposal’s
increased rigor in the form of assigning
points to the ratings in the CRA’s
subtests, as detailed in the proposed
appendices C and D. Another
commenter stated that it would
welcome clearer expectations for each of
the four proposed ratings.
Some commenters expressed support
for the proposed 10-point performance
scoring system but also suggested
changes to point values corresponding
to various ratings. For example, a few
commenters suggested that, to provide
more distinction between the
conclusions, the agencies could adopt
an alternative scale where an
‘‘Outstanding’’ receives 10 points, a
‘‘High Satisfactory’’ receives 8 points, a
‘‘Low Satisfactory’’ receives 5 points,
and a ‘‘Needs to Improve’’ receives 2
points. Similarly, some commenters
encouraged the agencies to otherwise
make a greater distinction between the
‘‘Low Satisfactory’’ and ‘‘High
Satisfactory’’ conclusions to incentivize
better bank performance and to ensure
poor bank performance does not result
in a rating above ‘‘Needs to Improve.’’
Some commenters requested that the
agencies adopt a point system that better
reveals distinctions in performance and
minimizes the potential for CRA grade
inflation. For example, a commenter
suggested an approach where the
agencies would assign a numeric score
between 1 and 100 and assign ratings
relative to the scale.
Another commenter recommended
that the agencies separate banks into
one of the following three equally
weighted categories for CRA scores:
‘‘below average,’’ ‘‘average,’’ and ‘‘above
average.’’ From there, the commenter
suggested that the agencies could
identify a subset of banks from the
below average category for ‘‘Needs to
Improve’’ results and a subset of banks
from the above average category for
‘‘Outstanding’’ results. A few
commenters recommended a scoring
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
system that makes receiving an
‘‘Outstanding’’ rating more easily
achievable under the applicable
performance tests.
Final Rule
After reviewing and considering the
comments, the agencies are adopting the
proposed approach to conclusions and
ratings. As described in further detail in
the section-by-section analysis of
§ ll.28 (‘‘Assigned conclusions and
ratings’’) the agencies believe that the
final rule approach creates a consistent
and quantifiable framework for
assigning conclusions for bank
performance and State, multistate MSA,
and institution ratings. The agencies
believe that their adopted approach will
increase transparency and provide
clarity regarding a bank’s CRA
performance.
To streamline the regulation text of
the final rule, the agencies are making
a series of technical edits to § ll.21(e).
With respect to conclusions in final
§ ll.21(e)(1), the agencies are
specifying that, for all banks,
conclusions are assigned pursuant to
final § ll.28. The agencies are also
indicating in final § ll.21(e)(1) that:
for large banks and limited purpose
banks, conclusions are assigned
pursuant to final appendix C; for
intermediate banks and small banks,
conclusions are assigned pursuant to
final appendices C and E; and for banks
with a strategic plan, conclusions are
assigned pursuant to paragraph g of
final appendix C. Furthermore, because
the information is also covered in final
§ ll.28(a)(1), the agencies are not
including references to specific
conclusions such as ‘‘Outstanding’’ and
‘‘Needs to Improve.’’
In final § ll.21(e)(2), the agencies
are indicating that, as provided in final
§ ll.28 and final appendices D and E,
they assign an overall CRA institution
performance rating to a bank. As
applicable, overall CRA performance
ratings are also assigned for each State
and each multistate MSA. Because the
information is already included in final
§ ll.28, the agencies have removed
the reference to the specific ratings that
may be assigned to a bank, as well as the
statement that the ratings reflect the
bank’s record of helping to meet the
credit needs of the bank’s entire
community, including low- and
moderate-income neighborhoods,
consistent with the safe and sound
operation of the bank.
The agencies are not adopting
proposed § ll.21(f)(3) in final
§ ll.21 pertaining to performance
scores. The agencies believe that the
performance scores are appropriately
PO 00000
Frm 00213
Fmt 4701
Sfmt 4700
6785
described in paragraphs (a) and (b) of
final § ll.28 and additional discussion
in final § ll.21 would be duplicative.
The agencies have considered the
performance scoring system alternatives
suggested by commenters involving
more granular scoring systems or
systems that would lend themselves to
more distinct gradations. However, the
agencies are adopting the proposed 10point scale in the final rule because the
agencies believe it provides appropriate
transparency and facilitates a greater
understanding of bank performance in
comparison to other alternatives. With
specific reference to commenter input
suggesting the need for a more detailed
performance scoring approach, such as
a 100-point scale, the agencies believe
that doing so would provide at best a
limited benefit because both the
proposal and final rule approach
involve translating performance scores
into an ‘‘Outstanding,’’ ‘‘High
Satisfactory,’’ ‘‘Low Satisfactory,’’
‘‘Needs to Improve,’’ or ‘‘Substantial
Noncompliance’’ conclusion or rating.
In addition, the agencies believe that the
potential for CRA grade inflation with
respect to performance scores is
minimized with established
performance thresholds in the Retail
Lending Test and by the direct roll-up
of assessment area performance scores
to conclusions at the State level,
multistate MSA level, and for the
institution in all large bank performance
tests. To the extent examiner judgment
is involved in assigning a performance
score, the agencies also believe that
examiner training and guidance will
minimize potential ‘‘grade inflation’’
risks.
The agencies have also considered
alternatives suggested by commenters to
assign different point values within the
10-point performance scoring system to
correspond with a particular conclusion
or rating. However, the agencies believe
that finalizing the point value as
proposed is preferable because it
produces a more accurate overall score
when there are variations in
subcomponent performance.
Additionally, these point values result
in appropriate aggregation of geographic
area conclusions into State, multistate
MSA, and institution conclusions and
ratings. Regarding comments to develop
a scale with a greater difference in the
number of points assigned to ‘‘Low
Satisfactory’’ and ‘‘High Satisfactory,’’
the agencies believe that the proposed
approach is appropriate. Specifically,
the agencies consider ‘‘Low
Satisfactory’’ and ‘‘High Satisfactory’’
performance to be less distinct from one
another than other neighboring
categories, such as ‘‘Needs to Improve’’
E:\FR\FM\01FER2.SGM
01FER2
6786
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
and ‘‘Low Satisfactory.’’ Further, the
agencies do not agree with commenter
input that the 10-point system inhibits
strong performance by banks. Instead,
the agencies believe that the 10-point
scoring methodology appropriately
identifies distinctions in bank
performance and assists the agencies in
assigning corresponding conclusions
and ratings.
Section ll.21(f) Safe and Sound
Operations
ddrumheller on DSK120RN23PROD with RULES2
Current Approach
Pursuant to the CRA statute and the
current CRA regulations, a bank is not
required to make loans or investments
or to provide services that are
inconsistent with the safe and sound
operation of the bank.784 Instead,
current CRA regulations specify that
banks are expected by the agencies to
provide safe and sound loans,
investments, and services on which they
expect to make a profit.785 Furthermore,
banks may only develop and apply
flexible underwriting standards for
loans that benefit low- or moderateincome geographies or individuals if the
standards are consistent with safe and
sound operations.786
The Agencies’ Proposal
In proposed § ll.21(g), the agencies
retained the current regulatory
provision that provides that neither the
CRA statute nor the CRA regulations
require a bank to make loans or
investments or to provide services that
are inconsistent with safe and sound
banking practices, with the proposed
clarification that this includes the
bank’s underwriting standards.787
Similarly, the agencies also proposed to
retain the language in that provision
indicating that, although banks may
employ flexible underwriting standards
for lending that benefits low- or
moderate-income individuals and lowor moderate- income census tracts, they
must also be consistent with safe and
sound operations.788 The agencies
proposed certain revisions to the
language in this section for clarity,
including an express statement that
banks may employ flexible underwriting
standards for not only loans that benefit
low- or moderate-income individuals
and low- or moderate-income census
tracts, but also for loans that benefit
small businesses or small farms, if
784 See 12 U.S.C. 2901(b) and 2903(a); see also
current 12 CFR ll.11(b) and ll.21(d).
785 See current 12 CFR ll.21(d).
786 See id.
787 See proposed § ll.21(g).
788 See current 12 CFR ll.21(d) and proposed
§ ll.21(g).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
consistent with safe and sound
operations.789 The agencies proposed to
eliminate the statement that they
anticipate that banks will provide safe
and sound loans, investments, and
services on which they expect to make
a profit because they deemed this to be
redundant to include.
Comments Received
The agencies received a few
comments that offered general support
for the agencies’ proposed safety and
soundness requirements. A commenter
stated that because operating in a safe
and sound manner is a prudent business
practice and a regulatory requirement, a
final CRA rule should not lose sight of,
or compromise, the ability of banks to
operate in such a manner. Another
commenter stated that the agencies
should not abandon safe and sound
safeguards against systemic risk.
Final Rule
The agencies are adopting the safe
and sound operations requirement in
§ ll.21(f) of the final rule with a single
technical change. The agencies are
revising ‘‘make’’ in the first sentence to
‘‘originate or purchase’’ in order to more
precisely indicate that banks originate
or purchase loans or investments. The
requirements in final § ll.21(f)
reinforces the statutory requirement that
banks meet the credit needs of their
communities in a manner that is
consistent with the safe and sound
operation of the bank. This requirement
has general applicability to the entire
CRA framework.
Section ll.22 Retail Lending Test
Section ll.22 Overview of the Retail
Lending Test Approach
Current Approach
Under the current CRA regulations,
the large bank lending test includes both
quantitative and qualitative criteria. The
agencies consider originations and
purchases of loans in the following
categories of retail lending: home
mortgage loans; small business loans;
and small farm loans.790 These
categories of retail lending are generally
evaluated if the bank has originated or
purchased loans in the category. In
addition, consumer loans, which
include motor vehicle loans, credit card
loans, other secured consumer loans, or
other unsecured consumer loans, are
proposed § ll.21(g).
current 12 CFR ll.22(a)(1) and (2). For
this purpose, home mortgage loans include home
purchase loans, home improvement loans, home
refinance loans, multifamily loans, and loans for the
purchase of manufactured homes. See Q&A
§ ll.12(l)–1.
789 See
790 See
PO 00000
Frm 00214
Fmt 4701
Sfmt 4700
considered at the bank’s option, or if
these loans constitute a substantial
majority of the bank’s business.791
The agencies evaluate large banks’
retail lending based on three primary
criteria: lending activity; geographic
distribution; and borrower
characteristics. The lending activity
criterion considers the volume of retail
lending, in terms of the number and
dollar amount of home mortgage loans,
small business loans, small farm loans,
and consumer loans, as applicable,
within a bank’s assessment areas.792 The
agencies identify the number and dollar
amount of loans in assessment areas and
evaluate the bank’s lending volume
considering the bank’s resources,
business strategy, and other
performance context information.793
In addition, to consider whether the
bank is helping to meet the credit needs
of low- and moderate-income census
tracts, and of low- and moderateincome individuals, small businesses,
and small farms, the agencies review the
geographic distribution and borrower
distribution of those loans.794
For the geographic distribution
criterion, the agencies evaluate the
proportion of the bank’s lending in the
bank’s assessment areas, the dispersion
of lending in the bank’s assessment
areas, and the number and amount of a
bank’s retail loans in low-, moderate-,
middle-, and upper-income geographies
in the bank’s assessment areas.795 The
agencies review the geographic
distribution of home mortgage loans by
income category and compare the
percentage distribution of lending to the
percentage of owner-occupied housing
units in the census tracts. Similarly, in
each geographic income category, the
agencies compare: small business
lending to the percentage distribution of
businesses; small farm lending to the
percentage distribution of farms; and
consumer lending to the percentage
distribution of households in each
geographic income category, as
applicable. The agencies supplement
these distribution analyses by also
reviewing the dispersion of a bank’s
loans throughout geographies of
different income levels in its assessment
areas to determine if there are
791 See current 12 CFR ll.22(a)(1); current 12
CFR ll.12(j) (definition of ‘‘consumer loan’’). The
agencies interpret ‘‘substantial majority’’ to be so
significant a portion of the institution’s lending
activity by number and dollar volume of loans that
the lending test evaluation would not meaningfully
reflect its lending performance if consumer loans
were excluded. See Q&A § ll.22(a)(1)–2.
792 See current 12 CFR ll.22(b)(1).
793 See Interagency Large Institution CRA
Examination Procedures (April 2014) at 6.
794 See current 12 CFR ll.22(b)(2) and (3).
795 See current 12 CFR ll.22(b)(2).
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
unexplained conspicuous lending
gaps.796
For the borrower distribution
criterion, the agencies evaluate the
distribution of a bank’s retail loans
across borrower incomes or gross annual
revenues of small businesses and small
farms.797 The agencies use the following
demographic comparators to inform the
borrower distribution analysis: for home
mortgage lending, families by income
level; for small business lending,
businesses with gross annual revenues
of $1 million or less; for small farm
lending, farms with gross annual
revenues of $1 million or less; and for
consumer lending, households by
income level.
The agencies evaluate small banks
and intermediate small banks using
similar, but simplified, standards that
do not rely on required data collection
or reporting.798 Specifically, a small
bank or an intermediate small bank is
evaluated on: the bank’s loan-to-deposit
ratio (based on the balance sheet dollar
values at the institution level); the
percentage of its loans and lendingrelated activities within the bank’s
assessment areas; the bank’s record of
lending to and, as appropriate, engaging
in other lending-related activities for
borrowers of different income levels and
businesses and farms of different sizes;
the geographic distribution of the bank’s
loans; and the bank’s record of taking
action in response to written complaints
about its performance in helping to meet
credit needs in its assessment areas.799
The geographic and borrower
distribution evaluation for small banks
and intermediate small banks is similar
to that of large banks, but may use bank
data collected in the ordinary course of
business or information obtained
through loan samples.800 For small
banks, the agencies evaluate the same
categories of retail lending as for other
banks, except that only those consumer
loan categories that are considered
primary products are evaluated.
The purpose of evaluating lending
activity for small banks, intermediate
small banks, and large banks is the
same—to determine whether a bank has
a sufficient volume and distribution of
lending in its assessment areas in light
of a bank’s performance context,
including its capacity and the lending
796 See Interagency Large Institution CRA
Examination Procedures (April 2014) at 7.
797 See current 12 CFR ll.22(b)(3).
798 See current 12 CFR ll.26.
799 See current 12 CFR ll.26(b).
800 See Interagency Small Institution CRA
Examination Procedures (July 2007) at 5;
Interagency Intermediate Small Institution CRA
Examination Procedures (July 2007) at 6.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
opportunities in its assessment areas.801
The current approach, however, does
not specify what level, or percentage, of
lending is sufficient to achieve
‘‘Outstanding’’ or ‘‘Satisfactory’’
performance, for example, and relies on
examiner discretion to draw a
conclusion about a bank’s level of
lending using the descriptions of
performance under each of the criteria
and ratings categories.802
Retail lending conducted outside of
assessment areas is not evaluated using
the lending test criteria. However, the
Interagency Questions and Answers
allow for consideration of loans to lowand moderate-income individuals, small
business loans, and small farm loans
outside of a bank’s assessment areas.803
The Agencies’ Proposal—Overview
The agencies proposed a Retail
Lending Test in § ll.22 to measure
how well a bank’s retail lending meets
the credit needs of its facility-based
assessment areas, retail lending
assessment areas, and outside retail
lending area, as applicable, through an
analysis of the bank’s retail lending
volume and retail lending
distribution.804 The proposed Retail
Lending Test used a metrics-based
approach that incorporated specific
quantitative standards in order to
increase consistency in evaluations and
provide improved transparency and
predictability regarding the retail
lending performance needed to achieve
a particular conclusion, ranging from
‘‘Outstanding’’ to ‘‘Substantial
Noncompliance.’’
Under the proposed Retail Lending
Test, the agencies would apply two sets
of metrics. First, in facility-based
assessment areas, the agencies proposed
to apply a retail lending volume screen
to assess a bank’s retail lending volume,
calculated as a bank volume metric,
relative to peer banks in the facilitybased assessment area, calculated as a
market volume benchmark. Specifically,
the agencies proposed a bank volume
metric calculated as the ratio of a bank’s
total dollars of closed-end home
mortgage loans, open-end home
mortgage loans, multifamily loans, small
business loans, small farm loans, and
automobile loans compared to the
bank’s dollars of deposits in the facilitybased assessment area. The proposed
market volume benchmark was the
aggregate ratio of retail lending
801 See current 12 CFR ll.21(b), ll.22(a)(1),
andll.26(a).
802 See, e.g., current appendix A to part
ll(Ratings).
803 See Q&A § ll.22(b)(2) and Q&A
§ ll.22(b)(3)–4.
804 See generally proposed § ll.22.
PO 00000
Frm 00215
Fmt 4701
Sfmt 4700
6787
compared to deposits among all large
banks that operated a branch in the
facility-based assessment area.
Under the proposal, a bank with a
bank volume metric that met or
surpassed the Retail Lending Volume
Threshold—30 percent of the market
volume benchmark—would be assigned
a recommended conclusion for the
facility-based assessment area based on
the proposed distribution analysis
described below. For a bank with a bank
volume metric that did not meet or
surpass the threshold, the agencies
proposed to consider a set of factors to
determine whether the bank had an
acceptable basis for not meeting or
surpassing the threshold. Under the
proposed approach, a large bank that
lacked an acceptable basis for not
meeting or surpassing the threshold
would be limited to receiving a Retail
Lending Test conclusion of ‘‘Needs to
Improve’’ or ‘‘Substantial
Noncompliance’’ for that facility-based
assessment area.
Second, the agencies proposed to
evaluate the geographic and borrower
distributions of a bank’s major product
lines in its facility-based assessment
areas, retail lending assessment areas,
and outside retail lending area, as
applicable. Under the proposal, a bank’s
originated and purchased closed-end
home mortgage loans, open-end home
mortgage loans, multifamily loans, small
business loans, and small farm loans
would qualify as a major product line in
a particular area if the loans in the
product line comprised 15 percent or
more, by dollar amount, of the bank’s
retail lending in the area. In addition, a
bank’s originated and purchased
automobile loans would qualify as a
major product line in a particular area
if the bank’s automobile loans
comprised 15 percent or more of the
bank’s retail lending in the area, based
on a combination of the dollar amount
and number of loans.
For a large bank, the agencies
proposed to evaluate the geographic and
borrower distributions of the bank’s
major product lines in its facility-based
assessment areas, retail lending
assessment areas, and outside retail
lending area. For an intermediate bank,
or a small bank that opted to be
evaluated under the Retail Lending Test,
the agencies proposed to evaluate the
geographic and borrower distributions
of the intermediate bank’s or small
bank’s major product lines in its facilitybased assessment areas. In addition, if
an intermediate bank conducted a
majority of its retail lending, by dollar
amount, outside of its facility-based
assessment areas, the agencies would
evaluate the intermediate bank’s
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6788
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
geographic and borrower distributions
in its outside retail lending area.
To evaluate the geographic and
borrower distributions of a bank’s major
product lines, the agencies proposed a
series of bank metrics and benchmarks
covering a total of four categories of
lending for each major product line:
low-income census tracts; moderateincome census tracts; low-income
borrowers (or small businesses or small
farms with gross annual revenues of less
than $250,000); and moderate-income
borrowers (or small businesses or small
farms with gross annual revenues of
greater than $250,000 but less than or
equal to $1 million).805 For the
geographic distribution analysis, the
proposed bank metrics would measure
the level of the bank’s lending in lowand moderate-income census tracts in
the facility-based assessment area, retail
lending assessment area, or outside
retail lending area, as applicable. For
the borrower distribution analysis, the
proposed bank metrics would measure
the level of the bank’s lending to lowand moderate-income borrowers,
respectively, and to lower-revenue small
businesses and small farms,
respectively, in the area. The proposed
geographic and borrower bank metrics
would be compared to:
• Market benchmarks that reflect the
aggregate lending to low- and moderateincome census tracts or low- and
moderate-income borrowers and lowerrevenue small businesses and small
farms in the area by reporting lenders;
and
• Community benchmarks that reflect
local demographic data.
Under the proposal, a bank’s
geographic and borrower distribution
analyses (evaluating the four categories
of lending described above for each
major product line) would be translated
into a performance conclusion using
multipliers and performance ranges.
Specifically, for each distribution with
respect to each major product line
evaluated in a facility-based assessment
area, retail lending assessment area, or
outside retail lending area, the agencies
proposed to assign the performance
conclusion that corresponds to:
• The relevant market benchmark,
multiplied by a specified multiplier; or
• The relevant community
benchmark, multiplied by a specified
multiplier, whichever is lower.
For example, under the proposal, if
the geographic bank metric for closedend home mortgage loans in low-income
census tracts in a particular facilitybased assessment area just exceeded (1)
805 See the section-by-section analysis of final
§ ll.22(f) for additional detail.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
110 percent of the corresponding
geographic market benchmark or (2) 90
percent of the corresponding geographic
community benchmark, whichever is
lower, then the agencies would assign a
‘‘High Satisfactory’’ conclusion to the
bank’s performance on the particular
geographic distribution in the facilitybased assessment area.
The agencies proposed a transparent
approach for combining the four
performance conclusions assigned to
each of a bank’s major product lines in
an area pursuant to the geographic and
borrower distribution analyses. Under
the proposed approach, for a particular
major product line, the two geographic
distribution performance conclusions
would be combined using a weighted
average calculation to determine a
geographic performance score and the
two borrower distribution performance
conclusions would be combined using a
weighted average calculation to
determine a borrower performance
score. Then, these geographic and
borrower performance scores would be
averaged to develop a product line
average for each major product line.
Next, the agencies would develop a
recommended conclusion for the Retail
Lending Test for each facility-based
assessment area, retail lending
assessment area, and outside retail
lending area. This recommended
conclusion would be developed by
combining the product line averages for
all of a bank’s major product lines in the
facility-based assessment area, retail
lending assessment area, or outside
retail lending area. For purposes of
combining the product line averages,
the agencies proposed to weight each of
a bank’s major product lines by the
dollar volume of lending the bank
engaged in for the product line in the
area. The resulting recommended
conclusion would serve as the basis for
the performance conclusion on the
Retail Lending Test in the particular
facility-based assessment area, retail
lending assessment area, or outside
retail lending area under the proposed
approach.
Recognizing that the proposed
distribution metrics and benchmarks
may not capture all factors that should
be considered when evaluating a bank’s
retail lending performance, the agencies
proposed a set of additional factors that
examiners may consider with respect to
a bank’s retail lending performance in a
particular area. Based on the Retail
Lending Test recommended conclusion,
the additional factors, and the bank’s
performance on the retail lending
volume screen (in the case of a facilitybased assessment area), examiners
would assign a Retail Lending Test
PO 00000
Frm 00216
Fmt 4701
Sfmt 4700
conclusion to each of a bank’s facilitybased assessment areas, retail lending
assessment areas, and its outside retail
lending area, as applicable, under the
proposed approach. The agencies would
also consider applicable performance
context factors not included in the
metrics-based framework.
Finally, the agencies proposed a
transparent and standardized approach
for combining Retail Lending Test
conclusions assigned to a bank’s
facility-based assessment areas, retail
lending assessment areas, and outside
retail lending areas, as applicable, to
calculate Retail Lending Test
conclusions for the bank at the State,
multistate MSA, and institution levels.
For example, to calculate a large bank’s
Retail Lending Test conclusion for a
particular State, the agencies proposed
to combine the Retail Lending Test
conclusions for each of the large bank’s
facility-based assessment areas and
retail lending assessment areas in the
State, weighting each assessment area
conclusion based on a combination of
the percentage of the large bank’s retail
loans made in the particular facilitybased assessment area or retail lending
assessment area and the percentage of
the bank’s deposits sourced from the
particular facility-based assessment area
or retail lending assessment area.
Summary of Final Rule Retail Lending
Test
Overview. The agencies are finalizing
the proposed Retail Lending Test, with
substantive modifications, clarifications,
and technical revisions, as described
throughout the section-by-section
analysis of final § ll.22. The final rule
retains the overall structure and key
features of the proposed Retail Lending
Test, including:
• A Retail Lending Volume Screen
applied to facility-based assessment
areas, pursuant to final § ll.22(c);
• A major product line standard to
identify a bank’s most significant retail
product lines in its facility-based
assessment areas, retail lending
assessment areas, and outside retail
lending area—individually and
collectively referred to as ‘‘Retail
Lending Test Areas’’ in the final rule—
pursuant to final § ll.22(d);
• Metrics and benchmarks, drawn
from the current approach, used to
evaluate the following four categories of
lending for each of a bank’s major
product lines in each Retail Lending
Test Area, pursuant to final § ll.22(e):
Æ Loans in low-income census tracts;
Æ Loans in moderate-income census
tracts;
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
Æ Loans to low-income borrowers (or
to businesses or farms with gross annual
revenues of $250,000 or less); 806 and
Æ Loans to moderate-income
borrowers (or to businesses or farms
with gross annual revenues greater than
$250,000 but less than or equal to $1
million).807
• Multipliers and performance
ranges, based on the benchmarks
described above, that determine a bank’s
supporting conclusion for each of the
four categories of lending for certain
major product lines, pursuant to final
§ ll.22(f);
• Product line scores for a bank’s
performance on each major product
line—by averaging together the
supporting conclusions for each of the
four categories of lending for a major
product line—in a Retail Lending Test
Area;
• A recommended conclusion for
each Retail Lending Test Area based on
the bank’s product line scores on all
major product lines in that area,
pursuant to final § ll.22(f);
• Additional factors that the agencies
consider to supplement the geographic
and borrower distribution analyses,
pursuant to final § ll.22(g); and
• Conclusions assigned to each Retail
Lending Test Area, and a weighted
average approach to determine Retail
Lending Test conclusions at the State,
multistate MSA, and institution levels,
pursuant to final § ll.22(h).
The final rule also includes key
modifications from the proposed Retail
Lending Test, discussed in further detail
below, including:
• A reduction in the number of major
product lines by removing multifamily
loans and open-end home mortgage
loans from the distribution analysis and
by narrowing the standard for when
automobile loans are evaluated;
• Changes to the methodology for
determining a bank’s major product
lines in its facility-based assessment
806 For purposes of evaluating a bank’s small
business lending performance under the Retail
Lending Test, the agencies consider the bank’s
loans to non-farm businesses only, and do not
consider the bank’s loans to farms. A bank’s loans
to farms are considered in the evaluation of the
bank’s small farm lending performance.
807 The transition amendments included in this
final rule will, once effective, amend the definitions
of ‘‘small business’’ and ‘‘small farm’’ to instead
cross-reference to the definition of ‘‘small business’’
in the CFPB Section 1071 Final Rule. This will
allow the CRA regulatory definitions to adjust if the
CFPB increases the threshold in the CFPB Section
1071 Final Rule definition of ‘‘small business.’’ This
is consistent with the agencies’ intent articulated in
the preamble to the proposal and elsewhere in this
final rule to conform these definitions with the
definition in the CFPB Section 1071 Final Rule. The
agencies will provide the effective date of these
transition amendments in the Federal Register after
section 1071 data is available.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
areas and outside retail lending area,
namely by considering a combination of
loan dollars and loan count, as defined
in final § ll.12;
• Changes to the methodology for
determining a large bank’s major
product lines in retail lending
assessment areas, based on whether the
large bank made a sufficient number of
closed-end home mortgage loans or
small business loans to trigger the retail
lending assessment area delineation
requirement, as described further in the
section-by-section analysis of final
§ ll.17;
• For automobile lending, limiting
the evaluation to majority automobile
lenders, as described below, and to
banks that opt to have their automobile
lending evaluated, and eliminating the
proposed data reporting requirements,
market benchmarks, and performance
ranges;
• A reduction in several of the
multiplier values used to calculate
performance ranges, to ensure that the
performance ranges are generally
attainable and appropriately aligned
with the conclusion categories; 808
• Changes to the methodology for
combining performance in each major
product line to determine the
recommended conclusion in each Retail
Lending Test Area, namely by
considering a combination of loan
dollars and loan count;
• Additions and revisions to the
proposed additional factors to account
for more circumstances in which
adjustments to the recommended
conclusion for a Retail Lending Test
Area may be warranted; and
• Changes to the approach for
calculating a weighted average of Retail
Lending Test Area conclusions to
determine conclusions at the State,
multistate MSA, and institution levels.
In addition to these substantive
changes, the final rule adopts nonsubstantive clarifications and technical
revisions to the regulatory text,
including final appendix A, to improve
readability and enhance clarity.
Retail lending volume screen. As
under the proposal, the final rule Retail
Lending Test applies two sets of
metrics. First, in facility-based
assessment areas only, the agencies will
apply the Retail Lending Volume Screen
to assess a bank’s retail lending volume
relative to its volume of deposits
compared to peer lenders in the area.
Specifically, under the final rule, a
bank’s Bank Volume Metric is the ratio
of the bank’s total dollars of lending in
808 See the section-by-section analysis of final
§ ll.22(f) and the below discussion of the analysis
of the final rule using historical data.
PO 00000
Frm 00217
Fmt 4701
Sfmt 4700
6789
specified categories (closed-end home
mortgage loans, open-end home
mortgage loans, multifamily loans, small
business loans, small farm loans, and
automobile loans, as applicable),
compared to the bank’s dollars of
deposits in the facility-based assessment
area. The Bank Volume Metric is
compared to the aggregate ratio of retail
lending to deposits among all banks that
operated a branch in the area, as
measured by a Market Volume
Benchmark. The Bank Volume Metric
and Market Volume Benchmark under
the final rule are substantially similar to
the proposal, except that: (1) a bank’s
automobile loans are only included in
the Bank Volume Metric if the bank is
a majority automobile lender or opts to
have its automobile loans evaluated
under the Retail Lending Test; and (2)
automobile lending is not included in
the Market Volume Benchmark.
As under the proposal, the final rule
provides that a bank with a Bank
Volume Metric that meets or surpasses
a Retail Lending Volume Threshold of
30 percent of the Market Volume
Benchmark will be assigned a
recommended conclusion for the
facility-based assessment area based on
the distribution analysis described
below. With respect to a bank with a
Bank Volume Metric that does not meet
the Retail Lending Volume Threshold in
a facility-based assessment area, the
agencies will consider a set of factors to
determine whether the bank has an
acceptable basis for not meeting the
threshold. As under the proposal, under
the final rule a large bank that lacks an
acceptable basis for not meeting the
threshold is limited to receiving a Retail
Lending Test conclusion of ‘‘Needs to
Improve’’ or ‘‘Substantial
Noncompliance’’ for the facility-based
assessment area. An intermediate bank,
or a small bank that opted into being
evaluated under the Retail Lending Test,
that lacks an acceptable basis for not
meeting the threshold would remain
eligible for all possible conclusion
categories.
Geographic and borrower distribution
analysis. Consistent with the proposal,
the agencies will next evaluate the
geographic and borrower distributions
of a bank’s major product lines in its
Retail Lending Test Areas. The final rule
adopts a revised approach to determine
what is a major product line for facilitybased assessment areas and outside
retail lending areas. In a facility-based
assessment area or outside retail lending
area, a bank’s originated and purchased
closed-end home mortgage loans, small
business loans, small farm loans, and
automobile loans, as applicable, would
qualify as a major product line if the
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6790
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
loans in the product line comprise 15
percent or more, based on a
combination of loan dollars and loan
count, of the bank’s lending across all
these product lines in the area. The final
rule also adopts a revised approach for
determining what is a major product
line for retail lending assessment areas.
In a retail lending assessment area, a
large bank’s originated and purchased
closed-end home mortgage loans or
small business loans, respectively,
would qualify as a major product line if
the large bank originated a sufficient
number of closed-end home mortgage
loans or small business loans to require
delineation of a retail lending
assessment area pursuant to final
§ ll.17 (i.e., at least 150 reported
closed-end home mortgage loans or at
least 400 reported small business loans
in each year of the prior two calendar
years). As noted above, unlike in the
proposal, the distribution of a bank’s
open-end home mortgage loans and
multifamily loans are not evaluated
under the final Retail Lending Test.
As under the proposal, the agencies
will evaluate the geographic and
borrower distributions of a large bank’s
major product lines in its facility-based
assessment areas, retail lending
assessment areas, and outside retail
lending area. For an intermediate bank,
or a small bank that opts to be evaluated
under the Retail Lending Test, the
agencies evaluate the geographic and
borrower distributions of the bank’s
major product lines in its facility-based
assessment areas. Furthermore, an
intermediate bank or a small bank is
evaluated in its outside retail lending
area if the bank conducts a majority of
its retail lending, by a combination of
loan dollars and loan count outside of
its facility-based assessment areas, or at
the bank’s option. For a small bank that
opts to be evaluated under the Retail
Lending Test, the final rule treats these
small banks the same as intermediate
banks with respect to the Retail Lending
Test Areas in which the small bank’s
major product lines are evaluated.
As under the proposal, the agencies
will calculate a series of bank metrics
and benchmarks to evaluate the
geographic and borrower distributions
of a bank’s major product lines. The
final rule generally adopts the
geographic and borrower distribution
metrics and benchmarks as proposed,
evaluating four separate categories of
lending for each major product line in
each Retail Lending Test Area:
• Low-income census tracts;
• Moderate-income census tracts;
• Low-income borrowers or
businesses or farms with gross annual
revenues of less than $250,000; and
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
• Moderate-income borrowers or
businesses or farms with gross annual
revenues of greater than $250,000 but
less than or equal to $1 million.
The bank’s metrics are compared to:
• Market benchmarks that reflect the
aggregate lending to low- and moderateincome census tracts or low- and
moderate-income borrowers or lowerrevenue small businesses or small farms
in the Retail Lending Test Area by
reporting lenders; and
• Community benchmarks that reflect
local demographic data.
As in the proposal, the final rule
evaluates a bank’s performance on the
geographic and borrower distribution
analyses for closed-end home mortgage
loans, small business loans, and small
farm loans using performance ranges
calculated with benchmarks and
multipliers. Specifically, for each
category of lending that is evaluated as
part of a major product line in a Retail
Lending Test Area, the agencies assign
a supporting conclusion that
corresponds to a performance range
determined by: (1) the relevant market
benchmark, multiplied by a specified
multiplier; and (2) the relevant
community benchmark, multiplied by a
specified multiplier, whichever is
lower.
Relative to the proposal, the final rule
adjusts several of the proposed
multiplier values downward; the
agencies believe that the final rule
multipliers are appropriately aligned
with supporting conclusions, and that
supporting conclusions of
‘‘Outstanding,’’ ‘‘High Satisfactory,’’ and
‘‘Low Satisfactory’’ are generally
attainable. For example, the market
multiplier for a ‘‘High Satisfactory’’ was
adjusted from the proposed value of 110
percent to 105 percent, and the
community multiplier for a ‘‘High
Satisfactory’’ was adjusted from the
proposed value of 90 percent to 80
percent. As a result, under the final rule,
if the Geographic Bank Metric for
closed-end home mortgage loans in lowincome census tracts in a particular
facility-based assessment area just
exceeded (1) 105 percent of the
corresponding Geographic Market
Benchmark or (2) 80 percent of the
corresponding Geographic Community
Benchmark, whichever is lower, then
the agencies would assign a ‘‘High
Satisfactory’’ supporting conclusion to
the bank’s performance on closed-end
home mortgage lending to low-income
census tracts in the facility-based
assessment area.
Product line score. The final rule
generally adopts the proposed approach
to combining the four supporting
conclusions assigned to each of a bank’s
PO 00000
Frm 00218
Fmt 4701
Sfmt 4700
major product lines in a Retail Lending
Test Area pursuant to the geographic
and borrower distribution analyses. For
each major product line, the agencies
will combine these four supporting
conclusions as follows. First, the
agencies will determine a geographic
distribution average using a weighted
average calculation of the performance
scores associated with the two
geographic distribution supporting
conclusions. For example, the agencies
would combine a bank’s closed-end
home mortgage lending performance in
low-income census tracts and moderateincome census tracts. Second, the
agencies will determine a borrower
distribution average using a weighted
average of performance scores
associated with the two borrower
distribution supporting conclusions. For
example, the agencies would combine a
bank’s closed-end home mortgage
lending performance to low-income
borrowers and moderate-income
borrowers. Lastly, the agencies will
average together the geographic and
borrower distribution averages to arrive
at a product line score (renamed from
the proposed term ‘‘product line
average’’).
Recommended conclusion for a Retail
Lending Test Area. Next, the product
line scores for all of a bank’s major
product lines in a Retail Lending Test
Area are combined to produce a
recommended conclusion for the Retail
Lending Test Area. For purposes of
combining product line scores, under
the final rule, a bank’s major product
lines are weighted based on a
combination of loan dollars and loan
count in the product line, rather than by
the volume of loan dollars alone, as
under the proposal. The resulting Retail
Lending Test recommended conclusion
serves as the basis for the conclusion on
the Retail Lending Test in the particular
Retail Lending Test Area.
Additional factors and performance
context. As in the proposal, the final
rule recognizes that the distribution
metrics and benchmarks may not
capture all factors that should be
considered when evaluating a bank’s
retail lending performance. For this
reason, the final rule adopts an
expanded set of additional factors in
final § ll.22(g) relative to the proposal
that the agencies may consider with
respect to a bank’s retail lending
performance in a particular Retail
Lending Test Area. The agencies will
assign a Retail Lending Test conclusion
to each of a bank’s Retail Lending Test
Areas based on the bank’s performance
on the Retail Lending Volume Screen
(in the case of a facility-based
assessment area), the Retail Lending
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Test recommended conclusion,
performance context factors provided in
final § ll.21(d), and these additional
factors.
Retail Lending Test conclusions for a
State, multistate MSA, and institution.
Lastly, the final rule generally adopts
the proposed approach for combining
Retail Lending Test conclusions
assigned to a bank’s Retail Lending Test
Areas using a weighted average
calculation to develop conclusions for
the bank at the State, multistate MSA,
and institution levels. For example, to
calculate a large bank’s Retail Lending
Test conclusion for a particular State,
the agencies will combine the Retail
Lending Test conclusions for each of the
large bank’s facility-based assessment
areas and retail lending assessment
areas in the State. Each Retail Lending
Test Area’s conclusion will be weighted
using a combination of the percentage of
the large bank’s product line loans
(using a combination of loan dollars and
loan count) in the area and deposits in
the area. Under this example for a
conclusion in a State, the percentages of
the bank’s product line loans and
deposits in each area are calculated
relative to the bank’s total product line
loans and deposits sourced from
facility-based assessment areas and
retail lending assessment areas in the
State.
Retail Lending Test—General Topics
This section discusses topics that
relate to the Retail Lending Test as a
whole or to multiple aspects of the
Retail Lending Test. Topics specific to
a particular aspect of the Retail Lending
Test are discussed in more detail in the
section-by-section analysis below.
Overall Metrics-Based Approach
ddrumheller on DSK120RN23PROD with RULES2
Comments Received
Metrics-Based Approach Generally.
The agencies received numerous
comments supportive of the proposed
metrics-based approach to evaluating
banks’ retail lending performance. Many
of these commenters indicated that the
retail lending metrics would provide
rigor on the proposed Retail Lending
Test, address what some commenters
referred to as CRA grade inflation, and
incentivize banks to increase lending to
underserved communities.
Conversely, many other commenters
raised concerns about the proposed
metrics-based approach to evaluating
retail lending. As described below, these
commenters stated that the Retail
Lending Test was overly complex, did
not sufficiently account for differences
in bank business models, was overly
stringent, and did not incorporate
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
qualitative factors that should be
considered in connection with a bank’s
retail lending performance.
Complexity of the metrics-based
approach. Some commenters stated that
the metrics-based Retail Lending Test
approach was overly complex, with
feedback including the recommendation
that the agencies instead consider a less
complicated approach with thresholds
that can be modified by examiners
based on performance context. Some
commenters noted that the complexity
of the proposed Retail Lending Test
necessitated a more extended comment
period to allow commenters time to
fully understand the approach and its
potential impact.
In addition to comments concerning
the complexity of the Retail Lending
Test as a whole, the agencies received
numerous comments concerning the
complexity of particular aspects of the
performance test, such as the retail
lending distribution metrics and
benchmarks. These comments are
discussed in the section-by-section
analysis of final § ll.22(e) below.
Application of metrics-based
approach to different bank business
models. Other commenters stated that
the Retail Lending Test did not
sufficiently account for differences in
banks’ business models. For example, a
commenter asserted that a bank
primarily focused on commercial
lending and with little retail lending
would be unable to perform well on the
Retail Lending Test.
Retail Lending Test stringency. Many
commenters stated that banks would
have difficulty achieving an
‘‘Outstanding’’ conclusion on the Retail
Lending Test due to the performance
test’s stringency. In addition to
comments concerning the stringency of
the Retail Lending Test as a whole, the
agencies received numerous comments
concerning the stringency of particular
aspects of the performance test, such as
the multipliers used to establish
performance ranges. These comments
are discussed in the section-by-section
analysis of final § ll.22(f) below.
Inclusion of qualitative factors. Some
commenters suggested that the proposed
Retail Lending Test lacked sufficient
consideration of qualitative factors,
including performance context, that
should be considered in connection
with a bank’s retail lending
performance. In this regard, a
commenter asserted that the agencies’
proposed metrics-based approach was
too heavy on quantitative metrics and
left little room for necessary qualitative
analysis. Relatedly, other commenters
conveyed that the proposed metricsbased approach would overshadow the
PO 00000
Frm 00219
Fmt 4701
Sfmt 4700
6791
qualitative aspects of retail lending that
are beneficial to low- and moderateincome individuals and communities.
Likewise, a commenter warned against
overly standardizing the evaluation
process with quantitative measurements
at the expense of capturing more
qualitative impacts, which could stifle
creativity and diversity in the CRA
market.
Several commenters recommended
that the agencies incorporate impact
factor reviews proposed for use with the
Community Development Financing
Test and the Community Development
Services Test into the Retail Lending
Test (as well as the Retail Services and
Products Test). Relatedly, a commenter
suggested that, to increase the incentive
for banks to engage in community
development financing activities, the
agencies should provide banks with the
option of receiving qualitative
consideration for community
development lending under the Retail
Lending Test.
Numerous commenters asserted that
the agencies’ evaluation of home
mortgage loans should not be a purely
quantitative evaluation, and should
consider qualitative factors related to
the responsiveness of a bank’s lending.
Some commenters advocated for an
impact review of home mortgage
lending, with some of these commenters
expressing the view that home purchase
loans should receive more credit than
other types of home mortgage lending.
A few commenters urged the agencies to
continue to evaluate a bank’s use of
innovative or flexible lending practices
to address credit needs of low- and
moderate-income individuals and
geographic areas. Several commenters
opined on the importance of home
mortgage loans, particularly to minority,
low-, moderate-, and middle-income
individuals, and first-generation
homebuyers, with a few commenters
asserting that loans to these borrowers
should receive extra consideration. A
commenter stated that the agencies
should award ‘‘extra credit’’ to banks for
originating home mortgages involving
community land trusts because such
programs are designed to preserve
affordable housing and prevent
displacement. Another commenter
suggested that banks should receive
consideration for home mortgage
products that address barriers to
homeownership for underserved
communities, such as appraisal bias and
lack of down payment assistance. A
commenter suggested that certain
income-restricted mortgage assistance
loans, including those made to middleincome borrowers, should receive
positive consideration to incentivize
E:\FR\FM\01FER2.SGM
01FER2
6792
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
banks to continue participating in these
programs.
Some commenters asserted that the
agencies should employ analysis of loan
pricing and product terms to ensure that
products are meeting local needs
instead of extracting wealth. These
commenters further recommended that
the agencies evaluate how well loan
products match local needs. Some
commenters also suggested that the
agencies should review the affordability
and quality of loan terms in Retail
Lending Test evaluations. Several of
these commenters noted that banks
should be penalized for offering highcost loans that exceed State usury caps
and borrowers’ abilities to repay. A
commenter emphasized that the
agencies should review banks’ small
business lending and small farm lending
qualitatively for predatory
characteristics such as exorbitant
interest rates or prepayment penalties.
Final Rule
The agencies are finalizing the
proposed Retail Lending Test, with
substantive modifications, clarifications,
and technical revisions as described
throughout the section-by-section
analysis of final § ll.22. As in the
proposal, the Retail Lending Test
adopted in the final rule generally
incorporates metrics, but also includes
qualitative aspects. Under the final rule,
this metrics-based approach is
supplemented with consideration of
qualitative factors that are relevant to
evaluating a bank’s lending performance
or lending opportunities, but that are
not captured in the metrics, including
the performance context factors in final
§ ll.21(d) and the additional factors in
final § ll.22(g). In addition, as
discussed in the section-by-section
analysis of final § ll.23, the agencies
note that the responsiveness of a bank’s
credit products and programs is
considered under the Retail Services
and Products Test.
Metrics-based Approach Generally.
The agencies believe that it is
appropriate to adopt a Retail Lending
Test that leverages metrics. In
particular, the agencies believe that the
approach adopted in the final rule will
facilitate robust examinations and
positively increase transparency and
consistency in retail lending evaluations
compared to the current regulations. For
example, the final rule sets clearer retail
lending performance expectations by
incorporating performance ranges for
evaluating the distribution of a bank’s
closed-end home mortgage loans, small
business loans, and small farm loans.
These performance ranges incorporate
market and community benchmarks to
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
set thresholds for conclusion categories.
Although this approach to use
performance ranges represents a change
from the current regulations, the
agencies note that the final rule
distribution metrics and benchmarks
closely resemble the metrics and
benchmarks used in CRA evaluations
today.809
Complexity of the metrics-based
approach. The agencies have considered
concerns expressed by a number of
commenters regarding the complexity of
the proposed Retail Lending Test. The
agencies believe that the final rule Retail
Lending Test appropriately balances the
agencies’ objectives of ensuring that
CRA evaluations of retail lending
performance are robust and
comprehensive, providing greater
consistency and transparency, and
limiting overall complexity. As
discussed throughout the section-bysection analysis of final § ll.22, the
final rule includes various changes,
relative to the proposal, to simplify the
Retail Lending Test while still achieving
the agencies’ objectives. For example,
the final rule reduces the number of
product lines considered under the
Retail Lending Test and, for large banks,
the number of product lines that would
be evaluated in any retail lending
assessment area. However, the agencies
believe that certain aspects of the Retail
Lending Test that were viewed by some
commenters as complex are necessary to
advance the agencies’ objectives of
increasing the consistency and
transparency of CRA evaluations and
maintaining robust evaluation standards
that take into account the performance
context of an area, including the local
credit needs and opportunities. In
particular, these aspects include the
evaluation of the geographic and
borrower distributions of a bank’s major
product lines, the use of performance
ranges to translate the bank’s
performance with respect to certain
major product lines into supporting
conclusions, and a standardized
approach to developing Retail Lending
Test conclusions for each Retail Lending
Test Area and at the State, multistate
MSA, and institution levels.
To further address concerns regarding
the complexity of the Retail Lending
Test, the agencies intend to develop
data tools that will provide banks and
the public with CRA information on
specific Retail Lending Test Areas,
including Retail Lending Test metrics,
809 See Interagency Large Institution CRA
Examinations Procedures (April 2014) at 6–8;
Interagency Intermediate Small Institution CRA
Examination Procedures (July 2007) at 4–6;
Interagency Small Institution CRA Examination
Procedures (July 2007) at 4–6.
PO 00000
Frm 00220
Fmt 4701
Sfmt 4700
benchmarks, and performance ranges
based on recent data. The agencies
believe that these data tools will help
banks monitor their retail lending
performance relative to benchmarks and
increase their familiarity with operation
of the Retail Lending Test.
Application of metrics-based
approach to different bank business
models. The agencies have also
considered feedback from some
commenters that the proposed Retail
Lending Test does not sufficiently
account for differences in banks’
business models. The agencies believe
that the final rule Retail Lending Test
approach appropriately accounts for
differences in bank business models
while also affirming the statute’s focus
on banks helping to meet the credit
needs of their entire communities. In
particular, the agencies believe that
multiple elements of the final rule Retail
Lending Test help to account for
differences in bank business models,
such as the following:
• Tailored approaches to delineating
retail lending assessment areas for large
banks and to evaluating small banks and
intermediate banks in their outside
retail lending areas, depending on a
bank’s asset size and percentage of
lending within its facility-based
assessment areas, as discussed in the
section-by-section analyses of final
§§ ll.16 through ll.18;
• Tailored evaluation of automobile
loans for banks that are majority
automobile lenders or that opt to have
their automobile loans evaluated under
the Retail Lending Test, as discussed
below;
• Consideration of all of a bank’s
home mortgage loans, multifamily
loans, small business loans, small farms
loans, and automobile loans, as
applicable, under the Retail Lending
Volume Screen, as discussed in the
section-by-section analysis of final
§ ll.22(c);
• For a bank that does not meet or
surpass the Retail Lending Volume
Threshold in a facility-based assessment
area, consideration of the bank’s
business strategy as one of several
‘‘acceptable basis’’ factors, as discussed
in the section-by-section analysis of
final § ll.22(c)(3);
• Major product line standards that
identify a bank’s most significant
product lines in a Retail Lending Test
Area for evaluation under the
distribution analysis, as discussed in the
section-by-section analysis of final
§ ll.22(d);
• Calculation of bank distribution
metrics based on the percentage, rather
than the absolute number, of the bank’s
loans in a major product line in
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
categories of designated census tracts
and to categories of designated
borrowers, as discussed in the sectionby-section analysis of final § ll.22(e);
• Weighting a bank’s performance on
each of its major product lines based on
a combination of loan dollars and loan
count, as discussed in the section-bysection analysis of final § ll.22(f);
• Consideration of performance
context and additional factors in
assigning Retail Lending Test
conclusions, as discussed in the sectionby-section analyses of final § ll.22(g)
and (h); and
• Retention of the strategic plan
option, which could result in
appropriate modifications to the Retail
Lending Test, as discussed in the
section-by-section analysis of final
§ ll.27.
Retail Lending Test stringency. The
agencies have considered commenters’
concerns that the proposed Retail
Lending Test as a whole was overly
stringent and that achieving Retail
Lending Test conclusions of
‘‘Outstanding,’’ ‘‘High Satisfactory,’’ or
‘‘Low Satisfactory’’ would be overly
difficult. The agencies analyzed
historical CRA data to estimate the
distribution of institution-level Retail
Lending Test conclusions across banks,
as well as recommended conclusions for
different Retail Lending Test areas. A
large majority of banks included in the
historical analysis are estimated to have
performed at a level consistent with an
institution-level conclusion of
‘‘Outstanding,’’ ‘‘High Satisfactory,’’ or
‘‘Low Satisfactory’’ based on the final
rule provisions. The analysis informed
the agencies’ determination that the
performance ranges for a ‘‘Low
Satisfactory’’ or higher conclusion are
generally attainable across a variety of
circumstances, such as different Retail
Lending Test Areas, bank asset-size
categories, metropolitan and
nonmetropolitan areas, and time
periods. This analysis and results are
discussed further in the historical
analysis subsection of this section of
this SUPPLEMENTARY INFORMATION. In
addition, the agencies have considered
the stringency of particular aspects of
the Retail Lending Test, such as the
Retail Lending Volume Screen,
discussed further in the section-bysection analysis of final § ll.22(c), and
the multipliers used to establish
performance ranges, discussed further
in the section-by-section analysis of
final § ll.22(f).
Inclusion of qualitative factors.
Although the agencies believe the Retail
Lending Test should generally be
informed by metrics, they also believe
that a purely metrics-based approach to
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
evaluating a bank’s retail lending
performance could be inflexible and
provide an incomplete picture of a
bank’s retail lending performance. For
this reason, the final rule supplements
the use of metrics with consideration of
qualitative additional factors that are
relevant to evaluating a bank’s lending
performance or lending opportunities,
but that are not captured in the metrics
or benchmarks, as discussed in the
section-by-section analyses of final
§ ll.22(c)(3) and (g). Additionally, the
final rule specifies that the agencies will
consider applicable performance
context factors included in final
§ ll.21(d) when assigning Retail
Lending Test conclusions, as discussed
in the section-by-section analysis of
final § ll.22(h). Together, the agencies
believe that these qualitative aspects of
the Retail Lending Test will enhance
examiners’ evaluation of a bank’s
performance as captured by the Retail
Lending Test’s metrics and provide a
more accurate picture of the bank’s
overall retail lending performance.
The agencies considered commenter
suggestions that specific qualitative
factors, such as impact factors, should
be incorporated into the Retail Lending
Test, such as consideration of retail loan
pricing and product terms and
accounting for retail loans with
predatory lending characteristics. The
agencies believe that these
considerations are appropriately
addressed in other parts of the final
rule. For example, the final rule
includes a qualitative evaluation of a
bank’s responsive credit products and
programs under the Retail Services and
Products Test.810 In addition, examiners
may consider the affordability and
quality of retail loan terms in consumer
compliance examinations, and
discriminatory or other illegal credit
practices identified in these
examinations would be taken into
consideration in assigning a bank’s CRA
ratings, as discussed in the section-bysection analysis of final § ll.28(d).
In addition, the agencies considered
commenter feedback to provide banks
with the option of receiving qualitative
consideration for community
development lending under the Retail
Lending Test. However, the agencies
believe that community development
lending is appropriately, and
comprehensively, considered under the
Community Development Financing
Test, the Community Development
810 As discussed in the section-by-section
analyses of final §§ ll.21, ll.23, ll.29, and
ll.30, large banks are subject to the Retail
Services and Products Test, with banks of other
sizes optionally subject to evaluation of credit and
deposit products.
PO 00000
Frm 00221
Fmt 4701
Sfmt 4700
6793
Financing Test for Limited Purpose
Banks, the Intermediate Bank
Community Development Test, and the
Small Bank Lending Test, as applicable.
For this reason, the final rule does not
include qualitative consideration of
community development loans under
the Retail Lending Test. However, under
the final rule, certain home mortgage
loans, small business loans, and small
farm loans considered under the
distribution analysis of the Retail
Lending Test may also be considered
under the Community Development
Financing Test or the Intermediate Bank
Community Development Financing
Test, as discussed in the section-bysection analyses of final §§ ll.24 and
ll.30.
Banks Evaluated for Automobile
Lending
The Agencies’ Proposal
The agencies proposed to evaluate
automobile lending for banks evaluated
under the proposed Retail Lending Test.
Specifically, under the proposed Retail
Lending Volume Screen, discussed
further in the section-by-section
analysis of final § ll.22(c), a bank’s
originated and purchased automobile
loans in a facility-based assessment area
would have been included in the Bank
Volume Metric, which would be
compared to a Market Volume
Benchmark that would have included
all originated automobile loans in
counties wholly or partially within the
facility-based assessment area reported
by large banks that operated a branch in
those counties.811 In addition, under the
proposed retail lending distribution
analysis, discussed further in the
section-by-section analysis of final
§ ll.22(d) through (f), the agencies
would have evaluated the geographic
and borrower distributions of a bank’s
automobile loans in a facility-based
assessment area, retail lending
assessment area, or outside retail
lending area in which the bank’s
automobile loans constituted a major
product line.
Comments Received
As discussed further in the sectionby-section analysis of final § ll.22(d),
the agencies received numerous
comments concerning the proposed
evaluation approach for automobile
lending under the Retail Lending Test,
with some commenters supporting the
evaluation of automobile loans using the
811 The agencies proposed to require large banks
with assets greater than $10 billion to collect,
maintain, and report to the agencies certain
automobile lending data, as discussed further in the
section-by-section analysis of final § ll.42.
E:\FR\FM\01FER2.SGM
01FER2
6794
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
proposed metrics-based approach but
with most commenters opposing or
expressing significant concerns with the
proposed approach.
A few commenters specifically
addressed the applicability of the
proposed Retail Lending Test evaluation
approach for automobile loans to
different types of banks. These
commenters stated that the metricsbased approach should only apply to
automobile loans at a bank’s option or,
according to one commenter, if
automobile loans constituted a majority
of a bank’s retail lending.
Final Rule
The agencies are finalizing the
proposal to evaluate banks’ automobile
lending under the Retail Lending Test,
with substantive modifications
including a narrower standard for when
a bank is required to be evaluated for
automobile lending relative to the
proposed approach. Specifically, under
the final rule, the agencies will evaluate
automobile loans under the Retail
Lending Test only if the bank is a
majority automobile lender, or the bank
opts to have its automobile loans
evaluated.812 For banks that meet these
criteria, automobile loans are included
in their Bank Volume Metric in a
facility-based assessment area, as
discussed further in the section-bysection analysis of final § ll.22(c). In
addition, the agencies will evaluate the
distribution of these banks’ automobile
loans in a facility-based assessment area
or outside retail lending area in which
automobile loans are a major product
line, as discussed further in the sectionby-section analysis of final § ll.22(d).
Majority automobile lenders. As
discussed further in the section-bysection analysis of final § ll.12, the
agencies have decided that the Retail
Lending Test evaluation of automobile
lending will be mandatory for banks
that are majority automobile lenders. In
incorporating the majority automobile
lending standard, the agencies
considered that the ‘‘substantial
majority’’ standard in the current
regulations applies to all consumer
loans for large banks 813 and that a
majority standard is, therefore,
appropriate for evaluating automobile
loans, which are a component of
consumer loans. In addition, in deciding
on a majority standard for when an
evaluation of a bank’s automobile
lending is required, the agencies sought
812 As discussed in the section-by-section analysis
of final § ll.12 (definition of ‘‘product line’’),
automobile loans are a Retail Lending Test product
line for a majority automobile lender or a bank that
opts to have its automobile loans evaluated.
813 See current 12 CFR ll.22.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
to balance the benefits of achieving a
more comprehensive evaluation of a
bank’s retail lending, recognizing that
adding automobile lending as a major
product line would require an affected
bank to collect and maintain automobile
lending data, and considering that
evaluations of consumer lending are
currently only required for banks that
meet a substantial majority standard. As
a result of employing a majority
standard, relative to a lower standard
and to the proposed approach, the
agencies believe that the final rule
approach will reduce complexity
because the automobile lending
evaluation and related data
requirements will apply to a smaller
number of banks. Furthermore, the
agencies further believe that the final
rule provision to allow banks that are
not a majority automobile lender to opt
into the evaluation automobile loans
appropriately increases flexibility for
banks.
The agencies considered, but are not
adopting, an alternative approach to
remove automobile lending entirely
from the Retail Lending Test, or to make
evaluation of automobile lending
optional for all banks. The agencies
believe that while this alternative
approach would even further reduce
complexity and data requirements for
certain banks compared to the final rule
approach, it could also result in
evaluating a majority automobile lender
under the Retail Lending Test without
considering the bank’s automobile
loans. The agencies determined that
evaluating the automobile lending of a
majority automobile lender is important
for an accurate and comprehensive
evaluation of these banks, and that this
approach appropriately takes into
consideration the different tradeoffs
discussed above.814
Based on supervisory experience and
analysis of available data, the agencies
anticipate that only a small number of
banks are majority automobile lenders
that would be required to have this
product line evaluated under the Retail
Lending Test.815
814 Similarly, the agencies consider a bank’s
consumer loans under the current lending test if
consumer lending constitutes a substantial majority
of a bank’s business. See Q&A § ll.22(a)(1)–2
(interpreting the ‘‘substantial majority’’ standard in
current 12 CFR ll.22(a)(1)).
815 For example, the agencies estimate that five
banks with assets greater than $2 billion would
currently meet the majority automobile lender
standard based on Call Report automobile loan data,
loans secured by residential properties, loans to
small businesses, and loans to small farms from
2021–2022. Because of a lack of publicly available
data on automobile loan originations and
purchases, this analysis estimates the number of
majority automobile lenders using Call Report data
on the dollar value of outstanding loans on bank
PO 00000
Frm 00222
Fmt 4701
Sfmt 4700
As discussed further in the sectionby-section analysis of final § ll.12, the
agencies will consider a bank to be a
majority automobile lender if the
following ratio, calculated at the
institution level, exceeds 50 percent,
based on a combination of loan dollars
and loan count:
• The sum, over the two calendar
years preceding the first year of the
evaluation period, of the bank’s
automobile loans originated or
purchased overall; divided by
• The sum, over the two calendar
years preceding the first year of the
evaluation period, of the bank’s
automobile loans, home mortgage loans,
multifamily loans, small business loans,
and small farm loans originated or
purchased overall.
The agencies believe that this
approach should promote consistency
and predictability by ensuring that a
bank with an anomalously high volume
of automobile loans in a single year is
not automatically considered a majority
automobile lender.
Banks that opt to have their
automobile lending evaluated. The
agencies believe it is appropriate to
provide banks that are not majority
automobile lenders the flexibility to opt
to have their automobile loans evaluated
because this product line can
meaningfully serve low- and moderateincome individuals and communities
and may be an important part of a
bank’s strategy for meeting community
credit needs. Further, the agencies
believe that providing this option will
help tailor examinations to account for
differences in bank business models,
consistent with the agencies’ objectives
for CRA modernization.
Exclusion of Consumer Loans Other
Than Automobile Loans
The Agencies’ Proposal
The agencies did not include
consumer loans other than automobile
loans as a major product line on the
Retail Lending Test in proposed
§ ll.22(a)(4)(i). Specifically, consumer
credit card loans and other types of
consumer loans that are not automobile
loans would not be evaluated under the
proposed Retail Lending Test, neither as
part of the Retail Lending Volume
Screen in facility-based assessment
areas, nor within the distribution
analysis of each of a bank’s major
product lines in a facility-based
assessment area, retail lending
assessment area, or outside retail
balance sheets, instead of the data on loans
originated or purchased during the two years
preceding the start of the evaluation period as
described in final appendix A, paragraph II.b.3.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
lending area. The agencies explained in
the preamble to the proposed rule that
consumer loans other than automobile
loans span several product categories
that are heterogeneous in meeting lowor moderate-income credit needs and
are difficult to evaluate on a consistent
quantitative basis under the Retail
Lending Test. Further, the agencies
stated that credit card lending is
concentrated among a relatively small
number of lenders (with many currently
designated as limited purpose banks),
and that evaluating consumer credit
card loans using a metrics-based
approach under the Retail Lending Test
may require new data collection and
reporting requirements because banks
may not currently retain or have the
capability to capture borrower income
(at origination or subsequently as
cardholders maintain their accounts),
location, or other data fields relevant to
constructing appropriate benchmarks
for credit card lending. For these
reasons, the agencies proposed to
consider consumer loans other than
automobile loans only under the
responsive credit products and
programs evaluation of the Retail
Services and Products Test; this
evaluation would assess whether a
bank’s credit products and programs
are, in a safe and sound manner,
responsive to the needs of low- and
moderate-income individuals, and
would not include a distribution
analysis.816
The agencies requested feedback on
whether consumer credit card loans
should be included in CRA evaluations,
whether those credit card loans should
be evaluated quantitatively under the
proposed Retail Lending Test or only
qualitatively under the proposed Retail
Services and Products Test, and
whether data collection and reporting
challenges for consumer credit card
loans could adversely affect the
accuracy of metrics. The agencies also
sought feedback on whether they should
adopt a qualitative approach to evaluate
consumer loans and whether the
qualitative evaluation should be limited
to certain consumer loan categories or
types.
Comments Received
General comments on the evaluation
of consumer loans other than
automobile loans. Many commenters
opined generally on the importance of
consumer loans to low- and moderateincome individuals and communities,
with several commenters suggesting that
responsible consumer lending by banks
816 See the section-by-section analysis of final
§ ll.23.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
can be a valuable alternative to
predatory lending (such as payday
loans, pawn shop loans, and high-cost
credit card loans) and can help
borrowers build credit. For example, a
commenter stated that consumer loans
can provide a record of paymentreporting to credit bureaus and can be
an introduction to the banking system
for the unbanked, benefitting low- and
moderate-income borrowers. A
commenter recommended consideration
for consumer loan products that help
low- and moderate-income borrowers
refinance high-cost or predatory
consumer loans. Another commenter
stated that consumer loan products that
banks develop collaboratively with
MDIs, WDIs, LICUs, and CDFIs should
receive full consideration, whereas
consumer loan products developed in
collaboration with fintechs should
receive credit only if the borrower is
low- or moderate-income or is located in
a low- or moderate-income or
underserved geographic area.
Other commenters expressed general
concerns with consumer loan programs
offered by banks in cooperation with
third parties. For example, several
commenters stated that the agencies
should scrutinize consumer loans that
banks offer through partnerships with
fintechs, especially so-called ‘‘rent-abank’’ partnerships, which commenters
said could be used to evade interest rate
caps and consumer protections
established under State laws. Some of
these commenters stated that such
partnerships should be banned, while
another commenter characterized these
partnerships as wealth-stripping. A
commenter also recommended that
intermediate bank consumer lending
should be evaluated, because many
banks that partner with non-banks to
engage in indirect consumer lending
would fall into the new intermediate
bank asset-size category.
Support for a quantitative evaluation
of consumer loans. Some commenters
supported consideration of consumer
loans under the Retail Lending Test, and
addressed how one or more of these
loan categories should be evaluated as a
major product line under the Retail
Lending Test. For example,
recommendations included: evaluating
consumer loans and a category for
small-dollar loans; combining
automobile loans, credit card loans, and
other consumer loans into a single major
product line; evaluating automobile
loans, credit card loans, and smalldollar loans each as a separate product
line; evaluating direct and indirect
consumer loans as a major product line
under the Retail Lending Test; and
including only direct consumer loans as
PO 00000
Frm 00223
Fmt 4701
Sfmt 4700
6795
a major product line. In addition, a
commenter stated that, to incentivize
banks to provide small-dollar loans to
low- and moderate-income borrowers,
the agencies should allow a bank to
elect which subset of its consumer loans
in any category are evaluated, without
requiring the bank to have all loans in
that category evaluated. A commenter
stated that the agencies should ensure
that small-dollar loans with interest
rates above 36 percent are included in
CRA evaluations and offered the view
that examiners exclude these loans
under the current rule, thus
discouraging banks from offering these
products. Conversely, another
commenter recommended adding
unsecured personal loans as a distinct
major product line on the Retail
Lending Test (separate from automobile
loans, credit card loans, and other
secured or unsecured loans), but
defining this category to exclude
‘‘covered loans’’ under the CFPB’s
Payday Lending Rule to avoid
incentivizing high-cost personal loans
with annual percentage rates above 36
percent. This commenter also offered
the perspective that automobile loans
and personal loans have similarities,
and that both should be evaluated under
the Retail Lending Test using a
distribution analysis; the commenter
further stated that the proposal
represented a step backward compared
to the current rule under which
consumer loans are evaluated under the
lending test if consumer lending
constitutes a substantial majority of a
bank’s business or at the bank’s option.
With respect to factors that should
trigger an evaluation of consumer loan
products as a major product line under
the Retail Lending Test, commenters
generally recommended a number of
options. First, some commenters
suggested that consumer loans should
be evaluated only at the bank’s option.
For example, a commenter stated that
making the evaluation of consumer
loans optional would keep the focus of
the Retail Lending Test on products that
have been historically underrepresented
in low- and moderate-income
communities (namely, home mortgage
loans, small business loans, and small
farm loans). Second, some commenters
stated that consumer loans should be
automatically evaluated if they
constitute a substantial portion or a
majority of a bank’s business, with a few
commenters recommending retaining
the current practice of evaluating
consumer loans when they constitute a
substantial majority or if a bank elects
to have consumer loans considered and
has collected and maintained the data.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6796
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Third, some commenters recommended
applying a version of the proposed
approach for other product lines
tailored specifically to consumer loans.
For example, a commenter
recommended that consumer loans
should trigger a major product line if
they represent at least 30 percent of a
bank’s retail loans by number and 15
percent by dollar volume within an
assessment area. A group of commenters
suggested that the major product line
standard for consumer loans should be
the lesser of 15 percent by lending
dollars or 50 loans. Another commenter
recommended using an average of loan
count and lending dollars in light of the
fact that consumer loans tend to be
smaller in loan amount.
Support for a qualitative evaluation of
consumer loans other than automobile
loans. Some commenters supported the
proposal to qualitatively evaluate
consumer loans other than automobile
loans only under the Retail Services and
Products Test, rather than also
evaluating these loans quantitatively
under the Retail Lending Test. For
example, a commenter specified that
consumer loans should be evaluated
under the Retail Services and Products
Test because that performance test
allows for greater consideration of
performance context, such as whether a
bank ensures that a student loan
borrower has exhausted any available
Federal funds before taking out private
loans. A few commenters also stated
that evaluating consumer loans
qualitatively allows the agencies to
ascertain the purpose of consumer
loans, emphasizing that minority
business owners are more likely to
request personal lines of credit and
consumer loans for small business
purposes and more likely to own
businesses without employees.
Support for an evaluation of
consumer loans under both the Retail
Lending Test and the Retail Services
and Products Test. Some commenters
supported the evaluation of consumer
loans other than automobile loans under
both the Retail Lending Test and the
Retail Services and Products Test. These
commenters recommended a
quantitative evaluation for consumer
loans under the Retail Lending Test in
combination with a qualitative
evaluation under the proposed Retail
Services and Products Test. These
commenters offered a variety of
rationales in support of this approach.
For example, a few commenters stated
that evaluating consumer loans under
both performance tests would increase
competition in the market for consumer
loans to low- and moderate-income
consumers and communities. Another
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
commenter stated that the number and
volume of consumer loans is
considerable and that the importance of
well-designed consumer loans to lowand moderate-income communities is
substantial, making a qualitative-only
evaluation of these loans inappropriate.
A commenter expressed concern that
evaluating consumer loans only under
the Retail Services and Products Test,
and not also under the Retail Lending
Test, would result in insufficient
consideration of these loans,
particularly given the low proposed
weighting assigned to that performance
test. Another commenter reasoned that
a quantitative analysis would help
determine whether a bank is making
consumer loans equitably in terms of
geography and borrower income level,
whereas a qualitative analysis would
reveal whether the bank offers consumer
loans that are accessible and affordable
to low- and moderate-income borrowers
and responsive to their credit needs.
Most commenters responding to the
agencies’ request for feedback
specifically on how to evaluate
consumer credit card loans also
recommended that the agencies evaluate
consumer credit card loans under both
the Retail Services and Products Tests
and, when credit card loans constitute
a major product line, under the
proposed Retail Lending Test. In
general, these commenters stated that a
purely quantitative evaluation of
consumer credit card loans would be
insufficient and could encourage
unaffordable and abusive high-interest
credit card lending. As such, some
commenters that supported the hybrid
evaluation of consumer credit card
loans identified specific factors that
should be included in the qualitative
evaluation, including repayment rates,
the affordability of terms (e.g., interest
rates, fees, and penalties), and
safeguards or features that minimize
adverse credit outcomes. Another
commenter identified difficulties in
obtaining information that the
commenter viewed as necessary for
evaluating the responsiveness of a
consumer credit card loan, such as how
and why a consumer is using a credit
card loan (as opposed to another loan
product), whether the credit card loan
terms are responsive to the consumer’s
needs, and how equitable the terms are
for low- and moderate-income and
minority consumers compared to other
consumers.
A few commenters that supported
evaluation of consumer credit card
loans under the Retail Lending Test and
Retail Services and Product Test
addressed the agencies’ request for
feedback on what data collection and
PO 00000
Frm 00224
Fmt 4701
Sfmt 4700
reporting challenges, if any, might exist
for credit cards that could adversely
affect the accuracy of metrics and
benchmarks. These commenters
disputed the proposal’s suggestion that
banks may not currently retain or have
the capability to capture credit card
borrower income, at origination or
subsequently, as the reason not to
evaluate this product line under the
Retail Lending Test. These commenters
asserted that banks generally collect
borrower income information on
consumer credit card applications or at
the time a credit card is issued, and
suggested that the benefits of a metricsbased approach to evaluating consumer
credit card lending (including more
competition and better rates for lowand moderate-income consumers)
would outweigh the modest cost of
requiring banks to report this data.
However, a commenter, opposing credit
card lending in CRA evaluations
altogether, expressed a different view
that banks make underwriting decisions
primarily based on an applicant’s
creditworthiness as revealed through
credit bureaus, and borrower income
information is not usually validated by
banks; this commenter further stated
that the operational nature of credit card
lending would not easily support the
need for data collection and reporting.
Opposition to CRA evaluation of
consumer lending. There were also
commenters that expressed opposition
to the consideration of consumer loans
under either the Retail Lending Test or
the Retail Services and Products Test.
For example, a few commenters
opposed the proposal to qualitatively
evaluate consumer loans and suggested
that consumer loans should not be
evaluated in CRA examinations. These
commenters emphasized that a bank’s
consumer loans are already subject to
examination under consumer lending
laws, and asserted that evaluating these
same loans under the CRA would be
duplicative and cause inefficiencies for
both bank staff and the agencies.
Additionally, a few commenters
specifically advocated for the exclusion
of consumer credit card lending from
CRA evaluations. These commenters
argued that including consumer credit
card loans in CRA evaluations could
incentivize banks to provide this highcost form of financing to consumers.
One of these commenters additionally
stated that including consumer credit
card loans would distract from more
important wealth-building credit
products, such as home mortgage loans,
small business loans, and small farm
loans. Relatedly, a commenter advised
that the agencies should carefully assess
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
whether to include consumer credit
card loans in CRA evaluations, weighing
the desire for a comprehensive
evaluation of a bank’s lending
performance against the risk of
supporting lending that may be harmful
to households.
Final Rule
For the reasons discussed below, final
§ ll.22(d)(1) retains the proposed
approach of not including consumer
loans other than automobile loans as a
major product line for evaluation using
distribution metrics in the Retail
Lending Test. Under the final rule, as
under the proposal, consumer loans
other than automobile loans by large
banks will be evaluated under the Retail
Services and Products Test (see the
section-by-section analysis of final
§ ll.23(c)(2)). Also, as proposed,
intermediate banks, and small banks
that opt into the Retail Lending Test,
may seek additional consideration for
consumer lending products and
programs that qualify for evaluation
under the Retail Services and Products
Test.817 Additionally, these loans are
not quantitatively considered in the
Retail Lending Volume Screen, although
they may be considered as an acceptable
basis for not meeting the Retail Lending
Volume Threshold pursuant to final
§ ll.22(c)(3)(i)(A).
The agencies have considered, but
decline to adopt, commenter feedback
either to evaluate consumer loans other
than automobile loans only under the
Retail Lending Test or to evaluate these
loans under both the Retail Lending
Test and the Retail Services and
Products Test. In determining that
consumer loans other than automobile
loans should be evaluated only under
the Retail Services and Products Test,
the agencies considered challenges and
downsides of a quantitative distribution
analysis of these loans under the Retail
Lending Test. The agencies continue to
believe that the heterogeneity of
consumer loan products other than
automobile loans would make these
products challenging to evaluate
appropriately under a distribution
analysis. In particular, to evaluate
consumer loans other than automobile
loans under the Retail Lending Test, the
agencies would need to define one or
more categories of consumer loan
products that may be reasonably
compared across banks, so that bank
metrics and corresponding benchmarks
are sufficiently comparable. The
agencies believe that the diversity of
consumer product line delineations
817 See the section-by-section analysis of final
§ ll.21.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
suggested by commenters illustrates the
challenge of this approach. In addition,
even if consumer loan products other
than automobile loans could be
reasonably disaggregated into discrete
categories, doing so may introduce
multiple new product lines into the
Retail Lending Test, with the possibility
that the bank has too few loans of any
specific category to evaluate as a major
product line. The additional product
lines would involve additional metrics,
benchmarks, and weights, thereby
increasing the complexity of the
evaluation. The agencies considered
that including consumer loans other
than automobile loans as a major
product line under the Retail Lending
Test would impose additional data
collection and maintenance
requirements on banks. Specifically, for
the agencies to evaluate these loans
using a distribution analysis, banks
would need to collect and maintain data
including borrower income and census
tract, among other indicators, for each
loan. The agencies also considered the
potential unintended effects of a
distribution analysis if these loans were
evaluated under the Retail Lending
Test—for example, evaluation under a
distribution analysis could
inadvertently encourage a bank to issue
credit cards to customers who already
have access to a consumer credit card,
which may not be responsive to
community credit needs. In addition,
the agencies considered that a
distribution analysis would not account
for any fees or interest rates associated
with these products, which the agencies
believe is important to determining
whether the products are serving the
credit needs of the community.
In determining to evaluate consumer
loans other than automobile loans under
the Retail Services and Products Test,
rather than excluding these loans
entirely from the CRA evaluation, the
agencies have considered the
importance of these loans to consumers.
Specifically, the agencies have
considered feedback from some
commenters noting the importance of
credit card and personal loans,
including that these loans can represent
a foundational credit product that serves
as a point of access to the banking
system, by which consumers can build
a positive credit history and that these
loans can further serve as an alternative
to higher-priced financing options
provided by non-banks. Conversely, the
agencies have also considered that some
commenters disagreed with evaluating
these loans under the Retail Services
and Products Test, with a few
suggesting that other consumer lending
PO 00000
Frm 00225
Fmt 4701
Sfmt 4700
6797
laws are sufficient and that an
evaluation would be duplicative, that
providing small-dollar and personal
loans would not be incentivized, and
that evaluating credit cards would
distract from more wealth-building
products (e.g., home mortgage loans,
small business loans, and small farm
loans). However, the agencies believe
that a qualitative evaluation of
consumer lending, including consumer
loans other than automobile loans,
would contribute to an evaluation of
whether a bank is meeting the credit
needs of its entire community.
In adopting the final rule approach,
the agencies have also determined that
the responsive credit product evaluation
in the Retail Services and Products Test
is well suited to consider the different
aspects of a bank’s consumer loans other
than automobile loans, including
aspects of these loans raised by
commenters. The final rule approach in
the Retail Service and Products Test
includes a responsive credit products
and programs evaluation that
qualitatively reviews a bank’s
responsiveness to community credit
needs, including low- and moderateincome individuals and communities;
this provision is discussed in more
detail in the section-by-section analysis
of final § ll.23(c)(2). For example,
under the Retail Services and Products
Test, the agencies will review the
responsiveness of a bank’s consumer
loans, which may include the type of
consumer product offered, the number
of low- and moderate-income customers
served, and whether the loan product
has any accommodative features such as
alternative credit scoring or
underwriting. The responsive credit
products evaluation could also consider
other factors, such as whether the bank
offers small-dollar loans with reasonable
terms, offers credit-building
opportunities via secured credit cards or
secured personal loans, or engages in
responsible cash flow-based
underwriting for customers with thin or
no credit files. The agencies have
considered commenter feedback that
there will not be adequate information
to assess the responsiveness of a
consumer credit product or program.
However, the agencies expect that
examiners will have the necessary
information for this evaluation,
including by obtaining information from
banks at the time of their examination,
as is the case in examinations today, as
well as considering public feedback and
other available information.
The agencies have also considered
commenter feedback that the final rule
approach for consumer loans that are
not automobile loans is a step backward,
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6798
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
as well as commenter feedback that
there will be insufficient consideration
of consumer loans with a 15 percent
weight assigned to the proposed Retail
Services and Products Test. The
agencies believe that the final rule takes
an appropriate approach to evaluating
consumer loans that are not automobile
loans, as discussed above. In addition to
the points raised above, the agencies
have also considered that banks with a
sizeable consumer lending portfolio that
would meet the agencies’ substantial
majority standard under current
guidance may elect an alternative
evaluation under the final rule. For
example, a bank that does a significant
amount of consumer lending could seek
approval under the strategic plan
option.818 Under an approved strategic
plan, a bank may add additional
product lines outside those that are
considered under the Retail Lending
Test, in its plan, such as consumer
lending products other than automobile
loans. Alternatively, a bank, such as a
credit card lender may request
designation as a limited purpose bank as
provided in final § ll.26(a), the
Community Development Financing
Test for Limited Purpose Banks. If
approved, the bank would only be
evaluated under the Community
Development Financing Test for Limited
Purpose Banks and consumer lending
would not be considered in evaluating
the bank’s performance. For further
discussion of this aspect of the final
rule, see the section-by-section analyses
of final §§ ll.12 (definition of
‘‘limited purpose bank’’) and ll.26.
The agencies have considered
commenter concerns about requiring the
evaluation of an intermediate bank’s
consumer lending, citing that many
banks that partner with non-banks to
engage in indirect consumer lending
would fall into the new intermediate
bank asset-size category. The agencies
note that, under final § ll.21(a)(2)(i),
intermediate banks will be evaluated
under Retail Lending Test and the
Intermediate Bank Community
Development Test, unless an
intermediate bank chooses to have its
community development loans and
investments evaluated under the
Community Development Financing
Test. Therefore, consumer lending other
than automobile lending will only be
evaluated if an intermediate bank opts
for additional consideration 819 under
the Retail Services and Products Test as
this test does not apply to intermediate
banks. The agencies believe that the
final rule approach for intermediate
818 See final § ll.27(g)(1) and the accompanying
section-by-section analysis.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
banks balances the agencies’ objectives
of tailoring performance standards for
banks of different sizes while still
allowing appropriate consideration of
consumer loans, other than automobile
loans, under the Retail Services and
Products Test.
The agencies have also considered
commenter sentiment to limit
consideration provided for consumer
loan programs offered in cooperation
with third parties, specifically with
fintechs, when there is not an explicit
purpose to serve low- and moderateincome census tracts and borrowers or
if the third party provides loans at rates
higher than State laws allow. The
agencies note that, as part of evaluating
credit product and programs as
responsive under the Retail Services
and Products Test, examiners would
consider whether loan terms are
affordable for low-and moderate-income
consumers. The agencies also note that
evaluation of banks’ third-party risk
management is outside the scope of this
rulemaking.
Inclusion of Purchased Loans
The Agencies’ Proposal
The agencies proposed to include a
bank’s purchased loans in a bank’s
metrics for purposes of the Retail
Lending Test.820 Specifically, under the
proposal, a bank’s purchased loans
would be included in the bank volume
metric used in the retail lending volume
screen and the retail lending
distribution metrics used to evaluate a
bank’s major product lines.821
In proposing to include purchased
loans in a bank’s Retail Lending Test
metrics, the agencies explained that
purchased loans can provide liquidity to
banks and other lenders, such as CDFIs,
and extend their capacity to originate
loans to low- and moderate-income
individuals and in low- and moderateincome areas. The agencies noted that
banks may also purchase loans to
develop business opportunities in
markets where they otherwise lack the
physical presence to originate loans.
At the same time, the agencies
acknowledged stakeholder concerns that
purchased loans should not receive the
same consideration as originated loans
under the Retail Lending Test, because
purchases require fewer business
development and borrower outreach
resources than originations. In addition,
820 The agencies consider a bank’s origination and
purchase of loans under the current lending test.
See current 12 CFR ll.22(a)(2).
821 However, as discussed in the section-bysection analyses of final § ll.22(c) and (e), the
agencies proposed to exclude purchased loans from
the market benchmarks against which a bank’s
metrics would be compared.
PO 00000
Frm 00226
Fmt 4701
Sfmt 4700
the agencies noted that despite their
potential value in increasing secondary
market liquidity, loan purchases may do
less to extend the availability of credit
than new originations, especially where
loan purchases do not directly provide
liquidity to the originator.822
The agencies sought feedback on
whether retail loan purchases should be
treated as equivalent to loan
originations in a bank’s metrics for
purposes of the Retail Lending Test. If
so, the agencies asked whether only
certain loan purchases should be
included, such as loans purchased from
a CDFI or directly purchased from the
originator, and whether other
restrictions should be placed on the
inclusion of purchased loans in a bank’s
Retail Lending Test metrics.
Comments Received
The agencies received feedback on the
proposed inclusion of purchased loans
in a bank’s Retail Lending Test metrics
from a variety of commenters,
summarized below.
Support for including purchased
loans in a bank’s Retail Lending Test
metrics. Many commenters generally
supported including purchased loans in
a bank’s metrics for purposes of the
retail lending volume screen and the
distribution analysis component of the
Retail Lending Test. These commenters
pointed to various reasons why
purchased loans should be included in
a bank’s Retail Lending Test metrics,
including that: purchased loans provide
essential liquidity to the affordable
housing finance ecosystem and extend
the capacity of mission-driven lenders;
including purchased loans encourages
banks to serve as correspondent lenders
and allows banks to test and learn about
business opportunities in markets where
they lack on-the-ground resources to
originate loans, ultimately increasing
credit availability; and banks
purchasing seasoned delinquent loans
from other lenders and acting as loan
servicers can help borrowers maintain
homeownership. A few commenters
822 Further, the agencies specifically
acknowledged the possibility that loans made to
low- or moderate-income borrowers or in low- or
moderate-income census tracts could be purchased
and sold repeatedly by different banks, with each
bank receiving credit under the Retail Lending Test
equivalent to the bank that originated the loans. In
such cases, the agencies noted that the repurchase
of loans would not provide additional liquidity to
the originating bank nor additional benefit for lowand moderate-income borrowers and areas. For this
reason, the agencies proposed to consider as an
additional factor in assigning Retail Lending Test
conclusions whether a bank purchased retail loans
for the sole or primary purpose of influencing its
retail lending performance evaluation. This
proposed additional factor is discussed further in
the section-by-section analysis of final § ll.22(g).
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
suggested that excluding purchased
loans from a bank’s metrics would force
some banks to alter their safe and sound
business plans because they have few
options other than to purchase loans to
obtain CRA credit. Commenters also
indicated that originating CRAqualifying loans (e.g., loans to lowincome borrowers) in certain high-cost
areas can be difficult for some banks
due to significant market competition
for those loans.
Some commenters stressed the
importance of including particular types
of purchased loans in a bank’s metrics
for purposes of the Retail Lending Test,
especially home mortgage loans. For
example, a commenter warned that
banks would exit the home mortgage
market if purchased home mortgage
loans do not receive positive CRA
credit. A commenter noted that
excluding purchased small business
loans from a bank’s metrics would
punish certain banks that provide
indirect commercial automobile loans,
which are categorized as purchased
loans.
Limitations on the inclusion of
purchased loans in a bank’s Retail
Lending Test metrics. Many commenters
stated that the inclusion of purchased
loans in a bank’s Retail Lending Test
metrics should be subject to limitations.
In general, these commenters stated that
only certain purchased loans should be
included in a bank’s metrics, depending
on characteristics of the purchased loan,
including its impact, or the originating
lender.
Several commenters stated generally
that the Retail Lending Test should
prioritize loan originations over loan
purchases. A few commenters
recommended weighting purchased
loans less than originations in a bank’s
metrics for purposes of the Retail
Lending Test, with some of these
commenters emphasizing that
originating a loan requires more time
and effort than purchasing a loan,
particularly in the case of low-income
borrowers and minority borrowers.
Additionally, one of these commenters
pointed out that purchased loans have
lower upfront investment costs. A few
commenters recommended evaluating
purchased loans separately from
originations under the Retail Lending
Test, with one of these commenters
stating that purchased loans should be
a separate major product line under the
distribution analysis component and
receive less weight than originations in
determining a bank’s Retail Lending
Test conclusions.
Some commenters stated that any
evaluation of purchased loans under the
Retail Lending Test should focus on
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
their impact on communities, including
how purchased loans facilitate wealthbuilding and increase access to credit
for low- and moderate-income and
minority borrowers. Some commenters
expressed the view that most purchased
loans should be excluded from a bank’s
Retail Lending Test metrics, but that an
exception should be made for purchased
loans that result in a demonstrable
benefit to low- and moderate-income
borrowers, such as more favorable loan
terms or a reduction in loan principal.
Other commenters suggested different
treatment of purchased loans based on
the extent of secondary market access of
the originating lender. For example, a
commenter suggested that loans
purchased from an originator with
limited access to the secondary market
should be weighted equally to a bank’s
originations for purposes of a bank’s
Retail Lending Test metrics, while loans
purchased from an originator with
access to the secondary markets should
be weighted less than loans originated
by the bank.
A number of commenters
recommended that only retail loans
purchased from mission-driven lenders,
such as CDFIs, MDIs, and WDIs, should
be included in a bank’s metrics for
purposes of the Retail Lending Test.
One of these commenters stated that
mission-driven lenders face liquidity
challenges that inhibit their ability to
make non-housing loans, given the lack
of maturity and smaller scale of these
markets, and that giving banks CRA
credit for the purchase of such loans
would free up balance sheet space for
mission-driven lenders to make
additional housing loans. A commenter
explained that including loans
purchased from CDFIs in a bank’s
metrics would be appropriate because
CDFIs are certified for their ability to
reach underserved borrowers, while
another commenter suggested that
including such purchased loans in a
bank’s metrics would encourage banks
to enter into broader partnerships with
mission-driven lenders that support
small businesses where they operate.
Some commenters recommended that
only retail loans purchased from the
originator, but not subsequent
purchases, should be included in a
bank’s Retail Lending Test metrics, with
a commenter noting that this treatment
would ensure a sufficient level of
liquidity without inappropriately
promoting loan purchases. A few
commenters stated that including the
initial purchase of a retail loan in a
bank’s metrics would benefit banks that
serve as master servicer to state housing
finance programs, which commenters
indicated is a vital service for low- and
PO 00000
Frm 00227
Fmt 4701
Sfmt 4700
6799
moderate-income areas. In a similar
vein, a few commenters suggested that
initial loan purchases should be
included in a bank’s Retail Lending Test
metrics as equivalent to loan
originations, but subsequent purchases
should receive less credit in order to
eliminate the incentive to continually
resell the same loans. For example, a
commenter stated that retail loans
should not be included in a bank’s
Retail Lending Test metrics beyond the
second purchase (excluding any initial,
contractually required purchase by the
bank from a vendor-originator), stating
that this limit would accommodate
intermediaries that frequently purchase
loans to enhance the liquidity of the
originator. Another commenter stated
that the agencies should establish a
reasonable limit on the number of times
a loan could be sold before the loan
would cease to be included in a
purchasing bank’s Retail Lending Test
metrics.
Finally, other commenters suggested
different parameters regarding the
inclusion of purchased loans in a bank’s
metrics for purposes of the Retail
Lending Test, including a
recommendation to exclude loans
purchased from nonbank originators.
For example, a commenter noted that
including purchased loans with
excessively high interest rates in a
bank’s metrics would undermine the
goals of the CRA, citing as an example
small business loans with extremely
high annual percentage rates purchased
by banks from fintech companies. The
same commenter also suggested
excluding purchased loans for which
the risk of loss is effectively maintained
at the originating lender, such as when
the purchasing bank has the right to
request a substitution of the loan if the
borrower defaults without providing
any additional capital to the originating
lender.
Opposition to including purchased
loans in a bank’s Retail Lending Test
metrics. A few commenters opposed
including any purchased loans in a
bank’s metrics for purposes of the Retail
Lending Test, with some of these
commenters stating that a bank should
not be allowed to buy its way to a
passing CRA rating, and that by
including both loan originations and
loan purchases in the Retail Lending
Test metrics, the agencies would be
double counting the same loans.
Commenters also indicated that
purchased loans are generally less
responsive to the credit needs of lowand moderate-income areas than
originations. For example, a commenter
pointed to a research paper indicating
that the inclusion of purchased loans in
E:\FR\FM\01FER2.SGM
01FER2
6800
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
CRA examinations did not increase
access to credit for low- and moderateincome borrowers and communities.823
Another commenter similarly stated that
purchased loans originated by another
bank are low-impact activities that
should be ineligible for CRA credit.
Treatment of purchased small
business loans. Several commenters
requested clarification regarding
whether purchased small business loans
would be included in a bank’s Retail
Lending Test metrics following the
transition to using section 1071 data
because the CFPB Section 1071
Proposed Rule stated that purchased
loans would not be reported.824 A few
of these commenters suggested that the
agencies should give banks the option to
report purchased small business loans
for inclusion in the bank’s Retail
Lending Test metrics if the CFPB’s final
rule does not include purchased loans.
ddrumheller on DSK120RN23PROD with RULES2
Final Rule
For the reasons discussed below, the
agencies are finalizing the proposal to
include purchased loans in a bank’s
metrics for purposes of the Retail
Lending Test. Specifically, under the
final rule, a bank’s purchased loans are
included in the Bank Volume Metric
used in the Retail Lending Volume
Screen as well as in the bank’s metrics
used in the distribution analysis of the
bank’s major product lines.825
Including purchased loans in a bank’s
metrics for purposes of the Retail
Lending Test reflects the agencies’ belief
that purchased loans can support
originations of loans to low- and
moderate-income individuals and in
low- and moderate-income census
tracts. Specifically, loan purchases can
enhance the liquidity of originated loans
and thereby make capital available for
lenders that are actively originating
loans to low- and moderate-income
borrowers and in low- and moderateincome census tracts, when their
capacity to originate additional loans
823 See Kenneth P. Brevoort, Bd. of Governors of
the Fed. Rsrv. Sys., ‘‘Does Giving CRA Credit for
Loan Purchases Increase Mortgage Credit in Low-toModerate Income Communities?’’ Finance and
Economics Discussion Series 2022–047 (June 7,
2022), https://www.federalreserve.gov/econres/feds/
files/2022047pap.pdf.
824 See 86 FR 56356, 56413 (Oct. 8, 2021).
825 As discussed in the section-by-section analysis
of final § ll.22(e), purchased loans are excluded
from the market benchmarks against which the
bank’s metrics are compared, consistent with the
proposal. In addition, as discussed in the sectionby-section analysis of final § ll.22(g), in assigning
Retail Lending Test conclusions to a bank, the
agencies consider information indicating that the
bank purchased closed-end home mortgage loans,
small business loans, small farm loans, or
automobile loans for the sole or primary purpose of
inappropriately enhancing its retail lending
performance.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
might otherwise be constrained. The
agencies believe that excluding
purchased loans from a bank’s metrics
could potentially disadvantage
originating lenders that have limited
access to the secondary market, such as
a lender that is not an approved seller
or servicer with Fannie Mae or Freddie
Mac. In addition, the agencies
considered that including purchased
loans in evaluating retail lending
performance is consistent with the
current lending test evaluation
approach.
As in the proposal, the final rule
includes both originated loans and
purchased loans in a bank’s metrics
without assigning greater weight to loan
originations. In reaching this
determination, the agencies considered
commenter sentiment that purchased
loans should receive a lower weight
than originations because of the
viewpoint that they require less effort
and upfront investment costs compared
to originations and that they may be less
impactful than originated loans.
However, the agencies also considered
that weighting loan originations and
purchases differently would make the
Retail Lending Test metrics more
complex and may have unintended
consequences of reducing liquidity for
loans to low- and moderate-income
borrowers and communities, as noted
above. The agencies also considered that
it would be challenging to determine a
fixed weight to assign to purchased
loans that appropriately reflects the
impact of those purchases relative to
originated loans because the impact of
a bank’s originations and purchases of
loans could vary based on a number of
factors, including the credit needs and
opportunities of the community.
Furthermore, to address the potential
downsides of including purchased loans
in the Retail Lending Test metrics used
to evaluate a bank, the agencies have
included an additional factor in final
§ ll.22(g)(1), which is discussed in
the section-by-section analysis of final
§ ll.22(g).
In addition, the agencies have also
considered the impact of including
purchased loans in a bank’s metrics for
purposes of the Retail Lending Test (and
weighting loan purchases equal to loan
originations) using historical data from
2018–2020. In this analysis, the agencies
compared the distribution of estimated
Retail Lending Test conclusions across
facility-based assessment areas that
would have resulted had the final rule
approach been in effect during those
years to the distribution of estimated
conclusions that would have resulted
from including only loan originations in
a bank’s distribution metrics. Based on
PO 00000
Frm 00228
Fmt 4701
Sfmt 4700
the agencies’ estimates, roughly similar
percentages of facility-based assessment
areas for banks included in the analysis
would have received higher
recommended conclusions (6.5 percent)
or lower recommended conclusions (8.2
percent) if loan purchases were not
included in the bank’s metrics.826 Given
these results, the agencies have
concluded that the impact of removing
purchased loans from the Retail Lending
Test bank metrics could have different
impacts on different banks. As
discussed above, the agencies have
determined to include purchased loans
in bank metrics, coupled with the
additional factor in final § ll.22(g)(1).
The agencies believe that this approach
strikes an appropriate balance of
avoiding unintended consequences of
reducing liquidity for loans to low- and
moderate-income borrowers and
communities while also putting in place
provisions to help ensure that loan
purchases are not used for the purpose
of inappropriately enhancing a bank’s
retail lending performance.
The agencies considered, but are not
adopting, a commenter suggestion to
disaggregate loan originations from loan
purchases by evaluating purchased
loans as a separate major product line
under the distribution analysis
component of the Retail Lending Test.
The agencies believe that disaggregating
originations from purchases is contrary
to the intent discussed above in
deciding to evaluate a bank’s
originations and purchased loans as part
of the same analysis. In addition, the
agencies believe that evaluating
purchased loans as a separate product
line would add to the complexity of the
distribution analysis without
sufficiently compensating benefits. The
agencies also considered that there may
not be sufficient data to construct robust
market benchmarks based on only
purchased small business and small
farm loans once the agencies transition
to using section 1071 data, which will
not include purchased loans.
The agencies also considered, but are
not adopting, alternative approaches
suggested by commenters of including
only certain purchased loans in a bank’s
826 This analysis was calculated over the 2018–
2020 period for a set of intermediate banks and
large banks that are both CRA and HMDA reporters.
Bank asset size was determined using 2019 and
2020 year-end assets data. Wholesale banks, limited
purpose banks, strategic plan banks, and banks that
did not have at least one facility-based assessment
area in a U.S. State or the District of Columbia were
excluded from the analysis. Facility-based
assessment areas that were not delineated in 2020
were also excluded. The analysis used home
mortgage lending, small business lending, small
farm lending, and deposits data from the CRA
Analytics Data Tables. This analysis did not
incorporate the Retail Lending Volume Screen.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Retail Lending Test metrics, or
excluding certain purchased loans from
a bank’s Retail Lending Test metrics.
The agencies believe that identifying
particular types of purchased loans and
either including or excluding these loan
purchases from the banks’ metrics adds
a level of complexity to the Retail
Lending Test and the reporting of
purchased loans, and presents
implementation challenges due to data
availability. For example, loans
originated or purchased by a financial
institution that is not a HMDA reporter
are not captured in HMDA data, and as
a result, it is not possible to consistently
identify how many times a purchased
loan has been purchased since its
origination, or identify the initial
originator of the loan. Similarly, HMDA
data do not identify the extent of access
to the secondary market for all
originating lenders that banks may be
purchasing loans from. CRA small
business and small farm data are even
more limited in that these data do not
identify the originating lender of a small
business loan that is purchased by a
bank, and do not indicate the number of
times a loan has been sold.
With respect to comments suggesting
that any evaluation of purchased loans
should focus on community impact,
such as increasing access to credit for
low- and moderate-income and minority
borrowers, or increasing loans
purchased from mission-driven lenders,
the agencies recognize the importance of
supporting such institutions in their
efforts to provide access to credit and
other financial services in traditionally
underserved communities. The agencies
note that the final rule includes as part
of the Retail Services and Products Test
an evaluation of whether a bank’s credit
products and programs—including
loans purchased from MDIs, WDIs,
LICUs, and CDFIs—are, in a safe and
sound manner, responsive to the needs
of low- and moderate-income
individuals, residents of low- and
moderate-income census tracts, small
businesses, and small farms. This
provision is discussed further in the
section-by-section analysis of final
§ ll.23(c). In addition to considering
the responsiveness of a bank’s
purchased loans qualitatively under the
Retail Services and Products Test, the
agencies believe that it is also important
to evaluate a bank’s purchased loans
quantitatively under the Retail Lending
Test because loan purchases may help
to meet the credit needs of low- and
moderate-income borrowers, small
businesses and small farms, and lowand moderate-income census tracts.
Treatment of purchased small
business loans and small farm loans. As
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
discussed further in the section-bysection analysis of final § ll.42, the
final rule provides that once section
1071 data is used in CRA evaluations,
a bank may, at its option, have
purchased small business loans
included in its Retail Lending Test
metrics if the bank collects and
maintains data on these loans. The
agencies have considered that the CFPB
Section 1071 Final Rule does not
require the reporting of purchased
loans.827 However, the agencies
determined that it is appropriate to
provide banks with the option to collect
and maintain data on their purchased
small business loans and small farm
loans for consideration in Retail
Lending Test metrics once the agencies
transition to using section 1071 data for
CRA evaluations. The agencies believe
that the optional inclusion of purchased
small business loans and small farm
loans in a bank’s metrics appropriately
tailors the evaluation approach to
different bank business models,
including those that involve purchases
of these loan types as part of the bank’s
strategy for meeting the credit needs of
the community. In addition, the
agencies believe the final rule approach
of allowing banks to continue to include
purchased small business and small
farm loans in the bank’s metrics once
the agencies transition to using section
1071 data will provide continuity with
the current approach, which includes
purchased small business loans in a
bank’s distribution metrics.
Section ll.22(a) and (b) Retail
Lending Test—In General and
Methodology Overview
The Agencies’ Proposal
Proposed § ll.22(a) addressed the
scope of the Retail Lending Test.
Proposed § ll.22(a)(1) provided that
the Retail Lending Test would evaluate
a bank’s record of helping to meet the
credit needs of its facility-based
assessment areas through a bank’s
origination and purchase of retail loans
in each facility-based assessment area.
In addition, proposed § ll.22(a) set
forth the geographic areas in which
large banks and intermediate banks
would be evaluated under the proposed
Retail Lending Test and the major
product lines that would have been
evaluated under the distribution
analysis. The proposed major product
line standard is discussed in the
827 A covered entity under the CFPB Section 1071
Final Rule will not be required to report small
business lending data on purchased loans because
purchased loans are not considered ‘‘covered credit
transactions.’’ See 12 CFR 1002.104(b) and
associated Official Interpretation.
PO 00000
Frm 00229
Fmt 4701
Sfmt 4700
6801
section-by-section analysis of final
§ ll.22(d).
Proposed § ll.22(b) described the
methodology of the proposed Retail
Lending Test. Specifically, proposed
§ ll.22(b)(1) provided that the
agencies would first review numerical
metrics, developed under proposed
§ ll.22(c), regarding a bank’s retail
lending volume in each facility-based
assessment area. Proposed
§ ll.22(b)(2) provided that the
agencies would also employ numerical
metrics, developed under proposed
§ ll.22(d), to evaluate the geographic
and borrower distribution of a bank’s
major product lines in each facilitybased assessment area, retail lending
assessment area, and outside retail
lending area, as applicable. Proposed
§ ll.22(b)(3) provided that the
agencies would also use the additional
factors described in proposed
§ ll.22(e) to evaluate a bank’s retail
lending performance in its facility-based
assessment areas.
Comments Received
Although the agencies received
numerous comments, discussed above,
on the overall Retail Lending Test
framework, including the use of a
metrics-based approach in general, the
agencies did not receive comments on
the specific language of proposed
§ ll.22(a) and(b).
Final Rule
The agencies are finalizing a modified
version of proposed § ll.22(a) and (b).
Similar to the proposal, final
§ ll.22(a) and (b) address the general
scope and methodology of the Retail
Lending Test. However, the agencies
have modified final § ll.22(a) and (b)
from the proposal to reflect changes to
the Retail Lending Test framework
discussed throughout the section-bysection analysis of final § ll.22.
• Final § ll.22(a)—Retail Lending
Test—clarifies which product lines will
be evaluated pursuant to the Retail
Lending Test and further clarifies when
automobile loans will be evaluated.
Specifically, final § ll.22(a)(1)—In
general—provides generally that the
Retail Lending Test evaluates a bank’s
record of helping to meet the credit
needs of its entire community through
the bank’s origination and purchase of
home mortgage loans, multifamily
loans, small business loans, and small
farm loans.
• Final § ll.22(a)(2)—Automobile
loans—provides that the Retail Lending
Test also evaluates a bank’s record of
helping to meet the credit needs of its
entire community through the bank’s
origination and purchase of automobile
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6802
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
loans if the bank is a majority
automobile lender or if the bank opts to
have it automobile loans evaluated
under the Retail Lending Test.
• Final § ll.22(b)—Methodology
overview—describes the Retail Lending
Test’s methodology with additional
detail than provided in proposed
§ ll.22(b) in order to increase clarity.
• Final § ll.22(b)(1)—Retail
Lending Volume Screen—provides that
the agencies consider whether a bank
meets or surpasses the Retail Lending
Volume Threshold in each facility-based
assessment area pursuant to the Retail
Lending Volume Screen in final
§ ll.22(c).
• Final § ll.22(b)(2)—Retail lending
distribution analysis—provides that
except as provided in final
§ ll.22(b)(5), the agencies evaluate the
geographic and borrower distributions
of each of a bank’s major product lines
in each Retail Lending Test Area, as
provided in final § ll.22(d) and (e).
• Final § ll.22(b)(3)—Retail
Lending Test recommended
conclusions—provides that except as
provided in final § ll.22(b)(5), the
agencies develop a Retail Lending Test
recommended conclusion pursuant to
final § ll.22(f) for each Retail Lending
Test Area.
• Final § ll.22(b)(4)—Retail
Lending Test conclusions—provides
that the agencies’ determination of a
bank’s Retail Lending Test conclusion
for a Retail Lending Test Area is
informed by the bank’s Retail Lending
Test recommended conclusion for the
Retail Lending Test Area, performance
context factors as provided in final
§ ll.21(d), and the additional factors
provided in final § ll.22(g).
• Final § ll.22(b)(5)—Exceptions—
describes two exceptions to the general
four-step methodology discussed above.
• Final § ll.22(b)(5)(i)—No major
product line— provides that if a bank
has no major product line in a facilitybased assessment area, the agencies
assign the bank a Retail Lending Test
conclusion for that facility-based
assessment area based upon the bank’s
performance on the Retail Lending
Volume Screen pursuant to final
§ ll.22(c), the performance context
factors provided in final § ll.21(d),
and the additional factors provided in
final § ll.22(g). This final rule
provision specifies that the distribution
analysis in final § ll.22(d) through (f)
does not apply to a facility-based
assessment area in which there are no
major product lines. There may not be
a major product line, for example,
where a bank maintains a deposit-taking
facility and only conducts consumer
lending other than automobile lending.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
The agencies determined that this
provision adds clarity regarding
evaluation procedures in cases where
the proposed distribution analysis does
not apply to a bank’s business model in
a facility-based assessment area.
• Final § ll.22(b)(5)(ii)—Banks that
lack an acceptable basis for not meeting
the Retail Lending Volume Threshold—
provides how the agencies assign a
Retail Lending Test conclusion for a
facility-based assessment area in which
a bank lacks an acceptable basis for not
meeting the Retail Volume Threshold.
Consistent with the proposed approach,
these facility-based assessment areas do
not receive a Retail Lending Test
recommended conclusion based on a
distribution analysis. The agencies have
revised the final’s rule regulatory text
relative to the proposal to make more
clear that, as described in the sectionby-section analysis of final
§ ll.22(c)(3)(iii), the agencies will
instead consider such a bank’s
performance on the Retail Lending
Volume Screen, the distribution
analysis, the performance context
factors in final § ll.21(d), and the
additional factors in final § ll.22(g) in
assigning a conclusion. As discussed in
the section-by-section analysis of
§ ll.22(c), and consistent with the
proposed approach, a large bank that
lacks an acceptable basis for not meeting
the screen is limited to a Retail Lending
Test conclusion of either ‘‘Needs to
Improve’’ or ‘‘Substantial
Noncompliance’’ in that facility-based
assessment area. An intermediate bank,
or a small bank that opts to be evaluated
under the Retail Lending Test, that lacks
an acceptable basis for not meeting the
screen is eligible for any Retail Lending
Test conclusion in that facility-based
assessment area.
In final § ll.22(c) and section I of
final appendix A, the agencies are
adopting the proposal to incorporate in
the evaluation of a bank’s retail lending
performance a Retail Lending Volume
Screen, which will measure the total
dollar amount of a bank’s retail lending
relative to its presence and capacity to
lend, based on deposits, in a facilitybased assessment area compared to
other lenders.828 The agencies
developed the Retail Lending Volume
Screen to provide more rigor, clarity,
consistency, and transparency in the
evaluation of retail lending for banks
evaluated under the final Retail Lending
Test.
The final rule’s Retail Lending
Volume Screen reflects certain
substantive, technical, and clarifying
revisions to the proposed Retail Lending
Volume Screen, as discussed below. The
agencies have also reorganized the
proposed regulatory text to provide
additional clarity and consistency by:
(1) in final § ll.22(c)(1), defining the
volume screen components; (2) in final
§ ll.22(c)(2), outlining the agencies’
approach regarding banks that meet or
surpass the volume screen’s threshold;
and (3) in final § ll.22(c)(3), outlining
the agencies’ approach regarding banks
that do not meet the screen’s threshold.
Consistent with the proposal, final
§ ll.22(c)(1) provides that, for a bank
evaluated under to the Retail Lending
Test, the Retail Lending Volume Screen
will measure the bank’s lending volume
relative to its deposits in a facility-based
assessment area, calculated as a Bank
Volume Metric, and compare the Bank
Volume Metric to a Market Volume
Metric, which measures the lending of
all banks in the facility-based
assessment area relative to their
deposits. The bank will meet the Retail
Lending Volume Threshold in that
facility-based assessment area if the
bank has a Bank Volume Metric of 30
percent or greater of the Market Volume
Benchmark.
Final § ll.22(c)(2) and (c)(3)(ii)
provide that, for a bank that meets or
surpasses the Retail Lending Volume
Threshold in a facility-based assessment
area, or that has an acceptable basis for
not meeting or surpassing the
threshold—as provided in final
§ ll.22(c)(3)(i) and discussed further
below— the agencies will develop a
Retail Lending Test recommended
conclusion for the facility-based
assessment area, which could range
from ‘‘Outstanding’’ to ‘‘Substantial
Noncompliance.’’ 829
Additionally, final
§ ll.22(c)(3)(iii)(A) provides that large
banks that lack an acceptable basis for
not meeting the Retail Lending Volume
Threshold will be limited to receiving a
‘‘Needs to Improve’’ or ‘‘Substantial
Noncompliance’’ Retail Lending Test
conclusion in a facility-based
assessment area, determined based
upon: the large bank’s retail lending
volume and the extent by which it did
not meet the threshold; the distribution
analysis in final § ll.22(d) and (f); the
performance context factors in final
§ ll.21(d); and consideration of the
828 See final § ll.22(c) and final appendix A,
section I; see also supra note 145.
829 See final § ll.22(d) and (f) and the
accompanying section-by-section analyses.
Section ll.22(c) Retail Lending
Volume Screen
PO 00000
Frm 00230
Fmt 4701
Sfmt 4700
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
additional factors in final
§ ll.22(g).830
Final § ll.22(c)(3)(iii)(B) provides
that for intermediate banks, and small
banks that opt to be evaluated under the
Retail Lending Test, which lack an
acceptable basis for not meeting the
Retail Lending Volume Threshold, the
agencies will consider a bank’s
performance under the lending
distribution analysis in final
§ ll.22(d) and (f) before assigning a
Retail Lending Test recommended
conclusion—which could range from
‘‘Outstanding’’ to ‘‘Substantial
Noncompliance.’’ The agencies will also
consider a bank’s retail lending volume
and the extent by which it did not meet
the threshold, along with performance
context factors and the additional
factors, before assigning a Retail
Lending Test conclusion.
Overall Retail Lending Volume Screen
Approach
ddrumheller on DSK120RN23PROD with RULES2
The Agencies’ Proposal
In proposed § ll.22(c), the agencies
provided for a retail lending volume
screen that would measure the total
dollar volume of a bank’s retail lending
relative to its presence and capacity to
lend in a facility-based assessment area
compared to peer banks.831 The
agencies indicated that the screen
would serve to ensure that a bank’s
performance evaluation reflects the
amount of a bank’s retail lending
relative to its presence and lending
capacity in an assessment area. They
also indicated that a bank would fail to
meet the credit needs of its entire
community if it makes too few loans
relative to its community presence,
capacity, and local opportunities, even
if those loans happened to be
concentrated among, for example, lowand moderate-income borrowers and
low- and moderate-income census
tracts.
Comments Received
The agencies received many
comments on the proposed ‘‘retail
lending volume screen’’ from a variety
of stakeholders.
Many commenters that addressed the
proposed retail lending volume screen
supported its inclusion in the proposed
Retail Lending Test, with a number of
these commenters recommending a
more stringent Retail Lending Volume
Threshold than proposed by the
agencies, as discussed below. Many of
830 For detailed information about the referenced
final rule provisions, see the section-by-section
analyses of final §§ ll.21(d) and ll.22(d), (f),
and (g).
831 See proposed § ll.22(c).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
these commenters asserted that a retail
lending volume screen would help to
reduce perceived ratings inflation in
CRA evaluations.
However, many other commenters
that addressed the proposed retail
lending volume screen opposed it or
raised concerns about the screen, with
some suggesting modifications to the
proposed screen and its incorporation
into the CRA framework. For example,
some commenters expressed concerns
that the proposed retail lending volume
screen would not account for all bank
business strategies and that certain
types of banks could have difficulty
passing the screen. Points made by these
commenters included, for example, that:
a bank that operates without branches
could have trouble meeting the screen
in the facility-based assessment area
delineated around its home office; the
screen would disadvantage depository
CDFIs that maintain branches in
economically distressed areas where
there is less demand for large loans; the
screen would penalize and disadvantage
banks with business models that do not
focus on retail lending; and (banks that
specialize in consumer lending might
fail the screen because they did not
engage in sufficient home mortgage
lending, small business lending, and
small farm lending.
A commenter suggested that the
agencies apply a materiality standard
such that the retail lending volume
screen would not apply if a bank did not
have a sufficient volume of both retail
lending and deposits in a facility-based
assessment area. Another commenter
suggested that banks should be exempt
from the retail lending volume screen if
they demonstrate that their business
structure is incompatible with
originating a meaningful number of
loans as a percentage of their deposits
in facility-based assessment areas.
Various commenters expressed
concerns that applying the retail lending
volume screen might discourage banks
from maintaining branches with low
deposits even though those branches
provide services to low-deposit
customers. Commenters suggested that
this could discourage banks from
maintaining facilities in rural markets or
markets that are incidental to the banks’
business strategies or lead to
consolidation or branch closures among
banks, including depository CDFIs,
serving rural or underserved areas.
Concerns were also raised that the retail
lending volume screen represented a
pass/fail approach that would lead to
banks prioritizing retail lending dollar
volume at the expense of developing
innovative products and services
PO 00000
Frm 00231
Fmt 4701
Sfmt 4700
6803
responsive to unbanked or underbanked
consumers and microbusinesses.
A few commenters raised concerns
that some lenders in certain markets
could face challenges in meeting the
threshold due to local lending
conditions. For example, a commenter
stated that in some rural and
economically challenged assessment
areas, loan demand is low, which could
cause a bank to fail the proposed retail
lending screen even if the bank is
committed to providing a range of
banking services to these communities.
A commenter indicated that the screen
would not account for a variety of
scenarios that are common in suburban,
exurban, and urban areas where large
banks have high concentrations of
deposits.
Some commenters also raised legal
arguments with respect to the retail
lending volume screen. A commenter
suggested that the retail lending volume
screen exceeds the agencies’ statutory
authority because it is not explicitly
authorized by the CRA statute. Other
commenters stated that the retail
lending volume screen would conflict
with congressional intent because
section 109 of the Riegle–Neal Interstate
Banking and Branching Efficiency Act
of 1994 (section 109) instructs the
agencies to use a loan-to-deposit ratio to
determine whether a bank engaged in
interstate branching meets the credit
needs of the communities it serves.832 In
addition, a commenter suggested that if
the retail lending volume screen
prompts banks to close any branches to
avoid adverse consequences under the
Retail Lending Test the outcome would
be contrary to the statutory purposes of
the CRA.
Final Rule
As noted above, final § ll.22(c) and
section I of final appendix A adopt the
proposed Retail Lending Volume
Screen, with certain clarifying,
technical, and substantive edits
described in more detail below. Based
on the agencies’ consideration of the
comments and further analysis and
deliberation, the agencies continue to
believe that the Retail Lending Volume
Screen is an appropriate baseline
measure of the amount of a bank’s retail
lending relative to its presence and
lending capacity in a facility-based
assessment area, as indicated by the
volume of deposits received from the
832 See Public Law 103–328, sec. 109, 12 U.S.C.
1835a, as amended (section 109), implemented by
subpart E to 12 CFR part 25 (OCC), 12 CFR 208.7
(Board), and 12 CFR part 369 (FDIC). Section
109(c)(1) specifies a threshold of ‘‘half the average
of total loans in the host State relative to total
deposits from the host State.’’
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6804
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
area surrounding the bank’s deposittaking facilities. The agencies also
believe that a holistic evaluation of
whether a bank is meeting the credit
needs of its facility-based assessment
areas necessarily includes consideration
of not only a bank’s loan distribution,
but also the bank’s lending volume
relative to its presence and capacity.
The final rule reflects the agencies’
view that the Retail Lending Volume
Screen and the distribution metrics are
both important to ensuring a complete
and accurate evaluation of whether a
bank has met the credit needs of its
community. Specifically, the agencies
generally do not believe that a bank
with lending levels well below its
community presence and capacity is
meeting the credit needs of its entire
community, regardless of the bank’s
distribution of loans to low- and
moderate-income borrowers and lowand moderate-income census tracts. In
this regard, the agencies considered that
removing the screen from the Retail
Lending Test approach for evaluating
facility-based assessment areas would
mean that a bank could achieve
‘‘Outstanding’’ performance by making
only a very small number of loans
relative to the bank’s capacity, if a high
percentage of those loans are to
designated borrowers (i.e., low-income
borrowers, moderate-income borrowers,
businesses with gross annual revenues
of $250,000 or less, businesses with
gross annual revenues of more than
$250,000 but less than or equal to $1
million, farms with gross annual
revenues of $250,000 or less, or farms
with gross annual revenues of more than
$250,000 but less than or equal to $1
million) and designated census tracts
(i.e., low-income census tracts or
moderate-income census tracts).
The Retail Lending Volume Screen is
based on standardized metrics and will
apply across banks evaluated in facilitybased assessment areas under the Retail
Lending Test, to ensure clarity,
consistency, and transparency in this
important volume-based assessment of a
bank’s retail lending. The agencies
considered that the final rule approach
builds upon the current evaluation
approach, under which the agencies
consider a bank’s volume of retail
lending in an assessment area without
quantitative benchmarks or thresholds
indicating what level of lending is
adequate.
The agencies considered comments
that it could be challenging for a bank
to meet the Retail Lending Volume
Threshold in markets with low levels of
retail lending demand. However, the
agencies determined that the final rule
approach accounts for this concern both
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
through the Market Volume Benchmark
and the acceptable basis factors for not
meeting the threshold, finalized in final
§ ll.22(c)(3)(i) and discussed in more
detail further below. Specifically, the
Market Volume Benchmark is based on
retail loans and deposits from all banks
with a branch in a geographic area,
which will reflect the level of credit
demand in that area. In addition, the
acceptable basis factors include
performance context information that
could explain a bank’s low level of
lending in an area, such as the bank’s
business strategy and any other
circumstances unique to a facility-based
assessment area. These factors are
designed to help address scenarios
raised by commenters such as that of an
internet bank not meeting the Retail
Lending Volume Threshold in a
headquarters facility-based assessment
area and of a CDFI bank serving an area
with lower loan demand.
The agencies understand that banks
operate in variable conditions, and that
they have different characteristics,
business strategies, and customer bases.
For this reason, the Retail Lending
Volume Screen—both as proposed and
as finalized—does not operate on a
‘‘pass/fail’’ basis. Rather, the Retail
Lending Volume Screen is one aspect of
the agencies’ evaluation of a bank’s
retail lending performance; it functions
as a key piece of the framework under
which the agencies determine the
appropriate approach for evaluating the
retail lending performance of a
particular bank in its facility-based
assessment areas. For example, for a
bank with a Bank Volume Metric above
the Retail Lending Volume Threshold in
a facility-based assessment area, the
agencies believe it is appropriate to
determine a recommended conclusion
based on a distribution analysis of the
bank’s retail lending. In contrast, for a
bank with a Bank Volume Metric below
the Retail Lending Volume Threshold in
a facility-based assessment area, the
agencies believe it is important to first
assess whether the bank had an
acceptable basis for exhibiting a very
low level of retail lending prior to
applying the distribution analysis. The
acceptable basis factors will address a
variety of circumstances that could limit
a bank’s ability to lend in a facilitybased assessment area. Accordingly, the
agencies have not included any
references in final § ll.22(c) to a bank
‘‘failing’’ to meet the Retail Lending
Volume Threshold, as the agencies
acknowledge that a bank may have a
relatively low Bank Volume Metric due
to the bank’s business model or other
PO 00000
Frm 00232
Fmt 4701
Sfmt 4700
acceptable basis factors that are not
indicative of ‘‘failing’’ performance.
The agencies also considered, but are
not adopting, a commenter suggestion to
apply a materiality standard such that
the Retail Lending Volume Screen
would not apply if a bank did not have
a sufficient volume of both retail
lending and deposits in a facility-based
assessment area. The agencies
determined that it is beneficial to have
consistent standards that apply to all
facility-based assessment areas such
that, for each bank evaluated in its
facility-based assessment areas under
the Retail Lending Test, a volume-based
assessment of a bank’s lending is a
component of evaluating whether a
bank is meeting the retail lending needs
of these communities. In addition, the
agencies believe that applying a
materiality standard could result in less
robust evaluation standards in smaller
markets, rural areas, and low-income
areas where banks may tend to conduct
less lending and source lower volumes
of deposits.
The agencies also considered, but are
not adopting, a commenter suggestion
that banks should be exempt from the
Retail Lending Volume Screen if they
demonstrate that their business
structure is incompatible with
originating a meaningful number of
loans as a percentage of their deposits
in facility-based assessment areas. Based
on further consideration of this
suggestion, the agencies determined that
the variety of bank business strategies
and structures presents significant
challenges to establishing an
appropriate exemption. Thus, the
agencies believe that it is preferable to
apply the Retail Lending Volume Screen
and, if warranted, determine whether a
bank has an acceptable basis for not
meeting the Retail Lending Volume
Threshold. As discussed elsewhere in
this section-by-section analysis, the
acceptable basis factors in final
§ ll.22(c)(3)(i) include consideration
of a bank’s business strategy and other
aspects of the performance context of
the area.
The agencies have also carefully
reviewed and considered comments
presenting legal considerations. The
CRA statute’s grant of rulemaking
authority to the agencies empowers
them to carry out the purpose of the
statute.833 As discussed in section I of
833 See 12 U.S.C. 2905. See also 12 U.S.C. 2901(b)
(‘‘It is the purpose of this title to require each
appropriate Federal financial supervisory agency to
use its authority when examining financial
institutions, to encourage such institutions to help
meet the credit needs of the local communities in
which they are chartered consistent with the safe
and sound operation of such institutions.’’).
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
this SUPPLEMENTARY INFORMATION, in
enacting the CRA, Congress was focused
on the relationship between a bank’s
deposit-taking activity in an area and its
lending activity, and on ensuring that
banks meet not only the deposit needs
but also the credit needs of their
communities.834 Thus, the agencies
view consideration of a bank’s loan-todeposit ratios as within the appropriate
purview of the agencies’ approach to
CRA examinations. The agencies also
note that this reflects a longstanding
position of the agencies; for example,
since 1995, the agencies have used loanto-deposit ratios as a criterion to
evaluate small bank performance.835
Further, based on supervisory
experience, the agencies believe that the
loan-to-deposit ratios of other banks in
a facility-based assessment area are
informative of credit needs in a
community, and thus a useful point of
comparison as part of a larger
framework for determining whether a
bank is meeting the credit needs of its
community.
Regarding commenters’ mention of
provisions of section 109, the agencies
have considered the distinct policy
objectives, calculation methodologies,
and applications of section 109 and of
the CRA, and do not believe that section
109 precludes the agencies from
implementing the Retail Lending
Volume Screen in the final rule. First,
section 109 was enacted 17 years after
the CRA statute, but did not change or
displace the agencies’ CRA rulemaking
authority. Second, although the section
109 loan-to-deposit ratios used by the
agencies may have some conceptual
similarities with the Retail Lending
Volume Screen, their distinct policy
objectives, calculation methodologies,
and applications require separate
metrics to achieve their respective
purposes, as discussed in more detail
further below. Congress enacted section
109 to ensure that a bank’s interstate
branches would not take deposits from
a host state (or other host jurisdiction)
without the bank reasonably helping to
meet the credit needs of that host state.
The application of section 109
requirements involves a loan-to-deposit
ratio test that measures the lending and
deposit activities of a bank’s interstate
branches and then compares the bank’s
statewide loan-to-deposit ratio with the
relevant host state’s loan-to-deposit
ratio, which is based on host state
834 See 12 U.S.C. 2901(a). See also 123 Cong. Rec.
17630 (1977) (statement of Sen. Proxmire)
(discussing enactment of the CRA as a response to
banks taking their deposits from a community
without reinvesting them in that community).
835 See current 12 CFR ll.26(b)(1).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
banks’ lending and deposits volumes.836
If the bank’s statewide loan-to-deposit
ratio is at least one-half of the relevant
host state loan-to-deposit ratio, the bank
passes the section 109 evaluation and
no further review is required.837 If the
bank fails the loan-to-deposit ratio test
(or the loan-to-deposit ratio cannot be
calculated because data are not
sufficient or are not reasonably
available), the agencies will determine
whether the bank is reasonably helping
to meet the credit needs of the
communities served by the bank in the
host state—this step requires examiners
to review the activities of the bank, such
as its performance under the CRA.838
The Retail Lending Volume Screen is
therefore a complement to, and not a
substitute for, the section 109 evaluation
of whether a bank with interstate
branches impermissibly uses those
branches to primarily engage in deposit
production rather than serving the
credits needs of its communities.
Accordingly, the agencies do not believe
that the Retail Lending Volume Screen
intrudes on or otherwise conflicts with
prior congressional decisions on
interstate banking prescribed in statute.
The agencies have also considered
commenter sentiment that the Retail
Lending Volume Screen is onerous and
would therefore result in banks closing
branches in markets where their Bank
Volume Metric may not meet the Retail
Lending Volume Threshold. However,
in considering these comments and
additional agency analysis, the agencies
believe that the Retail Lending Volume
Screen is appropriately calibrated and
that the Retail Lending Volume
Threshold is generally attainable. In
reaching this determination, the
agencies considered a number of factors.
First, the agencies considered that the
current evaluation framework includes
assessing a bank’s volume of retail
lending, and for small banks includes a
loan-to-deposit ratio. The agencies
believe that the Retail Lending Volume
Screen is therefore grounded in the
current approach and will not introduce
significant new burden or complexity
for banks. Second, the agencies
considered that based on estimates
using available data from 2018–2020,
and as discussed more fully below, the
Bank Volume Metric exceeds the Retail
Lending Volume Threshold in
approximately 96 percent of banks’
facility-based assessment areas. The
agencies also considered that this
836 See 12 CFR 25.63 (OCC), 208.7(c) (Board), and
369.3 (FDIC).
837 Id.
838 See 12 CFR 25.64 (OCC), 208.7(d) (Board), and
369.4 (FDIC).
PO 00000
Frm 00233
Fmt 4701
Sfmt 4700
6805
analysis was applied to years when the
screen was not in effect. In future years
when the screen is in effect, banks will
have access to information such as
recent estimates of relevant metrics and
benchmarks in different geographic
areas, which could be used to help
monitor performance. Third, the
agencies considered that the acceptable
basis factors in final § ll.22(c)(3)(i)
cover circumstances in which a bank’s
Bank Volume Metric does not meet the
Retail Lending Volume Threshold due
to performance context factors or other
legitimate business reasons, such as a
bank’s business model. Taking into
account these considerations, the
agencies anticipate that the screen will
appropriately evaluate whether a bank
has conducted retail lending that is
commensurate with peer lending in
facility-based assessment areas, and is
not unduly complex or burdensome.
Specific components of the Retail
Lending Volume Screen are discussed
below in the section-by-section analysis
of final § ll.22(c)(1). The section-bysection analyses of final § ll.22(c)(2)
and (3) address the ways in which a
bank’s performance on the Retail
Lending Volume Screen informs the
blend of quantitative and qualitative
factors considered by the agencies in
determining a bank’s Retail Lending
Test conclusion in a facility-based
assessment area.
Section ll.22(c)(1) Retail Lending
Volume Threshold
Consistent with the proposal, final
§ ll.22(c)(1) and section I of final
appendix A provide that, for a bank
evaluated under to the Retail Lending
Test, the Retail Lending Volume Screen
will compare its Bank Volume Metric
against a Market Volume Benchmark in
a facility-based assessment area. The
bank will meet or surpass the Retail
Lending Volume Threshold in that
facility-based assessment area with a
Bank Volume Metric of 30 percent or
greater of the Market Volume
Benchmark. The Bank Volume Metric,
the Market Volume Benchmark, and the
30 percent threshold are discussed in
turn below.
Bank Volume Metric
The Agencies’ Proposal
To provide a consistent measure of
how much of a bank’s local capacity has
been oriented toward retail lending, the
agencies proposed that the retail lending
volume screen would consist, in part, of
a ‘‘bank volume metric.’’ 839 The
839 See proposed § ll.22(c)(3) and proposed
appendix A, section I.
E:\FR\FM\01FER2.SGM
01FER2
6806
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
proposed bank volume metric would be
calculated as a ratio comparing bank
lending against bank deposits. The
numerator would have included the
annual average of the year-end dollar
amount of a bank’s originated and
purchased automobile loans, closed-end
home mortgage loans, open-end home
mortgage loans, multifamily loans, small
business loans, and small farm loans in
a facility-based assessment area.840
The denominator would include the
annual average amount of the bank’s
deposits in that facility-based
assessment area over the evaluation
period, if the bank collected and
maintained this data.841 Specifically,
the agencies proposed that collecting
and maintaining deposits data would be
required for large banks with assets of
over $10 billion and would be optional
for large banks with assets of $10 billion
or less, intermediate banks, and small
banks that opted to be evaluated under
to the Retail Lending Test.842 For any
bank evaluated under to the Retail
Lending Test that did not collect and
maintain deposits data, the agencies
proposed to use the deposits assigned to
the banks’ branches in each assessment
area as reported in the FDIC’s Summary
of Deposits data to calculate the local
deposit base, in the denominator.843 The
agencies requested feedback on using
alternative sets of deposits data than
proposed, based on bank asset size, to
construct the bank volume metric.
Comments Received
Numerator. Some commenters offered
suggestions and requested clarification
regarding the numerator of the proposed
bank volume metric. A commenter
indicated that the numerator should
include personal loans, credit card
loans, and other non-automobile
consumer loans, while another
commenter similarly expressed the view
that the bank volume metric numerator
should include personal loans, because
some small business owners,
particularly self-employed individuals,
often use personal loans for commercial
purposes.
Another commenter indicated that the
agencies needed to clarify whether loan
renewals would be considered in the
bank volume metric numerator,
proposed appendix A, section I.
id.
842 See proposed § ll.42(a)(7) and (b)(5); see
also proposed § ll.12 (defining ‘‘small bank,’’
‘‘intermediate bank,’’ and ‘‘large bank’’). For further
discussion of the final rule on deposits and deposits
data collection, maintenance, and reporting, see the
section-by-section analyses of final §§ ll.12
(‘‘deposits’’ and ‘‘deposit location’’) and
ll.42(a)(7) (deposits data collection and
maintenance) and (b)(3) (deposits data reporting).
843 See proposed appendix A, section I.
asserting that the exclusion of loan
renewals could adversely affect banks’
performance under the Retail Lending
Test (as well as under the Community
Development Financing Test). Other
commenters asserted that the proposal
was unclear as to whether loans
originated and sold before year-end
would be included in the numerator,
with a commenter specifically
emphasizing a lack of clarity in the
proposed numerator’s description (‘‘the
annual average of the year-end total
dollar amount of the bank’s originated
and purchased . . . loans’’).
A commenter expressed concern that
banks whose core retail lending
businesses are excluded from the
numerator of the bank volume metric
may not meet the Retail Lending
Volume Threshold as proposed.844
Another commenter asserted that
calculating the bank volume metric
using dollar amounts would negatively
affect small business lending, which the
commenter stated represents only a
small portion of overall retail lending,
on a dollar amount basis, for some
banks.
Denominator. Regarding the
denominator for the proposed bank
volume metric, a few commenters
indicated that a bank’s deposit base was
not an appropriate measure of a bank’s
capacity and obligation to conduct retail
lending.845
Some other commenters supported
requiring large banks of all sizes to
collect and maintain deposits data,
including for calculating the bank
volume metric, with one commenter
expressly supporting this requirement
for intermediate banks as well. Another
commenter asserted that applying the
deposits data collection and reporting
requirements to all large banks would
improve the accuracy of the bank
volume metric because, as proposed, the
metric mixed bank-collected data with
the FDIC’s Summary of Deposits data
that is less accurate in capturing
depositor location.
A commenter expressed concern that
the proposal to give large banks with
assets of $10 billion or less the option
of separately collecting and maintaining
deposits data would result in banks in
predominantly rural communities
feeling compelled to collect and
840 See
ddrumheller on DSK120RN23PROD with RULES2
841 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
844 As discussed in the section-by-section analysis
of final § ll.22(d), the agencies proposed to
consider home mortgage loans, multifamily loans,
small business loans, small farm loans, and
automobile loans under the proposed Retail
Lending Test.
845 See the section-by-section analyses of final
§§ ll.12 (‘‘deposits’’) and ll.42(a)(7) and (b)(3),
for an overview of deposits considerations in
general and deposits data collection, maintenance,
and reporting considerations in particular.
PO 00000
Frm 00234
Fmt 4701
Sfmt 4700
maintain deposits data despite relatively
limited resources. This commenter
believed that collecting and maintaining
deposits data might represent the only
way that these banks might be able to
pass the retail lending volume screen, as
otherwise they might be adversely
impacted by their relatively low retail
lending volume when compared to their
deposit volume in a facility-based
assessment area based on the FDIC’s
Summary of Deposits data.
Some commenters suggested
alternative ways to compute bank
deposits (for large banks reporting
deposits, as opposed to banks for which
the FDIC’s Summary of Deposits data
would be used). A number of these
commenters argued for removing
corporate deposits from the bank
volume metric based on their view that
including corporate deposits could
unfavorably skew a bank’s performance
on the retail lending volume screen,
making it more difficult for a bank to
pass the screen in the corresponding
facility-based assessment area. These
commenters pointed to various reasons
to exclude corporate deposits, including
that they can be large and fluctuate
unpredictably and are typically
centralized in a single branch location,
as well as that commercial lending to
larger entities would not be included in
the numerator. Other commenters also
suggested that including corporate
deposits could lead to additional CRA
hot spots in, or banks otherwise
diverting lending to, urban areas at the
expense of rural and suburban areas,
because banks would endeavor to
increase retail lending in these urban
areas (where they have more deposits)
to avoid failing the screen.
Some commenters made similar
arguments for excluding government
deposits from the proposed bank
volume metric denominator. A
commenter recommended that the
agencies include bank deposits from
domestic limited liability companies
and trusts in a bank’s bank volume
metrics, noting that these are domestic
deposits in substance and thus
appropriately considered as part of a
CRA metrics framework. A commenter
noted that health savings account
deposits that lack depositor location
should be excluded from the bank
volume metric and other relevant
metrics.
Final Rule
Final § ll.22(c)(1) and paragraph I.a
of final appendix A adopt the proposal
to employ a Bank Volume Metric as the
measure of how much of a bank’s local
capacity has been oriented toward retail
lending. In light of comments received
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
and based on further deliberations, the
agencies are making substantive,
technical, conforming, and clarifying
edits in the final rule to increase clarity
and consistency when calculating the
Bank Volume Metric.
Numerator. As provided in paragraph
I.a.1 of final appendix A, the numerator
of the Bank Volume Metric will be the
sum of the annual dollar volume of a
bank’s originations and purchases of all
volume metric loans for the facilitybased assessment area over the years in
the evaluation period. The bank’s
annual dollar volume of volume metric
loans is the total dollar volume of all
home mortgage loans, multifamily
loans, small business loans, small farm
loans,846 and automobile loans (for
banks for which automobile lending is
a product line) originated or purchased
by the bank in the facility-based
assessment area in that year. The
agencies are finalizing a calculation
based on the sum of the annual dollar
volume of lending over the years in the
evaluation period, rather than an annual
average of the year-end dollar total
amount as proposed, to reduce
complexity in the calculation of the
Bank Volume Metric by reducing the
number of steps required without
affecting the result of the calculations.
The use of the term volume metric loans
is intended to increase clarity.
The numerator of the Bank Volume
Metric is based on the dollar volume of
a bank’s lending instead of the number
of loans (as is the numerator of the
Market Volume Benchmark). The
agencies understand commenter
concerns about the potential for a bank
that makes a high volume of smalldollar loans and few or no larger dollar
loans to have a relatively low Bank
Volume Metric. For this reason, as
discussed in further detail below, the
agencies selected a Retail Lending
Volume Threshold level that is
significantly below the Market Volume
Benchmark (specifically, 30 percent of
the Market Volume Benchmark). In
addition, the agencies note that the
acceptable basis factors would include
consideration of a bank’s business
model, such as a bank’s specialization
846 The transition amendments included in this
final rule will, once effective, amend the definitions
of ‘‘small business’’ and ‘‘small farm’’ to instead
cross-reference to the definition of ‘‘small business’’
in the CFPB Section 1071 Final Rule. This will
allow the CRA regulatory definitions to adjust if the
CFPB increases the threshold in the CFPB Section
1071 Final Rule definition of ‘‘small business.’’ This
is consistent with the agencies’ intent articulated in
the preamble to the proposal and elsewhere in this
final rule to conform these definitions with the
definition in the CFPB Section 1071 Final Rule. The
agencies will provide the effective date of these
transition amendments in the Federal Register after
section 1071 data is available.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
in small-dollar lending. In light of these
considerations, the agencies believe that
lending volume metrics comparing both
loans and deposits in terms of dollars is
an effective and appropriate measure of
how fully a bank has utilized its lending
capacity, and is also consistent with the
CRA’s emphasis on banks reinvesting
their deposits back into their
communities.
With respect to commenter sentiment
indicating that the proposal was unclear
as to whether loans originated and sold
before year-end would be included in
the numerator, the agencies are
clarifying that the dollar volume of a
bank’s originations and purchases of all
volume metric loans for the facilitybased assessment area in any year of the
evaluation period may be included in
the Bank Volume Metric, even those
loans that are subsequently sold. The
agencies believe that this approach will
appropriately give positive
consideration to loan originations made
through a variety of bank business
models, including banks that sell
originated loans on the secondary
market to increase liquidity, which can
increase a bank’s capacity to lend and
further meet the credit needs of the
community.
Once the agencies have transitioned
to using section 1071 data, as discussed
in the section-by-section analyses of
final §§ ll.12 and ll.51, the
numerator will include purchased small
business loans and small farm loans
only at the bank’s option (because
section 1071 data does not include loan
purchases). Specifically, a bank may opt
to have the agencies include in its Bank
Volume Metric numerator purchases of
loans that meet the definition of a
‘‘covered credit transaction’’ under the
CFPB Section 1071 Final Rule. The
agencies believe that the inclusion of
purchased small business loans and
small farm loans reflects the different
ways in which banks may meet the
credit needs of communities. Once the
agencies transition to using section 1071
data, the agencies have determined that
the inclusion of these loan purchases
should be optional to reduce data
collection and maintenance
requirements.
The agencies are also clarifying that,
consistent with the treatment of
reportable business loans pursuant to
the CFPB Section 1071 Final Rule, once
that data is used by the agencies, small
business loan renewals and small farm
loan renewals will be counted in the
Bank Volume Metric only if the renewal
increases the credit amount or credit
line amount.847 Generally, home
847 See
PO 00000
12 CFR 1002.103(a)(1).
Frm 00235
Fmt 4701
Sfmt 4700
6807
mortgage loan renewals are not
reportable pursuant to HMDA; 848
consistent with this standard, the
agencies will not include home
mortgage loan renewals in the Bank
Volume Metric.
In the final rule, automobile loans are
included in the bank’s annual dollar
amount of volume metric loans only if
automobile loans are a product line for
the bank (i.e., if the bank is a majority
automobile lender or opts to have its
automobile loans evaluated). For those
banks that collect and maintain
automobile lending data pursuant to
final § ll.42(a)(2), the numerator will
include the annual dollar amount of the
bank’s originated and purchased
automobile loans. The agencies
determined that automobile loans
should only be included in a bank’s
Bank Volume Metric for banks that have
their automobile lending evaluated as a
product line, in order to ensure a
comprehensive evaluation. As a result,
a bank that has automobile lending
considered as part of the Bank Volume
Metric would also have its automobile
lending evaluated under the distribution
analysis pursuant to final § ll.22(e)
and (f) if its automobile lending is a
major product line in one or more
facility-based assessment areas or its
outside retail lending area. The agencies
determined that an alternative approach
of considering automobile loans as part
of the Bank Volume Metric for a bank
that does not have automobile lending
as a product line would result in a less
comprehensive evaluation because the
bank would receive favorable
consideration for these loans in the
Bank Volume Metric without any
evaluation of the distribution of those
loans to low- and moderate-income
borrowers or in low- and moderateincome census tracts.
As in the proposal, the numerator of
the Bank Volume Metric does not
include non-automobile consumer
loans. This decision reflects the lack of
non-automobile consumer lending data
and is also intended to align the Bank
Volume Metric’s numerator with the
final rule’s treatment of non-automobile
consumer loans—namely, that they will
not be evaluated as a product line under
the Retail Lending Test, but will be
considered pursuant to the Retail
Services and Products Test. This aspect
of the final rule is discussed in more
detail in the section-by-section analyses
of final §§ ll.22(d) and ll.23. To the
extent that commenters expressed
concerns that not including nonautomobile consumer lending in the
848 See 12 CFR 1003.2 and supplement I to part
1003, comment 2(o)–2.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6808
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
numerator of the Bank Volume Metric
would disadvantage banks, the agencies
note that they will apply the acceptable
basis factors in final § ll.22(c)(3)(i), as
discussed below, as part of the
operation of the Retail Lending Volume
Screen for banks that do not meet the
Retail Lending Volume Threshold.
Specifically, pursuant to final
§ ll.22(c)(3)(i)(A), the agencies will
take into account a bank’s dollar volume
of non-automobile consumer loans.
Denominator. The agencies are also
making substantive, technical, and
clarifying edits in the final rule
regarding calculating the denominator
of the Bank Volume Metric. As provided
in paragraph I.a.2 of final appendix A,
the denominator of the Bank Volume
Metric will be the sum of a bank’s
annual dollar volume of deposits from
that facility-based assessment area over
the years in the evaluation period. The
agencies are making revisions that
clarify that a bank’s annual dollar
volume of deposits is: for a bank that
reports deposits data pursuant to final
§ ll.42(b)(3), the total of annual
average daily balances of deposits
reported by the bank in counties in the
facility-based assessment area in that
year; and, for all other banks, the total
of deposits assigned to branches
reported by the bank in the FDIC’s
Summary of Deposits data in counties in
the facility-based assessment area in
that year. The agencies are finalizing a
calculation based on the sum of the
annual dollar volume of deposits over
the years in the evaluation period,
rather than an annual average as
proposed, to reduce complexity in the
calculation of the Bank Volume Metric
by reducing the number of steps
required without affecting the result of
the calculations.
Pursuant to final § ll.42(a)(7) and
(b)(3), collecting, maintaining, and
reporting deposits data will be required
for large banks with assets greater than
$10 billion. Deposits data collection and
maintenance will be optional for large
banks with assets less than or equal to
$10 billion, intermediate banks, and
small banks that opt into the Retail
Lending Test. Should a bank with assets
less than or equal to $10 billion elect to
collect and maintain deposits data
pursuant to final § ll.42(a)(7), the
bank will be required to report deposits
data pursuant to final § ll.42(b)(3).
The agencies have considered
comments recommending that they
modify their proposal to require large
banks with assets greater than $10
billion to collect, maintain, and report
deposits data and to allow large banks
with assets less than or equal to $10
billion the option to collect and
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
maintain this data. The agencies are
finalizing this element of the Retail
Lending Volume Screen as proposed, to
appropriately balance the trade-off
between maximizing the accuracy of the
screen and corresponding data burden.
Deposits data that are collected and
reported pursuant to final § ll.42(b)(3)
will facilitate metrics that accurately
reflect a bank’s deposits inside and
outside of its facility-based assessment
areas. By contrast, the FDIC’s Summary
of Deposits data necessarily assigns all
deposits to bank branch locations and
does not identify the amount or
percentage of deposits sourced from
outside of a bank’s facility-based
assessment areas. As a result, a bank
with assets less than or equal to $10
billion that sources deposits from
outside of its facility-based assessment
areas that elects to collect, maintain,
and report deposits data could
meaningfully increase its Bank Volume
Metric in a facility-based assessment
area by decreasing the dollar amount of
deposits included in the denominator of
the metric. Conversely, electing not to
collect and maintain deposits for such a
bank may result in a lower Bank
Volume Metric, because deposits
sourced from outside of the facilitybased assessment area would then be
included in the denominator of the
metric.
Regarding comments that requiring all
intermediate banks, and large banks
with assets less than or equal to $10
billion, to report deposits data would
improve the accuracy and consistency
of the Bank Volume Metric, to balance
data collection burden the agencies
decline to require these banks to all
collect, maintain, and report deposits
data. The agencies again note, however,
that if a large bank with assets less than
or equal to $10 billion, intermediate
bank, or small bank that opts into the
Retail Lending Test wishes to use more
specific deposits data in the Retail
Lending Test, then the bank must
collect, maintain, and report this data.
With respect to comments
recommending using the FDIC’s
Summary of Deposits data across all
large banks to inform the Bank Volume
Metric, the agencies decline to adopt
this approach. The agencies considered
that although this alternative approach
would reduce data burden, the FDIC’s
Summary of Deposits data alone would
be less accurate in capturing the
location of depositors than the final
rule’s combination of bank-collected
deposits and the FDIC’s Summary of
Deposits data. As discussed below,
using the FDIC’s Summary of Deposits
data for all large banks would also result
in the inclusion of U.S. Government
PO 00000
Frm 00236
Fmt 4701
Sfmt 4700
deposits, state and local government
deposits, domestically held deposits of
foreign governments or official
institutions, or domestically held
deposits of foreign banks or other
foreign financial institutions in deposit
calculations for these banks. The
combination of these two factors, in
conjunction with the fact that large
banks with assets greater than $10
billion hold over 80 percent of all
deposits,849 would have a disruptive
impact on the functioning of the Retail
Lending Volume Screen, both with
regard to their own metrics and the
impact of their deposits on construction
of Market Volume Benchmarks.
The agencies have considered
comments recommending that, when
possible, government and foreign
deposits should be excluded from the
Bank Volume Metric. The agencies note
that the definition of ‘‘deposits’’ in
proposed § ll.12 specifically
excluded: U.S. Government deposits;
state and local government deposits;
domestically held deposits of foreign
governments or official institutions; or
domestically held deposits of foreign
banks or other foreign financial
institutions. Accordingly, under the
proposal, the denominator of the bank
volume metric did not include
government or foreign deposits for
banks with assets of greater than $10
billion. As described further in the
section-by-section analysis of final
§ ll.12, the final rule’s definition of
‘‘deposits’’ continues to exclude these
types of deposits. However, the agencies
are not excluding government and
foreign deposits from the Bank Volume
Metric for banks that do not collect and
report deposits data (i.e., banks that use
deposits reported under the FDIC’s
Summary of Deposits data). This is
because these government and foreign
deposits are included in the FDIC’s
Summary of Deposits data at the
aggregate (institution) level, without any
information regarding how government
and foreign deposits are distributed
across a bank’s individual branches or
across the counties where these
branches are located. This information
about how these deposits are distributed
would be necessary to accurately
remove the deposits from the facilitybased assessment areas for which Bank
Volume Metrics are calculated. The
agencies note that any bank that takes
the position that it might be materially
disadvantaged by the inclusion of these
government and foreign deposits may
choose to collect and report the more
849 See FDIC, ‘‘Summary of Deposits’’ (June 2020),
https://www7.fdic.gov/sod/sodMarketBank.
asp?barItem=2.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
limited set of deposits data for use in
the Retail Lending Volume Screen and
elsewhere in the CRA regulations.
The agencies are not excluding
corporate deposits, health savings
account deposits, and trust deposits
from the Bank Volume Metric. The
agencies find that in cases where large
corporate or health savings account
deposits or government or foreign
deposits unfavorably skew a bank’s
performance on the Retail Lending
Volume Screen, examiners could
consider this factor as an acceptable
basis pursuant to final
§ ll.22(c)(3)(i)(E) and (F) for a bank
not meeting the Retail Lending Volume
Threshold in a facility-based assessment
area.
ddrumheller on DSK120RN23PROD with RULES2
Market Volume Benchmark
The Agencies’ Proposal
To assess the level of a bank’s retail
lending volume relative to local
opportunities in a facility-based
assessment area, the agencies proposed
to compare the bank volume metric to
a ‘‘market volume benchmark.’’ 850 As
provided in paragraph I.2 of proposed
appendix A, the market volume
benchmark would have been comprised
of the annual average of the year-end
total dollar amount of automobile loan,
closed-end home mortgage loan, openend home mortgage loan, multifamily
loan, small business loan, and small
farm loan originations in the facilitybased assessment area by all large banks
that operated a branch in counties
wholly or partially within the facilitybased assessment area, in the
numerator, divided by the annual
average amount of deposits collected by
those same banks from that facilitybased assessment area, in the
denominator.851 The dollars of deposits
in the denominator would have been
based on: the annual average of deposits
in counties in the facility-based
assessment area reported by all large
banks with assets greater than $10
billion that operate a branch in the
assessment area in the years of the
evaluation period during which they
operated a branch at the end of the year;
and the annual average of deposits
assigned to branches in the facilitybased assessment area by all large banks
with assets less than or equal to $10
billion, according to the FDIC’s
Summary of Deposits data, over the
evaluation period.852
The agencies requested feedback on
using alternative sets of deposits data
proposed § ll.22(c)(3) and proposed
appendix A, paragraphs I.2 and I.3.
851 See proposed appendix A, paragraph I.2.
852 See id.
850 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
than proposed, based on bank asset size,
to construct the market volume
benchmark.
Comments Received
Some commenters expressed concerns
that the market volume benchmark
would be based on the lending and
deposits of a limited subset of banks—
large banks with branches in the
relevant facility-based assessment
area—rather than the total number of
banks active in a facility-based
assessment area.853 In this regard, one
commenter asserted that setting the
market volume benchmark based on a
subset of market participants would
make the market volume benchmark
susceptible to collusion, and indicated
that the agencies would need to guard
against such market manipulation.
Other commenters contended that the
market volume benchmark, as proposed,
would fail to provide banks or other
stakeholders with appropriate notice
regarding performance expectations.
Some of these commenters expressed
concerns that banks would not have the
ability to adjust performance during an
evaluation period, because the
benchmark would be unknown until
their evaluation periods have ended and
their CRA examinations have started.
Commenters also raised concerns that
the market volume benchmark would
not sufficiently capture unique
characteristics of a given market. For
example, some commenters asserted
that, in areas with one or a few
dominant lenders, other lenders would
be disadvantaged in meeting the
proposed Retail Lending Volume
Threshold, while another commenter
suggested that the market volume
benchmark should account for market
loan demand.
Final Rule
In final § ll.22(c)(1) and section I.b
of final appendix A, the agencies are
making clarifying, technical, and
substantive edits to the proposal to use
a Market Volume Benchmark, to
increase clarity, consistency, and
readability.
Numerator. As provided in paragraph
I.b.1 of final appendix A, the numerator
of the Market Volume Benchmark will
be the annual dollar volume of volume
benchmark loans originated in the
facility-based assessment area and
reported by benchmark banks, over the
853 See the section-by-section analyses of
§§ ll.12 (‘‘deposits’’) and ll.42(a)(7) and (b)(3)
for an overview of deposits considerations in
general and deposits data collection, maintenance,
and reporting considerations in particular.
PO 00000
Frm 00237
Fmt 4701
Sfmt 4700
6809
years in the evaluation period.854
Volume benchmark loans are the total
dollar volume of all closed-end home
mortgage loans, open-end home
mortgage loans, multifamily loans, small
business loans, and small farm loans
originated in the facility-based
assessment area in that calendar year
that are reported loans originated by
benchmark banks. A benchmark bank
for a particular year is a bank that, in
that year, was subject to reporting
pursuant to final § ll.42(b)(1), 12 CFR
part 1003, or both, and operated a
facility included in the FDIC’s Summary
of Deposits data in the facility-based
assessment area. In contrast to the
proposed approach, benchmark banks
under the final rule will include small
banks, intermediate banks, and large
banks that report loan data.
The agencies believe that this
approach will increase the amount of
data included in the Market Volume
Benchmark and will result in a more
robust and representative benchmark,
without any increase in data burden or
complexity, since there are no
additional data requirements associated
with this change. The use of the sum of
the dollar volume rather than annual
average of the year-end total dollar
amount, as provided in the proposal,
and the focus on banks that operated a
facility included in the FDIC’s Summary
of Deposits data during a calendar year,
rather than banks that operated a branch
at year-end of a calendar year, represent
changes from the proposal intended to
increase clarity and reduce complexity
in the calculation of the Market Volume
Benchmark. The use of the terms
benchmark bank and volume
benchmark loans is intended to increase
clarity.
The agencies are also specifying that
the numerator of the Market Volume
Benchmark is comprised of reported
loan originations, and not all
originations as proposed. The agencies
are making this change to ensure the
operability of the metrics-based
approach, because data on loan
originations that are not reported would
not be available to include in the
calculation of the benchmark.
Accordingly, automobile loan
originations would not be included. The
agencies have determined that this
approach appropriately balances the
trade-off between, on the one hand,
including automobile loans in this
benchmark to support a more
comprehensive analysis that accounts
for different bank business models and
854 For a discussion of the exclusion of purchased
loans from market benchmarks, see the section-bysection analysis of final § ll.22(e).
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6810
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
strategies and, on the other hand,
limiting the data collection,
maintenance, and reporting
requirements for automobile lending
data.
The agencies have determined that
including the activity of reporting small
banks and intermediate banks, and not
just large banks as proposed, in the
Market Volume Benchmark numerator
will make the Market Volume
Benchmark more reflective of the
aggregate lending activity of the facilitybased assessment area. As noted earlier,
this only applies to small banks and
intermediate banks that already reported
data pursuant to CRA small business
loan or small farm loan reporting
requirements (or section 1071 data once
the transition provisions discussed in
the section-by-section analysis of
§ ll.51 take effect) or HMDA reporting
requirements, and as a result this
approach does not add any new data
reporting requirements to these
institutions.
Denominator. As described in
paragraph I.b.2 of final appendix A, the
denominator of the Market Volume
Benchmark will be the sum over the
years in the evaluation period of the
annual dollar volume of deposits for
benchmark banks. The annual dollar
volume of deposits for benchmark banks
is the sum across benchmark banks of:
(1) the total of annual average daily
balances of deposits reported by banks
that report deposits data pursuant to
final § ll.42(b)(3) in counties in the
facility-based assessment area in that
year; and (2) the total of deposits
assigned to branches reported by banks
in the FDIC’s Summary of Deposits data
in counties in the facility-based
assessment area in that year for
benchmark banks that do not report
deposits data pursuant to final
§ ll.42(b)(3). As above, the agencies
are finalizing a calculation based on the
sum of the annual dollar volume of
deposits over the years in the evaluation
period, rather than an annual average as
proposed, and with a focus on banks
that operated a facility included in the
FDIC’s Summary of Deposits data
during a calendar year, rather than
banks that operated a branch at year-end
of a calendar year as proposed, to
increase clarity and to reduce
complexity in the calculation of the
Market Volume Benchmark, including
because it would be difficult to
determine based upon available data
whether a branch was in operation at
year-end. Furthermore, as noted above,
the agencies have considered the
comments that the proposed benchmark
was limited by only including large
bank data and that they should consider
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
the lending and deposits data of a larger
universe of banks.
The agencies acknowledge trade-offs
in this adopted approach for
establishing the denominator of the
Market Volume Benchmark using both
reported deposits data and the FDIC’s
Summary of Deposits data instead of
requiring deposits data to be reported by
all banks. The agencies believe,
however, that the approach
incorporated in the final rule strikes an
appropriate balance between the
additional precision provided by
deposits data reporting relative to the
FDIC’s Summary of Deposits data and
data reporting burden. The combination
of reported deposits data and the FDIC’s
Summary of Deposits data will provide
for the construction of more
comprehensive and beneficial aggregate
deposits data against which to measure
bank performance.
The agencies have also considered
comments that the Market Volume
Benchmark, as proposed, would not
provide banks with adequate notice
regarding performance expectations,
and that banks would not know the
precise Market Volume Benchmark in
advance of an evaluation period. The
agencies believe that it is important that
the Market Volume Benchmark reflect
the level of retail credit needs and
opportunities in the facility-based
assessment area during the bank’s
evaluation period. Employing
benchmarks that reflect the performance
context of a facility-based assessment
area further decreases the need to rely
on examiner discretion to interpret bank
retail lending performance. The
agencies determined that the final rule
approach will therefore result in greater
consistency and standardization
compared to an alternative approach in
which the Market Volume Benchmark is
calculated using years of data prior to
the bank’s evaluation period.
Conversely, the agencies considered that
under such an alternative, the
benchmarks may not reflect the needs
and opportunities of the facility-based
assessment area and would not align
with the years of data used to calculate
the bank’s Bank Volume Metric. The
agencies note that Market Volume
Benchmarks for facility-based
assessment areas will be published in
performance evaluations or through
other means, such as data tools, to
provide a historical guideline for retail
lending activity.
In addition, the agencies note that
under the final rule approach, the
agencies would not automatically assign
a ‘‘Needs to Improve’’ or ‘‘Substantial
Noncompliance’’ conclusion for a bank
with a Bank Volume Metric below the
PO 00000
Frm 00238
Fmt 4701
Sfmt 4700
Retail Lending Volume Threshold;
instead, the final rule provides for an
evaluation of whether a bank has an
acceptable basis for not meeting the
threshold. The agencies note that the
acceptable basis factors, discussed
below, may address certain
circumstances that result in relatively
sudden changes in the Market Volume
Benchmark, which the agencies believe
may help to address the advance notice
concerns described by commenters. For
example, if a large competitor lender
enters into, or exits from, a bank’s
facility-based assessment area, resulting
in a significant change in the bank’s
lending opportunities or in the Market
Volume Benchmark, the agencies may
consider this circumstance as an
acceptable basis for not meeting the
Retail Lending Volume Screen pursuant
to final § ll.22(c)(3)(i)(C).
Retail Lending Volume Threshold
The Agencies’ Proposal
The agencies proposed that banks
would meet or surpass the retail lending
volume screen in a facility-based
assessment area with a bank volume
metric of 30 percent or more of the
market volume benchmark.855 The
agencies provided that, in the absence of
an acceptable basis for failing to meet
the Retail Lending Volume Threshold
pursuant to proposed § ll.22(c)(2)(iii),
banks that do not meet at least 30
percent of the market volume
benchmark are substantially
underperforming their peers in terms of
meeting the credit needs of their
communities.856 The agencies proposed
to set the threshold at a level that is well
below local averages so that banks with
various business strategies could meet
the threshold, including banks that
generally hold loans on their balance
sheet rather than selling loans on the
secondary market. This threshold was
also informed by agency analysis of
historical lending data. The agencies
also requested feedback on whether it
would be appropriate for banks with
retail lending volume performance that
falls below a threshold lower than the
proposed 30 percent threshold—such as
a 15 percent threshold—to receive a
Retail Lending Test recommended
conclusion of ‘‘Substantial
Noncompliance’’ in that facility-based
assessment area.
Comments Received
Many commenters supported a Retail
Lending Volume Threshold of at least
30 percent, with several advocating for
855 See proposed § ll.22(c)(3) and paragraph
proposed appendix A, paragraph I.3.
856 See 87 FR 33884, 33935 (June 3, 2022).
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
certain adjustments. Some
recommended that the agencies should
adjust the threshold upward from 30
percent for underserved communities
identified through statistical or other
methods, with several commenters
recommending that the proposed 30
percent threshold should be raised to at
least 50 percent to more effectively
ensure that banks are deploying their
deposits. One of these commenters
indicated that a threshold of 60 percent
or 70 percent would be feasible and
would help to prevent deposit
harvesting and redlining. A number of
commenters jointly stated their view
that the 30 percent threshold would be
too low based on their comparison of
this threshold to the much higher
threshold for lending activity provided
in section 109, which requires interstate
banks to meet certain statewide (or other
jurisdiction) loan-to-deposit ratios with
respect to their operations outside of
their home states. Some commenters
stated that if the agencies establish a
retail lending volume screen, they
should incorporate the section 109
standards into CRA.
Other commenters generally opposed
the 30 percent threshold, indicating that
it was set too high. A few commenters
indicated that a 30 percent threshold
was unreasonable, particularly for banks
with substantial personal loan
originations. Another commenter noted
that it would be difficult for banks to
meet the 30 percent threshold in
facility-based assessment areas with
high market penetration and dominant
lenders. Relatedly, a commenter
recommended that the 30 percent
threshold be lowered in rural or
economically distressed assessment
areas with low loan demand.
Several commenters suggested
alternative threshold levels. For
example, a commenter suggested that
the agencies set two thresholds—30
percent and 15 percent—and provide
that no bank that surpassed the 15
percent threshold would receive a
‘‘Substantial Noncompliance’’
conclusion, with another commenter
suggesting somewhat more stringent
corresponding thresholds of 34 percent
and 17 percent of the market volume
benchmark. Another commenter
proposed that the agencies set ranges for
performance conclusions—for example,
30 percent would reflect ‘‘Low
Satisfactory’’ performance and 35
percent would reflect ‘‘Satisfactory’’
performance—with examiners having
the ability to adjust these results based
upon performance context. A
commenter also argued for separate
Retail Lending Volume Thresholds
based on bank size, with different
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
thresholds for large banks with $10
billion or less in assets and large banks
with over $10 billion in assets; this
commenter indicated that the largest
banks could unfavorably impact the
results of the retail lending volume
screen for other banks in urban areas
where they have high concentrations of
retail lending. Another commenter
expressed the view that a bank that
passes the screen in a facility-based
assessment area should receive a
presumption of at least ‘‘Satisfactory’’
Retail Lending Test performance in that
assessment area. A commenter indicated
that the proposed retail lending volume
screen was insufficient because it was
based on a bank’s loan-to-deposit ratio
benchmarked against other banks in the
same geographic area. The commenter
indicated that, consequently, banks
would all pass the screen if they
collectively reduced their lending
volume. Instead, this commenter
indicated, the agencies should base a
screen on the ‘‘loan price’’ of deposits—
for example, that a bank’s annual loan
origination value in a geography should
exceed 10 percent of its annual average
deposits.
Other commenters questioned
whether the proposed 30 percent
threshold was based on quantitative
analysis, and expressed concern that
neither banks nor other stakeholders
currently have access to market volume
benchmarks in order to self-assess how
they would perform pursuant to the
retail lending volume screen.
Final Rule
As provided in final § ll.22(c)(1)
and section I.c of final appendix A, the
agencies are finalizing their proposal
that banks will meet or surpass the
Retail Lending Volume Threshold in a
facility-based assessment area with a
Bank Volume Metric of 30 percent or
greater of the Market Volume
Benchmark. Pursuant to final
§ ll.22(c)(2), if a bank meets or
surpasses the applicable threshold the
agencies will develop a Retail Lending
Test recommended conclusion pursuant
to the distribution analysis in final
§ ll.22(d) through (f).
The agencies have considered
commenter suggestions for both a higher
or lower Retail Lending Volume
Threshold, as well as alternative
approaches for setting a threshold such
as basing it on the loan price of
deposits, and the reasons offered for
these suggestions. On balance, the
agencies believe that the final rule’s
threshold, set at 30 percent of the
Market Volume Benchmark, provides a
meaningful baseline measure of whether
a bank is meeting the credit needs of its
PO 00000
Frm 00239
Fmt 4701
Sfmt 4700
6811
community, while necessarily
accounting for the wide variety of bank
business strategies that exist today and
that will evolve in the future. The
agencies note that the 30 percent
threshold is set well below the Market
Volume Benchmark, which is the local
marketwide average loan-to-deposit
ratio. The agencies determined that by
setting a 30 percent threshold rather
than a threshold closer to the Market
Volume Benchmark, such as 50 percent
or 70 percent, banks with various
business strategies could reasonably be
expected to meet or surpass the
threshold.
In further considering an appropriate
threshold, the agencies conducted a
quantitative analysis of historical
lending data on approximately 6,600
intermediate bank and large bank
facility-based assessment areas from
2018–2020, summarized in Table 6. The
analysis showed that bank performance
in 96.4 percent of these facility-based
assessment areas would have met or
surpassed a 30 percent Retail Lending
Volume Threshold during this period.
Moreover, the same analysis showed
that the share of these banks’ facilitybased assessment areas that would meet
or surpass the threshold declines
materially as the threshold is increased
from 30 percent. For example, applying
a 50 percent threshold to this same data
results in 89.2 percent of these banks’
facility-based assessment areas meeting
or surpassing the threshold, and
applying a threshold of 70 percent of the
Market Volume Benchmark results in
79.8 percent of these banks’ facilitybased assessment areas meeting or
surpassing the threshold. The agencies
intend the Retail Lending Volume
Screen to identify only those situations
in which banks are far below average in
terms of their lending relative to
deposits in a facility-based assessment
area. The agencies believe that applying
a relatively narrow standard for
identifying such banks is more
consistent with current practice under
the lending test, which primarily bases
conclusions on the retail lending
distribution analysis. As discussed
earlier, the agencies believe that the
screen helps to supplement the
distribution analysis, and should not
itself be the primary basis for assigning
conclusions for the Retail Lending Test
for a substantial segment of banks
evaluated under this performance test.
Accordingly, the agencies believe that
the higher threshold alternatives
recommended by some commenters
would potentially overemphasize the
screen relative to the distribution
analysis.
E:\FR\FM\01FER2.SGM
01FER2
6812
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
By contrast, based on the same
quantitative analysis, the agencies
determined that decreasing the Retail
Lending Volume Threshold below 30
percent would further increase the
numbers of these banks’ facility-based
assessment areas that meet or surpass
the threshold. More specifically
regarding comments suggesting that the
threshold be set at or near 15 percent
(either as a stand-alone threshold or as
one threshold of a tiered threshold
approach), the agencies found that the
rate at which facility-based assessment
areas for banks included in the analysis
met or surpassed a threshold of least 15
percent was 98.8 percent (versus 96.4
percent for a 30 percent threshold, as
noted above).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
The agencies’ analysis of historical
data also suggests that facility-based
assessment areas of large banks
included in the analysis with assets less
than or equal to $10 billion are slightly
more likely to fall below the Retail
Lending Volume Threshold than those
of large banks included in the analysis
with assets greater than $10 billion. The
same analysis reflected that the facilitybased assessment areas of intermediate
banks included in the analysis were the
least likely to fall below the Retail
Lending Volume Threshold. At the final
rule threshold of 30 percent, historical
data suggests that approximately 2.4
percent of facility-based assessment
areas of intermediate banks included in
the analysis and 4.2 percent of facilitybased assessment areas of large banks
PO 00000
Frm 00240
Fmt 4701
Sfmt 4700
included in the analysis with assets less
than or equal to $10 billion would not
meet or surpass the Retail Lending
Volume Threshold. In contrast,
approximately 4.1 percent of facilitybased assessment areas of large banks
included in the analysis with assets of
$10 billion to $50 billion and 3.3
percent of facility-based assessment
areas of large banks included in the
analysis with assets greater than $50
billion would not meet or surpass the
Retail Lending Volume Threshold. The
agencies therefore believe that the 30
percent threshold is appropriate, and is
generally attainable, including for
intermediate banks and large banks of
all asset sizes.
BILLING CODE 4810–33–P;6714–01–P
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
6813
Table 6 to§ _.22(c)(l):
Share of Banks' Facility-Based Assessment Areas Not Meeting the Retail Lending
Volume Threshold Retail Lending Volume Threshold Scenarios
10%
15%
20%
30%
40%
50%
60%
70%
0.7
1
1.4
2.4
3.5
5.5
8.2
11.5
Large: 2B
to 10B
1.4
1.9
2.4
4.2
6.6
9.8
11.4
15.6
Large: 10B50B
0.6
1.4
1.9
4.1
7.2
11.8
16.9
21.2
Large:
>=50B
0.4
0.8
1.3
3.3
6.7
12.1
18.2
24.7
0.7
1.2
1.7
3.6
6.4
10.8
15.2
20.2
Bank size
category
Intermediate
All
Note: Table 6 shows the percent of bank-facility based assessment areas, by bank asset category, where the Bank
Volume Metric was below a range of hypothetical values of the Retail Lending Volume Threshold. This analysis is
calculated over the 2018-2020 period for a set of intermediate and large banks that were both CRA and HMDA
reporters. Bank asset size was determined using 2019 and 2020 year-end asset data. Wholesale banks, limited
purpose banks, strategic plan banks, and banks that do not have at least one facility-based assessment area in a U.S.
State or the District of Columbia were excluded from the analysis. Facility-based assessment areas that were not
delineated in 2020 were also excluded. The analysis uses home mortgage, small business, small farm, and deposits
ddrumheller on DSK120RN23PROD with RULES2
BILLING CODE 4810–33–C;6714–01–C
In considering commenter feedback,
the agencies have also reevaluated
whether a 30 percent Retail Lending
Volume Threshold accomplishes the
policy objective of identifying banks for
which retail lending is extraordinarily
low, such that additional qualitative
analysis of these banks’ loans is
warranted. In this regard, the agencies’
quantitative analysis supports a
conclusion that the 30 percent threshold
establishes a material distinction
between banks that meet or surpass this
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
threshold and banks that do not.
Specifically, the agencies’ analysis
showed that the median Bank Volume
Metric of 15 percent for facility-based
assessment areas of banks included in
the analysis meeting or surpassing a 30
percent threshold was more than seven
times greater than the median Bank
Volume Metric of 2 percent for facilitybased assessment areas of banks
included in the analysis that would not
have met the threshold, as a result
indicating that banks that do not meet
the threshold generally exhibit very low
PO 00000
Frm 00241
Fmt 4701
Sfmt 4700
levels of retail lending relative to
deposits. Barring information
considered pursuant to the final rule in
determining whether the bank has an
acceptable basis in not meeting the
threshold, banks that do not meet a
Retail Lending Volume Threshold set at
30 percent or greater of the Market
Volume Benchmark are substantially
underperforming their peers in terms of
meeting the credit needs of their
communities.
The agencies have also reevaluated
the analysis included in the proposal
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.005
data from the CRA Analytics Data Tables.
6814
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
that used historical data to compare the
actual assessment area conclusions
received by banks on the current
lending test with how those banks
would have performed if they were
evaluated under the Retail Lending
Volume Screen at different threshold
levels, including the proposed level of
30 percent of the Market Volume
Benchmark. This updated analysis
includes additional historical
performance evaluation data compiled
by the agencies. The agencies’ updated
analysis found that a 30 percent
threshold is associated with a
significant distinction between bank
assessment areas that received
‘‘Satisfactory’’ conclusions and bank
assessment areas that received ‘‘Needs
to Improve’’ conclusions on prior
evaluations under the current lending
test.857 Some threshold levels greater
than 30 percent were associated with an
even greater distinction between bank
conclusion categories on past
examinations under the current Lending
Test. However, for the reasons described
above, the agencies have concluded that
it is appropriate to retain the proposed
level of 30 percent, rather than increase
the threshold level. Additionally, the
agencies believe that retaining the
proposed level of 30 percent will
account for banks that are adequately
meeting the credit needs of their
communities but that have a business
model or strategy that results in a lowerthan-average loan-to-deposit ratio. The
agencies continue to believe that setting
the Retail Lending Volume Threshold at
30 percent is both appropriate and
provides a meaningful baseline measure
for identifying banks whose retail
lending volume in a facility-based
assessment area is extraordinarily low.
The agencies will apply the Retail
Lending Volume Screen to all banks
evaluated in facility-based assessment
areas under the Retail Lending Test,
including banks with different business
strategies; as a result, as commenters
noted, some banks may perform
differently on the screen relative to
others. However, as discussed above,
the Retail Lending Volume Threshold is
set so as to ensure that meeting the
threshold will be reasonably achievable
for banks with a range of business
strategies. The screen is intended to
identify those facility-based assessment
857 The agencies found that, when replicating the
analysis included in the proposal using the same
historical performance evaluation data that was
available at the time of the original analysis, the
distinction at the 30 percent threshold level was
slightly lower than the distinction at other, higher
threshold levels. Nevertheless, the distinction in
passing rates at the 30 percent threshold level was
significant.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
areas where a bank may be lending
significantly below, rather than
moderately or slightly below, its
presence and capacity.
Although the 30 percent Retail
Lending Volume Threshold is designed
to account for a wide range of bank
business strategies, the agencies are
sensitive to concerns raised by
commenters that some banks might have
difficulty meeting the 30 percent
threshold, particularly in facility-based
assessment areas with high market
penetration and dominant lenders. The
agencies have considered commenter
feedback that market circumstances
particular to rural or economically
distressed assessment areas with low
retail loan demand could affect a bank’s
ability to meet the 30 percent threshold.
For these reasons, the agencies are
finalizing an approach whereby
examiners will determine whether a
bank has an acceptable basis for not
meeting the threshold, by considering
specified acceptable basis factors as
provided in final § ll.22(c)(3)(i). This
aspect of the Retail Lending Volume
Screen is discussed in greater detail
below.
The agencies have considered, but
decline to adopt, suggestions that large
banks should receive a Retail Lending
Test conclusion of ‘‘Substantial
Noncompliance’’ for performance below
the 30 percent threshold in a facilitybased assessment area as well as,
conversely, suggestions that a large bank
with performance above the 30 percent
threshold should receive a presumption
of a ‘‘Satisfactory’’ conclusion or should
never receive a ‘‘Substantial
Noncompliance’’ conclusion, in a
facility-based assessment area. The
agencies have determined that it is
preferable to retain discretion to assign
a conclusion based on a range of factors
relevant to a bank’s retail lending
performance. As discussed above, the
agencies expect banks to demonstrate a
baseline level of lending relative to their
presence and capacity, which the
agencies believe is reasonably
demonstrated by meeting or surpassing
the 30 percent threshold. Additionally,
as explained earlier, the agencies
believe that a holistic evaluation of
whether a bank is meeting the credit
needs of its facility-based assessment
areas should generally include
consideration of a bank’s lending
volume relative to presence and
capacity and the distribution of its
loans. For example, the agencies believe
that a ‘‘Substantial Noncompliance’’
conclusion could be warranted for a
bank that meets or surpasses the Retail
Lending Volume Threshold, but has
substantial deficiencies in its loan
PO 00000
Frm 00242
Fmt 4701
Sfmt 4700
distribution performance in the facilitybased assessment area pursuant to final
§ ll.22(d) through (f).
The agencies believe that large banks
that do not meet the Retail Lending
Volume Threshold and lack an
acceptable basis for this should receive
a final Retail Lending Test conclusion
not exceeding ‘‘Needs to Improve’’ in a
facility-based assessment area. However,
the agencies believe that either a
‘‘Substantial Noncompliance’’ or
‘‘Needs to Improve’’ conclusion could
be appropriate. Specifically, which of
these two conclusions a large bank
receives for a facility-based assessment
area will be determined as provided in
final § ll.22(c)(3)(iii)(A), as discussed
below.
The agencies also considered
comments that the Retail Lending
Volume Screen would allow all banks to
pass if they collectively reduced their
lending volume because of the use of
the market benchmark and an
alternative approach, suggested by a
commenter, to set a threshold based on
a fixed number rather than a market
benchmark. The agencies believe that
the Market Volume Benchmark coupled
with the applicable threshold reflects
the credit needs and opportunities of an
area, in contrast to a fixed performance
standard, such as an expectation that
the Bank Volume Metric always exceed
10 percent in every facility-based
assessment area, as suggested by the
commenter. However, the agencies
acknowledge that the Market Volume
Benchmark and Retail Lending Volume
Threshold would both adjust downward
in the event that all banks in a facilitybased assessment area reduced their
lending volume relative to deposits. The
agencies note that the additional factor
provided in final § ll.22(g)(7) allows
the agencies to take into account
‘‘information indicating that the credit
needs of the facility-based assessment
area or retail lending assessment area
are not being met by lenders in the
aggregate, such that the relevant
benchmarks do not adequately reflect
community credit needs.’’ This could
include circumstances in which all
banks in a facility-based assessment area
have significantly reduced their lending
levels such that the Market Volume
Benchmark does not reflect community
credit needs. In addition, the agencies
intend to continue to monitor this issue
and would consider appropriate steps to
take if this emerged as an issue
warranting further consideration.
The agencies also considered
comments that neither banks nor other
stakeholders currently have access to
benchmarks in order to self-assess how
they would perform pursuant to the
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Retail Lending Volume Screen. The
agencies intend to create data tools that
would provide information such as
estimates of the Market Volume
Benchmark in different geographic areas
based on recent data. Initially, prior to
the availability of reported deposits
data, the agencies would estimate these
benchmarks using the FDIC’s Summary
of Deposits data.
Finally, the agencies have considered
comments that section 109 standards be
used in lieu of the Retail Lending
Volume Screen or that the threshold for
the screen should be based on loan-todeposit ratios used under section 109.
Upon consideration of the comments,
the agencies have determined that
importation of, or reliance on, section
109 standards would not effectuate the
same evaluation that the screen is
designed to further as part of the Retail
Lending Test. As discussed above,
Congress enacted section 109 to serve a
specific purpose—namely, to prohibit
interstate banks from acquiring or
establishing a branch outside of their
home state (or other jurisdiction)
primarily for the purpose of deposit
production, which is distinct from the
agencies’ CRA evaluations to assess
whether a bank is meeting the credit
needs of its entire community. In
addition, as discussed earlier, the
specified calculations used to derive the
loan-to-deposit ratios pursuant to
section 109 do not align with the
specific approach adopted in the final
rule for measuring a bank’s volume of
retail lending in a facility-based
assessment area against its capacity to
lend in that facility-based assessment
area. For example, section 109 standards
do not apply to a bank in its home state,
are geographically limited in how they
are calculated to the host state level, and
do not incorporate non-host state banks
in their benchmark calculations. As
discussed above, section 109 has a
specific focus on ensuring that a bank’s
interstate branches do not take deposits
from a host state (or other host
jurisdiction) without the bank
reasonably helping to meet the credit
needs of that host state.
ddrumheller on DSK120RN23PROD with RULES2
Section ll.22(c)(2) Banks That Meet
or Surpass the Retail Lending Volume
Threshold in a Facility-Based
Assessment Area
The Agencies’ Proposal
The agencies proposed to evaluate a
bank’s major product lines pursuant to
the distribution metrics approach, if the
bank met or surpassed the Retail
Lending Volume Threshold.858 The
bank would then be eligible for any
Retail Lending Test recommended
conclusion in that facility-based
assessment area.
Comments Received
The agencies did not receive any
comments that were directly responsive
to this component of the proposal.
Final Rule
As provided in final § ll.22(c)(2),
the agencies are finalizing the proposal
that, for a bank that meets or surpasses
the Retail Lending Volume Threshold in
a facility-based assessment area, the
agencies will develop a Retail Lending
Test recommended conclusion for the
facility-based assessment area pursuant
to final § ll.22(d) through (f). The
bank will be eligible for any Retail
Lending Test recommended conclusion
in that facility-based assessment area.
Section ll.22(c)(3) Banks That Do Not
Meet the Retail Lending Volume
Threshold in a Facility-Based
Assessment Area
Section ll.22(c)(3)(i) Acceptable Basis
Factors
The Agencies’ Proposal
The agencies proposed that if the
bank volume metric for a particular
bank was less than 30 percent of the
market volume benchmark in a facilitybased assessment area the agencies
would determine whether the bank had
an acceptable basis for not meeting the
30 percent threshold 859 by reviewing
qualitative factors that might have
affected the bank’s ability to lend in the
facility-based assessment area.860 The
proposal recognized that not all
performance context factors are
captured in the metrics and, as a result,
the agencies proposed specified
additional factors that might serve as an
acceptable basis for why a bank did not
meet the threshold. Specifically,
examiners would consider institutional
capacity and constraints—including the
financial condition of a bank, the
presence or lack thereof of other lenders
in the geographic area, safety and
soundness limitations, the bank’s
business strategy, and other factors that
limit the bank’s ability to lend in the
facility-based assessment area.861 If the
qualitative assessment concluded that
the bank had an acceptable basis for not
meeting the threshold, the agencies
would then evaluate the retail loan
distribution for each of the bank’s major
product lines.862
859 See
860 See
proposed § ll.22(c)(2)(i).
proposed § ll.22 (c)(2)(iii).
861 Id.
858 See
proposed § ll.22(c)(1).
VerDate Sep<11>2014
18:11 Jan 31, 2024
862 See
Jkt 262001
PO 00000
proposed § ll.22(c)(2)(i).
Frm 00243
Fmt 4701
Sfmt 4700
6815
If these qualitative factors did not
account for the bank’s insufficient
volume of bank retail lending in the
facility-based assessment area, the
agencies proposed to consider the bank
to not have an acceptable basis for
failing to meet the threshold.
Comments Received
The agencies received a few
comments on this component of the
proposal. Those commenters raised
concerns that the proposal lacked clarity
regarding how examiners would
consider the qualitative factors that the
agencies had proposed when
determining whether a bank had an
acceptable basis for failing the screen.
Final Rule
As provided in final § ll.22(c)(3)(i),
the agencies are adopting their proposal
that if a bank does not meet the Retail
Lending Volume Threshold in a facilitybased assessment area, the agencies will
determine whether the bank has an
acceptable basis for not meeting the
Retail Lending Volume Threshold by
considering specific qualitative factors.
Specifically, final § ll.22(c)(3)(i)
provides that the agency will consider:
the bank’s dollar volume of nonautomobile consumer loans; the bank’s
institutional capacity and constraints,
including the financial condition of the
bank; the presence or lack of other
lenders in the facility-based assessment
area; safety and soundness limitations;
the bank’s business strategy; and other
factors that limit the bank’s ability to
lend in the facility-based assessment
area.
Recognizing that not all relevant
performance context factors are
captured in the Retail Lending Volume
Screen, the agencies believe that this
qualitative review will allow examiners
to consider a bank’s performance on the
screen within the larger context of a
bank’s overall circumstances, which in
turn may reveal appropriate grounds for
why a bank’s retail lending volume was
otherwise insufficient relative to the
Retail Lending Volume Threshold.
The agencies have added to the final
rule’s list of acceptable basis factors
consideration of a bank’s dollar volume
of non-automobile consumer loans in
the facility-based assessment area. This
aspect of the final rule will allow the
agencies to account for instances in
which a bank has engaged in a
substantial amount of such unreported
lending (e.g., personal loans) that is not
otherwise considered under the Retail
Lending Test, but has very few, if any,
closed-end home mortgage loans, small
business loans, small farm loans, or
automobile loans.
E:\FR\FM\01FER2.SGM
01FER2
6816
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
With respect to commenter concerns
regarding clarity about application of
the acceptable basis factors, the agencies
intend to routinely consider these
qualitative factors in all instances where
a bank does not meet the threshold in
a facility-based assessment area. The
agencies’ consideration of acceptable
basis factors will necessarily be
situation-specific, with the objective in
each instance being that of determining
whether there were sufficient grounds to
explain the bank’s lack of lending
volume relative to the threshold.
Section ll.22(c)(3)(ii) Banks That
Have an Acceptable Basis for Not
Meeting the Retail Lending Volume
Threshold in a Facility-Based
Assessment Area
The Agencies’ Proposal
That agencies proposed that if they
determined that a bank had an
acceptable basis for not meeting the
Retail Lending Volume Threshold they
would then consider the distribution
metrics pursuant to proposed
§ ll.22(d) in order to assign a Retail
Lending Test recommended conclusion
and consider the additional factors
provided in proposed § ll.22(e) to
determine whether to adjust that
recommended conclusion.863 A bank
with an acceptable basis for not meeting
the threshold would be eligible for all
possible recommended conclusions:
‘‘Outstanding,’’ ‘‘High Satisfactory,’’
‘‘Low Satisfactory,’’ ‘‘Needs to
Improve,’’ and ‘‘Substantial
Noncompliance.’’ As discussed above,
this approach would allow examiners to
consider performance context factors
that may not necessarily be captured in
the metrics, such as institutional
capacity and constraints.
Comments Received
The agencies did not receive any
comments that were directly responsive
to this component of the proposal.
ddrumheller on DSK120RN23PROD with RULES2
Final Rule
The agencies are finalizing this
provision in final § ll.22(c)(3)(ii). The
final rule provision does not include
specific references to assignment and
adjustment of Retail Lending Test
recommended conclusions because this
is provided for in final § ll.22(f) and
(g).
Section ll.22(c)(3)(iii)(A) Banks That
Lack an Acceptable Basis for Not
Meeting the Retail Lending Volume
Threshold in a Facility-Based
Assessment Area—Large Banks
used as the default in the bank volume
metric calculations for intermediate
banks and small banks may not always
accurately reflect the location of
depositors.
Section ll.22(c)(3)(iii)(B) Banks That
Lack an Acceptable Basis for Not
Meeting the Retail Lending Volume
Threshold in a Facility-Based
Assessment Area—Intermediate Banks
or Small Banks
Comments Received
Some commenters supported the
agencies’ proposal that an intermediate
bank or a small bank that did not pass
the retail lending volume screen would
have the outcome reviewed as an
additional indicator of lending
performance when determining the
bank’s Retail Lending Test
recommended conclusion in the facilitybased assessment area. A few other
commenters asserted that the agencies
should extend this same treatment to
large banks that did not pass the screen.
The Agencies’ Proposal
The agencies proposed that if an
agency determined that a large bank did
not have an acceptable basis for failing
to meet the Retail Lending Volume
Threshold, the agency would assign the
bank a Retail Lending Test conclusion
in that facility-based assessment area of
either ‘‘Needs to Improve’’ or
‘‘Substantial Noncompliance’’ based on
three factors: (1) the bank’s retail
lending volume and the extent by which
it failed to meet the Retail Lending
Volume Threshold; (2) the bank’s retail
loan distribution for each major product
line pursuant to proposed § ll.22(d);
and (3) the additional factors provided
in proposed § ll.22(e).864
The agencies proposed for
intermediate banks, or small banks that
opt to be evaluated under the Retail
Lending Test, that failed to pass the
Retail Lending Volume Threshold in a
facility-based assessment area with no
acceptable basis for doing so that the
agency would review the bank’s
performance relative to the Retail
Lending Volume Threshold as an
additional indicator of lending
performance when determining the
bank’s Retail Lending Test
recommended conclusion in the facilitybased assessment area.865 Unlike a large
bank without an acceptable basis for
failing to meet the threshold, the
agencies proposed that if an
intermediate bank, or a small bank that
opted into the Retail Lending Test, did
not have an acceptable basis, the bank
would not be limited to receiving only
a conclusion of ‘‘Needs to Improve’’ or
‘‘Substantial Noncompliance’’ in that
facility-based assessment area. The
agencies explained that the proposed
approach resulting in differential
treatment of large banks compared with
intermediate banks and small banks was
justified because: the agencies
recognized that intermediate banks and
small banks have less capacity to ensure
that their lending is commensurate with
their deposits in comparison to large
banks; and the agencies recognized that
the FDIC’s Summary of Deposits data
864 See
863 See
proposed § ll.22(c)(2)(i).
VerDate Sep<11>2014
18:11 Jan 31, 2024
865 See
Jkt 262001
PO 00000
proposed § ll.22(c)(2)(ii)(A).
proposed § ll.22(c)(2)(ii)(B).
Frm 00244
Fmt 4701
Sfmt 4700
Final Rule
Large banks that lack an acceptable
basis for not meeting the Retail Lending
Volume Threshold. Final
§ ll.22(c)(3)(iii)(A) provides that if,
after reviewing the factors in final
§ ll.22(c)(3)(i), the agencies determine
that a large bank lacks an acceptable
basis for not meeting the Retail Lending
Volume Threshold in a facility-based
assessment area, the agencies will assign
the bank a Retail Lending Test
conclusion of ‘‘Needs to Improve’’ or
‘‘Substantial Noncompliance’’ for the
facility-based assessment area. In
determining whether ‘‘Needs to
Improve’’ or ‘‘Substantial
Noncompliance’’ is the appropriate
conclusion, the agency considers: the
bank’s retail lending volume and the
extent by which it fell short of the
threshold; the bank’s distribution
analysis pursuant to final § ll.22(d)
through (f); the performance context
factors in § ll.21(d); and the
additional factors in final § ll.22(g).
The agencies’ reason for the different
treatment of large banks that lack an
acceptable basis for not meeting the
Retail Lending Volume Screen remains
that large banks have greater capacity
than intermediate banks and small
banks to ensure that their lending is
commensurate with their deposits and
to voluntarily collect and maintain
deposits data in cases where the bank’s
FDIC’s Summary of Deposits data do not
accurately reflect the location of their
depositors.
The agencies have considered
commenter feedback that the Retail
Lending Volume Screen should be
employed solely as performance
context, including for large banks. For
intermediate banks and small banks that
opt into the Retail Lending Test, the
screen already serves as an additional
indicator of lending performance when
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
determining the bank’s Retail Lending
Test recommended conclusion in a
facility-based assessment area. The
agencies believe that adopting that
approach would not be desirable for
large banks that significantly
underperform relative to their presence
and capacity to lend and lack an
acceptable basis for doing so. The
agencies find it unnecessary to provide
additional examiner discretion for large
banks with respect to assigning facilitybased assessment area conclusions. The
agencies note that the fact that a large
bank does not meet the Retail Lending
Volume Threshold does not
automatically lead to assignment of any
conclusion in any facility-based
assessment area. Rather, as provided in
final § ll.22(c)(3)(i), the agencies will
also consider whether a bank meets any
of the acceptable basis factors.
Intermediate and small banks that
lack an acceptable basis for not meeting
the Retail Lending Volume Threshold.
Final § ll.22(c)(3)(iii)(B) provides that
if, after reviewing the factors in final
§ ll.22(c)(3)(i), the agencies determine
that an intermediate bank, or a small
bank that opts to be evaluated under the
Retail Lending Test, lacks an acceptable
basis for not meeting the Retail Lending
Volume Threshold in a facility-based
assessment area, the agencies will
develop a Retail Lending Test
recommended conclusion for the
facility-based assessment area pursuant
to final § ll.22(d) through (f). In turn,
the agencies’ determination of the
bank’s Retail Lending Test conclusion
for the facility-based assessment area is
informed by: the bank’s Retail Lending
Test recommended conclusion for the
facility-based assessment area; the
bank’s retail lending volume and the
extent by which it did not meet the
Retail Lending Volume Threshold;
performance context factors provided in
final § ll.21(d); and the additional
factors in final § ll.22(g). Consistent
with the proposal, unlike large banks,
these banks will not be limited to
receiving a conclusion of ‘‘Needs to
Improve’’ or ‘‘Substantial
Noncompliance’’ in the facility-based
assessment area.
The agencies believe that this
approach accounts for the lower
capacity of intermediate banks and
small banks that opt into the Retail
Lending Test to ensure that their
lending is commensurate with their
deposits. In addition, this approach
would account for the proposed use of
the FDIC’s Summary of Deposits data to
calculate the Bank Volume Metric for
intermediate banks and for small banks
(if these banks do not voluntarily collect
and maintain deposits data pursuant to
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
final § ll.42(a)(7) and, in turn, report
that data pursuant to final
§ ll.42(b)(3)).
Section § ll.22(d) Scope of Retail
Lending Distribution Analysis
Section § ll.22(d)(1) Product Lines
Evaluated in a Retail Lending Test Area
To evaluate a bank’s retail lending
performance in its facility-based
assessment areas, retail lending
assessment areas, and outside retail
lending area, as applicable, under the
Retail Lending Test, the agencies
proposed in § ll.22(a)(4) to identify a
bank’s major product lines in a
geographic area from among six retail
lending categories: closed-end home
mortgage loans, open-end home
mortgage loans, multifamily loans, small
business loans, small farm loans, and
automobile loans. For purposes of
identifying a bank’s major product lines
in a geographic area, the agencies
proposed to use a 15 percent standard
based on loan dollars for closed-end
home mortgage loans, open-end home
mortgage loans, multifamily loans, small
business loans, and small farm loans;
the agencies proposed to use a 15
percent standard based on a
combination of loan dollars and loan
count for automobile loans. The
agencies would evaluate the geographic
and borrower distributions of a bank’s
major product lines under the
distribution analysis component of the
Retail Lending Test described in
proposed § ll.22(d).
The agencies received numerous
comments regarding each of the
proposed retail lending product lines,
and the proposed standards for
identifying a bank’s major product lines.
Comments regarding each of the six
proposed retail lending products are
discussed in turn below. Comments
regarding the proposed major product
line standards as discussed in the
section-by-section analysis of final
§ ll.22(d)(2), below.
For the reasons discussed below, the
agencies are modifying, relative to the
proposal, the scope of the distribution
analysis component of the final rule
Retail Lending Test. Under the final
rule, only four retail product lines—
closed-end home mortgage loans, small
business loans, small farm loans, and
automobile loans 866—may be evaluated
under the distribution analysis in a
facility-based assessment area or outside
866 As discussed in introduction to the section-bysection analysis of final § ll.22, automobile loans
are only evaluated under the Retail Lending Test if
the bank is a majority automobile lender or the bank
opts to have its automobile loans evaluated under
the Retail Lending Test.
PO 00000
Frm 00245
Fmt 4701
Sfmt 4700
6817
retail lending area. The agencies will
not evaluate open-end home mortgage
loans and multifamily loans under the
distribution analysis in final
§ ll.22(e).867 In addition, only closedend home mortgage loans and small
business loans may be evaluated as a
major product line in a large bank’s
retail lending assessment areas.868
As such, final § ll.22(d)(1) provides
that in each applicable Retail Lending
Test Area, the agencies evaluate
originated and purchased loans in each
of the following product lines that is a
major product line, as described in
§ ll.22(d)(2): 869
• Closed-end home mortgage loans in
a bank’s facility-based assessment areas
and, as applicable, retail lending
assessment areas and outside retail
lending area;
• Small business loans in a bank’s
facility-based assessment areas and, as
applicable, retail lending assessment
areas and outside retail lending area;
• Small farm loans in a bank’s
facility-based assessment areas and, as
applicable, outside retail lending area;
and
• Automobile loans in a bank’s
facility-based assessment areas and, as
applicable, outside retail lending area.
Each of the four product lines
included in the final rule Retail Lending
Test distribution analysis is discussed
in turn below. Following this
discussion, the two product lines
excluded from the final rule Retail
Lending Test distribution analysis are
discussed.
Product Lines Included in the Retail
Lending Test Distribution Analysis
Section ll.22(d)(1)(i) Closed-End
Home Mortgage Loans
In final § ll.22(d)(1)(i), the agencies
are adopting with certain substantive,
clarifying, and technical revisions their
proposed approach of evaluating closedend home purchase, home refinance,
home improvement, and other purpose
home mortgage loans as a single major
product line under the Retail Lending
Test’s distribution analysis. The
867 However, open-end home mortgage loans and
multifamily loans are included in the bank’s
metrics for purposes of the Retail Lending Volume
Screen, as discussed in the section-by-section
analysis of final § ll.22(c).
868 For further discussion of the product lines that
may be evaluated in a retail lending assessment
area, see the section-by-section analysis of final
§ ll.17(d).
869 The agencies have determined that it is
appropriate to relocate the provisions describing the
scope of the distribution analysis component of the
Retail Lending Test from proposed § ll.22(a) to
final § ll.22(d), so that these scoping provisions
immediately precede the regulatory text regarding
the distribution analysis itself in final § ll.22(e).
E:\FR\FM\01FER2.SGM
01FER2
6818
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
agencies have decided that open-end
home mortgage loans will not be
evaluated under the Retail Lending Test,
but rather, responsive open-end home
mortgage loans will be considered under
the Retail Services and Products Test, as
discussed in the section-by-section
analysis of final § ll.23.
ddrumheller on DSK120RN23PROD with RULES2
The Agencies’ Proposal
As discussed above, the agencies
currently evaluate a bank’s ‘‘home
mortgage’’ lending under the lending
test, which includes both closed-end
home mortgage loans and open-end
home mortgage loans.870 The agencies
proposed to evaluate closed-end home
mortgage loans secured by a one-to-four
family dwelling as a single major
product line under the Retail Lending
Test.871 As proposed, this category
would include one-to-four family
closed-end home mortgage loans of all
purposes, including home purchase
loans, home refinance loans, home
improvement loans, and other purpose
closed-end home mortgage loans, but
not including multifamily loans.872 The
agencies noted that, in comparison to a
potential alternative in which closedend home mortgage loans with different
purposes are evaluated separately, the
proposed rule would consolidate
closed-end home mortgage loans in a
single major product line, thereby
streamlining the evaluation process and
reducing complexity. As a major
product line, the proposal contemplated
that closed-end home mortgage loans
would be evaluated using the
distribution metrics included in the
Retail Lending Test.873
The agencies sought feedback on
whether to evaluate closed-end home
mortgage loans of different purposes
individually or collectively given that
the factors driving demand for home
purchase loans, home refinance loans,
home improvement loans, and other
purpose home mortgage loans can vary
over time. In addition, the agencies
noted that these closed-end home
870 See current 12 CFR ll.12(l) and
ll.22(a)(1).
871 See proposed § ll.22(a)(4)(i)(A). The
agencies proposed in proposed § ll.12 to define
‘‘closed-end home mortgage loan’’ to have ‘‘the
same meaning given to the term ‘closed-end
mortgage loan’ in 12 CFR 1003.2(d)’’ (the CFPB’s
Regulation C, implementing HMDA), but excluding
multifamily loans. For further discussion of the
definition of ‘‘closed-end home mortgage loan’’
under the final rule, see the section-by-section
analysis of final § ll.12 (‘‘closed-end home
mortgage loan’’).
872 See proposed § ll.22(a)(4)(i)(A). As under
the CFPB’s Regulation C, ‘‘other purpose’’ refers to
any loan purpose other than home purchase,
refinance, or home improvement. See also 12 CFR
1003.4(a)(3) and associated Official Interpretations.
873 See proposed § ll.22(b) through (d).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
mortgage products can meet different
credit needs for low- and moderateincome borrowers and communities.
The agencies also requested feedback on
whether aggregation could lead to less
transparency in the reported metrics
when one loan purpose category takes
prominence over another. For example,
a bank’s home purchase lending
performance could be obscured during
periods of high home mortgage
refinance lending, and a bank’s home
mortgage refinance lending performance
could be similarly obscured during
periods of high home purchase lending
activity. The agencies sought feedback
on the magnitude of this risk, and
whether it outweighs the efficiency
gained from more streamlined closedend home mortgage lending evaluations.
The agencies also sought feedback on
whether to evaluate home improvement
loans and other purpose closed-end
home mortgage loans reported under
HMDA under both the Retail Lending
Test and the Retail Services and
Products Test or only under the Retail
Services and Products Test. In addition,
the agencies sought commenter views
on the proposal to continue the current
practice of evaluating closed-end home
mortgage loans secured by one-to-four
family owner-occupied properties and
non-owner-occupied properties
together.874
Comments Received
The agencies received many
comments on evaluating closed-end
home mortgage lending and open-end
home mortgage lending pursuant to a
CRA final rule.
Aggregation of closed-end home
mortgage loans regardless of loan
purpose. A number of commenters
supported the proposed evaluation of all
closed-end home mortgage loans on a
combined basis, regardless of loan
purpose. Some commenters expressed
concerns that evaluating closed-end
home mortgage loans separately by
different loan purposes would introduce
additional complexity into the proposed
Retail Lending Test. A few commenters
questioned whether, on balance,
separating home purchase loans and
refinance loans would affect a bank’s
performance sufficiently to offset added
complexity. Other commenters
preferred evaluating closed-end home
mortgage loans as a single category
because demand for closed-end home
mortgage loans of different purposes
874 See proposed § ll.22(a)(4)(i)(A). This
treatment would have obtained for the proposed
separately evaluated open-end home mortgage
lending product line as well. See proposed
§ ll.22(a)(4)(i)(B).
PO 00000
Frm 00246
Fmt 4701
Sfmt 4700
varies over time for reasons beyond a
bank’s control.
However, other commenters
expressed a preference for separately
evaluating closed-end home mortgage
loans of different purposes. In general,
these commenters emphasized that
different home mortgage products meet
different credit needs and demand for
such products can vary based on market
conditions over time, with some
highlighting the differences between
home purchase loans and home
refinance loans. These commenters
favored separate evaluation of these
products as a way to allow for more
precise measurement of whether banks
are meeting the needs of low- and
moderate-income borrowers. For
example, a commenter suggested that
the agencies separately evaluate
different types of closed-end home
mortgage loans to avoid obscuring
important differences among loan types;
however, this commenter acknowledged
that such disaggregation might not be
possible in all assessment areas,
especially rural areas with insufficient
loan activity for separate evaluation.
Another commenter recommended
separately evaluating four categories of
closed-end home mortgage loans—home
purchase loans, home refinance loans,
home improvement loans, and other
purpose home mortgage loans—without
distinguishing between closed-end
home mortgage loans and open-end
home mortgage loans, stating that this
approach would promote a more
standard comparison between like
transactions. In addition, a commenter
that supported disaggregating home
purchase and home refinance loans
suggested that the agencies should also
separate cash-out refinances from rateterm refinances or remove cash-out
refinances entirely from the Retail
Lending Test because such loans could
be used for equity stripping.
Home improvement and other
purpose closed-end home mortgage
loans. Many commenters supported the
agencies’ proposal to include home
improvement loans and other purpose
home mortgage loans as part of the
closed-end home mortgage loan major
product line. A number of commenters
emphasized the ways in which home
improvement loans can benefit low- and
moderate-income borrowers and
communities, such as by increasing the
value of homes owned by low- and
moderate-income borrowers and
meeting significant credit needs. For
example, a commenter emphasized the
critical updating and maintenance
needs of aging affordable housing stock
and asserted that products such as
combined purchase-rehabilitation loans
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
are important for supporting sustainable
homeownership. Another commenter
stated that considering home
improvement and other purpose loans
only under the Retail Services and
Products Test would reduce the level of
quantitative rigor applied to their
evaluation. In addition, a number of
commenters noted that evaluating home
improvement loans and other purpose
loans under the Retail Lending Test
would create greater incentives for
banks to offer these products to lowand moderate-income borrowers and to
develop innovative products. However,
another commenter suggested that home
improvement loans and other purpose
home mortgage loans should only be
evaluated under the Retail Lending Test
if the bank can demonstrate that the
loans were made to increase home
value, improve livability and
accessibility, generate income through
business space, allow for services in the
home, or make the home more energy
efficient. In addition, a number of
commenters recommended that home
improvement loans and other purpose
home mortgages should be evaluated
both quantitatively under the Retail
Lending Test and qualitatively under
the Retail Services and Products Test,
which one commenter noted could
consider the innovativeness of a bank’s
lending products.
A few commenters addressed whether
the agencies should establish a separate
product line under the Retail Lending
Test for home improvement loans and
other purpose home mortgage loans,
noting that these loans are distinct from
home purchase loans and refinancing
loans. A commenter recommended that
home improvement loans and other
purpose home mortgage loans lending
should be considered separately in a
third category if the agencies
determined to consider home purchase
loans and refinance loans separately.
Another commenter suggested that
home improvement loans be evaluated
either separately or together with other
retail loans under the Retail Lending
Test, if there is a sufficient volume of
these loans.
A few commenters opposed the
evaluation of home improvement loans
and other purpose home mortgage loans
under the Retail Lending Test. Some of
these commenters stated that the Retail
Lending Test should focus on home
purchase loans and refinance loans.
Other commenters stated that home
improvement loans and other purpose
home mortgage loans should be
evaluated solely under the Retail
Services and Products Test, with a
commenter noting that these loans
would rarely trigger a major product
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
line. Another commenter supported
evaluating these loans only
qualitatively, but recommended the
agencies consider implementing a
quantitative evaluation if demand for
this type of loan increases.
Non-owner-occupied home mortgage
loans. A few commenters supported the
proposal to include loans secured by
one-to-four family non-owner-occupied
housing in the closed-end home
mortgage loan product line, noting that
these loans represent an investment in
low- and moderate-income communities
and play an important role in ensuring
access to naturally occurring affordable
housing.
However, many other commenters
opposed including non-owner-occupied
housing loans in the evaluation of
closed-end home mortgage loans. Some
commenters stated that non-owneroccupied housing loans should be
excluded altogether because such loans
do not represent access to credit for lowand moderate-income individuals and
can fuel gentrification and
displacement. Another commenter
similarly raised concerns that granting
credit for non-owner-occupied housing
loans to investors would not address
inequities in credit access for minority
individuals and communities.
Several commenters provided other
suggestions related to the evaluation of
non-owner-occupied housing loans. A
few commenters recommended that
non-owner-occupied home loans should
be evaluated under the Retail Services
and Products Test. Some commenters
stated generally that owner-occupied
home loans should be prioritized over
loans secured by investor-owned
properties. For example, a commenter
suggested that the agencies include nonowner-occupied housing loans in the
Retail Lending Test, but assign them
less weight than loans secured by
owner-occupied homes; this commenter
also supported non-owner-occupied
housing loans being considered under
the Community Development Financing
Test. Some commenters also advocated
for an impact review of non-owneroccupied home loans to ensure that
these loans build wealth and do not
displace or harm low- and moderateincome or minority individuals.
Relatedly, a number of commenters
recommended that only certain nonowner-occupied housing loans be
included in the bank’s evaluation, such
as loans made to low- and moderateincome, minority, or mission-driven
nonprofit organization borrowers, or
loans originated by mission-driven
nonprofit organizations.
Other closed-end home mortgage loan
products. Several commenters provided
PO 00000
Frm 00247
Fmt 4701
Sfmt 4700
6819
feedback related to evaluating other
specific closed-end home mortgage loan
products. For example, a commenter
encouraged the agencies to evaluate
manufactured housing loans as a
separate category under the Retail
Lending Test to incentivize more
manufactured home lending. This
commenter stated that manufactured
homes tend to be affordable options for
low- and moderate-income individuals
and suggested that the agencies
separately track home mortgage loans
titled as personal property.
A few commenters submitted
feedback regarding construction loans.
A commenter stated that the agencies
should include construction loans to
home builders and borrowers for the
construction of one-to-four family
residential properties under the Retail
Lending Test to incentivize banks to
make more construction loans and
increase the housing supply. A few
commenters suggested that construction
loans be eligible for CRA consideration
even if the occupant is not a low- or
moderate-income individual, as long as
the home sale price does not exceed
four times the area median family
income. These commenters indicated
that this would help address the lack of
supply of affordable starter homes and
encourage community stabilization and
revitalization.
A few commenters offered views on
the treatment of reverse mortgage loans.
For example, a commenter asserted that
reverse mortgage loans are essential to
aging borrowers and stated that banks
should consider the needs of their aging
deposit customers with reverse
mortgages to avoid foreclosure and
displacement. In contrast, another
commenter suggested that reverse
mortgage loans should not be
encouraged and should be excluded
from the Retail Lending Test because
they have the potential to impact the
borrower negatively.
A commenter suggested that certain
income-restricted home mortgage
assistance loans and programs, such as
downpayment assistance, should be
counted as closed-end home mortgage
loans under the Retail Lending Test to
incentivize banks to continue
participating in these special programs.
Another commenter stated that the
agencies should award ‘‘extra credit’’ to
banks for originating home mortgages
involving community land trusts
because such programs are designed to
preserve affordable housing and prevent
displacement.
Final Rule
Final § ll.22(d)(1)(i) adopts the
proposed approach of evaluating closed-
E:\FR\FM\01FER2.SGM
01FER2
6820
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
end home purchase, home refinance,
home improvement, and other purpose
home mortgage loans as a single major
product line pursuant to the Retail
Lending Test’s distribution analysis.875
Aggregation of closed-end home
mortgage loans regardless of loan
purpose. The agencies’ decision to
adopt the proposal is based on a number
of factors. First, the agencies believe that
a combined evaluation of closed-end
home purchase loans, home refinance
loans, home improvement loans, and
other purpose home mortgage loans
allows for an appropriate degree of
flexibility for a bank to meet the closedend home mortgage credit needs of its
community, accounting for diverse bank
business models and strategies. Under
this approach, a bank may achieve
strong performance in the closed-end
home mortgage product line by serving
low- and moderate-income borrowers
and low- and moderate-income census
tracts through any combination of home
purchase loans, home refinance loans,
home improvement loans, or other
purpose closed-end home mortgage
loans.
The agencies also believe that a
combined evaluation of closed-end
home mortgage loans will result in
greater stability and consistency of
associated metrics and benchmarks over
time. The agencies determined that, as
some commenters noted, a combined
market benchmark may be less volatile
than separate market benchmarks for
home purchase loans and home
refinance loans.
Additionally, the agencies believe that
a combined evaluation of closed-end
home mortgage loans is more consistent
with the current regulations and
introduces fewer complexities than
separately evaluating home mortgage
loans of different purposes. For
example, agency analysis of lending
data from 2018–2020 demonstrated that
evaluating home purchase loans and
refinance loans as separate product lines
would likely result in an increase in the
number of major product lines for
approximately 4,040 facility-based
assessment areas, which is
approximately 58 percent of all large
bank and intermediate bank facilitybased assessment areas.876
875 As discussed in the section-by-section analysis
of final § ll.12, the final rule defines ‘‘closed-end
home mortgage loan’’ as follows: ‘‘Closed-end home
mortgage loan has the same meaning given to the
term ‘closed-end mortgage loan’ in 12 CFR 1003.2,
excluding loan transactions set forth in 12 CFR
1003.3(c)(1) through (10) and (13) and multifamily
loans as defined in [§ ll.12].’’
876 This analysis is based on a set of intermediate
and large banks that are both CRA and HMDA
reporters. Wholesale banks, limited purpose banks,
strategic plan banks, and banks that do not have at
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Finally, the agencies considered that
establishing separate product lines for
closed-end home purchase, home
refinance, home improvement, and
other purpose home mortgage loans
could result in instances where a bank
does not have a sufficient number of
loans in one or more of these individual
categories to conduct a robust
distribution analysis. For example, the
agencies believe that in evaluation years
in which home mortgage refinance
activity is relatively low, some banks
might have too little activity to count as
a separate product line. However, a
combined approach will ensure that
these loans are subject to a distribution
analysis as part of a larger aggregate
category for closed-end home mortgage
loans. The agencies also note that if
separate product lines were created for
home purchase loans and home
refinance loans, a similar potential loss
of coverage from a distribution analysis
might occur for home improvement
loans and other purpose home mortgage
loans, because these loans too would by
default then need to be evaluated
separately.
The agencies also considered the
potential benefits of an alternative
approach of separately evaluating
closed-end home mortgage loans based
on loan purpose. In particular, as some
commenters noted, home purchase,
home refinance, home improvement,
and other purpose home mortgage loans
fulfill different purposes. For example,
home purchase loans facilitate access to
homeownership, while home refinance
loans can help borrowers to obtain a
lower monthly payment when interest
rates fall. A separate evaluation of these
categories could provide more specific
visibility into a bank’s record of meeting
important yet distinct closed-end home
mortgage credit needs, clarifying
instances in which a bank had lower
relative performance for either home
purchase lending or home refinance
lending. The agencies also considered
that different benchmarks, thresholds,
and performance ranges for these
categories might reflect differences in
the credit needs and opportunities in an
area more specifically than a combined
product line category for all closed-end
home mortgage lending, thus informing
the efforts of the agencies, banks, and
other stakeholders to identify and
address community credit needs.
However, on balance, the agencies
have determined that these potential
benefits of separately evaluating home
purchase, home refinance, home
least one facility-based assessment area in a U.S.
State or District of Columbia are excluded from the
analysis.
PO 00000
Frm 00248
Fmt 4701
Sfmt 4700
improvement, and other purpose home
mortgage loans are outweighed by the
considerations discussed above. These
include the agencies’ determination that
designating a combined closed-end
home mortgage loan category is more
adaptive to a diversity of both bank
business models and community credit
needs. At the same time, the agencies
appreciate the potential benefits of
greater precision in understanding the
ways that banks meet community credit
needs, and note that they will consider
ways to provide information to the
public about the breakdown of home
purchase and home refinance loans
within the combined closed-end home
mortgage loan category.
Home improvement and ‘‘other
purpose’’ closed-end home mortgage
loans. The final rule also adopts the
proposed approach of including closedend home improvement loans and other
purpose home mortgage loans as part of
the overall closed-end home mortgage
loan product line under the Retail
Lending Test’s distribution analysis.
The agencies believe that this approach
is appropriate because low- and
moderate-income borrowers and
communities have needs for closed-end
home improvement loans and other
purpose home mortgage loans.
Furthermore, the agencies have
considered commenter feedback that
evaluating these loans under the Retail
Lending Test will help to emphasize
bank activities that address these needs.
Evaluating home improvement loans
and other purpose home mortgage loans
as part of a combined closed-end home
mortgage loan product line will ensure
that these tools for meeting community
credit needs are accounted for under the
Retail Lending Test distribution metrics
and benchmarks.
The agencies also considered an
alternative approach of creating separate
product line categories for home
improvement and other purpose home
mortgage loans, or a product line
category combining home improvement
loans and other purpose home mortgage
loans. However, the agencies believe
that the number of home improvement
loans and other purpose home mortgage
loans for many banks and Retail
Lending Test Areas could often be
insufficient for robust evaluation as a
separate product line. For example, a
separate evaluation would include
constructing market benchmarks based
solely on home improvement loans and
other purpose home mortgage loans,
which the agencies note are
significantly less prevalent than home
purchase and home refinance loans.
Furthermore, the agencies considered
that these alternative approaches would
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
increase the complexity of the
distribution analysis due to the
additional product lines and associated
metrics, benchmarks, performance
ranges, weighting, and other
quantitative components of the
evaluation. In light of these
considerations, the agencies determined
that the increased complexity resulting
from creating a separate product line
category for home improvement loans
and other purpose home mortgage loans
is not warranted.
The agencies also considered
commenter sentiment that home
improvement loans and other purpose
home mortgage loans be evaluated
under the Retail Lending Test only if a
bank can demonstrate that these loans
were made to increase home value,
improve livability and accessibility,
generate income through business
space, allow for services in the home, or
make the home more energy efficient.
The agencies believe that the Retail
Lending Test is appropriately focused
upon evaluating a bank’s distribution of
loans to low- and moderate-income
borrowers and low- and moderateincome census tracts, and that the credit
products component of the Retail
Services and Products Test will
effectively evaluate whether a bank’s
credit products and programs are,
consistent with safe and sound
operations, responsive to the credit
needs of the bank’s entire community,
including the needs of low- and
moderate-income individuals, residents
of low- and moderate-income census
tracts, small businesses, and small
farms.
Non-owner-occupied home mortgage
loans. The agencies considered, but are
not adopting, commenter sentiment that
non-owner-occupied home mortgage
loans should either be excluded from
evaluation under the Retail Lending
Test or afforded less weight than owneroccupied home mortgage loans. In
making this determination, the agencies
considered a number of factors.
The agencies considered that
including loans secured by non-owneroccupied properties in a bank’s
borrower and geographic distribution
analyses provides a more complete
picture of the bank’s closed-end home
mortgage lending activity and capacity
in light of opportunities in the area. For
example, where a bank has made a large
number of non-owner-occupied closedend home mortgage loans, including
these loans in the distribution analyses
would better demonstrate the extent to
which a lender is meeting the needs of
low- and moderate-income individuals
and low- and moderate-income census
tracts relative to its capacity to lend. In
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
contrast, excluding the bank’s nonowner-occupied loans from the Retail
Lending Test evaluation would result in
metrics that would not as accurately
reflect the bank’s capacity to lend to
low- or moderate-income individuals
and in low- or moderate-income census
tracts.
The agencies also considered that
loans secured by non-owner-occupied
properties can support access to credit
and fulfill a credit need in low- and
moderate-income census tracts. The
agencies considered that lower credit
availability in these geographic areas
might negatively affect local housing
markets due to the difficulty of
obtaining home-secured financing in
these areas to buy, sell, refinance, or
improve a home. Furthermore, home
mortgage loans secured by non-owneroccupied properties may support
expanded affordable housing options.
In addition, the agencies are
concerned that separately evaluating or
differentially weighting one-to-four
family closed-end home mortgage loans
secured by non-owner-occupied
properties to reflect the impact of these
loans would introduce undue
compliance and examination
complexity. Differential weighting
would be challenging to calibrate and
implement, because a range of factors
could affect the level of impact that
loans for non-owner-occupied and
owner-occupied properties have on a
community. The agencies considered
that an alternative approach of assigning
lower weighting to loans for non-owneroccupied properties could inadvertently
discourage a bank from meeting credit
needs for such loans in a community.
Furthermore, the agencies considered
that there may be insufficient data to
support a separate distribution analysis
of these loans in many Retail Lending
Test Areas.
The agencies considered commenter
concerns regarding the responsiveness
and affordability of home mortgage
loans secured by non-owner-occupied
properties. The agencies note that the
final rule also evaluates home mortgage
loans secured by non-owner-occupied
properties under final § ll.23(c)(2) of
the Retail Services and Products Test for
responsiveness to community credit
needs, including the needs of low- and
moderate-income borrowers and lowand moderate-income census tracts.
Also, as discussed further in the sectionby-section analysis of final
§ ll.13(b)(3), the final rule provides
that certain one-to-four family rental
housing with affordable rents in
nonmetropolitan census tracts qualifies
as a community development activity
PO 00000
Frm 00249
Fmt 4701
Sfmt 4700
6821
for which a bank could receive CRA
consideration.
The agencies considered, but are not
adopting, an alternative approach to
only include non-owner-occupied home
mortgage loans made to low- and
moderate-income, minority, or missiondriven nonprofit organization
borrowers, or loans originated by
mission-driven nonprofit organizations.
As discussed above, the agencies
determined that non-owner-occupied
closed-end home mortgage loans reflect
a bank’s capacity to conduct retail
lending and are a way that a bank can
meet the credit needs of a community.
In addition, the agencies believe that
applying additional exclusions to
certain categories of non-owneroccupied home mortgage loans would
add complexity to the evaluation of this
product line. For more information and
discussion regarding the agencies’
consideration of comments
recommending adoption of additional
race- and ethnicity-related provisions in
this final rule, see section III.C of this
SUPPLEMENTARY INFORMATION.
Other closed-end home mortgage loan
products. The final rule retains the
proposal’s approach to include product
lines that would be reportable as closedend home mortgage loans in HMDA
data. In making this determination, the
agencies considered comments
regarding including other specific types
of loan products in the closed-end home
mortgage loan product line evaluation.
As a general matter, the agencies believe
that including closed-end home
mortgage loans that are reportable in
HMDA data in CRA evaluations
promotes consistency across
regulations, which in turn facilitates
compliance and consistent information
within a cohesive banking regulatory
framework.
The agencies considered, but are not
adopting in the final rule, commenter
sentiment to include rate-term
refinances, and to exclude cash-out
refinances, in the Retail Lending Test
evaluation of closed-end home mortgage
lending. The agencies believe that all
refinance types can be an important
credit source for individuals and that
there could be unintended
consequences to limiting the refinance
mortgages that are determined to meet
community credit needs. For example,
the agencies have considered that
excluding specific categories of home
mortgage refinance loans from the
closed-end home mortgage product line
could reduce the flexibility of banks to
serve the community in a way that
accords with the bank’s business model
and strategy. Accordingly, the final rule
maintains the proposed approach of
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6822
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
including all closed-end home mortgage
loans, including all closed-end home
refinance loans, in the closed-end home
mortgage product line.
As proposed, the final rule includes
closed-end manufactured housing loans
in the closed-end home mortgage loan
product line. As noted above and
discussed in the section-by-section
analysis of final § ll.12, the final rule
defines ‘‘closed-end home mortgage
loan’’ as equivalent to the term ‘‘closedend mortgage loan’’ in Regulation C. A
closed-end mortgage loan under
Regulation C is an extension of credit
that is secured by a lien on a ‘‘dwelling’’
and that is not an open-end line of
credit.877 Regulation C defines a
‘‘dwelling’’ as ‘‘a residential structure,
whether or not attached to real
property’’ that ‘‘includes but is not
limited to . . . a manufactured home or
other factory-built home.’’ 878 The
agencies note that loans for
manufactured housing may be titled as
real estate (generally secured by a
manufactured home and the land on
which it is sited) or as personal property
(generally secured by the manufactured
home only). Manufactured home loans
titled as real estate and those titled as
personal property are both secured by a
dwelling and thus both closed-end
mortgage loans included in the HMDA
data; as such, both of these
manufactured loan types will be used
for evaluating the closed-end home
mortgage product line under the Retail
Lending Test.
The agencies believe that including
manufactured housing loans in the
closed-end home mortgage product line
is appropriate for several reasons. The
agencies believe that these loans may
help meet community credit needs,
especially in certain areas where
affordable housing is limited and where
manufactured housing may be relatively
common. Further, the agencies
considered that in markets where a
significant share of low- and moderateincome households own manufactured
housing, excluding loans made to these
households could result in market
benchmarks that do not appropriately
reflect the credit needs and
opportunities of the area. The agencies
also considered that the responsive
credit products component of the Retail
Services and Products Test will enable
the agencies to make informed
determinations about the
responsiveness of a bank’s
manufactured housing lending.
877 See 12 CFR 1003.2(d) (defining ‘‘closed-end
mortgage loan’’) and (o) (defining ‘‘open-end line of
credit’’).
878 See 12 CFR 1003.2(f).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Finally, the agencies considered that
it may not be feasible for Retail Lending
Test evaluations to exclude, or
separately consider, manufactured
housing that is titled as personal
property because the HMDA data field
identifying these loans may not be
complete for banks that are partially
exempt from HMDA reporting. In
addition, the agencies considered that
the number of these loans may be too
low to conduct a robust separate
analysis, including developing market
benchmarks in Retail Lending Test
Areas.879
Regarding construction loans, under
the final rule, the agencies will evaluate
only closed-end construction loans that
are reported under HMDA, consistent
with the agencies’ proposal. The
agencies considered, but decline to
adopt, an alternative suggested by some
commenters to evaluate all
construction-only loans, including those
not reported under HMDA, for one-tofour family residential properties in the
closed-end home mortgage loan product
line under the Retail Lending Test. A
construction-only loan that is designed
to be replaced by permanent financing
is considered temporary financing and
excluded from HMDA reporting.880 The
agencies have determined that this
temporary financing should not be
included in the closed-end home
mortgage product line of the Retail
Lending Test, because the borrower of a
construction-only loan may be a
commercial entity, and it is not clear
how the borrower distribution analysis
would apply to these loans. Including
these loans in the distribution analysis
could impact the evaluation of closedend home mortgage loans because the
metrics and benchmarks would reflect
lending in multiple substantially
different loan product types. Thus,
construction-only loans considered
temporary financing under the HMDA
reporting requirements will not be
evaluated in the closed-end home
mortgage product line. In contrast, a
combined construction-to-permanent
loan based on a single legal obligation
is reportable pursuant to HMDA, and
the agencies believe that they should be
included with other HMDA-reportable
closed-end home mortgage loans to
avoid increasing the complexity of the
Retail Lending Test evaluation. In
addition, the agencies note that certain
879 Certain
data points reported in HMDA,
including the manufactured housing secured
property type, are exempt if the transaction is
covered by a partial exemption. See generally 12
CFR 1003.3(d) and associated Official
Interpretations.
880 See 12 CFR 1003.3(c)(3) and associated
Official Interpretations.
PO 00000
Frm 00250
Fmt 4701
Sfmt 4700
construction loans and other temporary
financing could be considered as
community development loans, if the
loan meets a community development
definition pursuant to § ll.13.
Regarding reverse mortgage loans, the
agencies have also considered
commenter sentiment that these loans
should not be evaluated under the Retail
Lending Test because of commenter
views that these loans may vary
considerably in their responsiveness to
low- and moderate- income borrowers
and low- and moderate-income
communities in ways are not
contemplated by the proposed
distribution analysis. In considering
how best to evaluate reverse mortgage
loans, the agencies note that a large
majority of these loans are open-end
home mortgage loans.881 The agencies
believe that the final rule approach,
discussed below, of evaluating open-end
home mortgages only under the Retail
Services and Products Test’s responsive
credit products and programs
component in final § ll.23(c)(2), and
not also under the Retail Lending Test,
appropriately focuses the evaluation of
the significant majority of reverse
mortgage loans on their responsiveness
to low- and moderate-income
individuals and low- and moderateincome census tracts.
The agencies believe that including
the relatively small share of reverse
mortgage loans that are closed-end
home mortgages within the closed-end
home mortgage loan product line on the
Retail Lending Test is appropriate for a
number of reasons. The agencies note
that closed-end reverse mortgage loans
typically provide borrowers with a
specified amount of money upfront that
cannot be subsequently increased over
time and generally feature a fixed
interest rate.882 The agencies believe
that these features make closed-end
reverse mortgage loans more like the
forward closed-end home mortgage
loans with which they are aggregated
under the final rule’s closed-end home
mortgage loan product line, compared to
open-end reverse mortgage loans, which
the final rule would not evaluate as a
major product line. The agencies also
note that they have issued detailed
guidance to the banks they supervise
regarding the consumer financial
protection laws and regulations that
881 Board analysis of HMDA Loan/Application
Register (LAR) data from 2018–2020 showed that
approximately 80 percent of all reverse mortgages
were open-end; among depository institutions only,
84 percent of reverse mortgages were open-end.
882 See CFPB, ‘‘Reverse Mortgages: Report to
Congress’’ 98 (June 28, 2012), https://
files.consumerfinance.gov/a/assets/documents/
201206_cfpb_Reverse_Mortgage_Report.pdf.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Section ll.22(d)(1)(ii) and (iii) Small
Business Loans and Small Farm Loans
apply to reverse mortgage lending, and
setting forth supervisory expectations
related to ensuring the protection of
reverse mortgage loan consumers.883
Additionally, the agencies note that,
due to HMDA partial exemptions
available to certain banks,884 reverse
mortgages are not consistently
identifiable under HMDA, which would
make it challenging to identify and
remove reverse mortgages from a bank’s
reported closed-end home mortgages.
Finally, the agencies believe that the
inclusion of closed-end reverse
mortgages allows for an appropriate
degree of flexibility for a bank to meet
the closed-end home mortgage credit
needs of its community, accounting for
diverse bank business models and
strategies. Permitting banks to receive
consideration for these loans preserves
an additional means for banks to meet
community credit needs.
The agencies considered commenter
sentiment that certain income-restricted
home mortgage assistance loans and
programs, such as downpayment
assistance, should be counted as closedend home mortgage loans under the
Retail Lending Test. Under the final
rule, the agencies note that incomerestricted home mortgage assistance
programs could receive consideration
under the Retail Services and Products
Test as a responsive credit product and
program. Under the final rule, the
agencies also note that if such programs
involve originating or purchasing
closed-end home mortgage loans, those
loans would be evaluated under the
Retail Lending Test. For example, a
program focused on originating home
mortgages involving community land
trusts could receive qualitative
consideration under the Retail Services
and Products Test and any closed-end
home mortgages originated under this
program would also be evaluated under
the Retail Lending Test’s distribution
analysis, provided that closed-end home
mortgage loans are a major product line
for the bank. The agencies believe this
approach appropriately evaluates a
range of bank activities that serve
community credit needs while
maintaining a metrics-based approach
for evaluating retail lending.
The agencies received many
comments on different aspects of
evaluating small business lending and
small farm lending as major product
lines under the proposed Retail Lending
Test, including the aspects of the
proposal related to the section 1071
rulemaking.886 The section-by-section
analysis of final § ll.12 discusses
feedback on the proposed definitions of
small business, small business loan,
small farm, and small farm loan.
In general. A few commenters
specifically addressed the designation of
small business loans and small farm
loans as major product lines, evaluated
under the Retail Lending Test’s
distribution analysis, with most
generally favoring continuing to
evaluate these loans. Some commenters
noted that such an evaluation of a
bank’s small business loans and small
883 See OCC, Board, FDIC, NCUA, U.S. Dept. of
Treasury Office of Thrift Supervision, ‘‘Reverse
Mortgage Products: Guidance for Managing
Compliance and Reputation Risks,’’ 75 FR 50801
(Aug. 17, 2010).
884 A transaction may be partially exempt if a
bank is eligible for partial exemptions. A bank
eligible for partial exemptions does not need to
collect and report certain data on HMDA reportable
transactions. See generally 12 CFR 1003.3(d) and
associated Official Interpretations.
proposed § ll.22(a)(4)(i)(D) and (E).
agencies also received comments on
evaluating small business lending as a community
development activity, which, along with the
agencies’ proposed and final rules on the economic
development category of community development,
are discussed in the section-by-section analysis of
final § ll.13(c). In addition, the section-by-section
analysis in of final § ll.12 discusses comments on
the proposed definitions of small business, small
business loan, small farm, and small farm loan.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
In final § ll.22(d)(1)(ii) and (iii) and
(d)(2) and in paragraphs II.b.1 and II.b.2
of final appendix A, the agencies are
adopting their proposal to evaluate the
distribution of a bank’s originated and
purchased small business loans and
small farm loans as separate major
product lines under the Retail Lending
Test.
The Agencies’ Proposal
In proposed § ll.22(a)(4)(i), the
agencies provided that they would
evaluate the distribution of small
business loans and small farm loans as
separate major product lines under the
Retail Lending Test,885 and sought
feedback on the corresponding
evaluation framework. As discussed
further in the section-by-section
analysis of final § ll.12, the agencies
sought feedback on definitions and size
standards for ‘‘small business,’’ ‘‘small
business loan,’’ ‘‘small farm,’’ and
‘‘small farm loan.’’ The agencies also
sought comments on sunsetting the
current small business loan and small
farm loan definitions when transitioning
to using section 1071 data for CRA
evaluations (discussed in the section-bysection analyses of final §§ ll.12 and
ll.22(e)).
Comments Received
885 See
886 The
PO 00000
Frm 00251
Fmt 4701
Sfmt 4700
6823
farm loans, along with home mortgage
loans, is consistent with longstanding
interpretation of the core focus of the
CRA and regulatory practice. Some
commenters suggested that the agencies
consolidate the six proposed major
product lines into a smaller number—
between two and four product line
types—including some sentiment that
small business loans and small farm
loans could be considered as a
combined product line category. As
discussed above in the section-bysection analysis of final § ll.22(d)(2),
commenters advocating for evaluation
of fewer product lines under the Retail
Lending Test generally indicated that
this would simplify the Retail Lending
Test evaluation and lessen regulatory
burden. Some commenters stated that
small farm loans are functionally
considered a type of business loan, such
that a combined evaluation would be
appropriate.
Evaluation of small business credit
card loans. A few commenters offered
views on evaluating small business
credit card loans as part of a bank’s
small business lending under the
distribution analysis of the Retail
Lending Test. A commenter stated
generally that the agencies should
carefully consider whether business
credit cards are a good form of small
business lending or are near-predatory.
This commenter also expressed
concerns that, although some banks
market credit cards to small businesses,
these credit card loans might not be
easily distinguished from consumer
credit card loans if data collection
requirements are not revised.
A few commenters suggested that
small business credit card loans should
not be evaluated as small business
loans. A commenter suggested that
credit cards in general, including small
business credit cards, should not be in
CRA evaluations. This commenter more
specifically objected to small business
credit card renewals counting as new
originations, indicating in support of
this objection that small business credit
card loans are typically renewed on an
annual basis. Another commenter
recommended that small business credit
card loans should generally not be
evaluated as small business loans, but
also suggested that larger banks
engaging in direct small business credit
card lending should retain an option to
have these credit card loans evaluated
as small business loans. This
commenter raised concerns about
treating small business credit card loans
the same for larger banks as for smaller
community banks, due to the different
business models these banks may have
with respect to this product line. In
E:\FR\FM\01FER2.SGM
01FER2
6824
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
particular, the commenter thought that
evaluating small business credit card
loans as small business loans in a
uniform manner across banks would
disadvantage smaller banks that engage
in indirect credit card lending with
affiliates or partner lenders, compared
with larger banks that have small
business credit card direct lending
programs.
Some commenters supported
qualitative evaluation of small business
credit card lending. A commenter stated
that the agencies should analyze the
pricing and terms of all loans, including
small business credit card loans, to
ensure that these products are meeting
local needs and not extracting wealth. A
few commenters indicated similar
interest in ensuring that small business
credit card loans be subject to a
qualitative evaluation, expressing
support for evaluating small business
credit card loans under both the
proposed Retail Lending Test and the
proposed Retail Services and Products
Test. One of these commenters
specifically stated that the agencies
should consider factors such as
repayment rates and the affordability of
credit card terms in evaluating small
business credit card loans.
Final Rule
ddrumheller on DSK120RN23PROD with RULES2
In general.887 In final
§ ll.22(d)(1)(ii) and (iii), the agencies
have provided that they will evaluate
the distribution of a bank’s originated
and purchased small business loans and
small farm loans as separate major
product lines under the Retail Lending
Test. Specifically, the agencies will
evaluate the distribution of a bank’s
small business loans and small farm
loans in facility-based assessment areas
and in an outside retail lending area in
which small business loans and small
farm loans constitute major product
lines. Additionally, as discussed in the
section-by-section analysis of final
§ ll.17, the agencies will evaluate the
distribution of a bank’s small business
lending as a major product line in retail
lending assessment areas if small
business loans meet or exceed the
887 The transition amendments included in this
final rule will, once effective, amend the definitions
of ‘‘small business’’ and ‘‘small farm’’ to instead
cross-reference to the definition of ‘‘small business’’
in the CFPB Section 1071 Final Rule. This will
allow the CRA regulatory definitions to adjust if the
CFPB increases the threshold in the CFPB Section
1071 Final Rule definition of ‘‘small business.’’ This
is consistent with the agencies’ intent articulated in
the preamble to the proposal and elsewhere in this
final rule to conform these definitions with the
definition in the CFPB Section 1071 Final Rule. The
agencies will provide the effective date of these
transition amendments in the Federal Register after
section 1071 data is available.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
delineation threshold provided in final
§ ll.17(c)(2).
Separate evaluation of small business
loans and small farm loans. In
determining to evaluate small business
loans and small farm loans as separate
major product lines under the Retail
Lending Test, the agencies considered
that this approach is consistent with the
current large bank lending test 888 and
ensures continuity in the evaluation of
these two product lines. Additionally,
the agencies believe that small business
loans and small farm loans should be
evaluated separately because these
products can serve distinct borrower
groups with different challenges and
credit needs.889 The agencies believe
that the additional visibility provided
by separate evaluations of a bank’s small
business loans and small farm loans
better facilitates determining whether a
bank is helping to serve the credit needs
of small businesses and small farm as
part of the bank’s entire community.
The agencies expect that the final rule’s
distribution analysis for small business
loans to small businesses and small
farm loans to small farms with gross
annual revenues of $250,000 or less and
for small business loans to small
businesses and to small farm loans to
small farms with gross annual revenues
of greater than $250,000 but less than or
equal to $1 million, as discussed in the
section-by-section analysis of final
§ ll.22(e)(2)(ii)(C) and (D), will
provide additional clarity regarding how
banks are serving the needs of these
different types of borrowers.
The agencies considered, but are not
adopting, an alternative approach of
combining small business loans and
small farm loans into a single major
product line category, and evaluating
the distribution of these loans on a
combined basis. The agencies
considered that this alternative
approach would reduce complexity for
banks that would otherwise have both a
small business and small farm product
line, by reducing the total number of
product lines and associated metrics,
benchmarks, and performance ranges.
However, as discussed above, the
agencies determined that defining small
business loans and small farm loans as
separate categories would bring the
important benefits discussed above of
current 12 CFR ll.22(a).
analysis conducted by the agencies of
market benchmarks in facility-based assessment
areas where small business and/or small farm were
a major product line indicated that the median
benchmarks for small business lending and small
farm lending differed significantly, reinforcing the
agencies’ view that the credit needs and
opportunities associated with the two lending
product lines are distinct and should be evaluated
separately.
consistency with the current approach,
and provide greater visibility into how
a bank has served the credit needs of its
community. In light of these
considerations, the final rule maintains
the current and proposed approach of
evaluating small business loans and
small farm loans as separate major
product lines.
Evaluation of small business credit
card loans. The final rule retains the
current and proposed approaches of
including small business credit card
loans as small business loans when
evaluating a bank’s retail lending. The
agencies believe that evaluating small
business credit card loans is important
due to the role these loans can play in
providing short-term financing for small
businesses and small farms. Based on
supervisory experience, the agencies
believe that small business credit card
loans can provide liquidity to small
businesses and small farms that
addresses key short-term credit needs,
such as providing working capital,
facilitating cash flow, and meeting
unexpected expenses. As a result, the
agencies believe that considering small
business and small farm financing
comprehensively is important for a
broader understanding of how banks are
meeting the credit needs of their
communities. In addition, the agencies
considered that including small
business credit card loans in the
distribution analysis of a bank’s small
business lending allows appropriate
flexibility for a bank to meet community
credit needs in a way that accords with
the bank’s business model and strategy.
For these reasons, as well as for
simplicity, clarity, and consistency with
the current framework, the agencies will
continue to consider small business
credit card loans as part of the small
business product line.
Regarding treatment of small business
credit card renewals in particular, the
agencies note that the final rule is
consistent with current guidance, which
provides that a bank should collect and
report its refinanced or renewed small
business loans and small farm loans as
loan originations, but that a bank may
only report one origination per loan per
year, unless an increase in the loan
amount is granted.890 When the
agencies transition to using section 1071
data for CRA evaluations (as discussed
888 See
889 Data
PO 00000
Frm 00252
Fmt 4701
Sfmt 4700
890 Renewals of lines of credit for small
businesses and small farms are treated in the same
manner as renewals of small business loans and
small farm loans. See Q&A § ll.42(a)—5. The
treatment of renewals and refinancings pursuant to
the Community Development Financing Test (and
the Community Development Financing Test for
Limited Purpose Banks and Intermediate Bank
Community Development Evaluations) is discussed
in the section-by-section analysis of final § ll.24.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
in the section-by-section analyses of
final §§ ll.12 and ll.22(e)),
renewals will be considered to the
extent that they are reported under
section 1071.891
The agencies considered, but are not
adopting, a commenter suggestion to
separately evaluate direct and indirect
small business credit card loans. The
agencies believe that evaluating small
business loans and small farm loans
conducted through both direct and
indirect channels contributes to a more
comprehensive and consistent review of
the ways in which a bank is meeting its
community’s credit needs. As similarly
discussed in the section-by-section
analysis of § ll.22(d)(1)(iv), regarding
automobile lending, not distinguishing
between direct and indirect small
business loans is intended to ensure
consistency across product lines,
facilitating certainty, predictability, and
transparency regarding distribution
analysis. At the same time, the agencies
recognize that performance context,
including a bank’s business strategy and
product offerings, is a key factor to
consider in assessing a bank’s CRA
performance. For this reason, the
agencies may consider performance
context factors that are not accounted
for in the Retail Lending Test’s metrics
and benchmarks, including
consideration of whether a bank’s
lending in a major product line was
primarily through direct or indirect
channels, when assigning Retail
Lending Test conclusions.892
In determining to evaluate small
business credit card loans within the
small business product line as part of
the Retail Lending Test distribution
analysis, the agencies also considered
that the Retail Services and Products
Test will evaluate other aspects of a
bank’s small business credit card
lending. Specifically, as explained in
the section-by-section analysis of final
§ ll.23, the agencies will qualitatively
evaluate whether a bank’s credit
products and programs, which may
include small business credit card
lending, are responsive to the needs of
the bank’s community, consistent with
safe and sound operations.893
In addition, the agencies considered
commenter sentiment that small
business credit card lending may not in
all cases appropriately serve the credit
needs of a bank’s community. The
agencies note that these considerations
are part of the agencies’ consumer
compliance examinations and, where
applicable, pursuant to final
891 See
12 CFR 1002.104.
e.g., the section-by-section analysis of
final §§ ll.21(d) and ll.22(e) and (g).
892 See,
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
§ ll.28(d), the agencies’ evaluation of
a bank’s CRA performance would take
into consideration evidence of
discriminatory or other illegal credit
practices.
In determining to include small
business credit card loans within the
small business product line, the
agencies have also considered how the
mixture of different product types
included in the small business product
line could impact the Retail Lending
Test distribution analysis for different
banks. For example, the agencies
considered that when evaluating the
small business lending of a bank that
primarily offers one small business loan
product and does not offer small
business credit cards, the market
benchmarks used in the bank’s
distribution analysis may not reflect the
bank’s product offerings. In such
circumstances, the agencies may
consider the bank’s business strategy
and product offerings, pursuant to
§ ll.21(d)(5), when assigning Retail
Lending Test conclusions for this bank,
which the agencies believe will address
cases in which additional
considerations are necessary to inform
the distribution analysis.
Section ll.22(d)(1)(iv) Automobile
Loans
The agencies proposed to evaluate the
distribution of a bank’s automobile
loans using a metrics-based approach
under the Retail Lending Test. Under
the proposed approach, automobile
loans would be evaluated in a facilitybased assessment area, retail lending
assessment area, or outside retail
lending area if the bank’s originated and
purchased automobile loans are a major
product line in such facility-based
assessment area, retail lending
assessment area, or outside retail
lending area.
The agencies received feedback on the
proposal to evaluate the distribution of
a bank’s automobile loans under the
Retail Lending Test from a variety of
commenters expressing a range of views
regarding whether the agencies should
evaluate automobile loans under the
distribution analysis component of the
Retail Lending Test when automobile
loans constitute a major product line,
with some commenters supporting the
proposed approach, and other
commenters recommending an
alternative approach for evaluating
automobile loans, such as a qualitative
evaluation approach. Some commenters
also disagreed about the types of
automobile loans that the agencies
should be considered in the distribution
analysis, especially indirect automobile
loans.
PO 00000
Frm 00253
Fmt 4701
Sfmt 4700
6825
The agencies are adopting the
proposal to evaluate the distribution of
a bank’s automobile loans under the
Retail Lending Test, with certain
changes. Specifically, under the final
rule, the agencies only evaluate
automobile loans under the distribution
analysis component of the Retail
Lending Test if (1) automobile lending
constitutes a majority of the bank’s retail
lending, or (2) the bank opts to have its
automobile loans evaluated. In these
cases, the agencies evaluate the
distribution of a bank’s originated and
purchased automobile loans, including
indirect automobile loans, in facilitybased assessment areas or outside retail
lending area in which automobile loans
constitute a major product line.
The Agencies’ Proposal
The agencies proposed in
§ ll.22(a)(4)(i)(F) to include a bank’s
automobile lending in the distribution
analysis under the Retail Lending Test
if automobile loans constitute a major
product line in a facility-based
assessment area, retail lending
assessment area, or outside retail
lending area. Under the proposal,
automobile loans would be the sole
consumer loan type evaluated under the
distribution analysis component of the
Retail Lending Test.894 The agencies
explained in the preamble to the
proposed rule that automobile loans
should be evaluated under the Retail
Lending Test because automobile loans
can be important in areas where jobs are
located a significant distance away from
an individual’s residence, particularly
where public transportation is not
readily available. The agencies also
explained that automobile loans can
serve as a means for consumers to build
a credit history.
The agencies requested feedback on
whether the benefits of evaluating
automobile lending under the
distribution analysis component of the
894 Under the proposal, automobile loans and
other types of consumer loans could also be
considered under the responsive retail lending
products and programs prong of the Retail Services
and Products Test. The proposed treatment of
automobile loans and other consumer loans would
thus depart from the practice of the current CRA
regulations, under which the geographic and
borrower distributions of a bank’s motor vehicle,
credit card, other secured, and unsecured loans are
evaluated as separate consumer loan categories
under the lending test if consumer lending
constitutes a substantial majority of a bank’s
business. See current 12 CFR ll.22(a)(1). Current
interagency guidance on when to consider large
banks’ consumer lending states, ‘‘‘[t]he Agencies
interpret ‘substantial majority’ to be so significant
a portion of the institution’s lending activity by
number and dollar volume of loans that the lending
test evaluation would not meaningfully reflect its
lending performance if consumer loans were
excluded.’’ See Q&A § ll.22(a)(1)–2.
E:\FR\FM\01FER2.SGM
01FER2
6826
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
Retail Lending Test would outweigh
other considerations such as the impact
of data collection and reporting
requirements on banks. The agencies
also asked whether they should instead
adopt a qualitative approach to
evaluating automobile lending for all
banks.
Comments Received
Evaluation of automobile loans under
the Retail Lending Test distribution
analysis. A few commenters expressed
support for evaluating the distribution
of a bank’s automobile loans under the
Retail Lending Test as proposed. In
general, these commenters stated that
including automobile lending in the
distribution analysis would make the
evaluation of a bank’s retail lending
more comprehensive and would
encourage this type of lending to lowor moderate-income borrowers.
Other commenters recommended that
the agencies pair the metrics-based
evaluation of automobile lending with a
qualitative assessment that considers
whether a bank’s automobile lending
program is, for example, conducted in a
safe and sound manner, compliant with
consumer lending laws, meeting
consumer needs, and promoting climate
resiliency.
However, most commenters that
addressed the evaluation approach for
automobile loans opposed or expressed
significant concerns with evaluating
automobile loans under the distribution
analysis of the Retail Lending Test as
proposed. Many of these commenters
explicitly stated that the agencies
should evaluate automobile lending
purely qualitatively, with several
commenters specifying that the
evaluation should take place only under
the Retail Services and Products Test.
Another commenter observed that banks
lack a historical foundation to estimate
expected performance for new retail
product lines that the agencies proposed
to evaluate under the distribution
analysis component of the Retail
Lending Test, such as automobile
lending and multifamily lending.
Commenters that opposed or
expressed concerns with evaluating the
distribution of a bank’s automobile
loans under the Retail Lending Test
discussed a number of issues, including
the nature and composition of the
automobile finance market; potential
data issues associated with a metricsbased approach; the objectives of the
CRA; and possible unintended
consequences with the proposed
quantitative approach.
First, a number of these commenters
asserted that the banking industry
represents a relatively small percentage
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
of the overall automobile lending
market and described the market as
being heavily composed of nonbanks,
credit unions, and captive finance
companies, none of which are subject to
CRA. Further, these commenters stated
that most banks conduct automobile
lending primarily through indirect
channels via partnerships with third
parties that remain primarily
responsible for marketing, originating
sales, and financing for customers. For
these reasons, these commenters
asserted that banks have limited control
over the geographic and borrower
distributions of automobile loans. Thus,
these commenters stated that
automobile loans are unsuitable for a
metrics-based evaluation under the
proposed Retail Lending Test.
Second, some commenters stated that
the agencies’ proposal to limit data
collection and reporting requirements
for automobile lending to banks with
assets of over $10 billion would create
a universe of reporters that would
capture only a small segment of total
bank automobile lending. These
commenters stated that this incomplete
dataset would lead to inaccurate market
benchmarks under the proposed Retail
Lending Test for this product line. To
address this issue at least one
commenter recommended expanding
the automobile lending data
requirements to all large banks, and to
wholesale and limited purpose banks
with assets over $10 billion.
Third, some commenters asserted that
the proposed approach for evaluating a
bank’s automobile lending performance
would be inconsistent with their view of
the CRA’s historic focus and mission,
and with the evaluation of consumer
loans under the current rule.
Specifically, these commenters
expressed that the CRA focuses on home
mortgage and small business loans for
low- or moderate-income individuals,
communities, and small businesses, and
not on depreciable assets such as
automobiles. These commenters further
maintained that adding automobile
lending as a major product line would
deemphasize other wealth-building
products. For this reason, a few
commenters recommended that, if the
metrics-based approach to evaluating
automobile loans is retained, the
agencies should cap the weight and
impact of automobile loans in each
assessment area so as not to dilute the
impact of more important loan products,
especially home mortgage and small
business loans. Relatedly, a few
commenters stated that the agencies did
not provide supporting data or analysis
demonstrating that automobile loans
facilitate job access and credit building,
PO 00000
Frm 00254
Fmt 4701
Sfmt 4700
or otherwise justifying the special
treatment of automobile loans compared
to other types of consumer loan
products.
Finally, a few commenters shared
viewpoints on potential unintended
consequences that could result from the
evaluation of the distribution of a bank’s
automobile loans under the proposed
Retail Lending Test. For example, some
of these commenters warned that banks
may elect to scale back their automobile
lending, may exit the automobile
lending market entirely, or may become
less attractive to automobile dealers
than nonbank providers if banks require
dealers to take certain actions to comply
with CRA. As a result, these
commenters stated that the proposal
would lead to a reduction in the
availability of safe, responsible
automobile loans, and ultimately leave
the automobile lending market to
nonbank lenders not subject to the CRA.
Types of automobile loans
considered. A number of commenters
addressed the types of automobile loans
that the agencies should include or
exclude from consideration if
automobile loans are evaluated under
the distribution analysis component of
the Retail Lending Test. For example, a
commenter encouraged the agencies to
define automobile lending as all
automobile lending, including
automobile purchase loans, loans to
consumers for household purposes that
are secured by automobiles, and
automobile refinance lending, stating
that all of these loan products are
important means of establishing and
building credit for low- or moderateincome individuals.
Several commenters recommended
excluding, or otherwise expressed
concerns with, indirect automobile
loans due to the limited role that banks
play in indirect automobile lending. At
least one such commenter
recommended that if the agencies do not
exclude indirect automobile loans from
evaluation, then the agencies should
evaluate direct and indirect automobile
loans as separate product lines under
the distribution analysis. At least one
other commenter recommended that the
agencies consider performance context
and qualitative factors to a greater extent
when evaluating indirect automobile
loans. A different commenter similarly
stated that it would be unfair to
compare a direct to an indirect
automobile lender, and recommended
that the agencies consider a bank’s
automobile lending volume and
business model in determining whether
and how to evaluate the bank’s
automobile lending, including what
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
automobile lending data requirements
apply to the bank.
By contrast, a few commenters stated
that the agencies should consider and
scrutinize a bank’s indirect automobile
lending, emphasizing that indirect
automobile loans may be predatory.
ddrumheller on DSK120RN23PROD with RULES2
Final Rule
For the reasons discussed below, the
agencies are adopting the proposal, with
substantive modifications, to evaluate
the distribution of a bank’s automobile
loans under the Retail Lending Test
pursuant to final § ll.22(d)(1)(iv). As
discussed above in the introduction to
the section-by-section analysis of
§ ll.22, under the final rule,
automobile loans are only evaluated
under the Retail Lending Test, including
the distribution analysis, if the bank is
a majority automobile lender, as defined
in § ll.12, or if the bank opts to have
its automobile loans evaluated. In these
cases, under the final rule the agencies
will evaluate the distribution of a bank’s
originated and purchased automobile
loans, including indirect automobile
loans, in the bank’s facility-based
assessment areas and, as applicable,
outside retail lending area.895
Evaluation of automobile loans under
the Retail Lending Test distribution
analysis. The agencies believe it is
appropriate to evaluate the distribution
of a bank’s automobile loans for certain
banks using an approach that leverages
metrics under the Retail Lending Test.
While some commenters expressed that
automobile loans are not a wealthbuilding credit product, the agencies
believe that access to automobile loans
may increase the incomes and economic
mobility of low- and moderate-income
individuals through improved access to
education, vocational training, and
employment opportunities in
geographic areas where public
transportation is not readily available.
Furthermore, automobile loans
represent the second largest category of
household debt in terms of total debt
outstanding, after home mortgages, and
slightly greater than student loans.896
895 The agencies proposed to also evaluate the
distribution of a large bank’s automobile loans in
retail lending assessment areas if such loans
constitute a major product line. However, as
discussed in greater detail in the section-by-section
analysis related to § ll.17(d), under the final rule,
only closed-end home mortgage loans and small
business loans are evaluated in retail lending
assessment areas.
896 See Federal Reserve Bank of New York, Center
for Microeconomic Data, ‘‘Total Household Debt
Reaches $17.06 Trillion in Q2 2023; Credit Card
Debt Exceeds $1 Trillion’’ (Aug. 8, 2023), https://
www.newyorkfed.org/newsevents/news/research/
2023/20230808; see also Household Debt and Credit
Report (Q2 2023), https://www.newyorkfed.org/
microeconomics/hhdc.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Inclusion of automobile loans in the
retail lending distribution analysis thus
reflects the importance of this product
line to low- and moderate-income
borrowers and communities.
The agencies considered adopting a
purely qualitative approach, without a
distribution analysis, to evaluating
automobile loans, as some commenters
suggested. However, the agencies
believe that a qualitative approach
would be less transparent and less
predictable than a distribution analysis,
and thus, would not be consistent with
the agencies’ objectives. In addition, and
as discussed in the section-by-section
analysis of final § ll.23(c), automobile
loans may also be qualitatively
evaluated under the Retail Services and
Products Test, which considers whether
a bank’s credit products and programs
are, consistent with safe and sound
operations, responsive to the credit
needs of the bank’s entire community,
including the needs of low- and
moderate-income individuals and
residents of low- and moderate-income
census tracts. The Retail Services and
Products Test would therefore allow the
agencies to assess qualitative aspects of
a bank’s automobile lending (such as
affordability), as many commenters
recommended.
The agencies have considered other
commenter concerns regarding the
significant role that nonbank lenders
represent in the automobile lending
market, and regarding the banking
industry’s relatively small percentage of
the automobile lending market.
However, based on supervisory
experience and agency analysis, the
agencies are aware that, for a particular
bank, automobile lending may be a
significant share of its retail lending.
Therefore, the agencies believe it is
appropriate to evaluate the distribution
of certain banks’ automobile loans to
ensure these banks are meeting the
automobile financing credit needs of
their entire communities.
The agencies have also considered
some commenters’ concerns that the
market benchmarks that the agencies
proposed to use in evaluating the
distribution of a bank’s automobile
loans could be incomplete or skewed
due to the limited applicability of the
proposed automobile lending data
requirements or the differences between
the business models of banks that make
automobile loans. As discussed further
in the section-by-section analysis of
§ ll.22(e), the agencies have
determined that there would be
insufficient bank automobile lending
data necessary to construct suitable
market benchmarks and corresponding
performance ranges. In light of this
PO 00000
Frm 00255
Fmt 4701
Sfmt 4700
6827
determination, under the final rule, a
bank’s geographic and borrower
distributions with respect to automobile
lending are compared only to
community benchmarks, and not to
market benchmarks. Thus, the agencies
will develop supporting conclusions
regarding the distribution of a bank’s
automobile lending without the use of
performance ranges, similar to how the
agencies evaluate consumer loans in
CRA examinations under the current
regulation. The agencies believe the
changes in the final rule, relative to the
proposal, resolve the potential issues
noted by commenters regarding the
reliability of the market benchmarks for
automobile lending, because market
benchmarks will not be used under the
final rule approach for automobile
lending.
The agencies also considered the
range of views expressed by
commenters about the potential impact
of evaluating the distribution of a bank’s
automobile loans under the Retail
Lending Test, with some commenters
predicting that such an evaluation
approach would encourage more
automobile lending, and other
commenters warning that banks would
withdraw from the automobile loan
market. As discussed above, however,
under the final rule, evaluation of
automobile loans under the distribution
analysis component of the Retail
Lending Test is optional for the vast
majority of banks. For this reason and
based on the other changes to the
evaluation approach to automobile
lending discussed above, the agencies
believe that the final rule approach to
evaluating automobile lending is
reasonable and appropriately tailored.
Treatment of indirect automobile
loans. Under the final rule approach,
the agencies evaluate the distribution of
a bank’s automobile loans without
regard to whether the loans are
originated or purchased through direct
or indirect channels. In making this
determination, the agencies have
considered commenter concerns
regarding indirect automobile loans,
including commenters recommending
that indirect automobile loans be
excluded from the distribution analysis.
However, based on supervisory
experience, the agencies are aware that
indirect automobile loans may represent
a significant majority of automobile
loans for certain banks, and that
excluding indirect automobile loans
from evaluation may therefore provide
an incomplete picture of a bank’s
E:\FR\FM\01FER2.SGM
01FER2
6828
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
automobile lending.897 In addition,
excluding indirect loans from the
automobile loan product line would be
inconsistent with other major product
lines evaluated under the distribution
analysis of the Retail Lending Test,
which do not exclude indirect loans.
The agencies have also determined
that an alternative approach of
separately evaluating the distribution of
a bank’s direct and indirect automobile
loans would increase complexity in the
Retail Lending Test evaluation and
could require setting separate major
product line thresholds for these two
types of automobile lending.
Furthermore, the agencies note that
aggregating direct and indirect
automobile loans is consistent with how
a bank reports its automobile loans on
its Call Report, which does not
distinguish direct and indirect lending.
Product Lines Excluded From Retail
Lending Distribution Analysis
Open-End Home Mortgage Loans
ddrumheller on DSK120RN23PROD with RULES2
The Agencies’ Proposal
The agencies proposed to evaluate all
open-end home mortgage loans secured
by a one- to four-unit dwelling as a
separate product line under the Retail
Lending Test.898 The agencies proposed
that this product line would include
home equity lines of credit and other
open-end lines of credit secured by a
dwelling, excluding multifamily
loans.899 The agencies explained that
they recognized that closed-end home
mortgage loans and open-end home
mortgage loans serve distinct purposes
for low- and moderate-income
borrowers and communities and are
sufficiently different to warrant separate
evaluation.
The agencies proposed to use a
distribution analysis to evaluate all
open-end home mortgage loans under
the approach described in the Retail
Lending Test.900 However, the agencies
also sought feedback on whether to
instead solely evaluate open-end home
mortgage loans qualitatively under the
proposed Retail Services and Products
Test. The agencies noted that a
qualitative review under the Retail
897 See Andreas Grunwald, Jonathan Lanning,
David Low, and Tobias Salz, ‘‘Auto Dealer Loan
Intermediation: Consumer Behavior and
Competitive Effects,’’ National Bureau of Economic
Research Working Paper 28136 (Nov. 2020), https://
www.nber.org/system/files/working_papers/
w28136/w28136.pdf.
898 See proposed § ll.22(a)(4)(i)(B). The
agencies proposed in proposed § ll.12 to define
‘‘open-end home mortgage loan’’ to have ‘‘the same
meaning as given to the term ‘open-end line of
credit’ in 12 CFR 1003.2(o), excluding multifamily
loans as defined in [§ ll.12].’’
899 See proposed § ll.22(a)(4)(i)(B).
900 See proposed § ll.22(b) through (d).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Services and Products Test would focus
on the responsiveness of open-end
home mortgage loans, which might be
appropriate given the range of potential
uses for an open-end home mortgage
loan. Similarly, the agencies noted that
lower lending volumes for open-end
home mortgage loans might limit the
usefulness of market benchmarks under
the Retail Lending Test for an open-end
home mortgage product line,
particularly in assessment areas with
limited open-end home mortgage
lending.
Comments Received
A few commenters supported the
proposal to evaluate open-end home
mortgage loans quantitatively under the
proposed Retail Lending Test. A
commenter stated that evaluating openend mortgage loans only under the
Retail Services and Products Test would
be too subjective. Another commenter
emphasized the importance of open-end
home mortgage loans for providing
ready access to capital for home
improvement or emergency repairs.
A few commenters expressed support
for the proposed approach of evaluating
open-end home mortgage loans under
both the Retail Lending Test and the
Retail Services and Products Test. A
commenter favored evaluating the
distribution of a bank’s open-end home
mortgage lending under the proposed
Retail Lending Test and whether these
products have features responsive to
low- and moderate-income community
needs under the proposed Retail
Services and Products Test. Another
commenter suggested that the agencies
evaluate open-end home mortgage loans
qualitatively under the Retail Services
and Products Test due to lower
volumes, but also include open-end
home mortgage loans in the retail
lending volume screen and ensure a
quantitative evaluation of the
distribution of these loans if demand for
these loans increases. Another
commenter supported evaluating the
distribution of a bank’s open-end home
mortgage loans and also recommended
evaluating pricing and terms of home
equity loans, suggesting that home
equity lines of credit can be wealthextracting.
In contrast, several commenters
suggested that open-end home mortgage
loans should not be evaluated
quantitatively under the proposed Retail
Lending Test and should be evaluated
solely under the proposed Retail
Services and Products Test. Some of
these commenters reasoned that
evaluating the distribution of open-end
home mortgage loans is not appropriate
because many banks are not required to
PO 00000
Frm 00256
Fmt 4701
Sfmt 4700
report these loans under HMDA, which
would limit the usefulness of Retail
Lending Test market benchmarks. A
commenter asserted that open-end home
mortgage loans would be unlikely to
qualify as a Retail Lending Test major
product line. Another commenter
reasoned that market conditions can
vary significantly among local
geographic areas and that market
uncertainty can be accounted for under
a qualitative approach but not under a
quantitative approach. This commenter
also warned that some lenders use riskbased pricing and high loan-to-value
ratios to underwrite home equity loans,
raising safety and soundness concerns.
Other commenters suggested that the
agencies should conduct more research
to analyze the extent to which open-end
home mortgage lending is critical for
low- and moderate-income households
in meeting needs and whether such
lending is affordable and sustainable
before determining whether open-end
home mortgage loans should be
evaluated under the proposed Retail
Lending Test or the proposed Retail
Services and Products Test.
Final Rule
Under the final rule, the agencies will
not evaluate a bank’s open-end home
mortgage lending using the Retail
Lending Test’s distribution analysis.901
The agencies will evaluate all of a large
bank’s retail lending, including its openend and closed-end home mortgage
lending, for responsiveness to the credit
needs of its community under the Retail
Services and Products Test in final
§ ll.23 (discussed in detail in the
section-by-section analysis of final
§ ll.23). Closed-end home mortgage
lending would also be evaluated under
the Retail Lending Test distribution
analysis, as discussed above, while
open-end home mortgage lending would
not be included in this analysis.
Additionally, intermediate banks and
small banks may request additional
consideration for responsive retail
products and programs, including openand closed-end home mortgage products
and programs.902 Consistent with the
proposal, the final rule also provides
that originations and purchases of openend home mortgage loans will continue
to be quantitatively considered as part
of the Bank Volume Metric of the Retail
901 As discussed in the section-by-section analysis
of final § ll.12, the final rule defines ‘‘open-end
home mortgage loan’’ as follows: ‘‘Open-end home
mortgage loan has the same meaning given to the
term ‘‘open-end line of credit’’ in 12 CFR 1003.2,
excluding loan transactions set forth in 12 CFR
1003.3(c)(1) through (10) and (13) and multifamily
loans as defined in [§ ll.12].’’
902 See the section-by-section analysis of final
§ ll.21.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
Volume Lending Screen applied in
facility-based assessment areas for all
banks subject to the Retail Lending
Test.903
In determining to evaluate open-end
home mortgage lending under the Retail
Services and Products Test and not also
as a major product line under the
distribution analysis of the Retail
Lending Test, the agencies considered a
number of factors. First, the agencies
considered that, although open-end
home mortgage loans can help to meet
important community credit needs,
these products may involve unique
risks, in part because they are designed
to allow borrowers to reduce equity in
their homes at irregular intervals and
often involve variable interest rates.
These risks are not considered under the
Retail Lending Test distribution
analyses. In addition, the agencies also
considered that open-end home
mortgage loans include a heterogeneous
mixture of unique product types that are
designed to serve a wide variety of
consumer credit needs. As a result,
evaluating all open-end home mortgage
loans as a single product line would
include a mixture of product types
within a single product line, such as
open-end home equity lines of credit
and open-end reverse mortgage loans.
Evaluating these products on a
combined basis may result in market
benchmarks that are not an appropriate
point of comparison for a bank that
specializes in only one specific openend home mortgage loan product type.
Alternatively, further separating openend home mortgage loans into
additional product lines would increase
the complexity of the Retail Lending
Test approach and may result in
instances where a bank has too few
loans in any specific open-end home
mortgage loan product line to evaluate
as a major product line.
The agencies also believe that
excluding open-end home mortgage
loans from the distribution analysis in
the final rule appropriately reduces
complexity associated with the Retail
Lending Test, and is responsive to
commenter concerns in that regard.904
903 See the section-by-section analysis of final
§ ll.22(c); final appendix A, paragraph I.a.1.
904 Analysis of historical lending data showed
that excluding open-end home mortgage loans
reduced the number of major product lines for
approximately 1,500 facility-based assessment areas
(approximately 20 percent of facility-based
assessment areas for large banks and intermediate
banks included in the analysis), in which open-end
home mortgage lending would have been a major
product line under the proposal. This analysis used
2018–2020 data for facility-based assessment areas
from the CRA Analytics Data Tables. The number
of facility-based assessment areas with fewer
product lines is calculated as the number of facility-
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
However, the agencies acknowledge
commenter feedback that evaluating
open-end home mortgages solely under
a qualitative approach in the Retail
Services and Products Test would result
in additional subjectivity relative to a
quantitative approach. While a
distribution analysis of open-end home
mortgage lending may support a more
consistent and standardized evaluation
compared to a fully qualitative
approach, for the reasons discussed
above, the agencies believe it is
preferable not to designate open-end
home mortgage loans as a product line
subject to a distribution analysis. At the
same time, the agencies believe that
retaining some measure of a quantitative
evaluation of open-end home mortgage
loans is appropriate. The final rule
achieves this balance by evaluating
these loans qualitatively under the
Retail Services and Products Test and
quantitatively under the Retail Lending
Test, by incorporating them into the
Retail Lending Volume Screen for all
banks subject to the Retail Lending Test
in their facility-based assessment areas.
The agencies believe that considering a
bank’s open-end mortgage lending
under the credit products and programs
component of the Retail Services and
Products Test will best focus
evaluations on whether these products
are responsive to the credit needs of
communities, including low- and
moderate-income individuals and
census tracts.
Exclusion of Multifamily Loans
In the final rule, the agencies have
decided that they will not evaluate
multifamily lending under the
distribution analysis of the Retail
Lending Test. Rather, as discussed in
the section-by-section analyses of
§§ ll.13, ll.23, and ll.24,
multifamily lending may be evaluated
under the Retail Services and Products
Test, the Community Development
Financing Test, the Community
Development Financing Test for
Wholesale and Limited Purpose Banks,
the Intermediate Bank Community
Development Test, and the Small Bank
Lending Test, as applicable.
based assessment areas that would have fewer
product lines when removing open-end mortgages
from the major product line calculation, compared
to an approach with four product lines (closed-end
home mortgage loans, open-end home mortgage
loans, small business loans, and small farm loans).
Major product lines were determined in this
analysis using the final rule major product line
threshold of at least 15 percent of a bank’s retail
lending based on the average of loan count and loan
amount.
PO 00000
Frm 00257
Fmt 4701
Sfmt 4700
6829
The Agencies’ Proposal
The agencies proposed in
§ ll.22(a)(4)(i)(C) to evaluate
multifamily loans as a major product
line using the distribution metrics under
the proposed Retail Lending Test.905
The agencies noted that this approach
would recognize the role of multifamily
loans in helping to meet community
credit needs, such as financing housing
in different geographies and for tenants
of different income levels. In addition,
the agencies sought feedback on
standards for determining when to
evaluate multifamily loans under the
Retail Lending Test, if included as a
major product line in the final rule
approach. As discussed further in the
section-by-section analyses of final
§§ ll.13 and ll.22, and consistent
with the approach under the current
CRA regulations,906 the agencies also
proposed: (1) consideration of
multifamily loans that provide
affordable housing to low- or moderateincome individuals under the proposed
Community Development Financing
Test, the Community Development
Financing Test for Wholesale or Limited
Purpose Banks, or the intermediate bank
community development evaluation;
and (2) that an intermediate bank that is
not required to report a home mortgage
loan, a small business loan, or a small
farm loan may opt to have the loan
considered under the Retail Lending
Test, or, if the loan is a qualifying
activity pursuant to proposed § ll.13,
under the Community Development
Financing Test or the intermediate bank
community development performance
standards.907
The agencies proposed that a bank’s
multifamily lending performance under
the Retail Lending Test would be
evaluated using loan count, as was the
case under the proposal for other major
product lines evaluated using the Retail
Lending Test’s distribution analysis.908
The agencies proposed to evaluate
multifamily loans using only geographic
distribution analysis and not borrower
distribution analysis. As a result, under
the proposal, borrower income, tenant
income, and housing affordability
would not factor into the evaluation of
multifamily loans under the Retail
905 The agencies proposed in proposed § ll.12
to define ‘‘multifamily loan’’ to mean ‘‘a loan for
a ‘multifamily dwelling’ as defined in 12 CFR
1003.2(n).’’
906 See current 12 CFR ll.12(g)(1) and (h) and
ll.22(b)(4).
907 See proposed § ll.12 (definition of
‘‘community development loan’’); see also proposed
§ ll.22(a)(5).
908 See proposed appendix A, paragraph III.1.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6830
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Lending Test.909 Given the general lack
of available borrower income data with
respect to multifamily loans, and that
many are made to entities that do not
report personal income, the agencies
explained that distribution analysis
based on borrower income would not
meaningfully measure whether
multifamily loans met community credit
needs. The agencies sought feedback on
whether an alternative measure of
geographic loan distribution for
multifamily lending would be
preferable, such as the number of units
a bank’s multifamily lending financed
in low- and moderate-income census
tracts. The agencies suggested that this
measure may better accord with the
benefit the bank’s lending brought to its
community.
Alternatively, the agencies sought
feedback on whether to evaluate
multifamily loans only under the
Community Development Financing
Test. In raising this alternative, the
agencies identified potential concerns
with evaluating multifamily loans under
the Retail Lending Test. Specifically, the
agencies noted that the Retail Lending
Test distribution analysis of multifamily
loans, which would include a
geographic distribution and not a
borrower distribution, may not
effectively measure a bank’s record of
serving the credit needs of its
community. For example, the
geographic distribution of a bank’s
multifamily loans would not indicate
whether low- and moderate-income
individuals benefit from those loans.
Relatedly, the proposal noted that the
number of multifamily loans made in
low- and moderate-income census tracts
may not adequately reflect their value to
the community. Unlike home mortgage
loans, one multifamily loan could
represent housing for anywhere from
five households to hundreds of
households, which could make loan
count an inadequate measure for how
multifamily loans benefit local
communities. The agencies noted that,
under the Community Development
Financing Test, examiners could
evaluate affordability and the degree to
which multifamily loans serve low-or
moderate-income tenants. The agencies
stated that this approach would also
avoid double-counting of multifamily
lending under the Retail Lending Test
and applicable community development
financing performance tests. The
agencies sought feedback on whether an
alternative Retail Lending Test measure
909 See proposed § ll.22(d)(2)(ii) and (iii)
(including multifamily lending in the geographic
distribution analysis and excluding multifamily
lending from the borrower distribution analysis).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
of geographic loan distribution for
multifamily lending under the Retail
Lending Test would be preferable. For
example, the agencies could evaluate
the number of units a bank’s
multifamily lending financed in lowand moderate-income census tracts. The
agencies suggested that this measure
may better accord with the benefit the
bank’s lending brought to its
community.
The agencies requested additional
feedback on whether banks that are
primarily multifamily lenders should be
designated as limited purpose banks
and have their multifamily lending
evaluated only under the Community
Development Financing Test.
Comments Received
The agencies received a number of
comments regarding evaluating
multifamily lending under the proposed
Retail Lending Test and/or under other
performance tests.
Community Development Financing.
Most commenters addressing how
multifamily loans should be evaluated
supported evaluating multifamily loans
under the Community Development
Financing Test and not under the
distribution analysis of the Retail
Lending Test, with some of these
commenters stating that multifamily
loans are largely commercial loans and
not retail loans. A number of
commenters indicated that the
Community Development Financing
Test would more appropriately place
focus on the affordability of multifamily
units to low- and moderate-income
residents, rather than on their
geographic distribution as would be
required under the Retail Lending Test.
A few commenters asserted that banks
typically have little control over where
multifamily loans are located, and that
uneven market demand in low- and
moderate-income and other areas alike
is driven by market trends and
governmental incentives. A commenter
also emphasized that the geographic
distribution analysis would not exclude
upscale housing targeted to middle- and
upper-income residents.
Some commenters also raised other
concerns with evaluating multifamily
loans under the Retail Lending Test
distribution analysis. For example, a
commenter stated that evaluating
multifamily loans under the Retail
Lending Test would produce a distorted
picture of a bank’s retail lending
performance because multifamily loans
have much larger dollar amounts.
Another commenter stated that because
most banks consider multifamily loans
to be commercial loans, there could be
logistical challenges in how banks
PO 00000
Frm 00258
Fmt 4701
Sfmt 4700
manage the impact of CRA Retail
Lending Test distribution requirements
on multifamily product lines, such as
subjecting a commercial lending
business to CRA evaluations for the first
time. This same commenter stated that
the evaluation of multifamily loans
under the Retail Lending Test would be
a departure from the agencies’ previous
focus on home mortgage loans and small
business loans, and asserted that, unlike
multifamily loans, home mortgage loans
and small business loans have been
proven to help borrowers and their
communities create and sustain wealth.
Another commenter raised a concern
that evaluating multifamily loans under
the Retail Lending Test would cause
banks to favor financing multifamily
rental properties before making retail
loans to low- and moderate-income
borrowers or to borrowers in historically
low-income geographic areas. In
addition, a few commenters stated that
HMDA data are too limited to support
a reliable Retail Lending Test
distribution analysis for evaluating
multifamily loans. Some commenters
asserted that using loan counts for
evaluating multifamily loans under the
Retail Lending Test would not allow for
sound analysis of loans for different
properties. Another commenter stated
that a Retail Lending Test geographic
distribution analysis of multifamily
loans would inappropriately focus on
the location of the corporate borrower
and not the location of the actual
property benefitting and moderateincome individuals.
Some commenters expressed concerns
regarding the proposed major product
line thresholds and the inclusion of
multifamily loans as a major product
line. Several commenters stated that
multifamily lending for most banks
would not exceed the proposed Retail
Lending Test’s 15 percent major product
line threshold, underscoring the
importance of evaluating multifamily
loans under the Community
Development Financing Test. In
contrast, a different commenter stated
that the large dollar size of multifamily
loans may account for a significant
percentage of a bank’s loan volume,
potentially making it less likely for
other product lines of the bank to
surpass the major product line standard.
Dual Consideration. Some
commenters supported multifamily
loans being evaluated under both the
Retail Lending Test and the Community
Development Financing Test. These
commenters generally suggested that
evaluating multifamily loans under both
proposed performance tests would
appropriately reflect the importance of
this product line to low- and moderate-
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
income communities and would not be
duplicative because each performance
test would evaluate different aspects of
a bank’s multifamily lending. A
commenter urged the agencies to
evaluate both the geographic and
borrower distributions of a bank’s
multifamily lending, noting that there is
evidence that minority developers are
less likely to receive financing from
traditional banks. Another commenter
suggested that the agencies consider
additional Retail Lending Test
evaluation criteria for multifamily
lending that would generally focus on
the affordability, stability, and quality of
the housing (by considering, for
example, whether the housing is
subsidized, unsubsidized, rentregulated, or market rate, as well as
housing conditions and eviction rates).
A commenter recommended that the
agencies evaluate multifamily loans
financing unsubsidized properties
under the Retail Lending Test and
multifamily loans financing subsidized
properties under the Community
Development Financing Test. This
commenter noted that unsubsidized
properties are not part of a concerted
government preservation or
revitalization strategy and do not have
long-term affordability restrictions.
In contrast, several commenters
suggested that evaluating multifamily
loans under both the Retail Lending
Test and the Community Development
Financing Test would create
undesirable incentives for banks. For
example, a commenter warned that
consideration under both performance
tests could incentivize banks to finance
multifamily housing in low- and
moderate-income census tracts
regardless of affordability and whether
it would help or hurt low- and
moderate-income individuals and
communities. A few other commenters
expressed the view that considering
multifamily loans under both
performance tests would incentivize
banks to make affordable housing loans
over equity investments. These
commenters noted that equity
investments in affordable housing are
generally more responsive to low- and
moderate-income community needs
compared to affordable housing loans
and involve more complex bank
involvement.
Evaluation of multifamily loans under
either the Retail Lending Test or the
Community Development Financing
Test. A few commenters stated that it
would be appropriate to evaluate
multifamily loans under either the
Retail Lending Test or the Community
Development Financing Test, but not
both. For example, a commenter
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
recommended that multifamily loans
that qualify for consideration under the
Community Development Financing
Test should be evaluated only under
that performance test so as not to reduce
banks’ incentives to finance specific
types of housing, such as naturally
occurring affordable rental housing.
Another commenter recommended
evaluating multifamily loans solely
under the Community Development
Financing Test for most banks, but
suggested that banks that specialize in
multifamily lending should be given the
option to classify multifamily loans as
either retail loans or community
development loans due to the proposed
heavy weighting of the Retail Lending
Test.
Multifamily lenders evaluated as
limited purpose banks. Some
commenters addressed whether banks
that are primarily multifamily lenders
should be evaluated as limited purpose
banks and should have their
multifamily lending evaluated only
under the Community Development
Financing Test for Wholesale or Limited
Purpose Banks. A few commenters
supporting this approach suggested that
banks that are engaged in 60 percent or
more of a certain activity, such as
multifamily lending, should be
measured against other limited purpose
banks so as not to dilute peer group
data, which would allow for a more
appropriate comparison to peer data. A
commenter stated that banks that are
primarily multifamily lenders should be
designated as limited purpose banks,
except that such banks should also be
evaluated under the Retail Services and
Products Test to the extent that they
operate branches and take deposits
from, or otherwise serve, the general
public. Commenters opposed to
evaluating banks that are primarily
multifamily lenders as limited purpose
banks stated that such banks should be
evaluated under the Retail Lending Test
to ensure that the geographic
distribution of their multifamily lending
does not exclude low- and moderateincome communities.
Qualitative factors. Several
commenters provided general feedback
about multifamily housing, and noted
certain considerations that should factor
into the CRA evaluation of multifamily
lending. In general, these commenters
advocated for a more holistic review of
a bank’s multifamily lending to ensure
that it serves low- and moderate-income
communities and minority
communities. A few of these
commenters highlighted that high-cost
multifamily housing located in low- and
moderate-income areas should not
result in displacement of low- and
PO 00000
Frm 00259
Fmt 4701
Sfmt 4700
6831
moderate-income individuals. Several of
these commenters stated that banks
should not finance multifamily housing
that displaces or otherwise harms lowand moderate-income and minority
tenants (e.g., multifamily housing that
does not comply with local housing and
civil rights codes, and other applicable
laws).
Final Rule
Based on consideration of commenter
input and further deliberation, the
agencies have decided that they will not
evaluate multifamily lending under the
distribution analysis of the Retail
Lending Test.910 The agencies have
determined that the proposed
geographic distribution analysis would
not sufficiently evaluate the
responsiveness of multifamily lending
to community credit needs, including
low- and moderate-income credit needs.
In particular, the evaluation of a bank’s
geographic distribution of multifamily
loans would not account for housing
affordability or whether low- and
moderate-income families benefit from
these loans, which the agencies believe
are essential factors for determining
whether a bank’s multifamily lending is
responsive to local credit needs. In
order to consider affordability and
benefits to low- and moderate-income
communities of multifamily lending
within the framework of the Retail
Lending Test, the agencies believe it
would be necessary to construct market
and community benchmarks for these
evaluation factors, which the agencies
believe would add complexity to the
evaluation. In addition, such an
approach may be constrained by data
limitations, as the agencies are not
aware of comprehensive market data on
multifamily loan originations and
purchases that includes information on
the rents charged and income levels of
the tenants of the properties financed.
In the absence of benchmarks for
housing affordability and benefits to
low- and moderate-income families, the
agencies believe that a Retail Lending
Test evaluation based on a geographic
distribution analysis alone would not
accurately reflect the responsiveness of
a bank’s multifamily lending. For
example, originating multifamily loans
for affordable housing in middle- and
upper-income census tracts might be
highly responsive to community needs,
but a geographic distribution analysis
alone would not identify these loans as
910 Accordingly, the agencies are not including
the referenced exclusions included in proposed
§ ll.22(a)(5) that would have allowed multifamily
loans to qualify for both retail lending and
community development consideration in certain
circumstances.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6832
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
serving low- and moderate-income
individuals and communities.
In addition, the agencies recognize
that there are other challenges
associated with evaluating multifamily
lending under the Retail Lending Test
using a distribution analysis. These
challenges include that: a limited
number of multifamily loan originations
in smaller facility-based assessment
areas may not support a robust
geographic distribution benchmark; the
use of loan counts may not reflect the
number of housing units supported by
multifamily loans; and that multifamily
lending may not meet the major product
line standard for evaluation for many
banks.
The agencies also considered
comments that the proposed rule’s
inclusion of six product lines on the
Retail Lending Test could create
significant challenges for banks due to
the potential complexity of monitoring
numerous metrics and benchmarks for
each potential major product line. To
consider how excluding multifamily
lending as a product line on the Retail
Lending Test might address these
concerns, the agencies analyzed
historical lending data. The analysis
showed that, applying the final rule’s
major product line standard to
intermediate bank and large bank retail
lending during the 2018–2020 period,
for banks included in the analysis,
approximately 400 facility-based
assessment areas would have fewer
product lines when multifamily lending
is excluded.911 Consequently, excluding
multifamily lending from evaluation
under the Retail Lending Test would
reduce the number of major product
lines evaluated in these bank facilitybased assessment areas.
For the reasons described above, the
agencies believe that the Retail Lending
Test framework is not sufficiently suited
to evaluating multifamily lending,
neither in combination with the
community development performance
tests, nor as the sole performance test
that evaluates these loans. Instead, the
agencies determined that multifamily
lending is more appropriately and
effectively evaluated solely as
community development lending.
Accordingly, the final rule provides that
if a multifamily loan is a community
development loan, the agencies will: (1)
for large banks, evaluate the multifamily
911 The agencies calculated the number of facilitybased assessment areas in the 2018–2020 retail
lending test sample that would have fewer major
product lines when moving from a product line
calculation with four major products (i.e., including
multifamily lending) to a product line calculation
with only three major products (only closed-end
home mortgage, small business, and small farm).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
loan under the Community
Development Financing Test; (2) for
intermediate banks, evaluate the loan
under the Intermediate Bank
Community Development Test, or
alternatively, under the Community
Development Financing Test; (3) for
small banks, evaluate the loan under the
renamed Small Bank Lending Test; and
(4) for limited purpose banks, evaluate
the loan under the renamed Community
Development Financing Test for Limited
Purpose Banks.
The agencies considered, but are not
adopting, an approach whereunder
banks specializing in multifamily
lending would be given the option to
classify multifamily loans as either
retail loans or community development
loans. As discussed above, based on
analysis and supervisory experience, the
agencies have determined that
multifamily lending is not conducive to
a distribution analysis under the Retail
Lending Test. In addition, as discussed
in the section-by-section analysis of
final § ll.28 the Community
Development Financing Test and Retail
Lending Test will be equally weighted
at 40 percent each under the final rule,
which the agencies believe helps to
ensure that a bank’s multifamily lending
meeting the standards in § ll.13(b) is
appropriately factored into its overall
ratings.
The agencies have also determined to
not evaluate banks that are primarily
multifamily lenders as limited purpose
banks. As discussed in the section-bysection analyses of final §§ ll.12 and
ll.26, a bank, such as a primary
multifamily lender, may request
designation as a limited purpose bank
and, if the relevant agency approves the
designation, will be evaluated under the
Community Development Financing
Test for Limited Purpose Banks. The
agencies believe that multifamily
lenders designated as limited purpose
banks will be appropriately evaluated
because a community development
financing framework provides a more
robust assessment of a bank’s overall
multifamily lending performance and its
responsiveness to serving its
communities, including low-and
moderate-income communities, than
would the Retail Lending Test.
Finally, with respect to qualitative
evaluation of multifamily loans, the
agencies will evaluate a large bank’s
multifamily lending for responsiveness
to the credit needs of its community
under the Retail Services and Products
Test in final § ll.23(c)(2).
Additionally, intermediate banks and
small banks may request additional
PO 00000
Frm 00260
Fmt 4701
Sfmt 4700
consideration for their responsive retail
products and programs.912
Section ll.22(d)(2) Major Product Line
Standards
The agencies proposed in § ll.22(d)
to evaluate the geographic and borrower
distributions of a bank’s major product
lines in its facility-based assessment
areas, retail lending assessment areas,
and outside retail lending area as
applicable, under the Retail Lending
Test. To focus the distribution analysis
of a bank’s retail lending on those
products with a greater importance to
the bank and its community, the
proposal provided that closed-end home
mortgage loans, open-end home
mortgage loans, multifamily loans, small
business loans, or small farm loans are
a major product line in a facility-based
assessment area, retail lending
assessment area, or outside retail
lending area if the product line
comprised 15 percent or more of a
bank’s retail lending in the particular
area, by dollar amount, over the relevant
evaluation period. For automobile loans,
the agencies proposed to calculate the
15 percent standard using a
combination of the dollar amount and
number of loans, recognizing that
automobile loans are generally lower in
dollar amount compared to other
products. The agencies sought feedback
on the proposed major product line
standards, including whether an
alternative standard should apply to
multifamily loans in particular.
Commenters submitted a range of
feedback on the proposed major product
line standards, with a few commenters
supporting the proposed major product
line approach, but most commenters
expressing concerns with or offering
alternatives to the proposed approach.
In general, these commenters warned
that the proposed major product line
standards would not necessarily ensure
that a bank’s major product lines reflect
the bank’s business model and core
product offerings. Some of these
commenters recommended alternative
major product line standards, such as a
standard based on loan counts, a
standard based on both loan dollars and
loan counts, a market share approach, or
an institution-level approach.
Commenters also expressed a range of
views on the proposed major product
line standard for multifamily loans,
including for monoline multifamily
lenders.
For the reasons discussed below, the
final rule adopts a modified version of
the proposed major product line
912 See the section-by-section analysis of final
§ ll.21.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
approach. Under the final rule, closedend home mortgage loans, small
business loans, small farm loans, or
automobile loans (if automobile loans
are a product line for the bank) are
major product lines in a facility-based
assessment area or outside retail lending
area if the bank’s loans in the product
line comprise 15 percent or more of the
bank’s loans across all of the bank’s
product lines in the area.913 This 15
percent standard is calculated based on
a combination of loan dollars and loan
count, as described further in the
section-by-section analysis related to
§ ll.12 (definition of ‘‘combination of
loan dollars and loan count’’). In
addition, under the final rule, closedend home mortgage loans or small
business loans are a major product line
in a retail lending assessment area in
any year of the evaluation period in
which the bank delineates a retail
lending assessment area based on its
closed-end home mortgage loans or
small business loans as determined by
the standard in final § ll.17(c) (i.e., at
least 150 reported closed-end home
mortgage loans, or at least 400 reported
small business loans in each of the two
preceding calendar years).
The Agencies’ Proposal
In proposed § ll.22(d), the agencies
proposed to evaluate the geographic and
borrower distributions of a bank’s major
product lines in its facility-based
assessment areas, retail lending
assessment areas, and outside retail
lending area as applicable, under the
Retail Lending Test. Proposed
§ ll.22(a)(4)(i) defined major product
line as retail lending in each of the
following six categories: closed-end
home mortgage loans, open-end home
mortgage loans, multifamily loans, small
business loans, small farm loans, and
automobile loans. Proposed
§ ll.22(a)(4)(ii) specified that closedend home mortgage loans, open-end
home mortgage loans, multifamily
loans, small business loans, and small
farm loans are considered a major
product line if such loans comprise 15
percent or more of a bank’s retail
lending in a particular facility-based
assessment area, retail lending
assessment area, or outside retail
lending area, by dollar amount, over the
relevant evaluation period. By contrast,
proposed § ll.22(a)(4)(iii) specified
that automobile loans are considered a
major product line if such loans
comprise 15 percent or more of a bank’s
913 Under the final rule, automobile loans are a
product line for the bank if the bank is a majority
automobile lender as defined in final § ll.12, or
if the bank opts to have its automobile loans
evaluated pursuant to final § ll.22.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
retail lending in a particular facilitybased assessment area, retail lending
assessment area, or outside retail
lending area, based on a combination of
the dollar amount and number of loans,
over the relevant evaluation period.914
The agencies proposed these major
product line standards to focus the
evaluation of a bank’s retail lending
products on those products with a
greater importance to the bank in a
specific community. The agencies
further reasoned that the proposed
major product line standards would
offer increased predictability.
Under the proposal, the major product
line standards would apply at the level
of a facility-based assessment area, retail
lending assessment area, or outside
retail lending area, as applicable. For
example, a large bank that primarily
extends home mortgage loans and small
business loans but also specializes in
small farm loans in a handful of rural
facility-based assessment areas would,
under the proposal, have the geographic
and borrower distributions of its small
farm loans evaluated in those rural
facility-based assessment areas
(assuming the small farm lending
exceeds 15 percent of the bank’s retail
lending in those facility-based
assessment areas by dollar volume), but
not in facility-based assessment areas or
retail lending assessment areas where
the large bank makes few or no small
farm loans. The agencies stated in the
proposal that applying the major
product line standard at the level of a
facility-based assessment area, retail
lending assessment area, or outside
retail lending area would capture
lending that affects local communities,
even if such lending might not meet a
15 percent standard at the institution
level.
Because the proposed Retail Lending
Test divided retail lending into six
distinct categories, every facility-based
assessment area, retail lending
assessment area, or outside retail
lending area in which a bank conducts
retail lending would have at least one
product that represents at least 16.6
percent (or one-sixth) of the dollar
volume of its total retail lending in that
geographic area. For this reason, the
agencies proposed setting the major
product line standards at 15 percent—
below the 16.6 percent mark—to
914 Specifically, the agencies proposed that
automobile loans would be considered a major
product line if the average of the percentage of
automobile lending dollars out of total retail
lending dollars and the percentage of automobile
loans by loan count out of all total retail lending
by loan count is 15 percent or greater in a particular
facility-based assessment area, retail lending
assessment area, or outside retail lending area. See
proposed § ll.22(a)(4)(iii)(B).
PO 00000
Frm 00261
Fmt 4701
Sfmt 4700
6833
preclude the possibility of a bank
having no major product lines.
In the preamble to the proposed rule,
the agencies sought feedback about
whether they should use a different
standard for determining when to
evaluate a bank’s closed-end home
mortgage loans, open-end home
mortgage loans, multifamily loans, small
business loans, and small farm loans
under the distribution analysis of the
Retail Lending Test, and if so, what
should that standard be and why.
Additionally, the agencies asked
whether they should use a different
standard for determining when to
evaluate multifamily loans under the
distribution analysis of the Retail
Lending Test. For example, the agencies
suggested that multifamily lending
could be considered a major product
line only where the bank is a monoline
multifamily lender or where the bank is
predominantly a multifamily lender
within the applicable facility-based
assessment area, retail lending
assessment area, or outside of facilitybased assessment area, as applicable, or
at the institution level. The agencies
further suggested that ‘‘predominantly’’
could mean that multifamily lending
ranks first in the dollar amount of a
bank’s retail lending in a geographic
area or that it accounts for a significant
percentage of the dollar volume of a
bank’s retail lending, for example 50
percent. The agencies noted that using
a different standard for determining
whether multifamily lending is a major
product line would help ensure that the
agencies assess a bank’s relevant
multifamily lending performance under
the Retail Lending Test.
With respect to automobile loans, the
agencies proposed to apply the 15
percent standard using a combination of
dollar amount and number of loans,
rather than using dollar amount alone.
For example, if a bank’s automobile
lending accounted for 10 percent of its
total retail lending dollars and 22
percent of its total retail loans by loan
count in a facility-based assessment
area, retail lending assessment area, or
outside retail lending area, as
applicable, its combined percentage
would be 16 percent, and automobile
lending would be evaluated as a major
product line under the distribution
analysis component of the Retail
Lending Test. The agencies proposed
this modified major product line
standard for automobile loans in
recognition of the fact that automobile
loans are generally lower in dollar
amount compared to other products. As
such, the agencies were concerned that
a threshold of 15 percent of a bank’s
retail lending calculated based on dollar
E:\FR\FM\01FER2.SGM
01FER2
6834
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
amount alone may rarely result in
automobile loans being identified as a
major product line. By considering both
the average of dollar amount and loan
count, the agencies’ proposal would
treat automobile loans as a major
product line for banks that would not
otherwise meet a standard that
considers only dollar volume. The
agencies stated in the proposal that this
approach recognized that automobile
loans can fulfill unique and important
credit needs for low- and moderateincome borrowers and communities.
The agencies sought feedback in the
proposal on whether they should use a
different standard for determining when
to evaluate automobile loans.
Comments Received
Support for proposed major product
line standards. A few commenters
supported the proposed major product
line standards without modification. For
example, at least one commenter stated
that the proposed major product line
standards would ensure more consistent
Retail Lending Test evaluations, provide
clarity to banks, reduce reliance on
examiner judgment, and ensure that the
agencies evaluate the geographic and
borrower distributions of all significant
areas of a bank’s retail lending portfolio.
Concerns with proposed major
product line standards. Most
commenters that addressed the
proposed major product line standards
expressed concerns with the proposed
approach. While some of these
commenters opposed having a major
product line standard at all, others
supported a major product line standard
in concept, but expressed concerns with
different aspects of the proposed
approach. Many of these commenters
suggested alternative approaches to
determining whether a product line is a
major product line, as discussed below.
In general, commenters that expressed
concerns with the proposed major
product line standards stated that the
proposed standards would not
necessarily ensure that a bank’s major
product lines reflect the bank’s business
model and core product offerings. For
example, a number of commenters
stated that the proposed threshold of 15
percent could inadvertently capture
products that a bank offers to customers
as an accommodation, but that do not
represent a core offering of the bank.
Several commenters warned that the
proposed major product line standards
would result in the agencies evaluating
a relatively low percentage of small
business lending under the distribution
analysis of the Retail Lending Test. For
example, a commenter cited an analysis
showing that the small business lending
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
of some of the most significant small
business lenders in a particular
assessment area would not constitute a
major product line under the proposed
approach. Another commenter
estimated that, under the proposed
approach, the number of its assessment
areas in which the agencies would
evaluate the geographic and borrower
distributions of its small business
lending would decrease from nearly all
assessment areas to less than 20 percent
of assessment areas. The same
commenter noted that the loan amounts
associated with a bank’s home mortgage
lending may be much larger than a
bank’s small business lending, and, as
such, the bank’s small business lending
might not trigger a major product line,
even if the bank has relatively large
small business lending market share in
its assessment area.
A few commenters emphasized a
different concern with the proposed
major product line standards, stating
that the proposed approach would
create uncertainty because banks would
not know which products constituted
major product lines until examination
time, and, as a result, banks’ ability to
implement credit programs responsive
to community needs would be impeded.
At least one of these commenters stated
that increasing the proposed major
product line threshold from 15 percent
to a higher threshold would reduce
volatility in the application of the
distribution analysis component of the
proposed Retail Lending Test.
Alternative major product line
approaches suggested by commenters.
Commenters that opposed or expressed
concerns with the proposed major
product line standards generally
suggested one of four alternative
approaches (with some commenters
suggesting combinations of these
approaches) for determining whether a
particular loan product constitutes a
major product line in a facility-based
assessment area, retail lending
assessment area, or outside retail
lending area: (1) using loan counts; (2)
using both loan dollars and loan counts;
(3) using a market share approach; or (4)
using an institution-level approach.
First, some commenters
recommended that the agencies use loan
counts, rather than a loan dollar
standard as proposed for certain product
lines, to determine whether a bank has
a major product line in a facility-based
assessment area, retail lending
assessment area, or outside retail
lending area. Many of these commenters
suggested that a major product line
should be triggered where a bank makes
more than a threshold number of loans
of a particular type in a geographic area,
PO 00000
Frm 00262
Fmt 4701
Sfmt 4700
with suggestions ranging from a de
minimis number of loans (to capture
any bank that routinely makes loans in
the product line) to 150 loans per
evaluation period. Other commenters
that supported using loan counts
suggested other alternate approaches.
For example, a commenter suggested a
major product line standard based on
whether: (1) the bank makes more than
30 loans (for small banks) or 50 loans
(for large banks) in the product line in
the geographic area; or (2) loans in the
product line represent at least 15
percent of the bank’s retail loans by loan
count in the relevant geographic area.
Second, some commenters supported
using both loan dollars and loan counts
to determine all of a bank’s major
product lines, instead of only using this
approach for automobile lending as
proposed. At least one commenter
recommended that the agencies apply
the proposed major product line
standard for automobile loans to all
other product types. Several other
commenters suggested a major product
line standard based on whether: (1) the
bank made more than 50 loans in the
product line in the geographic area
(without specifying whether this
threshold would apply annually or over
the evaluation period); or (2) loans in
the product line represent at least 15
percent of the bank’s retail loans by loan
dollars in the geographic area. A
commenter recommended using a 15
percent threshold by loan dollars in
geographic areas where home mortgage
loans are similar in size to small
business and small farm loans, but using
a 15 percent threshold by loan count in
other geographic areas.
Third, at least one commenter
suggested that the major product line
standard should be based on the bank’s
market share in the facility-based
assessment area, retail lending
assessment area, or outside retail
lending area. Specifically, the
commenter stated that a major product
line should be triggered if a bank’s loans
in a geographic area account for more
than 20 percent of the loans in the
product line in the geographic area
across all banks. The commenter
asserted that, absent such an approach,
an important segment of a local credit
market would not be evaluated,
particularly in geographic areas with
low retail lending volumes overall.
Finally, a number of commenters
suggested that a bank’s major product
lines should be determined at the
institution level. These commenters
generally believed that this approach
would ensure consistent evaluations
across a bank’s facility-based assessment
areas, retail lending assessment areas,
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
and outside retail lending areas and
enable a bank to know at the beginning
of an exam cycle which product lines
the agencies will evaluate under the
distribution analysis component of the
Retail Lending Test. Commenters
suggested various approaches for the
institution-level determination, with
some commenters favoring an
institution-level determination based on
loan count, and other commenters
favoring an institution-level
determination based on loan dollars. In
addition, at least one commenter
suggested that banks should designate
the product lines that will be evaluated
as a major product line, so long as there
is sufficient volume.
Major product line standard for
multifamily loans. Several commenters
addressed the agencies’ request for
feedback regarding the proposed
standard for determining when to
evaluate multifamily loans as a major
product line, particularly in relation to
monoline multifamily lenders and
lenders predominantly engaged in
multifamily lending. A few commenters
stated that the agencies should finalize
the proposal to use the same major
product line standard for multifamily
loans as for other product lines. A
commenter stated that the agencies
should adopt the proposed standard for
most multifamily lenders but develop a
different standard for monoline
multifamily lenders to ensure that the
predominant multifamily lender in a
geographic area, and particularly in
rural markets, is not overlooked.
Several other commenters expressed
concerns with the proposed major
product line standard for multifamily
loans and suggested a different major
product line standard for multifamily
loans than for other product lines. In
general, these commenters warned that
very few multifamily loans would be
evaluated under the distribution
analysis component of the Retail
Lending Test using the proposed
standard, despite the ongoing affordable
housing shortage. To address this issue,
a commenter suggested a qualitative
approach to determining when to
evaluate multifamily lending as a major
product line, stating that most banks
cannot compete with the very large
lenders that dominate the multifamily
loan market. Another commenter stated
that the agencies should evaluate the
geographic and borrower distributions
of a bank’s multifamily loans under the
proposed Retail Lending Test regardless
of the predominance of this product
type.
Many other commenters did not
support evaluating the geographic and
borrower distributions of a bank’s
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
multifamily lending under the Retail
Lending Test, which would eliminate
the need to designate a major product
line standard for this product line. This
feedback is discussed further in the
section-by-section analysis of final
§ ll.22(d) above.
Final Rule
For the reasons discussed below, the
agencies are adopting a modified
version of the proposed major product
line approach. Under final
§ ll.22(d)(2)(i), closed-end home
mortgage loans, small business loans,
small farm loans, or automobile loans (if
automobile loans are a product line for
the bank) are a major product line in a
facility-based assessment area or outside
retail lending area if the bank’s loans in
the product line comprise 15 percent or
more of the bank’s loans across all of the
bank’s product lines in the facilitybased assessment area or outside retail
lending area over the years of the
evaluation period.915 As specified in
paragraph II.b.1 of final appendix A,
this 15 percent standard is calculated
based on a combination of loan dollars
and loan count, as described further in
the section-by-section analysis related to
§ ll.12 (definition of ‘‘combination of
loan dollars and loan count’’). In
addition, under final § ll.22(d)(2)(ii),
closed-end home mortgage loans or
small business loans are a major product
line in a retail lending assessment area
in any year in the evaluation period in
which the bank delineates a retail
lending assessment area based on its
closed-end home mortgage or small
business loans, respectively, as
determined by the standard in final
§ ll.17(c) (i.e., closed-end home
mortgage loans are a major product line
in a retail lending assessment area with
at least 150 reported closed-end home
mortgage loans in each of the two
preceding calendar years, and small
business loans are a major product line
in a retail lending assessment area with
at least 400 reported small business
loans in each of the two preceding
calendar years).
Exclusion of open-end home mortgage
loans and multifamily loans. As
discussed in the section-by-section
analysis related to final § ll.22(d)
above, under the final rule, the
geographic and borrower distributions
of a bank’s open-end home mortgage
loans and multifamily loans are not
evaluated under the Retail Lending Test.
For this reason, the agencies are not
915 Under the final rule, automobile loans are a
product line for the bank if the bank is a majority
automobile lender as defined in final § ll.12, or
if the bank opts to have its automobile loans
evaluated pursuant to final § ll.22.
PO 00000
Frm 00263
Fmt 4701
Sfmt 4700
6835
adopting a major product line standard
for multifamily loans, or an alternative
standard for monoline multifamily
lenders, as raised in the proposal and
recommended by some commenters.
Major product line standard in
facility-based assessment areas and
outside retail lending areas—single
standard. Under the final rule, in a
facility-based assessment area or outside
retail lending area, a bank’s closed-end
home mortgage, small business, small
farm, or automobile loans (if automobile
loans are a product line for the bank) are
a major product line if the bank’s loans
in the product line comprise 15 percent
or more of the bank’s loans across all of
the bank’s product lines in the
geographic area over the years in the
evaluation period. In developing this
aspect of the final rule, the agencies
determined that it was appropriate to
establish a major product line threshold,
and that the same threshold should
apply to all product lines evaluated
under the distribution analysis
component of the Retail Lending Test in
facility-based assessment areas and
outside retail lending areas.
First, the agencies believe that a major
product line threshold is appropriate.
Although under the current rule a large
bank is generally evaluated on all home
mortgage, small business, and small
farm loans, the agencies believe that it
is appropriate to focus the evaluation on
product lines in a geographic area that
meet a materiality standard. In addition,
product lines that represent a relatively
low percentage of a bank’s retail lending
in an area and would receive less weight
than the bank’s more significant product
lines when determining the bank’s
Retail Lending Test conclusion.
Specifically, as discussed in the sectionby-section analysis related to final
§ ll.22(f) and section VII of final
appendix A, in developing a Retail
Lending Test recommended conclusion
for a facility-based assessment area or
outside retail lending area, the agencies
combine the product line scores for the
major product lines evaluated in the
area. For this purpose, each product line
score is weighted by the ratio of the
bank’s loans in the major product line
to its loans in all major product lines in
the area, based on a combination of loan
dollars and loan count. Because each
major product line is weighted based on
this share, a major product line that
represents only a small percentage of
the bank’s retail lending relative to other
major product lines in a facility-based
assessment area or outside retail lending
area would have relatively little impact
on the bank’s Retail Lending Test
recommended conclusion in the area.
For this reason, the agencies believe
E:\FR\FM\01FER2.SGM
01FER2
6836
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
that, rather than evaluating every
product line in every facility-based
assessment area or outside retail lending
area, only those product lines that cross
a threshold of materiality (i.e., the major
product line threshold) in a particular
area should be evaluated under the
distribution analysis of the Retail
Lending Test in that area. The agencies
also considered that a major product
line threshold will help to limit
complexity because product lines that
do not meet the major product line
standard would not be subject to a
distribution analysis and associated
metrics, benchmarks, and performance
ranges. In addition, based on the
agencies’ supervisory experience, the
agencies believe that some major
product line standard is appropriate
because not all product lines have a
sufficient amount of lending to conduct
a meaningful distribution analysis.
Second, the agencies believe that a
single major product line threshold
should apply to all product lines
evaluated in facility-based assessment
areas and outside retail lending areas.
The agencies believe that this approach
limits additional complexity associated
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
with monitoring which of a bank’s
product lines may exceed the major
product line standard, because a
uniform standard is applied to all
product lines. The agencies considered,
but are not adopting, an alternative
approach of adopting different major
product line standards for different
product lines. As shown in Table 7, the
agencies note that adopting different
major product line standards for
different product lines could increase
the percentage of loans evaluated under
the distribution analysis component of
the Retail Lending Test in certain
product lines, such as small farm loans.
However, the agencies believe that, on
balance, the benefits of a single
approach to the major product line
standard in facility-based assessment
areas and outside retail lending areas
outweigh the increased Retail Lending
Test coverage that could result from
adopting different major product line
standards for different product lines.
Regarding small farm lending in
particular, the agencies also considered
that while the percentage of small farm
loans evaluated under the distribution
analysis component of the Retail
PO 00000
Frm 00264
Fmt 4701
Sfmt 4700
Lending Test is estimated to be lower
than other product lines, small farm
lending is a relatively small percentage
of all retail lending.
Major product line standard in
facility-based assessment areas and
outside retail lending areas—15 percent
threshold. In considering which major
product line threshold should apply, the
agencies note that the major product
line threshold should not exceed 30
percent (i.e., just under one-third or 33
percent) to eliminate the possibility that
no product line would be evaluated in
a facility-based assessment area or
outside retail lending area. For example,
a bank (other than a majority automobile
lender or a bank that opts to have its
automobile lending evaluated) with an
equal share of closed-end home
mortgage, small business, and small
farm lending in a facility-based
assessment area, based on a
combination of loan dollars and loan
count, would have no major product
line if the agencies selected a major
product line threshold greater than 33
percent.
BILLING CODE 4810–33–P
E:\FR\FM\01FER2.SGM
01FER2
6837
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Table 7 of§ _.22( d)(2): Comparison of Major Product Line Thresholds in FacilityBased Assessment Areas (FBAAs) and Outside Retail Lending Areas (ORLAs)
Closed-End Home
Mortgage
Potential
Major
Product Line
(MPL)
Threshold
Small Business
Number of:
Percentage FBAAs and:
ORLAs:
of Lending
withMPL:
Evaluated
Small Farm
Number of:
Percentage FBAAs and I
ORLAs:
of Lending
withMPL:
Evaluated
I
10 percent
99.9
7,353
i
I
I
I
99.4
7,027:
I
I
52.9
857
43.9
609
36.5
473
31.3
377
26.2
297
I
15 percent
(final rule)
99.6
7,117 i
98.3
6,857
20 percent
99.3
6,852
96.9
6,604 !
I
I
I
I
Number of
Percentage FBAAs and
of Lending
ORLAs
Evaluated
withMPL
I
I
i
I
I
I
I
I
I
25 percent
6,530
98.8
93.2
6,225:
I
I
30 percent
97.6
6,157
87.9
5,699
I
I
Note: The columns of Table 7 labeled "Percentage of Lending Evaluated" show the percentage of closed-end
home mortgage, small business, and small farm loans originated and purchased across banks from 2018-2020 that
would have been evaluated as a major product line on the Retail Lending Test in a facility-based assessment area
or outside retail lending area under the final rule approach , using various potential major product line thresholds,
based on a combination ofloan dollars and loan count. The columns of Table 7 labeled "Number ofFBAAs and
ORLAs with MPL'' shows the aggregate number of facility-based assessment areas and outside retail lending
areas in which the product line would have been designated as a major product line under the various potential
major product line thresholds. All data was sourced from the CRA Analytics Data Tables for the years 20182020. The analysis includes intermediate and large banks that are both HMDA and CRA reporters and does not
include automobile lending. Wholesale, limited purpose, and strategic plan banks, and banks that do not have at
ddrumheller on DSK120RN23PROD with RULES2
BILLING CODE 4810–33–C
As shown in Table 7, the agencies
considered a range of potential major
product line thresholds, and the effect
that each such threshold would have on
(1) the coverage of the Retail Lending
Test distribution analysis, measured as
the share of the closed-end home
mortgage lending, small business
lending, and small farm lending across
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
banks that would have been evaluated
as a major product line in a facilitybased assessment area or outside retail
lending area, and (2) the number of
facility-based assessment areas and
outside retail lending areas in which
each product line would have been
evaluated as a major product line. Based
on the agencies’ review of this data, for
banks included in the analysis, the
PO 00000
Frm 00265
Fmt 4701
Sfmt 4700
agencies determined that adopting a
higher major product line threshold
(e.g., 25 percent or 30 percent, based on
a combination of loan dollars and loan
count), would have resulted in a lower
share of small farm lending being
evaluated as a major product line in
facility-based assessment areas and
outside retail lending areas. On the
other hand, the agencies took into
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.006
least one facility-based assessment area in a U.S. State or District of Columbia are excluded from the analysis.
6838
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
consideration that adopting a lower
major product line threshold (e.g., 10
percent, based on a combination of loan
dollars and loan count) would result in
a larger number of facility-based
assessment areas and outside retail
lending areas in which each product
line would have been evaluated as a
major product line.
The agencies believe that, on balance,
the final rule major product line
threshold of 15 percent captures an
adequate share of closed-end home
mortgage, small business, and small
farm lending, while also limiting the
number of product lines evaluated in
facility-based assessment areas and
outside retail lending areas relative to
options with a lower threshold.
Specifically, based on historical data,
for banks included in the analysis, the
15 percent threshold captured almost all
closed-end home mortgage and small
business lending, and nearly half of
small farm lending in facility-based
assessment areas and outside retail
lending areas.
Major product line standard in
facility-based assessment areas and
outside retail lending areas—
combination of loan dollars and loan
count. Under the final rule, whether a
product line meets the 15 percent major
product line standard in a facility-based
assessment area or outside retail lending
area is determined based on a
combination of loan dollars and loan
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
count. Specifically, a bank’s closed-end
home mortgage, small business, small
farm, or automobile loans (if automobile
loans are a product line for the bank) are
a major product line in a facility-based
assessment area or outside retail lending
area if the average of the following two
figures is 15 percent or more for the
product line:
• Loan dollars: The share of lending
that the product line represents across
all these product lines in the facilitybased assessment area or outside retail
lending area, by loan dollars; and
• Loan count: The share of lending
that the product line represents across
all these product lines in the facilitybased assessment area or outside retail
lending area, by loan count.
The agencies determined that using a
combination of loan dollars and loan
count to determine whether a product
line is designated as a major product in
a facility-based assessment area or
outside retail lending area is appropriate
for all product lines, rather than only
automobile loans as proposed, for two
reasons. First, using a combination of
loan dollars and loan count reflects two
different measures of impact—the dollar
amount of credit provided in a
particular facility-based assessment area
or outside retail lending area, and the
number of borrowers benefitted in the
facility-based assessment area or outside
retail lending area—both of which the
agencies view as important, and both of
PO 00000
Frm 00266
Fmt 4701
Sfmt 4700
which the agencies believe should be
accounted for in determining whether a
product line is a major product line.
Second, the agencies believe that using
a combination of loan dollars and loan
count better facilitates comparison
between product lines with significant
differences in the average loan amount,
and thus does not overly diminish the
importance of small-dollar loans. In
particular, several commenters noted
that using loan dollars alone would
diminish the importance of small
business loans due to the generally
smaller size of small business loans
relative to other product lines,
especially closed-end home mortgage.
As shown in Table 8, analysis based on
historical data shows that, for banks
included in the analysis, using a
combination of loan dollars and loan
count would have resulted in
substantially greater coverage of small
business loans evaluated as a major
product line within facility-based
assessment areas and outside retail
lending areas in 2018–2020 relative to
using loan dollars alone. In this way, the
agencies believe that using a
combination of loan dollars and loan
count accommodates banks with
different bank business models (e.g.,
different mixes of small business and
closed-end home mortgage lending),
consistent with one of the agencies’
goals for CRA modernization.
E:\FR\FM\01FER2.SGM
01FER2
6839
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Table 8 of§ _.22( d)(2): Comparison of Potential Calculation Approaches for Major
Product Line (MPL) Standard in Facility-Based Assessment Areas (FBAAs) and Outside
Retail Lending Areas (ORLAs)
Percentage of Closed-End
Home Mortgage Lending
Evaluated
Percentage of Small
Business Lending
Evaluated
Percentage of Small Farm
Lending Evaluated
15% based on a
combination of loan
dollars and loan
count (final rule)
99.6
98.3
43.9
15% by loan count
97.4
99.4
46.8
15% by loan amount
99.7
72.6
40.8
Potential MPL
Calculation Approach
Note: The columns of Table 8 show the percentage of closed-end home mortgage loans, small business loans, and
small farm loans originated and purchased across banks from 2018-2020 that would have been evaluated as a major
product line in a facility-based assessment area or outside retail lending area under the final rule approach using
different potential methods of calculating the fmal rule's 15 percent major product line standard. All data was
sourced from the CRA Analytics Data Tables for the years 2018-2020. The analysis includes intermediate and large
banks that are both HMDA and CRA reporters and does not include automobile lending. Wholesale, limited
purpose, and strategic plan banks, and banks that do not have at least one facility-based assessment area in a U.S.
Major product line standard in
facility-based assessment areas and
outside retail lending areas—absence of
collected, maintained, or reported loan
data. Pursuant to paragraph II.b.1.iii of
final appendix A, if a bank has not
collected, maintained, or reported loan
data on a product line in a facility-based
assessment area or outside retail lending
area for one or more years of an
evaluation period, the product line is a
major product line if the agencies
determine that the product line is
material to the bank’s business in the
facility-based assessment area or outside
retail lending area. The agencies believe
this provision is necessary to
appropriately evaluate a bank that has
conducted lending in a product line but
for which, due to a lack of collected,
maintained, or reported loan data, the
agencies cannot calculate whether the
product line meets or exceeds the 15
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
percent threshold discussed above. In
such cases, the agencies would consider
any information indicating that the
bank’s lending in the particular product
line is significant enough to be
considered a major product line. For
example, the agencies may consider
estimates provided by the bank of the
number and dollar amount of loans in
the product line originated and
purchased in the area, and could
determine based on these estimates
whether the product line represents
approximately 15 percent of the bank’s
retail loans in the area. The agencies
believe that this approach helps address
situations where a bank is not required
to collect, maintain or report this data
without adding new data collection or
reporting requirements.
Uncertainty regarding major product
line delineations. The agencies
considered comments that the proposed
PO 00000
Frm 00267
Fmt 4701
Sfmt 4700
major product line standard would
create uncertainty for banks regarding
which product lines would be evaluated
under the distribution analysis of the
Retail Lending Test. The agencies
believe that the final rule approach
reduces this uncertainty by reducing the
maximum number of potential major
product lines from six to four, and by
establishing a narrower standard for
when automobile lending is evaluated
on the Retail Lending Test. The final
rule approach also narrows the potential
major product lines in retail lending
assessment areas to closed-end home
mortgage loans and small business
loans. In addition, the agencies
considered that a bank may use its own
lending data to estimate which product
lines are likely to meet a 15 percent
standard in the bank’s facility-based
assessment areas and outside retail
lending area, or to meet the thresholds
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.007
ddrumheller on DSK120RN23PROD with RULES2
State or District of Columbia are excluded from the analysis.
ddrumheller on DSK120RN23PROD with RULES2
6840
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
for delineating a retail lending
assessment area. In light of these
considerations, the agencies believe that
the final major product line standard is
appropriate, and reduces potential
uncertainty relative to the proposed
approach.
Major product line standard in
facility-based assessment areas and
outside retail lending areas—other
alternatives considered. The agencies
considered, but are not adopting, several
alternatives to the proposed major
product line standards in facility-based
assessment areas and outside retail
lending areas suggested by commenters.
These alternatives, and the agencies
reasons for not adopting them, are
described below.
First, the agencies considered using
numerical loan count thresholds to
determine whether a product line
constitutes a major product line. Under
this approach, a product line would be
considered a major product line if the
number of loans in the product line in
the facility-based assessment area or
outside retail lending area exceeded a
specified number of loans. However, the
agencies believe that using a 15 percent
standard, based on a combination of
loan dollars and loan count, is
preferable to using numerical loan
counts for the purposes of designating
those product lines that are material to
the bank’s business in a particular
geographic area. For example, if the
agencies were to adopt a numerical loan
count threshold of 50 loans over the
evaluation period, then a bank with 51
small business loans in the geographic
area during that time period would have
its small business loans evaluated as a
major product line regardless of how
much lending it undertook in other
product lines. Under this example, the
51 small business loans could constitute
all of a bank’s lending in a geographic
area, or a small fraction of its overall
lending if the bank also originated, for
example, over 600 closed-end home
mortgage loans over the same time
period in the same geographic area.
Further, as discussed above, the
agencies believe that a major product
line standard that uses a combination of
loan dollars and loan count is more
appropriate than a standard that uses
loan count alone because using a
combination of loan dollars and loan
count reflects two different measures of
impact. By contrast, using loan count
alone would reflect only the number of
borrowers benefitted, without regard for
the dollar amount of credit provided.
Finally, the agencies believe that using
numerical loan count thresholds alone
could result in a greater number of
major product lines evaluated in
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
specific geographic areas, many of
which could have minimal influence on
a bank’s Retail Lending Test conclusion
given the final rule’s weighting
approach. This is particularly the case if
the agencies were to adopt a de minimis
loan count threshold, as some
commenters suggested. On the other
hand, the agencies acknowledge that
using loan counts alone could increase
the share of small farm lending across
banks that would be evaluated as a
majority product line.916 On balance,
however, the agencies believe that using
a 15 percent standard, based on
combination of loan dollars and loan
count, is a more appropriate method of
determining whether a product line
constitutes a major product line than
using loan count alone for the reasons
stated above.
Relatedly, the agencies have
considered that the major product line
standard for facility-based assessment
areas and outside retail lending areas in
the final rule could result in major
product lines consisting of a small
number of loans. The agencies have
addressed this issue in a different part
of the final rule. As discussed in the
section-by-section analysis related to
§ ll.22(g)(5), the final rule provides
that the agencies would consider as an
additional factor whether the Retail
Lending Test recommended conclusion
does not accurately reflect the bank’s
performance in a Retail Lending Test
Area in which one or more of the bank’s
major product lines consists of fewer
than 30 loans.
Second, the agencies considered, but
did not adopt, a market share approach
to determining whether a product line
constitutes a major product line, as at
least one commenter suggested. Under
this approach, a product line would be
considered a major product line if the
bank’s loans in the product line in the
facility-based assessment area or outside
retail lending area represented a certain
share of the lending market for the
product line in the geographic area. As
discussed in the section-by-section
analysis related to § ll.17(c), the
agencies also considered a market share
approach for triggering the retail lending
assessment area requirement, at the
suggestion of some commenters.
916 The agencies analyzed the percentage of
closed-end home mortgage loans, small business
loans, and small farm loans that would have been
evaluated as a major product line in a facility-based
assessment area or outside retail lending area under
various numerical loan count thresholds, using
historical data from CRA and HMDA reporter banks
for 2018–2020. For example, using a 50-loan count
threshold would have resulted in higher coverage
of small farm loans for these banks, almost 90
percent, compared to only around 45 percent under
the final rule approach.
PO 00000
Frm 00268
Fmt 4701
Sfmt 4700
However, as in the case of retail lending
assessment areas, the agencies believe
that using a market share approach to
determine whether a product line is a
major product line would be complex to
administer and would make it more
challenging for a bank to determine
which of the bank’s product lines the
agencies will consider a major product
line in a particular facility-based
assessment area or outside retail lending
area. In addition, this alternative
approach could result in designating a
major product line that constitutes a
very small share of the bank’s retail
lending in an area; in such a case, the
agencies considered that the evaluation
would not focus on a bank’s most
significant product lines, and would
include a major product line that
receives very little weight when
determining the bank’s Retail Lending
Test conclusion in an area. The agencies
therefore considered that this alternative
would add complexity without a
corresponding improvement in the
robustness of the bank’s evaluation. For
these reasons, the agencies declined to
adopt a market share approach.
Third, the agencies considered, but
did not adopt, an institution-level
approach, as suggested by some
commenters. Under this approach, a
bank’s major product lines would be
determined at the institution level (e.g.,
the bank’s top two product lines, based
on a combination of loan dollars and
loan count), and those major product
lines would be evaluated in every
facility-based assessment and outside
retail lending area with a non-zero
number of such loans. However, the
agencies believe that an institution-level
approach to determining a bank’s major
product lines in a facility-based
assessment area could overlook
products that do not meet a threshold
nationwide but are nonetheless
significant in particular markets. For
example, a bank for which small farm
lending is determined not to be a major
product line at the institution level
would never have its small farm lending
evaluated in specific geographic areas,
even in facility-based assessment areas
where the bank has made a significant
number of small business loans. The
agencies believe that the final rule’s
major product line standard for facilitybased assessment areas and outside
retail lending areas will capture those
product lines that are material to the
bank’s business in the geographic areas
in which the bank is evaluated. For
these reasons, the agencies declined to
adopt a market share approach.
Major product line standard in retail
lending assessment areas. Under the
final rule, the 15 percent major product
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
line standard applicable in facilitybased assessment areas and outside
retail lending areas does not apply in
retail lending assessment areas. Rather,
under the final rule, a large bank’s
closed-end home mortgage and small
business lending in a retail lending
assessment area is evaluated under the
distribution analysis component of the
Retail Lending Test only if such lending
surpasses the applicable loan count
threshold for triggering the retail
lending assessment area requirement in
final § ll.17(c). As discussed in the
section-by-section related to final
§ ll.17(d), the agencies determined
that applying a separate major product
line standard in addition to the loan
count thresholds for triggering the retail
lending assessment area would be
overly complex and may impose
additional compliance burden by
making it more difficult for large banks
to monitor their retail lending
performance in retail lending
assessment areas. For example, a large
bank could have a sufficient number of
small business loans in a geographic
area to trigger a retail lending
assessment area in a particular calendar
year, but the large bank’s small business
lending could represent less than 15
percent of the large bank’s retail lending
in the retail lending assessment area, in
which case, the small business loans
that triggered the retail lending
assessment area would not be evaluated
as a major product line. Conversely, a
large bank’s small business loans in an
MSA or the nonmetropolitan area of a
State could represent more than 15
percent of the large bank’s retail lending
in that geographic area, but the number
of small business loans could be
insufficient to trigger a retail lending
assessment area. The agencies believe
that the final rule’s retail lending
assessment area approach accomplishes
the agencies’ policy objectives
(discussed in the section-by-section
analysis related to final § ll.17)
without adding this unnecessary
complexity.
In addition, the agencies believe that
the loan count thresholds for triggering
the retail lending assessment area
requirement in the final rule are
sufficiently high such that, if a large
bank makes enough closed-end home
mortgage loans or small business loans
in an MSA or the nonmetropolitan area
of a State to exceed the applicable loan
count threshold triggering the retail
lending assessment area requirement,
the product line is more likely to be
material to the bank and to the retail
lending assessment area. As such, the
agencies believe that it is appropriate to
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
always evaluate the product line as a
major product line.
Section ll.22(e) Retail Lending
Distribution Analysis
Section ll.22(e)(1)
analysis in general
Distribution
Overall Retail Lending Distribution
Analysis Approach
The Agencies’ Proposal
In proposed § ll.22(d), the agencies
proposed to use a set of retail lending
distribution metrics to measure a bank’s
performance with respect to each of its
major product lines in each of its
facility-based assessment areas and
retail lending assessment areas, and in
its outside retail lending area, as
applicable. The proposed geographic
distribution metrics would measure the
level of bank lending in low-income and
moderate-income census tracts in an
area. The proposed borrower
distribution metrics would measure the
level of bank lending to borrowers of
different income levels and to small
businesses or small farms of varying
sizes, measured in gross annual
revenues. As a result, each major
product line would be evaluated in four
categories of lending. For example, for
a bank’s closed-end home mortgage
lending major product line in a facilitybased assessment area, retail lending
assessment area, or outside retail
lending area, the agencies would
evaluate the following categories,
similar to the current evaluation
approach: for the geographic
distribution analysis, (1) loans in lowincome census tracts and (2) loans in
moderate-income census tracts; and for
the borrower distribution analysis, (3)
loans to low-income borrowers and (4)
loans to moderate-income borrowers.
After calculating the relevant metrics
for each of a bank’s major product lines
in a facility-based assessment area, retail
lending assessment area, or outside
retail lending area, the agencies
proposed to compare these metrics to a
set of benchmarks intended to reflect
the extent of local lending
opportunities. The proposed
benchmarks included both community
benchmarks and market benchmarks.
The proposed community benchmarks
reflect the demographics of an area,
such as the percentage of owneroccupied housing units that are in
census tracts of different income levels,
the percentage of families that are lowincome, and the percentage of small
businesses or small farms of different
revenue levels in an area, which are
similar to benchmarks used in current
practice. The proposed market
PO 00000
Frm 00269
Fmt 4701
Sfmt 4700
6841
benchmarks reflect the aggregate
lending to targeted areas or targeted
borrowers in an area by all reporting
lenders, also similar to benchmarks
used in current practice. Under the
proposal, a bank’s performance (as
measured by relevant metrics) relative
to relevant benchmarks forms the basis
of its Retail Lending Test conclusion in
the area.917
Comments Received
The agencies received a number of
comments regarding the overall retail
lending distribution analysis approach
proposed by the agencies, with many
commenters supporting the proposed
approach, and other commenters raising
concerns with the proposed approach.
Some commenters recommended
incorporating consideration of race and
ethnicity into the retail lending
distribution analysis. Other commenters
offered alternatives to the proposed
retail lending distribution benchmarks.
Support for overall retail lending
distribution analysis approach. Many
commenters supported the agencies’
proposed metrics-based approach to
evaluating the geographic and borrower
distributions of a bank’s major product
lines. Many of these commenters
indicated that the retail lending
distribution metrics would provide rigor
on the proposed Retail Lending Test,
address what some commenters referred
to as ‘‘grade inflation’’ in CRA
performance conclusions, and
incentivize banks to increase lending to
underserved communities. A few
commenters also specifically supported
the agencies’ proposal to evaluate a
bank’s lending to small businesses and
farms under the proposed Retail
Lending Test using metrics and
benchmarks.
Concerns regarding overall retail
lending distribution analysis approach.
Conversely, many commenters raised
concerns about the proposed metricsbased approach to evaluating the
geographic and borrower distributions
of a bank’s major product lines.
Several commenters raised concerns
regarding the complexity of the overall
retail lending distribution analysis
approach. For example, at least one
commenter stated that the agencies’
proposed combination of metrics,
benchmarks, and the proposed use of
performance ranges to develop Retail
Lending Test conclusions, was too
complex, and perhaps too finely
calibrated and sensitive. Some
commenters expressed concern
917 The development of Retail Lending Test
conclusions is discussed further in the section-bysection analysis of final § ll.22(f).
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6842
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
regarding the large number of
calculations that banks would have to
make to monitor performance on the
Retail Lending Test across many areas,
and the complexity of meeting
performance expectations under the
proposed approach. For example, a
commenter noted that the proposed
rule’s distribution metrics would
require banks to collect, maintain,
analyze, and report voluminous
amounts of data on deposits, loans, peer
data, and market demographic data,
much of which is not collected today,
greatly adding to the regulatory burden
and requiring a substantial increase in
staffing. Another commenter indicated
that, given the complexity of the
proposed distribution analysis, banks
will need to conduct pre-examination
analysis to support incremental
adjustments to ensure they are meeting
the credit needs of their communities
and within the regulatory thresholds in
advance of the finality of an
examination. Another commenter stated
that the real-life experience of
attempting the proposed calculations
with real data and real examiners will
likely prove daunting, and that the
complexity of the proposed distribution
metrics and benchmarks would produce
no benefit to local communities. The
commenter suggested that the agencies
conduct a beta test of the proposed
Retail Lending Test approach using data
from banks across the country, and
publish a detailed comparison of the
time, costs, new software or tools, and
final results of the beta test and existing
examination method.
Other commenters raised concerns
that the proposed retail lending
distribution analysis approach is
inflexible and would not give sufficient
consideration to performance context.
For example, at least one commenter
recommended that the agencies allow
examiners to modify applicable
thresholds based on performance
context. A commenter also expressed
concern that while the conditions,
opportunities, and circumstances vary
in assessment areas, the performance
thresholds under the proposal would
remain largely constant.
Another commenter stated that the
proposed retail lending distribution
benchmarks rely on a number of
assumptions—for example, that the
demand for credit between low- and
moderate-income and other income
areas is substantially similar, or that the
potential for wealth building between
low- and moderate-income and other
income areas is substantially similar—
that the agencies should monitor and
verify in the long term.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Consideration of race and ethnicity.
Many commenters that supported
explicit consideration of race and
ethnicity in CRA evaluations asserted
that the agencies should develop racebased lending metrics and then compare
a bank’s metrics with demographic
benchmarks and peer banks’ aggregate
performance in the bank’s assessment
areas. For example, several commenters
suggested that the agencies could
measure the share of a bank’s total loans
in an area that are located in census
tracts with a relatively high minority
share of the population, such as
majority-minority census tracts. Under
this alternative, if the bank extended a
lower share of its retail loans to such
census tracts, the bank’s evaluation
would be adversely impacted. Likewise,
a bank’s performance evaluation would
be positively impacted if the bank
extended a higher share of its retail
loans to such census tracts. In addition,
a commenter suggested that CRA
evaluations should take race and
ethnicity into consideration by
measuring the percentage of a bank’s
home mortgage loans made to minority
families, the percentage of a bank’s
small business loans made to minority
businesses, as well as the percentage of
a bank’s retail loans made in majorityminority census tracts, and that the
agencies should assign performance
scores on this basis. This commenter
added that the bank’s retail lending
performance conclusion should be
based on a combination of these
performance scores and the low- and
moderate-income performance scores or,
alternatively, that a high performance
score on the racial distribution analysis
could be evaluated as a factor that
improves the performance conclusion
for the institution’s rating overall. A
different commenter similarly suggested
that race- and ethnicity-based retail
lending metrics could be used only to
potentially enhance a bank’s retail
lending performance conclusion,
alongside evaluation of low- and
moderate-income retail lending metrics.
Another commenter stated generally
that there should be a focus on publicly
available section 1071 data, which will
include information concerning the race
and ethnicity of small business loan
applicants and borrowers, to ensure
equal access to credit for businesses
with less than $1 million in revenue and
women and minority-owned businesses.
Alternative approaches to retail
lending distribution benchmarks. Some
commenters recommended alternative
approaches to the proposed retail
lending distribution benchmarks. For
example, a commenter recommended
PO 00000
Frm 00270
Fmt 4701
Sfmt 4700
that the agencies develop a
complementary benchmark to the
proposed benchmarks that would be
based on a bank’s contributions to the
financial health of a community. Other
commenters opposed use of community
benchmarks to evaluate a bank’s retail
lending distributions, indicating that
only market benchmarks appropriately
reflect local demand because they
measure the actual loan distribution that
results from the aggregate lending in an
assessment area.
Final Rule
For the reasons discussed below, the
agencies are adopting the general
approach of using retail lending
distribution metrics and benchmarks to
evaluate a bank’s performance with
respect to its major product lines. As
such, final § ll.22(e) provides that the
agencies evaluate a bank’s Retail
Lending Test performance in each of its
Retail Lending Test Areas (i.e., facilitybased assessment areas, retail lending
assessment areas, and outside retail
lending area) by considering the
geographic and borrower distributions
of the bank’s loans in its major product
lines. Final § ll.22(e)(1)(i) more
specifically provides that for closed-end
home mortgage loans, small business
loans, and small farm loans,
respectively, the agencies compare a
bank’s geographic and borrower
distributions to performance ranges
based on the applicable market and
community benchmarks, as provided in
final § ll.22(f) and section VI of final
appendix A. Final § ll.22(e)(1)(ii)
(regarding the distribution analysis for
automobile loans) is discussed further
below.
Use of distribution metrics and
benchmarks in general. The agencies
believe that the final rule approach to
geographic and borrower distribution
analysis of a bank’s retail lending will
further the agencies’ objectives of
evaluating whether a bank has met the
retail credit needs of a community in a
consistent and transparent manner.
Specifically, the distribution analyses
examine a bank’s percentage of loans to
different categories of borrowers and
census tracts relative to benchmarks that
are based on local data. For example, a
bank would be evaluated for its closedend home mortgage lending to (1) lowincome census tracts; (2) moderateincome census tracts; (3) low-income
borrowers; and (4) moderate-income
borrowers, respectively. The categories
of lending that would be evaluated for
each major product line are shown in
Table 9 below.
BILLING CODE 4810–33–P; 6210–01–P
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
6843
Table 9 of§ _.22(e)(l): Categories of Lending Evaluated under the Retail Lending Test
Distribution Analysis
Retail Lending Product Line
Geographic Distribution
Borrower Distribution
Lending categories evaluated
Lending categories evaluated
Low-Income Census
Tracts
Low-Income Borrowers
Closed-End Home Mortgage Loans
Moderate-Income Census
Moderate-Income Borrowers
Tracts
Low-Income Census
Tracts
Small Business Loans
Businesses with gross annual
revenues of $250,000 or less
Businesses with gross annual
revenues of greater than
Moderate-Income Census $250,000 but less than or equal
Tracts
to $1 million
Low-Income Census
Tracts
Small Farm Loans
Farms with gross annual
revenues of $250,000 or less
Farms with gross annual
revenues of greater than
Moderate-Income Census $250,000 but less than or equal
Tracts
to $1 million
Low-Income Census
Tracts
Low-Income Borrowers
Automobile Loans
Moderate-Income Census
Moderate-Income Borrowers
Tracts
The agencies determined that a
distribution analysis is necessary to
evaluate a bank’s efforts to meet the
retail credit needs of a community.
Specifically, the metrics in the
distribution analysis reflect the extent to
which a bank is lending to different
categories of borrowers and census
tracts, taking into account the bank’s
overall level of lending in each major
product line. The benchmarks for each
category of borrowers and census tracts
reflect the credit needs and
opportunities of those borrowers and
census tracts by incorporating
demographic data, such as the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
percentage of low- or moderate-income
households in an area, as well as data
on the level of lending in the area
among all reporting lenders. As
discussed further in this section, the
distribution benchmarks therefore
reflect differences in the credit needs
and opportunities across different areas,
as well as differences over time in
response to changing economic
conditions or changes in the local
population. As a result, the agencies
believe that the use of quantitative
benchmarks will account for local
performance context and increase the
consistency in evaluating performance.
PO 00000
Frm 00271
Fmt 4701
Sfmt 4700
The agencies also considered that
analyzing distributions of bank retail
lending is consistent with current
practice under the lending test.918 As
discussed in the section-by-section
analysis of § ll.22(f), the final rule
builds upon current practice by
establishing performance ranges to
increase the clarity and transparency of
the distribution analysis. The agencies
considered that alternative approaches
to a distribution analysis, such as
evaluating retail lending qualitatively
without the use of metrics, or without
918 See
E:\FR\FM\01FER2.SGM
current 12 CFR ll.22(b)(2) and (3).
01FER2
ER01FE24.008
ddrumheller on DSK120RN23PROD with RULES2
BILLING CODE 4810–33–C; 6210–01–C
ddrumheller on DSK120RN23PROD with RULES2
6844
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
benchmarks, would result in a less
robust analysis and inconsistent
application of the performance
standards.
Section ll.22(e) of the final rule
retains the proposed approach of
evaluating both the geographic and
borrower distribution of a bank’s
lending. As discussed in the agencies’
proposal, the approach of evaluating
both lending to different categories of
census tracts, and lending to different
categories of borrowers, is consistent
with current practice. The agencies
believe that a bank’s record of providing
credit both to borrowers of different
income and revenue levels as well as
neighborhoods of different income
levels are important aspects of its
overall record of helping to meet the
credit needs of its entire community.
For the geographic distribution analysis,
this approach recognizes the importance
of lending that benefits low-income and
moderate-income communities,
regardless of the income or revenue size
of the particular borrower. For the
borrower distribution analysis, the final
rule approach similarly recognizes the
importance of lending that benefits lowincome and moderate-income
individuals and smaller farms and
businesses, regardless of where they are
located.
Section ll.22(e)(3)(ii) and (iii) and
(e)(4)(ii) and (iii) of the final rule also
retain the proposed approach of
establishing both a community
benchmark and a market benchmark for
each metric for closed-end home
mortgage loans, small business loans,
and small farm loans, which is also
consistent with current practice. The
community benchmarks approximately
reflect the potential lending
opportunities in the area for each
corresponding metric. For example, the
community benchmark for evaluating a
bank’s closed-end home mortgage
lending to moderate-income borrowers
is the percentage of families in the area
that are moderate-income. The agencies
believe that the community benchmark
can provide important information for
evaluating a bank’s metric. For example,
as discussed in the section-by-section
analysis of § ll.22(f), if a bank’s
metric equals the community
benchmark, that indicates that the
bank’s lending to the relevant category
of borrowers or census tracts is
proportionate to that group’s share of
the population of the area. Under
current practice, as well as under the
proposed and final rule, the agencies
would consider this a strong indicator
that the bank has met the credit needs
of the entire community.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
The market benchmarks, which are
also used in current evaluations, are the
aggregate share of originations made to
the category of borrowers or census
tracts for each metric. For example, the
market benchmark for evaluating a
bank’s closed-end home mortgage
lending in an area to moderate-income
borrowers is the percentage of all
originations of closed-end home
mortgage loans in the area made to
moderate-income borrowers. The
agencies believe that the market
benchmark provides important
information about the level of credit
needs and opportunities in an area that
complements the information provided
by the community benchmark. For
example, in an area that has a very low
homeownership rate among moderateincome families due to a shortage of
affordable properties available for
purchase, the market benchmark may
indicate a relatively small percentage of
loans made to moderate-income
families, even though the community
benchmark indicates that these families
make up a substantial percentage of the
families in the area. In addition, the
agencies believe that the market
benchmarks are particularly important
for taking into account changes in
economic conditions. For example, the
market benchmark could reflect an
increased share of loans made to
moderate-income borrowers due to a
change in interest rates.
Consistent with the proposed
approach, the market benchmarks
would include only loan originations,
and not loan purchases, as detailed in
paragraphs III.b and IV.b of appendix A
of the final rule. The agencies believe
that excluding loan purchases results in
benchmarks that more accurately
represent the credit needs and
opportunities of an area. Specifically,
the agencies considered that including
purchased loans would allow a single
loan to be counted multiple times in the
market benchmark, even though the
loan reflects a single borrower.
Objectives in establishing distribution
metrics and benchmarks. In response to
comments stating that the proposed
Retail Lending Test was too complex,
the agencies believe that the final rule
balances ensuring that CRA evaluations
of retail lending are appropriately robust
and comprehensive, providing greater
consistency and transparency, and
reducing overall complexity relative to
the proposed approach. The agencies
have considered that a metrics-based
evaluation approach that captures the
multitude of ways that a bank may serve
the credit needs of an area necessarily
entails a degree of complexity.
Specifically, complexity arises from the
PO 00000
Frm 00272
Fmt 4701
Sfmt 4700
number of quantitative components of
the approach and the detail needed to
define and explain each component;
data collection, maintenance, and
reporting requirements that are
necessary to produce the metrics and
benchmarks; and the potential need to
monitor performance on these metrics
over time. However, the agencies
believe that each of these aspects offers
significant benefits, including accurate
measurement of bank metrics; directly
incorporating the performance context
of an area into the performance
standards through the use of thresholds
based on local benchmark data;
eliminating the use of limited scope
assessment areas and comprehensively
evaluating a bank’s major product lines;
appropriately tailoring for different bank
business models, geographic footprints,
and market conditions; increased
standardization and consistency in
performance standards and examination
procedures; greater transparency
regarding how conclusions and ratings
are determined; and the ability to
monitor performance over time relative
to specific performance standards.
Furthermore, as discussed throughout
the section-by-section analysis of
§ ll.22, the agencies have sought to
limit the overall complexity of the Retail
Lending Test. Relative to the proposed
approach, the agencies have reduced the
number of product lines evaluated
under the Retail Lending Test from six
to four, have created a more tailored,
higher standard for when an evaluation
of automobile lending is required
(discussed in more detail in the
introduction to the section-by-section
analysis of final § ll.22, above), and
more narrowly targeted retail lending
assessment area delineations, as
discussed in the section-by-section
analysis of § ll.17, which reduces the
overall number of Retail Lending Test
Areas relative to the proposed approach.
In addition, the agencies have tailored
the approach for small and intermediate
banks, including by making the Retail
Lending Test optional for small banks,
as was proposed; making the outside
retail lending area component of the
evaluation under the Retail Lending
Test optional for small and intermediate
banks that have less than 50 percent of
their retail lending outside of their
facility-based assessment areas; and not
applying retail lending assessment areas
to intermediate banks, or to small banks
that opt into the Retail Lending Test.
Also, the agencies believe that the
metrics and benchmarks finalized in the
Retail Lending Test limit complexity by
mirroring those used under the current
approach, with the addition of specific
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
thresholds corresponding to each
conclusion category, such as ‘‘High
Satisfactory.’’ As a result, the agencies
believe that banks and other
stakeholders are already familiar with
many of the components of the final
rule approach. In addition, the agencies
will develop data tools that provide
banks and the public with recent
historical data concerning the retail
lending distribution benchmarks. The
agencies believe that all of these aspects
of the final approach help to limit the
overall complexity and burden.
Consideration of race and ethnicity.
The agencies are not incorporating racebased lending metrics and benchmarks
in the geographic and borrower
distribution analysis and are not
adopting other commenter suggestions
regarding incorporating race and
ethnicity into the final rule Retail
Lending Test. For more information and
discussion regarding the agencies’
consideration of comments
recommending adoption of additional
race- and ethnicity-related provisions in
this final rule, see section III.C of this
SUPPLEMENTARY INFORMATION.
Alternatives considered. The agencies
considered, but are not adopting, an
alternative approach to eliminate the
community benchmark, and rely only
on the market benchmark. The agencies
have considered the commenter
sentiment that the community
benchmark may not reflect the credit
needs and opportunities of an area,
because a category of borrowers may
have relatively low or relatively high
credit demand regardless of their share
of the population. However, the
agencies determined that the
combination of a community benchmark
and market benchmark is preferable to
relying solely on a market benchmark.
In particular, the agencies considered
that in an area where the market
benchmark is higher than the
community benchmark, a bank whose
metric is above the community
benchmark has achieved strong
performance even if its metric is below
the market benchmark, because the
bank’s lending to the category of
borrowers or census tracts is
proportionate with the population.
Using only a market benchmark in this
scenario could effectively require a bank
to lend disproportionately to the
category of borrowers or census tracts
relative to other borrowers and census
tracts in order to earn a strong
conclusion, which the agencies do not
believe is consistent with the purpose of
CRA.
The agencies also considered, but are
not adopting, an alternative approach to
create separate market benchmarks for
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
banks of different asset sizes, such as
large banks with assets greater than $10
billion. In reaching this determination,
the agencies considered that this
approach could allow for additional
tailoring to different size banks, but that
it would result in benchmarks that may
not fully reflect the overall credit needs
and opportunities in the area, because
only a subset of lenders would be
included. Relatedly, the agencies also
considered that this alternative could
lead to more instances in which there is
insufficient data to compute a robust
market benchmark due to a small
number of banks in each asset category.
The agencies are also not adopting a
commenter suggestion to develop a
benchmark based on a bank’s
contributions to the financial health of
a community. The agencies do not
believe that comprehensive data is
available to create such a benchmark.
The agencies believe that the final
performance tests will effectively
consider the various ways that a bank
may contribute to the financial health of
a community, including through retail
lending, retail services and products,
community development financing, and
community development services. In
addition, the agencies considered that
developing a benchmark based on a
bank’s contributions to the financial
health of a community would increase
the complexity of the Retail Lending
Test approach.
Construction of Retail Lending
Distribution Metrics and Benchmarks
The Agencies’ Proposal
In proposed § ll.22(d) and sections
III and IV of proposed appendix A, the
agencies proposed to calculate bank
distribution metrics based on the
number of the bank’s originated and
purchased loans in a major product line
in a facility-based assessment area, retail
lending assessment area, or outside
retail lending area. For example, the
Borrower Bank Metric to closed-end
home mortgage loans would be
calculated by dividing the total number
of the bank’s originated and purchased
closed-end home mortgage loans to lowincome borrowers or moderate-income
borrowers, respectively, in the
geographic area by the total number of
the bank’s originated and purchased
closed-end home mortgage loans in that
geographic area overall. The agencies
stated in the proposal that using the
number of loans, rather than the dollar
amount of loans, to construct the retail
lending distribution metrics would
emphasize that smaller-value loans can
help meet the credit needs of low- and
moderate-income communities.
PO 00000
Frm 00273
Fmt 4701
Sfmt 4700
6845
To evaluate the geographic and
borrower distributions of a bank’s major
product lines, the bank’s retail lending
distribution metrics would be compared
against two types of distribution
benchmarks: market benchmarks that
reflect the aggregate lending of reporting
lenders in the area, and community
benchmarks that reflect demographic
data. The agencies proposed to calculate
the retail lending distribution
benchmarks in the same manner for all
banks, regardless of the bank’s business
model or asset size.
In calculating the geographic market
benchmarks and borrower market
benchmarks, the agencies proposed to
include all loan originations in a
particular geographic area, including
loans made by banks with or without a
branch presence, as well as loans made
by nonbank lenders. However, the
agencies did not propose to include
purchased loans in the market
benchmarks, stating that the agencies do
not consider the aggregate level of loan
purchases to reflect the extent of local
lending opportunities.
Comments Received
The agencies received a number of
comments related to the construction of
the retail lending distribution metrics
and benchmarks.
Treatment of purchased loans.
Commenters provided a range of
feedback regarding the proposed
inclusion of purchased loans in a bank’s
retail lending distribution metrics.
These comments are discussed further
in the introduction to the section-bysection analysis of § ll.22.
At least one commenter supported the
agencies’ proposal to exclude purchased
loans from the retail lending
distribution benchmarks, reasoning that
the purchases of peer lenders are not
reflective on the loan market in which
banks are competing and seeking
opportunities to serve low- and
moderate-income borrowers.
Same market benchmarks for all
banks. Some commenters addressed the
agencies’ proposal to calculate the retail
lending market benchmarks in the same
manner for all banks. For example, at
least one commenter recommended
using different market benchmarks for
banks of different asset sizes so that
banks are assessed relative to similarly
sized peers. Alternatively, the
commenter suggested that banks should
be compared to a benchmark based on
the performance of ‘‘near-peer’’ banks,
for example those within 15 percent of
the bank’s asset size.
Other commenters stated that banks
that are primarily branch-based and
those that primarily lend through non-
E:\FR\FM\01FER2.SGM
01FER2
6846
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
branch channels should not be
evaluated using the same market
benchmarks. These commenters
asserted that it would be inappropriate
to evaluate a non-branch-based bank in
a retail lending assessment area by
comparing its performance to that of
banks with a branch presence in the
same market. A number of commenters
similarly expressed that such
comparison would be inappropriate in
the case of the market benchmarks used
to evaluate the distribution of a bank’s
lending in its outside retail lending area.
In both cases, commenters emphasized
that the proposed approach would not
appropriately account for a bank’s lack
of branches in an area where
competitors may maintain branches,
and that it would be challenging for
banks to alter their balance of retail
lending in areas where they have no
physical presence.
Inclusion of nonbank lenders.
Another commenter specifically
recommended removing loans made by
nonbank lenders from the home
mortgage lending distribution
benchmarks to ensure that banks are
measured against achievable thresholds,
noting that nonbank home mortgage
lenders outperformed banks in lending
to low- and moderate-income borrowers
in some geographic areas.
ddrumheller on DSK120RN23PROD with RULES2
Final Rule
For the reasons discussed below, the
agencies are adopting generally the
same approach to constructing the retail
lending distribution metrics and
benchmarks as was proposed. In
addition, substantive changes to the
approach for evaluating the distribution
of a bank’s automobile loans are
discussed in a subsequent part of this
section.
Use of number of loans. The agencies
are finalizing their proposal regarding
calculating distribution metrics and
benchmarks using the number of loans.
For example, the numerator of the
metric for closed-end home mortgage
lending to low-income borrowers in a
facility-based assessment area would
include the bank’s number of purchased
and originated closed-end home
mortgage loans to low-income borrowers
in the area. The denominator would
include the bank’s total number of
purchased and originated closed-end
home mortgage loans to all borrowers in
the area. For this metric, a closed-end
home mortgage loan with a balance of
$150,000 made to a low-income
borrower and a closed-end home
mortgage loan with a balance of $75,000
made to a low-income borrower would
each count as one loan, with no
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
differential weighting based on the
different loan amounts.
This approach ensures appropriate
emphasis in the distribution analysis on
relatively small dollar loans, which the
agencies believe can play an important
role in fulfilling community credit
needs in low- and moderate-income
census tracts and for low- and moderateincome borrowers. For example, access
to relatively small dollar mortgage loans
can be particularly important for firsttime homebuyers, low-income
borrowers, and borrowers in areas
where home prices are relatively low. In
addition, the agencies considered that
this approach is consistent with how
retail lending distribution metrics and
benchmarks are calculated under the
current evaluation approach. In
addition, under an alternative approach
in which the distribution analysis were
based on loan amount, rather than loan
count, the agencies believe that a bank
may be able to achieve strong
performance in the distribution analyses
through serving a relatively small
number of borrowers with large loan
amounts. This may be especially likely
on the geographic distribution analysis,
which includes loans to borrowers of all
income levels, or to all small businesses,
in a low- or moderate-income census
tract. For example, under the alternative
of using loan amount for the
distribution metrics, a $500,000 closedend home mortgage loan made to an
upper-income borrower in a moderateincome census tract would count
equally as five $100,000 closed-end
home mortgage loans made in a
moderate-income census tract for the
geographic distribution analysis. For
these reasons, the agencies believe that
the final rule approach appropriately
accounts for a bank’s retail lending to all
borrowers, including those with a need
for relatively small loans, rather than
giving greater emphasis to borrowers
receiving relatively larger loans.
Lending included in market
benchmarks. Pursuant to final
§ ll.22(e)(3)(ii) and (e)(4)(ii) and the
corresponding calculations set forth in
paragraphs III.b and IV.b of final
appendix A, to calculate market
benchmarks for the borrower and
geographic distribution analysis in a
Retail Lending Test Area, the agencies
are adopting the proposed approach of
using loan originations, but not loan
purchases. Further, the agencies use
loan originations from all reporting
lenders, including nonbank lenders,
regardless of whether the reporting
lender has a deposit-taking facility in
the area. This approach would not be
applicable to automobile lending given
that there are no data reporting
PO 00000
Frm 00274
Fmt 4701
Sfmt 4700
requirements or market benchmarks
associated with automobile loans.
The final rule approach applies to the
market benchmarks used in all Retail
Lending Test Areas, and includes loan
originations in the relevant product line
from banks with and without deposittaking facilities in the area and from
nonbank lenders. The agencies believe
that using loan originations from all
reporting lenders in a Retail Lending
Test Area when constructing market
benchmarks provides a more
comprehensive view of local credit
needs and opportunities. In addition,
regarding the exclusion of purchased
loans from these benchmarks, the
agencies determined that this approach
avoids the possibility of doublecounting the same loan in the market
benchmark.
In determining that the market
benchmarks for the distribution metrics
should include all reported loan
originations in an area, the agencies
considered a number of factors.
Specifically, the agencies believe that
the total number of reported loan
originations in an area reflect the extent
of local credit needs, regardless of
whether those needs are being met by
banks with branches in the area, banks
with other business models, or by
nonbank lenders, as discussed below.
Furthermore, the local credit needs do
not depend on the delivery channels
that lenders employ in helping to meet
those needs. As a result, using an
alternative approach in which the
market benchmarks for Retail Lending
Test Areas are calculated based only on
originations by banks that have no
branches in the local market would
provide a less comprehensive and
possibly inaccurate picture of the extent
of local credit needs because it would
exclude information about credit needs
that were satisfied by other lenders. In
addition, the agencies believe that
excluding certain reporting lenders from
the market benchmarks would result in
more instances in which the number of
lenders included in the market
benchmarks in an area is insufficient for
a robust distribution analysis, in which
case the agencies would rely more
heavily on qualitative adjustments to
the distribution analysis, pursuant to
final § ll.22(g)(3). While the agencies
recognize that a bank’s business model
may influence its opportunities to lend,
the agencies have determined that it is
preferable, on balance, for the market
benchmarks to remain neutral in terms
of bank business model and to use all
available loan origination data. As part
of this determination, the agencies
considered that the presence or absence
of a branch in a community is just one
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
way that business models may differ
between banks, and that establishing
separate benchmarks for different bank
business models would be complex and
would result in inconsistent
performance standards. For example,
the agencies also considered that this
alternative would result in multiple
different market benchmarks applying
to different banks in the same
geographic area for the same category of
lending.
As noted above, the final rule also
retains the proposed inclusion of both
bank and nonbank reported loan
originations in the market benchmarks
in all Retail Lending Test Areas. As a
result, whether nonbank loan
originations are included in the market
benchmarks is dependent on whether
those loan originations are reported. For
closed-end home mortgage loans,
nonbank loan originations are currently
reported and included in HMDA data.
By contrast, small business and small
farm lending data is currently reported
only by banks, which would continue
under the final rule, pursuant to
§ ll.42, until the transition to using
section 1071 data. Because the section
1071 data will include small business
loans and small farm loans originated by
both banks and nonbanks, once the
agencies transition to using section 1071
data, the market benchmarks will
include nonbank loan originations.
ddrumheller on DSK120RN23PROD with RULES2
Data Used for Distribution Analysis of
Small Business and Small Farm Loans
The Agencies’ Proposal
To evaluate the geographic and
borrower distributions of a bank’s small
business loans or small farm loans, the
agencies proposed to compare a bank’s
small business or small farm lending
distribution metrics against market
benchmarks that reflect the aggregate
lending of reporting lenders in the area,
and community benchmarks that reflect
demographic data. To calculate the
small business loan and small farm loan
distribution metrics, the agencies
proposed to use the small business loan
and small farm loan data that is used
under the current approach (i.e., small
business loan and small farm loan data
collected, maintained, and reported by a
large bank pursuant to § ll.42, or the
bank’s own data). To calculate the small
business and small farm lending market
benchmarks, the agencies proposed to
initially use small business loan and
small farm loan data that would be
collected, maintained, and reported
pursuant to § ll.42. During this initial
period, ‘‘small business loan’’ and
‘‘small farm loan’’ would be defined by
reference to Call Report instructions.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Specifically, ‘‘small business loan’’
would include a loan to a business in
an amount of $1 million or less that is
secured by nonfarm nonresidential
properties or categorized as a
commercial or industrial loan. ‘‘Small
farm loan’’ would include a loan to a
farm in amount of $500,000 or less that
is secured by farmland or categorized as
a loan to finance agricultural production
or other loan to farmers.
However, as discussed further in the
section-by-section analysis of final
§§ ll.12, ll.42(a)(1) and (b)(1), and
ll.51, the agencies also proposed to
transition to using section 1071 data to
calculate the small business and small
farm lending distribution metrics for
banks that are section 1071 reporters,
and to calculate the small business and
small farm lending market benchmarks.
Following this transition, ‘‘small
business loan’’ would be defined as a
loan to a small business (defined by
reference to section 1071 definitions),
and ‘‘small farm loan’’ would be defined
as a loan to a small farm (defined by
reference to section 1071 definitions).
To calculate the small business and
small farm lending community
benchmarks—which are based on the
number of businesses or farms in a
geographic area—the agencies proposed
to use data sources comparable to those
used in evaluations today.
Comments Received
Use of CRA data and section 1071
data. A number of comments addressed
the agencies’ proposal to initially use
the small business loan and small farm
loan data that is used under the current
approach to calculate the small business
and small farm lending distribution
metrics and market benchmarks until as
the agencies transition to using section
1071 data. These comments, including
input regarding the impact on Retail
Lending Test evaluations of
transitioning to using section 1071 data,
are summarized in the section-bysection analysis of final § ll.42(a)(1)
and (b)(1).
Data source for community
benchmarks. At least one commenter
noted that the proposal did not identify
a third-party data provider that would
provide the demographic data on small
businesses and small farms that the
agencies would use to calculate the
small business and small farm lending
community benchmarks.919 This
commenter stated that disclosing the
data provider used is important.
Additionally, the commenter noted that
in the data collected by one third-party
919 See 87 FR 33884, 33941, Table 6 (June 3,
2022).
PO 00000
Frm 00275
Fmt 4701
Sfmt 4700
6847
provider, approximately 30 percent of
businesses report gross annual revenues
as ‘‘not applicable’’ or ‘‘not known.’’
Final Rule
The agencies are adopting the
proposed approach to evaluating the
distribution of a bank’s small business
and small farm lending, including the
proposed data sources used to calculate
the small business and small farm
lending distribution metrics, market
benchmarks, and community
benchmarks, and corresponding changes
to the definitions of ‘‘small business
loan’’ and ‘‘small farm loan.’’ As such,
and as described further in the sectionby-section analysis of final §§ ll.12
and ll.42(a)(1) and (b)(1), the agencies
will initially use the small business and
small farm lending data used under the
current approach (i.e., small business
loan and small farm loan data collected,
maintained, and reported by a large
bank pursuant to § ll.42, or the bank’s
own data) to calculate the small
business and small farm lending
distribution metrics, and will use the
small business loan and small farm loan
data collected, maintained, and reported
pursuant to § ll.42 to calculate the
small business and small farm lending
market benchmarks. During this period,
the Call Report definitions of ‘‘small
business loan’’ and ‘‘small farm loan’’
will apply. As discussed further in the
section-by-section analysis of
§ ll.42(a)(1), the agencies are also
adding indicators for: loans to
businesses or farms with gross annual
revenues of $250,000 or less; loans to
businesses or farms with gross annual
revenues of greater than $250,000 but
less than or equal to $1 million; loans
to businesses or farms with gross annual
revenues of greater than $1 million; and
loans to businesses or farms for which
gross annual revenues are not known by
the bank.
However, after section 1071 data
becomes available, the agencies will
publish a notice in the Federal Register
announcing the effective date of the
section 1071-related transition
amendments. These transition
amendments are included in the final
rule but are indefinitely delayed. Once
effective, these transition amendments
will modify various provisions of the
final rule to implement the agencies’
transition to using section 1071 data in
CRA evaluations.
Following this transition, the agencies
will use section 1071 data to calculate
the small business and small farm
lending distribution metrics for section
1071 reporters, and will use section
1071 data to calculate the market
benchmarks. As a result of the section
E:\FR\FM\01FER2.SGM
01FER2
6848
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
1071-related transition amendments,
‘‘small business loan’’ will be defined as
a loan to a small business (defined by
reference to section 1071 definitions),
and ‘‘small farm loan’’ will be defined
as a loan to a small farm (defined by
reference to section 1071 definitions).
The agencies emphasize that the
transition from using the small business
and small farm lending data that is
currently used in CRA evaluations (and
associated definitions based on the Call
Report) to using section 1071 data and
associated definitions will impact the
calculations of metrics and benchmarks
in numerous ways due to differences in
the parameters used to define which
small business loans and small farm
loans are subject to CRA data
requirements and required to be
reported under section 1071. In
particular, small business loans and
small farm loans subject to CRA data
requirements differ from the small
business loans and small farm loans
reported under section 1071 in two
respects: (1) small business loans and
small farm loans subject to CRA data
requirements are limited to loans in an
amount of $1 million or less and
$500,000 or less, respectively, but small
business loans and small farm loans
reported under section 1071 are not
subject to any limitation on loan
amount; and (2) small business loans
and small farm loans subject to CRA
data requirements are not subject to any
limitation on the size of the business or
farm, but small business loans and small
farm loans reported under section 1071
are limited to loans to businesses or
farms with gross annual revenues of $5
million or less in the preceding fiscal
year.920 In addition, whereas only banks
subject to CRA report small business
loans and small farm loans pursuant to
§ ll.42(b), any entity engaged in any
financial activity (including nonbank
lenders) must report section 1071 data
if the entity exceeds the reporting
threshold.921 The differences will
impact the loans included in the small
business lending and small farm lending
920 As described further in the section-by-section
analysis of § ll.12, following the transition to
using section 1071 data, ‘‘small business loan’’ will
be defined as a loan to a small business, and ‘‘small
farm loan’’ will be defined as a loan to a small farm,
with ‘‘small business’’ and ‘‘small farm’’ being
defined by reference to the ‘‘small business’’
definition in the CFPB Section 1071 Final Rule. The
CFPB Section 1071 Final Rule currently defines
‘‘small business’’ as a small business concern (as
defined by the Small Business Act as implemented
by the SBA) with gross annual revenues of $5
million or less in its preceding fiscal year. The $5
million gross annual revenue threshold will be
adjusted for inflation every five years after January
1, 2025. See 12 CFR 1002.106(b).
921 See 12 CFR 1002.105 (defining ‘‘covered
financial institution’’).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
distribution metrics and market
benchmarks.
The agencies believe that
transitioning to using section 1071 data
will offer a number of benefits. First, in
contrast to using small business and
small farm lending data collected,
maintained, and reported pursuant to
§ ll.42, section 1071 data will allow
for consideration of large loans to small
businesses or small farms (i.e., those in
an amount greater than $1 million or
$500,000, respectively), which the
agencies believe can help meet the
credit needs of a community. Second,
the agencies note that because small
business loans and small farm loans
subject to CRA data requirements are
not limited to firms under a certain
gross annual revenue threshold, small
business loans and small farm loans to
large businesses or large farms in lowor moderate-income census tracts
initially (and under the current
approach) receive positive consideration
under the geographic distribution
analysis; however, following the
transition to using section 1071 data,
only loans to small businesses and small
farms will be included in the geographic
distribution metrics and benchmarks,
and loans to businesses with gross
annual revenue of greater than $5
million will not be included. Third, as
discussed in the section-by-section
analysis of final § ll.42(a)(1) and
(b)(1), the agencies believe that
transitioning to section 1071 data will
reduce data collection, maintenance,
and reporting requirements, because the
agencies will be able to phase out the
existing data requirements once the
agencies transition to using section 1071
data. Finally, section 1071 data will
include data reported by banks as well
as nonbank institutions, which will
allow for market benchmarks that more
comprehensively reflect the small
business and small farm credit needs
and opportunities of an area.
Data source for community
benchmarks. For purposes of calculating
the community benchmarks for small
business and small farm lending, the
agencies intend to continue using the
data sources that are used in current
evaluations for these calculations.
Although the agencies believe that the
data used in current evaluations are
sufficiently comprehensive and reliable,
the agencies are mindful that the
availability of this data could change
over time, and that more robust data
sources could emerge in the future. For
this reason, the agencies decline to
establish a requirement to continue
using a particular data source for the
small business and small farm lending
community benchmarks.
PO 00000
Frm 00276
Fmt 4701
Sfmt 4700
The agencies have considered that not
all businesses or farms make their gross
annual revenues known. As such, the
community benchmarks for small
business and small farm lending—
which are based on the number of
businesses or farms in a geographic
area—could be impacted by incomplete
data. However, pursuant to final
§ ll.22(g)(4), the agencies may
consider missing or faulty data as an
additional factor when assigning a
bank’s Retail Lending Test conclusion
in a Retail Lending Test Area. For
example, if a bank made a significant
number of loans to businesses for which
gross annual revenue information was
unavailable, the agencies might
determine, based on information
presented by the bank, that some
number of those loans were likely made
to small businesses. The agencies could
then consider whether the number of
small business loans with missing gross
annual revenue information was
sufficient to warrant adjusting the
bank’s conclusion relative to the
recommended conclusion.
Section ll.22(e)(1)(ii) Distribution
Analysis for Automobile Loans
The Agencies’ Proposal
The agencies proposed to use
generally the same approach for
evaluating the geographic and borrower
distributions of all of a bank’s major
product lines, including automobile
loans. Specifically, the agencies
proposed to compare a bank’s
automobile lending distribution metrics
against two types of distribution
benchmarks: market benchmarks that
reflect the aggregate lending of reporting
lenders in the area, and community
benchmarks that reflect demographic
data. The agencies proposed to develop
automobile lending market benchmarks
using data collected pursuant to the
proposed new automobile lending data
requirements applicable to large banks
with assets over $10 billion.
Comments Received
Commenters expressed different
views about the appropriateness of
using market benchmarks to evaluate
automobile loans, given that these
market benchmarks would be based on
data collected only from banks with
assets of over $10 billion. A commenter
supported the agencies’ proposal to
evaluate automobile lending for all
banks using the proposed market
benchmarks and asserted that it was
important to establish automobile
lending market benchmarks, even if
based only on partial market data.
However, other commenters opposed
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
the agencies’ proposal to evaluate all
banks’ automobile lending using market
benchmarks developed using data
collected only from banks with assets
over $10 billion on the grounds that
these benchmarks would not be reliable
given the amount of automobile market
lending data that would not be
captured, including due to the
prevalence of nonbank automobile
lending.
Final Rule
The agencies are adopting a modified
approach to evaluating the distribution
of a bank’s automobile loans when
automobile loans are a major product
line for a bank. Under the final rule, the
agencies compare a bank’s automobile
lending distribution metrics to
community benchmarks, as under the
proposal. Unlike under the proposal,
however, the final rule does not include
comparison of a bank’s automobile
lending distribution metrics to market
benchmarks. Further, and as described
further in the section-by-section
analysis of § ll.22(f), performance
ranges are not used to develop
supporting conclusions regarding a
bank’s automobile lending under the
final rule. As such, final
§ ll.22(e)(1)(ii) provides that for
automobile loans, the agencies compare
a bank’s geographic and borrower
distributions to the applicable
community benchmarks, as provided in
§ ll.22(f) and section VI of final
appendix A.
Upon consideration of commenter
feedback, the agencies believe that using
market benchmarks to evaluate a bank’s
automobile lending geographic and
borrower distributions is not feasible
given the final rule’s automobile lending
data requirements, discussed further in
the section-by-section analysis of
§ ll.42, which apply only to large
banks that are majority automobile
lenders or that opt to have their
automobile loans evaluated under the
Retail Lending Test, and do not require
the reporting of automobile loan data.
Further, even if automobile lending data
were reported to the agencies under the
final rule, the agencies have considered
that such data would reflect only the
portion of the automobile lending
market represented by banks, and would
exclude nonbank lenders. For these
reasons, the agencies determined that
market benchmarks for automobile
lending would not be fully reflective of
the potential credit needs and
opportunities for automobile lending in
a facility-based assessment area or retail
lending assessment area. In addition to
these potential challenges with
establishing market benchmarks for
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
automobile loans, the agencies also
considered that the final rule approach
reduces complexity and data
requirements relative to the proposed
approach because it does not require
reporting of automobile data for any
banks. As such, under the final rule,
community benchmarks are used to
qualitatively evaluate a bank’s
automobile lending distributions.
Section ll.22(e)(2) Categories of
Lending Evaluated
The Agencies’ Proposal
As specified in proposed
§ ll.22(d)(2)(ii), the agencies proposed
to evaluate the geographic distribution
of a bank’s major product lines by
separately evaluating the distribution of
the bank’s loans in (1) low-income
census tracts and (2) moderate-income
census tracts within the facility-based
assessment area, retail lending
assessment area, or outside retail
lending area.
As specified in § ll.22(d)(2)(iii), the
agencies proposed to evaluate the
borrower distribution of a bank’s major
product lines by separately evaluating
the distribution of the bank’s loans to
different categories of borrowers in the
facility-based assessment area, retail
lending assessment area, or outside
retail lending area. Specifically, to
evaluate the borrower distribution of a
bank’s closed-end home mortgage loans,
open-end home mortgage loans, or
automobile loans, the agencies would
separately evaluate the distribution of
the bank’s loans to (1) low-income
borrowers and (2) moderate-income
borrowers in the area. To evaluate the
borrower distribution of a bank’s small
business loans, the agencies would
separately evaluate the distribution of
the bank’s loans to (1) small businesses
with gross annual revenues of $250,000
or less and (2) small businesses with
gross annual revenues of more than
$250,000 but less than or equal to $1
million. To evaluate the borrower
distribution of a bank’s small farm
loans, the agencies would separately
evaluate the distribution of the bank’s
loans to (1) small farms with gross
annual revenues of $250,000 or less and
(2) small farms with gross annual
revenues of more than $250,000 but less
than or equal to $1 million.
Comments Received
The agencies received numerous
comments related to the proposal to
separately evaluate the distribution of a
bank’s major product lines to low- and
moderate-income census tracts and to
various categories of borrowers.
PO 00000
Frm 00277
Fmt 4701
Sfmt 4700
6849
Separate evaluation of different
income and revenue categories. A
number of commenters shared views on
the proposal to evaluate low-income
and moderate-income retail lending
separately when calculating the bank
geographic distribution metrics and
bank borrower distribution metrics,
with some supporting the proposed
approach. For example, a commenter
conducted empirical analysis showing
that separating these income categories
would better enable banks, regulators,
and communities to understand how
banks fulfill their CRA obligations. This
commenter asserted that separating
these income categories would
acknowledge the fundamental
differences between low-income and
moderate-income consumers and lowincome and moderate-income
communities in relation to how much
they are underserved and their racial
composition.
However, other commenters
supported combining one or both of the
following approaches to reduce the
complexity of the proposed Retail
Lending Test: (1) combine the
distribution metrics for the low- and
moderate-income census tracts; or (2)
combine the distribution metrics for
low- and moderate-income borrowers,
and for small businesses and small
farms in different gross annual revenue
categories, respectively. One commenter
stated that combining the low- and
moderate-income categories would
allow banks to tailor their approach to
retail lending in particular assessment
areas so as to ensure the overall safety
and soundness of their portfolios and to
better address needs in each
community. Another commenter
explained that combining the low- and
moderate-income categories could make
the retail lending benchmarks more
meaningful, particularly in places where
the low-income benchmarks lack
robustness. Another commenter stated
that combining the income and revenue
categories would reduce the number of
measures that banks must track and seek
to achieve, which would reduce overall
complexity. Furthermore, the
commenter noted that the income and
revenue categories are ultimately
combined when calculating product line
averages and recommended
conclusions, making separate categories
unnecessary.
Other commenters noted that retail
lending to low-income borrowers or in
low-income census tracts should be
considered as beneficial performance
context or the basis for a performance
conclusion qualitative upgrade.
Geographic distribution analysis—
underserved census tracts. Some
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6850
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
commenters recommended that CRA
retail lending evaluations should
include analysis of a bank’s retail
lending distributions in underserved
neighborhoods, as an alternative or
addition to analysis of a bank’s retail
lending distributions in low- and
moderate-income census tracts,
respectively. These commenters
asserted that underserved
neighborhoods could be defined as
census tracts with low levels of retail
lending based on loans per capita. The
commenters stated that such an
approach would incentivize retail
lending and other banking activities in
majority-minority communities.
Borrower distribution analysis—small
business and small farm revenue
thresholds. Some commenters
supported the proposal to separately
evaluate a bank’s record of lending to
small businesses or small farms with
gross annual revenues of $250,000 or
less and those with gross annual
revenues of between $250,000 and $1
million under the Retail Lending Test.
For example, a commenter stated that
the thresholds would help examiners
understand the extent of small business
credit needs being served by banks.
Another commenter indicated that the
gross annual revenue threshold of
$250,000 is appropriate.
However, many commenters
recommended that the agencies
separately calculate a bank’s record of
lending to small businesses or small
farms based on varying revenue
categories other than those included in
the agencies’ proposal. A number of
commenters recommended three gross
annual revenue categories, specifically:
$100,000 or less, between $100,000 and
$250,000, and above $250,000. In
general, these commenters asserted that
small businesses and small farms with
gross annual revenues under $100,000
are particularly likely to have unmet
credit needs, and that adding a third
revenue category would not introduce
substantial incremental burden. For
example, a commenter recommended
evaluation criteria for small businesses
with revenues of $100,000 or less and
suggested that the agencies share
borrower demographic data. This
commenter also stated that small
business owners and entrepreneurs with
disabilities continue to face challenges
accessing credit. Another commenter
suggested that the threshold should be
revised down to $100,000 and that the
same figure should be used for the
impact review factor relating to
community development activities that
support smaller businesses and farms.
At least one commenter supported an
analysis of loans to businesses with
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
gross annual revenues under $250,000
and a category for businesses with gross
annual revenues under $100,000 to
encourage lending to the smallest
businesses and minority-owned
businesses.
Several commenters recommended
increasing the gross annual revenue
thresholds for categorizing different
sizes of small businesses relative to the
proposed levels. A few commenters
recommended raising the proposed
$250,000 gross annual revenues
threshold to $500,000, with one such
commenter suggesting that this revenue
threshold would be more representative
of main street businesses. A commenter
stated that, if the agencies adopt two
categories, those categories should be
loans to businesses with less than $1
million in gross annual revenue and
loans to businesses with between $1
million and $2.5 million in gross annual
revenue. This commenter reasoned that
although banks understand the
importance of helping the smallest
category of small businesses, for most
banks, that is not often done through
traditional small business loans. At least
one commenter asked that the threshold
for identifying smaller businesses and
farms be increased to gross annual
revenue of $2 million or less to reflect
current market conditions and to adjust
for inflation since 1995. Another
commenter suggested the agencies
combine the two proposed revenue
categories—loans to businesses with
gross annual revenues less than
$250,000 and loans to businesses with
gross annual revenues between
$250,000 and $1 million—into a single
revenue category and consider loans to
business with gross annual revenues of
less than $250,000 as a positive
qualitative factor.
Some commenters recommended that
the agencies conduct additional
analyses to inform the small business
and small farm revenue thresholds. For
example, one commenter encouraged
the agencies to gather data for
businesses at different revenue
thresholds before setting a specific
threshold. Another commenter stated it
was not clear on what criteria the
agencies based the proposed $250,000
gross annual revenues threshold. This
commenter urged the agencies to
determine how to use the same criteria
or algorithms used by banks to identify
unmet credit needs for purposes of
marketing loans, such as credit scores,
financial analysis, and other factors that
support identifying which consumers
would be candidates for a bank’s loan
products. Another commenter stated
that, because section 1071 data has not
yet become available, neither the public
PO 00000
Frm 00278
Fmt 4701
Sfmt 4700
nor researchers know whether larger
small businesses with gross annual
revenues closer to $5 million are
significantly more successful in
accessing loans than their smaller
counterparts; therefore, at least in the
first few years of having the finalized
section 1071 data, the commenter
recommended more rather than fewer
performance measures to more
accurately measure credit availability to
different-sized businesses in low- or
moderate-income census tracts and to
encourage banks to serve businesses
with different revenue sizes.
A few commenters suggested
alternative ways of evaluating a bank’s
small business and small farm lending
borrower distributions beyond fixed
gross annual revenue thresholds. One
commenter encouraged examiner
discretion and an assessment of
qualitative factors to determine
appropriate gross annual revenue
thresholds given that credit needs vary
from market to market, rather than fixed
thresholds that apply to all Retail
Lending Test Areas. Another commenter
suggested that businesses owned by
women or historically disadvantaged
minorities should be exempt from the
gross annual revenue thresholds so that
banks could receive positive
consideration for loans to these
businesses regardless of the size of these
businesses.
Final Rule
For the reasons discussed below, the
agencies are finalizing the proposal to
separately evaluate the distribution of a
bank’s major product lines to low- and
moderate-income census tracts and to
various categories of borrowers. As
such, final § ll.22(e)(2)(i) provides
that for each major product line in each
Retail Lending Test Area, the agencies
evaluate the geographic distributions
separately for low-income census tracts
and moderate-income census tracts.
Final § ll.22(e)(2)(ii) provides that for
each major product line in each Retail
Lending Test Area, the agencies
evaluate the borrower distributions
separately for, as applicable; lowincome borrowers, moderate-income
borrowers, businesses with gross annual
revenues of $250,000 or less, businesses
with gross annual revenues greater than
$250,000 but less than or equal to $1
million, farms with gross annual
revenues of $250,000 or less, and farms
with gross annual revenues greater than
$250,000 but less than or equal to $1
million.
Separate evaluation of retail lending
to different income categories. The final
rule maintains the proposed approach of
separately evaluating retail lending in
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
low-income and moderate-income
categories. The agencies considered that
establishing separate metrics for these
categories would appropriately evaluate
and emphasize bank performance in
meeting the credit needs of the entire
community, including low-income
borrowers and low-income census
tracts. For example, the use of separate
income categories of metrics would help
to identify whether a bank engaged in
lending to moderate-income borrowers
and census tracts but did not lend to
low-income borrowers and census
tracts. The agencies believe that even
though performance on these separate
metrics will ultimately be combined to
reach an overall product line score and
conclusion for each Retail Lending Test
Area, the separate metrics will provide
important visibility into and emphasis
on meeting the credit needs of the
bank’s entire community. In addition, in
making this determination, the agencies
considered comments that low-income
borrowers and low-income communities
in particular may have significant
unmet credit needs and opportunities.
The agencies also considered, but are
not adopting, an alternative approach of
using a single set of distribution metrics
that combine performance for lowincome and moderate-income
borrowers, respectively. The agencies
considered, as some commenters noted,
that such an alternative could simplify
the Retail Lending Test by reducing the
number of metrics, benchmarks, and
performance ranges associated with
each product line. However, on balance,
the agencies believe that the separate
distribution analyses for different
income categories, while adding
additional metrics and steps to the small
business and small farm evaluation,
leads to a more robust evaluation that
provides transparency about lending
performance to a bank’s entire
community.
Separate evaluation of retail lending
to different small business and small
farm revenue categories. As noted
above, under the final rule, the agencies
will analyze a bank’s borrower
distribution of lending to small
businesses and to small farms in two
separate gross annual revenue
categories: businesses and farms with
gross annual revenue of $250,000 or
less, and businesses and farms with
gross annual revenue greater than
$250,000 but less than or equal to $1
million. This is in contrast to the
current approach, which analyzes a
bank’s distribution of lending to a single
gross annual revenue category of $1
million or less. As discussed in the
agencies’ proposal, the agencies believe
that firms with gross annual revenue of
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
$250,000 or less have significant unmet
credit needs and challenges securing
financing.922 Consistent with
suggestions by some commenters, the
agencies have determined that this
additional category will better enable
the agencies to understand the extent of
small business and small farm credit
needs served by banks. Conversely, the
agencies believe that an approach with
a single revenue category would allow
a bank to achieve strong performance
through serving only businesses and
farms with gross annual revenues of
between $250,000 and $1 million, and
not meeting the needs of relatively
smaller small businesses. Similar to the
determination to separate low- and
moderate-income categories discussed
above, the agencies believe that the
additional complexity of separate
distribution analyses for different gross
annual revenue categories is worth the
benefits of a more robust evaluation that
provides needed transparency about
lending performance to a bank’s entire
community. Further, the agencies note
that the final rule approach of separately
evaluating a bank’s small business and
small farm lending to small businesses
and small farms of different revenue
categories is no more complex than
separately evaluating a bank’s closedend home mortgage and automobile
lending to borrowers of different
incomes. The section-by-section
analysis of final § ll.42(a)(1) discusses
the data collection, maintenance, and
reporting provisions that will enable the
agencies to analyze small business and
small farm lending borrower
distributions for both of the gross
annual revenue categories described
above.
Regarding comments that separately
evaluating loans to businesses with
gross annual revenue of $250,000 or less
could raise safety and soundness
concerns, the agencies note that CRA
does not require a bank to originate or
purchase loans that are inconsistent
with its safe and sound operation, and
consideration of the constraints of safe
and sound banking practices will be
considered as part of a bank’s
performance context, pursuant to
§ ll.21(d)(1), as warranted. As a
result, in the event that a bank for which
small business lending is a major
product line is unable to serve
businesses with gross annual revenue of
under $250,000 due to safety and
soundness considerations, the agencies
would take these circumstances into
account when evaluating the bank’s
Retail Lending Test performance. In
922 See 87 FR 33938 (discussing the Federal
Reserve’s 2022 Small Business Credit Survey).
PO 00000
Frm 00279
Fmt 4701
Sfmt 4700
6851
addition, the agencies believe that the
design of the Borrower Market
Benchmark helps to ensure that the
Retail Lending Test does not encourage
lending that is inconsistent with safe
and sound banking practices.
Specifically, the Borrower Market
Benchmark is based on the share of
loans made to businesses or farms by
other lenders. As a result, a bank’s
performance expectations in a particular
Retail Lending Test Area reflect the
credit needs and opportunities
associated with firms in that area that
received a loan. In addition, the
agencies also note that, as discussed in
the section-by-section analysis of
§ ll.22(f), the multiplier for ‘‘Low
Satisfactory’’ performance based on the
market benchmarks would be 80
percent. As a result, banks that are
below the Borrower Market Benchmark
by as much as 20 percentage points
would receive at least a ‘‘Low
Satisfactory’’ supporting conclusion for
their lending to firms with revenue of
under $250,000.
Small business and small farm
revenue thresholds—alternative
thresholds considered. In finalizing the
proposed approach of creating separate
revenue categories based on gross
annual revenue thresholds of $250,000
and $1 million, the agencies also
considered, but declined to adopt,
alternative gross annual revenue
threshold levels suggested by
commenters, such as a threshold of
$100,000 or $500,000 instead of
$250,000, and a threshold of $2 million
instead of $1 million.
Regarding the final rule gross annual
revenue threshold of $250,000, the
agencies considered the potential
benefits and tradeoffs of selecting an
alternative threshold either higher or
lower than the proposed level and
believe that the proposed level
appropriately balances the agencies’
policy objectives. The agencies
determined that a lower threshold could
emphasize lending to the businesses
and farms with the greatest unmet credit
needs. According to the 2023 Report on
Employer Firms: Findings from the 2022
Small Business Credit Survey, employer
firms with total annual revenues less
than $100,000 were substantially more
likely to experience difficulties
obtaining financing than larger
employer firms. However, based on the
set of businesses included in the survey
data, these businesses are less likely to
be employers, which may indicate that
a lower threshold could detract focus
from small businesses that are
employers and that have unmet credit
needs. Furthermore, employer firms
with total annual revenues less than
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6852
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
$250,000 also reported a greater
likelihood of experiencing difficulties
obtaining financing than larger
employer firms, suggesting unmet credit
needs among this group as well.923
Additionally, the agencies have
considered that lending to businesses
and farms with revenue of less than
$100,000 may not align with some bank
business models. For example, as noted
by at least one commenter, some banks
may serve firms with revenues of less
than $100,000 primarily through
products that do not qualify as small
business loans, such as home equity
lines of credit and consumer credit
cards. Furthermore, the agencies
considered that a gross annual revenue
threshold of $100,000 may not be
suitable for analysis in higher cost
markets where small business revenues
are generally higher.
On the other hand, regarding a higher
alternative gross annual revenue
threshold level, such as $500,000, the
agencies considered that this category
would reduce the emphasis of the Retail
Lending Test on smaller firms, which
may be more likely to have unmet credit
needs that CRA is intended to help
address, as discussed above. On
balance, the agencies believe that the
$250,000 threshold will emphasize
small business credit needs and
opportunities while broadly comporting
with bank business models and Retail
Lending Test Areas.
Regarding commenter suggestions to
consider a gross annual revenue
threshold of $2 million or $2.5 million
rather than $1 million, the agencies
believe that the proposed threshold
level is appropriate, and that increasing
this threshold would reduce the
emphasis of evaluations on smaller
firms, which the agencies believe may
have greater unmet credit needs than
relatively larger small businesses and
farms, as discussed above. In addition,
the agencies considered that the
proposed gross annual revenue
threshold of $1 million is consistent
with current examination procedures,
which evaluate a bank’s share of loans
to businesses and farms with gross
annual revenue of less than $1 million.
Alternative approaches to evaluating
small business and small farm lending
borrower distributions. The agencies
considered several alternative
approaches, suggested by commenters,
to evaluating the borrower distributions
923 See Federal Reserve Banks, ‘‘2023 Report on
Employer Firms: Findings from the 2022 Small
Business Credit Survey’’ (Mar. 2023), https://
www.fedsmallbusiness.org/survey/2023/report-onemployer-firms. The cited data points were drawn
from the data appendix of the report, available here:
https://www.fedsmallbusiness.org/survey.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
of a bank’s small business and small
farm lending. First, the agencies
considered, but decline to adopt,
suggestions to make the gross annual
revenue threshold levels subject to
agency discretion, or to incorporate
other factors into the distribution
analysis beyond the gross annual
revenue of the firms served by a bank.
For example, regarding commenter
feedback on an option that would allow
gross annual revenue threshold levels to
vary across Retail Lending Test Areas,
subject to agency discretion, the
agencies believe this would introduce
considerable uncertainty and
inconsistency into the evaluation
process, and that it is preferable to use
consistent categories of small businesses
and small farms for all CRA
examinations. Consistent gross annual
revenue categories also have the benefit
of providing a bank with clarity and
transparency into how its small
business and small farm lending will be
evaluated.
Second, the agencies also considered
comments suggesting that the agencies
establish thresholds based on the same
criteria or algorithms used by banks to
identify unmet credit needs, such as
credit scores, financial analysis, and
other factors. However, the agencies
believe that gross annual revenue is an
appropriate way of categorizing small
businesses and small farms, and is
consistently available. Furthermore, the
agencies note that gross annual revenue
is used in CRA evaluations currently,
and that use of other criteria such as
credit scores or other financial
characteristics could require additional
data reporting and could result in
additional burden of adjusting to a new
evaluation approach. In addition, the
agencies considered that gross annual
revenue information will be included in
section 1071 data, and that loans will be
reported under section 1071 based on a
gross annual revenue threshold.
Third, the agencies considered giving
positive consideration in the borrower
distribution analysis to business loans
or farm loans made to women-owned or
minority-owned businesses or farms,
regardless of the size of the business or
farm (as measured in gross annual
revenues). However, the agencies
believe that such an approach would be
complex to administer, and would be a
departure from the current approach. In
addition, the agencies note that the
statute requires the agencies to assess a
bank’s record of meeting the credit
needs of its entire community, expressly
PO 00000
Frm 00280
Fmt 4701
Sfmt 4700
including low- and moderate-income
communities.924
Finally, the agencies considered, but
decline to adopt, a third revenue
category of businesses and farms with
gross annual revenues less than
$100,000. In reaching this
determination, the agencies considered
the additional complexity that this
approach would entail, including
metrics, benchmarks, performance
ranges, and weights that would apply to
the third category. In addition, the
agencies believe that a two-category
approach affords appropriate flexibility
to banks to meet small business and
small farm credit needs, while a threecategory approach would create more
granular and specific performance
expectations, including having
performance evaluated in a third
‘‘middle’’ revenue category. The
agencies believe that a two-category
approach appropriately balances
limiting complexity while ensuring a
robust evaluation of a bank’s small
business and small farm lending.
Geographic distribution analysis—
underserved census tracts. Under the
final rule, the agencies evaluate the
geographic distribution of a bank’s
major product lines to low- and
moderate-income census tracts,
respectively. The agencies considered
the alternative or additional approach,
suggested by some commenters, of
evaluating the geographic distribution of
a bank’s retail lending in underserved
census tracts. However, the agencies
determined that evaluating a bank’s
geographic distributions with respect to
low- and moderate-income census tracts
leverages the metrics and benchmarks
utilized under the current approach. In
addition, the agencies note that
evaluating a bank’s retail lending
performance in low- and moderateincome census tracts comports with the
statutory requirement that the agencies
assess a bank’s record of meeting the
credit needs of its entire community,
including low- and moderate-income
neighborhoods.925 In contrast, the
agencies believe that for purposes of
evaluating lending distributions under
§ ll.22(e), identifying underserved
neighborhoods based on criteria other
than income would be a departure from
the current approach and would add
complexity.
924 See 12 U.S.C. 2903(a)(1); see also 12 U.S.C.
2906(a)(1).
925 See 12 U.S.C. 2903(a)(1); see also 12 U.S.C.
2906(a)(1).
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Section ll.22(e)(3) Geographic
Distribution Measures
The Agencies’ Proposal
ddrumheller on DSK120RN23PROD with RULES2
As discussed above, the agencies
proposed to evaluate the geographic
distributions of a bank’s major product
lines by using certain metrics and
benchmarks. Specifically, the proposed
Geographic Bank Metrics compare the
number of a bank’s loans in a particular
major product line that are located in
low-income and moderate-income
census tracts, respectively, to the total
number of the bank’s originated and
purchased loans in the major product
line in the facility-based assessment
area, retail lending assessment area, or
outside retail lending area. As discussed
in greater detail in the section-bysection analysis of final § ll.22(f), the
agencies proposed to compare the
Geographic Bank Metric for each
distribution for each major product line
to performance ranges calculated based
on two benchmarks: a Geographic
Market Benchmark that reflects the
aggregate loan originations in low- and
moderate-income census tracts across
reporting lenders within a facility-based
assessment area, retail lending
assessment area, or outside retail
lending area; and a Geographic
Community Benchmark that reflects the
potential lending opportunities in lowor moderate-income census tracts
within a facility-based assessment area,
retail lending assessment area, or
outside retail lending area.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
6853
Comments Received
Final Rule
The agencies received numerous
comments, discussed above, on the use
of distribution metrics and benchmarks
generally. In addition, the agencies
received several comments that
specifically addressed the proposed
geographic distribution metrics and
benchmarks.
Treatment of loans to middle- and
upper-income borrowers. The agencies
received comments related to the types
of loans included in the Geographic
Bank Metrics. Some commenters
expressed concerns that the geographic
distribution analysis as proposed would
give positive consideration to home
mortgage loans to middle- and upperincome borrowers located in low- and
moderate-income census tracts.
Commenter recommendations included
excluding such loans from
consideration to avoid contributing to
displacement and gentrification. At least
one commenter suggested excluding
from consideration retail loans made to
non-minority, middle-, and upperincome borrowers to better address
displacement and gentrification in lowand moderate-income census tracts.
Use of census tracts. Another
commenter stated that, for the home
mortgage loan geographic distribution
metrics and benchmarks, the agencies
should use census block groups instead
of census tracts, to avoid overlooking
rural census tracts that may include
areas of concentrated poverty apparent
only at the census block group level.
For the reasons discussed below, the
agencies are adopting the geographic
distribution metrics and benchmarks
generally as proposed.
• Final § ll.22(e)(3)(i) provides that
for each major product line, a
Geographic Bank Metric is calculated
pursuant to paragraph III.a of final
appendix A.
• Final § ll.22(e)(3)(ii) provides
that for each major product line except
automobile loans, a Geographic Market
Benchmark is calculated pursuant to, as
applicable, paragraph III.b of final
appendix A for facility-based
assessment areas and retail lending
assessment areas, and paragraph III.d of
final appendix A for outside retail
lending areas.
• Final § ll.22(e)(3)(iii) provides
that for each major product line, a
Geographic Community Benchmark is
calculated pursuant to, as applicable,
paragraph III.c of final appendix A for
facility-based assessment areas and
retail lending assessment areas, and
paragraph III.e of final appendix A for
outside retail lending areas.
A summary of these calculations for
facility-based assessment area and retail
lending assessment areas can be found
in the following table for each product
line. Following a discussion of some
preliminary issues, each of these metrics
and benchmarks is discussed in more
detail below.
PO 00000
Frm 00281
Fmt 4701
Sfmt 4700
BILLING CODE 4810–33–P
BILLING CODE 6210–01–P
BILLING CODE 6714–01–P
E:\FR\FM\01FER2.SGM
01FER2
6854
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Table 10 of§ _.22(e)(3): Summary of Calculations for Geographic Distribution Measures
Closed-End Home
Mortgage Lending
Geographic Market
Benchmark
Percentage of bank
loan originations and
purchases in the
following categories
of designated census
tracts out of all bank
loans in the product
line in the Retail
Lending Test Area,
by loan count
Percentage of all
reported loan
originations in the
following categories of
designated census tracts,
out of all reported loan
originations in the
product line in the Retail
Lending Test Area, by
loan count
Low-Income Census
Tracts
Percentage of owneroccupied housing
units in low-income
census tracts
Moderate-Income
Census Tracts
Moderate-Income
Census Tracts
Percentage of owneroccupied housing
units in moderateincome census tracts
Low-Income
Census Tracts
Low-Income Census
Tracts
Percentage of
businesses in lowincome census tracts
Moderate-Income
Census Tracts
Moderate-Income
Census Tracts
Percentage of
businesses in
moderate-income
census tracts
Low-Income
Census Tracts
Low-Income Census
Tracts
Percentage of farms in
low-income census
tracts
Moderate-Income
Census Tracts
Percentage of farms in
moderate-income
census tracts
Low-Income
Census Tracts
Small Business Lending
Small Farm Lending
ddrumheller on DSK120RN23PROD with RULES2
Moderate-Income
Census Tracts
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Geographic Community
Benchmark
PO 00000
Frm 00282
Fmt 4701
Sfmt 4725
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.009
Retail Lending Product
Line
Geographic Bank
Metric
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Low-Income
Census Tracts
Not applicable
Percentage of
households in lowincome census tracts
Not applicable
Percentage of
households in
moderate-income
census tracts
Automobile Lending
Moderate-Income
Census Tracts
6855
Note: As discussed further in the section-by-section analysis of§ _.22(e)(l), prior to the use of section 1071 data,
the bank metrics and market benchmarks for small business lending are based on loans to businesses with a loan
amount of less than $1 million, and for small farm lending, are based on loans to farms with a loan amount of less
than $500,000. In addition, prior to the use of section 1071 data, the community benchmarks for small business
lending and small farm lending are based on percentages of all businesses and all farms, respectively. Once section
1071 data is used for CRA evaluations, the bank metrics and market benchmarks for small business and small farm
lending will be based on loans to small businesses or small farms (i.e., those with gross annual revenue of less than
$5 million), with no loan amount threshold, and the community benchmarks for small business lending and small
farm lending will be based on percentages of small businesses and small farms (i.e., those with gross annual revenue
ddrumheller on DSK120RN23PROD with RULES2
BILLING CODE 4810–33–C
BILLING CODE 6210–01–C
BILLING CODE 6714–01–C
Treatment of loans to middle- and
upper-income borrowers. The final rule
adopts the proposed approach under
which the geographic distribution
metrics and benchmarks include all
originated loans (and, for the geographic
distribution metrics, purchased loans)
in the major product line, including
loans to middle- and upper-income
borrowers located in low- and moderateincome census tracts. For example, the
numerator of the Geographic Bank
Metric for closed-end home mortgage
loans in low-income census tracts
would include all of a bank’s closed-end
home mortgages to borrowers of any
income level in low-income census
tracts in the Retail Lending Test Area,
including loans to middle- and upperincome borrowers. Similarly, the
denominator would include all of the
bank’s closed-end home mortgage loans
in all census tracts in the Retail Lending
Test Area, including loans to middleand upper-income borrowers.
The agencies considered commenter
feedback that by including all loans
located in low- and moderate-income
census tract regardless of borrower
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
income, the proposed approach would
give undue consideration to loans made
to middle- and upper-income borrowers
and may encourage displacement and
gentrification. However, the agencies
believe that there are potential benefits
to including these loans in the
geographic distribution metrics and
benchmarks, and that the combination
of the geographic distribution and
borrower distribution analyses
appropriately balances consideration for
loans made to low- and moderateincome borrowers with consideration
for loans made in low- and moderateincome census tracts. Specifically, the
agencies considered that while a loan
made to a middle- or upper-income
borrower located in a low-income
census tract would count in both the
numerator and denominator of the
Geographic Bank Metric, such a loan
would count in only the denominator of
the Borrower Bank Metric. In this way,
the agencies believe the combination of
the geographic distribution analysis
with the borrower distribution analysis
helps to address commenter concerns
that the approach would encourage
gentrification and displacement.
In addition, the agencies considered
that loans made to borrowers of any
PO 00000
Frm 00283
Fmt 4701
Sfmt 4700
income level located in low- and
moderate-income census tracts help to
meet a credit need in a low- or
moderate-income community. The
agencies believe that positively
considering such loans is consistent
with the CRA statute’s requirement that
the agencies assess the institution’s
record of meeting the credit needs of its
entire community, including low- and
moderate-income neighborhoods.
Relatedly, the agencies have considered
that a low- or moderate-income census
tract where borrowers of all income
levels had difficulty obtaining a closedend home mortgage to purchase or
refinance an existing home would
indicate that community credit needs
are not being met. For example, the
agencies have considered that the ability
of prospective homebuyers of any
income level to obtain a closed-end
home mortgage to purchase a home,
renovate an existing property, or
refinance an existing home mortgage in
a low-income census tract can promote
home values, help revitalize the existing
housing stock, and forestall
disinvestment in low-income
communities. The agencies have
considered commenter feedback that
loans to middle- or upper-income
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.010
ofless than $5 million), respectively.
6856
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
households in some low- and moderateincome census tracts could result in
gentrification that leads to displacement
and significantly decreases affordability
over time. While the agencies are
sensitive to the potential for
gentrification and the accompanying
challenges it presents for low- and
moderate-income communities, the
agencies believe that in conducting
evaluations of lending in low- and
moderate-income census tracts, the
potential risks of gentrification need to
be balanced against the potential harms
that may come from unmet credit needs
in low- and moderate-income
communities.
Use of census tracts. The agencies are
finalizing the use of census tracts, rather
than census blocks or block groups, to
construct geographic distribution
metrics and benchmarks. Although the
agencies considered that using census
blocks or block groups could provide
greater precision, the agencies believe
that the operational challenges and
Bank Loans in Low - Income Tracts (5)
Bank Loans (Z 5)
Under the final rule, for each major
product line, the agencies separately
calculate a Geographic Bank Metric for
low-income census tracts and for
moderate-income census tracts, as
discussed above. The agencies note that
calculating the Geographic Bank Metrics
in this way is consistent with current
practice for evaluating a bank’s lending
in low- and moderate-income census
tracts.
mortgages, small business, and small
farm loans would have to be reported
and collected at the census block or
block group level, which would increase
the re-identification risk for these data.
Geographic Bank Metrics. As set forth
in paragraph III.a of final appendix A,
the Geographic Bank Metrics are
calculated as the percentage of a bank’s
loans in a particular major product line
that are located in low- and moderateincome census tracts, respectively. This
calculation is based on originated and
purchased loans in a specific Retail
Lending Test Area over the years in the
evaluation period. For example, if a
bank originated or purchased 25 total
closed-end home mortgage loans in a
facility-based assessment area over the
years in the evaluation period and 5 of
those loans were in low-income census
tracts, its Geographic Bank Metric for
closed-end home mortgage loans in lowincome census tracts would be 0.2, or 20
percent.
privacy concerns created by this
alternative approach outweigh the
potential benefits. Specifically, the
agencies believe it would not be
possible to construct market and
community benchmarks for census
blocks or block groups, given that
certain public data sources necessary to
compute these benchmarks are not
available at the census block group
level. For example, section 1071 data
will include census tract information,
but will not include address, census
block, or census block groups. In
addition, the agencies believe that it
would be more difficult for banks to
target lending to specific census blocks
or block groups, which are
geographically smaller areas than
census tracts, and may consist of a
portion of a neighborhood. Furthermore,
the agencies considered that this
alternative may introduce privacy
concerns regarding specific loan
recipients as the loan-level data
collected for closed-end home
= Geographic Bank Metric (20%)
Geographic Market Benchmarks—
closed-end home mortgage loans, small
business loans, and small farm loans.
As set forth in paragraph III.b of final
appendix A, the Geographic Market
Benchmarks for facility-based
assessment areas and retail lending
assessment areas is calculated as the
percentage of closed-end home mortgage
loans, small business loans, or small
farm loans that are located in low-
income census tracts or moderateincome census tracts, respectively. This
calculation is based on originated loans
in the facility-based assessment area or
retail lending assessment area over the
years in the evaluation period reported
by all lenders.
BILLING CODE 4810–33–P
BILLING CODE 6210–01–P
BILLING CODE 6714–01–P
Table 11 of§ _.22(e)(3): Summary of Calculations for Geographic Market Benchmarks
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Geographic Market
Benchmark Numerator
Frm 00284
Fmt 4701
Sfmt 4725
Geographic Market
Benchmark Denominator
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.011 ER01FE24.012
ddrumheller on DSK120RN23PROD with RULES2
Product line and category
of lending evaluated
Closed-end home mortgage
loans, low-income census
tracts
Number of reported (HMDA)
closed-end home mortgage
loan originations in lowincome census tracts in an
area
Closed-end home mortgage
loans, moderate-income
census tracts
Number of reported (HMDA)
Number of all reported
closed-end home mortgage
(HMDA) closed-end home
loan originations in moderatemortgage loan originations in
income census tracts in an
an area
area
Small business loans, lowincome census tracts, CRA
data approach
Number of reported (CRA)
loan originations of loan
amount < $1 million to
businesses in low-income
census tracts in an area
Number of all reported
(CRA) loan originations of
loan amount < $1 million to
businesses in an area
Small business loans,
moderate-income census
tracts, CRA data approach
Number of reported (CRA)
loan originations of loan
amount < $1 million to
businesses in moderateincome census tracts in an
area
Number of all reported
(CRA) loan originations of
loan amount < $1 million to
businesses in an area
Small business loans, lowincome census tracts, section
1071 approach
Number ofreported (section
1071) loan originations to
small businesses in lowincome census tracts in an
area
Number of all reported
(section 1071) loan
originations to small
businesses in an area
Small business loans,
moderate-income census
tracts, section 1071 approach
Number ofreported (section
1071) loan originations to
small businesses in moderateincome census tracts in an
area
Number of all reported
(section 1071) loan
originations to small
businesses in an area
Small farm loans, lowincome census tracts, CRA
data approach
Number ofreported (CRA)
loan originations of loan
amount< $500,000 to farms
in low-income census tracts
in an area
Number of all reported
(CRA) loan originations of
loan amount< $500,000 to
farms in an area
Small farm loans, moderateincome census tracts, CRA
data approach
Number ofreported (CRA)
loan originations of loan
amount < $500,000 to farms
in moderate-income census
tracts in an area
Number of all reported
(CRA) loan originations of
loan amount< $500,000 to
farms in an area
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00285
Fmt 4701
Sfmt 4725
6857
Number of all reported
(HMDA) closed-end home
mortgage loan originations in
an area
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.013
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
6858
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Small farm loans, lowincome census tracts, section
1071 approach
Small farm loans, moderateincome census tracts, section
1071 approach
Number of reported (section
1071) loan originations to
small farms in low-income
census tracts in an area
Number of all reported
(section 1071) loan
originations to small farms in
an area
Number of reported (section
1071) loan originations to
small farms in moderateincome census tracts in an
area
Number of all reported
(section 1071) loan
originations to small farms in
an area
Note: The transition to using section 1071 data is discussed further in the section-by-section analysis of§ _.22(e)(l).
ddrumheller on DSK120RN23PROD with RULES2
For the outside retail lending area, the
Geographic Market Benchmarks for
closed-end home mortgage loans, small
business loans, and small farm loans are
determined by first calculating the
benchmark for each individual MSA
and for the nonmetropolitan area of a
State that is part of the outside retail
lending area (known as the ‘‘component
geographic areas,’’ pursuant to final
§ ll.18(b)(2)), and then calculating a
weighted average of the benchmarks for
those areas. Specifically, as set forth in
paragraph III.d of final appendix A, the
Geographic Market Benchmarks for
outside retail lending areas are
established by calculating, for each
major product line—other than
automobile loans—in each component
geographic area of the outside retail
lending area, a benchmark in low- or
moderate-income census tracts,
respectively. Calculation of these
benchmarks for each component
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
geographic area follows the method
described above for calculating
Geographic Market Benchmarks for
facility-based assessment areas and
retail lending assessment areas, as
applicable. The benchmarks calculated
for each component geographic area are
then averaged, weighting each
component geographic area by the
number of the bank’s loans in the major
product line originated and purchased
in the component geographic area,
relative to the number of the bank’s
loans in the major product line
originated and purchased in the outside
retail lending area. More discussion of
the process for creating benchmarks
used in the outside retail lending area
analysis follows later in this section.
Consistent with the proposed
approach, the Geographic Market
Benchmarks are intended to show the
overall level of lending for each product
line taking place in the Retail Lending
Test Area in low- and moderate-income
census tracts by all reporting lenders.
PO 00000
Frm 00286
Fmt 4701
Sfmt 4700
The agencies note that calculating
Geographic Market Benchmarks in this
way is consistent with current practice
for evaluating a bank’s lending in lowand moderate-income census tracts.
Geographic Community
Benchmarks—closed-end home
mortgage loans. As set forth in
paragraphs III.c.1 and III.c.2 of final
appendix A, the Geographic Community
Benchmarks for closed-end home
mortgage loans in facility-based
assessment areas and retail lending
assessment areas are calculated as the
percentage of owned-occupied housing
units in low- and moderate-income
census tracts, respectively. This
calculation is based on owner-occupied
housing units in the facility-based
assessment area or retail lending
assessment area over the years in the
evaluation period. Additional details
regarding the calculations of community
benchmarks, and an example, are
provided below in this section.
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.014
BILLING CODE 4810–33–C
BILLING CODE 6210–01–C
BILLING CODE 6714–01–C
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
6859
Table 12 of§ _.22(e)(3): Summary of Calculations for Geographic Community
Benchmarks-Closed-end Home Mortgages
Closed-end home
mortgage loans, lowincome census tracts
Geographic
Community
Benchmark
Denominator
Number of owneroccupied housing
units in low-income
census tracts in an
area
Number of all owneroccupied housing
units in an area
Number of owneroccupied housing
units in moderateincome census tracts
man area
Closed-end home
mortgage loans,
moderate-income
census tracts
ddrumheller on DSK120RN23PROD with RULES2
For the outside retail lending area, the
Geographic Community Benchmarks for
closed-end home mortgage loans are
determined by first calculating the
benchmark for each component
geographic area and then calculating a
weighted average of the benchmarks for
those areas. Specifically, as set forth in
paragraph III.e of final appendix A, the
Geographic Community Benchmarks for
closed-end home mortgage loans in
outside retail lending areas are
established by calculating, in each
component geographic area of the
outside retail lending area, a benchmark
for closed-end home mortgage loans in
low- or moderate-income census tracts,
respectively. Calculation of these
benchmarks for each component
geographic area follows the method
described above for calculating
Geographic Community Benchmarks for
closed-end home mortgage loans in
facility-based assessment areas and
retail lending assessment areas. The
benchmarks calculated for each
component geographic area are then
averaged, weighting each component
Primary data source
Number of all owneroccupied housing
units in an area
geographic area by the number of the
bank’s closed-end home mortgage loans
originated and purchased in the
component geographic area, relative to
the number of the bank’s closed-end
home mortgage loans originated and
purchased in the outside retail lending
area. More discussion of the process for
creating benchmarks used in the outside
retail lending area analysis follows later
in this section.
Consistent with the proposal, the
Geographic Community Benchmarks for
closed-end home mortgage loans are
based on the share of owner-occupied
housing units in the Retail Lending Test
Area that are in low- or moderateincome census tracts. Similar to the
other Geographic Community
Benchmarks, the agencies believe that
the share of owner-occupied housing
units in low- or moderate-income
census tracts is an indicator of the
potential lending opportunities for
closed-end home mortgage loans in lowor moderate-income census tracts.
Further, the agencies note that using the
share of owner-occupied housing units
American
Community Survey
American
Community Survey
in low- or moderate-income census
tracts is consistent with current practice
for evaluating a bank’s closed-end home
mortgage lending in low- or moderateincome census tracts.
Geographic Community
Benchmarks—small business loans and
small farm loans. As set forth in
paragraphs III.c.3 through III.c.6 of final
appendix A, the Geographic Community
Benchmarks for small business loans or
small farm loans in facility-based
assessment areas and retail lending
assessment areas, as applicable, are
calculated as the percentage of
businesses or farms in low- or moderateincome census tracts, respectively.926
This calculation is based on businesses
or farms in the facility-based assessment
area or retail lending assessment area
over the years in the evaluation period.
Additional details regarding the
calculations of community benchmarks,
and an example, are provided below in
this section.
BILLING CODE 4810–33–P
BILLING CODE 6210–01–P
BILLING CODE 6714–01–P
926 For purposes of the Geographic Community
Benchmarks for small business loans, the agencies
exclude farms from the calculation of the
percentage of businesses in low- or moderateincome census tracts, respectively.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00287
Fmt 4701
Sfmt 4700
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.015
Product line and
category of lending
evaluated
Geographic
Community
Benchmark
Numerator
6860
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Table 13 of§ _.22(e)(3): Summary of Calculations for Geographic Community
Benchmarks-Small Business Loans and Small Farm Loans
Geographic Community
Benchmark Numerator
Primary data source
Small business loans,
low-income census
tracts, CRA data
approach
Number of businesses
Number of businesses Third-party data
in low-income census
man area
provider
tracts in an area
Small business loans,
moderate-income
census tracts, CRA
data approach
Number of businesses
in moderate-income
Number of businesses Third-party data
census tracts in an
man area
provider
area
Small business loans,
low-income census
tracts, section 1071
approach
Small business loans,
moderate-income
census tracts, section
1071 approach
ddrumheller on DSK120RN23PROD with RULES2
Geographic Community
Benchmark
Denominator
VerDate Sep<11>2014
18:11 Jan 31, 2024
Number of small
businesses in lowincome census tracts
man area
Number of small
businesses in
moderate-income
Jkt 262001
PO 00000
Frm 00288
Fmt 4701
Number of small
businesses in an area
Third-party data
provider
Number of small
businesses in an area
Third-party data
provider
Sfmt 4725
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.016
Product line and
category of lending
evaluated
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
6861
census tracts in an
area
Small farm loans,
low-income census
tracts, CRA data
approach
Number of farms in
low-income census
tracts in an area
Number of farms in
an area
Third-party data
provider
Small farm loans,
moderate-income
census tracts, CRA
data approach
Number of farms in
moderate-income
census tracts in an
area
Number of farms in
an area
Third-party data
provider
Small farm loans,
low-income census
tracts, section 1071
approach
Number of small
farms in low-income
census tracts in an
area
Number of small
farms in an area
Third-party data
provider
Small farm loans,
moderate-income
census tracts, section
1071 approach
Number of small
farms in moderateincome census tracts
man area
Number of small
farms in an area
Third-party data
provider
Note: The transition to using section 1071 data is discussed further in the section-by-section analysis of
ddrumheller on DSK120RN23PROD with RULES2
BILLING CODE 4810–33–C
BILLING CODE 6210–01–C
BILLING CODE 6714–01–C
For the outside retail lending area, the
Geographic Community Benchmarks for
small business loans and small farm
loans are determined by first calculating
the benchmark for each component
geographic area, and then calculating a
weighted average of the benchmarks for
those areas. Specifically, as set forth in
paragraph III.e of final appendix A, the
Geographic Community Benchmarks for
small business loans or small farm loans
in outside retail lending areas are
established by calculating, in each
component geographic area of the
outside retail lending area, a benchmark
for small business loans or small farm
loans in low- or moderate-income
census tracts, respectively. Calculation
of these benchmarks for each
component geographic area follows the
method described above for calculating
Geographic Community Benchmarks for
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
small business loans or small farm loans
in facility-based assessment areas and
retail lending assessment areas, as
applicable. The benchmarks calculated
for each component geographic area are
then averaged, weighting each
component geographic area by the
number of the bank’s small business
loans or small farm loans originated and
purchased in the component geographic
area, relative to the number of the
bank’s small business loans or small
farm loans originated and purchased in
the outside retail lending area. More
discussion of the process for creating
benchmarks used in the outside retail
lending area analysis follows later in
this section.
Consistent with the proposal, the
Geographic Community Benchmarks for
small business loans or small farm loans
are based on the share of small
businesses or small farms in the Retail
Lending Test Area that are in low- or
PO 00000
Frm 00289
Fmt 4701
Sfmt 4700
moderate-income census tracts. For
example, the Geographic Community
Benchmark for small business loans in
low-income census tracts in a facilitybased assessment area would be the
percentage of all businesses in the area
that are located in a low-income census
tract, based on available data that the
agencies intend to disclose in aggregated
form on a regular basis. Similar to the
other Geographic Community
Benchmarks, the agencies believe that
the share of small businesses or small
farms in low- or moderate-income
census tracts is an indicator of the
potential lending opportunities for
small business loans or small farm loans
in low- or moderate-income census
tracts. Further, the agencies note that
using the share of small businesses or
small farms in low- or moderate-income
census tracts is consistent with current
practice for evaluating a bank’s small
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.017
§ _.22(e)(l).
6862
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
business or small farm lending in lowor moderate-income census tracts.
Following the transition to using
section 1071 data,927 the agencies would
then adjust the methodology used to
calculate the Geographic Community
Benchmark to reflect changes in what
businesses and farms are included in
the section 1071 data relative to the
existing CRA small business and small
farm data. Specifically, prior to the use
of section 1071 data, this benchmark
would be based on the share of all
businesses and farms that are located in
each category of designated census
tracts. Once section 1071 data is used in
CRA evaluations, this benchmark would
be the share of small businesses and
small farms with gross annual revenue
of $5 million or less that are located in
each category of designated census
tracts. This change reflects that section
1071 data include only loans made to
businesses and farms with gross annual
revenue of $5 million or less, and
ensures that the bank metrics and
benchmarks are calculated in a
consistent fashion.928
Geographic Community
Benchmarks—automobile loans. As set
forth in paragraphs III.c.7 and III.c.8 of
final appendix A, the Geographic
Community Benchmarks for automobile
loans in facility-based assessment areas
are calculated as the percentage of
households in low- and moderateincome census tracts, respectively. This
calculation is based on households in
the facility-based assessment area over
the years in the evaluation period.
Additional details regarding the
calculations of community benchmarks,
and an example, are provided below in
this section.
Table 14 of§ _.22(e)(3): Summary of Calculations for Geographic Community
Product line and category Geographic Community
of lending evaluated
Benchmark Numerator
Geographic Community
Benchmark Denominator
Primary data source
Automobile loans,
low-income census
tracts
Number of
households in lowincome census tracts
man area
Number of
households in an area
American
Community Survey
Automobile loans,
moderate-income
census tracts
Number of
households in
moderate-income
census tracts in an
area
Number of
households in an area
American
Community Survey
For the outside retail lending area, the
Geographic Community Benchmarks for
automobile loans (and all other retail
lending benchmarks) are determined by
first calculating the benchmark for each
component geographic area, and then
calculating a weighted average of the
benchmarks for those areas.
Specifically, as set forth in paragraph
III.e of appendix A, the Geographic
Community Benchmarks for automobile
loans in an outside retail lending areas
are established by calculating, in each
component geographic area of the
outside retail lending area, a benchmark
for automobile loans in low- or
moderate-income census tracts,
respectively. Calculation of these
benchmarks for each component
geographic area follows the method
described above for calculating
Geographic Community Benchmarks for
automobile loans in facility-based
assessment areas. The benchmarks
calculated for each component
geographic area are then averaged,
weighting each component geographic
area by the number of the bank’s
automobile loans originated and
purchased in the component geographic
area, relative to the number of the
bank’s automobile loans originated and
purchased in the outside retail lending
area. More discussion of the process for
creating benchmarks used in the outside
retail lending area analysis follows later
in this section.
Consistent with the proposal, the
Geographic Community Benchmarks for
automobile loans are based upon the
share of households the Retail Lending
Test Area that are in in low- or
moderate-income census tracts. Similar
to the other Geographic Community
Benchmarks, the agencies believe that
927 The transition amendments included in this
final rule will, once effective, amend the definitions
of ‘‘small business’’ and ‘‘small farm’’ to instead
cross-reference to the definition of ‘‘small business’’
in the CFPB Section 1071 Final Rule. This will
allow the CRA regulatory definitions to adjust if the
CFPB increases the threshold in the CFPB Section
1071 Final Rule definition of ‘‘small business.’’ This
is consistent with the agencies’ intent articulated in
the preamble to the proposal and elsewhere in this
final rule to conform these definitions with the
definition in the CFPB Section 1071 Final Rule. The
agencies will provide the effective date of these
transition amendments in the Federal Register after
section 1071 data is available.
928 The agencies acknowledge that proposed
appendix A, paragraph III.2.b specified that the
Geographic Community Benchmarks for small
business loans and small farm loans, prior to the
transition to using section 1071 data, would be
based on the share of small businesses or small
farms in an area that are located in low- or
moderate-income census tracts. However, the final
rule specifies that these Geographic Community
Benchmarks, prior to the transition to using section
1071 data, are based on the share of businesses or
farms in an area that are located in low- or
moderate-income census tracts, regardless of the
size of these businesses and farms. The final rule
approach is intended to ensure that the bank
metrics and benchmarks are calculated in a
consistent fashion.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00290
Fmt 4701
Sfmt 4700
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.018
ddrumheller on DSK120RN23PROD with RULES2
Benchmarks-Automobile Loans
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
the share of households in low- or
moderate-income census tracts is an
indicator of the potential lending
opportunities for automobile loans in
low- or moderate-income census tracts.
The agencies considered using the share
of families in low- or moderate-income
census tracts as the Borrower
Community Benchmark, but determined
that of the two options, the share of
households has the benefit of carrying
forward the current approach.
Section ll.22(e)(4) Borrower
Distribution Measures
ddrumheller on DSK120RN23PROD with RULES2
The Agencies’ Proposal
As discussed above, the agencies
proposed to evaluate the borrower
distributions of a bank’s major product
lines by using certain metrics and
benchmarks. Specifically, the proposed
Borrower Bank Metrics are calculated as
the percentage of a bank’s loans to
borrowers at varying income levels or
gross annual revenue thresholds,
relative to the total number of the bank’s
loans in the facility-based assessment
area, retail lending assessment area, or
outside retail lending area. As discussed
in greater detail in the section-bysection analysis of final § ll.22(f), the
agencies proposed to compare the
Borrower Bank Metric for each
distribution for each major product line
to performance ranges calculated based
on two benchmarks: a Borrower Market
Benchmark that reflects the aggregate
lending to borrowers at varying income
levels or gross annual revenue
thresholds across lenders within a
facility-based assessment area, retail
lending assessment area, or outside
retail lending area; and a Borrower
Community Benchmark that reflects the
potential lending opportunities at
varying income levels or gross annual
revenue thresholds within a facilitybased assessment area, retail lending
assessment area, or outside retail
lending area.
Comments Received
The agencies received numerous
comments, discussed above, on the use
of distribution metrics and benchmarks
generally. In addition, the agencies
received several comments that
specifically addressed the proposed
borrower distribution metrics and
benchmarks.
Treatment of purchased loans. A few
commenters sought clarity on the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
treatment of purchased loans with
respect to the borrower distribution
metrics and benchmarks when income
and revenue information is not reported
or not available, such as for certain
seasoned government mortgage loans.
For example, some commenters
recommended including purchased
loans in the numerator of the Borrower
Bank Metric when the bank has
information demonstrating that the
borrower is low- or moderate-income or
has gross annual revenues of less than
$1 million, and excluding purchased
loans from the numerator and
denominator of the Borrower Bank
Metric if the bank does not have
borrower income or revenue
information.
Borrower Community Benchmark for
home mortgage loans. A number of
commenters raised concerns about the
agencies’ proposal to use low- and
moderate-income family counts to
establish community benchmarks for
analyzing the borrower distribution of
home mortgage lending. For example, a
few commenters suggested that the
Borrower Community Benchmark for
home mortgage loans should be based
on the share of owner-occupied housing
units in an area that are occupied by
low- and moderate-income households,
instead of the share of low- and
moderate-income families. These
commenters explained that using lowand moderate-income households that
are owner-occupants, rather than lowand moderate-income families, would
better account for differences in home
prices and homeownership
opportunities across the country. In
addition, at least one commenter stated
that the agencies may want to consider
a Borrower Community Benchmark for
home mortgage loans that is based on
the low- and moderate-income share of
households, including households that
are not owner-occupants, as this would
capture unrelated people sharing rental
housing units who could become
homeowners.
Another commenter generally
regarded the proposed borrower
distribution analysis favorably, but
expressed concern that the Borrower
Community Benchmark for closed-end
home mortgage lending to low-income
borrowers would greatly overestimate
credit demand among these borrowers
because incomes are too low relative to
home prices in many parts of the
PO 00000
Frm 00291
Fmt 4701
Sfmt 4700
6863
country. The commenter conducted an
analysis indicating that the proposed
Borrower Community Benchmark for
closed-end home mortgage loans to lowincome borrowers was consistently
higher than the corresponding Borrower
Market Benchmark across 354 MSAs,
such that the performance ranges
calculated for closed-end home
mortgage loans to low-income borrowers
would always be based on the market
benchmarks in these markets.
Accordingly, the commenter suggested
that the agencies consider alternative
community benchmarks and alternative
calibrations of the benchmarks to
potentially create a better incentive for
banks to improve performance. The
commenter also suggested that because
the proposed Borrower Community
Benchmark for closed-end home
mortgage loans overestimates credit
demand among low-income borrowers,
it also underestimates credit demand
among moderate-income borrowers.
Final Rule
For the reasons discussed below, the
agencies are adopting the proposed
borrower distribution metrics and
benchmarks generally as proposed.
• Final § ll.22(e)(4)(i) provides that
for each major product line, a Borrower
Bank Metric is calculated pursuant to
paragraph IV.a of final appendix A.
• Final § ll.22(e)(4)(ii) provides
that for each major product line except
automobile loans, a Borrower Market
Benchmark is calculated pursuant to, as
applicable, paragraph IV.b of final
appendix A for facility-based
assessment areas and retail lending
assessment areas, and paragraph IV.d of
final appendix A for outside retail
lending areas.
• Final § ll.22(e)(4)(iii) provides
that for each major product line, a
Borrower Community Benchmark is
calculated pursuant to, as applicable,
paragraph IV.c of appendix A for
facility-based assessment areas and
retail lending assessment areas, and
paragraph IV.e of appendix A for
outside retail lending areas.
A summary of these calculations for
facility-based assessment area and retail
lending assessment areas, as applicable,
can be found in the following table for
each product line. Following a
discussion of some preliminary issues,
each of these metrics and benchmarks is
discussed in more detail below.
E:\FR\FM\01FER2.SGM
01FER2
6864
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Table 15 to§ _.22(e)(4): Summary of Calculations for Borrower Distribution Measures
Borrower Bank Metric
Retail Lending
Product Line
ddrumheller on DSK120RN23PROD with RULES2
Closed-End Home
Mortgage Lending
VerDate Sep<11>2014
18:11 Jan 31, 2024
Percentage of bank loan
originations and
purchases to the
following categories of
designated borrowers,
out of all bank loans in
the product line in the
Retail Lending Test
Area, by loan count
Percentage ofall
reported loan
originations to the
following categories of
Borrower Community
designated borrowers,
Benchmark
out of all reported loan
originations in the
product line in the Retail
Lending Test Area, by
loan count
Low-Income Borrowers
Low-Income Borrowers
Percentage of lowincome families
Moderate-Income
Borrowers
Moderate-Income
Borrowers
Percentage of moderateincome families
Jkt 262001
PO 00000
Frm 00292
Fmt 4701
Sfmt 4725
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.019
Borrower Market
Benchmark
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Businesses with GAR
less than or equal to
$250,000
Small Business
Lending
Small Farm Lending
Businesses with GAR
less than or equal to
$250,000
Percentage of businesses
with GAR less than or
equal to $250,000
Businesses with GAR of
greater than $250,000
but less than or equal to
$1 million
Businesses with GAR of
greater than $250,000
but less than or equal to
$1 million
Percentage of businesses
with GAR of greater
than $250,000 but less
than or equal to $1
million
Farms with GAR less
than or equal to
$250,000
Farms with GAR less
than or equal to
$250,000
Percentage of farms with
GAR less than or equal
to $250,000
Farms with GAR of
greater than $250,000
but less than or equal to
$1 million
Farms with GAR of
greater than $250,000
but less than or equal to
$1 million
Percentage of farms with
GAR of greater than
$250,000 but less than or
equal to $1 million
Not applicable
Percentage of lowincome households
Not applicable
Percentage of moderateincome households
Low-Income Borrowers
6865
Automobile Lending
Moderate-Income
Borrowers
Note: As discussed further in the section-by-section analysis of§ _.22(e)(l), prior to the use of section 1071 data,
the bank metrics and market benchmarks for small business lending are based on loans to businesses with a loan
amount of less than $1 million, and for small farm lending, are based on loans to farms with a loan amount of less
than $500,000. In addition, prior to the use of section 1071 data, the community benchmarks for small business
lending and small farm lending are based on percentages of all businesses and all farms, respectively. Once section
1071 data is used for CRA evaluations, the bank metrics and market benchmarks for small business and small farm
lending will be based on loans to small businesses or small farms (i.e., those with gross annual revenue ofless than
$5 million), with no loan amount threshold, and the community benchmarks for small business lending and small
farm lending will be based on percentages of small businesses and small farms (i.e., those with gross annual revenue
Treatment of purchased loans.
Consistent with the agencies’ proposal,
under the final rule approach,
purchased loans for which borrower
income or revenue data are unavailable
are counted in the denominator of the
borrower distribution metrics and
benchmarks, and not in the numerator
of the borrower distribution metrics and
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
benchmarks. If a bank provides the
agencies with information indicating
that purchased loans for which
borrower income or revenue data are
unavailable were in fact made to low- or
moderate-income borrowers or
borrowers with gross annual revenues
below $1 million, the agencies may
adjust the bank’s recommended
PO 00000
Frm 00293
Fmt 4701
Sfmt 4700
conclusion, as discussed in the sectionby-section analysis of § ll.22(g)(4).
The agencies considered comments
suggesting that if borrower income data
are unavailable for purchased loans,
then the loans should be excluded from
the numerator and denominator of the
borrower distribution metrics. However,
the final rule does not adopt this
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.020
ddrumheller on DSK120RN23PROD with RULES2
ofless than $5 million), respectively.
6866
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
approach because the agencies believe
that such an approach could allow a
bank to purchase middle- and upperincome loans for which income
information is not available without
factoring into the bank’s distribution
metrics. In addition, the agencies
believe that it is preferable to include all
of a bank’s loans in its distribution
metrics, and to consider potential
adjustments to the bank’s Retail Lending
Test conclusions pursuant to
§§ ll.22(g)(4) and ll.21(d) as
needed, to ensure that the distribution
metrics comprehensively account for a
bank’s retail lending.
The final rule continues the current
practice of using borrower income or
revenue information at the time of the
credit decision for purchased loans. As
a result, a loan originated to a low- or
moderate-income borrower, if sold to a
third-party bank, would receive
consideration as a low- or moderateincome loan for the purchasing bank
regardless of the borrower’s income at
the time of purchase. The agencies
believe that this approach will help to
support liquidity for lenders that lend to
low- or moderate-income borrowers and
census tracts, in accord with the CRA’s
objective of encouraging banks to meet
the credit needs of their entire
communities. Furthermore, the agencies
understand that it may not be feasible to
obtain updated borrower income
information for purchased loans.
Borrower Bank Metrics. As set forth in
paragraph IV.a of appendix A, the
Borrower Bank Metrics are calculated as
the percentage of a bank’s loans in a
particular major product line to
borrowers in each applicable income or
revenue category, respectively. This
calculation is based on originated and
purchased loans in a specific Retail
Lending Test Area over the years in the
evaluation period. For example, if a
bank originated or purchased 100 total
closed-end home mortgage loans in a
facility-based assessment area over the
years in an evaluation period, and 20 of
those loans were to low-income
borrowers, then its Borrower Bank
Metric for closed-end home mortgage
loans to low-income borrowers would
be 0.2, or 20 percent.
BILLING CODE 4810–33–P
BILLING CODE 6210–01–P
BILLING CODE 6714–01–P
Bank Loans to Low - Income Borrowers (20) _
.
.
0
Bank Loans (l00)
- Geographic Bank Metric (201/o)
For closed-end home mortgage loans
and automobile loans, the agencies
separately calculate the Borrower Bank
Metric for low-income borrowers and
moderate-income borrowers. For small
business loans and small farm loans, the
agencies separately calculate the
Borrower Bank Metric for businesses or
farms with gross annual revenues of: (1)
$250,000 or less; and (2) greater than
$250,000 but less than or equal to $1
million. The agencies note that
calculating the Borrower Bank Metrics
in this way is generally consistent with
the current practice for measuring a
bank’s lending to borrowers of various
income and revenue categories.
Borrower Market Benchmarks—
closed-end home mortgage loans, small
business loans, and small farm loans.
As set forth in paragraph IV.b of final
appendix A, the Borrower Market
Benchmarks for facility-based
assessment areas and retail lending
assessment areas are calculated as the
percentage of closed-end home mortgage
loans, small business loans, or small
farm loans to borrowers in each income
or revenue category, as applicable. This
calculation is based on originated loans
in the facility-based assessment area or
retail lending assessment area over the
years in the evaluation period reported
by all lenders.
Table 16 of§ _.22( e)(4): Summary of Calculations for Borrower Market Benchmarks
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Borrower Market
Benchmark Numerator
Frm 00294
Fmt 4701
Sfmt 4725
Borrower Market
Benchmark Denominator
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.021 ER01FE24.022
ddrumheller on DSK120RN23PROD with RULES2
Product line and category
of lending evaluated
VerDate Sep<11>2014
Closed-end home mortgage
loans, low-income borrowers
Number ofreported (HMDA)
closed-end home mortgage
loan originations to lowincome borrowers in an area
Closed-end home mortgage
loans, moderate-income
borrowers
Number ofreported (HMDA) Number of all reported
closed-end home mortgage
(HMDA) closed-end home
loan originations to moderate- mortgage loan originations in
income borrowers in an area
an area
Small business loans, GAR
less than or equal to
$250,000, CRA data
approach
Number ofreported (CRA)
loan originations of loan
amount less than or equal to
$1 million to businesses with
GAR less than or equal to
$250,000 in an area
Number of all reported
(CRA) loan originations of
loan amount less than or
equal to $1 million to
businesses in an area
Small business loans, GAR
$250,000-$1 million, CRA
data approach
Number ofreported (CRA)
loan originations of loan
amount less than or equal to
$1 million to businesses with
GAR greater than $250,000
but less than or equal to $1
million in an area
Number of all reported
(CRA) loan originations of
loan amount less than or
equal to $1 million to
businesses in an area
Small business loans, GAR
less than or equal to
$250,000, section 1071
approach
Number ofreported (section
1071) loan originations to
small businesses with GAR
less than or equal to $250,000
man area
Number of all reported
(section 1071) loan
originations to small
businesses in an area
Small business loans, GAR
$250,000-$1 million, section
1071 approach
Number ofreported (section
Number of all reported
1071) loan originations to
(section 1071) loan
originations to small
small businesses with GAR
greater than $250,000 but less businesses in an area
than or equal to $1 million in
an area
Small farm loans, GAR less
than or equal to $250,000,
CRA data approach
Number ofreported (CRA)
loan originations of loan
amount less than or equal to
$500,000 to farms with GAR
less than or equal to $250,000
man area
Number of all reported
(CRA) loan originations of
loan amount less than or
equal to $500,000 to farms in
an area
Small farm loans, GAR
$250,000-$1 million, CRA
data approach
Number ofreported (CRA)
loan originations of loan
amount less than or equal to
$500,000 to farms with GAR
Number of all reported
(CRA) loan originations of
loan amount less than or
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00295
Fmt 4701
Sfmt 4725
6867
Number of all reported
(HMDA) closed-end home
mortgage loan originations in
an area
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.023
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
6868
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
greater than $250,000 but less
than or equal to $1 million in
an area
equal to $500,000 to farms in
an area
Small farm loans, GAR less
than or equal to $250,000,
section 1071 approach
Number of reported (section
1071) loan originations to
small farms with GAR less
than or equal to $250,000 in
an area
Number of all reported
(section 1071) loan
originations to small farms in
an area
Small farm loans, GAR
$250,000-$1 million, section
1071 approach
Number ofreported (section
1071) loan originations to
small farms with GAR
greater than $250,000 but less
than or equal to $1 million in
an area
Number of all reported
(section 1071) loan
originations to small farms in
an area
Note: The transition to using section 1071 data is discussed further in the section-by-section analysis of
§ _.22(e)(l).
ddrumheller on DSK120RN23PROD with RULES2
For the outside retail lending area, the
Borrower Market Benchmarks for
closed-end home mortgage loans, small
business loans, and small farm loans are
determined by first calculating the
benchmark for each component
geographic area, and then calculating a
weighted average of the benchmarks for
those areas. Specifically, as set forth in
paragraph IV.d of final appendix A, the
Borrower Market Benchmarks for
outside retail lending areas are
established by calculating, for each
major product line—other than
automobile loans—in each component
geographic area of the outside retail
lending area, a benchmark for each
applicable income and revenue
category, respectively. Calculation of
these benchmarks for each component
geographic area follows the method
described above for calculating
Borrower Market Benchmarks for
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
facility-based assessment areas and
retail lending assessment areas, as
applicable. The benchmarks for each
component geographic area are then
averaged, weighting each component
geographic area by the number of the
bank’s loans in the major product line
originated and purchased in the
component geographic area, relative to
the number of the bank’s loans in the
major product line originated and
purchased in the outside retail lending
area. More discussion of the process for
creating benchmarks used in the outside
retail lending area analysis follows later
in this section.
Consistent with the proposed
approach, the Borrower Market
Benchmarks are intended to show the
overall level of lending for each product
line taking place in the Retail Lending
Test Area to borrowers of each
applicable income and revenue category
by all reporting lenders. The agencies
note that calculating Borrower Market
PO 00000
Frm 00296
Fmt 4701
Sfmt 4700
Benchmarks in this way is consistent
with current practice for evaluating a
bank’s lending to borrowers of various
income and revenue categories.
Borrower Community Benchmarks—
closed-end home mortgage loans. As set
forth in paragraphs IV.c.1 and IV.c.2 of
final appendix A, the Borrower
Community Benchmarks for closed-end
home mortgage loans to low- and
moderate-income borrowers,
respectively, in facility-based
assessment areas and retail lending
assessment areas are calculated as the
percentage of all families that are lowand moderate-income families,
respectively. This calculation is based
on families in the facility-based
assessment area or retail lending
assessment area over the years in the
evaluation period. Additional details
regarding the calculations of community
benchmarks, and an example, are
provided below in this section.
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.024
BILLING CODE 4810–33–C
BILLING CODE 6210–01–C
BILLING CODE 6714–01–C
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
6869
Table 17 of§ _.22(e)(4): Summary of Calculations for Borrower Community
Product line and
category of lending
evaluated
Borrower Community
Benchmark
Numerator
Borrower Community
Benchmark
Denominator
Primary data source
Closed-end home
mortgage loans, lowincome borrowers
Number oflowincome families in an
area
Number of families
man area
American
Community Survey
Closed-end home
mortgage loans,
moderate-income
borrowers
Number of moderateincome families in an
area
Number of families
man area
American
Community Survey
For the outside retail lending area, the
Borrower Community Benchmarks for
closed-end home mortgage loans (and
all other retail lending benchmarks) are
determined by first calculating the
benchmark for each component
geographic area, and then calculating a
weighted average of the benchmarks for
those areas. Specifically, as set forth in
paragraph IV.e of final appendix A, the
Borrower Community Benchmarks for
closed-end home mortgage loans in
outside retail lending areas are
established by calculating, in each
component geographic area of the
outside retail lending area, a benchmark
for closed-end home mortgage loans to
low- or moderate-income borrowers,
respectively. Calculation of these
benchmarks for each component
geographic area follows the method
described above for calculating
Borrower Community Benchmarks for
closed-end home mortgage loans to lowor moderate-income borrowers in
facility-based assessment areas and
retail lending assessment areas. The
benchmarks calculated for each
component geographic area are then
averaged together, weighting each
component geographic area by the share
of the bank’s closed-end home mortgage
loans originated and purchased in the
component geographic area, relative to
the bank’s closed-end home mortgage
loans originated and purchased in the
outside retail lending area, calculated
using loan count. More discussion of the
process for creating benchmarks used in
the outside retail lending area analysis
follows later in this section.
Consistent with the proposal, the
Borrower Community Benchmarks for
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
closed-end home mortgage loans are
based on the share of families in the
Retail Lending Test Area that are lowor moderate-income. Similar to the
other Borrower Community
Benchmarks, the agencies believe that
the share of low- or moderate-income
families is an indicator of the potential
lending opportunities for closed-end
home mortgage loans to low- or
moderate-income borrowers. In deciding
to define the benchmark as comprising
low- or moderate-income families, as
opposed to households, the agencies
have placed significant weight on the
fact that this is consistent with current
practice for evaluating a bank’s closedend home mortgage lending to low- or
moderate-income borrowers. The
agencies believe this will aid in
implementation and familiarity with the
final rule approach. However, the
agencies recognize that this benchmark
would, therefore, not include
individuals that the American
Community Survey defines as
comprising households but are not
included in its definition of families,
such as adults living alone, unmarried
couples, and unrelated adults living as
roommates.929 As a result, this
benchmark would not capture some
929 According to the Census Glossary, a
household includes ‘‘the related family members
and all the unrelated people, if any, such as lodgers,
foster children, wards, or employees who share the
housing unit. A person living alone in a housing
unit, or a group of unrelated people sharing a
housing unit such as partners or roomers, is also
counted as a household.’’ Further information
related to how households and families are defined
in the American Community Survey can be found
in the Census Glossary at https://www.census.gov/
glossary/?term=Household.
PO 00000
Frm 00297
Fmt 4701
Sfmt 4700
households that are mortgage borrowers
or will become mortgage borrowers in
the future. The agencies considered
using the share of low- or moderateincome households as the Borrower
Community Benchmark, but determined
that of the two options, the share of lowor moderate-income families has the
benefit of carrying forward the current
approach. The agencies note that there
is no distinction or consideration in the
distribution analysis of whether a bank’s
home mortgage loans were made to
borrowers that are family households or
to borrowers that are non-family
households; rather, the bank metrics
reflect the bank’s percentages of all
loans to low- and moderate-income
borrowers. Moreover, the agencies note
that the decision to use family
households to construct these
community benchmarks is not intended
to convey a preference for lending to
family households rather than to nonfamily households. During and
following implementation of the final
rule, the agencies will continue to
monitor this and other benchmarks to
determine whether other indicators
would better estimate the potential
lending opportunities for each product
line.
The agencies considered comments
that the Borrower Community
Benchmark for closed-end home
mortgage loans to low-income
borrowers—proposed as being lowincome families as noted above—may
overestimate potential demand for
closed-end home mortgage loans among
low-income families. However, the
agencies believe that the benchmark
adopted in the final rule accords with
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.025
ddrumheller on DSK120RN23PROD with RULES2
Benchmarks-Closed-End Home Mortgage Loans
6870
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
the CRA’s emphasis on meeting the
credit needs of the bank’s entire
community, which includes low-income
families. For this reason, the agencies
determined not to modify the Borrower
Community Benchmark for closed-end
home mortgage loans to low-income
borrowers in a way that universally
assumes significantly lower credit needs
for these borrowers. In addition, as
discussed in the section-by-section
analysis for ll.22(f), the agencies
determined that the combination of the
market and community benchmarks,
and final rule multiplier values, result
in appropriately calibrated performance
ranges, and that Retail Lending Test
conclusions of ‘‘Low Satisfactory’’ or
higher are generally attainable.
Borrower Community Benchmarks—
small business loans and small farm
loans. As set forth in paragraphs IV.c.3
through IV.c.6 of final appendix A, the
Borrower Community Benchmarks for
small business loans or small farm loans
in facility-based assessment areas and
retail lending assessment areas, as
applicable, are calculated as the
percentage of businesses or farms with
gross annual revenues of more than
$250,000 but less than or equal to $1
million, and with gross annual revenues
of $250,000 or less, respectively.930 This
calculation is based on businesses or
farms in the facility-based assessment
area or retail lending assessment area
over the years in the evaluation period.
Additional details regarding the
calculations of community benchmarks,
and an example, are provided below in
this section.
BILLING CODE 4810–33–P
BILLING CODE 6210–01–P
BILLING CODE 6714–01–P
Table 18 to§ _.22(e)(4): Summary of Calculations for Borrower Community
Benchmarks-Small Business Loans and Small Farm Loans
Borrower Community
Benchmark
Numerator
930 For purposes of the Borrower Community
Benchmarks for small business loans, the agencies
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Borrower Community
Benchmark
Denominator
exclude farms from the calculation of the
PO 00000
Frm 00298
Fmt 4701
Sfmt 4725
Primary data source
percentage of businesses in each gross annual
revenues category.
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.026
ddrumheller on DSK120RN23PROD with RULES2
Product line and
category of lending
evaluated
Small business loans,
GAR less than or
equal to $250,000,
CRA data approach
Number of businesses
with GAR less than
or equal to $250,000
Number of businesses Third-party data
provider
man area
man area
Small business loans,
GAR greater than
$250,000 but less
than or equal to $1
million, CRA data
approach
Number of businesses
with GAR greater
than $250,000 but
less than or equal to
Number of businesses Third-party data
provider
$1 million in an area
man area
Small business loans,
GAR less than or
equal to $250,000,
section 1071
approach
Number of small
businesses with GAR
less than or equal to
$250,000 in an area
Number of small
businesses in an area
Third-party data
provider
Small business loans,
GAR greater than
$250,000 but less
than or equal to $1
million, section 1071
approach
Number of small
businesses with GAR
greater than $250,000
but less than or equal
to $1 million in an
area
Number of small
businesses in an area
Third-party data
provider
Small farm loans,
GAR less than or
equal to $250,000,
CRA data approach
Number of farms
with GAR less than
or equal to $250,000
in an area
Number of farms in
an area
Third-party data
provider
Small farm loans,
GAR greater than
$250,000 but less
than or equal to $1
million, CRA data
approach
Number of farms
with GAR greater
than $250,000 but
less than or equal to
$1 million in an area
Number of farms in
an area
Third-party data
provider
Small farm loans,
GAR less than or
equal to $250,000,
section 1071
approach
Number of small
farms with GAR less
than or eg_ual to
$250,000 in an area
Number of small
farms in an area
Third-party data
provider
Small farm loans,
GAR greater than
$250,000 but less
than or equal to $1
million, section 1071
approach
Number of small
farms with GAR
greater than $250,000
but less than or equal
to $1 million in an
area
Number of small
farms in an area
Third-party data
provider
6871
Note: The transition to using section 1071 data is discussed further in the section-by-section analysis of
§ _.22(e)(l).
BILLING CODE 4810–33–C
BILLING CODE 6210–01–C
BILLING CODE 6714–01–C
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00299
Fmt 4701
Sfmt 4700
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.027
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
6872
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
For the outside retail lending area, the
Borrower Community Benchmarks for
small business loans and small farm
loans (and all other retail lending
benchmarks) are determined by first
calculating the benchmark for each
component geographic area, and then
calculating a weighted average of the
benchmarks for those areas.
Specifically, as set forth in paragraph
IV.e of final appendix A, the Borrower
Community Benchmarks for small
business loans or small farm loans in
outside retail lending areas are
established by calculating, in each
component geographic area of the
outside retail lending area, a benchmark
for small business loans or small farm
loans to small businesses or small farms
of each applicable revenue category,
respectively. Calculation of these
benchmarks for each component
geographic area follows the method
described above for calculating
Borrower Community Benchmarks in
facility-based assessment areas and
retail lending assessment areas, as
applicable. The benchmarks calculated
for each component geographic area are
then averaged, weighting each
component geographic area by the
number of the bank’s small business
loans or small farm loans originated and
purchased in the component geographic
area, relative to the number of the
bank’s small business loans or small
farms originated and purchased in the
outside retail lending area. More
discussion of the process for creating
benchmarks used in the outside retail
lending area analysis follows later in
this section.
Consistent with the proposal, the
Borrower Community Benchmarks for
small business loans or small farm loans
are based on the share of businesses and
farms in the Retail Lending Test area in
different revenue categories. For
example, the Borrower Community
Benchmark for small business loans
with gross annual revenue of less than
$250,000 in a facility-based assessment
area is the share of all businesses in the
area with gross annual revenue of less
than $250,000. Similar to the other
Borrower Community Benchmarks, the
agencies believe that the share of
businesses or farms of different sizes is
an indicator of the potential lending
opportunities for small business loans
or small farm loans in the Retail
Lending Test Area. Further, the agencies
note that using the share of businesses
or farms of different sizes is generally
consistent with current practice for
evaluating a bank’s small business and
small farm lending.
As described above with respect to
the Geographic Community
Benchmarks, following the transition to
using section 1071 data,931 the agencies
will adjust the methodology used to
calculate the Borrower Community
Benchmark to reflect changes in what
businesses and farms are included in
the section 1071 data relative to the
existing CRA small business and small
farm data. Specifically, prior to the use
of section 1071 data, this benchmark
would be based on the share of all
businesses and farms that are designated
borrowers. Once section 1071 data is
used in CRA evaluations, this
benchmark would be the share of small
businesses and small farms (i.e., those
with gross annual revenue of $5 million
or less) that are designated borrowers.
This change reflects that section 1071
data include only loans made to small
businesses and small farms, and ensures
that the bank metrics and benchmarks
are calculated in a consistent manner.932
Borrower Community Benchmarks—
automobile loans. As set forth in
paragraphs IV.c.7 and IV.c.8 of final
appendix A, the Borrower Community
Benchmarks for automobile loans to
low- and moderate-income borrowers,
respectively, in facility-based
assessment areas are calculated as the
percentage of low- or moderate-income
households, respectively. This
calculation is based on households in
the facility-based assessment area over
the years in the evaluation period.
Additional details regarding the
calculations of community benchmarks,
and an example, are provided below in
this section.
Table 19 of§ _.22(e)(4): Summary of Calculations for Borrower Community
Product line and category Borrower Community
of lending evaluated
Benchmark Numerator
Borrower Community
Benchmark Denominator
Primary data source
Automobile loans,
low-income
borrowers
Number of lowincome households in
an area
Number of
households in an area
American
Community Survey
Automobile loans,
moderate-income
borrowers
Number of moderateincome households in
an area
Number of
households in an area
American
Community Survey
931 The transition amendments included in this
final rule will, once effective, amend the definitions
of ‘‘small business’’ and ‘‘small farm’’ to instead
cross-reference to the definition of ‘‘small business’’
in the CFPB Section 1071 Final Rule. This will
allow the CRA regulatory definitions to adjust if the
CFPB increases the threshold in the CFPB Section
1071 Final Rule definition of ‘‘small business.’’ This
is consistent with the agencies’ intent articulated in
the preamble to the proposal and elsewhere in this
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
final rule to conform these definitions with the
definition in the CFPB Section 1071 Final Rule. The
agencies will provide the effective date of these
transition amendments in the Federal Register after
section 1071 data is available.
932 The agencies acknowledge that proposed
appendix A, paragraph IV.2.b, specified that the
Borrower Community Benchmarks for small
business loans and small farm loans, prior to the
transition to using section 1071 data, would be
PO 00000
Frm 00300
Fmt 4701
Sfmt 4725
based on the share of businesses or farms of
different sizes out of all small businesses or small
farms in an area. However, the final rule specifies
that these Borrower Community Benchmarks, prior
to the transition to using section 1071 data, are
based on the share of businesses or farms of
different sizes out of all businesses or farms in an
area, regardless of the size of these businesses and
farms.
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.028
ddrumheller on DSK120RN23PROD with RULES2
Benchmarks-Automobile Loans
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
For the outside retail lending area, the
Borrower Community Benchmarks for
automobile loans (and all other retail
lending benchmarks) are determined by
first calculating the benchmark for each
component geographic area, and then
calculating a weighted average of the
benchmarks for those areas.
Specifically, as set forth in paragraph
IV.e of final appendix A, the Borrower
Community Benchmarks for automobile
loans in outside retail lending areas are
established by calculating, in each
component geographic area of the
outside retail lending area, a benchmark
for automobile loans to low- or
moderate-income borrowers,
respectively. Calculation of these
benchmarks for each component
geographic area follows the method
described above for calculating
Borrower Community Benchmarks for
automobile loans to low- or moderateincome borrowers in facility-based
assessment areas. The benchmarks
calculated for each component
geographic area are then averaged
together, weighting each component
geographic area by the share of the
bank’s automobile loans originated and
purchased in the component geographic
area, relative to the bank’s automobile
loans originated and purchased in the
outside retail lending area, calculated
using loan count. More discussion of the
process for creating benchmarks used in
the outside retail lending area analysis
follows later in this section.
The agencies believe that the share of
low- or moderate-income households is
an indicator of the potential lending
opportunities for automobile loans in
low- or moderate-income census tracts.
The agencies considered using the share
of families, rather than households, but
determined that of the two options, the
share of households has the benefit of
carrying forward the current approach.
ddrumheller on DSK120RN23PROD with RULES2
Section ll.22(e)(3)(ii) and (iii) and
(e)(4)(ii) and (iii) Benchmark Timing
The Agencies’ Proposal
In the proposal, the agencies
addressed the issues of when the market
and community benchmarks should be
set for the evaluation period and which
years of data to use to calculate the
benchmarks. The agencies indicated
that they were considering whether to
calculate the community benchmarks
using the most recent data available as
of the first day of a bank’s CRA
examination. However, the agencies
noted that these data may not become
available until during or after the
evaluation period, and as a result, under
this approach, the values of the
community benchmarks may not be
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
known at the outset of the evaluation
period. The agencies requested feedback
on alternative approaches to the timing
of when the community benchmarks
would be set for a bank’s evaluation.
Furthermore, the agencies indicated
that they were considering whether to
calculate the market benchmarks using
all available reported data from the
years of a bank’s evaluation period,
recognizing that some evaluation
periods could include a year for which
reported data is not yet available at the
time of the bank’s examination. The
agencies also indicated that they were
considering an alternative approach,
under which the bank distribution
metrics would be based on data only
from the same years over which the
market distribution benchmarks are able
to be measured. The agencies noted that
this approach would have the advantage
of setting performance standards for
banks that correspond to the period, and
the economic conditions during that
period, over which an agency is
evaluating a bank’s performance.
However, this approach would have the
disadvantage of, in some circumstances,
not fully covering a bank’s recent
lending.
Comments Received
A number of commenters provided
specific feedback on timing issues
related to the data used to calculate the
proposed retail lending metrics and
benchmarks. Some commenters raised
concerns about the delayed availability,
incompleteness, lack of transparency, or
sources of the proposed benchmark data
against which bank borrower
distribution and geographic distribution
metrics would be measured under the
agencies’ proposal.
Bank metrics and market
benchmarks. Several commenters
supported the agencies’ proposal to base
the bank distribution metrics on all of
the data from the bank’s evaluation
period, while the market distribution
benchmarks would be based on reported
data that is available at the time of the
examination. For example, a commenter
asserted that all of a bank’s reported
data for the evaluation period should be
used, even if all corresponding market
data was not available at the time of the
examination. Likewise, another
commenter stated that, generally, bank
volume and bank distribution metrics
should be based on an average of a
bank’s annual performance over the
evaluation period. Another commenter
that supported the agencies’ proposal
stressed the importance of leveraging
examiner discretion and performance
context to evaluate lending where any
bank volume or bank distribution data
PO 00000
Frm 00301
Fmt 4701
Sfmt 4700
6873
is unavailable. A commenter suggested
that all data should be representative of
the community at the time that the loan,
investment, or service was originated or
provided.
Community benchmarks. Some
commenters did not support the option
the agencies stated was under
consideration to set community
benchmarks using the most recent data
available as of the first day of a bank’s
CRA examination. A commenter noted
that setting community benchmarks
with the most recent data at the time of
the bank’s examination may contribute
to banks clustering CRA qualifying
activities around examination time
rather than throughout the evaluation
period. This commenter and several
others instead recommended that
benchmarks be set with data from
throughout the evaluation period. A
commenter suggested that using a fiveyear average of available data could
avoid the effects of sudden, sometimes
unpredictable swings in demographic
data on community benchmarks.
Another commenter stated that the
agencies should calculate the
community benchmarks based on data
that pertains to the years of the
evaluation period, and did not support
setting the community benchmarks
based on data available prior to the
evaluation period, or at the time of the
bank’s examination. Other commenters
suggested that the benchmarks could
instead be set annually. These
commenters suggested that this
approach would provide banks with
appropriate notice about retail lending
performance expectations.
Some commenters recommended
making community benchmark data
available in advance of evaluation
periods. For example, a commenter
recommended that a bank’s community
benchmarks be established at the
beginning of each examination cycle
and remain consistent throughout the
evaluation period. Another commenter
stated that as a matter of fairness and
due process, banks should know the
benchmarks prior to being evaluated, so
that they can plan and structure their
CRA programs accordingly. A
commenter similarly recommended that
benchmarks be established based on the
year prior to the start of an examination
to allow for more consistency and
alignment with the bank’s metrics.
Additionally, this commenter noted that
in the event that circumstances have
dramatically changed, such as in a
global pandemic, an examiner could
request more recent data.
Several commenters also suggested
that, after being established at the
beginning of an evaluation period,
E:\FR\FM\01FER2.SGM
01FER2
6874
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
community benchmarks should
decrease (‘‘float down’’) if demographic
data collected during the evaluation
period would lead to lower benchmarks.
These commenters variously noted that
economic recessions, natural disasters,
pandemics, significant variances in real
estate prices, and other events could
warrant a downward adjustment to the
community benchmarks.
Several commenters expressed
concern that certain community
benchmark data, including FFIEC data,
would not be available at the start of an
examination. One of the commenters
noted that this lag would result in banks
being measured against inaccurate
community benchmarks, and that the
agencies should clearly explain how
they would account for this. Another
commenter suggested a transition period
during which banks could opt in to
being evaluated using the community
benchmarks in order to allow the
agencies to assess whether the
benchmarks adequately reflected
economic conditions. Another
commenter recommended that the
agencies retain the current CRA
practices for flexibly establishing and
considering community benchmarks
(based on data from the time of a bank’s
evaluation period, but which are not
published in advance of the evaluation
period) in evaluations given their
familiarity to bankers and examiners.933
Timing issues affecting both the
market and community benchmarks.
Several commenters expressed concerns
regarding the availability of benchmark
information, or lack thereof, prior to a
bank’s evaluation period. A commenter
argued that not having benchmark data
upon implementation of the final rule
would be contrary to the agencies’
stated objectives of clarity and certainty.
This commenter and another
commenter raised concerns about the
ability of banks to collect, track, and
analyze CRA performance using the
proposed metrics, given the delayed
availability of benchmark information,
both currently and after the final rule is
ddrumheller on DSK120RN23PROD with RULES2
933 See, e.g., Interagency Large Institution CRA
Examination Procedures (April 2014) at 6–8.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
implemented. Likewise, other
commenters stated that not knowing the
benchmarks against which a bank’s
performance would be assessed before
the bank’s CRA evaluation periods
would prevent the bank from engaging
in appropriate, necessary planning. A
commenter described the benchmarks as
moving targets based on dated peer
performance that could obscure the full
story of a bank’s performance. Another
commenter expressed concern regarding
the number of calculations used to
arrive at the metrics and benchmarks,
noting the many different data sources
used to construct the metrics and
benchmarks, and the varying timing of
when these data are available. As a
result, the commenter stated, the
benchmarks will be subjective, as the
bank will not know what data sources
the examiners will use to establish
them.
Some commenters addressed the
proposal to establish benchmarks that
would cover an entire evaluation
period. For example, a commenter
warned against aggregating data from a
bank’s entire evaluation period because
a bank’s major product lines or MSA
delineations could change from one year
to the next. This commenter stated that
conducting examinations using annual
data for metrics and benchmarks,
without combining and averaging that
annual data, would better ensure that a
bank’s retail lending performance is
measured against appropriate
demographic and market data. Another
commenter stated that banks can have
evaluation periods that are shorter or
longer than three years, and that it
would be problematic to always set
benchmarks only for three-year periods.
This commenter also indicated that the
agencies’ proposed approach was
further complicated by the fact that,
during an evaluation period, low- and
moderate-income census tracts can
become middle- and upper-income
census tracts, and vice versa.
Final Rule
The agencies have considered
commenter feedback on this issue and
PO 00000
Frm 00302
Fmt 4701
Sfmt 4700
have included provisions in sections V
and VI of final appendix A that address
the approach to setting, and the data
used to calculate, community and
market benchmarks. Specifically, the
agencies intend to disclose the data
used to calculate community
benchmarks on an annual basis, in
advance of each calendar year of an
evaluation period. The agencies will
calculate the market benchmarks at the
time of the bank’s examination using
data that corresponds to the years of a
bank’s evaluation period. For purposes
of a bank’s evaluation over a full
evaluation period, each benchmark
would be calculated for the entire
evaluation period, rather than
calculating separate benchmarks for
each individual calendar year of the
evaluation period. For both sets of
benchmarks, the agencies intend to
annually disclose the annual component
of the benchmark that corresponds to
each calendar year, and that would be
used to calculate the benchmark for the
entire evaluation period. For the
community benchmarks, this disclosure
would occur in advance of each
calendar year, and for the market
benchmarks, the disclosure would occur
after a calendar year once reported data
for that year is available.
Community benchmarks. Under the
final rule approach, the agencies intend
to disclose the annual components of
the data used to calculate the
community benchmarks in advance of
each calendar year. At the time of a
bank’s examination, the agencies will
calculate the community benchmarks
for the evaluation period, pursuant to
the methodology in sections III and IV
of final appendix A. For example, for a
three-year evaluation period, for each
community benchmark, the agencies
intend to disclose available annual data
in advance of each of the three calendar
years of the evaluation period, and at
the time of the bank’s examination, the
agencies would calculate the
community benchmarks based on three
years of data.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
6875
Table 20 of§ _.22(e): Example of community benchmark approach for a facility-based
assessment area or retail lending assessment area-closed-end home mortgage lending to
low-income borrowers
Number oflowincome families
Number of families
Data provided prior
to calendar year 1
10,000
90,000
Data provided prior
to calendar year 2
11,000
100,000
Data provided prior
to calendar year 3
13,000
110,000
Sum of years
34,000
300,000
In determining that community
benchmark data would be set in
advance of each calendar year of the
evaluation period, the agencies have
considered how to balance the objective
of providing certainty to banks
regarding performance standards with
incorporating the most up-to-date
performance context information into
the metrics-based approach. The
agencies believe this approach will
provide appropriate advance notice of
benchmarks and performance
expectations to banks; each year a bank
would have advance notice of the
annual component of the community
benchmark for that specific year, which
a bank can use to monitor performance.
As described above, the agencies would
use an average of these annual data
points to determine each community
benchmark for the entire evaluation
period. Under this approach, the
agencies note that a bank would have
access to all of the annual components
of the community benchmark by the
beginning of the final calendar year of
each evaluation period, when the
annual component of the benchmark for
the final calendar year would be
disclosed. Furthermore, as discussed in
the section-by-section analysis of final
§ ll.22(f), applicable performance
ranges are based on the lower of the
calibrated market benchmark and the
calibrated community benchmark. As a
result of disclosing the annual
components of the community
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
34,000/300,000 ;::; 11.3%
benchmarks, banks would have insight
into the maximum level of retail lending
to designated borrowers and in
designated census tracts necessary to
meet the performance ranges for each
conclusion category. While the
performance ranges used in an
examination could be lower than those
calculated by the community
benchmark, they cannot exceed those
based on the community benchmarks.
In addition, as a result of this
approach, the agencies have considered
that the data used for the community
benchmarks approximately reflect the
characteristics of the community during
the bank’s evaluation period. Prior to
the beginning of each calendar year, the
agencies intend to disclose annual
components of the community
benchmarks for the coming year of an
evaluation period based on data sources
that the agencies determine best reflect
local conditions at the time, consistent
with current practice of calculating
community benchmarks based on data
provided annually by the FFIEC.
The agencies also considered that the
final rule approach will account for
potential changes in the delineation of
a Retail Lending Test Area during an
evaluation period, because the
community benchmark data for each
calendar year would reflect the
geographic composition of the Retail
Lending Test Area in that year. For
example, the agencies considered an
example of a bank whose facility-based
assessment area expands from a single
PO 00000
Frm 00303
Fmt 4701
Sfmt 4700
county in the first calendar year of the
evaluation period to a total of two
counties in the second and third
calendar years. The community
benchmark data for the first calendar
year would reflect the single county
delineation, and the community
benchmark data for the second and third
calendar years would reflect the twocounty designation. The agencies
determined that calculating a multiyear
ratio reflecting all years in a bank’s
performance evaluation will result in a
community benchmark that accounts for
the changes in the bank’s facility-based
assessment area delineation without
requiring any additional adjustments or
weighting. The agencies considered this
to be an important benefit of the
proposed approach, since the
delineations of facility-based assessment
areas, retail lending assessment areas,
and outside retail lending areas may
change on an annual basis due to a
variety of factors, such as changes in
MSA definitions, or expansion of a
bank’s service area in a particular MSA.
The agencies also considered, but
decline to adopt, an alternative
approach of designating the final
community benchmark levels in
advance of the first year of the
evaluation period. Under this
alternative, a final community
benchmark would be published prior to
the bank’s evaluation period based on
data available at that time. As a result,
this alternative approach would not
involve calculating a multiyear ratio of
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.029
ddrumheller on DSK120RN23PROD with RULES2
Final community
benchmark
ddrumheller on DSK120RN23PROD with RULES2
6876
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
annual community benchmark data
released over the course of the
evaluation period. The agencies
considered that this alternative
approach could provide additional
certainty regarding the level of this
benchmark. However, the agencies also
considered that such an approach
would necessitate using older data to
construct the community benchmarks
for each year in the bank’s evaluation
period, as noted by some commenters,
which could result in certain
performance context information not
being incorporated into the community
benchmarks. For example, the
community benchmark data available at
the beginning of the first year of a bank’s
evaluation period may reflect the
composition of the population from two
or more calendar years prior. By the
beginning of the third calendar year of
the bank’s evaluation period, the
community benchmark data could
reflect the composition of the
population from four or more calendar
years prior. As a result, changes to, for
example, the population or to the
number of businesses or farms in those
intervening years would not be
accounted for in the older community
benchmark data. In addition, the
agencies considered that designating the
final community benchmark in advance
of a bank’s evaluation period would not
be possible in instances where MSA
definitions change during an evaluation
period, a Retail Lending Test Area
expands or contracts during the
evaluation period, or in which new
census tract delineations are published
and go into effect during the evaluation
period. Consequently, the agencies
determined that there would be
significant operational challenges with
an alternative approach of setting and
fixing community benchmarks entirely
in advance of the evaluation period.
The agencies also considered, but
decline to adopt, an alternative
approach of calculating benchmarks at
the time of a bank’s examination using
data available at that time, and not
setting the benchmark or providing data
used to calculate the benchmark at any
point in advance of the bank’s
examination. The agencies considered
that, while this alternative approach
would allow the community
benchmarks to more closely reflect the
composition of the population during
the evaluation period, it would also
significantly limit the information
available to banks and the public
regarding Retail Lending Test
performance expectations in advance. In
contrast, the agencies determined that
the final rule approach of providing the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
annual components of the community
benchmarks in advance of each calendar
year of the evaluation period will more
effectively provide advance notice of
benchmark levels.
The agencies considered comments
expressing timing concerns about the
availability of the data used to compute
community benchmarks and the timing
of the bank’s evaluation period. In
adopting their final rule approach, the
agencies intend to explore ways of
streamlining data availability (such as
updating data on a more frequent basis
than is currently done) to ensure that
timely data is used to construct
community benchmarks.
Market benchmarks. Pursuant to the
final rule, the agencies will calculate the
market benchmarks using the retail
lending data from the years of the bank’s
evaluation period, and not from years
prior to the evaluation period. This
approach has the advantage of setting
performance standards for banks based
on contemporaneous data that reflect
economic conditions during the period
over which an agency is evaluating a
bank’s performance. The agencies have
considered that this approach is
consistent with existing practices, under
which benchmarks are generally
calculated based on data from the time
of a bank’s evaluation period and are
not published in advance of the
evaluation period. The agencies further
believe that this approach is especially
important to maintain in the final rule
for the market benchmarks, which are
intended to capture aspects of the
performance context of an area that may
emerge during the evaluation period,
such as changes in economic conditions
that may affect the demand for credit
among low- and moderate-income
households. The agencies determined
that basing the market benchmarks on
data from the evaluation period will
appropriately contribute to
standardization and transparency
regarding evaluations of retail lending
performance, because examiners
generally would not need to
qualitatively consider economic
conditions that are already accounted
for in the market benchmarks.
The agencies considered, but are not
adopting, approaches recommended by
some commenters to set the market
benchmarks in advance of the
evaluation period, or in advance of each
calendar year of the evaluation period.
The agencies considered that such
alternative approaches would provide
greater certainty to banks and the public
regarding quantitative performance
standards. However, the agencies have
also considered that these alternative
approaches would result in benchmarks
PO 00000
Frm 00304
Fmt 4701
Sfmt 4700
that may not account for the
performance context of an area in a
specific year, because the data used to
compute the market benchmarks would
precede the bank’s evaluation period
and would not correspond to the overall
lending in a community during a
specific time period. As a result, under
these alternative approaches, the
agencies have considered that the
market benchmarks would not provide
the same function of incorporating
performance context data into the
metrics approach and could necessitate
more often using qualitative
considerations and agency discretion to
account for changes in economic
conditions or other changes in the
market that occur during an evaluation
period. The agencies have also
considered that greater use of qualitative
factors would counteract any potential
increase in certainty derived from
providing the benchmarks in advance.
In addition, consistent with current
practice, the agencies note that banks
could consider recent market
benchmarks for their Retail Lending
Test Areas, in concert with census data
and their own lending data, as part of
their planning prior to and during a
CRA evaluation period.
While the agencies’ proposal also
discussed alternative approaches for
specifying in the regulation which years
of data would be used to calculate a
bank’s metrics and market benchmarks
in a given examination, the final rule
does not specify such alternatives.
However, in implementing the final
rule, the agencies intend to take the
approach described in the proposal of
basing the metrics and market
benchmarks on the same years of data,
rather than allowing the market
benchmarks to be based on data from a
subset of the years of the evaluation
period if data for the last year of an
evaluation period is not yet available. In
practice, for each major product line,
the scope of the Retail Lending Test
evaluation would be limited to those
years in which the necessary data is
available to calculate the relevant
metrics and benchmarks. The agencies
considered that this approach ensures
that the benchmarks reflect the
performance context of the evaluation
period. The agencies determined that
this timing issue is more appropriately
resolved in implementation, because a
degree of flexibility is warranted to
account for future changes in
underlying data sources used to
construct metrics and benchmarks, such
as changes to the timing of when certain
data is published.
Alternative to set benchmarks in
advance and adjust at time of
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
examination. For both the community
benchmarks and the market
benchmarks, the agencies considered,
but are not adopting, an alternative
‘‘float-down’’ approach of setting each
benchmark. This alternative would
entail establishing each benchmark in
advance of the evaluation period,
recalculating that benchmark at the time
of the bank’s examination using more
current data, and selecting the lower of
the two benchmarks for use in the
evaluation. The agencies determined
that this approach could result in a
misalignment between the data used to
calculate the metrics and corresponding
benchmarks (e.g., if a bank made a loan
in a moderate-income census tract that
was then reclassified to middle-income
during an evaluation period) and would
increase uncertainty regarding the
ultimate level of the benchmarks. In
addition, the agencies considered that
this approach would introduce
significant operational complexity for
banks and the agencies due to the large
number of data points that are necessary
to construct multiple sets of benchmarks
at different points in time for a single
examination, and the varied timing of
when the data sources are updated. The
agencies also considered that under any
approach of adjusting the benchmarks at
the time of a bank’s examination, two
banks with the same evaluation period
whose examinations occur at different
times could potentially have different
benchmarks calculated for the same
Retail Lending Test Area and evaluation
period due to differences in the data
available at the time of the two
examinations. The agencies believe that
these considerations outweigh any
potential benefits of advance notice of
benchmark levels achieved through this
alternative.
The agencies considered, but are not
adopting, the alternative approach
suggested by some commenters to
construct metrics and benchmarks that
would apply to each calendar year of an
evaluation period, rather than one set of
metrics and benchmarks that apply to
the entire evaluation period. The
agencies determined that this
alternative, on balance, would increase
complexity. For example, for a threeyear evaluation period, this alternative
would require approximately three
times as many metrics and benchmarks
and associated calculations as the final
rule approach. Furthermore, the
agencies determined that the alternative
approach would require an additional
weighted average calculation for
combining the performance of each
individual calendar year into a
conclusion for the overall evaluation
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
period. The agencies determined that
this alternative approach would
therefore be inconsistent with
commenter feedback suggesting
reducing the complexity of the proposed
Retail Lending Test.
The agencies have considered
comments that under the proposed
approach, the exact data sources used to
designate the benchmarks would be
unknown prior to a bank’s evaluation
period. In implementing the final rule,
the agencies intend to provide regular
updates to banks and the public
regarding the data applicable to CRA
evaluations, as well as historical data
regarding benchmarks in different areas.
The agencies decided not to include
specific data sources for community
benchmarks in the final rule, or specific
requirements for which years of data
will be used to calculate community
benchmarks, because exact data sources
and timing may change over time. The
agencies believe it is preferable to assess
data sources and availability on an
ongoing basis, and to regularly update
CRA stakeholders, signaling any
potential changes with as much advance
notice as possible. The agencies believe
this approach is consistent with current
practice, in that the exact data sources
and timing of the various inputs for
metrics and benchmarks under the
current approach are subject to change.
Distribution Benchmarks in Outside
Retail Lending Areas
The Agencies’ Proposal
The agencies proposed to evaluate the
distribution of a bank’s major product
lines in its facility-based assessment
areas, retail lending assessment areas,
and outside retail lending area, as
applicable. The agencies further
proposed to use generally the same
approach to calculating the proposed
distribution metrics and benchmarks in
all three types of Retail Lending Test
Areas.
However, in evaluating the
distribution of a bank’s major product
lines in its outside retail lending area,
the agencies proposed to tailor
performance expectations for outside
retail lending areas to match the
opportunities in the geographic regions
in which the bank lends, which may
vary considerably across the country. In
particular, the agencies proposed to
tailor performance expectations by
setting bank-specific tailored
benchmarks, which would then be used
to establish thresholds and performance
ranges. These tailored benchmarks
would be calculated as the average of
local market and community
benchmarks across the country,
PO 00000
Frm 00305
Fmt 4701
Sfmt 4700
6877
weighted by the respective percentage of
the bank’s total retail lending, by dollar
amount, in each MSA and in the
nonmetropolitan portion of each State
outside of assessment areas in which the
bank engages in each region.
The agencies sought feedback on
whether the proposed tailored
benchmarks appropriately set
performance standards for outside retail
lending areas, and on potential
alternatives. The agencies discussed an
alternative proposal to create
nationwide market and community
benchmarks that would apply to all
banks, regardless of where their lending
is concentrated. These nationwide
benchmarks could be calculated using
all census tracts in the nation as the
geographic base. Another alternative on
which the agencies invited commenter
views was to tailor benchmarks using
weights that would be individualized by
the dollar amount of lending specific to
each major product line, rather than the
sum of all of a bank’s outsideassessment area retail lending. Under
this alternative, if a bank did a majority
of its outside-assessment area closedend home mortgage lending in MSA A,
and a majority of its outside-assessment
area small business lending in MSA B,
the closed-end home mortgage tailored
benchmarks would be weighted towards
the benchmarks from MSA A, while the
small business tailored benchmarks
would be weighted toward MSA B.
Comments Received
Several commenters addressed the
agencies’ proposal to establish tailored
benchmarks for outside retail lending
areas that would be based on a bank’s
level of retail lending in different
markets. Some commenters supported
the proposed tailored benchmark
approach. One of these commenters also
indicated that the benchmarks could be
more precisely tailored by calculating
unique weights for each specific
product line rather than calculating one
set of weights for all product lines based
on a bank’s overall dollar volume of
retail lending in each market as
proposed.
Other commenters expressed a
preference for uniform, nationwide
benchmarks instead of the proposed
tailored benchmarks, noting that
tailored benchmarks would be overly
complex and could be burdensome for
smaller banks evaluated in these areas.
Another commenter recommended the
agencies consider a separate approach of
a nationwide analysis while also
designating underserved communities
that banks must demonstrate they are
serving through their lending. A
commenter suggested the agencies
E:\FR\FM\01FER2.SGM
01FER2
6878
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
provide a separate approach to
evaluating outside retail lending areas
for internet-based banks akin to the
evaluation for limited purpose banks.
Several other commenters suggested the
agencies permit examiners more
discretion to apply performance context
when evaluating outside retail lending
areas and particularly when developing
Retail Lending Test conclusions at the
state level.
ddrumheller on DSK120RN23PROD with RULES2
Final Rule
The agencies are adopting certain
technical and substantive changes to the
proposed benchmarks for outside retail
lending areas.
For clarifying purposes in describing
the calculations of metrics and
benchmarks, the agencies use the term
‘‘component geographic area’’ in final
§ ll.18 and appendix A to refer to any
MSA or the nonmetropolitan area of any
State, or portion thereof included within
the outside retail lending area. As
discussed in the section-by-section
analysis of § ll.18, component
geographic areas of a bank’s outside
retail lending area are the MSAs or the
nonmetropolitan areas of any State,
excluding: (1) the bank’s facility-based
assessment areas and retail lending
assessment areas; and (2) in a
nonmetropolitan area, any county in
which the bank did not originate or
purchase any closed-end home mortgage
loans, small business loans, small farm
loans, or automobile loans if automobile
loans are a product line for the bank.
Pursuant to paragraphs III.d and e and
IV.d and e of appendix A, under the
final rule, the agencies determine each
benchmark for the outside retail lending
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
area by calculating a weighted average
of the benchmarks for each component
geographic area. The weights for this
calculation are based on the bank’s
number of loans in each component
geographic area in the relevant major
product line.
• Following this approach, the
agencies calculate benchmarks for the
outside retail lending area as follows:
The agencies first calculate a benchmark
in each component geographic area for
the relevant major product line,
distribution analysis, and income
category following the same method to
calculate benchmarks in facility-based
assessment areas and retail lending
assessment areas. For example, for a
bank that has closed-end home mortgage
loans as a major product line in its
outside retail lending area, a community
and a market benchmark would be
calculated for closed-end home
mortgage loans to low-income borrowers
in each component geographic area of
the outside retail lending area, and for
closed-end home mortgage loans to
moderate-income borrowers in each
component geographic area of the
outside retail lending area.
• The agencies then calculate the
percentage of the bank’s originated and
purchased loans in the outside retail
lending area for the relevant major
product line, such as closed-end home
mortgage loans, that are within each
component geographic area by loan
count. These percentages serve as the
weights applied to the component
geographic area.
• Finally, the agencies use these
percentages to calculate a weighted
PO 00000
Frm 00306
Fmt 4701
Sfmt 4700
average of the component geographic
area benchmarks to produce a
benchmark applicable to the outside
retail lending area for the specific major
product line, distribution analysis, and
income category, such as the
community and market benchmarks for
evaluating a bank’s closed-end home
mortgage loans to moderate-income
borrowers.
For example, if a bank engaged in
closed-end home mortgage lending in
two different MSAs outside of its
facility-based assessment areas and
retail lending assessment areas, these
MSAs are component geographic areas
for purposes of constructing
benchmarks for the outside retail
lending area. In this example, the
market benchmark for the closed-end
home mortgage moderate-income
borrower distribution is 10 percent in
the first area, and 8 percent in the
second area. Of the bank’s closed-end
home mortgage loan originations and
purchases in the outside retail lending
area, 75 percent by loan count are in the
first area, and 25 percent are in the
second area. The bank’s outside retail
lending area benchmark is calculated
using a weighted average of the
component area benchmarks with the
weighting based on the bank’s
percentage of closed-end home mortgage
lending in each area by loan count. The
bank’s outside retail lending area
benchmark for closed-end home
mortgage lending to moderate-income
borrowers is (0.10 × 0.75) + (0.08 × 0.25)
= 0.095, or 9.5 percent. This example is
also reflected in Table 21:
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
6879
Table 21 of§ _.22(e): Example of Outside Retail Lending Area Benchmark Calculation
Component Geographic Areas
MSA2
MSA 1
Market Benchmark for
Closed-End Home Mortgage
Loans to Moderate-income
Borrowers
10 percent
8 percent
Percentage of the Bank's
Lending, By Loan Count, in
each Component Geographic
Area
75 percent
25 percent
The agencies determined that
weighting by loan count, rather than by
loan dollar volume, is appropriate for
calculating outside retail lending area
benchmarks because this approach
would result in better alignment
between the metrics and benchmarks
than the proposed approach.
Specifically, the agencies considered
that distribution metrics for the outside
retail lending area—as well as for
facility-based assessment area and retail
lending assessment areas—are
calculated based on loan count, as
discussed above in this section. The
distribution metrics for the outside
retail lending area do not incorporate
the concept of weighting by loan
dollars, or by deposit dollars; because
the metrics are based on loan count, the
outside retail lending area metrics
effectively give greater weight to those
component geographic areas in which
the bank made a larger number of loans.
To ensure consistency between the
distribution metrics and benchmarks,
the agencies therefore determined that it
is preferable to use loan count when
weighting the benchmarks of the
component geographic areas.
The agencies also considered how to
weight each component geographic area
when calculating the benchmarks for
the outside retail lending area and
decided to adopt an alternative
approach described in the proposal.
Specifically, the agencies will calculate
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
(0.1 x 0.75) + (0.08 x 0.25) = 0.095, or 9.5 percent
weights for the component geographic
areas separately for each of a bank’s
major product lines in the outside retail
lending area, rather than calculating one
set of weights that would apply to the
benchmarks for all major product lines.
As noted by one commenter, the
agencies determined that this alternative
allows for the benchmarks to be more
precise and more tailored for banks with
multiple product lines in an outside
retail lending area. The agencies believe
that constructing the market and
community benchmarks by weighting at
the individual product line level will
more accurately reflect the market
conditions the bank actually faces in the
geographic areas beyond its facilitybased assessment areas and retail
lending assessment areas than would
benchmarks based on a combination of
all of a bank’s retail lending. For
example, a bank might extend closedend home mortgage loans nationwide by
originating loans through brokers, while
its small business and small farm
originations might be more closely tied
to branch-based delivery channels and
thus only extend to geographic areas
just beyond the periphery of its facilitybased assessment areas and retail
lending assessment areas. In this
example, constructing benchmarks by
weighting at the individual product
level allows the benchmarks for small
business and small farm lending to
reflect market conditions in the
PO 00000
Frm 00307
Fmt 4701
Sfmt 4700
geographic areas around the bank’s
assessment areas, while the benchmarks
for closed-end home mortgage lending
reflect conditions in a broader national
footprint. This distinction more
accurately tailors the benchmarks to
reflect the opportunities available to the
bank than would a benchmark based on
a combination of all of its small
business, small farm, and closed-end
home mortgage lending would.
While this alternative introduces
some additional complexity due to the
need to calculate a separate set of
weights for each major product line, the
agencies determined that the added
accuracy and tailoring of this alternative
outweighs the additional complexity. In
addition, the agencies also considered
that, for a bank with a single major
product line in its outside retail lending
area, the alternative approach is
generally less complex than the
proposed approach. Specifically, under
the final rule approach, the agencies
would calculate one set of weights for
the component geographic areas per
product line, based on only the loans in
that product line. In contrast, under the
proposed approach, the weights for the
component geographic areas would be
based on all of the bank’s product lines.
For banks with two major product lines
in the outside retail lending area, the
agencies considered that the alternative
approach would be moderately more
complex, because the bank would have
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.030
ddrumheller on DSK120RN23PROD with RULES2
Weighted Average
Calculation
ddrumheller on DSK120RN23PROD with RULES2
6880
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
two sets of weights for the geographic
component areas of its outside retail
lending area. For banks with three or
four major product lines in the outside
retail lending area, the agencies
considered that the alternative approach
would add to this complexity. However,
based on available data for closed-end
home mortgage, small business, and
small farm lending (automobile lending
data is not available to include in this
analysis), the agencies believe that a
small percentage, approximately 7
percent, of banks would have all three
of these product lines that meet the
major product line standard in outside
retail lending areas.
The agencies considered, but are not
adopting, the alternative approach of
setting uniform benchmarks for the
outside retail lending area for all banks,
without tailoring to the specific
geographies in which a bank originated
or purchased loans within its outside
retail lending area. For example, this
could include an alternative in which
the benchmarks for the outside retail
lending area would be calculated at the
nationwide level, without averaging
together the benchmarks for a bank’s
specific component geographic areas.
The agencies determined that, while
this approach would reduce the
complexity of the outside retail lending
area evaluation, the benchmarks under
this alternative would not reflect a
bank’s actual markets, which may vary
substantially in retail credit needs and
opportunities. For example, if a large
bank’s lending in its outside retail
lending area is primarily in one
component geographic area, the market
and community benchmarks for that
component geographic area may be
substantially different from benchmarks
calculated at the nationwide level. In
contrast, the tailored benchmark
approach adopted by the agencies is
intended to set expectations for a bank’s
outside-assessment area retail lending to
match the opportunities in the markets
in which it lends. Under this approach,
the agencies determined that component
geographic areas with more of a bank’s
lending would appropriately carry
greater weight in calculating the
agencies’ performance expectations for
the outside retail lending area as a
whole. In addition, markets in which
the bank did zero lending would receive
zero weight when calculating the
outside retail lending area benchmarks,
and hence have no influence on the
bank’s Retail Lending Test evaluation.
The agencies also acknowledge
comments that performance context
information may be relevant to assessing
lending in outside retail lending areas,
to the extent it is not already considered
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
as part of the Retail Lending Test.
Pursuant to final § ll.21(d), the
agencies would consider performance
context information when applying the
performance tests, including the Retail
Lending Test. In addition, pursuant to
final § ll.22(g), the agencies would
consider the specified additional factors
when determining Retail Lending Test
conclusions.
The agencies considered, but are not
adopting, an alternative of creating a
separate approach to the outside retail
lending area evaluation for internet
banks. The agencies also believe that
constructing benchmarks by weighting
lending in each individual product line
provides sufficient flexibility in
representing the market conditions in
the geographic areas outside of a bank’s
assessment areas that a separate and
unique approach to constructing
benchmarks for internet banks is
unnecessary. To the extent that the
geographic areas covered by an internet
bank’s closed-end home mortgage, small
business, or small farm lending differs
from those of branch-based banks, the
product-specific weighting approach
used to construct benchmarks for
outside retail lending areas will reflect
those differences.
Section ll.22(f) Retail Lending Test
Recommended Conclusions
Section ll.22(f)(1) In general
Section ll.22(f)(2)(i) Geographic
distribution supporting conclusions—
geographic distribution supporting
conclusions for closed-end home
mortgage loans, small business loans,
and small farm loans
Section ll.22(f)(3)(i) Borrower
distribution supporting conclusions—
borrower distribution supporting
conclusions for closed-end home
mortgage loans, small business loans,
and small farm loans
The Agencies’ Proposal
For each of a bank’s distribution
metrics for each major product line, the
agencies proposed to compare a bank’s
level of lending to specific quantitative
standards.934 These standards would be
set by a methodology that uses data for
the geographic area matching the
relevant distribution metric and
maintains some key parts of how
examiners currently conduct
examinations. In addition, the agencies
proposed to standardize and make
performance expectations more
transparent relative to current CRA
examinations. The agencies noted that
934 See proposed § ll.22(d)(2)(ii) and (iii) and
proposed appendix A, sections II through IV.
PO 00000
Frm 00308
Fmt 4701
Sfmt 4700
current CRA guidance and examination
procedures do not specify how much
lending is necessary to achieve each
conclusion.
The agencies proposed that each bank
geographic and borrower distribution
metric would be compared to a set of
performance ranges that correspond to
different conclusion categories:
‘‘Outstanding,’’ ‘‘High Satisfactory,’’
‘‘Low Satisfactory,’’ ‘‘Needs to
Improve,’’ and ‘‘Substantial
Noncompliance.’’ 935 As provided in the
proposal, separate performance ranges
would apply to geographic and
borrower distribution metrics for each
proposed major product line, with the
exception of multifamily lending, and
for each income level or revenue level,
as applicable.936
The agencies proposed that the
thresholds for these performance range
categories would be calculated using
community benchmarks and market
benchmarks. Specifically, the agencies
proposed to use the benchmarks to
establish thresholds separating the
conclusion categories.937 The agencies
proposed that the benchmarks would be
calibrated using multipliers, which are
defined percentages for aligning the
benchmarks with the agencies’
performance expectations for specific
supporting conclusions.938 For each
major product line and income category,
the agencies proposed the process for
determining thresholds illustrated in
Table 22:939
935 See
proposed appendix A, section V.
proposed § ll.22(d)(2)(ii)(D)(2) and
proposed appendix A, paragraphs V.2.b and V.2.c
(geographic distribution metrics) and proposed
§ ll.22(d)(2)(iii)(D)(2) and proposed appendix A,
paragraphs V.2.d and V.2.e (borrower distribution
metrics).
937 See proposed appendix A, paragraphs V.2.b
(geographic distribution performance) and V.2.d
(borrower distribution performance).
938 See id.; see also Table 8 to proposed § ll.22.
939 See id. The agencies explained their
justifications for the thresholds. After considering
alternatives of 25 percent and 50 percent for the
‘‘Needs to Improve’’ threshold, the agencies arrived
at the conclusion that performance serving less than
33 percent of the market or community benchmark
was an appropriate threshold to distinguish
performance low enough to warrant the lowest
conclusion category and performance that is not
satisfactory but is more appropriately recognized as
needing improvement. After considering alternative
market benchmark thresholds of 75 percent and 70
percent and an alternative community threshold of
55 percent, the agencies arrived at a market
benchmark threshold of 80 percent and the
community benchmark threshold of 65 percent for
the ‘‘Low Satisfactory’’ threshold in the proposal,
reflecting performance that is adequate relative to
opportunities. The agencies proposed the ‘‘High
Satisfactory’’ threshold at 110 percent for the
market benchmark in order to reserve the
conclusion for banks that are not just average, but
a meaningful increment above the average of local
lenders. Similarly, a community benchmark
threshold of 90 percent in the proposal established
936 See
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
6881
Table 22 to § _.22(f): Proposed Thresholds for Specific Supporting Conclusion
Categories
Supporting
Conclusion
Calibrated Market Benchmark
(Result of multiplying Market
Benchmark and Market
Multiplier)
Calibrated Community Benchmark
(Result of multiplying Community
Benchmark and Community
Multiplier)
"Outstanding"
125 percent of the Market
Benchmark
OR
100 percent of the Community
Benchmark
"High
Satisfactory"
110 percent of the Market
Benchmark
OR
90 percent of the Community
Benchmark
"Low
Satisfactory"
80 percent of the Market
Benchmark
OR
65 percent of the Community
Benchmark
"Needs to
Improve"
33 percent of the Market
Benchmark
OR
33 percent of the Community
Benchmark
The agencies analyzed historical bank
lending data based on the proposed
multipliers and estimated the
recommended conclusions banks would
have received. The agencies asked for
feedback on alternatives to the proposed
market and community multipliers for
each conclusion category.
The agencies also noted in the
proposal that the Board developed a
search tool, which includes illustrative
examples of the thresholds and
performance ranges in a given
geographic area, using historical lending
data.940 This tool provides illustrative
examples of the thresholds for the
relevant performance ranges in each
MSA, metropolitan division, and county
based on historical lending from 2017–
2019.941
The agencies proposed to use the
lesser of the two calibrated benchmarks
(i.e., the calibrated market benchmark
and the calibrated community
benchmark) to determine the applicable
conclusion.942 In addition, for the
‘‘Outstanding,’’ ‘‘High Satisfactory,’’ and
‘‘Low Satisfactory’’ thresholds, the
proposed multiplier for the market
benchmark would be higher than the
multiplier for the community
benchmark. The agencies explained that
using the lesser of the two calibrated
benchmarks would prevent the
thresholds from becoming too stringent
in markets with fewer opportunities to
lend to lower-income communities or
smaller establishments. The agencies
also believed that this approach would
tend to assign more favorable
recommended conclusions in
geographic areas where more banks
were meeting the credit needs of the
community. The agencies requested
feedback on whether the proposed
approach would set performance
expectations too low in places where all
lenders, or a significant share of lenders,
are underserving the market and failing
to meet community credit needs.
a ‘‘High Satisfactory’’ conclusion if a bank achieved
close to per capita parity in its lending across
different income groups. The agencies selected a
market benchmark threshold of 125 percent for an
‘‘Outstanding’’ conclusion, setting a threshold well
in excess of the average of local lenders, while
simultaneously maintaining an attainable target for
better bank performance. The agencies explained
further that a market benchmark threshold of 125
percent ensures that an ‘‘Outstanding’’ conclusion
is awarded only to banks that have demonstrated
an exceptional level of performance. Finally, the
agencies explained that setting the community
benchmark threshold at 100 percent would be an
appropriate aspirational goal for an ‘‘Outstanding’’
conclusion because bank metrics and market
benchmarks are usually below the community
benchmark and this benchmark threshold would
represent equal per capita lending to communities
of different income levels.
940 See Board, Community Reinvestment Act
(CRA), ‘‘Proposed Retail Lending Test Thresholds
Search Tool,’’ https://www.federalreserve.gov/
consumerscommunities/performance-thresholdssearch-tool.htm.
941 See id.
942 See proposed appendix A, paragraphs V.2.b
(proposed geographic distribution performance) and
V.2.d (proposed borrower distribution
performance).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00309
Fmt 4701
Sfmt 4700
Comments Received
Approach to using the market and
community benchmarks. The agencies
received a range of comments regarding
the proposal to use the lower of the
calibrated benchmarks (the calibrated
benchmark calculated using the market
benchmark and the calibrated
benchmark calculated using the
community benchmark) when
determining performance ranges—with
a number of commenters supporting the
proposed approach.
In contrast, a commenter indicated
that using the lower of the calibrated
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.031
ddrumheller on DSK120RN23PROD with RULES2
Select the Lesser of the Calibrated Market Benchmark and the
Calibrated Community Benchmark to Determine Threshold for
Supporting Conclusion Category
ddrumheller on DSK120RN23PROD with RULES2
6882
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
benchmarks may fail to incentivize
banks to provide small-dollar home
mortgage loans that would better meet
the credit needs of homebuyers in
relatively low-cost low- and moderateincome communities. Another
commenter indicated that the approach
of using the lower of the two calibrated
benchmarks would result in
performance ranges that do not reflect
credit demand in an area, and that it
would be preferable to base the
performance ranges on only the market
benchmark.
A number of commenters offered
alternative suggestions for developing
the performance ranges, based upon
using a weighted average of the
calibrated market benchmark and the
calibrated community benchmark,
instead of using the lower of the two.
For example, a commenter suggested
that the agencies aggregate all calibrated
benchmarks for a total CRA score or use
a weighted average and consider all
calibrated benchmarks to provide a
range of comparators to evaluate how
banks are meeting the needs of low- and
moderate-income consumers. Another
commenter suggested that selecting the
lower calibrated benchmark, as
proposed, could result in lower
thresholds that inflate CRA ratings; for
example, in an assessment area where
the calibrated market benchmark is
considerably lower than the calibrated
community benchmark, all banks could
be underperforming in making retail
loans to low- and moderate-income
borrowers and communities. To address
this concern, this commenter also
recommended that, in cases where the
calibrated market benchmark is
considerably lower than the calibrated
community benchmark and where that
gap is not explained by performance
context, the agencies should calculate a
weighted average of the two benchmarks
and reduce the weight of the market
benchmark, taking into account how
much the benchmarks diverge and
whether performance context factors
explain part of the discrepancy. Another
commenter similarly recommended that
when the calibrated market benchmark
is lower than the calibrated community
benchmark, the threshold should be a
weighted average of the two calibrated
benchmarks, with 30 percent weight on
the market benchmark and 70 percent
weight on the community benchmark.
Stringency of performance ranges.
The agencies received a number of
comments regarding the multipliers and
performance ranges in evaluating a
bank’s retail lending performance.
Several commenters generally
supported the agencies’ proposed
multipliers to align the market and
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
community benchmarks with the
agencies’ performance expectations. For
example, one commenter indicated that
the agencies’ proposed approach would
result in conclusions that would
meaningfully reflect distinctions in
performance and avoid contributing to
ratings inflation.
On the other hand, many other
commenters stated that the proposed
multipliers would set the thresholds for
favorable conclusions overly stringently
such that they would be unachievable.
For example, a commenter opposed the
performance ranges on the grounds that
there has been no indication that banks’
CRA activities and performance have
declined in recent years and pointed out
that Congress has not authorized the
agencies to increase the stringency of
CRA performance standards. This
commenter suggested that the agencies
should ensure that the final rule does
not lead to a dramatic downward shift
in the proportion of banks that receive
‘‘Outstanding’’ or ‘‘Satisfactory’’
conclusions and ratings, assuming that
banks’ underlying CRA retail lending
performance remains on par with
current levels. The commenter also
stated it would be arbitrary and
capricious to downgrade the ratings for
a broad portion of the industry.
Relatedly, another commenter indicated
that the agencies should better recognize
the amount of effort that banks with
favorable CRA conclusions and ratings
put in pursuant to the requirements of
the current CRA regulations. Another
commenter asserted that the
performance ranges should be set so as
to roughly match the current
distribution of retail lending
performance conclusions. A number of
commenters asserted that the proposed
approach would depress banks’ overall
Retail Lending Test conclusions, and
that banks would routinely have to
surpass their prior favorable retail
lending performance levels, pursuant to
the current regulations, to ensure that
they would not receive ‘‘Needs to
Improve’’ or ‘‘Substantial
Noncompliance’’ conclusions pursuant
to the proposed approach. A commenter
questioned whether the agencies
intentionally proposed multipliers to
cause a sharp increase in ‘‘Low
Satisfactory’’ and ‘‘Needs to Improve’’
conclusions, as the commenter asserted
was reflected in the analysis presented
in appendix A of the proposal.
A number of commenters asserted
that the proposed performance ranges
would make it mathematically
impossible for all banks in a given
assessment area to achieve favorable
conclusions. A commenter expressed
concern that the proposed benchmarks,
PO 00000
Frm 00310
Fmt 4701
Sfmt 4700
although based on a consistent formula
and set of data points, could create an
unachievable target for many banks.
This commenter indicated that it would
be mathematically impossible for all of
the banks in an assessment area to meet
the proposed thresholds for
‘‘Outstanding’’ and ‘‘High Satisfactory’’
conclusions, and the proposal would
instead result in a ratings distribution
where more than one-third of banks
failed. Another commenter stated that
the proposal would make it increasingly
challenging for banks to meet high
thresholds year-over-year as they focus
on increasing their retail lending in the
same markets. A commenter expressed
concern that it would be difficult for a
financial institution with a small
geographic footprint and no low-income
or moderate-income census tracts
within its assessment areas to achieve
better than ‘‘Low Satisfactory’’
conclusions.
Some commenters stated that the
performance ranges approach was
inappropriate because a bank’s metric
could be compared to the performance
of other banks based on the market
benchmark, which these commenters
described as equivalent to grading banks
on a curve. A commenter noted that
banks should be evaluated without
regard to how other banks performed,
and that all banks should be able to
achieve an ‘‘Outstanding’’ or a
‘‘Satisfactory’’ conclusion.
A few commenters added that, in
turn, the proposed performance ranges
could incentivize unsafe and unsound
risk-taking as banks competed more
intensely against competitors in pursuit
of favorable performance conclusions.
For example, a commenter stated that
the agencies should recalibrate the
proposed performance ranges to be
ratings-neutral for large banks, so that
banks would not be incentivized to
lower their standards of
creditworthiness and potentially
experience credit quality issues.
Several commenters suggested
alternative multiplier formulations for
establishing performance ranges. For
example, commenters proposed that the
community benchmark multipliers be
calibrated differently by product line to
reflect how different loan types serve
low- and moderate-income consumers
and communities differently. A
commenter supported the agencies’
proposed multipliers but also
recommended using the multipliers as a
threshold compared to a ‘‘parity ratio’’
with the objective of reducing
complexity. Under this suggestion, a
bank’s metric would be calculated as a
ratio of the bank’s percentage of loans to
certain borrowers or census tracts
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
relative to the corresponding
benchmark. For example, if 11 percent
of the bank’s closed-end home mortgage
loans were to low-income borrowers,
and the corresponding benchmark for
this category is 10 percent, the bank’s
ratio under this approach would be 110
percent. This ratio could be compared
directly to the multipliers to determine
the bank’s conclusion.
Another commenter suggested
replacing the market and community
benchmarks altogether with an
evaluation system based on statistical
confidence levels. Rather than evaluate
a bank’s performance based on the
difference between a bank’s metric and
the market or community benchmark,
this commenter suggested that the
evaluation be based on the likelihood
that the difference between the bank’s
metric and the market benchmark was
the result of random chance. In effect,
this would replace the uniform
thresholds that the proposed rule would
apply to all banks in the same
assessment area with ones that vary
based upon the number of loans each
bank originates or purchases in that
assessment area and on the number of
loans originated by the market as a
whole.
Comments on specific conclusion
thresholds and performance ranges.
Other commenters expressed that the
proposed performance ranges
essentially put achieving ‘‘Outstanding’’
retail lending performance out of reach
and would reduce banks’ incentives to
increase retail lending to improve their
retail lending performance. For
example, a commenter noted that the
high bar for an ‘‘Outstanding’’
conclusion would, contrary to the
agencies’ goals, discourage banks from
striving for ‘‘Outstanding’’ performance
because they would have little incentive
to develop or initiate responsive credit
programs beyond those that will
produce a ‘‘Satisfactory’’ conclusion.
Another commenter noted that the
benchmark for an ‘‘Outstanding’’
conclusion disadvantages banks with
substantial market share compared to
banks with smaller market share, which
could more easily improve their lending
distributions. A commenter stated that
fewer than two percent of current
banking system assets would currently
meet or exceed the market benchmark
threshold for an ‘‘Outstanding’’
conclusion, so most banks would be
motivated to seek only a ‘‘Satisfactory.’’
Another commenter noted that the
proposed Retail Lending Test would
account for 75 percent of retail
performance, yet the performance
ranges for Retail Lending Test are
prohibitively high such that lowering
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
them may encourage banks to strive for
‘‘Outstanding’’ performance. Another
commenter stated that banks would not
have a reasonable chance of attaining an
‘‘Outstanding’’ conclusion and also
asserted that, based on the agencies’
own analysis, no bank with assets
exceeding $50 billion would achieve an
‘‘Outstanding.’’
A number of commenters
recommended specific alternative
multiplier values for certain
performance ranges or suggested
adjustments to how the agencies would
apply the performance ranges. A
commenter suggested lowering
multiplier values and, in turn, the
thresholds for the performance ranges so
that the ‘‘Outstanding’’ performance
range would correspond to between 90
percent and 100 percent of the market
benchmark and the ‘‘High Satisfactory’’
performance range would correspond to
between 80 percent and 90 percent of
the market benchmark. Another
commenter recommended adjusting the
performance ranges to more reasonably
allow for a bank to achieve an
‘‘Outstanding’’ rating (and also to ensure
that banks that achieve 100 percent of
the market benchmark receive more
than a ‘‘Low Satisfactory’’ conclusion).
Another commenter suggested lowering
some of the proposed multipliers for the
market and community benchmarks.
This commenter suggested that, for
example, an ‘‘Outstanding’’ conclusion
should correspond to the lesser of 110
percent or higher of the market
benchmark or 100 percent or higher of
the community benchmark. Conversely,
another commenter suggested raising
the ‘‘Needs to Improve’’ multiplier for
the market benchmarks from 33 percent
to 48 percent, so the community
benchmark, unchanged at 33 percent,
would be binding more often. This
commenter also proposed to set the
community benchmark for
‘‘Outstanding’’ higher than 100 percent
to maintain a meaningful distinction
between the benchmarks. Another
commenter proposed alternative
multiplier values to measure, and
terminology to describe, retail lending
performance. This commenter proposed
to use the term ‘‘Adequate’’ to
correspond to performance between 70
percent to 89 percent of market and
community benchmarks, the term
‘‘Good’’ to correspond to performance
between 90 percent and 109 percent of
the two benchmarks, and the term
‘‘Excellent’’ to correspond to
performance at 110 percent or more of
the benchmarks.
Some commenters expressed that the
distribution analysis should involve
qualitative considerations and not be
PO 00000
Frm 00311
Fmt 4701
Sfmt 4700
6883
based solely on the performance ranges.
For example, a commenter stated that
the agencies should consider
calculations with simpler thresholds
that can be modified by examiners as
informed by performance context.
Another commenter further
recommended that the agencies issue
guidance stating that market
benchmarks are not absolute criteria for
conclusions.
One commenter stated that the
agencies should develop guidance and a
new appendix to replace proposed
appendix A with more detailed
descriptions of how ratings would
correlate to how a bank’s performance
compares against the benchmarks.
Final Rule
Section ll.22(f) Retail Lending Test
Recommended Conclusions
Section ll.22(f)(1) In General
Final § ll.22(f)(1) indicates that,
with two exceptions, the agencies
develop a Retail Lending Test
recommended conclusion for each of a
bank’s Retail Lending Test Areas based
on the distribution analysis described in
final § ll.22(e) and using performance
ranges, supporting conclusions, and
product line scores. Consistent with the
proposed approach, the agencies will
develop a separate supporting
conclusion for each category of
designated census tracts and designated
borrowers described in paragraphs V.a
and VI.a of final appendix A. However,
as specified in final § ll.22(b)(5)(i)
and (c)(3)(iii)(A), the agencies do not
develop a Retail Lending Test
recommended conclusion if a bank has
no major product lines in a Retail
Lending Test Area or if a large bank
lacks an acceptable basis for not meeting
the Retail Lending Volume Threshold in
a facility-based assessment area.
The term ‘‘supporting conclusion’’
represents a technical revision from the
proposal intended to provide additional
clarity regarding the agencies’ approach
for developing Retail Lending Test
recommended conclusions. The
agencies believe this term helps to
distinguish between: supporting
conclusions that are assigned to each
product line for each category of
designated census tracts and designated
borrowers; recommended conclusions
that are assigned to each Retail Lending
Test Area; and conclusions that are
assigned to each Retail Lending Test
Area, State, multistate MSA, and to the
institution. Additionally, the agencies
have employed the terms ‘‘designated
census tract’’ (i.e., low-income census
tracts or moderate-income census tracts,
as applicable) and ‘‘designated
E:\FR\FM\01FER2.SGM
01FER2
6884
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
borrower’’ (i.e., low-income borrowers;
moderate-income borrowers; businesses
with gross annual revenues of $250,000
or less; businesses with gross annual
revenues of more than $250,000 but less
than or equal to $1 million; farms with
gross annual revenues of $250,000 or
less; and farms with gross annual
revenues of more than $250,000 but less
than or equal to $1 million, as
applicable) to streamline the regulatory
text and increase clarity.
Section ll.22(f)(2)(i) Geographic
distribution supporting conclusions for
closed-end home mortgage loans, small
business loans, and small farm loans
Section ll.22(f)(3)(i) Borrower
distribution supporting conclusions for
closed-end home mortgage loans, small
business loans, and small farm loans
Overview
As provided in final § ll.22(f)(2)(i)
and (f)(3)(i) and section V of final
appendix A, the agencies are finalizing
the core methodology of their proposal
to translate the proposed benchmarks
into the four supporting conclusion
performance thresholds for three
product lines: closed-end home
mortgage loans; small business loans;
and small farm loans. Upon
consideration of commenter input and
additional analysis, the final rule
includes modifications to several of the
proposed multiplier values, and as a
result, ‘‘Outstanding,’’ ‘‘High
Satisfactory,’’ and ‘‘Low Satisfactory’’
Retail Lending Test conclusions are
generally more attainable relative to the
proposed approach.943
Table 23 compares the proposed
multipliers to those adopted in the final
rule.
Table 23 to § _.22(f): Comparison of Market Multipliers and Community Multipliers
in Proposed Rule and Final Rule
Community Multipliers
Proposed Rule
Final Rule
Proposed Rule
Final Rule
Outstanding
125 percent
115 percent
100 percent
100 percent
High Satisfactory
110 percent
105 percent
90 percent
80 percent
Low Satisfactory
80 percent
80 percent
65 percent
60 percent
Needs to Improve
33 percent
33 percent
33 percent
30 percent
Approach to using the market and
community benchmarks. Consistent
with the agencies’ proposal, under the
final rule, the performance ranges are
set by establishing thresholds for each
conclusion category. Each threshold is
determined by selecting the lesser of the
following:
• The result of multiplying the
market benchmark by the market
multiplier (i.e., the calibrated market
benchmark); and
• The result of multiplying the
community benchmark by the
community multiplier (i.e., the
calibrated community benchmark).
The agencies would compare each
metric to the performance ranges, and
assign the corresponding supporting
conclusion based on the lesser of
calibrated community benchmark and
the calibrated market benchmark. This
approach is reflected in Table 24.
943 In addition, as discussed in the section-bysection analysis of final § ll.22(d), unlike in the
proposal, the agencies will not evaluate open-end
home mortgage lending and multifamily lending as
major product lines; consequently, the agencies will
not employ multipliers and performance ranges
with respect to evaluating these loans. As discussed
below, although the agencies will evaluate
automobile lending as a product line, as applicable,
the agencies will not evaluate automobile lending
using same methodology as proposed or as applied
to other product lines pursuant to final § ll.22(f).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00312
Fmt 4701
Sfmt 4700
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.032
ddrumheller on DSK120RN23PROD with RULES2
Market Multipliers
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
6885
Table 24 to § _.22(t): Thresholds for Defining Performance Ranges
Supporting
Conclusion
Calibrated Market
Benchmark
"Outstanding"
115% of the Market
Benchmark
OR
100% of the Community
Benchmark
"High
Satisfactory"
105% of the Market
Benchmark
OR
80% of the Community
Benchmark
"Low
Satisfactory"
80% of the Market
Benchmark
OR
60% of the Community
Benchmark
"Needs to
Improve"
33% of the Market
Benchmark
OR
30% of the Community
Benchmark
The agencies believe that as a result
of the approach of using the lesser of the
two calibrated benchmarks, coupled
with the comparatively higher market
multipliers relative to the community
multipliers, ‘‘Low Satisfactory’’ and
higher conclusions are generally
attainable. Furthermore, the agencies
believe this approach effectively
distinguishes between ‘‘Outstanding,
‘‘High Satisfactory,’’ and ‘‘Low
Satisfactory’’ performance. For example,
as discussed below, the agencies believe
that a bank metric equal to 100 percent
of the community benchmark represents
‘‘Outstanding’’ performance because it
reflects a level of lending that is
proportionate with the potential
borrowers in the area. However, the
agencies determined that a bank metric
equal to 100 percent of the market
benchmark does not represent
‘‘Outstanding’’ performance if the
community benchmark is higher than
the market benchmark. In this scenario,
the bank’s performance is exactly
average among lenders in the area, and
the bank’s lending is not proportionate
with the potential borrowers in the area
because the relevant metric is lower
than the community benchmark. Setting
the market multipliers for an
‘‘Outstanding’’ supporting conclusion
comparatively higher than the
corresponding community multipliers
therefore recognizes banks that are
significantly exceeding, rather than only
equaling, the market average in areas
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Calibrated Community Benchmark
where the market benchmark is lower
than the community benchmark.
Likewise, for other supporting
conclusion categories, setting the market
multipliers higher than corresponding
community multipliers reflects that,
depending on market conditions and the
performance context of an area, meeting
or surpassing market benchmarks may
generally be more attainable for a bank
than meeting or surpassing community
benchmarks.
In finalizing the proposed approach of
selecting the lesser of the threshold
based on the calibrated market
benchmark and the threshold based on
the calibrated community benchmark,
the agencies also considered alternatives
raised by commenters, including the
suggestion to calculate an average of the
two calibrated benchmarks rather than
selecting the lesser of the two. The
agencies have considered that
calculating the average of the calibrated
benchmarks could potentially address a
scenario in which the calibrated market
benchmark is significantly lower than
the calibrated community benchmark
due to lenders in the area not meeting
the credit needs of the community,
which could result in performance
ranges that are unduly low. However,
the agencies believe that averaging the
two calibrated benchmarks could also
result in performance ranges that are too
stringent, especially in areas where the
calibrated market benchmark is lower
than the calibrated community
PO 00000
Frm 00313
Fmt 4701
Sfmt 4700
benchmark. For example, in an area that
lacks housing that is affordable for lowincome families, the calibrated market
benchmarks for closed-end home
mortgage lending may be considerably
lower than the corresponding calibrated
community benchmarks, and the
agencies believe that averaging the two
calibrated benchmarks together could
result in performance expectations that
are set too high. The agencies also
recognize that an approach suggested by
commenters to average the two
benchmarks only when the calibrated
market benchmark is significantly lower
than the calibrated community
benchmark could partially address this
concern, but would present other
challenges. Specifically, the agencies
believe that averaging the two
benchmarks only under certain
conditions would increase the
complexity of the Retail Lending Test
and would be counter to the agencies’
objectives of increasing the transparency
and predictability of evaluations.
Moreover, the agencies believe that the
scenario of a Retail Lending Test Area
in which lenders in the aggregate are not
meeting community credit needs can be
addressed through the application of the
additional factor in final § ll.22(g)(7).
As discussed in the section-by-section
analysis of final § ll.22(g)(7), this
additional factor provides that when
determining Retail Lending Test
conclusions, the agencies may consider
‘‘information indicating that the credit
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.033
ddrumheller on DSK120RN23PROD with RULES2
Select the Lesser of the Two Calibrated Benchmarks
ddrumheller on DSK120RN23PROD with RULES2
6886
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
needs of the facility-based assessment
area or retail lending assessment area
are not being met by lenders in the
aggregate, such that the relevant
benchmarks do not adequately reflect
community credit needs.’’ As suggested
by commenters, the application of this
additional factor may take into account
the performance context of a Retail
Lending Test Area.
Regarding the commenter view that
this additional factor could be applied
based on the difference between the
actual and predicted market
benchmarks, the agencies are not
adopting this approach in the final rule
because further analysis is necessary to
develop statistical models that calculate
a predicted market benchmark, as
discussed in the section-by-section
analysis of final § ll.22(g)(7).
Multiplier Values. In the final rule, as
provided in section V of final appendix
A, the agencies are adjusting downward
certain proposed market multipliers and
community multipliers applicable to
closed-end home mortgage loans, small
business loans, and small farm loans. As
a result of these changes, the agencies
believe that the final rule performance
ranges are appropriately aligned with
the conclusion categories and that the
‘‘Low Satisfactory’’ and higher
conclusion categories on the Retail
Lending Test are generally attainable. In
making these adjustments, the agencies
considered the comments discussed
above that offered different perspectives
on the stringency of the proposed Retail
Lending Test. The agencies believe that
the adjustments to multiplier values are
responsive to comments that
‘‘Outstanding’’ and ‘‘High Satisfactory’’
conclusions would not be attainable
under the proposed approach and that
the proposed multiplier values would
deter retail lending and raise safety and
soundness risk.
Specifically, as informed by
additional agency analysis described in
the historical analysis section, below,
the agencies have determined that
‘‘Outstanding,’’ ‘‘High Satisfactory,’’ and
‘‘Low Satisfactory’’ Retail Lending Test
conclusions are generally attainable
under the final rule approach. When
applying the final rule approach to the
2018–2020 period, the agencies
estimated that approximately 90 percent
of banks included in the analysis would
have achieved an ‘‘Outstanding,’’ ‘‘High
Satisfactory,’’ or ‘‘Low Satisfactory’’
Retail Lending Test conclusion for the
institution, and that a ‘‘High
Satisfactory’’ conclusion would have
been the most frequently assigned
conclusion. Similarly, when calculating
Retail Lending Test recommended
conclusions for facility-based
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
assessment areas based on the
performance ranges approach,
approximately 87 percent of facilitybased assessment areas for banks
included in the analysis would have
received an ‘‘Outstanding,’’ ‘‘High
Satisfactory,’’ or ‘‘Low Satisfactory’’
recommended conclusion, and a ‘‘High
Satisfactory’’ would have been the most
frequently assigned recommended
conclusion.944 The Retail Lending Test
recommended conclusions assigned in
retail lending assessment areas and
outside retail lending areas would have
been somewhat lower than in facilitybased assessment areas, based on the
agencies’ estimates; approximately 78
percent of retail lending assessment
areas, and 71 percent of outside retail
lending areas, for banks included in the
analysis, would have received an
‘‘Outstanding,’’ ‘‘High Satisfactory,’’ or
‘‘Low Satisfactory’’ recommended
conclusion. The agencies considered a
number of data limitations and other
factors when interpreting the results of
the analysis of Retail Lending Test
performance based on historical data, as
discussed in the historical analysis
section.
The agencies also considered
comments that suggested that Retail
Lending Test conclusions under the
proposed approach would be
significantly lower than those under the
current approach, as well as those
comments that the agencies should set
multiplier values that result in a similar
distribution of conclusions to the
current approach. The agencies believe
that the final rule multiplier values are
appropriately aligned with the
conclusion categories and that ‘‘Low
Satisfactory’’ or higher Retail Lending
Test conclusions are generally
attainable. As also noted by some
commenters, the agencies also believe
that the performance ranges approach
will more effectively distinguish
between different levels of performance
than the current approach, which lacks
specific defined thresholds
corresponding to each supporting
conclusion category. Additionally, as
noted above, the agencies intend to
disclose data on the benchmarks and
performance ranges that would assist
banks in identifying Retail Lending Test
Areas in which the bank may be
underperforming, such that a bank may
improve its performance accordingly.
The agencies also considered
comments stating that it would be
944 The agencies did not estimate recommended
conclusions for facility-based assessment areas in
which the Bank Volume Metric did not surpass the
Retail Lending Volume Threshold, which was
approximately 3 percent of facility-based
assessment areas in this analysis.
PO 00000
Frm 00314
Fmt 4701
Sfmt 4700
mathematically impossible for banks to
meet the proposed thresholds or to
achieve ‘‘Outstanding’’ or ‘‘High
Satisfactory’’ conclusions. The agencies
believe that the historical analysis
indicates that ‘‘Outstanding,’’ ‘‘High
Satisfactory,’’ and ‘‘Low Satisfactory’’
conclusions are generally attainable.
Furthermore, the agencies considered
that, as a result of the approach of using
the lower of the two calibrated
benchmarks to set the performance
threshold for a given supporting
conclusion, a bank surpassing the
calibrated community benchmark for a
given supporting conclusion will always
receive at least that supporting
conclusion. For example, a bank whose
metric exceeds the calibrated
community benchmark for ‘‘High
Satisfactory’’ will receive a supporting
conclusion of either ‘‘Outstanding’’ or
‘‘High Satisfactory’’ for the associated
distribution test, even if the bank metric
does not exceed the calibrated market
benchmark for a ‘‘High Satisfactory’’
supporting conclusion. In addition, the
agencies note that the final rule market
multiplier for ‘‘Low Satisfactory’’ is 80
percent, consistent with the proposal.
As a result, banks are never required to
exceed the average of all lenders in a
Retail Lending Test Area to achieve a
‘‘Low Satisfactory’’ supporting
conclusion, and it is possible for all
banks in a Retail Lending Test Area to
exceed the ‘‘Low Satisfactory’’ threshold
for any distribution. The agencies also
determined that the level of the ‘‘Low
Satisfactory’’ market multiplier reduces
the possibility that the market
benchmarks will increase over time in a
manner that makes the performance
ranges unattainable, because banks are
not required to exceed the market
average to attain a ‘‘Low Satisfactory’’
supporting conclusion.
Relatedly, the agencies believe that
the final rule approach addresses
concerns from some commenters that a
bank with significant market share in an
area would be unable to exceed the
threshold for an ‘‘Outstanding’’ or ‘‘High
Satisfactory’’ supporting conclusion that
is based on the calibrated market
benchmark. First, the agencies have
adjusted the market multiplier for an
‘‘Outstanding’’ supporting conclusion
from 125 percent to 115 percent. As a
result, in a Retail Lending Test Area in
which the ‘‘Outstanding’’ supporting
conclusion performance range is based
upon the calibrated market benchmark,
a bank must exceed the market
benchmark by 15 percent, rather than
the proposed margin of 25 percent, to
achieve an ‘‘Outstanding’’ supporting
conclusion. The agencies believe that
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
this change helps to make the
‘‘Outstanding’’ supporting conclusion
more attainable relative to the proposal,
particularly in areas where barriers to
serving low- and moderate-income
borrowers and low- and moderate
census tracts make it challenging to
surpass the calibrated community
benchmark. Second, the agencies
believe that the additional factor in final
§ ll.22(g)(3)—the number of lenders
whose reported home mortgage loans,
multifamily loans, small business loans,
and small farm loans and deposits data
are used to establish the applicable
Retail Lending Volume Threshold,
geographic distribution market
benchmarks, and borrower distribution
market benchmarks—would allow the
agencies to consider the scenario
identified by commenters in which, due
to a limited number of lenders included
in the market benchmark for the area,
the bank’s own lending comprises a
significant share of the loans included
in the market benchmark.945 Finally, as
noted above, the agencies determined
that the market multipliers do not
mathematically limit a bank with a large
market share in an area to any particular
conclusion level, because surpassing the
calibrated community benchmark for a
given supporting conclusion ensures
that a bank receives a supporting
conclusion of at least that level.
Use of thresholds over time. The
agencies also considered comments
suggesting that the final rule’s
performance ranges will increase and
become unattainable over time as a
result of banks attempting to exceed the
market benchmarks. However, the
agencies determined that the approach
of using the lower of the calibrated
market benchmark and the calibrated
community benchmark addresses this
concern. For example, in the event that
the market benchmark increases over
time, such that 115 percent times the
market benchmark (i.e., the calibrated
market benchmark) exceeds 100 percent
times the community benchmark (i.e.,
the calibrated community benchmark),
then the ‘‘Outstanding’’ supporting
conclusion threshold would be based on
the calibrated community benchmark.
Any further increase in the market
benchmark would not affect the
performance range for an ‘‘Outstanding’’
supporting conclusion, since the
calibrated market benchmark exceeds
the calibrated community benchmark.
In addition, as noted above, the market
multiplier for a ‘‘Low Satisfactory’’
supporting conclusion under the final
rule approach is 80 percent. As a result,
945 See also the section-by-section analysis of
final § ll.22(g).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
a bank is never required to exceed the
market benchmark in order to earn at
least a ‘‘Low Satisfactory’’ supporting
conclusion, and it is mathematically
possible for all banks in a Retail
Lending Test Area to earn a ‘‘Low
Satisfactory’’ or higher supporting
conclusion.
Peer comparisons. The final rule
retains the proposed approach of using
both market benchmarks and
community benchmarks to develop
performance ranges, and does not adopt
suggestions from commenters to remove
peer comparisons from the Retail
Lending Test evaluation approach to
avoid what some commenters described
as ‘‘grading on a curve.’’ The agencies
note that the market and community
benchmarks leverage current practice.
The agencies’ proposal incorporates
specific threshold calculations for each
supporting conclusion category in order
to reduce the potential for inconsistency
that can occur without clear
performance expectations when
comparing a bank’s metrics and
benchmarks, as well as to increase the
transparency of evaluations. In addition,
the agencies believe that the market
benchmark is an essential component of
the Retail Lending Test because it
incorporates certain performance
context information into the
performance ranges in a manner that is
consistent and transparent. Specifically,
the agencies determined that the market
benchmark reflects the credit needs and
opportunities of an area, and can adjust
to changes in those credit needs and
opportunities over time in response to
economic circumstances and other
factors.
Furthermore, the agencies find that
the final rule’s use of the lesser of the
calibrated market benchmark and the
calibrated community benchmark to set
performance ranges does not constrain a
bank’s Retail Lending Test
recommended conclusion and does not
require a certain percentage of banks to
receive any particular recommended
conclusion in a Retail Lending Test
Area. For example, because the
performance threshold for each
performance range is based on the lower
of the calibrated market benchmark and
the calibrated community benchmark,
surpassing the calibrated community
benchmark for an ‘‘Outstanding’’
supporting conclusion always results in
an ‘‘Outstanding’’ supporting
conclusion, regardless of the value of
the calibrated market benchmark. In
addition, the agencies find that even
when all performance ranges are based
on the calibrated market benchmarks it
is possible for all banks in a Retail
Lending Test Area to exceed the ‘‘Low
PO 00000
Frm 00315
Fmt 4701
Sfmt 4700
6887
Satisfactory’’ supporting conclusion
threshold.
Safe and sound lending. The agencies
considered comments that the proposed
multipliers and performance ranges
would potentially encourage banks to
lend in an unsafe and unsound manner.
However, as discussed above, the
agencies believe that ‘‘Low Satisfactory’’
and higher conclusions are generally
attainable under the final rule approach,
and that banks can meet the credit
needs of the community without
resorting to unsafe and unsound
lending. Specifically, the agencies’
analysis indicates that applying the final
rule approach to historical lending data
from 2018–2020 approximately 90
percent of banks included in the
analysis would have received an overall
Retail Lending Test conclusion of ‘‘Low
Satisfactory’’ or higher at the institution
level, with ‘‘High Satisfactory’’ the most
frequent conclusion. In addition, final
§ ll.21(d)(1) provides that the
agencies will consider performance
context reflecting whether a bank’s
Retail Lending Test performance was
constrained by safety and soundness
limitations when assigning conclusions.
Lack of low- and moderate-income
census tracts. The agencies considered a
comment that in a facility-based
assessment area with no low- or
moderate-income census tracts a bank
would not be able to achieve higher
than a ‘‘Low Satisfactory’’ conclusion.
The agencies note that under the
proposed and final rule alike there
would be no geographic distribution
analysis in a Retail Lending Test Area
with no low- and moderate- income
census tracts, and the recommended
conclusion would be based solely on the
borrower distribution analysis. As a
result, a lack of low- and moderateincome census tracts does not limit a
bank’s recommended conclusion to a
‘‘Low Satisfactory.’’ In addition, as
discussed in the section-by-section
analysis of final § ll.22(g), final
§ ll.22(g)(6) provides that the
agencies would consider whether there
were very few or no low- and moderateincome census tracts when determining
a bank’s conclusion in a
nonmetropolitan facility-based
assessment area or nonmetropolitan
retail lending assessment area.
Separate multipliers for each product
line. As proposed, the final rule
incorporates one community multiplier
and one market multiplier in
determining each performance range
threshold, applicable to all product
lines (although market benchmarks and
multipliers would not apply in
automobile lending evaluations). The
agencies considered, but are not
E:\FR\FM\01FER2.SGM
01FER2
6888
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
adopting, a commenter suggestion that
the agencies develop a separate set of
multipliers for each product line. The
agencies considered that separate
multipliers for each product line might
help to account for differences in lowand moderate-income credit needs and
opportunities across different types of
products. However, the agencies
determined that the approach of using a
single set of multipliers for all product
lines appropriately calibrates
performance expectations and that the
potential advantages of separate
multipliers for each product line would
be outweighed by the additional
complexity of this approach.
Specifically, the agencies considered
that the proposed and final rule
approaches include a single set of eight
multipliers (four community multipliers
and four market multipliers) while the
alternative approach could include as
many as 24 multipliers (eight
multipliers each for closed-end home
mortgage loans, small business loans,
and small farm loans), and that the
larger number of multipliers would
increase the complexity of the Retail
Lending Test.
‘‘Parity ratio’’ and ‘‘statistical
confidence’’ alternatives. The agencies
are finalizing the proposed approach of
comparing a bank’s metric to the
performance ranges, and are not
adopting the ‘‘parity ratio’’ or
‘‘statistical confidence’’ alternatives
suggested by commenters. The agencies
believe that it is more transparent and
less complex to use bank metrics that
reflect the bank’s percentage of loans to
designated borrowers—rather than to
use alternative bank metrics that are: (1)
based on the bank’s percentage of loans
to designated borrowers divided by the
market benchmark or the community
benchmark; or (2) based on the
likelihood that the difference between
the bank’s metric and the market
benchmark was the result of random
chance.
The agencies determined that the
‘‘parity ratio’’ alternative approach
would reduce the transparency of the
performance standards of the Retail
Lending Test. The agencies believe that
it is more transparent to calculate the
metrics, benchmarks, and performance
ranges in terms of the percentage of
loans to designated census tracts and to
designated borrowers. The parity ratio
alternative would employ ratios that
would need to be recalculated in order
to assess what percentage of loans to
designated census tracts and to
designated borrowers, respectively, is
needed in order to meet or surpass each
performance range threshold.
The agencies also considered, but are
not adopting, the ‘‘statistical
confidence’’ approach, in which the
performance ranges would be based on
the likelihood that the difference
between a bank’s metric and the market
benchmark was the result of random
chance. The agencies determined that,
in addition to adding complexity, this
approach would result in inconsistent
performance standards for different
banks. For example, in an MSA like the
Baltimore-Columbia-Towson MSA,
where 8.5 percent of closed-end home
mortgage loans were to low-income
borrowers, a bank whose metric of 7.0
percent was based on 100 loans would
be estimated to receive a ‘‘Low
Satisfactory’’ supporting conclusion
because the probability that the
difference between its metric and the
market benchmark is the result of
random chance exceeds 10 percent. But
other banks with the same metrics that
originate or purchase 1,000 or 10,000
closed-end home mortgage loans would
receive supporting conclusions of
‘‘Needs to Improve’’ or ‘‘Substantial
Noncompliance,’’ respectively, because
their metrics are less likely to have been
caused by random chance on account of
their larger loan counts.946 The agencies
instead determined that it is preferable
to apply the same benchmarks and
performance ranges to all banks in the
same Retail Lending Test Area.
Multipliers for ‘‘Outstanding’’
Supporting Conclusion. The agencies’
multipliers for the calibrated
benchmarks used to determine the
‘‘Outstanding’’ supporting conclusion
threshold are shown in Table 25.
Table 25 to § _.22(f): Calibrated Benchmarks for "Outstanding" Supporting Conclusion
Select the Lesser of the Calibrated Market Benchmark and the
Calibrated Community Benchmark
ddrumheller on DSK120RN23PROD with RULES2
"Outstanding"
Market Multiplier and
Market Benchmark
115% of the Market
Benchmark
Community Multiplier and
Community Benchmark
100% of the Community
Benchmark
OR
As indicated in section V of final
appendix A, the agencies are setting the
market multiplier at 115 percent for the
calibrated market benchmark for an
‘‘Outstanding’’ supporting conclusion,
which is 10 percentage points lower
than the proposed level of 125 percent.
In deciding to decrease the market
multiplier for ‘‘Outstanding’’
performance, the agencies considered
comments that the proposed level of 125
percent represents performance that is
so significantly above average in an area
that some banks may determine that it
is not attainable, inadvertently
discouraging such banks from pursuing
an ‘‘Outstanding’’ conclusion. The
agencies also considered comments that
in a Retail Lending Test Area in which
a bank holds significant market share,
and in which the bank’s own lending is
946 This example is based on data from the CRA
Analytics Tables for the Baltimore-ColumbiaTowson MSA. During the 2018–2020 evaluation
period, there were 263,261 closed-end mortgages
originated of which 22,281 were to low-income
borrowers. The probabilities were calculated for the
banks using a hypergeometric distribution, as
suggested by the commenter. Supporting
conclusions were assigned using the suggested
thresholds of 1 percent for a ‘‘Needs to Improve’’
supporting conclusion and 10 percent for a ‘‘Low
Satisfactory’’ supporting conclusion.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00316
Fmt 4701
Sfmt 4700
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.034
Supporting
Conclusion
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
therefore a significant component of the
market benchmark, it would be difficult
to surpass the proposed level of 125
percent of the market benchmark.
In determining the appropriate level
of the final rule’s ‘‘Outstanding’’ market
multiplier, the agencies considered
options suggested by commenters that
performance greater than or equal to the
average of all lenders in the area should
receive an ‘‘Outstanding’’ supporting
conclusion, including in an area in
which the market benchmark is less
than the community benchmark.
However, the agencies generally do not
believe that the ‘‘Outstanding’’
supporting conclusion should
correspond to performance that is
merely average among all lenders,
unless the bank’s metric also surpasses
the community benchmark (i.e., unless
the market benchmark is close to or
greater than the community benchmark,
and therefore the threshold for an
‘‘Outstanding’’ supporting conclusion is
based on the community benchmark).
Rather, in cases where the
‘‘Outstanding’’ threshold is based on the
market benchmark, the agencies believe
that an ‘‘Outstanding’’ supporting
conclusion should correspond to
performance that is meaningfully above
average. In reaching this determination,
the agencies also considered comments
that supported the proposed multiplier
values as appropriately rigorous.
Consequently, the agencies believe that
the final rule multiplier value of 115
percent represents an appropriate
reduction from the proposed levels that
would address the concerns expressed
by commenters, while also ensuring the
‘‘Outstanding’’ performance range
corresponds to performance that is
meaningfully above average in an area.
Consistent with the proposed
approach, as indicated in section V of
final appendix A the agencies are setting
community multiplier for an
‘‘Outstanding’’ supporting conclusion at
100 percent. The agencies believe that
setting this multiplier at 100 percent is
appropriate because it represents
lending to borrowers and census tracts
of different income levels in equal
proportion to community benchmarks
reflecting the potential lending
opportunities for designated borrowers
and designated tracts of the same
income (or gross annual revenue) levels,
which aligns with CRA’s emphasis on
serving the credit needs of the entire
6889
community. For example, if a bank’s
metric for the moderate-income closedend home mortgage borrower
distribution in a Retail Lending Test
Area is 20 percent and the community
benchmark (i.e., the percentage of
families in the Retail Lending Test Area
that are moderate-income families) is
also 20 percent, then the bank’s share of
lending to moderate-income families
was proportionate to the share of
moderate-income families in the area. A
community multiplier greater than 100
percent would represent that a bank’s
share of lending to designated borrowers
and designated census tracts in a Retail
Lending Test Area must be
disproportionately high relative to the
presence of those borrowers and census
tracts in the area in order to merit an
‘‘Outstanding’’ supporting conclusion,
which the agencies do not believe is an
appropriate standard.
Multipliers for ‘‘High Satisfactory’’
Supporting Conclusion. The agencies’
multipliers for the calibrated
benchmarks used to determine the
‘‘High Satisfactory’’ supporting
conclusion threshold are shown in
Table 26.
Table 26 to § _.22(1): Calibrated Benchmarks for "High Satisfactory" Supporting
Conclusion
Select the Lesser of the Calibrated Market Benchmark and the
Calibrated Community Benchmark
ddrumheller on DSK120RN23PROD with RULES2
"High
Satisfactory"
Market Multiplier and
Market Benchmark
105% of the Market
Benchmark
As indicated in section V of final
appendix A, the agencies are setting the
market multiplier for the calibrated
market benchmark used to determine a
‘‘High Satisfactory’’ supporting
conclusion at 105 percent, five
percentage points lower than the
proposed level of 110 percent. The
agencies decided to decrease this
multiplier from the proposed level is
based on similar reasons as those
discussed above with regard to the
‘‘Outstanding’’ market multiplier. In
addition, the agencies believe that a
‘‘High Satisfactory’’ market multiplier at
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Community Multiplier and
Community Benchmark
80% of the Community
Benchmark
OR
the proposed level of 110 percent would
result in a ‘‘High Satisfactory’’
performance range that is overly narrow,
ranging from 110 percent to 115 percent.
The agencies also considered setting
this multiplier at 100 percent so that the
difference between the ‘‘Outstanding’’
and ‘‘High Satisfactory’’ market
multipliers would be similar to the
difference between the ‘‘High
Satisfactory’’ and ‘‘Low Satisfactory’’
market multipliers. However, the
agencies determined that the ‘‘High
Satisfactory’’ market multiplier should
result in a calibrated market benchmark
PO 00000
Frm 00317
Fmt 4701
Sfmt 4700
that is at least slightly above the market
benchmark, rather than equal to the
market benchmark. In making this
determination, the agencies decided that
in an area where the performance ranges
are based on the market benchmark,
bank performance that is exactly equal
to the market average, or only
marginally above the market average,
should correspond to a ‘‘Low
Satisfactory.’’ The agencies believe that
defining the ‘‘High Satisfactory’’
supporting conclusion category in this
way will appropriately distinguish
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.035
Supporting
Conclusion
6890
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
higher performance from performance
that is average.
Consistent with the proposal, as
indicated in section V of final appendix
A, the agencies are setting the ‘‘High
Satisfactory’’ community multiplier at
80 percent. Based on supervisory
experience, the agencies believe that
this multiplier appropriately represents
a level of lending that is somewhat less
than proportionate to the share of
designated borrowers or designated
census tracts in the Retail Lending Test
Area, and sufficiently distinguishes a
‘‘High Satisfactory’’ supporting
conclusion from an ‘‘Outstanding’’
supporting conclusion. This
determination takes into consideration
that opportunities to lend to designated
borrowers or designated census tracts
may be constrained to a level below the
community benchmark. For example,
the agencies note that some share of
low-income families may not be in the
marketplace for closed-end home
mortgage loans for reasons beyond any
ability of banks or other home mortgage
lenders to market or structure loans that
might meet their financial situations;
accordingly, if 10 percent of families in
a Retail Lending Test Area are lowincome, for example, then a calibrated
community benchmark of 8 percent is
appropriate to set the threshold for a
‘‘High Satisfactory’’ supporting
conclusion. Additionally, the agencies
believe that lowering this multiplier
below 80 percent would result in an
overly broad performance range for a
‘‘High Satisfactory’’ supporting
conclusion.
Multipliers for ‘‘Low Satisfactory’’
Supporting Conclusion. The agencies’
multipliers for the calibrated
benchmarks used to determine the ‘‘Low
Satisfactory’’ supporting conclusion
threshold are shown in Table 27.
Table 27 to § _.22(t): Calibrated Benchmarks for "Low Satisfactory" Supporting
Conclusion
Select the Lesser of the Calibrated Market Benchmark and the
Calibrated Community Benchmark
ddrumheller on DSK120RN23PROD with RULES2
"Low
Satisfactory"
Market Multiplier and
Market Benchmark
80% of the Market
Benchmark
Consistent with the proposed
approach, as indicated in section V of
final appendix A the agencies are setting
the market multiplier for the calibrated
market benchmark used to determine a
‘‘Low Satisfactory’’ supporting
conclusion at 80 percent. The agencies
believe that this multiplier value
appropriately represents lending to
designated borrowers or designated
census tracts that is adequate, but that
is also below average. The agencies
considered alternative market
multipliers of 75 percent and 70
percent, but decided that these levels
would be too far below average to
demonstrate adequately meeting
community credit needs. In addition,
the agencies considered that decreasing
the multiplier would result in a ‘‘Low
Satisfactory’’ performance range that is
overly broad compared to the ‘‘High
Satisfactory’’ performance range. The
agencies also considered thresholds
higher than 80 percent, such that ‘‘Low
Satisfactory’’ supporting conclusions
would be reserved for performance that
is at least close to average. However, as
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Community Multiplier and
Community Benchmark
60% of the Community
Benchmark
OR
discussed above, the agencies
considered that setting the ‘‘Low
Satisfactory’’ threshold at or close to the
market average might impede the ability
of all banks to obtain a ‘‘Low
Satisfactory’’ or higher supporting
conclusion in an area where the
performance ranges are based on the
market benchmark. Instead, at the final
rule market multiplier value of 80
percent, the agencies believe that ‘‘Low
Satisfactory’’ or higher performance is
generally attainable for all banks.
As indicated in section V of final
appendix A, the agencies are setting the
community multiplier for ‘‘Low
Satisfactory’’ at 60 percent, five
percentage points lower than the
proposed level of 65 percent. The
agencies believe that a downward
adjustment from the proposed level of
this multiplier is appropriate to address
commenter concerns regarding the
stringency of the Retail Lending Test.
The agencies also considered a
community multiplier of 55 percent for
a ‘‘Low Satisfactory’’ supporting
conclusion, but determined that the
PO 00000
Frm 00318
Fmt 4701
Sfmt 4700
multiplier should be meaningfully
greater than 50 percent to reflect a bank
adequately meeting community credit
needs.
As noted above, in determining the
market and community multiplier
values for ‘‘Low Satisfactory’’
performance, the agencies considered
that the ‘‘Low Satisfactory’’ conclusion
reflects that a bank is adequately
meeting the credit needs of its
community. This is distinct from the
‘‘Needs to Improve’’ and ‘‘Substantial
Noncompliance’’ conclusion categories,
both of which reflect that a bank is not
adequately meeting the credit needs of
its community. The agencies note that
both ‘‘High Satisfactory’’ and ‘‘Low
Satisfactory’’ performance correspond to
the overall ‘‘Satisfactory’’ rating
category.
Multipliers for ‘‘Needs to Improve’’
Supporting Conclusion. The agencies’
multipliers for the calibrated
benchmarks used to determine the
‘‘Needs to Improve’’ supporting
conclusion threshold are shown in
Table 28.
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.036
Supporting
Conclusion
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
6891
Table 28 to § _.22(1): Calibrated Benchmarks for "Needs to Improve" Supporting
Conclusion
Select the Lesser of the Calibrated Market Benchmark and the
Calibrated Community Benchmark
Supporting
Conclusion
Market Multiplier and
Market Benchmark
Community Multiplier and
Community Benchmark
33% of the Market
Benchmark
"Needs to
Improve"
Consistent with the proposed
approach, as indicated in section V of
final appendix A, the agencies are
setting the market multiplier for the
calibrated market benchmark used to
determine a ‘‘Needs to Improve’’
supporting conclusion at 33 percent.
The agencies believe that a ‘‘Substantial
Noncompliance’’ supporting conclusion
should be reserved for performance that
is extremely inadequate, and
determined that approximately onethird of the market benchmark is an
appropriate standard. The agencies
considered, but are not adopting, a
suggested multiplier of 48 percent
because the agencies believe that would
result in assigning a ‘‘Substantial
30% of the Community
Benchmark
OR
Noncompliance’’ supporting conclusion
in cases where a bank’s performance is
lacking, but is not extremely inadequate.
As indicated in section V of final
appendix A, the agencies are setting the
community multiplier for a ‘‘Needs to
Improve’’ supporting conclusion at 30
percent, three percentage points lower
than the proposed level of 33 percent.
The agencies believe that this
adjustment is appropriate because for all
of the other supporting conclusion
categories the community multiplier is
a lower value than the market
multiplier, which reflects that the
community benchmark is often greater
than the market benchmark.
Examples of Performance Ranges
Methodology
The following outlines how the
performance ranges would be calculated
and applied to a geographic distribution
for closed-end home mortgage loans in
moderate-income census tracts:
Geographic Bank Metric: A bank that
originated or purchased 16 closed-end
home mortgage loans in moderateincome census tracts out of 100 total
closed-end home mortgage loans that
the bank originated or purchased overall
in the Retail Lending Test Area would
have a Geographic Bank Metric of 16
percent.
Example la: Geographic Bank Metric
Total closed-end home
mortgage loans
16
100
ddrumheller on DSK120RN23PROD with RULES2
Benchmarks: In a Retail Lending Test
Area where 30 percent of owneroccupied housing units and 25 percent
of all originated closed-end home
VerDate Sep<11>2014
18:11 Jan 31, 2024
Geographic Bank Metric
Jkt 262001
16 percent
mortgage loans were in moderateincome census tracts, the moderateincome Geographic Community
Benchmark and Geographic Market
PO 00000
Frm 00319
Fmt 4701
Sfmt 4700
Benchmarks for closed-end home
mortgage loans would be 30 percent and
25 percent, respectively.
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.037 ER01FE24.038
Closed-end home mortgage
loans in moderate-income
census tracts
6892
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Example lb: Geographic Community Benchmark and Geographic Market Benchmark
Geographic Community
Benchmark: Percent of owneroccupied housing units in
moderate-income census tracts
Geographic Market Benchmark:
Market percentage of closed-end
home mortgage loan originations
in moderate-income census tracts
30 percent
Performance ranges: The agencies
calculate the thresholds for the relevant
performance ranges using the
25 percent
corresponding benchmarks and
multipliers below:
Example le: Calibrated Market Benchmarks
Supporting
Conclusion
Market
Multiplier
Geographic Market Calibrated Market
Benchmark
Benchmarks (Market Multiplier
times Geographic Market
Benchmark)
"Outstanding"
115 percent
25 percent
28.75 percent
"High
Satisfactory"
"Low
Satisfactory"
"Needs to
Improve"
105 percent
25 percent
26.25 percent
80 percent
25 percent
20 percent
33 percent
25 percent
8.25 percent
Example ld: Calibrated Community Benchmarks
Geographic
Community
Benchmark
Calibrated Community
Benchmarks (Community
Multiplier times Geographic
Community Benchmark)
"Outstanding"
100 percent
30 percent
30 percent
"High
Satisfactory"
"Low
Satisfactory"
"Needs to
Improve"
80 percent
30 percent
24 percent
60 percent
30 percent
18 percent
30 percent
30 percent
9 percent
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00320
Fmt 4701
Sfmt 4725
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.041
Community
Multiplier
ER01FE24.039 ER01FE24.040
ddrumheller on DSK120RN23PROD with RULES2
Supporting
Conclusion
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
6893
Example le: Performance Range Thresholds
Calibrated Market
Benchmark
Calibrated Community
Benchmark
"Outstanding"
28.75 percent
30 percent
28.75 percent
"High
Satisfactory"
26.25 percent
24 percent
24 percent
"Low
Satisfactory"
20 percent
18 percent
18 percent
"Needs to
Improve"
8.25 percent
9 percent
8.25 percent
Section ll.22(f)(2)(ii) Geographic
Distribution Supporting Conclusions for
Automobile Loans
Section ll.22(f)(3)(ii) Borrower
Distribution Supporting Conclusions for
Automobile Loans
Final § ll.22(f)(2)(ii) and (f)(3)(ii)
provide that the agencies will develop
supporting conclusions for a bank’s
automobile lending based on a
comparison of its bank metrics to
geographic distribution and borrower
distribution community benchmarks, as
provided in final § ll.22(e)(1)(ii) and
section VI of final appendix A. The
agencies are not establishing
performance ranges for automobile
lending in the final rule. The agencies
believe that there would not be
sufficient bank automobile lending data
to construct robust market benchmarks
and also that requiring data reporting to
facilitate construction of market
benchmarks would increase data
reporting burden without a
corresponding significant increase in
the consistency and rigor of CRA
evaluations, as is discussed further in
the section-by-section analysis for final
§§ ll.22 and ll.42. The agencies
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
further believe that it would not be
appropriate to develop automobile
lending performance ranges based solely
on community benchmarks, which do
not account for changes in credit needs
and opportunities in a Retail Lending
Test Area over time in the same way as
an approach that also uses market
benchmarks. Consequently, under the
final rule, the agencies will assign
supporting conclusions for automobile
lending performance by comparing bank
metrics to community benchmarks.
Supporting conclusions for
automobile lending will be assigned
separately for: (1) lending in lowincome census tracts; (2) lending in
moderate-income census tracts; (3)
lending to low-income borrowers; and
(4) lending to moderate-income
borrowers. However, unlike for other
major product lines, the agencies are not
setting specific thresholds
distinguishing each supporting
conclusion category for automobile
lending.
Specifically, the agencies will identify
appropriate supporting conclusions
based on a comparison of the
Geographic Bank Metric for automobile
lending in each category of designated
census tracts to the corresponding
Geographic Community Benchmark.
Similarly, the agencies will identify the
appropriate supporting conclusion
based on a comparison of the Borrower
Bank Metric for automobile lending in
each category of designated borrowers to
the corresponding Borrower Community
Benchmark.
This agencies’ approach to evaluating
automobile lending necessarily involves
a greater degree of agency discretion
PO 00000
Frm 00321
Fmt 4701
Sfmt 4700
than an approach that uses performance
ranges, as is the case for other major
product lines. The agencies believe that
such discretion is appropriate given the
relatively limited data available
regarding automobile lending and the
importance of performance context to
evaluating a bank’s automobile lending,
such as whether the bank’s loans were
originated through direct or indirect
channels. In addition, this approach is
generally consistent with the current
evaluation methods when consumer
lending is evaluated, in which the
agencies analyze the borrower and
geographic distributions of a bank’s
consumer lending using a community
benchmark without specific thresholds
or performance ranges.947
Developing Product Line Scores in Each
Retail Lending Test Area
Section ll.22(f)(4) Development of
Retail Lending Test Recommended
Conclusions
Section ll.22(f)(4)(i) Assignment of
Performance Scores
The Agencies’ Proposal
The agencies proposed to use a
product line average to combine lending
performance in the geographic and
borrower distribution metrics for each
major product line in a facility-based
assessment area, retail lending
assessment area, or outside retail
lending area, as applicable.948 For
947 See, e.g., Interagency Large Institution CRA
Examination Procedures (April 2014) at 6–8.
948 See proposed appendix A, paragraphs V.2.c
(geographic distribution performance) and V.2.e
(borrower distribution performance).
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.042
In this example, the bank would
receive a ‘‘Needs to Improve’’
supporting conclusion for closed-end
home mortgage lending in moderateincome census tracts because the
Geographic Bank Metric (16 percent)
falls between the ‘‘Needs to Improve’’
supporting conclusion performance
range threshold (8.25 percent) and the
‘‘Low Satisfactory’’ supporting
conclusion performance range threshold
(18 percent).
ddrumheller on DSK120RN23PROD with RULES2
Performance
Range Threshold
(lesser of the calibrated
benchmarks)
Supporting
Conclusion
ddrumheller on DSK120RN23PROD with RULES2
6894
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
example, a bank’s closed-end home
mortgage product line average in a
facility-based assessment area would
reflect its lending within four categories:
(1) in low-income census tracts; (2) in
moderate-income census tracts; (3) to
low-income borrowers; and (4) to
moderate-income borrowers.949
Similarly, if a bank had two major
product lines in the facility-based
assessment area—closed-end home
mortgage loans and small business
loans—the bank would receive a
product line average for its closed-end
home mortgage lending and a separate
product line average for its small
business lending.950 By calculating
lending performance for each major
product line in the same facility-based
assessment area, retail lending
assessment area, or outside retail
lending area, as applicable, the agencies
intended to provide greater
transparency and enable stakeholders to
better understand a bank’s performance
for each separate product line. The
product line averages would also serve
as the basis for determining a bank’s
recommended conclusion in each such
area.
To calculate the product line average,
the agencies proposed to first assign a
performance score to each supporting
conclusion, using a 10-point scale that
associates each conclusion level with a
score: ‘‘Outstanding’’ (10 points); ‘‘High
Satisfactory’’ (7 points); ‘‘Low
Satisfactory’’ (6 points); ‘‘Needs to
Improve’’ (3 points); ‘‘Substantial
Noncompliance’’ (0 points). The
agencies would then compute a
borrower income average and a
geographic income average.
The proposal provided that the
geographic income average would be a
weighted average of the performance
scores for the two geographic
distribution supporting conclusions
(i.e., for low-income census tracts and
moderate-income census tracts). The
weights for this calculation would be
the applicable community benchmark
for the product line and income or
revenue category to make the weight of
the scores proportional to the
population of potential borrowers in the
assessment area.
• For example, for closed-end home
mortgage lending, the weight for the
low-income geographic distribution
performance score would be:
Æ The percentage of owner-occupied
housing units in low-income census
tracts in the area (i.e., the Geographic
Community Benchmark for low-income
census tracts) as a percentage of;
949 See
950 See
id.
proposed appendix A, paragraph V.3.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Æ The sum of the percentage of
owner-occupied housing units in lowincome census tracts (i.e., the
Geographic Community Benchmark for
low-income census tracts) and the
percentage of owner-occupied housing
units in moderate-income census tracts
(i.e., the Geographic Community
Benchmark for moderate-income census
tracts).
• Likewise, for example, for closedend home mortgage lending the weight
for the moderate-income geographic
distribution performance score (i.e., the
Geographic Community Benchmark for
moderate-income census tracts) would
be:
• The percentage of owner-occupied
housing units in moderate-income
census tracts in the area as a percentage
of;
• The sum of the percentage of
owner-occupied housing units in lowincome census tracts (i.e., the
Geographic Community Benchmark for
low-income census tracts) and the
percentage of owner-occupied housing
units in moderate-income census tracts
(i.e., the Geographic Community
Benchmark for moderate-income census
tracts).
The proposal provided that the
borrower income average would be
calculated in the same way, weighting
the two income categories included in
the borrower distribution analysis (e.g.,
for closed-end home mortgages, the
agencies would weight low-income
borrowers and moderate-income
borrowers) by the corresponding
community benchmarks for each
category (e.g., for closed-end home
mortgages, these are low-income
families and moderate-income families).
The agencies would then calculate the
average of the borrower income average
and geographic income average to
produce the product line average for
each major product line in a facilitybased assessment area, retail lending
assessment area, or outside retail
lending area, as applicable. In
calculating each product line average,
the agencies requested feedback on
whether the borrower and geographic
distributions for a specific product line
should be weighted equally, or whether
borrower distributions should be
weighted more heavily than the
geographic distributions, either in
general or depending on the
performance context of the area.
Comments Received
Many commenters offered views on
the agencies’ Retail Lending Test
proposal to develop product line
averages based on borrower and
geographic distribution conclusions for
PO 00000
Frm 00322
Fmt 4701
Sfmt 4700
each of a bank’s major product lines in
its facility-based assessment areas, retail
lending areas, and its outside retail
lending area, as applicable. These
commenters generally addressed
whether the borrower income average
and geographic income average for a
specific product line should be
weighted equally, or whether more
weight should be assigned to the
borrower income average compared to
the geographic income average.
Comments regarding the approach to
assigning a score to each supporting
conclusion based on the proposed 10point scale are summarized in the
section-by-section analysis of final
§ ll.21(e).
Comments on calculating borrower
income average and geographic income
average. A few commenters addressed
the proposed approach for weighting the
different income or revenue categories
when calculating the borrower income
average and the geographic income
average. One commenter expressed
support for the proposed approach of
weighting the low- and moderateincome categories based on the
community benchmarks, stating that
these weights would reflect the
demographics of the community.
Another commenter instead stated that
the agencies should prioritize lowincome borrowers and census tracts
over moderate-income borrowers and
census tracts. Another commenter stated
that it is not appropriate to strictly
weight based on the percentage of lowincome individuals. This commenter
noted that many community banks will
be more successful targeting activity to
low- and moderate-income geographies
rather than individuals, as individuals
are not pre-screened by income level.
Another commenter suggested that the
agencies allow excellent performance in
one distribution to compensate for less
impressive performance in another.
Comments on calculating product line
averages. A number of comments
addressed the agencies’ proposal to
calculate each product line average by
weighting borrower and geographic
distribution scores equally, with some
expressing support for the proposed
approach.
Other commenters supported the
proposed equal weighting generally, but
recommended greater emphasis on the
borrower distributions in certain
circumstances, such as in rural areas
and nonmetropolitan areas with few
low- and moderate-income census
tracts, or based on other performance
context information. For example, one
commenter suggested that in rural areas,
the agencies should weight borrower
distributions more heavily than
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
geographic distributions. Another
commenter suggested that, in
determining the weighting approach,
the agencies should consider that many
low- and moderate-income individuals
cannot afford to purchase homes or
automobiles in poor states with very
low median incomes, and that in highcost and high-density urban areas many
low- and moderate-income individuals
live in rental housing and use public
transportation instead of their own
automobiles.
Other commenters stated that
borrower distributions should generally
be given more weight than geographic
distributions in determining product
line averages. One commenter stated
that the borrower distributions should
be weighted more heavily than the
geographic distributions if the intended
outcome is increased access to lending
opportunities for low- and moderateincome borrowers regardless of
geographic boundaries. Other
commenters recommended that the
agencies weight the borrower
distributions at 60 percent and the
geographic distributions at 40 percent.
One of these commenters asserted that
employing this approach would better
reflect the importance of lending to lowand moderate-income consumers as
well as to low- and moderate-income
communities. Some commenters stated
that greater weighting on the borrower
distribution would help to limit
potential unintended consequences of
gentrification and displacement. These
commenters expressed that weighting
the geographic distributions too heavily
would create incentives for lending to
higher-income borrowers in low- and
moderate-income census tracts, which
over time could result in displacement
of low- and moderate-income residents.
Another commenter noted that applying
a greater weight to the borrower
distributions would promote integration
by emphasizing lending to low- and
moderate-income individuals regardless
of their location.
Although many commenters
supported weighting borrower
distributions more heavily, one
commenter indicated that the agencies
should weight geographic distributions
more heavily in rural areas and areas
with few low- and moderate-income
census tracts, citing the lower demand
for credit and other financial services in
these areas.
Final Rule
Final § ll.22(f)(4)(i) and sections V,
VI, and VII of final appendix A provide
that the agencies will calculate a
product line score for each major
product line in a Retail Lending Test
Area in order to combine lending
performance based on geographic and
borrower distribution supporting
conclusions and corresponding
performance scores. The use of term
‘‘product line score’’ represents a
clarifying change from the term in the
proposal—‘‘product line average’’—in
order to provide a more accurate
description of what is being calculated,
without any change in meaning from the
proposal. This approach will serve to
differentiate lending performance for
each major product line in the same
Retail Lending Test Area, providing
transparency regarding why a bank
received a particular Retail Lending Test
recommended conclusion.
Scoring Approach. The agencies are
finalizing the proposal that each
supporting conclusion will be
associated with a performance score
with the following point values:
6895
‘‘Outstanding’’ (10 points); ‘‘High
Satisfactory’’ (7 points); ‘‘Low
Satisfactory’’ (6 points); ‘‘Needs to
Improve’’ (3 points); ‘‘Substantial
Noncompliance’’ (0 points). This
scoring approach is discussed in detail
in the section-by-section analysis of
final § ll.21(e).
Calculating the geographic
distribution average and borrower
distribution average. The final rule
retains the proposed approach for
calculating a geographic distribution
average and a borrower distribution
average. The use of the terms
‘‘geographic distribution average’’ and
‘‘borrower distribution average’’
represent clarifying changes from the
respective terms in the proposal—
‘‘geographic income average’’ and
‘‘borrower income average’’—in order to
provide a more accurate description of
what is being averaged without any
change in meaning. Each distribution
average reflects the result of the
geographic distribution analysis and
borrower distribution analysis,
respectively, and the agencies also note
that the borrower distribution analysis
does not involve ‘‘income’’ for small
business loans and small farm loans.
Accordingly, the agencies believe it is
preferable not to use ‘‘income’’ in these
terms.
For the geographic distribution
average for all product lines, the
agencies will calculate a weighted
average of the performance scores
corresponding to the supporting
conclusion for lending in designated
census tracts: (1) the supporting
conclusion for lending in low-income
census tracts; and (2) the supporting
conclusion for lending in moderateincome census tracts. This is illustrated
in Table 29.
Product line
Geographic Distribution
"Low" Supporting
Conclusion Category
Geographic Distribution
"Moderate" Supporting
Conclusion Category
All product lines (Closed-end
Home Mortgage Loans,
Small Business Loans, Small
Farm Loans, Automobile
Loans)
Low-income census tracts
Moderate-income census
tracts
For the borrower distribution average
for closed-end home mortgage loan and
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
automobile loan product lines, the
agencies will calculate a weighted
PO 00000
Frm 00323
Fmt 4701
Sfmt 4700
average of the performance scores
corresponding to lending to relevant
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.043
ddrumheller on DSK120RN23PROD with RULES2
Table 29 to§ _.22(f): Components of Geographic Distribution Average
6896
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
categories of designated borrowers: (1)
the supporting conclusion for lending to
low-income borrowers; and (2) the
supporting conclusion for lending to
moderate-income borrowers.
For the borrower distribution average
for small business loans and small farm
loans, the agencies will likewise
calculate a weighted average of the
performance scores corresponding to
lending to relevant categories of
designated borrowers: (1) the supporting
conclusion for lending to businesses
with gross annual revenues of $250,000
or less; (2) the supporting conclusion for
lending to businesses with gross annual
revenues of greater than $250,000 but
less than or equal to $1 million; (3) the
supporting conclusion for lending to
farms with gross annual revenues of
$250,000 or less; and (4) the supporting
conclusion for lending to farms with
gross annual revenues of greater than
$250,000 but less than or equal to $1
million. This is illustrated in Table 30.
Product line
Borrower Distribution
"Low" Supporting
Conclusion Category
Borrower Distribution
"Moderate" Supporting
Conclusion Category
Closed-end Home Mortgage
Loans
Low-income borrowers
Moderate-income borrowers
Small Business Loans
Businesses with gross annual
revenues of $250,000 or less
Businesses with gross annual
revenues of greater than
$250,000 but less than or
equal to $1 million
Small Farm Loans
Farms with gross annual
revenues of $250,000 or less
Farms with gross annual
revenues of greater than
$250,000 but less than or
equal to $1 million
Automobile Loans
Low-income borrowers
Moderate-income borrowers
When calculating a weighted average
of these two components, the weights
for each component would be based on
Retail Lending Test Area demographics,
a clarifying change in terminology from
the proposal’s use of ‘‘community
benchmarks’’ in order to more precisely
describe the relevant calculations, as
illustrated in Examples A–11 and A–12
in section VII of final appendix A. The
agencies believe that the weighted
average approach appropriately tailors
the weighting approach to the
characteristics of the Retail Lending
Test Area in determining the weight to
assign to each income or revenue
category, as one commenter noted.
Regarding the suggestion to assign
greater weight to the low-income
categories rather than the moderateincome categories, the agencies believe
this could result in a weighting
approach that does not reflect the
relative level of credit needs and
opportunities among low-income and
moderate-income borrowers and census
tracts. Regarding the suggestion not to
strictly weight in the proposed method,
the agencies believe that it is preferable
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
to employ a consistent, quantitative
approach to developing product line
scores, to increase the predictability and
transparency of evaluations and to limit
agency discretion where possible. As
described below, the agencies have
made several non-substantive technical
changes to section VII of final appendix
A to clarify and add further detail to
how the weights are calculated for
purposes of computing the geographic
distribution average and borrower
distribution average.
Combining the geographic
distribution average and borrower
distribution average to develop a
product line score. The final rule retains
the proposed approach of combining the
geographic distribution average and the
borrower distribution average to
calculate an overall score for each major
product line. The agencies considered
comments suggesting that they assign
greater weight to the borrower income
average than the geographic income
average, but continue to believe that
both the geographic and borrower
distributions are important measures of
how a bank is meeting its community’s
PO 00000
Frm 00324
Fmt 4701
Sfmt 4700
credit needs and that equal weighting
ensures that both distributions are
important to overall conclusions.
The agencies also considered
comments that the weight assigned to
the geographic income average and
borrower income average should vary
depending on the performance context
of an area. The agencies determined that
the final rule weights for geographic
distributions and borrower distributions
will provide greater consistency and
standardization, and that allowing the
weights to vary depending on
performance context would necessitate
greater agency discretion that could
increase complexity and increase
uncertainty in evaluations. In addition,
the agencies believe the approach of
using weighted averages of a bank’s
performance in different categories of
lending to calculate each product line
score will appropriately allow
somewhat stronger performance in
certain categories of lending to
compensate for somewhat less strong
performance in other categories. The
agencies believe this affords appropriate
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.044
ddrumheller on DSK120RN23PROD with RULES2
Table 30 to§ _.22(f): Components of Borrower Distribution Average
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
flexibility to banks in meeting the credit
needs of their community.
Regarding comments that some
nonmetropolitan areas may not have
low- or moderate-income census tracts,
the agencies note that the additional
factor in final § ll.22(g)(6) may be
considered when determining the
bank’s conclusion, as discussed in the
section-by-section analysis of final
§ ll.22(g). In addition, consistent with
the agencies’ proposal, in Retail Lending
Test Areas with no low- and moderateincome census tracts, and hence no
geographic distribution scores, the
agencies will set the product line score
equal to the borrower distribution
average.
Using Weighted Average of Product Line
Scores for Retail Lending Test
Recommended Conclusions
Section ll.22(f)(4)(ii) Combination of
Performance Scores
ddrumheller on DSK120RN23PROD with RULES2
Section ll.22(f)(4)(iii) Retail Lending
Test Recommended Conclusions
The Agencies’ Proposal
The agencies proposed that the Retail
Lending Test recommended conclusion
for a facility-based assessment area,
retail lending assessment area, or
outside retail lending area, as
applicable, would be derived by taking
a weighted average of all of the product
line averages. The weight for each
product line average would be the
percentage of the dollar volume of
originations and purchases of that
product line for the bank in a facilitybased assessment area, retail lending
assessment area, or outside retail
lending area. This percentage would be
calculated out of the total dollar volume
of originations and purchases from all
product lines for the bank in that
facility-based assessment area, retail
lending assessment area, or outside
retail lending area.951 The agencies
believed that this approach would give
proportionate weight to a bank’s
product offerings, with more prominent
product lines, as measured in dollars,
having more weight on the bank’s
overall conclusion in an assessment
area.952
The agencies believed that pursuant
to this approach, the Retail Lending Test
would be tailored to individual bank
business models, as evaluations would
be based on the lending a bank
specializes in locally. Moreover, the
agencies believed that weighting
product lines by the dollar volume of
lending recognizes the continued
951 See
proposed appendix A, paragraphs V.c and
V.d.
952 87
FR 33884, 33947 (June 3, 2022).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
importance of home mortgage lending
and small business lending to low- and
moderate-income communities, which
has been a focus of the CRA, while also
accounting for the importance of
consumer loans to low- and moderateincome individuals. The agencies
requested feedback on whether loan
count should be used in conjunction
with, or in place of, dollar volume in
weighting product line conclusions to
determine the Retail Lending Test
recommended conclusion, and
corresponding performance score, in a
facility-based assessment area, retail
lending assessment area, or outside
retail lending area.
Comments Received
A number of commenters addressed
the agencies’ proposal for combining a
bank’s product line averages for each
major product line to determine its
Retail Lending Test recommended
conclusion for each facility-based
assessment area, retail lending
assessment area, or outside retail
lending area. Commenters on this topic
responded to the agencies’ request for
feedback on whether the weight
assigned to each product line average
should be based on the dollar volume of
loans in each product line, the number
of loans in each product line, or a
combination of the two. Nearly all
commenters on this topic favored some
form of consideration for retail loan
counts in weighting product line
averages to determine the Retail
Lending Test recommended conclusion
in a facility-based assessment area, retail
lending assessment area, or outside
retail lending area.
Concerns with proposed approach. A
number of commenters expressed
concerns regarding the proposed
approach of weighting product line
averages solely based on the dollar
volume of loans within each product
line, with some expressing support for
weighting based on the number of loans.
One commenter indicated that using
dollar volume alone would give less
impact to lending activity in rural areas
where home values are lower. Other
commenters stated that the agencies’
proposal would disadvantage banks that
are meeting low- and moderate-income
credit needs by originating more smalldollar loans. For example, one
commenter asserted that the agencies’
proposed weighting approach
contradicted the CRA’s purpose of
focusing on low- and moderate-income
lending by overemphasizing largedollar closed-end home mortgage loans.
Other commenters expressed a related
concern that the proposed approach
would underweight small business
PO 00000
Frm 00325
Fmt 4701
Sfmt 4700
6897
lending and consumer lending, given
that small business loans and consumer
loans are generally smaller in dollar
value than home mortgage loans.
Alternative of weighting by
combination of loan dollars and loan
count. A number of commenters
recommended basing the weight
assigned to each product line average on
a combination of the dollar amount and
number of loans in each product line. A
few commenters suggested that, under
such an approach, smaller transactions
could receive more weight in the
distribution analysis, including smalldollar home mortgage loans. Another
commenter stated that this approach
would better account for the differences
in the impact of a bank’s lending across
communities. For example, this
commenter noted that even a relatively
small number of loans could have
substantial impact in communities with
unmet credit needs. Other commenters
emphasized that this approach would
recognize bank lending that serves more
consumers and businesses, as well as
variations across different lending
products. Another commenter
tentatively supported (citing lack of
visibility into the issue) using a
combination of dollar volume and loan
count because the approach would
otherwise assign too much weight to
home mortgage lending.
Alternative of weighting solely by loan
count. A number of commenters
cautioned against an alternative
approach of weighting product lines
scores solely based on the number of
loans in each product line, without
considering dollar volume. One
commenter stated that this alternative
could result in overemphasizing small
business loans and credit card loans in
the Retail Lending Test evaluation.
Another commenter asserted that
weighting product line averages by loan
counts only would incorrectly discount
the potential contribution of larger
dollar loans made in areas with few
opportunities.
Other alternative weighting
approaches. A few commenters offered
other alternative weighting
methodologies. For example, one
commenter indicated that if the agencies
retained the proposed dollar volume
weighting approach, they should also
apply a multiplier to lower dollar value
categories, such as automobile lending
and other consumer lending, to increase
parity among different types of retail
lending products. Additionally, a
commenter suggested the weighting
should provide approximately a 40
percent-40 percent-20 percent weighting
to home mortgage lending, small
business lending, and consumer lending
E:\FR\FM\01FER2.SGM
01FER2
6898
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
respectively, and suggested that the
agencies use data to determine if this
type of result is best achieved by dollar
volume alone or dollar volume in
combination with loan count. Further,
this commenter expressed that
weighting by loan count would equalize
loans made to low- and moderateincome borrowers and more affluent
borrowers that often have larger dollar
home mortgage loans. However, in cases
in which a bank has a very high volume
of small-dollar consumer loans in
combination with sizable numbers of
home mortgage loans and small
business loans, the commenter
suggested that a combination of dollar
amount and loan counts may better
prioritize home mortgage lending and
small business lending.
Final Rule
As provided in final § ll.22(f)(4)(ii)
and (iii) and in section VII of final
appendix A, with the exception of a
facility-based assessment area of a large
bank in which it lacked an acceptable
basis for not meeting the Retail Lending
Volume Threshold,953 the agencies will
develop a Retail Lending Test
recommended conclusion for each
Retail Lending Test Area by calculating
an average of the product line scores
that the bank received on each of its
major product lines in that Retail
Lending Test Area. These product line
scores are based on combining the
performance scores for each supporting
conclusion for each major product line.
As noted above, the use of the term
‘‘product line score’’ rather than the
term used in the proposal—‘‘product
line average’’—is a clarifying change
intended to provide a more accurate
description of what is being calculated
without any change in meaning.
Based on agency consideration of
related comments, the final rule weights
each product line score based on a
combination of loan dollars and loan
count associated with the product line,
in contrast to the proposed approach of
weighting each product line score solely
by dollar amount. For example, if a
major product line contained 50 percent
of a bank’s loans in a Retail Lending
Test Area in dollar amount and 30
percent of a bank’s loans in that area in
loan count then the weight assigned to
the product line score would be 40
percent. In reaching this determination,
the agencies believe that the final rule
approach would appropriately consider
both the dollar amount of credit
extended as well as the number of
borrowers served. The agencies
recognize that both dollar amount and
953 See
final § ll.22(c)(3)(iii)(A).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
loan count are important aspects of how
a bank meets the credit needs of a
community. The agencies considered
comments that such an approach would
assign relatively greater weight to
product lines with large loan counts and
small loan amounts, compared to the
proposed approach. Some commenters
suggested that this may be especially
important for small business lending
because small business loans could have
smaller loan amounts than closed-end
home mortgage loans, on average,
depending on a bank’s strategy and
product offerings. Although use of the
combination of loan dollars and loan
count involves somewhat more complex
calculations than the proposed
approach, the agencies believe that the
benefits of the final rule, in terms of
additional equity among major product
lines, merit incorporating that
additional complexity.
The weighted average of all product
line scores is converted into a Retail
Lending Test Area Score. The use of the
term ‘‘Retail Lending Test Area Score’’
rather than the term in the proposal—
‘‘geographic product average’’—is both
intended to more accurately describe
what is being calculated and also to
reduce potential confusion with the
term ‘‘product line score.’’
Consistent with the proposed
approach, the agencies will then
develop a Retail Lending Test
recommended conclusion
corresponding with the conclusion
category that is nearest to the Retail
Lending Test Area Score, as follows:
‘‘Outstanding’’ (8.5 or more); ‘‘High
Satisfactory’’ (6.5 or more but less than
8.5); ‘‘Low Satisfactory’’ (4.5 or more but
less than 6.5); ‘‘Needs to Improve’’ (1.5
or more but less than 4.5); ‘‘Substantial
Noncompliance’’ (less than 1.5).954
Section ll.22(g) Additional Factors
Considered When Evaluating Retail
Lending Performance
As provided in final § ll.22(g), the
agencies are finalizing their proposal,
with certain clarifying, substantive, and
technical changes, regarding
consideration of additional factors when
assigning a bank’s Retail Lending Test
conclusions.955 The seven additional
factors in the final rule account for
circumstances in which the prescribed
metrics may not accurately or fully
reflect a bank’s lending distributions or
in which the benchmarks may not
appropriately represent the credit needs
and opportunities in an area. The
agencies will consider these additional
954 See also the section-by-section analysis of
final § ll.28.
955 See supra note 145.
PO 00000
Frm 00326
Fmt 4701
Sfmt 4700
factors in determining a bank’s Retail
Lending Test conclusions, in addition to
the bank’s recommended conclusion
and performance context information in
final § ll.21(d), as described in final
§ ll.22(h)(1)(ii) and in paragraph VII.d
of final appendix A.
As described further below, final
§ ll.22(g) adopts the four proposed
additional factors, with certain
clarifying and technical changes, as well
as three other additional factors.
Furthermore, pursuant to final
§ ll.22(g), certain additional factors
will be considered when evaluating a
bank’s performance in, as applicable, its
retail lending assessment areas and its
outside retail lending area —and not
solely, as proposed, when evaluating the
bank’s performance in its facility-based
assessment areas.
The Agencies’ Proposal
The agencies proposed to consider
certain additional factors that are
indicative of a bank’s lending
performance or lending opportunities,
but which are not captured in the
metrics and benchmarks, when reaching
Retail Lending Test conclusions for
facility-based assessment areas.956
Specifically, in proposed § ll.22(e),
the agencies provided that in addition to
considering how a bank performs
relative to the Retail Lending Volume
Threshold described in proposed
§ ll.22(c) and the performance ranges
described in proposed § ll.22(d), the
agencies would evaluate the retail
lending performance of a bank in each
facility-based assessment area by
considering four additional factors.
These factors could inform the agencies
adjusting upward or downward a Retail
Lending Test recommended conclusion
in a facility-based assessment area:
• Information indicating that a bank
has purchased retail loans for the sole
or primary purpose of inappropriately
influencing its retail lending
performance evaluation, including but
not limited to subsequent resale of some
or all of those retail loans or any
indication that some or all of the loans
have been considered in multiple banks’
CRA evaluations; 957
• The dispersion of retail lending
within the facility-based assessment
area to determine whether there are gaps
in lending not explained by
performance context; 958
• The number of banks whose
reported retail lending and deposits data
is used to establish the applicable Retail
Lending Volume Threshold, geographic
proposed § ll.22(e).
proposed § ll.22(e)(1).
958 See proposed § ll.22(e)(2).
956 See
957 See
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
distribution thresholds, and borrower
distribution thresholds; 959 and
• Missing or faulty data that would be
necessary to calculate the relevant
metrics and benchmarks or any other
factors that prevent the agencies from
calculating a recommended
conclusion.960
The agencies sought feedback on
whether to consider a different or
broader set of additional factors than
those reflected in proposed § ll.22(e),
including oral or written comments
about a bank’s retail lending
performance, as well as the bank’s
responses to those comments, in
developing Retail Lending Test
conclusions.
The agencies also sought feedback on
whether to engage in ongoing analysis of
HMDA data to identify banks that
appear to engage in significant churning
of home mortgage loans. Additionally,
the agencies sought feedback regarding
whether evidence of loan churning
should be considered as an additional
factor in evaluating a bank’s retail
lending performance.
Additionally, the agencies sought
feedback on whether the distribution of
retail lending in distressed and
underserved census tracts should be
considered qualitatively.
The agencies also requested feedback
on whether to identify assessment areas
where lenders may be underperforming
in the aggregate and the credit needs of
substantial parts of the community are
not being met. The agencies would
consider additional information to
account for the possibility that the
market benchmarks for the area may
underestimate the credit needs and
opportunities of the area. The agencies
suggested that one manner in which
they could identify such assessment
areas would be by developing statistical
models that estimate the level of the
market benchmark that would be
expected in each assessment area based
on its demographics, such as income
distributions or household
compositions, as well as housing market
conditions and economic activity. In
seeking feedback on this approach, the
agencies also suggested that a model
could be constructed using data at the
census tract or county level that are
collected nationwide, and that an
assessment area in which market
benchmarks fell significantly below
their expected levels could be
considered underperforming for the
relevant product line, distribution test,
and income level.
959 See
960 See
proposed § ll.22(e)(3).
proposed § ll.22(e)(4).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Finally, the agencies sought feedback
on whether to consider other factors,
such as oral or written comments about
a bank’s retail lending performance, as
well as the bank’s responses to those
comments, in developing Retail Lending
Test conclusions. Additionally, the
agencies suggested that they could
identify underperforming markets using
a relative standard or an absolute
standard. Finally, the agencies
suggested that, rather than designating a
specific set of underperforming markets,
they could use the difference between
the actual and expected market
benchmarks as an additional factor to
consider in every assessment area.
Comments Received
Comments on proposed § ll.22(e)
generally addressed: whether to
consider information indicating that a
bank has purchased retail loans for the
sole or primary purpose of
inappropriately influencing its retail
lending performance; whether and how
markets in which lenders overall are
underperforming in meeting community
credit needs should be factored into the
evaluation of bank performance; and
whether the agencies should consider
other factors regarding a bank’s retail
lending performance that were not
proposed, such as oral or written
comments about the bank’s performance
and the bank’s responses to those
comments.
Purchased retail loans for the sole or
primary purpose of inappropriately
enhancing retail lending performance.
The agencies received numerous
comments regarding the proposed
additional factor allowing for
adjustment of a Retail Lending Test
recommended conclusion based on
‘‘information indicating that a bank has
purchased retail loans for the sole or
primary purpose of inappropriately
influencing its retail lending
performance evaluation, including but
not limited to subsequent resale of some
or all of those retail loans or any
indication that some or all of the loans
have been considered in multiple banks’
CRA evaluations.’’
As described in the introduction to
the section-by-section analysis of final
§ ll.22, numerous commenters
opposed consideration of purchased
loans in the retail lending distribution
analysis under the Retail Lending Test
or recommended limiting consideration
of purchased loans to specific types or
purchased loans or specific
circumstances.
In addition, several commenters
expressed that the proposed additional
factor was vague and would leave
examiners with too much discretion to
PO 00000
Frm 00327
Fmt 4701
Sfmt 4700
6899
determine when retail loans were
purchased solely or primarily for the
purpose of inappropriately influencing
the bank’s retail lending performance
evaluation. A few commenters
recommended that the agencies
establish a series of presumptions that
would enable a bank to establish that its
retail loan purchases do not meet the
proposed additional factor. For
example, a commenter suggested that a
bank that sells loans extended to lowand moderate-income borrowers at the
same rate that it sells loans extended to
middle- and upper-income borrowers,
should be presumed to not be engaged
in activity that meets the proposed
additional factor. Another commenter
suggested that the agencies should
impose a more stringent standard on
large banks to prevent them from
repeatedly purchasing and selling retail
loans amongst one another to meet their
CRA obligations; however, this
commenter further stated that the
agencies should balance the need for
liquidity with the potential for repeated
loan purchases by banks.
Several commenters suggested the
agencies impose seasoning requirements
where a bank must hold a particular
loan for a certain time period to receive
CRA consideration. Commenters varied
on the suggested length of a seasoning
period, ranging from 30 days to one
year. In contrast, another commenter
opposed any seasoning requirements
because of the added liquidity and
interest rate risk.
Alternatively, some commenters
recommended that certain purchased
retail loans should not be deemed to be
inappropriately influencing a bank’s
Retail Lending Test performance
evaluation. For example, a few
commenters stated that the purchase of
retail loans from a community
organization should never reflect poorly
on a bank because these loan purchases
effectively double such organizations’
lending capacity. Another commenter
stated that loans originated then sold to
a housing finance agency or similar
organization in connection with
affordable housing programs should not
be considered as inappropriately
influencing a bank’s Retail Lending Test
performance evaluation, as these
programs rely on correspondent lenders.
A few commenters opposed inclusion
of this proposed additional factor in
§ ll.22(e)(1), asserting that it would be
difficult to discern a bank’s motive for
purchasing loans, and that, regardless of
a bank’s purpose, purchased loans can
create liquidity and have a positive
impact on low- and moderate-income
borrowers and communities. A few
other commenters recommended that, if
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6900
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
this proposed additional factor is
retained in the final rule, the agencies
include in the regulatory text an explicit
statement that purchased loans would
not result in any penalty for banks
under the Retail Lending Test absent
clear evidence that the purchases met
the additional factor.
Lenders overall underperforming in
meeting community credit needs of
facility-based assessment areas. A few
commenters supported the
identification of facility-based
assessment areas in which lenders in
the aggregate are underperforming such
that the market benchmarks are too low.
These commenters supported the
agencies creating a statistical model to
identify those underperforming facilitybased assessment areas or to calculate
the predicted market benchmark.
These commenters also raised points
related to how to adopt or implement an
additional factor that identifies facilitybased assessment areas in which lenders
in the aggregate are underperforming in
meeting community credit needs.
Another commenter suggested that after
identifying such facility-based
assessment areas with market
benchmarks that are significantly lower
than predicted by statistical models, the
agencies could adjust impact factors to
incentivize bank lending in these
assessment areas. Another commenter
stated that the agencies should consider
this information as a factor in favor of
adjusting banks’ Retail Lending Test
conclusions downwards in such facilitybased assessment areas. This commenter
suggested this approach would
incentivize banks to improve their retail
lending performance there. A
commenter encouraged the agencies to
implement a methodology to identify
areas in which lenders in the aggregate
are underperforming in meeting
community credit needs, and
recommended adjusting the borrower
and geographic performance thresholds
upwards in those areas. A different
commenter raised concerns about how
the agencies would determine that
lenders in the aggregate are
underperforming in an area. A
commenter asserted that it would be
difficult to identify these areas by
comparing peer lenders alone; instead,
the commenter recommended
identifying facility-based assessment
areas where market benchmarks are
significantly lower than the predicted
market benchmarks based on statistical
models. Relatedly, a commenter
encouraged the agencies to conduct
further empirical research to identify
underperforming markets based on the
divergence between actual and
predicted market benchmarks. This
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
commenter recommended that, to
motivate banks to better meet
communities’ retail lending needs, the
agencies should use the predicted
market benchmarks for evaluating
banks’ retail lending performance in the
worst quartile of underperforming
markets, and in the second worst
quartile they should use a weighted
average of the actual market benchmarks
and the predicted market benchmarks.
Some commenters recommended
specific information that the agencies
should consider when identifying
underperforming markets. For example,
a commenter recommended that the
agencies consider similarly sized
markets based on population, gross
domestic product, and total number of
businesses, and other variables that
would allow facility-based assessment
area comparisons in order to identify
underperforming markets. This
commenter supported defining an
underperforming market as those
markets measured at 65 percent or less
of the expected value of the market
benchmark—the same threshold as the
proposed Retail Lending Test
community benchmark for ‘‘Low
Satisfactory’’ performance. Another
commenter asserted that when
identifying facility-based assessment
areas in which lenders may be
underperforming in the aggregate the
agencies should employ factors not
captured in the Retail Lending Test
metrics and benchmarks; this
commenter indicated that such factors
could include consideration of the
prevalence of alternative financing in a
market, such as land contracts and rentto-own arrangements, and low levels of
small-dollar home mortgage lending in
a market. In addition, a commenter
asserted that the agencies should work
with relevant stakeholders to develop
data points to identify and model
underperforming markets. This
commenter also noted that some
underperformance may be driven by a
lack of demand for home mortgage
lending and small business lending,
noting that, for example, low- and
moderate-income consumers might elect
to rent housing in markets with high
home prices.
A few commenters that agreed there is
a potential for the market benchmarks to
be artificially low as a result of
collective underperformance also
acknowledged the challenges associated
with identifying these markets and
developing a solution. For example, a
commenter sought clarification on how
appropriately identifying
underperforming markets could counter
the possibility that the market
benchmarks might be set too low in
PO 00000
Frm 00328
Fmt 4701
Sfmt 4700
some facility-based assessment areas,
and others suggested the agencies
should propose a solution for public
comment.
Oral and written comments about a
bank’s retail lending performance. Most
commenters addressing this issue
expressed support for the agencies
considering other factors, such as oral
and written comments submitted about
a bank’s retail lending performance and
the bank’s responses to those comments,
in developing Retail Lending Test
conclusions. A commenter noted that
the agencies currently consider written
comments in a bank’s public file
regarding its retail lending and other
CRA performance. In addition to
submitted oral and written comments,
other commenters suggested that the
agencies consider any comments or
complaints housed in other Federal
repositories, and bank responses to
stakeholder questions and comments,
into their Retail Lending Test
conclusions.
Some commenters addressed the
effect that should be given to oral and
written comments regarding a bank’s
retail lending performance. A
commenter suggested the agencies
should issue draft CRA performance
evaluations that identify the weight and
consideration given to certain comments
versus others. This commenter also said
banks should be given the opportunity
to review and rebut comments
considered by the agencies. Similarly,
other commenters emphasized that
disclosing whether a Retail Lending
Test conclusion was adjusted up or
down based on feedback would
incentivize stakeholder input and
encourage banks’ accountability to the
public. A commenter suggested that the
agencies’ community affairs teams
should combine any submitted oral and
written comments with data, news
articles, and other research for
examiners to develop Retail Lending
Test conclusions. This commenter
added that it was imperative that the
agencies clearly explain how Retail
Lending Test adjustments might be
made based upon community affairs
teams’ input.
On the other hand, a commenter
stated that the agencies should only
consider written comments required to
be included in a bank’s CRA public file
in developing Retail Lending Test
conclusions to limit the potential effect
of social media posts and other
potentially spurious claims. Although
acknowledging the value of community
input, the commenter suggested this
value must be balanced with the
subjectivity of comments and the risk of
creating an inaccurate representation of
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
a bank’s performance. This commenter
highlighted the need for examiner
training and suggested that examiners
should only consider written comments
where a bank has been given a
reasonable opportunity to respond.
Evaluation of performance in
distressed and underserved middleincome census tracts for banks with few
or no low- and moderate-income census
tracts. Commenters on this topic
generally supported including a
quantitative evaluation of the
geographic distribution of retail lending
in distressed and underserved middleincome census tracts for banks with few
or no low- and moderate-income census
tracts in their assessment areas. For
example, commenters noted the
importance of this approach to rural
areas and nonmetropolitan areas, where
poverty may exist outside of low- and
moderate-income census tracts. A
commenter noted that, primarily in
rural areas, treating distressed and
underserved census tracts like low- or
moderate-income tracts would be
preferable to conducting a qualitative
review of these tracts. Another
commenter suggested that evaluating
bank activities in distressed and
underserved middle-income census
tracts would better help address
gentrification relative to the current
CRA regulations. A commenter
indicated that the agencies should
assess whether in rural areas with few
low- and moderate-income census tracts
including distressed and underserved
middle-income census tracts, would
truly increase the number of census
tracts in which a bank could receive
credit for lending within the geographic
distribution analysis. This commenter
added that the agencies’ proposal
regarding delineation of retail lending
assessment areas in the nonmetropolitan
areas of States might result in an overall
sufficient number of low- and moderateincome census tracts in those
assessment areas for a geographic
distribution analysis. Relatedly, another
commenter suggested that in assessment
areas containing few or no low- and
moderate-income census tracts,
examiners could compare the median
income in a given census tract to the
state median income to determine
whether a census tract was distressed or
underserved during the evaluation
period.
Final Rule
Additional factors, in general. The
agencies continue to believe that the
Retail Lending Test evaluation should
include additional factors for
consideration when determining Retail
Lending Test conclusions for Retail
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Lending Test Areas. These additional
factors and their application to the
Retail Lending Test are provided in final
§ ll.22(g) and (h)(1)(ii), and in
paragraph VII.d of final appendix A.
The agencies have made substantive
and technical changes in final
§ ll.22(g). First, to clarify the role of
the additional factors in the Retail
Lending Test, the introductory text to
final § ll.22(g) states that the
additional factors, as appropriate,
inform the agencies’ determination of a
bank’s Retail Lending Test conclusion
for each Retail Lending Test Area. The
agencies intend the included language
‘‘inform the [Agency]’s determination of
a bank’s Retail Lending Test
conclusion’’ to be a clarifying change
from the proposal that more explicitly
links the additional factors to the
determination of Retail Lending Test
conclusions. In contrast, proposed
§ ll.22(e) did not specifically refer to
the determination of conclusions in the
introductory text. Additionally,
although the proposed introductory text
stated that the additional factors may
apply in evaluating a bank’s
performance in facility-based
assessment areas, the final rule does not
maintain this limitation. Instead, certain
additional factors may apply in, as
applicable, a bank’s facility-based
assessment areas, retail lending
assessment areas, and outside retail
lending area, as discussed below.
The additional factors included in
final § ll.22(g) allow the agencies to
account for circumstances in which the
prescribed metrics in final § ll.22(e)
may not accurately or fully reflect a
bank’s lending distributions or in which
the benchmarks may not appropriately
represent the credit needs and
opportunities in the area. The agencies
believe that it is preferable to state as
specifically as possible the
circumstances in which the agencies
may assign a Retail Lending Test
conclusion that is different from the
Retail Lending Test recommended
conclusion. Specifying these
circumstances is intended to increase
the consistency and certainty of Retail
Lending Test evaluations, compared to
an alternative in which such
circumstances are unspecified and are
left entirely to examiner discretion.
As discussed in the section-by-section
analysis of final §§ ll.21(d) and
ll.22(h), the agencies will also
consider performance context factors
when assigning Retail Lending Test
conclusions. As in the proposal,
pursuant to final § ll.21(d),
performance context related to a bank’s
retail lending performance that is not
reflected in the distribution analysis can
PO 00000
Frm 00329
Fmt 4701
Sfmt 4700
6901
inform Retail Lending Test conclusions.
For example, the agencies could
consider a bank’s past performance and
safety and soundness limitations.
The final rule maintains, with certain
clarifying and substantive changes
discussed below, the four proposed
additional factors. In consideration of
comments received and additional
agency analysis, the agencies have also
added three new additional factors to
final § ll.22(g), relating to
consideration of: (1) major product lines
in retail lending assessment areas and
outside retail lending areas with fewer
than 30 loans; (2) lending in distressed
or underserved nonmetropolitan
middle-income census tracts where a
bank’s facility-based assessment area or
retail lending assessment area includes
very few or no low- and moderateincome census tracts; and (3) retail
lending assessment areas and facilitybased assessment areas where lenders in
the aggregate are underperforming.
Section ll.22(g)(1)
Pursuant to final § ll.22(g)(1), the
agencies may consider information
indicating that a bank purchased closedend home mortgage loans, small
business loans, small farm loans, or
automobile loans for the sole or primary
purpose of inappropriately enhancing
its retail lending performance,
including, but not limited to,
information indicating subsequent
resale of such loans or any indication
that such loans have been considered in
multiple banks’ CRA evaluations, in
which case the agencies do not consider
such loans in the bank’s performance
evaluation.
The agencies have incorporated
clarifying changes into this additional
factor. For clarity, the final rule
specifies that this factor applies to the
distribution analyses of closed-end
home mortgage loans, small business
loans, small farm loans, and automobile
loans—rather than simply ‘‘retail
loans,’’ as stated in the proposal. For
additional clarity and specificity
regarding the concept of a bank seeking
to purchase loans in order to
inappropriately improve its conclusions
and ratings, the agencies have also
changed the standard from a bank
‘‘inappropriately influencing,’’ as
provided in the proposal, to a bank
‘‘inappropriately enhancing’’ its retail
lending performance.
The final rule provides that if the
agencies have determined that certain
lending meets this additional factor,
then the agencies will not consider
those loans in a bank’s performance
evaluation. The agencies believe this
provision gives appropriate additional
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6902
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
detail regarding how this additional
factor will be applied, and is consistent
with the discussion in the agencies’
proposal that the additional factor
would be used to adjust conclusions
when there is evidence of inappropriate
loan purchasing activity. The agencies
believe that exclusion of such loans
from the distribution analysis is
appropriate because loans that a bank
purchases and quickly resells for the
sole or primary purpose of
inappropriately enhancing the bank’s
evaluation may distort the distribution
analysis and are not responsive to
community credit needs.
In determining whether inappropriate
purchasing activity has occurred, the
agencies may consider a number of
factors, including: (1) the bank’s
business strategy; (2) the timing of the
purchases; (3) the timing of the resale of
these loans relative to the purchases;
and (4) the materiality of the purchases
to the bank’s Retail Lending Test
recommended conclusion.
Additionally, the final rule does not
limit application of this additional
factor to a bank’s facility-based
assessment areas, as was proposed.
Rather, the additional factor may also be
considered in, as applicable, a bank’s
retail lending assessment areas and its
outside retail lending area. The agencies
believe that this flexibility is
appropriate because inappropriate
purchasing activity is not necessarily
restricted to a bank’s facility-based
assessment areas.
In determining to include an
additional factor addressing certain
purchased loans that may
inappropriately enhance a bank’s
recommended conclusion, the agencies
considered commenter feedback
regarding the potential benefits and
tradeoffs of such a factor, including
concerns from some commenters about
the potential for multiple banks to
receive CRA consideration for the same
loans. The agencies believe that the
additional factor in final § ll.22(g)(1)
will help to account for certain loan
purchase activity that is not responsive
to community credit needs, and will
support a robust distribution analysis
without removing purchased loans from
the distribution analysis.
The agencies also considered
comments that this additional factor
may create uncertainty due to a lack of
clear standards regarding when
purchased loans would be deemed to be
inappropriately enhancing a bank’s
evaluation. The agencies believe that it
is appropriate to define this factor with
sufficient flexibility to apply to different
ways that a bank could potentially
purchase loans to inappropriately
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
enhance its evaluation. However, as
discussed above, the agencies expect
that this factor will be applied rarely. At
the same time, the agencies believe that
this factor is important for ensuring a
robust distribution analysis in the rare
instances in which it would be applied.
The agencies also believe that
inclusion of this factor will not deter
banks from purchasing loans for other
reasons. The agencies will not apply
this additional factor in instances where
a bank has a business strategy of
purchasing loans, for example, as a way
of providing liquidity to originating
lenders that lack secondary market
access or purchasing distressed closedend home mortgage loans from Ginnie
Mae servicers. However, the agencies
may, for example, consider this factor in
the case of a bank that purchases 100
small business loans that it sells
immediately or shortly after the close of
the evaluation period, if the bank
otherwise routinely purchases one or
two small business loans each month
during an evaluation period.
Regarding whether to analyze HMDA
data to identify banks and Retail
Lending Test Areas that have suspicious
purchase activity, the agencies believe
that such an analysis could facilitate
targeted consideration in support of the
additional factor in final § ll.22(g)(1).
If this analysis identified any bank
Retail Lending Test Areas with
suspicious purchase activity, the
agencies would review those purchases
more closely.
Regarding the suggestion that the
agencies establish a series of
presumptions that would enable a bank
to establish that its retail loan purchases
do not reflect inappropriate loan
purchasing activity, the agencies believe
that the evaluation of retail loan
purchases and whether they reflect
inappropriate loan purchasing activity
are best handled on a case-by-case basis,
given the flexibility of final
§ ll.22(g)(1) as a qualitative additional
factor.
Relatedly, the agencies decline to
adopt in the final rule a minimum
holding period after which a purchased
loan would no longer be considered an
inappropriately purchased loan. The
agencies are sensitive to the possibility
that imposing a minimum holding
period (e.g., from 30 days to one year,
as suggested by commenters) may
increase liquidity and interest rate risk.
In addition, the agencies believe that not
satisfying a minimum holding period
does not necessarily indicate that a loan
was purchased to inappropriately
enhance a bank’s performance
evaluation. For example, a bank may
purchase a loan from an originating
PO 00000
Frm 00330
Fmt 4701
Sfmt 4700
lender that lacks secondary market
access and then relatively shortly
thereafter sell that loan to a governmentsponsored enterprise, providing
liquidity for the originating lender to
make further loans, which would not
constitute inappropriate loan
purchasing activity. Finally, the
agencies note that they face data
limitations that would prevent
consistent application of a minimum
holding period, since this information is
not consistently available to the
agencies.
For the reasons stated above, the
agencies believe that final § ll.22(g)(1)
appropriately addresses concerns about
inappropriate loan purchasing activity
in a manner that will serve to
discourage intentional manipulation of
a bank’s CRA evaluation through loan
purchases while more generally
including loan purchases in the Retail
Lending Test analysis.
Section ll.22(g)(2)
Final § ll.22(g)(2) includes a
provision that the agencies may
consider the dispersion of a bank’s
closed-end home mortgage, small
business, small farm, or automobile
lending within a facility-based
assessment area to determine whether
there are gaps in lending that are not
explained by performance context. For
example, under this additional factor, a
Retail Lending Test recommended
conclusion may be lowered where
geographic lending patterns exhibit gaps
in low- or moderate-income census
tracts that cannot be explained by
performance context.
The agencies believe that this factor is
necessary because the geographic
distribution analysis in facility-based
assessment areas is conducted on an
aggregate basis across an entire facilitybased assessment area, and does not
consider whether there are gaps in a
bank’s lending in certain census tracts.
For example, this factor may be
considered if a bank has a substantial
number of loans in all census tracts
within a facility-based assessment area
except for several contiguous low- and
moderate-income census tracts in the
center of the facility-based assessment
area in which the bank made zero loans,
despite there being credit needs and
opportunities in those census tracts as
demonstrated by loans made by other
lenders.
This additional factor is consistent
with the current CRA regulations,961 in
which the agencies may evaluate the
extent to which a bank is serving
geographies in each income category
961 See,
E:\FR\FM\01FER2.SGM
e.g., current 12 CFR ll.22(b).
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
and whether there are conspicuous gaps
unexplained by performance context.
Consistent with current practice, the
agencies note that banks are not
required to lend in every census tract in
a facility-based assessment area, and
that performance context may explain
why a bank was not able to serve one
or more census tracts.
Consistent with the proposal, the
agencies will apply this factor only in
facility-based assessment areas. The
agencies have determined that this
additional factor is best applied to
facility-based assessment areas because
the dispersion analysis can take into
account where the bank’s deposit-taking
facilities are located.
The final rule includes a conforming
change to precisely reference applicable
loan categories, specifying that this
additional factor applies to reviews of
closed-end home mortgage, small
business, small farm, and automobile
lending—rather than simply to reviews
of ‘‘retail loans,’’ as provided in the
proposal. The agencies note that these
products are the potential Retail
Lending Test major product lines that
may be included in a distribution
analysis, and that open-end home
mortgage loans and multifamily loans
will not be evaluated using a
distribution analysis pursuant to the
Retail Lending Test, as discussed further
in the section-by-section analysis of
final § ll.22(d).
Section ll.22(g)(3)
Consistent with the proposal, final
§ ll.22(g)(3) provides, with some
technical edits, that the agencies may
consider the number of lenders whose
reported home mortgage loans,
multifamily loans, small business loans,
and small farm loans and deposits data
are used to establish the applicable
Retail Lending Volume Threshold,
geographic distribution market
benchmarks, and borrower distribution
market benchmarks. Specifically, the
agencies believe that where there are
very few banks reporting lending and
deposits data, or where one bank has an
outsized market share, the benchmarks
may not provide an accurate measure of
local opportunities. For example, in a
facility-based assessment area where a
bank’s closed-end home mortgage loans
are a major product line and no other
lenders have a meaningful number of
closed-end home mortgage loans it may
be nearly impossible for the bank to
meaningfully exceed the market
benchmark, because the market
benchmark in this instance would be
almost entirely based on the bank’s own
lending. In such a scenario, the agencies
may consider, for example, the bank’s
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
performance relative to the community
benchmark as well as performance
context factors to determine the bank’s
conclusion.
The agencies made a conforming
change to replace ‘‘retail lending’’ with
the more specific lending that would be
included: home mortgage lending (i.e.,
closed-end home mortgage lending and
open-end home mortgage lending),
multifamily lending, small business
lending, and small farm lending—rather
than simply ‘‘retail lending,’’ as
provided in the proposal.
The agencies are also clarifying that
this additional factor relates to
geographic distribution benchmarks and
borrower distribution benchmarks—
rather than ‘‘geographic distribution,
and borrower distribution thresholds,’’
as provided in the proposal. The
agencies made this change because both
the proposed and final rule Retail
Lending Test approach includes
geographic and borrower distribution
‘‘benchmarks,’’ and does not use the
term ‘‘thresholds’’ to refer to these
evaluation criteria.
Additionally, the final rule provides
that this additional factor is based on
the number of ‘‘lenders’’ rather than the
number of ‘‘banks’’ whose data is used
in the Retail Lending Test calculations.
The geographic distribution and
borrower distribution market
benchmarks include all lenders in an
area, and may not be limited to banks,
depending on the specific data sources
used for these analyses. The agencies
believe that considering all reporting
lenders as part of this additional factor
is appropriate because it is possible that
an area may have a sufficient number of
lenders to calculate reliable market
benchmarks even if only one or two of
those lenders are banks.
Final § ll.22(g)(3) expands the
application of this additional factor
from solely a bank’s facility-based
assessment areas, as proposed, to also
include, as applicable, its retail lending
assessment areas and its outside retail
lending area. This change accounts for
potential circumstances in which a bank
has a retail lending assessment area or
outside retail lending area in which
there are few or no other lenders, which
may make the geographic and borrower
distribution benchmarks less robust. For
example, the hypothetical provided
above for a facility-based assessment
area could also occur in a retail lending
assessment area in which a bank is the
only lender that originated loans in a
certain product line during the
evaluation period.
PO 00000
Frm 00331
Fmt 4701
Sfmt 4700
6903
Section ll.22(g)(4)
Consistent with the proposal, final
§ ll.22(g)(4) provides that the
agencies may consider missing or faulty
data that would be necessary to
calculate the relevant metrics and
benchmarks or any other factors that
prevent the agencies from calculating a
Retail Lending Test recommended
conclusion. In such a case, the final rule
provides that if unable to calculate a
Retail Lending Test recommended
conclusion, the agencies assign a Retail
Lending Test conclusion based on
consideration of the relevant available
data. For example, a Retail Lending Test
Area with a small number of owneroccupied housing units in low-income
census tracts could be reported in the
American Community Survey as having
zero such units if none of those owneroccupied housing units were randomly
selected to be part of the sample that
received a survey. In such cases, it will
not be possible to conduct a geographic
distribution analysis using the
otherwise prescribed approach for lowincome census tracts even when the
bank originated or purchased closedend home mortgage loans in those lowincome census tracts.
The agencies believe that this
additional factor addresses commenter
concerns regarding the evaluation of
closed-end home mortgage loans in
which borrower income is missing or
unavailable. The agencies have
considered commenter feedback that a
bank may have a large volume of such
loans, depending on the bank’s business
model and strategy. For example, banks
that specialize in non-owner-occupied
closed-end home mortgage loans, or that
originate a large number of streamlined
closed-end home mortgage refinancings,
may have many loans for which
borrower income is not available. As
noted by some commenters, the
borrower distribution metrics would
count loans with missing or unavailable
income information in the denominator,
and not in the numerator, of the metric,
which may result in the bank receiving
a lower recommended conclusion than
if these loans were excluded from the
analysis or were, in fact, made to lowor moderate-income borrowers and had
the requisite income information. For
this additional factor, if the agencies
have reason to believe that certain loans
with missing or unavailable borrower
income information were made to lowor moderate-income borrowers, then the
agencies may consider this fact pattern
when determining the Retail Lending
Test conclusion. For example, this may
include the situation raised by some
commenters where a bank has
E:\FR\FM\01FER2.SGM
01FER2
6904
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
purchased a portfolio of distressed
Ginnie Mae closed-end home mortgage
loans from a loan servicer. In this
situation, based on available
information, the agencies may
determine that because a significant
number of the loans for which borrower
income was unavailable were likely
made to low- or moderate-income
borrowers, it is therefore appropriate to
assign a higher conclusion than the
bank’s recommended conclusion. The
use of this additional factor may also
include a bank that purchased a large
number of non-owner-occupied closedend home mortgage loans with missing
or unavailable income information, if
the bank is able to provide information
to the agencies that some of the loans in
question were made to low- or
moderate-income borrowers.
Additionally, pursuant to the final
rule, the agencies will apply this factor
in a bank’s facility-based assessment
areas, as proposed—and, as applicable,
its retail lending assessment areas and
its outside retail lending area. The
agencies believe that it is appropriate
and necessary to account for any
missing and faulty data that could
impact the calculation of the Retail
Lending Test metrics and benchmarks
in any Retail Lending Test Area to
ensure a robust evaluation.
For additional clarity, the agencies
have changed two proposed references
from ‘‘recommended conclusion’’ to
‘‘Retail Lending Test recommended
conclusion.’’
Section ll.22(g)(5)
Newly added final § ll.22(g)(5)
provides that the agencies may consider
whether the Retail Lending Test
recommended conclusion does not
accurately reflect the bank’s
performance in a Retail Lending Test
Area in which one or more of the bank’s
major product lines consists of fewer
than 30 loans.
Inclusion of this additional factor
provides flexibility for instances in
which a small number of loans
constitutes a major product line.
Because the major product line
threshold approach in facility-based
assessment areas and outside retail
lending areas is based on the percentage
of a bank’s loans in a certain product
line, a bank may have a small number
of loans that constitute a major product
line. For example, if a bank originated
20 small business loans in a facilitybased assessment area, and had no other
retail loans there, then small business
loans would constitute a major product
line in that facility-based assessment
area and would be evaluated pursuant
to the distribution analysis.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Based on supervisory experience and
statistical analysis, the agencies believe
that it is appropriate to consider
additional information when
interpreting and drawing conclusions
from a distribution analysis of a very
small number of loans. The agencies
note that it is conceivable that a single
loan origination or purchase could
change a bank’s recommended
conclusion by multiple levels if the
bank’s total number of loans is very
small, depending on the applicable
performance ranges. For instance, the
agencies considered the example of a
bank with 20 loans in its small business
loan major product line, in which one
loan represents 5 percent of the bank’s
lending by loan count. As part of this
example, the agencies assumed that the
borrower distribution performance
ranges for lending to businesses with
gross annual revenues of $250,000 or
less include a ‘‘Low Satisfactory’’
threshold of 11 percent and a ‘‘High
Satisfactory’’ threshold of 14 percent. In
this example, the bank would fall into
the ‘‘Needs to Improve’’ recommended
conclusion category if two of its small
business loans were to businesses with
gross annual revenues of $250,000 or
less and into the ‘‘High Satisfactory’’
recommended conclusion category if
three of its loans were to businesses
with gross annual revenues of $250,000
or less. The agencies believe that the
change in the example bank’s
recommended conclusion based on only
a single loan warrants consideration of
other available information and
potentially assigning a different
conclusion than the recommended
conclusion.
The agencies considered supervisory
experience and simulated examples
such as the hypothetical described
above in determining that 30 loans is an
appropriate threshold for when this
additional factor should apply. The
agencies note that 30 units is a common
minimum guideline for a sample to be
considered ‘‘large’’ for statistical testing
purposes.962 The agencies emphasize
that application of this additional factor
does not mean that distribution results
for major product lines consisting of
fewer than 30 loans would be
disregarded; rather, for Retail Lending
962 Although the number of observations
necessary for a statistical analysis can vary with the
context and the statistical method being used, a
common rule of thumb is that 30 observations is
necessary for a large sample because the mean of
30 randomly drawn values will have a distribution
that is approximately normal. See Sheldon M. Ross,
Introductory Statistics, Fourth Edition 398
(Academic Press, 2017) and Robert V. Hogg, Elliot
A. Tanis, and Dale L. Zimmerman, Probability and
Statistical Inference, Ninth Edition 303 (Pearson
Education, 2015).
PO 00000
Frm 00332
Fmt 4701
Sfmt 4700
Test Areas with major product lines
consisting of fewer than 30 loans, the
additional factor in final § ll.22(g)(5)
allows for additional discretion in
determining the Retail Lending Test
conclusion.
Section ll.22(g)(6)
Newly added final § ll.22(g)(6)
specifies that the agencies may consider
a bank’s closed-end home mortgage,
small business, small farm, or
automobile lending in distressed and
underserved nonmetropolitan middleincome census tracts where a bank’s
nonmetropolitan facility-based
assessment area or nonmetropolitan
retail lending assessment area includes
very few or no low- and moderateincome census tracts.
In deciding to include this additional
factor in the final rule, the agencies
considered that certain facility-based
assessment areas and retail lending
assessment areas, particularly in
nonmetropolitan areas, may have very
few or no low- and moderate-income
census tracts within their boundaries. In
such circumstances, the agencies
believe that considering lending in
distressed and underserved
nonmetropolitan census tracts may
provide for a more fulsome evaluation
of the bank’s retail lending. The
agencies narrowly tailored this
additional factor to instances in which
there are very few or no low- and
moderate-income census tracts to ensure
that the geographic distribution analysis
emphasizes low- and moderate-income
census tracts and so that banks do not
lend in distressed and underserved
nonmetropolitan middle-income census
tracts at the expense of lending in lowand moderate-income census tracts. The
agencies considered specifying an exact
number of low- and moderate-income
census tracts at which this additional
factor may be considered, but
determined that a standard of ‘‘very few
or no’’ will more appropriately allow for
consideration of the performance
context of an area, such as the
percentage of census tracts in the area
that are low- and moderate-income
census tracts, the presence of lending
opportunities in those census tracts, and
the proximity of those census tracts to
the bank’s facilities, if any. The agencies
therefore believe that the ‘‘very few or
no’’ standard provides appropriate
flexibility while also narrowly tailoring
application of this standard.
Final § ll.22(g)(6) considers closedend home mortgage lending, small
business lending, small farm lending,
and automobile lending in distressed
and underserved nonmetropolitan
middle-income census tracts as an
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
additional factor rather than as a
quantitative component of the
geographic distribution analysis. The
agencies believe that qualitative
consideration is appropriate because the
amount of emphasis given to a bank’s
lending in distressed and underserved
nonmetropolitan middle-income census
tracts will depend on the performance
context of the facility-based assessment
area or retail lending assessment area,
such as the lending needs and
opportunities in any low- and moderateincome census tracts and the capacity of
the bank to serve borrowers in any lowand moderate-income census tracts.
Final § ll.22(g)(6) applies in
nonmetropolitan facility-based
assessment areas and nonmetropolitan
retail lending assessment areas in which
there are very few or no low- and
moderate-income census tracts. The
agencies do not believe that this
additional factor should be considered
in an outside retail lending area because
outside retail lending areas are defined
as the entire nationwide area outside of
a bank’s facility-based assessment areas
and retail lending assessment areas, and
as a result will generally contain
multiple low- and moderate-income
census tracts.
Section ll.22(g)(7)
Overall. Final § ll.22(g)(7) provides
that the agencies will consider
information indicating that the credit
needs of the facility-based assessment
area or retail lending assessment area
are not being met by lenders in the
aggregate, such that the relevant
benchmarks do not adequately reflect
community credit needs. The agencies
believe that information indicating that
the credit needs of a particular facilitybased assessment area or retail lending
assessment area are not being met by
lenders in the aggregate could be
sourced from, for example, research
publications, other data sources
accessible to the agencies, community
contacts, and other performance context
information pertaining to a facilitybased assessment area or retail lending
assessment area. In such facility-based
assessment areas and retail lending
assessment areas, the agencies may
determine that the market benchmark is
not an accurate measure of the credit
needs and opportunities of low- and
moderate-income borrowers, small
businesses, or small farms, because
lenders as a whole are not meeting their
obligations to meet the credit needs of
the entire community. Under this
additional factor, the agencies will
apply additional qualitative review of
retail lending in areas where credit
needs are identified as not being met by
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
lenders in the aggregate, and the results
of this additional qualitative review
could inform Retail Lending Test
conclusions.
In deciding to include this additional
factor, the agencies considered the
design of the retail lending distribution
analysis and the results of such
distribution analysis in a market where
lenders may be underperforming in the
aggregate and the credit needs of
substantial parts of the community are
not being met. As discussed in the
section-by-section analysis of final
§ ll.22(f), the agencies note that the
performance ranges used to develop
recommended conclusions under the
final rule are based on the lower of the
calibrated market benchmark and
calibrated community benchmark.
Moreover, the market benchmark is
calculated from originated or purchased
closed-end home mortgage loans, small
business loans, and small farm loans in
a facility-based assessment area that are
reported by all lenders. As a result, in
an area that is broadly underserved and
where the calibrated market benchmark
is lower than the calibrated community
benchmark, the market benchmark may
significantly underestimate the credit
needs and opportunities in the area but
would nonetheless be the basis for the
performance ranges. This additional
factor reflects that, in such an instance,
the distribution analysis may not
appropriately assess whether a bank has
met the credit needs of the community,
and the recommended conclusion may
warrant adjustment based on
consideration of performance context
and other available information that
speaks to credit needs and opportunities
in the facility-based assessment area or
retail lending assessment area.
The final rule provides that this
additional factor may apply in facilitybased assessment areas and in retail
lending assessment areas, but not in an
outside retail lending area. The agencies
do not believe that it is necessary, or
feasible, to consider this factor in an
outside retail lending area because the
lending in these areas is generally
dispersed across multiple metropolitan
and nonmetropolitan areas.
Statistical model. The final rule does
not include a statistical model to
identify underperforming areas in the
final rule. However, the agencies intend
to develop statistical models that would
be designed to predict the level of the
market benchmarks that would be
expected in each facility-based
assessment area and retail lending
assessment area if it had adequately
been served by lenders in general. The
agencies acknowledge commenter
feedback about the potential benefits
PO 00000
Frm 00333
Fmt 4701
Sfmt 4700
6905
and challenges of developing such a
model. A statistical model could be
used to determine whether the market
benchmarks for a facility-based
assessment area or retail lending
assessment area were significantly
below levels that would otherwise be
expected based on its demographics
(e.g., income distributions, household
compositions), housing market
conditions (e.g., housing affordability,
the share of housing units that are
rentals), and economic activity (e.g.,
employment growth, cost of living).
Market benchmarks that were found to
be significantly lower than their
expected levels would indicate that
those market benchmarks could be
underestimating the credit needs in that
facility-based assessment area or retail
lending assessment area. The agencies
could use this information to help
determine whether lenders as a whole
were underperforming in a specific
assessment area, which could inform
the agencies’ determination of a bank’s
Retail Lending Test conclusion. The
agencies are considering how to develop
an appropriate statistical model and
would solicit additional feedback from
the public in developing such a model.
Oral and written comments. The
agencies have considered, but decline to
adopt, commenter suggestions
supporting inclusion of oral or written
comments about a bank’s retail lending
performance as an additional factor as
part of final § ll.22(g) to inform Retail
Lending Test conclusions. The agencies
determined that oral or written
comments about a bank’s performance
are appropriately accounted for under
final § ll.21(d). Specifically, final
§ ll.21(d)(6) maintains the proposed
performance context factor for ‘‘[t]he
bank’s public file, as provided in
§ ll.43, including any written
comments about the bank’s CRA
performance submitted to the bank or
the [Agency] and the bank’s responses
to those comments.’’ Including written
public comments as a consideration in
final § ll.21(d)(6) allows the agencies
the ability to consider public comments
in light of a bank’s overall performance
context and to apply consideration of
those comments to the appropriate
performance test or tests—including the
Retail Lending Test—and to the
appropriate geographic level or levels.
Additionally, final § ll.21(d)(4)
indicates that the agencies may consider
oral and written comments about retail
banking and community development
needs and opportunities provided by
the bank or other relevant sources,
including, but not limited to, members
of the community and community
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6906
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
organizations. The agencies believe that
it is preferable to consider public
comments as part of a bank’s overall
performance context rather than
specifically within final § ll.22(g),
which applies only to Retail Lending
Test recommended conclusions for, as
applicable, facility-based assessment
areas, retail lending assessment areas,
and outside retail lending areas, because
public comments could relate to one or
more performance tests as well as to a
state, multistate MSA, or institutionlevel conclusion.
The agencies considered comments
that the agencies should draft CRA
performance evaluations that identify
the weight and consideration given to
certain comments versus others.
Pursuant to final § ll.21(d), the
agencies will consider public comments
as part of a bank’s overall performance
context in applying the performance
tests and determining conclusions. In
addition, the agencies note that CRA
performance evaluations must include
the facts and data informing a bank’s
conclusions and ratings; therefore, if
information gleaned from public
comments is part of the basis of a bank’s
conclusions, the agencies would include
that information in performance
evaluations.
Regarding the commenter suggestion
that banks should be given the
opportunity to review and rebut
comments considered by the agencies,
the final rule does not adopt this as part
of the regulatory text for the applicable
provision. However, the agencies
believe that, at the time of a bank’s
examination, banks have the
opportunity to provide the agencies
with additional data and information
related to any aspect of the bank’s
evaluation, including topics raised in
public comments.
The agencies also considered the
commenter suggestion that the agencies’
community affairs teams should
combine any submitted oral and written
comments with data, news articles, and
other research for examiners to develop
Retail Lending Test conclusions. The
agencies believe that final
§ ll.21(d)(6) will allow the agencies to
consider oral and written comments in
conjunction with other data, news
articles, and research as part of a bank’s
performance context.
The agencies also considered a
commenter suggestion that the agencies
should only consider written comments
required to be included in a bank’s CRA
public file in developing Retail Lending
Test conclusions, to limit the potential
effect of social media posts and other
potentially spurious claims. Pursuant to
the public file requirements in final
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
§ ll.43, submitted written comments,
whether submitted directly to a bank or
to an agency, will be available both for
consideration and response by a bank
and for public review. The agencies note
that it may often not be feasible or
appropriate to consider social media
posts as information included as part of
a bank’s performance context; in
additional to practical challenges, the
agencies believe it could be challenging
to determine whether remarks made by
members of the public on social media
were intended or appropriate for the
agencies to consider in the bank’s CRA
evaluation. However, the agencies have
discretion pursuant to final
§ ll.21(d)(4) and (7) to consider oral
and written comments, including those
made to the agencies as part of the
community contacts process; data made
available through social media posts, if
relevant to a bank’s evaluation, could
also be considered as performance
context information as determined to be
appropriate. As discussed further in the
section-by-section analysis of final
§ ll.46, the agencies note that they
encourage the public to submit
comments on bank performance either
to the agency or to the bank so it can
be included in the bank’s public file as
noted above.
Section ll.22(h) Retail Lending Test
Performance Conclusions and Ratings
In final § ll.22(h) and section VIII
of final appendix A, the agencies are
adopting, with certain substantive,
clarifying, and technical edits: the
proposed approach for assigning
performance scores to a bank’s facilitybased assessment areas, retail lending
assessment areas, and outside retail
lending area, as applicable, based on the
bank’s retail lending performance in
those Retail Lending Test Areas; and
calculating a weighted average of those
performance scores to determine Retail
Lending Test conclusions at the State,
multistate MSA, and institution levels.
The Agencies’ Proposal
Section ll.22(h)(1) Conclusions
With reference to proposed § ll.28
and proposed appendix C, proposed
§ ll.22(f)(1) provided that the
agencies would assign Retail Lending
Test conclusions for a bank’s
performance in its facility-based
assessment areas, retail lending
assessment areas, and outside retail
lending area, as applicable. As
described in section VI of proposed
appendix A and proposed appendix C,
conclusions assigned for a bank’s
performance in facility-based
assessment areas and retail lending
PO 00000
Frm 00334
Fmt 4701
Sfmt 4700
assessment areas, as applicable, would
form the basis for State, multistate MSA,
and institution Retail Lending Test
conclusions. Conclusions in a bank’s
outside retail lending area would also
factor into the institution Retail Lending
Test conclusion.963
As also described in section VI of
proposed appendix A, the agencies
intended to combine the performance
scores for a bank’s facility-based
assessment areas, retail lending
assessment areas, and its outside retail
lending area, as applicable, using a
standardized weighted average
approach, to develop State, multistate
MSA, and institution conclusions. The
proposed approach aimed to ensure that
the bank’s retail lending performance in
every one of its markets would
influence conclusions at the State,
multistate MSA, and institution levels,
as appropriate.
In addition, the agencies proposed
that the weights for State and multistate
MSA conclusions would be calculated
by averaging together the performance
in each facility-based assessment area
and retail lending assessment area, as
applicable. In doing so, the bank’s
performance in each assessment area
(facility-based assessment area or retail
lending assessment area, as applicable)
would be weighted by calculating the
simple average of:
• The dollars of deposits that the
bank sourced from a facility-based
assessment area or retail lending
assessment area, as a percentage of all
of the bank’s deposits sourced from
facility-based assessment areas or retail
lending assessment areas, as applicable,
in the State or multistate MSA; and
• The dollars of the bank’s retail
lending in a facility-based assessment
area or retail lending assessment area, as
a percentage of all of the bank’s retail
loans in facility-based assessment areas
and retail lending assessment areas, as
applicable, in the State or multistate
MSA.964
When evaluating retail lending
performance for the institution, the
agencies proposed considering
performance in a bank’s outside retail
lending area, as applicable, in addition
to performance in a bank’s facility-based
assessment areas and retail lending
assessment areas, as applicable.
Specifically, the agencies proposed that
the weights assigned to each geographic
area for purposes of calculating
institution conclusions would be the
simple average of:
963 See proposed § ll.22(a) and proposed
appendix C.
964 See proposed appendix A, section VI.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
• The percentage reflecting the
dollars of deposits that the bank sourced
from each area (a facility-based
assessment area, retail lending
assessment area, or outside retail
lending area) relative to all of the bank’s
deposits; and
• The percentage reflecting the
dollars of the bank’s retail lending in
each area (a facility-based assessment
area, retail lending assessment area, or
its outside retail lending area) relative to
all of a bank’s retail lending.965
For Retail Lending Test conclusions
in a State and multistate MSA, as
applicable, and for the institution, the
agencies proposed to tailor the approach
for deposits data used for these weights,
as discussed further in the section-bysection analyses of §§ ll.12 and
ll.42(a)(7) and (b)(3). For deposits
data, the agencies proposed to use the
annual average amount of a bank’s
deposits collected from each area
averaged over the years of the relevant
evaluation period, if the bank collected
and maintained this data.966 For any
banks evaluated under the Retail
Lending Test that did not collect
deposits data, the agencies proposed to
use the deposits assigned to the banks’
branches in each area, as reported in the
FDIC’s Summary of Deposits data,
averaged over the years of the relevant
evaluation period.967
ddrumheller on DSK120RN23PROD with RULES2
Section ll.22(h)(2) Ratings
With reference to proposed § ll.28
and proposed appendix D, proposed
§ ll.22(f)(2) provided that the
agencies would incorporate a bank’s
Retail Lending Test conclusions into a
bank’s State, multistate MSA, and
institution ratings.
Comments Received
Commenters that addressed proposed
§ ll.22(f) and section VI of proposed
appendix A generally focused on the
proposed weights assigned to facilitybased assessment area, retail lending
assessment area, and outside retail
lending area conclusions, as applicable.
Several commenters supported the
proposal to calculate weights for a
bank’s facility-based assessment area,
retail lending assessment area, and
outside retail lending area conclusions,
as applicable, based on the average of a
bank’s combined share of deposits and
retail loans within each area. For
example, a commenter representing
rural areas indicated that the weighting
approach is reasonable as it reflects a
bank’s service area as measured by
965 See
id.
id.
967 See id.
deposits and loans, notwithstanding
that rural areas might not often receive
a large weight. Another commenter
expressed support for the agencies’
approach, including displaying a bank’s
Retail Lending Test performance score
as it would add transparency and reveal
further distinction into a bank’s
performance.
However, other commenters
expressed concerns with the agencies’
proposed approach, including that it
would result in outside retail lending
areas receiving too much weight or that
it was overly complex. Some
commenters recommended that the
agencies consider emphasizing facilitybased assessment areas by assigning
them greater weight than retail lending
assessment areas. In addition, a
commenter indicated that the agencies’
proposed approach involving
‘‘rounding’’ of raw performance scores
as part of developing State, multistate
MSA, and institution conclusions could
cause a bank’s institution Retail Lending
Test conclusion to deviate significantly
from the bank’s actual performance.
This commenter noted a hypothetical
scenario in which a bank’s Retail
Lending Test Area performance score of
4.49 would be rounded to 4.5 and, in
turn, rounded up to a 6 (‘‘Low
Satisfactory’’ conclusion) whereas a
similar Retail Lending Test Area
performance score of 4.44 would be
rounded down to 4.4 and, in turn,
rounded down to a 3 (‘‘Needs to
Improve’’ conclusion)—and indicated
that if the second rounding dynamic
occurred across multiple Retail Lending
Test Areas (or even in a single heavilyweighted Retail Lending Test Area) the
effect on the bank’s Retail Lending Test
conclusions and overall rating could
potentially be significant.
Some commenters suggested
alternatives, including: simplifying the
calculations to allow banks to better
understand their performance and
course correct as needed; weighting
facility-based assessment area
performance based upon the relative
share of bank deposits or the amount of
retail lending, by loan count, and
separately evaluating non-facility-based
assessment area lending at the
institution level; and basing weighting
of different areas on examiners’
assessment of banks’ retail lending
patterns and their judgment regarding
how much weight to assign outside
retail lending area lending.
966 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00335
Fmt 4701
Sfmt 4700
6907
Final Rule
Overview of § ll.22(h) and Section
VIII of Appendix A
In final § ll.22(h)(1), the agencies
are adopting the proposed approach to
assigning conclusions for a bank’s Retail
Lending Test performance, with edits to
reflect final rule revisions to other Retail
Lending Test sections. Final
§ ll.22(h)(1) includes references to
final § ll.28, section VIII of final
appendix A, and final appendix C. In
final § ll.22(h) and section VIII of
final appendix A, the agencies modified
the final rule approach for calculating a
bank’s percentage of retail lending in
each Retail Lending Test Area for
purposes of determining these weights
and also made minor wording changes
to improve readability and increase
consistency with other performance test
conclusions and ratings provisions
throughout the final rule.
The final rule provides, in section VIII
of final appendix A, the following:
• Performance scores for Retail
Lending Test Areas. The agencies
translate the Retail Lending Test
conclusion for each Retail Lending Test
Area (facility-based assessment areas,
retail lending assessment areas, and an
outside retail lending area, as
applicable) into a numerical
performance score.
• Performance scores for States and
multistate MSAs. The agencies take a
weighted average of performance scores
across facility-based assessment areas
and retail lending assessment areas, as
applicable, to calculate a performance
score for each state and multistate MSA.
• Performance score for the
institution. The agencies take a
weighted average of performance scores
across all applicable Retail Lending Test
Areas to calculate a performance score
for the institution.
Conclusions for states, multistate
MSAs, and the institution: The agencies
develop a conclusion corresponding
with the conclusion category that is
nearest to the Retail Lending Test
performance score for each state,
multistate MSA, and for the institution.
As discussed further below, the
weighted average of each Retail Lending
Test Area is calculated using the
following: (1) percentage of deposits in
the specific geographic area out of all
the deposits in Retail Lending Test
Areas in the State, Multistate MSA, or
institution, as applicable; and (2)
percentage of lending in the specific
geographic area out of all the lending in
product lines in Retail Lending Test
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6908
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Areas in the State, Multistate MSA, or
institution.968
Use of performance scores. As noted,
the final rule approach retains a system
of assigning performance scores to a
bank’s facility-based assessment areas,
retail lending assessment areas, and
outside retail lending area, as
applicable, based on the bank’s retail
lending performance in those Retail
Lending Test Areas. Under the final
rule, the agencies then calculate a
weighted average of those performance
scores to determine Retail Lending Test
conclusions at the State and multistate
MSA levels and for the institution.
With respect to commenter
perspectives that the agencies’ proposed
approach required an excessive number
of calculations and was overly complex,
the agencies believe that the
methodology adopted in the final rule is
appropriate for transparently,
comprehensively, and consistently
assessing a bank’s retail lending
performance when assigning
conclusions. In particular, the agencies
believe that the use of a standardized
quantitative approach to weighting
Retail Lending Test Areas is preferable
to the current evaluation approach,
which does not assign a specific weight
to assessment area conclusions in a
standardized manner, including in
limited-scope assessment areas.
The final rule retains the proposed
approach of assigning a performance
score to each Retail Lending Test Area
based on the conclusion assigned for the
bank’s retail lending performance in
that area, as follows: ‘‘Outstanding’’ (10
points); ‘‘High Satisfactory’’ (7 points);
‘‘Low Satisfactory’’ (6 points); ‘‘Needs to
Improve’’ (3 points); ‘‘Substantial
Noncompliance’’ (0 points).969 The
agencies have considered concerns from
some commenters regarding the use of
these five performance score values
corresponding to each conclusion
category. However, the agencies believe
that it is appropriate to use these
performance scores when determining a
bank’s conclusions at the State,
multistate MSA, and institution levels,
rather than to use the Retail Lending
Test Area Score (which could be, for
example, 6.5 or 8) that is calculated
pursuant to final § ll.22(f) (i.e., after
combining all of a bank’s product line
scores in a Retail Lending Test Area for
purposes of determining Retail Lending
Test recommended conclusions). The
agencies note that the Retail Lending
Test Area Score does not take into
968 See
final appendix A, section VIII.
the section-by-section analysis of final
§ ll.21(f) for a more detailed discussion of the
specific scoring for each conclusion category.
969 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
account the additional factors provided
in final § ll.22(g), which would be
considered when assigning the Retail
Lending Test Area conclusion. In
addition, pursuant to final § ll.21(d),
the agencies may consider performance
context information before assigning a
conclusion. As a result, the agencies
believe that it is appropriate to use the
performance score associated with the
bank’s conclusion, rather than the
bank’s Retail Lending Test Area Score,
to determine State, multistate MSA, and
institution conclusions. Consequently,
although Retail Lending Test Area
Scores will play a significant role when
the agencies assign conclusions, the
agencies will also take qualitative
considerations into account, and these
considerations may, where appropriate,
lead to adjustments of the conclusions
that the agencies would otherwise have
assigned.
Using both deposits and retail lending
to weight Retail Lending Test
performance in different Retail Lending
Test Areas. The final rule retains the
proposed approach of weighting each
Retail Lending Test Area in a
standardized, quantitative manner, and
does not adopt alternatives suggested by
commenters to qualitatively adjust these
weights or to assign greater weights to
certain areas based on factors other than
the bank’s deposits and retail lending.
As discussed further below, the agencies
modified the final rule approach for
calculating a bank’s percentage of retail
lending in each Retail Lending Test
Area for purposes of determining these
weights.
The agencies believe that the final
rule approach reflects that a bank’s
presence in a particular Retail Lending
Test Area—and hence the importance of
its performance in that Retail Lending
Test Area in an overall evaluation of its
retail lending—is grounded in its
customer bases for both deposits and
retail loans. Accordingly, the agencies
have determined that both a bank’s
deposit customer base and its retail
lending customer base in a particular
Retail Lending Test Area should inform
the weight assigned to the performance
score for that area when determining
conclusions at the State, multistate
MSA, and institution levels.
The agencies believe that the final
rule approach provides greater
consistency, predictability, and
transparency than some suggested
alternatives, which would introduce a
certain amount of inconsistency due to
the increased role of agency discretion
in assigning weights to Retail Lending
Test Area conclusions. The agencies
also considered, but decline to adopt, an
alternative to base Retail Lending Test
PO 00000
Frm 00336
Fmt 4701
Sfmt 4700
Area weights purely on deposits, rather
than on a combination of deposits and
retail lending. In making this
determination, the agencies considered
that basing Retail Lending Test Area
weights purely on deposits would mean
that, if a bank did a very large amount
of its retail lending in a market from
which it drew few deposits, its lending
performance there would only have a
small influence on its overall Retail
Lending Test conclusion. Alternatively,
basing weights purely on retail lending
could result in a bank’s record of
serving the credit needs of the
communities from which it draws only
a small amount of deposits having little
bearing on its overall conclusion. For
example, under a retail lending-only
weighting alternative, if a bank
performed poorly in a facility-based
assessment area due to making fewer
retail loans than necessary to meet the
Retail Lending Volume Threshold that
low level of lending would mean that
the resulting facility-based assessment
area conclusion would carry little
weight in the corresponding State,
multistate MSA, or institution
conclusions, even if the bank draws a
significant proportion of its deposits
from that facility-based assessment area.
Pursuant to the section VIII of final
appendix A, the agencies will determine
the percentage of a bank’s deposits in a
specific Retail Lending Test Area as
follows: (1) for a bank that collects,
maintains, and reports deposits data as
provided in final § ll.42, the
calculation is determined using the
bank’s annual average daily balance of
deposits reported by the bank in
counties in the Retail Lending Test
Area; and (2) for a bank that does not
collect, maintain, and report deposits
data as provided in final § ll.42, this
calculation is determined using the
deposits assigned to facilities reported
by the bank in the Retail Lending Test
Area in the FDIC’s Summary of Deposits
data.970
Because the FDIC’s Summary of
Deposits data assigns all deposits to
facility locations, and all facilities will
be located in a facility-based assessment
area, the deposits assigned to retail
lending assessment area and outside
retail lending area performance scores
for banks that do not collect and
maintain deposits data will always be
zero. The weight of the retail lending
assessment area and outside retail
lending area performance score for such
a bank will, therefore, be one-half of the
percentage of retail lending the bank
conducted in a given retail lending
970 See final appendix A, paragraphs VIII.a.1 and
VIII.b.1.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
assessment area. As a result, for a bank
not required to collect deposits data that
obtains deposits from outside of its
facility-based assessment areas, electing
to collect deposits data for use in the
bank’s evaluation may increase the
weight placed on the bank’s
performance in its retail lending
assessment areas and outside retail
lending area and decrease the weight
placed on its facility-based assessment
areas, as the concentration of deposits
attributed there may be reduced to some
degree. The agencies determined that
this approach allows appropriate
flexibility to banks with assets less than
or equal to $10 billion to decide
whether to collect deposits data for the
purposes of CRA evaluations. Such a
bank may take into consideration the
areas from which the bank sources
deposits, and the potential burden and
complexity associated with additional
data collection, maintenance, and
reporting for the bank. Such a bank may
also take into consideration the broader
definition of deposits (including U.S.,
State, and local government deposits
and deposits from foreign entities) that
are included in the FDIC’s Summary of
Deposits data, as compared to the
narrower definition of deposits data
used for banks that collect, maintain,
and report deposits data.
Pursuant to section VIII of final
appendix A, the agencies will determine
the percentage of a bank’s retail lending
in a specific Retail Lending Test Area
using not only a bank’s dollar amount
of retail lending but, rather—as
discussed in the section-by-section
analysis of final § ll.12—a
combination of loan dollars and loan
count. Specifically, the agencies will
use the average of: (1) the ratio
calculated using loans measured in
dollar amount; and (2) the ratio
calculated using loans measured in
number of loans, to determine the
percentage of a bank’s originated and
purchased closed-end home mortgage
loans, small business loans, small farm
loans, and automobile loans (if
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
automobile loans are a product line for
the bank) in a facility-based assessment
area, retail lending assessment area, or
outside retail lending area, as
applicable.
As explained in the section-by-section
analysis of final § ll.12, adopting a
combination of loan dollars and loan
count-based approach for weighting
conclusions better tailors the Retail
Lending Test to accommodate
individual bank business models,
insofar as the agencies have determined
that use of this combination helps to
account for differences across product
lines, bank strategies, and geographic
areas, relative to an approach that uses
only loan dollars or only loan count.
Additionally, the agencies believe that
both loan dollars and loan count reflect
different aspects of how a bank has
served the credit needs of a community,
with loan dollars representing the total
amount of credit provided and loan
count representing the number of
borrowers served.
Section ll.22(h)(1)(i) In General
Section ll.22(h)(1)(ii) Retail Lending
Test Area Conclusions
Retail Lending Test Conclusions for
States and Multistate MSAs
With some modifications relative to
the proposal, section VIII of final
appendix A describes the agencies’
methodology for assigning a bank’s
Retail Lending Test conclusions for the
State and multistate MSA levels.
Specifically, the agencies will develop a
bank’s Retail Lending Test conclusions
for States and multistate MSAs based on
Retail Lending Test conclusions for its
facility-based assessment areas and
retail lending assessment areas, as
applicable, in those States and
multistate MSAs. In addition to
incorporating the combination of loan
dollars and loan count definition, the
agencies have made certain clarifying
and technical changes to the proposal to
streamline the description of the
methodology and improve readability.
PO 00000
Frm 00337
Fmt 4701
Sfmt 4700
6909
As provided in paragraph VIII.b of
final appendix A, the agencies will
calculate a bank’s Retail Lending Test
performance score based on a weighted
average of performance scores from
facility-based assessment areas and
retail lending assessment areas, as
applicable, within each respective State
or multistate MSA. Specifically, the
weights for each facility-based
assessment area and retail lending
assessment area in this calculation will
be the simple average of the following
two percentages, calculated over the
years in the evaluation period:
• The percentage of deposits that the
bank draws from the area, out of all of
the dollars of deposits in the bank
drawn from facility-based assessment
areas and retail lending assessment
areas in the respective State or
multistate MSA, pursuant to final
§ ll.28(c); and
• Based on a combination of loan
dollars and loan count, the percentage
of the bank’s loans in the area, as a
percentage of all of the bank’s loans in
facility-based assessment areas and
retail lending assessment areas in the
respective State or multistate MSA,
pursuant to final § ll.28(c). The loans
included in this calculation will be
originations and purchases of closedend home mortgage loans, small
business loans, small farm loans, and
automobile loans (if automobile loans
are a product line for the bank).
As proposed and as provided in
paragraph VIII.c of final appendix A,
based on this performance score, the
agencies will develop a Retail Lending
Test conclusion corresponding with the
conclusion category that is nearest to
the Retail Lending Test performance
score for each State or multistate MSA,
as illustrated in Table 31 below. The
agencies will then consider relevant
performance context factors provided in
final § ll.21(d) before assigning a
Retail Lending Test conclusion for the
State or multistate MSA.
E:\FR\FM\01FER2.SGM
01FER2
6910
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Table 31 to § _.22(h): Performance Scores and Conclusions
Range
Conclusion
8.5 or more
"Outstanding"
6.5 or more, but less than 8.5
"High Satisfactory"
4.5 or more, but less than 6.5
"Low Satisfactory"
1.5 or more, but less than 4.5
"Needs to Improve"
Less than 1.5
"Substantial Noncompliance"
With some modifications relative to
the proposal, paragraphs VIII.b through
VIII.d of final appendix A describes the
agencies’ methodology for assigning a
bank’s Retail Lending Test conclusions
for the institution. Paragraphs VIII.b and
VIII.c of final appendix A provide that
the agencies will develop a bank’s Retail
Lending Test conclusion for the
institution based on its Retail Lending
Test conclusions for its facility-based
assessment areas, retail lending
assessment areas, and outside retail
lending area, as applicable. The
agencies made certain changes to the
proposal to incorporate the combination
of loan dollars and loan count definition
and streamline the description of the
methodology and improve readability.
As provided in paragraph VIII.c of
final appendix A, the agencies will
calculate a bank’s Retail Lending Test
performance score for the institution
based on a weighted average of
performance scores from all applicable
Retail Lending Test Areas. Specifically,
the weights for each Retail Lending Test
Area in this calculation will be the
simple average of the following two
percentages, calculated over the years in
the evaluation period:
• The percentage of deposits the bank
draws from each Retail Lending Test
Area out of all of the dollars of deposits
in all of the bank’s Retail Lending Test
Areas; and
• Based on a combination of loan
dollars and loan count, the percentage
of the bank’s loans in each Retail
Lending Test Area, as a percentage of all
of the bank’s loans in all of the bank’s
Retail Lending Test Areas. The loans
included in this calculation will be
originations and purchases of closed-
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
end home mortgage loans, small
business loans, small farm loans, and
automobile loans (if automobile loans
are a product line for the bank).
As proposed and as provided in
paragraphs VIII.c and VIII.d of final
appendix A, based on this performance
score, the agencies will develop a Retail
Lending Test conclusion corresponding
with the conclusion category that is
nearest to the Retail Lending Test
performance score for the institution, as
illustrated in Table 31 above. The
agencies will then consider relevant
performance context factors provided in
final § ll.21(d) before assigning a
Retail Lending Test conclusion for the
institution.
Examples A–16 and A–17 in section
VIII of appendix A illustrates how
facility-based assessment area, retail
lending assessment area, and outside
retail lending area conclusions, as
applicable, will be weighted in order to
develop institution conclusions.
Section ll.22(h)(1)(ii)(A) and (B)
Exceptions
Section ll.22(h)(1)(ii)(A) Facilitybased Assessment Areas With no Major
Product Line
Section ll.22(h)(1)(ii)(B) Facilitybased Assessment Areas in Which a
Bank Lacks an Acceptable Basis for not
Meeting the Retail Lending Volume
Threshold
Final § ll.22(h)(1)(ii)(A) and (B)
provide for two exceptions to the
general Retail Lending Test conclusions
methodology described in final
§ ll.22(h)(1)(i).
First, final § ll.22(h)(1)(ii)(A)
provides that the agencies will assign a
bank a Retail Lending Test conclusion
for a facility-based assessment area in
which it has no major product line—
PO 00000
Frm 00338
Fmt 4701
Sfmt 4700
and, consequently, the agencies are not
able to apply the distribution analysis in
final § ll.22(d) through (f)—based
upon its performance on the Retail
Lending Volume Screen, the
performance context factors information
in final § ll.21(d), and the additional
factors in § ll.22(g).
Second, final § ll.22(h)(1)(ii)(B)
provides that the agencies will assign a
bank a Retail Lending Test conclusion
for a facility-based assessment area in
which the bank lacks an acceptable
basis for not meeting the Retail Lending
Volume Threshold pursuant to final
§ ll.22(c)(3)(iii).971
Section ll.22(h)(2) Ratings
With reference to final § ll.28 and
final appendix D, final § ll.22(h)(2)
adopts the agencies’ proposal to
incorporate a bank’s Retail Lending Test
conclusions for, as applicable, the State,
multistate MSA, and institution levels
into, as applicable, its State, multistate
MSA, and institution ratings.
Analysis of the Final Rule Using
Historical Data
The agencies analyzed historical bank
lending performance under the final
rule Retail Lending Test approach,
including final rule provisions for the
Retail Lending Volume Screen and the
performance ranges as applied to the
distribution metrics, using historical
data on bank retail lending and other
information in the CRA Analytics Data
Tables. The analysis used data from
971 See the section-by-section analysis of final
§ ll.22(c) for additional information regarding
how the agencies assign facility-based assessment
area conclusions for large banks and, separately, for
intermediate banks and small banks that opt to be
evaluated under the Retail Lending Test where
these banks lack an acceptable basis for not meeting
the Retail Lending Volume Threshold.
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.045
ddrumheller on DSK120RN23PROD with RULES2
Institution Retail Lending Test
Conclusions
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
2018–2020 to calculate bank metrics,
benchmarks, and weights, except where
otherwise noted. Using this historic
data, the agencies:
• Estimated recommended
conclusions for Retail Lending Test
Areas;
• Estimated Retail Lending Test
conclusions at the institution level;
• Compared bank performance based
on the proposed multiplier values to
performance based on the final rule
multiplier values; and
• Compared performance across
different bank asset size categories,
metropolitan and nonmetropolitan
areas, and time periods.
The analysis informed the agencies’
decisions regarding the Retail Lending
Test approach in various ways.
Specifically, the analysis informed the
agencies’ determination that the final
rule multiplier values produce
performance ranges that are generally
attainable for ‘‘Outstanding,’’ ‘‘High
Satisfactory,’’ or ‘‘Low Satisfactory’’
performance. As described further
below, a large majority of banks
included in this historical analysis are
estimated to have performed at a level
consistent with an institution-level
conclusion of ‘‘Outstanding,’’ ‘‘High
Satisfactory,’’ or ‘‘Low Satisfactory’’
based on the final rule provisions. In
addition, the analysis informed the
agencies’ determination that the
performance ranges for a ‘‘Low
Satisfactory’’ or higher conclusion are
generally attainable across a variety of
circumstances, such as different Retail
Lending Test Areas, bank asset-size
categories, metropolitan and
nonmetropolitan areas, and time
periods.
Description of analysis. The agencies
considered a number of factors in
interpreting the results of this analysis,
including certain data limitations that
result in the analysis diverging from the
final rule approach to calculating
metrics and benchmarks.
First, the agencies considered that the
analysis is retrospective and, therefore,
not a prediction of future evaluation
results. In this regard, the agencies
believe that the analysis estimates how
banks would have performed in recent
years under the final rule but does not
necessarily describe how banks will
perform in future years. For example,
the agencies considered that, once the
final rule is implemented, the increased
consistency and transparency of the
CRA examination process under the
final rule may result in banks altering
their behavior in ways that cause their
metrics and the market benchmarks to
deviate from the patterns observed
historically. In addition, the agencies
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
considered that macroeconomic
conditions and banking practices in the
future may differ from those in the
historical periods that are examined
here.
Second, the agencies considered that
the set of banks included in this
analysis differ from the full group of
banks that will be evaluated under the
Retail Lending Test. Specifically, the
analysis is limited to intermediate and
large banks (based on the asset-size
categories in the final rule) that reported
both CRA small business and small farm
loan data and HMDA data and does not
include unreported loans in any bank
metrics calculated in the analysis. The
agencies do not have data to evaluate
unreported loans, and therefore
determined not to estimate the
recommended conclusions and overall
conclusions of banks that may have
unreported closed-end home mortgage,
small business, or small farm lending.
Most large banks are reporters for both
CRA small business and small farm loan
data and HMDA data, but most
intermediate banks are non-reporters of
either CRA small business and small
farm loan data, HMDA data, or both.972
As a result, the set of banks included in
the analysis is not necessarily
representative of all banks that will be
evaluated under the Retail Lending Test,
in particular intermediate banks that
may be underrepresented because they
are less likely to report both CRA and
HMDA data. The set of banks analyzed
also does not include banks that were,
during the timeframe of the analysis,
designated as wholesale or limited
purpose banks—because these banks
will generally not be evaluated under
the Retail Lending Test—or banks
evaluated under an approved strategic
plan.
Third, the agencies could not analyze
loans to businesses and farms with gross
annual revenues of $250,000 or less,
because existing data does not include
an indicator identifying loans to small
businesses and small farms at this gross
annual revenue level. Instead, the
analysis estimates performance using a
single designated borrower category for
loans made to businesses or farms with
gross annual revenues of $1 million or
less. Furthermore, the agencies note that
the analysis does not take into account
the potential impact of transitioning to
section 1071 data, which, as described
in the section-by-section analysis of
final §§ ll.22(e) and ll.51, would
result in changes to the population of
small business and small farm loans
972 See current 12 CFR ll.42(b)(1). See also,
e.g., 12 CFR 1003.3.
PO 00000
Frm 00339
Fmt 4701
Sfmt 4700
6911
considered in the metric and benchmark
calculations.
Fourth, because the deposits data that
will be collected for large banks with
assets greater than $10 billion is not yet
available, this analysis used the FDIC’s
Summary of Deposits data as the sole
source of deposits data for all banks,
since this data is available both for each
bank as a whole and also reflects bank
deposits assigned to branch locations.
As a result, the analysis likely
overestimates the deposits of the largest
banks because the FDIC’s Summary of
Deposits data uses a broader definition
of deposits, in that it includes deposits
from governments and foreign entities,
than the data collected under the final
rule for large banks with assets greater
than $10 billion. In addition, because
the FDIC’s Summary of Deposits does
not report deposits data based on a
depositor’s location, the analysis
assigned all bank deposits to facilitybased assessment areas, even when the
deposits might have been collected from
depositors in retail lending assessment
areas or outside retail lending areas. As
a result, because deposits data is used
as part of the final rule approach to
weighting different Retail Lending Test
Area performance, the analysis likely
assigns less weight to performance in
retail lending assessment areas and
outside retail lending areas than will be
assigned under the final rule for banks
that are required to report deposits data
pursuant to final § ll.42(b)(3) or that
opt to report this data.
Fifth, because the HMDA data
collected prior to the 2018 calendar year
do not distinguish originated or
purchased home mortgage loans that
were closed-end from those that were
open-end, all home mortgage loans
reported in HMDA for years prior to
2018 were assumed to be closed-end
home mortgage loans.973
Sixth, the analysis does not
incorporate the final rule’s requirement
that large banks delineate facility-based
assessment areas that consist of at least
one or more whole counties, as
discussed in the section-by-section
analysis of final § ll.16. In contrast,
the current regulations allow large
banks to delineate partial-county
assessment areas. Rather than make
assumptions regarding how facilitybased assessment area delineations
might change under the final rule
973 While home mortgage lenders were not
required to report open-end home mortgage loans
in HMDA prior to 2018, they had the option of
doing so. Consequently, some of the reported loans
may have been open-end home mortgage loans,
though it is not possible to ascertain for certain how
many of the reported loans were open-end home
mortgage loans.
E:\FR\FM\01FER2.SGM
01FER2
6912
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
relative to current practice, the analysis
uses the actual assessment areas
designated by both large and
intermediate banks at the time to
delineate each bank’s facility-based
assessment areas, including when a
large bank’s assessment area delineation
includes a partial county.
Seventh, the analysis does not
incorporate any evaluation of
automobile lending, due to the
unavailability of automobile lending
data necessary to include in the
analysis. This limitation impacts any
bank that would have been designated
as a majority automobile lender during
the analysis period pursuant to the final
rule standard and any bank that might
have opted to have its automobile
lending evaluated during the analysis
period.
Finally, this analysis does not take
into account aspects of the final rule
that would involve agency discretion,
such as the Retail Lending Volume
Screen acceptable basis factors provided
in final § ll.22(c)(3)(i), the additional
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
factors provided in final § ll.22(g),
and performance context information
provided in final § ll.21(d).
As a result of the factors, including
data limitations, discussed above, the
agencies consider the results of this
analysis to be estimates, and the results
described here should be understood to
only approximate how banks included
in these analyses would have performed
under the final rule Retail Lending Test.
Final Rule Multipliers. As discussed
in more detail in the section-by-section
analysis of final § ll.22(f), the final
rule uses lower values for some of the
Retail Lending Test multipliers relative
to those proposed in the NPR. The
analysis of the changes to the
multipliers are provided in Table 32,
which shows a higher estimated
distribution of institution-level
conclusions on the Retail Lending Test
during the 2018–2020 time period using
the multipliers for the final rule
compared to those proposed in the NPR.
Specifically, using the final rule
multipliers, more banks included in the
PO 00000
Frm 00340
Fmt 4701
Sfmt 4700
analysis received ‘‘Outstanding’’ or
‘‘High Satisfactory’’ estimated
conclusions and fewer banks received
‘‘Low Satisfactory’’ or ‘‘Needs to
Improve’’ estimated conclusions. As
noted in the section-by-section analysis
of final § ll.22(f), the agencies
consider ‘‘Low Satisfactory’’
performance to represent that a bank is
adequately meeting the credit needs of
its community and consider ‘‘High
Satisfactory’’ and ‘‘Low Satisfactory’’
conclusions to both correspond to the
overall rating category of ‘‘Satisfactory.’’
Aside from the different multiplier
values, the Retail Lending Test
approach was applied as described in
the final rule—both as applied to the
NPR multipliers and the final rule
multipliers—subject to the limitations
listed above. To better focus on the
impact of changing the multipliers on
the estimated recommended
conclusions assigned for each bank’s
loan distributions, the Retail Lending
Volume Screen was not applied in this
part of the analysis.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
6913
Table 32 to § _.22: Estimated Institution-Level Retail Lending Test Conclusions, 2018-20'.
Final Rule Approach with
NPR Multipliers
Frequency
Percent
Final Rule Approach with
Final Rule Multipliers
Frequency
Percent
Institution-Level
Conclusion
"Outstanding"
39
7.2
57
10.5
"High Satisfactory"
236
43.3
257
47.2
"Low Satisfactory"
209
38.3
181
33.2
"Needs to Improve"
60
11.0
49
9.0
1
0.2
1
0.2
"Substantial
Noncompliance"
Note: Table 32 shows the estimated distribution of institution-level conclusions on the Retail Lending Test over
the 2018-2020 period for a set of intermediate and large banks that were both CRA and HMDA reporters, using
the multipliers proposed in the NPR (left columns) and adopted in the final rule (right columns). Bank asset size
was determined using 2019 and 2020 year-end assets data. Wholesale banks, limited purpose banks, strategic
plan banks, and banks that did not have at least one facility-based assessment area in a U.S. State or the District of
Columbia were excluded from the analysis. Facility-based assessment areas that were not delineated in 2020
were also excluded. The analysis used home mortgage, small business, small farm, deposits, and demographic
Table 33 shows the results of the same
analysis when the Retail Lending
Volume Screen was applied to facilitybased assessment areas of large banks
included in the analysis; under this
analysis, a ‘‘Needs to Improve’’
conclusion was assigned to those banks’
facility-based assessment areas that do
not meet the Retail Lending Volume
Threshold and that would have
otherwise received a conclusion of
‘‘Low Satisfactory’’ or higher based on
the distribution analysis. Specifically,
this part of the analysis shows that
fewer banks would have received
conclusions of ‘‘Outstanding’’ or ‘‘High
Satisfactory,’’ and more banks would
have received ‘‘Needs to Improve’’
conclusions, compared to the analysis
that did not incorporate the Retail
Lending Volume Screen, regardless of
whether the multipliers used are from
the NPR or the final rule. Table 33 also
shows that the multipliers from the final
rule resulted in more banks receiving
conclusions of ‘‘High Satisfactory’’ or
‘‘Outstanding’’ and fewer receiving
conclusions of ‘‘Needs to Improve’’ than
using the NPR multipliers, even when
the Retail Lending Volume Screen was
applied.
The agencies note that this part of the
analysis does not take into account the
acceptable basis factors in final
§ ll.22(c)(3)(i), and therefore may
overestimate the frequency at which a
bank would have been assigned a
‘‘Needs to Improve’’ conclusion in
facility-based assessment areas where
the Bank Volume Metric was lower than
the Retail Lending Volume
Threshold.974 The analysis does not
incorporate the Retail Lending Volume
Screen for intermediate banks, because,
under the final rule, facility-based
assessment areas of intermediate banks
in which the Bank Volume Metric is
below the Retail Lending Volume
Threshold are assigned a recommended
conclusion that more directly includes
consideration of the lending distribution
analysis.975
974 The agencies also note that if a bank would
have received a ‘‘Substantial Noncompliance’’
conclusion based on the distribution analysis then
the agencies have assigned it a ‘‘Substantial
Noncompliance’’ conclusion for purposes of this
analysis. Otherwise, for purposes of this analysis as
noted above, a bank that did not meet the Retail
Lending Volume Threshold was assigned a ‘‘Needs
to Improve’’ conclusion.
975 See final § ll.22(c)(3)(iii)(B) and the
accompanying section-by-section analysis.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00341
Fmt 4701
Sfmt 4700
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.046
ddrumheller on DSK120RN23PROD with RULES2
data from the CRA Analytics Data Tables. The Retail Lending Volume Screen was not applied in this analysis.
6914
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Table 33 to § _.22: Estimated Institution-Level Retail Lending Test Conclusions, 20182020, with Retail Lending Volume Screen Applied
Final Rule Approach with
NPR Multipliers
Frequency
Percent
Final Rule Approach with
Final Rule Multipliers
Frequency
Percent
Institution-Level
Conclusion
"Outstanding"
36
6.6
51
9.4
"High Satisfactory"
227
41.7
252
46.2
"Low Satisfactory"
214
39.3
186
34.1
"Needs to Improve"
67
12.3
55
10.1
1
0.2
1
0.2
"Substantial
Noncompliance"
Note: Table 33 shows the estimated distribution of institution-level conclusions on the Retail Lending Test over
the 2018-2020 period for a set of intermediate and large banks that were both CRA and HMDA reporters, using
the multipliers proposed in the NPR (left columns) and adopted in the final rule (right columns). Bank asset size
was determined using 2019 and 2020 year-end assets data. Wholesale banks, limited purpose banks, strategic
plan banks, and banks that did not have at least one facility-based assessment area in a U.S. State or the District of
Columbia were excluded from the analysis. Facility-based assessment areas that were not delineated in 2020
were also excluded. The analysis used home mortgage, small business, small farm, deposits, and demographic
data from the CRA Analytics Data Tables. For facility-based assessment areas oflarge banks in which the Bank
Volume Metric was below the Retail Lending Volume Threshold, this analysis assigned a conclusion of"Needs
Bank Asset Size. Consistent with the
agencies’ proposal, in the final rule, the
Retail Lending Test will apply to large
and intermediate banks, and to small
banks that elect to be evaluated under
this performance test. Accordingly, the
agencies’ have considered estimates for
the Retail Lending Test conclusions at
the institution level for banks of
different asset sizes.
Specifically, Table 34 shows the
results of an analysis of performance
under the Retail Lending Test approach
in the final rule for banks included in
the analysis in three different asset-size
categories: intermediate banks; large
banks with assets less than or equal to
$10 billion; and large banks with assets
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
greater than $10 billion. As with Tables
32 and 33, the results in Table 34 reflect
performance on the Retail Lending Test
at the institution level. The Retail
Lending Volume Screen is not applied
in this institution-level analysis.
As shown in Table 34, estimated
performance was similar across the
asset-size groups, with the majority of
banks in each group receiving either a
‘‘High Satisfactory’’ or ‘‘Low
Satisfactory’’ estimated conclusion, with
‘‘High Satisfactory’’ being somewhat
more common than ‘‘Low Satisfactory.’’
Intermediate banks more frequently
received estimated conclusions of
‘‘Outstanding’’ or ‘‘Needs to Improve’’
than large banks, and one intermediate
PO 00000
Frm 00342
Fmt 4701
Sfmt 4700
bank was the only bank in the set of
banks analyzed to receive an estimated
conclusion of ‘‘Substantial
Noncompliance.’’ The share of
intermediate banks included in the
analysis receiving a ‘‘Needs to Improve’’
or ‘‘Substantial Noncompliance’’
estimated conclusion is somewhat
higher than for large banks.
Approximately 88 percent of
intermediate banks, 92 percent of large
banks with assets less than or equal to
$10 billion, and 95 percent of large
banks with assets greater than $10
billion received an estimated conclusion
‘‘Outstanding,’’ ‘‘High Satisfactory,’’ or
‘‘Low Satisfactory.’’ Over 60 percent of
intermediate banks, 51 percent of large
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.047
ddrumheller on DSK120RN23PROD with RULES2
to Improve" to the facility-based assessment area.
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
banks with assets less than or equal to
$10 billion, and 67 percent of large
banks with assets greater than $10
billion received an estimated conclusion
of ‘‘Outstanding’’ or ‘‘High
Satisfactory.’’ The agencies have
determined, based on this data, that the
final rule performance ranges for
estimated conclusions of ‘‘Low
Satisfactory’’ or higher are generally
attainable for intermediate and large
banks. In addition, as noted above, this
6915
analysis does not reflect the
performance context considerations in
final § ll.21(d) or the additional
factors in final § ll.22(g), which will
inform conclusions under the final rule.
Table 34 to § _.22: Estimated Institution-Level Retail Lending Test Conclusions, 20182020, with Final Rule Multipliers (Percentage of Banks)
Bank Asset Size
Intermediate
Large, Assets
<$10B
Large, Assets
$10B+
Total
203
237
105
545
"Outstanding"
14.4
7.6
9.4
10.5
"High Satisfactory"
46.0
43.5
57.5
47.2
"Low Satisfactory"
27.2
40.5
28.3
33.2
"Needs to Improve"
11.9
8.4
4.7
9.0
"Substantial Noncompliance"
0.5
0.0
0.0
0.2
Number of banks
Institution-Level
Conclusion
Note: Table 34 shows the estimated distribution of institution-level conclusions on the Retail Lending Test over
the 2018-2020 period for a set of intermediate and large banks that were both CRA and HMDA reporters, using
the fmal rule multipliers. Bank asset size was determined using 2019 and 2020 year-end assets data. Wholesale
banks, limited purpose banks, strategic plan banks, and banks that did not have at least one facility-based
assessment area in a U.S. State or the District of Columbia were excluded from the analysis. Facility-based
assessment areas that were not delineated in 2020 were also excluded. The analysis used home mortgage, small
business, small farm, deposits, and demographic data from the CRA Analytics Data Tables. The Retail Lending
Table 35 shows the same analysis
broken out by different bank asset-size
categories—intermediate banks, large
banks with assets less than or equal to
$10 billion, and large banks with greater
than $10 billion in assets—using the
NPR multipliers. The impact of the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
change to the multipliers in the final
rule relative to the proposed multipliers
was generally consistent across bank
sizes. As demonstrated by comparing
Tables 34 and 35, across all three assetsize groups, the final rule multipliers
increased the estimated share of banks
PO 00000
Frm 00343
Fmt 4701
Sfmt 4700
receiving an ‘‘Outstanding’’ conclusion
between 2.5 to 4 percentage points and
reduced the estimated share of banks
receiving a ‘‘Needs to Improve’’
conclusion by 1 to 3 percentage points.
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.048
ddrumheller on DSK120RN23PROD with RULES2
Volume Screen was not applied in this analysis.
6916
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Table 35 to § _.22: Estimated Institution-Level Retail Lending Test Conclusions,
2018-2020, with NPR Multipliers (Percentage of Banks)
Bank Asset Size
Large Assets
Large Assets
<$10B
$10B+
203
237
105
545
"Outstanding"
10.4
5.1
5.7
7.2
"High Satisfactory"
41.6
40.1
53.8
43.3
"Low Satisfactory"
34.7
43.5
34.0
38.3
"Needs to Improve"
12.9
11.4
6.6
11.0
"Substantial Noncompliance"
0.5
0.0
0.0
0.2
Intermediate
Number of banks
Total
Institution-Level
Conclusion
Note: Table 35 shows the estimated distribution of institution-level conclusions on the Retail Lending Test over
the 2018-2020 period for a set of intermediate and large banks that were both CRA and HMDA reporters, using
the proposed multipliers. Bank asset size was determined using 2019 and 2020 year-end assets data. Wholesale
banks, limited purpose banks, strategic plan banks, and banks that did not have at least one facility-based
assessment area in a U.S. State or the District of Columbia were excluded from the analysis. Facility-based
assessment areas that were not delineated in 2020 were also excluded. The analysis used home mortgage, small
business, small farm, deposits, and demographic data from the CRA Analytics Data Tables. The Retail Lending
Retail Lending Assessment Areas and
Outside Retail Lending Areas. As
discussed in more detail in the sectionby-section analysis of final § ll.17 and
throughout the section-by-section
analysis of final § ll.22, under the
final rule the agencies will evaluate the
retail lending performance of certain
large banks in retail lending assessment
areas. The agencies will also evaluate
the retail lending of large banks (as well
as that of certain intermediate and small
banks) in their outside retail lending
area. To understand how banks may
have performed in 2018–2020 in these
areas under the final rule approach,
Table 34 shows the estimated
distribution of Retail Lending Test
recommended conclusions that banks
included in the analysis would have
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
received in facility-based assessment
areas, retail lending assessment areas,
and outside retail lending areas.
Specifically, the analysis shows that at
least two-thirds of these banks are
estimated to receive an ‘‘Outstanding,’’
‘‘High Satisfactory,’’ or ‘‘Low
Satisfactory’’ recommended conclusion,
with banks receiving a higher
proportion of ‘‘Needs to Improve’’
conclusions in outside retail lending
areas (28 percent) and in retail lending
assessment areas 20.6 percent) when
compared to facility-based assessment
areas (8.8 percent).
The agencies considered several
aspects of these results. First, the
agencies considered that, while
performance under the final rule
provisions are lower in retail lending
PO 00000
Frm 00344
Fmt 4701
Sfmt 4700
assessment areas and outside retail
lending areas, a significant majority of
banks included in the analysis received
conclusions of ‘‘Outstanding,’’ ‘‘High
Satisfactory,’’ or ‘‘Low Satisfactory in
these areas. The agencies believe that
this is an indication that the final rule
performance ranges are generally
attainable, because historical bank
performance is relatively strong when
applying the final rule evaluation
standards.
The agencies also considered that
estimated bank conclusions at the
institution level reflect strong overall
performance, with approximately 90
percent of banks in the data set
receiving an ’’ ‘‘Outstanding,’’ ‘‘High
Satisfactory,’’ or ‘‘Low Satisfactory’’
estimated conclusion at the institution
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.049
ddrumheller on DSK120RN23PROD with RULES2
Volume Screen was not applied in this analysis.
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
level as shown above in Table 32. This
reflects the final rule Retail Lending
Test approach that allows for stronger
performance in some geographic areas
to potentially compensate for weaker
performance in other geographic areas.
This can take place because the
institution-level Retail Lending Test
conclusion is based on a weighted
average of a bank’s performance in each
facility-based assessment area, each
retail lending assessment area, and the
outside retail lending area, as
applicable. As a result, for a bank with
multiple Retail Lending Test Areas,
receiving a ‘‘Needs to Improve’’
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
conclusion in one or more areas may,
depending on the weight of each area,
be compensated for by strong
performance in other geographic areas.
The agencies also note that the
requirement that a large bank receive at
least a ‘‘Low Satisfactory’’ conclusion in
60 percent of its facility-based
assessment areas and retail lending
assessment areas in order to receive a
‘‘Satisfactory’’ institution-level rating
can impact whether stronger
performance in some areas may
compensate for weaker performance in
other areas. As shown in Table 36, the
agencies note that at an aggregate level
PO 00000
Frm 00345
Fmt 4701
Sfmt 4700
6917
for all banks included in this analysis,
74 percent of bank lending by dollar
volume was in facility-based assessment
areas, 18 percent was in outside retail
lending areas, and 8 percent was in
retail lending assessment areas.
The agencies also note that, under the
current approach, banks are generally
not evaluated for retail lending
performance outside of areas where they
maintain deposit-taking facilities. As a
result, the analysis does not include any
changes that could have resulted in
bank performance under this approach.
E:\FR\FM\01FER2.SGM
01FER2
6918
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Table 36 to § _.22: Estimated Retail Lending Test Area Recommended Conclusions
with Final Rule Multipliers, 2018-2020
Retail Lending Test Area Type
I
Facility-Based
Assessment Areas
Outside Retail
Lending Areas
Retail Lending
Assessment Areas
74%
18%
8%
Percent of all bank
lending
Frequency
Percent
Frequency
Percent
Frequency
Percent
"Outstanding"
1,460
21.1
14
4.0
130
18.0
"High Satisfactory"
2,742
39.5
85
24.1
218
30.1
"Low Satisfactory"
1,827
26.4
152
43.1
214
29.6
"Needs to Improve"
613
8.8
99
28.0
149
20.6
"Substantial
Noncompliance"
52
0.8
3
0.8
13
1.8
Below Retail
Lending Volume
Threshold
239
3.4
--
--
--
--
Recommended
Conclusion
Note: Table 36 shows the estimated distribution of Retail Lending Test Area recommended conclusions on the
Retail Lending Test over the 2018-2020 period for a set of intermediate and large banks that were both CRA and
HMDA reporters, using the fmal rule multipliers. Bank asset size was determined using 2019 and 2020 year-end
assets data. Wholesale banks, limited purpose banks, strategic plan banks, and banks that did not have at least
one facility-based assessment area in a U.S. State or the District of Columbia were excluded from the analysis.
Facility-based assessment areas that were not delineated in 2020 were also excluded. The analysis used home
mortgage, small business, small farm, deposits, and demographic data from the CRA Analytics Data Tables.
Facility-based assessment areas oflarge banks in which the Bank Volume Metric was below the Retail Lending
Volume Threshold are presented in the row labeled "Below Retail Lending Volume Threshold," and are not
and would not automatically receive a recommended conclusion. The "Percent of all bank lending" was
calculated using all closed-end home mortgage loans, small business loans, and small farm loans, based on a
combination of loan dollars and loan count.
Table 37 shows the same analysis
broken out by different Retail Lending
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Test Areas—facility-based assessment
areas, retail lending assessment areas,
PO 00000
Frm 00346
Fmt 4701
Sfmt 4700
and outside retail lending areas—using
the NPR multipliers. Similar patterns
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.050
ddrumheller on DSK120RN23PROD with RULES2
included in any conclusion category, because these banks' retail lending would be subject to a qualitative review
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
are observed when the analysis is
conducted using the multipliers
proposed in the NPR (Table 37). The
analysis shown in Table 37, as with the
other analyses described above,
indicates that the multipliers included
in the final rule produce a higher
estimated distribution of recommended
6919
conclusions than the multipliers
proposed in the NPR.
Table 37 to § _.22: Estimated Retail Lending Test Area Recommended Conclusions
with NPR Multipliers, 2018-2020
Retail Lending Test Area Type
Facility-Based
Assessment Areas
Outside Retail Lending
Areas
Retail Lending
Assessment Areas
74%
18%
8%
Percent of all bank
lending
Frequency Percent
Frequency
Percent
Frequency
Percent
Recommended
Conclusion
"Outstanding"
1,082
15.6
12
3.4
95
13.1
"High Satisfactory"
2,762
39.8
65
18.4
240
33.1
"Low Satisfactory"
2,076
29.9
161
45.6
207
28.6
"Needs to Improve"
717
10.3
112
31.7
168
23.2
"Substantial
Noncompliance"
57
0.8
3
0.8
14
1.9
Below Retail
Lending Volume
Threshold
239
3.4
--
--
--
--
Note: Table 37 shows the estimated distribution of Retail Lending Test Area recommended conclusions on the
Retail Lending Test over the 2018-2020 period for a set of intermediate and large banks that were both CRA and
HMDA reporters, using the proposed multipliers in the NPR. Bank asset size was determined using 2019 and
2020 year-end assets data. Wholesale banks, limited purpose banks, strategic plan banks, and banks that did not
have at least one facility-based assessment area in a U.S. State or the District of Columbia were excluded from the
analysis. Facility-based assessment areas that were not delineated in 2020 were also excluded. The analysis used
home mortgage, small business, small farm, deposits, and demographic data from the CRA Analytics Data
Tables. Facility-based assessment areas oflarge banks in which the Bank Volume Metric was below the Retail
Lending Volume Threshold are presented in the row labeled "Below Retail Lending Volume Threshold," and are
not included in any conclusion category, because these banks' retail lending would be subject to a qualitative
calculated using all closed-end home mortgage loans, small business loans, and small farm loans, based on a
combination of loan dollars and loan count.
Facility-Based Assessment Area
Location. Under the final rule, the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
agencies will apply the Retail Lending
Test metrics, benchmarks, and
PO 00000
Frm 00347
Fmt 4701
Sfmt 4700
performance ranges across different
metropolitan and nonmetropolitan
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.051
ddrumheller on DSK120RN23PROD with RULES2
review and would not automatically receive a recommended conclusion. The "Percent of all bank lending" was
6920
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
geographic areas, and the approach is
intended to adjust for differences in
credit needs and opportunities in
different areas. Table 38 compares the
estimated distribution of recommended
Retail Lending Test conclusions for
facility-based assessment areas located
in MSAs and those located in the
nonmetropolitan portion of States for
banks included in the analysis.
Specifically, the analysis shows that the
distributions in MSAs and
nonmetropolitan areas are similar
overall. This analysis informed the
agencies’ determination that the
performance ranges are generally
attainable in both metropolitan and
nonmetropolitan areas.
Table 38 to §_.22: Estimated Facility-Based Assessment Area Recommended
Conclusions for Metropolitan and Nonmetropolitan Areas, 2018-2020
N onmetropolitan
Frequency
MSA
Percent
Frequency
Percent
Recommended
Conclusion
"Outstanding"
472
25.6
988
19.4
"High Satisfactory"
685
37.2
2,057
40.4
"Low Satisfactory"
447
24.3
1,381
27.1
"Needs to Improve"
159
8.6
454
8.9
19
1.0
33
0.6
61
3.3
178
3.5
"Substantial
Noncompliance"
Below Retail Lending
Volume Threshold
Note: Table 38 shows the estimated distribution of facility-based assessment area recommended conclusions on
the Retail Lending Test in nonmetropolitan and metropolitan areas over the 2018-2020 period for a set of
intermediate and large banks that were both CRA and HMDA reporters, using the final rule multipliers. Bank
asset size is determined using 2019 and 2020 year-end assets data. Wholesale banks, limited purpose banks,
strategic plan banks, and banks that do not have at least one facility-based assessment area in a U.S. State or the
District of Columbia were excluded from the analysis. Facility-based assessment areas that were not delineated in
2020 were also excluded. The analysis used home mortgage, small business, small farm, deposits, and
demographic data from the CRA Analytics Data Tables. Facility-based assessment areas oflarge banks in which
the Bank Volume Metric was below the Retail Lending Volume Threshold are presented in the row labeled
"Below Retail Lending Volume Threshold," and are not included in any conclusion category, because these
banks' retail lending would be subject to a qualitative review and would not automatically receive a recommended
Time Period. Table 39 shows the
distribution of estimated institutionlevel conclusions on the Retail Lending
Test for banks included in the analysis
for five three-year time periods: 2006–
2008; 2009–2011; 2012–2014; 2015–
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
2017; and 2018–2020. For this analysis,
the agencies applied the final rule
approach for calculating the metrics,
performance ranges, and weights to all
five periods, to gain further insight into
historical bank performance over
PO 00000
Frm 00348
Fmt 4701
Sfmt 4700
different time periods under this
approach. Because the benchmarks are
based on community and market data
from each evaluation period, the
resulting performance ranges applied to
a specific Retail Lending Test Area vary
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.052
ddrumheller on DSK120RN23PROD with RULES2
conclusion.
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
across evaluation periods. As discussed
in the section-by-section analysis of
final § ll.22(e), the agencies believe
that this approach to setting benchmarks
allows the performance ranges to reflect
changes in credit needs and
opportunities over time.
As shown in Table 39, the share of
banks included in the analysis that
would have received institution-level
conclusions of ‘‘High Satisfactory’’ is
estimated to have remained relatively
stable over time at around 48 percent on
average (ranging from 42.6 percent to
53.2 percent). In addition, the analysis
shows a trend of declining
‘‘Outstanding’’ estimated conclusions
and increasing ‘‘Low Satisfactory’’ and
‘‘Needs to Improve’’ estimated
conclusions at the institution level over
this time period.
Supplementary analyses conducted
by the agencies suggest that the decline
in ‘‘Outstanding’’ estimated conclusions
over time is associated with changing
small business lending patterns. As
shown in Table 40, between the 2006–
2008 and 2018–2020 time periods, the
share of Retail Lending Test Areas
where the estimated product line score
6921
for small business lending was
consistent with an ‘‘Outstanding’’
conclusion (i.e., the product line score
is 8.5 or higher) declined by 22
percentage points from 56.9 percent to
33.9 percent. In contrast, as shown in
Table 41, for closed-end home mortgage
loans, the estimated product line scores
consistent with an ‘‘Outstanding’’
conclusion were comparatively flat
(increasing slightly from 22.3 percent in
2006–2008 to 24.4 percent in 2018–
2020.
Table 39 to § _.22: Estimated Institution-Level Retail Lending Test Conclusions, 20062020 (Percentage of Banks)
Evaluation Period
2006-2008
2009-2011
2012-2014
2015-2017
2018-2020
"Outstanding"
38.4
32.7
19.3
15.5
10.5
"High Satisfactory"
47.6
42.6
49.8
53.2
47.2
"Low Satisfactory"
11.8
20.9
24.0
25.8
33.2
"Needs to Improve"
1.8
3.9
6.7
5.5
9.0
0.4
0.0
0.2
0.0
0.2
Institution-Level
Conclusion
"Substantial
Noncompliance"
Note: Table 39 shows the estimated distribution of institution-level conclusions on the Retail Lending Test over five
three-year periods for a set of intermediate and large banks that were both CRA and HMDA reporters, using the
final rule multipliers. The numbers shown are the percentage of banks in each conclusion category within each
period. Bank asset size was determined using assets data from the last two years of the period. Wholesale banks,
limited purpose banks, strategic plan banks, and banks that did not have at least one facility-based assessment area
in a U.S. State or the District of Columbia were excluded from the analysis. Facility-based assessment areas oflarge
banks that were not delineated in the final year of the period were also excluded. The analysis used home mortgage
Tables. Separate breakouts for open- and closed-end home mortgages were not available prior to 2018. The Retail
Lending Volume Screen was not applied in this analysis.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00349
Fmt 4701
Sfmt 4725
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.053
ddrumheller on DSK120RN23PROD with RULES2
lending, small business lending, small farm lending, deposits, and demographic data from the CRA Analytics Data
6922
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Table 40 to § _.22: Small Business Lending Performance, 2006-2020 (Percentage of Retail
Lending Test Areas, categorized by product score)
Period
2006-2008
2009-2011
2012-2014
2015-2017
2018-2020
8.5+ ("Outstanding")
56.9
50.9
41.6
36.2
33.9
6.5 - 8.5 ("High
Satisfactory")
30.8
30.7
35.5
39.2
34.4
4.5 - 6.5 ("Low
Satisfactory")
10.0
13.8
17.4
18.3
21.4
1.5 - 4.5 ("Needs to
Improve")
1.8
3.9
4.8
5.8
9.4
0 - 1.5 ("Substantial
Noncompliance")
0.5
0.7
0.7
0.5
0.9
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00350
Fmt 4701
Sfmt 4725
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.054
ddrumheller on DSK120RN23PROD with RULES2
Performance in RL TA
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
6923
Table 41 to § _.22: Closed-End Home Mortgage Performance, 2006-2020 (Percentage of
Retail Lending Test Areas, categorized by product score)
Period
2006-2008
2009-2011
2012-2014
2015-2017
2018-2020
8.5+ ("Outstanding")
22.3
22.8
25.2
23.7
24.4
6.5 - 8.5 ("High
Satisfactory")
32.1
28.5
30.1
28.5
29.1
4.5 - 6.5 ("Low
Satisfactory")
27.5
27.6
25.3
26.7
27.0
1.5 - 4.5 ("Needs to
Improve")
14.5
16.6
16.0
16.6
16.8
0 - 1.5 ("Substantial
Noncompliance")
3.5
4.5
3.4
4.4
2.7
Performance in RL TA
Note: Tables 40 and 41 show the estimated distribution of bank-Retail Lending Test Area product scores mapped to
conclusion categories on the Retail Lending Test over five three-year periods for a set of intermediate and large
banks that were both CRA and HMDA reporters, using the fmal rule multipliers. The numbers shown are the
percentage of bank Retail Lending Test Areas in each conclusion category within each period. Bank asset size was
determined using assets data from the last two years of the period. Wholesale banks, limited purpose banks,
strategic plan banks, and banks that do not have at least one facility-based assessment area in a U.S. State or the
District of Columbia were excluded from the analysis. Facility-based assessment areas of large banks that were not
delineated in the fmal year of the period were also excluded. The analysis used home mortgage, small business,
small farm, deposits, and demographic data from the CRA Analytics Data Tables. Separate breakouts for open- and
closed-end home mortgages were not available prior to 2018. The Retail Lending Volume Screen was not applied in
this analysis.
Retail Services and
Section ll.23(a)(1) Retail Services and
Products Test—In General
Section ll.23(a)(2) Main Offices
ddrumheller on DSK120RN23PROD with RULES2
Section ll.23(a)(3) Exclusion
Current Approach
Under current CRA regulations, the
service test, which only applies to large
banks, establishes four criteria for
evaluating retail services: (1) the current
distribution of branches among low-,
moderate-, middle-, and upper-income
census tracts; 976 (2) a bank’s record of
976 See
current 12 CFR ll.24(d)(1).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
opening and closing branches,
particularly branches in low- or
moderate-income geographies or that
primarily serve low- or moderateincome individuals; 977 (3) the
availability and effectiveness of
alternative systems for delivering retail
banking services (or non-branch
delivery systems) in low- and moderateincome geographies and to low- and
moderate-income individuals; 978 and
current 12 CFR ll.24(d)(2).
current 12 CFR ll.24(d)(3). Under the
OCC’s CRA regulation, current 12 CFR 25.24(d)(3)
provides that alternative delivery systems include
‘‘ATMs, ATMs not owned or operated exclusively
for the bank or savings association, banking by
telephone or computer, loan production offices, and
977 See
978 See
PO 00000
Frm 00351
Fmt 4701
Sfmt 4700
(4) the range of services provided in
low-, moderate-, middle-, and upperincome geographies and the degree to
bank-at-work or bank-by-mail programs.’’ Under the
Board’s CRA regulation, current 12 CFR
228.24(d)(3) provides that alternative delivery
systems include ‘‘ATMs, ATMs not owned or
operated by or exclusively for the bank, banking by
telephone or computer, loan production offices, and
bank-at-work or bank-by-mail programs.’’ Under the
FDIC’s CRA regulation, current 12 CFR 345.24(d)(3)
describes alternative delivery systems as ‘‘RSFs
[remote service facilities], RSFs not owned or
operated by or exclusively for the bank, banking by
telephone or computer, loan production offices, and
bank-at-work or bank-by-mail programs.’’
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.055
Section ll.23
Products Test
6924
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
which the services are tailored to meet
the needs of those geographies.979
ddrumheller on DSK120RN23PROD with RULES2
The Agencies’ Proposal
In § ll.23(a)(1), the agencies
proposed a new Retail Services and
Products Test that would evaluate the
following for large banks: (1) delivery
systems and (2) credit and deposit
products responsive to the needs of lowand moderate-income individuals and
census tracts.980 Under this test, the
agencies proposed to use a
predominately qualitative approach
while incorporating quantitative
measures as guidelines. For the first part
of the test, in § ll.23(b), the proposal
sought to achieve a balanced evaluation
framework that, depending on bank
asset size, considered the following
bank delivery systems: (1) branch
availability and services; (2) remote
service facility availability; and (3)
digital and other delivery systems.981
For the second part of the test, in
§ ll.23(c), the proposal aimed to
evaluate a bank’s efforts to offer credit
and deposit products responsive to the
needs of low- and moderate-income
individuals, small businesses, and small
farms depending on bank asset size.982
The agencies also proposed in
§ ll.23(a)(2) that activities considered
for a bank under the Community
Development Services Test may not also
be considered under the Retail Services
and Products Test. (For a discussion of
the evaluation of community
development services, see the sectionby-section analysis for the Community
Development Services Test in § ll.25.)
The agencies proposed a tailored
approach to the Retail Services and
Products Test based on a large bank’s
asset size. As discussed in more detail
in the section-by-section analysis of
§ ll.23(b) and (c), for large banks with
assets of $10 billion or less in both of
the prior two calendar years, based on
the assets reported on its four quarterly
Call Reports for each of those calendar
years, the agencies proposed making
certain components optional to reduce
the data burden of new data collection
requirements for banks within this asset
category. For large banks with assets of
over $10 billion, the agencies proposed
requiring the full evaluation under the
proposed Retail Services and Products
Test.
Comments Received
Many of the commenters addressing
the Retail Services and Products Test
current 12 CFR ll.24(d)(4).
proposed § ll.23(a)(1).
981 See proposed § ll.23(b).
982 See proposed § ll.23(c).
979 See
980 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
generally supported the agencies’
proposal, although there were
differences among commenters on how
to apply the test, with several of these
commenters making recommendations
on how the test could be improved. A
few commenters argued that the test’s
quantitative guidelines do not add value
in measuring bank performance, but
supported the use of both qualitative
and quantitative approaches if banks are
given the opportunity to explain
performance that falls short of the
targets. Other commenters
recommended that the test include a
more rigorous assessment of retail
banking and services, with two
commenters noting that, while there are
improvements to the service test, the
test needs further developing to guide
examiners against ratings inflation. Two
commenters believed the test should be
applied to small and intermediate banks
to determine the effectiveness and
impact of retail services and products,
with one of these commenters believing
application to these banks would be
critical to ensuring branches are present
in low-income communities and
communities of color. One other
commenter suggested that some
activities included under the proposed
Community Development Services
Test—financial literacy and technical
assistance to small businesses—should
instead be included under the Retail
Services and Products Test. A few other
commenters recommended that direct
and indirect consumer lending be
evaluated quantitatively in the Retail
Lending Test, but also qualitatively in
the Retail Services and Products Test.
A few commenters recommended that
aspects of the test be more flexible to
address different business models and
account for recent and future changes in
digital banking. One of these
commenters expressed concern that the
proposed Retail Services and Products
Test could be interpreted as requiring a
bank to provide particular products and
services deemed to be beneficial to lowand moderate-income people and
requested clarification that this was not
intended. This commenter also believed
that the test would be inconsistent with
both the agencies’ stated goal of
tailoring the framework to different
business models and the safe and sound
statutory requirement. A few
commenters also suggested that the
agencies avoid making peer-based
comparisons under the final rule in
which one particular bank is penalized
for not offering a particular product or
service that is offered by another bank.
Some commenters provided
recommendations for incorporating race
and ethnicity into the proposed Retail
PO 00000
Frm 00352
Fmt 4701
Sfmt 4700
Services and Products Test. One
commenter asserted that all elements of
the agencies’ proposed Retail Services
and Products Test applicable to lowand moderate-income consumers and
communities could also be applied to
minority consumers and communities.
This commenter indicated, for example,
that in addition to evaluating branching
in low- and moderate-income
communities the agencies could
evaluate branching in minority
communities. Another commenter
asserted that the banking industry
increasingly resorts to providing digital
access to financial services and products
and services to reduce costs, but in
doing so risks further excluding
minority consumers and communities
given that they then have both less
access to branches and more limited
digital capabilities than white
consumers and communities. A
commenter expressed the view that the
agencies should expand qualitative
reviews in the Retail Services and
Products Test to provide consideration
for activities that close the racial wealth
gap by affirmatively serving racial
minority consumers and communities.
This commenter provided examples
such as special purpose credit programs
targeted to minority consumers,
affirmative marketing and offering of
affordable products to minority
consumers, and responsible lending
practices to prevent displacement.
Another commenter proposed that
positive consideration be given for
special purpose credit programs, smalldollar home mortgage programs, limited
English proficiency products, and
products for first-generation
homebuyers, indicating that they all
contributed to racial equity in housing.
This commenter added that
incentivizing bank activities with firsttime, socially disadvantaged
homebuyers would meaningfully
address the racial minority home
ownership gap. One commenter stated
that the agencies, when evaluating the
distribution of services and products to
low- and moderate-income consumers
and communities, should assess a
bank’s strategies and initiatives to serve,
and the responsiveness of the bank’s
services and products to, the needs of
minority consumers and communities.
Another commenter asserted that the
CRA regulations should incentivize
banks to meet the credit needs of
minority communities in a variety of
ways, including by creating products
and services specifically responsive to
minority community needs, placing
branches in majority-minority
neighborhoods, and investing in
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
community development projects that
serve minority communities. A
commenter asserted that banks that only
offer expensive products that do not
serve community needs should be
adversely rated. Another commenter
stated that agencies should evaluate the
qualitative impact of all bank lending,
and prohibit predatory practices like
negative amortization, interest-only
loans, and adjustable-rate mortgages. A
number of commenters asserted that
whether a bank maintains branches in
minority communities should be a
performance factor. For example, a
commenter stated that the agencies
should consider a bank’s branch
distribution across tracts with different
racial demographics, including
majority-minority census tracts, in
comparison to the aggregate
distribution. The agencies have
considered these comments and are
addressed in section III.C of this
SUPPLEMENTARY INFORMATION.
Final Rule
For the reasons discussed below, the
agencies are adopting, with certain
revisions, the proposed scope and
framework of the Retail Services and
Products Test in § ll.23(a)(1). More
specifically, the agencies are revising
the description of the scope of final
§ ll.23(a)(1) by clarifying that the test
evaluates the availability and
accessibility of a bank’s retail banking
services and products and the
responsiveness of those services and
products to the needs of the bank’s
entire community, including but not
limited to low- and moderate-income
individuals, families, or households and
low- and moderate-income census
tracts, as well as the needs of small
businesses and small farms. In response
to comments, the agencies are also
removing the word ‘‘targeted’’ from the
regulatory text in this paragraph to make
clear that this evaluation does not
mandate that banks make available
certain products or services or target
certain populations. In addition, as
explained in more detail in the sectionby-section analysis of § ll.23(b) (retail
banking services) and (c) (retail banking
products), the agencies are making
certain revisions to the components of
the Retail Services and Products Test
upon consideration of the comments
received.
The agencies are also adding clarity in
final § ll.23(a)(2) that branches, for
the purposes of the Retail Services and
Products Test, also include a main office
of a bank, if the main office is open to,
and accepts deposits from, the general
public. It was the intent of the agencies
to consider a main office that offers
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
deposits and is open to the general
public as part of the test. No change in
meaning is intended and this addition is
meant to provide clarity to the
evaluation.
Finally, to ensure that bank activities
that are considered under the Retail
Services and Products Test are not also
considered under the Community
Development Services Test, the agencies
are retaining the exclusion as proposed
in final § ll.23(a)(3), with a technical
edit to change the word ‘‘activities’’ to
‘‘services.’’ The agencies believe the use
of the word ‘‘services’’ rather than
‘‘activities’’ more clearly represents the
types of activities evaluated under both
the Community Development Services
Test and the Retail Services and
Products Test.
As explained in the proposal, the
agencies are drawing on the existing
approach used to evaluate a bank’s retail
services, while also updating and
standardizing the evaluation criteria to
reflect the now widespread use of
mobile and online banking. Although
some commenters expressed concern
with how benchmarks are applied, the
agencies believe that utilizing both a
quantitative and qualitative approach to
the test achieves the goals of
maintaining the current approach to
retail services while better standardizing
the evaluation criteria. The agencies are
sensitive to concerns about examiner
judgment and understand the need to
provide examiners guidance on
applying the test. The agencies note
that, while examiner judgment is an
important part of the CRA evaluation
process, the agencies will endeavor to
minimize unnecessary subjectivity and
increase consistency among examiners
by providing updated guidance,
training, and standards applicable to
evaluations under this test while also
attempting to guard against ratings
inflation. The agencies believe that
measured examiner judgment is
necessary to account for the unique
characteristics of a bank, including its
constraints, business model, and the
needs of its community. The agencies
are also clarifying that the intent of the
Retail Services and Products Test is not
to mandate that a bank offer particular
products or programs or to evaluate or
penalize a bank based on the types of
products or services its peers offer.
Rather, the agencies intend to measure
the availability and responsiveness of a
bank’s retail services to the needs of its
communities.
The agencies also considered
commenters’ recommendation to require
the evaluation of the Retail Services and
Products Test for small and
intermediate banks. As explained in the
PO 00000
Frm 00353
Fmt 4701
Sfmt 4700
6925
section-by-section analysis of §§ ll.21
(performance tests), ll.29 (small
banks), and ll.30 (intermediate
banks), these banks have more limited
capacities and are less able to offer as
wide a range of retail services and
products as their larger counterparts.
Requiring this test would increase the
burden on these banks without
sufficient compensating benefits. The
agencies believe that additional
consideration for activities under the
Retail Services and Products Test for
small and intermediate banks without a
requirement to collect additional data is
appropriate, as it may encourage
additional activities in low- and
moderate-income communities, without
imposing additional burden. The
agencies also considered commenters’
recommendations with respect to the
evaluation of other activities, such as
financial literacy and technical
assistance to small businesses. The
agencies, however, believe that services
such as these are best evaluated under
the Community Development Services
Test. Evaluating community
development services separately from
the Retail Services and Products Test
underscores the importance of these
services for fostering partnerships
among different stakeholders, building
capacity, and creating the conditions for
effective community development.
Section ll.23(b) Retail Banking
Services
Section ll.23(b)(1) Scope of
Evaluation
The Agencies’ Proposal
For large banks with assets of over
$10 billion, the agencies proposed in
§ ll.23(b), to evaluate the full breadth
of a bank’s delivery systems by both
maintaining an emphasis on branches
and increasing the focus on digital and
other delivery channels. Specifically,
the agencies proposed to evaluate three
components of the bank’s performance:
(1) branch availability and services in
proposed § ll.23(b)(1); (2) remote
service facility availability in proposed
§ ll.23(b)(2); and (3) digital and other
delivery systems in proposed
§ ll.23(b)(3). The proposal required
large banks with assets of $10 billion or
less to be evaluated only under the first
two components of delivery systems,
unless the bank requested additional
consideration of its digital and other
delivery systems and collected the
requisite data.983 The agencies asked for
feedback on whether the evaluation of
digital and other delivery systems
983 See proposed §§ ll.23(b) and
ll.42(a)(4)(ii).
E:\FR\FM\01FER2.SGM
01FER2
6926
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
should be optional or required for banks
with assets of $10 billion or less as
proposed, or alternatively, whether the
agencies should maintain current
evaluation standards for alternative
delivery systems for banks within this
tier. The current evaluation standards
include, for example, the ease of access
and use, reliability of the system, range
of services delivered, cost to consumers
as compared with the bank’s other
delivery systems, and rate of adoption
and use.
Comments Received
Most commenters that addressed
branch availability and services, and
remote service facility availability
agreed that branches remain an
important component in the evaluation
of a bank’s delivery systems, with some
of these commenters noting that
availability of branches curtails the
proliferation and use of predatory
lenders in those areas. Other
commenters questioned the application
of the evaluation to digital banks with
relatively few or no branches or remote
service facilities.
Some commenters suggested that
banks deemed to be performing at a
‘‘High Satisfactory’’ or ‘‘Outstanding’’
level on the proposed Retail Lending
Test should receive a presumption that
their distribution channels are
sufficiently serving low- and moderateincome communities, or at least receive
a relatively perfunctory evaluation of
their channels of distribution. One
commenter asked for clarity on how the
evaluation criteria will be used to assess
branch availability and services, remote
service facility availability, digital
alternatives, and other delivery systems
in practice. Another commenter
expressed concern that banks
maintaining branches in underserved
areas with little commercial or lending
activity would be unable to pass the
Retail Lending Volume Screen forcing
these banks to close branches in these
underserved areas and disincentivizing
potential new market entrants from
growing into rural markets. Two other
commenters asked that the agencies
consider the following: clarify that
delivery services would be evaluated
holistically to consider whether all
delivery channels together effectively
meet the needs of a bank’s customers
and communities; mitigate businessrelated factors behind branch closures;
determine the weight of each type of
delivery system, including branches,
based on the bank business model and
in proportion to the bank’s use of such
systems; provide favorable
consideration for branch openings in
low- and moderate-income communities
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
and other areas of need; and apply a
totality of the circumstances approach
that includes, e.g., the availability and
responsiveness of the bank’s branches
and services in low- or moderateincome census tracts and to low- or
moderate-income individuals, customer
complaints or testimonials, and the
bank’s own policies and procedures.
One commenter argued that the
proposal over-emphasizes delivery
systems without acknowledging that
banks are effectively meeting the needs
of low- and moderate-income
consumers through existing delivery
channels. This commenter further stated
that the emphasis on physical branches
makes it likely that the rule would need
to be updated again, as digital banking
becomes more common. Another
commenter asserted that the proposed
framework to evaluate the distribution
of a bank’s branches and remote service
facilities penalizes banks that primarily
operate through their branch and ATM
network and appears to favor a business
model with few or no branches. This
commenter urged the agencies to
consider, instead, an evaluation of
branches and ATMs that can only be
favorably considered in a bank’s Retail
Services and Products Test conclusion.
Most commenters that addressed the
agencies’ request for comment on
whether large banks with assets of $10
billion or less should be subject to an
evaluation of their digital and other
delivery systems recommended that all
large banks, including those with assets
of $10 billion or less, should be subject
to this evaluation. A few of these
commenters suggested that, at
minimum, the agencies should consider
evaluating large banks with assets of $10
billion or less under this component, if
a certain amount of their deposit
activity (e.g., one third) is generated
from digital channels. One commenter
recommended that the evaluation
should be optional for banks in the
intermediate bank category and above.
Another commenter recommended that
military banks or banks serving military
and veteran customers that have assets
of $10 billion or less have the ability to
request additional consideration of its
digital delivery systems and other
delivery systems. Another commenter
suggested that CRA modernization
should be used to encourage small and
intermediate banks to incorporate
digital channels and capabilities,
including through partnerships with
fintechs, to better reach low- and
moderate-income consumers and small
businesses. By contrast, some
commenters recommended that
evaluation of digital and other delivery
systems should remain optional for all
PO 00000
Frm 00354
Fmt 4701
Sfmt 4700
large banks. One other commenter
stated that the asset threshold for
optional evaluation of this component
of $10 billion or less was too low and
recommended that it be increased to
$100 billion or less.
Final Rule
The final rule adopts § ll.23(b) with
technical edits related to the
organization of the retail banking
services evaluation. Specifically, final
§ ll.23(b) renames the section header
from ‘‘delivery systems’’ to ‘‘retail
banking services’’ and adds the same
terminology throughout the regulatory
text where appropriate. No change in
meaning is intended and this revision is
meant to provide clarity that the
evaluation measures the availability and
accessibility of a bank’s retail banking
services, including through delivery
systems such as branches. The final rule
also includes a revision related to the
consideration of digital delivery systems
and other delivery systems for large
banks with assets of $10 billion or less
as of December 31 in either of the prior
two calendar years that do not operate
branches or remote service facilities.
The agencies are also making the
clarification that the respective
evaluations of bank branches or remote
service facilities only apply to a
particular bank if the bank has one or
more branches or remote service
facilities. Specifically, the final rule
requires large banks with assets of over
$10 billion to be evaluated for their
delivery systems under: final
§ ll.23(b)(2) (branch availability and
services), if the bank operates one or
more branches, final § ll.23(b)(3)
(remote service facility availability), if
the bank operates one or remote service
facilities, and final § ll.23(b)(4)
(digital delivery systems and other
delivery systems) (see the section-bysection analysis of § ll.23(b)(2)
through (4) for additional details). Large
banks, including military banks,984 with
assets of $10 billion or less that have
984 As discussed in the section-by-section analysis
of final § ll.21(a)(5), the agencies are adopting a
new paragraph in the final rule to clarify the
evaluation of military banks. Under the final rule,
the agencies will evaluate a military bank that
chooses to delineate the entire United States and its
territories as its sole facility-based assessment area
because its customers are not located within a
defined geographic area, as specified in final
§ ll.16(d), exclusively at the institution level
based on the bank’s performance in its sole facilitybased assessment area. For purposes of the final
Retail Services and Products Test, the agencies will
evaluate these banks at the facility-based
assessment area level pursuant to the provisions of
final § ll.16 for retail banking services, and, as
with other large banks with assets of $10 billion or
less, military banks can request the evaluation of
digital delivery systems and other delivery systems
at the institution level.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
branches will be evaluated only under
the first two components unless they
opt for consideration of digital delivery
systems and other delivery systems.
Further, military banks that are small
and intermediate banks may also
request consideration for digital and
other delivery systems pursuant to
§ ll.29(b) or § ll.30(b), as
applicable.
In response to comments, the final
rule clarifies that a large bank that had
assets of $10 billion or less as of
December 31 in either of the prior two
calendar years and that does not operate
branches will be evaluated only for its
digital delivery systems and other
delivery systems under § ll.23(b)(4).
This is a change from the proposal,
which required the evaluation of this
component only for large banks with
assets of over $10 billion. The agencies
believe requiring the evaluation of
digital delivery systems and other
delivery channels for branchless large
banks with assets of $10 billion or less
is appropriate, recognizing that such
banks do not deliver retail services to
their customers through branches.
However, the agencies decline to
require in the final rule an evaluation of
digital delivery systems and other
delivery systems for all large banks as
suggested by some commenters. The
agencies remain sensitive to the impact
of new data collection requirements for
large banks with assets of $10 billion or
less, and believe it is preferable to only
require this evaluation component for
such banks with no branches as
described above. The agencies believe
requiring evaluation of the digital
delivery systems and other delivery
systems of branchless banks with assets
of $10 billion or less ensures that the
delivery systems of such banks are
evaluated, while appropriately tailoring
the approach for banks with assets of
$10 billion or less, which may have less
capacity to meet new data collection
requirements.
The agencies note that the approach
used in the final rule for evaluating a
large bank’s retail banking services
would leverage quantitative benchmarks
to inform the branch and remote service
facility availability analysis and provide
favorable qualitative consideration for
branch locations in certain geographic
areas. In comparison to the current CRA
regulations, the final rule also more
fully evaluates digital and other delivery
systems, as applicable, in recognition of
the trend toward greater use of online
and mobile banking.
The agencies decline to adopt the
recommendation from some
commenters that a large bank receiving
a ‘‘High Satisfactory’’ or ‘‘Outstanding’’
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
level of performance on the Retail
Lending Test should be exempted in
some way from a Retail Services and
Products Test evaluation or be awarded
a presumptive conclusion under the
Retail Services and Products Test. The
agencies believe that a high level of
performance in the Retail Lending Test
does not obviate the importance of
evaluating how well the bank serves its
community through branches and other
delivery systems. The agencies believe
that the branch distribution and
availability, remote services availability,
and digital delivery systems and other
delivery systems evaluations are
important components in evaluating
how well a bank is meeting the credit
needs of its communities, including
low- and moderate-income individuals,
families, or households and low- and
moderate-income census tracts. The
agencies note that in determining how
well the bank serves its communities
through retail services and products, as
explained in more detail in the sectionby-section analysis of § ll.23(d), the
final rule considers the bank’s business
model and other performance context
factors when evaluating the bank’s retail
banking services. Examiners will
account for, among other things,
mitigating factors for closing branches
and whether the bank’s delivery
channels are meeting the needs of the
bank’s communities and customers.
Section ll.23(b)(2) Branch
Availability and Services
Section ll.23(b)(2)(i) Branch
Distribution
Section ll.23(b)(2)(i)(A) Branch
Distribution Metrics
Section ll.23(b)(2)(i)(B) Benchmarks
Current Approach
Under the current CRA regulations,
the service test performance criteria for
retail banking services place primary
emphasis on full service branches while
still considering alternative delivery
systems.985 Interagency guidance
explains that the principal focus is on
an institution’s current distribution of
branches and its record of opening and
closing branches, particularly branches
located in low- or moderate-income
geographies or that primarily serve lowor moderate-income individuals.986 An
evaluation of a large bank’s branch
locations involves a review primarily of
information gathered from a bank’s
public file.987 Using various methods,
the agencies evaluate the distribution of
branches across census tracts of
different income levels relative to the
percentage of census tracts by income
level, households (or families),
businesses, and population in the
census tracts.
The Agencies’ Proposal
The agencies proposed to evaluate a
large bank’s distribution of branches
among low-, moderate-, middle-, and
upper-income census tracts, compared
to a series of quantitative
benchmarks 988 that reflect community
and market characteristics as the first
component of the delivery systems
evaluation. Specifically, the agencies
proposed, in § ll.23(b)(1)(i)(A), to
consider the number and percentage of
the bank’s branches within low-,
moderate-, middle-, and upper-income
census tracts, referred to as branch
distribution metrics, using the data in
proposed § ll.23(b)(1)(i)(B), referred
to as benchmarks, to evaluate a bank’s
branch distribution among low-,
moderate-, middle-, and upper-income
census tracts.989 The agencies further
proposed that consideration of the
branch distribution metrics in a facilitybased assessment area would be
informed by benchmarks for the
distribution of census tracts,
households, total businesses, and all
full-service bank branches by census
tract income level.990 Each income level
and data point (census tracts,
households, businesses, and branches)
would have a benchmark, specific to
each assessment area.991 The agencies
asked for feedback on whether the
agencies should use the percentage of
families and total population in an
assessment area by census tract income
level in addition to the other
comparators listed (i.e., census tracts,
households, and businesses) for the
assessment of branches and remote
service facilities.
As explained more fully below, in the
section-by-section analysis of
§ ll.23(b)(1)(i)(C), the agencies also
proposed to consider the availability of
branches in low or very low branch
access census tracts, middle- and upperincome census tracts in which branches
deliver services to low- and moderateincome individuals, distressed or
underserved nonmetropolitan middleincome census tracts, and Native Land
Areas.
proposed § ll.23(b)(1)(i)(B).
proposed § ll.23(b)(1)(i)(A) and (B).
990 See proposed § ll.23(b)(1)(i)(B)(1) through
(4).
991 See id.
988 See
current 12 CFR ll.24(d).
986 See Q&A § ll.24(d)—1.
987 See Interagency Large Institution CRA
Examination Procedures (Apr. 2014).
985 See
PO 00000
Frm 00355
Fmt 4701
Sfmt 4700
6927
989 See
E:\FR\FM\01FER2.SGM
01FER2
6928
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Comments Received
Several commenters supported the
application of branch distribution
metrics and benchmarks, and
recommended removal of examiner
judgment by providing examiners with
enough guidance on how to apply the
metrics and weigh the distribution of
benchmarks to guard against ratings
inflation. Commenters also expressed a
range of views in response to the
agencies’ request for feedback on
whether the percentage of families and
total population should be used as
additional comparators to those in the
proposal to assess branches and remote
service facilities. A vast majority of
commenters that responded to this
request stated that introducing these
additional data points would be
unnecessary and redundant given the
comparators proposed in the rule such
as census tracts, households, and
businesses. One commenter believed the
use of total population in an assessment
area by census tract would be an
unreliable indicator due to population
income shifts over time. Another
commenter recommended instead that
the agencies consider external factors,
such as commuting patterns, which may
impact branch access. One commenter
suggested broadening the criteria for
evaluating a bank’s branch distribution
so that the agencies consider the
population density and amount of
economic activity in a particular census
tract. Another commenter suggested
information such as public
transportation and accessibility should
also be considered. One commenter
requested clarification on how the
agencies arrived at the benchmarks for
branch distribution as they appeared to
be arbitrary.
ddrumheller on DSK120RN23PROD with RULES2
Final Rule
The agencies are adopting proposed
§ ll.23(b)(1)(i)(A) (branch distribution
metrics) and (B) (benchmarks),
renumbered in the final rule as
§ ll.23(b)(2)(i)(A) and (B),
respectively, with minor word changes
for clarity and with no change in
meaning intended.992 The agencies
believe that the analysis of a bank’s
branch distribution through the use of
metrics and benchmarks is appropriate
to promote more transparency and
consistency in the evaluation process
and are incorporating and building
upon on current practices. Examiners
will be able to compare a bank’s branch
distribution to local data to help
determine whether branches are
accessible in low- or moderate-income
992 See
supra note 145.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
communities, to households of different
income levels, and to businesses in the
assessment area.
In light of the comments received, the
agencies have determined that the
benchmarks sufficiently measure branch
distribution. As a result, the agencies
believe that other external data factors
such as commuting patterns, public
transportation, population density, and
other factors are not necessary for this
analysis. The agencies plan to provide
guidance to examiners on how to
consider market and demographic
benchmarks when comparing to branch
distribution. However, the agencies note
that examiners will continue to have the
ability to consider qualitative factors to
inform the analysis of a bank’s branch
distribution.
In response to the commenter that
requested the agencies provide
clarification on how they arrived at the
benchmarks, as explained in the
proposal, the agencies believe that the
three community benchmarks are
important to provide additional context
for each assessment area. The
percentage of census tracts in a facilitybased assessment area by income level
enables the agencies to compare a
bank’s distribution of branches in
census tracts of each income level to the
overall percentage of those census tracts
in the assessment area. For example, if
20 percent of a bank’s branches are
located in low-income census tracts in
an assessment area, and 10 percent of
census tracts in the assessment area are
low-income, the agencies may consider
the bank to have a relatively high
concentration of branches in lowincome census tracts. The percentage of
households and the percentage of total
businesses in the facility-based
assessment area by census tract income
level are important complements to the
percentage of census tracts in a facilitybased assessment area by income level,
because households, businesses, and
farms reflect a bank’s potential customer
base, and may not be distributed evenly
across census tracts. Therefore, the
agencies would consider all benchmark
levels to inform a judgment about the
bank’s branch distribution in the
market.
As further explained in the proposal,
the agencies also believe that using a
new aggregate measurement of branch
distribution—referred to as a market
benchmark 993—that would measure the
993 The
aggregate number of branches in an
assessment area figure in a market benchmark is
comprised of full-service and limited-service
branch types as defined in the FDIC’s Summary of
Deposits.
PO 00000
Frm 00356
Fmt 4701
Sfmt 4700
distribution of all full-service bank 994
branches in the same facility-based
assessment area by census tract income,
would improve the branch distribution
analysis in several ways. First, having
such data would give examiners more
information for determining the extent
that branch services are provided in
census tracts of different income levels.
Second, examiners would have market
data on branches within facility-based
assessment areas to identify the extent
that census tracts of various income
levels are served by other banks’
branches relative to community
benchmarks. For example, if few other
banks have branches in low-income or
moderate-income census tracts within a
given area, then a bank’s higher share
would indicate responsive or
meaningful branch activity relative to
their peers.
Section ll.23(b)(2)(i)(C) Geographic
Considerations Access
The Agencies’ Proposal
In addition to the consideration of
branch metrics in § ll.23(b)(1)(i)(A)
and benchmarks in § ll.23(b)(1)(i)(B)
for the evaluation of a bank’s branch
distribution analysis, the agencies also
proposed to consider the availability of
branches in the following geographic
areas: (1) low or very low branch access
census tracts; (2) middle- and upperincome census tracts in which branches
deliver services to low- and moderateincome individuals; (3) distressed or
underserved nonmetropolitan middleincome census tracts; and (4) Native
Land Areas.
In § ll.23(b)(1)(i)(C)(1), the agencies
proposed providing favorable
consideration for banks that operate
branches in ‘‘low branch access census
tracts’’ or ‘‘very low branch access
census tracts.’’ 995 The agencies
proposed definitions for these two types
of census tracts.996 A census tract would
qualify as low branch access or very low
branch access based on the number of
bank branches, including branches of
commercial banks, savings and loan
associations, and credit unions found
within a certain distance of the census
tract’s center of population.997 Low
branch access census tracts would have
been those in which there is only one
branch within this distance or within
the census tract itself, and very low
branch access census tracts would have
been those in which there are no
994 The agencies intend to issue guidance to
explain the term ‘‘full-service bank’’ and how the
agencies will apply the term.
995 See proposed § ll.23(b)(1)(i)(C)(1).
996 See proposed § ll.12.
997 See id.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
branches within this distance or within
the census tract itself.998
The agencies indicated in the
proposal that they were considering two
distance-based approaches: (1) the
proposed ‘‘fixed distance approach;’’
and (2) the alternative ‘‘local approach,’’
to determine the relevant distance
threshold for each census tract. The
agencies also considered a second, more
qualitative alternative, which did not set
specific geographic distances in the
identification of areas that may
experience limited access to branches.
Proposed approach to low and very
low branch access (fixed distance
approach). In the proposed approach, a
fixed distance threshold would be
established based on whether the census
tract is in an urban, suburban, or rural
area.999 Urban areas would have a
distance threshold of two miles,
suburban areas would have a distance
threshold of five miles, and rural areas
would have a distance threshold of 10
miles.1000 The agencies proposed
providing the following scenarios with
favorable consideration: (1) a bank
opens a branch that alleviates one or
more census tracts’ very low branch
access status; or (2) a bank maintains a
branch in one or more census tracts’ low
branch access status. In addition, the
agencies proposed assessing whether a
bank provides effective alternatives for
reaching low- and moderate-income
individuals, communities, and
businesses when closing a branch that
would lead to one or more census tracts
being designated low or very low branch
access. The agencies sought feedback on
how narrowly designations of low
branch access and very low branch
access should be tailored so that banks
may target additional retail services
appropriately.
Alternative approach to low and very
low branch access (local alternative
approach). In the alternative approach
described by the agencies in the
SUPPLEMENTARY INFORMATION of the
proposal, a separate local area would be
identified for each set of central
counties of a metropolitan area and
metropolitan division, the outlying
counties of each metropolitan area and
metropolitan division, and the
nonmetropolitan counties of each State,
as defined by the Office of Management
and Budget. This alternative approach
would determine the distance
thresholds for defining low and very
low branch access census tracts relative
to local variation in population density
and land-use patterns, and would adjust
998 See
id.
proposed § ll.12.
1000 See id.
999 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
over time as branches open and close.
The agencies sought feedback on how
geographies should be divided to
appropriately identify different distance
thresholds and whether a fixed distance
standard, such as that in the proposed
approach, or a locally determined
distance threshold, such as in the
alternative approach, would be most
appropriate when identifying areas with
limited branch access.
Qualitative alternative approach to
evaluating areas with few or no
branches (qualitative alternative
approach). Under a qualitative
alternative approach described by the
agencies in the SUPPLEMENTARY
INFORMATION of the proposal, the
agencies would not define a ‘‘low
branch access census tract,’’ a ‘‘very low
branch access census tract,’’ or any
similar term. Instead, in addition to
considering the bank’s branch
distribution metrics compared to
benchmarks and record of opening and
closing branches for each facility-based
assessment area, the agencies would
undertake a qualitative consideration of
certain factors related to low- and
moderate-income census tracts with few
or no branches. These factors may
include considering the availability of a
bank’s branches; the bank’s actions to
maintain branches; the bank’s actions to
otherwise deliver banking services; and
specific and concrete actions by a bank
to open branches in these areas.
Under the proposed and alternative
approaches, the agencies proposed
providing the following scenarios with
favorable consideration: (1) a bank
opens a branch that alleviates one or
more census tracts’ very low branch
access status; or (2) a bank maintains a
branch in one or more census tracts’ low
branch access status. In addition, the
agencies proposed assessing whether a
bank provides effective alternatives for
reaching low- and moderate-income
individuals, communities, and
businesses when closing a branch that
would lead to one or more census tracts
being designated low or very low branch
access. The agencies sought feedback on
how narrowly designations of low
branch access and very low branch
access should be tailored so that banks
may target additional retail services
appropriately.
Lastly, the agencies sought feedback
on whether the presence of credit
unions should be considered under any
of the proposed approaches, and on
other alternative approaches or
definitions that should be considered in
designating places with limited branch
access.
PO 00000
Frm 00357
Fmt 4701
Sfmt 4700
6929
Comments Received
In response to the agencies’ proposed
fixed distance approach and the
alternative local distance approach,
commenters were divided in their views
on which of the two approaches would
be most appropriate to use in
determining the relevant distance
threshold for census tracts proposed to
be defined as low or very low branch
access. Several commenters supported
the fixed distance approach, with one
commenter stating it would create a
more consistent framework. This
commenter argued that the local
approach may disincentivize banks from
adding branches in low branch access
areas as it would result in the distance
threshold decreasing in the next
evaluation. By contrast, other
commenters argued that the local
approach would be preferable, with one
of these commenters stating that the
local approach has a broader reach and
is a more precise measure due to the
local context. A few other commenters
asked for clarification on how low and
very low branch access would be
considered in the examination, with one
of these commenters further noting that
the concept lacked clarity with respect
to the impact opening or closing of
branches would have on these
geographies. One commenter suggested
that a smaller distance, such as a quarter
mile, should be used in densely
populated areas. Another commenter
suggested that the definitions of ‘‘low’’
and ‘‘very low’’ branch access should
connect to branches per population and
rates of unbanked and underbanked
populations, and that the agencies
should consider community input in
making a final determination.
Commenters’ views on how
geographies should be divided were
generally in line with the proposed
approach. However, one commenter
recommended that the agencies use
existing data tools to delineate or divide
geographies for each distance threshold.
For example, the agencies could use a
combination of the FFIEC’s guidance on
census tracts to delineate or divide
geographies for each distance threshold
and the USDA’s Economic Research
Service, which provides rural-urban
codes to classify how commutable
certain rural and urban census tracts are
based on urbanization, population
density, and daily commuting patterns.
In response to how often local
distances for the alternative local
distance approach, if adopted, should be
updated, some commenters
recommended different frequencies
including: updating in real-time using
geographic mapping applications;
E:\FR\FM\01FER2.SGM
01FER2
6930
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
annually; over a period of under three
years; and no more frequently than
every five years so as not to exacerbate
issues regarding distance thresholds
decreasing, and the resulting increase in
areas being designated as low branch
access.
Some commenters expressed a range
of views with respect to whether credit
union branches should be considered in
the geographic considerations. Most of
these commenters believed that credit
union locations should not be
considered for several reasons,
including that credit unions are not
subject to CRA, have limitations in their
membership that could disqualify
members of the community from
utilizing their services, and pursue very
different models from banks. Two
commenters believed credit union
locations should be included, with one
commenter stating that credit union
product offerings are very similar to
those of banks. One commenter noted
that if activities evaluated under the
CRA are offered by credit unions, then
their locations should be considered.
ddrumheller on DSK120RN23PROD with RULES2
Final Rule
The agencies are not finalizing
proposed § ll.23(b)(1)(i)(C)(1) to
provide consideration for the
availability of branches in low or very
low branch access census tracts in the
evaluation of a bank’s branch
distribution analysis. In making this
determination, the agencies considered
several points. As noted by some
commenters, the agencies considered
that while each of the approaches
identified by the agencies had benefits,
there were also downsides to each
approach. The decision to remove these
criteria is responsive to comments
received regarding limitations of each of
the methodologies proposed in terms of
including local context, minimizing
unnecessary complexity in the final
rule, and avoiding unintended effects.
Furthermore, the agencies believe that,
without direct consideration of low and
very low branch access areas, the final
rule already includes sufficient
consideration for branches in additional
geographic areas which supplement the
benchmarks based on tract-level median
incomes. The final rule includes
additional geographic considerations for
areas that include: middle- and upperincome census tracts with branches
delivering services used by low- and
moderate-income individuals, families,
or households; distressed or
underserved nonmetropolitan middleincome census tracts that are defined, in
part, based on being remote and lacking
population density; and Native Land
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Areas. These additional geographic
considerations are discussed below.
Section ll.23(b)(2)(i)(C)(1) Middleand Upper-Income Census Tracts
Section ll.23(b)(2)(i)(C)(2)
Distressed or Underserved
Nonmetropolitan Middle-Income
Census Tracts
Section ll.23(b)(2)(i)(C)(3)
Land Areas
Native
The Agencies’ Proposal
In addition to the agencies’ proposal
to designate low and very low branch
access census tracts, the agencies
proposed providing qualitative
consideration for banks operating
branches in other geographic areas.1001
These areas would be favorably
considered when evaluating overall
accessibility of delivery systems,
including to low- and moderate-income
populations.
Specifically, in § ll.23(b)(1)(i)(C)(2),
the agencies proposed providing
qualitative consideration for retail
branching in middle- and upper-income
census tracts if a bank can demonstrate
that branch locations in these
geographies deliver services to low- or
moderate-income individuals.1002 The
agencies sought feedback on what
information banks should be required to
provide to demonstrate the delivery of
such services to low- or moderateincome individuals.
In addition, in § ll.23(b)(1)(i)(C)(3),
the agencies proposed providing
qualitative consideration for banks that
operate branches in a ‘‘distressed or
underserved nonmetropolitan middleincome census tract’’ as defined in
proposed § ll.12. The agencies sought
feedback on whether branches in
distressed or underserved
nonmetropolitan middle-income census
tracts should receive qualitative
consideration without additional bank
documentation that the branch provides
services to low- or moderate-income
individuals. Finally, in
§ ll.23(b)(1)(i)(C)(4), the agencies
proposed providing qualitative
consideration if banks operate branches
in ‘‘Native Land Areas’’ as defined in
proposed § ll.12.
Comments Received
With respect to providing
consideration for retail branching in
middle- and upper-income census
tracts, several commenters supported
favorable qualitative consideration
based on proximity to low- or moderate1001 See
proposed § ll.23(b)(1)(i)(C)(2) through
(4).
1002 See
PO 00000
proposed § ll.23(b)(1)(i)(C)(2).
Frm 00358
Fmt 4701
Sfmt 4700
income census tracts or if a bank can
demonstrate with data that these
locations deliver services to low- and
moderate-income individuals. However,
a few commenters opposed giving
qualitative consideration for retail
branching in higher-income census
tracts, with one commenter stating that
it could be used to avoid opening
branches in low- or moderate-income
census tracts. A few other commenters
also opposed giving qualitative credit
for branches in middle- and upperincome census tracts on the basis that it
would be redundant, with one
commenter explaining that if the
agencies adopt the proposal to consider
deposit products used by customers
residing in low- or moderate-income
census tracts, regardless of the location
of the branch providing the product,
that performance measures would
already capture branches in non-low- or
moderate-income census tracts that
effectively offer deposit products to
customers residing in low- or moderateincome census tracts.
Some commenters generally
supported favorable qualitative
consideration for branches located in
distressed and underserved
nonmetropolitan middle-income census
tracts. A few commenters supported
consideration only if documentation is
provided that demonstrates these
branches serve low- or moderate-income
individuals. Two of these commenters
noted that deposits data could be
utilized to support usage by low- or
moderate-income individuals. Other
commenters supported the addition of
positive consideration for banks that
operated branches in Native Land Areas.
One commenter requested that U.S.
military installations be added to the list
of geographies where banks could
receive additional consideration if they
have branches placed in these
geographies.
Final Rule
After considering the comments
received, the agencies are adopting
proposed § ll.23(b)(1)(i)(C)(2) through
(4), renumbered in the final rule as
§ ll.23(b)(2)(i)(C)(1) through (3),
largely as proposed with clarifying
edits. In evaluating the overall
accessibility of retail banking services,
including to low- and moderate-income
individuals, families, or households and
low- and moderate-income census
tracts, the agencies believe it
appropriate to provide qualitative
consideration for operating branches in:
(1) middle- and upper-income census
tracts in which branches deliver
services to low- and moderate-income
individuals, families, or households to
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
the extent that low- and moderateincome individuals, families, or
households use the services offered; (2)
distressed and underserved
nonmetropolitan middle-income census
tracts; and (3) Native Land Areas.
The agencies believe that it is
appropriate to extend qualitative
consideration to bank branches
providing retail banking services to lowand moderate-income individuals,
families, or households because access
to those services is integral to the
financial well-being of low- and
moderate-income individuals, families,
or households wherever they reside.
Furthermore, the agencies agree with
the commenters’ recommendation that,
to ensure that the services provided
confer an actual benefit to low- and
moderate-income individuals, families,
or households, the consideration of
branches in middle- and upper-income
census tracts should include a
requirement that banks demonstrate the
extent to which low- and moderateincome individuals, families, or
households utilize the services at these
branch locations. Accordingly, the final
rule provides that if a bank seeks
consideration for a branch located in a
middle- or upper-income census tract,
the bank should be prepared to provide
documentation that indicates the extent
to which low- or moderate-income
individuals, families, or households use
the services offered. To the extent
helpful, the agencies will consider
providing additional guidance to banks
or examiners regarding how banks could
demonstrate both that their branches in
middle- or upper-income tracts deliver
services to low- or moderate-income
individuals, families, or households,
and the extent to which low- and
moderate-income individuals, families,
or households use the services offered.
The agencies expect banks to use
available information to demonstrate the
degree to which bank branch services in
middle- and upper-income census tracts
are used by low- and moderate-income
individuals, families, or households.
However, in response to commenters
who suggested the use of deposits data
for these purposes, the agencies note
that the deposits data reported to the
agencies at the county level under final
§ ll.42(b)(3) does not have the
necessary information for the agencies
to use that data in making a
determination whether branches are
used by low- or moderate-income
individuals, families, or households. In
addition, deposits data reported to the
agencies under final § ll.42(b)(3) will
be reported only by large banks with
assets over $10 billion, as well as other
banks that may opt in to reporting these
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
data. As a result, these data will not be
useful for determining the income level
of the census tracts where depositors
live or the depositors’ income level.
However, despite the limitations of
deposits data, the agencies encourage
banks to use information available to the
bank to demonstrate that branches
outside of low- and moderate-income
census tracts are serving low- and
moderate-income individuals, families,
or households.
The agencies also believe that
qualitative consideration should be
given to the availability of branches in
distressed or underserved
nonmetropolitan middle-income census
tract because, given the economic
characteristics of these areas, residents,
businesses, and farms may have limited
access to financial services.
Additionally, in facility-based
assessment areas where there are few or
no low- and moderate-income census
tracts, the consideration of bank branch
availability in distressed or underserved
census tracts could provide examiners
with additional insight into the bank’s
overall branch availability.
The agencies also recognize that
branch access is limited for many Native
communities and consider it
appropriate to emphasize bank
placement of branches in Native Land
Areas.1003 As previously discussed in
the section-by-section analysis of
§ ll.13(j), majority-Native American
counties have an average of two bank
branches compared to the nine-branch
average in nonmetropolitan counties
and well below the 27-branch overall
average for all counties.1004 For that
reason, the final rule provides
additional qualitative consideration for
bank branches located in Native Land
Areas. In response to one commenter
who suggested additional consideration
of branches on military installations the
agencies note that statistics from the
2015 to 2019 American Community
Survey show that current active-duty
and reserve members of the military, as
well as veterans live in households with
higher incomes than households that do
not contain veterans and decline the
inclusion of this addition to the final
rule.
Finally, the agencies believe that
other changes to the final rule regarding
the positive consideration of deposits
1003 See Miriam Jorgensen and Randall K.Q. Akee,
‘‘Access to Capital and Credit in Native
Communities: A Data Review, Native Nations
Institute’’ (Feb. 2017), https://www.novoco.com/
sites/default/files/atoms/files/nni_find_access_to_
capital_and_credit_in_native_communities_
020117.pdf.
1004 Information calculated using the FDIC’s
Summary of Deposits (2020).
PO 00000
Frm 00359
Fmt 4701
Sfmt 4700
6931
products address concerns raised by
some commenters regarding the
redundancies of considering deposits
products used by customers in low- and
moderate-income census tracts,
regardless of branch location.
Section ll.23(b)(2)(ii) Branch
Openings and Closings
Section ll.23(b)(2)(iii) Branch Hours
of Operation and Services
Current Approach
Under current CRA regulations, the
agencies evaluate a bank’s branch
openings and closings during the
evaluation period relative to the bank’s
branch distribution and consider if any
changes impacted low- or moderateincome census tracts and accessibility
for low- or moderate-income
individuals.1005
The Agencies’ Proposal
In reviewing a bank’s branch
availability and services, in proposed
§ ll.23(b)(1)(ii), the agencies proposed
to evaluate a bank’s record of opening
and closing branch offices in facilitybased assessment areas since the
previous examination to inform the
degree of accessibility of banking
services to low- and moderate-income
individuals and in low- and moderateincome census tracts. Specifically, the
agencies proposed to include an
assessment of whether branch openings
and closings improved or adversely
affected the accessibility of its delivery
systems, particularly in low- and
moderate-income census tracts and to
low- and moderate-income individuals.
In proposed § ll.23(b)(1)(iii)(A), the
agencies proposed to evaluate the
reasonableness of branch hours in lowand moderate-income census tracts
compared to middle- and upper-income
census tracts, including but not limited
to whether branches offer extended and
weekend hours. The agencies also
proposed in § ll.23(b)(1)(iii)(B) to
evaluate the range of services provided
at branch locations that improve access
to financial services or decrease costs
for low- or moderate-income
individuals. The agencies proposed
further that examples of such services
could include, but are not limited to:
• Providing bilingual/translation
services; 1006
• Free or low-cost check cashing
services, including government and
payroll check cashing services; 1007
1005 See current 12 CFR ll.24(d)(2); see also
Q&A § ll.24(d)–1.
1006 See proposed § ll.23(b)(1)(iii)(B)(1).
1007 See proposed § ll.23(b)(1)(iii)(B)(2).
E:\FR\FM\01FER2.SGM
01FER2
6932
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
• Reasonably priced international
remittance services; 1008 and
• Electronic benefit transfer
accounts.1009
The agencies sought feedback on
whether there are other branch-based
services that could be considered as
responsive to low- and moderateincome needs. The agencies also
proposed in § ll.23(b)(1)(iii)(C) to
evaluate the degree to which branch
services are responsive to the needs of
low- and moderate-income individuals
in a bank’s facility assessment area.
Comments Received
Several commenters emphasized the
importance of branches, with some
recommending additional consideration
as an incentive for banks that operate
and maintain branches in low- or
moderate-income, rural, minority, or
Native communities. Other commenters
recommended stronger consequences,
including negative consideration, such
as penalties, for banks closing branches
in low- and moderate-income and
majority- minority communities,
including Native American
communities. Some commenters
recommended that the agencies analyze
branch closures over a period of time
that is longer than the examination
period and implement related
quantitative performance metrics.
Another commenter believed that
qualitative factors should be used, as it
would be unreasonable to draw
conclusions about branch accessibility
by relying only on quantitative
calculations of physical branch
distribution. Two commenters requested
guidance related to how a
disproportionate number of closings or
openings in a low- or moderate-income
census tract would impact the service
test score.
Commenters provided a variety of
examples of other branch-based services
that could be considered responsive to
low- and moderate-income needs.
Examples of such services included
language services geared to individuals
with limited English proficiency,
including at ATM and other remote
facilities; other culturally appropriate
services and resources; individual tax
identification number (ITIN) accounts;
credit-builder loans; other products and
services targeting low- and moderateincome consumers, including but not
limited to low- and moderate-income
consumers with disabilities; free notary
services; free or low-cost money orders;
access for people with prior banking
issues, such as those flagged in
1008 See
1009 See
proposed § ll.23(b)(1)(iii)(B)(3).
proposed § ll.23(b)(1)(iii)(B)(4).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
ChexSystems; and activities that address
potential fraud. One commenter
suggested the ability to come into a
branch while also being able to meet
with a loan officer virtually as an
example of a branch-based service that
should receive consideration. Other
commenters suggested that deposittaking automated services and ATMs/
interactive teller machines could be
considered responsive branch-based
services, with one of these commenters
particularly noting those in banking
deserts could be considered responsive
to low branch access areas. A few
commenters expressed support for, and
noted the importance of, banking
services including hours of operation
and services responsive to low- and
moderate-income individuals and in
low- and moderate-income
communities. Other commenters
requested that when evaluating banking
services such as extended hours and
ATM placement, the agencies should
consider different business models (e.g.,
a grocery store in middle- or upperincome areas) and clarify that a bank
would not be expected to offer such
hours at branches located in low- or
moderate-income census tracts if the
bank does not do so at similarly-situated
branches located in middle- or upperincome census tracts.
Final Rule
The agencies are finalizing
§ ll.23(b)(1)(ii) (branch openings and
closings) and (iii) (branch hours of
operation and services) as proposed,
renumbered in the final rule as
§ ll.23(b)(2)(ii) and (iii), respectively,
with technical edits not intended to
have a change in meaning, including
revisions of the language with respect to
‘‘check cashing services’’ and
‘‘electronic benefit transfer accounts.’’
Regarding branch openings and
closings, the final rule builds on the
agencies’ current practice in which the
evaluation includes an assessment of
whether branch openings and closings
improved or adversely affected the
accessibility of the bank’s retail banking
services, particularly to low- and
moderate-income census tracts and lowand moderate-income individuals,
families, or households. In response to
commenters who recommended using
incentives for banks opening or
penalties for closing branches in
communities of need, the agencies note
that the quantitative measures of final
§ ll.23(b)(1)(ii) are a single aspect of
the branch availability evaluation that,
similar to the current CRA regulations,
extends positive consideration for
branch openings increasing accessibility
of banking services to low- and
PO 00000
Frm 00360
Fmt 4701
Sfmt 4700
moderate-income individuals, families,
or households and census tracts.
Similarly, branch closings that limit or
otherwise restrict the availability of
retail banking for the same individuals
and geographies are also considered in
evaluating bank performance. Under the
final rule, examiners will also use
qualitative factors, such as performance
context, to draw conclusions regarding
a bank’s openings and closings of
branches, which may impact a bank’s
performance for this evaluation.
Importantly, although not considered
for purposes of the CRA evaluation, the
agencies do consider opening and
closing branches in minority areas for
purposes of fair lending reviews.
Also in response to comments, the
agencies further note that evaluating
branch opening and closings over a
different time period than the time
period during which other activities are
evaluated with respect to the Retail
Services and Products Test and other
tests would make it difficult to measure
the bank’s overall CRA performance
within the set evaluation period. The
agencies believe that accounting for
branch openings and closings within the
same evaluation period as all other bank
activities gives a clear overall picture of
how well the bank is serving its
community within a set time period.
With respect to the bank’s hours of
operation and services in low- and
moderate-income census tracts, the
agencies considered comments
regarding the consideration of different
business models and branch hours
expectations in the final rule. The
agencies believe the evaluation should
remain qualitative and that it is not
appropriate to require that branches
offer extended or weekend hours. For
that reason, final § ll.23(b)(1)(iii)(A)
considers the reasonableness of bank
branch hours in low- and moderateincome census tracts in comparison to
middle-and upper-income census tracts
as the primary qualitative consideration.
Whether a branch offers extended or
weekend hours is only one means
through which the bank can
demonstrate the reasonableness of its
hours in low- and moderate-income
census tracts. During their review,
examiners will consider a range of
qualitative factors, including the bank’s
business model.
The agencies received a variety of
suggestions from commenters as to
additional responsive branch-based
services and considered whether these
suggested services should be added to
the agencies’ proposed list of services
considering the range of services in final
§ ll.23(b)(1)(iii)(B). However, the
agencies do not believe that it is
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
necessary to add the additional
examples suggested by commenters to
the list provided in the final rule
because it is not an exhaustive list. The
agencies note that examiners may
consider additional services provided at
bank branches in low-, moderate-,
middle-, and upper-income census
tracts. Moreover, with respect to some
recommendations made by commenters,
such as providing CRA consideration for
language services for individuals with
limited English proficiency and other
culturally appropriate services and
resources, the agencies agree that this
type of activity should be eligible for
CRA credit; therefore, the Retail
Services and Products Test includes
bilingual and translation services in the
evaluation of branch services. Other
recommendations, such as placement of
ATMs and extended hours are also
already considered in the Retail
Services and Products Test. The
agencies are adopting
§ ll.23(b)(1)(iii)(C) as proposed with
minor edits as commenters supported
responsive retail banking services.
Section ll.23(b)(3) Remote Service
Facility Availability
ddrumheller on DSK120RN23PROD with RULES2
Current Approach
Currently, examiners determine
whether a large bank’s non-branch or
alternative delivery systems,1010 such as
ATMs, are available and effective in
providing retail banking services in lowand moderate-income areas and to lowand moderate-income individuals.1011
With respect to alternative delivery
systems, examiners consider factors
such as: the ease of access and use;
reliability of the system; range of
services delivered; cost to consumers as
compared with the bank’s other delivery
systems; and the rate of adoption and
use.1012 Examiners also consider any
information a bank maintains and
provides to examiners to demonstrate
that the bank’s alternative delivery
systems are available to, and used by,
low- or moderate-income individuals,
such as data on customer usage or
1010 The Board’s and OCC’s current CRA
regulations provide a non-exhaustive list of
alternative systems for delivering retail banking
services which include: ‘‘ATMs, ATMs not owned
or operated by or exclusively for the bank, banking
by telephone or computer, loan production offices,
and bank-at-work or bank-by-mail programs.’’ See
current 12 CFR ll.24(d)(3). Under the FDIC’s CRA
regulations, current 12 CFR 345.24(d)(3) describes
alternative delivery systems as ‘‘RSFs, RSFs not
owned or operated by or exclusively for the bank,
banking by telephone or computer, loan production
offices, and bank-at-work or bank-by-mail
programs.’’
1011 See Interagency Large Institution CRA
Examination Procedures; see also Q&A
§ ll.24(d)(3)–1.
1012 See Q&A § ll.24(d)(3)–1.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
transactions.1013 Although examiners
may consider several factors,
evaluations of non-branch delivery
systems generally focus on the
distribution of the bank’s ATMs across
low-, moderate-, middle-, and upperincome census tracts, and a comparison
of that distribution to the percentage of
census tracts by income level,
households (or families), businesses, or
populations across these census tracts,
particularly low- and moderate-income
census tracts. Examiners also review the
types of services offered by a bank’s
ATMs (i.e., deposit-taking and cashonly) and consider other qualitative
factors that improve access to ATMs in
low- and moderate-income census
tracts.
The Agencies’ Proposal
The agencies proposed to separately
evaluate a large bank’s remote service
facility availability 1014 from the bank’s
digital and other delivery systems in
order to focus on the availability of
these facilities and leverage community
benchmarks in the evaluation. In
comparison to the current CRA
regulations, the agencies proposed an
independent evaluation of remote
service facilities to underscore the
effects these facilities have on low- and
moderate- income individuals and
communities.
As with the branch distribution
analysis, the agencies proposed to
evaluate the bank’s distribution of
remote service facilities among low-,
moderate-, middle-, and upper-income
census tracts in § ll.23(b)(2)(i),
referred to as metrics, compared to the
three data points in § ll.23(b)(2)(ii),
referred to as benchmarks, which would
complement a qualitative evaluation.
The agencies proposed that an
evaluation of a bank’s remote service
facilities distribution metrics would be
informed by comparing those metrics to
the following benchmarks, which are
specific to each facility-based
assessment area: (1) the percentage of
census tracts in the facility-based
assessment area that are low-, moderate, middle-, and upper-income census
tracts; 1015 (2) the percentage of
households in the facility-based
assessment area that are in low-,
moderate-, middle-, and upper-income
1013 See
id.
agencies define ‘‘remote service facility’’
to mean an automated, virtually staffed, or
unstaffed banking facility owned or operated by, or
operated exclusively for, the bank, such as an ATM,
interactive teller machine, cash dispensing
machine, or other remote electronic facility at
which deposits are received, cash dispersed, or
money lent. See proposed § ll.12.
1015 See proposed § ll.23(b)(2)(ii)(A).
1014 The
PO 00000
Frm 00361
Fmt 4701
Sfmt 4700
6933
census tracts; 1016 and (3) the percentage
of total businesses in the facility-based
assessment area that are in low-,
moderate-, middle-, and upper-income
census tracts.1017 The evaluation would
also include an assessment of remote
service facilities in low- and moderateincome census tracts and changes to the
placement of remote service facilities
since the previous examination.
In addition to using the community
benchmarks, in § ll.23(b)(2)(iii), the
agencies proposed to consider whether
the bank offers customers fee-free access
to out-of-network ATMs in low- and
moderate-income census tracts.
Comments Received
There was no consensus among
commenters regarding the evaluation of
remote service facilities such as ATMs.
A few commenters did not support the
consideration of ATMs when evaluating
a bank’s presence in low- or moderateincome communities, with one of these
commenters noting that ATMs are not
the same as full-service branches. A few
other commenters made specific
recommendations for CRA
consideration, which included
considering ATM placement in low- and
moderate-income geographies on an
optional basis or providing favorable
consideration in the Retail Services and
Products Test conclusion but not
downgrading a bank if it does not place
a certain number of ATMs in low- and
moderate-income census tracts, and
favorably considering a bank’s policy to
reimburse fees when customers access
out-of-network ATMs or partner with
third-party ATM networks that have
robust coverage of low- and moderateincome areas. One commenter asked for
clarification on how seasonal ATMs
would be considered in the evaluation.
Final Rule
The agencies are adopting proposed
§ ll.23(b)(2)(i) and (ii), renumbered in
the final rule as § ll.23(b)(3)(i) and
(ii), pertaining to the remote service
facilities distribution metrics and
benchmarks, respectively, with a
revision to add the availability of remote
service facilities in other geographies
and other technical edits, as explained
below. The agencies believe that the use
of metrics and benchmarks will allow
for the comparison of a bank’s remote
service facilities availability to local
data (i.e., percentage of census tracts,
households, and total businesses) to
help determine whether remote service
facilities are accessible in low- or
moderate-income communities, to
1016 See
1017 See
E:\FR\FM\01FER2.SGM
proposed § ll.23(b)(2)(ii)(B).
proposed § ll.23(b)(2)(ii)(C).
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6934
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
individuals of different income levels,
and to businesses in the assessment area
and are incorporating and building on
current practice. The agencies believe
this type of comparison requires robust
data that would not be generated with
an optional evaluation. Accordingly, the
agencies decline to follow commenters’
suggestion to make this an optional
evaluation for large banks.
The agencies agree with commenter
suggestions that both branches and
remote service facilities remain an
important component in the evaluation
of a bank’s delivery systems as a means
to obtain credit and banking services.
For that reason, the agencies are further
adopting final § ll.23(b)(3)(i)(C) with
respect to additional geographic
considerations to mirror the other
geographic areas considered for
branches in final § ll.23(b)(2)(i)(C).
The agencies also agree that while both
are important, remote service facilities
are not the same as branches and
retained the remote service facility
evaluation independent from the branch
evaluation. The agencies believe that
commenters’ concerns that bank
performance on the Retail Services and
Products Test may be downgraded if it
does not have ATMs in low- or
moderate-income census tracts will also
be addressed by the additional
consideration of remote service facilities
in: (1) middle- and upper-income
census tracts in which a remote service
facility delivers services to low- and
moderate-income individuals, families,
or households, to the extent that lowand moderate-income individuals,
families, or households use the services
offered; (2) distressed or underserved
nonmetropolitan middle-income census
tracts; and (3) Native Land Areas.
Finally, the agencies are adopting
§ ll.23(b)(2)(iii), renumbered in the
final rule as § ll.23(b)(3)(ii), as
proposed. As explained in the proposal,
the agencies believe that bank
partnerships with out-of-network ATM
providers may contribute to expanded
access to financial services and may
assist with lowering access costs, which
can be particularly important in lowand moderate-income census tracts. The
agencies changed the heading to the
paragraph to conform to the regulatory
text which referenced ATMs. A
commenter’s suggestion to consider
seasonal ATMs may be considered in
future guidance.
Section ll.23(b)(4) Digital Delivery
Systems and Other Delivery Systems
Current Approach and the Agencies’
Proposal
Currently, examiners determine
whether a large bank’s non-branch or
alternative delivery systems, such as
mobile and online banking services, and
telephone banking are available and
effective in providing retail banking
services in low- and moderate-income
areas and to low- and moderate-income
individuals. Examiners consider factors
such as the ease of access and use,
reliability of the system, range of
services delivered, cost to consumers as
compared with the bank’s other delivery
systems, and rate of adoption and use.
Examiners also consider any
information a bank maintains to
demonstrate that the bank’s alternative
delivery systems are available to, and
used by, low- or moderate-income
individuals, such as data on customer
usage or transactions.
The agencies proposed to evaluate the
availability and responsiveness of a
bank’s digital delivery systems (e.g.,
mobile and online banking services) and
other delivery systems (e.g., telephone
banking, bank-by-mail, and bank-atwork programs), including to low- and
moderate-income individuals, as the
third component of the delivery systems
evaluation in proposed § ll.23(b)(3).
The agencies proposed to require this
evaluation for large banks with assets
over $10 billion, and to permit large
banks with assets of $10 billion or less
to opt to have this component of
delivery systems evaluated under the
Retail Services and Products Test.1018
The agencies explained in the
proposal that they believe that it is
important to evaluate a bank’s retail
banking services and products
comprehensively and recognize that
banks deliver services beyond branch
and remote service facilities. Because
usage of online and mobile banking
delivery systems by households is
pervasive and is expected to continue to
grow, the agencies further explained
that these trends support a renewed
focus on the evaluation of digital and
other delivery systems while also
recognizing that many consumers
continue to rely on branches.
The agencies proposed using three
factors to evaluate the availability and
responsiveness of a bank’s digital and
other delivery systems: (1) digital
activity by individuals in low-,
moderate-, middle-, and upper-income
census tracts; 1019 (2) the range of digital
1018 See
1019 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
proposed § ll.23(b).
proposed § ll.23(b)(3)(i).
Frm 00362
Fmt 4701
Sfmt 4700
and other delivery systems; 1020 and (3)
the bank’s strategy and initiatives to
serve low- and moderate-income
individuals with digital and other
delivery systems.1021 Regarding the first
factor, the agencies proposed to measure
digital activity by individuals in low-,
moderate-, middle-, and upper-income
census tracts and provided examples of
information that could be used to
inform this analysis.1022 The proposal
included examples such as the number
of checking and savings accounts
opened digitally, and accountholder
usage data by type of digital and other
delivery system.1023 The agencies
proposed evaluating this data using
census tract income level since banks
have stated that they do not routinely
collect customer income data at account
opening.1024 With respect to the second
factor, the agencies proposed to
qualitatively consider the range of a
bank’s digital and other delivery
systems, including but not limited to:
online banking; mobile banking; and
telephone banking.1025 In addition, the
agencies proposed to consider a bank’s
strategies and initiatives to meet lowand moderate-income consumer needs
through digital and other delivery
systems.1026 The agencies explained
that these strategies and initiatives
could include, for example, marketing
and outreach activities to increase
uptake of these channels by low- and
moderate-income individuals or
partnerships with community-based
organizations serving targeted
populations.
The agencies sought feedback on
additional ways to evaluate the digital
activity of individuals in low-,
moderate-, middle-, and upper-income
census tracts, as part of a bank’s digital
and other delivery systems evaluation.
Additionally, the agencies sought
feedback on whether affordability
should be one of the factors used in
evaluating digital and other delivery
systems and, if so, what data the
agencies should consider. Finally, the
agencies sought feedback on
comparators that could be considered to
assess the degree to which a bank is
reaching individuals in low- or
moderate-income census tracts through
digital and other delivery systems.
proposed § ll.23(b)(3)(ii).
proposed § ll.23(b)(3)(iii).
1022 See proposed § ll.23(b)(3)(i).
1023 See proposed § ll.23(b)(3)(i)(A) and (B).
1024 See proposed § ll.23(b)(3)(i).
1025 See proposed § ll.23(b)(3)(ii).
1026 See proposed § ll.23(b)(3)(iii).
1020 See
1021 See
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
Comments Received
Some commenters expressed concern
that the data and methodology for
reviewing a bank’s digital and other
delivery systems would be too rigid
when considering the quantitative
metrics and the use of proxies (such as
the number of checking accounts
opened digitally in low- or moderatedincome areas). These commenters
further raised concerns that these
metrics do not assess whether a bank’s
delivery systems are accessible to lowor moderate-income consumers. One
commenter supported the evaluation of
mobile and online banking. One
commenter, while supportive of the
agencies’ proposal, noted that there are
limitations in evaluating a number of
the proposed activities at a census-tract
level, particularly in nonmetropolitan
areas, and urged the agencies to provide,
instead, full qualitative consideration
for this component. A few commenters
generally stated that accessibility and
responsiveness of a bank’s digital and
other delivery systems are not
accurately measured by account
opening and usage rates. One of these
commenters suggested the final rule
should focus on evaluation of the
accessibility of a bank’s digital and
other delivery systems and the bank’s
approaches for serving low- or
moderate-income individuals with these
systems, rather than focusing on
account opening and usage rates
associated with these systems. Other
commenters recommended comparative
data such as customer location, click
rates on promotional emails, broadband
access, and Federal Communications
Commission data to assess the degree to
which a bank is reaching low- or
moderate-income consumers through
digital and other delivery systems.
A number of commenters responded
to the agencies’ request for feedback on
ways to further evaluate the digital
activity by individuals in low-,
moderate-, middle-, and upper-income
census tracts as part of the agencies’
evaluation of a bank’s digital and other
delivery systems. Some commenters
suggested the agencies should consider
product design, marketing, and product
uptake via delivery systems on a
qualitative basis. Another commenter
recommended assessing how active
digital accounts are across income
levels, comparing a bank to its peers
with a market benchmark, displaying
data on digital activity in the CRA
performance evaluation tables, and
verifying representations that modes of
access to digital services are available to
low- or moderate-income census tracts.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
A majority of commenters responding
to the agencies’ request for feedback
agreed that affordability should be a
factor in evaluating digital and other
delivery systems. Most of these
commenters recommended that data on
costs and fees, such as overdraft,
monthly account maintenance,
minimum balance, and dormant account
fees, among others, should be collected
to determine affordability, with one
commenter suggesting low- and
moderate-income individuals should be
charged lower or no fees for digital
services. One commenter recommended
considering the difference in fees
between in-person application and
digital applications to determine if these
fees allow for a different level of digital
access. One commenter indicated that
the agencies should develop specific
standards to require banks engaged in
digital banking to avoid discriminatory
or predatory practices.
Final Rule
Throughout final § ll.23(b)(4), the
agencies are adopting new definitions of
‘‘digital delivery system’’ and ‘‘other
delivery system’’ (based on the
substantive provision of proposed
§ ll.23(b)(3)) in order to distinguish
and make clear the types of systems
encompassed in each delivery channel.
The final rule defines ‘‘digital delivery
system’’ to mean a ‘‘channel through
which banks offer retail banking
services electronically, such as online
banking or mobile banking.’’ 1027 Under
the final rule ‘‘other delivery system’’ is
defined to mean a ‘‘channel, other than
branches, remote services facilities, or
digital delivery systems, through which
banks offer retail banking services.’’ 1028
This may include telephone banking,
bank-by-mail, or bank-at-work.1029 In
addition, the agencies are clarifying in
final § ll.23(b)(4) that the evaluation
of digital delivery systems and other
delivery systems is conducted at the
institution level. This change is also
consistent with the proposed and final
rule approaches described in appendix
C.1030
Specifically, the agencies are
finalizing as proposed § ll.23(b)(3)(ii),
renumbered in the final rule as
§ ll.23(b)(4)(i), regarding the agencies’
evaluation of the range of services and
products offered by a large bank. Final
§ ll.23(b)(4)(i) provides that, when
evaluating the availability and
responsiveness of a bank’s digital
final § ll.12.
id.
1029 See id.
1030 See proposed appendix C, paragraph
c.3.i.A.2; see also final appendix C, paragraph
c.2.iv.A.2.
1027 See
1028 See
PO 00000
Frm 00363
Fmt 4701
Sfmt 4700
6935
delivery systems and other delivery
systems, the agencies consider the range
of retail banking services and retail
banking products offered through digital
delivery systems and other delivery
systems. By considering the range of
digital delivery systems and other
delivery systems, the agencies may then
consider additional detail related to
those systems, such as the bank’s
strategy and initiatives to serve low- and
moderate-income individuals, families,
or households and activity by
individuals, families, or households
related to those systems.
The agencies are revising proposed
§ ll.23(b)(3)(iii), renumbered in the
final rule as § ll.23(b)(4)(ii), with
additional language in response to
commenter feedback that the bank’s
strategy and initiatives to serve low- and
moderate-income individuals, families,
or households with digital delivery
systems and other delivery systems
should be evaluated by considering
factors such as cost, features, and
marketing. This list of non-exhaustive
factors adopted by the agencies were
some of the factors recommended by
commenters to measure the affordability
of digital delivery systems or other
delivery systems or otherwise measure
the effectiveness of the bank’s strategy
or initiatives related to those systems.
The agencies believe this modification
is appropriate and enables consideration
of affordability and effectiveness of
digital and delivery systems without
increasing the data collection burden.
Further, the agencies are revising
proposed § ll.23(b)(3)(i)(A),
renumbered in the final rule as
§ ll.23(b)(4)(iii)(A), to clarify that the
number of checking and savings
accounts opened during each calendar
year of the evaluation period digitally
and through other delivery systems are
considered by the agencies as evidence
of digital delivery systems and other
delivery systems. The agencies are also
revising proposed § ll.23(b)(3)(i)(B) in
response to comments, renumbered in
the final rule as § ll.23(b)(4)(iii)(B), to
provide that the agencies will consider
the number of checking and savings
accounts opened digitally and through
other delivery systems that are active at
the end of each calendar year during the
evaluation period as evidence of digital
delivery systems and other delivery
systems, rather than require banks to
provide accountholder usage data, by
type, of digital delivery systems and
other delivery systems. The agencies
believe this revision will reduce the
burden for banks providing these data
and will build on other data elements in
the rule. To provide further clarity,
certainty, and consistency in the
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6936
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
required information for this evaluation,
the agencies removed the ‘‘such as’’
language in proposed § ll.23(b)(3)(i),
renumbered in the final rule as
§ ll.23(b)(4)(iii), because the agencies
consider the checking and savings
account information described in
paragraphs (b)(3)(i)(A) and (B) of final
§ ll.23. In final § ll.23(b)(4)(iii)(C),
the agencies indicate that they will
consider any other bank data that
indicates that bank digital delivery
systems and other delivery systems are
available to low- and moderate-income
individuals, families, or households and
low- and moderate-income census
tracts.
In response to the commenter that
suggested the agencies should provide a
fully qualitative consideration for digital
and other delivery systems, the agencies
decline to implement this
recommendation because a strictly
qualitative review, without standardized
data, limits the evaluation of this
component across banks by not
providing certainty and consistency in
elements reviewed under this
component. In addition, without
specific data elements, the data banks
provide may not support the
accessibility and usage of digital
delivery systems and other delivery
systems. The agencies believe that the
quantitative consideration of digital
delivery systems and other delivery
systems activity, informed by specific
data points, combined with the
qualitative consideration of the bank’s
range of services and products and their
strategies and initiatives strikes the right
balance to evaluate this component
fully. The agencies believe this
evaluation is especially important for
banks that will not be evaluated under
the other components of retail banking
services such as branches and remote
service facilities.
Although commenters expressed
concerns about the rigidity of the data
and methodology for reviewing a bank’s
digital delivery systems and other
delivery systems, and that the measures
do not adequately represent
accessibility or usage of digital delivery
systems and other delivery systems by
low- or moderate-income individuals,
families, or households, the agencies
believe these measures are sufficient
without additional data collection
requirements other than the data
collection requirements in the final rule.
Moreover, given that banks have stated
that they do not typically collect
customer income data at account
opening for deposit customers, the
agencies believe using census tract
income level is an appropriate
approach.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
In response to these concerns and
commenters’ feedback for other data
that may be used to measure availability
of digital delivery systems and other
delivery systems, the agencies are
adopting new § ll.23(b)(4)(iii)(C) to
allow banks to provide any other data,
other than the data required in final
paragraphs (b)(4)(iii)(A) and (B) of the
section, to demonstrate that their digital
delivery systems and other delivery
systems are available to individuals and
in census tracts of different income
levels, including low- and moderateincome individuals, families, or
households, and low- and moderateincome census tracts. The agencies
believe this addition will allow banks
the flexibility to provide additional
information along with the data
proposed.
The agencies have carefully
considered other recommendations
made by commenters, including click
rates on promotional emails, broadband
access, and others, but have determined,
in their supervisory experience, that the
data points as finalized will achieve the
agencies’ goal to provide clarity,
consistency, and transparency in the
evaluation of a bank’s digital delivery
systems and other delivery systems
without significantly increasing burden
to banks.
Section ll.23(c) Retail Banking
Products Evaluation
Section ll.23(c)(1) Scope of
Evaluation
Current Approach
Under the current CRA regulations,
retail credit products and programs are
qualitatively evaluated under the large
bank lending test. A bank’s lending
performance is evaluated by, among
other things, its ‘‘use of innovative or
flexible lending practices in a safe and
sound manner to address the credit
needs of low- and moderate-income
individuals or geographies.’’ 1031
Current interagency guidance provides
examples that illustrate the range of
practices that examiners may consider
when evaluating the innovativeness or
flexibility of a bank’s lending practices
and notes that when evaluating such
practices, examiners will not be limited
to reviewing the overall variety and
specific terms and conditions of the
credit product themselves.1032
Examiners also consider whether, and
the extent to which, innovative or
flexible terms or products augment the
success and effectiveness of the bank’s
loan programs that are intended to
1031 See
1032 See
PO 00000
current 12 CFR ll.22(b)(5).
Q&A § ll.22(b)(5)–1.
Frm 00364
Fmt 4701
Sfmt 4700
address the credit needs of low- or
moderate-income geographies or
individuals.1033
A bank’s retail deposit products and
services are evaluated under the current
service test for large banks, which as
explained in the section-by-section
analysis of § ll.23(a)(1), establishes
four criteria for evaluating retail
services.1034 The fourth criterion of the
service test—the range of services
provided in low-, moderate-, middle-,
and upper-income geographies and the
degree to which the services are tailored
to meet the needs of those
geographies 1035—is the primary
consideration given to deposit products
in the current test. Examiners consider
information from the bank’s public file
and other information provided by the
bank that are related to the range of
services generally offered at their
branches, such as loan and deposit
products, and the degree to which
services are tailored to meet the needs
of particular geographies.1036 Current
interagency guidance also explains that
examiners will consider retail banking
services that improve access to financial
services or decrease costs for low- or
moderate-income individuals.1037 More
specifically, interagency guidance
identifies low-cost deposit accounts
among the examples of retail banking
services that improve access to financial
services, or decrease costs, for low- or
moderate-income individuals.1038
Examiners also review data regarding
the costs and features of deposit
products, account usage and retention,
geographic location of accountholders,
and any other relevant information
available, which demonstrates that a
bank’s services are tailored to meet the
convenience and needs of its assessment
areas, particularly in low- and
moderate-income geographies or to lowand moderate-income individuals.1039
The Agencies’ Proposal
In the second part of the Retail
Services and Products Test, the agencies
proposed in § ll.23(c), an evaluation
that focused on large bank: (1) credit
products and programs responsive to
the needs of low- and moderate-income
individuals, small businesses, and small
farms; and (2) deposit products
responsive to the needs of low- and
moderate-income individuals. When
1033 See
id.
current 12 CFR ll.24(d).
1035 See current 12 CFR ll.24(d)(4).
1036 See Interagency Large Institution CRA
Examination Procedures; see also Q&A
§ ll.24(d)(4)–1.
1037 See Q&A § ll.24(a)–1.
1038 See id.
1039 See Q&A § ll.24(d)(4)–1.
1034 See
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
applicable to a particular bank, bank
performance on both the credit products
and programs and the deposit products
components of the Retail Services and
Products Test would be assessed at the
institution level.1040 Evaluation of both
these components would be required for
large banks with assets over $10 billion
in both of the prior two calendar years,
based on the assets reported on its four
quarterly Call Reports for each of those
calendar years.1041 The proposal
required evaluation of only the first
component—the responsiveness of
credit products and programs—for
banks with assets of $10 billion or
less,1042 while all large banks with
assets of $10 billion or less could
request additional consideration for
their responsive deposit products.
ddrumheller on DSK120RN23PROD with RULES2
Comments Received
A variety of commenters commented
on the proposal to evaluate the
responsiveness of credit products and
programs and deposit products. Overall,
most of these commenters supported the
general concepts of the proposal and
provided a variety of suggestions for
how best to evaluate a bank’s credit and
deposit products. A few commenters
urged the agencies to provide both a
quantitative and qualitative review of
responsive credit and deposit products,
with a few commenters stating that all
features of credit and deposit products
should be evaluated including, for
example, terms, rates, fees, defaults, and
collections. A few other commenters
also recommended that the agencies:
review the quality of all bank credit and
deposit products; evaluate not only the
bank’s offering of products, but also
how effectively banks connect
consumers to these products; consider
programs that measure the financial
health of consumers; and evaluate all
products and programs offered by bank
affiliates, subsidiaries, and partnerships
for potential evasion of usury caps and
other abusive practices. One commenter
stated that accessibility and affordability
of responsive products and services in
low- and moderate-income
neighborhoods should be compared
against responsive products and
services in middle- and upper-income
neighborhoods at the assessment area
level. Another commenter suggested
that the agencies make the focus of the
examination not on whether a bank has
responsive products ‘‘on the shelf,’’ but
the extent to which such products are
marketed to, and used by, low- and
proposed appendix C, paragraph c.3.i.
id.; see also proposed § ll.23(c).
1042 See proposed § ll.23(c).
moderate-income and underserved
individuals and communities.
Final Rule
In the final rule, the agencies are
adopting § ll.23(c) largely as
proposed, to evaluate the
responsiveness of a bank’s credit
products and programs and deposit
products, with technical edits related to
the overall organization of the scope of
the evaluation of retail banking products
and revisions to conform to changes
made throughout the final rule to
provide clarity regarding how the
agencies will consider these retail
banking products in the evaluation of
the Retail Services and Products Test.
Specifically, final § ll.23(c)
renames the section header from ‘‘credit
products and programs and deposit
products’’ to ‘‘retail banking products
evaluation’’ for conciseness and added
the same terminology in the regulatory
text where appropriate. No change in
meaning is intended with this revision
since the evaluation of retail banking
products includes credit products and
programs and deposit products. The
agencies note, however, that the
evaluation of retail banking products
does not include an evaluation of other
products and programs that are not
credit products or programs and deposit
products such as insurance and
financial investment products. In
addition, new final § ll.23(c)(1)
reorganizes and clarifies the scope of the
evaluation of credit products and
programs in final § ll.23(c)(2) and
deposit products in final § ll.23(c)(3)
to conform to organizational changes
made to the evaluation of delivery
systems in § ll.23(b) and to other tests
in the final rule.
Specifically, final § ll.23(c)(1)
provides that the agencies evaluate a
bank’s retail banking products under
paragraphs (c)(2) and (3) of the section
at the institution level. Final
§ ll.23(c)(1)(i) provides that the
agencies will evaluate the credit
products and programs of all large
banks. Final § ll.23(c)(1)(ii) provides
that the agencies will evaluate the
deposit products of large banks that had
assets over $10 billion as of December
31 in both of the prior two calendar
years.1043 Moreover, consistent with the
proposal, under the final rule, the
agencies will evaluate the deposit
products of large banks that had assets
of $10 billion or less as of December 31
in either of the prior two calendar years
only at the bank’s option.1044
1040 See
1041 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
1043 See
1044 See
PO 00000
As explained in the proposal,
evaluating credit products and programs
and deposit products together in the
same test, which as explained above is
a change from the current practice, is
intended to provide a more holistic
evaluation of credit products and
program and deposit products that work
in tandem to facilitate credit access for
low- and moderate-income individuals,
families, or households. The agencies
believe this change will facilitate a more
robust evaluation of a bank’s
performance with respect to meeting the
credit needs of its community, as this
evaluation also incorporates important
qualitative factors that capture a bank’s
commitment to serving low- and
moderate-income individuals, families,
or households, residents of low- and
moderate-income census tracts, small
businesses, and small farms.
While the agencies agree with
commenters perspective that
quantitative factors can play a role in
determining whether a product or
service is responsive, the agencies also
believe that a qualitative evaluation
should be the predominate method of
measuring the responsiveness of retail
banking products because it allows for
a well-rounded review of the bank’s
retail banking products, as well as the
consideration of the impact such
products and programs have on lowand moderate-income individuals,
families, or households, and low- and
moderate-income census tracts.
Although the agencies intend to address
many of commenters’ suggestions for
how to best evaluate a bank’s retail
banking products through examination
procedures and interagency guidance,
the agencies also note that examiners
may qualitatively consider aspects of
retail banking products, such as the
features, accessibility, and affordability
of such products and programs, to
determine whether they are responsive
to the needs of low- and moderateincome individuals, families, and
households. The agencies believe that,
as finalized, § ll.23(c) is consistent
with the agencies’ goal of encouraging
the availability of responsive products
to low- and moderate-income
individuals, families, or households.
The agencies are also making
additional revisions to § ll.23(c)(2)
(credit products and programs) and (3)
(deposit products) that are described
below in the respective section-bysection analysis.
final § ll.23(c)(1)(ii)(A).
final § ll.23(c)(1)(ii)(B).
Frm 00365
Fmt 4701
Sfmt 4700
6937
E:\FR\FM\01FER2.SGM
01FER2
6938
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Section ll.23(c)(2) Credit Products
and Programs
Current Approach
As discussed above, the current CRA
regulations provide consideration for a
bank’s use of innovative or flexible
lending practices in a safe and sound
manner to address the credit needs of
low- and moderate-income individuals
or geographies.1045
ddrumheller on DSK120RN23PROD with RULES2
The Agencies’ Proposal
The agencies proposed in
§ ll.23(c)(1), to qualitatively evaluate
the responsiveness of a large bank’s
credit products and programs to the
needs of low- and moderate-income
individuals (including through low-cost
education loans), small businesses, and
small farms.1046 The agencies also
proposed in § ll.23(c)(1) that they
would evaluate whether the bank’s
credit products and programs are
conducted in a safe and sound manner.
To qualify for consideration, the
agencies proposed to consider relevant
information about a bank’s credit
products and programs, including
information provided by the bank and
from the bank’s public file.1047
The proposal did not provide a
specific list of retail lending products
and programs that qualified under this
provision.1048 Instead, in proposed
§ ll.23(c)(1)(i) through (iii), the
agencies proposed an illustrative list of
broader categories of responsive credit
products and programs that may be
responsive to the needs of low- and
moderate-income individuals, small
businesses, and small farms. Consistent
with safe and sound operations,
responsive credit may include, but is
not limited to, credit products and
programs that, in a safe and sound
manner: (1) facilitate home mortgage
and consumer lending for low- or
moderate-income borrowers; 1049 (2)
meet the needs of small businesses and
small farms, including to the smallest
businesses and smallest farms; 1050 and
(3) are conducted in cooperation with
MDIs, WDIs, LICUs, or Treasury
Department-certified CDFIs.1051
The agencies requested feedback
regarding whether the CRA regulations
should list special purpose credit
programs as an example of a responsive
credit product or program that facilitates
home mortgage and consumer lending
current 12 CFR ll.22(b)(5)
proposed § ll.23(c)(1).
1047 See proposed §§ ll.23(c)(1) and
ll.43(a)(5).
1048 See proposed § ll.23(c)(1).
1049 See proposed § ll.23(c)(1)(i).
1050 See proposed § ll.23(c)(1)(ii).
1051 See proposed § ll.23(c)(1)(iii).
1045 See
1046 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
targeted to low- or moderate-income
borrowers. The agencies also requested
feedback on whether there are other
categories of responsive credit products
and programs, offered in a safe and
sound manner, that should be taken into
consideration when deciding whether to
give qualitative consideration to credit
products and programs, and whether the
agencies should provide specific or
general guidance regarding what credit
products and programs may be
considered especially responsive.
Comments Received
Comments regarding how to evaluate
credit products and programs. Several
commenters supported the agencies’
proposal to evaluate credit products and
programs under the Retail Services and
Products Test. Some commenters
identified what they viewed as
shortcomings in the proposal and
requested clarification or offered
suggestions for improvement. For
instance, a few commenters asserted
that a final rule needs to define, and
include an analysis of, affordability
based on interest rate caps and/or fees,
or establish standards for both consumer
and mortgage loans to determine the
appropriate level of CRA consideration
to grant a financial institution.
Commenters also urged the agencies
to develop an ability-to-repay standard,
with some noting that the agencies need
to regulate third party out-of-state bank
partnerships with entities such as
payday loan dealers to address what
was characterized as evasion of usury
limits. A few commenters suggested
evaluating credit products, including
mortgage and home equity loans that
address existing barriers to
homeownership, such as stringent
underwriting criteria, appraisal bias,
and other factors. One of these
commenters also suggested that credit
products must be offered responsibly
and sustainably to small business
owners, such as by examining the
product’s annual percentage rate.
In addition, several commenters urged
the agencies to expand the scope of the
impact factor review to also include the
proposed Retail Services and Product
Test. These commenters suggested that
the agencies incorporate an analysis of
loan pricing and consumer product
terms to ensure that retail products are
meeting local needs instead of
extracting wealth, and further
recommended that the agencies evaluate
how well loan products match local
needs and give credit to activities that
close the racial wealth gap by
affirmatively serving communities of
color. A few commenters stated that
CRA rules should clearly penalize
PO 00000
Frm 00366
Fmt 4701
Sfmt 4700
branch closures and poor coverage in
low- and moderate-income, BIPOC and
rural communities. Other commenters
stated that the agencies should include
in impact scoring branch openings in
low- and moderate-income
communities, communities of color, and
rural communities. These comments are
also discussed in the section-by-section
analysis of § ll.15.
A few commenters objected to the
inclusion of credit products,
particularly consumer loans, in the
evaluation, with one commenter stating
that the agencies did not provide
implementation guidelines, while the
other commenters expressed concern
that the public did not have a
meaningful opportunity to understand
and comment on the requirement to
evaluate consumer loans within this
test. One commenter suggested that the
agencies’ proposed analysis of consumer
loans as a type of credit product or
program would be a departure from the
CRA’s historical focus on home
mortgage and small business loans
because consumer loans do not provide
the type of foundational, wealthbuilding credit that the CRA has
traditionally focused on promoting and
incentivizing; the commenter also
indicated that consumer loans may be a
poor fit for meeting the needs of lowand moderate-income communities.
One commenter recommended that the
agencies provide further clarity on how
banks will be evaluated for
responsiveness under this test.
Comments regarding consumer loans
other than automobile loans. Several
commenters recommended a qualitative
evaluation of consumer loans and made
suggestions about the nature and scope
of the qualitative evaluation. In general,
these commenters expressed that
examiners should perform a qualitative
analysis to ensure that a bank’s
consumer lending is responsible and
sustainable, such as loan marketing,
language access, repayment rates, loan
terms, loan pricing (including interest
and fees), delinquency and default rates,
and collection practices. A commenter
suggested that the agencies conduct an
analysis of the annual percentage rate
(APR) that a bank charges on its
consumer loans and compare the bank’s
APR to the average APR for the relevant
market. Another commenter
recommended that the agencies
harmonize their CRA regulations as
much as possible with the Interagency
Lending Principles for Offering
Responsible Small-Dollar Loans to
further signal regulatory stability and
encourage banks to offer more smalldollar loan products, which the
commenter characterized as a net
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
benefit to consumers.1052 In contrast,
another commenter encouraged the
agencies to consider expanded metrics
under the Retail Services and Products
Test for evaluating the impact of
unsecured consumer debt, including
loan modifications directly negotiated
between the bank and the borrower
(without the involvement of a for-profit
debt settlement company), as well as a
bank’s repayment policies regarding
concessions to borrowers experiencing
financial hardships.
Comments regarding other categories
of responsive credit products. The
agencies received a number of
comments and suggestions regarding
additional categories and examples of
responsive credit products and
programs for consideration. Beyond the
proposed products and programs to be
considered, the categories suggested by
commenters included: affordable
products geared to borrowers with
limited English proficiency; programs
that use alternative data such as rent,
utilities, and telecom payments to assist
in loan decisioning for applicants who
would not otherwise be eligible for
mortgage loans based on traditional
credit scores; and small dollar
mortgages and small loan alternatives to
payday lending. Commenters also
suggested: credit products offering
lower rates after a borrower establishes
a payment history; mortgage and home
improvement loans with low down
payment requirements for first
generation homebuyers; mortgage
products that are equivalent to the loan
products of the Federal Housing
Administration, Veteran Affairs, Federal
Home Loan Banks, and Housing
Financing Agencies; auto and other
consumer lending that reduce reliance
on high-cost predatory debt; other
lending programs and underwriting that
do not discriminate against individuals
with criminal records; microfinance
products and small business lending
products that incorporate an evaluation
of loan quality and pricing; affordable
small installment loan programs;
responsive loan products offered by
NeighborWorks affiliates; debt
repayment and modification programs
and policies; negative consideration for
predatory activities; responsive loan
products that finance equitable media;
and personal loans for manufactured
housing. Other commenters stated that
purchased loans from institutions that
do not have the ability to sell loans to
the GSEs, or other access to secondary
1052 See OCC, FDIC, Board, NCUA, ‘‘Interagency
Lending Principles for Offering Responsible SmallDollar Loans’’ (May 2020), https://www.fdic.gov/
news/press-releases/2020/pr20061a.pdf.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
markets, should receive favorable
consideration under the Retail Services
and Products Test to encourage banks to
set up purchasing programs for these
loans. One commenter discouraged the
agencies from including additional
regulatory requirements that have not
been specifically vetted in the proposal.
Instead, this commenter encouraged the
agencies to adopt a final regulation that
will allow future guidance to address
new approaches as they are developed.
Comments regarding whether the
agencies should provide specific or
general guidance regarding categories of
credit products and programs
considered most responsive.
Commenters addressing this request for
feedback expressed mixed views. Some
commenters noted that it was preferable
to provide general criteria so as not to
discourage a bank from pursuing
impactful and responsive activities that
may deviate from the specific examples.
One commenter stated that guidance
should be left general and institutions
should be allowed to self-certify
responsive products and then justify
their choices.
In contrast, other commenters
expressed support for specific guidance.
For instance, one commenter supported
specific guidance on types of credit
products and programs considered
especially responsive, with the
stipulation that the bank may pursue
other impactful or responsive activities
that may not be included in the
guidance. Commenters urged the
agencies to incorporate into the rule: a
local qualitative analysis of credit
products (and usage) to assure banks
meet local needs; reviews of bank
lending that include an affordability
analysis; penalties such as downgrades
for abusive products and practices; and
an evaluation of retail credit products
that emphasizes the extent to which
responsive products are marketed to and
used by low- and moderate-income and
underserved individuals and
communities. Another commenter
stated that banks should not be able to
pass their CRA examination if they only
offer expensive products that do not
actually serve the needs of the
community. Two commenters suggested
that banks should be downgraded for
harm such as discrimination,
displacement, and fee gouging. A few
commenters also suggested that the
agencies consider the environmental
and climate impact of bank credit
products. Some commenters
recommended that the CRA framework
include scrutiny of bank financing of
polluting activities and the associated
disparate impact on access to credit in
low- and moderate-income communities
PO 00000
Frm 00367
Fmt 4701
Sfmt 4700
6939
and communities of color. These
comments also suggested the agencies
should impose penalties for financing
industries that contribute to climate
change, particularly in low- and
moderate-income neighborhoods, while
not financing renewable or clean energy.
Other commenters recommended that
the agencies provide an illustrative and
non-exhaustive list of what the agencies
deem to be products and programs that
are especially responsive and, when
possible, include products that
specifically will not qualify as
responsive. Commenters suggested the
agencies include a submission process,
similar to the agencies’ proposed
confirmation process for community
development activities, with one
commenter recommending that there be
a clear process for banks and strategic
partners to seek pre-approval on a given
program before fully implementing new
ideas. Another commenter suggested
that the agencies recommend specific
credit products if they have research or
studies that support their
recommendation.
Comments regarding special purpose
credit products. Commenters
universally supported the final rule
listing special purpose credit programs
as an example of a responsive credit
product or program that facilitates
mortgage and consumer lending targeted
to low- or moderate-income borrowers.
Some commenters requested that the
final rule specify that special purpose
credit programs can include programs
that focus on either people or
communities of color. These
commenters supported favorable
consideration for special purpose credit
programs in CRA examinations and
asserted that the agencies should more
explicitly recognize the importance of
special purpose credit programs as a
critical way for banks to serve minority
communities. A commenter
recommended that the agencies clarify
that special purpose credit programs
targeted to the needs of minority
consumers and communities, and not
solely to low- and moderate-income
consumers and communities, are highly
responsive programs for CRA purposes.
Another commenter suggested that the
agencies confer ‘‘impact points’’ across
all CRA performance tests for banks
with special purpose credit programs
targeted to racial, ethnic, and other
underserved groups. This commenter
also suggested that each bank should be
required to offer at least one special
purpose credit program. Another
commenter indicated that special
purpose credit programs should be
targeted to Black low- and moderate-
E:\FR\FM\01FER2.SGM
01FER2
6940
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
income consumers and communities
and not to other low- and moderateincome consumers and communities
that have historically benefited more
from CRA. Some of these commenters
noted that special purpose credit
programs are an important part of the
remedy for targeting formerly redlined
neighborhoods and people of color.
Other commenters recommended that
the final rule specify that special
purpose credit products can include
home mortgage lending, small business
lending, consumer lending, or deposit
products. One commenter believed that
an explicit provision in the final rule
that banks will receive CRA credit for
qualified special purpose credit
programs at both the bank level, and
when targeted geographically to specific
areas, at the assessment area level,
would encourage more banks to utilize
special purpose credit programs as a
tool to help disadvantaged individuals.
Another commenter addressed the
significant uncertainty that exists with
special purpose credit programs, noting
that the rules could change in the
future, leaving them exposed to risk of
fair lending violations, and asked for
clearer guidance from regulators and
examiners. However, two commenters
noted that the inclusion of special
purpose credit programs would be
consistent with recent HUD guidance
that the use of such programs in
accordance with ECOA and 12 CFR part
202 (Regulation B) is lawful under the
Fair Housing Act.
Final Rule
The agencies are adopting
§ ll.23(c)(1), renumbered in the final
rule as § ll.23(c)(2), largely as
proposed pertaining to the evaluation of
a bank’s credit products and programs,
with clarifying edits. Moreover, and as
discussed in more detail below, the
agencies are also finalizing as proposed
the categories of responsive credit
products and programs in final
§ ll.23(c)(2)(i) through (iii). The
agencies are also adopting new
paragraphs (c)(2)(iv) and (v) to include
low-cost education loans and special
purpose credit programs, respectively,
as separate categories of responsive
credit products and programs.
In final § ll.23(c)(2), the agencies
are retaining the expectation that the
bank’s credit products and programs are
conducted in a safe and sound manner.
The agencies are also adding regulatory
text that provides they evaluate whether
a bank’s credit products and programs
are responsive to the credit needs of the
bank’s entire community as well as the
residents of low- and moderate-income
census tracts. Consequently, final
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
§ ll.23(c)(2) provides that the
agencies evaluate whether a bank’s
credit products and programs are,
consistent with safe and sound
operations, responsive to the credit
needs of the bank’s entire community,
including the needs of low- and
moderate-income individuals, families,
or households, residents of low- and
moderate-income census tracts, small
businesses, or small farms. Final
§ ll.23(c)(2) then provides a nonexhaustive list of credit products and
programs that the agencies consider
responsive.
Qualitative evaluation of responsive
credit products and programs. The final
rule in § ll.23(c)(2) retains a
qualitative evaluation of responsive
credit products and programs in the
Retail Services and Products Test. As
explained in the proposal, the agencies
believe that using responsiveness as part
of the evaluation standard instead of the
current innovative and flexible standard
better captures the focus on community
credit needs. The agencies also believe
that using the term responsiveness helps
improve consistency of terminology
throughout the final rule. The agencies
further believe this approach is
preferable to including it as part of the
more metrics-based Retail Lending Test
because it pairs a qualitative evaluation
of the responsiveness of a bank’s
lending products and programs with
other qualitative criteria under the
Retail Services and Products Test. The
agencies believe that the qualitative
consideration of credit products and
programs is consistent with the intent to
emphasize the impact of the product or
program in helping to meet the credit
needs of low- and moderate-income
individuals, families, or households,
residents of low- and moderate-income
census tracts, small businesses, and
small farms.
The agencies considered the
comments asserting that the agencies
need to define, and include an analysis
of, affordability based on interest rate
caps and/or fees, or establish standards
for both consumer and mortgage loans
to determine the appropriate level of
CRA consideration to grant a financial
institution, and the comments urging
the agencies to develop an ability-torepay standard. The agencies also
considered a commenter’s
recommendation to harmonize the CRA
regulations as much as possible with the
existing principles for offering
responsible small-dollar loans. As an
initial matter, the agencies note that the
CRA statute does not give the agencies
the authority to impose substantive
requirements on the types of credit
products and programs a bank offers as
PO 00000
Frm 00368
Fmt 4701
Sfmt 4700
recommended by commenters. Instead,
the agencies’ focus under the CRA is on
the bank’s record of meeting community
credit needs consistent with safe and
sound operations, which includes
sound underwriting practices for all
lending. For example, in May 2020, the
agencies, together with the NCUA,
issued a set of principles to encourage
supervised banks, savings associations,
and credit unions to offer responsible
small-dollar loans to customers for both
consumer and small business purposes
to meet customers’ short-term credit
needs.1053 Banks are assessed for
compliance with numerous consumer
laws, including section 5 of the Federal
Trade Commission Act 1054 and others.
Banks that make loans in violation of
laws, rules, or regulations, either
directly or as a result of failing to
properly manage relationships with
third parties, may be subject to
enforcement action. As a result of any
such violations, banks may also be
subject to a downgrade of their CRA
rating pursuant to final § ll.28, if they
engage in discriminatory or other illegal
credit practices with respect to their
credit products and programs.
In response to commenter suggestions
to expand metrics for evaluating the
impact of unsecured consumer debt
under the Retail Services and Products
Test, the agencies note that to the extent
that certain loan products and services
are responsive to the needs of low- and
moderate-income individuals,
households, or families, small
businesses, and small farms, they may
be given consideration. In addition, the
agencies believe that the qualitative
approach to evaluation under final
§ ll.23(c)(2) is a better measure of the
responsiveness of credit products.
After considering the comments, the
agencies determined that a separate
category to evaluate barriers to
homeownership was unnecessary. The
final rule provides that credit products
that overcome barriers to
homeownership for low- and moderateincome first-time homebuyers are
responsive credit products falling
within the category of ‘‘credit products
and programs that facilitate home
mortgage lending for low- and
moderate-income borrowers.’’
In response to the commenter that
asked for additional clarity on how the
agencies will evaluate banks for
responsiveness under this test, the
agencies intend to evaluate
responsiveness consistent with current
interagency guidance. More specifically,
when evaluating responsiveness,
1053 See
1054 See
E:\FR\FM\01FER2.SGM
id.
15 U.S.C. 45.
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
examiners will consider three important
factors: quantity, quality, and
performance context. Examiners will
evaluate the volume and type of an
institution’s activities, for example,
loans and services, as a first step in
evaluating the institution’s
responsiveness the needs of the bank’s
communities, including the needs of
low- and moderate-income individuals,
families, or households, residents of
low- and moderate-income census
tracts, small businesses, and small
farms. In addition, an assessment of
‘‘responsiveness’’ will encompass the
qualitative aspects of performance,
including the effectiveness of the
activities. For example, some activities
require specialized expertise or effort on
the part of the institution or provide a
benefit to the community that would not
otherwise be made available. In some
cases, a smaller loan may have more
benefit to a community than a larger
loan. In other words, when evaluated
qualitatively, some activities are more
responsive than others. Activities are
more responsive if they are successful in
meeting identified credit and
community development needs.
Examiners also evaluate the
responsiveness of an institution’s
activities to credit and community
development needs in light of the
institution’s performance context, as
explained in more detail in the sectionby-section analysis of § ll.21(d). That
is, examiners consider the institution’s
capacity, its business strategy, the needs
of the community, and the opportunities
for lending and services in the
community.
In response to the comments that
suggested that the public did not have
a meaningful opportunity to understand
and comment on the requirement to
evaluate consumer loans within this
test, the agencies note that they
explicitly indicated in the proposal their
intent to potentially consider consumer
loans as a type of credit product and
provided opportunity to comment on
this approach. The 90-day comment
period is consistent with the
requirements of the Administrative
Procedures Act and, in the agencies’
supervisory experience, provided
sufficient time for public consideration
and comment. Indeed, the agencies
received many detailed and thoughtful
comments on the issue of whether
consumer loans should be considered as
credit products.
The agencies have considered
concerns described by commenters that
considering the responsiveness of
consumer loans under credit products
and programs departs from prior agency
practice that traditionally focuses on
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
wealth-building products such as home
mortgages and small business loans. The
agencies conclude that they are
authorized by the CRA to evaluate a
bank’s consumer loans in assessing a
bank’s record of meeting the credit
needs of their entire community,
including low- and moderate-income
census tracts. The agencies also do not
agree with the commenter’s suggestion
that reviewing the responsiveness of
consumer loans should be limited
because they have a limited usefulness
for low-and moderate-income
communities.
The agencies considered commenter
suggestions to expand the scope of the
impact and responsiveness factors to
include such review in the Retail
Services and Product Test. The agencies
believe that the test in the final rule
sufficiently considers qualitative factors,
including the responsiveness and
availability of products and services to
low- and moderate-income individuals,
families, or households; residents of
low- and moderate-income census
tracts; small businesses; and small
farms. To the extent retail banking
products and retail banking services are
responsive to the needs of these groups,
the agencies may provide CRA
consideration.
Categories of responsive credit
products and programs. With respect to
the categories of responsive credit
products and programs, as noted above,
the agencies are adopting, with
technical edits, proposed
§ ll.23(c)(1)(i), renumbered in the
final rule as § ll.23(c)(2)(i) (credit
products and programs that facilitate
home mortgage and consumer lending);
proposed § ll.23(c)(1)(ii), renumbered
in the final rule as § ll.23(c)(2)(ii)
(credit products and programs that meet
the credit needs of small businesses and
small farms); and proposed
§ ll.23(c)(1)(iii), renumbered in the
final rule as § ll.23(c)(2)(iii) (credit
products and programs that are
conducted in cooperation with MDIs,
WDIs, LICUs, or CDFIs). Specifically,
final § ll.23(c)(2)(i) through (iii)
removes ‘‘in a safe and sound manner’’
from each of the categories of responsive
credit products and programs. The
agencies determined the references were
unnecessary and repetitive of the
reference to ‘‘in a safe and sound
manner’’ in final § ll.23(c)(2). In
addition, the agencies are making a
clarifying revision to § ll.23(c)(2)(ii)
changing ‘‘smallest businesses’’ and
smallest farms’’ to those ‘‘with gross
annual revenue of $250,000 or less.’’
The agencies believe that inclusion of
these categories of credit products and
programs is important because they
PO 00000
Frm 00369
Fmt 4701
Sfmt 4700
6941
outline broader categories of nonexhaustive examples of credit products
and programs that are responsive to
community credit needs. The final rule
recognizes the unique needs of low- and
moderate-income borrowers, small
businesses, and small farms, and
attempts to encourage the provision of
credit to these groups. Under the final
rule, the agencies are retaining
§ ll.23(c)(2)(i), credit products and
programs that ‘‘facilitate mortgage and
consumer lending targeted to low- or
moderate-income borrowers,’’ as one
category of responsive credit products
and programs. Small-dollar mortgages
and consumer lending programs that
utilize alternative credit histories in a
manner that would benefit low- or
moderate-income individuals could be
examples of a responsive credit product
or program in this category. The
agencies are revising final
§ ll.23(c)(2)(ii), to encompass credit
products and programs that ‘‘meet the
needs of small businesses and small
farms, including small businesses and
small farms with gross annual revenues
of $250,000 or less,’’ as another category
of responsive credit products or
programs. Examples in this category
include microloans (such as loans of
$50,000 or less) and patient capital to
entrepreneurs through longer-term
loans. Finally, the agencies are also
retaining § ll.23(c)(2)(iii), credit
products and programs that are
conducted in cooperation with MDIs,
WDIs, LICUs, or CDFIs, as a category of
responsive credit products and
programs. Examples include home
mortgage loans and small business loans
that banks purchase from MDIs, WDIs,
LICUs, and CDFIs. The agencies
acknowledge the importance of
supporting institutions such as CDFIs,
MDIs, CDFIs, and LICUs in their efforts
to provide access to credit and other
financial services in traditionally
underserved communities. Bank
purchases of MDI, WDI, LICU, and CDFI
loans can provide necessary liquidity to
these lenders and extend their
capability to originate loans to low- and
moderate-income individuals, families,
or households, in low- and moderateincome census tracts, and to small
businesses and small farms.
The agencies have considered the
recommendations made by commenters
regarding other categories of responsive
credit products and programs. As
discussed above, the agencies are
finalizing § ll.23(c)(2) without a more
detailed list of categories of responsive
credit products or programs. The
agencies agree with commenters who do
not believe that a more detailed list of
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6942
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
products and programs is warranted in
the regulation. The agencies believe that
the approach taken is appropriate
because the proposed list is broad and
recognizes that bank credit products and
programs may vary to meet the needs of
different communities and may be
dependent on a bank’s business model
and focus. Moreover, given that the list
of categories of responsive credit
products and programs is not
exhaustive, the list permits examiners to
consider additional products and
programs and allows sufficient
flexibility for the agencies to consider
new approaches as they are developed.
The agencies appreciate other
recommendations, such as programs to
provide affordable credit products to
individuals with limited English
proficiency, and note that some
suggestions may also qualify as a
responsive credit product or program.
For instance, in the proposal, the
agencies listed examples of credit
products that can be challenging for
consumers to obtain because they
generate less revenue for a bank than
larger loans, because borrowers do not
have sufficient down payments, or
because consumers have limited
conventional credit histories.1055 Some
of the suggested products also contain
these characteristics. Other suggestions,
such as responsive loan products that
finance equitable media, fall outside of
the scope of this regulation.
The agencies note that commenter
suggestion to consider purchased loans
under the Retail Services and Products
Test is unnecessary given that these
loans are already considered under the
Retail Lending Test (which addresses
liquidity support for institutions raised
by this comment). However, purchased
loans could potentially be considered
under this component of the Retail
Services and Products Test if a bank
purchased a responsive credit product
identified in § ll.23(c)(2); for
example, a loan that was purchased
from an MDI or CDFI would be
considered.
The agencies are sensitive to concerns
from some commenters who believe that
a detailed list or specific guidance is
needed to provide banks with certainty,
which is often needed before
implementing new ideas. However, as
explained in the proposal, the agencies
believe that a specific list of retail
lending products and programs within
the regulation could have the
unintended consequence of constraining
bank efforts to meet the credit needs of
its communities and pursuing more
impactful activities that may deviate
1055 See
87 FR 33884, 33966 (June 2022).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
from the specific examples.
Nevertheless, the agencies acknowledge
that a more detailed list of examples of
responsive credit products and
programs could be provided outside of
the regulation and will continue
exploring the feasibility of whether such
a list would be helpful to provide banks
and partners with additional certainty
regarding qualifying activities under the
Retail Services and Products Test.
Similarly, in reference to suggestions
from commenters that the agencies
develop and provide a non-exhaustive
illustrative list of qualifying activities,
the agencies have committed to
assessing whether to provide additional
guidance regarding qualifying
responsive credit products outside of
the regulation.
Regarding recommendations from
commenters on evaluating credit
products that impact the environment or
lead to displacement, the agencies have
developed a criterion under final
§ ll.13(i) that will qualify loans and
investments that help improve the
disaster preparedness and weather
resiliency of such communities. The
agencies did not find it appropriate to
restrict the types of consumer products
and programs because the agencies did
not find persuasive evidence that
consumer products and programs had
environmental or displacement impacts.
Low-Cost Education Loans. To clarify
that low-cost education loans, as
defined in final § ll.12, are an
example of responsive credit products
and programs under the Retail Services
and Products Test, the agencies are
adopting new final § ll.23(c)(2)(iv) as
a fourth category of responsive credit
products and programs. Although the
agencies proposed ‘‘evaluating the
responsiveness of a large bank’s credit
products and programs to the needs of
low- and moderate-income individuals
(including through low-cost education
loans),’’ the agencies believe it is
appropriate to separately enumerate
low-cost education loans given the
explicit CRA statutory requirement that
the agencies consider low-cost
education loans provided by banks to
low-income borrowers as a factor when
evaluating the bank’s record of meeting
community credit needs.1056
Special Purpose Credit Products. In
response to comments received, the
agencies are also adopting new final
§ ll.23(c)(2)(v), which adds special
purpose credit programs under 12 CFR
1002.8 as a fifth category of responsive
credit programs, regardless of whether
the special purpose credit programs
includes income limitations. In
1056 See
PO 00000
12 U.S.C. 2903(d).
Frm 00370
Fmt 4701
Sfmt 4700
response to comments and the agencies’
internal considerations, the agencies
decided to add this category rather than
to include special purpose credit
program as an example of a program
that facilitates mortgage and consumer
lending targeted to low- or moderateincome borrowers. This decision is
based on the fact that not all special
purpose credit programs have income
limitations, and some do not necessarily
target low- and moderate-income
borrowers, which means that these
programs may be ineligible under final
§ ll.23(c)(2)(i). Moreover, as banks
consider how they may expand access
to credit to better address specific social
needs, the agencies believe including
special purpose credit programs as a
category of responsive credit products
and programs eligible for CRA
consideration will encourage creditors
to explore opportunities to develop
these programs consistent with
applicable law, including, but not
limited to, ECOA and Regulation B, as
well as applicable safe and sound
lending principles. The inclusion of
special purpose credit programs is
particularly important given that in
February 2022, several Federal agencies
issued an interagency statement to
remind creditors of the ability under
ECOA and Regulation B to establish
special purpose credit programs to meet
the credit needs of specified classes of
persons.1057 Importantly, the agencies
do not determine whether a program
qualifies for special purpose credit
program status, banks with questions
about any aspect of ECOA and
Regulation B’s special purpose credit
program provisions may consult their
appropriate regulatory agencies.
Section ll.23(c)(3) Deposit Products
Current Approach
As discussed above, a bank’s retail
deposit products and services are
evaluated under the current service test
for large banks, primarily as part of the
range of services provided in low-,
moderate-, middle-, and upper-income
geographies and the degree to which the
services are tailored to meet the needs
of those geographies.1058
The Agencies’ Proposal
In proposed § ll.23(c)(2) the
agencies proposed modernizing the
1057 See Board, FDIC, NCUA, OCC, CFPB, HUD,
U.S. Dept. of Justice, Federal Housing Finance
Agency, ‘‘Interagency Statement on Special Purpose
Credit Programs Under the Equal Credit
Opportunity Act and Regulation B’’ (Feb. 22, 2022),
https://www.fdic.gov/news/financial-institutionletters/2022/fil22008a.pdf.
1058 See current 12 CFR ll.24(d)(4); see also
Q&A § ll.24(d)(4)–1.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
existing evaluation of a bank’s deposit
products and services by adding a more
explicit focus on the financial inclusion
of deposit products and by adding
specific measures for evaluation, such
as availability and usage.1059
Specifically, for large banks with assets
of over $10 billion in both of the prior
two calendar years, based on the assets
reported on its four quarterly Call
Reports for each of those calendar years,
the agencies proposed to evaluate the
availability and usage of a bank’s
deposit products that are responsive to
the needs of low- and moderate-income
individuals.1060 This evaluation would
be optional for large banks with assets
of $10 billion or less, though the
agencies requested feedback on whether
the evaluation should be required for
these banks.1061
ddrumheller on DSK120RN23PROD with RULES2
Comments Received
The agencies received a number of
comments addressing the proposed
evaluation of deposit products
responsive to the needs of low- and
moderate-income individuals. The
commenters were generally supportive
of the proposal, although some provided
recommendations for improvement. For
instance, one commenter urged the
agencies to also evaluate the
responsiveness of deposit products for
small businesses and claimed that their
exclusion from the test would
disadvantage banks with a small
business lending model. A few
commenters suggested that the agencies
consider the quality of the products
offered as measured, for example, by the
deposit account revenue derived from
overdraft or insufficient fund fees. One
commenter urged the agencies to require
the collection of the income of the
consumers receiving responsive deposit
accounts; however, two commenters
opposed such a requirement stating that
large banks do not collect income
information related to the opening of
accounts, and even if they did, the data
collected would have to be updated
regularly. Another commenter
recommended that the agencies mirror
the 1995 CRA rules’ performance
standards by evaluating the
responsiveness of deposit products
using qualitative factors, while allowing
banks to support their evaluation of
performance. Another commenter
recommended expanding consideration
of deposit products to the needs of
proposed § ll.23(c)(2).
proposed § ll.23(c) introductory text
(application to large banks with assets of over $10
billion) and (c)(2)(i) (availability) and (ii) (usage).
1061 See proposed § ll.23(c).
1059 See
1060 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
military personnel, veterans, and their
families.
In contrast, a few commenters
opposed the inclusion of a bank’s
deposit products in the evaluation of the
test altogether. These commenters
asserted that: there is no statutory basis
in the CRA for evaluating the features of
bank deposit products; there is no
statutory basis for regulating these
products under the CRA; the CRA is not
the appropriate vehicle through which
to regulate a bank’s product offerings
and associated fees; and the proposed
approach contains no apparent limiting
principle and leaves unanswered key
questions regarding the scope of agency
authority to evaluate deposit products.
One of these commenters suggested the
evaluation of deposit products should
serve only as performance context, but
not as a mandatory element or
minimum requirement.
In response to the agencies’ request
for feedback on whether, in addition to
deposit accounts, there are other
products or services that encourage
retail banking activities that may
increase credit access, the agencies
received several comments which
provided suggestions on other retail
services or products that may increase
access to credit in addition to deposit
accounts. The most common
recommendation across the variety of
commenters was financial counseling.
Other commenters suggested products
or services such as: credit-building
loans; small dollar loans for
homeowners and small businesses; GSE
pilot programs; community land trusts;
direct deposit advances; secured credit
cards; and refund transfers.
The agencies received several
comments in response to the request for
feedback on whether large banks with
assets of $10 billion or less should be
subject to a responsive deposit products
evaluation with mixed views. Two
commenters argued that this component
should be required for large banks with
assets of $10 billion or less as it is for
large banks with assets of over $10
billion, with one suggesting that
intermediate banks should be provided
with a formal option for electing to be
considered under the proposed Retail
Services and Products Test. A few
commenters went further and suggested
that this component should be required
for banks of all asset sizes, as they all
should be responsive to the deposit
needs of people in the bank’s delineated
assessment areas in order to ensure that
low- and moderate-income families
have easy access to banking products. In
contrast, other commenters favored the
proposal’s optionality for large banks
with assets of $10 billion or less stating
PO 00000
Frm 00371
Fmt 4701
Sfmt 4700
6943
it is an important factor that should be
maintained. One commenter noted that
while larger banks can have a
disproportionate impact because of their
ability to scale products more
effectively, requiring this additional
evaluation could hinder scaling
innovative products. Another
commenter suggested that banks with
assets $10 billion or less have the option
of a qualitative review with the focus on
product design and demonstration of
products being openly available.
Final Rule
As explained below, the agencies are
finalizing § ll.23(c)(2), renumbered in
the final rule as § ll.23(c)(3), largely
as proposed to provide for the
evaluation of the availability of deposit
products responsive to low- and
moderate-income individuals, families,
or households, renumbered in the final
rule as § ll.23(c)(3)(i), and the usage
of deposit products, renumbered in the
final rule as § ll.23(c)(3)(ii). The
agencies also made clarifying changes,
including but not limited to a change to
the heading.
The agencies conclude that they have
statutory authority to evaluate
responsive large bank deposit products
under the final rule. While the
operational provisions of the CRA
instructs the agencies to evaluate a
bank’s record of meeting the credit
needs of its communities,1062 the
agencies have found that there is a
sufficient nexus between deposit
products and the provision of credit
such that, to comprehensively assess
large bank performance for banks with
more than $10 billion in assets, it is
appropriate to evaluate deposit accounts
responsive to the needs of low- and
moderate-income individuals, families,
or households. For the reasons
described below, the availability of bank
deposit products that meet the needs of
low- and moderate-income individuals,
families, or households frequently
assume a foundational role in the ability
for individuals to access credit
responsive to their particular needs.
First, the agencies believe that deposit
products are important for supporting
the credit needs of low- and moderateincome individuals, families, or
households because they increase credit
access by helping individuals improve
their financial stability and build wealth
through deposit accounts.1063 A greater
1062 See
12 U.S.C. 2903(a)(1) and 2906(a)(1).
e.g., Ryan M. Goodstein, Alicia Lloro,
Sherrie L. Rhine, & Jeffrey M. Weinstein, ‘‘What
accounts for racial and ethnic differences in credit
use?’’, 55 J. of Consumer Affairs 389–416 (2021);
FDIC, ‘‘2017 FDIC National Survey of Unbanked
1063 See,
E:\FR\FM\01FER2.SGM
Continued
01FER2
6944
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
focus on responsive deposit products
could strengthen a bank’s ability to
serve the credit needs of its
communities.
Second, deposit products can help
consumers qualify for loans by
facilitating consumers’ savings so that
they can post collateral and to pay
transactions costs. Consumers
frequently rely on deposit accounts to
save for and then fund the down
payment for a house, the money down
on a car, or the initial capital for a small
business. Deposit products may also
assist consumers in improving their
credit scores. Features like scheduled
recurring or automatic bill payments,
check writing privileges, and quick
availability of funds make it much
easier for consumers to make payments
on time and build their credit scores.
Data from consumers’ use of deposit
accounts are also sometimes included in
credit evaluations as ‘‘alternative data.’’
While the use of these data is not
currently widespread, the agencies have
encouraged the responsible use of
alternative data and noted that it could
expand the availability of credit.
Finally, deposit products are a
pathway for a bank customer to
establish an ongoing relationship with a
bank. Customers who hold deposit
products have contact with a bank—
either physically or electronically—
every time they perform a transaction.
Banks can use various touch points to
market credit products, explain how
credit products can help consumers
meet financial needs, and provide
services to improve consumers’
financial literacy. The bank also obtains
valuable information from interactions
with their customers. Some banks rely
on ‘‘relationship lending,’’ or using this
‘‘soft’’ data based on an ongoing
relationship with a customer to make
underwriting decisions.1064
Data and empirical studies support
the idea that deposit accounts facilitate
lending and improved financial
outcomes. A 2019 study provides some
causal evidence that increases in
consumers’ access to deposit accounts
led to increased savings, increased net
worth, and increased holdings of
various types of credit.1065 The effects
and Underbanked Households’’ (October 2018),
https://www.fdic.gov/analysis/household-survey/
2017/; Michael Barr, Jane K. Dokko, &
Benjamin J. Keys, ‘‘And Banking for All?’’ Board
Finance and Economics Discussion Series Working
Paper No. 2009–34 (Aug, 2009), https://
www.federalreserve.gov/pubs/feds/2009/200934/
200934pap.pdf.
1064 Elyas Elyasiani & Lawrence G. Goldberg,
Relationship lending: a survey of the literature, 56
J. Econ. & Bus. 315–330 (2004).
1065 Claire Celerier & Adrien Matray, Bank-Branch
Supply Financial Inclusion and Wealth
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
could be more important for low-income
consumers, since the increases in bank
access they study were larger in places
where incomes were lower. There also
is a strong correlation between deposit
accounts and mainstream credit, though
this correlation could be for several
other reasons as well.1066
The agencies note that deposit
products are considered under the
existing CRA framework.1067 The
agencies retain discretion under the
final rule to consider other factors and
features in determining if a deposit
product is responsive to low- and
moderate-income individuals, families,
or households. Examples of products
that meet the responsiveness standard
include accounts certified by the Cities
for Financial Empowerment as meeting
the Bank On National Account standard,
which precludes overdraft and
insufficient funds fees, and ‘‘secondchance accounts.’’ Savings accounts
targeted toward low- or moderateincome individuals, families, or
households such as Family SelfSufficiency Accounts are another
example of a product that would be
considered responsive. These are not
exclusive examples, and the agencies
will be able to consider other factors.
The agencies decided not to require the
collection of income for consumers
opening accounts to help determine
responsiveness because the burden
could present a barrier to bank
participation in offering such products.
In response to the recommendation
that the agencies mirror the 1995 CRA
rules’ performance standards, the
agencies believe that the approach taken
in the final rule modernizes the existing
evaluation of a bank’s products and
services by adding a more explicit focus
on the financial inclusion potential of
these products and by adding specific
Accumulation, 32 Rev. of Fin. Stud. 4767–4809
(Dec. 2019); A related study uses a different design
to provide evidence that exposure to banking as a
child leads to higher credit scores and lower
delinquency rates as an adult: James R. Brown, J.
Anthony Cookson & Rawley Z. Heimer, Growing up
without finance, 134 J. Fin. Econ. 591–616 (Dec.
2019).
1066 One reason why there could be a correlation
without causation is omitted variable bias.
Consumers who have bank accounts could also be
more likely to have credit because of some other
characteristic that would lead to both. For example,
consumers with higher incomes are more likely to
own bank accounts and higher incomes also make
it easier for consumers to borrow. For the statistic,
see FDIC, Table 10.1, ‘‘Use of Credit by Bank
Account Ownership, 2017–2021,’’ of the ‘‘2021
FDIC National Survey of Unbanked and
Underbanked Households’’ (Oct. 2022), https://
www.fdic.gov/analysis/household-survey/
2021report.pdf.
1067 See e.g., current 12 CFR ll.24(d)(4); see
also Q&A § ll.24(a)–1 and Q&A § ll.24(d)(4)–
1.
PO 00000
Frm 00372
Fmt 4701
Sfmt 4700
measures for evaluation, such as
availability and usage.
The agencies are sensitive to concerns
raised by some commenters that the
final rule should not operate in a way
that regulates or otherwise requires
banks to provide certain deposit
products. The agencies note that
evaluation of deposit product in final
§ ll.23(c)(3) does not regulate or set
the prices of a bank’s product offerings
and associated fees. Furthermore, as
described below in § ll.23(d)(1), the
evaluation of a banks deposit products
only contributes positively to a bank’s
Retail Services and Products Test
conclusion.
The agencies have considered the
comments, and after further analysis,
the agencies have decided against
requiring a responsive deposit product
assessment for banks with assets of $10
billion or less, but instead retain it as an
option for such banks. The agencies are
sensitive to concerns that institutions
with assets of $10 billion or less may
not have sufficient resources for the data
collection contemplated by this
assessment. Additionally, the required
data collection for this evaluation could
be burdensome.
The agencies decline commenter
suggestions to make the consideration of
deposit accounts a type of performance
context or otherwise make it a type of
evaluation in the Retail Services or
Products Test an optional requirement
for all large banks. As discussed above,
because the agencies believe that
deposit accounts responsive to the
needs of low- and moderate-income
individuals play a vital role in the
access to credit products, it is
appropriate to require the consideration
for banks with assets greater than $10
billion and provide banks with assets of
$10 billion or less an option to have
their responsive deposit accounts
considered.
The agencies considered the
comments on whether, in addition to
deposit accounts, there are other
products or services that encourage
retail banking activities that may
increase credit access. While the
agencies believe that most suggestions
provided by commenters in response to
the question may actually increase
access to credit, these recommendations
are generally captured in other parts of
the rule. For example, a bank may
receive consideration for financial
counseling as a type of community
development service under final
§§ ll.13(1) and ll.25.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Section ll.23(c)(3)(i) Availability of
Deposit Products Responsive to the
Needs of Low- and Moderate-Income
Individuals, Families, or Households
ddrumheller on DSK120RN23PROD with RULES2
The Agencies’ Proposal
The agencies proposed to evaluate in
§ ll.23(c)(2)(i) whether a bank offers
deposit products that have features and
cost characteristics that, consistent with
safe and sound operations, include, but
are not limited to: (1) low-cost
features; 1068 (2) features facilitating
broad functionality and
accessibility; 1069 and (3) features
facilitating inclusivity of access.1070 The
agencies proposed taking these three
types of features into consideration
when evaluating whether a particular
deposit product has met the
‘‘responsiveness to low- and moderateincome needs’’ standard.
The agencies requested comment on
whether the features of cost,
functionality, and inclusion of access
are appropriate for establishing whether
a deposit product is responsive to the
needs of low- and moderate-income
individuals or whether other features or
characteristic should be considered. The
agencies also requested comment on
whether a minimum number of features
should be met in order to be considered
‘‘responsive.’’
Comments Received
The agencies received several
comments in response to their request
for feedback on whether there are other
features or characteristics that the
agencies should consider. These
commenters were generally supportive
of the proposed features to determine if
a deposit product is responsive. Most
commenters generally agreed that
considering the features of cost,
functionality, and accessibility to
determine if a deposit product is
responsive to the needs of low- and
moderate-income individuals is
appropriate. Some commenters made
additional recommendations. For
example, one commenter agreed with
the list of features, but urged the
agencies to clarify that a responsive
product needs to be both low-cost and
accessible. Another commenter
supported the approach but
recommended that the agencies include
a fourth feature—wealth enabling
opportunities, such as financial
wellness coaching, wealth building
advice, credit repair, money
management assistance, and bank career
training opportunities. A few
proposed § ll.23(c)(2)(i)(A).
proposed § ll.23(c)(2)(i)(B).
1070 See proposed § ll.23(c)(2)(i)(C).
1068 See
1069 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
commenters suggested that banks
should be evaluated not only for
offering, for example, Bank On
accounts, which preclude the
assessment of overdraft and insufficient
funds fees, but for actually connecting
consumers with such accounts. Other
commenters recommended expanding
the features to consider whether the
deposit product: is inclusive of
immigrant communities or is part of the
Veterans Benefits Banking Program;
provides noncustodial accounts for
foster youth; ensures that people with
disabilities and older adults have equal
access to the products; if the deposit
product is a checking account, is free,
with no overdraft fees, and with features
such as bill pay and debit cards; or is
a second chance account that requires
no ChexSystems approval and has no, or
low, fees.
A few commenters expressed concern
about the proposed cost features. Some
of these commenters urged the agencies
to ensure that the evaluation of a bank’s
deposit products would not depend on
a comparison to peer banks, while a few
other commenters warned the agencies
against regulating costs and fees,
asserting that the statute does not
authorize the agencies to do so. Two
commenters encouraged the agencies to
omit the evaluation of deposit products
or at least clarify that the enumerated
factors will be reviewed holistically and
will not serve as a checklist. Similarly,
another commenter noted that the
analysis of low-cost features could force
banks to offer certain products at
particular prices and fees and urged the
agencies to implement safeguards to
prevent the evaluation from causing
such a result.
Only a few commenters addressed
whether a certain number of features
should be met. These commenters stated
that setting a minimum threshold for
consideration of responsiveness was not
necessary, with one of these
commenters explaining that product
design offsets may be required to ensure
a product is viable in a marketplace and
that, in the course of an examination, a
bank should be able to explain how the
product is responsive to the needs of its
particular community. However, one of
the commenters urged the agencies to
also compare a bank’s products to their
peers’ offerings. A few commenters
expressed concern that the proposed list
of relevant features implies that any one
feature would make a product
responsive, and therefore requested that
the agencies clarify that in order to be
responsive to the needs of underserved
consumers, deposit products must be
both low-cost and accessible, and that
PO 00000
Frm 00373
Fmt 4701
Sfmt 4700
6945
low-cost refers both to front-end fees
and back-end fees.
Final Rule
The agencies are finalizing
§ ll.23(c)(2)(i), renumbered in the
final rule as § ll.23(c)(3)(i), as
proposed, to evaluate whether a bank
offers deposit products that have
features and characteristics responsive
to the needs of low- and moderatedincome individuals, families, or
households, including low-cost features,
features facilitating broad functionality
and accessibility, and features
facilitating inclusivity of access.
The agencies believe the proposed
features are appropriate and sufficient.
For instance, consideration of deposit
products with low-cost features is
consistent with current guidance, and
cost issues remain a prevalent reason
cited by unbanked individuals as to
why they do not have a bank
account.1071 As such, the agencies
believe that low-cost should remain a
feature of responsive deposit product
despite concerns expressed by some
commenters.
Similarly, the agencies are retaining
in the final rule features facilitating
broad functionality and accessibility
and facilitating inclusivity of access,
which are also consistent with current
guidance.1072 The agencies believe that
the ability to conduct transactions and
access funds in a timely manner is
highly relevant for lower-income
individuals or unbanked and
underserved individuals, who otherwise
might acquire financial services at a
higher cost from predatory sources, and
that research indicates that prior bank
account problems remain barriers for
consumers who are unbanked.1073
While some of the recommended
additional features suggested by
commenters may be helpful in
establishing responsiveness, the
agencies believe that the features in the
final rule are sufficient without adding
burden. The proposed standards for
responsiveness, in addition to being
consistent with current guidance, also
align with the national account
standards issued by the Cities for
1071 See FDIC, ‘‘2021 FDIC National Survey of
Unbanked and Underbanked Households’’ (Oct.
2022), https://www.fdic.gov/analysis/householdsurvey/2021report.pdf.
1072See Q&A § ll.24(a)–1; Q&A § ll.24(d)(4)–
1.
1073 See FDIC, ‘‘How America Banks: Household
Use of Banking and Financial Services,’’ 2019 FDIC
Survey (Oct. 2020), https://www.fdic.gov/analysis/
household-survey/2019report.pdf; Federal Reserve
Bank of Dallas, ‘‘Closing the Digital Divide: A
Framework for Meeting CRA Obligations’’ (July
2016), https://www.dallasfed.org/∼/media/
documents/cd/pubs/digitaldivide.pdf.
E:\FR\FM\01FER2.SGM
01FER2
6946
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Financial Empowerment Fund’s Bank
On program, which are regarded with
favorable CRA consideration today.1074
The Bank On national account
standards were informed by the FDIC’s
Model Safe Accounts Template, a set of
guidelines for offering cost-effective
transactional and savings accounts that
are safe and affordable, and meet the
needs of underserved consumers.1075
The agencies note that, in response to
the commenter that recommended
adding wealth-enabling opportunities as
a fourth feature, this section focuses on
deposit products that are responsive to
low- and moderate-income individuals,
families, or households. The agencies
believe that the features listed in the
regulation, which are not exclusive, do
create opportunities to build wealth. In
addition, a number of the commenter
suggested additions would be
considered under the Community
Development Services Test. Lastly, the
list in the regulation is broad and not
exhaustive; therefore, it allows
examiners the flexibility to consider
some of the additional features
recommended by commenters that are
not explicitly listed.
With respect to commenter
suggestions that the agencies set a
minimum number of features for
consideration of responsiveness, the
agencies do not believe it is necessary.
In reaching this decision, the agencies
balanced concerns about being overly
prescriptive in establishing standards,
while recognizing that categories,
including cost and broad functionality
and accessibility, are important
considerations in determining
responsiveness. However, the agencies
are noting that in order to be responsive
to the needs of underserved consumers,
deposit products should have both lowcost and accessible characteristics, and
that low-cost features should refer both
to front-end fees and back-end fees.
Section ll.23(c)(3)(ii) Usage of
Deposit Products Responsive to the
Needs of Low- and Moderate-Income
Individuals, Families, or Households
ddrumheller on DSK120RN23PROD with RULES2
The Agencies’ Proposal
The agencies also proposed in
§ ll.23(c)(2)(ii), to evaluate usage of
responsive deposit products in
1074 See Q&A § ll.24(a)–1; Cities for Financial
Empowerment Fund, ‘‘Bank On National Account
Standards (2023–2024),’’ https://bankon.
wpenginepowered.com/wp-content/uploads/2022/
08/Bank-On-National-Account-Standards-20232024.pdf.
1075 See FDIC, ‘‘FDIC Model Safe Accounts Pilot’’
(Apr. 5, 2012), https://www.fdic.gov/consumers/
template/; FDIC, ‘‘FDIC Model Safe Accounts
Template’’ (Apr. 2012), https://www.fdic.gov/
consumers/template/template.pdf.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
§ ll.23(c)(2)(ii)(A) through (C), by
considering, for example: (1) the
number of responsive accounts opened
and closed during each year of the
evaluation period in low-, moderate-,
middle-, and upper-income census
tracts, respectively; 1076 (2) the
percentage of total responsive deposit
accounts compared to total deposit
accounts for each year of the evaluation
period; 1077 and (3) marketing,
partnerships, and other activities that
the bank has undertaken to promote
awareness and use of responsive deposit
accounts by low- and moderate-income
individuals.1078 The agencies also
proposed considering outreach activity
undertaken to promote awareness and
use of responsive deposit accounts by
low- and moderate-income individuals.
In particular, the agencies proposed
giving qualitative consideration to
marketing, partnerships, and other
activities to attract low- and moderateincome individuals.
The agencies requested feedback
regarding whether the proposed usage
factors are appropriate for an evaluation
of responsive deposit products and
whether the agencies should consider
the total number of active deposit
products relative to all active consumer
deposit accounts offered by the bank,
which was proposed in
§ ll.23(c)(2)(ii)(B) as an example of a
usage feature. The agencies also
requested feedback on whether the
agencies should take other information
into consideration when evaluating the
responsiveness of a bank’s deposit
products under proposed
§ ll.23(c)(2)(ii), such as the location
where the responsive deposit products
are made available.
Comments Received
Comments related to the
appropriateness of usage factors. The
agencies received several comments
expressing differing opinions in
response to whether the proposed usage
factors are appropriate for an evaluation
of responsive deposit products and
whether the agencies should consider
the total number of active deposit
products relative to all active consumer
deposit accounts offered by the bank.
Commenters were overwhelmingly in
support of the general usage factors even
though many also suggested additions
to, and clarifications of, the factors.
Another commenter urged the agencies
to create a market benchmark to
compare a bank’s percentage of accounts
in low- and moderate-income census
proposed § ll.23(c)(2)(ii)(A).
proposed § ll.23(c)(2)(ii)(B).
1078 See proposed § ll.23(c)(2)(ii)(C).
1076 See
1077 See
PO 00000
Frm 00374
Fmt 4701
Sfmt 4700
tracts to peer data and also suggested
that openings and closings are a useful
indicator that should be paired with
evaluation of transaction activity,
marketing, and partnerships. Another
commenter suggested the agencies
should add analysis of higher-cost
products and fees, including overdraft,
ATM, and maintenance fees by
geography.
By contrast, some commenters
believed the proposed usage factors
were not appropriate and requested that
the agencies measure deposit products
qualitatively and only require an
optional, if any, evaluation of the usage
factors. One of these commenters
asserted that quantitative factors such as
usage are not appropriate for a
qualitative assessment of deposit
products nor are they an accurate
measure to assess the responsiveness of
deposit products. Other commenters
urged the agencies to provide optional
evaluation of usage rates and account
openings by people in low- and
moderate-income census tracts as a
means for banks to show that they are
reaching low- and moderate-income
individuals given that these rates are an
imperfect proxy for actual rates of usage
by low- and moderate-income
individuals. A few of these commenters
also noted that it may be extremely
burdensome to try to accurately evaluate
or monitor these factors quantitatively.
For instance, two commenters suggested
that usage of deposit products in lowand moderate-income areas cannot
accurately reflect the overall
‘‘responsiveness’’ and ‘‘availability’’ of a
bank’s deposit products to low- and
moderate-income individuals, with one
of these commenters stating that there is
no data that suggests low- and
moderate-income individuals live only,
or primarily, in low- and moderateincome census tracts, and the other
commenter noting there is data that
suggests there are significantly more
low- and moderate-income individuals
living in middle- and upper-income
tracts combined, than low- and
moderate-income people living in lowand moderate-income tracts combined.
Comments related to the
consideration of total number of active
responsive deposit products relative to
all active consumer deposit accounts
offered by the bank. There was similar
disagreement with respect to whether
the agencies should consider the total
number of active responsive deposit
products relative to all active consumer
deposit accounts offered by the bank as
proposed in § ll.23(c)(2)(ii)(B). A few
commenters opposed this approach for
several reasons, including that the
approach lacks accuracy, since low- and
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
moderate-income individuals do not
necessarily have the resources to open
multiple accounts compared to middleand upper-income individuals, which:
skews comparison; would be too
complex and challenging for most nonCDFI institutions; is not probative of
whether a bank is adequately serving
low- and moderate-income individuals
because there may be valid reasons for
closing accounts; and is more
qualitative than it is quantitative.
Another commenter expressed concern
about whether the total number of active
responsive deposit products relative to
all active consumer deposit accounts
offered by the bank would be an
indicator of responsiveness because, if a
bank offers an account opening reward,
there could be a surge in account
openings and a drop after the reward is
no longer offered. Instead, this
commenter recommended that the
agencies consider deposit account
closures in the same manner as deposit
account openings are evaluated in terms
of responsiveness. Conversely, two
other commenters generally supported
the proposal and agreed that the ratio of
active responsive deposit products
relative to all active deposit accounts
would be an appropriate metric for
evaluation, with one of these
commenters also noting that this metric
must also be compared to the
performance of peers. Another group
supported considering the number of
responsive accounts opened and closed
during each year of the evaluation
period in low-, moderate-, middle- and
upper-income census tracts.
Comments related to the review of
marketing, partnerships, and other
activities to promote awareness and use
of responsive deposit accounts. Various
commenters supported the review of
marketing materials. One commenter
agreed with assessing whether products
are marketed to and used by low- and
moderate-income individuals and
communities. Another commenter
recommended that examiners engage
community stakeholders in this
assessment to better assess the extent
and rigor of the bank’s activities.
Comments related to whether other
information, such as location, should be
taken into consideration in the
evaluation of responsive deposit
accounts. A variety of commenters
discussed whether other information,
such as location, should be taken into
consideration when evaluating the
responsiveness of a bank’s deposit
products under proposed
§ ll.23(c)(2)(ii). A few commenters
were supportive of including a review of
the location where the responsive
deposit product is made available. For
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
instance, a commenter noted that
location of a product’s availability is
reflective of its responsiveness, but
cautioned that a product offered inbranch in a low-income census tract is
unlikely to be responsive if the product
is not marketed or staff are not trained
in its design and purpose. Another
commenter encouraged the agencies to
also consider how a customer’s inability
to access a location, and perceived
safety near a location, influences how
and when they make deposits. Another
commenter recommended that the
agencies assess whether responsive
deposit products are offered in branches
and at remote service facilities in lowand moderate-income census tracts.
Two other commenters suggested the
agencies look to the Federal Reserve
Bank of St. Louis’ Bank On National
Data Hub for workable metrics for
account engagement and whether a
deposit product is responsive to the
needs of low- and moderate-income
communities.
However, a commenter cautioned the
agencies against using geography as a
primary factor in determining whether a
bank’s deposit products and delivery
channels are serving low- and moderateincome individuals, because some lowand moderate-income individuals reside
outside low- and moderate-income areas
and there is a lower concentration of
low- and moderate-income individuals
in census tracts outside metropolitan
areas. Instead, this commenter urged the
agencies to focus the evaluation on
qualitative factors, such as a bank’s
strategies and initiatives for reaching
low- and moderate-income individuals
as well as an assessment of whether the
bank’s deposit offerings are responsive
to their needs, and consider
performance context when evaluating
products and services. A commenter
expressed the view that the agencies
should always consider additional
information, but cautioned against
stipulating a requirement because it
could have the unintended consequence
of limiting innovation. This commenter
further noted that full impact of a
responsive product should be subject to
examiner judgement based on location
and other limiting factors in order to
encourage credit for particularly
impactful products without adding to
reporting burden. Other commenters
provided recommendations on useful
information to review including
affordability of deposit accounts for
low- and moderate-income communities
by comparing and refining, if necessary,
fee information collected in Call Report
data.
PO 00000
Frm 00375
Fmt 4701
Sfmt 4700
6947
Final Rule
The agencies are finalizing proposed
§ ll.23(c)(2)(ii), renumbered in the
final rule as § ll.23(c)(3)(ii), by
retaining the usage factors in
renumbered § ll.23(c)(3)(ii)(A)
through (C). The usage factors include
the consideration of the percentage of
responsive deposit accounts compared
to total deposit accounts for each year
in final § ll.23(c)(3)(ii)(B). The
agencies are adopting new
§ ll.23(c)(3)(ii)(D) in the final rule.
This provision is intended to offer banks
the flexibility to provide any other
information not captured by paragraphs
(c)(3)(ii)(A) through (C) of final § ll.23
that demonstrates usage of deposit
products responsive to the needs of lowand moderate-income individuals,
families, or households. The agencies
are also making clarifying edits.
Regarding the usage factors and in
response to commenters’ concerns about
burden, the agencies will require
examiners to rely on data provided by
banks and will not include depositor
income levels. The agencies agree with
commenters who assert that the usage
factors are appropriate.
For instance, the information about
deposit account openings and closings
could be an approximate indicator of
the extent to which the needs in lowand moderate-income areas are being
met. The comparison of responsive
deposit accounts to total deposit
accounts is intended to give a sense of
the magnitude of the commitment to
broadening the customer base to include
low- and moderate-income individuals,
families, or households. Also, bank
outreach and marketing may contribute
to the successful take-up of deposit
products targeted to low- and moderateincome individuals, families, or
households. These factors are important
criteria to help facilitate evaluating
whether a bank’s deposit products are
responsive to the needs of low- and
moderate-income individuals, families,
or households.
Although the agencies considered the
commenters’ recommendations, such as
the creation of a market benchmark,
comparison of performance to peers,
and concerns that the usage features of
account opening by people in low- and
moderate-income geographies is not a
perfect measure of actual usage by lowand moderate-income individuals, the
agencies believe that the approach taken
in the final rule balances the needs for
flexibility against the increased burden
that may result from enhanced data
collection and monitoring of low- and
moderate-income individual’s, family’s,
or household’s usage of the accounts.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6948
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
The agencies also decided not to
adopt commenter suggestions to only
measure deposit products qualitatively.
Quantitative data such as information
on account openings could be used to
measure the penetration or usage of the
responsive product in low- and
moderate-income areas. Lastly, the
agencies believe that focusing on the
income level of census tracts (even with
its limitations), rather than depositor
income, reflects stakeholder feedback
that banks do not collect depositor
income levels for deposit accounts.
As noted above, the agencies are also
adopting new § ll.23(c)(3)(ii)(D) as a
catchall provision that offers banks the
flexibility to provide any additional
information that ‘‘demonstrates usage of
the bank’s deposit products that have
features and cost characteristics
responsive to the needs of low- and
moderate-income individuals, families,
or households and low- and moderateincome census tracts.’’ The agencies
carefully considered the contrasting
comments that responded to the
agencies’ request for feedback on the
consideration of other information and
were persuaded by commenter
statements regarding the value of
reviewing all information, including
location, to determine whether a bank’s
deposit products are serving low- and
moderate-income individuals, families,
or households.
The agencies are sensitive to concerns
regarding the use of geography as a
primary factor in determining whether a
bank’s deposit products serve low- and
moderate-income individuals, families,
or households and agree that many lowand moderate-income individuals reside
outside of low- and moderate-income
areas and there is less concentration of
low- and moderate-income individuals,
families, or households by census tracts
outside metropolitan areas. However, on
balance, the agencies believe that using
geography as a proxy is the best measure
of responsiveness of a bank’s products
in reaching and serving low- and
moderate-income individuals, families,
or households given available data and
the need to minimize burden.
The agencies recognize that some of
the additional recommended
information suggested by commenters
could be helpful in determining
responsiveness, and believe that the
approach taken in the final regulation
provides flexibility for agency
consideration without adding burden.
The agencies will continue the practice
of reviewing public file information for
the locations of available services and
products. The information needed to
make a determination is in the public
file, and examiners can use bank
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
management interviews to confirm
findings and inquire as to any
discrepancy in offerings or terms,
without adding burden. Additionally,
the review of responsive deposit
products will consider performance
context.
Section ll.23(d) Retail Services and
Products Test Performance Conclusions
and Ratings
Section ll.23(d)(1) Conclusions
Current Approach
Currently, § ll.24(d) of the CRA
regulation requires the agencies to
evaluate the availability and
effectiveness of a bank’s systems for
delivering retail banking services and
the extent and innovativeness of its
community development services.1079
The conclusions assigned by the
agencies are informed by a qualitative
evaluation, are determined at the
assessment area level, and are
descriptive of the bank’s performance
relating to: (1) accessibility of delivery
systems, (2) its record of opening and
closing branches, (3) business hours and
services, and (4) its community
development services. Based on a bank’s
performance in these four areas,
examiners reach an overall assessment
area conclusion for the service test.
The Agencies’ Proposal
In proposed § ll.23(d)(1), the
agencies proposed to assign conclusions
for a bank’s Retail Services and Products
Test performance in each facility-based
assessment area, State, multistate MSA,
and at the institution level in
accordance with proposed § ll.28 and
proposed appendix C of the CRA
regulations. The agencies proposed, in
appendix C, that a bank’s conclusions
for its performance in the bank’s
facility-based assessment areas would
form the basis for conclusions at the
State, multistate MSA, and institution
levels. As applicable, a bank’s
performance conclusion at the
institution level would have also been
informed by the bank’s performance
regarding digital and other delivery
systems under proposed § ll.23(b)(3)
and credit products and programs and
deposit products under proposed
§ ll.23(c).1080
Facility-based Assessment Area Retail
Services and Products Test Conclusion.
The agencies proposed, in paragraph
c.1.i of proposed appendix C, to reach
a single conclusion for a bank’s
performance under the Retail Services
and Products Test in each of the bank’s
1079 See
1080 See
PO 00000
current 12 CFR ll.24(d)(1) through (4).
proposed appendix C, paragraph c.
Frm 00376
Fmt 4701
Sfmt 4700
facility-based assessment areas based on
two of the delivery systems components:
(1) branch availability and services, and
(2) remote service facility availability.
The agencies would evaluate these two
components qualitatively using
community and market benchmarks (as
described above in the section-bysection analysis of § ll.23(b)(1) and
(2)) to inform the conclusions along
with performance context for each
facility-based assessment area. Based on
an assessment of the evaluation criteria
associated with branch availability,
branch-based services, and remote
service facility availability, the bank
would be assigned a conclusion
corresponding with the conclusion
category nearest to the performance
score as follows: ‘‘Outstanding’’ (10
points); ‘‘High Satisfactory’’ (7 points);
‘‘Low Satisfactory’’ (6 points); ‘‘Needs to
Improve’’ (3 points); or ‘‘Substantial
Noncompliance’’ (0 points).1081
State and Multistate MSA Retail
Services and Products Test Conclusions.
The agencies proposed, in paragraph c.2
of appendix C, to develop State and
multistate MSA level conclusions for
the Retail Services and Products Test
based exclusively on the bank’s
performance in its facility-based
assessment areas. The agencies would
then calculate the simple weighted
average of a bank’s conclusions across
its facility-based assessment areas in
each relevant State and multistate MSA.
The point value assigned to each
assessment area conclusion would be
weighted by its average share of loans
and share of deposits of the bank within
the assessment area, out of all the bank’s
dollars of retail loans and dollars of
deposits in facility-based assessment
areas in the State or multistate MSA
area, as applicable, to derive a Statelevel score.1082 Similar to the proposed
weighting approach for assigning Retail
Lending Test conclusions, pursuant to
proposed § ll.42(a)(7), deposits would
be based on collected and maintained
deposits data for banks that collect
deposits data, and on the FDIC’s
Summary of Deposits for banks that do
not collect deposits data.1083 The State
level score would then be rounded to
the nearest conclusion category point
value to determine the Retail Services
and Products Test conclusion for the
State or multistate MSA.1084
Institution Retail Services and
Products Test Conclusion. The agencies
proposed to assign a Retail Services and
1081 See
proposed appendix C, paragraph c.1.ii.
proposed appendix C, paragraph c.2.
1083 See id.; see also proposed appendix A,
section VII.1.
1084 See proposed appendix C, paragraph c.2.
1082 See
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Products Test conclusion for the
institution based on the combined
assessment of both parts of the test:
delivery systems and credit and deposit
products.1085
Delivery systems evaluation. The
agencies proposed in paragraphs
c.3.i.A.1 and 2 of proposed appendix C
that a bank’s delivery systems evaluation
would be based on the three proposed
parts of the delivery systems evaluation,
as applicable: (1) branch availability and
services; (2) remote service facility
availability; and (3) digital and other
delivery systems. The first two parts of
the evaluation would apply for all large
banks at the facility-based assessment
area and aggregated to form a branch
and remote service facilities
subcomponent conclusion at the
institution level. For large banks with
assets of over $10 billion and large
banks with assets of $10 billion or less
that elect to have digital and other
delivery systems considered, the
agencies proposed evaluating digital
and other delivery systems at the
institution level. For large banks with
assets of $10 billion or less that do not
elect to have their digital and other
delivery systems considered, the
institution-level delivery systems
evaluation would be based exclusively
on the bank’s branch availability and
services and remote service facility
availability.
The agencies proposed that examiners
would derive the institution delivery
systems evaluation by considering the
bank’s performance for each of the three
parts of the delivery system evaluation
and allowing for examiner discretion to
determine the appropriate weight that
should be given to each part. The
agencies also indicated that examiners
would take into account a bank’s
business model and strategies when
determining the appropriate weighting.
Credit products and programs and
deposit products evaluation. The
agencies proposed in paragraph c.3.i.B
of proposed appendix C, that a bank’s
credit and deposit products evaluation
would be based on the performance for
the applicable parts of the credit and
deposit products evaluation, which are:
(1) the responsiveness of credit products
and programs to the needs of low- and
moderate-income individuals, small
businesses, and small farms; and (2)
deposit products responsive to the
needs of low- and moderate-income
individuals. The agencies proposed to
apply the first part of the evaluation to
all large banks at the institution level.
The agencies also proposed evaluating
the bank’s deposit products at the
1085 See
proposed appendix C, paragraph c.3.i.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
institution level for large banks with
assets of over $10 billion and for large
banks with assets of $10 billion or less
electing to have their responsive deposit
products considered. For large banks
with assets of $10 billion or less that do
not elect to have their responsive
deposit products considered, the
institution-level credit products and
programs and deposit products
evaluation would be based exclusively
on the responsiveness of a bank’s credit
products and programs to the needs of
low- and moderate-income individuals,
small businesses, and small farms.
As with the delivery systems
evaluation, the agencies proposed that
examiners, considering performance
context, would reach a determination at
the institution level for the credit and
deposit products evaluation of:
‘‘Outstanding’’ (10 points); ‘‘High
Satisfactory’’ (7 points); ‘‘Low
Satisfactory’’ (6 points); ‘‘Needs to
Improve’’ (3 points); or ‘‘Substantial
Noncompliance’’ (0 points).1086
Retail Services and Products Test
conclusion for the institution. The
agencies proposed to assign a Retail
Services and Products Test conclusion
based on a combined assessment of the
bank’s delivery systems evaluation and
the credit and deposit products
evaluation, as applicable. The agencies
proposed that examiner judgment
would be relied upon to determine the
appropriate weighting between these
two parts of the Retail Services and
Products Test for purposes of assigning
the institution conclusion, in
recognition of the importance of local
community credit needs and bank
business model and strategy in
determining the amount of emphasis to
give delivery systems and credit and
deposit products, respectively. Based on
this consideration, the agencies would
assign an institution-level conclusion on
the Retail Services and Products Test.
This conclusion would be translated
into a performance score using the
following mapping: ‘‘Outstanding’’ (10
points); ‘‘High Satisfactory’’ (7 points);
‘‘Low Satisfactory’’ (6 points); ‘‘Needs to
Improve’’ (3 points); or ‘‘Substantial
Noncompliance’’ (0 points).
The agencies requested feedback on a
series of questions regarding the
proposed approach. With respect to the
evaluation of delivery systems, the
agencies asked whether branches and
remote services facilities should be
evaluated at the assessment area level
and digital and other delivery systems at
the institution level, as proposed. The
agencies also asked whether the
proposed weighting of the digital and
1086 See
PO 00000
proposed appendix C, paragraph c.3.ii.
Frm 00377
Fmt 4701
Sfmt 4700
6949
other delivery systems component
relative to the physical delivery systems
according to bank business model, as
demonstrated by the share of consumer
accounts opened digitally, was
appropriate; whether weighting should
be based on performance context; or
whether a different approach was
appropriate. With respect to the
evaluation of credit and deposit
products, the agencies requested
feedback on whether the two
subcomponents (credit and deposit
products) should receive equal weight,
or should be based on examiner
judgement and performance context.
The agencies also asked whether each
subcomponent should receive its own
conclusion that would be combined
with the delivery systems evaluation for
an overall institution conclusion, or
whether favorable performance in the
credit and deposit products evaluation
should be used solely to upgrade the
delivery systems conclusion. The
agencies further asked how test
conclusions should be determined for
banks with assets of $10 billion or less
that opt to be evaluated on their digital
delivery systems and deposit products.
Finally, the agencies requested feedback
on whether each part of the Retail
Services and Products Test should
receive equal weighting.
Comments Received
Delivery systems evaluation. There
was no consensus among the
commenters responding to the agencies’
request for feedback regarding the
appropriateness of the proposed
approach to evaluate the bank’s delivery
systems (branches and remote service
facilities) at the assessment area level,
and their digital and other delivery
systems at the institution level. A few
commenters supported evaluating each
subcomponent as proposed by the
agencies. One of these commenters
noted that this approach would be
appropriate, particularly given that
digital delivery systems are consistent
across the institution and that the
institution-level assessment provides
the best allocation of a limited
regulatory burden budget given the cost
of developing, promoting, and
maintaining high quality systems. Some
commenters supported evaluating both
subcomponents at the same level, and at
both the assessment area and institution
levels, with another commenter stating
local responsiveness to needs is best
evaluated at the assessment area level.
With respect to the agencies’ proposal
to weight the digital and other delivery
systems component relative to the
physical delivery systems and according
to the bank’s business model (as
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6950
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
demonstrated by the share of consumer
accounts opened digitally), commenters
were also divided. One commenter was
supportive of the agencies’ approach
and found the proposal appropriate,
while commenters preferred that
weighting be determined based on
performance context, stating that it is
key to understanding the position of a
bank. A few other commenters asserted
that the weighting should be determined
based on both business model and
performance context, while another
commenter recommended that
weighting should be appropriate to the
bank’s business model. Two
commenters were of the view that,
because low- and moderate-income
customers rely more heavily on
branches, the physical delivery
component should weigh more (e.g., a
bank that gathers 50 percent or more of
its deposits from branches should have
a weight for their physical delivery
systems and their digital delivery
systems of two-thirds and one-third,
respectively). One commenter
recommended that the agencies offer
flexible weighting based on a bank’s
business model for the three types of
delivery systems (branches, remote
service facilities, and digital and other).
Several other commenters
recommended that banks with few or no
physical branches or remote service
facilities should be evaluated on their
primary delivery channels, e.g., their
digital delivery systems. Another
commenter stated that the share of
consumer accounts opened digitally
should be the metric and that it is not
clear why physical delivery systems are
relevant and how much a bank’s
business model should be factored into
the evaluation unless the bank offers no
digital banking services.
Credit and deposit products
evaluation. In response to how the
agencies should weight the two
subcomponents of the credit and
deposit products evaluation,
commenters provided a variety of
recommendations. Two commenters
recommended that the two
subcomponents generally receive equal
weighting, with one commenter
recommending that if a bank is mostly
a lender, credit products should be
weighted more heavily, and conversely,
if the bank mostly offers deposit
services, deposit products should be
weighted more heavily. This commenter
also recommended that examiners
should not determine weights since it
would be too subjective, and that the
agencies should develop a table of
weights based on business models.
Another commenter similarly
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
recommended that examiners should
not determine the weights, but
recommended that credit products
receive greater weight, expressing the
view that providing credit has a more
significant beneficial impact on the
community. Two commenters expressed
a different view, stating that examiner
judgment and performance context
should be used to determine the relative
weight of the two subcomponents, with
one of these commenters stating that
doing so would impart flexibility with
regard to a bank’s business model,
assessment area characteristics, and
product demand. Two other
commenters believed weighting should
be determined based on the business
model and performance context, and
another commenter asserted that
weighting should also depend on the
importance of each product to the
communities in the assessment area.
A few commenters addressed the
agencies’ request for feedback
concerning how the credit and deposit
products evaluation should be
considered when developing a bank’s
overall Retail Services and Products
Test conclusion. Most of these
commenters recommended that the
evaluation should have its own
conclusion rather than use the
evaluation to upgrade the delivery
systems conclusion, with one
commenter stating that the credit and
deposit products evaluation should be
considered a qualitative factor in the
Retail Lending Test.
Weighting the components to derive
the institution conclusion. A small
number of commenters responded to the
agencies’ request for comment on
whether each part of the Retail Services
and Products Test should receive equal
weighting to derive the institution’s
conclusion or vary the weight based on
business model and performance
context. A few commenters supported
weighting each part of the test based on
business model and performance
context, with one of these commenters
stating it would encourage
responsiveness and innovation. Another
one of these commenters also stated that
weighting should be treated much like
the current innovative and flexible
lending test to supplement the rating.
Another commenter supported an
overall institution conclusion with the
appropriate weighting of each
composite evaluation and recommended
that the agencies weight delivery
systems conclusions less than the other
systems conclusions if they are deemed
less critical. Two other commenters
generally supported equal weight for
each part of the test, with one of these
commenters also recommending
PO 00000
Frm 00378
Fmt 4701
Sfmt 4700
consideration of business model but not
relying on examiner judgment to
establish the weight. Some commenters
expressed concern that digital banks
may not have data or products to be
evaluated under this test and, given the
great deal of examiner judgment
provided under the proposal, that it is
unknown whether examiners would
disregard those tests, adding significant
uncertainty for the assessed institution.
Other commenter recommendations
included the following: the delivery
systems portion of the test should be
given more weight, and if the agencies
provide additional guidance on the
impact and responsiveness of an
activity, then each part of the test
should be weighted according to the
specific guidance; a clearly-defined
grading system should be created that
emphasizes lending, branches, fair
lending performance, and responsible
loan products for working class families;
and banks should not be permitted to
pass if they fail to serve communities
with branches and affordable and
accessible products, and provide
banking and deposit products equitably,
as can happen with strict numerical
weighting systems.
Final Rule
The agencies are adopting
§ ll.23(d)(1) largely as proposed,
assigning conclusions for a bank’s Retail
Services and Products Test in each
facility-based assessment area, State,
multistate MSA, and at the institution
level in accordance with final § ll.28
and final appendix C of the CRA
regulations. As explained in more detail
below, the agencies are also revising
proposed appendix C to provide that the
agencies will consider the bank’s
performance regarding its retail banking
products, as applicable, to determine
whether the bank’s performance
contributes positively to the bank’s
overall Retail Services and Products
Test conclusion. The agencies are also
clarifying in appendix C that
consideration of a bank’s retail banking
products evaluated at the institution
level may include retail banking
products offered in facility-based
assessment areas and nationwide. As a
result of the revisions made in the final
rule to the proposed conclusions for
retail banking products, the agencies are
also revising proposed appendix C with
respect to a bank’s overall institution
Retail Services and Products Test
conclusion. Specifically, paragraph
c.2.iv.B.3 of final appendix C clarifies
that ‘‘[t]he bank’s lack of responsive
retail products does not adversely affect
the bank’s Retail Services and Products
Test performance conclusion.’’ Final
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
§ ll.23(d)(1) is also revised to add that
‘‘[i]n assigning conclusions under this
performance test, the [Agency] may
consider performance context
information as provided in § ll.21(d).
The evaluation of a bank’s retail banking
products under paragraph (c) of this
section may only contribute positively
to the bank’s Retail Services and
Products Test conclusion.’’
Delivery systems conclusion.
Conclusions in the final rule with
respect to the delivery systems,
component of the test are based on the
conclusions for each of the three parts
of the delivery systems evaluation:
branch availability and services, remote
service facility availability, and digital
and other delivery systems. Consistent
with the proposal, the final rule
evaluates branches and remote service
facilities for all large banks at the
facility-based assessment area level and
then aggregates those conclusions to
form a branch availability and services
and remote service facility availability
subcomponent conclusion at the
institution level, as provided in
paragraph c.1 of final appendix C.
The final rule evaluates digital and
other delivery systems for large banks
with assets of over $10 billion, large
banks with assets of $10 billion or less
that have no branches, and large banks
with assets of $10 billion or less that
elect to have digital and other delivery
systems considered. The agencies will
develop an institution-level conclusion
for these banks’ digital and other
delivery systems subcomponent. The
agencies believe it is appropriate to
evaluate digital and other delivery
systems at the institution level because
the features of this subcomponent are
generally not place-based and may
extend beyond facility-based assessment
areas. Digital and other delivery systems
are also generally consistent across the
institution.
In the final rule, the institution-level
delivery systems conclusion for large
banks with assets of $10 billion or less
that have branches and do not elect to
have their digital and other delivery
systems considered will be based
exclusively on the evaluation of such
bank’s branch availability and services
and remote service facility availability.
The final rule also contemplates that
examiner judgment will be relied upon
to determine the appropriate weight that
should be given to each subcomponent
of delivery systems at the institution
level based on the bank’s business
model and performance context. As
noted in the proposal, this approach for
developing delivery systems
conclusions is intended to provide the
agencies with the flexibility to take into
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
account the unique business models and
strategies of different banks. For
example, if a majority of the bank’s new
deposit accounts are opened via digital
channels during the evaluation period,
then the agencies may give more weight
to the digital and other delivery systems
conclusion.
The agencies considered and
appreciate commenters’ suggestions
regarding how weighting of the
subcomponents of delivery systems
should be determined. The agencies
note that the final rule will not require
weighting as demonstrated by the share
of consumer accounts opened digitally.
As noted above, the final rule adds
consideration of performance context,
which is important to understanding the
bank’s business model and strategy. The
agencies believe that dictating the
specific measures in the regulation for
how to derive conclusions for delivery
systems could also be limiting. On
balance, the agencies believe that the
approach in the final rule will provide
flexibility to banks and examiners to
consider other factors, while
minimizing burden.
Retail banking products conclusion.
In response to comments, and to
conform to changes made in the test, the
agencies will evaluate the bank’s
performance regarding its retail banking
products and determine whether the
bank’s performance contributes
positively to the bank’s Retail Services
and Products Test. Under the final rule,
examiner judgment and performance
context will be considered in
determining the responsiveness of a
bank’s retail banking products.
The lack of responsive retail banking
products will not adversely affect the
evaluation of the bank’s Retail Services
and Products Test performance. If the
bank presents and has the data to
support that its credit products and
programs are responsive to the needs of
low- and moderate-income individuals,
families, or households, residents of
low- and moderate-income census
tracts, small businesses and small farms,
and are offered and used, such data will
be presented in the CRA performance
evaluation. However, if a bank does not
offer or originate, or does not provide
for consideration, any credit products
and programs responsive to the credit
needs of low- and moderate-income
individuals, families, or households,
residents of low- and moderate-income
census tracts, small businesses, or small
farms, the CRA performance evaluation
will state as such.
If the bank presents and has the data
to support that its deposit products are
responsive to the needs of low- and
moderate-income individuals, families,
PO 00000
Frm 00379
Fmt 4701
Sfmt 4700
6951
or households, and are offered and used,
the agencies will evaluate such data for
positive consideration under this test. If
the agencies provide positive
consideration of deposit products, such
consideration will be presented in the
CRA performance evaluation. If the
bank does not offer any deposit
products responsive to the needs of lowor moderate-income individuals,
families, or households, such
information will not be reflected in the
CRA performance evaluation.
The agencies believe that permitting
agency discretion and performance
context to be used to determine the
impact of any positive consideration of
retail banking products is appropriate
because it would impart flexibility to
consider a bank’s business model and
strategy. The agencies determined that
evaluating the retail banking products
solely for positive consideration rather
than weighting was appropriate given
the nature of the review. The agencies
also acknowledge concerns about
examiner subjectivity, but on balance,
the agencies believe that the approach
in the final rule will allow banks more
flexibility and will take into
consideration bank sizes, business
models, and the retail banking product
needs of the local communities served
by the bank. The agencies also disagree
with comments that recommended that
credit or deposit products should
receive greater weight in the final rule.
The agencies believe that both credit
products and programs and deposit
products have a beneficial impact on the
community and that the agencies should
not be constrained in evaluating banks
with varying business models.
In response to commenters that
suggested including retail banking
products as a qualitative factor in the
Retail Lending Test, the agencies
disagree and believe that the Retail
Lending Test should maintain its
primarily quantitative approach to
evaluating retail lending. The agencies
believe further that the Retail Services
and Products Test is the appropriate
place to evaluate these products and
programs qualitatively. The quantitative
approach to the Retail Lending Test is
discussed more in-depth in that section
of the preamble.
Retail Services and Products Test
Conclusion. For the reasons stated
above, the agencies are not finalizing an
institution-level conclusion based on
conclusions derived for delivery
systems and credit and deposit products
as proposed. Instead, the delivery
systems evaluation will receive a
conclusion, and the agencies will
determine whether the retail banking
products evaluation contributes
E:\FR\FM\01FER2.SGM
01FER2
6952
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
positively to the bank’s Retail Services
and Products Test conclusion. The
agencies will consider a bank’s retail
banking products offered in facilitybased assessment areas and nationwide
in determining whether the evaluation
of retail banking products contributes
positively to the bank’s Retail Services
and Products Test. The agencies believe
that this consideration supports the
agencies’ objectives to adapt to changes
in the banking industry as banks offer
products and programs beyond their
branch locations.
The final rule also provides for agency
discretion, considering a bank’s
business model and other performance
context factors, to determine the
appropriate weight to give each
subcomponent of the retail banking
services evaluation and to assess the
responsiveness of a bank’s retail
banking products. The agencies agree
with commenters who supported
weighting each part of the test based on
business model and performance
context because the flexibility could
encourage responsiveness and
innovation. The agencies disagree,
however, with the recommendations to
establish definitive weighting for each
part of the test or a strict numerical
grading system. While the agencies are
sensitive to concerns that relying on
agency discretion, bank business model,
and performance context may run
counter to the stated objective of more
certainty, the agencies believe that this
approach is appropriate because it
allows for flexibility without increased
burden on banks.
Section ll.23(d)(2) Ratings
ddrumheller on DSK120RN23PROD with RULES2
Current Approach and the Agencies’
Proposal
Current § ll.24(f) of the CRA
regulations provides that the agencies
rate each large bank’s service test
performance pursuant to current
appendix A. Under current appendix A,
each bank’s performance is assigned of
the following five ratings:
‘‘Outstanding,’’ ‘‘High Satisfactory,’’
‘‘Low Satisfactory,’’ ‘‘Needs to
Improve,’’ or ‘‘Substantial
Noncompliance.’’ As noted above, retail
services are part of the overall service
test rating along with community
development services. Therefore, retail
services do not get their own rating in
the current regulations. Instead, the
ratings for retail services are determined
pursuant to paragraphs (b)(3)(i) through
(v) of current appendix A. The ratings
are determined at the State, multistate
MSA, and institution levels.
The agencies proposed to incorporate
a bank’s Retail Services and Products
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Test conclusions into its State,
multistate MSA, and its institution
ratings as provided in § ll.28 and
appendices C and D.
Final Rule
The agencies received no comments
related to the specific language in
§ ll.23(d)(2) about the agencies’
proposal to assign ratings and are
finalizing § ll.23(d)(2) as proposed,
with technical edits not intended to
have a change in meaning. The final
rule incorporates the changes in
conclusions noted above into the ratings
for the Retail Services and Products Test
pursuant to final § ll.28 and final
appendices C and D. The agencies are
clarifying that business model and
performance context are considered
when assigning conclusions as well as
the ratings for the bank’s performance
under the Retail Services and Products
Test. Also, included specifically for the
evaluation of a bank’s retail banking
products, the agencies will determine
whether the bank’s performance
contributes positively to the bank’s
Retail Services and Products Test
conclusion and rating.
Section ll.24 Community
Development Financing Test
Section ll.24
In General
Current Approach
Under current CRA regulations and
interagency examination procedures,
the agencies assess community
development loans and community
development investments (community
development financing activities)
differently based on the asset size and
business model of a bank.1087 For small
banks, the agencies consider community
development investments only at a
bank’s option for consideration of an
‘‘Outstanding’’ rating for the institution
overall.1088 The agencies may consider
a small bank’s community development
loans as part of lending-related activities
under the lending test applicable to
small banks as discussed in the sectionby-section analysis of § ll.29. For
intermediate small banks and wholesale
and limited purpose banks, the agencies
consider community development
loans, community development
investments, and community
development services together under the
applicable community development
test.1089
For large banks, the agencies consider
community development loans together
1087 The current performance tests and standards
are included in subpart B of the current rule.
1088 See current appendix A (Ratings); Q&A
§ ll.26(d)–1.
1089 See current 12 CFR ll.25(c) and ll.26(c).
PO 00000
Frm 00380
Fmt 4701
Sfmt 4700
with retail loans as part of the lending
test, while the agencies consider
community development investments
separately in the investment test.1090 A
large bank receives consideration for
both the number and dollar amount of
community development loans
originated and community development
investments made during the evaluation
period, as well as the remaining book
value of community development
investments the bank made during prior
evaluation periods that remain on the
bank’s balance sheet. Under the current
evaluation framework, banks do not
receive consideration for community
development loans that remain on a
bank’s balance sheet from prior
evaluation periods.
For banks that are not small banks,
the current rule also includes
consideration of qualitative factors,
including the innovativeness and
complexity of community development
financing activities, the responsiveness
of the bank to credit needs in its
assessment areas, and the degree of
leadership the bank exhibits through its
activities. The agencies assign
conclusions at the assessment area level
based on both the number and dollar
amount of community development
financing activities, as well as the
qualitative factors.
The current approach emphasizes
community development financing
activities that serve one or more of a
bank’s assessment areas but also allows
for flexibility in the geographic scope
and focus of activities, subject to certain
conditions. A community development
financing activity that specifically
serves an assessment area receives
consideration, as does a community
development financing activity that
serves a broader statewide or regional
area containing one or more of a bank’s
assessment areas.1091 For a bank with a
nationwide footprint, this could include
community development loans and
investments that are nationwide in
scope.1092 In addition, if a bank has met
the community development needs of
its assessment areas, it may also receive
consideration for community
development financing activities within
a broader statewide or regional area that
includes an assessment area that do not
benefit its assessment area.1093
The Agencies’ Proposal
In § ll.24 of the NPR, the agencies
proposed a new Community
current 12 CFR ll.22 and ll.23.
current 12 CFR ll.12(h)(2)(ii); see also
Q&A § ll.12(h)—6.
1092 Q&A § ll.23(a)–2.
1093 Q&A § ll.12(h)–6.
1090 See
1091 See
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Development Financing Test applicable
to large banks and any intermediate
bank that opted to be evaluated under
this test.1094 The proposed Community
Development Financing Test consisted
of community development financing
metrics, applicable benchmarks, and an
impact review. The agencies proposed
using these components to evaluate
banks’ community development loans
and investments in facility-based
assessment areas, States and multistate
MSAs where banks have facility-based
assessment areas, and in the nationwide
area. These metrics, as compared to
benchmarks and the impact reviews,
would inform conclusions at those
levels.
The agencies proposed using the bank
community development financing
metrics to measure the dollar value of a
bank’s community development
loans 1095 and community development
investments 1096 together, relative to the
bank’s capacity, as reflected by the
dollar value of deposits. The proposed
benchmarks would reflect local context,
including the amount of community
development financing activities in the
applicable area by other banks, as well
as national context that would provide
additional information for the
evaluation of facility-based assessment
areas. The agencies would use the
benchmarks in conjunction with the
metrics to assess a bank’s performance.
The proposed metrics and benchmarks
would provide additional consistency
and clarity in evaluating a bank’s
community development financing
activities under the otherwise
qualitative evaluation under the
proposed Community Development
Financing Test.
The impact review, in proposed
§ ll.15, would evaluate the impact
and responsiveness of a bank’s
community development loans and
investments through the application of
a series of specific qualitative factors
described in more detail in the sectionby-section analysis of § ll.15. The
impact review would provide
appropriate recognition under the
Community Development Financing
Test of community development loans
and investments that are considered to
be particularly impactful and responsive
to community needs, including loans
and investments that may be relatively
small in dollar amount.
1094 The agencies also proposed evaluating
wholesale and limited purpose banks under the
Community Development Financing Test for
Wholesale and Limited Purpose Banks, as discussed
in proposed § ll.26.
1095 See proposed § ll.12.
1096 Id.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Comments Received
The agencies received many
comments on the proposed Community
Development Financing Test in
§ ll.24 from a variety of commenters.
Although some commenters supported
parts of the proposed Community
Development Financing Test, other
commenters objected to certain aspects
of the proposed performance test,
including some commenters that opined
that the proposed performance test was
too complicated, would weaken the
CRA rule, or would water down
community development investments.
Some of these commenters offered
alternative options for the agencies to
consider. The proposed rule, comments
received, and final rule are described in
more detail below.
Final Rule
The agencies considered the
comments on proposed § ll.24 and
are finalizing the Community
Development Financing Test with the
substantive, conforming, clarifying, and
technical revisions discussed below.1097
As with the proposal, the final
Community Development Financing
Test applies to large banks, and to
intermediate banks that opt into the test.
Consistent with the current rule and the
proposal, the Community Development
Financing Test is a qualitative
evaluation; however, the final rule
builds on the current rule by
introducing standardized metrics and
benchmarks that examiners will use to
inform their evaluation of bank’s
capacity to engage in community
development financing activity. The
metrics and benchmarks included in the
final Community Development
Financing Test increase consistency by
providing examiners with standardized
information to evaluate bank
community development financing
performance. Nonetheless, the final
Community Development Financing
Test is a qualitative evaluation of banks’
community development loans and
investments in facility-based assessment
areas, States, and multistate MSAs (as
applicable pursuant to § ll.28(c)),1098
and the nationwide area because the
final rule does not include thresholds
for determining conclusions.1099
1097 See
supra note 145.
§ ll.28(c) explains when the agencies
evaluate and conclude on a bank’s performance in
a State or multistate MSA. See the section-bysection analysis of final § ll.28(c).
1099 As discussed below, the agencies could
consider adding thresholds to the Community
Development Financing Test in the future after
reviewing and analyzing data on community
development loans and investments and once they
1098 Final
PO 00000
Frm 00381
Fmt 4701
Sfmt 4700
6953
In addition to the proposed metrics
and benchmarks that the agencies are
adopting in the final rule, in response to
comments, the agencies included an
additional investment metric and
benchmark for evaluating community
development investments in the
nationwide area for large banks that had
assets greater than $10 billion. The final
rule also includes consideration of the
impact and responsiveness of banks’
community development loans and
investments. The final rule does not
prescribe weighting for community
development loans or investments
within the Community Development
Financing Test, nor does it prescribe
weighting for the metrics and
benchmarks or impact and
responsiveness review components.
Banks Subject to the Community
Development Financing Test
Current Approach
Under the current rule, the agencies
evaluate community development loans
and investments for both large banks
and intermediate small banks under the
tests applicable to those banks. As
discussed above, the agencies evaluate
large banks’ community development
lending and investments under the
lending test in current § ll.22 and the
investment test in current § ll.23. The
agencies evaluate intermediate small
banks’ community development loans,
community development investments,
and community development services
under the community development test
in current § ll.26(c).
The Agencies’ Proposal
The proposed Community
Development Financing Test, in
§ ll.24, applicable to large banks and
to intermediate banks that opted into
the test, combined the evaluation of
community development loans and
investments into a single test. As
proposed, the agencies would continue
to evaluate intermediate banks’
community development loans,
community development investments,
and community development services
using a community development test
modeled on the community
development test in current § ll.26(c).
The proposal provided, however, that
intermediate banks could elect
evaluation under proposed § ll.24.
Comments Received
As discussed above in the section-bysection analysis of § ll.21, the
agencies received comments on the
applicability of the performance tests
have experience applying the new metrics and
benchmarks.
E:\FR\FM\01FER2.SGM
01FER2
6954
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
and standards to different sizes and
types of banks. For example, a
commenter suggested that the proposal
to eliminate the community
development test for certain banks
would eliminate those banks’
accountability for providing community
development financing activities and
branches in underserved communities
and lacks justification. Another
commenter stated that the agencies
should require intermediate banks to be
evaluated under the proposed
Community Development Financing
Test, as opposed to making it optional.
The commenter suggested that
subjecting both large and intermediate
banks to the new test would create
consistency among banks and examiners
and provide others in the community
development industry with a common
understanding of how the agencies
evaluate banks.
Final Rule
The agencies are finalizing these
provisions of the rule as proposed; the
final Community Development
Financing Test will apply to all large
banks and to intermediate banks that
opt into the performance test. The
agencies included clarifying edits in
§ ll.24 of the final rule to reference
intermediate banks that opt into the test.
Although the agencies understand the
concerns raised by the commenters, as
discussed in greater detail above in the
section-by-section analysis of § ll.21,
the agencies believe that the additional
burden of requiring the Community
Development Financing Test for
intermediate banks was not justified
after accounting for these banks’ more
limited capacity to engage in
community development loans and
investments. Further, for the reasons
discussed above, the agencies also
believe that the changes to the asset size
thresholds for banks appropriately
balance the burden of meeting the
requirements of the Community
Development Financing Test with the
need to assess a bank’s record of helping
to meet the credit needs of its
community.
ddrumheller on DSK120RN23PROD with RULES2
Combined Consideration of Community
Development Loans and Investments
Current Approach
Under the current rule, as discussed
above, the agencies separately evaluate
large banks’ community development
loans and investments. The agencies
evaluate a large bank’s community
development loans under the lending
test in current § ll.22 along with its
retail lending. The agencies evaluate a
large bank’s community development
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
investments under the investment test
in current § ll.23. For intermediate
small banks, as noted above, the
agencies evaluate community
development loans, community
development investments, and
community development services under
a single community development test in
current § ll.26(c) of the current rule.
The Agencies’ Proposal
In § ll.24 of the NPR, the agencies
proposed to evaluate community
development loans and investments
together under the Community
Development Financing Test to allow
banks to make the community
development loans or investments that
are best suited to their expertise and
most needed for the community
development projects the banks are
financing. The agencies intended for the
proposed approach to simplify the
evaluation of community development
loans and investments while addressing
concerns expressed by some
stakeholders that the current approach
favors one form of financing over
another. The agencies believed that the
proposed metrics would appropriately
measure both community development
loans and investments. As discussed,
the agencies would also consider the
impact and responsiveness of
community development loans and
investments as part of the proposed
impact review.
Comments Received
The agencies received many
comments on the proposal to combine
the evaluation of community
development lending and investments
into a single Community Development
Financing Test in proposed § ll.24.
The majority of commenters objected to
the combined evaluation of community
development loans and investments
under a single test or urged the agencies
to retain separate evaluations for these
activities within the Community
Development Financing Test.
Some commenters supported
combining the evaluation of community
development loans and investments into
a single Community Development
Financing Test. Reasons provided by
these commenters for supporting a
single Community Development
Financing Test include that it: (1) can be
challenging for smaller banks to make
community development investments;
(2) would eliminate the unintended
consequences of a mismatch in the type
of funds a project needs and the funding
banks will receive credit for providing;
(3) would allow banks to have the
flexibility to create and implement a
broader variety of business plans, while
PO 00000
Frm 00382
Fmt 4701
Sfmt 4700
serving low- and moderate-income
individuals and communities in a more
efficient manner; (4) can be difficult to
distinguish between whether a
financing activity is equity or debt, such
as with investment structures that are
credit-enhanced loans; (5) would avoid
privileging one type of funding over the
other, allowing the needs of the project
to dictate the financing vehicle; (6)
would provide banks with greater
flexibility in determining the most
effective financing structures for
developments; and (7) would allow
banks to meet community development
needs in local communities through
lending if 12 CFR part 24 requirements
restrict a bank’s ability to make
investments. Even amongst the
commenters that supported the
combined evaluation of community
development loans and investments,
however, certain commenters noted
sensitivity to concerns about banks
overlooking community development
investments.
In contrast, most commenters on this
issue objected to the combined
evaluation of community development
loans and investments and
predominantly focused on the potential
disruptive or negative impact that the
proposed test could have on community
development investment markets.
Commenters expressed concern that the
proposal would allow banks to meet
their CRA obligations through
community development lending,
instead of through community
development investments, the latter of
which are often harder to make. For
example, commenters stated that banks
may engage in fewer community
development investments because
equity investments generally require
more costly capital, have a longer term
and higher origination costs, are more
illiquid, and carry greater risk. Other
commenters expressed concern that
banks may make fewer grants and
donations because these activities, even
with consideration as an impactful and
responsive factor pursuant to final
§ ll.15, are smaller dollar activities
that will not factor significantly in the
proposed metrics and benchmarks. One
of these commenters suggested the
agencies consider grants under the
Community Development Services Test
with a metric specific to grants and
contributions to nonprofit organizations.
Commenters also noted that
combining the evaluation of community
development loans and investments
may not result in the best financing for
a particular community or project. A
commenter expressed concern that the
proposed Community Development
Financing Test may incentivize
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
financial institutions to select one
financing option over the other, without
considering which option would be
more beneficial for the project. The
commenter noted that capital stacks
required for community development
initiatives vary from one project to
another, and impactful projects may be
delayed if the proper capital cannot be
obtained.
Many of the commenters that objected
to the combined evaluation of
community development loans and
investments expressed concern that
eliminating the current, separate tests
could have a particularly negative
impact on the equity tax credit markets.
Certain commenters expressed concern
that the proposed approach could
disincentivize or result in banks making
fewer LIHTC or NMTC investments
because these investments are often
more complex and may have lower
returns than community development
loans. Other commenters noted that the
current investment test has served as an
incentive for banks to engage in these
types of loans and investments and
banks make up a large portion of the
LIHTC and NMTC markets. Further, a
few commenters asserted that any
decrease in the appetite for LIHTC will
likely result in fewer affordable housing
deals, as well as higher costs, which
will translate into decreased
affordability for projects that do get
built.
Other commenters focused on the
potential impact that eliminating the
current investment test could have on
CDFI investments, with some stating
that eliminating the current investment
test could cause a shift in banks’ CRA
activity away from making equity
investments in, or providing grants to,
CDFIs, which are labor and time
intensive but impactful. A commenter
also stated that eliminating the current
investment test could discourage bank
investment in community development
venture capital funds and other CDFIs
that provide flexible risk capital to
businesses and projects in low-income
communities, noting that these funds
cannot be prudently capitalized with
debt.
Other commenters said that focusing
primarily on the dollar volume of
lending and investment transactions,
without also evaluating the number of
transactions and originations, favors
larger loans that are easier to make
instead of more impactful, and generally
smaller, investments and loans. Further,
at least one individual and a community
development organization stated that
combining consideration of community
development loans and investments into
a single test would remove longstanding
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
precedent where the agencies base a
portion of banks’ CRA performance on
community development investments.
Suggestions for Addressing Concerns
With Combined Evaluation of
Community Development Loans and
Investments. To address their concerns
about combined evaluation of
community development loans and
investments, commenters provided
several suggestions for revisions or
alternatives to the proposed Community
Development Financing Test. As
discussed below, commenter
suggestions included retaining the
current performance evaluation tests,
adding subtests to the proposed
Community Development Financing
Test, and implementing other methods
of ensuring banks continue to make
community development investments,
such as specifying weightings and
minimums. Certain commenters also
focused their suggestions on particular
aspects of the community development
investment markets, including the tax
credit markets, grants, and mortgagebacked securities.
Certain commenters suggested
retaining versions of the current
performance tests, which evaluate
community development loans and
investments separately. Specifically, a
commenter supported retaining the
current large bank three-test evaluation,
where the agencies evaluate the relative
merits of lending, investments, and
services separately. A few commenters,
suggested that the agencies should
consider all lending under the Retail
Lending Test and all investments under
the Community Development Financing
Test.
Other commenters suggested that the
agencies incorporate separate
community development lending and
community development investment
subtests into the Community
Development Financing Test. Some of
these commenters suggested that
including separate subtests would
encourage banks to make LIHTC
investments, grants, and equity
equivalent investments. These
commenters also suggested weighting
for the tests ranging from 15 percent to
greater than 50 percent for the
investment. As discussed in the sectionby-section analysis of § ll.21(a), other
commenters recommended a single
community development test and
certain of these commenters
recommended weighting for the subtests
as follows, community development
lending (weighted 25 percent),
community development investments
(weighted 20 percent), and community
development services (weighted 5
percent).
PO 00000
Frm 00383
Fmt 4701
Sfmt 4700
6955
Commenters also provided other
suggestions for ensuring that
community development investments
receive appropriate emphasis under the
final rule. Some commenters suggested
that, to ensure that banks still make
community development investments,
the agencies should require a minimum
amount of community development
financing activities to be in the form of
equity investments. One of these
commenters stated that a portion of this
investment minimum should not be tied
to tax credits. Another commenter
suggested as an alternative that the
agencies should not assign a bank an
‘‘Outstanding’’ rating without an
adequate level of equity investments.
Instead of including an investment
minimum in the Community
Development Financing Test, certain
commenters suggested that the agencies
include investment-based metrics and
benchmarks in the performance test.
Commenters stated the Community
Development Financing Test should
include some or all of the following: (1)
an institution-level equity metric and
benchmark; (2) a measurement of the
new institution-level equity investments
over time to identify reductions; or (3)
a high-impact metric and benchmark.
Some of these commenters believe that
banks should not receive a higher score
on the Community Development
Financing Test than on this
recommended equity investment metric.
Certain commenters suggested
structuring the investment metric like
the proposed institution-level
Community Development Financing
Metric, to measure community
development equity investments in the
numerator and deposits in the bank in
the denominator. A few of these
commenters recommended excluding
mortgage-backed securities from the
metric or benchmark.
Commenters also offered suggestions
for how the agencies could incorporate
the metrics or benchmarks into the
Community Development Financing
Test. Certain commenters recommended
the agencies use an equity benchmark
based on a comparison of investments to
deposits as a peer comparator and
assign higher Community Development
Financing Test ratings to banks that
devote a larger portion of their
community development financing
activities to equity investments. One of
these commenters also suggested the
agencies use a benchmark that measures
total equity investments—exclusive of
mortgage-backed securities—as a
percentage of a bank’s total community
development loans and investments as a
peer comparator. A commenter further
suggested that a high equity metric
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6956
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
could be considered as a factor for an
‘‘Outstanding’’ rating.
Some commenters also suggested that
the agencies monitor levels of equity
investments compared to the current
baseline level, both for individual banks
and nationwide, and take action to
prevent reductions in equity
investments, with certain commenters
focusing specifically on reductions in
tax credit investments. One of these
commenters also encouraged examiners
to potentially downgrade banks that
have significantly cut back their
investments without a reasonable
explanation. Relatedly, a commenter
suggested that, in lieu of a separate
investment test, the agencies could
require data collection on community
development loans and investments to
identify imbalances between the
categories.
Commenters also made other
recommendations for how the agencies
could continue to ensure that banks
participate in the affordable housing
and tax credit markets. In the absence of
a separate investment test, commenters
strongly urged the agencies to: (1) put
mitigating factors in place to protect
LIHTC investments; (2) establish
another robust mechanism to motivate
both intermediate and large banks to
participate in the equity markets for
NMTCs and other effective community
development tax credit investments; or
(3) otherwise implement strong
mechanisms to preserve impactful
equity investments in affordable
housing and community development.
For example, a commenter requested
that the agencies ensure that the rule
reviews separately and helps increase
affordable housing tax credits
investments and lending.
Other commenters recommended that
the agencies limit credit for investments
in mortgage-backed securities so that the
mortgage-backed securities investment
option does not overwhelm the
Community Development Financing
Test. Commenter recommendations
included: (1) limiting credit for
mortgage-backed securities to 20–25
percent of the institution-level
Community Development Financing
Test conclusions and ratings; (2)
requiring a two-year holding period for
mortgage-backed securities, with a
retrospective review of the holding
period applied to the next bank
examination; (3) counting only the first
or second purchase of mortgage-backed
securities; or (4) counting only the value
of affordable loans in a qualifying
mortgage-backed security, rather than
the full value of the security.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Final Rule
The agencies are adopting the
Community Development Financing
Test as proposed with the combined
evaluation of community development
loans and investments. To address
commenter concerns, however, the final
rule includes a Bank Nationwide
Community Development Investment
Metric 1100 and a Nationwide
Community Development Investment
Benchmark,1101 for large banks that
have assets greater than $10 billion,
discussed in greater detail below in the
section-by-section analysis of
§ ll.24(e).
The agencies carefully considered
commenters’ concerns about the
potential negative or disruptive impact
that combining the evaluation of
community development loans and
investments could have on banks’
provision of community development
investments, including tax credit
investments, CDFI investments,
affordable housing investments, and
grants and other small dollar
investments and loans. The agencies
also considered the reasons for
combining consideration of community
development loans and investments,
both those articulated in the proposal
and provided by commenters.
After weighing the potential benefits
and consequences of adopting the
Community Development Financing
Test as proposed, the agencies continue
to believe that the combined evaluation
of community development loans and
investments will best serve the interests
of banks and communities by providing
flexibility for banks to focus on the
community development financing
methods most consistent with their
expertise. The combined evaluation of
community development loans and
investments also will enable banks to
identify the financing most needed for
a community development project
without regard to how that loan or
investment would affect the bank’s CRA
evaluation. Further, the agencies
considered that there are circumstances
in which banks are not competitive for
certain types of community
development loans or investments or
there are limited opportunities in
particular markets for one or the other
type of financing. Combining the
evaluation of community development
loans and investments into a single
Community Development Financing
Test will reduce the consequences of
these supply and demand issues on
banks’ CRA evaluations.
1100 See
1101 See
PO 00000
final § ll.24(e)(2)(iii).
final § ll.24(e)(2)(iv).
Frm 00384
Fmt 4701
Sfmt 4700
Nonetheless, the agencies understand
that certain community development
investments involve significant time
and effort, are complex, and play an
important role in supporting muchneeded community development,
including affordable rental housing and
economic development in low- and
moderate-income communities and
other underserved communities. The
agencies did not intend for the proposed
Community Development Financing
Test to incentivize banks to make fewer
impactful investments. To mitigate the
potential risk that banks may put less
emphasis on community development
investments, the final rule includes both
a Bank Nationwide Community
Development Investment Metric and a
Nationwide Community Development
Investment Benchmark for banks with
assets greater than $10 billion. Under
the final rule, the new investment
metric and benchmark may only
contribute positively to a bank’s
performance under the Community
Development Financing Test.
Several commenters suggested that if
the agencies retained a single
Community Development Financing
Test, the test should incorporate an
investment metric and benchmark. The
agencies agree that including these
components in the Community
Development Financing Test would
allow the agencies to better understand
the level of community development
investments that banks are making, both
individually and collectively. The
agencies considered the other more
specific suggestions provided by
commenters for addressing the potential
negative impact of eliminating the
current investment test and determined
that the addition of the Bank
Nationwide Community Development
Investment Metric and the Nationwide
Community Development Investment
Benchmark will provide sufficient
additional information within the
otherwise qualitative evaluation
envisaged under the Community
Development Financing Test. These
metrics and benchmarks are part of a
holistic consideration of a bank’s
community development financing
performance; some of the more specific
recommendations are better addressed
through the impact and responsiveness
review in § ll.15 (e.g., implementing
a mechanism to recognize tax credit
investments) or could inappropriately
emphasize a particular type of
community development investment
that may not—in an examiner’s view—
be appropriate or necessary for a
particular bank or community (e.g.,
recognizing a particular type of equity
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
investment for a bank that does not have
the expertise to engage in that activity).
The structure and applicability of the
Bank Nationwide Community
Development Investment Metric and the
Nationwide Community Development
Investment Benchmark are discussed
below.
Community Development Loan and
Investment Evaluation Methodology, in
General Inclusion of Metrics and
Benchmarks in the Community
Development Financing Test
ddrumheller on DSK120RN23PROD with RULES2
Current Approach
As noted above, the agencies
currently evaluate large bank
community development loans and
investments in their assessment areas
under the lending test in § ll.22 and
the investment test in § ll.23. In
contrast, the agencies consider
intermediate small bank community
development activities under a single
community development test in current
§ ll.26 that assesses loans,
investments, and services. The
applicable tests include performance
criteria for evaluating the number and
amount of a bank’s community
development loans and community
development investments.
For banks that are not small banks,
the current approach also includes the
evaluation of certain qualitative factors,
such as the innovativeness and
complexity of the bank’s community
development loans and investments.
The current approach relies on
examiner judgment to conclude on bank
performance. Examiners apply the
performance criteria in accordance with
the CRA regulations, interagency
examination procedures, and the
agencies’ guidance (including the
Interagency Questions and
Answers).1102
Under the current rule, the agencies
do not use standard metrics or
benchmarks for evaluating community
development loans and investments.
Rather, the agencies weight community
development financing activities based
on how responsive the loans and
investments are to community
needs.1103 Banks with a smaller dollar
volume of highly responsive community
development loans or investments may
receive similar conclusions and ratings
as banks with a larger dollar volume of
less responsive loans and investments.
In the absence of standard metrics and
benchmarks, however, stakeholders
have noted that there is substantial
variability between agencies and
1102 See
1103 See
Q&A § ll.21(a)—1.
Q&A § ll.21(a)—2.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
between examiners within the same
agency in how much weight a particular
community development loans or
investment receives.
The Agencies’ Proposal
The agencies sought to address some
of the criticism of the current
performance tests and standards by
introducing standardized metrics and
benchmarks in proposed § ll.24(b)
and (c) of the Community Development
Financing Test, which applied to
facility-based assessment areas, States
and multistate MSAs, as applicable, and
the nationwide area.1104 Although the
agencies included metrics and
benchmarks to the Community
Development Financing Test, due to the
currently limited data on community
development lending and lack of data
on community development
investments, the agencies did not
include thresholds in the test. As a
result, the proposed Community
Development Financing Test remained a
qualitative evaluation informed by the
proposed metrics and benchmarks that
would continue to rely on examiner
judgment to assess the dollar volume of
community development loans and
investments and conclude on bank
performance. The agencies believed the
use of uniform metrics and benchmarks
would improve the consistency and
clarity of evaluations as compared to the
current approach. Further, the agencies
introduced a more formalized impact
review in the proposal for assessing
performance under the Community
Development Financing Test.
Comments Received
Some commenters that addressed the
Community Development Financing
Test stated that the proposed test
included improvements compared to
the current approach. Specifically, a few
of these commenters identified the
inclusion of metrics and benchmarks in
the Community Development Financing
Test as an improvement on the current
framework. A commenter stated that
using consistent metrics and
benchmarks would provide greater
uniformity and clarity under this test.
However, a few commenters,
including some commenters that
supported the proposed revisions,
expressed concern that the Community
Development Financing Test did not
contain sufficient rigor, structure, or
standards to guide examiner judgment
in assigning performance scores and
ratings. A few commenters stated that
1104 The Community Development Financing Test
metrics and benchmarks as they apply to specific
geographic areas are discussed in greater detail
below.
PO 00000
Frm 00385
Fmt 4701
Sfmt 4700
6957
the Community Development Financing
Test needed to be further developed to
prevent ratings inflation and to make
CRA evaluations more consistent and
less subjective. Commenters also
recommended that the agencies issue
guidance illustrating how performance
under the Community Development
Financing Metric would correspond to a
performance score.
Other commenters urged the agencies
to extend the rigor of the proposed large
bank lending test 1105 to the other tests
or suggested how the agencies could
evaluate performance under the
Community Development Financing
Test. For example, a commenter stated
that the Community Development
Financing Test should incorporate
thresholds tied directly to conclusions
in the quantitative portion of the
evaluation—similar to the Retail
Lending Test—and stated that the
agencies should add structure to the
qualitative portion of the evaluation,
including how the Community
Development Financing Test maps to
facility-based assessment area
conclusions. The commenter provided,
as an example, that if a bank had a
much higher score than other banks on
either the local or national benchmarks,
it would likely score an ‘‘Outstanding.’’
At least one local government
commenter recommended the agencies
base the Community Development
Financing Test on the lower of a bank’s
nationwide area or facility-based
assessment area performance. Further, a
commenter stated that an appendix
could more clearly explain how
performance under the Community
Development Financing Test relates to
ratings.1106
Other commenters emphasized the
importance of flexibility or tailoring in
evaluating a bank’s community
development loans and investments.
Specifically, a financial institution
expressed concern that many MSAs and
counties do not have sufficient
community development lending and
investment opportunities, particularly
in rural areas; therefore, the commenter
stated, any metrics or measurements
included in the final rule must be
flexible. A commenter also
recommended that the agencies
consider community needs in
determining the relevance of a bank’s
performance using the proposed
1105 The commenters referenced the ‘‘large bank
lending test;’’ however, the agencies understand
these commenters to be referring to the Retail
Lending Test in proposed § ll.22.
1106 For a discussion of how performance test
scores are aggregated to develop ratings under the
final rule, see the section-by-section analysis of
final § ll.28.
E:\FR\FM\01FER2.SGM
01FER2
6958
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
Community Development Financing
Metric.
Final Rule
After considering the comments on
the structure and rigor of the
Community Development Financing
Test, the agencies have decided to
finalize the test as proposed without
adding thresholds for measuring banks’
performance under the metrics and the
applicable benchmarks. The agencies
continue to believe the use of uniform
metrics and benchmarks will improve
the consistency and clarity of CRA
evaluations relative to the current
approach because they provide standard
data that examiners can use to inform
conclusions. While the agencies also
believe that consistency could be
improved using thresholds in the
Community Development Financing
Test, current data limitations 1107
preclude the agencies’ ability to explore
including thresholds in the test at this
time. The agencies note that they could
consider thresholds in a future
rulemaking once they have accumulated
data and have experience applying the
metrics and benchmarks. For now, the
agencies intend to issue guidance to
further clarify how they will apply the
Community Development Financing
Test.
The agencies also note the importance
of flexibility in evaluating bank
performance under the Community
Development Financing Test, including
the importance of considering the
particular circumstances of individual
banks and the needs and opportunities
of the communities where banks
operate. The Community Development
Financing Test generally remains
qualitative in nature with standardized
metrics and benchmarks to promote
consistency. The agencies considered
that the dollar volume of a loan or
investment does not always provide a
complete picture of the impact that a
loan or investment has on a community.
In consideration of comments received,
and based on supervisory experience,
the agencies believe that in some
instances, a small dollar loan or
investment that is targeted to a specific
community need can have a greater
impact than a larger dollar loan or
investment that is less targeted, such as
a mortgage-backed security. Therefore,
regardless of whether the agencies
consider adding thresholds to the
Community Development Financing
1107 Currently, the CRA rule requires data
collection on the aggregate number and aggregate
amount of community development loans
originated or purchased. The current rule does not
require data collection for community development
investments. See current 12 CFR ll.42(b)(2).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Test after they have analyzed data
collected under § ll.42 of the final
rule, qualitative consideration of
community development loans and
investments will remain an integral part
of the Community Development
Financing Test.1108 In particular, the
Community Development Financing
Test includes the impact and
responsiveness review discussed in the
section-by-section analyses of §§ ll.15
and ll.24(b), which provides
enhanced qualitative consideration for
certain community development loans
and investments. In addition,
performance context remains a part of
an examiner’s evaluation of a bank’s
performance under the Community
Development Financing Test. Therefore,
the agencies are adopting the proposed
framework for the evaluation of
community development financing
performance as proposed for facilitybased assessment areas, States and
multistate MSAs, and the nationwide
area with the substantive and clarifying
edits discussed in this section-bysection analysis along with other
conforming and technical edits.
Section ll.24(a)(1) In General
Current Approach and Proposal
The current rule generally provides
that retail loans, except multifamily
affordable housing loans (i.e.,
multifamily loans that meet the
definition of community development
in 12 CFR ll.12(g)), may not be
considered as community development
loans.1109 However, for current
intermediate small banks that are not
subject to HMDA reporting, a home
mortgage loan, small business loan, and
a small farm loan may be considered, at
the bank’s option, as a community
development loan, provided it meets the
definition of ‘‘community
development.’’ 1110 Consistent with the
current approach, the agencies proposed
to exclude retail loans receiving
consideration under the proposed Retail
Lending Test from receiving
consideration under the proposed
Community Development Financing
Test as a general principle.1111 Also
consistent with the current approach,
the proposal provided an exception in
which a multifamily loan described in
proposed § ll.13(b) may be
considered under both the Retail
1108 See
the section-by-section analysis of final
§ ll.21 for discussion of performance context
consideration, and the section-by-section analysis
of final § ll.15 for a discussion of the impact and
responsiveness review.
1109 See current 12 CFR ll.23(b) and Q&A
§ ll.42(b)(2)—1. See also Q&A § ll.12(h)—2.
1110 Q&A § ll.12(h)—3.
1111 See proposed § ll.24(a)(2)(i).
PO 00000
Frm 00386
Fmt 4701
Sfmt 4700
Lending Test and the Community
Development Financing Test.1112 In
addition, the proposed rule allowed that
an intermediate bank that is not
required to report a home mortgage
loan, a small business loan, or a small
farm loan may opt to have the home
mortgage loan, small business loan, or
small farm loan considered either under
the Retail Lending Test in § ll.22 or,
if the loan is a qualifying activity
pursuant to § ll.13, under the
Community Development Financing
Test or the intermediate bank
community development evaluation in
§ ll.29, as applicable. The agencies
aimed to reduce the potential for double
counting a loan, thereby potentially
skewing results.
Comments Received
A few commenters suggested that the
agencies eliminate the exclusion set
forth in proposed § ll.24(a)(2)(i) for
considering retail loans with a
community development purpose under
the Community Development Financing
Test. Reasons provided for eliminating
the exclusion included that the
proposed exclusion of retail loans could
produce unintended results once the
agencies replace the CRA definition of
‘‘small business loan’’ with a definition
based on the CFPB’s Section 1071 Final
Rule. One of the commenters explained
that many community development
loans are made to special purpose,
startup, or nonprofit entities that do not
have gross annual revenues of more
than $5 million. The commenter
suggested that the proposed Retail
Lending Test would incentivize banks
to distribute their small business loans
in a particular way but would not
provide incentives for banks to make
small business loans that satisfy the
community development definition,
which can be especially impactful
loans. The commenter further explained
that there would be no ‘‘double
counting’’ of small business loans if the
Community Development Financing
Test allowed for certain small business
loans to qualify as community
development loans because the Retail
Lending Test and the Community
Development Financing Test would
evaluate different aspects of the same
qualifying small business loan.
Final Rule
In the final rule, the agencies
eliminated the exclusion for considering
certain types of retail loans under the
Community Development Financing
Test consistent with the changes to the
community development loan and
1112 See
E:\FR\FM\01FER2.SGM
proposed § ll.24(a)(2)(ii).
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
community development investment
definitions and the Retail Lending Test
in final § ll.22, discussed above.1113
The Retail Lending Test and the
Community Development Financing
Test generally considers different
aspects of a bank’s lending. For
example, in the agencies’ view,
considering loans that meet the
definition of ‘‘small business loan’’ for
purposes of the Retail Lending Test
under the Community Development
Financing Test if those loans support
community development would not
result in double counting. The Retail
Lending Test focuses on the distribution
of the number of loans while the
Community Development Financing
Test considers the dollar volume of
loans.
The agencies also considered
commenters’ suggestions that the
Community Development Financing
Test consider the number of community
development loans and investments in
addition to the dollars to ensure that
smaller loans and investment are not
ignored. The agencies did not modify
the Community Development Financing
Test to include this suggestion. As is
discussed elsewhere, the agencies also
believe that smaller, more impactful
loans and investments are an important
way of helping to meet community
credit needs. However, the mechanism
in the final rule for incentivizing those
types of loans and investments is the
impact and responsiveness review.
Further, under performance context,
examiners can consider any information
about retail banking and community
development needs and opportunities
provided by the bank or other relevant
sources, including, but not limited to,
members of the community, community
organizations, State, local, and tribal
governments, and economic
development agencies.1114 If a bank fails
to meet identified community needs and
only engages in large dollar, low-impact
community development loans and
investments, the agencies could
consider that information when
concluding on a bank’s performance.
Finally, as discussed above, the agencies
determined that they would remove the
exclusion under the Community
Development Financing Test for certain
retail loans with a community
development purpose because the tests
evaluate different aspects of a bank’s
lending. If the agencies incorporated
consideration of the number of
1113 Along with eliminating the exclusion, the
agencies eliminated the exceptions (in proposed
§ ll.24(a)(2)(ii) and (iii)) to the exclusions as they
are no longer necessary.
1114 See final § ll.21(d)(4).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
community development loans and
investments into the Community
Development Financing Test, it would
eliminate this distinction and the
rationale for the agencies supporting the
removal of the exclusion.
Section ll.24(a)(2) and Section I of
Appendix B
Inclusion of Prior Period Loans and
Valuation of Community Development
Financing Activities
Valuation and Allocation of Community
Development Loans and Investments
Current Approach
The agencies currently consider the
dollar value of community development
loans based on their origination or
purchase value. Because the agencies do
not consider community development
loans originated or purchased during a
prior evaluation period that remain on
a bank’s balance sheet (prior period
community development loans) under
the current framework, a renewed or
refinanced loan is valued as an
origination based on the value of the
loan in the year it was renewed or
refinanced. Under the current rule, the
agencies consider community
development investments based on (1)
the value of the investment in the year
it was made for investments made
during the current evaluation period
and (2) the outstanding book value of
the investment at the end of the
evaluation period for investments made
during a prior evaluation period. The
agencies also consider the total value of
legally binding commitments to extend
credit or invest. As explained in the
Interagency Questions and Answers, the
agencies currently provide guidance on
the valuation of equity type or equity
equivalent investments, which allows
banks to consider a portion of these
investments under the current
lending 1115 and investment tests.1116
The current rule does not include
metrics and benchmarks that are
calculated on an annual basis; therefore,
the agencies consider the dollar value of
each community development loan or
investment qualitatively for the
evaluation period.
The Agencies’ Proposal
The agencies proposed that the
Community Development Financing
Test would consider the dollar value of
community development loans and
investments originated or made during
the evaluation period, as well as prior
period loans and investments that
current 12 CFR ll.22.
current 12 CFR ll.23; see also Q&A
§ ll.22(d)—1 and Q&A § ll.23(b)—1.
1115 See
1116 See
PO 00000
Frm 00387
Fmt 4701
Sfmt 4700
6959
remain on a bank’s balance sheet.1117
The proposal included consideration of
prior period community development
loans, in addition to investments, to
incentivize banks to provide patient
capital and to disincentivize
unnecessary short-term lending and
churning loans by refinancing,
renewing, or modifying a loan each
evaluation period to receive ongoing
credit for the activity. Further, the
proposed change would improve
internal consistency in the rule by
treating prior period loans the same as
prior period investments, which receive
consideration under the current rule. In
appendix B, the proposal described the
numerator for the metrics and
benchmarks used in §§ ll.24 and
ll.26, which includes: (1) community
development loans originated and
community development investments
made; (2) the increase in an existing
community development loan that is
renewed or modified; and (3) the
outstanding value of community
development loans originated or
purchased and community development
investments made in previous years that
remain on the bank’s balance sheet.
Comments Received
Inclusion of new and prior period
community development loans and
investments. Several commenters
provided feedback on the inclusion of
both new community development
loans and investments and prior period
community development loans and
investments in the proposed
Community Development Financing
Test metrics and benchmarks.
Commenters’ views on this issue varied.
Certain commenters supported the
proposal to consider both new and prior
period community development loans
and investments on a bank’s balance
sheet in the metrics and benchmarks.
These commenters noted that the
proposal would reduce artificial
inflation of banks’ balance sheets, lessen
the incentive for CRA-motivated loan
churn, and remove the incentive to
provide artificially short terms for
community development loans and
investments, which can impede
community groups’ ability to project
capital availability.
Other commenters suggested that the
agencies should be careful in how they
implement the inclusion of new and
prior period lending in the community
development ratio.1118 Some of these
1117 See
proposed appendix B, section 1.
agencies understand the commenter’s
reference to ‘‘community development ratio’’ to be
a reference to the proposed community
development financing metrics.
1118 The
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6960
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
commenters acknowledged the
importance of providing credit for prior
period loans to incentivize long-term
patient capital but asserted that the
agencies should not allow banks to
substantially reduce originations of
impactful loans. A few commenters
stated that banks should be incentivized
to make new community development
loans and investments in each
evaluation period, noting that a
significant drop in new financing
should be a cause for concern. A few
other commenters suggested limiting the
inclusion of prior period community
development lending to loans from the
previous examination cycle. A
commenter also asserted that the
agencies should not give repeated credit
for loans with low impact or harmful
features (e.g., a loan for a property
where the landlord maintains the
building in poor condition).
Other commenters opposed
consideration of prior period
community development loans. One of
these commenters stated that allowing
banks to carry prior period community
development loans and investments into
their current review period will
disincentivize new investment,1119
cutting down overall CRA investment in
historically disinvested communities.
At least one commenter recommended
the agencies limit credit for prior period
loans to nonprofits and use the impact
and responsiveness review to
incentivize meeting unmet longer-term
credit needs elsewhere.
Lastly, a commenter requested that
the agencies develop a streamlined
process for inclusion of prior period
activities during subsequent CRA
examinations. The commenter believed
that redundancies in ‘‘re-proving’’ a
loan or investment in each examination
cycle, after it has already been qualified
by an examiner, is inefficient and the
elimination of the need to ‘‘re-prove’’
could aid both the bank and its
regulator.
Community development loan and
investment valuation. The agencies
received a few comments on how to
value community development loans
and investments. These commenters
identified certain forms of community
development lending and investment
that they believed should be valued in
certain ways. A few commenters
recommended that the full value of
legally binding commitments to lend or
invest, rather than the amount drawn,
receive CRA consideration in the final
1119 The agencies understand the commenter’s
reference to ‘‘investment’’ to be a reference to the
flow of new money into the community; not to the
defined term ‘‘community development
investment.’’
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
rule. One of these commenters
explained that if banks do not receive
CRA consideration for commitments to
fund future affordable housing projects,
such commitments would evaporate and
cause a decrease in new affordable
housing units.
Commenters also provided feedback
on the valuation of equity equivalent
investments, particularly in CDFIs.
Specifically, a commenter supported the
creation of a mechanism for recognizing
banks’ equity equivalent investments in
CDFIs. The commenter noted that the
proposed quantitative measures in the
Community Development Financing
Test would treat equity equivalent
investments in CDFIs the same as
standard debt products.
A commenter stated that the agencies
should grant extra credit to banks that
syndicate or sponsor funds supporting
LIHTC or NMTC projects, consistent
with the now-rescinded OCC 2020 CRA
Final Rule. Commenters also requested
that the agencies clarify how they would
consider different loans and
investments under a new CRA rule.
A few commenters expressed that the
rule needs to be clear about the
treatment of purchased and renewed
community development loans. A
commenter suggested that: (1)
‘‘purchased’’ community development
loans and investments should be treated
the same as ‘‘originated’’ community
development loans and investments;
and (2) renewals (with full
underwriting) of lines of credit should
receive consideration as ‘‘originated’’
loans.
Final Rule
Inclusion of new and prior period
community development loans and
investments. Under the final rule, banks
will receive consideration for new
community development loans and
investments and community
development loans and investments that
remain on a bank’s balance sheet.1120
The agencies considered the comments
about including prior period community
development loans and investments in
the Community Development Financing
Test metrics and benchmarks and
determined to finalize the rule as
proposed. The agencies believe that
providing consideration for both new
originations and purchases and
community development loans and
investments that remain on a bank’s
balance sheet is a more accurate
reflection of a bank’s financing efforts
and strikes the appropriate balance
1120 See final appendix B, paragraph I.a.1. The
method for valuing community development loans
and investments is discussed below.
PO 00000
Frm 00388
Fmt 4701
Sfmt 4700
between incentivizing new community
development loans and patient capital
for community development projects.
As discussed below, under the current
framework, to receive credit for
community development loans in each
evaluation period, banks would need to
renew or refinance the loans. In
contrast, the agencies currently consider
community development investments
that remained on a bank’s balance sheet
in an evaluation period.
The agencies understand that the
practice of renewal and refinancing of
community development loans for the
purpose of getting additional CRA
consideration presented practical
planning challenges for organizations
engaged in community development
projects because the financing was
unpredictable. By providing
consideration for both community
development loans or investments that
remain on a bank’s balance sheet, the
agencies believe the final rule will
incentivize banks to engage in new
loans and provide the length and type
of financing that is most appropriate for
the community development project
and the bank’s business model and
expertise.
The agencies determined not to limit
consideration for community
development loans and investments that
remain on a bank’s balance sheet to
loans and investments originated or
purchased during the prior evaluation
cycle or to loans and investments with
nonprofit organizations because these
limitations would not further the goal of
incentivizing banks to provide patient
capital matched to the needs of the
organization engaging in the community
development project. With respect to
limiting the length of consideration to
community development loans and
investments made in the prior
evaluation period, the agencies note that
CRA evaluation periods are typically
about three years in length.1121 Based on
the agencies’ experience, it can take
much longer than three years for an
organization to raise capital and bring a
community development project to
completion. Limiting consideration for
prior period community development
loans and investments to the evaluation
period following the one in which the
loans or investments were originated,
purchased, or made would perpetuate
the mismatch between the needs of the
community development project and
the financing provided by banks. In
addition, the length of evaluation
1121 There is some variation in the length of
evaluation periods between agencies and due to
bank size or specific bank circumstances; however,
in general, CRA evaluation periods are at least two
years and not longer than five years in length.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
periods, rather than the length of time
the activity had an impact on the
community benefited or served, may
impact the consideration that banks
receive for community development
loans and investments.
With respect to community
development financing activities
involving nonprofit organizations, the
agencies also do not believe that there
is a reason to treat community
development loans and investments
involving nonprofit organizations
differently than other types of
community development loans and
investments. As discussed in the
section-by-section analysis for § ll.13,
the agencies gave considerable thought
to the types of loans and investments
that support community development.
In § ll.13 of the final rule, the
agencies specify whether an activity
must involve a nonprofit organization
for the agencies to consider it to support
community development. If a loan or
investment meets the requirements of
§ ll.13, the agencies do not believe it
is appropriate to impose further
limitations on the amount of credit a
bank receives for that loan or
investment. The agencies believe that all
community development loans and
investments are designed to help meet
community needs; to the extent that a
community development loan or
investments is particularly impactful or
responsive, the mechanism for
addressing that in a CRA evaluation is
the impact and responsiveness review
in § ll.15, not limitations on the
length of time that the bank can get
credit for the community development
loan or investment that remains on the
bank’s balance sheet.
In response to commenters concerns
about providing repeated credit for
lower impact or harmful community
development loans and investments, the
agencies do not believe this is a reason
for limiting credit for prior period
community development loans or
investments. Under the final rule, the
appropriate Federal financial
supervisory agency determines whether
a loan or investment supports
community development when the loan
or investment is originated, made, or
purchased. If the appropriate Federal
financial supervisory agency later
identifies that there is evidence of
discriminatory or other illegal credit
practices pursuant to § ll.28(d), it will
consider that information in the bank’s
CRA evaluation.
Community development loan and
investment valuation. After considering
the comments regarding valuing
community development loans and
investments, the agencies are finalizing
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
an annual valuation methodology;
however, the agencies are clarifying this
aspect of the proposal to explain how
the final rule values different forms of
community development loans and
investments.
The agencies believe that annual
valuation of community development
loans and investments is appropriate
because banks receive consideration for
the full dollar volume of the loan or
investment in the year that it is
originated, purchased, or made and the
remaining value on a bank’s balance
sheet in other years. This valuation
methodology helps to incentivize new
loans and investments by both giving
full credit for new loans and
investments and diminishing the value
as the loan or investment is paid off or
changes value. Annual valuation also
allows the agencies to calculate the
metrics and benchmarks for banks with
different evaluation periods because
they can include the annual value in the
appropriate calculations, which
enhances consistency in the
consideration of community
development loans and investments.
The agencies added further detail to
paragraph I.a of appendix B in two
areas. First, the agencies clarified the
general description of the inputs for the
numerator 1122 and added a description
for the inputs for the denominator for
the metrics and benchmark calculations
in §§ ll.24 and ll.26. These
descriptions provide the annual
building blocks for the metrics and
benchmark calculations in the
Community Development Financing
Test (i.e., the annual dollar volume 1123
of community development loans and
1122 Final § ll.24 provides that the Community
Development Financing Test evaluates a bank’s
record of helping to meet the credit needs of its
entire community through community development
loans and community development investments. As
provided in final § ll.21, under certain
circumstances this evaluation will include
community development loans and investments of
operations subsidiaries or operating subsidiaries, as
applicable, other affiliates, consortiums, and third
parties. To ensure that the rule clearly provides that
the agencies will consider community development
loans and investments from all of these entities
when appropriate, not just those of a bank or its
operations subsidiaries or operating subsidiaries, as
applicable, final appendix B, paragraph I.a, clarifies
that the agencies include community development
loans and community development investments
‘‘attributed to the bank pursuant to § ll.21(b) and
(c)’’ in the numerator of the metrics and
benchmarks in the Community Development
Financing Test. This is a clarifying revision that is
not intended to have a substantive effect.
1123 As discussed in the section-by-section
analysis of final § ll.24(b)(1), for purposes of
consistency in the final rule, the agencies changed
the description in the final rule to use only the
word ‘‘volume’’ instead ‘‘value’’ in final § ll.24
and final appendix B. The agencies do not intend
this to be a substantive change.
PO 00000
Frm 00389
Fmt 4701
Sfmt 4700
6961
community development investments
and the annual dollar volume of
deposits).1124
Second, the agencies clarified how to
value different forms of community
development loans and investments for
purposes of calculating the metrics and
benchmarks, including by adding
additional detail and explaining that the
calculations are determined annually.
The proposal described determining the
value of community development loans
originated and community development
investments made, the increase in an
existing community development loan
that is renewed or modified, and the
outstanding value of community
development loans originated or
purchased and community development
investments made in previous years that
remain on the bank’s balance sheet.1125
As was clear from the comments, this
description did not sufficiently explain
how the agencies would value all forms
of community development loans and
investments or for what period the
agencies would value the loans and
investments. Under the final rule, and
consistent with the proposal, banks
value community development loans
and investments annually as of
December 31 of each calendar year. The
annual dollar volume of a community
development loan or investment will
depend on whether the loan or
investment is new to the bank that year
or is a loan or investment from a prior
year.
The agencies also clarified in
paragraph I.a of appendix B of the final
rule that they will treat purchased loans
the same as loans originated and
investments made in a year. In proposed
appendix B, the agencies explained how
they would value purchased community
development loans that remain on a
bank’s balance sheet. Commenters noted
that the agencies should also explain
how to value a community development
loan purchased by a bank in the year of
purchase. Consistent with current
practice, under the final rule, appendix
B explains that the agencies will value
a purchased community development
loan the same way as an origination in
the year the bank originated the loan. In
the agencies’ experience, a secondary
market for community development
loans ensures that banks can manage
their balance sheets based on their
business models and capacity and are
not disincentivized from seeking out
new opportunities because they cannot
1124 For use in the metrics and benchmarks
calculations in final § ll.26, final appendix B,
paragraph I.a.2.ii, also includes a description of the
‘‘annual dollar volume of assets.’’
1125 See proposed appendix B, section 1.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6962
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
free up capital to pursue those
opportunities. The final rule also
provides additional detail on the
valuation of legally binding
commitments to lend and invest. The
agencies determined that banks should
receive credit for the full dollar volume
committed for all legally binding
commitments to extend credit and
legally binding commitments to invest.
However, the agencies also determined
that after the commitment is made the
valuation depends on whether the
commitment has been drawn upon.
The agencies considered that valuing
a commitment to extend credit or invest
only on the drawn portion of the
commitment would put banks that
entered into commitments at a
disadvantage because these banks
would have committed resources and
may not have capacity to originate,
purchase, or make other community
development loans and investments.
Further, the agencies consider legally
binding commitments to extend credit
or invest a necessary tool in financing
certain community development
projects, and, for that reason, included
commitments in the definition of
community development loan and
community development investment. If
the agencies limited credit for
commitments to extend credit or invest
to the drawn portion of the
commitment, the disadvantage created
could disincentivize banks from making
commitments, which could impact the
viability of certain community
development projects. However, the
agencies also recognize that once a
commitment has been drawn upon, the
drawn portion of a commitment to
extend credit or invest is no longer a
‘‘commitment’’ but is an outstanding
loan or investment. Therefore, to give
appropriate value to commitments, nondrawn commitments are valued based
on the full dollar volume committed,
but commitments that have been drawn
upon are valued based on a combination
of both the outstanding dollar volume of
the commitment and the drawn portion
of the commitment. Specifically, final
appendix B includes a footnote that the
dollar volume of a legally binding
commitment to extend credit or legally
binding commitment to invest in any
given calendar year is (1) the full dollar
volume committed; or (2) if drawn
upon, the combined dollar volume of
the outstanding commitment and any
drawn portion of the commitment.1126
The final rule also clarifies how the
agencies will value refinances and
renewals in the year of the refinance or
1126 See footnote 1 to final appendix B, paragraph
I.a.1.i.A.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
renewal and in subsequent years.1127
The agencies’ clarifications to the
valuation of refinances and renewals are
to ensure that banks receive
consideration for these loans or
investments without incentivizing
banks to churn loans solely for the
purpose of receiving credit in each
evaluation period. Under the final rule,
the agencies will provide banks with
credit for the dollar volume of any
increase in the calendar year to an
existing community development loan
that is refinanced or renewed and in an
existing community development
investment that is renewed.1128
Banks will receive credit for the
outstanding dollar volume of
community development loans
originated or purchased in previous
calendar years and community
development investments made in
previous calendar years, as of December
31 of each calendar year that the loan
or investment remains on the bank’s
balance sheet.1129 Banks will also
receive credit for the outstanding dollar
volume, less any increase in the same
calendar year, of a community
development loan a bank refinanced or
renewed in a calendar year subsequent
to the calendar year of origination or
purchase, as of December 31 for each
calendar year that the loan remains on
the bank’s balance sheet, and an existing
community development investment
renewed in a calendar year subsequent
to the calendar year of the investment,
as of December 31 for each calendar
year that the investment remains on the
bank’s balance sheet.1130 As discussed
above, the agencies believe that these
valuation methods strike the
appropriate balance between
incentivizing new community
development loans and investments and
encouraging patient capital.
The agencies proposed to value the
outstanding value of community
development loans originated or
purchased and community development
investments made in previous years
based on the value that remained on the
1127 The agencies note that refinances and
renewals are treated differently under the Retail
Lending Test in final § ll.22 and the Community
Development Financing Test in final § ll.24
because of differences between the performance
tests. Specifically, because the Community
Development Financing Test considers the dollar
volume of community development loans and
investments, it was necessary that the rule provide
a method for valuing refinances and renewals that
balanced the incentives for new originations and
patient capital. Therefore, for purposes of the
Community Development Financing Test,
refinances and renewals are addressed and valued
separately from originations and purchases.
1128 See final appendix B, paragraph I.a.1.i.B.
1129 See final appendix B, paragraph I.a.1.i.C.
1130 See final appendix B, paragraph I.a.1.i.D.
PO 00000
Frm 00390
Fmt 4701
Sfmt 4700
bank’s balance sheet on the last day of
each quarter of the year, averaged across
the four quarters of the year. The final
rule instead values these community
development loans and investments
based on the value as of December 31
of each calendar year that the loan or
investment remains on the bank’s
balance sheet. The agencies made this
revision in response to overall
comments received about the
complexity and burden of the proposed
rule. The agencies believe this change
simplifies the rule and appropriately
balances burden associated with data
collection under the final rule with the
need for data to calculate the metrics
and benchmarks.
The agencies determined not to treat
equity equivalent investments and
syndications differently than other
community development loans and
investments. Under the final rule,
community development loans and
investments are considered in the single
Community Development Financing
Test. This contrasts with the current
rule where large banks are separately
evaluated under different tests for
community development loans and
investments. Therefore, the final rule
eliminates the motivation for accounting
for a portion of an equity equivalent
investment as a loan and a portion as an
investment to receive consideration
under each of the current lending and
investment tests.1131 Under the final
rule, if an equity equivalent investment
supports community development
pursuant to § ll.13, the agencies will
provide consideration for the full value
of the investment under the Community
Development Financing Test. Further, if
the equity equivalent investment or
syndication is consistent with one of the
impact and responsiveness factors,
banks will receive additional qualitative
consideration for the investment. The
agencies believe that this combined
quantitative and qualitative
consideration of equity equivalent
investments and syndications under the
Community Development Financing
Test appropriately accounts for the
value of these investments and further
enhanced valuations are not necessary.
With respect to the comments
regarding ‘‘re-proving’’ in a later
evaluation period that a loan or
investment that remains on a bank’s
balance sheet supports community
development, the agencies expect that
they will engage in data integrity
assessments under the final rule
consistent with their current practices.
In general, the agencies take a measured
approach to data integrity to reduce
1131 See
E:\FR\FM\01FER2.SGM
current 12 CFR ll.22 and ll.23.
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
burden. Under the final rule,
community development loans and
investments generally remain qualifying
for a bank as long as the loan or
investment remains on the bank’s
balance sheet, even if the agency has
determined that the loan or investment
no longer meets the requirements of
§ ll.13.1132 For this reason, in most
circumstances banks need only
maintain the information used to
substantiate that the loan or investment
supported community development at
the time it was originated, purchased, or
made.
ddrumheller on DSK120RN23PROD with RULES2
Denominator for the Community
Development Financing Test, Paragraph
I.a of Appendix B
In considering the comments on the
valuation of community development
loans and investments, as well as other
comments about the metric and
benchmark calculations, the agencies
determined that additional information
regarding the inputs to the calculations
would help clarify the rule. Therefore,
in addition to the revisions and
clarifications that the agencies made to
the numerator of the metrics and
benchmarks in final paragraph I.a of
appendix B, the agencies also provided
additional clarifications to the
denominator for the metrics and
benchmarks.
The final rule provides in paragraph
I.a.2.i of appendix B that for purposes of
the metrics and benchmarks in
§ ll.24, the appropriate Federal
financial supervisory agency calculates
an annual dollar volume of deposits in
a bank that is specific to each metric or
benchmark for each calendar year in the
evaluation period. The final rule
describes this as the annual dollar
volume of deposits and that term is used
in the calculations for the Community
Development Financing Test. The final
rule goes on to reference the source of
deposits for banks based on the
definition of deposit in § ll.12.
Specifically, the final rule states that for
a bank that (1) collects, maintains, and
reports deposits data as provided in
§ ll.42, the annual dollar volume of
deposits is determined using the annual
average daily balance of deposits in the
bank as provided in bank statements
(e.g., monthly, or quarterly) based on the
deposit location and (2) does not collect,
maintain, and report deposits data as
provided in § ll.42, the annual dollar
volume of deposits is determined using
the deposits assigned to each branch
pursuant to the FDIC’s Summary of
Deposits data.
1132 See
final § ll.14(a)(2)(ii).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Section ll.24(a)(2) Allocation of
Community Development Financing
Activities (and Paragraph I.b of
Appendix B)
Current Approach
Under the current rule, community
development loans and investments
must benefit a bank’s assessment areas
or a broader statewide or regional area
that includes at least one of a bank’s
assessment areas.1133 The current rule
does not include specific provisions for
the allocation of the dollar value of
community development loans and
investments in circumstances where a
bank cannot clearly attribute the loan or
investment to one or more of its
assessment areas.1134
The Agencies’ Proposal
In § ll.24 and section 14 of
appendix B of the NPR, the agencies
proposed an approach to consistently
allocate the dollar value of community
development loans and investments for
the purpose of calculating the metrics
and benchmarks used in the Community
Development Financing Test. The
agencies intended that the proposed
approach would attribute the dollar
value of community development loans
and investments to the geographic areas
benefited or served by the loan or
investment and provide certainty that
community development loans and
investments benefiting geographic areas
outside of a bank’s facility-based
assessment areas would receive
consideration, as provided for in the
proposed rule.
The agencies proposed that banks
would allocate the dollar amount of
community development loans and
investments to one or more counties,1135
States, or the nationwide area,
depending on specific documentation or
the geographic scope of the activity. As
proposed, at the facility-based
assessment area level, the agencies
would sum the dollar value of
community development loans and
investments assigned to the counties
within the facility-based assessment
area in calculating the Bank Assessment
Area Community Development
Financing Metric and the benchmarks
applicable to facility-based assessment
areas, which would inform the facilitybased assessment area conclusions. In
States in which a bank has at least one
facility-based assessment area, the
Q&A § ll.12(h)—6.
Interagency Large Institution CRA
Examination Procedures (April 2014) at appendix.
1135 Under the proposal and the final rule,
‘‘county’’ means ‘‘any county or statistically
equivalent entity as defined by the U.S. Census
Bureau.’’ See proposed § ll.12 and final § ll.12.
1133 See
1134 See
PO 00000
Frm 00391
Fmt 4701
Sfmt 4700
6963
agencies would sum the dollar value of
community development loans and
investments allocated to the State and to
any counties within the State to
calculate the Bank State Community
Development Financing Metric and the
benchmark applicable to the State. In
multistate MSAs in which a bank has at
least one facility-based assessment area,
the agencies would sum the dollar value
of community development loans and
investments allocated to the multistate
MSA and to any counties within the
multistate MSA to calculate the Bank
Multistate MSA Community
Development Financing Metric and the
benchmark applicable to the multistate
MSA. In the nationwide area, the
agencies would sum the dollar value of
all of a bank’s community development
loans and investments—those allocated
to counties, States, multistate MSAs,
and the nationwide area—to calculate
the Bank Nationwide Community
Development Financing Metric and the
proposed benchmark applicable to the
nationwide area.
The agencies believed this approach
would allow for metrics that
consistently measure performance at the
different levels and was intended to
support a balance between emphasizing
facility-based assessment area
performance and considering
community development loans and
investments that benefit geographic
areas outside of those assessment areas.
The agencies intended that the proposed
approach would emphasize facilitybased assessment area performance
because it would allow the agencies to
measure the dollar value of community
development loans and investments that
specifically serve a facility-based
assessment area, distinct from
community development loans and
investments that serve a broader
geographic area or that primarily serve
other areas. At the same time, the
proposal also would have considered all
community development loans and
investments in the nationwide
metric.1136 The agencies believed this
would provide additional certainty and
flexibility relative to the current
approach and allow banks the
opportunity to conduct impactful and
responsive community development
loans and investments in areas that may
have few assessment areas.
The agencies proposed to determine
the geographic scope of a community
loan or investment based on information
provided by the bank, and as needed,
publicly available information and
information provided by government or
community sources that demonstrates
1136 See
E:\FR\FM\01FER2.SGM
proposed § ll.24(c)(4)(ii)(A).
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6964
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
that the activity serves individuals or
census tracts located within the area.
Proposed § ll.24 also cross-referenced
proposed section 14 of appendix B,
where the agencies proposed to allocate
a community development loan or
investment that benefited a single
county to that county. For an activity
that benefited multiple counties, the
agencies proposed two options for
allocating the dollar value of the
activity. Under the first proposed
option, if a bank produced
documentation for an activity specifying
the appropriate dollar amount to assign
to the counties benefited by the activity,
then the bank would allocate the dollar
value of the activity accordingly at the
county level. In the alternative, if a bank
did not produce documentation
specifying how to allocate the loan or
investment to the geographic area
benefited or served by the particular
activity, the bank would allocate the
dollar amount based on the proportion
of low- and moderate-income families in
the applicable areas.
Under the second proposed option,
for a community development loan or
investment that served multiple
counties but not an entire statewide
area, the agencies proposed that banks
would allocate the dollar amount of the
loan or investment across the counties
served, in proportion to the percentage
distribution of low- and moderateincome families across those
counties.1137 The agencies proposed
that community development loans or
investments that served one or more
States, but not the entire nation, would
be allocated at the State level, and not
to specific counties within the State,
based on the proportion of low- and
moderate-income families in each
State.1138 Lastly, the agencies proposed
that for a community development loan
or investment with a nationwide scope,
for which the bank did not provide
documentation, the bank would allocate
loan or investment to the institution
level and not to specific States or
counties.1139 The agencies believed the
use of demographic data for allocating
the dollar value of community
development loans and investments
without documentation of locations
served would provide certainty and
consistency compared to the current
approach and would reflect the
population served by community
development financing activities.
The agencies sought feedback on
other data points that the agencies could
use for allocating community
1137 See
proposed appendix B, section 14.
1138 Id.
1139 Id.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
development loans and investments and
may more appropriately reflect the
population served, such as total
population or number of small
businesses. The agencies also sought
feedback regarding whether community
development loans and investments that
cannot be allocated to a specific county
or State should be considered at the
highest geographic level benefited or
served by a loan or investment instead
of being allocated to multiple counties
or counties within States based upon
the distribution of all low- and
moderate-income families. In addition,
the agencies sought feedback on what
methodology should be used to allocate
the dollar value of activities to specific
counties for activities that serve
multiple counties (i.e., allocate based on
the distribution of low- and moderateincome families or some other method).
Comments Received
In general, commenters that provided
feedback on the allocation of
community development loans and
investments did not object to including
an allocation method in the rule.
Commenters’ opinions varied, however,
on how to allocate these community
development loans and investments. A
commenter generally supported the
proposed geographic flexibility for
allocating the dollar value of
community development loans and
investments under the Community
Development Financing Test, which the
commenter stated could help bring
community development capital to
more neighborhoods away from areas
where banks have branches—especially
Native and rural communities.
Commenters expressed differing
views on whether to allocate
community development loans and
investments based on the percentage of
low- and moderate-income families
when banks did not provide specific
documentation for allocating a loan or
investment. A few commenters
supported the agencies proposed
approach of allocating community
development loans or investments in
proportion to the percentage of low- and
moderate-income families. Other
commenters instead recommended that
the agencies allocate community
development financing activities based
on the distribution of low- and
moderate-income households. One of
these commenters supported its position
by explaining that this allocation
method reflects the intended
beneficiaries of CRA. As an alternative,
a commenter suggested that the agencies
could use a simpler approach of
allocating community development
loans and investments based on the
PO 00000
Frm 00392
Fmt 4701
Sfmt 4700
distribution of all families. Another
commenter recommended the agencies
use an allocation approach based on the
proportion of low- and moderateincome families, small businesses, and
small farms. The commenter also
recommended the agencies conduct
targeted impact assessments using
surveys and other research tools that
gauge how much and which residents or
businesses benefit the most from banks’
community development loans and
investments in each assessment area.
Commenters also provided opposing
views on whether, in the absence of
specific documentation, the agencies
should allocate community
development loans and investments at
the highest geographic level. A few
commenters objected to allocating
community development financing
activities at the highest geographic level.
For example, a state government
commenter stated that the Community
Development Financing Test is intended
to measure banks’ loans and
investments against benchmarks that
reflect local context, which the
commenter asserted is incongruous with
the idea that a bank with a nationwide
footprint could include community
development loans and investments that
are nationwide in scope. The
commenter believes that banks should
have the burden of demonstrating
local-, county-, or State-level impact.
Another commenter requested that
banks receive credit at the assessment
area level for housing credit investments
made anywhere in the State where a
bank has more than one assessment
area.
Commenters offered several
alternatives to allocating at the highest
geographic level including that the
agencies should: (1) make best efforts to
ensure that they assign community
development loans and investments in a
manner that is consistent with the
bank’s preferences, as well as with
standard industry practices; (2) permit
geographic allocation based on
allocation or side letters; (3) base
allocations on the capital committed for
an investment, even if the fund has not
identified all of its specific development
sites or other projects; (4) allocate loans
and investments to each assessment area
as the loan or investment indicates or
equally to each applicable assessment
area served; (5) allocate based on the
purpose, mandate, or function of the
organization or activity, including
which geographic areas are served; or
(6) permit the bank and the recipient of
the loan or investment to identify a
reasonable geographic allocation (e.g.,
allow banks to rely on geographic
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
allocations provided by the recipient or
consortium).
In contrast, a few commenters
supported allocating community
development loans and investments that
cannot be allocated to a certain area at
the highest geographic level, whether
that be the State, multistate MSA, or
institution level. One of these
commenters noted that, if the
community development loans and
investments are broad reaching, the
State, county, or regional planning
commission may have accompanying
metrics the agencies could use in
assessing the impact on a State or
county. Another commenter expressed
that allocating a community
development loan or investment across
multiple counties would create an
impossible burden for many of the local
(and often nonprofit) bank partners that
help banks serve their communities.
Some commenters recommended
allocating community development
loans and investments at the institution
level.
ddrumheller on DSK120RN23PROD with RULES2
Final Rule
The agencies are finalizing the
allocation provisions included in the
proposed rule with certain revisions to
clarify how banks will allocate
community development loans and
investments. Section ll.24(a)(2) of the
final rule provides that the agencies
consider community development loans
and investments allocated pursuant to
paragraph I.b of appendix B. Final
paragraph I.b of appendix B includes
the specific allocation provisions that
were included in proposed section 14 of
appendix B, with clarifying
revisions.1140
The agencies determined that
permitting banks to choose between
allocating community development
loans and investments based on specific
documentation or the geographic scope
of an activity provided the appropriate
level of flexibility. As such, the final
rule retains both options. The agencies
considered feedback from certain
commenters noting that banks should
have flexibility in allocating community
development loans and investments.
Further, the agencies considered the
options provided by commenters for
allocating community development
loans and investments, including
permitting the use of side letters,
considering allocation information from
the recipient, or basing allocations on
1140 The Community Development Financing Test
for Limited Purpose Banks includes a similar
provision for allocation in final § ll.26(c)(2),
which also cross-references final appendix B,
paragraph I.b.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
the purpose, mandate, or function of the
recipient of the loan or investment.
The agencies continue to believe it is
important that banks can receive
consideration in specific geographic
areas if they are able to demonstrate that
a community development loan or
investment, or a portion of a loan or
investment, benefited or served a
particular area. Allowing for allocation
based on specific documentation
enhances the accuracy of the metrics
and benchmarks in the Community
Development Financing Test. Further, it
provides an incentive for banks to serve
particular communities by including a
method for the bank to get consideration
for the whole or a specific portion of a
community loan or investment in the
area benefited or served.
Under the final rule, the agencies
would consider any documentation
provided by the bank that specifies the
appropriate dollar volume of a
community development loan or
investment to assign to each county,
such as the specific addresses and dollar
volume associated with each address, or
other information that indicates the
specific dollar volume of the loan or
investment that benefited or served each
county. Consistent with commenters’
suggestions, specific documentation
could include, but would not be limited
to, side or allocation letters; information
on the purpose, mandate, or function of
the organization that received the
community development loan or
investment; or any other information
that reasonably demonstrates the
specific dollar volume of the activity
that benefited or served a county. The
agencies removed the word
‘‘accounting’’ before ‘‘information’’ to
clarify that they did not intend to limit
the type of information considered
strictly to information related to
accounting; information could also
include, for example, a mission
statement for the organization that
received the community development
loan or investment.
If a bank does not provide specific
documentation, the agencies determined
it is appropriate to allocate a community
development loan or investment to the
highest geographic level that the activity
benefits or serves (i.e., county, State,
multistate MSA,1141 or nationwide area)
based on the geographic scope 1142 of
1141 The NPR discussed allocating at the
multistate MSA level. The agencies did not include
this level of allocation in proposed appendix B. The
final rule includes allocation at the multistate MSA
level because allocation at this level is necessary
based on the structure of the proposal and the final
rule.
1142 The agencies determine the highest
geographic level for allocating a community
PO 00000
Frm 00393
Fmt 4701
Sfmt 4700
6965
the loan or investment and in
proportion to the percentage of low- and
moderate-income families in the area
benefited or served by the loan or
investment. Following consideration of
the comments, the agencies determined
that allocating at the highest geographic
level benefited or served appropriately
balances the burden of allocating
community development loans and
investments at a more granular level
with the desire for accuracy of the
metrics and benchmarks. If a
community development loan or
investment has a geographic scope of
benefiting or serving one or more entire
States, multistate MSAs, or the
nationwide area and the bank cannot
attribute the loan or investment to any
particular county, then the loan or
investment will be allocated to the
State(s) or multistate MSA(s) that the
activity benefits or serves or, if the
activity benefits or serves the
nationwide area, to the nationwide area.
Consequently, a bank will not receive
consideration for community
development loans or investments
allocated to a State, multistate MSA, or
the nationwide area in its lower
geographic-level evaluations. For the
purposes of allocating community
development loans and investments, the
agencies consider low- or moderateincome families to be located in a State
or multistate MSA, as applicable,
consistent with final § ll.28(c). The
agencies determined that this was
appropriate because allocating
community development financing
activities to the county, State, or
multistate MSA level in the absence of
specific documentation that the loan or
investment benefited or served that area
could result in an artificial inflation of
the metrics and benchmarks because the
loan or investment may not have
benefited or served one of the
geographic areas where the agencies are
allocating a portion of the dollar value.
Further, allocating part of a community
development loan or investment to a
county, State, or multistate MSA that
did not actually benefit from that loan
or investment may disincentivize banks
from engaging in more targeted loans
and investments that do benefit or serve
those areas.
The agencies also considered the
comments suggesting alternatives to the
proposed approach of allocating
community development loans and
development financing activity based on the
geographic scope of the activity. For example, the
agencies would allocate an investment in a
statewide economic development fund for which
the bank does not have specific documentation
identifying projects financed at the county level to
the State—not the nationwide area.
E:\FR\FM\01FER2.SGM
01FER2
6966
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
investments in proportion to the
percentage of low- and moderateincome families in the geographic area
benefited or served. The agencies are
finalizing allocation based on the
percentage of low- and moderateincome families because they believe
this: (1) is consistent with the CRA
statute’s and CRA regulations’ focus on
helping to meet the credit needs of a
bank’s entire community, including
low- and moderate-income
communities; and (2) it does not
introduce additional complexity that
would result from allocating based on a
combination of low- and moderateincome families, small businesses, and
small farms. The agencies determined
that other options for allocating
community development loans or
investments, such as allocation based on
all families or dividing between facilitybased assessment areas, lacked the
connection to low- and moderateincome communities that the agencies
believe is at the core of the CRA.
Further, the agencies considered
commenter feedback and determined
that it was not appropriate to allocate
one type of activity, such as housing tax
credit investments, differently than
other types of activities because the
mechanism for recognizing particularly
impactful activities under the final rule
is the impact and responsiveness
review. The final rule includes the
following table outlining how
community development loans and
investments will be allocated:
Table 42 to Appendix B: Community Development Loan or Community
Community Development
Loan or Community
Development Investment
Benefits or Serves
Allocation Approach if
Specific Documentation is
Available
Allocation approach based
on Geographic Scope of
Activity
One county
Allocate to county
NA
Multiple counties that are
part of one State or
multistate MSA
Allocate to counties
Allocate to counties in
proportions equivalent to
the distribution of lowand moderate-income
families
One State or multistate
MSA
Allocate to counties
Allocate to the State or
multistate MSA
Multiple States or
Allocate to counties
multistate MSAs, less than
the entire nation
Allocate to the States or
multistate MSAs, as
applicable, based on the
proportion of low- and
moderate-income
families in each State or
multistate MSA
Nationwide area
Allocate to the
nationwide area
Allocate to counties
Final paragraph I.b.2.ii.B of appendix
B also includes a footnote explaining
that for purposes of allocating
community development loans and
investments, the agencies consider lowor moderate-income families to be
located in a State or multistate MSA, as
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
applicable, consistent with final
§ ll.28(c). As noted above, the
agencies also made several clarifying
edits to proposed § ll.24(a) and
paragraph I.b of appendix B. The
agencies divided proposed § ll.24(a)
into two paragraphs, so that the
PO 00000
Frm 00394
Fmt 4701
Sfmt 4700
allocation paragraph1143 is independent
of the general paragraph describing the
performance test.1144 The agencies
removed the portion of proposed
§ ll.24(a) referencing the
1143 See
1144 See
E:\FR\FM\01FER2.SGM
final § ll.24(a)(2).
final § ll.24(a)(1).
01FER2
ER01FE24.103
ddrumheller on DSK120RN23PROD with RULES2
Development Investment Allocation
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
documentation that banks can provide,
or the agencies will use, to support the
allocation of community development
loans and investments because this
concept is adequately addressed in
paragraph I.b of appendix B of the final
rule. Under the final rule, paragraph
I.b.1 of appendix B provides that, as
appropriate, the appropriate Federal
financial supervisory agency may also
consider publicly available information
and information provided by
government or community sources that
demonstrates that a community
development loan or community
development investment benefits or
serves a facility-based assessment area,
State, or multistate MSA, or the
nationwide area. The agencies intend
that these changes will clarify, but not
substantively alter, the proposal.
Further, the agencies reorganized
paragraph I.b of appendix B and added
additional detail to explain the
allocation process for community
development loans and investments.
First, following the paragraphs on
valuation in paragraph I.a.i of appendix
B, paragraph I.a.ii explains that to
calculate the metrics and benchmarks
provided in §§ ll.24 and ll.26, the
agency includes all community
development loans and community
development investments that are
allocated to the specific facility-based
assessment area, State, multistate MSA,
or nationwide area, respectively, in the
numerator for the metric and
benchmarks applicable to that
geographic area and then cross
references paragraph I.b of appendix B,
which includes the allocation
provisions. Second, the agencies
included in paragraph I.b.1 of appendix
B cross references to
§ ll.42(a)(5)(ii)(D) and (E), which
explain the data a bank must provide to
support the allocation of a community
development loan or investment. The
agencies also made other conforming
revisions.
Section ll.24(b) Facility-Based
Assessment Area Evaluation
ddrumheller on DSK120RN23PROD with RULES2
Current Rule and the Agencies’ Proposal
As discussed above, the agencies
currently evaluate banks’ community
development performance in banks’
assessment areas. The agencies
proposed to continue evaluation of
community development financing
activities in facility-based assessment
areas consistent with the current rule.
Comments Received
Commenters generally supported the
continued evaluation of community
development financing performance in
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
facility-based assessment areas. The
comments regarding specific aspects of
the proposed facility-based assessment
area evaluation, including the
applicable metrics, benchmarks, impact
review, and conclusions are discussed
below in the relevant section-by-section
analyses.
Final Rule 1145
Under the final rule, the appropriate
Federal financial supervisory agency
evaluates a bank’s community
development financing performance in a
facility-based assessment areas using (1)
the Bank Assessment Area Community
Development Financing Metric in
§ ll.24(b)(1); (2) the applicable
benchmarks, which include the
Assessment Area Community
Development Financing Benchmark and
the MSA and Nonmetropolitan
Nationwide Community Development
Financing Benchmarks (referred to as
the local and national benchmarks in
the section-by-section analysis of
§ ll.24(b)(2)); and (3) the impact and
responsiveness review in § ll.24(b)(3).
The final rule also provides that the
agency assigns conclusions for a bank’s
facility-based assessment areas pursuant
to paragraph d.1 of appendix C. This
section includes conforming and
technical edits to update the numbering
in the rule and other wording for
purposes of consistency and clarity that
are not intended to have a substantive
effect.
Section ll.24(b)(1) Bank Assessment
Area Community Development
Financing Metric
The Agencies’ Proposal
The agencies proposed in
§ ll.24(b)(1) to use a Bank Assessment
Area Community Development
Financing Metric to measure the dollar
value of a bank’s community
development loans and investments
compared to deposits from the bank’s
deposit accounts 1146 in the facilitybased assessment area. As discussed
below, the agencies also proposed
comparing this metric to certain
1145 As discussed in the section-by-section
analysis of final § ll.21(a)(5), the agencies are
adopting a new paragraph in the final rule to clarify
the evaluation of military banks. Under the final
rule, the agencies will evaluate a military bank that
chooses to delineate the entire United States and its
territories as its sole facility-based assessment area
because its customers are not located within a
defined geographic area, as specified in final
§ ll.16(d), exclusively at the institution level
based on the bank’s performance in its sole facilitybased assessment area. For purposes of the final
Community Development Financing Test, the
agencies will evaluate these banks pursuant to the
facility-based assessment area provisions in final
§ ll.24(b).
1146 See proposed § ll.12 (defining ‘‘deposits’’).
PO 00000
Frm 00395
Fmt 4701
Sfmt 4700
6967
benchmarks for the purpose of
informing the evaluation of bank
performance.1147
Bank Assessment Area Community
Development Financing Metric—
Numerator. The agencies proposed in
§ ll.24(b)(1) and section 2 of
appendix B that the Bank Assessment
Area Community Development
Financing Metric would be the ratio of
a bank’s community development
financing dollars (the numerator) that
serve the facility-based assessment area,
averaged over the years of the
evaluation period, relative to the dollar
value of the deposits from the bank’s
deposit accounts (the denominator) in a
bank’s facility-based assessment area,
averaged over the evaluation period.
The agencies proposed that the
numerator of the Bank Assessment Area
Community Development Financing
Metric would be a bank’s annual
average of dollars of community
development loans and investments that
serve a facility-based assessment
area.1148 As discussed above, for each
year in an evaluation period this
calculation would include the dollar
amount of all community development
loans originated and community
development investments made in that
year. The agencies also proposed to
include the dollar amount of any
increase in an existing community
development loan that is renewed or
modified in that year.1149 The proposed
numerator would also include the
quarterly average value of community
development loans and community
development investments originated or
purchased in a prior year that remained
on a bank’s balance sheet on the last day
of each quarter during the evaluation
period.1150 Considering the outstanding
balance of a loan or investment in
bank’s metric on an annual basis would
make long-term financing beneficial to a
bank’s metric.
Bank Assessment Area Community
Development Financing Metric—
Denominator. The proposed
denominator of the Bank Assessment
Area Community Development
Financing Metric would be a bank’s
annual average dollar amount of
deposits from the bank’s deposit
accounts sourced from a facility-based
assessment area during the evaluation
period.1151 As proposed in § ll.42,
collecting and maintaining deposits data
would be required for banks with assets
proposed § ll.24(b)(2).
proposed § ll.24(b)(1) and proposed
appendix B, section 1.
1149 See proposed appendix B, section 1.
1150 Id.
1151 Id.
1147 See
1148 See
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6968
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
markets in which a bank’s depositors
hold relatively small amounts of
deposits, because deposits would be
allocated to facility-based assessment
areas in proportion to the number of
depositors. However, the agencies
considered that this option would
require all large banks and any
intermediate banks that opt into the
Community Development Financing
Test to collect and maintain the number
of depositors residing in each of their
facility-based assessment areas and in
other geographic areas because this
information is not available from
existing data such as the FDIC’s
Summary of Deposits data.
greater than $10 billion as of December
31 in both of the prior two calendar
years and optional for banks with assets
of $10 billion or less as of December 31
of either of the prior two calendar
years.1152 Under the proposal, banks
that collected and maintained deposits
data under proposed § ll.42 would
compute the average deposits
(calculated based on average daily
balances as provided in statements such
as monthly or quarterly statements, as
applicable) for depositors located in the
assessment area.1153 An annual average
would then be computed across the
years of the evaluation period. The
agencies proposed that, for banks that
do not collect and maintain deposits
data under proposed § ll.42, CRA
evaluations would use the FDIC’s
Summary of Deposits data in order to
tailor data requirements for these banks.
This denominator was an indicator of
a bank’s financial capacity to conduct
community development loans and
investments because deposits are a
major source of bank funding for loans
and investments. The agencies
considered that, in their view, the
greater a bank’s volume of deposits, the
greater its capacity and CRA obligation
to lend and invest would become.1154
Therefore, the proposed approach for
the Bank Assessment Area Community
Development Financing Metric would
establish a proportionately greater
obligation to serve facility-based
assessment areas for banks with a
greater presence in that market.
As an alternative, the agencies
considered basing the Bank Assessment
Area Community Development
Financing Metric denominator on the
share of a bank’s depositors residing in
a facility-based assessment area. Using
this alternative, the agencies would
calculate the denominator by
multiplying the bank’s institution level
deposits by the percentage of the bank’s
depositors that reside in a facility-based
assessment area. For example, if the
bank had a total of $100,000,000 in
deposits and one percent of the bank’s
depositors resided in a given facilitybased assessment area, then the
denominator for that assessment area’s
metric would be $100,000,000 × .01 =
$1,000,000. The objective of this
alternative approach would be to more
evenly allocate a bank’s CRA obligations
across markets, including less affluent
Comments Received
The agencies received several
comments on the proposed Bank
Assessment Area Community
Development Financing Metric.1155
Commenters generally supported the
proposed metric; however, at least one
commenter objected and recommended
the agencies use only the number of
loans and investments and consider
their overall impact in assessing banks’
CRA performance. Further, some
comments on the proposed metric may
reflect a misunderstanding of the
proposed calculations.
Bank Assessment Area Community
Development Financing Metric—
numerator. With respect to the proposed
calculation of the numerator of the Bank
Assessment Area Community
Development Financing Metric, the
agencies received several comments
expressing differing views on the
proposal for averaging banks’ on balance
sheet community development loans
and investments for purposes of the
Bank Assessment Area Community
Development Financing Test Metric
numerator. A commenter objected to
using a three-year average of community
development loans and investments
because the loan values would likely
decrease over that time, which the
commenter stated would devalue
community development loans. The
commenter urged the agencies to
consider an approach where the Bank
Assessment Area Community
Development Financing Test Metric
numerator is the sum of: (1) the annual
average of community development
loans and investments originated or
purchased in a prior evaluation period
1152 The proposed rule was silent as to whether
intermediate banks that opted into the Community
Development Financing Test could opt to collect
and maintain deposits data for purposes of
calculating the Community Development Financing
Test metrics.
1153 See proposed § ll.42(b)(5).
1154 See 12 U.S.C. 2901.
1155 The agencies note that comments on the Bank
Assessment Area Community Development
Financing Metric related to the calculation of the
metric apply equally to the other metrics in the
Community Development Financing Test. These
comments will not be separately discussed when
considering the other metrics in this performance
test.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00396
Fmt 4701
Sfmt 4700
that remain on a bank’s balance sheet;
and (2) the total of all of community
development loans and investments
originated or purchased during the
current evaluation period, without
annual averaging.1156 The commenter
stated this approach would promote the
provision of long-term capital since
banks would still receive credit for
remaining balances in the next
evaluation period while encouraging
community development financing
generally by allowing banks to realize
the full value of their community
development loans and investments in
the current evaluation period.
Another commenter stated that the
proposed methodology of the Bank
Assessment Area Community
Development Financing Metric would
artificially inflate the numerator by
giving consideration during the current
review period for activities in each year.
The commenter suggested that a better
way of encouraging patient capital
would be to consider ‘‘past’’ loans and
investments to refer only to prior
evaluation period activities.
Notwithstanding these concerns, the
commenter suggested that if the
agencies proceed with finalizing the
current proposal, the final rule should
include three additional ratios: (1)
current community development
financing activity divided by deposits;
(2) past community development
financing activity divided by deposits;
and (3) total community development
financing activity divided by deposits.
Another commenter also expressed
concern that providing consideration for
current review period activities each
year would limit the number of new
loan originations.
Bank Assessment Area Community
Development Financing Metric—
denominator. Commenters that
provided feedback on the denominator
for the Bank Assessment Area
Community Development Financing
Metric and other metrics in the
Community Development Financing
Test generally expressed a preference
for using the dollar value of deposits as
proposed. Commenters generally did
not support the alternative of using the
share of bank depositors residing in a
facility-based assessment area as the
Bank Assessment Area Community
Development Financing Metric
denominator.
Commenters provided several reasons
for their objection to the alternative
denominator. One commenter noted
that obtaining accurate data on the
actual share of bank depositors residing
1156 The agencies note that the commenter’s
suggestion is generally consistent with the proposal.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
in an assessment area would be
difficult. Another commenter stated that
the agencies’ proposed approach of
using deposits as the Bank Assessment
Area Community Development
Financing Metric denominator was
simpler and offered a more realistic
chance for obtaining accurate data.
Another commenter stated that it
understood the agencies’ desire to
account for population and resource
differences across assessment areas but
that it was not clear the alternative
approach would accomplish this goal.
Lastly, a commenter noted that the spirit
of the CRA includes how well banks are
lending compared to where they are
taking deposits.
The agencies also sought feedback
regarding whether the source of deposits
data for the Bank Assessment Area
Community Development Financing
Metric denominator should be collected
deposits data or the FDIC’s Summary of
Deposits data for banks with assets less
than or equal to $10 billion. Some
commenters supported the proposed use
of Summary of Deposits data for the
denominator for banks with assets of
$10 billion or less. A commenter also
recommended that all banks, not just
banks with assets less than or equal to
$10 billion, use Summary of Deposits
data for the Bank Assessment Area
Community Development Financing
Metric denominator. This commenter
suggested that banks may voluntarily
collect and maintain deposits data for
the sake of ensuring accurate metrics
and weights.
Alternatively, some commenters
preferred using collected deposits data
for the denominator. Specifically,
certain commenters recommended that
the agencies should require deposits
data collection for all large banks for use
in determining the denominator. One of
these commenters stated that collected
deposits data more accurately reflect
bank performance under the
Community Development Financing
Test. Another commenter recommended
allowing banks to rely on the FDIC’s
Summary of Deposits data to mitigate
compliance burden but suggested that
banks may opt to collect and report
deposits data to offset the risk of
inaccuracy associated with the use of
Summary of Deposits data.
Final Rule
After considering the comments, the
agencies are finalizing the Bank
Assessment Area Community
Development Financing Metric as
proposed with certain revisions,
including clarifying and conforming
revisions, to final § ll.24(b)(1) and
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
paragraph II.a of final appendix B
(proposed as section 2 of appendix B).
Bank Assessment Area Community
Development Financing Metric—
numerator. With respect to the
numerator of the Bank Assessment Area
Community Development Financing
Metric, the commenters focused on: (1)
the types of loans and investments
included in the numerator; (2) when
banks originated, purchased, or made
those loans and investments; and (3)
whether they were averaged annually
over the evaluation period. As discussed
in the section-by-section analysis of
§ ll.24(a), the agencies considered
how to value community development
loans and investments to encourage
patient capital while still giving
appropriate consideration for new
community development loans and
investments and believe that the final
rule strikes the right balance.
The agencies considered the
alternatives suggested by commenters,
including averaging only the annual
value of prior period community
development loans and investments and
adding additional metrics if the rule is
finalized as proposed. The agencies
determined not to adopt these or other
alternatives. Because the same metrics
and benchmarks apply to all banks
evaluated under the Community
Development Financing Test, banks that
want to differentiate themselves will
need to increase their community
development lending and investments
in comparison to their peers. Banks that
substantially reduce the amount of new
community development lending and
investments will likely perform poorly
in comparison to peers that maintain or
increase their level of community
development lending and investment.
For this reason, the introduction of
standard metrics and benchmarks will
encourage banks to increase their
community development lending and
investment.
The agencies also note that the
Community Development Financing
Test includes consideration of the
performance context information
provided in § ll.21(d), as further
discussed in that section-by-section
analysis. Performance context that the
agencies may consider under the final
rule includes: (1) information regarding
a bank’s past performance; (2) any
information about community
development needs and opportunities;
and (3) any other information the
appropriate Federal financial
supervisory agency deems relevant.
Given that the agencies will use the
metrics and benchmarks to inform a
qualitative assessment of a bank’s
community development financing
PO 00000
Frm 00397
Fmt 4701
Sfmt 4700
6969
performance, an examiner could
consider these performance context
factors in concluding on a bank’s
performance in circumstances where the
bank has substantially reduced the
amount of new community
development loans and investments
during an evaluation period.
Bank Assessment Area Community
Development Financing Metric—
denominator. The agencies considered
commenter feedback on the Bank
Assessment Area Community
Development Financing Metric
denominator and for this purpose,
deposits are an indicator of a bank’s
financial capacity to conduct
community development loans and
investments because deposits are a
major source of bank funding for loans
and investments. Although the
alternative described in the proposal of
using the share of a bank’s depositors
residing in an facility-based assessment
area for the denominator may have
allowed the agencies to more evenly
allocate a bank’s CRA obligations across
markets—including less affluent
markets in which the bank’s depositors
hold relatively small amounts of
deposits—the burden associated with
this option outweighs the benefit of
using depositors as the denominator
because it would require data collection
for all banks evaluated under the
Community Development Financing
Test. Using deposits as the denominator
is consistent with the spirit of the CRA
because it enables the agencies to assess
the extent to which banks are
reinvesting in the communities where
they take deposits.
The agencies also considered the
comments regarding the use of deposits
data collected pursuant to § ll.42 as
opposed to the FDIC’s Summary of
Deposits data in the denominator for the
Bank Assessment Area Community
Development Financing Metric. The
split in commenters’ views on this issue
reflects the inherent tradeoffs associated
with each option. While use of collected
deposits data would make the Bank
Assessment Area Community
Development Financing Metric more
accurate, collecting data on deposits
would be a new data collection
requirement that imposes burden on
banks. In contrast, although using
Summary of Deposits data in the
denominator eliminates the burden on
banks to collect data, it may not
accurately reflect the dollar volume of
deposits drawn from a particular
geographic area. The agencies are
adopting the final rule as proposed
because it balances the tradeoff between
increased burden associated with
collecting, maintaining, and reporting
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6970
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
deposits data and the accuracy of the
deposits data.
The final rule requires banks that had
assets greater than $10 billion to collect,
maintain, and report deposits data. It is
important to tailor the requirement to
collect, maintain, and report deposits
data in order to only apply to banks
with greater resources. The agencies
determined that, due to the greater
resources of banks that had assets
greater than $10 billion, these banks
have the capacity to collect, maintain,
and report more accurate data and the
benefit of more accurate deposits data
outweighs the burden of collecting,
maintaining, and reporting that data.
See the section-by-section analysis of
§ ll.42. For banks that had assets less
than or equal to $10 billion, the final
rule uses the FDIC’s Summary of
Deposits data in the denominator,
thereby limiting the burden for these
banks. Nonetheless, because certain
banks that had assets of less than or
equal to $10 billion may have dispersed
deposits or the assignment of the banks’
deposits under the Summary of Deposits
data may not reflect the actual location
of the deposits, the final rule provides
these banks with the option to collect,
maintain, and report deposits data.
Providing this option mitigates the
potential negative consequences of
using Summary of Deposits data in the
denominator because banks that would
not perform well compared to their
peers using Summary of Deposits data
will be able to choose to collect,
maintain, and report deposits data
pursuant to final § ll.42 to provide a
fuller and more accurate picture of their
community development lending and
investment.
Section ll.24(b)—clarifying,
conforming, and technical revisions to
the facility-based assessment area
evaluation. Although the agencies are
finalizing the facility-based assessment
area evaluation, including the Bank
Assessment Area Community
Development Financing Metric,
substantively as proposed, as noted by
commenters, the structure of proposed
§ ll.24 and appendix B may be
confusing. To address that concern, the
agencies revised aspects of the final rule
for clarity and consistency. With respect
to the facility-based assessment area
evaluation, the agencies included
technical revisions to cross reference the
sections of the final rule that include the
metrics, benchmarks, and the impact
and responsiveness review as well as
how the agencies assign
conclusions.1157 The agencies also
enhanced the descriptions of the metrics
1157 See,
e.g., final § ll.24(b).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
and benchmarks in final § ll.24 and
clarified the calculations in appendix B
by segmenting the descriptions into
steps and adding sample formulas to the
examples. These edits are intended to
eliminate unintended inconsistencies
and inaccuracies in the calculations in
the final rule and improve the ability to
understand and apply the metrics and
benchmarks in the final Community
Development Financing Test.
Under the final rule, § ll.24(b)(1)
provides that the Bank Assessment Area
Community Development Financing
Metric measures the dollar volume of a
bank’s community development loans
and community development
investments 1158 that benefit or serve a
facility-based assessment area compared
to those deposits in the bank that are
located in the facility-based assessment
area, calculated pursuant to paragraph
II.a of appendix B.
Paragraph I.a.1 of appendix B of the
final rule provides that the appropriate
Federal financial supervisory agency
calculates an annual dollar volume of
community development loans and
community development investments
based on the annual dollar volume of
these loans and investments. Paragraph
I.a.2.i of appendix B of the final rule
provides that the agency also
determines the annual dollar volume of
deposits. The agencies use the annual
dollar volume of community
development loans and investments and
the annual dollar volume of deposits to
calculate the Bank Assessment Area
Community Development Financing
Metric pursuant to paragraph II.a of
appendix B. Paragraph II.a of appendix
B includes the three steps for
calculating the Bank Assessment Area
Community Development Financing
Metric. Specifically, the agency
calculates the Bank Assessment Area
Community Development Financing
Metric by: (1) summing the bank’s
annual dollar volume of community
development loans and community
development investments that benefit or
serve the facility-based assessment area
for each year in the evaluation period
(sum of community development loans
and investments); (2) summing the
annual dollar volume of deposits
located in the facility-based assessment
area (sum of deposits); and (3) dividing
the result of the sum of community
1158 The agencies consider a bank’s community
development loans and investments to include
those community development loans and
investments that the bank is required or elects to
have the agencies consider under final § ll.21(b)
and (c) (i.e., community development loans and
investments conducted by operations subsidiaries
or operating subsidiaries, as applicable, other
affiliates, third parties, or consortiums).
PO 00000
Frm 00398
Fmt 4701
Sfmt 4700
development loans and investments by
the sum of deposits.
The agencies made a technical change
to consistently use the term ‘‘dollar
volume’’ when describing community
development loans and investments and
deposits in the Bank Assessment Area
Community Development Financing
Metric. The agencies also revised the
phrase used to describe deposits in the
Bank Assessment Area Community
Development Financing Metric. In the
proposal, community development
loans were compared to ‘‘deposits from
the bank’s deposit accounts.’’ The
agencies determined that this
description could be misinterpreted to
mean the bank’s own accounts (i.e.,
accounts containing the bank’s money).
To clarify the denominator, the final
rule uses the phrase ‘‘deposits in the
bank.’’
The agencies made conforming
revisions to the remainder of final
§ ll.24 and final appendix B to reflect
these clarifying, conforming, and
technical revisions.
Section ll.24(b)(2)
Benchmarks
The Agencies’ Proposal
The agencies proposed establishing
local 1159 and national 1160 benchmarks
for each facility-based assessment area.
To help develop facility-based
assessment area conclusions, the
agencies would compare the Bank
Assessment Area Community
Development Financing Metric to both
(1) an Assessment Area Community
Development Financing Benchmark
(local benchmark) and, as applicable, (2)
a Metropolitan or a Nonmetropolitan
Nationwide Community Development
Financing Benchmark (national
benchmarks).1161 These benchmarks
would enable the agencies to compare
an individual bank’s community
development financing performance to
other banks in a clear and consistent
manner. The agencies based the
proposed benchmarks on the aggregate
amount of community development
loans and investments and the total
dollar value of deposits in the bank’s
facility-based assessment area or
nationwide area, among all large banks.
As proposed, the aggregate amounts of
deposits for these benchmarks would be
based on reported deposits data for
banks that had assets greater than $10
billion and the FDIC’s Summary of
Deposits data for banks that had assets
less than or equal to $10 billion, using
1159 See proposed § ll.24(b)(2)(i) and proposed
appendix B, section 3.
1160 See proposed § ll.24(b)(2)(ii) and proposed
appendix B, section 4.
1161 See proposed § ll.24(b)(2)(i) and (ii).
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
the deposits assigned to branches
located in each assessment area for
which the benchmark is calculated.1162
The agencies sought feedback on the
proposed approach to using the
Summary of Deposits data for
calculating community development
financing benchmarks, the tradeoffs of
the proposed approach, and potential
alternatives to the proposed approach.
The proposed approach of using both
local and national benchmarks would
provide the agencies, banks, and the
public with additional context about the
local level of community development
lending and investment that could help
to interpret and set goals for
performance. For example, a bank
whose metric fell short of the local
benchmark, in a facility-based
assessment area where the local
benchmark is much lower than the
national benchmark, could be
considered to have conducted a
relatively low volume of loans and
investments. The agencies also intended
the national benchmarks to provide a
baseline for evaluating the level of a
particular bank’s community
development loans and investments in a
facility-based assessment area with few
or no other large banks from which to
calculate a local benchmark. In the
preamble to the proposed rule, the
agencies suggested the benchmarks
would be made publicly available, for
example, in dashboards.
Assessment Area Community
Development Financing Benchmark.1163
The agencies provided in section 3 of
proposed appendix B that the numerator
for the Assessment Area Community
Development Financing Benchmark
would be the annual average dollar
amount of all large banks’ community
development financing activities in the
6971
facility-based assessment area during
the evaluation period. Under this
proposed section, the denominator for
the Assessment Area Community
Development Financing Benchmark
would be the annual average of the total
dollar amount of all deposits held in the
assessment area by large banks. The
agencies proposed that the deposits in
the facility-based assessment area would
be the sum of: (1) the annual average of
deposits in counties in the facility-based
assessment area by all banks that had
assets greater than $10 billion over the
evaluation period, as reported under
proposed § ll.42; and (2) the annual
average of deposits assigned to branches
in the facility-based assessment area by
all large banks that had assets less than
or equal to $10 billion, according to the
FDIC’s Summary of Deposits data, over
the evaluation period.1164
Annual average of local CD loans + CD investments
Annual average of local deposits
The Assessment Area Community
Development Financing Benchmark
would reflect local conditions that vary
across assessment areas, such as the
level of competition from other banks
and the availability of community
development opportunities, which may
contribute to differences in the level of
community development lending and
investment across communities and
within a community across time. The
agencies considered that using a
standard local benchmark would
improve the consistency of the current
evaluation approach, which does not
include consistent data points that
reflect local levels of community
development lending and investment.
Metropolitan and Nonmetropolitan
Nationwide Community Development
Financing Benchmarks. In
§ ll.24(b)(2)(ii), the agencies proposed
to develop separate nationwide
community development financing
benchmarks for all metropolitan areas
and all nonmetropolitan areas (the
national benchmarks), respectively. The
agencies would apply one of these
national benchmarks to each facilitybased assessment area, depending on
whether the facility-based assessment
area was located in a metropolitan area
or nonmetropolitan area.1165 Based on
the agencies’ analysis, the ratio of banks’
community development loans and
investments to deposits is higher in
metropolitan facility-based assessment
areas than in nonmetropolitan
assessment areas.1166 The agencies
proposed setting the national
benchmark separately for metropolitan
and nonmetropolitan areas to help
account for differences in the level of
community development opportunities
in these areas.
The agencies proposed that the
numerator for the national benchmarks
would be the annual average of the total
dollar amount of all large banks’
community development loans and
investments (in either metropolitan or
nonmetropolitan areas, depending on
the facility-based assessment area)
during the evaluation period. The
1162 See proposed § ll.12 (defining ‘‘deposits’’)
and proposed appendix B, sections 3 and 4.
1163 The agencies note that many of the comments
on the Assessment Area Community Development
Financing Benchmark apply equally to the other
benchmarks in the Community Development
Financing Test. This SUPPLEMENTARY INFORMATION
does not separately discuss these comments when
considering the other benchmarks in this
performance test.
1164 See proposed appendix B, section 2.
1165 See proposed § ll.24(b)(2)(ii) and proposed
appendix B, section 4.
1166 The analysis used a sample of 5,735
assessment areas from large retail bank performance
evaluation records from 2005 to 2017 in the Board’s
CRA Analytics Data Tables, which note the dollar
volume of current period community development
loan originations, as well as current period and
prior period community development investments
in each assessment area. The total dollar volume of
community development loans and investments
was divided by the length in years of each
examination evaluation period, to produce an
annual average for each assessment area evaluation.
The FDIC’s Summary of Deposits data was used to
identify the dollar volume of deposits associated
with the corresponding bank’s branches in the
assessment area, which is the best available
approach for estimating the dollar volume of
deposits associated with each of a bank’s
assessment areas. The aggregate ratio of annualized
dollars of community development loans and
investments to dollar volume of deposits was
computed separately for all metropolitan
assessment areas and all nonmetropolitan
assessment areas in the sample, respectively. Under
this analysis, the metropolitan ratio was 1.4
percent, and the nonmetropolitan ratio was 0.9
percent, based on exams from 2014 to 2017. The
metropolitan ratio remained significantly larger
than the nonmetropolitan ratio when limiting the
sample to only full-scope examinations, across
different periods of the sample, and when
computing the median ratio of all examinations,
rather than a mean.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00399
Fmt 4701
Sfmt 4700
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.105
ddrumheller on DSK120RN23PROD with RULES2
= Assessment Area Community Development Financing Benchmark
6972
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
proposed denominator was the annual
average of the total dollar amount of
deposits (again, either in metropolitan
or nonmetropolitan areas) during the
evaluation period. Under the proposal,
the deposits in the metropolitan or
nonmetropolitan areas would be the
sum of: (1) the annual average of
deposits in counties in the metropolitan
or nonmetropolitan areas reported by all
banks that had assets greater than $10
billion over the evaluation period (as
reported under proposed § ll.42); and
(2) the annual average of deposits
assigned to branches in the metropolitan
or nonmetropolitan areas by all banks
that had assets less than or equal to $10
billion, according to the FDIC’s
Summary of Deposits data, over the
evaluation period.1167
Annual average of nationwide metropolitan CD loans+ CD investments
Annual average of nationwide metropolitan deposits
=Nationwide Community Development Financing Benchmark-Metropolitan
Annual average of nationwide nonmetropolitan CD loans + CD investments
Annual average of nationwide nonmetropolitan deposits
= Nationwide Community Development Financing Benchmark-Nonmetropolitan
1167 See proposed § ll.24(b)(2)(ii) and proposed
appendix B, section 4.
1168 The agencies understand the commenter to be
referring to the proposed national benchmarks.
ddrumheller on DSK120RN23PROD with RULES2
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00400
Fmt 4701
Sfmt 4700
account for peculiarities or limitations
in an assessment area or factors beyond
a bank’s control. One of these
commenters requested that if the
agencies retain the nationwide area
benchmarks,1168 the final rule should
allow banks the option of a nationwide
area review. A few commenters
expressed concern that a formulaic
approach for the use of benchmarks may
have unintended consequences due to
its lack of nuance. One of these
commenters stated that a national
benchmark is not appropriate in facilitybased assessment areas with low levels
of community development lending and
investments because opportunities in
these areas tend to be limited and a
national benchmark could be unduly
demanding. The commenter noted that,
on the other hand, use of a national
benchmark in facility-based assessment
areas with high levels of community
development lending and investment
opportunities could be unduly lenient.
The agencies also asked for feedback
on the appropriate method for using the
local and national benchmarks.
Commenters generally supported
allowing examiner judgement regarding
the use of benchmarks. However,
consistent with the comments on
enhancing the rigor of the Community
Development Financing Test, discussed
above, other commenters preferred that
the agencies standardize the use of
benchmarks, with one commenter
stating that the agencies should only use
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.106
Comments Received
Local and national benchmarks.
Commenters that addressed the
agencies’ proposal to compare the Bank
Assessment Area Community
Development Financing Metric to both
local and national benchmarks
expressed varying views regarding the
use of the proposed benchmarks.
Certain commenters supported the use
of local and national benchmarks stating
that the benchmarks would create more
transparency and consistency across
performance evaluations and more
certainty as to whether banks will
receive credit for community
development loans and investments
outside of facility-based assessment
areas. For example, a commenter
expressed the view that the local and
national benchmarks would encourage
more investments in underserved
communities, as well as in statewide
and national funds.
A few other commenters expressed
support for the inclusion of the local
benchmarks in the Community
Development Financing Test but
opposed or expressed reservations about
the national benchmarks. These
commenters provided several reasons
for objecting to the use of national
benchmarks, including that: (1) they
would compare a regional bank’s
performance against that of much larger,
nationwide banks, thereby requiring
regional banks to attempt to make up for
quantitative deficiencies in the
comparison of the bank’s metric to the
benchmarks through qualitative
considerations; (2) the availability of
community development loans and
investments varies considerably from
region to region; and (3) they fail to
Timing of benchmark data. The
agencies also considered whether they
should calculate and fix the benchmarks
based on community development
lending, community development
investment, and deposits data that are
available at least one year in advance of
the end of the evaluation period. For
example, for a three-year evaluation
period ending in December 2024, the
agencies could determine the
benchmarks for that evaluation period
using data over the three-year timeframe
spanning from 2021 to 2023. This
alternative would have provided
additional certainty that the benchmarks
that a bank would be compared to
would not change in the final year of an
evaluation period. However, the
agencies did not propose this alternative
because they believed the benchmarks
to which a bank is compared under this
alternative may not reflect the credit
needs and opportunities in the
assessment area to the same degree as
the proposed approach, which
calculated the benchmarks based on the
years in the evaluation period,
especially if there were significant
changes in community development
opportunities during the final year of
the evaluation period.
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
examiner judgement until they collect
community development lending and
investment data and identify patterns.
Other commenters requested that the
agencies provide examiners with
guidelines for using the local and
national benchmarks. For example, a
few commenters expressed concern that
the proposal failed to provide enough
guidelines for comparing the Bank
Assessment Area Community
Development Financing Metric to either
the local or national benchmarks
making it possible for an examiner to
inflate a rating by choosing the lowest
comparator benchmark.
Certain comments suggested
additional guidelines for the local and
national benchmarks. A few
commenters suggested the agencies
establish the following guidelines: (1)
weight the national benchmark at 60
percent and local benchmark at 40
percent in facility-based assessment
areas where the local benchmark is
lower than the national benchmark to
motivate banks to exceed the local
benchmark; and (2) weight the local
benchmark at 60 percent and the
national benchmark at 40 percent in
facility-based assessment areas where
the local benchmark is higher than the
national benchmark. These commenters
further suggested that the agencies
could refine these weights by
determining the distribution of local
benchmarks as measured by percentiles
or other distances from the median or
mean benchmarks. A commenter
suggested that examiners could tailor
the weighting of the local and national
benchmarks to emphasize the stronger
of the two ratios for a bank’s facilitybased assessment areas.
Timing of benchmark data. The
agencies also sought feedback on what
other considerations they could
undertake to ensure clarity and
consistency in the benchmark
calculations. Specifically, the agencies
sought feedback on whether they should
calculate the benchmarks based on data
available prior to the end of the
evaluation period or align calculation of
the benchmarks with data available at
the beginning and end of the evaluation
period.
In response, a few commenters
supported aligning data with the
evaluation period while others noted
that the agencies should set benchmarks
based on data that are available prior to
a bank’s evaluation period. One of the
commenters that supported aligning the
benchmark calculations with the
beginning and end of the evaluation
period specified that the agencies
should do so in the initial year
implementing the new CRA regulations
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
to determine changes in performance
levels. The commenter suggested,
however, that the agencies may not need
this process in subsequent periods.
In contrast to the commenters that
supported using data from the
evaluation period to establish the
benchmarks, other commenters
requested that the agencies make the
benchmarks known to banks in advance
of evaluation periods. One of these
commenters stated that this approach
would ensure that banks know the target
to which they are being held, and the
community would have a clear standard
to which they can hold banks
accountable. Another commenter stated
that it is a fundamental matter of
fairness and due process that banks
know the benchmarks the agencies will
use to evaluate banks’ performance prior
to the evaluation period.
Certain commenters offered
alternatives to using data as of the end
of the evaluation period. A few of these
commenters recommended that the
benchmarks be set annually, based on
the most recent year that data are
available, which would align with the
proposed annual assessment. For
example, data from year one would be
available in year two, and the agencies
could use that data to set the
benchmarks for year three. These
commenters stated that this approach
would provide banks more transparency
and predictability and avoid applying
different benchmarks to comparable
banks depending on the timing of their
evaluation periods. To offer greater
clarity, another commenter suggested
the agencies use data available by the
start of every year, even if it means the
agencies use lagging data. To calculate
the benchmarks, a commenter
recommended that the agencies average
data for the examination period to best
reflect any market shifts or changing
circumstances. The commenter also
recommended that the agencies should
use the maximum amount of data
available for the CRA examination even
if the available market data do not
match up perfectly in terms of
availability at the time of the
examination.
Final Rule
After considering the comments on
the local and national benchmarks, the
agencies are finalizing the benchmarks
as proposed with certain clarifying
revisions. The final rule provides in
§ ll.24(b)(2) that the appropriate
Federal financial supervisory agency
compares the Bank Assessment Area
Community Development Financing
PO 00000
Frm 00401
Fmt 4701
Sfmt 4700
6973
Metric 1169 to (1) the Assessment Area
Community Development Financing
Benchmark 1170 and (2) either the MSA
or Nonmetropolitan Nationwide
Community Development Financing
Benchmark, depending on whether the
facility-based assessment area is within
an MSA or a nonmetropolitan area.1171
The agencies considered commenters’
concerns with applying the national
benchmark to evaluate community
development lending and investments
in facility-based assessment areas.
However, the local and national
benchmarks are both useful tools for
examiners and will help to improve
consistency in CRA performance
evaluations. As explained in the
proposal, the local and national
benchmarks provide useful information
for understanding how a bank’s
community development lending and
investment compares to other banks in
their local markets and nationwide. In
particular, the local benchmark is based
on community development lending
and investment in a facility-based
assessment area for large banks, and,
therefore, provides insight into the
performance of other banks operating in
the same community, while the national
benchmark provides a baseline
comparator for the nationwide
performance of all large banks in MSAs
or nonmetropolitan areas, as applicable.
The agencies are sensitive to the
concerns raised by commenters about
variations in lending and investment
between regions, economic cycles, and
types of banks. For this reason, the
agencies emphasize that the benchmarks
provide standardized data points that
the agencies will consider in evaluating
banks’ community development lending
and investment, but performance
context remains an important part of
CRA performance evaluations. Through
performance context, examiners can
consider any variations in lending and
investment among banks and the
reasons for those variations, such as
those noted by commenters, and
account for a bank’s particular
circumstances in concluding on
performance in a facility-based
assessment area. In those circumstances
where the local benchmarks may lack
robust data due to limited market
participants, the agencies may rely more
heavily on the national benchmark
because the local benchmark may
provide less meaningful information
against which to compare a bank’s
performance. The agencies may also rely
more heavily on supervisory experience
final § ll.24(b)(1).
final § ll.24(b)(2)(i).
1171 See final § ll.24(b)(2)(ii).
1169 See
1170 See
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6974
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
and performance context, particularly
market opportunities and bank capacity
and constraints, in considering a bank’s
performance under the Community
Development Financing Test in these
circumstances.
The agencies also determined that,
under the final rule, they will calculate
the local and national benchmarks using
data from the evaluation period, as
proposed with clarifying revisions. The
agencies understand commenters’
concerns that using community
development lending and investment
and deposits data that correspond to the
years in the evaluation period would
mean that banks would not know the
benchmarks in advance of conducting
the community development lending
and investments that the agencies will
compare to those benchmarks. However,
lagging benchmarks (i.e., benchmarks
based on data from before the evaluation
period) would be an inappropriate
measure given that they would not
reflect lending and investment
conducted contemporaneous to the
community development loans and
investments considered in a bank’s CRA
performance evaluation. Based on our
supervisory experience, the agencies
have observed that changes in economic
cycles and other external factors
influence the level of community
development lending and investment
that banks engage in during a given
year. For that reason, using more timely
data for comparison, coupled with
consideration of performance context,
will result in the most useful
information for evaluating bank
performance under the Community
Development Financing Test.
Consistent with the revisions to the
Bank Assessment Area Community
Development Financing Metric, the
agencies made conforming revisions to
streamline the discussion of the
benchmarks in final § ll.24(b)(2) and
clarify the calculation of the
benchmarks in paragraphs II.b and II.c
of final appendix B. The agencies intend
for these revisions to clarify the final
rule and eliminate inconsistencies that
were present in the proposal.
The local benchmark is provided in
final § ll.24(b)(2)(i), which applies in
each facility-based assessment area.
Under the final rule, the Assessment
Area Community Development
Financing Benchmark measures the
dollar volume of community
development loans and investments that
benefit or serve the facility-based
assessment area for all large banks
compared to deposits located in the
facility-based assessment area for all
large banks. The appropriate Federal
financial supervisory agency calculates
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
the local benchmark pursuant to
paragraph II.b of final appendix B,
which provides that the agency
calculates the Assessment Area
Community Development Financing
Benchmark for each facility-based
assessment area by: (1) summing all
large banks’ annual dollar volume of
community development loans and
investments that benefit or serve the
facility-based assessment area for each
year in the evaluation period (sum of
community development loans and
investments); (2) summing all large
banks’ annual dollar volume of deposits
located in the facility-based assessment
area for each year in the evaluation
period (sum of deposits); and (3)
dividing the result of the sum of
community development loans and
investments by the result of the sum of
deposits.
The final rule includes the national
benchmarks in final § ll.24(b)(2)(ii).
The MSA Nationwide Community
Development Financing Benchmark 1172
applies to a bank’s facility-based
assessment areas within an MSA. The
MSA Nationwide Community
Development Financing Benchmark
measures the dollar volume of
community development loans and
investments that benefit or serve MSAs
in the nationwide area for large banks
compared to deposits located in the
MSAs in the nationwide area for all
large banks. The Nonmetropolitan
Nationwide Community Development
Financing Benchmark 1173 applies to a
bank’s facility-based assessment areas
within a nonmetropolitan area. The
Nonmetropolitan Nationwide
Community Development Financing
Benchmark measures the dollar volume
of community development loans and
investments that benefit or serve
nonmetropolitan areas in the
nationwide area for large banks
compared to deposits located in
nonmetropolitan areas in the
nationwide area for all large banks. The
appropriate Federal financial
supervisory agency calculates the MSA
and Nonmetropolitan Nationwide
Community Development Financing
Benchmarks pursuant to paragraph II.c
of final appendix B.1174
The agency calculates the MSA and
Nonmetropolitan Nationwide
1172 See final § ll.24(b)(2)(ii)(A). In the
proposal, this benchmark was described as the
Metropolitan Nationwide Community Development
Financing Benchmark. In the final rule, the agencies
retitled this benchmark the MSA Nationwide
Community Development Financing Benchmark to
more accurately reflect the geographic areas
included in the calculation.
1173 See final § ll.24(b)(2)(ii)(B).
1174 See final § ll.24(b)(2)(ii)(C).
PO 00000
Frm 00402
Fmt 4701
Sfmt 4700
Community Development Financing
Benchmarks by: (1) summing all large
banks’ annual dollar volume of
community development loans and
investments that benefit or serve MSAs
or nonmetropolitan areas in the
nationwide area for each year in the
evaluation period (sum of community
development loans and investments); (2)
summing all large banks’ annual dollar
volume of deposits located in MSAs or
nonmetropolitan areas in the
nationwide area for each year in the
evaluation period (sum of deposits); and
(3) dividing the result of the sum of
community development loans and
investments by the result of the sum of
deposits.1175
Section ll.24(b)(3), (c)(2)(iii),
(d)(2)(iii), and (e)(2)(v) Impact and
Responsiveness Review
Current Approach
Under the current rule, the
performance criteria in the large bank
lending test and investment test and the
community development test applicable
to intermediate small banks include
several qualitative components. The
lending test includes consideration of a
bank’s use of innovative or flexible
lending practices in a safe and sound
manner to address the credit needs of
low- or moderate-income individuals or
census tracts.1176 The agencies consider,
under the investment test: (1) the
innovativeness or complexity of
community development investments;
and (2) the responsiveness of
community development investments to
credit and community development
needs.1177 For intermediate small banks,
the community development test
includes consideration of a bank’s
responsiveness to community
development lending, investment, and
service needs through community
development loans, investments, and
services.1178 These qualitative
performance criteria are components of
the current performance tests and
standards and the agencies consider
these components in conjunction with
the bank’s performance context in
evaluating a bank’s community
development lending and investment.
The interagency examination
procedures reference these performance
criteria without elaborating on how to
identify whether certain community
development loans or investments are
particularly innovative, flexible,
1175 See
final appendix B, paragraph II.c.
current 12 CFR ll.22(b)(5). The current
rule uses the defined term ‘‘geographies,’’ which
means census tracts.
1177 See current 12 CFR ll.23(e)(2) and (3).
1178 See current 12 CFR ll.26(c)(4).
1176 See
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
complex, or responsive, as applicable.
Over time, stakeholders indicated that
these concepts were not well
understood, and the agencies
endeavored to provide additional clarity
through the Interagency Questions and
Answers.1179 Although these
Interagency Questions and Answers
provided some additional guidance,
questions remained as to what types of
community development loans,
investments, or services were
considered most responsive or
impactful to a community because of
the extent or manner in which they
helped to meet community needs.
The Agencies’ Proposal
To complement the community
development financing metrics and
benchmarks, the agencies proposed
evaluating the impact and
responsiveness of a bank’s community
development loans and investments in
facility-based assessment areas, States
and multistate MSAs, as applicable, and
the nationwide area.1180 The qualitative
evaluation in proposed § ll.24 would
draw on the impact factors defined in
proposed § ll.15, and on any other
performance context information, as
provided in proposed § ll.21(e),
considered by the agencies to determine
how the bank’s community
development loans and investments
were responsive to the geographic area’s
community development needs and
opportunities. This approach would
advance the CRA’s purpose by ensuring
a strong emphasis on the impact and
responsiveness of community
development loans and investments in
meeting community credit needs;
increase consistency in the evaluation of
qualitative factors relative to the current
approach by creating clear factors to
consider; and foster transparency for
banks and the public by providing
information about the type and purpose
of community development loans and
investments considered to be
particularly impactful or responsive.
Consideration of qualitative factors as
a supplement to the dollar-based
metrics and benchmarks was aligned
with the CRA’s purpose of strengthening
low- and moderate-income communities
by more fully accounting for factors that
may reflect the overall impact or
responsiveness of a community
development loan or investment. First,
a qualitative review could consider the
responsiveness of community
development loans and investments to
local context, including community
1179 See Q&A § ll.21(a)—3 and Q&A
§ ll.21(a)–4.
1180 See proposed § ll.24(b) and (c).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
development needs and opportunities
that vary from one community to
another. Banks and their community
partners may make great effort to design
a community development loan or
investment to reflect this context and
address specific credit needs of the
community, which can further the
loan’s or investment’s impact or
responsiveness.
Second, a qualitative evaluation was
important for emphasizing relatively
small loans or investments that
nonetheless have a significant positive
impact on the communities served. For
example, grants and other monetary or
in-kind donations that support
organizations providing assistance to
small businesses tend to have small
dollar balances relative to loans to larger
businesses, but they are critically
important for addressing small business
credit needs. Third, the qualitative
evaluation could emphasize community
development loans and investments that
serve low- and moderate-income
populations and census tracts that have
especially high community
development needs, which often entail
greater complexity and effort on the part
of the bank. This emphasis helps to
encourage community development
loans and investments that reach a
broad range of low- and moderateincome communities, including those
that are more challenging to serve.
Finally, the qualitative review could
emphasize specific categories of
community development loans and
investments aligned with the CRA’s
purpose of strengthening credit access
for a bank’s communities, including
low- and moderate-income
communities, such as loans and
investments that support specified
mission-driven financial institutions.
To promote greater consistency and
transparency in the evaluation
approach, the agencies noted in the NPR
that they would consider whether a
bank’s community development loans
and investments met the impact factors
defined in proposed § ll.15,1181 based
on information provided by the bank,
local community data, community
feedback, and other performance
context information.
Given the current lack of data to set
thresholds, the agencies proposed that
this process initially would be
qualitative in nature. Specifically, the
agencies explained in the proposed rule
that they would consider a bank’s
community development loans and
investments that meet each impact
factor but would not use multipliers or
specific thresholds to directly tie the
1181 Id.
PO 00000
Frm 00403
Fmt 4701
Sfmt 4700
6975
impact review factors to specific
conclusions. Under the proposed rule, a
more significant volume of community
development loans and investments that
align with the impact review factors
would positively affect conclusions. In
the proposed rule, the agencies
indicated that after banks report and the
agencies analyze additional community
development lending and investment
data, the agencies could consider
whether the agencies should implement
additional approaches, such as
quantitative measures, to evaluate
impact and responsiveness.
Comments Received
Impact and responsiveness review, in
general. The agencies received several
comments on the inclusion of an impact
review in the Community Development
Financing Test. Certain commenters
supported this aspect of the proposed
rule; however, other commenters
expressed concerns, in particular with
the lack of clarity regarding its
application as discussed further in the
section-by-section analysis of § ll.15.
Specifically, a few commenters stated
that the proposal’s incorporation of an
impact and responsiveness review in
the Community Development Financing
Test would encourage high-quality
community development loans and
investments. A commenter stated that
the impact review should expressly
incorporate the actual quality of a
community development loan or
investment, rather than a simple
categorical assessment. This commenter,
as well as another, stated that the
agencies should use the impact review
to uplift impactful or innovative smalldollar activities that banks might
otherwise perceive as too risky,
complex, or small to pursue.
Other commenters expressed
concerns with the lack of clarity on how
the impact review would affect
conclusions. For example, certain
commenters stated that it was unclear
how the agencies would apply the
impact review and whether the impact
and responsiveness factors would have
enough of an effect on banks’ actions to
mitigate disincentives created by the
proposed Community Development
Financing Test. Another commenter
supported greater transparency in the
impact review and generally more
transparency in the methodologies and
considerations used by examiners in
forming performance context, as well as
some of the justifications banks provide
to support the inclusion of community
development loans and investments in
their Community Development
Financing Test evaluation.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6976
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Weighting of the Metrics and
Benchmarks and the Impact and
Responsiveness Review Components.
The proposal asked what approaches
would enhance the clarity and
consistency for assigning conclusions
under the Community Development
Financing Test, such as assigning
separate conclusions for the metric and
benchmarks component and the impact
review component. The agencies also
sought feedback from commenters
regarding the appropriate weighting for
each of these components. The agencies
asked, for example, if they should
weight both components equally or
weight the metric and benchmarks
component more than the impact review
component.
In response to these questions,
commenters provided varying views on
the appropriate weighting of the metrics
and benchmarks and the impact review
components of the Community
Development Financing Test. A few
commenters advocated for weighting
one component more than the other.
Certain commenters stated that the
agencies should give significant weight
to the impact review component. One of
these commenters stated that, in
general, the impact review component
should carry the most weight because
smaller investments have an outsized
impact and should carry more weight
than higher dollar investments that have
materially less impact. In contrast,
certain commenters favored weighting
the metrics and benchmarks component
more, with a commenter stating that a
higher weight for the metrics and
benchmarks component would ensure
banks conduct reasonable amounts of
community development lending and
investments while still providing
qualitative consideration.
Some commenters suggested specific
weighting for the metrics and
benchmarks and the impact review
components of the Community
Development Financing Test. A few
commenters supported a weight of 60
percent for the metrics and benchmarks
component and 40 percent for the
impact review component, explaining
that assigning more weight to the
metrics and benchmarks ensures a
minimal level of community
development financing activity in each
assessment area. At least one of these
commenters, however, stated that the
agencies should also consider the
provision of small dollar, high impact
financing that can be more responsive to
community needs. Another commenter
stated that it would support a slightly
heavier weight for the metrics and
benchmarks component, of between 55
to 75 percent, and a lower weight for the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
impact review component, of between
25 to 45 percent.
Alternatively, certain commenters
supported a more flexible approach,
with one commenter recommending
that the agencies, rather than assigning
separate conclusions for the metric and
benchmarks and the impact review
components, consider using them to
assess performance trends or patterns
across banks. Nonetheless, the
commenter stated that, if the agencies
derive separate conclusions for these
components, they could weight each
component and then reduce or increase
the overall bank performance score
based on the outcome.
Impact review metrics. The agencies
also sought feedback on whether they
should consider publishing standard
metrics in performance evaluations,
such as the percentage of a bank’s
activities that meet one or more impact
criteria. Commenters expressed different
views on incorporating performance
standards into the impact review.
Certain commenters supported
developing standards or metrics for the
impact review. For example, a
commenter suggested that developing
metrics for the impact review would
provide greater consistency and
transparency. Another commenter
stated that the agencies should consider
both the dollar volume and number of
activities in an impact review metric to
give credit to small-scale loans and
investments. Other commenters agreed
with adding metrics to the impact
review, noting that, as currently
constructed, the impact review could
lead to the inconsistent or careless
application of examiner discretion. At
least one of the commenters that
supported the inclusion of impact
metrics expressed concern about how
these metrics would be designed.1182
The commenter believes that without
additional data, it is infeasible to
develop an effective model to measure
the responsiveness of impactful
activities or to incorporate the impact
factors into the quantitative Community
Development Financing Test. Once
additional data are collected, the
commenter supports ultimately
publishing standard metrics outlining
the percentage of a bank’s activity that
meet an impact factor, as well as
additional relevant qualitative data.
A few commenters provided
suggestions for an impact review metric.
Specifically, commenters suggested that
the agencies could improve the impact
1182 Another commenter strongly encouraged the
agencies to commit to additional public engagement
around the impact and responsiveness factors as
community development lending and investment
data are collected over the coming years.
PO 00000
Frm 00404
Fmt 4701
Sfmt 4700
review by: (1) including a metric based
on the percentage of a bank’s
community development loans and
investments that meet one or more of
the specific impact factors;1183 (2)
adding a score, rating, and weight to the
review as part of the Community
Development Financing Test; or (3)
adding a quantitative measure of
community development financing in
persistent poverty counties and counties
with low levels of finance and including
the percentage of activities that involved
collaboration and partnerships with
public agencies and community-based
organizations.
A few commenters shared views on
how the agencies should count activities
with MDIs, WDIs, LICUs, and CDFIs as
part of a bank’s CRA evaluation. For
example, although not phrased as a
metric for the impact review, a few
commenters recommended that a
‘‘multiplier’’ be applied to activities
with CDFIs and MDIs, with an
additional commenter recommending
that additional multiplier consideration
be considered for MDIs that are
CDFIs.1184 Certain commenters also
recommended that the final rule tie
activities with CDFIs, MDIs, WDIs,
LICUs, and variations of these entities to
banks receiving an ‘‘Outstanding’’
rating.
On the other hand, certain
commenters expressed reservations with
adding metrics to the impact review. A
commenter suggested that metrics alone
do not tell the complete story of a bank’s
CRA efforts and recommended that the
agencies retain performance context in
some capacity in evaluating a bank’s
performance. Another commenter noted
that the need for greater clarity and
consistency should be balanced with
examiner discretion and formal metrics
could lead to unintentional credit
allocation. The commenter noted that
the risk of government credit allocation
was a central concern of the CRA
authors and plays a prominent role in
the legislative history of the statute.
Other commenters offered additional
suggestions for how to encourage greater
consistency and clarity in the impact
1183 The commenter also stated that a system for
weighting specific impact and responsiveness
review factors and assigning points could be
developed over time as more data become available
to add more rigor and clarity to the impact and
responsiveness review component.
1184 Certain commenters also recommended that
the final rule tie activities with CDFIs, MDIs, WDIs,
LICUs, or variations of these entities to banks
receiving an ‘‘Outstanding’’ rating. The agencies
note that community development activities with
these entities are included as impact and
responsiveness review factors under final § ll.15.
See the section-by-section analysis of § ll.15 for
additional information.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
review. A commenter suggested that the
agencies consider how the CDFI Fund
and CDFIs conduct impact reviews and
determine if they should replicate these
reviews for CRA examinations. The
commenter also recommended that the
agencies conduct a review of examiners
to determine how equitable and
consistent they are at reviewing for
community development impact.
Final Rule
The agencies considered the
comments on the proposed impact
review as it applies to the Community
Development Financing Test and are
finalizing the test to include this
component as proposed with technical
revisions, including renaming the
component ‘‘the impact and
responsiveness review’’ as discussed in
the section-by-section analysis of
§ ll.15. As such, under the final rule,
the impact and responsiveness review
component will be a qualitative
assessment applied by examiners and
considered in conjunction with the
metric and benchmarks component.
Further, as discussed in the section-bysection analysis of § ll.15, the
agencies determined it was not
appropriate to add a score, or to
establish metrics or a weighting
framework for this component of the
Community Development Financing
Test at this time. However, as noted in
the NPR, a more significant volume of
community development loans and
investments that align with the impact
and responsiveness review factors will
positively affect conclusions.
Under the final rule, the appropriate
Federal financial supervisory agency
will review the impact and
responsiveness of the bank’s community
development loans and community
development investments that benefit or
serve a facility-based assessment area, as
provided in final § ll.15. The final
rule includes the impact and
responsiveness component as a separate
paragraph to make clear that this
component is distinct from the metrics
and benchmarks component. Further,
the agencies consider the impact and
responsiveness review to be one
component of a comprehensive
evaluation, with metrics, benchmarks,
and impact and responsiveness reviews
considered holistically in developing a
performance conclusion.
As discussed above, one of the
agencies’ objectives in issuing the NPR
was to provide greater clarity and
consistency in the application of the
regulations. The agencies believe that
providing a list of impact and
responsiveness factors in final § ll.15
is a strong first step in that direction. As
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
discussed in the section-by-section
analysis of § ll.15, the approach of
identifying specific factors in
§ ll.15(b) will result in a more
standardized qualitative evaluation
relative to current practice. In addition,
this approach is intended to foster
transparency by providing the categories
the agencies will consistently review in
considering the impact and
responsiveness of a bank’s community
development activities. The final rule’s
impact and responsiveness review
draws on decades of supervisory
experience in applying the qualitative
performance criteria in the current rule.
Based on that experience, the agencies
identified the factors that, in general,
indicate that a particular loan or
investment not only has a community
development purpose as required under
final § ll.13, but is likely to be
especially effective in helping to meet
community needs associated with that
community development purpose.
Although the agencies considered
commenters’ concerns about, and
recommendations for, clarifying the
application of the impact and
responsiveness review, the current data
limitations preclude introducing a
score, additional standards, metrics, or
weights into the rule at this time. In the
absence of data, the agencies cannot
assess the overall extent to which banks
are engaging in impactful or responsive
community development loans and
investments. Further, given the lack of
available data, the agencies do not have
insight into: whether it is reasonable for
banks to engage in limited impactful or
responsive community development
loans or investments; whether it is the
dollar volume or number of impactful or
responsive loans and investments that is
most relevant; or whether there are
other criteria that the agencies should
consider in evaluating the impact and
responsiveness of a bank’s community
development loans and investments, as
an assessment of the level of impact or
responsiveness of a community
development loan or investment. Under
final § ll.42, large banks will be
required to collect, maintain, and report
information related to the impact and
responsiveness factors, which will
provide the agencies with useful data
going forward.1185
Nonetheless, the agencies believe that
some of the suggestions provided by
commenters would be useful to
examiners in their consideration of the
impact and responsiveness of a bank’s
community development loans and
investments. To that end, the agencies
will consider issuing guidance for
1185 See
PO 00000
final § ll.42(a)(5)(ii)(C) and (b)(2).
Frm 00405
Fmt 4701
Sfmt 4700
6977
examiners to help improve clarity
regarding the application of the impact
and responsiveness review component
in the near term. The agencies anticipate
that guidance might include examples
of criteria that examiners could consider
in evaluating the impact and
responsiveness of a bank’s community
development loans and investments,
including: (1) the percentage of a bank’s
community development loans and
investments that meet one or more
impact and responsiveness factors; (2)
the dollar volume and number of
community development loans that
meet one or more impact and
responsiveness factors; and (3) reasons
for providing more or less weight to the
impact and responsiveness component
of the Community Development
Financing Test. Further, the agencies
note that adding metrics, weighting for
the metrics and benchmarks and impact
and responsiveness components, points
for conclusions, or other mechanisms to
improve clarity could be considered in
a future rulemaking once data are
collected and analyzed, which would
provide an opportunity for additional
public engagement on this topic.
Section ll.24(b) and (f) Facility-Based
Assessment Area Conclusions
Under the current rule, and as
discussed in greater detail in the
section-by-section analysis of § ll.28,
the agencies conclude on banks’
performance for each performance test
or standard in each MSA and
nonmetropolitan portion of each State
with an assessment area.1186
The Agencies’ Proposal
The agencies proposed to assign a
Community Development Financing
Test conclusion in a facility-based
assessment area by considering the Bank
Assessment Area Community
Development Financing Metric relative
to the local and national benchmarks, in
conjunction with the impact review of
the bank’s activities.1187 Based on an
assessment of these factors, the bank
would receive a conclusion of
‘‘Outstanding,’’ ‘‘High Satisfactory,’’
‘‘Low Satisfactory,’’ ‘‘Needs to
Improve,’’ or ‘‘Substantial
Noncompliance’’ in each facility-based
assessment area.
The agencies also considered
approaches that would automatically
combine the metric, benchmarks, and
impact review to assign conclusions in
a standardized way. However, as
1186 See e.g., Interagency Large Institution CRA
Examination Procedures (April 2014).
1187 See proposed §§ ll.24(d) and ll.28 and
proposed appendix C, paragraph d.
E:\FR\FM\01FER2.SGM
01FER2
6978
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
discussed above in the section-bysection analysis of § ll.24(a), the
community development financing data
that are currently available are not
sufficient to determine an approach that
includes specific thresholds and
weights for different components.
Instead, the agencies explained in the
proposed rule that the approach for
combining these standardized factors
would initially rely on examiners’
judgment. The agencies further
explained that analysis of community
development data collected under a new
rule eventually may allow for
developing additional quantitative
procedures for developing conclusions.
Comments Received
As explained above, the agencies
received numerous comments
suggesting that they include additional
standards, thresholds, or other
mechanisms in the Community
Development Financing Test that would
allow for greater standardization in
concluding on performance under the
Community Development Financing
Test. Several commenters also provided
feedback on the agencies’ proposal to
include quantitative and qualitative
components in the proposed
Community Development Financing
Test. Certain commenters supported
inclusion of both quantitative and
qualitative components. Further, a
commenter stated that it hopes that a
metrics-based approach will not
overshadow qualitative aspects of bank
community development lending and
investments.1188
ddrumheller on DSK120RN23PROD with RULES2
Final Rule
The agencies are finalizing the
conclusion provision for facility-based
assessment area performance under the
Community Development Financing
Test as proposed with technical and
clarifying revisions. The agencies
addressed the comments related to the
rigor of the Community Development
Financing Test, including the extent to
which it should be quantitative or
qualitative in design above in the
section-by-section analysis of
§ ll.24(a). Further, as discussed
above, the agencies determined that the
Community Development Financing
Test should remain a qualitative
evaluation informed by standardized
metrics and benchmarks, as well as an
impact and responsiveness review with
standardized factors, to improve
1188 Other comments related to the assignment of
conclusions under the applicable performance tests
are addressed in the section-by-section analysis of
§ ll.28.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
consistency across banks and the
agencies.
Final § ll.24(f)(1), therefore,
provides that, pursuant to § ll.28 and
appendix C, the appropriate Federal
financial supervisory agency assigns
conclusions for a bank’s Community
Development Financing Test
performance in each facility-based
assessment area. Consistent with the
other performance tests in the final rule,
final § ll.24(f) clarifies that in
assigning conclusions under the
Community Development Financing
Test, the agency may consider
performance context information as
provided in § ll.21(d) to make clear
that performance context remains an
important part of examiners’ evaluation
of community development financing
performance.
Section ll.24(c) State Community
Development Financing Evaluation
Current Approach
As discussed above, the current rule
considers community development
loans and investments that serve a
bank’s assessment areas or the broader
statewide or regional areas that include
a bank’s assessment areas. The agencies
base statewide community development
performance, in part, on consideration
of community development loans and
investments in: (1) the bank’s
assessment areas in the State; and (2) a
broader statewide or regional area that
includes the bank’s assessment areas in
the State and that support organizations
or activities with a purpose, mandate, or
function that includes serving
individuals or geographies in the bank’s
assessment areas. For banks that have
been responsive to the needs of their
assessment areas, the agencies will also
consider any community development
loans and community development
investments in the broader statewide or
regional area that includes the
institution’s assessment areas in the
State but that do not: (1) directly benefit
an assessment area in the state; or (2)
support organizations or activities with
a purpose, mandate, or function that
includes serving geographies or
individuals located within the bank’s
assessment area.1189
The Agencies’ Proposal
To evaluate a bank’s State community
development financing performance, the
agencies proposed in § ll.24(c)(2) and
section 15 of appendix B to consider a
weighted average of the bank’s
performance in facility-based
assessment areas within a State, as well
1189 See
PO 00000
Q&A § ll.12(h)–6.
Frm 00406
Fmt 4701
Sfmt 4700
as the bank’s performance on a
statewide basis, via a statewide score.
The statewide score would account for
the totality of the bank’s community
development loans and investments in
the State—combining community
development loans and investments that
are inside and outside of facility-based
assessment areas—relative to the bank’s
total deposits across the State. The
agencies believed the combination of
these two components would emphasize
facility-based assessment area
performance, while still allowing banks
the option to conduct and receive
consideration for community
development loans and investments
outside of facility-based assessment
areas in the State.
Weighted average of facility-based
assessment area performance. The
agencies proposed averaging a bank’s
Community Development Financing
Test conclusions across its facility-based
assessment areas in each State, as one
component of the bank’s Community
Development Financing Test conclusion
at the State level.1190 The conclusion
assigned to each facility-based
assessment area would be mapped to a
point value, consistent with the
approach explained for assigning Retail
Lending Test conclusions:
‘‘Outstanding’’ (10 points); ‘‘High
Satisfactory’’ (7 points); ‘‘Low
Satisfactory’’ (6 points); ‘‘Needs to
Improve’’ (3 points); ‘‘Substantial
Noncompliance’’ (0 points).1191 The
proposed resulting score for each
facility-based assessment area would be
assigned a weight, calculated as the
average of the percentage of retail loans,
and the percentage of deposits
associated with the facility-based
assessment area (both measured in
dollars), out of all of the bank’s retail
loans, as defined in the proposal, and
deposits in facility-based assessment
areas in the State.1192 Similar to the
proposed weighting approach for
assigning Retail Lending Test
conclusions, the agencies would base
deposits on collected and maintained
deposits data for banks that collect this
data, and on the FDIC’s Summary of
Deposits data for banks that do not
collect deposits data pursuant to this
rule.1193 Using these weights and scores,
the agencies would calculate the
weighted average of the facility-based
assessment area scores as one
1190 See proposed § ll.24(c)(2)(i) and proposed
appendix B, sections 15 and 16.
1191 See the section-by-section analysis of
§ ll.22(h) for discussion of the point scale.
1192 See proposed appendix B, section 7.
1193 See proposed appendix B, section 5.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
component to determine the State
conclusion.1194
The agencies believed the proposed
approach would ensure that they
incorporated performance in all facilitybased assessment areas into the State
conclusion, proportionate to the bank’s
amount of business activity in each
facility-based assessment area. The
agencies further believed that
incorporating conclusions for all
facility-based assessment areas into the
State conclusion would create a clear
emphasis on facility-based assessment
area performance, including smaller
markets.
The agencies proposed that examiners
would also assign a statewide score for
each State in which a bank delineates a
facility-based assessment area that the
agencies did not consider as part of a
multistate MSA score.1195 Under the
proposal, the statewide score would be
assigned after considering the bank’s
Bank State Community Development
Financing Metric, the State Community
Development Financing Benchmark,
and a statewide impact review.
Bank State Community Development
Financing Metric. The agencies
proposed in § ll.24(c)(2)(ii)(A) and
section 5 of appendix B that they would
calculate the Bank State Community
Development Financing Metric using
the same formula as the Bank
Assessment Area Community
CD loans+CD investments ($200,000)
6979
Development Financing Metric and
would include all of a bank’s
community development loans and
investments and deposits in the State
without distinguishing between those
inside or outside of the bank’s facilitybased assessment areas.
For example, the agencies proposed
that if a bank conducted an annual
average of $200,000 in qualifying
community development loans and
investments and had an annual average
of $10 million in deposits associated
with a State during an evaluation
period, the Bank State Community
Development Financing Metric for that
evaluation period would be 2.0 percent.
=
deposits ($10,000,000)
The inclusion of all community
development loans and investments and
deposits in the State evaluation
reflected the agencies’ expectation that
a bank should conduct a volume of
community development loans and
investments commensurate with its total
capacity in a State. Therefore, the
agencies explained in the proposed rule
that the proposed metric would provide
the option for, but would not require,
banks to conduct and receive
consideration for community
development loans and investments
outside of facility-based assessment
areas, but within the States that include
those facility-based assessment areas.
The proposed metric did not distinguish
between community development loans
and investments conducted inside and
outside a facility-based assessment area.
However, if a bank was unable to
conduct sufficient community
development loans and investments
within facility-based assessment areas
due to lack of opportunity or high
competition, the proposed metric
permitted the bank to receive
consideration for community
development loans and investments
conducted within the State but outside
of facility-based assessment areas.
State Community Development
Financing Benchmarks. Similar to the
facility-based assessment area approach
described above, the agencies proposed
1194 See proposed § ll.24(c)(2)(i) and proposed
appendix B, sections 15 and 16.
1195 See proposed § ll.24(c)(2)(ii) and proposed
appendix B, section 15.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
establishing benchmarks that would
allow examiners to compare a bank’s
performance to other banks in
comparable areas. The proposed
benchmarks included: (1) a statewide
benchmark called the State Community
Development Financing Benchmark; 1196
and (2) a benchmark that the proposed
rule tailored to each bank’s facilitybased assessment areas called the State
Weighted Assessment Area Community
Development Financing Benchmark.1197
The agencies intended the use of two
benchmarks to provide examiners with
additional context and points of
comparison on which to base the
statewide score. For example, for a bank
that primarily collects deposits or
conducts community development
loans and investments outside of its
facility-based assessment areas in a
State, the agencies may rely primarily
on the State Community Development
Financing Benchmark. In contrast, for a
bank that collects deposits and conducts
community development loans and
investments primarily within its
facility-based assessment areas, the
agencies may rely more heavily on the
State Weighted Assessment Area
Community Development Financing
Benchmark, which is tailored to the
bank’s facility-based assessment areas to
account for the level of competition and
available opportunities in those areas.
1196 See
proposed appendix B, section 6.
proposed appendix B, sections 7 and 17.
1198 See proposed § ll.24(c)(2)(ii)(B)(1) and
proposed appendix B, section 6.
1197 See
PO 00000
Frm 00407
Fmt 4701
Sfmt 4700
The agencies proposed that the first
benchmark, the State Community
Development Financing Benchmark,1198
would be defined similarly to the local
benchmark used for the facility-based
assessment area evaluation and it would
include all community development
loans and investments and deposits
across the entire State. Under the
proposal, the numerator would include
the dollars of community development
loans and investments by all large banks
across the State, and the denominator
would include the dollars of deposits
held by all large banks across the State.
The proposal provided that deposits in
the State would be the sum of: (1) the
annual average of deposits in counties
in the State reported by all large banks
that had assets greater than $10 billion
over the evaluation period (as reported
under proposed § ll.42); and (2) the
annual average of deposits assigned to
branches in the State by all large banks
that had assets less than or equal to $10
billion, according to the FDIC’s
Summary of Deposits data, over the
evaluation period.1199
The agencies proposed that the rule
would define the second benchmark,
the State Weighted Assessment Area
Community Development Financing
Benchmark, as the weighted average of
Assessment Area Community
Development Financing Benchmarks
across all of the bank’s facility-based
1199 See proposed § ll.24(c)(2)(ii)(B)(1) and
proposed appendix B, section 6.
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.104
ddrumheller on DSK120RN23PROD with RULES2
Bank State CommunHy Development Finandng Metric {2.0 percent)
6980
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
assessment areas in the State.1200 The
proposal weighted each local
benchmark based on the facility-based
assessment area’s percentage of retail
loans, as defined in the proposal, and
the percentage of deposits (both
measured in dollars) within the facilitybased assessment areas of the State, the
same weighting approach as described
for the weighted average of the bank’s
facility-based assessment area
conclusions.1201
The agencies proposed to evaluate the
impact and responsiveness of a bank’s
community development loans and
investments for each State at a statewide
level, using the same impact review
approach as described previously for
facility-based assessment areas.1202 The
agencies proposed that the impact
review would encompass all community
development loans and investments in a
State, including those inside and
outside of facility-based assessment
areas. Pursuant to the proposed impact
review, examiners would consider the
extent to which the bank’s community
development loans and investments met
the impact factors, based on information
provided by the bank, local community
data, community feedback, and other
performance context information.
ddrumheller on DSK120RN23PROD with RULES2
Comments Received 1203
The agencies sought feedback on the
proposal to weight a bank’s facilitybased assessment area Community
Development Financing Test
performance in States, multistate MSAs,
and the nationwide area by the average
share of loans and deposits. Most
commenters that provided feedback
supported the proposed approach.
1200 See proposed § ll.24(c)(2)(ii)(B)(2) and
proposed appendix B, sections 7 and 17.
1201 See proposed § ll.24(c)(2)(ii)(B)(2) and
proposed appendix B, sections 7 and 17.
1202 See proposed § ll.24(c)(1)(ii) and proposed
appendix B, section 15.
1203 As discussed above, commenters generally
did not distinguish between geographic areas when
discussing their views on the metrics, benchmarks,
and impact and responsiveness review in the
proposed Community Development Financing Test.
With noted exceptions, these aspects of the
performance test are similarly structured regardless
of geographic area. Therefore, in considering the
State, multistate MSA, and nationwide area
evaluation, the agencies considered the comments
on the metrics, benchmarks, and impact and
responsiveness review discussed in the section-bysection analysis of final § ll.16 and made
conforming revisions to other aspects of the final
rule as appropriate. This section and the sections
that follow, therefore, address additional comments
specific to the relevant provision of the proposed
and final rule.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
However, a commenter stated that
weighting Community Development
Financing Test performance by the
share of loans and deposits in a facilitybased assessment area may result in
larger areas disproportionately
contributing to the overall rating. The
commenter also requested that the
agencies provide clearer guidance on
how to weight performance in large
metropolitan areas, smaller
metropolitan areas, and rural counties.
Another commenter suggested that the
agencies should encourage, rather than
allow, community development lending
and investment outside of a bank’s
facility-based assessment areas by
ensuring those activities receive equal
weight in the upper-level
considerations.1204 A commenter
strongly encouraged the agencies to
integrate an impact and responsiveness
review into each level of the
Community Development Financing
Test.
Final Rule
The agencies considered the
commenters’ feedback and determined
to finalize the State Community
Development Financing Test evaluation
as proposed, including with respect to
weighting facility-based assessment area
performance, with clarifying revisions
and certain conforming edits. Under the
final rule, § ll.24(c) includes the
provisions related to the evaluation of
community development loans and
investments in a State.
After considering the comments, the
agencies are adopting a methodology to
calculate the weighted average of
facility-based assessment area
performance, which retains consistency
in the weighting of facility-based
assessment areas across the four
performance tests.1205 The agencies
based the approach in the final rule on
the proposed approach but included
conforming revisions consistent with
the revisions discussed in the section1204 By ‘‘upper-level considerations’’ the agencies
understand the commenter to be referring to the
State, multistate MSA, and nationwide area
conclusions and ratings.
1205 See the section-by-section analysis of
§ ll.22(h) for a discussion of the weighting
methodology based on deposits and a combination
of loan count and loan amount. The weighting
methodology applies to the weighted average of
facility-based assessment area performance
conclusions in a State (final § ll.24(c)(1)), and the
State Weighted Assessment Area Community
Development Financing Benchmark (final
§ ll.24(c)(2)(ii)(B)).
PO 00000
Frm 00408
Fmt 4701
Sfmt 4700
by-section analysis of § ll.22(h) and
appendix A. The agencies considered
the comments that expressed concerns
related to the proposed weighting
methodology, particularly as those
comments relate to the revised
weighting methodology in the final rule.
The agencies continue to believe that
promoting internal consistency with
respect to the Retail Lending Test is
appropriate and that limiting variation
in weighting methodologies limits
unnecessary complexity and ensures
that the agencies consider community
development loans and investments in
the geographic areas where banks are
operating.
Under § ll.24(c) of the final rule,
the appropriate Federal financial
supervisory agency will evaluate a
bank’s community development
financing performance in a State,
pursuant to final §§ ll.19 and
ll.28(c), using two components. Final
§ ll.24(c) also provides that the
agency will assign a conclusion for each
State based on a weighted combination
of those components. The agencies
added a cross reference to § ll.19 for
clarity and to improve consistency with
final § ll.25. Under the final rule, the
agencies clarified in final § ll.28(c)
the scope of State and multistate MSA
evaluations based on where the agencies
conclude on performance.1206
Component one is the weighted
average of facility-based assessment area
performance conclusions in a State.1207
Under this component, the appropriate
agency considers the weighted average
of a bank’s Community Development
Financing Test conclusions for its
facility-based assessment areas within a
State, pursuant to section IV of
appendix B. This section of appendix B
provides that the agency calculates
component one of the combined
performance score, as set forth in
paragraph II.p.2.i of final appendix B,
for the Community Development
Financing Test in final § ll.24 1208 in
each State by translating the Community
Development Financing Test
conclusions for facility-based
assessment areas into numerical
performance scores consistent with the
table below.
1206 See the section-by-section analysis of
§ ll.28.
1207 See final § ll.24(c)(1).
1208 Final appendix B, section IV, also applies to
the Community Development Services Test in final
§ ll.25.
E:\FR\FM\01FER2.SGM
01FER2
6981
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Table 43 of§ _.24: Translation of Community Development Financing Test Conclusion in
Performance Scores
Conclusion
Performance Score
Outstanding
10
High Satisfactory
7
Low Satisfactory
6
Needs to Improve
3
Substantial Noncompliance
0
1209 Under the final rule, for a bank that reports
deposits data pursuant to final § ll.42(b)(3), the
bank’s annual dollar volume of deposits in a
facility-based assessment area is the total of annual
average daily balances of deposits reported by the
bank in counties in the facility-based assessment
area for that year. Further, for a bank that does not
report deposits data pursuant to final
§ ll.42(b)(3), the bank’s annual dollar volume of
deposits in a facility-based assessment area is the
total of deposits assigned to facilities reported by
the bank in the facility-based assessment area in the
FDIC’s Summary of Deposits for that year.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
(2) The ratio measuring the share of
the bank’s loans in a facility-based
assessment area, based on the
combination of loan dollars and loan
count, as defined in § ll.12,
calculated by dividing:
(a) the bank’s closed-end home
mortgage loans, small business loans,
small farm loans, and, if a product line
for the bank, automobile loans in the
facility-based assessment area originated
or purchased during the evaluation
period; by
(b) the bank’s closed-end home
mortgage loans, small business loans,
small farm loans, and, if a product line
for the bank, automobile loans in all
facility-based assessment areas in the
State originated or purchased during the
evaluation period.1210
Component two of the final rule’s
State evaluation is State performance.
Under component two, the appropriate
Federal financial supervisory agency
considers a bank’s community
development financing performance in a
State using the State metric and
benchmarks and a review of the impact
and responsiveness of the bank’s
community development loans and
investments.1211 Specifically, the
agency will consider the Bank State
1210 Final appendix B, section IV, also applies to
the multistate MSA and nationwide area
evaluations as provided in final § ll.24(d) and (e).
1211 For a discussion of the final impact and
responsiveness review in the Community
Development Financing Test, see the section-bysection analysis of § ll.24(b)(3), (c)(2)(iii),
(d)(2)(iii), (e)(2)(v).
PO 00000
Frm 00409
Fmt 4701
Sfmt 4700
Community Development Financing
Metric, calculated pursuant to
paragraph II.d of appendix B,1212
compared to the (1) State Community
Development Financing Benchmark,
calculated pursuant to paragraph II.e of
appendix B 1213 and (2) State Weighted
Assessment Area Community
Development Financing Benchmark,
calculated pursuant to paragraph II.f of
appendix B. In addition, the agency will
consider the impact and responsiveness
review of the bank’s community
development loans and investments
within the State as part of component
two.1214
The agencies made conforming edits
to the Bank State Community
Development Financing Metric and
State Community Development
Financing Benchmark and related
sections of final appendix B consistent
with the changes made to the similar
metric and benchmarks applicable in
facility-based assessment areas. The
agencies also clarified, for purposes of
calculating the State metrics and
benchmarks, when community
development loans, community
development investments, and deposits
in a bank are included in the State-level
metric and benchmark calculations by
cross referencing final § ll.28(c).1215
final § ll.24(c)(2)(i).
final § ll.24(c)(2)(ii)(A).
1214 See final § ll.24(c)(2).
1215 Whether the agencies include community
development loans and investments in the State
1212 See
1213 See
E:\FR\FM\01FER2.SGM
Continued
01FER2
ER01FE24.056
ddrumheller on DSK120RN23PROD with RULES2
Section IV of final appendix B
provides that the appropriate Federal
financial supervisory agency calculates
the weighted average of facility-based
assessment area performance scores for
a State. To determine the weighted
average for a State, the agency considers
facility-based assessment areas in the
State pursuant to final § ll.28(c).
Under the final rule, each facilitybased assessment area performance
score is weighted by the average the
following two ratios:
(1) The ratio measuring the share of
the bank’s deposits in the facility-based
assessment area, calculated by:
(a) summing, over the years in the
evaluation period, the bank’s annual
dollar volume of deposits 1209 in the
facility-based assessment area;
(b) summing, over the years in the
evaluation period, the bank’s annual
dollar volume of deposits in all facilitybased assessment areas in the State; and
(c) dividing the result of the first
calculation by the result of the second
calculation; and
6982
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
The agencies also made clarifying and
conforming edits to the State Weighted
Assessment Area Community
Development Financing Benchmark to
simplify the description, to make it
easier to understand, and to promote
consistency in the weighting
methodology across performance tests.
Under the final rule, the State Weighted
Assessment Area Community
Development Financing Benchmark is
the weighted average of the bank’s
Assessment Area Community
Development Financing Benchmarks for
each facility-based assessment area
within the State, calculated pursuant to
paragraph II.f of final appendix B. The
appropriate Federal financial
supervisory agency calculates the final
State Weighted Assessment Area
Community Development Financing
Benchmark by averaging all of the
bank’s Assessment Area Community
Development Financing
Benchmarks 1216 in a State for the
evaluation period, after weighting each
pursuant to paragraph II.o of final
appendix B.
Under final paragraph II.o of final
appendix B, for State evaluations, the
appropriate agency calculates the
weighted average of Assessment Area
Community Development Financing
Benchmarks for a bank’s facility-based
assessment areas in each State by
considering the facility-based
assessment areas in a State pursuant to
final § ll.28(c).
The agencies weight the Assessment
Area Community Development
Financing Benchmarks in the final rule
by the average of the following two
ratios:
(1) The ratio measuring the share of
the bank’s deposits in the facility-based
assessment area, calculated by:
(a) summing, over the years in the
evaluation period, the bank’s annual
dollar volume of deposits 1217 in the
facility-based assessment area;
(b) summing, over the years in the
evaluation period, the bank’s annual
evaluation depends on whether the bank has a
facility-based assessment area in the State and
whether the State is located in a multistate MSA.
For additional discussion, see the section-bysection analysis of § ll.28(c).
1216 See final appendix B, paragraph II.b.
1217 As provided above in the discussion of final
appendix B, section IV, for a bank that reports
deposits data pursuant to final § ll.42(b)(3), the
bank’s annual dollar volume of deposits in a
facility-based assessment area is the total of annual
average daily balances of deposits reported by the
bank in counties in the facility-based assessment
area for that year. For a bank that does not report
deposits data pursuant to final § ll.42(b)(3), the
bank’s annual dollar volume of deposits in a
facility-based assessment area is the total of
deposits assigned to facilities reported by the bank
in the facility-based assessment area in the FDIC’s
Summary of Deposits for that year.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
dollar volume of deposits in all facilitybased assessment areas in the State; and
(c) dividing the result of the
calculation in (a) by the result of the
calculation in (b); and
(2) The ratio measuring the share of
the bank’s loans in a facility-based
assessment area, based on the
combination of loan dollars and loan
count, as defined in § ll.12,
calculated by dividing:
(a) the bank’s closed-end home
mortgage loans, small business loans,
small farm loans, and, if a product line
for the bank, automobile loans in the
facility-based assessment area originated
or purchased during the evaluation
period; by
(b) the bank’s closed-end home
mortgage loans, small business loans,
small farm loans, and, if a product line
for the bank, automobile loans in all
facility-based assessment areas in the
State originated or purchased during the
evaluation period.
The agencies are also adopting the
impact and responsiveness review as
part of component two of the State
evaluation as proposed with clarifying
and conforming revisions discussed in
the section-by-section analysis of
§§ ll.15 and ll.24(b)(3). In response
to the commenters’ questions, the
agencies note that, under the proposed
and final Community Development
Financing Test, the agencies would
apply the impact and responsiveness
review to the evaluation of community
development loans and investment for
all geographic levels.1218 The agencies
believe that it is appropriate to consider
the impact and responsiveness at all
geographic levels because it ensures that
impactful or responsive community
development loans and investments
conducted outside of a bank’s facilitybased assessment areas are considered.
Further, given the weighting
methodology for the State, multistate
MSA, and nationwide area performance
scores, the agencies consider a portion
of the impact and responsiveness of a
community development loan or
investment conducted in a facility-based
assessment area in the weighted average
of facility-based assessment area
performance and a portion is considered
in the State.1219
1218 See final § ll.24(c)(2)(iii), (d)(2)(iii), and
(e)(2)(v).
1219 Under the final rule, the same is true for the
consideration of the impact and responsiveness
review under the multistate evaluation in final
§ ll.24(d) and nationwide area evaluation in final
§ ll.24(e).
PO 00000
Frm 00410
Fmt 4701
Sfmt 4700
Section ll.24(c) and (f) State
Performance Score and Conclusion
Assignment (and Paragraph II.p of
Appendix B)
The Agencies’ Proposal
The agencies proposed to assign
statewide Community Development
Financing Test conclusions, as
applicable.1220 Section 15 of proposed
appendix B provided that statewide
conclusions would reflect two
components, with weights on both
components tailored to reflect the
bank’s business model, which would
result in a state performance score for
the applicable State. Pursuant to the
proposal, the two components were: (1)
the bank’s weighted average assessment
area performance score; and (2) the
bank’s statewide score. The agencies
proposed in section 15 of appendix B
that they would assign a statewide score
corresponding to the conclusion
categories described above:
‘‘Outstanding’’ (10 points); ‘‘High
Satisfactory’’ (7 points); ‘‘Low
Satisfactory’’ (6 points); ‘‘Needs to
Improve’’ (3 points); ‘‘Substantial
Noncompliance’’ (0 points). The
statewide score would reflect a
comparison of the Bank State
Community Development Financing
Metric to the state community
development financing benchmark and
the state weighted average community
development financing benchmark, as
well as the impact review of the bank’s
activities.
Under the proposal, the amount of
weight that the agencies would apply to
the facility-based assessment area
performance and to the statewide
performance would depend on the
bank’s percentage of deposits (based on
collected deposits data and on the
FDIC’s Summary of Deposits data, as
applicable) and retail loans, as defined
in the proposal.1221
The agencies proposed to tailor the
weighting of the average assessment
area performance and the statewide
score to the individual bank’s business
model, while still preserving the option
for every bank to be meaningfully
credited for activities outside of its
facility-based assessment areas.1222 For
a bank that does most of its retail
lending and deposit collection within
its facility-based assessment areas, for
example, the agencies viewed those
facility-based assessment areas as the
primary community a bank serves. The
1220 See proposed §§ ll.24(d) and ll.28,
proposed appendix B, section 15, and proposed
appendix C, paragraph d.
1221 See proposed appendix B, section 15.
1222 Id.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
agencies therefore believed the average
facility-based assessment area
performance deserved a larger portion of
the weight in the combined state
performance score.
To ensure that the agencies also
meaningfully credited any community
development loans and investments a
bank undertakes outside of its facilitybased assessment areas, the agencies
proposed to give equal weight to the
average assessment area performance
and statewide score for banks whose
business model is strongly branchbased.1223 Because community
development loans and investments that
serve facility-based assessment areas
would contribute both to the statewide
score as well as in the weighted average
of facility-based assessment area
conclusions, equally weighting these
two components effectively would give
greater weight to assessment area
performance while still meaningfully
considering those community
development loans and investments that
banks conduct outside of their facilitybased assessment areas.
On the other end, for banks with retail
lending and deposit collection that
occurs almost entirely outside of the
bank’s facility-based assessment areas
(such as primarily online lenders), the
agencies believed those assessment
areas largely do not represent the entire
community the bank serves. The
agencies, therefore, proposed to weight
the statewide score more heavily than
the weighted average assessment area
performance score for such a bank.1224
The agencies also proposed that banks
with business models in between these
two ends would use weights that are
correspondingly in between.
Specifically, to determine the relative
weighting as described in Table 45, the
agencies proposed to use the simple
average of: (1) the percentage of a bank’s
retail loans in a State, by dollar volume,
that the bank made in its facility-based
assessment areas in that State, and (2)
the percentage of a bank’s deposits from
a State, by dollar volume, that the bank
sourced from its facility-based
assessment areas in that State.
The agencies further proposed that
banks that have a low percentage of
deposits and retail loans within their
facility-based assessment areas would
have a greater emphasis placed on their
statewide performance compared to the
weighted average of their facility-based
assessment area performance.1225
Conversely, the agencies would place
more equal weight on statewide
1223 Id.
1224 Id.
1225 Id.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
performance and the weighted average
of facility-based assessment area
performance for banks that have a high
percentage of deposits and retail loans
within their facility-based assessment
areas. Thus, to develop the State
Community Development Financing
Test conclusion, the agencies proposed
the State performance score to be the
score that would result from averaging:
(1) the bank’s weighted average facilitybased assessment area performance
score; and (2) the bank’s statewide
score. The agencies would then round
the State performance score to the
nearest point value corresponding to a
conclusion category: ‘‘Outstanding’’ (10
points); ‘‘High Satisfactory’’ (7 points);
‘‘Low Satisfactory’’ (6 points); ‘‘Needs to
Improve’’ (3 points); ‘‘Substantial
Noncompliance’’ (0 points).
The agencies believed that taking into
account both the bank’s facility-based
assessment area performance and its
statewide performance would build off
of the current approach to considering
community development loans and
investments in broader statewide and
regional areas that include a banks’
assessment areas and aimed to achieve
a balance of objectives. First,
considering assessment area
performance encourages banks to serve
the communities where they have a
physical presence and where their
knowledge of local community
development needs and opportunities is
often strongest. Second, considering
statewide performance provides banks
the option to pursue impactful
community development opportunities
that may be located partially or entirely
outside of their facility-based
assessment areas, without requiring
them to do so. Third, because facilitybased assessment area activities are
considered in the State evaluation as
well, the proposed approach would give
greater emphasis to activities within
facility-based assessment areas than to
activities outside of assessment areas,
but the amount of weight would be
tailored to each bank’s business model
in the state. As a result, the agencies
believed the proposal would encourage
banks that are primarily branch-based to
focus on serving their facility-based
assessment areas, while banks that have
few loans and deposits in facility-based
assessment areas, such as banks that
operate primarily through online
delivery channels, would be evaluated
mostly on a statewide basis.
Under the proposal, the percentage of
deposits assigned to facility-based
assessment areas for banks that do not
collect and maintain deposits data
would always be 100 percent because
the FDIC’s Summary of Deposits data
PO 00000
Frm 00411
Fmt 4701
Sfmt 4700
6983
attributes all deposits to bank branches.
The average of the percentage of home
mortgage loans, small business loans,
and small farm loans and deposits in
facility-based assessment areas for such
a bank would, therefore, not account for
the bank’s depositors that are located
outside of its facility-based assessment
areas. In the proposal, the agencies
recognized that this would generally
result in a higher weight on the bank’s
assessment area performance score
unless the bank chooses to collect and
maintain these data.
Comments Received
Certain commenters offered
suggestions for determining Community
Development Financing Test
performance scores and conclusions. A
commenter suggested that in addition to
weighting facility-based assessment area
performance, the agencies should: (1)
set a threshold for smaller facility-based
assessment areas that requires that they
have a low satisfactory or higher rating
to ensure those facility-based
assessment areas receive sufficient
attention; and (2) require banks with 60
percent or more of their community
development loans and investments in
facility-based assessment areas to also
have a 50 percent weight for facilitybased assessment area performance.
Another commenter similarly stated that
the agencies should place more than the
proposed weight on facility-based
assessment area performance. Lastly, a
commenter stated that if a bank fails in
any of its assessment areas, it should
receive a rating of ‘‘Needs to Improve’’
or below.
Final Rule
The agencies are finalizing the
provisions for determining the State
performance score and corresponding
conclusion as proposed with certain
clarifying and conforming revisions.1226
In considering the importance of
facility-based assessment area
performance within a State, the agencies
determined that it was not appropriate
to place additional weight on
performance in facility-based
assessment areas relative to performance
outside of facility-based assessment
areas because, as discussed above: (1)
the agencies evaluate facility-based
assessment areas separately under final
§ ll.24(b); (2) the agencies consider
facility-based assessment area
community development financing
performance under component one of
the State evaluation of the Community
1226 See final § ll.24(c) and (f), and final
appendix B, paragraph II.p.
E:\FR\FM\01FER2.SGM
01FER2
6984
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Development Financing Test; 1227 and
(3) community development loans and
investments in facility-based assessment
areas are included in the Bank State
Community Development Financing
Metric. In the agencies’ view, these
three levels of consideration for
community development loans and
investments in facility-based assessment
areas provide appropriate emphasis
while still allowing banks to receive
consideration for loans and investments
outside of these areas. Further, the
agencies believe that this flexibility will
incentivize banks to engage in
community development lending and
investments in underserved areas that
may not be proximate to many bank
branches. For a bank that focuses its
community development lending and
investments on its facility-based
assessment areas, performance in
facility-based assessment areas and in
the State will be equivalent. The
agencies believe that the proposed
weighting of facility-based assessment
area performance 1228 and statewide
performance 1229 in determining State
performance scores and assigning
conclusions emphasizes the importance
of banks helping to meet the credit
needs of their facility-based assessment
areas while still permitting
consideration of community
development loans and investments
outside of those areas. As discussed in
the proposal, the agencies believe this
approach builds off the current
approach to considering community
development loans and investments in
the broader statewide and regional areas
that include a banks’ assessment areas
and aims to achieve a balance of
1227 See
final § ll.24(c)(1).
1228 Id.
ddrumheller on DSK120RN23PROD with RULES2
1229 See
final § ll.24(c)(2).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
objectives. Further, this approach
creates more certainty for banks
regarding whether they will receive
consideration for community
development loans and investments
outside of facility-based assessment
areas.
The final rule balances the objectives
of encouraging banks to serve the
communities where they have a
physical presence and where their
knowledge of local community
development needs and opportunities is
often strongest with the ability to pursue
impactful community development
opportunities that may be located
partially or entirely outside of their
facility-based assessment areas.1230 As
such, the final rule gives greater
emphasis to community development
loans and investments within facilitybased assessment areas because those
loans and investments are included in
the State performance score and tailors
the amount of weight to each bank’s
business model in the State. The
agencies believe this approach will
encourage banks that are primarily
branch-based to focus on serving their
facility-based assessment areas, while
banks that have few loans and deposits
in facility-based assessment areas, such
as banks that operate primarily through
online delivery channels, will have
greater emphasis on their statewide
community development loans and
investments.
The agencies also considered the
comments about ensuring that smaller
facility-based assessment areas receive
sufficient attention. The agencies
1230 As with the proposal, under the final rule,
banks may, but are not required to, engage in
community development lending and investment
outside of facility-based assessment areas because
loans and investments in those areas are included
in the statewide evaluation.
PO 00000
Frm 00412
Fmt 4701
Sfmt 4700
addressed this issue in the final rule
through a requirement that large banks
with a combined total of 10 or more
facility-based assessment areas and
retail lending assessment areas in any
State may not receive a rating of
‘‘Satisfactory’’ or ‘‘Outstanding’’ in the
respective State unless the bank
received an overall facility-based
assessment area or retail lending
assessment area conclusion of at least
‘‘Low Satisfactory’’ in 60 percent or
more of the total number of its facilitybased assessment areas and retail
lending assessment areas in that
State.1231
Under the final rule, the appropriate
Federal financial supervisory agency
calculates a performance score for the
State Community Development
Financing Test based on the weighted
combination of the two components,
pursuant to paragraph II.p of final
appendix B.1232 The agency then assigns
a conclusion corresponding with the
conclusion category that is nearest to
the performance score for a bank’s
performance under the Community
Development Financing Test in each
State pursuant to final § ll.28(c) as
shown in the table below.1233
1231 See the section-by-section analysis of final
§ ll.28(b)(4)(ii) and final appendix D, paragraph
g.2.ii. As discussed in final appendix D, these
requirements also apply to conclusions for
multistate MSAs and for the institution. See also
the section-by-section analysis of § ll.51 (this
requirement only applies to facility-based
assessment areas for purposes of the first evaluation
under this final rule).
1232 As provided in final appendix B, paragraph
II.p, the combined score also applies to the
multistate MSA evaluation and the nationwide
evaluation, with certain differences for the
nationwide area discussed in the section-by-section
analysis of final § ll.24(e).
1233 See final appendix B, paragraph II.p.1.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
6985
Table 44 of§ _.24: Translation of Community Development Financing Test Conclusion in
Performance Scores
Performance Score
Conclusion
8.5 or more
Outstanding
6.5 or more but less than 8.5
High Satisfactory
4.5 or more but less than 6.5
Low Satisfactory
1.5 or more but less than 4.5
Needs to Improve
Less than 1.5
Substantial Noncompliance
final appendix B, paragraph II.p.2.i.
final appendix B, paragraph II.p.2.ii.
1236 See id.
of final appendix B. For component two,
the final rule provides that for each
State, the agency determines a statewide
performance score corresponding to a
conclusion category (shown in the table
below) by considering the relevant
metric and benchmarks and a review of
the impact and responsiveness of the
bank’s community development loans
and community development
investments.1236
Using the results of components one
and two, the appropriate agency
determines a combined performance
score corresponding to a conclusion
category by taking the weighted average
of two components.1237 The two
components the agencies use to
determine weighting are: (1) the
percentage, calculated using the
1234 See
1237 See
1235 See
1238 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
final appendix B, paragraph II.p.2.iii.
final appendix B, paragraph II.p.2.iii.A.1.
Frm 00413
Fmt 4701
Sfmt 4700
combination of loan dollars and loan
count, of the bank’s total originated and
purchases closed-end home mortgage
lending, small business lending, small
farm lending, and automobile lending,
as applicable, in its facility-based
assessment areas out of all of the bank’s
originated and purchased closed-end
home mortgage lending, small business
lending, small farm lending, and
automobile lending, as applicable, in
the State during the evaluation
period; 1238 and (2) the percentage of the
total dollar volume of deposits in its
facility-based assessment areas out of all
of the deposits in the bank in the State
during the evaluation period.1239 The
weighting is calculated as provided in
the table below (see paragraph
II.p.2.iii.B of final appendix B).
1239 See final appendix B, paragraph II.p.2.iii.A.2.
For purposes of this paragraph, ‘‘deposits’’ excludes
deposits reported under final § ll.42(b)(3)(ii).
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.057
ddrumheller on DSK120RN23PROD with RULES2
Specifically, under paragraph II.p.2 of
final appendix B, the appropriate
Federal financial supervisory agency
bases the Community Development
Financing Test combined performance
score for a State on: (1) component
one—the weighted average of the bank’s
performance scores corresponding to
facility-based assessment area
conclusions in that State; 1234 and (2)
component two—the bank score for
metric and benchmark analyses and the
impact and responsiveness review.1235
For component one, the final rule
provides that the agency derives
performance scores based on a weighted
average of the performance scores
corresponding to conclusions for
facility-based assessment areas in each
State, calculated pursuant to section IV
6986
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Average of the percentage
of deposits and percentage
of loans
Weight on Component 1
Weight on Component 2
Greater than or equal to 80%
50%
50%
Greater than or equal to 60%
but less than 80%
40%
60%
Greater than or equal to 40%
but less than 60%
30%
70%
Greater than or equal to 20%
but less than 40%
20%
80%
Below20%
10%
90%
The agencies believe that a weighting
of 50 percent on the average facilitybased assessment area performance
score and 50 percent on the statewide
score is appropriate for banks whose
deposits and retail lending occurs
predominantly or entirely within their
facility-based assessment areas. As
described above, community
development loans and investments that
benefit the bank’s facility-based
assessment areas would also contribute
to the statewide score, so the agencies
believe any weighting on the statewide
score of less than 50 percent would not
provide meaningful credit for activities
that occur outside the bank’s facilitybased assessment areas. For a branchbased bank that conducts most of its
community development financing
activity within its facility-based
assessment areas, the statewide score
would largely, or entirely, reflect the
performance inside its facility-based
assessment areas. Relatedly, the
agencies also believe that a bank whose
deposits and retail lending occurs
predominantly or entirely within their
facility-based assessment areas have the
capacity to engage in community
development financing activity there,
and so a weight of less than 50 percent
on the average facility-based assessment
area performance score would also be
inappropriate.
Starting from that baseline of 50
percent weighting of the statewide score
for banks that are predominantly or
entirely focused on serving its facilitybased assessment areas, the agencies
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
believe that increasing the weight on the
statewide score proportionately with the
extent of the bank’s retail lending and
deposit taking outside of its facilitybased assessment areas appropriately
tailors the weights to individual banks’
business models. This proportionate
increase in the weight on the statewide
score is reflected in the increasing
percentages in the weight on component
2 column of Table 45 as the percentage
of the bank’s loans and deposits from
facility-based assessment areas falls. To
reduce the complexity of the rule, the
agencies are categorizing the weights
into five segments as shown in Table 45.
The weight on the statewide score grows
steadily as the percentage of the bank’s
retail loans and deposits inside its
facility-based assessment areas falls,
until banks whose retail lending and
deposit taking is predominantly or
entirely outside its facility-based
assessment areas receive a Community
Development Financing Test State
performance score based almost entirely
on their statewide score. The agencies
again note that the statewide score also
reflects performance within a bank’s
facility-based assessment areas, in
addition to community development
financing activities in other parts of the
applicable State.
The State performance score and
conclusion provisions include
conforming revisions to improve
consistency across the final rule,
including the use of the combination of
loan dollars and loan count in the
weighting methodology, conforming
PO 00000
Frm 00414
Fmt 4701
Sfmt 4700
revisions to final § ll.24(f)(1)
consistent with the revisions to the
facility-based assessment area
conclusion discussion above, and other
formatting and technical changes.
The agencies are also finalizing the
State ratings provisions in final
§ ll.24(f)(2) as proposed.
Section ll.24(d) Multistate MSA
Community Development Financing
Test Evaluation
Current Approach
The agencies currently evaluate a
bank’s performance in a multistate MSA
when the bank has a main office,
branch, or deposit-taking ATM in two or
more States in the multistate MSA. The
current approach to evaluating
community development activities in a
multistate MSA is consistent with the
process for evaluating performance in a
State, discussed above.
The Agencies’ Proposal
In § ll.24(c)(3) of the NPR, the
agencies proposed evaluating
performance under the Community
Development Financing Test in a
multistate MSA consistent with the
approach to evaluating performance in a
State. The agencies proposed to assign
Community Development Financing
Test conclusions for multistate MSAs in
which a bank has branches in two or
more states of the multistate MSA.1240
The agencies proposed to employ the
1240 See proposed §§ ll.24(d) and ll.28,
proposed appendix B, section 15, and proposed
appendix C, paragraph d.
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.058
ddrumheller on DSK120RN23PROD with RULES2
Table 45 to§ _.24: Component Weights for Combined Performance Score
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
same approach for assigning
conclusions for States to multistate
MSAs, with the same components as the
State evaluation.1241 The proposed
multistate MSA conclusion would
reflect a weighted average of facilitybased assessment area conclusions
within the multistate MSA, and would
also reflect: (1) a Bank Multistate MSA
Community Development Financing
Metric; (2) a Multistate MSA
Community Development Financing
Benchmark; (3) a Multistate MSA
Weighted Assessment Area Community
Development Financing Benchmark;
and (4) an impact review.
Comments Received
The agencies did not receive
comments that were specific to the
proposed evaluation of community
development loans and investments in
multistate MSAs.
ddrumheller on DSK120RN23PROD with RULES2
Final Rule
The agencies are finalizing the
proposed multistate MSA Community
Development Financing Test evaluation
with clarifying and conforming
revisions consistent with the State
evaluation. The agencies renumbered
proposed § ll.24(c)(3) to final
§ ll.24(d) consistent with the other
formatting revisions to final § ll.24.
Under final § ll.24(d), the appropriate
Federal financial supervisory agency
will evaluate banks’ community
development lending and investments
in multistate MSAs, pursuant to final
§§ ll.19 and ll.28(c), using the
same two components as the State
evaluation. Specifically, the agency will
evaluate a bank’s community
development financing performance in a
multistate MSA based on the: (1)
weighted average of facility-based
assessment area performance in the
multistate MSA; 1242 and (2) multistate
MSA performance.1243
Under the final rule, the appropriate
agency assigns a conclusion for a bank’s
performance in each multistate MSA, as
applicable, based on a weighted
combination of these two components
pursuant to final paragraph II.p of final
appendix B and the weighting in section
IV of appendix B of the final rule. As
noted in the proposal, the multistate
MSA Community Development
Financing Test provisions are consistent
with the State Community Development
Financing Test provisions and the
agencies made additional conforming
revisions throughout final § ll.24(d)
1241 See
proposed appendix B, section 16.
1242 See final § ll.24(d)(1).
1243 See final § ll.24(d)(2).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
and paragraphs II.g, II.h, and II.i of final
appendix B.
Section ll.24(e) Nationwide Area
Community Development Financing
Test Evaluation
Current Approach
Currently, the agencies assign
institution-level ratings for the
applicable performance tests based on a
bank’s performance in the States and
multistate MSAs where the bank has
assessment areas. Banks’ community
development loans and investments are
considered at the assessment area-,
State-, multistate MSA-, or institutionlevel depending on whether the loan or
investment has a purpose, mandate, or
function of serving an assessment area
or the broader statewide or regional
areas that include a bank’s assessment
areas.1244 The agencies also determine
the relative significance of performance
in the different States and multistate
MSAs and factor that performance into
the institution-level ratings based on: (1)
the significance of the institution’s
community development loans,
investments, and services compared to
(a) the institution’s overall activities; (b)
the number of other institutions and the
extent of their lending, investments, and
services in the relevant areas; and (c) the
lending, investment, and service
opportunities in the relevant areas; and
(2) demographic and economic
conditions in the relevant areas.1245
The Agencies’ Proposal
In proposed §§ ll.24(c) and ll.28,
section 15 of proposed appendix B, and
section d of proposed appendix C, the
agencies proposed to evaluate a bank’s
community development lending and
investments in the nationwide area and
assign Community Development
Financing Test conclusions for the
institution-level using a similar
approach to that for evaluating
performance and assigning conclusions
at the State level. The proposed
approach would use a combination of a
weighted average of facility-based
assessment area conclusions in the
nationwide area and a nationwide area
score that reflects: (1) a Bank
Nationwide Community Development
Financing Metric; (2) a Nationwide
Community Development Financing
Benchmark; (3) a Nationwide Weighted
Assessment Area Community
Development Financing Benchmark;
and (4) an impact and responsiveness
review.
1244 See, e.g., Interagency Large Institution CRA
Examination Procedures (April 2014) at appendix.
1245 See, e.g., Interagency Large Institution CRA
Examination Procedures (April 2014).
PO 00000
Frm 00415
Fmt 4701
Sfmt 4700
6987
Weighted average of facility-based
assessment area performance. The
agencies proposed, in § ll.24(c)(4)(i),
considering a weighted average of a
bank’s Community Development
Financing Test conclusions across all of
its facility-based assessment areas as
one component of the bank’s
Community Development Financing
Test institution-level conclusion.1246 As
with the State evaluation approach, the
agencies intended that this approach
would emphasize facility-based
assessment area performance by directly
linking a bank’s facility-based
assessment area conclusions to the
institution conclusion. Under the
proposal, the conclusion assigned to
each assessment area would be mapped
to a point value as follows:
‘‘Outstanding’’ (10 points); ‘‘High
Satisfactory’’ (7 points); ‘‘Low
Satisfactory’’ (6 points); ‘‘Needs to
Improve’’ (3 points); ‘‘Substantial
Noncompliance’’ (0 points). The
agencies proposed that this resulting
score for each facility-based assessment
area would be assigned a weight,
calculated as the average of the
percentage of retail loans and the
percentage of deposits of the bank
within the facility-based assessment
area (both measured in dollars), out of
all of the bank’s retail loans and
deposits in facility-based assessment
areas (based on collected deposits data
and on the FDIC’s Summary of Deposits
data, as applicable).1247 Using these
weights and scores, the agencies would
calculate the weighted average of the
facility-based assessment area scores to
determine the institution-level
performance score. The weighted
average approach would ensure that
performance in each facility-based
assessment area is incorporated into the
institution conclusion, with greater
emphasis given to the areas where a
bank has a greater business presence.
Nationwide area score. The agencies
proposed in § ll.24(c)(4)(ii) that
examiners would assign a nationwide
area score for the institution based on a
Bank Nationwide Community
Development Financing Metric, the
nationwide benchmarks, and a
nationwide impact review.
Bank Nationwide Community
Development Financing Metric. The
agencies proposed that examiners
would calculate the Bank Nationwide
Community Development Financing
Metric 1248 using the same formula for
the State metric, including all of a
bank’s community development loans
proposed § ll.24(c)(4)(i).
proposed appendix B, section 16.
1248 See proposed § ll.24(c)(4)(ii)(A).
1246 See
1247 See
E:\FR\FM\01FER2.SGM
01FER2
6988
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
and investments, and deposits in the
bank in the numerator and denominator,
respectively.
Nationwide Community Development
Financing Benchmarks. In proposed
§ ll.24(c)(4)(ii)(B), the agencies
proposed establishing benchmarks that
would allow examiners to compare a
bank’s performance to other banks in
similar areas. The proposed benchmarks
included a single nationwide
benchmark applied to all banks called
the Nationwide Community
Development Financing Benchmark and
a benchmark that was tailored to each
bank’s facility-based assessment areas
called the Nationwide Weighted
Assessment Area Community
Development Financing Benchmark.
The agencies intended the use of two
benchmarks to provide additional
context and points of comparison in
order to develop the nationwide area
score.1249
Under the proposal, the agencies
would develop the proposed nationwide
benchmarks in the same way as the
proposed statewide benchmarks. The
proposed Nationwide Community
Development Financing Benchmark
included all community development
loans and investments reported by large
banks in the numerator, and all deposits
in those banks in the denominator.
Under the proposal, the deposits in the
nationwide area would be the sum of:
(1) the annual average of deposits in
counties in the nationwide area reported
by all large banks with assets of over
$10 billion over the evaluation period
(as reported under proposed § ll.42);
and (2) the annual average of deposits
assigned to branches in the nationwide
area by all large banks with assets of $10
billion or less, according to the FDIC’s
Summary of Deposits data, over the
evaluation period.
The agencies proposed to define the
Nationwide Weighted Assessment Area
Community Development Financing
Benchmark as the weighted average of
the facility-based assessment area
community development financing
benchmarks across all of the bank’s
1249 The agencies note that the proposal included
Metropolitan and Nonmetropolitan Nationwide
Community Development Financing Benchmarks
applicable to the evaluation of community
development lending and investments in facilitybased assessment areas, described as ‘‘national
benchmarks.’’ The proposed nationwide area
Community Development Financing Test
evaluation would not use these national
benchmarks because it evaluates a bank’s
community development financing performance in
all geographic areas in the nationwide area,
irrespective of whether the banks’ community
development loans or investments are in MSAs or
nonmetropolitan areas, and factors in facility-based
assessment area performance through the weighted
assessment area benchmarks.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
facility-based assessment areas and the
agencies would weight the benchmark
based on the facility-based assessment
area’s percentage of retail loans and
percentage of deposits (both measured
in dollars) within the facility-based
assessment areas of the State using the
same weighting approach as described
for the weighted average of the bank’s
facility-based assessment area
conclusions.1250
Impact review. Similar to the
proposed State evaluation approach, the
agencies proposed in § ll.24(c)(4)(ii)
and section 15 of appendix B to evaluate
the impact and responsiveness of a
bank’s community development loans
and investments at the institution level,
using the same impact review approach
as described above for facility-based
assessment areas and States. The
agencies proposed to conduct an
institution-level impact review in order
to assess the impact and responsiveness
of all of an institution’s community
development loans and investments,
including those inside and outside of
facility-based assessment areas. The
agencies considered this to be especially
important for the evaluation of a bank
that elects to conduct community
development loans and investments that
serve areas outside of its facility-based
assessment areas, so that the impact and
responsiveness of those activities is
considered. As described above, the
agencies would consider the impact and
responsiveness of the bank’s community
development loans and investments to
community needs, and would consider
the impact review factors, among other
information.
Nationwide area score assignment. As
provided in section 15 of proposed
appendix B, the agencies proposed to
assign a nationwide area score that
reflected the bank’s overall dollar
volume of community development
loans and community development
investments and overall impact and
responsiveness of those loans and
investments, corresponding to the
conclusion categories as follows:
‘‘Outstanding’’ (10 points); ‘‘High
Satisfactory’’ (7 points); ‘‘Low
Satisfactory’’ (6 points); ‘‘Needs to
Improve’’ (3 points); ‘‘Substantial
Noncompliance’’ (0 points). This
nationwide area score would reflect a
comparison of the Bank Nationwide
Community Development Financing
Metric to the nationwide and weighted
assessment area benchmarks, as well as
the impact review of the bank’s
community development financing
activities.
1250 See
PO 00000
proposed § ll.24(c)(4)(ii)(B)(2).
Frm 00416
Fmt 4701
Sfmt 4700
Comments Received
Other than the comments discussed
above, the agencies did not receive
comments specific to the evaluation of
a bank’s community development loans
and investments in the nationwide area
or conclusions at the institution level.
However, certain comments discussed
above are relevant to these evaluations
and conclusions. Specifically, some
commenters objected to consideration of
community development lending and
investment outside of facility-based
assessment areas because they believe
that consideration of lending and
investments in broader geographic areas
is not consistent with the CRA statute’s
focus on local communities. Further, as
discussed in the section-by-section
analysis of § ll.24(a), many
commenters expressed concern with the
absence of an investment test as a
separate test or a component of the
Community Development Financing
Test overall.
Final Rule
In final § ll.24(e) (renumbered
proposed section § ll.24(c)(4)), the
agencies are finalizing the proposed
nationwide area evaluation of the
Community Development Financing
Test with certain revisions. Consistent
with the proposal, the final rule
includes two components for the
nationwide area evaluation. The first
component consists of the weighted
average of facility-based assessment area
performance in the nationwide area.
The second component consists of an
evaluation of all of the bank’s
community development lending and
investments in the nationwide area—
both inside and outside of a bank’s
facility-based assessment areas. As with
the proposal, and discussed in greater
detail below, the agencies will base
consideration of a bank’s nationwide
area performance under the second
component on a Bank Nationwide
Community Development Financing
Metric, the two nationwide community
development financing benchmarks,
and an impact and responsiveness
review with conforming revisions
consistent with the changes discussed
above related to the State and multistate
MSA Community Development
Financing Test evaluations.
The agencies continue to believe, as
discussed above, that it is appropriate to
consider community development loans
and investments outside of banks’
facility-based assessment areas. The
agencies believe that the construction of
the nationwide area evaluation puts
appropriate emphasis on banks’ lending
and investment in banks’ facility-based
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
assessment areas while also permitting
banks to help meet the credit needs of
their entire communities, particularly
underserved areas with limited bank
presence. This framework is aimed at
ensuring that banks reinvest in the
communities from which they draw
deposits while also eliminating barriers
in the current framework that have
resulted in a mismatch in the supply
and demand of community
development financing activities in
certain geographic areas.
As discussed above in the section-bysection analysis of § ll.24(a), to
respond to commenters concerns about
the potential that banks may shift away
from conducting community
development investments in favor of
community development loans, the final
rule also includes a Bank Nationwide
Community Development Investment
Metric and a Nationwide Community
Development Investment Benchmark as
part of the nationwide area performance
considerations for large banks that have
assets greater than $10 billion. In the
agencies’ view, including an investment
metric and benchmark for the
nationwide area is appropriate because
it serves as a check on the level of
banks’ overall community development
investments. The agencies determined
that including an investment metric in
the evaluation of facility-based
assessment areas, States, or multistate
MSAs may impose an incentive on
banks to make a community
development investment instead of a
community development loan solely to
perform well against the metric as
compared to the benchmark, even if that
investment was not in the best interest
of the particular community or project.
By limiting consideration of the Bank
Nationwide Community Development
Investment Metric and Nationwide
Community Development Investment
Benchmark to the nationwide area
evaluation, banks have the flexibility to
engage in the most appropriate type of
financing for each community
development project while still giving
the agencies a view into how a bank’s
overall community development
investment activity compares to its
peers.
After considering commenter
feedback, the agencies determined that
the Bank Community Development
Investment Metric and the Nationwide
Community Development Investment
Benchmark should exclude mortgagebacked securities. Although mortgagebacked securities serve a purpose in
creating liquidity and helping banks to
meet the credit needs of their
communities, these types of community
development investments do not
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
involve the complexities associated
with certain other community
development investments. Further,
given the existing markets for mortgagebacked securities, banks may readily
engage in these types of investments if
appropriate for their business model.
For these reasons, the agencies believe
that the consideration of community
development investments within the
nationwide area evaluation should focus
on the extent to which banks are making
community development investments
other than mortgage-backed securities,
which may involve competitive
challenges, significant lead times, or
otherwise be more complex for a bank
to make.
The agencies also determined that the
Bank Nationwide Community
Development Investment Metric as
compared to the Nationwide
Community Development Investment
Benchmark may only contribute
positively to a bank’s Community
Development Financing Test conclusion
for the institution.1251 The agencies
considered that there may be
circumstances in which banks are not
competitive for, or have limited
opportunities to make, community
development investments in particular
geographic areas; however, provided
that the agencies determine that banks
are helping to meet community
development needs overall based on the
application of the Community
Development Financing Test (exclusive
of the investment metric and benchmark
comparison), banks should be able to
receive the conclusion and rating that
the agency determines is appropriate.
Nonetheless, the agencies believe the
Bank Nationwide Community
Development Investment Metric will
incentivize banks to meet community
needs and opportunities through
community development investments
because it: (1) adds transparency
regarding a bank’s level of community
development investments; and (2)
provides additional information that the
agencies can consider positively in
assessing a bank’s performance under
the Community Development Financing
Test that may provide a more nuanced
perspective on the bank’s performance.
Section ll.24(e)(1) Nationwide Area
Evaluation—component One
Under final § ll.24(e)(1)—the
weighted average of facility-based
assessment area performance in the
nationwide area—the appropriate
Federal financial supervisory agency
consider the weighted average of the
1251 See final § ll.24(e)(2)(iv) and final
appendix B, paragraph II.p.2.ii.
PO 00000
Frm 00417
Fmt 4701
Sfmt 4700
6989
performance scores corresponding to a
bank’s conclusions for the Community
Development Financing Test for its
facility-based assessment areas within
the nationwide area, calculated
pursuant to section IV of final appendix
B.
Section ll.24(e)(2) Nationwide Area
Evaluation—Component Two
Under final § ll.24(e)(2)—
nationwide area performance—the
appropriate Federal financial
supervisory agency considers a bank’s
community development financing
performance in the nationwide area
using a community development
financing metric and benchmarks that
consider all community development
loans and investments in the
nationwide area and, in the case of
banks with over $10 billion in assets, a
metric and benchmark focused on
community development investments in
the nationwide area. Component two
also includes consideration of the
impact and responsiveness of the bank’s
community development loans and
investments.
Specifically, under the final rule,
component two includes a Bank
Nationwide Community Development
Investment Metric in § ll.24(e)(2)(iii).
The appropriate agency applies this
metric to large banks that had assets
greater than $10 billion. The Bank
Nationwide Community Development
Investment Metric measures the dollar
volume of the bank’s community
development investments that benefit or
serve all or part of the nationwide area,
excluding mortgage-backed securities,
compared to the deposits located in the
nationwide area for the bank. The
agency calculates this metric pursuant
to paragraph II.m of final appendix B.
The formula for calculating the Bank
Nationwide Community Development
Investment Metric is consistent with the
other metrics included in the
Community Development Financing
Test.
Under final § ll.24(e)(2)(iv), the
appropriate agency compares the Bank
Nationwide Community Development
Investment Metric to the Nationwide
Community Development Investment
Benchmark that measures the dollar
volume of community development
investments that benefit or serve all or
part of the nationwide area, excluding
mortgage-backed securities, of all large
banks that had assets greater than $10
billion compared to deposits located in
the nationwide area for all such banks.
The agency calculates this benchmark
pursuant to paragraph II.n of final
appendix B. The formula for calculating
the Nationwide Community
E:\FR\FM\01FER2.SGM
01FER2
6990
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Development Investment Benchmark is
consistent with the other benchmarks
included in the Community
Development Financing Test. As noted
above, final § ll.24(e)(2)(iv) provides
that this comparison may only
contribute positively to the bank’s
Community Development Financing
Test conclusion for the institution.
As noted above, in the final rule,
paragraph II.p.2.ii of appendix B also
provides that in the nationwide area, for
large banks with assets greater than $10
billion, the agency considers whether
the bank’s performance under the
Nationwide Community Development
Investment Metric, compared to the
Community Development Investment
Benchmark, contributes positively to the
bank’s Community Development
Financing Test conclusion.
Lastly, the agencies are finalizing the
impact and responsiveness review in
final § ll.24(e)(2)(v) in the nationwide
area as proposed with conforming edits.
As noted in the proposal and above, the
nationwide area Community
Development Financing Test provisions
are generally consistent with the State
and multistate MSA Community
Development Financing Test provisions.
The agencies made additional
conforming revisions throughout final
§ ll.24(e) and paragraphs II.j, II.k, II.l
of final appendix B.
weighting approach for the nationwide
area evaluation to achieve the same
balance as the State weighting approach
by emphasizing facility-based
assessment area performance, allowing
flexibility to receive consideration for
activities outside of facility-based
assessment areas, and tailoring the
amount of weight on facility-based
assessment area performance to bank
business model. Banks that have a low
percentage of deposits and retail loans
within their facility-based assessment
areas would have a stronger emphasis
on their nationwide area score than on
their weighted average of facility-based
assessment area conclusions.
Conversely, banks that have a high
percentage of deposits and retail loans
within their facility-based assessment
areas would have approximately equal
weight on their nationwide area score
and on their weighted average of
facility-based assessment area
conclusions. The agencies proposed that
they would then round the institution
performance score to the nearest point
value corresponding to a conclusion
category: ‘‘Outstanding’’ (10 points);
‘‘High Satisfactory’’ (7 points); ‘‘Low
Satisfactory’’ (6 points); ‘‘Needs to
Improve’’ (3 points); ‘‘Substantial
Noncompliance’’ (0 points), to develop
the Institution Community Development
Financing Test conclusion.
Section ll.24(e) and (f) Nationwide
Area Evaluation and Community
Development Financing Test
Performance Conclusions and Ratings
Comments Received
Other than the comments discussed
above regarding the evaluation of
community development loans and
investments outside of banks’ facilitybased assessment areas, the agencies did
not receive specific comments on the
calculation of the institution
conclusion.
ddrumheller on DSK120RN23PROD with RULES2
The Agencies’ Proposal
The agencies proposed that a bank’s
weighted average assessment area
performance score would be averaged
with its nationwide area score to
produce an institution performance
score, with weights on both components
tailored to reflect the bank’s business
model.1252 As proposed for the
calculation of the State score, the
amount of weight applied to the facilitybased assessment area performance and
to the nationwide area performance
would depend on the bank’s percentage
of deposits and retail loans that are
within its facility-based assessment
areas. Under the proposal, the agencies
used weights equivalent to those
proposed for calculating the combined
State performance score, to tailor the
weighting to the bank’s business model
while still allowing all banks to receive
meaningful credit for activities outside
their facility-based assessment areas.1253
The agencies intended the proposed
1252 See
1253 See
proposed appendix B, section 15.
id.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Final Rule
The agencies are finalizing the
institution conclusion provisions for the
Community Development Financing
Test as proposed with conforming
revisions. Final § ll.24(e) provides
that the appropriate Federal financial
supervisory agency evaluates a bank’s
community development financing
performance in the nationwide area,
pursuant to final § ll.19,1254 using the
two components discussed above and
assign a conclusion for the institution
based on the weighted combination of
the two components discussed above
and as provided in paragraph II.p of
1254 The cross-references to final § ll.19 are
consistent with similar revisions to the State
evaluation in final § ll.24(c) and the multistate
MSA evaluation in final § ll.24(d). Unlike those
paragraphs, final § ll.24(e) does not crossreference final § ll.28(c) because those provisions
are not applicable to the institution conclusions.
PO 00000
Frm 00418
Fmt 4701
Sfmt 4700
final appendix B and the weighting of
conclusions as provided in section IV of
final appendix B. As noted in the
proposal, the nationwide area
Community Development Financing
Test provisions are consistent with the
State and multistate MSA Community
Development Financing Test provisions
and the agencies made conforming
revisions throughout final § ll.24(e)
and paragraphs II.j, II.k, II.l of final
appendix B.
Under the final rule, § ll.24(f)(1)
provides that the agency assigns
performance conclusions for the
Community Development Financing
Test for the institution pursuant to final
§ ll.28 and final appendix C. Further,
final § ll.24(f)(2) provides that
pursuant to final § ll.28 and appendix
D, the agency incorporates a bank’s
Community Development Financing
Test conclusions into its institution
ratings.
Miscellaneous Comments and Technical
and Conforming Changes
Comments Received
The agencies received several
comments on miscellaneous portions of
the Community Development Financing
Test. The agencies also discuss various
conforming changes to the Community
Development Financing Test below.
A commenter recommended that the
agencies not only consider the dollar
volume of community development
transactions, but also the units or
number of transactions undertaken by
the bank during any given year or
examination cycle. The commenter
explained that counting the number of
units or transactions closed by the
institution in any given cycle can be
compared year-to-year and cycle-tocycle to inform the picture of a bank’s
community development financing
performance. Similarly, a commenter
suggested that if the Community
Development Financing Test is retained,
the agencies should require that a
reasonable number of transactions and
originations be maintained and
considered under the performance test
to limit the moral hazard of banks
pursuing the largest loans and avoiding
rural America.
A commenter also suggested the
following modifications to the
Community Development Financing
Test: (1) calculating the percentage of
community development loans and
investments that were committed to
persistent poverty counties and counties
with low levels of financing; and (2)
reporting the percentage of community
development loans and investments that
involved collaboration and partnerships
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
with public agencies and communitybased organizations.
ddrumheller on DSK120RN23PROD with RULES2
Final Rule
The agencies did not add to the final
rule a metric measuring the percentage
of community development loans and
investments that were committed to
persistent poverty counties and counties
with low levels of financing. The
agencies structured the Community
Development Test to have different
components that serve distinct
purposes. Under the final Community
Development Financing Test, the impact
and responsiveness review is the
mechanism for considering community
development loans and investments in
persistent poverty counties and other
underserved geographic areas. The
agencies believe that the impact and
responsiveness review is the
appropriate means of considering these
types of loans and investments because
it provides an incentive through
enhanced consideration as opposed to a
comparison across banks. Banks operate
in different markets with different
business strategies and community
needs and opportunities. A such, where
some banks may be positioned to engage
in community development lending and
investment in persistent poverty
counties, other banks may not have
similar opportunities. Therefore, the
suggested metric likely would not
provide useful information for the
agencies’ evaluation of performance
under the Community Development
Financing Test.1255
The agencies similarly did not add a
requirement for reporting the percentage
of community development loans and
investments that involved collaboration
and partnerships with public agencies
and community-based organizations.
The agencies do not believe that this
information is necessary for assessing
bank performance under the
Community Development Financing
Test. Further, as discussed above, the
agencies determined not to consider the
number of transactions under the
Community Development Financing
Test.1256
Other Technical and Conforming
Changes
In addition to the changes discussed
above, the agencies made several nonsubstantive technical and conforming
1255 For the agencies to determine if such a metric
could usefully inform evaluation of bank
performance under the Community Development
Financing Test, the agencies would need to analyze
data on lending and investments in these areas,
which are unavailable at this time.
1256 See the section-by-section analysis of
§ ll.24(a).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
changes to the final Community
Development Financing Test in final
§ ll.24 and final appendix B. The
agencies’ intent in making these
changes, along with the other technical,
clarifying, or conforming revisions
discussed through this section-bysection analysis, was to be responsive to
the overarching comments that the
proposal was too complex and difficult
to understand. First, the agencies
reformatted final § ll.24(a) to
delineate the different components of
the paragraph. The agencies also revised
the terminology to be more consistent
both within final § ll.24 and
throughout the rule. For example, the
final rule uses the phrase ‘‘benefits or
serves’’ in all places where the proposal
had used one of those terms or the
combined phrase. These and similar
types of changes are not intended to
have a substantive effect; rather, the
agencies intend for these changes to
clarify the rule by eliminating
unnecessary variation that could
introduce ambiguity.
Second, the agencies revised the
format of the Community Development
Financing Test by restructuring
proposed § ll.24(c) to separate the
State, multistate MSA, and nationwide
area evaluations into distinct paragraphs
in final § ll.24.1257 As discussed
above, the agencies also streamlined the
description of the metrics and
benchmarks throughout final § ll.24
and clarified the calculation of the
metrics and benchmarks in final
appendix B by describing each step in
the calculation separately and adding
sample formulas for clarity. The
agencies made additional clarifying
revisions to final appendix B, including:
(1) reformatting and reorganizing the
appendix to include sections with
subparagraphs; and (2) adding summary
paragraphs describing the inputs for the
numerators and denominators of the
metrics and benchmarks included in
final §§ ll.24 and ll.26.
Third, similar to the revisions made to
final appendix A to improve clarity and
readability, the agencies reorganized
final appendix B into four separate
sections. These sections are organized
by topic and the sections of the final
rule to which they relate. The
substantive aspects of these sections are
discussed above. The sections of final
appendix B are as follows:
• Section I—Community
Development Financing Tests—
Calculation Components and Allocation
of Community Development Loans and
Community Development Investments.
1257 See final § ll.24(c) (State), (d) (multistate
MSA), and (e) (nationwide area).
PO 00000
Frm 00419
Fmt 4701
Sfmt 4700
6991
This section includes the inputs for the
metrics and benchmarks numerators
and denominators in final §§ ll.24
and ll.26 and the methods for valuing
and allocating community development
loans and investments.
• Section II—Community
Development Financing Test in final
§ ll.24—Calculations for Metrics,
Benchmarks, and Combining
Performance Scores. This section
includes all the calculations for the
metrics and benchmarks in the
Community Development Financing
Test in final § ll.24. The section also
includes methodology for calculating
the combined score for facility-based
assessment area conclusions, the
metrics and benchmarks analyses, and
the impact and responsiveness reviews.
• Section III—Community
Development Financing Test for Limited
Purpose Banks in final § ll.26—
Calculations for Metrics and
Benchmarks. This section of final
appendix B relates to the Community
Development Financing Test for Limited
Purpose Banks and is discussed in the
section-by-section analysis of final
§ ll.26.
• Section IV—Weighting of
Conclusions. This section applies to the
development of conclusions for a bank’s
performance under the Community
Development Financing Test in final
§ ll.24 and the Community
Development Services Test in final
§ ll.25. The section provides the
methodology for weighting the
performance scores corresponding to
conclusions in each State or multistate
MSA, as applicable, pursuant to final
§ ll.28(c), and the nationwide area.
In summary, the agencies are adopting
final § ll.24 and final appendix B
with the revisions discussed above.
Section ll.25 Community
Development Services Test
Current Approach
The agencies currently evaluate a
large bank’s provision of community
development services, along with retail
banking services, as part of the service
test.1258 For intermediate small banks
and wholesale and limited purpose
banks, the agencies evaluate community
development services, community
development loans, and community
development investments under a single
community development test.1259
Generally, the agencies do not evaluate
current 12 CFR ll.24(a).
current 12 CFR ll.26(c) (intermediate
small banks) and ll.25 (wholesale and limited
purpose banks).
1258 See
1259 See
E:\FR\FM\01FER2.SGM
01FER2
6992
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
community development services for
small banks.1260
The current service test is largely
qualitative and evaluates the extent to
which a bank provides community
development services and the extent to
which those services are innovative or
responsive to community needs.1261
Examiners may consider measures
including the number of: (1) low- and
moderate-income participants; (2)
organizations served; (3) sessions
sponsored; and (4) bank staff hours
dedicated.1262 The agencies assess
innovation and responsiveness by
considering whether a community
development service requires special
expertise and effort by the bank, the
impact of a particular activity on
community needs, and the benefits
received by a community.1263
Under the current rule, the agencies
consider services performed by a third
party on the bank’s behalf under the
service test if the community
development services provided enable
the bank to help meet the credit needs
of its communities.1264 Indirect
community development services that
enhance a bank’s ability to deliver credit
products or deposit services within its
community and that can be quantified
may be considered under the current
service test if those services have not
been considered already under the
lending or investment test.1265
ddrumheller on DSK120RN23PROD with RULES2
The Agencies’ Proposal
The agencies proposed in § ll.25 to
separately evaluate a large bank’s
performance of community
development services under the
Community Development Services Test.
For all large banks, the agencies
proposed to evaluate each facility-based
assessment area based on (1) the extent
to which a bank provides community
development services and (2) the impact
and responsiveness of those services
pursuant to proposed § ll.15.1266 In
addition, the agencies proposed a
quantitative metric (the Bank
Assessment Area Community
Development Service Hours Metric),
described further below, for large banks
with average assets of more than $10
billion.1267
Under the proposal, the facility-based
assessment area conclusions would
form the basis of conclusions for each
State, multistate MSA, and the
current 12 CFR ll.26.
e.g., current 12 CFR ll.24(e).
1262 See Q&A § ll.24(e)—2.
1263 See id.
1264 Q&A § ll.24(e)—1.
1265 Id.
1266 See proposed § ll.25(b).
1267 See id.
1260 See
1261 See,
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
nationwide area.1268 For each of these
areas, conclusions would be based on
two components: (1) a bank’s weighted
average of its community development
services performance in its facilitybased assessment areas within a State,
multistate MSA, and nationwide area;
and (2) an evaluation of its community
development services outside its
facility-based assessment areas but
within the State, multistate MSA, and
nationwide area.1269
Unlike the current approach,1270 the
proposal did not provide for community
development services consideration
where a third party (other than an
affiliate) performs those services
pursuant to an agreement in which the
bank pays for those services.1271 The
proposal also included a definition of
community development services in
proposed § ll.25(d), which is
discussed in the section-by-section
analysis of § ll.12.
Comments Received
The agencies received many
comments on proposed § ll.25. A few
commenters generally supported the
proposed Community Development
Services Test. However, many
commenters believed the proposed test
would facilitate misplaced examiner
discretion and urged the agencies to
develop guidelines to ensure
consistency. Several commenters stated
that the proposed Community
Development Services Test is
insufficiently robust, with at least one of
these commenters asserting the scope of
activities is too narrow. In addition, a
few commenters expressed concern that
the test was inappropriately focused on
the number of volunteer hours and not
the type or quality of the volunteer
activities, and advocated for a
qualitative consideration of community
development services.
Some commenters suggested that if
the agencies do not establish a
consolidated community development
test (i.e., one performance test that
considers community development
financing and community development
services),1272 the agencies should
strengthen the Community Development
Services Test by making the test more
closely resemble the ‘‘responsiveness’’
proposed § ll.25(c).
proposed § ll.25(c) and proposed
appendix B, section 16.
1270 See Q&A § ll.24(e)—1.
1271 See proposed § ll.21(c) (outlining when
community development services performed by an
affiliate may be considered).
1272 See the section-by-section analysis of final
§ ll.21(a) for discussion on creating a single
consolidated community development performance
test that evaluates community development loans,
investments, and services.
1268 See
1269 See
PO 00000
Frm 00420
Fmt 4701
Sfmt 4700
consideration proposed in the Retail
Services and Products Test. At least one
commenter reasoned that the proposed
Community Development Services Test
has a disproportionately high weight for
a limited number of eligible or
impactful activities.
Final Rule
The agencies are adopting the
Community Development Services Test
with substantive, technical, clarifying,
and conforming edits discussed below.
In addition, the agencies made revisions
to the proposed definition of
‘‘community development services’’ and
moved the definition to final § ll.12,
which is discussed in the section-bysection analysis of § ll.12.
As adopted, the Community
Development Services Test remains
largely qualitative and does not include
the proposed Bank Assessment Area
Community Development Service Hours
Metric. The performance test also
maintains the proposed consideration of
the impact and responsiveness of a
bank’s community development
services. The agencies believe the final
rule provides greater consistency
compared to the current rule and is
responsive to commenter concerns
about the potential for inconsistent
application of the tests. For example,
final § ll.25(b) and (c) formalize
agency considerations in determining
the extent to which a bank provides
community development services (e.g.,
the total hours of community
development services performed by the
bank; the capacities in which bank
employees or board members served)
and creates a standard set of data points
to facilitate the review in final
§ ll.42(a)(6). In contrast to the current
rule, the agencies added clarity by
outlining types of community
development services deemed impactful
and responsive in final § ll.15.1273
Further, the agencies believe, based
on supervisory experience, that a
qualitative evaluation of community
development services is appropriate and
consistent with how the agencies
currently evaluate community
development services. Community
development services do not lend
themselves easily to a metrics-based
approach because, as described further
below, the evaluation includes
consideration of the needs and
opportunities available in a particular
area, as well as a bank’s resources and
business model. To limit potentially
misplaced discretion and rating
1273 See the section-by-section analysis of final
§ ll.15 for additional discussion specific to the
impact and responsiveness consideration.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
inflation, the agencies intend to provide
guidance and training to examiners on
the Community Development Services
Test, such as how to apply the impact
and responsiveness review, and when to
apply the upward adjustment in final
§ ll.25(c)(2). In response to
commenter feedback regarding
responsiveness, the final rule requires
community development services
evaluated under the Community
Development Services Test to support
community development, as described
in final § ll.13, and to be related to
the provision of financial services.1274
The agencies did not receive
comments on the proposal’s exclusion
of CRA consideration for community
development services performed by a
non-affiliate third party. The agencies
believe paying such a party to perform
service hours does not qualify as ‘‘the
performance of volunteer services by a
bank’s or affiliate’s board members or
employees.’’ However, this sort of
activity may qualify as a community
development investment as a ‘‘monetary
or in-kind donation.’’ 1275 Thus, the
final rule maintains this exclusion.1276
Section ll.25(a) Community
Development Services Test
The Agencies’ Proposal
The agencies proposed in § ll.25(a)
to evaluate a bank’s record of helping to
meet the community development
services needs of the bank’s facilitybased assessment areas, States,
multistate MSA, and nationwide area.
The agencies defined community
development services in proposed
§ ll.25(d) and explained that the
agencies would consider publicly
available information and information
provided by the bank, government, or
community sources that demonstrates
that the activity includes serving
individuals or census tracts located
within the facility-based assessment
area, State, multistate MSA, or
nationwide area, as applicable.
Comments Received and Final Rule
ddrumheller on DSK120RN23PROD with RULES2
The agencies received one comment
specific to this proposed paragraph.
This commenter suggested that the
scope of community development
1274 See the section-by-section analysis of
§ ll.12 for discussion of the definition of
community development services.
1275 See the section-by-section analysis of
§ ll.12 for discussion on whether community
development services performed by a third party
may qualify as a ‘‘monetary or in-kind donation’’
within the definition of ‘‘community development
investment.’’
1276 See the section-by-section analysis of
§ ll.21(b) for discussion on treatment of services
performed by affiliates.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
services in proposed § ll.25(a) should
specifically include that ‘‘[f]or military
banks and banks serving military and
veteran communities, these community
development services may occur on or
near military installations and
worldwide.’’ The agencies do not
believe these proposed edits are
warranted. As discussed in the sectionby-section analysis of § ll.16(d),
military banks whose customers are not
located within a defined geographic area
may delineate a single facility-based
assessment area consisting of the entire
United States and its territories. For
banks that elect this delineation
pursuant to final § ll.16(d) and are
also subject to the Community
Development Services Test, the agencies
will evaluate community development
services in its facility-based assessment
area, which would include military
installations within the United States
and its territories. The agencies do not
include military installations
worldwide, consistent with the other
parts of the final rule where the agencies
only consider activities within the
United States and its territories.
The agencies are adopting proposed
§ ll.25(a) with conforming, clarifying,
and technical edits. Specifically, the
agencies conformed the language in
each introductory paragraph across the
performance tests so that the language
mirrors the statute by replacing the
proposed references to the bank’s
facility-based assessment areas, States,
multistate MSAs, and the nationwide
area with ‘‘the entire community.’’ 1277
In addition, the agencies eliminated the
reference to where to find the definition
of community development services
within proposed § ll.25 because all
definitions are now in final § ll.12.
Similar to the proposed approach in
§ ll.25(a), the final rule, renumbered
as § ll.25(a)(2), provides that the
agencies consider information provided
by the bank and may consider publicly
available information and information
provided by government or community
sources that demonstrates that a
community development service
benefits or serves a facility-based
assessment area, State, multistate MSA,
or the nationwide area. The agencies
made clarifying edits to the proposed
provision to specify that while the
agencies will consider information
provided by the bank to determine
whether a particular community
development service benefits or serves a
particular area, the agencies may, at
their option, consider publicly available
information or information from
government or community sources.
1277 See
PO 00000
final § ll.25(a)(1).
Frm 00421
Fmt 4701
Sfmt 4700
6993
Section ll.25(b) Facility-Based
Assessment Area Evaluation
The Agencies’ Proposal
The agencies proposed in
§ ll.25(b)(1) to review a bank’s
provision of community development
services by considering one or more of
the following types of information: (1)
the total number of community
development services hours performed
by the bank; (2) the number and type of
community development services
activities offered; (3) for
nonmetropolitan areas, the number of
activities related to the provision of
financial services; (4) the number and
proportion of community development
services hours completed by,
respectively, executives and other
employees of the bank; (5) the extent to
which community development services
are used, as demonstrated by
information such as the number of lowor moderate-income participants,
organizations served, and sessions
sponsored; or (6) other evidence that the
bank’s community development
services benefit low- or moderateincome individuals or are otherwise
responsive to community development
needs.
For large banks with average assets
greater than $10 billion, the agencies
proposed in § ll.25(b)(2) a
quantitative metric—the Bank
Assessment Area Community
Development Service Hours Metric—to
measure the average number of
community development service hours
per full-time equivalent employee. The
agencies proposed calculating the
metric by dividing a bank’s aggregate
hours of community development
services activity during the evaluation
period in a facility-based assessment
area by the number of full-time
equivalent employees in a facility-based
assessment area. The proposal did not
include a peer benchmark in which to
compare the Bank Assessment Area
Community Development Service Hours
Metric. However, the agencies stated in
the proposed rule that the collection
and analysis of community
development service hours data under
the proposed rule might allow for future
development of peer benchmarks.
The agencies also proposed to
evaluate the impact and responsiveness
of the bank’s community development
services in a facility-based assessment
area pursuant to proposed § ll.15.
Comments Received
Commenters offered varying feedback
on the proposed evaluation of
community development services in
facility-based assessment areas,
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
6994
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
including, but not limited to, the Bank
Assessment Area Community
Development Service Hours Metric and
whether the benefit associated with
using the metric exceeded the burden of
collecting and reporting this data point.
A few commenters supported the
proposed metric, noting, generally, that
the metric’s value would exceed any
burden to the bank, or that the metric
imposed limited burden to the bank. A
commenter highlighted the metric’s
ability to provide meaningful
comparison at the local level but
suggested further refinement to the
calculation so that the metric would
consider the number of months in the
evaluation period. At least a few
commenters supporting the metric said
that reporting the data would not be
burdensome to banks because they
already collect these data. Another
commenter stressed that the collection
of community development services
data is fundamental to evaluating
performance under the performance
test.
Other commenters opposed the Bank
Assessment Area Community
Development Service Hours Metric.
These commenters generally believed
the metric’s benefit did not outweigh
the burden of reporting the additional
data. A commenter questioned the
utility of the metric where the proposed
community development services
evaluation would include other nonquantitative bases and examiner
discretion. Further, the commenter
found the metric duplicative of other
parts of the proposed Community
Development Services Test, such as the
consideration of the number of hours for
all community development services
performed by a bank as well as the
proportion of community development
service hours completed by bank
executives and other bank employees.
Another commenter believed the
proposed test without the metric would
be sufficient.
In response to the agencies’ question
in the proposed rule on whether to
apply the Bank Assessment Area
Community Development Service Hours
Metric to all large banks, including
those with average assets of $10 billion
or less, a few commenters endorsed
requiring all large banks to report this
metric, with a couple of these
commenters also endorsing the
application of the metric to intermediate
small banks.1278 One commenter
opposed requiring banks with assets $10
billion or less to report the Bank
Assessment Area Community
1278 The
proposed rule did not include the term
‘‘intermediate small bank.’’
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Development Service Hours Metric,
though it expressed general support for
recording volunteer hours.
A few commenters raised concerns
about operationalizing the metric, such
as challenges related to employees selfreporting and tracking hours, recording
the location of a community
development services provided
virtually, and defining a full-time
equivalent employee. A few
commenters supported the inclusion of
executives in the definition of full-time
equivalent employee. Other commenters
suggested that the agencies should not
discount service hours for part-time
employees, or that the metric should
exclude ‘‘non-exempt staff’’ from the
definition of full-time equivalent
employment if the final rule requires
community development services be
related to the provision of financial
services. A couple of commenters
cautioned that the increasing prevalence
of remote working arrangements and
back-office locations would make
allocating full-time equivalent bank
employees to a particular geographic
area challenging and could lead to
anomalous results.
A few commenters responded
specifically on whether the agencies
should develop benchmarks and
thresholds to compare the Bank
Assessment Area Community
Development Service Hours Metric once
such data are available. In general, some
commenters opposed the development
of such benchmarks and thresholds
because they would be too burdensome,
whereas other commenters tended to
support developing benchmarks to
facilitate comparison across banks. One
commenter believed the metric’s
comparison to a peer benchmark should
greatly influence the conclusions.
The agencies also sought feedback on
whether to include an additional
executive-only metric in which the
agencies would assess community
development service hours per
executive for large banks with assets of
over $10 billion. The agencies received
only a few comments about this metric,
each of which noted that a separate
metric for executive service hours
would not add any rigor to the
performance test.
A couple of commenters suggested
prescribed weighting within the facilitybased assessment area to promote
consistency and rigor. For example, a
commenter suggested assigning a 50
percent weight for the Bank Assessment
Area Community Development Service
Hours Metric and a 50 percent weight
for the qualitative factors in proposed
§ ll.25(b)(1). Another commenter
suggested that hours spent volunteering
PO 00000
Frm 00422
Fmt 4701
Sfmt 4700
as a board member or in other
leadership roles for a community
development organization should be
weighted more heavily than other
community development services
because the former requires a greater
commitment.
Final Rule
Final § ll.25(b) adopts the proposed
qualitative approach to evaluate a large
bank’s community development
services in a facility-based assessment
area with substantive, clarifying, and
technical changes. As mentioned
previously, the final rule does not
include the Bank Assessment Area
Community Development Service Hours
Metric in the Community Development
Services Test. Upon consideration of the
comments, the agencies believe the
metric would have increased the rule’s
complexity and burden with limited
benefit to assessing community
development services, particularly since
the agencies do not have sufficient data
to establish a peer benchmark for
comparison with the Bank Assessment
Area Community Development Service
Hours Metric. The agencies recognize
the challenges identified by commenters
in defining a full-time equivalent
employee and recognize that a bank’s
full-time equivalent employees may not
be an appropriate measure or proxy for
the expectation of the amount of
community development services a
bank should provide. A bank’s decision
on the number and types of employees
(e.g., full-time, part-time, contract,
seasonal) could be driven by many
factors other than community
development services capacity.
Relatedly, the agencies asked whether
the final rule should include a
definition of ‘‘full-time employee.’’ This
definition is no longer necessary
because the final rule does not include
the proposed Bank Assessment Area
Community Development Service Hours
Metric, which used this term.
The final rule does not include an
executive-only metric in response to
commenter feedback that the metric
would not add rigor to the test.
Correspondingly, the agencies removed
a related consideration—the number
and proportion of community
development services hours performed
by executives and other bank
employees—from the list of
considerations when evaluating a bank’s
provision of community development
services in a facility-based assessment
area.1279
1279 See proposed § ll.25(b)(1)(iv). Final
§ ll.12 requires that all community development
services be related to the provision of financial
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
The agencies streamlined and
reorganized the list of considerations in
proposed § ll.25(b)(1). The final rule
does not include the proposed
consideration—the number of activities
related to the provision of financial
services in nonmetropolitan areas—
because this concept is inherent in the
definition of community development
services in final § ll.12.1280 Further,
the agencies condensed the proposed
considerations in § ll.25(b)(1)(v) and
(vi) into final § ll.25(b)(4). Proposed
§ ll.25(b)(1)(v)—the extent to which
community development services are
used, as demonstrated by information
such as the number of low- and
moderate-income participants,
organizations served, and sessions
sponsored, as applicable—provided
examples of the catch-all provision in
proposed § ll.25(b)(1)(vi). Thus, final
§ ll.25(b)(4) incorporates both
concepts without an intended change in
meaning. Final § ll.25(b)(4) provides
that the review of community
development services in a facility-based
assessment area may include ‘‘[a]ny
other evidence demonstrating that the
bank’s community development
services are responsive to community
development needs, such as the number
of low- and moderate-income
individuals that are participants, or
number of organizations served.’’
The agencies made other conforming
edits to track the data collection and
maintenance requirements in final
§ ll.42(a)(6), which requires the
collection and maintenance of
community development services data
regarding the capacity in which a bank
employee or board member served.1281
The final rule explicitly identifies this
consideration in § ll.25(b)(2). The
aligning of this provision to the data
collection and maintenance
requirements in the final rule results in
replacing ‘‘executive’’ with ‘‘board
member.’’ Bank executives remain
included in the term ‘‘employee,’’ and
the agencies clarified that consideration
of the capacity served also applies to
board members. In addition, proposed
§ ll.25(b)(1)(ii) would have included
the number and type of community
development services offered.
Consistent with the terminology in data
collection and maintenance in the final
rule,1282 the agencies clarified in final
§ ll.25(b)(1) that the agencies may
consider, as appropriate, the number of
services. See the section-by-section analysis of
§ ll.12 for discussion of the definition of
community development services.
1280 See proposed § ll.25(b)(1)(iii).
1281 Final § ll.42(a)(6)(i)(E).
1282 See final § ll.42(a)(6).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
community development services
attributable to each type of community
development described in § ll.13(b)
through (l). Finally, the agencies
changed the outline levels to clarify that
the impact and responsiveness review
in final § ll.15 may be among the
considerations in assigning a conclusion
for a facility-based assessment area.1283
The final rule does not prescribe a
specific weighting for the Community
Development Services Test evaluation
of each facility-based assessment area.
Without the proposed Bank Assessment
Area Community Development Service
Hours Metric, the commenter
suggestions for weighting the metric
compared to other considerations in the
facility-based assessment area are no
longer necessary. The agencies
considered establishing weighting
within the performance test or
otherwise reducing examiner discretion
but determined that examiner discretion
is appropriate. For example, it is
difficult to conclude, as suggested by a
commenter, that hours volunteering as a
board member for an organization that
supports community development is
always more impactful and responsive
than hours volunteering in a nonleadership capacity. Instead, the
agencies believe that they should base
the impact and responsiveness of a
community development service on the
needs of a particular community.
Examiner discretion in this test is also
consistent with current practice and
consistent with the final Community
Development Financing Test and the
Retail Services and Product Test.1284
Section ll.25(c) State, Multistate
MSA, or Nationwide Area Evaluation
Section ll.25(d) Community
Development Services Test Performance
Conclusions and Ratings
The Agencies’ Proposal
The proposal provided that the
facility-based assessment area
conclusions would form the basis of
conclusions at the State, multistate
MSA, and nationwide area.1285 Pursuant
to proposed § ll.25(c) and paragraph
16 of proposed appendix B, for each of
these areas, the agencies would develop
conclusions based on two components:
(1) a bank’s weighted average of its
community development services
performance conclusions in its facilitybased assessment areas within a State,
multistate MSA, or the nationwide area,
as applicable under § ll.18; and (2) an
final § ll.25(b)(5).
also discussion above under Community
Development Services Test—In General.
1285 See proposed § ll.25(c).
1283 See
evaluation of a bank’s community
development services outside its
facility-based assessment areas but
within the State, multistate MSA, and
nationwide area. The agencies
recognized that the current rule
includes beneficial flexibility that can
also result in uncertainty about which
community development services will
qualify for CRA consideration. For
example, under the current approach, if
examiners determine that a bank
conducted a community development
service in a broader statewide or
regional area that does not benefit an
assessment area and that the bank has
not been responsive to the needs of its
assessment areas, the bank will not
receive consideration for that
activity.1286 This aspect of the current
approach caused uncertainty for banks
because they would not know if
examiners had determined they were
responsive to the needs of their
assessment areas until the point of their
CRA examination, after the bank had
engaged in the activities considered in
the examination. With the proposed
rule, the agencies intended to achieve a
balance between prioritizing facilitybased assessment area performance, and
providing certainty that the agencies
would consider community
development services in other areas.
Under proposed § ll.25(c), the
agencies would base weighting under
the first component on the average of
two numbers: the bank’s share of retail
loans within the facility-based
assessment area compared to the
applicable geographic area (State,
multistate MSA, or nationwide area);
and a bank’s share of deposits within
the facility-based assessment area
compared to the applicable geographic
area.1287 Paragraph 16 of proposed
appendix B provided the calculations
for weighting conclusions in a State, for
a multistate MSA, and for the
institution, respectively. In a State, the
agencies would weight a bank’s
performance test conclusion in each
facility-based assessment area using the
simple average of the percentages of,
respectively, statewide bank deposits
associated with the facility-based
assessment area and statewide retail
loans that the bank originated or
purchased in the facility-based
assessment area. The statewide
percentages of deposits and retail loans
associated with each facility-based
assessment area would be based upon,
respectively, the dollar volumes of
deposits and loans in each facility-based
assessment area compared with,
1284 See
PO 00000
Frm 00423
Fmt 4701
Sfmt 4700
6995
1286 See
1287 See
E:\FR\FM\01FER2.SGM
Q&A § ll.12(h)—(6).
also proposed appendix B, section 16.
01FER2
6996
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
respectively, the statewide dollar totals
of deposits and loans within facilitybased assessment areas of that State. Put
another way, the proposal provided that
the agencies would weight conclusions
at the State-level by averaging: (1) the
dollar volume of deposits in a facilitybased assessment area within the State
divided by the dollar volume of deposits
in the bank in that State; and (2) a
bank’s dollar volume of retail loans in
a facility-based assessment area within
the State divided by the dollar volume
of retail loans in that State. The agencies
would use the same approach for
weighting conclusions for the multistate
MSA and institution.
The second component in proposed
§ ll.25(c)(2) provided that any
upward adjustment of the performance
score derived from the weighted average
of the facility-based assessment area
performance (i.e., component one)
would be based on an evaluation of
community development services
performed outside the facility-based
assessment area. That evaluation could
include: the number, hours, and type of
community development service
activities; the proportion of activities
related to the provision of financial
services, as described in proposed
§ ll.25(d)(3); and the impact and
responsiveness of these activities.1288
Finally, proposed § ll.25(e)(1)
provided that the agencies assign
community development services
conclusions at the facility-based
assessment area, the State, multistate
MSA, and institution level, as provided
in proposed § ll.28 and appendix C.
Proposed § ll.25(e)(2) provided that
the agencies incorporate those
conclusions into its State, multistate
MSA, and institution ratings.
Comments Received
A commenter expressed concern with
the lack of guidelines for potential
upward adjustments based on
community development services
performed outside of facility-based
assessment areas. This commenter
recommended establishing a minimal
level of service that must be performed
outside a facility-based assessment area
to be eligible for an upward adjustment,
and recommended prohibiting banks
with a ‘‘Needs to Improve’’ or
‘‘Substantial Noncompliance’’ in its
facility-based assessment areas from
receiving this upward adjustment. In
addition, this commenter said the
performance of community
development services outside of facilitybased assessment areas should clearly
exceed the performance within facility1288 See
proposed § ll.25(c)(2).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
based assessment areas as measured by
hours per employee or impact.
Final Rule
The agencies adopt final § ll.25(c)
as proposed with technical and
conforming edits. To ensure consistency
with final § ll.25(b), the agencies
replaced the considerations list in
proposed § ll.25(c)(2) with a
reference to the similar factors in final
§ ll.25(b)(1) through (5). This change
adds a catch-all provision (described
further in the section-by-section
analysis of § ll.25(b)) to ensure the
agencies may consider other evidence
demonstrating that the bank’s
community development services
outside facility-based assessment areas
are responsive to community
development needs. In addition, the
replacement of the consideration list in
proposed § ll.25(c)(2) with final
§ ll.25(c)(2) removes consideration of
the proportion of community
development services related to the
provision of financial services 1289
because the final rule requires all
community development services to be
related to the provision of financial
services (see the section-by-section
analysis of § ll.12).
Consistent with the proposal, the final
rule permits an upward adjustment
based on the consideration of
community development services
outside of a bank’s facility-based
assessment area; however, banks subject
to final § ll.25 are not required to
provide such services outside their
facility-based assessment areas.1290
Consideration of community
development services in areas outside of
the facility-based assessment area
recognizes impactful community
development opportunities that serve
areas with high unmet community
development needs, including those
areas in which few banks have a facilitybased assessment area or a
concentration of loans subject to final
§ ll.22.
The final rule does not impose
additional limitations or restrictions on
when the upward adjustment may be
applied, as suggested by a few
commenters. In general, banks perform
community development services in
areas where employees or board
members are located (i.e., main office
and branches), which is also generally
where a facility-based assessment area
must be delineated. Thus, the agencies
do not believe additional limitations or
restrictions are necessary.
proposed § ll.25(c)(2)(ii), with
final § ll.25(c)(2).
1290 See final § ll.25(c)(2).
1289 Compare
PO 00000
Frm 00424
Fmt 4701
Sfmt 4700
The agencies also made conforming
edits to clarify that the agencies evaluate
performance in the nationwide area but
conclude at the institution level. The
final rule removes two errant references
to proposed § ll.18, the consideration
of community development services
outside of a bank’s facility-based
assessment areas, in proposed
§ ll.25(c) introductory text and (c)(1).
The reference to this consideration,
renumbered as final § ll.19, should be
limited to component two in final
§ ll.25(c)(2). The weighting of the
conclusions remains substantively
comparable to the proposed weighting
in paragraph 16 of proposed appendix B
but includes clarifying edits in final
appendix B. See the section-by-section
analysis of § ll.24(c) and (d) for
additional discussion on the Weighting
of Conclusions in section IV of final
appendix B, which also applies to the
final Community Development
Financing Test.
The agencies adopt the proposed
conclusions and ratings provision as
final § ll.25(d) with technical and
conforming edits. Final § ll.25(d)(1)
provides that the agencies will assign
conclusions under this test in each
facility-based assessment area, State, or
multistate MSA, and institution,
pursuant to final § ll.28 and
paragraph e of final appendix C. In
addition, final § ll.25(d)(1) includes
conforming edits to clarify that the
agencies may consider performance
context as provided in final § ll.21(d)
when assigning conclusions.1291 Final
§ ll.25(d)(2) provides that the
agencies incorporate conclusions under
this performance test into the State or
multistate MSA ratings, as applicable,
and its institution rating pursuant to
final § ll.28 and appendix D.
Section ll.26 Limited Purpose Banks
Current Approach
Under current § ll.25, the agencies
evaluate a wholesale or limited purpose
bank’s community development loans,
community development investments,
and community development services
under one community development
test.1292 The agencies give consideration
to the number and dollar amount of
community development loans,
community development investments,
and community development
services,1293 both inside a bank’s
assessment areas or in a broader
statewide or regional area that includes
the bank’s assessment areas, and outside
1291 See the section-by-section analysis of
§ ll.21(d) for additional discussion.
1292 See current 12 CFR ll.25(a).
1293 See current 12 CFR ll.25(c)(1).
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
of its assessment areas if the needs of
the bank’s assessment areas are
adequately addressed.1294 The
qualitative factors include the
innovativeness or complexity of these
activities, the bank’s responsiveness to
credit and community development
needs, and the extent to which
investments are not routinely provided
by private investors.1295 In addition, the
evaluation under the current test
considers performance context,
including, but not limited to, a bank’s
capacity and constraints and the
performance of similarly situated
lenders.1296 A wholesale or limited
purpose bank may provide examiners
with any information it deems relevant
to the evaluation of its community
development lending, investment, and
service opportunities in its assessment
areas.1297
The Agencies’ Proposal
The agencies proposed in § ll.26 to
maintain a wholesale or limited purpose
bank designation and that these banks
would be evaluated under the proposed
Community Development Financing
Test for Wholesale or Limited Purpose
Banks.1298
ddrumheller on DSK120RN23PROD with RULES2
Final Rule
As discussed in the section-by-section
analysis of § ll.12, the final rule
eliminates the proposed definition of
‘‘wholesale bank’’ and revises the
proposed definition of ‘‘limited purpose
bank’’ to encompass banks generally
considered either ‘‘limited purpose
banks’’ or ‘‘wholesale banks’’ under the
current or proposed regulations. The
final rule replaces references to
wholesale banks in the proposal with
limited purpose banks. The final rule
maintains the option for a bank to
request designation as a limited purpose
bank with evaluation pursuant to the
Community Development Financing
Test for Limited Purpose Banks in final
§ ll.26. This test employs qualitative
and quantitative factors similar to
current examination procedures. In
addition, the institution-level
conclusion will consider a community
development financing metric and
certain benchmarks, as well as a
community development investment
metric and benchmark.
The agencies received several
comments on various aspects of
proposed § ll.26 from a diverse group
current 12 CFR ll.25(e)(1) and (2).
current 12 CFR ll.25(c)(2) and (3).
1296 See current 12 CFR ll.21(b).
1297 See Q&A § ll.21(b)(2)–1.
1298 See proposed § ll.26.
1294 See
1295 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
of commenters.1299 These comments,
and the final rule, are discussed in
detail below.1300
Section ll.26(a) Bank Request for
Designation as a Limited Purpose Bank
Current Approach
To receive a designation as a
wholesale or limited purpose bank
under the current rule, current
§ ll.25(b) provides that a bank shall
file a request in writing to the
appropriate Federal financial
supervisory agency at least three months
prior to its desired designation. If
approved, the designation remains in
effect until the bank requests revocation
of the designation or until one year after
the appropriate agency notifies the bank
that its designation has been
revoked.1301
The Agencies’ Proposal
The agencies proposed in § ll.26(a)
to maintain the current designation
provision with technical edits. The
proposal maintained the option to file a
written request to be designated as a
wholesale or limited purpose bank.1302
An approved designation would remain
in effect until the bank requests
revocation or until one year after the
bank was notified that the appropriate
Federal financial supervisory agency
has revoked the designation on its own
initiative.1303
Comments Received and Final Rule
A few commenters asked that the
agencies clarify that those banks
designated as wholesale or limited
purpose banks under the current rule do
not need to reapply to receive such a
designation under the new framework.
The agencies confirm that banks
currently designated as wholesale or
limited purpose banks do not need to
reapply under the final rule. As is the
case under the current rule, the
appropriate Federal financial
supervisory agency may notify a bank
that the designation has been revoked
pursuant to final § ll.26(a) if the
agency determines the bank no longer
qualifies for the limited purpose bank
designation, or the bank may request
revocation.1304 The agencies did not
1299 A few commenters supported maintaining
existing guidance for wholesale and limited
purpose banks from the Interagency Questions and
Answers. The agencies plan to review the
applicability of existing Interagency Questions and
Answers during the transition period.
1300 See supra note 145.
1301 See current 12 CFR ll.25(b).
1302 See proposed § ll.26(a).
1303 See id.
1304 Banks designated as wholesale banks under
the current regulation will automatically be
PO 00000
Frm 00425
Fmt 4701
Sfmt 4700
6997
receive other comments specific to
proposed § ll.26(a), and therefore
adopt § ll.26(a) as proposed with
technical and conforming edits,
including a nomenclature change from
‘‘wholesale or limited purpose banks’’ to
‘‘limited purpose banks.’’ 1305
Section ll.26(b) Performance
Evaluation
Current Approach
The current community development
test for wholesale or limited purpose
banks in § ll.25 evaluates community
development loans, community
development investments, and
community development services under
one performance test. Wholesale or
limited purpose banks have flexibility to
satisfy their CRA obligation by engaging
in any combination of community
development lending, investments, or
services, but are not required to engage
in each activity.1306 Consequently, in
theory, a wholesale or limited purpose
bank could receive a ‘‘Satisfactory’’
rating by performing only community
development services. In practice, under
the current rule, the agencies’
supervisory experience suggests it
would be unusual for a bank to receive
a ‘‘Satisfactory’’ rating based solely or
even primarily on community
development services. Based on the
agencies’ supervisory experience, more
commonly, community development
loans and community development
investments are the predominant
activities that determine community
development ratings for wholesale or
limited purpose banks.
The Agencies’ Proposal
The agencies proposed to evaluate a
wholesale or limited purpose bank’s
community development loans and
community development investments
under the Community Development
Financing Test for Wholesale or Limited
Purpose Banks in proposed
§ ll.26.1307 Wholesale or limited
purpose banks could request additional
consideration for community
development services that would
qualify under the proposed Community
Development Services Test, which the
appropriate Federal financial
supervisory agency could consider to
adjust the bank’s institution rating from
considered limited purpose banks under the final
rule unless the appropriate Federal financial
supervisory agency notifies the bank that the
designation has been revoked pursuant to final
§ ll.26(a) or the bank requests revocation.
1305 See the section-by-section analysis of
§ ll.12 for additional discussion on the
nomenclature change.
1306 See Q&A § ll.25(f)—1.
1307 See proposed § ll.26(c).
E:\FR\FM\01FER2.SGM
01FER2
6998
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
‘‘Satisfactory’’ to ‘‘Outstanding.’’ 1308
Thus, under the proposal, wholesale or
limited purpose banks would not be
able to rely solely on community
development services to obtain a
‘‘Satisfactory’’ rating.
Comments Received
A few commenters raised concerns
related to the elimination of the ability
of wholesale banks to rely on
community development services to
achieve a baseline ‘‘Satisfactory’’ rating.
These commenters opined that this
change may require wholesale banks to
make significant changes to their
business models or seek a costly
strategic plan. One of these commenters
stated that the agencies neglected to
consider the safety and soundness
implications of eliminating the ability of
wholesale banks to rely on community
development services to achieve a
‘‘Satisfactory’’ rating. Further, this
commenter argued that the agencies
failed to provide a reasoned analysis for
the policy change and failed to weigh
wholesale banks’ reliance interests on
the ability to use community
development services to achieve a
‘‘Satisfactory’’ rating compared to the
agencies’ policy objectives. In
particular, this commenter questioned
why wholesale banks would not be
afforded the same ability as large banks
to rely on community development
services to achieve a baseline
‘‘Satisfactory’’ rating.
Some commenters responded directly
to the question in the proposed rule on
whether wholesale or limited purpose
banks should have the option to submit
services to be reviewed on a qualitative
basis at the institution level without
having to opt into the Community
Development Services Test, as
proposed, or whether wholesale or
limited purpose banks that wish to
receive consideration for community
development services should be
required to opt into the proposed
Community Development Services Test.
A few commenters supported
consideration of community
development services without having to
opt into the Community Development
Services Test. One of these commenters
supported the consideration of
community development services for
wholesale or limited purpose banks
regardless of a bank’s institution rating
under the modified Community
Development Financing Test. Another
of these commenters suggested the
agencies should clarify that the
performance of community
development services is not required for
1308 See
proposed § ll.26(b)(2).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
wholesale or limited purpose banks to
receive an overall rating of
‘‘Outstanding’’ if that bank otherwise
demonstrates outstanding community
development financing performance.
In contrast, a few commenters
disagreed with the proposed approach
to consider community development
services if a wholesale or limited
purpose bank requests consideration.
These commenters believed that the
agencies should evaluate community
development services for all banks and
eliminate the provision that allows
requesting additional consideration.
One of these commenters warned that
the proposal would increase subjectivity
and could reduce nationwide
community development services.
Final Rule
The agencies adopt in final
§ ll.26(b)(2)(i) the proposed treatment
of community development services for
limited purpose banks. Under this
approach, limited purpose banks have
the option to submit community
development services for consideration;
however, these banks will not be able to
rely solely or primarily on community
development services to obtain a
‘‘Satisfactory’’ rating under the final
Community Development Financing
Test for Limited Purpose Banks. The
agencies acknowledge commenter
concerns that final § ll.26 may restrict
some flexibility available to limited
purpose banks under the current rule;
however, the agencies’ supervisory
experience indicates it would be
unusual for a wholesale or limited
purpose bank under the current rule to
achieve a ‘‘Satisfactory’’ rating by
relying solely or primarily on
community development services, as
opposed to community development
lending or investments. Moreover, the
treatment of community development
services in final § ll.26(b)(2)(i)
achieves the agencies’ longstanding goal
of emphasizing community
development loans and investments.
Understanding that limited purpose
banks are not subject to the Retail
Lending Test, the agencies place greater
emphasis on community development
loans and investments to ensure equity
across business models. The agencies do
not believe that there is a safety and
soundness implication related to the
inability of a limited purpose bank to
rely on community development
services to achieve a ‘‘Satisfactory’’
rating. Consistent with the proposal, the
final rule in § ll.21(f) does not require
a bank to originate or purchase loans or
investments or to provide services that
are inconsistent with safe and sound
banking practices.
PO 00000
Frm 00426
Fmt 4701
Sfmt 4700
The agencies acknowledge the final
rule’s different treatment of community
development services between limited
purpose banks and large banks. The
final rule provides that the agencies
evaluate a large bank’s community
development services regardless of
performance under the Community
Development Financing Test in final
§ ll.24, whereas the agencies consider
a limited purpose bank’s community
development services if that bank
requests consideration and only where
the institution rating would otherwise
be ‘‘Satisfactory.’’ The agencies do not
believe limited purpose banks are
disadvantaged by this distinction. The
consideration of community
development services for limited
purpose banks can only positively affect
the institution rating, but in order to
prioritize community development
loans and investments, the agencies
limited the application of this
consideration to banks that would
otherwise have a ‘‘Satisfactory’’
institution rating. In contrast, the rule
does not apply an expectation that
limited purpose banks conduct
community development services. For
large banks, which generally have
business models better structured to
perform community development
services due to larger branch networks
and more employees, there is an
expectation that they perform
community development services, and
therefore the evaluation can negatively
affect a large bank’s institution rating.
The agencies considered the
comments related to whether a bank
should be required to opt into the
Community Development Services Test
to receive consideration for community
development services. Under such a
scenario, the agencies would evaluate a
limited purpose bank pursuant to the
Community Development Services Test,
which could negatively affect the bank’s
conclusions and ratings. The agencies
decline to require limited purpose banks
seeking consideration for community
development services to opt into the
Community Development Services Test
because the agencies want to encourage
performance of community
development services without creating
the expectation that these banks must
perform community development
services. Because limited purpose banks
generally have a smaller branch network
and limited branch staff to perform
community development services
compared to large banks, the agencies
adopt the proposed approach for
community development services—a
limited purpose bank need not opt into
the Community Development Services
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Test, but it may request, at its option,
additional consideration for community
development services if it would
otherwise receive a ‘‘Satisfactory’’ rating
at the institution level.1309 The agencies
limit the consideration to banks that
would otherwise receive a
‘‘Satisfactory’’ rating to prioritize
community development loans and
investments.
The agencies confirm that submitting
community development services for
consideration is not necessary for a
limited purpose bank to receive an
‘‘Outstanding’’ rating where that bank’s
community development financing
performance under final § ll.26 by
itself is otherwise ‘‘Outstanding.’’
In addition, the agencies clarified that
a limited purpose bank may receive
additional consideration at the
institution level for providing low-cost
education loans to low-income
borrowers, regardless of the limited
purpose’s bank’s overall institution
rating.1310 The agencies made this
revision to ensure consistency with the
CRA statute, which provides that for all
banks, regardless of bank type, the
agencies shall consider, as a factor, such
low-cost education loans.1311
agencies, therefore, adopt this provision
with technical and conforming edits.
Specifically, as with final §§ ll.24 and
ll.25, the final rule removes the
proposed references to the bank’s
facility-based assessment areas, States,
and multistate MSAs in which the bank
has facility-based assessment areas, as
applicable, and the nationwide area,
including consideration of performance
context to conform the language to the
statute and across the introductory
paragraphs in the final performance
tests. The final rule moves the proposed
language on what documentation the
agencies will or may consider to
paragraph I.b of appendix B of the final
rule, where the allocation discussion is
more fully described. Final
§ ll.26(c)(2) updates the crossreference to the allocation method in
paragraph I.b of appendix B, which is
the same allocation method as the
Community Development Financing
Test in final § ll.24. See the sectionby-section analysis of § ll.24(a) for
additional discussion of comments and
the final rule related to the allocation
method. Finally, the final rule updates
headings and terminology for clarity
and consistency.
Section ll.26(c) Community
Development Financing Test for Limited
Purpose Banks—In General
Section ll.26(d) Facility-Based
Assessment Area Evaluation
ddrumheller on DSK120RN23PROD with RULES2
The Agencies’ Proposal
Proposed § ll.26(c) provided for the
evaluation of wholesale and limited
purpose banks based on the banks’
record of helping to meet the
community development financing
needs in facility-based assessment areas,
States, multistate MSAs, and the
nationwide area through the banks’
provision of community development
loans and community development
investments. Further, the agencies
would consider information provided
by the bank and could consider, as
needed, publicly available information
and information provided by
government or community sources. The
agencies proposed that community
development loans and investments
should be allocated pursuant to section
14 of proposed appendix B, which
would be consistent with the allocation
provisions under the Community
Development Financing Test in
proposed § ll.24.
Comments Received and Final Rule
The agencies did not receive
comments specific to the proposed
scope provision in § ll.26(c). The
final § ll.26(b)(2)(i).
final § ll.26(b)(2)(ii).
1311 See 12 U.S.C. 2903(d).
Section ll.26(e) State or Multistate
MSA Evaluation
The Agencies’ Proposal
For each facility-based assessment
area, the agencies proposed to evaluate
a wholesale or limited purpose bank
based on the total dollar value of a
bank’s community development loans
and community development
investments (i.e., community
development financing activity) that
serve the facility-based assessment area
for each year and a review of the impact
of those activities in the facility-based
assessment area under proposed
§ ll.15.1312 As discussed in more
detail below, the facility-based
assessment area conclusions would
form the basis of the conclusion at the
State, multistate MSA, and nationwide
area level, along with review of the
bank’s community development
financing activity that serves the State
or multistate MSA during the evaluation
period.1313
For each State or multistate MSA
conclusion, the agencies proposed to
assign a conclusion based on a
combination of two components: (1) a
wholesale or limited purpose bank’s
community development financing
1309 See
1310 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
1312 See
1313 See
Jkt 262001
PO 00000
proposed § ll.26(d).
proposed § ll.26(e)(1) and (f)(1).
Frm 00427
Fmt 4701
Sfmt 4700
6999
performance in its facility-based
assessment areas in the State or
multistate MSA area; and (2) the dollar
value of community development
financing performance that serves the
State or multistate MSA during the
evaluation period, and a review of the
impact of these activities in the State or
multistate MSA under § ll.15.1314
Unlike the Community Development
Financing Test in proposed § ll.24,
the proposed Community Development
Financing Test for Wholesale or Limited
Purpose Banks did not include
prescribed weighting for considering
these two components, and the
proposed evaluation in a facility-based
assessment area, State, or multistate
MSA did not include a metric. The
agencies proposed the Wholesale or
Limited Purpose Bank Community
Development Financing Metric for the
nationwide area only (as opposed to the
facility-based assessment area, State, or
multistate MSA) because of the
difficulties associated with apportioning
bank assets to specific facility-based
assessment areas, States, or multistate
MSAs.
The agencies sought feedback on how
to increase certainty in the evaluation of
a wholesale or limited purpose bank’s
community development financing
performance for a facility-based
assessment area, including whether to
apply a metric and what the
denominator should be.
Comments Received
In response to the agencies’ request
for feedback on whether to apply a
metric and what the denominator
should be, a few commenters supported
establishing a metric for facility-based
assessment areas. One of these
commenters suggested the agencies use
a variation of the OCC’s procedure for
allocating Tier 1 Capital across
assessment areas. Similarly, another
commenter stated that a model currently
exists within CRA whereby a percentage
of a bank’s Tier 1 Capital that is
dedicated to community development
investment activity is used as a
benchmark for performance. The
commenter believed this approach
would not be complicated. A few
commenters advocated for using
deposits in the denominator in response
to this question.
One commenter that supported
including a metric for facility-based
assessment areas also supported
establishing a benchmark. This
commenter suggested that for banks
with over $10 billion in assets, the
benchmark could be based on the share
1314 See
E:\FR\FM\01FER2.SGM
proposed § ll.26(e).
01FER2
7000
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
of the bank’s deposits it collects from a
facility-based assessment area
multiplied by the bank’s institution
community development financing
benchmark. For banks with assets of $10
billion or less, the commenter suggested
that the benchmark should be based
upon the share of the U.S. population
(or alternatively, the share of the U.S.
low- and moderate-income population)
residing in the facility-based assessment
area, multiplied by the bank’s
community development financing
benchmark.
Final Rule
ddrumheller on DSK120RN23PROD with RULES2
The final rule adopts § ll.26(d) and
(e) as proposed with certain technical
and conforming edits, including
reorganizing text, adding paragraph
headers, and clarifying the text. The
agencies evaluate in each facility-based
assessment area a bank’s dollar volume
of community development loans and
investments that benefit or serve the
facility-based assessment area and the
impact and responsiveness review of
these loans and investments.1315 In each
State or multistate MSA, the agencies
evaluate and assign a conclusion based
on the facility-based assessment area
conclusion and the dollar volume of the
limited purpose bank’s community
development loans and investments that
serve the State or multistate MSA and
the impact and responsiveness review of
these loans and investments.1316 Also,
consistent with the proposal, the final
rule does not include a metric for the
evaluation of the facility-based
assessment area, State, or multistate
MSA because a limited purpose bank’s
total assets cannot be easily apportioned
to those areas.
The agencies considered alternatives
suggested by commenters to establish a
metric with another denominator, such
as capital or deposits, which would
allow for the application of a metric at
a level other than the nationwide area.
However, the agencies determined that
these alternatives were not appropriate
for several reasons. First, the agencies
do not believe capital would be an
appropriate denominator to evaluate
limited purpose banks in any area.1317
A bank’s capital levels are driven by
several factors that do not relate to CRA,
such as lower risk tolerance or higher
final § ll.26(d).
1316 See final § ll.26(e).
1317 The agencies acknowledge that examiners, in
some cases, may have considered capital as an
informal measure of a wholesale or limited purpose
bank’s community development financing capacity,
as was asserted by a few commenters. However,
such practice was neither consistently applied
across agencies, nor was it consistently applied
within any agency.
1315 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
risk exposure. In this way, capital
would not be an accurate or consistent
measure of a bank’s capacity to meet its
community’s needs. Second, the
agencies concluded that a denominator
of deposits is not an appropriate or
useful measure because at least some
limited purpose banks accept deposits
on a limited basis or not at all, as
discussed in detail in the section-bysection analysis of § ll.26(f) below.
Without a metric for facility-based
assessment areas, States, or multistate
MSAs, there is limited benefit to
establishing a corresponding
benchmark. Thus, the agencies are not
establishing a metric or benchmark to
evaluate community development
financing performance in an area other
than the nationwide area for limited
purpose banks.
Section ll.26(f) Nationwide Area
Evaluation
Nationwide Area Evaluation—In
General
Proposed § ll.26(f) provided for the
evaluation of community development
financing performance of a wholesale
and limited purpose bank in a
nationwide area based on that bank’s
community development financing
performance in all of its facility-based
assessments areas, the Wholesale or
Limited Purpose Bank Community
Development Financing Metric, and a
review of the impact of the bank’s
nationwide community development
activities. Section 18 of proposed
appendix B provided additional detail
on how the agencies would calculate the
Wholesale or Limited Purpose Bank
Community Development Financing
Metric. The agencies did not propose a
benchmark in which to compare the
Wholesale or Limited Purpose Bank
Community Development Financing
Metric. The agencies received numerous
comments on various aspects of this
proposed provision, which are
discussed below along with the final
provision.
Limited Purpose Bank Community
Development Financing Metric—
Numerator
The Agencies’ Proposal and Comments
Received
Proposed § ll.26(f) provided that
the numerator of the Wholesale or
Limited Purpose Bank Community
Development Financing Metric
measured the average total dollar value
of a bank’s community development
loans and community development
investments over the evaluation period
as specified in section 18 of proposed
PO 00000
Frm 00428
Fmt 4701
Sfmt 4700
appendix B.1318 A commenter requested
clarification that the numerator would
be measured consistent with how nonwholesale and limited purpose banks
are measured, as set forth in paragraph
1 of proposed appendix B.1319
Final Rule
The final rule provides that the
metric’s numerator measures the dollar
volume of a limited purpose bank’s
community development loans and
community development investments
that benefit or serve all or part of the
nationwide area, and updates the crossreference to paragraph III.a of final
appendix B.1320 As described more fully
in the section-by-section analysis of
§ ll.24(a)(3) and section I of appendix
B, the final rule more clearly describes
how the agencies will value different
forms of community development loans
and community development
investments.1321 In addition, the final
rule confirms the inputs to the
numerator are the same for the metrics
in final §§ ll.24 and ll.26.1322
Limited Purpose Bank Community
Development Financing Metric—
Denominator
The Agencies’ Proposal and Comments
Received
The denominator of the Wholesale or
Limited Purpose Bank Community
Development Financing Metric in
proposed § ll.26(f) consisted of the
bank’s quarterly average total assets.1323
The agencies reasoned that the unique
business models of wholesale and
limited purpose banks, particularly the
fact that at least some wholesale and
limited purpose banks accept deposits
only on a limited basis or not at all,
necessitate a different denominator from
large banks.
A majority of those commenting on
the denominator supported using total
assets, rather than deposits, in the
denominator. One of these commenters
1318 See
proposed appendix B, paragraph 8.i.
appendix B, section 1, provided, in
relevant part, that the annual community
development financing activity for purposes of
proposed § ll.24 included: (1) the dollar amount
of all community development loans originated and
community development investments made in that
year; (2) the dollar amount of any increase in an
existing community development loan that is
renewed or modified in that year; and (3) the
outstanding value of community development loans
originated or purchased and community
development investments made in previous years
that remain on the bank’s balance sheet on the last
day of each quarter of the year, averaged across the
four quarters of the year.
1320 See final § ll.26(f)(2)(i).
1321 See final appendix B, paragraph I.a.1.i.
1322 See id.
1323 See proposed § ll.26(f)(2) and proposed
appendix B, section 18.
1319 Proposed
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
agreed that total assets is a better
measure of the capacity of wholesale
and limited purpose banks to perform
community development financing
activities. Another commenter stated
that if assets are not used, the absolute
dollar amount of community
development financing activity loses
meaning since wholesale and limited
purpose banks will have differing
amounts of assets and thus differing
capacities to engage in community
development financing activities. A few
other commenters stated that deposits as
the denominator may not work well for
all wholesale and limited purpose
banks, particularly those that do not
collect deposits on a large scale.
Another commenter identified a
potential discrepancy related to the
denominator of the proposed Wholesale
or Limited Purpose Bank Community
Development Financing Metric where
there is a reference to weighting by
deposits in proposed appendix B.1324
A few commenters recommended the
denominator be based on ‘‘CRA-eligible
assets.’’ One of these commenters
explained that although they supported
the elimination of the use of a depositsbased metric for wholesale and limited
purpose banks, a denominator of total
assets may result in a metric that fails
to account for broad differences in
business models. The commenters
supporting use of CRA-eligible assets
suggested excluding foreign assets,
central bank placements, and short-term
extensions of credit from total assets.
These commenters conveyed that these
particular assets do not increase a
bank’s capacity to provide community
development financing. One of these
commenters remarked that it has been
the agencies’ supervisory practice to
exclude certain assets like central bank
placements from the denominator used
to determine some wholesale or limited
purpose banks’ CRA obligations under
the current community development
test. This commenter also identified the
exclusion of foreign deposits from the
denominator of the Community
Development Financing Metric for large
banks in proposed § ll.24 as evidence
that the agencies recognize that CRA
obligations should not be tied to a
bank’s foreign business activity.
A few commenters supported deposits
as the denominator for the metric. One
of these commenters believed that
deposits—in particular, domestic
deposits—would be a more accurate
1324 Specifically, this commenter noted that
proposed appendix B, paragraph 18.iii references
proposed appendix B, paragraph 16.iii, which
provides weighting by total assets. However,
proposed appendix B, paragraph 18.iii otherwise
indicates weighting by deposits.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
measure of the capacity of wholesale
banks, given their limited retail lending
business, and that using deposits would
be consistent with the Community
Development Financing Metric for large
retail banks.
Without providing details, a few
commenters also stated that the
complex method proposed to calculate
balances quarterly to achieve additional
credit could be simplified and still
materially represent CRA performance
of these banks.
Final Rule
After considering the comments, the
agencies determined that assets, rather
than deposits or another measure,
represent a more appropriate and
consistent measure of community
development financing capacity for
limited purpose banks. The agencies
have determined that a denominator
based on either deposits or ‘‘CRAeligible assets’’ would not represent a
useful measure of the expectation of
community development financing
volume for a limited purpose bank.
Some limited purpose banks accept
deposits on a limited basis or not at all,
which would result in an artificially low
community development financing
expectation. Further, limiting the
denominator to CRA-eligible assets
would defeat the goals of the Limited
Purpose Bank Community Development
Financing Metric. Although the agencies
recognize that not all bank assets would
or could be used for community
development (e.g., fixed assets or
reserve requirements), the goal of the
metric is to create a standard measure of
what percentage of the bank’s assets
were loaned or invested in community
development. To the extent the metric is
not representative of a particular bank’s
performance, the final rule provides
examiners with discretion in drawing
conclusions from the metric and the
metric’s comparison to the benchmarks,
as described below.
Moreover, the agencies do not believe
that foreign assets and short-term credit
should reduce a bank’s capacity to
engage in community development
loans or investments, or reduce a bank’s
expectation of the amount of such
lending or investing. The agencies also
do not believe that the exclusion of
foreign deposits from the Community
Development Financing Metric’s
denominator in final § ll.24 suggests
that the agencies recognize that CRA
obligations should not be tied to a
bank’s foreign business activity. The
exclusion of foreign deposits from the
definition of deposits in final § ll.12
should not be compared to the inclusion
of foreign assets in the denominator of
PO 00000
Frm 00429
Fmt 4701
Sfmt 4700
7001
the Limited Purpose Bank Community
Development Financing Metric. First,
the metrics in final § ll.24 have a
denominator of ‘‘deposits,’’ which, for
the majority of banks subject to those
metrics, has an exclusion narrower than
all foreign deposits.1325 Second, the
exclusion from the definition of
deposits is tied to a category in the Call
Report definition of deposits. The
commenter did not specify what
category ‘‘foreign assets’’ would
represent, nor do the agencies believe
there is an asset category in the Call
Report comparable to foreign
government deposits that would warrant
a similar exclusion.
In regard to the assertion from a
commenter that current supervisory
practice excludes certain assets like
central bank placements from
determining wholesale or limited
purpose banks’ community
development lending and investment
capacity, the agencies acknowledge that
in some cases examiners may have
considered assets as an informal
measure of a wholesale or limited
purpose bank’s community
development capacity and may have
excluded certain assets from the
informal measure; however, such
practice was not consistently applied
across or within agencies. The selection
of assets for the denominator of Limited
Purpose Bank Community Development
Financing Metric aims to provide that
missing consistency across and within
the agencies.
Therefore, the agencies adopt a
denominator for the Limited Purpose
Bank Community Development
Financing Metric in final § ll.26(f)(2)
based on assets, as proposed, with
conforming and non-substantive
changes. Specifically, the final rule
references ‘‘assets,’’ as opposed to the
proposal’s ‘‘total assets,’’ which
conforms to the new definition of assets
in final § ll.12. In addition, final
§ ll.26(f)(2) updates the reference for
calculating the metric to the applicable
appendix provision to paragraph III.a of
final appendix B. As provided in the
final rule, the denominator continues to
be a bank’s annual dollar volume of
assets for each year in the evaluation
period.1326 Annual dollar volume of
assets continues to be calculated by
1325 The denominator excludes domestically held
deposits of foreign governments or official
institutions, or domestically held deposits of
foreign banks or other foreign financial institutions.
See the section-by-section analysis of § ll.12
(defining ‘‘deposits’’).
1326 See final § ll.26(f)(2) and final appendix B,
paragraph III.a.3.
E:\FR\FM\01FER2.SGM
01FER2
7002
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
averaging the assets for each quarter in
the calendar year.1327
In summary, the final rule includes
clarifying edits to the numerator and
denominator of the Limited Purpose
Bank Community Development
Financing Metric in final § ll.26(f) as
well as technical and conforming edits
consistent with above discussions.
Limited Purpose Bank Community
Development Financing Benchmarks
The Agencies’ Proposal
The proposal did not include
benchmarks associated with the
proposed Wholesale or Limited Purpose
Bank Community Development
Financing Metric; however, the agencies
asked in the proposed rule whether a
benchmark should be established to
measure a wholesale or limited purpose
bank’s community development
financing performance at the institution
level. If so, the agencies also asked
whether the proposed Wholesale or
Limited Purpose Bank Community
Development Financing Metric should
be compared to the Nationwide
Community Development Financing
Benchmark applicable to all large banks
or whether the agencies should establish
a benchmark tailored to wholesale and
limited purpose banks. The agencies
explained that a tailored benchmark
would be based on the community
development financing activity of all
wholesale and limited purpose banks
compared to assets of all wholesale and
limited purpose banks.
ddrumheller on DSK120RN23PROD with RULES2
Comments Received
A few commenters supported a
tailored benchmark, as described by the
agencies, in which wholesale and
limited purpose banks would be
grouped to establish a benchmark. This
group of commenters believed the
approach would ensure a more
representative peer comparison and a
more accurate evaluation of a wholesale
and limited purpose bank’s CRA
performance.
Most commenters on this topic
opposed applying the nationwide
community development financing
benchmark to wholesale and limited
purpose banks and instead favored a
benchmark tailored by business model if
the agencies include a benchmark in the
final rule. Many of these commenters
highlighted the significant differences of
business models compared to large
banks and the significant differences in
business models among those banks
approved as wholesale and limited
purpose banks. For example, a
commenter said it would be
inappropriate to implement a
benchmark that would compare
community development financing
activities of a custody bank with those
of a credit card bank. Another
commenter stated that using the
nationwide metric applicable to all large
banks would undermine the intention of
the agencies to create a framework that
recognizes differences in business
models.
A small number of commenters
opposed the establishment of a
benchmark of any kind in § ll.26. One
such commenter opined that it would be
difficult to establish a meaningful and
fair benchmark for wholesale or limited
purpose banks because the population
of these banks is relatively small and
their business models varied.
Prior to establishing any benchmark
for wholesale and limited purpose
banks, a couple of commenters urged
the agencies to collect and evaluate
appropriate data. In this way, these
commenters suggested that the data
would allow agencies to determine
whether peer comparisons should be
confined to other wholesale and limited
purpose banks or whether a comparator
can include all large banks.
Final Rule
The agencies are adopting a final rule
that compares the Limited Purpose Bank
Community Development Financing
Metric to two benchmarks—the
Nationwide Limited Purpose Bank
Community Development Financing
Benchmark and the Nationwide AssetBased Community Development
Financing Benchmark.1328 The
Nationwide Limited Purpose
Community Development Financing
Benchmark measures the dollar volume
of limited purpose banks’ community
development loans and community
development investments reported
pursuant to final § ll.42(b) that
benefit and serve all or part of the
nationwide area compared to assets for
those limited purpose banks, calculated
pursuant to paragraph III.b of final
appendix B.1329 Specifically, the
agencies will divide: (1) the sum of
limited purpose banks’ annual dollar
volume of community development
loans and community development
investments reported pursuant to final
§ ll.42(b) that benefit or serve all or
part of the nationwide area for each year
in the evaluation period; by (2) the sum
of the annual dollar volume of assets of
limited purpose banks that reported
community development loans and
1330 See
final § ll.26(f)(2)(ii)(A) and (B).
1329 See final § ll.26(f)(2)(ii)(A).
1328 See
1327 See
final appendix B, paragraph I.a.2.ii.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
community development investments
pursuant to final § ll.42(b) for each
year in the evaluation period.1330
The Nationwide Asset-Based
Community Development Financing
Benchmark measures the dollar volume
of community development loans and
community development investments
that benefit or serve all or part of the
nationwide area of all banks that
reported pursuant to final § ll.42(b)
compared to assets of those banks,
calculated pursuant to paragraph III.c of
final appendix B.1331 Specifically, the
agencies will divide: (1) the sum of the
annual dollar volume of community
development loans and community
development investments of all banks
that reported pursuant to final
§ ll.42(b) that benefit or serve all or
part of the nationwide area for each year
in the evaluation period; by (2) the sum
of the annual dollar volume of assets of
all banks that reported community
development loans and community
development investments pursuant to
final § ll.42(b) for each year in the
evaluation period.1332
The agencies believe that benchmarks
would be a useful tool to evaluate
performance. The agencies also
recognize the varied business models
among limited purpose banks and agree
that a single benchmark may not be a
strong comparator or accurate
representation of the amount of
community development financing
activity that should be performed by
each bank. Thus, the agencies adopt two
benchmarks, both of which will serve as
comparators or reference tools and will
be considered along with performance
context and the impact and
responsiveness review. These
benchmarks are not intended to be
thresholds that a bank must meet or
exceed to obtain a ‘‘Satisfactory’’ or
higher rating. For this same reason, the
agencies do not believe it is necessary
to postpone implementation of the
benchmark to collect additional data.
The agencies decline to establish a
benchmark for each business model.
Currently, the population of limited
purpose banks and wholesale banks is
limited. A further subdivision of those
banks by business model would create
categories with very few banks from
which to construct the benchmarks,
which would not create a robust
comparison.
PO 00000
Frm 00430
Fmt 4701
Sfmt 4700
final appendix B, paragraph III.b.
final § ll.26(f)(2)(ii)(B).
1332 See final appendix B, paragraph III.c.
1331 See
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Limited Purpose Bank Community
Development Investment Metric and
Benchmark
ddrumheller on DSK120RN23PROD with RULES2
The Agencies’ Proposal, Comments
Received, and Final Rule
The proposed Community
Development Financing Test for
Wholesale Banks and Limited Purpose
Banks did not include an investmentrelated metric or benchmark; however, a
number of commenters that addressed
the proposed Community Development
Financing Test in § ll.24 were
concerned that the structure of that
performance test provided insufficient
incentive to make community
development investments.1333 In
response to those comments, and as
described further in the section-bysection analysis of § ll.24(e), the final
rule includes an investment metric and
benchmark—the Bank Nationwide
Community Development Investment
Metric and Nationwide Community
Development Investment Benchmark—
in the final Community Development
Financing Test.1334 To maintain
consistency with the Community
Development Financing Test applicable
to large banks, the agencies adopt a
similar investment metric and
benchmark in the Community
Development Financing Test for Limited
Purpose Banks that is applicable to
limited purpose banks with assets
greater than $10 billion.1335 For limited
purpose banks with assets greater than
$10 billion as of December 31 in both
of the prior two calendar years, the final
rule provides that the agencies will
consider the Limited Purpose Bank
Community Development Investment
Metric and the Nationwide Asset-Based
Community Development Investment
Benchmark in evaluating the
nationwide area.1336 Further, the
comparison of the Limited Purpose
Bank Community Development
Investment Metric to the Nationwide
Asset-Based Community Development
Investment Benchmark may only
contribute positively to the bank’s
Community Development Financing
Test for Limited Purpose Banks
conclusion for the institution.1337 See
the section-by-section analysis of final
§ ll.24(e) for a discussion of why the
agencies limited this comparison to a
positive contribution.
The Limited Purpose Bank
Community Development Investment
1333 See the section-by-section analysis of
§ ll.24(e).
1334 See final § ll.24(e)(2)(iii) and (iv).
1335 See final § ll.26(f)(2)(iii) and (iv).
1336 See final § ll.26(f)(2)(iii) and (iv).
1337 See final § ll.26(f)(2)(iv)(A).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Metric measures the dollar volume of
the bank’s community development
investments that benefit or serve all or
part of the nationwide area, excluding
mortgage-backed securities, compared to
the bank’s assets, calculated pursuant to
paragraph III.d of final appendix B.1338
Specifically, the agencies calculate the
Limited Purpose Bank Community
Development Investment Metric by
dividing: (1) the sum of the bank’s
annual dollar volume of community
development investments, excluding
mortgage-backed securities, that benefit
or serve the nationwide area for each
year in the evaluation period; by (2) the
sum of the bank’s annual dollar volume
of assets for each year in the evaluation
period.1339
The agencies compare the Limited
Purpose Bank Community Development
Investment Metric to the Nationwide
Asset-Based Community Development
Investment Benchmark, which measures
the dollar volume of community
development investments that benefit or
serve all or part of the nationwide area,
excluding mortgage-backed securities, of
all banks that had assets greater than
$10 billion, compared to assets for those
banks, calculated pursuant to paragraph
III.e of final appendix B.1340
Specifically, the agencies calculate the
Nationwide Asset-Based Community
Development Investment Benchmark by
dividing: (1) the sum of the annual
dollar volume of community
development investments, excluding
mortgage-backed securities, of all banks
that had assets greater than $10 billion,
as of December 31 in both of the prior
two calendar years, that benefit or serve
all or part of the nationwide area for
each year in the evaluation period; by
(2) the sum of the annual dollar volume
of assets of all banks that had assets
greater than $10 billion, as of December
31 in both of the prior two calendar
years, for each year in the evaluation
period.
The Nationwide Asset-Based
Community Development Investment
Benchmark includes all banks,
including limited purpose banks and
banks subject to an approved strategic
plan, with assets greater than $10
billion. Because there is a limited
number of limited purpose banks with
assets greater than $10 billion, the
agencies determined it is necessary to
include all banks with assets greater
than $10 billion to ensure a robust
benchmark.
final § ll.26(f)(2)(iii).
final appendix B, paragraph III.d.
1340 See id.
Section ll.26(g) Community
Development Financing Test for Limited
Purpose Banks Performance
Conclusions and Ratings
The Agencies’ Proposal
Proposed § ll.26(g) provided that
the agencies assign conclusions for a
wholesale or limited purpose bank’s
community development financing
performance in each facility-based
assessment area, State, multistate MSA,
and the nationwide area, as provided in
proposed § ll.28 and appendix C.
Further, the agencies proposed that
these conclusions would be
incorporated into the State, multistate
MSA, and institution ratings. Although
the proposed Community Development
Financing Test for Wholesale or Limited
Purpose Banks did not include a
specific reference to performance
context, proposed § ll.21(d) provided
that the agencies may consider
performance context information in
applying the performance tests to the
extent that performance context is not
considered as part of the tests.
Comments Received and Final Rule
A few commenters addressing the
performance test, in general,
underscored the importance of
performance context. These commenters
specified that the agencies should
ensure that the final rule does not rely
solely on the proposed Wholesale or
Limited Purpose Bank Community
Development Financing Metric, but
rather should apply a broader view that
considers the unique and varying
circumstances under which wholesale
and limited purpose banks operate.
In response to commenter requests for
additional clarity on performance
context, the agencies clarified in final
§ ll.26(g)(1) that the agencies may
consider the performance context as
provided in final § ll.21(d) when
assigning conclusions.1341 Other than
the comments on performance context,
the agencies did not receive comments
on this paragraph. Therefore, the
agencies adopt § ll.26(g) as proposed
with the additional clarifying edit that
the agencies may consider performance
context in assigning conclusions as well
as technical and conforming edits.
1338 See
1339 See
PO 00000
Frm 00431
Fmt 4701
Sfmt 4700
7003
1341 See the section-by-section analysis of
§ ll.21(d) for additional discussion.
E:\FR\FM\01FER2.SGM
01FER2
7004
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Section ll.27 Strategic Plan
Section ll.27(a) Alternative Election
Current Approach
Currently, the strategic plan option is
available to all types of banks,1342
although it has been used mainly by
nontraditional banks 1343 and banks that
make a substantial portion of their loans
beyond their branch-based assessment
areas. The strategic plan option is
intended to provide banks flexibility in
meeting their CRA obligations in a
manner that is responsive to community
needs and opportunities and
appropriate considering their capacities,
business strategies, and expertise. The
current CRA regulations require the
agencies to assess a bank’s record of
helping to meet the credit needs of its
assessment areas under a strategic plan
if: the bank has submitted the plan for
regulatory approval; the plan has been
approved; the plan is in effect; and the
bank has been operating under an
approved plan for at least one year.1344
The Agencies’ Proposal
The agencies proposed retaining the
strategic plan option as an alternative
method for evaluation under the
CRA,1345 and requested feedback on
whether the option should continue to
be available to all banks. The agencies
proposed that banks electing to be
evaluated under a plan would continue
to be required to request approval for
the plan from the appropriate Federal
financial supervisory agency.1346 The
agencies proposed to add clarity to the
existing rule by including that the
agencies will assess a bank’s record of
helping to meet the credit needs of its
facility-based assessment areas and, as
applicable, its retail lending assessment
areas and other geographic areas served
by the bank at the institution level
under a plan.
ddrumheller on DSK120RN23PROD with RULES2
Comments Received
Most commenters addressing the
strategic plan option agreed that a
strategic plan option should remain
available to all banks, particularly for
branchless banks and banks with unique
business models. A few commenters did
not support the proposed strategic plan
option. One of the commenters stated
that the option should only be available
1342 See current 12 CFR ll.21(a)(4) and
ll.27(a).
1343 Non-traditional banks are those that do not
extend retail loans (small business, small farm,
home mortgage loans, and consumer loans) as major
product lines or deliver banking services
principally from branches.
1344 See current 12 CFR ll.27(a)(1) through (4).
1345 See proposed § ll.27(a).
1346 See id.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
to those banks that provide evidence
that they would fail the ‘‘traditional’’
CRA examination process through no
fault of their own. Another commenter
objected to the strategic plan option and
recommended phasing it out entirely.
This commenter argued that the
strategic plan option adds a level of
complexity to the CRA framework and
noted that it is unclear why the option
should be made available when the
proposed plan requirements have the
same assessment area requirements and
performance test standards that would
apply to any other bank. One other
commenter recommended that the
agencies either eliminate or significantly
improve the strategic plan option in the
proposal.
Final Rule
The agencies are adopting in the final
rule the proposed strategic plan option
as an alternative method of evaluation
in § ll.27(a) with one technical
change. Specifically, the final rule
removes the requirement in proposed
§ ll.27(a)(1) that a bank submit ‘‘the
plan to the [Agency] as provided for in
this section,’’ as duplicative.1347 The
agencies believe it is unnecessary to
include a separate requirement in final
§ ll.27(a), given that ‘‘Submission of a
draft plan’’ is a required element of
§ ll.27(f) and must be performed prior
to plan approval (see the section-bysection analysis of § ll.27(f)). As a
result of this change, proposed
§ ll.27(a)(2) through (4) is
renumbered in the final rule as
§ ll.27(a)(1) through (3).
The agencies believe that the strategic
plan option should continue to be
available to any bank if the bank
sufficiently justifies that the appropriate
Federal financial supervisory agency
should evaluate it under a plan rather
than the performance tests that would
apply in the absence of an approved
plan. The agencies believe that it is
appropriate to use strategic plans to
evaluate banks with business models
that are not conducive to evaluation
under the performance tests that would
apply in the absence of an approved
plan. These may include, for example,
banks that do not offer—or only
nominally offer—product lines as
defined in the rule, do not maintain
traditional delivery systems, or only
offer niche products to a targeted
market.
The agencies have considered the
recommendation from a few
commenters to eliminate the strategic
plan as an option for evaluating a bank’s
performance under the CRA and have
1347 See
PO 00000
proposed § ll.27(a)(1).
Frm 00432
Fmt 4701
Sfmt 4700
decided to retain the option. Even
though banks that elect evaluation
under a plan would be subject to the
same performance tests that would
apply in the absence of an approved
plan, the agencies believe the strategic
plan option is appropriate because it
can afford a bank the opportunity to
offer modifications or additions that
would more meaningfully reflect a
bank’s record of helping meet the credit
needs of its community, so long as the
bank also justifies why its business
model is outside the scope of, or is
inconsistent with, one or more aspects
of the otherwise applicable performance
tests, as discussed further in the sectionby-section analysis of § ll.27(d). In
response to the commenter that believed
the strategic plan option needed to be
improved in order for it to continue to
be offered, the agencies note that they
made significant revisions to this option
in the final rule to ensure that it is clear
when the performance tests that would
apply in the absence of an approved
plan are appropriately applied and
represent a meaningful measure of the
bank’s CRA performance, while
allowing tailored modifications and
additions for those few banks that
maintain a business model that is
outside the scope of, or is inconsistent
with, one or more aspects of the
performance tests.
Lastly, the agencies do not believe a
bank should need to fail or provide
evidence that it would fail the
performance tests before submitting a
request for evaluation under an
approved strategic plan. The agencies
have been careful to adopt a set of
performance tests that the agencies
believe are tailored to provide a
meaningful evaluation of the vast
majority of banks under the CRA.
However, the agencies also recognize
that there is a population of banks that
maintain unique business models and
whose record of serving their
communities would be more
appropriately evaluated under a plan.
Although it has been the agencies’
experience that banks that do not
perform satisfactorily under the current
performance tests and standards are
more likely to choose the strategic plan
option, the agencies believe it would be
inappropriate to establish this as a
criterion for a bank to elect the option.
The agencies believe that the
incorporation of the performance tests
in a plan pursuant to § ll.27(c)(2),
clearer justification requirements
pursuant to § ll.27(d)(1), and clearer
justification elements pursuant to
§ ll.27(d)(2), will prevent widespread
adoption of the strategic plan option as
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
a way for banks to avoid a metrics-based
evaluation approach.
Section ll.27(b) Data Requirements
Current Approach and the Agencies’
Proposal
Currently, the agencies’ approval of a
plan does not affect the bank’s
obligation, if any, to report data as
required by current § ll.42.1348 The
agencies did not propose any
substantive changes to current
§ ll.27(b) pertaining to the data
reporting requirements of a bank
evaluated under an approved plan.
ddrumheller on DSK120RN23PROD with RULES2
Comments Received
A few commenters addressed the
agencies’ proposed data requirements
for banks evaluated under an approved
plan. One commenter stated that the
agencies’ proposal effectively eliminates
the strategic plan option by defaulting to
a rigid one-size-fits-all by requiring,
among other things, the same data
collection and reporting requirements
that would otherwise apply to the bank.
Another commenter recommended
adding language to the proposed data
reporting requirements that would allow
banks to request exemptions for data
requirements through the plan
submission process.
Final Rule
The agencies are adopting § ll.27(b)
as proposed with a retitling to reflect a
technical change. While proposed as
‘‘data reporting,’’ the agencies are
retitling this paragraph as ‘‘data
requirements’’ to reflect that banks that
do not operate under a plan not only
have data reporting obligations, but
requirements to collect and maintain the
data as well.
The agencies believe that the benefits
of capturing consistent data (regardless
of whether a bank is under a strategic
plan) outweigh the burden to banks
electing the strategic plan option of
collecting, maintaining, and reporting
the data. Also, as banks under a plan are
generally subject to the same
performance tests that would apply in
the absence of an approved plan, the
availability of data remains a critical
element of the plan evaluation process.
As not all data in final § ll.42 are
required to be reported, the agencies are
making a technical change in final
§ ll.27(b) to add that the obligation to
collect and maintain data required by
final § ll.42, in addition to obligation
to report data, is not affected by the
agency’s approval of a plan.
Similarly, the agencies have
determined not to allow exemptions
from the data requirements for banks
evaluated pursuant to a strategic plan.
The agencies have considered
commenter feedback that the
maintenance of data under the plan
limits the flexibility of the strategic plan
option; however, the agencies believe
the data provide them with the
necessary tools to effectively evaluate
the bank’s performance under the
applicable performance tests
incorporated into the strategic plan, as
it does with respect to the performance
tests generally. Further, the agencies do
not believe there is a scenario under
which the data under final § ll.42
would not provide value to the plan
evaluation process. Finally, the required
data collection, maintenance, and
reporting preserves the bank’s ability to
revert to evaluation under the
performance tests in final §§ ll.22
through ll.26, ll.29, and ll.30, as
appropriate, in the event the bank
desires to terminate the plan during the
term due to a change in circumstances.
Section ll.27(c) Plans in General
Current Approach
Currently, plans may have a term of
no more than five years and any multiyear plan must include annual interim
measurable goals under which the
agencies would evaluate the bank’s
performance.1349 A bank with more than
one assessment area may prepare either
a single plan for all of its assessment
areas or multiple plans for one or more
of its assessment areas.1350 Affiliated
institutions may prepare a joint plan if
the plan provides measurable goals for
each institution, and activities may be
allocated among institutions at the
institutions’ option, provided that the
same activities are not considered for
more than one institution.1351
The Agencies’ Proposal
Consistent with the current rule, the
agencies proposed in § ll.27(c)(1) that
plans have a term of no more than five
years and any multi-year plan must
include annual interim measurable
goals under which the agencies would
evaluate the bank’s performance. The
agencies also proposed in § ll.27(c)(2)
that a bank with more than one
assessment area could prepare: (1) a
single plan for all of its facility-based
assessment areas and, as applicable,
retail lending assessment areas and
geographic areas outside of its facilitybased assessment areas and retail
lending assessment areas at the
institution level, with goals for each
current 12 CFR ll.27(c)(1).
current 12 CFR ll.27(c)(2).
1351 See current 12 CFR ll.27(c)(3).
1349 See
7005
geographic area; or (2) separate plans for
one or more of its facility-based
assessment areas and, as applicable,
retail lending assessment areas, and
geographic areas outside of its facilitybased assessment areas and retail
lending assessment areas at the
institution level.1352
Lastly, in proposed § ll.27(c)(3), the
agencies specified the requirements for
the treatment of activities of a bank’s
operations subsidiaries or operating
subsidiaries, as applicable, and other
affiliates. First, proposed
§ ll.27(c)(3)(i) clarified that the
activities of the bank’s operations
subsidiaries or operating subsidiaries
must be included in its plan or be
evaluated under the performance tests
that would apply in the absence of an
approved plan, unless the subsidiary is
already subject to CRA requirements.
Second, proposed § ll.27(c)(3)(ii)
provided that at the bank’s option:
activities of other affiliates may be
included in a plan as long as those
activities are not claimed by another
institution subject to the CRA; affiliated
banks could prepare a joint plan if the
plan provides measurable goals for each
institution; and banks may allocate
affiliate activity among institutions, as
long as the activities are not claimed by
more than one institution subject to the
CRA. Finally, proposed
§ ll.27(c)(3)(iii) stated that the
allocation methodology among affiliate
institutions must reflect a reasonable
basis and must not be designed solely to
artificially enhance any bank’s
performance.
Comments Received
The agencies did not receive specific
comments on the term of a strategic plan
or the requirement for interim
measurable goals for multi-year plans.
Commenters also did not provide
specific feedback on whether banks
should prepare single plans or separate
plans for different assessment areas or
include affiliate activities in their
strategic plans.
The agencies did, however, receive
several comments on their proposal to
require that a bank evaluated under an
approved plan delineate retail lending
assessment areas. One commenter
opposed being required to delineate
retail lending assessment areas under
the strategic plan option altogether.
Several other commenters supported
banks having the ability to negotiate and
justify whether to delineate retail
lending assessment areas with the
appropriate Federal financial
supervisory agency. A commenter
1350 See
1348 See
current 12 CFR ll.27(b).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00433
Fmt 4701
Sfmt 4700
1352 See
E:\FR\FM\01FER2.SGM
proposed § ll.27(c)(2)(i) and (ii).
01FER2
7006
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
supported retail lending assessment area
delineations for a bank under a strategic
plan based on concentrations of lending
without a particular numerical
threshold. Another commenter
indicated that intermediate banks
pursuing the strategic plan option
should have the same requirement for
delineating retail lending assessment
areas as large banks. Another
commenter agreed that, while there may
be situations where it is appropriate for
a strategic plan bank to be evaluated in
facility-based assessment areas and
retail lending assessment areas, a more
flexible approach should be encouraged.
Similarly, a commenter also requested
that, to increase flexibility, strategic
plan banks should be allowed to choose
the geographies they serve beyond
facility-based assessment areas.
Final Rule
The agencies are finalizing proposed
§ ll.27(c) with several modifications
in each of the four areas covered in this
paragraph, including substantial
reorganization to provide additional
clarity.1353
The agencies received no comments
regarding the term of plans in proposed
§ ll.27(c)(1) and are finalizing this
provision as proposed with respect to
the requirement to limit the length of a
plan term to no more than five years;
however, the requirement in proposed
§ ll.27(c)(1) that a multi-year plan
must include annual interim measurable
goals has been removed to reflect the
fact that goals are not expected with
respect to every evaluation component
of the performance test, as plans may
also include performance criteria and
other measurements that correspond to
unmodified performance tests and are
not tied to specific goals. Nevertheless,
the agencies continue to expect annual
measurable goals with respect to any
components that are established in
conjunction with eligible modifications
and additions to the performance tests
as explained further in the section-bysection analysis of § ll.27(g).
Although no comments were directed
specifically at this area, the agencies are
also finalizing proposed § ll.27(f)(1),
renumbered in the final rule as
§ ll.27(c)(2), pertaining to the
requirement that a bank include the
same performance tests in a plan, as
required in § ll.27(g)(1), with certain
technical changes and restructuring for
additional clarity. While originally
proposed in the plan content section
under § ll.27(f), the principle that a
bank’s plan must include the same
performance tests that would apply in
1353 See
supra note 145.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
the absence of an approved plan, subject
to certain eligible modifications and
additions, was moved to final
§ ll.27(c), which discusses plans in
general, given that it serves as a
foundational tenet of the strategic plan
option. This provision references the
plan content provision as discussed in
more detail in the section-by-section
analysis of § ll.27(g), where the
requirement to include a performance
test, any adjustments, optional
evaluation components, modifications,
and additions to the performance tests
allowed by the agencies are
memorialized.
Under the current regulation, many
banks that have chosen to utilize the
strategic plan option have done so as
their banks conduct a significant
volume of activities outside of their
assessment area(s). As the performance
tests adopted in the final rule expand
the consideration of loans, investments,
services, and products outside of the
facility-based assessment areas, the
agencies believe that many of the banks
that are currently operating under plans
may no longer need to utilize the
strategic plan option. Even for banks
that will continue to pursue the strategic
plan option because they possess a
business model that is outside the scope
of, or is inconsistent with, one or more
aspects of the performance tests that
would apply in the absence of an
approved plan, the agencies believe
those banks should continue to be
evaluated under the aspects of the
performance tests that the agencies
would otherwise apply to the bank.
Importantly, proposed § ll.27(f)(1)
also included a requirement that the
plan specify how many of the bank’s
activities were outside the scope of
otherwise applicable performance tests
and why being evaluated pursuant to a
plan would be a more appropriate
means to assess its record of helping to
meet the credit needs of its community
than if it were evaluated pursuant to the
otherwise applicable performance tests.
This aspect of the proposal was adopted
in the final rule as § ll.27(d) with
clarifying revisions and conforming
changes, and is explained in more detail
below in the section-by-section analysis
of that section.
The agencies are finalizing proposed
§ ll.27(c)(2), renumbered in the final
rule as § ll.27(c)(3), pertaining to the
preparation of a plan for banks with
multiple assessment areas, with
revisions to clarify and streamline the
language in the final rule. More
specifically, final § ll.27(c)(3)(i)
continues to permit banks to prepare a
single plan or develop separate plans for
its facility-based assessment areas, retail
PO 00000
Frm 00434
Fmt 4701
Sfmt 4700
lending assessment areas, outside retail
lending area, or other geographic areas
(such as the State, multistate MSA, or
the institution level overall) that would
be evaluated in the absence of an
approved plan.
The final rule also adopts new
§ ll.27(c)(3)(ii) to clarify that any of
these geographic areas that are not
included in the approved plan but
would be evaluated in the absence of a
plan, will be evaluated pursuant to the
performance tests that would apply in
the absence of an approved plan. For
example, a large bank that maintains
one facility-based assessment area and
two retail lending assessment areas
could seek and obtain approval for a
strategic plan that covers only the
facility-based assessment area. In this
case, the two retail lending assessment
areas would be evaluated pursuant to
the Retail Lending Test without any
modifications or additions. The agencies
believe adding this provision to the final
rule will provide a bank with multiple
assessment areas clarity on how the
agencies will apply the applicable
performance tests in areas outside of the
plan. This also addresses commenters’
sentiment that the agencies adopt a
more flexible approach by allowing a
strategic plan to cover some but not all
bank assessment areas.
Further, in response to commenter
feedback suggesting that banks should
be able to justify the exclusion or
elimination of retail lending assessment
areas altogether, the agencies believe
that banks that opt to be evaluated
under an approved plan must be
evaluated under the same geographic
areas (facility-based assessment areas,
retail lending assessment areas, outside
retail lending area, States, and
multistate MSAs, if applicable) the bank
would be evaluated if it had not chosen
to operate under an approved plan.
In response to commenters’ feedback
that the threshold for establishing retail
lending assessment areas should be
adjusted for banks under a plan, the
agencies believe it is more equitable to
maintain parity in the treatment of
banks, whether operating under a plan
or not. The agencies do not believe there
is a reason for treating banks operating
under a strategic plan differently than
other banks if they meet the
requirements for delineating a retail
lending assessment area. Retail lending
assessment areas are already limited to
large banks that meet minimum loan
reporting thresholds in these areas;
therefore, the agencies believe that in
these circumstances the evaluation of
banks’ performance for these
geographies would be valuable. It
should also be noted that the threshold
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
for establishing retail lending
assessment areas in general was
modified upon consideration of
commenter feedback as explained in
more detail in the section-by-section
analysis of § ll.17.
The agencies received no comments
regarding proposed § ll.27(c)(3),
renumbered in the final rule as
§ ll.27(c)(4), pertaining to the
treatment of activities of a bank’s
operations subsidiaries or operating
subsidiaries and other affiliates for a
bank evaluated under a plan, and are
finalizing as proposed with several
technical changes. Specifically,
consistent with the proposal, final
§ ll.27(c)(4)(i) requires activities of an
operations subsidiary or operating
subsidiary to be included in the bank’s
plan (unless the subsidiary is a bank
that is independently subject to CRA).
However, final § ll.27(c)(4)(ii)
provides separate provisions for other
affiliate activities: final
§ ll.27(c)(4)(ii)(A) clarifies that a bank
may include loans, investments,
services, and products of any affiliate in
their plan (as long as they are not
included in the CRA performance of any
other bank); and final
§ ll.27(c)(4)(ii)(B) addresses joint
plans for affiliated banks. Affiliated
banks may develop joint plans provided
they specify how the applicable
performance tests and eligible
modifications and additions apply to
each bank. The final rule also clarifies
that the consideration of affiliate
activities under a plan must be
consistent with the general restrictions
in final § ll.21(b)(3), such as the
bank’s need to collect, maintain, and
report data on affiliate activities, as
applicable. Finally, the agencies are
finalizing, with technical changes,
proposed § ll.27(c)(3)(iii),
renumbered in the final rule as
§ ll.27(c)(4)(ii)(C), pertaining to the
methodology for allocating affiliate
loans, investments, services, and
products for a bank evaluated under a
plan. The final rule requires that, with
respect to a bank affiliate’s loans,
investments, services, and products
included in a bank’s plan, or a joint plan
of affiliated banks: (1) the loans,
investments, services, and products may
not be included in the CRA performance
evaluation of another bank; and (2) the
allocation of affiliates’ loans,
investments, services, and products to a
bank, or among affiliated banks, must
reflect a reasonable basis for the
allocation and may not be for the sole
or primary purpose of inappropriately
enhancing any bank’s CRA evaluation.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Section ll.27(d) Justification and
Appropriateness of Plan Election
The Agencies’ Proposal
Proposed § ll.27(f)(1), required
banks that elect to be evaluated under
a strategic plan to include the same
performance tests and standards that
would otherwise be applied under the
proposed rule, unless the bank is
substantially engaged in activities
outside the scope of these tests. The
agencies also proposed to require banks
to specify in their draft plan why being
evaluated pursuant to a plan would be
a more appropriate means to assess its
record of helping to meet the credit
needs of its community than if it were
evaluated pursuant to the otherwise
applicable performance tests and
standards.
Comments Received
A few commenters addressed this
aspect of the agencies’ proposal. A
commenter stated that the agencies’
proposal effectively eliminates the
strategic plan option by defaulting to
rigid one-size-fits-all assessment area
delineation requirements (including
retail lending assessment areas), data
collection and reporting requirements,
and performance standards that would
otherwise apply to the bank unless it
provides an acceptable rationale for
alternative consideration (such as being
substantially engaged in activities
outside the scope of these performance
tests). Relatedly, a few commenters
indicated that the agencies should
provide additional information on the
justification that would be required to
pursue the strategic plan option.
Final Rule
In response to commenters requesting
that the agencies provide clarity on the
justification required to pursue a
strategic plan option, the agencies are
adopting new § ll.27(d), which
addresses the requirement that the draft
plan provide a justification regarding
how the bank’s activities are outside the
scope of, or are inconsistent with, the
performance tests that would apply in
the absence of an approved plan, and
why being evaluated pursuant to a plan
would more meaningfully reflect its
record of helping to meet the credit
needs of its community than if it were
evaluated in the absence of a plan. In
the final rule, § ll.27(d) more
comprehensively explains how a bank
can justify its use of the strategic plan
option. More specifically, § ll.27(d)(1)
requires that the plan must include
justifications for each of the following
aspects of the plan due to the bank’s
business model if included in the bank’s
PO 00000
Frm 00435
Fmt 4701
Sfmt 4700
7007
plan: optional evaluation components;
eligible modifications or additions to
the applicable performance tests;
additional geographic areas; and the
ratings and conclusions methodology
(see the section-by-section analysis of
§ ll.27(g)).1354
Further, § ll.27(d)(2) in the final
rule clarifies that each justification must
specify the following elements:
• Why the bank’s business model is
outside the scope of, or inconsistent
with, one or more aspects of the
performance tests that would apply in
the absence of a plan. In order for a bank
to eliminate or modify any aspect of the
otherwise applicable performance tests
and be evaluated under different
standards than those banks that are not
operating under a plan, the agencies
believe it is important that the bank
supports how their business model is
inconsistent with the performance tests;
• Why evaluating the bank pursuant
to any aspect of a plan in § ll.27(d)(1)
would be more meaningful than if it was
evaluated in the absence of an approved
plan. Beyond demonstrating how one or
more aspects of the otherwise applicable
performance tests are inconsistent with
their business model, the agencies
believe it is also critical to support how
any optional evaluation components,
eligible modifications or additions,
additional geographic areas, and rating
and conclusions methodologies that are
laid out in the plan offer a superior
evaluation than the performance tests
that would apply in the absence of a
plan; and
• Why the optional performance
components and eligible modifications
or additions in the plan meet the
standards of § ll.27(g)(1) and (2) as
applicable. This aspect of the
justification makes it clear that the bank
must provide a justification for each
optional performance component and
eligible modification or addition that is
made part of the plan.1355
For example, with respect to the last
element, if a plan consisted of
modifications and additions in the form
of (1) adjusted performance test
weightings, (2) the addition of a review
of open-end home mortgage lending
under the Retail Lending Test, and (3)
established goals related to the bank’s
community development financing
metric under the Community
Development Financing Test, the draft
plan must include justifications for each
of these three modifications and
additions.
In response to commenter feedback
regarding the rigidity of the performance
1354 See
1355 See
E:\FR\FM\01FER2.SGM
final § ll.27(d)(1)(i) through (iv).
final § ll.27(d)(2)(i) through (iii).
01FER2
7008
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
standards and other aspects of the
proposed rule in the absence of an
acceptable rationale for alternative
consideration, the agencies believe that
the final rule benefits from a more
consistent approach to evaluating banks
with multiple performance tests that
correspond to the size and business
model of the large variety of banks
found throughout the nation. While the
strategic plan option was designed to
offer flexibility for banks with unique
business models, the agencies believe
that a robust justification provision
fosters parity and consistency in the
CRA evaluation of banks of all sizes.
Further, the agencies believe this
provision provides greater clarity for
banks and agency supervisory staff, and
ensures that strategic plan banks are
held to the same standards as nonstrategic plan banks.
Section ll.27(e) Public Participation
in Initial Draft Plan Development
ddrumheller on DSK120RN23PROD with RULES2
Current Approach
Currently, the regulation has three
public participation requirements for a
bank to complete during the
development of a plan. First, the bank
must informally seek suggestions from
the public in the assessment area(s)
covered by the plan while developing
the plan.1356 Second, once the plan is
initially developed, the bank must
formally solicit public comment on the
plan for at least 30 days by publishing
notice in at least one newspaper of
general circulation in each assessment
area covered by the plan.1357 Finally,
during the formal public comment
period, the bank must make copies of
the plan available for review by the
public at no cost in all bank offices in
any assessment area covered by the
plan, as well as provide copies upon
request for a reasonable fee to cover
copying and mailing, if applicable.1358
The Agencies’ Proposal
The agencies proposed in
§ ll.27(d)(1) to continue to require a
bank to informally seek input from
members of the public in its facilitybased assessment areas covered by the
plan while developing the plan. The
agencies also proposed in § ll.27(d)(2)
that, once a bank had developed a draft
plan, the bank would be required to
submit the initial draft plan for
publication on its appropriate Federal
financial supervisory agency’s website,
as well as publish the draft plan on their
own website if the bank has a website
(or if the bank does not maintain a
current 12 CFR ll.27(d)(1).
current 12 CFR ll.27(d)(2).
1358 See current 12 CFR ll.27(d)(3).
1356 See
website by publishing notice in at least
one print newspaper or digital
publication of general circulation in
each facility-based assessment area
covered by the plan, or for military
banks in at least one print newspaper or
digital publication of general circulation
targeted to members of the military) for
a period of at least 30 days. The
proposal also clarified that the draft
plan should include instructions to the
public on how they could submit
comments both electronically and at a
postal address.1359 Proposed
§ ll.27(d)(3) continued to require
banks to make copies of the plan
available during the formal comment
period at all offices in areas covered by
the plan and upon request for a
reasonable copying and mailing fee.
Lastly, the agencies sought feedback
regarding whether the agencies should
announce pending plans in the same
manner as they announce upcoming
CRA examination schedules and
completed CRA examinations and
ratings.
Comments Received
Most commenters were generally
supportive of the agencies’ proposal,
with some commenters offering
modifications or alternatives. A
commenter expressed the view that a
bank should be given the option of
whether to post its plan notice and draft
plan on its website or to publish the
notice in at least one print newspaper or
digital publication of general
circulation. Other recommendations
concerning publishing plans included
suggestions that the agencies circulate
plans over email to ensure a high level
of community engagement and avoid
incorporating any more restrictive
announcements, postings, or
requirements into the final rule for
strategic plans.
One commenter stated that banks
should make an affirmative effort to
engage community-based organizations
led by people of color and women as
well as a range of advocacy
organizations working on behalf of
communities and should document how
many and which of these organizations
they engaged. Several other commenters
indicated that a bank should be able to
give greater weight to input received on
a draft plan from organizations serving
or located in regions represented within
the plan.
Final Rule
The agencies are finalizing proposed
§ ll.27(d), renumbered in the final
rule as § ll.27(e), pertaining to the
1360 See
1357 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
public participation requirements, with
a revision to expand the timeframe for
formally soliciting public comment and
several technical and clarifying changes.
While the current and proposed rule
allowed for a 30-day period for the bank
to formally solicit public comments on
the initial draft plan, the agencies
believe that the public participation
component of the plan development
process is critical and that additional
time is appropriate to ensure that
members of the public have the time to
review the initial draft plan and provide
informed input to a bank. Consistent
with the desire to increase public
participation in the plan development
process, the agencies are expanding the
formal public comment period to 60
days.1360
While a few commenters advocated
for more flexibility or for the agencies to
limit any new announcement or posting
requirements, the agencies believe the
proposed modifications that add
requirements to post initial draft plans
on the appropriate Federal financial
supervisory agency’s website and bank’s
website, if the bank maintains one, are
necessary as this is the most convenient
and efficient way for most members of
the public to become aware of and
access initial draft plans. As discussed
in the proposal, the expansion of the
availability of initial draft plans online
is important, as it has been the agencies’
experience that plans rarely garner
public comments when distributed
solely through notifications in the local
newspaper.
The agencies are also adopting in the
final rule a new requirement in
§ ll.27(e)(1)(ii)(A) and (B), which
requires banks with websites to publish
their initial draft plans on their website
and for all banks (including those with
websites) to publish notice in at least
one newspaper of general circulation in
each facility-based assessment area.
Although the agencies did not propose
requiring banks with a website to also
provide notice in a print newspaper, the
agencies believe this change is
consistent with the agencies’ objective
to promote transparency and enhance
public participation with respect to
draft plans and to acknowledge that
notice in a newspaper is how the rule
has made the public aware of plans for
decades under the current regulation
and there may be stakeholders that
continue to rely on that form of
notice.1361 The agencies believe that
further distribution through other
mechanisms, as recommended by
commenters (such as through email),
1359 See
PO 00000
id.
Frm 00436
1361 See
Fmt 4701
Sfmt 4700
E:\FR\FM\01FER2.SGM
final § ll.27(e)(1)(ii).
current 12 CFR ll.27(d)(2).
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
would not be practical and would cause
unnecessary burden without sufficient
benefit.
Further, while the agencies sought
feedback on the advantages and
disadvantages of announcing pending or
draft plans using the same means the
agencies use to announce upcoming
examination schedules or completed
CRA examinations and CRA ratings, the
agencies received no comments directly
addressing this issue. After weighing the
benefits and burden of announcing
initial draft plans, the agencies
determined that announcing initial draft
plans (for example, through an agency
press release) would be impractical, as
it would need to occur in real time in
order to be useful given the 60-day
comment period. As discussed
previously, the final rule includes a
requirement to publish initial draft
plans on the bank’s and appropriate
agency’s website, and community
groups and other members of the public
have demonstrated an ability to monitor
the agencies’ websites to access other
similar information to participate in the
CRA feedback process (such as
announcements of pending bank
applications).
With respect to proposed
§ ll.27(d)(1), a technical change was
made to the language, which suggested
that seeking informal suggestions was
limited to members of the public in the
bank’s facility-based assessment areas.
In final § ll.27(e)(1)(i), the reference
to facility-based assessment areas was
removed to make clear that it may be
appropriate for banks to seek informal
input from other members of the public
depending on the circumstance, such as
organizations that serve public
stakeholders nationally or in retail
lending assessment areas. Also, the
agencies do not believe that that they
should dictate specifically how a bank
should seek input or suggestions from
members of the public. While
commenters suggested that the
regulation should state an affirmative
obligation to engage with or place
greater weight on input from certain
types of organizations (such as those led
by women or people of color, or
organizations that serve the region
covered by the plan), the agencies
believe that each bank and its public
stakeholders are unique; therefore, it
would be inappropriate for the agencies
to dictate from whom and how banks
solicit and consider public input in
conjunction with plan development.
The final rule also clarifies the public
engagement requirements for military
banks.1362 In addition to the website
publishing requirements under final
§ ll.27(e)(1)(ii)(A), and instead of the
newspaper publishing requirements in
final § ll.27(e)(1)(ii)(B), the final rule
requires that a military bank publish
notice in at least one print newspaper of
general circulation targeted to members
of the military, if available. Otherwise,
the military bank must publish notice in
a digital publication targeted to
members of the military.
Lastly, final § ll.27(e)(1)(iii)
provides that a bank must include on its
website and in a newspaper notice, a
means by which members of the public
can electronically submit and mail
comments to the bank on its initial draft
plan.1363 Also, the agencies are
finalizing proposed § ll.27(d)(3),
renumbered as § ll.27(e)(2), with
minor clarifying technical changes, with
no change in meaning intended.
Consistent with the current rule,1364
during the formal public comment
solicitation period, a bank must make
copies of the initial draft plan available
for review at no cost in any facilitybased assessment area covered by the
plan, and provide copies of the plan
upon request for a reasonable fee to
cover copying and mailing.
Section ll.27(f) Submission of a Draft
Plan
Current Approach
Currently, the regulation requires a
bank to submit its plan to its
appropriate Federal financial
supervisory agency at least three months
prior to the proposed effective date of
the plan and to include a description of
its efforts to seek suggestions from the
public, any written comments received,
and the initial draft plan (if it was
revised in light of the comments
received).1365
The Agencies’ Proposal
The agencies proposed to maintain
the requirements in current § ll.27(e)
with additional clarifications regarding
some aspects of those requirements.
Consistent with the current rule,
proposed § ll.27(e) required the same
three-month submission timeframe from
banks prior to the proposed effective
date of the plan. The proposal also
maintained the current requirement that
the submission of the plan include a
description of the bank’s efforts to seek
suggestions from the public but clarified
that this must include who was
contacted and how the information was
gathered. Lastly, the proposal also
expanded the request for any written
final § ll.27(e)(1)(iii).
current 12 CFR ll.27(d)(3).
1365 See current 12 CFR ll.27(e).
1363 See
comments to include more broadly any
written or other input on the plan that
was received by the public and the
initial draft plan if it was revised in light
of the input.
Comments Received
The agencies received one comment
addressing this aspect of the proposal.
Specifically, a commenter indicated that
the information a bank submits should
also include a comprehensive list of the
comments and recommendations it
received and the bank’s response to this
input.
Final Rule
The agencies are finalizing proposed
§ ll.27(e), renumbered in the final
rule as § ll.27(f), with several
technical changes to reflect the timing
requirements in days and to more
clearly identify the materials that a bank
must submit to the appropriate Federal
financial supervisory agency in
conjunction with the draft plan.
Consistent with other timing
requirements in the final rule that are
based on calendar days, the three-month
timeframe for submission of the plan
before it is proposed to become effective
has been changed to a substantially
equivalent 90 days. Also, consistent
with the other documentation to
support public participation in the
proposal (e.g., description of efforts to
seek public input, written and other
public input received, initial draft plan
before it was revised in light of public
input), the agencies added the following
to the list of items that must be
submitted in conjunction with a draft
plan, as applicable: proof of notice
notification; any written comments or
other public input received; an
explanation of any relevant changes
made to the initial plan in light of
public input received; and an
explanation for why any suggestions or
concerns received by the public
regarding the plan were not
addressed.1366 These changes are
responsive to the commenter that
addressed this aspect of the proposal, as
the final rule requires the bank to
submit any written or other input
received and to add explanations of how
this input was or was not integrated into
the plan, which will serve as the bank’s
response to this input. As discussed
previously, the agencies believe public
participation is critical to the plan
development process, and the
additional items added to accompany
the plan submission allow the agencies
to ensure that the requirements under
final § ll.27(e) are met, and to better
1364 See
1362 See
final § ll.27(e)(1)(ii)(C).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00437
Fmt 4701
Sfmt 4700
7009
1366 See
E:\FR\FM\01FER2.SGM
final § ll.27(f)(1) through (4).
01FER2
7010
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
understand how public input was
considered and integrated into the plan.
Section ll.27(g) Plan Content
ddrumheller on DSK120RN23PROD with RULES2
Current Approach
The current regulation requires a bank
to specify measurable goals in its plan
for helping meet the credit needs of
each assessment area covered by the
plan, particularly the needs of low- and
moderate-income geographies (i.e.,
census tracts) and individuals, through
lending, investment, and services, as
appropriate.1367 A bank must address all
three performance categories and,
unless the bank has a wholesale or
limited purpose designation, shall
emphasize lending and lending-related
activities.1368 Further, the current
regulation permits banks to submit
additional information to its appropriate
Federal financial supervisory agency on
a confidential basis, provided the goal
plans are sufficiently specific to enable
the appropriate Federal financial
supervisory agency and the public to
judge the merits of the plan.1369
The current regulation also requires a
bank to specify measurable goals in its
plan that constitute ‘‘satisfactory’’
performance and to optionally establish
goals that constitute ‘‘outstanding’’
performance.1370 If the bank submits
goals for both levels of performance and
the appropriate agency approves the
plan, the agency will consider the bank
eligible for an ‘‘outstanding’’ rating. If
the bank does not substantially meet the
plan goals, the bank also has the option
to elect in its plan to have its
performance evaluated under the
performance test or standards that
would otherwise apply in the absence of
a plan.1371
The Agencies’ Proposal
The agencies proposed revisions to
current § ll.27(f), including
substantive and technical changes. In
proposed § ll.27(f)(1), the agencies
required that a bank’s draft plan include
the same performance tests and
standards that would otherwise be
applied under the CRA regulations,
unless the bank is substantially engaged
in activities outside of the scope of the
performance tests. The proposal
required that the draft plan specify how
these activities are outside the scope of
the otherwise applicable performance
tests and standards and why being
evaluated pursuant to a plan would be
a more appropriate means to assess the
current 12 CFR ll.27(f)(1)(i).
current 12 CFR ll.27(f)(1)(ii).
1369 See current 12 CFR ll.27(f)(2).
1370 See current 12 CFR ll.27(f)(3).
1371 See current 12 CFR ll.27(f)(4).
1367 See
bank’s record of helping to meet the
credit needs of its community than if it
were evaluated pursuant to the
otherwise applicable performance tests
and standards.
Proposed § ll.27(f)(2) required that
the draft plan incorporate measurable
goals for all geographical areas that
would be included pursuant to the
performance tests and standards that
would otherwise apply in the absence of
approved plan.
Proposed § ll.27(f)(3)(i) required a
bank, pursuant to these tests and
standards, to specify measurable goals
in its draft plan for helping to meet the
following, as applicable:
• retail lending needs of, as
applicable, its facility-based assessment
areas, retail lending assessment areas,
and outside retail lending area that are
covered by the draft plan;
• retail services and products needs
of its facility-based assessment areas
and at the institution level that are
covered by the draft plan;
• community development financing
needs of its facility-based assessment
areas, States, multistate MSAs, and
nationwide areas that are covered by the
draft plan; and
• community development services
needs of its facility-based assessment
areas and other geographic areas served
by the bank that are covered by the draft
plan.
In a bank’s draft plan, the agencies
proposed that a bank must consider
public comments and its capacity and
constraints, product offerings, and
business strategy in developing goals in
these four performance test areas.1372
The proposal also required that the
bank’s draft plan include a focus on the
credit needs of low- and moderateincome individuals, small businesses,
small farms, and low- and moderateincome census tracts, and explain how
the plan’s measurable goals are
responsive to the characteristics and
credit needs of, as applicable, the
assessment areas and geographic areas
served by the bank, considering public
comment and the bank’s capacity and
constraints, product offerings, and
business strategy.1373
In developing measurable goals
related to retail lending, the agencies
proposed that a bank incorporate
measurable goals in its draft plan for
each major product line. However,
banks have the option to develop
additional goals that cover other
lending-related activities based on the
bank’s specific business strategy.1374
1368 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
proposed § ll.27(f)(3)(ii).
proposed § ll.27(f)(3)(iii).
1374 See proposed § ll.27(f)(3)(iv).
1372 See
1373 See
PO 00000
Frm 00438
Fmt 4701
Sfmt 4700
Moreover, proposed § ll.27(f)(3)(v)
provided that if the bank’s plan goals
related to retail lending do not
incorporate the Retail Lending Test’s
metric-based methodology, the bank
must explain why incorporation of the
methodology is not appropriate.
Further, for banks that would otherwise
have community development loan and
community development investment
requirements, proposed
§ ll.27(f)(3)(vi) required that a bank
include an explanation as to why
measurable goals do not incorporate, as
applicable, the metric-based
methodology in the Community
Development Financing Test or the
Community Development Financing
Test for Wholesale or Limited Purpose
Banks as described in proposed
§§ ll.24 and ll.26, respectively, or
the community development
performance standards for intermediate
banks as provided in proposed
§ ll.29(b)(2).
The agencies proposed in
§ ll.27(f)(4) to retain the current
regulatory language with respect to a
bank’s ability to submit additional
information regarding the plan to the
agencies on a confidential basis.
Further, the agencies proposed similar
language to the current regulation that
requires banks to specify in its plan
measurable goals that constitute
‘‘Satisfactory’’ performance and
provides them the option to specify
goals for ‘‘Outstanding’’ performance.
Lastly, in proposed § ll.27(f)(6), the
agencies continued to provide the
option for banks to be evaluated under
the performance tests and standards that
would otherwise apply in the absence of
a plan if the bank failed to substantially
meet its plan goals.
Comments Received
Many commenters agreed that
flexibility, particularly with regard to
assessment areas, performance tests and
standards, and the establishment of
goals, should be maintained. These
commenters did not share the concern
expressed by other commenters that
banks could use the strategic plan
option to avoid more stringent CRA
requirements, noting that appropriate
guardrails, such as public comment and
regulatory approval, would be in place.
At least one commenter believed the
proposed regulatory text would
discourage banks from selecting the
strategic plan option, stating this could
result in changing the bank’s business
strategy. To avoid this unintended
consequence, this commenter
recommended deleting the word
‘‘substantially,’’ and instead include
language that a different approach may
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
be more appropriate for a bank’s
business model. In addition, when
referencing that a plan must address all
performance tests and standards that
would otherwise be applied, the
commenter requested that the agencies
retain the language under the current
regulations that ‘‘a different emphasis,
including a focus on one or more
performance categories, may be
appropriate if responsive to the
characteristics and credit needs of its
assessment area(s), considering public
comment and the bank’s or savings
association’s capacity and constraints,
product offerings, and business
strategy.’’
A number of commenters expressed
concern that the agencies’ strategic plan
option proposal lacks flexibility and,
thereby, defeats the original purpose of
plans. Some of these commenters
recommended that the agencies preserve
the flexible features afforded plans
under the current CRA regulations. In
particular, these commenters identified
assessment areas, in-scope products,
measurable goals, and test weights as
current areas of flexibility. Some of
these commenters made
recommendations, including that the
agencies: explicitly state in the final rule
that not all performance tests would be
required for banks where they are not
applicable and that banks that are
primarily consumer lenders be allowed
to include consumer loans under their
plans; provide flexibility for weighting
the four main performance tests at the
institution level for all strategic plan
banks if the final rule does not provide
that accommodation for all banks; and
clarify whether banks may continue to
use self-executing provisions that allow
certain changes to take effect upon the
occurrence of a particular event.
Another commenter believed that the
proposed changes to the plan would
shift its focus from meeting community
needs, including community
development investments and
community engagement, to meeting
strict tests and monitoring generic
benchmarks.
Final Rule
In response to comments that
advocated for greater flexibility in the
development of plans, the agencies
made significant revisions aimed to
clarify the plan content requirements in
proposed § ll.27(f), renumbered as
final § ll.27(g). These revisions also
ensure that there are guardrails to
prevent banks from opting out of a
‘‘more stringent’’ evaluation under the
applicable default performance tests,
including to retain parity among banks
not evaluated under an approved
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
strategic plan and those that are. The
agencies believe the revisions in the
final rule provide stakeholders with
more objective rules under the strategic
plan option that define when the
standard performance tests apply and
when eligible additions and
modifications are allowed and
appropriate. Also, while proposed
§ ll.27(f) consistently referenced
‘‘draft plan’’ when addressing plan
content requirements, final § ll.27(g)
omits the term ‘‘draft’’ to clarify that
these plan content requirements also
apply to approved plans. As a draft plan
is developed solely for the purpose of
obtaining agency approval, all of the
requirements of final § ll.27(g) would
apply at the draft stage as well.
Proposed § ll.27(f)(1) provided that
‘‘[a] bank’s draft plan must include the
same performance tests and standards
that would otherwise be applied under
this part, unless the bank is
substantially engaged in activities
outside the scope of these tests,’’ and
must specify how these activities are
outside the scope of the performance
tests and why being evaluated under a
plan would be more appropriate. As
explained above, the concepts in
proposed § ll.27(f)(1) were
restructured in the final rule and are
now discussed in final § ll.27(c) and
(d), which detail plans in general and
the justification and appropriateness of
plan election, respectively (see the
section-by-section analysis of
§ ll.27(c) and (d)). As a result, final
§ ll.27(g) requires that the plan must
meet the requirements of final
§ ll.27(g), as well as those outlined in
final § ll.27(c) and (d). In response to
the commenter that expressed concern
that the proposed regulatory text would
force a bank to change its business
model, the agencies believe the
revisions proposed in § ll.27(f)
provide sufficient flexibility to
accommodate different business models.
By requiring justifications for any
modifications and additions and
relating them to areas where the
performance tests that would apply in
the absence of an approved plan are
outside the scope of, or are inconsistent
with, the bank’s business model, the
agencies believe that they have provided
sufficient flexibility while also
providing guardrails to prevent a bank
from inappropriately eliminating
performance tests for which it has the
capacity to deliver results.
Final § ll.27(g)(1) adopts the
language that was proposed in
§ ll.27(f)(3)(iii) to require the draft
plan to focus on the credit needs its
entire community, including low- and
moderate-income individuals, families,
PO 00000
Frm 00439
Fmt 4701
Sfmt 4700
7011
and households; low- and moderateincome census tracts; and small
businesses and small farms, and to
describe how the plan is responsive to
the characteristics and credit needs of
its facility-based assessment areas, retail
lending assessment areas, outside retail
lending area, and other geographic areas
served by the bank with a technical edit.
The reference in proposed
§ ll.27(f)(3)(iii) explaining how the
plan’s measurable goals are responsive
to these areas was revised to reflect that
the bank’s responsiveness can be
demonstrated by any component of the
plan, including those components that
are not tied to measurable goals. This
provision, in conjunction with the
variety of eligible modifications and
additions permitted under final
§ ll.27(g)(2), is responsive to the
commenter that expressed concern that
the strategic plan option would shift
focus from meeting credit needs to a
strict adherence to the tests and
benchmarks.
In final § ll.27(g)(1), the agencies
are also clarifying that a bank must
specify the components in the plan for
helping meet various needs, as
applicable, in the various geographical
areas served by the bank. These needs
are similar to the ones that were
delineated in proposed § ll.27(f)(3)
and include those related to retail
lending, retail banking services and
retail banking products, community
development loans, community
development investments, and
community development services.
However, the language was amended
from the proposal to reflect that the plan
must specify any components of the
draft plan that help meet these needs—
not only measurable goal components.
Also, upon consideration of
perspectives of commenters that had
concerns that the strategic plan option
would be used to avoid more stringent
CRA requirements and those that urged
the maintenance of flexible criteria
under the option (including giving
banks the ability to eliminate a
performance test, if not applicable), the
agencies added more specificity to the
requirements in final § ll.27(g)(1)(i)
through (iv) that detail the components
that a bank must include in its plan
depending on the size of the bank and
the bank’s product offerings. The
agencies believe these provisions clarify
the agencies’ proposal and keep the
bank accountable for results under the
applicable performance tests that can be
reasonably applied to the bank, while
offering appropriate flexibility when the
bank’s business model is outside the
scope of, or is inconsistent with, one or
more of the performance tests that
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7012
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
would apply in the absence of an
approved plan, which include limited
circumstances that may justify the
elimination of a performance test.
For instance, in order to assess its
efforts in helping meet retail lending
needs, final § ll.27(g)(1)(i) requires a
bank that originates or purchases loans
in a product line evaluated under the
Retail Lending Test in final § ll.22 or
originates or purchases loans evaluated
pursuant to the Small Bank Lending
Test in final § ll.29(a)(2) to include
the applicable test in its strategic plan.
A large bank that offers residential
mortgage loans that would be
considered under the Retail Lending
Test would need to include that
performance test in its plan. In contrast,
a bank that originates consumer loans,
and does not originate any other loans
considered under the Retail Lending
Test, would not be required to include
the Retail Lending Test in its plan. Also,
a large bank would not need to include
in its strategic plan the Retail Services
and Products Test if it does not
maintain any delivery systems 1375 or
the Community Development Services
Test in a facility-based assessment area
where the large bank has no
employees.1376 It is important to note
that all banks (other than small banks
that have no community development
requirements under § ll.29) must
include the otherwise applicable
community development test in their
plan,1377 as the agencies do not believe
there are circumstances where these
banks do not have the capacity to
deliver some volume of community
development investments or loans.
Also, final § ll.27(g)(1)(ii) through (iv)
make it clear that any bank can add a
component of a performance test that
relates to a need that is not covered in
the performance tests that would apply
in the absence of an approved plan. For
example, although large banks generally
are required to include community
development services, delivery systems,
credit products or programs, and
deposit products, any other bank may
also include a component of these in its
plan. Additionally, a small bank could
add goals related to community
development loans and community
development investments to its plan.
While these banks would not be
required to perform in these areas under
the performance tests that would apply
in the absence of an approved plan, a
bank may wish to add these components
to compensate for the elimination or
final § ll.27(g)(1)(ii)(A).
final § ll.27(g)(1)(iv)(A).
1377 See final § ll.27(g)(1)(iii)(A) through (C).
modifications of other performance test
components in their plan.
In response to commenters that urged
flexibility regarding the development of
plans and the agencies’ desire to add
clarity regarding the requirements in
final § ll.27(g)(1) related to the
elimination or additions to the
applicable performance tests, the
agencies are adopting new
§ ll.27(g)(2) to detail the eligible
modifications or additions that may be
made to the components within the
performance tests that would apply in
the absence of an approved plan if
justified under final § ll.27(d).
Similar to final § ll.27(g)(1), final
§ ll.27(g)(2)(i) through (iv) detail the
modifications and additions that the
rule would allow in the four areas of
retail lending, retail banking services
and products, community development
loans and investments, and community
development services. For instance,
with respect to retail lending, small
banks may be able to support the
omission of the loan-to-deposit or
assessment area concentration
performance criteria pursuant to
§ ll.29, as well as add annual
measurable goals for its retail lending
activity.1378 As an example, a small
bank that originates residential mortgage
lending throughout the country (with a
nominal concentration of loans in its
facility-based assessment area) may be
able to justify the elimination of the
assessment area concentration
performance criterion and develop goals
that correspond to its geographic and
borrower distribution in nationwide
residential mortgage lending. For a bank
otherwise evaluated under the Retail
Lending Test, in its plan, a bank may
add additional products outside those
that are considered pursuant to final
§ ll.22 (e.g., closed-end home
mortgage loans, small business loans,
small farm loans, and automobile
loans).1379 For example, this flexibility
allows a bank to be evaluated with
respect to its consumer loan products.
As an additional example, a large bank
could add open-end home mortgage
lending with accompanying goals that
would be considered under the plan in
addition to the major product lines that
are already required pursuant to
§ ll.22.
When adding measurable goals
related to additional products or subproducts, final § ll.27(g)(2)(i)(B)(2)
permits the bank to apply different
product weights that allow for averaging
together the performance across the
added products in combination with the
other standard major product lines
required to be evaluated under the
Retail Lending Test or including those
loan products in the numerator of the
Bank Volume Metric. For example, if a
bank justifies the addition of open-end
home mortgage loans under the Retail
Lending Test in its plan to be evaluated
in conjunction with its product lines,
the bank could treat the open-end home
mortgage loans as an additional product
line and calculate a weighted average
based on a combination of loan dollars
and loan count across all major product
lines consistent with section VII of final
appendix A.
Under the plan option, final
§ ll.27(g)(2)(i)(B)(3) also allows the
bank to use alternative weighting when
combining the borrower and geographic
distribution analyses. Under the Retail
Lending Test, these two measures each
account for 50 percent of the
recommended conclusion unless there
are no low- and moderate-income
census tracts; however, under a plan, a
bank may adjust these weightings for a
specific product line if it can justify
why the standard weighting does not
represent the most appropriate
evaluation of these criteria. For
example, an intermediate bank may be
able to support lowering the weight of
the geographic distribution measure
(and therefore increase the weighting of
the borrower distribution measure)
related to performance in a facilitybased assessment area that is comprised
of 60 census tracts and only one census
tract is considered low- or moderateincome. In this circumstance, it may be
appropriate to adjust weighting to
account for the lack of economic
diversity in the geographic areas that
make up the bank’s assessment area.
Additional modifications and
additions are allowed for retail banking
services and retail banking products
pursuant to final § ll.27(g)(2)(ii) if a
bank can provide sufficient justification.
First, a large bank may add a measurable
goal for any component of the Retail
Services and Product Test.1380 For
example, a bank may establish a goal to
maintain branches in low- and
moderate-income census tracts within
its sole facility-based assessment area
that mirror or exceed the corresponding
percentages of households in those
tracts. Second, a large bank may remove
a component of the Retail Services and
Products Test in limited circumstances.
For example, if the bank does not offer
any remote service facilities, the bank
could remove that component from the
test.1381 Third, pursuant to final
1375 See
1376 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
1378 See
1379 See
PO 00000
final § ll.27(g)(2)(i)(A)(1) and (2).
final § ll.27(g)(2)(i)(B)(1).
Frm 00440
Fmt 4701
Sfmt 4700
1380 See
1381 See
E:\FR\FM\01FER2.SGM
final § ll.27(g)(2)(ii)(A).
final § ll.27(g)(2)(ii)(B).
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
§ ll.27(g)(2)(ii)(C), large banks may
assign specific weights to the applicable
components of the test to reach a
conclusion. In final § ll.23, there are
no defined weightings to consider in
formulating conclusions or ratings for
the Retail Services and Products Test;
however, a bank may establish
weightings that clarify how the existing
and modified components are combined
to arrive at conclusions or ratings under
the plan. Finally, as only large banks
must comply with the Retail Services
and Products Test, final
§ ll.27(g)(2)(ii)(D) clarifies that banks
other than large banks may include
retail banking services and retail
banking products components and
accompanying measurable goals in their
plans at their option. For instance, an
intermediate bank could establish a goal
for delivering Bank On-certified
accounts to consumers in its facilitybased assessment area to compensate for
modifications it made with respect to
the Retail Lending Test.
Additional modifications and
additions are allowed for community
development loans and community
development investments pursuant to
final § ll.27(g)(2)(iii). First, a bank
‘‘may specify annual measurable goals
for community development loans,
community development investments,
or both.’’ 1382 This provision requires
that any measurable goals in this area
must be based on a percentage or ratio
of the bank’s community development
loans and community development
investments, presented either on a
combined or separate basis, relative to
the bank’s capacity (typically reflected
as deposits or assets), accounting for the
community development needs and
opportunities in an applicable
geographic area. For instance, while the
final rule does not establish specific
thresholds to evaluate a bank’s
community development financing
metric relative to comparable
benchmarks for the Community
Development Financing Test, a large
bank could set an annual goal in the
form of a target percentage (based on the
benchmark or some other reasonable
measure). For instance, a large bank
could establish an annual goal of 1.25
percent for its Bank Assessment Area
Community Development Financing
Metric, which would mean the bank’s
community development loans and
community development investments
were 1.25 percent of the bank’s deposits
in that assessment area. Alternatively,
the bank could establish an annual goal
for this metric as a percentage of the
corresponding benchmark, such as 125
percent of the Assessment Area
Community Development Financing
Benchmark. A bank could also establish
measurable goals for all or just a
particular type of a bank’s community
development loans or community
development investments. As another
example, a large bank could establish
annual measurable goals based on the
dollar volume of its purchase or
maintenance of LIHTC investments
relative to the bank’s deposits. Other
modifications in this area include using
assets (in lieu of deposits) as an
alternative denominator 1383 or
additional benchmarks 1384 to evaluate a
community development financing
metric. For example, if a large bank can
justify why the deposits figure used in
calculating the metric does not
adequately capture the bank’s capacity
to make investments and loans in its
facility-based assessment areas, the bank
could propose to use a metric that is
calculated using the bank’s assets.
Lastly, as the small bank performance
evaluation does not include any criteria
related to a community development
financing requirement, final
§ ll.27(g)(2)(iii)(D) clarifies that small
banks may include a community
development loan or community
development investment component
and accompanying measurable goals in
their plans.
With respect to community
development services, final
§ ll.27(g)(2)(iv)(A) allows a bank to
specify annual measurable goals for
these activities. While any reasonable
measure can be used if justified, this
section provides examples of goals that
could include the number of activities
or the number of activity hours against
some measure of bank capacity, such as
full-time equivalent employees. Also,
since only large banks are subject to the
Community Development Services Test,
final § ll.27(g)(2)(iv)(B) clarifies that
banks other than large banks may, at
their option, include a community
development services component and
accompanying goals in their plan.
As many of the performance tests
assign weights to various components of
the tests (including the geographical
areas, products, and criteria), the final
rule contains language to outline the
circumstances under which adjustments
to weighting are allowed with
justification under final § ll.27(d). As
discussed previously, weighting of
products and borrower and geographic
analyses under to the Retail Lending
Test are addressed in final
1383 See
1382 See
final § ll.27(g)(2)(iii)(A).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
1384 See
PO 00000
final § ll.27(g)(2)(iii)(B).
final § ll.27(g)(2)(iii)(C).
Frm 00441
Fmt 4701
Sfmt 4700
7013
§ ll.27(g)(2)(i)(B)(2) and (3),
respectively.
With respect to geographical
weighting, final § ll.27(g)(2)(v) allows
a bank to specify alternative weights for
averaging test performance across
assessment areas or other geographical
areas with justification based on the
bank’s level of activity and capacity in
specific geographic areas. For example,
while facility-based assessment area
weighting is typically calculated as an
average of loans and deposits, an
intermediate bank may propose an
alternative weighting for its facilitybased assessment areas if there are
anomalies in the geographical
distribution of its deposits (as calculated
by the FDIC’s Summary of Deposits
data). For instance, a bank with a large
warehouse lending operation may
maintain all of its associated escrow
deposits, which represent the majority
of its deposits, in one branch. If, as a
result, the assessment area that
corresponds to this branch receives
disproportionate weight in assessing the
bank’s lending performance, the bank
may be able to justify an alternative
weighting methodology in its plan.
With respect to combining the various
applicable performance tests to develop
ratings in States and multistate MSAs,
as applicable, and for the institution
under the plan, final
§ ll.27(g)(2)(vi)(A) allows a bank to
request an alternative weighting
method. This alternative weighting
provision would also apply to combined
assessment area conclusions developed
for the purposes of determining whether
a large bank met the 60 percent standard
specified in final § ll.28(b)(4)(ii)(B).
In making these clarifications, the
agencies have considered commenter
feedback advocating for flexibility under
the strategic plan option. Similar to the
current rule,1385 the alternative test
weighting method must emphasize
retail lending, community development
financing, or both, as well as be
responsive to the characteristics and
credit needs of a bank’s assessment
area(s), public comments, and the
bank’s capacity and constraints, product
offerings, and business strategy. Under
the final rule, however, if an alternative
test weighting methodology is
requested, a bank must compensate for
decreasing the weight under one
performance test by committing to
enhance its efforts to help meet the
credit needs of its community under
another performance test.1386 For
example, if a large bank that conducted
limited retail lending activity submitted
1385 See
1386 See
E:\FR\FM\01FER2.SGM
current 12 CFR ll.27(f)(1)(ii).
final § ll.27(g)(2)(vi)(B).
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7014
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
a draft plan that reduced the weight of
the Retail Lending Test from 40 percent
to 20 percent with a corresponding
increase in the weight of the
Community Development Financing
Test to 60 percent, the agencies would
expect the plan to include
enhancements for its performance under
the Community Development Financing
Test taking this increased performance
test weight into consideration. The bank
should explain its rationale for why its
performance under a test with an
increased weight meets the required
standard. In an example involving
increased weight for the Community
Development Financing Test, as noted
above, the bank could describe its
performance relative to relevant
benchmarks provided under that
performance test (such as by setting
‘‘Satisfactory’’ goals for the community
development financing metric that
exceeded the benchmark by a specific
percentage).
The agencies received differing views
on the geographic coverage of plans in
proposed § ll.27(f)(2), feedback which
was also discussed in regard to final
§ ll.27(c)(3)(ii). As discussed
previously, all of these comments
related to the proposal for banks to
include retail lending assessment areas
in their plan if these areas would
otherwise be required in the absence of
an approved plan. While a few
commenters favored allowing banks to
justify or negotiate away the
requirement to include retail lending
assessment areas, the other commenters
that addressed this issue supported the
inclusion of these areas. After
considering these comments, the
agencies are finalizing proposed
§ ll.27(f)(2), renumbered as
§ ll.27(g)(3), pertaining to the
requirement that a bank may not
eliminate the evaluation of its
performance in any geographic area that
would be included in its performance
evaluation in the absence of an
approved plan (including retail lending
assessment areas and the outside retail
lending area). In addition, several
technical changes and expanded
language are included to explain that
performance evaluation components
and goals may be added to the plan for
additional geographic areas and to
address how retail lending assessment
area designations that change
subsequent to the approval of the plan
will be handled. As the requirement for
designating a retail lending assessment
area is limited to a subset of large banks
that are not exempted under final
§ ll.17(a)(2), which addresses
whether a bank has more than 80
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
percent of its lending inside of its
facility-based assessment areas, and that
also meets the specified lending
thresholds for closed-end home
mortgage loans or small business
loans,1387 the agencies believe that it is
appropriate for these banks to be
evaluated in these areas in their plans.
This also maintains parity among large
banks, whether they are evaluated under
a strategic plan or not. As discussed
previously, final § ll.27(c)(3)(i)
requires that a bank’s plan incorporate
each assessment area (including both
facility-based and retail lending) and
other geographic areas (such as an
outside retail lending area, States,
multistate MSAs, or nationwide) that
would otherwise be evaluated in the
absence of an approved plan. This
language was modified from proposed
§ ll.27(f)(2) in that it removes the
reference to requiring measurable goals,
consistent with the fact that a bank’s
performance under a plan may be
evaluated exclusively on a performance
component that is not guided by a goal.
In the proposal, the agencies sought
feedback on whether intermediate banks
electing to be evaluated under a plan
should be allowed to delineate retail
lending assessment areas, whether small
banks electing to be evaluated under a
plan should be allowed to delineate
retail lending assessment areas and
outside retail lending areas, and what
criteria should apply to small and
intermediate banks delineating such
assessment areas under a plan. The
agencies did not receive any comments
in response; however, the agencies
believe this issue should be addressed
in the final rule. The final rule adopts
new § ll.27(g)(3)(i), which clarifies
that evaluation components and
accompanying goals may be added to a
plan at the bank’s option. For example,
a small bank may opt to incorporate
retail lending goals for areas outside of
its facility-based assessment areas. If
additional performance evaluation
components with accompanying goals
are included with the plan, a bank must
specify the geographic areas where
those components and goals apply.1388
With respect to retail lending
assessment areas that are identified in a
plan but are no longer required due to
the large bank not meeting the
associated lending thresholds under
final § ll.17, the agencies will not
review performance in that area for any
applicable year in which the threshold
is not met.1389 Conversely, if a retail
lending assessment area is not required
final § ll.17.
final § ll.27(g)(3)(iii).
1389 See final § ll.27(g)(3)(ii).
1387 See
1388 See
PO 00000
Frm 00442
Fmt 4701
Sfmt 4700
at the time of plan approval, but would
otherwise be established during the
term of an approved plan due to a
bank’s increased lending meeting the
thresholds, the bank would not be
required to amend an existing plan to
establish those geographies as a new
retail lending assessment area.
The agencies have also considered
commenter feedback recommending
that the agencies clarify whether banks
may continue to use self-executing
provisions that allow certain changes to
take effect upon the occurrence of a
particular event. While it is noted that
the concept of a ‘‘self-executing
provision’’ is not discussed in the
current, proposed, or final rule, the
agencies do not believe that a specific
clarification with respect to such
provisions would be necessary because
the standards in § ll.27 are
sufficiently flexible to permit them
assuming the other requirements are
met (including that an adequate
justification is supported and the selfexecuting provision is consistent with
the eligible modifications and
additions). As an example, a bank may
establish in its plan that any new
facility-based assessment areas
delineated during the plan term would
be subject to performance tests that
would otherwise apply in the absence of
a plan.
The agencies did not receive
comments regarding the submission of
confidential information with the draft
plan and are adopting proposed
§ ll.27(f)(4), renumbered in the final
rule as § ll.27(g)(4), as proposed.
Additionally, no comments were
received regarding proposed
§ ll.27(f)(5), renumbered in the final
rule as § ll.27(g)(5), related to the
requirement that a bank specify
measurable goals that constitute
‘‘Satisfactory’’ performance with the
option to specify goals that constitute
‘‘Outstanding’’ performance (if the bank
wants to be eligible for an
‘‘Outstanding’’ rating). The agencies are
finalizing this section as proposed, with
a technical change to reflect that this
only applies to modified or additional
performance evaluation components
with accompanying goals, as not all
performance test components will have
goals associated with them.
The agencies are not finalizing
proposed § ll.27(f)(6), which would
have allowed a bank to elect in its draft
plan evaluation of the bank’s
performance under the performance
tests that would otherwise apply in the
absence of an approved plan if the bank
failed to meet substantially its plan
goals for a ‘‘Satisfactory’’ rating. While
no comments were received on this
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
provision, given that the final rule
requires the inclusion of any applicable
performance tests under the strategic
plan option (provided a bank cannot
provide a justification for not including
one of the test as provided in final
§ ll.27(g)(1)), the agencies do not
believe there is a need for this
provision, as the bank’s poor
performance under the plan would
likely mirror its performance under the
performance tests that would apply in
the absence of a plan. A plan is
approved by the agency under the
premise that the plan represents a more
meaningful reflection of a bank’s record
of helping to meet the credit needs of its
community than if it were evaluated in
the absence of an approved plan. If a
bank no longer considers the plan to be
a more meaningful reflection of the
bank’s record, the agencies believe the
bank should terminate its plan and
revert to an evaluation under the
performance tests that would apply in
the absence of a plan.
Lastly, although not included in the
proposed plan content section, the
agencies are adopting new final
§ ll.27(g)(6) to clarify that the bank
must specify a conclusions and ratings
methodology in its plan. This addition
is necessary given the agencies’ shift
from a purely goals-based performance
evaluation to one that is flexible and
recognizes that plans accommodate the
performance tests under final § ll.21.
As plans must include the performance
tests required under § ll.27(g)(1)
(which may not have goals associated
with the evaluation components) in
combination with eligible modifications
and additions to those tests with
accompanying goals, the plans need to
specify how the appropriate Federal
financial supervisory agency will
combine these components to arrive at
conclusions at each applicable
geographic area level and ratings in each
State or multistate MSA, as applicable,
and at the institution level.
Pursuant to final § ll.27(g)(6), a
bank must specify in its plan how all of
the plan elements covered in
§ ll.27(g)(1) through (5) will be
considered in conjunction with any
other applicable performance tests not
included in the approved plan. For
example, if an intermediate bank that
opted into the strategic plan option were
to add evaluation components that
relate to the opening of Bank On deposit
accounts for low- and moderate-income
individuals and the maintenance of
delivery systems in targeted census
tracts, the plan would need to establish
annual measurable goals related to each
component consistent with
§ ll.27(g)(5), and could also provide
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
adjusted performance test weighting
that accounts for the retail banking
services and retail banking products
components. For instance, if justified
under final § ll.27(d), the plan could
establish a 45 percent weight under the
Retail Lending Test, a 45 percent weight
under the Intermediate Bank
Community Development Test (or,
alternatively, the Community
Development Financing Test as
provided in § ll.24), and 10 percent
weight on the retail banking services
and retail banking products
components.
Final § ll.27(g)(6) clarifies that
conclusions and ratings are assigned
pursuant to the general conclusions and
ratings requirements in § ll.28 and
that more specific guidance regarding
assigning conclusions and ratings is
detailed, respectively, in paragraph g of
final appendix C 1390 and in paragraphs
f and g of final appendix D.1391 Final
§ ll.27(g)(6)(i) further clarifies that
performance context information as
provided in § ll.21(d) may also be
considered in assigning conclusions
under the plan.
A new paragraph g was added to final
appendix C to clarify that the
appropriate agency will assign
conclusions in each of these applicable
geographical areas. This became
necessary as the proposal contemplated
a strictly goal-based structure to
formulating ratings for banks under the
strategic plan option and did not
include a discussion of this performance
evaluation method in appendix C,
which addresses performance test
conclusions. However, as plans must
include the performance tests that
would apply in the absence of an
approved plan pursuant to final
§ ll.27(c)(2)(i), conclusions for each
facility-based assessment area, retail
lending assessment area, outside retail
lending area, State, and multistate MSA,
as applicable, and the institution will be
formulated under the respective
performance tests. In assigning the
conclusions under the performance tests
and any optional evaluation
components, the appropriate agency
will consider the annual measurable
goals (for ‘‘Satisfactory’’ performance
and, if identified in the plan, for
‘‘Outstanding’’ performance) and the
conclusion methodology required under
final § ll.27(g)(6).1392
Paragraph g of final appendix C
explains further that, for elements of the
plan that correspond to the otherwise
applicable performance tests, the plan
final § ll.27(g)(6)(i).
final § ll.27(g)(6)(ii).
1392 See final appendix C, paragraph g.
1390 See
7015
should include a conclusions
methodology that is generally consistent
with paragraphs b through f of appendix
C. For example, if a large bank included
the Community Development Financing
Test in its plan without any
modifications or additions, the
conclusions for that performance test
must be formulated using the same
methodology detailed in paragraph d of
final appendix C. However, if that same
bank’s plan included an eligible
modification under the Community
Development Services Test (e.g.,
establishing annual measurable goals for
community development service hours
relative to the number of full-time
employees), the plan must include a
conclusions methodology that accounts
for those goals and generally aligns with
the methodology detailed in paragraph
e of final appendix C. For instance, a
bank could establish a range of goals
that align with the five conclusion
categories (and corresponding
performance scores) for each facilitybased assessment area that would be
used to assign the conclusion in lieu of
the qualitative evaluation that is
performed in each of these areas under
the Community Development Services
Test. Under this methodology, the goal
thresholds could inform conclusions
under the performance test
corresponding with the conclusion
category nearest to the performance
score as follows: ‘‘Outstanding’’ (10
points); ‘‘High Satisfactory’’ (7 points);
‘‘Low Satisfactory’’ (6 points); ‘‘Needs to
Improve’’ (3 points); or ‘‘Substantial
Noncompliance’’ (0 points).
With respect to the formulation of
ratings, the agencies proposed to
approve ‘‘Satisfactory’’ goals and, if
identified in the plan, ‘‘Outstanding’’
goals, and would determine if the bank
met these goals to assess a bank’s
performance under the plan.1393
Consistent with the removal of a strictly
goals-based plan evaluation structure,
paragraph f of appendix D was revised
significantly and finalized to state that
the agency evaluates the bank’s
performance under an approved plan
consistent with the ratings methodology
specified in the plan pursuant to final
§ ll.27(g)(6). Similar to the banks
rated under any of the other evaluation
methods, ratings are a product of
performance test conclusions discussed
under final appendix C with an
adjustment for any optional evaluation
components that a bank chooses to add
to an approved plan.
Lastly, paragraph f of final appendix
D clarifies that the appropriate agency
assigns a rating under the plan rating
1391 See
PO 00000
Frm 00443
Fmt 4701
Sfmt 4700
1393 See
E:\FR\FM\01FER2.SGM
proposed appendix D, paragraph f.
01FER2
7016
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
methodology using one of the following
categories: ‘‘Outstanding,’’
‘‘Satisfactory,’’ ‘‘Needs to Improve,’’ or
‘‘Substantial Noncompliance.’’
Section ll.27(h) Draft Plan Evaluation
ddrumheller on DSK120RN23PROD with RULES2
Current Approach
Current § ll.27(g) require the
agencies to act upon a plan within 60
calendar days after receipt of a complete
plan and the following materials
required under current § ll.27(e): a
description of the bank’s informal
efforts to seek suggestions from the
public; any written public comments
received; and, if the plan was revised in
light of these comments, the initial plan
as released for public comment.1394 If
the appropriate Federal financial
supervisory agency fails to act within
this time period and does not extend it
for good cause, the plan is deemed
approved. The appropriate agency
evaluates the plan goals in
consideration of the results of the public
participation process.1395
The agency evaluates a plan’s
measurable goals based on: the extent
and breadth of lending or lendingrelated activities; the amount and
innovativeness, complexity, and
responsiveness of the bank’s community
development investments; and the
availability and effectiveness of the
bank’s systems for delivering retail
banking services and the extent and
innovativeness of the bank’s community
development services.1396
The Agencies’ Proposal
The agencies proposed in
§ ll.27(g)(1) to extend the time period
for acting on a complete plan and the
accompanying material required under
current § ll.27(e) to 90 calendar days,
and preserved the automatic approval of
plans that are not acted upon within
that time frame unless extended by the
agencies for good cause. In proposed
§ ll.27(g)(2), the agencies clarified
that they would consider the following
when evaluating the bank’s draft plan’s
goals: public involvement in
formulating the plan (including specific
information regarding the members of
the public and organizations the bank
contacted; how the bank collected
information relevant to the draft plan;
the nature of the public input, and
whether the bank revised the draft plan
in light of public input); written public
comments; and any bank responses to
these comments.
Proposed § ll.27(g)(3) outlined the
criteria that the agencies would use to
current 12 CFR ll.27(g)(1).
current 12 CFR ll.27(g)(2).
1396 See current 12 CFR ll.27(g)(3).
1394 See
1395 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
evaluate the draft plan’s measurable
goals. The agencies clarified the
evaluation would include the
appropriateness of these goals and
information provided in proposed
§ ll.27(e) and (f) and would be based
on the bank’s capacity, product
offerings, and business strategy. Similar
to the current regulation, the criteria
included the following, as appropriate:
the extent and breadth of retail lending
or retail lending-related activities to
address credit needs; the dollar amount
and qualitative aspects of the bank’s
community development loans and
community development investments in
light of the corresponding needs; the
availability of bank retail products and
the effectiveness of the bank’s systems
for delivering retail banking services;
and the number, hours, and type of
community development services
performed by the bank and the extent to
which these services are impactful.
Lastly, while the proposal required
the posting of draft plans on the
appropriate Federal financial
supervisory agency’s and bank’s
websites, the agencies asked for
feedback on whether the approved plans
should also be posted on those websites.
Comments Received and Final Rule
The only comment on this section
related to a commenter that requested
banks be permitted to post approved
plans on the bank’s website at the
bank’s option. The agencies are
finalizing proposed § ll.27(g),
renumbered as § ll.27(h), largely as
proposed with revisions as explained in
more detail below, including a revision
to the paragraph’s header from Plan
approval to Draft plan evaluation to
more broadly capture the areas covered
by final § ll.27(h).
The agencies are adopting the timing
requirements in proposed
§ ll.27(g)(1), renumbered in the final
rule as § ll.27(h)(1), for submitting a
plan to the agencies with one
modification. Consistent with the
proposal, the final rule establishes a 90
calendar-day timeframe for the agencies
to review a complete draft plan and
other required materials once received
from the bank. However, rather than
establishing an automatic approval for
plans that are not acted upon within the
90-day period, the final rule requires the
appropriate Federal financial
supervisory agency to communicate to
the bank the rationale for the delay and
an expected timeframe for a decision on
the draft plan. This revision in the final
rule (removing the automatic approval)
acknowledges both the importance of
the agencies making an affirmative
decision on the plan and that some
PO 00000
Frm 00444
Fmt 4701
Sfmt 4700
plans may require more than the 90-day
timeframe to evaluate. Under the
current and proposed regulation, the
agencies maintained the ability to
extend the evaluation time period for
good cause; however, it has been the
agencies’ experience that extensions
were rarely, if ever, needed once a
complete plan was received. The
agencies will strive to provide a
decision on all plans within the 90-day
timeframe; however, removal of the
automatic approval will ensure that the
agencies will complete the evaluation of
each plan, while requiring
communication of the rationale and
expected timeframe for any delays on
plan approval decisioning beyond the
typical timeframe.
The agencies did not receive any
comments related to the consideration
of public participation in the evaluation
of the plan and are finalizing
§ ll.27(g)(2), renumbered in the final
rule as § ll.27(h)(2), as proposed with
several technical changes and the
addition of a new provision. More
specifically, final § ll.27(h)(2)(i)
removes the language ‘‘the nature of the
public input’’ and ‘‘whether the bank
revised the draft plan in light of public
input,’’ as specific examples of public
participation information the agencies
would consider in evaluating the plan.
The agencies considered this language
duplicative as these considerations are
already addressed more broadly in final
§ ll.27(h)(2)(ii) and (iii). Further, final
§ ll.27(h)(2)(ii) and (iii) reflect the
agencies’ commitment to public input
such that all forms of public input (and
the bank’s corresponding responses)
that are available during the plan
development and evaluation process
will be considered—not just written
comments. Finally, although not
proposed, the agencies are adopting new
final § ll.27(h)(2)(iv) to clarify that
the agencies will consider whether to
solicit additional public input or require
the bank to provide any additional
response to public input already
received. As stated previously, the
agencies believe that the public
participation process is a critical
element of the plan evaluation process;
therefore, they believe it is appropriate
to solicit additional public comment or
bank responses if they find the public
participation obligation has not been
fully satisfied prior to the submission of
the draft plan.
The agencies did not receive any
comments related to the specific criteria
for evaluating the plan and are
finalizing proposed § ll.27(g)(3),
renumbered as § ll.27(h)(3), with
several technical changes and additions
to conform to previously discussed
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
revisions to the structure of the strategic
plan option. First, the language in the
proposal related to evaluating a draft
plan’s measurable goals and the
appropriateness of those goals has been
removed to acknowledge the fact that a
plan, while it may include goals related
to its eligible modifications and
additions, must also generally include
the performance tests that would apply
in the absence of a plan, which are not
all goals-based. In lieu of the references
to goals, the agencies revised the final
rule to add two additional criteria that
the agencies must consider in the
evaluation of a plan: the extent to which
the plan meets the standards in
§ ll.27 1397 and the extent to which
the plan has provided a justification
under § ll.27(d).1398 Rather than
restating all of the plan criteria that are
established in the various provisions of
§ ll.27, the agencies believe it is more
effective and efficient to make a
reference to the entire section to make
it clear that all of the standards
introduced in the section are considered
under the approval criteria. Also,
consistent with the agencies’ desire to
limit the strategic plan option only to
those banks where the applicable
performance tests would not provide a
meaningful evaluation of the bank and
to create parity with other banks that do
not avail themselves of the option, the
agencies have clarified in the final rule
that the justification under § ll.27(d)
will be an evaluation criterion.
The remaining four plan evaluation
criteria1399 proposed in § ll.27(g)(3)(i)
through (iv), renumbered in the final
rule as § ll.27(h)(3)(ii), are finalized
with clarifying edits. These criteria are
differentiated from the criteria outlined
in final § ll.27(h)(3)(i) in that they are
evaluated, as applicable, depending on
the performance tests that would apply
in the absence of a plan and whether the
bank has added an optional evaluation
component. Each of these criteria are
considered in conjunction with relevant
performance context information
pursuant to § ll.21(d) and relate to the
performance test areas: retail lending;
retail banking services and retail
banking products; community
development loans and community
development investments; and
community development services. In
the final rule, the agencies added an
updated reference to the applicable
performance tests at the conclusion of
each of the corresponding provisions.
For example, the retail lending
final § ll.27(h)(3)(i)(A).
1398 See final § ll.27(h)(3)(i)(B).
1399 See final § ll.27(h)(3)(ii)(A) through (D).
criterion1400 provides a reference to the
two sections, §§ ll.22 andll.29, that
detail the evaluation standards for retail
lending for small, intermediate, and
large banks.
While the proposal did not include a
provision that specifically addressed the
plan decision-making process, the
agencies are adopting new
§ ll.27(h)(4) to better clarify the
circumstances under which the agencies
will approve or deny a draft plan that
has been submitted by a bank. Simply,
final § ll.27(h)(4)(i) confirms that the
appropriate Federal financial
supervisory agency may approve a plan
after considering the criteria in final
§ ll.27(h)(3) and if it determines that
an adequate justification for the plan
and each aspect of the plan in
§ ll.27(d) has been provided. The
paragraph also details the circumstances
under which the appropriate agency
may deny a request for a plan or part of
a plan.1401 These circumstances
include: the agency making a
determination that there is a lack of an
adequate justification pursuant to
§ ll.27(d); the evaluation under the
plan would not provide a more
meaningful reflection of the bank’s
record of helping to meet the credit
needs of its community; the plan does
not demonstrate responsiveness to
public comment or otherwise fails to
meet the requirements of § ll.27; or
the bank does not provide information
requested by the agency that is
necessary to make an informed decision
on the draft plan.
The agencies received limited
feedback on whether an approved plan
should be published on a bank’s and the
appropriate agency’s websites; however,
the agencies are adopting new final
§ ll.27(h)(5) which requires the
appropriate agency to publish approved
plans on its website. The agencies
believe that most stakeholders find it
more convenient to access information
online and further believe posting this
information on the appropriate agency’s
websites will further the agencies’ goal
of increasing public participation in,
and awareness of, the strategic plan
process. While the only commenter
suggested that publishing the approved
plan on the bank’s website should be
optional, pursuant to § ll.43(b)(4) of
the final rule, the approved plan must
be included in the bank’s public file. As
explained in more detail in the sectionby-section analysis of § ll.43 (content
and availability of the public file), the
agencies are finalizing revisions that
require banks that maintain a website to
1397 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
include all information in the public file
on the bank’s website.1402 Therefore, as
part of a bank’s requirement to maintain
its public file on the bank’s website, if
the bank maintains one, a bank will be
required to post an approved strategic
plan on the bank’s website if the bank
maintains one.
Section ll.27(i) Plan Amendment
Current Approach
Current § ll.27(h) provides that
during the term of a plan, a bank may
request the appropriate Federal
financial supervisory agency to approve
an amendment to the plan on the
grounds that there has been a material
change in circumstance since the plan
was previously approved. Any
amendment to a plan must be developed
in accordance with the public
participation requirements in current
§ ll.27.
The Agencies’ Proposal
The agencies proposed to revise the
CRA regulations to be more transparent
about when plan amendments would be
required. In proposed § ll.27(h), the
agencies provided that during the term
of a plan, a bank must amend its plan
goals if a material change in
circumstances:
• impedes its ability to substantially
meet approved plan goals, such as
financial constraints caused by
significant events that impact the local
or national economy; or
• significantly increases its financial
capacity and ability, such as through a
merger or consolidation, to engage in
retail lending, retail services and
products, community development
financing, or community development
services.1403
The agencies also proposed that a
bank that requests an amendment to a
plan in the absence of a material change
in circumstances must provide an
explanation regarding why it is
necessary and appropriate to amend its
plan goals.1404 Lastly, the agencies
proposed that any amendment to a plan
must be developed in accordance with
the public participation requirements in
§ ll.27(e).1405
Comments Received and Final Rule
No comments were received with
respect to the circumstances under
which plan amendments are required,
although a commenter requested that
the agencies clarify whether banks
would be required to delineate retail
final § ll.43(c)(1).
proposed § ll.27(h)(1).
1404 See proposed § ll.27(h)(2).
1405 See proposed § ll.27(h)(3).
1402 See
1403 See
1400 See
1401 See
PO 00000
final § ll.27(h)(3)(ii)(A).
final § ll.27(h)(4)(ii)(A) through (E).
Frm 00445
Fmt 4701
Sfmt 4700
7017
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7018
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
lending assessment areas before a preexisting plan’s expiration.
The agencies are finalizing proposed
§ ll.27(h)(1), renumbered as
§ ll.27(i)(1), with retitling of this
provision and one technical change.
More specifically, this provision was
retitled Mandatory plan amendment to
clarify that these are the circumstances
under which an amendment is required
and to differentiate it from the bank’s
discretion to optionally amend its plan
pursuant to final § ll.27(i)(2). Also,
the proposal required a plan
amendment if a material change in
circumstance impeded the bank’s ability
to substantially meet approved
goals;1406 however, as goals are not a
required element of each component of
the plan in the final rule, the language
was changed to reflect circumstances
that impede the bank’s ability to
perform at a satisfactory level under the
plan. This change acknowledges that a
plan may need to be amended for
circumstances that not only adversely
impact a bank’s ability to meet any goals
associated with an approved plan, but
also could impede its ability to perform
satisfactorily under the performance
tests, which are not always goals based.
The agencies believe plan amendments
are necessary if either of the conditions
in final § ll.27(i)(1)(i) or (ii) exist.
The only commenter regarding this
provision inquired as to whether a bank
would be required to delineate a retail
lending assessment area under the
strategic plan option created during the
term of a pre-existing approved plan.
While not contemplated in the proposal
or specifically addressed in the final
rule, an amendment may be necessary
when a facility-based assessment area
changes (for example, when a bank adds
a new assessment area that encompasses
a branch it opens in a new MSA in
which it previously did not have a
presence). When facility-based
assessment areas are added or changed
significantly during the term of an
approved plan, an amendment would be
necessary unless the existing plan
already appropriately addresses how
new facility-based assessment areas are
to be evaluated during the term of the
plan. With respect to the commenter’s
question regarding the addition of new
retail lending assessment areas that are
established after plan approval, but
during the term of the plan, final
§ ll.27(i) does not require the bank to
amend its plan to evaluate any new
retail lending assessment areas, as
discussed previously in the section-bysection analysis of § ll.27(g)(3).
Therefore, in the absence of a discussion
1406 See
proposed § ll.27(h)(1)(i).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
of the treatment of new retail lending
assessment areas in the approved plan,
the agencies would not evaluate a large
bank’s performance in these areas
pursuant to § ll.22(a). This approach
allows for certainty in the evaluation of
the plan and would be less burdensome,
as it would not necessitate amendments
to the plan if the retail lending
assessment areas were to fluctuate on an
annual basis. An approved plan would
already include the overall evaluation
framework for examiners to consider at
the time of the evaluation—including
the applicable performance tests,
optional evaluation components, and
any eligible modifications and
additions. Lastly, any of the bank’s
lending outside of facility-based
assessment areas or active retail lending
assessment areas that are included in
the approved plan could still be
captured in the bank’s outside retail
lending area, as applicable.
The agencies did not receive any
comments regarding the elective
revision of a plan in proposed
§ ll.27(h)(2) and are adopting it as
proposed, renumbered as § ll.27(i)(2),
with retitling and a technical change.
Consistent with the language used
throughout the paragraph, the heading
of this provision was changed from
Elective revision of plan to Elective plan
amendment. Additionally, proposed
§ ll.27(h)(2)(ii), which required a
bank to provide an explanation for any
elective plan amendment, was moved to
a newly created § ll.27(i)(3) to more
broadly establish the requirements for
all amendments—whether mandatory or
elective. The agencies believe that this
new provision will provide greater
clarity regarding bank requirements
with respect to all plan amendments. In
addition to providing an explanation for
why an elective plan amendment is
necessary and appropriate, the final rule
also requires a bank to explain any
material circumstances that necessitated
an amendment pursuant to final
§ ll.27(i)(1)(i) or (ii). The final rule
also adopts new § ll.27(i)(3)(ii) to
clarify that any amendment, whether
mandatory or elective, must comply
with all relevant requirements of the
section.
Lastly, the agencies are not finalizing
§ ll.27(h)(3), pertaining to the public
participation considerations with
respect to a plan revision because this
provision was unnecessary given the
inclusion of new final § ll.27(i)(3)(ii).
Because plan amendments must comply
with all relevant requirements of this
section, this would include the public
participation provisions. Therefore,
proposed § ll.27(h)(3) is not needed
under the final rule. The agencies
PO 00000
Frm 00446
Fmt 4701
Sfmt 4700
acknowledge that some plan
amendments are very limited and do not
benefit materially from a full public
participation process as required by
final § ll.27(e). Also, consistent with
stakeholder feedback in the proposal,
some stakeholders suggested minor
changes through an amendment should
only require approval by the appropriate
agency, while a major change would
require public comment in addition to
approval. To address these comments,
new § ll.27(i)(3)(ii) allows the
agencies to use their discretion to waive
a requirement of the strategic plan
provisions, such as the public
participation requirements under final
§ ll.27(e). As a result, prior to
submitting a plan amendment for
approval, banks should contact their
appropriate Federal financial
supervisory agency to seek guidance on
whether the bank must complete the
public participation requirements of the
final rule in advance of the submission.
Section ll.27(j) Performance
Evaluation Under a Plan
Current Approach
Under the current CRA regulation, the
agencies approve a bank’s measurable
goals and assess a bank’s performance
under paragraph (e) of current appendix
A,1407 which prescribes that the
agencies approve ‘‘satisfactory’’
measurable goals that adequately help
meet the credit needs of the bank’s
assessment area(s). If the plan identifies
separate measurable goals that
substantially exceed the levels approved
as ‘‘satisfactory,’’ the agencies will
approve those goals as ‘‘outstanding.’’
The agencies assess the bank’s
performance based on whether it
substantially achieves these goals.
Alternatively, if the bank fails to
substantially meet the goals for a
satisfactory rating, the appropriate
agency will rate the bank as either
‘‘needs to improve’’ or ‘‘substantial
noncompliance,’’ depending on the
extent to which it falls short of its plan
goals, unless the bank has elected to be
evaluated otherwise as provided in
§ ll.27(f)(4).
The Agencies’ Proposal
The agencies proposed to approve the
goals and assess performance under a
plan as provided in proposed appendix
D.1408 Further, in determining whether
a bank has substantially met its plan
goals, the agencies proposed to consider
the number of unmet goals; the degree
to which the goals were not met; the
1407 See
1408 See
E:\FR\FM\01FER2.SGM
current 12 CFR ll.27(i).
proposed § ll.27(k)(1).
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
importance of those unmet goals to the
plan as a whole; and any circumstances
beyond the control of the bank.1409
Paragraph f of proposed appendix D
provided guidance substantially similar
to that identified in paragraph (e) of
appendix A in the current regulation, as
detailed above.
The agencies also requested comment
on whether they should continue to
evaluate strategic plan banks based on
whether they have ‘‘substantially met’’
their plan goals and, if so, what criteria
should be applied.
ddrumheller on DSK120RN23PROD with RULES2
Comments Received
A few commenters addressed the
agencies’ request for feedback regarding
whether the ‘‘substantially met’’
standard used to assess performance
under a plan should be maintained and,
if so, how it should be defined. A
commenter stated that the standard for
measuring plan goals should be rigorous
and applied to each goal with a 95
percent attainment standard.
Furthermore, if attainment is not
achieved on 67 percent of its goals, the
commenter stated that the bank should
fail its exam and be required to submit
an improvement plan. Another
commenter recommended incorporating
a rating system that emulates the default
CRA ratings framework. Both of these
commenters suggested that an
improvement plan should be required if
the bank did not substantially meet its
stated goals. A few commenters
indicated the standard was adequate
and that there should be no prescribed
evaluation weights for strategic plans.
Final Rule
Under the final rule, the header for
proposed § ll.27(i), renumbered as
§ ll.27(j), was revised from Plan
assessment to Performance evaluation
under a plan to better clarify that this
paragraph covers the evaluation of the
bank under an approved plan rather
than an assessment of the plan itself.
Based on the comments received and
the aforementioned changes in plan
requirements, particularly a departure
from required goals for all components
of the plan, the agencies are finalizing
proposed § ll.27(i)(1), renumbered as
§ ll.27(j)(1), with revisions to
correspond with the general
restructuring of this section. First, the
language in final § ll.27(j)(1) is
changed to reflect that a bank’s
performance is no longer based
exclusively on approved goals and is
now based on the applicable
performance tests, any optional
evaluation components, and the eligible
1409 See
proposed § ll.27(h)(2).
VerDate Sep<11>2014
18:11 Jan 31, 2024
modifications and additions to the
applicable performance tests set forth in
the bank’s plan. As discussed
previously, goals may still be a
component of a plan but will now be
considered in conjunction with
performance tests.
The agencies are also finalizing
proposed § ll.27(i)(2), renumbered in
the final rule as § ll.27(j)(2), with
several modifications. First, the agencies
removed the reference to the
‘‘substantially met’’ language when
referring to the evaluation of plan goals.
Since the strategic plan option under
the final rule is no longer exclusively
based on measurable goals, a
determination on whether a bank
‘‘substantially met’’ its plan goals is not
necessarily the primary consideration
when a bank’s performance is assessed
under an approved plan. Further, since
goals are not required for each plan
evaluation component and each plan
will rely on the achievement of goals to
a different degree (including the
potential that no goals are added to a
plan), the establishment of a required
attainment standard (such as 95 percent
of plan goals), as suggested by a few
commenters, would not be appropriate.
As a result, final § ll.27(j)(2) was
revised to indicate that the agencies will
consider the factors listed in this
provision to the extent that the bank has
established goals and does not meet its
satisfactory goals in one or more of
them. The agencies finalized three of the
four consideration factors that were
proposed in § ll.27(i)(2). More
specifically, when determining the
effect of unmet goals on a bank’s CRA
performance, the final rule includes
consideration of the degree to which the
goals were not met; the importance of
those unmet goals to the plan as a
whole; and any circumstances beyond
the control of the bank.1410 The
proposal to include ‘‘number of unmet
goals’’ was removed as a consideration
factor, consistent with the previously
discussed restructuring of the strategic
plan option away from the exclusive use
of goals to evaluate a bank’s
performance under the plan.
The agencies decline to adopt the
commenters’ suggestion that an
improvement plan be required if the
bank did not substantially meet its
stated goals. Since final § ll.43(b)(5)
(content and availability of the public
file) requires that a bank that received
a less than ‘‘Satisfactory’’ rating during
its most recent examination must
include in its public file a description
of its current efforts to improve its
performance in helping to meet the
1410 See
Jkt 262001
PO 00000
final § ll.27(j)(2)(i) through (iii).
Frm 00447
Fmt 4701
Sfmt 4700
7019
credit needs of its entire community, the
agencies believe this provision covers
the suggested ‘‘improvement plan’’
made by commenters.
Similar to the proposal,1411 final
§ ll.27(j)(3) provides guidance for
assessing and rating the performance of
a bank evaluated under a plan in
appendix D. In addition to the general
rating information in paragraph a of
final appendix D that applies to all
banks (including those evaluated under
an approved plan), the information for
assessing ratings specific to the strategic
plan option is maintained in paragraph
f of final appendix D. As discussed
previously, the paragraph provides that
the appropriate Federal financial
supervisory agency evaluates a bank’s
performance under a plan consistent
with the rating methodology specified
in the plan pursuant to final
§ ll.27(g)(6). Finally, to the extent it
meets the size requirements therein, a
bank evaluated under the strategic plan
option is subject to the minimum
performance test conclusion
requirements in paragraph g of final
appendix D that would apply to the
bank in the absence of an approved
plan.
Section ll.28 Assigned Conclusions
and Ratings
Consistent with the CRA statute, the
current CRA regulations provide that
the agencies assign a bank an institution
rating of ‘‘Outstanding,’’ ‘‘Satisfactory,’’
‘‘Needs to Improve,’’ or ‘‘Substantial
Noncompliance’’ in connection with a
CRA examination.1412 The agencies also
assign ratings for a bank’s performance
in each State in which the bank
maintains one or more branches or other
facilities that accept deposits and in
each multistate MSA in which the bank
maintains branches or other facilities
that accept deposits in two or more
states within the multistate MSA.1413
Prior to reaching these overall ratings,
the agencies assign performance test
ratings at the State, multistate MSA, and
institution level for each applicable
performance test (i.e., lending,
investment, and service tests;
community development test; small
bank performance standards). With one
exception, the current rating scale used
for performance test ratings mirrors that
proposed § ll.27(i)(1).
U.S.C. 2906(b)(2), implemented by current
12 CFR ll.28(a). The narrative descriptions of the
ratings for performance under each evaluation
method are in appendix A to the current CRA
regulations. See also Q&A appendix A to part
ll—Ratings.
1413 12 U.S.C. 2906(d). If the agencies assign a
bank a rating for a multistate MSA, any rating
assigned for a State does not take into account the
bank’s performance in the multistate MSA.
1411 See
1412 12
E:\FR\FM\01FER2.SGM
01FER2
7020
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
of the four statutory institution-level
ratings. For large banks, however, the
agencies bifurcate the ‘‘Satisfactory’’
rating for each of the three performance
tests into ‘‘High Satisfactory’’ and ‘‘Low
Satisfactory.’’1414 In addition, the
agencies separately summarize
conclusions regarding the institution’s
performance in each MSA and the
nonmetropolitan portion of each
State.1415
Current examination procedures
allow for assessment areas to be
reviewed pursuant to either a full-scope
or a limited-scope review. Full-scope
reviews employ both quantitative and
qualitative factors, while limited-scope
reviews are primarily quantitative and
generally carry less weight in
determining the overall State, multistate
MSA, or institution rating.1416 The
agencies primarily base a bank’s
component ratings on the bank’s
performance in each assessment area
examined using full-scope examination
procedures. For large banks,
performance conclusions in assessment
areas not examined using the full-scope
procedures are expressed as ‘‘exceeds,’’
‘‘is consistent with,’’ or ‘‘is below’’ the
institution’s performance in the relevant
MSA or nonmetropolitan portion of the
State, in the State, or overall, as
applicable.1417 For small banks and
intermediate small banks, examiners
consider facts and data related to the
institution’s activities to ensure that
performance conclusions in assessment
areas not examined using the full-scope
procedures are ‘‘not inconsistent with’’
the conclusions based on the assessment
areas that received full-scope
reviews.1418
Under the current approach, the
agencies use a fact-specific review to
determine whether an overall institution
CRA rating should be downgraded due
to evidence of discriminatory or other
illegal credit practices including, but
not limited to, evidence of violations of
laws listed in current § ll.28(c)(1).1419
Proposed § ll.28 described how
conclusions and ratings would be
assigned under the proposed CRA
framework using a consistent,
1414 See Q&A § ll.28(a)—3; current appendix A,
paragraph (b); Interagency Large Institution CRA
Examination Procedures.
1415 See Interagency Large Institution CRA
Examination Procedures; Interagency Intermediate
Small Institution CRA Examination Procedures;
Interagency Small Institution CRA Examination
Procedures.
1416 See id.
1417 Interagency Large Institution CRA
Examination Procedures.
1418 Interagency Small Institution CRA
Examination Procedures; Interagency Intermediate
Small Institution CRA Examination Procedures.
1419 See current 12 CFR ll.28(c).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
quantifiable approach. The proposal
distinguished between ‘‘conclusions’’—
which generally referred to the bank’s
performance on a particular
performance test for each assessment
area; each State and multistate MSA, as
applicable; and the institution—and
‘‘ratings’’—which generally referred to a
bank’s overall CRA performance across
performance tests for each State and
multistate MSA, as applicable, and the
institution. Generally, under the
proposed framework, the agencies
would develop conclusions for a bank’s
performance on each applicable
performance test for: each assessment
area; each State and multistate MSA, as
applicable; and the institution. Subject
to test-specific variations as described in
the section-by-section analysis of
§§ ll.22 through ll.26, ll.29, and
ll.30, the agencies generally proposed
to assign both a conclusion (e.g., ‘‘Low
Satisfactory’’) and a performance score
(e.g., 5.7) based on a bank’s performance
under a particular performance test. To
determine an intermediate bank or large
bank rating for the State, multistate
MSA, or the institution, the agencies
proposed to aggregate a bank’s
performance scores for each applicable
performance test, with specific weights
assigned to the performance score of
each performance test. Unlike under the
current approach, the proposed CRA
framework did not provide for limitedscope reviews.
Numerous commenters weighed in on
the provisions related to assigned
conclusions and ratings in proposed
§ ll.28.
Final § ll.28 generally adopts the
proposed framework for assigned
conclusions and ratings discussed
above, with revisions discussed in the
more detailed section-by-section
analysis below.
Section ll.28(a) Conclusions
Under the current CRA regulations,
the agencies assign performance test
ratings for the performance tests that
apply to the bank at the institution
level. The agencies also assign
performance test ratings at the State and
multistate MSA level and summarize
conclusions regarding a bank’s
performance in each MSA and the
nonmetropolitan portion of each State
with an assessment area.1420
Under final § ll.28(a),
‘‘conclusions’’ generally refer to bank
performance on a particular
performance test for a specific
geographic area (e.g., assessment areas,
States, and multistate MSAs, as
applicable) and the institution overall.
1420 See
PO 00000
12 U.S.C. 2906(b), (d).
Frm 00448
Fmt 4701
Sfmt 4700
The agencies assign conclusions and
associated test performance scores for
the performance of a bank in each State
and multistate MSA, as applicable, and
for the institution based on a weighted
average of assessment area conclusions,
as well as consideration of additional
performance test-specific factors at each
level.1421 These performance scores are
mapped to conclusion categories to
provide performance test conclusions
for specific geographic areas and the
institution overall. As explained below,
the agencies are finalizing § ll.28(a)
with edits to specify how the agencies
will assign conclusions for banks
operating under a strategic plan, the
geographic areas where the agencies
will assign conclusions, consistent with
the statute, and other clarifying edits.
The Agencies’ Proposal
Proposed § ll.28(a)(1) provided
that, other than for a small bank
evaluated under the small bank
performance standards in proposed
§ ll.29(a), the agencies would assign
one of five conclusions for a bank’s
performance under the respective
performance tests that apply to the
bank: ‘‘Outstanding’’; ‘‘High
Satisfactory’’; ‘‘Low Satisfactory’’;
‘‘Needs to Improve’’; or ‘‘Substantial
Noncompliance.’’ Under proposed
§ ll.28(a)(2), for small banks
evaluated under the small bank
performance standards in proposed
§ ll.29(a), the agencies would assign
lending evaluation conclusions of
‘‘Outstanding,’’ ‘‘Satisfactory,’’ ‘‘Needs
to Improve,’’ or ‘‘Substantial
Noncompliance’’ based on the bank’s
lending performance in each facilitybased assessment area. Proposed
appendix C, as well as proposed
appendix E for small banks and
intermediate banks, specified how the
agencies would develop conclusions for
each performance test that applies to a
bank, as discussed in the section-bysection analysis of §§ ll.22 through
ll.26, above, and ll.29 and ll.30,
below.
Comments Received
The agencies received a few
comments regarding proposed
§ ll.28(a), all of which related to the
proposed bifurcation of the
‘‘Satisfactory’’ conclusion category into
‘‘High Satisfactory’’ and ‘‘Low
1421 See the section-by-section analyses of
§§ ll.22 through ll.26, ll.29, and ll.30 for
detailed discussion of how the agencies develop
conclusions and performance scores for each
performance test. The section-by-section analyses of
§§ ll.15 and ll.21, respectively, also discuss
the impact and responsive review for community
development loans, investments, and services and
the agencies’ consideration of performance context.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
Satisfactory’’ conclusions. A few
commenters expressly supported the
proposal to assign conclusions of ‘‘High
Satisfactory’’ and ‘‘Low Satisfactory.’’ In
contrast, another commenter stated that
the agencies did not articulate a
sufficient justification for bifurcating the
‘‘Satisfactory’’ conclusion category into
‘‘High Satisfactory’’ and ‘‘Low
Satisfactory.’’ This commenter stated
that a single ‘‘Satisfactory’’ category is
sufficient for community bank
examinations and reporting purposes;
therefore, if ‘‘High Satisfactory’’ and
‘‘Low Satisfactory’’ conclusions are
retained, they should only apply to the
very largest banks. Alternatively, a few
commenters suggested assigning
conclusions of ‘‘High Satisfactory’’ or
‘‘Satisfactory’’ within the ‘‘Satisfactory’’
range because ‘‘Low Satisfactory’’ has a
negative connotation and will
unnecessarily subject banks with ‘‘Low
Satisfactory’’ conclusions to criticism
and a misperception about their
satisfactory performance in serving the
needs of their customers and
communities.
Final Rule
In final § ll.28(a), the agencies are
adopting the proposal with clarifying
revisions, including to the structure of
proposed § ll.28(a). Specifically, final
§ ll.28(a)(1) addresses State,
multistate MSA, and institution test
conclusions and performance scores.
The agencies are adopting final
§ ll.28(a)(1)(i), renumbered from
proposed § ll.28(a)(1), with clarifying
revisions. Specifically, final
§ ll.28(a)(1)(i) provides that, in
general, for each of the applicable
performance tests pursuant to final
§§ ll.22 through ll.26 and ll.30,
the agencies assign conclusions and
associated test performance scores of
‘‘Outstanding,’’ ‘‘High Satisfactory,’’
‘‘Low Satisfactory,’’ ‘‘Needs to
Improve,’’ or ‘‘Substantial
Noncompliance’’ for the performance of
a bank in each State and multistate
MSA, as applicable pursuant to
§ ll.28(c), and for the institution.1422
As reflected in paragraph b of final
appendix C, this includes a small bank
that opts to be evaluated under the
Retail Lending Test in § ll.22. Final
§ ll.28(a)(1)(ii), consistent with
proposed § ll.28(a)(2), provides that
the agencies assign conclusions of
‘‘Outstanding,’’ ‘‘Satisfactory,’’ ‘‘Needs
to Improve,’’ or ‘‘Substantial
Noncompliance’’ for the performance of
a small bank evaluated under the Small
1422 Refer to the section-by-section analysis of
§ ll.21 for additional discussion of the
performance score scale.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Bank Lending Test in final
§ ll.29(a)(2) in each State and
multistate MSA, as applicable pursuant
to § ll.28(c), and for the institution.
The agencies are also adopting new
§ ll.28(a)(1)(iii) in the final rule,
which provides that the agencies assign
conclusions for the performance of a
bank operating under a strategic plan
pursuant to § ll.27 in each State and
multistate MSA, as applicable pursuant
to § ll.28(c), and for the institution in
accordance with the methodology of the
bank’s strategic plan and final appendix
C. See the section-by-section analysis of
§ ll.27 for additional information.
After consideration of the comments,
the agencies are finalizing the proposed
bifurcation of the ‘‘Satisfactory’’
conclusion category into ‘‘High
Satisfactory’’ and ‘‘Low Satisfactory’’
conclusions for all banks except small
banks evaluated under the Small Bank
Lending Test in final § ll.29(a)(2).
The proposed ‘‘High Satisfactory’’ and
‘‘Low Satisfactory’’ conclusions will
allow the agencies to better differentiate
between performance on the higher end
or on the lower end of the ‘‘Satisfactory’’
range, as compared to developing
conclusions with only four categories,
including a single ‘‘Satisfactory’’
category. Further, applying the same
conclusion categories to all banks,
except small banks evaluated under
final § ll.29(a)(2), will allow the
agencies to apply a quantifiable method
of assigning conclusions and ratings
consistently and uniformly (i.e.,
assigning a ‘‘High Satisfactory’’
conclusion a performance score of ‘‘7’’
and a ‘‘Low Satisfactory’’ conclusion of
performance score of ‘‘6’’ and weighting
conclusions as prescribed) to these
banks.
The agencies did not adopt
commenter suggestions to rename the
‘‘Low Satisfactory’’ conclusion category
as ‘‘Satisfactory’’ because the agencies
believe that the bifurcated
‘‘Satisfactory’’ conclusion category is
well understood to reflect performance
within a satisfactory range, and because
changing this long-standing terminology
could cause confusion.
The agencies are also adopting final
§ ll.28(a)(2), a new provision, to
clarify that, pursuant to 12 U.S.C. 2906,
the agencies will provide conclusions
separately for metropolitan areas in
which a bank maintains one or more
domestic branch offices (defined in the
statute to mean any branch office or
other facility of a regulated financial
institution that accepts deposits, located
in any State1423) and for the
nonmetropolitan area of a State if a bank
1423 See
PO 00000
12 U.S.C. 2906(e)(1).
Frm 00449
Fmt 4701
Sfmt 4700
7021
maintains one or more domestic branch
offices in such nonmetropolitan area.
The agencies added this provision to
provide a cross-reference to this
statutory requirement in the final rule.
Section ll.28(b) Ratings
Similar to the current CRA
regulations, final § ll.28(b) describes
how the agencies will assign ratings for
each State and multistate MSA, as
applicable, and for the institution using
the four rating categories established by
statute. As proposed, however, the
agencies have updated the ratings
framework to assign performance scores
to each applicable performance test that
are combined using a prescribed
weighting methodology to assign
ratings, and that are subject to
adjustment based on additional
considerations, discriminatory or other
illegal credit practices, and past
performance, as applicable.
Many commenters provided
comments on the current rating
framework and identified issues they
perceived with the current approach.
Specifically, many commenters stated
that there is ratings inflation under the
current CRA framework, noting that 98
percent of banks receive at least a
‘‘Satisfactory’’ rating, with 90 percent of
banks receiving a ‘‘Satisfactory’’ rating,
specifically. A few of these commenters
noted that it was implausible that such
a large number of banks were
performing in the same manner, with a
commenter stating that this was
impossible given that racism and
discriminatory lending persist. A few
commenters suggested that the agencies
should address these concerns by
incorporating additional quantitative
tools into the performance tests,
improving examination rigor, or
increasing objectivity in performance
measures. In contrast, a commenter
disagreed with the idea that CRA is
flawed because of the high percentage of
banks that receive at least a
‘‘Satisfactory’’ rating, emphasizing that
the ratings reflect that most banks are
community banks that treat their
customers and communities fairly and
do not discriminate.
Many commenters also conveyed that
the rating system under the current
regulations does not effectively capture
distinctions in performance. These
commenters appeared to believe that
more distinction would result in more
banks being identified as significantly
lagging behind their peers, which would
motivate them to increase their
reinvestment activity and improve their
ratings.
As described below, the agencies are
finalizing § ll.28(b) as proposed with
E:\FR\FM\01FER2.SGM
01FER2
7022
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
revisions, including adjusting the
weights assigned to the performance
tests for large banks and more fully
explaining the ratings framework in
§ ll.28(b).
ddrumheller on DSK120RN23PROD with RULES2
Section ll.28(b)(1) and (2) in General,
State, Multistate MSA, and Institution
Ratings and Overall Performance Scores
Consistent with the CRA statute, the
agencies currently assign ratings for
each State and multistate MSA, as
applicable, and for the institution. As
described below, the agencies proposed
in § ll.28(b)(1) and (2) that they
generally will assign ratings based on an
overall performance score for the State,
multistate MSA, and institution derived
by combining the bank’s performance
scores on applicable performance tests.
The agencies are generally finalizing the
general ratings framework in
§ ll.28(b)(1) and (2) as proposed, with
revisions discussed below.
The Agencies’ Proposal
Proposed § ll.28(b)(1) provided that
the agencies would assign ratings for a
bank’s overall performance at the State,
multistate MSA, and institution level of
‘‘Outstanding,’’ ‘‘Satisfactory,’’ ‘‘Needs
to Improve,’’ or ‘‘Substantial
Noncompliance.’’ Other than for a small
bank evaluated under the small bank
performance standards in § ll.29(a), a
wholesale or limited purpose bank
evaluated under the Community
Development Financing Test for
Wholesale or Limited Purpose Banks in
§ ll.26, and a bank evaluated based
on a strategic plan under § ll.27, the
agencies proposed in § ll.28(b)(2) to
assign a rating based on the bank’s
overall performance at the State,
multistate MSA, and institution levels,
respectively, and a related performance
score, derived as provided in proposed
appendix D. As provided in appendix D,
the agencies proposed to aggregate a
bank’s performance scores for each
applicable performance test, with
specific weights assigned to the
performance score of each performance
test, to derive the bank’s rating. The
same weighting approach would be
used to develop ratings for each State
and multistate MSA and for the
institution. As described in proposed
appendix D, the agencies would assign
a rating corresponding with the rating
category that is nearest to the aggregated
performance score, as follows: a
performance score of less than 1.5
would result in a rating of ‘‘Substantial
Noncompliance’’; a performance score
of 1.5 or more but less than 4.5 would
result in a rating of ‘‘Needs to Improve’’;
a performance score of 4.5 or more but
less than 8.5 would result in a rating of
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
‘‘Satisfactory’’; and a performance score
of 8.5 or more would result in a rating
of ‘‘Outstanding.’’ The agencies also
specified in proposed § ll.28(b)(2)
that the bank’s rating could be adjusted
based on evidence of discriminatory or
other illegal practices in accordance
with § ll.28(d).
Comments Received
A few commenters remarked at a high
level on the clarity, complexity, and
challenges of the proposed rating
system. Specifically, a commenter
expressed that the proposal provided a
more transparent and consistent
approach to determining a bank’s
overall CRA rating. Another commenter
stated, however, that the proposed
rating system appeared to be overly
complicated, and a ‘‘Satisfactory’’ rating
may be unachievable for some banks.
This commenter recommended further
testing of the proposal prior to
implementation due to the number of
unknowns.
A commenter requested that the
agencies improve the proposal by
enabling banks to calculate and
determine a presumptive rating prior to
an examination for all bank sizes and
models. In contrast, another commenter
asked the agencies to carefully consider
the overall structure of the scoring and
weighting of various activities under
CRA before finalizing a dramatic
change, expressing concern that the
transparency and predictability that
both community groups and banks have
requested might have the unintended
consequence of starting a race to the
bottom.
A few commenters asserted that the
CRA ratings framework should better
reflect distinctions in performance. One
commenter asserted that the proposal
did not describe the proposal’s impact
on CRA ratings except to hint that banks
may continue to receive the same
ratings. Another commenter conveyed
that allowing the vast majority of banks
to continue to pass their CRA
examinations will not result in banks
engaging in serious efforts to positively
impact communities of color and lowand moderate-income neighborhoods. A
few commenters suggested a five-tier
overall rating system, for example, by
differentiating between ‘‘Low
Satisfactory’’ and ‘‘High Satisfactory’’
overall ratings, to better distinguish
performance. These commenters
suggested that doing so would
distinguish between merely adequate
activity, reasonably good activity, and
truly superior banking efforts, and
would motivate banks to be more
responsive to COVID–19 recovery
needs. Another commenter
PO 00000
Frm 00450
Fmt 4701
Sfmt 4700
recommended a point system that
would show more distinctions. A few
commenters recommended that the
agencies assign a conclusion and
performance score for each performance
test at the assessment area level and
provide performance scores at the
overall rating level to accurately depict
distinctions in performance.
A few commenters also suggested that
the CRA ratings framework should
better incentivize high ratings. One
commenter stated that the agencies have
made it more difficult to achieve
‘‘Satisfactory’’ and ‘‘Outstanding’’
ratings, which could lead to reduced
incentives to strive for such ratings and,
consequently, undermine the goals of
CRA. Another commenter expressed
that the overly simplistic formula
proposed for rating banks means that
more complicated affordable housing
deals—those that help seniors, disabled
persons, and rural communities—will
not happen. A commenter stated that,
under the proposal, more incentives are
needed to motivate banks to achieve an
‘‘Outstanding’’ rating, which would
help distinguish their performance
against peers. Another commenter
remarked that when all banks
essentially receive the same rating, the
motivation to improve dissipates.
Another commenter specified that the
proposal should provide some financial
motivation for an ‘‘Outstanding’’ rating
(e.g., reduced taxes, reduced deposit
insurance assessments, reduced
borrowing rates from the Federal
Reserve discount window) because
being downgraded from an
‘‘Outstanding’’ to a ‘‘Satisfactory’’ is not
much of a disincentive as 90 percent of
banks receive ‘‘Satisfactory’’ ratings.
Many commenters offered ideas on
how findings regarding race and
ethnicity should appropriately be
factored into a bank’s rating. One
commenter generally indicated that,
regarding racial and ethnic equality, the
CRA examination process should
incorporate both incentives for positive
activities and deterrents and penalties
for harmful practices. More specifically,
another commenter stated that material
decreases in performance by race argue
for a ‘‘Needs to Improve’’ rating and
material increases in performance
should be a factor in earning an
‘‘Outstanding’’ rating.
Another commenter suggested
providing for a presumptive
‘‘Satisfactory’’ rating for U.S.
Department of the Treasury-certified
CDFIs, given the existing annual
certification requirements in place for
these institutions.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Final Rule
The agencies are adopting final
§ ll.28(b)(1) and (2) largely as
proposed, but with some revisions for
clarity discussed below. Final
§ ll.28(b)(1) provides that the
agencies assign a rating for a bank’s
overall CRA performance of
‘‘Outstanding,’’ ‘‘Satisfactory,’’ ‘‘Needs
to Improve,’’ or ‘‘Substantial
Noncompliance’’ in each State and
multistate MSA, as applicable pursuant
to § ll.28(c), and for the institution.
These ratings reflect the bank’s record of
helping to meet the credit needs of its
entire community, including low- and
moderate-income neighborhoods,
consistent with the safe and sound
operation of the bank.
The agencies carefully considered
comments that both suggested the
proposed CRA rating framework was
overly complicated and overly
simplistic and, ultimately, believe that
the proposed rating system
appropriately balances the need for a
clear and objective rating system with
the need to effectively capture and
distinguish between bank performances.
Further, the agencies believe that the
final rule provides for a quantifiable,
consistent approach to assigning
conclusions and ratings. The agencies
also considered comments that
suggested that the CRA ratings
framework should be transparent and
objective and should recognize
distinctions in performance.
Final § ll.28(b)(2) addresses ratings
and overall performance scores. Under
the finalized ratings approach, the
agencies will generally assign ratings for
each State and multistate MSA, as
applicable pursuant to § ll.28(c), and
for the institution using performance
scores associated with a bank’s assigned
conclusions. For large banks and
intermediate banks, the agencies will
use established weights, as discussed
further in the section-by-section
analysis of § ll.28(b)(3), to aggregate
performance scores associated with the
assigned conclusions for each
performance test and, in turn, calculate
a performance score associated with the
bank’s assigned rating. For large banks,
intermediate banks, small banks that opt
into the Retail Lending Test, and limited
purpose banks, final § ll.28(b)(2)(i)
specifies that the agencies will calculate
and disclose the bank’s overall
performance score for each State and
multistate MSA, as applicable, and the
institution overall. Final
§ ll.28(b)(2)(i) further provides that
the agencies will use the overall
performance score to assign a rating for
the bank’s overall performance in each
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
State and multistate MSA, as applicable,
and for the institution, subject to
adjustments based on evidence of
discriminatory or other illegal credit
practices pursuant to final § ll.28(d)
and consideration of past performance
pursuant to § ll.28(e). The agencies
added final § ll.28(b)(2)(ii) to clarify
that a bank’s overall performance scores
are based on the bank’s performance
score for each applicable performance
test and derived as provided in
§ ll.28(b)(3), as applicable and as
discussed below, and in final appendix
D. The agencies also anticipate
disclosing the performance scores
associated with the bank’s assigned
conclusions for each performance test.
The agencies expect that this will
provide banks and the public with
meaningful information about each
bank’s CRA performance. The agencies
believe this approach is responsive to
several comments that suggested the
agencies assign and provide
performance scores or develop a points
system to depict distinctions in
performance. The agencies acknowledge
that banks will not be able to calculate
and determine a presumptive rating
prior to a CRA examination. The
agencies decline to adopt this
suggestion because such an approach
would hamper the agencies’ ability to
evaluate qualitative components of a
bank’s CRA performance.
In response to commenter suggestions
to build more distinctions in
performance into the CRA rating
framework, the agencies note that 12
U.S.C. 2906(b)(2) prescribes the four-tier
ratings framework under the current
approach and the final rule. The
agencies believe, however, that
publishing performance scores
associated with the bank’s assigned
conclusions and ratings will provide
meaningful information about
distinctions in bank performance
because performance scores may be
more nuanced than assigned
conclusions and ratings. For example, if
a large bank’s overall performance score
for the institution, derived based on the
bank’s performance score for each
applicable test, is an 8.1, the agencies
would assign the bank an institution
rating of ‘‘Satisfactory,’’ subject to
§ ll.28(d), but the performance score
would indicate that that the bank’s
performance is on the higher end of the
‘‘Satisfactory’’ range.
The agencies also believe that the
final CRA framework adequately
incentivizes banks to strive to achieve
an ‘‘Outstanding’’ rating by disclosing
performance scores, conclusions,
ratings, and other information about a
bank’s CRA performance to the public.
PO 00000
Frm 00451
Fmt 4701
Sfmt 4700
7023
For example, a bank may indicate to its
community that the agencies have
evaluated its CRA performance as
‘‘Outstanding,’’ as applicable. The
agencies note that providing financial
incentives under other statutes and
regulations for banks that achieve
‘‘Outstanding’’ CRA ratings (e.g.,
reduced taxes, reduced deposit
insurance assessments, reduced
borrowing rates from the Federal
Reserve discount window), as suggested
by one commenter, is outside the scope
of this rulemaking and, at least in some
cases, would not be within the agencies’
statutory authority.
The agencies decline to make
additional revisions to the CRA ratings
framework to address how findings
regarding race and ethnicity should be
factored into a bank’s rating. For more
information and discussion regarding
the agencies’ consideration of comments
recommending adoption of additional
race- and ethnicity-related provisions in
this final rule, see section III.C of this
SUPPLEMENTARY INFORMATION.
Although the agencies recognize that
CDFIs play an important role in
promoting community development and
helping to meet the credit needs of lowor moderate-income individuals and
communities, the agencies do not think
it would be appropriate to create a
presumption that a U.S. Department of
the Treasury-certified CDFI subject to
CRA would receive a ‘‘Satisfactory’’
rating. The CRA and the U.S. Treasury
Department’s CDFI Fund advance
similar objectives but have distinct
requirements. Moreover, the agencies
are required by statute to assess a bank’s
record of meeting the credit needs of its
entire community,1424 including lowand moderate-income neighborhoods,
and the agencies believe it would not be
appropriate for the agencies to rely on
the Treasury Department’s certification
to fulfill their statutory obligation.
For these reasons, the agencies are
adopting final § ll.28(b)(1) and (2)
with clarifying revisions from the
proposal. The agencies added a sentence
in final § ll.28(b)(1) that states that
the ratings assigned reflect the bank’s
record of helping to meet the credit
needs of its entire community,
including low- and moderate-income
neighborhoods, consistent with the safe
and sound operation of the bank, which
reflects statutory requirements. The
agencies proposed a similar statement in
§ ll.21 and believe it is appropriate to
include this statement in § ll.28 as
well, to reinforce the statutory
foundation for bank ratings. The
agencies also reworded § ll.28(b)(1)
1424 See
E:\FR\FM\01FER2.SGM
12 U.S.C. 2903(a).
01FER2
7024
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
for clarity. As discussed above, the
agencies also made revisions to
proposed § ll.28(b)(2) in the final
rule, including restructuring
§ ll.28(b)(2) to include paragraphs
(b)(2)(i) and (ii) to clarify that the
agencies will disclose a bank’s overall
performance score in each State and
multistate MSA, as applicable, and for
the institution, and will use the overall
performance scores as the basis for the
bank’s ratings, subject to § ll.28(d)
and (e). Final § ll.28(b)(2)(i) also
clarifies the banks for which the
agencies will calculate and disclose
performance scores, with one change
from the proposal. The agencies believe
it is appropriate to calculate and
disclose a limited purpose bank’s
overall performance score for each State
and multistate MSA, as applicable, and
the institution, which will be based on
the bank’s performance score on the
Community Development Financing
Test for Limited Purpose Banks.
Section ll.28(b)(3) Weighting of
Performance Scores
Under current large bank CRA
examination procedures, examiners use
a rating scale in the Interagency
Questions and Answers to convert
ratings assigned for each performance
test into point values; examiners then
add those point values together to
determine the overall institution
rating.1425 The agencies do not publish,
however, the points assigned to each
performance test and the overall points
that correspond to the bank’s overall
rating in its performance evaluation.
With the exception of this rating scale
for large banks, the process of
combining performance test ratings to
determine the State, multistate MSA, or
institution ratings relies primarily on
examiner judgment, guided by
quantitative and qualitative factors
outlined in the current regulations. For
example, exceptionally strong
performance in some aspects of a
particular rating profile may
compensate for weak performance in
others.1426
For large banks, paragraph b of
proposed appendix D provided that the
agencies would determine a large bank’s
State, multistate MSA, and institution
ratings by combining the bank’s
performance scores across all four
performance tests applicable to large
banks. Similarly, for intermediate banks,
paragraph c of proposed appendix D
provided that to determine an
1425 See Q&A § ll.28(a)—3; current appendix A,
paragraph (b); see also Interagency Large Institution
CRA Examination Procedures.
1426 See Q&A Appendix A to part ll—1.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
intermediate bank’s State, multistate
MSA, and institution ratings, the
agencies would combine an
intermediate bank’s performance scores
for its State, multistate MSA, and
institution performance under the Retail
Lending Test and the intermediate bank
community development evaluation or,
if the bank opts in, the Community
Development Financing Test. For both
large banks and intermediate banks, the
agencies proposed to consistently
weight the respective performance tests
applicable to each bank when assigning
ratings for each State and multistate
MSA, as applicable, and the institution.
Section ll.28(b)(3)(i) Large Bank
Performance Test Weights
Under the current rating scale for
large banks, although there is some
variation based on the points assigned
for each performance test rating, the
lending test generally accounts for 50
percent and the investment test and
service test each generally account for
25 percent of a large bank’s rating.1427
In paragraph b of proposed appendix D,
the agencies proposed to weight the
performance score for each performance
test applicable to a large bank by
multiplying it by a percentage
established for the performance test.
The agencies have generally retained
this approach in final § ll.28(b)(3)(i)
and have described the approach in
more detail in paragraph b of final
appendix D. As described below, the
agencies are adopting in the final rule
weights, with revisions relative to the
proposal, for the Retail Lending Test,
the Retail Services and Products Test,
and the Community Development
Financing Test, as well as revisions to
streamline paragraph b of appendix D.
The agencies are finalizing the proposed
weight for the Community Development
Services Test.
The Agencies’ Proposal and Comments
Received
For large banks, the agencies
proposed to weight performance scores
for each test as follows: Retail Lending
Test at 45 percent; Community
Development Financing Test at 30
percent; Retail Services and Products
Test at 15 percent; and Community
Development Services Test at 10
percent.1428
The agencies received many
comments on the proposed weighting of
the large bank performance tests from a
broad range of commenter types. Most
of these commenters discussed the
proposed weighting of retail activities,
1427 See
1428 See
PO 00000
id.
proposed appendix D, paragraph b.
Frm 00452
Fmt 4701
Sfmt 4700
reflected in the Retail Lending Test and
Retail Services and Products Test
conclusions, compared to the weighting
of community development activities,
reflected in the Community
Development Financing Test and
Community Development Services Test
conclusions. Generally, these
commenters expressed concerns that
community development activities were
weighted too lightly and that the
proposed weighting would
disincentivize community development
activities. Many commenters suggested
that retail activities and community
development activities be weighted
equally, while some commenters
provided specific suggestions for the
weighting of the large bank performance
tests. Finally, a few commenters
suggested that the agencies incorporate
flexibility into the weighting framework.
A commenter expressed support for
the proposed weighting for large banks,
stating that the proposed weighting
places appropriate emphasis on the
most important aspects of a bank’s CRA
activities.
Weighting of community development
activities compared to retail activities.
Most commenters who commented on
the proposed weighting of the
performance tests conveyed concerns
that the proposed weighting of the large
bank performance tests overweighted a
bank’s retail activities compared to its
community development activities.
These commenters asserted that the
proposed weighting would
disincentivize and could lessen
impactful community development
activities. A commenter expressed that
the proposed unequal weighting could
lead banks to focus more on their retail
activities, which also tend to be less
expensive and a larger part of their
business models. A few commenters
stated that the proposed weights would
not provide an adequate incentive for
banks to meet the community
development needs of rural and highneed areas. Moreover, one commenter
asserted that there was a lack of an
empirical basis for assigning community
development activities a lower weight.
Most commenters on the proposed
weighting of the large bank performance
tests remarked that, due to the heavy
weighting of retail activities, it would be
extremely difficult or impossible to
attain an ‘‘Outstanding’’ rating without
an ‘‘Outstanding’’ performance
conclusion on the Retail Lending Test.
The majority of these commenters stated
that, due to such weighting, the
difficulty of achieving an ‘‘Outstanding’’
rating would disincentivize banks to
pursue this standard. For example, a
commenter explained that the proposed
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
weighting for the Retail Lending Test
was too high because, for CRA to be
effective in providing incentives for
institutions to stretch, all banks should
have a reasonable opportunity to
achieve an ‘‘Outstanding’’ rating.
Some commenters expressed concerns
that the proposed weighting would
disincentivize banks from seeking an
‘‘Outstanding’’ conclusion for their
community development performance,
which a commenter stated would be
counter to the intent of the original
legislation and decades of established
practice and investment. One of these
commenters expressed concern that the
proposed approach may render the
Community Development Financing
Test immaterial to a bank’s ultimate
rating and create a race to the bottom
when coupled with peer-based
performance evaluations.
Many commenters noted that, under
the proposal, banks could receive a
‘‘Satisfactory’’ rating even if they
performed poorly on the Community
Development Financing Test, including
receiving a ‘‘Needs to Improve’’
conclusion. A few commenters stated
that this aspect of the proposal places
low value on community development
activities and risks banks deprioritizing
community development, running
counter to the intent of the CRA statute.
Lastly, a commenter believed that the
proposed weighting, which would allow
a bank to receive an overall
‘‘Satisfactory’’ rating even if it received
a ‘‘Needs to Improve’’ conclusion on the
Community Development Financing
Test as long as it received ‘‘Low
Satisfactory’’ conclusion on the Retail
Lending Test, sets an incredibly low bar
that most banks would clear and could
disincentivize banks from pursuing
community development activities.
Some commenters expressed concerns
about the impact the proposed
weighting would have on certain
community development activities,
particularly that the proposed weighting
would reduce community development
equity financing, including
participation in the LIHTC and NMTC
programs, and would negatively impact
affordable housing. Additionally, one
commenter suggested that the proposed
weighting would significantly diminish
the community finance ecosystem and
the CDFI industry. Another commenter
expressed concern that the proposed
weighting of the Community
Development Financing Test would risk
reducing the amount of long-term,
patient capital flowing to essential
projects in the form of community
development investments.
Some commenters remarked on the
potential negative effect of the proposed
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
weighting on bank risk profiles and
certain business models. A few
commenters stated that the high weight
placed on the Retail Lending Test would
disadvantage business models that do
not focus on retail lending in particular
geographies or overall. Other
commenters noted that the high weight
for the Retail Lending Test would
encourage excessive risk-taking to meet
CRA standards and adversely impact
safety and soundness. One commenter
suggested that a commercial bank could
feel pressured by the weighting to
compete with credit unions for certain
personal products, creating more risk in
its portfolio. Another commenter stated
that the proposal failed to adequately
consider that many banks are not
structured to offer large retail loans due
to the specific needs of their markets.
This commenter asserted that a bank
with a business model of small-dollar
retail lending with an innovative,
complex, and responsible community
development lending and investment
strategy would not be positioned to earn
an ‘‘Outstanding’’ rating. Another
commenter stated that proposed weight
of the Retail Lending Test would be
detrimental to its overall CRA rating and
would essentially take staff away from
helping low- and moderate-income
individuals in its community.
Suggestions to adjust the proposed
weighting of the performance tests for
large banks. Many commenters
suggested weighting retail and
community development activities
equally, with one commenter explaining
that this would ensure that resources are
more effectively directed to underserved
communities. A community
development organization stated that
the Community Development Financing
Test should carry the same, if not more,
weight relative to any other performance
test, including the Retail Lending Test.
Another community development
organization likewise supported a
stronger role for community
development lending and investment
over retail lending.
A number of commenters proposed
specific alternatives to achieve the equal
weighting of retail and community
development activities. To achieve
equal weight, a few commenters
suggested weighting the Retail Lending
Test and the Community Development
Financing Test each at 40 percent and
the Retail Services and Products Test
and the Community Development
Services Test each at 10 percent. A few
other commenters suggested weighting
the Retail Lending Test and the
Community Development Financing
Test each at 35 percent and the Retail
Services and Products Test and the
PO 00000
Frm 00453
Fmt 4701
Sfmt 4700
7025
Community Development Services Test
each at 15 percent. Another commenter
suggested that the Community
Development Financing Test should be
increased to 45 percent, with 25 percent
for community development lending
and 20 percent for community
development investments, and the
weight assigned to the Community
Development Services Test should be
reduced to five percent as many
community development services are
eligible to be considered under the
Retail Services and Products Test.
Another commenter suggested that the
agencies weight the Retail Lending Test
at 35 percent, the Retail Services and
Products Test at 15 percent, the
Community Development Financing
Test at either 40 percent or 45 percent,
and the Community Development
Services Test at either 10 percent or 5
percent, with the Community
Development Services Test receiving the
higher weight if grants are included in
that performance test.
A few commenters recommended
weighting alternatives that did not
provide retail and community
development activities equal weight, but
which generally increased the weight
afforded to community development
activities. Specifically, one commenter
suggested weighting the Retail Lending
Test and the Community Development
Financing Test each at 40 percent, the
Retail Services and Products Test at 15
percent, and the Community
Development Services Test at five
percent. A commenter recommended
weighting community development
activities at 60 percent for all banks.
Another commenter suggested that the
agencies give community development
activities a 75 percent weight and retail
activities a 25 percent weight, as CRA
community development activities have
been attributed to reducing the depth of
the nation’s poverty levels.
A few commenters had additional
comments regarding the weighting of
community development services.
Several commenters stated that the
Community Development Services Test
is weighted too heavily at 10 percent.
One commenter suggested that the
Community Development Services Test
should be weighted at 5 percent. In
contrast, a few commenters suggested
that the proposed weight for the
Community Development Services Test
should be raised as it is too light to
encourage effective development of
community development services.
These commenters suggested weights
between 15 percent and 30 percent,
although one commenter noted that
increasing the weighting of community
development services could result in
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7026
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
less importance associated with
community development lending and
investments. A commenter remarked
that the weighting of the Community
Development Services Test at 10 percent
provided large banks with little
incentive to strive for an ‘‘Outstanding’’
over a ‘‘Satisfactory’’ performance
conclusion.
A few commenters expressed concern
regarding the weighting of retail services
and products relative to their
importance in assisting communities. A
commenter expressed concern that
combining all of these critical
components of CRA—meaningful access
to branches, accounts, and responsive
credit products—would give them
insufficient consideration in a
performance test representing only 15
percent of a bank’s CRA rating. One
commenter recommended that the
rating system emphasize lending,
branches, fair lending performance, and
responsible loan products for working
class families. Another commenter
believed that the proposed rating system
would devalue the importance of
maintaining branches in low- and
moderate-income neighborhoods.
Weighting suggestions based on
different performance test frameworks.
Commenters also suggested weighting
based on changes to the four-test
framework. For example, a commenter
suggested combining the retail
performance tests into one performance
test and the community development
performance tests into one performance
test and then giving these combined
tests equal weight. A few commenters
suggested combining the community
development performance tests into one
performance test and weighting the
combined performance test at 45
percent or 50 percent. Another
commenter suggested eliminating the
Community Development Services Test
and weighting the Community
Development Financing Test at 50
percent. Alternatively, a CDFI proposed
a five-test weighting scheme with the
Retail Lending Test weighted at 35
percent, the Retail Services and
Products Test at 15 percent, a
Community Development Lending Test
at 20 percent, a Community
Development Investment Test at 20
percent, and the Community
Development Services Test at 10 percent
(with grants included under the
Community Development Services
Test). A few other commenters
suggested establishing a Community
Development Test weighted at 50
percent, with weighted subtests within
the Community Development Test for
investments, lending, and services.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Comments regarding weighting
flexibility. A few commenters
recommended incorporating flexibility
in the weighting framework for large
banks. A commenter suggested that
applying the same weighting to the four
large bank tests regardless of how
important retail banking is to the bank
being evaluated could lead to a
disproportionate emphasis on retail
loans for banks that focus on other
business lines and primarily serve lowand moderate-income people through
their community development
activities, so the agencies should allow
flexibility to accommodate banks with
different business models. This
commenter suggested, at a minimum,
permitting weighting flexibility in
strategic plans. Other commenters
supported weighting flexibility to allow
for other factors such as the availability
of funding and variations in market
demand and opportunities. A
commenter suggested that examiners
should have leeway to consider
performance context in weighting.
Final Rule
The agencies have considered the
many comments that expressed
concerns about the proposed weighting
of the large bank performance tests and
made suggestions to revise the
weighting to ensure that community
development activities receive
appropriate weight. After careful
consideration of these comments and
further reflection on the proposal, the
agencies are adopting modified
weighting for the performance tests for
large banks in final § ll.28(b)(3)(i) and
paragraph b of final appendix D, which
will result in equal weighting for
community development activities and
retail activities.
Specifically, in calculating ratings for
large banks at the State, multistate MSA,
and institution level, the agencies will
weigh the performance scores for the
applicable performance tests for large
banks as follows:1429 the Retail Lending
Test at 40 percent; the Community
Development Financing Test at 40
percent; the Retail Services and
Products Test at 10 percent; and the
Community Development Services Test
at 10 percent. In order to increase the
weight of the Community Development
Financing Test by 10 percent (from 30
1429 Refer to the section-by-section analysis of
§§ ll.22 through ll.25 for discussion of how
the agencies derive the performance score for each
performance test applicable to a large bank.
Generally, performance scores are presented as
unrounded or rounded numbers, depending on the
applicable performance test, on the 10-point scale
described in the section-by-section analysis of
§ ll.21.
PO 00000
Frm 00454
Fmt 4701
Sfmt 4700
percent to 40 percent), the agencies will
reduce by 5 percent the weights for both
the Retail Lending Test (from 45 percent
to 40 percent) and the Retail Service and
Products Test (from 15 percent to 10
percent). The agencies considered a
number of weighting alternatives,
including those suggested by
commenters, and determined that the
weighting for large bank performance
test scores adopted in the final rule most
appropriately balances the many
considerations involved in establishing
these weights. As discussed below, this
change will also mean that retail
activities and community development
activities will be equally weighted for
both intermediate banks and large banks
under the respective weighting for
applicable performance tests.
The agencies expect that increasing
the weights of the community
development tests so that the combined
weight of the Community Development
Financing Test and the Community
Development Services Test accounts for
half of a large bank’s ratings, and the
Community Development Financing
Test, in particular, accounts for 40
percent of a large bank’s ratings, will
address many concerns expressed by
commenters. Specifically, the increased
weight will more strongly incentivize
community development loans and
investments, including certain
community development activities that
commenters identified as particularly
impactful. The agencies also believe that
the weighting under the final rule will
encourage banks to pursue
‘‘Outstanding’’ ratings based on
‘‘Outstanding’’ performance on either
the Community Development Financing
Test or the Retail Lending Test, or both,
as appropriate based on the bank’s
capacity and business model. Similarly,
the finalized weighting will make it
more difficult for a bank to obtain an
‘‘Outstanding’’ or ‘‘Satisfactory’’ rating
with a ‘‘Needs to Improve’’ conclusion
on the Community Development
Financing Test. Further, the increased
weight placed on community
development lending and investment
recognizes that not all community credit
needs can be met through retail lending.
For example, affordable housing is a
widespread community need that banks
generally may not be able to address
through retail lending.
After extensive consideration of the
comments, the agencies also believe that
the corresponding reduction in the
assigned weight for the Retail Lending
Test from 45 percent to 40 percent is
appropriate. The agencies note that,
although the lending test generally
receives 50 percent weight under the
current CRA rating framework, the final
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Retail Lending Test does not have the
same scope as the current lending test.
For example, community development
lending, which is currently considered
under the large bank lending test, will
be considered with community
development investments under the
Community Development Financing
Test. Under the final rule, multifamily
lending also will be exclusively
evaluated under the Community
Development Financing Test. Further,
as discussed in the section-by-section
analysis of § ll.28(b)(4) below, the
final rule retains the requirement that a
bank receive a minimum performance
test conclusion of a ‘‘Low Satisfactory’’
on the Retail Lending Test for a State,
multistate MSA, or institution, to
receive a ‘‘Satisfactory’’ rating for,
respectively, the State, multistate MSA,
or the institution. Between the final
weighting and this requirement, the
agencies believe the final rule contains
appropriate safeguards to ensure that a
bank must meet the retail credit needs
of its community to receive an
‘‘Outstanding’’ or ‘‘Satisfactory’’ rating.
As noted above, the final rule reduces
the weight assigned to the Retail
Services and Products Test from 15
percent to 10 percent. After considering
all comments on the weighting of the
large bank performance tests, including
those regarding the weighting of retail
services and products, the agencies
believe this change best facilitates an
increase in the weight of the
Community Development Financing
Test, as discussed above. Further, the
final rule adopts the proposal to weight
the Community Development Services
Test at 10 percent. Therefore, the final
rule will weight a bank’s retail and
community development activities
equally with respect to retail and
community development lending and
investment and retail and community
development services. The agencies
believe this balance in the weighting
will appropriately encourage CRA
activities of all kinds and will provide
flexibility for banks. The combined 20
percent weighting of the Retail Services
and Products Test and the Community
Development Services Test will remain
similar to the effect of the current
service test on a large bank’s rating
under the current rating scale, which is
generally 25 percent of a large bank’s
rating.
The agencies believe that equally
weighting both the Retail Lending Test
and the Community Development
Financing Test at 40 percent and both
the Retail Services and Products Test
and the Community Development
Services Test at 10 percent recognizes
the historical focus of CRA on retail and
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
community development lending and
investment and is consistent with the
statutory purpose of CRA to encourage
banks to help meet the credit needs of
their local communities.1430 The
agencies also believe the 10 percent
weight assigned to both the Retail
Services and Products Test and
Community Development Services Test
will ensure these performance tests have
sufficient weight in the calculation of
the bank’s overall rating to be
meaningful.
For the reasons described in the
section-by-section analysis of final
§ ll.21, the agencies have determined
to finalize the general framework of four
performance tests for large banks as
proposed. Thus, suggested weighting
schemes based on a different
performance test framework, such as
those involving the combination,
elimination, or addition of performance
tests, would not align with the final
rule.
The agencies have determined to
assign a fixed weight for each of the
performance tests applicable to a large
bank. For large banks, the agencies
believe the benefits of weighting
flexibility for banks with different
communities, business models, and
capacity are outweighed by an interest
in ensuring an objective, quantifiable,
and consistent method to assign large
bank ratings. The agencies note that the
performance tests for large banks have
elements tailored to a bank’s size and
business model and allow for flexibility
in considering and weighting
components, as appropriate. As
discussed in the section-by-section
analysis of final § ll.21, the agencies
will also consider performance context
under final § ll.21(d) in assigning the
conclusions and associated performance
scores that factor into a bank’s assigned
ratings. Finally, as discussed in the
section-by-section analysis of final
§ ll.27, the final rule permits
weighting flexibility for banks evaluated
under an approved strategic plan
pursuant to final § ll.27.
In addition to the revisions discussed
above, the agencies added final
§ ll.28(b)(3)(i) to address the
weighting of performance scores for
large bank ratings in final § ll.28. The
agencies also made revisions to
streamline paragraph b of final
appendix D compared to the proposal.
Section ll.28(b)(3)(ii) Intermediate
Bank Performance Test Weights
Under the current ratings approach
for intermediate small banks, the
agencies have not established a rating
1430 See
PO 00000
12 U.S.C. 2901(b).
Frm 00455
Fmt 4701
Sfmt 4700
7027
scale to aggregate an intermediate small
bank’s performance under the lending
test and the community development
test. Current practice with respect to
intermediate small banks, however,
typically gives equal weight to retail
lending and community development
activities.1431
In paragraph c of proposed appendix
D, similar to the proposal with respect
to large banks, the agencies proposed to
weight the performance score, presented
on a 10-point scale as described in the
section-by-section analysis of § ll.21,
for each performance test applicable to
an intermediate bank by multiplying it
by a percentage established for the
performance test. As described below,
the agencies generally adopted this
approach in final § ll.28(b)(3)(ii) and
as described in more detail in paragraph
c of final appendix D. The agencies also
made revisions to streamline paragraph
c of final appendix D compared to the
proposal.
The Agencies’ Proposal and Comments
Received
For intermediate banks, the agencies
proposed to weight the Retail Lending
Test at 50 percent and the intermediate
bank community development
evaluation, or, for intermediate banks
that opt in, the Community
Development Financing Test, at 50
percent.1432 The agencies sought
feedback on whether it would be more
appropriate to weight retail lending
activity at 60 percent and community
development activity at 40 percent in
developing the overall rating for an
intermediate bank to maintain the
CRA’s focus on meeting community
credit needs through home mortgage
loans, small business loans, and small
farm loans.
As discussed above in the section-bysection analysis of § ll.28(b)(3)(i),
many commenters addressed the
appropriate weighting of a bank’s
community development activities
relative to its retail activities. Many
commenters specifically recommended
that a bank’s community development
activities and retail activities should be
equally weighted. Although many of
1431 Under the current approach, an intermediate
small bank’s performance on the lending test and
the community development test are generally
treated equally. For example, an intermediate small
bank may not receive an assigned overall rating of
‘‘Satisfactory’’ unless it receives a rating of at least
‘‘Satisfactory’’ on both the lending test and the
community development test. An intermediate
small bank that receives an ‘‘Outstanding’’ rating on
one test and at least ‘‘Satisfactory’’ on the other test
may receive an assigned overall rating of
‘‘Outstanding.’’ See current appendix A, paragraph
(d)(3); Interagency Intermediate Small Institution
CRA Examination Procedures.
1432 See proposed appendix D, paragraph c.
E:\FR\FM\01FER2.SGM
01FER2
7028
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
these comments were specific to the
agencies’ proposed weighting for the
large bank performance tests, other
commenters did not specify whether
their comments applied to large banks
or intermediate banks.
A few commenters specifically
addressed the proposed weighting for
intermediate banks. The commenters
supported equal weighting for the Retail
Lending Test and the intermediate bank
community development evaluation
based on the idea that community
development services are assessed in
the intermediate bank community
development evaluation. One of the
commenters stated that if community
development services are optional for
intermediate banks, however, the Retail
Lending Test weight should be
increased to 55 or 60 percent to
encourage more lending.
Final Rule
In final § ll.28(b)(3)(ii) and
paragraph c of final appendix D, after
considering the comments and
alternatives to the proposed weighting
for intermediate bank performance
scores, the agencies are finalizing as
proposed the weights for both the Retail
Lending Test and the renamed
Intermediate Bank Community
Development Test (i.e., referred to as the
‘‘intermediate bank community
development evaluation’’ in the
proposal) or, for intermediate banks that
opt in, the Community Development
Financing Test.
As discussed above with respect to
large banks, the agencies believe that
equally weighting a bank’s retail lending
and community development lending
appropriately emphasizes retail lending
and community development lending
and investments as key parts of a bank’s
CRA activities. As discussed above,
equal weighting is generally consistent
with the agencies’ current approach to
intermediate small banks. Because the
final rule also generally adopts equal
weighting for the retail and community
development activities of large banks,
adopting equal weighting for an
intermediate bank’s retail and
community development activities will
establish a consistent standard for banks
evaluated under multiple performance
tests and subject to weighting of
performance scores.
The agencies also considered the
impact of the additional consideration
for other activities, including
community development services, on
the weighting of the performance tests
applicable to intermediate banks. As
discussed further in the section-bysection analysis of final § ll.30,
however, the agencies believe that the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
flexibility intermediate banks have to
decide which community development
approach better fits their bank will
allow banks that currently participate
heavily in community development
services to continue to be evaluated for
these services under the Intermediate
Bank Community Development Test, or
to have these community development
services given additional consideration
if they opt into the Community
Development Financing Test. As such,
the agencies did not increase the Retail
Lending Test weight based on
commenter input.
In addition to the revisions discussed
above, the agencies added final
§ ll.28(b)(3)(ii) to address the
weighting of performance scores for
intermediate banks ratings in final
§ ll.28. The agencies also made
revisions to streamline paragraph c of
final appendix D.
Section ll.28(b)(4) Minimum
Conclusion Requirements
In addition to the weighting approach
above, final § ll.28(b)(4) establishes
requirements, as proposed in paragraph
g of appendix D, for minimum
performance test conclusions for a large
bank or an intermediate bank to be
eligible for an ‘‘Outstanding’’ or
‘‘Satisfactory’’ rating. The agencies
intended these requirements to be
additional safeguards, in addition to the
rating developed by aggregating and
weighting a bank’s performance test
scores, to ensure that a bank receiving
an ‘‘Outstanding’’ or ‘‘Satisfactory’’
rating is meeting the credit needs of its
community.
Under the current approach, the
agencies assign ratings for large banks
assessed under the lending, investment,
and service tests in accordance with
several principles. First, a large bank
that receives an ‘‘Outstanding’’ rating on
the lending test receives an assigned
rating of at least ‘‘Satisfactory.’’1433
Second, a large bank that receives an
‘‘Outstanding’’ rating on both the
service test and the investment test and
at least a ‘‘High Satisfactory’’ rating on
the lending test receives an assigned
rating of ‘‘Outstanding.’’1434 Finally, a
large bank cannot receive an assigned
rating of ‘‘Satisfactory’’ or higher unless
it receives at least a ‘‘Low Satisfactory’’
rating on the lending test.1435 The
current rating scale for large banks
reflects these principles.
In addition, under the current
approach, an intermediate small bank
may not receive an overall
12 CFR ll.28(b)(1).
12 CFR ll.28(b)(2).
1435 Current 12 CFR ll.28(b)(3).
1433 Current
1434 Current
PO 00000
Frm 00456
Fmt 4701
Sfmt 4700
‘‘Satisfactory’’ rating unless it receives
at least a ‘‘Satisfactory’’ on both the
lending test and the community
development test.1436 An intermediate
small bank that receives an
‘‘Outstanding’’ on one test and at least
‘‘Satisfactory’’ on the other test may
receive an overall rating of
‘‘Outstanding.’’1437
Section ll.28(b)(4)(i) Retail Lending
Test Minimum Conclusion
Consistent with a current approach,
final § ll.28(b)(4)(i) adopts the
requirement, proposed in paragraph g.1
of appendix D, that an intermediate
bank or a large bank must receive at
least a ‘‘Low Satisfactory’’ Retail
Lending Test conclusion to be eligible
for an ‘‘Outstanding’’ or ‘‘Satisfactory’’
rating for a State, multistate MSA, or the
institution overall.
The Agencies’ Proposal and Comments
Received
The agencies proposed in paragraph
g.1 of appendix D to retain the current
requirement that an intermediate bank
or a large bank must receive at least a
‘‘Low Satisfactory’’ Retail Lending Test
conclusion at, respectively, the State,
multistate MSA, or institution level to
receive an overall State, multistate
MSA, or institution rating of
‘‘Outstanding’’ or ‘‘Satisfactory.’’ 1438 A
commenter specifically supported this
part of the proposal with respect to
intermediate banks.
The agencies did not propose
minimum conclusion requirements for
other performance tests, such as the
current requirement that an
intermediate small bank must receive a
‘‘Satisfactory’’ on both the current
lending test and the current community
development test to receive an overall
‘‘Satisfactory’’ rating. The agencies also
did not propose specific minimum
conclusion requirements for a bank to
receive an ‘‘Outstanding’’ rating. Some
commenters suggested, however, that
the agencies impose minimum
conclusion requirements for other
performance tests for a bank to receive
an ‘‘Outstanding’’ rating.
Community development test
minimum conclusions. Some
commenters recommended that the
agencies should also require at least a
‘‘Low Satisfactory’’ on the community
1436 See
current appendix A, paragraph (d)(3)(i).
current appendix A, paragraph
(d)(3)(ii)(A).
1438 See proposed appendix D, paragraph g.1. The
agencies did not, however, propose to retain, for
intermediate banks, the current requirement that
intermediate small banks must receive a
‘‘Satisfactory’’ rating on both the Retail Lending
Test and intermediate bank community
development evaluation.
1437 See
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
development performance tests in order
to receive an overall ‘‘Satisfactory’’
rating. Further, a few commenters
suggested that a bank should not receive
a higher overall rating than the
conclusion it receives on the
community development tests. Some
commenters specifically recommended
that no bank should receive a
‘‘Satisfactory’’ rating unless it receives
at least a ‘‘Low Satisfactory’’ conclusion
on the Community Development
Financing Test. A commenter
specifically opposed eliminating, for
intermediate banks, the current
requirement that intermediate small
banks receive a ‘‘Satisfactory’’ on the
community development performance
test to earn a ‘‘Satisfactory’’ rating,
stating this would have the perverse
outcome of reducing overall levels of
community developing financing.
Other requirements for a
‘‘Satisfactory’’ rating. Some commenters
suggested that the agencies consider
failing a bank overall if the bank
receives a ‘‘Needs to Improve’’ on any
of the performance tests. A group of
commenters suggested that a passing
score for a bank should be based on high
scores for each component of its CRA
examinations. Another commenter
believed that all of a bank’s CRA
‘‘activity areas’’ and sub-activity areas
should be evaluated separately, with a
high minimum threshold of activity,
calculated as a percentage of deposits,
in each area, and that no CRA activity
area should be abandoned or allowed to
underperform.
More generally, a commenter
proposed that no bank should pass its
CRA examination if it fails to serve
communities with branches, and
affordable and accessible products.
Additionally, a few commenters
expressed that banks should not pass
their CRA examinations if they are not
lending to minorities or if HMDA data
show that they have otherwise failed to
serve the entire community.
Requirements related to an
‘‘Outstanding’’ rating. A few
commenters suggested allowing a bank
to achieve an overall rating of
‘‘Outstanding’’ by receiving an
‘‘Outstanding’’ conclusion for its
community development activities and
at least a ‘‘High Satisfactory’’ conclusion
for its retail activities. A commenter
recommended not precluding banks
with a ‘‘High Satisfactory’’ conclusion
on either the Retail Lending Test or the
Community Development Financing
Test from an overall ‘‘Outstanding’’
rating. Another commenter suggested
that a large bank that receives a ‘‘High
Satisfactory’’ conclusion on the Retail
Lending Test and ‘‘Outstanding’’
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
conclusions for the other three
performance tests should receive an
‘‘Outstanding’’ rating overall. Another
commenter suggested that a large bank
that receives an ‘‘Outstanding’’
conclusion on the Community
Development Financing Test or on the
Retail Lending Test should receive an
overall ‘‘Outstanding’’ rating if it
received at least a ‘‘High Satisfactory’’
conclusion on the other performance
tests. A few other commenters stated
that no bank should receive an
‘‘Outstanding’’ rating without
demonstrating improved measures of
direct responses to the needs of lowand moderate-income populations with
disabilities within and across
assessment areas.
Final Rule
The agencies are adopting paragraph
g.1 of final appendix D as proposed.
Consistent with the agencies’
determination to include more detail
about how bank ratings will be assigned
in § ll.28, as discussed above, the
final rule also adopts in
§ ll.28(b)(4)(i) the requirement that an
intermediate bank or a large bank must
receive at least a ‘‘Low Satisfactory’’
Retail Lending Test conclusion for the
State, multistate MSA, or institution to
be eligible for an ‘‘Outstanding’’ or
‘‘Satisfactory’’ rating for, respectively,
that State, multistate MSA, or
institution.
The commenter that specifically
addressed the minimum performance
conclusion requirement for the Retail
Lending Test expressed support for the
agencies’ proposal. The agencies also
continue to believe this minimum
performance conclusion requirement
emphasizes the importance of retail
loans to low- and moderate-income
communities. Finalizing this
requirement will ensure that banks are
required to meet the retail lending credit
needs of their communities to receive an
‘‘Outstanding’’ or ‘‘Satisfactory’’ rating
for each State, multistate MSA, or the
institution.
As proposed, the final rule does not
establish minimum performance
conclusion requirements for
performance tests other than the Retail
Lending Test. Generally, the agencies
believe that the final rule’s consistent
and objective weighting for the
performance tests under § ll.28(b)(3)
will result in banks being assigned the
appropriate rating category. For
example, the agencies expect more
nuanced performance scores for each
performance test and the overall CRA
ratings as a result of the methodology
for weighting bank performance across
applicable geographic areas.
PO 00000
Frm 00457
Fmt 4701
Sfmt 4700
7029
With respect to commenter
suggestions that the agencies impose a
similar minimum performance
conclusion requirement for the
Community Development Financing
Test as that established for the Retail
Lending Test, the agencies considered
and decided not to adopt this
suggestion. In the final rule, as
discussed above in the section-bysection analysis of final § ll.28(b)(3),
the agencies revised the proposed
weighting of the performance tests for
large banks to equally weight the
Community Development Financing
Test and the Retail Lending Test. The
agencies believe this change sufficiently
addresses commenter concerns that the
proposal did not sufficiently emphasize
community development loans and
investments, and do not believe that
adding an additional requirement
outside of the weighting framework is
necessary.
Also as proposed, the final rule does
not adopt the current requirement that
an intermediate bank must receive a
‘‘Satisfactory’’ rating on both the Retail
Lending Test and either the
Intermediate Bank Community
Development Test or, if the bank opts
in, the Community Development
Financing Test, to receive an
‘‘Outstanding’’ or ‘‘Satisfactory’’ rating.
The agencies continue to believe
eliminating this requirement for
intermediate banks allows intermediate
banks to meet community development
credit needs consistent with their more
limited capacity.
The agencies decline to adopt
revisions based on commenter
suggestions that the agencies should
consider failing a bank overall if the
bank receives a ‘‘Needs to Improve’’ on
any of the performance tests. The
agencies generally want to encourage
banks to compensate for weaker
performance in one area with stronger
performance in another, and the
commenter’s approach may discourage a
bank that receives a ‘‘Needs to Improve’’
conclusion on one performance test
from striving for higher conclusions on
other performance tests. The agencies
believe this is consistent with the
statutory purpose of CRA to encourage
banks to help meet the credit needs of
their communities.1439 The agencies
intend that the weighting of
performance scores for applicable
performance tests for large banks and
intermediate banks, subject to the
minimum performance requirement for
the Retail Lending Test reflects a bank’s
1439 See
E:\FR\FM\01FER2.SGM
12 U.S.C. 2901(b).
01FER2
7030
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
overall performance in a State or
multistate MSA or for the institution.
With respect to comments suggesting
requirements for ‘‘Outstanding’’ ratings,
the agencies believe that the established
weighting for performance test scores
will appropriately identify when a bank
demonstrates ‘‘Outstanding’’
performance. The agencies also believe
that the weighting for ratings under the
final rule, which will, in general,
equally weight a bank’s retail activities
and community development activities,
addresses the commenter concerns that
led to some of these suggestions. For
example, a large bank will generally
need to receive an ‘‘Outstanding’’
performance conclusion on one or more
performance tests, including either or
both of the ‘‘Retail Lending Test’’ or
Community Development Financing
Test, to receive an ‘‘Outstanding’’ rating.
ddrumheller on DSK120RN23PROD with RULES2
Section ll.28(b)(4)(ii) Minimum of
‘‘Low Satisfactory’’ Overall FacilityBased Assessment Area And Retail
Lending Assessment Area Conclusion
Final § ll.28(b)(4)(ii) adopts the
requirement, modified from that
proposed in paragraph g.2. of appendix
D, that a large bank with a combined
total of 10 or more facility-based
assessment areas and retail lending
assessment areas in any State or
multistate MSA, as applicable, or for the
institution, as applicable, may not
receive a rating of ‘‘Satisfactory’’ or
‘‘Outstanding’’ in that State or
multistate MSA, as applicable, or for the
institution, unless the bank receives an
overall conclusion of at least ‘‘Low
Satisfactory’’ in 60 percent or more of
the total number of its facility-based
assessment areas and retail lending
assessment areas in that State or
multistate MSA, as applicable, or for the
institution. The current regulations do
not include a similar requirement. The
final rule adopts paragraph g.2. of
proposed appendix D, with clarifying
revisions and one modification to phase
in this requirement as described below,
and also includes this requirement in
new final § ll.28(b)(4)(ii).
The Agencies’ Proposal
In paragraph g.2 of proposed
appendix D, the agencies provided that
a large bank with 10 or more facilitybased assessment areas and retail
lending assessment areas combined in a
State, in a multistate MSA, or
nationwide would not be eligible to
receive a ‘‘Satisfactory’’ or higher rating
for, respectively, the State, multistate
MSA, or institution unless the bank
achieved at least an overall ‘‘Low
Satisfactory’’ conclusion in at least 60
percent of its facility-based assessment
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
areas and retail lending assessment
areas.1440 For purposes of this
requirement, the overall conclusion in a
facility-based assessment area would be
based on the performance scores for the
conclusions that the large bank received
on each performance test in that
assessment area.1441 For each facilitybased assessment area, the agencies
proposed to develop a facility-based
assessment area performance score, for
purposes of this requirement only, by
calculating a weighted average of the
performance scores for each
performance test using the same testspecific weights as the agencies would
use to calculate ratings.1442 If the
weighted average of the performance
scores for each test was 4.5 or greater,
the large bank would be considered to
have an overall conclusion of at least
‘‘Low Satisfactory’’ in the facility-based
assessment area.1443 For each retail
lending assessment area, for purposes of
this requirement only, the bank’s overall
conclusion would be equivalent to its
Retail Lending Test conclusion.1444
The agencies requested feedback on
whether the proposed requirement that
a large bank with 10 or more facilitybased assessment areas and retail
lending assessment areas would receive
at most a ‘‘Needs to Improve’’ rating
unless the bank achieved at least an
overall ‘‘Low Satisfactory’’ conclusion
in at least 60 percent of its facility-based
assessment areas and retail lending
assessment areas should apply to
facility-based assessment areas and
retail lending assessment areas or only
to facility-based assessment areas.
Additionally, the agencies sought
feedback about: whether 10 facilitybased assessment areas and retail
lending assessment areas was the right
threshold to trigger this requirement;
and whether 60 percent of facility-based
assessment areas and retail lending
assessment areas was the right threshold
to satisfy this requirement. Finally, the
agencies requested feedback on the
impact that this requirement would
have on branch closures.
Comments Received
Most commenters expressed concern
about the proposed 60 percent
threshold. Many commenters suggested
that the 60 percent threshold would not
effectively incentivize CRA activities in
rural areas or smaller urban areas,
noting that because smaller areas could
represent a minority of assessment areas
1440 See
proposed appendix D, paragraph g.2.i.
proposed appendix D, paragraph g.2.ii.B.
1442 See proposed appendix D, paragraph g.2.ii.C.
1443 See proposed appendix D, paragraph g.2.ii.D.
1444 See proposed appendix D, paragraph g.2.ii.A.
1441 See
PO 00000
Frm 00458
Fmt 4701
Sfmt 4700
a bank could pass the 60 percent
threshold by focusing on the larger
areas.
Some commenters stated that no bank
should be allowed to pass its CRA
examination if it fails nearly 40 percent
of its assessment areas or to pass in an
assessment area where it fails one of the
performance tests, especially in cases
where there is displacement financing
or branch closures in already
underserved low- and moderate-income
and minority communities. Similarly,
some commenters expressed that banks
should be required to serve all areas,
and not just 60 percent of areas, where
they take deposits and lend. Moreover,
a commenter did not support assigning
a percentage threshold to the number of
assessment areas required for passing
and, along with another commenter,
suggested that if a bank failed in any
assessment area, it should be deemed
not to be serving the needs of its
community in a satisfactory manner.
A few commenters proposed
increasing the 60-percent threshold,
with at least one commenter suggesting
each of 67 percent, 70 percent, 75
percent, and 90 percent as an
appropriate threshold. One commenter
explained that a higher threshold would
encourage banks to meet the credit
needs of a larger share of their
customers and communities.
Commenters also proposed alternative
ways to implement the 60-percent
threshold. Many commenters suggested
requiring the threshold be met for
different types of assessment areas (e.g.,
large metropolitan, small metropolitan,
and rural assessment areas; or
metropolitan and nonmetropolitan
assessment areas). One of these
commenters indicated that this should
be in addition to increasing the
threshold to 70 percent for all
assessment areas. A few commenters
recommended that a lender with 10 or
more rural assessment areas should be
required to earn a ‘‘Satisfactory’’
conclusion in the majority of its rural
assessment areas in order to achieve an
overall rating of ‘‘Outstanding’’ or
‘‘Satisfactory.’’
A few commenters encouraged having
a ‘‘Satisfactory’’ rating threshold that is
weighted across different types of
assessment areas to help all
communities experience the intended
effect of the CRA, with one commenter
suggesting that the weights assigned to
each assessment area be reversed
according to the assessment area size.
The latter commenter also suggested a
combination of requiring that the
threshold be met for different types of
assessment areas and incorporating
weighting. This commenter suggested
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
that the proposed unweighted 60
percent threshold would impose a
‘‘cliff’’ that could encourage banks to
stop activities in certain areas or avoid
expansion to new areas to be eligible for
a ‘‘Satisfactory’’ rating, which may affect
competition. The commenter also
suggested that according to its analysis,
a simplified version of the Retail
Lending Test without the 60 percent
requirement could produce the same
aggregate outcome with less potentially
adverse incentives.
Regarding the agencies’ request for
feedback on the 10 facility-based
assessment area and retail lending
assessment area threshold, one
commenter suggested lowering the
threshold from 10 to five assessment
areas, because the proposed threshold
implies that a bank can fail in four
assessment areas before receiving a
‘‘Needs to Improve’’ rating. A few
commenters stated that this threshold
should be fewer than 10 assessment
areas without suggesting a specific
number.
A few other commenters suggested a
broader implementation of this
requirement. Specifically, a commenter
suggested expanding the group of banks
subject to this requirement from large
banks to all banks. Another commenter
suggested that the requirement should
also apply to be eligible for an
‘‘Outstanding’’ rating, such that a bank
with 10 or more assessment areas would
need a conclusion of Outstanding in at
least 60 percent of its assessment areas
to achieve an overall conclusion of
Outstanding.
Some other commenters supported
the 60 percent threshold only for
facility-based assessment areas. For
example, one commenter suggested not
including retail lending assessment
areas because it is much harder for
banks to meet low- and moderateincome credit needs where they do not
have a local branch presence and to
compete with banks that have branches.
A few commenters opposed the
requirement generally. A commenter
explained that banks should strive to
serve all of their markets, but that there
is variation in a bank’s ability to serve
any given assessment area. This
commenter explained that branch
presence, tenure in the community, and
economic conditions all impact CRA
performance and cautioned that the 60
percent requirement could cause banks
to close branches in their weaker
markets, causing the loss of competitive
financial services in areas where they
are needed but are in decline. Another
commenter suggested that the prospect
of negative publicity from poor
performance in a significant number of
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
assessment areas would already provide
banks sufficient incentive to perform
satisfactorily in as many of their
assessment areas as possible.
Final Rule
The final rule adopts the 60 percent
requirement proposed in paragraph g.2
of appendix D with one modification, a
phased implementation of the
requirement, as well as clarifying
revisions. Specifically, under final
§ ll.51(e) and as discussed in the
section-by-section analysis of
§ ll.51(e), in a large bank’s first
examination under the final rule, the
requirement will only apply where a
bank has 10 or more facility-based
assessment areas in any State or
multistate MSA, or for the institution, as
applicable. Therefore, final
§ ll.28(b)(4)(ii)(B) and paragraph g.2.i
of final appendix D, provide that the
requirement applies except as provided
in final § ll.51(e).
After careful consideration of
commenters’ suggestions, the agencies
are finalizing the 60 percent threshold.
The agencies proposed this requirement
to ensure that large banks receiving a
‘‘Satisfactory’’ rating meet the credit
needs of their entire community and not
just densely populated markets with
high levels of lending and deposits that
will factor heavily into the calculation
of a bank’s ratings based on how
assessment area conclusions will be
weighted to develop a bank’s
performance test conclusions, which, in
turn, will be used to develop a bank’s
ratings. The agencies note that the
requirement that a large bank receive at
least a ‘‘Low Satisfactory’’ in 60 percent
of facility-based assessment areas and
retail lending assessment areas will
apply in addition to calculating the
bank’s rating as described in final
§ ll.28(b)(2) and (3). Therefore, to
receive an ‘‘Outstanding’’ or
‘‘Satisfactory’’ rating, a bank will need
to satisfy the 60 percent threshold in
addition to earning an ‘‘Outstanding’’ or
‘‘Satisfactory’’ rating based on the
weighting of performance test
conclusions.
The agencies believe that the 60
percent threshold ensures that large
banks receiving an ‘‘Outstanding’’ or
‘‘Satisfactory’’ rating are meeting the
credit needs of their entire community
while acknowledging limitations that
may impact bank performance, such as
business model, capacity, opportunities
to lend, and changes in a bank’s
assessment areas. The agencies note
that, under the final rule, the agencies
will examine a bank’s performance
under the applicable performance tests
in the same manner in all facility-based
PO 00000
Frm 00459
Fmt 4701
Sfmt 4700
7031
assessment areas and retail lending
assessment areas, which is a change
from the current approach that permits
limited-scope reviews. The agencies
believe that a higher threshold—such as
67 percent, 70 percent, 75 percent, 90
percent, or all assessment areas, as
suggested by commenters—may
establish a requirement that would be
too onerous for some banks to meet
consistent with safety and soundness
requirements. Further, the agencies are
also sensitive to the concerns expressed
by a commenter that a threshold that
establishes too onerous of a requirement
could lead banks to close branches in
certain facility-based assessment areas
or reduce lending in certain facilitybased assessment areas or retail lending
assessment areas.
The agencies have considered
commenter suggestions to require banks
to meet the 60 percent threshold for
different types of assessment areas (such
as large metropolitan, small
metropolitan, and rural assessment
areas, or metropolitan and
nonmetropolitan assessment areas) or
adopt weights for assessment areas
associated with this requirement. The
agencies have concerns, however, that
these suggestions would be overly
complex and difficult to implement.
Some suggested types of facility-based
assessment areas and retail lending
assessment areas—for example, rural
assessment areas—do not have clear and
consistent definitions. Further, the
agencies note that the 60 percent
requirement to receive a ‘‘Satisfactory’’
rating is intended to be an additional
guardrail supplementing the final rule
approach to developing bank
conclusions under the applicable
performance tests. This approach
generally includes consideration of a
weighted average of the bank’s facilitybased assessment area performance, and
calculates a bank’s rating by weighting
the bank’s performance scores on
applicable performance tests. For these
reasons, the agencies are not adopting
these suggestions in the final rule.
The agencies believe that analysis
provided by one commenter on the
impact of the 60 percent threshold omits
important aspects of the Retail Lending
Test calculations and therefore does not
align with the final rule in fundamental
respects. For example, the analysis
described by the commenter did not
consider CRA small business and small
farm lending data and was applied to
individual counties instead of facilitybased assessment areas. In addition, the
analysis applied the 60 percent
threshold to Retail Lending Test
conclusions, in contrast to the proposed
and final rule approach, which applies
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7032
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
this threshold to overall conclusions of
facility-based assessment areas and
retail lending assessment areas.
Applying the 60 percent threshold to
Retail Lending Test conclusions
represents a significant departure from
the proposed and final rule approach,
because for facility-based assessment
areas, overall conclusions reflect a
bank’s conclusions on all four
performance tests, not only the Retail
Lending Test.
Finally, the agencies acknowledge
comments that described variations in a
bank’s ability to serve any given facilitybased assessment area or retail lending
assessment area. The agencies
determined, however, that the 60
percent threshold provides sufficient
flexibility to account for challenges
regarding a bank’s performance.
The agencies are also finalizing the
proposed threshold for the number of
combined facility-based assessment
areas and retail lending assessment
areas in a State, a multistate MSA, or
nationwide at 10 facility-based
assessment areas and retail lending
assessment areas. Based on the agencies’
supervisory experience, the agencies
believe this threshold balances the need
for a guardrail for banks with a larger
footprint with the agencies’ intent to
provide flexibility to smaller
institutions. The agencies are finalizing
the same threshold for States, multistate
MSAs, and nationwide to reduce
complexity and so that this requirement
will apply at more levels as a bank’s
footprint increases. For example, in its
second examination under the final
rule, a bank with 10 combined facilitybased assessment areas and retail
lending assessment areas nationwide in
two or more states or multistate MSAs
will only be subject to this requirement
for its institution rating. A bank with 10
combined facility-based and retail
lending assessment areas in each of
several States or multistate MSAs will
be subject to this requirement for each
applicable State rating, multistate MSA
rating and for its institution rating. The
agencies also have opted not to apply
this requirement to intermediate banks
or small banks. In the agencies’
experience, it is unlikely that many
intermediate banks or small banks
would have 10 or more facility-based
assessment areas and retail lending
assessment areas in any State, multistate
MSA, or nationwide. The agencies also
decline to adopt a requirement that a
bank obtain an ‘‘Outstanding’’
conclusion in 60 percent of its facilitybased assessment areas and retail
lending assessment areas to receive an
‘‘Outstanding’’ rating. The agencies
believe this would add complexity, and
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
the weighting of performance test
conclusions will provide sufficient
guardrails related to eligibility for
‘‘Outstanding’’ ratings.
Section ll.28(c) Conclusions and
Ratings for States and Multistate MSAs
Section ll.28(c) addresses when,
consistent with statutory requirements,
the agencies will evaluate and assign
conclusions and ratings for a bank’s
CRA performance in a State or
multistate MSA. The CRA statute
requires that the agencies separately
evaluate a bank’s CRA performance for
each State where the bank maintains a
branch office or other facility that
accepts deposits.1445 If a bank maintains
a branch office or other facility that
accepts deposits in two or more States
of a multistate metropolitan area (i.e., a
multistate MSA), the agencies must
instead evaluate a bank’s CRA
performance for the multistate MSA.1446
If the agencies evaluate a bank’s CRA
performance for a multistate MSA, the
statute also requires that the agencies
adjust their evaluation of a bank’s CRA
performance in any State
accordingly.1447 The agencies’ current
approach to conclusions and ratings
reflects these statutory requirements.
The Agencies’ Proposal
Proposed § ll.28(c) provided that
the agencies would evaluate a bank’s
performance in any State in which the
bank maintains one or more facilitybased assessment areas and in any
multistate MSA in which the bank
maintains a branch in two or more
States within the multistate MSA. In
assigning conclusions and ratings for a
State, the agencies would not consider
a bank’s activities in that State that are
evaluated for a multistate MSA.
Final Rule
The agencies did not receive any
comments on proposed § ll.28(c). The
agencies are adopting final § ll.28(c)
with modifications from the proposal,
however, to clarify how the agencies
will assign conclusions and ratings for
geographic areas consistent with
statutory requirements. In final
§ ll.28(c)(1)(i) and (c)(2), the agencies
revised the proposed provision to clarify
that the agencies will evaluate a bank
and assign both conclusions and ratings
for each State and multistate MSA, as
applicable.
The agencies made several additional
revisions to proposed § ll.28(c)(1)
related to State conclusions and ratings
1445 See
1446 See
12 U.S.C. 2906(d)(1).
12 U.S.C. 2906(d)(2).
1447 Id.
PO 00000
Frm 00460
Fmt 4701
Sfmt 4700
in the final rule. First, the agencies are
adopting final § ll.28(c)(1)(i) with
revisions to the proposal to provide that,
except as provided in § ll.28(c)(1)(ii)
regarding States with multistate MSAs
for which the agencies assign
conclusions and ratings to the multistate
MSA (i.e., rated multistate MSA), the
agencies assign conclusions and ratings
for any State in which the bank
maintains a main office, branch, or
deposit-taking remote service facility.
The agencies believe this language
better reflects the statute—which refers
to each State in which a bank maintains
one or more domestic branches, defined
to include any branch or other facility
of a bank that accepts deposits 1448—
than referring to a facility-based
assessment area, as proposed. Final
§ ll.28(c)(1)(i) also aligns with final
§ ll.16, regarding facility-based
assessment areas.
Second, the agencies are adopting
final § ll.28(c)(1)(ii) with revisions to
the proposal to clarify that the agencies
will evaluate and assign conclusions or
ratings for a State only if a bank
maintains a main office, branch, or
deposit-taking remote service facility
outside the portion of the State
comprising any rated multistate MSA.
Similar to the proposal, final
§ ll.28(c)(1)(ii) further states that the
agencies will not consider activities to
be in the State if those activities take
place in the portion of the State
comprising any multistate MSA. This
reflects statutory requirements.1449 The
agencies note that in calculating
metrics, benchmarks, and weighting
performance scores in a State for any
bank, the agencies will only include
activities considered to be in that State
pursuant to § ll.28(c)(1) for purposes
of the agencies’ evaluation of that bank.
Third, the agencies are adopting final
§ ll.28(c)(1)(iii), a new provision, to
clarify the agencies’ consideration of a
bank’s performance for States with
multistate MSAs for which the agencies
do not assign conclusions and ratings to
the multistate MSA (i.e., non-rated
multistate MSA).1450 Specifically, final
§ ll.28(c)(1)(iii) provides that, if a
bank’s facility-based assessment area
comprises a geographic area spanning
two or more States within a non-rated
1448 See
12 U.S.C. 2906(d)(1)(B), (e)(1).
12 U.S.C. 2906(d)(2) (requiring that, if an
agency evaluates a bank’s performance in a
multistate metropolitan area, the agency must
adjust the scope of its evaluation of a bank’s
performance in a State accordingly).
1450 Consistent with 12 U.S.C. 2906(d)(2) and
pursuant to final § ll.28(c)(2), discussed below,
the agencies evaluate a bank’s performance in a
multistate MSA if the bank maintains a main office,
a branch, or a deposit-taking remote service facility
in two or more States within that multistate MSA.
1449 See
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
multistate MSA, the agencies will
consider activities in the entire facilitybased assessment area to be in the State
in which the bank maintains—within
the multistate MSA—a main office,
branch, or deposit-taking remote service
facility. Consider, for example, a
particular bank with a branch located in
a multistate MSA. In this example,
although the bank’s branch is located in
a county in one State within the
multistate MSA, the bank delineates a
facility-based assessment area in the
multistate MSA that includes,
consistent with final § ll.16(b)(2), a
county in a second State within the
multistate MSA where the bank
originated or purchased a substantial
portion of its loans but does not have a
branch or other facility that accepts
deposits. Under this example, for
purposes of evaluating the bank and
assigning conclusions and ratings—
including calculating metrics,
benchmarks, and weighting
performance scores—the agencies
would consider activities in the bank’s
entire facility-based assessment area
within the multistate MSA to be in the
one State where the bank has a branch.
Final § ll.28(c)(1)(iii) also clarifies
that, in evaluating a bank and assigning
conclusions and ratings for a State, the
agencies will not consider activities to
be in a State if those activities take place
in any facility-based assessment area
considered to be in another State.
Fourth, the agencies are adopting final
§ ll.28(c)(1)(iv), a new provision, to
clarify the agencies’ consideration of a
bank’s performance in retail lending
assessment areas that span multiple
States in a multistate MSA (i.e.,
multistate retail lending assessment
areas). Specifically, pursuant to final
§ ll.28(c)(1)(iv), the agencies will not
consider activities that take place in a
multistate retail lending assessment area
to be in any State for purposes of
assigning Retail Lending Test
conclusions to a bank pursuant to final
§ ll.22 and final appendix A. The
agencies note that, if a multistate retail
lending assessment area is in a rated
multistate MSA, the agencies will
consider activities in the multistate
retail lending assessment area for
purposes of assigning a bank’s Retail
Lending Test conclusions and ratings
for the multistate MSA. To the extent a
multistate retail lending assessment area
is not in a rated multistate MSA,
however, activities in that multistate
retail lending assessment area would be
considered only in the bank’s
conclusions and ratings for the
institution.
The agencies also made revisions to
proposed § ll.28(c)(2) related to
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
multistate MSA conclusions and ratings
in the final rule. Final § ll.28(c)(2)
specifies that the agencies will evaluate
a bank and assign conclusions and
ratings in any multistate MSA in which
the bank maintains a main office, a
branch, or a deposit-taking remote
service facility in two or more States
within that multistate MSA. The
agencies believe this language better
reflects the statutory requirement—
which refers to each State in which a
bank maintains one or more domestic
branches, defined to include any branch
or other facility of a bank that accepts
deposits 1451—than referring to a
facility-based assessment area, as
proposed. Final § ll.28(c)(2) also
aligns with final § ll.16, regarding
facility-based assessment areas.
Section ll.28(d) Effect of Evidence of
Discriminatory or Other Illegal Credit
Practices
Current Approach
Current § ll.28(c) generally
provides that the agencies’ evaluation of
a bank’s CRA performance is adversely
affected by evidence of discriminatory
or other illegal credit practices in any
geography by the bank or in any
assessment area by any affiliate whose
loans have been considered as part of
the bank’s lending performance. In
connection with any type of lending
activity evaluated under the current
lending test, evidence of discriminatory
or other credit practices that violate an
applicable law, rule, or regulation
includes, but is not limited to,
violations of certain enumerated
laws.1452 Current § ll.28(c)(2)
provides certain factors the agencies
consider in determining the effect of
discriminatory or other illegal credit
practices on a bank’s assigned rating,
including: the nature, extent, and
strength of the evidence of the practices;
policies and procedures the bank has in
place to prevent the practices; corrective
action; and any other relevant
information.
The Agencies’ Proposal and Final Rule
Similar to the approach under the
current regulations, the agencies
proposed in § ll.28(d)—and are now
finalizing with certain modifications
from the proposal described below—
that a bank’s CRA performance would
be adversely affected by evidence of
discriminatory or other illegal practices.
1451 See
12 U.S.C. 2906(d)(1)(B), (e)(1).
guidance, the agencies have stated that
violations of other provisions of the consumer
protection laws generally will not adversely affect
an institution’s CRA rating but may warrant the
inclusion of comments in an institution’s
performance evaluation. See Q&A § ll.28(c)–1.
1452 In
PO 00000
Frm 00461
Fmt 4701
Sfmt 4700
7033
Although, under the proposal, evidence
of any discriminatory or other illegal
practices would have adversely affected
a bank’s CRA performance, the final
rule, like the current regulations, limits
consideration to credit practices.
Similar to the current approach and the
proposal, the agencies will consider
certain factors under the final rule in
determining the effect of evidence of
discriminatory or other illegal credit
practices on a bank’s assigned rating.
The section-by-section analysis below
describes the agencies’ proposal,
including proposed changes from the
current approach, and final § ll.28(d)
in detail.
Section ll.28(d)(1) Scope
The Agencies’ Proposal
Proposed § ll.28(d)(1) expanded
consideration of evidence of
discriminatory or other illegal practices
to include practices beyond credit
practices. Specifically, proposed
§ ll.28(d)(1) provided that the
agencies’ evaluation of a bank’s CRA
performance would be adversely
affected by evidence of any
discriminatory or other illegal practices.
As proposed, evidence of discriminatory
or other illegal practices could be
related to deposit products or other
bank products and services. Unlike
current § ll.28(c)(1), which limits the
agencies consideration of discriminatory
or other illegal practices to those in
connection with any type of lending
activity evaluated under the current
lending test, consideration of
discriminatory or other illegal practices
under proposed § ll.28(d)(1) would
no longer be limited to certain credit
products. Proposed § ll.28(d)(1) also
provided for downgrades of a bank’s
State or multistate MSA rating, in
addition to downgrades of the
institution rating, based on
discriminatory or other illegal practices.
Proposed § ll.28(d)(1)(i) provided
that evidence of discriminatory or other
illegal practices in any geographic area
by a bank, including its operations
subsidiaries or operating subsidiaries,
could result in a downgrade to the
bank’s CRA rating. Proposed
§ ll.28(d)(1)(ii) further provided that
evidence of discriminatory or other
illegal practices in any facility-based
assessment area, retail lending
assessment area, or outside retail
lending area by any affiliate whose retail
loans are considered as part of the
bank’s lending performance could result
in a downgrade to the bank’s CRA
rating.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7034
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Comments Received
Many commenters expressed strong
support for downgrading banks that
engage in discriminatory or other illegal
practices. Some of these commenters
suggested that the agencies severely
punish banks under CRA if they are
found to have violated civil rights, fair
lending, or fair housing laws. Relatedly,
one commenter stated that
‘‘Outstanding’’ or ‘‘Satisfactory’’ ratings
should meaningfully demonstrate a
bank’s commitment to treating its
customers fairly in a manner consistent
with the law.
Some commenters expressly
supported expanded consideration of
evidence of discriminatory or other
illegal practices to include practices
beyond credit practices. For example, a
commenter stated that the agencies’
proposal represented an effective way to
hold banks accountable for
discrimination and other illegal
practices. Another commenter noted
that this expansion could help ensure
there is no unintended discrimination
in loan servicing. Commenters
cautioned, however, that this expansion
would only be as helpful as the
agencies’ willingness and capacity to
diligently identify discrimination and
then downgrade banks.
In contrast, some commenters raised
concerns regarding the expanded
consideration of evidence of
discriminatory or other illegal practices
to include practices beyond credit
practices and supported limits on the
type of practices that could lead to CRA
rating downgrades. A few commenters
asserted that broadening discriminatory
or other illegal practices to include more
than just illegal credit practices was
inconsistent with the CRA statute. A
few commenters also expressed concern
that expanding discriminatory or other
illegal practices could include issues
unrelated to Congress’s intent in
enacting CRA, such as anti-money
laundering and safety and soundness
issues. One commenter stated that
because discriminatory and other illegal
practices are comprehensively
addressed by other examinations (e.g.,
safety and soundness, fair lending,
consumer reporting, and consumer debt
collection), CRA downgrades are not
necessary to remediate prior violations
or prevent future discriminatory or
other illegal practices. A commenter
suggested that expanding the types of
violations that could lead to a
downgrade could disincentivize banks
from seeking an ‘‘Outstanding’’ rating by
expanding CRA activities out of fear of
adverse rating impacts from tangential
or technical issues. A few commenters
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
also suggested that expansion of
practices considered could lead to an
increase in adverse ratings and harm
consumers and communities, noting
that projects to provide new products or
services that respond to customer needs,
LIHTC or NMTC projects, and opening
branches could be negatively impacted
if a bank receives a rating below
‘‘Satisfactory.’’
Some commenters supported
retaining the current standard or
adopting other limitations on when
discriminatory or other illegal practices
could be considered. Some commenters
recommended restricting downgrades to
products and services considered in
CRA evaluations, with a few
commenters also suggesting that only
violations directly related to the
treatment of consumers should be
considered. Another commenter
proposed limiting downgrades to illegal
practices that have a nexus to the
provision of financial products and
services. A few commenters stated that
the proposal would create uncertainty
as to what types of practices would
result in a rating downgrade and
requested that the agencies provide
more clarity and guidance on the types
of practices that could lead to a
downgrade.
A few commenters suggested that the
agencies apply all downgrades to a
bank’s institution rating, rather than to
State or multistate MSA ratings.
Relatedly, a commenter stated that a
bank that has been found to engage in
discriminatory practices in one
geographic area is likely to have
engaged in similar practices elsewhere
and has exposed that it lacks the
internal controls to prevent illegal
activity. Another commenter suggested
that the agencies could instead increase
transparency by providing greater detail
on the geographic scope of any violation
in a bank’s performance evaluation and
by providing guidance on the specific
impact of downgrades applied to State
or multistate MSA rating on the
institution rating.
One commenter stated that the
agencies should automatically include
any discriminatory or other illegal
practices by an operations subsidiary or
operating subsidiary, or affiliate.
Final Rule
In final § ll.28(d)(1), the agencies
are adopting the proposed provision
regarding consideration of evidence of
discriminatory or other illegal practices
without the proposed expansion from
the current approach to include
practices beyond credit practices.
Specifically, under final § ll.28(d)(1),
for each State and multistate MSA, as
PO 00000
Frm 00462
Fmt 4701
Sfmt 4700
applicable, and the institution, the
evaluation of a bank’s CRA performance
is adversely affected by evidence of
discriminatory or other illegal credit
practices, as provided in final
§ ll.28(d)(2). As discussed further
below, final § ll.28(d)(2) provides that
discriminatory or other illegal credit
practices consist of violations of
specified laws, including any other
violation of a law, rule, or regulation
consistent with the types of violations
listed, as determined by the agencies.
Final § ll.28(d)(1) further provides
that the agencies will consider evidence
of discriminatory or other illegal credit
practices by: (1) the bank, including by
an operations subsidiary or operating
subsidiary of the bank, without
limitation; and (2) any other affiliate
related to any activities considered in
the evaluation of the bank.
After considering many comments
that supported proposed § ll.28(d)(1)
and many that raised concerns, the
agencies believe that final
§ ll.28(d)(1) appropriately modifies
the proposed regulatory text regarding
discriminatory or other illegal practices
that may lead to a CRA rating
downgrade. As reflected in the agencies’
CRA regulations and supervisory
practices, the agencies have long
considered that a bank’s CRA rating
should reflect whether it has engaged in
discrimination or otherwise treated
consumers in a manner inconsistent
with laws, rules, or regulations. The
agencies carefully considered, however,
comments that raised concerns that
discriminatory or other illegal practices,
without further qualification, would be
too broad and would potentially allow
consideration of violations of laws,
rules, regulations generally unrelated to
CRA, such as anti-money laundering
and safety and soundness issues. In
response to these comments and after
further consideration, the agencies
revised § ll.28(d)(1) to state that the
evaluation of a bank’s performance
under the rule is adversely affected by
evidence of discriminatory or other
illegal credit practices as provided in
§ ll.28(d)(2). The agencies believe
that maintaining a limitation, also
reflected in the current regulations, to
consider only discriminatory or other
illegal practices related to credit
practices is responsive to commenters’
concerns.
The final rule also reflects a
modification in the scope of evidence of
discriminatory or other illegal credit
practices the agencies will consider in a
bank’s CRA evaluation, compared to the
proposal, to specify that the evidence of
discriminatory or illegal credit practices
the agencies will consider are those
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
practices provided in final
§ ll.28(d)(2) (discussed further in the
section-by-section analysis of final
§ ll.28(d)(2)). Unlike the current
approach, which provides that evidence
of discriminatory or other credit
practices are those in connection with
any type of lending activity described
the current lending test,1453 final
§ ll.28(d)(1) does not limit the types
of credit practices that may be
considered as evidence of
discriminatory or illegal credit
practices.
Some commenters suggested
alternative limitations on the
discriminatory or other illegal practices
that could be considered in a bank’s
CRA evaluation. The agencies carefully
considered these alternatives and
believe that the revisions in the final
rule will generally serve the same
objectives as many of the commenters’
suggestions.
Regarding commenter sentiment that
rating downgrades should only be
applied to a bank’s institution rating,
the agencies determined to finalize this
part of § ll.28(d)(1) as proposed.
Although the agencies agree that issues
may be widespread and that the
agencies can improve transparency by
providing additional information about
the geographic area where
discriminatory or other illegal practices
occurred, the agencies believe that
allowing for downgrades to a bank’s
State, multistate MSA, or institution
rating will provide greater clarity and
transparency about the geographic area
in which relevant violations occurred
and flexibility for the agencies to
consider the geographic scope of those
violations. With respect to whether
evidence of discriminatory or other
illegal credit practices will impact a
bank’s State, multistate MSA, or
institution rating, the agencies intend to
consider the adverse effect of evidence
of discriminatory or other illegal credit
practices at each rating level based on
the geographic scope of relevant
violations and the factors in final
§ ll.28(d)(3), as discussed below.
The agencies are also adopting final
§ ll.28(d)(1) with modifications from
the proposal related to the
circumstances in which the agencies
will consider evidence of discriminatory
or other illegal credit practices by a
bank, including by an operations
subsidiary or operating subsidiary of the
bank, or any other affiliate. Specifically,
the agencies removed language that
would have provided that the agencies
would consider evidence of
discriminatory or other illegal credit
1453 See
current 12 CFR ll.28(c)(1).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
practices by the bank, including by an
operations subsidiary or operating
subsidiary of the bank, ‘‘in any census
tract’’ as unnecessary. For other
affiliates—although under the proposal
the agencies would have considered
evidence of discriminatory or other
illegal activities in any facility-based
assessment area, retail lending
assessment area, or outside retail
lending area by any affiliate whose retail
loans are considered as part of the
bank’s lending performance—the
agencies believe it is appropriate to
remove references to the geographic
areas where an affiliate’s discriminatory
or other illegal credit practices may be
considered and not to limit such
consideration to an affiliate whose retail
loans are considered as part of the
bank’s lending performance. Under the
final rule, and as provided in
§ ll.21(b)(3), the agencies may
consider an affiliate’s activities in any
geographic area at the bank’s option,
pursuant to the applicable performance
test. In addition, the agencies believe,
given the scope of the agencies’
consideration of evidence of
discriminatory or other illegal credit
practices and the affiliate activities that
may be included in a bank’s CRA
evaluation, it is appropriate to consider
evidence of discriminatory or other
illegal credit practices by any affiliate
related to any activities considered in
the evaluation of the bank. Finally, the
agencies do not think it would be
appropriate to consider evidence of
discriminatory or other illegal credit
practices by a bank affiliate that are
wholly unrelated to activities
considered in the bank’s performance
evaluation, and thus did not make
revisions in the final rule based on this
commenter’s suggestion.
Therefore, the agencies are finalizing
§ ll.28(d)(1) with the modifications
from the proposal addressed above.
Section ll.28(d)(2) Discriminatory or
Other Illegal Credit Practices
The Agencies’ Proposal
Proposed § ll.28(d)(2) provided a
non-exhaustive list of examples of
evidence of discriminatory or other
illegal practices that violate an
applicable law, rule, or regulation.
Similar to the current approach,
proposed § ll.28(d)(2) included the
following among the list of examples:
discrimination against applicants on a
prohibited basis in violation, for
example, of ECOA or the Fair Housing
Act; violations of the Home Ownership
and Equity Protection Act; violations of
section 5 of the Federal Trade
Commission Act; violations of section 8
PO 00000
Frm 00463
Fmt 4701
Sfmt 4700
7035
of the Real Estate Settlement Procedures
Act; and violations of the Truth in
Lending Act (TILA) provisions
regarding a consumer’s right of
rescission. For added clarity, the
agencies also proposed to add the
following to the list of examples:
violations of the prohibition against
unfair, deceptive, or abusive acts or
practices in 12 U.S.C. 5531; violations of
the Military Lending Act; and violations
of the Servicemembers Civil Relief
Act.1454
Comments Received
Some commenters addressed
violations of specific laws, rules, or
regulations listed in proposed
§ ll.28(d)(2), generally to express
support for their inclusion on the list. A
few commenters specifically supported
the proposal to continue to allow rating
downgrades for fair lending violations.
Some commenters supported the
proposed addition of violations of the
prohibition against unfair, deceptive, or
abusive acts or practices in 12 U.S.C.
5531, with one of these commenters
stating that this would be a check
against unfair and abusive practices like
predatory lending, unfair loan fees, and
mark-ups that often harm low- and
moderate-income individuals and
communities. A few commenters
supported the proposed addition of the
Military Lending Act to the list.
Some commenters also recommended
that the agencies add violations of other
laws, rules, or regulations to the list of
discriminatory or other illegal practices.
Specifically, some commenters
recommended that the agencies add the
Americans with Disabilities Act
(ADA) 1455 to the list. Another
commenter also provided other
examples of illegal practices, such as
violations of consumer and civil rights
laws governing deposit products and
HMDA. Some commenters asserted that
the agencies should consider evidence
of discrimination obtained by State and
local agencies. Another commenter
conveyed that the agencies should factor
successful discrimination lawsuits and
other punitive legal measures into a
bank’s CRA rating.
Suggestions regarding specific bank
practices. Some commenters discussed
specific bank practices that they thought
should be considered discriminatory or
other illegal practices. For example,
some commenters expressed support for
downgrading banks for conduct harmful
to consumers, including fee gouging;
charging high fees; offering high-cost or
1454 See proposed § ll.28(d)(2)(iv) and (vii)
through (viii).
1455 42 U.S.C. 12101 et seq.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7036
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
predatory products, investments, or
services; or having unreasonably high
delinquency rates. Some of these
commenters stated that the agencies
should consider products that banks
offer in partnership with nonbanks and
whether loans exceeded State usury
caps and borrowers’ abilities to repay.
One commenter encouraged expanding
the discriminatory practices that result
in a rating downgrade to include bank
activities that have high rates of defaults
and delinquencies. Similarly, another
commenter suggested that evidence of
illegal practices should include banks
offering unsuitable credit to consumers
or banks earning a disproportionately
high share of their revenues from
overdraft and insufficient funds fees.
Another commenter recommended that
an agency’s finding that a bank’s
consumer credit card lending is not fair,
affordable, and sustainable should result
in a ratings downgrade, depending on
the extent of the harm to consumers. A
few commenters emphasized that the
agencies should scrutinize banks’
multifamily lending programs,
including those conducted in
partnership with third-party nonbank
institutions, for illegal practices. A
commenter recommended downgrading
ratings where there is demonstrable
evidence that lenders have invested or
renewed investments in which property
owners were engaging in tenant
harassment of which lenders have
notice. One commenter urged the
agencies to assign a ‘‘Substantial
Noncompliance’’ rating to any bank that
lends its charter to fintech companies to
enable them to circumvent State usury
laws. Another commenter stated that
given the rise in mobile and online
banking, specific standards should be
developed to regulate digital banking to
avoid discriminatory or predatory
practices.
A few commenters also provided
examples of the type of conduct they
believed should be considered
discriminatory or other illegal practices,
such as: a pattern or practice of
discriminating and failing to serve
communities equitably, regardless of
whether these disparate negative
impacts are the result of intentional or
unintentional bias; misleading
customers in order to sell products;
discriminating against certain categories
of borrowers in the price or availability
of home mortgage lending; or illegally
foreclosing on homeowners. Relatedly,
another commenter proposed that the
agencies consider ways to address
discriminatory practices against lowand moderate-income and LGBTQ+
communities.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Final Rule
In final § ll.28(d)(2), the agencies
are adopting the proposal with several
revisions, as described below, in
addition to making conforming changes
to refer to ‘‘discriminatory or other
illegal credit practices,’’ as discussed
above. First, the final rule provides that
discriminatory or other illegal credit
practices consist of the listed violations
of laws, rules, or regulations. This is a
change from the proposal, which would
have provided a non-exhaustive list of
examples of discriminatory or other
illegal practices. Second, the final rule
adopts new § ll.28(d)(2)(ix), which
adds to the list of discriminatory or
other illegal credit practices any other
violation of a law, rule, or regulation
consistent with the types of violations
in § ll.28(d)(2)(i) through (viii) as
determined by the appropriate Federal
financial supervisory agency. Finally,
the final rule adopts revisions to the
discriminatory or other illegal credit
practices included in the current list to
cover any discrimination on a
prohibited basis in violation, for
example, of ECOA or the Fair Housing
Act and any violation of TILA.
The agencies believe that the first and
second revisions, taken together, clarify
the agencies’ intent regarding the types
of evidence of violations of laws, rules,
or regulations, that they consider
evidence of discriminatory or other
illegal credit practices. As discussed
above, although the list of violations of
laws, rules, and regulations in current
§ ll.28(d)(1) is a non-exhaustive list,
the agencies have generally stated that,
under the current rule, evidence of
violations of other provisions generally
will not adversely affect an institution’s
CRA rating.1456 From time to time, the
agencies have considered evidence of
discriminatory or other illegal credit
practices beyond the listed violations of
laws, rules, or regulations where those
practices are sufficiently similar in
nature to items on the list. The agencies
intend that revisions to the list in final
§ ll.28(d)(2) will codify this practice,
so that the agencies will consider
evidence of the listed violations of laws,
including their implementing rules or
regulations, and other violations of
laws, rules, or regulations consistent
with the types of violations listed.
The final rule also adopts the
proposal to add the following to the
listed discriminatory or other illegal
practices: violations of the prohibition
against unfair, deceptive, or abusive acts
or practices in 12 U.S.C. 5531;
violations of the Military Lending Act
1456 See
PO 00000
Q&A § ll.28(c)–1.
Frm 00464
Fmt 4701
Sfmt 4700
(10 U.S.C. 987); and violations of the
Servicemembers Civil Relief Act (50
U.S.C. 3901 et seq.). The final rule
adopts two other minor revisions to the
proposed list of discriminatory or other
illegal practices. First, final
§ ll.28(d)(2)(i) would apply to any
discrimination on a prohibited basis in
violation, for example, of ECOA or the
Fair Housing Act. This is a clarifying
change. Second, final § ll.28(d)(2)(vi)
would include any violations of TILA.
This change, to include violations of
TILA beyond those involving
consumer’s right of rescission, is
appropriate so as to incorporate TILA
amendments to include additional
substantive provisions since the
agencies adopted current
§ ll.28(c)(1)(v). The agencies also
made technical revisions to the listed
laws to add citations to the United
States Code, as applicable.
The agencies note that their
consideration of discriminatory or other
illegal credit practices listed in
§ ll.28(d)(2) will include
consideration of information received
from other Federal agencies and, as
applicable, State agencies, with
responsibility for enforcing compliance
with relevant laws and regulations,
including the U.S. Department of
Justice, HUD, and the CFPB. The final
rule does not limit the sources for
evidence of discriminatory or other
illegal credit practices that can be
considered by examiners in a CRA
evaluation. Moreover, the agencies note
that, pursuant to § ll.28(d)(1), a
bank’s CRA performance is adversely
affected by ‘‘evidence of’’
discriminatory or other illegal credit
practices, which consist of the practices
listed in § ll.28(d)(2). The agencies
believe that ‘‘evidence of’’
discriminatory or other illegal credit
practices, consistent with the current
approach, provides flexibility and
acknowledges that other agencies may
use different terms or act on information
in different ways. The agencies may
consider, for example, information that
leads to a settlement of claims and a
consent order under ECOA or the Fair
Housing Act as evidence of
discriminatory or other illegal credit
practices.
The agencies have decided not to add
violations of certain laws, rules, or
regulations suggested by commenters,
specifically violations of ADA or
HMDA, to the list in § ll.28(d)(2).
With regard to the ADA, the agencies
believe that although some violations of
ADA could involve credit practices that
affect consumers, small businesses, and
small farms and be considered by the
agencies, the explicit inclusion in the
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
list may have the effect of including
practices unrelated to a bank’s CRA
performance, such as conduct related to
a bank’s role as an employer. HMDA
includes many technical requirements,
and the agencies believe there are other
ways of addressing HMDA violations,
such as not considering inaccurate
HMDA data submitted by a bank in its
CRA examination.
Finally, regarding commenter
suggestions that various specific types
of acts or practices be considered
discriminatory or other illegal practices
that would adversely affect a bank’s
CRA performance evaluation, the
agencies note that whether specific acts
or practices violate applicable laws,
rules or regulations requires analysis
based on the individual facts and
circumstances and the requirements of
each law, rule, or regulation. Therefore,
the agencies decline to state whether
specific acts or practices would violate
listed laws, rules, or regulations.
Section ll.28(d)(3) Agency
Considerations
The Agency’s Proposal
The agencies proposed in
§ ll.28(d)(3) updated considerations
in determining the effect of evidence of
discriminatory and other illegal
practices on a bank’s assigned CRA
ratings: the root cause of any violations
of law; the severity of any consumer
harm resulting from the violations; the
duration of time over which the
violations occurred; and the
pervasiveness of the violations. In
addition, the agencies proposed in
§ ll.28(d)(3) that examiners would
also consider the degree to which the
bank, a subsidiary, or an affiliate, as
applicable, has established an effective
compliance management system across
the institution to self-identify risks and
to take the necessary actions to reduce
the risk of noncompliance and
consumer harm. Accordingly, a range of
consumer compliance violations would
be considered during a CRA
examination, although some might not
lead to a CRA rating downgrade.
ddrumheller on DSK120RN23PROD with RULES2
Comments Received
A few commenters expressly
suggested requiring downgrades if
consumer financial protection violations
are cited. For example, a commenter
stated that any evidence of illegal and
abusive lending found during fair
lending examinations must be penalized
via lower ratings. Some commenters
suggested that the proposal provides too
much discretion to examiners, and the
agencies should automatically issue a
failing rating when a bank is found to
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
have engaged in discriminatory
practices. For example, commenters
suggested that a bank be automatically
downgraded to ‘‘Needs to Improve’’ if it
is found to have violated any civil
rights, equal protection, or consumer
protection laws—even if it settles
without admitting guilt or if the
violations are dated—or if the agencies
determine that there is reason to believe
that the bank engaged in a pattern or
practice of discrimination, regardless of
the bank’s asset size or amount of
restitution. A commenter asserted that
the agencies’ proposal to consider the
severity of consumer harm resulting
from relevant violations and the
duration of time over which the
violations occurred would serve to
reduce the adverse impact of a bank’s
illicit behavior on its CRA rating.
A few commenters requested that the
agencies provide more clarity and
guidance regarding the scope and
severity of a violation that would
warrant a downgrade and the discretion
that examiners would have to determine
whether a violation has occurred.
Further, a few commenters suggested
the agencies codify OCC Policies and
Procedures Manual (PPM) 5000–43, as
amended by OCC Bulletin 2018–23,
which requires, as a prerequisite to any
downgrade predicated on evidence of
discriminatory or other illegal credit
practices by a bank: (1) a logical nexus
between the bank’s assigned rating and
the practices; and (2) full consideration
of remedial actions taken by the bank.
Final Rule
The agencies are adopting proposed
§ ll.28(d)(3) with revisions to expand
the agencies’ consideration of the
severity and risk of harm to consumers
to include harm to ‘‘communities,
individuals, small businesses, and small
farms.’’ The agencies believe that this
change better aligns the agencies’
considerations in final § ll.28(d)(3)
with bank activities considered under
CRA. As discussed above, the agencies
are also adopting § ll.28(d)(3) with a
conforming change, compared to the
proposal, to refer to ‘‘discriminatory or
other illegal credit practices.’’
The agencies have considered
commenter sentiment that the agencies
should automatically downgrade a
rating or assign a rating of ‘‘Needs to
Improve’’ for evidence of discriminatory
or other illegal practices. As provided in
final § ll.28(d)(1), evidence of
discriminatory or other illegal credit
practices will adversely impact the
agencies’ evaluation of a bank’s CRA
performance, but evidence of
discriminatory or other illegal credit
practices will not always lead to a
PO 00000
Frm 00465
Fmt 4701
Sfmt 4700
7037
ratings downgrade. The agencies believe
that automatically downgrading a bank’s
rating would be inappropriate based on
the range of potential discriminatory or
other illegal credit practices listed in
final § ll.28(d)(2). Instead, consistent
with the current approach, the agencies
believe that it is important to consider
the factors listed in final § ll.28(d)(3)
in determining how evidence of
discriminatory or other illegal credit
practices may impact a bank’s CRA
performance.
The agencies believe that final
§ ll.28(d)(3) sufficiently describes the
factors to be considered in assessing the
effect of discriminatory or other illegal
credit practices. The agencies may
consider providing additional guidance
in the future, as needed and
appropriate. In the final rule, the
agencies are also reformatting final
§ ll.28(d)(3) to number the factors the
agencies will consider as
§ ll.28(d)(3)(i) through (vi).
Ratings Downgrades for Other Harms
Comments Received
Many commenters suggested that the
final rule should provide for the
possibility of downgrades based on
harms other than discriminatory or
other illegal practices described in
§ ll.28(d), such as financing
displacement, activities that harm the
environment, or harm that
disproportionately impacts minority
communities. Some of these
commenters also suggested that the
agencies should consider additional
conduct as discrimination because of
the impact on low- and moderateincome and minority communities.
Some commenters also asserted that
findings of discrimination, including
disparate impact related to
displacement financing, fee gouging, or
climate degradation, should always
result in automatic CRA rating
downgrades.
Displacement. Several commenters
suggested downgrading banks for
financing that causes displacement.
Some commenters suggested that
displacement financing should be
considered discrimination because it
often has a disparate impact on minority
communities and that such action
should trigger rating downgrades and
subject banks to potential enforcement
actions.
Environmental harm. Some
commenters suggested that
disproportionate impacts that contribute
to climate change and impair access to
credit for communities should be
considered in CRA examinations.
Further, some commenters suggested
E:\FR\FM\01FER2.SGM
01FER2
7038
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
that the agencies should consider
downgrades for financing that funds
activities or industries that are harmful
to the climate. One commenter
suggested the agencies should consider
lower performance conclusions or
ratings if a bank is financing fossil fuel
facilities in low- and moderate-income
or minority communities while not
financing renewable or clean energy
projects. Some commenters suggested
that banks be downgraded for the
financing of pollution-causing activities
(e.g., the building of gas pipelines) that
can threaten tribal rights when these
activities occur without informed
consent. Some commenters proposed
that climate harm be considered
discrimination because it
disproportionately impacts minority
communities and that such action
should subject banks to CRA rating
downgrades. A few commenters
suggested that financing of harmful
projects like landfills and fossil fuel
facilities in low- and moderate-income
and minority communities must be
penalized by lowering Community
Development Financing Test
performance conclusions.
Conduct that disproportionately
impacts minority communities. Several
commenters recommended downgrades
for harm that disproportionately
impacts minority communities, such as
branch closures, harmful landlord
practices, and higher-cost products. One
of these commenters suggested that the
agencies should require action plans to
correct and mitigate such harms.
Another commenter conveyed that
banks that prioritize larger businesses,
bypass minority or immigrant
communities, or rely only on credit card
loans should be downgraded. A
commenter asserted that the agencies
should include an affirmative statement
in their CRA regulations regarding
banks’ obligations to fairly serve all
races and ethnicities. One commenter
indicated that the agencies should
assess whether banks make loans to
minority individuals and that this
assessment should impact CRA ratings,
while another commenter suggested that
home mortgage lending and small
business lending data disaggregated by
race, ethnicity, gender, and community
should impact CRA ratings.
Final Rule
The agencies have considered these
commenters and are not adopting
additional provisions to provide for
ratings downgrades. The agencies
believe that § ll.28(d) provides an
appropriate mechanism to consider the
types of harm raised by commenters
when they involve evidence of
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
discriminatory or other illegal credit
practices. For example, the agencies
believe that some conduct that
commenters have identified that may
disproportionately impact minority or
low- or moderate-income communities
is addressed by other legal frameworks
applicable to banks and included in the
listed laws, rules, and regulations in
§ ll.28(d)(2), such as fair lending laws
and consumer protection laws.
The agencies also believe that the
final rule addresses some of the
concerns raised by commenters through
other means. As discussed in the
section-by-section analysis of
§ ll.13(e) through (j) (regarding placebased community development
categories), the final rule includes
protections to ensure that banks do not
receive consideration for place-based
community development activities that
involve forced or involuntary relocation
of low- or moderate-income individuals.
Further, as discussed in the section-bysection analysis of § ll.13(i)
(regarding disaster preparedness and
weather resiliency), the final rule
provides community development
consideration for disaster preparedness
and weather resiliency activities that
assist individuals and communities to
prepare for, adapt to, and withstand
natural disasters or weather-related risks
or disasters. The agencies also believe
that some of the conduct that
commenters have identified as conduct
that may disproportionately impact
minority communities may be
considered under other provisions of
the final rule. For example, the agencies
will consider a bank’s record of opening
and closing branches under the Retail
Services and Products Test, as
applicable. For more information and
discussion regarding the agencies’
consideration of comments
recommending adoption of additional
race- and ethnicity-related provisions in
this final rule, see section III.C of this
SUPPLEMENTARY INFORMATION.
Section ll.28(e) Consideration of Past
Performance
The Agencies’ Proposal
Proposed § ll.28(e) provided that
the agencies would consider past
performance when assigning ratings.
Specifically, if a bank’s prior rating was
‘‘Needs to Improve,’’ the agencies may
determine that a ‘‘Substantial
Noncompliance’’ rating is appropriate
where the bank failed to improve its
performance since the previous
evaluation period, with no acceptable
basis for such failure.
PO 00000
Frm 00466
Fmt 4701
Sfmt 4700
Comments Received
The agencies received one comment
on proposed § ll.28(e). The
commenter stated that a downgrade
from ‘‘Needs to Improve’’ to
‘‘Substantial Noncompliance’’ should be
made by examiners only with full
consideration of performance context
and should not be automatic.
Final Rule
A downgrade from ‘‘Needs to
Improve’’ to ‘‘Substantial
Noncompliance’’ pursuant to
§ ll.28(e) would not be automatic. Of
note, proposed § ll.28(e) specifies
that the agencies would consider
whether the bank has an acceptable
basis for its failure to improve its
performance. Therefore, the agencies
believe that proposed § ll.28(e)
adequately addresses the commenter’s
suggestion. Accordingly, the agencies
are finalizing § ll.28(e) as proposed.
Section ll.29 Small Bank
Performance Evaluation
Section ll.29(a) Small Bank
Performance Evaluation
Current Approach
The current category of small banks
that are not intermediate banks includes
those banks with assets of less than
$376 million as of December 31 of the
prior two calendar years.1457 Pursuant
to the current CRA regulations, a small
bank that is not an intermediate small
bank is evaluated under the lending test
of the small bank performance
standards, unless the bank elects to be
assessed under the lending, investment,
and service tests and collects and
reports the data required for large and
other banks.1458 Specifically, the
agencies evaluate a small bank’s lending
performance pursuant to the following
criteria: (1) the bank’s loan-to-deposit
ratio, adjusted for seasonal variation,
and, as appropriate, other lendingrelated activities, such as loan
originations for sale to the secondary
markets, community development
loans, or community development
investments; (2) the percentage of loans
1457 The agencies publish annual adjustments to
these dollar figures based on the year to-year change
in the average of the CPI–W, not seasonally
adjusted, for each 12-month period ending in
November, with rounding to the nearest million.
See current 12 CFR 228.12(u)(2) and 345.12(u)(2);
70 FR 44256 (Aug. 2, 2005). The agencies update
this threshold annually based on the year-to-year
change in the average of the Consumer Price Index
for Urban Wage Earners and Clerical Workers, not
seasonally adjusted. See current 12 CFR ll.12(u).
1458 See current 12 CFR ll.21(a)(3). The small
bank may also make an alternative election to be
evaluated under the community development test
for wholesale or limited purpose banks or operate
under an approved strategic plan. See id.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
and, as appropriate, other lendingrelated activities located in the bank’s
assessment areas; (3) the bank’s record
of lending to and, as appropriate,
engaging in other lending-related
activities for borrowers of different
income levels and businesses and farms
of different sizes; (4) the geographic
distribution of the bank’s loans; and (5)
the bank’s record of taking action, if
warranted, in response to written
complaints about its performance in
helping to meet credit needs in its
assessment areas.1459
ddrumheller on DSK120RN23PROD with RULES2
The Agencies’ Proposal
The agencies proposed to revise
current § ll.26(b), renumbered in the
proposal as § ll.29(a), to maintain the
criteria required to evaluate a small
bank’s lending performance.
Specifically, in § ll.29(a), the agencies
proposed to continue evaluating small
banks under the current small bank
lending test. As discussed further in the
section-by-section analysis of § ll.12,
the agencies defined ‘‘small bank’’ in
proposed § ll.12 as a bank with
average assets of less than $600 million
in either of the prior two calendar years.
The proposal also provided that a small
bank could opt into the proposed Retail
Lending Test described above in the
section-by-section analysis of final
§ ll.22.1460 In proposed
§ ll.29(a)(2), the agencies described
how small banks could request
consideration for additional CRA
activities to elevate a small bank rating
from ‘‘Satisfactory’’ to ‘‘Outstanding.’’ In
§ ll.29(a)(3), the agencies outlined
their proposed approach to small bank
performance ratings. The agencies also
requested feedback on other ways to
tailor the evaluation for small banks
and, when determining a small bank’s
institution rating, whether additional
consideration should be provided to
small banks that conduct activities that
would be considered under the Retail
Services and Products Test, Community
Development Financing Test, or
Community Development Services Test.
Comments Received
The agencies received a range of
comments addressing the proposed
performance standards for small banks.
Several of these commenters supported
the agencies’ proposal to evaluate small
banks under the current small bank
lending test, with an option for the bank
to choose an evaluation under the
proposed Retail Lending Test. A
commenter applauded the agencies’
1459 See
1460 See
§ ll.22.
current 12 CFR ll.26(b)(1) through (5).
the section-by-section analysis of
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
decision not to require any new data
collection and reporting requirements.
Another commenter stated that the
ability to opt into certain performance
tests is critical for small banks and
urged the agencies to retain this
provision. In this regard, a commenter
stated that many community banks and
their communities may benefit most
from being allowed to opt into the
proposed Retail Lending Test rather
than being evaluated under the small
bank lending evaluation; however, this
commenter viewed the agencies’
proposal as complex and questioned
whether these banks would have
enough resources and time to
adequately consider the benefits of
being evaluated under the new
performance test. This commenter also
expressed concern that the proposal
may effectively encourage banks to
maintain their status quo examination
approach, which the commenter
believed would be a suboptimal
outcome if the community would have
benefitted most from a bank being
evaluated under the new performance
test.
The agencies received a few
comments in response to the agencies’
request for feedback on other ways to
tailor the evaluation for small banks.
These commenters provided several
recommendations, including, among
other things, that the agencies: use
community affairs departments to coach
small banks; make the Retail Services
and Products Test and the Retail
Lending Test, with certain adjustments,
such as implementation after a two-tothree year transition period among
others, mandatory for small banks;
ensure in the regulations that
supervisory constraints imposed on
small banks, including CDFIs and MDIs,
do not adversely affect their ability to
meet community credit needs in
difficult times; outline a transition plan
with a specified future date or exam
cycle in which to require small banks to
be evaluated under the Community
Development Financing Test and the
Retail Lending Test; and apply the more
rigorous Retail Lending Test when
community needs indicate it is
warranted while considering, as part of
performance context, how the bank’s
business model might affect
performance under the performance
test.
Final Rule
The agencies are adopting proposed
§ ll.29(a) introductory text and (a)(1)
with one technical change. Unlike the
proposal, which referred to the ‘‘small
bank performance standards’’ to
differentiate from the current CRA
PO 00000
Frm 00467
Fmt 4701
Sfmt 4700
7039
regulation’s ‘‘small bank lending test,’’
the final rule refers to the default
standards for small banks as the ‘‘Small
Bank Lending Test.’’ The agencies
determined that, because the test in the
current CRA regulations and in the final
rule are so similar, it is appropriate to
refer to them by the same name.
The agencies carefully considered all
comments received and appreciate the
recommendations made. The agencies
believe that, while requiring the
metrics-based approach in the Retail
Lending Test for small banks may
provide additional transparency
regarding performance standards, it is
appropriate to continue to evaluate
small banks under the current
framework to provide regulatory
flexibility given their more limited
capacity and resources. Consistent with
the current rule, the agencies will use
data that small banks maintain in their
own format or report under other
regulations. In addition, the agencies
anticipate that, for small banks that do
not opt into the Retail Lending Test, the
final rule includes minimal, if any,
regulatory changes to small banks’
current CRA evaluations.
The agencies are sensitive to
commenters’ concerns about small
banks’ limited resources and time to
adequately consider the benefits of
being evaluated under the new Retail
Lending Test. However, given that small
banks have the option to be evaluated
under the approach that best suits the
bank’s needs, whether it be an
evaluation under the Small Bank
Lending Test (formerly, the ‘‘small bank
lending test’’) or, if the bank chooses, an
evaluation under the Retail Lending
Test, the agencies believe a small bank
will have sufficient time to consider the
benefits of being evaluated under the
Retail Lending Test and can choose to
be evaluated under this performance
test if the bank determines that it is in
its interest to do so. Permitting this
option will ensure that small banks have
available a metrics-based approach to
increase the clarity, consistency, and
transparency regarding how their retail
lending is evaluated. The agencies
believe this is consistent with the
objective to tailor the evaluation
approach according to a bank’s size and
business model.
Regarding other ways in which to
tailor small bank evaluations, given the
limited resources and capacity of small
banks the agencies believe that, as
finalized, the evaluation approach for
small banks strikes the appropriate
balance between effectively evaluating
CRA activity for small banks and the
agencies’ intention to minimize the
impact of changing regulatory
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7040
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
requirements. For this reason, the
agencies do not believe that requiring an
evaluation under the Retail Services and
Products Test, or the Retail Lending
Test, even with certain adjustments, is
necessary for small banks. Continuing to
evaluate small banks under the current
framework maintains a strong emphasis
on retail lending performance while
minimizing changes for these smaller
banks. The agencies believe the decision
on whether to request additional
consideration for activities that qualify
under the Retail Services and Products
Test in § ll.23, or be evaluated under
the Retail Lending Test in § ll.22, is
better determined by the individual
bank.
The agencies agree with commenters
that additional consideration for
activities that qualify under the Retail
Services and Products Test may be
appropriate for a small bank rating
adjustment from ‘‘Satisfactory’’ to
‘‘Outstanding.’’ As explained in the
section-by-section analysis of
§ ll.29(b), the agencies have made
revisions to proposed § ll.29(a)(2),
renumbered in the final rule as
§ ll.29(b), to allow banks to seek
additional consideration for certain
activities regardless of whether the
small bank is evaluated under the Small
Bank Lending Test or the bank opts into
the Retail Lending Test.
Regarding commenters’ suggestion
that the agencies use their community
affairs departments to coach or train
small banks, the agencies note that they
already provide significant outreach to
banks and the communities they serve
and will continue to do so, regardless of
the bank’s size. The agencies’
community affairs programs provide,
among other things, information and
technical assistance to banks to assist
them in responding to the credit and
banking needs of the communities they
serve, including low- and moderateincome individuals and communities.
The agencies continue to encourage all
banks to reach out to the community
affairs department of the bank’s
regulator as well as supervisory staff for
CRA guidance and other assistance to
support efforts to develop strategies that
are responsive to the credit, service, and
investment needs of the banks’
communities.
The agencies also note that because
they are making no substantive changes
to the Small Bank Lending Test criteria,
the agencies do not believe that the
evaluation framework for small banks
will impose any additional supervisory
constraints on small banks, including
but not limited to those that are also
CDFIs or MDIs, that will affect these
banks’ ability to meet the credit needs
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
of their communities during difficult
times, such as market downturns or
changes in the business cycle.
Section ll.29(b) Additional
Consideration
Current Approach and the Agencies’
Proposal
As provided in current appendix A,
small banks, that are not intermediate
small banks, evaluated under the
existing small bank performance
standards and that meet the standards
for a ‘‘Satisfactory’’ rating may warrant
consideration for an overall rating of
‘‘Outstanding.’’ 1461 In assessing
whether a bank’s performance is
‘‘Outstanding,’’ the agencies consider
the extent to which the bank exceeds
each of the performance standards for a
‘‘Satisfactory’’ rating and its
performance in making community
development investments and in
providing branches and other services
and delivery systems that enhance
credit availability in its assessment
areas.1462
In proposed § ll.29(a)(2), the
agencies proposed to revise the ratings
approach to memorialize current
interagency guidance that the agencies
may adjust a small bank’s rating from
‘‘Satisfactory’’ to ‘‘Outstanding’’ at the
institution level, where a small bank
requests and receives consideration for
its performance in making community
development investments and services
and in providing branches and other
services and delivery systems that
enhance credit availability in the bank’s
assessment areas. The agencies
requested feedback on whether
additional consideration should be
provided to small banks that conduct
activities that would be considered
under the Retail Services and Products
Test, Community Development
Financing Test, or Community
Development Services Test when
determining the bank’s overall
institution rating.
Comments Received
The majority of commenters that
addressed the agencies’ request for
feedback regarding whether additional
consideration should be provided for
activities that could be considered
under the proposal’s Retail Services and
Products Test, the Community
Development Financing Test, or the
Community Development Services Test
when determining a small bank’s overall
institution rating were generally
1461 See current 12 CFR ll.29(d) and current
appendix A.
1462 See current appendix A, paragraph
(d)(3)(ii)(B).
PO 00000
Frm 00468
Fmt 4701
Sfmt 4700
supportive. For example, a commenter
believed that providing such additional
consideration could encourage
additional activities that serve low- and
moderate-income individuals and
communities. Some commenters
supported such additional consideration
as a way to increase a small bank’s CRA
rating from a ‘‘Satisfactory’’ to an
‘‘Outstanding.’’ A commenter suggested
that the agencies should encourage
small banks to increase their community
impacts as practice before becoming a
larger bank. Another commenter stated
that, if the agencies provide additional
consideration for small banks, they
should initially collect any data on
activities conducted that fall under any
of the relevant performance tests in a
format provided by the bank to limit
burden.
Final Rule
After consideration of these
comments, the agencies are finalizing
the revisions in proposed
§ ll.29(a)(2), with certain
modifications related to the
consideration of additional activities.
Specifically, the agencies are
renumbering proposed § ll.29(a)(2) as
§ ll.29(b)(1) and are adopting an
additional provision in § ll.29(b)(2).
In § ll.29(b)(1), for small banks
evaluated under the Small Bank
Lending Test, the final rule provides
that in addition to requesting and
receiving additional consideration for
the activities described in proposed
§ ll.29(a)(2), a small bank may also
request additional consideration for the
following activities without regard to
whether these activities are in one or
more of the bank’s facility-based
assessment areas: making community
development investments; providing
community development services; and
providing branches and other services,
digital delivery systems and other
delivery systems, and deposit products
responsive to the needs of low- or
moderate-income individuals, families,
or households, small businesses, and
small farms. The agencies note that
credit products responsive to the needs
of low- and moderate-income
individuals, families, or households,
small businesses, and small farms are
considered under the Small Bank
Lending Test, and not separately as an
additional consideration activity. The
agencies believe that these changes
provide additional clarity and
specificity for small banks on the types
and location of activities that may
qualify for additional consideration. The
final rule maintains the proposal’s
requirements that the bank’s rating may
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
be adjusted from ‘‘Satisfactory’’ to
‘‘Outstanding’’ at the institution level.
The final rule also adopts an
additional provision in § ll.29(b)(2) to
provide that, for small banks that opt to
be evaluated under the Retail Lending
Test, where a small bank requests and
receives additional consideration for
activities that qualify under the Retail
Services and Products Test in § ll.23,
the Community Development Financing
Test in § ll.24, or the Community
Development Services Test in § ll.25,
the bank’s rating may be adjusted from
‘‘Satisfactory’’ to ‘‘Outstanding’’ at the
institution level. The agencies believe
that, in comparison to the proposal, the
specific references to the remaining
three large bank performance tests
provides additional certainty and clarity
for small banks that opt into the Retail
Lending Test.
As in the proposal, and consistent
with the current regulations, the
agencies will not consider these
additional activities to adjust a ‘‘Needs
to Improve’’ rating to a ‘‘Satisfactory’’ or
to an ‘‘Outstanding’’ rating so as to
maintain a strong emphasis on retail
lending performance. The agencies
continue to believe that additional
activities should not compensate for, or
otherwise minimize poor retail lending
performance. The agencies note that in
the final rule, as in the current
regulations, a small bank can continue
to achieve any rating, including
‘‘Outstanding,’’ based on its retail
lending performance alone and would
not be required to be evaluated on other
activities.
The agencies have also added new
final § ll.29(b)(3) to clarify that
notwithstanding the requirement that a
small bank have a ‘‘Satisfactory’’ or
‘‘Outstanding’’ rating for the
consideration of additional activities
under paragraphs (b)(1) and (2) of the
section, small banks may receive
consideration for activities with MDIs,
WDIs, and LICUs, and for low-cost
education loans without regard to the
small bank’s rating. The agencies added
this additional consideration to provide
clarity about how these activities and
loans may be considered in compliance
with the requirements of the CRA.
The agencies considered comments
suggesting that the agencies should
collect data on activities eligible for
additional consideration. On balance,
the agencies believe that additional
consideration for such activities without
a requirement to collect any additional
data or opt into any additional
performance test beyond the current
small bank lending test may encourage
additional activities for low- and
moderate-income individuals and
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
communities and may encourage small
banks to increase their community
impacts without increasing regulatory
burden. The agencies will, however,
review appropriate information related
to the activities for which a small bank
is requesting additional consideration in
a format of the bank’s choosing.
Section ll.29(c)(1) Small Bank
Performance Conclusions
Section ll.29(c)(2) Small Bank
Performance Ratings
Current Approach
Current § ll.26(d) and current
appendix A provide that the agencies
assign one of four ratings based on the
performance of a bank evaluated under
the small bank performance standards:
‘‘Outstanding,’’ ‘‘Satisfactory,’’ ‘‘Needs
to Improve,’’ or ‘‘Substantial
Noncompliance.’’ 1463 The agencies rate
a small bank’s lending performance as
‘‘Satisfactory’’ if, in general, the bank
demonstrates a reasonable loan-todeposit ratio; a majority of loans are in
its assessment area; a distribution of
loans to, and for, individuals of different
income levels and businesses and farms
of different sizes that is reasonable given
the demographics of the bank’s
assessment areas; a record of taking
appropriate action in response to
written complaints, if any, about the
bank’s performance in helping to meet
the credit needs of its assessment areas;
and a reasonable geographic distribution
of loans given the bank’s assessment
areas.1464 Small banks may be eligible
for an ‘‘Outstanding’’ lending test rating
if the bank meets each of the standards
for a ‘‘Satisfactory’’ rating described
above, and exceeds some or all of those
standards.1465 A small bank may also
receive a lending test rating of ‘‘Needs
to Improve’’ or ‘‘Substantial
Noncompliance’’ depending on the
degree to which its performance has
failed to meet the standard for a
‘‘Satisfactory’’ rating.1466
The Agencies’ Proposal
The agencies proposed to revise
§ ll.26(d), renumbered in the
proposal as § ll.29(a)(3), and to
replace current appendix A with
proposed appendix E. Although current
appendix A addresses performance
ratings for all banks, appendix E
proposed to address small bank
conclusions and ratings as well as
intermediate bank community
development evaluation conclusions to
1463 See
current appendix A, paragraph (d)(1).
id. at paragraphs (d)(1)(i)(A) through (E).
1465 See id. at paragraph (d)(1)(ii).
1466 See id. at paragraph (d)(1)(iii).
1464 See
PO 00000
Frm 00469
Fmt 4701
Sfmt 4700
7041
provide consistency with other
performance tests. Proposed appendix E
provided that, unless a small bank opts
to be evaluated under the Retail Lending
Test, the agencies assign conclusions of
‘‘Outstanding,’’ ‘‘Satisfactory,’’ ‘‘Needs
to Improve,’’ or ‘‘Substantial
Noncompliance’’ based on the small
bank’s performance under § ll.29 in
each facility-based assessment area to
arrive at the bank’s overall rating
assigned by the agencies. Proposed
appendix E also provided that, unless a
small bank opts to be evaluated under
the Retail Lending Test, consistent with
current appendix A, the agencies would
evaluate a small bank’s performance
under the applicable performance
criteria in the regulations and assign a
rating of ‘‘Outstanding,’’ ‘‘Satisfactory,’’
‘‘Needs to Improve,’’ or ‘‘Substantial
Noncompliance’’ for the bank’s
performance. Under the proposal, a
small bank that meets each of the
standards for a ‘‘Satisfactory’’ rating
under the lending evaluation and
exceeds some or all of those standards
would warrant consideration for an
overall rating of ‘‘Outstanding.’’ In
assessing whether a bank’s performance
is ‘‘Outstanding,’’ the agencies proposed
that they would consider the extent to
which the bank exceeds each of the
performance standards for a
‘‘Satisfactory’’ rating and its
performance in making community
development investments and services
and its performance in providing
branches and other services and
delivery systems that enhance credit
availability in its facility-based
assessment areas. A small bank would
also have received an overall bank
rating of ‘‘Needs to Improve’’ or
‘‘Substantial Noncompliance’’
depending on the degree to which its
performance failed to meet the
standards for a ‘‘Satisfactory’’ rating.
With respect to a small bank that
opted to be evaluated under the Retail
Lending Test, the agencies proposed to
evaluate the small bank as provided for
intermediate banks in proposed
appendix D, with the exception that no
small bank would be evaluated on its
retail lending outside of its assessment
areas, regardless of the amount of such
lending.
In appendix D, the agencies also
proposed that a small bank evaluated
under the Retail Lending Test may
request additional consideration for its
community development investments
and services and its performance in
providing branches and other services
and delivery systems that enhance
credit availability in its facility-based
assessment areas.
E:\FR\FM\01FER2.SGM
01FER2
7042
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
Final Rule
The agencies received no comments
specifically related to the revisions in
proposed § ll.29(a)(3), renumbered in
the final rule as § ll.29(c)(1) and (2),
pertaining to a small bank’s conclusions
and ratings. Accordingly, the agencies
are finalizing these provisions as
proposed. The agencies are also making
certain revisions for clarity and to
conform to other changes made in
§ ll.29. Specifically, final
§ ll.29(c)(1) clarifies that, except for a
small bank that opts to be evaluated
under the Retail Lending Test, the
agencies assign conclusions in
connection with a small bank evaluated
pursuant to § ll.29 as provided in
appendix E. Final appendix E provides
that the agencies assign conclusions of
‘‘Outstanding,’’ ‘‘Satisfactory,’’ ‘‘Needs
to Improve,’’ or ‘‘Substantial
Noncompliance’’ for a small bank’s test
performance in each facility-based
assessment area, in each State or
multistate MSA, as applicable, and for
the institution as provided in § ll.29.
For a small bank that opts to be
evaluated under the Retail Lending Test,
the agencies will assign conclusions
regarding the small bank’s Retail
Lending Test performance as provided
in final appendix C.
Final § ll.29(c)(2) provides that the
agencies rate the performance of a small
bank evaluated under the Small Bank
Lending Test, as provided in appendix
E. If the small bank opts to be evaluated
under the Retail Lending Test, the
agencies rate the performance of the
small bank as provided by appendix D.
In turn, final appendix D provides that
the agencies determine a small bank’s
rating for each State or multistate MSA
pursuant to § ll.28(c), and for the
institution based on the performance
score for the bank’s Retail Lending Test
conclusions for the State, multistate
MSA, or institution, respectively. In
addition, the final rule removes the
proposal’s exception that no small bank
would be evaluated on its retail lending
outside of its assessment areas. As
described in more detail in the sectionby-section analysis of § ll.22, to be
consistent with intermediate banks, the
agencies will treat the outside retail
lending of a small bank the same as
intermediate banks.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Section ll.30 Intermediate Bank
Performance Evaluation
development within the bank’s
assessment areas.1472
Section ll.30(a)(1) Intermediate Bank
Performance Evaluation
The Agencies’ Proposal
Section ll.30(a)(2) Intermediate Bank
Community Development Test
Current Approach
Currently, the agencies define
intermediate small banks as having
assets of at least $376 million as of
December 31 of both of the prior two
calendar years and less than $1.503
billion as of December 31 of either of the
prior two calendar years.1467 The
agencies evaluate intermediate small
banks under the small bank
performance standards as provided in
current § ll.26(a)(2). Specifically,
intermediate small banks are currently
evaluated under two performance tests:
(1) the small bank lending test in
current § ll.26(b),1468 described above
in the section-by-section analysis of
§ ll.29(a); and (2) the community
development test in current § ll.26(c)
that applies exclusively to intermediate
small banks. The test evaluates the
intermediate small bank’s community
development performance pursuant to
the following criteria: (1) the number
and amount of a bank’s community
development loans; (2) the number and
amount of community development
investments; (3) the extent to which the
bank provides community development
services; and (4) the bank’s
responsiveness through such activities
to community development lending,
investment, and services needs.1469 An
intermediate small bank may allocate its
resources among community
development lending, investment, and
services in amounts that the bank
reasonably determines are the most
responsive to community development
needs and opportunities.1470 However,
an intermediate small bank may not
simply ignore one or more of these
categories of community
development.1471 Neither the current
regulations nor the guidance prescribe a
required threshold for each category;
instead, appropriate levels of each
community development category
depend on the capacity and business
strategy of the bank, community needs,
and the number and types of
opportunities available for community
1467 See current 12 CFR ll.12(u). As noted
above, the agencies update this threshold annually
based on the year-to-year change in the average of
the Consumer Price Index for Urban Wage Earners
and Clerical Workers, not seasonally adjusted.
1468 See also current 12 CFR ll.21(a)(3).
1469 See current 12 CFR ll.26(c)(1) through (4).
1470 See Q&A § ll.26(c)—1.
1471 See id.
PO 00000
Frm 00470
Fmt 4701
Sfmt 4700
The agencies proposed to revise
current § ll.26(a)(2), renumbered in
the proposal as § ll.29(b), with
respect to evaluating intermediate small
banks. First, the agencies proposed to
create a new ‘‘intermediate bank’’
category to replace the ‘‘intermediate
small bank’’ category. The agencies
proposed to define intermediate banks
in proposed § ll.12 to include banks
with average assets of at least $600
million as of December 31 of both of the
prior two calendar years and less than
$2 billion as of December 31 of either
of the prior two calendar years.1473
Second, in § ll.29(b)(1), the agencies
proposed to continue evaluating an
intermediate bank under two
performance tests. Specifically, the
agencies proposed to evaluate
intermediate banks under: (1) the
proposed Retail Lending Test; and (2)
the current community development
test, unless the bank opts to be
evaluated under the proposed
Community Development Financing
Test in proposed § ll.24.1474
In proposed § ll.29(b)(1), the
agencies indicated that intermediate
banks would be evaluated under the
Retail Lending Test, in a manner
tailored to intermediate banks (as
further described in the section-bysection analysis of § ll.22). The
agencies did not propose any new data
collection, maintenance, or reporting
requirements for intermediate banks
under the Retail Lending Test.1475
Consistent with the current regulations,
the agencies proposed to use data that
intermediate banks maintain in a format
of their choosing or report under other
regulatory requirements.
In proposed § ll.29(b)(1), the
agencies also provided that the
community development activities of
intermediate banks be evaluated using
the intermediate bank community
development evaluation, unless the
intermediate bank chose to be evaluated
under the Community Development
Financing Test in proposed
§ ll.24.1476 As discussed in more
detail in the section-by-section analysis
1472 See
id.
the section-by-section analysis of
§ ll.12 for a discussion of the ‘‘intermediate
bank’’ definition.
1474 See the section-by-section analysis of
§ ll.24.
1475 For a discussion of proposed retail lending
data requirements, see the section-by-section
analysis of § ll.42.
1476 See the section-by-section analysis of
§ ll.24.
1473 See
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
of § ll.42(a)(5), the agencies proposed
that an intermediate bank that opts to be
evaluated under the Community
Development Financing Test must
collect and maintain the same data
required of large banks, but in the
format used by the bank in the normal
course of business.
The agencies requested feedback on
ways to further tailor the Retail Lending
Test for intermediate banks. The
agencies also requested comment on
whether all banks, including
intermediate banks, should have the
option to have their community
development activities outside of
facility-based assessment areas
considered. In addition, the agencies
requested feedback on whether
intermediate banks should continue to
have the flexibility to have small
business, small farm, and home
mortgage loans considered as
community development loans,
provided that those loans have a
primary purpose of community
development pursuant to proposed
§ ll.13 and the bank is not required to
report those loans. Relatedly, the
agencies also requested feedback on
whether an intermediate bank should
have the ability to have its small
business or small farm loans considered
under the Retail Lending Test or, if they
have a primary purpose of community
development pursuant to proposed
§ ll.13, under the applicable
community development evaluation,
regardless of the reporting status of
these loans.
Comments Received
The agencies received a range of
comments addressing the proposed
performance standards for intermediate
banks from a wide variety of
commenters. Of the commenters that
addressed the agencies’ proposal to
evaluate intermediate banks under the
Retail Lending Test, a few supported
this approach, while a majority
recommended that the agencies apply
the Retail Lending Test to large banks
only and continue to evaluate
intermediate banks, or give these banks
the option to be evaluated, under the
lending test applicable to intermediate
small banks under the current CRA
regulations. Some of these commenters
explained that significant
implementation costs for intermediate
banks justified making the Retail
Lending Test optional. A commenter
stated that the ability to opt into certain
performance tests is critical for
intermediate banks (as well as small
banks) and urged the agencies to retain
this provision. Another commenter
stated that many community banks and
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
their communities may benefit most
from being allowed to opt into the
proposed Retail Lending Test; however,
this commenter viewed the agencies’
proposal as complex and questioned
whether these banks would have
enough resources and time to
adequately consider the benefits of
being evaluated under the new
performance test. This commenter also
expressed concern that the proposal
may effectively encourage intermediate
banks (and small banks) to maintain
their status quo examination approach,
which the commenter believed would
be a suboptimal outcome if the
community would have benefitted most
from a bank being evaluated under the
new performance test.
Most commenters addressing the
agencies’ proposals for intermediate
banks commented on the proposed
requirement to evaluate these banks
under the intermediate bank community
development test. These commenters
expressed a range of views. For
example, several of these commenters
suggested that the Community
Development Financing Test should not
be optional but, instead, be required for
intermediate banks to create consistency
among banks and examiners and to
provide other interested parties with a
common understanding with respect to
CRA community development
requirements. Other commenters,
however, supported providing
intermediate banks with the flexibility
to opt into the Community Development
Financing Test. As the Community
Development Financing Test does not
include a review of community
development services, a few
commenters expressed corresponding
concerns, with one commenter
indicating that the overall level of
intermediate banks’ community
development services would decrease
and another commenter stating that
intermediate banks should all be
evaluated regarding community
development services activities even if
they opt into being evaluated under the
Community Development Financing
Test. Another commenter suggested that
the agencies should provide
intermediate banks with a formal option
for electing to be evaluated under the
Retail Services and Products Test.
Regarding the agencies’ request for
feedback on ways to further tailor the
Retail Lending Test for intermediate
banks, several commenters provided
recommendations. A commenter stated
that performance context should weigh
more than positioning amongst peers in
an intermediate bank’s evaluation.
Several other commenters supported
tailoring that reduces Retail Lending
PO 00000
Frm 00471
Fmt 4701
Sfmt 4700
7043
Test data reporting requirements. For
example, one commenter applauded the
agencies’ decision to not require any
new data collection and reporting
requirements. Other commenters also
recommended that, to the extent data
reporting is required, the agencies ought
to use data already submitted by these
banks. A few other commenters
expressed a contrary view, stating that
tailoring the Retail Lending Test with
respect to data reporting requirements
would lead to data gaps and
inconsistencies in assessing activities
and difficulties in comparing data
across the agencies’ supervised banks.
One of these commenters asserted that
all intermediate banks should be
mandatory Retail Lending Test data
reporters, citing minimal burden and
public benefit. Another commenter
recommended an alternative approach
requiring that intermediate banks
provide Retail Lending Test data that
they already collect on activities across
all assessment areas and for the agencies
to, in turn, conduct qualitative
assessments in accordance with each
relevant performance test. According to
this commenter, this approach would
also provide the agencies with data that
could be used to assess what systems
and procedures would be needed to
allow intermediate banks to report data
in accordance with the corresponding
proposed large bank requirements.
Another commenter recommended that
all Retail Lending Test requirements
applicable to large banks be applied to
intermediate banks, and noted that,
although this would be more rigorous
for intermediate banks it would also be
more predictable and add transparency.
A few commenters indicated that only
large banks should be subject to the
Retail Lending Test.
Several commenters responded to the
agencies’ request for feedback on
questions about counting retail loans
under the applicable community
development test for intermediate
banks. Most of these commenters
expressed support for intermediate
banks having flexibility to have small
business, small farm, and home
mortgage loans considered as
community development loans
regardless of a loan’s reporting status. A
few of these commenters also suggested
that intermediate banks needed to be
provided with targeted performance
standards to help decide whether a loan
should be evaluated under the Retail
Lending Test or under either the
intermediate bank community
development test or, at the bank’s
option, the Community Development
Financing Test. However, another
E:\FR\FM\01FER2.SGM
01FER2
7044
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
commenter did not support providing
community development consideration
for retail loans on the basis that retail
lending and community development
lending serve different purposes, and
recommended that if an intermediate
bank wants credit for retail lending it
should voluntarily report that lending
for consideration under the Retail
Lending Test.
As noted above, the agencies
requested comment on whether all
banks, including intermediate banks,
should have the option to have their
community development activities
outside of facility-based assessment
areas considered. A few commenters
addressing this question supported
giving all banks the option to receive
such consideration, regardless of their
size or whether they elect to be
evaluated under a strategic plan. A
commenter indicated that small lenders
are often in the best position to engage
in community development activities in
underserved areas, but are not required
to do so; accordingly, it would be
beneficial to give them the option to
engage in such activities outside of their
facility-based assessment areas,
including through the incentive of
possibly receiving an ‘‘Outstanding’’
rating.
Final Rule
For the reasons stated below, the
agencies are finalizing proposed
§ ll.29(b)(1), renumbered as
§ ll.30(a)(1) in the final rule,
pertaining to the evaluation of an
intermediate bank’s retail lending
performance under the Retail Lending
Test, and its community development
activities under the intermediate bank
community development evaluation (in
proposed § ll.29(b)(2), renumbered as
§ ll.30(a)(2)(i))—renamed in the final
rule as Intermediate Bank Community
Development Test—unless an
intermediate bank opts to be evaluated
under the Community Development
Financing Test. The agencies are also
making technical changes to improve
the clarity and organization of this
paragraph. Specifically, the agencies are
clarifying the criterion in proposed
§ ll.29(b)(2)(iv), renumbered as
§ ll.30(a)(2)(i)(D), that the agencies’
evaluation of the responsiveness of the
bank’s activities is informed by
information provided by the bank and
may be informed by the impact and
responsiveness review factors described
in § ll.15(b). The agencies believe that
providing some of the specific factors
they will consider when evaluating the
degree of responsiveness of intermediate
bank’s community development loans,
investments, and services improves the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
ability of stakeholders to assess the
qualitative impact of the activities. The
agencies also note that renumbering of
this section serves to separate the
performance standards for small banks
in § ll.29 from the performance
standards for intermediate banks in new
§ ll.30. The agencies believe that this
revision improves organizational clarity
and readability.
With respect to the Retail Lending
Test, the agencies believe applying this
performance test to intermediate banks
is appropriate because evaluating an
intermediate bank under the Retail
Lending Test, rather than the Small
Bank Lending Test in § ll.29,
provides intermediate banks (and the
public) with increased clarity,
consistency, and transparency on
applicable supervisory expectations,
and standards for evaluating their retail
lending performance. In addition, as the
asset size of intermediate banks
increased to between $600 million and
less than $2 billion in assets,1477 the
agencies believe that banks in this assetsize category should have sufficient
resources and capacity to adjust to the
Retail Lending Test, particularly as no
new data reporting and no delineation
of retail lending assessment areas are
required. In addition, as described
further in the section-by-section
analysis of § ll.22, intermediate banks
are treated differently related to the
retail lending volume screen and the
outside retail lending assessment area.
This approach also supports an easier
potential transition to the large bank
category later, as these intermediate
banks will be familiar with certain
Retail Lending Test requirements
applicable to large banks and would
need to adjust to a smaller set of
additional requirements.
The agencies considered comments
that a tailored approach to the Retail
Lending Test for intermediate banks
might lead to corresponding data gaps,
inconsistencies in assessing activities,
and difficulties in comparing data
across banks. Under the final rule, the
agencies have sought to achieve a
balance between ensuring a
standardized evaluation approach that
is informed by metrics, and limiting
additional complexity and burden, in
particular for small and intermediate
banks, as discussed in the section-bysection analysis of § ll.42. In light of
these objectives, the agencies believe it
is appropriate to tailor data collection
and reporting requirements for
intermediate banks, recognizing that any
data requirements for these banks would
1477 See the section-by-section analysis of
§ ll.12.
PO 00000
Frm 00472
Fmt 4701
Sfmt 4700
create additional burden. Additionally,
for those banks that do not have data
collection and maintenance
requirements, the agencies may use
bank data collected in the ordinary
course of business, or may use sampling
techniques to compute metrics for the
bank.
With respect to an intermediate
bank’s community development
evaluation, the agencies believe that
retaining the flexibility for these banks
to be evaluated under the Intermediate
Bank Community Development Test or,
at the bank’s option, to be evaluated
under the Community Development
Financing Test, recognizes these banks’
more limited capacity compared to
larger banks. The agencies believe
tailoring the evaluation for intermediate
banks is necessary to appropriately
reflect their resources and capacity
relative to large banks, and the focus of
their business models, which is
generally on their facility-based
assessment areas. Moreover, although
the agencies recognize commenter
concerns that requiring intermediate
banks to be evaluated under the
Community Development Financing
Test may promote greater consistency
among banks and examiners, the
agencies are not persuaded that the
additional Community Development
Financing Test data collection,
maintenance, and reporting burden
would in all cases outweigh the
additional benefits. In addition, the
agencies believe that providing
intermediate banks with flexibility to
opt into the Community Development
Financing Test best supports the
agencies’ objective of tailoring the
evaluation to best fit an intermediate
bank’s size, business model, and
business strategy. Of note, both the
Intermediate Bank Community
Development Test and the Community
Development Financing Test are
intended to consider and evaluate
intermediate bank community
development loans and community
development investments. In addition,
the agencies note that the Intermediate
Bank Community Development Test
includes community development
services, while community development
services are considered at the bank’s
option for intermediate banks evaluated
under the Community Development
Financing Test. So, too, the results of
the agencies’ evaluation of an
intermediate bank’s community
development activities, evaluated under
in either performance test, will be
presented in the public portion of the
bank’s CRA performance evaluation.
This, in turn, will assist stakeholders to
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
understand how these community
development activities are assessed and
regulated.
The agencies also believe that the
flexibility of permitting intermediate
banks to opt to have their retail services
and products considered in order to
potentially elevate an overall rating
from a ‘‘Satisfactory’’ to an
‘‘Outstanding’’ makes it unnecessary to
incorporate a formal intermediate bank
opt-in to the Retail Services and
Products Test.
The agencies acknowledge the
importance of performance context in
the CRA evaluation of any bank.
However, the agencies do not believe
that it is appropriate to weight an
intermediate bank’s performance
context considerations more than its
actual retail lending and community
development activities given the CRA’s
strong emphasis on retail lending and
community development performance
in order to meet community needs.
Examiners will continue to consider a
bank’s capacity, business model,
business strategy, and other
performance context factors when
evaluating the overall performance of
intermediate and other banks, as
discussed in the section-by-section
analysis of § ll.21.
Upon consideration of the comments,
the agencies have decided to permit an
intermediate bank to receive
consideration for retail loans that have
a community development purpose
under both the Retail Lending Test
(under which the number of such loans
will be considered) and under either the
Intermediate Bank Community
Development Test or, at the bank’s
option, the Community Development
Financing Test (under which the dollar
amount of such loans will be
considered). To accomplish this, the
agencies are removing the provision in
proposed § ll.22(a)(5) that made the
consideration of retail loans for
intermediate banks exclusive to the
Retail Lending Test. The agencies
believe that it is appropriate to consider
a retail loan as a community
development loan if the retail loan
meets the definition of a community
development loan pursuant to final
§§ ll.12 and ll.13, given the
different considerations applicable to
these loans pursuant to the relevant
performance tests. For example, closedend home mortgage loans considered
under the Retail Lending Test are
excluded from community development
consideration unless these loans are
one-to-four family home mortgage loans
for rental housing with affordable rents
in nonmetropolitan census tracts. The
agencies also believe that the decision
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
regarding which retail loans to request
consideration for as a community
development loan should be left to the
bank using the criteria provided in
§ ll.13 to determine whether a retail
loan has a community development
purpose as described in that section.
Section ll.30(a)(2)(ii) Consideration
of Community Development Activities
Outside Facility-Based Assessment
Areas
The agencies are persuaded by
commenters’ recommendations that all
banks’ community development
activities, including those of an
intermediate bank, be considered
without regard to whether the activity is
conducted in the bank’s facility-based
assessment areas. Accordingly, the
agencies are revising final § ll.19 to
provide that all banks, including
intermediate banks, may receive
consideration for community
development loans, investments, or
services provided outside of their
facility-based assessment areas. The
agencies believe providing
consideration for community
development activities outside a bank’s
facility-based assessment areas adds
certainty and will contribute to higher
levels of community development
activities. The agencies also believe
consideration for these outside activities
will encourage activities in areas with
high community development needs,
such as underserved areas, while not
increasing burden since banks would
not be required to serve these areas if
not otherwise required to do so. This
provision includes intermediate banks
that opt to be evaluated under the
Community Development Financing
Test in final § ll.24.
The agencies are also adopting an
additional provision in
§ ll.30(a)(2)(ii) to provide that
community development activities of an
intermediate bank evaluated under
either the Intermediate Bank
Community Development Test or, at the
bank’s option, the Community
Development Financing Test, are
considered regardless of whether the
activity is conducted in one or more of
the bank’s facility-based assessment
areas. The extent of the consideration
given to community development
activities outside of an intermediate
bank’s facility-based assessment areas
will depend on the adequacy of the
bank’s responsiveness to the needs and
opportunities for community
development activities within the
bank’s facility-based assessment areas
and applicable performance context
information. The agencies believe that
providing consideration for community
PO 00000
Frm 00473
Fmt 4701
Sfmt 4700
7045
development activities outside of a
bank’s facility-based assessment areas
introduces additional certainty that will
incentivize higher levels of community
development activities. The agencies
also believe that consideration for these
outside activities will encourage
activities in areas with high community
development needs, such as
underserved areas, while not increasing
regulatory burden as banks would not
be required to serve these areas. Further,
the agencies believe that these activities
would not supplant facility-based
assessment area community
development activities but could
instead provide banks with the
flexibility to engage in outside activities,
particularly when there are limited
opportunities for such community
development activities in a bank’s
facility-based assessment area.
Section ll.30(b) Additional
Consideration
Current Approach and the Agencies’
Proposal
As explained in the section-by-section
analysis of § ll.30(a)(1) and (2), an
intermediate small bank is currently
subject to the small bank lending test
and a community development test,
which includes consideration of
community development lending,
investments, and services. The agencies
proposed in § ll.29(b)(3) that if an
intermediate bank opts to be evaluated
under the Community Development
Financing Test the bank would have the
option to request additional
consideration for activities that qualify
under the Retail Services and Products
Test and the Community Development
Services Test for possible adjustment of
an overall rating of ‘‘Satisfactory’’ to
‘‘Outstanding.’’ The agencies did not
propose to provide additional
consideration for retail services and
products and community development
services for intermediate banks
evaluated under the intermediate bank
community development evaluation in
proposed § ll.29(b)(2), because, as
explained in the proposal, the agencies
believed this section already
incorporated those activities in the
status quo intermediate bank
community development evaluation.
Final Rule
The agencies received no specific
comments related to the provision for
additional consideration of an
intermediate bank’s activities that
qualify under other performance tests.
Accordingly, the agencies are finalizing
proposed § ll.29(b)(3), renumbered as
§ ll.30(b), with a few revisions for
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7046
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
clarity. Specifically, the agencies are
clarifying their intent that, if an
intermediate bank requests and receives
consideration for additional activities,
the agencies may adjust the bank’s
rating from a ‘‘Satisfactory’’ to an
‘‘Outstanding,’’ regardless of whether
the bank is evaluated under the
Intermediate Bank Community
Development Test or the Community
Development Financing Test.
In the preamble to the proposed rule,
the agencies explained that additional
consideration for retail services and
products and community development
services would not be appropriate for an
intermediate bank that is evaluated
under the intermediate bank community
development evaluation because
proposed § ll.29(b)(2) already
incorporated those activities. However,
the agencies note that proposed
§ ll.29(b)(2) did not address
additional consideration for certain
retail services and products included
under the Retail Services and Products
Test, even though the agencies intended
to provide such consideration.
Accordingly, the agencies are finalizing
§ ll.30(b)(1) to make clear that an
intermediate bank evaluated under the
Intermediate Bank Community
Development Test may also request and
receive additional consideration for
activities that qualify under the Retail
Services and Products Test, provided
the bank achieves an overall institution
rating of at least ‘‘Satisfactory.’’ It is not
necessary to provide these intermediate
banks with additional consideration for
community development services
because the Intermediate Bank
Community Development Test already
incorporates an evaluation of
community development services.
The final rule also revises proposed
§ ll.29(b)(3), renumbered as
§ ll.30(b)(2), to clarify that an
intermediate bank that opts to be
evaluated under the Community
Development Financing Test must
achieve an overall institution level
rating of at least ‘‘Satisfactory’’ to
request and receive additional
consideration for activities that qualify
under the Retail Services and Products
Test, the Community Development
Services Test, or both.
Similar to the requirements for small
banks, the agencies will consider these
activities to potentially elevate a bank’s
overall institution rating from
‘‘Satisfactory’’ to ‘‘Outstanding, but
would not elevate a ‘‘Needs to Improve’’
rating to a ‘‘Satisfactory’’ or an
‘‘Outstanding’’ rating. Additionally, an
intermediate bank could likewise
continue to achieve any rating,
including an ‘‘Outstanding’’ rating,
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
based on its retail lending and
community development performance
alone, and would not be required to be
evaluated on other activities eligible for
additional consideration.
The agencies have also added new
final § ll.30(b)(3) to clarify that
notwithstanding the requirement that an
intermediate bank must achieve a
‘‘Satisfactory’’ or ‘‘Outstanding’’ rating
for the consideration of additional
activities under paragraphs (b)(1) and
(2) of the section, intermediate banks
may receive additional consideration for
low-cost education loans without regard
to the intermediate bank’s overall
institution rating. The agencies added
this additional consideration to provide
clarity about how low-cost education
loans may be considered in compliance
with the requirements of the CRA.1478
Section ll.30(c) Intermediate Bank
Performance Conclusions and Ratings
Current Approach
Current § ll.26(d) provides that the
agencies assign the performance of a
bank evaluated under the small bank
performance standards one of four
ratings, as set forth in current appendix
A: ‘‘Outstanding,’’ ‘‘Satisfactory,’’
‘‘Needs to Improve,’’ or ‘‘Substantial
Noncompliance.’’ 1479
Under current appendix A, the
agencies assign intermediate small
banks evaluated under the small bank
lending test conclusions of
‘‘Outstanding,’’ ‘‘Satisfactory,’’ ‘‘Needs
to Improve,’’ or ‘‘Substantial
Noncompliance’’ based on the bank’s
lending performance. The agencies rate
an intermediate small bank’s lending
performance as ‘‘Satisfactory’’ if, in
general, the bank demonstrates a
reasonable loan-to-deposit ratio; a
majority of loans are in its assessment
areas; a distribution of loans to, and for
individuals of, different income levels
and businesses and farms of different
sizes that is reasonable given the
demographics of the bank’s assessment
areas; a record of taking appropriate
action, in response to written
complaints, if any, about the bank’s
performance in helping to meet the
credit needs of its assessment areas; and
a reasonable geographic distribution of
loans given the bank’s assessment areas.
An intermediate small bank that meets
each of the standards for a
‘‘Satisfactory’’ rating under the lending
test and exceeds some or all of those
standards may warrant consideration for
a lending test rating of ‘‘Outstanding.’’
Under the current intermediate small
bank community development test, the
agencies rate the bank’s community
development performance
‘‘Satisfactory’’ if the bank demonstrates
adequate responsiveness to the
community development needs of its
assessment areas through community
development loans, community
development investments, and
community development services. The
adequacy of the bank’s response will
depend on its capacity for such
community development activities, its
assessment areas’ need for such
community development activities, and
the availability of such opportunities for
community development in the bank’s
assessment areas. The agencies rate an
intermediate small bank’s community
development performance
‘‘Outstanding’’ if the bank demonstrates
excellent responsiveness to community
development needs in its assessment
areas through community development
loans, community development
investments, and community
development services, as appropriate,
considering the bank’s capacity and the
need and availability of such
opportunities for community
development in the bank’s assessment
areas.
The agencies may assign an
intermediate small bank a community
development test rating of ‘‘Needs to
Improve’’ or ‘‘Substantial
Noncompliance’’ depending on the
degree to which its performance has
failed to meet the standards for a
‘‘Satisfactory’’ rating.
Pursuant to current appendix A, an
intermediate small bank may not receive
an assigned overall rating of
‘‘Satisfactory’’ unless it receives a rating
of at least ‘‘Satisfactory’’ on both the
lending test and the community
development test.1480 An intermediate
small bank that receives an
‘‘Outstanding’’ rating on one test and at
least ‘‘Satisfactory’’ on the other test
may receive an assigned overall rating of
‘‘Outstanding.’’ 1481
The Agencies’ Proposal
For intermediate banks, the agencies
proposed to revise current 12 CFR
ll.26(d) (Small bank performance
rating), renumbered in the proposal as
proposed § ll.29(b)(4) (Intermediate
bank performance ratings), to provide
that the agencies would rate the
performance of an intermediate bank as
provided in proposed appendices D
(Ratings) and E (Small Bank
Conclusions and Ratings and
Intermediate Bank Community
1480 Id.
1478 See
12 U.S.C. 2903(d).
1479 Current appendix A, paragraph (d)(1).
PO 00000
Frm 00474
Fmt 4701
Sfmt 4700
1481 See current appendix A, paragraph
(d)(3)(ii)(A).
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Development Evaluation Conclusions).
In proposed appendix E, the agencies
proposed to rate an intermediate bank’s
performance as described in appendix
D.1482 Pursuant to proposed appendix
D, for intermediate banks evaluated
under the Retail Lending Test and the
Community Development Financing
Test, the agencies proposed to combine
an intermediate bank’s raw performance
scores for its State or multistate MSA
performance under the Retail Lending
Test and the Community Development
Financing Test to determine the bank’s
rating at the State or multistate MSA
level and for the institution.1483 The
agencies proposed to weight the
performance scores equally: Retail
Lending Test (50 percent) and
Community Development Financing
Test (50 percent). The agencies
proposed to multiply each of these
weights by the bank’s corresponding
performance score on the respective
performance test, and then add the
resulting values together to develop a
State, multistate MSA, or institution
performance score. For this calculation,
the performance score for the Retail
Lending Test and the Community
Development Test alike corresponds to
the conclusion assigned, as follows:
‘‘Outstanding’’ (10 points); ‘‘High
Satisfactory’’ (7 points); ‘‘Low
Satisfactory’’ (6 points); ‘‘Needs to
Improve’’ (3 points); ‘‘Substantial
Noncompliance’’ (0 points). The
agencies would then assign a rating
corresponding to the rating category that
is nearest to the State, multistate MSA,
or institution performance score, as
provided in proposed appendix D.
Proposed appendix D further
provided that the agencies may adjust
an intermediate bank’s institution rating
from ‘‘Satisfactory’’ to ‘‘Outstanding’’
where the bank requests and receives
sufficient additional consideration for
activities that qualify under the Retail
Services and Products Test, the
Community Development Services Test,
or both.
Pursuant to proposed appendix E, for
intermediate banks evaluated under the
Retail Lending Test and the
intermediate bank community
development performance evaluation,
the agencies proposed to assign
conclusions for an intermediate bank’s
community development performance
of ‘‘Outstanding,’’ ‘‘High Satisfactory,’’
‘‘Low Satisfactory,’’ ‘‘Needs to
Improve,’’ or ‘‘Substantial
Noncompliance.’’ The agencies
proposed to assign an intermediate
bank’s community development
1482 See
1483 See
proposed appendix E, paragraph b.2.
proposed appendix D, paragraph c.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
performance a ‘‘Low Satisfactory’’
conclusion if the bank demonstrated
adequate responsiveness, and a ‘‘High
Satisfactory’’ conclusion if the bank
demonstrated good responsiveness, to
the community development needs of
its facility-based assessment areas
through community development loans,
community development investments,
and community development services.
The agencies proposed that their
determination of the adequacy of the
bank’s response would depend on the
bank’s capacity for such community
development activities, its facility-based
assessment areas’ need for such
community development activities, and
the availability of such opportunities for
community development in the bank’s
facility-based assessment areas. The
agencies proposed to consider an
intermediate bank’s retail banking
services and products activities as
community development services if
they provide benefit to low- and
moderate-income individuals.
Additionally, the agencies proposed
to assign an intermediate bank’s
community development performance
an ‘‘Outstanding’’ conclusion if the bank
demonstrated excellent responsiveness
to community development needs in its
facility-based assessment areas through
community development loans,
community development investments,
and community development services,
as appropriate, considering the bank’s
capacity and the need and availability of
such opportunities for community
development in the bank’s facility-based
assessment areas. The agencies
proposed to assign an intermediate
bank’s community development
performance a ‘‘Needs to Improve’’ or
‘‘Substantial Noncompliance’’
conclusion depending on the degree to
which the bank’s performance had
failed to meet the standards for a
‘‘Satisfactory’’ conclusion.
Comments Received
The agencies received a few
comments specifically related to an
intermediate bank’s conclusions and
ratings. Related to the equal 50 percent
weighting between the Retail Lending
Test and the intermediate bank
community development evaluation,
these commenters supported equal
weighting under the assumption that
community development services are
part of the intermediate bank
community development evaluation.
One of the commenters stated that if
community development services are
optional, the Retail Lending Test weight
should be increased to 55 or 60 percent
to leverage more lending.
PO 00000
Frm 00475
Fmt 4701
Sfmt 4700
7047
The agencies also received comments
on what should constitute an overall
passing score (i.e., an overall
‘‘Satisfactory’’) for a bank’s CRA
performance. A commenter agreed with
the proposal that intermediate banks
must have at least a ‘‘Low Satisfactory’’
on the Retail Lending Test to pass
overall, but opposed eliminating the
requirement that banks have a
‘‘Satisfactory’’ rating on the community
development test to have ‘‘Satisfactory’’
rating overall, stating that there is no
justification for removing this
requirement.
Final Rule
The agencies are finalizing proposed
§ ll.29(b)(4), renumbered in the final
rule as § ll.30(c)(1) and (2), pertaining
to an intermediate bank’s performance
conclusions and ratings, with revisions
to provide separate provisions for
conclusions and ratings. Specifically,
the agencies are finalizing
§ ll.30(c)(1), which provides that the
agencies assign a conclusion for the
performance of an intermediate bank
evaluated pursuant to final § ll.30 as
provided in final appendices C and E.
The agencies are also finalizing
§ ll.30(c)(2), which provides that the
agencies rate the performance of an
intermediate bank evaluated pursuant to
final § ll.30 as provided in final
appendix D.
The agencies are also finalizing as
proposed the respective weights of the
Retail Lending Test at 50 percent and
either the Intermediate Bank
Community Development Test or, at the
bank’s option, the Community
Development Financing Test, also at 50
percent. The agencies note that they
considered various weighting
combinations to apply to a two
performance-test analysis; however, the
agencies have ultimately determined
that the weights as finalized are
appropriate, and did not increase the
Retail Lending Test weight. The
agencies continue to believe that the
weight for each test, as finalized, reflects
the CRA’s emphasis on retail lending
and the importance of community
development activities in meeting
community credit needs. In comparison
to alternatives where a greater emphasis
is placed on one of the two applicable
performance tests, the agencies
determined that an equal weighting on
both tests best recognizes bank
performance for both retail lending and
community development and avoids
diminution of one type of performance
in favor of the other. The agencies also
note that the weighting of the
performance tests in the final rule is
consistent with the current practice for
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7048
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
intermediate small banks, which gives
equal weight to retail lending and
community development activities.
For the final rule, the agencies also
considered the impact of the additional
consideration of other activities,
including community development
services, on the weight of the
performance tests. The agencies
continue to believe that the flexibility
intermediate banks have to decide
which community development
performance test better fits their bank
will allow banks that currently
participate heavily in community
development services to continue to
have these services evaluated under the
Intermediate Bank Community
Development Test or to have these
community development services given
additional consideration under the
Community Development Financing
Test. In addition, the agencies also
believe that maintaining consistency in
the evaluation framework outweighs
additional adjustments based on which
community development performance
test applies to the intermediate bank.
The agencies are also finalizing as
proposed the requirement that an
intermediate bank receive at least a
‘‘Low Satisfactory’’ on the Retail
Lending Test for the bank to receive an
overall ‘‘Satisfactory’’ rating. As the
agencies explained in the proposal, this
requirement serves to prevent a bank
from receiving a ‘‘Satisfactory’’ or higher
rating at the State or multistate MSA
level or for the institution if it fails to
meet its community’s credit needs for
retail loans. Consistent with current
practice, the agencies are finalizing this
requirement to emphasize the
importance of retail loans to low- and
moderate-income individuals, and in
low- and moderate-income
communities.
Finally, the agencies believe that
removal of the requirement that an
intermediate bank receive a
‘‘Satisfactory’’ on both applicable
performance tests in order to receive an
overall ‘‘Satisfactory’’ CRA rating will
allow intermediate banks to best
determine how to meet community
credit needs consistent with their more
limited capacities. Moreover, the
agencies believe this aspect of the final
rule provides parity between
intermediate and large banks, as this
requirement is only applicable to
intermediate small banks in the current
rule, which holds these banks to a
higher standard of performance than
their larger counterparts.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Section ll.31 Effect of CRA
Performance on Applications
Current Approach
Under the current CRA regulations,
the agencies take into account a bank’s
CRA performance when considering
certain applications, including but not
limited to: the establishment of a
domestic branch; a merger,
consolidation, acquisition of assets, or
assumption of liabilities; the relocation
of a main office or branch; a deposit
insurance request; and transactions
subject to the Bank Merger Act, the
Bank Holding Company Act, or the
Home Owners’ Loan Act.1484 In
considering these applications, the
agencies also take into account any
views expressed by interested parties
that are submitted in accordance with
the applicable comment procedures.1485
A bank’s record of CRA performance
may be the basis for denying or
conditioning approval of an
application.1486 In reviewing
applications in which CRA performance
is a relevant factor, information from a
bank’s CRA examination is a
particularly important, and often
controlling, factor in the consideration
of a bank’s record.1487 The agencies’
consideration of CRA performance on
applications implements the statutory
requirement that the agencies take into
account a bank’s record of meeting the
credit needs of its entire community,
including low- and moderate-income
neighborhoods, consistent with the safe
and sound operation of such bank, in
evaluating applications for a deposit
facility by such bank.1488
The Agencies’ Proposal
The agencies proposed to renumber
current § ll.29 to proposed § ll.31
but did not propose any substantive
changes to current § ll.29.1489 The
agencies sought feedback on the
sufficiency of the agencies’ current
policies for considering CRA
performance in connection with
applications and whether any changes
could make the process more effective.
1484 See current 12 CFR 25.29(a) (OCC), 228.29(a)
(Board), and 345.29(a) (FDIC). The agencies’
respective CRA regulations include provisions that
relate directly to each of their specific authorities
with regard to banking applications.
1485 See current 12 CFR 25.29(c) (OCC), 228.29(b)
(Board), and 345.29(c) (FDIC).
1486 See current 12 CFR 25.29(d) (OCC), 228.29(c)
(Board), and 345.29(d) (FDIC).
1487 See Q&A § ll.29(a)–1.
1488 See 12 U.S.C. 2903(a); see also 12 U.S.C.
2902(3).
1489 Each agency proposed, and is finalizing, final
§ ll.31 as part of its agency-specific amendments.
PO 00000
Frm 00476
Fmt 4701
Sfmt 4700
Comments Received
The agencies received comments
related to proposed § ll.31 from a
variety of stakeholders. Some
commenters provided input specifically
on the effect of a bank’s CRA rating on
an application. One commenter stated
that current policies related to the effect
of CRA performance on applications are
sufficient, with other commenters
suggesting changes. Some of these
commenters stated that an
‘‘Outstanding’’ CRA rating must not be
considered evidence that a merging
bank has satisfied the public benefits
legal requirement 1490 because the CRA
rating is retrospective and does not
consider the resulting bank, whereas
another commenter suggested that the
agencies deem a bank with an
‘‘Outstanding’’ CRA rating to have
satisfied the convenience and needs
standard for purposes of the
application’s processing to incentivize
banks to achieve an ‘‘Outstanding’’
rating. Further, a commenter stated that
banks with a poor CRA rating should be
prevented from merging and another
commenter suggested banks rated
‘‘Outstanding’’ should be reviewed more
closely when purchasing banks rated
less than ‘‘Outstanding.’’ In a similar
vein, a commenter supported efforts to
hold banks accountable if they fail CRA
examinations or wish to acquire a bank
with a better CRA rating. Other
commenters specifically called for
greater public and regulatory scrutiny of
applications by banks with a ‘‘Low
Satisfactory’’ CRA rating and for a
requirement that these banks submit a
plan to improve their CRA rating. One
commenter urged the agencies to state
how a ‘‘Needs to Improve’’ CRA rating
would affect applications.
Many commenters that provided
input on proposed § ll.31 also
discussed the agencies’ processes and
standards for reviewing merger
applications. Many of these commenters
stated that the agencies must scrutinize
mergers more closely to ensure that
community credit needs, convenience
and needs, and public benefits
standards are met. Specifically, many of
these commenters supported holding
more frequent public meetings or
soliciting more public comments when
considering merger applications or
suggested that public meetings should
be held as a matter of course for all
mergers; for all large bank merger
applications; or whenever there are
public comments, a request for a public
1490 The agencies believe that the commenter is
likely referring to the convenience and needs
standard under the Bank Merger Act. See 12 U.S.C
1828(c)(5); see also 12 CFR 5.33(e)(1)(ii)(C).
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
meeting, or for any applicants with less
than an ‘‘Outstanding’’ CRA rating.
Some commenters stated there should
be at least 90 days in which to comment
on a merger. In addition, some
commenters stated that the agencies’
review of mergers should include
review of consumer complaints,
community comments, and CFPB and
other agency investigations. Many
commenters suggested that the agencies
should deny mergers unless an
applicant demonstrates how a merger
will benefit the community. Other
commenters raised specific concerns
about application delays associated with
public comments, which they stated can
result in significant increased costs and
talent retention concerns.
The agencies also received several
comments relating to CBAs and
community benefit plans (CBPs). Most
commenters supported considering or
otherwise encouraging CBAs or CBPs to
be part of merger application reviews or
endorsed requiring applicants to submit
a CBA or CBP as part of the merger
application process. Some commenters
requested that the agencies monitor and
enforce compliance with CBAs and
CBPs.
Final Rule
ddrumheller on DSK120RN23PROD with RULES2
The agencies are adopting final
§ ll.31 as proposed with one
technical edit. Consistent with Federal
Register drafting guidelines, the
Agencies have replaced the word
‘‘shall’’ with the word ‘‘must.’’ 1491
The agencies believe that the current
rule as well as final § ll.31
appropriately implement the statutory
requirement that the agencies take a
bank’s CRA record into account in
evaluating applications. As noted above,
the current rule as well as final § ll.31
provide that a bank’s record of
performance under the CRA
examination may be the basis for
denying or conditioning approval of an
application. Further, a bank’s CRA
performance is often a controlling factor
in the consideration of a bank’s record
when reviewing applications in which
CRA performance is a relevant
factor.1492 The agencies also note that
current regulations generally provide
expedited application review for banks
rated at least ‘‘Satisfactory.’’ 1493
1491 See National Archives, Office of the Federal
Register, ‘‘Principals of Clear Writing,’’ https://
www.archives.gov/federal-register/write/legal-docs/
clear-writing.html.
1492 Q&A § ll.29(a)–(1). See, e.g., 12 CFR
5.39(i)(5) (OCC), 208.75 (Board), and 362.18(b)
(FDIC).
1493 See 12 CFR parts 5 (OCC), 208 and 225
(Board), and 303 (FDIC).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
The agencies note that CRA
examinations are a retrospective
evaluation of a bank’s record of meeting
the credit needs of its community, while
a convenience and needs assessment
under the Bank Merger Act is
prospective and, as such, considers how
the combined institution will serve the
needs of its communities following
consummation of the proposed
transaction. Further, the agencies review
a bank’s CRA record comprehensively
and believe that each application should
be reviewed according to its specific
facts and circumstances. In some cases,
the CRA examination might not be
recent, or a specific issue raised in the
application process might not be
reflected in the CRA rating (although it
might be generally relevant to a CRA
evaluation), such as a bank’s progress in
addressing weaknesses noted by
examiners or implementing
commitments previously made to the
reviewing agency. In addition, pursuant
to final § ll.31(c), the agencies review
public comments received on the
application. Therefore, agency
discretion is necessary during the
application process with respect to
taking into account a bank’s CRA
performance.
The agencies appreciate the feedback
on the Bank Merger Act application
process and CBAs and CBPs, but note
that these comments are outside the
scope of this rulemaking.1494
Section ll.42 Data Collection,
Reporting, and Disclosure
Current Approach—Generally
Current Data Collection and Reporting
Requirements
Current Data Used for Deposits. The
current CRA regulations do not require
banks to collect or report deposits data.
Instead, for small banks, total deposits
and total loans data from the Call Report
are used to calculate the loan-to-deposit
ratio for the entire bank. Total deposits
allocated to each branch from the FDIC’s
Summary of Deposits are used for
performance context for banks of any
size. Deposits data by depositor location
are not currently collected or reported.
Current Small Bank and Intermediate
Small Bank Data Standards for Retail
Lending. The current CRA regulations
do not require small banks and
intermediate small banks to collect,
maintain, or report loan data, unless
they opt to be evaluated under the
lending, investment, and service tests
that apply to large banks.1495 Examiners
generally use information for a bank’s
major loan products gathered from
individual loan files or maintained on
the bank’s internal operating systems,
including data reported pursuant to
HMDA, if applicable.
Current Large Bank Data Standards
for Retail Lending and Community
Development Financing. Under the
current CRA regulations, large banks
collect and report certain lending data
for home mortgages, small business
loans, small farm loans, and community
development loans, pursuant to either
HMDA or the CRA regulation.1496 CRA
data reporting requirements are based
on bank size, not type of exam.1497 If a
bank, such as a wholesale or limited
purpose bank, does not engage in
lending of a particular type, current
regulations do not require reporting
such data. Examiners use this lending
data and other supplemental data to
evaluate CRA performance. A bank may
use the software provided by the FFIEC
for data collection and reporting or
develop its own programs. Retail
lending data collection and reporting
requirements differ based on the
product line.
For large banks that do not report
HMDA data, examiners use home
mortgage information maintained on the
bank’s internal operating systems or
from individual loan files. The data
elements for home mortgage loans used
for CRA evaluations include loan
amount at origination, location, and
borrower income. For small business
loans and small farm loans, the CRA
regulations require large banks to collect
and maintain the loan amount at
origination, loan location, and an
indicator of whether a loan was to a
business or farm with gross annual
revenues of $1 million or less.1498 Large
banks report aggregate small business
and small farm data at the census tract
level.1499
Large banks are not required to collect
or report data on consumer loans.
However, if a large bank opts to have
consumer loans considered as part of its
CRA evaluation, it must collect and
maintain this information based on the
category of consumer loan and include
it in its public file.1500
The current CRA regulations also
require large banks to report the
aggregate number and dollar amount of
their community development loans
current 12 CFR ll.42(f).
current 12 CFR ll.42.
1497 See Q&A § ll.42–1.
1498 See current 12 CFR ll.42(a).
1499 See current 12 CFR ll.42(b)(1).
1500 See current 12 CFR ll.42(c)(1).
1495 See
1496 See
1494 Id. The comments on bank mergers are more
applicable to the agencies’ merger regulations and
related processes. See 12 CFR parts 5 (OCC), 208
and 225 (Board), and 303 (FDIC).
PO 00000
Frm 00477
Fmt 4701
Sfmt 4700
7049
E:\FR\FM\01FER2.SGM
01FER2
7050
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
originated or purchased during the
evaluation period, but not information
for individual community development
loans.1501 A bank must, however,
provide examiners with sufficient
information to demonstrate its
community development
performance.1502 The CRA regulations
do not currently require the reporting or
collection of community development
loans that remain on the bank’s books or
the collection and reporting of any
information about qualified community
development investments. As a result,
the total amount (originated and onbalance sheet) of community
development loans and investments
nationally, or within specific
geographies, is not available through
reported data. Consequently, examiners
supplement reported community
development loan data with additional
information provided by a bank at the
time of an examination, including the
amount of investments, the location or
areas benefited by these activities and
information describing the community
development purpose.
Data Currently Used for CRA Retail
Services and Community Development
Services Analyses. There are no specific
data collection or reporting
requirements in the current CRA
regulations for retail services or
community development services. A
bank must, however, provide examiners
with sufficient information to
demonstrate its performance in these
areas, as applicable. A bank’s CRA
public file is required to include a list
of bank branches, with addresses and
census tracts; 1503 a list of branches
opened or closed; 1504 and a list of
services, including hours of operation,
available loan and deposit products,
transaction fees, and descriptions of
material differences in the availability
or cost of services at particular
branches, if any.1505
Banks have the option of including
information regarding the availability of
alternative systems for delivering
services.1506 Banks may also provide
information on community
development services, such as the
number of activities, bank staff hours
dedicated, or the number of financial
education sessions offered.
current 12 CFR ll.42(b)(2).
Q&A § ll.12(h)–8, which states, in
relevant part, ‘‘Financial institutions that want
examiners to consider certain activities should be
prepared to demonstrate the activities’
qualifications.’’
1503 See current 12 CFR ll.43(a)(3).
1504 See current 12 CFR ll.43(a)(4).
1505 See current 12 CFR ll.43(a)(5).
1506 See id.
1501 See
1502 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
The Agencies’ Proposal—Generally
As discussed in more detail in the
section-by-section analysis of § ll.42,
the agencies proposed data collection
and reporting requirements to increase
the clarity, consistency, and
transparency of the evaluation process
through the use of standard metrics and
benchmarks. The agencies also
recognized the importance of using
existing data sources where possible
and tailoring data requirements based
on bank size where appropriate. The
agencies proposed that all large banks,
defined in proposed § ll.12 as banks
with assets of at least $2 billion in both
of the prior two calendar years, would
be subject to certain data requirements.
Specifically, the agencies largely
retained the existing large bank data
collection and reporting requirements
for small business and small farm
lending in proposed § ll.42(a)(1) and
(b)(1), although the agencies proposed
replacing these data with CFPB’s section
1071 data once those data became
available. The agencies also proposed
that large banks collect and maintain
data for branches and remote service
facilities under proposed
§ ll.42(a)(4)(i) and collect and report
community development financing data
under proposed § ll.42(a)(5) and
(b)(3). The proposal also provided
updated standards for all large banks to
report the delineation of their
assessment areas under proposed
§ ll.42(f).
The agencies also proposed new data
requirements that would only apply to
large banks with assets of over $10
billion. Specifically, the proposed rule
required additional data collection and
reporting for these large banks for
automobile lending under proposed
§ ll.42(a)(2) and (b)(2); data collection
for retail services and products under
proposed § ll.42(a)(4)(ii) (digital and
other delivery systems) and under
proposed § ll.42(a)(4)(iii) (responsive
deposit products); data collection and
reporting for community development
services under proposed § ll.42(a)(6)
and (b)(4); and data collection and
reporting of deposits data under
proposed § ll.42(a)(7) and (b)(5).
Under the proposal, banks operating
under an approved wholesale or limited
purpose bank designation would not be
required to collect or report deposits
data or report retail services or
community development services
information. Intermediate banks, as
defined in proposed § ll.12, would
not be required to collect or report any
additional data compared to current
requirements, unless they opt into the
proposed Community Development
PO 00000
Frm 00478
Fmt 4701
Sfmt 4700
Financing Test. In addition, small
banks, as defined in proposed § ll.12,
would not be required to collect or
report any data beyond current
requirements.
Comments Received
The agencies received numerous
comments that generally addressed the
agencies’ proposed data collection,
reporting, and disclosure requirements.
Many of these commenters expressed
concern regarding the expected burden
and utility of the data proposed to be
collected and reported, but many also
noted that the proposed rule’s data
requirements would improve the
agencies’ and the public’s
understanding of how banks serve their
communities.
Several commenters suggested that
banks should be able to use data that
they currently submit to government
agencies in lieu of data that the agencies
would require them to collect, maintain,
and report for CRA purposes. These
comments included the request that
CDFI banks be permitted to submit CDFI
Fund Annual Certification and Data
Collection Report Forms in lieu of their
CRA data requirements.
A few commenters addressed the
agencies’ request for feedback on what
data collection and reporting challenges,
if any, exist for credit cards that could
adversely affect the accuracy of metrics
and benchmarks for credit card lending.
For example, a few commenters
disputed the proposal’s suggestion that
banks may not currently retain or have
the capability to capture credit card
borrower income at origination or
subsequently. These commenters
asserted that banks generally collect
borrower income information on
consumer credit card applications or at
the time a credit card is issued, and
suggested that the benefits of a metricsbased approach to evaluating consumer
credit card lending (including more
competition and better rates for lowand moderate-income consumers)
would outweigh the modest cost of
requiring banks to report this data.
However, another commenter stated that
the operational nature of credit card
lending would not easily support the
need for data collection and reporting;
this commenter agreed that borrower
income information is typically
collected as part of the underwriting
process, but noted that banks make
underwriting decisions primarily based
on an applicant’s creditworthiness as
revealed through credit bureaus, and
borrower income information is not
usually validated by banks. Another
commenter identified difficulties in
obtaining information that the
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
commenter views as necessary for
evaluating the responsiveness of a
consumer credit card loan, such as how
and why a consumer is using a credit
card loan (as opposed to another loan
product), whether the credit card loan
terms are responsive to the consumer’s
needs, and how equitable the terms are
for low- and moderate-income and
BIPOC consumers compared to other
consumers.
ddrumheller on DSK120RN23PROD with RULES2
Final Rule
The agencies are finalizing the data
collection and reporting requirements
for large banks with several
modifications to the data collection
requirements. The data collection and
reporting requirements in the final rule
are necessary for the construction of the
various metrics and benchmarks used in
the Retail Lending Test, the Retail
Services and Products Test, the
Community Development Financing
Test, and the Community Development
Services Test, as well as various
weighting calculations, all of which are
at the core of the effort to modernize the
CRA regulations. Additionally, the
specific data collection and reporting
requirements are an important
component of the effort to increase
consistency and transparency in the
new rule—having consistently defined
data for bank activities enables more
consistent treatment of those activities
in the examination process. The
agencies are tailoring data collection
and reporting requirements with regard
to bank size and other characteristics
with the intention of creating minimal
additional burden.
Regarding commenter suggestions that
data already reported to government
agencies be used in lieu of data required
for CRA purposes, the agencies believe
that the data requirements specified in
the final rule are critical components to
developing metrics and benchmarks. As
such, the agencies believe that having
different data requirements for a subset
of institutions could create confusion
and could impact the consistency of
metrics and completeness of
benchmarks.
The agencies have considered the
comments related to credit card lending.
However, the agencies have determined
to not evaluate consumer credit card
lending in the Retail Lending Test,
which is addressed in the section-bysection analysis of § ll.22. Therefore,
collection and maintenance of consumer
credit card lending data will not be
required.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Section ll.42(a)(1) Information
Required To Be Collected and
Maintained—Small Business and Small
Farm Loan Data
Section ll.42(b)(1) Information
Required To Be Reported—Small
Business and Small Farm Loan Data
Current Approach
The CRA regulations in current
§ ll.42(a) require a bank, except a
small bank, to collect, and maintain in
prescribed machine readable form until
the completion of the bank’s next CRA
examination, the following data for each
small business or small farm loan
originated or purchased by the bank: (1)
a unique number or alpha-numeric
symbol that can be used to identify the
relevant loan file; (2) the loan amount at
origination; (3) the loan location; and (4)
an indicator whether the loan was to a
business or farm with gross annual
revenues of $1 million or less.1507
The regulations in current § ll.42(b)
also require that a bank, except a small
bank or a bank that was a small bank
during the prior calendar year, report
annually by March 1 in machine
readable form, to the appropriate
agency, small business and small farm
loan data. The current regulations
require the bank to report for each
geography in which the bank originated
or purchased a small business or small
farm loan, the aggregate number and
amount of loans: (1) with an amount at
origination of $100,000 or less; (2) with
an amount at origination of more than
$100,000 but less than or equal to
$250,000; (3) with an amount at
origination of more than $250,000; and
(4) to businesses and farms with gross
annual revenues of $1 million or less
(using the revenues that the bank
considered in making its credit
decision).
The Agencies’ Proposal
The agencies proposed to expand the
data requirements in current
§ ll.42(a)(1) by expanding the
collection and maintenance of the
following data related to small business
loan and small farm loan originations
and purchases by the bank: (1) a unique
number or alpha-numeric symbol that
can be used to identify the relevant loan
file; (2) an indicator for the loan type as
reported on the bank’s Call Report; (3)
the date of the loan origination or
purchase; (4) loan amount at origination
or purchase; (5) the loan location (State,
county, census tract); (6) an indicator for
whether the loan was originated or
purchased; and (7) an indicator for
whether the loan was to a business or
1507 See
PO 00000
current 12 CFR ll.42(a)(1) through (4).
Frm 00479
Fmt 4701
Sfmt 4700
7051
farm with gross annual revenues of $1
million or less.
The agencies also proposed to revise
current § ll.42(b)(1) to require that all
large banks report by April 1 on an
annual basis the aggregate number and
amount of small business loans and
small farm loans for the prior calendar
year for each census tract in which the
bank originated or purchased a small
business or small farm loan by loan
amounts in the categories of $100,000 or
less, more than $100,000 but less than
or equal to $250,000, and more than
$250,000. This proposed provision also
required large banks to report the
aggregate number and amount of small
business and small farm loans to
businesses and farms with gross annual
revenues of $1 million or less (using the
revenues that the bank considered in
making its credit decision). The
proposed gross annual revenue data
would allow the agencies to conduct a
borrower distribution analysis that
shows the level of lending to small
businesses of different revenue sizes.
The agencies also requested feedback
on whether banks should be required to
collect and report an indicator on loans
made to businesses or farms with gross
annual revenues of $250,000 or less or
whether another gross annual revenue
threshold should be collected that better
represents lending to the smallest
businesses or farms during the interim
period before the CFPB Section 1071
Final Rule comes into effect.
Comments Received
Several commenters addressed the
agencies’ proposed alignment of the
CRA definitions of ‘‘small business’’ and
‘‘small farm’’ to the CFPB’s section 1071
definition of ‘‘small business.’’ A few of
these commenters addressed the impact
this alignment would have on purchases
of small business and small farm loans.
More specifically, a commenter sought
clarification about how banks could
count purchases of small business and
small farm loans in the CRA evaluation
when the CFPB’s definition would only
include originations. This commenter
requested that the agencies consider
including purchased loans even if not
accounted for in a bank’s CFPB’s section
1071 data reporting requirements.
Another commenter expressed concern
that such alignment would penalize
banks that rely heavily on purchases of
indirect small business loans from
dealers, such as commercial automobile
loans. This commenter urged the
agencies to wait until the CFPB’s
Section 1071 Proposed Rule is finalized
to determine its implications on a
bank’s CRA performance before
implementing portions of the final rule
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7052
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
that would require such data. A few
other commenters addressed the
alignment of the CRA definitions of
‘‘small business’’ and ‘‘small farm’’ to
the CFPB’s section 1071 definition of
‘‘small business,’’ with mixed views. A
commenter supported the agencies’
proposed alignment of the definitions
and the resulting increase in reported
business loans stating it would be
beneficial by providing a more
comprehensive picture of credit supply
in communities. This commenter also
recommended including in the CRA
evaluation small business loans that are
supported by personal guarantees
secured by liens on residential property.
This commenter noted that currently
these loans are not reported under either
HMDA or CRA, resulting in a significant
underreporting of small business loan
volume. By contrast, multiple other
commenters did not support the
agencies’ proposal because it would
mean that every loan made by a
community bank would be a small
business loan or small farm loan, subject
to reporting. These commenters argued
that doing so would impose significant
new data collection and reporting
requirements on community banks that
opt-in to the Retail Lending Test.
Several commenters further emphasized
the importance of reconciling the
differences between the CRA definitions
and the CFPB’s section 1071 definition,
with one commenter noting that
aligning the CRA definitions of ‘‘small
business’’ and ‘‘small farm’’ to the
CFPB’s Section 1071 Final Rule would
be confusing for banks that would still
be required to report small business
loans for purposes of the Call Report.
This commenter recommended that the
agencies retain the current definition so
that it aligns with the Call Report
definition. Another commenter stated
that because businesses may be serving
multiple locations, identifying a single
location for purposes of geocoding small
business loans may not be feasible
(same as with community development
loans).
Commenters that addressed the
agencies request for feedback on
whether banks should collect and report
an indicator on loans made to
businesses or farms with gross annual
revenues of $250,000 or less or whether
another gross annual revenue threshold
should be collected that better
represents lending to the smallest
businesses or farms during the interim
period before the CFPB’s Section 1071
Final Rule comes into effect, expressed
mixed views. A few of the commenters
supported no additional indicators
during the transition, while a few other
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
commenters supported the indicator in
the interim. The commenters that
supported establishing the gross annual
revenue amount at $250,000 or less also
supported adding a second indicator for
businesses with revenues of $100,000
and less. A few other commenters made
other recommendations. For example, a
commenter suggested that banks should
collect an indicator for loans made to a
business or farm that identifies the size
of the business or farm using the ‘‘small
business’’ definition from section 8(d) of
the Small Business Act or section 3(p)
of the Small Business Act (‘‘qualified
HUBZone small business concern’’)
rather than gross annual revenues of
$250,000. Another commenter
recommended that banks should report
indicators for the smallest of businesses
with gross annual revenues of $500,000
and that providing indicators for
businesses of various sizes should be
encouraged if that is similar or the same
as to how the CFPB’s Section 1071 Final
Rule is structured. Finally, a commenter
asked the agencies to clarify that in the
case of a small business loan, a bank
could rely on gross annual revenue
information provided by third-party
sources if the banks does not (and is not
otherwise required to) collect that
information directly from the borrower.
Final Rule
The agencies are adopting
§ ll.42(a)(1) (collection and
maintenance) and § ll.42(b)(1)
(reporting) largely as proposed, with
some revisions upon consideration to
comments.
Specifically, the agencies are revising
the data collection and maintenance
requirements for small business and
small farm loans by revising proposed
§ ll.42(a)(1)(vii) to indicate whether a
loan was to a business or farm with
gross annual revenues of $250,000 or
less, rather than $1 million or less as
proposed. The agencies are also
adopting new § ll.42(a)(1)(viii)
through (x) to indicate, respectively,
whether a loan was to a business or farm
with gross annual revenues greater than
$250,000 but less than or equal to $1
million; whether the loan was to a
business or farm with gross annual
revenues greater than $1 million; and
whether the loan was to a business or
farm for which gross annual revenues
are not known by the bank. As a result
of the changes made to the small
business and small farm loan data
collection and maintenance, the
agencies are also making conforming
changes to the information required to
be reported for these data by adopting
new § ll.42(b)(1)(v) through (vii).
Finally, the agencies are requiring that
PO 00000
Frm 00480
Fmt 4701
Sfmt 4700
a large bank must collect and maintain
these data until the completion of the
bank’s next CRA examination in which
the data are evaluated.
The agencies believe incorporating
the new indicators to the data collection
and reporting of small business and
small farm lending will facilitate and
add efficiency to the distribution
analysis under the Retail Lending Test.
Specifically, the new indicators will
allow the agencies to calculate metrics
and market benchmarks used to
evaluate a bank’s distribution of lending
to small businesses and small farms in
different gross annual revenues
categories ($250,000 or less, and
between $250,000 and $1 million) prior
to the agencies’ use of section 1071 data.
As discussed in the section-by-section
analysis of final § ll.22(e), the
agencies believe that evaluating a bank’s
distribution of lending to small
businesses and small farms of different
sizes, based on gross annual revenues,
will support a more comprehensive
evaluation. The agencies determined
that the additional indicators in the
final rule would not be especially
burdensome, because large banks
already collect and maintain small
business and small farm data that
includes similar data points, such as
indicating whether a loan is made to a
business or farm with gross annual
revenues of $1 million or less.
Furthermore, once banks must comply
with reporting small business loan data
under the section 1071, they will be
required to collect and maintain gross
annual revenues information for small
business and small farm borrowers,
which is consistent with the new
indicators in the final rule approach. In
light of these considerations, the
agencies determined that these new
required indicators for large banks are
appropriate and will result in more
comprehensive evaluations of retail
lending performance.
Regarding required data fields for the
loan amount at origination or purchase,
loan location, and whether the loan was
either originated or purchased by the
bank, the agencies determined that these
data points are substantively consistent
with current data collection procedures
for large banks, and will allow the
agencies to calculate the various
metrics, benchmarks, and other
quantitative components of the Retail
Lending Test evaluation.
For small and intermediate banks,
consistent with the current evaluation
approach and the agencies’ proposal,
the final rule does not require data
collection, maintenance, or reporting of
small business loan or small farm loan
data. For banks that do not collect and
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
maintain these data in electronic form,
the agencies may evaluate the banks’
distribution of lending to low- and
moderate-income census tracts, small
businesses, and small farms, using the
bank’s own data, or using sampling of
a bank’s own records, as under current
examination procedures. The agencies
believe it is appropriate to maintain the
current approach for small and
intermediate bank data requirements in
order to limit additional burden and
complexity for these banks, in
recognition that they may have lower
capacity to adjust to regulatory changes.
The agencies have determined not to
add an indicator for loans made to small
businesses or small farms with revenues
of $100,000 or less. The agencies
determined that an indicator for
$250,000 gross annual revenue
threshold rather than the $100,000 gross
annual revenue threshold was
appropriate primarily to achieve
consistency between the categories of
small businesses and small farms in the
Retail Lending Test and the impact and
responsiveness review factors used in
evaluating community development
activities, which considers activities
supporting small businesses or small
farms with gross annual revenues of
$250,000 or less.
Similarly, the agencies have
determined not to add an indicator for
loans made to a business or farm using
the Small Business Act’s definition of
‘‘small business.’’ The multiple
approaches that the Small Business Act
uses to define small businesses would
add unnecessary complexity and would
add burden to banks by requiring them
to collect additional data to that
required under the CFPB’s section 1071
process, in order to determine whether
businesses or farms qualify as small
businesses. Rather, the agencies have
determined that using the gross annual
revenue criteria defined in the CFPB’s
Section 1071 Final Rule as the basis for
identifying small businesses and small
farms for purposes of CRA is
appropriate. This approach supports the
CRA final rule’s goals of consistency
and transparency.
In response to comments regarding
the alignment of the agencies’ CRA
definitions of ‘‘small business’’ and
‘‘small farm’’ to the section 1071
definition of ‘‘small business’’ and the
impact on purchases of small business
and small farm loans, the final rule
would allow banks to include purchases
of small business and small farm loans
in the numerator of their relevant retail
lending metrics, at the bank’s option,
once the transition to section 1071 data
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
occurs.1508 However, because purchases
would not be included in the CFPB’s
section 1071 data, banks electing to
include such loans in their relevant
retail lending metrics would need to
collect and maintain these data. The
bank would provide the collected data
to the examiner to incorporate into the
metric and the subsequent distribution
analysis. These data would not be
reported and would not be included in
any aggregate data used for the creation
of benchmarks. Allowing banks, at their
option, to include these purchases of
small business and small farm loans
would maintain consistency in the
Retail Lending Test regarding treatment
of closed-end home mortgage loans and
small business and small farm loans.
The agencies are sensitive to
commenters’ concerns regarding the
potential burden imposed on
community banks created by the
agencies’ alignment of the definitions of
‘‘small business’’ and ‘‘small farms’’ to
the CFPB’s definition of ‘‘small
business’’ and the potential confusion
created for banks that will be required
to report small business loans for
purposes of CRA using the Call Report
definition during the transition period.
While some banks may have to collect
and report data for both regulations for
a limited amount of time, the agencies
note that once the agencies transition to
using section 1071 data, under the CRA
final rule, small business and small farm
loans will only be reported in
accordance with the definition and
reporting requirement of the CFPB’s
Section 1071 Final Rule. After the
transition to the section 1071 data takes
effect, there is no additional data
reporting burden created by the CRA
final rule with regard to small business
and small farm lending data. In
addition, the agencies acknowledge
commenter sentiment that aligning the
CRA definitions of ‘‘small business’’ and
‘‘small farm’’ to the CFPB’s section 1071
rule would be confusing for banks. The
agencies note that banks will be
required to report data using both the
CFPB’s section 1071 definition and Call
Report definition regardless of whether
the CRA regulation aligns to either of
them. The agencies believe that the
CFPB’s section 1071 definition is a more
1508 The transition amendments included in this
final rule will permit the agencies to transition the
CRA data collection, maintenance, and reporting
requirements for small business loans and small
farm loans to section 1071 data. This is consistent
with the agencies’ intent articulated in the preamble
to the proposal and elsewhere in this final rule to
transition to 1071 data for small business loan and
small loan data under the CRA regulations. The
agencies will provide notice of the effective date of
this amendment in the Federal Register once
section 1071 data are available.
PO 00000
Frm 00481
Fmt 4701
Sfmt 4700
7053
appropriate definition of small
businesses and small farms for the
purposes of identifying small business
lending and small farm lending. The
Call Report and current CRA definitions
define these loans on the basis of the
size of the loan, rather than on the basis
of characteristics of the borrower (such
as the gross annual revenue of the
business). As such, ‘‘small business
loans’’ included in the Call Reports and
in CRA evaluations may be made to
companies and farms that could
reasonably be considered large
businesses and large farms (which
sought loans small enough to be
reported on the Call Report and the CRA
evaluations). Given that the CFPB’s
section 1071 definition and reporting
requirement exists as a result of the
CFPB’s Section 1071 Final Rule, and the
Call Report definition exists as a result
of the existing Call Report reporting
requirements, the CRA final rule does
not create any additional burden as a
result of which definition it uses
between those two.
The agencies have determined not to
adopt the commenter’s recommendation
that the agencies retain the current
definition so that it aligns with the Call
Report definition. The definition used
by the CFPB’s section 1071 process is
preferable because it is better targeted
towards loans to small businesses and
small farms and provides data regarding
a broader set of small business and
small farm lenders.
The agencies are also clarifying that
the data reported through the CFPB’s
section 1071 process will be used as the
foundation of small business and small
farm data collection. The CFPB’s
Section 1071 Final Rule requires that if
a financial institution is unable to
collect or determine the gross annual
revenue of the applicant through
applicant-provided data, the financial
institution is required to report that the
gross annual revenue is ‘‘not provided
by applicant and otherwise
undetermined.’’ 1509
Finally, the agencies acknowledge
commenter sentiments that there are
situations in which identifying a single
location for the purposes of geocoding
small business loans can be difficult,
such as when a small business has
multiple locations. The agencies have
addressed this situation in the current
data reporting guide.1510 A small
business or small farm loan is located in
the geography where the main business
facility or farm is located or where the
1509 88
FR 35150, 35553 (May 31, 2023).
FFIEC, ‘‘A Guide to CRA Data Collection
and Reporting’’ (2015), https://www.ffiec.gov/cra/
pdf/2015_CRA_Guide.pdf.
1510 See
E:\FR\FM\01FER2.SGM
01FER2
7054
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
loan proceeds otherwise will be applied,
as indicated by the borrower.1511
Section ll.42(a)(2) Information
Required To Be Collected and
Maintained—Consumer Loans Data—
Automobile Loans
Under the CRA current regulations,
banks are not required to collect,
maintain, or report data for consumer
loans under current § ll.42(c)(1).
Current § ll.42(c)(1) provides that a
bank may collect and maintain data for
consumer loans originated or purchased
by the bank for consideration under the
lending test. A bank may maintain data
for one or more of the following
categories of consumer loans: motor
vehicle, credit card, other secured, and
other unsecured. If the bank maintains
data for loans in a certain category, it
must maintain the data for all loans
originated or purchased within that
category, and must collect and maintain
the data in machine readable form as
prescribed by the appropriate agency.
The data must be maintained separately
for each category of loans including for
each loan: (1) a unique number or alphanumeric symbol that can be used to
identify the relevant loan file; (2) the
loan amount at origination or purchase;
(3) the loan location; and (4) the gross
annual income of the borrower that the
bank considered in making its credit
decision. The data collected and
maintained are not reported but
provided to examiners at the time of the
bank’s CRA examination.
ddrumheller on DSK120RN23PROD with RULES2
The Agencies’ Proposal
The agencies proposed in
§ ll.42(a)(2) that automobile loans
would be the only consumer loan
category with data collection and
reporting requirements. Specifically, the
agencies proposed that banks with
assets of over $10 billion in both of the
prior two calendar years would be
required to collect and maintain, until
the completion of the bank’s next CRA
examination, the following data for
automobile loans originated or
purchased by the bank during the
evaluation period: (1) a unique number
or alpha-numeric symbol that can be
used to identify the relevant loan file;
(2) the date of loan origination or
purchase; (3) the loan amount at
origination or purchase; (4) the loan
location (State, county, census tract); (5)
an indicator for whether the loan was
originated or purchased by the bank;
and (6) the borrower’s annual income
the bank relied on when making its
credit decision.
1511 See
id.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Proposed § ll.42(b)(2) required a
bank with average assets of over $10
billion in both of the prior two calendar
years to report annually by April 1 to
the appropriate agency, the aggregate
number and amount of automobile loans
for each census tract in which the bank
originated or purchased an automobile
loan and the number and amount of
those loans made to low- and moderateincome borrowers. The proposal
required that these banks report the data
in machine readable form, as prescribed
by the agencies. The agencies did not
propose to make reported automobile
lending data publicly available.
Comments Received
A few commenters addressed the
agencies’ proposal to require automobile
lending data, generally. A commenter
asked for clarification on whether the
data would be submitted in aggregate
form as it would be required for
community development loans, or
whether it would be required in CRA
Loan Application Register format. Other
commenters recommended that the
agencies reconsider the requirement to
collect automobile lending data. A
commenter stated that if consumer data
is wanted, then general information
should be required to be reported, but
drilling down to a particular consumer
product is too extensive and
burdensome. Another commenter
supported the agencies’ proposal to
require new automobile lending data
collection and reporting by banks with
assets of over $10 billion; the
commenter further suggested that the
data would allow for better analysis of
automobile lending patterns compared
to existing data sources, such as credit
reporting agency data. This commenter
also supported optional data collection
for small banks and intermediate banks
that elect evaluation under the Retail
Lending Test given suggested data
collection and reporting burden banks
might face with respect to automobile
lending data requirements. Another
commenter argued that the statutory
authority for this data collection was
thin, and that dropping automobile
lending from the Retail Lending Test
would eliminate the need for this data
collection.
The agencies solicited specific
feedback on whether the final rule
should also include automobile loan
data requirements for large banks with
assets of $10 billion or less. Most
commenters were in favor of expanding
this requirement to all large banks,
rather than only make this a
requirement for banks with assets of
over $10 billion. One of these
commenters stated that expanding the
PO 00000
Frm 00482
Fmt 4701
Sfmt 4700
requirement to banks with $10 billion or
less in assets would better support a fair
lending analysis and ensure that banks
are providing consumers with fair and
affordable automobile loans. Another
commenter recommended expanding
the automobile lending data
requirements to all large banks and all
wholesale and limited purpose banks
with assets over $10 billion. Many
commenters noted that including
automobile loan data only from banks
with assets above $10 billion would
create an incomplete and misleading
impression of the automobile lending
market.
Several commenters recommended an
expansion in the data collected to
include consumer lending more
broadly, with a commenter suggesting
that banks with assets of $10 billion or
less should have the option to collect,
maintain, and report these data. A few
commenters did not support expansion
of automobile loan data collection to
large banks with assets of $10 billion or
less, with one commenter noting the
associated burden and cost. The other
commenter did not support additional
reporting of automobile lending for any
large bank.
The agencies also sought specific
feedback on whether they should
streamline any of the proposed data
fields for collecting and reporting
automobile data. A few of the
commenters addressing this question
felt that the proposed data fields were
minimal, and they could not identify
how it could be further streamlined,
while a few suggested further
streamlining or using as few fields as
possible. Another commenter asked the
agencies to investigate the use of market
sources for automobile lending data and
that data collected should include the
full cost of the loan to the consumer.
The agencies did not propose to
publish automobile lending data for
individual banks in the form of a data
set because the agencies were mindful
of having appropriate limits on the use
of collected and reported automobile
lending data. However, the agencies
sought feedback on whether it would be
useful to consider publishing countylevel automobile lending data in the
form of a data set. Most of the
commenters addressing this question
urged the agencies to make all the data
publicly available. Some commenters
expressed the view that the availability
of these data would hold banks
accountable for their lending to
underserved communities and
minorities. In addition, two commenters
wanted the county-level data to include
information on whether the borrower
lived in low- or moderate-income
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
census tracts or was a low- or moderateincome individual. A commenter
wanted the data to be provided at the
lowest geographic level (ideally, census
tracts). Another commenter favored the
release of the county-level data because
it would be helpful in self-evaluation of
CRA performance.
Final Rule
The agencies have considered the
comments received and are adopting
§ ll.42(a)(2) pertaining to the
collection and maintenance of
automobile lending data, with
significant modifications narrowing the
number of banks that would be subject
to this requirement. Specifically, the
agencies are revising proposed
§ ll.42(a)(2), renumbered in the final
rule as § ll.42(a)(2)(i) to require the
collection and maintenance of
automobile loan data, as detailed below,
for a large bank for which automobile
loans are a product line (i.e., if the bank
is a majority automobile lender or opts
to have its automobile loans evaluated
pursuant to § ll.22). The agencies are
also adopting new § ll.42(a)(2)(ii)
which provides that a bank, other than
a large bank, for which automobile loans
are a product line may collect and
maintain the automobile loan data
required of large banks as detailed
below.
The data collection and maintenance
requirement is a change from the
proposal, which would have required
automobile lending data for all large
banks with assets of over $10 billion.
This change limits the required
collection of automobile loan data to
only those large banks for which
automobile lending is the majority of
their retail lending or which opt to have
their automobile loans evaluated
pursuant to § ll.22. Not adding a data
collection requirement for smaller banks
is consistent with the agencies’ goal of
requiring no new data collection and
reporting for small and intermediate
banks. The agencies continue to believe
it is important for large banks for which
automobile lending is a product line to
collect and maintain data for automobile
loans because these data will help
enable the agencies to calculate the
bank’s distribution metrics under the
Retail Lending Test. For example, the
agencies would use loan location and
borrower income information to
calculate borrower distribution metrics,
and would use loan amount information
to calculate the Bank Volume Metric
and various weights used to develop
Retail Lending Test conclusions. The
agencies would use information
regarding whether a loan was purchased
or originated in conjunction with the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
final § ll.22(g)(1) additional factor.
The agencies would also use loan
location and loan count data as the basis
for weighting component geographic
areas for the construction of weighted
average benchmarks for a bank’s outside
retail lending area.
The agencies note that they
considered various options regarding
whether and how to collect automobile
lending data. This included using thirdparty sources for automobile lending
data. In order to evaluate automobile
lending, the agencies believe it is
appropriate to require the collection of
automobile lending data from large
banks for which automobile loans are a
product line, due to the unavailability of
these data from any source other than
the banks themselves.
The agencies are finalizing the data to
be collected and maintained in
proposed § ll.42(a)(2)(i) through (vi),
renumbered in final as
§ ll.42(a)(2)(iii)(A) through (F) for
each automobile loan originated or
purchased by the bank until the
completion of the bank’s next CRA
examination in which the data are
evaluated. The agencies believe the data
fields, as finalized, are sufficient for
purposes of the evaluation of
automobile lending in the Retail
Lending Test.
The agencies have considered
commenter feedback that suggests
requiring additional data, such as the
full cost of the loan to the consumer.
The agencies have determined to not
add this data point among the set of data
collected for the Retail Lending Test.
The agencies note that under current
CRA and the final rule, the retail
lending evaluation focuses on
distributional analyses of lending to
low- and moderate-income census tracts
and low- and moderate-income
borrowers (and small businesses and
small farms).
In response to comments, the agencies
believe that focusing the collection and
maintenance of automobile lending data
on large banks for which the majority of
their retail lending is automobile
lending, or which opt to have their
automobile loans evaluated pursuant to
§ ll.22, strikes an appropriate balance
between minimizing burden, tailoring
requirements for banks of different sizes
and business models, and enabling an
appropriate evaluation of banks’ retail
lending. In the final rule, data collection
and maintenance of automobile lending
remains optional for intermediate banks,
and small banks that opt to be evaluated
under the Retail Lending Test, for which
automobile loans are a product line.
The agencies considered the
comments regarding requiring
PO 00000
Frm 00483
Fmt 4701
Sfmt 4700
7055
automobile loan data for large banks
with assets of $10 billion or less. After
weighing the costs and benefits from
requiring data from a broader range of
banks, as explained above, the agencies
decided to tailor the data collection
requirement according to bank size and
whether automobile lending constituted
the majority of a bank’s lending. The
agencies will evaluate automobile
lending for all banks evaluated under
the Retail Lending Test for which
automobile lending is the majority of
their lending or which opt to have their
automobile loans evaluated pursuant to
§ ll.22. Large banks (not just large
banks with assets above $10 billion)
meeting these criteria will be required to
collect and maintain these data. This
will provide a more complete evaluation
of automobile lending by banks, while
still limiting the data burden for smaller
banks and for banks for which
automobile lending is not the majority
of their lending. In response to the
commenter that suggested expanding
this data requirement to banks with
assets of $10 billion or less to better
support a fair lending analysis, the
agencies note that fair lending analyses
are not part of the CRA evaluation
process.
In response to commenters suggesting
an expansion of data collection to
include all consumer lending products,
the agencies have determined not to add
this recommendation to the regulation.
While consumer lending products are
important in fulfilling credit needs of
low- and moderate-income borrowers,
the agencies continue to believe that
consumer loans span multiple product
categories that are heterogeneous in
meeting low- and moderate-income
credit needs and are difficult to evaluate
on a consistent quantitative basis.
Therefore, in the final rule, the agencies
will consider the qualitative aspects of
all other consumer loans, apart from
automobile loans, under the Retail
Services and Products Test without data
collection and maintenance
requirements specified in § ll.42, as
explained in more detail in the sectionby-section analysis of § ll.23.
Regarding the agencies’ statutory
authority to collect automobile lending
data, the agencies believe that the CRA’s
provision, which requires the agencies
to ‘‘assess the institution’s record of
meeting the credit needs of its entire
community, including low- and
moderate-income neighborhoods,
consistent with the safe and sound
operation of such institution’’ 1512 is
sufficiently broad to cover the
evaluation of a bank’s automobile
1512 12
E:\FR\FM\01FER2.SGM
U.S.C. 2903(a)(1).
01FER2
7056
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
lending in the Retail Lending Test and,
therefore, believe collection of these
data will serve the purposes of the CRA.
Finally, the final rule does not adopt
the reporting requirement for
automobile lending in proposed
§ ll.42(b)(2). The agencies also
explored the availability of market
sources for data on banks’ automobile
lending to use, as suggested by a
commenter, and were unable to find any
reliable source appropriate for the
applications needed for the Retail
Lending Test. In response to comments
received, inadequacy of available data,
and the agencies’ further analysis, the
agencies have determined not to
establish market benchmarks for
automobile lending, as discussed further
in the section-by-section analysis of
§ ll.22.
The agencies have also considered
comments received regarding the
publication of automobile loan data. As
explained above, the final rule does not
adopt a reporting requirement for
automobile lending data. As such, any
consideration of public disclosure of
these data has effectively been removed.
Section ll.42(a)(3) Information
Required To Be Collected and
Maintained—Home Mortgage Loan Data
Current Approach
The CRA regulations in current
§ ll.42(b)(3) require a bank, except for
a small bank or a bank that was a small
bank during the prior calendar year, to
report annually by March 1 to the
Board, FDIC, or OCC, as applicable, and
in machine readable form as prescribed
by that agency, the location of each
home mortgage loan application,
origination, or purchase outside the
MSAs in which the bank has a home or
branch office (or outside any MSA) in
accordance with the requirements of 12
CFR part 1003. Interagency guidance
explains that institutions that are not
required to collect home mortgage loan
data by HMDA need not collect home
mortgage loan data under this provision
of CRA.1513 If a bank wants to ensure
that examiners consider all of its home
mortgage loans, the institution may
collect and maintain the data on these
loans.
ddrumheller on DSK120RN23PROD with RULES2
The Agencies’ Proposal
The agencies proposed to revise
current § ll.42(b)(3), renumbered in
the proposal as § ll.42(a)(3), to
require certain banks to collect and
maintain certain home mortgage loan
data, similar to current practice.
Specifically, if a bank is a HMDA
1513 See
Q&A § ll.42(b)(3)–1.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
reporter, the agencies proposed to
require a bank (other than a small bank
or intermediate bank) to collect and
maintain, in machine readable form as
prescribed by the Board, FDIC, or OCC,
as applicable, until the completion of its
next CRA examination, the location of
each home mortgage loan application,
origination, or purchase outside of the
MSAs in which the bank has a home or
branch office (or outside any MSA) in
accordance with the requirements of 12
CFR part 1003.
The agencies sought feedback on
whether certain banks that are not
mandatory reporters under HMDA
should be required to collect and
maintain, or report, mortgage loan data
if they engage in a minimum volume of
home mortgage lending. The agencies
described an option that would require
any large bank that is not a mandatory
HMDA reporter due to the locations of
its branches, but that otherwise meets
the HMDA size and lending activity
requirements, to collect, maintain, and
report the mortgage loan data necessary
to calculate the retail lending volume
screen and distribution metrics in the
proposed Retail Lending Test in
§ ll.22.
The agencies also solicited specific
feedback on whether the benefits of
requiring home mortgage loan data
collection and reporting by non-HMDA
reporter large banks that engage in a
minimum volume of mortgage lending
outweigh the burden associated with the
data collection, and whether the further
benefit of requiring these data to be
reported outweighs the additional
burden of reporting.
Comments Received
The agencies received comments on
several aspects of data collection and
maintenance for home mortgage lending
data. A majority of commenters
supported expanding home mortgage
loan data collection, maintenance, and
reporting to non-HMDA reporter large
banks that engage in a minimum volume
of mortgage lending. These commenters
generally believed the benefits would
outweigh the burden associated with
such a requirement. In support of this
view, one of these commenters stated
that even with limited volume mortgage
lending there could be high denial rates
and disparities in loan terms that the
agencies need to review. A few
commenters also noted that in addition
to expanding the data, the data should
be available by race and ethnicity, while
another commenter noted that the
benefit of added transparency for rural
areas of collecting and publishing these
data would outweigh the burden placed
on these large banks.
PO 00000
Frm 00484
Fmt 4701
Sfmt 4700
By contrast, a commenter argued
against expanding HMDA data
collection to non-HMDA reporting
banks because this would exacerbate an
existing regulatory imbalance between
banks’ and non-bank mortgage lenders’
level of regulatory scrutiny. Finally,
several of the commenters addressing
this issue of requiring HMDA data
collection to non-HMDA reporting
banks also stated that the previous
reporting threshold of 25 closed-end
loans should be implemented.
Final Rule
The agencies are finalizing proposed
§ ll.42(a)(3), renumbered in the final
rule as § ll.42(a)(3)(i) with a few
wording changes. Similar to the current
rule, the final rule requires large banks
that are HMDA reporters to collect and
maintain the location of each home
mortgage loan application, origination,
or purchase outside the MSAs in which
the bank has a home or branch office,
or outside any MSAs. The agencies
believe this requirement is appropriate
and consistent with current practice. In
addition, the agencies are adopting new
§ ll.42(a)(3)(ii) to implement certain
data requirements for certain nonHMDA reporters. Specifically, final
§ ll.42(a)(3)(ii) requires a large bank
that is not a mandatory HMDA reporter
due to the location of its branches but
that otherwise meets the HMDA size
and lending activity requirements, to
collect and maintain the mortgage loan
data necessary to calculate the retail
lending volume screen and distribution
metrics. Such large banks will be
required to collect and maintain in
electronic form, as prescribed by the
Board, FDIC, or OCC, as applicable,
until the completion of the bank’s next
CRA examination in which the data are
evaluated, the following data for each
closed-end home mortgage loan,
excluding multifamily loans, originated
or purchased during the evaluation
period: (1) A unique number or alphanumeric symbol that can be used to
identify the relevant loan file; (2) the
date of the loan origination or purchase;
(3) the loan amount at origination or
purchase; (4) the location of each home
mortgage origination or purchase,
including county, State and census
tract; (5) the gross annual income the
bank relied on in making the credit
decision; and (6) an indicator for
whether the loan was originated or
purchased by the bank. The agencies
believe these data fields sufficiently
allow for the calculation of all the
bank’s retail lending metrics for
mortgage lending, clarify expectations
for banks, and facilitate a more complete
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
and accurate analysis by including this
information in the bank metrics.
In recognition of their more limited
capacities and to avoid unduly
burdening small banks and intermediate
banks, the new requirements in
§ ll.42(a)(3)(ii) only apply to certain
large banks. In this regard, the agencies
are requiring HMDA-equivalent data
collection only for a very limited set of
large banks, including only those banks
that would otherwise be required to
report HMDA data but for a bank having
no branches within metropolitan areas.
The agencies believe this strikes an
appropriate balance by evaluating
mortgage lending data for all large banks
with sufficient mortgage lending activity
to trigger HMDA reporting
requirements.
In reaching this determination, the
agencies have considered commenter
feedback on the issue of whether to
expand the collection and maintenance
of certain mortgage loan data for nonHMDA reporters. The agencies believe
this decision strikes an appropriate
balance between the need to collect and
evaluate data from banks with
substantial mortgage lending in an area
and the importance of tailoring data
collection burden to bank size. In
response to the comments regarding the
impact this change would have on the
existing imbalance between banks’ and
non-bank mortgage lenders’ level of
regulatory scrutiny, the agencies note
that non-bank mortgage lenders are not
subject to evaluation under CRA.
Additionally, to minimize data burden
and restrict data collection to relevant
areas, the agencies have determined not
to collect appraisals data as suggested
by one commenter. Although an
important part of the mortgage lending
process, appraisals are not conducted by
banks; appraisal companies are not
covered by the CRA and thus any
collection or evaluation of appraisal
data would be beyond the scope of this
regulation.
In reaching the determination to add
the new requirements for certain large
banks in § ll.42(a)(3)(ii), the agencies
considered that this is a targeted data
collection and maintenance requirement
for closed-end home mortgages that only
includes data necessary for the
evaluation of home mortgage lending
under the Retail Lending Test.
In addition, the agencies note that the
final rule provision does not include
requirements for home mortgage lending
data related to borrower race and
ethnicity. Therefore, because the
agencies will not have information on
race and ethnicity related to these
expanded data, the agencies cannot
publish said information as suggested
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
by commenters. The agencies note,
however, that the final rule will include
publication of HMDA data by income
level, race, and ethnicity in final
§ ll.42(j). As explained in more detail
in the section-by-section analysis of
§ ll.42(j), the relevant agency will
publish on its website on an annual
basis, certain HMDA data reported by
large banks under 12 CFR part 1003 by
income level, race, and ethnicity.
The agencies also note, in response to
commenters suggesting that the agencies
implement the reporting threshold of 25
closed-end loans under HMDA, that as
of the date of this final rule, the
reporting threshold under 12 CFR part
1003 is 25 closed-end loans.1514
Section ll.42(a)(4) Information
Required To Be Collected and
Maintained—Retail Services and
Products Data
Current Approach
Under the current CRA regulations,
there are no specific data collection or
reporting requirements for retail
services and products. Examiners,
however, review information provided
by a bank at the time of the examination
and the bank’s CRA public file that
demonstrates its performance in these
areas, as applicable.1515 A bank’s CRA
public file is required to include, among
other things, a list of bank branches
with addresses and census tracts; 1516 a
list of branches opened or closed; 1517
and a list of services, including hours of
operation, available loan and deposit
products, transaction fees, and
descriptions of material differences in
the availability or cost of services at
particular branches, if any.1518 Banks
have the option of including
information in the public file regarding
the availability of alternative systems for
delivering services.1519
Section ll.42(a)(4) Overview
The Agencies’ Proposal
In § ll.42(a)(4), the agencies
proposed that large banks collect and
maintain information to support the
analysis of a bank’s delivery systems
and deposit products under the
proposed Retail Services and Products
Test in § ll.23 based on the large
bank’s asset size. The agencies proposed
1514 The CFPB issued a technical amendment,
effective December 21, 2022, to reflect the closedend mortgage loan reporting threshold of 25
mortgage loans in each of the two preceding
calendar years. See 87 FR 7790 (Dec. 21, 2022).
1515 See Q&A § ll.24(d)(4)–1.
1516 See current 12 CFR ll.43(a)(3).
1517 See current 12 CFR ll.43(a)(4).
1518 See current 12 CFR ll.43(a)(5).
1519 See id.
PO 00000
Frm 00485
Fmt 4701
Sfmt 4700
7057
to require that large banks with assets of
over $10 billion collect and maintain
the data for both branches and remote
service facilities under § ll.42(a)(4)(i),
data for digital and other delivery
systems under § ll.42(a)(4)(ii), and
responsive deposit products under
§ ll.42(a)(4)(iii).
To reduce the data burden of new
data collection requirements for large
banks with assets of $10 billion or less,
the agencies proposed collecting and
maintaining only the data for branches
and remote service facilities under
§ ll.42(a)(4)(i). The agencies invited
feedback on this approach, as described
below.
The agencies also proposed that banks
with assets of $10 billion or less that
request additional consideration for
digital and other delivery systems under
§ ll.23(b)(3) collect and maintain data
for digital and other delivery systems
under § ll.42(a)(4)(ii). The agencies
further proposed that small banks and
intermediate banks seeking additional
consideration for retail services and
products activities provide the data in
the format used in the bank’s normal
course of business.
Comments Received
Several commenters responded to the
agencies’ request for feedback on
tailoring data collection and
maintenance requirements related to
digital and other delivery systems and
to responsive deposit products for large
banks with assets of $10 billion or less.
A few of these commenters supported a
requirement for all large banks to collect
and maintain these data, with one of the
commenters suggesting also that these
requirements also apply to intermediate
banks. One of the commenters stated
that large banks with assets of $10
billion or less should be permitted to
report these data at their option.
Another commenter indicated that the
agencies should review the
responsiveness of deposit products for
large banks with assets of $10 billion or
less and that any bank that cannot
collect and maintain these data within
the 12-month period should describe in
its capacity building plan how it will
comply with the data collection
requirements within a 24-month period.
This commenter also noted that
communities should be involved with
product responsiveness reviews by
being invited to provide ratings to the
agencies of product responsiveness, and
that there may be other stakeholders
that would benefit from greater
transparency of the data reported by
banks and of the ratings provided by
consumers (if this occurs).
E:\FR\FM\01FER2.SGM
01FER2
7058
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Final Rule
After consideration of the comments
received and further internal analysis,
the agencies have determined not to
extend the data collection and
maintenance of digital delivery systems
and other delivery systems and deposit
products to large banks with assets of
$10 billion or less and that operate one
or more branches, to reduce burden on
the industry. However, as discussed in
greater detail below, the agencies have
determined to extend data requirements
for digital delivery systems and other
delivery systems to banks with $10
billion or less that do not maintain
branches. The agencies believe this
approach appropriately tailors the data
requirements to large banks based on
their business model. Moreover, and in
recognition of their more limited
capacity, the agencies have determined
not to extend any data requirements to
small and intermediate banks.
ddrumheller on DSK120RN23PROD with RULES2
Section ll.42(a)(4)(i) Branch and
Remote Service Facility Availability
Data
The Agencies’ Proposal
The agencies proposed in
§ ll.42(a)(4)(i) to require large banks
to collect and maintain, until the
completion of the bank’s next CRA
examination, the following information:
(1) number and location of branches and
remote service facilities; (2) whether
branches are full-service facilities (by
offering both credit and deposit
services) or limited-service facilities,
and for each remote service facility
whether it is deposit-taking, cashadvancing, or both; (3) locations and
dates of branch and remote service
facility openings and closings, as
applicable; (4) hours of operation of
each branch and remote service facility,
as applicable; and (5) services offered at
each branch that are responsive to lowand moderate-income individuals and
low- and moderate-income census
tracts. While this branch information is
consistent with the information
currently provided in a bank’s public
file,1520 the proposed requirement to
collect remote service facilities data
would be a change from the current
practice, under which banks are not
required, but have the option, to provide
ATM location data in a bank’s public
file.1521
The agencies sought specific feedback
on whether to require collection and
maintenance of branch and remote
service facility availability data as
proposed or, alternatively, whether to
1520 See
1521 See
current 12 CFR ll.43(a).
current 12 CFR ll.43(a)(5).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
continue with the current practice of
reviewing the data from the bank’s
public file (i.e., requiring branch data
but keeping remote service facility
availability data optional).
Comments Received
The agencies received several
comments in response to their request
for feedback on whether, instead of
requiring branch and remote service
facility availability data, the agencies
should continue the current practice of
reviewing the data from the bank’s
public file. A few commenters
supported the agencies’ proposal to
require banks to report data on branch
and remote service facility availability
under a standardized process.
Commenter sentiment in support of the
proposal included noting that banks
should collect and report these data
publicly to permit evaluation of
usefulness to underserved communities.
Additionally, commenter sentiment
included that the agencies should use
these data towards the creation of
industry and market benchmarks.
By contrast, a few commenters
indicated that the current practice of
reviewing these data from the bank’s
public file should continue rather than
separately requiring banks to collect and
maintain these data pursuant to
§ ll.42. Another commenter noted
that branch and remote service facility
data are ‘‘widely and publicly’’ available
through most banks’ websites, so
current practices should continue. This
commenter also noted that the FDIC’s
Summary of Deposits data should be
sufficient for identifying most banks’
branch locations and that separately
collecting and reporting data on branch
distribution within the proposed rule
seems redundant and burdensome for
banks due to the FDIC’s current
comprehensive process. Another
commenter recommended that the
agencies determine whether they could
perform an evaluation with data from
the bank’s public file and other reliable
sources before requiring a new data
collection; otherwise, the agencies
should require collection and
maintenance of the data as proposed.
Final Rule
For the reasons discussed below, the
agencies are finalizing § ll.42(a)(4)(i)
substantially as proposed, with
technical edits to revise the heading of
this paragraph and to update the
reference of ‘‘machine readable’’ to
‘‘electronic.’’ No substantive change is
intended. In addition, as explained
below, the agencies are revising
§ ll.42(a)(4)(i) to conform to changes
made in the final rule with respect to
PO 00000
Frm 00486
Fmt 4701
Sfmt 4700
the inclusion of ‘‘main office’’ and the
availability of branches and remote
service facilities in § ll.23(b)(2) and
(3), respectively, in the Retail Services
and Products Test.
The agencies are finalizing the
requirement that all large banks collect
and maintain, as prescribed by the
appropriate Federal financial
supervisory agency, until the
completion of the bank’s next CRA
examination in which the data are
evaluated, retail banking services and
retail banking products data, which
includes the branches and remote
service facilities data as proposed in
§ ll.42(a)(4)(i). The agencies are also
including the same data collection
requirements for the bank’s main office
if it meets the requirements of final
§ ll.23(a)(2). After careful
consideration of the comments, the
agencies believe that requiring the
collection and maintenance of this
information appropriately supports the
analysis of a bank’s branch, applicable
main office, and remote service facility
availability and the establishment of
benchmarks required for the Retail
Services and Products Test. A data
collection and maintenance requirement
will ensure that the agencies have the
information they need to evaluate the
availability of branches and remote
service facilities, and also provides
examiners with consistent data across
all agencies. For banks, the agencies
believe that a data collection
requirement minimizes ambiguity as to
what data the agencies will use in their
evaluations. The agencies note that the
final rule largely codifies in final
§ ll.42(a)(4) certain information that
banks are currently required to provide
in their public file, including, among
other things, the locations of current
branches and their street address, and
branches opened or closed by the bank
during the calendar year. In response to
comments that the agencies should
continue the current practice of
reviewing the data from the bank’s
public file, the agencies believe that the
data requirements are justified as the
best means to obtain accurate and
uniform data to evaluate a bank’s retail
banking services. In addition, the final
§ ll.42(a)(4)(i) also requires banks to
collect and maintain remote service
facility information, which is currently
included in the bank’s public file on an
optional basis. However, the data will
be standardized in a template to be
developed by the agencies, as described
below. As a result, the agencies believe
that requiring collection of these data
would not add significant burden to
banks. In addition, final
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
§ ll.42(a)(4)(i) requires large banks to
collect and maintain an indicator of
whether each branch is full-service or
limited-service, and whether each
remote service facility is deposit-taking,
cash-advancing, or both.
The agencies have considered
commenter feedback that the agencies
should rely on the FDIC’s Summary of
Deposits data, rather than require the
data collection under § ll.42(a)(4)(i)
as proposed. The agencies do not
believe the evaluation of branches and
remote service facilities under the Retail
Services and Products Test can be
accomplished using the FDIC’s
Summary of Deposits. First, the data
required in § ll.42(a)(4)(i) provides
additional detailed information required
to conduct the analysis under the Retail
Services and Products Test, including
hours of operation and services offered
at each branch that are responsive to
low- and moderate-income individuals
and census tracts. Second, the FDIC’s
Summary of Deposits does not include
remote service facilities and is not
timely in that it is reported at the
conclusion of each calendar year
consistent with most other CRA
data.1522 In response to the comment
suggesting that the collected data be
used towards the creation of industry
and market benchmarks, the agencies
note that relevant community and
market benchmarks for the evaluation of
branch and remote service facility will
be drawn from the American
Community Survey and industry data,
as proposed.
ddrumheller on DSK120RN23PROD with RULES2
Section ll.42(a)(4)(ii) Digital Delivery
Systems and Other Delivery Systems
Data
The Agencies’ Proposal
The agencies proposed data collection
and maintenance requirements that
would facilitate a review of whether
digital and other delivery systems are
responsive to the needs of low- and
moderate-income individuals.
Specifically, proposed § ll.42(a)(4)(ii)
would require a large bank with assets
of over $10 billion in both of the prior
two calendar years and a large bank that
had assets of $10 billion or less in either
of the prior two calendar years that
requests additional consideration for
digital and other delivery systems, to
collect and maintain the information
required in proposed
§ ll.42(a)(4)(ii)(A) and (B) as follows:
(1) the range of services and products
offered through digital and other
delivery systems and (2) digital activity
by individuals in low-, moderate-,
1522 FDIC’s Summary of Deposits data is reported
as of June 30 of each year.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
middle-, and upper-income census
tracts, respectively, such as the number
of savings and checking accounts
opened through digital and other
delivery systems and accountholder
usage of digital and other delivery
systems. The agencies also proposed
§ ll.42(a)(4)(ii)(C), a general provision
that would permit banks to optionally
provide any information that
demonstrated that digital and other
delivery systems serve low- and
moderate-income individuals and lowand moderate-income census tracts. The
agencies sought feedback on whether
the agencies should determine which
data points a bank should collect and
maintain to demonstrate responsiveness
to low- and moderate-income
individuals via the bank’s digital and
other delivery systems, or whether to
allow banks the flexibility to determine
which data points to collect, maintain,
and provide for evaluation.
Comments Received
Most commenters addressing the
agencies’ request for comments on
whether or not to prescribe the data a
bank should collect and maintain to
demonstrate responsiveness to low- and
moderate-income individuals through
digital and other delivery systems, were
generally supportive of the agencies
determining the required data points. A
few commenters recommended that the
data the agencies collect and maintain
should align with the Bank On
program.1523 A commenter also noted
that standardized fields would be
needed if the agencies were to create
benchmarks and compare an
institution’s performance against those
benchmarks. Another commenter
recommended that, to maintain
consistency, no flexibility should be
given to banks in determining which
data points to collect and maintain.
By contrast, a few commenters
indicated that banks should have
flexibility to demonstrate
responsiveness, with guidance provided
in the form of examples. One of these
commenters suggested that for CDFI
banks the agencies defer to the process
banks use to demonstrate the
effectiveness of their delivery systems
for the purposes of CDFI certification,
and for non-CDFI banks, the agencies
could provide a schedule of baseline
data to ensure consistency between
exams, and grant banks flexibility with
regard to any additional data points they
might collect and maintain for
1523 See
Bank On, ‘‘Open a no-overdraft Bank On
certified account now!,’’ https://bankononline.org/
?gclid=EAIaIQobChMI_5yN1PiogQMVSsvICh3n9
Qu7EAAYASAAEgJ3FfD_BwE/.
PO 00000
Frm 00487
Fmt 4701
Sfmt 4700
7059
evaluation. Some commenters suggested
that the agencies make any information
that the agencies collect on digital and
other delivery systems publicly
available.
Final Rule
As discussed below, the agencies are
finalizing proposed § ll.42(a)(4)(ii),
renumbered in the final rule as
§ ll.42(a)(4)(ii)(A), with substantive,
conforming, and technical edits. The
agencies are finalizing as proposed the
data collection and maintenance
requirements pertaining to digital
delivery systems and other delivery
systems 1524 for large banks with assets
greater than $10 billion and for large
banks with assets of $10 billion or less
that request additional consideration
pursuant to § ll.23(b)(4).
Additionally, the agencies are revising
§ ll.42(a)(4)(ii)(A) to require that a
subset of large banks with assets of $10
billion or less as of December 31 in
either of the prior two calendar years
that do not operate any branches collect
and maintain digital delivery systems
and other delivery systems data. The
agencies are revising this paragraph to
conform to changes made in the final
rule with respect to the evaluation of a
bank’s digital delivery systems and
other delivery systems in the Retail
Services and Products Test, which will
only evaluate these banks for their
digital delivery systems and other
delivery systems under § ll.23(b)(4)
due to their lack of branches.1525 As a
result, these banks will only be required
to collect and maintain delivery system
data for their digital delivery systems
and other delivery systems under
§ ll.42(a)(4)(ii).
The agencies are also making edits to
conform to changes made to the
definition of a ‘‘large bank’’ and making
technical edits to better distinguish the
data points that are required from those
that are optional, including technical
edits to renumber the paragraphs
pertaining to the data banks will collect
and maintain under the final rule. With
respect to the conforming and technical
edits, the agencies do not intend
substantive changes.
The agencies are finalizing the data
banks are required to collect and
maintain in proposed
§ ll.42(a)(4)(ii)(A) and (B),
renumbered in the final rule as
§ ll.42(a)(4)(ii)(B)(1) (range of retail
banking services and retail banking
products) and (2) (digital delivery
1524 See final § ll.12 for the definitions of
‘‘digital delivery systems’’ and ‘‘other delivery
systems.’’
1525 See the section-by-section analysis in
§ ll.23(b)(4).
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7060
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
systems and other delivery systems
activity by individuals), substantially as
proposed, with clarifying edits.
Specifically, the agencies are finalizing
as proposed the data banks are required
to collect and maintain for a bank’s
range of retail banking services and
retail banking products in
§ ll.42(a)(4)(ii)(B)(1), but are
modifying the requirement in
§ ll.42(a)(4)(ii)(B)(2), the digital
delivery systems and other delivery
systems activity by individuals,
families, or households in low-,
moderate-, middle-, and upper-income
census tracts. In particular, the agencies
are clarifying that banks evidence digital
delivery systems and other delivery
systems activity under
§ ll.42(a)(4)(ii)(B)(2) by providing
data on the number of checking and
savings accounts opened through digital
delivery systems and other delivery
systems by census tract income level for
each calendar year and the number of
checking and savings accounts opened
digitally and through other delivery
systems that are active at the end of
each calendar year by census tract
income level for each calendar year
(rather than by accountholder usage as
initially proposed). By requiring the
number of active accounts rather than
account usage as proposed, the agencies
believe that the final rule reduces the
burden for banks, as the number of
accounts is generally less complex to
monitor in bank data systems relative to
account usage, and because account
usage could be defined in numerous
ways. The use of number of active
accounts also builds on other data
elements in the final rule. The agencies
are also finalizing proposed
§ ll.42(a)(4)(ii)(C), which provides
that banks required to collect and
maintain digital delivery systems and
other delivery systems data may collect
and maintain additional information
that demonstrates that the bank’s digital
delivery systems and other delivery
systems serve low- and moderateincome individuals, families, or
households and low- and moderateincome census tracts.
The agencies believe that requiring
large banks with assets greater than $10
billion and those with assets of $10
billion and less with no branches to
collect and maintain digital delivery
systems and other delivery systems data
is appropriate given that these data are
required in the analysis of the
evaluation of digital delivery systems
and other delivery systems for these
banks under the Retail Services and
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Products Test.1526 Collecting and
maintaining these data will assist the
agencies in standardizing the evaluation
criteria. Additionally, given the
widespread use of online and mobile
banking delivery systems and the
expected continued growth of these
systems, collection of these data
supports the agencies’ evaluation of
digital delivery systems and other
delivery systems and, accordingly,
updates the agencies’ evaluation of a
bank’s delivery systems performance.
The agencies also believe that requiring
the collection of these data for only
these banks strikes the appropriate
balance of: (1) facilitating a useful and
effective review of whether digital
delivery systems and other delivery
systems are responsive to the needs of
low- and moderate-income individuals,
families, or households; (2) evaluating
the delivery systems of banks with
different business models, including
those with national digital footprints;
and (3) minimizing burden.
The agencies considered commenters’
recommendations regarding which data
the agencies should require banks to
collect and maintain for digital delivery
systems and other delivery services. The
agencies believe that, as finalized, the
data required by the agencies will
provide consistency with respect to the
evaluation of the responsiveness of
digital delivery systems and other
delivery systems to low- and moderateincome individuals, families, or
households and communities. The data
collected will also help the agencies
better understand how banks continue
to serve their communities as
technology and bank business models
evolve.
Recognizing that banks have different
methods and means for assessing the
effectiveness of their digital delivery
systems and other delivery systems to
low- and moderate-income individuals,
families, or households as noted above,
the final rule also permits banks the
ability to provide additional information
that demonstrates that digital and other
delivery systems serve low- and
moderate-income individuals, families,
or households, thus providing certain
flexibility to banks.
Banks will not report the data on
digital delivery systems and other
delivery systems; therefore, the agencies
will make this information publicly
available only to the extent it is
discussed in the bank’s CRA
performance evaluation.
Finally, in response to comments and
the agencies’ own determination, the
1526 See the section-by-section analysis of
§ ll.23(b)(4).
PO 00000
Frm 00488
Fmt 4701
Sfmt 4700
agencies intend to explore options to
provide banks with interagency
guidance on the submission of these
data to promote clarity, consistency, and
transparency, which is discussed further
below.
Section ll.42(a)(4)(iii) Data for
Deposit Products Responsive to the
Needs of Low- and Moderate-Income
Individuals
The Agencies’ Proposal
For deposit products responsive to the
needs of low- and moderate-income
individuals, proposed § ll.42(a)(4)(iii)
required large banks with assets of over
$10 billion to collect and maintain data
concerning: (1) the number of
responsive deposit accounts that were
opened and closed for each calendar
year in low-, moderate-, middle-, and
upper income census tracts,
respectively; (2) the percentage of
responsive deposit accounts compared
to total deposit accounts for each year
of the evaluation period; and (3)
optionally, any additional information
regarding the responsiveness of deposit
products to the needs of low- and
moderate-income individuals and lowand moderate-income census tracts.
Further, the agencies also proposed in
§ ll.42(a)(4)(iii) that this data would
also be required for large banks with
assets of $10 billion or less that request
additional consideration for deposit
products responsive to the needs of lowand moderate-income individuals. The
agencies sought feedback on the
appropriateness of the proposed data
collection requirements, including
whether to grant banks the flexibility to
determine which data points to collect
and maintain for evaluation.
Comments Received
With regard to the appropriateness of
the agencies’ proposed data collection
elements for the evaluation of the
responsiveness of deposit products, a
few commenters indicated that the
proposed elements were appropriate,
with two of these commenters also
suggesting that the agencies must
standardized these elements. A
commenter also opined that the
proposed elements closely track what
many banks already report to the
National Data Hub at the St. Louis
Federal Reserve for Bank On
products.1527 Two other commenters
indicated that the agencies could group
1527 See BankOn, ‘‘Open a no-overdraft Bank On
certified account now!,’’ https://bankononline.org/
?gclid=EAIaIQobChMI_5yN1PiogQMVSsvICh3n9Q
u7EAAYASAAEgJ3FfD_BwE/; see also Federal
Reserve Bank of St. Louis, ‘‘Bank On National Data
Hub,’’ https://www.stlouisfed.org/communitydevelopment/bank-on-national-data-hub.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
deposit accounts by account terms and
direct deposit requirements. One
commenter proposed that direct deposit
affordability should be determined by
the FFIEC median family income data
for the assessment area (MSA, etc.) and
the favorability of the account terms.
This commenter further recommended
that, if the monthly direct deposit
threshold for the accounts with the most
favorable terms is more than 80 percent
of the area median family income, then
the deposit account would not be
considered affordable. The other
commenter suggested that direct deposit
affordability should be determined by
the FFIEC MSA income threshold for
the branch location. This commenter
further suggested that if the monthly
direct deposit threshold is more than 80
percent of the area median family
income and more than 30 percent of the
customer’s income on a monthly basis,
the deposit product should not be
considered affordable.
Final Rule
The agencies are finalizing
§ ll.42(a)(4)(iii) largely as proposed
pertaining to the collection and
maintenance of data on responsive
deposit products required for banks
with assets greater than $10 billion and
large banks with assets of $10 billion or
less that request additional
consideration for their responsive
deposit products under the Retail
Services and Products in § ll.23(c)(3).
The agencies are also making technical
edits, format changes, and other minor
word changes, with no substantive
change in meaning intended. For
instance, the final rule changes the
format of the data that is required to be
collected and maintained from
‘‘machine readable’’ to ‘‘electronic’’
form.
The agencies carefully balanced
considerations of regulatory burden
against the benefit of more clarity,
consistency, and transparency with
respect to CRA evaluations, while still
providing banks flexibility. In
particular, banks must collect and
maintain the data described above, and
are permitted to provide any other
information that demonstrates the
availability and usage of the bank’s
deposit products responsive to the
needs of low- and moderate-income
individuals and low- and moderateincome census tracts. In the final rule,
the agencies clarified that ‘‘a bank may
opt to collect and maintain additional
data pursuant to paragraph (a)(4)(iii)(C)
of this section in a format of the bank’s
choosing.’’ In addition, the agencies
added clarifying language that optional
data collected and maintained must
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
‘‘demonstrate the availability and
usage’’ of the bank’s responsive deposit
products.
As discussed below, the agencies also
plan to provide guidance for banks on
the submission of these data to promote
the clarity, consistency, and
transparency of this information.
After considering the commenters’
recommendations, the agencies have
decided to finalize the data elements as
proposed. The agencies decline to
incorporate commenters’
recommendations regarding grouping
deposit accounts together by account
terms and including direct deposit
affordability as one of the elements to
consider for responsive deposit
accounts. With regard to commenters
that suggested the agencies group
deposit accounts by account terms and
direct deposit requirements, the
agencies believe deposit accounts are
relatively heterogeneous and different
banks may take different approaches in
how they organize their deposit
accounts with regard to affordability.
With regard to commenters that
suggested the agencies should use direct
deposit threshold as a proxy for the
depositors’ median income to determine
product affordability, the agencies note
that banks take different approaches
with regard to how their direct deposit
features are structured, and depositors
take different approaches with regard to
how they deposit their funds, whether
using direct deposit for all, part, or none
of their deposits across one or more
accounts. The agencies believe that
banks are best positioned to determine
how to present the affordability of the
direct deposit features of their deposit
accounts, as relevant for their distinct
customer bases. Nevertheless, the
agencies will take commenters’
recommendations under advisement to
determine if they could be used as
examples examiners can consider in the
evaluation.
Additional Issues
The Agencies’ Proposal
The agencies invited comment on
whether the proposed retail services
data exist in a format that is
transferrable to data collection or
whether the agencies should require a
standardized template to facilitate the
collection and maintenance of data for
the Retail Services and Products Test.
The agencies considered that a template
would potentially offer flexibility for
providing quantitative and qualitative
information, which may be particularly
relevant for aspects of retail services
that banks have not consistently
provided to the agencies previously, or
PO 00000
Frm 00489
Fmt 4701
Sfmt 4700
7061
that may change over time. The agencies
also invited public feedback on steps
that could be taken to minimize burden
of the proposed information collection
requirements while still ensuring
adequate information to inform the
evaluation of services.
Comments Received
Comments regarding the format for
information collection. In response to
the agencies’ request for comment on
whether the proposed retail services
data exist in a format that is transferable
to data collection or whether a required
template provided by the agencies
would be sufficient in the collection of
retail services and products information,
several commenters provided feedback.
All commenters indicated that the
agencies should develop and provide a
template to ensure that the data are
standardized, with two of these
commenters also suggesting that, prior
to implementation, the agencies should
release the template for public input.
Another commenter indicated that the
response could vary by bank, which is
why the commenter supports making a
template available if it is not feasible to
transfer the data collection.
Comments related to burden
reduction. In response to the agencies’
request for feedback on what steps
could be taken to reduce burden of the
proposed information collection
requirements, the agencies received
recommendations from several
commenters. Commenters’ suggestions
included that the agencies create
templates for data requirements and to
provide technical assistance and
training, particularly for MDIs, and
small and intermediate banks. Other
recommendations included providing
guides, manuals, and training programs;
standardizing and automating data
collection, with as much data as
possible drawn from ‘‘authoritative
sources of bank profiles and community
development data;’’ providing strong
resources to help navigate differences in
definitions of various regulations, and
creating a portal or listing of qualifying
activities; distributing a questionnaire to
banks to collect feedback on how data
burden might be reduced; and
requesting consistent data that provides
insights about income, race, ethnicity,
and location.
A few commenters generally
addressed the burden related to the data
requirements for retail services and
products. Commenter views included
that this requirement would be costly
and disproportionately burdensome
relative to the small impact this test
would have on a bank’s overall CRA
rating. A commenter stated that the
E:\FR\FM\01FER2.SGM
01FER2
7062
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
incremental burdens associated with
maintaining data needed for the
proposed test will be significant because
much of these data are not currently
being captured or maintained by banks.
Another commenter listed reasons data
will be challenging and burdensome
(e.g., hard to determine accurate
location of customer of a particular
product) and stated that the burden is
not worth it. This commenter also stated
that digital banking data at census tract
level is inconsistent with the deposits
data proposal, which aggregates data at
the county level.
Final Rule
Regarding the commenter that
expressed concerns that reporting data
at the census tract level would be
burdensome because of the difficulty in
determining the accurate location of
customers of a particular product, the
agencies’ supervisory expectations are
that banks maintain current addresses
for their accountholders. Geocoding
technology for associating addresses
with census tracts is widely available
and used in the banking industry. As a
result, the agencies do not expect that
the requirement for large banks to
collect and maintain data for their
digital and other delivery systems at the
census tract level will create a
significant increase in burden.
Regarding the inconsistency between
the deposits data collected and
maintained at the county level, which
the agencies will use for the purpose of
calculating metrics for the Retail
Lending Test and the Community
Development Financing Test, and the
digital delivery systems or other
delivery systems data collected and
maintained at the census tract level,
which the agencies will use to evaluate
the degree to which these products are
serving low- and moderate-income
individuals and low- and moderateincome census tracts, the agencies note
that these data are used for different
purposes. The deposits volume data at
the county level are used for
constructing weights and metrics; they
are not evaluated with regard to the
income characteristics of underlying
census tracts. On the other hand, the
agencies will evaluate data on accounts
opened by digital delivery systems and
other delivery systems with regard to
the income level of the census tracts
where consumers reside, as well as
other data that banks may provide
indicating the income levels of
consumers of these products. It is
appropriate that banks collect these data
at different geographic levels.
Upon consideration of the comments
received, the agencies intend to develop
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
various materials for banks including
data reporting guides and other
technical assistance to assist banks in
understanding supervisory expectations
with respect to the data requirements for
retail banking services and retail
banking products, navigating through
various definitions, and the types of
responsive deposit products that could
qualify for CRA consideration. In
addition, the agencies intend to develop
a template for the submission of data for
digital delivery systems and other
delivery systems as well as responsive
deposit products to increase consistency
for the collection and maintenance of
the data and will continue to explore
other tools to reduce burden. The
agencies decline to publish a complete
listing of retail banking services or retail
banking products that could qualify for
consideration, as the agencies are
concerned that doing so may narrow the
potential for innovative deposit
products a bank could develop or offer
to their customer base. However, the
agencies will consider including
illustrative examples of retail banking
services and retail banking products in
any future guides and technical
assistance the agencies issue outside of
the final rule. Importantly, responsive
deposit products are dependent on the
needs of the community which can
differ. With respect to other
recommendations, the agencies will
continue to explore the possibility of
including them in guidance, outside of
this final rule.
Section ll.42(a)(5) Information
Required To Be Collected and
maintained—Community Development
Loans and Community Development
Investments Data
Section ll.42(b)(2) Information
Required To Be Reported—Community
Development Loans and Community
Development Investments Data
Current Approach
Current § ll.42(b)(2) requires that a
bank, except a small bank (including an
intermediate small bank) or a bank that
was a small bank during the prior
calendar year, report annually by March
1 to the Board, FDIC, or OCC, as
applicable, the aggregate number and
dollar amount of community
development loans originated or
purchased by the bank during the prior
calendar year. Current agency guidance
provides that a large bank or
intermediate small bank that seeks
consideration for community
development activities must be
prepared to demonstrate the activities’
PO 00000
Frm 00490
Fmt 4701
Sfmt 4700
qualifications but this can be provided
in a format of the bank’s choosing.1528
Regarding data about a bank’s
individual community development
loans and community development
investments, as well as prior period
information about a bank’s community
development investments, examiners
currently rely on loan level and
investment level information provided
by a bank at the time of an examination,
including the number and dollar
amount of loans and investments, the
location of or areas benefited by these
activities, and information describing
the community development purpose
for each community development loan
and investment.1529 Data collection,
maintenance, and reporting
requirements for this information is
currently not included in the CRA
regulations. In addition, the CRA
regulations do not currently consider
community development loans from
prior periods that remain on the bank’s
books; therefore, there is no requirement
for the collection and reporting of these
data. As a result of the lack of data
collection and reporting of individual
community development loans and
community development investments,
the total number and dollar amount
(originated and on-balance sheet) of
such loans and investments nationally,
or within specific geographies, is not
available through reported data.
The Agencies’ Proposal
Proposed § ll.42(a)(5)(i)(A) required
a bank, except a small or an
intermediate bank, to collect and
maintain the data on individual
community development loans and
investments in proposed
§ ll.42(a)(5)(ii), in machine readable
form, as prescribed by the agencies. Data
to be collected and maintained about
each individual community
development loan or investment
included: (1) general information on the
loan or investment; 1530 (2) specific
information on the loan or investment,
such as the name of organization or
entity, type (loan or investment),
community development purpose, and
community development loan or
investment detail, which could include,
for example, whether the loan or
investment was a low-income housing
tax credit investment or a multifamily
mortgage loan; 1531 (3) indicators of the
impact of the community development
1528 See Q&A § ll.12(h)–8; see also current 12
CFR ll.21 and ll.26.
1529 See Q&A § ll.22(b)(4)–1.
1530 Proposed § ll.42(a)(5)(ii)(A).
1531 Proposed § ll.42(a)(5)(ii)(B).
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
loan or investment; 1532 (4) location
information; 1533 (5) other details
relevant to the determination that the
loan or investment meets the standards
in proposed § ll.13, including
indicators of whether the bank has
retained certain types of documentation,
such as rent rolls, to assist with
verifying the eligibility of the loan or
investment;1534 and (6) the allocation of
the dollar value of the community
development loan or investment to
specific geographic areas, if
available.1535
Proposed § ll.42(a)(5)(i)(B) required
an intermediate bank that opted to be
evaluated under the Community
Development Financing Test in
§ ll.24 to collect and maintain the
data in § ll.42(a)(5)(ii), but could do
so in the format used by the bank during
the normal course of business.1536 The
agencies did not propose to require
small banks to collect, maintain, or
report any data on community
development loans and investments,
even if the small bank requested
consideration for such activities.
The agencies also proposed to revise
current § ll.42(b)(2), renumbered in
the proposal as § ll.42(b)(5), to
require a bank, except a small or an
intermediate bank, to report annually by
April 1 all the individual loan and
investment data collected and
maintained discussed above under
§ ll.42(a)(5)(ii), with the exception of
the name of the organization or entity
supported.
The agencies requested comment
regarding several aspects of the
agencies’ proposal to collect, maintain,
and report community development
lending and investment data. With
respect to collection of the data, the
agencies sought feedback on other steps
they could take, or what procedures
they could develop, to reduce the
burden of the collection of additional
community development lending and
investment data fields while still
ensuring adequate data to inform the
evaluation of the bank’s community
development loans and investments.
The agencies also sought feedback on
how a data template could be designed
to promote consistency and reduce
burden. With respect to reporting of the
data, the agencies sought feedback on
how the format and level of data
§ ll.42(a)(5)(ii)(C).
§ ll.42(a)(5)(ii)(D).
1534 Proposed § ll.42(a)(5)(ii)(E).
1535 Proposed § ll.42(a)(5)(ii)(F).
1536 The agencies also noted in the proposal that
intermediate banks evaluated under the status quo
intermediate bank community development
evaluation would not be required to collect and
maintain data.
1532 Proposed
1533 Proposed
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
reporting requirements might affect
those banks required to report
community development lending and
investment data, as well as the
usefulness of the data. For example, the
agencies sought feedback on whether it
would be appropriate and less
burdensome to require reporting of
community development lending and
investment data aggregated at the
county-level as opposed to the
individual loan- or investment-level.
Comments Received
Comments related to collection and
maintenance of community
development loans and investments
data. Several commenters provided
general comments on the agencies’
proposed community development
lending and investment data
requirements. These commenters were
generally supportive of the agencies’
proposed strategy, with one commenter
noting that the proposed community
development lending and investment
data would make the Community
Development Financing Test in
§ ll.24 more rigorous by allowing
examiners to compare a bank against its
peers to determine whether the bank is
especially responsive to local needs.
This commenter further noted that the
community development lending and
investment data would help
stakeholders more accurately determine
areas that are receiving considerable
amounts of community development
lending and investment financing and
which areas are not. One commenter
noted that the new data requirements
would highlight gaps in financial
services in underserved communities
and was hopeful it would spur
economic activity.
A few other commenters offered
additional suggestions on how to
improve data collection for community
development lending and investments.
For instance, a few commenters
suggested that the agencies could
improve data collection for the impact
review section of the Community
Development Financing Test in
§ ll.24, noting for example, that
capturing contextual data on the factors,
such as the number of beds in health
facilities or the number of housing units
that had lead paint abatement, might
better capture the importance of funding
health initiatives and better motivate
banks to invest in those initiatives. A
commenter suggested that the final rule
might implement data collection and
reporting requirements on the race and
ethnicity of the beneficiaries of
community development loans,
investments, and services. Another
PO 00000
Frm 00491
Fmt 4701
Sfmt 4700
7063
commenter asked that the agencies
make all the data publicly available.
Commenters also provided feedback
on what steps the agencies might take to
reduce the burden of collecting
additional community development
lending and investment data, including
the design of a template to promote
consistency and reduce burden. Most
commenters who opined on this
question agreed that providing a
template would be useful. These
commenters also provided other
suggestions on how to reduce the
burden of collecting community
development lending and investment
data. For example, one commenter
suggested that the agencies should
automate the template and provide it to
CRA software vendors. A few
commenters noted the importance of
standardizing and automating data
collection to minimize duplication of
effort and more efficiently implement
data collection using existing sources,
with one of these commenters also
noting that data sharing tools including
standard visualizations for the bank’s
community and Application Programing
Interface (API) for researchers would
also be beneficial. A few other
commenters noted that, in addition to
developing the template, the agencies
should develop training materials and
programs for banks and the public and
provide sufficient time for the industry
to implement the reporting process. One
other commenter suggested that a
template for collecting community
development lending and investment
data should include data fields to record
geographical targeting, partnerships,
and other features that might help the
qualitative evaluation become more
quantitative and objective.
A few other commenters provided
other recommendations to streamline
data collection. For example, a
commenter suggested that banks should
have the flexibility to classify small
business loans with a primary purpose
of community development as
community development loans and
investments. This commenter noted that
documentation for these activities could
then be drawn from data to be required
as part of the CFPB’s section 1071
process. Similarly, another commenter
noted that SBA documentation through
various forms includes fields on job
creation and retention, similar to those
likely to be needed for CRA purposes.
The agencies aim to use readily
available data whenever possible.
Comments related to reporting of
community lending and investment
data. Several commenters responded to
the agencies’ request for feedback on
whether the format and level of data
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7064
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
required to be reported might affect the
burden on banks required to report
community development lending and
investment data as well as the
usefulness of the data. A majority of
these commenters supported the
proposed rule’s requirement that banks
report community development lending
and investment data at the individual
loan or investment level. Rationale
provided by these commenters varied. A
few of these commenters asserted that
loan or investment level data would
allow for more precise tracking of
community development loan or
investment data, including the number
and percentages of activities that met
one or more of the impact review factors
or specific community development
categories, such as affordable housing
activities. Another one of these
commenters observed that large banks
would have to collect individual loanor investment-level data whether or not
the data are reported at the activity
level. This commenter noted that
reporting at the loan- or investmentlevel would give the agencies and the
public more granular data with which to
compare banks with other banks. One
commenter, while agreeing that large
banks should collect and report loan- or
investment-level community
development data, also, suggested that
banks should have the option to report
data annually, with the perspective that
quarterly reporting would be overly
burdensome. This commenter
misunderstood the proposal, as the
proposal included the option to report
data annually.
A few commenters provided other
recommendations including that the
agencies: require reporting of
community development lending and
investment data at an aggregated level,
without reporting individual loans and
investments; review the format and
level of data reported by CDFIs to the
Treasury data system called Awards
Management Information System
(AMIS), in the hopes that there might be
an opportunity to capture the full
profile of a bank’s community
development lending and investments
in one system leveraging this existing
reporting system to facilitate data
standardization, exchange, and
consolidation; include an indicator of
whether a product is targeted or offered
in a low- or moderate-income location
or targeted to a broader low- or
moderate-income community; and
require banks to collect and report
community development lending and
investment data for activities in Native
Land Areas and with entities such as
Native CDFIs and tribal governments.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Publication of community
development lending and investment
data. A number of commenters
suggested that the agencies publish
community development lending and
investment data. For example, one
commenter encouraged the agencies to
disclose data on the community
development purpose of activities, even
if such data are published at the
aggregate level, as publication would
allow the public to have greater insight
into how community development
lending and investment dollars are
allocated and to compare trends over
time. This commenter, along with a few
others, also requested that community
development lending and investment
data be made available on a census tract
level so that members of the public can
determine which neighborhoods are
receiving an adequate amount of
community development lending and
investment and which neighborhoods
need more.
Final Rule
The agencies are adopting
§ ll.42(a)(5)(i)(A) largely as proposed
with technical and clarifying edits.
Specifically, the agencies are revising
this paragraph to update the reference
from ‘‘machine readable’’ to
‘‘electronic.’’ No substantive change is
intended. In addition, to conform to
changes made in § ll.24, the agencies
are clarifying that the data to be
collected and maintained in
§ ll.42(a)(5)(ii) applies to community
development loans and investments
originated and purchased, as originally
proposed, as well the refinance,
renewal, or modification of a loan or
investment.
The agencies are not finalizing the
requirement in proposed
§ ll.42(a)(5)(i)(C) that banks collect
and maintain the outstanding dollar
volume of community development
loans and investments for previous
years that are still held on the balance
sheet at the end of each quarter, by
March 31, June 30, September 30, and
December 30. Instead, to reduce burden,
the agencies are finalizing proposed
§ ll.42(a)(5)(i)(C), renumbered as
§ ll.42(a)(5)(ii)(A)(4)(iii), to require
the bank to collect and maintain the
outstanding balance of community
development loan originated,
purchased, refinanced, or renewed in
previous years that remain on the bank’s
balance sheet as of December 31 of the
calendar year for each year the loan
remains on the bank’s balance sheet; or
an existing community development
investment made or renewed in a year
subsequent to the year of the investment
as of December 31 for each year that the
PO 00000
Frm 00492
Fmt 4701
Sfmt 4700
investment remains on the bank’s
balance sheet. This change requires the
bank to collect and maintain these data
based on the end of year balance instead
of the average of the quarterly balance,
which the agencies believe will be
easier for banks to comply with. The
agencies have also made technical and
conforming edits to the remainder of
this paragraph.
The agencies are revising proposed
§ ll.42(a)(5)(ii)(A) to conform to the
revisions made to proposed
§ ll.42(a)(5)(i)(C), as described above,
and § ll.24 and for organizational and
clarifying purposes. The agencies are
also making changes to proposed
§ ll.42(a)(5)(ii)(C) to conform to the
changes made to § ll.15(b), including
adding to the list of indicators of the
impact and responsiveness of the
activity whether an activity benefits or
serves one or more census tracts with a
poverty rate of 40 percent or higher or
the activity is an investment in a project
financed with LIHTCs or NMTCs. In
response to commenters and the
agencies’ further review, the agencies
are revising proposed
§ ll.42(a)(5)(ii)(D) to include the
census tract as part of the data a bank
is required to collect and maintain for
the specific location information of the
community development loan or
investment. Finally, other technical and
organizational changes were made to
§ ll.42(a)(5)(ii) with no change in
meaning intended.
The agencies are finalizing proposed
§ ll.42(b)(3), renumbered in the final
rule as § ll.42(b)(2), largely as
proposed pertaining to the reporting of
community development lending and
investment data collected and
maintained in § ll.42(a)(5)(ii), with
revisions and minor technical and
conforming edits. Specifically, in
addition to finalizing § ll.42(b)(2) to
exclude from reporting the name of the
organization or entity supported in
§ ll.42(a)(5)(ii)(B)(1), in the final rule
the agencies are also excluding the
specific location information of the
community development loan or
investment in § ll.42(a)(5)(ii)(D)(1)
through (5) to further address potential
privacy issues. The agencies are further
revising § ll.42(b)(2) to require that
banks subject to the data reporting
requirements in § ll.42(b)(2) report
the census tract location of the
community development loan or
investment in new
§ ll.42(a)(5)(ii)(D)(6). This
requirement, which was included upon
consideration of commenter feedback, is
intended to assist the agencies in
determining if the loan or investment
qualifies as community development.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
As explained in the proposal, the
agencies believe collecting and
reporting community development
lending and investment data at the loanor investment-level is necessary to
construct community development
lending and investment metrics and
benchmarks. Requirements for data
collection and maintenance will also aid
the agencies in conducting data integrity
evaluations, and the agencies anticipate
addressing data integrity procedures as
part of interagency guidance. The
agencies note that, under the final rule,
banks will be required to report
annually, by April 1, the data required
to be collected and maintained on an
annual basis until the completion of the
bank’s next examination period. The
agencies believe some commenters may
have misunderstood that the required
data were to be reported on a quarterly
basis, rather than reported on an annual
basis using the quarterly average of the
data. To clarify, the agencies are
simplifying the data collection and
reporting by requiring annual reporting
of new money and year-end balances of
activities that remain on the bank’s
balance sheet from prior years as
opposed to quarterly averages.
In response to commenters that
suggested that banks record a small
business loan with a community
development purpose as a community
development loan or investment to
receive consideration, the agencies will
allow consideration of small business
and small farm loans under the Retail
Lending Test, as well as the relevant
community development tests
applicable to the bank, subject to
meeting the necessary criteria (see the
section-by-section analysis of § ll.13
for additional details).
Regarding comments to make
community development lending and
investments data publicly available, the
agencies believe that this information
will be disclosed in a number of ways,
including through CRA Disclosure
Statements, aggregate disclosure
statements, and public performance
evaluation reports. Public performance
evaluations would include the metrics
and benchmarks used to determine
conclusions on the Community
Development Financing Test for each
facility-based assessment area,
multistate MSA, State, and institution.
The agencies believe the information in
these statements and reports will
provide stakeholders greater insight into
how community development lending
and investment dollars are allocated and
compare trends over time to assist with
the identification of areas where capital
is most needed.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Upon consideration of the comments,
the agencies are not including data on
the race and ethnicity of the
beneficiaries of community
development activities as the agencies
believe this would increase burden
without providing a corresponding
benefit that would assist the agencies in
effectuating the rule, as finalized.
To assist banks with the collection
and maintenance of community
development lending and investment
data, the agencies intend to develop a
standardized template to gather the data
in a consistent manner. Gathering of
standardized data will also assist the
agencies in understanding the impact
and responsiveness of community
development loans and investments
when applying the impact and
responsiveness review. The electronic
form will include the impact and
responsiveness factors for consistency
and to reduce burden. Banks will be
permitted to provide examiners
additional contextual and qualitative
information on community
development loans and investments
during the CRA examination, consistent
with current practices.
The agencies will take into
consideration other commenter
suggestions for simplifying data
collection, including the automation of
the template when developing the tools
and resources to implement the new
rule. Under the final rule, use of the
template will be required for large banks
and limited purpose banks that would
be large based on the asset size
described in the definition of large bank.
The agencies believe that requiring
these banks to use the prescribed
template will, in addition to reducing
burden, improve the consistency of the
data collected. An intermediate bank
that opts to be evaluated under the
Community Development Financing
Test in § ll.24 may provide
community development lending and
investment data in the format used by
the bank in the normal course of
business, or may use the standardized
template provided by the agencies. In
addition, the agencies intend to develop
other materials to assist banks with
community development data
collection. As suggested by commenters,
the agencies are considering developing
training materials and programs for
banks and the public, and a data
reporting guide to assist in accurate data
reporting.
PO 00000
Frm 00493
Fmt 4701
Sfmt 4700
7065
Section ll.42(a)(6) Information
Required To Be Collected and
Maintained—Community Development
Services Data
Current Approach
There are no specific data collection
or reporting requirements in the current
CRA regulations for community
development services. However, current
interagency guidance explains that a
bank should provide examiners with
sufficient information to demonstrate its
performance in these areas, as
applicable,1537 such as by providing the
number of activities, bank staff hours
dedicated, or the number of financial
education sessions offered.1538
The Agencies’ Proposal
To facilitate the proposed evaluation
of a bank’s community development
services activities and the use of the
proposed Bank Assessment Area
Community Development Services
Hours metric, proposed § ll.42(a)(6)
required large banks with assets of over
$10 billion to collect and maintain, until
the completion of the bank’s next CRA
examination, the following community
development services information, in
machine readable form, as prescribed by
the agencies: (1) number of full-time
equivalent employees at the facilitybased assessment area, State, multistate
MSA, and institution levels; 1539 (2) total
number of community development
services hours performed by the bank in
each facility-based assessment area,
State, multistate MSA, and in total; 1540
(3) date of community development
activity; 1541 (4) name of organization or
entity; 1542 (5) community development
purpose; 1543 (6) capacity served; 1544 (7)
whether the activity is related to the
provision of financial services; 1545 (8)
the location of the activity; 1546 and (9)
whether the bank is seeking
consideration at the assessment area,
statewide, or nationwide level.1547
Although not expressly stated in
proposed § ll.42(a)(6), the agencies
explained in the proposal that large
banks with assets of $10 billion or less
would have the option, but would not
be required, to collect and maintain the
same community development services
data in § ll.42(a)(6). However, these
Q&A § ll.12(h)–8.
Q&A § ll.24(e)–2.
1539 Proposed § ll.42(a)(6)(i)(A).
1540 Proposed § ll.42(a)(6)(i)(B).
1541 Proposed § ll.42(a)(6)(ii)(A).
1542 Proposed § ll.42(a)(6)(ii)(B).
1543 Proposed § ll.42(a)(6)(ii)(C).
1544 Proposed § ll.42(a)(6)(ii)(D).
1545 Proposed § ll.42(a)(6)(ii)(E).
1546 Proposed § ll.42(a)(6)(iii)(A) through (E).
1547 Proposed § ll.42(a)(6)(iii)(F).
1537 See
1538 See
E:\FR\FM\01FER2.SGM
01FER2
7066
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
banks would have the option to collect
and maintain data in their own format,
or to use the template prescribed by the
agencies.
To compute the Bank Assessment
Area Community Development Services
Hours Metric proposed in
§ ll.25(b)(2), proposed § ll.42(b)(4)
would have required large banks with
assets of over $10 billion to report
annually by April 1: (1) the number of
full-time equivalent employees at the
facility-based assessment area, State,
multistate MSA, and institution levels;
and (2) the total number of community
development services hours performed
by the bank in each facility-based
assessment area, State, multistate MSA,
and in total.
In addition, the agencies asked for
feedback regarding whether large banks
with assets of $10 billion or less should
be required to collect and maintain
community development services data
in machine readable form, as prescribed
by the agencies, equivalent to the data
required to be collected and maintained
by large banks with assets of over $10
billion. Under this alternative, the
agencies asked whether large banks with
assets of $10 billion or less should have
the option of using a standardized
template or collecting and maintaining
the data in their own format, and
whether a longer transition period for
these banks to begin to collect and
maintain deposits data (such as an
additional 12 or 24 months beyond the
transition period for large banks with
assets of over $10 billion) would make
this alternative more feasible. The
agencies further asked whether the
added value from being able to use these
data in the construction of a metric
outweighs the burden involved in
requiring data collection by these banks.
The agencies also asked for feedback
regarding whether large banks with
assets of over $10 billion should be
required to collect, maintain, and report
data on the number of full-time
equivalent employees in order to
develop a standardized metric to
evaluate community development
service performance for these banks.
Comments Received
A few commenters provided general
feedback on the agencies’ community
development services data
requirements. One of these commenters
noted that requiring large banks to
report community development data on
an individual activity level would be
one of the most impactful changes in the
proposed rule. The other commenter
suggested that the agencies clarify that
there is no need to collect and report
community development services data
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
in which a bank does not intend to seek
CRA credit.
Several commenters expressed
differing views on whether large banks
with assets of $10 billion or less should
be required to collect community
development services data, and if so,
whether banks should have the option
of using the standardized template or
their own format. Many of these
commenters supported requiring that all
large banks report these data in the
manner prescribed for banks with assets
over $10 billion, with a few of these
commenters also supporting a
requirement that data be reported in
machine-readable form. One commenter
thought that intermediate banks should
have the flexibility to collect and
maintain data either in their own format
or in a template provided by the
agencies. Another commenter suggested
that large banks with assets of $10
billion or less should have the option of
using a standardized template or their
own format, but in either case, the
format should be in a machine-readable
form. This commenter further noted that
although a longer transition period is
always desirable, the added value of
using these data in the construction of
a metric outweighs the burden involved
in requiring data collection by these
banks. Another commenter expressed an
opposing view with respect to requiring
these banks to provide data in a
machine-readable form, noting that
banks should maintain the data
internally but not have to report it
externally. One commenter did not
support additional reporting of these
data points for any large bank because
of what the commenter deemed to be
excessive cost burden.
Regarding the agencies’ request for
feedback on whether large banks with
assets over $10 billion should collect,
maintain, and report data on the number
of full-time equivalent employees at the
assessment area, State, multistate MSA,
and institution level in order to develop
a standardized metric to evaluate
community development service
performance, a few commenters
supported the proposal. One of these
commenters also noted that if a
standardized metric is developed by the
agencies, it would be important that
data be sufficient to evaluate
community development services
performance. This commenter further
suggested that requiring banks to report
data on the number of full-time
equivalent employees would help
complete the profile of the bank’s
investment in community development
services. Another commenter expressed
the view that the requirement to report
data on the number of full-time
PO 00000
Frm 00494
Fmt 4701
Sfmt 4700
equivalent employees should apply to
all large banks and intermediate banks,
and that the performance evaluation
should include a copy of the
institution’s most recent Employment
Information Report (EEO–1) Component
Data report to evaluate a bank’s
diversity and inclusion.
One commenter noted that it would
be difficult for banks to collect,
maintain, and report these data. One
commenter objected to the requirement
that large banks with assets of over $10
billion collect, maintain, and report
these data while not requiring the same
of all other banks. In this commenter’s
view, there is no logical reason for the
different treatment. The commenter
urged the agencies not to impose what
they described as sweeping,
burdensome, and inefficient data
collection requirements.
Final Rule
After consideration of the comments,
the agencies are adopting § ll.42(a)(6)
pertaining to the data collection and
maintenance of community
development services, with changes,
including technical and conforming
changes. Specifically, because final
§ ll.25 requires all large banks to be
evaluated under the Community
Development Services Test (see the
section-by-section analysis of § ll.25),
the agencies are conforming proposed
§ ll.42(a)(6) to require all large banks
to collect and maintain the community
development services data in final
§ ll.42(a)(6)(i) and (ii). The agencies
believe collection and maintenance of
the community development services
data for all large banks is necessary to
facilitate evaluation under the
Community Development Services Test.
The agencies further believe that
requiring these data of all large banks,
rather than just banks with assets over
$10 billion, will provide more
consistency and clarity in the evaluation
of community development services for
all large banks, without significantly
increasing burden. The agencies note
from prior supervisory experience that
many large banks already collect and
maintain these data for CRA
examination purposes.
However, to reduce burden and
provide flexibility while maintaining
consistency in the data elements, the
final rule permits all large banks to
collect and maintain these data in a
format of the bank’s choosing or in a
standardized format as provided by the
Board, FDIC, or OCC, as applicable,
until the completion of the bank’s next
CRA examination. The agencies note
that they intend to develop a
standardized template for community
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
development services data to improve
consistency in evaluations. Large banks
will have the choice to use the template
or their own format.
Finally, the agencies note that small
banks and intermediate banks that
request consideration for community
development services are not required
to collect and maintain these data in a
manner equivalent to large banks.
However, consistent with current
practice, small and intermediate banks
should be prepared to provide
examiners with sufficient information to
demonstrate that the activities qualify as
community development services, such
as the number of activities, bank staff
hours dedicated, or the number of
financial education sessions offered.
The agencies are also making changes
to the data required to be collected and
maintained to conform to changes made
in final § ll.25. Specifically, the
agencies are not adopting the proposed
Bank Community Development Services
Hours Metric for banks with assets over
$10 billion. As a result, the data
regarding the number of full-time
equivalent employees at the facilitybased assessment area, State, multistate
MSA, and institution levels in proposed
§ ll.42(a)(6)(i)(A) are no longer
necessary. In addition, the agencies
further revised § ll.42(a)(6)(i) by
removing the total number of
community development services hours
performed by the bank in each facilitybased assessment area, state, multistate
MSA, and in total. This was removed
because the number of board member or
employee service hours was added to
the list of community development
services information, proposed as
§ ll.42(a)(6)(ii)(A) and renumbered as
§ ll.42(a)(6)(i). The agencies will be
able to add the number of total service
hours based on the hours provided for
each community development service.
The agencies added
§ ll.42(a)(6)(i)(F) to require the
collection and maintenance of the
indicators of the impact and
responsiveness of the activity, as
applicable, to be consistent with final
§ ll.15(b). The agencies note that
while the impact factors were not
specifically included in the data
collection, these data are required for
the evaluation of the Community
Development Services Test pursuant to
§ ll.25(c)(5). Final
§ ll.42(a)(6)(i)(F)(1) through (10)
provides the indicators required to be
collected and maintained for
community development services
consistent with § ll.15(b).
The agencies have also revised
proposed § ll.42(a)(6)(ii)(E) by
removing the indicator for whether the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
activity is related to the provision of
financial services. As explained in the
section-by-section analysis of § ll.25,
the agencies determined that this
requirement is not necessary because
the final rule requires all community
development services activities to be
related to the provision of financial
services. Therefore, collection of this
indicator in proposed
§ ll.42(a)(6)(ii)(E) is no longer
necessary.
The agencies have also renumbered
and streamlined the data requirements
for the location information of the
activity in proposed
§ ll.42(a)(6)(iii)(A) through (F).
Specifically, the final rule replaces the
requirement to collect and maintain the
specific location of the activity, street
address, city, county, State, and zip
code in proposed § ll.42(a)(6)(iii)(A)
through (E), with a list of the geographic
areas served by the activity, specifying
any census tracts, county, counties,
State, States, or nationwide area served.
This revised list is renumbered in the
final rule as § ll.42(a)(6)(ii)(A). In
addition, the geographic level for which
the bank seeks consideration for the
community development services
activity in proposed
§ ll.42(a)(6)(iii)(F) has been
renumbered in the final rule as
§ ll.42(a)(6)(ii)(B).
The agencies are not finalizing the
requirement that banks with asset over
$10 billion must report the number of
full-time equivalent employees
proposed § ll.42(b)(4). As stated
above, the agencies are not requiring
that banks collect and maintain the
number of full-time equivalent
employees at the facility-based
assessment area, State, multistate MSA,
and institution levels collected in
proposed § ll.42(a)(6)(i)(A). As a
result, the requirement to report these
data no longer applies.
Because the final rule does not require
that data for community development
services be reported, the agencies will
not publish community development
services data as suggested by one
commenter. With respect to the data
collection requirement, and in response
to a comment, while the agencies are
not specifying in the final rule that if a
bank does not intend to seek CRA credit
the bank need not collect community
development services data, the agencies
note that there are no data requirements
if the bank does not engage in a
particular product or service that
requires data collection, maintenance,
or reporting under § ll.42.
PO 00000
Frm 00495
Fmt 4701
Sfmt 4700
7067
Section ll.42(a)(7) Information
Required To Be Collected and
Maintained—Deposits Data
Section ll.42(b)(3) Information
Required To Be Reported—Deposits
Data
Current Approach
The current CRA regulations do not
require banks to collect, maintain, or
report deposits data.1548 Instead, for
small banks, total deposits and total
loans data from the bank’s Call Report
are used to calculate the loan-to-deposit
ratio for the entire bank. For banks of
any size, the agencies may use total
deposits allocated to each branch from
the FDIC’s Summary of Deposits for
performance context. Further, deposits
data by depositor location are not
currently required to be collected or
reported, but may have been used by
examiners for performance context at
the bank’s request, if available.
The Agencies’ Proposal
As explained below, the agencies
proposed that deposits data would be
used for several evaluation metrics,
benchmarks, and weights under the
applicable performance tests. In
§ ll.42(a)(7) (collection and
maintenance) and (b)(5) (reporting), the
agencies proposed an approach for the
deposits data requirements tailored to
different bank sizes.
Deposits Data Collection and
Maintenance Requirements
Large Banks with Assets of Over $10
Billion. The agencies proposed in
§ ll.42(a)(7) to require large banks
that had average assets of over $10
billion in both of the prior two calendar
years, based on the assets reported on its
four quarterly Call Reports for each of
those calendar years, to collect annually
and maintain until the completion of
the bank’s next CRA examination the
dollar amount of the bank’s deposits at
the county level, based on the addresses
associated with accounts and calculated
based on the average daily balances as
provided in statements, such as monthly
or quarterly statements. The proposal
also indicated that deposits data must
be collected and maintained in machine
readable form prescribed by the
Agency.1549 Further, the proposed
deposits data would not be assigned to
branches but would instead reflect the
county-level dollar amount of the bank’s
deposit base.1550 As a result, countylevel deposits data would be based on
the county in which the depositor’s
current 12 CFR ll.42.
proposed § ll.42(a)(7).
1550 See id.
1548 See
1549 See
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7068
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
account address is located, rather than
on the location of the bank branch to
which the deposits are assigned as is the
case with the FDIC’s Summary of
Deposits.1551 The agencies explained in
the preamble to the proposal that this
approach would allow for more precise
measurement of a bank’s local deposits
by county. Furthermore, the agencies
noted that banks generally collect and
maintain depositor location data to
comply with Customer Identification
Program requirements and as part of
their ordinary course of business.
The agencies also explained in the
preamble to the proposal that the
current approach of associating deposits
with the location of the branch to which
they are assigned would raise challenges
under the proposed evaluation
framework for large banks with assets of
over $10 billion. The agencies explained
that the proposed collection and
maintenance of deposits data at the
county level for large banks with assets
of over $10 billion would permit the
agencies to more accurately: (1)
construct the bank volume metric and
community development financing
metric for each bank at the facility-based
assessment area, State, multistate MSA,
and institution levels, as applicable; (2)
construct the market benchmarks used
for the retail lending volume screen and
the community development financing
metric at the facility-based assessment
area, State, multistate MSA, and
institution levels, as applicable; and, (3)
implement a standardized approach for
deriving State-, multistate MSA-, and
institution-level conclusions and ratings
by weighting facility-based assessment
area conclusions, retail lending
assessment area conclusions, and
outside retail lending area conclusions
through a combination of deposits and
lending volumes.
The agencies did not believe it was
practicable to implement their proposal
using the FDIC’s Summary of Deposits
data for all large banks, particularly
with respect to banks with more than
$10 billion in assets. For example, the
agencies noted that the FDIC’s Summary
of Deposits data is not always an
accurate measure of a bank’s deposit
base within an assessment area.
Specifically, deposits assigned to a
branch in the FDIC’s Summary of
Deposits data may have been deposited
by a customer located outside of the
assessment area where the branch is
located, such as in a different
assessment area of the bank or outside
of any of the bank’s assessment
1551 See
id.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
areas.1552 The agencies noted that this
limitation could introduce imprecision
when using the FDIC’s Summary of
Deposits data to weight performance
conclusions in retail lending assessment
areas, outside retail lending areas, and
areas for eligible community
development activity. For large banks
with assets of over $10 billion, the
agencies believed that the benefits of
precision, given the range of important
measurements which are dependent on
these data, outweighed the burden of
requiring the collection and reporting of
deposits data.
The agencies sought feedback on
whether the proposed approach of
requiring only large banks with assets of
over $10 billion to collect, maintain,
and report deposits data creates the
appropriate balance between tailoring
data requirements and ensuring
accuracy of the proposed metrics. The
agencies also sought feedback on
whether large banks with assets of $10
billion or less that elect to collect and
maintain deposits data also should be
required to report deposits data.
Relatedly, the agencies sought feedback
on an alternative approach in which all
large banks with assets of $10 billion or
less are required to collect, maintain,
and report deposits data, with the
standards and requirements for these
data as proposed for large banks with
assets of over $10 billion. Additionally,
the agencies sought feedback on
whether a longer transition period (such
as an additional 12 or 24 months
beyond the transition period for large
banks with assets of over $10 billion) to
begin collecting, maintaining, and
reporting deposits data for large banks
with assets of $10 billion or less would
make this alternative more feasible. The
agencies also sought comment on
whether it would be preferable to
1552 See FDIC ‘‘Summary of Deposits Reporting
Instructions’’ 3 (June 30, 2022), https://
www.fdic.gov/resources/bankers/call-reports/
summary-of-deposits/summary-of-depositsreporting-instructions.pdf (‘‘Institutions should
assign deposits to each office in a manner
consistent with their existing internal recordkeeping practices. The following are examples of
procedures for assigning deposits to offices:
• Deposits assigned to the office in closest
proximity to the accountholder’s address.
• Deposits assigned to the office where the account
is most active. • Deposits assigned to the office
where the account was opened. • Deposits assigned
to offices for branch manager compensation or
similar purposes. Other methods that logically
reflect the deposit gathering activity of the financial
institution’s branch offices may also be used. It is
recognized that certain classes of deposits and
deposits of certain types of customers may be
assigned to a single office for reasons of
convenience or efficiency. However, deposit
allocations that diverge from the financial
institution’s internal record-keeping systems and
grossly misstate or distort the deposit gathering
activity of an office should not be utilized.’’).
PO 00000
Frm 00496
Fmt 4701
Sfmt 4700
require deposits data collected as a yearor quarter-end total, rather than an
average annual deposit balance
calculated based on average daily
balances from monthly or quarterly
statements.
Under the proposal, for deposit
account types for which accountholder
location information is not generally
available, the aggregate dollar amount of
deposits for these accounts would be
included at the overall institution level
and not at other geographic levels.1553
The agencies explained in the preamble
to the proposal that they expected that
the aggregate dollar amount of deposits
for accounts associated with pre-paid
debit cards or Health Savings Accounts
would likely be included at the
institution level. The agencies sought
feedback on additional clarifications
regarding what deposit account types
may not be appropriate to include at a
county level and whether these deposits
should be included at the institution
level. The agencies also requested
feedback on whether brokered deposits
should be reported at the institution
level.
For large banks with more than $10
billion in assets that collect, maintain,
and report deposits data, agencies
proposed in § ll.12 a definition of
deposits based on two subcategories of
the Call Report category of Deposits in
Domestic Offices: (1) deposits of
individuals, partnerships, and
corporations; and (2) commercial banks
and other depository institutions in the
United States. The agencies proposed
these two subcategories of deposits,
which constitute the majority of deposit
dollars captured overall in the Call
Report categories of Deposits in
Domestic Offices, because they best
reflect a bank’s capacity to lend and
invest. The proposed definition
excluded domestically held deposits of
foreign banks and of foreign
governments and institutions because
these deposits are not derived from a
bank’s domestic customer base. The
proposed definition also excluded
United States, State, and local
government deposits because these
deposits are sometimes subject to
restrictions and may be periodically
rotated among different banks, causing
fluctuations in the level of deposits over
time.
The agencies sought feedback on
whether deposits for which the
depositor is a commercial bank or other
depository institution should be
excluded from the definition and
whether other categories of deposits
should be included in these deposits
1553 See
E:\FR\FM\01FER2.SGM
proposed § ll.42(a)(7) and (b)(5).
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
data. The agencies explained that while
these deposits may augment a bank’s
capacity to lend and invest, they are
primarily held in banker’s banks and
credit banks, many of which are exempt
from CRA, or operate under the
Community Development Financing
Test tailored for limited purpose banks,
which does not use deposits data.
Further, the agencies sought feedback
on the appropriate treatment of nonbrokered reciprocal deposits in order to
appropriately measure an institution’s
amount of deposits, avoid double
counting of deposits, and ensure that
accountholder location information for
deposit accounts is available to the bank
that would be collecting and
maintaining the data. The agencies
stated that a non-brokered reciprocal
deposit as defined in 12 U.S.C.
1831f(i)(2)(E) for the institution sending
the non-brokered reciprocal deposit
would qualify under the proposed
deposits definition in § ll.12, but
such deposit for the institution receiving
the non-brokered reciprocal deposit
would not qualify under the proposed
definition. The agencies also sought
feedback on whether bank operational
systems needed to be upgraded to
permit the collection at the county level
based on a depositor’s address and, if
upgrades were needed, what would be
the associated costs.
Small Banks, Intermediate Banks, and
Large Banks with Assets of $10 Billion
or Less. Under proposed § ll.42(a)(7),
small banks, intermediate banks, and
large banks with assets of $10 billion or
less would not be required to collect
deposits data. Instead, the agencies
proposed in § ll.22(c)(3) and
appendix A that the FDIC’s Summary of
Deposits data would be used for
calculating the retail lending volume
screen, as applicable, for small banks,
intermediate banks, and large banks
with assets of $10 billion or less, if they
do not elect to collect and maintain
deposits data. Under proposed
§ ll.24(b) and appendix B, the FDIC’s
Summary of Deposits data also would
be used for calculating the community
development financing metric for large
banks with assets of $10 billion or less
and for intermediate banks that opt into
the Community Development Financing
Test. Under proposed § ll.28 and
appendix C, the Summary of Deposits
data also would be used for the weights
assigned to each facility-based
assessment area when calculating
performance scores at the State,
multistate MSA, and institution levels,
as applicable. The agencies believed
that this approach would minimize the
data collection burden on banks with
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
assets of less than $10 billion, in
recognition that large banks with assets
of over $10 billion have more capacity
to collect and report new deposits data.
The agencies explained in the
preamble to the proposal that small
banks, intermediate banks, and large
banks with assets of $10 billion or less
could choose to collect and maintain
deposits data on a voluntary basis.
Proposed § ll.42(a)(7) required large
banks with assets of $10 billion or less
that elect to collect deposits data to do
so in a machine readable form provided
by the agencies. Small banks and
intermediate banks would have the
option to collect deposits data in the
bank’s own format. The agencies
indicated in the preamble to the
proposal that, if a small or intermediate
bank opted to collect deposits data, the
agencies would use the bank’s collected
data instead of the FDIC’s Summary of
Deposits data to calculate the bank’s
metrics and weights for all applicable
tests and evaluation areas. The agencies
explained that a bank with a significant
percentage of deposits drawn from
outside of assessment areas may prefer
to collect and maintain deposits data to
reflect performance more accurately
under the retail lending volume screen
and the community development
financing metrics, and to have weights
given to the bank’s assessment areas in
a way that more accurately reflects the
bank’s deposit base when assigning
ratings.
Wholesale Banks and Limited Purpose
Banks. Under proposed § ll.42(a)(7),
wholesale and limited purpose banks
would not be required to collect or
maintain deposits data.
Deposits Data Reporting Requirements
Large Banks with Assets of Over $10
Billion. The agencies proposed in
§ ll.42(b)(5) that large banks with
assets of over $10 billion would be
required to report, by April 1 of each
year, the aggregate dollar amount of
deposits at the county, State, multistate
MSA, and institution level based on
average annual deposits (calculated
based on average daily balances as
provided in statements such as monthly
or quarterly statements, as applicable)
from the respective geography. The
agencies intended for this approach to
appropriately account for deposits that
vary significantly over short time
periods or seasonally. The reported
deposits data would inform bank
metrics, benchmarks, and weighting
procedures for the Retail Lending Test
and Community Development
Financing Test.
The agencies sought feedback on
requiring large banks to report the
PO 00000
Frm 00497
Fmt 4701
Sfmt 4700
7069
number of depositors at the county
level. The agencies explained that such
data would be used to support the
agencies’ analysis of deposits data and
could be used to support an alternative
approach of using the proportion of a
bank’s depositors in each county to
calculate the bank’s deposit dollars for
purposes of the community
development financing metrics and
benchmarks. The agencies also sought
comment on whether there are steps the
agencies could take or further guidance
or reporting tools that the agencies
could develop to reduce burden while
still ensuring adequate data to inform
the metrics approach.
Finally, the agencies proposed not to
make deposits data reported under
§ ll.42(b)(5) publicly available in the
form of a data set for all reporting
lenders; nevertheless, the agencies
requested feedback on whether they
should consider an alternative approach
of publishing a data set containing
county-level deposits data in order to
provide greater insight into bank
performance.
Large Banks with Assets of $10 Billion
or Less, Intermediate Banks, Small
Banks, and Wholesale and Limited
Purpose Banks. Under proposed
§ ll.42(b)(5), large banks with assets
of $10 billion or less, intermediate
banks, small banks, and wholesale and
limited purpose banks would not be
required to report deposits data. Under
proposed §§ ll.22(c)(3) and ll.24(b)
and appendices A and B, the FDIC’s
Summary of Deposits data would be
used for measuring the deposits of large
banks with assets of $10 billion or less
for purposes of calculating the proposed
market volume benchmark and
community development financing
benchmarks, even if a bank chose to
collect and maintain deposits data for
purposes of calculating its metrics and
weights. The agencies explained that
not requiring these banks to report these
data would reduce their new data
burden.
Comments Received
Comments were mixed regarding the
agencies’ proposed deposits data
collection and reporting requirements.
Some commenters were generally
supportive of the agencies’ proposal;
while others expressed concern that the
deposits data collection and reporting
requirements would be overly
burdensome for large banks.
Many of the commenters that
expressed support for the deposits data
collection and reporting requirements
also suggested that the deposits data
collection and reporting requirements
should be expanded beyond large banks
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7070
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
with assets of over $10 billion to
include all large banks. Multiple
commenters described multiple
limitations of the FDIC’s Summary of
Deposits data and as a result, supported
the proposed requirement that banks
with assets of over $10 billion collect
and report deposits data based on the
counties in which depositors’ addresses
are located. One commenter noted that,
although this would include a relatively
small number of banks, it would include
the great majority of deposits. This
commenter also recommended that the
Summary of Deposits data should be
comprehensively reformed to better
support the CRA as well as for other
regulatory purposes. Another
commenter was supportive of not only
making deposits data collection and
reporting a requirement for all large
banks, but also for intermediate banks.
Another commenter asserted that
deposits data requirements would not
further the CRA’s objectives regardless
of what deposit types are included.
Citing economic conditions as an
example, the commenter stated that
during an economic downturn, an
individual’s savings increases while
spending decreases, which would have
an impact in the demand for certain
banking products and services. As a
result, the commenter expressed that
using a deposit-based benchmark would
artificially inflate a bank’s CRA
performance standards during this
economic downturn that may not be
achievable or sustainable.
By contrast, most industry
commenters that addressed the
proposed deposits data collection and
reporting requirements believed such
requirements would be complex to
implement, as well as costly and
burdensome, and that as a result the
deposits data already collected should
instead be used. For example, a few of
these commenters suggested that the
deposits data already reported through
the annual FDIC’s Summary of Deposits
data collection and reporting process
should be sufficient. Another
commenter noted that subjecting banks
with assets of just over $10 billion to the
same deposits data collection and
reporting requirements as their much
larger counterparts places these smaller
large banks at a significant resource
disadvantage, which in turn may reduce
their ability to engage in community
development activities. The commenter
also suggested that the requirements
would be a significant burden for even
the largest banks because those banks
will also need to make significant
changes to their systems, programs, and
procedures to collect the data and report
it accurately. This commenter also
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
noted that many of the data collection
and reporting requirements in the
proposal would require that the data be
provided in a machine-readable form
that has yet to be prescribed by the
agencies. Another commenter stated
that it may need to collect deposit data
to pass the Retail Lending Test, even
though the data collection and reporting
requirements would not apply to the
bank, because the FDIC’s Summary of
Deposits data may not be fully
representative of its deposit sourcing for
a market. The commenter noted that the
burden to collect these data would be
significant. A few other commenters
expressed support for limiting any new
data burden for these banks by
maintaining the option as proposed.
One commenter stated that the
agencies failed to address why requiring
county-level deposits data based on the
depositor’s address rather than on the
location of the bank branch to which the
deposits are assigned is relevant to
recognizing a bank’s support of low- and
moderate-income communities. Absent
a reliable means of determining which
approach is more accurate, the
commenter believes the compliance
costs associated with gathering
depositor address data are unwarranted.
As such, the commenter suggested that
the agencies maintain the branch
assignment method, make address-based
reporting optional, and place more
importance on data that provide a better
picture of a community’s needs.
Some commenters suggested
alternatives to the agencies’ proposed
method of averaging annual deposits
based on average daily balances
included in monthly or quarterly
statements. One commenter expressed
that the proposed approach was
burdensome, and instead suggested to
collect deposits as of the beginning of
the examination period and allow banks
to provide performance context
information to the extent there are
significant changes to deposits
distribution during the examination
period. Another commenter
recommended that deposits data should
be collected and reported based on endof-quarter or end-of-year balances. This
commenter further suggested that the
agencies consider creating an online
platform akin to the CFPB’s HMDA
Loan Application Register formatting
tool to provide banks with a direct and
efficient manner to submit the required
deposits data.
A number of commenters addressed
the technical requirements of collecting,
maintaining, and reporting deposits
data, including the need for banks to
geocode depositor addresses so that the
data can be summarized at the county
PO 00000
Frm 00498
Fmt 4701
Sfmt 4700
level. One commenter asserted that
some banks complain that deposits data
collection and reporting would create
data burden when, in reality, they
already geocode their deposits. Two
other commenters suggested that
deposits data should be collected at the
census tract level rather than at the
county level, which would provide
greater insight into the patterns of
reinvestment observed. These
commenters further stated that there
may be significant data quality issues
with deposits data that have not been
addressed in the proposed rule, for
example when a customer might open a
deposit account with an address which
does not reflect where the customer
lives. These commenters also noted that
deposits data will not be subject to the
same data integrity standards as HMDA
data, and that requiring such accuracy
would be overly burdensome to
depository institutions.
Several commenters asked that the
agencies incorporate exemptions to the
deposits data requirements. For
example, two commenters suggested
that branch-based banks of any size
should be exempt from tracking
deposits by location or delineating
deposits-based assessment areas. Other
commenters similarly suggested that the
deposits data collection and reporting
requirements should not apply to banks
with facility-based models, with one of
these commenters asserting that banks
that are mainly internet-based banks,
without a brick-and-mortar presence,
should be required to collect and report
deposits data. A few of commenters also
noted that additional guidance would be
needed with regard to deposits data
collection and reporting, with one of the
commenters noting that there would
need to be significant guidance
provided for non-standard situations,
such as when the physical address on
record for a deposit account is very old
(and has not been updated), when the
recorded address is a P.O. Box, where
the customer spends part of the year at
one address and part of the year at a
different address, or for when mail to
the depositor is returned and there is no
accurate address on file. Another
commenter stated that the FDIC’s
Summary of Deposits data should be
used for all banks except those that
generate a substantial portion of their
deposits digitally.
Regarding alternative approaches to
deposits data collection and reporting
requirements the agencies could
consider to minimize additional data
burden, commenters made several
recommendations including: permit
banks to use the FDIC’s Summary of
Deposits data rather than require them
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
to geocode, collect, and report deposits
data based on the residence of their
depositors; collect and report deposits
data based on an average annual deposit
balance based on average daily balances
from quarterly statements rather than
from monthly statements; and have the
option to determine the frequency by
which they would collect and report
deposits data (and requiring banks to
commit to one specific method/
frequency for each CRA examination
cycle). One commenter suggested that
the agencies should ‘‘stress test’’ this
issue, to determine whether a quarterly
average is almost as accurate as average
daily balances computed monthly or
quarterly, which might indicate that
quarterly averages would be a viable
alternative. Another commenter
suggested the agencies should work
with the financial industry to determine
the best balance between accuracy and
burden with respect to data collection,
reporting, and associated metrics’
calculations. One other commenter
suggested that, as an alternative, banks
could upload summary records they
keep for qualitative analysis in the
interim while they work towards
building capacity to collect, maintain,
and report deposits data at the
appropriate interval (quarterly, semiannually, or annually).
Regarding whether deposits sourced
from commercial banks or other
depository institutions should be
excluded from the proposed deposits
data collection and reporting
requirements, multiple commenters
suggested that all deposits, including
those from commercial banks and other
depository institutions, should be
included in the deposits data. Another
commenter suggested that deposits from
commercial banks should not be
included unless these commercial banks
are designated as small, disadvantaged
business enterprises or some similar
category. However, this commenter also
suggested that deposits sourced from
minority depository institutions should
be included in the deposits data.
Another commenter suggested that
‘‘mission deposits’’ or non-brokered
reciprocal deposits should be excluded
from the deposits data, and noted that
it could be problematic to identify these
deposits among deposits from
commercial banks or other depository
institutions. Another commenter
suggested that neither commercial bank
deposits nor deposits from other
depository institutions, such as credit
unions, should be excluded. Finally,
one commenter indicated that corporate,
commercial bank, and other depository
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
institution deposits should be excluded
from the deposits data.
Regarding whether brokered deposits
and other types of deposit accounts
such as prepaid debit card accounts and
Health Savings Accounts that may not
include depositor location information
should be reported at the institution
level, commenters generally agreed that
deposits without depositor location data
should be reported at the institution
level. A few commenters suggested that
accounts for which Customer
Identification Program information is
not required are unlikely to have
customer location data and might be
treated as a category at the institution
level. One of these commenters
suggested that banks could include
depositor information for deposit
accounts for which Customer
Identification Program information is
collected. Another commenter also
noted how consideration of prepaid
debit card accounts can be complicated
because many are one-time use cards;
they can be sold in retail establishments
with no collection of customer
information; and geographic mobility is
a feature of these accounts. This
commenter suggested that the agencies
should consider the purpose of the
deposit products, for example if a CDFI
bank were to raise prepaid card deposits
from across the United States with the
intention of using those deposits to fund
a national lending program to help lowand moderate-income individuals
improve their credit, rather than the
geographic location from which
deposits are collected or products
delivered. Another commenter
suggested that these types of accounts
should have some locational
information, whether location of sale or
location of employer, and that the
agencies should investigate available
data on these types of products to see if
a more specific geography can be
attributed to these products than at the
institution level. Another commenter
suggested that the agencies should
conduct research to determine whether
deposit location might be identified at
the county level, but if not, this
commenter stated that these types of
deposits should be considered at the
institution level.
Regarding the appropriate treatment
of non-brokered reciprocal deposits, the
few commenters that addressed this
issue agreed with the proposed
approach. These commenters noted that
non-brokered reciprocal deposits should
be considered as a deposit for the bank
sending the non-brokered reciprocal
deposit, but they should not be
considered as a deposit for the bank
receiving the reciprocal deposit. Two of
PO 00000
Frm 00499
Fmt 4701
Sfmt 4700
7071
these commenters indicated that they
supported this approach to ensure CDFI
banks are not penalized for accepting
CRA and impact-motivated deposits.
Multiple other commenters stated they
supported the approach to prevent
double-counting of deposits included in
these transactions. A commenter offered
a technical suggestion to align
terminology used in the CRA regulation
with that included in the Federal
Deposit Insurance Act (FDI Act) and
corresponding FDIC regulations, which
do not speak in terms of institutions
sending non-brokered (or brokered)
reciprocal deposits and instead describe
an agent institution sending or placing
a ‘‘covered deposit’’ through a deposit
placement network and receiving
reciprocal deposits in the same
aggregate amount. The commenter
therefore suggested that the final rule
exclude all reciprocal deposits (whether
or not brokered) that a bank receives
and include all covered deposits that a
bank places on a reciprocal basis
(whether or not they become nonbrokered reciprocal deposits for the
receiving institution) to provide a more
workable description of ‘‘deposits’’ for
purposes of the CRA metrics.
In response to the question regarding
whether bank operations systems
currently permit the collection of
deposit information at the county-level,
commenters expressed different views.
A commenter indicated that its
operations systems would need to be
modified to capture this information
because they do not currently geocode
depositors’ addresses, noting that the
cost for such modifications would need
to be determined through vendor due
diligence. Another commenter
suggested that the capacity to collect the
information and its associated costs may
vary by bank, but it is important for the
agencies to get available data that can be
used for branch level assessments. One
more commenter indicated that CDFI
banks report that the cost of modifying
and upgrading operations systems
would be significant (with one member
financial institution indicating a cost
between $30,000 and $50,000). In
contrast, a few commenters indicated
that bank systems exist for collecting
these sorts of data (such as those used
for reporting Bank On account data),
that many banks already geocode their
deposits data, and that it should not be
burdensome or costly for financial
institutions that do not already utilize
these systems to do so.
Regarding steps the agencies might
take to reduce the burden associated
with the reporting of deposits data, a
few commenters made several
recommendations. Two commenters
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7072
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
suggested the agencies develop a
geocoding platform. Other commenters
suggested the agencies provide
sufficient transition time for the existing
financial services data systems
providers that currently collect,
geocode, validate, and report data for
CRA and fair lending compliance
purposes to create deposits data-based
applications. This commenter indicated
its expectation that as an ‘‘add on’’
function, this solution should not be
particularly expensive. One other
commenter suggested that CDFIs should
be able to rely on information they
already submit related to their annual
CDFI certification. The commenter also
suggested that the agencies provide
technical assistance grants to help banks
below $1 billion obtain the
technological resources necessary to
comply with the proposed data
collection, recordkeeping, and reporting
requirements with priority, or a
potential set aside, for MDIs or CDFIs.
Two commenters suggested the agencies
should coordinate with other agencies
to standardize data definitions and
formats in order to both use data already
collected when possible and to
otherwise automate reporting through
integration of existing software and file
types. One other commenter similarly
recommended that the agencies
automate reporting with integration of
current software or develop a certain file
type so that the data can be parsed by
the agencies’ systems uniformly.
Another commenter suggested that the
agencies should clarify that in the case
of an omnibus account (e.g., in a sweep
program or prepaid program) a bank can
treat the depositor’s address as that of
the accountholder of record. Similarly,
this commenter suggested the agencies
clarify that a bank can rely on a
depositor’s address in its system of
records, which is typically collected at
account opening, and that the CRA
regulations’ proposed data collection
requirements do not impose a new
obligation on banks to periodically
request current address information
from customers.
Nearly all comments received
responding to whether the agencies
should consider the alternative
approach of publishing a dataset
containing county-level deposits data
were supportive of the agencies
publishing such a dataset. Several
commenters indicated that the agencies
not proposing to publish these data
limits the public’s ability to hold banks
accountable. Other commenters made
various recommendations concerning
the manner in which the data should be
published, including that, if possible,
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
the data should be published at the
lowest available level of aggregation,
such as at the census tract or zip code
level. One of these commenters also
asserted that the agencies should
consider publishing data by income
category of census tracts or by census
tracts with respect to percentages of
minority consumers. Another
commenter stated that the more granular
the data, the more the data can help
with identifying performance gaps of a
specific branch. This commenter also
stated that if an alternative approach
can help with this effort, then the
agencies should consider it, but that,
since these data would be used to
support agency analysis of deposits data
in devising alternative approaches, the
agencies should determine if the data
collection is still needed after the
analysis has been completed. Another
commenter suggested the agencies
consider the alternative with
publication of Geographic Information
Systems maps of the assessment area.
One other commenter suggested that the
agencies provide deposit market-share
data as it is today; use deposits data to
develop customer physical location data
internally; and decide whether to
anonymize depositor data or provide
that deposits data collection
requirements do not result in privacy
violations between banks and their
customers.
Final Rule
The agencies are adopting proposed
§ ll.42(a)(7) regarding the collection
and maintenance of deposits data
substantially as proposed with technical
edits for clarification and to conform to
other changes made in the final rule.
Specifically, the agencies are revising
this paragraph to update the reference
‘‘machine readable’’ to ‘‘electronic’’
with no change in meaning intended.
The agencies are also revising this
paragraph to clarify that the dollar
amount of deposits at the county level
is based on ‘‘deposit location’’ as
defined in § ll.12, and to conform to
the definition of deposit location in the
final rule, which provides more detailed
guidance to banks regarding how to
determine the location of deposits
associated with deposit accounts. In
addition, to clarify how banks are to
collect and maintain deposits data for
account types for which a deposit
location is not available, the agencies
are adding language stating that such
deposits data must be collected and
maintained at the nationwide area.
Specifically, recognizing that there is no
reasonable method for assigning
deposits to a local area in cases where
a depositor address is not available, the
PO 00000
Frm 00500
Fmt 4701
Sfmt 4700
agencies determined that it is
appropriate to consider these deposits at
the nationwide area. These deposits
would not be included in calculations
for bank-specific metrics or aggregate
benchmarks for any local geographic
area, but would be included in
calculations at the nationwide area or
institution level (e.g., for the community
development investment metric). An
alternative to collecting, maintaining,
and reporting these data at the
nationwide area is to not consider them
at all, which the agencies did not
consider appropriate given that these
deposits are financial resources
available to the bank.
The agencies are revising this
paragraph to indicate that a large bank
that had assets greater than $10 billion
as of December 31 in both of the prior
two calendar years must collect and
maintain deposits data. This change was
made to conform to changes made in
§ ll.12 regarding how assets data are
used in the definitions of large bank,
intermediate bank, and small bank.
The agencies are also adding to this
paragraph the phrase ‘‘in which the data
are evaluated,’’ to clarify how long a
bank must collect and maintain the
deposits data. More specifically, the
final rule clarifies that these data must
be maintained ‘‘until the completion of
the bank’s next CRA examination in
which the data are evaluated,’’ rather
than ‘‘until the completion of the bank’s
next CRA examination,’’ as provided
under the proposal. This clarification is
made to ensure that these data are
maintained until they are evaluated in
a CRA examination, which may not be
the bank’s next CRA examination.
Lastly, the agencies are revising this
paragraph to indicate that ‘‘any other
bank’’ that opts to collect and maintain
deposits data must do so in the same
form and for the same duration as is
required of large banks with assets
greater than $10 billion. This is an
expansion of the proposed language,
which required these data only for ‘‘a
large bank that had average assets of $10
billion or less.’’ This change was made
to improve the efficiency and accuracy
of calculations using deposits data,
including those for bank metrics and
benchmarks used in the Retail Lending
Test and Community Development
Financing Test, as well as for the
weighting calculations used for creating
benchmarks and conclusions. Deposits
data collection and maintenance
requirements remain optional for banks
with assets of $10 billion or less, but if
they do opt to collect and maintain
these data, as just noted, they must do
so in the same form and for the same
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
duration as is required of large banks
with assets greater than $10 billion.
The agencies are also adopting
proposed § ll.42(b)(5) substantially as
proposed, renumbered in the final rule
as § ll.42(b)(3)(i) and (ii), regarding
the reporting of deposits data. The
agencies are making one substantive
addition, requiring banks with assets of
$10 billion or less that opt to collect and
maintain deposits data to also report
these data. The agencies are also making
technical edits for clarification and
removal of superfluous language in the
regulatory text. Specifically, the
agencies are clarifying in new
§ ll.42(b)(3)(ii) that the data collected
and maintained by large banks in
§ ll.42(a)(7) for which deposit
location is not available must be
reported at the nationwide area. This
clarification is necessary to ensure that
the full set of deposits are reported for
banks included in this paragraph.
Specifically, the agencies are revising
this paragraph to update the reference
‘‘machine readable’’ to ‘‘electronic’’
with no change in meaning intended.
The agencies are adding a
requirement for banks with assets of $10
billion or less that opt to collect and
maintain deposits data that they must
also report these data. The agencies
made this change to improve the
efficiency and accuracy of calculations
using deposits data, including those for
bank metrics and benchmarks used in
the Retail Lending Test and Community
Development Financing Test, as well as
for the weighting calculations used for
creating benchmarks and conclusions.
The data reporting requirement remains
optional for banks with assets of $10
billion or less, but if they do opt to
collect and maintain these data, they
must also report these data in the same
form and for the same duration as is
required of large banks with assets
greater than $10 billion.
The agencies are also revising this
paragraph to indicate that a large bank
that had assets greater than $10 billion
as of December 31 in both of the prior
two calendar years must report deposits
data. This change was made to conform
to changes in § ll.12 regarding how
assets data are used in the definitions of
large banks, intermediate banks, and
small banks.
Additionally, the agencies added
language to this paragraph indicating
that a bank that reports deposits data for
which a deposit location is not available
must report these deposits at the
nationwide area, conforming with the
requirement for collecting and
maintaining these data in final
§ ll.42(a)(7). These deposits would
not be included in calculations for bank-
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
specific metrics or aggregate
benchmarks for any local geographic
area, but would be included in
calculations at the nationwide area or
institution level (e.g., for the community
development investment metric). An
alternative to reporting these data at the
nationwide area is not reporting them at
all, which the agencies did not consider
appropriate given that these deposits are
financial resources available to the
bank.
The final rule does not include the
language in proposed § ll.42(b)(5)
which stated that the agencies ‘‘will not
make deposits data reported under this
paragraph publicly available in the form
of a data set for all reporting banks.’’
The agencies do not intend this as a
substantive change from the proposed
approach. Instead, the agencies realize
that it is not necessary or appropriate for
the final rule to indicate what is not
included in the examination and
evaluation process, or, in this case, what
data will not be published as part of the
evaluation process.
Lastly, the agencies revised this
paragraph to indicate that ‘‘any other
bank’’ that opts to collect and maintain
deposits data must report these data in
the same form and for the same duration
as described in this paragraph for large
banks with assets greater than $10
billion. This is an expansion to the
proposed language indicating this data
requirement is only for ‘‘a large bank
that had average assets of $10 billion or
less.’’ This change was made to improve
the efficiency and accuracy of
calculations using deposits data,
including those for bank metrics and
benchmarks used in the Retail Lending
Test and the Community Development
Financing Test, as well as for the
weighting calculations used for creating
benchmarks and conclusions. This
deposits data collection and reporting
requirement remains optional for banks
with assets of $10 billion or less, but if
they do opt to collect and maintain
these data, they must do so in the same
form and for the same duration as is
required of large banks with assets
greater than $10 billion.
Deposits data requirements—
generally. The final rule maintains the
proposed approach to require data
collection, maintenance, and reporting
only for banks with assets of over $10
billion. Upon consideration of the
comments, the agencies have
determined that this approach achieves
an appropriate balance between the
burden required to collect and report
these data and the benefit that will
result from using these data in the final
rule. The agencies believe that large
banks with assets greater than $10
PO 00000
Frm 00501
Fmt 4701
Sfmt 4700
7073
billion have the capacity to collect,
maintain, and report these data.
The agencies believe that including
the distribution of these banks’ deposits
by depositor location is an important
aspect of the effort to modernize CRA.
Banking has evolved over the past
several decades, particularly since the
advent of the internet, to the point that
physical bank branch locations are no
longer a sole proxy for the local
communities served by banks, with the
exception of banks that remain
primarily branch-based in their
operations, which are likely to be
smaller institutions.
As discussed in the agencies’
proposal, the final rule approach
leverages these data in a number of
ways that the FDIC’s Summary of
Deposits data do not allow for,
including assigning weights to Retail
Lending Test and Community
Development Financing Test
performance in areas outside of facilitybased assessment areas. In addition, the
agencies believe that the collected,
maintained, and reported deposits data
will more accurately reflect the location
of a bank’s depositors than would the
FDIC’s Summary of Deposits data,
which will result in more accurate
metrics and benchmarks. The agencies
believe that the approach adopted in the
final rule will capture a substantial
majority of all bank deposits data,1554
thereby significantly improving the
accuracy of aggregate benchmarks that
use deposits data, such as the Market
Volume Benchmark used for the Retail
Lending Volume Screen, and the
benchmarks used for the Community
Development Financing Test.
The agencies considered, but are not
adopting, an alternative approach of
extending the deposits data collection
and reporting requirement to all large
banks, including those with assets of
$10 billion or less and intermediate
banks. The agencies determined that
this approach would place a significant
burden on these banks and would only
yield the enhanced data for a relatively
small additional share of industry
deposits.1555 The agencies believe that
these banks may have lesser capacity
than large banks with assets of over $10
billion to comply with the requirement,
such as the ability to geocode depositor
1554 See FDIC analysis of 2015–2020 FDIC’s
Summary of Deposits data shows that in each of
these years, deposits in banks with assets greater
than $10 billion comprised over 80 percent of
deposits in all banks. See Joseph R. Harris III,
Caitlyn R. Kasper, Camille A. Keith, and Derek K.
Thieme, ‘‘2020 Summary of Deposits Highlights,’’
Table 3 (2021), https://www.fdic.gov/analysis/
quarterly-banking-profile/fdic-quarterly/2021-vol151/article2.pdf.
1555 See id.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7074
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
addresses and summarize depositor data
at the county level on an ongoing basis.
In the final rule, banks with assets of
$10 billion or less may elect to collect,
maintain, and report deposits data as
required of larger banks. Under the
proposed rule, in contrast, such a bank
would have the option to collect and
maintain deposits data, but would not
have been required to report deposits
data that the bank elected to collect and
maintain. The agencies believe that
requiring banks that elect to collect and
maintain deposits data to also report
these data will enhance the consistency
of reporting requirements and allow
these data to be incorporated into
aggregate benchmarks. This will result
in any bank opting into having collected
and maintained deposits data included
in their metrics also having their
deposits data included in the
benchmarks against which they are
evaluated. The agencies do not believe
that this change increases complexity or
burden, because collecting and
maintaining deposits data would remain
optional for banks with assets of $10
billion or less, as in the proposed
approach.
The agencies considered, but are not
adopting, suggestions to use the FDIC’s
Summary of Deposits data for large
banks with assets of over $10 billion to
reduce complexity, instead of requiring
deposits data collection, maintenance,
and reporting. The agencies believe that
large banks with assets of over $10
billion are likely to already have
systems in place for geocoding deposits
or, due to existing requirements to
geocode HMDA loans, small business
loans, and small farm loans, systems
that can be adapted to produce these
data. The agencies believe that using
Summary of Deposits data for these
banks may inflate these banks’ deposits
in areas where branches are located and
dilute deposits in areas where these
banks do not have branches but where
their depositors are located. Because the
great majority of industry deposits are
held by these banks, the agencies
believe this would have a distorting
effect on the creation of benchmarks for
all banks as well as on the creation of
metrics for these banks. Finally, the
agencies considered that Summary of
Deposits data include deposits from
government and foreign sources, which
the agencies believe is preferable to
exclude from CRA evaluations, as
discussed below.
The agencies have considered
commenter feedback that suggested
requiring these data of large banks with
assets only slightly over $10 billion
places these banks at a disadvantage
with regards to their ability to engage in
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
community development activities.
However, the agencies believe that most
large banks, and particularly most large
banks with assets of over $10 billion,
have access to systems capable of
identifying the addresses of their
depositors and systems capable of
geocoding addresses. As mentioned
above, banks of this size are typically
required to geocode addresses of their
small business loans and small farm
loans, as well as HMDA loans (for those
required to report HMDA data). To the
extent there are any such banks that do
not already possess the systems needed
to handle these data requirements, bank
service providers are capable of
providing support to banks. Therefore,
the agencies do not believe that this
requirement would impact a bank’s
ability to engage in community
development activities or any other type
of CRA activity. With regard to
addressing the limitations of the FDIC’s
Summary of Deposits data, these
limitations are known to the agencies;
the agencies believe that addressing
such limitations is outside the scope of
this final rule.
The agencies are sensitive to concerns
that there may be banks with assets of
$10 billion or less that may be
disadvantaged by using the FDIC’s
Summary of Deposits data, particularly
with regard to the Bank Volume Metric
used in the Retail Lending Volume
Screen as part of the Retail Lending
Test, and the metrics used in the
Community Development Financing
Test. The agencies considered that, as
noted by multiple commenters, the
Summary of Deposits data may not
accurately represent a bank’s deposits in
a market, which could impact the bank’s
metrics. In addition, the agencies
considered that the inclusion of
government deposits and deposits from
foreign entities in the Summary of
Deposits data could negatively impact a
bank’s metrics relative to a bank that is
collecting and reporting deposits data,
since government and foreign entity
deposits are excluded from the collected
and reported data. For these reasons, the
agencies are permitting banks with
assets of $10 billion or less to opt to
collect, maintain, and report deposits
data. The agencies believe that this
option addresses concerns that
Summary of Deposits data could
negatively impact a bank’s metrics,
because a bank with assets of $10 billion
or less can determine whether the
benefit of collecting and reporting these
data is in their best interest. The
agencies believe this decision is best left
to each individual bank in this size
category, based on their own
PO 00000
Frm 00502
Fmt 4701
Sfmt 4700
circumstances, rather than imposing a
requirement for these banks.
With respect to the alternative
approach discussed in the proposal to
publish a county-level deposits data set
in order to provide greater insight into
bank performance, the final rule does
not provide that the agencies publish
bank-specific deposit information at the
county level in a published data set.
While the agencies considered that this
alternative could increase the
transparency of CRA evaluations, and
that such a data set could help to inform
other policies and community
development efforts beyond CRA, the
agencies determined that the potential
benefits are outweighed by other
considerations. These considerations
stem from an overarching intent by the
agencies to make data publicly available
as necessary for transparency in the
examination process, but otherwise to
protect privacy and competitive
concerns for consumers and banks by
not publishing data that is not necessary
to support transparency. This concern is
particularly important for data that has
not been collected and reported
previously, such as deposits data. The
agencies intend to develop tools to
provide information regarding metrics,
benchmarks, and weights in different
geographic areas using reported lending
and deposits data. In addition, the
agencies believe that the information
included in a bank’s public CRA
performance evaluation will provide
sufficiently detailed information on
bank performance. While the final rule
does not provide that the agencies
would publish a county-level deposits
data set, the agencies note that deposits
information pertaining to facility-based
assessment areas, which may consist of
a single county, would be included in
performance evaluations and in data
tools for the purpose of calculating
metrics, benchmarks and weights.
The agencies considered a comment
that the agencies failed to address why
requiring county-level deposits data
based on depositor’s address rather than
the location of the bank branch to which
the deposits are assigned is relevant to
recognizing a bank’s support of low- and
moderate-income communities. The
agencies believe that collecting and
reporting these deposits data is
necessary for large banks with assets
over $10 billion for the construction of
metrics, benchmarks, and weights,
which inform the conclusions and
ratings that reflect a bank’s support of
low- and moderate-income
communities. The agencies believe that
deposits data aggregated at the county
level, based on depositor addresses, will
provide a better measure of the volume
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
of deposits sourced by the bank from
depositors in that area, than would
deposits aggregated at the location of the
bank branch to which they are assigned.
The agencies consider deposits in a
bank from an area to be representative
of a bank’s capacity to conduct retail
lending and community development
financing in that area.
The agencies also considered an
approach of summarizing deposits data
at an even finer geographic level, such
as census tracts. While this would
enable better identification of deposits
in low- and moderate-income
communities, the agencies recognize the
need to protect depositor privacy and to
limit bank data collection and reporting
burden. Additionally, the agencies note
that although deposits data are used to
calculate metrics, benchmarks, and
weights, the rule does not use deposits
data collected pursuant to
§ ll.42(a)(7) to evaluate the
distribution of deposits themselves,
including by the low- or moderateincome characteristics of areas from
which deposits are received. This
distinction explains why the agencies
require some other data for which these
distributions are evaluated to be
reported at a finer geographic scale (i.e.,
by census tract income level), but such
specificity is not necessary for these
deposits data. Finally, pursuant to
§§ ll.16 and ll.17, under the final
rule approach, large bank facility-based
assessment areas and retail lending
assessment areas must consist of at least
an entire county. As a result, census
tract-level deposits data are not
necessary to calculate metrics,
benchmarks, and weights pertaining to
large banks.
In response to the commenter that
argued against requiring deposits data
due to the impact of economic cycles
(downturns) on the appropriateness of
using deposits in benchmarks, the
agencies note that the data used for an
individual bank’s metrics and the
market benchmarks against which that
bank’s metrics are compared are always
drawn from the same geographic areas
and for the same time period. Any
impact of economic cycles would
impact both individual bank metrics
and market benchmarks. The amount of
community development financing
activity (or retail lending activity) that a
bank would need to report in order to
perform well in comparison to
benchmarks would fluctuate in tandem
with economic changes impacting all
banks reporting data for the benchmark
for the same geographic area. This is an
important feature of how these
benchmarks function, and is very much
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
a benefit, rather than a liability, of using
deposits data in these benchmarks.
Averaging annual deposits based on
average daily balances. The agencies are
also finalizing deposits data collection
as proposed with regard to basing
deposit amounts on average annual
deposits based on average daily
balances included in monthly or
quarterly statements. The agencies
believe it is important to include the
most timely and accurate deposit
amounts as reasonably possible in
calculations used in the final rule. The
final rule approach reflects seasonal
changes that may occur over the course
of a year, as well as year-to-year changes
over the course of an evaluation period.
In addition, the final rule approach
would ensure that the timing of the
deposits data incorporated into a bank’s
evaluation aligns with the timing of the
retail lending and community
development financing data. For
example, the agencies considered that
the Retail Lending Volume Screen
should measure a bank’s retail lending
over the evaluation period relative to its
deposits over the evaluation period.
Alternatives suggested by commenters
to use deposit information at the time of
the bank’s examination, or from end-ofquarter or end-of year balances during
the evaluation period rather than
average daily balances, could result in a
mismatch in the timing of the deposits
data and timing of other data that are
incorporated in the same metrics and
benchmarks. Furthermore, the agencies
considered that banks typically
calculate average daily balances at
monthly or quarterly intervals to
support issuing banking statements,
which reduces the potential burden of
the final rule approach.
The agencies considered a comment
to create an online platform for banks to
submit their deposits data. The agencies
expect that the final rule approach of
requiring deposits data collection and
reporting using an electronic form, as
prescribed by the agencies, will achieve
many of the same efficiencies that
would be achieved by creating an online
platform, such as ensuring consistent
data formatting and enabling data
integrity checks during the submission
process. Although the agencies have not
finalized the specific mechanism
through which banks will submit their
reported deposits data, the agencies will
take commenter feedback into
consideration as they develop this
mechanism.
Exemptions to deposits data
requirements. As noted above, the
agencies are finalizing the deposits data
collection and reporting for large banks
with assets of over $10 billion, and are
PO 00000
Frm 00503
Fmt 4701
Sfmt 4700
7075
not providing exemptions based on
whether a bank is primarily branchbased, as suggested by some
commenters. The agencies believe that
having deposits data at the county level
based on depositor addresses is an
important and appropriate aspect of the
modernization of the CRA regulations,
is responsive to changes in the
geographic distribution of bank
customers relative to bank branches,
and resolves other challenges with the
use of the FDIC’s Summary of Deposits
data discussed above. These changes are
relevant to branch-based banks as well
as banks with a more digitally-based
business model. The agencies also
believe that the proposed approach of
using depositor addresses included in
the Customer Identification Program or
another documented address is an
appropriate strategy for identifying
depositor locations; banks are expected
to maintain timely and accurate
information regarding their
accountholders.
Data integrity. The agencies are
sensitive to commenter concerns that
deposits data will not be subject to the
same data integrity standards as data
reported pursuant to the HMDA
requirements. The agencies believe that
deposits data based on depositor
location will be accurate, because this
information is required by the Customer
Identification Program regulation, and
because banks have important business
reasons to maintain accurate addresses
beyond compliance with the final rule.
The agencies acknowledge that there are
situations in which a customer may use
an address that does not reflect the
location of where they live, such as a
place of work, or a P.O. Box, but believe
that customer address information is
generally accurate.
The agencies note, in response to
comments regarding the need for
additional guidance for banks required
to report deposits data, that they already
produce a data guide for CRA, which
they intend to update in accordance
with the changes in the final rule. The
agencies will consider whether
additional guidance is necessary outside
of the final rule to address non-standard
situations such as when the physical
address on record for a deposits account
has not been updated for a significant
amount of time or when the customer
spends part of the year at one address
and part of the year at a different
address.
Other approaches to deposits data
collection to reduce burden. The
agencies appreciate the
recommendations made by commenters
on different approaches to reduce
burden. However, after further
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7076
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
consideration, the agencies believe that
the strategies to use depositor addresses
included in the CIP, which is a part of
a bank’s requirements through the Bank
Secrecy Act, or other documented
address, and to include deposits for
which there is no available address at
the nationwide area, sufficiently reduce
the burden of this approach. The
agencies believe that the decision to use
deposits data that banks are already
maintaining, as well as the decision to
extend the applicability of the new
deposits data collection and
maintenance requirements to January 1,
2026, as discussed in the section-bysection analysis of § ll.51, should
address commenter concerns that a
longer transition time might be
necessary for collecting and reporting
these deposits data.
In addition, the agencies note that
there is an ongoing effort by the FFIEC,
which the agencies are a part of, to
develop and deliver an improved
geocoding system. As noted, the
agencies believe that banks that are
subject to the requirements to collect,
maintain, and report deposits data
under the final rule already have access
to geocoding systems adaptable to
geocode depositor addresses, and thus
any residual burden, if any, is relatively
incremental. The agencies believe that
the transition times are sufficient for
any adaptations or development that
may be necessary for these systems.
In response to the comments received
suggesting that CDFIs should be able to
rely on information they already submit
related to their annual CDFI certification
to meet the deposits data reporting
requirement, and that the agencies
should coordinate with other agencies
to standardize data definitions and
formats in order to both use data already
collected when possible, the agencies
are unaware of any existing data
reporting requirements by other
agencies, including the CDFI Fund, that
are similar to the deposits data
collection included in the final rule. To
the extent that the CDFI certification
process includes information about
CDFI bank deposits or depositors, the
agencies note that the vast majority of
banks are not certified CDFIs, so there
would be little benefit in attempting to
use data included in the CDFI
certification process.
The agencies do not believe it
appropriate to require ‘‘stress testing,’’
as suggested by a commenter, to
determine whether reporting quarterly
average deposits data might be as
accurate as average daily balances
computed monthly or quarterly, thereby
reducing reporting burden. The agencies
considered that banks already calculate
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
and maintain monthly or quarterly
account balances based on average daily
balances for the purposes of generating
account statements, and as a result, the
agencies believe that it is reasonable to
use these data in CRA evaluations. Also,
in response to a comment suggesting an
alternative approach of requiring banks
to upload summary deposits records
they keep for qualitative analysis as an
interim approach while they build
capacity to collect, maintain, and report
deposits data, the agencies believe that
summary records of deposits data would
not enable the agencies to construct
metrics, benchmarks, and weights
required under the performance tests,
and that it is appropriate to use countylevel data as provided in the final rule.
Treatment of deposit accounts which
do not have depositor addresses.
Consistent with most commenters
responding to how to handle deposit
accounts that do not have depositor
addresses, the agencies believe that
these concerns are appropriately
addressed by incorporating deposit
accounts for which no depositor address
is available at the institution level,
reported to the nationwide area. The
agencies believe that this approach is
preferred relative to the alternative of
requiring banks to identify locations
where accounts were opened (e.g.,
where prepaid cards were purchased) or
to identify specific locations to assign to
these deposit accounts. In addition, the
agencies note that including these
deposit accounts at the nationwide area
ensures that these deposits are included
in the Bank Nationwide Community
Development Financing Metric and
Benchmark, as well as the Bank
Nationwide Community Development
Investment Metric and Benchmark.
Appropriate treatment of nonbrokered, reciprocal deposits. Regarding
non-brokered, reciprocal deposits,
under the final rule, these deposits will
be collected and reported by the sending
bank, which is the bank that would have
collected the deposits from their
original depositors and thus would have
the associated relationships with the
depositors’ communities. Banks
receiving these reciprocal deposits do
not need to collect and report associated
depositor location data for CRA
purposes. The rationale for this decision
is that the underlying deposits included
in the reciprocal deposit transaction are
already accounted for by the sending
bank; for that reason, these transactions
are better considered as transfers
between banks than as deposits. In
addition, because the sending bank
originally collected the deposits from
customers, the agencies believe that the
sending bank is more able to collect,
PO 00000
Frm 00504
Fmt 4701
Sfmt 4700
maintain, and report depositor location
information than the receiving bank.
In response to a commenter’s concern
with the specific terminology used in
the regulation with regard to nonbrokered, reciprocal deposits, the
agencies note that reciprocal deposits
are not mentioned in the final rule;
therefore, there is no issue with (or
possibility of) using terminology from
the FDI Act or other regulations.
However, effectively, these deposits will
be handled in a manner consistent with
what the commenter is suggesting.
Bank operations systems. The
agencies understand the concern by
some commenters regarding the
potential burden created by the need to
upgrade bank operations systems.
However, the agencies believe that
banks with assets of over $10 billion
will generally possess either internal
capabilities or vendor relationships with
capabilities to aggregate deposits data at
the county level, as required in the final
rule. The agencies believe that large
banks, especially those with assets of
over $10 billion, typically possess inhouse data systems or use vendor data
systems with geocoding capabilities. For
example, geocoding is routinely used to
identify the census tracts in which
mortgage loans, small business loans,
and small farm loans are located.
In response to commenters that
argued banks have systems for reporting
deposits data, such as those used for
reporting Bank On account data, the
agencies note that Bank On data is
reported at the zip code level—part of
the depositor’s street address—and does
not require geocoding. For banks that do
not already have access to geocoding
systems that are required or opt to
collect and report deposits data, such
systems are readily available in the
marketplace.
Regarding the suggestion from
commenters that the agencies provide
sufficient time for financial service data
systems providers to create deposits
data-based applications, the final rule
provides for a longer transition period
than proposed. As explained in the
section-by-section analysis of final
§ ll.51, the agencies believe that
providing additional time for
transitioning to the provisions balances
the concerns raised by commenters for
an adequate transition period with the
needs of banks’ communities, including
low- and moderate-income
neighborhoods, to benefit from
modernized CRA regulations.
The agencies also considered the
comments regarding the use of deposit
data collected pursuant to § ll.42 as
opposed to the FDIC’s Summary of
Deposits data in the denominator for the
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Bank Assessment Area Community
Development Financing Metric. The
split in commenters’ views on this issue
reflects the inherent tradeoffs associated
with each option. While use of collected
deposits data would make the Bank
Assessment Area Community
Development Financing Metric more
accurate, collecting data on deposits
would be a new data collection
requirement that results in additional
burden on banks. In contrast, although
using Summary of Deposits data in the
denominator eliminates the burden on
banks to collect data, it may not
accurately reflect the amount of deposits
drawn from a particular geographic area.
The agencies are adopting the final
rule as proposed because it balances the
tradeoff between increased burden
associated with collecting, maintaining,
and reporting deposits data and the
accuracy of the deposits data. Under the
final rule, large banks with assets of
over $10 billion as of December 31 in
both of the prior two calendar years will
be required to collect, maintain, and
report deposits data. The agencies
believe that it is important to tailor the
requirement to require collection,
maintenance, and reporting of deposits
data in order to limit this requirement
for smaller banks with fewer resources.
The agencies have determined that, due
to the greater resources of banks over
$10 billion, these banks generally have
the capacity to collect, maintain, and
report more accurate deposits data.
Furthermore, the agencies have
considered the significant downsides of
not having accurate deposits data for
banks with assets above $10 billion. For
example, as noted above, deposits in
these banks constitute a substantial
majority of deposits in all banks; the
agencies considered that use of
collected deposits data for these banks
therefore supports accurate calculation
of benchmarks. For banks with $10
billion or less in assets as of December
31 of either of the prior two calendar
years, the final rule uses FDIC’s
Summary of Deposits data in the
denominator, thereby limiting the
burden for these banks.
Nonetheless, because certain banks
with $10 billion or less in assets as of
December 31 of either of the prior two
calendar years may have dispersed
deposits or the assignment of their
deposits under the FDIC’s Summary of
Deposits may not reflect the actual
location of the deposits, the final rule
provides these banks with the option to
collect, maintain, and report deposits
data. The agencies believe that
providing this option mitigates the
potential negative consequences of
using FDIC’s Summary of Deposits data
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
in the denominator because banks that
would not perform well compared to
their peers using Summary of Deposits
data will have an incentive to collect,
maintain, and report deposits data
pursuant to § ll.42.
Section ll.42(c) Data on Operations
Subsidiaries or Operating Subsidiaries
Section ll.42(d) Data on Other
Affiliates
Current Approach
Under the current CRA regulations, a
bank is not required to include the
activities of any of its affiliates even if
the affiliate is an operations subsidiary
or operating subsidiary 1556 of the bank.
Instead, the current CRA regulations
require that, if a bank elects to have
loans by an affiliate under § ll.42(d)
considered for purposes of the lending
or community development test or an
approved strategic plan, the bank must
also collect, maintain, and report the
data for these loans as if it had
originated or purchased these loans
directly. For home mortgage loans, the
bank must also be prepared to identify
the home mortgage loans reported under
Regulation C 1557 by the affiliate.1558
The Agencies’ Proposal
The agencies proposed to require the
inclusion of relevant activities of a
bank’s operations subsidiaries or
operating subsidiaries, as applicable, for
purposes of evaluating the bank’s
performance tests. The agencies
proposed new § ll.42(c) to require
that all banks collect, maintain, and
report any retail lending, retail services
and products, community development
loans or investments, and community
development services activities of a
bank’s operations subsidiaries or
operating subsidiaries, as applicable, to
the extent these subsidiaries engage in
these activities. Proposed § ll.42(c)
also required the bank to identify the
home mortgage loans reported by the
operations subsidiaries or operating
subsidiaries under Regulation C,1559 if
applicable, or collect and maintain
home mortgage loans by these
subsidiaries that the bank would have
collected and maintained under
proposed § ll.42(a)(3) had the loans
been originated or purchased by the
bank.
The agencies further proposed to
revise current § ll.42(d) pertaining to
the collection, maintenance, and
reporting of a bank’s affiliate activities.
1556 See the section-by-section analysis of
§ ll.21(b).
1557 12 CFR part 1003.
1558 See current 12 CFR ll.42(d).
1559 12 CFR part 1003.
PO 00000
Frm 00505
Fmt 4701
Sfmt 4700
7077
Similar to current § ll.42(d), the
agencies’ proposal required banks to
collect, maintain, and report the data on
loans by an affiliate (other than an
operations subsidiary or operating
subsidiary) that they elect to have
considered for purposes of the CRA
regulations if the bank would have
collected, maintained, and reported
these activities had the bank engaged in
them directly. The agencies also
proposed to require the bank to identify
the home mortgage loans reported by an
affiliate (other than an operations
subsidiary or operating subsidiary)
under Regulation C,1560 if applicable, or
collect and maintain such loans as
would be required for the bank under
proposed § ll.42(a)(3) had the loans
been originated or purchased by the
bank.
Comments Received
A few commenters addressed this
aspect of the agencies’ proposal. One of
these commenters stated that the
agencies should not include lending by
a subsidiary in the bank’s CRA
evaluation. Another commenter noted
that the proposed rule was unclear with
regard to whether the proposed data
collection for operations subsidiaries or
operating subsidiaries, as applicable,
and other affiliates was intended as an
expansion of other data reporting
requirements, such as home mortgage
loan reporting under Regulation C or
small business loan reporting under
Regulation B (Section 1071 Final Rule),
even when those separate regulations
would not otherwise require such
reporting. Although supportive of the
proposed requirement that activities of
operations and operating subsidiaries
should be evaluated as part of a bank’s
overall CRA performance, this
commenter was opposed to an
expansion of reporting requirements
housed in other regulations and also
asserted that banks should retain the
flexibility, when multiple options are
available, to elect the performance test
under which the agencies evaluate the
activities of an operations or operating
subsidiary. Another commenter asked
the agencies to clarify that an affiliate’s
activities need to be included in the
bank’s data collection and reporting
only to the extent that the category of
retail or community development
lending or community development
investment is included in the bank’s
evaluation. This commenter further
stated that the agencies should exempt
1560 Id.
E:\FR\FM\01FER2.SGM
01FER2
7078
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
functionally regulated subsidiaries 1561
from a bank’s performance evaluation
and data collection and reporting
requirements. The commenter asserted
that mandatory inclusion of these
subsidiaries within CRA examinations
would exceed the agencies’ statutory
authority under the Gramm-LeachBliley Act (GLBA).
Final Rule
ddrumheller on DSK120RN23PROD with RULES2
The agencies are finalizing proposed
§ ll.42(c) and (d) pertaining to a
bank’s data requirements related to the
activities of the bank’s operations
subsidiaries or operating subsidiaries, as
applicable, and its other affiliates,
respectively, as proposed, with nonsubstantive revisions intended for
clarity.
The agencies have determined that,
with respect to operations subsidiaries
or operating subsidiaries, as applicable,
mandatory data collection,
maintenance, and reporting for these
entities is appropriate to enable the
agencies to capture all of the activities
of operations subsidiaries or operating
subsidiaries in banks’ CRA evaluations,
in recognition that banks exercise a high
level of ownership, control, and
management of their operations
subsidiaries or operating subsidiaries.
As discussed in the section-by-section
analysis of § ll.21(b), the agencies do
not believe that mandatory inclusion of
functionally regulated subsidiaries
within a bank’s CRA examination would
exceed the agencies’ statutory authority
under GLBA. Therefore, the activities of
a bank’s operations subsidiary or
operating subsidiary will be evaluated
in the bank’s CRA evaluation and the
relevant data requirements will apply,
unless the operations subsidiary or
1561 Under 12 U.S.C. 1844(c)(5), the term
‘‘functionally regulated subsidiary’’ means any
company—(1) that is not a bank holding company
or a depository institution; and (2) that is—(i) a
broker or dealer that is registered under the
Securities Exchange Act of 1934 (15 U.S.C. 78a et
seq.); (ii) a registered investment adviser, properly
registered by or on behalf of either the Securities
and Exchange Commission or any State, with
respect to the investment advisory activities of such
investment adviser and activities incidental to such
investment advisory activities; (iii) an investment
company that is registered under the Investment
Company Act of 1940 (15 U.S.C. 80a–1 et seq.); (iv)
an insurance company, with respect to insurance
activities of the insurance company and activities
incidental to such insurance activities, that is
subject to supervision by a State insurance
regulator; or (v) an entity that is subject to
regulation by, or registration with, the Commodity
Futures Trading Commission, with respect to
activities conducted as a futures commission
merchant, commodity trading adviser, commodity
pool, commodity pool operator, swap execution
facility, swap data repository, swap dealer, major
swap participant, and activities that are incidental
to such commodities and swaps activities.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
operating subsidiary is independently
subject to the CRA.
In response to commenters that
expressed concern that these data
requirements would expand the
reporting requirements in other
regulations, the agencies are clarifying
that the data requirements under
§ ll.42(c) and (d), for operations
subsidiaries or operating subsidiaries, as
applicable, and other affiliates,
respectively, are not intended to, and do
not, expand the data reporting
requirements for other regulations such
as home mortgage loans under
Regulation C or small business loans
under Regulation B (CFPB’s Section
1071 Final Rule) (once section 1071 data
become available). The agencies are also
clarifying that the data requirements in
§ ll.42(d) for the bank’s other
affiliates are triggered only if the bank
elects to have certain activities of the
bank’s affiliate considered for purposes
of the bank’s CRA evaluation.
Section ll.42(e) Data on Community
Development Loans and Community
Development Investments by a
Consortium or a Third Party
Current § ll.42(e), provides that a
bank that elects to have the agencies
consider community development loans
by a consortium or third party for
purposes of the lending or community
development tests or an approved
strategic plan, must report for those
loans the data that the bank would have
reported under current § ll.42(b)(2)
had the loans been originated or
purchased by the bank.
Consistent with the current rule, in
proposed § ll.42(e), the agencies
required banks that elect to have
community development loans or
investments by a consortium or third
party considered for purposes of the
CRA regulations, to collect, maintain,
and report the community development
lending and investments that the bank
would have collected, maintained, and
reported under proposed § ll.42(a)(5)
and (b)(3) had the community
development loans or investments been
originated or purchased by the bank.
The agencies received no comments
regarding the proposed data on
community development loans and
investments by a consortium or a third
party in proposed § ll.42(e) and are
finalizing as proposed, with minor
technical and conforming changes.
Section ll.42(f) Assessment Area Data
Current Approach
Under current § ll.42(g), a bank,
except a small bank or a bank that was
small during the prior calendar year,
PO 00000
Frm 00506
Fmt 4701
Sfmt 4700
which includes intermediate small
banks, must collect and report annually
by March 1 a list for each assessment
area showing the geographies within the
area.1562
The Agencies’ Proposal
The agencies proposed to revise
current § ll.42(g), renumbered as
proposed § ll.42(f), to change the date
in which banks are required to collect
and report assessment area data, and to
provide a separate provision for data
regarding facility-based assessment
areas and retail lending assessment
areas. Specifically, the agencies
proposed to change the date banks are
required to collect and report
assessment area data from March 1 to
April 1. The agencies also proposed to
require in § ll.42(f)(1), that a bank,
except a small bank or an intermediate
bank, collect and report to the Board,
FDIC, or OCC, as appropriate, annually
by April 1 a list for each facility-based
assessment area showing the States,
MSAs, county or county equivalents,
and metropolitan divisions within the
facility-based assessment area.
Consistent with the current regulations,
the proposal required small banks and
intermediate banks to maintain
assessment area data in their CRA
public files, including a map of each
facility-based assessment area, but these
banks would not be required to report
the data under § ll.42(f)(1).1563
In proposed § ll.42(f)(2), the
agencies required large banks to collect
and report to the Board, FDIC, or OCC,
as appropriate, annually by April 1, a
list for each retail lending assessment
area showing the MSAs and counties
within each retail lending assessment
area, as applicable.
The agencies requested feedback
regarding whether small banks that opt
to be evaluated under the metrics-based
Retail Lending Test should be required
to collect, maintain, and report related
data or whether it is appropriate to use
data that a small bank maintains in its
own format or by sampling the bank’s
loan files. The agencies also requested
feedback on whether a tool to identify
retail lending assessment areas based on
reported data would be useful.
Comments Received
Most commenters addressing the
agencies’ request for feedback on
whether a retail lending assessment area
tool would be useful expressed support
for a number of reasons, including that
it could provide helpful information to
the general public and banks. Although
12 CFR ll.42(g).
proposed § ll.43(a)(6).
1562 Current
1563 See
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
supportive of a tool, a commenter
expressed some concern that collecting
and tailoring the data needed for
defining its potential retail lending
assessment areas each year would be a
labor-intensive task.
One commenter responded to the
agencies’ request for feedback regarding
data requirements should a small bank
opt to be evaluated under the Retail
Lending Test. In this commenter’s view,
if a small bank opts into the metricsbased test, it would be appropriate for
the agencies to provide the bank the
option to use data that it maintains in
its own format or sample the bank’s loan
files. The agencies received no other
comments regarding the proposed
assessment area data.
Final Rule
The agencies received no specific
comments regarding the changes in
proposed § ll.42(f) pertaining to a
bank’s data requirements for facilitybased assessment areas in proposed
§ ll.42(f)(1) and retail lending
assessment areas in proposed
§ ll.42(f)(2) or the change in date for
annual reporting, and are finalizing
those changes as proposed, with a few
revisions. Specifically, the agencies are
revising the language in proposed
§ ll.42(f)(1) to clarify that the data
collected and reported annually by
April 1 for the bank’s facility-based
assessment areas is as of December 31
of the prior calendar year or the last date
the facility-based assessment area was
in effect, provided the facility-based
assessment area was delineated for at
least six months of that year. While the
delineation of facility-based assessment
areas is a continuous process within the
bank, this clarification ensures that the
timing of the reported data for facilitybased assessment areas is consistent
across banks: either as of December 31
of the prior calendar year or as of the
date that the facility-based assessment
area was most recently delineated.
The language in final § ll.42(f)(1),
‘‘provided the facility-based assessment
area was delineated for at least six
months of the prior calendar year,’’ was
added to ensure that a facility-based
assessment area was in existence for a
sufficient time period to evaluate the
lending around a bank’s facility. For
example, if a bank closed the sole
branch in a county the first part of the
year, the facility-based assessment area
would not be evaluated as such for that
year. Similarly, in a situation where a
branch is opened in the latter part of a
calendar year which creates a new
facility-based assessment area, that new
facility-based assessment area would
not be reported. If those facility-based
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
assessment areas that are not reported
for the year have sufficient lending to
trigger a retail lending assessment area,
they should be reported as such for that
calendar year.
The agencies are also revising the
language in proposed § ll.42(f)(2) to
clarify that data collected and reported
by April 1 for the bank’s retail lending
assessment areas is for the prior
calendar year.
The agencies believe that collection
and reporting of data for facility-based
assessment areas and retail lending
assessment areas is appropriate because
the agencies measure a bank’s
performance under the CRA in these
areas. Specifically, these data improve
the agencies’ understanding of areas
served by a bank and help assess
whether the bank is meeting the credit
needs of its communities through an
evaluation of various tests. For example,
the agencies require these data to assist
examiners in the analysis of borrower
and geographic distributions under the
Retail Lending Test (see the section-bysection analysis of § ll.22),
distributions which are needed to
construct the metrics and benchmarks
the agencies use to evaluate the bank’s
performance.
The agencies considered commenter
feedback that including a retail lending
assessment area tool would be useful to
banks and to the general public. The
section-by-section analysis of § ll.17
includes discussion of data tools that
the agencies intend to make available
regarding retail lending assessment
areas.
The agencies have also considered the
comment regarding assessment area data
requirements for small banks that opt to
be evaluated under the Retail Lending
Test. The agencies have determined that
additional assessment area data
requirements for these banks would be
burdensome and would outweigh any
potential benefit of requiring the data.
Such data are readily available in the
bank’s CRA public file, which under the
final rule must be made available on a
bank’s website, if the bank maintains
one.
Finally, as noted in the proposal, the
agencies’ proposed change in date from
March 1 to April 1 for annual collection
and reporting of assessment area data is
intended to conform to other changes
proposed in § ll.42.
Section ll.42(g) CRA Disclosure
Statement
Under current § ll.42(h), the
agencies prepare annually a CRA
Disclosure Statement for each bank that
reports certain data under § ll.42. The
statement provides information on small
PO 00000
Frm 00507
Fmt 4701
Sfmt 4700
7079
business and small farm lending and
community development loans with
respect to banks that are subject to those
reporting requirements.
The agencies proposed to continue
the preparation of the CRA Disclosure
Statement as required in current
§ ll.42(h), renumbered in the
proposal as § ll.42(g), with revisions
to conform to changes made throughout
the proposal. Specifically, consistent
with the current regulations, the CRA
Disclosure Statement would contain, on
a State-by-State basis, specified
demographic information about the
areas in which the bank operates. The
agencies proposed expanding the CRA
Disclosure Statement to include not
only the number and amount of small
business and small farm loans reported
by the bank in its facility-based
assessment areas, but also those
reported by the bank in its retail lending
assessment areas and outside retail
lending areas. Similarly, the statement
would be expanded to not only include
the number and amount of community
development loans reported as
originated or purchased by the bank, but
would also include community
development investments reported as
originated or purchased inside each
facility-based assessment area, each
State in which the bank has a branch,
each multistate MSA in which a bank
has a branch in two or more States of
the multistate MSA, and nationwide
outside of these States and multistate
MSAs.
The agencies received no comments
on the changes to proposed § ll.42(g)
and are finalizing those changes as
proposed, with a technical change to
accurately represent that the
responsibilities for preparation of CRA
Disclosure Statements correspond to the
agencies’ or the agencies’ ‘‘appointed
agent.’’ The agencies also made
conforming and non-substantive word
revisions to this section. The agencies
believe it is appropriate to make the
changes described above in proposed
§ ll.42(g) to conform to other changes
made to the data requirements in
§ ll.42. After the transition to the
section 1071 data takes effect, there is
no additional data disclosure burden
created by the CRA final rule with
regard to small business and small farm
lending data.1564
1564 The transition amendments included in this
final rule will permit the agencies to transition the
CRA data disclosure requirements for small
business loans and small farm loans to the CFPB’s
section 1071 data. This is consistent with the
agencies’ intent articulated in the preamble to the
proposal and elsewhere in this final rule to
transition to the CFPB’s section 1071 data for small
E:\FR\FM\01FER2.SGM
Continued
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7080
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Section ll.42(h) Aggregate Disclosure
Statement
In current § ll.42(i), the agencies
prepare an aggregate disclosure
statement for all banks subject to
reporting under § ll.42. The aggregate
disclosure statements indicate, for each
geography, the number and amount of
small business and small farm loans
originated or purchased by all reporting
institutions, except that the agencies
may adjust the form of the disclosure, if
necessary, because of special
circumstances, to protect the privacy of
a borrower or the competitive position
of an institution.1565
The agencies proposed to continue
the preparation of aggregate disclosure
statements as required in current
§ ll.42(i), renumbered in the proposal
as § ll.42(h), with revisions to
conform to other changes made
throughout the proposal. Specifically, in
addition to the reporting of small
business and small farm loans, as under
the current regulations, for each MSA or
metropolitan division (including those
that cross a State boundary) and the
nonmetropolitan portion of each State,
the agencies proposed expanding
aggregate disclosure statements to
include community development loans
and community development
investments for each MSA or
metropolitan division and the
nonmetropolitan portion of each State.
Similar to the content required under
the current CRA regulations, these
aggregate disclosure statements indicate,
for each census tract, and with respect
to community development loans and
community development investments
for each county, the number and
amount of all small business loans,
small farm loans, community
development loans, and community
development investments, originated or
purchased by reporting banks. Further,
as in the current rule, the agencies
proposed that they may adjust the form
of the disclosure, if necessary, because
of special circumstances, to protect the
privacy of a borrower or the competitive
position of a bank.
The agencies received no comments
on the changes to proposed § ll.42(h)
and are finalizing those changes as
proposed, with a technical revision to
accurately represent that the
responsibilities regarding the
preparation of aggregate disclosure
statements correspond to the agencies’
business loan and small loan data under the CRA
regulations. The agencies will provide notice of the
effective date of this amendment in the Federal
Register once the CFPB section 1071 data are
available.
1565 See current 12 CFR ll.42(i).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
or the agencies’ ‘‘appointed agent.’’ The
agencies also made conforming and
non-substantive revisions to this section
to accurately describe at what level the
aggregate data would be reported. The
agencies believe it is appropriate to
make the changes described above in
proposed § ll.42(h) to conform to
other changes made to the data
requirements in § ll.42.1566
Section ll.42(i) Availability of
Disclosure Statements
Under current § ll.42(j), the
agencies make the individual bank CRA
Disclosure Statements and aggregate
disclosure statements ‘‘available to the
public at central data depositories’’ and
‘‘publish a list of the depositories at
which the statements are available.’’
The agencies proposed to revise current
§ ll.42(j), renumbered as proposed
§ ll.42(i), to make the CRA Disclosure
Statements in proposed § ll.42(g) and
aggregate disclosure statements in
proposed § ll.42(h) ‘‘available on the
FFIEC’s website,’’ codifying the current
interagency process.
The agencies received no comments
on proposed § ll.42(i) and are
finalizing as proposed, with a technical
change to rename the heading of this
section to ‘‘Availability of disclosure
statements’’ from ‘‘Central data
depositories.’’ Because proposed
§ ll.42(i) replaced ‘‘central data
depositories’’ in the regulatory text of
the current rule with the FFIEC’s
website in the regulatory text of the
proposal, the agencies believe the
heading in final § ll.42(i) more
accurately reflect the new regulatory
text.
Section ll.42(j) HMDA Data
Disclosure
Current Approach and the Agencies’
Proposal
CRA performance evaluations do not
currently report data on lending by
borrower race or ethnicity. However, for
mortgage lending, race and ethnicity
data are collected and reported by most
banks subject to the large bank CRA
lending test through HMDA.
Tabulations of the HMDA data by race
or ethnicity for each of the reporting
banks within their assessment areas are
not easily accessible online, nor are they
currently included in CRA performance
evaluations.
In furtherance of the agencies’
objective to promote transparency, the
agencies proposed in § ll.42(j) a new
requirement to disclose in the CRA
performance evaluation of a large bank
the distribution of borrower race and
ethnicity of the bank’s home mortgage
loan originations and applications in
each of the bank’s facility-based
assessment areas, and as applicable, in
its retail lending assessment areas. The
agencies proposed to disclose this
information for each year of the
evaluation period using data currently
reported under HMDA.1567
Furthermore, the agencies proposed to
disclose the number and percentage of
the bank’s home mortgage loan
originations and applications by race
and ethnicity and compare that data to
the aggregate mortgage lending of all
lenders in the assessment area and the
demographic data in that assessment
area.1568 Proposed § ll.42(j)(3)
provided that the disclosure of race and
ethnicity of the bank’s home mortgage
loan originations and applications in the
bank’s CRA performance evaluation
would not impact the conclusions or
ratings of the bank.
Comments Received
Most commenters generally supported
the agencies’ effort to increase
transparency of a bank’s mortgage
lending operations through the
disclosure of HMDA data by race and
ethnicity in CRA exams. Commenters in
support of the agencies’ proposal noted
that this disclosure would be an
important step towards increasing
transparency.
However, several commenters
expressed their disappointment in the
agencies’ clarification that this
disclosure would not impact an
institution’s CRA ratings. In these
commenters’ view, this is a factor they
believe is essential to help combat racial
inequities in bank lending and other
banking products and services and
suggested that HMDA data should play
a larger role in the CRA examination
process and CRA ratings. Some of these
commenters and a few others, noted that
simply disclosing HMDA data that is
already public would not provide
meaningful transparency and
recommended that the agencies require
banks to publish home lending data
tables and maps that show disaggregated
HMDA data by race and ethnicity in a
prominent place on their websites.
Several commenters suggested that
HMDA data by race and ethnicity
should be presented in all bank CRA
exams, not simply those of large banks,
to enable the public to readily compare
a bank’s performance to its peers and
demographic benchmarks. A few other
commenters described various places
1567 See
1566 See
PO 00000
also supra note 145.
Frm 00508
Fmt 4701
Sfmt 4700
1568 See
E:\FR\FM\01FER2.SGM
proposed § ll.42(j)(1).
proposed § ll.42(j)(2).
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
where HMDA data could be used in the
CRA examination process, including for
example, as an explicit lending
benchmark or metric when creating
assessment areas, as an impact review
factor, and as a justification for
discrimination downgrades. One
commenter suggested that the agencies
publicly share HMDA data by race and
ethnicity—specifically American
Indians, Alaska Natives, and Native
Hawaiians—with interested
stakeholders on an annual basis, and
annually provide to these groups an
updated longitudinal analysis of HMDA
data trends involving particular racial
and ethnic groups and a discussion of
which large banks are improving and
which are not. A few commenters also
suggested disclosing data on nonmortgage loan types based on race and
ethnicity such as CFPB’s section 1071
data, once available.
Some commenters opposed the
agencies’ proposal. Commenters
opposed to the agencies’ proposal to
disclose HMDA data by race and
ethnicity in CRA performance
evaluations stated various reasons for
their opposition. One commenter
asserted that the HMDA and the CRA
statutory purposes are different, and
that HMDA data should not be
commingled with the CRA. Another
commenter stated that HMDA data are
used extensively in fair lending reviews,
while the CRA has always focused on
income. A few commenters stated that
disclosing demographic data without
appropriate context could be confusing
or misleading to the public. One of these
commenters noted that these data could
suggest to the public that the bank is
engaging in discrimination while the
CFPB and the FFIEC have stated many
times that HMDA data are a screening
tool and cannot alone establish
discrimination. Two commenters stated
that, because this information would not
be part of the data used for CRA
examinations and thus not part of the
written evaluation, requiring
publication of HMDA data would be
outside the scope of CRA. One of these
commenters specifically stated that this
HMDA provision seeks to strengthen the
purpose of a regulation that falls outside
the agencies’ rulemaking authority, is
unrelated to a bank’s CRA performance
and the agencies’ fair lending oversight,
and lacks sufficient context by itself to
convey an accurate and comprehensive
picture of bank marketing and
advertising practices. One other
commenter suggested that, instead of
including HMDA data in the
performance evaluation, examiners
should provide a summary of their
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
findings and any disparities that
correlate to, or are offset by, a bank’s
other performance metrics. Finally, a
few other commenters opposed the
disclosure of HMDA data for other
reasons, including that it would be an
unjustified duplication of reporting and
would not increase transparency
because HMDA data are already
available to the public; there are already
sufficient existing data metrics to
measure a bank’s mortgage lending
without HMDA data; it could
improperly incentivize banks to allow
racial and ethnic characteristics of
applicants to influence credit decisions;
and if the data will not be included in
CRA conclusions, it is a burden that is
not justified by the regulation.
Final Rule
The final rule adopts proposed
§ ll.42(j), with modifications as
described below. The agencies are not
finalizing in proposed § ll.42(j)(1),
disclosure of the HMDA data by race
and ethnicity required in final
§ ll.42(j)(2) in the bank’s CRA
performance evaluation. Instead, based
on the comments received and upon
additional agency consideration, final
§ ll.42(j)(1) provides that the relevant
agency will publish annually, based on
the data reported by large banks under
12 CFR part 1003, the data in
§ ll.42(j)(2) by borrower income level,
race, and ethnicity. In final
§ ll.42(j)(2), the Board, FDIC, or OCC,
as applicable, will publish on their
respective websites, for each large
bank’s facility-based assessment areas,
and as applicable, its retail lending
assessment areas: (1) the number and
percentage of originations and
applications of a large bank’s home
mortgage loans by borrower or applicant
income level, race, and ethnicity; (2) the
number and percentage of originations
and applications of aggregate mortgage
lending of all lenders reporting HMDA
data in the facility-based assessment
area and as applicable, the retail lending
assessment area; and (3) demographic
data of the geographic area. By
publishing this information on their
websites, the agencies are making the
existing public data available in a more
user-friendly format. The agencies also
continue to believe that public
disclosure of these data in each
assessment area will increase the
transparency of a bank’s mortgage
lending operations.
To increase public awareness that the
HMDA data by income level, race, and
ethnicity in § ll.42(j)(2) is available,
the final rule adopts two new
provisions. First, under § ll.42(j)(3) of
the final rule, upon publishing the data
PO 00000
Frm 00509
Fmt 4701
Sfmt 4700
7081
required in § ll.42(j)(2), the agencies
will ‘‘publicly announce’’ that the data
has been published on the agency’s
website. Second, as explained in the
section-by-section analysis of
§ ll.43(b)(2), the final rule also
requires a large bank to include a
written notice in their public file that
the HMDA data published by the agency
is available on the agency’s website.
Finally, consistent with the agencies’
proposed § ll.42(j)(3), renumbered in
the final rule as § ll.42(j)(4), the final
rule provides that the information
published by the agencies with respect
to race and ethnicity will not
independently impact the CRA
conclusions and ratings of a large bank.
As explained by the agencies in the
proposal, the disclosure in the final rule
also would not constitute a lending
analysis for the purpose of evaluating
redlining risk factors as part of a fair
lending examination. The agencies will
publish the HMDA data by borrower
income level, race, and ethnicity on
their own websites, not in the CRA
performance evaluation as initially
proposed. The agencies have
determined that this approach
appropriately provides the intended
transparency of publishing these data,
without adding to the length and
complexity of CRA performance
evaluations. Including these data on the
agencies’ websites will provide a more
user-friendly way to access the HMDA
data—whether by income, race, and
ethnicity—in a single place. In this
manner, the data will be readily
available to all stakeholders to analyze
trends involving lending to various
groups in the communities served by
the bank. HMDA data by income level
will continue to be included in the CRA
performance evaluation.
With respect to commenters
suggestions that HMDA data by
borrower race and ethnicity should play
a larger role in the CRA examination
process and should independently
impact a bank’s CRA ratings, the
agencies reiterate that the HMDA data is
not the only information used to
determine whether a fair lending
violation occurred, and would typically
not be sufficient, by itself, to
demonstrate that redlining exists.
However, to the extent the HMDA data
supports a conclusion that a violation
occurred in the context of a fair lending
examination, the final rule also provides
in § ll.28 that the agency’s evaluation
of a bank’s CRA performance rating is
adversely affected if the relevant
agency’s fair lending examination
concludes that discrimination occurred
based on its analysis of the HMDA data.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7082
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
The agencies have considered
comments opposing the publication of
tabulations of the HMDA data by
borrower race and ethnicity for each
bank on the ground that the purposes of
the CRA and HMDA are different in that
HMDA data on race or ethnicity are
used in fair lending examinations while
the CRA focuses on income. HMDA data
by borrower race and ethnicity are used
in fair lending examinations, and the
agencies believe that CRA and fair
lending obligations are mutually
reinforcing. For example, under the
existing CRA regulations and under the
final rule, the results of the fair lending
examination can affect a bank’s CRA
rating.1569 In addition, the agencies note
that they are not publishing the HMDA
data by race and ethnicity in the CRA
performance evaluations as initially
proposed, but on their own websites to
provide this already-existing public data
in a specific and user-friendly format.
The agencies have also considered
commenters concerns that disclosure of
the HMDA data would improperly
incentivize banks to use racial
characteristics in credit decisions. The
agencies note that the commenters did
not provide evidence for the assertion
that a more accessible presentation of
information that is currently available to
the public would result in such an
outcome. In addition, the agencies
examine banks to ensure their lending
meets safety and soundness and
consumer protection requirements,
including fair lending laws and
regulations. The agencies believe that
these laws and regulations, along with
examinations to ensure compliance,
provide adequate safeguards against
racial characteristics becoming an
impermissible basis for credit decisions
under the final rule.
In response to some commenters that
raised issues about potential burdens
related to HMDA data publication, the
final rule provides that the agencies take
existing HMDA data and publish it on
the agency’s website. The operative
provisions of the final rule do not
increase regulatory burden for large
banks in a perceptible manner.
The agencies considered commenters
suggestion that disclosure of these
tabulations would be duplicative since
HMDA data are publicly available, or
that it would not meaningfully increase
transparency. The agencies believe that
providing the distribution of the bank’s
home mortgage loan originations and
applications by income level, race, and
ethnicity in each of the bank’s
assessment areas will increase the
1569 See current 12 CFR ll.28(c)(1)(i) and final
§ ll.28(d)(3)(i).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
transparency of a bank’s mortgage
lending operations. Although the
HMDA data are publicly available, the
agencies currently do not provide these
specific tabulations to the public, as
previously noted. In addition, by
publishing these tabulations on the
relevant agency’s website and publicly
announcing that they are available, the
agencies believe the data will be
accessible to more stakeholders to
analyze trends involving lending to
various groups within the communities
served by the bank.
The agencies are sensitive to
commenter concerns that disclosing
HMDA data without appropriate context
could be confusing or misleading. The
agencies intend to address this issue in
part by providing a statement, along
with the release of the tabulations of the
HMDA data in § ll.42(j)(2), regarding
some of the limitations of the data. The
agencies also acknowledge that while
the information on race and ethnicity
within the HMDA data can be used to
analyze and identify fair lending risks,
they are not the only data used to make
a determination of whether a fair
lending violation occurred. However, as
explained in the proposal, separate from
this disclosure, to the extent that
analysis of HMDA reportable mortgage
lending along with additional data and
information evaluated during a fair
lending examination leads the relevant
agency to conclude that discrimination
occurred, a bank’s CRA rating may be
affected (see the section-by-section
analysis of § ll.28(d)).
Upon consideration of the comments,
the agencies decline to extend the
tabulations by race and ethnicity of
HMDA data to all banks, rather than just
large banks. The agencies decided to
focus the tabulation of publication of
HMDA data on the agencies’ websites
on just large banks because these
institutions are the most significant
mortgage lenders among banks.
Finally, regarding commenters’
recommendations to disclose data on
non-mortgage lending based on race and
ethnicity, such as CFPB’s section 1071
data, the agencies decline to expand
disclosure of data based on race and
ethnicity. The agencies’ purpose for
disclosing HMDA data by race and
ethnicity in the proposal was, and in
this final rule is, to increase
transparency in a bank’s mortgage
lending operations. Disclosing data for
non-mortgage lending by race and
ethnicity would be outside the scope of
the agencies’ proposal. In addition,
racial and ethnic data on non-mortgage
lending, such as the CFPB’s section
1071 data, are not available for
disclosure at this time. The agencies do
PO 00000
Frm 00510
Fmt 4701
Sfmt 4700
not believe it is a prudent course of
action to address the disclosure of the
data before preliminary issues such as
access to the data itself are resolved.
Section ll.43 Content and
Availability of Public File
Section ll.43(a) Information
Available to the Public
Current Approach
Under the current CRA regulations, a
bank is required to maintain a public
file that includes specific information
related to the bank’s branches, services,
and performance in helping meet
community credit needs.1570 The public
file must include all written comments
received from the public for the current
year and each of the two prior calendar
years related to the bank’s performance
in helping to meet community credit
needs, along with any responses by the
bank,1571 and a copy of the public
section of the bank’s most recent CRA
performance evaluation.1572 The public
file is also required to include: a list of
the bank’s current branches, their street
addresses, and geographies; 1573 a list of
branches that have opened or closed
during the current year and each of the
prior two calendar years; 1574 a list of
services generally offered at the bank’s
branches, and if a bank chooses,
information regarding alternative
delivery systems; 1575 and a map of each
of the bank’s assessment areas.1576 A
bank may opt to add any other
information to its public file.1577
The Agencies’ Proposal
The agencies proposed to maintain
the current requirements in § ll.43
regarding information that banks must
include in their public files, with
additional clarification regarding
specific aspects of those requirements.
Consistent with a technical change
throughout the regulatory text, the
agencies proposed replacing the term
‘‘geographies’’ with the term ‘‘census
tracts’’ to specify the geographic level at
which a bank must provide information
on its current branches, and branches
that have been opened or closed during
the current year and each of the prior
two calendar years.
In addition, the agencies proposed
technical changes to current
§ ll.43(a)(5), regarding the list of
services that a bank must include in its
current 12 CFR ll.43(a).
current 12 CFR ll.43(a)(1).
1572 See current 12 CFR ll.43(a)(2).
1573 See current 12 CFR ll.43(a)(3).
1574 See current 12 CFR ll.43(a)(4).
1575 See current 12 CFR ll.43(a)(5).
1576 See current 12 CFR ll.43(a)(6).
1577 See current 12 CFR ll.43(a)(7).
1570 See
1571 See
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
public file. Proposed § ll.43(a)(5)
referred to ‘‘retail banking services,’’ as
defined in proposed § ll.12,1578 rather
than ‘‘services’’ as it is described in
current § ll.43(a)(5).1579 Current
§ ll.43(a)(5) also states that, ‘‘[a]t its
option, a bank may include information
regarding the availability of alternative
systems for delivering retail banking
services (e.g., ATMs, banking by
telephone, computer, or mail, loan
production offices, and bank-at-work
programs).’’ 1580 Proposed § ll.43(a)(5)
revised the current provision to reflect
changes to the types of alternative
systems commonly used—specifically,
the proposal referred instead to ‘‘mobile
or online banking, loan production
offices, and bank-at-work or mobile
branch programs.’’
The agencies also proposed changes
to the information that large banks
would need to include in their public
file related to assessment areas.
Specifically, the agencies proposed to
update current § ll.43(a)(6) to replace
the reference to ‘‘assessment area’’ with
‘‘facility-based assessment area and
retail lending assessment area,’’ thus
requiring a bank to include in its public
file ‘‘[a] map of each facility-based
assessment area and retail lending
assessment area showing the boundaries
of the area and identifying the census
tracts contained within the area, either
on the map or in a separate list.’’ 1581
Comments Received and Final Rule
ddrumheller on DSK120RN23PROD with RULES2
The agencies received no comments
regarding the technical changes
described above in proposed
§ ll.43(a) and are finalizing those
revisions as proposed. In addition, the
agencies are clarifying ‘‘current year’’
requirements in the following public file
provisions:
• Section ll.43(a)(1), which
requires a bank to include in the public
file all written comments received from
the public for the current year and each
of the two prior calendar years related
to the bank’s performance in helping to
1578 ‘‘Retail banking services’’ was defined in the
proposal to mean, ‘‘retail financial services
provided by a bank to consumers, small businesses,
and small farms and includes a bank’s systems for
delivering retail financial services.’’ Proposed
§ ll.12.
1579 The current regulation describes ‘‘services’’
as including ‘‘hours of operation, available loan and
deposit products, and transaction fees’’ that are
‘‘generally offered at the bank’s branches.’’ Current
12 CFR ll.43(a)(5).
1580 Under the FDIC’s CRA regulations, current 12
CFR 345.43(a)(5) describes alternative delivery
systems as ‘‘RSFs, RSFs not owned or operated by
or exclusively for the bank, banking by telephone
or computer, loan production offices, and bank-atwork or bank-by-mail programs.’’
1581 See proposed § ll.43(a)(6).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
meet community credit needs, along
with any responses by the bank; and
• Section ll.43(a)(4), which
requires a list of branches opened or
closed by the bank during the current
year and each of the prior two calendar
years.
Specifically, these provisions are
revised to require a bank to update its
list of branches opened and closed
(§ ll.43(a)(1)) and written public
comments (§ ll.43(a)(4)) for the
current year ‘‘on a quarterly basis for the
prior quarter by March 31, June 30,
September 30, and December 31.’’ This
is in addition to each of the two prior
calendar years. Based on supervisory
experience, the agencies believe that the
term ‘‘current year’’ is ambiguous, and
therefore, are clarifying that banks are
required to update their public files
with this information on a designated
quarterly basis. The agencies believe
that regulatory burden will be reduced
by mitigating confusion regarding
whether banks must continuously
update the public file with the list of
branches opened and closed, and with
comments received during the current
year.
Finally, the agencies received one
comment relating to the assessment area
map requirement in proposed
§ ll.43(a)(6). Specifically, this
commenter recommended that the
public file maintain at least five years of
assessment area maps that include the
majority-minority census tracts and the
original date of the acquisition or
establishment of a branch. After
consideration of this comment, the
agencies are finalizing the requirement
for assessment areas in § ll.43(a)(6) as
proposed with a clarification to make
clear that a bank is required to include
in its public file a map of retail lending
assessment areas, ‘‘as applicable.’’
The agencies believe that more
extensive map requirements beyond the
agencies’ proposal, especially
maintaining five years of maps, would
be overly burdensome for banks. In
addition, the agencies consider the
focus of CRA to be on low- and
moderate-income census tracts, rather
than majority-minority census tracts.
Finally, the agencies believe that
requiring banks to include the original
date of the acquisition or establishment
of a branch is duplicative and
unnecessary, since the establishment
date for bank branches is already
publicly available from the FDIC’s
website.
PO 00000
Frm 00511
Fmt 4701
Sfmt 4700
7083
Section ll.43(b) Additional
Information Available to the Public
Current Approach
Current additional public file
requirements vary based on a bank’s
size and circumstances. A bank, except
a small bank or a bank that was a small
bank in the prior calendar year, must
include in its public file for each of the
prior two calendar years the following
information for the bank and, if
applicable, its affiliates: a copy of the
bank’s CRA Disclosure Statement 1582
and, if a bank has elected to have one
or more categories of its consumer loans
considered, the number and amount of
each category of consumer loans made
by the bank and its affiliates (1) to low, moderate-, middle-, and upper-income
individuals; (2) located in low-,
moderate-, middle-, and upper-income
census tracts; and (3) located inside the
bank’s assessment areas and outside of
the bank’s assessment areas.1583 HMDA
reporting institutions must include a
statement in the public file that their
HMDA data may be obtained on the
CFPB’s website, as well as the name of
any affiliate whose home mortgage
lending the bank elected to have
considered in its CRA evaluation and a
written notice that the affiliates’ HMDA
data may be obtained on the CFPB’s
website.1584
Under current requirements, a small
bank or a bank that was a small bank
during the prior calendar year must
include in its public file the bank’s loanto-deposit ratio for each quarter of the
prior calendar year 1585 and, if it elects
to be evaluated under the lending,
investment, and service tests, it must
include the information that other banks
subject to these tests must report, as
provided above.1586 A bank evaluated
according to an approved strategic plan
must include a copy of the plan in its
public file.1587 Finally, a bank that
received less than a ‘‘Satisfactory’’
rating during its most recent
examination must include in its public
file a description of its current efforts to
improve its performance in helping to
meet the credit needs of its entire
community and update the description
quarterly.1588
current 12 CFR ll.43(b)(1)(ii).
current 12 CFR ll.43(b)(1)(i).
1584 See current 12 CFR ll.43(b)(2).
1585 See current 12 CFR ll.43(b)(3)(i). At its
option, a bank may include in its public file
additional data on its loan-to-deposit ratio. See id.
1586 See current 12 CFR ll.43(b)(3)(ii) (crossreferencing current 12 CFR ll.43(b)(1)).
1587 See current 12 CFR ll.43(b)(4).
1588 See current 12 CFR ll.43(b)(5).
1582 See
1583 See
E:\FR\FM\01FER2.SGM
01FER2
7084
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
The Agencies’ Proposal
The agencies proposed to revise
current § ll.43(b)(1) to reflect the
proposed designations of banks as
‘‘small,’’ ‘‘intermediate,’’ and ‘‘large,’’
such that this provision instead would
apply to ‘‘large’’ banks. The agencies
also proposed to remove current
§ ll.43(b)(1)(i), because consumer
loans would not be considered under
the proposed Retail Lending Test for
banks subject to this provision.
As a result of the proposed removal of
current § ll.43(b)(1)(i), the agencies
proposed to renumber current
§ ll.43(b)(1)(ii), requiring a bank
(other than a small bank or an
intermediate bank) to include in its
public file a copy of the bank’s CRA
Disclosure Statement, to § ll.43(b)(1).
Proposed § ll.43(b)(1) required that
banks subject to data reporting
requirements described in proposed
§ ll.42 include in their public file a
written notice that the bank’s CRA
Disclosure Statement pertaining to the
bank, its operations subsidiaries or
operating subsidiaries, and any other
affiliates, if applicable, may be obtained
on the FFIEC’s website. This would be
a change from current § ll.43(b)(1)(ii),
which requires a bank to include the
CRA Disclosure Statement itself in its
public file. Proposed § ll.43(b)(1) also
differed from current § ll.43(b)(1)(ii)
in adding reference to the CRA
Disclosure Statement of a bank’s
operations subsidiaries or operating
subsidiaries, and any other affiliate of
the bank, if applicable.
The agencies also proposed to revise
current § ll.43(b)(2), pertaining to
information that must be available to the
public for banks that are required to
report home mortgage loan data under
HMDA. Proposed § ll.43(b)(2)
referenced not only affiliates whose
home mortgage lending the bank opted
to have considered as part of its CRA
evaluation, but also operations
subsidiaries or operating subsidiaries
whose home mortgage lending is
required to be considered under the
proposal.1589
In addition, the agencies proposed to
remove current § ll.43(b)(3)(ii), which
requires small banks that elected to be
evaluated under the lending,
investment, and services test to include
in their public file the information
required under current § ll.43(b)(1)(i)
and (ii) described above.
Further, the agencies proposed
technical revisions to current
§ ll.43(b)(5), regarding public file
requirements for banks with a less than
1589 See
18:11 Jan 31, 2024
Comments Received and Final Rule
The agencies received no comments
regarding the changes in proposed
§ ll.43(b)(1) or the removal of the
requirements under current
§ ll.43(b)(1)(i) and (b)(3)(ii) and are
finalizing these revisions as proposed.
Specifically, with respect to
§ ll.43(b)(1), the agencies believe
adding the reference to the CRA
Disclosure Statement of a bank’s
operations subsidiaries or operating
subsidiaries, and its other affiliates, if
applicable, reflects that in some cases
the activities of operations subsidiaries
or operating subsidiaries, as defined in
§ ll.12 (proposed and final), as well
as the activities of other affiliates, will
be considered in a bank’s CRA
evaluation.1590
The agencies also believe that
retaining current § ll.43(b)(1)(i) and
(b)(3)(ii), is unnecessary. With respect to
§ ll.43(b)(1)(i), in the final rule,
consumer loans, with the exception of
automobile loans as specified in the
section-by-section analysis of § ll.22,
will no longer be considered under the
Retail Lending Test; therefore, a bank is
no longer required to include in its
public file the information required in
§ ll.43(b)(1)(i). Instead, the agencies
will consider the qualitative aspects of
consumer loans (except automobile
loans) only under the Retail Services
and Products Test as explained in the
section-by-section analysis of § ll.23.
Therefore, removing current
§ ll.43(b)(1)(i) is appropriate. With
respect to § ll.43(b)(3)(ii), with the
removal in the final rule of current
§ ll.43(b)(1)(i), as just explained, the
only requirement remaining in current
§ ll.43(b)(1) would be the CRA
Disclosure Statement in
§ ll.43(b)(1)(ii). Because a small bank
is not required to report CRA loan data
under § ll.42 (proposed and final), a
CRA Disclosure Statement would not be
prepared for a small bank to place in its
public file. Therefore, the requirements
in current § ll.43(b)(3)(ii) no longer
apply to small banks, making the
provision unnecessary. The agencies
also made technical changes to the
inline header of § ll.43(b)(1) to make
clear that this paragraph applies to any
bank subject to the data reporting
requirements under § ll.42 and to
1590 See the section-by-section analysis of
§ ll.21(b).
proposed § ll.21(c)(1).
VerDate Sep<11>2014
‘‘Satisfactory’’ rating, for clarity.
Proposed § ll.43(b)(5) reflected
current § ll.43(b)(5), but specified
that quarterly updates must occur by
March 31, June 30, September 30, and
December 31.
Jkt 262001
PO 00000
Frm 00512
Fmt 4701
Sfmt 4700
update the FFIEC’s website link for
where the CRA Disclosure Statement
may be obtained.
The agencies are also adopting
proposed § ll.43(b)(2), with
modifications related to the disclosure
of the HMDA data on borrower race and
ethnicity in final§ ll.42(j). See the
section-by-section analysis of
§ ll.42(j). Proposed § ll.43(b)(2)
pertains to the requirement that HMDAreporting banks include in their public
file a written notice that the bank’s
HMDA data in § ll.42(j) can be
obtained at the CFPB’s website.
Specifically, the agencies are
renumbering proposed § ll.43(b)(2) as
§ ll.43(b)(2)(i), and are adopting new
§ ll.43(b)(2)(ii), which requires a large
bank to include in their public file a
written notice that the HMDA data
published by the Board, FDIC, or OCC,
as applicable, under § ll.42(j)(1) is
available on the Board’s, FDIC’s, or
OCC’s website (see the section-bysection analysis of § ll.42(j)). The
agencies are adopting this new
provision to increase transparency and
awareness of a bank’s mortgage lending
operations. After the transition to the
section 1071 data takes effect, banks
required to report HMDA data and
small-business lending data will also be
required to include in their public file
a written notice that the bank’s small
business loan and small farm loan data
is available at the CFPB’s website.1591
The agencies are finalizing proposed
§ ll.43(b)(4) with a technical change
to clarify that a bank evaluated under a
strategic plan must include a copy of the
plan in its public file while the plan is
in effect.
With respect to proposed
§ ll.43(b)(5), the agencies received
one comment which, as discussed
above, pertained to public file
requirements for banks with a less than
‘‘Satisfactory’’ rating. The commenter
suggested that when a bank receives a
‘‘Low Satisfactory’’ conclusion for an
assessment area or a subtest, the bank
should be required to submit a public
improvement plan with measurable
performance goals (the same or similar
to metrics on CRA examinations)
indicating how a bank will improve its
1591 The transition amendments included in this
final rule will permit the agencies to transition the
CRA data collection and reporting requirements for
small business loans and small farm loans to the
CFPB’s section 1071 data. This is consistent with
the agencies’ intent articulated in the preamble to
the proposal and elsewhere in this final rule to
transition to the CFPB’s section 1071 data for small
business loan and small loan data under the CRA
regulations. The agencies will provide notice of the
effective date of this amendment in the Federal
Register once the CFPB section 1071 data are
available.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
performance. The agencies have
considered this comment and are
finalizing § ll.43(b)(5) as proposed.
Since final § ll.43(b)(5) requires that
a bank that received a less than
‘‘Satisfactory’’ rating during its most
recent examination must include in its
public file a description of its current
efforts to improve its performance in
helping to meet the credit needs of its
entire community, the agencies believe
this provision covers the suggested
‘‘improvement plan’’ made by the
commenter.
Section ll.43(c) Location of Public
Information
Section ll.43(d) Copies
Section ll.43(e) Timing Requirements
ddrumheller on DSK120RN23PROD with RULES2
Current Approach
Under current § ll.43(c), a bank’s
entire public file must be available for
public inspection upon request at no
cost: (1) at its main office; and (2) if a
bank operates in more than one State, at
one branch office in each of these
States.1592 At each branch, upon
request, a bank must make available for
inspection the bank’s most recent CRA
performance evaluation and a list of
services provided by the branch, as well
as, within five calendar days of the
request, all of the information in the
public file relating to the branch’s
assessment area.1593
Under current § ll.43(d), when
requested, a bank must also provide a
copy of its CRA public file either on
paper or in another form acceptable to
the person making the request, and may
charge a reasonable fee to cover copying
and mailing costs.1594
Under current § ll.43(e), a bank is
required to ensure, unless otherwise
provided in § ll.43, that the
information required by § ll.43 is
current as of April 1 of each year.
The Agencies’ Proposal
The agencies proposed to revise
current § ll.43(c)(1) to require any
bank with a public website to include
its CRA public file on its website to
increase accessibility. If a bank does not
maintain a public website, the agencies
proposed that a bank would have to
maintain public file information
consistent with current rules—namely,
at the main office and, if an interstate
bank, at one branch office in each
State.1595
Consistent with current
§ ll.43(c)(2)(i), proposed
current 12 CFR ll.43(c)(1).
current 12 CFR ll.43(c)(2).
1594 See current 12 CFR ll.43(d).
1595 See proposed § ll.43(c)(1).
1592 See
1593 See
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
§ ll.43(c)(2)(i) required that a bank
must make available to the public a
copy of the public section of the bank’s
most recent CRA performance
evaluation and a list of services
provided by the branch.1596 Proposed
§ ll.43(c)(2)(ii) required that, within
five calendar days of the request, a bank
make available all of the information in
the public file relating to the branch’s
‘‘facility-based assessment area.’’ The
agencies proposed to refer to ‘‘facilitybased assessment area’’ rather than
‘‘assessment area’’ to reflect the
proposed changes to the CRA evaluation
framework regarding assessment areas.
See, e.g. the section-by-section analysis
of §§ ll.16 and ll.17.
Proposed § ll.43(d) required banks
to provide, on request, either in paper
or in a digital form acceptable to the
person making the request, copies of the
information in the bank’s public file. As
allowed currently, banks would be able
to charge reasonable copying and
mailing costs for the provision of paper
copies.
In addition, the agencies proposed to
revise current § ll.43(e) to require
that, except as otherwise provided in
proposed § ll.43, a bank ensures that
its public file contains the information
required by proposed § ll.43 ‘‘for
each of the previous three calendar
years, with the most recent calendar
year included in its file annually by
April 1 of the current calendar year.’’
Comments Received and Final Rule
The agencies are finalizing proposed
§ ll.43(c), pertaining to the location of
information that a bank must make
available to the public, with technical
changes for clarity. The agencies
received only a few comments on this
section; all commenters supported the
agencies’ proposed revisions to
§ ll.43(c). As explained in the
proposal, the agencies believe that
updating this provision to allow any
bank with a public website to include
its CRA public file on the bank’s public
website, will make a bank’s CRA public
file more readily accessible to the
public.
The agencies are revising proposed
§ ll.43(c)(1) with a technical change
to separate the location requirements for
a bank’s public file. Under final
§ ll.43(c)(1), all information required
for the bank’s public file must be
maintained on the bank’s website, if the
bank maintains one. Under final
§ ll.43(c)(2), the agencies are
1596 Proposed § ll.43(c)(2) should have
reflected, consistent with current § ll.43(c)(2),
that a bank must make the information in proposed
§ ll.43(c)(2)(i) and (ii) available to the public at
each branch. The final rule is revised to clarify this.
PO 00000
Frm 00513
Fmt 4701
Sfmt 4700
7085
clarifying the requirements for banks
that do not maintain a website. As
proposed, final § ll.43(c)(2)(i)
requires that a bank must maintain all
the information required for the bank’s
public file at the main office, and, if an
interstate bank, at one branch office in
each State. Final § ll.43(c)(2)(ii)
clarifies that at each branch, the bank is
required to maintain a copy of the
public section of the bank’s most recent
CRA performance evaluation and a list
of services provided by the branch. This
clarification is consistent with the
requirements that banks must make
available at each branch under current
CRA regulations, as well as the agencies’
intent under proposed § ll.43(c)(2), as
described in the proposal.1597
The agencies are adopting § ll.43(d)
and (e) as proposed. The agencies did
not receive comments on proposed
§ ll.43(d), regarding a bank’s
obligation to provide copies of its CRA
public file on request, and proposed
§ ll.43(e), requiring a bank to
maintain three years of information and
ensure that its public file is current as
of April 1 of each year, except as
otherwise provided in § ll.43. With
respect to the revisions in § ll.43(e) to
maintain the information for three years,
most banks, with certain exceptions, are
evaluated during a three-year
examination cycle, and as a result, the
agencies believe that the public is best
served when a bank maintains the
information on its activities and any
changes that may have occurred since
the bank’s last CRA performance
evaluation. The agencies also believe
that this expansion will result in
minimal, if any, associated burden to
banks since under the final rule, banks
will be required to maintain their public
file in digital form (if the bank
maintains a website), as provided in
§ ll.43(c)(1). The agencies note that
certain provisions in § ll.43 have
other timing requirements under which
the bank must maintain information in
its public file. For example, as
explained in the section-by-section
analysis of § ll.43(a)(1), a bank must
maintain all written comments received
by the bank and any responses to the
comments by the bank, for the current
year, updated on a quarterly basis, and
the prior two calendar years.
Section ll.44
Banks
Public Notice by
Current Approach
Under the current CRA regulations, a
bank must provide in the public lobby
of its main office and each of its
1597 See
E:\FR\FM\01FER2.SGM
87 FR 33884, 34004 (June 3, 2022).
01FER2
7086
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
branches the appropriate public notice,
as set forth in appendix B (CRA Notice),
that includes information about the
availability of a bank’s public file, the
appropriate Federal financial
supervisory agency’s CRA examination
schedule, and how a member of the
public may provide public
comment.1598 A branch of a bank having
more than one assessment area must
include certain content in the notice for
branch offices.1599 Bank affiliates of a
holding company must include the
second to the last sentence of the
notice.1600 Bank affiliates of a holding
company that is not prevented by
statute from acquiring additional banks
must also include contact information of
the bank’s Federal regulatory agency so
that the public may request information
about applications covered by the CRA
filed by the bank’s holding
company.1601
The Agencies’ Proposal
ddrumheller on DSK120RN23PROD with RULES2
The agencies did not propose
substantive changes to the CRA public
notice requirements in current § ll.44
and current appendix B, renumbered in
the proposal as appendix F.1602 Under
proposed § ll.44 and proposed
appendix F, banks would continue to be
required to provide in the public area of
their main office and each of their
branches the CRA Notice. Consistent
with current requirements, only a
branch of a bank having more than one
facility-based assessment area would be
required to include certain content in
the notice for branch offices; notices
would not be required for proposed
retail lending assessment areas.1603 The
agencies also proposed retaining the
required content for bank affiliates of a
bank holding company.1604 To update
the notice, the agencies proposed
adding instructions for submitting
comments on a bank’s performance in
meeting community credit needs not
only by mail, but also electronically.1605
1598 See current 12 CFR ll.44 and current
appendix B.
1599 See id. The additional required content is
bracketed in appendix B: ‘‘[If you would like to
review information about our CRA performance in
other communities served by us, the public file for
our entire bank is available at (name of office
located in state), located at (address).]’’
1600 See current 12 CFR ll.44 and current
appendix B (‘‘We are an affiliate of (name of
holding company), a bank holding company.’’).
1601 See current 12 CFR ll.44 and current
appendix B (‘‘You may request . . . an
announcement of applications covered by the CRA
filed by bank holding companies.’’).
1602 See proposed § ll.44 and proposed
appendix F.
1603 See id.
1604 See id.
1605 See proposed appendix F.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Comments Received and Final Rule
The agencies are adopting § ll.44
and appendix F substantively as
proposed.1606 The agencies received few
comments concerning these proposed
CRA public notice provisions. One
commenter supported the agencies’
proposal regarding the public notice a
bank is required to post in the public
area of its main office and at each of its
branches. Another commenter asked
that the agencies consider requiring that
banks post the required notice not only
as currently required, but also
prominently display the bank’s CRA
ratings in branch entrances and on the
bank’s public websites to make CRA
ratings more transparent and publicly
visible.
The agencies have considered
comments received on these provisions
and believe that disclosing the bank’s
CRA rating in the bank’s CRA
performance evaluation, which will be
available on the bank’s public website,
if it maintains one, and on agency
websites, is appropriate and consistent
with the requirements of the CRA.
Posting a bank’s CRA rating in branch
entrances and on the bank’s public
website could be misinterpreted without
the appropriate context, including, as
required under the statute, a ‘‘statement
describing the basis for the rating.’’1607
Section ll.45 Publication of Planned
Examination Schedule
Current Approach and the Agencies’
Proposal
Under current § ll.45, the agencies
publish at least 30 days in advance of
the beginning of each calendar quarter
a list of banks scheduled for CRA
examinations in that quarter. The
agencies proposed to revise current
§ ll.45 to provide greater specificity
and to reflect the agencies’ actual
practice of publishing the examination
schedule. Specifically, proposed
§ ll.45 required that the relevant
agency ‘‘publish on its public website,
at least 60 days in advance of the
beginning of each calendar quarter, a list
of banks scheduled for CRA
examinations for the next two quarters.’’
As noted in the proposal, the agencies
intended to provide additional advance
notice to the public of the examination
schedule and codify the agencies’
current practice.1608
Comments Received
Several commenters supported the
proposal stating that it would facilitate
1606 See
supra note 145.
U.S.C. 2906(b)(1)(A)(iii).
1608 See 87 FR 33884, 34004 (June 3, 2022).
1607 12
PO 00000
Frm 00514
Fmt 4701
Sfmt 4700
public engagement in the CRA process
and enable banks to better respond to
community needs. Several others asked
that the agencies consider providing at
least 90 days for the public to comment
on CRA examinations. A few other
commenters also recommended that the
agencies provide a registry where
interested groups could sign up for
notifications when performance reviews
are scheduled so that they can provide
timely comments. One commenter
suggested that the agencies encourage
public comments to be made at any
time, including outside the normal CRA
schedule. One commenter expressed the
view that the current approach was
appropriate and believed there was no
need for changes regarding publishing
the planned examination schedule.
Final Rule
In the final rule, the agencies are
revising proposed § ll.45 to provide
that the agencies will publish, 30 days
in advance of each calendar quarter, a
list of banks scheduled for CRA
examinations for the next two quarters.
As explained in the proposal, the
agencies intended to codify the current
practice. The current practice is to
publish a list of banks scheduled for
CRA examinations for the next two
quarters at least 30 days in advance of
the beginning of each calendar quarter,
not 60 days. Although the current
regulation requires publication of a list
of banks scheduled for CRA
examinations for the upcoming calendar
quarter at least 30 days in advance of
that quarter, the agencies’ practice for
several years has been to publish a list
of banks scheduled for CRA
examinations for the next two quarters
to allow interested parties more time to
review and provide meaningful
comments on a bank’s performance
before a CRA examination. By
publishing a list of banks scheduled for
CRA examinations in the upcoming two
calendar quarters, 30 days in advance of
each calendar quarter, the agencies
effectively provide at least 120 days
advance notice for upcoming CRA
examinations.
Regarding the recommendation of
some commenters that the agencies
provide a registry for interested groups
to sign up for notifications when
performance reviews are scheduled so
they can provide timely comments for
scheduled examinations, the agencies
note that any member of the public can
sign up to receive the agencies’
notifications, including those
communicating the next two quarters of
scheduled CRA examinations. As
discussed in the section-by-section
analysis of § ll.46, the agencies
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
recognize that transparency and public
engagement are fundamental aspects of
the CRA evaluation process and,
therefore, encourage communication
between members of the public and
banks before, during, and after a CRA
examination is scheduled.
Section ll.46
Public Engagement
Section ll.46(a) General
Section ll.46(b) Submission of Public
Comments
Section ll.46(c) Timing of Public
Comments
Currently, members of the public may
submit comments to the agencies
regarding a bank’s CRA performance
over the relevant evaluation period.
Members of the public may also submit
comments in connection with banking
applications, including in connection
with bank mergers and acquisitions.
ddrumheller on DSK120RN23PROD with RULES2
The Agencies’ Proposal
The agencies proposed a new
provision in the CRA regulations to
clarify and promote community
engagement in the CRA examination
process. Specifically, proposed
§ ll.46(a) affirmatively stated that the
agencies ‘‘encourage[ ] communication
between members of the public and
banks, including through members of
the public submitting written public
comments’’ and also expressly stated
that the agencies ‘‘take these comments
into account in connection with the
bank’s next scheduled CRA
examination.’’ 1609 This new provision
specified that comments encouraged
and considered include those that
address ‘‘community credit needs and
opportunities as well as regarding a
bank’s record of helping to meet
community credit needs.’’ 1610 Proposed
§ ll.46(b) provided that members of
the public may submit comments
electronically to the relevant agency.
Proposed § ll.46(c) explained that
comments received by the agencies
before the close of an examination
would be considered in connection with
that examination, while comments
received after the close date of an
examination would be considered in
connection with the subsequent CRA
examination.
The agencies requested feedback on
other ways the agencies could
encourage public engagement, and
whether the agencies should ask for
public comments on community credit
needs and opportunities in specific
geographic areas.
§ ll.46(a).
(emphasis added).
1609 Proposed
1610 Id.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Comments Received
Additional ways to encourage public
engagement. The agencies received
many comments from a wide range of
commenters. In general, the vast
majority of these commenters supported
the proposed public engagement
provisions in § ll.46, expressing the
view that public input is an important
element in the CRA examination
process, which the agencies should
routinely solicit. Many of these
commenters also argued that the current
CRA rules and the proposal do a poor
job of encouraging and valuing
community input, asserting that
community comments on examinations
are not solicited and, when provided,
are ignored or not taken seriously. These
commenters offered numerous
recommendations intended to promote
public engagement and increase
transparency and accountability on the
part of examiners to consider the
comments as part of the examination
process. Recommendations included
specific actions the agencies could take,
for example: elevating the importance of
public comments regarding the extent to
which banks meet community needs;
providing public commenters the ability
to submit comments to the appropriate
agency’s website; developing clear
instructions about to whom to send CRA
comments and when the due date is for
comments on specific CRA
examinations; establishing a public
registry for stakeholders who opt in to
being contacted by examiners when a
CRA evaluation is being conducted in
their communities and service areas and
a calendar of examinations with links
for stakeholders to provide comments;
and forwarding all public comments to
the appropriate bank and requiring that
banks post comments and their
responses on the bank’s website.
Commenters also made several other
suggestions for agency action, including
the following: publishing a list of
organizations that submitted comments,
identified by those led by people of
color and women to encourage input
from a diverse range of organizations;
increasing the number of local
community interviews and conducting
proactive outreach with a variety of
stakeholders, including community
residents and historically-underserved
groups, regarding bank performance and
identification of the impact of activities
on community needs; evaluating how
well banks solicit and incorporate
feedback from community stakeholders;
providing details on how the agencies
factor community input into the CRA
evaluation; issuing a guidance
document—similar to the illustrative
PO 00000
Frm 00515
Fmt 4701
Sfmt 4700
7087
list of activities—that would help banks
identify vulnerable communities and
build relationships to drive investment
to those communities; assembling
directors of community organizations by
geographic area; using an opt-in system
to notify interested parties when
performance reviews are scheduled; and
including provisions in the regulation
that provide for strict actions against
any bank that retaliates against
community members because of any
non-related community action,
including comments filed under the
proposal.
Commenters also recommended that
the agencies impose certain
requirements on banks to increase
public engagement, for example:
providing information to customers on
how to comment on CRA performance
periodically, including when opening
an account; creating community
advisory boards to facilitate public
engagement; complying with the terms
of Community Benefits Agreements;
soliciting input from community
groups, including climate and
environmental organizations on bank
practices relating to climate,
displacement, discrimination, and other
harmful practices, as well as how banks
can best leverage their resources to get
CRA consideration for community
development activities; requiring
documentation detailing public
outreach to, and engagement with,
organizations; and, as noted, requiring
that banks post comments and their
responses on the bank’s website.
By contrast, a few commenters
expressed the view that additional
public engagement was not necessary
and that the agencies already have
community contacts that are consulted
over the course of a CRA examination.
Comments related to the agencies’
request for feedback regarding public
comments on community credit needs
and opportunities in specific geographic
areas. Several commenters addressed
the agencies’ request for feedback
regarding public comments on
community credit needs and
opportunities in specific geographic
areas. All but one of these commenters
stated that seeking and encouraging
public comment in specific census
tracts is necessary to address the
particular needs of each community and
provided several recommendations. For
example, a few commenters noted that
asking specific questions about
community credit needs and bank
performance would be helpful to
examiners in probing whether banks
have created specific programs
responsive to identified needs and
would be useful in conducting self-
E:\FR\FM\01FER2.SGM
01FER2
7088
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
assessments and identifying unmet
credit needs and other opportunities.
Commenter feedback also included that
any final rule must include
requirements to ensure that community
participation opportunities are
accessible to people with disabilities
and people with limited English
proficiency, emphasizing the
importance of culturally-appropriate
communications and accessibility with
respect to people with disabilities or
limited language skills. Another
commenter suggested that the agencies
engage people who live in the specific
geographic areas of interest and that
U.S. Treasury Department-certified
CDFIs may be able to help facilitate the
process. One commenter noted that
providing the public an opportunity to
comment on their community credit
needs and opportunities in specific
census tracts might not be relevant for
a small or intermediate bank’s
assessment areas due to the size and
business model of that bank.
Final Rule
The agencies are adopting proposed
§ ll.46(a) through (c), providing for
the submission and timing of written
public comments on community credit
needs and opportunities, as well as the
bank’s record of helping meet
community credit needs, largely as
proposed, with one revision in
§ ll.46(b). Specifically, the agencies
removed the word ‘‘electronically’’ to
make clear that comments may be
provided both electronically and by
mail. The agencies believe that the
public engagement provisions, as
finalized, will improve public
engagement by establishing a regulatory
process whereby the public can provide
input on community credit needs and
opportunities in connection with a
bank’s next scheduled CRA
examination. This approach would be a
compliment to, not a substitute for,
examiners seeking feedback on bank
performance from members of a bank’s
community through community
contacts as part of the CRA evaluation.
The agencies also believe that the final
rule will increase transparency by
clarifying the agencies’ treatment of
public comments in connection with
CRA examinations.
The agencies have considered the
comments received and appreciate the
recommendations made. The agencies
are sensitive to commenters’ concerns
regarding the level of importance given
by the agencies to CRA public
comments. Each agency has developed
and maintains comprehensive internal
procedures to consider CRA public
comments and complaints, and CRA
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
protests related to covered applications.
Further, the agencies’ interagency
examination procedures also include
requirements for examiners to review
and consider CRA comments received
by the bank or the respective agency. As
explained in more detail in the sectionby-section analysis of § ll.45, the
agencies changed their practice several
years ago, to lengthen the period for
advanced notice of scheduled CRA
examinations, and in this final rule are
codifying this practice to give more time
for the public to submit comments to
the bank and/or its respective agency.
Regarding commenters’
recommendations for increasing public
engagement, the agencies have
determined that some of the commenter
recommendations are currently
undertaken by the agencies such as
publishing a calendar of examinations
with links for stakeholders to provide
comments and the due date and
instructions for comments to be
considered on specific CRA
examinations. Examiners also
accomplish several of commenters’
recommendations related to outreach
and consideration of public comments
on the extent to which bank
performance meets community needs by
using community contacts in
conjunction with a CRA examination.
Examiners conduct interviews with
local community contacts to gather
information that assists in the
development of performance context, to
determine opportunities for
participation by banks in helping to
meet local needs, to understand
perceptions on the performance of
banks in helping to meet local credit
needs, and to provide a context on the
community to assist in the evaluation of
a bank’s CRA performance. While these
processes address some of commenters
recommendations related to outreach
and the importance of public comments,
the agencies will consider other
recommendations, including the
recommendation to factor community
input into CRA examinations when
developing training, guidance, and
examination procedures for this final
rule. Other recommendations will be
implemented in other sections of this
final rule, as discussed further in the
section-by-section analyses of §§ ll.43
through ll.45.
The agencies believe that other
recommendations are appropriately
implemented in § ll.46 and other
sections of this final rule. For example,
the agencies believe that developing
separate instructions regarding to whom
to send comments and when comments
are due is unnecessary. The final rule’s
provision for public notice by banks in
PO 00000
Frm 00516
Fmt 4701
Sfmt 4700
§ ll.44 and the provision for
submission of public comments in
§ ll.46(b), instruct the public to send
comments to the relevant agency’s via
electronically or by mail, as applicable.
Thus, commenters may send their
comments to the appropriate agency or
to their bank, and the bank is required
to place all comments and the responses
to those comments regarding the bank’s
CRA performance in its public file as
required under § ll.43(a).1611 The
agencies are sensitive to commenters’
recommendation to require a response
to all comments received; however, the
agencies note that a bank response may
not be appropriate in all instances (e.g.,
complimentary comments, ‘‘off-topic’’
comments).
Similarly, § ll.46(c) provides the
timing under which comments will be
considered for a particular examination.
Although the agencies considered
establishing a specific window or a due
date under which comments would be
considered on specific CRA
examinations, the agencies determined
that this would carry the potential for
inaccuracies, as well as challenges
updating this information in a timely
manner, as examination dates are
subject to change depending on a wide
variety of factors. As reflected in the
final rule, the agencies believe that, if a
comment is received during an
examination, it is appropriate to
consider the comment during that
examination as these comments could
contain important information that
could affect the evaluation.
The agencies also agree with the
commenters’ suggestion that all
comments received by the agencies
should be forwarded to the appropriate
bank. As explained below in the
section-by-section analysis of
§ ll.46(d), the agencies are required
under the final rule to forward to the
bank all public comments received by
the agencies regarding a bank’s CRA
performance. The agencies note that
§ ll.43(a)(1), as finalized, requires
banks to include in their public file all
written comments and bank responses,
if applicable, for the current year and
each of the prior two calendar years that
specifically relate to the bank’s
performance in helping to meet
community credit needs. The final rule
also requires, under § ll.43(c)(1), that
the public file must be maintained on
the bank’s website if the bank maintains
one. Therefore, all comments will be on
1611 For further discussion of final § ll.43, see
the corresponding section-by-section analysis
above.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
a bank’s website to the extent a bank
maintains one.1612
Regarding suggestions that the
agencies establish a separate public
registry and a calendar of examinations,
the agencies note, as explained above, in
the section-by-section analysis of
§ ll.45, that the public will be able to
sign up to receive the agencies’
notification for which calendar quarter
examinations are scheduled so that the
public can prepare comments. Also, in
§ ll.45, the final rule provides that the
agencies will publish a list of banks
scheduled for CRA examinations for the
next two quarters, 30 days in advance of
each calendar quarter. The agencies
believe that these provisions will help
ensure that the public has sufficient
time for the public to prepare and
provide comments on upcoming
examinations.
Regarding the suggestion that the
agencies publish a list of organizations
led by people of color and women, the
agencies note that the race, ethnicity,
and gender of the individuals that lead
these organizations is not necessarily
known to the agencies, and that
maintaining privacy and confidentiality
is essential. For more information and
discussion regarding the agencies’
consideration of comments related to
race- and ethnicity-related provisions
for the final rule, see section III.C of this
SUPPLEMENTARY INFORMATION.
The agencies believe that other
recommendations would be best
addressed outside the final rule. For
example, although the agencies will not,
as part of this final rule, be establishing
a separate registry for comments, or
developing an illustrative list of
vulnerable communities similar to the
illustrative list of community
development activities in § ll.14, the
agencies will continue to explore
options related to these suggestions
outside of the rule. This includes
consideration of developing a portal to
accept bank-specific comments from the
public for agencies that do not already
provide this tool, and other ways for the
public to provide feedback on
community credit needs and
opportunities in specific geographic
areas as a complement to, but distinct
from, feedback on individual bank
performance. In addition, each agency
has a community affairs department that
can be an effective resource to banks for
identifying and connecting with
vulnerable communities and
populations. Community affairs
departments also have contacts and
conduct outreach with local community
organizations throughout the country.
1612 See
id.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
The agencies have also considered
commenters’ recommendations that the
agencies evaluate how well banks solicit
and incorporate feedback, and that the
agencies impose certain requirements
on banks to increase public engagement.
The agencies recognize the critical role
of public engagement in helping banks
meet the credit needs of their
communities. In considering these
comments and the importance of public
engagement, the agencies note that there
are a multitude of ways that a bank can
obtain valuable feedback from the
public and its community, and these
mechanisms are not equally effective for
all banks and all communities. For this
reason, the agencies believe that
effective public engagement can be
promoted by allowing banks to tailor
their public engagement initiatives to
their size and the unique characteristics
of their communities, rather than for the
agencies to prescribe the manner in
which they must occur. In this regard,
the agencies believe that agency training
and outreach with banks can play an
important role in encouraging
accessibility to the public participation
process with respect to, for example,
people with disabilities or limited
language skills, and will continue to
consider ways to encourage inclusive
community participation in the CRA
process. Importantly, the CRA
evaluation itself focuses on the results
the bank produces from incorporating
public feedback.
Finally, the agencies are appreciative
of commenters’ suggestions that public
comments on community credit needs
and opportunities and bank
performance are necessary and should
be provided through a portal at any
time. Each agency will consider whether
to establish outside of this final rule a
way for the public to provide feedback
on community credit needs and
opportunities in specific geographic
areas.
Section ll.46(d) Distribution of Public
Comments
Consistent with current practice,
proposed § ll.46(d) provided that the
relevant agency ‘‘forward all public
comments received regarding a bank’s
CRA performance to that bank.’’
Proposed § ll.46(d) also provided that
each agency ‘‘may also publish the
public comments on its public website.’’
Although the agencies did not receive
any comments specifically addressing
this provision, the agencies did receive
comments requesting that the agencies
forward public comments to the
appropriate bank as explained above in
the section-by-section analysis of
§ ll.46(a) regarding ways to increase
PO 00000
Frm 00517
Fmt 4701
Sfmt 4700
7089
public engagement. On consideration of
the comments and further deliberation,
the agencies are finalizing the portion of
proposed § ll.46(d) providing that the
agencies will forward all public
comments received regarding a bank’s
CRA performance to the bank, and
removing the reference to the agencies
publishing public comments on their
public websites.
The final rule memorializes the
agencies’ current practice of forwarding
public comments received by the
agencies to the appropriate bank for
review and, if appropriate, a response to
the issues raised in the public comment.
The agencies believe that the process of
forwarding the comments to the bank is
critical in order to make adjustments
and improvements, if needed, to the
bank’s efforts to serve its communities.
Providing for the forwarding of these
comments in the final rule will
recognize the value of this practice, and
help ensure consistency in its
application, which the agencies believe
will benefit banks in their efforts to
meet the credit needs of their
communities, as well as the
communities they serve.
The agencies are also revising
proposed § ll.46(d) by removing
language from the regulatory text that
states that each agency ‘‘may also
publish the public comments on its
public website.’’ The agencies have
determined that agency-posted
comments represent only a subset of
comments received regarding banks in
relation to the CRA and, therefore,
would be incomplete, are redundant to
a bank’s public file,1613 and further
strain agency resources.
In relation to proposed § ll.46, the
agencies requested feedback on whether
the agencies should publish bankrelated data, such as retail lending and
community development financing
metrics in advance of completing an
examination to provide additional
information to the public. As discussed
below, most commenters responding to
the agencies’ request for feedback on
this question generally believed that
public availability of data is an
important aspect of helping to
determine whether banks are meeting
the needs of their communities under
the CRA. However, a few commenters
did not support publishing certain data,
including metrics, ahead of the
conclusion of an examination.
As discussed in more detail in the
section-by-section analysis of § ll.42,
many commenters supported expanding
1613 See current 12 CFRll.43(a)(1) and final
§ ll.43(a)(1), discussed in the section-by-section
analysis of final § ll.43(a).
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7090
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
the data collection and reporting
requirements applicable to banks with
assets of over $10 billion, to all large
banks, with some commenters also
recommending that the agencies’
proposed deposits, lending, and
community development data be made
publicly available. Some of these
commenters also recommended that the
agencies develop a list of economic
indicators for metropolitan and rural
areas that could be used by the public
to develop comments regarding
performance context. Such economic
indicators could include housing cost
burdens, vacancy rates, unemployment
rates, and percent of households in
poverty, as well as homeownership and
small business ownership rates. One
commenter suggested that demographic
indicators should include racial and
ethnic breakdowns. One commenter
recommended that the agencies work
with the CFPB to release additional
HMDA data, such as the number of
units financed by a multifamily loan.
Another commenter suggested the
agencies make publicly available bank
Call Reports, assessment area maps,
HMDA data, the CRA public file, and
the CFPB’s section 1071 data.
Several commenters recommended
various ways in which the data could be
published in connection with the
examination for added transparency.
For example, some commenters
recommended that the data be provided
in various forms, such as, online with
descriptions and definitions, as
appropriate, that a lay person could
understand; on the bank’s website and
on other government websites; and in a
dashboard showing bank performance
and benchmarks. Other commenters
recommended that certain metrics in
performance evaluations be published,
including, for example, activities that
meet one or more impact criteria.
In contrast, several commenters
opposed making data publicly available
in connection with an examination for
several reasons, including that: the data
is compiled in connection with a CRA
evaluation and should be made public
only when the final report of
examination is delivered; and early
release could cause misleading
conclusions since the data is not final
and adjustments are often made in
response to examiner feedback and to
ensure data integrity. One commenter
warned that without a formal process
for feedback and how the specific
feedback would impact the final
outcome on the bank’s CRA rating, the
process of examinations could be
delayed and administrative burdens
could be added to the agencies.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
The agencies appreciate commenter
suggestions and feedback regarding
publication of data and recognize the
importance of making information about
a bank performance accessible to the
public. The agencies considered
comments suggesting that it would be
helpful to publish metrics in advance of
an examination to better inform public
comments on bank performance and
promote transparency. However, the
agencies have determined that
publishing metrics in connection with
an examination is not feasible with
respect to banks that do not report data,
and might add delays to the completion
of the CRA examination, or at
minimum, complicate scheduling
depending on who prepares the data,
the available systems and tools to
calculate the metrics, and how far in
advance the metrics would be made
public. Furthermore, bank metrics are
based on data that are typically subject
to validation prior to calculation of
metrics and performance analysis.
However, the agencies note that the
final CRA evaluation includes data,
facts, and conclusions for public
disclosure and will take into account
suggestions on the type of information
that could be made available in the final
CRA evaluation, such as information on
the impact and responsiveness review
for the Community Development
Financing and Community
Development Services Tests.
The agencies also appreciate
suggestions regarding publication of
data on economic indicators that could
help the public develop comments
regarding performance context. The
agencies will consider these
recommendations outside of the rule
and will continue exploring the
possibility of publishing additional data
to inform public comment.
Section ll.51 Applicability Dates
and Transition Provisions
The Agencies’ Proposal
In proposed § ll.51, the agencies
included provisions regarding the
transition from the current CRA
regulations to amended CRA
regulations. In general, the agencies
proposed a final rule effective date of
the first day of the first calendar quarter
that begins at least 60 days after
publication in the Federal Register.1614
Additionally, the agencies proposed
staggered applicability dates for various
provisions of the regulations.1615 The
agencies also proposed to begin
conducting CRA examinations pursuant
to the proposed performance tests two
years after Federal Register publication
of the final rule,1616 and that in
assessing a bank’s CRA performance the
agencies would consider a loan,
investment, or service that was eligible
for CRA consideration at the time the
bank conducted the activity or at the
time the bank entered into a legally
binding commitment to make the loan
or investment.1617 Finally, the agencies
proposed timing provisions regarding,
respectively, continued applicability
and sunset of the current regulations
and applicability of the proposed
regulations with respect to strategic
plans.1618
As discussed further below, the
agencies received numerous comments
on these proposed transition provisions
from various stakeholders and have
increased the transition periods in the
final rule by one year and, where
appropriate, have made other changes to
proposed § ll.51 in the final rule.
Section ll.51(a)(1) Applicability Dates
in General
The Agencies’ Proposal
In § ll.51(a)(1), the agencies
proposed that the following provisions
would become applicable to banks, and
banks must comply with any
requirements in these provisions,
beginning on the first day of the first
calendar quarter that is at least 60 days
after publication of the final rule: (1)
authority, purposes, and scope
(proposed § ll.11); (2) facility-based
assessment areas (proposed § ll.16);
(3) performance standards for small
banks (proposed § ll.29(a)); (4)
intermediate bank community
development performance standards
(proposed § ll.29(b)(2)); and
intermediate bank performance ratings
(proposed § ll.29(b)(4)); (5) effect of
CRA performance on applications
(proposed § ll.31); (6) content and
availability of public file (proposed
§ ll.43); (7) public notice by banks
(proposed § ll.44); (8) publication of
planned examination schedule
(proposed § ll.45); (9) public
engagement (proposed § ll.46); (10)
applicability dates, and transition
provisions (proposed § ll.51). In the
proposal, the agencies explained that
they believed that setting an
applicability date for these provisions
on the final rule’s effective date is
appropriate and would not present
significant implementation burden to
banks because the agencies proposed
proposed § ll.51(b)(1).
proposed § ll.51(b)(2).
1618 See proposed § ll.51(c).
1616 See
proposed § ll.51(a)(1).
1615 See proposed § ll.51(a)(2).
1614 See
PO 00000
Frm 00518
Fmt 4701
Sfmt 4700
1617 See
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
only minor amendments to these
provisions relative to the current CRA
regulations.
Comments Received
The agencies received numerous
comments on the proposed applicability
date for these provisions, with most
commenters taking the position that the
proposed applicability date provided
banks insufficient time for
implementation purposes and some
commenters offering alternatives.
Several commenters also stated that the
final rule should be effective at the
beginning of a calendar year to avoid
subjecting banks to two regulatory
frameworks during a single calendar
year.
Final Rule
After reviewing the comments, the
agencies have determined that
establishing the same applicability date
for all performance tests would reduce
complexity and confusion for both the
banking industry and agency examiners.
Therefore, the agencies are amending
the proposal to provide in final
§ ll.51(a)(2)(i) that the applicability
date for the small bank performance
evaluation 1619 and the intermediate
bank performance evaluation 1620 will
be January 1, 2026—the same date as for
the final rule’s other performance tests.
The agencies continue to believe, as
proposed, that the final rule’s effective
date is appropriate for the remaining
provisions listed above in light of the
nature of the changes and their limited
transition burden.
The final rule also makes a clarifying
change to replace the language
calculating the applicability date with
the final rule’s actual effective date. In
addition, the agencies are making a
technical change in final § ll.51(a)(1)
by removing the following phrase
included in the proposal: ‘‘this part is
applicable to banks, and banks must
comply with any requirements in this
part.’’ The agencies acknowledge that
including this phrase would have been
inaccurate because some of the relevant
provisions apply to the agencies rather
than banks.
Section ll.51(a)(2) Specific
Applicability Dates
ddrumheller on DSK120RN23PROD with RULES2
Section ll.51(a)(2)(i)
The Agencies’ Proposal
In § ll.51(a)(2)(i), the agencies
proposed that the following provisions
would be applicable to banks, and that
banks must comply with any
1619 See
1620 See
proposed § ll.29(a).
proposed § ll.29(b).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
requirements in these provisions, one
year after publication of the final rule in
the Federal Register: (1) definitions
(except for the definitions of ‘‘small
business’’ and ‘‘small farm’’) (proposed
§ ll.12); (2) community development
definitions (proposed § ll.13); (3)
qualifying activities confirmation and
illustrative list of activities (proposed
§ ll.14); (4) impact review of
community development activities
(proposed § ll.15); (5) retail lending
assessment areas (proposed § ll.17);
(6) areas for eligible community
development activity (proposed
§ ll.18); (7) performance tests,
standards, and ratings, in general
(proposed § ll.21); (8) Retail Lending
Test (proposed § ll.22); (9) Retail
Services and Products Test (proposed
§ ll.23); (10) Community
Development Financing Test (proposed
§ ll.24); (11) Community
Development Services Test (proposed
§ ll.25); (12) wholesale or limited
purpose banks (proposed § ll.26); (13)
strategic plan (§ ll.27); (14) assigned
conclusions and ratings (proposed
§ ll.28); (15) certain provisions for
intermediate banks (proposed
§ ll.29(b)(1) and (3)); (16) certain data
collection and data reporting
requirements (proposed § ll.42(a) and
(c) through (f)); and (17) appendices A
through F. The agencies explained that
they believed that a one-year transition
period would provide banks with the
appropriate time to implement these
provisions.
Comments Received
The agencies received numerous
comments on this provision. The vast
majority of commenters stated that the
one-year transition period in proposed
§ ll.51(a)(2)(i) was insufficient, with
many suggesting alternatives ranging
from 18 months to five years. Several
commenters further stated that the
proposed one-year transition period
would undermine efforts to modernize
and improve the CRA framework and
referenced the scale and complexity of
the proposal as the basis for their
concern. Other commenters focused on
the time needed for stakeholders to
implement the new regulations,
including to build, test, and
operationalize a new CRA program, and
to marshal and deploy the requisite
financial, technological, compliance,
operational, administrative, and
personnel resources. Several
commenters compared implementing a
new CRA framework to the significant
undertaking required to implement
HMDA amendments.
Commenters stated that a longer
transition period was necessary for the
PO 00000
Frm 00519
Fmt 4701
Sfmt 4700
7091
agencies themselves to prepare for a
new CRA framework. These
commenters referenced the need for the
agencies to: clarify elements of the new
framework; verify that the final ratings
framework is properly calibrated;
proactively engage with stakeholders;
and allow any economic impact from
the final rule to normalize. Other
commenters suggested that the agencies
use the transition period to focus on
regulatory infrastructure, interagency
coordination, examiner recruitment and
training, publication of the list of
permissible and non-permissible
community development activities, and
standardization of their resources (e.g.,
examination procedures and
performance evaluation templates).
Another commenter stated that banks
should not be required to implement the
final rule until the agencies publish the
final rule’s metrics, benchmarks,
multipliers, and thresholds.
Commenters also focused on how the
proposed transition period would
negatively impact banks of different
sizes and stated that all banks needed
more time. One of these commenters
suggested that the agencies tailor the
implementation schedule based on bank
size. This commenter stated that if
larger banks, which the commenter
asserted are the best equipped to adjust
to a final CRA framework, were the first
banks required to implement the new
regulations, the agencies could learn
from this experience and address any
unintended consequences before
smaller banks were required to
implement the new framework.
Many commenters focused on the
specific effects that the proposed rule
would have on bank processes,
procedures, programs, systems, and
controls and stated that it would take
longer than one year to implement these
changes. For example, a commenter
stated that it will need to rebuild
virtually all facets of its bank-wide CRA
program. Another commenter stated that
the proposal would not provide
sufficient time to coordinate the
necessary compliance, financial,
operational, and technological rollout.
Numerous commenters addressed the
staffing needs associated with
implementing and administering the
new regulations, noting that many banks
would need to hire new staff or reassign
existing staff and to train all staff on the
new regulations and related systems. A
few commenters noted that nationwide
labor shortages may affect the ability of
banks to transition to a new framework.
Many other commenters noted that, as
proposed, banks would be required to
comply with the current CRA
framework while implementing a new
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7092
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
CRA framework. Some commenters also
referenced dual compliance obligations
related to Federal and State CRA laws.
Additionally, a commenter stated that
providing banks with an extended
transition period would ensure that
credit unions do not benefit from a
comparatively advantageous regulatory
environment.
Many commenters addressed the
expected concurrent transitioning to
both a new CRA framework and the
CFPB’s section 1071 framework. Some
noted that the dual CRA and section
1071 transitions could exacerbate
staffing challenges, threaten the
integrity of relevant data, present
technological challenges, and lead to
unintended consequences. One
commenter noted the budgetary
considerations associated with
implementing both frameworks. Other
commenters encouraged the agencies
and the CFPB to coordinate on CRA and
section 1071 implementation. Several
commenters stated that regulatory
requirements should be designed to
avoid dual collection and reporting.
Numerous commenters noted that
many stakeholders would need to rely
on third-party vendors to implement a
new CRA framework. At least one
commenter noted that in prior
rulemakings, banks’ ability to test
products and implement the rules was
delayed because vendors did not have
enough time to develop the requisite
products. Commenters also noted that
the demands on vendors would be
exacerbated by the need to implement
both the section 1071 regulations and
new CRA regulations.
Several commenters emphasized the
importance of ensuring that the
transition period provides sufficient
time for training stakeholders on the
new rule and how the agencies would
apply it, with at least one commenter
suggesting interagency training. One
commenter suggested that the agencies
summarize the final rule’s applicability
dates to help with the transition.
Another commenter suggested that the
comment period remain open during the
training period. Other commenters
stated that the agencies should outline
the support they will provide to banks,
especially with respect to assessment
area and data collection provisions.
The agencies also received specific
comments about the transition to
implementing the proposed facilitybased assessment area and retail lending
assessment area provisions, noting that
it will take time for banks to establish
corresponding administrative oversight
and to meet the new benchmarks.
Another commenter stated that the
agencies should allow banks to have
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
implementation and compliance
flexibility.
Some commenters offered the view
that the agencies should evaluate the
final rule after implementation. For
example, a commenter stated the
agencies should study what does and
does not work with the new regulations
and, as needed, update the CRA
framework after implementation. Other
commenters suggested that the agencies
test the final rule on banks of different
sizes and then, if necessary, revise or
clarify the final rule. A commenter
encouraged the agencies to invite public
comment on the new rule after the first
examinations under the final rule.
Another commenter stated that the
Retail Lending Test and the Community
Development Financing Test should not
be effective until a bank’s evaluation
period that begins at least three years
after the agencies publish the
community and market benchmarks
necessary to assess compliance with
these performance tests.
Many commenters specifically
referenced the proposed data collection
and maintenance requirements when
explaining why a one-year transition
period was insufficient. One commenter
noted that the proposal would require
banks to collect and format data that
they currently do not collect, while
other commenters focused on the
challenges of ensuring the quality and
integrity of a bank’s data within the
proposed transition period.
Final Rule
After considering the comments
received, the agencies are revising
proposed § ll.51(a)(2)(i) to provide
additional time relative to the proposal
for transitioning to these provisions and
to provide that the applicability date
begins at the start of a calendar year.
Pursuant to final § ll.51(a)(2)(i), banks
will have until January 1, 2026, to
comply with the following: final
§§ ll.12 through ll.15, ll.17
through ll.30, and ll.42(a); the data
collection and maintenance
requirements in final § ll.42(c)
through (f); and final appendices A
through F. The agencies moved this
applicability date to the beginning of the
calendar year to align the data collection
and maintenance with evaluation
periods, which typically consist of
whole calendar years.
Additionally, the final rule provides
that the definitions of ‘‘small business’’
and ‘‘small farm’’ in final § ll.12 take
effect on January 1, 2026, instead of one
year after the performance tests as
proposed, to align with the
corresponding performance standards.
This change is necessary because the
PO 00000
Frm 00520
Fmt 4701
Sfmt 4700
definitions of ‘‘small business’’ and
‘‘small farm’’ are relevant to, among
other things, determining which loans,
investments, or services meet the
community development criteria under
final § ll.13, evaluating a bank’s small
business and small farm lending under
the Retail Lending Test, and evaluating
a bank’s retail banking services and
retail banking products under the Retail
Services and Products Test. In the
current regulations, ‘‘small business’’
and ‘‘small farm’’ are not explicitly
defined, and therefore, if these
definitions are not effective until one
year after the new performance
standards are applicable, banks will be
unable to determine with certainty what
these terms mean.
The final rule also makes a technical
correction to provide that the data
collection and maintenance
requirements under final § ll.42(a),
but not the data reporting requirements
under final § ll.42(b), are applicable
on January 1, 2026. As described in the
proposal’s preamble, the agencies
intended to have the final rule’s
reporting requirements take effect one
year after the collecting and
maintenance requirements, but this
intent was not accurately reflected in
the proposed regulatory text.1621 As
discussed below, the reporting
requirements under final § ll.42(b)
through (f) are applicable one year later,
on January 1, 2027, with data reporting
required by April 1 beginning in 2027.
The agencies also are making the
same technical change in final
§ ll.51(a)(2)(i) and (ii) as discussed
above regarding final § ll.51(a)(1) to
remove the proposed bank applicability
and compliance language because some
of the relevant sections apply to the
agencies, and not to banks.
The agencies believe that providing
until January 1, 2026, or January 1,
2027, as applicable, for these provisions
balances the concerns raised by
commenters for an adequate transition
period with the needs of banks’
communities, including low- and
moderate-income neighborhoods, to
benefit from modernized CRA
regulations. Further, the agencies
believe that, with consideration given to
bank size, banks have the resources
necessary to adjust to the new
regulatory framework during this
revised transition period. As
commenters suggested, during the
transition period the agencies will be
1621 See 87 FR 33884, 34005 (June 3, 2022)
(‘‘Banks that would be required to collect new data
under the proposal starting 12 months after
publication of a final rule, would be required to
report such data to the agencies by April 1of the
year following the first year of data collection.’’).
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
focused on interagency coordination
and developing templates, tools, and
training to help banks implement the
new CRA framework. The agencies also
note that they provided a shorter
transition period for some of the
substantive provisions in the 1995
interagency CRA final rule.1622
The agencies also believe that the
transition periods in the final rule are
appropriate because of the final rule’s
approach of tailoring performance
standards and data requirements by
bank size and business model. Small
banks are generally not subject to the
new performance standards in the CRA
final rule unless they opt into the Retail
Lending Test. Intermediate banks and
small banks will not be subject to any
additional data collection or reporting
requirements under the final rule,
thereby limiting transition burden.
Further, the final rule updates the assetsize thresholds for determining which
banks are considered small banks and
which are intermediate banks, such that
approximately 609 banks that would
have been designated as intermediate
small banks under the current
regulations will now be considered
small banks and 135 banks that would
have been large banks under the current
regulations will now be considered
intermediate banks.1623 Under the final
rule, newly designated intermediate
banks that were formerly large banks
will have reduced reporting
requirements.1624 The agencies believe
that large banks that are subject to any
additional CRA requirements are large
enough to manage the transition in the
allotted time. In many cases, such as the
requirement to geocode deposits, the
banks likely already collect the requisite
data, reducing the associated challenges
that they might otherwise confront.
Further, the agencies believe that the
changes made to the final rule will
assist banks in transitioning to the final
rule. Specifically, the final rule includes
changes to the provisions regarding
retail lending assessment areas,
resulting in fewer banks having to
delineate retail lending assessment areas
and, for those that do, generally having
to delineate fewer retail lending
assessment areas.1625 Additionally, the
final rule revised the proposed Retail
1622 See 60 FR 22156, 22176 (May 4, 1995)
(providing a transition period of less than one year
for the data collection requirements in the 1995
CRA rule).
1623 See the section-by-section analysis for final
§ ll.12 for more information.
1624 Under the current rule, small banks, which
include intermediate small banks, do not have any
data collection, maintenance, or reporting
requirements.
1625 See the section-by-section analysis for final
§ ll.17.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Lending Test such that open-end home
mortgage loans and multifamily loans
will not be evaluated as major product
lines under that performance test. The
agencies have also reduced burden by
revising the final rule such that a bank
subject to the Retail Lending Test will
only have its automobile loans
evaluated if the bank is a majority
automobile lender or the bank opts to
have its automobile loans evaluated.
In response to commenters who
suggested a tailored implementation
period, as noted above the default
performance test applicable to for small
banks will be the same as under the
current regulations. Small banks will
have as much time as necessary to
transition to being evaluated under the
Retail Lending Test if they eventually
opt to do so. Additionally, as explained
in greater detail in the section-bysection analysis for final § ll.42, the
new data collection, maintenance, and
reporting requirements in the final rule
apply only to large banks or, in some
cases, only to large banks with assets of
greater than $10 billion. The final rule
is tailored to ensure that only banks
with sufficient resources are subject to
the data collection and maintenance
requirements that are applicable on
January 1, 2026, and the data reporting
requirements that are applicable on
January 1, 2027.
The agencies acknowledge that the
final rule will impact bank processes,
procedures, programs, systems, and
controls. However, as discussed above,
the agencies believe that the final rule’s
revised implementation period is
sufficient for banks to implement
necessary changes. As noted, the
agencies expect to develop tools and
training to help banks transition to and
implement the new regulatory
requirements.
With regard to staffing concerns, the
agencies understand that banks may
need to hire additional staff or that bank
staff may need to be reassigned to work
on CRA implementation. However,
based on the agencies’ supervisory
experience, banks have demonstrated
the ability to comply with major
changes to other regulatory
requirements. The agencies believe that
implementing the final rule’s
requirements represents a comparable
transition for banks.
Although the agencies understand
that banks must comply with current
CRA regulations while implementing
the new CRA framework, this would be
true of any transition period provided in
the final rule.1626 The agencies
1626 During the period between the final rule’s
effective date and the applicability dates in the final
PO 00000
Frm 00521
Fmt 4701
Sfmt 4700
7093
acknowledge that some States have their
own CRA laws and regulations that
apply to State-charted banks and
savings associations, but the agencies do
not possess authority in connection
with these State laws and regulations or
any control over when or if these States
might update their CRA regulations to
conform with the final rule.
The agencies understand that many
banks will rely on third-party vendors to
assist with implementing the final rule.
The agencies acknowledge the
suggestion that the transition period
should be longer for banks that rely on
vendors; however, the agencies believe
that providing a longer transition period
for these banks would unfairly
disadvantage other banks that handle
the majority, or all, of their compliance
needs internally. The agencies further
believe that the increased transition
time in the final rule provides sufficient
time for banks working with vendors to
implement the amended regulations.
The agencies also recognize that banks
may need to implement both the Section
1071 Final Rule and the amended CRA
regulations on overlapping timelines.
However, for the reasons discussed
above, the agencies believe the
transition period provides sufficient
time before many final rule provisions
are applicable on January 1, 2026.
Moreover, the agencies eventually
intend to leverage section 1071 data,
which will minimize data collection,
maintenance, and reporting burden on
large banks.
The agencies are committed to
maintaining an open dialogue with
stakeholders during the implementation
period. This will allow all parties,
including the agencies, to learn from the
implementation process and develop
best practices. As discussed above, the
agencies agree that interagency training
will be vital during this period and
intend to develop training for banks,
examiners, and other key stakeholders
to ensure that they understand the
regulatory requirements. The agencies
expect to issue clarifying guidance to
address relevant issues that arise
following publication of the final rule.
Section ll.51(a)(2)(ii)
The Agencies’ Proposal
In proposed § ll.51(a)(2)(ii), the
agencies provided that the proposed
§ ll.12 definitions of ‘‘small business’’
rule for certain provisions, the current CRA
regulations will remain applicable for these
provisions. See discussion of § ll.51(a)(2)(iii),
below. (The final rule includes each agency’s
current CRA regulation in new appendix G and
sunsets these appendices as of the final
applicability date, at which time all provisions of
the final rule will be applicable.)
E:\FR\FM\01FER2.SGM
01FER2
7094
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
and ‘‘small farm’’ (which are based on
the gross annual revenue size) would be
applicable two years after the Federal
Register publication of a final rule. The
agencies explained that the applicability
date for these definitions would be on
or after the CFPB makes the section
1071 regulations effective. The agencies
sought feedback on whether to tie the
applicability date of these definitions to
when the CFPB finalized its section
1071 rulemaking or to provide an
additional 12 months after the CFPB
finalized its rulemaking. The agencies
also asked when they should sunset the
‘‘small business loan’’ and ‘‘small farm
loan’’ definitions.
Additionally, the agencies proposed
that banks that are required to collect
new CRA data under amended CRA
regulations starting 12 months after
publication of the final rule be required
to report data to the appropriate Federal
financial supervisory agency two years
after Federal Register publication of a
final rule, by April 1 of the year
following the first year of data collection
and maintenance. The agencies believed
that the applicability dates for these
provisions would give banks sufficient
time to implement the proposed data
collection, maintenance, and reporting
framework. The agencies also proposed
that the data disclosure requirements in
proposed § ll.42(b) and (g) through (i)
would become applicable the year
following the first year of data
collection.
Comments Received
Most commenters that provided input
on this aspect of the proposal indicated
that they required additional time than
proposed to comply with new small
business lending and small farm lending
definitions. Some stated that the new
definitions should not be applicable in
the middle of a bank’s evaluation period
and, in these cases, banks should be
allowed to use the current definitions.
With respect to the agencies’ question
on the timing of the applicability of the
new CRA small business and small farm
definitions in light of the section 1071
rulemaking, commenter views were
mixed. Several commenters supported
tying the effective dates to the effective
date of the section 1071 rulemaking, but
others supported provision of an
additional year. A commenter requested
that the agencies exhibit flexibility,
while another explained that providing
banks with time for data validation and
analysis using consistent definitions
would promote accurate metrics for
both the CRA and section 1071
frameworks. Another commenter stated
that it was difficult to evaluate the
agencies’ CRA proposal because the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
section 1071 rulemaking was not yet
final.
With respect to the agencies’ question
on sunsetting the current small business
loan and small farm loan definitions,
commenters’ suggestions included
sunsetting the current definitions: at the
end of the calendar year after the new
definitions are effective; within 12
months of publication of a CRA final
rule; when banks transition to reporting
section 1071 data; one year after banks
implement the section 1071 regulations;
and when the current small business
loan and small farm definitions are not
applicable to any examination data.
Numerous commenters also addressed
the transition period for the data
reporting requirements in the rule,
stating that the proposed transition
period is insufficient. As with the data
collection and maintenance
requirements, many commenters
addressed the issues related to
transitioning to both a new CRA
framework and the CFPB’s section 1071
regulations. Other commenters said that
banks should not be required to report
data under two different CRA
frameworks in the same calendar year.
Another noted that CDFI banks already
have an unsupportable amount of data
reporting due by March 1. One
commenter stated that all banks,
particularly large and complex ones,
will need to invest significant resources
to set up new data collection,
maintenance, and reporting mechanisms
and recommended a longer transition
period for new reporting requirements
that is at least 36 months before the
beginning of a bank’s first evaluation
period.
Final Rule
To align the data reporting
requirements with the January 1, 2026,
applicability date in the final rule for
the data collection and maintenance
requirements, the final rule provides
that all data reporting requirements are
applicable on January 1, 2027, instead of
two years after publication in the
Federal Register, as proposed. Because
final § ll.42(b) provides that banks are
required to report data by April 1 of the
year following the collection of data,
this means that banks will have more
than three years following the
publication of the final rule before they
will need to report data under the final
rule. As with the data collection and
maintenance requirements and as
explained in the section-by-section
analysis for final § ll.42, the final
rule’s new data reporting requirements
are applicable to large banks.
As noted above, the agencies are
finalizing the proposed § ll.12
PO 00000
Frm 00522
Fmt 4701
Sfmt 4700
definitions of ‘‘small business’’ and
‘‘small farm,’’ and changing the
applicability date for these definitions
to January 1, 2026, to align with the
performance standards. Without this
change, there would be ambiguity in the
amended regulations in instances where
those defined terms are used, including
in final §§ ll.13, ll.22, and ll.23.
With respect to the agencies’
transition to using section 1071 data, as
indicated in the section-by-section
analysis for final § ll.12, the agencies
have removed proposed references to
section 1071 data in the final rule’s
regulatory text. Instead, the agencies are
including amendments in the final rule
that provide for a transition to section
1071 small business and small farm
lending data once these data becomes
available. These transition amendments
implement the intent of the agencies
articulated in the proposal to leverage
section 1071 data while accounting for
the current uncertainty surrounding the
availability of that data. Specifically,
when effective, these transition
amendments will add appropriate
references to the Section 1071 Final
Rule, remove references to Call Reportbased small business and small farm
data, and make other corresponding
changes to the final rule regulatory text.
The agencies are not including an
effective date for these section 1071related transition amendments in the
final rule. Instead, once the availability
of section 1071 data is clarified, the
agencies will provide appropriate notice
in the Federal Register of the effective
date of the transition amendments. The
agencies expect that the effective date
will be on January 1 of the relevant year
to align with the final rule’s data
collection and reporting, benchmark
calculations, and performance analysis,
which all are based on whole calendar
years.
Section ll.51(a)(2)(iii)
Because the current CRA regulations
will continue to apply until the above
applicability dates take effect, the
agencies have included in their agencyspecific amendments a new appendix G
that contains the current CRA
regulations. The agencies have also
added a new paragraph (a)(2)(iii) to
§ ll.51 that references this appendix.
Specifically, this paragraph provides
that, prior to the applicability dates in
paragraphs (a)(2)(i) and (ii) of the
section, banks must comply with the
relevant provisions of the CRA
regulations in effect on the day before
the final rule’s effective date, as set forth
in appendix G. This paragraph further
provides that, the relevant provisions
set forth in appendix G continue to be
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
applicable to CRA performance
evaluations pursuant to 12 U.S.C.
2903(a)(1) that assess activities that a
bank conducted prior to the date the
final rule became applicable, except as
provided in paragraphs (c) and (d), as
discussed below. Appendix G will be
effective until January 1, 2031, when the
agencies expect the appendix to no
longer be necessary.
Section ll.51(b) HMDA Data
Disclosures
Section ll.51(c) Consideration of
Bank Activities
ddrumheller on DSK120RN23PROD with RULES2
The Agencies’ Proposal
Proposed § ll.51(b)(1) provided that
the agencies would begin conducting
CRA examinations pursuant to the
Retail Lending Test, Retail Services and
Products Test, Community Development
Financing Test, Community
Development Services Test, and
Community Development Financing
Test for Wholesale and Limited Purpose
Banks, and for strategic plan banks,
beginning two years after Federal
Register publication of a final rule. The
preamble to the proposed rule noted
that examinations conducted after this
date would evaluate bank activities
conducted during the prior year, for
which the proposal’s requirements
related to bank activities would already
be effective. The agencies further
explained in the preamble to the
proposed rule that CRA examinations
conducted immediately after this date
would use modified procedures until
peer data and applicable benchmarks
become available.
Proposed § ll.51(b)(1) also provided
that the agencies would comply with
the HMDA data disclosure requirements
in § ll.42(j) beginning two years after
publication of a final rule.
Proposed § ll.51(b)(2) provided that
in assessing a bank’s CRA performance,
the agencies would consider any loan,
investment, or service that was eligible
for CRA consideration at the time that
the bank conducted the activity or
entered into a legally binding
commitment to make the loan or
investment.
Comments Received
The agencies received numerous
comments on timing and related
challenges regarding CRA examinations
under a final rule, with several
suggesting specific approaches to
address these challenges. Some
commenters expressed concern that, for
many banks, the next examination
would be based on two different CRA
frameworks and that the first banks to
be examined under the new framework
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
would be at a disadvantage. Another
commenter urged the agencies to
provide banks with more time to
understand how their performance will
be measured in order to make any
necessary course corrections. Many
other commenters suggested alternatives
for when examinations under the new
framework should begin. For example,
commenters suggested that
examinations should begin when banks
have had sufficient time or a full
examination cycle to collect and report
data under the amended regulations or
in the calendar year following adequate
data collection. Other alternatives
suggested are when the agencies have
collected and shared with banks two or
more years of data and 24 months after
the data collection requirements are
applicable.
Final Rule
After carefully considering the
comments, the agencies are removing
the start dates for examinations
pursuant to the amended regulations’
performance tests from final § ll.51.
This change will allow each agency to
set its own policies and procedures for
conducting examinations under the
amended regulations, including those
that cover periods when both CRA
frameworks apply. The agencies will
carefully consider the comments
received when developing these policies
and procedures. Not including the start
dates for examinations in the final rule
also ensures that the new performance
standards will not be applied
retroactively to banks’ performance in
calendar years prior to 2026.
The agencies are revising proposed
§ ll.51(b)(1), renumbered in the final
rule as § ll.51(b), to reflect the
increased length of the transition period
in the final rule. Final § ll.51(b)
provides that each agency will publish
HMDA data disclosures pursuant to
final § ll.42(j) on its respective
website beginning on January 1, 2027.
Final § ll.42(j) provides that the
Board, FDIC, or OCC, as applicable, will
publish HMDA demographic
information for large banks on their
respective websites. See the section-bysection analysis for § ll.42(j).
The agencies are finalizing as
proposed final § ll.51(b)(2),
renumbered in the final rule as
§ ll.51(c). Under the final rule, in
assessing a bank’s CRA performance the
agency will consider any loan,
investment, or service, or product that
was eligible for CRA consideration at
the time the bank conducted the activity
or at the time that the bank entered into
a legally binding commitment to make
the loan or investment.
PO 00000
Frm 00523
Fmt 4701
Sfmt 4700
7095
Section ll.51(d) Strategic Plans
Section ll.51(d)(1) New and Replaced
Strategic Plans
Section ll.51(d)(2) Existing Strategic
Plans
The Agencies’ Proposal
The agencies proposed in
§ ll.51(a)(2)(i) that the strategic plan
provisions in proposed § ll.27 would
be applicable one year after publication
of a final rule. Proposed § ll.51(c)
provided that the current regulations
would apply to any new strategic plan
(including a strategic plan that replaces
an expired strategic plan) that is
submitted to an agency for approval on
or after the date of the final rule’s
publication in the Federal Register but
before proposed § ll.27 would be
applicable. Strategic plans approved
under this paragraph would generally
remain in effect until the expiration date
of the plan.1627 Proposed § ll.51(c)
further provided that a strategic plan in
effect as of the publication date of the
final rule would remain in effect until
the expiration date of the strategic plan.
Comments Received
The agencies received only one
specific comment on proposed
§ ll.51(c). This commenter
recommended that the effective date of
amended regulations relating to strategic
plans be the later of the following: (1)
the day after the bank’s current Strategic
Plan expires; and (2) when the asset-size
category-based performance tests are
applicable to banks not subject to a
strategic plan. The commenter stated
that this will ensure that banks that
choose to be evaluated under a strategic
plan are given enough time to comply
with the new requirements if
implementation requirements are
delayed.
Final Rule
The agencies are revising proposed
§ ll.51(c), renumbered as final
§ ll.51(d), to provide that the current
regulations will apply to any new
strategic plan (including a strategic plan
that replaces an expired strategic plan)
that is submitted to an agency for
approval between the date that the final
rule is published in the Federal Register
and November 1, 2025. The agencies
1627 Specifically, the Board and the FDIC
proposed in § ll.51(c)(2) that a strategic plan in
effect as of the effective date of a final rule would
remain in effect until the expiration date of that
plan, and the OCC proposed in § 25.51 that a
strategic plan in effect as of the publication date of
a final rule remains in effect until the expiration
date of the plan, except for provisions that were not
permissible under its CRA regulations as of January
1, 2022.
E:\FR\FM\01FER2.SGM
01FER2
7096
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
have updated the date in this provision
to reflect the increased transition period
in the final rule for § ll.27.
Additionally, the agencies are revising
final § ll.51(d) to provide that the
agencies will not accept any strategic
plan submitted on or after November 1,
2025, and before January 1, 2026, the
applicability date of the final § ll27.
The agencies are making these changes
to ensure there is sufficient time for
each agency to make decisions about
submitted strategic plans under the
current regulations before the final
rule’s strategic plan provisions are
applicable. Under the current
regulations, the agencies have 60 days to
act on a complete strategic plan once it
is received.1628 Therefore, implementing
a cut-off date of November 1, 2025, for
strategic plans allows the agencies time
to review a strategic plan under the
current regulations before addressing
strategic plans received on or after
January 1, 2026, and acting on such
plans under the amended regulations.
As a technical change, the final rule also
clarifies that the current regulations will
only apply to such a strategic plan
submission that the agency has
determined is a complete plan
consistent with the requirements of
current 12 CFR ll.27.
The agencies are finalizing the
provision that a strategic plan subject to
final § ll.51(d)(1), instead of approved
under the relevant paragraph of the
proposed rule (proposed
§ ll.51(d)(1)), remains in effect until
expiration of the plan. This technical
correction recognizes that the agencies
do not approve a strategic plan under
§ ll.51(d)(1). Similarly, the agencies
are finalizing as proposed
§ ll.51(c)(2), renumbered as final
§ ll.51(d)(2), providing that a strategic
plan in effect as of the publication date
of the final rule in the Federal Register
remains in effect until the expiration
date of the plan.
The agencies believe that the final
rule appropriately addresses the
commenter’s suggestion because a
strategic plan approved by the agencies
under the current regulations remains in
effect until expiration of the plan, and
the new strategic plan provisions are
applicable on January 1, 2026, the same
time that the performance standards are
applicable.
Section ll.51(e) First Evaluation
Under This Part on or After February 1,
2024
The agencies are revising proposed
§ ll.51 to add a new paragraph (e),
which provides that in its first
1628 See
current 12 CFR ll.27(g).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
performance evaluation under the final
rule a large bank that has 10 or more
facility-based assessment areas in any
State or multistate MSA, or nationwide,
as applicable, and that was subject to
evaluation under the agencies’ CRA
regulation prior to February 1, 2024,
may not receive a rating of
‘‘Satisfactory’’ or ‘‘Outstanding’’ in that
State or multistate MSA, or for the
institution unless the bank received an
overall facility-based assessment area
conclusion, calculated as described in
paragraph g.2.ii of appendix D, of at
least ‘‘Low Satisfactory’’ in 60 percent
or more of the total number of its
facility-based assessment areas in that
State or multistate MSA, or nationwide,
as applicable. In a large bank’s second
examination under the final rule and
thereafter, the requirement in final
§ ll.28(b)(4)(ii) will apply if a large
bank has a combined total of 10 or more
facility-based assessment areas and
retail lending assessment areas in any
State, multistate MSA, or nationwide, as
applicable.
The agencies believe this phased
approach is appropriate because, for a
large bank’s first examination under the
final rule, both this requirement—that a
large bank receives an overall
assessment area conclusion of at least
‘‘Low Satisfactory’’ in 60 percent or
more of its facility-based assessment
areas and retail lending assessment
areas if it meets a threshold number of
facility-based assessment areas and
retail lending assessment areas—and the
concept of retail lending assessment
areas will be new. Therefore, at first, it
is appropriate to only apply the
minimum ‘‘Low Satisfactory’’
requirement to large banks with the
most facility-based assessment areas in
States, multistate MSAs, and
nationwide, as applicable, as well as to
provide banks with additional time to
consider their performance under the
Retail Lending Test in retail lending
assessment areas. See the section-bysection analysis of § ll.28(b)(4)(ii) for
a detailed discussion of this
requirement.
V. Regulatory Analysis
Regulatory Flexibility Act
Under the Regulatory Flexibility Act
(RFA) (5 U.S.C. 601 et seq.), an agency
must consider the impact of its rules on
small entities. Specifically, section 3 of
the RFA requires an agency to provide
a final regulatory flexibility analysis
(FRFA) with a final rule unless the head
of the agency certifies that the rule will
not have a significant economic impact
on a substantial number of small
PO 00000
Frm 00524
Fmt 4701
Sfmt 4700
entities 1629 and publishes this
certification and a statement of its
factual basis in the Federal Register.
OCC
The OCC currently supervises 1,060
institutions (commercial banks, trust
companies, Federal savings
associations, and Federal branches or
agencies of foreign banks, collectively
banks),1630 of which approximately 661
are small entities under the RFA.1631
The OCC estimates that the final rule
will impact approximately 617 of these
small entities,1632 of which the OCC
anticipates that 560 entities will be
small banks, 46 entities will be
intermediate banks, and 6 entities will
be limited purpose banks, as defined
under the final rule, and 5 entities will
be evaluated based on an OCC-approved
strategic plan.
The OCC estimates the annual cost for
small entities to comply with the final
rule will be, on average, approximately
$18,304 dollars per bank (143 hours 1633
× $128 per hour 1634). In general, the
OCC classifies the economic impact on
1629 Small Business Administration (SBA)
regulations currently define small entities to
include banks and savings associations with total
assets of $850 million or less, and trust banks with
total assets of $47.0 million or less.
1630 Based on data accessed using FINDRS on
August 23, 2023.
1631 The OCC bases its estimate of the number of
small entities on the SBA’s size thresholds for
commercial banks and savings institutions ($850
million) and trust companies ($47 million).
Consistent with the SBA General Principles of
Affiliation in 13 CFR 121.103(a) the OCC counts the
assets of affiliated financial institutions when
determining if the OCC should classify an OCCsupervised institution as a small entity. The OCC
uses December 31, 2022, to determine size because
a ‘‘financial institution’s assets are determined by
averaging the assets reported on its four quarterly
financial statements for the preceding year.’’ 13 CFR
121.201 fn. 8.
1632 These 617 small entities are those OCCregulated banks with total assets of $850 million or
less or trust banks with total assets of $47.0 million
or less that are subject to the OCC’s CRA regulation.
1633 In response to two comment letters the
agencies received on the OCC’s RFA analysis of the
proposed rule, the OCC revised its hours per bank
estimate in the final rule to 143 hours. The OCC
arrived at this estimate by calculating a weighted
average based on 120 hours for small entities
classified as small or limited purpose pursuant to
the final rule, 2,200 hours for small entities
classified as strategic plan pursuant to the final
rule, and 200 hours for small entities classified as
intermediate pursuant to the final rule.
1634 To estimate the compensation rate, the OCC
reviewed May 2022 data for wages (by industry and
occupation) from the U.S. Bureau of Labor Statistics
(BLS) for credit intermediation and related
activities (NAICS 5220A1). To estimate
compensation costs associated with the rule, the
OCC used $128.05 per hour, which is based on the
average of the 90th percentile for six occupations
adjusted for inflation (5.1 percent as of Q1 2023),
plus an additional 34.3 percent for benefits (based
on the percent of total compensation allocated to
benefits as of Q4 2022 for NAICS 522: credit
intermediation and related activities).
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
a small entity as significant if the total
estimated impact in one year is greater
than 5 percent of the small entity’s total
annual salaries and benefits or greater
than 2.5 percent of the small entity’s
total non-interest expense. The OCC
defines a substantial number as five
percent or more of OCC-supervised
small entities, or 31 small entities for
purposes of this final rule. Based on
these thresholds, the OCC estimates the
final rule will have a significant
economic impact on approximately 14
small entities, which is not a substantial
number.1635 Therefore, the OCC certifies
that the final rule will not have a
significant economic impact on a
substantial number of small entities.
ddrumheller on DSK120RN23PROD with RULES2
Board
For the reasons described below, the
Board is certifying that the final rule
will not have a significant economic
impact on a substantial number of small
entities. Board-supervised institutions
that will be subject to the final rule are
state member banks (as defined in
section 3(d)(2) of the Federal Deposit
Insurance Act of 1991), and uninsured
state branches of a foreign bank (other
than limited branches) resulting from
certain acquisitions under the
International Banking Act, unless such
bank does not perform commercial or
retail banking services by granting credit
to the public in the ordinary course of
business.
The Board estimates that
approximately 464 Board-supervised
RFA small entities would be subject to
the final rule.1636 Of these,
approximately 427 would be considered
small banks under the final rule, and
approximately 37 would be considered
intermediate banks under the final rule.
The final rule defines ‘‘small bank’’ to
mean a bank that had average assets of
less than $600 million in either of the
prior two calendar years, and would
define ‘‘intermediate bank’’ to mean a
bank that had average assets of at least
$600 million in both of the prior two
1635 In response to comment letters, the OCC also
evaluated the impact of the final rule using a wage
rate $150 per hour. Using this hourly rate, the OCC
estimated the annual cost for small entities to
comply with the final rule will be on average
approximately $21,450 dollars per bank (143 hours
× $150 per hour), and the final rule will have a
significant economic impact on 20 small entities,
which is not a substantial number.
1636 Consistent with the General Principles of
Affiliation in 13 CFR 121.103, the assets of all
domestic and foreign affiliates are counted toward
the $850 million threshold when determining
whether to classify a depository institution as a
small entity. The Board’s estimate is based on total
assets reported on Forms FR Y–9 (Consolidated
Financial Statements for Holding Companies) and
FFIEC 041 (Consolidated Reports of Condition and
Income) for 2021.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
calendar years and average assets of less
than $2 billion in either of the prior two
calendar years, in each case based on
the assets reported on its four quarterly
Call Reports for each of those calendar
years.
The final rule includes a new
evaluation framework for evaluating the
CRA performance of banks that is
tailored by bank size and business
model. For example, the final rule
establishes an evaluation framework
containing four tests for large retail
banks: Retail Lending Test, Retail
Services and Products Test, Community
Development Financing Test, and
Community Development Services Test.
In addition to the new CRA evaluation
framework, the final rule includes data
collection, maintenance, and reporting
requirements necessary to facilitate the
application of various tests.
Because the final rule maintains the
current small bank evaluation process
and the small bank performance
standards, the final rule does not
generally impose any new requirements
with significant burden on Boardsupervised small entities with less than
$600 million in assets. Under the final
rule, banks must collect, maintain, and
report data on the activities of their
operations subsidiaries or operating
subsidiaries (unless the subsidiaries are
independently subject to the CRA), as
applicable. The Board estimates that
this requirement impacts approximately
139 banks with an estimated annual
burden of 38 hours per bank. For
supervised small entities that are
defined as intermediate banks under the
final rule, i.e., banks with assets
between $600 million and $850 million,
the final rule would add some
additional compliance burden because
these banks would be subject to the new
Retail Lending Test. However, the Board
does not believe that these requirements
would impose a significant economic
impact on banks. Specifically, with
respect to the Retail Lending Test, these
intermediate banks would not be subject
to regulatory data collection and
maintenance requirements for retail
loans. In addition, these intermediate
banks would be subject to community
development performance standards
that are substantially similar to the
criteria for evaluating community
development performance today.
However, these intermediate banks
could choose to be evaluated under the
Community Development Financing
Test and would then be required to
collect and maintain the loan and
investment data applicable to that test.
The agencies’ current CRA regulations
similarly allow small banks and
intermediate small banks to voluntarily
PO 00000
Frm 00525
Fmt 4701
Sfmt 4700
7097
opt into one or more alternative tests in
lieu of the mandatory or default
requirements. However, based on the
Board’s supervisory experience with its
current CRA regulation, few small banks
or intermediate small banks choose to
be evaluated under alternative tests, and
the Board expects that this would
continue to be the case under the final
rule. For the reasons described above,
the Board is certifying that the final rule
would not have a significant economic
impact on a substantial number of small
entities.
FDIC
The RFA generally requires an
agency, in connection with a final rule,
to prepare and make available for public
comment a FRFA that describes the
impact of the final rule on small
entities.1637 However, a FRFA is not
required if the agency certifies that the
final rule will not have a significant
economic impact on a substantial
number of small entities.1638 The Small
Business Administration (SBA) has
defined ‘‘small entities’’ to include
banking organizations with total assets
of less than or equal to $850 million.1639
Generally, the FDIC considers a
significant economic impact to be a
quantified effect in excess of 5 percent
of total annual salaries and benefits or
2.5 percent of total noninterest
expenses. The FDIC believes that effects
in excess of one or more of these
thresholds typically represent
significant economic impacts for FDICsupervised institutions. While some of
the expected effects of the final rule are
difficult to quantify, the FDIC believes
that the final rule is unlikely to have a
significant impact on a substantial
number of small entities. Therefore, the
FDIC certifies that the final rule will not
have a significant economic effect on a
substantial number of small entities.
The FDIC’s rationale for its
determination is discussed below.
As of March 31, 2023, the FDIC
supervises 3,012 insured depository
institutions (IDIs), of which 2,306 are
1637 5
U.S.C. 601 et seq.
U.S.C. 605.
1639 The SBA defines a small banking
organization as having $850 million or less in
assets, where an organization’s ‘‘assets are
determined by averaging the assets reported on its
four quarterly financial statements for the preceding
year.’’ 13 CFR 121.201 (as amended by 87 FR 69118,
effective Dec. 19, 2022). In its determination, the
‘‘SBA counts the receipts, employees, or other
measure of size of the concern whose size is at issue
and all of its domestic and foreign affiliates.’’ 13
CFR 121.103. Following these regulations, the FDIC
uses an insured depository institution’s affiliated
and acquired assets, averaged over the preceding
four quarters, to determine whether the insured
depository institution is ‘‘’small’’ ’ for the purposes
of RFA.
1638 5
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7098
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
defined as small entities by the SBA
(‘‘SBA-small entities’’) for purposes of
the RFA.1640 The final rule would affect
all FDIC-supervised institutions,
therefore the FDIC estimates that the
final rule would affect all 2,306 small
entities. To avoid confusion the small
and intermediate size categories of the
final rule are referred to as ‘‘CRA-small’’
and ‘‘CRA-intermediate’’ to distinguish
them from ‘‘SBA-small entities’’ in
certain places below. Also, as the final
rule renames the current ‘‘intermediate
small’’ category as ‘‘intermediate,’’ for
ease of reading the ‘‘intermediate small’’
category is referred to below as
‘‘intermediate.’’
As discussed in the SUPPLEMENTARY
INFORMATION, the final rule would make
CRA examinations more transparent and
objective through the use of quantitative
metrics and thresholds, thereby helping
ensure that all relevant activities are
considered and that the scope of the
performance evaluation more accurately
reflects the communities served by each
institution. The final rule increases the
asset size thresholds for the CRA-small
and CRA-intermediate categories. This
change will have an immediate effect on
the examination requirements of some
of these banks. Under the final rule, the
total asset threshold for CRA-small IDIs
changes from less than $376 million in
total assets as of December 31 in either
of the prior two calendar years, to less
than $600 million in total assets as of
December 31 in either of the prior two
calendar years. Further, the final rule
raises the minimum asset size for CRAintermediate IDIs from $376 million in
total assets as of December 31 in both
of the prior two calendar years to $600
million in total assets as of December 31
in both of the prior two calendar years.
Also, under the final rule the maximum
asset size for CRA-intermediate IDIs
increases from $1.503 billion in total
assets as of December 31 in either of the
prior two calendar years to $2 billion in
total assets as of December 31 in either
of the prior two calendar years. The
asset size thresholds would be adjusted
annually for inflation under the final
rule, as they are under the current
framework. Finally, limited purpose
SBA-small entities, and SBA-small
entities operating under strategic plans,
would remain in their respective
categories under the final rule.
Under the current framework, 1,759 of
the 2,306 SBA-small entities are CRAsmall, 527 are CRA-intermediate, 17
operate according to approved strategic
plans, and three are designated as
wholesale or limited purpose banks.
Under the final rule, 2,104 of the 2,306
1640 Call
Report data (Mar. 31, 2023).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
SBA-small entities are CRA-small, 182
are CRA-intermediate, and the number
of institutions operating under strategic
plans or that are limited purpose are
unchanged. The final rule’s upward
adjustment of the asset size threshold
for CRA-small banks reclassifies 345
institutions from CRA-intermediate to
CRA-small.
CRA-small banks under the final rule
have the option of continuing to have
their CRA performance evaluated under
the current CRA-small bank lending test
or of opting into the Retail Lending Test.
Similar to the current evaluation
framework, under the final rule CRAsmall banks rated ‘‘Satisfactory’’ may
receive additional consideration for
qualifying activities to attempt to
achieve an institution-level rating of
‘‘Outstanding.’’
CRA-intermediate banks under the
final rule are evaluated under the new
Retail Lending Test and the current
framework’s community development
test for CRA-intermediate banks, or may
opt into the final rule’s Community
Development Financing Test. Similar to
the current evaluation framework, under
the final rule if rated ‘‘Satisfactory’’ an
intermediate bank may receive
additional consideration for other
qualifying activities to attempt to
achieve an institution-level rating of
‘‘Outstanding.’’
Additionally, SBA-small entities are
likely to incur costs associated with
making changes to their policies,
procedures, and internal systems in
order to comply with the final rule.
However, the FDIC believes that these
costs are likely to be low for the vast
majority of SBA-small entities because,
as mentioned previously, under the
final rule CRA-small banks’
performance will be evaluated under the
current CRA-small bank lending test. As
there are 1,759 SBA-small banks—
representing 76 percent of all 2,306
SBA-small entities—in the CRA-small
category under both the current and
final rule’s framework, the FDIC expects
the vast majority of SBA-small entities
to be only modestly affected by the final
rule.
The agencies received two public
comments on the RFA analysis in the
NPR. Both of these commenters asserted
that the estimated cost of complying
with the NPR would be substantially
higher than what the OCC—the only
agency to provide estimated cost
burdens for SBA-small banks in the
NPR—had estimated. While the
comments were not directed at the
FDIC, the FDIC reviewed the comments
and determined that while the
commenters’ claims may reflect their
experiences or their institutions’
PO 00000
Frm 00526
Fmt 4701
Sfmt 4700
experiences, the FDIC notes that
compliance costs may vary substantially
across institutions and the agencies’
estimates are meant to be overall
averages. As previously discussed, the
FDIC incorporated a number of changes
into the final rule as a result of public
comments received regarding
compliance burden. The agencies
believe the initial burden estimates
remain appropriate and have not made
any changes to those estimates for this
final rule.
In addition, some commenters
addressed the agencies’ PRA burden
estimates for the information collection
requirements of the proposed rule. The
commenters generally believed that the
agencies’ estimates of annual burden
were too low. The FDIC notes that PRA
burdens, like compliance costs, may
vary across institutions, and the
agencies’ PRA burden estimates are
meant to be overall averages. The FDIC
calculated the estimated burden
associated with the rule, including
implementation costs, based on the
agencies’ extensive experience with
CRA compliance and estimating
associated burden. The FDIC believes
the estimates of burden hours are
accurate related to the recordkeeping,
reporting, and disclosure requirements
of the final rule.
For the reasons described above, the
FDIC certifies that the final rule will not
have a significant effect on a substantial
number of small entities.
Paperwork Reduction Act
Certain provisions of the final rule
contain ‘‘collections of information’’
within the meaning of the Paperwork
Reduction Act (PRA) of 1995 (44 U.S.C.
3501 through 3521). In accordance with
the requirements of the PRA, the
agencies may not conduct or sponsor,
and the respondent is not required to
respond to, an information collection
unless it displays a currently valid OMB
control number.
Comments Received
The agencies received four comments
that appear to relate to the PRA
addressing the agencies’ estimated
burden costs on the information
collection requirements of the proposed
rule. One commenter stated that the
proposal would generally require
considerable additional resources for
implementation and ongoing costs to
manage their CRA programs under the
proposed rule. The commenter
estimated that it could incur
implementation costs of $150,000. This
commenter also believed that complying
with the proposed rule would require
substantially more time than the
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
estimated yearly burden of 80 hours per
year. Another commenter stated that the
costs associated with implementing the
proposal would be significantly greater
than the agencies had estimated and
could require significant investments at
covered institutions, potentially
including hiring several additional fulltime employees. This commenter
requested that the agencies provide a
more detailed explanation of their
estimations of the proposed rule’s costs.
Another commenter believed the
estimated burden of 80 hours per year
was very low, suggesting that another
500 hours, minimum, would be required
for compliance. The commenter stated
that the proposed rule is complex and
would require significant investment by
covered institutions to achieve
compliance. An additional commenter
stated that the agencies provided
insufficient support for their burden
estimates. This commenter requested
that the agencies provide more details
on the breakdown of estimated
compliance costs and an analysis of
how the potential costs might impact
economic output.
As previously discussed, the agencies
incorporated a number of changes into
the final rule as a result of public
comments received regarding
compliance burden. The agencies have
carefully reviewed their burden
associated with recordkeeping,
reporting, and disclosure for each
section of the rule in light of these
changes to the final rule and in
consideration of the comments received.
The agencies note that, consistent with
the PRA, the PRA burden estimates
reflect only the burden related to
recordkeeping, reporting, and disclosure
requirements in the final rule. PRA
burdens, like compliance costs, may
vary across institutions, and the
agencies’ PRA burden estimates are
meant to be overall averages. The
agencies do not have detailed data that
would permit the agencies to precisely
estimate the quantitative effect of the
final rule for every type of institution.
Accordingly, the burden estimates are
shown based on the agencies’ extensive
experience with CRA compliance and
estimating associated burden. The
agencies estimated the associated
burden by referencing the number of
entities supervised by each agency and
estimating the frequency of response
and the time per response. The agencies
believe the estimates of burden hours
are reasonable considering the
recordkeeping, reporting, and disclosure
requirements of the final rule.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Final Rule
Under the final rule, the agencies
retained the information collection
provisions of the proposed rule, with
certain modifications. The agencies
have included a reporting burden for the
community development illustrative list
and confirmation of eligibility process
pursuant to § ll.14. The agencies have
included a recordkeeping burden for
Home Mortgage Loans pursuant to
§ ll.42(a)(3). The agencies have also
removed reporting requirements for
Community development services
pursuant to § ll.42(b)(4) and
Consumer loans data—automobile loans
pursuant to § ll.42(b)(2) Consumer
loans data—automobile loans. However,
recordkeeping requirements have been
maintained for both provisions. More
thorough discussion for both topics can
be found in the SUPPLEMENTARY
INFORMATION associated with § ll.42.
The agencies are extending for three
years the information collections
contained in the final rule, with several
revisions. The information collections
contained in the final rule have been
submitted to OMB for review and
approval by the OCC and FDIC under
section 3507(d) of the PRA (44 U.S.C.
3507(d)) and § 1320.11 of OMB’s
implementing regulations (5 CFR part
1320). The Board reviewed the final rule
under the authority delegated to the
Board by OMB. The Board will submit
information collection burden estimates
to OMB, and the submission will
include burden for only Federal
Reserve-supervised institutions.
Title of Information Collection: OCC
Community Reinvestment Act
Regulation; Board Reporting,
Recordkeeping, and Disclosure
Requirements Associated with
Regulation BB; FDIC, Community
Reinvestment Act.
OMB Control Numbers: OCC 1557–
0160; Board 7100–0197; FDIC 3064–
0092.
Affected Public: Businesses or other
for-profit.
Respondents: OCC: National banks,
Federal savings associations, Federal
branches and agencies; FDIC: All
insured state nonmember banks, insured
state-licensed branches of foreign banks,
insured state savings associations, and
bank service providers; Board: All state
member banks (as defined in 12 CFR
208.2(g)), bank holding companies (as
defined in 12 U.S.C. 1841), savings and
loan holding companies (as defined in
12 U.S.C. 1467a), foreign banking
organizations (as defined in 12 CFR
211.21(o)), foreign banks that do not
operate an insured branch, state branch
or state agency of a foreign bank (as
PO 00000
Frm 00527
Fmt 4701
Sfmt 4700
7099
defined in 12 U.S.C. 3101(11) and (12)),
Edge or agreement corporations (as
defined in 12 CFR 211.1(c)(2) and (3)),
and bank service providers.
The new or revised information
collection requirements in the final rule
are as follows:
Reporting Requirements
Section ll.14(b)(1) Request for
confirmation of eligibility. A bank may
request that the Board, FDIC, or OCC,
confirm, in the format prescribed by that
agency, that a loan, investment, or
service is eligible for community
development consideration.
Section ll.26 Bank request for
designation as a limited purpose bank.
Banks requesting a designation as a
limited purpose bank must file a request
in writing with the appropriate Federal
financial supervisory agency at least 90
days prior to the proposed effective date
of the designation.
Section ll.27 Strategic plan. Any
bank may have its record of helping
meet the credit needs of its entire
community evaluated under a strategic
plan, provided the appropriate Federal
financial supervisory agency has
approved the plan, the plan is in effect,
and the bank has been operating under
an approved plan for at least one year.
Section ll.27 of the final rule sets
forth the requirements for strategic
plans, including the term of a plan; the
treatment of multiple assessment areas;
the treatment of operations subsidiaries
or operating subsidiaries, as applicable,
and affiliates that are not operations
subsidiaries or operating subsidiaries;
justification requirements; public
participation; submission; content; and
required amendments due to a change
in material circumstances. Additionally,
during the term of a plan, a bank could
request that the appropriate Federal
financial supervisory agency approve an
amendment to the plan in the absence
of a change in material circumstances. A
bank that requests such an amendment
must provide an explanation regarding
why it is necessary and appropriate to
amend its plan goals.
Section ll.42(b)(1) Small business
loan and small farm loan data. A large
bank must report annually by April 1 in
prescribed electronic form, certain
aggregate data for the prior calendar
year for small business loans or small
farm loans for each census tract in
which the bank originated or purchased
such loans.
Section ll.42(b)(2) Community
development loans and community
development investments data. A large
bank and a limited purpose bank that
would be a large bank based on the asset
size described in the definition of a
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7100
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
large bank, must report annually by
April 1 in prescribed electronic form the
following community development loan
and community development
investment data for the prior calendar
year: general information on community
development loans and community
development investments; specific
information on the community
development loan or investment;
indicators of the impact and
responsiveness of the loan or
investment; allocation of the dollar
volume of the community development
loan or community development
investment to geographic areas served
by the loan or investment; location
information; other information relevant
to determining that an activity meets the
standards under community
development; and allocation of dollar
value of activity to counties served by
the community development activity (if
available).
Section ll.42(b)(3) Deposits data. A
large bank with assets greater than $10
billion must report annually by April 1
in prescribed electronic form deposits
data for the previous calendar year
including for each county, State, and
multistate MSA and for the institution
overall. The reporting includes the
average annual deposit balances
(calculated based on average daily
balances as provided in statements such
as monthly or quarterly statements, as
applicable), in aggregate, of deposit
accounts with associated addresses
located in such county, State or
multistate MSA where available, and for
the institution overall. Any other bank
that opts to collect and maintain
deposits data must report these data in
the same form and for the same duration
as described in this paragraph. A bank
that reports deposits data for which a
deposit location is not available must
report these deposits at the nationwide
area.
Section ll.42(c) Data on operations
subsidiaries or operating subsidiaries.
To the extent that its operations
subsidiaries, or operating subsidiaries,
as applicable, engage in retail banking
services, retail banking products,
community development lending,
community development investments,
or community development services, a
bank must collect, maintain, and report
data for these activities for purposes of
evaluating the bank’s performance. For
home mortgage loans, a bank must be
prepared to identify the loans reported
by the operations subsidiary, or
operating subsidiary, under 12 CFR part
1003, if applicable, or collect and
maintain home mortgage loans by the
operations subsidiary or operating
subsidiary that the bank would have
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
collected and maintained under
§ ll.42(a)(3) had the loans been
originated or purchased by the bank.
Section ll.42(d) Data on other
affiliates. A bank that elects to have
retail banking services, retail banking
products, community development
lending, community development
investments, or community
development services engaged in by an
affiliate (that is not an operations
subsidiary or operating subsidiary)
considered for purposes of this part
must collect, maintain, and report the
loans and investments, services, or
products the bank would have collected,
maintained, and reported under
§ ll.42(a) and (b) had the loans,
investments, services, or products been
engaged in by the bank. For home
mortgage loans, the bank must be
prepared to identify the home mortgage
loans reported by its affiliate under 12
CFR part 1003, if applicable, or collect
and maintain home mortgage loans by
the affiliate that the bank would have
collected and maintained under
§ ll.42(a)(3) had the loans been
originated or purchased by the bank.
Section ll.42(e) Data on community
development loans and community
development investments by a
consortium or a third party. A bank that
elects to have community development
loans and community development
investments by a consortium or third
party be considered for purposes of this
part must collect, maintain, and report
the lending and investments data they
would have collected, maintained, and
reported under § ll.42(a)(5) and (b)(2)
if the loans or investments had been
originated, purchased, refinanced, or
renewed by the bank.
Section ll.42(f)(1) Facility-based
assessment areas. A large bank and a
limited purpose bank that would be a
large bank based on the asset size
criteria described in the definition of a
large bank must collect and report by
April 1 of each year a list of each
facility-based assessment area showing
the States, MSAs, and counties that
make up each facility-based assessment
area, as of December 31 of the prior
calendar year, or the last date the
facility-based assessment area was in
effect, provided the facility-based
assessment area was delineated for at
least six months of the prior calendar
year.
Section ll.42(f)(2) Retail lending
assessment areas. A large bank with one
or more retail lending assessment area
delineated pursuant to § ll.17 must
collect and report each year by April 1
a list of retail lending assessment area
showing the States, MSAs and counties
PO 00000
Frm 00528
Fmt 4701
Sfmt 4700
in the retail lending assessment area for
the prior calendar year.
Recordkeeping Requirements
Section ll.42(a)(1) Small business
loans and small farm loans data. A large
bank must collect and maintain in
prescribed electronic form, until the
completion of its next CRA examination
in which the data are evaluated, data on
small business loans and small farm
loans originated or purchased by the
bank during the evaluation period.
Section ll.42(a)(2) Consumer loans
data—automobile loans. A large bank
for which automobiles are a product
line must collect and maintain in
prescribed electronic form, until the
completion of the bank’s next CRA
examination in which the data are
evaluated, data on automobile loans
originated or purchased by the bank
during the evaluation period. A small or
intermediate bank for which
automobiles are a product line may
collect and maintain the same
automobile loan data in a format of the
bank’s choosing, including in an
electronic form prescribed by the
appropriate Federal financial
supervisory agency, until the
completion of the bank’s next CRA
examination in which the data are
evaluated.
Section ll.42(a)(3) Home mortgage
loans. A large bank subject to 12 CFR
part 1003 must collect and maintain in
prescribed electronic form, until the
completion of the bank’s next CRA
examination in which the data are
evaluated, data on home mortgage loan
applications, originations, and
purchases outside the MSAs in which
the bank has a home or branch office (or
outside any MSA) pursuant to the
requirements in 12 CFR 1003.4(e). A
large bank that is not subject to 12 CFR
part 1003 due to the location of its
branches, but would otherwise meet the
HMDA size and lending activity
requirements pursuant to 12 CFR part
1003, must collect and maintain in
electronic form, until the completion of
the bank’s next CRA examination in
which the data are evaluated, data on
closed-end home mortgage loan,
excluding multifamily loans, originated
or purchased during the evaluation
period.
Section ll.42(a)(4) Retail banking
services and retail banking products
data. A large bank must collect and
maintain in prescribed electronic form
until the completion of its next CRA
examination in which the data are
evaluated, data on their retail banking
services and retail banking products.
These data include data regarding the
bank’s main offices, branches, and
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
remote service facilities, and
information with respect to retail
banking services and retail banking
products offered and provided by the
bank during the evaluation period.
Large banks with assets greater than $10
billion, large banks with assets of less
than or equal to $10 billion that do not
operate any branches, and large banks
that request additional consideration for
digital delivery systems and other
delivery systems, must collect and
maintain data on the range of services
and products offered through those
systems and digital and other delivery
systems activity by individuals,
families, or households in low-,
moderate-, middle-, and upper-income
census tracts. Large banks may also
submit any additional information not
required that demonstrates that their
digital delivery systems and other
delivery systems serve the needs of lowand moderate-income individuals,
families, or households and low- and
moderate-income census tracts. Large
banks with assets greater than $10
billion or large banks with assets of less
than or equal to $10 billion that request
additional consideration for deposit
products responsive to the needs of lowand moderate income individuals,
families, or households must collect and
maintain data including the number of
responsive deposit products opened and
closed in low-, moderate-, middle-, and
upper-income census tracts, as well as
the percentage of responsive deposit
accounts in comparison to total deposit
accounts. Pursuant to § ll.42(a)(4), a
bank may opt to collect and maintain
additional data not required that
demonstrates that digital delivery
systems and other delivery systems
serve low- and moderate-income
individuals, families, or households and
low- and moderate-income census tracts
and any other information that
demonstrates the availability and usage
of the bank’s deposit products
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
responsive to the needs of low- and
moderate-income individuals, families,
or households and low- and moderateincome census tracts in a format of the
bank’s own choosing.
Section ll.42(a)(5) Community
development loans and community
development investments data. A large
bank, a limited purpose bank that would
be a large bank based on the asset size
criteria described in the definition of a
large bank, and an intermediate bank
that opts to be evaluated under the
Community Development Financing
Test, must collect and maintain until
the completion of its next CRA
examination in which the data are
evaluated, the following data for
community development loans and
community development investments
originated, purchased, refinanced,
renewed, or modified by the bank:
general information on community
development loans and community
development investments; specific
community development loan or
investment information; indicators of
the impact and responsiveness of the
loan or investment; allocation of the
dollar volume of the community
development loan or community
development investment to geographic
areas served by the loan or investment;
location information; and other
information relevant to determining that
an activity meets the standards of a
community development loan or
community development investment.
Large banks must collect and maintain
this information in prescribed electronic
form while an intermediate bank that
opts to be evaluated under the
Community Development Financing
Test, must collect and maintain this
information in the format used by the
bank in the normal course of business.
Section ll.42(a)(6) Community
development services data. A large bank
must collect and maintain in a format of
the bank’s choosing or in a standardized
format provided by the agencies until
PO 00000
Frm 00529
Fmt 4701
Sfmt 4700
7101
the completion of its next CRA
examination in which the data are
evaluated, community development
services data including community
development services information,
indicators of the impact and
responsiveness of the activity, and
location information.
Section ll.42(a)(7) Deposits data.
A large bank with assets greater than
$10 billion must collect and maintain
annually in prescribed electronic form
until the completion of its next CRA
examination in which the data are
evaluated, the dollar amount of its
deposits at the county level based on
deposit location. The bank allocates the
deposits for which a deposit location is
not available to the nationwide area.
Annual deposits must be calculated
based on average daily balances as
provided in statements such as monthly
or quarterly statements. Any other bank
that opts to collect and maintain
deposits data must collect and maintain
the data in the same form and for the
same duration as described in this
paragraph in prescribed electronic form,
until the completion of the bank’s next
CRA examination in which the data are
evaluated.
Disclosure Requirements
Sections ll.43 and ll.44. Content
and availability of public file and public
notice by banks. Banks must maintain a
public file, in either paper or digital
format, that includes the information
prescribed in each part. Banks are
required to provide copies on request,
either on paper or in another form
acceptable to the person making the
request, of the information in the bank’s
public file. A bank is also required to
provide in the public area of its main
office and branches the public notice set
forth in appendix F.
The totality of the information
collection requirements under the final
rule are summarized below:
E:\FR\FM\01FER2.SGM
01FER2
7102
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
BURDEN ESTIMATES
Source and
Type of Burden
Description
Estimated Number
of Respondents
Average
Estimated
Hours per
Response
Frequency
of Response
Total
Estimated
Annual
Burden
occ
1
4
1
4
Board
1
4
1
4
FDIC
1
4
1
4
occ
15
400
1
6,000
Board
3
400
1
1,200
FDIC
14
400
1
5,600
occ
134
8
1
1,072
Board
106
8
1
848
FDIC
251
8
1
2,008
Reporting
§_.27
§ _.42(b)(l)
ddrumheller on DSK120RN23PROD with RULES2
§ _.42(b )(2)
VerDate Sep<11>2014
Limited purpose
banks.
Strategic plan .
Small business and
small farm loan data.
Community
development loan and
community
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00530
Fmt 4701
Sfmt 4725
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.059
§_.26
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
7103
development
investment data.
§ _.42(c)
§ _.42(d)
ddrumheller on DSK120RN23PROD with RULES2
§ _.42(e)
§ _.42(f)(l)
VerDate Sep<11>2014
18:11 Jan 31, 2024
143
8
1
1,144
Board
112
8
1
896
FDIC
265
8
1
2,120
occ
46
8
1
368
Board
35
8
1
280
FDIC
52
8
1
416
occ
141
38
1
5,358
Board
139
38
1
5,282
FDIC
176
38
1
occ
86
38
1
3,268
Board
238
38
1
9,044
FDIC
208
38
1
7,904
occ
25
17
1
425
Board
5
17
1
85
FDIC
15
17
1
255
Deposits data.
Data on operations
subsidiaries/operating
subsidiaries.
6,688
Data on other
affiliates.
Data on community
development financing
by a consortium or a
third party.
Facility-based
assessment areas data.
Jkt 262001
PO 00000
Frm 00531
Fmt 4701
Sfmt 4725
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.060
§ _.42(b )(3)
occ
7104
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
§ _.42(f)(2)
§ _.14(b)(l)
ace
171
2
1
342
Board
112
2
1
224
FDIC
265
2
1
530
ace
28
4
1
112
Board
8
4
1
32
FDIC
49
4
1
196
ace
78
8
1
624
Board
18
8
1
144
FDIC
80
8
1
640
ace
134
219
1
29,346
Board
106
219
1
23,214
FDIC
251
219
1
54,969
ace
4
75
1
300
Board
2
75
1
150
FDIC
2
75
1
150
1
8
1
8
Retail Lending
Assessment Areas.
Request for
confirmation of
eligibility.
Recordkeeping
§ _.42(a)(2)
ddrumheller on DSK120RN23PROD with RULES2
§ _.42(a)(3)
Small business and
small farm loan data
Consumer loan data automobile loans
Home Mortgage
Loans
ace
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00532
Fmt 4701
Sfmt 4725
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.061
§ _.42(a)(l)
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
§ _.42(a)(4)
§ _.42(a)(5)
§ _.42(a)(6)
§ _.42(a)(7)
Board
14
8
1
112
FDIC
28
8
1
224
occ
135
50
1
6,750
Board
107
50
1
5,350
FDIC
252
50
1
12,600
occ
144
300
1
43,200
Board
113
300
1
33,900
FDIC
266
300
1
79,800
occ
143
50
1
7,150
Board
112
50
1
5,600
FDIC
251
50
1
12,550
occ
46
350
1
16,100
Board
35
350
1
12,250
FDIC
52
350
1
18,200
7105
Retail banking
services and retail
banking products data.
Community
development loan and
community
development
investment data.
Community
development services
data.
Deposits data.
§_.43
VerDate Sep<11>2014
18:11 Jan 31, 2024
Content and
availability ofpublic
file.
Jkt 262001
PO 00000
Frm 00533
Fmt 4701
Sfmt 4725
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.062
ddrumheller on DSK120RN23PROD with RULES2
Disclosures
7106
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
§_.44
Public notice by
banks.
occ
932
10
1
9,320
Board
684
10
1
6,840
FDIC
3,012
10
1
30,120
Total
Estimated
Annual
Burden
occ
130,891
Board
105,455
FDIC
234,974
Note: The agencies recognize burden for§ _.42(a)(3)(i) under their existing information collections regarding
the Home Mortgage Disclosure Act; 1557---0345, 7100-0247, and 3064-0046. Section _.42(b )(3) and (a)(2), (5),
and (7) have burdens associated with optional or voluntary compliance. The agencies are estimating burden for
optional or voluntary compliance with § _.42(b )(3) and (a)(2), (5), and (7) by adding one respondent to the
Estimated Number of Respondents.
The total estimated annual burden for
OMB No. 3064–0092 is 234,974 hours,
an increase of 3,392 hours from the most
recent PRA renewal.1641
OCC
The total estimated annual burden for
OMB No. 1557–0160 is 130,891 hours,
an increase of 17,540 hours from the
most recent PRA renewal.1642
Board
ddrumheller on DSK120RN23PROD with RULES2
The total estimated annual burden for
OMB No. 7100–0197 is 105,455 hours,
an increase of 30,339 hours from the
most recent PRA renewal.1643
1641 See FDIC Community Reinvestment Act
Information Collection Request, OMB No. 3064–
0092, https://www.reginfo.gov/public/do/
PRAViewICR?ref_nbr=202204-3064-001.
1642 See OCC Community Reinvestment Act
Information Collection Request, OMB No. 1557–
0160, https://www.reginfo.gov/public/do/
PRAViewICR?ref_nbr=202202-1557-003.
1643 See Board Community Reinvestment Act
Information Collection Request, OMB No. 7100–
0197, https://www.reginfo.gov/public/do/
PRAViewICR?ref_nbr=202104-7100-002.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Unfunded Mandates Reform Act
Section 202 of the Unfunded
Mandates Reform Act of 1995 (UMRA)
(2 U.S.C. 1532) requires an agency to
prepare a budgetary impact statement
before promulgating a final rule that
includes any Federal mandate that may
result in the expenditure by State, local,
and tribal governments, in the aggregate,
or by the private sector, of $100 million
or more (adjusted annually for inflation
and currently $182 million) in any one
year. If a budgetary impact statement is
required, section 205 of the UMRA (2
U.S.C. 1535) also requires an agency to
identify and consider a reasonable
number of regulatory alternatives before
promulgating a rule.
For the final rule, the OCC estimates
that expenditures to comply with
mandates during the first 12-month
period of the final rule’s
implementation will be approximately
$91.8 million (approximately $7.9
million associated with increased data
collection, recordkeeping or reporting;
$82 million for large banks to collect,
maintain, and report annually
geographic data on deposits; and $1.9
million for banks’ strategic plan
PO 00000
Frm 00534
Fmt 4701
Sfmt 4700
submissions).1644 Therefore, the OCC
concludes that the final rule will not
result in an expenditure by State, local,
and tribal governments, in the aggregate,
or by the private sector of $100 million
or more annually (adjusted for inflation
and currently $182 annually) in any one
year. Accordingly, the OCC has not
prepared the budgetary impact
statement.
Riegle Community Development and
Regulatory Improvement Act of 1994
Pursuant to section 302(a) of the
Riegle Community Development and
Regulatory Improvement Act of 1994
(RCDRIA) (12 U.S.C. 4802(a)), in
determining the effective date and
administrative compliance requirements
for new regulations that impose
additional reporting, disclosure, or other
requirements on insured depository
institutions, an agency must consider,
1644 Several commenters addressed the OCC’s
UMRA analysis of the proposed rule. Some of these
commenters stated that the agency underestimated
burden of the proposed rule, and others noted that
the OCC provided insufficient information about its
actual calculations. In drafting the final rule, the
OCC considered these comments and made changes
from the proposal where appropriate.
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.063
FDIC
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
consistent with principles of safety and
soundness and the public interest: (1)
any administrative burdens that the rule
will place on depository institutions,
including small depository institutions
and customers of depository
institutions; and (2) the benefits of the
rule.
The final rule will impose additional
reporting, disclosure, or other
requirements on banks, and the agencies
determined the final rule’s effective date
and administrative compliance
requirements in accordance with 12
U.S.C. 4802(a). Specifically, the
agencies have considered the changes
made by this final rule and believe that
the rule’s effective and applicability
dates, described in the section-bysection analysis, will provide banks
with adequate time to comply with the
rule’s requirements. The agencies also
have considered the administrative
burden of the final rule’s administrative
compliance by tailoring the final rule’s
performance standards based on bank
size so that the new performance tests
only apply to those banks with the
greatest capacity to meet the rule’s
requirements and lend to their
communities. For example, under the
final rule, the agencies will continue to
evaluate small banks under the small
bank performance standards in the
current CRA framework and to evaluate
the community development
performance of intermediate banks as
under the current rule. Further, the final
rule does not impose any new data
requirements on small and intermediate
banks. Further discussion of the
consideration by the agencies of these
administrative compliance
requirements, and of the public
comment received on these
requirements as proposed, is found in
the section-by-section discussion of the
final rule in this SUPPLEMENTARY
INFORMATION.
Section 302(b) of RCDRIA (12 U.S.C.
4802(b)) provides that new regulations
and amendments to regulations
prescribed by a Federal banking agency
which impose additional reporting,
disclosures, or other new requirements
on insured depository institutions must
generally take effect on the first day of
a calendar quarter which begins on or
after the date on which the regulations
are published in final form. Consistent
with this requirement, this final rule
will be effective on April 1, 2024, which
is the first date of a calendar quarter.
Administrative Procedure Act
Section 553(d) of the Administrative
Procedure Act (APA) (5 U.S.C. 553(d))
requires that publication or service of a
substantive rule generally be made not
VerDate Sep<11>2014
20:20 Jan 31, 2024
Jkt 262001
less than 30 days before its effective
date. Consistent with this requirement,
this final rule will be effective on April
1, 2024, which is more than 30 days
after the final rule’s publication in the
Federal Register.
Plain Language
Section 722(a) of the Gramm-LeachBliley Act (12 U.S.C. 4809(a)) requires
each Federal banking agency to use
plain language in its proposed and final
rulemakings. In the proposed rule the
agencies invited but did not receive
comments on their use of plain
language. In this final rule, the agencies
use plain language.
Congressional Review Act
For purposes of the Congressional
Review Act (5 U.S.C. 801 et seq.), the
OMB makes a determination as to
whether a final rule constitutes a ‘‘major
rule.’’ If a rule is deemed a ‘‘major rule’’
by the OMB, the Congressional Review
Act generally provides that the rule may
not take effect until at least 60 days
following its publication. The
Congressional Review Act defines a
‘‘major rule’’ as any rule that the
Administrator of the Office of
Information and Regulatory Affairs of
the OMB finds has resulted in or is
likely to result in—(1) an annual effect
on the economy of $100 million or
more; (2) a major increase in costs or
prices for consumers, individual
industries, Federal, State, or local
government agencies or geographic
regions; or (3) significant adverse effects
on competition, employment,
investment, productivity, innovation, or
on the ability of United States-based
enterprises to compete with foreignbased enterprises in domestic and
export markets.1645 The agencies have
submitted the final rule to the OMB for
this major rule determination and the
OMB has determined the final rule to be
a major rule. As required by the
Congressional Review Act, the agencies
are submitting the appropriate report to
Congress and the Government
Accountability Office for review.1646
Text of Common Rule (All Agencies)
The text of the agencies’ common rule
text appears below:
■
PART llllCOMMUNITY
REINVESTMENT
1645 See
1646 See
PO 00000
5 U.S.C. 804(2).
5 U.S.C. 801(a)(1).
Fmt 4701
Subpart B—Geographic Considerations
ll.16 Facility-based assessment areas.
ll.17 Retail lending assessment areas.
ll.18 Outside retail lending areas.
ll.19 Areas for eligible community
development loans, community
development investments, and
community development services.
ll.20 [Reserved]
Subpart C—Standards for Assessing
Performance
ll.21 Evaluation of CRA performance in
general.
ll.22 Retail lending test.
ll.23 Retail services and products test.
ll.24 Community development financing
test.
ll.25 Community development services
test.
ll.26 Limited purpose banks.
ll.27 Strategic plan.
ll.28 Assigned conclusions and ratings.
ll.29 Small bank performance evaluation.
ll.30 Intermediate bank performance
evaluation.
ll.31 [Reserved]
Subpart D—Records, Reporting, Disclosure,
and Public Engagement Requirements
ll.42 Data collection, reporting, and
disclosure.
ll.43 Content and availability of public
file.
ll.44 Public notice by banks.
ll.45 Publication of planned examination
schedule.
ll.46 Public engagement.
Subpart E—Transition Rules
ll.51 Applicability dates and transition
provisions.
Appendix A to Part l—Calculations for the
Retail Lending Test
Appendix B to Part l—Calculations for the
Community Development Tests
Appendix C to Part l—Performance Test
Conclusions
Appendix D to Part l—Ratings
Appendix E to Part l—Small Bank and
Intermediate Bank Performance
Evaluation Conclusions and Ratings
Appendix F to Part l—[Reserved]
Subpart A—General
Authority, purposes, and scope.
Definitions.
Frm 00535
ll.13 Consideration of community
development loans, community
development investments, and
community development services.
ll.14 Community development
illustrative list; Confirmation of
eligibility.
ll.15 Impact and responsiveness review
of community development loans,
community development investments,
and community development services.
PART llllCOMMUNITY
REINVESTMENT
Subpart A—General
Sec.
ll.11
ll.12
7107
Sfmt 4700
§ ll.11
Authority, purposes, and scope.
(a) [Reserved]
(b) Purposes. This part implements
the requirement in the Community
Reinvestment Act (12 U.S.C. 2901 et
E:\FR\FM\01FER2.SGM
01FER2
7108
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
seq.) (CRA) that the [Agency] assess a
bank’s record of helping to meet the
credit needs of the local communities in
which the bank is chartered, consistent
with the safe and sound operation of the
bank, and to take this record into
account in the agency’s evaluation of an
application for a deposit facility by the
bank. Accordingly, this part:
(1) Establishes the framework and
criteria by which the [Agency] assesses
a bank’s record of responding to the
credit needs of its entire community,
including low- and moderate-income
neighborhoods, consistent with the safe
and sound operation of the bank; and
(2) Provides that the [Agency] takes
that record into account in considering
certain applications.
(c) [Reserved]
ddrumheller on DSK120RN23PROD with RULES2
§ ll.12
Definitions.
For purposes of this part, the
following definitions apply:
Affiliate means any company that
controls, is controlled by, or is under
common control with another company.
The term ‘‘control’’ has the same
meaning given to that term in 12 U.S.C.
1841(a)(2), and a company is under
common control with another company
if both companies are directly or
indirectly controlled by the same
company.
Affordable housing means activities
described in § ll.13(b).
Area median income means:
(1) The median family income for the
MSA (as defined in this section), if an
individual, family, household, or census
tract is located in an MSA that has not
been subdivided into metropolitan
divisions, or for the metropolitan
division, if an individual, family,
household, or census tract is located in
an MSA that has been subdivided into
metropolitan divisions; or
(2) The statewide nonmetropolitan
median family income, if an individual,
family, household, or census tract is
located in a nonmetropolitan area.
Assets means a bank’s total assets as
reported in Schedule RC of the
Consolidated Reports of Condition and
Income as filed under 12 U.S.C. 161,
324, 1464, or 1817, as applicable (Call
Report), or Schedule RAL of the Report
of Assets and Liabilities of U.S.
Branches and Agencies of Foreign Banks
as filed under 12 U.S.C. 1817(a),
3102(b), or 3105(c)(2), as applicable.
Branch means a staffed banking
facility, whether shared or unshared,
that the [Agency] approved or
authorized as a branch and that is open
to, and accepts deposits from, the
general public.
Census tract means a census tract
delineated by the U.S. Census Bureau.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Closed-end home mortgage loan has
the same meaning given to the term
‘‘closed-end mortgage loan’’ in 12 CFR
1003.2, excluding loan transactions set
forth in 12 CFR 1003.3(c)(1) through
(10) and (13) and multifamily loans as
defined in this section.
Combination of loan dollars and loan
count means, when applied to a
particular ratio, the average of:
(1) The ratio calculated using loans
measured in dollar volume; and
(2) The ratio calculated using loans
measured in number of loans.
Community development means
activities described in § ll.13(b)
through (l).
Community Development Financial
Institution (CDFI) means an entity that
satisfies the definition in section
103(5)(A) of the Community
Development Banking and Financial
Institutions Act of 1994 (12 U.S.C.
4702(5)) and is certified by the U.S.
Department of the Treasury’s
Community Development Financial
Institutions Fund as meeting the
requirements set forth in 12 CFR
1805.201(b).
Community development investment
means a lawful investment, including a
legally binding commitment to invest,
that is reported on Schedule RC–L of the
Call Report or on Schedule L of the
Report of Assets and Liabilities of U.S.
Branches and Agencies of Foreign
Banks, as applicable; deposit;
membership share; grant; or monetary or
in-kind donation that supports
community development, as described
in § ll.13.
Community development loan means
a loan, including a legally binding
commitment to extend credit, such as a
standby letter of credit, that supports
community development, as described
in § ll.13. A community development
loan does not include any home
mortgage loan considered under the
Retail Lending Test in § ll.22, with
the exception of one-to-four family
home mortgage loans for rental housing
with affordable rents in
nonmetropolitan areas under
§ ll.13(b)(3).
Community development services
means the performance of volunteer
services by a bank’s or its affiliate’s
board members or employees,
performed on behalf of the bank, where
those services:
(1) Support community development,
as described in § ll.13; and
(2) Are related to the provision of
financial services, which include credit,
deposit, and other personal and
business financial services, or services
that reflect a board member’s or an
employee’s expertise at the bank or
PO 00000
Frm 00536
Fmt 4701
Sfmt 4700
affiliate, such as human resources,
information technology, and legal
services.
Consumer loan means a loan to one or
more individuals for household, family,
or other personal expenditures and that
is one of the following types of loans:
(1) Automobile loan, as reported in
Schedule RC–C of the Call Report;
(2) Credit card loan, as reported as
‘‘credit card’’ in Schedule RC–C of the
Call Report;
(3) Other revolving credit plan, as
reported in Schedule RC–C of the Call
Report; and
(4) Other consumer loan, as reported
in Schedule RC–C of the Call Report.
County means any county, county
equivalent, or statistically equivalent
entity as used by the U.S. Census
Bureau pursuant to title 13 of the U.S.
Code.
Deposit location means:
(1) For banks that collect, maintain,
and report deposits data as provided in
§ ll.42, the address on file with the
bank for purposes of the Customer
Identification Program required by 31
CFR 1020.220 or another documented
address at which the depositor resides
or is located.
(2) For banks that do not collect,
maintain, and report deposits data as
provided in § ll.42, the county of the
bank facility to which the deposits are
assigned in the FDIC’s Summary of
Deposits.
Depository institution means any
institution subject to the CRA, as
described in 12 CFR 25.11, 228.11, and
345.11.
Deposits has the following meanings:
(1) For banks that collect, maintain,
and report deposits data as provided in
§ ll.42, deposits means deposits in
domestic offices of individuals,
partnerships, and corporations, and of
commercial banks and other depository
institutions in the United States as
defined in Schedule RC–E of the Call
Report; deposits does not include U.S.
Government deposits, State and local
government deposits, domestically held
deposits of foreign governments or
official institutions, or domestically
held deposits of foreign banks or other
foreign financial institutions; and
(2) For banks that do not collect,
maintain, and report deposits data as
provided in § ll.42, deposits means a
bank’s deposits as reported in the
FDIC’s Summary of Deposits as required
under 12 CFR 304.3(c).
Digital delivery system means a
channel through which banks offer
retail banking services electronically,
such as online banking or mobile
banking.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Distressed or underserved
nonmetropolitan middle-income census
tract means a census tract publicly
designated as such by the Board of
Governors of the Federal Reserve
System (Board), the Federal Deposit
Insurance Corporation (FDIC), and the
Office of the Comptroller of the
Currency (OCC), based on the criteria in
paragraphs (1) and (2) of this definition,
compiled in a list, and published
annually by the Federal Financial
Institutions Examination Council
(FFIEC).
(1) A nonmetropolitan middle-income
census tract is designated as distressed
if it is in a county that meets one or
more of the following criteria:
(i) An unemployment rate of at least
1.5 times the national average;
(ii) A poverty rate of 20 percent or
more; or
(iii) A population loss of 10 percent
or more between the previous and most
recent decennial census or a net
population loss of five percent or more
over the five-year period preceding the
most recent census.
(2) A nonmetropolitan middle-income
census tract is designated as
underserved if it meets the criteria for
population size, density, and dispersion
that indicate the area’s population is
sufficiently small, thin, and distant from
a population center that the census tract
is likely to have difficulty financing the
fixed costs of meeting essential
community needs. The criteria for these
designations are based on the Urban
Influence Codes established by the U.S.
Department of Agriculture’s Economic
Research Service numbered ‘‘7,’’ ‘‘10,’’
‘‘11,’’ or ‘‘12.’’
Evaluation period means the period,
generally in calendar years, during
which a bank conducted the activities
that the [Agency] evaluates in a CRA
examination, in accordance with the
[Agency]’s guidelines and procedures.
Facility-based assessment area means
a geographic area delineated pursuant to
§ ll.16.
High Opportunity Area means an area
identified by the Federal Housing
Finance Agency for purposes of the
Duty to Serve Underserved Markets
regulation in 12 CFR part 1282, subpart
C.
Home mortgage loan means a closedend home mortgage loan or an open-end
home mortgage loan as these terms are
defined in this section.
Income level includes:
(1) Low-income, which means:
(i) For individuals, families, or
households, income that is less than 50
percent of the area median income; or
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
(ii) For a census tract, a median family
income that is less than 50 percent of
the area median income.
(2) Moderate-income, which means:
(i) For individuals, families, or
households, income that is at least 50
percent and less than 80 percent of the
area median income; or
(ii) For a census tract, a median family
income that is at least 50 percent and
less than 80 percent of the area median
income.
(3) Middle-income, which means:
(i) For individuals, families, or
households, income that is at least 80
percent and less than 120 percent of the
area median income; or
(ii) For a census tract, a median family
income that is at least 80 percent and
less than 120 percent of the area median
income.
(4) Upper-income, which means:
(i) For individuals, families, or
households, income that is 120 percent
or more of the area median income; or
(ii) For a census tract, a median family
income that is 120 percent or more of
the area median income.
Intermediate bank means a bank,
excluding a bank designated as a limited
purpose bank pursuant to § ll.26, that
had assets of at least $600 million as of
December 31 in both of the prior two
calendar years and less than $2 billion
as of December 31 in either of the prior
two calendar years. The [Agency]
adjusts and publishes the figures in this
definition annually, based on the yearto-year change in the average of the
Consumer Price Index for Urban Wage
Earners and Clerical Workers, not
seasonally adjusted, for each 12-month
period ending in November, with
rounding to the nearest million.
Large bank means a bank, excluding
a bank designated as a limited purpose
bank pursuant to § ll.26, that had
assets of at least $2 billion as of
December 31 in both of the prior two
calendar years. The [Agency] adjusts
and publishes the figure in this
definition annually, based on the yearto-year change in the average of the
Consumer Price Index for Urban Wage
Earners and Clerical Workers, not
seasonally adjusted, for each 12-month
period ending in November, with
rounding to the nearest million.
Large depository institution means
any depository institution, excluding
depository institutions designated as
limited purpose banks or savings
associations pursuant to 12 CFR 25.26(a)
and depository institutions designated
as limited purpose banks pursuant to 12
CFR 228.26(a) or 345.26(a), that meets
the asset size threshold of a large bank.
Limited purpose bank means a bank
that is not in the business of extending
PO 00000
Frm 00537
Fmt 4701
Sfmt 4700
7109
closed-end home mortgage loans, small
business loans, small farm loans, or
automobile loans evaluated under
§ ll.22 to retail customers, except on
an incidental and accommodation basis,
and for which a designation as a limited
purpose bank is in effect, pursuant to
§ ll.26.
Loan location. A loan is located as
follows:
(1) A consumer loan is located in the
census tract where the borrower resides
at the time that the borrower submits
the loan application;
(2) A home mortgage loan or a
multifamily loan is located in the
census tract where the property securing
the loan is located; and
(3) A small business loan or small
farm loan is located in the census tract
where the main business facility or farm
is located or where the borrower will
otherwise apply the loan proceeds, as
indicated by the borrower.
Low-cost education loan means any
private education loan, as defined in
section 140(a)(7) of the Truth in Lending
Act (15 U.S.C. 1650(a)(8)) (including a
loan under a State or local education
loan program), originated by the bank
for a student at an ‘‘institution of higher
education,’’ as generally defined in
sections 101 and 102 of the Higher
Education Act of 1965 (20 U.S.C. 1001
and 1002), implemented in 34 CFR part
600, with interest rates and fees no
greater than those of comparable
education loans offered directly by the
U.S. Department of Education. Such
rates and fees are specified in section
455 of the Higher Education Act of 1965
(20 U.S.C. 1087e).
Low-income credit union (LICU) has
the same meaning given to that term in
12 CFR 701.34.
Low-Income Housing Tax Credit
(LIHTC) means a Federal tax credit for
housing persons of low income
pursuant to section 42 of the Internal
Revenue Code of 1986 (26 U.S.C. 42).
Major product line means a product
line that the [Agency] evaluates in a
particular Retail Lending Test Area,
pursuant to § ll.22(d)(2) and
paragraphs II.b.1 and II.b.2 of appendix
A to this part.
Majority automobile lender means a
bank for which more than 50 percent of
its home mortgage loans, multifamily
loans, small business loans, small farm
loans, and automobile loans were
automobile loans, as determined
pursuant to paragraph II.b.3 of appendix
A to this part.
Metropolitan area means any MSA.
Metropolitan division has the same
meaning as that term is defined by the
Director of the Office of Management
and Budget.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7110
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Military bank means a bank whose
business predominantly consists of
serving the needs of military personnel
who serve or have served in the U.S.
Armed Forces (including the U.S. Air
Force, U.S. Army, U.S. Coast Guard,
U.S. Marine Corps, U.S. Navy, and U.S.
Space Force) or their dependents. A
bank whose business predominantly
consists of serving the needs of military
personnel or their dependents means a
bank whose most important customer
group is military personnel or their
dependents.
Minority depository institution (MDI)
means:
(1) For purposes of activities
conducted pursuant to 12 U.S.C.
2907(a), ‘‘minority depository
institution’’ as defined in 12 U.S.C.
2907(b)(1); and
(2) For all other purposes:
(i) ‘‘Minority depository institution’’
as defined in 12 U.S.C. 2907(b)(1);
(ii) ‘‘Minority depository institution’’
as defined in section 308 of the
Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 (FIRREA)
(12 U.S.C. 1463 note); or
(iii) A depository institution
considered to be a minority depository
institution by the appropriate Federal
banking agency. For purposes of this
paragraph (2)(iii), ‘‘appropriate Federal
banking agency’’ has the meaning given
to it in 12 U.S.C. 1813(q).
Mission-driven nonprofit organization
means an organization described in
section 501(c)(3) of the Internal Revenue
Code of 1986 (26 U.S.C. 501(c)(3)) and
exempt from taxation under section
501(a) of the Internal Revenue Code that
benefits or serves primarily low- or
moderate-income individuals or
communities, small businesses, or small
farms.
MSA means a metropolitan statistical
area delineated by the Director of the
Office of Management and Budget,
pursuant to 44 U.S.C. 3504(e)(3) and
(10), 31 U.S.C. 1104(d), and Executive
Order 10253 (June 11, 1951).
Multifamily loan means an extension
of credit that is secured by a lien on a
‘‘multifamily dwelling’’ as defined in 12
CFR 1003.2.
Multistate MSA means an MSA that
crosses a State boundary.
Nationwide area means the entire
United States and its territories.
Native Land Area means:
(1) All land within the limits of any
Indian reservation under the
jurisdiction of the United States, as
described in 18 U.S.C. 1151(a);
(2) All dependent Indian communities
within the borders of the United States
whether within the original or
subsequently acquired territory thereof,
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
and whether within or without the
limits of a State, as described in 18
U.S.C. 1151(b);
(3) All Indian allotments, the Indian
titles to which have not been
extinguished, including rights-of-way
running through the same, as defined in
18 U.S.C. 1151(c);
(4) Any land held in trust by the
United States for tribes or Native
Americans or tribally-held restricted fee
land;
(5) Reservations established by a State
government for a tribe or tribes
recognized by the State;
(6) Any Native village, as defined in
43 U.S.C. 1602(c), in Alaska;
(7) Lands that have the status of
Hawaiian Home Lands as defined in
section 204 of the Hawaiian Homes
Commission Act, 1920 (42 Stat. 108), as
amended;
(8) Areas defined by the U.S. Census
Bureau as Alaska Native Village
Statistical Areas, Oklahoma Tribal
Statistical Areas, Tribal-Designated
Statistical Areas, or American Indian
Joint-Use Areas; and
(9) Land areas of State-recognized
Indian tribes and heritage groups that
are defined and recognized by
individual States and included in the
U.S. Census Bureau’s annual Boundary
and Annexation Survey.
New Markets Tax Credit (NMTC)
means a Federal tax credit pursuant to
section 45D of the Internal Revenue
Code of 1986 (26 U.S.C. 45D).
Nonmetropolitan area means any area
that is not located in an MSA.
Open-end home mortgage loan has
the same meaning as given to the term
‘‘open-end line of credit’’ in 12 CFR
1003.2, excluding loan transactions set
forth in 12 CFR 1003.3(c)(1) through
(10) and (13) and multifamily loans as
defined in this section.
Other delivery system means a
channel, other than branches, remote
services facilities, or digital delivery
systems, through which banks offer
retail banking services.
Outside retail lending area means the
geographic area delineated pursuant to
§ ll.18.
Persistent poverty county means a
county that has had poverty rates of 20
percent or more for 30 years, as publicly
designated by the Board, FDIC, and
OCC, compiled in a list, and published
annually by the FFIEC.
Product line means a bank’s loans in
one of the following, separate categories
in a particular Retail Lending Test Area:
(1) Closed-end home mortgage loans;
(2) Small business loans;
(3) Small farm loans; and
(4) Automobile loans, if a bank is a
majority automobile lender or opts to
PO 00000
Frm 00538
Fmt 4701
Sfmt 4700
have its automobile loans evaluated
pursuant to § ll.22.
Remote service facility means an
automated, virtually staffed, or
unstaffed banking facility owned or
operated by, or operated exclusively for,
a bank, such as an automated teller
machine (ATM), interactive teller
machine, cash dispensing machine, or
other remote electronic facility, that is
open to the general public and at which
deposits are accepted, cash dispersed, or
money lent.
Reported loan means:
(1) A home mortgage loan or a
multifamily loan reported by a bank
pursuant to the Home Mortgage
Disclosure Act, as implemented by 12
CFR part 1003; or
(2) A small business loan or a small
farm loan reported by a bank pursuant
to § ll.42.
Retail banking products means credit
and deposit products or programs that
facilitate a lending or depository
relationship between the bank and
consumers, small businesses, or small
farms.
Retail banking services means retail
financial services provided by a bank to
consumers, small businesses, or small
farms and include a bank’s systems for
delivering retail financial services.
Retail lending assessment area means
a geographic area delineated pursuant to
§ ll.17.
Retail Lending Test Area means a
facility-based assessment area, a retail
lending assessment area, or an outside
retail lending area.
Small bank means a bank, excluding
a bank designated as a limited purpose
bank pursuant to § ll.26, that had
assets of less than $600 million as of
December 31 in either of the prior two
calendar years. The [Agency] adjusts
and publishes the dollar figure in this
definition annually based on the yearto-year change in the average of the
Consumer Price Index for Urban Wage
Earners and Clerical Workers, not
seasonally adjusted, for each 12-month
period ending in November, with
rounding to the nearest million.
Small business means a business,
other than a farm, that had gross annual
revenues for its preceding fiscal year of
$5 million or less.
Small business loan means,
notwithstanding the definition of ‘‘small
business’’ in this section, a loan
included in ‘‘loans to small businesses’’
as reported in Schedule RC–C of the
Call Report.
Small farm means a farm that had
gross annual revenues for its preceding
fiscal year of $5 million or less.
Small farm loan means,
notwithstanding the definition of ‘‘small
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
of this section, the majority of the
beneficiaries are, or the majority of
dollars benefit or serve, low- or
moderate-income individuals, families,
or households;
(3) For loans, investments, or services
supporting community development
under paragraph (c) of this section, the
majority of the beneficiaries are, or the
majority of dollars benefit or serve,
small businesses or small farms;
(4) For loans, investments, or services
supporting community development
under paragraphs (e), (f), (g), and (i) of
this section, the majority of the
beneficiaries are, or the majority of
dollars benefit or serve, residents of
targeted census tracts;
(5) For loans, investments, or services
supporting community development
under paragraph (h) of this section, the
majority of the beneficiaries are, or the
majority of dollars benefit or serve,
residents of designated disaster areas;
(6) For loans, investments, or services
supporting community development
under paragraph (j) of this section, the
§ ll.13 Consideration of community
majority of the beneficiaries are, or the
development loans, community
majority of dollars benefit or serve,
development investments, and community
residents of Native Land Areas; or
development services.
(7) For loans, investments, or services
As provided in paragraph (a) of this
supporting community development
section, a bank may receive
under paragraph (l) of this section, the
consideration for a loan, investment, or
loan, investment, or service primarily
service that supports community
supports community development
development as described in paragraphs under paragraph (l) of this section.
(b) through (l) of this section.
(ii) Bona fide intent standard. A loan,
(a) Full and partial credit for
investment, or service meets the bona
community development loans,
fide intent standard if:
community development investments,
(A) The housing units, beneficiaries,
and community development services— or proportion of dollars necessary to
(1) Full credit. A bank will receive credit meet the majority standard are not
for its entire loan, investment, or service reasonably quantifiable pursuant to
if it meets the majority standard in
paragraph (a)(1)(i) of this section;
paragraph (a)(1)(i) of this section; meets
(B) The loan, investment, or service
the bona fide intent standard in
has the express, bona fide intent of
paragraph (a)(1)(ii) of this section;
community development under one or
involves an MDI, WDI, LICU, or CDFI as more of paragraphs (b) through (l) of this
provided in paragraph (a)(1)(iii) of this
section; and
section; or involves a LIHTC as
(C) The loan, investment, or service is
provided in paragraph (a)(1)(iv) of this
specifically structured to achieve
section.
community development under one or
(i) Majority standard. A loan,
more of paragraphs (b) through (l) of this
investment, or service meets the
section.
majority standard if:
(iii) MDI, WDI, LICU, or CDFI. The
(A) The loan, investment, or service
loan, investment, or service supports
supports community development
community development under
under one or more of paragraphs (b)
paragraph (k) of this section.
through (l) of this section; and
(iv) LIHTC. The loan, investment, or
(B)(1) For loans, investments, or
service supports LIHTC-financed
services supporting community
affordable housing under paragraph
development under paragraphs (b)(1)
(b)(1) of this section.
(2) Partial credit. If a loan,
through (3) of this section, the majority
investment, or service supporting
of the housing units are affordable to
affordable housing under paragraph
low- or moderate-income individuals,
(b)(1) of this section does not meet the
families, or households;
(2) For loans, investments, or services majority standard under paragraph
(a)(1)(i) of this section, a bank will
supporting community development
receive partial credit for the loan,
under paragraphs (b)(4) and (5) and (d)
ddrumheller on DSK120RN23PROD with RULES2
farm’’ in this section, a loan included in
‘‘loans to small farms’’ as reported in
Schedule RC–C of the Call Report.
State means a U.S. State or territory,
and includes the District of Columbia.
Targeted census tract means:
(1) A low-income census tract or a
moderate-income census tract; or
(2) A distressed or underserved
nonmetropolitan middle-income census
tract.
Tribal government means the
recognized governing body of any
Indian or Alaska Native tribe, band,
nation, pueblo, village, community,
component band, or component
reservation, individually identified
(including parenthetically) in the list
most recently published pursuant to
section 104 of the Federally Recognized
Indian Tribe List Act of 1994 (25 U.S.C.
5131).
Women’s depository institution (WDI)
means ‘‘women’s depository
institution’’ as defined in 12 U.S.C.
2907(b)(2).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00539
Fmt 4701
Sfmt 4700
7111
investment, or service in proportion to
the percentage of total housing units in
any development that are affordable to
low- or moderate-income individuals.
(b) Affordable housing. Affordable
housing comprises the following:
(1) Rental housing in conjunction with
a government affordable housing plan,
program, initiative, tax credit, or
subsidy. Rental housing for low- or
moderate-income individuals
purchased, developed, financed,
rehabilitated, improved, or preserved in
conjunction with a Federal, State, local,
or tribal government affordable housing
plan, program, initiative, tax credit, or
subsidy.
(2) Multifamily rental housing with
affordable rents. Multifamily rental
housing purchased, developed,
financed, rehabilitated, improved, or
preserved if:
(i) For the majority of units, the
monthly rent as underwritten by the
bank, reflecting post-construction or
post-renovation changes as applicable,
does not exceed 30 percent of 80
percent of the area median income; and
(ii) One or more of the following
additional criteria are met:
(A) The housing is located in a lowor moderate-income census tract;
(B) The housing is located in a census
tract in which the median income of
renters is low- or moderate-income and
the median rent does not exceed 30
percent of 80 percent of the area median
income;
(C) The housing is purchased,
developed, financed, rehabilitated,
improved, or preserved by any nonprofit
organization with a stated mission of, or
that otherwise directly supports,
providing affordable housing; or
(D) The bank provides documentation
that a majority of the housing units are
occupied by low- or moderate-income
individuals, families, or households.
(3) One-to-four family rental housing
with affordable rents in a
nonmetropolitan area. One-to-four
family rental housing purchased,
developed, financed, rehabilitated,
improved, or preserved in a
nonmetropolitan area that meets the
criteria in paragraph (b)(2) of this
section.
(4) Affordable owner-occupied
housing for low- or moderate-income
individuals. Assistance for low- or
moderate-income individuals to obtain,
maintain, rehabilitate, or improve
affordable owner-occupied housing,
excluding loans by a bank directly to
one or more owner-occupants of such
housing.
(5) Mortgage-backed securities.
Purchases of mortgage-backed securities
where a majority of the underlying loans
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7112
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
are not loans that the bank originated or
purchased and:
(i) Are home mortgage loans made to
low- or moderate-income individuals; or
(ii) Are loans that finance multifamily
affordable housing that meets the
requirements of paragraph (b)(1) of this
section.
(c) Economic development. Economic
development comprises:
(1) Government-related support for
small businesses and small farms.
Loans, investments, and services
undertaken in conjunction or in
syndication with Federal, State, local, or
tribal government plans, programs, or
initiatives that support small businesses
or small farms, as follows:
(i) Loans, investments, and services
other than direct loans to small
businesses and small farms. Loans,
investments, and services that support
small businesses or small farms in
accordance with how small businesses
and small farms are defined in the
applicable plan, program, or initiative,
but excluding loans by a bank directly
to small businesses or small farms
(either as defined in a government plan,
program, or initiative or in § ll.12). If
the government plan, program, or
initiative does not identify a standard
for the size of the small businesses or
small farms supported by the plan,
program, or initiative, the small
businesses or small farms supported
must meet the definition of small
business or small farm in § ll.12.
Loans to, investments in, or services
provided to the following are presumed
to meet the criteria of this paragraph
(c)(1)(i):
(A) Small Business Investment
Company (13 CFR part 107);
(B) New Markets Venture Capital
Company (13 CFR part 108);
(C) Qualified Community
Development Entity (26 U.S.C. 45D(c));
or
(D) U.S. Department of Agriculture
Rural Business Investment Company (7
CFR 4290.50).
(ii) Direct loans to small businesses
and small farms. Loans by a bank
directly to businesses or farms,
including, but not limited to, loans in
conjunction or syndicated with a U.S.
Small Business Administration (SBA)
Certified Development Company (13
CFR 120.10) or Small Business
Investment Company (13 CFR part 107),
that meet the following size and
purpose criteria:
(A) Size eligibility standard. Loans
that may be considered under paragraph
(c)(1)(ii) of this section must be to
businesses and farms that meet the size
eligibility standards of the U.S. Small
Business Administration Development
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Company (13 CFR 121.301) or Small
Business Investment Company (13 CFR
121.301 and 121.201) programs or that
meet the definition of small business or
small farm in § ll.12.
(B) Purpose test. Loans that may be
considered under paragraph (c)(1)(ii) of
this section must have the purpose of
promoting permanent job creation or
retention for low- or moderate-income
individuals or in low- or moderateincome census tracts.
(2) Intermediary support for small
businesses and small farms. Loans,
investments, or services provided to
intermediaries that lend to, invest in, or
provide assistance, such as financial
counseling, shared space, technology, or
administrative assistance, to small
businesses or small farms.
(3) Other support for small businesses
and small farms. Assistance, such as
financial counseling, shared space,
technology, or administrative assistance,
to small businesses or small farms.
(d) Community supportive services.
Community supportive services are
activities that assist, benefit, or
contribute to the health, stability, or
well-being of low- or moderate-income
individuals, such as childcare,
education, workforce development and
job training programs, health services
programs, and housing services
programs. Community supportive
services include, but are not limited to,
activities that:
(1) Are conducted with a missiondriven nonprofit organization;
(2) Are conducted with a nonprofit
organization located in and serving lowor moderate-income census tracts;
(3) Are conducted in a low- or
moderate-income census tract and
targeted to the residents of the census
tract;
(4) Are offered to individuals at a
workplace where the majority of
employees are low- or moderate-income,
based on U.S. Bureau of Labor Statistics
data for the average wage for workers in
that particular occupation or industry;
(5) Are provided to students or their
families through a school at which the
majority of students qualify for free or
reduced-price meals under the U.S.
Department of Agriculture’s National
School Lunch Program;
(6) Primarily benefit or serve
individuals who receive or are eligible
to receive Medicaid;
(7) Primarily benefit or serve
individuals who receive or are eligible
to receive Federal Supplemental
Security Income, Social Security
Disability Insurance, or support through
other Federal disability assistance
programs; or
PO 00000
Frm 00540
Fmt 4701
Sfmt 4700
(8) Primarily benefit or serve
recipients of government assistance
plans, programs, or initiatives that have
income qualifications equivalent to, or
stricter than, the definitions of low- and
moderate-income as defined in this part.
Examples include, but are not limited
to, the U.S. Department of Housing and
Urban Development’s section 8, 202,
515, and 811 programs or the U.S.
Department of Agriculture’s section 514,
516, and Supplemental Nutrition
Assistance programs.
(e) Revitalization or stabilization—(1)
In general. Revitalization or
stabilization comprises activities that
support revitalization or stabilization of
targeted census tracts, including
adaptive reuse of vacant or blighted
buildings, brownfield redevelopment,
support of a plan for a business
improvement district or main street
program, or any other activity that
supports revitalization or stabilization,
and that:
(i) Are undertaken in conjunction
with a plan, program, or initiative of a
Federal, State, local, or tribal
government or a mission-driven
nonprofit organization, where the plan,
program, or initiative includes a focus
on revitalizing or stabilizing targeted
census tracts;
(ii) Benefit or serve residents,
including low- or moderate-income
individuals, of targeted census tracts;
and
(iii) Do not directly result in the
forced or involuntary relocation of lowor moderate-income individuals in
targeted census tracts.
(2) Mixed-use revitalization or
stabilization project. Projects to
revitalize or stabilize a targeted census
tract that include both commercial and
residential components qualify as
revitalization or stabilization activities
under this paragraph (e)(2), if:
(i) The criteria in paragraph (e)(1) of
this section are met; and
(ii) More than 50 percent of the
project is non-residential as measured
by the percentage of total square footage
or dollar amount of the project.
(f) Essential community facilities.
Essential community facilities are
public facilities that provide essential
services generally accessible by a local
community, including, but not limited
to, schools, libraries, childcare facilities,
parks, hospitals, healthcare facilities,
and community centers that benefit or
serve targeted census tracts, and that:
(1) Are undertaken in conjunction
with a plan, program, or initiative of a
Federal, State, local, or tribal
government or a mission-driven
nonprofit organization, where the plan,
program, or initiative includes a focus
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
on benefitting or serving targeted census
tracts;
(2) Benefit or serve residents,
including low- or moderate-income
individuals, of targeted census tracts;
and
(3) Do not directly result in the forced
or involuntary relocation of low- or
moderate-income individuals in
targeted census tracts.
(g) Essential community
infrastructure. Essential community
infrastructure comprises activities
benefitting or serving targeted census
tracts, including, but not limited to,
broadband, telecommunications, mass
transit, water supply and distribution,
and sewage treatment and collection
systems, and that:
(1) Are undertaken in conjunction
with a plan, program, or initiative of a
Federal, State, local, or tribal
government or a mission-driven
nonprofit organization, where the plan,
program, or initiative includes a focus
on benefitting or serving targeted census
tracts;
(2) Benefit or serve residents,
including low- or moderate-income
individuals, of targeted census tracts;
and
(3) Do not directly result in the forced
or involuntary relocation of low- or
moderate-income individuals in
targeted census tracts.
(h) Recovery of designated disaster
areas—(1) In general. Activities that
promote recovery of a designated
disaster area are those that revitalize or
stabilize geographic areas subject to a
Major Disaster Declaration administered
by the Federal Emergency Management
Agency (FEMA), and that:
(i) Are undertaken in conjunction
with a disaster plan, program, or
initiative of a Federal, State, local, or
tribal government or a mission-driven
nonprofit organization, where the plan,
program, or initiative includes a focus
on benefitting or serving the designated
disaster area;
(ii) Benefit or serve residents,
including low- or moderate-income
individuals, of the designated disaster
area; and
(iii) Do not directly result in the
forced or involuntary relocation of lowor moderate-income individuals in the
designated disaster area.
(2) Eligibility limitations for loans,
investments, or services supporting
recovery of a designated disaster area.
(i) Loans, investments, or services that
support recovery from a designated
disaster in counties designated to
receive only FEMA Public Assistance
Emergency Work Category A (Debris
Removal) and/or Category B (Emergency
Protective Measures) are not eligible for
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
consideration under this paragraph
(h)(2), unless the Board, the FDIC, and
the OCC announce a temporary
exception.
(ii) The [Agency] will consider loans,
investments, and services that support
recovery from a designated disaster
under this paragraph (h)(2) for 36
months after a Major Disaster
Declaration, unless that time period is
extended by the Board, the FDIC, and
the OCC.
(i) Disaster preparedness and weather
resiliency. Disaster preparedness and
weather resiliency activities assist
individuals and communities to prepare
for, adapt to, and withstand natural
disasters or weather-related risks or
disasters. Disaster preparedness and
weather resiliency activities benefit or
serve targeted census tracts and:
(1) Are undertaken in conjunction
with a plan, program, or initiative of a
Federal, State, local, or tribal
government or a mission-driven
nonprofit organization, where the plan,
program, or initiative includes a focus
on benefitting or serving targeted census
tracts;
(2) Benefit or serve residents,
including low- or moderate-income
individuals, in targeted census tracts;
and
(3) Do not directly result in the forced
or involuntary relocation of low- or
moderate-income individuals in
targeted census tracts.
(j) Revitalization or stabilization,
essential community facilities, essential
community infrastructure, and disaster
preparedness and weather resiliency in
Native Land Areas. (1) Revitalization or
stabilization, essential community
facilities, essential community
infrastructure, and disaster
preparedness and weather resiliency
activities in Native Land Areas are
activities specifically targeted to and
conducted in Native Land Areas.
(2) Revitalization or stabilization
activities in Native Land Areas are
defined consistent with paragraph (e) of
this section, but specifically:
(i) Are undertaken in conjunction
with a plan, program, or initiative of a
Federal, State, local, or tribal
government or a mission-driven
nonprofit organization, where the plan,
program, or initiative includes an
explicit focus on revitalizing or
stabilizing Native Land Areas and a
particular focus on low- or moderateincome households;
(ii) Benefit or serve residents in
Native Land Areas, with substantial
benefits for low- or moderate-income
individuals in Native Land Areas; and
(iii) Do not directly result in the
forced or involuntary relocation of low-
PO 00000
Frm 00541
Fmt 4701
Sfmt 4700
7113
or moderate-income individuals in
Native Land Areas.
(3) Essential community facilities,
essential community infrastructure, and
disaster preparedness and weather
resiliency activities in Native Land
Areas are defined consistent with
paragraphs (f), (g), and (i) of this section,
respectively, but specifically:
(i) Are undertaken in conjunction
with a plan, program, or initiative of a
Federal, State, local, or tribal
government or a mission-driven
nonprofit organization, where the plan,
program, or initiative includes an
explicit focus on benefitting or serving
Native Land Areas;
(ii) Benefit or serve residents,
including low- or moderate-income
individuals, in Native Land Areas; and
(iii) Do not directly result in the
forced or involuntary relocation of lowor moderate-income individuals in
Native Land Areas.
(k) Activities with MDIs, WDIs, LICUs,
or CDFIs. Activities with MDIs, WDIs,
LICUs, or CDFIs are loans, investments,
or services undertaken by any bank,
including by an MDI, WDI, or CDFI
bank evaluated under part 25, 228, or
345 of this title, in cooperation with an
MDI, WDI, LICU, or CDFI. Such
activities do not include investments by
an MDI, WDI, or CDFI bank in itself.
(l) Financial literacy. Activities that
promote financial literacy are those that
assist individuals, families, and
households, including low- or
moderate-income individuals, families,
and households, to make informed
financial decisions regarding managing
income, savings, credit, and expenses,
including with respect to
homeownership.
§ ll.14 Community development
illustrative list; Confirmation of eligibility.
(a) Illustrative list—(1) Issuing and
maintaining the illustrative list. The
Board, the FDIC, and the OCC jointly
issue and maintain a publicly available
illustrative list of non-exhaustive
examples of loans, investments, and
services that qualify for community
development consideration as provided
in § ll.13.
(2) Modifying the illustrative list. (i)
The Board, the FDIC, and the OCC
update the illustrative list in paragraph
(a)(1) of this section periodically.
(ii) If the Board, the FDIC, and the
OCC determine that a loan or
investment is no longer eligible for
community development consideration,
the owner of the loan or investment at
the time of the determination will
continue to receive community
development consideration for the
remaining term or period of the loan or
E:\FR\FM\01FER2.SGM
01FER2
7114
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
investment. However, these loans or
investments will not be considered
eligible for community development
consideration for any new purchasers of
that loan or investment after the
agencies make a determination that the
loan or investment is no longer eligible
for community development
consideration.
(b) Confirmation of eligibility—(1)
Request for confirmation of eligibility. A
bank subject to this part may request
that the [Agency] confirm that a loan,
investment, or service is eligible for
community development consideration
by submitting a request to, and in a
format prescribed by, the [Agency].
(2) Determination of eligibility. (i) To
determine the eligibility of a loan,
investment, or service for which a
request has been submitted under
paragraph (b)(1) of this section, the
[Agency] considers:
(A) Information that describes and
supports the request; and
(B) Any other information that the
[Agency] deems relevant.
(ii) The Board, the FDIC, and the OCC
expect and are presumed to jointly
determine eligibility of a loan,
investment, or service under paragraph
(b)(2)(i) of this section to promote
consistency. Before making a
determination under paragraph (b)(2)(i)
of this section, the [Agency] consults
with the [other Agencies] regarding the
eligibility of a loan, investment, or
service.
(iii) The [Agency] may impose
limitations or requirements on a
determination of the eligibility of a loan,
investment, or service to ensure
consistency with this part.
(3) Notification of eligibility. The
[Agency] notifies the requestor and the
[other Agencies] in writing of any
determination under paragraph (b)(2) of
this section, as well as the rationale for
such determination.
ddrumheller on DSK120RN23PROD with RULES2
§ ll.15 Impact and responsiveness
review of community development loans,
community development investments, and
community development services.
(a) Impact and responsiveness review,
in general. Under the Community
Development Financing Test in
§ ll.24, the Community Development
Services Test in § ll.25, and the
Community Development Financing
Test for Limited Purpose Banks in
§ ll.26, the [Agency] evaluates the
extent to which a bank’s community
development loans, community
development investments, and
community development services are
impactful and responsive in meeting
community development needs in each
facility-based assessment area and, as
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
applicable, each State, multistate MSA,
and the nationwide area. The [Agency]
evaluates the impact and responsiveness
of a bank’s community development
loans, community development
investments, or community
development services based on
paragraph (b) of this section, and may
take into account performance context
information pursuant to § ll.21(d).
(b) Impact and responsiveness review
factors. Factors considered in evaluating
the impact and responsiveness of a
bank’s community development loans,
community development investments,
and community development services
include, but are not limited to, whether
the community development loan,
community development investment, or
community development service:
(1) Benefits or serves one or more
persistent poverty counties;
(2) Benefits or serves one or more
census tracts with a poverty rate of 40
percent or higher;
(3) Benefits or serves one or more
geographic areas with low levels of
community development financing;
(4) Supports an MDI, WDI, LICU, or
CDFI, excluding certificates of deposit
with a term of less than one year;
(5) Benefits or serves low-income
individuals, families, or households;
(6) Supports small businesses or small
farms with gross annual revenues of
$250,000 or less;
(7) Directly facilitates the acquisition,
construction, development,
preservation, or improvement of
affordable housing in High Opportunity
Areas;
(8) Benefits or serves residents of
Native Land Areas;
(9) Is a grant or donation;
(10) Is an investment in projects
financed with LIHTCs or NMTCs;
(11) Reflects bank leadership through
multi-faceted or instrumental support;
or
(12) Is a new community development
financing product or service that
addresses community development
needs for low- or moderate-income
individuals, families, or households.
Subpart B—Geographic
Considerations
§ ll.16
Facility-based assessment areas.
(a) In general. A bank must delineate
one or more facility-based assessment
areas within which the [Agency]
evaluates the bank’s record of helping to
meet the credit needs of its entire
community pursuant to the performance
tests and strategic plan described in
§ ll.21.
(b) Geographic requirements for
facility-based assessment areas. (1)
PO 00000
Frm 00542
Fmt 4701
Sfmt 4700
Except as provided in paragraph (b)(3)
of this section, a bank’s facility-based
assessment areas must include each
county in which a bank has a main
office, a branch, or a deposit-taking
remote service facility, as well as the
surrounding counties in which the bank
has originated or purchased a
substantial portion of its loans
(including home mortgage loans,
multifamily loans, small business loans,
small farm loans, and automobile loans).
(2) Except as provided in paragraph
(b)(3) of this section, each of a bank’s
facility-based assessment areas must
consist of a single MSA, one or more
contiguous counties within an MSA, or
one or more contiguous counties within
the nonmetropolitan area of a State.
(3) An intermediate bank or a small
bank may adjust the boundaries of its
facility-based assessment areas to
include only the portion of a county that
it reasonably can be expected to serve,
subject to paragraph (c) of this section.
A facility-based assessment area that
includes a partial county must consist of
contiguous whole census tracts.
(c) Other limitations on the
delineation of a facility-based
assessment area. Each of a bank’s
facility-based assessment areas:
(1) May not reflect illegal
discrimination; and
(2) May not arbitrarily exclude low- or
moderate-income census tracts. In
determining whether a bank has
arbitrarily excluded low- or moderateincome census tracts from a facilitybased assessment area, the [Agency]
takes into account the bank’s capacity
and constraints, including its size and
financial condition.
(d) Military banks. Notwithstanding
the requirements of this section, a
military bank whose customers are not
located within a defined geographic area
may delineate the entire United States
and its territories as its sole facilitybased assessment area.
(e) Use of facility-based assessment
areas. The [Agency] uses the facilitybased assessment areas delineated by a
bank in its evaluation of the bank’s CRA
performance unless the [Agency]
determines that the facility-based
assessment areas do not comply with
the requirements of this section.
§ ll.17
Retail lending assessment areas.
(a) In general. (1) Based upon the
criteria described in paragraphs (b) and
(c) of this section, a large bank must
delineate retail lending assessment areas
within which the [Agency] evaluates the
bank’s record of helping to meet the
credit needs of its entire community
pursuant to § ll.22.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(2) A large bank is not required to
delineate retail lending assessment areas
for a particular calendar year if, in the
prior two calendar years, the large bank
originated or purchased within its
facility-based assessment areas more
than 80 percent of its home mortgage
loans, multifamily loans, small business
loans, small farm loans, and automobile
loans if automobile loans are a product
line for the large bank as described in
paragraph II.a.1 of appendix A to this
part.
(3) If, in a retail lending assessment
area delineated pursuant to paragraph
(c) of this section, the large bank did not
originate or purchase any reported loans
in any of the product lines that formed
the basis of the retail lending
assessment area delineation pursuant to
paragraph (c)(1) or (2) of this section,
the [Agency] will not consider the retail
lending assessment area to have been
delineated for that calendar year.
(b) Geographic requirements for retail
lending assessment areas. (1) A large
bank’s retail lending assessment area
must consist of either:
(i) The entirety of a single MSA (using
the MSA boundaries that were in effect
as of January 1 of the calendar year in
which the delineation applies),
excluding any counties inside the large
bank’s facility-based assessment areas;
or
(ii) All of the counties in the
nonmetropolitan area of a State (using
the MSA boundaries that were in effect
as of January 1 of the calendar year in
which the delineation applies),
excluding:
(A) Any counties included in the large
bank’s facility-based assessment areas;
and
(B) Any counties in which the large
bank did not originate any closed-end
home mortgage loans or small business
loans that are reported loans during that
calendar year.
(2) A retail lending assessment area
may not extend beyond a State
boundary unless the retail lending
assessment area consists of counties in
a multistate MSA.
(c) Delineation of retail lending
assessment areas. Subject to the
geographic requirements in paragraph
(b) of this section, a large bank must
delineate, for a particular calendar year,
a retail lending assessment area in any
MSA or in the nonmetropolitan area of
any State in which it originated:
(1) At least 150 closed-end home
mortgage loans that are reported loans
in each year of the prior two calendar
years; or
(2) At least 400 small business loans
that are reported loans in each year of
the prior two calendar years.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
(d) Use of retail lending assessment
areas. The [Agency] uses the retail
lending assessment areas delineated by
a large bank in its evaluation of the
bank’s closed-end home mortgage
lending and small business lending
performance unless the [Agency]
determines that the retail lending
assessment areas do not comply with
the requirements of this section.
§ ll.18
Outside retail lending areas.
(a) In general—(1) Large banks. The
[Agency] evaluates a large bank’s record
of helping to meet the credit needs of its
entire community in its outside retail
lending area pursuant to § ll.22.
However, the [Agency] will not evaluate
a large bank in its outside retail lending
area if it did not originate or purchase
loans in any product lines in the outside
retail lending area during the evaluation
period.
(2) Intermediate or small banks. The
[Agency] evaluates the record of an
intermediate bank, or a small bank that
opts to be evaluated under the Retail
Lending Test, of helping to meet the
credit needs of its entire community in
its outside retail lending area pursuant
to § ll.22, for a particular calendar
year, if:
(i) The bank opts to have its major
product lines evaluated in its outside
retail lending area; or
(ii) In the prior two calendar years,
the bank originated or purchased
outside the bank’s facility-based
assessment areas more than 50 percent
of the bank’s home mortgage loans,
multifamily loans, small business loans,
small farm loans, and automobile loans
if automobile loans are a product line
for the bank, as described in paragraph
II.a.2 of appendix A to this part.
(b) Geographic requirements of
outside retail lending areas—(1) In
general. A bank’s outside retail lending
area consists of the nationwide area,
excluding:
(i) The bank’s facility-based
assessment areas and retail lending
assessment areas; and
(ii) Any county in a nonmetropolitan
area in which the bank did not originate
or purchase any closed-end home
mortgage loans, small business loans,
small farm loans, or automobile loans if
automobile loans are a product line for
the bank.
(2) Component geographic area. The
outside retail lending area is comprised
of component geographic areas. A
component geographic area is any MSA
or the nonmetropolitan area of any
State, or portion thereof, included
within the outside retail lending area.
PO 00000
Frm 00543
Fmt 4701
Sfmt 4700
7115
§ ll.19 Areas for eligible community
development loans, community
development investments, and community
development services.
The [Agency] may consider a bank’s
community development loans,
community development investments,
and community development services
provided outside of its facility-based
assessment areas, as provided in this
part.
§ ll.20
[Reserved]
Subpart C—Standards for Assessing
Performance
§ ll.21 Evaluation of CRA performance
in general.
(a) Application of performance tests
and strategic plans—(1) Large banks. To
evaluate the performance of a large
bank, the [Agency] applies the Retail
Lending Test in § ll.22, the Retail
Services and Products Test in § ll.23,
the Community Development Financing
Test in § ll.24, and the Community
Development Services Test in § ll.25.
(2) Intermediate banks—(i) In general.
To evaluate the performance of an
intermediate bank, the [Agency] applies
the Retail Lending Test in § ll.22 and
either the Intermediate Bank
Community Development Test in
§ ll.30(a)(2) or, at the bank’s option,
the Community Development Financing
Test in § ll.24.
(ii) Intermediate banks evaluated
under § ll.24. If an intermediate bank
opts to be evaluated pursuant to the
Community Development Financing
Test in § ll.24, the [Agency] evaluates
the intermediate bank for the evaluation
period preceding the bank’s next CRA
examination pursuant to the
Community Development Financing
Test in § ll.24 and continues
evaluations pursuant to this
performance test for subsequent
evaluation periods until the bank opts
out. If an intermediate bank opts out of
the Community Development Financing
Test in § ll.24, the [Agency] reverts to
evaluating the bank pursuant to the
Intermediate Bank Community
Development Test in § ll.30(a)(2),
starting with the evaluation period
preceding the bank’s next CRA
examination.
(iii) Additional consideration. An
intermediate bank may request
additional consideration pursuant to
§ ll.30(b).
(3) Small banks—(i) In general. To
evaluate the performance of a small
bank, the [Agency] applies the Small
Bank Lending Test in § ll.29(a)(2),
unless the bank opts to be evaluated
pursuant to the Retail Lending Test in
§ ll.22.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7116
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(ii) Small banks evaluated under the
Retail Lending Test. If a small bank opts
to be evaluated pursuant to the Retail
Lending Test in § ll.22, the following
applies:
(A) The [Agency] evaluates the small
bank using the same provisions used to
evaluate intermediate banks pursuant to
the Retail Lending Test in § ll.22.
(B) The [Agency] evaluates the small
bank for the evaluation period
preceding the bank’s next CRA
examination pursuant to the Retail
Lending Test in § ll.22 and continues
evaluations under this performance test
for subsequent evaluation periods until
the bank opts out. If a small bank opts
out of the Retail Lending Test in
§ ll.22, the [Agency] reverts to
evaluating the bank pursuant to the
Small Bank Lending Test in
§ ll.29(a)(2), starting with the
evaluation period preceding the bank’s
next CRA examination.
(iii) Additional consideration. A small
bank may request additional
consideration pursuant to § ll.29(b).
(4) Limited purpose banks—(i) In
general. The [Agency] evaluates a
limited purpose bank pursuant to the
Community Development Financing
Test for Limited Purpose Banks in
§ ll.26.
(ii) Additional consideration. A
limited purpose bank may request
additional consideration pursuant to
§ ll.26(b)(2).
(5) Military banks—(i) In general. The
[Agency] evaluates a military bank
pursuant to the applicable performance
tests described in paragraph (a) of this
section.
(ii) Evaluation approach for military
banks operating under § ll.16(d). If a
military bank delineates the entire
United States and its territories as its
sole facility-based assessment area
pursuant to § ll.16(d), the [Agency]
evaluates the bank exclusively at the
institution level based on its
performance in its sole facility-based
assessment area.
(6) Banks operating under a strategic
plan. The [Agency] evaluates the
performance of a bank that has an
approved strategic plan pursuant to
§ ll.27.
(b) Loans, investments, services, and
products of [operations subsidiaries or
operating subsidiaries] and other
affiliates—(1) In general. In the
performance evaluation of a bank, the
[Agency] considers the loans,
investments, services, and products of a
bank’s [operations subsidiaries or
operating subsidiaries] and other
affiliates, as applicable, as provided in
paragraphs (b)(2) and (3) of this section,
so long as no other depository
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
institution claims the loan, investment,
service, or product for purposes of 12
CFR part 25, 228, or 345.
(2) Loans, investments, services, and
products of [operations subsidiaries or
operating subsidiaries]. The [Agency]
considers the loans, investment,
services, and products of a bank’s
[operations subsidiaries or operating
subsidiaries] under this part, unless an
[operations subsidiary or operating
subsidiary] is independently subject to
the CRA. The bank must collect,
maintain, and report data on the loans,
investments, services, and products of
its [operations subsidiaries or operating
subsidiaries] as provided in § ll.42(c).
(3) Loans, investments, services, and
products of other affiliates. The
[Agency] considers the loans,
investments, services, and products of
affiliates of a bank that are not
[operations subsidiaries or operating
subsidiaries], at the bank’s option,
subject to the following:
(i) The affiliate is not independently
subject to the CRA.
(ii) The bank collects, maintains, and
reports data on the loans, investments,
services, or products of the affiliate as
provided in § ll.42(d).
(iii) Pursuant to the Retail Lending
Test in § ll.22, if a bank opts to have
the [Agency] consider the closed-end
home mortgage loans, small business
loans, small farm loans, or automobile
loans that are originated or purchased
by one or more of the bank’s affiliates
in a particular Retail Lending Test Area,
the [Agency] will consider, subject to
paragraphs (b)(3)(i) and (ii) of this
section, all of the loans in that product
line originated or purchased by all of
the bank’s affiliates in the particular
Retail Lending Test Area.
(iv) Pursuant to the Retail Lending
Test in § ll.22, if a large bank opts to
have the [Agency] consider the closedend home mortgage loans or small
business loans that are originated or
purchased by any of the bank’s affiliates
in any Retail Lending Test Area, the
[Agency] will consider, subject to
paragraphs (b)(3)(i) and (ii) of this
section, the closed-end home mortgage
loans or small business loans originated
by all of the bank’s affiliates in the
nationwide area when delineating retail
lending assessment areas pursuant to
§ ll.17(c).
(v) Pursuant to the Community
Development Financing Test in
§ ll.24, the Community Development
Financing Test for Limited Purpose
Banks in § ll.26, the Intermediate
Bank Community Development Test in
§ ll.30(a)(2), or pursuant to an
approved strategic plan in § ll.27, the
[Agency] will consider, at the bank’s
PO 00000
Frm 00544
Fmt 4701
Sfmt 4700
option, community development loans
or community development investments
that are originated, purchased,
refinanced, or renewed by one or more
of the bank’s affiliates, subject to
paragraphs (b)(3)(i) and (ii) of this
section.
(c) Community development lending
and community development
investment by a consortium or a third
party. If a bank invests in or participates
in a consortium that originates,
purchases, refinances, or renews
community development loans or
community development investments,
or if a bank invests in a third party that
originates, purchases, refinances, or
renews community development loans
or community development
investments, the [Agency] may consider,
at the bank’s option, either those loans
or investments, subject to the
limitations in paragraphs (c)(1) through
(3) of this section, or the investment in
the consortium or third party.
(1) The bank must collect, maintain,
and report the data pertaining to the
community development loans and
community development investments as
provided in § ll.42(e), as applicable;
(2) If the participants or investors
choose to allocate community
development loans or community
development investments among
themselves for consideration under this
section, no participant or investor may
claim a loan origination, loan purchase,
or investment for community
development consideration if another
participant or investor claims the same
loan origination, loan purchase, or
investment; and
(3) The bank may not claim
community development loans or
community development investments
accounting for more than its percentage
share (based on the level of its
participation or investment) of the total
loans or investments made by the
consortium or third party.
(d) Performance context information
considered. When applying
performance tests and strategic plans
pursuant to paragraph (a) of this section,
and when determining whether to
approve a strategic plan pursuant to
§ ll.27(h), the [Agency] may consider
the following performance context
information to the extent that it is not
considered as part of the performance
tests as provided in paragraph (a) of this
section:
(1) Any information regarding a
bank’s institutional capacity or
constraints, including the size and
financial condition of the bank, safety
and soundness limitations, or any other
bank-specific factors that significantly
affect the bank’s ability to provide retail
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
lending, retail banking services and
retail banking products, community
development loans, community
development investments, or
community development services;
(2) Any information regarding the
bank’s past performance;
(3) Demographic data on income
levels and income distribution, nature
of housing stock, housing costs,
economic climate, or other relevant
data;
(4) Any information about retail
banking and community development
needs and opportunities provided by
the bank or other relevant sources,
including, but not limited to, members
of the community, community
organizations, State, local, and tribal
governments, and economic
development agencies;
(5) Data and information provided by
the bank regarding the bank’s business
strategy and product offerings;
(6) The bank’s public file, as provided
in § ll.43, including any written
comments about the bank’s CRA
performance submitted to the bank or
the [Agency] and the bank’s responses
to those comments; and
(7) Any other information deemed
relevant by the [Agency].
(e) Conclusions and ratings—(1)
Conclusions. The [Agency] assigns
conclusions to a large bank’s or limited
purpose bank’s performance on the
applicable tests described in paragraph
(a) of this section pursuant to § ll.28
and appendix C to this part. The
[Agency] assigns conclusions to a small
bank’s or intermediate bank’s
performance on the applicable tests
described in paragraph (a) of this
section pursuant to § ll.28 and
appendices C and E to this part. The
[Agency] assigns conclusions to a bank
that has an approved strategic plan
pursuant to § ll.28 and paragraph g of
appendix C to this part.
(2) Ratings. The [Agency] assigns an
overall CRA performance rating to a
bank in each State or multistate MSA,
as applicable, and for the institution
pursuant to § ll.28 and appendices D
and E to this part.
(f) Safe and sound operations. The
CRA and this part do not require a bank
to originate or purchase loans or
investments or to provide services that
are inconsistent with safe and sound
banking practices, including
underwriting standards. Banks are
permitted to develop and apply flexible
underwriting standards for loans that
benefit low- or moderate-income
individuals, small businesses or small
farms, and low- or moderate-income
census tracts, only if consistent with
safe and sound operations.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
§ ll.22
Retail lending test.
(a) Retail Lending Test—(1) In
general. Pursuant to § ll.21, the Retail
Lending Test evaluates a bank’s record
of helping to meet the credit needs of its
entire community through the bank’s
origination and purchase of home
mortgage loans, multifamily loans, small
business loans, and small farm loans.
(2) Automobile loans. The Retail
Lending Test evaluates a bank’s record
of helping to meet the credit needs of its
entire community through the bank’s
origination and purchase of automobile
loans if the bank is a majority
automobile lender. A bank that is not a
majority automobile lender may opt to
have automobile loans evaluated under
this section.
(b) Methodology overview—(1) Retail
Lending Volume Screen. The [Agency]
evaluates whether a bank meets or
surpasses the Retail Lending Volume
Threshold in each facility-based
assessment area pursuant to the Retail
Lending Volume Screen as provided in
paragraph (c) of this section.
(2) Retail lending distribution
analysis. Except as provided in
paragraph (b)(5) of this section, the
[Agency] evaluates the geographic and
borrower distributions of each of a
bank’s major product lines in each
Retail Lending Test Area, as provided in
paragraphs (d) and (e) of this section.
(3) Retail Lending Test recommended
conclusions. Except as provided in
paragraph (b)(5) of this section, the
[Agency] develops a Retail Lending Test
recommended conclusion pursuant to
paragraph (f) of this section for each
Retail Lending Test Area.
(4) Retail Lending Test conclusions.
Except as provided in paragraph (b)(5)
of this section, the [Agency]’s
determination of a bank’s Retail Lending
Test conclusion for a Retail Lending
Test Area is informed by the bank’s
Retail Lending Test recommended
conclusion for the Retail Lending Test
Area, performance context factors
provided in § ll.21(d), and the
additional factors provided in paragraph
(g) of this section.
(5) Exceptions—(i) No major product
line. If a bank has no major product line
in a facility-based assessment area, the
[Agency] assigns the bank a Retail
Lending Test conclusion for that
facility-based assessment area based
upon its performance on the Retail
Lending Volume Screen pursuant to
paragraph (c) of this section,
performance context factors provided in
§ ll.21(d), and the additional factors
provided in paragraph (g) of this
section.
(ii) Banks that lack an acceptable
basis for not meeting the Retail Lending
PO 00000
Frm 00545
Fmt 4701
Sfmt 4700
7117
Volume Threshold. The [Agency]
assigns a Retail Lending Test conclusion
for a facility-based assessment area in
which a bank lacks an acceptable basis
for not meeting the Retail Lending
Volume Threshold as provided in
paragraph (c)(3)(iii) of this section.
(c) Retail Lending Volume Screen—(1)
Retail Lending Volume Threshold. A
bank meets or surpasses the Retail
Lending Volume Threshold in a facilitybased assessment area if the bank has a
Bank Volume Metric of 30 percent or
greater of the Market Volume
Benchmark for that facility-based
assessment area. The [Agency]
calculates the Bank Volume Metric and
the Market Volume Benchmark
pursuant to section I of appendix A to
this part.
(2) Banks that meet or surpass the
Retail Lending Volume Threshold in a
facility-based assessment area. If a bank
meets or surpasses the Retail Lending
Volume Threshold in a facility-based
assessment area pursuant to paragraph
(c)(1) of this section, the [Agency]
develops a Retail Lending Test
recommended conclusion for the
facility-based assessment area pursuant
to paragraphs (d) through (f) of this
section.
(3) Banks that do not meet the Retail
Lending Volume Threshold in a facilitybased assessment area—(i) Acceptable
basis factors. If a bank does not meet the
Retail Lending Volume Threshold in a
facility-based assessment area pursuant
to paragraph (c)(1) of this section, the
[Agency] determines whether the bank
has an acceptable basis for not meeting
the Retail Lending Volume Threshold in
the facility-based assessment area by
considering:
(A) The bank’s dollar volume of nonautomobile consumer loans;
(B) The bank’s institutional capacity
and constraints, including the financial
condition of the bank;
(C) The presence or lack of other
lenders in the facility-based assessment
area;
(D) Safety and soundness limitations;
(E) The bank’s business strategy; and
(F) Any other factors that limit the
bank’s ability to lend in the facilitybased assessment area.
(ii) Banks that have an acceptable
basis for not meeting the Retail Lending
Volume Threshold in a facility-based
assessment area. If, after reviewing the
factors described in paragraph (c)(3)(i)
of this section, the [Agency] determines
that a bank has an acceptable basis for
not meeting the Retail Lending Volume
Threshold in a facility-based assessment
area, the [Agency] develops a Retail
Lending Test recommended conclusion
for the facility-based assessment area in
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7118
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
the same manner as for a bank that
meets or surpasses the Retail Lending
Volume Threshold under paragraph
(c)(2) of this section.
(iii) Banks that lack an acceptable
basis for not meeting the Retail Lending
Volume Threshold in a facility-based
assessment area—(A) Large banks. If,
after reviewing the factors in paragraph
(c)(3)(i) of this section, the [Agency]
determines that a large bank lacks an
acceptable basis for not meeting the
Retail Lending Volume Threshold in a
facility-based assessment area, the
[Agency] assigns the bank a Retail
Lending Test conclusion of ‘‘Needs to
Improve’’ or ‘‘Substantial
Noncompliance’’ for that facility-based
assessment area. In determining
whether ‘‘Needs to Improve’’ or
‘‘Substantial Noncompliance’’ is the
appropriate conclusion, the [Agency]
considers:
(1) The bank’s retail lending volume
and the extent by which it did not meet
the Retail Lending Volume Threshold;
(2) The bank’s distribution analysis
pursuant to paragraphs (d) through (f) of
this section;
(3) Performance context factors
provided in § ll.21(d); and
(4) Additional factors provided in
paragraph (g) of this section.
(B) Intermediate or small banks. If,
after reviewing the factors in paragraph
(c)(3)(i) of this section, the [Agency]
determines that an intermediate bank, or
a small bank that opts to be evaluated
under the Retail Lending Test, lacks an
acceptable basis for not meeting the
Retail Lending Volume Threshold in a
facility-based assessment area, the
[Agency] develops a Retail Lending Test
recommended conclusion for the
facility-based assessment area pursuant
to paragraphs (d) through (f) of this
section. The [Agency]’s determination of
a bank’s Retail Lending Test conclusion
for the facility-based assessment area is
informed by:
(1) The bank’s Retail Lending Test
recommended conclusion for the
facility-based assessment area;
(2) The bank’s retail lending volume
and the extent by which it did not meet
the Retail Lending Volume Threshold;
(3) Performance context factors
provided in § ll.21(d); and
(4) Additional factors provided in
paragraph (g) of this section.
(d) Scope of Retail Lending Test
distribution analysis—(1) Product lines
evaluated in a Retail Lending Test Area.
In each applicable Retail Lending Test
Area, the [Agency] evaluates originated
and purchased loans in each of the
following product lines that is a major
product line, as described in paragraph
(d)(2) of this section:
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
(i) Closed-end home mortgage loans in
a bank’s facility-based assessment areas
and, as applicable, retail lending
assessment areas and outside retail
lending area;
(ii) Small business loans in a bank’s
facility-based assessment areas and, as
applicable, retail lending assessment
areas and outside retail lending area;
(iii) Small farm loans in a bank’s
facility-based assessment areas and, as
applicable, outside retail lending area;
and
(iv) Automobile loans in a bank’s
facility-based assessment areas and, as
applicable, outside retail lending area.
(2) Major product line standards—(i)
Major product line standard for facilitybased assessment areas and outside
retail lending areas. In a facility-based
assessment area or outside retail lending
area, a product line is a major product
line if the bank’s loans in that product
line comprise 15 percent or more of the
bank’s loans across all of the bank’s
product lines in the facility-based
assessment area or outside retail lending
area, as determined pursuant to
paragraph II.b.1 of appendix A to this
part.
(ii) Major product line standards for
retail lending assessment areas. In a
retail lending assessment area:
(A) Closed-end home mortgage loans
are a major product line in any calendar
year in the evaluation period in which
the bank delineates a retail lending
assessment area based on its closed-end
home mortgage loans as determined by
the standard in § ll.17(c)(1); and
(B) Small business loans are a major
product line in any calendar year in the
evaluation period in which the bank
delineates a retail lending assessment
area based on its small business loans as
determined by the standard in
§ ll.17(c)(2).
(e) Retail Lending Test distribution
analysis. The [Agency] evaluates a
bank’s Retail Lending Test performance
in each of its Retail Lending Test Areas
by considering the geographic and
borrower distributions of a bank’s loans
in its major product lines.
(1) Distribution analysis in general—
(i) Distribution analysis for closed-end
home mortgage loans, small business
loans, and small farm loans. For closedend home mortgage loans, small
business loans, and small farm loans,
respectively, the [Agency] compares a
bank’s geographic and borrower
distributions to performance ranges
based on the applicable market and
community benchmarks, as provided in
paragraph (f) of this section and section
V of appendix A to this part.
(ii) Distribution analysis for
automobile loans. For automobile loans,
PO 00000
Frm 00546
Fmt 4701
Sfmt 4700
the [Agency] compares a bank’s
geographic and borrower distributions
to the applicable community
benchmarks, as provided in paragraph
(f) of this section and section VI of
appendix A to this part.
(2) Categories of lending evaluated—
(i) Geographic distributions. For each
major product line in each Retail
Lending Test Area, the [Agency]
evaluates the geographic distributions
separately for the following categories of
census tracts:
(A) Low-income census tracts; and
(B) Moderate-income census tracts.
(ii) Borrower distributions. For each
major product line in each Retail
Lending Test Area, the [Agency]
evaluates the borrower distributions
separately for, as applicable, the
following categories of borrowers:
(A) Low-income borrowers;
(B) Moderate-income borrowers;
(C) Businesses with gross annual
revenues of $250,000 or less;
(D) Businesses with gross annual
revenues greater than $250,000 but less
than or equal to $1 million;
(E) Farms with gross annual revenues
of $250,000 or less; and
(F) Farms with gross annual revenues
greater than $250,000 but less than or
equal to $1 million.
(3) Geographic distribution measures.
To evaluate the geographic distributions
in a Retail Lending Test Area, the
[Agency] considers the following
measures:
(i) Geographic Bank Metric. For each
major product line, a Geographic Bank
Metric, calculated pursuant to
paragraph III.a of appendix A to this
part;
(ii) Geographic Market Benchmark.
For each major product line except
automobile loans, a Geographic Market
Benchmark, calculated pursuant to
paragraph III.b of appendix A to this
part for facility-based assessment areas
and retail lending assessment areas, and
paragraph III.d of appendix A to this
part for outside retail lending areas; and
(iii) Geographic Community
Benchmark. For each major product
line, a Geographic Community
Benchmark, calculated pursuant to
paragraph III.c of appendix A to this
part for facility-based assessment areas
and retail lending assessment areas, and
paragraph III.e of appendix A to this
part for outside retail lending areas.
(4) Borrower distribution measures.
To evaluate the borrower distributions
in a Retail Lending Test Area, the
[Agency] considers the following
measures:
(i) Borrower Bank Metric. For each
major product line, a Borrower Bank
Metric, calculated pursuant to
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
paragraph IV.a of appendix A to this
part;
(ii) Borrower Market Benchmark. For
each major product line except
automobile loans, a Borrower Market
Benchmark, calculated pursuant to
paragraph IV.b of appendix A to this
part for facility-based assessment areas
and retail lending assessment areas, and
paragraph IV.d of appendix A to this
part for outside retail lending areas; and
(iii) Borrower Community Benchmark.
For each major product line, a Borrower
Community Benchmark, calculated
pursuant to paragraph IV.c of appendix
A to this part for facility-based
assessment areas and retail lending
assessment areas, and paragraph IV.e of
appendix A to this part for outside retail
lending areas.
(f) Retail Lending Test recommended
conclusions—(1) In general. Except as
described in paragraphs (b)(5)(i) and
(c)(3)(iii)(A) of this section, the [Agency]
develops a Retail Lending Test
recommended conclusion for each of a
bank’s Retail Lending Test Areas based
on the distribution analysis described in
paragraph (e) of this section and using
performance ranges, supporting
conclusions, and product line scores as
provided in sections V through VII of
appendix A to this part. For each major
product line, the [Agency] develops a
separate supporting conclusion for each
category of census tracts and each
category of borrowers described in
paragraphs V.a and VI.a of appendix A
to this part.
(2) Geographic distribution
supporting conclusions—(i) Geographic
distribution supporting conclusions for
closed-end home mortgage loans, small
business loans, and small farm loans.
To develop supporting conclusions for
geographic distributions of closed-end
home mortgage loans, small business
loans, and small farm loans, the
[Agency] evaluates the bank’s
performance by comparing the
Geographic Bank Metric to performance
ranges, based on the Geographic Market
Benchmark, the Geographic Community
Benchmark, and multipliers, as
described in paragraphs V.b and V.c of
appendix A to this part.
(ii) Geographic distribution
supporting conclusions for automobile
loans. To develop supporting
conclusions for geographic distributions
for automobile loans, the [Agency]
evaluates the bank’s performance by
comparing the Geographic Bank Metric
to the Geographic Community
Benchmark, as described in paragraph
VI.b of appendix A to this part.
(3) Borrower distribution supporting
conclusions—(i) Borrower distribution
supporting conclusions for closed-end
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
home mortgage loans, small business
loans, and small farm loans. To develop
supporting conclusions for borrower
distributions of closed-end home
mortgage loans, small business loans,
and small farm loans, the [Agency]
evaluates the bank’s performance by
comparing the Borrower Bank Metric to
performance ranges, based on the
Borrower Market Benchmark, Borrower
Community Benchmark, and
multipliers, as described in paragraphs
V.d and V.e of appendix A to this part.
(ii) Borrower distribution supporting
conclusions for automobile loans. To
develop supporting conclusions for
borrower distributions for automobile
loans, the [Agency] evaluates the bank’s
performance by comparing the Borrower
Bank Metric to the Borrower
Community Benchmark, as described in
paragraph VI.c of appendix A to this
part.
(4) Development of Retail Lending
Test recommended conclusions—(i)
Assignment of performance scores. For
each supporting conclusion developed
pursuant to paragraphs (f)(2) and (3) of
this section, the [Agency] assigns a
corresponding performance score as
described in sections V and VI of
appendix A to this part.
(ii) Combination of performance
scores. As described in section VII of
appendix A to this part, for each Retail
Lending Test Area, the [Agency]:
(A) Combines the performance scores
for each supporting conclusion for each
major product line into a product line
score; and
(B) Calculates a weighted average of
product line scores across all major
product lines.
(iii) Retail Lending Test recommended
conclusions. For each Retail Lending
Test Area, the [Agency] develops the
Retail Lending Test recommended
conclusion that corresponds to the
weighted average of product line scores
developed pursuant to paragraph
(f)(4)(ii)(B) of this section, as described
in section VII of appendix A to this part.
(g) Additional factors considered
when evaluating retail lending
performance. The factors in paragraphs
(g)(1) through (7) of this section, as
appropriate, inform the [Agency]’s
determination of a bank’s Retail Lending
Test conclusion for a Retail Lending
Test Area:
(1) Information indicating that a bank
purchased closed-end home mortgage
loans, small business loans, small farm
loans, or automobile loans for the sole
or primary purpose of inappropriately
enhancing its retail lending
performance, including, but not limited
to, information indicating subsequent
resale of such loans or any indication
PO 00000
Frm 00547
Fmt 4701
Sfmt 4700
7119
that such loans have been considered in
multiple depository institutions’ CRA
evaluations, in which case the [Agency]
does not consider such loans in the
bank’s performance evaluation;
(2) The dispersion of a bank’s closedend home mortgage lending, small
business lending, small farm lending, or
automobile lending within a facilitybased assessment area to determine
whether there are gaps in lending that
are not explained by performance
context;
(3) The number of lenders whose
home mortgage loans, multifamily
loans, small business loans, and small
farm loans and deposits data are used to
establish the applicable Retail Lending
Volume Threshold, geographic
distribution market benchmarks, and
borrower distribution market
benchmarks;
(4) Missing or faulty data that would
be necessary to calculate the relevant
metrics and benchmarks or any other
factors that prevent the [Agency] from
calculating a Retail Lending Test
recommended conclusion. If unable to
calculate a Retail Lending Test
recommended conclusion, the [Agency]
assigns a Retail Lending Test conclusion
based on consideration of the relevant
available data;
(5) Whether the Retail Lending Test
recommended conclusion does not
accurately reflect the bank’s
performance in a Retail Lending Test
Area in which one or more of the bank’s
major product lines consists of fewer
than 30 loans;
(6) A bank’s closed-end home
mortgage lending, small business
lending, small farm lending, or
automobile lending in distressed or
underserved nonmetropolitan middleincome census tracts where a bank’s
nonmetropolitan facility-based
assessment area or nonmetropolitan
retail lending assessment area includes
very few or no low- and moderateincome census tracts; and
(7) Information indicating that the
credit needs of the facility-based
assessment area or retail lending
assessment area are not being met by
lenders in the aggregate, such that the
relevant benchmarks do not adequately
reflect community credit needs.
(h) Retail Lending Test performance
conclusions and ratings—(1)
Conclusions—(i) In general. Pursuant to
§ ll.28, section VIII of appendix A to
this part, and appendix C to this part,
the [Agency] assigns conclusions for a
bank’s Retail Lending Test performance
in each Retail Lending Test Area, State,
and multistate MSA, as applicable, and
for the institution.
E:\FR\FM\01FER2.SGM
01FER2
7120
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(ii) Retail Lending Test Area
conclusions. The [Agency] assigns a
Retail Lending Test conclusion for each
Retail Lending Test Area based on the
Retail Lending Test recommended
conclusion, performance context factors
provided in § ll.21(d), and the
additional factors provided in paragraph
(g) of this section, except as provided in
paragraphs (h)(1)(ii)(A) and (B) of this
section:
(A) Facility-based assessment areas
with no major product line. The
[Agency] assigns a Retail Lending Test
conclusion for a facility-based
assessment area in which a bank has no
major product line based on the bank’s
performance on the Retail Lending
Volume Screen pursuant to paragraph
(c) of this section, performance context
information provided in § ll.21(d),
and the additional factors provided in
paragraph (g) of this section.
(B) Facility-based assessment areas in
which a bank lacks an acceptable basis
for not meeting the Retail Lending
Volume Threshold. The [Agency]
assigns a Retail Lending Test conclusion
for a facility-based assessment area in
which a bank lacks an acceptable basis
for not meeting the Retail Lending
Volume Threshold as provided in
paragraph (c)(3)(iii) of this section.
(2) Ratings. Pursuant to § ll.28 and
appendix D to this part, the [Agency]
incorporates a bank’s Retail Lending
Test conclusions into its State or
multistate MSA ratings, as applicable,
and its institution rating.
ddrumheller on DSK120RN23PROD with RULES2
§ ll.23
test.
Retail services and products
(a) Retail Services and Products
Test—(1) In general. Pursuant to
§ ll.21, the Retail Services and
Products Test evaluates the availability
of a bank’s retail banking services and
retail banking products and the
responsiveness of those services and
products to the credit needs of the
bank’s entire community, including
low- and moderate-income individuals,
families, or households, low- and
moderate-income census tracts, small
businesses, and small farms. The
[Agency] evaluates the bank’s retail
banking services, as described in
paragraph (b) of this section, and the
bank’s retail banking products, as
described in paragraph (c) of this
section.
(2) Main offices. For purposes of this
section, references to a branch also
include a main office that is open to,
and accepts deposits from, the general
public.
(3) Exclusion. If the [Agency]
considers services under the
Community Development Services Test
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
in § ll.25, the [Agency] does not
consider those services under the Retail
Services and Products Test.
(b) Retail banking services—(1) Scope
of evaluation. To evaluate a bank’s retail
banking services, the [Agency] considers
a bank’s branch availability and services
provided at branches, remote service
facility availability, and digital delivery
systems and other delivery systems, as
follows:
(i) Branch availability and services.
The [Agency] considers the branch
availability and services provided at
branches of banks that operate one or
more branches pursuant to paragraph
(b)(2) of this section.
(ii) Remote service facility availability.
The [Agency] considers the remote
service facility availability of banks that
operate one or more remote service
facilities pursuant to paragraph (b)(3) of
this section.
(iii) Digital delivery systems and other
delivery systems. The [Agency]
considers the digital delivery systems
and other delivery systems of banks
pursuant to paragraph (b)(4) of this
section, as follows:
(A) The [Agency] considers the digital
delivery systems and other delivery
systems of the following banks:
(1) Large banks that had assets greater
than $10 billion as of December 31 in
both of the prior two calendar years; and
(2) Large banks that had assets less
than or equal to $10 billion as of
December 31 in either of the prior two
calendar years and that do not operate
branches.
(B) For a large bank that had assets
less than or equal $10 billion as of
December 31 in either of the prior two
calendar years and that operates at least
one branch, the [Agency] considers the
bank’s digital delivery systems and
other delivery systems at the bank’s
option.
(2) Branch availability and services.
The [Agency] evaluates a bank’s branch
availability and services in a facilitybased assessment area based on the
following:
(i) Branch distribution. The [Agency]
considers a bank’s branch distribution
using the following:
(A) Branch distribution metrics. The
[Agency] considers the number and
percentage of the bank’s branches
within low-, moderate-, middle-, and
upper-income census tracts.
(B) Benchmarks. The [Agency]’s
consideration of the branch distribution
metrics is informed by the following
benchmarks:
(1) Percentage of census tracts in the
facility-based assessment area that are
low-, moderate-, middle-, and upperincome census tracts;
PO 00000
Frm 00548
Fmt 4701
Sfmt 4700
(2) Percentage of households in the
facility-based assessment area that are in
low-, moderate-, middle-, and upperincome census tracts;
(3) Percentage of total businesses in
the facility-based assessment area that
are in low-, moderate-, middle-, and
upper-income census tracts; and
(4) Percentage of all full-service
depository institution branches in the
facility-based assessment area that are in
low-, moderate-, middle-, and upperincome census tracts.
(C) Additional geographic
considerations. The [Agency] considers
the availability of branches in the
following geographic areas:
(1) Middle- and upper-income census
tracts in which a branch delivers
services to low- and moderate-income
individuals, families, or households to
the extent that these individuals,
families, or households use the services
offered;
(2) Distressed or underserved
nonmetropolitan middle-income census
tracts; and
(3) Native Land Areas.
(ii) Branch openings and closings.
The [Agency] considers a bank’s record
of opening and closing branches since
the previous CRA examination to inform
the degree of accessibility of services to
low- and moderate-income individuals,
families, or households, small
businesses, and small farms, and lowand moderate-income census tracts.
(iii) Branch hours of operation and
services. The [Agency] considers the
following:
(A) The reasonableness of branch
hours in low- and moderate-income
census tracts compared to middle- and
upper-income census tracts, including,
but not limited to, whether branches
offer extended and weekend hours.
(B) The range of services provided at
branches in low-, moderate-, middle-,
and upper-income census tracts,
respectively, including, but not limited
to:
(1) Bilingual and translation services;
(2) Free or low-cost check cashing
services, including, but not limited to,
check cashing services for governmentissued and payroll checks;
(3) Reasonably priced international
remittance services; and
(4) Electronic benefit transfers.
(C) The degree to which branchprovided retail banking services are
responsive to the needs of low- and
moderate-income individuals, families,
or households in a bank’s facility-based
assessment areas.
(3) Remote service facility availability.
The [Agency] evaluates a bank’s remote
service facility availability in a facilitybased assessment area based on the
following:
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(i) Remote service facility distribution.
The [Agency] considers a bank’s remote
service facility distribution using the
following:
(A) Remote service facility
distribution metrics. The [Agency]
considers the number and percentage of
the bank’s remote service facilities
within low-, moderate-, middle-, and
upper-income census tracts.
(B) Benchmarks. The [Agency]’s
consideration of the remote service
facility distribution metrics is informed
by the following benchmarks:
(1) Percentage of census tracts in the
facility-based assessment area that are
low-, moderate-, middle-, and upperincome census tracts;
(2) Percentage of households in the
facility-based assessment area that are in
low-, moderate-, middle-, and upperincome census tracts; and
(3) Percentage of total businesses in
the facility-based assessment area that
are in low-, moderate-, middle-, and
upper-income census tracts.
(C) Additional geographic
considerations. The [Agency] considers
the availability of remote service
facilities in the following geographic
areas:
(1) Middle- and upper-income census
tracts in which a remote service facility
delivers services to low- and moderateincome individuals, families, or
households to the extent that these
individuals, families, or households use
the services offered;
(2) Distressed or underserved
nonmetropolitan middle-income census
tracts; and
(3) Native Land Areas.
(ii) Access to out-of-network ATMs.
The [Agency] considers whether the
bank offers customers fee-free access to
out-of-network ATMs in low- and
moderate-income census tracts.
(4) Digital delivery systems and other
delivery systems. The [Agency]
evaluates the availability and
responsiveness of a bank’s digital
delivery systems and other delivery
systems, including to low- and
moderate-income individuals, families,
or households at the institution level by
considering:
(i) The range of retail banking services
and retail banking products offered
through digital delivery systems and
other delivery systems;
(ii) The bank’s strategy and initiatives
to serve low- and moderate-income
individuals, families, or households
with digital delivery systems and other
delivery systems as reflected by, for
example, the costs, features, and
marketing of the delivery systems; and
(iii) Digital delivery systems and other
delivery systems activity by individuals,
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
families or households in low-,
moderate-, middle-, and upper-income
census tracts as evidenced by:
(A) The number of checking and
savings accounts opened each calendar
year during the evaluation period
digitally and through other delivery
systems in low-, moderate-, middle-,
and upper-income census tracts;
(B) The number of checking and
savings accounts opened digitally and
through other delivery systems and that
are active at the end of each calendar
year during the evaluation period in
low-, moderate-, middle-, and upperincome census tracts; and
(C) Any other bank data that
demonstrates digital delivery systems
and other delivery systems are available
to individuals and in census tracts of
different income levels, including lowand moderate-income individuals,
families, or households and low- and
moderate-income census tracts.
(c) Retail banking products
evaluation—(1) Scope of evaluation.
The [Agency] evaluates a bank’s retail
banking products offered in the bank’s
facility-based assessment areas and
nationwide, as applicable, at the
institution level as follows:
(i) Credit products and programs. The
[Agency] evaluates a bank’s credit
products and programs pursuant to
paragraph (c)(2) of this section.
(ii) Deposit products. The [Agency]
evaluates a bank’s deposit products
pursuant to paragraph (c)(3) of this
section as follows:
(A) For large banks that had assets
greater than $10 billion as of December
31 in both of the prior two calendar
years; and
(B) For large banks that had assets less
than or equal to $10 billion as of
December 31 in either of the prior two
calendar years, the [Agency] considers a
bank’s deposit products only at the
bank’s option.
(2) Credit products and programs. The
[Agency] evaluates whether a bank’s
credit products and programs are,
consistent with safe and sound
operations, responsive to the credit
needs of the bank’s entire community,
including the needs of low- and
moderate-income individuals, families,
or households, residents of low- and
moderate-income census tracts, small
businesses, or small farms. Responsive
credit products and programs may
include, but are not limited to, credit
products and programs that:
(i) Facilitate home mortgage and
consumer lending targeted to low- or
moderate-income borrowers;
(ii) Meet the needs of small businesses
and small farms, including small
PO 00000
Frm 00549
Fmt 4701
Sfmt 4700
7121
businesses and small farms with gross
annual revenues of $250,000 or less;
(iii) Are conducted in cooperation
with MDIs, WDIs, LICUs, or CDFIs;
(iv) Are low-cost education loans; or
(v) Are special purpose credit
programs pursuant to 12 CFR 1002.8.
(3) Deposit products. The [Agency]
evaluates the availability and usage of a
bank’s deposit products responsive to
the needs of low- and moderate-income
individuals, families, or households as
follows:
(i) Availability of deposit products
responsive to the needs of low- and
moderate-income individuals, families,
or households. The [Agency] considers
the availability of deposit products
responsive to the needs of low- and
moderate-income individuals, families,
or households based on the extent to
which a bank offers deposit products
that, consistent with safe and sound
operations, have features and cost
characteristics responsive to the needs
of low- and moderate-income
individuals, families, or households.
Deposit products responsive to the
needs of low- and moderate-income
individuals, families, or households
include but are not limited to, deposit
products with the following types of
features:
(A) Low-cost features, including, but
not limited to, deposit products with no
overdraft or insufficient funds fees, no
or low minimum opening balance, no or
low monthly maintenance fees, or free
or low-cost check-cashing and bill-pay
services;
(B) Features facilitating broad
functionality and accessibility,
including, but not limited to, deposit
products with in-network ATM access,
debit cards for point-of-sale and bill
payments, and immediate access to
funds for customers cashing
government, payroll, or bank-issued
checks; or
(C) Features facilitating inclusivity of
access by individuals without banking
or credit histories or with adverse
banking histories.
(ii) Usage of deposit products
responsive to the needs of low- and
moderate-income individuals. The
[Agency] considers the usage of a bank’s
deposit products responsive to the
needs of low- and moderate-income
individuals, families, or households
based on the following information:
(A) The number of responsive deposit
accounts opened and closed during each
year of the evaluation period in low-,
moderate-, middle-, and upper-income
census tracts;
(B) In connection with paragraph
(c)(3)(ii)(A) of this section, the
percentage of responsive deposit
E:\FR\FM\01FER2.SGM
01FER2
7122
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
accounts compared to total deposit
accounts for each year of the evaluation
period;
(C) Marketing, partnerships, and other
activities that the bank has undertaken
to promote awareness and use of
responsive deposit accounts by low- and
moderate-income individuals, families,
or households; and
(D) Optionally, any other information
the bank provides that demonstrates
usage of the bank’s deposit products
that have features and cost
characteristics responsive to the needs
of low- and moderate-income
individuals, families, or households and
low- and moderate-income census
tracts.
(d) Retail Services and Products Test
performance conclusions and ratings—
(1) Conclusions. Pursuant to § ll.28
and appendix C to this part, the
[Agency] assigns conclusions for a
bank’s Retail Services and Products Test
performance in each facility-based
assessment area, State and multistate
MSA, as applicable, and for the
institution. In assigning conclusions
under this performance test, the
[Agency] may consider performance
context information as provided in
§ ll.21(d). The evaluation of a bank’s
retail banking products under paragraph
(c) of this section may only contribute
positively to the bank’s Retail Services
and Products Test conclusion.
(2) Ratings. Pursuant to § ll.28 and
appendix D to this part, the [Agency]
incorporates a bank’s Retail Services
and Products Test conclusions into its
State or multistate MSA ratings, as
applicable, and its institution rating.
ddrumheller on DSK120RN23PROD with RULES2
§ ll.24 Community development
financing test.
(a) Community Development
Financing Test—(1) In general. Pursuant
to § ll.21, the Community
Development Financing Test evaluates
the bank’s record of helping to meet the
credit needs of its entire community
through community development loans
and community development
investments (i.e., the bank’s community
development financing performance).
(2) Allocation. The [Agency]
considers community development
loans and community development
investments allocated pursuant to
paragraph I.b of appendix B to this part.
(b) Facility-based assessment area
evaluation. The [Agency] evaluates a
bank’s community development
financing performance in a facilitybased assessment area using the metric
in paragraph (b)(1) of this section,
benchmarks in paragraph (b)(2) of this
section, and a review of the impact and
responsiveness of the bank’s community
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
development loans and community
development investments in paragraph
(b)(3) of this section, and assigns a
conclusion for a facility-based
assessment area pursuant to paragraph
d.1 of appendix C to this part.
(1) Bank Assessment Area Community
Development Financing Metric. The
Bank Assessment Area Community
Development Financing Metric
measures the dollar volume of a bank’s
community development loans and
community development investments
that benefit or serve a facility-based
assessment area compared to deposits in
the bank that are located in the facilitybased assessment area, calculated
pursuant to paragraph II.a of appendix
B to this part.
(2) Benchmarks. The [Agency]
compares the Bank Assessment Area
Community Development Financing
Metric to the following benchmarks:
(i) Assessment Area Community
Development Financing Benchmark. For
each of a bank’s facility-based
assessment areas, the Assessment Area
Community Development Financing
Benchmark measures the dollar volume
of community development loans and
community development investments
that benefit or serve the facility-based
assessment area for all large depository
institutions compared to deposits
located in the facility-based assessment
area for all large depository institutions,
calculated pursuant to paragraph II.b of
appendix B to this part.
(ii) MSA and Nonmetropolitan
Nationwide Community Development
Financing Benchmarks. (A) For each of
a bank’s facility-based assessment areas
within an MSA, the MSA Nationwide
Community Development Financing
Benchmark measures the dollar volume
of community development loans and
community development investments
that benefit or serve MSAs in the
nationwide area for all large depository
institutions compared to deposits
located in the MSAs in the nationwide
area for all large depository institutions.
(B) For each of a bank’s facility-based
assessment areas within a
nonmetropolitan area, the
Nonmetropolitan Nationwide
Community Development Financing
Benchmark measures the dollar volume
of community development loans and
community development investments
that benefit or serve nonmetropolitan
areas in the nationwide area for all large
depository institutions compared to
deposits located in nonmetropolitan
areas in the nationwide area for all large
depository institutions.
(C) The [Agency] calculates the MSA
and Nonmetropolitan Nationwide
Community Development Financing
PO 00000
Frm 00550
Fmt 4701
Sfmt 4700
Benchmarks pursuant to paragraph II.c
of appendix B to this part.
(3) Impact and responsiveness review.
The [Agency] reviews the impact and
responsiveness of a bank’s community
development loans and community
development investments that benefit or
serve a facility-based assessment area, as
provided in § ll.15.
(c) State evaluation. The [Agency]
evaluates a bank’s community
development financing performance in a
State, pursuant to §§ ll.19 and
ll.28(c), using the two components in
paragraphs (c)(1) and (2) of this section
and assigns a conclusion for each State
based on a weighted combination of
those components pursuant to
paragraph II.p of appendix B to this
part.
(1) Component one—weighted
average of facility-based assessment
area performance conclusions in a
State. The [Agency] considers the
weighted average of the performance
scores corresponding to the bank’s
Community Development Financing
Test conclusions for its facility-based
assessment areas within the State,
pursuant to section IV of appendix B to
this part.
(2) Component two—State
performance. The [Agency] considers a
bank’s community development
financing performance in a State using
the metric and benchmarks in
paragraphs (c)(2)(i) and (ii) of this
section and a review of the impact and
responsiveness of the bank’s community
development loans and community
development investments in paragraph
(c)(2)(iii) of this section.
(i) Bank State Community
Development Financing Metric. The
Bank State Community Development
Financing Metric measures the dollar
volume of a bank’s community
development loans and community
development investments that benefit or
serve all or part of a State compared to
deposits in the bank that are located in
the State, calculated pursuant to
paragraph II.d of appendix B to this
part.
(ii) Benchmarks. The [Agency]
compares the Bank State Community
Development Financing Metric to the
following benchmarks:
(A) State Community Development
Financing Benchmark. The State
Community Development Financing
Benchmark measures the dollar volume
of community development loans and
community development investments
that benefit or serve all or part of a State
for all large depository institutions
compared to deposits located in the
State for all large depository
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
institutions, calculated pursuant to
paragraph II.e of appendix B to this part.
(B) State Weighted Assessment Area
Community Development Financing
Benchmark. The State Weighted
Assessment Area Community
Development Financing Benchmark is
the weighted average of the bank’s
Assessment Area Community
Development Financing Benchmarks for
each facility-based assessment area
within the State, calculated pursuant to
paragraph II.f of appendix B to this part.
(iii) Impact and responsiveness
review. The [Agency] reviews the
impact and responsiveness of the bank’s
community development loans and
community development investments
that benefit or serve a State, as provided
in § ll.15.
(d) Multistate MSA evaluation. The
[Agency] evaluates a bank’s community
development financing performance in a
multistate MSA, pursuant to §§ ll.19
and ll.28(c), using the two
components in paragraphs (d)(1) and (2)
of this section and assigns a conclusion
in each multistate MSA based on a
weighted combination of those
components pursuant to paragraph II.p
of appendix B to this part.
(1) Component one—weighted
average of facility-based assessment
area performance in a multistate MSA.
The [Agency] considers the weighted
average of the performance scores
corresponding to the bank’s Community
Development Financing Test
conclusions for its facility-based
assessment areas within the multistate
MSA, calculated pursuant to section IV
of appendix B to this part.
(2) Component two—multistate MSA
performance. The [Agency] considers a
bank’s community development
financing performance in a multistate
MSA using the metric and benchmarks
in paragraphs (d)(2)(i) and (ii) of this
section and a review of the impact and
responsiveness of the bank’s community
development loans and community
development investments in paragraph
(d)(2)(iii) of this section.
(i) Bank Multistate MSA Community
Development Financing Metric. The
Bank Multistate MSA Community
Development Financing Metric
measures the dollar volume of a bank’s
community development loans and
community development investments
that benefit or serve a multistate MSA
compared to deposits in the bank
located in the multistate MSA,
calculated pursuant to paragraph II.g of
appendix B to this part.
(ii) Benchmarks. The [Agency]
compares the Bank Multistate MSA
Community Development Financing
Metric to the following benchmarks:
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
(A) Multistate MSA Community
Development Financing Benchmark.
The Multistate MSA Community
Development Financing Benchmark
measures the dollar volume of
community development loans and
community development investments
that benefit or serve a multistate MSA
for all large depository institutions
compared to deposits located in the
multistate MSA for all large depository
institutions, calculated pursuant to
paragraph II.h of appendix B to this
part.
(B) Multistate MSA Weighted
Assessment Area Community
Development Financing Benchmark.
The Multistate MSA Weighted
Assessment Area Community
Development Financing Benchmark is
the weighted average of the bank’s
Assessment Area Community
Development Financing Benchmarks for
each facility-based assessment area
within the multistate MSA, calculated
pursuant to paragraph II.i of appendix B
to this part.
(iii) Impact and responsiveness
review. The [Agency] reviews the
impact and responsiveness of the bank’s
community development loans and
community development investments
that benefit or serve a multistate MSA,
as provided in § ll.15.
(e) Nationwide area evaluation. The
[Agency] evaluates a bank’s community
development financing performance in
the nationwide area, pursuant to
§ ll.19, using the two components in
paragraphs (e)(1) and (2) of this section
and assigns a conclusion for the
institution based on a weighted
combination of those components
pursuant to paragraph II.p of appendix
B to this part.
(1) Component one—weighted
average of facility-based assessment
area performance in the nationwide
area. The [Agency] considers the
weighted average of the performance
scores corresponding to the bank’s
conclusions for the Community
Development Financing Test for its
facility-based assessment areas within
the nationwide area, calculated
pursuant to section IV of appendix B to
this part.
(2) Component two—nationwide area
performance. The [Agency] considers a
bank’s community development
financing performance in the
nationwide area using the metrics and
benchmarks in paragraphs (e)(2)(i)
through (iv) of this section and a review
of the impact and responsiveness of the
bank’s community development loans
and community development
investments in paragraph (e)(2)(v) of
this section.
PO 00000
Frm 00551
Fmt 4701
Sfmt 4700
7123
(i) Bank Nationwide Community
Development Financing Metric. The
Bank Nationwide Community
Development Financing Metric
measures the dollar volume of the
bank’s community development loans
and community development
investments that benefit or serve all or
part of the nationwide area compared to
deposits in the bank located in the
nationwide area, calculated pursuant to
paragraph II.j of appendix B to this part.
(ii) Community Development
Financing Benchmarks. The [Agency]
compares the Bank Nationwide
Community Development Financing
Metric to the following benchmarks:
(A) Nationwide Community
Development Financing Benchmark.
The Nationwide Community
Development Financing Benchmark
measures the dollar volume of
community development loans and
community development investments
that benefit or serve all or part of the
nationwide area for all large depository
institutions compared to the deposits
located in the nationwide area for all
large depository institutions, calculated
pursuant to paragraph II.k of appendix
B to this part.
(B) Nationwide Weighted Assessment
Area Community Development
Financing Benchmark. The Nationwide
Weighted Assessment Area Community
Development Financing Benchmark is
the weighted average of the bank’s
Assessment Area Community
Development Financing Benchmarks for
each facility-based assessment area
within the nationwide area, calculated
pursuant to paragraph II.l of appendix B
to this part.
(iii) Bank Nationwide Community
Development Investment Metric. For a
large bank that had assets greater than
$10 billion as of December 31 in both
of the prior two calendar years, the Bank
Nationwide Community Development
Investment Metric measures the dollar
volume of the bank’s community
development investments that benefit or
serve all or part of the nationwide area,
excluding mortgage-backed securities,
compared to the deposits in the bank
located in the nationwide area,
calculated pursuant to paragraph II.m of
appendix B to this part.
(iv) Nationwide Community
Development Investment Benchmark.
(A) For a large bank that had assets
greater than $10 billion as of December
31 in both of the prior two calendar
years, the [Agency] compares the Bank
Nationwide Community Development
Investment Metric to the Nationwide
Community Development Investment
Benchmark. This comparison may only
contribute positively to the bank’s
E:\FR\FM\01FER2.SGM
01FER2
7124
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Community Development Financing
Test conclusion for the institution.
(B) The Nationwide Community
Development Investment Benchmark
measures the dollar volume of
community development investments
that benefit or serve all or part of the
nationwide area, excluding mortgagebacked securities, of all large depository
institutions that had assets greater than
$10 billion as of December 31 in both
of the prior two calendar years
compared to deposits located in the
nationwide area for those depository
institutions, calculated pursuant to
paragraph II.n of appendix B to this
part.
(v) Impact and responsiveness review.
The [Agency] reviews the impact and
responsiveness of the bank’s community
development loans and community
development investments that benefit or
serve the nationwide area, as provided
in § ll.15.
(f) Community Development
Financing Test performance
conclusions and ratings—(1)
Conclusions. Pursuant to § ll.28 and
appendix C to this part, the [Agency]
assigns conclusions for a bank’s
Community Development Financing
Test performance in each facility-based
assessment area, each State or multistate
MSA, as applicable, and for the
institution. In assigning conclusions
under this performance test, the
[Agency] may consider performance
context information as provided in
§ ll.21(d).
(2) Ratings. Pursuant to § ll.28 and
appendix D to this part, the [Agency]
incorporates a bank’s Community
Development Financing Test
conclusions into its State or multistate
MSA ratings, as applicable, and its
institution rating.
ddrumheller on DSK120RN23PROD with RULES2
§ ll.25 Community development
services test.
(a) Community Development Services
Test—(1) In general. Pursuant to
§ ll.21, the Community Development
Services Test evaluates a bank’s record
of helping to meet the community
development services needs of its entire
community.
(2) Allocation. The [Agency]
considers information provided by the
bank and may consider publicly
available information and information
provided by government or community
sources that demonstrates that a
community development service
benefits or serves a facility-based
assessment area, State, or multistate
MSA, or the nationwide area.
(b) Facility-based assessment area
evaluation. The [Agency] evaluates a
bank’s community development
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
services performance in a facility-based
assessment area and assigns a
conclusion for a facility-based
assessment area, by considering one or
more of the following:
(1) The number of community
development services attributable to
each type of community development
described in § ll.13(b) through (l);
(2) The capacities in which a bank’s
or its affiliate’s board members or
employees serve (e.g., board member of
a nonprofit organization, technical
assistance, financial education, general
volunteer);
(3) Total hours of community
development services performed by the
bank;
(4) Any other evidence demonstrating
that the bank’s community development
services are responsive to community
development needs, such as the number
of low- and moderate-income
individuals that are participants, or
number of organizations served; and
(5) The impact and responsiveness of
the bank’s community development
services that benefit or serve the facilitybased assessment area, as provided in
§ ll.15.
(c) State, multistate MSA, or
nationwide area evaluation. The
[Agency] evaluates a bank’s community
development services performance in a
State or multistate MSA, as applicable,
or nationwide area, and assigns a
conclusion for those areas, based on the
following two components:
(1) Component one—weighted
average of facility-based assessment
area performance in a State, multistate
MSA, or nationwide area. The [Agency]
considers the weighted average of the
performance scores corresponding to the
bank’s Community Development
Services Test conclusions for its facilitybased assessment areas within a State,
multistate MSA, or the institution
pursuant to section IV of appendix B to
this part.
(2) Component two—evaluation of
community development services
outside of facility-based assessment
areas. The [Agency] may adjust
upwards the conclusion based on the
weighted average derived under
paragraph (c)(1) of this section and an
evaluation of the bank’s community
development services performed outside
of its facility-based assessment areas
pursuant to § ll.19, which may
consider one or more of the factors in
paragraphs (b)(1) through (5) of this
section.
(d) Community Development Services
Test performance conclusions and
ratings—(1) Conclusions. Pursuant to
§ ll.28 and appendix C to this part,
the [Agency] assigns conclusions for a
PO 00000
Frm 00552
Fmt 4701
Sfmt 4700
bank’s Community Development
Services Test performance in each
facility-based assessment area, each
State or multistate MSA, as applicable,
and for the institution. In assigning
conclusions under this performance
test, the [Agency] may consider
performance context information as
provided in § ll.21(d).
(2) Ratings. Pursuant to § ll.28 and
appendix D to this part, the [Agency]
incorporates a bank’s Community
Development Services Test conclusions
into its State or multistate MSA ratings,
as applicable, and its institution rating.
§ ll.26
Limited purpose banks.
(a) Bank request for designation as a
limited purpose bank. To receive a
designation as a limited purpose bank,
a bank must file a written request with
the [Agency] at least 90 days prior to the
proposed effective date of the
designation. If the [Agency] approves
the designation, it remains in effect
until the bank requests revocation of the
designation or until one year after the
[Agency] notifies a limited purpose
bank that the [Agency] has revoked the
designation on the [Agency]’s own
initiative.
(b) Performance evaluation—(1) In
general. To evaluate a limited purpose
bank, the [Agency] applies the
Community Development Financing
Test for Limited Purpose Banks as
described in paragraphs (c) through (f)
of this section.
(2) Additional consideration—(i)
Community development services. The
[Agency] may adjust a limited purpose
bank’s institution rating from
‘‘Satisfactory’’ to ‘‘Outstanding’’ where a
bank requests and receives additional
consideration for services that would
qualify under the Community
Development Services Test in § ll.25.
(ii) Additional consideration for lowcost education loans. A limited purpose
bank may request and receive additional
consideration at the institution level for
providing low-cost education loans to
low-income borrowers pursuant to 12
U.S.C. 2903(d), regardless of the limited
purpose bank’s overall institution
rating.
(c) Community Development
Financing Test for Limited Purpose
Banks—(1) In general. Pursuant to
§ ll.21, the Community Development
Financing Test for Limited Purpose
Banks evaluates a limited purpose
bank’s record of helping to meet the
credit needs of its entire community
through community development loans
and community development
investments (i.e., the bank’s community
development financing performance).
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(2) Allocation. The [Agency]
considers community development
loans and community development
investments allocated pursuant to
paragraph I.b of appendix B to this part.
(d) Facility-based assessment area
evaluation. The [Agency] evaluates a
limited purpose bank’s community
development financing performance in a
facility-based assessment area and
assigns a conclusion in the facilitybased assessment area based on the
[Agency]’s:
(1) Consideration of the dollar volume
of the limited purpose bank’s
community development loans and
community development investments
that benefit or serve the facility-based
assessment area; and
(2) A review of the impact and
responsiveness of the limited purpose
bank’s community development loans
and community development
investments that benefit or serve a
facility-based assessment area, as
provided in § ll.15.
(e) State or multistate MSA
evaluation. The [Agency] evaluates a
limited purpose bank’s community
development financing performance in
each State or multistate MSA, as
applicable pursuant to §§ ll.19 and
ll.28(c), and assigns a conclusion for
the bank’s performance in the State or
multistate MSA based on the [Agency]’s
consideration of the following two
components:
(1) Component one—facility-based
assessment area performance
conclusions in a State or multistate
MSA. A limited purpose bank’s
community development financing
performance in its facility-based
assessment areas in the State or
multistate MSA; and
(2) Component two—State or
multistate MSA performance. The dollar
volume of the limited purpose bank’s
community development loans and
community development investments
that benefit or serve the State or
multistate MSA and a review of the
impact and responsiveness of those
loans and investments, as provided in
§ ll.15.
(f) Nationwide area evaluation. The
[Agency] evaluates a limited purpose
bank’s community development
financing performance in the
nationwide area, pursuant to § ll.19,
and assigns a conclusion for the
institution based on the [Agency]’s
consideration of the following two
components:
(1) Component one—facility-based
assessment area performance. The
limited purpose bank’s community
development financing performance in
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
all of its facility-based assessment areas;
and
(2) Component two—nationwide area
performance. The limited purpose
bank’s community development
financing performance in the
nationwide area based on the following
metrics and benchmarks in paragraphs
(f)(2)(i) through (iv) of this section and
a review of the impact and
responsiveness of the bank’s community
development loans and community
development investments in paragraph
(f)(2)(v) of this section.
(i) Limited Purpose Bank Community
Development Financing Metric. The
Limited Purpose Bank Community
Development Financing Metric
measures the dollar volume of a bank’s
community development loans and
community development investments
that benefit or serve all or part of the
nationwide area compared to the bank’s
assets calculated pursuant to paragraph
III.a of appendix B to this part.
(ii) Community Development
Financing Benchmarks. The [Agency]
compares the Limited Purpose Bank
Community Development Financing
Metric to the following benchmarks:
(A) Nationwide Limited Purpose Bank
Community Development Financing
Benchmark. The Nationwide Limited
Purpose Bank Community Development
Financing Benchmark measures the
dollar volume of community
development loans and community
development investments of depository
institutions designated as limited
purpose banks or savings associations
pursuant to 12 CFR 25.26(a) or
designated as limited purpose banks
pursuant to 12 CFR 228.26(a) or
345.26(a) reported pursuant to 12 CFR
25.42(b), 228.42(b), or 345.42(b) that
benefit and serve all or part of the
nationwide area compared to assets for
those depository institutions, calculated
pursuant to paragraph III.b of appendix
B to this part; and
(B) Nationwide Asset-Based
Community Development Financing
Benchmark. The Nationwide AssetBased Community Development
Financing Benchmark measures the
dollar volume of community
development loans and community
development investments that benefit or
serve all or part of the nationwide area
of all depository institutions that
reported pursuant to 12 CFR 25.42(b),
228.42(b), or 345.42(b) compared to
assets for those depository institutions,
calculated pursuant to paragraph III.c of
appendix B to this part.
(iii) Limited Purpose Bank
Community Development Investment
Metric. For a limited purpose bank that
had assets greater than $10 billion as of
PO 00000
Frm 00553
Fmt 4701
Sfmt 4700
7125
December 31 in both of the prior two
calendar years, the Limited Purpose
Bank Community Development
Investment Metric measures the dollar
volume of the bank’s community
development investments that benefit or
serve all or part of the nationwide area,
excluding mortgage-backed securities,
compared to the bank’s assets,
calculated pursuant to paragraph III.d of
appendix B to this part.
(iv) Nationwide Asset-Based
Community Development Investment
Benchmark. (A) For a limited purpose
bank that had assets greater than $10
billion as of December 31 in both of the
prior two calendar years, the [Agency]
compares the Limited Purpose Bank
Community Development Investment
Metric to the Nationwide Asset-Based
Community Development Investment
Benchmark. This comparison may only
contribute positively to the bank’s
Community Development Financing
Test for Limited Purpose Banks
conclusion for the institution.
(B) The Nationwide Asset-Based
Community Development Investment
Benchmark measures the dollar volume
of community development investments
that benefit or serve all or part of the
nationwide area, excluding mortgagebacked securities, of all depository
institutions that had assets greater than
$10 billion as of December 31 in both
of the prior two calendar years,
compared to assets for those depository
institutions, calculated pursuant to
paragraph III.e of appendix B to this
part.
(v) Impact and responsiveness review.
The [Agency] reviews the impact and
responsiveness of the bank’s community
development loans and community
development investments that benefit or
serve the nationwide area, as provided
in § ll.15.
(g) Community Development
Financing Test for Limited Purpose
Banks performance conclusions and
ratings—(1) Conclusions. Pursuant to
§ ll.28 and appendix C to this part,
the [Agency] assigns conclusions for a
limited purpose bank’s Community
Development Financing Test for Limited
Purpose Banks performance in each
facility-based assessment area, each
State or multistate MSA, as applicable,
and for the institution. In assigning
conclusions under this performance
test, the [Agency] may consider
performance context information as
provided in § ll.21(d).
(2) Ratings. Pursuant to § ll.28 and
appendix D to this part, the [Agency]
incorporates a limited purpose bank’s
Community Development Financing
Test for Limited Purpose Banks
conclusions into its State or multistate
E:\FR\FM\01FER2.SGM
01FER2
7126
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
MSA ratings, as applicable, and its
institution rating.
ddrumheller on DSK120RN23PROD with RULES2
§ ll.27
Strategic plan.
(a) Alternative election. Pursuant to
§ ll.21, the [Agency] evaluates a
bank’s record of helping to meet the
credit needs of its entire community
under a strategic plan, if:
(1) The [Agency] has approved the
plan pursuant to this section;
(2) The plan is in effect; and
(3) The bank has been operating under
an approved plan for at least one year.
(b) Data requirements. The [Agency]’s
approval of a plan does not affect the
bank’s obligation, if any, to collect,
maintain, and report data as required by
§ ll.42.
(c) Plans in general—(1) Term. A plan
may have a term of not more than five
years.
(2) Performance tests in plan. (i) A
bank’s plan must include the same
performance tests that would apply in
the absence of an approved plan, except
as provided in paragraph (g)(1) of this
section.
(ii) Consistent with paragraph (g) of
this section, a bank’s plan may include
optional evaluation components or
eligible modifications and additions to
the performance tests that would apply
in the absence of an approved plan.
(3) Assessment areas and other
geographic areas—(i) Multiple
geographic areas. A bank may prepare
a single plan or separate plans for its
facility-based assessment areas, retail
lending assessment areas, outside retail
lending area, or other geographic areas
that would be evaluated in the absence
of an approved plan.
(ii) Geographic areas not included in
a plan. Any facility-based assessment
area, retail lending assessment area,
outside retail lending area, or other
geographic area that would be evaluated
in the absence of an approved plan, but
is not included in an approved plan,
will be evaluated pursuant to the
performance tests that would apply in
the absence of an approved plan.
(4) [Operations subsidiaries or
operating subsidiaries] and affiliates—
(i) [Operations subsidiaries or operating
subsidiaries]. The loans, investments,
services, and products of a bank’s
[operations subsidiary or operating
subsidiary] must be included in the
bank’s plan, unless the [operations
subsidiary or operating subsidiary] is
independently subject to CRA
requirements.
(ii) Affiliates—(A) Optional inclusion
of other affiliates’ loans, investments,
services, and products. Consistent with
§ ll.21(b)(3), a bank may include
loans, investments, services, and
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
products of affiliates of a bank that are
not [operations subsidiaries or operating
subsidiaries] in a plan, if those loans,
investments, services, and products are
not included in the CRA performance
evaluation of any other depository
institution.
(B) Joint plans. Affiliated depository
institutions supervised by the same
Federal financial supervisory agency
may prepare a joint plan, provided that
the plan includes, for each bank, the
applicable performance tests that would
apply in the absence of an approved
plan. The joint plan may include
optional evaluation components or
eligible modifications and additions to
the performance tests that would apply
in the absence of an approved plan.
(C) Allocation. The inclusion of an
affiliate’s loans, investments, services,
and products in a bank’s plan, or in a
joint plan of affiliated depository
institutions, is subject to the following:
(1) The loans, investments, services,
and products may not be included in
the CRA performance evaluation of
another depository institution; and
(2) The allocation of loans,
investments, services, and products to a
bank, or among affiliated banks, must
reflect a reasonable basis for the
allocation and may not be for the sole
or primary purpose of inappropriately
enhancing any bank’s CRA evaluation.
(d) Justification and appropriateness
of plan election—(1) Justification
requirements. A bank’s plan must
provide a justification that demonstrates
the need for the following aspects of a
plan due to the bank’s business model
(e.g., its retail banking services and
retail banking products):
(i) Optional evaluation components
pursuant to paragraph (g)(1) of this
section;
(ii) Eligible modifications or additions
to the applicable performance tests
pursuant to paragraph (g)(2) of this
section;
(iii) Additional geographic areas
pursuant to paragraph (g)(3) of this
section; and
(iv) The conclusions and ratings
methodology pursuant to paragraph
(g)(6) of this section.
(2) Justification elements. Each
justification must specify the following:
(i) Why the bank’s business model is
outside the scope of, or inconsistent
with, one or more aspects of the
performance tests that would apply in
the absence of an approved plan;
(ii) Why an evaluation of the bank
pursuant to any aspect of a plan in
paragraph (d)(1) of this section would
more meaningfully reflect a bank’s
record of helping to meet the credit
needs of its community than if it were
PO 00000
Frm 00554
Fmt 4701
Sfmt 4700
evaluated under the performance tests
that would apply in the absence of an
approved plan; and
(iii) Why the optional performance
components and eligible modifications
or additions meet the standards of
paragraphs (g)(1) and (2) of this section,
as applicable.
(e) Public participation in initial draft
plan development—(1) In general.
Before submitting a draft plan to the
[Agency] for approval pursuant to
paragraph (h) of this section, a bank
must:
(i) Informally seek suggestions from
members of the public while developing
the plan;
(ii) Once the bank has developed its
initial draft plan, formally solicit public
comment on the initial draft plan for at
least 60 days by:
(A) Submitting the initial draft plan
for publication on the [Agency]’s
website and by publishing the initial
draft plan on the bank’s website, if the
bank maintains one; and
(B)(1) Except as provided in
paragraph (e)(1)(ii)(B)(2) of this section,
publishing notice in at least one print
newspaper of general circulation (if
available, otherwise a digital
publication) in each facility-based
assessment area covered by the plan;
and
(2) For a military bank, publishing
notice in at least one print newspaper of
general circulation targeted to members
of the military (if available, otherwise a
digital publication targeted to members
of the military); and
(iii) Include in the notice required
under paragraph (e)(1)(ii) of this section
a means by which members of the
public can electronically submit and
mail comments to the bank on its initial
draft plan.
(2) Availability of initial draft plan.
During the period when the bank is
formally soliciting public comment on
its initial draft plan, the bank must
make copies of the initial draft plan
available for review at no cost at all
offices of the bank in any facility-based
assessment area covered by the plan and
provide copies of the initial draft plan
upon request for a reasonable fee to
cover copying and mailing, if
applicable.
(f) Submission of a draft plan. The
bank must submit its draft plan to the
[Agency] at least 90 days prior to the
proposed effective date of the plan. The
bank must also submit with its draft
plan:
(1) Proof of notice publication and a
description of its efforts to seek input
from members of the public, including
individuals and organizations the bank
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
contacted and how the bank gathered
information;
(2) Any written comments or other
public input received;
(3) If the bank revised the initial draft
plan in response to the public input
received, the initial draft plan as
released for public comment with an
explanation of the relevant changes; and
(4) If the bank did not revise the
initial draft plan in response to
suggestions or concerns from public
input received, an explanation for why
any suggestion or concern was not
addressed in the draft plan.
(g) Plan content. In addition to
meeting the requirements in paragraphs
(c) and (d) of this section, the plan must
meet the following requirements:
(1) Applicable performance tests and
optional evaluation components. A
bank must include in its plan a focus on
the credit needs of its entire community,
including low- and moderate-income
individuals, families, or households,
low- and moderate-income census
tracts, and small businesses and small
farms. The bank must describe how its
plan is responsive to the characteristics
and credit needs of its facility-based
assessment areas, retail lending
assessment areas, outside retail lending
area, or other geographic areas served by
the bank, considering public comment
and the bank’s capacity and constraints,
product offerings, and business strategy.
As applicable, a bank must specify
components in its plan for helping to
meet:
(i) The retail lending needs of its
facility-based assessment areas, retail
lending assessment areas, and outside
retail lending area that are covered by
the plan. A bank that originates or
purchases loans in a product line
evaluated pursuant to the Retail
Lending Test in § ll.22 or originates
or purchases loans evaluated pursuant
to the Small Bank Lending Test in
§ ll.29(a)(2) must include the
applicable test in its plan, subject to
eligible modifications or additions
specified in paragraph (g)(2) of this
section.
(ii) The retail banking services and
retail banking products needs of its
facility-based assessment areas and at
the institution level that are covered by
the plan.
(A) A large bank that maintains
delivery systems evaluated pursuant to
the Retail Services and Products Test in
§ ll.23(b) must include this
component of the test in its plan, subject
to eligible modifications or additions
specified in paragraph (g)(2) of this
section.
(B) A large bank that does not
maintain delivery systems evaluated
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
pursuant to the Retail Services and
Products Test in § ll.23(b) may
include retail banking products
components in § ll.23(c) and
accompanying annual measurable goals
in its plan.
(C) A bank other than a large bank
may include components of retail
banking services or retail banking
products and accompanying annual
measurable goals in its plan.
(iii) The community development
loan and community development
investment needs of its facility-based
assessment areas, States, or multistate
MSAs, as applicable, and the
nationwide area that are covered by the
plan. Subject to eligible modifications or
additions as provided in paragraph
(g)(2) of this section:
(A) A large bank must include the
Community Development Financing
Test in § ll.24 in its plan.
(B) An intermediate bank must
include either the Community
Development Financing Test in
§ ll.24 or the Intermediate Bank
Community Development Test in
§ ll.30(a)(2) in its plan.
(C) A limited purpose bank must
include the Community Development
Financing Test for Limited Purpose
Banks in § ll.26 in its plan.
(D) A small bank may include a
community development loan or
community development investment
component and accompanying annual
measurable goals in its plan.
(iv) The community development
services needs of its facility-based
assessment areas served by the bank that
are covered by the plan.
(A) A large bank must include the
Community Development Services Test
in § ll.25 in its plan, subject to
eligible modifications or additions as
provided in paragraph (g)(2) of this
section, for each facility-based
assessment area where the bank has
employees.
(B) A bank other than a large bank
may include a community development
services component and accompanying
annual measurable goals in its plan.
(2) Eligible modifications or additions
to applicable performance tests—(i)
Retail lending. (A) For a bank that the
[Agency] would otherwise evaluate
pursuant to the Small Bank Lending
Test in § ll.29(a)(2):
(1) A bank may omit, as applicable,
the evaluation of performance criteria
related to the loan-to-deposit ratio or the
percentage of loans located in the bank’s
facility-based assessment area(s).
(2) A bank may add annual
measurable goals for any aspect of the
bank’s retail lending.
PO 00000
Frm 00555
Fmt 4701
Sfmt 4700
7127
(B) For a bank the [Agency] would
otherwise evaluate pursuant to the
Retail Lending Test in § ll.22:
(1) A bank may add additional loan
products, such as non-automobile
consumer loans or open-end home
mortgage loans, or additional goals for
major product lines, such as closed-end
home mortgage loans to first-time
homebuyers, with accompanying annual
measurable goals.
(2) Where annual measurable goals for
additional loan products or additional
goals for major product lines have been
added pursuant to paragraph
(g)(2)(i)(B)(1) of this section, a bank may
provide different weights for averaging
together the performance across these
loan products and may include those
loan products in the numerator of the
Bank Volume Metric.
(3) A bank may use alternative
weights for combining the borrower and
geographic distribution analyses for
major product line(s) or other loan
products.
(ii) Retail banking services and retail
banking products. (A) A large bank may
add annual measurable goals for any
component of the Retail Services and
Products Test in § ll.23.
(B) A large bank may modify the
Retail Services and Products Test by
removing a component of the test.
(C) A large bank may assign specific
weights to applicable components in
paragraph (g)(2)(ii)(A) of this section in
reaching a Retail Services and Products
Test conclusion.
(D) A bank other than a large bank
may include retail banking services or
retail banking products component(s)
and accompanying annual measurable
goals in its plan.
(iii) Community development loans
and community development
investments. (A) A bank may specify
annual measurable goals for community
development loans, community
development investments, or both. The
bank must base any annual measurable
goals as a percentage or ratio of the
bank’s community development loans
and community development
investments for all or certain types of
community development described in
§ ll.13(b) through (l), presented either
on a combined or separate basis, relative
to the bank’s capacity and should
account for community development
needs and opportunities.
(B) A bank may specify using assets
as an alternative denominator for a
community development financing
metric if it better measures a bank’s
capacity.
(C) A bank may specify additional
benchmarks to evaluate a community
development financing metric.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7128
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(D) A small bank may include
community development loans,
community development investments,
or both, and accompanying annual
measurable goals in its plan.
(iv) Community development services.
(A) A bank may specify annual
measurable goals for community
development services activity, by
number of activity hours, number of
hours per full-time equivalent
employee, or some other measure.
(B) A bank other than a large bank
may include a community development
services component and accompanying
annual measurable goals in its plan.
(v) Weights for assessing performance
across geographic areas. A bank may
specify alternative weights for averaging
test performance across assessment
areas or other geographic areas. These
alternative weights must be based on the
bank’s capacity and community needs
and opportunities in specific geographic
areas.
(vi) Test weights. For ratings at the
State, multistate MSA, and institution
levels pursuant to § ll.28(b) and
paragraph g.2 of appendix D to this part,
as applicable:
(A) A bank may request an alternate
weighting method for combining
performance under the applicable
performance tests and optional
evaluation components. In specifying
alternative test weights for each
applicable test, a bank must emphasize
retail lending, community development
financing, or both. Alternative weights
must be responsive to the characteristics
and credit needs of a bank’s assessment
areas and public comments and must be
based on the bank’s capacity and
constraints, product offerings, and
business strategy.
(B) A bank that requests an alternate
weighting method pursuant to
paragraph (g)(2)(vi)(A) of this section
must compensate for decreasing the
weight under one test by committing to
enhance its efforts to help meet the
credit needs of its community under
another performance test.
(3) Geographic coverage of plan. (i) A
bank may incorporate performance
evaluation components and
accompanying annual measurable goals
for additional geographic areas but may
not eliminate the evaluation of its
performance in any geographic area that
would be included in its performance
evaluation in the absence of an
approved plan.
(ii) If a large bank is no longer
required to delineate a retail lending
assessment area previously identified in
the plan as a result of not meeting the
required retail lending assessment area
thresholds pursuant to § ll.17, the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
[Agency] will not evaluate the bank for
its performance in that area for the
applicable years of the plan in which
the area is no longer a retail lending
assessment area.
(iii) A bank that includes additional
performance evaluation components
with accompanying annual measurable
goals in its plan must specify the
geographic areas where those
components and goals apply.
(4) Confidential information. A bank
may submit additional information to
the [Agency] on a confidential basis, but
the goals stated in the plan must be
sufficiently specific to enable the public
and the [Agency] to judge the merits of
the plan.
(5) ‘‘Satisfactory’’ and ‘‘Outstanding’’
performance goals. A bank that includes
modified or additional performance
evaluation components with
accompanying annual measurable goals
in its plan must specify in its plan
annual measurable goals that constitute
‘‘Satisfactory’’ performance and may
specify annual measurable goals that
constitute ‘‘Outstanding’’ performance.
(6) Conclusions and rating
methodology. A bank must specify in its
plan how all elements of a plan covered
in paragraphs (g)(1) through (5) of this
section, in conjunction with any other
applicable performance tests not
included in an approved strategic plan,
should be considered to assign:
(i) Conclusions. Pursuant to § ll.28
and appendix C to this part, the
[Agency] assigns conclusions for each
facility-based assessment area, retail
lending assessment area, outside retail
lending area, State, and multistate MSA,
as applicable, and the institution. In
assigning conclusions under a strategic
plan, the [Agency] may consider
performance context information as
provided in § ll.21(d).
(ii) Ratings. Pursuant to § ll.28 and
paragraph f of appendix D to this part,
the [Agency] incorporates the
conclusions of a bank evaluated under
an approved plan into its State or
multistate MSA ratings, as applicable,
and its institution rating, accounting for
paragraph g.2 of appendix D to this part,
as applicable.
(h) Draft plan evaluation—(1) Timing.
The [Agency] seeks to act upon a draft
plan within 90 calendar days after the
[Agency] receives the complete draft
plan and other materials required
pursuant to paragraph (f) of this section.
If the [Agency] does not act within this
time period, the [Agency] will
communicate to the bank the rationale
for the delay and an expected timeframe
for a decision on the draft plan.
(2) Public participation. In evaluating
the draft plan, the [Agency] considers:
PO 00000
Frm 00556
Fmt 4701
Sfmt 4700
(i) The public’s involvement in
formulating the draft plan, including
specific information regarding the
members of the public and
organizations the bank contacted and
how the bank collected information
relevant to the draft plan;
(ii) Written public comments and
other public input on the draft plan;
(iii) Any response by the bank to
public input on the draft plan; and
(iv) Whether to solicit additional
public input or require the bank to
provide any additional response to
public input already received.
(3) Criteria for evaluating plan for
approval. (i) The [Agency] evaluates all
plans using the following criteria:
(A) The extent to which the plan
meets the standards set forth in this
section; and
(B) The extent to which the plan has
adequately justified the need for a plan
and each aspect of the plan as required
in paragraph (d) of this section.
(ii) The [Agency] evaluates a plan
under the following criteria, as
applicable, considering performance
context information pursuant to
§ ll.21(d):
(A) The extent and breadth of retail
lending or retail lending-related
activities to address credit needs,
including the distribution of loans
among census tracts of different income
levels, businesses and farms of different
sizes, and individuals of different
income levels, pursuant to §§ ll.22,
andll.29, as applicable;
(B) The effectiveness of the bank’s
systems for delivering retail banking
services and the availability and
responsiveness of the bank’s retail
banking products, pursuant to § ll.23,
as applicable;
(C) The extent, breadth, impact, and
responsiveness of the bank’s community
development loans and community
development investments, pursuant to
§§ ll.24, ll.26, and ll.30, as
applicable; and
(D) The number, hours, and types of
community development services
performed and the extent to which the
bank’s community development
services are impactful and responsive,
pursuant to §§ ll.25 and ll.30, as
applicable.
(4) Plan decisions—(i) Approval. The
[Agency] may approve a plan after
considering the criteria in paragraph
(h)(3) of this section and if it determines
that the bank has provided adequate
justification for the plan and each aspect
of the plan as required in paragraph (d)
of this section.
(ii) Denial. The [Agency] may deny a
bank’s request to be evaluated under a
plan for any of the following reasons:
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(A) The Agency determines that the
bank has not provided adequate
justification for the plan and each aspect
of the plan as required pursuant to
paragraph (d) of this section;
(B) The [Agency] determines that
evaluation under the plan would not
provide a more meaningful reflection of
the bank’s record of helping to meet the
credit needs of the bank’s community;
(C) The plan is not responsive to
public comment received pursuant to
paragraph (e) of this section;
(D) The [Agency] determines that the
plan otherwise fails to meet the
requirements of this section; or
(E) The bank fails to provide
information requested by the [Agency]
that is necessary for the [Agency] to
make an informed decision.
(5) Publication of approved plan. The
[Agency] will publish an approved plan
on the [Agency]’s website.
(i) Plan amendment—(1) Mandatory
plan amendment. During the term of a
plan, a bank must submit to the
[Agency] for approval an amendment to
its plan if a material change in
circumstances:
(i) Impedes its ability to perform at a
satisfactory level under the plan, such
as financial constraints caused by
significant events that impact the local
or national economy; or
(ii) Significantly increases its
financial capacity and ability to engage
in retail lending, retail banking services,
retail banking products, community
development loans, community
development investments, or
community development services
referenced in an approved plan, such as
a merger or consolidation.
(2) Elective plan amendment. During
the term of a plan, a bank may request
the [Agency] to approve an amendment
to the plan in the absence of a material
change in circumstances.
(3) Requirements for plan
amendments—(i) Amendment
explanation. When submitting a plan
amendment for approval, a bank must
explain:
(A) The material change in
circumstances necessitating the
amendment; or
(B) Why it is necessary and
appropriate to amend its plan in the
absence of a material change in
circumstances.
(ii) Compliance requirement. An
amendment to a plan must comply with
all relevant requirements of this section,
unless the [Agency] waives a
requirement as not applicable.
(j) Performance evaluation under a
plan—(1) In general. The [Agency]
evaluates a bank’s performance under
an approved plan based on the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
performance tests that would apply in
the absence of an approved plan and
any optional evaluation components or
eligible modifications and additions to
the applicable performance tests set
forth in the bank’s approved plan.
(2) Goal considerations. If a bank
established annual measurable goals
and does not meet one or more of its
satisfactory goals, the [Agency] will
consider the following factors to
determine the effect on a bank’s CRA
performance evaluation:
(i) The degree to which the goal was
not met;
(ii) The importance of the unmet goals
to the plan as a whole; and
(iii) Any circumstances beyond the
control of the bank, such as economic
conditions or other market factors or
events, that have adversely impacted the
bank’s ability to perform.
(3) Ratings. The [Agency] rates the
performance of a bank under this
section pursuant to appendix D to this
part.
§ ll.28
ratings.
Assigned conclusions and
(a) Conclusions—(1) State, multistate
MSA, and institution test conclusions
and performance scores—(i) In general.
For each of the applicable performance
tests pursuant to §§ ll.22 through
ll.26 and ll.30, the [Agency]
assigns conclusions and associated test
performance scores of ‘‘Outstanding,’’
‘‘High Satisfactory,’’ ‘‘Low Satisfactory,’’
‘‘Needs to Improve,’’ or ‘‘Substantial
Noncompliance’’ for the performance of
a bank in each State and multistate
MSA, as applicable pursuant to
paragraph (c) of this section, and for the
institution.
(ii) Small banks. The [Agency] assigns
conclusions of ‘‘Outstanding,’’
‘‘Satisfactory,’’ ‘‘Needs to Improve,’’ or
‘‘Substantial Noncompliance’’ for the
performance of a small bank evaluated
under the Small Bank Lending Test in
§ ll.29(a)(2) in each State and
multistate MSA, as applicable pursuant
to paragraph (c) of this section, and for
the institution pursuant to § ll.29 and
appendix E to this part.
(iii) Banks operating under a strategic
plan. The [Agency] assigns conclusions
for the performance of a bank operating
under a strategic plan pursuant to
§ ll.27 in each State and multistate
MSA, as applicable pursuant to
paragraph (c) of this section, and for the
institution in accordance with the
methodology of the plan and appendix
C to this part.
(2) Bank performance in metropolitan
and nonmetropolitan areas. Pursuant to
12 U.S.C. 2906, the [Agency] provides
conclusions derived under this part
PO 00000
Frm 00557
Fmt 4701
Sfmt 4700
7129
separately for metropolitan areas in
which a bank maintains one or more
domestic branch offices and for the
nonmetropolitan area of a State if a bank
maintains one or more domestic branch
offices in such nonmetropolitan area.
(b) Ratings—(1) In general. The
[Agency] assigns a rating for a bank’s
overall CRA performance of
‘‘Outstanding,’’ ‘‘Satisfactory,’’ ‘‘Needs
to Improve,’’ or ‘‘Substantial
Noncompliance’’ in each State and
multistate MSA, as applicable pursuant
to paragraph (c) of this section, and for
the institution, as provided in this
section and appendices D and E to this
part. The ratings assigned by the
[Agency] reflect the bank’s record of
helping to meet the credit needs of its
entire community, including low- and
moderate-income neighborhoods,
consistent with the safe and sound
operation of the bank.
(2) State, multistate MSA, and
institution ratings and overall
performance scores. (i) For large banks,
intermediate banks, small banks that opt
into the Retail Lending Test in § ll.22,
and limited purpose banks, the [Agency]
calculates and discloses the bank’s
overall performance score for each State
and multistate MSA, as applicable, and
for the institution. The [Agency] uses a
bank’s overall performance scores
described in this section to assign a
rating for the bank’s overall performance
in each State and multistate MSA, as
applicable, and for the institution,
subject to paragraphs (d) and (e) of this
section.
(ii) Overall performance scores are
based on the bank’s performance score
for each applicable performance test and
derived as provided in paragraph (b)(3)
of this section, as applicable, and
appendix D to this part.
(3) Weighting of performance scores.
In calculating a large bank’s or
intermediate bank’s overall performance
score for each State and multistate MSA,
as applicable, and the institution, the
[Agency] weights the performance
scores for the bank for each applicable
performance test as provided in
paragraphs (b)(3)(i) and (ii) of this
section.
(i) Large bank performance test
weights. The [Agency] weights the
bank’s performance score for the
performance tests applicable to a large
bank as follows:
(A) Retail Lending Test, 40 percent;
(B) Retail Services and Products Test,
10 percent;
(C) Community Development
Financing Test, 40 percent; and
(D) Community Development Services
Test, 10 percent.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7130
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(ii) Intermediate bank performance
test weights. The [Agency] weights the
bank’s performance score for the
performance tests applicable to an
intermediate bank as follows:
(A) Retail Lending Test, 50 percent;
and
(B) Intermediate Bank Community
Development Test or Community
Development Financing Test, as
applicable, 50 percent.
(4) Minimum conclusion
requirements—(i) Retail Lending Test
minimum conclusion. An intermediate
bank or a large bank must receive at
least a ‘‘Low Satisfactory’’ Retail
Lending Test conclusion for the State,
multistate MSA, or institution to
receive, respectively, a State, multistate
MSA, or institution rating of
‘‘Satisfactory’’ or ‘‘Outstanding.’’
(ii) Minimum of ‘‘Low Satisfactory’’
overall facility-based assessment area
and retail lending assessment area
conclusion. (A) For purposes of this
paragraph (b)(4)(ii)(A), the [Agency]
assigns a large bank an overall
conclusion for each facility-based
assessment area and, as applicable, each
retail lending assessment area, as
provided in paragraph g.2.ii of appendix
D to this part.
(B) Except as provided in § ll.51(e),
a large bank with a combined total of 10
or more facility-based assessment areas
and retail lending assessment areas in
any State or multistate MSA, as
applicable, or for the institution may not
receive a rating of ‘‘Satisfactory’’ or
‘‘Outstanding’’ in that State or
multistate MSA, as applicable, or for the
institution, unless the bank receives an
overall conclusion of at least ‘‘Low
Satisfactory’’ in 60 percent or more of
the total number of its facility-based
assessment areas and retail lending
assessment areas in that State or
multistate MSA, as applicable, or for the
institution.
(c) Conclusions and ratings for States
and multistate MSAs—(1) States—(i) In
general. Except as provided in
paragraph (c)(1)(ii) of this section, the
[Agency] evaluates a bank and assigns
conclusions and ratings for any State in
which the bank maintains a main office,
branch, or deposit-taking remote service
facility.
(ii) States with rated multistate MSAs.
The [Agency] evaluates a bank and
assigns conclusions and ratings for a
State only if the bank maintains a main
office, branch, or deposit-taking remote
service facility outside the portion of the
State comprising any multistate MSA
identified in paragraph (c)(2) of this
section. In evaluating a bank and
assigning conclusions and ratings for a
State, the [Agency] does not consider
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
activities to be in the State if those
activities take place in the portion of the
State comprising any multistate MSA
identified in paragraph (c)(2) of this
section.
(iii) States with non-rated multistate
MSAs. If a facility-based assessment
area of a bank comprises a geographic
area spanning two or more States within
a multistate MSA that is not identified
in paragraph (c)(2) of this section, the
[Agency] considers activities in the
entire facility-based assessment area to
be in the State in which the bank
maintains, within the multistate MSA, a
main office, branch, or deposit-taking
remote service facility. In evaluating a
bank and assigning conclusions and
ratings for a State, the [Agency] does not
consider activities to be in the State if
those activities take place in any
facility-based assessment area that is
considered to be in another State
pursuant to this paragraph (c)(1)(iii).
(iv) States with multistate retail
lending assessment areas. In assigning
Retail Lending Test conclusions for a
State pursuant to § ll.22(h), the
[Agency] does not consider a bank’s
activities to be in the State if those
activities take place in a retail lending
assessment area consisting of counties
in more than one State.
(2) Rated multistate MSAs. The
[Agency] evaluates a bank and assigns
conclusions and ratings under this part
in any multistate MSA in which the
bank maintains a main office, a branch,
or a deposit-taking remote service
facility in two or more States within that
multistate MSA.
(d) Effect of evidence of
discriminatory or other illegal credit
practices—(1) Scope. For each State and
multistate MSA, as applicable, and the
institution, the [Agency]’s evaluation of
a bank’s performance under this part is
adversely affected by evidence of
discriminatory or other illegal credit
practices, as provided in paragraph
(d)(2) of this section. The [Agency]
considers evidence of discriminatory or
other illegal credit practices described
in this section by:
(i) The bank, including by an
[operations subsidiary or operating
subsidiary] of the bank; or
(ii) Any other affiliate related to any
activities considered in the evaluation
of the bank.
(2) Discriminatory or other illegal
credit practices. For purposes of
paragraph (d)(1) of this section,
discriminatory or other illegal credit
practices consist of the following:
(i) Discrimination on a prohibited
basis, including in violation of the Equal
Credit Opportunity Act (15 U.S.C. 1691
PO 00000
Frm 00558
Fmt 4701
Sfmt 4700
et seq.) or the Fair Housing Act (42
U.S.C. 3601 et seq.);
(ii) Violations of the Home Ownership
and Equity Protection Act (15 U.S.C.
1639);
(iii) Violations of section 5 of the
Federal Trade Commission Act (15
U.S.C. 45);
(iv) Violations of section 1031 of the
Dodd-Frank Wall Street Reform and
Consumer Protection Act (12 U.S.C.
5531, 5536);
(v) Violations of section 8 of the Real
Estate Settlement Procedures Act (12
U.S.C. 2601 et seq.);
(vi) Violations of the Truth in Lending
Act (15 U.S.C. 1601 et seq.);
(vii) Violations of the Military
Lending Act (10 U.S.C. 987);
(viii) Violations of the
Servicemembers Civil Relief Act (50
U.S.C. 3901 et seq.); and
(ix) Any other violation of a law, rule,
or regulation consistent with the types
of violations in paragraphs (d)(2)(i)
through (viii) of this section, as
determined by the [Agency].
(3) Agency considerations. In
determining the effect of evidence of
discriminatory or other illegal credit
practices described in paragraph (d)(1)
of this section on the bank’s assigned
State, multistate MSA, and institution
ratings, the [Agency] will consider:
(i) The root cause or causes of any
such violations of law, rule, or
regulation;
(ii) The severity of any harm to any
communities, individuals, small
businesses, and small farms resulting
from such violations;
(iii) The duration of time over which
the violations occurred;
(iv) The pervasiveness of the
violations;
(v) The degree to which the bank,
[operations subsidiary or operating
subsidiary], or affiliate, as applicable,
has established an effective compliance
management system across the
institution to self-identify risks and to
take the necessary actions to reduce the
risk of noncompliance and harm to
communities, individuals, small
businesses, and small farms; and
(vi) Any other relevant information.
(e) Consideration of past performance.
When assigning ratings, the [Agency]
considers a bank’s past performance. If
a bank’s prior rating was ‘‘Needs to
Improve,’’ the [Agency] may determine
that a ‘‘Substantial Noncompliance’’
rating is appropriate where the bank
failed to improve its performance since
the previous evaluation period, with no
acceptable basis for such failure.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Lending Test in § ll.22. The [Agency]
may adjust a small bank rating from
(a) Small bank performance
‘‘Satisfactory’’ to ‘‘Outstanding’’ at the
evaluation—(1) In general. The [Agency] institution level where the bank
evaluates a small bank’s record of
requests and receives additional
helping to meet the credit needs of its
consideration for activities that would
entire community pursuant to the Small qualify pursuant to the Retail Services
and Products Test in § ll.23, the
Bank Lending Test as provided in
Community Development Financing
paragraph (a)(2) of this section, unless
Test in § ll.24, or the Community
the small bank opts to be evaluated
Development Services Test in § ll.25.
pursuant to the Retail Lending Test in
(3) Additional consideration for
§ ll.22.
activities with MDIs, WDIs, and LICUs,
(2) Small Bank Lending Test. A small
and for providing low-cost education
bank’s retail lending performance is
loans. Notwithstanding paragraphs
evaluated pursuant to the following
(b)(1) and (2) of this section, a small
criteria:
bank may request and receive additional
(i) The bank’s loan-to-deposit ratio,
consideration at the institution level for
adjusted for seasonal variation, and, as
appropriate, other retail and community activities with MDIs, WDIs, and LICUs
pursuant to 12 U.S.C. 2903(b) and
development lending-related activities,
2907(a) and for providing low-cost
such as loan originations for sale to the
education loans to low-income
secondary markets, community
borrowers pursuant to 12 U.S.C.
development loans, or community
2903(d), regardless of the small bank’s
development investments;
(ii) The percentage of loans and, as
overall institution rating.
(c) Small bank performance
appropriate, other retail and community
conclusions and ratings—(1)
development lending-related activities
Conclusions. Except for a small bank
located in the bank’s facility-based
that opts to be evaluated pursuant to the
assessment areas;
(iii) The bank’s record of lending to
Retail Lending Test in § ll.22, the
and, as appropriate, engaging in other
[Agency] assigns conclusions for the
retail and community development
performance of a small bank evaluated
lending-related activities for borrowers
under this section as provided in
of different income levels and
appendix E to this part. If a bank opts
businesses and farms of different sizes;
to be evaluated pursuant to the Retail
(iv) The geographic distribution of the Lending Test, the [Agency] assigns
bank’s loans; and
conclusions for the bank’s Retail
(v) The bank’s record of taking action, Lending Test performance as provided
if warranted, in response to written
in appendix C to this part. In assigning
complaints about its performance in
conclusions for a small bank, the
helping to meet credit needs in its
[Agency] may consider performance
facility-based assessment areas.
context information as provided in
(b) Additional consideration—(1)
§ ll.21(d).
Small banks evaluated pursuant to the
(2) Ratings. For a small bank
Small Bank Lending Test. The [Agency] evaluated under the Small Bank
may adjust a small bank rating from
Lending Test, the [Agency] rates the
‘‘Satisfactory’’ to ‘‘Outstanding’’ at the
bank’s performance under this section
institution level where the bank
as provided in appendix E to this part.
requests and receives additional
If a small bank opts to be evaluated
consideration for the following
under the Retail Lending Test in
activities, without regard to whether the § ll.22, the [Agency] rates the
activity is in one or more of the bank’s
performance of a small bank as provided
facility-based assessment areas, as
in appendix D to this part.
applicable:
§ ll.30 Intermediate bank performance
(i) Making community development
evaluation.
investments;
(a) Intermediate bank performance
(ii) Providing community
evaluation—(1) In general. The [Agency]
development services; and
evaluates an intermediate bank’s record
(iii) Providing branches and other
of helping to meet the credit needs of its
services, digital delivery systems and
entire community pursuant to the Retail
other delivery systems, and deposit
products responsive to the needs of low- Lending Test in § ll.22 and the
Intermediate Bank Community
and moderate-income individuals,
Development Test as provided in
families, or households, residents of
paragraph (a)(2) of this section, unless
low- and moderate-income census
an intermediate bank opts to be
tracts, small businesses, and small
evaluated pursuant to the Community
farms.
(2) Small banks that opt to be
Development Financing Test in
evaluated pursuant to the Retail
§ ll.24.
ddrumheller on DSK120RN23PROD with RULES2
§ ll.29 Small bank performance
evaluation.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00559
Fmt 4701
Sfmt 4700
7131
(2) Intermediate Bank Community
Development Test. (i) An intermediate
bank’s community development
performance is evaluated pursuant to
the following criteria:
(A) The number and dollar amount of
community development loans;
(B) The number and dollar amount of
community development investments;
(C) The extent to which the bank
provides community development
services; and
(D) The bank’s responsiveness
through such community development
loans, community development
investments, and community
development services to community
development needs. The [Agency]’s
evaluation of the responsiveness of the
bank’s activities is informed by
information provided by the bank, and
may be informed by the impact and
responsiveness review factors described
in § ll.15(b).
(ii) The [Agency] considers an
intermediate bank’s community
development loans, community
development investments, and
community development services
without regard to whether the activity is
made in one or more of the bank’s
facility-based assessment areas. The
extent of the [Agency]’s consideration of
community development loans,
community development investments,
and community development services
outside of the bank’s facility-based
assessment areas will depend on the
adequacy of the bank’s responsiveness
to community development needs and
opportunities within the bank’s facilitybased assessment areas and applicable
performance context information.
(b) Additional consideration—(1)
Intermediate banks evaluated pursuant
to the Intermediate Bank Community
Development Test. The [Agency] may
adjust the rating of an intermediate bank
evaluated as provided in paragraph
(a)(2) of this section from ‘‘Satisfactory’’
to ‘‘Outstanding’’ at the institution level
where the bank requests and receives
additional consideration for activities
that would qualify pursuant to the
Retail Services and Products Test in
§ ll.23.
(2) Intermediate banks evaluated
pursuant to the Community
Development Financing Test. The
[Agency] may adjust the rating of an
intermediate bank that opts to be
evaluated pursuant to the Community
Development Financing Test in
§ ll.24 from ‘‘Satisfactory’’ to
‘‘Outstanding’’ at the institution level
where the bank requests and receives
additional consideration for activities
that would qualify pursuant to the
Retail Services and Products Test in
E:\FR\FM\01FER2.SGM
01FER2
7132
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
§ ll.23, the Community Development
Services Test in § ll.25, or both.
(3) Additional consideration for lowcost education loans. Notwithstanding
paragraphs (b)(1) and (2) of this section,
an intermediate bank may request and
receive additional consideration at the
institution level for providing low-cost
education loans to low-income
borrowers pursuant to 12 U.S.C.
2903(d), regardless of the intermediate
bank’s overall institution rating.
(c) Intermediate bank performance
conclusions and ratings—(1)
Conclusions. The [Agency] assigns a
conclusion for the performance of an
intermediate bank evaluated pursuant to
this section as provided in appendices
C and E to this part. In assigning
conclusions for an intermediate bank,
the [Agency] may consider performance
context information as provided in
§ ll.21(d).
(2) Ratings. The [Agency] rates the
performance of an intermediate bank
evaluated under this section as provided
in appendix D to this part.
§ ll.31
[Reserved]
Subpart D—Records, Reporting,
Disclosure, and Public Engagement
Requirements
ddrumheller on DSK120RN23PROD with RULES2
§ ll.42 Data collection, reporting, and
disclosure.
(a) Information required to be
collected and maintained—(1) Small
business loans and small farm loans
data. A large bank must collect and
maintain in electronic form, as
prescribed by the [Agency], until the
completion of the bank’s next CRA
examination in which the data are
evaluated, the following data for each
small business loan or small farm loan
originated or purchased by the bank
during the evaluation period:
(i) A unique number or alpha-numeric
symbol that can be used to identify the
relevant loan file;
(ii) An indicator for the loan type as
reported on the bank’s Call Report or
Report of Assets and Liabilities of U.S.
Branches and Agencies of Foreign
Banks, as applicable.
(iii) The date of the loan origination
or purchase;
(iv) The loan amount at origination or
purchase;
(v) The loan location, including State,
county, and census tract;
(vi) An indicator for whether the loan
was originated or purchased by the
bank;
(vii) An indicator for whether the loan
was to a business or farm with gross
annual revenues of $250,000 or less;
(viii) An indicator for whether the
loan was to a business or farm with
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
gross annual revenues greater than
$250,000 but less than or equal to $1
million;
(ix) An indicator for whether the loan
was to a business or farm with gross
annual revenues greater than $1 million;
and
(x) An indicator for whether the loan
was to a business or farm for which
gross annual revenues are not known by
the bank.
(2) Consumer loans data—automobile
loans—(i) Large banks. A large bank for
which automobile loans are a product
line must collect and maintain in
electronic form, as prescribed by the
[Agency], until the completion of the
bank’s next CRA examination in which
the data is evaluated, the data described
in paragraphs (a)(2)(iii)(A) through (F) of
this section for each automobile loan
originated or purchased by the bank
during the evaluation period.
(ii) Intermediate or small banks. An
intermediate bank or a small bank for
which automobile loans are a product
line may collect and maintain in a
format of the bank’s choosing, including
in an electronic form prescribed by the
[Agency], until the completion of the
bank’s next CRA examination in which
the data are evaluated, the data
described in paragraphs (a)(2)(iii)(A)
through (F) of this section for each
automobile loan originated or purchased
by the bank during the evaluation
period.
(iii) Data collected and maintained.
Data collected and maintained pursuant
to paragraph (a)(2)(i) or (ii) of this
section include the following:
(A) A unique number or alphanumeric symbol that can be used to
identify the relevant loan file;
(B) The date of the loan origination or
purchase;
(C) The loan amount at origination or
purchase;
(D) The loan location, including State,
county, and census tract;
(E) An indicator for whether the loan
was originated or purchased by the
bank; and
(F) The gross annual income relied on
in making the credit decision.
(3) Home mortgage loans. (i) If a large
bank is subject to reporting under 12
CFR part 1003, the bank must collect
and maintain, in electronic form, as
prescribed by the [Agency], until the
completion of the bank’s next CRA
examination in which the data are
evaluated, the location of each home
mortgage loan application, origination,
or purchase outside the MSAs in which
the bank has a home or branch office (or
outside any MSA) pursuant to the
requirements in 12 CFR 1003.4(e).
PO 00000
Frm 00560
Fmt 4701
Sfmt 4700
(ii) If a large bank is not subject to
reporting under 12 CFR part 1003 due
to the location of its branches, but
would otherwise meet the Home
Mortgage Disclosure Act (HMDA) size
and lending activity requirements
pursuant to 12 CFR part 1003, the bank
must collect and maintain, in electronic
form, as prescribed by the [Agency],
until the completion of the bank’s next
CRA examination in which the data are
evaluated, the following data, for each
closed-end home mortgage loan,
excluding multifamily loans, originated
or purchased during the evaluation
period:
(A) A unique number or alphanumeric symbol that can be used to
identify the relevant loan file;
(B) The date of the loan origination or
purchase;
(C) The loan amount at origination or
purchase;
(D) The location of each home
mortgage loan origination or purchase,
including State, county, and census
tract;
(E) The gross annual income relied on
in making the credit decision; and
(F) An indicator for whether the loan
was originated or purchased by the
bank.
(4) Retail banking services and retail
banking products data—(i) Branches
and remote service facilities. A large
bank must collect and maintain in
electronic form, as prescribed by the
[Agency], until completion of the bank’s
next CRA examination in which the
data are evaluated, the following data
with respect to retail banking services
and retail banking products offered and
provided by the bank during each
calendar year:
(A) Location of branches, main offices
described in § ll.23(a)(2), and remote
service facilities. Location information
must include:
(1) Street address;
(2) City;
(3) County;
(4) State;
(5) Zip code; and
(6) Census tract;
(B) An indicator for whether each
branch is full-service or limited-service,
and for each remote service facility
whether it is deposit-taking, cashadvancing, or both;
(C) Locations and dates of branch,
main office described in § ll.23(a)(2),
and remote service facility openings and
closings, as applicable;
(D) Hours of operation of each branch,
main office described in § ll.23(a)(2),
and remote service facility, as
applicable; and
(E) Services offered at each branch or
main office described in § ll.23(a)(2)
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
that are responsive to low- and
moderate-income individuals, families,
or households and low- and moderateincome census tracts.
(ii) Digital delivery systems and other
delivery systems data—(A) In general. A
large bank that had assets greater than
$10 billion as of December 31 in both
of the prior two calendar years, a large
bank that had assets less than or equal
to $10 billion as of December 31 in
either of the prior two calendar years
that does not operate any branches or a
main office described in § ll.23(a)(2),
and a large bank that had assets less
than or equal to $10 billion as of
December 31 in either of the prior two
calendar years that requests additional
consideration for digital delivery
systems and other delivery systems
pursuant to § ll.23(b)(4), must collect
and maintain in electronic form, as
prescribed by the [Agency], until the
completion of the bank’s next CRA
examination in which the data are
evaluated, the data described in
paragraph (a)(4)(ii)(B) of this section. A
bank may opt to collect and maintain
additional data pursuant to paragraph
(a)(4)(ii)(C) of this section in a format of
the bank’s own choosing.
(B) Required data. Pursuant to
paragraph (a)(4)(ii)(A) of this section, a
bank must collect and maintain the
following data:
(1) The range of retail banking
services and retail banking products
offered through digital delivery systems
and other delivery systems; and
(2) The digital delivery systems and
other delivery systems activity by
individuals, families, or households in
low-, moderate-, middle-, and upperincome census tracts, as evidenced by:
(i) The number of checking and
savings accounts opened digitally and
through other delivery systems by
census tract income level for each
calendar year; and
(ii) The number of checking and
savings accounts opened digitally and
through other delivery systems that are
active at the end of each calendar year
by census tract income level for each
calendar year.
(C) Optional data. Pursuant to
paragraph (a)(4)(ii)(A) of this section, a
bank may collect and maintain any
additional information not required in
paragraph (a)(4)(ii)(B) of this section
that demonstrates that digital delivery
systems and other delivery systems
serve low- and moderate-income
individuals, families, or households and
low- and moderate-income census
tracts.
(iii) Data for deposit products
responsive to the needs of low- and
moderate-income individuals, families,
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
or households—(A) In general. A large
bank that had assets greater than $10
billion as of December 31 in both of the
prior two calendar years and a large
bank that had assets less than or equal
to $10 billion as of December 31 in
either of the prior two calendar years
that requests additional consideration
for deposit products responsive to the
needs of low- and moderate-income
individuals, families, or households
pursuant to § ll.23(c)(3), must collect
and maintain in electronic form, as
prescribed by the [Agency], until the
completion of the bank’s next CRA
examination in which the data are
evaluated, the data described in
paragraph (a)(4)(iii)(B) of this section. A
bank may opt to collect and maintain
additional data pursuant to paragraph
(a)(4)(iii)(C) of this section in a format
of the bank’s choosing.
(B) Required data. Pursuant to
paragraph (a)(4)(iii)(A) of this section, a
bank must collect and maintain the
following data:
(1) The number of responsive deposit
accounts opened and closed during each
year of the evaluation period in low-,
moderate-, middle-, and upper-income
census tracts; and
(2) In connection with paragraph
(a)(4)(iii)(B)(1) of this section, the
percentage of responsive deposit
accounts compared to total deposit
accounts for each year of the evaluation
period.
(C) Optional data. Pursuant to
paragraph (a)(4)(iii)(A) of this section, a
bank may collect and maintain any
other information that demonstrates the
availability and usage of the bank’s
deposit products responsive to the
needs of low- and moderate-income
individuals, families, or households and
low- and moderate-income census
tracts.
(5) Community development loans
and community development
investments data. (i)(A) A large bank
and a limited purpose bank that would
be a large bank based on the asset size
described in the definition of a large
bank, must collect and maintain in
electronic form, as prescribed by the
[Agency], until the completion of the
bank’s next CRA examination in which
the data are evaluated, the data listed in
paragraph (a)(5)(ii) of this section for
community development loans and
community development investments
originated, purchased, refinanced,
renewed, or modified by the bank
during the evaluation period.
(B) An intermediate bank that opts to
be evaluated under the Community
Development Financing Test in
§ ll.24 must collect and maintain in
the format used by the bank in the
PO 00000
Frm 00561
Fmt 4701
Sfmt 4700
7133
normal course of business, until the
completion of the bank’s next CRA
examination in which the data are
evaluated, the data listed in paragraph
(a)(5)(ii) of this section for community
development loans and community
development investments originated,
purchased, refinanced, renewed, or
modified by the bank during the
evaluation period.
(ii) Pursuant to paragraphs (a)(5)(i)(A)
and (B) of this section, a bank must
collect and maintain, on an annual
basis, the following data for community
development loans and community
development investments:
(A) General information on the loan or
investment:
(1) A unique number or alphanumeric symbol that can be used to
identify the loan or investment;
(2) Date of origination, purchase,
refinance, or renewal of the loan or
investment;
(3) Date the loan or investment was
sold or paid off; and
(4) The dollar amount of:
(i) A community development loan
originated or purchased, or a
community development investment
made, including a legally binding
commitment to extend credit or a legally
binding commitment to invest, in the
calendar year, as described in paragraph
I.a.1.i of appendix B to this part;
(ii) Any increase in the calendar year
to an existing community development
loan that is refinanced or renewed or to
an existing community development
investment that is renewed;
(iii) The outstanding balance of a
community development loan
originated, purchased, refinanced, or
renewed in previous years or
community development investment
made or renewed in previous years, as
of December 31 for each year that the
loan or investment remains on the
bank’s balance sheet; or
(iv) The outstanding balance, less any
increase reported in paragraph
(a)(5)(ii)(A)(4)(ii) of this section in the
same calendar year, of a community
development loan refinanced or
renewed in a year subsequent to the
year of origination or purchase, as of
December 31 of the calendar year for
each year that the loan remains on the
bank’s balance sheet; or an existing
community development investment
renewed in a year subsequent to the
year the investment was made as of
December 31 for each year that the
investment remains on the bank’s
balance sheet.
(B) Community development loan or
community development investment
information:
(1) Name of organization or entity;
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7134
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(2) Activity type (loan or investment);
(3) The type of community
development described in § ll.13(b)
through (l); and
(4) Community development loan or
community development investment
detail, such as the specific type of
financing and type of entity supported
(e.g., LIHTC, NMTC, Small Business
Investment Company, multifamily
mortgage, private business, or missiondriven nonprofit organization, mortgagebacked security, or other).
(C) Indicators of the impact and
responsiveness, including whether the
community development loan or
community development investment:
(1) Benefits or serves one or more
persistent poverty counties;
(2) Benefits or serves one or more
census tracts with a poverty rate of 40
percent or higher;
(3) Benefits or serves one or more
geographic areas with low levels of
community development financing;
(4) Supports an MDI, WDI, LICU, or
CDFI, excluding certificates of deposit
with a term of less than one year;
(5) Benefits or serves low-income
individuals, families, or households;
(6) Supports small businesses or small
farms with gross annual revenues of
$250,000 or less;
(7) Directly facilitates the acquisition,
construction, development,
preservation, or improvement of
affordable housing in High Opportunity
Areas;
(8) Benefits or serves residents of
Native Land Areas;
(9) Is a grant or donation;
(10) Is an investment in a project
financed with LIHTCs or NMTCs;
(11) Reflects bank leadership through
multi-faceted or instrumental support;
or
(12) Is a new community development
financing product that addresses
community development needs for lowor moderate-income individuals,
families, or households.
(D) Specific location information, if
applicable:
(1) Street address;
(2) City;
(3) County;
(4) State;
(5) Zip code; and
(6) Census tract.
(E) Allocation of the dollar amount of
the community development loan or
community development investment to
geographic areas served by the loan or
investment:
(1) A list of the geographic areas
served by the community development
loan or community development
investment, specifying any county,
State, multistate MSA, or nationwide
area served; and
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
(2) Specific information about the
dollar amount of the community
development loan or community
development investment that was
allocated to each county served by the
loan or investment, if available.
(F) Other information relevant to
determining that the community
development loan or community
development investment meets the
standards pursuant to § ll.13.
(6) Community development services
data. A large bank must collect and
maintain, in a format of the bank’s
choosing or in a standardized format, as
provided by the [Agency], until the
completion of the bank’s next CRA
examination in which the data are
evaluated, the following community
development services data:
(i) Community development services
information as follows:
(A) Date of service;
(B) Number of board member or
employee service hours;
(C) Name of organization or entity;
(D) The type of community
development described in § ll.13(b)
through (l);
(E) Capacity in which a bank’s or its
affiliate’s board member or employee
serves (e.g., board member of a
nonprofit organization, technical
assistance, financial education, general
volunteer); and
(F) Indicators of the impact and
responsiveness, including whether the
community development service:
(1) Benefits or serves one or more
persistent poverty counties;
(2) Benefits or serves one or more
census tracts with a poverty rate of 40
percent or higher;
(3) Benefits or serves one or more
geographic areas with low levels of
community development financing;
(4) Supports an MDI, WDI, LICU, or
CDFI, excluding certificates of deposit
with a term of less than one year;
(5) Benefits or serves low-income
individuals, families, or households;
(6) Supports small businesses or small
farms with gross annual revenues of
$250,000 or less;
(7) Directly facilitates the acquisition,
construction, development,
preservation, or improvement of
affordable housing in High Opportunity
Areas;
(8) Benefits or serves residents of
Native Land Areas;
(9) Reflects bank leadership through
multi-faceted or instrumental support;
or
(10) Is a new community development
service that addresses community
development needs for low- or
moderate-income individuals, families,
or households.
PO 00000
Frm 00562
Fmt 4701
Sfmt 4700
(ii) Location information as follows:
(A) Location list. A list of the
geographic areas served by the activity,
specifying any census tracts, counties,
States, or nationwide area served; and
(B) Geographic-level. Whether the
bank is seeking consideration in a
facility-based assessment area, State,
multistate MSA, or nationwide area.
(7) Deposits data. A large bank that
had assets greater than $10 billion as of
December 31 in both of the prior two
calendar years must collect and
maintain annually, in electronic form,
as prescribed by the [Agency], until the
completion of the bank’s next CRA
examination in which the data are
evaluated, the dollar amount of its
deposits at the county level based on
deposit location. The bank allocates the
deposits for which a deposit location is
not available to the nationwide area.
Annual deposits must be calculated
based on average daily balances as
provided in statements such as monthly
or quarterly statements. Any other bank
that opts to collect and maintain the
data in this paragraph (a)(7) must do so
in the same form and for the same
duration as described in this paragraph
(a)(7).
(b) Information required to be
reported—(1) Small business loan and
small farm loan data. A large bank must
report annually by April 1 to the
[Agency] in electronic form, as
prescribed by the [Agency], the small
business loan and small farm loan data
described in paragraphs (b)(1)(i) through
(vii) of this section for the prior calendar
year. For each census tract in which the
bank originated or purchased a small
business loan or small farm loan, the
bank must report the aggregate number
and dollar amount of small business
loans and small farm loans:
(i) With an amount at origination of
$100,000 or less;
(ii) With an amount at origination of
greater than $100,000 but less than or
equal to $250,000;
(iii) With an amount at origination of
greater than $250,000;
(iv) To businesses and farms with
gross annual revenues of $250,000 or
less (using the revenues relied on in
making the credit decision);
(v) To businesses and farms with
gross annual revenues greater than
$250,000 but less than or equal to $1
million (using the revenues relied on in
making the credit decision);
(vi) To businesses and farms with
gross annual revenues greater than $1
million; and
(vii) To businesses and farms for
which gross annual revenues are not
known by the bank.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(2) Community development loans
and community development
investments data. A large bank and a
limited purpose bank that would be a
large bank based on the asset size
described in the definition of a large
bank must report annually by April 1 to
the [Agency] in electronic form, as
prescribed by the [Agency], the
community development loan and
community development investment
data described in paragraph (a)(5)(ii) of
this section for the prior calendar year,
except for the data described in
paragraph (a)(5)(ii)(B)(1) of this section
and paragraphs (a)(5)(ii)(D)(1) through
(5) of this section.
(3) Deposits data. (i) A large bank that
had assets greater than $10 billion as of
December 31 in both of the prior two
calendar years must report annually by
April 1 to the [Agency] in electronic
form, as prescribed by the [Agency], the
deposits data for the prior calendar year
collected and maintained pursuant to
paragraph (a)(7) of this section. This
reporting must include, for each county,
State, and multistate MSA, and for the
institution overall, the average annual
deposit balances (calculated based on
average daily balances as provided in
statements such as monthly or quarterly
statements, as applicable), in aggregate,
of deposit accounts with associated
addresses located in such county, State,
or multistate MSA, where available, and
for the institution overall. Any other
bank that opts to collect and maintain
the data in paragraph (a)(7) of this
section must report these data in the
same form and for the same duration as
described in this paragraph (b)(3)(i).
(ii) A bank that reports deposits data
pursuant to paragraph (b)(3)(i) of this
section for which a deposit location is
not available must report these deposits
at the nationwide area.
(c) Data on [operations subsidiaries or
operating subsidiaries]. To the extent
that its [operations subsidiaries or
operating subsidiaries] engage in retail
banking services, retail banking
products, community development
lending, community development
investments, or community
development services, a bank must
collect, maintain, and report these
loans, investments, services, and
products of its [operations subsidiaries
or operating subsidiaries] pursuant to
paragraphs (a) and (b) of this section, as
applicable, for purposes of evaluating
the bank’s performance. For home
mortgage loans, the bank must identify
the home mortgage loans reported by its
[operations subsidiary or operating
subsidiary] under 12 CFR part 1003, if
applicable, or collect and maintain data
on home mortgage loans by its
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
[operations subsidiary or operating
subsidiary] that the bank would have
collected and maintained pursuant to
paragraph (a)(3) of this section had the
bank originated or purchased the loans.
(d) Data on other affiliates. A bank
that elects to have the [Agency] consider
retail banking services, retail banking
products, community development
lending, community development
investments, or community
development services engaged in by
affiliates of a bank (other than an
[operations subsidiary or operating
subsidiary]), for purposes of this part
must collect, maintain, and report the
data that the bank would have collected,
maintained, and reported pursuant to
paragraphs (a) and (b) of this section
had the loans, investments, services, or
products been engaged in by the bank.
For home mortgage loans, the bank must
identify the home mortgage loans
reported by bank affiliates under 12 CFR
part 1003, if applicable, or collect and
maintain data on home mortgage loans
by the affiliate that the bank would have
collected and maintained pursuant to
paragraphs (a)(3) of this section had the
loans been originated or purchased by
the bank.
(e) Data on community development
loans and community development
investments by a consortium or a third
party. A bank that elects to have the
[Agency] consider community
development loans and community
development investments by a
consortium or third party for purposes
of this part must collect, maintain, and
report the loans and investments data
that the bank would have collected,
maintained, and reported pursuant to
paragraphs (a)(5) and (b)(2) of this
section had the bank originated,
purchased, refinanced, or renewed the
loans or investments.
(f) Assessment area data—(1) Facilitybased assessment areas. A large bank
and a limited purpose bank that would
be a large bank based on the asset size
described in the definition of a large
bank must collect and report to the
[Agency] annually by April 1 a list of
each facility-based assessment area
showing the States, MSAs, and counties
in the facility-based assessment area, as
of December 31 of the prior calendar
year or the last date the facility-based
assessment area was in effect, provided
the facility-based assessment area was
delineated for at least six months of the
prior calendar year.
(2) Retail lending assessment areas. A
large bank must collect and report to the
[Agency] annually by April 1 a list of
each retail lending assessment area
showing the States, MSAs, and counties
PO 00000
Frm 00563
Fmt 4701
Sfmt 4700
7135
in the retail lending assessment area for
the prior calendar year.
(g) CRA Disclosure Statement. The
[Agency] or its appointed agent,
prepares annually, for each bank that
reports data pursuant to this section, a
CRA Disclosure Statement that contains,
on a State-by-State basis:
(1) For each county with a population
of 500,000 persons or fewer in which
the bank reported a small business loan
or a small farm loan:
(i) The number and dollar volume of
small business loans and small farm
loans reported as originated or
purchased located in low-, moderate-,
middle-, and upper-income census
tracts;
(ii) A list grouping each census tract
according to whether the census tract is
low-, moderate-, middle-, or upperincome;
(iii) A list showing each census tract
in which the bank reported a small
business loan or a small farm loan;
(iv) The number and dollar volume of
small business loans and small farm
loans to businesses and farms with gross
annual revenues of $250,000 or less; and
(v) The number and dollar volume of
small business loans and small farm
loans to businesses and farms with gross
annual revenues greater than $250,000
but less than or equal to $1 million;
(2) For each county with a population
in excess of 500,000 persons in which
the bank reported a small business loan
or a small farm loan:
(i) The number and dollar volume of
small business loans and small farm
loans reported as originated or
purchased located in census tracts with
median income relative to the area
median income of less than 10 percent,
equal to or greater than 10 percent but
less than 20 percent, equal to or greater
than 20 percent but less than 30 percent,
equal to or greater than 30 percent but
less than 40 percent, equal to or greater
than 40 percent but less than 50 percent,
equal to or greater than 50 percent but
less than 60 percent, equal to or greater
than 60 percent but less than 70 percent,
equal to or greater than 70 percent but
less than 80 percent, equal to or greater
than 80 percent but less than 90 percent,
equal to or greater than 90 percent but
less than 100 percent, equal to or greater
than 100 percent but less than 110
percent, equal to or greater than 110
percent but less than 120 percent, and
equal to or greater than 120 percent;
(ii) A list grouping each census tract
in the county, facility-based assessment
area, or retail lending assessment area
according to whether the median
income in the census tract relative to the
area median income is less than 10
percent, equal to or greater than 10
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7136
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
percent but less than 20 percent, equal
to or greater than 20 percent but less
than 30 percent, equal to or greater than
30 percent but less than 40 percent,
equal to or greater than 40 percent but
less than 50 percent, equal to or greater
than 50 percent but less than 60 percent,
equal to or greater than 60 percent but
less than 70 percent, equal to or greater
than 70 percent but less than 80 percent,
equal to or greater than 80 percent but
less than 90 percent, equal to or greater
than 90 percent but less than 100
percent, equal to or greater than 100
percent but less than 110 percent, equal
to or greater than 110 percent but less
than 120 percent, and equal to or greater
than 120 percent; and
(iii) A list showing each census tract
in which the bank reported a small
business loan or a small farm loan;
(3) The number and dollar volume of
small business loans and small farm
loans located inside each facility-based
assessment area and retail lending
assessment area reported by the bank
and the number and dollar volume of
small business loans and small farm
loans located outside of the facilitybased assessment areas and retail
lending assessment areas reported by
the bank; and
(4) The number and dollar volume of
community development loans and
community development investments
reported as originated or purchased
inside each facility-based assessment
area, each State in which the bank has
a branch, each multistate MSA in which
a bank has a branch in two or more
States of the multistate MSA, and
nationwide area outside of these States
and multistate MSAs.
(h) Aggregate disclosure statements.
The [Agency] or its appointed agent,
prepares annually, for each MSA or
metropolitan division (including an
MSA or metropolitan division that
crosses a State boundary) and the
nonmetropolitan portion of each State,
an aggregate disclosure statement of
reported small business lending, small
farm lending, community development
lending, and community development
investments by all depository
institutions subject to reporting under
12 CFR part 25, 228, or 345. These
disclosure statements indicate the
number and dollar amount of all small
business loans and small farm loans
originated or purchased for each census
tract and the number and dollar amount
of all community development loans
and community development
investments for each county by
reporting banks, except that the
[Agency] may adjust the form of the
disclosure if necessary, because of
special circumstances, to protect the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
privacy of a borrower or the competitive
position of a bank.
(i) Availability of disclosure
statements. The [Agency] makes the
individual bank CRA Disclosure
Statements, described in paragraph (g)
of this section, and the aggregate
disclosure statements, described in
paragraph (h) of this section, available
on the FFIEC’s website at: https://
www.ffiec.gov.
(j) HMDA data disclosure—(1) In
general. For a large bank required to
report home mortgage loan data
pursuant to 12 CFR part 1003, the
[Agency] will publish on the [Agency]’s
website the data required by paragraph
(j)(2) of this section concerning the
distribution of a large bank’s
originations and applications of home
mortgage loans by borrower or applicant
income level, race, and ethnicity in each
of the bank’s facility-based assessment
areas, and as applicable, its retail
lending assessment areas. This
information is published annually based
on data reported pursuant to 12 CFR
part 1003.
(2) Data to be published on the
[Agency]’s website. For each of the large
bank’s facility-based assessment areas,
and as applicable, its retail lending
assessment areas, the [Agency]
publishes on the [Agency]’s website:
(i) The number and percentage of
originations and applications of the
large bank’s home mortgage loans by
borrower or applicant income level,
race, and ethnicity;
(ii) The number and percentage of
originations and applications of
aggregate mortgage lending of all
lenders reporting HMDA data in the
facility-based assessment area and as
applicable, the retail lending assessment
area; and
(iii) Demographic data of the
geographic area.
(3) Announcement of data
publication. Upon publishing the data
required pursuant to paragraphs (j)(1)
and (2) of this section, the [Agency] will
publicly announce that the information
is available on the [Agency]’s public
website.
(4) Effect on CRA conclusions and
ratings. The race and ethnicity
information published pursuant to
paragraphs (j)(1) and (2) of this section
does not impact the conclusions or
ratings of the large bank.
§ ll.43
file.
Content and availability of public
(a) Information available to the
public. A bank must maintain a public
file, in either paper or digital format,
that includes the following information:
PO 00000
Frm 00564
Fmt 4701
Sfmt 4700
(1) All written comments received
from the public for the current year
(updated on a quarterly basis for the
prior quarter by March 31, June 30,
September 30, and December 31) and
each of the prior two calendar years that
specifically relate to the bank’s
performance in helping to meet
community credit needs, and any
response to the comments by the bank,
if neither the comments nor the
responses contain statements that reflect
adversely on the good name or
reputation of any persons other than the
bank or publication of which would
violate specific provisions of law;
(2) A copy of the public section of the
bank’s most recent CRA performance
evaluation prepared by the [Agency].
The bank must include this copy in the
public file within 30 business days after
its receipt from the [Agency];
(3) A list of the bank’s branches, their
street addresses, and census tracts;
(4) A list of branches opened or closed
by the bank during the current year
(updated on a quarterly basis for the
prior quarter by March 31, June 30,
September 30, and December 31) and
each of the prior two calendar years,
their street addresses, and census tracts;
(5) A list of retail banking services
(including hours of operation, available
loan and deposit products, and
transaction fees) generally offered at the
bank’s branches and descriptions of
material differences in the availability
or cost of services at particular
branches, if any. A bank may elect to
include information regarding the
availability of other systems for
delivering retail banking services (for
example, mobile or online banking, loan
production offices, and bank-at-work or
mobile branch programs);
(6) A map of each facility-based
assessment area and, as applicable, each
retail lending assessment area showing
the boundaries of the area and
identifying the census tracts contained
in the area, either on the map or in a
separate list; and
(7) Any other information the bank
chooses.
(b) Additional information available
to the public—(1) Banks subject to data
reporting requirements pursuant to
§ ll.42. A bank subject to data
reporting requirements pursuant to
§ ll.42 must include in its public file
a written notice that the CRA Disclosure
Statement pertaining to the bank, its
[operations subsidiaries or operating
subsidiaries], and its other affiliates, if
applicable, may be obtained on the
FFIEC’s website at: https://
www.ffiec.gov. The bank must include
the written notice in the public file
within three business days after
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
receiving notification from the FFIEC of
the availability of the disclosure
statement.
(2) Banks required to report HMDA
data—(i) HMDA Disclosure Statement.
A bank required to report home
mortgage loan data pursuant to 12 CFR
part 1003 must include in its public file
a written notice that the bank’s HMDA
Disclosure Statement may be obtained
on the Consumer Financial Protection
Bureau’s (CFPB’s) website at: https://
www.consumerfinance.gov/hmda. In
addition, if the [Agency] considered the
home mortgage lending of a bank’s
[operations subsidiaries or operating
subsidiaries] or, at a bank’s election, the
[Agency] considered the home mortgage
lending of other bank affiliates, the bank
must include in its public file the names
of the [operations subsidiaries or
operating subsidiaries] and the names of
the affiliates and a written notice that
the [operations subsidiaries’ or
operating subsidiaries’] and other
affiliates’ HMDA Disclosure Statements
may be obtained at the CFPB’s website.
The bank must include the written
notices in the public file within three
business days after receiving
notification from the FFIEC of the
availability of the disclosure statements.
(ii) Availability of bank HMDA data.
A large bank required to report home
mortgage loan data pursuant to 12 CFR
part 1003 must include in its public file
a written notice that the home mortgage
loan data published by the [Agency]
under § ll.42(j) are available at the
[Agency]’s website.
(3) Small banks. A small bank, or a
bank that was a small bank during the
prior calendar year, must include in its
public file the bank’s loan-to-deposit
ratio for each quarter of the prior
calendar year and, at its option,
additional data on its loan-to-deposit
ratio.
(4) Banks with strategic plans. A bank
that has been approved to be evaluated
under a strategic plan must include in
its public file a copy of that plan while
it is in effect. A bank need not include
information submitted to the [Agency]
on a confidential basis in conjunction
with the plan.
(5) Banks with less than
‘‘Satisfactory’’ ratings. A bank that
received a less than ‘‘Satisfactory’’
institution rating during its most recent
examination must include in its public
file a description of its current efforts to
improve its performance in helping to
meet the credit needs of its entire
community. The bank must update the
description quarterly by March 31, June
30, September 30, and December 31,
respectively.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
(c) Location of public information. A
bank must make available to the public
for inspection, upon request and at no
cost, the information required in this
section as follows:
(1) For banks that maintain a website,
all information required for the bank’s
public file under this section must be
maintained on the bank’s website.
(2) For banks that do not maintain a
website:
(i) All the information required for the
bank’s public file must be maintained at
the main office and, if an interstate
bank, at one branch office in each State;
and
(ii) At each branch, the following
must be maintained:
(A) A copy of the public section of the
bank’s most recent CRA performance
evaluation and a list of services
provided by the branch; and
(B) Within five calendar days of the
request, all the information that the
bank is required to maintain under this
section in the public file relating to the
facility-based assessment area in which
the branch is located.
(d) Copies. Upon request, a bank must
provide copies, either on paper or in
digital form acceptable to the person
making the request, of the information
in its public file. The bank may charge
a reasonable fee not to exceed the cost
of copying and mailing (if not provided
in digital form).
(e) Timing requirements. Except as
otherwise provided in this section, a
bank must ensure that its public file
contains the information required by
this section for each of the previous
three calendar years, with the most
recent calendar year included in its file
annually by April 1 of the current
calendar year.
§ ll.44
Public notice by banks.
A bank must provide in the public
area of its main office and each of its
branches the appropriate public notice
set forth in appendix F to this part. Only
a branch of a bank having more than one
facility-based assessment area must
include the bracketed material in the
notice for branch offices. Only a bank
that is an affiliate of a holding company
must include the next to the last
sentence of the notices. A bank must
include the last sentence of the notices
only if it is an affiliate of a holding
company that is not prevented by
statute from acquiring additional
depository institutions.
§ ll.45 Publication of planned
examination schedule.
The [Agency] publishes on its public
website, at least 30 days in advance of
PO 00000
Frm 00565
Fmt 4701
Sfmt 4700
7137
the beginning of each calendar quarter,
a list of banks scheduled for CRA
examinations for the next two quarters.
§ ll.46
Public engagement.
(a) In general. The [Agency]
encourages communication between
members of the public and banks,
including through members of the
public submitting written public
comments regarding community credit
needs and opportunities as well as a
bank’s record of helping to meet
community credit needs. The [Agency]
will take these comments into account
in connection with the bank’s next
scheduled CRA examination.
(b) Submission of public comments.
Members of the public may submit
public comments regarding community
credit needs and a bank’s CRA
performance by submitting comments to
the [Agency] at [Agency contact
information].
(c) Timing of public comments. If the
[Agency] receives a public comment
before the close date of a bank’s CRA
examination, the public comment will
be considered in connection with that
CRA examination. If the [Agency]
receives a public comment after the
close date of a bank’s CRA examination,
it will be considered in connection with
the bank’s subsequent CRA
examination.
(d) Distribution of public comments.
The [Agency] will forward all public
comments received regarding a bank’s
CRA performance to the bank.
Subpart E—Transition Rules
§ ll.51 Applicability dates and transition
provisions.
(a) Applicability dates—(1) In general.
Except as provided in paragraphs (a)(2),
(b), and (d) of this section, this part is
applicable, beginning on April 1, 2024.
(2) Specific applicability dates. The
following sections are applicable as
follows:
(i) On January 1, 2026, §§ ll.12
through ll.15, ll.17 through
ll.30, and ll.42(a); the data
collection and maintenance
requirements in § ll.42(c) through (f);
and appendices A through F to this part
become applicable.
(ii) On January 1, 2027, § ll.42(b)
and (g) through (i) and the reporting
requirements in § ll.42(c) through (f)
become applicable.
(iii) Rules during transition period.
Prior to the applicability dates in
paragraphs (a)(2)(i) and (ii) of this
section, banks must comply with the
relevant provisions of this part in effect
on March 31, 2024, as set forth in
appendix G to this part. The relevant
E:\FR\FM\01FER2.SGM
01FER2
7138
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
provisions set forth in appendix G to
this part are applicable to CRA
performance evaluations pursuant to 12
U.S.C. 2903(a)(1) that assess activities
that a bank conducted prior to the dates
set forth in paragraphs (a)(2)(i) and (ii)
of this section, as applicable, except as
provided in paragraphs (c) and (d) of
this section.
(b) HMDA data disclosures. The
[Agency] will publish the data pursuant
to § ll.42(j) beginning January 1,
2027.
(c) Consideration of bank activities.
(1) In assessing a bank’s CRA
performance, the [Agency] will consider
any loan, investment, service, or
product that was eligible for CRA
consideration at the time the bank
conducted the activity.
(2) Notwithstanding paragraph (c)(1)
of this section, in assessing a bank’s
CRA performance, the [Agency] will
consider any loan or investment that
was eligible for CRA consideration at
the time that the bank entered into a
legally binding commitment to make the
loan or investment.
(d) Strategic plans—(1) New and
replaced strategic plans. The CRA
regulatory requirements in effect on
March 31, 2024, as set forth in appendix
G to this part, apply to any new strategic
plan, including a plan that replaces an
expired strategic plan, submitted to the
[Agency] for approval on or after April
1, 2024, but before November 1, 2025,
and that the agency has determined is
a complete plan consistent with the
requirements under 12 CFR ll.27 in
effect on March 31, 2024, as set forth in
appendix G to this part. These strategic
plans remain in effect until the
expiration date of the plan. The
[Agency] will not accept any strategic
plan submitted on or after November 1,
2025, and before January 1, 2026.
(2) Existing strategic plans. A strategic
plan in effect as of April 1, 2024,
remains in effect until the expiration
date of the plan.
(e) First evaluation under this part on
or after February 1, 2024. In its first
performance evaluation under this part
on or after February 1, 2024, a large
bank that has a total of 10 or more
facility-based assessment areas in any
State or multistate MSA, or nationwide,
as applicable, and that was a bank
subject to evaluation under this part or
[other Agencies’ regulations] prior to
February 1, 2024, may not receive a
rating of ‘‘Satisfactory’’ or
‘‘Outstanding’’ in that State or
multistate MSA, or for the institution,
unless the bank received an overall
facility-based assessment area
conclusion, calculated as described in
paragraph g.2.ii of appendix D to this
part, of at least ‘‘Low Satisfactory’’ in 60
percent or more of the total number of
its facility-based assessment areas in
that State or multistate MSA, or
nationwide, as applicable.
Appendix A to Part ll—Calculations
for the Retail Lending Test
This appendix, based on requirements
described in §§ ll.22 and ll.28, includes
the following sections:
I. Retail Lending Volume Screen
II. Retail Lending Test Distribution Metrics—
Scope of Evaluation
III. Geographic Distribution Metrics and
Benchmarks
IV. Borrower Distribution Metrics and
Benchmarks
V. Supporting Conclusions for Major Product
Lines Other Than Automobile Lending
VI. Supporting Conclusions for Automobile
Lending
VII. Retail Lending Test Conclusions—All
Major Product Lines
VIII. Retail Lending Test Weighting and
Conclusions for States, Multistate MSAs,
and the Institution
I. Retail Lending Volume Screen
The [Agency] calculates the Bank Volume
Metric and the Market Volume Benchmark
for a facility-based assessment area and
determines whether the bank has met or
surpassed the Retail Lending Volume
Threshold in that facility-based assessment
area.
a. Bank Volume Metric. The [Agency]
calculates the Bank Volume Metric for each
facility-based assessment area by:
1. Summing, over the years in the
evaluation period, the bank’s annual dollar
volume of loans included in the Bank
Volume Metric (i.e., volume metric loans).
The bank’s annual dollar volume of volume
metric loans is the total dollar amount of all
home mortgage loans, multifamily loans,
small business loans, small farm loans, and
automobile loans originated or purchased by
the bank in the facility-based assessment area
in that year. Automobile loans are included
in the bank’s annual dollar amount of volume
metric loans only if automobile loans are a
product line for the bank.
2. Summing, over the years in the
evaluation period, the bank’s annual dollar
volume of deposits in the facility-based
assessment area. For a bank that reports
deposits data pursuant to § ll.42(b)(3), the
bank’s annual dollar volume of deposits in a
facility-based assessment area is the total of
annual average daily balances of deposits
reported by the bank in counties in the
facility-based assessment area for that year.
For a bank that does not report deposits data
pursuant to § ll.42(b)(3), the bank’s annual
dollar volume of deposits in a facility-based
assessment area is the total of deposits
assigned to facilities reported by the bank in
the facility-based assessment area in the
FDIC’s Summary of Deposits for that year.
3. Dividing the result of paragraph I.a.1 of
this appendix by the result of paragraph I.a.2
of this appendix.
Example A–1: The bank has a three-year
evaluation period. The bank’s annual dollar
amounts of volume metric loans are $300,000
(year 1), $300,000 (year 2), and $400,000
(year 3). The sum of the bank’s annual dollar
amount of volume metric loans in a facilitybased assessment area, over the years in the
evaluation period, is therefore $1 million.
The annual dollar volumes of deposits in the
bank located in the facility-based assessment
area are $1.7 million (year 1), $1.6 million
(year 2), and $1.7 million (year 3). The sum
of the annual dollar volume of deposits in the
facility-based assessment area, over the years
in the evaluation period, is therefore $5
million. The Bank Volume Metric for the
facility-based assessment area would be $1
million divided by $5 million, or 0.2
(equivalently, 20 percent).
b. Market Volume Benchmark. The
[Agency] calculates the Market Volume
Benchmark for the facility-based assessment
area. For purposes of calculating the Market
Volume Benchmark, a benchmark depository
institution for a particular year is a
depository institution that, in that year, was
subject to reporting pursuant to 12 CFR
25.42(b)(1), 228.42(b)(1), or 345.42(b)(1) or 12
CFR part 1003, and operated a facility
included in the FDIC’s Summary of Deposits
data in the facility-based assessment area.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
The [Agency] calculates the Market Volume
Benchmark by:
1. Summing, over the years in the
evaluation period, the annual dollar volume
of volume benchmark loans. The annual
dollar volume of volume benchmark loans is
the total dollar volume of all home mortgage
loans, multifamily loans, small business
loans, and small farm loans in the facilitybased assessment area in that year that are
reported loans originated by benchmark
depository institutions.
PO 00000
Frm 00566
Fmt 4701
Sfmt 4700
2. Summing, over the years in the
evaluation period, the annual dollar volume
of deposits for benchmark depository
institutions in the facility-based assessment
area. The annual dollar volume of deposits
for benchmark depository institutions in the
facility-based assessment area is the sum
across benchmark depository institutions of:
(i) for a benchmark depository institution
that reports data pursuant to 12 CFR
25.42(b)(3), 228.42(b)(3), or 345.42(b)(3), the
total of annual average daily balances of
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.064
ddrumheller on DSK120RN23PROD with RULES2
Bank Volume Metric Loans ($l million)= Bank Volume Metric (20%)
Bank Deposits ($5 million)
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
deposits reported by that depository
institution in counties in the facility-based
assessment area for that year; and (ii) for a
benchmark depository institution that does
not report data pursuant to 12 CFR
25.42(b)(3), 228.42(b)(3), or 345.42(b)(3), the
total of deposits assigned to facilities
reported by that depository institution in
counties in the facility-based assessment area
in the FDIC’s Summary of Deposits for that
year.
3. Dividing the result of paragraph I.b.1 of
this appendix by the result of paragraph I.b.2
of this appendix.
Example A–2: With reference to example
A–1 to this appendix, the annual dollar
volume of volume benchmark loans is $6
million (year 1), $7 million (year 2), and $7
million (year 3). The sum of the annual dollar
volume of volume benchmark loans, over the
years in the evaluation period, is therefore
$20 million. The annual dollar volume of
7139
deposits for benchmark depository
institutions is $17 million (year 1), $15
million (year 2), and $18 million (year 3).
The sum of the annual dollar volume of
deposits for benchmark depository
institutions, over the years in the evaluation
period, is therefore $50 million. The Market
Volume Benchmark for that facility-based
assessment area would be $20 million
divided by $50 million, or 0.4 (equivalently,
40 percent).
ddrumheller on DSK120RN23PROD with RULES2
c. Retail Lending Volume Threshold. For
each facility-based assessment area, the
[Agency] calculates a Retail Lending Volume
Threshold by multiplying the Market Volume
Benchmark for that facility-based assessment
area by 0.3 (equivalently, 30 percent). A bank
meets or surpasses the Retail Lending
Volume Threshold in a facility-based
assessment area if the Bank Volume Metric
is equal to or greater than the Retail Lending
Volume Threshold.
Example A–3: Based on examples A–1 and
A–2 to this appendix, the [Agency] calculates
the Retail Lending Volume Threshold by
multiplying the Market Volume Benchmark
of 40 percent by 0.3, equal to 0.12
(equivalently, 12 percent). The Bank Volume
Metric, 0.2 (equivalently, 20 percent), is
greater than the Retail Lending Volume
Threshold. Accordingly, the bank surpasses
the Retail Lending Volume Threshold.
Bank Volume Metric (20%) > Retail Lending
Volume Threshold [(40%) × 0.3 = 12%]
II. Retail Lending Distribution Metrics—
Scope Of Evaluation
a. Retail Lending Test Areas evaluated. A
bank’s major product lines are evaluated in
its Retail Lending Test Areas, as provided in
§ ll.22(d) and as described in paragraphs
II.a.1 and 2 of this appendix.
1. Large banks exempt from evaluation in
retail lending assessment areas. Pursuant to
§ ll.17(a)(2), a large bank is not required to
delineate retail lending assessment areas in a
particular calendar year if the following ratio
exceeds 80 percent, based on the
combination of loan dollars and loan count
as defined in § ll.12:
i. The sum, over the prior two calendar
years, of the large bank’s home mortgage
loans, multifamily loans, small business
loans, small farm loans, and automobile
loans if automobile loans are a product line
for the large bank, originated or purchased in
its facility-based assessment areas; divided
by
ii. The sum, over the prior two calendar
years, of the large bank’s home mortgage
loans, multifamily loans, small business
loans, small farm loans, and automobile
loans if automobile loans are a product line
for the large bank, originated or purchased
overall.
Example A–4: A large bank (for which
automobile loans are not a product line)
originated or purchased 20,000 closed-end
home mortgage loans, small business loans,
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
and small farm loans in the prior two
calendar years, representing $6 billion in
loan dollars. Of these loans, 18,000 loans,
representing $4.5 billion in loan dollars, were
originated or purchased in the large bank’s
facility-based assessment areas. As such, the
large bank originated or purchased 75
percent of closed-end home mortgage loans,
small business loans, and small farm loans
($4.5 billion/$6 billion) by loan dollars and
90 percent (18,000/20,000) of these loans by
loan count within its facility-based
assessment areas. The combination of loan
dollars and loan count is 82.5 percent, or (75
+ 90)/2. Thus, this large bank is not required
to delineate retail lending assessment areas
pursuant to § ll.17(a)(2) in the current
calendar year because the 82.5 percent
exceeds the 80 percent threshold.
2. Small banks and intermediate banks
evaluated in outside retail lending areas.
Pursuant to § ll.18(a)(2), the [Agency]
evaluates the geographic and borrower
distributions of the major product lines of an
intermediate bank, or a small bank that opts
to be evaluated under the Retail Lending
Test, in the bank’s outside retail lending area
if either:
i. The bank opts to have its major product
lines evaluated in its outside retail lending
area; or
ii. The following ratio exceeds 50 percent,
based on the combination of loan dollars and
loan count as defined in § ll.12:
A. The sum, over the prior two calendar
years, of the bank’s home mortgage loans,
multifamily loans, small business loans,
small farm loans, and automobile loans if
automobile loans are a product line for the
bank, originated or purchased outside of its
facility-based assessment areas; divided by
B. The sum, over the prior two calendar
years, of the bank’s home mortgage loans,
multifamily loans, small business loans,
small farm loans, and automobile loans if
automobile loans are a product line for the
bank, originated or purchased overall.
b. Product lines and major product lines.
In each of a bank’s Retail Lending Test Areas,
the [Agency] evaluates each of a bank’s major
product lines, as provided in § ll.22(d)(2)
and as described in paragraphs II.b.1 through
3 of this appendix.
1. Major product line standard for facilitybased assessment areas and outside retail
lending areas. Except as provided in
paragraph II.b.1.iii of this appendix, a
product line is a major product line in a
PO 00000
Frm 00567
Fmt 4701
Sfmt 4700
facility-based assessment area or outside
retail lending area if the following ratio is 15
percent or more, based on the combination of
loan dollars and loan count as defined in
§ ll.12:
i. The sum, over the years of the evaluation
period, of the bank’s loans in the product line
originated or purchased in the facility-based
assessment area or outside retail lending
area; divided by
ii. The sum, over the years of the
evaluation period, of the bank’s loans in all
product lines originated or purchased in the
facility-based assessment area or outside
retail lending area.
iii. If a bank has not collected, maintained,
or reported loan data on a product line in a
facility-based assessment area or outside
retail lending area for one or more years of
an evaluation period, the product line is a
major product line if the [Agency] determines
that the product line is material to the bank’s
business in the facility-based assessment area
or outside retail lending area.
2. Major product line standard for retail
lending assessment areas. In a retail lending
assessment area:
(i) Closed-end home mortgage loans are a
major product line in any calendar year in
the evaluation period in which the bank
delineates a retail lending assessment area
based on its closed-end home mortgage loans
as determined by the standard in
§ ll.17(c)(1); and
(ii) Small business loans are a major
product line in any calendar year in the
evaluation period in which the bank
delineates a retail lending assessment area
based on its small business loans as
determined by the standard in § ll.17(c)(2).
3. Banks for which automobile loans are a
product line.
i. If a bank’s automobile loans are a
product line (either because the bank is a
majority automobile lender or opts to have its
automobile loans evaluated pursuant to
§ ll.22), automobile loans are a product
line for the bank for the entire evaluation
period.
ii. A bank is a majority automobile lender
if the following ratio, calculated at the
institution level, exceeds 50 percent, based
on the combination of loan dollars and loan
count as defined in § ll.12:
A. The sum, over the two calendar years
preceding the first year of the evaluation
period, of the bank’s automobile loans
originated or purchased overall; divided by
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.065
Volume Benchmark Loans ($20 million)
Aggregate Market Deposits ($50 million)= Market Volume Benchmark (40%)
7140
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
B. The sum, over the two calendar years
preceding the first year of the evaluation
period, of the bank’s automobile loans, home
mortgage loans, multifamily loans, small
business loans, and small farm loans
originated or purchased overall.
III. Geographic Distribution Metrics and
Benchmarks
The [Agency] calculates the Geographic
Bank Metric, the Geographic Market
Benchmark, and the Geographic Community
Benchmark for low-income census tracts and
for moderate-income census tracts,
respectively, as set forth in this section. For
each facility-based assessment area, retail
lending assessment area, and component
geographic area of the bank’s outside retail
lending area, the [Agency] includes either
low-income census tracts or moderateincome census tracts (i.e., designated census
tracts) in the numerator of the metrics and
benchmarks calculations for a particular year.
To evaluate small banks and intermediate
banks without data collection, maintenance
and reporting requirements, the [Agency]
will use data collected by the bank in the
ordinary course of business or through
sampling of bank loan data.
a. Calculation of Geographic Bank Metric.
The [Agency] calculates the Geographic Bank
Metric for low-income census tracts and for
moderate-income census tracts, respectively,
for each major product line in each Retail
Lending Test Area. The [Agency] calculates
the Geographic Bank Metric by:
1. Summing, over the years in the
evaluation period, the bank’s annual number
of originated and purchased loans in the
major product line in designated census
tracts in the Retail Lending Test Area.
2. Summing, over the years in the
evaluation period, the bank’s annual number
of originated and purchased loans in the
major product line in the Retail Lending Test
Area.
3. Dividing the result of paragraph III.a.1 of
this appendix by the result of paragraph
III.a.2 of this appendix.
Example A–5: The bank has a three-year
evaluation period, and small farm loans are
a major product line for the bank in a facility-
based assessment area (FBAA–1). The bank’s
annual numbers of originated and purchased
small farm loans (i.e., the bank’s originated
and purchased small farm loans) are 100
(year 1), 75 (year 2), and 75 (year 3) in
FBAA–1. The sum of the annual numbers of
originated and purchased small farm loans is
therefore 250 in the evaluation period. In the
low-income census tracts within FBAA–1,
the bank originated and purchased 25 small
farm loans (year 1), 15 small farm loans (year
2), and 10 small farm loans (year 3) (a total
of 50 small farm loans). In FBAA–1, the
Geographic Bank Metric for small farm loans
in low-income census tracts would be 50
divided by 250, or 0.2 (equivalently, 20
percent).
In the moderate-income census tracts
within FBAA–1, the bank originated and
purchased 30 small farm loans (year 1), 20
small farm loans (year 2), and 10 small farm
loans (year 3) (a total of 60 small farm loans).
In FBAA–1, the Geographic Bank Metric for
small farm loans in moderate-income census
tracts would be 60 divided by 250, or 0.24
(equivalently, 24 percent).
Bank Loans in Low - Income Census Tracts (50) _
.
.
0
Bank Loans ( 250 )
- Geographic Bank Metric (20 Yo)
Bank Loans in Moderate - Income Census Tracts (60)
Bank Loans (250)
= Geographic Bank Metric (24%)
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
lending assessment area originated by all
lenders.
3. Dividing the result of paragraph III.b.1
of this appendix by the result of paragraph
III.b.2 of this appendix.
Example A–6: The Geographic Market
Benchmarks for small farm loans in FBAA–
1 use a three-year evaluation period. Lenders
that report small farm loan data originated
500 small farm loans (year 1), 250 small farm
loans (year 2), and 250 small farm loans (year
3) within FBAA–1. The sum of the annual
numbers of originated small farm loans is
therefore 1,000 in the evaluation period.
Lenders that report small farm loan data
originated 200 small farm loans (year 1), 100
small farm loans (year 2) and 100 small farm
loans (year 3) in low-income census tracts
within FBAA–1. The sum of the annual
numbers of originated small farm loans in
PO 00000
Frm 00568
Fmt 4701
Sfmt 4700
low-income census tracts within FBAA–1 is
therefore 400. The Geographic Market
Benchmark for small farm loans in lowincome census tracts within FBAA–1 would
be 400 divided by 1,000, or 0.4 (equivalently,
40 percent).
Lenders that report small farm loan data
originated 100 small farm loans (year 1), 100
small farm loans (year 2), and 100 small farm
loans (year 3) in moderate-income census
tracts within FBAA–1. The sum of the annual
numbers of originated small farm loans in
moderate-income census tracts within
FBAA–1 is therefore 300. The Geographic
Market Benchmark for small farm loans in
moderate-income census tracts within
FBAA–1 would be 300 divided by 1,000, or
0.3 (equivalently, 30 percent).
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.066
ddrumheller on DSK120RN23PROD with RULES2
b. Calculation of Geographic Market
Benchmarks for facility-based assessment
areas and retail lending assessment areas.
For each facility-based assessment area and
retail lending assessment area, the [Agency]
calculates the Geographic Market Benchmark
for designated census tracts for each major
product line, excluding automobile loans.
The [Agency] calculates the Geographic
Market Benchmark by:
1. Summing, over the years in the
evaluation period, the annual number of
reported loans in the major product line in
designated census tracts in the facility-based
assessment area or retail lending assessment
area originated by all lenders.
2. Summing, over the years in the
evaluation period, the annual number of
reported loans in the major product line in
the facility-based assessment area or retail
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
7141
Aggregate Market Loans in Low - Income Census Tracts (400)
Aggregate Market Loans (1,000)
= Geographic Market Benchmark (40%)
Aggregate Market Loans in Moderate - Income Census Tracts (300)
Aggregate Market Loans (1,000)
c. Calculation of Geographic Community
Benchmarks for facility-based assessment
areas and retail lending assessment areas.
The [Agency] calculates the Geographic
Community Benchmark for designated
census tracts for each major product line in
each facility-based assessment area or retail
lending assessment area.
1. For closed-end home mortgage loans, the
[Agency] calculates a Geographic Community
Benchmark for low-income census tracts by:
i. Summing, over the years in the
evaluation period, the annual number of
owner-occupied housing units in low-income
census tracts in the facility-based assessment
area or retail lending assessment area.
ii. Summing, over the years in the
evaluation period, the annual number of
owner-occupied housing units in the facilitybased assessment area or retail lending
assessment area.
iii. Dividing the result of paragraph III.c.1.i
of this appendix by the result of paragraph
III.c.1.ii of this appendix.
2. For closed-end home mortgage loans, the
[Agency] calculates a Geographic Community
Benchmark for moderate-income census
tracts by:
i. Summing, over the years in the
evaluation period, the annual number of
owner-occupied housing units in moderateincome census tracts in the facility-based
assessment area or retail lending assessment
area.
ii. Summing, over the years in the
evaluation period, the annual number of
owner-occupied housing units in the facilitybased assessment area or retail lending
assessment area.
iii. Dividing the result of paragraph III.c.2.i
of this appendix by the result of paragraph
III.c.2.ii of this appendix.
3. For small business loans, the [Agency]
calculates a Geographic Community
Benchmark for low-income census tracts by:
i. Summing, over the years in the
evaluation period, the annual number of nonfarm businesses in low-income census tracts
in the facility-based assessment area or retail
lending assessment area.
ii. Summing, over the years in the
evaluation period, the annual number of nonfarm businesses in the facility-based
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
assessment area or retail lending assessment
area.
iii. Dividing the result of paragraph III.c.3.i
of this appendix by the result of paragraph
III.c.3.ii of this appendix.
4. For small business loans, the [Agency]
calculates a Geographic Community
Benchmark for moderate-income census
tracts by:
i. Summing, over the years in the
evaluation period, the annual number of nonfarm businesses in moderate-income census
tracts in the facility-based assessment area or
retail lending assessment area.
ii. Summing, over the years in the
evaluation period, the annual number of nonfarm businesses in the facility-based
assessment area or retail lending assessment
area.
iii. Dividing the result of paragraph III.c.4.i
of this appendix by the result of paragraph
III.c.4.ii of this appendix.
5. For small farm loans, the [Agency]
calculates a Geographic Community
Benchmark for low-income census tracts by:
i. Summing, over the years in the
evaluation period, the annual number of
farms in low-income census tracts in the
facility-based assessment area.
ii. Summing, over the years in the
evaluation period, the annual number of
farms in the facility-based assessment area.
iii. Dividing the result of paragraph III.c.5.i
of this appendix by the result of paragraph
III.c.5.ii of this appendix.
6. For small farm loans, the [Agency]
calculates a Geographic Community
Benchmark for moderate-income census
tracts by:
i. Summing, over the years in the
evaluation period, the annual number of
farms in moderate-income census tracts in
the facility-based assessment area.
ii. Summing, over the years in the
evaluation period, the annual number of
farms in the facility-based assessment area.
iii. Dividing the result of paragraph III.c.6.i
of this appendix by the result of paragraph
III.c.6.ii of this appendix.
7. For automobile loans, the [Agency]
calculates a Geographic Community
Benchmark for low-income census tracts by:
i. Summing, over the years in the
evaluation period, the annual number of
PO 00000
Frm 00569
Fmt 4701
Sfmt 4700
households in low-income census tracts in
the facility-based assessment area.
ii. Summing, over the years in the
evaluation period, the annual number of
households in the facility-based assessment
area.
iii. Dividing the result of paragraph III.c.7.i
of this appendix by the result of paragraph
III.c.7.ii of this appendix.
8. For automobile loans, the [Agency]
calculates a Geographic Community
Benchmark for moderate-income census
tracts by:
i. Summing, over the years in the
evaluation period, the annual number of
households in moderate-income census tracts
in the facility-based assessment area.
ii. Summing, over the years in the
evaluation period, the annual number of
households in the facility-based assessment
area.
iii. Dividing the result of paragraph III.c.8.i
of this appendix by the result of paragraph
III.c.8.ii of this appendix.
Example A–7: The Geographic Community
Benchmarks for small business loans in
FBAA–1 use a three-year evaluation period.
There were 1,300 non-farm businesses (year
1), 1,300 non-farm businesses (year 2), and
1,400 non-farm businesses (year 3) in FBAA–
1. The sum of the number of non-farm
businesses in FBAA–1 is therefore 4,000 in
the evaluation period. In low-income census
tracts within FBAA–1, there were 200 nonfarm businesses (year 1), 150 non-farm
businesses (year 2), and 150 non-farm
businesses (year 3) (a total of 500 non-farm
businesses). The Geographic Community
Benchmark for small business loans in lowincome census tracts within FBAA–1 would
be 500 divided by 4,000, or 0.125
(equivalently, 12.5 percent).
In moderate-income census tracts within
FBAA–1, there were 400 non-farm businesses
(year 1), 300 non-farm businesses (year 2),
and 300 non-farm businesses (year 3) (a total
of 1,000 non-farm businesses). The
Geographic Community Benchmark for small
business loans in moderate-income census
tracts within FBAA–1 would be 1,000
divided by 4,000, or 0.25 (equivalently, 25
percent).
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.067
ddrumheller on DSK120RN23PROD with RULES2
= Geographic Market Benchmark (30%)
7142
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Non - Farm Businesses in Low - Income Census Tracts (500)
Businesses (4,000)
= Geographic Community Benchmark (12.5%)
Non - Farm Businesses in Moderate - Income Census Tracts (1,000)
Businesses (4,000)
d. Calculation of Geographic Market
Benchmarks for the outside retail lending
area. For a bank’s outside retail lending area,
the [Agency] calculates the Geographic
Market Benchmark for each major product
line, excluding automobile loans, and for
each category of designated census tracts by
taking a weighted average of benchmarks for
each component geographic area as follows:
1. Calculating a benchmark for each
category of designated census tracts and each
major product line within each component
geographic area as described in § ll.18(b)
using the formula for the Geographic Market
Benchmark described in paragraph III.b of
this appendix with the component
geographic area in place of the facility-based
assessment area or retail lending assessment
area, as applicable.
2. Calculating the weighting for each
component geographic area and major
product line as the percentage of the bank’s
loans in the major product line originated or
purchased in the outside retail lending area
that are within the component geographic
area, based on loan count.
3. Calculating the weighted average
benchmark for the outside retail lending area
using the component geographic area
benchmarks in paragraph III.d.1 of this
appendix and associated weightings in
paragraph III.d.2 of this appendix.
e. Calculation of Geographic Community
Benchmarks for the outside retail lending
area. For a bank’s outside retail lending area,
the [Agency] calculates the Geographic
Community Benchmark for each category of
designated census tract and for each major
product line by taking a weighted average of
benchmarks for each component geographic
area as follows:
1. Calculating a benchmark for each
category of designated census tracts and each
major product line within each component
geographic area as described in § ll.18(b)
using the formula for the Geographic
Community Benchmark described in
paragraph III.c of this appendix with the
component geographic area in place of the
facility-based assessment area or retail
lending assessment area, as applicable.
2. Calculating the weighting for each
component geographic area and major
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
product line as the percentage of the bank’s
loans in the major product line originated or
purchased in the outside retail lending area
that are within the component geographic
area, based on loan count.
3. Calculating the weighted average
benchmark for the outside retail lending area
using the component geographic area
benchmarks in paragraph III.e.1 of this
appendix and associated weightings in
paragraph III.e.2 of this appendix.
IV. Borrower Distribution Metrics and
Benchmarks
The [Agency] calculates the Borrower Bank
Metric, the Borrower Market Benchmark, and
the Borrower Community Benchmark for
each category of borrowers (i.e., designated
borrowers), as set forth in this section.
For closed-end home mortgage loans, the
[Agency] calculates these metrics and
benchmarks for each of the following
designated borrowers: (i) low-income
borrowers; and (ii) moderate-income
borrowers.
For small business loans, the [Agency]
calculates these metrics and benchmarks for
each of the following designated borrowers:
(i) businesses with gross annual revenues of
$250,000 or less; and (ii) businesses with
gross annual revenues greater than $250,000
but less than or equal to $1 million.
For small farm loans, the [Agency]
calculates these metrics and benchmarks for
each of the following designated borrowers:
(i) farms with gross annual revenues of
$250,000 or less; and (ii) farms with gross
annual revenues greater than $250,000 but
less than or equal to $1 million.
For automobile loans, the [Agency]
calculates these metrics and benchmarks for
each of the following designated borrowers:
(i) low-income borrowers; and (ii) moderate
income borrowers.
To evaluate small banks and intermediate
banks without data collection, maintenance
and reporting requirements, the [Agency]
will use data collected by the bank in the
ordinary course of business or through
sampling of bank loan data.
a. Calculation of Borrower Bank Metric.
The [Agency] calculates the Borrower Bank
Metric for each major product line and
PO 00000
Frm 00570
Fmt 4701
Sfmt 4700
category of designated borrowers in each
Retail Lending Test Area by:
1. Summing, over the years in the
evaluation period, the bank’s annual number
of originated and purchased loans in the
major product line to designated borrowers
in the Retail Lending Test Area.
2. Summing, over the years in the
evaluation period, the bank’s annual number
of originated and purchased loans in the
major product line in the Retail Lending Test
Area.
3. Dividing the result of paragraph IV.a.1
of this appendix by the result of paragraph
IV.a.2 of this appendix.
Example A–8: The bank has a three-year
evaluation period, and closed-end home
mortgage loans are a major product line for
the bank in FBAA–1. The bank’s annual
numbers of originated and purchased closedend home mortgage loans (i.e., the bank’s
originated and purchased closed-end home
mortgage loans) are 30 (year 1), 40 (year 2),
and 30 (year 3) in FBAA–1. The sum of the
annual numbers of originated and purchased
closed-end home mortgage loans is therefore
100 in the evaluation period. In FBAA–1, the
bank originated and purchased 10 closed-end
home mortgage loans to low-income
borrowers (year 1), 3 closed-end home
mortgage loans to low-income borrowers
(year 2), and 7 closed-end home mortgage
loans to low-income borrowers (year 3) (a
total of 20 closed-end home mortgage loans
to low-income borrowers). In FBAA–1, the
Borrower Bank Metric for closed-end home
mortgage loans to low-income borrowers
would be 20 divided by 100, or 0.2
(equivalently, 20 percent).
In FBAA–1, the bank also originated and
purchased 12 closed-end home mortgage
loans to moderate-income borrowers (year 1),
5 closed-end home mortgage loans to
moderate-income borrowers (year 2), and 13
closed-end home mortgage loans to
moderate-income borrowers (year 3) (a total
of 30 closed-end home mortgage loans to
moderate-income borrowers). In FBAA–1, the
Borrower Bank Metric for closed-end home
mortgage loans to moderate-income
borrowers would be 30 divided by 100, or 0.3
(equivalently, 30 percent).
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.068
ddrumheller on DSK120RN23PROD with RULES2
= Geographic Community Benchmark (25%)
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
7143
Bank Loans to Low - Income Borrowers (20)
Bank Loans (l00)
= Borrower Bank Metric (20%)
Bank Loans to Moderate - Income Borrowers (30) _
.
0
Bank Loans (l00)
- Borrower Bank Metric (30 Yo)
b. Calculation of Borrower Market
Benchmarks for facility-based assessment
areas and retail lending assessment areas.
For each facility-based assessment area and
retail lending assessment area, the [Agency]
calculates the Borrower Market Metric for
each major product line, excluding
automobile loans, and for each category of
designated borrowers by:
1. Summing, over the years in the
evaluation period, the annual number of
reported loans in the major product line to
designated borrowers in the facility-based
assessment area or retail lending assessment
area originated by all lenders.
2. Summing, over the years in the
evaluation period, the annual number of
reported loans in the major product line in
the facility-based assessment area or retail
lending assessment area originated by all
lenders.
3. Dividing the result of paragraph IV.b.1
of this appendix by the result of paragraph
IV.b.2 of this appendix.
Example A–9: The Borrower Market
Benchmarks for closed-end home mortgage
loans use a three-year evaluation period.
Lenders that report closed-end home
mortgage loans originated 500 closed-end
home mortgage loans (year 1), 275 closed-end
home mortgage loans (year 2), and 225
closed-end home mortgage loans (year 3).
The sum of the annual numbers of originated
closed-end home mortgage loans is therefore
1,000 in the evaluation period. Lenders that
report closed-end home mortgage loans
originated 50 closed-end home mortgage
loans to low-income borrowers (year 1), 20
closed-end home mortgage loans to lowincome borrowers (year 2), and 30 closed-end
home mortgage loans to low-income
borrowers (year 3) in FBAA–1. The sum of
the annual numbers of originated closed-end
home mortgage loans to low-income
borrowers within FBAA–1 is therefore 100.
The Borrower Market Benchmark for closedend home mortgage loans to low-income
borrowers would be 100 divided by 1,000, or
0.1 (equivalently, 10 percent).
Lenders that report closed-end home
mortgage loans originated 100 loans (year 1),
75 loans (year 2), and 25 loans (year 3) to
moderate-income borrowers. The sum of the
annual numbers of originated closed-end
home mortgage loans to moderate-income
borrowers within FBAA–1 is therefore 200.
The Borrower Market Benchmark for closedend home mortgage loans to moderateincome borrowers in FBAA–1 would be 200
divided by 1,000, or 0.2 (equivalently, 20
percent).
Aggregate Market Loans to Low - Income Borrowers (100)
Aggregate Market Loans (1,000)
= Borrower Market Benchmark (10%)
Aggregate Loans to Moderate - Income Borrowers (200)
Aggregate Market Loans (1,000)
c. Calculation of Borrower Community
Benchmarks for facility-based assessment
areas and retail lending assessment areas.
The [Agency] calculates the Borrower
Community Benchmark for each category of
designated borrowers for each major product
line in each facility-based assessment area or
retail lending assessment area.
1. For closed-end home mortgage loans, the
[Agency] calculates a Borrower Community
Benchmark for low-income borrowers by:
i. Summing, over the years in the
evaluation period, the annual number of lowincome families in the facility-based
assessment area or retail lending assessment
area.
ii. Summing, over the years in the
evaluation period, the annual number of
families in the facility-based assessment area
or retail lending assessment area.
iii. Dividing the result of paragraph IV.c.1.i
of this appendix by the result of paragraph
IV.c.1.ii of this appendix.
2. For closed-end home mortgage loans, the
[Agency] calculates a Borrower Community
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Benchmark for moderate-income borrowers
by:
i. Summing, over the years in the
evaluation period, the annual number of
moderate-income families in the facilitybased assessment area or retail lending
assessment area.
ii. Summing, over the years in the
evaluation period, the annual number of
families in the facility-based assessment area
or retail lending assessment area.
iii. Dividing the result of paragraph IV.c.2.i
of this appendix by the result of paragraph
IV.c.2.ii of this appendix.
3. For small business loans, the [Agency]
calculates a Borrower Community
Benchmark for non-farm businesses with
gross annual revenues of $250,000 or less by:
i. Summing, over the years in the
evaluation period, the annual number of nonfarm businesses with gross annual revenues
of $250,000 or less in the facility-based
assessment area or retail lending assessment
area.
PO 00000
Frm 00571
Fmt 4701
Sfmt 4700
ii. Summing, over the years in the
evaluation period, the annual number of nonfarm businesses in the facility-based
assessment area or retail lending assessment
area.
iii. Dividing the result of paragraph IV.c.3.i
of this appendix by the result of paragraph
IV.c.3.ii of this appendix.
4. For small business loans, the [Agency]
calculates a Borrower Community
Benchmark for non-farm businesses with
gross annual revenues greater than $250,000
but less than or equal to $1 million by:
i. Summing, over the years in the
evaluation period, the annual number of nonfarm businesses with gross annual revenues
greater than $250,000 but less than or equal
to $1 million in the facility-based assessment
area or retail lending assessment area.
ii. Summing, over the years in the
evaluation period, the annual number of nonfarm businesses in the facility-based
assessment area or retail lending assessment
area.
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.069 ER01FE24.070
ddrumheller on DSK120RN23PROD with RULES2
= Borrower Market Benchmark (20%)
7144
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
iii. Dividing the result of paragraph IV.c.6.i
of this appendix by the result of paragraph
IV.c.6.ii of this appendix.
7. For automobile loans, the [Agency]
calculates a Borrower Community
Benchmark for low-income borrowers by:
i. Summing, over the years in the
evaluation period, the annual number of lowincome households in the facility-based
assessment area.
ii. Summing, over the years in the
evaluation period, the annual number of
households in the facility-based assessment
area.
iii. Dividing the result of paragraph IV.c.7.i
of this appendix by the result of paragraph
IV.c.7.ii of this appendix.
8. For automobile loans, the [Agency]
calculates a Borrower Community
Benchmark for moderate-income borrowers
by:
i. Summing, over the years in the
evaluation period, the annual number of
moderate-income households in the facilitybased assessment area.
ii. Summing, over the years in the
evaluation period, the annual number of
households in the facility-based assessment
area.
Low - Income Families (1,000)
Families (4,000)
= Borrower Community Benchmark (25%)
ddrumheller on DSK120RN23PROD with RULES2
Moderate - Income Families (1,200)
Families (4,000)
d. Calculation of Borrower Market
Benchmark for the outside retail lending
area. For a bank’s outside retail lending area,
the [Agency] calculates the Borrower Market
Benchmark for each major product line,
excluding automobile loans, and for each
category of designated borrowers by taking a
weighted average of benchmarks for each
component geographic area as follows:
1. Calculating a benchmark for each
category of designated borrowers and each
major product line within each component
geographic area as described in § ll.18(b)
using the formula for the Borrower Market
Benchmark described in section IV.b of this
appendix with the component geographic
area in place of the facility-based assessment
area or retail lending assessment area, as
applicable.
2. Calculating the weighting for each
component geographic area and major
product line as the percentage of the bank’s
loans in the major product line originated or
purchased in the outside retail lending area
that are within the component geographic
area, based on loan count.
3. Calculating the weighted average
benchmark for the outside retail lending area
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
= Borrower Community Benchmark (30%)
using the component geographic area
benchmarks in paragraph IV.d.1 of this
appendix and associated weightings in
paragraph IV.d.2 of this appendix.
e. Calculation of Borrower Community
Benchmarks for the outside retail lending
area. For a bank’s outside retail lending area,
the [Agency] calculates the Borrower
Community Benchmark for each major
product line and for each category of
designated borrowers in the bank’s outside
retail lending area by taking a weighted
average of benchmarks for each component
geographic area as follows:
1. Calculating the benchmark for each
category of designated borrowers and each
major product line within each component
geographic area as described in § ll.18(b)
using the formula for the Borrower
Community Benchmark described in
paragraph IV.c of this appendix with the
component geographic area in place of the
facility-based assessment area or retail
lending assessment area, as applicable.
2. Calculating the weighting for each
component geographic area and major
product line as the percentage of the bank’s
loans in the major product line originated or
PO 00000
Frm 00572
iii. Dividing the result of paragraph IV.c.8.i
of this appendix by the result of paragraph
IV.c.8.ii of this appendix.
Example A–10: The Borrower Community
Benchmarks for closed-end home mortgage
loans use a three-year evaluation period.
There were 1,300 families (year 1), 1,300
families (year 2), and 1,400 families (year 3)
in FBAA–1. The sum of the number of
families in FBAA–1 is therefore 4,000 in the
evaluation period. There were 300 lowincome families (year 1), 300 low-income
families (year 2), and 400 low-income
families (year 3) (a total of 1,000 low-income
families). The Borrower Community
Benchmark for closed-end home mortgage
loans to low-income families within the
FBAA–1 would be 1,000 divided by 4,000, or
0.25 (equivalently, 25 percent).
There were 350 moderate-income families
(year 1), 400 moderate-income families (year
2), and 450 moderate-income families (year
3) (a total of 1,200 moderate-income
families). The Borrower Community
Benchmark for closed-end home mortgage
loans to moderate-income families in FBAA–
1 would be 1,200 divided by 4,000, or 0.3
(equivalently, 30 percent).
Fmt 4701
Sfmt 4700
purchased in the outside retail lending area
that are within the component geographic
area, based on loan count.
3. Calculating the weighted average
benchmark for the outside retail lending area
using the component geographic area
benchmarks in paragraph IV.e.1 of this
appendix and associated weightings
calculated in paragraph IV.e.2 of this
appendix.
V. Supporting Conclusions for Major
Product Lines Other Than Automobile
Lending
The [Agency] evaluates a bank’s Retail
Lending Test performance in each Retail
Lending Test Area by comparing the bank’s
distribution metrics to sets of performance
ranges determined by, as applicable, the
market and community benchmarks, as
described in this section.
a. Supporting conclusions for categories of
designated census tracts and designated
borrowers. For each major product line,
excluding automobile lending, the [Agency]
develops separate supporting conclusions for
each of the categories outlined in table 1 to
this appendix.
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.071
iii. Dividing the result of paragraph IV.c.4.i
of this appendix by the result of paragraph
IV.c.1.ii of this appendix.
5. For small farm loans, the [Agency]
calculates a Borrower Community
Benchmark for farms with gross annual
revenues of $250,000 or less by:
i. Summing, over the years in the
evaluation period, the annual number of
farms with gross annual revenues of $250,000
or less in the facility-based assessment area.
ii. Summing, over the years in the
evaluation period, the annual number of
farms in the facility-based assessment area.
iii. Dividing the result of paragraph IV.c.5.i
of this appendix by the result of paragraph
IV.c.5.ii of this appendix.
6. For small farm loans, the [Agency]
calculates a Borrower Community
Benchmark for farms with gross annual
revenues greater than $250,000 but less than
or equal to $1 million:
i. Summing, over the years in the
evaluation period, the annual number of
farms with gross annual revenues greater
than $250,000 but less than or equal to $1
million in the facility-based assessment area.
ii. Summing, over the years in the
evaluation period, the annual number of
farms in the facility-based assessment area.
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
7145
TABLE 1 TO APPENDIX A—RETAIL LENDING TEST CATEGORIES OF DESIGNATED CENSUS TRACTS AND DESIGNATED
BORROWERS
Major product line
Designated census tracts
Closed-End Home Mortgage
Loans.
Low-Income Census Tracts ............................................
Low-Income Borrowers.
Moderate-Income Census Tracts ....................................
Low-Income Census Tracts ............................................
Moderate-Income Borrowers.
Non-farm businesses with Gross Annual Revenues of
$250,000 or Less.
Non-farm businesses with Gross Annual Revenues
Greater than $250,000 but Less Than or Equal to $1
million.
Farms with Gross Annual Revenues of $250,000 or
Less.
Farms with Gross Annual Revenues Greater than
$250,000 but Less Than or Equal to $1 million.
Small Business Loans .........
Designated borrowers
Moderate-Income Census Tracts ....................................
Small Farm Loans ................
Low-Income Census Tracts ............................................
ddrumheller on DSK120RN23PROD with RULES2
Moderate-Income Census Tracts ....................................
b. Geographic distribution performance
ranges. To evaluate a bank’s geographic
distributions for each major product line,
excluding automobile lending, the [Agency]
compares the relevant Geographic Bank
Metric for each category of designated census
tracts to the applicable set of performance
ranges. The performance ranges are
determined by the values of the Geographic
Market Benchmark and the Geographic
Community Benchmark, as well as the
multipliers associated with each supporting
conclusion category, as follows:
1. The performance threshold for an
‘‘Outstanding’’ supporting conclusion is the
lesser of either:
i. The product of 1.0 times the Geographic
Community Benchmark; or
ii. The product of 1.15 times the
Geographic Market Benchmark.
The ‘‘Outstanding’’ performance range is
all potential values of the Geographic Bank
Metric equal to or above the ‘‘Outstanding’’
performance threshold.
2. The performance threshold for a ‘‘High
Satisfactory’’ Retail Lending Test supporting
conclusion is the lesser of either:
i. The product of 0.8 times the Geographic
Community Benchmark; or
ii. The product of 1.05 times the
Geographic Market Benchmark.
The ‘‘High Satisfactory’’ performance range
is all potential values of the Geographic Bank
Metric equal to or above the ‘‘High
Satisfactory’’ performance threshold but
below the Outstanding performance
threshold.
3. The performance threshold for a ‘‘Low
Satisfactory’’ supporting conclusion is the
lesser of either:
i. The product of 0.6 times the Geographic
Community Benchmark; or
ii. The product of the 0.8 times the
Geographic Market Benchmark.
The ‘‘Low Satisfactory’’ performance range
is all potential values of the Geographic Bank
Metric equal to or above the ‘‘Low
Satisfactory’’ performance threshold but
below the High Satisfactory performance
threshold.
4. The performance threshold for a ‘‘Needs
to Improve’’ supporting conclusion is the
lesser of either:
i. The product of 0.3 times the Geographic
Community Benchmark; or
ii. The product of 0.33 times the
Geographic Market Benchmark.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
The ‘‘Needs to Improve’’ performance
range is all potential values of the Geographic
Bank Metric equal to or above the ‘‘Needs to
Improve’’ performance threshold but below
the ‘‘Low Satisfactory’’ performance
threshold.
5. The ‘‘Substantial Noncompliance’’
performance range is all potential values of
the Geographic Bank Metric below the
‘‘Needs to Improve’’ performance threshold.
c. Geographic distribution supporting
conclusions and performance scores. The
[Agency] compares each Geographic Bank
Metric to the performance ranges provided in
paragraphs V.b.1 through V.b.5 of this
appendix. The geographic distribution
supporting conclusion for each category of
designated census tracts is determined by the
performance range within which the
Geographic Bank Metric falls. Each
supporting conclusion is assigned a
numerical performance score using the
following corresponding points values:
Performance
score
Conclusion
Outstanding ..........................
High Satisfactory ..................
Low Satisfactory ...................
Needs to Improve .................
Substantial Noncompliance ..
10
7
6
3
0
d. Borrower distribution performance
ranges. To evaluate a bank’s borrower
distributions for each major product line,
excluding automobile lending, the [Agency]
compares the relevant Borrower Bank Metric
for each category of designated borrowers to
the applicable set of performance ranges. The
performance ranges are determined by the
values of the Borrower Market Benchmark
and Borrower Community Benchmark, as
well as the multipliers associated with each
supporting conclusion category, as follows:
1. The performance threshold for an
‘‘Outstanding’’ supporting conclusion is the
lesser of either:
i. The product of 1.0 times the Borrower
Community Benchmark; or
ii. The product of 1.15 times the Borrower
Market Benchmark.
The ‘‘Outstanding’’ performance range is
all potential values of the Borrower Bank
Metric equal to or above the ‘‘Outstanding’’
performance threshold.
PO 00000
Frm 00573
Fmt 4701
Sfmt 4700
2. The performance threshold for a ‘‘High
Satisfactory’’ supporting conclusion is the
lesser of either:
i. The product of 0.8 times the Borrower
Community Benchmark; or
ii. The product of 1.05 times the Borrower
Market Benchmark.
The ‘‘High Satisfactory’’ performance range
is all potential values of the Borrower Bank
Metric equal to or above the ‘‘High
Satisfactory’’ performance threshold but
below the Outstanding performance
threshold.
3. The performance threshold for a ‘‘Low
Satisfactory’’ supporting conclusion is the
lesser of either:
i. The product of 0.6 times the Borrower
Community Benchmark; or
ii. The product of 0.8 times the Borrower
Market Benchmark.
The ‘‘Low Satisfactory’’ performance range
is all potential values of the Borrower Bank
Metric equal to or above the ‘‘Low
Satisfactory’’ performance threshold but
below the High Satisfactory performance
threshold.
4. The performance threshold for a ‘‘Needs
to Improve’’ supporting conclusion is the
lesser of either:
i. The product of 0.3 times the Borrower
Community Benchmark; or
ii. The product of 0.33 times the Borrower
Market Benchmark.
The ‘‘Needs to Improve’’ performance
range is all potential values of the Borrower
Bank Metric equal to or above the ‘‘Needs to
Improve’’ performance threshold but below
the ‘‘Low Satisfactory’’ performance
threshold.
5. The ‘‘Substantial Noncompliance’’
performance range is all potential values of
the Borrower Bank Metric below the ‘‘Needs
to Improve’’ performance threshold.
e. Borrower distribution supporting
conclusions and performance scores. The
[Agency] compares each Borrower Bank
Metric to the performance ranges provided in
paragraphs V.d.1 through V.d.5 of this
appendix. The borrower distribution
supporting conclusion for each category of
designated borrowers is determined by the
performance range within which the
Borrower Bank Metric falls. Each supporting
conclusion is assigned a numerical
performance score using the following
corresponding point values:
E:\FR\FM\01FER2.SGM
01FER2
7146
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Conclusion
Performance
score
Outstanding ..........................
High Satisfactory ..................
Low Satisfactory ...................
Needs to Improve .................
Substantial Noncompliance ..
10
7
6
3
0
VI. Supporting Conclusions for Automobile
Lending
categories outlined in table 2 to this
appendix.
a. Supporting conclusions for categories of
designated census tracts and designated
borrowers. For any bank for which
automobile lending is evaluated under
§ ll.22, the [Agency] develops separate
supporting conclusions for each of the
TABLE 2 TO APPENDIX A—AUTOMOBILE LOANS: CATEGORIES OF DESIGNATED CENSUS TRACTS AND DESIGNATED
BORROWERS
Major product line
Designated census tracts
Designated borrowers
Automobile Lending ...........................................
Low-Income Census Tracts .............................
Moderate-Income Census Tracts .....................
Low-Income Borrowers.
Moderate-Income Borrowers.
b. Geographic distribution. The [Agency]
develops the supporting conclusion for a
bank’s geographic distribution for automobile
lending based on a comparison of the
Geographic Bank Metric for automobile
lending in each category of designated census
tracts to the corresponding Geographic
Community Benchmark.
c. Borrower distribution. The [Agency]
develops the supporting conclusion for a
bank’s borrower distribution for automobile
lending based on a comparison of the
Borrower Bank Metric for automobile lending
in each category of designated borrowers to
the corresponding Borrower Community
Benchmark.
d. Performance scores. Each supporting
conclusion is assigned a numerical
performance score using the following
corresponding point values:
Area by calculating a weighted performance
score for each major product line:
1. The [Agency] develops a weighted
average performance score for each major
product line in each Retail Lending Test Area
as follows:
i. The [Agency] creates a weighted average
performance score across the categories of
designated census tracts (i.e., geographic
distribution average) and a weighted average
performance score across the categories of
designated borrowers (i.e., borrower
distribution average).
ii. For the geographic distribution average
of each major product line, the weighting
assigned to each category of designated
census tracts is based on the demographics
of the Retail Testing Area as outlined in the
following table:
Performance
score
Conclusion
Outstanding ..........................
High Satisfactory ..................
Low Satisfactory ...................
Needs to Improve .................
Substantial Noncompliance ..
10
7
6
3
0
VII. Retail Lending Test Conclusions—All
Major Product Lines
a. The [Agency] determines a bank’s Retail
Lending Test performance conclusion for a
major product line in a Retail Lending Test
TABLE 3 TO APPENDIX A—RETAIL LENDING, TEST GEOGRAPHIC DISTRIBUTION AVERAGE—WEIGHTS
Major product line
Category of
designated census tracts
Weight
Closed-End Home Mortgage Loans
Low-Income Census Tracts ...........
Percentage of total number of owner-occupied housing units in lowand moderate-income census tracts in the applicable Retail Lending Test Area that are in low-income census tracts.
Percentage of total number of owner-occupied housing units in lowand moderate-income census tracts in the applicable Retail Lending Test Area that are in moderate-income census tracts.
Percentage of total number of non-farm businesses in low- and moderate-income census tracts in the applicable Retail Lending Test
Area that are in low-income census tracts.
Percentage of total number of non-farm businesses in low- and moderate-income census tracts in the applicable Retail Lending Test
Area that are in moderate-income census tracts.
Percentage of total number of farms in low- and moderate-income
census tracts in the applicable Retail Lending Test Area that are in
low-income census tracts.
Percentage of total number of farms in low- and moderate-income
census tracts in the applicable Retail Lending Test Area that are in
moderate-income census tracts.
Percentage of total number of households in low- and moderate-income census tracts in the applicable Retail Lending Test Area that
are in low-income census tracts.
Percentage of total number of households in low- and moderate-income census tracts in the applicable Retail Lending Test Area that
are in moderate-income census tracts.
Moderate-Income Census Tracts ..
Small Business Loans .....................
Low-Income Census Tracts ...........
Moderate-Income Census Tracts ..
Small Farm Loans ...........................
Low-Income Census Tracts ...........
Moderate-Income Census Tracts ..
Automobile Loans ...........................
Low-Income Census Tracts ...........
ddrumheller on DSK120RN23PROD with RULES2
Moderate-Income Census Tracts ..
In the case of a Retail Lending Test Area
that contains no low-income census tracts
and no moderate-income census tracts, the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
bank will not receive a geographic
distribution average for that assessment area.
Example A–11: A large bank’s closed-end
home mortgage loans constitute a major
PO 00000
Frm 00574
Fmt 4701
Sfmt 4700
product line for the bank in a facility-based
assessment area. The bank’s geographic
distribution supporting conclusions for
closed-end home mortgage loans in this
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
facility-based assessment area are ‘‘High
Satisfactory’’ (performance score of 7 points)
for low-income census tracts and ‘‘Needs to
Improve’’ (performance score of 3 points) for
moderate-income census tracts. Owneroccupied housing units in moderate-income
census tracts represents 20 percent of all
owner-occupied housing units in the facilitybased assessment area, and owner-occupied
housing units in low-income census tracts
represents 5 percent of all owner-occupied
housing units in the facility-based
assessment area. Accordingly, the weight
assigned to the moderate-income geographic
distribution performance score is 80 percent
[20 percent/(20 percent + 5 percent) = 80
percent] and the weight assigned to the lowincome geographic distribution performance
score is 20 percent [5 percent/(20 percent +
5 percent) = 20 percent]. The bank’s
7147
geographic distribution average for closedend home mortgage loans in this facilitybased assessment area is 3.8 [(7 points × 0.2
weight = 1.4) + (3 points × 0.8 weight = 2.4)].
iii. For the borrower distribution average of
each major product line, the weighting
assigned to each category of designated
borrowers is based on the demographics of
the Retail Lending Test Area as outlined in
the following table:
TABLE 4 TO APPENDIX A—RETAIL LENDING TEST, BORROWER DISTRIBUTION AVERAGE—WEIGHTS
Major product line
Categories of designated borrowers
Weight
Closed-End Home Mortgage Loans ..................
Low-Income Borrowers ....................................
Percentage of total number of low-income and
moderate-income families in the applicable
Retail Lending Test Area that are low-income families.
Percentage of total number of low-income and
moderate-income families in the applicable
Retail Lending Test Area that are moderateincome families.
Percentage of total number of non-farm businesses with gross annual revenues of
$250,000 or less and non-farm businesses
with gross annual revenues greater than
$250,000 but less than or equal to $1 million in the applicable Retail Lending Test
Area that are non-farm businesses with
gross annual revenues of $250,000 or less.
Percentage of total number of non-farm businesses with gross annual revenues of
$250,000 or less and non-farm businesses
with gross annual revenues greater than
$250,000 but less than or equal to $1 million in the applicable Retail Lending Test
Area that are non-farm businesses with
gross annual revenues greater than
$250,00 but less than or equal to $1 million.
Percentage of total number of farms with
gross annual revenues of $250,000 or less
and farms with gross annual revenues
greater than $250,000 but less than or
equal to $1 million in the applicable Retail
Lending Test Area that are farms with gross
annual revenues of $250,000 or less.
Percentage of total number of farms with
gross annual revenues of $250,000 or less
and farms with gross annual revenues
greater than $250,000 but less than or
equal to $1 million in the applicable Retail
Lending Test Area that are farms with gross
annual revenues greater than $250,000 but
less than or equal to $1 million.
Percentage of total number of low-income and
moderate-income households in the applicable Retail Lending Test Area that are low-income households.
Percentage of total number of low-income and
moderate-income households in the applicable Retail Lending Test Area that are moderate-income households.
Moderate-Income Borrowers ............................
Small Business Loans .......................................
Non-farm businesses with gross annual revenues of $250,000 or less.
Non-farm businesses with gross annual revenues greater than $250,000 and less than
or equal to $1 million.
Small Farm Loans .............................................
Farms with gross annual revenues of
$250,000 or less.
Farms with gross annual revenues greater
than $250,000 and less than or equal to $1
million.
Automobile Loans ..............................................
Low-Income Borrowers ....................................
ddrumheller on DSK120RN23PROD with RULES2
Moderate-Income Borrowers ............................
Example A–12: Building on example A–11
to this appendix, the bank’s borrower
distribution supporting conclusions for
closed-end home mortgage loans in this
facility-based assessment area are
‘‘Outstanding’’ (performance score of 10
points) for low-income borrowers and ‘‘Low
Satisfactory’’ (performance score of 6 points)
for moderate-income borrowers. Low-income
families represent 14 percent of all families
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
in the facility-based assessment area and
moderate-income families represent 6
percent of all families in the facility-based
assessment area. Accordingly, the weight
assigned to the low-income borrower
distribution performance score is 70 percent
[14 percent/(14 percent + 6 percent) = 70
percent] and the weight assigned to the
moderate-income borrower distribution
performance score is 30 percent [6 percent/
PO 00000
Frm 00575
Fmt 4701
Sfmt 4700
(14 percent + 6 percent) = 30 percent]. The
bank’s borrower distribution average for
closed-end home mortgage loans in this
facility-based assessment area is 8.8 [(10
points × 0.7 weight = 7.0) + (6 points × 0.3
weight = 1.8)].
2. For each major product line, the
[Agency] calculates the average of the
geographic distribution average and the
borrower distribution average (i.e., product
E:\FR\FM\01FER2.SGM
01FER2
7148
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
line score). If a bank has no geographic
distribution average for a product (due to the
absence of both low-income census tracts and
moderate-income census tracts in the
geographic area), the product line score is the
borrower distribution average.
Example A–13: Based on examples A–11
and A–12 to this appendix, the bank’s
product line score for closed-end home
mortgage loans is 6.3 [(3.8 geographic
distribution average × 0.5 weight = 1.9) + (8.8
borrower distribution average × 0.5 weight =
4.4)].
b. For each Retail Lending Test Area, the
[Agency] calculates a weighted average of
product line scores across all major product
lines (i.e., Retail Lending Test Area Score).
For each Retail Lending Test Area, the
[Agency] uses a ratio of the bank’s loan
originations and purchases in each major
product line to its loan originations and
purchases in all major product lines during
the evaluation period, based on the
combination of loan dollars and loan count
as defined in § ll.12, as weights in the
weighted average.
Example A–14: In addition to the product
line score of 6.3 for closed-end home
mortgage loans in example A–13 to this
appendix, the bank has a product line score
of 4.2 for small business lending in the same
facility-based assessment area. Among major
product lines, 60 percent of the bank’s loans
in the facility-based assessment area are
closed-end home mortgages and 40 percent
are small business loans based upon the
combination of loan dollars and loan count.
Accordingly, the weight assigned to the
closed-end home mortgage product line score
is 60 percent and the weight assigned to the
small business product line score is 40
percent. The bank’s Retail Lending Test Area
Score for this facility-based assessment area
is 5.46 [(6.3 closed-end home mortgage loan
product line score × 0.6 weight = 3.78) + (4.2
small business loan product line score × 0.4
weight = 1.68)].
c. The [Agency] then develops a Retail
Lending Test recommended conclusion
corresponding with the conclusion category
that is nearest to the Retail Lending Test Area
Score, as follows:
Recommended
conclusion
Outstanding ...............
High Satisfactory .......
Low Satisfactory ........
Needs to Improve .....
ddrumheller on DSK120RN23PROD with RULES2
Substantial Noncompliance.
Retail lending test
area score
8.5 or more.
6.5 or more but less
than 8.5.
4.5 or more but less
than 6.5.
1.5 or more but less
than 4.5.
less than 1.5.
Example A–15: Based on example A–14 to
this appendix, the bank’s Retail Lending Test
Area Score is associated with a ‘‘Low
Satisfactory’’ conclusion, so the bank’s Retail
Lending Test recommended conclusion for
this facility-based assessment area is ‘‘Low
Satisfactory.’’
d. Once a recommended conclusion is
determined for a Retail Lending Test Area,
the performance context information
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
provided in § ll.21(d) and the additional
factors provided in § ll.22(g) inform the
[Agency]’s determination of the Retail
Lending Test conclusion for the Retail
Lending Test Area. The agency assigns a
Retail Lending Test conclusion for the Retail
Lending Test Area of ‘‘Outstanding,’’ ‘‘High
Satisfactory,’’ ‘‘Low Satisfactory,’’ ‘‘Needs to
Improve,’’ or ‘‘Substantial Noncompliance.’’
VIII. Retail Lending Test Weighting and
Conclusions for States, Multistate MSAs, and
the Institution
The [Agency] develops the Retail Lending
Test conclusions for States, multistate MSAs,
and the institution as described in this
section.
a. The [Agency] translates Retail Lending
Test conclusions for facility-based
assessment areas, retail lending assessment
areas, and as applicable, the outside retail
lending area into numerical performance
scores, as follows:
Performance
score
Conclusion
Outstanding ..........................
High Satisfactory ..................
Low Satisfactory ...................
Needs to Improve .................
Substantial Noncompliance ..
10
7
6
3
0
b. The [Agency] calculates the weighted
average of Retail Lending Test Area
performance scores for a State or multistate
MSA, as applicable, and for the institution
(i.e., performance score for the Retail Lending
Test). For the weighted average for a State or
multistate MSA, the [Agency] considers
facility-based assessment areas and retail
lending assessment areas in the State or
multistate MSA pursuant to § ll.28(c). For
the weighted average for the institution, the
[Agency] considers all of the bank’s facilitybased assessment areas and retail lending
assessment areas and, as applicable, the
bank’s outside retail lending area. Each Retail
Lending Test Area performance score is
weighted by the average of the following two
ratios:
1. The ratio measuring the share of the
bank’s deposits in the Retail Lending Test
Area, calculated by:
i. Summing, over the years in the
evaluation period, the bank’s annual dollar
volume of deposits in the Retail Lending Test
Area.
ii. Summing, over the years in the
evaluation period, the bank’s annual dollar
volume of deposits in all Retail Lending Test
Areas in the State, in the multistate MSA, or
for the institution, as applicable.
iii. Dividing the result of paragraph
VIII.b.1.i of this appendix by the result of
paragraph VIII.b.1.ii of this appendix.
For a bank that reports deposits data
pursuant to § ll.42(b)(3), the bank’s annual
dollar volume of deposits in a Retail Lending
Test Area is the total of annual average daily
balances of deposits reported by the bank in
counties in the Retail Lending Test Area for
that year. For a bank that does not report
deposits data pursuant to § ll.42(b)(3), the
bank’s annual dollar volume of deposits in a
Retail Lending Test Area is the total of
PO 00000
Frm 00576
Fmt 4701
Sfmt 4700
deposits assigned to facilities reported by the
bank in the Retail Lending Test Area in the
FDIC’s Summary of Deposits for that year.
2. The ratio measuring the share of the
bank’s loans in the Retail Lending Test Area,
based on the combination of loan dollars and
loan count, as defined in § ll.12,
calculated by dividing:
i. The bank’s closed-end home mortgage
loans, small business loans, small farm loans,
and, if a product line for the bank,
automobile loans in the Retail Lending Test
Area originated or purchased during the
evaluation period; by
ii. The bank’s closed-end home mortgage
loans, small business loans, small farm loans,
and, if a product line for the bank,
automobile loans in all Retail Lending Test
Areas in the State, in the multistate MSA, or
for the institution, as applicable, originated
or purchased during the evaluation period.
c. The [Agency] develops a conclusion
corresponding to the conclusion category that
is nearest to the performance score for the
Retail Lending Test for the State, the
multistate MSA, or the institution, as
applicable, as follows:
Conclusion
Outstanding ...............
High Satisfactory .......
Low Satisfactory ........
Needs to Improve .....
Substantial Noncompliance.
Retail lending test
performance score
8.5 or more.
6.5 or more but less
than 8.5.
4.5 or more but less
than 6.5.
1.5 or more but less
than 4.5.
Less than 1.5.
d. The agency considers relevant
performance context information provided in
§ ll.21(d) to inform the [Agency]’s
determination of the bank’s Retail Lending
Test conclusion for the State, the multistate
MSA, or the institution, as applicable.
Example A–16: A large bank operates in
one State only, and has two facility-based
assessment areas and one retail lending
assessment area in that state and also engages
in closed-end home mortgage lending, small
business lending, and small farm lending
(but not automobile lending, as it is not a
product line for the bank) in its outside retail
lending area.
Additionally:
i. Facility-based assessment area 1 (FBAA–
1) is associated with 75 percent of the
deposits in all of the Retail Lending Test
Areas of the bank (based on dollar amount)
and 10 percent of the bank’s closed-end
home mortgage loans, small business loans,
and small farm loans (based on the
combination of loan dollars and loan count
as defined in § ll.12). The bank received a
‘‘Needs to Improve’’ (3 points) Retail Lending
Test conclusion in FBAA–1;
ii. Facility-based assessment area 2
(FBAA–2) is associated with 15 percent of
the deposits in all of the Retail Lending Test
Areas of the bank and 20 percent of the
bank’s closed-end home mortgage loans,
small business loans, and small farm loans
(based on the combination of loan dollars
and loan count as defined in § ll.12). The
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
bank received a ‘‘Low Satisfactory’’ (6 points)
Retail Lending Test conclusion in FBAA–2;
iii. The Retail lending assessment area is
associated with 8 percent of the deposits in
all of the Retail Lending Test Areas of the
bank and 68 percent of the bank’s closed-end
home mortgage loans, small business loans,
and small farm loans (based on the
combination of loan dollars and loan count
as defined in § ll.12). The bank received
an ‘‘Outstanding’’ (10 points) Retail Lending
Test conclusion in the retail lending
assessment area; and
iv. The bank’s outside retail lending area,
is associated with 2 percent of the deposits
in all of the Retail Lending Test Areas of the
bank and 2 percent of the bank’s closed-end
home mortgage loans, small business loans,
and small farm loans (based on the
combination of loan dollars and loan count
as defined in § ll.12). The bank received a
‘‘High Satisfactory’’ (7 points) Retail Lending
Test conclusion in the outside retail lending
area.
Calculating weights:
i. For facility-based assessment area 1:
weight = 42.5 percent [(75 percent of deposits
+ 10 percent of closed-end home mortgage
loans, small business loans, and small farm
loans)/2];
ii. For facility-based assessment area 2:
weight = 17.5 percent [(15 percent of deposits
+ 20 percent of closed-end home mortgage
loans, small business loans, and small farm
loans)/2];
iii. For the retail lending assessment area:
weight = 38 percent [(8 percent of deposits
+ 68 percent of closed-end home mortgage
loans, small business loans, and small farm
loans)/2]; and
iv. For the outside retail lending area:
weight = 2 percent [(2 percent of deposits +
2 percent of closed-end home mortgage loans,
small business loans, and small farm loans)/
2].
Institution Retail Lending Test
Performance Score and Conclusion: Using
the relevant points values—‘‘Outstanding’’
(10 points); ‘‘High Satisfactory’’ (7 points);
‘‘Low Satisfactory’’ (6 points); ‘‘Needs to
Improve’’ (3 points); ‘‘Substantial
Noncompliance’’ (0 points)—and based on
the illustration in this example A–16, the
bank’s Retail Lending Test performance score
for the institution is 6.3 [(0.425 weight × 3
points in facility-based assessment area 1) +
(0.175 weight × 6 points in facility-based
assessment area 2) + (0.38 weight × 10 points
in retail lending assessment area) + (0.02
weight × 7 points in the outside retail lending
area)].
A performance score of 6.3 corresponds
with the conclusion category ‘‘Low
Satisfactory,’’ so the bank’s Retail Lending
Test recommended conclusion at the
institution level is ‘‘Low Satisfactory.’’
Relevant performance context information
provided in § ll.21(d) may inform the
[Agency]’s determination of the bank’s
conclusion at the institution level.
Example A–17: An intermediate bank
operates in a single State, has two facilitybased assessment areas, and also engages in
closed-end home mortgage lending, small
business lending, and small farm lending
(but not automobile lending, as automobile
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
lending is not a product line for the bank) in
its outside retail lending area.
Additionally:
i. Facility-based assessment area 1 (FBAA–
1) is associated with 60 percent of the
deposits in all of the Retail Lending Test
Areas of the bank and 30 percent of the
bank’s closed-end home mortgage loans,
small business loans, and small farm loans.
The bank received an ‘‘Outstanding’’ (10
points) Retail Lending Test conclusion in
FBAA–1;
ii. Facility-based assessment area 2
(FBAA–2 is) associated with 40 percent of
the deposits in all of the Retail Lending Test
Areas of the bank and 10 percent of the
bank’s closed-end home mortgage loans,
small business loans, and small farm loans.
The bank received a ‘‘High Satisfactory’’ (7
points) Retail Lending Test conclusion in
FBAA–2; and
iii. The bank’s outside retail lending area
is associated with 0 percent of the deposits
in all of the Retail Lending Test Areas of the
bank (the bank did not voluntarily collect
and maintain depositor location data, so all
deposits in the bank are attributed to its
branches within facility-based assessment
areas) and 60 percent of the bank’s closedend home mortgage loans, small business
loans, and small farm loans. The bank
received a ‘‘Needs to Improve’’ (3 points)
Retail Lending Test conclusion in the outside
retail lending area.
Calculating weights:
i. For FBAA–1: weight = 45 percent [(60
percent of deposits + 30 percent of closedend home mortgage loans, small business
loans, and small farm loans)/2];
ii. For FBAA–2: weight = 25 percent [(40
percent of deposits + 10 percent of closedend home mortgage loans, small business
loans, and small farm loans)/2]; and
iii. For the outside retail lending area:
weight = 30 percent [(0 percent of deposits
+ 60 percent of closed-end home mortgage
loans, small business loans, and small farm
loans)/2].
Institution Retail Lending Test
Performance Score and Conclusion: Using
the relevant points values—‘‘Outstanding’’
(10 points); ‘‘High Satisfactory’’ (7 points);
‘‘Low Satisfactory’’ (6 points); ‘‘Needs to
Improve’’ (3 points); ‘‘Substantial
Noncompliance’’ (0 points)—and based on
the illustration in this example A–17, the
bank’s recommended Retail Lending Test
performance score at the institution level is
7.2 [(0.45 weight × 10 points in FBAA–1) +
(0.25 weight × 7 points in FBAA–2) + (0.3
weight × 3 points in the outside retail lending
area)].
A performance score of 7.2 corresponds
with the conclusion category ‘‘High
Satisfactory,’’ so the bank’s Retail Lending
Test recommended conclusion at the
institution level is ‘‘High Satisfactory.’’
Relevant performance context information
provided in § ll.21(d) may inform the
[Agency]’s determination of the bank’s
conclusion at the institution level.
Appendix B to Part ll—Calculations
for the Community Development Tests
This appendix, based on requirements
described in §§ ll.24 through ll.26 and
ll.28, includes the following sections:
PO 00000
Frm 00577
Fmt 4701
Sfmt 4700
7149
I. Community Development Financing
Tests—Calculation Components and
Allocation of Community Development
Loans and Community Development
Investments
II. Community Development Financing Test
in § ll.24—Calculations for Metrics,
Benchmarks, and Combining
Performance Scores
III. Community Development Financing Test
for Limited Purpose Banks in § ll.26—
Calculations for Metrics and Benchmarks
IV. Weighting of Conclusions
I. Community Development Financing
Tests—Calculation Components and
Allocation of Community Development
Loans and Community Development
Investments
For purposes of the Community
Development Financing Test in § ll.24 and
Community Development Financing Test for
Limited Purpose Banks in § ll.26, the
[Agency] identifies the community
development loans and community
development investments included in the
numerator of the metrics and benchmarks
and the deposits or assets included in the
denominator of the metrics and benchmarks,
as applicable, pursuant to paragraph I.a of
this appendix. The [Agency] determines
whether to include a community
development loan or community
development investment in the numerator for
a particular metric or benchmark pursuant to
the allocation provisions in paragraph I.b of
this appendix.
a. Community development loans and
community development investments,
deposits, and assets included in the
community development financing metrics
and benchmarks—in general. The [Agency]
calculates the community development
financing metrics and benchmarks in
§§ ll.24 and ll.26 using community
development loans and community
development investments and deposits or
assets, as follows:
1. Numerator—i. Community development
loans and community development
investments considered. The [Agency]
includes community development loans and
community development investments
originated, purchased, refinanced, or
renewed by a depository institution or
attributed to a depository institution
pursuant to § ll.21(b) and (c) (e.g., an
affiliate community development loan) in the
numerator of the metrics and benchmarks.
The [Agency] calculates the annual dollar
volume of community development loans
and community development investments by
summing the dollar volume of the following
community development loans and
community development investments for
each calendar year in an evaluation period
(i.e., annual dollar volume of community
development loans and community
development investments):
A. The dollar volume of all community
development loans originated or purchased
and community development investments
made, including legally binding
commitments to extend credit or legally
E:\FR\FM\01FER2.SGM
01FER2
7150
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
binding commitments to invest,1 in that
calendar year;
B. The dollar volume of any increase in the
calendar year to an existing community
development loan that is refinanced or
renewed and in an existing community
development investment that is renewed;
C. The outstanding dollar volume of
community development loans originated or
purchased in previous calendar years and
community development investments made
in previous calendar years, as of December 31
for each calendar year that the loan or
investment remains on the depository
institution’s balance sheet; and
D. The outstanding dollar volume, less any
increase reported in paragraph I.a.1.B of this
appendix in the same calendar year, of a
community development loan the depository
institution refinanced or renewed in a
calendar year subsequent to the calendar year
of origination or purchase, as of December 31
for each calendar year that the loan remains
on the depository institution’s balance sheet,
and an existing community development
investment renewed in a calendar year
subsequent to the calendar year of the
investment, as of December 31 for each
calendar year that the investment remains on
the depository institution’s balance sheet.
ii. Community development loan and
community development investment
allocation. To calculate the metrics and
benchmarks provided in §§ ll.24 and
l.26, the [Agency] includes all community
development loans and community
development investments that are allocated
to the specific facility-based assessment area,
State, multistate MSA, or nationwide area,
respectively, in the numerator for the metric
and benchmarks applicable to that
geographic area. See paragraph I.b of this
appendix for the community development
financing allocation provisions.
2. Denominator. i. Annual dollar volume of
deposits. For purposes of metrics and
benchmarks in § ll.24, the [Agency]
calculates an annual dollar volume of
deposits in a depository institution that is
specific to each metric or benchmark for each
calendar year in the evaluation period (i.e.,
annual dollar volume of deposits). For a
depository institution that collects,
maintains, and reports deposits data as
provided in 12 CFR 25.42, 228.42, or 345.42,
the annual dollar volume of deposits is
determined using the annual average daily
balance of deposits in the depository
institution as provided in statements (e.g.,
monthly or quarterly statements) based on
the deposit location. For a depository
institution that does not collect, maintain,
and report deposits data as provided in 12
CFR 25.42, 228.42, or 345.42, the annual
dollar volume of deposits is determined
using the deposits assigned to each facility
pursuant to the FDIC’s Summary of Deposits.
ii. Annual dollar volume of assets. For
purposes of the metrics and benchmarks in
§ lll.26, the [Agency] calculates an
annual dollar volume of assets for each
calendar year in the evaluation period (i.e.,
the annual dollar volume of assets). The
annual dollar volume of assets is calculated
by averaging the assets for each quarter end
in the calendar year.
b. Allocation of community development
loans and community development
investments. 1. In general. For the
Community Development Financing Test in
§ ll.24 and the Community Development
Financing Test for Limited Purpose Banks in
§ ll.26, the [Agency] considers community
development loans and community
development investments in the evaluation
of a bank’s performance in a facility-based
assessment area, State and multistate MSA,
as applicable, and the nationwide area, based
on the data provided by the bank pursuant
to § ll.42(a)(5)(ii)(E) and the specific
location, if available, pursuant to
§ ll.42(a)(5)(ii)(D). As appropriate, the
[Agency] may also consider publicly
available information and information
provided by government or community
sources that demonstrates that a community
development loan or community
development investment benefits or serves a
facility-based assessment area, State, or
multistate MSA, or the nationwide area.
2. A bank may allocate a community
development loan or community
development investment as follows:
i. A community development loan or
community development investment that
benefits or serves only one county, and not
any areas beyond that one county, would
have the full dollar amount of the activity
allocated to that county.
ii. A community development loan or
community development investment that
benefits or serves multiple counties, a State,
a multistate MSA, multiple States, multiple
multistate MSAs, or the nationwide area is
allocated according to either specific
documentation that the bank can provide
regarding the dollar amount allocated to each
county or based on the geographic scope of
the activity, as follows:
A. Allocation approach if specific
documentation is available. A bank may
allocate a community development loan or
community development investment or
portion of a loan or investment based on
documentation that specifies the appropriate
dollar volume to assign to each county, such
as specific addresses and dollar volumes
associated with each address, or other
information that indicates the specific dollar
volume of the loan or investment that
benefits or serves each county.
B. Allocation approach based on
geographic scope of a community
development loan or community
development investment.2 In the absence of
specific documentation, the [Agency] will
allocate a community development loan or
community development investment based
on the geographic scope of the loan or
investment as follows:
1. Allocate at the county level for a loan
or investment with a geographic scope of one
county;
2. Allocate at the county level based on the
proportion of low- and moderate-income
families in each county for a loan or
investment with a geographic scope of less
than an entire State or multistate MSA;
3. Allocate at the State or multistate MSA
level for a loan or investment with a
geographic scope of the entire State or
multistate MSA, as applicable;
4. Allocate at the State or multistate MSA
level, as applicable, based on the proportion
of low- and moderate-income families in
each State or multistate MSA for a loan or
investment with a geographic scope of one or
more State(s) or multistate MSA(s), but not
the entire nation; and
5. Allocate at the nationwide area level for
a loan or investment with a geographic scope
of the entire Nation.
ddrumheller on DSK120RN23PROD with RULES2
TABLE 1 TO APPENDIX B—COMMUNITY DEVELOPMENT LOAN OR COMMUNITY DEVELOPMENT INVESTMENT ALLOCATION
Community development loan or community
development investment benefits or serves
Allocation approach if specific documentation
is available
Allocation approach based on geographic
scope of activity
One county ........................................................
Multiple counties that are part of one State or
multistate MSA.
Allocate to county .............................................
Allocate to counties ..........................................
One State or multistate MSA ............................
Multiple States or multistate MSAs, less than
the entire nation.
Allocate to counties ..........................................
Allocate to counties ..........................................
NA.
Allocate to counties in proportions equivalent
to the distribution of low- and moderate-income families.
Allocate to the State or multistate MSA.
Allocate to the States or multistate MSAs, as
applicable, based on the proportion of lowand moderate-income families in each State
or multistate MSA.
1 The dollar volume of a legally binding
commitment to extend credit or legally binding
commitment to invest in any given year is: (1) the
full dollar volume committed; or (2) if drawn upon,
the combined dollar volume of the outstanding
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
commitment and any drawn portion of the
commitment.
2 For the purposes of allocating community
development loans and community development
PO 00000
Frm 00578
Fmt 4701
Sfmt 4700
investments, the [Agency] considers low- or
moderate-income families to be located in a State
or multistate MSA, as applicable, consistent with
§ ll.28(c).
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
7151
TABLE 1 TO APPENDIX B—COMMUNITY DEVELOPMENT LOAN OR COMMUNITY DEVELOPMENT INVESTMENT ALLOCATION—
Continued
Community development loan or community
development investment benefits or serves
Allocation approach if specific documentation
is available
Allocation approach based on geographic
scope of activity
Nationwide area .................................................
Allocate to counties ..........................................
Allocate to nationwide area.
II. Community Development Financing Test
in § ll.24—Calculations for Metrics,
Benchmarks, and Combining Performance
Scores
The calculations for metrics, benchmarks,
and combination of performance scores for
Community Development Financing Test in
§ ll.24 are provided in this section.
Additional information regarding relevant
calculation components is set forth in
paragraph I.a of this appendix.
a. Bank Assessment Area Community
Development Financing Metric. The [Agency]
calculates the Bank Assessment Area
Community Development Financing Metric
in § ll.24(b)(1) by:
1. Summing the bank’s annual dollar
volume of community development loans
and community development investments
that benefit or serve the facility-based
assessment area for each year in the
evaluation period.
2. Summing the bank’s annual dollar
volume of deposits located in the facilitybased assessment area for each year in the
evaluation period.
3. Dividing the result of paragraph II.a.1 of
this appendix by the result of paragraph II.a.2
of this appendix.
Example B–1: The bank has a three-year
evaluation period. The bank’s annual dollar
volumes of community development loans
and community development investments
that benefit or serve a facility-based
assessment area are $35,000 (year 1), $25,000
(year 2), and $40,000 (year 3). The sum of the
bank’s annual dollar volumes of community
development loans and community
development investments that benefit or
serve a facility-based assessment area is
therefore $100,000. The bank’s annual dollar
volumes of deposits located in the facilitybased assessment area are $3.1 million (year
1), $3.3 million (year 2), and $3.6 million
(year 3). The sum of the bank’s annual dollar
volumes of deposits located in the facilitybased assessment is therefore $10 million.
For the evaluation period, the Bank
Assessment Area Community Development
Financing Metric would be $100,000 divided
by $10 million, or 0.01 (equivalently, 1
percent).
Bank's community development loans and investments in the assessment area ($100,000)
Deposits in the bank in the assessment area ($10 million)
= Bank Assessment Area Community Development Financing Metric (1 %)
b. Assessment Area Community
Development Financing Benchmark. The
[Agency] calculates the Assessment Area
Community Development Financing
Benchmark in § ll.24(b)(2)(i) for each
facility-based assessment area by:
1. Summing all large depository
institutions’ annual dollar volume of
community development loans and
community development investments that
benefit or serve the facility-based assessment
area for each year in the evaluation period.
2. Summing all large depository
institutions’ annual dollar volume of deposits
located in the facility-based assessment area
for each year in the evaluation period.
3. Dividing the result of paragraph II.b.1 of
this appendix by the result of paragraph II.b.2
of this appendix.
Example B–2: The applicable benchmark
uses a three-year evaluation period. The
annual dollar volumes of community
development loans and community
development investments that benefit or
serve a facility-based assessment area for all
large depository institutions are $3.25
million (year 1), $3 million (year 2), and
$3.75 million (year 3). The sum of the annual
dollar volumes of community development
loans and community development
investments that benefit or serve the facilitybased assessment area conducted by all large
depository institutions is therefore $10
million. The annual dollar volumes of
deposits located in the facility-based
assessment area in all large depository
institutions are $330 million (year 1), $330
million (year 2), and $340 million (year 3).
The sum of the annual dollar volumes of
deposits located in the facility-based
assessment area in all large depository
institutions is therefore $1 billion. For the
evaluation period, the Assessment Area
Community Development Financing
Benchmark for the facility-based assessment
area would be $10 million divided by $1
billion, or 0.01 (equivalently, 1 percent).
Community development loans and investments
in the assessment area by all large depository institutions ($10 million)
Deposits in the assessment area in all large depository institutions ($1 billion)
c. MSA and Nonmetropolitan Nationwide
Community Development Financing
Benchmarks. The [Agency] calculates an
MSA Nationwide Community Development
Financing Benchmark to be used for each
MSA in which the bank has a facility-based
assessment area in the MSA. The [Agency]
calculates a Nonmetropolitan Nationwide
Community Development Financing
Benchmark to be used for each
nonmetropolitan area in which the bank has
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
a facility-based assessment area in the
nonmetropolitan area.
1. MSA Nationwide Community
Development Financing Benchmark. The
[Agency] calculates the MSA Nationwide
Community Development Financing
Benchmark in § ll.24(b)(2)(ii)(A) by:
i. Summing all large depository
institutions’ annual dollar volume of
community development loans and
community development investments that
PO 00000
Frm 00579
Fmt 4701
Sfmt 4700
benefit or serve metropolitan areas in the
nationwide area for each year in the
evaluation period.
ii. Summing all large depository
institutions’ annual dollar volume of deposits
located in metropolitan areas in the
nationwide area for each year in the
evaluation period.
iii. Dividing the result of paragraph II.c.1.i
of this appendix by the result of paragraph
II.c.1.ii of this appendix.
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.072 ER01FE24.073
ddrumheller on DSK120RN23PROD with RULES2
= Assessment Area Community Development Financing Benchmark (1 %)
7152
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Example B–3: The applicable benchmark
uses a three-year evaluation period. The
annual dollar volumes of community
development loans and community
development investments that benefit or
serve metropolitan areas in the nationwide
area conducted by all large depository
institutions are $98 billion (year 1), $100
billion (year 2), and $102 billion (year 3). The
sum of the annual dollar volumes of
community development loans and
community development investments that
benefit or serve metropolitan areas in the
nationwide area conducted by all large
depository institutions is therefore $300
billion. The annual dollar volumes of
deposits located in metropolitan areas in the
nationwide area in all large depository
institutions are $14.9 trillion (year 1), $15
trillion (year 2), and $15.1 trillion (year 3).
The sum of the annual dollar volumes of
deposits located in metropolitan areas in the
nationwide area in all large depository
institutions is therefore $45 trillion. For the
evaluation period, the Metropolitan
Nationwide Community Development
Financing Benchmark would be $300 billion
divided by $45 trillion, or 0.007
(equivalently, 0.7 percent).
Community development loans and investments
nationwide in metropolitan areas by all large depository institutions ($300 billion)
Deposits nationwide in metropolitan areas in all large depository institutions ($45 trillion)
= Metropolitan Nationwide Community Development Financing Benchmark (0.7%)
2. Nonmetropolitan Nationwide
Community Development Financing
Benchmark. The [Agency] calculates the
Nonmetropolitan Nationwide Community
Development Financing Benchmark in
§ ll.24(b)(2)(ii)(B) by:
i. Summing all large depository
institutions’ annual dollar volume of
community development loans and
community development investments that
benefit or serve nonmetropolitan areas in the
nationwide area for each year in the
evaluation period.
ii. Summing all large depository
institutions’ annual dollar volume of deposits
located in nonmetropolitan areas in the
nationwide area for each year in the
evaluation period.
iii. Dividing the result of paragraph II.c.2.i
of this appendix by the result of paragraph
II.c.2.ii of this appendix.
Example B–4: The applicable benchmark
uses a three-year evaluation period. The
annual dollar volumes of community
development loans and community
development investments that benefit or
serve nonmetropolitan areas in the
nationwide area conducted by all large
depository institutions are $3 billion (year 1),
$3.2 billion (year 2), and $3.8 billion (year 3).
The sum of the annual dollar volumes of
community development loans and
community development investments that
benefit or serve nonmetropolitan areas in the
nationwide area conducted by all large
depository institutions is therefore $10
billion. The annual dollar volumes of
deposits located in nonmetropolitan areas in
all large depository institutions are $330
billion (year 1), $334 billion (year 2), and
$336 billion (year 3). The sum of the annual
dollar volumes of deposits located in
nonmetropolitan areas in the nationwide area
in all large depository institutions is
therefore $1 trillion. For the evaluation
period, the Nonmetropolitan Nationwide
Community Development Financing
Benchmark would be $10 billion divided by
$1 trillion, or 0.01 (equivalently, 1 percent).
Community development loans and investments
nationwide in nonmetropolitan areas by all large depository institutions ($10 billion)
Deposits nationwide in nonmetropolitan areas in all large depository institutions ($1 trillion)
= Nonmetropolitan Nationwide Community Development Financing Benchmark (1 %)
and community development investments
that benefit or serve the State conducted by
a bank is therefore $50 million. The bank’s
annual dollar volumes of deposits located in
the State are $1.5 billion (year 1), $1.6 billion
(year 2), and $1.9 billion (year 3). The sum
of the bank’s annual dollar volumes of
deposits located in the State is therefore $5
billion. For the evaluation period, the Bank
State Community Development Financing
Metric would be $50 million divided by $5
billion, or 0.01 (equivalently, 1 percent).
Bank's community development loans and investments in the State ($50 million)
Deposits in the bank in the State ($5 billion)
= State Community Development Financing Metric (1%)
e. State Community Development
Financing Benchmark. The [Agency]
calculates the State Community Development
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Financing Benchmark in § ll.24(c)(2)(ii)(A)
by:
PO 00000
Frm 00580
Fmt 4701
Sfmt 4700
1. Summing all large depository
institutions’ annual dollar volume of
community development loans and
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.076
2. Summing the bank’s annual dollar
volume of deposits located in a State for each
year in the evaluation period.
3. Dividing the result of paragraphs II.d.1
of this appendix by the result of paragraph
II.d.2 of this appendix.
Example B–5: The bank has a three-year
evaluation period. The bank’s annual dollar
volumes of community development loans
and community development investments
that benefit or serve the State are $15 million
(year 1), $17 million (year 2), and $18 million
(year 3). The sum of the bank’s annual dollar
volumes of community development loans
ER01FE24.074 ER01FE24.075
ddrumheller on DSK120RN23PROD with RULES2
d. Bank State Community Development
Financing Metric. The [Agency] calculates
the Bank State Community Development
Financing Metric in § ll.24(c)(2)(i) for each
State in which the bank has a facility-based
assessment area by:
1. Summing the bank’s annual dollar
volume of community development loans
and community development investments
that benefit or serve a State (which includes
all activities within the bank’s facility-based
assessment areas and outside of its facilitybased assessment areas but within the State)
for each year in the evaluation period.
7153
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
community development investments that
benefit or serve all or part of a State for each
year in the evaluation period.
2. Summing all large depository
institutions’ annual dollar volume of deposits
located in the State for each year in the
evaluation period.
3. Dividing the result of paragraph II.e.1 of
this appendix by the result of paragraph II.e.2
of this appendix.
Example B–6: The applicable benchmark
uses a three-year evaluation period. The
annual dollar volumes of community
development loans and community
development investments that benefit or
serve the State conducted by all large
depository institutions are $2.3 billion (year
1), $2.5 billion (year 2), and $2.7 billion (year
3). The sum of the annual dollar volumes of
community development loans and
community development investments that
benefit or serve the State conducted by all
large depository institutions is therefore $7.5
billion. The annual dollar volumes of
deposits located in the State in all large
depository institutions are $160 billion (year
1), $170 billion (year 2), and $170 billion
(year 3). The sum of the annual dollar
volumes of deposits located in the State in
all large depository institutions is therefore
$500 billion. For the evaluation period, the
State Community Development Financing
Benchmark would be $7.5 billion divided by
$500 billion, or 0.015 (equivalently, 1.5
percent).
Community development loans and investments
in the State by all large depository institutions ($7.5 billion)
Deposits in the State in all large depository institutions ($500 billion)
= State Community Development Financing Benchmark (1.5%)
f. State Weighted Assessment Area
Community Development Financing
Benchmark. The [Agency] calculates the
State Weighted Assessment Area Community
Development Financing Benchmark in
§ ll.24(c)(2)(ii)(B) by averaging all of the
applicable Assessment Area Community
Development Financing Benchmarks (see
paragraph II.b of this appendix) in a State for
the evaluation period, after weighting each
pursuant to paragraph II.o of this appendix.
Example B–7: The bank has two facilitybased assessment areas (FBAAs) in a State
(FBAA–1 and FBAA–2). The [Agency] does
not evaluate the bank’s automobile lending.
• In FBAA–1, the Assessment Area
Community Development Financing
Benchmark is 3.0 percent. FBAA–1
represents 70 percent of the combined dollar
volume of the deposits in the bank in FBAA–
1 and FBAA–2. FBAA–1 represents 65
percent of the bank’s combined dollar
volume of originated and purchased closedend home mortgage loans, small business
loans, and small farm loans in FBAA–1 and
FBAA–2. FBAA–1 represents 55 percent of
the bank’s number of originated and
purchased closed-end home mortgage loans,
small business loans, and small farm loans in
FBAA–1 and FBAA–2;
• In FBAA–2, the Assessment Area
Community Development Financing
Benchmark is 5.0 percent. FBAA–2
represents 30 percent of the combined dollar
volume of the deposits in the bank in FBAA–
1 and FBAA–2. FBAA–2 represents 35
percent of the bank’s combined dollar
volume of originated and purchased closedend home mortgage loans, small business
loans, and small farm loans in FBAA–1 and
FBAA–2. FBAA–2 represents 45 percent of
the bank’s number of originated and
purchased closed-end home mortgage loans,
small business loans, and small farm loans in
FBAA–1 and FBAA–2.
FBAA–1
Benchmark ...............................................................................................................................................................
% of deposits ...........................................................................................................................................................
% of lending dollar volume ......................................................................................................................................
% of number of loans ..............................................................................................................................................
• Calculating weights for FBAA–1:
Æ The percent of originated and purchased
closed-end home mortgage lending, small
business lending, and small farm lending,
based on the combination of loan dollars and
FBAA–2
3.0
70%
65%
55%
5.0
30%
35%
45%
loan count, as defined in § ll.12, for
FBAA–1 is 60 percent.
Percent of lending dollar volume (55%) + Percent of loans (65%)
2
= Percent of lending FBAA -
1 (60%)
Æ The weight for FBAA–1 is 65 percent.
ddrumheller on DSK120RN23PROD with RULES2
2
= Weight for FBAA • Calculating weights for FBAA–2:
Æ The percent of originated and purchased
closed-end home mortgage lending, small
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
1 (65%)
business lending, and small farm lending,
based on the combination of loan dollars and
loan count, for FBAA–2 is 40 percent.
PO 00000
Frm 00581
Fmt 4701
Sfmt 4700
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.077 ER01FE24.078
ER01FE24.079
Percent ofdeposits (70%) + Percent of lending (60%)
7154
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Percent of lending dollar volume (35%) + Percent of loans (45%)
2
= Percent of lending FBAA -
2 (40%)
Æ The weight for FBAA–2 is 35 percent.
Percent of deposits (30%) + Percent oflending (40%)
z
• Applying the calculated weights for
FBAA–1 and FBAA–2:
o The bank’s State Weighted Assessment
Area Community Development Financing
Benchmark is 3.7 percent.
(Weight for FBAA–1 (0.65) × Benchmark in
FBAA–1 (3%)) + (Weight for FBAA–2 (0.35)
× Benchmark in FBAA–2 (5%)) = State
Weighted Assessment Area Community
Development Financing Benchmark (3.7%)
g. Bank Multistate MSA Community
Development Financing Metric. The [Agency]
calculates the Bank Multistate MSA
Community Development Financing Metric
in § ll.24(d)(2)(i) for each multistate MSA
in which the bank has a facility-based
assessment area by:
1. Summing the bank’s annual dollar
volume of community development loans
= Weight for FBAA -
and community development investments
that benefit or serve a multistate MSA (which
includes all activities within the bank’s
facility-based assessment areas and outside of
its facility-based assessment areas but within
the multistate MSA) for each year in the
evaluation period.
2. Summing the bank’s annual dollar
volume of deposits located in the multistate
MSA for each year in the evaluation period.
3. Dividing the result of paragraph II.g.1 of
this appendix by the result of paragraph II.g.2
of this appendix.
Example B–8: The bank has a three-year
evaluation period. The bank’s annual dollar
volumes of community development loans
and community development investments
that benefit or serve a multistate MSA are $47
million (year 1), $51 million (year 2), and $52
2 (35%)
million (year 3). The sum of the bank’s
annual dollar volumes of community
development loans and community
development investments that benefit or
serve a multistate MSA conducted by the
bank is therefore $150 million. The bank’s
annual dollar volumes of deposits located in
the multistate MSA are $3.1 billion (year 1),
$3.3 billion (year 2), and $3.6 billion (year 3).
The sum of the bank’s annual dollar volumes
of deposits located in the multistate MSA is
therefore $10 billion. For the evaluation
period, the Bank Multistate MSA Community
Development Financing Metric would be
$150 million divided by $10 billion, or 0.015
(equivalently, 1.5 percent).
Bank's community development loans and investments in multistate MSA ($150 million)
Deposits in the bank in multistate MSA ($10 billion)
= Bank's Multistate MSA Community Development Financing Metric (1.5%)
ddrumheller on DSK120RN23PROD with RULES2
All large depository institutions' community development loans and investments
in multistate MSA ($420 million)
Deposits in multistate MSA in all large depository institutions ($15 billion)
= Multistate MSA Community Development Financing Benchmark (2.8%)
i. Multistate MSA Weighted Assessment
Area Community Development Financing
Benchmark. The [Agency] calculates the
Multistate MSA Weighted Assessment Area
Community Development Financing
Benchmark in § ll.24(c)(3)(ii)(B)(2) by
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
averaging all of the bank’s Assessment Area
Community Development Financing
Benchmarks (see paragraph II.b of this
appendix) in a multistate MSA for the
evaluation period, after weighting each
pursuant to paragraph II.o of this appendix.
PO 00000
Frm 00582
Fmt 4701
Sfmt 4700
Example B–10: The bank has two facilitybased assessment areas in a multistate MSA
(FBAA–1 and FBAA–2). The [Agency] does
not evaluate the bank’s automobile lending.
• In FBAA–1, the bank’s Assessment Area
Community Development Financing
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.083
conducted by all large depository institutions
is therefore $420 million. The annual dollar
volumes of deposits located in the multistate
MSA in all large depository institutions are
$4 billion (year 1), $5 billion (year 2), and $6
billion (year 3). The sum of the annual dollar
volume of deposits located in the multistate
MSA in all large depository institutions is
therefore $15 billion. For the evaluation
period, the Multistate MSA Community
Development Financing Benchmark would
be $420 million divided by $15 billion, or
0.028 (equivalently, 2.8 percent).
ER01FE24.082
3. Dividing the result of paragraph II.h.1 of
this appendix by the result of paragraph
II.h.2 of this appendix.
Example B–9: The applicable benchmark
uses a three-year evaluation period. The
annual dollar volumes of community
development loans and community
development investments that benefit or
serve a multistate MSA for all large
depository institutions are $135 million (year
1), $140 million (year 2), and $145 million
(year 3). The sum of the annual dollar
volumes of community development loans
and community development investments
that benefit or serve a multistate MSA
ER01FE24.080 ER01FE24.081
h. Multistate MSA Community
Development Financing Benchmark. The
[Agency] calculates the Multistate MSA
Community Development Financing
Benchmark in § ll.24(d)(2)(ii)(A) by:
1. Summing all large depository
institutions’ annual dollar volume of
community development loans and
community development investments that
benefit or serve all or part of a multistate
MSA for each year in the evaluation period.
2. Summing all large depository
institutions’ annual dollar volume of deposits
located in the multistate MSA for each year
in the evaluation period.
7155
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Benchmark is 3.0 percent. FBAA–1
represents 70 percent of the total dollar
volume of the deposits in the bank in FBAA–
1 and FBAA–2. FBAA–1 represents 65
percent of the bank’s combined dollar
volume of originated and purchased closedend home mortgage loans, small business
loans, and small farm loans in FBAA–1 and
FBAA–2. FBAA–1 represents 55 percent of
the bank’s number of originated and
purchased closed-end home mortgage loans,
small business loans, and small farm loans in
FBAA–1 and FBAA–2;
• In FBAA–2, the bank’s Assessment Area
Community Development Financing
Benchmark is 5.0 percent. FBAA–2
represents 30 percent of the total dollar
volume of the deposits in the bank in FBAA–
1 and FBAA–2. FBAA–2 represents 35
percent of the bank’s combined dollar
volume of originated and purchased closedend home mortgage loans, small business
loans, and small farm loans in FBAA–1 and
FBAA–2. FBAA–2 represents 45 percent of
the bank’s number of originated and
purchased closed-end home mortgage loans,
small business loans, and small farm loans in
FBAA–1 and FBAA–2.
FBAA–1
Benchmark ...............................................................................................................................................................
% of deposits ...........................................................................................................................................................
% of lending dollar volume ......................................................................................................................................
% of loans ................................................................................................................................................................
• Calculating weights for FBAA–1:
Æ The percent of originated and purchased
closed-end home mortgage lending, small
business lending, and small farm lending,
based on the combination of loan dollars and
FBAA–2
3.0
70%
65%
55%
5.0
30%
35%
45%
loan count, as defined in § ll.12, for
FBAA–1 is 60 percent.
Percent of lending dollar volume (55%) + Percent ofloans (65%)
2
= Percent of lending FBAA - 1 (60%)1
Æ The weight for FBAA–1 is 65 percent.
Percent ofdeposits (70%) + Percent oflending (60%)
= Weight for FBAA - 1 (65%)
2
• Calculating weights for FBAA–2:
Æ The percent of originated and purchased
closed-end home mortgage lending, small
business lending, and small farm lending,
based on the combination of loan dollars and
loan count, as defined in § ll.12, for
FBAA–2 is 40 percent.
Percent of lending dollar volume (35%) + Percent ofloans (45%)
2
= Percent of lending FBAA -
2 (40%)
Æ The weight for FBAA–2 is 35 percent.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00583
Fmt 4701
Sfmt 4700
Example B–11: The bank has a three-year
evaluation period. The bank’s annual dollar
volumes of community development loans
and community development investments
that benefit or serve the nationwide area are
$60 million (year 1), $65 million (year 2), and
$75 million (year 3). The sum of the bank’s
annual dollar volumes of community
development loans and community
development investments that benefit or
serve the nationwide area conducted by the
bank is therefore $200 million. The bank’s
annual dollar volumes of deposits located in
the nationwide area are $2.5 billion (year 1),
$2.7 billion (year 2), and $2.8 billion (year 3).
The sum of the bank’s annual dollar volumes
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.087
1. Summing the bank’s annual dollar
volume of community development loans
and community development investments
that benefit or serve the nationwide area
(which includes all activities within the
bank’s facility-based assessment areas and
outside of its facility-based assessment areas
within the nationwide area) for each year in
the evaluation period.
2. Summing the bank’s annual dollar
volume of deposits located in the nationwide
area for each year in the evaluation period.
3. Dividing the results of paragraph II.j.1 of
this appendix by the results of paragraph
II.j.2 of this appendix.
ER01FE24.086
• Applying the calculated weights from
FBAA–1 and FBAA–2:
Æ The bank’s Multistate MSA Weighted
Assessment Area Community Development
Financing Benchmark is 3.7 percent.
(Weight of FBAA–1 (0.65) × Benchmark in
FBAA–1 (3%)) + (weight of FBAA–2 (0.35) ×
benchmark in FBAA–2 (5%)) = Multistate
MSA Weighted Assessment Area Community
Development Financing Benchmark (3.7%)
j. Bank Nationwide Community
Development Financing Metric. The [Agency]
calculates the Bank Nationwide Community
Development Financing Metric in
§ ll.24(e)(2)(i) for the nationwide area by:
ER01FE24.084 ER01FE24.085
ddrumheller on DSK120RN23PROD with RULES2
Percent ofdeposits (30%) + Percent oflending (40%)
I
= Weight for assessment area 2 (35%)
2
7156
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
of deposits located in the nationwide area is
therefore $8 billion. For the evaluation
period, the Bank Nationwide Community
Development Financing Metric would be
$200 million divided by $8 billion, or 0.025
(equivalently, 2.5 percent).
Bank's community development loans and investments nationwide ($200 million)
Deposits nationwide in the bank ($8 billion)
= Nationwide Community Development Financing Metric (2.5%)
k. Nationwide Community Development
Financing Benchmark. The [Agency]
calculates the Nationwide Community
Development Financing Benchmark in
§ ll.24(e)(2)(ii)(A) by:
1. Summing all large depository
institutions’ annual dollar volume of
community development loans and
community development investments that
benefit or serve all or part of the nationwide
area for each year in the evaluation period.
2. Summing all depository institutions’
annual dollar volume of deposits located in
the nationwide area for each year in the
evaluation period.
3. Dividing the result of paragraph II.k.1 of
this appendix by the result of paragraph II.k.2
of this appendix.
Example B–12: The applicable benchmark
uses a three-year evaluation period. The
annual dollar volumes of community
development loans and community
development investments that benefit or
serve the nationwide area for all large
depository institutions are $100 billion (year
1), $103 billion (year 2), and $107 billion
(year 3). The sum of the annual dollar
volumes of community development loans
and community development investments
that benefit or serve the nationwide area
conducted by all large depository institutions
is therefore $310 billion. The annual dollar
volumes of deposits located in the
nationwide area in all large depository
institutions are $15.2 trillion (year 1), $15.3
trillion (year 2), and $15.5 trillion (year 3).
The sum of the annual dollar volumes of
deposits located in the nationwide area in all
large depository institutions is $46 trillion.
For the evaluation period, the Nationwide
Community Development Financing
Benchmark would be $310 billion divided by
$46 trillion, or 0.0067 (equivalently, 0.67
percent).
Community development loans and investments
nationwide by all large depository institutions ($310 billion)
Deposits nationwide in all large depository institutions ($46 trillion)
= Nationwide Community Development Financing Benchmark (0.67%)
represents 40 percent of the bank’s combined
dollar volume of originated and purchased
closed-end home mortgage loans, small
business loans, and small farm loans in
FBAA–1, FBAA–2, and FBAA–3. FBAA–1
represents 60 percent of the bank’s number
of originated and purchased closed-end home
mortgage loans, small business loans, and
small farm loans in FBAA–1, FBAA–2, and
FBAA–3.
• In FBAA–2, the bank’s Assessment Area
Community Development Financing
Benchmark is 3.0 percent. FBAA–2
represents 30 percent of the combined dollar
volume of the deposits in the bank in FBAA–
1, FBAA–2, and FBAA–3. FBAA–2
represents 45 percent of the bank’s combined
dollar volume of originated and purchased
closed-end home mortgage loans, small
business loans, and small farm loans in
FBAA–1, FBAA–2, and FBAA–3. FBAA–2
represents 35 percent of the bank’s number
of originated and purchased closed-end home
mortgage loans, small business loans, and
small farm loans in FBAA–1, FBAA–2, and
FBAA–3.
• In FBAA–3, the bank’s Assessment Area
Community Development Financing
Benchmark is 4.0 percent. FBAA–3
represents 10 percent of the combined dollar
volume of the deposits in the bank in FBAA–
1, FBAA–2, and FBAA–3. FBAA–3
represents 15 percent of the bank’s combined
dollar volume of originated and purchased
closed-end home mortgage loans, small
business loans, and small farm loans in
FBAA–1, FBAA–2, and FBAA–3. FBAA–3
represents 5 percent of the bank’s number of
originated and purchased closed-end home
mortgage loans, small business loans, and
small farm loans in FBAA–1, FBAA–2, and
FBAA–3.
FBAA–1
ddrumheller on DSK120RN23PROD with RULES2
Benchmark ...................................................................................................................................
% of deposits ...............................................................................................................................
% of lending dollar volume ..........................................................................................................
% of loans ....................................................................................................................................
• Calculating weights for FBAA–1:
Æ The percent of originated and purchased
closed-end home mortgage lending, small
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
business lending, and small farm lending,
based on the combination of loan dollars and
PO 00000
Frm 00584
Fmt 4701
Sfmt 4700
2.0
60%
40%
60%
FBAA–2
FBAA–3
3.0
30%
45%
35%
loan count, as defined in § ll.12, for
FBAA–1 is 50 percent.
E:\FR\FM\01FER2.SGM
01FER2
4.0
10%
15%
5%
ER01FE24.088 ER01FE24.089
l. Nationwide Weighted Assessment Area
Community Development Financing
Benchmark. The [Agency] calculates the
Nationwide Weighted Assessment Area
Community Development Financing
Benchmark in § ll.24(e)(2)(ii)(B) by
averaging all of the bank’s Assessment Area
Community Development Financing
Benchmarks (see paragraph II.b of this
appendix) in the nationwide area, after
weighting each pursuant to paragraph II.o of
this appendix.
Example B–13: The bank has three facilitybased assessment areas in the nationwide
area (FBAA–1, FBAA–2, and FBAA–3).
• In FBAA–1, the bank’s Assessment Area
Community Development Financing
Benchmark is 2.0 percent. FBAA–1
represents 60 percent of the combined dollar
volume of the deposits in the bank in FBAA–
1, FBAA–2, and FBAA–3. FBAA–1
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
7157
Percent of lending dollar volume (40%) + Percent of loans (60%)
2
= Percent of lending FBAA -
1 (50%)
Æ The weight for FBAA–1 is 55 percent.
Percent ofdeposits (60%) + Percent of lending (50%)
2
= Weight for FBAA • Calculating weights for FBAA–2:
Æ The percent of originated and purchased
closed-end home mortgage lending, small
1 (55%)
business lending, and small farm lending,
based on the combination of loan dollars and
loan count, as defined in § ll.12, for
FBAA–2 is 40 percent.
Percent of lending dollar volume (45%) + Percent of loans (35%)
2
= Percent of lending FBAA -
2 (40%)
Æ The weight for FBAA–2 is 35 percent.
Percent ofdeposits (30%) + Percent oflending (40%)
2
= Weight for FBAA • Calculating weights for FBAA–3:
Æ The percent of originated and purchased
closed-end home mortgage lending, small
2 (35%)
business lending, and small farm lending,
based on the combination of loan dollars and
loan count, as defined in § ll.12, for
FBAA–3 is 10 percent.
2
3 (10%)
Æ The weight for FBAA–3 is 10 percent.
2
ddrumheller on DSK120RN23PROD with RULES2
= Weight for FBAA • Applying the calculated weights from
FBAA–1, FBAA–2, and FBAA–3:
Æ The bank’s Nationwide Weighted
Assessment Area Community Development
Financing Benchmark is 2.55 percent.
(Weight of FBAA–1(0.55) × Benchmark in
FBAA–1 (2%)) + (Weight of FBAA–2 (0.35)
× Benchmark FBAA–2 (3%)) + (Weight of
FBAA–3 (0.10) × Benchmark in FBAA–3
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
3 (10%)
(4%)) = Nationwide Weighted Assessment
Area Community Development Financing
Benchmark (2.55%)
m. Bank Nationwide Community
Development Investment Metric. The
[Agency] calculates the Bank Nationwide
Community Development Investment Metric
in § ll.24(e)(2)(iii) for the nationwide area
by:
PO 00000
Frm 00585
Fmt 4701
Sfmt 4700
1. Summing the bank’s annual dollar
volume of community development
investments, excluding mortgage-backed
securities, that benefit or serve the
nationwide area (which includes all activities
within the bank’s facility-based assessment
areas and outside of its facility-based
assessment areas within the nationwide area)
for each year in the evaluation period.
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.092
ER01FE24.093
Percent ofdeposits (10%) + Percent of lending (10%)
ER01FE24.090 ER01FE24.091
= Percent of lending FBAA -
ER01FE24.094
ER01FE24.095
Percent of lending dollar volume (15%) + Percent of loans (5%)
7158
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
2. Summing the bank’s annual dollar
volume of deposits located in the nationwide
area for each year in the evaluation period.
3. Dividing the results of paragraph II.m.1
of this appendix by the results of paragraph
II.m.2 of this appendix.
Example B–14: The bank has a three-year
evaluation period. The bank’s annual dollar
volumes of community development
investments (excluding mortgage-backed
securities) that benefit or serve the
nationwide area are $600 million (year 1),
$680 million (year 2), and $720 million (year
3). The sum of the bank’s annual dollar
volumes of community development
investments (excluding mortgage-backed
securities) that benefit or serve the
nationwide area conducted by the bank is
therefore $2 billion. The bank’s annual dollar
volumes of deposits located in the
nationwide area are $24 billion (year 1), $27
billion (year 2), and $29 billion (year 3). The
sum of the bank’s annual dollar volumes of
deposits located in the nationwide area is
therefore $80 billion. For the evaluation
period, the Bank Nationwide Community
Development Investment Metric would be $2
billion divided by $80 billion, or 0.025
(equivalently, 2.5 percent).
Bank's community development investments nationwide ($2 billion)
Deposits at the bank nationwide ($80 billion)
= Nationwide
n. Nationwide Community Development
Investment Benchmark. The [Agency]
calculates the Nationwide Community
Development Investment Benchmark in
§ ll.24(e)(2)(iv) by:
1. Summing the annual dollar volume of
community development investments that
benefit or serve all or part of the nationwide
area, excluding mortgage-backed securities,
for each year in the evaluation period for all
large depository institutions that had assets
greater than $10 billion as of December 31 in
both of the prior two calendar years.
2. Summing the annual dollar volume of
deposits in the nationwide area for each year
in the evaluation period for all large
depository institutions that had assets greater
Community Development Investment Metric (2.5%)
than $10 billion as of December 31 in both
of the prior two calendar years.
3. Dividing the result of paragraph II.n.1 of
this appendix by the result of paragraph
II.n.2 of this appendix.
Example B–15: The applicable benchmark
uses a three-year evaluation period. The
annual dollar volumes of community
development investments (excluding
mortgage-backed securities) that benefit or
serve the nationwide area for all large
depository institutions are $350 billion (year
1), $360 billion (year 2), and $390 billion
(year 3). The sum of the annual dollar
volumes of community development
investments (excluding mortgage-backed
securities) that benefit or serve the
nationwide area conducted by all large
depository institutions is therefore $1.1
trillion. The annual dollar volumes of
deposits located in the nationwide area in all
large depository institutions are $21.9 trillion
(year 1), $22 trillion (year 2), and $22.1
trillion (year 3). The sum of the annual dollar
volumes of deposits located in the
nationwide area in all large depository
institutions is therefore $66 trillion. For the
evaluation period, the Nationwide
Community Development Investment
Benchmark would be $1.1 trillion divided by
$66 trillion, or 0.0167 (equivalently, 1.67
percent).
Community development investments nationwide by all large depository institutions ($1.1 trillion)
Deposits nationwide at all large depository institutions ($66 trillion)
o. Weighting of benchmarks. The [Agency]
calculates a weighted average of the
Assessment Area Community Development
Financing Benchmarks for a bank’s facilitybased assessment areas in each State or
multistate MSA, as applicable, or the
nationwide area. For the weighted average for
a State or multistate MSA, the [Agency]
considers Assessment Area Community
Development Financing Benchmarks for
facility-based assessment areas in the State or
multistate MSA pursuant to § ll.28(c). For
the weighted average for the nationwide area,
the [Agency] considers Assessment Area
Community Development Financing
Benchmarks for all of the bank’s facilitybased assessment areas. Each Assessment
Area Community Development Financing
Benchmark is weighted by the average of the
following two ratios:
1. The ratio measuring the share of the
deposits in the bank in the facility-based
assessment area, calculated by:
i. Summing, over the years in the
evaluation period, the bank’s annual dollar
volume of deposits in the facility-based
assessment area.
ii. Summing, over the years in the
evaluation period, the bank’s annual dollar
volume of deposits in all facility-based
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Benchmark (1.67%)
assessment areas in the State, multistate
MSA, or nationwide area, as applicable.
iii. Dividing the result of paragraph II.o.1.i
of this appendix by the result of paragraph
II.o.1.ii of this appendix.
For a bank that reports deposits data
pursuant to § ll.42(b)(3), the bank’s annual
dollar volume of deposits in a facility-based
assessment area is the total of annual average
daily balances of deposits reported by the
bank in counties in the facility-based
assessment area for that year. For a bank that
does not report deposits data pursuant to
§ ll.42(b)(3), the bank’s annual dollar
volume of deposits in a facility-based
assessment area is the total of deposits
assigned to facilities reported by the bank in
the facility-based assessment area in the
FDIC’s Summary of Deposits for that year.
2. The ratio measuring the share of the
bank’s loans in the facility-based assessment
area, based on the combination of loan
dollars and loan count, as defined in
§ ll.12, calculated by dividing:
i. The bank’s closed-end home mortgage
loans, small business loans, small farm loans,
and, if a product line for the bank,
automobile loans in the facility-based
assessment area originated or purchased
during the evaluation period; by
PO 00000
Frm 00586
Fmt 4701
Sfmt 4700
ii. The bank’s closed-end home mortgage
loans, small business loans, small farm loans,
and, if a product line for the bank,
automobile loans in all facility-based
assessment areas in the State, multistate
MSA, or nationwide area, as applicable,
originated or purchased during the
evaluation period.
p. Combined score for facility-based
assessment area conclusions and the metrics
and benchmarks analyses and the impact
and responsiveness reviews. 1. As described
in § ll.24(c) through (e), the [Agency]
assigns a conclusion corresponding to the
conclusion category that is nearest to the
performance score calculated in paragraph
p.2.iii of this appendix for a bank’s
performance under the Community
Development Financing Test in each State or
multistate MSA, as applicable pursuant to
§ ll.28(c), and for the institution as
follows:
Performance score
8.5 or more ...............
6.5 or more but less
than 8.5.
4.5 or more but less
than 6.5.
E:\FR\FM\01FER2.SGM
01FER2
Conclusion
Outstanding.
High Satisfactory.
Low Satisfactory.
ER01FE24.096 ER01FE24.097
ddrumheller on DSK120RN23PROD with RULES2
= Nationwide Community Development Investment
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Performance score
1.5 or more but less
than 4.5.
Less than 1.5 ............
Conclusion
Needs to Improve.
Substantial Noncompliance.
2. The [Agency] bases a Community
Development Financing Test combined
performance score on the following:
i. Component one—Weighted average of
the bank’s performance scores corresponding
to facility-based assessment area
conclusions. The [Agency] derives a
performance score based on a weighted
average of the performance scores
corresponding to conclusions for facilitybased assessment areas in each State or
multistate MSA, as applicable, and the
nationwide area, calculated pursuant to
section IV of this appendix.
ii. Component two—Bank score for metric
and benchmarks analyses and the impact
and responsiveness reviews. For each State or
multistate MSA, as applicable, and the
nationwide area, the [Agency] determines a
performance score (as shown in paragraph
IV.a of this appendix) corresponding to a
conclusion category by considering the
relevant metric and benchmarks and a review
of the impact and responsiveness of the
bank’s community development loans and
community development investments. In the
nationwide area, for large banks that had
assets greater than $10 billion as of December
31 in both of the prior two calendar years,
the [Agency] also considers whether the
bank’s performance under the Nationwide
Community Development Investment Metric,
compared to the Community Development
Investment Benchmark, contributes
positively to the bank’s Community
Development Financing Test conclusion.
iii. Combined score. The [Agency]
associates the performance score calculated
pursuant to this paragraph II.p.2.iii with a
conclusion category. The [Agency] derives
the combined performance score
corresponding to a conclusion category as
follows:
A. The [Agency] calculates the average of
two components to determine weighting:
1. The percentage, calculated using the
combination of loan dollars and loan count,
as defined in § ll.12, of the bank’s total
originated and purchased closed-end home
mortgage lending, small business lending,
small farm lending, and automobile lending,
as applicable, in its facility-based assessment
areas out of all of the bank’s originated and
purchased closed-end home mortgage
lending, small business lending, small farm
7159
lending, and automobile lending, as
applicable, in the State or multistate MSA, as
applicable, or the nationwide area during the
evaluation period; and
2. The percentage of the total dollar
volume of deposits in its facility-based
assessment areas out of all of the deposits in
the bank in the State or multistate MSA, as
applicable, or the nationwide area during the
evaluation period. For purposes of this
paragraph II.p.2.iii.A.2, ‘‘deposits’’ excludes
deposits reported under § ll.42(b)(3)(ii).
B. If the average is:
1. At least 80 percent, then component one
receives a 50 percent weight and component
two receives a 50 percent weight.
2. At least 60 percent but less than 80
percent, then component one receives a 40
percent weight and component two receives
a 60 percent weight.
3. At least 40 percent but less than 60
percent, then component one receives a 30
percent weight and component two receives
a 70 percent weight.
4. At least 20 percent but less than 40
percent, then component one receives a 20
percent weight and component two receives
an 80 percent weight.
5. Below 20 percent, then component one
receives a 10 percent weight and component
two receives a 90 percent weight.
TABLE 2 TO APPENDIX B—COMPONENT WEIGHTS FOR COMBINED PERFORMANCE SCORE
Weight on
component 1
(percent)
Average of the percentage of deposits and percentage of loans
ddrumheller on DSK120RN23PROD with RULES2
Greater than or equal to 80% ..................................................................................................................................
Greater than or equal to 60% but less than 80% ...................................................................................................
Greater than or equal to 40% but less than 60% ...................................................................................................
Greater than or equal to 20% but less than 40% ...................................................................................................
Below 20% ...............................................................................................................................................................
Example B–16:
• Assume that the weighted average of the
bank’s performance scores corresponding to
its facility-based assessment area conclusions
nationwide is 7.5. Assume further that the
bank score for the metrics and benchmarks
analysis and the review of the impact and
responsiveness of the bank’s community
development loans and community
development investments nationwide is 6.
• Assume further that 95 percent of the
deposits in the bank and 75 percent of the
bank’s originated and purchased closed-end
home mortgage lending, small business
lending, small farm lending, and automobile
loans (calculated using the combination of
loan dollars and loan count, as defined in
§ ll.12) during the evaluation period are
associated with its facility-based assessment
areas.
• The [Agency] assigns weights for
component one and component two based on
the share of deposits in the bank and the
share of the bank’s originated and purchased
closed-end home mortgage lending, small
business lending, small farm lending, and
automobile lending, calculated using the
combination of loan dollars and loan count,
as defined in § ll.12, associated with its
facility-based assessment areas: (95 percent
of deposits + 75 percent of originated and
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
purchased closed-end home mortgage
lending, small business lending, small farm
lending, and automobile lending, based on
the combination of loan dollars and loan
count)/2 = 85 percent, which is between 80
percent and 100 percent.
• Thus, the weighted average of the bank’s
facility-based assessment area conclusions in
the nationwide area (component one—
paragraph II.p.2.i of this appendix) receives
a weight of 50 percent, and the metrics and
benchmarks analysis and the review of the
impact and responsiveness of the bank’s
community development loans and
community development investments in the
nationwide area (component two—paragraph
II.p.2.ii of this appendix) receives a weight of
50 percent.
• Using the point values—‘‘Outstanding’’
(10 points); ‘‘High Satisfactory’’ (7 points);
‘‘Low Satisfactory’’ (6 points); ‘‘Needs to
Improve’’ (3 points); ‘‘Substantial
Noncompliance’’ (0 points)—the bank’s
Community Development Financing Test
conclusion at the institution level is a ‘‘High
Satisfactory’’: (0.50 weight × 7.5 points for
the weighted average of the performance
scores corresponding to the bank’s facilitybased assessment area conclusions
nationwide) + (0.50 weight × 6 points for the
bank score for metrics and benchmarks
PO 00000
Frm 00587
Fmt 4701
Sfmt 4700
50
40
30
20
10
Weight on
component 2
(percent)
50
60
70
80
90
analysis and review of the impact and
responsiveness of the bank’s community
development loans and community
development investments nationwide) results
in a performance score of 6.75, which is
closest to the point value (7) associated with
‘‘High Satisfactory.’’
III. Community Development Financing Test
for Limited Purpose Banks in § ll.26—
Calculations for Metrics and Benchmarks
The calculations for metrics and
benchmarks for Community Development
Financing Test for Limited Purpose Banks in
§ ll.26 are provided in this section.
Additional information regarding relevant
calculation components is set forth in
paragraph I.a of this appendix.
a. Limited Purpose Bank Community
Development Financing Metric. The [Agency]
calculates the Limited Purpose Bank
Community Development Financing Metric
provided in § ll.26 by:
1. Summing the bank’s annual dollar
volume of community development loans
and community development investments
that benefit or serve the nationwide area for
each year in the evaluation period.
2. Summing the bank’s annual dollar
volume of the assets for each year in the
evaluation period.
E:\FR\FM\01FER2.SGM
01FER2
7160
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
3. Dividing the result of paragraph III.a.1 of
this appendix by the result of paragraph
III.a.2 of this appendix.
b. Nationwide Limited Purpose Bank
Community Development Financing
Benchmark. The [Agency] calculates the
Nationwide Limited Purpose Bank
Community Development Financing
Benchmark by:
1. Summing the annual dollar volume of
community development loans and
community development investments of
depository institutions designated as limited
purpose banks or savings associations
pursuant to 12 CFR 25.26(a) or designated as
limited purpose banks pursuant to 12 CFR
228.26(a) or 345.26(a) reported pursuant to
12 CFR 25.42(b), 228.42(b), or 345.42(b) that
benefit or serve all or part of the nationwide
area for each year in the evaluation period.
2. Summing the annual dollar volume of
assets of depository institutions designated as
limited purpose banks or savings associations
pursuant to 12 CFR 25.26(a) or designated as
limited purpose banks pursuant to 12 CFR
228.26(a) or 345.26(a) that reported
community development loans and
community development investments
pursuant to 12 CFR 25.42(b), 228.42(b), or
345.42(b) for each year in the evaluation
period.
3. Dividing the result of paragraph III.b.1
of this appendix by the result of paragraph
III.b.2 of this appendix.
c. Nationwide Asset-Based Community
Development Financing Benchmark. The
[Agency] calculates the Nationwide AssetBased Community Development Financing
Benchmark by:
1. Summing the annual dollar volume of
community development loans and
community development investments of all
depository institutions that reported
pursuant to 12 CFR 25.42(b), 228.42(b), or
345.42(b) that benefit or serve all or part of
the nationwide area for each year in the
evaluation period.
2. Summing the annual dollar volume of
assets of all depository institutions that
reported community development loans and
community development investments
pursuant to 12 CFR 25.42(b), 228. 42(b), or
345.42(b) for each year in the evaluation
period.
3. Dividing the result of paragraph III.c.1 of
this appendix by the result of paragraph
III.c.2 of this appendix.
d. Limited Purpose Bank Community
Development Investment Metric. The
[Agency] calculates the Limited Purpose
Bank Nationwide Community Development
Investment Metric, provided in
§ ll.26(f)(2)(iii), for the nationwide area by:
1. Summing the bank’s annual dollar
volume of community development
investments, excluding mortgage-backed
securities, that benefit or serve the
nationwide area for each year in the
evaluation period.
2. Summing the bank’s annual dollar
volume of assets for each year in the
evaluation period.
3. Dividing the results of paragraph III.d.1
of this appendix by the results of paragraph
III.d.2 of this appendix.
Example B–17: The bank has a three-year
evaluation period. The bank’s annual dollar
volumes of community development
investments (excluding mortgage-backed
securities) that benefit or serve the
nationwide area are $62 million (year 1), $65
million (year 2), and $73 million (year 3).
The sum of the bank’s annual dollar volumes
of community development investments that
benefit or serve the nationwide area
conducted by the bank is therefore $200
million. The bank’s annual dollar volumes of
assets in the bank are $2.4 billion (year 1),
$2.7 billion (year 2), and $2.9 billion (year 3).
The sum of the bank’s annual dollar volumes
of assets in the bank over the evaluation
period is therefore $8 billion. For the
evaluation period, the Bank Nationwide
Community Development Investment Metric
would be $200 million divided by $8 billion,
or 0.025 (equivalently, 2.5 percent).
Bank's community development investments nationwide ($200 million)
Assets in the bank ($8 billion)
= Nationwide Community Development Investment
e. Nationwide Asset-Based Community
Development Investment Benchmark. The
[Agency] calculates the Nationwide AssetBased Community Development Investment
Benchmark, provided in § ll.26(f)(2)(iv),
by:
1. Summing the annual dollar volume of
community development investments,
excluding mortgage-backed securities, of all
depository institutions that had assets greater
than $10 billion, as of December 31 in both
of the prior two calendar years, that benefit
or serve all or part of the nationwide area for
each year in the evaluation period.
2. Summing the annual dollar volume of
assets of all depository institutions that had
assets greater than $10 billion, as of
December 31 in both of the prior two
calendar years, for each year in the
evaluation period.
3. Dividing the result of paragraph III.e.1 of
this appendix by the result of paragraph
III.e.2 of this appendix.
Example B–18: The applicable benchmark
uses a three-year evaluation period. The
annual dollar volumes of community
development investments (excluding
mortgage-backed securities) that benefit or
serve the nationwide area for all depository
institutions that had assets greater than $10
billion are $35 billion (year 1), $37 million
(year 2), and $38 billion (year 3). The sum
of the annual dollar volumes of community
development investments that benefit or
Metric (2.5%)
serve the nationwide area conducted by all
depository institutions that had assets greater
than $10 billion is therefore $110 billion. The
annual dollar volumes of assets in all
depository institutions that had assets greater
than $10 billion are $1.8 trillion (year 1), $2.1
trillion (year 2), and $2.1 trillion (year 3). The
sum of the annual dollar volumes of assets
in all depository institutions that had assets
greater than $10 billion is therefore $6
trillion. For the evaluation period, the
Nationwide Asset-Based Community
Development Investment Benchmark would
be $110 billion divided by $6 trillion, or
0.0183 (equivalently, 1.83 percent).
= Nationwide Asset
- Based Community Development Investment Benchmark (1.83%)
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
PO 00000
Frm 00588
Fmt 4701
Sfmt 4725
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.098 ER01FE24.099
ddrumheller on DSK120RN23PROD with RULES2
Community development investments
nationwide by depository institutions with assets greater than $10 billion ($110 billion)
Assets of depository institutions with assets greater than $10 billion ($6 trillion)
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
IV. Weighting of Conclusions
The [Agency] calculates component one of
the combined performance score, as set forth
in paragraph II.p.2.i of this appendix, for the
Community Development Financing Test in
§ ll.24 and a performance score for the
Community Development Services Test in
§ ll.25 in each State, multistate MSA, and
the nationwide area, as applicable, as
described in this section.
a. The [Agency] translates the Community
Development Financing Test and the
Community Development Services Test
conclusions for facility-based assessment
areas into numerical performance scores, as
follows:
Conclusion
Performance
score
ddrumheller on DSK120RN23PROD with RULES2
Outstanding ..........................
High Satisfactory ..................
Low Satisfactory ...................
Needs to Improve .................
Substantial Noncompliance ..
10
7
6
3
0
b. The [Agency] calculates the weighted
average of facility-based assessment area
performance scores for a State or multistate
MSA, as applicable, and for the institution.
For the weighted average for a State or
multistate MSA, the [Agency] considers
facility-based assessment areas in the State or
multistate MSA pursuant to § ll.28(c). For
the weighted average for the institution, the
[Agency] considers all of the bank’s facilitybased assessment areas. Each facility-based
assessment area performance score is
weighted by the average the following two
ratios:
1. The ratio measuring the share of the
deposits in the bank in the facility-based
assessment area, calculated by:
i. Summing, over the years in the
evaluation period, the bank’s annual dollar
volume of deposits in the facility-based
assessment area.
ii. Summing, over the years in the
evaluation period, the bank’s annual dollar
volume of deposits in all facility-based
assessment areas in the State, in the
multistate MSA, or for the nationwide area,
as applicable.
iii. Dividing the result of paragraph IV.b.1.i
of this appendix by the result of paragraph
IV.b.1.ii of this appendix.
For a bank that reports deposits data
pursuant to § ll.42(b)(3), the bank’s annual
dollar volume of deposits in a facility-based
assessment area is the total of annual average
daily balances of deposits reported by the
bank in counties in the facility-based
assessment area for that year. For a bank that
does not report deposits data pursuant to
§ ll.42(b)(3), the bank’s annual dollar
volume of deposits in a facility-based
assessment area is the total of deposits
assigned to facilities reported by the bank in
the facility-based assessment area in the
FDIC’s Summary of Deposits for that year.
2. The ratio measuring the share of the
bank’s loans in the facility-based assessment
area, based on the combination of loan
dollars and loan count, as defined in
§ ll.12, calculated by dividing:
i. The bank’s closed-end home mortgage
loans, small business loans, small farm loans,
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
and, if a product line for the bank,
automobile loans in the facility-based
assessment area originated or purchased
during the evaluation period; by
ii. The bank’s closed-end home mortgage
loans, small business loans, small farm loans,
and, if a product line for the bank,
automobile loans in all facility-based
assessment areas in the State, in the
multistate MSA, or for the nationwide area,
as applicable, originated or purchased during
the evaluation period.
services facilities availability, if applicable,
pursuant to § ll.23(b)(2) and (3),
respectively.
2. State, multistate MSA, and institution.
The [Agency] develops the Retail Services
and Products Test conclusions for States,
multistate MSAs, and the institution as
described in this paragraph c.2.
i. The [Agency] translates Retail Services
and Products Test conclusions for facilitybased assessment areas into numerical
performance scores as follows:
Appendix C to Part ll—Performance
Test Conclusions
a. Performance test conclusions, in general.
For a bank evaluated under, as applicable,
the Retail Lending Test in § ll.22, the
Retail Services and Products Test in
§ ll.23, the Community Development
Financing Test in § ll.24, the Community
Development Services Test in § ll.25, and
the Community Development Financing Test
for Limited Purpose Banks in § ll.26, the
[Agency] assigns conclusions for the bank’s
CRA performance pursuant to these tests and
this appendix. In assigning conclusions, the
[Agency] may consider performance context
information as provided in § ll.21(d).
b. Retail Lending Test conclusions. The
[Agency] assigns Retail Lending Test
conclusions for each applicable Retail
Lending Test Area, each State or multistate
MSA, as applicable pursuant to § ll.28(c),
and for the institution.
1. Retail Lending Test Area. For each
applicable Retail Lending Test Area, the
[Agency] assigns a Retail Lending Test
conclusion and corresponding performance
score pursuant to § ll.22(h)(1), as follows:
Performance
score
Conclusion
Outstanding ..........................
High Satisfactory ..................
Low Satisfactory ...................
Needs to Improve .................
Substantial Noncompliance ..
10
7
6
3
0
2. State, multistate MSA, and institution.
The [Agency] assigns the Retail Lending Test
conclusions for a bank’s performance in each
State or multistate MSA, as applicable, and
for the institution, as set forth in section VIII
of appendix A to this part.
c. Retail Services and Products Test
conclusions. The [Agency] assigns Retail
Services and Products Test conclusions for
each facility-based assessment area, for each
State or multistate MSA, as applicable
pursuant to § ll.28(c), and for the
institution. For a bank that does not operate
any branches, a main office described in
§ ll.23(a)(2), or remote service facilities,
the [Agency] assigns the bank’s digital
delivery systems and other delivery systems
conclusion as the Retail Services and Product
Test conclusion for the State or multistate
MSA, as applicable.
1. Facility-based assessment area. The
[Agency] assigns a Retail Services and
Products Test conclusion for a bank’s
performance in a facility-based assessment
area based on an evaluation of the bank’s
branch availability and services and remote
PO 00000
Frm 00589
Fmt 4701
Sfmt 4700
7161
Conclusion
Outstanding ..........................
High Satisfactory ..................
Low Satisfactory ...................
Needs to Improve .................
Substantial Noncompliance ..
Performance
score
10
7
6
3
0
ii. The [Agency] calculates the weighted
average of facility-based assessment area
performance scores for a State or multistate
MSA, as applicable, and for the institution.
For the weighted average for a State or
multistate MSA, the [Agency] considers
facility-based assessment areas in the State or
multistate MSA pursuant to § ll.28(c). For
the weighted average for the institution, the
[Agency] considers all of the bank’s facilitybased assessment areas. Each facility-based
assessment area performance score is
weighted by the average the following two
ratios:
A. The ratio measuring the share of the
bank’s deposits in the facility-based
assessment area, calculated by:
1. Summing, over the years in the
evaluation period, the bank’s annual dollar
volume of deposits in the facility-based
assessment area.
2. Summing, over the years in the
evaluation period, the bank’s annual dollar
volume of deposits in all facility-based
assessment areas in the State, in the
multistate MSA, or for the institution, as
applicable.
3. Dividing the result of paragraph
c.2.ii.A.1 of this appendix by the result of
paragraph c.2.ii.A.2 of this appendix.
For a bank that reports deposits data
pursuant to § ll.42(b)(3), the bank’s annual
dollar volume of deposits in a facility-based
assessment area is the total of annual average
daily balances of deposits reported by the
bank in counties in the facility-based
assessment area for that year. For a bank that
does not report deposits data pursuant to
§ ll.42(b)(3), the bank’s annual dollar
volume of deposits in a facility-based
assessment area is the total of deposits
assigned to facilities reported by the bank in
the facility-based assessment area in the
FDIC’s Summary of Deposits for that year.
B. The ratio measuring the share of the
bank’s loans in the facility-based assessment
area, based on the combination of loan
dollars and loan count, as defined in
§ ll.12, calculated by dividing:
1. The bank’s closed-end home mortgage
loans, small business loans, small farm loans,
and, if a product line for the bank,
automobile loans in the facility-based
assessment area originated or purchased
during the evaluation period; by
E:\FR\FM\01FER2.SGM
01FER2
7162
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
2. The bank’s closed-end home mortgage
loans, small business loans, small farm loans,
and, if a product line for the bank,
automobile loans in all facility-based
assessment areas in the State, in the
multistate MSA, or for the institution, as
applicable, originated or purchased during
the evaluation period.
iii. For a State or multistate MSA, as
applicable, the [Agency] assigns a Retail
Services and Products Test conclusion
corresponding to the conclusion category that
is nearest to the weighted average for the
State or multistate MSA calculated pursuant
to paragraph c.2.ii of this appendix (i.e., the
performance score for the Retail Services and
Products Test for the State or multistate
MSA).
Performance score for
the retail services and
products test
8.5 or more ...............
6.5 or more but less
than 8.5.
4.5 or more but less
than 6.5.
1.5 or more but less
than 4.5.
less than 1.5 .............
Conclusion
Outstanding.
High Satisfactory.
Low Satisfactory.
Needs to Improve.
Substantial Noncompliance.
iv. For the institution, the [Agency] assigns
a Retail Services and Products Test
conclusion based on the bank’s combined
retail banking services conclusion, developed
pursuant to paragraph c.2.iv.A of this
appendix, and an evaluation of the bank’s
retail banking products, pursuant to
paragraph c.2.iv.B of this appendix. The
[Agency] translates the Retail Services and
Products Test conclusion for the institution
into a numerical performance score, as
follows:
Conclusion
Performance
score
ddrumheller on DSK120RN23PROD with RULES2
Outstanding ..........................
High Satisfactory ..................
Low Satisfactory ...................
Needs to Improve .................
Substantial Noncompliance ..
10
7
6
3
0
A. Combined retail banking services
conclusion. 1. In general. The [Agency]
evaluates the bank’s retail banking services,
as applicable, and assigns a combined retail
banking services conclusion based the
weighted average for the institution
calculated pursuant to paragraph c.2.ii of this
appendix and a digital and other delivery
systems conclusion, assigned pursuant to
paragraph c.2.iv.A.1 of this appendix. For a
large bank without branches, a main office
described in § ll.23(a)(2), or remote service
facilities, the [Agency] assigns a combined
retail banking services conclusion based only
on a digital delivery systems and other
delivery systems conclusion, assigned
pursuant to paragraph c.2.iv.A.1 of this
appendix.
2. Digital delivery systems and other
delivery systems conclusion. The [Agency]
assigns a digital delivery systems and other
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
delivery systems conclusion based on an
evaluation of a bank’s digital delivery
systems and other delivery systems pursuant
to § ll.23(b)(4).
B. Retail banking products evaluation. The
[Agency] evaluates the bank’s retail banking
products offered in the bank’s facility-based
assessment areas and nationwide, as
applicable, as follows:
1. Credit products and programs. The
[Agency] evaluates the bank’s performance
regarding its credit products and programs
pursuant to § ll.23(c)(2) and determines
whether the bank’s performance contributes
positively to the bank’s Retail Services and
Products Test conclusion that would have
resulted based solely on the retail banking
services conclusion pursuant to paragraph
c.2.iv.A of this appendix.
2. Deposit products. The [Agency]
evaluates the bank’s performance regarding
its deposit products pursuant to
§ ll.23(c)(3), as applicable, and determines
whether the bank’s performance contributes
positively to the bank’s Retail Services and
Products Test conclusion that would have
resulted based solely on the combined retail
banking services conclusion pursuant to
paragraph c.2.iv.A of this appendix.
3. Impact of retail banking products on
Retail Services and Products Test conclusion.
The bank’s retail banking products evaluated
pursuant to § ll.23(c) may positively
impact the bank’s Retail Services and
Products Test conclusion. The bank’s lack of
responsive retail banking products does not
adversely affect the bank’s Retail Services
and Products Test performance conclusion.
d. Community Development Financing Test
conclusions. The [Agency] assigns
Community Development Financing Test
conclusions for each facility-based
assessment area, each State or multistate
MSA, as applicable pursuant to § ll.28(c),
and for the institution.
1. Facility-based assessment area. For each
facility-based assessment area, the [Agency]
assigns a Community Development
Financing Test conclusion and
corresponding performance score based on
the metric and benchmarks as provided in
§ ll.24 and a review of the impact and
responsiveness of a bank’s activities as
provided in § ll.15 as follows:
Performance
score
Conclusion
Outstanding ..........................
High Satisfactory ..................
Low Satisfactory ...................
Needs to Improve .................
Substantial Noncompliance ..
10
7
6
3
0
2. State, multistate MSA, and institution.
The [Agency] assigns Community
Development Financing Test conclusions for
a bank’s performance in each State and
multistate MSA, as applicable pursuant to
§ ll.28(c), and for the institution as set
forth in paragraph II.p of appendix B to this
part.
e. Community Development Services Test
conclusions. The [Agency] assigns
Community Development Services Test
conclusions for each facility-based
PO 00000
Frm 00590
Fmt 4701
Sfmt 4700
assessment area, each State or multistate
MSA, as applicable pursuant to § ll.28(c),
and for the institution.
1. Facility-based assessment area. For each
facility-based assessment area, the [Agency]
develops a Community Development
Services Test conclusion based on the extent
to which a bank provided community
development services, considering the factors
in § ll.25(b). The [Agency] translates the
conclusion for each facility-based assessment
area into a numerical performance score as
follows:
Performance
score
Conclusion
Outstanding ..........................
High Satisfactory ..................
Low Satisfactory ...................
Needs to Improve .................
Substantial Noncompliance ..
10
7
6
3
0
2. State, multistate MSA, or nationwide
area. For each State or multistate MSA, as
applicable pursuant to § ll.28(c), and the
nationwide area, the [Agency] develops a
Community Development Services Test
conclusion as follows:
i. The [Agency] calculates a weighted
average of the performance scores
corresponding to the performance test
conclusions pursuant to section IV of
appendix B to this part. The resulting
number is the Community Development
Services Test performance score for a State,
multistate MSA, or the institution. Subject to
paragraph e.2.ii of this appendix, the
[Agency] assigns a Community Development
Services Test conclusion corresponding to
the conclusion category that is nearest to the
performance score for the Community
Development Services Test as follows:
Performance score for
the community
development services
test
8.5 or more ...............
6.5 or more but less
than 8.5.
4.5 or more but less
than 6.5.
1.5 or more but less
than 4.5.
Less than 1.5 ............
Conclusion
Outstanding.
High Satisfactory.
Low Satisfactory.
Needs to Improve.
Substantial Noncompliance.
ii. The [Agency] may adjust upwards the
Community Development Services Test
conclusion assigned under paragraph e.2.i of
this appendix, based on Community
Development Services Test activities
performed outside of facility-based
assessment areas as provided in § ll.19. If
there is no upward adjustment, the
performance score used for the ratings
calculations described in paragraph b.1 of
appendix D to this part is the Community
Development Services Test performance
score discussed in paragraph e.2.i of this
appendix. If there is an upward adjustment,
the [Agency] translates the Community
Development Services Test conclusion into a
numerical performance score, which will be
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
used for the ratings calculations described in
paragraph b.1 of appendix D to this part, as
follows:
Conclusion
Performance
score
ddrumheller on DSK120RN23PROD with RULES2
Outstanding ..........................
High Satisfactory ..................
Low Satisfactory ...................
Needs to Improve .................
Substantial Noncompliance ..
10
7
6
3
0
f. Community Development Financing Test
for Limited Purpose Banks conclusions. The
[Agency] assigns conclusions for each
facility-based assessment area, each State or
multistate MSA, as applicable pursuant to
§ ll.28(c), and for the institution.
1. Facility-based assessment area. For each
facility-based assessment area, the [Agency]
assigns one of the following Community
Development Financing Test for Limited
Purpose Banks conclusions based on
consideration of the dollar volume of a
bank’s community development loans and
community development investments that
benefit or serve the facility-based assessment
area over the evaluation period, and a review
of the impact and responsiveness of the
bank’s activities in the facility-based
assessment area as provided in § ll.15:
‘‘Outstanding’’; ‘‘High Satisfactory’’; ‘‘Low
Satisfactory’’; ‘‘Needs to Improve’’; or
‘‘Substantial Noncompliance.’’
2. State or multistate MSA. For each State
or multistate MSA, as applicable pursuant to
§ ll.28(c), the [Agency] assigns a
Community Development Financing Test for
Limited Purpose Banks conclusion of
‘‘Outstanding,’’ ‘‘High Satisfactory,’’ ‘‘Low
Satisfactory,’’ ‘‘Needs to Improve,’’ or
‘‘Substantial Noncompliance’’ based on the
following:
i. The bank’s facility-based assessment area
performance test conclusions in each State or
multistate MSA, as applicable;
ii. The dollar volume of a bank’s
community development loans and
community development investments that
benefit or serve the State or multistate MSAs,
as applicable, over the evaluation period; and
iii. A review of the impact and
responsiveness of the bank’s activities in the
State or multistate MSAs, as provided in
§ ll.15.
3. Institution. For the institution, the
[Agency] assigns a Community Development
Financing Test for Limited Purpose Banks
conclusion of ‘‘Outstanding,’’ ‘‘High
Satisfactory,’’ ‘‘Low Satisfactory,’’ ‘‘Needs to
Improve,’’ or ‘‘Substantial Noncompliance’’
based on the following:
i. The bank’s community development
financing performance in all of its facilitybased assessment areas;
ii. The [Agency]’s comparison of the bank’s
Limited Purpose Bank Community
Development Financing Metric to both the
Nationwide Limited Purpose Bank
Community Development Financing
Benchmark and the Nationwide Asset-Based
Community Development Financing
Benchmark;
iii. The [Agency]’s comparison of the
bank’s Limited Purpose Bank Community
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Development Investment Metric to the
Nationwide Asset-Based Community
Development Investment Benchmark; and
iv. A review of the impact and
responsiveness of the bank’s activities in a
nationwide area as provided in § ll.15.
g. Strategic Plan conclusions. The [Agency]
assigns conclusions for a bank that operates
under an approved plan in facility-based
assessment areas, retail lending assessment
areas, outside retail lending areas, State or
multistate MSA, as applicable pursuant to
§ ll.28(c), and for the institution. The
[Agency] assigns conclusions consistent with
the methodology set forth by the bank in its
plan. For elements of the plan that
correspond to performance tests that would
apply to the bank in the absence of an
approved plan, the plan should include a
conclusion methodology that is generally
consistent with paragraphs b through f of this
appendix.
Appendix D to Partll—Ratings
a. Ratings, in general. In assigning a rating,
the [Agency] evaluates a bank’s performance
under the applicable performance criteria in
this part, pursuant to §§ ll.21 and ll.28.
The agency calculates an overall performance
score for each State and multistate MSA, as
applicable pursuant to § ll.28(c), and for
the institution. The [Agency] assigns a rating
of ‘‘Outstanding,’’ ‘‘Satisfactory,’’ ‘‘Needs to
Improve,’’ or ‘‘Substantial Noncompliance’’
for the bank’s performance in each State and
multistate MSA, as applicable pursuant to
§ ll.28(c), and for the institution that is
nearest to the overall performance score, as
follows:
Performance score
8.5 or more ...............
4.5 or more but less
than 8.5.
1.5 or more but less
than 4.5.
Less than 1.5 ............
Rating
Outstanding.
Satisfactory.
Needs to Improve.
Substantial Noncompliance.
The [Agency] also considers any evidence
of discriminatory or other illegal credit
practices pursuant to § ll.28(d) and the
bank’s past performance pursuant to
§ ll.28(e).
b. Large bank ratings at the State,
multistate MSA, and institution levels.
Subject to paragraph g of this appendix, the
[Agency] combines a large bank’s
performance scores for its State, multistate
MSA, or institution-level performance under
the Retail Lending Test in § ll.22, Retail
Services and Products Test in § ll.23,
Community Development Financing Test in
§ ll.24, and Community Development
Services Test in § ll.25 to determine the
bank’s rating in each State or multistate
MSA, as applicable pursuant to § ll.28(c),
and for the institution.
1. The [Agency] weights the performance
scores as follows: Retail Lending Test (40
percent); Retail Services and Products Test
(10 percent); Community Development
Financing Test (40 percent); and Community
Development Services Test (10 percent). The
[Agency] multiplies each of these weights by
PO 00000
Frm 00591
Fmt 4701
Sfmt 4700
7163
the bank’s performance score on the
respective performance test, and then adds
the resulting values together to develop a
State, multistate MSA, or institution-level
performance score.
2. The [Agency] assigns a rating
corresponding with the rating category that is
nearest to the State, multistate MSA, or
institution performance score using the table
in paragraph a of this appendix.
Example D–1: A large bank received the
following performance scores and
conclusions in a State:
• On the Retail Lending Test, the bank
received a 7.3 performance score and a
corresponding conclusion of ‘‘High
Satisfactory;’’
• On the Retail Services and Products Test,
the bank received a 6.0 performance score
and a corresponding conclusion of ‘‘Low
Satisfactory;’’
• On the Community Development
Financing Test, the bank received a 5.7
performance score and a corresponding
conclusion of ‘‘Low Satisfactory;’’ and
• On the Community Development
Services Test, the bank received a 3.0
performance score and a corresponding
conclusion of ‘‘Needs to Improve.’’
Calculating weights:
• For the Retail Lending Test, the weight
is 40 percent (or 0.4);
• For the Retail Services and Products
Test, the weight is 10 percent (or 0.1);
• For the Community Development
Financing Test, the weight is 40 percent (or
0.4); and
• For the Community Development
Services Test, the weight is 10 percent (or
0.1).
State Performance Score: Based on the
illustration in this example D–1, the bank’s
State performance score is 6.1.
(0.4 weight × 7.3 performance score on the
Retail Lending Test = 2.92) + (0.1 weight
× 6.0 performance score on the Retail
Services and Products Test = 0.6) + (0.4
weight × 5.7 performance score on the
Community Development Financing Test
= 2.28) + (0.1 weight × 3.0 performance
score on the Community Development
Services Test = 0.3).
State Rating: A State performance score of
6.1 is greater than 4.5 but less than 8.5,
resulting in a rating of ‘‘Satisfactory.’’
c. Intermediate bank ratings. 1.
Intermediate banks evaluated pursuant to the
Retail Lending Test and the Community
Development Financing Test. Subject to
paragraph g of this appendix, the [Agency]
combines an intermediate bank’s
performance scores for its State, multistate
MSA, or institution performance under the
Retail Lending Test and the Community
Development Financing Test to determine
the bank’s rating in each State or multistate
MSA, as applicable pursuant to § ll.28(c),
and for the institution.
i. The [Agency] weights the performance
scores as follows: Retail Lending Test (50
percent) and Community Development
Financing Test (50 percent). The [Agency]
multiplies each of these weights by the
bank’s corresponding performance score on
the respective performance test, and then
adds the resulting values together to develop
E:\FR\FM\01FER2.SGM
01FER2
7164
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
a State, multistate MSA, or institution
performance score.
ii. The [Agency] assigns a rating
corresponding with the rating category that is
nearest to the State, multistate MSA, or
institution performance score, using the table
in paragraph a of this appendix.
iii. The [Agency] may adjust an
intermediate bank’s institution rating where
the bank has requested and received
sufficient additional consideration pursuant
to § ll.30(b)(2) and (3).
2. Intermediate banks evaluated pursuant
to the Retail Lending Test and the
Intermediate Bank Community Development
Test in § ll.30(a)(2). The [Agency]
combines an intermediate bank’s
performance scores for its State, multistate
MSA, or institution conclusions under the
Retail Lending Test and the Intermediate
Bank Community Development Test in
§ ll.30(a)(2) to determine the bank’s rating
in each State or multistate MSA, as
applicable pursuant to § ll.28(c), and for
the institution.
i. The [Agency] weights the performance
scores as follows: Retail Lending Test (50
percent) and Intermediate Bank Community
Development Test (50 percent). The [Agency]
multiplies each of these weights by the
bank’s corresponding performance score on
the respective performance test, and then
adds the resulting values together to develop
a State, multistate MSA, or institution
performance score. For purposes of this
paragraph c.2.i, the performance score for the
Intermediate Bank Community Development
Test corresponds to the conclusion assigned,
as follows:
Conclusion
Performance
score
ddrumheller on DSK120RN23PROD with RULES2
Outstanding ..........................
High Satisfactory ..................
Low Satisfactory ...................
Needs to Improve .................
Substantial Noncompliance ..
10
7
6
3
0
ii. The [Agency] assigns a rating
corresponding with the rating category that is
nearest to the State, multistate MSA, or
institution performance score using the table
in paragraph a of this appendix.
iii. The [Agency] may adjust an
intermediate bank’s institution rating where
the bank has requested and received
sufficient additional consideration pursuant
to § ll.30(b)(1) and (3).
d. Small bank ratings. 1. Ratings for small
banks that opt to be evaluated pursuant to
the Retail Lending Test in § ll.22. The
[Agency] determines a small bank’s rating for
each State or multistate MSA, as applicable
pursuant to § ll.28(c), and for the
institution based on the performance score
for its Retail Lending Test conclusions for the
State, multistate MSA or institution,
respectively.
i. The [Agency] assigns a rating
corresponding with the rating category that is
nearest to the State, multistate MSA, or
institution performance score using the table
in paragraph a of this appendix.
ii. The [Agency] may adjust a small bank’s
institution rating where the bank has
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
requested and received sufficient additional
consideration pursuant to § ll.29(b)(2) and
(3).
2. Ratings for small banks evaluated under
the Small Bank Lending Test pursuant to
§ ll.29(a)(2). The [Agency] assigns a rating
for small banks evaluated under the Small
Bank Lending Test pursuant to § ll.29(a)(2)
as provided in appendix E to this part.
e. Limited purpose banks. The [Agency]
determines a limited purpose bank’s rating
for each State or multistate MSA, as
applicable pursuant to § ll.28(c), and for
the institution based on the performance
score for its Community Development
Financing Test for Limited Purpose Banks
conclusion for the State, multistate MSA, or
the institution, respectively.
1. The [Agency] assigns a rating
corresponding with the rating category that is
nearest to the State, multistate MSA, or
institution performance score, respectively,
using the table in paragraph a of this
appendix.
2. The [Agency] may adjust a limited
purpose bank’s institution rating where the
bank has requested and received sufficient
additional consideration pursuant to
§ ll.26(b)(2).
f. Ratings for banks operating under an
approved strategic plan. The [Agency]
evaluates the performance of a bank
operating under an approved plan consistent
with the rating methodology that is specified
in the plan pursuant to § ll.27(g)(6). The
[Agency] assigns a rating according to the
category assigned under the rating
methodology specified in the plan:
‘‘Outstanding,’’ ‘‘Satisfactory,’’ ‘‘Needs to
Improve,’’ or ‘‘Substantial Noncompliance.’’
g. Minimum performance test conclusion
requirements. 1. Retail Lending Test
minimum conclusion. An intermediate bank
or a large bank must receive at least a ‘‘Low
Satisfactory’’ Retail Lending Test conclusion
at, respectively, the State, multistate MSA, or
institution level to receive an overall State,
multistate MSA, or institution rating of
‘‘Satisfactory’’ or ‘‘Outstanding.’’
2. Minimum of ‘‘low satisfactory’’ overall
conclusion for 60 percent of facility-based
assessment areas and retail lending
assessment areas. i. Except as provided in
§ ll.51(e), a large bank with a combined
total of 10 or more facility-based assessment
areas and retail lending assessment areas in
any State, multistate MSA, or for the
institution, as applicable, may not receive a
rating of ‘‘Satisfactory’’ or ‘‘Outstanding’’ in
that State, multistate MSA, or for the
institution unless the bank received an
overall conclusion of at least ‘‘Low
Satisfactory’’ in 60 percent or more of the
total number of its facility-based assessment
areas and retail lending assessment areas in
that State or multistate MSA or for the
institution, as applicable.
ii. Overall conclusion in facility-based
assessment areas and retail lending
assessment areas. For purposes of the
requirement in paragraph g.2 of this
appendix:
A. The [Agency] calculates an overall
conclusion in a facility-based assessment
area by combining a large bank’s performance
scores for its conclusions in the facility-based
PO 00000
Frm 00592
Fmt 4701
Sfmt 4700
assessment area pursuant to the Retail
Lending Test in § ll.22, Retail Services and
Products Test in § ll.23, Community
Development Financing Test in § ll.24,
and Community Development Services Test
in § ll.25.
The [Agency] weights the performance
scores as follows: Retail Lending Test (40
percent); Retail Services and Products Test
(10 percent); Community Development
Financing Test (40 percent); and Community
Development Services Test (10 percent). The
[Agency] multiplies each of these weights by
the bank’s performance score on the
respective performance test, and then adds
the resulting values together to develop a
facility-based assessment area performance
score.
The [Agency] assigns a conclusion
corresponding with the conclusion category
that is nearest to the performance score, as
follows:
Performance score
8.5 or more ...............
6.5 or more but less
than 8.5.
4.5 or more but less
than 6.5.
1.5 or more but less
than 4.5.
Less than 1.5 ............
Conclusion
Outstanding.
High Satisfactory.
Low Satisfactory.
Needs to Improve.
Substantial Noncompliance.
B. An overall conclusion in a retail lending
assessment area is the retail lending
assessment area conclusion assigned
pursuant to the Retail Lending Test in
§ ll.22 as provided in appendix C to this
part.
Appendix E to Part ll—Small Bank
and Intermediate Bank Performance
Evaluation Conclusions and Ratings
a. Small banks evaluated under the small
bank performance evaluation. 1. Small Bank
Lending Test conclusions. Unless a small
bank opts to be evaluated pursuant to the
Retail Lending Test in § ll.22, the [Agency]
assigns conclusions for a small bank’s
performance pursuant to the Small Bank
Lending Test in § ll.29(a)(2) for each
facility-based assessment area, in each State
or multistate MSA, as applicable pursuant to
§ ll.28(c), and for the institution of
‘‘Outstanding,’’ ‘‘Satisfactory,’’ ‘‘Needs to
Improve,’’ or ‘‘Substantial Noncompliance.’’
i. Eligibility for a ‘‘Satisfactory’’ Small
Bank Lending Test conclusion. The [Agency]
assigns a small bank’s performance pursuant
to the Small Bank Lending Test a conclusion
of ‘‘Satisfactory’’ if, in general, the bank
demonstrates:
A. A reasonable loan-to-deposit ratio
(considering seasonal variations) given the
bank’s size, financial condition, the credit
needs of its facility-based assessment areas,
and taking into account, as appropriate, other
lending-related activities such as loan
originations for sale to the secondary
markets, community development loans, and
community development investments;
B. A majority of its loans and, as
appropriate, other lending-related activities,
are in its facility-based assessment areas;
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
C. A distribution of retail lending to and,
as appropriate, other lending-related
activities for individuals of different income
levels (including low- and moderate-income
individuals) and businesses and farms of
different sizes that is reasonable given the
demographics of the bank’s facility-based
assessment areas;
D. A reasonable geographic distribution of
loans among census tracts of different income
levels in the bank’s facility-based assessment
areas; and
E. A record of taking appropriate action,
when warranted, in response to written
complaints, if any, about the bank’s
performance in helping to meet the credit
needs of its facility-based assessment areas.
ii. Eligibility for an ‘‘Outstanding’’ Small
Bank Lending Test conclusion. A small bank
that meets each of the standards for a
‘‘Satisfactory’’ conclusion under this
paragraph a.1.ii. and exceeds some or all of
those standards may warrant consideration
for a lending evaluation conclusion of
‘‘Outstanding.’’
iii. ‘‘Needs to Improve’’ or ‘‘Substantial
Noncompliance’’ Small Bank Lending Test
conclusions. A small bank may also receive
a lending evaluation conclusion of ‘‘Needs to
Improve’’ or ‘‘Substantial Noncompliance’’
depending on the degree to which its
performance has failed to meet the standard
for a ‘‘Satisfactory’’ conclusion.
2. Small bank ratings. Unless a small bank
opts to be evaluated pursuant to the Retail
Lending Test in § ll.22, the [Agency]
determines a small bank’s rating for each
State and multistate MSA, as applicable
pursuant to § ll.28(c), and for the
institution based on its Small Bank Lending
Test conclusions at the State, multistate
MSA, and institution level, respectively.
i. The [Agency] assigns a rating based on
the lending evaluation conclusion according
to the category of the conclusion assigned:
‘‘Outstanding,’’ ‘‘Satisfactory,’’ ‘‘Needs to
Improve,’’ or ‘‘Substantial Noncompliance.’’
ii. The [Agency] may adjust a small bank’s
institution rating where the bank has
requested and received sufficient additional
consideration pursuant to § ll.29(b)(1) and
(3).
iii. The [Agency] also considers any
evidence of discriminatory or other illegal
credit practices pursuant to § ll.28(d) and
the bank’s past performance pursuant to
§ ll.28(e).
3. The [Agency] assigns a rating for small
banks evaluated pursuant to the Retail
Lending Test in § ll.22 as provided in
appendix D to this part.
b. Intermediate banks evaluated pursuant
to the Intermediate Bank Community
Development Test in § ll.30. Unless an
intermediate bank opts to be evaluated
pursuant to the Community Development
Financing Test in § ll.24, the [Agency]
assigns conclusions for an intermediate
bank’s performance pursuant to the
Intermediate Bank Community Development
Test in § ll.30 for each State and multistate
MSA, as applicable pursuant to § ll.28(c),
and for the institution of ‘‘Outstanding,’’
‘‘High Satisfactory,’’ ‘‘Low Satisfactory,’’
‘‘Needs to Improve,’’ or ‘‘Substantial
Noncompliance.’’
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
1. Intermediate Bank Community
Development Test conclusions. i. Eligibility
for a ‘‘Satisfactory’’ Intermediate Bank
Community Development Test conclusion.
The [Agency] assigns an intermediate bank’s
community development performance a
‘‘Low Satisfactory’’ conclusion if the bank
demonstrates adequate responsiveness, and a
‘‘High Satisfactory’’ conclusion if the bank
demonstrates good responsiveness, to the
community development needs of its facilitybased assessment areas and, as applicable,
nationwide area through community
development loans, community development
investments, and community development
services. The adequacy of the bank’s
response will depend on its capacity for such
community development activities, the need
for such community development activities,
and the availability of community
development opportunities.
ii. Eligibility for an ‘‘Outstanding’’
Intermediate Bank Community Development
Test conclusion. The [Agency] assigns an
intermediate bank’s community development
performance an ‘‘Outstanding’’ conclusion if
the bank demonstrates excellent
responsiveness to community development
needs in its facility-based assessment areas
and, as applicable, nationwide area through
community development loans, community
development investments, and community
development services. The adequacy of the
bank’s response will depend on its capacity
for such community development activities,
the need for such community development
activities, and the availability of community
development opportunities.
iii. ‘‘Needs to Improve’’ or ‘‘Substantial
Noncompliance’’ Intermediate Bank
Community Development Test conclusions.
The [Agency] assigns an intermediate bank’s
community development performance a
‘‘Needs to Improve’’ or ‘‘Substantial
Noncompliance’’ conclusion depending on
the degree to which its performance has
failed to meet the standards for a
‘‘Satisfactory’’ conclusion.
2. Intermediate bank ratings. The [Agency]
rates an intermediate bank’s performance as
provided in appendix D to this part.
Appendix F to Part ll[Reserved]
END OF COMMON RULE TEXT
List of Subjects
12 CFR Part 25
Community development, Credit,
Investments, National banks, Reporting
and recordkeeping requirements,
Savings associations.
12 CFR Part 228
Banks, banking, Community
development, Credit, Investments,
Reporting and recordkeeping
requirements.
12 CFR Part 345
Banks, Banking, Community
development, Credit, Investments,
Reporting and recordkeeping
requirements.
PO 00000
Frm 00593
Fmt 4701
Sfmt 4700
7165
Adoption of Common Rule
The adoption of the common rule by
the agencies, as modified by the agencyspecific text, is set forth below:
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Chapter I
Authority and Issuance
For the reasons set forth in the
common preamble and under the
authority of 12 U.S.C. 93a and 2905, the
Office of the Comptroller of the
Currency amends part 25 of chapter I of
title 12, Code of Federal Regulations as
follows:
PART 25—COMMUNITY
REINVESTMENT ACT AND
INTERSTATE DEPOSIT PRODUCTION
REGULATIONS
1. The authority citation for part 25
continues to read as follows:
■
Authority: 12 U.S.C. 21, 22, 26, 27, 30, 36,
93a, 161, 215, 215a, 481, 1462a, 1463, 1464,
1814, 1816, 1828(c), 1835a, 2901 through
2908, 3101 through 3111, and 5412(b)(2)(B).
Subpart E—[Redesignated as Subpart
F]
2. Redesignate subpart E as subpart F.
3. Revise subparts A though D, add a
new subpart E, revise appendices A and
B, and add appendices C through F as
set forth at the end of the common
preamble.
■ 4. Further amend part 25 by:
■ a. Removing ‘‘[Agency]’’ and
‘‘[Agency]’s’’ wherever they appear and
adding ‘‘appropriate Federal banking
agency’’ and ‘‘appropriate Federal
banking agency’s’’ in their places,
respectively;
■ b. Except in examples A–1, A–3
through A–5, A–8, and A–11 through
A–17 in appendix A, examples B–1, B–
5, B–7, B–8, B–10, B–11, B–13, B–14, B–
16, and B–17 in appendix B, and
example D–1 in appendix D:
■ i. Removing ‘‘bank’’ and ‘‘bank’’
wherever they appear and adding ‘‘bank
or savings association’’ and ‘‘bank or
savings association’’ in their places,
respectively;
■ ii. Except in the definition of ‘‘large
depository institution’’ in § 25.12,
removing ‘‘banks’’ and ‘‘banks’’
wherever they appear and adding
‘‘banks or savings associations’’ and
‘‘banks or savings associations’’ in their
places, respectively; and
■ iii. Removing ‘‘bank’s’’ and ‘‘bank’s’’
wherever they appear and adding
‘‘bank’s or savings association’s’’ and
■
■
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7166
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
‘‘bank’s or savings association’s’’ in
their places, respectively;
■ c. Except in examples A–1, A–3, A–
5, and A–8 in appendix A and example
B–1 in appendix B, removing ‘‘Bank’’
and ‘‘Banks’’ wherever they appear and
adding ‘‘Bank and savings association’’
and ‘‘Banks and savings associations’’
in their places, respectively;
■ d. Removing ‘‘[operations subsidiary
or operating subsidiary]’’ wherever it
appears and adding ‘‘operating
subsidiary’’ in its place;
■ e. Removing ‘‘[operations subsidiaries
or operating subsidiaries]’’ and
‘‘[operations subsidiaries or operating
subsidiaries]’’ wherever they appear and
adding ‘‘operating subsidiaries’’ and
‘‘operating subsidiaries’’ in their places,
respectively;
■ f. Removing ‘‘Bank and savings
association Volume Metric’’,
‘‘Geographic Bank and savings
association Metric’’, and ‘‘Borrower
Bank and savings association Metric’’
wherever they appear and adding ‘‘Bank
Volume Metric,’’ ‘‘Geographic Bank
Metric,’’ and ‘‘Borrower Bank Metric’’ in
their places, respectively;
■ g. Removing ‘‘Community
Development Financing Test for Limited
Purpose Banks’’ wherever it appears and
adding ‘‘Community Development
Financing Test for Limited Purpose
Banks and Savings Associations’’ in its
place;
■ h. Removing ‘‘Community
Development Financing Test for Limited
Purpose Banks and savings
associations’’ wherever it appears and
adding ‘‘Community Development
Financing Test for Limited Purpose
Banks and Savings Associations’’ in its
place;
■ i. Removing ‘‘Intermediate Bank
Community Development Test’’
wherever it appears and adding
‘‘Intermediate Bank and Savings
Association Community Development
Test’’ in its place;
■ j. Removing ‘‘Intermediate Bank and
savings association Community
Development Test’’ wherever it appears
and adding ‘‘Intermediate Bank and
Savings Association Community
Development Test’’ in its place;
■ k. Removing ‘‘Small Bank Lending
Test’’ wherever it appears and adding
‘‘Small Bank and Savings Association
Lending Test’’ in its place;
■ l. Removing ‘‘Small Bank and savings
association Lending Test’’ wherever it
appears and adding ‘‘Small Bank and
Savings Association Lending Test’’ in its
place;
■ m. Removing ‘‘Limited Purpose Bank
and savings association Community
Development Financing Metric’’
wherever it appears and adding
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
‘‘Limited Purpose Bank Community
Development Financing Metric’’ in its
place; and
■ n. Removing ‘‘Nationwide Limited
Purpose Bank and savings association
Community Development Financing
Benchmark’’ wherever it appears and
adding ‘‘Nationwide Limited Purpose
Bank Community Development
Financing Benchmark’’ in each place.
■ 5. Amend § 25.11 by adding
paragraphs (a) and (c) to read as follows:
§ 25.11
Authority, purposes, and scope.
(a) Authority. The authority for this
part is 12 U.S.C. 21, 22, 26, 27, 30, 36,
93a, 161, 215, 215a, 481, 1462a, 1463,
1464, 1814, 1816, 1828(c), 1835a, 2901
through 2908, 3101 through 3111, and
5412(b)(2)(B).
*
*
*
*
*
(c) Scope—(1) General. (i) This
subpart, subparts B through E of this
part, and appendices A through G to
this part apply to all banks and savings
associations except as provided in
paragraphs (c)(2) and (3) of this section.
Subpart F of this part only applies to
banks.
(ii) With respect to this subpart,
subparts B through E of this part, and
appendices A through F to this part:
(A) The Office of the Comptroller of
the Currency (OCC) has the authority to
prescribe the regulations in this part for
national banks, Federal savings
associations, Federal branches of foreign
banks, and State savings associations
and has the authority to enforce the
regulations in this part for national
banks, Federal branches of foreign
banks, and Federal savings associations;
and
(B) The Federal Deposit Insurance
Corporation (FDIC) has the authority to
enforce the regulations in this part for
State savings associations.
(2) Federal branches and agencies. (i)
This part applies to all insured Federal
branches and to any Federal branch that
is uninsured that results from an
acquisition described in section 5(a)(8)
of the International Banking Act of 1978
(12 U.S.C. 3103(a)(8)).
(ii) Except as provided in paragraph
(c)(2)(i) of this section, this part does not
apply to uninsured Federal branches,
limited Federal branches, or Federal
agencies, as those terms are defined or
used in part 28 of this chapter.
(3) Certain special purpose banks and
savings associations. This part does not
apply to special purpose banks or
special purpose savings associations
that do not perform commercial or retail
banking services by granting credit to
the public in the ordinary course of
business, other than as incident to their
PO 00000
Frm 00594
Fmt 4701
Sfmt 4700
specialized operations. These banks or
savings associations include banker’s
banks, as defined in 12 U.S.C.
24(Seventh), and banks or savings
associations that engage only in one or
more of the following activities:
providing cash management controlled
disbursement services or serving as
correspondent banks or savings
associations, trust companies, or
clearing agents.
■ 6. Amend § 25.12 by:
■ a. Adding the definitions of
‘‘Appropriate Federal banking agency’’
and ‘‘Bank’’ in alphabetical order;
■ b. In the definition of ‘‘Depository
institution’’, removing ‘‘12 CFR 25.11,
228.11, and 345.11’’ and adding
‘‘§ 25.11 and 12 CFR 228.11 and 345.11’’
in its place;
■ c. In the definition of ‘‘Deposits’’, in
paragraph (1):
■ i. Removing ‘‘commercial banks or
savings associations’’ and adding
‘‘commercial banks’’ in its place; and
■ ii. Removing ‘‘foreign banks or savings
associations’’ and adding ‘‘foreign
banks’’ in its place;
■ d. In the definition of ‘‘Distressed or
underserved nonmetropolitan middleincome census tract’’, removing ‘‘the
Federal Deposit Insurance Corporation
(FDIC), and the Office of the
Comptroller of the Currency (OCC)’’ and
adding ‘‘the FDIC, and the OCC’’ in its
place;
■ e. In the definitions of ‘‘Intermediate
bank or savings association’’ and ‘‘Large
bank or savings association’’, removing
‘‘appropriate Federal banking agency’’
and adding ‘‘OCC’’ in its place;
■ f. In the definition of ‘‘Large
Depository Institution’’, removing ‘‘12
CFR 25.26(a)’’ and adding ‘‘§ 25.26(a)’’
in its place;
■ g. Adding the definitions of
‘‘Operating subsidiary’’ and ‘‘Savings
association’’ in alphabetical order; and
■ h. In the definition of ‘‘Small bank
and savings association’’, removing
‘‘appropriate Federal banking agency’’
and adding ‘‘OCC’’.
The additions read as follows:
§ 25.12
Definitions.
*
*
*
*
*
Appropriate Federal banking agency
means, with respect to this subpart
(except in the definition of minority
depository institution in this section),
subparts B through E of this part, and
appendices A through E to this part:
(1) The OCC when the institution is
a bank or Federal savings association;
and
(2) The FDIC when the institution is
a State savings association.
*
*
*
*
*
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Bank means a national bank
(including a Federal branch as defined
in part 28 of this chapter) with federally
insured deposits, except as provided in
§ 25.11(c).
*
*
*
*
*
Operating subsidiary means an
operating subsidiary as described in 12
CFR 5.34 in the case of an operating
subsidiary of a national bank or an
operating subsidiary as described in 12
CFR 5.38 in the case of a savings
association.
*
*
*
*
*
Savings association means a Federal
savings association or a State savings
association.
*
*
*
*
*
■ 7. Delayed indefinitely, further amend
§ 25.12 by:
■ a. In the definition of ‘‘Loan location’’,
revising paragraph (3);
■ b. In the definition of ‘‘Reported
loan’’, revising paragraph (2); and
■ c. Revising the definitions of ‘‘Small
business’’, ‘‘Small business loan’’,
‘‘Small farm’’, and ‘‘Small farm loan’’.
The revisions read as follows:
§ 25.12
Definitions.
ddrumheller on DSK120RN23PROD with RULES2
*
*
*
*
*
Loan location * * *
(3) A small business loan or small
farm loan is located in the census tract
reported pursuant to subpart B of 12
CFR part 1002.
*
*
*
*
*
Reported loan * * *
(2) A small business loan or small
farm loan reported by a bank pursuant
to subpart B of 12 CFR part 1002.
*
*
*
*
*
Small business means a small
business, other than a small farm, as
defined in section 704B of the Equal
Credit Opportunity Act (15 U.S.C.
1691c–2) and implemented by 12 CFR
1002.106.
Small business loan means a loan to
a small business as defined in this
section.
Small farm means a small business, as
defined in section 704B of the Equal
Credit Opportunity Act (15 U.S.C.
1691c–2) and implemented by 12 CFR
1002.106, and that is identified with one
of the 3-digit North American Industry
Classification System (NAICS) codes
111–115.
Small farm loan means a loan to a
small farm as defined in this section.
*
*
*
*
*
§ 25.13
[Amended]
8. Amend § 25.13 in paragraph (k) by:
a. Removing ‘‘CDFI bank or savings
associations’’ wherever it appears and
adding ‘‘CDFI bank’’ in its place; and
■
■
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
b. Removing ‘‘part 25, 228, or 345 of
this title’’ and adding ‘‘this part or 12
CFR part 228 or 345’’ in its place.
■
§ 25.14
[Amended]
9. Amend § 25.14 in paragraphs
(b)(2)(ii) and (b)(3) by removing ‘‘[other
Agencies]’’ and adding ‘‘Board and the
FDIC or the Board and the OCC, as
appropriate,’’ in its place.
■
§ 25.21
[Amended]
10. Amend § 25.21 by:
a. In paragraph (b)(1), removing ‘‘12
CFR part 25, 228, or 345’’ and adding
‘‘this part or 12 CFR part 228 or 345’’
in its place; and
■ b. In paragraph (f), removing ‘‘Banks’’
and adding ‘‘Banks and savings
associations’’ in its place.
■
■
§ 25.22
[Amended]
11. Delayed indefinitely, amend
§ 25.22 by:
■ a. Removing the term ‘‘Businesses’’ in
paragraphs (e)(2)(ii)(C) and (D) and
adding ‘‘Small businesses’’ in its place;
and
■ b. Removing the term ‘‘Farms’’ in
paragraphs (e)(2)(ii)(E) and (F) and
adding ‘‘Small farms’’ in its place.
■
§ 25.24
[Amended]
12. Amend § 25.24 by:
a. In paragraph (b)(1), removing ‘‘Bank
and savings association Assessment
Area Community Development
Financing Metric’’ and adding ‘‘Bank
Assessment Area Community
Development Financing Metric’’ in its
place;
■ b. In paragraph (c)(2)(i), removing
‘‘Bank and savings association State
Community Development Financing
Metric’’ and adding ‘‘Bank State
Community Development Financing
Metric’’ in its place;
■ c. In paragraph (d)(2)(i), removing
‘‘Bank and savings association
Multistate MSA Community
Development Financing Metric’’ and
adding ‘‘Bank Multistate MSA
Community Development Financing
Metric’’ in its place;
■ d. In paragraph (e)(2)(i), removing
‘‘Bank and savings association
Nationwide Community Development
Financing Metric’’ and adding ‘‘Bank
Nationwide Community Development
Financing Metric’’ in its place; and
■ e. In paragraph (e)(2)(iii), removing
‘‘Bank and savings association
Nationwide Community Development
Investment Metric’’ and adding ‘‘Bank
Nationwide Community Development
Investment Metric’’ in its place.
■
■
§ 25.26
■
[Amended]
13. Amend § 25.26 by:
PO 00000
Frm 00595
Fmt 4701
Sfmt 4700
7167
a. In the section heading, removing
‘‘banks or savings associations’’ and
adding ‘‘banks and savings
associations’’ in its place;
■ b. In paragraph (f)(2)(ii)(A), removing
‘‘12 CFR 25.26(a)’’ and ‘‘12 CFR
25.42(b), 228.42(b), or 345.42(b)’’ and
adding ‘‘paragraph (a) of this section’’
and ‘‘§ 25.42(b) or 12 CFR 228.42(b) or
345.42(b)’’ in their places, respectively;
and
■ c. In paragraph (f)(2)(ii)(B), removing
‘‘12 CFR 25.42(b), 228.42(b), or
345.42(b)’’ and adding ‘‘§ 25.42(b) or 12
CFR 228.42(b) or 345.42(b)’’ in its place.
■
§ 25.29
[Amended]
14. Amend § 25.29 in the section
heading by removing ‘‘bank or savings
association’’ and adding ‘‘bank and
savings association’’ in its place.
■
§ 25.30
[Amended]
15. Amend § 25.30 in the section
heading by removing ‘‘bank or savings
association’’ and adding ‘‘bank and
savings association’’ in its place.
■ 16. Add § 25.31 to read as follows:
■
§ 25.31 Effect of CRA performance on
applications.
(a) CRA performance. Among other
factors, the appropriate Federal banking
agency takes into account the record of
performance under the CRA of each
applicant bank or savings association,
and for applications under 10(e) of the
Home Owners’ Loan Act (12 U.S.C.
1467a(e)), of each proposed subsidiary
savings association, in considering an
application for:
(1) The establishment of:
(i) A domestic branch for insured
banks; or
(ii) A domestic branch or other facility
that would be authorized to take
deposits for savings associations;
(2) The relocation of the main office
or a branch;
(3) The merger or consolidation with
or the acquisition of assets or
assumption of liabilities of an insured
depository institution requiring
approval under the Bank Merger Act (12
U.S.C. 1828(c));
(4) The conversion of an insured
depository institution to a national bank
or Federal savings association charter;
and
(5) Acquisitions subject to section
10(e) of the Home Owners’ Loan Act (12
U.S.C. 1467a(e)).
(b) Charter application. (1) An
applicant (other than an insured
depository institution) for a national
bank charter must submit with its
application a description of how it will
meet its CRA objectives. The OCC takes
the description into account in
E:\FR\FM\01FER2.SGM
01FER2
7168
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
considering the application and may
deny or condition approval on that
basis.
(2) An applicant for a Federal savings
association charter must submit with its
application a description of how it will
meet its CRA objectives. The
appropriate Federal banking agency
takes the description into account in
considering the application and may
deny or condition approval on that
basis.
(c) Interested parties. The appropriate
Federal banking agency takes into
account any views expressed by
interested parties that are submitted in
accordance with the applicable
comment procedures in considering
CRA performance in an application
listed in paragraphs (a) and (b) of this
section.
(d) Denial or conditional approval of
application. A bank’s or savings
association’s record of performance may
be the basis for denying or conditioning
approval of an application listed in
paragraph (a) of this section.
(e) Insured depository institution. For
purposes of this section, the term
‘‘insured depository institution’’ has the
meaning given to that term in 12 U.S.C.
1813.
§ 25.42
[Amended]
17. Amend § 25.42 by:
a. In paragraph (h), removing ‘‘12 CFR
part 25, 228, or 345’’ and adding ‘‘this
part or 12 CFR part 228 or 345’’ in its
place; and
■ b. In paragraph (j)(2), removing
‘‘[Agency]’s’’ and adding ‘‘appropriate
Federal banking agency’s’’ in its place.
■ 18. Delayed indefinitely, further
amend § 25.42 by:
■ a. Revising paragraph (a)(1);
■ b. Removing and reserving paragraph
(b)(1); and
■ c. Removing the phrase ‘‘small
business loans and small farm loans
reported as originated or purchased’’ in
paragraphs (g)(1)(i) and (g)(2)(i) and
adding ‘‘small business loans and small
farm loans reported as originated’’ in its
place.
The revision reads as follows:
■
■
ddrumheller on DSK120RN23PROD with RULES2
§ 25.42 Data collection, reporting, and
disclosure.
(a) * * *
(1) Purchases of small business loans
and small farm loans data. A bank that
opts to have the OCC consider its
purchases of small business loans and
small farm loans must collect and
maintain in electronic form, as
prescribed by the OCC, until the
completion of the bank’s next CRA
examination in which the data are
evaluated, the following data for each
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
small business loan or small farm loan
purchased by the bank during the
evaluation period:
(i) A unique number or alpha-numeric
symbol that can be used to identify the
relevant loan file;
(ii) An indicator for the loan type as
reported on the bank’s Call Report or
Report of Assets and Liabilities of U.S.
Branches and Agencies of Foreign
Banks, as applicable;
(iii) The date of the loan purchase;
(iv) The loan amount at purchase;
(v) The loan location, including State,
county, and census tract;
(vi) An indicator for whether the
purchased loan was to a business or
farm with gross annual revenues of
$250,000 or less;
(vii) An indicator for whether the
purchased loan was to a business or
farm with gross annual revenues greater
than $250,000 but less than or equal to
$1 million;
(viii) An indicator for whether the
purchased loan was to a business or
farm with gross annual revenues greater
than $1 million; and
(ix) An indicator for whether the
purchased loan was to a business or
farm for which gross annual revenues
are not known by the bank.
*
*
*
*
*
§ 25.43
[Amended]
19. Amend § 25.43 in paragraph
(b)(2)(i) by removing ‘‘[operations
subsidiaries’ or operating subsidiaries’]’’
and adding ‘‘operating subsidiaries’’’ in
its place.
■ 20. Delayed indefinitely, further
amend § 25.43 by:
■ a. Revising the heading of paragraph
(b)(2); and
■ b. Adding paragraph (b)(2)(iii).
The revision and addition read as
follows:
■
§ 25.43
file.
Content and availability of public
*
*
*
*
*
(b) * * *
(2) Banks required to report HMDA
data and small business lending data.
* * *
(iii) Small business lending data
notice. A bank required to report small
business loan or small farm loan data
pursuant to 12 CFR part 1002 must
include in its public file a written notice
that the bank’s small business loan and
small farm loan data may be obtained on
the CFPB’s website at: https://
www.consumerfinance.gov/dataresearch/small-business-lending/.
*
*
*
*
*
PO 00000
Frm 00596
Fmt 4701
Sfmt 4700
§ 25.44
[Amended]
21. Amend § 25.44 in the section
heading by removing ‘‘banks or savings
associations’’ and adding ‘‘banks and
savings associations’’ in its place.
■
§ 25.46
[Amended]
22. Amend § 25.46 in paragraph (b) by
removing ‘‘[Agency contact
information]’’ and adding
‘‘CRAComments@occ.treas.gov, or by
mailing comments to: Compliance Risk
Policy Division, Bank Supervision
Policy, OCC, Washington, DC 20219, for
banks and Federal savings associations;
or CRACommentCollector@fdic.gov, or
by mailing comments to the address of
the appropriate FDIC regional office
found at https://www.fdic.gov/
resources/bankers/communityreinvestment-act/cra-regional-contactslist.html, for State savings associations’’
in its place.
■ 23. Amend § 25.51 by:
■ a. In paragraph (a)(2)(iii), in the first
sentence, removing ‘‘banks or savings
associations’’ and adding ‘‘banks and
savings associations’’ in its place;
■ b. Revising paragraph (d)(2); and
■ c. In paragraph (e), removing ‘‘[other
Agencies’ CRA regulations]’’ and adding
‘‘12 CFR part 228 or 345’’ in its place.
The revision reads as follows:
■
§ 25.51 Applicability dates and transition
provisions.
*
*
*
*
*
(d) * * *
(2) Existing strategic plans. A strategic
plan in effect as of February 1, 2024,
remains in effect until the expiration
date of the plan except for provisions
that were not permissible under this
part as of January 1, 2022.
*
*
*
*
*
Appendix A to Part 25 [Amended]
24. Amend appendix A by:
a. In paragraph I.b introductory text,
removing ‘‘12 CFR 25.42(b)(1),
228.42(b)(1), or 345.42(b)(1) or 12 CFR
part 1003’’ and adding ‘‘§ 25.42(b)(1), 12
CFR 228.42(b)(1) or 345.42(b)(1), or 12
CFR part 1003’’ in its place; and
■ b. In paragraph I.b.2, removing ‘‘12
CFR 25.42(b)(3), 228.42(b)(3), or
345.42(b)(3)’’ and adding ‘‘§ 25.42(b)(3)
or 12 CFR 228.42(b)(3) or 345.42(b)(3)’’
in its place.
■ 25. Delayed indefinitely, further
amend appendix A by:
■ a. Adding a sentence at the end of
paragraph I.a.1;
■ b. Removing the text ‘‘subject to
reporting pursuant to § 25.42(b)(1), 12
CFR 228.42(b)(1) or 345.42(b)(1),’’ in
paragraph I.b introductory text and
adding in its place the text ‘‘subject to
■
■
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
reporting pursuant to subpart B of 12
CFR part 1002’’;
■ c. Adding a sentence at the end of
paragraph III.a.1;
■ d. Revising paragraphs III.c.3.i and ii,
III.c.4.i and ii, III.c.5.i and ii, and III.c.6.i
and ii;
■ e. In paragraph III.c.8.iii, revising
Example A–7;
■ f. Revising the third and fourth
introductory paragraphs to section IV;
■ g. Adding a sentence at the end of
paragraph IV.a.1;
■ h. Revising the introductory
paragraph to IV.c.3 and paragraphs
IV.c.3.i and ii;
■ i. Revising the introductory paragraph
to IV.c.4 and paragraphs IV.c.4.i and ii;
■ j. Revising the introductory paragraph
to IV.c.5 and paragraphs IV.c.5.i and ii;
■ k. Revising the introductory paragraph
to IV.c.6 and paragraphs IV.c.6.i and ii;
■ l. In section V, in paragraph a, in table
1, revising the entries for ‘‘Small
Business Loans’’ and ‘‘Small Farm
Loans’’; and
■ m. In section VII:
■ i. In paragraph a.1.ii, in table 3,
revising the entries for ‘‘Small Business
Loans’’ and ‘‘Small Farm Loans’’;
■ ii. In paragraph a.1.iii, in table 4,
revising the entries for ‘‘Small Business
Loans’’ and ‘‘Small Farm Loans’’.
The additions and revisions read as
follows:
Appendix A to Part 25—Calculations
for the Retail Lending Test
*
*
*
*
*
I. * * *
a. * * *
1. * * * A bank’s loan purchases that
otherwise meet the definition of a covered
credit transaction to a small business, as
those terms are defined in 12 CFR 1002.104
and 1002.106(b), may be included in the
numerator of the Bank Volume Metric at the
bank’s option.
*
*
*
*
*
III. * * *
a. * * *
1. * * * A bank’s loan purchases that
otherwise meet the definition of a covered
credit transaction to a small business, as
provided in 12 CFR 1002.104 and
1002.106(b), may be included in the
numerator of the Geographic Bank Metric at
the bank’s option.
*
*
*
*
*
c. * * *
3. * * *
i. Summing, over the years in the
evaluation period, the numbers of small
businesses in low-income census tracts in the
facility-based assessment area or retail
lending assessment area.
ii. Summing, over the years in the
evaluation period, the numbers of small
businesses in the facility-based assessment
area or retail lending assessment area.
*
*
*
*
*
4. * * *
i. Summing, over the years in the
evaluation period, the numbers of small
businesses in moderate-income census tracts
in the facility-based assessment area or retail
lending assessment area.
ii. Summing, over the years in the
evaluation period, the numbers of small
businesses in the facility-based assessment
area or retail lending assessment area.
*
*
*
*
*
5. * * *
i. Summing, over the years in the
evaluation period, the numbers of small
farms in low-income census tracts in the
facility-based assessment area or retail
lending assessment area.
ii. Summing, over the years in the
evaluation period, the numbers of small
farms in the facility-based assessment area or
retail lending assessment area.
*
*
*
*
*
7169
6. * * *
i. Summing, over the years in the
evaluation period, the numbers of small
farms in moderate-income census tracts in
the facility-based assessment area or retail
lending assessment area.
ii. Summing, over the years in the
evaluation period, the numbers of small
farms in the facility-based assessment area or
retail lending assessment area.
*
*
*
*
*
8. * * *
iii. * * *
Example A–7: The applicable benchmark
uses a three-year evaluation period. There
were 4,000 small business establishments,
based upon the sum of the numbers of small
business establishments over the years in the
evaluation period (1,300 small business
establishments in year 1, 1,300 small
business establishments in year 2, and 1,400
small business establishments in year 3), in
a bank’s facility-based assessment area. Of
these small business establishments, 500
small business establishments were in lowincome census tracts, based upon the sum of
the numbers of small business establishments
in low-income census tracts over the years in
the evaluation period (200 small business
establishments in year 1,150 small business
in year 2, and 150 small business
establishments in year 3). The Geographic
Community Benchmark for small business
loans in low-income census tracts would be
500 divided by 4,000, or 0.125 (equivalently,
12.5 percent). In addition, 1,000 small
business establishments in that facility-based
assessment area were in moderate-income
census tracts, over the years in the evaluation
period (400 small business establishments in
year 1,300 small business establishments in
year 2, and 300 small business
establishments in year 3). The Geographic
Community Benchmark for small business
loans in moderate-income census tracts
would be 1,000 divided by 4,000, or 0.25
(equivalently, 25 percent).
Small Businesses in Low - Income Census Tracts (500)
Small Businesses (4,000)
= Geographic Community Benchmark (12.5%)
Small Businesses in Moderate - Income Census Tracts (1,000)
Small Businesses (4,000)
*
*
*
*
*
IV. * * *
For small business loans, the appropriate
Federal banking agency calculates these
metrics and benchmarks for each of the
following designated borrowers: (i) small
businesses with gross annual revenues of
$250,000 or less; and (ii) small businesses
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
with gross annual revenues of more than
$250,000 but less than or equal to $1 million.
For small farm loans, the appropriate
Federal banking agency calculates these
metrics and benchmarks for each of the
following designated borrowers: (i) small
farms with gross annual revenues of $250,000
or less; and (ii) small farms with gross annual
PO 00000
Frm 00597
Fmt 4701
Sfmt 4700
revenues of more than $250,000 but less than
or equal to $1 million.
*
*
*
*
*
a. * * *
1. * * * A bank’s loan purchases that
otherwise meet the definition of a covered
credit transaction to a small business, as
provided in 12 CFR 1002.104 and
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.100
ddrumheller on DSK120RN23PROD with RULES2
= Geographic Community Benchmark (25%)
7170
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
1002.106(b), may be included in the
numerator of the Borrower Bank Metric at the
bank’s option.
*
*
*
*
*
c. * * *
3. For small business loans, the appropriate
Federal banking agency calculates a Borrower
Community Benchmark for small businesses
with gross annual revenues of $250,000 or
less by:
i. Summing, over the years in the
evaluation period, the numbers of small
businesses with gross annual revenues of
$250,000 or less in the facility-based lending
area or retail lending assessment area.
ii. Summing, over the years in the
evaluation period, the numbers of small
businesses in the facility-based lending area
or retail lending assessment area.
*
*
*
*
*
4. For small business loans, the appropriate
Federal banking agency calculates a Borrower
Community Benchmark for small businesses
with gross annual revenues of more than
$250,000 but less than or equal to $1 million
by:
i. Summing, over the years in the
evaluation period, the numbers of small
businesses with gross annual revenues of
more than $250,000 but less than or equal to
$1 million in the facility-based lending area
or retail lending assessment area.
ii. Summing, over the years in the
evaluation period, the numbers of small
businesses in the facility-based lending area
or retail lending assessment area.
*
*
*
*
*
5. For small farm loans, the appropriate
Federal banking agency calculates a Borrower
Community Benchmark for small farms with
gross annual revenues of $250,000 or less by:
i. Summing, over the years in the
evaluation period, the numbers of small
farms with gross annual revenues of $250,000
or less in the facility-based lending area or
retail lending assessment area.
ii. Summing, over the years in the
evaluation period, the numbers of small
farms in the facility-based lending area or
retail lending assessment area.
*
*
*
*
*
6. For small farm loans, the appropriate
Federal banking agency calculates a Borrower
Community Benchmark for small farms with
gross annual revenues of more than $250,000
but less than or equal to $1 million by:
i. Summing, over the years in the
evaluation period, the numbers of small
farms with gross annual revenues of more
than $250,000 but less than or equal to $1
million in the facility-based lending area or
retail lending assessment area.
ii. Summing, over the years in the
evaluation period, the numbers of small
farms in the facility-based lending area or
retail lending assessment area.
*
*
*
*
*
V. * * *
a. * * *
TABLE 1 TO APPENDIX A—RETAIL LENDING TEST CATEGORIES OF DESIGNATED CENSUS TRACTS AND DESIGNATED
BORROWERS
Major product line
Designated census tracts
*
*
Small Business Loans ...................
Small Farm Loans ..........................
*
*
*
*
Designated borrowers
*
*
*
*
*
Low-Income Census Tracts ........... Small businesses with Gross Annual Revenues of $250,000 or Less.
Moderate-Income Census Tracts .. Small businesses with Gross Annual Revenues Greater than
$250,000 but Less Than or Equal to $1 million.
Low-Income Census Tracts ........... Small farms with Gross Annual Revenues of $250,000 or Less.
Moderate-Income Census Tracts .. Small farms with Gross Annual Revenues Greater than $250,000 but
Less Than or Equal to $1 million.
1. * * *
ii. * * *
*
VII. * * *
a. * * *
TABLE 3 TO APPENDIX A—RETAIL LENDING TEST, GEOGRAPHIC DISTRIBUTION AVERAGE—WEIGHTS
Category of designated census
tracts
Major product line
*
*
Small Business Loans ...................
Small Farm Loans ..........................
ddrumheller on DSK120RN23PROD with RULES2
*
*
*
*
*
*
*
*
Low-Income Census Tracts ........... Percentage of total number of small businesses in low- and moderate-income census tracts in the applicable Retail Lending Test
Area that are in low-income census tracts.
Moderate-Income Census Tracts .. Percentage of total number of small businesses in low- and moderate-income census tracts in the applicable Retail Lending Test
Area that are in moderate-income census tracts.
Low-Income Census Tracts ........... Percentage of total number of small farms in low- and moderate-income census tracts in the applicable Retail Lending Test Area that
are in low-income census tracts.
Moderate-Income Census Tracts .. Percentage of total number of small farms in low- and moderate-income census tracts in the applicable Retail Lending Test Area that
are in moderate-income census tracts.
*
*
VerDate Sep<11>2014
*
*
*
*
*
iii. * * *
*
18:11 Jan 31, 2024
Weight
Jkt 262001
PO 00000
Frm 00598
Fmt 4701
Sfmt 4700
E:\FR\FM\01FER2.SGM
01FER2
*
7171
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
TABLE 4 TO APPENDIX A—RETAIL LENDING TEST, BORROWER DISTRIBUTION AVERAGE—WEIGHTS
Categories of designated borrowers
Major product line
*
*
Small Business Loans ...................
Small Farm Loans ..........................
*
*
*
*
*
*
*
*
Small businesses with gross an- Percentage of total number of small businesses with gross annual
nual revenues of $250,000 or
revenues of $250,000 or less and small businesses with gross anless.
nual revenues greater than $250,000 but less than or equal to $1
million in the applicable Retail Lending Test Area that are small
businesses with gross annual revenues of $250,000 or less.
Small businesses with gross an- Percentage of total number of small businesses with gross annual
nual revenues greater than
revenues of $250,000 or less and small businesses with gross an$250,000 and less than or equal
nual revenues greater than $250,000 but less than or equal to $1
to $1 million.
million in the applicable Retail Lending Test Area that are small
businesses with gross annual revenues greater than $250,00 but
less than or equal to $1 million.
Small farms with gross annual rev- Percentage of total number of small farms with gross annual reveenues of $250,000 or less.
nues of $250,000 or less and small farms with gross annual revenues greater than $250,000 but less than or equal to $1 million in
the applicable Retail Lending Test Area that are small farms with
gross annual revenues of $250,000 or less.
Small farms with gross annual rev- Percentage of total number of small farms with gross annual reveenues greater than $250,000
nues of $250,000 or less and small farms with gross annual reveand less than or equal to $1 milnues greater than $250,000 but less than or equal to $1 million in
lion.
the applicable Retail Lending Test Area that are small farms with
gross annual revenues greater than $250,000 but less than or
equal to $1 million.
*
*
*
*
*
Appendix B to Part 25 [Amended]
26. Amend appendix B by:
a. In paragraph I.a.2.i, removing ‘‘12
CFR 25.42, 228.42, or 345.42’’ and
adding ‘‘§ 25.42 or 12 CFR 228.42 or
345.42’’ in its place;
■ b. In section II:
■ i. In paragraph a heading, removing
‘‘Bank and savings association
Assessment Area Community
Development Financing Metric’’ and
adding ‘‘Bank Assessment Area
Community Development Financing
Metric’’ in its place;
■ ii. In paragraph d heading, removing
‘‘Bank and savings association State
Community Development Financing
Metric’’ and adding ‘‘Bank State
Community Development Financing
Metric’’ in its place;
■ iii. In paragraph g heading, removing
‘‘Bank and savings association
Multistate MSA Community
Development Financing Metric’’ and
adding ‘‘Bank Multistate MSA
Community Development Financing
Metric’’ in its place;
■ iv. In paragraph j heading, removing
‘‘Bank and savings association
Nationwide Community Development
Financing Metric’’ and adding ‘‘Bank
Nationwide Community Development
Financing Metric’’ in its place; and
■ v. In paragraph m heading, removing
‘‘Bank and savings association
Nationwide Community Development
ddrumheller on DSK120RN23PROD with RULES2
■
■
VerDate Sep<11>2014
18:11 Jan 31, 2024
Weight
Jkt 262001
*
*
Investment Metric’’ and adding ‘‘Bank
Nationwide Community Development
Investment Metric’’ in its place; and
■ c. In section III:
■ i. In the heading, removing ‘‘BANKS’’
and adding ‘‘BANKS AND SAVINGS
ASSOCIATIONS’’ in its place;
■ ii. In paragraphs b.1 and 2, removing
‘‘12 CFR 25.26(a)’’ and ‘‘12 CFR
25.42(b), 228.42(b), or 345.42(b)’’ and
adding ‘‘§ 25.26(a)’’ and ‘‘§ 25.42(b) or
12 CFR 228.42(b) or 345.42(b)’’ in their
places, respectively; and
■ iii. In paragraphs c.1 and 2, removing
‘‘12 CFR 25.42(b), 228.42(b), or
345.42(b)’’ and adding ‘‘§ 25.42(b) or 12
CFR 228.42(b) or 345.42(b)’’ in its place.
■ 27. Amend appendix E by revising the
heading to read as follows:
Appendix E to Part 25—Small Bank
and Savings Association and
Intermediate Bank and Savings
Association Performance Evaluation
Conclusions and Ratings
■
28. Add appendix F to read as follows:
Appendix F to Part 25—CRA Notice
(a) Notice for main offices and, if an
interstate bank, one branch office in each
State.
Community Reinvestment Act Notice
Under the Federal Community
Reinvestment Act (CRA), the [Office of the
Comptroller of the Currency (OCC) or Federal
Deposit Insurance Corporation (FDIC), as
appropriate] evaluates our record of helping
to meet the credit needs of this community
PO 00000
Frm 00599
Fmt 4701
Sfmt 4700
*
*
consistent with safe and sound operations.
The [OCC or FDIC, as appropriate] also takes
this record into account when deciding on
certain applications submitted by us.
Your involvement is encouraged.
You are entitled to certain information
about our operations and our performance
under the CRA, including, for example,
information about our branches, such as their
location and services provided at them; the
public section of our most recent CRA
Performance Evaluation, prepared by the
[OCC or FDIC, as appropriate]; and comments
received from the public relating to our
performance in helping to meet community
credit needs, as well as our responses to
those comments. You may review this
information today.
At least 30 days before the beginning of
each calendar quarter, the [OCC or FDIC, as
appropriate] publishes a list of the banks that
are scheduled for CRA examination by the
[OCC or FDIC, as appropriate] for the next
two quarters. This list is available through
the [OCC’s or FDIC’s, as appropriate] website
at [OCC.gov or FDIC.gov, as appropriate].
You may send written comments about our
performance in helping to meet community
credit needs to (name and address of official
at bank), (title of responsible official), to the
[OCC or FDIC Regional Director, as
appropriate, (address)]. You may also submit
comments electronically to the [OCC at
CRAComments@occ.treas.gov or FDIC
through the FDIC’s website at FDIC.gov/
regulations/cra, as appropriate]. Your written
comments, together with any response by us,
will be considered by the [OCC or FDIC, as
appropriate] in evaluating our CRA
performance and may be made public.
You may ask to look at any comments
received by the [OCC or FDIC Regional
Director, as appropriate]. You may also
E:\FR\FM\01FER2.SGM
01FER2
7172
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
request from the [OCC or FDIC Regional
Director, as appropriate] an announcement of
our applications covered by the CRA filed
with the [OCC or FDIC, as appropriate]. [We
are an affiliate of (name of holding company),
a bank holding company. You may request
from (title of responsible official), Federal
Reserve Bank of llll(address) an
announcement of applications covered by the
CRA filed by bank holding companies.]
(b) Notice for branch offices.
Community Reinvestment Act Notice
Under the Federal Community
Reinvestment Act (CRA), the [Office of the
Comptroller of the Currency (OCC) or Federal
Deposit Insurance Corporation (FDIC), as
appropriate] evaluates our record of helping
to meet the credit needs of this community
consistent with safe and sound operations.
The [OCC or FDIC, as appropriate] also takes
this record into account when deciding on
certain applications submitted by us.
Your involvement is encouraged.
You are entitled to certain information
about our operations and our performance
under the CRA. You may review today the
public section of our most recent CRA
Performance Evaluation, prepared by the
[OCC or FDIC, as appropriate], and a list of
services provided at this branch. You may
also have access to the following additional
information, which we will make available to
you at this branch within five calendar days
after you make a request to us:
(1) A map showing the facility-based
assessment area containing this branch,
which is the area in which the [OCC or FDIC,
as appropriate] evaluates our CRA
performance in this community;
(2) Information about our branches in this
facility-based assessment area;
(3) A list of services we provide at those
locations;
(4) Data on our lending performance in this
facility-based assessment area; and
(5) Copies of all written comments received
by us that specifically relate to our CRA
performance in this facility-based assessment
area, and any responses we have made to
those comments. If we are operating under an
approved strategic plan, you may also have
access to a copy of the plan.
[If you would like to review information
about our CRA performance in other
communities served by us, the public file for
our entire bank is available on our website
(website address) and at (name of office
located in State), located at (address).]
At least 30 days before the beginning of
each calendar quarter, the [OCC or FDIC, as
appropriate] publishes a list of the banks that
are scheduled for CRA examination by the
[OCC or FDIC, as appropriate] for the next
two quarters. This list is available through
the [OCC’s or FDIC’s, as appropriate] website
at [OCC.gov or FDIC.gov, as appropriate].
You may send written comments about our
performance in helping to meet community
credit needs to (name and address of official
at bank), (title of responsible official), to the
[OCC or FDIC Regional Director, as
appropriate (address)]. You may also submit
comments electronically to the [OCC at
CRAComments@occ.treas.gov or FDIC
through the FDIC’s website at FDIC.gov/
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
regulations/cra, as appropriate]. Your written
comment, together with any response by us,
will be considered by the [OCC or FDIC, as
appropriate] in evaluating our CRA
performance and may be made public.
You may ask to look at any comments
received by the [OCC or FDIC Regional
Director, as appropriate]. You may also
request from the [OCC or FDIC Regional
Director, as appropriate] an announcement of
our applications covered by the CRA filed
with the [OCC or FDIC, as appropriate]. [We
are an affiliate of (name of holding company),
a bank holding company. You may request
from (title of responsible official), Federal
Reserve Bank of llll(address) an
announcement of applications covered by the
CRA filed by bank holding companies.]
29. Effective April 1, 2024, through
January 1, 2031, add appendix G to read
as follows:
■
Appendix G to Part 25—Community
Reinvestment Act and Interstate
Deposit Production Regulations
Note: The content of this appendix
reproduces part 25 implementing the
Community Reinvestment Act as of March
31, 2024. Cross-references to CFR parts (as
well as to included sections, subparts, and
appendices) in this appendix are to those
provisions as contained within this appendix
and the CFR as of March 31, 2024.
Subpart A—General
§ 25.11
Authority, purposes, and scope.
(a) Authority and OMB control
number—(1) Authority. The authority
for subparts A, B, C, D, and E is 12
U.S.C. 21, 22, 26, 27, 30, 36, 93a, 161,
215, 215a, 481, 1462a, 1463, 1464, 1814,
1816, 1828(c), 1835a, 2901 through
2908, 3101 through 3111, and
5412(b)(2)(B).
(2) OMB control number. The
information collection requirements
contained in this part were approved by
the Office of Management and Budget
under the provisions of 44 U.S.C. 3501
et seq. and have been assigned OMB
control number 1557–0160.
(b) Purposes. In enacting the
Community Reinvestment Act (CRA),
the Congress required each appropriate
Federal financial supervisory agency to
assess an institution’s record of helping
to meet the credit needs of the local
communities in which the institution is
chartered, consistent with the safe and
sound operation of the institution, and
to take this record into account in the
agency’s evaluation of an application for
a deposit facility by the institution. This
part is intended to carry out the
purposes of the CRA by:
(1) Establishing the framework and
criteria by which the Office of the
Comptroller of the Currency (OCC) or
the Federal Deposit Insurance
Corporation (FDIC), as appropriate,
PO 00000
Frm 00600
Fmt 4701
Sfmt 4700
assesses a bank’s or savings
association’s record of helping to meet
the credit needs of its entire community,
including low- and moderate-income
neighborhoods, consistent with the safe
and sound operation of the bank or
savings association; and
(2) Providing that the OCC takes that
record into account in considering
certain applications.
(c) Scope—(1) General. (i) Subparts A,
B, C, and D, and Appendices A and B,
apply to all banks and savings
associations except as provided in
paragraphs (c)(2) and (3) of this section.
Subpart E only applies to banks.
(ii) With respect to subparts A, B, C,
and D, and Appendices A and B—
(A) The OCC has the authority to
prescribe these regulations for national
banks, Federal savings associations, and
State savings associations and has the
authority to enforce these regulations for
national banks and Federal savings
associations.
(B) The FDIC has the authority to
enforce these regulations for State
savings associations.
(iii) With respect to subparts A, B, C,
and D, and appendix A, references to
appropriate Federal banking agency will
mean the OCC when the institution is a
national bank or Federal savings
association and the FDIC when the
institution is a State savings association.
(2) Federal branches and agencies. (i)
This part applies to all insured Federal
branches and to any Federal branch that
is uninsured that results from an
acquisition described in section 5(a)(8)
of the International Banking Act of 1978
(12 U.S.C. 3103(a)(8)).
(ii) Except as provided in paragraph
(c)(2)(i) of this section, this part does not
apply to Federal branches that are
uninsured, limited Federal branches, or
Federal agencies, as those terms are
defined in part 28 of this chapter.
(3) Certain special purpose banks and
savings associations. This part does not
apply to special purpose banks or
special purpose savings associations
that do not perform commercial or retail
banking services by granting credit to
the public in the ordinary course of
business, other than as incident to their
specialized operations. These banks or
savings associations include banker’s
banks, as defined in 12 U.S.C.
24(Seventh), and banks or savings
associations that engage only in one or
more of the following activities:
Providing cash management controlled
disbursement services or serving as
correspondent banks or savings
associations, trust companies, or
clearing agents.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
§ 25.12
Definitions.
For purposes of subparts A, B, C, and
D, and appendices A and B, of this part,
the following definitions apply:
(a) Affiliate means any company that
controls, is controlled by, or is under
common control with another company.
The term ‘‘control’’ has the meaning
given to that term in 12 U.S.C.
1841(a)(2), and a company is under
common control with another company
if both companies are directly or
indirectly controlled by the same
company.
(b) Area median income means:
(1) The median family income for the
MSA, if a person or geography is located
in an MSA, or for the metropolitan
division, if a person or geography is
located in an MSA that has been
subdivided into metropolitan divisions;
or
(2) The statewide nonmetropolitan
median family income, if a person or
geography is located outside an MSA.
(c) Assessment area means a
geographic area delineated in
accordance with § 25.41.
(d) Automated teller machine (ATM)
means an automated, unstaffed banking
facility owned or operated by, or
operated exclusively for, the bank or
savings association at which deposits
are received, cash dispersed, or money
lent.
(e)(1) Bank or savings association
means, except as provided in § 25.11(c),
a national bank (including a Federal
branch as defined in part 28 of this
chapter) with Federally insured deposits
or a savings association;
(2) Bank and savings association
means, except as provided in § 25.11(c),
a national bank (including a Federal
branch as defined in part 28 of this
chapter) with Federally insured deposits
and a savings association.
(f) Branch means a staffed banking
facility authorized as a branch, whether
shared or unshared, including, for
example, a mini-branch in a grocery
store or a branch operated in
conjunction with any other local
business or nonprofit organization.
(g) Community development means:
(1) Affordable housing (including
multifamily rental housing) for low- or
moderate-income individuals;
(2) Community services targeted to
low- or moderate-income individuals;
(3) Activities that promote economic
development by financing businesses or
farms that meet the size eligibility
standards of the Small Business
Administration’s Development
Company or Small Business Investment
Company programs (13 CFR 121.301) or
have gross annual revenues of $1
million or less; or
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
(4) Activities that revitalize or
stabilize—
(i) Low-or moderate-income
geographies;
(ii) Designated disaster areas; or
(iii) Distressed or underserved
nonmetropolitan middle-income
geographies designated by the Board of
Governors of the Federal Reserve
System, FDIC, and the OCC, based on—
(A) Rates of poverty, unemployment,
and population loss; or
(B) Population size, density, and
dispersion. Activities revitalize and
stabilize geographies designated based
on population size, density, and
dispersion if they help to meet essential
community needs, including needs of
low- and moderate-income individuals.
(h) Community development loan
means a loan that:
(1) Has as its primary purpose
community development; and
(2) Except in the case of a wholesale
or limited purpose bank or savings
association:
(i) Has not been reported or collected
by the bank or savings association or an
affiliate for consideration in the bank’s
or savings association’s assessment as a
home mortgage, small business, small
farm, or consumer loan, unless the loan
is for a multifamily dwelling (as defined
in § 1003.2(n) of this title); and
(ii) Benefits the bank’s or savings
association’s assessment area(s) or a
broader statewide or regional area(s)
that includes the bank’s or savings
association’s assessment area(s).
(i) Community development service
means a service that:
(1) Has as its primary purpose
community development;
(2) Is related to the provision of
financial services; and
(3) Has not been considered in the
evaluation of the bank’s or savings
association’s retail banking services
under § 25.24(d).
(j) Consumer loan means a loan to one
or more individuals for household,
family, or other personal expenditures.
A consumer loan does not include a
home mortgage, small business, or small
farm loan. Consumer loans include the
following categories of loans:
(1) Motor vehicle loan, which is a
consumer loan extended for the
purchase of and secured by a motor
vehicle;
(2) Credit card loan, which is a line
of credit for household, family, or other
personal expenditures that is accessed
by a borrower’s use of a ‘‘credit card,’’
as this term is defined in § 1026.2 of this
title;
(3) Other secured consumer loan,
which is a secured consumer loan that
is not included in one of the other
categories of consumer loans; and
PO 00000
Frm 00601
Fmt 4701
Sfmt 4700
7173
(4) Other unsecured consumer loan,
which is an unsecured consumer loan
that is not included in one of the other
categories of consumer loans.
(k) Geography means a census tract
delineated by the United States Bureau
of the Census in the most recent
decennial census.
(l) Home mortgage loan means a
closed-end mortgage loan or an openend line of credit as these terms are
defined under § 1003.2 of this title, and
that is not an excluded transaction
under § 1003.3(c)(1) through (10) and
(13) of this title.
(m) Income level includes:
(1) Low-income, which means an
individual income that is less than 50
percent of the area median income, or
a median family income that is less than
50 percent, in the case of a geography.
(2) Moderate-income, which means an
individual income that is at least 50
percent and less than 80 percent of the
area median income, or a median family
income that is at least 50 and less than
80 percent, in the case of a geography.
(3) Middle-income, which means an
individual income that is at least 80
percent and less than 120 percent of the
area median income, or a median family
income that is at least 80 and less than
120 percent, in the case of a geography.
(4) Upper-income, which means an
individual income that is 120 percent or
more of the area median income, or a
median family income that is 120
percent or more, in the case of a
geography.
(n) Limited purpose bank or savings
association means a bank or savings
association that offers only a narrow
product line (such as credit card or
motor vehicle loans) to a regional or
broader market and for which a
designation as a limited purpose bank or
savings association is in effect, in
accordance with § 25.25(b).
(o) Loan location. A loan is located as
follows:
(1) A consumer loan is located in the
geography where the borrower resides;
(2) A home mortgage loan is located
in the geography where the property to
which the loan relates is located; and
(3) A small business or small farm
loan is located in the geography where
the main business facility or farm is
located or where the loan proceeds
otherwise will be applied, as indicated
by the borrower.
(p) Loan production office means a
staffed facility, other than a branch, that
is open to the public and that provides
lending-related services, such as loan
information and applications.
(q) Metropolitan division means a
metropolitan division as defined by the
E:\FR\FM\01FER2.SGM
01FER2
7174
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Director of the Office of Management
and Budget.
(r) MSA means a metropolitan
statistical area as defined by the Director
of the Office of Management and
Budget.
(s) Nonmetropolitan area means any
area that is not located in an MSA.
(t) Qualified investment means a
lawful investment, deposit, membership
share, or grant that has as its primary
purpose community development.
(u) Small bank or savings
association—(1) Definition. Small bank
or savings association means a bank or
savings association that, as of December
31 of either of the prior two calendar
years, had assets of less than $1.322
billion. Intermediate small bank or
savings association means a small bank
or savings association with assets of at
least $330 million as of December 31 of
both of the prior two calendar years and
less than $1.322 billion as of December
31 of either of the prior two calendar
years.
(2) Adjustment. The dollar figures in
paragraph (u)(1) of this section shall be
adjusted annually and published by the
appropriate Federal banking agency,
based on the year-to-year change in the
average of the Consumer Price Index for
Urban Wage Earners and Clerical
Workers, not seasonally adjusted, for
each twelve-month period ending in
November, with rounding to the nearest
million.
(v) Small business loan means a loan
included in ‘‘loans to small businesses’’
as defined in the instructions for
preparation of the Consolidated Report
of Condition and Income.
(w) Small farm loan means a loan
included in ‘‘loans to small farms’’ as
defined in the instructions for
preparation of the Consolidated Report
of Condition and Income.
(x) Wholesale bank or savings
association means a bank or savings
association that is not in the business of
extending home mortgage, small
business, small farm, or consumer loans
to retail customers, and for which a
designation as a wholesale bank or
savings association is in effect, in
accordance with § 25.25(b).
ddrumheller on DSK120RN23PROD with RULES2
Subpart B—Standards for Assessing
Performance
§ 25.21 Performance tests, standards, and
ratings, in general.
(a) Performance tests and standards.
The appropriate Federal banking agency
assesses the CRA performance of a bank
or savings association in an examination
as follows:
(1) Lending, investment, and service
tests. The appropriate Federal banking
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
agency applies the lending, investment,
and service tests, as provided in
§§ 25.22 through 25.24, in evaluating
the performance of a bank or savings
association, except as provided in
paragraphs (a)(2), (3), and (4) of this
section.
(2) Community development test for
wholesale or limited purpose banks and
savings associations. The appropriate
Federal banking agency applies the
community development test for a
wholesale or limited purpose bank or
savings association, as provided in
§ 25.25, except as provided in paragraph
(a)(4) of this section.
(3) Small bank and savings
association performance standards. The
appropriate Federal banking agency
applies the small bank or savings
association performance standards as
provided in § 25.26 in evaluating the
performance of a small bank or savings
association or a bank or savings
association that was a small bank or
savings association during the prior
calendar year, unless the bank or
savings association elects to be assessed
as provided in paragraphs (a)(1), (2), or
(4) of this section. The bank or savings
association may elect to be assessed as
provided in paragraph (a)(1) of this
section only if it collects and reports the
data required for other banks or savings
associations under § 25.42.
(4) Strategic plan. The appropriate
Federal banking agency evaluates the
performance of a bank or savings
association under a strategic plan if the
bank or savings association submits, and
the appropriate Federal banking agency
approves, a strategic plan as provided in
§ 25.27.
(b) Performance context. The
appropriate Federal banking agency
applies the tests and standards in
paragraph (a) of this section and also
considers whether to approve a
proposed strategic plan in the context
of:
(1) Demographic data on median
income levels, distribution of household
income, nature of housing stock,
housing costs, and other relevant data
pertaining to a bank’s or savings
association’s assessment area(s);
(2) Any information about lending,
investment, and service opportunities in
the bank’s or savings association’s
assessment area(s) maintained by the
bank or savings association or obtained
from community organizations, state,
local, and tribal governments, economic
development agencies, or other sources;
(3) The bank’s or savings association’s
product offerings and business strategy
as determined from data provided by
the bank or savings association;
PO 00000
Frm 00602
Fmt 4701
Sfmt 4700
(4) Institutional capacity and
constraints, including the size and
financial condition of the bank or
savings association, the economic
climate (national, regional, and local),
safety and soundness limitations, and
any other factors that significantly affect
the bank’s or savings association’s
ability to provide lending, investments,
or services in its assessment area(s);
(5) The bank’s or savings association’s
past performance and the performance
of similarly situated lenders;
(6) The bank’s or savings association’s
public file, as described in § 25.43, and
any written comments about the bank’s
or savings association’s CRA
performance submitted to the bank or
savings association or the appropriate
Federal banking agency; and
(7) Any other information deemed
relevant by the appropriate Federal
banking agency.
(c) Assigned ratings. The appropriate
Federal banking agency assigns to a
bank or savings association one of the
following four ratings pursuant to
§ 25.28 and appendix A of this part:
‘‘outstanding’’; ‘‘satisfactory’’; ‘‘needs to
improve’’; or ‘‘substantial
noncompliance’’ as provided in 12
U.S.C. 2906(b)(2). The rating assigned
by the appropriate Federal banking
agency reflects the bank’s or savings
association’s record of helping to meet
the credit needs of its entire community,
including low- and moderate-income
neighborhoods, consistent with the safe
and sound operation of the bank or
savings association.
(d) Safe and sound operations. This
part and the CRA do not require a bank
or savings association to make loans or
investments or to provide services that
are inconsistent with safe and sound
operations. To the contrary, the
appropriate Federal banking agency
anticipates banks and savings
associations can meet the standards of
this part with safe and sound loans,
investments, and services on which the
banks and savings associations expect to
make a profit. Banks and savings
associations are permitted and
encouraged to develop and apply
flexible underwriting standards for
loans that benefit low- or moderateincome geographies or individuals, only
if consistent with safe and sound
operations.
(e) Low-cost education loans provided
to low-income borrowers. In assessing
and taking into account the record of a
bank or savings association under this
part, the appropriate Federal banking
agency considers, as a factor, low-cost
education loans originated by the bank
or savings association to borrowers,
particularly in its assessment area(s),
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
who have an individual income that is
less than 50 percent of the area median
income. For purposes of this paragraph,
‘‘low-cost education loans’’ means any
education loan, as defined in section
140(a)(7) of the Truth in Lending Act
(15 U.S.C. 1650(a)(7)) (including a loan
under a State or local education loan
program), originated by the bank or
savings association for a student at an
‘‘institution of higher education,’’ as
that term is generally defined in
sections 101 and 102 of the Higher
Education Act of 1965 (20 U.S.C. 1001
and 1002) and the implementing
regulations published by the U.S.
Department of Education, with interest
rates and fees no greater than those of
comparable education loans offered
directly by the U.S. Department of
Education. Such rates and fees are
specified in section 455 of the Higher
Education Act of 1965 (20 U.S.C.
1087e).
(f) Activities in cooperation with
minority- or women-owned financial
institutions and low-income credit
unions. In assessing and taking into
account the record of a nonminorityowned and nonwomen-owned bank or
savings association under this part, the
appropriate Federal banking agency
considers as a factor capital investment,
loan participation, and other ventures
undertaken by the bank or savings
association in cooperation with
minority- and women-owned financial
institutions and low-income credit
unions. Such activities must help meet
the credit needs of local communities in
which the minority- and women-owned
financial institutions and low-income
credit unions are chartered. To be
considered, such activities need not also
benefit the bank’s or savings
association’s assessment area(s) or the
broader statewide or regional area(s)
that includes the bank’s or savings
association’s assessment area(s).
ddrumheller on DSK120RN23PROD with RULES2
§ 25.22
Lending test.
(a) Scope of test. (1) The lending test
evaluates a bank’s or savings
association’s record of helping to meet
the credit needs of its assessment area(s)
through its lending activities by
considering a bank’s or savings
association’s home mortgage, small
business, small farm, and community
development lending. If consumer
lending constitutes a substantial
majority of a bank’s or savings
association’s business, the appropriate
Federal banking agency will evaluate
the bank’s or savings association’s
consumer lending in one or more of the
following categories: motor vehicle,
credit card, other secured, and other
unsecured loans. In addition, at a bank’s
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
or savings association’s option, the
appropriate Federal banking agency will
evaluate one or more categories of
consumer lending, if the bank or savings
association has collected and
maintained, as required in § 25.42(c)(1),
the data for each category that the bank
or savings association elects to have the
appropriate Federal banking agency
evaluate.
(2) The appropriate Federal banking
agency considers originations and
purchases of loans. The appropriate
Federal banking agency will also
consider any other loan data the bank or
savings association may choose to
provide, including data on loans
outstanding, commitments and letters of
credit.
(3) A bank or savings association may
ask the appropriate Federal banking
agency to consider loans originated or
purchased by consortia in which the
bank or savings association participates
or by third parties in which the bank or
savings association has invested only if
the loans meet the definition of
community development loans and only
in accordance with paragraph (d) of this
section. The appropriate Federal
banking agency will not consider these
loans under any criterion of the lending
test except the community development
lending criterion.
(b) Performance criteria. The
appropriate Federal banking agency
evaluates a bank’s or savings
association’s lending performance
pursuant to the following criteria:
(1) Lending activity. The number and
amount of the bank’s or savings
association’s home mortgage, small
business, small farm, and consumer
loans, if applicable, in the bank’s or
savings association’s assessment area(s);
(2) Geographic distribution. The
geographic distribution of the bank’s or
savings association’s home mortgage,
small business, small farm, and
consumer loans, if applicable, based on
the loan location, including:
(i) The proportion of the bank’s or
savings association’s lending in the
bank’s or savings association’s
assessment area(s);
(ii) The dispersion of lending in the
bank’s or savings association’s
assessment area(s); and
(iii) The number and amount of loans
in low-, moderate-, middle-, and upperincome geographies in the bank’s or
savings association’s assessment area(s);
(3) Borrower characteristics. The
distribution, particularly in the bank’s
or savings association’s assessment
area(s), of the bank’s or savings
association’s home mortgage, small
business, small farm, and consumer
loans, if applicable, based on borrower
PO 00000
Frm 00603
Fmt 4701
Sfmt 4700
7175
characteristics, including the number
and amount of:
(i) Home mortgage loans to low-,
moderate-, middle-, and upper-income
individuals;
(ii) Small business and small farm
loans to businesses and farms with gross
annual revenues of $1 million or less;
(iii) Small business and small farm
loans by loan amount at origination; and
(iv) Consumer loans, if applicable, to
low-, moderate-, middle-, and upperincome individuals;
(4) Community development lending.
The bank’s or savings association’s
community development lending,
including the number and amount of
community development loans, and
their complexity and innovativeness;
and
(5) Innovative or flexible lending
practices. The bank’s or savings
association’s use of innovative or
flexible lending practices in a safe and
sound manner to address the credit
needs of low- or moderate-income
individuals or geographies.
(c) Affiliate lending. (1) At a bank’s or
savings association’s option, the
appropriate Federal banking agency will
consider loans by an affiliate of the bank
or savings association, if the bank or
savings association provides data on the
affiliate’s loans pursuant to § 25.42.
(2) The appropriate Federal banking
agency considers affiliate lending
subject to the following constraints:
(i) No affiliate may claim a loan
origination or loan purchase if another
institution claims the same loan
origination or purchase; and
(ii) If a bank or savings association
elects to have the appropriate Federal
banking agency consider loans within a
particular lending category made by one
or more of the bank’s or savings
association’s affiliates in a particular
assessment area, the bank or savings
association shall elect to have the
appropriate Federal banking agency
consider, in accordance with paragraph
(c)(1) of this section, all the loans within
that lending category in that particular
assessment area made by all of the
bank’s or savings association’s affiliates.
(3) The appropriate Federal banking
agency does not consider affiliate
lending in assessing a bank’s or savings
association’s performance under
paragraph (b)(2)(i) of this section.
(d) Lending by a consortium or a third
party. Community development loans
originated or purchased by a consortium
in which the bank or savings association
participates or by a third party in which
the bank or savings association has
invested:
(1) Will be considered, at the bank’s
or savings association’s option, if the
E:\FR\FM\01FER2.SGM
01FER2
7176
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
bank or savings association reports the
data pertaining to these loans under
§ 25.42(b)(2); and
(2) May be allocated among
participants or investors, as they choose,
for purposes of the lending test, except
that no participant or investor:
(i) May claim a loan origination or
loan purchase if another participant or
investor claims the same loan
origination or purchase; or
(ii) May claim loans accounting for
more than its percentage share (based on
the level of its participation or
investment) of the total loans originated
by the consortium or third party.
(e) Lending performance rating. The
appropriate Federal banking agency
rates a bank’s or savings association’s
lending performance as provided in
appendix A of this part.
ddrumheller on DSK120RN23PROD with RULES2
§ 25.23
Investment test.
(a) Scope of test. The investment test
evaluates a bank’s or savings
association’s record of helping to meet
the credit needs of its assessment area(s)
through qualified investments that
benefit its assessment area(s) or a
broader statewide or regional area that
includes the bank’s or savings
association’s assessment area(s).
(b) Exclusion. Activities considered
under the lending or service tests may
not be considered under the investment
test.
(c) Affiliate investment. At a bank’s or
savings association’s option, the
appropriate Federal banking agency will
consider, in its assessment of a bank’s
or savings association’s investment
performance, a qualified investment
made by an affiliate of the bank or
savings association, if the qualified
investment is not claimed by any other
institution.
(d) Disposition of branch premises.
Donating, selling on favorable terms, or
making available on a rent-free basis a
branch of the bank or savings
association that is located in a
predominantly minority neighborhood
to a minority depository institution or
women’s depository institution (as these
terms are defined in 12 U.S.C. 2907(b))
will be considered as a qualified
investment.
(e) Performance criteria. The
appropriate Federal banking agency
evaluates the investment performance of
a bank or savings association pursuant
to the following criteria:
(1) The dollar amount of qualified
investments;
(2) The innovativeness or complexity
of qualified investments;
(3) The responsiveness of qualified
investments to credit and community
development needs; and
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
(4) The degree to which the qualified
investments are not routinely provided
by private investors.
(f) Investment performance rating.
The appropriate Federal banking agency
rates a bank’s or savings association’s
investment performance as provided in
appendix A of this part.
§ 25.24
Service test.
(a) Scope of test. The service test
evaluates a bank’s or savings
association’s record of helping to meet
the credit needs of its assessment area(s)
by analyzing both the availability and
effectiveness of a bank’s or savings
association’s systems for delivering
retail banking services and the extent
and innovativeness of its community
development services.
(b) Area(s) benefitted. Community
development services must benefit a
bank’s or savings association’s
assessment area(s) or a broader
statewide or regional area that includes
the bank’s or savings association’s
assessment area(s).
(c) Affiliate service. At a bank’s or
savings association’s option, the
appropriate Federal banking agency will
consider, in its assessment of a bank’s
or savings association’s service
performance, a community development
service provided by an affiliate of the
bank or savings association, if the
community development service is not
claimed by any other institution.
(d) Performance criteria—retail
banking services. The appropriate
Federal banking agency evaluates the
availability and effectiveness of a bank’s
or savings association’s systems for
delivering retail banking services,
pursuant to the following criteria:
(1) The current distribution of the
bank’s or savings association’s branches
among low-, moderate-, middle-, and
upper-income geographies;
(2) In the context of its current
distribution of the bank’s or savings
association’s branches, the bank’s or
savings association’s record of opening
and closing branches, particularly
branches located in low- or moderateincome geographies or primarily serving
low- or moderate-income individuals;
(3) The availability and effectiveness
of alternative systems for delivering
retail banking services (e.g., ATMs,
ATMs not owned or operated by or
exclusively for the bank or savings
association, banking by telephone or
computer, loan production offices, and
bank-at-work or bank-by-mail programs)
in low- and moderate-income
geographies and to low- and moderateincome individuals; and
(4) The range of services provided in
low-, moderate-, middle-, and upper-
PO 00000
Frm 00604
Fmt 4701
Sfmt 4700
income geographies and the degree to
which the services are tailored to meet
the needs of those geographies.
(e) Performance criteria—community
development services. The appropriate
Federal banking agency evaluates
community development services
pursuant to the following criteria:
(1) The extent to which the bank or
savings association provides community
development services; and
(2) The innovativeness and
responsiveness of community
development services.
(f) Service performance rating. The
appropriate Federal banking agency
rates a bank’s or savings association’s
service performance as provided in
appendix A of this part.
§ 25.25 Community development test for
wholesale or limited purpose banks and
savings associations.
(a) Scope of test. The appropriate
Federal banking agency assesses a
wholesale or limited purpose bank’s or
savings association’s record of helping
to meet the credit needs of its
assessment area(s) under the community
development test through its
community development lending,
qualified investments, or community
development services.
(b) Designation as a wholesale or
limited purpose bank or savings
association. In order to receive a
designation as a wholesale or limited
purpose bank or savings association, a
bank or savings association shall file a
request, in writing, with the appropriate
Federal banking agency, at least three
months prior to the proposed effective
date of the designation. If the
appropriate Federal banking agency
approves the designation, it remains in
effect until the bank or savings
association requests revocation of the
designation or until one year after the
appropriate Federal banking agency
notifies the bank or savings association
that it has revoked the designation on its
own initiative.
(c) Performance criteria. The
appropriate Federal banking agency
evaluates the community development
performance of a wholesale or limited
purpose bank or savings association
pursuant to the following criteria:
(1) The number and amount of
community development loans
(including originations and purchases of
loans and other community
development loan data provided by the
bank or savings association, such as data
on loans outstanding, commitments,
and letters of credit), qualified
investments, or community
development services;
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(2) The use of innovative or complex
qualified investments, community
development loans, or community
development services and the extent to
which the investments are not routinely
provided by private investors; and
(3) The bank’s or savings association’s
responsiveness to credit and community
development needs.
(d) Indirect activities. At a bank’s or
savings association’s option, the
appropriate Federal banking agency will
consider in its community development
performance assessment:
(1) Qualified investments or
community development services
provided by an affiliate of the bank or
savings association, if the investments
or services are not claimed by any other
institution; and
(2) Community development lending
by affiliates, consortia and third parties,
subject to the requirements and
limitations in § 25.22(c) and (d).
(e) Benefit to assessment area(s)—(1)
Benefit inside assessment area(s). The
appropriate Federal banking agency
considers all qualified investments,
community development loans, and
community development services that
benefit areas within the bank’s or
savings association’s assessment area(s)
or a broader statewide or regional area
that includes the bank’s or savings
association’s assessment area(s).
(2) Benefit outside assessment area(s).
The appropriate Federal banking agency
considers the qualified investments,
community development loans, and
community development services that
benefit areas outside the bank’s or
savings association’s assessment area(s),
if the bank or savings association has
adequately addressed the needs of its
assessment area(s).
(f) Community development
performance rating. The appropriate
Federal banking agency rates a bank’s or
savings association’s community
development performance as provided
in appendix A of this part.
ddrumheller on DSK120RN23PROD with RULES2
§ 25.26 Small bank and savings
association performance standards.
(a) Performance criteria—(1) Small
banks and savings associations that are
not intermediate small banks or savings
associations. The appropriate Federal
banking agency evaluates the record of
a small bank or savings association that
is not, or that was not during the prior
calendar year, an intermediate small
bank or savings association, of helping
to meet the credit needs of its
assessment area(s) pursuant to the
criteria set forth in paragraph (b) of this
section.
(2) Intermediate small banks and
savings associations. The appropriate
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Federal banking agency evaluates the
record of a small bank or savings
association that is, or that was during
the prior calendar year, an intermediate
small bank or savings association, of
helping to meet the credit needs of its
assessment area(s) pursuant to the
criteria set forth in paragraphs (b) and
(c) of this section.
(b) Lending test. A small bank’s or
savings association’s lending
performance is evaluated pursuant to
the following criteria:
(1) The bank’s or savings association’s
loan-to-deposit ratio, adjusted for
seasonal variation, and, as appropriate,
other lending-related activities, such as
loan originations for sale to the
secondary markets, community
development loans, or qualified
investments;
(2) The percentage of loans and, as
appropriate, other lending-related
activities located in the bank’s or
savings association’s assessment area(s);
(3) The bank’s or savings association’s
record of lending to and, as appropriate,
engaging in other lending-related
activities for borrowers of different
income levels and businesses and farms
of different sizes;
(4) The geographic distribution of the
bank’s or savings association’s loans;
and
(5) The bank’s or savings association’s
record of taking action, if warranted, in
response to written complaints about its
performance in helping to meet credit
needs in its assessment area(s).
(c) Community development test. An
intermediate small bank’s or savings
association’s community development
performance also is evaluated pursuant
to the following criteria:
(1) The number and amount of
community development loans;
(2) The number and amount of
qualified investments;
(3) The extent to which the bank or
savings association provides community
development services; and
(4) The bank’s or savings association’s
responsiveness through such activities
to community development lending,
investment, and services needs.
(d) Small bank or savings association
performance rating. The appropriate
Federal banking agency rates the
performance of a bank or savings
association evaluated under this section
as provided in appendix A of this part.
§ 25.27
Strategic plan.
(a) Alternative election. The
appropriate Federal banking agency will
assess a bank’s or savings association’s
record of helping to meet the credit
needs of its assessment area(s) under a
strategic plan if:
PO 00000
Frm 00605
Fmt 4701
Sfmt 4700
7177
(1) The bank or savings association
has submitted the plan to the
appropriate Federal banking agency as
provided for in this section;
(2) The appropriate Federal banking
agency has approved the plan;
(3) The plan is in effect; and
(4) The bank or savings association
has been operating under an approved
plan for at least one year.
(b) Data reporting. The appropriate
Federal banking agency’s approval of a
plan does not affect the bank’s or
savings association’s obligation, if any,
to report data as required by § 25.42.
(c) Plans in general—(1) Term. A plan
may have a term of no more than five
years, and any multi-year plan must
include annual interim measurable
goals under which the appropriate
Federal banking agency will evaluate
the bank’s or savings association’s
performance.
(2) Multiple assessment areas. A bank
or savings association with more than
one assessment area may prepare a
single plan for all of its assessment areas
or one or more plans for one or more of
its assessment areas.
(3) Treatment of affiliates. Affiliated
institutions may prepare a joint plan if
the plan provides measurable goals for
each institution. Activities may be
allocated among institutions at the
institutions’ option, provided that the
same activities are not considered for
more than one institution.
(d) Public participation in plan
development. Before submitting a plan
to the appropriate Federal banking
agency for approval, a bank or savings
association shall:
(1) Informally seek suggestions from
members of the public in its assessment
area(s) covered by the plan while
developing the plan;
(2) Once the bank or savings
association has developed a plan,
formally solicit public comment on the
plan for at least 30 days by publishing
notice in at least one newspaper of
general circulation in each assessment
area covered by the plan; and
(3) During the period of formal public
comment, make copies of the plan
available for review by the public at no
cost at all offices of the bank or savings
association in any assessment area
covered by the plan and provide copies
of the plan upon request for a
reasonable fee to cover copying and
mailing, if applicable.
(e) Submission of plan. The bank or
savings association shall submit its plan
to the appropriate Federal banking
agency at least three months prior to the
proposed effective date of the plan. The
bank or savings association shall also
submit with its plan a description of its
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7178
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
informal efforts to seek suggestions from
members of the public, any written
public comment received, and, if the
plan was revised in light of the
comment received, the initial plan as
released for public comment.
(f) Plan content—(1) Measurable
goals. (i) A bank or savings association
shall specify in its plan measurable
goals for helping to meet the credit
needs of each assessment area covered
by the plan, particularly the needs of
low- and moderate-income geographies
and low- and moderate-income
individuals, through lending,
investment, and services, as
appropriate.
(ii) A bank or savings association shall
address in its plan all three performance
categories and, unless the bank or
savings association has been designated
as a wholesale or limited purpose bank
or savings association, shall emphasize
lending and lending-related activities.
Nevertheless, a different emphasis,
including a focus on one or more
performance categories, may be
appropriate if responsive to the
characteristics and credit needs of its
assessment area(s), considering public
comment and the bank’s or savings
association’s capacity and constraints,
product offerings, and business strategy.
(2) Confidential information. A bank
or savings association may submit
additional information to the
appropriate Federal banking agency on
a confidential basis, but the goals stated
in the plan must be sufficiently specific
to enable the public and the appropriate
Federal banking agency to judge the
merits of the plan.
(3) Satisfactory and outstanding goals.
A bank or savings association shall
specify in its plan measurable goals that
constitute ‘‘satisfactory’’ performance. A
plan may specify measurable goals that
constitute ‘‘outstanding’’ performance. If
a bank or savings association submits,
and the appropriate Federal banking
agency approves, both ‘‘satisfactory’’
and ‘‘outstanding’’ performance goals,
the appropriate Federal banking agency
will consider the bank or savings
association eligible for an ‘‘outstanding’’
performance rating.
(4) Election if satisfactory goals not
substantially met. A bank or savings
association may elect in its plan that, if
the bank or savings association fails to
meet substantially its plan goals for a
satisfactory rating, the appropriate
Federal banking agency will evaluate
the bank’s or savings association’s
performance under the lending,
investment, and service tests, the
community development test, or the
small bank or savings association
performance standards, as appropriate.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
(g) Plan approval—(1) Timing. The
appropriate Federal banking agency will
act upon a plan within 60 calendar days
after the appropriate Federal banking
agency receives the complete plan and
other material required under paragraph
(e) of this section. If the appropriate
Federal banking agency fails to act
within this time period, the plan shall
be deemed approved unless the
appropriate Federal banking agency
extends the review period for good
cause.
(2) Public participation. In evaluating
the plan’s goals, the appropriate Federal
banking agency considers the public’s
involvement in formulating the plan,
written public comment on the plan,
and any response by the bank or savings
association to public comment on the
plan.
(3) Criteria for evaluating plan. The
appropriate Federal banking agency
evaluates a plan’s measurable goals
using the following criteria, as
appropriate:
(i) The extent and breadth of lending
or lending-related activities, including,
as appropriate, the distribution of loans
among different geographies, businesses
and farms of different sizes, and
individuals of different income levels,
the extent of community development
lending, and the use of innovative or
flexible lending practices to address
credit needs;
(ii) The amount and innovativeness,
complexity, and responsiveness of the
bank’s or savings association’s qualified
investments; and
(iii) The availability and effectiveness
of the bank’s or savings association’s
systems for delivering retail banking
services and the extent and
innovativeness of the bank’s or savings
association’s community development
services.
(h) Plan amendment. During the term
of a plan, a bank or savings association
may request the appropriate Federal
banking agency to approve an
amendment to the plan on grounds that
there has been a material change in
circumstances. The bank or savings
association shall develop an amendment
to a previously approved plan in
accordance with the public
participation requirements of paragraph
(d) of this section.
(i) Plan assessment. The appropriate
Federal banking agency approves the
goals and assesses performance under a
plan as provided for in appendix A of
this part.
§ 25.28
Assigned ratings.
(a) Ratings in general. Subject to
paragraphs (b) and (c) of this section,
the appropriate Federal banking agency
PO 00000
Frm 00606
Fmt 4701
Sfmt 4700
assigns to a bank or savings association
a rating of ‘‘outstanding,’’ ‘‘satisfactory,’’
‘‘needs to improve,’’ or ‘‘substantial
noncompliance’’ based on the bank’s or
savings association’s performance under
the lending, investment and service
tests, the community development test,
the small bank or savings association
performance standards, or an approved
strategic plan, as applicable.
(b) Lending, investment, and service
tests. The appropriate Federal banking
agency assigns a rating for a bank or
savings association assessed under the
lending, investment, and service tests in
accordance with the following
principles:
(1) A bank or savings association that
receives an ‘‘outstanding’’ rating on the
lending test receives an assigned rating
of at least ‘‘satisfactory’’;
(2) A bank or savings association that
receives an ‘‘outstanding’’ rating on both
the service test and the investment test
and a rating of at least ‘‘high
satisfactory’’ on the lending test receives
an assigned rating of ‘‘outstanding’’; and
(3) No bank or savings association
may receive an assigned rating of
‘‘satisfactory’’ or higher unless it
receives a rating of at least ‘‘low
satisfactory’’ on the lending test.
(c) Effect of evidence of
discriminatory or other illegal credit
practices. (1) The appropriate Federal
banking agency’s evaluation of a bank’s
or savings association’s CRA
performance is adversely affected by
evidence of discriminatory or other
illegal credit practices in any geography
by the bank or savings association or in
any assessment area by any affiliate
whose loans have been considered as
part of the bank’s or savings
association’s lending performance. In
connection with any type of lending
activity described in § 25.22(a),
evidence of discriminatory or other
credit practices that violate an
applicable law, rule, or regulation
includes, but is not limited to:
(i) Discrimination against applicants
on a prohibited basis in violation, for
example, of the Equal Credit
Opportunity Act or the Fair Housing
Act;
(ii) Violations of the Home Ownership
and Equity Protection Act;
(iii) Violations of section 5 of the
Federal Trade Commission Act;
(iv) Violations of section 8 of the Real
Estate Settlement Procedures Act; and
(v) Violations of the Truth in Lending
Act provisions regarding a consumer’s
right of rescission.
(2) In determining the effect of
evidence of practices described in
paragraph (c)(1) of this section on the
bank’s or savings association’s assigned
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
rating, the appropriate Federal banking
agency considers the nature, extent, and
strength of the evidence of the practices;
the policies and procedures that the
bank or savings association (or affiliate,
as applicable) has in place to prevent
the practices; any corrective action that
the bank or savings association (or
affiliate, as applicable) has taken or has
committed to take, including voluntary
corrective action resulting from selfassessment; and any other relevant
information.
ddrumheller on DSK120RN23PROD with RULES2
§ 25.29 Effect of CRA performance on
applications.
(a) CRA performance. Among other
factors, the appropriate Federal banking
agency takes into account the record of
performance under the CRA of each
applicant bank or savings association,
and for applications under 10(e) of the
Home Owners’ Loan Act (12 U.S.C.
1467a(e)), of each proposed subsidiary
savings association, in considering an
application for:
(1) The establishment of:
(i) A domestic branch for insured
national banks; or
(ii) A domestic branch or other facility
that would be authorized to take
deposits for savings associations;
(2) The relocation of the main office
or a branch;
(3) The merger or consolidation with
or the acquisition of assets or
assumption of liabilities of an insured
depository institution requiring
approval under the Bank Merger Act (12
U.S.C. 1828(c)); and
(4) The conversion of an insured
depository institution to a national bank
or Federal savings association charter;
and
(5) Acquisitions subject to section
10(e) of the Home Owners’ Loan Act (12
U.S.C. 1467a(e)).
(b) Charter application. (1) An
applicant (other than an insured
depository institution) for a national
bank charter shall submit with its
application a description of how it will
meet its CRA objectives. The OCC takes
the description into account in
considering the application and may
deny or condition approval on that
basis.
(2) An applicant for a Federal savings
association charter shall submit with its
application a description of how it will
meet its CRA objectives. The
appropriate Federal banking agency
takes the description into account in
considering the application and may
deny or condition approval on that
basis.
(c) Interested parties. The appropriate
Federal banking agency takes into
account any views expressed by
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
interested parties that are submitted in
accordance with the applicable
comment procedures in considering
CRA performance in an application
listed in paragraphs (a) and (b) of this
section.
(d) Denial or conditional approval of
application. A bank’s or savings
association’s record of performance may
be the basis for denying or conditioning
approval of an application listed in
paragraph (a) of this section.
(e) Insured depository institution. For
purposes of this section, the term
‘‘insured depository institution’’ has the
meaning given to that term in 12 U.S.C.
1813.
Subpart C—Records, Reporting, and
Disclosure Requirements
§ 25.41
Assessment area delineation.
(a) In general. A bank or savings
association shall delineate one or more
assessment areas within which the
appropriate Federal banking agency
evaluates the bank’s or savings
association’s record of helping to meet
the credit needs of its community. The
appropriate Federal banking agency
does not evaluate the bank’s or savings
association’s delineation of its
assessment area(s) as a separate
performance criterion, but the
appropriate Federal banking agency
reviews the delineation for compliance
with the requirements of this section.
(b) Geographic area(s) for wholesale
or limited purpose banks or savings
associations. The assessment area(s) for
a wholesale or limited purpose bank or
savings association must consist
generally of one or more MSAs or
metropolitan divisions (using the MSA
or metropolitan division boundaries that
were in effect as of January 1 of the
calendar year in which the delineation
is made) or one or more contiguous
political subdivisions, such as counties,
cities, or towns, in which the bank or
savings association has its main office,
branches, and deposit-taking ATMs.
(c) Geographic area(s) for other banks
and savings association. The assessment
area(s) for a bank or savings association
other than a wholesale or limited
purpose bank or savings association
must:
(1) Consist generally of one or more
MSAs or metropolitan divisions (using
the MSA or metropolitan division
boundaries that were in effect as of
January 1 of the calendar year in which
the delineation is made) or one or more
contiguous political subdivisions, such
as counties, cities, or towns; and
(2) Include the geographies in which
the bank or savings association has its
main office, its branches, and its
PO 00000
Frm 00607
Fmt 4701
Sfmt 4700
7179
deposit-taking ATMs, as well as the
surrounding geographies in which the
bank or savings association has
originated or purchased a substantial
portion of its loans (including home
mortgage loans, small business and
small farm loans, and any other loans
the bank or savings association chooses,
such as those consumer loans on which
the bank or savings association elects to
have its performance assessed).
(d) Adjustments to geographic area(s).
A bank or savings association may
adjust the boundaries of its assessment
area(s) to include only the portion of a
political subdivision that it reasonably
can be expected to serve. An adjustment
is particularly appropriate in the case of
an assessment area that otherwise
would be extremely large, of unusual
configuration, or divided by significant
geographic barriers.
(e) Limitations on the delineation of
an assessment area. Each bank’s or
savings associations assessment area(s):
(1) Must consist only of whole
geographies;
(2) May not reflect illegal
discrimination;
(3) May not arbitrarily exclude low- or
moderate-income geographies, taking
into account the bank’s or savings
association’s size and financial
condition; and
(4) May not extend substantially
beyond an MSA boundary or beyond a
state boundary unless the assessment
area is located in a multistate MSA. If
a bank or savings association serves a
geographic area that extends
substantially beyond a state boundary,
the bank or savings association shall
delineate separate assessment areas for
the areas in each state. If a bank or
savings association serves a geographic
area that extends substantially beyond
an MSA boundary, the bank or savings
association shall delineate separate
assessment areas for the areas inside
and outside the MSA.
(f) Banks and savings association
serving military personnel.
Notwithstanding the requirements of
this section, a bank or savings
association whose business
predominantly consists of serving the
needs of military personnel or their
dependents who are not located within
a defined geographic area may delineate
its entire deposit customer base as its
assessment area.
(g) Use of assessment area(s). The
appropriate Federal banking agency
uses the assessment area(s) delineated
by a bank or savings association in its
evaluation of the bank’s or savings
association’s CRA performance unless
the appropriate Federal banking agency
determines that the assessment area(s)
E:\FR\FM\01FER2.SGM
01FER2
7180
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
do not comply with the requirements of
this section.
ddrumheller on DSK120RN23PROD with RULES2
§ 25.42 Data collection, reporting, and
disclosure.
(a) Loan information required to be
collected and maintained. A bank or
savings association, except a small bank
or savings association, shall collect, and
maintain in machine readable form (as
prescribed by the appropriate Federal
banking agency) until the completion of
its next CRA examination, the following
data for each small business or small
farm loan originated or purchased by
the bank or savings association:
(1) A unique number or alphanumeric symbol that can be used to
identify the relevant loan file;
(2) The loan amount at origination;
(3) The loan location; and
(4) An indicator whether the loan was
to a business or farm with gross annual
revenues of $1 million or less.
(b) Loan information required to be
reported. A bank or savings association,
except a small bank or savings
association or a bank or savings
association that was a small bank or
savings association during the prior
calendar year, shall report annually by
March 1 to the appropriate Federal
banking agency in machine readable
form (as prescribed by the appropriate
Federal banking agency) the following
data for the prior calendar year:
(1) Small business and small farm
loan data. For each geography in which
the bank or savings association
originated or purchased a small
business or small farm loan, the
aggregate number and amount of loans:
(i) With an amount at origination of
$100,000 or less;
(ii) With amount at origination of
more than $100,000 but less than or
equal to $250,000;
(iii) With an amount at origination of
more than $250,000; and
(iv) To businesses and farms with
gross annual revenues of $1 million or
less (using the revenues that the bank or
savings association considered in
making its credit decision);
(2) Community development loan
data. The aggregate number and
aggregate amount of community
development loans originated or
purchased; and
(3) Home mortgage loans. If the bank
or savings association is subject to
reporting under part 1003 of this title,
the location of each home mortgage loan
application, origination, or purchase
outside the MSAs in which the bank or
savings association has a home or
branch office (or outside any MSA) in
accordance with the requirements of
part 1003 of this title.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
(c) Optional data collection and
maintenance—(1) Consumer loans. A
bank or savings association may collect
and maintain in machine readable form
(as prescribed by the appropriate
Federal banking agency) data for
consumer loans originated or purchased
by the bank or savings association for
consideration under the lending test. A
bank or savings association may
maintain data for one or more of the
following categories of consumer loans:
Motor vehicle, credit card, other
secured, and other unsecured. If the
bank or savings association maintains
data for loans in a certain category, it
shall maintain data for all loans
originated or purchased within that
category. The bank or savings
association shall maintain data
separately for each category, including
for each loan:
(i) A unique number or alpha-numeric
symbol that can be used to identify the
relevant loan file;
(ii) The loan amount at origination or
purchase;
(iii) The loan location; and
(iv) The gross annual income of the
borrower that the bank or savings
association considered in making its
credit decision.
(2) Other loan data. At its option, a
bank or savings association may provide
other information concerning its lending
performance, including additional loan
distribution data.
(d) Data on affiliate lending. A bank
or savings association that elects to have
the appropriate Federal banking agency
consider loans by an affiliate, for
purposes of the lending or community
development test or an approved
strategic plan, shall collect, maintain,
and report for those loans the data that
the bank or savings association would
have collected, maintained, and
reported pursuant to paragraphs (a), (b),
and (c) of this section had the loans
been originated or purchased by the
bank or savings association. For home
mortgage loans, the bank or savings
association shall also be prepared to
identify the home mortgage loans
reported under part 1003 of this title by
the affiliate.
(e) Data on lending by a consortium
or a third party. A bank or savings
association that elects to have the
appropriate Federal banking agency
consider community development loans
by a consortium or third party, for
purposes of the lending or community
development tests or an approved
strategic plan, shall report for those
loans the data that the bank or savings
association would have reported under
paragraph (b)(2) of this section had the
PO 00000
Frm 00608
Fmt 4701
Sfmt 4700
loans been originated or purchased by
the bank or savings association.
(f) Small banks and savings
associations electing evaluation under
the lending, investment, and service
tests. A bank or savings association that
qualifies for evaluation under the small
bank or savings association performance
standards but elects evaluation under
the lending, investment, and service
tests shall collect, maintain, and report
the data required for other banks or
savings association pursuant to
paragraphs (a) and (b) of this section.
(g) Assessment area data. A bank or
savings association, except a small bank
or savings association or a bank or
savings association that was a small
bank or savings association during the
prior calendar year, shall collect and
report to the appropriate Federal
banking agency by March 1 of each year
a list for each assessment area showing
the geographies within the area.
(h) CRA Disclosure Statement. The
appropriate Federal banking agency
prepares annually for each bank or
savings association that reports data
pursuant to this section a CRA
Disclosure Statement that contains, on a
state-by-state basis:
(l) For each county (and for each
assessment area smaller than a county)
with a population of 500,000 persons or
fewer in which the bank or savings
association reported a small business or
small farm loan:
(i) The number and amount of small
business and small farm loans reported
as originated or purchased located in
low-, moderate-, middle-, and upperincome geographies;
(ii) A list grouping each geography
according to whether the geography is
low-, moderate-, middle-, or upperincome;
(iii) A list showing each geography in
which the bank or savings association
reported a small business or small farm
loan; and
(iv) The number and amount of small
business and small farm loans to
businesses and farms with gross annual
revenues of $1 million or less;
(2) For each county (and for each
assessment area smaller than a county)
with a population in excess of 500,000
persons in which the bank or savings
association reported a small business or
small farm loan:
(i) The number and amount of small
business and small farm loans reported
as originated or purchased located in
geographies with median income
relative to the area median income of
less than 10 percent, 10 or more but less
than 20 percent, 20 or more but less
than 30 percent, 30 or more but less
than 40 percent, 40 or more but less
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
than 50 percent, 50 or more but less
than 60 percent, 60 or more but less
than 70 percent, 70 or more but less
than 80 percent, 80 or more but less
than 90 percent, 90 or more but less
than 100 percent, 100 or more but less
than 110 percent, 110 or more but less
than 120 percent, and 120 percent or
more;
(ii) A list grouping each geography in
the county or assessment area according
to whether the median income in the
geography relative to the area median
income is less than 10 percent, 10 or
more but less than 20 percent, 20 or
more but less than 30 percent, 30 or
more but less than 40 percent, 40 or
more but less than 50 percent, 50 or
more but less than 60 percent, 60 or
more but less than 70 percent, 70 or
more but less than 80 percent, 80 or
more but less than 90 percent, 90 or
more but less than 100 percent, 100 or
more but less than 110 percent, 110 or
more but less than 120 percent, and 120
percent or more;
(iii) A list showing each geography in
which the bank or savings association
reported a small business or small farm
loan; and
(iv) The number and amount of small
business and small farm loans to
businesses and farms with gross annual
revenues of $1 million or less;
(3) The number and amount of small
business and small farm loans located
inside each assessment area reported by
the bank or savings association and the
number and amount of small business
and small farm loans located outside the
assessment area(s) reported by the bank
or savings association; and
(4) The number and amount of
community development loans reported
as originated or purchased.
(i) Aggregate disclosure statements.
The OCC, in conjunction with the Board
of Governors of the Federal Reserve
System and the FDIC, prepares
annually, for each MSA or metropolitan
division (including an MSA or
metropolitan division that crosses a
state boundary) and the
nonmetropolitan portion of each state,
an aggregate disclosure statement of
small business and small farm lending
by all institutions subject to reporting
under this part or parts 228 or 345 of
this title. These disclosure statements
indicate, for each geography, the
number and amount of all small
business and small farm loans
originated or purchased by reporting
institutions, except that the appropriate
Federal banking agency may adjust the
form of the disclosure if necessary,
because of special circumstances, to
protect the privacy of a borrower or the
competitive position of an institution.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
(j) Central data depositories. The
appropriate Federal banking agency
makes the aggregate disclosure
statements, described in paragraph (i) of
this section, and the individual bank or
savings association CRA Disclosure
Statements, described in paragraph (h)
of this section, available to the public at
central data depositories. The
appropriate Federal banking agency
publishes a list of the depositories at
which the statements are available.
§ 25.43
file.
Content and availability of public
(a) Information available to the
public. A bank or savings association
shall maintain a public file that includes
the following information:
(1) All written comments received
from the public for the current year and
each of the prior two calendar years that
specifically relate to the bank’s or
savings association’s performance in
helping to meet community credit
needs, and any response to the
comments by the bank or savings
association, if neither the comments nor
the responses contain statements that
reflect adversely on the good name or
reputation of any persons other than the
bank or savings association or
publication of which would violate
specific provisions of law;
(2) A copy of the public section of the
bank’s or savings association’s most
recent CRA Performance Evaluation
prepared by the appropriate Federal
banking agency. The bank or savings
association shall place this copy in the
public file within 30 business days after
its receipt from the appropriate Federal
banking agency;
(3) A list of the bank’s or savings
association’s branches, their street
addresses, and geographies;
(4) A list of branches opened or closed
by the bank or savings association
during the current year and each of the
prior two calendar years, their street
addresses, and geographies;
(5) A list of services (including hours
of operation, available loan and deposit
products, and transaction fees) generally
offered at the bank’s or savings
association’s branches and descriptions
of material differences in the availability
or cost of services at particular
branches, if any. At its option, a bank
or savings association may include
information regarding the availability of
alternative systems for delivering retail
banking services (e.g., ATMs, ATMs not
owned or operated by or exclusively for
the bank or savings association, banking
by telephone or computer, loan
production offices, and bank-at-work or
bank-by-mail programs);
PO 00000
Frm 00609
Fmt 4701
Sfmt 4700
7181
(6) A map of each assessment area
showing the boundaries of the area and
identifying the geographies contained
within the area, either on the map or in
a separate list; and
(7) Any other information the bank or
savings association chooses.
(b) Additional information available
to the public—(1) Banks and savings
associations other than small banks or
savings associations. A bank or savings
association, except a small bank or
savings association or a bank or savings
association that was a small bank or
savings association during the prior
calendar year, shall include in its public
file the following information pertaining
to the bank or savings association and
its affiliates, if applicable, for each of
the prior two calendar years:
(i) If the bank or savings association
has elected to have one or more
categories of its consumer loans
considered under the lending test, for
each of these categories, the number and
amount of loans:
(A) To low-, moderate-, middle-, and
upper-income individuals;
(B) Located in low-, moderate-,
middle-, and upper-income census
tracts; and
(C) Located inside the bank’s or
savings association’s assessment area(s)
and outside the bank’s or savings
association’s assessment area(s); and
(ii) The bank’s or savings association’s
CRA Disclosure Statement. The bank or
savings association shall place the
statement in the public file within three
business days of its receipt from the
appropriate Federal banking agency.
(2) Banks and savings associations
required to report Home Mortgage
Disclosure Act (HMDA) data. A bank or
savings association required to report
home mortgage loan data pursuant part
1003 of this title shall include in its
public file a written notice that the
institution’s HMDA Disclosure
Statement may be obtained on the
Consumer Financial Protection Bureau’s
(Bureau’s) website at
www.consumerfinance.gov/hmda. In
addition, a bank or savings association
that elected to have the appropriate
Federal banking agency consider the
mortgage lending of an affiliate shall
include in its public file the name of the
affiliate and a written notice that the
affiliate’s HMDA Disclosure Statement
may be obtained at the Bureau’s
website. The bank or savings association
shall place the written notice(s) in the
public file within three business days
after receiving notification from the
Federal Financial Institutions
Examination Council of the availability
of the disclosure statement(s).
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7182
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(3) Small banks and savings
associations. A small bank or savings
association or a bank or savings
association that was a small bank or
savings association during the prior
calendar year shall include in its public
file:
(i) The bank’s or savings association’s
loan-to-deposit ratio for each quarter of
the prior calendar year and, at its
option, additional data on its loan-todeposit ratio; and
(ii) The information required for other
banks or savings associations by
paragraph (b)(1) of this section, if the
bank or savings association has elected
to be evaluated under the lending,
investment, and service tests.
(4) Banks and savings associations
with strategic plans. A bank or savings
association that has been approved to be
assessed under a strategic plan shall
include in its public file a copy of that
plan. A bank or savings association need
not include information submitted to
the appropriate Federal banking agency
on a confidential basis in conjunction
with the plan.
(5) Banks and savings associations
with less than satisfactory ratings. A
bank or savings association that
received a less than satisfactory rating
during its most recent examination shall
include in its public file a description
of its current efforts to improve its
performance in helping to meet the
credit needs of its entire community.
The bank or savings association shall
update the description quarterly.
(c) Location of public information. A
bank or savings association shall make
available to the public for inspection
upon request and at no cost the
information required in this section as
follows:
(1) At the main office and, if an
interstate bank or savings association, at
one branch office in each state, all
information in the public file; and
(2) At each branch:
(i) A copy of the public section of the
bank’s or savings association’s most
recent CRA Performance Evaluation and
a list of services provided by the branch;
and
(ii) Within five calendar days of the
request, all the information in the public
file relating to the assessment area in
which the branch is located.
(d) Copies. Upon request, a bank or
savings association shall provide copies,
either on paper or in another form
acceptable to the person making the
request, of the information in its public
file. The bank or savings association
may charge a reasonable fee not to
exceed the cost of copying and mailing
(if applicable).
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
(e) Updating. Except as otherwise
provided in this section, a bank or
savings association shall ensure that the
information required by this section is
current as of April 1 of each year.
§ 25.44 Public notice by banks and
savings associations.
A bank or savings association shall
provide in the public lobby of its main
office and each of its branches the
appropriate public notice set forth in
appendix B of this part. Only a branch
of a bank or savings association having
more than one assessment area shall
include the bracketed material in the
notice for branch offices. Only an
insured national bank that is an affiliate
of a holding company shall include the
next to the last sentence of the notices.
An insured national bank shall include
the last sentence of the notices only if
it is an affiliate of a holding company
that is not prevented by statute from
acquiring additional banks. Only a
savings association that is an affiliate of
a holding company shall include the
last two sentences of the notices.
§ 25.45 Publication of planned
examination schedule.
Subpart D—Transition Provisions
Consideration of Bank Activities.
(a) In assessing a bank’s CRA
performance, the appropriate Federal
banking agency will consider any loan,
investment, or service that was eligible
for CRA consideration at the time the
bank conducted the activity.
(b) Notwithstanding paragraph (a), in
assessing a bank’s CRA performance, the
appropriate Federal banking agency will
consider any loan or investment that
was eligible for CRA consideration at
the time the bank entered into a legally
binding commitment to make the loan
or investment.
§ 25.52
Strategic Plan Retention.
A bank or savings association strategic
plan approved by the appropriate
Federal banking agency and in effect as
of December 31, 2021, remains in effect,
except that provisions of the plan that
are not consistent with this part in effect
as of January 1, 2022, are void, unless
amended pursuant to § 25.27.
PO 00000
Frm 00610
Fmt 4701
Sfmt 4700
§ 25.61
Purpose and scope.
(a) Purpose. The purpose of this
subpart is to implement section 109 (12
U.S.C. 1835a) of the Riegle-Neal
Interstate Banking and Branching
Efficiency Act of 1994 (Interstate Act).
(b) Scope. (1) This subpart applies to
any national bank that has operated a
covered interstate branch for a period of
at least one year, and any foreign bank
that has operated a covered interstate
branch that is a Federal branch for a
period of at least one year.
(2) This subpart describes the
requirements imposed under 12 U.S.C.
1835a, which requires the appropriate
Federal banking agencies (the OCC, the
Board of Governors of the Federal
Reserve System, and the FDIC) to
prescribe uniform rules that prohibit a
bank from using any authority to engage
in interstate branching pursuant to the
Interstate Act, or any amendment made
by the Interstate Act to any other
provision of law, primarily for the
purpose of deposit production.
§ 25.62
The appropriate Federal banking
agency publishes at least 30 days in
advance of the beginning of each
calendar quarter a list of banks and
savings associations scheduled for CRA
examinations in that quarter.
§ 25.51
Subpart E—Prohibition Against Use of
Interstate Branches Primarily for
Deposit Production
Definitions.
For purposes of this subpart, the
following definitions apply:
(a) Bank means, unless the context
indicates otherwise:
(1) A national bank; and
(2) A foreign bank as that term is
defined in 12 U.S.C. 3101(7) and 12 CFR
28.11(i).
(b) Covered interstate branch means:
(1) Any branch of a national bank, and
any Federal branch of a foreign bank,
that:
(i) Is established or acquired outside
the bank’s home State pursuant to the
interstate branching authority granted
by the Interstate Act or by any
amendment made by the Interstate Act
to any other provision of law; or
(ii) Could not have been established
or acquired outside of the bank’s home
State but for the establishment or
acquisition of a branch described in
paragraph (b)(1)(i) of this section; and
(2) Any bank or branch of a bank
controlled by an out-of-State bank
holding company.
(c) Federal branch means Federal
branch as that term is defined in 12
U.S.C. 3101(6) and 12 CFR 28.11(h).
(d) Home State means:
(1) With respect to a State bank, the
State that chartered the bank;
(2) With respect to a national bank,
the State in which the main office of the
bank is located;
(3) With respect to a bank holding
company, the State in which the total
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
deposits of all banking subsidiaries of
such company are the largest on the
later of:
(i) July 1, 1966; or
(ii) The date on which the company
becomes a bank holding company under
the Bank Holding Company Act;
(4) With respect to a foreign bank:
(i) For purposes of determining
whether a U.S. branch of a foreign bank
is a covered interstate branch, the home
State of the foreign bank as determined
in accordance with 12 U.S.C. 3103(c)
and 12 CFR 28.11(n); and
(ii) For purposes of determining
whether a branch of a U.S. bank
controlled by a foreign bank is a covered
interstate branch, the State in which the
total deposits of all banking subsidiaries
of such foreign bank are the largest on
the later of:
(A) July 1, 1966; or
(B) The date on which the foreign
bank becomes a bank holding company
under the Bank Holding Company Act.
(e) Host State means a State in which
a covered interstate branch is
established or acquired.
(f) Host state loan-to-deposit ratio
generally means, with respect to a
particular host state, the ratio of total
loans in the host state relative to total
deposits from the host state for all banks
(including institutions covered under
the definition of ‘‘bank’’ in 12 U.S.C.
1813(a)(1)) that have that state as their
home state, as determined and updated
periodically by the appropriate Federal
banking agencies and made available to
the public.
(g) Out-of-State bank holding
company means, with respect to any
State, a bank holding company whose
home State is another State.
(h) State means state as that term is
defined in 12 U.S.C. 1813(a)(3).
(i) Statewide loan-to-deposit ratio
means, with respect to a bank, the ratio
of the bank’s loans to its deposits in a
state in which the bank has one or more
covered interstate branches, as
determined by the OCC.
ddrumheller on DSK120RN23PROD with RULES2
§ 25.63
Loan-to-deposit ratio screen.
(a) Application of screen. Beginning
no earlier than one year after a covered
interstate branch is acquired or
established, the OCC will consider
whether the bank’s statewide loan-todeposit ratio is less than 50 percent of
the relevant host State loan-to-deposit
ratio.
(b) Results of screen. (1) If the OCC
determines that the bank’s statewide
loan-to-deposit ratio is 50 percent or
more of the host state loan-to-deposit
ratio, no further consideration under
this subpart is required.
(2) If the OCC determines that the
bank’s statewide loan-to-deposit ratio is
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
less than 50 percent of the host state
loan-to-deposit ratio, or if reasonably
available data are insufficient to
calculate the bank’s statewide loan-todeposit ratio, the OCC will make a
credit needs determination for the bank
as provided in § 25.64.
§ 25.64
Credit needs determination.
(a) In general. The OCC will review
the loan portfolio of the bank and
determine whether the bank is
reasonably helping to meet the credit
needs of the communities in the host
state that are served by the bank.
(b) Guidelines. The OCC will use the
following considerations as guidelines
when making the determination
pursuant to paragraph (a) of this section:
(1) Whether covered interstate
branches were formerly part of a failed
or failing depository institution;
(2) Whether covered interstate
branches were acquired under
circumstances where there was a low
loan-to-deposit ratio because of the
nature of the acquired institution’s
business or loan portfolio;
(3) Whether covered interstate
branches have a high concentration of
commercial or credit card lending, trust
services, or other specialized activities,
including the extent to which the
covered interstate branches accept
deposits in the host state;
(4) The CRA ratings received by the
bank, if any;
(5) Economic conditions, including
the level of loan demand, within the
communities served by the covered
interstate branches;
(6) The safe and sound operation and
condition of the bank; and
(7) The OCC’s CRA regulations
(subparts A through D of this part) and
interpretations of those regulations.
§ 25.65
Sanctions.
(a) In general. If the OCC determines
that a bank is not reasonably helping to
meet the credit needs of the
communities served by the bank in the
host state, and that the bank’s statewide
loan-to-deposit ratio is less than 50
percent of the host state loan-to-deposit
ratio, the OCC:
(1) May order that a bank’s covered
interstate branch or branches be closed
unless the bank provides reasonable
assurances to the satisfaction of the
OCC, after an opportunity for public
comment, that the bank has an
acceptable plan under which the bank
will reasonably help to meet the credit
needs of the communities served by the
bank in the host state; and
(2) Will not permit the bank to open
a new branch in the host state that
would be considered to be a covered
PO 00000
Frm 00611
Fmt 4701
Sfmt 4700
7183
interstate branch unless the bank
provides reasonable assurances to the
satisfaction of the OCC, after an
opportunity for public comment, that
the bank will reasonably help to meet
the credit needs of the community that
the new branch will serve.
(b) Notice prior to closure of a covered
interstate branch. Before exercising the
OCC’s authority to order the bank to
close a covered interstate branch, the
OCC will issue to the bank a notice of
the OCC’s intent to order the closure
and will schedule a hearing within 60
days of issuing the notice.
(c) Hearing. The OCC will conduct a
hearing scheduled under paragraph (b)
of this section in accordance with the
provisions of 12 U.S.C. 1818(h) and 12
CFR part 19.
Appendix A to Part 25—Ratings
(a) Ratings in general. (1) In assigning
a rating, the appropriate Federal
banking agency evaluates a bank’s or
savings association’s performance under
the applicable performance criteria in
this part, in accordance with §§ 25.21
and 25.28. This includes consideration
of low-cost education loans provided to
low-income borrowers and activities in
cooperation with minority- or womenowned financial institutions and lowincome credit unions, as well as
adjustments on the basis of evidence of
discriminatory or other illegal credit
practices.
(2) A bank’s or savings association’s
performance need not fit each aspect of
a particular rating profile in order to
receive that rating, and exceptionally
strong performance with respect to some
aspects may compensate for weak
performance in others. The bank’s or
savings association’s overall
performance, however, must be
consistent with safe and sound banking
practices and generally with the
appropriate rating profile as follows.
(b) Banks and savings associations
evaluated under the lending,
investment, and service tests—(1)
Lending performance rating. The
appropriate Federal banking agency
assigns each bank’s or savings
association’s lending performance one
of the five following ratings.
(i) Outstanding. The appropriate
Federal banking agency rates a bank’s or
savings association’s lending
performance ‘‘outstanding’’ if, in
general, it demonstrates:
(A) Excellent responsiveness to credit
needs in its assessment area(s), taking
into account the number and amount of
home mortgage, small business, small
farm, and consumer loans, if applicable,
in its assessment area(s);
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7184
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(B) A substantial majority of its loans
are made in its assessment area(s);
(C) An excellent geographic
distribution of loans in its assessment
area(s);
(D) An excellent distribution,
particularly in its assessment area(s), of
loans among individuals of different
income levels and businesses (including
farms) of different sizes, given the
product lines offered by the bank or
savings association;
(E) An excellent record of serving the
credit needs of highly economically
disadvantaged areas in its assessment
area(s), low-income individuals, or
businesses (including farms) with gross
annual revenues of $1 million or less,
consistent with safe and sound
operations;
(F) Extensive use of innovative or
flexible lending practices in a safe and
sound manner to address the credit
needs of low- or moderate-income
individuals or geographies; and
(G) It is a leader in making
community development loans.
(ii) High satisfactory. The appropriate
Federal banking agency rates a bank’s or
savings association’s lending
performance ‘‘high satisfactory’’ if, in
general, it demonstrates:
(A) Good responsiveness to credit
needs in its assessment area(s), taking
into account the number and amount of
home mortgage, small business, small
farm, and consumer loans, if applicable,
in its assessment area(s);
(B) A high percentage of its loans are
made in its assessment area(s);
(C) A good geographic distribution of
loans in its assessment area(s);
(D) A good distribution, particularly
in its assessment area(s), of loans among
individuals of different income levels
and businesses (including farms) of
different sizes, given the product lines
offered by the bank or savings
association;
(E) A good record of serving the credit
needs of highly economically
disadvantaged areas in its assessment
area(s), low-income individuals, or
businesses (including farms) with gross
annual revenues of $1 million or less,
consistent with safe and sound
operations;
(F) Use of innovative or flexible
lending practices in a safe and sound
manner to address the credit needs of
low- or moderate-income individuals or
geographies; and
(G) It has made a relatively high level
of community development loans.
(iii) Low satisfactory. The appropriate
Federal banking agency rates a bank’s or
savings association’s lending
performance ‘‘low satisfactory’’ if, in
general, it demonstrates:
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
(A) Adequate responsiveness to credit
needs in its assessment area(s), taking
into account the number and amount of
home mortgage, small business, small
farm, and consumer loans, if applicable,
in its assessment area(s);
(B) An adequate percentage of its
loans are made in its assessment area(s);
(C) An adequate geographic
distribution of loans in its assessment
area(s);
(D) An adequate distribution,
particularly in its assessment area(s), of
loans among individuals of different
income levels and businesses (including
farms) of different sizes, given the
product lines offered by the bank or
savings association;
(E) An adequate record of serving the
credit needs of highly economically
disadvantaged areas in its assessment
area(s), low-income individuals, or
businesses (including farms) with gross
annual revenues of $1 million or less,
consistent with safe and sound
operations;
(F) Limited use of innovative or
flexible lending practices in a safe and
sound manner to address the credit
needs of low- or moderate-income
individuals or geographies; and
(G) It has made an adequate level of
community development loans.
(iv) Needs to improve. The
appropriate Federal banking agency
rates a bank’s or savings association’s
lending performance ‘‘needs to
improve’’ if, in general, it demonstrates:
(A) Poor responsiveness to credit
needs in its assessment area(s), taking
into account the number and amount of
home mortgage, small business, small
farm, and consumer loans, if applicable,
in its assessment area(s);
(B) A small percentage of its loans are
made in its assessment area(s);
(C) A poor geographic distribution of
loans, particularly to low- or moderateincome geographies, in its assessment
area(s);
(D) A poor distribution, particularly
in its assessment area(s), of loans among
individuals of different income levels
and businesses (including farms) of
different sizes, given the product lines
offered by the bank or savings
association;
(E) A poor record of serving the credit
needs of highly economically
disadvantaged areas in its assessment
area(s), low-income individuals, or
businesses (including farms) with gross
annual revenues of $1 million or less,
consistent with safe and sound
operations;
(F) Little use of innovative or flexible
lending practices in a safe and sound
manner to address the credit needs of
PO 00000
Frm 00612
Fmt 4701
Sfmt 4700
low- or moderate-income individuals or
geographies; and
(G) It has made a low level of
community development loans.
(v) Substantial noncompliance. The
appropriate Federal banking agency
rates a bank’s or savings association’s
lending performance as being in
‘‘substantial noncompliance’’ if, in
general, it demonstrates:
(A) A very poor responsiveness to
credit needs in its assessment area(s),
taking into account the number and
amount of home mortgage, small
business, small farm, and consumer
loans, if applicable, in its assessment
area(s);
(B) A very small percentage of its
loans are made in its assessment area(s);
(C) A very poor geographic
distribution of loans, particularly to
low- or moderate-income geographies,
in its assessment area(s);
(D) A very poor distribution,
particularly in its assessment area(s), of
loans among individuals of different
income levels and businesses (including
farms) of different sizes, given the
product lines offered by the bank or
savings association;
(E) A very poor record of serving the
credit needs of highly economically
disadvantaged areas in its assessment
area(s), low-income individuals, or
businesses (including farms) with gross
annual revenues of $1 million or less,
consistent with safe and sound
operations;
(F) No use of innovative or flexible
lending practices in a safe and sound
manner to address the credit needs of
low- or moderate-income individuals or
geographies; and
(G) It has made few, if any,
community development loans.
(2) Investment performance rating.
The appropriate Federal banking agency
assigns each bank’s or savings
association’s investment performance
one of the five following ratings.
(i) Outstanding. The appropriate
Federal banking agency rates a bank’s or
savings association’s investment
performance ‘‘outstanding’’ if, in
general, it demonstrates:
(A) An excellent level of qualified
investments, particularly those that are
not routinely provided by private
investors, often in a leadership position;
(B) Extensive use of innovative or
complex qualified investments; and
(C) Excellent responsiveness to credit
and community development needs.
(ii) High satisfactory. The appropriate
Federal banking agency rates a bank’s or
savings association’s investment
performance ‘‘high satisfactory’’ if, in
general, it demonstrates:
(A) A significant level of qualified
investments, particularly those that are
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
not routinely provided by private
investors, occasionally in a leadership
position;
(B) Significant use of innovative or
complex qualified investments; and
(C) Good responsiveness to credit and
community development needs.
(iii) Low satisfactory. The appropriate
Federal banking agency rates a bank’s or
savings association’s investment
performance ‘‘low satisfactory’’ if, in
general, it demonstrates:
(A) An adequate level of qualified
investments, particularly those that are
not routinely provided by private
investors, although rarely in a
leadership position;
(B) Occasional use of innovative or
complex qualified investments; and
(C) Adequate responsiveness to credit
and community development needs.
(iv) Needs to improve. The
appropriate Federal banking agency
rates a bank’s or savings association’s
investment performance ‘‘needs to
improve’’ if, in general, it demonstrates:
(A) A poor level of qualified
investments, particularly those that are
not routinely provided by private
investors;
(B) Rare use of innovative or complex
qualified investments; and
(C) Poor responsiveness to credit and
community development needs.
(v) Substantial noncompliance. The
appropriate Federal banking agency
rates a bank’s or savings association’s
investment performance as being in
‘‘substantial noncompliance’’ if, in
general, it demonstrates:
(A) Few, if any, qualified investments,
particularly those that are not routinely
provided by private investors;
(B) No use of innovative or complex
qualified investments; and
(C) Very poor responsiveness to credit
and community development needs.
(3) Service performance rating. The
appropriate Federal banking agency
assigns each bank’s or savings
association’s service performance one of
the five following ratings.
(i) Outstanding. The appropriate
Federal banking agency rates a bank’s or
savings association’s service
performance ‘‘outstanding’’ if, in
general, the bank or savings association
demonstrates:
(A) Its service delivery systems are
readily accessible to geographies and
individuals of different income levels in
its assessment area(s);
(B) To the extent changes have been
made, its record of opening and closing
branches has improved the accessibility
of its delivery systems, particularly in
low- or moderate-income geographies or
to low- or moderate-income individuals;
(C) Its services (including, where
appropriate, business hours) are tailored
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
to the convenience and needs of its
assessment area(s), particularly low- or
moderate-income geographies or low- or
moderate-income individuals; and
(D) It is a leader in providing
community development services.
(ii) High satisfactory. The appropriate
Federal banking agency rates a bank’s or
savings association’s service
performance ‘‘high satisfactory’’ if, in
general, the bank or savings association
demonstrates:
(A) Its service delivery systems are
accessible to geographies and
individuals of different income levels in
its assessment area(s);
(B) To the extent changes have been
made, its record of opening and closing
branches has not adversely affected the
accessibility of its delivery systems,
particularly in low- and moderateincome geographies and to low- and
moderate-income individuals;
(C) Its services (including, where
appropriate, business hours) do not vary
in a way that inconveniences its
assessment area(s), particularly low- and
moderate-income geographies and lowand moderate-income individuals; and
(D) It provides a relatively high level
of community development services.
(iii) Low satisfactory. The appropriate
Federal banking agency rates a bank’s or
savings association’s service
performance ‘‘low satisfactory’’ if, in
general, the bank or savings association
demonstrates:
(A) Its service delivery systems are
reasonably accessible to geographies
and individuals of different income
levels in its assessment area(s);
(B) To the extent changes have been
made, its record of opening and closing
branches has generally not adversely
affected the accessibility of its delivery
systems, particularly in low- and
moderate-income geographies and to
low- and moderate-income individuals;
(C) Its services (including, where
appropriate, business hours) do not vary
in a way that inconveniences its
assessment area(s), particularly low- and
moderate-income geographies and lowand moderate-income individuals; and
(D) It provides an adequate level of
community development services.
(iv) Needs to improve. The
appropriate Federal banking agency
rates a bank’s or savings association’s
service performance ‘‘needs to improve’’
if, in general, the bank or savings
association demonstrates:
(A) Its service delivery systems are
unreasonably inaccessible to portions of
its assessment area(s), particularly to
low- or moderate-income geographies or
to low- or moderate-income individuals;
(B) To the extent changes have been
made, its record of opening and closing
PO 00000
Frm 00613
Fmt 4701
Sfmt 4700
7185
branches has adversely affected the
accessibility its delivery systems,
particularly in low- or moderate-income
geographies or to low- or moderateincome individuals;
(C) Its services (including, where
appropriate, business hours) vary in a
way that inconveniences its assessment
area(s), particularly low- or moderateincome geographies or low- or
moderate-income individuals; and
(D) It provides a limited level of
community development services.
(v) Substantial noncompliance. The
appropriate Federal banking agency
rates a bank’s or savings association’s
service performance as being in
‘‘substantial noncompliance’’ if, in
general, the bank or savings association
demonstrates:
(A) Its service delivery systems are
unreasonably inaccessible to significant
portions of its assessment area(s),
particularly to low- or moderate-income
geographies or to low- or moderateincome individuals;
(B) To the extent changes have been
made, its record of opening and closing
branches has significantly adversely
affected the accessibility of its delivery
systems, particularly in low- or
moderate-income geographies or to lowor moderate-income individuals;
(C) Its services (including, where
appropriate, business hours) vary in a
way that significantly inconveniences
its assessment area(s), particularly lowor moderate-income geographies or lowor moderate-income individuals; and
(D) It provides few, if any, community
development services.
(c) Wholesale or limited purpose
banks. The appropriate Federal banking
agency assigns each wholesale or
limited purpose bank’s or savings
association’s community development
performance one of the four following
ratings.
(1) Outstanding. The appropriate
Federal banking agency rates a
wholesale or limited purpose bank’s or
savings association’s community
development performance
‘‘outstanding’’ if, in general, it
demonstrates:
(i) A high level of community
development loans, community
development services, or qualified
investments, particularly investments
that are not routinely provided by
private investors;
(ii) Extensive use of innovative or
complex qualified investments,
community development loans, or
community development services; and
(iii) Excellent responsiveness to credit
and community development needs in
its assessment area(s).
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7186
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(2) Satisfactory. The appropriate
Federal banking agency rates a
wholesale or limited purpose bank’s or
savings association’s community
development performance ‘‘satisfactory’’
if, in general, it demonstrates:
(i) An adequate level of community
development loans, community
development services, or qualified
investments, particularly investments
that are not routinely provided by
private investors;
(ii) Occasional use of innovative or
complex qualified investments,
community development loans, or
community development services; and
(iii) Adequate responsiveness to credit
and community development needs in
its assessment area(s).
(3) Needs to improve. The appropriate
Federal banking agency rates a
wholesale or limited purpose bank’s or
savings association’s community
development performance as ‘‘needs to
improve’’ if, in general, it demonstrates:
(i) A poor level of community
development loans, community
development services, or qualified
investments, particularly investments
that are not routinely provided by
private investors;
(ii) Rare use of innovative or complex
qualified investments, community
development loans, or community
development services; and
(iii) Poor responsiveness to credit and
community development needs in its
assessment area(s).
(4) Substantial noncompliance. The
appropriate Federal banking agency
rates a wholesale or limited purpose
bank’s or savings association’s
community development performance
in ‘‘substantial noncompliance’’ if, in
general, it demonstrates:
(i) Few, if any, community
development loans, community
development services, or qualified
investments, particularly investments
that are not routinely provided by
private investors;
(ii) No use of innovative or complex
qualified investments, community
development loans, or community
development services; and
(iii) Very poor responsiveness to
credit and community development
needs in its assessment area(s).
(d) Banks and savings associations
evaluated under the small bank and
savings association performance
standards—(1) Lending test ratings. (i)
Eligibility for a satisfactory lending test
rating. The appropriate Federal banking
agency rates a small bank’s or savings
association’s lending performance
‘‘satisfactory’’ if, in general, the bank or
savings association demonstrates:
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
(A) A reasonable loan-to-deposit ratio
(considering seasonal variations) given
the bank’s or savings association’s size,
financial condition, the credit needs of
its assessment area(s), and taking into
account, as appropriate, other lendingrelated activities such as loan
originations for sale to the secondary
markets and community development
loans and qualified investments;
(B) A majority of its loans and, as
appropriate, other lending-related
activities, are in its assessment area;
(C) A distribution of loans to and, as
appropriate, other lending-related
activities for individuals of different
income levels (including low- and
moderate-income individuals) and
businesses and farms of different sizes
that is reasonable given the
demographics of the bank’s or savings
association’s assessment area(s);
(D) A record of taking appropriate
action, when warranted, in response to
written complaints, if any, about the
bank’s or savings association’s
performance in helping to meet the
credit needs of its assessment area(s);
and
(E) A reasonable geographic
distribution of loans given the bank’s or
savings association’s assessment area(s).
(ii) Eligibility for an ‘‘outstanding’’
lending test rating. A small bank or
savings association that meets each of
the standards for a ‘‘satisfactory’’ rating
under this paragraph and exceeds some
or all of those standards may warrant
consideration for a lending test rating of
‘‘outstanding.’’
(iii) Needs to improve or substantial
noncompliance ratings. A small bank or
savings association may also receive a
lending test rating of ‘‘needs to
improve’’ or ‘‘substantial
noncompliance’’ depending on the
degree to which its performance has
failed to meet the standard for a
‘‘satisfactory’’ rating.
(2) Community development test
ratings for intermediate small banks and
savings associations—(i) Eligibility for a
satisfactory community development
test rating. The appropriate Federal
banking agency rates an intermediate
small bank’s or savings association’s
community development performance
‘‘satisfactory’’ if the bank or savings
association demonstrates adequate
responsiveness to the community
development needs of its assessment
area(s) through community
development loans, qualified
investments, and community
development services. The adequacy of
the bank’s or savings association’s
response will depend on its capacity for
such community development
activities, its assessment area’s need for
PO 00000
Frm 00614
Fmt 4701
Sfmt 4700
such community development
activities, and the availability of such
opportunities for community
development in the bank’s or savings
association’s assessment area(s).
(ii) Eligibility for an outstanding
community development test rating. The
appropriate Federal banking agency
rates an intermediate small bank’s or
savings association’s community
development performance
‘‘outstanding’’ if the bank or savings
association demonstrates excellent
responsiveness to community
development needs in its assessment
area(s) through community
development loans, qualified
investments, and community
development services, as appropriate,
considering the bank’s or savings
association’s capacity and the need and
availability of such opportunities for
community development in the bank’s
or savings association’s assessment
area(s).
(iii) Needs to improve or substantial
noncompliance ratings. An intermediate
small bank or savings association may
also receive a community development
test rating of ‘‘needs to improve’’ or
‘‘substantial noncompliance’’ depending
on the degree to which its performance
has failed to meet the standards for a
‘‘satisfactory’’ rating.
(3) Overall rating—(i) Eligibility for a
satisfactory overall rating. No
intermediate small bank or savings
association may receive an assigned
overall rating of ‘‘satisfactory’’ unless it
receives a rating of at least
‘‘satisfactory’’ on both the lending test
and the community development test.
(ii) Eligibility for an outstanding
overall rating. (A) An intermediate small
bank or savings association that receives
an ‘‘outstanding’’ rating on one test and
at least ‘‘satisfactory’’ on the other test
may receive an assigned overall rating of
‘‘outstanding.’’
(B) A small bank or savings
association that is not an intermediate
small bank or savings association that
meets each of the standards for a
‘‘satisfactory’’ rating under the lending
test and exceeds some or all of those
standards may warrant consideration for
an overall rating of ‘‘outstanding.’’ In
assessing whether a bank’s or savings
association’s performance is
‘‘outstanding,’’ the appropriate Federal
banking agency considers the extent to
which the bank or savings association
exceeds each of the performance
standards for a ‘‘satisfactory’’ rating and
its performance in making qualified
investments and its performance in
providing branches and other services
and delivery systems that enhance
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
credit availability in its assessment
area(s).
(iii) Needs to improve or substantial
noncompliance overall ratings. A small
bank or savings association may also
receive a rating of ‘‘needs to improve’’
or ‘‘substantial noncompliance’’
depending on the degree to which its
performance has failed to meet the
standards for a ‘‘satisfactory’’ rating.
(e) Strategic plan assessment and
rating—(1) Satisfactory goals. The
appropriate Federal banking agency
approves as ‘‘satisfactory’’ measurable
goals that adequately help to meet the
credit needs of the bank’s or savings
association’s assessment area(s).
(2) Outstanding goals. If the plan
identifies a separate group of
measurable goals that substantially
exceed the levels approved as
‘‘satisfactory,’’ the appropriate Federal
banking agency will approve those goals
as ‘‘outstanding.’’
(3) Rating. The appropriate Federal
banking agency assesses the
performance of a bank or savings
association operating under an
approved plan to determine if the bank
or savings association has met its plan
goals:
(i) If the bank or savings association
substantially achieves its plan goals for
a satisfactory rating, the appropriate
Federal banking agency will rate the
bank’s or savings association’s
performance under the plan as
‘‘satisfactory.’’
(ii) If the bank or savings association
exceeds its plan goals for a satisfactory
rating and substantially achieves its
plan goals for an outstanding rating, the
appropriate Federal banking agency will
rate the bank’s or savings association’s
performance under the plan as
‘‘outstanding.’’
(iii) If the bank or savings association
fails to meet substantially its plan goals
for a satisfactory rating, the appropriate
Federal banking agency will rate the
bank or savings association as either
‘‘needs to improve’’ or ‘‘substantial
noncompliance,’’ depending on the
extent to which it falls short of its plan
goals, unless the bank or savings
association elected in its plan to be
rated otherwise, as provided in
§ 25.27(f)(4).
Appendix B to Part 25—CRA Notice
(a) Notice for main offices and, if an
interstate bank and savings association,
one branch office in each state.
Community Reinvestment Act Notice
Under the Federal Community
Reinvestment Act (CRA), the [Office of
the Comptroller of the Currency (OCC)
or Federal Deposit Insurance
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Corporation (FDIC), as appropriate]
evaluates our record of helping to meet
the credit needs of this community
consistent with safe and sound
operations. The [OCC or FDIC, as
appropriate] also takes this record into
account when deciding on certain
applications submitted by us.
Your Involvement is Encouraged
You are entitled to certain
information about our operations and
our performance under the CRA,
including, for example, information
about our branches, such as their
location and services provided at them;
the public section of our most recent
CRA Performance Evaluation, prepared
by the [OCC or FDIC, as appropriate];
and comments received from the public
relating to our performance in helping
to meet community credit needs, as well
as our responses to those comments.
You may review this information today.
At least 30 days before the beginning
of each quarter, the [OCC or FDIC, as
appropriate] publishes a nationwide list
of the banks and savings associations
that are scheduled for CRA examination
in that quarter. This list is available
from the [OCC or FDIC, as appropriate],
at [address]. You may send written
comments about our performance in
helping to meet community credit needs
to [name and address of official at bank
or savings association] and to the [OCC
or FDIC, as appropriate], at [address].
Your letter, together with any response
by us, will be considered by the [OCC
or FDIC, as appropriate] in evaluating
our CRA performance and may be made
public.
You may ask to look at any comments
received by the [OCC or FDIC, as
appropriate]. You may also request from
the [OCC or FDIC, as appropriate] an
announcement of our applications
covered by the CRA filed with the [OCC
or FDIC, as appropriate]. We are an
affiliate of [name of holding company],
a [bank holding company or savings and
loan holding company, as appropriate].
You may request from the [title of
responsible official], Federal Reserve
Bank of [ll] [address] an
announcement of applications covered
by the CRA filed by [bank holding
companies or savings and loan holding
companies, as appropriate].
(b) Notice for branch offices.
Community Reinvestment Act Notice
Under the Federal Community
Reinvestment Act (CRA), the
[Comptroller of the Currency (OCC) and
Federal Deposit Insurance Corporation
(FDIC), as appropriate] evaluates our
record of helping to meet the credit
needs of this community consistent
PO 00000
Frm 00615
Fmt 4701
Sfmt 4700
7187
with safe and sound operations. The
[OCC or FDIC, as appropriate] also takes
this record into account when deciding
on certain applications submitted by us.
Your Involvement is Encouraged
You are entitled to certain
information about our operations and
our performance under the CRA. You
may review today the public section of
our most recent CRA evaluation,
prepared by the [OCC or FDIC, as
appropriate], and a list of services
provided at this branch. You may also
have access to the following additional
information, which we will make
available to you at this branch within
five calendar days after you make a
request to us: (1) A map showing the
assessment area containing this branch,
which is the area in which the [OCC or
FDIC, as appropriate] evaluates our CRA
performance in this community; (2)
information about our branches in this
assessment area; (3) a list of services we
provide at those locations; (4) data on
our lending performance in this
assessment area; and (5) copies of all
written comments received by us that
specifically relate to our CRA
performance in this assessment area,
and any responses we have made to
those comments. If we are operating
under an approved strategic plan, you
may also have access to a copy of the
plan.
[If you would like to review
information about our CRA performance
in other communities served by us, the
public file for our entire [bank or
savings association, as appropriate] is
available at [name of office located in
state], located at [address].]
At least 30 days before the beginning
of each quarter, the [OCC or FDIC, as
appropriate] publishes a nationwide list
of the banks and savings associations
that are scheduled for CRA examination
in that quarter. This list is available
from the [OCC or FDIC, as appropriate]
at [address]. You may send written
comments about our performance in
helping to meet community credit needs
to [name and address of official at bank
or savings association, as appropriate]
and to the [OCC or FDIC, as appropriate]
at [address]. Your letter, together with
any response by us, will be considered
by the [OCC or FDIC, as appropriate] in
evaluating our CRA performance and
may be made public.
You may ask to look at any comments
received by the [OCC or FDIC, as
appropriate]. You may also request from
the [OCC or FDIC, as appropriate] an
announcement of our applications
covered by the CRA filed with the [OCC
or FDIC, as appropriate]. We are an
affiliate of [name of holding company],
E:\FR\FM\01FER2.SGM
01FER2
7188
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
a [bank holding company or savings and
loan holding company, as appropriate].
You may request from the [title of
responsible official], Federal Reserve
Bank of [ll], [address], an
announcement of applications covered
by the CRA filed by [bank holding
companies or savings and loan holding
companies, as appropriate].
FEDERAL RESERVE SYSTEM
12 CFR Chapter II
Authority and Issuance
For the reasons discussed in the
common preamble, the Board of
Governors of the Federal Reserve
System amends part 228 of chapter II of
title 12 of the Code of Federal
Regulations as follows:
PART 228—COMMUNITY
REINVESTMENT (REGULATION BB)
30. The authority citation for part 228
continues to read as follows:
■
Authority: 12 U.S.C. 321, 325, 1828(c),
1842, 1843, 1844, and 2901 et seq.
31. Revise part 228 as set forth at the
end of the common preamble.
■ 32. Amend part 228 by:
■ a. Removing ‘‘[Agency]’’ wherever it
appears and adding in its place
‘‘Board’’;
■ b. Removing ‘‘[Agency]’s’’ wherever it
appears and adding in its place
‘‘Board’s’’;
■ c. Removing ‘‘[operations subsidiary
or operating subsidiary]’’ wherever it
appears and adding in its place
‘‘operations subsidiary’’;
■ d. Removing ‘‘[operations subsidiaries
or operating subsidiaries]’’ wherever it
appears and adding in its place
‘‘operations subsidiaries’’; and
■ e. Removing ‘‘[operations subsidiaries
or operating subsidiaries]’’ wherever it
appears and adding in its place
‘‘operations subsidiaries’’.
■ 33. Amend § 228.11 by:
■ a. Adding paragraph (a);
■ b. In paragraph (b), removing
‘‘Community Reinvestment Act (12
U.S.C. 2901 et seq.) (CRA)’’ and adding
in its place ‘‘CRA’’; and
■ c. Adding paragraph (c).
The additions read as follows:
■
ddrumheller on DSK120RN23PROD with RULES2
§ 228.11
Authority, purposes, and scope.
(a) Authority. The Board of Governors
of the Federal Reserve System (the
Board) issues this part to implement the
Community Reinvestment Act (12
U.S.C. 2901 et seq.) (CRA). The
regulations comprising this part are
issued under the authority of the CRA
and under the provisions of the United
States Code authorizing the Federal
Reserve:
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
(1) To conduct examinations of Statechartered banks that are members of the
Federal Reserve System (12 U.S.C. 325);
(2) To conduct examinations of bank
holding companies and their
subsidiaries (12 U.S.C. 1844) and
savings and loan holding companies
and their subsidiaries (12 U.S.C. 1467a);
and
(3) To consider applications for:
(i) Domestic branches by State
member banks (12 U.S.C. 321);
(ii) Mergers in which the resulting
bank would be a State member bank (12
U.S.C. 1828(c));
(iii) Formations of, acquisitions of
banks by, and mergers of, bank holding
companies (12 U.S.C. 1842);
(iv) The acquisition of savings
associations by bank holding companies
(12 U.S.C. 1843); and
(v) Formations of, acquisitions of
savings associations by, conversions of,
and mergers of, savings and loan
holding companies (12 U.S.C. 1467a).
*
*
*
*
*
(c) Scope—(1) General. This part
applies to all banks except as provided
in paragraph (c)(3) of this section.
(2) Foreign bank acquisitions. This
part also applies to an uninsured State
branch (other than a limited branch) of
a foreign bank that results from an
acquisition described in section 5(a)(8)
of the International Banking Act of 1978
(12 U.S.C. 3103(a)(8)). The terms ‘‘State
branch’’ and ‘‘foreign bank’’ have the
same meanings as given to those terms
in section 1(b) of the International
Banking Act of 1978 (12 U.S.C. 3101 et
seq.); the term ‘‘uninsured State branch’’
means a State branch the deposits of
which are not insured by the Federal
Deposit Insurance Corporation; the term
‘‘limited branch’’ means a State branch
that accepts only deposits that are
permissible for a corporation organized
under section 25A of the Federal
Reserve Act (12 U.S.C. 611 et seq.).
(3) Certain exempt banks. This part
does not apply to banks that do not
perform commercial or retail banking
services by granting credit to the public
in the ordinary course of business, other
than as incident to their specialized
operations and done on an
accommodation basis. These banks
include bankers’ banks, as defined in 12
U.S.C. 24 (Seventh), and banks that
engage only in one or more of the
following activities: providing cash
management controlled disbursement
services or serving as correspondent
banks, trust companies, or clearing
agents.
■ 34. Amend § 228.12 by:
■ a. Revising the definition of
‘‘Affiliate’’.
PO 00000
Frm 00616
Fmt 4701
Sfmt 4700
b. Adding the definition of ‘‘Bank’’ in
alphabetical order.
■ c. In the definition of ‘‘Depository
institution’’, removing ‘‘12 CFR 25.11,
228.11, and 345.11’’ and adding
‘‘§ 228.11 and 12 CFR 25.11 and 345.11’’
in its place.
■ d. In the definition of ‘‘Distressed or
underserved nonmetropolitan middleincome census tract’’, removing ‘‘Board
of Governors of the Federal Reserve
System (Board)’’ and adding ‘‘Board’’ in
its place;
■ e. In the definition of ‘‘Large
depository institution’’, removing ‘‘12
CFR 228.26(a) or 345.26(a)’’ and adding
‘‘§ 228.26(a) or 12 CFR 345.26(a)’’ in its
place.
■ f. Adding the definition of
‘‘Operations subsidiary’’ in alphabetical
order.
The revision and additions read as
follows:
■
§ 228.12
Definitions.
*
*
*
*
*
Affiliate means any company that
controls, is controlled by, or is under
common control with another company.
The term ‘‘control’’ has the meaning
given to that term in 12 U.S.C.
1841(a)(2), as implemented by the Board
in 12 CFR part 225, and a company is
under common control with another
company if both companies are directly
or indirectly controlled by the same
company.
*
*
*
*
*
Bank means a State member bank as
that term is defined in section 3(d)(2) of
the Federal Deposit Insurance Act (12
U.S.C. 1813(d)(2)), except as provided in
§ 228.11(c)(3), and includes an
uninsured State branch (other than a
limited branch) of a foreign bank
described in § 228.11(c)(2).
*
*
*
*
*
Operations subsidiary means an
organization designed to serve, in effect,
as a separately incorporated department
of the bank, performing, at locations at
which the bank is authorized to engage
in business, functions that the bank is
empowered to perform directly.
*
*
*
*
*
■ 35. Delayed indefinitely, further
amend § 228.12 by:
■ a. Revising paragraph (3) in the
definition of ‘‘Loan location’’;
■ b. Revising paragraph (2) in the
definition of ‘‘Reported loan’’; and
■ c. Revising the definitions of ‘‘Small
business’’, ‘‘Small business loan’’,
‘‘Small farm’’, and ‘‘Small farm loan’’.
The revisions read as follows:
§ 228.12
*
E:\FR\FM\01FER2.SGM
*
Definitions.
*
01FER2
*
*
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Loan location * * *
(3) A small business loan or small
farm loan is located in the census tract
reported pursuant to subpart B of 12
CFR part 1002.
*
*
*
*
*
Reported loan means * * *
(2) A small business loan or small
farm loan reported by a bank pursuant
to subpart B of 12 CFR part 1002.
*
*
*
*
*
Small business means a small
business, other than a small farm, as
defined in section 704B of the Equal
Credit Opportunity Act (15 U.S.C.
1691c–2) and implemented by 12 CFR
1002.106.
Small business loan means a loan to
a small business as defined in this
section.
Small farm means a small business, as
defined in section 704B of the Equal
Credit Opportunity Act (15 U.S.C.
1691c–2) and implemented by 12 CFR
1002.106, and that is identified with one
of the 3-digit North American Industry
Classification System (NAICS) codes
111–115.
Small farm loan means a loan to a
small farm as defined in this section.
*
*
*
*
*
§ 228.13
[Amended]
36. Amend § 228.13 in paragraph (k)
by removing ‘‘part 25, 228, or 345 of this
title’’ and adding ‘‘this part or 12 CFR
part 25 or 345’’ in its place.
■
§ 228.14
[Amended]
37. Amend § 228.14 in paragraphs
(b)(2)(ii) and (b)(3) by removing ‘‘[other
Agencies]’’ and adding in its place
‘‘OCC and FDIC’’.
■
§ 228.21
[Amended]
38. Amend § 228.21 in paragraph
(b)(1) by removing ‘‘12 CFR part 25, 228,
or 345’’ and adding ‘‘this part or 12 CFR
part 25 or 345’’ in its place.
■
§ 228.22
[Amended]
39. Delayed indefinitely, amend
§ 228.22 by:
■ a. In paragraphs (e)(2)(ii)(C) and (D),
removing ‘‘Businesses’’ and adding in
its place ‘‘Small businesses’’.
■ b. In paragraphs (e)(2)(ii)(E) and (F),
removing ‘‘Farms’’ and adding in its
place ‘‘Small farms’’.
ddrumheller on DSK120RN23PROD with RULES2
■
§ 228.26
[Amended]
40. Amend § 228.26 by:
a. In paragraph (f)(2)(ii)(A), removing
‘‘12 CFR 228.26(a) or 345.26(a)’’ and ‘‘12
CFR 25.42(b), 228.42(b), or 345.42(b)’’
and adding ‘‘paragraph (a) of this
section or 12 CFR 345.26(a)’’ and
‘‘§ 228.42(b) or 12 CFR 25.42(b) or
■
■
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
345.42(b)’’ in their places, respectively;
and
■ b. In paragraph (f)(2)(ii)(B), removing
‘‘12 CFR 25.42(b), 228.42(b), or
345.42(b)’’ and adding ‘‘§ 228.42(b) or
12 CFR 25.42(b) or 345.42(b)’’ in its
place.
■ 41. Add § 228.31 to read as follows:
§ 228.31 Effect of CRA performance on
applications.
(a) CRA performance. Among other
factors, the Board takes into account the
record of performance under the CRA
of:
(1) Each applicant bank for the:
(i) Establishment of a domestic branch
by a State member bank; and
(ii) Merger, consolidation, acquisition
of assets, or assumption of liabilities
requiring approval under the Bank
Merger Act (12 U.S.C. 1828(c)) if the
acquiring, assuming, or resulting bank is
to be a State member bank; and
(2) Each insured depository
institution (as defined in 12 U.S.C.
1813) controlled by an applicant and
subsidiary bank or savings association
proposed to be controlled by an
applicant:
(i) To become a bank holding
company in a transaction that requires
approval under section 3 of the Bank
Holding Company Act (12 U.S.C. 1842);
(ii) To acquire ownership or control of
shares or all or substantially all of the
assets of a bank, to cause a bank to
become a subsidiary of a bank holding
company, or to merge or consolidate a
bank holding company with any other
bank holding company in a transaction
that requires approval under section 3 of
the Bank Holding Company Act (12
U.S.C. 1842);
(iii) To own, control, or operate a
savings association in a transaction that
requires approval under section 4 of the
Bank Holding Company Act (12 U.S.C.
1843);
(iv) To become a savings and loan
holding company in a transaction that
requires approval under section 10 of
the Home Owners’ Loan Act (12 U.S.C.
1467a); and
(v) To acquire ownership or control of
shares or all or substantially all of the
assets of a savings association, to cause
a savings association to become a
subsidiary of a savings and loan holding
company, or to merge or consolidate a
savings and loan holding company with
any other savings and loan holding
company in a transaction that requires
approval under section 10 of the Home
Owners’ Loan Act (12 U.S.C. 1467a).
(b) Interested parties. In considering
CRA performance in an application
described in paragraph (a) of this
section, the Board takes into account
PO 00000
Frm 00617
Fmt 4701
Sfmt 4700
7189
any views expressed by interested
parties that are submitted in accordance
with the Board’s Rules of Procedure set
forth in 12 CFR part 262.
(c) Denial or conditional approval of
application. A bank or savings
association’s record of performance may
be the basis for denying or conditioning
approval of an application listed in
paragraph (a) of this section.
(d) Definitions. For purposes of
paragraphs (a)(2)(i) through (iii) of this
section, ‘‘bank,’’ ‘‘bank holding
company,’’ ‘‘subsidiary,’’ and ‘‘savings
association’’ have the same meanings
given to those terms in section 2 of the
Bank Holding Company Act (12 U.S.C.
1841). For purposes of paragraphs
(a)(2)(iv) and (v) of this section, ‘‘savings
and loan holding company’’ and
‘‘subsidiary’’ have the same meaning
given to those terms in section 10 of the
Home Owners’ Loan Act (12 U.S.C.
1467a).
§ 228.42
[Amended]
42. Amend § 228.42 by:
a. In paragraph (h), removing ‘‘12 CFR
part 25, 228, or 345’’ and adding ‘‘this
part or 12 CFR part 25 or 345’’ in its
place; and
■ b. In paragraph (j)(2), removing
‘‘[Agency]’s’’ and adding ‘‘Board’s’’ in
its place.
■ 43. Delayed indefinitely, further
amend § 228.42 by:
■ a. Revising paragraph (a)(1);
■ b. Removing and reserving paragraph
(b)(1); and
■ c. In paragraphs (g)(1)(i) and (g)(2)(i),
removing ‘‘small business loans and
small farm loans reported as originated
or purchased’’ and adding in their place
‘‘small business loans and small farm
loans reported as originated’’.
The revision reads as follows:
■
■
§ 228.42 Data collection, reporting, and
disclosure.
(a) * * *
(1) Purchases of small business loans
and small farm loans data. A bank that
opts to have the Board consider its
purchases of small business loans and
small farm loans must collect and
maintain in electronic form, as
prescribed by the Board, until the
completion of the bank’s next CRA
examination in which the data are
evaluated, the following data for each
small business loan or small farm loan
purchased by the bank during the
evaluation period:
(i) A unique number or alpha-numeric
symbol that can be used to identify the
relevant loan file;
(ii) An indicator for the loan type as
reported on the bank’s Call Report or on
the bank’s Report of Assets and
E:\FR\FM\01FER2.SGM
01FER2
7190
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Liabilities of U.S. Branches and
Agencies of Foreign Banks, as
applicable;
(iii) The date of the loan purchase;
(iv) The loan amount at purchase;
(v) The loan location, including State,
county, and census tract;
(vi) An indicator for whether the
purchased loan was to a business or
farm with gross annual revenues of
$250,000 or less;
(vii) An indicator for whether the
purchased loan was to a business or
farm with gross annual revenues greater
than $250,000 but less than or equal to
$1 million;
(viii) An indicator for whether the
purchased loan was to a business or
farm with gross annual revenues greater
than $1 million; and
(ix) An indicator for whether the
purchased loan was to a business or
farm for which gross annual revenues
are not known by the bank.
*
*
*
*
*
§ 228.43
[Amended]
44. Amend § 228.43 in paragraph
(b)(2)(i) by removing ‘‘[operations
subsidiaries’ or operating subsidiaries’]’’
and adding in its place ‘‘operations
subsidiaries’’’.
■ 45. Delayed indefinitely, further
amend § 228.43 by:
■ a. Revising the heading of paragraph
(b)(2); and
■ b. Adding paragraph (b)(2)(iii).
The revision and addition read as
follows:
■
§ 228.43
file.
Content and availability of public
*
*
*
*
*
(b) * * *
(2) Banks required to report HMDA
data and small business lending data.
* * *
(iii) Small business lending data
notice. A bank required to report small
business loan or small farm loan data
pursuant to 12 CFR part 1002 must
include in its public file a written notice
that the bank’s small business loan and
small farm loan data may be obtained on
the CFPB’s website at: https://
www.consumerfinance.gov/dataresearch/small-business-lending/.
*
*
*
*
*
ddrumheller on DSK120RN23PROD with RULES2
§ 228.46
[Amended]
46. Amend § 228.46 in paragraph (b)
by removing ‘‘[Agency contact
information]’’ and adding in its place
‘‘Staff Group: Community Reinvestment
Act at https://www.federalreserve.gov/
apps/ContactUs/feedback.aspx, by mail
to Secretary of the Board, Board of
Governors of the Federal Reserve
■
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
System, 20th Street and Constitution
Avenue NW, Washington, DC 20551, or
by facsimile at (202) 452–3819’’.
Appendix A to Part 228—Calculations
for the Retail Lending Test
§ 228.51
I. * * *
a. * * *
1. * * * A bank’s loan purchases that
otherwise meet the definition of a covered
credit transaction to a small business, as
those terms are defined in 12 CFR 1002.104
and 1002.106(b), may be included in the
numerator of the Bank Volume Metric at the
bank’s option.
[Amended]
47. Amend § 228.51 in paragraph (e)
by removing ‘‘[other Agencies’
regulations]’’ and adding in its place
‘‘12 CFR part 25 or 345’’.
■
Appendix A to Part 228 [Amended]
48. Amend appendix A by:
a. In paragraph I.b introductory text,
removing ‘‘12 CFR 25.42(b)(1),
228.42(b)(1), or 345.42(b)(1) or 12 CFR
part 1003’’ and adding ‘‘§ 228.42(b)(1),
12 CFR 25.42(b)(1) or 345.42(b)(1), or 12
CFR part 1003’’ in its place; and
■ b. In paragraph I.b.2, removing ‘‘12
CFR 25.42(b)(3), 228.42(b)(3), or
345.42(b)(3)’’ and adding ‘‘§ 228.42(b)(3)
or 12 CFR 25.42(b)(3) or 345.42(b)(3)’’ in
its place.
■ 49. Delayed indefinitely, further
amend appendix A by:
■ a. Adding a sentence at the end of
paragraph I.a.1;
■ b. Removing ‘‘subject to reporting
pursuant to § 228.42(b)(1), 12 CFR
25.42(b)(1) or 345.42(b)(1),’’ in
paragraph I.b introductory text and
adding in its place ‘‘subject to reporting
pursuant to subpart B of 12 CFR part
1002’’;
■ c. Adding a sentence at the end of
paragraph III.a.1;
■ d. Revising paragraphs III.c.3.i and ii,
III.c.4.i and ii, III.c.5.i and ii, and III.c.6.i
and ii;
■ e. In paragraph III.c.8.iii, revising
Example A–7;
■ f. Revising the third and fourth
introductory paragraphs to section IV;
■ g. Adding a sentence at the end of
paragraph IV.a.1;
■ h. Revising the introductory
paragraph to IV.c.3 and paragraphs
IV.c.3.i and ii;
■ i. Revising the introductory paragraph
to IV.c.4 and paragraphs IV.c.4.i and ii;
■ j. Revising the introductory paragraph
to IV.c.5 and paragraphs IV.c.5.i and ii;
■ k. Revising the introductory paragraph
to IV.c.6 and paragraphs IV.c.6.i and ii;
■ l. In section V, in paragraph a, in table
1, revising the entries for ‘‘Small
Business Loans’’ and ‘‘Small Farm
Loans’’; and
■ m. In section VII:
■ i. In paragraph a.1.ii, in table 3,
revising the entries for ‘‘Small Business
Loans’’ and ‘‘Small Farm Loans’’; and
■ ii. In paragraph a.1.iii, in table 4,
revising the entries for ‘‘Small Business
Loans’’ and ‘‘Small Farm Loans’’.
The revisions and additions read as
follows:
■
■
PO 00000
Frm 00618
Fmt 4701
Sfmt 4700
*
*
*
*
*
*
*
*
*
*
III. * * *
a. * * *
1. * * * A bank’s loan purchases that
otherwise meet the definition of a covered
credit transaction to a small business, as
provided in 12 CFR 1002.104 and
1002.106(b), may be included in the
numerator of the Geographic Bank Metric at
the bank’s option.
*
*
*
*
*
c. * * *
3. * * *
i. Summing, over the years in the
evaluation period, the numbers of small
businesses in low-income census tracts in the
facility-based assessment area or retail
lending assessment area.
ii. Summing, over the years in the
evaluation period, the numbers of small
businesses in the facility-based assessment
area or retail lending assessment area.
*
*
*
*
*
4. * * *
i. Summing, over the years in the
evaluation period, the numbers of small
businesses in moderate-income census tracts
in the facility-based assessment area or retail
lending assessment area.
ii. Summing, over the years in the
evaluation period, the numbers of small
businesses in the facility-based assessment
area or retail lending assessment area.
5. * * *
i. Summing, over the years in the
evaluation period, the numbers of small
farms in low-income census tracts in the
facility-based assessment area or retail
lending assessment area.
ii. Summing, over the years in the
evaluation period, the numbers of small
farms in the facility-based assessment area or
retail lending assessment area.
*
*
*
*
*
6. * * *
i. Summing, over the years in the
evaluation period, the numbers of small
farms in moderate-income census tracts in
the facility-based assessment area or retail
lending assessment area.
ii. Summing, over the years in the
evaluation period, the numbers of small
farms in the facility-based assessment area or
retail lending assessment area.
*
*
*
*
*
8. * * *
iii. * * *
Example A–7: The applicable benchmark
uses a three-year evaluation period. There
were 4,000 small business establishments,
based upon the sum of the numbers of small
business establishments over the years in the
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
evaluation period (1,300 small business
establishments in year 1, 1,300 small
business establishments in year 2, and 1,400
small business establishments in year 3), in
a bank’s facility-based assessment area. Of
these small business establishments, 500
small business establishments were in lowincome census tracts, based upon the sum of
the numbers of small business establishments
in low-income census tracts over the years in
the evaluation period (200 small business
establishments in year 1,150 small business
in year 2, and 150 small business
establishments in year 3). The Geographic
Community Benchmark for small business
loans in low-income census tracts would be
500 divided by 4,000, or 0.125 (equivalently,
12.5 percent). In addition, 1,000 small
business establishments in that facility-based
assessment area were in moderate-income
7191
census tracts, over the years in the evaluation
period (400 small business establishments in
year 1,300 small business establishments in
year 2, and 300 small business
establishments in year 3). The Geographic
Community Benchmark for small business
loans in moderate-income census tracts
would be 1,000 divided by 4,000, or 0.25
(equivalently, 25 percent).
Small Businesses in Low - Income Census Tracts (500)
Small Businesses (4,000)
= Geographic Community Benchmark (12.5%)
Small Businesses in Moderate -Income Census Tracts (1,000)
Small Businesses (4,000)
= Geographic Community Benchmark (25%)
*
*
*
*
*
IV. * * *
For small business loans, the Board
calculates these metrics and benchmarks for
each of the following designated borrowers:
(i) small businesses with gross annual
revenues of $250,000 or less; and (ii) small
businesses with gross annual revenues of
more than $250,000 but less than or equal to
$1 million.
For small farm loans, the Board calculates
these metrics and benchmarks for each of the
following designated borrowers: (i) small
farms with gross annual revenues of $250,000
or less; and (ii) small farms with gross annual
revenues of more than $250,000 but less than
or equal to $1 million.
*
*
*
*
*
a. * * *
1. * * * A bank’s loan purchases that
otherwise meet the definition of a covered
credit transaction to a small business, as
provided in 12 CFR 1002.104 and
1002.106(b), may be included in the
numerator of the Borrower Bank Metric at the
bank’s option.
*
*
*
*
*
c. * * *
3. For small business loans, the Board
calculates a Borrower Community
Benchmark for small businesses with gross
annual revenues of $250,000 or less by:
i. Summing, over the years in the
evaluation period, the numbers of small
businesses with gross annual revenues of
$250,000 or less in the facility-based lending
area or retail lending assessment area.
ii. Summing, over the years in the
evaluation period, the numbers of small
businesses in the facility-based lending area
or retail lending assessment area.
Benchmark for small farms with gross annual
revenues of $250,000 or less by:
i. Summing, over the years in the
evaluation period, the numbers of small
farms with gross annual revenues of $250,000
or less in the facility-based lending area or
retail lending assessment area.
ii. Summing, over the years in the
evaluation period, the numbers of small
farms in the facility-based lending area or
retail lending assessment area.
*
*
*
*
*
*
*
*
*
*
4. For small business loans, the Board
calculates a Borrower Community
Benchmark for small businesses with gross
annual revenues of more than $250,000 but
less than or equal to $1 million by:
i. Summing, over the years in the
evaluation period, the numbers of small
businesses with gross annual revenues of
more than $250,000 but less than or equal to
$1 million in the facility-based lending area
or retail lending assessment area.
ii. Summing, over the years in the
evaluation period, the numbers of small
businesses in the facility-based lending area
or retail lending assessment area.
6. For small farm loans, the Board
calculates a Borrower Community
Benchmark for small farms with gross annual
revenues of more than $250,000 but less than
or equal to $1 million by:
i. Summing, over the years in the
evaluation period, the numbers of small
farms with gross annual revenues of more
than $250,000 but less than or equal to $1
million in the facility-based lending area or
retail lending assessment area.
ii. Summing, over the years in the
evaluation period, the numbers of small
farms in the facility-based lending area or
retail lending assessment area.
*
*
*
*
*
*
5. For small farm loans, the Board
calculates a Borrower Community
*
*
*
*
V. * * *
a. * * *
TABLE 1 TO APPENDIX A—RETAIL LENDING TEST CATEGORIES OF DESIGNATED CENSUS TRACTS AND DESIGNATED
BORROWERS
Designated census tracts
*
*
Small Business Loans ...................
Small Farm Loans ..........................
VerDate Sep<11>2014
18:11 Jan 31, 2024
Designated
*
*
*
*
*
Low-Income Census Tracts ........... Small businesses with Gross Annual Revenues of $250,000 or Less.
Moderate-Income Census Tracts .. Small businesses with Gross Annual Revenues Greater than
$250,000 but Less Than or Equal to $1 million.
Low-Income Census Tracts ........... Small farms with Gross Annual Revenues of $250,000 or Less.
Moderate-Income Census Tracts .. Small farms with Gross Annual Revenues Greater than $250,000 but
Less Than or Equal to $1 million.
Jkt 262001
PO 00000
Frm 00619
Fmt 4701
Sfmt 4700
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.101
ddrumheller on DSK120RN23PROD with RULES2
Major product line
7192
*
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
*
*
*
1. * * *
ii. * * *
*
VII. * * *
a. * * *
TABLE 3 TO APPENDIX A—RETAIL LENDING TEST, GEOGRAPHIC DISTRIBUTION AVERAGE—WEIGHTS
Category of designated census
tracts
Major product line
*
*
Small Business Loans ...................
*
*
*
*
*
Low-Income Census Tracts ........... Percentage of total number of small businesses in low- and moderate-income census tracts in the applicable Retail Lending Test
Area that are in low-income census tracts.
Moderate-Income Census Tracts .. Percentage of total number of small businesses in low- and moderate-income census tracts in the applicable Retail Lending Test
Area that are in moderate-income census tracts.
Low-Income Census Tracts ........... Percentage of total number of small farms in low- and moderate-income census tracts in the applicable Retail Lending Test Area that
are in low-income census tracts.
Moderate-Income Census Tracts .. Percentage of total number of small farms in low- and moderate-income census tracts in the applicable Retail Lending Test Area that
are in moderate-income census tracts.
Small Farm Loans ..........................
*
*
*
*
*
*
Weight
*
*
*
*
*
iii. * * *
*
TABLE 4 TO APPENDIX A—RETAIL LENDING TEST, BORROWER DISTRIBUTION AVERAGE—WEIGHTS
Categories of designated borrowers
Major product line
*
Small Business Loans ...................
Small Farm Loans ..........................
*
*
*
*
*
*
*
*
*
Small businesses with gross an- Percentage of total number of small businesses with gross annual
nual revenues of $250,000 or
revenues of $250,000 or less and small businesses with gross anless.
nual revenues greater than $250,000 but less than or equal to $1
million in the applicable Retail Lending Test Area that are small
businesses with gross annual revenues of $250,000 or less.
Small businesses with gross an- Percentage of total number of small businesses with gross annual
nual revenues greater than
revenues of $250,000 or less and small businesses with gross an$250,000 and less than or equal
nual revenues greater than $250,000 but less than or equal to $1
to $1 million.
million in the applicable Retail Lending Test Area that are small
businesses with gross annual revenues greater than $250,00 but
less than or equal to $1 million.
Small farms with gross annual rev- Percentage of total number of small farms with gross annual reveenues of $250,000 or less.
nues of $250,000 or less and small farms with gross annual revenues greater than $250,000 but less than or equal to $1 million in
the applicable Retail Lending Test Area that are small farms with
gross annual revenues of $250,000 or less.
Small farms with gross annual rev- Percentage of total number of small farms with gross annual reveenues greater than $250,000
nues of $250,000 or less and small farms with gross annual reveand less than or equal to $1 milnues greater than $250,000 but less than or equal to $1 million in
lion.
the applicable Retail Lending Test Area that are small farms with
gross annual revenues greater than $250,000 but less than or
equal to $1 million.
*
*
*
*
*
ddrumheller on DSK120RN23PROD with RULES2
Appendix B to Part 228 [Amended]
50. Amend appendix B by:
a. In paragraph I.a.2.i, removing ‘‘12
CFR 25.42, 228.42, or 345.42’’ and
adding ‘‘§ 228.42 or 12 CFR 25.42 or
345.42’’ in its place;
■ b. In paragraphs III.b.1 and 2,
removing ‘‘12 CFR 228.26(a) or
345.26(a)’’ and ‘‘12 CFR 25.42(b),
■
■
VerDate Sep<11>2014
18:11 Jan 31, 2024
Weight
Jkt 262001
*
*
228.42(b), or 345.42(b)’’ and adding
‘‘§ 228.26(a) or 12 CFR 345.26(a)’’ and
‘‘§ 228.42(b) or 12 CFR 25.42(b) or
345.42(b)’’ in their places, respectively;
and
■ c. In paragraphs c.1 and 2, removing
‘‘12 CFR 25.42(b), 228.42(b), or
345.42(b)’’ and adding ‘‘§ 228.42(b) or
12 CFR 25.42(b) or 345.42(b)’’ in its
place.
■ 51. Add appendix F to read as follows:
PO 00000
Frm 00620
Fmt 4701
Sfmt 4700
*
*
Appendix F to Part 228—CRA Notice
(a) Notice for main offices and, if an
interstate bank, one branch office in each
State.
Community Reinvestment Act Notice
Under the Federal Community
Reinvestment Act (CRA), the Federal Reserve
Board (Board) evaluates our record of helping
to meet the credit needs of this community
consistent with safe and sound operations.
The Board also takes this record into account
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
when deciding on certain applications
submitted by us.
Your involvement is encouraged.
You are entitled to certain information
about our operations and our performance
under the CRA, including, for example,
information about our branches, such as their
location and services provided at them; the
public section of our most recent CRA
Performance Evaluation, prepared by the
Federal Reserve Bank of llll(Reserve
Bank); and comments received from the
public relating to our performance in helping
to meet community credit needs, as well as
our responses to those comments. You may
review this information today.
At least 30 days before the beginning of
each calendar quarter, the Federal Reserve
System publishes a list of the banks that are
scheduled for CRA examination by the
Reserve Bank for the next two quarters. This
list is available from (title of responsible
official), Federal Reserve Bank of
llll(address), or through the Board’s
website at https://www.federalreserve.gov.
You may send written comments about our
performance in helping to meet community
credit needs to (name and address of official
at bank) and (title of responsible official),
Federal Reserve Bank of llll(address), or
through the Board’s website at https://
www.federalreserve.gov. Your letter, together
with any response by us, will be considered
by the Federal Reserve System in evaluating
our CRA performance and may be made
public.
You may ask to look at any comments
received by the Reserve Bank. You may also
request from the Reserve Bank an
announcement of our applications covered
by the CRA filed with the Reserve Bank. [We
are an affiliate of (name of holding company),
a bank holding company. You may request
from (title of responsible official), Federal
Reserve Bank of llll(address) an
announcement of applications covered by the
CRA filed by bank holding companies.]
(b) Notice for branch offices.
Community Reinvestment Act Notice
Under the Federal Community
Reinvestment Act (CRA), the Federal Reserve
Board (Board) evaluates our record of helping
to meet the credit needs of this community
consistent with safe and sound operations.
The Board also takes this record into account
when deciding on certain applications
submitted by us.
Your involvement is encouraged.
You are entitled to certain information
about our operations and our performance
under the CRA. You may review today the
public section of our most recent CRA
evaluation, prepared by the Federal Reserve
Bank of llll(address), and a list of
services provided at this branch. You may
also have access to the following additional
information, which we will make available to
you at this branch within five calendar days
after you make a request to us: (1) a map
showing the assessment area containing this
branch, which is the area in which the Board
evaluates our CRA performance in this
community; (2) information about our
branches in this assessment area; (3) a list of
services we provide at those locations; (4)
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
data on our lending performance in this
assessment area; and (5) copies of all written
comments received by us that specifically
relate to our CRA performance in this
assessment area, and any responses we have
made to those comments. If we are operating
under an approved strategic plan, you may
also have access to a copy of the plan.
[If you would like to review information
about our CRA performance in other
communities served by us, the public file for
our entire bank is available at (name of office
located in state), located at (address).]
At least 30 days before the beginning of
each calendar quarter, the Federal Reserve
System publishes a list of the banks that are
scheduled for CRA examination by the
Reserve Bank for the next two quarters. This
list is available from (title of responsible
official), Federal Reserve Bank of
llll(address), or through the Board’s
website at https://www.federalreserve.gov.
You may send written comments about our
performance in helping to meet community
credit needs to (name and address of official
at bank) and (title of responsible official),
Federal Reserve Bank of llll(address), or
through the Board’s website at https://
www.federalreserve.gov. Your letter, together
with any response by us, will be considered
by the Federal Reserve System in evaluating
our CRA performance and may be made
public.
You may ask to look at any comments
received by the Reserve Bank. You may also
request from the Reserve Bank an
announcement of our applications covered
by the CRA filed with the Reserve Bank. [We
are an affiliate of (name of holding company),
a bank holding company. You may request
from (title of responsible official), Federal
Reserve Bank of llll(address) an
announcement of applications covered by the
CRA filed by bank holding companies.]
52. Effective April 1, 2024, through
January 1, 2031, add appendix G to part
228 to read as follows:
■
Appendix G to Part 228—Community
Reinvestment Act (Regulation BB)
Note: The content of this appendix
reproduces part 228 implementing the
Community Reinvestment Act as of March
31, 2024. Cross-references to CFR parts (as
well as to included sections, subparts, and
appendices) in this appendix are to those
provisions as contained within this appendix
and the CFR as of March 31, 2024.
Subpart A—General
§ 228.11
Authority, purposes, and scope.
(a) Authority. The Board of Governors
of the Federal Reserve System (the
Board) issues this part to implement the
Community Reinvestment Act (12
U.S.C. 2901 et seq.) (CRA). The
regulations comprising this part are
issued under the authority of the CRA
and under the provisions of the United
States Code authorizing the Board:
(1) To conduct examinations of Statechartered banks that are members of the
Federal Reserve System (12 U.S.C. 325);
PO 00000
Frm 00621
Fmt 4701
Sfmt 4700
7193
(2) To conduct examinations of bank
holding companies and their
subsidiaries (12 U.S.C. 1844) and
savings and loan holding companies
and their subsidiaries (12 U.S.C. 1467a);
and(3) To consider applications for:
(i) Domestic branches by State
member banks (12 U.S.C. 321);
(ii) Mergers in which the resulting
bank would be a State member bank (12
U.S.C. 1828(c));
(iii) Formations of, acquisitions of
banks by, and mergers of, bank holding
companies (12 U.S.C. 1842);
(iv) The acquisition of savings
associations by bank holding companies
(12 U.S.C. 1843); and
(v) Formations of, acquisitions of
savings associations by, conversions of,
and mergers of, savings and loan
holding companies (12 U.S.C. 1467a).
(b) Purposes. In enacting the CRA, the
Congress required each appropriate
Federal financial supervisory agency to
assess an institution’s record of helping
to meet the credit needs of the local
communities in which the institution is
chartered, consistent with the safe and
sound operation of the institution, and
to take this record into account in the
agency’s evaluation of an application for
a deposit facility by the institution. This
part is intended to carry out the
purposes of the CRA by:
(1) Establishing the framework and
criteria by which the Board assesses a
bank’s record of helping to meet the
credit needs of its entire community,
including low- and moderate-income
neighborhoods, consistent with the safe
and sound operation of the bank; and
(2) Providing that the Board takes that
record into account in considering
certain applications.
(c) Scope—(1) General. This part
applies to all banks except as provided
in paragraph (c)(3) of this section.
(2) Foreign bank acquisitions. This
part also applies to an uninsured State
branch (other than a limited branch) of
a foreign bank that results from an
acquisition described in section 5(a)(8)
of the International Banking Act of 1978
(12 U.S.C. 3103(a)(8)). The terms ‘‘State
branch’’ and ‘‘foreign bank’’ have the
same meanings as in section 1(b) of the
International Banking Act of 1978 (12
U.S.C. 3101 et seq.); the term
‘‘uninsured State branch’’ means a State
branch the deposits of which are not
insured by the Federal Deposit
Insurance Corporation; the term
‘‘limited branch’’ means a State branch
that accepts only deposits that are
permissible for a corporation organized
under section 25A of the Federal
Reserve Act (12 U.S.C. 611 et seq.).
(3) Certain special purpose banks.
This part does not apply to special
E:\FR\FM\01FER2.SGM
01FER2
7194
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
purpose banks that do not perform
commercial or retail banking services by
granting credit to the public in the
ordinary course of business, other than
as incident to their specialized
operations. These banks include
banker’s banks, as defined in 12 U.S.C.
24(Seventh), and banks that engage only
in one or more of the following
activities: providing cash management
controlled disbursement services or
serving as correspondent banks, trust
companies, or clearing agents.
ddrumheller on DSK120RN23PROD with RULES2
§ 228.12
Definitions.
For purposes of this part, the
following definitions apply:
(a) Affiliate means any company that
controls, is controlled by, or is under
common control with another company.
The term ‘‘control’’ has the meaning
given to that term in 12 U.S.C.
1841(a)(2), and a company is under
common control with another company
if both companies are directly or
indirectly controlled by the same
company.
(b) Area median income means:
(1) The median family income for the
MSA, if a person or geography is located
in an MSA, or for the metropolitan
division, if a person or geography is
located in an MSA that has been
subdivided into metropolitan divisions;
or
(2) The statewide nonmetropolitan
median family income, if a person or
geography is located outside an MSA.
(c) Assessment area means a
geographic area delineated in
accordance with § 228.41.
(d) Automated teller machine (ATM)
means an automated, unstaffed banking
facility owned or operated by, or
operated exclusively for, the bank at
which deposits are received, cash
dispersed, or money lent.
(e) Bank means a State member bank
as that term is defined in section 3(d)(2)
of the Federal Deposit Insurance Act (12
U.S.C. 1813(d)(2)), except as provided in
§ 228.11(c)(3), and includes an
uninsured State branch (other than a
limited branch) of a foreign bank
described in § 228.11(c)(2).
(f) Branch means a staffed banking
facility approved as a branch, whether
shared or unshared, including, for
example, a mini-branch in a grocery
store or a branch operated in
conjunction with any other local
business or nonprofit organization.
(g) Community development means:
(1) Affordable housing (including
multifamily rental housing) for low- or
moderate-income individuals;
(2) Community services targeted to
low- or moderate-income individuals;
(3) Activities that promote economic
development by financing businesses or
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
farms that meet the size eligibility
standards of the Small Business
Administration’s Development
Company or Small Business Investment
Company programs (13 CFR 121.301) or
have gross annual revenues of $1
million or less; or
(4) Activities that revitalize or
stabilize—
(i) Low-or moderate-income
geographies;
(ii) Designated disaster areas; or
(iii) Distressed or underserved
nonmetropolitan middle-income
geographies designated by the Board,
Federal Deposit Insurance Corporation,
and Office of the Comptroller of the
Currency, based on—
(A) Rates of poverty, unemployment,
and population loss; or
(B) Population size, density, and
dispersion. Activities revitalize and
stabilize geographies designated based
on population size, density, and
dispersion if they help to meet essential
community needs, including needs of
low- and moderate-income individuals.
(h) Community development loan
means a loan that:
(1) Has as its primary purpose
community development; and
(2) Except in the case of a wholesale
or limited purpose bank:
(i) Has not been reported or collected
by the bank or an affiliate for
consideration in the bank’s assessment
as a home mortgage, small business,
small farm, or consumer loan, unless the
loan is for a multifamily dwelling (as
defined in § 1003.2(n) of this title); and
(ii) Benefits the bank’s assessment
area(s) or a broader statewide or regional
area that includes the bank’s assessment
area(s).
(i) Community development service
means a service that:
(1) Has as its primary purpose
community development;
(2) Is related to the provision of
financial services; and
(3) Has not been considered in the
evaluation of the bank’s retail banking
services under § 228.24(d).
(j) Consumer loan means a loan to one
or more individuals for household,
family, or other personal expenditures.
A consumer loan does not include a
home mortgage, small business, or small
farm loan. Consumer loans include the
following categories of loans:
(1) Motor vehicle loan, which is a
consumer loan extended for the
purchase of and secured by a motor
vehicle;
(2) Credit card loan, which is a line
of credit for household, family, or other
personal expenditures that is accessed
by a borrower’s use of a ‘‘credit card,’’
as this term is defined in § 1026.2 of
this chapter;
PO 00000
Frm 00622
Fmt 4701
Sfmt 4700
(3) Other secured consumer loan,
which is a secured consumer loan that
is not included in one of the other
categories of consumer loans; and
(4) Other unsecured consumer loan,
which is an unsecured consumer loan
that is not included in one of the other
categories of consumer loans.
(k) Geography means a census tract
delineated by the United States Bureau
of the Census in the most recent
decennial census.
(l) Home mortgage loan means a
closed-end mortgage loan or an openend line of credit as these terms are
defined under § 1003.2 of this title and
that is not an excluded transaction
under § 1003.3(c)(1) through (10) and
(13) of this title.
(m) Income level includes:
(1) Low-income, which means an
individual income that is less than 50
percent of the area median income, or
a median family income that is less than
50 percent, in the case of a geography.
(2) Moderate-income, which means an
individual income that is at least 50
percent and less than 80 percent of the
area median income, or a median family
income that is at least 50 and less than
80 percent, in the case of a geography.
(3) Middle-income, which means an
individual income that is at least 80
percent and less than 120 percent of the
area median income, or a median family
income that is at least 80 and less than
120 percent, in the case of a geography.
(4) Upper-income, which means an
individual income that is 120 percent or
more of the area median income, or a
median family income that is 120
percent or more, in the case of a
geography.
(n) Limited purpose bank means a
bank that offers only a narrow product
line (such as credit card or motor
vehicle loans) to a regional or broader
market and for which a designation as
a limited purpose bank is in effect, in
accordance with § 228.25(b).
(o) Loan location. A loan is located as
follows:
(1) A consumer loan is located in the
geography where the borrower resides;
(2) A home mortgage loan is located
in the geography where the property to
which the loan relates is located; and
(3) A small business or small farm
loan is located in the geography where
the main business facility or farm is
located or where the loan proceeds
otherwise will be applied, as indicated
by the borrower.
(p) Loan production office means a
staffed facility, other than a branch, that
is open to the public and that provides
lending-related services, such as loan
information and applications.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(q) Metropolitan division means a
metropolitan division as defined by the
Director of the Office of Management
and Budget.
(r) MSA means a metropolitan
statistical area as defined by the Director
of the Office of Management and
Budget.
(s) Nonmetropolitan area means any
area that is not located in an MSA.
(t) Qualified investment means a
lawful investment, deposit, membership
share, or grant that has as its primary
purpose community development.
(u) Small bank—(1) Definition. Small
bank means a bank that, as of December
31 of either of the prior two calendar
years, had assets of less than $1.384
billion. Intermediate small bank means
a small bank with assets of at least $346
million as of December 31 of both of the
prior two calendar years and less than
$1.384 billion as of December 31 of
either of the prior two calendar years.
(2) Adjustment. The dollar figures in
paragraph (u)(1) of this section shall be
adjusted annually and published by the
Board, based on the year-to-year change
in the average of the Consumer Price
Index for Urban Wage Earners and
Clerical Workers, not seasonally
adjusted, for each twelve-month period
ending in November, with rounding to
the nearest million.
(v) Small business loan means a loan
included in ‘‘loans to small businesses’’
as defined in the instructions for
preparation of the Consolidated Report
of Condition and Income.
(w) Small farm loan means a loan
included in ‘‘loans to small farms’’ as
defined in the instructions for
preparation of the Consolidated Report
of Condition and Income.
(x) Wholesale bank means a bank that
is not in the business of extending home
mortgage, small business, small farm, or
consumer loans to retail customers, and
for which a designation as a wholesale
bank is in effect, in accordance with
§ 228.25(b).
Subpart B—Standards for Assessing
Performance
ddrumheller on DSK120RN23PROD with RULES2
§ 228.21 Performance tests, standards,
and ratings, in general.
(a) Performance tests and standards.
The Board assesses the CRA
performance of a bank in an
examination as follows:
(1) Lending, investment, and service
tests. The Board applies the lending,
investment, and service tests, as
provided in §§ 228.22 through 228.24,
in evaluating the performance of a bank,
except as provided in paragraphs (a)(2),
(a)(3), and (a)(4) of this section.
(2) Community development test for
wholesale or limited purpose banks. The
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Board applies the community
development test for a wholesale or
limited purpose bank, as provided in
§ 228.25, except as provided in
paragraph (a)(4) of this section.
(3) Small bank performance
standards. The Board applies the small
bank performance standards as provided
in § 228.26 in evaluating the
performance of a small bank or a bank
that was a small bank during the prior
calendar year, unless the bank elects to
be assessed as provided in paragraphs
(a)(1), (a)(2), or (a)(4) of this section. The
bank may elect to be assessed as
provided in paragraph (a)(1) of this
section only if it collects and reports the
data required for other banks under
§ 228.42.
(4) Strategic plan. The Board
evaluates the performance of a bank
under a strategic plan if the bank
submits, and the Board approves, a
strategic plan as provided in § 228.27.
(b) Performance context. The Board
applies the tests and standards in
paragraph (a) of this section and also
considers whether to approve a
proposed strategic plan in the context
of:
(1) Demographic data on median
income levels, distribution of household
income, nature of housing stock,
housing costs, and other relevant data
pertaining to a bank’s assessment
area(s);
(2) Any information about lending,
investment, and service opportunities in
the bank’s assessment area(s)
maintained by the bank or obtained
from community organizations, state,
local, and tribal governments, economic
development agencies, or other sources;
(3) The bank’s product offerings and
business strategy as determined from
data provided by the bank;
(4) Institutional capacity and
constraints, including the size and
financial condition of the bank, the
economic climate (national, regional,
and local), safety and soundness
limitations, and any other factors that
significantly affect the bank’s ability to
provide lending, investments, or
services in its assessment area(s);
(5) The bank’s past performance and
the performance of similarly situated
lenders;
(6) The bank’s public file, as
described in § 228.43, and any written
comments about the bank’s CRA
performance submitted to the bank or
the Board; and
(7) Any other information deemed
relevant by the Board.
(c) Assigned ratings. The Board
assigns to a bank one of the following
four ratings pursuant to § 228.28 and
appendix A of this part: ‘‘outstanding’’;
PO 00000
Frm 00623
Fmt 4701
Sfmt 4700
7195
‘‘satisfactory’’; ‘‘needs to improve’’; or
‘‘substantial noncompliance’’ as
provided in 12 U.S.C. 2906(b)(2). The
rating assigned by the Board reflects the
bank’s record of helping to meet the
credit needs of its entire community,
including low- and moderate-income
neighborhoods, consistent with the safe
and sound operation of the bank.
(d) Safe and sound operations. This
part and the CRA do not require a bank
to make loans or investments or to
provide services that are inconsistent
with safe and sound operations. To the
contrary, the Board anticipates banks
can meet the standards of this part with
safe and sound loans, investments, and
services on which the banks expect to
make a profit. Banks are permitted and
encouraged to develop and apply
flexible underwriting standards for
loans that benefit low- or moderateincome geographies or individuals, only
if consistent with safe and sound
operations.
(e) Low-cost education loans provided
to low-income borrowers. In assessing
and taking into account the record of a
bank under this part, the Board
considers, as a factor, low-cost
education loans originated by the bank
to borrowers, particularly in its
assessment area(s), who have an
individual income that is less than 50
percent of the area median income. For
purposes of this paragraph, ‘‘low-cost
education loans’’ means any education
loan, as defined in section 140(a)(7) of
the Truth in Lending Act (15 U.S.C.
1650(a)(7)) (including a loan under a
state or local education loan program),
originated by the bank for a student at
an ‘‘institution of higher education,’’ as
that term is generally defined in
sections 101 and 102 of the Higher
Education Act of 1965 (20 U.S.C. 1001
and 1002) and the implementing
regulations published by the U.S.
Department of Education, with interest
rates and fees no greater than those of
comparable education loans offered
directly by the U.S. Department of
Education. Such rates and fees are
specified in section 455 of the Higher
Education Act of 1965 (20 U.S.C.
1087e).
(f) Activities in cooperation with
minority- or women-owned financial
institutions and low-income credit
unions. In assessing and taking into
account the record of a nonminorityowned and nonwomen-owned bank
under this part, the Board considers as
a factor capital investment, loan
participation, and other ventures
undertaken by the bank in cooperation
with minority- and women-owned
financial institutions and low-income
credit unions. Such activities must help
E:\FR\FM\01FER2.SGM
01FER2
7196
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
meet the credit needs of local
communities in which the minorityand women-owned financial
institutions and low-income credit
unions are chartered. To be considered,
such activities need not also benefit the
bank’s assessment area(s) or the broader
statewide or regional area that includes
the bank’s assessment area(s).
ddrumheller on DSK120RN23PROD with RULES2
§ 228.22
Lending test.
(a) Scope of test. (1) The lending test
evaluates a bank’s record of helping to
meet the credit needs of its assessment
area(s) through its lending activities by
considering a bank’s home mortgage,
small business, small farm, and
community development lending. If
consumer lending constitutes a
substantial majority of a bank’s
business, the Board will evaluate the
bank’s consumer lending in one or more
of the following categories: motor
vehicle, credit card, other secured, and
other unsecured loans. In addition, at a
bank’s option, the Board will evaluate
one or more categories of consumer
lending, if the bank has collected and
maintained, as required in
§ 228.42(c)(1), the data for each category
that the bank elects to have the Board
evaluate.
(2) The Board considers originations
and purchases of loans. The Board will
also consider any other loan data the
bank may choose to provide, including
data on loans outstanding, commitments
and letters of credit.
(3) A bank may ask the Board to
consider loans originated or purchased
by consortia in which the bank
participates or by third parties in which
the bank has invested only if the loans
meet the definition of community
development loans and only in
accordance with paragraph (d) of this
section. The Board will not consider
these loans under any criterion of the
lending test except the community
development lending criterion.
(b) Performance criteria. The Board
evaluates a bank’s lending performance
pursuant to the following criteria:
(1) Lending activity. The number and
amount of the bank’s home mortgage,
small business, small farm, and
consumer loans, if applicable, in the
bank’s assessment area(s);
(2) Geographic distribution. The
geographic distribution of the bank’s
home mortgage, small business, small
farm, and consumer loans, if applicable,
based on the loan location, including:
(i) The proportion of the bank’s
lending in the bank’s assessment area(s);
(ii) The dispersion of lending in the
bank’s assessment area(s); and
(iii) The number and amount of loans
in low-, moderate-, middle-, and upper-
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
income geographies in the bank’s
assessment area(s);
(3) Borrower characteristics. The
distribution, particularly in the bank’s
assessment area(s), of the bank’s home
mortgage, small business, small farm,
and consumer loans, if applicable, based
on borrower characteristics, including
the number and amount of:
(i) Home mortgage loans to low-,
moderate-, middle-, and upper-income
individuals;
(ii) Small business and small farm
loans to businesses and farms with gross
annual revenues of $1 million or less;
(iii) Small business and small farm
loans by loan amount at origination;
and(iv) Consumer loans, if applicable, to
low-, moderate-, middle-, and upperincome individuals;
(4) Community development lending.
The bank’s community development
lending, including the number and
amount of community development
loans, and their complexity and
innovativeness; and
(5) Innovative or flexible lending
practices. The bank’s use of innovative
or flexible lending practices in a safe
and sound manner to address the credit
needs of low- or moderate-income
individuals or geographies.
(c) Affiliate lending. (1) At a bank’s
option, the Board will consider loans by
an affiliate of the bank, if the bank
provides data on the affiliate’s loans
pursuant to § 228.42.
(2) The Board considers affiliate
lending subject to the following
constraints:
(i) No affiliate may claim a loan
origination or loan purchase if another
institution claims the same loan
origination or purchase; and
(ii) If a bank elects to have the Board
consider loans within a particular
lending category made by one or more
of the bank’s affiliates in a particular
assessment area, the bank shall elect to
have the Board consider, in accordance
with paragraph (c)(1) of this section, all
the loans within that lending category in
that particular assessment area made by
all of the bank’s affiliates.
(3) The Board does not consider
affiliate lending in assessing a bank’s
performance under paragraph (b)(2)(i) of
this section.
(d) Lending by a consortium or a third
party. Community development loans
originated or purchased by a consortium
in which the bank participates or by a
third party in which the bank has
invested:
(1) Will be considered, at the bank’s
option, if the bank reports the data
pertaining to these loans under
§ 228.42(b)(2); and
PO 00000
Frm 00624
Fmt 4701
Sfmt 4700
(2) May be allocated among
participants or investors, as they choose,
for purposes of the lending test, except
that no participant or investor:
(i) May claim a loan origination or
loan purchase if another participant or
investor claims the same loan
origination or purchase; or
(ii) May claim loans accounting for
more than its percentage share (based on
the level of its participation or
investment) of the total loans originated
by the consortium or third party.
(e) Lending performance rating. The
Board rates a bank’s lending
performance as provided in appendix A
of this part.
§ 228.23
Investment test.
(a) Scope of test. The investment test
evaluates a bank’s record of helping to
meet the credit needs of its assessment
area(s) through qualified investments
that benefit its assessment area(s) or a
broader statewide or regional area that
includes the bank’s assessment area(s).
(b) Exclusion. Activities considered
under the lending or service tests may
not be considered under the investment
test.
(c) Affiliate investment. At a bank’s
option, the Board will consider, in its
assessment of a bank’s investment
performance, a qualified investment
made by an affiliate of the bank, if the
qualified investment is not claimed by
any other institution.
(d) Disposition of branch premises.
Donating, selling on favorable terms, or
making available on a rent-free basis a
branch of the bank that is located in a
predominantly minority neighborhood
to a minority depository institution or
women’s depository institution (as these
terms are defined in 12 U.S.C. 2907(b))
will be considered as a qualified
investment.
(e) Performance criteria. The Board
evaluates the investment performance of
a bank pursuant to the following
criteria:
(1) The dollar amount of qualified
investments;
(2) The innovativeness or complexity
of qualified investments;
(3) The responsiveness of qualified
investments to credit and community
development needs; and
(4) The degree to which the qualified
investments are not routinely provided
by private investors.
(f) Investment performance rating.
The Board rates a bank’s investment
performance as provided in appendix A
of this part.
§ 228.24
Service test.
(a) Scope of test. The service test
evaluates a bank’s record of helping to
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
meet the credit needs of its assessment
area(s) by analyzing both the availability
and effectiveness of a bank’s systems for
delivering retail banking services and
the extent and innovativeness of its
community development services.
(b) Area(s) benefitted. Community
development services must benefit a
bank’s assessment area(s) or a broader
statewide or regional area that includes
the bank’s assessment area(s).
(c) Affiliate service. At a bank’s
option, the Board will consider, in its
assessment of a bank’s service
performance, a community development
service provided by an affiliate of the
bank, if the community development
service is not claimed by any other
institution.
(d) Performance criteria—retail
banking services. The Board evaluates
the availability and effectiveness of a
bank’s systems for delivering retail
banking services, pursuant to the
following criteria:
(1) The current distribution of the
bank’s branches among low-, moderate, middle-, and upper-income
geographies;
(2) In the context of its current
distribution of the bank’s branches, the
bank’s record of opening and closing
branches, particularly branches located
in low- or moderate-income geographies
or primarily serving low- or moderateincome individuals;
(3) The availability and effectiveness
of alternative systems for delivering
retail banking services (e.g., ATMs,
ATMs not owned or operated by or
exclusively for the bank, banking by
telephone or computer, loan production
offices, and bank-at-work or bank-bymail programs) in low- and moderateincome geographies and to low- and
moderate-income individuals; and
(4) The range of services provided in
low-, moderate-, middle-, and upperincome geographies and the degree to
which the services are tailored to meet
the needs of those geographies.
(e) Performance criteria—community
development services. The Board
evaluates community development
services pursuant to the following
criteria:
(1) The extent to which the bank
provides community development
services; and
(2) The innovativeness and
responsiveness of community
development services.
(f) Service performance rating. The
Board rates a bank’s service
performance as provided in appendix A
of this part.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
§ 228.25 Community development test for
wholesale or limited purpose banks.
(a) Scope of test. The Board assesses
a wholesale or limited purpose bank’s
record of helping to meet the credit
needs of its assessment area(s) under the
community development test through
its community development lending,
qualified investments, or community
development services.
(b) Designation as a wholesale or
limited purpose bank. In order to
receive a designation as a wholesale or
limited purpose bank, a bank shall file
a request, in writing, with the Board, at
least three months prior to the proposed
effective date of the designation. If the
Board approves the designation, it
remains in effect until the bank requests
revocation of the designation or until
one year after the Board notifies the
bank that the Board has revoked the
designation on its own initiative.
(c) Performance criteria. The Board
evaluates the community development
performance of a wholesale or limited
purpose bank pursuant to the following
criteria:
(1) The number and amount of
community development loans
(including originations and purchases of
loans and other community
development loan data provided by the
bank, such as data on loans outstanding,
commitments, and letters of credit),
qualified investments, or community
development services;
(2) The use of innovative or complex
qualified investments, community
development loans, or community
development services and the extent to
which the investments are not routinely
provided by private investors; and
(3) The bank’s responsiveness to
credit and community development
needs.
(d) Indirect activities. At a bank’s
option, the Board will consider in its
community development performance
assessment:
(1) Qualified investments or
community development services
provided by an affiliate of the bank, if
the investments or services are not
claimed by any other institution; and
(2) Community development lending
by affiliates, consortia and third parties,
subject to the requirements and
limitations in § 228.22(c) and (d).
(e) Benefit to assessment area(s)—(1)
Benefit inside assessment area(s). The
Board considers all qualified
investments, community development
loans, and community development
services that benefit areas within the
bank’s assessment area(s) or a broader
statewide or regional area that includes
the bank’s assessment area(s).
PO 00000
Frm 00625
Fmt 4701
Sfmt 4700
7197
(2) Benefit outside assessment area(s).
The Board considers the qualified
investments, community development
loans, and community development
services that benefit areas outside the
bank’s assessment area(s), if the bank
has adequately addressed the needs of
its assessment area(s).
(f) Community development
performance rating. The Board rates a
bank’s community development
performance as provided in appendix A
of this part.
§ 228.26 Small bank performance
standards.
(a) Performance criteria—(1) Small
banks that are not intermediate small
banks. The Board evaluates the record
of a small bank that is not, or that was
not during the prior calendar year, an
intermediate small bank, of helping to
meet the credit needs of its assessment
area(s) pursuant to the criteria set forth
in paragraph (b) of this section.
(2) Intermediate small banks. The
Board evaluates the record of a small
bank that is, or that was during the prior
calendar year, an intermediate small
bank, of helping to meet the credit
needs of its assessment area(s) pursuant
to the criteria set forth in paragraphs (b)
and (c) of this section.
(b) Lending test. A small bank’s
lending performance is evaluated
pursuant to the following criteria:
(1) The bank’s loan-to-deposit ratio,
adjusted for seasonal variation, and, as
appropriate, other lending-related
activities, such as loan originations for
sale to the secondary markets,
community development loans, or
qualified investments;
(2) The percentage of loans and, as
appropriate, other lending-related
activities located in the bank’s
assessment area(s);
(3) The bank’s record of lending to
and, as appropriate, engaging in other
lending-related activities for borrowers
of different income levels and
businesses and farms of different sizes;
(4) The geographic distribution of the
bank’s loans; and
(5) The bank’s record of taking action,
if warranted, in response to written
complaints about its performance in
helping to meet credit needs in its
assessment area(s).
(c) Community development test. An
intermediate small bank’s community
development performance also is
evaluated pursuant to the following
criteria:
(1) The number and amount of
community development loans;
(2) The number and amount of
qualified investments;
E:\FR\FM\01FER2.SGM
01FER2
7198
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(3) The extent to which the bank
provides community development
services; and
(4) The bank’s responsiveness through
such activities to community
development lending, investment, and
services needs.
(d) Small bank performance rating.
The Board rates the performance of a
bank evaluated under this section as
provided in appendix A of this part.
ddrumheller on DSK120RN23PROD with RULES2
§ 228.27
Strategic plan.
(a) Alternative election. The Board
will assess a bank’s record of helping to
meet the credit needs of its assessment
area(s) under a strategic plan if:
(1) The bank has submitted the plan
to the Board as provided for in this
section;
(2) The Board has approved the plan;
(3) The plan is in effect; and
(4) The bank has been operating under
an approved plan for at least one year.
(b) Data reporting. The Board’s
approval of a plan does not affect the
bank’s obligation, if any, to report data
as required by § 228.42.
(c) Plans in general—(1) Term. A plan
may have a term of no more than five
years, and any multi-year plan must
include annual interim measurable
goals under which the Board will
evaluate the bank’s performance.
(2) Multiple assessment areas. A bank
with more than one assessment area
may prepare a single plan for all of its
assessment areas or one or more plans
for one or more of its assessment areas.
(3) Treatment of affiliates. Affiliated
institutions may prepare a joint plan if
the plan provides measurable goals for
each institution. Activities may be
allocated among institutions at the
institutions’ option, provided that the
same activities are not considered for
more than one institution.
(d) Public participation in plan
development. Before submitting a plan
to the Board for approval, a bank shall:
(1) Informally seek suggestions from
members of the public in its assessment
area(s) covered by the plan while
developing the plan;
(2) Once the bank has developed a
plan, formally solicit public comment
on the plan for at least 30 days by
publishing notice in at least one
newspaper of general circulation in each
assessment area covered by the plan;
and
(3) During the period of formal public
comment, make copies of the plan
available for review by the public at no
cost at all offices of the bank in any
assessment area covered by the plan and
provide copies of the plan upon request
for a reasonable fee to cover copying
and mailing, if applicable.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
(e) Submission of plan. The bank shall
submit its plan to the Board at least
three months prior to the proposed
effective date of the plan. The bank shall
also submit with its plan a description
of its informal efforts to seek suggestions
from members of the public, any written
public comment received, and, if the
plan was revised in light of the
comment received, the initial plan as
released for public comment.
(f) Plan content—(1) Measurable
goals. (i) A bank shall specify in its plan
measurable goals for helping to meet the
credit needs of each assessment area
covered by the plan, particularly the
needs of low- and moderate-income
geographies and low- and moderateincome individuals, through lending,
investment, and services, as
appropriate.
(ii) A bank shall address in its plan all
three performance categories and,
unless the bank has been designated as
a wholesale or limited purpose bank,
shall emphasize lending and lendingrelated activities. Nevertheless, a
different emphasis, including a focus on
one or more performance categories,
may be appropriate if responsive to the
characteristics and credit needs of its
assessment area(s), considering public
comment and the bank’s capacity and
constraints, product offerings, and
business strategy.
(2) Confidential information. A bank
may submit additional information to
the Board on a confidential basis, but
the goals stated in the plan must be
sufficiently specific to enable the public
and the Board to judge the merits of the
plan.
(3) Satisfactory and outstanding goals.
A bank shall specify in its plan
measurable goals that constitute
‘‘satisfactory’’ performance. A plan may
specify measurable goals that constitute
‘‘outstanding’’ performance. If a bank
submits, and the Board approves, both
‘‘satisfactory’’ and ‘‘outstanding’’
performance goals, the Board will
consider the bank eligible for an
‘‘outstanding’’ performance rating.
(4) Election if satisfactory goals not
substantially met. A bank may elect in
its plan that, if the bank fails to meet
substantially its plan goals for a
satisfactory rating, the Board will
evaluate the bank’s performance under
the lending, investment, and service
tests, the community development test,
or the small bank performance
standards, as appropriate.
(g) Plan approval—(1) Timing. The
Board will act upon a plan within 60
calendar days after the Board receives
the complete plan and other material
required under paragraph (e) of this
section. If the Board fails to act within
PO 00000
Frm 00626
Fmt 4701
Sfmt 4700
this time period, the plan shall be
deemed approved unless the Board
extends the review period for good
cause.
(2) Public participation. In evaluating
the plan’s goals, the Board considers the
public’s involvement in formulating the
plan, written public comment on the
plan, and any response by the bank to
public comment on the plan.
(3) Criteria for evaluating plan. The
Board evaluates a plan’s measurable
goals using the following criteria, as
appropriate:
(i) The extent and breadth of lending
or lending-related activities, including,
as appropriate, the distribution of loans
among different geographies, businesses
and farms of different sizes, and
individuals of different income levels,
the extent of community development
lending, and the use of innovative or
flexible lending practices to address
credit needs;
(ii) The amount and innovativeness,
complexity, and responsiveness of the
bank’s qualified investments; and
(iii) The availability and effectiveness
of the bank’s systems for delivering
retail banking services and the extent
and innovativeness of the bank’s
community development services.
(h) Plan amendment. During the term
of a plan, a bank may request the Board
to approve an amendment to the plan on
grounds that there has been a material
change in circumstances. The bank shall
develop an amendment to a previously
approved plan in accordance with the
public participation requirements of
paragraph (d) of this section.
(i) Plan assessment. The Board
approves the goals and assesses
performance under a plan as provided
for in appendix A of this part.
§ 228.28
Assigned ratings.
(a) Ratings in general. Subject to
paragraphs (b) and (c) of this section,
the Board assigns to a bank a rating of
‘‘outstanding,’’ ‘‘satisfactory,’’ ‘‘needs to
improve,’’ or ‘‘substantial
noncompliance’’ based on the bank’s
performance under the lending,
investment and service tests, the
community development test, the small
bank performance standards, or an
approved strategic plan, as applicable.
(b) Lending, investment, and service
tests. The Board assigns a rating for a
bank assessed under the lending,
investment, and service tests in
accordance with the following
principles:
(1) A bank that receives an
‘‘outstanding’’ rating on the lending test
receives an assigned rating of at least
‘‘satisfactory’’;
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(2) A bank that receives an
‘‘outstanding’’ rating on both the service
test and the investment test and a rating
of at least ‘‘high satisfactory’’ on the
lending test receives an assigned rating
of ‘‘outstanding’’; and
(3) No bank may receive an assigned
rating of ‘‘satisfactory’’ or higher unless
it receives a rating of at least ‘‘low
satisfactory’’ on the lending test.
(c) Effect of evidence of
discriminatory or other illegal credit
practices. (1) The Board’s evaluation of
a bank’s CRA performance is adversely
affected by evidence of discriminatory
or other illegal credit practices in any
geography by the bank or in any
assessment area by any affiliate whose
loans have been considered as part of
the bank’s lending performance. In
connection with any type of lending
activity described in § 228.22(a),
evidence of discriminatory or other
credit practices that violate an
applicable law, rule, or regulation
includes, but is not limited to:
(i) Discrimination against applicants
on a prohibited basis in violation, for
example, of the Equal Credit
Opportunity Act or the Fair Housing
Act;
(ii) Violations of the Home Ownership
and Equity Protection Act;
(iii) Violations of section 5 of the
Federal Trade Commission Act;
(iv) Violations of section 8 of the Real
Estate Settlement Procedures Act; and
(v) Violations of the Truth in Lending
Act provisions regarding a consumer’s
right of rescission.
(2) In determining the effect of
evidence of practices described in
paragraph (c)(1) of this section on the
bank’s assigned rating, the Board
considers the nature, extent, and
strength of the evidence of the practices;
the policies and procedures that the
bank (or affiliate, as applicable) has in
place to prevent the practices; any
corrective action that the bank (or
affiliate, as applicable) has taken or has
committed to take, including voluntary
corrective action resulting from selfassessment; and any other relevant
information.
ddrumheller on DSK120RN23PROD with RULES2
§ 228.29 Effect of CRA performance on
applications.
(a) CRA performance. Among other
factors, the Board takes into account the
record of performance under the CRA
of:
(1) Each applicant bank for the:
(i) Establishment of a domestic branch
by a State member bank; and
(ii) Merger, consolidation, acquisition
of assets, or assumption of liabilities
requiring approval under the Bank
Merger Act (12 U.S.C. 1828(c)) if the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
acquiring, assuming, or resulting bank is
to be a State member bank; and
(2) Each insured depository
institution (as defined in 12 U.S.C.
1813) controlled by an applicant and
subsidiary bank or savings association
proposed to be controlled by an
applicant:
(i) To become a bank holding
company in a transaction that requires
approval under section 3 of the Bank
Holding Company Act (12 U.S.C. 1842);
(ii) To acquire ownership or control of
shares or all or substantially all of the
assets of a bank, to cause a bank to
become a subsidiary of a bank holding
company, or to merge or consolidate a
bank holding company with any other
bank holding company in a transaction
that requires approval under section 3 of
the Bank Holding Company Act (12
U.S.C. 1842);
(iii) To own, control or operate a
savings association in a transaction that
requires approval under section 4 of the
Bank Holding Company Act (12 U.S.C.
1843);
(iv) To become a savings and loan
holding company in a transaction that
requires approval under section 10 of
the Home Owners’ Loan Act (12 U.S.C.
1467a); and
(v) To acquire ownership or control of
shares or all or substantially all of the
assets of a savings association, to cause
a savings association to become a
subsidiary of a savings and loan holding
company, or to merge or consolidate a
savings and loan holding company with
any other savings and loan holding
company in a transaction that requires
approval under section 10 of the Home
Owners’ Loan Act (12 U.S.C. 1467a).
(b) Interested parties. In considering
CRA performance in an application
described in paragraph (a) of this
section, the Board takes into account
any views expressed by interested
parties that are submitted in accordance
with the Board’s Rules of Procedure set
forth in part 262 of this chapter.
(c) Denial or conditional approval of
application. A bank or savings
association’s record of performance may
be the basis for denying or conditioning
approval of an application listed in
paragraph (a) of this section.
(d) Definitions. For purposes of
paragraphs (a)(2)(i), (ii), and (iii) of this
section, ‘‘bank,’’ ‘‘bank holding
company,’’ ‘‘subsidiary,’’ and ‘‘savings
association’’ have the meanings given to
those terms in section 2 of the Bank
Holding Company Act (12 U.S.C. 1841).
For purposes of paragraphs (a)(2)(iv)
and (v) of this section, ‘‘savings and
loan holding company’’ and
‘‘subsidiary’’ has the meaning given to
PO 00000
Frm 00627
Fmt 4701
Sfmt 4700
7199
that term in section 10 of the Home
Owners’ Loan Act (12 U.S.C. 1467a).
Subpart C—Records, Reporting, and
Disclosure Requirements
§ 228.41
Assessment area delineation.
(a) In general. A bank shall delineate
one or more assessment areas within
which the Board evaluates the bank’s
record of helping to meet the credit
needs of its community. The Board does
not evaluate the bank’s delineation of its
assessment area(s) as a separate
performance criterion, but the Board
reviews the delineation for compliance
with the requirements of this section.
(b) Geographic area(s) for wholesale
or limited purpose banks. The
assessment area(s) for a wholesale or
limited purpose bank must consist
generally of one or more MSAs or
metropolitan divisions (using the MSA
or metropolitan division boundaries that
were in effect as of January 1 of the
calendar year in which the delineation
is made) or one or more contiguous
political subdivisions, such as counties,
cities, or towns, in which the bank has
its main office, branches, and deposittaking ATMs.
(c) Geographic area(s) for other banks.
The assessment area(s) for a bank other
than a wholesale or limited purpose
bank must:
(1) Consist generally of one or more
MSAs or metropolitan divisions (using
the MSA or metropolitan division
boundaries that were in effect as of
January 1 of the calendar year in which
the delineation is made) or one or more
contiguous political subdivisions, such
as counties, cities, or towns; and
(2) Include the geographies in which
the bank has its main office, its
branches, and its deposit-taking ATMs,
as well as the surrounding geographies
in which the bank has originated or
purchased a substantial portion of its
loans (including home mortgage loans,
small business and small farm loans,
and any other loans the bank chooses,
such as those consumer loans on which
the bank elects to have its performance
assessed).
(d) Adjustments to geographic area(s).
A bank may adjust the boundaries of its
assessment area(s) to include only the
portion of a political subdivision that it
reasonably can be expected to serve. An
adjustment is particularly appropriate in
the case of an assessment area that
otherwise would be extremely large, of
unusual configuration, or divided by
significant geographic barriers.
(e) Limitations on the delineation of
an assessment area. Each bank’s
assessment area(s):
E:\FR\FM\01FER2.SGM
01FER2
7200
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(1) Must consist only of whole
geographies;
(2) May not reflect illegal
discrimination;
(3) May not arbitrarily exclude low- or
moderate-income geographies, taking
into account the bank’s size and
financial condition; and
(4) May not extend substantially
beyond an MSA boundary or beyond a
state boundary unless the assessment
area is located in a multistate MSA. If
a bank serves a geographic area that
extends substantially beyond a state
boundary, the bank shall delineate
separate assessment areas for the areas
in each state. If a bank serves a
geographic area that extends
substantially beyond an MSA boundary,
the bank shall delineate separate
assessment areas for the areas inside
and outside the MSA.
(f) Banks serving military personnel.
Notwithstanding the requirements of
this section, a bank whose business
predominantly consists of serving the
needs of military personnel or their
dependents who are not located within
a defined geographic area may delineate
its entire deposit customer base as its
assessment area.
(g) Use of assessment area(s). The
Board uses the assessment area(s)
delineated by a bank in its evaluation of
the bank’s CRA performance unless the
Board determines that the assessment
area(s) do not comply with the
requirements of this section.
ddrumheller on DSK120RN23PROD with RULES2
§ 228.42 Data collection, reporting, and
disclosure.
(a) Loan information required to be
collected and maintained. A bank,
except a small bank, shall collect, and
maintain in machine readable form (as
prescribed by the Board) until the
completion of its next CRA
examination, the following data for each
small business or small farm loan
originated or purchased by the bank:
(1) A unique number or alphanumeric symbol that can be used to
identify the relevant loan file;
(2) The loan amount at origination;
(3) The loan location; and
(4) An indicator whether the loan was
to a business or farm with gross annual
revenues of $1 million or less.
(b) Loan information required to be
reported. A bank, except a small bank or
a bank that was a small bank during the
prior calendar year, shall report
annually by March 1 to the Board in
machine readable form (as prescribed by
the Board) the following data for the
prior calendar year:
(1) Small business and small farm
loan data. For each geography in which
the bank originated or purchased a
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
small business or small farm loan, the
aggregate number and amount of loans:
(i) With an amount at origination of
$100,000 or less;
(ii) With amount at origination of
more than $100,000 but less than or
equal to $250,000;
(iii) With an amount at origination of
more than $250,000; and
(iv) To businesses and farms with
gross annual revenues of $1 million or
less (using the revenues that the bank
considered in making its credit
decision);
(2) Community development loan
data. The aggregate number and
aggregate amount of community
development loans originated or
purchased; and
(3) Home mortgage loans. If the bank
is subject to reporting under part 1003
of this chapter, the location of each
home mortgage loan application,
origination, or purchase outside the
MSAs in which the bank has a home or
branch office (or outside any MSA) in
accordance with the requirements of
part 1003 of this chapter.
(c) Optional data collection and
maintenance—(1) Consumer loans. A
bank may collect and maintain in
machine readable form (as prescribed by
the Board) data for consumer loans
originated or purchased by the bank for
consideration under the lending test. A
bank may maintain data for one or more
of the following categories of consumer
loans: motor vehicle, credit card, other
secured, and other unsecured. If the
bank maintains data for loans in a
certain category, it shall maintain data
for all loans originated or purchased
within that category. The bank shall
maintain data separately for each
category, including for each loan:
(i) A unique number or alpha-numeric
symbol that can be used to identify the
relevant loan file;
(ii) The loan amount at origination or
purchase;
(iii) The loan location; and
(iv) The gross annual income of the
borrower that the bank considered in
making its credit decision.
(2) Other loan data. At its option, a
bank may provide other information
concerning its lending performance,
including additional loan distribution
data.
(d) Data on affiliate lending. A bank
that elects to have the Board consider
loans by an affiliate, for purposes of the
lending or community development test
or an approved strategic plan, shall
collect, maintain, and report for those
loans the data that the bank would have
collected, maintained, and reported
pursuant to paragraphs (a), (b), and (c)
of this section had the loans been
PO 00000
Frm 00628
Fmt 4701
Sfmt 4700
originated or purchased by the bank. For
home mortgage loans, the bank shall
also be prepared to identify the home
mortgage loans reported under part 1003
of this chapter by the affiliate.
(e) Data on lending by a consortium
or a third party. A bank that elects to
have the Board consider community
development loans by a consortium or
third party, for purposes of the lending
or community development tests or an
approved strategic plan, shall report for
those loans the data that the bank would
have reported under paragraph (b)(2) of
this section had the loans been
originated or purchased by the bank.
(f) Small banks electing evaluation
under the lending, investment, and
service tests. A bank that qualifies for
evaluation under the small bank
performance standards but elects
evaluation under the lending,
investment, and service tests shall
collect, maintain, and report the data
required for other banks pursuant to
paragraphs (a) and (b) of this section.
(g) Assessment area data. A bank,
except a small bank or a bank that was
a small bank during the prior calendar
year, shall collect and report to the
Board by March 1 of each year a list for
each assessment area showing the
geographies within the area.
(h) CRA Disclosure Statement. The
Board prepares annually for each bank
that reports data pursuant to this section
a CRA Disclosure Statement that
contains, on a state-by-state basis:
(1) For each county (and for each
assessment area smaller than a county)
with a population of 500,000 persons or
fewer in which the bank reported a
small business or small farm loan:
(i) The number and amount of small
business and small farm loans reported
as originated or purchased located in
low-, moderate-, middle-, and upperincome geographies;
(ii) A list grouping each geography
according to whether the geography is
low-, moderate-, middle-, or upperincome;
(iii) A list showing each geography in
which the bank reported a small
business or small farm loan; and
(iv) The number and amount of small
business and small farm loans to
businesses and farms with gross annual
revenues of $1 million or less;
(2) For each county (and for each
assessment area smaller than a county)
with a population in excess of 500,000
persons in which the bank reported a
small business or small farm loan:
(i) The number and amount of small
business and small farm loans reported
as originated or purchased located in
geographies with median income
relative to the area median income of
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
less than 10 percent, 10 or more but less
than 20 percent, 20 or more but less
than 30 percent, 30 or more but less
than 40 percent, 40 or more but less
than 50 percent, 50 or more but less
than 60 percent, 60 or more but less
than 70 percent, 70 or more but less
than 80 percent, 80 or more but less
than 90 percent, 90 or more but less
than 100 percent, 100 or more but less
than 110 percent, 110 or more but less
than 120 percent, and 120 percent or
more;
(ii) A list grouping each geography in
the county or assessment area according
to whether the median income in the
geography relative to the area median
income is less than 10 percent, 10 or
more but less than 20 percent, 20 or
more but less than 30 percent, 30 or
more but less than 40 percent, 40 or
more but less than 50 percent, 50 or
more but less than 60 percent, 60 or
more but less than 70 percent, 70 or
more but less than 80 percent, 80 or
more but less than 90 percent, 90 or
more but less than 100 percent, 100 or
more but less than 110 percent, 110 or
more but less than 120 percent, and 120
percent or more;
(iii) A list showing each geography in
which the bank reported a small
business or small farm loan; and
(iv) The number and amount of small
business and small farm loans to
businesses and farms with gross annual
revenues of $1 million or less;
(3) The number and amount of small
business and small farm loans located
inside each assessment area reported by
the bank and the number and amount of
small business and small farm loans
located outside the assessment area(s)
reported by the bank; and
(4) The number and amount of
community development loans reported
as originated or purchased.
(i) Aggregate disclosure statements.
The Board, in conjunction with the
Office of the Comptroller of the
Currency and the Federal Deposit
Insurance Corporation, prepares
annually, for each MSA or metropolitan
division (including an MSA or
metropolitan division that crosses a
state boundary) and the
nonmetropolitan portion of each state,
an aggregate disclosure statement of
small business and small farm lending
by all institutions subject to reporting
under this part or parts 25, 195, or 345
of this title. These disclosure statements
indicate, for each geography, the
number and amount of all small
business and small farm loans
originated or purchased by reporting
institutions, except that the Board may
adjust the form of the disclosure if
necessary, because of special
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
circumstances, to protect the privacy of
a borrower or the competitive position
of an institution.
(j) Central data depositories. The
Board makes the aggregate disclosure
statements, described in paragraph (i) of
this section, and the individual bank
CRA Disclosure Statements, described
in paragraph (h) of this section,
available to the public at central data
depositories. The Board publishes a list
of the depositories at which the
statements are available.
§ 228.43
file.
Content and availability of public
(a) Information available to the
public. A bank shall maintain a public
file that includes the following
information:
(1) All written comments received
from the public for the current year and
each of the prior two calendar years that
specifically relate to the bank’s
performance in helping to meet
community credit needs, and any
response to the comments by the bank,
if neither the comments nor the
responses contain statements that reflect
adversely on the good name or
reputation of any persons other than the
bank or publication of which would
violate specific provisions of law;
(2) A copy of the public section of the
bank’s most recent CRA Performance
Evaluation prepared by the Board. The
bank shall place this copy in the public
file within 30 business days after its
receipt from the Board;
(3) A list of the bank’s branches, their
street addresses, and geographies;
(4) A list of branches opened or closed
by the bank during the current year and
each of the prior two calendar years,
their street addresses, and geographies;
(5) A list of services (including hours
of operation, available loan and deposit
products, and transaction fees) generally
offered at the bank’s branches and
descriptions of material differences in
the availability or cost of services at
particular branches, if any. At its option,
a bank may include information
regarding the availability of alternative
systems for delivering retail banking
services (e.g., ATMs, ATMs not owned
or operated by or exclusively for the
bank, banking by telephone or
computer, loan production offices, and
bank-at-work or bank-by-mail
programs);
(6) A map of each assessment area
showing the boundaries of the area and
identifying the geographies contained
within the area, either on the map or in
a separate list; and
(7) Any other information the bank
chooses.
PO 00000
Frm 00629
Fmt 4701
Sfmt 4700
7201
(b) Additional information available
to the public—(1) Banks other than
small banks. A bank, except a small
bank or a bank that was a small bank
during the prior calendar year, shall
include in its public file the following
information pertaining to the bank and
its affiliates, if applicable, for each of
the prior two calendar years:
(i) If the bank has elected to have one
or more categories of its consumer loans
considered under the lending test, for
each of these categories, the number and
amount of loans:
(A) To low-, moderate-, middle-, and
upper-income individuals;
(B) Located in low-, moderate-,
middle-, and upper-income census
tracts; and
(C) Located inside the bank’s
assessment area(s) and outside the
bank’s assessment area(s); and
(ii) The bank’s CRA Disclosure
Statement. The bank shall place the
statement in the public file within three
business days of its receipt from the
Board.
(2) Banks required to report Home
Mortgage Disclosure Act (HMDA) data.
A bank required to report home
mortgage loan data pursuant part 1003
of this title shall include in its public
file a written notice that the institution’s
HMDA Disclosure Statement may be
obtained on the Consumer Financial
Protection Bureau’s (Bureau’s) website
at www.consumerfinance.gov/hmda. In
addition, a bank that elected to have the
Board consider the mortgage lending of
an affiliate shall include in its public
file the name of the affiliate and a
written notice that the affiliate’s HMDA
Disclosure Statement may be obtained at
the Bureau’s website. The bank shall
place the written notice(s) in the public
file within three business days after
receiving notification from the Federal
Financial Institutions Examination
Council of the availability of the
disclosure statement(s).
(3) Small banks. A small bank or a
bank that was a small bank during the
prior calendar year shall include in its
public file:
(i) The bank’s loan-to-deposit ratio for
each quarter of the prior calendar year
and, at its option, additional data on its
loan-to-deposit ratio; and
(ii) The information required for other
banks by paragraph (b)(1) of this section,
if the bank has elected to be evaluated
under the lending, investment, and
service tests.
(4) Banks with strategic plans. A bank
that has been approved to be assessed
under a strategic plan shall include in
its public file a copy of that plan. A
bank need not include information
E:\FR\FM\01FER2.SGM
01FER2
7202
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
submitted to the Board on a confidential
basis in conjunction with the plan.
(5) Banks with less than satisfactory
ratings. A bank that received a less than
satisfactory rating during its most recent
examination shall include in its public
file a description of its current efforts to
improve its performance in helping to
meet the credit needs of its entire
community. The bank shall update the
description quarterly.
(c) Location of public information. A
bank shall make available to the public
for inspection upon request and at no
cost the information required in this
section as follows:
(1) At the main office and, if an
interstate bank, at one branch office in
each state, all information in the public
file; and
(2) At each branch:
(i) A copy of the public section of the
bank’s most recent CRA Performance
Evaluation and a list of services
provided by the branch; and
(ii) Within five calendar days of the
request, all the information in the public
file relating to the assessment area in
which the branch is located.
(d) Copies. Upon request, a bank shall
provide copies, either on paper or in
another form acceptable to the person
making the request, of the information
in its public file. The bank may charge
a reasonable fee not to exceed the cost
of copying and mailing (if applicable).
(e) Updating. Except as otherwise
provided in this section, a bank shall
ensure that the information required by
this section is current as of April 1 of
each year.
§ 228.44
Public notice by banks.
A bank shall provide in the public
lobby of its main office and each of its
branches the appropriate public notice
set forth in appendix B of this part. Only
a branch of a bank having more than one
assessment area shall include the
bracketed material in the notice for
branch offices. Only a bank that is an
affiliate of a holding company shall
include the next to the last sentence of
the notices. A bank shall include the
last sentence of the notices only if it is
an affiliate of a holding company that is
not prevented by statute from acquiring
additional banks.
ddrumheller on DSK120RN23PROD with RULES2
§ 228.45 Publication of planned
examination schedule.
The Board publishes at least 30 days
in advance of the beginning of each
calendar quarter a list of banks
scheduled for CRA examinations in that
quarter.
Appendix A to Part 228—Ratings
(a) Ratings in general. (1) In assigning a
rating, the Board evaluates a bank’s
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
performance under the applicable
performance criteria in this part, in
accordance with §§ 228.21 and 228.28. This
includes consideration of low-cost education
loans provided to low-income borrowers and
activities in cooperation with minority- or
women-owned financial institutions and
low-income credit unions, as well as
adjustments on the basis of evidence of
discriminatory or other illegal credit
practices.
(2) A bank’s performance need not fit each
aspect of a particular rating profile in order
to receive that rating, and exceptionally
strong performance with respect to some
aspects may compensate for weak
performance in others. The bank’s overall
performance, however, must be consistent
with safe and sound banking practices and
generally with the appropriate rating profile
as follows.
(b) Banks evaluated under the lending,
investment, and service tests—(1) Lending
performance rating. The Board assigns each
bank’s lending performance one of the five
following ratings.
(i) Outstanding. The Board rates a bank’s
lending performance ‘‘outstanding’’ if, in
general, it demonstrates:
(A) Excellent responsiveness to credit
needs in its assessment area(s), taking into
account the number and amount of home
mortgage, small business, small farm, and
consumer loans, if applicable, in its
assessment area(s);
(B) A substantial majority of its loans are
made in its assessment area(s);
(C) An excellent geographic distribution of
loans in its assessment area(s);
(D) An excellent distribution, particularly
in its assessment area(s), of loans among
individuals of different income levels and
businesses (including farms) of different
sizes, given the product lines offered by the
bank;
(E) An excellent record of serving the
credit needs of highly economically
disadvantaged areas in its assessment area(s),
low-income individuals, or businesses
(including farms) with gross annual revenues
of $1 million or less, consistent with safe and
sound operations;
(F) Extensive use of innovative or flexible
lending practices in a safe and sound manner
to address the credit needs of low- or
moderate-income individuals or geographies;
and
(G) It is a leader in making community
development loans.
(ii) High satisfactory. The Board rates a
bank’s lending performance ‘‘high
satisfactory’’ if, in general, it demonstrates:
(A) Good responsiveness to credit needs in
its assessment area(s), taking into account the
number and amount of home mortgage, small
business, small farm, and consumer loans, if
applicable, in its assessment area(s);
(B) A high percentage of its loans are made
in its assessment area(s);
(C) A good geographic distribution of loans
in its assessment area(s);
(D) A good distribution, particularly in its
assessment area(s), of loans among
individuals of different income levels and
businesses (including farms) of different
sizes, given the product lines offered by the
bank;
PO 00000
Frm 00630
Fmt 4701
Sfmt 4700
(E) A good record of serving the credit
needs of highly economically disadvantaged
areas in its assessment area(s), low-income
individuals, or businesses (including farms)
with gross annual revenues of $1 million or
less, consistent with safe and sound
operations;
(F) Use of innovative or flexible lending
practices in a safe and sound manner to
address the credit needs of low- or moderateincome individuals or geographies; and
(G) It has made a relatively high level of
community development loans.
(iii) Low satisfactory. The Board rates a
bank’s lending performance ‘‘low
satisfactory’’ if, in general, it demonstrates:
(A) Adequate responsiveness to credit
needs in its assessment area(s), taking into
account the number and amount of home
mortgage, small business, small farm, and
consumer loans, if applicable, in its
assessment area(s);
(B) An adequate percentage of its loans are
made in its assessment area(s);
(C) An adequate geographic distribution of
loans in its assessment area(s);
(D) An adequate distribution, particularly
in its assessment area(s), of loans among
individuals of different income levels and
businesses (including farms) of different
sizes, given the product lines offered by the
bank;
(E) An adequate record of serving the credit
needs of highly economically disadvantaged
areas in its assessment area(s), low-income
individuals, or businesses (including farms)
with gross annual revenues of $1 million or
less, consistent with safe and sound
operations;
(F) Limited use of innovative or flexible
lending practices in a safe and sound manner
to address the credit needs of low- or
moderate-income individuals or geographies;
and
(G) It has made an adequate level of
community development loans.
(iv) Needs to improve. The Board rates a
bank’s lending performance ‘‘needs to
improve’’ if, in general, it demonstrates:
(A) Poor responsiveness to credit needs in
its assessment area(s), taking into account the
number and amount of home mortgage, small
business, small farm, and consumer loans, if
applicable, in its assessment area(s);
(B) A small percentage of its loans are
made in its assessment area(s);
(C) A poor geographic distribution of loans,
particularly to low- or moderate-income
geographies, in its assessment area(s);
(D) A poor distribution, particularly in its
assessment area(s), of loans among
individuals of different income levels and
businesses (including farms) of different
sizes, given the product lines offered by the
bank;
(E) A poor record of serving the credit
needs of highly economically disadvantaged
areas in its assessment area(s), low-income
individuals, or businesses (including farms)
with gross annual revenues of $1 million or
less, consistent with safe and sound
operations;
(F) Little use of innovative or flexible
lending practices in a safe and sound manner
to address the credit needs of low- or
moderate-income individuals or geographies;
and
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(G) It has made a low level of community
development loans.
(v) Substantial noncompliance. The Board
rates a bank’s lending performance as being
in ‘‘substantial noncompliance’’ if, in
general, it demonstrates:
(A) A very poor responsiveness to credit
needs in its assessment area(s), taking into
account the number and amount of home
mortgage, small business, small farm, and
consumer loans, if applicable, in its
assessment area(s);
(B) A very small percentage of its loans are
made in its assessment area(s);
(C) A very poor geographic distribution of
loans, particularly to low- or moderateincome geographies, in its assessment area(s);
(D) A very poor distribution, particularly in
its assessment area(s), of loans among
individuals of different income levels and
businesses (including farms) of different
sizes, given the product lines offered by the
bank;
(E) A very poor record of serving the credit
needs of highly economically disadvantaged
areas in its assessment area(s), low-income
individuals, or businesses (including farms)
with gross annual revenues of $1 million or
less, consistent with safe and sound
operations;
(F) No use of innovative or flexible lending
practices in a safe and sound manner to
address the credit needs of low- or moderateincome individuals or geographies; and
(G) It has made few, if any, community
development loans.
(2) Investment performance rating. The
Board assigns each bank’s investment
performance one of the five following ratings.
(i) Outstanding. The Board rates a bank’s
investment performance ‘‘outstanding’’ if, in
general, it demonstrates:
(A) An excellent level of qualified
investments, particularly those that are not
routinely provided by private investors, often
in a leadership position;
(B) Extensive use of innovative or complex
qualified investments; and
(C) Excellent responsiveness to credit and
community development needs.
(ii) High satisfactory. The Board rates a
bank’s investment performance ‘‘high
satisfactory’’ if, in general, it demonstrates:
(A) A significant level of qualified
investments, particularly those that are not
routinely provided by private investors,
occasionally in a leadership position;
(B) Significant use of innovative or
complex qualified investments; and
(C) Good responsiveness to credit and
community development needs.
(iii) Low satisfactory. The Board rates a
bank’s investment performance ‘‘low
satisfactory’’ if, in general, it demonstrates:
(A) An adequate level of qualified
investments, particularly those that are not
routinely provided by private investors,
although rarely in a leadership position;
(B) Occasional use of innovative or
complex qualified investments; and
(C) Adequate responsiveness to credit and
community development needs.
(iv) Needs to improve. The Board rates a
bank’s investment performance ‘‘needs to
improve’’ if, in general, it demonstrates:
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
(A) A poor level of qualified investments,
particularly those that are not routinely
provided by private investors;
(B) Rare use of innovative or complex
qualified investments; and
(C) Poor responsiveness to credit and
community development needs.
(v) Substantial noncompliance. The Board
rates a bank’s investment performance as
being in ‘‘substantial noncompliance’’ if, in
general, it demonstrates:
(A) Few, if any, qualified investments,
particularly those that are not routinely
provided by private investors;
(B) No use of innovative or complex
qualified investments; and
(C) Very poor responsiveness to credit and
community development needs.
(3) Service performance rating. The Board
assigns each bank’s service performance one
of the five following ratings.
(i) Outstanding. The Board rates a bank’s
service performance ‘‘outstanding’’ if, in
general, the bank demonstrates:
(A) Its service delivery systems are readily
accessible to geographies and individuals of
different income levels in its assessment
area(s);
(B) To the extent changes have been made,
its record of opening and closing branches
has improved the accessibility of its delivery
systems, particularly in low- or moderateincome geographies or to low- or moderateincome individuals;
(C) Its services (including, where
appropriate, business hours) are tailored to
the convenience and needs of its assessment
area(s), particularly low- or moderate-income
geographies or low- or moderate-income
individuals; and
(D) It is a leader in providing community
development services.
(ii) High satisfactory. The Board rates a
bank’s service performance ‘‘high
satisfactory’’ if, in general, the bank
demonstrates:
(A) Its service delivery systems are
accessible to geographies and individuals of
different income levels in its assessment
area(s);
(B) To the extent changes have been made,
its record of opening and closing branches
has not adversely affected the accessibility of
its delivery systems, particularly in low- and
moderate-income geographies and to lowand moderate-income individuals;
(C) Its services (including, where
appropriate, business hours) do not vary in
a way that inconveniences its assessment
area(s), particularly low- and moderateincome geographies and low- and moderateincome individuals; and
(D) It provides a relatively high level of
community development services.
(iii) Low satisfactory. The Board rates a
bank’s service performance ‘‘low
satisfactory’’ if, in general, the bank
demonstrates:
(A) Its service delivery systems are
reasonably accessible to geographies and
individuals of different income levels in its
assessment area(s);
(B) To the extent changes have been made,
its record of opening and closing branches
has generally not adversely affected the
accessibility of its delivery systems,
PO 00000
Frm 00631
Fmt 4701
Sfmt 4700
7203
particularly in low- and moderate-income
geographies and to low- and moderateincome individuals;
(C) Its services (including, where
appropriate, business hours) do not vary in
a way that inconveniences its assessment
area(s), particularly low- and moderateincome geographies and low- and moderateincome individuals; and
(D) It provides an adequate level of
community development services.
(iv) Needs to improve. The Board rates a
bank’s service performance ‘‘needs to
improve’’ if, in general, the bank
demonstrates:
(A) Its service delivery systems are
unreasonably inaccessible to portions of its
assessment area(s), particularly to low- or
moderate-income geographies or to low- or
moderate-income individuals;
(B) To the extent changes have been made,
its record of opening and closing branches
has adversely affected the accessibility its
delivery systems, particularly in low- or
moderate-income geographies or to low- or
moderate-income individuals;
(C) Its services (including, where
appropriate, business hours) vary in a way
that inconveniences its assessment area(s),
particularly low- or moderate-income
geographies or low- or moderate-income
individuals; and
(D) It provides a limited level of
community development services.
(v) Substantial noncompliance. The Board
rates a bank’s service performance as being
in ‘‘substantial noncompliance’’ if, in
general, the bank demonstrates:
(A) Its service delivery systems are
unreasonably inaccessible to significant
portions of its assessment area(s), particularly
to low- or moderate-income geographies or to
low- or moderate-income individuals;
(B) To the extent changes have been made,
its record of opening and closing branches
has significantly adversely affected the
accessibility of its delivery systems,
particularly in low- or moderate-income
geographies or to low- or moderate-income
individuals;
(C) Its services (including, where
appropriate, business hours) vary in a way
that significantly inconveniences its
assessment area(s), particularly low- or
moderate-income geographies or low- or
moderate-income individuals; and
(D) It provides few, if any, community
development services.
(c) Wholesale or limited purpose banks.
The Board assigns each wholesale or limited
purpose bank’s community development
performance one of the four following
ratings.
(1) Outstanding. The Board rates a
wholesale or limited purpose bank’s
community development performance
‘‘outstanding’’ if, in general, it demonstrates:
(i) A high level of community development
loans, community development services, or
qualified investments, particularly
investments that are not routinely provided
by private investors;
(ii) Extensive use of innovative or complex
qualified investments, community
development loans, or community
development services; and
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7204
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(iii) Excellent responsiveness to credit and
community development needs in its
assessment area(s).
(2) Satisfactory. The Board rates a
wholesale or limited purpose bank’s
community development performance
‘‘satisfactory’’ if, in general, it demonstrates:
(i) An adequate level of community
development loans, community development
services, or qualified investments,
particularly investments that are not
routinely provided by private investors;
(ii) Occasional use of innovative or
complex qualified investments, community
development loans, or community
development services; and
(iii) Adequate responsiveness to credit and
community development needs in its
assessment area(s).
(3) Needs to improve. The Board rates a
wholesale or limited purpose bank’s
community development performance as
‘‘needs to improve’’ if, in general, it
demonstrates:
(i) A poor level of community development
loans, community development services, or
qualified investments, particularly
investments that are not routinely provided
by private investors;
(ii) Rare use of innovative or complex
qualified investments, community
development loans, or community
development services; and
(iii) Poor responsiveness to credit and
community development needs in its
assessment area(s).
(4) Substantial noncompliance. The Board
rates a wholesale or limited purpose bank’s
community development performance in
‘‘substantial noncompliance’’ if, in general, it
demonstrates:
(i) Few, if any, community development
loans, community development services, or
qualified investments, particularly
investments that are not routinely provided
by private investors;
(ii) No use of innovative or complex
qualified investments, community
development loans, or community
development services; and
(iii) Very poor responsiveness to credit and
community development needs in its
assessment area(s).
(d) Banks evaluated under the small bank
performance standards—(1) Lending test
ratings. (i) Eligibility for a satisfactory
lending test rating. The Board rates a small
bank’s lending performance ‘‘satisfactory’’ if,
in general, the bank demonstrates:
(A) A reasonable loan-to-deposit ratio
(considering seasonal variations) given the
bank’s size, financial condition, the credit
needs of its assessment area(s), and taking
into account, as appropriate, other lendingrelated activities such as loan originations for
sale to the secondary markets and
community development loans and qualified
investments;
(B) A majority of its loans and, as
appropriate, other lending-related activities,
are in its assessment area;
(C) A distribution of loans to and, as
appropriate, other lending-related activities
for individuals of different income levels
(including low- and moderate-income
individuals) and businesses and farms of
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
different sizes that is reasonable given the
demographics of the bank’s assessment
area(s);
(D) A record of taking appropriate action,
when warranted, in response to written
complaints, if any, about the bank’s
performance in helping to meet the credit
needs of its assessment area(s); and
(E) A reasonable geographic distribution of
loans given the bank’s assessment area(s).
(ii) Eligibility for an ‘‘outstanding’’ lending
test rating. A small bank that meets each of
the standards for a ‘‘satisfactory’’ rating
under this paragraph and exceeds some or all
of those standards may warrant consideration
for a lending test rating of ‘‘outstanding.’’
(iii) Needs to improve or substantial
noncompliance ratings. A small bank may
also receive a lending test rating of ‘‘needs to
improve’’ or ‘‘substantial noncompliance’’
depending on the degree to which its
performance has failed to meet the standard
for a ‘‘satisfactory’’ rating.
(2) Community development test ratings for
intermediate small banks—(i) Eligibility for a
satisfactory community development test
rating. The Board rates an intermediate small
bank’s community development performance
‘‘satisfactory’’ if the bank demonstrates
adequate responsiveness to the community
development needs of its assessment area(s)
through community development loans,
qualified investments, and community
development services. The adequacy of the
bank’s response will depend on its capacity
for such community development activities,
its assessment area’s need for such
community development activities, and the
availability of such opportunities for
community development in the bank’s
assessment area(s).
(ii) Eligibility for an outstanding
community development test rating. The
Board rates an intermediate small bank’s
community development performance
‘‘outstanding’’ if the bank demonstrates
excellent responsiveness to community
development needs in its assessment area(s)
through community development loans,
qualified investments, and community
development services, as appropriate,
considering the bank’s capacity and the need
and availability of such opportunities for
community development in the bank’s
assessment area(s).
(iii) Needs to improve or substantial
noncompliance ratings. An intermediate
small bank may also receive a community
development test rating of ‘‘needs to
improve’’ or ‘‘substantial noncompliance’’
depending on the degree to which its
performance has failed to meet the standards
for a ‘‘satisfactory’’ rating.
(3) Overall rating—(i) Eligibility for a
satisfactory overall rating. No intermediate
small bank may receive an assigned overall
rating of ‘‘satisfactory’’ unless it receives a
rating of at least ‘‘satisfactory’’ on both the
lending test and the community development
test.
(ii) Eligibility for an outstanding overall
rating. (A) An intermediate small bank that
receives an ‘‘outstanding’’ rating on one test
and at least ‘‘satisfactory’’ on the other test
may receive an assigned overall rating of
‘‘outstanding.’’
PO 00000
Frm 00632
Fmt 4701
Sfmt 4700
(B) A small bank that is not an
intermediate small bank that meets each of
the standards for a ‘‘satisfactory’’ rating
under the lending test and exceeds some or
all of those standards may warrant
consideration for an overall rating of
‘‘outstanding.’’ In assessing whether a bank’s
performance is ‘‘outstanding,’’ the Board
considers the extent to which the bank
exceeds each of the performance standards
for a ‘‘satisfactory’’ rating and its
performance in making qualified investments
and its performance in providing branches
and other services and delivery systems that
enhance credit availability in its assessment
area(s).
(iii) Needs to improve or substantial
noncompliance overall ratings. A small bank
may also receive a rating of ‘‘needs to
improve’’ or ‘‘substantial noncompliance’’
depending on the degree to which its
performance has failed to meet the standards
for a ‘‘satisfactory’’ rating.
(e) Strategic plan assessment and rating—
(1) Satisfactory goals. The Board approves as
‘‘satisfactory’’ measurable goals that
adequately help to meet the credit needs of
the bank’s assessment area(s).
(2) Outstanding goals. If the plan identifies
a separate group of measurable goals that
substantially exceed the levels approved as
‘‘satisfactory,’’ the Board will approve those
goals as ‘‘outstanding.’’
(3) Rating. The Board assesses the
performance of a bank operating under an
approved plan to determine if the bank has
met its plan goals:
(i) If the bank substantially achieves its
plan goals for a satisfactory rating, the Board
will rate the bank’s performance under the
plan as ‘‘satisfactory.’’
(ii) If the bank exceeds its plan goals for
a satisfactory rating and substantially
achieves its plan goals for an outstanding
rating, the Board will rate the bank’s
performance under the plan as
‘‘outstanding.’’
(iii) If the bank fails to meet substantially
its plan goals for a satisfactory rating, the
Board will rate the bank as either ‘‘needs to
improve’’ or ‘‘substantial noncompliance,’’
depending on the extent to which it falls
short of its plan goals, unless the bank
elected in its plan to be rated otherwise, as
provided in § 228.27(f)(4).
Appendix B to Part 228—CRA Notice
(a) Notice for main offices and, if an
interstate bank, one branch office in each
state.
Community Reinvestment Act Notice
Under the Federal Community
Reinvestment Act (CRA), the Federal Reserve
Board (Board) evaluates our record of helping
to meet the credit needs of this community
consistent with safe and sound operations.
The Board also takes this record into account
when deciding on certain applications
submitted by us.
Your involvement is encouraged.
You are entitled to certain information
about our operations and our performance
under the CRA, including, for example,
information about our branches, such as their
location and services provided at them; the
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
public section of our most recent CRA
Performance Evaluation, prepared by the
Federal Reserve Bank of llll(Reserve
Bank); and comments received from the
public relating to our performance in helping
to meet community credit needs, as well as
our responses to those comments. You may
review this information today.
At least 30 days before the beginning of
each quarter, the Federal Reserve System
publishes a list of the banks that are
scheduled for CRA examination by the
Reserve Bank in that quarter. This list is
available from (title of responsible official),
Federal Reserve Bank of llll(address).
You may send written comments about our
performance in helping to meet community
credit needs to (name and address of official
at bank) and (title of responsible official),
Federal Reserve Bank of llll(address).
Your letter, together with any response by us,
will be considered by the Federal Reserve
System in evaluating our CRA performance
and may be made public.
You may ask to look at any comments
received by the Reserve Bank. You may also
request from the Reserve Bank an
announcement of our applications covered
by the CRA filed with the Reserve Bank. We
are an affiliate of (name of holding company),
a bank holding company. You may request
from (title of responsible official), Federal
Reserve Bank of llll(address) an
announcement of applications covered by the
CRA filed by bank holding companies.
(b) Notice for branch offices.
Community Reinvestment Act Notice
Under the Federal Community
Reinvestment Act (CRA), the Federal Reserve
Board (Board) evaluates our record of helping
to meet the credit needs of this community
consistent with safe and sound operations.
The Board also takes this record into account
when deciding on certain applications
submitted by us.
Your involvement is encouraged.
You are entitled to certain information
about our operations and our performance
under the CRA. You may review today the
public section of our most recent CRA
evaluation, prepared by the Federal Reserve
Bank of llll(address), and a list of
services provided at this branch. You may
also have access to the following additional
information, which we will make available to
you at this branch within five calendar days
after you make a request to us: (1) a map
showing the assessment area containing this
branch, which is the area in which the Board
evaluates our CRA performance in this
community; (2) information about our
branches in this assessment area; (3) a list of
services we provide at those locations; (4)
data on our lending performance in this
assessment area; and (5) copies of all written
comments received by us that specifically
relate to our CRA performance in this
assessment area, and any responses we have
made to those comments. If we are operating
under an approved strategic plan, you may
also have access to a copy of the plan.
[If you would like to review information
about our CRA performance in other
communities served by us, the public file for
our entire bank is available at (name of office
located in state), located at (address).]
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
At least 30 days before the beginning of
each quarter, the Federal Reserve System
publishes a list of the banks that are
scheduled for CRA examination by the
Reserve Bank in that quarter. This list is
available from (title of responsible official),
Federal Reserve Bank of llll(address).
You may send written comments about our
performance in helping to meet community
credit needs to (name and address of official
at bank) and (title of responsible official),
Federal Reserve Bank of llll(address).
Your letter, together with any response by us,
will be considered by the Federal Reserve
System in evaluating our CRA performance
and may be made public.
You may ask to look at any comments
received by the Reserve Bank. You may also
request from the Reserve Bank an
announcement of our applications covered
by the CRA filed with the Reserve Bank. We
are an affiliate of (name of holding company),
a bank holding company. You may request
from (title of responsible official), Federal
Reserve Bank of llll(address) an
announcement of applications covered by the
CRA filed by bank holding companies.
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Chapter III
Authority and Issuance
For the reasons discussed in the
common preamble, the Federal Deposit
Insurance Corporation amends part 345
of chapter III of title 12 of the Code of
Federal Regulations as follows:.
PART 345—COMMUNITY
REINVESTMENT
53. Revise the authority citation for
part 345 to read as follows:
■
Authority: 12 U.S.C. 1814–1817, 1819–
1820, 1828, 1831u, 2901–2908, 3103–3104,
and 3108(a).
54. Revise part 345 as set forth at the
end of the common preamble.
■
55. Amend part 345 by:
a. Removing the word ‘‘[Agency]’’
wherever it appears and adding ‘‘FDIC’’
in its place;
■ b. Removing the word ‘‘[Agency]’s’’
wherever it appears and adding
‘‘FDIC’s’’ in its place;
■ c. Removing ‘‘[operations subsidiary
or operating subsidiary]’’ wherever it
appears and adding ‘‘operating
subsidiary’’ in its place;
■ d. Removing ‘‘[operations subsidiaries
or operating subsidiaries]’’ wherever it
appears and adding ‘‘operating
subsidiaries’’ in its place; and
■ e. Removing ‘‘[operations subsidiaries
or operating subsidiaries]’’ wherever it
appears and adding ‘‘operating
subsidiaries’’ in its place.
■
■
■
■
56. Amend § 345.11 by:
a. Adding paragraph (a);
PO 00000
Frm 00633
Fmt 4701
Sfmt 4700
7205
b. In paragraph (b), removing ‘‘FDIC’’
and adding ‘‘Federal Deposit Insurance
Corporation (FDIC)’’ in its place; and
■ c. Adding paragraph (c).
The additions read as follows:
■
§ 345.11
Authority, purposes, and scope.
(a) Authority. The authority for this
part is 12 U.S.C. 1814–1817, 1819–1820,
1828, 1831u, 2901–2908, 3103–3104,
and 3108(a).
*
*
*
*
*
(c) Scope—(1) General. Except for
certain special purpose banks described
in paragraph (c)(3) of this section, this
part applies to all insured State
nonmember banks, including insured
State branches as described in
paragraph (c)(2) and any uninsured
State branch that results from an
acquisition described in section 5(a)(8)
of the International Banking Act of 1978
(12 U.S.C. 3103(a)(8)).
(2) Insured State branches. Insured
State branches are branches of a foreign
bank established and operating under
the laws of any State, the deposits of
which are insured in accordance with
the provisions of the Federal Deposit
Insurance Act. In the case of insured
State branches, references in this part to
main office mean the principal branch
within the United States and the term
branch or branches refers to any insured
State branch or branches located within
the United States. The facility-based
assessment areas and, as applicable,
retail lending assessment areas and
outside retail lending area of an insured
State branch is the community or
communities located within the United
States served by the branch as described
in § 345.16 and, as applicable, §§ 345.17
and 345.18.
(3) Certain special purpose banks.
This part does not apply to special
purpose banks that do not perform
commercial or retail banking services by
granting credit to the public in the
ordinary course of business, other than
as incident to their specialized
operations. These banks include
banker’s banks, as defined in 12 U.S.C.
24(Seventh), and banks that engage only
in one or more of the following
activities: providing cash management
controlled disbursement services or
serving as correspondent banks, trust
companies, or clearing agents.
■ 57. Amend § 345.12 as follows:
■ a. Adding the definition of ‘‘Bank’’ in
alphabetical order;
■ b. In the definition of ‘‘Depository
institution’’, removing ‘‘12 CFR 25.11,
228.11, and 345.11’’ and adding
‘‘§ 345.11 and 12 CFR 25.11 and 228.11’’
in its place;
■ c. In the definition of ‘‘Distressed or
underserved nonmetropolitan middle-
E:\FR\FM\01FER2.SGM
01FER2
7206
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
income census tract’’, removing ‘‘the
Federal Deposit Insurance Corporation
(FDIC)’’ and adding ‘‘the FDIC’’ in its
place;
■ d. In the definition of ‘‘Large
depository institution’’, removing ‘‘12
CFR 228.26(a) or 345.26(a)’’ and adding
‘‘§ 345.26(a) or 12 CFR 228.26(a)’’ in its
place; and
■ e. Adding the definition of ‘‘Operating
subsidiary’’ in alphabetical order.
The additions read as follows:
§ 345.12
Definitions.
*
*
*
*
*
Bank means a State nonmember bank,
as that term is defined in section 3(e)(2)
of the Federal Deposit Insurance Act
(FDIA) (12 U.S.C. 1813(e)(2)), with
federally insured deposits, except as
defined in § 345.11(c). The term bank
also includes an insured State branch as
defined in § 345.11(c).
*
*
*
*
*
Operating subsidiary, for purposes of
this part, means an operating subsidiary
as described in 12 CFR 5.34.
*
*
*
*
*
■ 58. Delayed indefinitely, further
amend § 345.12 by:
■ a. In the definition of ‘‘Loan location’’,
revising paragraph (3);
■ b. In the definition of ‘‘Reported
loan’’, revising paragraph (2); and
■ c. Revising the definitions of ‘‘Small
business’’, ‘‘Small business loan’’,
‘‘Small farm’’, and ‘‘Small farm loan’’.
The revisions read as follows:
§ 345.12
Definitions.
ddrumheller on DSK120RN23PROD with RULES2
*
*
*
*
*
Loan location * * *
(3) A small business loan or small
farm loan is located in the census tract
reported pursuant to subpart B of 12
CFR part 1002.
*
*
*
*
*
Reported loan means * * *
(2) A small business loan or small
farm loan reported by a bank pursuant
to subpart B of 12 CFR part 1002.
*
*
*
*
*
Small business means a small
business, other than a small farm, as
defined in section 704B of the Equal
Credit Opportunity Act (15 U.S.C.
1691c–2) and implemented by 12 CFR
1002.106.
Small business loan means a loan to
a small business as defined in this
section.
Small farm means a small business, as
defined in section 704B of the Equal
Credit Opportunity Act (15 U.S.C.
1691c–2) and implemented by 12 CFR
1002.106, and that is identified with one
of the 3-digit North American Industry
Classification System (NAICS) codes
111–115.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
Small farm loan means a loan to a
small farm as defined in this section.
*
*
*
*
*
61. Amend § 345.21 in paragraph
(b)(1) by removing ‘‘12 CFR part 25, 228,
or 345’’ and adding ‘‘this part or 12 CFR
part 25 or 228’’ in its place.
shall submit with its application for
deposit insurance a description of how
it will meet its CRA objectives. The
FDIC takes the description into account
in considering the application and may
deny or condition approval on that
basis.
(c) Interested parties. The FDIC takes
into account any views expressed by
interested parties that are submitted in
accordance with the FDIC’s procedures
set forth in part 303 of this chapter in
considering CRA performance in an
application listed in paragraphs (a) and
(b) of this section.
(d) Denial or conditional approval of
application. A bank’s record of
performance may be the basis for
denying or conditioning approval of an
application listed in paragraph (a) of
this section.
§ 345.22
§ 345.42
§ 345.13
[Amended]
59. Amend § 345.13 in paragraph (k)
by removing ‘‘part 25, 228, or 345 of this
title’’ and adding ‘‘this part or 12 CFR
part 25 or 228’’ in its place.
■
§ 345.14
[Amended]
60. Amend § 345.14 in paragraphs
(b)(2)(ii) and (b)(3) by removing ‘‘[other
Agencies]’’ and adding in its place
‘‘Board and OCC’’.
■
§ 345.21
[Amended]
■
[Amended]
62. Delayed indefinitely, amend
§ 345.22 by:
■ a. Removing the term ‘‘Businesses’’ in
paragraphs (e)(2)(ii)(C) and (D) and
adding in its place ‘‘Small businesses’’;
and
■ b. Removing the term ‘‘Farms’’ in
paragraphs (e)(2)(ii)(E) and (F) and
adding in its place ‘‘Small farms’’.
■
§ 345.26
[Amended]
63. Amend § 345.26 by:
a. In paragraph (f)(2)(ii)(A), removing
‘‘12 CFR 228.26(a) or 345.26(a)’’ and ‘‘12
CFR 25.42(b), 228.42(b), or 345.42(b)’’
and adding ‘‘paragraph (a) of this
section or 12 CFR 228.26(a)’’ and
‘‘§ 345.42(b) or 12 CFR 25.42(b) or
228.42(b)’’ in their places, respectively;
and
■ b. In paragraph (f)(2)(ii)(B), removing
‘‘12 CFR 25.42(b), 228.42(b), or
345.42(b)’’ and adding ‘‘§ 345.42(b) or
12 CFR 25.42(b) or 228.42(b)’’ in its
place.
■ 64. Add § 345.31 to read as follows:
■
■
§ 345.31 Effect of CRA performance on
applications.
(a) CRA performance. Among other
factors, the FDIC takes into account the
record of performance under the CRA of
each applicant bank in considering an
application for approval of:
(1) The establishment of a domestic
branch or other facility with the ability
to accept deposits;
(2) The relocation of the bank’s main
office or a branch;
(3) The merger, consolidation,
acquisition of assets, or assumption of
liabilities; and
(4) Deposit insurance for a newly
chartered financial institution.
(b) New financial institutions. A
newly chartered financial institution
PO 00000
Frm 00634
Fmt 4701
Sfmt 4700
[Amended]
65. Amend § 345.42 by:
a. In paragraph (h), removing ‘‘12 CFR
part 25, 228, or 345’’ and adding ‘‘this
part or 12 CFR part 25 or 228’’ in its
place; and
■ b. In paragraph (j)(2), removing
‘‘[Agency]’s’’ and adding ‘‘FDIC’s’’ in its
place.
■ 66. Delayed indefinitely, further
amend § 345.42 by:
■ a. Revising paragraph (a)(1);
■ b. Removing and reserving paragraph
(b)(1); and
■ c. Removing the phrase ‘‘small
business loans and small farm loans
reported as originated or purchased’’ in
paragraphs (g)(1)(i) and (g)(2)(i)
wherever it appears and adding in its
place ‘‘small business loans and small
farm loans reported as originated’’.
The revision reads as follows:
■
■
§ 345.42 Data collection, reporting, and
disclosure.
(a) * * *
(1) Purchases of small business loans
and small farm loans data. A bank that
opts to have the FDIC consider its
purchases of small business loans and
small farm loans must collect and
maintain in electronic form, as
prescribed by the FDIC, until the
completion of the bank’s next CRA
examination in which the data are
evaluated, the following data for each
small business loan or small farm loan
purchased by the bank during the
evaluation period:
(i) A unique number or alpha-numeric
symbol that can be used to identify the
relevant loan file;
(ii) An indicator for the loan type as
reported on the bank’s Call Report or on
the bank’s Report of Assets and
Liabilities of U.S. Branches and
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
Agencies of Foreign Banks, as
applicable;
(iii) The date of the loan purchase;
(iv) The loan amount at purchase;
(v) The loan location, including State,
county, and census tract;
(vi) An indicator for whether the
purchased loan was to a business or
farm with gross annual revenues of
$250,000 or less;
(vii) An indicator for whether the
purchased loan was to a business or
farm with gross annual revenues greater
than $250,000 but less than or equal to
$1 million;
(viii) An indicator for whether the
purchased loan was to a business or
farm with gross annual revenues greater
than $1 million; and
(ix) An indicator for whether the
purchased loan was to a business or
farm for which gross annual revenues
are not known by the bank.
*
*
*
*
*
§ 345.43
[Amended]
67. Amend § 345.43 in paragraph
(b)(2)(i) by removing ‘‘[operations
subsidiaries’ or operating subsidiaries’]’’
and adding ‘‘operating subsidiaries’ ’’ in
its place.
* * *
■ 68. Delayed indefinitely, further
amend § 345.43 by:
■ a. Revising the heading of paragraph
(b)(2); and
■ b. Adding paragraph (b)(2)(iii).
The revision and addition read as
follows:
■
§ 345.43
file.
Content and availability of public
*
*
*
*
*
(b) * * *
(2) Banks required to report HMDA
data and small business lending data.
* * *
(iii) Small business lending data
notice. A bank required to report small
business loan or small farm loan data
pursuant to 12 CFR part 1002 must
include in its public file a written notice
that the bank’s small business loan and
small farm loan data may be obtained on
the CFPB’s website at: https://
www.consumerfinance.gov/dataresearch/small-business-lending/.
*
*
*
*
*
§ 345.46
[Amended]
69. Amend § 345.46 in paragraph (b)
by removing ‘‘[Agency contact
information]’’ and adding in its place
‘‘CRACommentCollector@fdic.gov or to
the address of the appropriate FDIC
regional office found at https://
www.fdic.gov/resources/bankers/
community-reinvestment-act/craregional-contacts-list.html’’.
ddrumheller on DSK120RN23PROD with RULES2
■
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
§ 345.51
[Amended]
70. Amend § 345.51 in paragraph (e)
by removing ‘‘[other Agencies’
regulations]’’ and adding ‘‘12 CFR part
25 or 228’’ in its place.
■
Appendix A to Part 345 [Amended]
71. Amend appendix A by:
a. In paragraph I.b introductory text,
removing ‘‘12 CFR 25.42(b)(1),
228.42(b)(1), or 345.42(b)(1) or 12 CFR
part 1003’’ and adding ‘‘§ 345.42(b)(1),
12 CFR 25.42(b)(1) or 228.42(b)(1), or 12
CFR part 1003’’ in its place; and
■ b. In paragraph I.b.2, removing ‘‘12
CFR 25.42(b)(3), 228.42(b)(3), or
345.42(b)(3)’’ and adding ‘‘§ 345.42(b)(3)
or 12 CFR 25.42(b)(3) or 228.42(b)(3)’’ in
its place.
■
■
72. Delayed indefinitely, further
amend appendix A by:
■ a. Adding a sentence at the end of
paragraph I.a.1;
■ b. Removing the phrase ‘‘subject to
reporting pursuant to § 345.42(b)(1), 12
CFR 25.42(b)(1) or 228.42(b)(1),’’ in
paragraph I.b introductory text and
adding in its place the phrase ‘‘subject
to reporting pursuant to subpart B of 12
CFR part 1002’’;
■ c. Adding a sentence at the end of
paragraph III.a.1;
■ d. Revising paragraphs III.c.3.i and ii,
III.c.4.i and ii, III.c.5.i and ii, and III.c.6.i
and ii;
■ e. In paragraph III.c.8.iii, revising
Example A–7;
■ f. Revising the third and fourth
introductory paragraphs to section IV;
■ g. Adding a sentence at the end of
paragraph IV.a.1;
■ h. Revising the introductory
paragraph to IV.c.3 and paragraphs
IV.c.3.i and ii;
■ i. Revising the introductory paragraph
to IV.c.4 and paragraphs IV.c.4.i and ii;
■ j. Revising the introductory paragraph
to IV.c.5 and paragraphs IV.c.5.i and ii;
■ k. Revising the introductory paragraph
to IV.c.6 and paragraphs IV.c.6.i and ii;
■ l. In section V, in paragraph a, in table
1, revising the entries for ‘‘Small
Business Loans’’ and ‘‘Small Farm
Loans’’; and
■ m. In section VII:
■ i. In paragraph a.1.ii, in table 3,
revising the entries for ‘‘Small Business
Loans’’ and ‘‘Small Farm Loans’’; and
■ ii. In paragraph a.1.iii, in table 4,
revising the entries for ‘‘Small Business
Loans’’ and ‘‘Small Farm Loans’’.
The additions and revisions read as
follows:
■
Appendix A to Part 345—Calculations
for the Retail Lending Test
*
*
*
*
*
I. * * *
PO 00000
Frm 00635
Fmt 4701
Sfmt 4700
7207
a. * * *
1. * * * A bank’s loan purchases that
otherwise meet the definition of a covered
credit transaction to a small business, as
those terms are defined in 12 CFR 1002.104
and 1002.106(b), may be included in the
numerator of the Bank Volume Metric at the
bank’s option.
*
*
*
*
*
III. * * *
a. * * *
1. * * * A bank’s loan purchases that
otherwise meet the definition of a covered
credit transaction to a small business, as
provided in 12 CFR 1002.104 and
1002.106(b), may be included in the
numerator of the Geographic Bank Metric at
the bank’s option.
*
*
*
*
*
c. * * *
3. * * *
i. Summing, over the years in the
evaluation period, the numbers of small
businesses in low-income census tracts in the
facility-based assessment area or retail
lending assessment area.
ii. Summing, over the years in the
evaluation period, the numbers of small
businesses in the facility-based assessment
area or retail lending assessment area.
*
*
*
*
*
4. * * *
i. Summing, over the years in the
evaluation period, the numbers of small
businesses in moderate-income census tracts
in the facility-based assessment area or retail
lending assessment area.
ii. Summing, over the years in the
evaluation period, the numbers of small
businesses in the facility-based assessment
area or retail lending assessment area.
*
*
*
*
*
5. * * *
i. Summing, over the years in the
evaluation period, the numbers of small
farms in low-income census tracts in the
facility-based assessment area or retail
lending assessment area.
ii. Summing, over the years in the
evaluation period, the numbers of small
farms in the facility-based assessment area or
retail lending assessment area.
*
*
*
*
*
6. * * *
i. Summing, over the years in the
evaluation period, the numbers of small
farms in moderate-income census tracts in
the facility-based assessment area or retail
lending assessment area.
ii. Summing, over the years in the
evaluation period, the numbers of small
farms in the facility-based assessment area or
retail lending assessment area.
*
*
*
*
*
8. * * *
iii. * * *
Example A–7: The applicable benchmark
uses a three-year evaluation period. There
were 4,000 small business establishments,
based upon the sum of the numbers of small
business establishments over the years in the
evaluation period (1,300 small business
establishments in year 1, 1,300 small
business establishments in year 2, and 1,400
E:\FR\FM\01FER2.SGM
01FER2
7208
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
small business establishments in year 3), in
a bank’s facility-based assessment area. Of
these small business establishments, 500
small business establishments were in lowincome census tracts, based upon the sum of
the numbers of small business establishments
in low-income census tracts over the years in
the evaluation period (200 small business
establishments in year 1,150 small business
in year 2, and 150 small business
establishments in year 3). The Geographic
Community Benchmark for small business
loans in low-income census tracts would be
500 divided by 4,000, or 0.125 (equivalently,
12.5 percent). In addition, 1,000 small
business establishments in that facility-based
assessment area were in moderate-income
census tracts, over the years in the evaluation
period (400 small business establishments in
year 1,300 small business establishments in
year 2, and 300 small business
establishments in year 3). The Geographic
Community Benchmark for small business
loans in moderate-income census tracts
would be 1,000 divided by 4,000, or 0.25
(equivalently, 25 percent).
Small Businesses in Law - Income Census Tracts (500)
Small Businesses (4,000)
= Geographic Community Benchmark (12.5%)
Small Businesses in Moderate -Income Census Tracts (1,000)
Small Businesses (4,000)
= Geographic Community Benchmark (25%)
*
*
*
*
*
IV. * * *
For small business loans, the FDIC
calculates these metrics and benchmarks for
each of the following designated borrowers:
(i) small businesses with gross annual
revenues of $250,000 or less; and (ii) small
businesses with gross annual revenues of
more than $250,000 but less than or equal to
$1 million.
For small farm loans, the FDIC calculates
these metrics and benchmarks for each of the
following designated borrowers: (i) small
farms with gross annual revenues of $250,000
or less; and (ii) small farms with gross annual
revenues of more than $250,000 but less than
or equal to $1 million.
*
*
*
*
*
a. * * *
1. * * * A bank’s loan purchases that
otherwise meet the definition of a covered
credit transaction to a small business, as
provided in 12 CFR 1002.104 and
1002.106(b), may be included in the
numerator of the Borrower Bank Metric at the
bank’s option.
*
*
*
*
*
c. * * *
3. For small business loans, the FDIC
calculates a Borrower Community
Benchmark for small businesses with gross
annual revenues of $250,000 or less by:
i. Summing, over the years in the
evaluation period, the numbers of small
businesses with gross annual revenues of
$250,000 or less in the facility-based lending
area or retail lending assessment area.
ii. Summing, over the years in the
evaluation period, the numbers of small
businesses in the facility-based lending area
or retail lending assessment area.
farms with gross annual revenues of $250,000
or less by:
i. Summing, over the years in the
evaluation period, the numbers of small
farms with gross annual revenues of $250,000
or less in the facility-based lending area or
retail lending assessment area.
ii. Summing, over the years in the
evaluation period, the numbers of small
farms in the facility-based lending area or
retail lending assessment area.
*
*
*
*
*
*
*
*
*
*
4. For small business loans, the FDIC
calculates a Borrower Community
Benchmark for small businesses with gross
annual revenues of more than $250,000 but
less than or equal to $1 million by:
i. Summing, over the years in the
evaluation period, the numbers of small
businesses with gross annual revenues of
more than $250,000 but less than or equal to
$1 million in the facility-based lending area
or retail lending assessment area.
ii. Summing, over the years in the
evaluation period, the numbers of small
businesses in the facility-based lending area
or retail lending assessment area.
6. For small farm loans, the FDIC calculates
a Borrower Community Benchmark for small
farms with gross annual revenues of more
than $250,000 but less than or equal to $1
million by:
i. Summing, over the years in the
evaluation period, the numbers of small
farms with gross annual revenues of more
than $250,000 but less than or equal to $1
million in the facility-based lending area or
retail lending assessment area.
ii. Summing, over the years in the
evaluation period, the numbers of small
farms in the facility-based lending area or
retail lending assessment area.
*
*
*
*
*
*
5. For small farm loans, the FDIC calculates
a Borrower Community Benchmark for small
*
*
*
*
V. * * *
a. * * *
TABLE 1 TO APPENDIX A—RETAIL LENDING TEST CATEGORIES OF DESIGNATED CENSUS TRACTS AND DESIGNATED
BORROWERS
Designated census tracts
*
*
Small Business Loans ...................
Small Farm Loans ..........................
VerDate Sep<11>2014
18:11 Jan 31, 2024
Designated borrowers
*
*
*
*
*
Low-Income Census Tracts ........... Small businesses with Gross Annual Revenues of $250,000 or Less.
Moderate-Income Census Tracts .. Small businesses with Gross Annual Revenues Greater than
$250,000 but Less Than or Equal to $1 million.
Low-Income Census Tracts ........... Small farms with Gross Annual Revenues of $250,000 or Less.
Moderate-Income Census Tracts .. Small farms with Gross Annual Revenues Greater than $250,000 but
Less Than or Equal to $1 million.
Jkt 262001
PO 00000
Frm 00636
Fmt 4701
Sfmt 4700
E:\FR\FM\01FER2.SGM
01FER2
ER01FE24.102
ddrumheller on DSK120RN23PROD with RULES2
Major product line
7209
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
*
*
*
*
1. * * *
ii. * * *
*
VII. * * *
a. * * *
TABLE 3 TO APPENDIX A—RETAIL LENDING TEST, GEOGRAPHIC DISTRIBUTION AVERAGE—WEIGHTS
Category of designated census
tracts
Major product line
*
*
Small Business Loans ...................
Small Farm Loans ..........................
*
*
*
*
*
*
*
*
Low-Income Census Tracts ........... Percentage of total number of small businesses in low- and moderate-income census tracts in the applicable Retail Lending Test
Area that are in low-income census tracts.
Moderate-Income Census Tracts .. Percentage of total number of small businesses in low- and moderate-income census tracts in the applicable Retail Lending Test
Area that are in moderate-income census tracts.
Low-Income Census Tracts ........... Percentage of total number of small farms in low- and moderate-income census tracts in the applicable Retail Lending Test Area that
are in low-income census tracts.
Moderate-Income Census Tracts .. Percentage of total number of small farms in low- and moderate-income census tracts in the applicable Retail Lending Test Area that
are in moderate-income census tracts.
*
*
*
Weight
*
*
*
*
*
iii. * * *
*
TABLE 4 TO APPENDIX A—RETAIL LENDING TEST, BORROWER DISTRIBUTION AVERAGE—WEIGHTS
Categories of
designated borrowers
Major product line
*
*
Small Business Loans ...................
Small Farm Loans ..........................
*
*
*
*
*
*
*
*
Small businesses with gross an- Percentage of total number of small businesses with gross annual
nual revenues of $250,000 or
revenues of $250,000 or less and small businesses with gross anless.
nual revenues greater than $250,000 but less than or equal to $1
million in the applicable Retail Lending Test Area that are small
businesses with gross annual revenues of $250,000 or less.
Small businesses with gross an- Percentage of total number of small businesses with gross annual
nual revenues greater than
revenues of $250,000 or less and small businesses with gross an$250,000 and less than or equal
nual revenues greater than $250,000 but less than or equal to $1
to $1 million.
million in the applicable Retail Lending Test Area that are small
businesses with gross annual revenues greater than $250,00 but
less than or equal to $1 million.
Small farms with gross annual rev- Percentage of total number of small farms with gross annual reveenues of $250,000 or less.
nues of $250,000 or less and small farms with gross annual revenues greater than $250,000 but less than or equal to $1 million in
the applicable Retail Lending Test Area that are small farms with
gross annual revenues of $250,000 or less.
Small farms with gross annual rev- Percentage of total number of small farms with gross annual reveenues greater than $250,000
nues of $250,000 or less and small farms with gross annual reveand less than or equal to $1 milnues greater than $250,000 but less than or equal to $1 million in
lion.
the applicable Retail Lending Test Area that are small farms with
gross annual revenues greater than $250,000 but less than or
equal to $1 million.
*
*
*
*
*
ddrumheller on DSK120RN23PROD with RULES2
Appendix B to Part 345 [Amended]
73. Amend appendix B by:
a. In paragraph I.a.2.i, removing ‘‘12
CFR 25.42, 228.42, or 345.42’’ and
adding ‘‘§ 345.42 or 12 CFR 25.42 or
228.42’’ in its place;
■ b. In paragraphs III.b.1 and 2,
removing ‘‘12 CFR 228.26(a) or
345.26(a)’’ and ‘‘12 CFR 25.42(b),
■
■
VerDate Sep<11>2014
18:11 Jan 31, 2024
Weight
Jkt 262001
*
*
228.42(b), or 345.42(b)’’ and adding
‘‘§ 345.26(a) or 12 CFR 228.26(a)’’ and
‘‘§ 345.42(b) or 12 CFR 25.42(b) or
228.42(b)’’ in their places, respectively;
and
■ c. In paragraphs c.1 and 2, removing
‘‘12 CFR 25.42(b), 228.42(b), or
345.42(b)’’ and adding ‘‘§ 345.42(b) or
12 CFR 25.42(b) or 228.42(b)’’ in its
place.
■ 74. Add appendix F to read as follows:
PO 00000
Frm 00637
Fmt 4701
Sfmt 4700
*
*
Appendix F to Part 345—CRA Notice
(a) Notice for main offices and, if an
interstate bank, one branch office in each
State.
Community Reinvestment Act Notice
Under the Federal Community
Reinvestment Act (CRA), the Federal Deposit
Insurance Corporation (FDIC) evaluates our
record of helping to meet the credit needs of
this community consistent with safe and
sound operations. The FDIC also takes this
E:\FR\FM\01FER2.SGM
01FER2
7210
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
record into account when deciding on certain
applications submitted by us.
Your involvement is encouraged.
You are entitled to certain information
about our operations and our performance
under the CRA, including, for example,
information about our branches, such as their
location and services provided at them; the
public section of our most recent CRA
Performance Evaluation, prepared by the
FDIC; and comments received from the
public relating to our performance in helping
to meet community credit needs, as well as
our responses to those comments. You may
review this information today.
At least 30 days before the beginning of
each calendar quarter, the FDIC publishes a
nationwide list of the banks that are
scheduled for CRA examination for the next
two quarters. This list is available from the
Regional Director, FDIC (address). You may
send written comments about our
performance in helping to meet community
credit needs to (name and address of official
at bank) and FDIC Regional Director. You
may also submit comments electronically
through the FDIC’s website at www.fdic.gov/
regulations/cra. Your letter, together with
any response by us, will be considered by the
FDIC in evaluating our CRA performance and
may be made public.
You may ask to look at any comments
received by the FDIC Regional Director. You
may also request from the FDIC Regional
Director an announcement of our
applications covered by the CRA filed with
the FDIC. [We are an affiliate of (name of
holding company), a bank holding company.
You may request from the (title of
responsible official), Federal Reserve Bank of
llllll_(address) an announcement of
applications covered by the CRA filed by
bank holding companies.]
(b) Notice for branch offices.
Community Reinvestment Act Notice
Under the Federal Community
Reinvestment Act (CRA), the Federal Deposit
Insurance Corporation (FDIC) evaluates our
record of helping to meet the credit needs of
this community consistent with safe and
sound operations. The FDIC also takes this
record into account when deciding on certain
applications submitted by us.
Your involvement is encouraged.
You are entitled to certain information
about our operations and our performance
under the CRA. You may review today the
public section of our most recent CRA
evaluation, prepared by the FDIC, and a list
of services provided at this branch. You may
also have access to the following additional
information, which we will make available to
you at this branch within five calendar days
after you make a request to us: (1) a map
showing the assessment area containing this
branch, which is the area in which the FDIC
evaluates our CRA performance in this
community; (2) information about our
branches in this assessment area; (3) a list of
services we provide at those locations; (4)
data on our lending performance in this
assessment area; and (5) copies of all written
comments received by us that specifically
relate to our CRA performance in this
assessment area, and any responses we have
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
made to those comments. If we are operating
under an approved strategic plan, you may
also have access to a copy of the plan.
[If you would like to review information
about our CRA performance in other
communities served by us, the public file for
our entire bank is available at (name of office
located in state), located at (address).]
At least 30 days before the beginning of
each calendar quarter, the FDIC publishes a
nationwide list of the banks that are
scheduled for CRA examination for the next
two quarters. This list is available from the
Regional Director, FDIC (address). You may
send written comments about our
performance in helping to meet community
credit needs to (name and address of official
at bank) and the FDIC Regional Director. You
may also submit comments electronically
through the FDIC’s website at www.fdic.gov/
regulations/cra. Your letter, together with
any response by us, will be considered by the
FDIC in evaluating our CRA performance and
may be made public.
You may ask to look at any comments
received by the FDIC Regional Director. You
may also request from the FDIC Regional
Director an announcement of our
applications covered by the CRA filed with
the FDIC. [We are an affiliate of (name of
holding company), a bank holding company.
You may request from the (title of
responsible official), Federal Reserve Bank of
llllll_(address) an announcement of
applications covered by the CRA filed by
bank holding companies.]
75. Effective April 1, 2024, through
January 1, 2031, add appendix G to read
as follows:
■
Appendix G to Part 345—Community
Reinvestment Regulations
Note: The content of this appendix
reproduces part 345 implementing the
Community Reinvestment Act as of March
31, 2024. Cross-references to CFR parts (as
well as to included sections, subparts, and
appendices) in this appendix are to those
provisions as contained within this appendix
and the CFR as of March 31, 2024.
PART 345—COMMUNITY
REINVESTMENT
Subpart A—General
§ 345.11
Authority, purposes, and scope.
(a) Authority and OMB control
number—(1) Authority. The authority
for this part is 12 U.S.C. 1814–1817,
1819–1820, 1828, 1831u and 2901–
2907, 3103–3104, and 3108(a).
(2) OMB control number. The
information collection requirements
contained in this part were approved by
the Office of Management and Budget
under the provisions of 44 U.S.C. 3501
et seq. and have been assigned OMB
control number 3064–0092.
(b) Purposes. In enacting the
Community Reinvestment Act (CRA),
the Congress required each appropriate
Federal financial supervisory agency to
PO 00000
Frm 00638
Fmt 4701
Sfmt 4700
assess an institution’s record of helping
to meet the credit needs of the local
communities in which the institution is
chartered, consistent with the safe and
sound operation of the institution, and
to take this record into account in the
agency’s evaluation of an application for
a deposit facility by the institution. This
part is intended to carry out the
purposes of the CRA by:
(1) Establishing the framework and
criteria by which the Federal Deposit
Insurance Corporation (FDIC) assesses a
bank’s record of helping to meet the
credit needs of its entire community,
including low- and moderate-income
neighborhoods, consistent with the safe
and sound operation of the bank; and
(2) Providing that the FDIC takes that
record into account in considering
certain applications.
(c) Scope—(1) General. Except for
certain special purpose banks described
in paragraph (c)(3) of this section, this
part applies to all insured State
nonmember banks, including insured
State branches as described in
paragraph (c)(2) and any uninsured
State branch that results from an
acquisition described in section 5(a)(8)
of the International Banking Act of 1978
(12 U.S.C. 3103(a)(8)).
(2) Insured State branches. Insured
State branches are branches of a foreign
bank established and operating under
the laws of any State, the deposits of
which are insured in accordance with
the provisions of the Federal Deposit
Insurance Act. In the case of insured
State branches, references in this part to
main office mean the principal branch
within the United States and the term
branch or branches refers to any insured
State branch or branches located within
the United States. The assessment area
of an insured State branch is the
community or communities located
within the United States served by the
branch as described in § 345.41.
(3) Certain special purpose banks.
This part does not apply to special
purpose banks that do not perform
commercial or retail banking services by
granting credit to the public in the
ordinary course of business, other than
as incident to their specialized
operations. These banks include
banker’s banks, as defined in 12 U.S.C.
24(Seventh), and banks that engage only
in one or more of the following
activities: providing cash management
controlled disbursement services or
serving as correspondent banks, trust
companies, or clearing agents.
§ 345.12
Definitions.
For purposes of this part, the
following definitions apply:
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(a) Affiliate means any company that
controls, is controlled by, or is under
common control with another company.
The term control has the meaning given
to that term in 12 U.S.C. 1841(a)(2), and
a company is under common control
with another company if both
companies are directly or indirectly
controlled by the same company.
(b) Area median income means:
(1) The median family income for the
MSA, if a person or geography is located
in an MSA, or for the metropolitan
division, if a person or geography is
located in an MSA that has been
subdivided into metropolitan divisions;
or
(2) The statewide nonmetropolitan
median family income, if a person or
geography is located outside an MSA.
(c) Assessment area means a
geographic area delineated in
accordance with § 345.41.
(d) Remote Service Facility (RSF)
means an automated, unstaffed banking
facility owned or operated by, or
operated exclusively for, the bank, such
as an automated teller machine, cash
dispensing machine, point-of-sale
terminal, or other remote electronic
facility, at which deposits are received,
cash dispersed, or money lent.
(e) Bank means a State nonmember
bank, as that term is defined in section
3(e)(2) of the Federal Deposit Insurance
Act, as amended (FDIA) (12 U.S.C.
1813(e)(2)), with Federally insured
deposits, except as provided in
§ 345.11(c). The term bank also includes
an insured State branch as defined in
§ 345.11(c).
(f) Branch means a staffed banking
facility authorized as a branch, whether
shared or unshared, including, for
example, a mini-branch in a grocery
store or a branch operated in
conjunction with any other local
business or nonprofit organization. The
term ‘‘branch’’ only includes a
‘‘domestic branch’’ as that term is
defined in section 3(o) of the FDIA (12
U.S.C. 1813(o)).
(g) Community development means:
(1) Affordable housing (including
multifamily rental housing) for low- or
moderate-income individuals;
(2) Community services targeted to
low- or moderate-income individuals;
(3) Activities that promote economic
development by financing businesses or
farms that meet the size eligibility
standards of the Small Business
Administration’s Development
Company or Small Business Investment
Company programs (13 CFR 121.301) or
have gross annual revenues of $1
million or less; or
(4) Activities that revitalize or
stabilize—
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
(i) Low-or moderate-income
geographies;
(ii) Designated disaster areas; or
(iii) Distressed or underserved
nonmetropolitan middle-income
geographies designated by the Board of
Governors of the Federal Reserve
System, FDIC, and Office of the
Comptroller of the Currency, based on—
(A) Rates of poverty, unemployment,
and population loss; or
(B) Population size, density, and
dispersion. Activities revitalize and
stabilize geographies designated based
on population size, density, and
dispersion if they help to meet essential
community needs, including needs of
low- and moderate-income individuals.
(h) Community development loan
means a loan that:
(1) Has as its primary purpose
community development; and
(2) Except in the case of a wholesale
or limited purpose bank:
(i) Has not been reported or collected
by the bank or an affiliate for
consideration in the bank’s assessment
as a home mortgage, small business,
small farm, or consumer loan, unless the
loan is for a multifamily dwelling (as
defined in § 1003.2(n) of this title); and
(ii) Benefits the bank’s assessment
area(s) or a broader statewide or regional
area that includes the bank’s assessment
area(s).
(i) Community development service
means a service that:
(1) Has as its primary purpose
community development;
(2) Is related to the provision of
financial services; and
(3) Has not been considered in the
evaluation of the bank’s retail banking
services under § 345.24(d).
(j) Consumer loan means a loan to one
or more individuals for household,
family, or other personal expenditures.
A consumer loan does not include a
home mortgage, small business, or small
farm loan. Consumer loans include the
following categories of loans:
(1) Motor vehicle loan, which is a
consumer loan extended for the
purchase of and secured by a motor
vehicle;
(2) Credit card loan, which is a line
of credit for household, family, or other
personal expenditures that is accessed
by a borrower’s use of a ‘‘credit card,’’
as this term is defined in § 1026.2 of
this title;
(3) Other secured consumer loan,
which is a secured consumer loan that
is not included in one of the other
categories of consumer loans; and
(4) Other unsecured consumer loan,
which is an unsecured consumer loan
that is not included in one of the other
categories of consumer loans.
PO 00000
Frm 00639
Fmt 4701
Sfmt 4700
7211
(k) Geography means a census tract
delineated by the United States Bureau
of the Census in the most recent
decennial census.
(l) Home mortgage loan means a
closed-end mortgage loan or an openend line of credit as these terms are
defined under § 1003.2 of this title and
that is not an excluded transaction
under § 1003.3(c)(1) through (10) and
(13) of this title.
(m) Income level includes:
(1) Low-income, which means an
individual income that is less than 50
percent of the area median income or a
median family income that is less than
50 percent in the case of a geography.
(2) Moderate-income, which means an
individual income that is at least 50
percent and less than 80 percent of the
area median income or a median family
income that is at least 50 and less than
80 percent in the case of a geography.
(3) Middle-income, which means an
individual income that is at least 80
percent and less than 120 percent of the
area median income or a median family
income that is at least 80 and less than
120 percent in the case of a geography.
(4) Upper-income, which means an
individual income that is 120 percent or
more of the area median income or a
median family income that is 120
percent or more in the case of a
geography.
(n) Limited purpose bank means a
bank that offers only a narrow product
line (such as credit card or motor
vehicle loans) to a regional or broader
market and for which a designation as
a limited purpose bank is in effect, in
accordance with § 345.25(b).
(o) Loan location. A loan is located as
follows:
(1) A consumer loan is located in the
geography where the borrower resides;
(2) A home mortgage loan is located
in the geography where the property to
which the loan relates is located; and
(3) A small business or small farm
loan is located in the geography where
the main business facility or farm is
located or where the loan proceeds
otherwise will be applied, as indicated
by the borrower.
(p) Loan production office means a
staffed facility, other than a branch, that
is open to the public and that provides
lending-related services, such as loan
information and applications.
(q) Metropolitan division means a
metropolitan division as defined by the
Director of the Office of Management
and Budget.
(r) MSA means a metropolitan
statistical area as defined by the Director
of the Office of Management and
Budget.
E:\FR\FM\01FER2.SGM
01FER2
7212
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(s) Nonmetropolitan area means any
area that is not located in an MSA.
(t) Qualified investment means a
lawful investment, deposit, membership
share, or grant that has as its primary
purpose community development.
(u) Small bank—(1) Definition. Small
bank means a bank that, as of December
31 of either of the prior two calendar
years, had assets of less than $1.503
billion. Intermediate small bank means
a small bank with assets of at least $376
million as of December 31 of both of the
prior two calendar years and less than
$1.503 billion as of December 31 of
either of the prior two calendar years.
(2) Adjustment. The dollar figures in
paragraph (u)(1) of this section shall be
adjusted annually and published by the
FDIC, based on the year-to-year change
in the average of the Consumer Price
Index for Urban Wage Earners and
Clerical Workers, not seasonally
adjusted, for each twelve-month period
ending in November, with rounding to
the nearest million.
(v) Small business loan means a loan
included in ‘‘loans to small businesses’’
as defined in the instructions for
preparation of the Consolidated Report
of Condition and Income.
(w) Small farm loan means a loan
included in ‘‘loans to small farms’’ as
defined in the instructions for
preparation of the Consolidated Report
of Condition and Income.
(x) Wholesale bank means a bank that
is not in the business of extending home
mortgage, small business, small farm, or
consumer loans to retail customers, and
for which a designation as a wholesale
bank is in effect, in accordance with
§ 345.25(b).
Subpart B—Standards for Assessing
Performance
ddrumheller on DSK120RN23PROD with RULES2
§ 345.21 Performance tests, standards,
and ratings, in general.
(a) Performance tests and standards.
The FDIC assesses the CRA performance
of a bank in an examination as follows:
(1) Lending, investment, and service
tests. The FDIC applies the lending,
investment, and service tests, as
provided in §§ 345.22 through 345.24,
in evaluating the performance of a bank,
except as provided in paragraphs (a)(2),
(a)(3), and (a)(4) of this section.
(2) Community development test for
wholesale or limited purpose banks. The
FDIC applies the community
development test for a wholesale or
limited purpose bank, as provided in
§ 345.25, except as provided in
paragraph (a)(4) of this section.
(3) Small bank performance
standards. The FDIC applies the small
bank performance standards as provided
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
in § 345.26 in evaluating the
performance of a small bank or a bank
that was a small bank during the prior
calendar year, unless the bank elects to
be assessed as provided in paragraphs
(a)(1), (a)(2), or (a)(4) of this section. The
bank may elect to be assessed as
provided in paragraph (a)(1) of this
section only if it collects and reports the
data required for other banks under
§ 345.42.
(4) Strategic plan. The FDIC evaluates
the performance of a bank under a
strategic plan if the bank submits, and
the FDIC approves, a strategic plan as
provided in § 345.27.
(b) Performance context. The FDIC
applies the tests and standards in
paragraph (a) of this section and also
considers whether to approve a
proposed strategic plan in the context
of:
(1) Demographic data on median
income levels, distribution of household
income, nature of housing stock,
housing costs, and other relevant data
pertaining to a bank’s assessment
area(s);
(2) Any information about lending,
investment, and service opportunities in
the bank’s assessment area(s)
maintained by the bank or obtained
from community organizations, state,
local, and tribal governments, economic
development agencies, or other sources;
(3) The bank’s product offerings and
business strategy as determined from
data provided by the bank;
(4) Institutional capacity and
constraints, including the size and
financial condition of the bank, the
economic climate (national, regional,
and local), safety and soundness
limitations, and any other factors that
significantly affect the bank’s ability to
provide lending, investments, or
services in its assessment area(s);
(5) The bank’s past performance and
the performance of similarly situated
lenders;
(6) The bank’s public file, as
described in § 345.43, and any written
comments about the bank’s CRA
performance submitted to the bank or
the FDIC; and
(7) Any other information deemed
relevant by the FDIC.
(c) Assigned ratings. The FDIC assigns
to a bank one of the following four
ratings pursuant to § 345.28 and
Appendix A of this part: ‘‘outstanding’’;
‘‘satisfactory’’; ‘‘needs to improve’’; or
‘‘substantial noncompliance’’ as
provided in 12 U.S.C. 2906(b)(2). The
rating assigned by the FDIC reflects the
bank’s record of helping to meet the
credit needs of its entire community,
including low- and moderate-income
PO 00000
Frm 00640
Fmt 4701
Sfmt 4700
neighborhoods, consistent with the safe
and sound operation of the bank.
(d) Safe and sound operations. This
part and the CRA do not require a bank
to make loans or investments or to
provide services that are inconsistent
with safe and sound operations. To the
contrary, the FDIC anticipates banks can
meet the standards of this part with safe
and sound loans, investments, and
services on which the banks expect to
make a profit. Banks are permitted and
encouraged to develop and apply
flexible underwriting standards for
loans that benefit low- or moderateincome geographies or individuals, only
if consistent with safe and sound
operations.
(e) Low-cost education loans provided
to low-income borrowers. In assessing
and taking into account the record of a
bank under this part, the FDIC
considers, as a factor, low-cost
education loans originated by the bank
to borrowers, particularly in its
assessment area(s), who have an
individual income that is less than 50
percent of the area median income. For
purposes of this paragraph, ‘‘low-cost
education loans’’ means any education
loan, as defined in section 140(a)(7) of
the Truth in Lending Act (15 U.S.C.
1650(a)(7)) (including a loan under a
state or local education loan program),
originated by the bank for a student at
an ‘‘institution of higher education,’’ as
that term is generally defined in
sections 101 and 102 of the Higher
Education Act of 1965 (20 U.S.C. 1001
and 1002) and the implementing
regulations published by the U.S.
Department of Education, with interest
rates and fees no greater than those of
comparable education loans offered
directly by the U.S. Department of
Education. Such rates and fees are
specified in section 455 of the Higher
Education Act of 1965 (20 U.S.C.
1087e).
(f) Activities in cooperation with
minority- or women-owned financial
institutions and low-income credit
unions. In assessing and taking into
account the record of a nonminorityowned and nonwomen-owned bank
under this part, the FDIC considers as a
factor capital investment, loan
participation, and other ventures
undertaken by the bank in cooperation
with minority- and women-owned
financial institutions and low-income
credit unions. Such activities must help
meet the credit needs of local
communities in which the minorityand women-owned financial
institutions and low-income credit
unions are chartered. To be considered,
such activities need not also benefit the
bank’s assessment area(s) or the broader
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
statewide or regional area that includes
the bank’s assessment area(s).
ddrumheller on DSK120RN23PROD with RULES2
§ 345.22
Lending test.
(a) Scope of test. (1) The lending test
evaluates a bank’s record of helping to
meet the credit needs of its assessment
area(s) through its lending activities by
considering a bank’s home mortgage,
small business, small farm, and
community development lending. If
consumer lending constitutes a
substantial majority of a bank’s
business, the FDIC will evaluate the
bank’s consumer lending in one or more
of the following categories: motor
vehicle, credit card, other secured, and
other unsecured loans. In addition, at a
bank’s option, the FDIC will evaluate
one or more categories of consumer
lending, if the bank has collected and
maintained, as required in
§ 345.42(c)(1), the data for each category
that the bank elects to have the FDIC
evaluate.
(2) The FDIC considers originations
and purchases of loans. The FDIC will
also consider any other loan data the
bank may choose to provide, including
data on loans outstanding, commitments
and letters of credit.
(3) A bank may ask the FDIC to
consider loans originated or purchased
by consortia in which the bank
participates or by third parties in which
the bank has invested only if the loans
meet the definition of community
development loans and only in
accordance with paragraph (d) of this
section. The FDIC will not consider
these loans under any criterion of the
lending test except the community
development lending criterion.
(b) Performance criteria. The FDIC
evaluates a bank’s lending performance
pursuant to the following criteria:
(1) Lending activity. The number and
amount of the bank’s home mortgage,
small business, small farm, and
consumer loans, if applicable, in the
bank’s assessment area(s);
(2) Geographic distribution. The
geographic distribution of the bank’s
home mortgage, small business, small
farm, and consumer loans, if applicable,
based on the loan location, including:
(i) The proportion of the bank’s
lending in the bank’s assessment area(s);
(ii) The dispersion of lending in the
bank’s assessment area(s); and
(iii) The number and amount of loans
in low-, moderate-, middle-, and upperincome geographies in the bank’s
assessment area(s);
(3) Borrower characteristics. The
distribution, particularly in the bank’s
assessment area(s), of the bank’s home
mortgage, small business, small farm,
and consumer loans, if applicable, based
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
on borrower characteristics, including
the number and amount of:
(i) Home mortgage loans to low-,
moderate-, middle-, and upper-income
individuals;
(ii) Small business and small farm
loans to businesses and farms with gross
annual revenues of $1 million or less;
(iii) Small business and small farm
loans by loan amount at origination; and
(iv) Consumer loans, if applicable, to
low-, moderate-, middle-, and upperincome individuals;
(4) Community development lending.
The bank’s community development
lending, including the number and
amount of community development
loans, and their complexity and
innovativeness; and
(5) Innovative or flexible lending
practices. The bank’s use of innovative
or flexible lending practices in a safe
and sound manner to address the credit
needs of low- or moderate-income
individuals or geographies.
(c) Affiliate lending. (1) At a bank’s
option, the FDIC will consider loans by
an affiliate of the bank, if the bank
provides data on the affiliate’s loans
pursuant to § 345.42.
(2) The FDIC considers affiliate
lending subject to the following
constraints:
(i) No affiliate may claim a loan
origination or loan purchase if another
institution claims the same loan
origination or purchase; and
(ii) If a bank elects to have the FDIC
consider loans within a particular
lending category made by one or more
of the bank’s affiliates in a particular
assessment area, the bank shall elect to
have the FDIC consider, in accordance
with paragraph (c)(1) of this section, all
the loans within that lending category in
that particular assessment area made by
all of the bank’s affiliates.
(3) The FDIC does not consider
affiliate lending in assessing a bank’s
performance under paragraph (b)(2)(i) of
this section.
(d) Lending by a consortium or a third
party. Community development loans
originated or purchased by a consortium
in which the bank participates or by a
third party in which the bank has
invested:
(1) Will be considered, at the bank’s
option, if the bank reports the data
pertaining to these loans under
§ 345.42(b)(2); and
(2) May be allocated among
participants or investors, as they choose,
for purposes of the lending test, except
that no participant or investor:
(i) May claim a loan origination or
loan purchase if another participant or
investor claims the same loan
origination or purchase; or
PO 00000
Frm 00641
Fmt 4701
Sfmt 4700
7213
(ii) May claim loans accounting for
more than its percentage share (based on
the level of its participation or
investment) of the total loans originated
by the consortium or third party.
(e) Lending performance rating. The
FDIC rates a bank’s lending performance
as provided in Appendix A of this part.
§ 345.23
Investment test.
(a) Scope of test. The investment test
evaluates a bank’s record of helping to
meet the credit needs of its assessment
area(s) through qualified investments
that benefit its assessment area(s) or a
broader statewide or regional area that
includes the bank’s assessment area(s).
(b) Exclusion. Activities considered
under the lending or service tests may
not be considered under the investment
test.
(c) Affiliate investment. At a bank’s
option, the FDIC will consider, in its
assessment of a bank’s investment
performance, a qualified investment
made by an affiliate of the bank, if the
qualified investment is not claimed by
any other institution.
(d) Disposition of branch premises.
Donating, selling on favorable terms, or
making available on a rent-free basis a
branch of the bank that is located in a
predominantly minority neighborhood
to a minority depository institution or
women’s depository institution (as these
terms are defined in 12 U.S.C. 2907(b))
will be considered as a qualified
investment.
(e) Performance criteria. The FDIC
evaluates the investment performance of
a bank pursuant to the following
criteria:
(1) The dollar amount of qualified
investments;
(2) The innovativeness or complexity
of qualified investments;
(3) The responsiveness of qualified
investments to credit and community
development needs; and
(4) The degree to which the qualified
investments are not routinely provided
by private investors.
(f) Investment performance rating.
The FDIC rates a bank’s investment
performance as provided in Appendix A
of this part.
§ 345.24
Service test.
(a) Scope of test. The service test
evaluates a bank’s record of helping to
meet the credit needs of its assessment
area(s) by analyzing both the availability
and effectiveness of a bank’s systems for
delivering retail banking services and
the extent and innovativeness of its
community development services.
(b) Area(s) benefited. Community
development services must benefit a
bank’s assessment area(s) or a broader
E:\FR\FM\01FER2.SGM
01FER2
7214
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
statewide or regional area that includes
the bank’s assessment area(s).
(c) Affiliate service. At a bank’s
option, the FDIC will consider, in its
assessment of a bank’s service
performance, a community development
service provided by an affiliate of the
bank, if the community development
service is not claimed by any other
institution.
(d) Performance criteria—retail
banking services. The FDIC evaluates
the availability and effectiveness of a
bank’s systems for delivering retail
banking services, pursuant to the
following criteria:
(1) The current distribution of the
bank’s branches among low-, moderate, middle-, and upper-income
geographies;
(2) In the context of its current
distribution of the bank’s branches, the
bank’s record of opening and closing
branches, particularly branches located
in low- or moderate-income geographies
or primarily serving low- or moderateincome individuals;
(3) The availability and effectiveness
of alternative systems for delivering
retail banking services (e.g., RSFs, RSFs
not owned or operated by or exclusively
for the bank, banking by telephone or
computer, loan production offices, and
bank-at-work or bank-by-mail programs)
in low- and moderate-income
geographies and to low- and moderateincome individuals; and
(4) The range of services provided in
low-, moderate-, middle-, and upperincome geographies and the degree to
which the services are tailored to meet
the needs of those geographies.
(e) Performance criteria—community
development services. The FDIC
evaluates community development
services pursuant to the following
criteria:
(1) The extent to which the bank
provides community development
services; and
(2) The innovativeness and
responsiveness of community
development services.
(f) Service performance rating. The
FDIC rates a bank’s service performance
as provided in Appendix A of this part.
ddrumheller on DSK120RN23PROD with RULES2
§ 345.25 Community development test for
wholesale or limited purpose banks.
(a) Scope of test. The FDIC assesses a
wholesale or limited purpose bank’s
record of helping to meet the credit
needs of its assessment area(s) under the
community development test through
its community development lending,
qualified investments, or community
development services.
(b) Designation as a wholesale or
limited purpose bank. In order to
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
receive a designation as a wholesale or
limited purpose bank, a bank shall file
a request, in writing, with the FDIC, at
least three months prior to the proposed
effective date of the designation. If the
FDIC approves the designation, it
remains in effect until the bank requests
revocation of the designation or until
one year after the FDIC notifies the bank
that the FDIC has revoked the
designation on its own initiative.
(c) Performance criteria. The FDIC
evaluates the community development
performance of a wholesale or limited
purpose bank pursuant to the following
criteria:
(1) The number and amount of
community development loans
(including originations and purchases of
loans and other community
development loan data provided by the
bank, such as data on loans outstanding,
commitments, and letters of credit),
qualified investments, or community
development services;
(2) The use of innovative or complex
qualified investments, community
development loans, or community
development services and the extent to
which the investments are not routinely
provided by private investors; and
(3) The bank’s responsiveness to
credit and community development
needs.
(d) Indirect activities. At a bank’s
option, the FDIC will consider in its
community development performance
assessment:
(1) Qualified investments or
community development services
provided by an affiliate of the bank, if
the investments or services are not
claimed by any other institution; and
(2) Community development lending
by affiliates, consortia and third parties,
subject to the requirements and
limitations in § 345.22 (c) and (d).
(e) Benefit to assessment area(s)—(1)
Benefit inside assessment area(s). The
FDIC considers all qualified
investments, community development
loans, and community development
services that benefit areas within the
bank’s assessment area(s) or a broader
statewide or regional area that includes
the bank’s assessment area(s).
(2) Benefit outside assessment area(s).
The FDIC considers the qualified
investments, community development
loans, and community development
services that benefit areas outside the
bank’s assessment area(s), if the bank
has adequately addressed the needs of
its assessment area(s).
(f) Community development
performance rating. The FDIC rates a
bank’s community development
performance as provided in Appendix A
of this part.
PO 00000
Frm 00642
Fmt 4701
Sfmt 4700
§ 345.26 Small bank performance
standards.
(a) Performance criteria—(1) Small
banks that are not intermediate small
banks. The FDIC evaluates the record of
a small bank that is not, or that was not
during the prior calendar year, an
intermediate small bank, of helping to
meet the credit needs of its assessment
area(s) pursuant to the criteria set forth
in paragraph (b) of this section.
(2) Intermediate small banks. The
FDIC evaluates the record of a small
bank that is, or that was during the prior
calendar year, an intermediate small
bank, of helping to meet the credit
needs of its assessment area(s) pursuant
to the criteria set forth in paragraphs (b)
and (c) of this section.
(b) Lending test. A small bank’s
lending performance is evaluated
pursuant to the following criteria:
(1) The bank’s loan-to-deposit ratio,
adjusted for seasonal variation, and, as
appropriate, other lending-related
activities, such as loan originations for
sale to the secondary markets,
community development loans, or
qualified investments;
(2) The percentage of loans and, as
appropriate, other lending-related
activities located in the bank’s
assessment area(s);
(3) The bank’s record of lending to
and, as appropriate, engaging in other
lending-related activities for borrowers
of different income levels and
businesses and farms of different sizes;
(4) The geographic distribution of the
bank’s loans; and
(5) The bank’s record of taking action,
if warranted, in response to written
complaints about its performance in
helping to meet credit needs in its
assessment area(s).
(c) Community development test. An
intermediate small bank’s community
development performance also is
evaluated pursuant to the following
criteria:
(1) The number and amount of
community development loans;
(2) The number and amount of
qualified investments;
(3) The extent to which the bank
provides community development
services; and
(4) The bank’s responsiveness through
such activities to community
development lending, investment, and
services needs.
(d) Small bank performance rating.
The FDIC rates the performance of a
bank evaluated under this section as
provided in appendix A of this part.
§ 345.27
Strategic plan.
(a) Alternative election. The FDIC will
assess a bank’s record of helping to meet
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
the credit needs of its assessment area(s)
under a strategic plan if:
(1) The bank has submitted the plan
to the FDIC as provided for in this
section;
(2) The FDIC has approved the plan;
(3) The plan is in effect; and
(4) The bank has been operating under
an approved plan for at least one year.
(b) Data reporting. The FDIC’s
approval of a plan does not affect the
bank’s obligation, if any, to report data
as required by § 345.42.
(c) Plans in general—(1) Term. A plan
may have a term of no more than five
years, and any multi-year plan must
include annual interim measurable
goals under which the FDIC will
evaluate the bank’s performance.
(2) Multiple assessment areas. A bank
with more than one assessment area
may prepare a single plan for all of its
assessment areas or one or more plans
for one or more of its assessment areas.
(3) Treatment of affiliates. Affiliated
institutions may prepare a joint plan if
the plan provides measurable goals for
each institution. Activities may be
allocated among institutions at the
institutions’ option, provided that the
same activities are not considered for
more than one institution.
(d) Public participation in plan
development. Before submitting a plan
to the FDIC for approval, a bank shall:
(1) Informally seek suggestions from
members of the public in its assessment
area(s) covered by the plan while
developing the plan;
(2) Once the bank has developed a
plan, formally solicit public comment
on the plan for at least 30 days by
publishing notice in at least one
newspaper of general circulation in each
assessment area covered by the plan;
and
(3) During the period of formal public
comment, make copies of the plan
available for review by the public at no
cost at all offices of the bank in any
assessment area covered by the plan and
provide copies of the plan upon request
for a reasonable fee to cover copying
and mailing, if applicable.
(e) Submission of plan. The bank shall
submit its plan to the FDIC at least three
months prior to the proposed effective
date of the plan. The bank shall also
submit with its plan a description of its
informal efforts to seek suggestions from
members of the public, any written
public comment received, and, if the
plan was revised in light of the
comment received, the initial plan as
released for public comment.
(f) Plan content—(1) Measurable
goals. (i) A bank shall specify in its plan
measurable goals for helping to meet the
credit needs of each assessment area
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
covered by the plan, particularly the
needs of low- and moderate-income
geographies and low- and moderateincome individuals, through lending,
investment, and services, as
appropriate.
(ii) A bank shall address in its plan all
three performance categories and,
unless the bank has been designated as
a wholesale or limited purpose bank,
shall emphasize lending and lendingrelated activities. Nevertheless, a
different emphasis, including a focus on
one or more performance categories,
may be appropriate if responsive to the
characteristics and credit needs of its
assessment area(s), considering public
comment and the bank’s capacity and
constraints, product offerings, and
business strategy.
(2) Confidential information. A bank
may submit additional information to
the FDIC on a confidential basis, but the
goals stated in the plan must be
sufficiently specific to enable the public
and the FDIC to judge the merits of the
plan.
(3) Satisfactory and outstanding goals.
A bank shall specify in its plan
measurable goals that constitute
‘‘satisfactory’’ performance. A plan may
specify measurable goals that constitute
‘‘outstanding’’ performance. If a bank
submits, and the FDIC approves, both
‘‘satisfactory’’ and ‘‘outstanding’’
performance goals, the FDIC will
consider the bank eligible for an
‘‘outstanding’’ performance rating.
(4) Election if satisfactory goals not
substantially met. A bank may elect in
its plan that, if the bank fails to meet
substantially its plan goals for a
satisfactory rating, the FDIC will
evaluate the bank’s performance under
the lending, investment, and service
tests, the community development test,
or the small bank performance
standards, as appropriate.
(g) Plan approval—(1) Timing. The
FDIC will act upon a plan within 60
calendar days after the FDIC receives
the complete plan and other material
required under paragraph (e) of this
section. If the FDIC fails to act within
this time period, the plan shall be
deemed approved unless the FDIC
extends the review period for good
cause.
(2) Public participation. In evaluating
the plan’s goals, the FDIC considers the
public’s involvement in formulating the
plan, written public comment on the
plan, and any response by the bank to
public comment on the plan.
(3) Criteria for evaluating plan. The
FDIC evaluates a plan’s measurable
goals using the following criteria, as
appropriate:
PO 00000
Frm 00643
Fmt 4701
Sfmt 4700
7215
(i) The extent and breadth of lending
or lending-related activities, including,
as appropriate, the distribution of loans
among different geographies, businesses
and farms of different sizes, and
individuals of different income levels,
the extent of community development
lending, and the use of innovative or
flexible lending practices to address
credit needs;
(ii) The amount and innovativeness,
complexity, and responsiveness of the
bank’s qualified investments; and
(iii) The availability and effectiveness
of the bank’s systems for delivering
retail banking services and the extent
and innovativeness of the bank’s
community development services.
(h) Plan amendment. During the term
of a plan, a bank may request the FDIC
to approve an amendment to the plan on
grounds that there has been a material
change in circumstances. The bank shall
develop an amendment to a previously
approved plan in accordance with the
public participation requirements of
paragraph (d) of this section.
(i) Plan assessment. The FDIC
approves the goals and assesses
performance under a plan as provided
for in Appendix A of this part.
§ 345.28
Assigned ratings.
(a) Ratings in general. Subject to
paragraphs (b) and (c) of this section,
the FDIC assigns to a bank a rating of
‘‘outstanding,’’ ‘‘satisfactory,’’ ‘‘needs to
improve,’’ or ‘‘substantial
noncompliance’’ based on the bank’s
performance under the lending,
investment and service tests, the
community development test, the small
bank performance standards, or an
approved strategic plan, as applicable.
(b) Lending, investment, and service
tests. The FDIC assigns a rating for a
bank assessed under the lending,
investment, and service tests in
accordance with the following
principles:
(1) A bank that receives an
‘‘outstanding’’ rating on the lending test
receives an assigned rating of at least
‘‘satisfactory’’;
(2) A bank that receives an
‘‘outstanding’’ rating on both the service
test and the investment test and a rating
of at least ‘‘high satisfactory’’ on the
lending test receives an assigned rating
of ‘‘outstanding’’; and
(3) No bank may receive an assigned
rating of ‘‘satisfactory’’ or higher unless
it receives a rating of at least ‘‘low
satisfactory’’ on the lending test.
(c) Effect of evidence of
discriminatory or other illegal credit
practices. (1) The FDIC’s evaluation of a
bank’s CRA performance is adversely
affected by evidence of discriminatory
E:\FR\FM\01FER2.SGM
01FER2
7216
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
or other illegal credit practices in any
geography by the bank or in any
assessment area by any affiliate whose
loans have been considered as part of
the bank’s lending performance. In
connection with any type of lending
activity described in § 345.22(a),
evidence of discriminatory or other
credit practices that violate an
applicable law, rule, or regulation
includes, but is not limited to:
(i) Discrimination against applicants
on a prohibited basis in violation, for
example, of the Equal Credit
Opportunity Act or the Fair Housing
Act;
(ii) Violations of the Home Ownership
and Equity Protection Act;
(iii) Violations of section 5 of the
Federal Trade Commission Act;
(iv) Violations of section 8 of the Real
Estate Settlement Procedures Act; and
(v) Violations of the Truth in Lending
Act provisions regarding a consumer’s
right of rescission.
(2) In determining the effect of
evidence of practices described in
paragraph (c)(1) of this section on the
bank’s assigned rating, the FDIC
considers the nature, extent, and
strength of the evidence of the practices;
the policies and procedures that the
bank (or affiliate, as applicable) has in
place to prevent the practices; any
corrective action that the bank (or
affiliate, as applicable) has taken or has
committed to take, including voluntary
corrective action resulting from selfassessment; and any other relevant
information.
ddrumheller on DSK120RN23PROD with RULES2
§ 345.29 Effect of CRA performance on
applications.
(a) CRA performance. Among other
factors, the FDIC takes into account the
record of performance under the CRA of
each applicant bank in considering an
application for approval of:
(1) The establishment of a domestic
branch or other facility with the ability
to accept deposits;
(2) The relocation of the bank’s main
office or a branch;
(3) The merger, consolidation,
acquisition of assets, or assumption of
liabilities; and
(4) Deposit insurance for a newly
chartered financial institution.
(b) New financial institutions. A
newly chartered financial institution
shall submit with its application for
deposit insurance a description of how
it will meet its CRA objectives. The
FDIC takes the description into account
in considering the application and may
deny or condition approval on that
basis.
(c) Interested parties. The FDIC takes
into account any views expressed by
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
interested parties that are submitted in
accordance with the FDIC’s procedures
set forth in part 303 of this chapter in
considering CRA performance in an
application listed in paragraphs (a) and
(b) of this section.
(d) Denial or conditional approval of
application. A bank’s record of
performance may be the basis for
denying or conditioning approval of an
application listed in paragraph (a) of
this section.
Subpart C—Records, Reporting, and
Disclosure Requirements
§ 345.41
Assessment area delineation.
(a) In general. A bank shall delineate
one or more assessment areas within
which the FDIC evaluates the bank’s
record of helping to meet the credit
needs of its community. The FDIC does
not evaluate the bank’s delineation of its
assessment area(s) as a separate
performance criterion, but the FDIC
reviews the delineation for compliance
with the requirements of this section.
(b) Geographic area(s) for wholesale
or limited purpose banks. The
assessment area(s) for a wholesale or
limited purpose bank must consist
generally of one or more MSAs or
metropolitan divisions (using the MSA
or metropolitan division boundaries that
were in effect as of January 1 of the
calendar year in which the delineation
is made) or one or more contiguous
political subdivisions, such as counties,
cities, or towns, in which the bank has
its main office, branches, and deposittaking ATMs.
(c) Geographic area(s) for other banks.
The assessment area(s) for a bank other
than a wholesale or limited purpose
bank must:
(1) Consist generally of one or more
MSAs or metropolitan divisions (using
the MSA or metropolitan division
boundaries that were in effect as of
January 1 of the calendar year in which
the delineation is made) or one or more
contiguous political subdivisions, such
as counties, cities, or towns; and
(2) Include the geographies in which
the bank has its main office, its
branches, and its deposit-taking RSFs,
as well as the surrounding geographies
in which the bank has originated or
purchased a substantial portion of its
loans (including home mortgage loans,
small business and small farm loans,
and any other loans the bank chooses,
such as those consumer loans on which
the bank elects to have its performance
assessed).
(d) Adjustments to geographic area(s).
A bank may adjust the boundaries of its
assessment area(s) to include only the
portion of a political subdivision that it
PO 00000
Frm 00644
Fmt 4701
Sfmt 4700
reasonably can be expected to serve. An
adjustment is particularly appropriate in
the case of an assessment area that
otherwise would be extremely large, of
unusual configuration, or divided by
significant geographic barriers.
(e) Limitations on the delineation of
an assessment area. Each bank’s
assessment area(s):
(1) Must consist only of whole
geographies;
(2) May not reflect illegal
discrimination;
(3) May not arbitrarily exclude low- or
moderate-income geographies, taking
into account the bank’s size and
financial condition; and
(4) May not extend substantially
beyond an MSA boundary or beyond a
state boundary unless the assessment
area is located in a multistate MSA. If
a bank serves a geographic area that
extends substantially beyond a state
boundary, the bank shall delineate
separate assessment areas for the areas
in each state. If a bank serves a
geographic area that extends
substantially beyond an MSA boundary,
the bank shall delineate separate
assessment areas for the areas inside
and outside the MSA.
(f) Banks serving military personnel.
Notwithstanding the requirements of
this section, a bank whose business
predominantly consists of serving the
needs of military personnel or their
dependents who are not located within
a defined geographic area may delineate
its entire deposit customer base as its
assessment area.
(g) Use of assessment area(s). The
FDIC uses the assessment area(s)
delineated by a bank in its evaluation of
the bank’s CRA performance unless the
FDIC determines that the assessment
area(s) do not comply with the
requirements of this section.
§ 345.42 Data collection, reporting, and
disclosure.
(a) Loan information required to be
collected and maintained. A bank,
except a small bank, shall collect, and
maintain in machine readable form (as
prescribed by the FDIC) until the
completion of its next CRA
examination, the following data for each
small business or small farm loan
originated or purchased by the bank:
(1) A unique number or alphanumeric symbol that can be used to
identify the relevant loan file;
(2) The loan amount at origination;
(3) The loan location; and
(4) An indicator whether the loan was
to a business or farm with gross annual
revenues of $1 million or less.
(b) Loan information required to be
reported. A bank, except a small bank or
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
a bank that was a small bank during the
prior calendar year, shall report
annually by March 1 to the FDIC in
machine readable form (as prescribed by
the FDIC) the following data for the
prior calendar year:
(1) Small business and small farm
loan data. For each geography in which
the bank originated or purchased a
small business or small farm loan, the
aggregate number and amount of loans:
(i) With an amount at origination of
$100,000 or less;
(ii) With an amount at origination of
more than $100,000 but less than or
equal to $250,000;
(iii) With an amount at origination of
more than $250,000; and
(iv) To businesses and farms with
gross annual revenues of $1 million or
less (using the revenues that the bank
considered in making its credit
decision);
(2) Community development loan
data. The aggregate number and
aggregate amount of community
development loans originated or
purchased; and
(3) Home mortgage loans. If the bank
is subject to reporting under part 1003
of this title, the location of each home
mortgage loan application, origination,
or purchase outside the MSAs in which
the bank has a home or branch office (or
outside any MSA) in accordance with
the requirements of part 1003 of this
title.
(c) Optional data collection and
maintenance—(1) Consumer loans. A
bank may collect and maintain in
machine readable form (as prescribed by
the FDIC) data for consumer loans
originated or purchased by the bank for
consideration under the lending test. A
bank may maintain data for one or more
of the following categories of consumer
loans: motor vehicle, credit card, other
secured, and other unsecured. If the
bank maintains data for loans in a
certain category, it shall maintain data
for all loans originated or purchased
within that category. The bank shall
maintain data separately for each
category, including for each loan:
(i) A unique number or alpha-numeric
symbol that can be used to identify the
relevant loan file;
(ii) The loan amount at origination or
purchase;
(iii) The loan location; and
(iv) The gross annual income of the
borrower that the bank considered in
making its credit decision.
(2) Other loan data. At its option, a
bank may provide other information
concerning its lending performance,
including additional loan distribution
data.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
(d) Data on affiliate lending. A bank
that elects to have the FDIC consider
loans by an affiliate, for purposes of the
lending or community development test
or an approved strategic plan, shall
collect, maintain, and report for those
loans the data that the bank would have
collected, maintained, and reported
pursuant to paragraphs (a), (b), and (c)
of this section had the loans been
originated or purchased by the bank. For
home mortgage loans, the bank shall
also be prepared to identify the home
mortgage loans reported under part 1003
of this title by the affiliate.
(e) Data on lending by a consortium
or a third party. A bank that elects to
have the FDIC consider community
development loans by a consortium or
third party, for purposes of the lending
or community development tests or an
approved strategic plan, shall report for
those loans the data that the bank would
have reported under paragraph (b)(2) of
this section had the loans been
originated or purchased by the bank.
(f) Small banks electing evaluation
under the lending, investment, and
service tests. A bank that qualifies for
evaluation under the small bank
performance standards but elects
evaluation under the lending,
investment, and service tests shall
collect, maintain, and report the data
required for other banks pursuant to
paragraphs (a) and (b) of this section.
(g) Assessment area data. A bank,
except a small bank or a bank that was
a small bank during the prior calendar
year, shall collect and report to the FDIC
by March 1 of each year a list for each
assessment area showing the
geographies within the area.
(h) CRA Disclosure Statement. The
FDIC prepares annually for each bank
that reports data pursuant to this section
a CRA Disclosure Statement that
contains, on a state-by-state basis:
(1) For each county (and for each
assessment area smaller than a county)
with a population of 500,000 persons or
fewer in which the bank reported a
small business or small farm loan:
(i) The number and amount of small
business and small farm loans reported
as originated or purchased located in
low-, moderate-, middle-, and upperincome geographies;
(ii) A list grouping each geography
according to whether the geography is
low-, moderate-, middle-, or upperincome;
(iii) A list showing each geography in
which the bank reported a small
business or small farm loan; and
(iv) The number and amount of small
business and small farm loans to
businesses and farms with gross annual
revenues of $1 million or less;
PO 00000
Frm 00645
Fmt 4701
Sfmt 4700
7217
(2) For each county (and for each
assessment area smaller than a county)
with a population in excess of 500,000
persons in which the bank reported a
small business or small farm loan:
(i) The number and amount of small
business and small farm loans reported
as originated or purchased located in
geographies with median income
relative to the area median income of
less than 10 percent, 10 or more but less
than 20 percent, 20 or more but less
than 30 percent, 30 or more but less
than 40 percent, 40 or more but less
than 50 percent, 50 or more but less
than 60 percent, 60 or more but less
than 70 percent, 70 or more but less
than 80 percent, 80 or more but less
than 90 percent, 90 or more but less
than 100 percent, 100 or more but less
than 110 percent, 110 or more but less
than 120 percent, and 120 percent or
more;
(ii) A list grouping each geography in
the county or assessment area according
to whether the median income in the
geography relative to the area median
income is less than 10 percent, 10 or
more but less than 20 percent, 20 or
more but less than 30 percent, 30 or
more but less than 40 percent, 40 or
more but less than 50 percent, 50 or
more but less than 60 percent, 60 or
more but less than 70 percent, 70 or
more but less than 80 percent, 80 or
more but less than 90 percent, 90 or
more but less than 100 percent, 100 or
more but less than 110 percent, 110 or
more but less than 120 percent, and 120
percent or more;
(iii) A list showing each geography in
which the bank reported a small
business or small farm loan; and
(iv) The number and amount of small
business and small farm loans to
businesses and farms with gross annual
revenues of $1 million or less;
(3) The number and amount of small
business and small farm loans located
inside each assessment area reported by
the bank and the number and amount of
small business and small farm loans
located outside the assessment area(s)
reported by the bank; and
(4) The number and amount of
community development loans reported
as originated or purchased.
(i) Aggregate disclosure statements.
The FDIC, in conjunction with the
Board of Governors of the Federal
Reserve System and the Office of the
Comptroller of the Currency, prepares
annually, for each MSA or metropolitan
division (including an MSA or
metropolitan division that crosses a
state boundary) and the
nonmetropolitan portion of each state,
an aggregate disclosure statement of
small business and small farm lending
E:\FR\FM\01FER2.SGM
01FER2
7218
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
by all institutions subject to reporting
under this part or parts 25, 195, or 228
of this title. These disclosure statements
indicate, for each geography, the
number and amount of all small
business and small farm loans
originated or purchased by reporting
institutions, except that the FDIC may
adjust the form of the disclosure if
necessary, because of special
circumstances, to protect the privacy of
a borrower or the competitive position
of an institution.
(j) Central data depositories. The
FDIC makes the aggregate disclosure
statements, described in paragraph (i) of
this section, and the individual bank
CRA Disclosure Statements, described
in paragraph (h) of this section,
available to the public at central data
depositories. The FDIC publishes a list
of the depositories at which the
statements are available.
ddrumheller on DSK120RN23PROD with RULES2
§ 345.43
file.
Content and availability of public
(a) Information available to the
public. A bank shall maintain a public
file that includes the following
information:
(1) All written comments received
from the public for the current year and
each of the prior two calendar years that
specifically relate to the bank’s
performance in helping to meet
community credit needs, and any
response to the comments by the bank,
if neither the comments nor the
responses contain statements that reflect
adversely on the good name or
reputation of any persons other than the
bank or publication of which would
violate specific provisions of law;
(2) A copy of the public section of the
bank’s most recent CRA Performance
Evaluation prepared by the FDIC. The
bank shall place this copy in the public
file within 30 business days after its
receipt from the FDIC;
(3) A list of the bank’s branches, their
street addresses, and geographies;
(4) A list of branches opened or closed
by the bank during the current year and
each of the prior two calendar years,
their street addresses, and geographies;
(5) A list of services (including hours
of operation, available loan and deposit
products, and transaction fees) generally
offered at the bank’s branches and
descriptions of material differences in
the availability or cost of services at
particular branches, if any. At its option,
a bank may include information
regarding the availability of alternative
systems for delivering retail banking
services (e.g., RSFs, RSFs not owned or
operated by or exclusively for the bank,
banking by telephone or computer, loan
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
production offices, and bank-at-work or
bank-by-mail programs);
(6) A map of each assessment area
showing the boundaries of the area and
identifying the geographies contained
within the area, either on the map or in
a separate list; and
(7) Any other information the bank
chooses.
(b) Additional information available
to the public—(1) Banks other than
small banks. A bank, except a small
bank or a bank that was a small bank
during the prior calendar year, shall
include in its public file the following
information pertaining to the bank and
its affiliates, if applicable, for each of
the prior two calendar years:
(i) If the bank has elected to have one
or more categories of its consumer loans
considered under the lending test, for
each of these categories, the number and
amount of loans:
(A) To low-, moderate-, middle-, and
upper-income individuals;
(B) Located in low-, moderate-,
middle-, and upper-income census
tracts; and
(C) Located inside the bank’s
assessment area(s) and outside the
bank’s assessment area(s); and
(ii) The bank’s CRA Disclosure
Statement. The bank shall place the
statement in the public file within three
business days of its receipt from the
FDIC.
(2) Banks required to report Home
Mortgage Disclosure Act (HMDA) data.
A bank required to report home
mortgage loan data pursuant part 1003
of this title shall include in its public
file a written notice that the institution’s
HMDA Disclosure Statement may be
obtained on the Consumer Financial
Protection Bureau’s (Bureau’s) website
at www.consumerfinance.gov/hmda. In
addition, a bank that elected to have the
FDIC consider the mortgage lending of
an affiliate shall include in its public
file the name of the affiliate and a
written notice that the affiliate’s HMDA
Disclosure Statement may be obtained at
the Bureau’s website. The bank shall
place the written notice(s) in the public
file within three business days after
receiving notification from the Federal
Financial Institutions Examination
Council of the availability of the
disclosure statement(s).
(3) Small banks. A small bank or a
bank that was a small bank during the
prior calendar year shall include in its
public file:
(i) The bank’s loan-to-deposit ratio for
each quarter of the prior calendar year
and, at its option, additional data on its
loan-to-deposit ratio; and
(ii) The information required for other
banks by paragraph (b)(1) of this section,
PO 00000
Frm 00646
Fmt 4701
Sfmt 4700
if the bank has elected to be evaluated
under the lending, investment, and
service tests.
(4) Banks with strategic plans. A bank
that has been approved to be assessed
under a strategic plan shall include in
its public file a copy of that plan. A
bank need not include information
submitted to the FDIC on a confidential
basis in conjunction with the plan.
(5) Banks with less than satisfactory
ratings. A bank that received a less than
satisfactory rating during its most recent
examination shall include in its public
file a description of its current efforts to
improve its performance in helping to
meet the credit needs of its entire
community. The bank shall update the
description quarterly.
(c) Location of public information. A
bank shall make available to the public
for inspection upon request and at no
cost the information required in this
section as follows:
(1) At the main office and, if an
interstate bank, at one branch office in
each state, all information in the public
file; and
(2) At each branch:
(i) A copy of the public section of the
bank’s most recent CRA Performance
Evaluation and a list of services
provided by the branch; and
(ii) Within five calendar days of the
request, all the information in the public
file relating to the assessment area in
which the branch is located.
(d) Copies. Upon request, a bank shall
provide copies, either on paper or in
another form acceptable to the person
making the request, of the information
in its public file. The bank may charge
a reasonable fee not to exceed the cost
of copying and mailing (if applicable).
(e) Updating. Except as otherwise
provided in this section, a bank shall
ensure that the information required by
this section is current as of April 1 of
each year.
§ 345.44
Public notice by banks.
A bank shall provide in the public
lobby of its main office and each of its
branches the appropriate public notice
set forth in Appendix B of this part.
Only a branch of a bank having more
than one assessment area shall include
the bracketed material in the notice for
branch offices. Only a bank that is an
affiliate of a holding company shall
include the next to the last sentence of
the notices. A bank shall include the
last sentence of the notices only if it is
an affiliate of a holding company that is
not prevented by statute from acquiring
additional banks.
E:\FR\FM\01FER2.SGM
01FER2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
§ 345.45 Publication of planned
examination schedule.
The FDIC publishes at least 30 days
in advance of the beginning of each
calendar quarter a list of banks
scheduled for CRA examinations in that
quarter.
ddrumheller on DSK120RN23PROD with RULES2
Appendix A to Part 345—Ratings
(a) Ratings in general. (1) In assigning a
rating, the FDIC evaluates a bank’s
performance under the applicable
performance criteria in this part, in
accordance with §§ 345.21 and 345.28. This
includes consideration of low-cost education
loans provided to low-income borrowers and
activities in cooperation with minority- or
women-owned financial institutions and
low-income credit unions, as well as
adjustments on the basis of evidence of
discriminatory or other illegal credit
practices.
(2) A bank’s performance need not fit each
aspect of a particular rating profile in order
to receive that rating, and exceptionally
strong performance with respect to some
aspects may compensate for weak
performance in others. The bank’s overall
performance, however, must be consistent
with safe and sound banking practices and
generally with the appropriate rating profile
as follows.
(b) Banks evaluated under the lending,
investment, and service tests—(1) Lending
performance rating. The FDIC assigns each
bank’s lending performance one of the five
following ratings.
(i) Outstanding. The FDIC rates a bank’s
lending performance ‘‘outstanding’’ if, in
general, it demonstrates:
(A) Excellent responsiveness to credit
needs in its assessment area(s), taking into
account the number and amount of home
mortgage, small business, small farm, and
consumer loans, if applicable, in its
assessment area(s);
(B) A substantial majority of its loans are
made in its assessment area(s);
(C) An excellent geographic distribution of
loans in its assessment area(s);
(D) An excellent distribution, particularly
in its assessment area(s), of loans among
individuals of different income levels and
businesses (including farms) of different
sizes, given the product lines offered by the
bank;
(E) An excellent record of serving the
credit needs of highly economically
disadvantaged areas in its assessment area(s),
low-income individuals, or businesses
(including farms) with gross annual revenues
of $1 million or less, consistent with safe and
sound operations;
(F) Extensive use of innovative or flexible
lending practices in a safe and sound manner
to address the credit needs of low- or
moderate-income individuals or geographies;
and
(G) It is a leader in making community
development loans.
(ii) High satisfactory. The FDIC rates a
bank’s lending performance ‘‘high
satisfactory’’ if, in general, it demonstrates:
(A) Good responsiveness to credit needs in
its assessment area(s), taking into account the
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
number and amount of home mortgage, small
business, small farm, and consumer loans, if
applicable, in its assessment area(s);
(B) A high percentage of its loans are made
in its assessment area(s);
(C) A good geographic distribution of loans
in its assessment area(s);
(D) A good distribution, particularly in its
assessment area(s), of loans among
individuals of different income levels and
businesses (including farms) of different
sizes, given the product lines offered by the
bank;
(E) A good record of serving the credit
needs of highly economically disadvantaged
areas in its assessment area(s), low-income
individuals, or businesses (including farms)
with gross annual revenues of $1 million or
less, consistent with safe and sound
operations;
(F) Use of innovative or flexible lending
practices in a safe and sound manner to
address the credit needs of low- or moderateincome individuals or geographies; and
(G) It has made a relatively high level of
community development loans.
(iii) Low satisfactory. The FDIC rates a
bank’s lending performance ‘‘low
satisfactory’’ if, in general, it demonstrates:
(A) Adequate responsiveness to credit
needs in its assessment area(s), taking into
account the number and amount of home
mortgage, small business, small farm, and
consumer loans, if applicable, in its
assessment area(s);
(B) An adequate percentage of its loans are
made in its assessment area(s);
(C) An adequate geographic distribution of
loans in its assessment area(s);
(D) An adequate distribution, particularly
in its assessment area(s), of loans among
individuals of different income levels and
businesses (including farms) of different
sizes, given the product lines offered by the
bank;
(E) An adequate record of serving the credit
needs of highly economically disadvantaged
areas in its assessment area(s), low-income
individuals, or businesses (including farms)
with gross annual revenues of $1 million or
less, consistent with safe and sound
operations;
(F) Limited use of innovative or flexible
lending practices in a safe and sound manner
to address the credit needs of low- or
moderate-income individuals or geographies;
and
(G) It has made an adequate level of
community development loans.
(iv) Needs to improve. The FDIC rates a
bank’s lending performance ‘‘needs to
improve’’ if, in general, it demonstrates:
(A) Poor responsiveness to credit needs in
its assessment area(s), taking into account the
number and amount of home mortgage, small
business, small farm, and consumer loans, if
applicable, in its assessment area(s);
(B) A small percentage of its loans are
made in its assessment area(s);
(C) A poor geographic distribution of loans,
particularly to low- or moderate-income
geographies, in its assessment area(s);
(D) A poor distribution, particularly in its
assessment area(s), of loans among
individuals of different income levels and
businesses (including farms) of different
PO 00000
Frm 00647
Fmt 4701
Sfmt 4700
7219
sizes, given the product lines offered by the
bank;
(E) A poor record of serving the credit
needs of highly economically disadvantaged
areas in its assessment area(s), low-income
individuals, or businesses (including farms)
with gross annual revenues of $1 million or
less, consistent with safe and sound
operations;
(F) Little use of innovative or flexible
lending practices in a safe and sound manner
to address the credit needs of low- or
moderate-income individuals or geographies;
and
(G) It has made a low level of community
development loans.
(v) Substantial noncompliance. The FDIC
rates a bank’s lending performance as being
in ‘‘substantial noncompliance’’ if, in
general, it demonstrates:
(A) A very poor responsiveness to credit
needs in its assessment area(s), taking into
account the number and amount of home
mortgage, small business, small farm, and
consumer loans, if applicable, in its
assessment area(s);
(B) A very small percentage of its loans are
made in its assessment area(s);
(C) A very poor geographic distribution of
loans, particularly to low- or moderateincome geographies, in its assessment area(s);
(D) A very poor distribution, particularly in
its assessment area(s), of loans among
individuals of different income levels and
businesses (including farms) of different
sizes, given the product lines offered by the
bank;
(E) A very poor record of serving the credit
needs of highly economically disadvantaged
areas in its assessment area(s), low-income
individuals, or businesses (including farms)
with gross annual revenues of $1 million or
less, consistent with safe and sound
operations;
(F) No use of innovative or flexible lending
practices in a safe and sound manner to
address the credit needs of low- or moderateincome individuals or geographies; and
(G) It has made few, if any, community
development loans.
(2) Investment performance rating. The
FDIC assigns each bank’s investment
performance one of the five following ratings.
(i) Outstanding. The FDIC rates a bank’s
investment performance ‘‘outstanding’’ if, in
general, it demonstrates:
(A) An excellent level of qualified
investments, particularly those that are not
routinely provided by private investors, often
in a leadership position;
(B) Extensive use of innovative or complex
qualified investments; and
(C) Excellent responsiveness to credit and
community development needs.
(ii) High satisfactory. The FDIC rates a
bank’s investment performance ‘‘high
satisfactory’’ if, in general, it demonstrates:
(A) A significant level of qualified
investments, particularly those that are not
routinely provided by private investors,
occasionally in a leadership position;
(B) Significant use of innovative or
complex qualified investments; and
(C) Good responsiveness to credit and
community development needs.
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
7220
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
(iii) Low satisfactory. The FDIC rates a
bank’s investment performance ‘‘low
satisfactory’’ if, in general, it demonstrates:
(A) An adequate level of qualified
investments, particularly those that are not
routinely provided by private investors,
although rarely in a leadership position;
(B) Occasional use of innovative or
complex qualified investments; and
(C) Adequate responsiveness to credit and
community development needs.
(iv) Needs to improve. The FDIC rates a
bank’s investment performance ‘‘needs to
improve’’ if, in general, it demonstrates:
(A) A poor level of qualified investments,
particularly those that are not routinely
provided by private investors;
(B) Rare use of innovative or complex
qualified investments; and
(C) Poor responsiveness to credit and
community development needs.
(v) Substantial noncompliance. The FDIC
rates a bank’s investment performance as
being in ‘‘substantial noncompliance’’ if, in
general, it demonstrates:
(A) Few, if any, qualified investments,
particularly those that are not routinely
provided by private investors;
(B) No use of innovative or complex
qualified investments; and
(C) Very poor responsiveness to credit and
community development needs.
(3) Service performance rating. The FDIC
assigns each bank’s service performance one
of the five following ratings.
(i) Outstanding. The FDIC rates a bank’s
service performance ‘‘outstanding’’ if, in
general, the bank demonstrates:
(A) Its service delivery systems are readily
accessible to geographies and individuals of
different income levels in its assessment
area(s);
(B) To the extent changes have been made,
its record of opening and closing branches
has improved the accessibility of its delivery
systems, particularly in low- or moderateincome geographies or to low- or moderateincome individuals;
(C) Its services (including, where
appropriate, business hours) are tailored to
the convenience and needs of its assessment
area(s), particularly low- or moderate-income
geographies or low- or moderate-income
individuals; and
(D) It is a leader in providing community
development services.
(ii) High satisfactory. The FDIC rates a
bank’s service performance ‘‘high
satisfactory’’ if, in general, the bank
demonstrates:
(A) Its service delivery systems are
accessible to geographies and individuals of
different income levels in its assessment
area(s);
(B) To the extent changes have been made,
its record of opening and closing branches
has not adversely affected the accessibility of
its delivery systems, particularly in low- and
moderate-income geographies and to lowand moderate-income individuals;
(C) Its services (including, where
appropriate, business hours) do not vary in
a way that inconveniences its assessment
area(s), particularly low- and moderateincome geographies and low- and moderateincome individuals; and
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
(D) It provides a relatively high level of
community development services.
(iii) Low satisfactory. The FDIC rates a
bank’s service performance ‘‘low
satisfactory’’ if, in general, the bank
demonstrates:
(A) Its service delivery systems are
reasonably accessible to geographies and
individuals of different income levels in its
assessment area(s);
(B) To the extent changes have been made,
its record of opening and closing branches
has generally not adversely affected the
accessibility of its delivery systems,
particularly in low- and moderate-income
geographies and to low- and moderateincome individuals;
(C) Its services (including, where
appropriate, business hours) do not vary in
a way that inconveniences its assessment
area(s), particularly low- and moderateincome geographies and low- and moderateincome individuals; and
(D) It provides an adequate level of
community development services.
(iv) Needs to improve. The FDIC rates a
bank’s service performance ‘‘needs to
improve’’ if, in general, the bank
demonstrates:
(A) Its service delivery systems are
unreasonably inaccessible to portions of its
assessment area(s), particularly to low- or
moderate-income geographies or to low- or
moderate-income individuals;
(B) To the extent changes have been made,
its record of opening and closing branches
has adversely affected the accessibility its
delivery systems, particularly in low- or
moderate-income geographies or to low- or
moderate-income individuals;
(C) Its services (including, where
appropriate, business hours) vary in a way
that inconveniences its assessment area(s),
particularly low- or moderate-income
geographies or low- or moderate-income
individuals; and
(D) It provides a limited level of
community development services.
(v) Substantial noncompliance. The FDIC
rates a bank’s service performance as being
in ‘‘substantial noncompliance’’ if, in
general, the bank demonstrates:
(A) Its service delivery systems are
unreasonably inaccessible to significant
portions of its assessment area(s), particularly
to low- or moderate-income geographies or to
low- or moderate-income individuals;
(B) To the extent changes have been made,
its record of opening and closing branches
has significantly adversely affected the
accessibility of its delivery systems,
particularly in low- or moderate-income
geographies or to low- or moderate-income
individuals;
(C) Its services (including, where
appropriate, business hours) vary in a way
that significantly inconveniences its
assessment area(s), particularly low- or
moderate-income geographies or low- or
moderate-income individuals; and
(D) It provides few, if any, community
development services.
(c) Wholesale or limited purpose banks.
The FDIC assigns each wholesale or limited
purpose bank’s community development
performance one of the four following
ratings.
PO 00000
Frm 00648
Fmt 4701
Sfmt 4700
(1) Outstanding. The FDIC rates a
wholesale or limited purpose bank’s
community development performance
‘‘outstanding’’ if, in general, it demonstrates:
(i) A high level of community development
loans, community development services, or
qualified investments, particularly
investments that are not routinely provided
by private investors;
(ii) Extensive use of innovative or complex
qualified investments, community
development loans, or community
development services; and
(iii) Excellent responsiveness to credit and
community development needs in its
assessment area(s).
(2) Satisfactory. The FDIC rates a wholesale
or limited purpose bank’s community
development performance ‘‘satisfactory’’ if,
in general, it demonstrates:
(i) An adequate level of community
development loans, community development
services, or qualified investments,
particularly investments that are not
routinely provided by private investors;
(ii) Occasional use of innovative or
complex qualified investments, community
development loans, or community
development services; and
(iii) Adequate responsiveness to credit and
community development needs in its
assessment area(s).
(3) Needs to improve. The FDIC rates a
wholesale or limited purpose bank’s
community development performance as
‘‘needs to improve’’ if, in general, it
demonstrates:
(i) A poor level of community development
loans, community development services, or
qualified investments, particularly
investments that are not routinely provided
by private investors;
(ii) Rare use of innovative or complex
qualified investments, community
development loans, or community
development services; and
(iii) Poor responsiveness to credit and
community development needs in its
assessment area(s).
(4) Substantial noncompliance. The FDIC
rates a wholesale or limited purpose bank’s
community development performance in
‘‘substantial noncompliance’’ if, in general, it
demonstrates:
(i) Few, if any, community development
loans, community development services, or
qualified investments, particularly
investments that are not routinely provided
by private investors;
(ii) No use of innovative or complex
qualified investments, community
development loans, or community
development services; and
(iii) Very poor responsiveness to credit and
community development needs in its
assessment area(s).
(d) Banks evaluated under the small bank
performance standards—(1) Lending test
ratings—(i) Eligibility for a satisfactory
lending test rating. The FDIC rates a small
bank’s lending performance ‘‘satisfactory’’ if,
in general, the bank demonstrates:
(A) A reasonable loan-to-deposit ratio
(considering seasonal variations) given the
bank’s size, financial condition, the credit
needs of its assessment area(s), and taking
E:\FR\FM\01FER2.SGM
01FER2
ddrumheller on DSK120RN23PROD with RULES2
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
into account, as appropriate, other lendingrelated activities such as loan originations for
sale to the secondary markets and
community development loans and qualified
investments;
(B) A majority of its loans and, as
appropriate, other lending-related activities,
are in its assessment area;
(C) A distribution of loans to and, as
appropriate, other lending-related activities
for individuals of different income levels
(including low- and moderate-income
individuals) and businesses and farms of
different sizes that is reasonable given the
demographics of the bank’s assessment
area(s);
(D) A record of taking appropriate action,
when warranted, in response to written
complaints, if any, about the bank’s
performance in helping to meet the credit
needs of its assessment area(s); and
(E) A reasonable geographic distribution of
loans given the bank’s assessment area(s).
(ii) Eligibility for an ‘‘outstanding’’ lending
test rating. A small bank that meets each of
the standards for a ‘‘satisfactory’’ rating
under this paragraph and exceeds some or all
of those standards may warrant consideration
for a lending test rating of ‘‘outstanding.’’
(iii) Needs to improve or substantial
noncompliance ratings. A small bank may
also receive a lending test rating of ‘‘needs to
improve’’ or ‘‘substantial noncompliance’’
depending on the degree to which its
performance has failed to meet the standard
for a ‘‘satisfactory’’ rating.
(2) Community development test ratings for
intermediate small banks—(i) Eligibility for a
satisfactory community development test
rating. The FDIC rates an intermediate small
bank’s community development performance
‘‘satisfactory’’ if the bank demonstrates
adequate responsiveness to the community
development needs of its assessment area(s)
through community development loans,
qualified investments, and community
development services. The adequacy of the
bank’s response will depend on its capacity
for such community development activities,
its assessment area’s need for such
community development activities, and the
availability of such opportunities for
community development in the bank’s
assessment area(s).
(ii) Eligibility for an outstanding
community development test rating. The
FDIC rates an intermediate small bank’s
community development performance
‘‘outstanding’’ if the bank demonstrates
excellent responsiveness to community
development needs in its assessment area(s)
through community development loans,
qualified investments, and community
development services, as appropriate,
considering the bank’s capacity and the need
and availability of such opportunities for
community development in the bank’s
assessment area(s).
(iii) Needs to improve or substantial
noncompliance ratings. An intermediate
small bank may also receive a community
development test rating of ‘‘needs to
improve’’ or ‘‘substantial noncompliance’’
depending on the degree to which its
performance has failed to meet the standards
for a ‘‘satisfactory’’ rating.
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
(3) Overall rating—(i) Eligibility for a
satisfactory overall rating. No intermediate
small bank may receive an assigned overall
rating of ‘‘satisfactory’’ unless it receives a
rating of at least ‘‘satisfactory’’ on both the
lending test and the community development
test.
(ii) Eligibility for an outstanding overall
rating. (A) An intermediate small bank that
receives an ‘‘outstanding’’ rating on one test
and at least ‘‘satisfactory’’ on the other test
may receive an assigned overall rating of
‘‘outstanding.’’
(B) A small bank that is not an
intermediate small bank that meets each of
the standards for a ‘‘satisfactory’’ rating
under the lending test and exceeds some or
all of those standards may warrant
consideration for an overall rating of
‘‘outstanding.’’ In assessing whether a bank’s
performance is ‘‘outstanding,’’ the FDIC
considers the extent to which the bank
exceeds each of the performance standards
for a ‘‘satisfactory’’ rating and its
performance in making qualified investments
and its performance in providing branches
and other services and delivery systems that
enhance credit availability in its assessment
area(s).
(iii) Needs to improve or substantial
noncompliance overall ratings. A small bank
may also receive a rating of ‘‘needs to
improve’’ or ‘‘substantial noncompliance’’
depending on the degree to which its
performance has failed to meet the standards
for a ‘‘satisfactory’’ rating.
(e) Strategic plan assessment and rating—
(1) Satisfactory goals. The FDIC approves as
‘‘satisfactory’’ measurable goals that
adequately help to meet the credit needs of
the bank’s assessment area(s).
(2) Outstanding goals. If the plan identifies
a separate group of measurable goals that
substantially exceed the levels approved as
‘‘satisfactory,’’ the FDIC will approve those
goals as ‘‘outstanding.’’
(3) Rating. The FDIC assesses the
performance of a bank operating under an
approved plan to determine if the bank has
met its plan goals:
(i) If the bank substantially achieves its
plan goals for a satisfactory rating, the FDIC
will rate the bank’s performance under the
plan as ‘‘satisfactory.’’
(ii) If the bank exceeds its plan goals for
a satisfactory rating and substantially
achieves its plan goals for an outstanding
rating, the FDIC will rate the bank’s
performance under the plan as
‘‘outstanding.’’
(iii) If the bank fails to meet substantially
its plan goals for a satisfactory rating, the
FDIC will rate the bank as either ‘‘needs to
improve’’ or ‘‘substantial noncompliance,’’
depending on the extent to which it falls
short of its plan goals, unless the bank
elected in its plan to be rated otherwise, as
provided in § 345.27(f)(4).
Appendix B to Part 345—CRA Notice
(a) Notice for main offices and, if an
interstate bank, one branch office in each
state.
Community Reinvestment Act Notice
Under the Federal Community
Reinvestment Act (CRA), the Federal Deposit
PO 00000
Frm 00649
Fmt 4701
Sfmt 4700
7221
Insurance Corporation (FDIC) evaluates our
record of helping to meet the credit needs of
this community consistent with safe and
sound operations. The FDIC also takes this
record into account when deciding on certain
applications submitted by us.
Your involvement is encouraged.
You are entitled to certain information
about our operations and our performance
under the CRA, including, for example,
information about our branches, such as their
location and services provided at them; the
public section of our most recent CRA
Performance Evaluation, prepared by the
FDIC; and comments received from the
public relating to our performance in helping
to meet community credit needs, as well as
our responses to those comments. You may
review this information today.
At least 30 days before the beginning of
each quarter, the FDIC publishes a
nationwide list of the banks that are
scheduled for CRA examination in that
quarter. This list is available from the
Regional Director, FDIC (address). You may
send written comments about our
performance in helping to meet community
credit needs to (name and address of official
at bank) and FDIC Regional Director. You
may also submit comments electronically
through the FDIC’s website at www.fdic.gov/
regulations/cra. Your letter, together with
any response by us, will be considered by the
FDIC in evaluating our CRA performance and
may be made public.
You may ask to look at any comments
received by the FDIC Regional Director. You
may also request from the FDIC Regional
Director an announcement of our
applications covered by the CRA filed with
the FDIC. We are an affiliate of (name of
holding company), a bank holding company.
You may request from the (title of
responsible official), Federal Reserve Bank of
llllllllllllll(address) an
announcement of applications covered by the
CRA filed by bank holding companies.
(b) Notice for branch offices.
Community Reinvestment Act Notice
Under the Federal Community
Reinvestment Act (CRA), the Federal Deposit
Insurance Corporation (FDIC) evaluates our
record of helping to meet the credit needs of
this community consistent with safe and
sound operations. The FDIC also takes this
record into account when deciding on certain
applications submitted by us.
Your involvement is encouraged.
You are entitled to certain information
about our operations and our performance
under the CRA. You may review today the
public section of our most recent CRA
evaluation, prepared by the FDIC, and a list
of services provided at this branch. You may
also have access to the following additional
information, which we will make available to
you at this branch within five calendar days
after you make a request to us: (1) a map
showing the assessment area containing this
branch, which is the area in which the FDIC
evaluates our CRA performance in this
community; (2) information about our
branches in this assessment area; (3) a list of
services we provide at those locations; (4)
data on our lending performance in this
E:\FR\FM\01FER2.SGM
01FER2
7222
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
assessment area; and (5) copies of all written
comments received by us that specifically
relate to our CRA performance in this
assessment area, and any responses we have
made to those comments. If we are operating
under an approved strategic plan, you may
also have access to a copy of the plan.
[If you would like to review information
about our CRA performance in other
communities served by us, the public file for
our entire bank is available at (name of office
located in state), located at (address).]
At least 30 days before the beginning of
each quarter, the FDIC publishes a
nationwide list of the banks that are
scheduled for CRA examination in that
quarter. This list is available from the
Regional Director, FDIC (address). You may
send written comments about our
performance in helping to meet community
VerDate Sep<11>2014
18:11 Jan 31, 2024
Jkt 262001
credit needs to (name and address of official
at bank) and the FDIC Regional Director. You
may also submit comments electronically
through the FDIC’s website at www.fdic.gov/
regulations/cra. Your letter, together with
any response by us, will be considered by the
FDIC in evaluating our CRA performance and
may be made public.
You may ask to look at any comments
received by the FDIC Regional Director. You
may also request from the FDIC Regional
Director an announcement of our
applications covered by the CRA filed with
the FDIC. We are an affiliate of (name of
holding company), a bank holding company.
You may request from the (title of
responsible official), Federal Reserve Bank of
llllllllllllll(address) an
PO 00000
Frm 00650
Fmt 4701
Sfmt 9990
announcement of applications covered by the
CRA filed by bank holding companies.
Michael J. Hsu,
Acting Comptroller of the Currency.
By order of the Board of Governors of the
Federal Reserve System.
Ann E. Misback,
Secretary of the Board.
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
Dated at Washington, DC, on October 24,
2023.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2023–25797 Filed 1–31–24; 8:45 am]
BILLING CODE 4810–33–P; 6210–01–P; 6714–01–P
E:\FR\FM\01FER2.SGM
01FER2
Agencies
[Federal Register Volume 89, Number 22 (Thursday, February 1, 2024)]
[Rules and Regulations]
[Pages 6574-7222]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25797]
[[Page 6573]]
Vol. 89
Thursday,
No. 22
February 1, 2024
Part II
Department of the Treasury
-----------------------------------------------------------------------
Office of the Comptroller of the Currency
-----------------------------------------------------------------------
Federal Reserve System
-----------------------------------------------------------------------
Federal Deposit Insurance Corporation
-----------------------------------------------------------------------
12 CFR Parts 25, 228, and 345
Community Reinvestment Act; Final Rule
Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 /
Rules and Regulations
[[Page 6574]]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 25
[Docket ID OCC-2022-0002]
RIN 1557-AF15
FEDERAL RESERVE SYSTEM
12 CFR Part 228
[Regulation BB; Docket No. R-1769]
RIN 7100-AG29
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Part 345
RIN 3064-AF81
Community Reinvestment Act
AGENCY: Office of the Comptroller of the Currency, Treasury; Board of
Governors of the Federal Reserve System; and Federal Deposit Insurance
Corporation.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Office of the Comptroller of the Currency (OCC), Board of
Governors of the Federal Reserve System (Board), and the Federal
Deposit Insurance Corporation (FDIC) are adopting final amendments to
their regulations implementing the Community Reinvestment Act of 1977
(CRA) to update how CRA activities qualify for consideration, where CRA
activities are considered, and how CRA activities are evaluated.
DATES:
Effective date: This rule is effective on April 1, 2024, except for
amendment nos. 29, 52, and 75, which are effective April 1, 2024,
through January 1, 2031, and amendment nos. 7, 11, 18, 20, 25, 35, 39,
43, 45, 49, 58, 62, 66, 68, and 72, which are delayed indefinitely. The
agencies will publish a document in the Federal Register announcing an
effective date for the delayed amendments.
Applicability date: Sections __.12 through __.15, __.17 through
__.30, and __.42(a); the data collection and maintenance requirements
in Sec. __.42(c) through (f); and appendices A through F of the common
rule text as adopted by the OCC, Board, and FDIC are applicable on
January 1, 2026. Section __.42(b) and (g) through (i) and the reporting
requirements in Sec. __.42(c) through (f) of the common rule text as
adopted by the OCC, Board, and FDIC are applicable on January 1, 2027.
FOR FURTHER INFORMATION CONTACT:
OCC: Heidi M. Thomas, Senior Counsel, or Emily Boyes, Counsel,
Chief Counsel's Office, (202) 649-5490; or Vonda Eanes, Director for
CRA and Fair Lending Policy, or Cassandra Remmenga, CRA Modernization
Program Manager, Bank Supervision Policy, (202) 649-5470, Office of the
Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219.
If you are deaf, hard of hearing, or have a speech disability, please
dial 7-1-1 to access telecommunications relay services.
Board: Taz George, Senior Supervisory Policy Analyst; Dorian
Hawkins, Counsel; S. Caroline (Carrie) Johnson, Manager; Matthew
Lambert, Senior Supervisory Analyst; Eric Lum, Senior Supervisory
Analyst; Cayla Matsumoto, Supervisory Policy Analyst; or Lisa Robinson,
Lead Supervisory Policy Analyst; Lorna Neill, Senior Counsel; Amal
Patel, Senior Counsel; or Jaydee DiGiovanni, Counsel; Division of
Consumer and Community Affairs or David Alexander, Special Counsel;
Cody Gaffney, Senior Attorney; or Gavin Smith, Senior Counsel; Legal
Division, Board of Governors of the Federal Reserve System at (202)
452-2412 or. For users of TDD-TYY, (202) 263-4869 or dial 711 from any
telephone anywhere in the United States.
FDIC: Pamela A. Freeman, Senior Examination Specialist, Compliance
and CRA Examinations Branch, Division of Depositor and Consumer
Protection, (202) 898-3656; Patience R. Singleton, Senior Policy
Analyst, Supervisory Policy Branch, Division of Depositor and Consumer
Protection, (202) 898-6859; Sherry Ann Betancourt, Counsel, Legal
Division, (202) 898- 6560; Alys V. Brown, Senior Attorney, Legal
Division, (202) 898-3565, Federal Deposit Insurance Corporation, 550
17th Street NW, Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Summary of the Final Rule
II. Background
III. General Comments Received
IV. Section-by-Section Analysis
Section __.11 Authority, Purposes, and Scope
Section __.12 Definitions
Section __.13 Consideration of Community Development Loans,
Community Development Investments, and Community Development
Services
Section __.14 Community Development Illustrative List;
Confirmation of Eligibility
Section __.15 Impact and Responsiveness Review of Community
Development Loans, Community Development Investments, and Community
Development Services
Section __.16 Facility-Based Assessment Areas
Section __.17 Retail Lending Assessment Areas
Section __.18 Outside Retail Lending Areas
Section __.19 Areas for Eligible Community Development Loans,
Community Development Investments, and Community Development
Services
Section __.21 Evaluation of CRA Performance in General
Section __.22 Retail Lending Test
Section __.23 Retail Services and Products Test
Section __.24 Community Development Financing Test
Section __.25 Community Development Services Test
Section __.26 Limited Purpose Banks
Section __.27 Strategic Plan
Section __.28 Assigned Conclusions and Ratings
Section __.29 Small Bank Performance Evaluation
Section __.30 Intermediate Bank Performance Evaluation
Section __.31 Effect of CRA Performance on Applications
Section __.42 Data Collection, Reporting, and Disclosure
Section __.43 Content and Availability of Public File
Section __.44 Public Notice by Banks
Section __.45 Publication of Planned Examination Schedule
Section __.46 Public Engagement
Section __.51 Applicability Dates and Transition Provisions
V. Regulatory Analysis
I. Summary of the Final Rule
The CRA \1\ is a seminal piece of legislation that requires the
OCC, the Board, and the FDIC (together referred to as the agencies, and
each, individually, the agency) to assess a bank's \2\ record of
meeting the credit needs of its entire community, including low- and
moderate-income neighborhoods, consistent with the bank's safe and
sound operation. Upon completing this examination, the statute requires
the agencies to ``prepare a written evaluation of the institution's
record of meeting the credit needs of its entire community, including
low- and moderate-income neighborhoods.'' \3\ The statute further
provides that each agency must consider a bank's CRA performance ``in
its evaluation of an application for a deposit facility by such
institution.'' \4\ The agencies implement
[[Page 6575]]
the CRA and establish the framework and criteria by which the agencies
assess a bank's performance through their individual CRA regulations,
which are supplemented by supervisory guidance.\5\ Under the CRA
regulations, the agencies apply different evaluation standards for
banks of different asset sizes and types.
---------------------------------------------------------------------------
\1\ 12 U.S.C. 2901 et seq.
\2\ For purposes of this SUPPLEMENTARY INFORMATION, the term
``bank'' includes insured national and State banks, Federal and
State savings associations, Federal branches as defined in 12 CFR
part 28, insured State branches as defined in 12 CFR 345.11(c), and
State member banks as defined in 12 CFR part 208, except as provided
in 12 CFR __.11(c).
\3\ 12 U.S.C. 2906(a).
\4\ 12 U.S.C. 2903(a)(2).
\5\ See 12 CFR parts 25 (OCC), 228 (Regulation BB) (Board), and
345 (FDIC). For clarity and to streamline references, citations to
the agencies' existing common CRA regulations are provided in the
following format: current 12 CFR __.xx. For example, references to
12 CFR 25.12 (OCC), 228.12 (Board), and 345.12 (FDIC) would be
streamlined as follows: ``current 12 CFR __.12.'' Likewise,
references to the agencies' proposed and final common CRA
regulations are provided in the following formats, respectively:
``proposed Sec. __.xx'' and ``final Sec. __.xx.''
---------------------------------------------------------------------------
The agencies issued a notice of proposed rulemaking published in
the Federal Register on June 3, 2022 (NPR, proposal, or the proposed
rule),\6\ seeking comment on updates to their respective CRA
regulations to achieve the following objectives:
---------------------------------------------------------------------------
\6\ 87 FR 33884 (June 3, 2022).
---------------------------------------------------------------------------
Strengthen the achievement of the core purpose of the
statute;
Adapt to changes in the banking industry, including the
expanded role of mobile and online banking;
Provide greater clarity and consistency in the application
of the regulations;
Tailor performance standards to account for differences in
bank size and business models and local conditions;
Tailor data collection and reporting requirements and use
existing data whenever possible;
Promote transparency and public engagement;
Confirm that CRA and fair lending responsibilities are
mutually reinforcing; and
Promote a consistent regulatory approach that applies to
banks regulated by all three agencies.\7\
---------------------------------------------------------------------------
\7\ The agencies have revised this objective for the final rule,
to recognize that the agencies currently have common regulations.
---------------------------------------------------------------------------
The agencies believe that each objective is met through the
promulgation of this final rule. Additional discussion of, and
commenter feedback received regarding, the agencies' objectives can be
found in section III.B of this SUPPLEMENTARY INFORMATION.
This section provides a summary of the final rule and highlights
certain key elements and changes as compared to the proposal. For a
more detailed discussion, including the agencies' considerations of the
comments received, see sections III and IV of this SUPPLEMENTARY
INFORMATION.
Bank Asset Size Categories and Limited Purpose Banks
The final rule implements a revised regulatory framework for the
CRA that, like the current framework, is based on bank asset size and
business model. This tailoring of the framework recognizes the capacity
and resource differences among banks. Under the final rule, banks are
classified as either a large bank, an intermediate bank, a small bank,
or a limited purpose bank. Pursuant to the final rule: large banks are
those with assets of at least $2 billion as of December 31 in both of
the prior two calendar years; intermediate banks are those with assets
of at least $600 million as of December 31 in both of the prior two
calendar years and less than $2 billion as of December 31 in either of
the prior two calendar years; and small banks are those with assets of
less than $600 million as of December 31 in either of the prior two
calendar years. These asset-size thresholds will be adjusted annually
for inflation.
The final rule revises the definition of limited purpose bank to
include both those banks currently considered ``limited purpose banks''
and those currently considered ``wholesale banks,'' as those terms are
defined under the current regulation and were defined under the
proposal. Specifically, the final rule defines a limited purpose bank
as a bank that is not in the business of extending certain loans,
except on an incidental and accommodation basis, and for which a
designation as a limited purpose bank is in effect. The final rule
therefore does not reference ``wholesale banks'' because a separate
definition is no longer necessary. The agencies have also clarified
that limited purpose banks are not evaluated as small, intermediate, or
large banks.
Evaluation Framework
Overview. The final rule's performance evaluation framework
utilizes performance tests to evaluate a bank's performance in meeting
the credit needs of its entire community. In finalizing this evaluation
framework, the agencies seek to meet the objectives described above,
including: strengthening the achievement of the core purpose of the
statute; tailoring to account for differences in bank size, business
model, and local conditions; and adapting to changes in the banking
industry, including the rise of mobile and online banking. Depending on
a bank's asset size or limited purpose bank designation, the agencies
will evaluate banks under one or a combination of the following seven
performance tests: the Retail Lending Test; the Retail Services and
Products Test; the Community Development Financing Test; the Community
Development Services Test; the Intermediate Bank Community Development
Test; the Small Bank Lending Test; and the Community Development
Financing Test for Limited Purpose Banks. The agencies have also
retained the strategic plan option, with revisions, as an alternative
method for evaluation under the CRA.
The agencies will evaluate large banks under four performance
tests: the Retail Lending Test, the Retail Services and Products Test,
the Community Development Financing Test, and the Community Development
Services Test. The agencies will evaluate intermediate banks under the
Retail Lending Test and either the current community development test,
referred to in the final rule as the Intermediate Bank Community
Development Test, or, at the bank's option, the Community Development
Financing Test. The agencies will evaluate small banks under either the
current small bank test, referred to in the final rule as the Small
Bank Lending Test or, at the bank's option, the Retail Lending Test.
Finally, the agencies will evaluate limited purpose banks, under the
Community Development Financing Test for Limited Purpose Banks.
The final rule also provides that relevant activities of a bank's
operations subsidiaries or operating subsidiaries are included in a
bank's performance evaluation. Relevant activities of other affiliates
would be considered at a bank's option.
For each applicable performance test, the agencies will assign
conclusions reflecting the bank's performance in its facility-based
assessment areas, and in the case of the Retail Lending Test, certain
other geographic areas. In most instances, including for small banks
that opt to be evaluated under the Retail Lending Test, the agencies
will assign one of five conclusions to the bank: ``Outstanding'';
``High Satisfactory''; ``Low Satisfactory''; ``Needs to Improve''; or
``Substantial Noncompliance.'' For small banks evaluated under the
Small Bank Lending Test, the agencies will assign one of four
conclusions: ``Outstanding''; ``Satisfactory''; ``Needs to Improve'';
or ``Substantial Noncompliance.''
The conclusions assigned in connection with each of the applicable
performance tests are combined to develop a bank's CRA ratings. The
agencies may assign a bank one of the four ratings, as indicated in the
statute: ``Outstanding''; ``Satisfactory''; ``Needs
[[Page 6576]]
to Improve''; or ``Substantial Noncompliance.''
For banks that are evaluated under more than one performance test,
specific weights are applied to each performance test conclusion, with
weighting varying by bank asset size. For large banks: the Retail
Lending Test is weighted at 40 percent; the Retail Services and
Products Test is weighted at 10 percent; the Community Development
Financing Test is weighted at 40 percent; and the Community Development
Services Test is weighted at 10 percent. Relative to the proposal, this
large bank weighting reflects a decrease in the percentages assigned to
the Retail Lending Test and the Retail Services and Products Test and a
resulting increase in the percentage assigned to the Community
Development Financing Test. For intermediate banks, each applicable
performance test is weighted at 50 percent.
As noted above, banks of all sizes will maintain the option to
elect to be evaluated under an approved strategic plan. Among other
revisions, the final rule updates the standards for obtaining approval
for such plans. The final rule clarifies the proposal to explain the
circumstances in which banks must include the performance tests that
would apply in the absence of a strategic plan, the modifications and
additions that banks may make to those tests, and the justifications
that banks must provide for their draft plans.
Retail Lending Test. The Retail Lending Test evaluates a bank's
record of helping to meet the credit needs of its entire community
through the bank's origination and purchase of home mortgage loans,
multifamily loans, small business loans, and small farm loans, as well
as through automobile lending if the bank is a majority automobile
lender. Specifically, the Retail Lending Test includes an evaluation of
how banks are serving low- and moderate-income individuals, small
businesses, small farms, and low- and moderate-income census tracts in
the bank's facility-based assessment areas and, as applicable, retail
lending assessment areas and outside retail lending areas. As noted
above, under the final rule, intermediate and large banks are required
to be evaluated under the Retail Lending Test, and small banks may opt
to be evaluated under this performance test.
The Retail Lending Test includes two sets of metrics, as well as
additional factors that are used to complement the use of metrics.
First, the Retail Lending Volume Screen measures the volume of a bank's
retail lending relative to its deposit base in a facility-based
assessment area and compares that ratio to a Retail Lending Volume
Threshold based on the aggregate ratio for all reporting banks with at
least one branch in the same facility-based assessment area.
Second, the agencies evaluate the geographic distribution and
borrower distribution of a bank's major product lines in its Retail
Lending Test Areas (facility-based assessment areas, retail lending
assessment areas, and outside retail lending area) using a series of
metrics and benchmarks. For example, for a bank's closed-end home
mortgage lending in a Retail Lending Test Area, the geographic
distribution analysis evaluates the bank's percentage of lending (1) in
low-income census tracts and (2) in moderate-income census tracts,
while the borrower distribution analysis evaluates the bank's
percentage of lending (3) to low-income borrowers and (4) to moderate-
income borrowers. Under the final rule, the agencies evaluate the
distribution of a large bank's major product lines in its facility-
based assessment areas, any retail lending assessment areas the bank is
required to delineate, and its outside retail lending area. For
intermediate banks, and small banks that opt to be evaluated under the
Retail Lending Test, the agencies evaluate the distribution of the
bank's major product lines in its facility-based assessment areas and
any outside retail lending area, if applicable. Regardless of the
geographic area in which a bank is evaluated, for most major product
lines, a bank's performance relative to the retail lending distribution
benchmarks is translated into a recommended conclusion using
performance ranges that establish the level of performance needed to
achieve a particular conclusion, such as ``High Satisfactory.''
In addition, in the final rule the agencies consider a list of
additional factors that are intended to account for circumstances in
which the retail lending distribution metrics and benchmarks may not
accurately or fully reflect a bank's retail lending performance, or in
which the benchmarks may not appropriately represent the credit needs
and opportunities in an area.
In response to commenter feedback, the agencies sought ways to
ensure that the final rule's Retail Lending Test appropriately balances
the agencies' objectives. For example, the agencies adjusted some of
the multipliers utilized as part of the Retail Lending Test to make
``Outstanding'' and ``High Satisfactory'' Retail Lending Test
supporting conclusions more attainable relative to the proposal, while
maintaining an appropriate degree of rigor. Moreover, as compared to
the proposal, the final rule reduces the number of product lines
potentially evaluated under the Retail Lending Test from six to three
(closed-end home mortgage loans, small business loans, and small farm
loans) for most banks. In addition, the agencies will only evaluate a
bank's automobile loans if automobile loans represent a majority of the
bank's retail lending, or if the bank opts to have its automobile loans
evaluated under the Retail Lending Test.
Retail Services and Products Test. The Retail Services and Products
Test utilizes a tailored approach to evaluate the availability of a
bank's retail banking services and retail banking products and the
responsiveness of those services and products to the credit needs of
the bank's entire community, including low- and moderate-income
individuals, low- and moderate-income census tracts, small businesses,
and small farms. Under the final rule, this performance test maintains
the overall approach set out in the NPR, with certain modifications,
and incorporates benchmarks to evaluate the availability of a bank's
branch and remote service facilities. In addition, the agencies will
evaluate the digital and other delivery systems of some banks.
Evaluation of the retail banking services of a large bank with
assets greater than $10 billion includes a review of the bank's branch
availability and services, remote service facilities (including
automated teller machines (ATMs)), and digital delivery systems and
other delivery systems. The agencies will also consider the digital
delivery systems and other delivery systems of large banks with assets
less than or equal to $10 billion if the bank does not operate any
branches or, for banks that operate at least one branch, at the bank's
option.
Evaluation of a bank's retail banking products includes a review of
the responsiveness of the bank's credit products and programs, and
availability and usage of responsive deposit products. Both deposit
products and credit products and programs are evaluated at the
institution level and, in a change from the proposal, are given only
positive consideration and may not negatively impact a bank's Retail
Services and Products Test conclusion. This aspect of the performance
test is designed to evaluate a bank's efforts to provide products that
are responsive to the needs of low- and moderate-income communities.
The agencies will not evaluate the availability and usage of responsive
deposit products in connection with large banks with assets
[[Page 6577]]
less than or equal to $10 billion, unless the bank opts in.
Community Development Financing Test. The Community Development
Financing Test evaluates how well large banks and intermediate banks
that opt into the performance test meet the community development
financing needs in each facility-based assessment area, each State or
multistate metropolitan statistical area (MSA), as applicable, and for
the institution. The test is not assessed in retail lending assessment
areas.
The Community Development Financing Test includes the following
elements: (1) a community development financing metric used to evaluate
the dollar volume of a bank's community development loans and
investments relative to the bank's deposit base; (2) standardized
benchmarks to aid in evaluating performance; and (3) an impact and
responsiveness review to ensure consideration of community development
loans and investments that are particularly impactful or responsive.
The final rule also includes a metric for banks with assets greater
than $10 billion to measure the bank's community development
investments relative to deposits. This metric is intended to ensure a
focus on certain bank community development investments (including
Federal Low-Income Housing Tax Credit (LIHTC) and New Market Tax Credit
(NMTC) investments). This metric is applied at the institution level
and may only contribute positively to a bank's Community Development
Financing Test conclusion.
Community Development Services Test. The Community Development
Services Test considers the importance of community development
services in fostering partnerships among different stakeholders,
building capacity, and creating conditions for effective community
development, including in rural areas. The agencies will evaluate large
banks under this performance test in facility-based assessment areas,
in States, multistate MSAs, and nationwide.
Under the final rule, the evaluation includes a qualitative review
of relevant community development services data, and an impact and
responsiveness review to assess services that are particularly
responsive to community needs. After considering commenter feedback,
the performance test does not require a metric of community development
service hours per full-time employee for banks with assets greater than
$10 billion. Moreover, the final rule maintains the existing
requirement that volunteer services considered under this performance
test must be related to the provision of financial services or the
expertise of bank staff and must have a community development purpose.
The performance test will provide consideration for activities that
promote financial literacy for low- or moderate-income individuals,
households, and families, even if the activities benefit individuals,
households, and families of other income levels as well.
Geographic Areas in Which a Bank's Activities Are Considered
Facility-based assessment areas. As under the current CRA
regulations, the final rule maintains facility-based assessment areas
as the cornerstone of the CRA evaluation framework. The final rule
adopts the delineation requirements for facility-based assessment areas
mostly as set out in the proposal with clarifying changes.
Specifically, banks will continue to delineate facility-based
assessment areas in the MSAs or nonmetropolitan areas of States in
which the following facilities are located: main offices, branches, and
deposit-taking remote service facilities. As under the proposal, large
banks are required to delineate facility-based assessment areas
composed of whole counties, while intermediate and small banks will
continue to be permitted to delineate facility-based assessment areas
consisting of partial counties. The final rule continues to provide
that facility-based assessment areas may not reflect illegal
discrimination and may not arbitrarily exclude low- or moderate-income
census tracts.
Retail lending assessment areas. The final rule requires a large
bank to delineate a new type of assessment area, referred to as retail
lending assessment areas, in an MSA or the nonmetropolitan area of a
State in which the large bank has a concentration of closed-end home
mortgage or small business lending outside of its facility-based
assessment area(s). Large banks are evaluated under the Retail Lending
Test, but not the other performance tests, in retail lending assessment
areas. Relative to the proposal, the final rule tailors the retail
lending assessment area requirement by exempting large banks that
conduct more than 80 percent of their retail lending within facility-
based assessment areas.
Upon consideration of commenter feedback regarding the retail
lending assessment area proposal, the final rule increases, relative to
the proposal, the loan count thresholds that trigger the retail lending
assessment area delineation requirement to at least 150 closed-end home
mortgage loans or at least 400 small business loans in each year of the
prior two calendar years. The final rule also simplifies the evaluation
of a large bank's retail lending performance by reducing the number of
product lines potentially evaluated in a retail lending assessment area
from six to two product lines, and only evaluating a product line if
the bank exceeds the relevant loan count threshold.
Outside retail lending areas. Under the final rule, the agencies
will evaluate the retail lending performance of all large banks,
certain intermediate banks, and certain small banks that opt to be
evaluated under the Retail Lending Test in the outside retail lending
area, which consists of the nationwide area outside of the bank's
facility-based assessment areas and applicable retail lending
assessment areas, excluding certain nonmetropolitan counties.
Evaluation in these areas is designed to facilitate a comprehensive
evaluation of a bank's retail lending to low- and moderate-income
individuals and communities under the Retail Lending Test, and to adapt
to changes in the banking industry, such as mobile and online banking.
For an intermediate bank or a small bank that opts to be evaluated
under the Retail Lending Test, the agencies evaluate the bank's retail
lending performance in the outside retail lending area on a mandatory
basis if the bank conducts a majority of its retail lending outside of
its facility-based assessment areas. If the intermediate or small bank
does not conduct a majority of its retail lending outside of its
facility-based assessment areas, the bank may opt to have its retail
lending in its outside retail lending area evaluated.
Areas for eligible community development activities. Like the
proposal, the final rule provides that all banks will receive
consideration for any qualified community development loans,
investments, or services, regardless of location. In assessing a large
bank's Community Development Financing Test performance, the final rule
includes a focus on performance within facility-based assessment areas.
Specifically, when developing conclusions for a State, multistate MSA,
or for the institution overall, the final rule combines two components
through a weighted average calculation: (1) performance within the
bank's facility-based assessment areas in the State, multistate MSA, or
for the institution overall; and (2) performance across the entire
State, multistate MSA, and for the institution. The weights of the two
[[Page 6578]]
components are based on the percentage of a bank's retail lending and
deposits inside its facility-based assessment areas. For example, for a
bank with a relatively low percentage of retail lending and deposits
inside its facility-based assessment areas, the bank's performance
within its facility-based assessment areas receives less weight than
its performance across the entire State, multistate MSA, or nationwide
area. In this way, the Community Development Financing Test recognizes
differences in bank business models.
Categories of Community Development
Updated community development definition. Under the current CRA
regulations, in evaluating a bank's CRA performance, banks may receive
community development consideration for community development loans,
investments, and services under various tests. The final rule updates
the definition of community development to provide banks with
additional clarity regarding the loans, investments, and services that
the agencies have determined support community development. The
agencies believe these activities are responsive to the needs of low-
and moderate-income individuals and communities, designated distressed
or underserved nonmetropolitan areas, Native Land Areas,\8\ small
businesses, and small farms. Specifically, the agencies have defined
the following eleven community development categories in the final
rule:
---------------------------------------------------------------------------
\8\ The final rule defines ``Native Land Areas'' in final Sec.
__.12.
---------------------------------------------------------------------------
Affordable housing, which has five components: (1) rental
housing in conjunction with a government affordable housing plan,
program, initiative, tax credit, or subsidy; (2) multifamily rental
housing with affordable rents; (3) one-to-four family rental housing
with affordable rents in a nonmetropolitan area; (4) affordable owner-
occupied housing for low- or moderate-income individuals; and (5)
mortgage-backed securities.
Economic development, which includes loans, investments,
and services undertaken in conjunction or in syndication with
government programs; loans, investments, and services provided to
intermediaries; and other forms of assistance to small businesses and
small farms. Unlike the proposal, this category includes direct loans
to small businesses and small farms in conjunction or in syndication
with government programs that meet a size and purpose test.
Community supportive services, which includes activities
that assist, benefit, or contribute to the health, stability, or well-
being of low- or moderate-income individuals, and replaces the current
rule's ``community services targeted to low- or moderate-income
individuals'' category.
Six categories of place-based activities, which replace
the revitalization and stabilization activities component of the
current rule. Each of the final place-based categories adopts a focus
on targeted geographic areas and includes common place-based
eligibility criteria that must be met. The six place-based categories
are:
[cir] Revitalization or stabilization activities;
[cir] Essential community facilities;
[cir] Essential community infrastructure;
[cir] Recovery activities that promote the recovery of a designated
disaster area;
[cir] Disaster preparedness and weather resiliency activities; and
[cir] Qualifying activities in Native Land Areas.
Activities with minority depository institutions (MDIs),
women's depository institutions (WDIs), low-income credit unions
(LICUs), and community development financial institutions (CDFIs).
Financial literacy, which retains the proposed approach of
qualifying activities assisting individuals, families, and households
of all income levels, including low- or moderate-income individuals,
families, and households.
Illustrative list and confirmation process. To promote clarity and
consistency, the final rule also provides that the agencies will issue,
maintain, and periodically update a publicly available illustrative
list of non-exhaustive examples of loans, investments, and services
that qualify for community development consideration. In addition, the
final rule includes a process through which banks can confirm with the
appropriate Federal financial supervisory agency whether a particular
loan, investment, or service is eligible for community development
consideration.\9\
---------------------------------------------------------------------------
\9\ The CRA defines ``appropriate Federal financial supervisory
agency'' as (1) the Comptroller of the Currency with respect to
national banks and Federal savings associations (the deposits of
which are insured by the Federal Deposit Insurance Corporation); (2)
the Board of Governors of the Federal Reserve System with respect to
State chartered banks which are members of the Federal Reserve
System, bank holding companies, and savings and loan holding
companies; (3) the Federal Deposit Insurance Corporation with
respect to State chartered banks and savings banks which are not
members of the Federal Reserve System and the deposits of which are
insured by the Corporation, and State savings associations (the
deposits of which are insured by the Federal Deposit Insurance
Corporation). 12 U.S.C. 2902(1).
---------------------------------------------------------------------------
Impact and responsiveness review. To promote clarity and
consistency in the final rule, the agencies will evaluate the extent to
which a bank's community development loans, investments, and services
are impactful and responsive in meeting community development needs,
through the application of a non-exhaustive list of review factors.
Such factors were referred to as impact review factors in the agencies'
proposal but are referred to as impact and responsiveness factors in
the final rule.
Data Collection, Maintenance, and Reporting
Consistent with the proposal, the agencies are not imposing any new
data collection and reporting requirements for small and intermediate
banks. For large banks, the final rule leverages existing data where
possible and introduces updated data collection, maintenance, and
reporting requirements to fill gaps in the current regulation and
facilitate implementation of the final rule. For example, the final
rule requires certain large banks to collect, maintain, and report data
that would enable the agencies both to implement the metrics and
benchmarks included in the Retail Lending Test and Community
Development Financing Test, and to evaluate activities under the Retail
Services and Products Test. These data requirements are intended to
support greater clarity and consistency in the application of the CRA
regulations and are tailored by bank size, such as by introducing
certain data requirements only for those large banks with assets over
$10 billion dollars.
The final rule requires the agencies to publish on their respective
websites certain information related to the distribution by borrower
income level, race, and ethnicity of a large bank's home mortgage loan
originations and applications in each of the bank's assessment areas.
This disclosure would leverage existing data available under the Home
Mortgage Disclosure Act (HMDA).\10\
---------------------------------------------------------------------------
\10\ 12 U.S.C. 2801 et seq.
---------------------------------------------------------------------------
Transition
Although the effective date of the final rule is April 1, 2024, the
applicability date for the majority of the provisions is January 1,
2026. Specifically, the following provisions of the final rule will
become applicable on January 1, 2026: final Sec. Sec. __.12 through
__.15; final Sec. Sec. __.17 through __.30; final Sec. __.42(a); the
data collection and maintenance requirements in final Sec. __.42(c)
through (f); and appendices A through
[[Page 6579]]
F. Banks will have until January 1, 2027, to comply with the reporting
requirements of Sec. __.42(b) through (f), with data reporting
requirements every April 1 beginning in 2027. In final Sec. __.51, the
agencies have also included transition provisions relating to:
applicability of the current CRA regulations; HMDA data disclosures;
CRA consideration of eligible loans, investments, services, or
products; strategic plans; and a particular ratings standard relating
to minimum performance requirements applicable to large banks. Until
the applicability dates for these provisions, banks will follow the
current CRA regulations, included as appendix G to the revised CRA
regulations.
Transition to Section 1071 Data
As discussed in the section-by-section analysis of Sec. Sec.
__.12, __.22, and __.42, the agencies have included amendments to
transition to the use of Consumer Financial Protection Bureau's (CFPB)
final rule under section 1071 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act) \11\ (Section 1071 Final Rule)
\12\ small business and small farm lending data (section 1071 data)
once the data are available. The section 1071 data would replace CRA
small business and small farm lending data required to be collected,
maintained, and reported pursuant to final Sec. __.42(a)(1) and
(b)(1).
---------------------------------------------------------------------------
\11\ Public Law 111-203, 124 Stat. 1376 (2010).
\12\ 88 FR 35150 (May 31, 2023); see also 12 CFR part 1002.
---------------------------------------------------------------------------
With respect to the agencies' transition to using section 1071
data, as indicated in the section-by-section analysis of Sec. __.12,
the agencies have removed proposed references to section 1071 data in
the final rule's regulatory text. Instead, each agency is adopting
separate agency-specific amendatory text that provides for a transition
to section 1071 data. These transition amendments implement the intent
of the agencies articulated in the proposal to leverage section 1071
data while accounting for the current uncertainty surrounding the
availability of that data. Specifically, when effective, these
transition amendments will add appropriate references to the section
1071 rulemaking, remove references to Call Report-based small business
and small farm data, and make other corresponding changes to the final
rule regulatory text.
The agencies are not including an effective date for these section
1071-related transition amendments in the final rule. Instead, once the
availability of section 1071 data is clarified, the agencies will take
steps to provide appropriate notice in the Federal Register of the
effective date of the transition amendments. The agencies expect that
the effective date will be on January 1 of the relevant year to align
with the final rule's data collection and reporting, benchmark
calculations, and performance analysis, which all are based on whole
calendar years.
Implementation
The agencies expect to issue supervisory guidance, including
examination procedures, to promote clarity and transparency regarding
implementation of the final rule. In addition, the agencies will
conduct outreach and training to facilitate implementation of the final
rule. For instance, the agencies expect to develop data reporting
guides and technical assistance materials to assist banks in
understanding supervisory expectations with respect to the final rule's
data reporting requirements. In addition, the agencies expect to
develop templates, such as for the submission of digital and other
delivery systems data as well as for responsive deposit products data,
to increase consistency, and will continue to explore other tools to
improve efficiency and reduce burden. The agencies are also planning to
develop data tools for banks and the public that will increase
familiarity with the operation of the performance tests and allow for
monitoring of performance relative to benchmarks based on historical
data.
Each of the topics highlighted through this Summary of the Final
Rule are discussed in greater detail in the section-by-section analysis
in section IV of this SUPPLEMENTARY INFORMATION. The agencies are
setting forth in this SUPPLEMENTARY INFORMATION the final rule using
common regulation text for ease of review. The agencies have also
included agency-specific amendatory text \13\ where necessary to
account for differing agency authority and terminology.\14\
---------------------------------------------------------------------------
\13\ The OCC notes that current 12 CFR part 25 includes subpart
E, Prohibition Against Use of Interstate Branches Primarily for
Deposit Production. This subpart implements section 109 of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994,
12 U.S.C. 1835a, which only applies to certain national banks and
Federal branches of a foreign bank. As proposed, this final rule
redesignates this subpart as subpart F but does not amend it.
\14\ In addition to the changes described in this SUPPLEMENTARY
INFORMATION, the agencies have made conforming and technical changes
throughout the final rule. The agencies will evaluate at a later
date other rules that cross-reference to the CRA regulations to
identify conforming changes that may be appropriate.
---------------------------------------------------------------------------
II. Background
A. General Statutory Background
The CRA was passed by Congress as part of the Housing and Community
Development Act of 1977 \15\ and is designed to encourage regulated
banks to help meet the credit needs of the communities in which they
are chartered. Specifically, Congress found that (1) regulated
financial institutions are required by law to demonstrate that their
deposit facilities serve the convenience and needs of the communities
in which they are chartered to do business; (2) the convenience and
needs of communities include the need for credit services as well as
deposit services; and (3) regulated financial institutions have a
continuing and affirmative obligation to help meet the credit needs of
the local communities in which they are chartered.\16\
---------------------------------------------------------------------------
\15\ Public Law 95-128, 91 Stat. 1111 (Oct. 12, 1977).
\16\ 12 U.S.C. 2901(a).
---------------------------------------------------------------------------
The CRA requires the agencies to ``assess the institution's record
of meeting the credit needs of its entire community, including low- and
moderate-income neighborhoods, consistent with the safe and sound
operation of such institution.'' \17\ Upon completing this assessment,
the statute requires the agencies to ``prepare a written evaluation of
the institution's record of meeting the credit needs of its entire
community, including low- and moderate-income neighborhoods.'' \18\ The
statute further provides that each agency must consider a bank's CRA
performance ``in its evaluation of an application for a deposit
facility by such institution.'' \19\
---------------------------------------------------------------------------
\17\ 12 U.S.C. 2903(a)(1).
\18\ 12 U.S.C. 2906(a).
\19\ 12 U.S.C. 2903(a)(2).
---------------------------------------------------------------------------
Since its enactment, Congress has amended the CRA several times,
including through: the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 \20\ (which required public disclosure of a
bank's CRA written evaluation and rating); the Federal Deposit
Insurance Corporation Improvement Act of 1991 \21\ (which required the
inclusion of a bank's CRA examination data in the determination of its
CRA rating); the Resolution Trust Corporation Refinancing,
Restructuring, and Improvement Act of 1991 (which permits the agencies
to provide favorable consideration where the bank has donated, sold on
favorable terms, or
[[Page 6580]]
made available rent-free any branch of the bank ``located in any
predominantly minority neighborhood to any minority depository
institution or women's depository institution''); \22\ the Housing and
Community Development Act of 1992 \23\ (which included assessment of
the record of nonminority-owned and nonwomen-owned banks in cooperating
with minority-owned and women-owned banks and LICUs); the Riegle-Neal
Interstate-Banking and Branching Efficiency Act of 1994 \24\ (which (1)
required an agency to consider an out-of-State national bank's or State
bank's CRA rating when determining whether to allow interstate
branches, and (2) prescribed certain requirements for the contents of
the written CRA evaluation for banks with interstate branches); and the
Gramm-Leach-Bliley Act of 1999 \25\ (which, among other things,
provided regulatory relief for smaller banks by reducing the frequency
of their CRA examinations).
---------------------------------------------------------------------------
\20\ Public Law 101-73, 103 Stat. 183 (Aug. 9, 1989).
\21\ Public Law 102-242, 105 Stat. 2236 (Dec. 19, 1991).
\22\ Public Law 102-233, 105 Stat. 1761 (Dec. 12, 1991).
\23\ Public Law 102-550, 106 Stat. 3874 (Oct. 28, 1992).
\24\ Public Law 103-328, 108 Stat. 2338 (Sept. 29, 1994).
\25\ Public Law 106-102, 113 Stat. 1338 (Nov. 12, 1999).
---------------------------------------------------------------------------
Additionally, Congress directed the agencies to publish regulations
to carry out the CRA's purposes.\26\ In 1978, the agencies promulgated
the first CRA regulations, which included evidence of prohibited
discriminatory or other illegal credit practices as a performance
factor as discussed further in the next section.\27\ Since then, the
agencies have together significantly revised and sought to clarify
their CRA regulations twice--in 1995 \28\ and 2005 \29\--with the most
substantive interagency update occurring in 1995. In addition, the
agencies have periodically jointly published the Interagency Questions
and Answers Regarding Community Reinvestment (Interagency Questions and
Answers) \30\ to provide guidance on the CRA regulations.
---------------------------------------------------------------------------
\26\ 12 U.S.C. 2905.
\27\ 43 FR 47144 (Oct. 12, 1978). Congress also charged, in
addition to the agencies, the Office of Thrift Supervision (OTS) and
its predecessor agency, the Federal Home Loan Bank Board, with
implementing the CRA. The OTS had CRA rulemaking and supervisory
authority for all savings associations. Pursuant to Title III of the
Dodd-Frank Wall Street Reform and Consumer Protection Act, Public
Law 111-203, 124 Stat. 1376, 1522 (2010) (Dodd-Frank Act), the OTS's
CRA rulemaking authority for all savings associations transferred to
the OCC and the OTS's CRA supervisory authority for State savings
associations transferred to the FDIC. As a result, the OCC's CRA
regulation applies to both State and Federal savings associations,
in addition to national banks, and the FDIC enforces the OCC's CRA
regulations with respect to State savings associations.
\28\ 60 FR 22190 (May 4, 1995).
\29\ 70 FR 44268 (Aug. 2, 2005).
\30\ See 81 FR 48506 (July 25, 2016). ``Interagency Questions
and Answers'' refers to the ``Interagency Questions and Answers
Regarding Community Reinvestment'' guidance in its entirety. ``Q&A''
refers to an individual question and answer within the Interagency
Questions and Answers.
---------------------------------------------------------------------------
B. CRA, Illegal Discrimination, and Fair Lending
The CRA was one of several laws enacted in the 1960s and 1970s to
address fairness and financial inclusion in access to housing and
credit.\31\ During this period Congress passed the Fair Housing Act
\32\ to prohibit discrimination in the sale or rental of housing,\33\
and the Equal Credit Opportunity Act (ECOA) in 1974 \34\ (amended in
1976), to prohibit creditors from discriminating against an applicant
in any aspect of a credit transaction on the basis of race, color,
religion, national origin, sex, marital status, and age, because all or
part of the applicant's income derives from any public assistance
program, or because the applicant has in good faith exercised any right
under the Consumer Credit Protection Act.\35\ These fair lending, fair
housing, and other similar laws provide the legal basis under Federal
law for prohibiting discriminatory lending practices by creditors based
on race, ethnicity, and other protected characteristics.\36\
---------------------------------------------------------------------------
\31\ See, e.g., Board, Gov. Lael Brainard, ``Strengthening the
Community Reinvestment Act by Staying True to Its Core Purpose''
(Jan. 8, 2020), https://www.federalreserve.gov/newsevents/speech/brainard20200108a.htm (``The CRA was one of several landmark pieces
of legislation enacted in the wake of the civil rights movement
intended to address inequities in the credit markets.''). See also
123 Cong. Rec. 17630 (1977) (statement of Sen. Proxmire) (discussing
enactment of CRA and addressing banks taking deposits from a
community without reinvesting them in that community).
\32\ 42 U.S.C. 3601 et seq.
\33\ 42 U.S.C. 3604 through 3606.
\34\ 15 U.S.C. 1691 et seq.
\35\ 15 U.S.C. 1691(a).
\36\ See Federal Financial Institutions Examination Council
(FFIEC), ``Interagency Fair Lending Examination Procedures'' (Aug.
2009), https://www.ffiec.gov/pdf/fairlend.pdf.
---------------------------------------------------------------------------
The agencies have long recognized that CRA and fair lending are
mutually reinforcing. For example, starting with the original CRA
regulations issued in 1978, the agencies have taken evidence of
discrimination or other illegal credit practices into account when
evaluating a bank's CRA performance.\37\ Other provisions in the
original 1978 regulations similarly expressed the agencies' view that
the exclusion of certain segments of a bank's community is ``contrary
to'' and ``in conflict with'' the CRA's purpose of requiring banks to
meet the credit needs of their entire communities.\38\ Specifically,
the agencies provided for ``assessment of an institution's lending
patterns to see if the institution discriminates between geographic
areas or excludes qualified borrowers from low- and moderate-income
neighborhoods.'' \39\ Factors identified as warranting unfavorable
treatment were ``practices intended to discourage applications,''
evidence of ``violations of the Equal Credit Opportunity Act and the
Fair Housing Act,'' and ``failure to provide usual services--such as
not accepting mortgage applications--at certain branches.\40\
---------------------------------------------------------------------------
\37\ See 43 FR 47144, 47146 (Oct. 12, 1978); current appendix A,
paragraph (a)(1).
\38\ See 43 FR 47144, 47146 (Oct. 12, 1978).
\39\ Id.
\40\ Id.
---------------------------------------------------------------------------
C. Overview of Current CRA Regulations and Guidance for Performance
Evaluations
CRA Performance Evaluations
The current CRA regulations provide different methods to evaluate a
bank's CRA performance depending on the asset size and business
strategy of the bank.\41\ Under the current framework:
---------------------------------------------------------------------------
\41\ See generally current 12 CFR __.21 through __.27. The
agencies annually adjust the CRA asset-size thresholds based on the
annual percentage change in a measure of the Consumer Price Index
for Urban Wage Earners and Clerical Workers. The current bank asset-
size thresholds set forth in this SUPPLEMENTARY INFORMATION are
accurate through December 31, 2023.
---------------------------------------------------------------------------
[cir] Small banks--currently, those with assets of less than $376
million as of December 31 of either of the prior two calendar years--
are evaluated under a lending test and may receive an ``Outstanding''
rating based only on their retail lending performance. Qualified
investments, services, and delivery systems that enhance credit
availability in a bank's assessment areas may be considered for an
``Outstanding'' rating, but only if the bank meets or exceeds the
lending test criteria in the small bank performance standards.
[cir] Intermediate small banks--currently, those with assets of at
least $376 million as of December 31 of both of the prior two calendar
years and less than $1.503 billion as of December 31 of either of the
prior two calendar years--are evaluated under the lending test for
small banks and a community development test. The intermediate small
bank community development test evaluates all community development
activities together.
[cir] Large banks--currently, those with assets of at least $1.503
billion as of December 31 of both of the prior two calendar years--are
evaluated under separate lending, investment, and
[[Page 6581]]
service tests. The lending and service tests consider both retail and
community development activities, and the investment test focuses on
qualified community development investments. To facilitate the
agencies' CRA analysis, large banks are required to report annually
certain data on community development loans, small business loans, and
small farm loans (small banks and intermediate small banks are not
required to report these data unless they opt into being evaluated
under the large bank lending test).
[cir] Designated wholesale banks (those engaged in only incidental
retail lending) and limited purposes banks (those offering a narrow
product line to a regional or broader market) are evaluated under a
standalone community development test.
[cir] Banks of any size may elect to be evaluated under a strategic
plan that sets out measurable, annual goals for lending, investment,
and service activities in order to achieve a ``Satisfactory'' or an
``Outstanding'' rating. A strategic plan must be developed with
community input and approved by the appropriate Federal financial
supervisory agency.
The agencies also consider applicable performance context
information to develop their analysis and conclusions when conducting
CRA examinations. Performance context comprises a broad range of
economic, demographic, and bank- and community-specific information
that examiners review to calibrate a bank's CRA evaluation to its
communities.
Assessment Areas
The current CRA regulations require a bank to delineate one or more
assessment areas in which the bank's record of meeting its CRA
obligations is evaluated.\42\ The regulations require a bank to
delineate assessment areas generally consisting of one or more MSAs or
metropolitan divisions, or one or more contiguous political
subdivisions \43\ in which the bank has its main office, branches, and
deposit-taking ATMs, as well as the surrounding geographies (i.e.,
census tracts) \44\ in which the bank has originated or purchased a
substantial portion of its loans (including home mortgage loans, small
business and small farm loans, and any other loans the bank chooses,
such as consumer loans on which the bank elects to have its performance
assessed).
---------------------------------------------------------------------------
\42\ See current 12 CFR __.41.
\43\ Political subdivisions include cities, counties, towns,
townships, and Indian reservations. See Q&A Sec. __.41(c)(1)--1.
\44\ See current 12 CFR __.12(k).
---------------------------------------------------------------------------
The statute instructs the agencies to assess a bank's record of
meeting the credit needs of its ``entire community, including low- and
moderate-income neighborhoods, consistent with the safe and sound
operation of such institution, and . . . [to] take such record into
account in its evaluation of an application for a deposit facility by
such institution.'' \45\ The statute does not prescribe the delineation
of assessment areas, but they are an important aspect of the regulation
because the agencies use assessment areas to determine what constitutes
a bank's ``community'' for purposes of the evaluation of a bank's CRA
performance.
---------------------------------------------------------------------------
\45\ 12 U.S.C. 2903(a).
---------------------------------------------------------------------------
Qualifying Activities
The CRA regulations and the Interagency Questions and Answers
provide detailed information, including applicable definitions and
descriptions, respectively, regarding activities that are eligible for
CRA consideration in the evaluation of a bank's CRA performance. Banks
that are evaluated under a performance test that includes a review of
their retail activities are assessed in connection with retail lending
activity (e.g., home mortgage loans, small business loans, small farm
loans, and consumer loans) \46\ and, where applicable, retail banking
service activities (e.g., the current distribution of a bank's branches
in geographies of different income levels, and the availability and
effectiveness of the bank's alternative systems for delivering banking
services to low- and moderate-income geographies and individuals).\47\
---------------------------------------------------------------------------
\46\ See current 12 CFR __.12(j), (l), (v), and (w).
\47\ See generally current 12 CFR __.21 through __.27; see also
current 12 CFR __.24(d).
---------------------------------------------------------------------------
Banks evaluated under a performance test that includes a review of
their community development activities are assessed with respect to
community development lending, qualified investments, and community
development services, which must have a primary purpose of community
development.\48\
---------------------------------------------------------------------------
\48\ See current 12 CFR __.12(g) through (i) and (t); see also
current 12 CFR __.21 through __.27.
---------------------------------------------------------------------------
Guidance for Performance Evaluations
In addition to information included in their CRA regulations, the
agencies also provide information to the public regarding how CRA
performance tests are applied, where CRA activities are considered, and
what activities are eligible through publicly available CRA performance
evaluations,\49\ the Interagency Questions and Answers, interagency CRA
examination procedures,\50\ and interagency instructions for writing
performance evaluations.\51\
---------------------------------------------------------------------------
\49\ See, e.g., Board ``Search: Evaluations & Ratings (Federal
Reserve Supervised Banks),'' https://www.federalreserve.gov/apps/CRAPubWeb/CRA/BankRating; FDIC, ``Community Reinvestment Act (CRA)
Performance Ratings,'' https://crapes.fdic.gov/; OCC, ``CRA
Performance Evaluations,'' https://occ.gov/publications-and-resources/tools/index-cra-search.html.
\50\ See, e.g., FFIEC, ``Community Reinvestment Act: CRA
Examinations,'' https://www.ffiec.gov/cra/examinations.htm.
\51\ Id.
---------------------------------------------------------------------------
D. Stakeholder Feedback and Recent Agency Rulemaking Efforts
The financial services industry has undergone transformative
changes since the CRA was enacted, including the removal of national
bank interstate branching restrictions and the expanded role of mobile
and online banking. Prior to publishing the NPR, and to better
understand how these developments impact both consumer access to
banking products and services and a bank's CRA performance, the
agencies sought, received, and reviewed feedback from the banking
industry, community groups, academics, and other stakeholders on
several occasions.
Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA)
From 2013 to 2016, the agencies solicited feedback on the CRA as
part of the EGRPRA review process.\52\ Stakeholders raised issues
related to: assessment area definitions; incentives for banks to serve
low- and moderate-income, unbanked, underbanked, and rural communities;
regulatory burdens associated with recordkeeping and reporting
requirements, and asset thresholds for the various CRA examination
methods; the need for clarity regarding performance measures and better
examiner training to ensure consistency and rigor in examinations; and
refinement of CRA ratings methodology.\53\
---------------------------------------------------------------------------
\52\ See, e.g., 80 FR 7980 (Feb. 13, 2015).
\53\ See 82 FR 15900 (Mar. 30, 2017).
---------------------------------------------------------------------------
OCC CRA Advance Notice of Proposed Rulemaking and OCC and Federal
Reserve Outreach Sessions
On September 5, 2018, the OCC published an advance notice of
proposed rulemaking (ANPR) to solicit ideas for a new CRA regulatory
framework.\54\ More than 1,500 comment letters were submitted in
response. The
[[Page 6582]]
OCC held more than 40 meetings and outreach events after its ANPR. To
augment that input, the Board and the Federal Reserve Banks held about
30 outreach meetings with representatives of banks, community
organizations, and the FDIC and OCC.\55\
---------------------------------------------------------------------------
\54\ See 83 FR 45053 (Sept. 5, 2018).
\55\ For a summary of the Federal Reserve outreach session
feedback, see ``Perspectives from Main Street: Stakeholder Feedback
on Modernizing the Community Reinvestment Act'' (June 2019), https://www.federalreserve.gov/publications/files/stakeholder-feedback-on-modernizing-the-community-reinvestment-act-201906.pdf.
---------------------------------------------------------------------------
OCC-FDIC CRA Notice of Proposed Rulemaking and OCC CRA Final Rule
On December 12, 2019, the FDIC and the OCC issued a joint notice of
proposed rulemaking to revise and update their CRA regulations.\56\ In
response, the FDIC and the OCC received over 7,500 comment letters.
---------------------------------------------------------------------------
\56\ 85 FR 1204 (Jan. 9, 2020).
---------------------------------------------------------------------------
On May 2020, the OCC issued a CRA final rule (OCC 2020 CRA Final
Rule), retaining the most fundamental elements of the joint proposal
but also making adjustments to reflect stakeholder input.\57\ The OCC
deferred establishing the metrics-framework for evaluating banks' CRA
performance until it was able to assess additional data,\58\ with the
final rule having an October 1, 2020, effective date and January 1,
2023, and January 1, 2024, compliance dates for certain provisions.\59\
---------------------------------------------------------------------------
\57\ 85 FR 34734 (June 5, 2020).
\58\ See OCC, News Release 2020-63, ``OCC Finalizes Rule to
strengthen and Modernize Community Reinvestment Act Regulations''
(May 20, 2020), https://www.occ.gov/news-issuances/news-releases/2020/nr-occ-2020-63.html; see also 85 FR 34736.
\59\ 85 FR 34784.
---------------------------------------------------------------------------
Board CRA Advance Notice of Proposed Rulemaking
On September 21, 2020, the Board issued a CRA ANPR (Board CRA ANPR)
requesting public comment on an approach to modernize the CRA
regulations by strengthening, clarifying, and tailoring the regulations
to reflect the current banking landscape and better meet the core
purpose of the CRA.\60\ The Board CRA ANPR sought feedback on ways to
evaluate how banks meet the needs of low- and moderate-income
communities and address inequities in credit access. The Board received
over 600 comment letters in response.
---------------------------------------------------------------------------
\60\ 85 FR 66410 (Oct. 19, 2020).
---------------------------------------------------------------------------
Interagency Statement and Other Developments
On July 20, 2021, the agencies issued an interagency statement
indicating their commitment to work collectively to, in a consistent
manner, strengthen and modernize their CRA regulations.\61\ On December
15, 2021, the OCC issued a final rule, effective January 1, 2022, to
rescind the OCC 2020 CRA Final Rule and replace it with CRA regulations
based on those that the agencies jointly issued in 1995, as amended.
The OCC's final rule also integrated the OCC's CRA regulation for
savings associations into its national bank CRA regulation at 12 CFR
part 25.\62\
---------------------------------------------------------------------------
\61\ See ``Interagency Statement on Community Reinvestment Act,
Joint Agency Action'' (July 20, 2021), https://www.occ.gov/news-issuances/news-releases/2021/nr-ia-2021-77.html (OCC); https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210720a.htm
(Board); https://www.fdic.gov/news/press-releases/2021/pr21067.html
(FDIC).
\62\ 86 FR 71328 (Dec. 15, 2021).
---------------------------------------------------------------------------
E. The Agencies' Proposal
Community development definitions. The NPR included a proposal to
revise the community development definitions to clarify eligibility
criteria for a broad range of community development activities and
incorporate certain guidance currently provided through the Interagency
Questions and Answers. The agencies also proposed using a primary
purpose standard for determining eligibility of community development
activities, with pro rata consideration for certain affordable housing
activities.
Qualifying activities confirmation and illustrative list of
community development activities. The agencies proposed to maintain a
publicly available illustrative, non-exhaustive list of community
development activities eligible for CRA consideration, which the
agencies would periodically update. In addition, the agencies proposed
a process, open to banks, for confirming eligibility of community
development activities in advance.
Impact review of community development activities. To promote
clearer and more consistent evaluation procedures, the agencies
proposed to include impact and responsiveness factors (referred to in
the NPR as impact review factors) in the regulation. The impact review
factors would inform the agencies' evaluation of the impact and
responsiveness of a bank's activities under the proposed community
development tests.
Assessment areas and areas for eligible community development
activity. The agencies offered a series of proposals on delineating
facility-based assessment areas for main offices, branches, and
deposit-taking remote service facilities (to include ATMs). The NPR
sought to maintain facility-based assessment areas as the cornerstone
of the CRA evaluation framework. Under the proposal, large banks would
delineate assessment areas comprised of full counties, metropolitan
divisions, or MSAs. Intermediate and small banks could continue to
delineate partial county facility-based assessment areas, consistent
with current practice.
The agencies also proposed that large banks would delineate retail
lending assessment areas where the bank has concentrations of home
mortgage and/or small business lending outside of its facility-based
assessment areas. Under that aspect of the proposal, a large bank would
delineate retail lending assessment areas where it had an annual
lending volume of at least 100 home mortgage loan originations or at
least 250 small business loan originations in an MSA or nonmetropolitan
area of a State for two consecutive years.
The agencies also proposed to allow banks to receive CRA credit for
any qualified community development activity, regardless of location,
although performance within facility-based assessment areas would be
emphasized.
Performance tests, standards, and ratings in general. The agencies
proposed an evaluation framework that would include a Retail Lending
Test, a Retail Services and Products Test, a Community Development
Financing Test, and a Community Development Services Test. Under the
proposal, large banks would be evaluated under all four tests.
Intermediate banks would be evaluated under the Retail Lending Test and
the status quo community development test, unless they opted into the
Community Development Financing Test. Small banks would be evaluated
under the status quo small bank lending test, unless they opted into
the Retail Lending Test. Wholesale and limited purpose banks would be
evaluated under a tailored version of the Community Development
Financing Test.
Under this proposed framework, large banks would be banks that had
average quarterly assets, computed annually, of at least $2 billion in
both of the prior two calendar years; intermediate banks would be banks
that had average quarterly assets, computed annually, of at least $600
million in both of the prior two calendar years and less than $2
billion in either of the prior two calendar years; and small banks
would be banks that had average quarterly assets, computed annually, of
less than $600 million in either of the prior two calendar years.\63\
The agencies also
[[Page 6583]]
proposed adding a new definition of ``operations subsidiary'' to the
Board's CRA regulation and ``operating subsidiary'' to the FDIC's and
OCC's CRA regulations to identify those bank affiliates whose
activities would be required to be attributed to a bank's CRA
performance (together, bank subsidiaries). The agencies proposed to
maintain the current flexibilities that would allow a bank to choose to
include or exclude the activities of other bank affiliates that are not
considered bank subsidiaries. The NPR also discussed performance
context, and the requirement for activity in accordance with safe and
sound operations.
---------------------------------------------------------------------------
\63\ Of particular relevance to the agencies' CRA regulations,
the SBA revised the size standards applicable to small commercial
banks and savings institutions, respectively, from $600 million to
$750 million, based upon the average assets reported on such a
financial institution's four quarterly financial statements for the
preceding year. The final rule had a May 2, 2022, effective date.
See 87 FR 18627, 18830 (Mar. 31, 2022).
---------------------------------------------------------------------------
Retail Lending Test product categories and major product lines. The
agencies proposed categories and standards for determining when a
bank's retail lending product lines are evaluated under the proposed
Retail Lending Test. The agencies proposed the following retail lending
product line categories: closed-end home mortgage, open-end home
mortgage, multifamily, small business, and small farm lending. The
agencies also proposed including automobile lending as an eligible
retail lending product line. In addition, the agencies proposed a 15
percent major product line standard to determine when a retail lending
product line would be evaluated.
Retail Services and Products Test. The agencies proposed to
evaluate large banks under the Retail Services and Products Test, which
would use a predominantly qualitative approach, incorporating
quantitative measures as guidelines, as applicable. The agencies
proposed that the evaluation of digital and other delivery systems
would be required for large banks with assets of over $10 billion, and
not required for large banks with assets of $10 billion or less.
Furthermore, the credit products and deposit products part of the
proposed Retail Services and Products Test aimed to evaluate a bank's
efforts to offer products that are responsive to the needs of low- and
moderate-income communities. The agencies proposed that the evaluation
of deposit products responsive to the needs of low- or moderate-income
individuals would be required for large banks with assets of over $10
billion, and not required for large banks with assets of $10 billion or
less.
Community Development Financing Test. The agencies proposed to
evaluate large banks as well as intermediate banks that opt into the
test under the proposed Community Development Financing Test. As
proposed, the Community Development Financing Test would consist of a
Community Development Financing Metric, benchmarks, and an impact
review. These components would be assessed at the facility-based
assessment area, State, multistate MSA, and institution levels, and
would inform conclusions at each of those levels.
Community Development Services Test. The agencies proposed to
assess a large bank's community development services, underscoring the
importance of these activities for fostering partnerships among
different stakeholders, building capacity, and creating the conditions
for effective community development. The agencies proposed that in
nonmetropolitan areas, banks may receive community development services
consideration for volunteer activities that meet an identified
community development need, even if unrelated to the provision of
financial services. The proposed test would consist of a primarily
qualitative assessment of the bank's community development service
activities. For large banks with assets of over $10 billion, the
agencies proposed also using a metric to measure the hours of community
development services activity per full time employee of a bank.
Wholesale and limited purpose banks. The agencies proposed a
Community Development Financing Test for Wholesale and Limited Purpose
Banks, which would include a qualitative review of a bank's community
development lending and investments in each facility-based assessment
area and an institution level-metric measuring a bank's volume of
activities relative to its capacity. The agencies also proposed giving
wholesale and limited purpose banks the option to have examiners
consider community development service activities that would qualify
under the Community Development Services Test.
Strategic plans. The agencies proposed to maintain a strategic plan
option as an alternative method for evaluation. Banks that elect to be
evaluated under a strategic plan would continue to request approval for
the plan from their appropriate Federal financial supervisory agency.
The agencies proposed more specific criteria to ensure that all banks
meet their CRA obligation to serve low- and moderate-income individuals
and communities. As proposed, banks approved to be evaluated under a
strategic plan option would have the same assessment area requirements
as other banks and would submit plans that include the same performance
tests and standards that would otherwise apply unless the bank is
substantially engaged in activities outside the scope of these
performance tests. In seeking approval for a plan that does not adhere
to requirements and standards that are applied to other banks, the plan
would be required to include an explanation of why different standards
would be more appropriate in meeting the credit needs of the bank's
communities.
Assigned conclusions and ratings. The agencies proposed to provide
greater transparency and consistency on assigning ratings for a bank's
overall performance. The proposed approach would produce performance
scores for each applicable test, at the State, multistate MSA, and
institution levels based on a weighted average of assessment area
conclusions, as well as consideration of additional test-specific
factors at the State, multistate MSA, or institution level. These
performance scores would be mapped to conclusion categories to assign
test-specific conclusions at each level. The agencies further proposed
to combine these performance scores across tests to assign ratings at
each level.
The agencies proposed to determine a bank's overall rating by
taking a weighted average of the applicable performance test scores.
For large banks, the agencies proposed the following weights: 45
percent for Retail Lending Test performance score; 15 percent for
Retail Services and Products Test performance score; 30 percent for
Community Development Financing Test performance score; and 10 percent
for Community Development Services Test performance score. For
intermediate banks, the agencies proposed to weight the Retail Lending
test at 50 percent and the community development test, or if the bank
opted into the Community Development Financing Test, at 50 percent.
The agencies also proposed updating the criteria to determine how
discriminatory and other illegal practices would adversely affect a
rating, as well as what rating level (State, multistate MSA, and
institution) would be affected.
Performance standards for small and intermediate banks. The
agencies proposed to continue evaluating small banks under the small
bank performance standards in the current CRA framework. However, under
the proposal, small banks could opt into the
[[Page 6584]]
Retail Lending Test and could continue to request additional
consideration for other qualifying CRA activities. The agencies would
evaluate intermediate banks under the proposed Retail Lending Test, and
would evaluate an intermediate bank's community development activity
pursuant to the criteria under the current intermediate small bank
community development test. Intermediate banks could also opt to be
evaluated under the proposed Community Development Financing Test.
Effect of CRA performance on applications. The agencies proposed no
substantive changes to the regulatory provisions concerning the effect
of CRA performance on bank applications, such as those for mergers,
acquisitions, or consolidation of assets, deposit insurance requests,
and the establishment of domestic branches.
Data collection, reporting, and disclosure. The agencies proposed
to revise data collection and reporting requirements to increase the
clarity, consistency, and transparency of the evaluation process
through the use of standard metrics and benchmarks. The proposal
recognized the importance of using existing data sources where
possible, and tailoring data requirements, where appropriate.
In addition to leveraging existing data, however, the proposal
would have required large banks to collect, maintain, and report
additional data. The data requirements under the proposal for
intermediate banks and small banks would remain the same as the current
requirements. All large banks under the proposal would have new
requirements for certain categories of data, (including community
development financing data, branch location data, and remote service
facility location data); however, some new data requirements would only
apply to large banks with assets of over $10 billion. The agencies also
proposed updated standards for all large banks to report the
delineation of their assessment areas.
Content and availability of public file, public notice by banks,
publication of planned examination schedule, and public engagement. The
agencies proposed to provide more transparent information to the public
on CRA examinations and encourage communication between members of the
public and banks. The agencies proposed to make a bank's CRA public
file more accessible to the public by allowing any bank with a public
website to include its CRA public file on its website. The agencies
also proposed publishing a list of banks scheduled for CRA examinations
for the next two quarters at least 60 days in advance in order to
provide additional notice to the public. Finally, the agencies proposed
to establish a way for the public to provide feedback on community
needs and opportunities in specific geographies.
Transition. The agencies proposed a phased-in timeline that would
facilitate the transition from the current regulatory and supervisory
framework to the updated CRA regulatory and supervisory framework.
III. General Comments Received
The agencies received approximately 950 unique comment letters
regarding the proposal from a wide range of commenters, including:
financial institutions; non-financial institution and financial
institution trade associations; CDFIs; financial and non-financial
businesses; community development organizations; consumer advocacy
groups; civil rights groups; other nonprofit organizations; Federal,
State, local, and tribal government commenters; tribal organizations;
academics; individuals; and other interested parties. The agencies have
carefully considered all the commenter feedback in developing the final
rule.
Comments received by the agencies cover a wide-ranging set of
topics across the entire proposal. General public comments on the NPR
are summarized below. Comments relating to specific regulatory
provisions of the agencies' proposal and the final rule are discussed
in detail in the section-by-section analyses of the specific provisions
on which commenters shared their views.
A. General Comments Regarding the NPR
Modernizing the CRA performance evaluation framework. Many
commenters expressed appreciation for the agencies' unified efforts to
modernize the CRA framework. Some commenters noted support for the
objective of providing transparency and consistency for banks covered
by CRA and the communities they serve. In addition, several commenters,
expressed support for various aspects of the NPR, including the
proposal's metrics-driven approach and attention to climate resiliency.
Some commenters stated that while the agencies' proposal is a step
in the right direction, more could be done to improve the CRA
regulations, such as requiring the agencies to consult with a diverse
set of community representatives when evaluating an institution's CRA
performance. A few commenters also suggested that the final rule should
encourage both meaningful action to help low- and moderate-income
communities and collaboration between banks and financial technology
(fintech) companies. Another commenter recommended that the agencies
view the military community as a community deserving of CRA support.
The commenter further stated that bank activities that serve the
military community should generally receive CRA credit.
Other commenters opposed or expressed concerns about the proposal
for various reasons, asserting that aspects of the NPR could result in,
for example: decreased bank competition; undue burden and costs; less
credit availability; gentrification of urban Black neighborhoods; and
fewer services in low- and moderate-income communities.
Complexity of the proposed rule. Numerous commenters expressed
concern that the agencies' proposal was too complex and difficult to
understand--primarily related to the proposed performance test measures
and ratings methodology requiring significant resources and costs to
implement--and recommended that the agencies develop a simpler final
rule to avoid unintended negative consequences. Some commenters
recommended the agencies develop tools, guidance, and training for
examiners and allow banks to consult with the agencies as needed.
Coordination of the CRA regulations with State and Federal
agencies. A few commenters expressed concerns regarding the lack of
coordination between the agencies, the CFPB, and the States and
suggested the agencies work together with these other entities to
improve consistency and further the mission of CRA. Other commenters
noted that given shifts in the banking industry, the agencies should
extend CRA regulations to nonbank lenders and, some commenters
recommended, work with the CFPB to do so.
Length of the comment period and other rulemakings. Several
commenters objected to the length of the comment period stating that it
was too short and did not provide sufficient time for analysis and
comment, with some commenters recommending that the agencies withdraw
the proposal, issue a revised set of proposed rules, or open a new
comment period. A few commenters suggested that the agencies should
delay issuance of a final rule given uncertainty in the industry and
the status of other rulemakings such as the CFPB's Section 1071 Final
Rule and the agencies' separate rulemaking on capital requirements for
certain banks.
[[Page 6585]]
Application of the proposed regulations to different business
models. Some commenters expressed concern that the agencies' proposal
did not address the needs of different business models and could create
a one-size-fits-all approach that favors particular business models,
which would not reflect the ever-changing banking landscape. These
commenters indicated that the final rule should do more to recognize
the inherently diffuse nature of digital banking and that more
flexibility is necessary to account for different business models.
Promoting activities in local communities, including rural and
underserved areas. Some commenters asserted that the NPR would be more
effective in boosting reinvestment activity in underserved areas if the
evaluations and ratings were more rigorous. Other commenters expressed
concerns regarding the proposed use of metrics and certain data,
suggesting that they could lead to disinvestment in hard to serve areas
and overinvestment in urban areas due to the use of census data.
The agencies also received comments outlining different methods of
promoting activities and investments at the local level, including
specific recommendations: on how to promote investments in underserved
rural and native communities; that the agencies should incentivize
affordable small dollar loans and other products; and that the agencies
should seek to end ``rent-a-bank'' partnerships.
A few other commenters suggested that the final rule should address
the issue of appraisal bias to ensure lenders are fulfilling the needs
of the communities they serve, and recommended that bank lenders should
complete additional due diligence on the appraisers they work with.
The agencies also received several comments regarding the
importance of performance context, suggesting that performance context
and examiner discretion is necessary to understand the metrics embedded
in the CRA exam.
Legal issues. Some commenters provided general comments raising
legal concerns with the proposal. For example, some commenters stated
that if the proposal is finalized as proposed, the final rule could be
challenged as arbitrary and capricious because it was not supported by
a reasoned analysis. Several commenters expressed the view that the
agencies lack the authority to adopt the proposal. Finally, a commenter
questioned the FDIC Board's authority to issue the NPR and to adopt a
final rule based on certain aspects of the FDIC's organic statute and
the FDIC Board's composition at the time the NPR was issued.
Other comments. The agencies also received suggestions about how
the agencies could evaluate the impact of the final rule, including
five-year lookback reviews and an impact study. Commenter feedback also
included noting that performance evaluations should be published as
soon as reasonably possible. Some commenters urged the agencies to
expand the coverage of CRA to credit unions to ensure low- and
moderate-income communities are adequately served.
Final Rule
The agencies have carefully considered the general commenter
feedback regarding ways in which the NPR could be improved and believe
the final rule strikes the proper balance between the stated
objectives, including to update the CRA regulations to strengthen the
achievement of the core purpose of the statute and adapt to changes in
the banking industry. For additional discussion regarding the agencies'
objectives, see section III.B of this SUPPLEMENTARY INFORMATION. The
agencies also carefully considered commenters' concerns regarding the
complexity of the proposed rule and have made modifications to various
aspects of the final rule to reduce complexity as explained in more
detail in section IV of this SUPPLEMENTARY INFORMATION. In addition,
with respect to the Retail Lending Test, the agencies believe that the
final rule ensures that CRA evaluations of retail lending are
appropriately robust and comprehensive, provides greater consistency
and transparency, and reduces overall complexity relative to the
approach set out in the NPR. The agencies note that any evaluation
approach leveraging metrics and benchmarks that captures the different
ways that banks may serve the credit needs of an area will necessarily
entail a degree of complexity.
The agencies appreciate commenter feedback that the military
community should be considered a community deserving of CRA support.
The agencies believe that the final rule encourages banks to meet the
credit needs of military communities. For example, the final rule
codifies ``military bank'' as a defined term in final Sec. __.12, and
clarifies the assessment area and evaluation approach to military banks
in final Sec. Sec. __.16(d) and __.21(a)(5), respectively.\64\ In
addition, the agencies are specifying in final Sec. __.28(d) that
violations of the Military Lending Act and Servicemembers Civil Relief
Act may constitute discriminatory or other illegal credit practices
that may adversely affect a bank's CRA performance. More generally, the
agencies believe that many bank activities that serve the military
community may receive community development consideration under the
final rule. For further discussion of these provisions, see the
section-by-section analyses of Sec. Sec. __.12, __.16(d), __.21(a)(5),
and __.28(d).
---------------------------------------------------------------------------
\64\ See also 12 U.S.C. 2902(4).
---------------------------------------------------------------------------
The agencies appreciate comments encouraging the agencies to
coordinate with States, the CFPB, and other Federal regulators to
improve consistency and efficiency of CRA examinations, and the
agencies note that they currently, and will continue to, coordinate
with other regulators when appropriate on CRA examinations. Further,
the agencies are not able to extend the CRA regulations to cover
nonbank lenders and credit unions. Such an expansion is outside the
scope of this rulemaking and the agencies' current authority.
In response to comments regarding the length of the comment period,
the agencies note that the NPR's comment period was 90 days, which is
consistent with the requirements of the Administrative Procedure Act
and provided sufficient time for public consideration and comment, as
demonstrated by the number of detailed and thoughtful comments the
agencies received on the proposal.
One of the objectives of the CRA proposal was to tailor performance
standards to account for differences in bank size, business models, and
local conditions. The agencies have carefully considered commenter
feedback, and while the agencies believe the proposal provided
flexibility to accommodate institutions with different business models,
the agencies have made various changes in response to commenter
feedback to provide additional flexibility in the final rule as
outlined in the section-by-section analyses in section IV of this
SUPPLEMENTARY INFORMATION. The agencies also note the final rule
retains the strategic plan option for banks to adjust the performance
tests or weighting based on their business model.
After carefully considering commenter suggestions on how to
encourage reinvestment activity through rigorous evaluations and
standards, the agencies are declining to adopt these specific commenter
recommendations. The agencies believe the final rule's evaluation
framework is appropriately rigorous and encourages reinvestment
activity, while maintaining flexibility and allowing room for
consideration of
[[Page 6586]]
performance context. The agencies have considered the views from some
commenters raising concerns on the potential negative impacts of the
use of metrics and data in the proposal. As discussed further in
section IV of this SUPPLEMENTARY INFORMATION, the agencies believe the
use of metrics and data in the final rule is appropriately tailored to
encourage, rather than deter, reinvestment in hard to serve areas.
While the agencies appreciate commenters' suggestions on additional
methods to encourage activities and investments at the local level, the
agencies are declining to adopt these recommendations and believe the
final rule adequately evaluates activities and investments in
underserved and native communities. The agencies appreciate the
comments highlighting the importance of performance context in CRA
examinations, and the agencies are retaining the use of performance
context in the final rule, as explained in the section-by-section
analysis of Sec. __.21(d).
The agencies appreciate commenters' suggestions to address
appraisal bias, and the agencies note that if such bias were found to
evidence discrimination by an institution evaluated under CRA, the
agencies may consider this as the basis for a downgrade as discussed in
the section-by-section analysis of Sec. __.28.
The agencies believe that the NPR adequately explained the
agencies' rationale for the proposed changes. The NPR contains detailed
analysis of the current CRA regulations, the need for modernization,
and an in-depth review of the proposed rule and alternatives the
agencies considered, which are all supported by extensive data.
The agencies acknowledge that commenters provided general comments
raising legal concerns with the proposal. The agencies note that the
CRA authorizes the agencies to adopt regulations to carry out the
purposes of the statute,\65\ and requires the agencies to assess the
institution's record of meeting the credit needs of its entire
community, including low- and moderate-income neighborhoods, consistent
with the safe and sound operation of the bank.\66\ The final rule
furthers the purposes of the CRA and is consistent with the agencies'
rulemaking authority. The agencies also considered the points raised by
the commenter questioning the FDIC Board's authority but find no such
impediment to adoption of the final rule. Legal issues concerning
particular aspects of the proposal are discussed in the section-by-
section analysis in section IV of this SUPPLEMENTARY INFORMATION.
---------------------------------------------------------------------------
\65\ See 12 U.S.C. 2905.
\66\ 12 U.S.C. 2903(a)(1).
---------------------------------------------------------------------------
In response to comments regarding lookback reviews, the agencies
often do reviews of their examinations after implementation of revised
or new rules. While the agencies will keep these recommendations in
mind, the agencies are not committing to adopt such recommendations in
a specific timeframe or through a specified method. Regarding the
development of tools, including for small banks, as noted in section I
of this SUPPLEMENTARY INFORMATION, the agencies expect to develop
various materials for banks including data reporting guides, data
reporting templates, and technical assistance to assist banks in
understanding supervisory expectations with respect to the final rule's
performance evaluation standards and data reporting requirements. The
agencies will continue to explore other tools to provide transparent
information to the public, improve efficiency, and reduce burden.
B. General Comments Regarding the Agencies' CRA Modernization
Objectives
As noted in section I of this SUPPLEMENTARY INFORMATION, the
agencies' updates to their CRA regulations in this final rule are
guided by eight objectives. These objectives were set out in the NPR,
and some general comments received on the objectives are summarized
below. Throughout this SUPPLEMENTARY INFORMATION, the agencies provide
additional information and discussion regarding the ways in which this
final rule accomplishes the objectives, including in the section-by-
section analysis in section IV.
The Agencies' Proposal, Comments Received, and the Final Rule
Strengthen the achievement of the core purpose of the statute. As
provided for in the statute, the CRA states that ``[i]t is the purpose
of this chapter to require each appropriate Federal financial
supervisory agency to use its authority when examining financial
institutions, to encourage such institutions to help meet the credit
needs of the local communities in which they are chartered consistent
with the safe and sound operation of such institutions.'' \67\ The CRA
requires the agencies to ``assess the institution's record of meeting
the credit needs of its entire community, including low- and moderate-
income neighborhoods, consistent with the safe and sound operation of
such institution.'' \68\
---------------------------------------------------------------------------
\67\ 12 U.S.C. 2901(b).
\68\ 12 U.S.C. 2903(a)(1).
---------------------------------------------------------------------------
Commenter feedback on this objective included: support for updating
the CRA regulations to achieve this purpose; that CRA modernization
should result in a net increase in the quantity and quality of
financial products and services available in low- and moderate-income
areas; and, that the burden is on the agencies to demonstrate that
modernization efforts would meet these baseline goals for reform.
Additional commenter feedback included: that the sole criterion for
extending CRA consideration to a business activity should be its
direct, significant, and exclusive benefit to low- and moderate-income
individuals; that by ignoring race during CRA exams, the agencies'
proposal falls far short of this objective; and that to achieve the
goal of serving communities with the greatest needs, the agencies must
maintain a balance between the qualitative and quantitative aspects of
the tests and, specifically, to align the twin tracks of CRA compliance
and CDFI certification.
The agencies believe that the final rule updates the CRA
regulations to strengthen the achievement of the core purpose of the
statute. The agencies believe the final rule accomplishes this in
various ways, for example, by: establishing a tailored and rigorous
approach for the performance tests used to assess a bank's record of
meeting the credit needs of its entire community; evaluating the
responsiveness of certain bank's credit products and deposit products,
including an impact and responsiveness review for community development
activities; and including community development definitions that
reflect an emphasis on activities that are responsive to community
needs, especially the needs of low- and moderate-income individuals and
communities. With respect to a commenter's assertion that the agencies
should not ignore race during CRA examinations, the agencies note that
the final rule retains the conditions that facility-based assessment
areas are prohibited from reflecting illegal discrimination and must
not arbitrarily exclude low- or moderate-income census tracts.
Additionally, banks' performance under the CRA can be adversely
affected by evidence of discriminatory or other illegal credit
practices, including violations of ECOA and the Fair Housing Act. The
agencies also believe the final rule appropriately balances the
qualitative and quantitative aspects of the performance tests by
[[Page 6587]]
incorporating standardized metrics and benchmarks in several of the
performance tests, and retaining the ability for the agencies to
consider performance context.
Adapt to changes in the banking industry, including the expanded
role of mobile and online banking. Many commenters expressed general
support for this objective with several of these commenters noting that
now is the time to update the CRA regulations, given advances in
banking technology. A few of these commenters also stated that the CRA
has not kept up with the way consumers expect to use technology to
access financial products and services and that the current CRA
regulations and guidance do not recognize the wide diversity in
business practices of banks or the changes in the financial services
industry that have occurred since the CRA was enacted in 1977.
While some commenters believed the agencies met this objective,
particularly in response to the expanded role of mobile and online
banking, other commenters did not believe the proposal sufficiently met
the objective, noting: efforts to modernize the CRA regulations should
account for current and future ranges of banking and financial service
business models; the NPR emphasizes physical bank branches, which the
commenter asserted will require the agencies to update the CRA rule
once digital banking becomes more common; the proposal may adversely
impact how banks are able to respond to innovations in the marketplace,
explaining that banks should have the ability to comply with the letter
and spirit of the CRA within their chosen business models; the agencies
should request additional authority from Congress to maintain the
integrity and vibrancy of the CRA; and, CRA modernization must
recognize and address the critical importance of digital equity for
creating opportunities and upward mobility for low- and moderate-
income, minority, and rural communities. Also, a commenter stated that
adapting to advances in banking technology should be the one and only
objective of CRA reform, and that the other seven objectives can be
accomplished within the current regulatory framework and through more
effective examinations.
The agencies believe that the final rule takes into account changes
in the banking industry. For example, evaluating retail lending outside
of facility-based assessment areas accounts for current and future
ranges of banking business models. The agencies also believe that the
final rule strikes the appropriate balance by maintaining the
importance of physical branches, while including consideration of
digital and other delivery systems for large banks in recognition of
the trend toward greater use of online and mobile banking. The section-
by-section analysis provides additional discussion regarding the
agencies' decision to maintain the importance of physical branches in
this final rule. See section IV of this SUPPLEMENTARY INFORMATION.
Provide greater clarity and consistency in the application of the
CRA regulations. Some commenters expressed general support for this
objective, with a commenter stating, for example, that the CRA
regulations and supervision have become overly complex and
unpredictable. Another commenter asserted that the proposal promotes
this objective by establishing a framework that would lead to many
positive changes but asserted that certain revisions to the proposal
are required to effectively meet the objective.
The agencies believe that the final rule meets this objective in
several ways, including, for example, by clarifying eligibility
requirements for community development activities, providing that the
agencies will maintain a publicly available illustrative list of non-
exhaustive examples of qualifying activities, and updating certain
performance tests to incorporate standardized metrics, benchmarks, and
thresholds and performance ranges, as applicable.
Better tailor performance standards to account for differences in
bank size, business models, and local conditions, and better tailor
data collection and reporting requirements and use existing data
whenever possible. Commenter sentiments on this objective included
support for tailoring the performance standards and data requirements
of the final rule, as well as concerns that the agencies' proposal
failed to meet these objectives. The agencies believe the final rule
tailors the performance standards based on bank size, business models,
and local conditions in multiple ways. For example, small banks may
continue to be evaluated under the Small Bank Lending Test, unless they
opt into the Retail Lending Test; and intermediate and large banks,
which have more resources than small banks, will be evaluated under the
Retail Lending Test. The final rule also tailors data collection and
reporting requirements because, as further explained in the section-by-
section analysis of Sec. __.42, the new data collection and
maintenance requirements in the final rule do not apply to small and
intermediate banks, and certain new requirements apply only to large
banks with more than $10 billion in assets.
Promote transparency and public engagement. Commenter feedback on
this objective included statements that the CRA regulations must
enhance community participation so that CRA activity is tied to
community needs, and concerns that the proposal may not expand
community participation. The agencies believe the final rule advances
this objective. For example, as explained in more detail in the
section-by-section analysis of Sec. __.46, the final rule specifically
provides a process whereby the public can provide input on community
credit needs and opportunities in connection with a bank's next
scheduled CRA examination. Further, the strategic plan provision
provides an opportunity for the public to provide input on a bank's
strategic plan. See the section-by-section analysis of Sec. __.27.
Confirm that the CRA and fair lending responsibilities of banks are
mutually reinforcing. The agencies received an array of comments on
this objective. Some commenters, for example, asserted that robustly
enforcing current and future CRA requirements relating to race and
ethnicity, in addition to other relevant Federal, State, and local laws
and regulations, is essential to addressing racial and ethnic
inequality. Many commenters asserted that greater coordination between
CRA examinations and fair lending examinations is needed, including,
for example, through development of a CRA examination racial
discrimination assessment that would identify disparate trends, such as
in marketing, originations, pricing and terms, default rates, and
collections. In turn, these commenters indicated that any adverse
findings from this assessment should trigger and support fair lending
examinations. A few commenters indicated that such CRA discrimination
assessments should include an affordability analysis and an analysis of
the quality of lending for all major product lines that includes, for
example, a review of delinquency and default rates. Other commenters
asserted that, in CRA examinations, the agencies should assess whether
banks employ discriminatory algorithm-driven models or other assessment
criteria that disproportionately screen out low- and moderate-income
and minority consumers. Additional commenters indicated that, likewise,
when a fair lending examination is pending, appropriate CRA follow-up
activity and corrective action must ensue once it has concluded.
[[Page 6588]]
Several commenters suggested incorporating additional information
related to discrimination into banks' CRA examinations. In this regard,
a few commenters noted that public information about fair lending
examinations included in CRA performance evaluations has typically been
cursory. Several commenters specified that the agencies should use
race-based HMDA data and, once available, race-based section 1071 data
as a screen in CRA examinations for fair lending reviews. Some
commenters suggested that the agencies should consider evidence of
discrimination obtained by State and local agencies.
On fair lending examinations specifically, commenter feedback
included: that the agencies should bolster fair lending reviews
accompanying CRA exams for banks that perform poorly in the HMDA data
analysis of lending by race; that fair lending examinations should
solicit and rely on feedback from all relevant Federal and State
agencies, as well as community group stakeholders; that both section
1071 data and HMDA data by race should be utilized in bank fair lending
examinations; that fair lending examinations should include a
quantitative analysis of lending to minority individuals and
communities and incorporate an analysis of access to services; and that
disparate impact related to climate change should be incorporated into
the existing fair lending supervisory framework.
The agencies reiterate their view that CRA and fair lending
requirements are mutually reinforcing. Both regimes recognize the
importance of ensuring that the credit markets are inclusive.
Accordingly, and as noted above and discussed further in the section-
by-section analysis of Sec. __.16, the final rule retains the
provisions that delineations of a bank's facility-based assessment
areas are prohibited from reflecting illegal discrimination and must
not arbitrarily exclude low- and moderate-income census tracts. As
discussed further in the section-by-section analysis of Sec. __.23,
the agencies are specifying in the final rule that all special purpose
credit programs under ECOA can be a type of responsive credit program.
As discussed further in the section-by-section analysis of Sec. __.28,
the agencies are also retaining the provision that allows downgrading a
bank for discriminatory or other illegal credit practices. For more
information and discussion regarding the agencies' consideration of
comments recommending adoption of additional race- and ethnicity-
related provisions in the final rule, see section III.C of this
SUPPLEMENTARY INFORMATION. Moreover, although the agencies appreciate
suggestions to enhance the rigor of fair lending examinations, such
examinations are outside the scope of this rulemaking. The agencies are
nevertheless committed to upholding their regulatory responsibilities
for both fair lending and CRA examinations, and the agencies will seek
to coordinate those examinations where practicable.
Additionally, and in furtherance of the agencies' objective to
promote transparency, as discussed in the section-by-section analysis
of Sec. __.42(j), the final rule requires the agencies to provide
additional information to the public for large banks related to the
distribution by borrower income, race, and ethnicity of the bank's home
mortgage loan originations and applications in each of the bank's
assessment areas. This disclosure would leverage existing data
available under HMDA. As discussed in the section-by-section analysis
of Sec. __.42(j), providing data about borrower and applicant race and
ethnicity in this disclosure would have no independent impact on the
conclusions or ratings of the bank and would not on its own reflect any
fair lending finding or violation. Instead, this provision of the final
rule is intended to enhance the transparency of information available
to the public.
Promote a consistent regulatory approach that applies to banks
regulated by all three agencies. Commenter feedback on this objective
included support for a coordinated interagency approach to CRA
modernization and a unified CRA rule, with a commenter stating that the
CRA's purpose is more fully realized when the agencies work in concert.
Some commenters expressed support for coordination between Federal and
State CRA regulatory requirements and between Federal and State
agencies for CRA exams.
The agencies appreciate these comments, believe the final rule
meets this objective, and will continue to coordinate their
implementation of the final rule as appropriate.
C. General Comments Regarding the Consideration of Race and Ethnicity
in the CRA Regulatory Framework
Comments Received
The agencies received many comments regarding consideration of race
and ethnicity in the CRA regulatory and supervisory framework from a
wide range of commenters. General comments on this topic are summarized
below, in this section of the SUPPLEMENTARY INFORMATION. Furthermore,
the agencies received comments regarding the consideration of race and
ethnicity with respect to the agencies' proposed approach to an array
of specific topics, such as: bank size categories; \69\ assessment
areas; \70\ the Retail Lending Test; \71\ the Retail Services and
Products Test, including the consideration of special purpose credit
programs; \72\ affordable housing; \73\ economic development; \74\
activities with MDIs and CDFIs; \75\ disaster preparedness and climate
resiliency; \76\ impact factors; \77\ data on race and ethnicity in the
CRA regulatory framework; \78\ discriminatory or other illegal
practices; \79\ bank applications; \80\ public files; \81\ and public
engagement.\82\ The agencies have carefully considered this commenter
feedback in developing the final rule.
---------------------------------------------------------------------------
\69\ See the section-by-section analysis of final Sec. __.12
(asset size).
\70\ See, e.g., the section-by-section analysis of final Sec.
__.16 (facility-based assessment areas).
\71\ See the section-by-section analysis of final Sec. __.22
(Retail Lending Test), including the section-by-section analyses of
final Sec. __.22(d)(1)(ii)(A)(1), (d)(4), and (e).
\72\ See the section-by-section analysis of final Sec. __.23
(Retail Services and Products Test).
\73\ See the section-by-section analysis of final Sec. __.13(b)
(affordable housing).
\74\ See the section-by-section analysis of final Sec. __.13(c)
(economic development)
\75\ See the section-by-section analysis of final Sec. __.13(j)
(activities with MDIs, WDIs, LICUs, or CDFIs).
\76\ See the section-by-section analysis of final Sec. __.13(i)
(disaster preparedness/weather resiliency).
\77\ See the section-by-section analysis of final Sec. __.15
(impact and responsiveness review).
\78\ See the section-by-section analysis of final Sec. __.42(j)
(HMDA disclosure).
\79\ See the section-by-section analysis of final Sec. __.28(d)
(conclusions and ratings).
\80\ See the section-by-section analysis of final Sec. __.31
(effect of CRA performance on applications).
\81\ See the section-by-section analysis of final Sec. __.43
(public file).
\82\ See the section-by-section analysis of final Sec. __.46
(public engagement).
---------------------------------------------------------------------------
Comments relating to specific regulatory provisions of the
agencies' proposal and the final rule, referenced above, are discussed
in detail in the section-by-section analyses of the specific provisions
on which commenters shared their views. Those discussions cross-
reference this section of the SUPPLEMENTARY INFORMATION where
appropriate.
General comments. Many commenters providing input on the
consideration of race and ethnicity under the CRA asserted that the
agencies' proposal represented a missed opportunity to make racial
equity a central focus of the CRA and to maximize what some commenters
viewed as the statute's potential impact on advancing minority
[[Page 6589]]
access to lending, investment, and services through the mainstream
financial system. Most of these commenters stated that the CRA was
enacted as a response to the history of redlining, other systemic
discrimination, and structural racism, and that the agencies' current
and proposed CRA regulations do not adequately address the need to
advance racial equality, reduce racial wealth and homeownership gaps,
and address intergenerational poverty in minority communities. In this
regard, commenter feedback included that there has been little progress
in closing the racial wealth gap since the enactment of the CRA, and
that the racial wealth gap has actually worsened since that time.
Commenter feedback also included that approximately 98 percent of banks
pass their CRA examinations and that expanded consideration of race and
ethnicity would be appropriate to increase the rigor of CRA
examinations. Additional views included that the agencies should use
the CRA to broaden access to credit for racial and ethnic minorities in
much the same way that the statute has broadened access to credit for
low- and moderate-income individuals and communities.
Some of these commenters also urged greater consideration of race
in a modernized CRA evaluation framework due to racial inequality
related to land use policies, and unjust and inequitable lending
practices, all of which, these commenters indicated, have contributed
to persistent disparities in home ownership rates, wealth accumulation,
and educational and health outcomes for racial and ethnic minorities.
In this regard, some commenters drew attention particularly to the lack
of affordable housing opportunities for racial and ethnic minorities in
metropolitan and rural communities alike. For instance, one commenter
asserted that racial and ethnic minorities who are more likely to live
in low-cost neighborhoods as part of the legacy of historical
residential segregation and decades of discriminatory real estate
practices are not adequately served due to unmet demand for low-cost
housing, including but not limited to small-dollar home mortgage loans.
In addition to the housing concerns, another commenter asserted that
low-income minority communities disproportionately do not have access
to the banking services and products that they need to build wealth,
and further stated that not requiring banks to better address these
needs leads to increased potential for predatory lending and reduced
wealth in these communities. Some commenters also asserted that
robustly enforcing current and future CRA requirements relating to race
and ethnicity, in addition to other relevant Federal, State, and local
laws and regulations, is essential to addressing racial and ethnic
inequality.
A few commenters asserted that explicit consideration of race and
ethnicity in the CRA evaluation framework would provide a buffer
against displacement of minority consumers, which these commenters
indicated leads to the loss of important local resources, such as
healthcare and social services. In this regard, commenter feedback
included: advocating for a greater focus on loans to minority consumers
and not simply loans in minority communities, where the loans might be
made largely to white consumers; an assertion that banks' lending
practices in connection with minority consumers and minority
communities were impacted by the lack of diversity among bank
employees, particularly at senior and executive levels; an assertion
that all banks should be positioned to work with non-English speaking
consumers; and a recommendation that banks be given consideration for
offering linguistically and culturally appropriate services and
resources to consumers with limited English proficiency so that such
consumers may access safe and affordable credit.
Some commenters suggested that the agencies adopt forms of
quantitative analyses to consider race and ethnicity as part of CRA
evaluations. For example, a commenter recommended that the agencies
conduct periodic statistical analyses to identify areas where
discrimination or ethnic and racial disparities in credit access exist.
This commenter further recommended that in areas where significant
disparities exist, the agencies should incorporate performance measures
based on race and ethnicity into bank performance evaluations, with
separate race- and ethnicity-based performance measures contributing to
bank ratings on individual performance tests and overall.
On the subject of terminology, a commenter urged the agencies not
to use the term ``minority'' in the CRA regulations but rather to use
the term BIPOC (Black, Indigenous, and People of Color), which the
commenter asserted better acknowledges different types of prejudice and
discrimination.\83\
---------------------------------------------------------------------------
\83\ The agencies acknowledge the commenter suggestion to use
the term ``BIPOC'' throughout the final rule but are electing to use
the term ``minority,'' which is used expressly in the CRA statute,
and to clarify, where practicable, when the agencies intend to refer
specifically to racial and ethnic minorities. See 12 U.S.C.
2907(b)(3).
---------------------------------------------------------------------------
Comments on legal basis for express consideration of race and
ethnicity in the CRA regulatory framework. Several commenters provided
input supporting the permissibility of express consideration of race
and ethnicity under the statute. Some of these commenters asserted that
the CRA is a civil rights law and that, accordingly, the agencies have
authority to expressly consider race and ethnicity in their CRA
regulations to address redlining and other racial discrimination in
banking. Moreover, several commenters stated that addressing racial
inequities is a core ``remedial'' purpose of the CRA as part of a
``suite'' of laws enacted to address racial inequities in housing and
credit. A few commenters pointed to the CRA's focus on encouraging
banks to serve their ``entire community'' \84\ suggesting that the
agencies should therefore focus specifically on the minority
constituencies who are part of the entire community in evaluating each
bank's CRA performance. Another commenter provided legal analysis
arguing that the agencies could incorporate express consideration of
race and ethnicity in CRA regulations in various ways that the
commenter stated were consistent with requirements applicable to race-
based government action under the Equal Protection Clause of the U.S.
Constitution. Relatedly, the commenter indicated that, to satisfy
constitutional requirements and appropriately target the effects of
discrimination, the agencies should conduct and periodically update a
study to determine with specificity where, and regarding which
financial products, discrimination continues to have an impact. Other
commenters asserted that express references to race in the statute,
such as the provision allowing investments with MDIs to count for
CRA,\85\ indicate that an explicit focus on race is within the purview
of the CRA.
---------------------------------------------------------------------------
\84\ See 12 U.S.C. 2903 and 2906.
\85\ See, e.g., 12 U.S.C. 2903(b).
---------------------------------------------------------------------------
Conversely, a few commenters cautioned against expanding
consideration of race and ethnicity in the CRA regulatory framework due
to legal concerns. Some of these commenters expressed their perspective
that the law is limited in its capacity to address racial equity, even
though they view the CRA as a civil rights law and acknowledge that
racial equity is central to equal opportunity, social cohesion, and
prosperity. Another commenter
[[Page 6590]]
suggested that the CRA is a race-neutral law designed to combat race-
based discriminatory policies and practices. Additionally, commenter
feedback included that, although structural racism is a reality,
incorporating racial equity into the CRA evaluation process could lead
to both legal and practical issues and undermine the valuable
contribution that CRA can make to low- and moderate-income consumers
and communities.
Low-and moderate-income status and race. Many commenters advocating
for greater consideration of race and ethnicity under the CRA indicated
that, in addition to focusing on low- and moderate-income consumers and
communities, the agencies should explicitly focus on minority consumers
and communities. For example, a commenter asserted that racial
discrimination will persist if income categorizations continue to be
used to rate bank performance without considering race. Some commenters
also noted that low- and moderate-income communities and minority
communities are not the same, so closing racial wealth gaps requires
express consideration of race. To illustrate this point, a commenter
stated that about two-thirds of low-income communities are
predominantly minority, but only about one-third of moderate-income
neighborhoods are predominantly minority. Another commenter similarly
indicated that nearly two-thirds of low- and moderate-income households
are White, while nearly 40 percent of Black households and more than
half of Hispanic households are not low- or moderate-income.
Consequently, many commenters urged that racial equity should be
incorporated comprehensively into the agencies' CRA regulations,
including through both incentives and affirmative obligations for banks
to serve racial and ethnic minority consumers, businesses, and
communities. Many of these commenters asserted that doing so would have
a direct, positive impact on such minorities' economic inclusion,
quality of life, and health outcomes. Closing the racial wealth gap, a
commenter stated, would also make the U.S. economy substantially
stronger. To facilitate the incorporation of racial equity into the CRA
regulations, a commenter asserted that the agencies could employ the
``other targeted population'' framework already provided for in the
Riegle Community Development and Regulatory Improvement Act's
definition of ``targeted populations,'' which the commenter explained
can include either individuals who are low-income or others who ``lack
adequate access to Financial Products or Financial Services in the
entity's Target Market,'' to include certain minority groups.
Final Rule
The agencies have considered and appreciate the many comments
asserting that the agencies should incorporate additional regulatory
provisions regarding race and ethnicity into the CRA regulatory and
supervisory framework. These comments raise important and significant
considerations about financial inclusion, discrimination, and broader
economic issues. The agencies have carefully considered these comments,
including those summarized in this section and in the section-by-
section analysis of the final rule (see section IV of this
SUPPLEMENTARY INFORMATION), as well as the statutory purposes and text
of the CRA. The agencies have also assessed other relevant legal and
supervisory considerations, including, in particular, the
constitutional considerations and implementation challenges associated
with adopting regulatory provisions that expressly address race and
ethnicity when implementing statutory text that does not expressly
address race or ethnicity. Based upon these considerations, the
agencies have determined not to include additional race- and ethnicity-
related provisions other than what is adopted in this final rule and
discussed in more detail throughout this Introduction and section IV of
the SUPPLEMENTARY INFORMATION.
The agencies believe that the final rule strengthens the CRA's
emphasis on encouraging banks to engage in activities that better
achieve the core purpose of the CRA, and thereby meet the credit needs
of their entire communities, including low- and moderate-income
individuals and communities. Relatedly, the agencies continue to
recognize that the CRA and fair lending requirements are mutually
reinforcing, including by specifying in the final rule that special
purpose credit programs under ECOA can be a type of responsive credit
program, and by reaffirming that violations of the Fair Housing Act and
ECOA can be the basis of a CRA rating downgrade. As noted, for example,
in section III.B of this SUPPLEMENTARY INFORMATION, the final rule also
retains the current rule's prohibition against banks delineating
facility-based assessment areas in a manner that reflects illegal
discrimination or arbitrarily excludes low- and moderate-income census
tracts, and provides that the CRA performance of banks that engage in
discriminatory or other illegal credit practices can be adversely
affected by such practices. For more information and discussion
regarding how the final rule strengthens the achievement of the core
purpose of the statute, and confirms that CRA and fair lending
responsibilities are mutually reinforcing (see sections III.B and IV of
this SUPPLEMENTARY INFORMATION).
IV. Section-by-Section Analysis
Section __.11 Authority, Purposes, and Scope
Current Approach and the Agencies' Proposal
Current Sec. __.11 sets forth the authority, purposes, and scope
of the CRA regulations. Paragraphs (a) and (c) of the section are
agency-specific regulatory text, with paragraph (a) outlining the legal
authority for each agency to implement the CRA and paragraph (c)
providing the scope of each agency's CRA regulations. Common rule text
in Sec. __.11(b) provides that this part implements the CRA by
establishing the framework and criteria by which the agencies assess a
bank's record of helping to meet the credit needs of its entire
community, including low- and moderate-income neighborhoods, consistent
with the safe and sound operation of the bank; and providing that the
agencies take that record into account in considering certain
applications.
Consistent with the current rule, proposed Sec. __.11 sets forth
the authority, purposes, and scope of the CRA regulations, with the
authority and scope paragraphs (proposed Sec. __.11(a) and (c))
including agency-specific regulatory text. Proposed Sec. __.11(b)
included technical, non-substantive edits to the current regulatory
text, such as adding CRA's legal citation.
The OCC proposed to amend its authority section, Sec. 25.11(a) by
referencing part 25 in its entirety instead of each subpart, and by
removing paragraph (a)(2), Office of Management and Budget (OMB)
control number, as such information is unnecessary for regulatory text.
The OCC also proposed technical edits to its scope section, Sec.
25.11(c), to reflect the organization of the proposed common rule text.
The Board did not propose any amendments to its authority section,
Sec. 228.11(a), and proposed to amend its scope section, proposed
Sec. 228.11(c), to replace references to ``special purpose banks''
with ``exempt banks'' to avoid any potential confusion with the OCC's
special purpose bank charter.
[[Page 6591]]
The FDIC proposed to amend its authority section, Sec. 345.11(a),
by removing paragraph (a)(2), OMB control number, as such information
is unnecessary for regulatory text. The FDIC did not propose any
amendments to its scope section in Sec. 345.11(c).
Comments Received and Final Rule
The agencies did not receive comments specific to the language in
proposed Sec. __.11(b) or the agency-specific language in proposed
Sec. __.11(a) and (c). Therefore, the agencies are adopting Sec.
__.11(b) as proposed, and the Board is adopting its agency-only
provisions, paragraphs (a) and (c), as proposed.
The OCC adopts paragraph (a) as proposed, and paragraph (c) as
proposed with technical edits. Specifically, the OCC has moved the
definition of ``appropriate Federal banking agency'' in proposed Sec.
25.11(c)(1)(iii) to final Sec. 25.12 (Definitions), where it more
appropriately belongs. As in the current rule and as proposed,
``appropriate Federal banking agency'' in the final rule means, with
respect to subparts A (except in the definition of minority depository
institution in Sec. 25.12) through E and appendices A through G, the
OCC with respect to a national bank or Federal savings association and
the FDIC with respect to a State savings association.\86\ In addition,
the OCC has added Federal branches of foreign banks to paragraph
(c)(1)(i), which lists the types of entities for which the OCC has
authority to prescribe CRA regulations, to more accurately describe
this authority. The OCC has also made minor technical edits to the
listing of part 25 subparts in final paragraph (c).
---------------------------------------------------------------------------
\86\ Final subpart F of part 25, Prohibition Against Use of
Interstate Branches Primarily for Deposit Production, applies only
to certain national banks and Federal branches of a foreign bank and
includes ``OCC'' instead of ``appropriate Federal banking agency.''
---------------------------------------------------------------------------
The FDIC is adopting paragraph (a) as proposed and paragraph (c)
with technical edits. In the proposed rule, the FDIC's paragraph (c)(2)
maintained references to current Sec. 345.41. The FDIC is adopting
paragraph (c)(2) to reflect the final rule's new assessment area
provisions. Thus, final paragraph (c)(2) provides that, for insured
State branches of a foreign bank established and operating under the
laws of any State, their facility-based assessment area and, as
applicable, retail lending assessment areas and outside retail lending
assessment area, are the community or communities located within the
United States, served by the branch as described in Sec. 345.16 and,
applicable, Sec. Sec. 345.17 and 345.18.
Section __.12 Definitions
In proposed Sec. __.12 (Definitions), the agencies proposed many
terms defined in the current CRA regulations, some with substantive or
technical revisions. The agencies also proposed new definitions that
the agencies considered necessary to clarify and implement proposed
revisions to the CRA evaluation framework, some of which reflect
understandings of terms long used in the CRA evaluation framework or
that are consistent with the Interagency Questions and Answers.
The agencies received numerous comments on some of these
definitions. These comments and the definitions as included in the
final rule are discussed below.
Affiliate
Under the current CRA regulations, the term ``affiliate'' means any
company that controls, is controlled by, or is under common control
with another company. The term ``control'' has the same meaning given
to that term in section 2 of the Bank Holding Company Act, 12 U.S.C.
1841(a)(2), and a company is under common control with another company
if both companies are directly or indirectly controlled by the same
company.\87\ The agencies proposed to retain their current definitions
of ``affiliate,'' with the Board including one technical change to the
definition in its regulation to add a reference to its bank holding
company regulations, Regulation Y, 12 CFR part 225. Specifically, the
Board proposed to define affiliate as any company that controls, is
controlled by, or is under common control with another company. The
term ``control'' has the meaning given to that term in 12 U.S.C.
1841(a)(2), as implemented by the Board in 12 CFR part 225, and a
company is under common control with another company if both companies
are directly or indirectly controlled by the same company. The FDIC and
the OCC did not propose any revisions to the definition of
``affiliate'' in the agencies' respective CRA regulations.\88\
---------------------------------------------------------------------------
\87\ See current 12 CFR __.12(a).
\88\ See current 12 CFR 25.12(a) (OCC) and 345.12(a) (FDIC).
---------------------------------------------------------------------------
The agencies did not receive any comments on the proposed
definitions of ``affiliate'' and adopt the definitions as proposed in
the final rule. Accordingly, the Board is adopting the proposed
definition of ``affiliate'' in the final rule, which will be contained
solely in its CRA regulations. The FDIC and the OCC are retaining the
current definition of ``affiliate'' in their respective CRA
regulations, which define affiliate as any company that controls, is
controlled by, or is under common control with another company. The
term ``control'' has the same meaning given to that term in 12 U.S.C.
1841(a)(2), and a company is under common control with another company
if both companies are directly or indirectly controlled by the same
company.\89\
---------------------------------------------------------------------------
\89\ See id.
---------------------------------------------------------------------------
Affordable Housing
The agencies proposed to add a definition of ``affordable housing''
to mean activities described in proposed Sec. __.13(b). See the
section-by-section analysis of Sec. __.13(b) for a detailed discussion
of affordable housing. The agencies did not receive any comments on the
proposed ``affordable housing'' definition and adopt it as proposed in
the final rule.
Area Median Income
The agencies proposed to retain the current definition of ``area
median income,'' \90\ with one conforming change to replace the term
``geography'' with ``census tract,'' but keep the same meaning (see the
discussion of ``census tract'' in Sec. __.12 of this section-by-
section analysis).\91\ Under the proposal, ``area median income'' would
mean: (1) the median family income for the metropolitan statistical
area (MSA), if a person or census tract is located in an MSA, or for
the metropolitan division, if a person or census tract is located in an
MSA that has been subdivided into metropolitan divisions; or (2) the
statewide nonmetropolitan median family income, if a person or census
tract is located outside an MSA.
---------------------------------------------------------------------------
\90\ See current 12 CFR __.12(b).
\91\ See current 12 CFR __.12(k) (defining ``geography'' to mean
``a census tract delineated by the United States Bureau of the
Census in the most recent decennial census'').
---------------------------------------------------------------------------
The agencies did not receive any comments on the proposed ``area
median income'' definition. However, the agencies are adopting the
definition in the final rule as proposed with conforming and clarifying
edits. First, in paragraph (1), the agencies have made a minor
conforming change by replacing ``metropolitan statistical area (MSA)''
with ``MSA.'' Second, in paragraphs (1) and (2), the agencies have
replaced the phrase ``if a person'' with ``if an individual, family,
household.'' Third, in paragraph (1), the agencies have added the
phrase ``that has not been subdivided into metropolitan divisions''
after ``located in an MSA'' to differentiate the first and second
prongs of this paragraph. Fourth, in paragraph (2), as a conforming
change, the
[[Page 6592]]
agencies have replaced the phrase ``outside an MSA'' with ``in a
nonmetropolitan area.'' Final Sec. __.12 defines ``nonmetropolitan
area'' to mean any area that is not located in an MSA.
Accordingly, the final rule defines ``area median income'' to mean:
(1) the median family income for the MSA, if an individual, family,
household, or census tract is located in an MSA that has not been
subdivided into metropolitan divisions, or for the metropolitan
division, if an individual, family, household, or census tract is
located in an MSA that has been subdivided into metropolitan divisions;
or (2) the statewide nonmetropolitan median family income, if an
individual, family, household, or census tract is located in a
nonmetropolitan area.
Assets
The final rule includes a new definition for ``assets,'' not
included in the proposal. This term means total assets as reported in
Schedule RC of the Consolidated Reports of Condition and Income as
filed under 12 U.S.C. 161, 324, 1464, or 1817, as applicable (Call
Report), or as reported in Schedule RAL of the Report of Assets and
Liabilities of U.S. Branches and Agencies of Foreign Banks (Report of
Assets and Liabilities), as filed under 12 U.S.C. 1817(a), 3102(b), or
3105(c)(2), as applicable. Although the agencies did not propose this
definition, they have added it to the final rule to clarify the
intended meaning of this term in the CRA regulations.
Assessment Area
The current CRA regulations define ``assessment area'' to mean a
geographic area delineated in accordance with 12 CFR __.41.\92\ Current
Sec. __.41 sets out the criteria for banks to delineate assessment
areas. The agencies proposed to replace ``assessment area'' with three
new terms in proposed Sec. __.12: ``facility-based assessment area,''
``retail lending assessment area,'' and ``outside retail lending
area,'' as these new terms are used in the proposal. These new
definitions are discussed below. The agencies did not receive any
comments concerning the removal of the ``assessment area'' definition
and have removed this term in the final rule.
---------------------------------------------------------------------------
\92\ See current 12 CFR __.12(c).
---------------------------------------------------------------------------
Bank
Under the current CRA regulations, the Board and FDIC have separate
definitions for the term ``bank.'' Each agency defines ``bank'' to
refer to the entities regulated by the agency for which the agency
evaluates CRA performance. The FDIC and Board did not propose changes
to the current definitions of ``bank'' in their respective CRA
regulations and received no comments on their proposed definitions of
``bank.'' Accordingly, the final rule retains the current definitions
of ``bank'' in the FDIC's and the Board's regulations.\93\
---------------------------------------------------------------------------
\93\ The agencies' definitions of ``bank'' are included in the
agency-specific amendatory text, outside of the common rule text.
---------------------------------------------------------------------------
As such, for the FDIC, the term ``bank'' means a State nonmember
bank, as that term is defined in section 3(e)(2) of the Federal Deposit
Insurance Act (FDIA) (12 U.S.C. 1813(e)(2)), with federally insured
deposits, except as defined in final Sec. 345.11(c). The term ``bank''
also includes an insured State branch as defined in final Sec.
345.11(c).
For the Board, the term ``bank'' means a State member bank as that
term is defined in section 3(d)(2) of the FDIA (12 U.S.C. 1813(d)(2)),
except as provided in final Sec. 228.11(c)(3) and includes an
uninsured State branch (other than a limited branch) of a foreign bank
described in final Sec. 228.11(c)(2). Accordingly, consistent with the
Board's current CRA regulations, the term ``bank'' in final Sec.
228.12 includes an uninsured State branch (other than a limited branch)
of a foreign bank that results from an acquisition described in section
5(a)(8) of the International Banking Act of 1978 (12 U.S.C.
3103(a)(8)). Also, generally consistent with the current CRA
regulations, ``bank'' in final Sec. 228.12 does not include banks that
do not perform commercial or retail banking services by granting credit
to the public in the ordinary course of business, other than as
incident to their specialized operations and done on an accommodation
basis.\94\ This exception for banks that do not perform commercial or
retail banking services aligns with the current CRA regulations,
including that performing commercial and retail banking services solely
``on an accommodation basis'' will not qualify an entity as a ``bank.''
---------------------------------------------------------------------------
\94\ See final Sec. 228.12 (defining ``bank'' to exclude
institutions described in final Sec. 228.11(c)(3)). These
institutions include bankers' banks, as defined in 12 U.S.C.
24(Seventh), and banks that engage only in one or more of the
following activities: providing cash management-controlled
disbursement services or serving as correspondent banks, trust
companies, or clearing agents.
---------------------------------------------------------------------------
The OCC's current CRA regulation provides that ``bank or savings
association'' means, except as provided in Sec. 25.11(c), a national
bank (including a Federal branch as defined in part 28) with federally
insured deposits or a savings association. Further, the OCC regulation
provides that ``bank and savings association'' means, except as
provided in Sec. 25.11(c), a national bank (including a Federal branch
as defined in part 28) with federally insured deposits and a savings
association.\95\
---------------------------------------------------------------------------
\95\ See current 12 CFR 25.12(e). Pursuant to title III of the
Dodd-Frank Act, and as described in footnote 2 of this SUPPLEMENTARY
INFORMATION, the OCC's CRA regulation applies to both State and
Federal savings associations, in addition to national banks. The
FDIC enforces the OCC's CRA regulations with respect to State
savings associations.
---------------------------------------------------------------------------
For clarity and conciseness, the OCC proposed separate definitions
of ``bank'' and ``savings association,'' without changing the substance
of the current definitions. The OCC received no comments on this
technical change and adopts the definitions as proposed in the final
rule. As a result, in the final rule, ``bank'' means a national bank
(including a Federal branch as defined in part 28) with federally
insured deposits, except as provided in Sec. 25.11(c); and ``savings
association'' means a Federal savings association or a State savings
association.
Bank Asset-Size Definitions
Current Approach
Under the current CRA regulations, the agencies define ``small
bank'' to mean ``a bank that, as of December 31 of either of the prior
two calendar years, had assets of less than $1.503 billion.'' \96\ The
agencies defined ``intermediate small bank'' to mean ``a small bank
with assets of at least $376 million as of December 31 of both of the
prior two calendar years and less than $1.503 billion as of December 31
of either of the prior two calendar years.'' \97\ The agencies adjust
these terms annually for inflation based on the year-to-year change in
the average of the Consumer Price Index for Urban Wage Earners and
Clerical Workers (CPI-W), not seasonally adjusted, for each 12-month
period ending in November, with rounding to the nearest million.\98\
The current CRA regulations do not define the term ``large bank,'' but
any bank with assets exceeding those defining an ``intermediate small
bank'' is understood to be a large bank (otherwise referred to as a
``large institution'').
---------------------------------------------------------------------------
\96\ The current asset-size threshold for a ``small bank''
reflects the annual dollar adjustment to the figures contained in
current 12 CFR __.12(u)(1). See current 12 CFR __.12(u)(2).
\97\ See current 12 CFR __.12(u)(1).
\98\ See current 12 CFR __.12(u)(2).
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed raising the asset-size threshold for the
``small bank'' definition to provide more clarity, consistency, and
transparency in the
[[Page 6593]]
evaluation process, and in recognition of the potential challenges
associated with regulatory changes and data collection requirements for
banks with more limited capacity. Under the proposal, a small bank
would be a bank that had average assets of less than $600 million in
either of the prior two calendar years, based on the assets reported on
its four quarterly Call Reports for each of those calendar years. The
agencies also proposed to add a new definition for ``intermediate
bank'' that would replace the current ``intermediate small bank''
definition. Under the proposal, intermediate bank would mean a bank
that had average assets of at least $600 million in both of the prior
two calendar years and less than $2 billion in either of the prior two
calendar years, based on the assets reported on its four quarterly Call
Reports for each of those calendar years. The agencies intended the
proposed ``intermediate bank'' definition to comprise a category of
banks that have meaningful capacity to engage in CRA-related activities
under the proposed Retail Lending Test and conduct community
development activities, but that might have more limited capacity
regarding data collection and reporting requirements than large banks.
Finally, the agencies proposed to add a new ``large bank''
definition that would mean a bank that had average assets of at least
$2 billion in both of the prior two calendar years, based on the assets
reported on its four quarterly Call Reports for each of those calendar
years. This proposed definition reflects the agencies' view that banks
of this size generally have the capacity to conduct the range of
activities that would be evaluated under each of the four performance
tests proposed to apply to large banks.
The agencies proposed to make annual adjustments to the asset-size
thresholds for all three categories of banks based on the same CPI-W
inflation measure used in the current CRA regulations for small and
intermediate banks.\99\
---------------------------------------------------------------------------
\99\ See current 12 CFR __.12(u)(2).
---------------------------------------------------------------------------
As under the current CRA regulations, asset-size classification is
relevant because it determines a bank's CRA evaluation framework.
Consistent with the proposal, under the final rule, large banks are
evaluated under the Retail Lending Test in final Sec. __.22, the
Retail Services and Products Test in final Sec. __.23, the Community
Development Financing Test in final Sec. __.24, and the Community
Development Services Test in final Sec. __.25. Intermediate banks are
evaluated under the Retail Lending Test in Sec. __.22, and either the
current Intermediate Bank Community Development Test, in final Sec.
__.30(a)(2),\100\ or, at the bank's option, the Community Development
Financing Test in final Sec. __.24.\101\ Small banks are evaluated
under the small bank lending test, in final Sec. __.29(a)(2),\102\ or,
at the bank's option, the Retail Lending Test in final Sec. __.22.
---------------------------------------------------------------------------
\100\ In the proposal, the Intermediate Bank Community
Development Test, referred to as the ``intermediate bank community
development evaluation,'' is in proposed Sec. __.29(b).
\101\ See final Sec. __.30(a)(1).
\102\ In the proposal, the Small Bank Lending Test, referred to
as the ``status quo small bank lending test,'' is in proposed Sec.
__.29(a).
---------------------------------------------------------------------------
Comments Received
The agencies received numerous comments on the proposed ``small
bank,'' ``intermediate bank,'' and ``large bank'' definitions. Given
that the current and proposed definitions are interconnected, the
agencies believe it is appropriate to discuss the comments
collectively.
Many commenters expressed general support for the proposal to
increase the asset-size thresholds for small, intermediate, and large
banks. Many of these commenters indicated that the proposed thresholds
are reasonable and would represent appropriate burden relief for banks
that would qualify as small or intermediate banks under the proposed
definitions. Several commenters stated that the proposed asset-size
thresholds are appropriate to ensure that smaller banks with more
limited staff and other resources are not subjected to the same
performance expectations or data collection and reporting requirements
as larger banks. Several other commenters supported the proposed asset-
size thresholds based not only on other regulatory burden they
anticipate under the proposal but also on the principle that community
banks already experience significant regulatory burden unrelated to the
CRA. Another commenter approved of the increased asset-size thresholds
on the basis that they would permit smaller banks to expand to meet the
needs of their communities without necessarily subjecting themselves to
new CRA requirements that the commenter stated were likely to have
onerous costs.
Many commenters specifically expressed support for increasing the
asset-size threshold for a small bank to $600 million. These commenters
noted that the asset-size threshold would apply to approximately the
same percentage of banks as were classified as small banks when the
agencies' amended their CRA regulations in 2005. Several other
commenters explained that the asset-size threshold increases would be a
timely and welcome adjustment because of changes in the banking
industry and the unprecedented growth of bank balance sheets and excess
liquidity that has resulted from Federal Government stimulus in
response to the COVID-19 pandemic. Another commenter indicated that
raising the asset-size threshold as proposed was a timely action on the
part of the agencies due to recent trends in inflation that are beyond
banks' control. One commenter stated that the current asset-size
thresholds are too low and reflected prior conditions.
Many other commenters expressed opposition to the proposed asset-
size threshold increases and advocated for the agencies to maintain the
current thresholds. Some of these commenters stated that the proposed
changes were inappropriate because reclassified banks would be subject
to less rigorous performance standards and diminished agency oversight,
which would minimize transparency and accountability and reduce those
banks' CRA obligations and reinvestment. Other commenters noted that
raising the asset-size thresholds would result in missed opportunities
for reclassified banks to expand and improve their CRA activity under
more rigorous performance standards. These commenters also asserted
that the proposed changes to the asset-size thresholds are not
justified because banks already perform successfully under the current,
lower thresholds for small, intermediate small, and large banks.
Many commenters focused on the number of banks that would be
reclassified into a smaller asset-size category and the adverse effect
this reclassification could have on community development financing,
with a few commenters stating that increasing the small bank asset-size
threshold would reduce the amount of community development activity,
especially in smaller and more rural communities. Some commenters
highlighted the agencies' statement in the proposal that approximately
778 current intermediate small banks would be reclassified as small
banks and 216 current large banks would be reclassified as intermediate
banks.\103\ These commenters expressed their belief that the
reclassified banks would no longer be held accountable (or would
[[Page 6594]]
be held accountable to a lesser degree) for community development
financing activity. Many of these commenters suggested that this loss
of accountability would cause significant reductions in community
development financing, with some commenters citing estimated annual
losses of $1 billion to $1.2 billion. These commenters argued that, if
these forecasted losses in community development financing are remotely
accurate, the change in asset-size thresholds would amount to a
significant failure on the part of the agencies. Many commenters
indicated that although the impact of reduced community development
financing would be experienced in low- and moderate-income communities
nationwide, the losses are likely to be most acute in less populated
communities, such as rural, micropolitan, and small-town areas, where a
substantial number of the reclassified banks are located. A few
commenters specified that any loss of community development financing
could adversely affect the availability of affordable housing and bank
responsiveness to other important community needs.
---------------------------------------------------------------------------
\103\ See 87 FR 33884, 33924 (June 3, 2022).
---------------------------------------------------------------------------
Several commenters explained that reductions in community
development financing as a result of asset-size threshold changes could
adversely affect CDFIs by diminishing bank-CDFI relationships, and the
flow of capital from banks to CDFIs--especially CDFIs located in
smaller or rural communities. Noting that the agencies stated in the
proposal that raising the asset-size thresholds would impact only two
percent of bank assets in the banking system, some commenters indicated
that a reclassified bank may be the only lender or one of a small
number of banks with any presence in a geographic area.
Some commenters stated that reclassifying some current large banks
as intermediate banks could negatively impact the availability of
banking services in low- and moderate-income and rural communities
because the proposed Retail Services and Products Test and Community
Development Services Test would only apply to large banks. Several
other commenters stated that reclassifying a large bank as an
intermediate bank would effectively eliminate agency evaluation of
applicable service considerations such as the operation of bank
branches in their communities.
A few commenters expressed concerns about the impact of the
agencies' proposal to revise asset-size thresholds on racial or ethnic
minority communities. A commenter stated that a number of Black
communities would be significantly adversely impacted by the
reclassification of certain large banks as intermediate banks and
certain intermediate small banks as small banks. The commenter asserted
that these changes would reduce these banks' incentives to engage with
Black communities, given the specific performance tests that would be
applicable to small banks and intermediate banks under the agencies'
proposal. Another commenter raised concerns that small banks and
intermediate banks would not be subject to a retail services test. In
the commenter's view, an evaluation of retail services is critical to
ensure that bank branches are located in both low- and moderate-income
communities and minority communities.
A few commenters stated that raising the large bank asset-size
threshold could result in diminished bank investment in New Markets Tax
Credits (NMTC) and other community tax credit investments given that,
under the proposal, intermediate and small banks would not have
corresponding community development requirements. These commenters also
indicated that relieving banks of these requirements could negatively
impact overall demand for community tax credit investments, for which
the majority of investors are CRA-motivated banks.
Many of the commenters opposing the proposed asset-size threshold
increases asserted that regulatory relief for banks was not a
sufficient justification for changes that would adversely impact local
communities. Several commenters argued that the potential burden on
banks from being classified as a larger institution would not outweigh
the need for accountability and equity. Another commenter indicated
that the agencies did not produce estimates or data indicating that the
proposed regulatory approach would be so prohibitively burdensome that
significant increases in asset-size thresholds were necessary.
Several other commenters stated that the agencies' proposal should,
at a minimum, provide for the same range of community development
financing activity for all current intermediate small banks and large
banks as under the current CRA regulations. A commenter asserted that
the proposal goes backwards with no justification for how the reduction
in compliance burden for banks reclassified as smaller banks would
offset the loss of reinvestment activity from a public benefits
perspective. Some commenters added that the impacted banks are engaging
in community development under the current asset-size thresholds
without any apparent deleterious impacts. Other commenters asserted
that maintaining the current asset-size thresholds would be more
consistent with the agencies' goal of strengthening the CRA framework.
A few commenters suggested that the current asset-size thresholds
could remain in place and continue to be adjusted for inflation. A
commenter indicated that, based on the application of inflation
adjustments to the current asset-size thresholds, the proposed small
bank asset-size threshold was too large in comparison. The commenter
explained that if the agencies' proposed asset-size thresholds for
small, intermediate, and large banks were adjusted for inflation, the
asset-size thresholds would be approximately $375 million for small
banks and approximately $1.5 billion for large banks.
A commenter opposed the proposed asset-size threshold changes on
the grounds that the thresholds for intermediate and large banks are
arbitrary and not based on any relevant data or analysis. The commenter
also asserted that the proposed intermediate bank threshold is
similarly unsupported and would subject reclassified intermediate banks
to considerably increased compliance costs without commensurate
benefit. Another commenter stated that the agencies did not provide
documentation supporting the increase in the proposed asset-size
thresholds.
Alternate asset-size thresholds. Many commenters recommended that
the agencies adopt asset-size thresholds for small, intermediate, and
large banks that are higher than those proposed. These commenters
suggested asset-size thresholds of $750 million to $5 billion for
intermediate banks and from $2.5 billion to $20 billion for large
banks. Commenters asserted that higher asset-size thresholds are
necessary to provide regulatory relief and limit the significant
compliance burdens that the agencies' proposal would otherwise impose
on smaller banks. A commenter stated that increasing the small bank
asset-size threshold to $750 million would avoid placing unnecessary
regulatory burden on smaller mission-driven institutions. Another
commenter stated that regulatory burden considerations justified a
variety of small bank asset-size thresholds of up to $3 billion.
Another commenter stated that it lacked the financial and human
resources to monitor performance under the proposed Retail Lending Test
and requested a significantly higher asset-size threshold for large
banks. Other commenters suggested asset-size
[[Page 6595]]
thresholds for large banks ranging from $3.3 billion to $20 billion,
based on compliance burden as well as inflation adjustments.
A few commenters specifically drew attention to smaller banks'
resource capacities in advocating for higher asset-size thresholds. A
commenter suggested an asset-size threshold of $750 million for small
banks and an asset-size threshold of $3 billion for large banks based
on resource capacity. Another commenter expressed support for a large
bank asset-size threshold of $3 billion. Several other commenters
recommended an asset-size threshold of $1 billion for small banks and
an asset-size threshold of $5 billion for large banks to better reflect
resource capacity and the ability to comply with the proposed
performance test requirements. A commenter suggested that a $1 billion
asset-size threshold for small banks would prove beneficial to many
community banks located in rural areas with few low- and moderate-
income census tracts. A few commenters suggested that asset-size
thresholds of $1 billion and $10 billion for small and large banks,
respectively, would better reflect bank capacity and compliance
resource availability. Another commenter stated that an asset-size
threshold cap on intermediate banks of $3 billion would be a better
representation of the median large bank in its State and region. One
commenter argued that setting the asset-size thresholds for small banks
and intermediate banks at $1 billion and $3 billion, respectively,
would provide significant regulatory relief for smaller banks and free
up resources for the agencies to focus on the largest banks and banks
with poor CRA performance. Similarly, another commenter stated that any
bank with assets between $1 billion and $15 billion should be
classified as an intermediate bank to reduce regulatory burden.
A commenter cited rapid growth in bank balance sheets due to bank
consolidation and monetary and fiscal policy as reasons to further
raise the small and intermediate bank asset-size thresholds, to a small
bank threshold of $750 million and a large bank threshold of $2.5
billion. Another commenter cited similar reasons in support of a $1
billion asset-size threshold for small banks. Another commenter
suggested a small bank asset-size threshold ranging anywhere between $2
billion and $5 billion and a large bank asset-size threshold of $10
billion due to the growth in bank balance sheets.
Further, some commenters stated that the asset-size thresholds
should better reflect the distribution of small, intermediate, and
large banks when these categories were originally established. Many
commenters stated that, to maintain a similar percentage distribution
of banks in the intermediate bank category to the distribution of
intermediate small banks when that category was established in 2005, an
intermediate bank should be any bank with assets between $600 million
and $3.3 billion. Another commenter agreed that the agencies should
attempt to maintain a similar percentage distribution of intermediate-
sized institutions as in 2005. The commenter also indicated that a
large bank threshold of $5 billion would likewise achieve this outcome.
A different commenter suggested that any bank with assets between $1
billion and $5 billion should be categorized as an intermediate bank to
adjust for inflation since the asset-size thresholds were originally
set.
Some commenters noted that setting the intermediate bank asset-size
threshold at $10 billion would serve to eliminate the proposal's
distinction between two tiers of large banks.\104\ For example, a
commenter stated that a $10 billion asset-size threshold for large
banks would eliminate the confusion associated with the agencies'
proposal to designate two tiers of large banks in which only the
largest large banks would have comprehensive data collection and
reporting requirements. Another commenter suggested that the agencies
create an additional ``large community bank'' evaluation tier for banks
with $2 billion to $10 billion in assets; alternatively, the commenter
suggested that the agencies expand the intermediate bank tier to banks
with assets of $10 billion or less.
---------------------------------------------------------------------------
\104\ The proposed and final rule apply certain aspects of the
final rule to large banks with assets greater than $10 billion. See
the section-by-section analysis discussion of Sec. Sec. __.22 and
__.42.
---------------------------------------------------------------------------
Similarly, several commenters stated that the agencies should
consider raising the asset-size threshold for large banks because the
proposal is based on an incorrect perception that a bank with assets
slightly over $2 billion is the peer of a significantly larger regional
bank with $50 billion in assets--or an even larger institution with a
nationwide presence. A few commenters also noted that financial
regulators often consider a bank with less than $10 billion in assets a
``community bank'' for supervisory purposes. A few other commenters
concurred that banks with assets between $2 billion and $10 billion are
typically considered to be community banks. Another commenter,
recommending a large bank asset-size threshold of $5 billion, asserted
that raising the asset-size threshold for large banks would minimize
unfair comparison of larger intermediate-size institutions with
significantly larger banks. One other commenter suggested raising the
intermediate bank asset-size threshold so that more banks would have
the option of being evaluated under the status quo community
development test, as the agencies proposed for intermediate banks
(referred to in the proposal as the intermediate bank community
development evaluation).
A few commenters suggested that the agencies conform increased
asset-size thresholds with other existing thresholds. A commenter
stated that the agencies should set the asset-size threshold for small
banks at $750 million to conform with the U.S. Small Business
Administration's (SBA) size standard for small banks.\105\ The
commenter also stated that the asset-size threshold for intermediate
banks should be increased to $2.5 billion, an amount that would more
closely approximate the Board's threshold of $3 billion to distinguish
between small and large bank holding companies. Several commenters
stated that the small bank asset-size threshold should be $1 billion,
to be consistent with the proposed definition of ``community bank'' in
the 2012 FDIC Community Banking Study.\106\ A few other commenters
suggested that large banks should have assets of $10 billion or more to
maintain consistency with regulatory definitions in the Dodd-Frank Act.
Another commenter suggested that the agencies follow the National
Credit Union Administration's (NCUA) position that institutions that it
supervises are ``large'' when they have greater than $15 billion in
assets.
---------------------------------------------------------------------------
\105\ See infra note 113.
\106\ See FDIC, ``Community Banking Study'' (Dec. 2012), https://www.fdic.gov/resources/community-banking/report/2012/2012-cbi-study-full.pdf.
---------------------------------------------------------------------------
Final Rule
The agencies considered commenters' concerns and recommendations
related to the proposed asset-size thresholds. As a part of that
process, the agencies observed that commenters did not coalesce around
a particular asset-size framework that would address their respective
concerns related to the proposed asset-size framework. In fact, the
opposite was true, as commenters' recommendations as to how to
structure the asset-size framework were varied and frequently unique.
The agencies conclude that the myriad comments and recommendations
reflect an absence of
[[Page 6596]]
consensus around an asset-size framework that would address all, or a
majority of, the commenters' concerns. The agencies continue to believe
that the proposed framework strikes the appropriate balance between
recognizing the capacity differences between banks of varying size and
maintaining a strong CRA evaluation framework that benefits communities
served by banks of all sizes and capacities.
The agencies also considered commenter input that the proposed
asset-size thresholds are arbitrary and not based on relevant data
analysis. The agencies believe increasing the asset-size threshold for
small banks to $600 million is appropriate based on an analysis of
industry asset data, current CRA asset-size thresholds, supervisory
experience with those thresholds, and bank asset-size standards
employed by other agencies. First, as discussed in the proposal, the
agencies analyzed Call Report and the FDIC's Summary of Deposits data
to estimate how the proposed asset-size thresholds would redistribute
banks throughout the proposed categories. The agencies estimated that
the proposed change to the small bank asset threshold would result in
approximately 778 banks, representing two percent of all deposits,
transitioning from the current intermediate-small bank category to the
proposed small bank category. The agencies further estimated that the
proposed increase in the large bank asset-size threshold would result
in approximately 216 banks representing approximately two percent of
all deposits transitioning from the current large bank category to the
proposed intermediate bank category.\107\ The agencies communicated the
findings of this analysis as a part of the proposal to ensure that the
public was apprised of the potential redistribution of banks across the
proposed framework.\108\ Second, the agencies, over the multi-decade
period since the CRA was enacted, have developed supervisory experience
related to the asset-size thresholds and an understanding of the
capacity of banks in each class of bank to engage in CRA activity, and
incorporated that understanding into the consideration of the proposed
asset-size thresholds. Based on this supervisory experience, the
agencies calibrated the level of CRA requirements to bank size,
consistent with the statutory purpose and the agencies' objective of
encouraging banks to meet the credit needs of their communities. Third,
the agencies considered adopting the SBA's ``small bank'' definition,
but ultimately elected to adopt the $600 million asset-size threshold
because it is better aligned with the CRA's policy goals, and the
agencies believe that banks with assets between $600 and $850 million
have the capacity to engage in community development activity.
---------------------------------------------------------------------------
\107\ The agencies based these estimates on average assets from
2020 and 2021 Call Report data and the FDIC's 2021 Summary of
Deposits data. These statistics included some banks with no CRA
obligations, such as banker's banks.
\108\ See 87 FR 33884, 33924 n. 162 (June 3, 2022).
---------------------------------------------------------------------------
The agencies believe that the asset-size framework in the final
rule strengthens the agencies' implementation of the CRA statute and
furthers the CRA statute's emphasis on assessing the records of banks
of all asset sizes in meeting the credit needs of their entire
communities, including low- and moderate-income neighborhoods. The
final rule also implements the CRA statutory provisions that focus
specifically on MDIs, WDIs, and LICUs.\109\ As discussed above, CRA and
fair lending laws such as ECOA and the Fair Housing Act are mutually
reinforcing. Specifically, under the CRA, the agencies assess banks'
records of helping meet the credit needs of the entire community,\110\
while fair lending laws serve to identify and address lending
discrimination for protected classes, such as race and ethnicity.
---------------------------------------------------------------------------
\109\ See 12 U.S.C. 2903(b) and 2907(a).
\110\ For more information and discussion regarding the
agencies' consideration of comments recommending adoption of
additional race- and ethnicity-related provisions in this final
rule, see section III.C of this SUPPLEMENTARY INFORMATION.
---------------------------------------------------------------------------
Under the final rule, intermediate banks and small banks may
receive additional consideration at the institution level for
activities with MDIs, WDIs, and LICUs, which, as noted, reflects CRA
statutory provisions. For example, under the final rule a small or
intermediate bank can receive consideration for a capital investment,
loan participation or other venture with an MDI. An intermediate bank
or small bank that opts into the Retail Services and Products Test may
receive CRA consideration for bank credit products and programs that
are conducted in cooperation with MDIs and Special Purpose Credit
Programs as examples of credit products and programs that are
responsive to the needs of the communities in which the bank operates,
including the needs of low- and moderate-income individuals, families,
and households; small businesses; and small farms. The final rule also
retains the current prohibition against banks, including intermediate
banks and small banks, delineating facility-based assessment areas in a
manner that reflects illegal discrimination or that arbitrarily
excludes low- and moderate-income census tracts; and retains the
current provision regarding discriminatory or other illegal credit
practices that can adversely affect a bank's CRA performance.
Further, both intermediate banks and small banks continue to have
retail lending requirements. Under the final rule, intermediate banks
are evaluated under the Retail Lending Test in final Sec. __.22, and
either the Intermediate Bank Community Development Test in final Sec.
__.30(a)(2) or, at the bank's option, the Community Development
Financing Test in final Sec. __.24.\111\ Likewise, under the final
rule, small banks are evaluated under the Small Bank Lending Test, in
final Sec. __.29(a)(2) or, at the bank's option, the Retail Lending
Test in final Sec. __.22.\112\
---------------------------------------------------------------------------
\111\ See the section-by-section analysis of final Sec. __.30.
\112\ See the section-by-section analysis of final Sec. __.29.
---------------------------------------------------------------------------
Additional bank asset-size categories. A few commenters suggested
that the agencies create a new category for banks with assets much
higher than the proposed $2 billion large bank asset-size threshold and
apply the most demanding performance tests or data reporting and
collection requirements solely to those banks. According to commenters,
including a category for the largest banks would help the agencies to
better tailor CRA requirements for smaller large banks. A commenter
explained that the agencies could impose the most demanding
requirements on ``super large'' banks with greater than $50 billion in
assets. Similarly, another commenter suggested the creation of a ``mega
bank'' category for banks with assets greater than $100 billion on
which the agencies could impose unique performance test structures and
standards. Another commenter questioned why the agencies did not apply
the large bank requirements exclusively to banks with greater than $100
billion in assets, a decision that according to the commenter, would
capture 75 percent of total industry assets. One other commenter
recommended that the agencies combine the proposed intermediate bank
and large bank categories, so that there would only be categories for
small and large banks in the final rule.
The agencies considered the commenters' concerns but are not
adopting additional asset-size categories
[[Page 6597]]
for banks with assets significantly greater than the proposed asset-
size threshold for large banks--e.g., ``super large'' or ``mega bank''
categories for institutions with assets over $50 billion and $100
billion, respectively. Applying certain aspects of the large bank
performance test only to very large banks in the manner suggested by
commenters would reduce the number of banks subject to certain aspects
of the performance tests and could thereby discourage CRA activity by
some banks. Similarly, the agencies did not adopt commenters'
suggestion to eliminate the intermediate bank category in the final
rule. The agencies believe that the three size categories of banks in
the final rule effectively balance bank capacity with the obligation of
a bank to meet the needs of its community. Removing an asset-size
category would reduce tailoring of the CRA performance tests based on
bank capacity. Depending on which asset-size category were removed, for
example, more banks might be classified as small banks, potentially
countering the agencies' goal of encouraging banks with a meaningful
capacity to engage in community development activities, or more
performance tests would apply to banks that potentially lack the
capacity to meet those tests' parameters, increasing regulatory burden.
SBA size standards for small banks. The agencies specifically
requested feedback on whether they should adopt an asset-size threshold
for small banks that differs from the SBA's then small bank asset-size
standard of $750 million.\113\ Several commenters supported the
agencies conforming to the SBA's small bank asset-size standard, with
some specifically stating that consistency across Federal agencies
should be maintained wherever possible. In contrast, some commenters
found the SBA's small bank asset-size standard of $750 million too
high, for the same reasons provided by commenters who found the
proposed size standards of $600 million too high, as discussed above.
---------------------------------------------------------------------------
\113\ The SBA's applicable asset-size standards are set forth in
13 CFR 121.201, Sector 52--Finance and Insurance, Subsector 522--
Credit Intermediation and Related Activities (specifically, North
American Industry Classification System (NAICS) codes 522110 and
522180). At the time of the proposed rule's publication date, the
SBA's small bank asset-size threshold was $750 million. The SBA
revised this asset-size standard, as of December 19, 2022, from $750
million to $850 million in assets, determined by averaging the
assets reported on the depository institution's four quarterly
financial statements for the preceding year. See 87 FR 69118, 69128
(Nov. 17, 2022).
---------------------------------------------------------------------------
The agencies recognize that consistency across Federal agencies is
generally desirable, but the agencies believe that deviating from the
SBA's small bank asset-size standard is appropriate to meet the CRA's
statutory purpose. In particular, applying the SBA's $850 million small
bank asset-size standard in the CRA framework would significantly
increase the number of banks that would be classified as small banks.
This might, in turn, result in less community development activity
relative to the current CRA regulations or proposal because fewer banks
would be evaluated under the status quo community development
test.\114\ Such a development would be counter to the CRA statute's
purposes and the agencies' CRA modernization objectives.
---------------------------------------------------------------------------
\114\ Based on an analysis of current bank size characteristics,
the agencies estimate that the $600 million small bank asset-size
threshold would result in approximately 609 banks that are required
to comply with the CRA rule--representing approximately 13 percent
of all banks--transitioning to the small bank category. However, if
the agencies were to incorporate an $850 million asset-size standard
in the CRA regulations, the agencies estimate that this would lead
to approximately 957 current intermediate small banks that are
required to comply with the CRA rule, representing approximately 21
percent of all banks, transitioning from the current intermediate
small bank category to the small bank category. Estimates are based
on year-end assets from 2021 and 2022 Call Report data.
---------------------------------------------------------------------------
Inflation adjustments to asset-size thresholds. Several commenters
expressed support for the agencies' proposal to adjust the asset-size
thresholds for small, intermediate, and large banks annually for
inflation. However, a few commenters expressed concerns. A commenter
stated that, although the proposed inflation adjustments may seem
reasonable, they could have the unintended consequence of decreasing
investments in low- and moderate-income communities when banks are
reclassified to a smaller asset-size category. A few other commenters
stated that inflation adjustments tied to the CPI-W do not take into
account major changes, including consolidation, that have occurred in
the banking industry over the past decade.
The agencies considered the commenters' feedback and elected to
maintain the proposed annual inflation adjustment methodology in the
final rule. The agencies believe the proposed methodology, whereby
asset-size thresholds would be adjusted annually for inflation based on
the annual percentage change in the CPI-W, is preferable due to its
alignment with the current CRA regulations' annual inflation
adjustments to the asset-size thresholds. With respect to commenters'
concerns about unintended consequences associated with banks moving
into lower asset-size categories, the agencies recognize that this is a
potential outcome associated with employing an annual inflation
adjustment to the asset-size thresholds. However, the agencies believe
the benefits of employing an annual inflation adjustment mechanism
outweigh this concern, because it mitigates the risk of needing to
employ large or unpredictable increases to realign the asset-size
thresholds with conditions in the banking industry. Further, utilizing
ad hoc adjustments to the asset-size thresholds, which would be less
predictable and less stable, could mean more movement of banks from one
size category to another from year-to-year, which inherently creates
uncertainty for banks and stakeholders. Moreover, if the agencies
declined to include an annual inflation adjustment mechanism, a
scenario could develop where institutions would graduate into higher
size categories due to inflation regardless of whether their financial
condition or capabilities to engage in CRA activity have changed.
Finally, the agencies note that the annual asset-size threshold
adjustment methodology is not designed to account for industry changes
such as consolidation. Rather, the methodology is designed to ensure
that the asset-size thresholds evolve with economic conditions.
Asset-size threshold alternatives. A few commenters cautioned
against the agencies placing too much reliance on asset-size thresholds
to determine which performance tests apply to a particular bank. These
commenters stated that the agencies should consider various factors
such as a bank's business model, risk profile, areas of specialization,
communities served, assessment area sizes, presence in an assessment
area, staffing levels, and technology limitations. A few other
commenters suggested that, under an ``alternate prong'' in the large
bank definition, the agencies should designate a bank as a large bank
if it makes a certain amount of loans in an evaluation period, even if
its asset size would otherwise qualify it as a small or intermediate
bank. These commenters asserted that this alternate prong would account
for situations where a bank claims to be the ``true lender'' for loans
that it makes with support from a third party.
The agencies considered commenter feedback that the final rule
should include alternative formulations to determine which performance
tests apply to a bank. The agencies believe that alternative
formulations for the baseline determination of which performance tests
apply to a bank, including adding factors such as risk
[[Page 6598]]
profile, areas of specialization, technology limitations, and others,
would increase the complexity of the final rule and its administration
without meaningfully furthering the agencies' CRA objectives.
Therefore, the agencies are maintaining asset size as the sole factor
for purposes of categorizing most institutions in the final rule.
However, as discussed throughout this SUPPLEMENTARY INFORMATION, the
agencies have incorporated performance context information into
performance test metrics and benchmarks, as well as express
consideration of qualitative factors in evaluating a bank's
performance, which include, among others, business model.\115\ In
addition, the agencies have retained a distinct evaluation approach for
limited purpose banks,\116\ as well as the option for banks to be
evaluated under a strategic plan.\117\
---------------------------------------------------------------------------
\115\ See, e.g., final Sec. Sec. __.21(d) and __.22(g) and the
accompanying section-by-section analyses.
\116\ See final Sec. Sec. __.12 (definition of ``limited
purpose bank'') and __.26 and the accompanying section-by-section
analyses.
\117\ See final Sec. __.27 and the accompanying section-by-
section analysis.
---------------------------------------------------------------------------
Asset-size threshold calculations. A commenter requested
clarification regarding how the agencies propose to determine a bank's
asset size. The commenter noted that the proposal defines a small bank
as a bank that had average assets of less than $600 million in either
of the prior two calendar years, based on the assets reported on its
four quarterly Call Reports for each of those calendar years. The
commenter requested that the agencies clarify whether a bank must have
average assets of less than $600 million at each quarter-end versus the
current method that considers year-end values.
After considering this comment, the agencies have decided to retain
the asset-size calculation methodology in the current CRA regulations,
which provides that asset size is calculated as of the end of a
calendar year without reference to quarterly Call Report figures.\118\
This methodology is simpler than the proposed formula, it is widely
understood,\119\ and retaining it will minimize complexity in the final
rule.
---------------------------------------------------------------------------
\118\ As a result of retaining the current year-end asset-size
calculation, the agencies estimate that the number of small banks
will decrease from 3252 (NPR asset-size calculation methodology) to
3219 banks, the number of intermediate banks will increase from 883
(NPR asset-size calculation methodology) to 889, and the number of
large banks will increase from 492 (NPR asset-size calculation
methodology) to 519. Numbers are for banks that are required to
comply with the CRA regulation; estimates are based on year-end
assets from 2021 and 2022 Call Report data.
\119\ See current 12 CFR __.12(u)(1).
---------------------------------------------------------------------------
For the reasons discussed above, the agencies are adopting the
proposed definitions of ``small bank,'' ``intermediate bank,'' and
``large bank'' in the final rule, with two substantive changes. First,
the agencies are adding the clause, ``excluding a bank designated as a
limited purpose bank \120\ pursuant to Sec. __.26,'' to each of the
three definitions to clarify that a bank designated as a limited
purpose bank that also falls into one of the asset-size categories is
evaluated as a limited purpose bank and not a small, intermediate, or
large bank, with the attendant requirements of the performance tests
that would otherwise be applicable to such a bank.\121\ Second, the
agencies have changed the asset-size calculation methodology to reflect
assets held at year-end, instead of at each quarter-end, as proposed.
The agencies have also made minor technical wording changes.
---------------------------------------------------------------------------
\120\ As discussed below, in the definition of ``limited purpose
bank,'' the agencies have combined limited purpose banks and
wholesale banks into one category, ``limited purpose banks.''
\121\ For limited purpose bank evaluations, see final Sec. Sec.
__.21(a)(4) and __.26 and the accompanying section-by-section
analyses.
---------------------------------------------------------------------------
Accordingly, in the final rule, ``small bank'' means a bank,
excluding a bank designated as a limited purpose bank pursuant to Sec.
__.26, that had assets of less than $600 million as of December 31 in
either of the prior two calendar years. ``Intermediate bank'' means a
bank, excluding a bank designated as a limited purpose bank pursuant to
Sec. __.26, that had assets of at least $600 million as of December 31
in both of the prior two calendar years and less than $2 billion as of
December 31 in either of the prior two calendar years. ``Large bank''
means a bank, excluding a bank designated as a limited purpose bank
pursuant to Sec. __.26, that had assets of at least $2 billion as of
December 31 in both of the prior two calendar years. For all three
definitions, the agencies adjust and publish the asset-size thresholds
annually, based on the year-to-year change in the average of the CPI-W,
not seasonally adjusted, for each 12-month period ending in November,
with rounding to the nearest million.
As indicated above, and in the proposal, the agencies believe that
these asset-size thresholds appropriately balance the agencies'
objectives of meeting the CRA's purpose of encouraging banks to meet
the credit needs of their communities and recognizing differences in
bank capacity based on asset size.
In accordance with the Small Business Act \122\ and its
implementing regulations,\123\ the agencies sought and received
approval from the SBA to deviate from the SBA's asset-size standard
applicable to small depository institutions--i.e., small banks.
---------------------------------------------------------------------------
\122\ 15 U.S.C. 632(a)(2)(C).
\123\ 13 CFR 121.903.
---------------------------------------------------------------------------
Branch
Current Approach and the Agencies' Proposal
The agencies proposed to update the current definition of
``branch'' without materially changing the substantive meaning of this
term. The current CRA regulations define ``branch'' to mean a staffed
banking facility authorized as a branch, whether shared or unshared,
including, for example, a mini-branch in a grocery store or a branch
operated in conjunction with any other local business or nonprofit
organization.\124\ Under the proposal, ``branch'' would mean a staffed
banking facility, whether shared or unshared, that is approved or
authorized as a branch by the appropriate Federal financial supervisory
agency and that is open to, and accepts deposits from, the general
public.
---------------------------------------------------------------------------
\124\ See current 12 CFR __.12(f).
---------------------------------------------------------------------------
As noted in the proposal, the agencies did not intend for the
removal of the list of examples from the definition to change or narrow
the meaning of the term ``branch'' and believed that these examples did
not fully reflect the breadth of shared space locations that might
exist, particularly as new bank business models emerge in the future.
In addition, the agencies proposed to add the language ``open to, and
accepts deposits from, the general public'' to the definition of
``branch'' to underscore that this definition would capture new bank
business models, with different types of staffed physical locations,
when those locations are open to the public and collect deposits from
customers. Similarly, the agencies added that a branch must be approved
or authorized as a branch by the agency to clarify that the agencies
have varying processes for branch designation and that the name that a
bank assigns to a facility is not determinative of whether an agency
considers it a ``branch'' for CRA purposes. The agencies did not view
these revisions as a change from the current standards.
For the reasons stated below, the agencies are adopting the
proposed definition of ``branch'' in the final rule.
Comments Received
The agencies received several comments concerning the proposed
definition of ``branch.'' A commenter recommended that the agencies
adopt a
[[Page 6599]]
flexible definition of ``branch'' that can adjust with changes in the
industry. Other commenters offered views on what the agencies should
and should not consider a branch for purposes of delineating a
facility-based assessment area. A commenter requested that the agencies
clarify whether the proposed definition of ``branch'' (and ``remote
service facility,'' discussed below) would include a financial
institution taking deposits at a school or community organization
facility. Another commenter recommended stating explicitly, either in
the regulation or in guidance, that a staffed physical location in a
shared space in which a financial institution has partnered with a
nonprofit organization is a branch. This commenter also suggested that
the agencies specify that any examples of shared physical locations in
the regulation are illustrative and not exhaustive. Another commenter
requested that a trust office be specifically excluded from the
definition of ``branch'' if the office is not open to or does not
accept deposits from the general public.
Final Rule
After reviewing the comments received on this definition, the
agencies are adopting the definition of ``branch'' as proposed.
Accordingly, ``branch'' means a staffed banking facility, whether
shared or unshared, that the appropriate Federal financial supervisory
agency approved or authorized as a branch and that is open to, and
accepts deposits from, the general public. The agencies believe the
proposed definition of ``branch'' provides adequate flexibility to
adapt to the continuous evolution of the banking industry by relying on
the agencies' authority to approve and authorize branches. As the
banking industry evolves, the agencies have the authority to adjust
their rules, regulations, and guidance to accommodate industry
developments.
The agencies decline to opine on whether the scenarios presented by
the commenters would qualify as a branch under the definition, because
branching decisions are analyzed on a case-by-case basis and subject to
the agencies' respective statutory authority, regulations, and
guidance, which may be modified in the future and render some or all of
the examples contained in the list inaccurate.
The agencies do not believe that trust offices that are not open to
the public or do not accept deposits from the general public need to be
explicitly excluded from the definition of ``branch,'' because a trust
office exhibiting those characteristics would likely not satisfy the
elements of the definition of ``branch'' in the final rule. However, as
discussed above, branching decisions are fact-specific inquiries, so
the agencies are not opining on whether trust offices are generally
excluded under the definition of ``branch'' in the final rule.
Census Tract
The current rule defines ``geography'' to mean a census tract
delineated by the U.S. Bureau of the Census in the most recent
decennial census.\125\ To simplify and clarify the CRA regulations, the
agencies proposed to use the term ``census tract'' in place of the term
``geography,'' without changing the substantive meaning. As proposed,
``census tract'' would mean a census tract delineated by the U.S.
Census Bureau in the most recent decennial census. In addition, the
agencies proposed to substitute the word ``census tract'' for the word
``geography'' wherever ``geography'' appears in the regulatory text.
---------------------------------------------------------------------------
\125\ See current 12 CFR __.12(k) (``Geography means a census
tract delineated by the United States Bureau of the Census in the
most recent decennial census.'').
---------------------------------------------------------------------------
The agencies did not receive any comments concerning the proposed
``census tract'' definition and are adopting the definition as proposed
with one change. The agencies are removing the phrase ``in the most
recent decennial census'' from the definition in the final rule to
conform this definition to current agency practice. The U.S. Census
Bureau periodically updates census tract boundaries and numbering
during the years between decennial censuses, and the Federal Financial
Institutions Examination Council (FFIEC) compiles these changes to
provide one update between decennial censuses, after five years. Under
current practice, the agencies have been using the census tract
boundaries and numbering posted on the FFIEC website. This practice
balances between the benefit of using updated census tract definitions
between decennial censuses and the benefit of having a substantial
period of stability (five years) between adjustments to census tract
delineations and numbering. The agencies believe that the revised
definition would allow for the current practice of using inter-
decennial changes to census tract delineations, which would not be
possible under the proposed language because the definition would be
confined to the census tract delineations included in the decennial
census.
Accordingly, the final rule defines ``census tract'' to mean a
census tract delineated by the U.S. Census Bureau.
The U.S. Census Bureau publishes census tract data and information
at census.gov.\126\
---------------------------------------------------------------------------
\126\ See U.S. Census Bureau, ``TIGER/Line Shapefiles,'' https://www.census.gov/cgi-bin/geo/shapefiles/index.php.
---------------------------------------------------------------------------
Closed-End Home Mortgage Loan
For a discussion of the definition of ``closed-end home mortgage
loan,'' see the discussion below for Mortgage-Related Definitions.
Combination of Loan Dollars and Loan Count
To provide clarity and consistency, and to simplify the text of the
CRA regulations, the agencies are adopting a new definition for
``combination of loan dollars and loan count,'' not included in the
proposal, that means, when applied to a particular ratio, the average
of: (1) the ratio calculated using loans measured in dollar volume; and
(2) the ratio calculated using loans measured in number of loans. This
term is employed in calculations for the Retail Lending Test in final
Sec. __.22, as provided in final appendix A; the calculations for the
Community Development Financing Test in final Sec. __.24, as provided
in final sections II and IV of appendix B, and the Community
Development Services Test in final Sec. __.25, as provided in final
section IV of appendix B; and the Retail Services and Products Test in
final Sec. __.23, as provided in final appendix C. These calculations
are discussed in more detail in the section-by-section analysis of
Sec. Sec. __.22 through __.25.
For the Retail Lending Test in particular, the combined loan
dollars and loan count approach for various calculations better tailors
the Retail Lending Test to accommodate individual bank business models.
The agencies determined that use of this combination helps to account
for differences across product lines, bank strategies, and geographic
areas, relative to an approach that uses only loan dollars or only loan
count. Loan size can vary among different product lines (e.g., home
mortgage loans versus automobile loans), and this approach seeks to
balance the value of dollars invested in a community with the number of
borrowers served. In particular, the agencies believe that both loan
dollars and loan count reflect different aspects of how a bank has
served the credit needs of a community. For example, in the agencies'
supervisory experience, employing a combination of loan dollars
[[Page 6600]]
and loan count recognizes the continued importance of home mortgage
lending to low-income and moderate-income communities, which has been a
focus of the CRA, while also accounting for the importance of typically
smaller dollar small business, small farm, and automobile lending to
low- and moderate-income communities. The loan dollars represent the
total amount of credit provided, while the loan count represents the
number of borrowers served. The agencies believe this is a balanced
approach that ensures consideration of lending that would be
significant to the bank by either dollar or number.
Specifically, the agencies believe that use of this term will
improve understanding and readability of the following calculations in
the Retail Lending Test: (1) the retail lending assessment area 80
percent exemption threshold, as provided in final paragraph II.a.1 of
appendix A; (2) the outside retail lending area 50 percent exemption
threshold for intermediate banks, as provided in final paragraph II.a.2
of appendix A; (3) the 15 percent major product line threshold for
facility-based assessment areas and outside retail lending areas, as
provided in final paragraph II.b.1 of appendix A; (4) the standard for
determining whether a bank is a majority automobile lender, as provided
in final paragraph II.b.3 of appendix A; (5) weighted performance
conclusions for major product lines in facility-based assessment areas,
retail lending assessment areas, and outside retail lending areas to
develop corresponding area performance conclusions, as provided in
final paragraph VII.b of appendix A; and (6) weighted average
performance scores for different areas in which banks are evaluated to
develop performance test conclusions for States, multistate MSAs, and
the institution, as provided in final paragraph VIII.b.2 of appendix A.
Similarly, the agencies believe that, for purposes of consistency
throughout the final rule and to provide clarity, it is appropriate to
incorporate the term into the calculations related to the Community
Development Financing Test in final Sec. __.24 and the Community
Development Services Test in final Sec. __.25, as provided in final
appendix B, as well as the Retail Services and Products Test in final
Sec. __.23, as provided in final appendix C. As with the Retail
Lending Test in final Sec. __.22, this definition helps to improve
understanding and readability in the calculations for the: (1)
weighting of benchmarks in final paragraph II.o of appendix B; (2)
combined score for facility-based assessment area conclusions and the
metrics and benchmarks analyses and the impact and responsiveness
reviews in final paragraph II.p of appendix B; (3) the weighting of
conclusions in final section IV of appendix B; and (4) the weighting of
conclusions in final paragraph c of appendix C.
Community Development
The current CRA regulations include a detailed definition of
``community development.'' \127\ The agencies proposed to move this
definition, with substantive additions and clarifications, to a
separate new section, proposed Sec. __.13, Community Development
Definitions, and to define this term in Sec. __.12 by cross-
referencing to proposed Sec. __.13. The agencies did not receive any
comments on the proposed definition of ``community development'' and
adopt it as proposed in the final rule. Final Sec. __.13, as discussed
in the section-by-section analysis of Sec. __.13, describes activities
that constitute community development, as proposed, but is retitled
``Consideration of community development loans, community development
investments, and community development services.''
---------------------------------------------------------------------------
\127\ See current 12 CFR __.12(g).
---------------------------------------------------------------------------
Community Development Financial Institution
The agencies proposed to add the definition of ``Community
Development Financial Institution (CDFI)'' to the CRA regulations. This
term would have the same meaning given to that term in section
103(5)(A) of the Riegle Community Development and Regulatory
Improvement Act of 1994 (RCDRIA) (12 U.S.C. 4701 et seq.).\128\ The
agencies proposed this definition to promote clarity in the CRA
regulations and consistency across Federal programs addressing CDFIs,
particularly the CDFI Fund established by RCDRIA.\129\
---------------------------------------------------------------------------
\128\ Section 103(5)(A) of RCDRIA defines ``CDFI'' to mean a
person (other than an individual) that: (1) has a primary mission of
promoting community development; (2) serves an investment area or
targeted population; (3) provides development services in
conjunction with equity investments or loans, directly or through a
subsidiary or affiliate; (4) maintains, through representation on
its governing board or otherwise, accountability to residents of its
investment area or targeted population; and (5) is not an agency or
instrumentality of the United States, or of any State or political
subdivision of a State. See 12 U.S.C. 4702(5)(A).
\129\ See U.S. Dept. of the Treasury, ``Community Development
Financial Institutions Fund,'' https://www.cdfifund.gov/about; see
also 12 U.S.C. 4703.
---------------------------------------------------------------------------
The agencies did not receive any comments concerning the proposed
definition of ``Community Development Financial Institution'' and are
adopting the definition as proposed in the final rule with several
technical and clarifying edits. First, the agencies are replacing the
phrase ``has the same meaning given to that term'' with ``means an
entity that satisfies the definition.'' Second, the agencies are
changing the cross-reference to the RCDRIA to the more specific
``Community Development Banking and Financial Institutions Act of
1994,'' which is title I, subtitle A of RCDRIA. Third, in conjunction
with the revised cross-reference to the Community Development Banking
and Financial Institutions Act of 1994, the agencies have revised the
citation from ``12 U.S.C. 4701 et seq.'' to ``12 U.S.C. 4702(5).''
Finally, in order to clarify that references to CDFIs in the final rule
pertain to those entities that are determined to be CDFIs by the U.S.
Department of the Treasury's CDFI Fund, the definition has been amended
by adding the clause ``and is certified by the U.S. Department of the
Treasury's Community Development Financial Institutions Fund as meeting
the requirements set forth in 12 CFR 1805.201(b).'' This definitional
change affirms the agencies' intent to ensure that, beyond MDIs, WDIs,
and LICUs, the entities with which a bank may engage for automatic
consideration of loans, investments, and services have undergone the
U.S. Department of the Treasury's CDFI certification process and meet
requirements for maintaining that certification. The agencies consider
this a critical guardrail to ensuring that community development on an
inclusive community basis is the focus of bank loans, investments, and
services in cooperation with these CDFIs. See discussion of CDFIs in
the section-by-section analysis of Sec. __.13.
Accordingly, the final rule defines ``Community Development
Financial Institution (CDFI)'' to mean an entity that satisfies the
definition in section 103(5)(A) of the Community Development Banking
and Financial Institutions Act of 1994 (12 U.S.C. 4702(5)) and is
certified by the U.S. Department of the Treasury's Community
Development Financial Institutions Fund as meeting the requirements set
forth in 12 CFR 1805.201(b).
Community Development Investment
The agencies proposed to replace the term ``qualified investment''
in the current CRA regulations \130\ with the term ``community
development
[[Page 6601]]
investment.'' \131\ The current CRA regulations define ``qualified
investment'' to mean ``a lawful investment, deposit, membership share,
or grant that has as its primary purpose community development.'' \132\
The agencies believe the term ``community development investment'' is
better aligned with the other types of community development activities
discussed in the proposal--i.e., community development loans and
community development services. (The definitions for these terms are
discussed below). The agencies based the proposed ``community
development investment'' definition on the current ``qualified
investment'' definition and incorporated several additions. First, the
proposed ``community development investment'' definition clarified that
a lawful investment includes a legally binding commitment to invest
that is reported on Schedule RC-L of the Call Report if its primary
purpose is community development. Second, the proposed definition
expressly included a ``monetary or in-kind donation'' if its primary
purpose is community development in order to increase certainty and
clarity as to what activities would qualify under the definition.
Finally, the agencies added a cross-reference to proposed Sec.
__.13(a), Community Development Definitions.
---------------------------------------------------------------------------
\130\ See current 12 CFR __.12(t).
\131\ As discussed, the change in the final rule from
``qualified investment'' to ``community development investment'' is
a change in nomenclature only; for purposes of simplifying the
discussion, this SUPPLEMENTARY INFORMATION hereafter refers to
``qualified investments'' under the current rule as ``community
development investments.''
\132\ Id.
---------------------------------------------------------------------------
The agencies did not receive any comments concerning the proposed
definition of ``community development investment'' and are adopting the
definition as proposed, with technical edits to conform to the changes
made to Sec. __.13 in the final rule and adjust punctuation.
Specifically, the agencies are changing ``has a primary purpose of
community development'' to ``supports community development'' and
revising the cross-reference to ``Sec. __.13(a)'' to ``Sec. __.13.''
A payment to a third party that is not an affiliate to perform
community development service hours qualifies as a ``monetary or in-
kind donation'' under the definition of ``community development
investment'' in Sec. __.12.
Community Development Loan
The current CRA regulations define ``community development loan''
to mean a loan that: (1) has as its primary purpose community
development; and (2) except in the case of a wholesale or limited
purpose bank, has not been reported or collected by the bank or an
affiliate for consideration in the bank's assessment as a home
mortgage, small business, small farm, or consumer loan, unless the loan
is for a multifamily dwelling (as defined in Sec. 1003.2(n) of this
title); and benefits the bank's assessment area(s) or a broader
statewide or regional area(s) that includes the bank's assessment
area(s).\133\
---------------------------------------------------------------------------
\133\ See current 12 CFR __.12(h).
---------------------------------------------------------------------------
The agencies proposed several revisions to this definition to add
greater specificity and to reflect consideration of community
development loans and retail loans under the proposed CRA evaluation
framework. First, the proposed definition included the clause, ``a
legally binding commitment to extend credit, such as a standby letter
of credit,'' to clarify that these types of commitments could be
considered ``community development loans'' if their primary purpose is
community development pursuant to proposed Sec. __.13(a). Second, the
agencies removed the reference to assessment areas because this part of
the current definition caused uncertainty as to whether an otherwise
eligible activity would qualify. Finally, the proposed definition
reflected the proposed CRA framework's consideration of certain loans
solely under the proposed Retail Lending Test, with an option for
certain intermediate banks to have a home mortgage loan, a small
business loan, or a small farm loan considered as either a retail loan
or a community development loan.
Specifically, the agencies proposed to define ``community
development loan'' to mean a loan, including a legally binding
commitment to extend credit, such as a standby letter of credit, that:
(1) has a primary purpose of community development, as described in
Sec. __.13(a); and (2) has not been considered by the bank, an
operations subsidiary or operating subsidiary of the bank or an
affiliate of the bank under the Retail Lending Test as an automobile
loan, closed-end home mortgage loan, open-end home mortgage loan, small
business loan, or small farm loan unless (1) the loan is for a
multifamily dwelling (as defined in 12 CFR 1003.2(n)); or (2) in the
case of an intermediate bank that is not required to report a home
mortgage loan, a small business loan, or a small farm loan, the bank
may opt to have the loan considered under the Retail Lending Test in
Sec. __.22, or under the intermediate bank community development
performance standards in Sec. __.29(b)(2), or, if the bank opts in,
the Community Development Financing Test in Sec. __.24.\134\
---------------------------------------------------------------------------
\134\ See proposed Sec. __.12.
---------------------------------------------------------------------------
The agencies did not receive any comments concerning the proposed
``community development loan'' definition and are adopting the
definition in the final rule with changes to reflect revisions to the
final rule regarding consideration of certain home mortgage loans,
small business loans, and small farm loans as community development
loans. First, the agencies are changing ``has a primary purpose of
community development'' to ``supports community development'' and
revising the cross-reference from ``Sec. __.13(a)'' to ``Sec. __.13''
to conform to the changes made to Sec. __.13 in the final rule. Next,
the agencies removed proposed paragraph (2) and added text intended to
clarify that a one-to-four family home mortgage loan for rental housing
with affordable rents in nonmetropolitan areas under Sec. __.13(b)(3)
(as discussed in the section-by-section analysis of final Sec.
__.13(b)(3)) may be considered in a bank's CRA evaluation under both
the Retail Lending Test in Sec. __.22, if applicable, and under the
applicable community development tests in the final rule. Under the
final definition of ``community development loan,'' a small business
loan or a small farm loan that has a community development purpose, as
described in Sec. __.13, may also be considered in a bank's CRA
evaluation under both the Retail Lending Test in Sec. __.22, if
applicable, and under the applicable community development test in the
final rule. For example, as discussed in the section-by-section
analysis of final Sec. __.13(c)(3), certain loans to small businesses
and small farms may fall within the economic development category of
community development.
The changes regarding consideration of certain home mortgage loans,
small business loans, and small farm loans as community developments
loans are discussed in more detail in the section-by-section analyses
of Sec. __.13(b) and (c).
Accordingly, the final rule defines ``community development loan''
as a loan, including a legally binding commitment to extend credit,
such as a standby letter of credit, that supports community
development, as described in Sec. __.13. A community development loan
does not include any home mortgage loan considered under the Retail
Lending Test in Sec. __.22, with the exception of one-to-four family
[[Page 6602]]
home mortgage loans for rental housing with affordable rents in
nonmetropolitan areas under Sec. __.13(b)(3).
Community Development Services
Current Approach and the Agencies' Proposal
The agencies proposed to replace the current term ``community
development service,'' with the term, ``community development
services,'' and revise the definition. The current CRA regulations
define ``community development service'' to mean a service that: (1)
has as its primary purpose community development; (2) is related to the
provision of financial services; and (3) has not been considered in the
evaluation of the bank's retail banking services under Sec.
__.24(d).\135\ Under current guidance, activities related to the
provision of financial services include services of the type generally
provided by the financial services industry, which often involves
informing community members about obtaining or using credit.\136\
Further, community development service includes, but is not limited to,
serving on the board of directors for a community development
organization, serving on a loan committee, developing or teaching
financial literacy curricula for low- and moderate-income individuals,
providing technical assistance on financial matters to a small
business, and providing services reflecting a bank employee's
professional expertise at the bank (e.g., human resources, information
technology, legal).\137\ Personal charitable activities provided by an
employee or director outside the ordinary course of their employment do
not qualify for community development consideration.\138\ Instead,
services must be performed in the capacity of a representative of the
bank.\139\
---------------------------------------------------------------------------
\135\ Under current 12 CFR __.24(d), the agencies evaluate ``the
availability and effectiveness of a bank's systems for delivering
retail banking services. . . .'' See also Q&A Sec. __.24(d)--1 and
--2; Q&A Sec. __.24(d)(3)--1 and --2; and Q&A Sec. __.24(d)(4)--1.
\136\ See Q&A Sec. __.12(i)--1.
\137\ See Q&A Sec. __.12(i)--3.
\138\ See Q&A Sec. __.12(i)--2.
\139\ Id.
---------------------------------------------------------------------------
The agencies proposed to replace the current term ``community
development service,'' with the term, ``community development
services'' and revise the definition. Specifically, the agencies
proposed to define ``community development services'' to mean
``activities described in Sec. __.25(d).'' The agencies, generally,
proposed in Sec. __.25(d) to incorporate the existing definition of
community development services while codifying existing guidance on the
meaning of ``related to the provision of financial services.'' Proposed
Sec. __.25(d) defined community development services as: (1)
activities that have a primary purpose of community development, as
defined in proposed Sec. __.13(a)(1); (2) volunteer activities
performed by bank board members or employees; and (3) activities
related to the provision of financial services as described in proposed
Sec. __.25(d)(3), unless otherwise indicated in proposed Sec.
__.25(d)(4).\140\ Proposed Sec. __.25(d)(2) excluded volunteer
services performed by bank board members or employees of the bank who
are not acting in their capacity as representatives of the bank.
Proposed Sec. __.25(d)(3) provided that activities related to the
provision of financial services are generally activities that relate to
credit, deposit, and other personal and business financial services,
and included a non-exhaustive list of examples. Proposed Sec.
__.25(d)(4) provided that banks may receive community development
services consideration for volunteer activities undertaken in
nonmetropolitan areas that otherwise meet the criteria for one or more
of the community development definitions, as described in Sec. __.13,
even if unrelated to financial services. The agencies reasoned that
banks operating in nonmetropolitan areas may have fewer opportunities
to provide community development services related to the provision of
financial services. Proposed Sec. __.25(d)(4) provided that examples
of qualifying activities not related to financial services include, but
are not limited, to assisting an affordable housing organization to
construct homes; volunteering at an organization that provides
community support such as a soup kitchen, a homeless shelter, or a
shelter for victims of domestic violence; and organizing or otherwise
assisting with a clothing drive or a food drive for a community service
organization.
---------------------------------------------------------------------------
\140\ See proposed Sec. __.25(d).
---------------------------------------------------------------------------
Comments Received
The agencies received numerous comments concerning the proposed
definition of ``community development services'' that are discussed
below.
Community development purpose for community development services. A
few commenters stressed that the final rule should require community
development services to have or be related to a community development
purpose.
Related to the provision of financial services. As described above,
proposed Sec. __.25(d)(3) provided that ``[a]ctivities related to the
provision of financial services'' are those that relate to credit,
deposit, and other personal and business financial services and
included the following non-exhaustive list of examples: serving on the
board of directors of an organization that has a primary purpose of
community development; providing technical assistance on financial
matters to nonprofit, government, or tribal organizations or agencies
supporting community development activities; providing support for
fundraising to organizations that have a primary purpose of community
development; providing financial literacy education as described in
proposed Sec. __.13(k); or providing services reflecting other areas
of expertise at the bank, such as human resources, information
technology, and legal services.
A few commenters supported the inclusion of volunteer activities
reflecting expertise of the employee, such as human resources, legal
services, and information technology. A few other commenters
specifically noted that activities related to the provision of
financial services should include financial literacy or financial
education. One of these commenters also suggested the provision of
financial services should include volunteering at Volunteer Income Tax
Assistance sites managed by nonprofit organizations.
Performed on behalf of the bank. Regarding the proposed exclusion
of volunteer activities by bank board members or employees of the bank
who are not acting in their capacity as representatives of the bank, a
commenter requested clarification that the proposed exclusion would not
require the volunteer to act as an agent of the bank when serving on a
community organization's board of directors. This commenter believed
that if the volunteer must act as an agent, it could create a conflict
of interest. Another commenter stated that banks should only receive
CRA credit for volunteer activities performed during bank business
hours.
Volunteer activities in nonmetropolitan areas. The agencies
received many comments on the proposed expansion to allow CRA
consideration for volunteer service hours in nonmetropolitan areas that
are unrelated to the provision of financial services. Only a few
commenters supported the provision as proposed. A majority of
commenters on this topic opposed the inclusion of volunteer activities
unrelated to the provision of
[[Page 6603]]
financial services in any location. A few commenters disputed the
premise stated in the proposal that there are insufficient volunteer
opportunities in nonmetropolitan areas, and one commenter urged the
agencies to collect data to verify the premise before expanding to
include services unrelated to the provision of financial services in
nonmetropolitan areas. Several other commenters stated that although
nonfinancial volunteer activities benefit communities, the inclusion of
such services loses sight of the CRA's intent to provide financial
services to underserved communities. These commenters believed that the
CRA should increase services related to the provision of financial
services and should not include all types of volunteer activities.
A few commenters supported the provision to include volunteer
activities unrelated to the provision of financial services in all
areas, not just nonmetropolitan areas. These commenters highlighted the
benefit general volunteerism provides to low- and moderate-income
communities and stressed that there is need in both metropolitan and
nonmetropolitan areas. A few commenters said that limiting the
provision of services unrelated to financial services to only
nonmetropolitan areas would restrict community organizations from
directing the service hours where needed. Another commenter believed
the restriction would be inappropriate at this time because community
organizations continue to experience challenges in recruiting
volunteers as a result of the COVID-19 pandemic. Other commenters said
the expansion to consider volunteer activities unrelated to the
provision of financial services in all communities could help reduce
the number of CRA ``hot spots.'' A commenter conveyed that some bank
employees are not well positioned for or comfortable providing services
related to the provision of financial services. Another commenter
questioned the delineation of nonmetropolitan versus metropolitan areas
because the delineation would exclude certain rural areas that are on
the outskirts of metropolitan areas.
A commenter stated bank employees volunteering services unrelated
to financial services be given CRA consideration in all communities, at
least in instances when it involves helping an affordable housing
organization build homes for homeownership. In support of this
position, the commenter highlighted the connection between the creation
of affordable housing built for homeownership and expanding credit and
homeownership opportunities for low- and moderate-income communities.
If the agencies allow CRA consideration for volunteer service hours
in nonmetropolitan areas that are unrelated to the provision of
financial services, a few commenters offered other requirements or
limitations to the evaluation of these service hours, such as weighting
the provision of financial services more heavily than those unrelated
to financial services; granting pro rata consideration for services
unrelated to the provision of financial services based on the percent
of low- and moderate-income recipients; establishing a limit for
receiving CRA consideration for services unrelated to financial
services; establishing a separate metric; limiting the expansion to
those community development services that satisfy basic needs like
shelter, safety, and food; or requiring the bank to show it made a
demonstrated effort to provide the provision of financial services
before it may receive credit for services unrelated to financial
services.
Final Rule
In response to commenter feedback and for the reasons described
below, the agencies are adopting a definition of ``community
development services'' in Sec. __.12 that includes substantive changes
as well as technical and conforming edits. Specifically, the final rule
defines ``community development services'' to mean the performance of
volunteer services by a bank's or affiliate's board members or
employees, performed on behalf of the bank, where those services: (1)
support community development, as described in Sec. __.13; and (2) are
related to the provision of financial services, which include credit,
deposit, and other personal and business financial services, or
services that reflect a board member's or employee's expertise at the
bank or affiliate, such as human resources, information technology, and
legal services. The agencies agree with commenters that a community
development purpose is fundamental to eligibility as a community
development service. Thus, with non-substantive conforming edits, the
agencies are adopting the proposed requirement that a community
development service must support community development as described in
Sec. __.13.
The agencies removed the examples of what qualifies as ``related to
the provision of financial services'' from the final definition.
Instead, the agencies believe the examples are more appropriate for
future agency guidance. In addition, the agencies will consider these
examples as they develop the illustrative list described in final Sec.
__.14. The agencies note that the removal of examples of community
development services from the ``community development services''
definition in the final rule should not be interpreted as a statement
on what qualifies or does not qualify as relating to the provision of
financial services. The examples provided in the proposal and restated
in the preceding discussion would still be considered ``related to the
provision of financial services.''
Further, the agencies determined that references to specific
programs, like the suggestion to identify Volunteer Income Tax
Assistance sites as related to the provision of financial services, in
the text of the regulation could be overly limiting and possibly
inconsistent with the durability of the rule over time. Free tax
preparation is likely to qualify as ``related to the provision of
financial services'' and may receive community development service
consideration if it otherwise meets the definition of community
development services.
In response to commenter feedback that the proposed exclusion--
excluding volunteer services performed by bank board members or
employees of the bank who are not acting in their capacity as
representatives of the bank--could be misinterpreted to require or
establish an agency relationship, the agencies removed the exclusion.
Instead, the agencies require that the services must be ``performed on
behalf of the bank.'' The agencies do not intend to require that an
employee or director must be acting as a bank's agent in the legal
sense of the term, nor do the agencies intend to suggest that
volunteering on behalf of the bank necessarily creates an agency
relationship.
The agencies also considered the comment that banks should only
receive CRA credit for volunteer activities performed during bank
business hours. The agencies believe that the nature of community
development services may vary depending on community needs and seek to
give banks flexibility to address those needs regardless of the timing
of projects and other community development-related activities. Thus,
consistent with the proposal, the final rule provides that a service
may still qualify as ``volunteer'' where the service is performed
during an employee's off-duty hours if that service otherwise meets the
``community development services'' definition. Conversely, volunteer
activities conducted by an employee or board member in their
[[Page 6604]]
personal capacity are generally not considered performed on behalf of
the bank if the activity is not sponsored or organized by the bank.
A service can also be considered ``volunteer'' for purposes of the
``community development services'' definition even if an employee is
paid in the normal course of employment. For example, volunteer hours
could include those hours associated with a bank employee performing an
economic development service activity, such as completing tax returns
for small businesses, during the employee's work hours. Even though the
bank pays the employee in the regular course of employment, the bank
essentially donates those hours because the bank employee is performing
economic development for the small business, rather than performing
that employee's regular bank duties.
The agencies have not adopted the proposal to include volunteer
activities unrelated to the provision of financial services in
nonmetropolitan areas. The agencies believe that volunteer service
hours, even if unrelated to financial services, can provide a
meaningful benefit in nonmetropolitan areas, but have determined that,
by focusing on activities related to the provision of financial
services, this provision is more consistent with the CRA's statutory
focus and also emphasizes activities that examiners have competency and
expertise to evaluate. The removal of this proposed expansion in
nonmetropolitan areas also is intended more generally to address
commenter requests that the agencies reduce the final rule's
complexity.
Finally, the agencies made conforming edits to clarify that service
hours performed by the employees or board members of a bank's affiliate
may qualify as community development services, as provided for in final
Sec. __.21(b).
Consumer Loan
Current Approach
The current CRA regulations define ``consumer loan'' to mean a loan
to one or more individuals for household, family, or other personal
expenditures, but does not include a home mortgage, small business, or
small farm loan. Further, ``consumer loan'' includes the following
categories of loans: (1) a motor vehicle loan, which is a consumer loan
extended for the purchase of and secured by a motor vehicle; (2) a
credit card loan, which is a line of credit for household, family, or
other personal expenditures that is accessed by a borrower's use of a
credit card, as this term is defined in 12 CFR 1026.2; (3) an other
secured consumer loan, which is a secured consumer loan that is not
included in one of the other categories of consumer loans; and (4) an
other unsecured consumer loan, which is an unsecured consumer loan that
is not included in one of the other categories of consumer loans.\141\
---------------------------------------------------------------------------
\141\ See current 12 CFR __.12(j).
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed to modify the ``consumer loan'' definition to
refine its scope, simplify and clarify it, and align it with revisions
to related Call Report definitions as well as proposed revisions to the
CRA regulations. Specifically, the proposed definition replaced the
term ``home mortgage'' with ``home mortgage loan'' (both a closed-end
home mortgage loan, and an open-end home mortgage loan) and a
``multifamily loan'' to use terms included in the proposal, discussed
below. The proposal also modified the reference to ``motor vehicle
loan'' to ``automobile loan,'' and specified that an automobile loan
includes new or used passenger cars or other vehicles, providing
examples, such as a minivan, a pickup truck, a sport-utility vehicle, a
van, or a similar light truck for personal use, as defined in Schedule
RC-C of the Call Report. The agencies proposed this change to conform
with the proposal to add a definition for ``automobile loan'' to the
CRA regulations, discussed above, and to align the term with the
definition of ``automobile loan'' in Schedule RC-C of the Call Report.
The proposed ``consumer loan'' definition also added ``other revolving
credit plan,'' to mean a revolving credit plan that is not accessed by
credit card. This change conforms to Call Report revisions, which now
distinguishes between revolving and non-revolving credit rather than
secured and unsecured credit. The proposal also combined the ``other
secured consumer loan'' and ``other unsecured consumer loan''
categories into the ``other consumer loan'' category to simplify the
definition.
Comments Received
The agencies received several comments related to the proposed
``consumer loan'' definition. A commenter supported the agencies'
inclusion of an automobile loan as a consumer loan. The commenter
believed that including automobile loans as a type of consumer loan is
important for areas where employment and economic opportunities are
significant distances from where individuals reside, and public
transportation may not be available or reliable. Another commenter
supported the proposed definition of ``automobile loan,'' likewise in
the definition of ``consumer loan,'' because it eliminates uncertainty
around direct versus indirect loan inclusion.
A commenter suggested that the agencies define ``unsecured personal
loans,'' as they do with credit cards, separately from the general
category of ``other secured and unsecured loans,'' because unsecured
personal loans are a fairly uniform credit class.
Final Rule
The agencies are adopting the proposed definition of ``consumer
loan'' in the final rule with several edits designed to simplify the
definition and avoid the possibility of future misalignment of the
definition with the Call Report. Specifically, ``consumer loan'' in the
final rule means a loan to one or more individuals for household,
family, or other personal expenditures and that is one of the following
types of loans: (1) automobile loan as reported in Schedule RC-C of the
Call Report; (2) credit card loan, as reported as ``credit card'' in
Schedule RC-C of the Call Report; (3) other revolving credit plan, as
reported in Schedule RC-C of the Call Report; and (4) other consumer
loan, as reported in Schedule RC-C of the Call Report.
For clarity, the agencies have elected to refer only to these loans
as reported in Schedule RC-C of the Call Report for each category of
loan covered in the definition. Referring only to loans reported in
schedule RC-C of the Call Report better aligns the categories of loans
with how banks report those classes of loans on the Call Report. As a
result, ``automobile loan,'' ``credit card loan,'' ``other revolving
credit plan,'' and ``other consumer loan'' are now described as those
loans reported in Schedule RC-C of the Call Report and do not include
specific examples.\142\ The agencies appreciate commenter concerns
about any generality associated with the term ``other secured and
unsecured loans,'' labeled ``other consumer loans'' in the proposal.
The final definition of ``consumer loan'' is designed to address those
concerns not only with the addition of the new category of ``other
revolving credit plan,'' but also with references to the loans reported
in Schedule RC-C. To provide additional clarity about the scope of the
term ``consumer loan,'' the agencies also revised the definition to
[[Page 6605]]
make the list of categories of loans considered consumer loans
exhaustive. With this change, the agencies made a technical edit to no
longer exclude home mortgage loans, multifamily loans, small business
loans, and small farm loans because these loans would not otherwise
fall within the final definition of ``consumer loan.''
---------------------------------------------------------------------------
\142\ The agencies note that the Call Report uses the term
``credit card'' and not ``credit card loan.''
---------------------------------------------------------------------------
County
The agencies proposed adding a definition for ``county'' and
defining it to mean any county or statistically equivalent entity as
defined by the U.S. Census Bureau. The agencies proposed this
definition to increase clarity and consistency in the CRA regulations
by aligning the term with the scope of the applicable U.S. Census
Bureau definition.\143\
---------------------------------------------------------------------------
\143\ See U.S. Census Bureau, ``Glossary,'' https://www.census.gov/glossary/?term=County%20and%20equivalent%20entity
(defining ``county and equivalent entity'').
---------------------------------------------------------------------------
The agencies did not receive any comments concerning this proposed
definition and are adopting the definition with one conforming change
and one technical change. The agencies are revising the definition to
include the phrase, ``county equivalent,'' to provide additional
clarity and further align the definition of ``county'' in the CRA
regulations with the applicable terms used by the U.S. Census Bureau.
The U.S. Census Bureau utilizes the term ``county equivalents'' to
refer to those geographic areas comparable to counties--i.e., parishes
in Louisiana, boroughs, independent cities in certain States, Census
Areas, cities in Alaska; municipios in Puerto Rico, districts and
islands in American Samoa, municipalities in the Commonwealth of the
Northern Mariana Islands, islands in the U.S. Virgin Islands, the
District of Columbia, and Election Districts in Guam.\144\ The agencies
believe the addition of ``county equivalent'' clarifies that the
definition of ``county'' captures those areas that are geographically
comparable to counties, but are not identified as such, and that these
areas will receive the same treatment under the CRA regulations.
---------------------------------------------------------------------------
\144\ See U.S. Census Bureau, ``Geographic Levels,'' https://www.census.gov/programs-surveys/economic-census/guidance-geographies/levels.html.
---------------------------------------------------------------------------
The agencies are also referring to these terms as used by the U.S.
Census Bureau, instead of as defined, and including a cross-reference
to the authority of the U.S. Census Bureau to more accurately provide a
source for these terms.
Accordingly, the definition of ``county'' in the final rule means
any county, county equivalent, or statistically equivalent entity as
used by the U.S. Census Bureau pursuant to title 13 of the U.S. Code.
The agencies have made conforming changes throughout the final rule to
remove references to ``county equivalent'' that are now unnecessary.
Deposit Location
The agencies proposed to add a definition of ``deposit location''
to the CRA regulations as a clarifying corollary to the proposed
definition of ``deposits.'' Specifically, the agencies proposed to
define ``deposit location'' to mean: (1) for banks that collect and
maintain deposits data as provided in proposed Sec. __.42, the census
tract or county, as applicable, in which the consumer resides, or the
census tract or county, as applicable, in which the business is located
if it has a local account; (2) for banks that collect and maintain, but
that do not report, deposits data as provided in proposed Sec. __.42,
the census tract or county, as applicable, in which the consumer
resides, or the census tract or county, as applicable, in which the
business is located if it has a local account except that, for purposes
of the Market Volume Benchmark and for all community development
financing benchmarks, the county of the bank branch to which the
deposits are assigned in the FDIC's Summary of Deposits data; and (3)
for banks that do not collect and maintain deposits data as provided in
proposed Sec. __.42, the county of the bank branch to which the
deposits are assigned in the Summary of Deposits.
Some commenters stated that the definition of ``deposit location''
for banks that collect and maintain deposits data under the proposal is
vague. A commenter noted that the proposed definition would leave
significant questions unresolved, including what it means for a
business to be ``located'' in a place and whether a business can be
``located'' in multiple places.
The agencies are adopting the definition of ``deposit location''
with revisions consistent with the revisions to the definition of
``deposits,'' discussed below, as well as revisions to address
commenter concerns. Specifically, the definition in the final rule
removes the category of banks that collect and maintain, but do not
report, deposits data. As explained in the discussion of the
``deposits'' definition, this category is no longer necessary. The
agencies also agree with commenters' suggestions that the proposed
definition could be clarified, and does not clearly indicate where
deposits are located. Therefore, the agencies are removing the
references to census tracts and counties from the part of the
definition that applies to banks that collect, maintain, and report
deposits data as provided in Sec. __.42, and replacing them with ``the
address on file with the bank for purposes of the Customer
Identification Program required by 31 CFR 1020.220 or another
documented address at which the depositor resides or is located.'' The
agencies also made a clarifying change to replace the terms
``consumer'' and ``business'' used in the proposal with ``depositor''
and a technical change to replace ``branch'' with ``facility'' to refer
to the term used in the FDIC's Summary of Deposits.
Accordingly, the final rule provides that ``deposit location''
means: (1) for banks that collect, maintain, and report deposits data
as provided in Sec. __.42, the address on file with the bank for
purposes of the Customer Identification Program required by 31 CFR
1020.220 or another documented address at which the depositor resides
or is located; and (2) for banks that do not collect, maintain, and
report deposits data as provided in Sec. __.42, the county of the bank
facility to which the deposits are assigned in the FDIC's Summary of
Deposits data.
Depository Institution
The final rule includes a new definition for ``depository
institution,'' not included in the proposal, to mean any institution
subject to CRA, as described in 12 CFR 25.11, 228.11, and 345.11. The
agencies are adopting this definition as a technical clarification to
effectuate their intent that ``bank'' or ``banks'' in certain
provisions of the proposal was meant to include institutions evaluated
by any of the agencies under part 25, 228, or 345.\145\ For example, in
the Community Development Financing Test, the
[[Page 6606]]
benchmarks would include the lending, investments, and deposits of all
banks in the applicable geographic area regardless of regulator. The
final rule replaces those references to the term ``bank'' with the term
``depository institution'' or ``large depository institution,''
discussed below. The agencies also made other conforming edits to
integrate these terms into the final rule.\146\
---------------------------------------------------------------------------
\145\ The agencies integrated the term ``depository
institution'' or ``large depository institution'' into the final
rule in final Sec. Sec. __.21(b)(1) (consideration of affiliate
activities); __.22(g)(1) (Retail Lending Test additional factors);
__.23(b)(2)(i)(B) (Retail Services and Products Test benchmark);
__.24(b)(2)(i) and (ii), (c)(2)(ii); (d)(2)(ii); and (e)(2)(ii) and
(iv) (benchmarks related to the Community Development Financing
Test); __.26(f)(2)(ii) and (iv) (benchmarks related to the Community
Development Financing Test for Limited Purpose Banks); __.27(c)(4)
(consideration of affiliate activities for strategic plans);
__.42(h) (aggregate disclosure statements); __.44 (public notice by
banks); the Market Volume Benchmark in appendix A, paragraph I.b;
appendix B, paragraph I.a (numerator and denominator for final Sec.
__.24 and final Sec. __.26 calculations); and the benchmarks in
appendix B, as applicable. Throughout the remainder of this
SUPPLEMENTARY INFORMATION the agencies use the terms ``banks'' and
``large banks'' to simplify the discussion. When discussing the
above provisions, certain references to ``banks'' or ``large banks''
are references to all ``depository institutions'' or ``large
depository institutions,'' as applicable.
\146\ For example, the agencies replaced references to the
common rule text sections with specific pin cites to all three
agencies final regulations as appropriate.
---------------------------------------------------------------------------
Deposits
The Agencies' Proposal
The agencies proposed to add a definition of ``deposits'' to the
CRA regulations to support and clarify the proposal to use deposits
data for several evaluation metrics, benchmarks, and weights under the
proposed performance tests. This definition would be based on whether a
bank had to collect, maintain, or report deposits data. As discussed
further in the section-by-section analysis of Sec. __.42, the agencies
proposed to require large banks with assets greater than $10 billion to
collect, maintain, and report county-level deposits data based on the
county in which the depositor's address is located to allow for more
precise measurement of a bank's local deposits by county.\147\ For
these banks, the agencies proposed a definition of ``deposits'' based
on deposits in domestic offices of individuals, partnerships, and
corporations, and of commercial banks and other depository institutions
in the United States as defined in Schedule RC-E of the Call Report,
which constitute the majority of deposit dollars captured overall in
the Call Report categories of Deposits in Domestic Offices. The
proposed definition excluded U.S. Government deposits, State and local
government deposits, domestically held deposits of foreign governments
or official institutions, or domestically held deposits of foreign
banks or other foreign financial institutions.
---------------------------------------------------------------------------
\147\ See proposed Sec. __.42(a)(7) and (b)(5); see also final
Sec. __.42(a)(7) and (b)(3) and the accompanying section-by-section
analysis.
---------------------------------------------------------------------------
For banks that collect and maintain, but that do not report,
deposits data as provided in proposed Sec. __.42, the proposal
provided that ``deposits'' would have the same meaning as for banks
that must report deposits data except that, for purposes of the Retail
Lending Test's Market Volume Benchmark and for all community
development financing benchmarks, ``deposits'' would have the same
meaning as in the FDIC's Summary of Deposits Reporting Instructions.
For banks that do not collect and maintain deposits data as
provided in proposed Sec. __.42, the proposal provided that
``deposits'' would have the same meaning as in the FDIC's Summary of
Deposits Reporting Instructions.
Comments Received
Several commenters stated that the agencies should exclude
corporate deposits from the definition of ``deposits'' and recommended
defining ``deposits'' as the sum of total deposits intended primarily
for personal, household, or family use, as reported on Schedule RC-E of
the Call Report, items 6.a, 6.b, 7.a(1), and 7.b(1). One of the
commenters made the same comment with specific reference to large
banks. Another commenter explained that including corporate deposits in
the proposed definition of ``deposits'' could reduce incentives for
banks to address the community development needs of underserved
communities, particularly rural communities, where few corporate
deposits are attributed. This commenter also expressed concern that
including corporate deposits could lead to distorted or inconsistent
results due to fluctuations in corporate deposits that could in turn
lead to CRA focus and resource challenges for banks. Another commenter
explained that using the suggested items in the Call Report would more
accurately reflect a bank's capacity to engage in qualifying activities
for individuals, small businesses, and small farms, because the items
collect information on deposits maintained primarily for personal,
household, or family use. The commenter further explained that use of
these suggested items would also eliminate the potential for large
corporate deposits to skew the allocation of deposits across different
geographies, thereby better capturing the amount of deposits collected
from specific assessment areas. Another commenter supported this
position, referencing the proposal's potential to exacerbate CRA hot
spots in urban centers where deposits are concentrated, fluctuations in
the working capital needs of corporate depositors, and the potential
challenges of assigning a location for corporate deposits in locations
spanning multiple geographies. If not removed, the commenter warned
that corporate deposits could distort the calculation of the retail
lending volume screen, the calculation of the Community Development
Financing Metric, and the weighting of banks' performance conclusions
across assessment areas.
Other commenters stated that the agencies should broaden the
definition of ``deposits'' to include deposits from limited liability
companies (LLCs) and trusts, and not just individuals, partnerships,
and corporations. One of these commenters noted that LLC deposits are
domestic deposits in substance and another commenter suggested that the
definition be broadened to include deposits from all entities. The
commenters stated that the agencies should specifically include these
deposits in the final rule for clarification.
One of these commenters also requested the agencies clarify that
the ``deposits'' definition does not include deposits from foreign
persons or entities that are made in U.S. branches. The commenter
explained that these deposits do not come from a bank's assessment area
and are not related to the CRA's purpose of returning money to the
community. The commenter also expressed concern that including these
types of deposits in the definition may incentivize some banks to keep
the funds outside of the United States entirely.
Another commenter indicated that the agencies should include State
and local government deposits in the definition because banks can lend
against these deposits and some State and local jurisdictions have
developed public policies designed to promote reinvestment goals by
tying their deposits to bank community performance. The organization
stated that CRA rules should not undermine these local efforts by
lowering the reinvestment bar for banks with which State and local
governments do business.
Final Rule
The agencies are adopting the proposed definition of ``deposits''
in the final rule with substantive revisions and technical changes.
Specifically, the agencies are collapsing the three categories of
institutions under the proposed definition--(1) banks that collect,
maintain, and report deposits data; (2) banks that collect and
maintain, but do not report, deposits data; and (3) banks that do not
collect and maintain deposits data--into two categories. Thus, under
the final rule, the definition would address: (1) banks that collect,
maintain, and report deposits data; and (2) banks that do not collect,
maintain, and report that data. The agencies elected to simplify the
definition of ``deposits'' in response to comments about both the
overall
[[Page 6607]]
complexity of the proposal and the complexity of the provisions related
to deposits data collection and reporting. Further, because the final
rule provides that institutions that collect and maintain deposits
data, whether required or opting to do so, must also report deposits
data, the category for banks that collect and maintain but do not
report is unnecessary. By removing this category, the agencies believe
the final rule provides a less complex and more workable definition.
The agencies are also making a technical change to refer to deposits as
reported in the FDIC's Summary of Deposits as required under 12 CFR
304.3(c), instead of referring to the instructions, to more accurately
provide a source for this term. The agencies have also replaced
``U.S.'' with ``United States.''
The agencies have declined to remove corporate deposits from the
``deposits'' definition because the agencies believe that utilizing
both personal and corporate deposits results in a more comprehensive
representation of the community that an institution serves. The
agencies understand concerns that including corporate deposits in the
proposed ``deposits'' definition could reduce incentives for banks to
address the community development needs of underserved communities,
because, for example, reporting banks could have higher proportions of
their deposits in other areas and, under the Community Development
Financing Test, commensurately higher expectations for activity in
those areas. However, the agencies believe that other aspects of the
rule will encourage banks to focus more on these areas. Specifically,
under Sec. __.15, the agencies consider whether an institution serves
geographic areas with low levels of community development financing.
Further, ``targeted census tracts'' are used in the final rule to
consider whether certain place-based community development activities
qualify, and the definition of this term, discussed below, includes
underserved communities. Lastly, the agencies are addressing the
concern related to CRA hot spots where deposits are concentrated by
evaluating bank community development financing and retail lending
outside of facility-based assessment areas.\148\
---------------------------------------------------------------------------
\148\ See final Sec. Sec. __.17 through __.19 and the
accompanying section-by section analyses.
---------------------------------------------------------------------------
The agencies also declined to modify the ``deposits'' definition to
include deposits from LLCs and trusts. The agencies note that because
LLCs are a form of corporation, they are captured under corporate
deposits on the Call Report.\149\ Further, institutions holding trust
account deposits have a fiduciary obligation to invest those deposits
in accordance with the trust's instructions. As a result, those
deposits are generally not available to be reinvested into the
community and should not be included in ``deposits.''
---------------------------------------------------------------------------
\149\ See Call Report, Schedule RC-E.
---------------------------------------------------------------------------
The agencies also decided not to exclude deposits from foreign
persons or entities that are made in U.S. branches. The exclusions in
the deposit definition are limited to whole categories in the Call
Report definition of deposit. Excluding foreign individuals or
companies would exclude only a partial category in the Call Report.
This partial exclusion would increase burden because these categories
are known and understood by the industry and, the agencies believe,
would not offer significant benefit. Second, as explained in the
proposal, the agencies elected to exclude State and local government
deposits, along with foreign government deposits, because these
deposits are sometimes subject to restrictions and may be periodically
rotated among different banks causing fluctuations in the level of
deposits over time.\150\ These government entities make up one whole
category under the Call Report definition. This determination is based
on the agencies' supervisory experience, which also considered that
restricted funds may also misrepresent a bank's ability to reinvest
funds in the local community.
---------------------------------------------------------------------------
\150\ See 87 FR 33884, 33995 (June 3, 2022).
---------------------------------------------------------------------------
The agencies have elected to maintain deposits data collection from
banks with assets greater than $10 billion and decline to expand this
collection requirement to other banks. The agencies believe the
collection of deposits data is important, but that data collection
should be limited to large banks with assets greater than $10 billion
due to the burden associated with this requirement.\151\ Further, the
agencies have declined to expand the use of the FDIC's Summary of
Deposits data to all banks because of the limitations of Summary of
Deposits data. In particular, Summary of Deposits data is tied to a
bank's branches. As banks' business models continue to evolve, there is
the possibility that branches will be less representative of the
communities that banks serve. As a result, Summary of Deposits data may
also be less representative of the communities a bank serves. The
agencies note, however, that banks that opt into deposits data
collection and maintenance must report these data.\152\
---------------------------------------------------------------------------
\151\ For additional discussion of this issue, see the
discussion on deposits in the section-by-section analysis of Sec.
__.42.
\152\ See final rule Sec. __.42(b)(3)(i) and the section-by-
section analysis of Sec. __.42.
---------------------------------------------------------------------------
Accordingly, the definition of ``deposits'' in the final rule
provides that: (1) for banks that collect, maintain, and report
deposits data as provided in Sec. __.42, ``deposits'' means deposits
in domestic offices of individuals, partnerships, and corporations, and
of commercial banks and other depository institutions in the United
States as defined in Schedule RC-E of the Call Report; deposits does
not include U.S. Government deposits, State and local government
deposits, domestically held deposits of foreign governments or official
institutions, or domestically held deposits of foreign banks or other
foreign financial institutions; and (2) for banks that do not collect,
maintain, and report deposits data as provided in Sec. __.42,
``deposits'' means a bank's deposits as reported in the FDIC's Summary
of Deposits as required under 12 CFR 304.3(c).
Digital Delivery System
The final rule includes a new definition for ``digital delivery
systems,'' not included in the proposal, to mean a channel through
which banks offer retail banking services electronically, such as
online banking or mobile banking. The agencies are adopting this
definition to clarify the agencies' intended meaning of this term,
which is to reflect the common understanding of this term. This term is
used in Sec. __.23, Retail Services and Products Test. For additional
discussion of digital delivery systems, see the section-by-section
analysis of Sec. __.23.
Dispersion of Retail Lending
The agencies proposed to add a definition of ``dispersion of retail
lending'' to Sec. __.12 in support of the proposal to assess a bank's
retail lending performance in a facility-based assessment area based
not only on a bank's Retail Lending Volume Screen (see proposed Sec.
__.22(c)) and geographic and borrower distribution metrics (see
proposed Sec. __.22(d)), but also in consideration of several other
factors, including the dispersion of retail lending in the facility-
based assessment area to determine whether there are gaps in lending in
the facility-based assessment area that are not explained by
performance context. Specifically, the agencies proposed to define
``dispersion of retail lending'' to mean how geographically diffuse or
widely spread such lending is across
[[Page 6608]]
census tracts of different income levels within a facility-based
assessment area, retail lending assessment area, or outside retail
lending area.
The agencies did not receive any comments on this definition.
However, after further review, the agencies have elected not to adopt a
definition of ``dispersion of retail lending'' in Sec. __.12 because
this term is used only once, in Sec. __.22. Instead, the agencies have
incorporated this concept into Sec. __.22(g) of the final rule.
Distressed or Underserved Nonmetropolitan Middle-Income Census Tract
In the current CRA regulations, the definition of ``community
development'' includes activities that revitalize or stabilize
``distressed or underserved nonmetropolitan middle-income geographies''
as designated by the agencies based on: (1) rates of poverty,
unemployment, and population loss; or (2) population size, density, and
dispersion. Further, this provision states that activities revitalize
and stabilize geographies designated based on population size, density,
and dispersion if they help to meet essential community needs,
including the needs of low- and moderate-income individuals.\153\
---------------------------------------------------------------------------
\153\ See current 12 CFR __.12(g)(4)(iii).
---------------------------------------------------------------------------
The agencies proposed to include a definition of ``distressed or
underserved nonmetropolitan middle-income census tract'' in Sec.
__.12, based on the language in the current definition of ``community
development,'' with certain edits. Specifically, the agencies proposed
to add clarity and consistency by incorporating additional detail from
the Interagency Questions and Answers into the proposed
definition.\154\ The agencies also proposed technical and conforming
changes, such as replacing the term ``geography'' with the term
``census tract,'' reflecting the change to this term discussed above,
and restructuring the definition. As proposed, ``distressed or
underserved nonmetropolitan middle-income census tract'' would mean a
census tract publicly designated as such by the agencies and compiled
in a list published annually by the FFIEC. The agencies would designate
a nonmetropolitan middle-income census tract as distressed if it is in
a county that has: (1) an unemployment rate of at least 1.5 times the
national average; (2) a poverty rate of 20 percent or more; or (3) a
population loss of 10 percent or more between the previous and most
recent decennial census or a net migration loss of five percent or more
over the five-year period preceding the most recent census. The
agencies would designate a nonmetropolitan middle-income census tract
as underserved if it meets the criteria for population size, density,
and dispersion that indicate the area's population is sufficiently
small, thin, and distant from a population center that the census tract
is likely to have difficulty financing the fixed costs of meeting
essential community needs, based on the Urban Influence Codes
established by the U.S. Department of Agriculture's (USDA) Economic
Research Service numbered ``7,'' ``10,'' ``11,'' or ``12.'' \155\
---------------------------------------------------------------------------
\154\ See Q&A Sec. __.12(g)(4)(iii)--1.
\155\ See U.S. Dept. of Agriculture, ``Urban Influence
Codes,''https://www.ers.usda.gov/data-products/urban-influence-codes/.
---------------------------------------------------------------------------
The agencies did not receive any comments on the proposed
definition of ``distressed or underserved nonmetropolitan middle-income
census tract,'' and are adopting the definition as proposed with two
technical changes, referencing the official name of the Board, and
replacing the word ``migration'' with ``population.''
Distribution of Retail Lending
The agencies proposed to add a definition of ``distribution of
retail lending'' to Sec. __.12 to increase clarity and consistency
regarding the evaluation of a bank's retail lending under the proposed
Retail Lending Test. As proposed, ``distribution of retail lending''
would refer to how retail lending is apportioned among borrowers of
different income levels, businesses or farms of different sizes, or
census tracts of different income levels. The agencies did not receive
any comments on this definition. However, after further review, the
agencies have elected not to adopt this definition in the final rule
because the distribution analysis is explained extensively in the
Retail Lending Test in the final rule.\156\
---------------------------------------------------------------------------
\156\ See final Sec. __.22 and appendix A and accompanying
section-by-section analysis.
---------------------------------------------------------------------------
Evaluation Period
The agencies proposed to add a definition of ``evaluation period''
to increase clarity and consistency in the CRA regulations.
Specifically, proposed Sec. __.12 defined ``evaluation period'' to
mean the period of time between CRA examinations, generally in calendar
years, in accordance with the agency's guidelines and procedures. The
agencies received no comments concerning the proposed definition of
``evaluation period.'' Accordingly, the agencies are adopting this term
in the final rule with several technical changes designed to enhance
the clarity and accuracy of the definition. Specifically, the agencies
revised the phrase ``period of time'' to ``the period'' and moved the
clause ``generally in calendar years'' so that it now follows ``the
period,'' and replaced the phrase ``time between CRA examinations''
with ``during which a bank conducted the activities that the [Agency]
evaluates in a CRA examination.'' Accordingly, ``evaluation period,''
in the final rule means the period, generally in calendar years, during
which a bank conducted the activities that the agency evaluates in a
CRA examination, in accordance with the agency's guidelines and
procedures.
Facility-Based Assessment Area
As discussed above, the agencies proposed to replace the term
``assessment area'' in Sec. __.12 with the terms ``facility-based
assessment area,'' ``retail lending assessment area,'' and ``outside
retail lending area.'' The agencies proposed to define ``facility-based
assessment area'' to mean a geographic area delineated in accordance
with Sec. __.16.\157\ Section __.16 describes the bases for
delineating this type of assessment area. For information regarding
facility-based assessment area delineation requirements in the final
rule, see the section-by-section analysis of Sec. __.16.
---------------------------------------------------------------------------
\157\ Similarly, as discussed above, the current CRA regulations
define ``assessment area'' to mean ``a geographic area delineated in
accordance with Sec. __.41''--the section of the current CRA
regulations that describes the bases for delineating an assessment
area. See current 12 CFR __.12(c).
---------------------------------------------------------------------------
A commenter suggested clarifying that an ATM not owned and operated
exclusively by a bank would not trigger a new facility-based assessment
area, consistent with the current regulation. The agencies agree that a
non-proprietary remote service facility, such as a network ATM, does
not constitute a bank facility because such ATMs are owned and operated
by a third party and are not operated exclusively for the bank.
Further, a bank participating in such an ATM network may have limited
control over where an ATM is located. Therefore, such ATMs would not by
themselves trigger a new facility-based assessment area.
For the reasons stated above, the agencies are adopting the
``facility-based assessment area'' definition as proposed in the final
rule with a minor wording change. Specifically, the agencies replaced
the phrase ``in accordance with'' with ``pursuant to'' in the final
rule.
[[Page 6609]]
High Opportunity Area
The Agencies' Proposal
The agencies proposed to add a definition of ``High Opportunity
Area'' to mean: (1) an area designated by the U.S. Department of
Housing and Urban Development (HUD) as a ``Difficult Development Area''
(DDA); or (2) an area designated by a State or local Qualified
Allocation Plan as a High Opportunity Area, and where the poverty rate
falls below 10 percent (for metropolitan areas) or 15 percent (for
nonmetropolitan areas).
As discussed further in the section-by-section analysis of Sec.
__.15, the agencies proposed to define ``High Opportunity Area'' in
relation to the proposal to conduct an impact review of community
development activities.\158\ One of the proposed factors that the
agencies would consider in assessing the impact and responsiveness of a
community development activity would be whether the activity
``[d]irectly facilitate[s] the acquisition, construction, development,
preservation, or improvement of affordable housing in High Opportunity
Areas.'' \159\ The proposed definition would align with the Federal
Housing Finance Agency's (FHFA) definition of ``High Opportunity
Areas,'' \160\ and was intended to demarcate areas where efforts to
increase affordable housing could be especially beneficial for low- and
moderate-income individuals.
---------------------------------------------------------------------------
\158\ See proposed Sec. __.15.
\159\ See proposed Sec. __.15(b)(6).
\160\ See FHFA, ``Overview of the 2020 High Opportunity Areas
File'' (2020), https://www.fhfa.gov/DataTools/Downloads/Documents/Enterprise-PUDB/DTS_Residential-Economic-Diversity-Areas/DTS_High%20Opportunity_Areas_2020_README.pdf.
---------------------------------------------------------------------------
The agencies solicited comment on whether the proposed approach to
use the FHFA's definition of ``High Opportunity Areas'' is appropriate,
and whether there are other options for defining High Opportunity
Areas.
Comments Received
Most commenters that provided input on this definition supported
the proposal to align the ``High Opportunity Areas'' definition with
the FHFA's definition, for example, because the high cost of housing in
otherwise low poverty areas can absorb significant resources from large
portions of the population. A commenter observed that low poverty rates
are an important component of identifying high opportunity areas. This
commenter supported limiting the variability of definitions promulgated
in State Qualified Allocation Plans but suggested there may also be
other relevant opportunity or social vulnerability indices. Another
commenter suggested the agencies clarify the definition to allow for
variation in terminology used from State to State.
Some commenters offered various suggestions for expanding the
``High Opportunity Areas'' definition, such as to include Qualified
Census Tracts to allow communities concerned about displacement of low-
and moderate-income residents the ability to access CRA-motivated
financing. Another commenter recommended expanding the definition to
include Empowerment Zone and Enterprise Communities, transit-oriented
areas, and census tracts where 40 percent or more of the homes meet the
definition of affordable housing, and a different commenter suggested
the definition should be expanded to include certain climate resilience
factors. Another commenter stated that, in addition to aligning with
the FHFA definition, the agencies should permit flexibility in how
financial institutions identify affordable housing needs, gaps, and
opportunities, utilizing data analytics tools.
A few commenters opposed the proposed ``High Opportunity Areas''
definition. Some of these commenters opposed using the FHFA's
definition because it would include DDAs, which these commenters
asserted were created to permit higher levels of housing tax credit
subsidies in areas with high construction, land, and utility costs and
are not directly related to higher income areas with low rates of
poverty. Another commenter expressed some concern about including DDAs
and suggested that the agencies consider eliminating DDAs or adding
criteria to ensure that in-scope DDAs include features supporting
economic mobility, such as strong transit connectivity of the housing
to schools and childcare facilities, health facilities, employment
centers, and green space. Similarly, another commenter stated that the
proposed FHFA definition is limited to quantifiable poverty measures
and State Qualification Allocation Plan definitions but may not address
a more holistic view of ``opportunity,'' and suggested that
incorporating service[hyphen]enriched housing could be a good
counterbalance. A commenter also stated that the FHFA definition may be
too restrictive for some communities and recommended that the agencies
be open to other options where high cost of living relative to local
wages and income demonstrates a need.
Final Rule
The agencies are adopting the definition of ``High Opportunity
Areas'' in the final rule with substantive revisions. As discussed
above, the agencies intended the proposed definition of ``High
Opportunity Area'' to align with the FHFA's definition of ``High
Opportunity Area.'' However, the FHFA maintains a ``High Opportunity
Areas File'' that designates the specific census tracts that qualify as
high opportunity areas for purposes of residential economic diversity
activities.\161\ In consideration of the fact that the FHFA maintains a
``High Opportunity Areas File,'' the agencies believe it is prudent to
defer to the FHFA's interpretation of its regulation and guidance in
the identification of ``High Opportunity Areas.'' \162\ Further, the
agencies believe reliance on the FHFA's identification of ``High
Opportunity Areas'' will eliminate any potential ambiguity in the
definition.
---------------------------------------------------------------------------
\161\ See FHFA, ``Overview of the 2023 High Opportunity Areas
File,'' https://www.fhfa.gov/DataTools/Downloads/Documents/Enterprise-PUDB/DTS_Residential-Economic-Diversity-Areas/DTS_High_Opportunity_Areas_2023.pdf.
\162\ See 12 CFR 1282.1, 1282.36(c)(3).
---------------------------------------------------------------------------
For these reasons, the agencies have modified the proposed
definition of ``High Opportunity Area'' to mean an area identified by
the FHFA for purposes of the Duty to Serve Underserved Markets
regulation in 12 CFR part 1282, subpart C. This definition generally
includes geographic areas where the cost of residential development is
high \163\ and affordable housing opportunities can be limited.
---------------------------------------------------------------------------
\163\ See, e.g., HUD, Office of Policy Development and Research,
``Qualified Census Tracts and Difficult Development Areas'' (2022),
https://www.huduser.gov/portal/datasets/qct.html.
---------------------------------------------------------------------------
While the agencies considered commenters' concerns about the
definition and suggestions for alternatives, the agencies continue to
believe the ``High Opportunity Area'' definition included in the final
rule provides the best option for the purposes of the impact and
responsiveness factor in Sec. __.15(b)(7) because, as defined by FHFA,
these areas are intended to capture areas that provide strong
opportunities for low- and moderate-income individuals, families, and
households. The definition captures both DDAs and also areas designated
as High Opportunity Areas where the poverty rate is low. The agencies
agree that increasing affordable housing opportunities in these areas
helps to provide low- or moderate-income individuals, families, and
households with more choices to live in neighborhoods with economic
[[Page 6610]]
opportunities. The agencies considered various alternative options,
including commenter suggestions to expand the definition to other types
of geographic areas or exclude DDAs from the definition but continue to
believe the definition provides a clear set of standards related to
where additional affordable housing may be both needed and hard to
develop and is in alignment with an already in-use Federal agency
definition with readily available geographic classifications.
Home Mortgage Loan
For a discussion of the definition of ``home mortgage loan,'' see
the discussion for Mortgage-Related Definitions in this section-by-
section analysis of Sec. __.12.
Income Level
To increase clarity, the agencies proposed non-substantive and
minor structural revisions to the current definition of ``income
level'' \164\ and, as in other definitions, to replace the term
``geography'' with the more precise term ``census tract.''
Specifically, the agencies proposed that ``income level'' include the
following definitions:
---------------------------------------------------------------------------
\164\ See current 12 CFR __.12(m).
---------------------------------------------------------------------------
Low-income would mean: (1) for individuals within a census
tract, an individual income that is less than 50 percent of the area
median income; or (2) for a census tract, a median family income that
is less than 50 percent of the area median income.
Moderate-income would mean: (1) for individuals within a
census tract, an individual income that is at least 50 percent and less
than 80 percent of the area median income; or (2) for a census tract, a
median family income that is at least 50 percent and less than 80
percent of the area median income.
Middle-income would mean: (1) for individuals within a
census tract, an individual income that is at least 80 percent and less
than 120 percent of the area median income; or (2) for a census tract,
a median family income that is at least 80 percent and less than 120
percent of the area median income.
Upper-income would mean: (1) for individuals within a
census tract, an individual income that is 120 percent or more of the
area median income; or (2) for a census tract, a median family income
that is 120 percent or more of the area median income.
Comments Received
The agencies received several comments on the proposed definition
of ``income level.'' A commenter requested that the agencies include
persons with vision loss--and persons with disabilities in general--in
the CRA regulation's ``low-income'' population, explaining that persons
with vision loss or other disabilities often experience high
unemployment, average income that is lower than the general population,
less access to technology and the internet, and are more likely to be
persons of color. Another commenter suggested the agencies include
persons with disabilities in the low- and moderate-income designation
even if their incomes exceed that designation because of the financial
vulnerabilities and high costs associated with living with a
disability, such as the expenses of accessible van conversions,
assistive technology, and home renovations.
Another commenter suggested that the agencies revise the income
levels in an upward direction so that ``low-income'' is less than 60
percent of area median income, ``moderate-income'' is between 60
percent and 100 percent of area median income, ``middle-income'' is
between 100 percent and 125 percent of area median income, and ``upper-
income'' is more than 125 percent of area median income. The commenter
stated that this upward revision of the income levels could provide
additional support for middle-class home ownership and assist more
middle-income households that have lost ground after the COVID-19
pandemic and due to high inflation and would be consistent with the
change in the agencies' special designation of distressed or
underserved nonmetropolitan middle-income census tracts (a designation
referencing between 80 percent and 120 percent of area median income)
and in the Federal Housing Enterprises Financial Safety and Soundness
Act of 1992, which defines low-income as 80 percent of area median
income and moderate-income as income ``not in excess of area median
income.''
Another commenter stated that it welcomes the agencies providing
more examples on how to identify low- and moderate-income individuals
and families, and requested that the agencies consider a broader, more
flexible framework that uses enrollment status in the USDA National
School Lunch Program and Medicaid as part of the definition of low- and
moderate-income.
Final Rule
The agencies are adopting the proposed definition of ``income
levels'' in the final rule with several revisions to the first prong of
each income level. Specifically, the agencies removed the reference to
``census tracts'' because inclusion of the term is unnecessary. The
agencies also expanded the definition so that it applies to
individuals, families, and households, instead of only individuals, as
proposed. The agencies added families and households in recognition of
the fact that the measurement of income would be incomplete if each
income levels excluded families or households.
Accordingly, the agencies are adopting the following definition of
``income levels'':
``Low-income,'' which means: (1) for individuals,
families, or households, income that is less than 50 percent of the
area median income; or (2) for a census tract, a median family income
that is less than 50 percent of the area median income.
``Moderate-income,'' which means: (1) for individuals,
families, or households, an income that is at least 50 percent and less
than 80 percent of the area median income; or (2) for a census tract, a
median family income that is at least 50 percent and less than 80
percent of the area median income.
``Middle-income,'' which means: (1) for individuals,
families, or households, an income that is at least 80 percent and less
than 120 percent of the area median income; or (2) for a census tract,
a median family income that is at least 80 percent and less than 120
percent of the area median income.
``Upper-income,'' which means: (1) for individuals,
families, or households, an income that is 120 percent or more of the
area median income; or (2) for a census tract, a median family income
that is 120 percent or more of the area median income.
The agencies considered the commenters' recommendations and
suggestions to consider a broader and more flexible framework and to
revise the income levels upwards but have elected to maintain the
income levels as proposed in the final rule. The income levels in the
proposed definition mirror the income levels in the current definition,
so the income levels standards are well known and understood within the
banking industry. Further, the agencies believe a framework that relies
on quantitative income factors provides for the most workable
definition and minimizes complexity.
Intermediate Bank
For a discussion of the definition of ``intermediate bank,'' see
the discussion above for Bank Asset-Size Definitions.
Large Bank
For a discussion of the definition of ``large bank,'' see the
discussion above for Bank Asset-Size Definitions.
[[Page 6611]]
Large Depository Institution
The final rule includes a new definition for ``large depository
institution,'' not included in the proposal, to mean any depository
institution, excluding depository institutions designated as limited
purpose banks or savings associations \165\ pursuant to 12 CFR
25.26(a), or designated as limited purpose banks pursuant to 12 CFR
228.26(a) or 345.26(a), that meets the asset size threshold of a large
bank. The agencies are adopting this definition as a technical
clarification to effectuate their intent that ``large bank'' in certain
proposed benchmarks in the Community Development Financing Test
includes all large banks and savings associations evaluated under 12
CFR parts 25, 228, and 345. The agencies also made other conforming
edits to integrate these terms into the final rule.\166\
---------------------------------------------------------------------------
\165\ As provided in the OCC's agency-specific amendments,
below, final 12 CFR part 25 generally replaces the term ``bank'' in
the common rule text with the term ``bank or savings association.''
As such, in the definition of ``large depository institution'' the
phrase ``limited purpose'' modifies both ``banks'' and ``savings
associations'' and should be read as ``limited purpose banks'' and
``limited purpose savings associations.'' More generally, any
modifiers that precede the terms ``bank(s) or savings
association(s)'' or ``bank(s) and savings association(s)'' modify
both ``bank(s)'' and ``savings association(s).''
\166\ See supra note 145.
---------------------------------------------------------------------------
Limited Purpose Bank
The current CRA regulations define ``limited purpose bank'' to mean
a bank that offers only a narrow product line (such as credit card or
motor vehicle loans) to a regional or broader market and for which a
designation as a limited purpose bank is in effect, in accordance with
Sec. __.25(b).\167\ The agencies proposed to revise the illustrative
list of loan types from ``credit card or motor vehicle loans'' to
``credit cards, other revolving consumer credit plans, other consumer
loans, or other non-reported commercial and farm loans'' and to change
the cross-reference. The agencies proposed this change to more
specifically identify the types of product lines that might be offered
by a bank eligible for a ``limited purpose bank'' designation.
Additionally, the agencies proposed to remove the reference to ``motor
vehicle loans'' (replaced in the proposal by the proposed term
``automobile loans,'' as discussed above) as an illustrative type of a
narrow retail product line, because the agencies proposed to evaluate
automobile lending under the proposed Retail Lending Test.
---------------------------------------------------------------------------
\167\ See current 12 CFR __.12(n).
---------------------------------------------------------------------------
In addition, the current CRA regulations define ``wholesale bank''
to mean a bank that is not in the business of extending home mortgage,
small business, small farm, or consumer loans to retail customers, and
for which a designation as a wholesale bank is in effect, in accordance
with Sec. __.25(b).\168\ To determine whether a bank meets this
definition, the agencies consider whether a bank holds itself out to
the retail public as providing such loans; and may consider the bank's
revenues from extending such loans compared to its total revenue,
including off-balance sheet activities.\169\ The proposal included the
same definition as the current rule, with a technical change to the
cross-reference.
---------------------------------------------------------------------------
\168\ See current 12 CFR __.12(x).
\169\ See Q&A Sec. __.12(x)--1.
---------------------------------------------------------------------------
Comments Received
The agencies received a number of comments concerning the proposed
definitions of ``limited purpose bank'' and ``wholesale bank.'' A few
commenters stated that these definitions should be reevaluated so that
a bank without a material amount of its balance sheet loan originations
or loan volume subject to the proposed major product line standard
could qualify for the designation. A group of commenters supported
maintaining existing guidance for wholesale and limited purpose banks
from the Interagency Questions and Answers, with a commenter
specifically identifying guidance addressing the amount of unrelated
lending in which a bank may engage while retaining its designation.
Other commenters expressed concern with designating banks that engage
in extensive credit card lending as wholesale or limited purpose banks.
These commenters asserted that the proposal to apply the Community
Development Financing Test for Wholesale or Limited Purpose Banks to
wholesale or limited purpose banks (discussed in greater detail in the
section-by-section analysis of Sec. __.26) would eliminate the
possibility of these banks' credit card lending being evaluated; this
raised concerns for these commenters, who noted that credit card
lending is an important source of credit to individuals and small
businesses. Instead, most of these commenters urged the agencies to
exclude credit card banks from the option to seek a wholesale or
limited purpose bank designation or otherwise ensure the distribution
of credit card loans is evaluated pursuant to the proposed Retail
Lending Test.
Final Rule
The agencies are adopting a revised ``limited purpose bank''
definition and eliminating the ``wholesale bank'' definition in the
final rule. Specifically, the agencies have revised the ``limited
purpose bank'' definition to be similar in structure to the current
``wholesale bank'' definition. To that end, the agencies are changing
the definition of ``limited purpose bank'' from indicating that these
banks offer only a narrow product line to indicating that these banks
do not extend to retail customers the loan types evaluated under the
final Retail Lending Test. Further, the agencies no longer believe it
is necessary to impose the limitation that limited purpose banks may
only operate in a ``regional or broader market.'' The removal of this
language equips the definition with the ability to accommodate new or
future market participants, such as fintech banks. Finally, the
agencies are also adding language to indicate that these banks may
extend to retail customers--i.e., the retail public, including, but not
limited to, individuals and businesses \170\--those loan types
evaluated under the final Retail Lending Test on an incidental and an
accommodation basis without losing the limited purpose bank
designation, as requested by some commenters.
---------------------------------------------------------------------------
\170\ The meaning of retail customers is consistent with current
guidance for wholesale banks. See Q&A Sec. __.12(x)--1.
---------------------------------------------------------------------------
Therefore, the final rule defines a ``limited purpose bank'' as a
bank that is not in the business of extending closed-end home mortgage
loans, small business loans, small farm loans, or automobile loans
evaluated under Sec. __.22 to retail customers, except on an
incidental and accommodation basis, and for which a designation as a
limited purpose bank is in effect, in accordance with Sec. __.26.
Because this definition, generally, includes banks considered either
``limited purpose banks'' or ``wholesale banks'' under the current or
proposed regulations, a separate definition of ``wholesale bank'' is
not necessary. Overall, the changes to ``limited purpose bank'' in the
final rule and the removal of the term ``wholesale bank'' in the CRA
regulations, are intended to improve clarity, minimize complexity, and
provide for new and future market participants.
Because the current and proposed CRA regulations apply the same
performance test to each bank type, the change in nomenclature does not
[[Page 6612]]
substantively affect the application of performance tests. In other
words, a wholesale bank under the proposal would have been subject to
proposed Sec. __.26; a limited purpose bank (which includes wholesale
banks under the proposed definition) under the final rule remains
subject to the performance test in Sec. __.26. The agencies believe
that most banks that meet the current definition of a ``wholesale
bank'' or ``limited purpose bank'' will continue to meet the ``limited
purpose bank'' definition in the final rule. However, the agencies
acknowledge that a bank that primarily offers automobile loans (and
therefore meets the majority-automobile-lender standard discussed
below) may have qualified as a limited purpose bank under the current
rule or the proposal but will not qualify as a limited purpose bank
under the final rule because they are in the business of extending
loans evaluated under Sec. __.22 to retail customers.
The agencies declined to revise the definition of ``limited purpose
bank'' to exclude consumer credit card banks or evaluate credit card
banks under the Retail Lending Test, as requested by some commenters.
First, based on the agencies' supervisory experience, credit card banks
often have unique business models and do not have extensive branch
systems. Second, evaluating credit card banks under the Retail Lending
Test would require significant additional data collection from these
banks. Credit card underwriting may not rely on a customer's income,
and banks do not have an obligation to collect and routinely update
credit card customers' income data. As a result, credit card customer
data collected from these banks would not be complete and could vary
widely among banks, posing significant challenges to performing the
borrower distributions that are central to the Retail Lending Test. The
agencies recognize, however, the importance of credit card lending to
low- and moderate-income individuals, small businesses, and small
farms. For further discussion of the evaluation of credit card and
other non-automobile consumer loans under the final rule, see the
section-by-section analyses of Sec. Sec. __.22(d) (Retail Lending
Test; major product lines) and __.23 (Retail Services and Products
Test). In this regard, for example, the agencies note that small
business credit card lending is included in the small business loan
product line evaluated under the final Retail Lending Test.
In response to some commenters' recommendations, the agencies note
that guidance included in the Interagency Questions and Answers on
wholesale and limited purpose banks will no longer be relevant guidance
for the final rule, unless the agencies specifically include this
guidance in subsequent issuances.
Loan Location
Under the current CRA regulation, the definition of ``loan
location'' provides that a consumer loan is located in the geography
where the borrower resides; a home mortgage loan is located in the
geography where the property to which the loan relates is located; and
a small business or small farm loan is located in the geography where
the main business facility or farm is located or where the loan
proceeds otherwise will be applied, as indicated by the borrower.\171\
The agencies proposed technical revisions to this definition to add
greater precision and clarity. As discussed above, the agencies
proposed a conforming change across many definitions to replace the
term ``geography'' with the more precise term ``census tract.''
Additionally, to clarify the point in time when a consumer loan's
location is assigned, the agencies proposed that the location of a
consumer loan is based on where the borrower resides at the time the
consumer submits the loan application. Further, the agencies proposed
to clarify that a home mortgage loan's location is based on where the
property securing the loan is located, instead of where the property
related to the loan is located.
---------------------------------------------------------------------------
\171\ See current 12 CFR __.12(o).
---------------------------------------------------------------------------
The agencies did not receive any comments concerning the proposed
``loan location'' definition and are adopting the definition as
proposed with the following changes. First, the agencies have replaced
the term ``consumer'' with the term ``borrower'' in the first prong, to
conform with the reference to ``borrower'' earlier in the sentence.
Second, the agencies have included multifamily loan in the second prong
to clarify the location of multifamily loans, which the agencies
recognize was not specified in the proposal. Third, the agencies made a
non-substantive change to the sentence structure of the third prong to
remove the passive tense in one clause.
As adopted, the definition of ``loan location'' in the final rule
provides that: (1) a consumer loan is located in the census tract where
the borrower resides at the time that the borrower submits the loan
application; (2) a home mortgage loan or a multifamily loan is located
in the census tract where the property securing the loan is located;
and (3) a small business loan or small farm loan is located in the
census tract where the main business facility or farm is located or
where the borrower will otherwise apply the loan proceeds, as indicated
by the borrower.
Loan Production Office
The current CRA regulations define ``loan production office'' to
mean a staffed facility, other than a branch, that is open to the
public and that provides lending-related services, such as loan
information and applications.\172\ The agencies proposed to remove this
definition given the limited focus on, and consideration of, loan
production offices in the agencies' proposal. The agencies did not
receive any comments concerning the removal of this definition, and the
agencies are removing this definition in the final rule as proposed.
---------------------------------------------------------------------------
\172\ See current 12 CFR __.12(p).
---------------------------------------------------------------------------
Low Branch Access Census Tract; Very Low Branch Access Census Tract
The agencies proposed to define ``low branch access census tract''
to mean a census tract with one bank, thrift, or credit union branch,
and a ``very low branch access census tract'' to mean a census tract
with no bank, thrift, or credit union branches, within: (1) 10 miles of
the census tract center of population or within the census tract in
nonmetropolitan areas; (2) five miles of the census tract center of
population or within the census tract in a census tract located in an
MSA but primarily outside of the principal city components of the MSA;
or (3) two miles of the census tract center of population or within the
census tract in a census tract located in an MSA and primarily within
the principal city components of the MSA.
The agencies proposed to evaluate a bank's branch distribution in,
among other geographic areas, ``low branch access census tracts or very
loan branch access census tracts.'' \173\ Upon further consideration of
comments received on this topic, the agencies have elected to not
consider the availability of branches in low branch access census
tracts or very low branch access census tracts in the Retail Services
and Products Test. For additional discussion, see the section-by-
section analysis of Sec. __.23, Retail Services and Products Test. As
a result, the CRA regulations no longer require definitions of ``low
branch access census tracts'' or ``very low branch access census
tracts'' and the agencies are adopting the final rule without them.
---------------------------------------------------------------------------
\173\ See proposed Sec. __.23(b)(1)(i)(C)(1).
---------------------------------------------------------------------------
Low-Cost Education Loan
Current Sec. __.21(e), Low-cost education loans provided to low-
income
[[Page 6613]]
borrowers, provides that, for purposes of that paragraph, ``low-cost
education loans'' means any education loan, as defined in section
140(a)(7) of the Truth in Lending Act (15 U.S.C. 1650(a)(7)) (including
a loan under a State or local education loan program), originated by
the bank for a student at an ``institution of higher education,'' as
that term is generally defined in sections 101 and 102 of the Higher
Education Act of 1965 (20 U.S.C. 1001 and 1002) and the implementing
regulations published by the U.S. Department of Education, with
interest rates and fees no greater than those of comparable education
loans offered directly by the U.S. Department of Education. It further
provides that such rates and fees are specified in section 455 of the
Higher Education Act of 1965 (20 U.S.C. 1087e).
The agencies proposed to add this definition of ``low-cost
education loan'' to Sec. __.12, with changes to update a citation,
applying the definition only to private loans, as provided in section
140(a)(7) of the Truth in Lending Act (15 U.S.C. 1650(a)(8)), and other
minor wording changes. This definition was needed for the proposal to
consider the responsiveness of credit products and programs to the
needs of low- and moderate-income individuals, including through low-
cost education loans, in the proposed Retail and Products Service
Test.\174\ As with the current rule, this proposed definition leveraged
the statutory definitions of related terms.
---------------------------------------------------------------------------
\174\ See proposed Sec. __.23(c)(1). This aspect of the
proposal was intended to incorporate into the CRA regulations the
statutory requirement that the agencies consider low-cost education
loans provided to low-income borrowers as a factor in evaluating a
bank's record of helping to meet the credit needs of its entire
community. See 12 U.S.C. 2903(d). For further discussion, see the
section-by-section analysis of Sec. __.23.
---------------------------------------------------------------------------
Specifically, the agencies proposed to define ``low-cost education
loan'' to mean any private education loan, as defined in section
140(a)(7) of the Truth in Lending Act (15 U.S.C. 1650(a)(8)) (including
a loan under a State or local education loan program), originated by
the bank for a student at an ``institution of higher education,'' as
generally defined in sections 101 and 102 of the Higher Education Act
of 1965 (20 U.S.C. 1001 and 1002) and the implementing regulations
published by the U.S. Department of Education, with interest rates and
fees no greater than those of comparable education loans offered
directly by the U.S. Department of Education. Such rates and fees are
specified in section 455 of the Higher Education Act of 1965 (20 U.S.C.
1087e). The agencies did not receive any comments concerning the
proposed definition of ``low-cost education loan'' and adopt it as
proposed in the final rule with one technical change to replace the
reference to U.S. Department of Education regulations with the
regulatory citation, 34 CFR part 600.
Low-Income Credit Union
The agencies proposed to add a definition for ``low-income credit
union (LICU)'' in support of various proposed provisions related to
community development. As discussed further in the section-by-section
analysis of Sec. __.13, Consideration of community development loans,
investments, and services, the agencies proposed to create a category
of ``community development'' that would comprise activities with MDIs,
WDIs, LICUs, or CDFIs.\175\ In addition, the agencies proposed to
consider, as a factor in evaluating the impact and responsiveness of
any community development activity, whether the activity supports an
MDI, WDI, LICU, or Treasury Department-certified CDFI.\176\
---------------------------------------------------------------------------
\175\ See proposed Sec. __.13(j).
\176\ See proposed Sec. __.15(b)(3).
---------------------------------------------------------------------------
The agencies proposed to define LICU as having the same meaning
given to that term in NCUA's regulations, 12 CFR 701.34. The NCUA's
regulations provide, in part, that based on data obtained through
examinations, the NCUA will notify a Federal credit union that it
qualifies for designation as a LICU if a majority of its membership
qualify as low-income members.\177\
---------------------------------------------------------------------------
\177\ See 12 CFR 701.34(a)(1).
---------------------------------------------------------------------------
The agencies did not receive any comments concerning the proposed
definition of ``LICU'' and adopt it as proposed in the final rule.
Low-Income Housing Tax Credit
The final rule includes a new definition for ``Low-Income Housing
Tax Credit (LIHTC),'' not included in the proposal, to clarify that
``Low-Income Housing Tax Credit'' in the CRA regulations is a reference
to a Federal program. This term is utilized in Sec. Sec. __.13, __.15,
and __.42. Accordingly, the agencies are adopting a definition of
``Low-Income Housing Tax Credit (LIHTC)'' in the final rule to mean a
Federal tax credit for housing persons of low income pursuant to
section 42 of the Internal Revenue Code of 1986 (26 U.S.C. 42).
Major Product Line
The final rule includes a new definition for ``major product
line,'' not included in Sec. __.12 of the proposal. In the proposal,
the agencies described the concept of major product line in Sec.
__.22. In the final rule, instead of including the concept solely in
Sec. __.22, the agencies are also adding a definition for ``major
product line'' in Sec. __.12 because the term is used outside of Sec.
__.22 and the agencies recognized it was more appropriate as a defined
term. However, in the final rule the agencies are modifying what
constitutes a ``major product line.'' The new definition explains that
``major product line'' means a product line that the appropriate
Federal financial supervisory agency evaluates in a particular Retail
Lending Test Area, pursuant to Sec. __.22(d)(2) and paragraphs II.b.1
and II.b.2 to appendix A of the final rule. This definition is intended
to identify the product lines with the greatest importance to the bank
and its community and that, accordingly, are subject to evaluation
under the Retail Lending Test. As described in the section-by-section
analysis of Sec. __.22, Retail Lending Test, closed-end home mortgage
loans, small business loans, and small farm loans are major product
lines in a facility-based assessment area or outside retail lending
area if the bank's loans in the respective product line represent at
least 15 percent of the bank's reported loans and other loans
considered across all product lines in the same geographic area during
the evaluation period. This 15 percent standard is calculated based on
a combination of loan dollars and loan count (see above for a
discussion of the definition of ``combination of loan dollars and loan
count''). The same 15 percent standard is used to determine whether
automobile loans are a major product line in a facility-based
assessment area or outside retail lending area, if the bank is a
majority automobile lender for the institution as a whole or opts into
having its automobile lending evaluated. In addition, closed-end home
mortgage loans and small business loans are a major product line in a
particular calendar year for a retail lending assessment area if the
product line meets or exceeds the threshold requiring delineation of a
retail lending assessment area pursuant to Sec. __.17 (i.e., 150
reported closed-end home mortgage loans, or 400 reported small business
loans, in each of the prior two calendar years). As discussed in the
section-by-section analysis of Sec. __.22, the agencies determined
that it was not appropriate to include open-end home mortgage loans or
multifamily loans in the major product line definition in the final
rule, as the agencies proposed.
[[Page 6614]]
Majority Automobile Lender
The final rule includes a new definition for ``majority automobile
lender,'' not included in the proposal, defined to mean a bank for
which more than 50 percent of its home mortgage loans, multifamily
loans, small business loans, small farm loans, and automobile loans
were automobile loans, as determined pursuant to paragraph II.b.3 of
appendix A. Paragraph II.b.3 of appendix A includes the provisions of
the final rule that identify the banks for which evaluation of
automobile lending is mandatory in each facility-based assessment area
or in an outside retail lending area in which automobile lending
represents a major product line.
As described in the section-by-section analysis of Sec. __.22, a
bank is considered a majority automobile lender if its automobile loans
originated and purchased over the combined two-calendar-year period
preceding the first year of the evaluation period exceeded 50 percent,
based on a combination of loan dollars and loan count, of the bank's
lending across specified categories. Specifically, the final rule
calculates the 50 percent standard based on the following loan
categories: home mortgage loans; \178\ multifamily loans; small
business loans; small farm loans; and automobile loans originated and
purchased overall.
---------------------------------------------------------------------------
\178\ See the definition of ``home mortgage loan'' in final
Sec. __.12.
---------------------------------------------------------------------------
The agencies intend this new definition to be a clarifying change
and have added it to make the regulatory text in Sec. __.22 and
appendix A less complex and readable.
Metropolitan Area
The agencies proposed to add a definition of ``metropolitan area''
because the term is used throughout the rule to describe areas where
the agencies will evaluate a bank. Specifically, the agencies proposed
to define ``metropolitan area'' to mean any MSA, combined MSA, or
metropolitan division as that term is defined by the Director of the
Office of Management and Budget (Director of the OMB).\179\
---------------------------------------------------------------------------
\179\ The CRA statute defines the term ``metropolitan area'' to
mean ``any primary metropolitan statistical area, metropolitan
statistical area, or consolidated metropolitan statistical area, as
defined by the Director of the OMB, with a population of 250,000 or
more, and any other area designated as such by the appropriate
Federal financial supervisory agency.'' 12 U.S.C. 2906(e)(2). The
agencies did not propose to include ``primary metropolitan
statistical area'' or ``consolidated metropolitan area'' because the
Director of the OMB no longer uses these terms. The agencies
exercised their discretion to define this term in the final rule to
include all MSAs, without regard to whether it has a population of
250,000 or more.
---------------------------------------------------------------------------
The agencies did not receive any comments related to the proposed
``metropolitan area'' definition. However, the agencies are adopting
this definition with several revisions. First, the agencies are
removing reference to ``combined MSA'' from the definition because
``combined MSA'' is not a term defined by the Director of the OMB.
Second, the agencies are removing reference to ``metropolitan
division'' from the definition. Metropolitan divisions are parts of
certain populous MSAs, so the agencies determined that the term is not
necessary and that it added complexity to separately list both terms in
the ``metropolitan area'' definition. For example, any county in a
metropolitan division would also be in an MSA. Finally, the agencies
are removing the phrase ``as defined by the Director of the Office of
Management and Budget'' from the definition. As discussed below, the
term ``MSA'' is defined in the final rule to mean a metropolitan
statistical area defined by the Director of the OMB. Accordingly,
``metropolitan area'' in the final rule means any MSA.
Metropolitan Division
The current CRA regulations define ``metropolitan division'' to
mean a metropolitan division as defined by the Director of the
OMB.\180\ The agencies proposed this same definition, with a minor
technical change. Specifically, the agencies replaced the phrase
``means a metropolitan division as defined'' with the phrase ``has the
same meaning given to that term.'' The agencies did not receive any
comments related to the proposed definition of ``metropolitan
division,'' and are adopting the definition as proposed in the final
rule.
---------------------------------------------------------------------------
\180\ See current 12 CFR __.12(q).
---------------------------------------------------------------------------
Military Bank
The agencies proposed to add a new definition of ``military bank''
in support of proposed Sec. __.16, which would provide an exception to
certain facility-based assessment area delineation requirements for
military banks.\181\ Specifically, the agencies proposed to define
``military bank'' to mean a bank whose business predominately consists
of serving the needs of military personnel who serve or have served in
the Armed Forces (including the U.S. Air Force, U.S. Army, U.S. Coast
Guard, U.S. Marine Corps, and U.S. Navy) or dependents of military
personnel, basing this definition on language in the CRA statute.\182\
The agencies proposed this definition to increase clarity and
consistency in the CRA regulations.
---------------------------------------------------------------------------
\181\ See proposed Sec. __.16(d). See also the section-by-
section analysis of Sec. __.16 for further discussion of this
provision.
\182\ See 12 U.S.C. 2902(4) (``A financial institution whose
business predominately consists of serving the needs of military
personnel who are not located in a defined geographic area may
define its `entire community' to include its entire deposit customer
base without regard to geographic proximity.''). The agencies note
that the statute uses the term ``predominately,'' however, the more
common spelling is ``predominantly,'' and accordingly, the agencies
have used that term instead.
---------------------------------------------------------------------------
A commenter provided input on the proposed definition of ``military
bank.'' Although expressing support for inclusion of a definition of
``military bank,'' the commenter expressed concern that the agencies'
proposed definition is too narrow and recommended that the word
``predominantly'' be defined to include ``a bank whose most important
customer group is military personnel or their dependents,'' as in the
OCC 2020 CRA Final Rule. The commenter noted that this qualification
should lead to the extension of the ``military bank'' definition to all
financial institutions with a commitment, mission, or business model to
serve the military community exclusive of all other communities. The
commenter also suggested that the definition of ``military bank''
should include on-base branches of financial institutions that do not
otherwise fit within the definition so that branches on military bases
could benefit from the CRA's geographic assessment area exception
without extending this treatment to the larger, non-military financial
institution of which they are part. Further, this commenter expressed
support for the proposed definition's inclusion of those who serve or
have served in the Armed Forces or dependents of military personnel.
Finally, the commenter noted that the definition of ``military bank''
should include the U.S. Space Force, established in 2019, in the
definition's listing of military service branches.
The agencies have made substantive edits to the proposed definition
of ``military bank'' in response to these comments. First, the agencies
agree that ``predominantly'' should be defined to clarify that a
``military bank'' is a bank whose most important customer group is
military personnel or their dependents. This added language is
consistent with the interpretation of ``predominantly'' in the preamble
to the 1979 CRA rulemaking \183\ and codifies a decades-old
interpretation that ``predominantly'' is not based on a numerical
standard.\184\ Additionally, the
[[Page 6615]]
agencies believe this final rule regulatory text comports with the
language in the CRA statute. Second, the agencies agree with the
commenter that the new U.S. Space Force should be included in the
definition as a branch of the U.S. Armed Forces.
---------------------------------------------------------------------------
\183\ 44 FR 18163, 18164 (Mar. 27, 1979).
\184\ Id.
---------------------------------------------------------------------------
The agencies, however, declined to adopt the commenter's suggestion
that the definition should include on-base branches of financial
institutions that do not otherwise fit within the definition. The
agencies believe such revision would be inconsistent with the CRA
statute's provision regarding military banks, which refers to the
business of the financial institution as predominantly consisting of
serving the needs of military personnel, and not branches of a
financial institution.\185\
---------------------------------------------------------------------------
\185\ See 12 U.S.C. 2902(4).
---------------------------------------------------------------------------
For the reasons stated above, the agencies are adopting a
definition of ``military bank'' to mean a bank whose business
predominantly consists of serving the needs of military personnel who
serve or have served in the U.S. Armed Forces (including the U.S. Air
Force, U.S. Army, U.S. Coast Guard, U.S. Marine Corps, U.S. Navy, and
U.S. Space Force) or their dependents. A bank whose business
predominantly consists of serving the needs of military personnel or
their dependents means a bank whose most important customer group is
military personnel or their dependents.
Minority Depository Institution
Current Approach and the Agencies' Proposal
The agencies proposed to add a definition of ``minority depository
institution (MDI)'' to support the provisions in the proposal related
to community development. As discussed above, and further in the
section-by-section analysis of Sec. __.13(k), the agencies proposed to
create a category of ``community development'' that would comprise
activities with MDIs, WDIs, LICUs, or CDFIs.\186\ In addition, the
agencies proposed to consider, as a factor in evaluating the impact and
responsiveness of any community development activity, whether the
activity supports an MDI, WDI, LICU, or Treasury Department-certified
CDFI.\187\ The proposed definitions also account for a provision in the
CRA statute providing that the amount of any bank contribution or loss
in connection with donating, selling on favorable terms, or making
available on a rent-free basis any branch of the bank located in a
predominantly minority neighborhood to an MDI or WDI may be a factor in
determining whether the bank is meeting the credit needs of its
community, which includes specific definitions of MDI and WDI.\188\
---------------------------------------------------------------------------
\186\ See proposed Sec. __.13(j).
\187\ See proposed Sec. __.15(b)(3) and the accompanying
section-by-section analysis of Sec. __.15.
\188\ See 12 U.S.C. 2907.
---------------------------------------------------------------------------
The agencies structured the proposed ``MDI'' definition to provide
two avenues through which an institution may qualify as an MDI. The
agencies pursued this dual track structure to both ensure consistency
with the CRA statute and incorporate the agencies' current policies for
determining what institutions qualify as ``minority-owned financial
institutions'' under 12 U.S.C. 2903(b). First, the agencies determined
that the proposed ``MDI'' definition should incorporate the statutory
definition of ``minority depository institution'' to ensure consistency
with the CRA statute, which applies to certain transactions involving
branches. Specifically, under 12 U.S.C. 2907 (i.e., the statutory
provision concerning donating, selling on favorable terms, or making
certain branches available on a rent-free basis to a minority
depository institution), ``minority depository institution'' is defined
as a depository institution (as defined in 12 U.S.C. 1813(c)): (1) more
than 50 percent of the ownership or control of which is held by 1 or
more minority individuals; and (2) more than 50 percent of the net
profit or loss of which accrues to 1 or more minority individuals. The
agencies note that this definition is required for the narrow set of
branching activities referenced in 12 U.S.C. 2907.
More broadly, 12 U.S.C. 2903 states that, in assessing an
institution's record of helping to meet the credit needs of the entire
community, the agencies may consider, ``as a factor capital investment,
loan participation, and other ventures undertaken by the institution in
cooperation with minority- and women-owned financial institutions and
LICUs provided that these activities help meet the credit needs of
local communities in which such institutions and credit unions are
chartered.'' \189\ Unlike 12 U.S.C. 2907, 12 U.S.C. 2903 does not
define the terms ``minority-owned financial institution'' or ``women-
owned financial institution.'' Given the absence of statutory
definitions, the agencies, through their respective supervisory
authority, have applied criteria for determining which institutions are
considered minority- or women-owned financial institutions when
interpreting CRA.\190\ Therefore, the second aspect of the proposed
``MDI'' definition was designed to capture those institutions that the
agencies recognize as ``minority-owned financial institutions''
pursuant to their current policies.
---------------------------------------------------------------------------
\189\ 12 U.S.C. 2903(b) (emphasis added).
\190\ Generally, the agencies have considered institutions that
qualify under their MDI policies to qualify under section 2903. See
OCC, News Release 2013-94, ``Comptroller Curry Tells Minority
Depository Institutions OCC Rules Make It Easier for Minority
Institutions to Raise Capital,'' ``Policy Statement on Minority
National Banks and Federal Savings Associations'' (June 13, 2013),
https://www.occ.gov/news-issuances/news-releases/2013/nr-occ-2013-94.html (permits a bank that no longer meet the minority ownership
requirement to continue to be considered a minority depository
institution if it primarily serves the credit and economic needs of
the community in which it is chartered and serves a predominantly
minority community); Board, SR 21-6/CA 21-4: ``Highlighting the
Federal Reserve System's Partnership for Progress Program for
Minority Depository Institutions and Women's Depository
Institutions'' (Mar. 5, 2021), https://www.federalreserve.gov/supervisionreg/srletters/SR2106.htm (permits designation as a
minority depository institution if the majority of a bank's board of
directors consists of minority individuals and the community that
the bank serves is predominantly minority); and FDIC, Statement of
Policy Regarding Minority Depository Institutions, 86 FR 32728,
32732 (June 23, 2021) (permits designation as a minority depository
institution if a majority of the bank's board of directors consists
of minority individuals and the community that the bank serves is
predominantly minority).
---------------------------------------------------------------------------
Specifically, the agencies proposed to define an ``MDI,'' for
purposes other than the specified branch-related transactions under 12
U.S.C. 2907, as a bank that: (1) meets the definition under 12 U.S.C.
2907(b)(1); \191\ (2) is a minority depository institution as defined
in section 308 of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA) (12 U.S.C. 1463 note); \192\ or (3) is
considered to be a minority depository institution by the appropriate
Federal banking agency. This proposed definition is derived in part
from the definition of ``minority depository institution'' in the
[[Page 6616]]
Emergency Capital Investment Program \193\ enacted as part of the
Consolidated Appropriations Bill of 2021,\194\ revised to be
appropriate for the CRA. The agencies stated that using this statutory-
based definition for purposes of CRA promotes further consistency
across government programs.
---------------------------------------------------------------------------
\191\ The agencies incorporated section 2907 into this second
prong of the definition to ensure that banks are not limited to the
engaging in the specified branch-related activities with
institutions that meet the statutory definition but are not
otherwise consistent with the agencies' MDI designation policies.
\192\ The agencies' MDI designation policies are based on
section 308 of the FIRREA, and the agencies determined it was
appropriate to expressly reference that statute in the definition
for further consistency. Under section 308, ``minority financial
institution'' means any depository institution that--(A) if a
privately owned institution, 51 percent is owned by one or more
socially and economically disadvantaged individuals; (B) if publicly
owned, 51 percent of the stock is owned by one or more socially and
economically disadvantaged individuals; and (C) in the case of a
mutual institution where the majority of the Board of Directors,
account holders, and the community which it services is
predominantly minority. Further, under section 308, the term
``minority'' means any black American, Native American, Hispanic
American, or Asian American.
\193\ See 12 U.S.C. 4703a.
\194\ See Public Law 116-260, 134 Stat. 1182 (Dec. 27, 2020).
---------------------------------------------------------------------------
Comments Received
A number of commenters addressed the proposed ``MDI'' definition.
For example, a commenter supported a definition that would include both
banks owned by minority individuals and minority-operated banks.
According to the commenter, successful and growing banks need to raise
outside capital, which could result in the bank no longer meeting the
minority-owned definition and would therefore have the unintended
consequence of keeping minority banks small.
In response to the agencies' question on whether to include
minority insured credit unions recognized by the NCUA in the ``MDI''
definition, most commenters stated that such credit unions should be
included. In addition, some commenters recommended that State-insured
MDI credit unions and Puerto Rico's cooperativas also be included in
this category. Commenters generally noted that such credit unions and
related entities share the same purpose as MDIs, are insured and
supervised, and accordingly should be treated the same as MDI banks. A
commenter stated that this addition could expand the number of MDIs
available to partner with banks on CRA activities. Although no
commenters expressed opposition to including MDI credit unions in the
definition, a commenter did suggest that smaller credit union MDIs
could be included, but those with more than 50,000 members or more
should be subject to additional scrutiny to ensure that 51 percent of
its owners are people of color.
Final Rule
The agencies are adopting the proposed ``MDI'' definition in the
final rule with several technical edits. First, in paragraph (1), the
agencies removed the parenthetical, ``(i.e., donating, selling on
favorable terms (as determined by the [Agency]), or making available on
a rent-free basis any branch of the bank, which is located in a
predominately minority neighborhood).'' This language paraphrased the
cited statute, 12 U.S.C. 2907(b)(1), and is therefore not necessary.
Second, the agencies made non-substantive wording changes to the
definition to improve its structure and readability and to promote
consistency with the statutes cited in the definition. Accordingly, the
final rule defines ``minority depository institution (MDI)'' to mean:
(1) for purposes of activities conducted pursuant to 12 U.S.C. 2907(a),
``minority depository institution'' as defined in 12 U.S.C. 2907(b)(1);
and (2) for all other purposes: (i) a ``minority depository
institution'' as defined in 12 U.S.C. 2907(b)(1); (ii) a ``minority
depository institution'' as defined in section 308 of the FIRREA (12
U.S.C. 1463 note); or (iii) a depository institution considered to be a
minority depository institution by the appropriate Federal banking
agency. For purposes of this definition, ``appropriate Federal banking
agency'' has the meaning given to it in 12 U.S.C. 1813(q).
As also discussed in the section-by-section analysis of Sec.
__.13(k), the agencies considered but are not including minority credit
unions in the ``MDI'' definition. Unlike MDIs, which are independently
reviewed by each agencies' staff, credit unions self-certify MDI status
and the NCUA does not verify or certify the accuracy of this
status.\195\ The agencies also note that there is a large overlap
between minority credit unions and LICUs.\196\ Thus, a large percentage
of minority credit unions will be eligible under the rule for community
development consideration based on their LICU status.
---------------------------------------------------------------------------
\195\ See 80 FR 36356, 36357 (June 24, 2015).
\196\ See NCUA, ``Minority Depository Institutions Annual Report
to Congress,'' 2 (2021), https://ncua.gov/files/publications/2021-mdi-congressional-report.pdf (approximately 81% of MDIs also held a
designation as LICUs as Dec. 31, 2021 (i.e., 412 out of 509 MDIs)).
---------------------------------------------------------------------------
In response to comments about including banks that are owned by
minority individuals and minority-operated banks in the ``MDI''
definition, the agencies recognize that banks have varied ownership
structures and need to raise capital and have considered these issues
when designating MDIs. The proposed and final rule both include as a
component of the definition of ``MDI'' banks that are considered to be
minority depository institutions by the appropriate Federal banking
agency. This component of the definition provides flexibility and
incorporates each agency's applicable policies regarding the
designation of MDIs.
Mission-Driven Nonprofit Organization
The agencies are adding a new definition for ``mission driven
nonprofit organization,'' not included in the proposal, to support this
term's use in Sec. Sec. __.13 and __.42 in the final rule.
Specifically, the final rule defines ``mission-driven nonprofit
organization'' to mean an organization described in section 501(c)(3)
of the Internal Revenue Code of 1986 (26 U.S.C. 501(c)(3)) and exempt
from taxation under section 501(a) of such Code that benefits or serves
primarily low- or moderate-income individuals or communities, small
businesses, or small farms.
The agencies are adopting this definition primarily to support
revisions made in the final rule, based on consideration of comments,
to expand the government plan eligibility criteria in the place-based
community development categories to include plans, programs, or
initiatives of mission-driven nonprofit organizations.\197\ The final
rule also provides services that are conducted with a mission-driven
nonprofit organization as one example of a qualifying community
supportive service in Sec. __.13(d). These aspects of the final rule
are discussed in greater detail in the section-by-section analysis of
Sec. __.13. The final rule also uses the term mission-driven nonprofit
organization for consistency as an example of detail that could be
provided about a community development loan or community development
investment in final Sec. __.42.
---------------------------------------------------------------------------
\197\ See final Sec. __.13(e) through (j).
---------------------------------------------------------------------------
The agencies included the first part of this definition to
explicitly state that an organization must be a 501(c)(3) organization
to qualify as a mission-driven nonprofit organization. Further, the
definition specifies that these organizations benefit or serve
primarily low- or moderate-income individuals, small businesses, or
small farms. The agencies believe that, with these two core components,
the definition of mission-driven nonprofit organization is
appropriately tailored to capture entities that are dedicated to
benefiting and serving low- and moderate-income individuals or
communities, small businesses, or small farms while being sufficiently
narrow not to permit a broad expansion of eligibility criteria under
the place-based community development categories. The agencies also
believe that this definition is consistent with the types of
organizations that the agencies proposed would be partners with banks
in conducting community development.
[[Page 6617]]
For example, the proposal included a discussion of nonprofit
organizations in reference to the proposed affordable housing category
of community development in proposed Sec. __.13(b), as well as in
relation to community supportive services in proposed Sec.
__.13(d).\198\
---------------------------------------------------------------------------
\198\ See proposed Sec. __.13(b)(2)(ii) and (d)(1); see also 87
FR 33884, 33896 (June 3, 2022).
---------------------------------------------------------------------------
MSA
Under the current CRA regulations, the agencies define ``MSA'' to
mean a metropolitan statistical area as defined by the Director of the
OMB.\199\ The agencies proposed maintaining this definition but
changing the defined term from ``MSA'' to ``metropolitan statistical
area (MSA)'' and with minor technical wording changes. The agencies did
not receive any comments on this proposed definition. However, after
further consideration, the agencies are reverting back to the current
defined term ``MSA'' in the final rule because ``MSA'' is the term
known and understood by the industry. The agencies are also reverting
the wording of the definition back to its current form to be consistent
with the wording of other definitions and making minor technical
changes to reference OMB delineation and to add OMB authority
citations. Accordingly, the agencies are defining ``MSA'' to mean a
metropolitan statistical area delineated by the Director of the Office
of Management and Budget, pursuant to 44 U.S.C. 3504(e)(3) and (10), 31
U.S.C. 1104(d), and Executive Order 10253 (June 11, 1951).
---------------------------------------------------------------------------
\199\ See current 12 CFR __.12(r).
---------------------------------------------------------------------------
Mortgage-Related Definitions
Under the current CRA regulations, the agencies define ``home
mortgage loan'' to mean a closed-end mortgage loan or an open-end line
of credit as defined under 12 CFR 1003.2 (Regulation C), the CFPB's
HMDA implementing regulations, that is not an excluded transaction
under 12 CFR 1003.3(c)(1) through (10) and (13).\200\ The agencies
proposed to amend the current ``home mortgage loan'' definition to
refer to an ``open-end home mortgage loan'' rather than an ``open-end
line of credit,'' with no intent to change the meaning. The agencies
also proposed to remove the cross-reference to the CFPB's Regulation C
and add new definitions for ``closed-end home mortgage loan'' and
``open-end home mortgage loan,'' which would have the same meanings
given to ``closed-end mortgage loan'' and ``open-end line of credit''
in 12 CFR 1003.2(d) and (o), respectively, excluding multifamily loans
as defined in proposed Sec. __.12.\201\ ``Closed-end home mortgage
loan'' is defined in 12 CFR 1003.2(d) to mean an extension of credit
that is secured by a lien on a dwelling and that is not an open-end
line of credit under the HMDA regulations. ``Open-end line of credit''
is defined in 12 CFR 1003.2(o) to mean an extension of credit that is
secured by a lien on a dwelling and is an open-end credit plan as
defined in CFPB's Regulation Z, 12 CFR 1026.2(a)(20),\202\ but without
regard to whether the credit is consumer credit, as defined in 12 CFR
1026.2(a)(12),\203\ is extended by a creditor, as defined in 12 CFR
1026.2(a)(17),\204\ or is extended to a consumer, as defined in 12 CFR
1026.2(a)(11).\205\
---------------------------------------------------------------------------
\200\ See current 12 CFR __.12(l). Excluded transactions under
12 CFR 1003.3(c)(1) through (10) and (13) are as follows: (1) a
closed-end mortgage loan or open-end line of credit originated or
purchased by a financial institution acting in a fiduciary capacity;
(2) a closed-end mortgage loan or open-end line of credit secured by
a lien on unimproved land; (3) temporary financing; (4) the purchase
of an interest in a pool of closed-end mortgage loans or open-end
lines of credit; (5) the purchase solely of the right to service
closed-end mortgage loans or open-end lines of credit; (6) the
purchase of closed-end mortgage loans or open-end lines of credit as
part of a merger or acquisition, or as part of the acquisition of
all of the assets and liabilities of a branch office as defined in
Sec. 1003.2(c); (7) a closed-end mortgage loan or open-end line of
credit, or an application for a closed-end mortgage loan or open-end
line of credit, for which the total dollar amount is less than $500;
(8) the purchase of a partial interest in a closed-end mortgage loan
or open-end line of credit; (9) a closed-end mortgage loan or open-
end line of credit used primarily for agricultural purposes; (10) a
closed-end mortgage loan or open-end line of credit that is or will
be made primarily for a business or commercial purpose, unless the
closed-end mortgage loan or open-end line of credit is a home
improvement loan under Sec. 1003.2(i), a home purchase loan under
Sec. 1003.2(j), or a refinancing under Sec. 1003.2(p); and (11) a
transaction that provided or, in the case of an application,
proposed to provide new funds to the applicant or borrower in
advance of being consolidated in a New York State consolidation,
extension, and modification agreement classified as a supplemental
mortgage under New York Tax Law section 255; the transaction is
excluded only if final action on the consolidation was taken in the
same calendar year as final action on the new funds transaction.
\201\ As discussed further below, the agencies proposed to
define ``multifamily loan'' as ``a loan for a `multifamily dwelling'
as defined in 12 CFR 1003.2(n).'' Multifamily dwelling is defined in
12 CFR 1003.2(n) as ``a dwelling, regardless of construction method,
that contains five or more individual dwelling units.''
\202\ ``Open-end credit'' means consumer credit extended by a
creditor under a plan in which: (1) The creditor reasonably
contemplates repeated transactions; (2) The creditor may impose a
finance charge from time to time on an outstanding unpaid balance;
and (3) The amount of credit that may be extended to the consumer
during the term of the plan (up to any limit set by the creditor) is
generally made available to the extent that any outstanding balance
is repaid. See 12 CFR 1003.2(o) and 100.1026.2(a)(20).
\203\ ``Consumer credit'' means credit offered or extended to a
consumer primarily for personal, family, or household purposes. See
12 CFR 1026.2(a)(12).
\204\ ``Creditor'' means a person who regularly extends consumer
credit that is subject to a finance charge or is payable by written
agreement in more than four installments (not including a down
payment), and to whom the obligation is initially payable, either on
the face of the note or contract, or by agreement when there is no
note or contract. For purposes of Sec. Sec. 1026.4(c)(8)
(Discounts), 1026.9(d) (Finance charge imposed at time of
transaction), and 1026.12(e) (Prompt notification of returns and
crediting of refunds), a person that honors a credit card. For
purposes of subpart B, any card issuer that extends either open-end
creditor credit that is not subject to a finance charge and is not
payable by written agreement in more than four installments. For
purposes of subpart B (except for the credit and charge card
disclosures contained in Sec. Sec. 1026.60 and 1026.9(e) and (f),
the finance charge disclosures contained in Sec. Sec. 1026.6(a)(1)
and (b)(3)(i) and 1026.7(a)(4) through (7) and (b)(4) through (6)
and the right of rescission set forth in Sec. 1026.15) and subpart
C, any card issuer that extends closed-end credit that is subject to
a finance charge or is payable by written agreement in more than
four installments. A person regularly extends consumer credit only
if it extended credit (other than credit subject to the requirements
of Sec. 1026.32) more than 25 times (or more than 5 times for
transactions secured by a dwelling) in the preceding calendar year.
If a person did not meet these numerical standards in the preceding
calendar year, the numerical standards shall be applied to the
current calendar year. A person regularly extends consumer credit
if, in any 12-month period, the person originates more than one
credit extension that is subject to the requirements of Sec.
1026.32 or one or more such credit extensions through a mortgage
broker. See 12 CFR 1026.2(a)(17).
\205\ ``Consumer'' means a cardholder or natural person to whom
consumer credit is offered or extended. However, for purposes of
rescission under Sec. Sec. 1026.15 and 1026.23, the term also
includes a natural person in whose principal dwelling a security
interest is or will be retained or acquired, if that person's
ownership interest in the dwelling is or will be subject to the
security interest. For purposes of Sec. Sec. 1026.20(c) through
(e), 1026.36(c), 1026.39, and 1026.41, the term includes a confirmed
successor in interest. See 12 CFR 1026.2(a)(11).
---------------------------------------------------------------------------
The agencies proposed to add separate definitions for ``closed-end
home mortgage loan'' and ``open-end home mortgage loan,'' because, as
discussed further in the section-by-section analysis of Sec. __.22,
given their distinct characteristics, these types of loans would be
considered separately under the proposed Retail Lending Test. The
agencies' proposed definitions of these terms are consistent with the
current ``home mortgage loan'' definition, which cross-references 12
CFR 1003.2 to define closed-end home mortgage loans and open-end lines
of credit. The agencies excluded multifamily loans from the definitions
of ``closed-end home mortgage loan'' and ``open-end home mortgage
loan'' because the proposal included a separate definition for
``multifamily loan'' that covers different transactions (as discussed
below in the section-by-section analysis). This exclusion was
[[Page 6618]]
necessary because, under the proposal, the agencies could consider
multifamily loans, unlike other closed-end home mortgage loans, under
the Community Development Financing Test in Sec. __.24.\206\ The
agencies also proposed this exclusion of multifamily loans because
multifamily loans were a distinct category of retail loan which could
qualify as a major product line under the Retail Lending Test in Sec.
__.22.
---------------------------------------------------------------------------
\206\ See proposed Sec. __.22(a)(5)(ii).
---------------------------------------------------------------------------
A commenter requested that the excluded transaction language in the
definition of ``home mortgage loan'' referencing 12 CFR 1003.3(c)(1)
through (10) and (13) be narrowed to 12 CFR 1003.3(c)(1),\207\
(5),\208\ (7) through (10),\209\ and (13).\210\ In particular, the
commenter objected to the current definition's exclusion of loans
secured by unimproved land (12 CFR 1003.3(c)(2)), expressing the view
that this would penalize financial institutions for lending to builders
or individuals seeking to build in low- and moderate-income
communities. Similarly, the commenter objected to the exclusion of
temporary financing (12 CFR 1003.3(c)(3)), such as bridge financing or
a loan for home construction, asserting that this could undermine a
financial institution's ability to finance the construction of homes in
low- and moderate-income communities, even if the financing is only on
a temporary basis. The commenter objected to excluding from the ``home
mortgage loan'' definition purchased closed-end home mortgage loans and
open-end lines of credit, whether as a pool of credits or through an
acquisition or merger (12 CFR 1003.3(c)(4) and (6)), explaining that
financial institutions are purchasing whole loans and servicing rights
and not merely purchasing an investment vehicle, and that purchasing
loan pools also permits financial institutions to meet the credit needs
of their communities despite not having the resources to generate these
loans one transaction at a time.
---------------------------------------------------------------------------
\207\ See 12 CFR 1003.3(c)(1).
\208\ See 12 CFR 1003.3(c)(5).
\209\ See 12 CFR 1003.3(c)(7) through (10).
\210\ See 12 CFR 1003.3(c)(13).
---------------------------------------------------------------------------
The agencies decline to revise the excluded transactions language.
As under the current CRA regulations, the agencies intend to leverage
HMDA data in the final rule, i.e., data reported pursuant to 12 CFR
part 1003, which allows for sufficient data for analysis while not
increasing the data collection or reporting burden on these banks, as
part of the CRA evaluation framework. If the agencies narrowed the
number of excluded transactions as requested by the commenter, HMDA
reporters would be required to produce additional data that exceeds
their current HMDA reporting obligations, which would both increase
burden for banks and add complexity to CRA examinations.
Further, the agencies note that the exclusion of purchased closed-
end home mortgage loans and open-end lines of credit from the ``home
mortgage loan'' definition does not mean that they are not considered
under the CRA regulations. For a more detailed discussion of the CRA
regulations' consideration of purchased loans, see the section-by-
section analysis of final Sec. __.22, Retail Lending Test.
After consideration of commenters' concerns and recommendations and
further review of the proposed definitions in light of other aspects of
the final rule, the agencies are adopting the definitions of ``home
mortgage loan,'' ``closed-end home mortgage loan,'' and ``open-end home
mortgage loan'' with technical changes. First, the agencies have moved
the HMDA exclusions from the definition of ``home mortgage loan'' to
the definitions of ``closed-end home mortgage loan'' and ``open-end
home mortgage loan,'' where the exclusions are more appropriately
located. Second, the agencies have removed the specific paragraph
designations in the cross-references to the HMDA definitions so that
they now read ``12 CFR 1003.2'' instead of 12 CFR 1003.2(d) and (o) so
that these cross-references remain accurate if the CFPB modifies this
section in the future. Accordingly, under the final rule:
``home mortgage loan'' means a closed-end home mortgage
loan or an open-end home mortgage loan as these terms are defined in
final Sec. __.12;
``closed-end home mortgage loan'' has the same meaning
given to the term ``closed-end mortgage loan'' in 12 CFR 1003.2,
excluding loan transactions set forth in 12 CFR 1003.3(c)(1) through
(10) and (13) and multifamily loans as defined in final Sec. __.12;
and
``open-end home mortgage loan'' has the same meaning as
given to the term ``open-end line of credit'' in 12 CFR 1003.2,
excluding loan transactions set forth in 12 CFR 1003.3(c)(1) through
(10) and (13) and multifamily loans as defined in final Sec. __.12.
Multifamily Loan
The agencies proposed to add a new definition of ``multifamily
loan'' and define it to mean a loan for a ``multifamily dwelling'' as
defined in 12 CFR 1003.2(n) in the CFPB's Regulation C, which
implements HMDA. Multifamily dwelling is defined in 12 CFR 1003.2(n) to
mean a dwelling, regardless of construction method, that contains five
or more individual dwelling units. The agencies intended the proposed
definition to correspond to the proposal to treat multifamily loans
separately from closed-end and open-end home mortgage loans, given
their distinct characteristics. The proposal for considering
``multifamily loans'' is discussed in detail in the section-by-section
analyses of Sec. Sec. __.22 (Retail Lending Test) and __.13(b)
(affordable housing category of community development).
The agencies did not receive any comments on this definition and
are adopting it as proposed, with two changes. First, the agencies are
replacing ``loan'' with ``an extension of credit that is secured by a
lien'' in the final rule to make this term consistent with HMDA.
Second, the agencies have removed the specific paragraph designations
in the cross-references to the CFPB's definition so that it now reads
``12 CFR 1003.2'' instead of ``12 CFR 1003.2(n).'' Accordingly,
``multifamily loan'' is defined in the final rule to mean an extension
of credit that is secured by a lien on a ``multifamily dwelling'' as
defined in 12 CFR 1003.2.
Multistate MSA
The agencies proposed to add a new definition of ``multistate
metropolitan statistical area (multistate MSA)'' and define it to have
the same meaning given to that term by the Director of the OMB. As
discussed in detail in the section-by-section analysis of Sec. __.28,
under the proposal, the agencies would assign conclusions for a bank's
performance under each applicable performance test and ratings for a
bank's overall CRA performance across performance tests at the State,
multistate MSA, and institution levels.\211\ The agencies did not
receive any comments related to the proposed ``multistate metropolitan
statistical area'' definition.
---------------------------------------------------------------------------
\211\ See, e.g., proposed Sec. __.28 and appendices C, D, and
E.
---------------------------------------------------------------------------
The agencies are adopting a definition of this term in the final
rule with technical changes. First the agencies revised the definition
to remove the cross-reference to the OMB definition and instead are
defining the term to mean an MSA that crosses a State boundary, which
is the agencies' intended meaning of this term. The agencies made this
revision to reflect the fact that ``multistate metropolitan statistical
area'' is not a term defined by the Director of the OMB. Instead, the
[[Page 6619]]
Director of OMB defines the term ``MSA,'' and the final rule defines
``MSA'' by cross-referencing to this OMB definition. Second, consistent
with the change discussed above under the definition of ``MSA,'' the
agencies are replacing ``metropolitan statistical area'' with ``MSA.''
Thus, the resulting defined term will be ``multistate MSA'' instead of
``multistate metropolitan statistical area.'' Accordingly, ``multistate
MSA'' is defined in the final rule to mean an MSA that crosses a State
boundary.
Nationwide Area
The agencies proposed to add a new definition for ``nationwide
area'' to support the proposal to evaluate a bank's community
development financing activities in a ``nationwide area,'' as discussed
below in the section-by-section analyses of Sec. Sec. __.24 through
__.27; the proposal to evaluate large banks' and certain intermediate
banks' retail lending performance in ``outside retail lending areas,''
as discussed in the section-by-section analysis of Sec. __.18, which
would include the ``nationwide area'' outside of a bank's assessment
areas; the proposal's impact and responsiveness review, as discussed in
the section-by-section analysis of Sec. __.15; and the proposal's data
collection, maintenance, and reporting requirements, as discussed in
the section-by-section analysis of Sec. __.42. Specifically, the
agencies proposed that ``nationwide area'' would mean ``the entire
United States and its territories.''
The agencies received one comment requesting clarity on what the
agencies meant by the term ``nationwide area,'' recommending that the
agencies define this term to include the broader regional areas beyond
defined multistate MSAs. In this way, the commenter theorized that
banks could receive credit for financing activities like affordable
housing in a particular region of the United States that cover multiple
States but where that region is not a defined multistate MSA. This
commenter misunderstands the scope of the proposed ``nationwide area''
definition. ``Nationwide area'' includes the entirety of the United
States and its territories, and is not limited to multistate areas. The
allocation of community development financing activities, including how
an activity that benefits more than one State but not the entire nation
will be attributed, is discussed in the section-by-section analysis of
Sec. __.24. Thus, the agencies are adopting the definition of
``nationwide area'' as proposed in the final rule.
Native Land Area
The Agencies' Proposal
The agencies proposed to add a new definition of ``Native Land
Area'' to provide clarity in support of the proposal's encouragement of
activities that address the significant and unique community
development challenges in these areas. The proposal sought to encourage
these activities through the proposed establishment of a category of
community development for qualifying activities in Native Land
Areas,\212\ discussed in the section-by-section analysis of Sec.
__.13(j), and by considering the impact and responsiveness of a bank's
community development activities that benefit Native communities, such
as community development activities in Native Land Areas under Sec.
__.13(j),\213\ discussed in the section-by-section analysis of Sec.
__.15(b)(8).
---------------------------------------------------------------------------
\212\ See proposed Sec. __.13(l).
\213\ See proposed Sec. __.15(b)(7).
---------------------------------------------------------------------------
Native American land ownership is complex, and lands can have a
complicated and intermingled mix of land ownership status involving
various statutes, regulations, titles, and restrictions.\214\ The
agencies intended the proposed ``Native Land Area'' definition to be
responsive to stakeholder feedback provided during outreach prior to
the issuance of the proposal indicating support for a geographic
definition broader than the definition of Indian country under 18
U.S.C. 1151, and to include lands such as Hawaiian Home Lands, as well
as other lands typically considered Native and tribal lands with unique
political status under established Federal Indian law. The proposed
``Native Land Area'' definition leveraged other Federal and State
designations of Native and tribal lands, as well as the OCC 2020 CRA
Final Rule, and included areas typically considered by the Bureau of
Indian Affairs (BIA) and the U.S. Census Bureau as Native geographic
areas. Accordingly, the proposed ``Native Land Area'' definition
included all geographic areas delineated as U.S. Census Bureau American
Indian/Alaska Native/Native Hawaiian (AIANNH) Areas and/or BIA Land
Area Representations. For example, the proposed definition included
State American Indian reservations established through a governor-
appointed State liaison that provides the names and boundaries for
State-recognized American Indian reservations to the Census Bureau.
---------------------------------------------------------------------------
\214\ See, e.g., Congressional Research Service, ``Tribal Land
and Ownership Statuses: Overview and Selected Issues for Congress''
(July 2021), https://sgp.fas.org/crs/misc/R46647.pdf.
---------------------------------------------------------------------------
Specifically, under the proposal, ``Native Land Area'' would mean:
(1) all land within the limits of any Indian reservation under the
jurisdiction of the U.S. Government, as described in 18 U.S.C. 1151(a);
(2) all dependent Indian communities within the borders of the United
States whether within the original or subsequently acquired territory
thereof, and whether within or without the limits of a State, as
described in 18 U.S.C. 1151(b); (3) all Indian allotments, the Indian
titles to which have not been extinguished, including rights-of-way
running through the same, as defined in 18 U.S.C. 1151(c); (4) any land
held in trust by the United States for Native Americans, as described
in 38 U.S.C. 3765(1)(A); (5) reservations established by a State
government for a tribe or tribes recognized by the State; (6) any
Alaska Native Village as defined in 43 U.S.C 1602(c); (7) lands that
have the status of Hawaiian Home Lands as defined in section 204 of the
Hawaiian Homes Commission Act, 1920 (42 Stat. 108), as amended; (8)
areas defined by the U.S. Census Bureau as Alaska Native Village
Statistical Areas, Oklahoma Tribal Statistical Areas, Tribal-Designated
Statistical Areas, or American Indian Joint-Use Areas; and (9) land
areas of State-recognized Indian tribes and heritage groups that are
defined and recognized by individual States and included in the U.S.
Census Bureau's annual Boundary and Annexation Survey.
Comments Received
The agencies received many comments concerning the proposed
``Native Land Area'' definition, discussed below.
Geographic areas included in the definition. Some commenters
expressed support for the geographic areas included in the proposed
definition. For example, a commenter supported such an inclusive list
given the past and ongoing discrimination against Indigenous people and
communities. Another commenter recognized the proposal's relatively
comprehensive list of defined Native American lands, further indicating
that accurately and comprehensively identifying Native lands is
difficult because of the fragmented ownership of Native lands arising
from historical Federal land allotment policies. This commenter also
recommended that the agencies provide a single source file made
available once the definition is agreed on. Another commenter expressed
support for ensuring that all Native people in
[[Page 6620]]
Alaska and Hawaii would be covered under the definition.
In contrast, some commenters recommended broadening the definition
to include additional geographic areas. Several other commenters
supported the ability for tribes to designate lands eligible for CRA
qualification, with some supporting the inclusion of ``unceded'' lands,
i.e., lands without a formal agreement with the government and
controlled by non-tribal interests but that tribes consider
historically Native lands, as part of the definition in light of prior
Federal dispossession policies. Another commenter suggested that the
definition should be connected to census geographies.
Several other comments recommended that the ``Native Land Area''
definition should include Native American Pacific Islands including
Guam, American Samoa, and the Commonwealth of the Mariana Islands. A
few commenters expressed support for adding tribal fee lands citing the
loss of tribal lands due to earlier Federal policies aimed at
dispossessing tribes, with one commenter stating that this would be
consistent with the current Federal policy of encouraging tribal self-
determination and with principles of tribal sovereignty. This commenter
also noted that the process of gaining Federal trust status for tribal
fee lands (which would then meet the definition of ``Native Land Area''
pursuant to proposed Sec. __.12, addressing lands held in trust) is
expensive and time consuming.
Geographic areas outside of the proposed definition. Many
commenters supported broadening the ``Native Land Area'' definition to
include activities benefiting Native individuals and communities
outside of proposed geographic areas. Several commenters asserted that
activities benefiting Native Americans should qualify anywhere and
cited that the majority of American Indian, Alaska Native, and Native
Hawaiian people live outside the Native Land Areas covered by the
proposed definition. A group of commenters further stated that the
proposed definition would limit the ability of Native CDFIs, tribal
governments, and other entities to secure CRA-qualified investments to
support Native communities residing within their respective service
areas but outside of the proposed ``Native Land Area'' definition. A
commenter supported including service areas adjacent to reservations,
where a large number of tribal members live or tribal programs are
distributed, to help facilitate better community revitalization
activities. However, alternatively, a commenter asserted that
qualification for activities should not extend past designated
geographic areas.
Alternative approaches for designating geographic areas. A
commenter suggested that, rather than focusing on activities in Native
Land Areas, the agencies consider a metric-based determination for
where activities could qualify, in conjunction with Native-led
organizations and CDFIs, that would consider capital access in Native
American communities. This commenter suggested that the agencies
additionally include a weighting factor for banks investing in rural
and remote Native American communities that might not have any credit
or capital access. In support of these ideas, the commenter indicated
that some populations covered in the ``Native Land Area'' definition
have access to credit and successful economic development
opportunities, while some Native American communities not in Native
Land Areas as defined under the proposal do not. Another commenter
asserted that the definition of ``Native Land Area'' should use an
alternative geographic criterion for qualifying activities, instead
including qualification for activities in census tracts with a greater
than 40 percent Native American population and earning less than 100
percent of the average median family income.
Final Rule
The agencies are adopting the ``Native Land Area'' definition as
proposed with a few technical changes. First, the agencies have revised
paragraph (4) of the definition to include any land held in trust by
the United States for tribes or Native Americans or tribally-held
restricted fee land. This change more clearly effectuates the agencies'
intent in the proposal to include in the definition both individually-
and tribally-owned restricted fee lands as well as land held in trust
by the United States for both tribes and individuals. This change also
aligns the definition with available BIA data, which covers both
individually-held and tribally-held restricted fee and trust
lands.\215\ The agencies are also removing the cross-reference to ``38
U.S.C. 3765(1)(A)'' in paragraph (4) as redundant.\216\ Finally, the
agencies are making a technical change to paragraph (6), which covers
Alaska Native villages, to use the term defined in the cited statute;
as a result, the final rule references ``Any Native village, as defined
in 43 U.S.C. 1602(c), in Alaska.''
---------------------------------------------------------------------------
\215\ See Bureau of Indian Affairs, Branch of Geospatial
Support, ``General Information for Geospatial Questions'' (Sept. 5,
2023), https://biamaps.geoplatform.gov/faq.html.
\216\ See 38 U.S.C. 3765(1)(A).
---------------------------------------------------------------------------
The ``Native Land Area'' definition in the final rule is intended
to align with existing and established Federal Indian law regarding
lands and communities with unique political status. The final rule is
also intended to be responsive to stakeholder feedback received at all
stages of this rulemaking, indicating support for a comprehensive
geographic definition of ``Native Land Areas.'' The final definition
focuses on lands and communities that, as noted by commenters, have
generally experienced little or no benefits from bank access or
investments.
The agencies have carefully considered commenters' suggestions for
expanding the geographic areas included in the definition, and are
sensitive to the many complexities underlying the development of a
``Native Land Area'' definition, including the impacts of varying
historical policies regarding land ownership and political status.\217\
However, the agencies are concerned that substantively expanding the
``Native Land Area'' definition could inadvertently create new
precedent by incorporating lands without a similar unique political
status as those lands included under the definition, and further could
be impracticable where data is not currently collected, reported, or
readily available. The agencies believe it is important for
stakeholders and examiners to have access to and utilize a consistent
and comparable data set.
---------------------------------------------------------------------------
\217\ See, e.g., U.S. Dept. of Interior, ``Land Buy-Back Program
for Tribal Nations,'' https://www.doi.gov/buybackprogram/fractionation (discussing fractionation resulting from Federal
allotment policies); Congressional Research Service, ``Tribal Land
and Ownership Statuses: Overview and Selected Issues for Congress''
(July 2021), https://sgp.fas.org/crs/misc/R46647.pdf (discussing
historical land policies).
---------------------------------------------------------------------------
The agencies also decline to expand the ``Native Land Area''
definition to incorporate areas outside of the proposed geographic
areas where Native individuals may also reside, or to use alternative
metrics for defining Native Land Areas. The agencies are concerned
about precedential impact, as well as the practicality of
implementation, such a change would have, particularly with a highly
dispersed population. Further, complex land ownership structures
associated with the lands falling within the final definition can make
economic development in those lands particularly difficult, which the
agencies believe support a more specific focus on those lands. The
agencies note that activities benefiting Native individuals and
[[Page 6621]]
communities outside a designated Native Land Area may qualify for CRA
consideration under another community development purpose as provided
in Sec. __.13. (For a detailed discussion of these community
development categories under the final rule, see the section-by-section
analysis of Sec. __.13.) For example, a loan to support the
development of a multifamily housing project to benefit low- and
moderate-income tribal individuals outside of a Native Land Area would
qualify for consideration under Sec. __.13(b) (affordable housing) if
a portion of the project's housing units are affordable.\218\ The
agencies also note that the final rule incorporates various impact and
responsiveness review factors under Sec. __.15 for examiners to
consider in evaluating a bank's community development activities. This
includes an impact and responsiveness factor for areas with low levels
of community development financing and activities serving low-income
individuals and families that may apply to activities benefiting Native
Americans living adjacent to or otherwise outside a Native Land
Area.\219\
---------------------------------------------------------------------------
\218\ See final Sec. __.13(b)(1) and (2), discussed in the
section-by-section analysis of these provisions below.
\219\ See final Sec. __.15(b)(2) and (7), discussed in the
section-by-section analysis of these provisions below.
---------------------------------------------------------------------------
Finally, as noted in the proposal, robust, publicly available data
files (``shapefiles''), defining the boundaries of the geographic areas
adopted in the final rule are actively maintained by the U.S. Census
Bureau and BIA, respectively.\220\ The agencies anticipate making this
data readily available to stakeholders as part of the agencies'
regulatory implementation efforts, which, among other benefits, the
agencies anticipate will facilitate stakeholders' ability to engage
with confidence in CRA-eligible activities and enhance the transparency
of the agencies' consideration of those activities.
---------------------------------------------------------------------------
\220\ See U.S. Census Bureau, ``AIANNH shapefile,'' https://www2.census.gov/geo/tiger/TIGER2021/AIANNH/; Bureau of Indian
Affairs, ``BIA Tract Viewer,'' https://biamaps.geoplatform.gov/BIA-opendata/.
---------------------------------------------------------------------------
In adopting the ``Native Land Area'' definition, the agencies
sought to maintain consistency with established categories of Native
Land Areas. On balance, the agencies believe the final rule's
definition is as comprehensive as feasible to ensure alignment with
current Federal Indian law and to support the rule with durable,
publicly available data sources. This, in turn, will make identifying
Native Land Areas practicable for stakeholders and facilitate their
ability to engage in and track CRA-eligible activities.
New Markets Tax Credit
As a clarification, the final rule includes a definition for ``New
Markets Tax Credit (NMTC),'' not included in the proposed rule, to mean
a Federal tax credit pursuant to section 45D of the Internal Revenue
Code of 1986 (26 U.S.C. 45D). The final rule uses this term in Sec.
__.15(b)(10) as one of the impact and responsiveness factors and in
Sec. __.42(a)(5)(ii) as part of the data collection of community
development loans and community development investments, including
whether the community development loan or community development
investment is an investment in a project financed by NMTCs. The
proposal used this term in proposed Sec. __.42 but did not define it.
Nonmetropolitan Area
The agencies proposed no changes to the current ``nonmetropolitan
area'' \221\ definition, which would continue to mean any area that is
not located in an MSA. The agencies did not receive any comments
concerning the ``nonmetropolitan area'' definition and are adopting it
as proposed in the final rule.
---------------------------------------------------------------------------
\221\ See current 12 CFR __.12(s).
---------------------------------------------------------------------------
Open-End Home Mortgage Loan
For a discussion of the definition of ``open-end mortgage loan,''
see the discussion above for Mortgage-Related Definitions.
Operations Subsidiary or Operating Subsidiary
The Board proposed to add a definition of ``operations subsidiary''
to its CRA regulations, and the OCC and FDIC proposed to add a
definition of ``operating subsidiary'' to their respective CRA
regulations. The agencies each proposed their own definitions because
of differences in their supervisory authority. The agencies proposed
these changes to identify those bank affiliates whose activities would
be required to be attributed to a bank's CRA performance pursuant to
proposed Sec. __.21, Performance Tests, standards, and ratings, and
Sec. __.28, Assigned conclusions and ratings.\222\
---------------------------------------------------------------------------
\222\ See proposed Sec. __.21(c).
---------------------------------------------------------------------------
Specifically, the Board proposed to define ``operations
subsidiary'' to mean an organization designed to serve, in effect, as a
separately incorporated department of the bank performing at locations
at which the bank is authorized to engage in business, functions that
the bank is empowered to perform directly.\223\
---------------------------------------------------------------------------
\223\ See proposed 12 CFR 228.12.
---------------------------------------------------------------------------
The FDIC proposed to define ``operating subsidiary'' to mean an
operating subsidiary as described in 12 CFR 5.34.\224\ The OCC proposed
to define ``operating subsidiary'' to mean an operating subsidiary as
described in 12 CFR 5.34 in the case of an operating subsidiary of a
national bank or an operating subsidiary as described in 12 CFR 5.38 in
the case of a savings association.\225\
---------------------------------------------------------------------------
\224\ See proposed 12 CFR 345.12.
\225\ See proposed 12 CFR 25.12.
---------------------------------------------------------------------------
Regarding comments concerning the definitions of ``operations
subsidiary'' and ``operating subsidiary,'' a commenter stated that the
proposed definition of an ``operations subsidiary'' and ``operating
subsidiary'' appear reasonable. The commenter stated that, generally,
there should be uniformity in these and other definitions across all
Federal agencies that receive financial institution data or reports.
Another commenter recommended that the agencies avoid defining
operations subsidiary and operating subsidiary too broadly. The
commenter stated that it is not correct that financial institutions
universally exercise ``a high level of ownership, control, and
management'' of all affiliates, which in some circumstances may be
considered as ``subsidiaries.'' As an example, the commenter stated
that numerous CDFI banks have nonprofit affiliates that provide
substantial mission support, but these nonprofit organizations often
have their own boards of directors, have been capitalized in a variety
of ways, and control is exercised in different manners as well.
For the reasons stated below, the Board is adopting the proposed
definition of ``operations subsidiary,'' and the FDIC and OCC are
adopting the proposed definitions of ``operating subsidiary.'' The
agencies believe that the proposed definitions of ``operations
subsidiary'' and ``operating subsidiary'' are sufficiently consistent
based on the agencies' respective statutory authorities and mandates.
In addition, the agencies do not believe these proposed definitions are
too broad. If an entity meets the definition of affiliate, and not the
definition of operation subsidiary or operating subsidiary, it will not
be treated as an operations subsidiary or operating subsidiary under
the CRA regulations. Further, the agencies elected not to change these
definitions because the description of these terms in the agencies' CRA
regulation should
[[Page 6622]]
not differ from the description of these terms in other contexts.
Other Delivery System
The agencies are adopting a new definition of ``other delivery
system,'' not included in the proposal, to mean a ``channel, other than
branches, remote services facilities, or digital delivery systems,
through which banks offer retail banking services.'' This may include
telephone banking, bank-by-mail, or bank-at-work.
For a more detailed discussion of the meaning of other delivery
system, see the section-by-section analysis of Sec. __.23(b)(4).
Outside Retail Lending Area
As discussed above, the agencies proposed to replace the term
``assessment area'' in Sec. __.12 with the terms ``facility-based
assessment area,'' ``retail lending assessment areas,'' and ``outside
retail lending areas.'' The agencies proposed to define the new term
``outside retail lending area'' to mean the nationwide area outside of
a bank's facility-based assessment areas and, as applicable, retail
lending assessment areas. The agencies proposed this new term as part
of the proposed Retail Lending Test.\226\ In particular, under the
proposed Retail Lending Test, the agencies would evaluate the retail
lending performance of large banks and certain intermediate banks in
areas outside of facility-based assessment areas and retail lending
assessment areas, as applicable.
---------------------------------------------------------------------------
\226\ See proposed Sec. __.22.
---------------------------------------------------------------------------
The final rule now includes a new section that describes the bases
for delineating outside retail lending areas. Therefore, the more
detailed proposed definition of outside retail lending areas is not
necessary, and instead the final rule defines ``outside retail lending
area'' to mean the area delineated pursuant to Sec. __.18. Comments
pertaining to the proposed outside retail lending area provisions, as
well as detailed information regarding the final rule's outside retail
lending area delineation requirements, are described in the section-by-
section analysis of Sec. __.18.
Persistent Poverty County
The agencies included in proposed Sec. __.15(b)(1) a definition of
``persistent poverty county'' to mean a county or county-equivalent
that had poverty rates of 20 percent or more for the past 30 years, as
measured by the most recent decennial censuses. This definition
appeared in proposed Sec. __.15(b) in connection with a list of
factors (termed ``impact review'' factors in the proposal) relevant for
evaluating the impact and responsiveness of community development
activities.
In the final rule, the agencies are moving the ``persistent poverty
county'' definition to Sec. __.12 for ease of reference, as the term
appears in both final Sec. __.15(b)(1) (finalized as an impact and
responsiveness review factor) and the corresponding data collection
provision in final Sec. __.42(a)(5) and (6). Further, consistent with
the revision to the definition of ``county,'' discussed above,
``county-equivalents'' has been removed from the definition of
``persistent poverty county'' in the final rule. Lastly, the agencies
are replacing the phrase ``as measured by the most recent decennial
censuses'' with reference to a list of counties designated by the
Board, FDIC, and OCC and published by the FFIEC. Among other things,
this change will provide for statistical reliability while also
allowing for regular data updates as conditions change. For a more
detailed discussion of the definition of ``persistent poverty county,''
comments received on the definition, and the final impact and
responsiveness review factor associated with this term, see the
section-by-section analysis of Sec. __.15(b).
Accordingly, the agencies are adopting a definition of ``persistent
poverty county'' in the final rule that means as a county that has had
poverty rates of 20 percent or more for 30 years, as publicly
designated by the Board, FDIC, and OCC, compiled in a list, and
published annually by the FFIEC.
Product Line
The agencies are adopting a new definition of ``product line'' in
the final rule, not included in the proposal. The final rule defines
``product line'' to mean a bank's loans in one of the following,
separate categories in a particular Retail Lending Test Area: (1)
closed-end home mortgage loans; (2) small business loans; (3) small
farm loans; and (4) automobile loans, if a bank is a majority
automobile lender or opts to have its automobile loans evaluated
pursuant to Sec. __.22. As discussed in greater detail in the section-
by-section analysis of Sec. __.22, the definition of ``product line''
is intended to increase clarity regarding identifying those bank
product lines that may potentially be subject to evaluation under the
Retail Lending Test, as applicable.
Remote Service Facility
The Board's and OCC's current CRA regulations define the term
``automated teller machine (ATM)'' to mean an automated, unstaffed
banking facility owned or operated by, or operated exclusively for, the
bank at which deposits are received, cash dispersed, or money
lent.\227\ The FDIC's CRA regulation instead contains a definition for
``remote service facility,'' which has the same definition as the
Board's and OCC's definition of ATM but also includes a list of
examples, specifically, automated teller machine, cash dispensing
machine, point-of-sale terminal, or other remote electronic facility.
The proposal would replace the Board's and OCC's ``ATM'' definitions
with a definition of ``remote service facility'' that would include
ATMs and update the FDIC's existing definition of ``remote service
facility.\228\
---------------------------------------------------------------------------
\227\ See current 12 CFR 25.12(d) and 228.12(d).
\228\ See current 12 CFR 245.12(d).
---------------------------------------------------------------------------
Specifically, the proposal defined ``remote service facility'' to
mean an automated, virtually staffed, or unstaffed banking facility
owned or operated by, or operated exclusively for, a bank, such as an
ATM, interactive teller machine, cash dispensing machine, or other
remote electronic facility at which deposits are received, cash
dispersed, or money lent. The agencies believed the proposed definition
better reflects changes in the way that banks deliver banking services.
The agencies requested feedback as to whether the proposed ``remote
service facility'' definition includes sufficient specificity for the
types of facilities and circumstances under which banks would be
required to delineate facility-based assessment areas, or whether other
changes to the CRA regulations are necessary to better clarify when the
delineation of facility-based assessment areas would be required. A
commenter suggested that the ``remote service facility'' definition
should include ATMs that are not owned or operated by, or operated
exclusively for financial institutions, noting the importance of low-
and moderate-income individuals' access to independent ATMs. Several
commenters recommended that deposit-taking remote service facilities
should include any bank partnerships with third parties involving
remote or virtual banking services, with another commenter suggesting
ATM networks operated by a third party. The agencies have declined to
explicitly incorporate remote services facilities that are not owned or
operated by, or operated exclusively for, a bank into the ``remote
service facility'' definition because of the tenuous connections of
these ATMs to a bank. The agencies do not believe that a non-
proprietary remote service
[[Page 6623]]
facility, such as a network ATM, constitutes a bank facility because
such ATMs are owned and operated by a third party. Further, a bank
participating in such an ATM network may have limited control over
where an ATM is located. The agencies note that the current definition
of ``ATM'' requires that the ATM be owned or operated by, or operated
exclusively for, the bank.\229\
---------------------------------------------------------------------------
\229\ See current 12 CFR __.12(d) (definition of ``automated
teller machine (ATM)'').
---------------------------------------------------------------------------
Therefore, the agencies are adopting the proposed definition of
``remote service facility'' in the final rule with two clarifying
changes. First, the definition now provides that a remote service
facility must be open to the general public. The agencies believe this
substantive change clarifies that this definition only captures those
remote deposit facilities that benefit the credit needs of the bank's
local community by having a public facing presence. Second, the
definition in the final rule now provides that deposits are
``accepted'' instead of ``received.'' This change was made to describe
the facility's interaction more accurately with the public.
Accordingly, the final rule provides that ``remote service
facility'' means an automated, virtually staffed, or unstaffed banking
facility owned or operated by, or operated exclusively for, a bank,
such as an automated teller machine (ATM), interactive teller machine,
cash dispensing machine, or other remote electronic facility, that is
open to the general public and at which deposits are accepted, cash
dispersed, or money lent.
Reported Loan
To enhance clarity in the final rule, the agencies are adding a new
definition of ``reported loan,'' not included in the proposal, defined
to mean: (1) a home mortgage loan or a multifamily loan reported by a
bank pursuant to HMDA, as implemented by 12 CFR part 1003; or (2) a
small business loan or a small farm loan reported by a bank pursuant to
Sec. __.42. This term is primarily used in the Retail Lending Test
(final Sec. __.22 and appendix A) to specify where only reported loans
are used in certain benchmarks. In addition, the term is used in
defining when a retail lending assessment area must be delineated
pursuant to final Sec. __.17. For a detailed discussion of the Retail
Lending Test, see the section-by-section analysis of final Sec. __.22
(also addressing appendix A), and for a discussion of retail lending
assessment areas, see the section-by-section analysis of Sec. __.17.
The agencies have included an amendment to transition the
definition of ``reported loan'' to reference small business loans and
small farm loans reported by a bank pursuant to the CFPB Section 1071
Final Rule after the section 1071 data is available.\230\
---------------------------------------------------------------------------
\230\ Specifically, the transition amendments included in this
final rule will amend the definitions of ``reported loan'' to mean a
small business loan or small farm loan reported by a bank pursuant
to subpart B of 12 CFR part 1002. The agencies will provide notice
of the effective date of these transition amendments in the Federal
Register after section 1071 data is available.
---------------------------------------------------------------------------
Retail Banking Products
The final rule includes a new definition of ``retail banking
products,'' not included in the proposed rule, to clarify the agencies'
intended meaning of the term in final Sec. __.23 (Retail Services and
Products Test). Specifically, the final rule defines ``retail banking
products'' to mean credit and deposit products or programs that
facilitate a lending or depository relationship between the bank and
consumers, small businesses, or small farms. For additional discussion
of retail banking products, see the section-by-section analysis of
Sec. __.23.
Retail Banking Services
The agencies proposed to add a new definition of ``retail banking
services'' to increase clarity and consistency in the CRA regulations,
particularly with respect to the proposed Retail Services and Products
Test.\231\ The agencies proposed to define ``retail banking services''
to mean retail financial services provided by a bank to consumers,
small businesses, and small farms, and to include a bank's systems for
delivering retail financial services. The agencies did not receive any
comments concerning the proposed ``retail banking service'' definition
and are adopting the definition as proposed in the final rule with a
non-substantive wording change.
---------------------------------------------------------------------------
\231\ See proposed Sec. __.23.
---------------------------------------------------------------------------
Retail Lending Assessment Area
As discussed above, the agencies proposed to replace the term
``assessment area'' in Sec. __.12 with the terms ``facility-based
assessment area,'' ``retail lending assessment areas,'' and ``outside
retail lending areas.'' The agencies proposed to define the term
``retail lending assessment area'' to mean a geographic area, separate
and distinct from a facility-based assessment area, delineated in
accordance with Sec. __.17. The agencies proposed this new term as
part of the proposed Retail Lending Test.\232\
---------------------------------------------------------------------------
\232\ See proposed Sec. __.22.
---------------------------------------------------------------------------
The agencies did not receive any comments specific to the proposed
definition of ``retail lending assessment area.'' However, the agencies
received numerous comments regarding the retail lending assessment area
approach, which are discussed in the section-by-section analysis of
Sec. __.17. To be consistent with the ``facility-based assessment
area'' and ``outside retail lending area'' definitions in the final
rule, the agencies are revising the ``retail lending assessment area''
definition in the final rule. Specifically, the agencies are removing
the phrase ``separate and distinct from a facility-based assessment
area'' and replacing ``in accordance with'' with ``pursuant to.''
Accordingly, the final rule defines ``retail lending assessment area''
to mean ``a geographic area delineated pursuant to Sec. __.17.''
Detailed information regarding the final rule's retail lending
assessment area delineation requirements is included in the section-by-
section analysis of Sec. __.17.
Retail Lending Test Area
In the final rule, the agencies are adding a new definition of
``Retail Lending Test Area,'' not included in the proposal, to mean a
facility-based assessment area, a retail lending assessment area, or an
outside retail lending area. The agencies believe this definition will
increase the final rule's consistency and improve its readability with
respect to referencing retail lending assessment areas, facility-based
assessment areas, and outside retail lending areas, both individually
and collectively, for purposes of the Retail Lending Test.
Retail Loan
In relation to the proposed Retail Lending Test,\233\ the agencies
proposed to add a new definition of ``retail loan'' to mean, for
purposes of the Retail Lending Test in Sec. __.22, an automobile loan,
closed-end home mortgage loan, open-end home mortgage loan, multifamily
loan, small business loan, or small farm loan. For all other purposes,
retail loan would mean a consumer loan, home mortgage loan, small
business loan, or small farm loan. The agencies did not receive any
comments concerning this proposed definition. However, after further
review, the agencies have elected not to adopt a definition of ``retail
loan'' in Sec. __.12 in the final rule. Instead, the agencies are
adopting a definition of ``product line'' in the final rule, which
[[Page 6624]]
references loan categories relevant to the Retail Lending Test.
---------------------------------------------------------------------------
\233\ See proposed Sec. __.22.
---------------------------------------------------------------------------
Small Bank
For a discussion of the definition of ``small bank,'' see the
discussion above for Bank Asset-Size Definitions.
Small Business and Small Farm
Current Approach and the Agencies' Proposal
The agencies proposed to add definitions of ``small business'' and
``small farm,'' as they are not defined in the current CRA regulations.
Instead, the current CRA regulations define ``community development''
to be activities that promote economic development by financing
businesses or farms that meet the size eligibility standards of the
SBA's Development Company or Small Business Investment Company programs
(13 CFR 121.301) or have gross annual revenues of $1 million or less.
The current regulations also consider the borrower distribution of
small business loans and small farm loans to businesses and farms with
gross annual revenues of $1 million or less.
The proposal would define ``small business'' to mean ``a business
that had gross annual revenues for its preceding fiscal year of $5
million or less'' and ``small farm'' to mean ``a farm that had gross
annual revenues for its preceding fiscal year of $5 million or less.''
The agencies proposed these definitions to support the evaluation of
retail lending under the proposed Retail Lending Test \234\ and
community development loans and investments supporting small businesses
and small farms that would be evaluated under the proposed Community
Development Financing Test.\235\ These proposed definitions were
consistent with the definitions for ``small business'' proposed by the
CFPB in its section 1071 rulemaking.\236\
---------------------------------------------------------------------------
\234\ See proposed Sec. __.22.
\235\ See proposed Sec. Sec. __.13(c)(2) and (3); __.24; and
__.26.
\236\ The CFPB section 1071 regulation does not separately
define ``small farm,'' rather it includes them as types of small
businesses identifiable by the of the NAICS codes 111-115. See 88 FR
35150, 35271, 35295 (May 31, 2023).
---------------------------------------------------------------------------
Comments Received
The agencies received numerous comments related to the proposed
``small business'' and ``small farm'' definitions. Some commenters
expressed support for the proposed definitions, while other commenters
recommended the agencies adopt the definitions with various changes or
implement new definitions that incorporate different criteria.
Specifically, many commenters supported the proposal to adopt size
standards for small businesses and small farms that would be consistent
with the proposed small business size standard in the CFPB's section
1071 rulemaking (i.e., gross annual revenues of $5 million or less for
the preceding fiscal year). In general, these commenters asserted that
consistent definitions across regulations and regulators would provide
for reporting consistency and efficiency with less burden. Several
other commenters stated that, although they believed that the gross
annual revenues of $5 million or less proposed by the CFPB was too
high, they supported aligning the definitions with the CFPB's section
1071 rulemaking even if the CFPB later adopted the larger size
threshold in its Section 1071 Final Rule. Some commenters suggested
that the small business size standard should be as consistent as
possible with both the CFPB's section 1071 rulemaking and the SBA's
small business size standards.
However, other commenters opposed the proposal to align the size
standards for small businesses and small farms with the proposed small
business size standard in the CFPB's section 1071 rulemaking. Many of
these commenters generally stated that the proposed small business and
small farm size standards are unusually high because the vast majority
of small businesses have gross annual revenues significantly below $5
million. Moreover, a few of these commenters stated that CRA's focus
should be on the credit needs of the smallest businesses, with some
commenters expressing concern that the proposed $5 million threshold
would result in capital being redirected to larger businesses. Several
commenters also emphasized that aligning the ``small business'' and
``small farm'' definitions with the CFPB's size standard would be
inappropriate because section 1071 serves a different purpose than the
CRA; namely, the threshold proposed by the CFPB establishes reporting
requirements that would facilitate enforcement of fair lending laws. A
few commenters also stated that it was not prudent for the agencies to
propose a size standard based on a proposed rule.
Many commenters that opposed aligning the small business and small
farm size standards with the CFPB's section 1071 proposed small
business size standard recommended a range of alternative thresholds
for consideration. A commenter recommended that the agencies adopt the
SBA's small business size standards. Another commenter recommended that
a small business definition should encompass manufacturing businesses
with 500 or fewer employees and other businesses with gross annual
revenues up to $8 million. One other commenter argued in favor of an $8
million gross annual revenues threshold, asserting that this figure is
the most common size standard threshold for average annual business
receipts and would capture a majority of small businesses. Another
commenter recommended that the agencies define ``small business'' and
``small farm'' based on loan size rather than gross annual revenues but
did not specify an amount. One other commenter supported a threshold of
gross annual revenues of $1 million or less because many large banks
only have system codes for gross annual revenues that indicate whether
a business is above or below $1 million, but not the actual threshold.
Other commenters requested clarifications of the definitions of
``small business'' and ``small farm'' or offered additional comments
regarding these definitions. A commenter requested clarity on the
treatment of revenues for affiliated businesses and guarantors, and how
to calculate the revenues of small businesses or small farms when a
line of credit is renewed (and updated revenue information is not
collected). A few other commenters noted that defining small business
and small farm by reference to gross annual revenues could create
difficulty at the beginning of a calendar year, when borrowers may not
have reliable revenue figures for the preceding year. Both commenters
suggested that banks should be able to use prior-year revenue figures
under these circumstances. Another commenter stated there should be
clear guidance on how gross annual revenues should be determined to
better provide reporting and examination consistency.
A commenter suggested that the agencies adopt a consistent
definition of ``small business'' and ``small farm'' across the
regulation, including for the borrower distribution metrics under the
Retail Lending Test.\237\ A few commenters pointed out that even if the
agencies align the ``small business'' and ``small farm'' definitions
with the CFPB's size standard in its section 1071 rulemaking, there
would still be opportunity to improve consistency across banking
regulations because
[[Page 6625]]
these definitions would not be reflected in Call Report requirements.
---------------------------------------------------------------------------
\237\ Under proposed Sec. __.22(d)(2)(iii)(D), the agencies
would review bank lending to, among other borrowers, small
businesses, and small farms with gross annual revenues of $250,000
or less and small businesses and small farms with gross annual
revenues of more than $250,000 but less than or equal to $1 million.
---------------------------------------------------------------------------
Final Rule
After considering the varied perspectives and recommendations on
the proposed ``small business'' and ``small farm'' definitions, the
agencies are adopting the definitions as proposed.\238\ The final rule
defines ``small business'' to mean a business that had gross annual
revenues for its preceding fiscal year of $5 million or less and
``small farm'' to mean a farm that had gross annual revenues for its
preceding fiscal year of $5 million or less.\239\
---------------------------------------------------------------------------
\238\ The agencies requested and received permission from the
SBA to use size standards for small businesses and small farms that
differ from the SBA's size standards, as required by 15 U.S.C.
632(a)(2)(C) and 13 CFR 121.903.
\239\ The final rule's transition amendments will amend the
definitions of ``small business'' and ``small farm'' to instead
cross-reference to the definition of ``small business'' in the CFPB
section 1071 regulation. This will allow the CRA Regulatory
definitions to adjust if the CFPB increases the threshold in the
CFPB section 1071 regulatory definition of ``small business.'' This
is consistent with the agencies' intent articulated in the preamble
to the proposal and elsewhere in this final rule to conform these
definitions with the definition in the CFPB section 1071 regulation.
The agencies will provide the effective date of these amendments in
the Federal Register once section 1071 data is available.
---------------------------------------------------------------------------
The agencies declined to use the SBA's small business size
standards because they believe that these standards would not serve the
CRA's purposes well. The SBA small business size standards are based on
gross annual revenues or the average number of employees for a wide
range of business entities, resulting in over 1,000 North American
Industry Classification System (NAICS) codes. In addition, the agencies
also considered the fact that the SBA has recently increased many of
its size standards and no longer employs a $1 million average annual
receipts size standard for any industry.\240\ In particular, many of
the SBA's gross annual revenues standards are much larger than the
gross annual revenues thresholds included in the proposed ``small
business'' and ``small farm'' definitions. The SBA's size standards for
agricultural industries now range from $2.25 million to $34 million,
and the size standards for non-agricultural industries now range from
$8 million to $47 million.\241\ Therefore, applying the SBA size
standards under the CRA regulations would undermine the focus on
smaller small businesses and farms.
---------------------------------------------------------------------------
\240\ Through a series of rules that became effective on May 2,
2022, the SBA implemented revised size standards for 229 industries
(all using average annual receipts standards) to increase
eligibility for its Federal contracting and loan programs. See 87 FR
18607 (Mar. 31, 2022); 87 FR 18627 (Mar. 31, 2022); 87 FR 18646
(Mar. 31, 2022); 87 FR 18665 (Mar. 31, 2022). The SBA did not reduce
any size standards--it either maintained or increased the size
standards for all 229 industries, in many cases with size standard
increases of 50 percent or more. Effective July 14, 2022, the SBA
also increased size standards for 22 wholesale trade industries and
35 retail trade industries. 87 FR 35869 (June 14, 2022). See SBA
Small Business Size Standards by NAICS Industry, 13 CFR 121.201.
\241\ See SBA Small Business Size Standards by NAICS Industry,
13 CFR 121.201.
---------------------------------------------------------------------------
Further, the agencies believe it is not appropriate to set a lower
threshold, particularly when considering how the final rule will use
the terms. A lower size standard may unduly restrict the type of
lending and investment that the agencies have historically considered
under economic development (i.e., the current rule considers as loans
and investments that support businesses and farms that meet the size
eligibility standards of the SBA's Development Company or Small
Business Investment Company programs (13 CFR 121.301)).
In addition, the agencies believe that size standards that draw on
a single data point--i.e., gross annual revenues of $5 million or less
in the preceding year--are easy for institutions to understand and
implement and minimize the data banks are required to collect and
report. If the agencies adopted definitions that introduced additional
criteria, as suggested by some commenters--e.g., average number of
employees, average revenue, or industry codes--institutions would be
required to collect and report additional data points, which would
increase banks' collection and reporting burden.
The agencies also believe that $5 million is the appropriate
threshold for small businesses and small farms. As discussed above,
commenters advocated for both lowering the threshold to focus the
regulations on the smallest small business and raising the threshold to
capture larger small businesses, but the agencies believe that the
proposed ``small business'' and ``small farm'' definitions strike a
proper balance. As such, the definitions in the final rule capture
entities all along the small business spectrum, from the smallest small
businesses and farms through larger small businesses and farms.
Further, a $5 million threshold is consistent with the definition
of ``small business'' in the CFPB's section 1071 rulemaking. As
explained in more detail below in the discussion of the definitions of
``small business loans'' and ``small farm loans,'' leveraging the
CFPB's ``small business'' definition for purposes of the Retail Lending
Test will reduce the data collection and reporting burden under the CRA
regulations because banks will not have to report small business loan
data to two different agencies with two different thresholds once the
agencies transition to using section 1071 data.\242\ In addition, as
also explained below, aligning the CRA's ``small business'' and ``small
farm'' definitions with the CFPB's ``small business'' definition will
enable the agencies to expand and improve the analysis of CRA small
business and small farm lending for all banks subject to the Retail
Lending Test.
---------------------------------------------------------------------------
\242\ As discussed in the section-by-section analysis of Sec.
__.42, the agencies will eliminate the current CRA small business
and small farm data collection and reporting requirements once the
agencies transition to using section 1071 data.
---------------------------------------------------------------------------
The agencies understand that the CFPB's section 1071 rulemaking,
although finalized, is not yet applicable, and, therefore, the agencies
will not yet be able to leverage the CFPB's section 1071 rulemaking's
``small business'' definition for purposes of the Retail Lending Test
at this time. However, the final rule's ``small business'' and ``small
farm'' definitions are also necessary for determining which loans,
investments, or services meet the community development criteria under
final Sec. __.13 for purposes of the Community Development Financing
Test in Sec. __.24, the Community Development Services Test in Sec.
__.25, and the Community Development Financing Test for Limited Purpose
Banks in Sec. __.25, and for evaluating a bank's retail banking
services and retail banking products under the Retail Services and
Products Test in final Sec. __.23. As explained above, the current
regulations do not explicitly define ``small business'' and ``small
farm,'' and defining ``small business'' and ``small farm'' to mean
those businesses and farms with $5 million or less in gross annual
revenues is preferable to using the SBA's small business size
standards, which can be significantly larger, and would undermine the
CRA's focus on smaller small businesses and farms. Therefore, to be
consistent throughout the CRA regulations, the agencies believe it is
important to include this definition in the final rule.
With regard to commenters' concerns related to the treatment of
revenues, the agencies anticipate updating the CRA data collection and
reporting guidance to reflect the new collection and reporting
obligations related to the reporting of gross annual revenues. In
developing that guidance, the agencies will consider the commenters'
suggestions and recommendations.
With respect to the commenter's concern regarding the agencies
proposing a size standard based on the
[[Page 6626]]
CFPB proposed rule under section 1071 of the Dodd-Frank Act (Section
1071 Proposed Rule),\243\ the agencies note that the $5 million size
standard for a small business or small farm was included in the
proposal; the agencies did not cross-reference to the CFPB section 1071
rulemaking. Therefore, commenters were able to comment on the exact
threshold proposed.
---------------------------------------------------------------------------
\243\ See 86 FR 56356 (Oct. 8, 2021).
---------------------------------------------------------------------------
The agencies appreciate commenters' concern that inconsistencies
with respect to size standards for small businesses and small farms
would remain because the CRA definitions would not be reflected in the
Call Report. However, revisions to Call Report requirements are outside
the scope of this rulemaking.
Small Business Loan and Small Farm Loan
Current Approach
The current CRA regulations define ``small business loan'' to mean
``a loan included in `loans to small businesses,' as defined in the
instructions for preparation of the Consolidated Report of Condition
and Income.'' \244\ Likewise, ``small farm loan'' means ``a loan
included in `loans to small farms,' as defined in the instructions for
preparation of the Consolidated Report of Condition and Income.'' \245\
The current approach captures loans of $1 million or less to
businesses, and loans of $500,000 or less to farms, as reported in the
Call Report.\246\
---------------------------------------------------------------------------
\244\ See current 12 CFR __.12(v).
\245\ See current 12 CFR __.12(w).
\246\ See Call Report, Schedule RC-C, Part II.
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed to retain these definitions with two
technical changes. First, the proposed ``small business loan'' and
``small farm loan'' definitions included a provision indicating that
the proposed ``small business loan'' and ``small farm loan''
definitions should be read independently from the ``small business''
and ``small farm'' definitions. This distinction is relevant because,
until the agencies transition to using small business lending data
derived from the CFPB Section 1071 Final Rule, the CRA regulations need
to continue to use the current rule's ``small business loan'' and
``small farm loan'' definitions in evaluating bank performance under
the proposed Retail Lending Test in Sec. __.22. The agencies indicated
in the proposal that once section 1071 data on small business loans
become available, the agencies will transition to ``small business
loan'' and ``small farm loan'' definitions that are consistent with the
definition of ``small business'' in the CFPB Section 1071 Final Rule.
Second, the agencies proposed to substitute ``Consolidated Report
of Condition and Income'' in each definition for the shorter term,
``Call Report,'' which would have the same meaning and be established
as the term used throughout the regulation earlier in the regulatory
text. (See the ``assets'' definition discussion above.)
With these technical changes, the agencies proposed to define
``small business loan'' to mean, notwithstanding the definition of
``small business'' in Sec. __.12, a loan included in ``loans to small
businesses'' as defined in the instructions for preparation of the Call
Report, and ``small farm loan'' to mean notwithstanding the definition
of ``small farm'' in Sec. __.12, a loan included in ``loans to small
farms'' as defined in the instructions for preparation of the Call
Report.''
Comments Received
The agencies received numerous comments related to the proposed
``small business loan'' and ``small farm loan'' definitions. Some
commenters expressed support for the proposed definitions and intended
transition to the CFPB section 1071 rulemaking definition of ``small
business,'' while other commenters recommended the agencies adopt
definitions with various changes or implement entirely new definitions
that incorporate different criteria.
Specifically, a few commenters stated that using the proposed small
business size standard in the CFPB's section 1071 rulemaking will
provide a more accurate picture of lending to small entities than the
current threshold, which measures lending based on loan size as opposed
to business revenue size.
However, other commenters opposed the proposed changes to the
``small business loan'' and ``small farm loan'' definitions and
recommended continuing using the Call Report definitions, with a
commenter stating that retaining these definitions is necessary to
ensure that smaller dollar loans are targeted to businesses with
capital gaps. Another commenter recommended continuing to use the
current Call Report definitions of ``loans to small businesses'' and
``loans to small farms,'' and reevaluating after a full year of section
1071 data are available. Some commenters contended that the proposed
threshold would impose considerable new data collection and reporting
requirements for community banks that elect to be evaluated under the
proposed Retail Lending Test.
Another commenter proposed a hybrid approach that would define
``small business loan'' to include both: (1) a loan to a business with
gross annual revenues of $1 million or less; and (2) a commercial loan
in an amount of $1 million or less. Some commenters suggested using
certain size standards adopted by the SBA and USDA to encourage lending
to socially disadvantaged businesses and farms owned by persons of
color. Another commenter questioned whether the ``small business loan''
and ``small farm loan'' definitions include loans made to individuals
because of the use of the term ``revenue'' as opposed to ``income.''
This commenter claimed that the exclusion of small business and small
farm loans to individuals would cause underreporting and could
negatively affect a bank's Retail Lending Test results, metrics,
benchmarks, and possibly other areas. Further, the commenter suggested
the ``small business loan'' and ``small farm loan'' definitions should
include renewals and credit limit increases, as set forth in the
Interagency Questions and Answers.\247\
---------------------------------------------------------------------------
\247\ See Q&A Sec. __.42(a)-5.
---------------------------------------------------------------------------
Another commenter suggested that the agencies should not give CRA
consideration for all loans to businesses that meet the SBA standards
for small businesses. This commenter reasoned that the SBA standards
for employee size represent too high a threshold to meaningfully
segment the small business lending market.
Final Rule
The agencies appreciate the commenters' varied perspectives and
recommendations related to the proposed ``small business loan'' and
``small farm loan'' definitions. However, after consideration of these
comments, the agencies are adopting the ``small business loan'' and
``small farm loan'' definitions as proposed in the final rule, with
technical changes, and have included amendments to transition to
``small business loan'' and ``small farm loan'' definitions leveraged
off of the CFPB section 1071 regulation's ``small business'' definition
once section 1071 data is available.\248\ Specifically, the final rule
provides that ``small business loan'' and ``small farm loan'' mean
those loans included in ``loans to small businesses'' or ``loans to
small farms'' as
[[Page 6627]]
reported in Schedule RC-C of the Call Report. The agencies are
referring to these terms as reported in the Call Report, instead of as
defined in the instructions, to more accurately provide a source for
these terms. As indicated above, maintaining the current rule's
definitions of ``small business loan'' and ``small farm loan'' based on
the Call Report is necessary until the agencies transition to using
section 1071 data.
---------------------------------------------------------------------------
\248\ The final rule's transition amendments will amend the
definitions of ``small business loan'' and ``small farm loan'' to
mean a loan to a small business or small farm, respectively, as
defined in Sec. __.12 of the CRA regulations. The agencies will
provide notice of the effective date of this amendment in the
Federal Register once section 1071 data is available.
---------------------------------------------------------------------------
Further, transitioning to section 1071 data will enable the
agencies to use borrower and geographic distribution metrics and
benchmarks that provide more insight into banks' performance relative
to the demand for small business loans in a given geographic area. It
also will allow for an analysis that uses an expanded data set
measuring loans to small businesses of different revenue sizes,
including--importantly--to the businesses and farms with gross annual
revenues of $250,000 or less, as discussed in the section-by-section
analysis of Sec. __.22, the Retail Lending Test. In sum, these
definitions will enable the agencies to expand and improve the analysis
of CRA small business and small farm lending for all banks, as
applicable, since section 1071 data will also enable expanded analysis
for intermediate and small banks that are subject to reporting pursuant
to the CFPB's section 1071 rulemaking. Further, because a large
business may obtain small dollar loans, and a small business may obtain
large dollar loans, the agencies believe the size of a business
obtaining the loan is a better factor than the size of the loan to a
business for determining whether a loan is made to a small business
that warrants CRA consideration.
For the same reasons as noted in the ``small business'' and ``small
farm'' definitions discussion, the agencies do not find it appropriate
to adopt definitions of ``small business loan'' or ``small farm loan''
based on the SBA's small business size standards. As noted above, the
SBA currently employs varying small business standards which are based
on various factors, including industry, average annual receipts, and
average number of employees. As a result, capturing all loans to
businesses that qualify as small businesses under the SBA's standards
would necessitate the collection and reporting of additional data,
including NAICS codes to determine the industry in which a business
operates, average employee headcount, and average receipts over a
multi-year period. This would impose increased compliance and
operational burden and costs in negotiating what, for many or most
banks, would be a complicated overlay on their lending activity (e.g.,
use of NAICS codes) that could reduce efficiencies in their small
business and small farm lending programs.
In response to comments about the inclusion of loans to individuals
as small business loans or small farm loans based on income of the
individual as opposed to business revenues and how renewals and other
credit limit increases are considered, the agencies intend to continue
historical practices with respect to these issues. Specifically,
pursuant to Call Report instructions and certain limitations, loans to
sole proprietorships for commercial or agricultural purposes are
included in the ``small business loan'' and ``small farm loan''
definitions, respectively. Banks have historically reported the gross
annual revenues relied on in making credit decisions. This reporting
included affiliate revenues when relied on, but never combined
individual income with business revenues even if the bank relied on the
individual income of a sole proprietor in making the credit decision.
The agencies continue to believe this is appropriate, because
irrespective of whether the bank relied on individual income in making
a credit decision, it keeps the focus on the size of the business for
purposes of considering the loan under the performance tests.
Therefore, under the final rule, banks will report only the gross
annual revenues of the business benefiting from the loan proceeds.\249\
---------------------------------------------------------------------------
\249\ The agencies intend to make one change from the current
guidance regarding the treatment of affiliate revenues, pursuant to
the final rule and any guidance issued, gross annual revenue
reporting will be limited to the business revenues of the benefiting
business regardless of whether affiliate revenues are considered in
a credit decision to more accurately identify the size of a business
under the performance tests.
---------------------------------------------------------------------------
It is also notable that once the transition to section 1071 data is
complete, the small business loan data used for the Retail Lending Test
will capture business credit transactions that are secured by real
estate. For example, section 1071 data will capture business loans
secured by an applicant's primary residence or residential investment
property as collateral for inventory financing or working capital. Such
loans would not be captured under HMDA because they do not involve a
home purchase, home improvement, or refinancing and would not be
captured in the Call Report definition of ``loans to small businesses''
because they are secured by residential real estate.
For the reasons discussed above, the agencies are adopting in the
final rule a definition of ``small business loan'' that means,
notwithstanding the definition of ``small business'' in this section, a
loan included in ``loans to small businesses'' as defined in the
instructions for preparation of the Call Report. Similarly, the
agencies are adopting in the final rule a definition of ``small farm
loan'' that means, notwithstanding the definition of ``small farm'' in
this section, a loan included in ``loans to small farms'' as defined in
the instructions for preparation of the Call Report. Amendments
included in the final rule will transition these definitions to reflect
the final rule's definitions of ``small business'' and ``small farm,''
which leverages the definition of ``small business'' in the CFPB's
section 1071 rulemaking, once small business data reported pursuant to
that rulemaking becomes available and the agencies announce an
effective date for this transition in the Federal Register.
State
To increase clarity and consistency in the CRA regulations, the
agencies proposed to add a definition of ``State'' to mean a U.S. State
or territory, and the District of Columbia. The agencies did not
receive any comments on this definition and are adopting the definition
as proposed in the final rule.
Targeted Census Tract
The agencies proposed to add a definition of ``targeted census
tract'' for purposes of certain community development categories in
proposed Sec. __.13. As proposed, this term would mean: (1) a low-
income census tract or a moderate-income census tract; or (2) a
distressed or underserved nonmetropolitan middle-income census tract.
This definition was intended to reflect the current CRA regulations
regarding community development activities now categorized as
revitalization and stabilization activities,\250\ as well as
accompanying guidance in the Interagency Questions and Answers
regarding relevant geographic areas for these activities.\251\ The
agencies did not receive any comments concerning the proposed
definition of ``targeted census tract'' and adopt it as proposed in the
final rule.
---------------------------------------------------------------------------
\250\ See current 12 CFR __.12(g)(4).
\251\ See generally 81 FR 48506, 48526-48528 (July 25, 2016).
---------------------------------------------------------------------------
Tribal Government
The final rule includes a new definition for ``tribal government,''
not included in the proposal, to clarify the agencies' intended meaning
of ``tribal government'' where referenced in the
[[Page 6628]]
final rule (see, e.g., community development categories in proposed and
final Sec. __.13 and the accompanying section-by-section analysis). As
discussed above, the proposed and final community development place-
based categories, including activities in Native Land Areas, include as
eligibility criterion that activities be ``conducted in conjunction
with a Federal, State, local, or tribal government plan, program, or
initiative.'' \252\ However, the proposal did not define ``tribal
government,'' although the agencies sought feedback on various aspects
of the government plan criterion. Some commenters addressed the types
of entities that should be included in the government plan requirement,
including tribal governments, associations, and other designees. A
commenter expressed support for defining ``tribal government'' to mean
the recognized governing body of any Indian, or Alaska Native tribe,
band, nation, pueblo, village, community, component band, or component
reservation, individually identified (including parenthetically) in the
list most recently published pursuant to section 104 of the Federally
Recognized Indian Tribe List Act of 1994.\253\
---------------------------------------------------------------------------
\252\ See final Sec. __.13(j)(2)(i).
\253\ See Public Law 103-454, 108 Stat. 4791 (Nov. 2, 1994).
---------------------------------------------------------------------------
Based on comments and on further consideration, the agencies
believe that a definition of ``tribal government'' will provide needed
clarity and certainty for banks and other stakeholders seeking to
determine whether activities meet the required eligibility criterion.
Accordingly, the final rule defines ``tribal government'' to mean the
recognized governing body of any Indian, or Alaska Native tribe, band,
nation, pueblo, village, community, component band, or component
reservation, individually identified (including parenthetically) in the
list most recently published pursuant to section 104 of the Federally
Recognized Indian Tribe List Act of 1994 (25 U.S.C. 5131). As with the
definition of ``Native Land Areas,'' this definition is derived from
and intended to align with existing Federal Indian law.
Wholesale Bank
As detailed in the ``limited purpose bank'' definition discussion
above, the agencies are adopting the single term, ``limited purpose
bank,'' and eliminating the ``wholesale bank'' definition in the final
rule. This change is intended to improve clarity, minimize complexity,
and provide for new and future market participants.
Women's Depository Institution
The agencies proposed to define ``women's depository institution
(WDI)'' as having the same meaning given to that term in 12 U.S.C.
2907(b)(2). The cross-referenced provision of the CRA statute defines
``WDI'' to mean a depository institution, as defined in the FDI Act,
with: (1) more than 50 percent of the ownership or control of which is
held by 1 or more women; (2) more than 50 percent of the net profit or
loss of which accrues to 1 or more women; and (3) a significant
percentage of senior management positions of which are held by women.
The agencies did not include an alternate definition of WDI because
their policies with respect to designating WDI's vary. The FDIC does
not specifically designate or define WDIs under its MDI policy
statement, however, it does recognize WDIs for purposes of the CRA. The
Board defines WDI consistent with the CRA statute and institutions that
meet the definition are eligible to access resources under the Federal
Reserve System's Partnership for Progress program.\254\ The OCC, in
contrast, considers WDIs to be MDIs under its MDI Policy Statement,
and, therefore, women-owned institutions that do not meet the statutory
definition of WDI in section 2907 would be considered MDIs if the
institution otherwise meets the requirements of the OCC's MDI Policy
Statement.
---------------------------------------------------------------------------
\254\ See Board, SR 21-6/CA 21-4: ``Highlighting the Federal
Reserve System's Partnership for Progress Program for Minority
Depository Institutions and Women's Depository Institutions'' (Mar.
25, 2021), https://www.federalreserve.gov/supervisionreg/srletters/SR2106.htm.
---------------------------------------------------------------------------
The agencies did not receive any comments on the proposed
definition of WDI and are adopting the definition as proposed with non-
substantive revisions for conformity with the structure of other
definitions in final Sec. __.12. Accordingly, under the final rule,
``Women's depository institution (WDI)'' means ``women's depository
institution'' as defined in 12 U.S.C. 2907(b)(2).
Section __.13 Consideration of Community Development Loans, Community
Development Investments, and Community Development Services
Current Approach and the Agencies' Proposal
The current CRA regulations define ``community development'' as
comprising four broad categories: affordable housing, community
services, economic development, and revitalization and
stabilization.\255\ The agencies proposed to update the community
development definition in current Sec. __.12 by creating a new Sec.
__.13 that would define community development as including eleven
different categories of activities and would establish standards for
when community development activities would receive full and partial
consideration. Proposed Sec. __.13 incorporated aspects of the current
Interagency Questions and Answers into the regulation and established
specific eligibility standards for a broad range of community
development activities. Proposed Sec. __.13 was also designed to
provide more clarity regarding the kinds of activities the agencies
consider to be community development, as well as regarding eligibility
for community development consideration.
---------------------------------------------------------------------------
\255\ See current 12 CFR __.12(g).
---------------------------------------------------------------------------
Comments Received
Commenters provided general feedback on the agencies' proposal to
adopt a definition of community development with eleven categories of
activities, as well as on the specific proposed categories (which are
discussed in the section-by-section analysis of each individual
category below). Many commenters were generally supportive of the
proposal, with several noting that the proposed approach for defining
community development would provide more clarity for all stakeholders
on the types of activities that qualify and the eligibility
requirements for different activity types. Several commenters were
particularly supportive of adding new categories to the current
community development definition, such as the proposed categories for
disaster preparedness and climate resiliency activities, activities
with MDIs, WDIs, LICUs, and CDFIs, and activities in Native Land Areas.
Other commenters noted that proposed changes to the community
development definition would increase the responsiveness of banks to
community needs and expressed the view that the changes would help to
more effectively target community development activities.
In contrast, a few commenters opposed the proposed changes to the
community development definition. Commenter feedback included: that the
activities that could be considered under the new categories could be
considered under the four existing categories of community development;
concern that the new community development categories were too rigid
and complex, including that it would be difficult to obtain the data
needed to show activities meet the new requirements; and that the
definition of
[[Page 6629]]
community development would lead to a narrowing of what could qualify,
which might result in fewer or less impactful activities in low- and
moderate-income communities. Additionally, several commenters provided
suggestions for additional categories of activities that should be
considered under community development, such as equitable media,
activities focused on arts and culture, broadband and digital
inclusion, activities benefiting military communities, and activities
that are designed to support individuals with disabilities.
Final Rule
The agencies are adopting proposed Sec. __.13, with revisions from
the proposal and retitled as ``Consideration of community development
loans, community development investments, and community development
services.'' The final rule updates the current definition of community
development to provide banks with additional clarity regarding the
loans, investments, and services that the agencies have determined
support community development that is responsive to the needs of low-
and moderate-income individuals and communities, certain distressed or
underserved nonmetropolitan areas, and small businesses and small
farms.
Consistent with the structure of the proposal, final Sec. __.13
adopts standards for when community development loans, community
development investments, and community development services will
receive full and partial consideration (final Sec. __.13(a)), and
replaces the current definition of community development with the
following eleven categories:
Section __.13(b) Affordable housing;
Section __.13(c) Economic development;
Section __.13(d) Community supportive services;
Section __.13(e) Revitalization or stabilization;
Section __.13(f) Essential community facilities;
Section __.13(g) Essential community infrastructure;
Section __.13(h) Recovery of designated disaster areas;
Section __.13(i) Disaster preparedness and weather resiliency;
Section __.13(j) Revitalization or stabilization, essential
community facilities, essential community infrastructure, and disaster
preparedness and weather resiliency in Native Land Areas;
Section __.13(k) Activities with MDIs, WDIs, LICUs, or CDFIs; and
Section __.13(l) Financial literacy.
Final Sec. __.13(a) has been revised to clarify the standards
within each category for determining full or partial consideration.
Final Sec. __.13(b) through (l) have also been revised to address
comments, improve clarity, and promote greater internal consistency.
Revisions to these categories are discussed in greater detail in the
corresponding section-by-section analyses below.
The final rule incorporates aspects of the guidance that is
currently provided in the Interagency Questions and Answers and
provides more specificity, relative to the current rule, on the kinds
of activities that the agencies consider to be community development.
By building on the current rule and expanding the categories of
community development, the agencies believe that final Sec. __.13 will
emphasize activities that are responsive to community needs, and
especially the needs of low- and moderate-income individuals, families,
and households and small businesses and small farms. Further, the
agencies believe that the final rule will provide increased
transparency and consistency by providing stakeholders with a better
upfront understanding how loans, investments, and services supporting
community development can receive consideration. Overall, the agencies
believe that the final rule will reduce uncertainty and facilitate
banks' ability to identify community development opportunities.
In adopting final Sec. __.13, the agencies considered comments
regarding each proposed category of community development, and on
appropriate standards for providing full and partial consideration for
community development activities. These comments and the final rule are
discussed below in the section-by-section analyses of Sec. __.13(a)
through (l). In addition, the agencies are adopting a variety of
clarifying and conforming technical edits across final Sec. __.13. For
example, across all community development categories, the agencies are
revising the term ``low- and moderate-income individuals'' to ``low-
and moderate-income individuals, families, and households'' for
consistency across the various paragraphs in Sec. __.13, to provide
more clarity and to comprehensively include the beneficiaries of
different community development activities. Similarly, where
appropriate, the final rule replaces ``activities'' with ``loans,
investments, and services,'' consistent with revisions made elsewhere
in the regulation to more accurately capture the distinction between
community development activities, and a bank's loans, investments, and
services that support those activities (for which CRA consideration is
granted).
The agencies considered commenter feedback that revising community
development to include eleven categories could be too rigid or complex,
and comments that activities under proposed Sec. __.13(b) through (l)
could be included under the four existing community development
categories. The agencies believe, however, that additional community
development categories, with specific eligibility requirements for
each, will provide stakeholders with better clarity. Additionally, as
previously noted and consistent with the proposal, the final rule
incorporates existing guidance into the definition, which represents an
evolution towards a more comprehensive and transparent regulation. The
agencies note that, while banks subject to the rule are permitted to
qualify loans, investments, and services under any applicable community
development category, and that some activities may meet the criteria of
multiple categories, activities may count only once for the purposes of
calculating the Community Development Financing Metric.
The agencies also appreciate comments suggesting additional
categories for inclusion under community development and note that
these are generally discussed in the section-by-section analyses of
final Sec. __.13(b) through (l). The agencies have considered these
comments but believe that the adopted categories most clearly and
specifically align with the scope of community development under the
CRA regulations. The agencies note that loans, investments, and
services supporting additional activities suggested by commenters could
still receive consideration if they otherwise meet the required
criteria under any category included in final Sec. __.13.
Finally, the agencies believe that the establishment in final Sec.
__.14 of an illustrative list of qualifying community development
activities and of a confirmation process, available if a bank wants to
request review in advance, will help to provide additional clarity and
transparency for banks regarding the consideration of community
development loans, investments, and services. For more information, see
the section-by-section analysis of Sec. __.14.
[[Page 6630]]
Section __.13(a) Full and Partial Credit for Community Development
Loans, Community Development Investments, and Community Development
Services
Current Approach
Under the current CRA rule, a bank may, depending on its size and
business model, be evaluated for its community development lending,
investments, and services under the lending, investment, or service
tests, as applicable.\256\ To be eligible for CRA community development
consideration, a loan, service, or investment must have community
development as its primary purpose.\257\
---------------------------------------------------------------------------
\256\ See, e.g., current 12 CFR __.22 through __.26.
\257\ See current 12 CFR __.12(h)(1) (for community development
loans), (i)(1) (for community development services), and (t) (for
community development or ``qualified'' investments).
---------------------------------------------------------------------------
The Interagency Questions and Answers explain that a loan,
investment, or service is considered to have a primary purpose of
community development ``when it is designed for the express purpose
of'' the following:
``Revitalizing or stabilizing low- or moderate-income
areas, designated disaster areas, or underserved or distressed
nonmetropolitan middle-income areas;''
``Providing affordable housing for, or community services
targeted to, low- or moderate-income persons;'' or
``Promoting economic development by financing small
businesses or small farms that meet the requirements set forth in 12
CFR __.12(g).'' \258\
---------------------------------------------------------------------------
\258\ See Q&A Sec. __.12(h)-8. The referenced requirements for
small businesses and small farms are that they ``meet the size
eligibility standards of the Small Business Administration's
Development Company or Small Business Investment Company programs
(12 CFR 121.301) or have gross annual revenues of $1 million or
less.'' 12 CFR __.12(g)(3).
---------------------------------------------------------------------------
The Interagency Questions and Answers explain that the agencies use
one of two approaches to determine whether an activity is ``designed
for an express community development purpose.'' An activity meets the
primary purpose standard, and the entire activity may be eligible for
CRA considerations if:
``[A] majority of the dollars or beneficiaries of the
activity are identifiable to one or more of the enumerated community
development purposes;'' \259\ or
---------------------------------------------------------------------------
\259\ Q&A Sec. __.12(h)-8.
---------------------------------------------------------------------------
Less than a majority of the dollars or benefits is
identifiable to one or more community development purposes, but: (1)
``the express, bona fide intent of the activity . . . is primarily one
or more of the enumerated community development purposes''; (2) ``the
activity is specifically structured . . . to achieve the expressed
community development purpose''; and (3) the activity accomplishes, or
is reasonably certain to accomplish, the community development purpose
involved.'' \260\
---------------------------------------------------------------------------
\260\ Id. Q&A Sec. __.12(h)-8 specifies that the ``express,
bona fide intent'' of the activity may be ``as stated, for example,
in a prospectus, loan proposal, or community action plan.'' Id.
---------------------------------------------------------------------------
Even where those standards have not been met, loans, investments,
or services involving the provision of mixed-income housing that
incudes affordable housing may be deemed to have a primary purpose of
community development as specified in the Interagency Questions and
Answers.\261\ Specifically, at a bank's option, these activities may be
considered to have a primary purpose of community development and be
eligible for CRA credit on a pro rata basis; a bank may receive pro
rata consideration for the portion of the activity that helps to
provide affordable housing to low- or moderate-income individuals.\262\
For example, a bank could receive CRA consideration for 20 percent of
the dollar amount of a loan or investment for a mixed-income
development, if 20 percent of the units are set aside for affordable
housing for low- or moderate-income individuals.\263\
---------------------------------------------------------------------------
\261\ See id.
\262\ See id.
\263\ See id.
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed to define the standards for determining
whether a community development activity has a ``primary purpose'' of
community development to clarify eligibility criteria for different
community development loans, investments, or services (proposed Sec.
__.13(a)). To this end, proposed Sec. __.13(a)(1) established specific
standards based on the interagency guidance described above \264\ for
eleven categories of community development. These categories were
listed in proposed Sec. __.13(a)(2) and described in detail in
proposed Sec. __.13(b) through (l). With the proposed categories, the
agencies intended to reflect an emphasis on activities that are
responsive to community needs, especially the needs of low- and
moderate-income individuals and communities and small businesses and
small farms.
---------------------------------------------------------------------------
\264\ See id.
---------------------------------------------------------------------------
Specifically, proposed Sec. __.13(a) stated that ``[a] bank may
receive community development consideration for a loan, investment, or
service that has a primary purpose of community development.'' The
agencies proposed several ways in which an activity could be determined
to have a primary purpose of community development.\265\ First, under
proposed Sec. __.13(a)(1)(i), if a majority of the dollars, applicable
beneficiaries, or housing units of the activity were identifiable to
one or more of the community development purposes listed in proposed
Sec. __.13(a)(2), then the activity would meet the requisite primary
purpose standard and would receive full CRA credit.
---------------------------------------------------------------------------
\265\ See proposed Sec. __.13(a)(1).
---------------------------------------------------------------------------
Second, and alternatively, under proposed Sec. __.13(a)(1)(i)(A),
where an activity supported rental housing purchased, developed,
financed, rehabilitated, improved, or preserved in conjunction with a
Federal, State, local, or tribal government (see proposed Sec.
__.13(b)(1)), and fewer than 50 percent of the housing units supported
by that activity were affordable, the activity would be considered to
have a primary purpose of community development only in proportion to
the percentage of total housing units in the development that were
affordable.
Third, under proposed Sec. __.13(a)(1)(i)(B), where an activity
involved low-income housing tax credits to support affordable housing
under proposed Sec. __.13(b), the activity would be considered to have
a primary purpose of community development for the full value of the
investment, even if fewer than 50 percent of the housing units
supported by that activity were affordable.
Finally, under proposed Sec. __.13(a)(1)(ii), a loan, investment,
or service would be considered to have a primary purpose of community
development if the express bona fide intent of the activity was one or
more of the proposed community development purposes and the activity
was specifically structured to achieve, or was reasonably certain to
accomplish, the community development purpose.
Pro rata consideration for other community development activities.
Although the proposal did not specify any other application of partial
credit, the agencies sought feedback on whether such consideration
would be appropriate for other community development activities (for
example, financing broadband infrastructure, health care facilities, or
other essential infrastructure and community facilities). If so, the
agencies also sought feedback on whether the activity should be
eligible for partial consideration only if a minimum percentage of the
[[Page 6631]]
community development purpose it supported served low- or moderate-
income individuals or census tracts or small businesses and small
farms, such as 25 percent. Further, if partial consideration were
provided for certain types of community development activities, the
agencies sought feedback on whether to require a minimum percentage
standard greater than 51 percent to receive full consideration--such as
a threshold between 60 and 90 percent.
Comments Received
The agencies received several comments generally supporting the
proposed standard for determining whether an activity has a ``primary
purpose'' of community development. For example, one commenter offered
the general comment that it found the proposed clarifications to the
primary purpose standard to be helpful and clear. As discussed in this
section, many comments focused on the specific components of the
proposed primary purpose standard and provided responses to the
questions on which the agencies requested feedback.
A majority of dollars, applicable beneficiaries or housing units
are identifiable to one or more of the community development categories
(proposed Sec. __.13(a)(1)(i)). Many commenters supported the
agencies' proposal to determine that an activity has a primary purpose
of community development if a majority of dollars, applicable
beneficiaries or housing units of the activity are identifiable to one
or more community development purposes set out in proposed Sec.
__.13(a)(2). A few commenters supported this aspect of the proposal
without changes, while others asserted that CRA credit generally should
not be granted unless the majority of beneficiaries are low- or
moderate-income people and communities, or people and communities of
color and indigenous people and communities.
The express, bona fide intent of the activity is one or more of the
community development categories and the activity is specifically
structured to achieve, or is reasonably certain to accomplish, the
community development purpose (proposed Sec. __.13(a)(1)(ii)). A few
commenters expressed concern with the agencies' proposal to determine
that an activity has a primary purpose of community development if the
express, bona fide intent of the activity is one or more of the
community development categories or the activity is specifically
structured to achieve, or is reasonably certain to accomplish, the
community development purpose. One of these commenters suggested that
this could lead to abuses where only a small percentage of dollars are
dedicated to community development. To mitigate this potential problem,
the commenter suggested eliminating this basis for determining whether
an activity has a primary purpose of community development or,
alternatively, pairing this consideration with a minimum threshold for
the percentage of the activity that corresponds with community
development, such as 40 percent, below which no consideration would be
available.
Another commenter asserted that the agencies should revise this
prong to retain only the proposed language regarding whether ``[t]he
express, bona fide intent of the activity is one or more of the
community development purposes.'' This commenter stated that that
language regarding the activity being ``specifically structured to
achieve'' the community development purpose was redundant in light of
the ``intent'' requirement. The commenter further expressed the view
that determining whether an activity is ``reasonably certain to
accomplish'' a community development purpose would result in bank and
examiner speculation regarding the results of an activity. According to
this commenter, the resulting uncertainty of both the ``specifically
structured to achieve'' and ``reasonably certain to accomplish''
components of this proposed standard could be confusing and discourage
innovative community development activities.
Affordable housing-related provisions (proposed Sec.
__.13(a)(1)(i)(A) and (B)). Many commenters addressed the two proposed
clarifications to the primary purpose standard for affordable rental
housing. As described above, these included: (1) a provision allowing
for pro rata consideration of activities in conjunction with a Federal,
State, local, or tribal government plan, program, initiative, tax
credit, or subsidy, when fewer than 50 percent of housing units
supported by the activity are affordable (proposed Sec.
__.13(a)(1)(i)(A)); and (2) a provision allowing for full consideration
of any affordable housing activity involving low-income housing tax
credits (proposed Sec. __.13(a)(1)(i)(B)).
Subsidized affordable rental housing (proposed Sec.
__.13(a)(1)(i)(A)). Many commenters supported providing pro rata
consideration for affordable rental housing activities based on the
percentage of housing units that are affordable. Several commenters
supporting pro rata consideration for affordable housing cited the
benefits of mixed-income housing for sustaining needed services and
amenities in low- and moderate-income communities and for low- and
moderate-income residents, as well as for promoting economic stability
for low- and moderate-income individuals and communities. A commenter
also noted that in rural areas, mixed-income housing is needed to
accommodate projects of a sufficient scale to achieve development and
operating efficiencies.
Some commenters expressed the view that the pro rata consideration
proposal was too narrow. In this regard, commenter suggestions included
changes to the proposal to enhance incentives for investments and loans
in affordable housing, e.g., that the agencies should afford full
credit for subsidized affordable housing if 20 percent of the units
were affordable, a level some commenters stated would align with the
eligibility thresholds of certain other Federal affordable housing
programs. A few commenters noted, however that, when less than 20
percent of the units are affordable, affordability may be incidental to
the project and immaterial to financing. Commenter feedback also
included the view that properties developed without government funding
should receive pro rata consideration if the percentage of units
affordable to low- or moderate-income households were 50 percent or
lower, and full consideration if the percentage of units affordable to
low- or moderate-income households were greater than 50 percent.
A few commenters conveyed that the proposal for pro rata
consideration was too broad. In this regard, for example, a commenter
expressed concern that the proposal could lead to providing CRA
consideration for projects that do not preserve long-term affordability
for low- or moderate-income individuals. Instead, the commenter stated
that pro rata consideration should be limited to affordable housing
projects that are: (1) owned by mission-driven affordable housing
nonprofit organizations or public entities; (2) restricted to remain
affordable at the lesser of 80 percent of area median income or HUD's
Small Area Fair Market Rent; \266\ and (3) subject to compliance
monitoring by a public entity. One commenter urged caution with pro
rata consideration for affordable housing, stating that displacement
pressure associated with new market rate housing in a low- and
moderate-income community could
[[Page 6632]]
offset the benefit of providing the additional affordable units.
Another commenter suggested that banks should not receive credit for
affordable housing lending if the percentage of affordable units falls
meets only the minimum required under a local inclusionary ordinance.
---------------------------------------------------------------------------
\266\ See, HUD, Office of Policy Development and Research,
``Small Area Fair Market Rents,'' https://www.huduser.gov/portal/datasets/fmr/smallarea/.
---------------------------------------------------------------------------
LIHTCs (proposed Sec. __.13(a)(1)(i)(B)). Many of the commenters
addressing the affordable housing component of the primary purpose
standard strongly supported the proposal to provide full consideration
for activities that involve LIHTCs to support affordable housing. A few
commenters referenced the important role that LIHTC-financed projects
have in addressing the need for affordable housing and noted that the
LIHTC program drives most privately financed construction and
rehabilitation of affordable housing. Other commenters asserted that
the statutory and regulatory restrictions of the LIHTC program ensured
that these activities were in the interest of public welfare.
Several commenters, however, suggested changes to this component.
Some commenters stated that banks should receive full consideration for
investments in mixed-income LIHTC projects, noting that the tax credits
for investments under the LIHTC program is already prorated based on
the percentage of units that are affordable. However, these commenters
urged that lending to these projects should be prorated, asserting that
lending to mixed-income LIHTC projects could include significant
financing for market-rate housing, and expressed the view that banks
should not get community development credit for this portion.
Several commenters suggested that full consideration for affordable
housing projects should apply more broadly to include other types of
affordable housing, in addition to LIHTC projects. A few commenters
recommended that full consideration be given for investments through
nonprofit organizations with a mission or primary purpose of providing
affordable housing, regardless of the purpose of the underlying
collateral. One of these commenters asserted that bank investments
supporting affordable housing projects through community-based
development organizations (CBDOs) with a history of serving the needs
of low- and moderate-income people and communities should also receive
full consideration. This commenter maintained that full consideration
for these projects would be warranted regardless of the income levels
targeted by the project because CBDOs have the ``mission and
experience'' to consider community mixed-income housing needs. Another
commenter questioned why full consideration would not also be extended
to all affordable housing developed with Federal housing subsidies,
such as HUD's HOME Investment Partnerships Program (HOME) or project-
based section 8 rental assistance.
Pro rata consideration for other community development categories.
As noted previously, the agencies sought commenter perspectives on
whether a partial consideration framework should be extended to some,
or all, community development categories, in addition to affordable
rental housing. Some commenters supported limiting partial
consideration to only affordable housing. These commenters noted
several common reasons for this, including the documented benefits of
mixed-income housing for low- and moderate-income individuals and
communities; the additional financing challenges for affordable housing
compared to other types of projects; and the concern that expanding
partial consideration beyond housing could divert limited resources
away from projects that target low- and moderate-income individuals or
communities. One commenter stated that approximately one-third of the
national population is low- and moderate-income, so many activities
could receive approximately that amount of credit if pro rata
consideration were based on the population of low- and moderate-income
individuals, without specifically targeting this population. This
commenter asserted that any percentage of low- and moderate-income
beneficiaries set for pro rata consideration would have therefore have
to be substantially higher than the share of the low- and moderate-
income population to demonstrate that the activity had the actual
intent of serving that population, at which point the level would
approach the existing 50 percent threshold. Thus, the commenter
believed that there is little to be gained and much to be lost in
offering partial consideration outside of affordable housing
activities, where income mixing is often part of an intentional
strategy or necessary condition for creating new affordable homes.
Other commenters supported allowing partial credit for certain
types of larger-scale community development projects that might benefit
low- or moderate-income individuals and communities. In general, these
commenters noted that some projects might not be limited to a specific
geographic area and would still benefit low- and moderate-income people
and communities within the area affected. One commenter suggested that
providing pro rata credit for a wider range of community development
activities would acknowledge the complexities of delivering services to
a large geographic area and could incentivize more financing in
economically struggling or rural areas.
The community development activity most often cited by commenters
urging more extensive partial consideration was expanding access to
broadband, with commenters noting the critical need for these services
that are lacking in many rural and low- and moderate-income
communities. Examples of other community development activities
referenced by commenters for partial credit included: (1)
infrastructure and community facilities; (2) projects that increase
access to transportation, health care or renewable energy; or (3)
projects that help to revitalize vacant and abandoned land or
buildings. One commenter expressed general opposition to partial
consideration but conveyed support for exceptions for projects in rural
areas, using access to broadband as an example.
Several commenters suggested that, if partial consideration is
provided, certain guardrails should be in place to ensure that low- or
moderate-income individuals and communities benefit. One commenter
stated that partial consideration should be allowed only for activities
that specifically target low- and moderate-income areas, and that
merely benefiting these areas was not sufficient. A few commenters
similarly expressed concerns about granting partial credit for
activities that support community development but do not intentionally
target benefits to low- and moderate-income people and communities;
specifically they recommended that, for activities supporting community
facilities and essential infrastructure to qualify for partial credit,
the primary beneficiaries of the project should be low- and moderate-
income persons or residents of low- and moderate-income communities.
Another commenter supported partial credit for infrastructure projects
that benefit ``rural and other socially disadvantaged communities,''
citing as an example the educational benefits to low- and moderate-
income populations afforded by access to broadband. However, this
commenter stated that no credit should be given to projects that would
happen even without the incentive of CRA credit and that do not have a
demonstrable benefit for low- or moderate-income communities. This
[[Page 6633]]
commenter further recommended that partial CRA credit be given in
proportion with the demonstrated impact on low- and moderate-income
communities, suggesting that this might be based on the income levels
of the census tracts a project spans. Finally, a commenter suggested
that partial consideration could be warranted for community development
activities other than support for affordable housing, as communities
might have other community development needs but recommended, however,
that the community development activities, among other criteria: (1)
``significantly improve'' factors impacting the health of residents in
low- and moderate-income communities; (2) be undertaken with a U.S.
Treasury-certified CDFI; (3) be widely supported by the community; and
(4) ``contribute directly'' to a range of potential community benefits.
Numerous other commenters favored expansion of partial
consideration for all community development categories. Several
commenters asserted that partial consideration would encourage banks to
expand the geographic reach of their community development activities
and encourage more community development activity that benefits low-
and moderate-income individuals and communities. One commenter
expressed the view that extending partial consideration to all
community development categories would not dilute community development
resources for low- or moderate-income communities and asserted that
partial credit could incentivize more large-scale projects addressing
infrastructure needs beyond affordable housing. Another commenter added
that a partial credit framework would appropriately account for the
complexities that can be associated with bringing services to
geographically dispersed populations. Similarly, several commenters
stated that partial consideration of community development activities
would be particularly beneficial in rural areas, where the population
is more widely dispersed and there are fewer low- or moderate-income
tracts and individuals. One commenter expressed support for partial
consideration for all community development activities but indicated
that the ``majority'' standard for primary purpose should also be
retained,\267\ since some banks might not have the capacity to document
partial consideration levels with more specificity.
---------------------------------------------------------------------------
\267\ See proposed Sec. __.13(a)(1)(i). See also Q&A Sec.
__.12(h)-8.
---------------------------------------------------------------------------
Threshold for partial consideration. Many commenters who supported
partial consideration for activities in some or all community
development categories also thought that a minimum threshold for the
percentage of the activity that serves low- or moderate-income
individuals and geographic areas or small businesses and small farms
should apply for a bank to be eligible to receive partial consideration
for the activity. Numerous commenters suggested a minimum threshold
ranging from 10 percent to over 50 percent for partial consideration
eligibility, with a minimum of 25 percent being the threshold most
frequently suggested. For example, a commenter suggested that a
threshold of 10 percent would be appropriate, allowing for projects
with complex development and construction markets, including higher-
income markets.
A number of commenters asserted that no minimum threshold should be
required for partial consideration eligibility, as long as some benefit
of the activity to low- or moderate-income individuals or communities
or small businesses or small farms could be documented. For example, a
commenter stated that excluding loans or investments that do not meet a
50 percent threshold presents an incomplete picture of a bank's overall
community development activities. This commenter further asserted that
a pro rata framework for all community development activities would
further the CRA goals of expanding lending and investment in low- and
moderate-income communities because all of a bank's community
development efforts would count.
Finally, regarding when full consideration of an activity should be
given, some commenters expressed the view that, for an activity to
receive full credit, the percentage of benefits to low- or moderate-
income individuals or communities or small businesses and small farms
should be higher than 51 percent (see discussion of comments on the
``majority'' standard above). The thresholds suggested by these
commenters ranged from 60 percent to 80 percent for full consideration.
For example, one commenter recommended a 75 percent threshold and
cautioned against activities that do not in fact serve communities but
sustain poverty over the long term, such as, among other examples,
infrastructure projects that cause affordable housing losses. This
commenter also urged the agencies to consider a standard based on
whether the activity is supported or requested by the community itself.
Another commenter suggested that a 60 percent threshold would strike an
appropriate balance between incentivizing a focus on low- and moderate-
income needs and allowing for a range of projects that could benefit a
wider range of residents, such as in a mixed-income community.
Final Rule
The agencies are finalizing the proposal to clarify eligibility
criteria for different community development activities, with several
changes and restructuring. The agencies carefully considered comments
received regarding standards for determining whether an activity has
the primary purpose of a community development. Based on the agencies'
review of the comments and supervisory experience, the agencies
concluded that ``primary purpose'' does not accurately describe when a
bank will receive full or partial credit and resulted in some confusion
in this regard. Thus, under the final rule, the agencies are modifying
the proposal that focused on a primary purpose standard by adopting
specific standards for full and partial consideration of community
development activities, to clarify when activities will receive such
consideration. To streamline the regulation, the agencies are
eliminating the list of community development categories in proposed
Sec. __.13(a)(2) and instead adding new language in final Sec.
__.13(a) that a bank may receive community development consideration
for a loan, investment, or service that supports one of eleven
categories of community development described in final Sec. __.13(b)
through (l), as outlined above. The agencies also reorganized proposed
Sec. __.13(a) into two distinct sections: final Sec. __.13(a)(1),
which details the circumstances in which a bank receives full credit;
and final Sec. __.13(a)(2), which details the circumstances in which a
bank receives partial credit for a community development loan,
investment, or service.
Also as noted above, the agencies are replacing ``primary purpose''
terminology and setting forth a framework consistent with the current
and proposed primary purpose standard, but delineated for each category
of community development to convey more clearly and transparently the
parameters for community development loans, investments, and services
to receive full or partial credit, as discussed in more detail below in
the section-by-section analysis of final Sec. __.13(a)(1) and (2).
Overall, the agencies believe that the final rule provides
meaningful clarification of the standards for consideration of
community development loans, investments, and services, in response to
comments and
[[Page 6634]]
on further deliberation by the agencies. The section-by-section
analysis below provides additional detail.
Section __.13(a)(1) Full credit
The agencies are adopting final Sec. __.13(a)(1) to identify four
circumstances under which a bank will receive credit for the entire
community development loan, investment, or service. More specifically,
banks will receive full credit for these types of activities if they:
Meet the majority standard in Sec. __.13(a)(1)(i);
Meet the bona fide intent standard in Sec.
__.13(a)(1)(ii);
Involve an MDI, WDI, LICU, or CDFI as provided in Sec.
__.13(a)(1)(iii); or
Involve LIHTCs as provided in Sec. __.13(a)(1)(iv).
The agencies intend with this reorganization to address comments
seeking clarification about standards for community development
consideration. By categorizing and clarifying the types of community
development activities that receive full credit, the agencies are
emphasizing activities that are responsive to community needs.
Section __.13(a)(1)(i) Majority Standard
Similar to proposed Sec. __.13(a)(1)(i), the agencies are
finalizing a majority standard with additional criteria that more
specifically address how the standard is applied with respect to each
of the community development categories. Final Sec. __.13(a)(1)(i)(A),
states that any loan, investment, or service must support community
development under one or more of the categories outlined in final Sec.
__.13(b) through (l). Further, final Sec. __.13(a)(1)(i)(B) provides
that the loan, investment, or service must meet one or more of the
other criteria established under the majority standard that correspond
to each of the community development purposes. Specifically, under
Sec. __.13(a)(1)(i)(B)(1), for a community development loan,
investment or service that supports any of the categories of affordable
housing under final Sec. __.13(b)(1) through (3) to meet the majority
standard, the majority of the housing units supported by the bank's
loan, investment or service must be affordable to low- or moderate-
income individuals. The agencies believe that, for these categories of
community development, the housing unit standard for measuring whether
the majority standard is met (or the appropriate proportion of partial
credit) is objective and consistent with the impact that the project
will have on the community. Regarding other categories of community
development, final Sec. __.13(a)(1)(i)(B)(2) through (6) provide that
a loan, investment, or service meets the majority standard if the
majority of beneficiaries are, or the majority of dollars benefit or
serve, the following:
Low- and moderate-income individuals, with respect to
affordable housing and community supportive services pursuant to final
Sec. __.13(b)(4) and (5) and (d), respectively; \268\
---------------------------------------------------------------------------
\268\ See final Sec. __.13(a)(1)(i)(B)(2).
---------------------------------------------------------------------------
Small businesses and small farms, with respect to economic
development pursuant to final Sec. __.13(c); \269\
---------------------------------------------------------------------------
\269\ See final Sec. __.13(a)(1)(i)(B)(3).
---------------------------------------------------------------------------
Residents of targeted census tracts, with respect to
revitalization or stabilization, essential community facilities,
essential community infrastructure, and disaster preparedness and
weather resiliency pursuant to final Sec. __.13(e) through (g) and
(i); \270\
---------------------------------------------------------------------------
\270\ See final Sec. __.13(a)(1)(i)(B)(4).
---------------------------------------------------------------------------
Residents of designated disaster areas with respect to
recovery of designated disaster areas pursuant to final Sec. __.13(h);
\271\
---------------------------------------------------------------------------
\271\ See final Sec. __.13(a)(1)(i)(B)(5).
---------------------------------------------------------------------------
Residents of Native Land Areas, with respect to
revitalization or stabilization, essential community facilities,
essential community infrastructure, and disaster preparedness and
weather resiliency in Native Land Areas pursuant to final Sec.
__.13(j).\272\
---------------------------------------------------------------------------
\272\ See final Sec. __.13(a)(1)(i)(B)(6).
---------------------------------------------------------------------------
Lastly, final Sec. __.13(a)(1)(i)(B)(7) provides that loans,
investments, and services supporting community development under final
Sec. __.13(b)(l) meet the majority standard if they primarily support
financial literacy.
The agencies considered comments that suggested establishing a
threshold greater than a majority (i.e., over 50 percent) (ranging from
60 to 80 percent) to receive full credit for a community development
activity. However, the agencies believe that the majority standard,
which has a longstanding history in the current rule, appropriately
identifies those activities that primarily have a community development
purpose, while acknowledging that many important community development
initiatives and projects are not solely dedicated to the community
development purposes in final Sec. __.13(b) through (l).
While a few commenters suggested that the majority standard should
be applied to beneficiaries that are racial and ethnic minorities in
addition to those elements that were identified in the proposal, the
agencies did not add these beneficiaries to the majority standard,
although the agencies expect that the clarified majority standard will
better facilitate banks meeting the community development needs of
their entire communities. For more information and discussion regarding
the agencies' consideration of comments recommending adoption of
additional race- and ethnicity-related provisions in this final rule,
see section III.C of this SUPPLEMENTARY INFORMATION.
Section __.13(a)(1)(ii) Bona Fide Intent Standard
Consistent with proposed Sec. __.13(a)(l)(ii), the agencies are
adopting final Sec. __.13(a)(l)(ii), with restructuring and a
technical change from the proposal. The final rule confirms loans,
investments, and services that meet the bona fide intent standard
receive full community development credit. A loan, investment, or
service meets the bona fide intent standard if:
The housing units, beneficiaries, or proportion of dollars
necessary to meet the majority standard are not reasonably
quantifiable; \273\
---------------------------------------------------------------------------
\273\ See final Sec. __.13(a)(1)(ii)(A).
---------------------------------------------------------------------------
The loan, investment, or service has the express, bona
fide intent of one or more of the community development purposes in
final Sec. __.13(b) through (l); \274\ and
---------------------------------------------------------------------------
\274\ See final Sec. __.13(a)(1)(ii)(B).
---------------------------------------------------------------------------
The loan, investment, or service is specifically
structured to achieve one or more of the community development purposes
in final Sec. __.13(b) through (l).\275\
---------------------------------------------------------------------------
\275\ See final Sec. __.13(a)(1)(ii)(C).
---------------------------------------------------------------------------
In addition to reorganizing final Sec. __.13(a)(l)(ii) from the
proposal for clarity and to confirm that a bank may receive full credit
for meeting the bona fide intent standard, the agencies are clarifying
that the bona fide intent standard applies when the ``housing units,
beneficiaries, or proportion of dollars necessary to meet the majority
standard are not reasonably quantifiable.'' For example, this standard
could be appropriate when considering a loan to an organization that
has a bona fide intent of serving low- or moderate-income individuals
but does not track data on the income of every individual served, such
that demonstrating an activity meets the majority standard would be
highly challenging. Additionally, the agencies removed the language in
the proposal that the activity must also be
[[Page 6635]]
``reasonably certain to accomplish'' a community development purpose.
The agencies appreciated the commenter concern that the ``reasonably
certain to accomplish'' criterion could produce uncertainty and
inconsistency in application, based on conjectures regarding the
outcomes of the activity. However, the agencies are retaining the
criterion that an activity must be ``specifically structured to
achieve'' a community development purpose, which the agencies believe
helps to ensure that any activities that do not meet the majority
standard appropriately receive consideration under the bona fide intent
standard, as an activity focused on a community development purpose.
The agencies also considered the commenter suggestion that the bona
fide intent standard should be removed from the final rule, but based
on supervisory experience, believe that this would eliminate from
consideration numerous beneficial initiatives that have a community
development purpose, but do not meet the majority standard in final
Sec. __.13(a)(l)(i). Further, the agencies believe the three required
criteria for the bona fide intent standard will help to eliminate any
potential abuse in the application of this standard. With the revisions
to the language regarding the bona fide intent standard, the agencies
believe that the standard is a balanced approach to encouraging
community development activities, while eliminating from consideration
any activities that are not predominantly focused on a community
development purpose.
Section __.13(a)(1)(iii) Community Development Related to MDIs, WDIs,
LICUs, and CDFIs
As the proposal did not specifically address how the primary
purpose consideration would be applied with respect to a loan,
investment, or service to an MDI, WDI, LICU, or CDFI that supports
community development under proposed Sec. __.13(a)(2)(ix) and (j), the
agencies added and are finalizing Sec. __.13(a)(l)(iii) to clarify
that activities conducted in conjunction with these four types of
entities are eligible for full credit. As discussed in more detail in
the section-by-section analysis of final Sec. __.13(k), community
development under final Sec. __.13(k) (renumbered from proposed Sec.
__.13(j)) differs somewhat from the other types of community
development under final Sec. __.13(b) through (j) and (l) in that the
credit a bank receives is based exclusively on the entity to which the
bank is providing the loan, investment, or service, rather than looking
at a measurable benefit using the corresponding dollars, beneficiaries,
or housing units associated with the activity. The provision of full
credit to these types of activities is also consistent with how the
agencies currently consider loans, investments, and services that
support MDIs, WDIs, and LICUs.\276\
---------------------------------------------------------------------------
\276\ See current Sec. __.21(f) and Q&A Sec. __.21(f)-1.
---------------------------------------------------------------------------
Section __.13(a)(1)(iv) Community Development Related to LIHTC-Financed
Projects
The agencies are adopting proposed Sec. __.13(a)(1)(i)(B),
renumbered as final Sec. __.13(a)(1)(iv), with certain revisions for
clarity. This provision clarifies the agencies' intent, consistent with
the current CRA framework, that a loan, investment or service involving
a project financed by LIHTCs under final Sec. __.13(b)(1) will receive
full community development credit. Under proposed Sec.
__.13(a)(1)(i)(B), full consideration was limited to only investments
in projects financed by LIHTCs. Many commenters supported providing
full community development credit for all activities that involve
LIHTCs to finance affordable housing. Therefore, in response to these
commenters and considering past supervisory practice, the agencies
adopted final Sec. __.13(a)(1)(iv), to state that a loan, investment
or service involving LIHTCs to finance the development of affordable
housing under final Sec. __.13(b)(1) will receive full community
development credit.
The agencies considered commenter concerns that lending to mixed
income housing projects that include units financed by LIHTCs could
also include financing for market-rate housing that does not benefit or
serve low- and moderate-income individuals. However, the agencies
determined that granting full credit for these loans under Sec.
__.13(a)(1)(iv) is appropriate for ensuring certainty regarding
existing approaches to financing LIHTC projects, as full credit for
these loans is consistent with current guidance.\277\ The agencies also
considered that projects developed with LIHTCs have the expressed
intent of providing affordable housing, regardless of the percentage of
affordable units that are supported, and believe that providing credit
for LIHTC-related lending aligns with the statutory purpose of
encouraging banks to meet the credit needs of their communities,
including low- and moderate-income populations.\278\
---------------------------------------------------------------------------
\277\ See Q&A Sec. __.12(t)-4.
\278\ For further discussion of final rule provisions regarding
LIHTCs, see the section-by-section analysis of Sec. __.15(b)(10)
(impact and responsiveness review factor for investments in LIHTC).
---------------------------------------------------------------------------
The agencies also considered comments suggesting that full credit
for loans, investments, or services should be extended to all
affordable housing developed with Federal housing subsidies or to all
affordable housing projects developed through CBDOs with a history of
serving low- and moderate-income populations. The agencies recognize
the importance of all Federal housing programs in financing affordable
housing and the important role that CBDOs play in developing affordable
housing. However, on further review of these suggestions, the agencies
have determined that loans, investments, and services for projects
financed by Federal housing subsidies or developed by CBDOs should not
automatically receive full consideration because the scope and target
of these subsidies and projects may vary greatly. While the agencies
believe that most of the affordable housing projects developed in
conjunction with Federal subsidies and CBDOs will likely warrant
consideration as a community development activity, the agencies believe
that they should be considered individually, and not universally
provided full credit; rather, given the wide variety of subsidies and
projects, the corresponding loans, investments, and services will be
more appropriately considered under the full or partial credit criteria
in final Sec. __.13(a)(1) and (2), as applicable to these types of
projects.
Section __.13(a)(2) Partial Credit
Partial consideration for affordable housing. A second category
implemented as part of the restructuring reflected in final Sec.
__.13(a) includes loans, investments, and services that will receive
partial credit. The agencies are adopting proposed Sec.
__.13(a)(l)(i)(A), renumbered as final Sec. __.13(a)(2), and reworded
for clarity. Final Sec. __.13(a)(2) memorializes current interagency
guidance related to the provision of mixed-income housing with an
affordable housing set-aside required by a Federal, State, or local
government.\279\ Under this construct, a bank will receive partial
credit for any loan, investment, or service that supports affordable
housing under final Sec. __.13(b)(1) and does not meet the majority
standard under final Sec. __.13(a)(1)(i). This partial credit will
[[Page 6636]]
be calculated in proportion to the percentage of total housing units in
any development that are affordable to low- or moderate-income
individuals. For example, if a bank makes a $10 million loan to finance
a mixed-income housing development in which 10 percent of the units
will be set aside as affordable housing for low- and moderate-income
individuals according to a local government set-aside requirement, the
bank may elect to treat $1 million of such loan as a community
development loan. This provision will provide flexibility for banks to
engage in affordable housing even if rental housing purchased,
developed, financed, rehabilitated, improved, or preserved in
conjunction with a Federal, State, local, or tribal government
affordable housing plan, program, initiative, tax credit, or subsidy
does not include a majority of housing units that are affordable to
low- or moderate-income individuals.
---------------------------------------------------------------------------
\279\ See Q&A Sec. __.12(h)-8.
---------------------------------------------------------------------------
The final rule is intended to be responsive to the numerous
commenters that supported the proposal to provide pro rata
consideration for affordable rental housing based on the percentage of
housing units that are affordable. While commenter suggestions included
that banks receive full credit for subsidized affordable housing that
represented at least 20 percent of the bank's financing, the agencies
believe that such treatment could inappropriately dilute the
consideration of community development loans and investments by
providing significant amounts of credit for housing that is not
affordable to low- and moderate-income people. The agencies have also
decided not to provide partial credit to loans or investments in
affordable housing projects that are developed without government
support if less than 50 percent of the units are affordable. This type
of affordable housing may not have protections to preserve the housing
as affordable to low- and moderate-income individuals during the term
of the loan or investment, which are typical of government-supported
affordable housing.
As mentioned previously, the agencies considered comments
suggesting that partial credit for affordable housing was too broad and
should be limited to provide partial credit only for those projects
that maintain at least 20 percent of the units as affordable. However,
the agencies do not believe that such a limitation is necessary. The
final rule restricts partial consideration to only rental housing in
conjunction with a government affordable housing plan, program,
initiative, tax credit, or subsidy pursuant to Sec. __.13(b)(1), which
will help ensure that there is an intent of providing affordable
housing and will limit the consideration of housing units that may be
incidental. The agencies believe it is appropriate to defer to the
Federal, State, local, or tribal government to set minimum standards
for participating in affordable housing programs, plans, initiatives,
tax credits, or subsidies that are responsive to their respective
communities.
The agencies also contemplated the suggestion that banks should not
receive credit for lending for affordable housing if the housing is
associated with a local inclusionary zoning ordinance and provides only
the minimum amount of affordable housing required. While the agencies
acknowledge the compulsory nature of these ordinances and concerns with
providing community development credit for loans and investments that
support this housing, the agencies believe that affordable housing
associated with inclusionary zoning should be included. The agencies
recognize that inclusionary zoning represents an important tool
utilized by local jurisdictions to create and preserve affordable
housing for low- and moderate-income individuals, especially in higher-
income areas. In addition, under the final rule, if affordable housing
provided through these programs does not meet the majority standard,
the credit afforded to a bank is limited to only the percentage of
units that are considered affordable.
Partial consideration for other community development categories.
As discussed above, the agencies received a wide range of comments in
response to the request for feedback on whether partial credit should
be extended to some, or all, community development categories, in
addition to affordable housing. After consideration of these comments,
the agencies are adopting final Sec. __.13(a)(2) without extending
partial credit to other categories of community development. The
agencies share commenter concerns that expanding partial consideration
beyond mixed-income rental housing could divert limited community
development resources away from the projects that target low- or
moderate-income people and communities, as well as small businesses and
small farms. To this end, the agencies are not adopting suggestions
that the final rule provide partial credit for certain larger-scale
community development projects that have the potential to impact low-
or moderate-income individuals and communities but are not primarily
targeted to these populations. Unless these projects are associated
with LIHTCs or are conducted with MDIs, WDIs, LICUs, or CDFIs, the
agencies believe that these projects should receive credit only when
they meet the majority or bona fide intent standards. The full and
partial credit criteria in Sec. __.13(a) serve as sufficient
guardrails to ensure that low- or moderate-income individuals and
communities, as well as other underserved segments of the community
identified in community development categories in Sec. __.13(b)
through (l), benefit.
The agencies also considered feedback from some commenters that
supported some degree of expansion of the partial credit standard with
certain qualifications, limitations, and additional criteria. However,
the agencies determined that the consistent and transparent application
of an expansion with these qualifications would be untenable, such as
limiting partial credit to projects that would only happen without CRA
recognition or that are widely supported by the community. The agencies
also considered suggestions to allow partial consideration with a
minimum threshold for the percentage (ranging from 10 to 50 percent and
most often cited as 25 percent) of the activity that served low- or
moderate-income individuals and geographic areas, small businesses, and
small farms. The agencies carefully considered the many varying views
on extending a partial credit framework to other community development
categories, and the suggested thresholds for doing so. On balance, the
agencies believe that applying the majority and bona fide intent
standards to other categories of community development affords the
consistency and clarity that can foster a predictable and transparent
framework for bank partnerships and engagement in community development
within the communities they serve. For the reasons discussed above, the
agencies believe that government-related mixed-income affordable
housing is distinguishable from other types of community development in
ways that make a partial credit framework appropriate for facilitating
bank involvement in these projects, consistent with government
assessments of the affordable housing needs of their communities.
Further, the agencies note that banks will receive full credit for any
loan, investment, or service that is not entirely dedicated to a
community development purpose, as long as it meets the majority or bona
fide intent standard pursuant to Sec. __.13(a)(1).
As mentioned previously, several commenters suggested the expansion
of partial credit consideration for
[[Page 6637]]
broadband, noting that the need for this infrastructure is particularly
critical in many rural and low- and moderate-income communities. The
agencies have considered these comments but determined that outside of
affordable housing, it is difficult to single out unique treatment for
specific activities. Therefore, the agencies have decided to retain the
final rule as proposed, and all activities beyond affordable housing
will have to meet the majority or bona fide intent standard pursuant to
pursuant to Sec. __.13(a)(1). The agencies recognize that a need for
broadband exists in rural and low- or moderate-income communities and
seek to address this need under Sec. __.13(g), the community
development category for essential community infrastructure, which
allows consideration for infrastructure activities, including those
expanding broadband access, that benefit or serve targeted census
tracts (which includes low-income, moderate-income, or distressed or
underserved middle-income nonmetropolitan tracts) and meets other
specified criteria. For further discussion, including additional
comments on broadband access and other types of essential community
infrastructure, see the section-by-section analysis of Sec. __.13(g).
The agencies intend that consideration for activities under several
community development categories, including revitalization or
stabilization, essential community facilities, essential community
infrastructure, and disaster preparedness and weather resiliency \280\
that benefit or serve residents of targeted census tracts, including
distressed and underserved nonmetropolitan middle-income census tracts,
will help to address commenters' concern that partial credit is
necessary to ensure that the community development needs of rural
areas, which are often more widely dispersed and have fewer low- or
moderate-income tracts and individuals, are met.
---------------------------------------------------------------------------
\280\ See final Sec. __.13(e) through (i).
---------------------------------------------------------------------------
Section __.13(b) Affordable Housing
In proposed Sec. __.13(b), the agencies proposed a definition for
affordable housing that included four components: (1) affordable rental
housing developed in conjunction with Federal, State, local, and tribal
government programs; (2) multifamily rental housing with affordable
rents; (3) activities supporting affordable low- or moderate-income
homeownership; and (4) purchases of mortgage-backed securities that
finance affordable housing. The agencies intended the proposed
definition to clarify the eligibility of affordable housing as well as
to recognize the importance of promoting affordable housing for low- or
moderate-income individuals.\281\ Specifically, the agencies stated
their belief that the proposal would, first, add greater clarity around
the many types of subsidized activities that currently qualify for CRA
consideration.\282\ Second, the agencies sought to provide clear and
consistent criteria in order to qualify affordable low- or moderate-
income multifamily rental housing that does not involve a government
plan, program, initiative, tax credit, or subsidy (also referred to in
the agencies' proposal as ``naturally occurring affordable housing'' or
``affordable multifamily rental housing'').\283\ Third, the agencies
stated their intention to ensure that activities that support
affordable low- and moderate-income homeownership are sustainable and
beneficial to low- or moderate-income individuals and communities.\284\
Finally, the agencies, through the proposal, sought to appropriately
consider qualifying mortgage-backed security investments, so as to
emphasize community development financing activities that are most
responsive to low- or moderate-income community needs.\285\
---------------------------------------------------------------------------
\281\ 87 FR 33884, 33892 (June 3, 2022).
\282\ See id. at 33894.
\283\ See id. at 33895.
\284\ See id. at 33897.
\285\ See id.
---------------------------------------------------------------------------
Comments on the overall structure of the agencies' affordable
housing proposal varied, with some commenters commending the breadth of
housing activities included in the proposal, while others viewed the
proposal as too narrow or rigid, or questioned whether the proposal
would add burden on banks that may constrain banks' capacities to meet
affordable housing needs.
Commenters also provided feedback on specific aspects of the
affordable housing community development category proposal, including
feedback on which affordable housing activities should be required to
meet an agency-determined affordability standard, which affordability
standard or standards the agencies should adopt, and what, if any,
geographical considerations should be factored in when determining
whether affordable housing activities should be eligible for community
development consideration.
For the reasons discussed in this section, the agencies have
adopted an approach to defining the affordable housing category of
community development that aligns closely with the agencies' proposal,
as well as key aspects of current practice and interpretations under
the CRA. Importantly, in response to commenter feedback, the agencies
are adopting modifications to the affordable housing community
development category to ensure that the criteria are sufficiently
flexible to account for a variety of housing models that address
community needs. The final rule adds a component for consideration of
activities that finance one-to-four family rental housing with
affordable rents in nonmetropolitan areas. In addition, the final rule
incorporates revisions designed to clarify the eligibility of rental
housing in conjunction with a government affordable housing program,
initiative, tax credit or subsidy. The final rule also revises and
clarifies the affordability standard for naturally occurring affordable
housing, clarifies the requirements for affordable owner-occupied
housing activity, and revises and clarifies the requirements for
purchases of mortgage-backed securities.
Current Approach
The current CRA regulations define ``community development'' to
include ``affordable housing (including multifamily rental housing) for
low- or moderate-income individuals.'' \286\ The agencies have stated
in the Interagency Questions and Answers that, for housing to be
considered community development, low- or moderate-income individuals
must benefit or be likely to benefit from the housing.\287\ In this
regard, the Interagency Questions and Answers provide that, for
example, consideration for a ``project that exclusively or
predominately houses families that are not low- or moderate-income
simply because the rents or housing prices are set according to a
particular formula'' would not be appropriate.\288\
---------------------------------------------------------------------------
\286\ 12 CFR __.12(g)(1).
\287\ See Q&A Sec. __.12(g)(1)-1.
\288\ See id.
---------------------------------------------------------------------------
Under the current regulation, single-family (i.e., one-to-four
family) home mortgage loans are generally considered as part of the
large bank and small bank lending tests, but may be considered as
community development loans under the community development test for
intermediate small banks that do not report such loans under HMDA (at
the bank's option and if for affordable housing).\289\ Multifamily
affordable
[[Page 6638]]
housing loans may qualify for both retail lending and community
development consideration if those loans also meet the definition of a
``community development loan.'' \290\ Housing that is financed or
supported by a government affordable housing program or a government
subsidy is considered subsidized affordable housing and is generally
viewed as qualifying under affordable housing if the government program
or subsidy has a stated purpose of providing affordable housing to low-
or moderate-income individuals. Multifamily housing with affordable
rents that is not financed or supported by a government affordable
housing program or a government subsidy, is generally considered
unsubsidized affordable housing (and is also referred to in this
SUPPLEMENTARY INFORMATION as naturally occurring affordable housing).
Such housing can qualify as affordable housing under the current
definition of ``community development'' if the rents are affordable to
low- or moderate-income individuals, and if low- or moderate-income
individuals benefit, or are likely to benefit, from this housing.\291\
Current interagency guidance mentions certain information that
examiners may consider in making this determination.\292\
---------------------------------------------------------------------------
\289\ See current 12 CFR __.22(b)(1) (lending test) and __.26
(small bank performance standards). See also Q&A Sec. __.12(h)-2
(consideration of retail loans for small institutions) and Q&A Sec.
__.12(h)-3 (home mortgage loan consideration for intermediate small
banks).
\290\ See Q&A Sec. __.42(b)(2)-2; see also Q&A Sec. __.12(h)-2
and -3 (regarding multifamily loan consideration for intermediate
small banks).
\291\ See Q&A Sec. __.12(g)(1)-1.
\292\ See id. (providing, for example, that for projects where
the income of the occupants cannot be verified, ``examiners will
review factors such as demographic, economic, and market data to
determine the likelihood that the housing will `primarily'
accommodate low- or moderate-income individuals'').
---------------------------------------------------------------------------
Regarding affordability, no specific standard exists under the
current regulatory framework for determining when a property or unit is
considered affordable to low- or moderate-income individuals, for
either multifamily or single-family housing.\293\ One approach used by
some examiners is to calculate an affordable rent based on what a
moderate-income renter could pay if they allocated 30 percent of their
income to rent. Alternatively, some examiners use HUD's Fair Market
Rents as a standard for measuring affordability.\294\
---------------------------------------------------------------------------
\293\ See, e.g., Q&A Sec. __.12(g)(1)-1.
\294\ See HUD, Office of Policy Development and Research, ``Fair
Market Rents,'' https://www.hud.gov/program_offices/public_indian_housing/programs/hcv/landlord/fmr.
---------------------------------------------------------------------------
Purchases of mortgage-backed securities qualify as affordable
housing activity if they demonstrate a primary purpose of community
development.\295\ Specifically, the security must contain a majority of
single-family mortgage loans to low- or moderate-income borrowers, or
of loans financing multifamily affordable housing, to qualify as an
investment with a primary purpose of affordable housing.\296\
---------------------------------------------------------------------------
\295\ See Q&A Sec. __.12(t)-2.
\296\ See id.
---------------------------------------------------------------------------
Overall Affordable Housing Category Structure
The Agencies' Proposal
The NPR stated in proposed Sec. __.13(a)(2)(i) that loans,
investments, or services that ``promote . . . [a]ffordable housing that
benefits low- or moderate-income individuals'' would have the requisite
community development purpose for CRA consideration. This provision
cross-referenced proposed Sec. __.13(b) for greater detail about which
activities qualify as ``affordable housing that benefits low- or
moderate-income individuals.'' To this end, the agencies proposed four
types of activities that would qualify under the affordable housing
category of community development: (1) affordable rental housing
developed in conjunction with Federal, State, local, and tribal
government programs; (2) multifamily rental housing with affordable
rents; (3) activities supporting affordable low- or moderate-income
homeownership; and (4) purchases of mortgage-backed securities that
finance affordable housing.
The agencies sought feedback on what changes, if any, should be
made to ensure that the proposed affordable housing category is clearly
defined and appropriately inclusive of activities that support
affordable housing for low- or moderate-income individuals, including
activities that involve complex or novel solutions such as community
land trusts, shared equity models, and manufactured housing.
Comments Received
Structure of affordable housing category. Many commenters provided
feedback on the overall structure of the proposed affordable housing
category of community development. Several commenters suggested that
the agencies should not distinguish between government-subsidized and
naturally occurring affordable housing. These commenters supported
combining the first and second components of the proposed affordable
housing category into one, with a universally applied affordability
standard. In this regard, some commenters suggested that creating
separate affordable housing standards based on the presence or absence
of government support would be mistaken and urged the agencies to
establish a uniform standard that would apply to all affordable
multifamily housing--other than housing financed with LIHTCs--
regardless of whether it has government support. These commenters
proposed focusing on rent affordability as a percent of area median
income, or the HUD Fair Market Rents standard, and a combination of
other criteria such as: location in low- or moderate-income census
tracts or in census tracts where the median renter is low- or moderate-
income; nonprofit or CDFI ownership or control; documented occupancy by
low- or moderate-income individuals; or an owner commitment to maintain
the affordability of housing units for low- or moderate-income
individuals for at least five years. These commenters also asserted
that the agencies should include a requirement to periodically confirm
the continued affordability of housing activities that receive
community development consideration.
Scope of affordable housing category. Many commenters urged the
agencies to provide additional support for difficult-to-finance housing
projects by narrowing the agencies' proposal. For example, one
commenter expressed the view that, by incorporating a wide variety of
housing models, the proposed affordable housing category could reward
banks that gravitate to easier-to-finance projects, versus projects for
which banks may need further incentives to provide financing. Other
commenters, for example, suggested that the agencies should prioritize
consideration of activities that finance owner-occupied homes over
investor-owned housing, with one of these commenters conveying that the
agencies should evaluate any investor-related lending to determine
whether it helps to build wealth for minority consumers or,
alternatively, displaces them. This commenter also asserted that the
agencies needed to comprehensively analyze banks' multifamily lending
to provide consideration for beneficial activities and to impose
sanctions for adverse behavior, such as financing landlords who are
harassing and displacing tenants. Along those same lines, several
commenters emphasized that the agencies should scrutinize banks'
multifamily lending programs, including those conducted in partnership
with third-party non-bank institutions, for illegal practices. Another
commenter asserted that insufficient regulation of low-income housing
tax credit investments has contributed, nationally, to over-
[[Page 6639]]
concentration and racial and ethnic segregation of low-income housing
tax credit projects in minority communities, and that the agencies
should address this dynamic in the final rule.
A variety of commenters addressed the agencies' request for
feedback on what changes, if any, the agencies should consider to
ensure that the proposed affordable housing category of community
development is clearly and appropriately inclusive of activities that
support affordable housing for low- or moderate-income individuals.
Many commenters requested that the agencies add provisions specific to
community land trusts, shared equity models, land banks, accessory
dwelling units (ADUs), and manufactured housing to the proposed
affordable housing category. In support of this view, a commenter
asserted that adding these housing initiatives would help strengthen
communities and reduce social barriers such as unemployment, lack of
education, and limited transportation. Another commenter recommended
that the agencies specifically include supportive housing that provides
both affordable housing and wrap-around services for people with
complex medical needs. Commenters further requested that the agencies
allow a guidance line of credit, which is a form of credit pre-approval
from a lender, to be eligible for CRA consideration, as this financing
method is used by nonprofit organizations in the affordable housing
space.
Other general comments on affordable housing category. Some
comments touched on affordable housing in conjunction with other
community development activities. Commenter feedback included requests
that the agencies: promote co-development of disaster preparedness and
climate resiliency activities with affordable housing and other
activities to mitigate the risk of displacement; provide more support
specifically for government-subsidized housing; and provide more
quantitative and qualitative consideration of the value of low-income
housing tax credit and NMTC syndications and sponsorship activities.
Final Rule
The agencies are adopting final Sec. __.13(b), which establishes
criteria for consideration of affordable housing activities,
substantially as proposed but with targeted revisions discussed in the
section-by-section analysis that follows. Overall, the agencies are
adopting a final rule that maintains the multi-pronged approach to the
affordable housing category. As part of this, the agencies have decided
to retain in the final rule separate prongs for government-related
programs, including subsidized affordable housing, and naturally
occurring affordable housing. Under this approach, the agencies can
better tailor the standards for each affordable housing prong.
Moreover, for information and discussion regarding the agencies'
consideration of comments recommending adoption of additional race- and
ethnicity-related provisions in this final rule, see section III.C of
this SUPPLEMENTARY INFORMATION.
Section __.13(b)(1) Rental Housing in Conjunction With a Government
Affordable Housing Plan, Program, Initiative, Tax Credit, or Subsidy
The Agencies' Proposal
In proposed Sec. __.13(b)(1), the agencies proposed that a rental
housing unit be considered affordable housing if it is purchased,
developed, financed, rehabilitated, improved, or preserved in
conjunction with a Federal, State, local, or tribal government
affordable housing plan, program, initiative, tax credit, or subsidy
with a stated purpose or the bona fide intent of providing affordable
housing for low- or moderate-income individuals. The agencies intended
this proposed provision to cover a broad range of government-related
affordable multifamily and single-family rental housing activities for
low- or moderate-income individuals, including low-income housing tax
credits.
To qualify under this component of the affordable housing category,
a government-related affordable housing plan, program, initiative, tax
credit, or subsidy would have needed ``a stated purpose or bona fide
intent of supporting affordable rental housing for low- or moderate-
income individuals.'' \297\ The agencies did not propose a separate
affordability standard for this prong and would rely upon the
affordability standards set in each respective government affordable
housing plan or program.
---------------------------------------------------------------------------
\297\ Proposed Sec. __.13(b)(1).
---------------------------------------------------------------------------
The agencies sought feedback on whether additional requirements
should be included to ensure that activities qualifying under this
category of community development support housing that is both
affordable to and occupied by low- or moderate-income individuals. In
this regard, the agencies sought feedback on whether to include in this
component a specific rent affordability standard based on 30 percent of
80 percent of area median income, or a requirement that programs must
verify that occupants of affordable units are low- or moderate-income
individuals or families. The agencies also sought feedback on whether
activities involving government-sponsored programs that have a stated
purpose or bona fide intent to provide affordable housing that serves
middle-income individuals, in addition to low- or moderate-income
individuals, should qualify under this prong in certain circumstances.
For example, the agencies sought feedback on government-sponsored
programs that support housing affordable to middle-income individuals
if the housing is located in nonmetropolitan counties or in high
opportunity areas.\298\
---------------------------------------------------------------------------
\298\ See proposed Sec. __.12.
---------------------------------------------------------------------------
Comments Received
Many commenters offered general views on the proposed standards of
the first component of the affordable housing category. Some commenters
believed the proposed component was overly broad, expressing concerns:
that government programs and tax credits do not always benefit low-
income individuals and people of color and, therefore, the agencies
should reconsider the presumption that any government plan benefits
local communities; that the agencies should address the over-
concentration and racial and ethnic segregation of low-income housing
tax credit projects in minority communities by imposing additional
requirements for low-income housing tax credit investments to be
eligible for community development consideration; that it is not clear
how a plan can require and enforce affordable housing; and that the
component should be removed entirely, asserting that it is overly
restrictive and could hinder bank investments.
Several commenters asked the agencies to broaden the proposed
government-related rental housing standard by permitting activities
that are ``consistent with'' or ``in alignment with'' government
program guidelines, so that such guidelines could be considered but not
required. Other commenter feedback included: support for an automatic
presumption that activities with State or Federal low-income housing
tax credits or other affordable housing tax credits or incentives
qualify for community development consideration; and requests that the
agencies recognize activities undertaken in conjunction with additional
program sponsors such as community-focused entities with a stated
mission and record of providing affordable housing and Tribally
Designated Housing Entities (TDHEs).
[[Page 6640]]
Stated purpose or bona fide intent of providing affordable housing
for low- or moderate-income individuals. Some commenters supported the
agencies' proposal to require that government plans, programs,
initiatives, tax credits, or subsidies must have a ``stated purpose or
bona fide intent'' of providing affordable housing for low- or
moderate-income individuals in order for associated bank activities to
receive community development consideration. In this regard, a
commenter noted that the proposal allows State and local governments to
tailor their affordable housing programs to meet the specific needs of
their constituents.
Other commenters expressed a variety of concerns about the ``stated
purpose or bona fide intent'' standard, including: that the standard
would not adequately target activities that benefit low- or moderate-
income households; and that government programs should not need to have
a stated purpose or bona fide intent of providing affordable housing to
low- or moderate-income individuals.
Affordability standard. Some commenters supported the agencies'
proposal to not include an affordability standard in proposed Sec.
__.13(b)(1) and recommended that the agencies refrain from establishing
any affordability standards for this component.
However, the majority of commenters that addressed this component
of the proposal supported establishing an affordability standard that
would be based on 30 percent of 80 percent of area median income for
rents. This affordability standard would be separate from the
affordability standard proposed for naturally occurring affordable
housing (which is addressed in the section-by-section analysis of final
Sec. __.13(b)(2)). Commenter feedback also included suggestions that
the agencies: establish a lower affordability threshold in order to
serve a lower income population; utilize hybrid approaches whereby the
agencies adopt an area median income-based threshold for all units and
require that a portion of the units serve lower income populations,
such as very low-income individuals; and use the HUD Fair Market Rents
standard to establish affordability standards.
Verification of low- or moderate-income status. Commenters
expressed differing views about the use of verification measures to
ensure the low- and moderate-income status of renter occupants of
housing units. Some commenters supported the inclusion of verification
measures in the government-related rental housing component of the
final rule to ensure that low- and moderate-income individuals occupy a
majority of the affordable units in government-related housing. For
example, several commenters suggested that a majority standard was not
enough, and that 100 percent of the units should be occupied by low- or
moderate-income individuals in order to qualify under Sec.
__.13(b)(1). A different commenter supported verifying the income of
occupants in circumstances where funding did not occur under government
housing programs with income guidelines. However, several other
commenters stated that additional verification of occupant income would
be unnecessary, given that it is reasonable to assume government
programs would collect and verify this information.
Expanding the proposal to cover certain affordable housing to
middle-income individuals. Many commenters expressed views regarding
whether the agencies should expand CRA consideration in the affordable
housing category to include activities in conjunction with government-
related rental housing in certain geographic areas that is affordable
to middle-income individuals. Some commenters opposed such an
expansion, indicating that CRA resources should be targeted to low- or
moderate-income families, not middle-income families. For example, a
few commenters opposed providing consideration for middle-income
housing, noting that the low- or moderate-income housing needs in high
opportunity areas are immense and raised a concern that giving
consideration for middle-income housing in such areas would dilute the
incentive to meet those needs.\299\ Some commenters expressed concern
that consideration in the affordable housing category for lending that
benefits middle- or high-income households would result in banks
receiving CRA consideration for financing developments that could price
low- and moderate-income families out of their current communities.
---------------------------------------------------------------------------
\299\ The term ``high opportunity area'' has not been uniformly
defined within the housing industry. The agencies proposed to define
a ``high opportunity area'' as (1) An area designated by HUD as a
``Difficult Development Area''; or (2) An area designated by a State
or local Qualified Allocation Plan as a High Opportunity Area, and
where the poverty rate falls below 10 percent (for metropolitan
areas) or 15 percent (for nonmetropolitan areas).
---------------------------------------------------------------------------
Among the commenters that supported expanding CRA consideration to
government-related rental housing activities that provide affordable
housing to middle-income individuals, most qualified their
recommendation by stating that such activities should be limited to
high opportunity areas, rural and nonmetropolitan counties, high-cost
markets, or a combination thereof. Citing the need for rental housing
affordable to middle-income individuals in high opportunity areas and
nonmetropolitan areas, one commenter urged the agencies to further
explore and consider providing CRA consideration for affordable housing
that serves individuals and families with a range of incomes. Another
commenter suggested that government programs serving middle-income--as
well as low- and moderate-income--individuals in rural and
nonmetropolitan areas should be included. A different commenter
suggested that CRA consideration may be appropriate in nonmetropolitan
and rural areas where median income measurements can distort market
characteristics in a way that is unique to rural areas, and that
partial credit could be considered for housing benefiting middle-income
people if the housing is developed or maintained by a CBDO with a
history of serving the needs of low- and moderate-income people and
places.
Some commenters urged consideration for housing where the cost of
rent is up to HUD's Fair Market Rents standard in the relatively few,
particularly unaffordable markets where Fair Market Rents exceeds the
affordability standard of 30 percent of 80 percent of area median
income. One commenter suggested that housing for middle-income
individuals should be considered where there is a documented need by
the local government or housing agencies due to the high cost of
housing in the area compared to local wages. Another commenter
suggested that activities in middle-income census tracts and low- to
moderate-income adjacent tracts should be considered. Other commenters
recommended that the agencies use a high-cost areas standard rather
than a high opportunity areas criterion.
Final Rule
The agencies are adopting final Sec. __.13(b)(1) with some
substantive and technical revisions. Under final Sec. __.13(b)(1),
rental housing for low- or moderate-income individuals that is
purchased, developed, financed, rehabilitated, improved, or preserved
in conjunction with a Federal, State, local, or tribal government
affordable housing plan, program, initiative, tax credit, or subsidy
will receive consideration under the affordable housing category. This
component is intended to enable consideration of the full range of
government-related affordable rental
[[Page 6641]]
housing activities for low- and moderate-income individuals, including
programs, plans, initiatives, tax credits, and subsidies pertaining to
both multifamily and single-family properties. The examples in the
following discussion demonstrate how this affordable housing component
is designed to add greater clarity concerning the many types of
government-related rental housing activities that qualify for
consideration.
The final rule retains the requirement set out in the NPR that an
activity be conducted ``in conjunction with'' a government plan,
program, initiative, tax credit, or subsidy to ensure that there is a
direct link between activities that are given consideration under this
affordable housing prong and government-sponsored programs or
initiatives. While the agencies have not adjusted the ``in conjunction
with'' language in the final rule to expand the proposed standard as
requested by some commenters, the agencies believe that the range of
covered activities is broad. For example, consistent with the agencies'
proposal, qualification under this component of the final rule includes
activities with rental properties receiving low-income housing tax
credits or subsidized by government programs that provide affordable
rental housing for low- or moderate-income individuals, such as
project-based section 8 rental assistance and the HOME Investment
Partnerships Program. In addition, this component includes Federal,
State, local, and tribal government affordable housing plans, programs,
initiatives, tax credits, or subsidies that support affordable housing
for low- or moderate-income individuals. Examples include affordable
multifamily housing programs offered by State housing finance agencies
and affordable housing trust funds managed by a local government to
support the development of affordable housing for low- or moderate-
income individuals. Qualification under this component also includes
affordable rental units for low- or moderate-income individuals created
as a result of local government inclusionary zoning programs, which
often provide requirements or incentives for developers to set aside a
portion of housing units within a property for occupancy by low- or
moderate-income individuals.
Stated purpose or bona fide intent of providing affordable housing
for low- or moderate-income individuals. As also discussed in the
section-by-section analysis of final Sec. __.13(a), the final rule
removes the specific requirement within proposed Sec. __.13(b)(1) that
a government plan, program, initiative, tax credit, or subsidy must
have a ``stated purpose or bona fide intent of providing affordable
housing for low- or moderate-income individuals.'' The agencies are
making this change in part to avoid potential confusion regarding how
the activities eligible for consideration under this component differ
from activities that qualify for consideration under the bona fide
intent standard in final Sec. __.13(a)(1)(ii). Additionally, the
agencies have considered commenter feedback that there are government
plans, programs, initiatives, tax credits, and subsidies that provide
access to rental housing for low- and moderate-income individuals but
that do not have a stated mission of providing affordable housing for
low- and moderate-income individuals. Removal of this specific
requirement is intended to affirm that activities conducted in
conjunction with such government plans, programs, initiatives, tax
credits, or subsidies nonetheless may be considered under this
component of the affordable housing category. Regarding commenter
suggestions that certain government programs, including a low-income
housing tax credit program, may not benefit, or may negatively affect,
low-income or minority communities, the agencies believe that it is
appropriate to recognize and defer to the expertise and priorities of
Federal, State, and local government entities responsible for the
design and implementation of affordable housing programs, plans,
initiatives, tax credits, and subsidies. For more information and
discussion regarding the agencies' consideration of comments
recommending adoption of race- and ethnicity-related provisions in this
final rule, see section III.C of this SUPPLEMENTARY INFORMATION.
Affordability standard. While the NPR sought feedback on whether to
include an affordability standard for activities under Sec.
__.13(b)(1), the final rule implements the proposed approach without
applying a uniform affordability standard. Instead, the final rule
accommodates the various affordability standards across government
affordable housing plans, programs, and initiatives. Consistent with
concerns expressed by many commenters, the agencies are of the view
that assessing affordability using the standards set in the applicable
government program helps to ensure that the affordability determination
reflects local needs and priorities that accommodate unique economic
conditions, particularly in high-cost and rural areas. In addition, the
agencies believe that adopting a uniform affordability standard in this
context could create undue complexity by requiring additional
evaluation to determine whether some loans, investments, or services
supporting rental housing in connection with government programs could
receive consideration under other components of the affordable housing
category. Accordingly, under final Sec. __.13(b)(1), any loan,
investment, or service supporting rental housing in conjunction with a
government program will be eligible for consideration. The agencies
note that in determining the amount of credit the bank will receive
under final Sec. __.13(a), the agencies will defer to the government
program's affordability standard. To illustrate, if a government
program defines affordability as rent that does not exceed 40 percent
of a low- or moderate-income renter's income, the agencies would
consider the percentage of units with rents that do not exceed 40
percent of a low- or moderate-income renter's income to determine under
final Sec. __.13(a) whether the project meets the majority standard.
For more information on the majority standard and partial credit under
CRA, see the section-by-section analysis of Sec. __.13(a).
Verification of low- or moderate-income status. As with the
proposal, the final rule does not require, for activities under final
Sec. __.13(b)(1), verification that a majority of occupants of
affordable units are low- or moderate-income individuals. The agencies
considered feedback on this issue and note that community development
consideration will be based on the pro rata share of affordable units
pursuant to final Sec. __.13(a) unless a majority of the units are
affordable to low- or moderate-income individuals. See the section-by-
section analysis of Sec. __.13(a). Ultimately, the agencies will be
able to determine eligibility under final Sec. __.13(b)(1) by
leveraging information demonstrating that the housing is in conjunction
with a government plan, program, initiative, tax credit, or subsidy,
and the rent amounts being charged to renters.
Housing affordable to middle-income individuals. As previously
stated, the agencies sought feedback on whether activities involving
government programs that have a stated purpose or bona fide intent to
provide affordable housing serving low-, moderate-, and middle-income
individuals should qualify for affordable housing consideration in
certain circumstances, such as when these activities are located in
high opportunity areas or nonmetropolitan geographic areas.
[[Page 6642]]
While the agencies recognize that there are government programs that
target affordable housing for middle-income individuals, the agencies
have decided not to adopt a provision that would extend Sec.
__.13(b)(1) to include housing affordable solely to middle-income
individuals in certain geographic areas. Consistent with the proposal,
and as discussed further in the section-by-section analysis of final
Sec. __.13(a)(2), bank support for projects and programs that include
housing that is affordable to low-, moderate-, and middle-income
individuals would be eligible for pro rata consideration based on the
portion of the project affordable to low- and moderate-income
individuals.
The agencies acknowledge feedback from some commenters raising
concerns about the limited supply of affordable housing in high
opportunity areas and nonmetropolitan areas and expressing the view
that consideration of support for housing affordable to middle-income
individuals could provide additional flexibility for banks to identify
opportunities to address community needs. However, the agencies are
persuaded by commenter concerns that broadening this category could
reduce the emphasis on activities that directly contribute to housing
for low- and moderate-income individuals, for whom housing options in
high opportunity areas and nonmetropolitan areas are equally important
and may be more difficult to attain.
Under current CRA interagency guidance, examiners have flexibility
to consider a bank's lending and investments in high-cost areas,
including those activities that address the housing needs of middle-
income individuals in addition to low- or moderate-income
individuals.\300\ In developing the final rule, the agencies considered
whether this flexibility should be incorporated into the evaluation of
multifamily rental housing activities in conjunction with a government
plan, but decided to retain the proposed rule's focus on housing units
that are affordable to low- and moderate-income individuals. The
agencies considered that additional regulatory provisions would be
needed to designate high-cost markets and to ensure that low- and
moderate-income individuals are also likely to benefit from the housing
(generally consistent with standards for affordable housing in high-
cost market under current guidance) \301\ and found these requirements
would add undue complexity to the final rule while also adding
significant uncertainty in terms of how this would impact affordable
housing opportunities for low- and moderate-income individuals.
Relatedly, the agencies considered that the structure of the Community
Development Financing Metric would not distinguish between housing
affordable to low- and moderate-income individuals, as opposed to
middle-income households in high-cost markets, and have considered
concerns that including all of these activities in the metric could
impact the degree to which activities focus on housing affordable to
low- and moderate-income individuals who likely also face acute housing
needs in such high-cost areas. The agencies further considered the role
of the impact and responsiveness review and whether it could address
such complexities; however, the agencies determined that such an
approach would be uncertain and that the more appropriate approach, on
balance, was to focus this component on housing affordable to low- and
moderate-income households. The agencies note that government
affordable housing programs may benefit low-, moderate-, and middle-
income individuals, even in high-cost markets. Accordingly, for an
activity to receive full consideration under the final rule, the
majority of the housing units must be affordable to low- or moderate-
income individuals. If the housing units that are affordable to low-
and moderate-income individuals represent less than a majority of the
housing units, then the activity will receive pro rata consideration
under the final rule.
---------------------------------------------------------------------------
\300\ See Q&A Sec. __.12(g)-3.
\301\ See id. (noting, for example, that with respect to loans
or investments addressing a middle-income credit shortage due to
housing costs, the agencies consider ``whether an institution's loan
to or investment in an organization that funds affordable housing
for middle-income people or areas, as well as low- and moderate-
income people or areas, has as its primary purpose community
development''). See also Q&A Sec. __.12(g)(1)-1 (``The concept of
`affordable housing' for low- or moderate-income individuals does
hinge on whether low- or moderate-income individuals benefit, or are
likely to benefit, from the housing. It would be inappropriate to
give consideration to a project that exclusively or predominately
houses families that are not low- or moderate income simply because
the rents or housing prices are set according to a particular
formula.'')
---------------------------------------------------------------------------
For nonmetropolitan areas, the agencies considered--as expressed by
some commenters--that these geographies may have limited opportunities
for affordable housing. However, the agencies have determined that, as
in other geographies, the best approach in nonmetropolitan areas is to
focus on units affordable to low- or moderate-income individuals under
this component of affordable housing. As discussed above, under the
alternative approach of allowing housing affordable to middle-income
individuals in nonmetropolitan areas, bank activities for affordable
housing could consist of activities solely or mostly focused on housing
affordable to middle-income individuals, with an eliminated or reduced
focus on housing affordable to low- or moderate-income individuals in
these communities. Accordingly, under the final rule, activities in
conjunction with government programs in nonmetropolitan areas that may
include middle-income renters such as the USDA Section 515 Rural Rental
Housing or Multifamily Guaranteed Rural Rental Housing programs could
be eligible for consideration to the extent such activities create
units affordable to low- and moderate-income individuals. In addition,
the agencies note the addition of a component focused on affordable
single-family rental housing in nonmetropolitan census areas, as
discussed further in the section-by-section analysis of Sec.
__.13(b)(3).
While the agencies have declined to expand consideration of rental
housing activities in conjunction with a government affordable housing
plan, program, initiative, tax credit, or subsidy that targets middle-
income individuals, the agencies believe that including an impact and
responsiveness factor that supports affordable housing in High
Opportunity Areas in final Sec. __.15(b)(7) will support encouragement
of affordable housing in geographic areas where the cost of residential
development is high and affordable housing opportunities can be
limited. Additional impact and responsiveness factors, such as the
geographic impact and responsiveness factors discussed in the section-
by-section analysis of Sec. __.15(b)(1) through (3), may also help
encourage more affordable housing in nonmetropolitan areas. These and
other impact and responsiveness factors are discussed further in the
section-by-section analysis of final Sec. __.15.
Section __.13(b)(2) Multifamily Rental Housing With Affordable Rents
The Agencies' Proposal
Proposed Sec. __.13(b)(2) provided criteria to define affordable
low- or moderate-income multifamily rental housing that does not
involve a government program, initiative, tax credit, or subsidy (also
referred to as naturally occurring affordable housing in this
SUPPLEMENTARY INFORMATION). With the proposed criteria in Sec.
__.13(b)(2), the agencies sought to provide clear and consistent
standards
[[Page 6643]]
to identify naturally occurring affordable housing that may receive
affordable housing consideration under the CRA. First, under this
component, the agencies proposed that the rent for the majority of the
units in a multifamily property could not exceed 30 percent of 60
percent of the area median income for the metropolitan area or
nonmetropolitan county. Second, the agencies proposed that naturally
occurring affordable housing would also be required to satisfy one or
more of the following additional eligibility criteria in order to
increase the likelihood that units benefit low- or moderate-income
individuals: (1) the housing is located in a low- or moderate-income
census tract; (2) the housing is purchased, developed, financed,
rehabilitated, improved, or preserved by a nonprofit organization with
a stated mission of, or that otherwise directly supports, providing
affordable housing; (3) there is an explicit written pledge by the
property owner to maintain rents affordable to low- or moderate-income
individuals for at least five years or the length of the financing,
whichever is shorter; or (4) the bank provides documentation that a
majority of the residents of the housing units are low- or moderate-
income individuals or families.
Comments Received
Overall, commenters supported the inclusion of naturally occurring
affordable housing in the affordable housing category. Many commenters
generally expressed the view that naturally occurring affordable
housing is an important part of the affordable housing ecosystem and
serves many low- or moderate-income individuals.
Several commenters supported the inclusion of naturally occurring
affordable housing-related activity but expressed concerns that the
proposal as written would be either too restrictive or too lenient to
provide assurance that the activity would actually support affordable
housing for low- or moderate-income individuals. One commenter that
opposed the inclusion of naturally occurring affordable housing in the
affordable housing category asserted that doing so would divert CRA-
eligible capital from traditional income-restricted, subsidized
affordable housing that provides permanently affordable apartments to
low- or moderate-income families, while another expressed concern that
the proposal would not provide sufficient protection to residents in
gentrifying areas and suggested additional affordability restrictions.
Commenters who were concerned with the requirements being too
restrictive expressed, for example, that the proposed standards would
not account for any of the naturally occurring affordable housing in
their local markets.
Final Rule
The agencies are adopting in final Sec. __.13(b)(2) a component
for naturally occurring affordable housing with some substantive
revisions. Specifically, as described in detail in the section-by-
section analyses that follow, the final rule recognizes that
multifamily rental housing purchased, developed, financed,
rehabilitated, improved, or preserved can be considered under final
Sec. __.13(b)(2) if for the majority of units, the monthly rent as
underwritten by the bank, reflecting post-construction or post-
renovation changes, does not exceed 30 percent of 80 percent of the
area median income and if the housing also meets one or more of the
criteria in final Sec. __.13(b)(2)(ii). The agencies believe that
naturally occurring affordable housing provides a meaningful
contribution to the stock of available affordable housing and believe
that the criteria discussed in more detail below will help to address
commenter concerns that including consideration for such housing will
divert resources from other types of affordable housing projects.
As noted previously, some commenters urged the agencies to
implement a single category for all affordable rental housing,
including housing that is developed in conjunction with a government
affordable housing plan, program, initiative, tax credit, or subsidy
and naturally occurring affordable housing. Upon consideration of
commenter feedback, the agencies have determined to retain a separate
component in the final rule for multifamily rental housing that has
rents affordable to low- and moderate-income individuals. Naturally
occurring affordable housing is not already subject to the requirements
of a government plan, program, initiative, tax credit, or subsidy, and
the agencies believe that by including adequate affordability criteria
and the additional criteria in Sec. __.13(b)(2)(ii), the final rule
will help to ensure that activities qualifying under this prong will
meaningfully benefit low- and moderate-income individuals.
Section __.13(b)(2)(i) Affordability Standard for Multifamily Rental
Housing With Affordable Rents
The Agencies' Proposal
The agencies proposed an affordability standard to determine if
multifamily rental housing had affordable rents and therefore would be
considered naturally occurring affordable housing. The agencies
proposed that rents would be considered affordable if the rent for the
majority of the units in a multifamily property did not exceed 30
percent of 60 percent of the area median income for the metropolitan
area or nonmetropolitan county.\302\ This proposed standard would have
established narrower affordability criteria than what is often used
today to determine whether rents are affordable for low- or moderate-
income individuals, which is 30 percent of 80 percent of the area
median income.
---------------------------------------------------------------------------
\302\ See proposed Sec. __.13(b)(2).
---------------------------------------------------------------------------
Under the agencies' proposal, the rent amount used to determine
whether the affordability standard is met would be the monthly rental
amounts as underwritten by the bank, reflecting any post-construction
or post-renovation rents considered as part of the bank's underwriting
for financing.\303\ The agencies' objective in including this provision
was to target community development consideration to properties that
are likely to remain affordable and to minimize the likelihood of
providing consideration for activities that may result in displacement
of low- or moderate-income individuals. The agencies intended to
reinforce these objectives by requiring that a majority of the units
meet the affordability standard. The agencies sought feedback on
whether there were alternative ways to ensure that CRA consideration
for support of naturally occurring affordable housing is targeted to
properties where rents remain affordable for low- or moderate-income
individuals.
---------------------------------------------------------------------------
\303\ See id.
---------------------------------------------------------------------------
Comments Received
Many commenters addressed the affordability threshold for naturally
occurring affordable housing under proposed Sec. __.13(b)(2). The
majority of commenters on the issue opposed the proposed affordability
threshold of 30 percent of 60 percent of area median income and
supported raising the affordability threshold to 30 percent of 80
percent of area median income. Commenters cited several reasons for
adopting a higher affordability standard,
[[Page 6644]]
including that doing so would align with other affordable housing
programs and would better account for affordable housing needed to
address housing shortages and provide workforce housing. Some
commenters expressed concern that a 30 percent of 60 percent of area
median income affordability standard could have a negative impact on
the availability of debt financing for affordable rental housing. Other
commenters supported the proposed 30 percent of 60 percent of area
median income affordability threshold, citing that it would preserve
resources for low- or moderate-income renters who are most in need of
housing support. Other commenters suggested that the affordability
standard should be closer to 30 percent of 30 to 50 percent of area
median income in high-cost areas. In contrast, some commenters asserted
that the affordability threshold should be higher and more flexible in
high-cost markets. Lastly, a few commenters recommended that the
agencies adopt the HUD Fair Market Rents standard to determine rental
affordability for naturally occurring affordable housing.\304\
---------------------------------------------------------------------------
\304\ See HUD, Office of Policy Research and Development, ``Fair
Market Rents,'' https://www.hud.gov/program_offices/public_indian_housing/programs/hcv/landlord/fmr.
---------------------------------------------------------------------------
Several commenters expressed support for the proposal that monthly
rents, for the purposes of determining affordability, be determined as
underwritten by the bank, reflecting post-construction or post-
renovation changes, as applicable. However, these same commenters noted
that, to ensure continuing affordability, consideration for prior-year
financings should be conditioned on periodic documentation that the
units remain affordable. For example, one commenter suggested that
examiners should evaluate rent rolls annually to confirm ongoing
affordability of properties financed in prior years and examination
cycles.
The agencies received comments supporting the requirement that a
majority of units in a naturally occurring affordable housing property
must meet the affordability standard. One commenter suggested that the
agencies consider a higher standard for the percent of units that must
meet the affordability criteria to ensure long term affordability of
most units. Another commenter expressed concerns that the proposed
requirement does not adequately incentivize mixed income and
inclusionary housing. Rather, the commenter suggested the final rule
should provide pro rata credit based on the percentage of affordable
units among market rate units in a property.
Final Rule
Final Sec. __.13(b)(2)(i) is revised from the proposal and adopts
an affordability standard stating that naturally occurring affordable
housing purchased, developed, financed, rehabilitated, improved, or
preserved will be considered affordable housing under final Sec.
__.13(b) if, for the majority of the units, the monthly rent as
underwritten by the bank, reflecting post-construction or post-
renovation changes as applicable does not exceed 30 percent of 80
percent of the area median income. The affordability standard adopted
in the final rule does not include the proposed 30 percent of 60
percent of the area median income affordability standard, which the
agencies proposed in recognition that, historically, a substantial
percentage of occupied rental units with affordability between 61 and
80 percent of area median income were occupied by middle- or upper-
income households.\305\ However, the agencies have determined that the
proposed affordability standard would have restricted eligibility for
properties with affordability levels at 80 percent of area median
income even in cases where many of the units are occupied by low- or
moderate-income households. Additionally, the agencies are sensitive to
the concerns expressed by some commenters that the proposed
affordability standard could have had a negative impact on the
availability of debt financing for this type of affordable housing. The
overwhelming majority of commenters favored the adoption of a more
flexible affordability standard than the proposal, with most commenters
supporting the use of the 30 percent of 80 percent of area median
income affordability standard adopted in final Sec. __.13(b)(2)(i).
---------------------------------------------------------------------------
\305\ See 87 FR 33884, 33895 (June 3, 2022).
---------------------------------------------------------------------------
The final rule retains the agencies' proposal to use the monthly
rental amounts as underwritten by the bank to determine whether the
rental housing meets the affordability standard. The prong further
specifies that rent amounts should reflect any post-construction or
post-renovation changes considered as part of the bank's underwriting
for providing financing. The agencies' objective in including this
provision is to target community development consideration to
properties that are likely to remain affordable and to avoid providing
consideration for activities that may result in displacement of low- or
moderate-income individuals.
Though some commenters suggested that the agencies require
documentation (such as rent rolls or an annual review of rents) to
confirm ongoing affordability, the agencies are not adopting an annual
verification process as part of the final rule. In this context, the
agencies view evaluation of the loan underwriting, which contains a
forward-looking assessment of projected rent amounts and rental income,
along with the requirement to meet one of the four additional criteria,
described below, as sufficient to promote the agencies' objective of
ensuring that a bank intends to finance properties where rent remains
affordable to low- or moderate-income individuals.
Final Sec. __.13(b)(2)(i) requires the majority of units in
naturally occurring affordable housing to meet the affordability
standard. The prong does not award pro rata consideration for
activities related to properties in which fewer than 50 percent of
housing units are affordable. The agencies believe that this
requirement will help to ensure activities that qualify under this
prong support housing that is both affordable and likely to be occupied
by low- and moderate-income individuals. As discussed further in the
section-by-section analysis of final Sec. __.13(a) above, this
majority standard in Sec. __.13(b)(2) is consistent with similar
majority criteria for other categories of community development in
Sec. __.13(a), which are intended to emphasize activities that are
responsive to community needs, especially the needs of low- and
moderate-income individuals and communities.
Section __.13(b)(2)(ii) Additional Eligibility Standards for
Multifamily Rental Housing With Affordable Rents
The Agencies' Proposal
The agencies proposed that one of four additional criteria would
have to be met for multifamily housing to qualify as naturally
occurring affordable housing under proposed Sec. __.13(b)(2).\306\
These criteria were intended to increase the likelihood that
multifamily housing under this component of affordable housing would
benefit low- or moderate-income individuals and that the rents would
likely remain affordable for low- or moderate-income individuals.
Specifically, in addition to the requirement that rents for a majority
of the units meet the affordability standard, multifamily housing would
have to meet at least one of the following criteria:
---------------------------------------------------------------------------
\306\ See proposed Sec. __.13(b)(2)(i) through (iv).
---------------------------------------------------------------------------
[[Page 6645]]
(1) The housing is located in a low- or moderate-income census
tract;
(2) The housing is purchased, developed, financed, rehabilitated,
improved, or preserved by any nonprofit organization with a stated
mission of, or that otherwise directly supports, affordable housing;
(3) The property owner has made an explicit written pledge to
maintain affordable rents for low- or moderate-income individuals for
at least five years or the length of the financing, whichever is
shorter; or
(4) The bank provides documentation that the majority of the
housing units are occupied by low- or moderate-income individuals or
families.\307\
---------------------------------------------------------------------------
\307\ Proposed Sec. __.13(b)(2)(i) through (iv).
---------------------------------------------------------------------------
Comments Received
The agencies received a number of comments on this aspect of the
proposal, with some commenters objecting generally to the proposed
additional criteria, suggesting that naturally occurring affordable
housing should be simplified into a single requirement that the housing
meet an affordability standard. Comments specific to each of the
additional eligibility criteria are discussed in the respective
section-by-section analyses for those sections.
Final Rule
The agencies are adopting proposed Sec. __.13(b)(2)(i) through
(iv) in a revised and reorganized final Sec. __.13(b)(2)(ii), which
requires naturally occurring affordable housing to meet one or more
eligibility criteria in addition to the affordability standard in Sec.
__.13(b)(2)(i). Specifically, the final rule requires that a project
meet at least one of the following eligibility criteria: (1) the
housing is located in a low- or moderate-income census tract; (2) the
housing is located in a census tract in which the median income of
renters is low- or moderate-income and the median rent does not exceed
30 percent of 80 percent of the area median income; (3) the housing is
purchased, developed, financed, rehabilitated, improved, or preserved
by any nonprofit organization with a stated mission of, or that
otherwise directly supports, providing affordable housing; or (4) the
bank provides documentation that a majority of the housing units are
occupied by low- or moderate-income individuals or families.
The agencies have adopted several changes to the proposed
eligibility criteria based on commenter feedback, as described below.
The agencies believe that the eligibility criteria adopted in the final
rule will ensure that naturally occurring affordable housing is likely
to benefit low- or moderate-income individuals and increase the
likelihood that rents will remain affordable for low- or moderate-
income individuals. By offering multiple criteria to demonstrate that
rental housing with affordable rents is likely to benefit low- and
moderate-income individuals, the agencies sought to provide flexibility
and balance the objectives of encouraging banks to support naturally
occurring affordable housing with ensuring that this housing is likely
to benefit low- and moderate-income individuals.
Section __.13(b)(2)(ii)(A) and (B) Low- or Moderate-Income Census
Tracts and Low- and Moderate-Renter Median Income Census Tracts
The Agencies' Proposal
The first proposed additional criterion was that the location of
the multifamily housing be in a low- or moderate-income census
tract.\308\ This criterion was based in part on the agencies'
recognition that verifying tenant income might be infeasible for many
property owners or developers, whereas median census tract income is
readily available. This criterion is also consistent with current
guidance providing that examiners may consider economic and related
factors associated with a particular geographic area to determine
whether the housing is likely to benefit low- or moderate-income
individuals.\309\
---------------------------------------------------------------------------
\308\ See proposed Sec. __.13(b)(2)(i).
\309\ See Q&A Sec. __.12(g)(1)-1.
---------------------------------------------------------------------------
The agencies also sought feedback on whether to include a
geographic criterion to encompass middle- and upper-income census
tracts in which at least 50 percent of renters are low- or moderate-
income. The agencies considered that affordable rental housing in a
neighborhood in which the majority of renters are low- or moderate-
income would also be likely to benefit low- or moderate-income
individuals. Incorporating this standard into the CRA regulation could
result in multifamily housing in certain middle- and upper-income
census tracts qualifying as naturally occurring affordable housing
under proposed Sec. __.13(b)(2).
Further, the agencies sought feedback on not including a geographic
criterion. Under this option, to qualify under this component of
affordable housing, the multifamily housing would have had to meet one
of the other criteria in addition to the proposed affordability
standard of rents not exceeding 30 percent of 60 percent of the area
median income.
Comments Received
The agencies received some comments that supported requiring all
naturally occurring affordable housing to be located in a low- or
moderate-income census tract. Alternatively, some commenters urged the
agencies to eliminate this criterion, with viewpoints including: that
multifamily loans should be evaluated on the affordability of the
housing and not simply the location of the housing; that this criterion
could present a risk of providing consideration for units that are not
serving low- or moderate-income residents soon after the financing
occurs; and that this criterion could incentivize concentrating
affordable housing in low- or moderate-income areas.
Some commenters addressed the agencies' request for comment on
whether to expand this proposed geographic criterion. Of these, several
commenters indicated a preference to prioritize other criteria (e.g.,
affordability and low- or moderate-income occupancy) over the location
of a property. However, other commenters supported qualifying naturally
occurring affordable housing specifically in census tracts in which the
majority of renters were low- or moderate-income. One commenter
supported expansion of the geographic criteria into census tracts in
which the majority of renters were low- or moderate-income if the
agencies also increased the required percentage of units in naturally
occurring affordable housing properties from the proposed 50 percent to
60 or 67 percent. Some commenters supported qualifying naturally
occurring affordable housing in other geographic areas, including
distressed and underserved census tracts, and others supported
expansion of the geographic criteria to nonmetropolitan and rural
census tracts.
Final Rule
In final Sec. __.13(b)(2)(ii)(A), the agencies are adopting the
proposed geographic criterion (see proposed Sec. __.13(b)(2)(i)), that
the housing be located in a low- or moderate-income census tract, as
one of the ways of demonstrating that naturally occurring affordable
housing is likely to benefit low- and moderate-income individuals. This
approach is consistent with existing guidance, under which examiners
may review factors such as demographic, economic, and market data in
surrounding geographies to determine the likelihood that housing will
``primarily'' accommodate low- or moderate-income individuals. For
example, examiners look at median
[[Page 6646]]
rents of the assessment area and the project; the median home value of
either the assessment area, and the project; the median home value of
either the assessment area, low- or moderate-income geographies, or the
project; the low- or moderate-income population in the area of the
project; or the past performance record of the organization(s)
undertaking the project.\310\ In addition, retaining the geographic
criterion provides a streamlined option for determining whether housing
qualifies as naturally occurring affordable housing that is likely to
benefit low- and moderate-income individuals or families, as census
tract income data is readily available and verifiable information.
---------------------------------------------------------------------------
\310\ See Q&A Sec. __.12(g)(1)-1.
---------------------------------------------------------------------------
The final rule also adopts a new geographic criterion in final
Sec. __.13(b)(2)(ii)(B), indicating that naturally occurring
affordable housing may qualify for consideration if it is located in a
census tract in which the median income of renters is low or moderate,
and the median rent does not exceed 30 percent of 80 percent of the
area median income. In doing so, the agencies intend to help address
the concern commenters noted, that restricting naturally occurring
affordable housing to low- and moderate-income census tracts could
promote geographic concentrations of poverty, and the agencies
recognize the importance of locating affordable housing in communities
of all income levels.
The agencies acknowledge concern expressed by some commenters that
naturally occurring affordable housing in middle- and upper-income
tracts could be more likely to attract higher-income renters and could
contribute to the involuntary displacement of lower-income renters. The
agencies evaluated several alternatives to this geographic criterion to
better ensure that low- and moderate-income renters were likely to
benefit from this housing and determined that adding the requirement
that the median rent in the census tracts must not exceed 30 percent of
80 percent of the area median income would increase the likelihood that
low- and moderate-income individuals would benefit from the housing.
Moreover, adding these census tracts increases the number of qualifying
census tracts (compared to only low- and moderate-income tracts) by
over 100 percent--adding about 23,000 middle- and upper-income census
tracts--in addition to the approximately 22,500 low- and moderate-
income census tracts that would be eligible currently.\311\ This
criterion also aligns with current guidance in the Interagency
Questions and Answers on the information that may be considered when
determining the likelihood that the housing will primarily accommodate
low- or moderate-income individuals or families.\312\
---------------------------------------------------------------------------
\311\ Based on including census tracts where the median rent is
below 30 percent of 80 percent of the area median income and where
the median renter's income is below 80 percent of the area median
income in the 2015-2019 American Community Survey.
\312\ See, e.g., Q&A Sec. __.12(g)(1)-1. Under existing
guidance, examiners may look at median rents of an assessment area
and other factors to determine the likelihood that housing will
primarily accommodate low- and moderate-income individuals.
---------------------------------------------------------------------------
Section __.13(b)(2)(ii)(C) Nonprofit Organizations With a Stated
Mission of, or That Otherwise Directly Support, Providing Affordable
Housing
The Agencies' Proposal
The agencies proposed a second criterion for determining whether
multifamily housing qualifies as naturally occurring affordable housing
under proposed Sec. __.13(b)(2). Specifically, the agencies proposed
that if housing is purchased, developed, financed, rehabilitated,
improved, or preserved by any ``nonprofit organization with a stated
mission of, or that otherwise directly supports, providing affordable
housing,'' then the activity could be considered naturally occurring
affordable housing.\313\ The agencies intended this provision to
encompass organizations that have a mission to serve individuals and
communities especially vulnerable to housing instability or that
otherwise target services to low- or moderate-income individuals and
communities. Multifamily housing that met this criterion in addition to
the affordability standard in proposed Sec. __.13(b)(2)(i) would
qualify as naturally occurring affordable housing under proposed Sec.
__.13(b)(2) in any census tract, including middle- and upper-income
census tracts.
---------------------------------------------------------------------------
\313\ Proposed Sec. __.13(b)(2)(ii).
---------------------------------------------------------------------------
Comments Received
Most of the commenters who commented on the second proposed
criterion for naturally occurring affordable housing supported its
inclusion and stated that it was well tailored to providing CRA
consideration for units that meet the purposes of the CRA. A few
commenters suggested that this criterion should be a requirement for
CRA consideration for naturally occurring affordable housing. In
addition, some commenters recommended additional requirements--for
example, that the nonprofits should be led by people of color, a
majority of residents should be low- or moderate-income, or the
property must be compliant with anti-displacement principles.
Several other commenters opposed the proposed criterion. For
example, a commenter opposing this criterion stated that it would
impede banks from garnering community development financing
consideration because affordable housing often comes from partnerships
with small developers, as well as nonprofit organizations.
Final Rule
Under final Sec. __.13(b)(2)(ii)(C), the agencies are adopting the
proposed additional eligibility criterion for affordable multifamily
housing activity in conjunction with a nonprofit organization with a
stated mission of, or that otherwise directly supports, providing
affordable housing substantially as proposed (see proposed Sec.
__.13(b)(2)(ii)). The agencies observe that many of these nonprofit
organizations serve individuals and communities that are especially
vulnerable to housing instability or otherwise target services to low-
or moderate-income individuals and communities. The agencies do not
anticipate that this criterion will impede community development
financing consideration for banks working with small property
developers that are not nonprofit organizations, as this criterion is
only one of four criteria for qualifying naturally occurring affordable
housing activities. The agencies also considered commenter
recommendations for additional requirements, and the agencies do not
believe such additional requirements are necessary given the agencies'
view that the proposed criterion is adequate to provide consideration
for loans, investments, and services supporting housing units that are
likely to be occupied by low- or moderate-income individuals.
Proposed Sec. __.13(b)(2)(iii) Written Affordability Pledge
The Agencies' Proposal
The agencies proposed a third criterion for determining whether
multifamily housing would qualify as naturally occurring affordable
housing under proposed Sec. __.13(b)(2). This criterion would have
required the property owner's explicit written pledge to maintain rents
that are affordable for at least five years or for the length of the
[[Page 6647]]
financing, whichever is shorter,\314\ and was intended to address
concerns about the likelihood of rents in an eligible property
increasing in the future and potentially displacing low- or moderate-
income households. Multifamily housing that met this criterion in
addition to the baseline affordable rent standard discussed above would
qualify as naturally occurring affordable housing under proposed Sec.
__.13(b)(2) in any census tract, including middle- and upper-income
census tracts.
---------------------------------------------------------------------------
\314\ See proposed Sec. __.13(b)(2)(iii). The agencies noted in
the NPR their expectation that the length of financing would often
go beyond the five-year written affordability pledge. The agencies
further stated that they would scrutinize short-term financing (less
than five years) to ensure such financing is not a way to avoid the
affordability commitment. See 87 FR 33884, 33896 n. 72 (June 3,
2022).
---------------------------------------------------------------------------
Comments Received
Several commenters supported this proposed criterion. Of those
commenters, a few supported the proposed five-year time period for the
affordability pledge. Most commenters addressing this aspect of the
proposal suggested extending the duration of the pledge--to 10, 15, or
20 years--or ensuring that the pledge is binding. Other commenter
sentiment included: that the effectiveness of the criterion would
depend on the legal enforceability of such a written pledge and the
ability of an entity to monitor compliance; that this criterion should
be required of all naturally occurring affordable housing lending and
should not be optional; and that the pledge should be to keep the rents
affordable for low- and moderate-income renters for the life of the
investment or loan. Another commenter suggested that the agencies
should publish best-practice examples of documents that outline the
affordability restrictions, time period for those restrictions, and
applicable tenant protections.
Some commenters, however, opposed the additional criterion for an
owner's explicit written pledge altogether on the grounds that it would
be unappealing to property owners and unrealistic in many markets.
Final Rule
In the final rule, the agencies have determined to not adopt the
proposed additional eligibility criterion that would allow
consideration based on an explicit written pledge by the property owner
to maintain affordable rents for low- or moderate-income individuals
for at least five years or the length of the financing, whichever is
shorter. In proposing this additional eligibility criterion, the
agencies sought to increase the number of options for demonstrating the
likelihood that housing will benefit low- and moderate-income persons,
while recognizing that requiring such a pledge would necessitate
additional documentation.
In determining not to adopt this part of the proposal, the agencies
considered the views of many commenters who supported the written
affordability pledge proposal, a longer affordability period, or a
mandatory pledge on the belief that such requirements would help to
ensure that housing remains affordable and would limit the risk of
renter displacement due to increasing rents. The agencies also
considered feedback that the effectiveness of such a pledge would
depend on its legal enforceability and that enforcing the pledge could
be impracticable and potentially require an entity to monitor
compliance.
The agencies evaluated the proposed additional criterion in light
of feedback from commenters and determined that, because neither the
agencies nor the banks would be in a position to effectively oversee
the enforceability of these pledges, which may not be recorded in the
public record, the impact of these pledges could be limited. In
addition, the proposed criterion would have required the pledge to be
in effect for either five years or the length of the financing, which
could have had the unintended result of providing consideration for,
and possibly unintentionally encouraging, one-year loans that would not
contribute to ongoing affordability. Finally, by retaining the
criterion that naturally occurring affordable housing be purchased,
developed, financed, rehabilitated, improved, or preserved by any
nonprofit organization with a stated mission of, or that otherwise
directly supports, providing affordable housing, the agencies believe
that including a pledge criterion would likely be superfluous for
nonprofit owners, and not a clear means to capture activity that is
outside other criteria that would apply to naturally occurring
affordable housing.
Section __.13(b)(2)(ii)(D) Tenant Income Documentation
The Agencies' Proposal
A fourth additional criterion proposed by the agencies for
determining whether multifamily housing would qualify as naturally
occurring affordable housing under proposed Sec. __.13(b)(2) was that
the bank provided documentation that the majority of the housing units
were occupied by low- or moderate-income individuals or
households.\315\ Multifamily housing that met this criterion in
addition to the affordability standard in Sec. __.13(b)(2)(i) would
qualify as naturally occurring affordable housing under proposed Sec.
__.13(b)(2) in any census tract, including middle- and upper-income
census tracts.
---------------------------------------------------------------------------
\315\ See proposed Sec. __.13(b)(2)(iv).
---------------------------------------------------------------------------
Comments Received
Of those commenters who weighed in on the criterion that the bank
provide documentation that the majority of the housing units were
occupied by low- or moderate-income individuals or households, most
supported retaining it as a criterion in the final rule and suggested
ways that the criterion could be successfully implemented. However, one
commenter asserted that banks do not have the authority to collect
tenant income information, while another indicated that the
documentation could be impossible to obtain if units remain vacant
after the project is completed. Another commenter suggested that the
acceptance of Housing Choice Vouchers should be included as a way of
demonstrating that rents will be affordable for low- and moderate-
income individuals. A few commenters raised objections, stating that
the proposed criterion is unnecessary, overreaching, and impractical as
proposed and could lead banks that seek CRA consideration to impose new
burdensome administrative requirements on multifamily borrowers.
Final Rule
The final rule adopts Sec. __.13(b)(2)(iv) as proposed, renumbered
as final Sec. __.13(b)(2)(ii)(D), which allows a bank to demonstrate
the eligibility of multifamily housing by, in addition to meeting the
affordability standard, providing documentation that a majority of the
housing units in an unsubsidized multifamily affordable housing project
are occupied by low- or moderate-income individuals or families. For
example, in the case of a multifamily rental property with a majority
of rents set at 30 percent of 80 percent of area median income, the
activity could receive consideration under this additional criterion
where the bank can document that the majority of occupants receive
Housing Choice Vouchers.\316\
[[Page 6648]]
The agencies observe that such documentation would demonstrate that the
activity was benefiting low- or moderate-income individuals. The
agencies acknowledge commenters' assertion that tenant income
documentation might be unobtainable, unnecessary, or impractical.
However, the agencies ultimately believe this criterion provides a
useful alternative for banks that are able to obtain such documentation
through the process of originating or renewing a loan. Banks retain the
flexibility to demonstrate eligibility using the other criteria in
final Sec. __.13(b)(2)(ii)
---------------------------------------------------------------------------
\316\ The housing choice voucher program is the Federal
Government's major program for assisting very low-income families,
the elderly, and the disabled to afford decent, safe, and sanitary
housing in the private market. See 24 CFR part 982 (program
requirements for the tenant-based housing assistance program under
section 8 of the United States Housing Act of 1937 (42 U.S.C.
1437f); the tenant-based program is the housing choice voucher
program). See also HUD, ``Choice Vouchers Fact Sheet,'' https://www.hud.gov/topics/housing_choice_voucher_program_section_8.
---------------------------------------------------------------------------
Other Comments on Naturally Occurring Affordable Housing
Commenters offered a variety of suggestions for alternative ways to
ensure that CRA consideration for naturally occurring affordable
housing would be targeted to properties where rents remain affordable
for low- or moderate-income individuals. Some commenters indicated that
the rule should emphasize one or more of the proposed criteria in
different combinations, while other commenters offered suggestions for
criteria that were not expressly contemplated in the proposal. A few
commenters asserted that the agencies should take steps to limit
consideration for financing that may not provide long-term affordable
housing, citing, for example, concern regarding the long-term
intentions of certain institutional investors and private developers.
Several commenters requested that the agencies require contracts or
land use agreements that ensure a specific level and length of
affordability, especially, at least one commenter noted, for properties
where a renovation is occurring.
Some commenters suggested that the agencies create anti-
displacement requirements, quality of housing requirements, or both, in
order for activities supporting naturally occurring affordable housing
properties to qualify for CRA consideration. Commenter feedback along
these lines included: that the agencies should require banks to
demonstrate that landlord borrowers are complying with tenant
protection, habitability, local health code, civil rights, credit
reporting act, unfair, deceptive, or abusive acts and practices, and
other laws; that the agencies should give credit to banks for adopting
and adhering to anti-displacement and responsible lending best
practices in their CRA activities, and downgrade banks for incidents of
harm and displacement of low- or moderate-income and racial and ethnic
minority tenants; that incentivizing mixed[hyphen]income housing
developments with a focus on racial and income integration would help
address displacement concerns; and that loans to finance rental housing
should only receive consideration if they are structured to tangibly
improve the lives of tenants and do not permit landlords to pull money
away from operations to pay for greater debt service.
Final Rule
For the reasons stated in the preceding discussion of the
affordability standard and additional eligibility requirements, the
agencies are adopting the component for naturally occurring affordable
housing under final Sec. __.13(b)(2) with revisions. The agencies are
not adopting commenter suggestions to restrict CRA consideration for
financing provided to institutional investors and private developers,
because the basis for doing so is not clear, especially if the
affordability requirements of this section are met, and because such
parties play an important role in adding to the overall supply of
needed affordable housing. Instead, the agencies are relying on the
criteria adopted to ensure that the multifamily housing with affordable
rents is likely to benefit low- or moderate-income individuals.
Similarly, the agencies considered, but are not requiring contracts or
land use agreements that ensure a specific level and period of
affordability, as these would be challenging for a bank to enforce
efficiently. Additionally, the agencies are not including an additional
criterion in this component regarding resident displacement and
responsible lending best practices. The agencies believe that such a
criterion is less needed in the naturally occurring affordable housing
context given that such activities will create units or facilitate
maintenance of existing units of affordable housing, and examiners will
retain the discretion to consider whether an activity reduces the
number of housing units affordable to low- or moderate-income
individuals. The agencies believe the adopted criteria will
appropriately encourage activities beneficial to low- and moderate-
income individuals and families.
Section __.13(b)(3) One-to-Four Family Rental Housing With Affordable
Rents in Nonmetropolitan Census Tracts
The Agencies' Proposal
In the NPR, the agencies sought feedback on whether single-family
rental housing should be considered under the naturally occurring
affordable housing category, provided that it meets the same
combination of criteria proposed for multifamily rental housing.\317\
This alternative would have expanded the affordable housing category to
include single-family rental housing that meets the affordability
threshold and the additional eligibility criteria under proposed Sec.
__.13(b)(2)(i) and (ii), respectively. The agencies also sought
feedback on whether such an alternative should be limited to rural
geographies, or eligible in all geographies.\318\ In seeking feedback
on the potential expansion to include unsubsidized single-family
affordable rental housing, the agencies acknowledged that single-family
rental housing can be an important source of affordable housing,
especially in geographies, such as rural communities, where multifamily
housing is less common.
---------------------------------------------------------------------------
\317\ See 87 FR 33895.
\318\ Id.
---------------------------------------------------------------------------
Comments Received
Many commenters offered views on whether single-family rental
housing should be considered under the naturally occurring affordable
housing category, provided such housing meets the requirements of
proposed Sec. __.13(b)(2). Some commenters generally opposed expanding
the naturally occurring affordable housing proposal to include single-
family homes, noting: that this expansion could incentivize investors
buying single-family homes to serve as investment properties rather
than encouraging homeownership amongst low- or moderate-income
individuals and families; that such an expansion could inadvertently
reinforce racial segregation and concentrated poverty; and that
permanent home mortgage loans for single-family rental housing were
already covered as part of the proposed Retail Lending Test.
Most of the commenters that remarked on this alternative supported
broadening the eligibility of naturally occurring affordable housing to
include single-family rental housing in some or all geographies. For
example, one commenter noted that affordable single-family rentals are
a critical part of the multipronged approach to address
[[Page 6649]]
affordable housing in this country and should be included in the
affordable housing category.
Imposing higher standards for single-family rental housing.
Although several commenters suggested applying the exact same naturally
occurring affordable housing criteria to both multifamily and single-
family housing, some commenters suggested that activities relating to
single-family rentals be held to a higher standard or subject to
additional restrictions as compared to activities relating to
multifamily naturally occurring affordable housing. Commenters
supporting higher standards raised a number of considerations
including: that single-family rental housing should be limited to homes
that either are eligible for purchase (e.g., lease-to-own), are
prioritized for low- or moderate-income families enrolled in first-time
homeowner programs through HUD, or are part of a State program that
will remain permanently affordable through a community land trust or
other vehicle to sustain affordability; that single-family rental
housing should be limited to housing owned or developed by a nonprofit
organization; and that, if for-profit ownership and development is
allowed, there should be mechanisms to ensure that the property is in
decent physical condition and that bank financing is not supporting
abusive property owners, landlords, management companies, or investors.
Other commenters expressed concerns about investor activity. For
example, a commenter suggested that the agencies restrict CRA
consideration to properties whose owners own fewer than 50 single-
family rental units unless the owner is a nonprofit with a bona fide
mission of providing affordable housing. Another commenter recommended
that, to prevent speculative activity or corporate ownership, the
agencies could exclude from consideration single-family rental housing
in any low- or moderate-income or predominantly minority census tract
in which more than one-third of the single-family housing stock became
rental housing in last five years.
Geographic considerations in recognizing affordable single-family
rental activity. A few commenters addressed the agencies' request for
comment on whether to limit any inclusion of single-family rental
properties in the proposed naturally occurring affordable housing
component to properties located in rural areas. The majority of these
commenters opposed limiting single-family rentals to rural areas. In
this regard, a commenter stated that affordable housing is needed
everywhere and, therefore, the category should not be limited to rural
communities. A few commenters supported limiting single-family rentals
to rural areas, noting the large percentage of occupied rental units in
rural areas that are single-family homes. Another commenter suggested
eliminating all geographic criteria and allowing single-family rentals
to receive CRA consideration anywhere.
Final Rule
The final rule adopts as final Sec. __.13(b)(3) a component in the
affordable housing category for single-family rental housing in
nonmetropolitan areas. The component applies in instances where such
housing is purchased, developed, financed, rehabilitated, improved, or
preserved, and the housing meets the affordability criterion in final
Sec. __.13(b)(2)(i) and at least one of the additional eligibility
criteria in final Sec. __.13(b)(2)(ii). This component is intended to
address single-family rental housing with affordable rents in
nonmetropolitan areas. As previously noted, the agencies inquired
whether the proposed approach to considering naturally occurring
affordable housing should be broadened to include single-family rental
housing that meets the requirements in proposed Sec. __.13(b)(2), and
if so, whether consideration of single-family rental housing should be
limited to rural geographies, or eligible in all geographies. In making
this determination, the agencies have considered the views from
commenters on this request for feedback.
Standards for single-family rental housing. Currently, the lack of
a consistent standard for affordability, combined with unclear methods
for determining whether low- or moderate-income individuals are likely
to benefit, leads to inconsistent consideration of unsubsidized
affordable housing, including single-family rental housing. The
agencies sought feedback on the potential application of the criteria
in proposed Sec. __.13(b)(2)(i) and (ii) to single-family rental
housing because those criteria aim to provide a consistent methodology
for determining benefit for low- or moderate-income individuals. After
considering commenter feedback, the agencies believe that the revised
criteria for naturally occurring affordable housing for multifamily
rental housing under Sec. __.13(b)(2), which include a defined
affordability standard and a requirement that rents be determined based
on the amounts used by the bank for purposes of underwriting, are
suitable for adoption in the single-family nonmetropolitan area rental
housing context. The agencies carefully considered commenter
suggestions for a more stringent or more lenient affordability
standard, and determined that adopting the criteria in final Sec.
__.13(b)(2) for both multifamily rental housing and single-family
rental housing in nonmetropolitan areas will provide a clear and
consistent option that is likely to benefit low- and moderate-income
individuals and families.
Geographic considerations in recognizing affordable single-family
rental activity. Although the agencies considered the assertion by some
commenters that affordable rental housing is needed in all geographic
areas, as noted previously, this component supports consideration only
for single-family rental housing in nonmetropolitan areas. The agencies
also considered that the composition of the housing stock varies across
geographies, and that in some areas, such as in certain nonmetropolitan
areas, it may be difficult to develop affordable multifamily rental
housing at scale, either in conjunction with a government program or as
naturally occurring affordable housing. An agency analysis of data from
the 2016-2020 American Community Survey showed that 22 percent of
occupied rental units in nonmetropolitan areas are structures with more
than 4 units, compared to 47 percent of occupied rental units in
metropolitan areas.\319\ In reaching their determination, the agencies
believe that the final rule approach appropriately balances adding a
component specific to affordable single-family rental housing and
tailoring it to the unique affordable housing needs in nonmetropolitan
areas. The agencies also considered that not including this component
could otherwise limit opportunities for affordable housing in
nonmetropolitan areas.
---------------------------------------------------------------------------
\319\ Multifamily housing is also less common in rural areas
where a smaller 12 percent of occupied rental units are in
structures with more than 4 units according to the same data source.
Rural areas are conceptually distinct from nonmetropolitan areas,
however, and this final rule relies upon the nonmetropolitan area
designation. The Census Bureau uses a distinct methodology of
designating urban and rural census blocks relative to the Office of
Management and Budget's methodology for determining if a county is
within a metropolitan statistical area.
---------------------------------------------------------------------------
This component is designed to address the single-family affordable
housing needs in nonmetropolitan areas, including the particular needs
in rural areas. Accordingly, although the agencies recognize that
single-family affordable housing is important to
[[Page 6650]]
addressing the affordable housing needs for low- and moderate-income
individuals in metropolitan areas, the agencies have determined not to
expand this component to apply to single-family rental housing in
metropolitan areas. Such units may still be eligible for consideration
under final Sec. __.13(b)(1) to the extent that the unit(s) and
associated loan, investment, or service meet the requirements under
that component.
Section __.13(b)(4) Affordable Owner-Occupied Housing for Low- or
Moderate-Income Individuals
The Agencies' Proposal
Proposed Sec. __.13(b)(3) provided a component for the affordable
housing category of community development for ``activities that support
affordable owner-occupied housing for low- or moderate-income
individuals.'' This component included activities that: (1) ``directly
assist low- or moderate-income individuals to obtain, maintain,
rehabilitate, or improve affordable owner-occupied housing''; or (2)
``support programs, projects, or initiatives that assist low- or
moderate-income individuals to obtain, maintain, rehabilitate, or
improve affordable owner-occupied housing.'' \320\ Owner-occupied
housing referenced in the agencies' proposal included both single-
family and multifamily owner-occupied housing.
---------------------------------------------------------------------------
\320\ Proposed Sec. __.13(b)(3).
---------------------------------------------------------------------------
Activities under proposed Sec. __.13(b)(3) would have expressly
excluded single-family home mortgage loans considered under the Retail
Lending Test in proposed Sec. __.22.\321\ Instead, as discussed in the
agencies' proposal, activities eligible for consideration under
proposed Sec. __.13(b)(3) included, for example, construction loan
financing for a nonprofit housing developer building single-family
owner-occupied homes affordable to low- or moderate-income individuals;
financing or a grant provided to a nonprofit community land trust
focused on providing affordable housing to low- or moderate-income
individuals; a loan to a resident-owned manufactured housing community
with homes that are affordable to low- or moderate-income individuals;
a shared-equity program operated by a nonprofit organization to provide
long-term affordable homeownership; and financing or grants for
organizations that provide down payment assistance to low- or moderate-
income homebuyers. Other activities eligible for consideration under
this proposed component include: activities with a governmental or
nonprofit organization with a stated purpose of, or that otherwise
directly supports, providing affordable housing; and activities
conducted by the bank itself, or with other for-profit partners,
provided that the activity directly supports affordable homeownership
for low- or moderate-income individuals.
---------------------------------------------------------------------------
\321\ See id.
---------------------------------------------------------------------------
The agencies sought feedback on what conditions or terms, if any,
should be added to this component to ensure that qualifying activities
are affordable, sustainable, and beneficial for low- or moderate-income
individuals and communities.
Comments Received
Nearly all commenters that commented on the affordable
homeownership component of the NPR expressed support for CRA
consideration for such activities. Some of the commenters suggested a
different definition for this component under which the financing,
construction, or rehabilitation of owner-occupied homes would qualify
if: (1) the homes are located in a low- or moderate-income census tract
or a distressed or underserved middle-income nonmetropolitan census
tract; and (2) the sales price does not exceed four times the area
median income. One commenter noted that this definition should
explicitly include government programs with a ``stated purpose or bona
fide intent'' of providing affordable housing or housing assistance for
low-, moderate-, or middle-income individuals.
Many commenters offered specific suggestions regarding the
activities that should be eligible for consideration under this
component. Commenter suggestions included: that the agencies should
explicitly include financing for the rehabilitation or reconstruction
of an already owner-occupied home if the owner is a low- or moderate-
income individual; that investments and interests in early buyout loans
should receive CRA consideration because they enable servicers to work
with and buy delinquent loans with government insurance or guarantees
without foreclosing on the properties, thereby allowing residents to
remain in their homes; and that the agencies should provide CRA
consideration for the costs of transporting housing materials to remote
areas.
A few commenters encouraged the agencies to use this component to
encourage affordable homeownership for specific populations. For
example, a commenter suggested that the agencies increase and preserve
affordable homeownership for low- or moderate-income individuals from
racial and ethnic groups that were subjected to redlining and other
discriminatory practices. Similarly, a commenter recommended that the
agencies emphasize activities that expand homeownership for first-time
buyers who are individuals with disabilities or represent other
underserved populations.
Some commenters encouraged the agencies to include specific
products or programs in this component of affordable housing. These
suggestions include first-look homebuyer programs,\322\ home repair
programs that help homeowners bring homes into building code
compliance, participation in specific pilot programs offered by the
Federal National Mortgage Association (Fannie Mae) or the Federal Home
Loan Mortgage Corporation (Freddie Mac) (collectively, the Government-
sponsored enterprises or the GSEs),\323\ real estate-owned note sales,
education on and resolution of heirs' property titles, low balance
loans for homeowners, use of alternative credit models, limited equity
housing cooperatives, and property tax abatements to assist low- or
moderate-income owners whose taxes have risen rapidly. Other commenters
suggested that the agencies provide CRA consideration for activities
related to lender fee-for-service payments, investment, grants, and
developing fees for service programming by HUD-certified housing
counseling agencies. Lastly, some commenters recommended that the
agencies encourage banks to partner with nonprofit affordable housing
groups to provide or support affordable homeownership options. These
commenters explained that nonprofit affordable housing groups--
including developers, owners, counselors, and others--provide products
and services that are appropriately tailored to low- and
[[Page 6651]]
moderate-income borrowers and help guard against predatory or
unsustainable homeownership activities.
---------------------------------------------------------------------------
\322\ For example, Freddie Mac's First Look Initiative offers
homebuyers and select nonprofit organizations an exclusive
opportunity to purchase certain homes prior to competition from
investors. See Freddie Mac, ``Freddie Mac First Look Initiative,''
https://www.homesteps.com/homesteps/offer/firstlook.html.
\323\ GSE pilot programs are designed to target a wide range of
housing access issues. GSE pilot programs may help renters establish
and improve their credit scores, defray or decrease the cost of
security deposits for renters, or take other actions to help renters
and homeowners. For example, Fannie Mae's Multifamily Positive Rent
Payment Reporting pilot program is aimed at helping renters build
their credit history and improve their credit score. See Fannie Mae,
``Fannie Mae Launches Rent Payment Reporting Program to Help Renters
Build Credit'' (Sept. 27, 2022), https://www.fanniemae.com/newsroom/fannie-mae-news/rent-payment-reporting-program-launch.
---------------------------------------------------------------------------
Final Rule
The agencies are adopting proposed Sec. __.13(b)(3), renumbered as
final Sec. __.13(b)(4), with clarifying revisions to provide community
development consideration for activities that support affordable owner-
occupied housing for low- and moderate-income individuals.
Specifically, in final Sec. __.13(b)(4), affordable housing includes
``assistance for low- or moderate-income individuals to obtain,
maintain, rehabilitate, or improve affordable owner-occupied housing,
excluding loans by a bank directly to one or more owner-occupants of
such housing.'' The agencies believe that adopting this component
facilitates consideration of a variety of the affordable housing models
suggested by commenters. The agencies also note that some of the
activities suggested by commenters, such as use of alternative credit
scores, special purpose credit programs, and use of other credit
products that assist low- or moderate-income individuals with
purchasing a home could be considered responsive credit products under
the Retail Services and Products Test, described in the section-by-
section analysis of Sec. __.23. Owner-occupied one-to-four-family home
mortgage loans, including but not limited to owner-occupied one-to-
four-family home mortgage loans considered under the Retail Lending
Test in Sec. __.22, are excluded from consideration under this
component.
Relative to the agencies' proposal, the final rule combines the two
prongs (``direct'' support and support for ``plans, programs, and
initiatives'') into a single component that covers all forms of
assistance for affordable homeownership. By creating a single
component, the agencies seek to streamline the requirement and clarify
that a bank may receive community development consideration for
activities that support any qualifying assistance under the component
regardless of whether the support is provided directly to a low- or
moderate-income individual or indirectly, through a third-party
organization. As a result, under the final rule, a down payment grant
provided by a bank to a low- or moderate-income individual is evaluated
using the same standards as those standards that apply to a down
payment grant to a nonprofit organization that provides affordable
housing assistance to low- or moderate-income individuals. This
parallel treatment is consistent with the agencies' objectives,
including the objective seeking to provide greater clarity and
consistency in the application of the regulations, and the criteria in
the proposal.
Assistance for low- or moderate-income individuals to obtain,
maintain, rehabilitate, or improve affordable owner-occupied housing.
Under final Sec. __.13(b)(4), activities that assist low- or moderate-
income individuals to obtain, maintain, rehabilitate, or improve
affordable owner-occupied housing are considered. The proposal would
have recognized activity that ``directly'' assists with these
functions. The agencies removed ``directly'' to better align this
component with the majority standard outlined in final Sec.
__.13(a)(1)(i)(B)(1).
As noted in the proposal, activities under this component could be
conducted in conjunction with a variety of financing types. For
example, this component would include activities such as construction
loan financing for a nonprofit housing developer constructing single-
family owner-occupied homes affordable to low- or moderate-income
individuals; a grant to a nonprofit organization that provides home
rehabilitation and weatherization improvements for low- and moderate-
income homeowners; financing or a grant to a nonprofit community land
trust focused on providing affordable housing to low- or moderate-
income individuals; a loan to a resident-owned manufactured housing
community with homes that are affordable to low- or moderate-income
individuals; a shared-equity program operated by a nonprofit
organization to provide long-term affordable homeownership; and
financing or grants for organizations that provide down payment
assistance to low- or moderate-income homebuyers.\324\
---------------------------------------------------------------------------
\324\ See proposed Sec. __.13(b)(3).
---------------------------------------------------------------------------
Furthermore, under this component, eligible activities may include
those involving assistance to a government agency or nonprofit
organization that provides access to affordable homeownership, and
assistance provided by the bank itself, or by other for-profit
entities. Accordingly, each of the following may qualify for
consideration under final Sec. __.13(b): participation in first-look
homebuyer programs or home repair programs that help homeowners bring
homes into building code compliance; a down payment grant offered
directly by a bank to help low- or moderate-income individuals purchase
a home; an investment in a government bond that finances home mortgage
loans for low- or moderate-income borrowers; \325\ and activities
supporting a program that conducts free home repairs or maintenance for
low- or moderate-income homeowners.
---------------------------------------------------------------------------
\325\ See Q&A Sec. __.12(t)-2.
---------------------------------------------------------------------------
Exclusion of loans by a bank directly to owner-occupants. The
proposal specifically excluded any home mortgage loans considered under
the Retail Lending Test in Sec. __.22. The agencies were concerned
that, as written, the requirement could suggest that a bank might
receive consideration for such loans under either performance test, but
not both. To minimize confusion and to clarify the agencies' intent,
final Sec. __.13(b)(4) replaces the reference to the Retail Lending
Test with language that excludes any loan directly to an owner-
occupant, regardless of whether the loan is considered under the Retail
Lending Test. Consistent with the proposal, this clarification ensures
that banks will not receive CRA consideration under both final Sec.
__.13(b)(4) and final Sec. __.22 for a single loan.
Section __.13(b)(5) Mortgage-Backed Securities
The Agencies' Proposal
Under proposed Sec. __.13(b)(4), the agencies proposed to define
standards for investments in mortgage-backed securities related to
affordable housing that qualify for community development
consideration. Specifically, the agencies proposed that mortgage-backed
securities would qualify as affordable housing when the security
contained ``a majority of either loans financing housing for low- or
moderate-income individuals or loans financing housing that otherwise
qualifies as affordable housing under [proposed Sec. __.13(b)].''
\326\ This proposed component of affordable housing was intended to be
generally consistent with current practice and to recognize that
purchases of qualifying mortgage-backed securities that contain home
mortgage loans to low- or moderate-income borrowers or that otherwise
contain loans that qualify as affordable housing are investments in
affordable housing.
---------------------------------------------------------------------------
\326\ See Q&A Sec. __.12(t)-2. See also, e.g., Q&A Sec.
__.23(b)-2 (indicating that CRA credit for MBS investments is
conferred only if the MBS is ``not backed primarily or exclusively
by loans that the same institution originated or purchased.'').
---------------------------------------------------------------------------
The agencies sought feedback on alternative approaches that would
create a more targeted definition of qualifying mortgage-backed
securities. One alternative approach would be to consider investments
in mortgage-
[[Page 6652]]
backed securities only in proportion to the percentage of loans in the
security secured by affordable properties. For example, if 60 percent
of a qualifying mortgage-backed security consists of single-family home
mortgage loans to low- or moderate-income borrowers, and 40 percent of
the security consists of loans to middle- or upper-income borrowers,
the mortgage-backed security would receive consideration only for the
dollar value of the loans to low- or moderate-income borrowers.
Additionally, the agencies sought feedback on whether to limit
consideration of mortgage-backed securities to the initial purchase of
a mortgage-backed security from the issuer, and not to consider
subsequent purchases of the security. This change would have been
intended to reduce the possibility of multiple banks receiving CRA
consideration for purchasing the same security.
Comments Received
The majority of commenters recognized the important role mortgage-
backed security purchases play in creating liquidity for the mortgage
market and enabling banks to originate more loans and favored retaining
this component of affordable housing. However, many of these commenters
supported restrictions on the types of eligible securities as well as
the amount of CRA consideration received relative to other activities.
Other commenters suggested eliminating consideration for purchases of
mortgage-backed securities altogether because of the view that such
investments are low impact or add little value to communities.
Scope. Some commenters requested that the agencies clarify or
modify the scope of this component. For example, a commenter sought
clarification regarding the treatment of purchases of securities
collateralized by mortgage loans in low- and moderate-income census
tracts. Separately, several commenters recommended that the proposed
mortgage-backed securities component include purchases of other
affordable housing investment vehicles issued by State housing finance
authorities or municipalities, such as mortgage revenue bonds. In
contrast, other commenters supported restricting consideration to
certain types of purchases of mortgage-backed securities, such as loans
or mortgage-backed securities purchased from a certified CDFI, or loans
or mortgage-backed securities that meet certain requirements but that
are not guaranteed by the Federal Government. Other commenters proposed
limitations that would provide CRA consideration only for the first or
second purchase of a mortgage-backed security.
Amount of consideration for mortgage-backed securities. The
majority of commenters addressing the agencies' request for comment on
whether to consider investment in mortgage-backed securities only in
proportion to the percentage of loans in the security secured by
affordable properties favored the proportional consideration
alternative. In contrast, a couple of commenters addressing this
alternative opposed using proportional consideration, asserting that it
would increase complexity without material benefit to the volume and
scope of affordable housing activities in low- or moderate-income
communities. Other commenters suggested a hybrid approach whereby full
CRA consideration would be granted for investments in mortgage-backed
securities comprised of 50 percent or more affordable housing loans and
pro rata credit would be granted for investments in mortgage-backed
securities comprised of less than 50 percent affordable housing loans.
Another commenter suggested that the full value of a mortgage-backed
security only be considered when at least 50 percent of the underlying
loans were used to finance supportive affordable housing developments.
Other commenters recommended that CRA consideration for purchases
of mortgage-backed securities be discounted relative to other community
development investments. These commenters suggested that mortgage-
backed securities investments be discounted by 50 percent in comparison
to more traditional lending or investment in qualified CRA activities
because these securities remain liquid and provide comparably less
public benefit than other qualifying CRA activities. Similarly, some
commenters suggested that the agencies limit consideration for
mortgage-backed securities investments to a percentage of a bank's
nationwide community development activity, with some of these
commenters suggesting either a 20 or 25 percent cap. Other commenters
requested that consideration be limited to the percentage of loans to
low- or moderate-income individuals.
Other restrictions or limitations. Finally, several commenters
suggested that the agencies consider or set a minimum threshold for the
time period that a bank must hold the mortgage-backed securities on its
books, such as two or more years. Some commenters also opposed limiting
mortgage-backed securities consideration to only the initial purchase
from the issuer, citing that this limitation would add complexity and
could negatively impact the market for mortgage-backed securities.
Final Rule
In the final rule, the agencies are adopting the proposal related
to mortgage-backed securities, renumbered as final Sec. __.13(b)(5)
and reorganized to include final Sec. __.13(b)(5)(i) and (ii), with
both substantive and clarifying edits. Specifically, the final rule
includes as a component of affordable housing purchases of mortgage-
backed securities that are collateralized by loans, a majority of which
are not loans that the bank originated or purchased, and which are
either home mortgage loans made to low- or moderate-income individuals
or loans financing multifamily affordable housing that meets the
requirements of final Sec. __.13(b)(1). For clarity, the two
subcategories (home mortgage loans to low- or moderate-income
individuals and loans secured by multifamily affordable housing) form
two separate prongs under the overall mortgage-backed security
component.
The agencies are also revising final Sec. __.13(b)(5) to confirm
that the component only applies to mortgage-backed securities where a
majority of the underlying loans are not loans that the bank originated
or purchased. This limitation is consistent with current interagency
guidance and ensures that banks are not likely to receive consideration
under both final Sec. __.13(b)(5) and the Retail Lending Test in final
Sec. __.22 for the same loan(s).\327\
---------------------------------------------------------------------------
\327\ Q&A Sec. __.23(b)-2.
---------------------------------------------------------------------------
Section __.13(b)(5)(i)
Section __.13(b)(5)(i). Final Sec. __.13(b)(5)(i) specifies that
affordable housing includes purchases of mortgage-backed securities
where a majority of the underlying loans are not loans that the bank
originated or purchased and ``[a]re home mortgage loans made to low- or
moderate-income individuals.'' This provision adopts the proposal to
consider purchases of mortgage-backed securities that contain a
majority of ``loans financing housing for low- or -moderate income
individuals'' (proposed Sec. __.13(b)(4)). On further review, the
agencies determined that ``loans financing housing for low- or -
moderate income individuals'' could be read broadly to include single-
family loans and multifamily loans. The agencies intended, however, to
refer with this language solely to loans secured by
[[Page 6653]]
single-family homes. Thus, final Sec. __.13(b)(5)(i) refers more
specifically to ``home mortgage loans made to low- or moderate-income
individuals.'' As discussed further in the section-by-section analysis
of Sec. __.12, ``home mortgage loan'' is defined to mean a ``closed-
end home mortgage loan'' or an ``open-end home mortgage loan,'' which
are in turn defined to exclude multifamily loans.\328\
---------------------------------------------------------------------------
\328\ See final Sec. __.12 (defining ``home mortgage loan,''
``closed-end home mortgage loan,'' and ``open-end home mortgage
loan'').
---------------------------------------------------------------------------
The agencies also note that final Sec. __.13(b)(5)(i) only allows
consideration based on the income of the individuals to whom the loans
are made and does not allow consideration for mortgage-backed
securities solely because the underlying loans are secured by property
in low- and moderate-income census tracts. This approach, which is
consistent with the agencies' proposal, is intended to maintain the
component's focus on low- or moderate-income individuals. The agencies
do not believe that providing consideration for mortgage-backed
securities where the underlying loans are made to middle- or upper-
income individuals residing in low- or moderate-income census tracts is
likely to further the agencies' goal of encouraging affordable housing
lending to low- and moderate-income individuals.
Section __.13(b)(5)(ii)
Under final Sec. __.13(b)(5)(ii), the agencies replaced phrasing
that referred to loans that finance housing that ``otherwise
qualifies'' as affordable housing with a direct reference to final
Sec. __.13(b)(1). This revision clarifies that, as it relates to
multifamily housing, the agencies intend to provide community
development consideration only for those mortgage-backed securities
where a majority of the underlying loans are secured by multifamily
rental housing purchased, developed, financed, rehabilitated, improved,
or preserved in conjunction with government affordable housing plans,
programs, initiatives, tax credits, and subsidies. The agencies believe
that this clarification will facilitate consistency in evaluating
mortgage-backed securities. The agencies note that purchases of tax-
exempt bonds issued by Freddie Mac and Fannie Mae, which finance
affordable housing projects, and tax-exempt bond issuances that finance
affordable housing projects sponsored by State housing authorities or
municipalities, may be eligible for community development consideration
under the final rule, provided that the bond is a mortgage-backed
security that meets the requirements in final Sec. __.13(b)(5)(ii).
Amount of consideration for mortgage-backed securities. Under final
Sec. __.13(a) mortgage-backed securities that meet the requirements in
final Sec. __.13(b)(5) (i.e., a majority of the underlying loans are
not loans that the bank originated or purchased, and are either home
mortgage loans made to low- or moderate-income individuals or loans
financing multifamily affordable housing that meets the requirements of
final Sec. __.13(b)(1)) will be eligible to receive consideration for
the full value of the security.\329\ The agencies carefully considered
commenter feedback regarding the amount of consideration that mortgage-
backed securities should be eligible to receive under CRA, including
ideas for partial consideration of bank investments in mortgage-backed
securities. On further deliberation, the agencies are not adopting a
partial consideration framework for bank investments in mortgage-backed
securities. The agencies believe that the final rule's majority
approach for mortgage-backed securities will facilitate compliance and
supervision, as it is less complex than other alternatives suggested
and considered, and consistent with the majority standard employed in
most other categories of community development.\330\ While generally
aligned with current guidance on bank investments in mortgage-backed
securities noted earlier, the final rule will provide greater clarity,
transparency, and uniformity in how bank investments in mortgage-backed
securities are considered under CRA.
---------------------------------------------------------------------------
\329\ See final Sec. __.13(a)(1)(i)(A)(2).
\330\ For discussion of the final rule on full and partial
credit for community development loans, investments, and services,
see the section-by-section analysis of final Sec. __.13(a).
---------------------------------------------------------------------------
The agencies believe that the requirements in final Sec.
__.13(b)(5), including the majority requirement, the home mortgage loan
limitation, and the express tie to final Sec. __.13(b)(1) for
multifamily affordable housing, appropriately balance considerations of
current guidance; the benefits of greater consistency and clarity in
the treatment of investments in mortgage-backed securities under CRA;
and the recognition that purchases of mortgage-backed securities
containing home mortgage loans to low- or moderate-income borrowers or
loans that finance multifamily affordable housing can improve
liquidity, in turn supporting more loans to low- and moderate-income
borrowers and more affordable housing development. The agencies remain
sensitive to commenter views that mortgage-backed securities are lower
in impact and responsiveness to community credit needs than other
qualifying affordable housing activities more directly supporting
housing for low- or moderate-income individuals. Accordingly, the
agencies will continue to monitor the impact of including mortgage-
backed securities in the affordable housing category.
Other restrictions or limitations. After carefully considering
commenter feedback, the agencies have decided not to limit
consideration of mortgage-backed securities to the initial purchase of
a mortgage-backed security from the issuer under this component. The
agencies sought feedback on limiting consideration to the initial
purchase in order to emphasize activities that may more directly serve
low- or moderate-income individuals and communities and to reduce the
possibility of multiple banks receiving CRA consideration for
purchasing the same security. However, the agencies believe that this
potential limitation is mitigated as examiners will be able to use
information regarding the amount of time a mortgage-backed security was
owned by the bank to determine the appropriate amount of consideration.
For more information regarding the agencies' use of performance
context, see the section-by-section analysis of Sec. __.21(d).
Complex, Specialized, and Novel Topics in Affordable Housing
As previously noted, the agencies sought feedback on how to ensure
that the proposed affordable housing category is clearly defined and
appropriately inclusive of activities that support affordable housing
for low- or moderate-income individuals, including activities that
involve complex, specialized, or novel solutions, such as community
land trusts, shared equity models, and manufactured housing. The
agencies considered the wide array of commenter responses that
identified particular activities that help to further access to
affordable housing for low- and moderate-income individuals. However,
the agencies have declined to revise the affordable housing category to
explicitly list such activities, because the agencies believe that many
of the activities identified in comments would be eligible for
community development consideration under the various components of the
affordable housing category. This outcome is consistent with the
agencies' objective for the affordable housing category, which is to
create standards and identify
[[Page 6654]]
characteristics that may be used to evaluate a broad range of
affordable housing activities and programs, both current and future,
and identify those that meet the standards for consideration. The
following is a discussion of the ways in which several activities cited
by commenters are captured within the various affordable housing
components or may otherwise receive consideration under the final rule.
Manufactured housing. In the NPR, the agencies stated that a loan
to a resident-owned manufactured housing community with homes that are
affordable to low- or moderate-income individuals could be eligible for
community development consideration as an activity that supports
affordable homeownership for low- and moderate-income individuals. As
noted previously, the agencies also requested feedback about the
inclusion of manufactured housing in the proposed affordable housing
category.
The agencies received several comments related to manufactured
housing, and commenters provided feedback on a variety of approaches
for affordable manufactured housing eligibility. For example, some
commenters supported special consideration of financing for affordable
manufactured housing that is on tribal land, while other commenters
supported a broader approach to include all loans that finance
affordable manufactured housing. Some commenters urged the agencies to
provide consideration only for resident-owned manufactured housing
communities or to nonprofit organizations that provide land for
manufactured housing. In contrast, other commenters urged the agencies
to include consideration for for-profit manufactured home communities,
with one commenter suggesting that loans to manufactured housing
communities with homes that are affordable to low- or moderate-income
individuals should not be restricted to only resident-owned
communities, because for-profit entities play an essential role in
purchasing older communities and making significant infrastructure
repairs, such as roads, sewer, and water. Another commenter suggested
that community development consideration should be extended for loans
to manufactured home dealers that commit to providing more favorable
financing terms to low- or moderate-income buyers.
The agencies have considered these comments and recognize that
manufactured housing can provide important affordable housing options
for low- and moderate-income individuals and families. Nonetheless, the
agencies intend and expect that some manufactured housing activity will
meet the requirements under a component of affordable housing adopted
in the final rule. For example, an acquisition loan made to a
manufactured housing community with homes that are affordable to low-
or moderate-income individuals could help fill a housing gap and may
qualify under final Sec. __.13(b)(4) as assistance supportive of
affordable owner-occupied housing for low- or moderate-income
individuals.\331\ Alternatively, financing provided to a nonprofit, in
conjunction with a government program, to develop manufactured housing
and buy land for use as affordable rental housing for low- and
moderate-income individuals and families could qualify under final
Sec. __.13(b)(1) (rental housing in conjunction with a government
affordable housing plan, program, initiative, tax credit, or
subsidy).\332\ As discussed further in the section-by-section analysis
of final Sec. __.22(d)(1), below, single-family home mortgage loans
meeting the HUD code for manufactured housing are generally reportable
under HMDA, and will therefore receive consideration under the Retail
Lending Test in final Sec. __.22.\333\
---------------------------------------------------------------------------
\331\ Final Sec. __.13(b)(4) is discussed in greater detail in
the section-by-section analysis of Sec. __.13(b)(4), below.
\332\ Final Sec. __.13(b)(1) is discussed in greater detail in
the section-by-section analysis of Sec. __.13(b)(1), below.
\333\ See HUD Manufactured Home Construction and Safety
Standards, 24 CFR part 3280.
---------------------------------------------------------------------------
Shared equity housing programs and community land trusts. In the
NPR, the agencies stated that a shared-equity program operated by a
nonprofit organization to provide long-term affordable homeownership
could be eligible for community development consideration as an
activity that supports affordable homeownership for low- and moderate-
income individuals.\334\ In addition, the agencies stated that an
activity that provides financing for the acquisition of land for a
shared equity housing project that brings permanent affordable housing
to a community could meet the impact review factor for activities that
result in a new community development financing product or service
under the Community Development Financing Test or the Community
Development Financing Test for Limited Purpose Banks, to the extent
that it involves a new strategy to meet a community development
need.\335\
---------------------------------------------------------------------------
\334\ 87 FR 33884, 33897 (June 3, 2022).
\335\ See 87 FR 33915.
---------------------------------------------------------------------------
The NPR also specifically addressed community land trusts, which
typically operate a specific type of shared-equity program. The
agencies stated that providing financing to, or a grant for a nonprofit
community land trust focused on providing affordable owner-occupied
housing to low- or moderate-income individuals could be eligible for
community development consideration as an activity that supports
affordable homeownership for low- and moderate-income individuals.\336\
Several commenters noted that activities, such as those conducted in
coordination with community land trusts, can prevent displacement of
vulnerable residents.
---------------------------------------------------------------------------
\336\ See 87 FR 33897.
---------------------------------------------------------------------------
It is the agencies' view that shared equity housing programs,
including but not limited to community land trust activities, provide
opportunities to support long-term affordable housing. Commenters
generally supported qualification of these activities under the
affordable housing category, with some commenters noting that such
activities can make homeownership affordable for low- or moderate-
income individuals who might be otherwise unable to afford to purchase
a home. The agencies agree that shared equity housing and community
land trusts are important tools to promote homeownership. Although the
final rule does not create a separate component or prong for
qualification of shared equity housing as affordable housing, the
agencies highlight that loans, investments, and services involving
shared equity programs and community land trusts may be eligible for
consideration under final Sec. __.13(b)(4), when they involve
assistance for low- or moderate-income individuals to obtain affordable
owner-occupied housing. As another example, to the extent that a
community land trust operates rental housing meeting the requirements
under final Sec. __.13(b)(1) or (2), loans, investments, and services
to support such housing would qualify for consideration under the
applicable component. Moreover, mortgage loans that allow homeowners to
purchase a home through these programs may be considered under the
Retail Lending Test in final Sec. __.22, or under the responsive
credit product evaluation in the Retail Services and Products Test in
final Sec. __.23.\337\
---------------------------------------------------------------------------
\337\ See final Sec. __.22.
---------------------------------------------------------------------------
Accessory dwelling units (ADUs). Several commenters requested
consideration for banks supporting development of ADUs under the
affordable housing category. For example, commenters requested
[[Page 6655]]
consideration for loans extended to finance ADUs that are intended to
help low- and moderate-income homeowners develop an income-producing
property that could offset the cost of a mortgage or rising property
taxes, or to encourage affordability by creating additional housing
supply.\338\ One commenter suggested that the agencies provide
community development consideration to ADUs and small multifamily
buildings and asked the agencies to clarify that banks can receive
consideration for loans to support improvements and repairs to existing
dwellings, including for small dollar loans and to install
accessibility features.
---------------------------------------------------------------------------
\338\ Accessory dwelling units or ADUs are additional living
quarters on single-family lots that are independent of the primary
dwelling unit. See HUD, Office of Policy Development and Research,
``Accessory Dwelling Units: Case Study'' (June 2008), https://www.huduser.gov/portal/publications/adu.pdf.
---------------------------------------------------------------------------
As adopted under final Sec. __.13(b), certain activities related
to ADUs could be considered affordable housing, such as those that
contribute to the provision of housing affordable to low- and moderate-
income individuals and families. For example, a loan to a nonprofit
organization that supports the creation of an ADU on the property of a
low- or moderate-income homeowner could qualify under final Sec.
__.13(b)(4). Alternatively, a loan or investment in a fund operated in
conjunction with a government program to support the construction of
ADUs could qualify under final Sec. __.13(b)(1), if the resulting ADUs
were rental housing for low- or moderate-income individuals (and not
considered under the Retail Lending Test).
Land banks. The NPR did not specifically address the consideration
of land banks under the various prongs of the affordable housing
category, and a number of commenters requested that the agencies
explicitly address land banks and land bank-related activities in the
final rule. Commenters stated that land bank-related activities often
help to address the need for affordable housing for low- and moderate-
income individuals and in low- and moderate-income communities. The
agencies recognize that land banks, which are typically established by
a government entity or a nonprofit organization, can help to facilitate
the development of affordable housing by acquiring and holding land
until some future time when it can be developed as affordable housing.
The agencies acknowledge that many of these activities could be
considered under the affordable housing category if they have the bona
fide intent and are specifically structured to provide affordable
housing for low- and moderate-income individuals, and the agencies
believe that these activities could qualify under several components of
the affordable housing category under the final rule. For example, a
loan to a land bank created by a government entity to hold land for the
development of affordable rental housing could qualify under final
Sec. __.13(b)(1). Alternatively, a loan to a land bank operated by a
nonprofit organization for the purpose of acquiring land on which to
develop and sell single-family housing to low- and moderate-income
individuals could qualify under final Sec. __.13(b)(4).
Special purpose credit programs. In the proposal, the agencies
sought feedback on whether special purpose credit programs \339\ should
be listed as an example of a responsive credit product or program that
facilitates mortgage and consumer lending targeted to low- or moderate-
income borrowers under the Retail Services and Products Test.\340\
Several commenters instead recommended qualification for these
activities under the affordable housing category of community
development. In response to these comments, the agencies note that
under the final rule, special purpose credit programs can be considered
in the evaluation of responsive credit products and services pursuant
to final Sec. __.23(c)(2)(v). In addition, although specific special
purpose credit programs are not expressly listed as qualifying programs
under the affordable housing category in final Sec. __.13(b), the
agencies recognize that it would be possible for the objectives of
specific special purpose credit programs to align with one or more
affordable housing category components, and in such cases, these
activities may be eligible for consideration within the affordable
housing category of community development. For example, a grant to a
nonprofit who is implementing a special purpose credit program that
provides down payment assistance to low- or moderate-income individuals
may qualify for consideration under final Sec. __.13(b)(4).
---------------------------------------------------------------------------
\339\ See HUD, ``Office of General Counsel Guidance on the Fair
Housing Act's Treatment of Certain Special Purpose Credit Programs
That Are Designed and Implemented in Compliance with the Equal
Credit Opportunity Act and Regulation B'' (Dec. 6, 2021), https://www.hud.gov/sites/dfiles/GC/documents/Special_Purpose_Credit_Program_OGC_guidance_12-6-2021.pdf.
\340\ 87 FR 33966.
---------------------------------------------------------------------------
Down payment assistance. In the NPR, the agencies stated that
financing or grants for organizations that provide down payment
assistance to low- or moderate-income homebuyers could be eligible for
community development consideration as an activity that supports
affordable homeownership for low- and moderate-income individuals under
proposed Sec. __.13(b)(3).\341\ Several commenters suggested that the
agencies provide consideration for activities that provide down payment
assistance to low- and moderate-income individuals. Nonetheless, the
agencies note that direct grants and other programs offered by banks
that help low- and moderate-income homebuyers make a down payment are
eligible for consideration as an activity that supports affordable
homeownership for low- and moderate-income individuals under final
Sec. __.13(b)(4), as long as the down payment assistance is not
provided as a loan by the bank directly to the owner-occupant of the
home.
---------------------------------------------------------------------------
\341\ See 87 FR 33897.
---------------------------------------------------------------------------
Other suggested housing programs. Commenters requested that the
agencies explicitly address many additional activities, including but
not limited to home repair for low- and moderate-income individuals and
families, supportive housing models, and first-look homebuyer programs.
The agencies have considered these recommendations and acknowledge that
there are many types of investments, loans, and services provided by
banks in connection with such activities that may qualify under the
affordable housing category of community development. As previously
noted, many activities recommended by commenters would qualify under
one or more of the five affordable housing components adopted in final
Sec. __.13(b), when the activity meets the qualifying criteria and
thereby supports affordable housing for low- and moderate-income
individuals and families. In addition, to provide increased certainty
on what community development activities will qualify for CRA
consideration, pursuant to final Sec. __.14, the agencies will
maintain a publicly available, non-exhaustive illustrative list of
examples of community development activities that qualify for CRA
consideration, including examples of qualifying affordable housing
activities. The list will be periodically updated. Final Sec. __.14
also provides a formal confirmation process through which any bank
could request a determination as to whether a proposed community
development activity would be eligible for CRA consideration.
[[Page 6656]]
Section __.13(c) Economic Development
Current Approach
Under the current regulation, community development is defined to
include ``[a]ctivities that promote economic development by financing
businesses or farms that meet the size eligibility standards of the
U.S. Small Business Administration Development Company (SBDC) or Small
Business Investment Company (SBIC) programs or have gross annual
revenues of $1 million or less.'' \342\ Under the current Interagency
Questions and Answers, activities qualify as economic development if
they meet both a ``size'' test and a ``purpose'' test.\343\
---------------------------------------------------------------------------
\342\ See current 12 CFR__.12(g)(3). See also 13 CFR 120.10
(SBDC program) and 13 CFR part 107 (SBIC program).
\343\ See Q&A Sec. __.12(g)(3)-1.
---------------------------------------------------------------------------
Size test. An institution's loan, investment, or service meets the
``size'' test if it finances, directly or through an intermediary,
businesses or farms that either meet, as noted, the size eligibility
standards of the SBDC or SBIC programs, or have gross annual revenues
of $1 million or less.\344\ The term ``financing'' is considered
broadly and includes technical assistance that readies a business that
meets the size eligibility standards to obtain financing.\345\
---------------------------------------------------------------------------
\344\ See id.
\345\ See id.
---------------------------------------------------------------------------
Currently, small business loans and small farm loans that meet the
definition of ``loans to small businesses'' or ``loans to small
farms,'' based on the Call Report definitions--loans with original
amounts of $1 million or less to businesses and loans with original
amounts of $500,000 or less to farms \346\--are generally evaluated as
retail loans and not as community development loans. Loans that exceed
these amounts, as applicable, can be considered as community
development loans if the business or farm borrower either meets the
size eligibility standards of the SBDC or SBIC programs or has gross
annual revenues of $1 million or less.
---------------------------------------------------------------------------
\346\ See current 12 CFR __.12(v) (defining a small business
loan as a loan included in ``loans to small businesses'' as defined
in the instructions for preparation of the Call Report). See also 12
CFR __.12(w) (defining a small farm loan as a loan included in
``loans to small farms'' as defined in the instructions for
preparation of the Call Report).
---------------------------------------------------------------------------
Purpose test. A bank's loans, investments, or services can meet the
``purpose'' test if they ``promote economic development'' by supporting
either:
(1) Permanent job creation, retention, and/or improvement:
For low- or moderate-income persons, in low- or moderate-
income census tracts, in areas targeted for redevelopment by Federal,
State, local, or tribal governments;
By financing intermediaries that lend to, invest in, or
provide technical assistance to start-ups or recently formed small
businesses or small farms; or
Through technical assistance or supportive services for
small businesses or farms, such as shared space, technology, or
administrative assistance; \347\ or
---------------------------------------------------------------------------
\347\ See Q&A Sec. __.12(g)(3)-1.
---------------------------------------------------------------------------
(2) Federal, State, local, or tribal economic development
initiatives that include provisions for creating jobs or improving
access by low- or moderate-income persons to jobs or to job training or
workforce development programs.\348\
---------------------------------------------------------------------------
\348\ See id.
---------------------------------------------------------------------------
The agencies will presume that loans, investments, or services in
connection with the following specific government programs promote
economic development, thereby satisfying the purpose test: SBDCs,
SBICs, USDA Rural Business Investment Companies \349\ (RBICs), New
Markets Venture Capital Companies,\350\ NMTC-eligible Community
Development Entities \351\ (CDEs), or CDFIs that finance small
businesses or small farms.\352\
---------------------------------------------------------------------------
\349\ See 7 CFR 4290.50.
\350\ See 13 CFR part 108.
\351\ See 26 U.S.C. 45D(c).
\352\ See Q&A Sec. __.12(g)(3)-1.
---------------------------------------------------------------------------
Currently, an intermediate small bank that is not required to
report small business or small farm loans may opt to have its small
business and small farm loans considered as community development
loans, as long as they meet the definition of community development. An
intermediate small bank that opts to have such small business and small
farm loans considered as community development loans cannot also choose
to have these loans evaluated under the current lending test.\353\
---------------------------------------------------------------------------
\353\ See Q&A Sec. __.12(h)-3.
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed several revisions to the economic development
category of community development that were intended to provide clarity
to stakeholders about the activities that qualify under this category
and to encourage activities supportive of small businesses and small
farms. Specifically, the agencies proposed that the economic
development category of community development would comprise three
types of activities:
Activities undertaken consistent with Federal, State,
local, or tribal government plans, programs, or initiatives that
support small businesses, as defined in the plans, programs, or
initiatives. This prong expressly included lending to, investing in, or
providing services to an SBDC, SBIC, New Markets Venture Capital
Company, qualified CDE, or RBIC (proposed Sec. __.13(c)(1)).
Support for financial intermediaries that lend to, invest
in, or provide technical assistance to businesses or farms with gross
annual revenues of $5 million or less (proposed Sec. __.13(c)(2)); or
Providing technical assistance to support businesses or
farms with gross annual revenues of $5 million or less, or providing
services such as shared space, technology, or administrative assistance
to such businesses or farms or to organizations that have a primary
purpose of supporting such businesses or farms (proposed Sec.
__.13(c)(3)).
Gross annual revenue threshold for small businesses and small farms
under economic development. The agencies proposed alternative size
standards for defining small businesses and small farms, as discussed
in the section-by-section analysis of Sec. __.12.\354\ Specifically,
the agencies proposed a gross annual revenue threshold for the
businesses and farms supported under proposed Sec. __.13(c)(2) and (3)
of $5 million or less. For government-related support of small
businesses and small farms, the size standards of the relevant
government plan, program, or initiative would apply, with the proposed
$5 million gross annual revenue threshold applying in the absence of a
definition in the plan, program, or initiative. As discussed in the
proposal, the $5 million size standard was intended in part to align
the meaning of small business and small farm across the CRA regulation,
including under the proposed Retail Lending Test, with the definition
of small business under the CFPB's Section 1071 Proposed Rule,
subsequently adopted in the Section 1071 Final Rule.
---------------------------------------------------------------------------
\354\ See final Sec. __.12 (``small business'' and ``small
farm'' definitions); see also, e.g., final Sec. __.22(d) and the
accompanying section-by-section analysis.
---------------------------------------------------------------------------
Purpose of job creation, retention, and improvement for low- and
moderate- income individuals under economic development. Under the
proposal, the current purpose test described above would not be
required for loans, investments, and services to qualify as supporting
economic development, as long as the proposed criteria in
[[Page 6657]]
proposed Sec. __.13(c)(1), (2), or (3) were met. The agencies
requested feedback on whether the proposed economic development
category should retain a separate component of economic development to
consider activities that support job creation, retention, and
improvement for low- and moderate-income individuals. Moreover, the
agencies sought feedback on whether activities conducted with
businesses or farms of any size and that create or retain jobs for low-
or moderate-income individuals should be considered. Additionally, the
agencies requested feedback on criteria that could be included to
demonstrate that the activities satisfied this component and that
ensure activities are not qualified solely because they offer low wage
jobs.
Evaluation of direct loans to small businesses and small farms. As
discussed in greater detail in the section-by-section analysis of Sec.
__.22, the agencies proposed that a bank's reported loans to small
businesses and small farms, regardless of the loan amount, generally
would be evaluated under the proposed Retail Lending Test.\355\
Relatedly, under proposed Sec. __.13(c), the agencies proposed that
reported loans directly to small businesses and small farms would not
be included in the economic development category of community
development and, therefore, would not be considered in the proposed
Community Development Financing Test. Consistent with current guidance,
the agencies proposed that intermediate banks would retain flexibility
to have certain retail loans--small business, small farm, and home
mortgage loans--be considered as community development loans. This
option was proposed to be available to an intermediate bank if those
loans have a primary purpose of community development and are not
required to be reported by the bank (under HMDA or CRA).\356\
---------------------------------------------------------------------------
\355\ See proposed Sec. __.22(a); see also, e.g., final Sec.
__.22(d) and the accompanying section-by-section analysis.
\356\ See proposed Sec. __.22(a)(5)(iii); compare with Q&A
Sec. __.12(h)--3 (small business, small farm, home mortgage, and
consumer loan consideration for intermediate small banks).
---------------------------------------------------------------------------
The agencies proposed this approach to reflect the agencies' belief
that loans to small businesses and small farms are primarily retail
lending products for banks, and therefore would be more appropriately
considered under the proposed Retail Lending Test. Under the proposed
Retail Lending Test, described in detail in the section-by-section
analysis of Sec. __.22 below, small business loans and small farm
loans would be evaluated based on the distribution metrics and would
not be subject to additional requirements such as the current community
development criterion for economic development.\357\ Accordingly, the
proposed revisions to the economic development category of community
development were designed to emphasize other activities that would
promote access to financing for small businesses and small farms, as
discussed in greater detail below. However, as also discussed further
below, the agencies also sought feedback on whether the proposed
approach to evaluating direct small business and small farm lending
solely under the Retail Lending Test would sufficiently recognize
activities that support job creation, retention, and improvement for
low- or moderate-income individuals and communities.
---------------------------------------------------------------------------
\357\ As further discussed in the section-by-section analysis of
final Sec. __.42, under the current rule, for each census tract in
which a bank (other than a small bank) originated or purchased a
small business or small farm loan, the bank must report the
aggregate number and amount of the loans with an amount at
origination of: (1) $100,000 or less; (2) more than $100,000 but
less than $250,000; and (3) more than $250,000. See current 12 CFR
__.42(b)(1)(i) through (iii). These banks must also report small
business and small farm loans to businesses and farms with gross
annual revenues of $1 million or less (based on the revenue size
used by the bank in making the credit decision). See current 12 CFR
__.42(b)(1)(iv). Subject to changes discussed in the proposal
pertaining to the transition to using section 1071 data, the
proposed Retail Lending Test distribution metrics would evaluate a
bank's small business loans and small farm loans to businesses and
farms with gross annual revenues of less than $1 million. The
proposal also would evaluate loans to small businesses and small
farms of more than $250,000 but less than or equal to $1 million,
and of $250,000 or less. See proposed Sec. __.22(d); see also final
Sec. __.22(e) and the accompanying section-by-section analysis. See
also, e.g., current 12 CFR __.12(g)(3) and Q&A Sec. __.12(g)(3)-1.
---------------------------------------------------------------------------
Under the proposal, for retail loans evaluated under the proposed
Retail Lending Test, the agencies proposed to transition from the
current CRA definitions of small business loans and small farm loans to
the definitions of loans to small businesses and small farms with gross
annual revenues of $5 million or less--with the focus on the size of
the small business or small farm, not the size of the loan. Hence,
whereas currently, as noted, small business and small farm loans are
generally evaluated under the lending test if they are loans with
origination amounts of $1 million or less to a business (of any size)
and loans with origination amounts of $500,000 or less to a farm (of
any size),\358\ small business and small farm lending evaluated under
the proposed Retail Lending Test would consider loans of any size, as
long as they were to businesses or farms with gross annual revenues of
$5 million or less.
---------------------------------------------------------------------------
\358\ See 12 CFR __.12(v) (defining a small business loan as a
loan included in ``loans to small businesses'' as defined in the
instructions for preparation of the Call Report). See also 12
CFR__.12(w) (defining a small farm loan as a loan included in
``loans to small farms'' as defined in the instructions for
preparation of the Call Report).
---------------------------------------------------------------------------
As proposed, the transition to this evaluation approach for small
business and small farm lending would be based on the availability of
data under the CFPB Section 1071 Final Rule on small business loan data
collection. In the interim, to evaluate small business and small farm
loans under the Retail Lending Test, the agencies proposed to use the
current definitions of small business loan and small farm loan.\359\
The agencies sought feedback on this aspect of the proposal and on
whether to continue considering bank loans to small businesses and
small farms that currently qualify under the economic development
criteria as community development loans during the period between when
the final rule becomes applicable and when the agencies begin to use
section 1071 data for bank CRA evaluations.
---------------------------------------------------------------------------
\359\ See 12 CFR __.12(v) (defining small business loan) and (w)
(defining small farm loan).
---------------------------------------------------------------------------
Comments Received
Many commenters provided a variety of views on the proposal overall
and offered feedback on the issues on which the agencies specifically
requested comment, as discussed in further detail below. Several
commenters expressed general support for the proposed changes to the
economic development category and the proposed components. Many
commenters expressed concerns, however, that the proposed changes to
the economic development category would limit the activities that would
have qualified under the current rule for this category and/or limit
the range of small businesses that could be supported. Generally
regarding a ``size'' and ``purpose'' test for the economic development
category of community development, multiple commenters supported
retaining the current size and purpose tests because, in these
commenters' view, these tests highlight women- and minority-owned
businesses. A commenter suggested that the ``size'' test and
``purpose'' test be retained but that a qualifying activity under the
economic development category should be required to satisfy only one of
these tests, not both.
Comments discussed below address the following topics regarding the
proposed economic development category of community development: (1)
proposed size standards for small
[[Page 6658]]
businesses and small farms; (2) the proposal to eliminate the existing
``purpose'' test for qualifying economic development activities; (3)
criteria to demonstrate job creation, retention, and improvement; and
(4) the proposed evaluation of direct loans to small businesses and
small farms. As relevant, comments on these topics are also included in
the section-by-section analysis of the individual components of the
final rule (final Sec. __.13(c)(1) through (3)).
Gross annual revenue threshold for small businesses and small farms
under economic development. Numerous commenters addressed the proposal
to include a gross annual revenue threshold for businesses and farms
that could be considered under the economic development category. Some
commenters generally supported the proposed size threshold of gross
annual revenues of $5 million or less for businesses and farms, with
some asserting the proposed size threshold would allow a greater number
of small businesses to be supported under this category. A few
commenters supported the $5 million gross annual revenue threshold but
suggested that support for intermediaries that target the smallest
businesses (with gross annual revenues of $1 million or less) should
receive enhanced credit, while another commenter expressly supported
using the $5 million gross annual revenue threshold for the
intermediary prong (proposed Sec. __.13(c)(2)).
On the other hand, many commenters opposed or expressed concerns
about the proposed size thresholds for small businesses and small
farms. Commenters generally expressed concerns that the proposed
approach would eliminate credit or stifle growth for many businesses,
including minority-owned businesses and mid-sized companies, and would
limit or omit many projects that impact low- and moderate-income areas
or individuals. A commenter asserted that the proposed $5 million gross
annual revenue threshold failed to account for the significant positive
impact larger businesses have on job creation, retention, and
improvement. Some commenters suggested maintaining the current ``size''
standards to qualify activities that support small businesses and small
farms under the economic development category, with some expressing
concerns that activities directly supporting small businesses that meet
the size eligibility standards established by the SBA and affiliated
programs (but that have gross annual revenues of greater than $5
million), as well as support for the financial intermediaries assisting
these businesses, would no longer qualify under this proposed economic
development category. A commenter asserted that setting a specific
revenue threshold for small businesses fails to recognize differences
among businesses across different industries and suggested that the
agencies adopt a business size index and standard like the one used by
the SBA.\360\ A few commenters asserted that the proposed threshold of
$5 million in gross annual revenues would be too low. A few other
commenters expressed concern that the proposal did not provide a clear
rationale for the proposal to use a $5 million gross annual revenues
threshold for small businesses and farms supported under the proposed
economic development category. One commenter recommended that banks of
any size should be allowed to receive consideration for loans to any
small business or small farm loan, regardless of gross annual revenue,
under any category of community development.\361\
---------------------------------------------------------------------------
\360\ See, e.g., SBA, ``Table of Size Standards'' (effective
March 17, 2023), https://www.sba.gov/document/support-table-size-standards.
\361\ This commenter specifically suggested merging the proposed
economic development category with the proposed revitalization
category. See proposed Sec. __.13(e).
---------------------------------------------------------------------------
Some commenters asserted that the proposed threshold of $5 million
in gross annual revenues for small businesses and small farms would be
too high. A commenter suggested that the size standard should be $1
million gross annual revenues or less, consistent with current CRA
small business loan reporting, without consideration for the size
standards established by the SBA and affiliated programs and noted that
most small, minority-owned, and women-owned businesses have gross
annual revenues of $1 million or lower. Several commenters indicated
that a $5 million gross annual revenue threshold would create a
disincentive for banks to support very small businesses and minority-
owned businesses. Another commenter suggested that a size standard of
$750,000 in gross annual revenues would target an appropriate business
size, particularly in rural areas, but also supported retaining the
flexibility to use the size standards established by the SBA for
economic development loans.
A few commenters suggested that, if the agencies adopt the small
business and small farm gross annual revenue threshold as proposed,
exceptions should also be adopted. A commenter suggested that
activities that support minority-owned businesses, including those with
more than $5 million in gross annual revenues, should also qualify
without having to document job creation, retention, or improvement.
Another commenter similarly suggested that any loan or investment in a
certified minority business enterprise should qualify.
Purpose of job creation, retention, and improvement for low- and
moderate- income individuals under economic development. The agencies
received many comments related to the proposal to eliminate the
``purpose'' test from the economic development category of community
development. Some commenters supported the expansion of possible
eligible loan purposes; for example, a commenter favorable noted that
the removal of the jobs-focused ``purpose'' test would enable banks to
receive CRA consideration for making loans to small businesses or farms
for new equipment or facilities that could support their growth.
Another commenter asserted that the proposal would allow a greater
number of small businesses to be supported, expressing the view that
the ``purpose'' test required by current CRA regulations under the
economic development definition limited support for some small
businesses, particularly sole proprietors that generally do not create
jobs for low- and moderate-income individuals, and therefore do not
meet the current ``purpose'' test standard. A commenter stressed that
an important reason to retain the existing ``purpose'' test is that it
provides consideration for jobs to low- and moderate-income individuals
and communities as well as areas targeted for revitalization.
Many commenters supported retaining job creation, retention, and
improvement as a component of the economic development category. Some
commenters raised concerns that the proposed approach to evaluate loans
to small businesses and farms under the Retail Lending Test would not
sufficiently recognize job creation, retention, and improvement
benefits for low- and moderate-income individuals. Commenters expressed
concern that eliminating the current purpose test focused on job
creation, retention or improvement for low- and moderate-income
individuals and would disincentivize banks from investing in certain
funds, programs, and other activities that focus on these objectives. A
commenter noted that retaining the purpose requirement would improve
transparency and noted that they did not believe demonstrating that a
loan's purpose is to create, retain, or improve jobs is difficult.
Several commenters highlighted that the requirements for qualifying a
Public Welfare Investment
[[Page 6659]]
(PWI) include demonstrating that the investment is designed
``primarily'' to promote the public welfare, including the welfare of
low- or moderate-income communities or families (such as by providing
housing, services, or jobs) \362\ and that the emphasis on job creation
should be similarly retained in the economic development category of
community development under CRA. A few commenters expressed concerns
about the possibility of materially different standards for community
development investments versus permissible PWIs.
---------------------------------------------------------------------------
\362\ See 12 U.S.C. 24(Eleventh) (OCC), 12 U.S.C. 338a (Board),
12 CFR 345.12(g)(1) through (4), (h)(1), (i)(1), and (t)(1) (FDIC).
---------------------------------------------------------------------------
Many commenters also suggested that the economic development
category include consideration for loans and investments to small
businesses and small farms that demonstrate job creation, retention,
and improvement not only for low- and moderate-income individuals, but
also in low- and moderate-income areas and areas targeted for
redevelopment by Federal, State, local, or tribal governments,
consistent with current guidance.\363\ Several commenters suggested
that loans to or investments in any size small business or small farm
that could demonstrate job creation, retention, or improvement for low-
and moderate-income individuals should be considered. One of these
commenters also suggested that additional consideration should be given
to activities that support businesses owned by persons of color, women
or veterans, and small family-owned farms. Finally, a commenter
suggested that if the jobs-focused requirement were not included in the
economic development category, then it should be considered as part of
the impact review for the Community Development Financing Test.\364\
---------------------------------------------------------------------------
\363\ See Q&A Sec. __.12(g)(3)-1.
\364\ See proposed Sec. Sec. __.15 and __.24, discussed in the
section-by-section analyses of final Sec. Sec. __.15 and __.24.
---------------------------------------------------------------------------
In contrast, some commenters viewed a separate component for
activities supporting job creation, retention, or improvement as
unnecessary. For example, a commenter thought that the proposed
approach for considering direct loans to small businesses and small
farms under the Retail Lending Test was simpler and that other proposed
components for the economic development category would support job
creation and retention.
Criteria to demonstrate job creation, retention, and/or improvement
for low- or moderate-income individuals. Commenters also provided input
on criteria that could be included to demonstrate that the purpose of
an activity is job creation, retention, or improvement for low- or
moderate-income individuals. Many commenters highlighted the CRA
Interagency Questions and Answers and noted that banks have
successfully followed this guidance to provide examiners with
information that demonstrates the purpose of the activity to be job
creation, improvement, or retention and that this approach should be
sufficient. A commenter suggested any documentation about the type of
job, training offered or outreach to low- and moderate-income
individuals or areas should be considered.
Commenters provided suggestions on resources that a bank can use to
demonstrate that the purpose of an activity is for job creation,
retention, or improvement for low- or moderate-income individuals. For
example, suggestions included relying on the recipient's credit
profile, public websites, such as glassdoor.com, and criteria
established by the HUD Community Development Block Grant Program.\365\
A commenter suggested that if the anticipated or documented wages
exceed 80 percent of area median income, the location of the job should
be considered, particularly if the company has committed to hire from a
low- or moderate-income or underserved area. This commenter did not
support the development of a prescriptive standard or requirement for
documentation, however, and suggested that a bank should be allowed to
demonstrate, with or without documentation from the business, that the
activity is likely to create or retain jobs.
---------------------------------------------------------------------------
\365\ See 24 CFR 570.208(a)(4). The comment cited HUD Office of
Block Grant Assistance, ``Basically CDBG,'' https://files.hudexchange.info/resources/documents/Basically-CDBG-Chapter-3-Nat-Obj.pdf.
---------------------------------------------------------------------------
Many commenters on this topic offered specific views on criteria
that could be considered to evaluate the quality of the job. Commenters
offered suggestions examiners should consider, such as the type of job,
compensation, access to job training and other support for career
advancement as well as quality specific factors, such as whether the
job provides at least three employee benefits including health
insurance, dental insurance, 401(k) or other retirement plan, sick
leave, vacation leave, and disability, as well as consideration of
whether the job offers at least a living wage and cited the ``living
wage calculator'' developed by the Massachusetts Institute of
Technology.\366\ A commenter suggested using the same standards for
assessing job quality as the Community Economic Development Program
within the Office of Community Services at the U.S. Department of
Health and Human Services \367\ to ensure that activities are not given
credit if they offer only low wage jobs.
---------------------------------------------------------------------------
\366\ See Massachusetts Institute of Technology, ``Living Wage
Calculator,'' https://livingwage.mit.edu/.
\367\ See U.S. Dept. of Health & Human Svcs., Office of
Community Svcs., ``Community Economic Development (CED),'' https://www.acf.hhs.gov/ocs/programs/ced.
---------------------------------------------------------------------------
Several commenters did not support considering wages provided by
the job as a measure of job quality. These commenters asserted that all
jobs are valuable and should be considered regardless of the wages
offered and indicated that jobs that offer lower wages may still be
important entry level jobs. Additionally, a commenter noted that jobs
created by small businesses provide important opportunities in
historically marginalized communities and stated that the importance of
creating jobs of all salary levels should be recognized.
Evaluation of direct loans to small businesses and small farms.
Commenters had differing views on whether loans made by banks directly
to small businesses and small farms should be considered under the
economic development category of community development or should only
be considered under the Retail Lending Test, as proposed. Some
commenters raised concerns that the proposed approach to evaluate loans
to small businesses and farms under the Retail Lending Test would not
sufficiently recognize job creation, retention, and improvement
benefits for low- to moderate-income individuals. For example, a
commenter supported continuing to include loans to small businesses and
small farms that satisfy the size and purpose tests as community
development loans, asserting that considering them under the Retail
Lending Test would fail to incentivize small business lending. Another
commenter expressed concerns that this approach would limit community
development activities not associated with government programs, such as
activities undertaken through nonprofit affiliates of CDFIs, that CDFIs
can leverage to meet economic development goals without some of the
challenges of participating in a government program.
On the other hand, some commenters suggested that a bank should
have the option of choosing whether to have a loan to a small business
or small farm
[[Page 6660]]
considered either under the proposed Community Development Financing
Test or the proposed Retail Lending Test. A commenter recommended that
the proposed flexibility for intermediate banks to have certain retail
loans considered community development loans should be extended to
large banks with under $10 billion in assets. A few commenters
suggested that, in general, loans to small businesses or small farms
should be considered under the proposed Community Development Financing
Test if they have a purpose of community development.
Some commenters asserted that the proposed approach would
sufficiently recognize loans to small businesses and small farms and
that may also support job creation, retention, and improvement for low-
or moderate-income individuals or communities. A commenter asserted
that the proposed approach would be more inclusive of all small
business lending compared to the current approach, noting that only
loans to small businesses that are greater than $1 million and that
also satisfy the size and purpose test qualify as community development
loans. Another commenter expressed the view that removing the
requirement that activities demonstrate job creation, retention, and
improvement for low- and moderate-income individuals would incentivize
banks to provide more support to micro-businesses.
Commenters provided several other suggestions for how direct
lending to small businesses and small farms that demonstrates job
creation, retention or improvement for low- and moderate-income
individual could be considered if not included in the economic
development category. A few commenters suggested that the agencies
include a qualitative review of loans considered under the Retail
Lending Test to determine whether they demonstrate job creation,
retention, or improvement for low- and moderate-income individuals and
communities. Another commenter suggested that only loans to small
businesses and small farms that demonstrate job creation, retention, or
improvement for low- and moderate-income individuals or areas should be
considered under the proposed Retail Lending Test. This commenter
further recommended that, of those loans, only loans that can
demonstrate the creation of ``good jobs,'' supporting economic
mobility, such as those that provide apprenticeships or shared equity,
should qualify.
A few commenters suggested that the agencies eliminate the
exclusion set forth in proposed Sec. __.24(a)(2)(i) for considering
retail loans with a community development purpose under the Community
Development Financing Test with commenters suggesting that this could
produce unintended results once the agencies replace the CRA definition
of ``small business loan'' with a definition based on the CFPB's
Section 1071 Final Rule. One of the commenters explained that many
community development loans are made to special purpose, startup, or
nonprofit entities that do not have gross annual revenues of more than
$5 million. The commenter suggested that the proposed Retail Lending
Test would incentivize banks to distribute their small business loans
in a particular way but would not provide incentives for banks to make
small business loans that satisfy the community development definition,
which can be especially impactful loans. The commenter further
explained that there would be no ``double counting'' of small business
loans if the Community Development Financing Test allowed for certain
small business loans to qualify as community development loans, since
the Retail Lending Test and the Community Development Financing Test
would evaluate different aspects of the same qualifying small business
loan.
A commenter suggested that, for direct loans to small businesses
and small farms, job creation, retention, or improvement should be
considered as part of a qualitative review under the proposed Retail
Services and Products Test for large and intermediate banks \368\ and
suggested that for small banks, this criterion could be considered as
part of the qualitative review under the Retail Lending Test. Another
commenter also suggested that for large banks, job creation, retention,
and improvement could be considered as part of a qualitative review
under the proposed Retail Services and Products Test, but for
intermediate and small banks it could be considered as part of a
qualitative review under the Retail Lending Test.
---------------------------------------------------------------------------
\368\ Under the proposal, small banks and intermediate banks
would not be subject to the proposed Retail Services and Products
Test. See proposed Sec. __.21(b)(2) and (3). As discussed in the
section-by-section analysis of Sec. __.21, the agencies proposed
that small banks would be evaluated under the performance standards
for small banks under proposed Sec. __.29(a), but could opt to be
evaluated under the Retail Lending Test. See proposed Sec.
__.21(b)(3); see also final Sec. __.21(a)(3).
---------------------------------------------------------------------------
Final Rule
Overview
The agencies are adopting, with revisions, the proposed economic
development category in Sec. __.13(c). As finalized, the provisions
for this category are intended to provide greater clarity, to promote
activities that support small businesses and small farms, and to
recognize the role of intermediaries that provide assistance to small
businesses and small farms.
Final Sec. __.13(c) establishes three components for the economic
development category. For clarity and overall organization of this
section, the final rule includes section headers for each of these
three components. Under the final rule, the three components are:
Government-related support for small businesses and small
farms (final Sec. __.13(c)(1)), which includes activities undertaken
in conjunction or in syndication with Federal, State, local, or tribal
governments and comprises two subcomponents:
[cir] Loans, investments, and services other than direct loans to
small businesses and small farms (final Sec. __.13(c)(1)(i)); and
[cir] Direct loans to small businesses and small farm (final Sec.
__.13(c)(1)(ii)).
Intermediary support for small businesses and small farms
(final Sec. __.13(c)(2)), which provides for support to small
businesses or small farms through intermediaries.
Other support for small businesses and small farms (final
Sec. __.13(c)(3)), which addresses for other assistance to small
businesses or small farms, such as financial counseling, shared space,
technology, or administrative assistance, to small businesses or small
farms.
Relative to the proposal, the final rule broadens the scope of
eligible activities under the economic development category and expands
the range of small businesses and small farms that could be supported,
while providing greater clarity to stakeholders regarding the economic
development category. Each component of the final rule is discussed in
turn in the section-by-section analysis below.
Section __.13(c)(1) Government-Related Support for Small Businesses and
Small Farms
The Agencies' Proposal
Under proposed Sec. __.13(c)(1), activities ``undertaken
consistent with Federal, [S]tate, local, or tribal government plans,
programs, or initiatives that support small businesses or small farms
as those entities are defined in the plans, programs, or initiatives''
would be considered community development loans as discussed in greater
detail below.\369\ Consistent with current interagency
[[Page 6661]]
guidance,\370\ this proposed provision was intended to encourage
support for highly responsive activities that are relevant to small
businesses and small farms, as well as coordination among banks,
government agencies, and other program participants. The proposed gross
annual revenue threshold of $5 million or less for qualifying
businesses or farms would not be required for activities that support
business or farms through these government plans, programs, or
initiatives, or through the specified entities. Instead, the size
standards used by the respective government plans, programs, or
initiatives to qualify business or farms as small would apply.\371\
---------------------------------------------------------------------------
\369\ Proposed Sec. __.13(c)(1).
\370\ See, e.g., Q&A Sec. __.12(g)(3)-1 and Q&A Sec.
__.12(g)(4)(i)-1.
\371\ See id.
---------------------------------------------------------------------------
The agencies also proposed to specify that lending to, investing
in, or providing services to an SBDC, SBIC, New Markets Venture Capital
Company, qualified CDE, or RBIC would qualify as economic development.
With certain technical differences, this aspect of the proposal
generally would memorialize existing guidance which presumes that
activities with these entities promote economic development.\372\ By
including this list in the proposed regulation, the agencies intended
to provide greater clarity and encourage the continued participation
in, and support of, programs offered through these key providers of
small business and small farm financing.
---------------------------------------------------------------------------
\372\ See Q&A Sec. __.12(g)(3)-1 (stating that ``the agencies
will presume that any loan or service to or investment in a SBDC,
SBIC, [RBIC], New Markets Venture Capital Company, New Markets Tax
Credit-eligible [CDE], or [CDFI] that finances small businesses or
small farms, promotes economic development'').
---------------------------------------------------------------------------
Comments Received
Several commenters supported Sec. __.13(c)(1) as proposed, with
multiple commenters specifically supporting the agencies' inclusion of
SBDCs in this component of the economic development category. A few
commenters supported relying on the size standards used by the
respective government programs to qualify activities, with a commenter
noting that the proposal to allow consideration for activities that
meet the size standards of the applicable government program would
allow support for some larger businesses and would accommodate some
level of intentional job creation. Commenter feedback also included a
suggestion that the agencies include an express ``presumption'' of
qualification for CRA credit for activities in connection with SBDCs,
SBICs, RBICs, New Markets Venture Capital Companies, as well as
Federal, State, local, or tribal government plans or programs.\373\
Commenters also suggested that loans and investments should be
considered if they finance, either directly or through an intermediary,
businesses or farms that either meet the size eligibility standards of
the SBDC or SBIC programs or have $5 million in gross annual revenues
or less.
---------------------------------------------------------------------------
\373\ As noted earlier in this section-by-section analysis, the
proposal specifies that ``[e]conomic development activities are: (1)
Activities undertaken consistent with Federal, State, local, or
tribal government plans, programs, or initiatives that support small
businesses or small farms as those entities are defined in the
plans, programs, or initiatives, . . . including lending to,
investing in, or providing services to an [SBCD] (13 CFR 120.10),
[SBIC] (13 CFR 107), New Markets Venture Capital Company (13 CFR
108), qualified [CDE] (26 U.S.C. 45D(c)), or [RBIC] (7 CFR
4290.50).'' See also Q&A Sec. __.12(g)(3)-1.
---------------------------------------------------------------------------
On the other hand, a commenter objected to the proposal to rely on
the small business and small farm size standards of the applicable
government plan, program, or initiative, asserting that government
programs often do a poor job of targeting businesses owned by low- and
moderate-income individuals. This commenter urged the agencies to adopt
a $5 million maximum gross annual revenue threshold for small
businesses and farms under this component, asserting that this would be
important for consistency in small business and small farm size
standards across the regulation.
A few commenters expressed concerns about the presumption of
qualifications for SBICs. For example, one of these commenters raised
doubts as to how well SBICs serve targeted groups and suggested that
SBICs should not automatically garner CRA credit.
Final Rule
The agencies are finalizing proposed Sec. __.13(c)(1) with
revisions to the proposed activities undertaken with government plans,
programs or initiatives for specificity and clarity. Final Sec.
__.13(c)(1) adopts ``Government-related support for small businesses
and small farms'' as the paragraph header for this component; this
provision encompasses loans, investments, or services that are
undertaken in conjunction or in syndication with Federal, State, local,
or tribal government plans, programs, or initiatives. Such loans,
investments, or services can be made or provided directly or indirectly
to or in small businesses or small farms, as described below.
The final rule under Sec. __.13(c)(1) replaces the proposed rule
text referencing activities undertaken ``consistent with'' Federal,
State, local, or tribal government, plans, programs, or initiatives
with the phrase ``in conjunction or in syndication with'' these plans,
programs, or initiatives. In this way, the final rule emphasizes the
intended link between loans, investments, or services that will qualify
as economic development under this prong with Federal, State, local, or
tribal government, plans, programs, or initiatives. The final rule adds
``in syndication with'' for clarity, to refer to those loans extended
to a single borrower by a group of entities. The agencies believe that
qualifying activities in conjunction with or in syndication with
government plans, programs, or initiatives helps ensure that activities
are responsive to the credit needs of small businesses and small farms,
in alignment with the goals of CRA. In this regard, the agencies
believe that government plans, programs, or initiatives are general
indicators of community needs, and thus provide a mechanism for
ensuring that activities are intentional and support the needs of small
businesses and small farms. In addition, the nexus to government plans,
programs, and initiatives provides transparency regarding program
requirements and certainty for qualification, which the agencies
believe is important for all stakeholders.
As noted above and as described below, final Sec. __.13(c)(1) is
organized into two subcomponents: loans, investments, and services
other than direct loans to small businesses and small farms (final
Sec. __.13(c)(1)(i)); and direct loans to small businesses and small
farms (final Sec. __.13(c)(1)(ii)).
Section __.13(c)(1)(i) Loans, Investments, and Services Other Than
Direct Loans to Small Businesses and Small Farms
The final rule in Sec. __.13(c)(1)(i) provides that loans,
investments, and services, excluding direct loans to small businesses
and small farms, that are undertaken in conjunction or in syndication
with Federal, State, local, or tribal governments are eligible for
consideration as economic development. Consistent with the proposal,
under final Sec. __.13(c)(1)(i), loans, investments, and services may
support small businesses or small farms in accordance with how small
businesses and small farms are defined in the applicable plan, program,
or initiative. If the government plan, program, or initiative does not
identify
[[Page 6662]]
a standard for the size of the small businesses or small farms
supported by the plan, program, or initiative, the small businesses or
small farms supported must meet the definition of small business or
small farm in final Sec. __.12. Also consistent with the proposal,
loans to, investments in, or services provided to the following are
presumed to meet the criteria of final Sec. __.13(c)(1)(i): SBICs; New
Markets Venture Capital Companies; qualified CDEs; and RBICs.
Under final Sec. __.13(c)(1)(i), for example, an investment in a
microloan program operated by a local government could be considered
provided that this activity met the required criteria. The agencies are
finalizing the provision regarding certain Federal programs to
memorialize current interagency guidance and, as noted in the proposal,
provide greater clarity and encourage the continued participation in,
and support of, plans, programs or initiatives offered through these
key providers of small business and small farm financing.\374\
---------------------------------------------------------------------------
\374\ See Q&A Sec. __.12(g)(3)-1.
---------------------------------------------------------------------------
The agencies understand that some commenters oppose the express
presumption of qualification for activities in connection with SBICs
because of concerns regarding how well SBICs serve certain groups of
business owners, but the agencies believe that it is important to
recognize them in the final rule because they offer an opportunity for
banks to provide an important source of capital to grow small
businesses.\375\ The agencies note that specifying SBICs and other
entities in the final rule provides greater clarity and certainty about
the types of loans, investments and services that may receive
consideration under this subcomponent.
---------------------------------------------------------------------------
\375\ See generally, SBA, ``The Small Business Investment
Company (SBIC) Program Overview'' (Oct. 1, 2018), https://www.sba.gov/sites/sbagov/files/2019-02/2018%20SBIC%20Executive%20Summary.pdf.
---------------------------------------------------------------------------
The final rule also provides consistency for stakeholders with the
current framework. As noted, this subcomponent of the economic
development final rule generally memorializes current interagency
guidance, which provides that any loan or service to or investment in
an SBDC, SBIC, RBIC, New Markets Venture Capital Company, NMTC-eligible
CDE, or CDFI that finances small businesses or small farms, is presumed
to promote economic development. \376\ As the proposal, final Sec.
__.13(c)(1)(i) does not mention CDFIs, as activities with CDFIs are
considered under a separate category of community development in the
final rule.\377\
---------------------------------------------------------------------------
\376\ See Q&A Sec. __.12(g)(3)-1.
\377\ See final Sec. __.13(k) and the accompanying section-by-
section analysis.
---------------------------------------------------------------------------
Size eligibility standard under final Sec. __.13(c)(1)(i). As
noted, for this subcomponent of economic development, the agencies are
adopting a size standard for businesses or farms that are supported by
government plans, programs, or initiatives that aligns with relevant
size standards for small businesses and small farms intended to be the
beneficiaries of the applicable government plan, program, or
initiative. The size standard could be lower or higher than the $5
million gross annual revenue threshold that would otherwise apply under
the category, or it could be expressed in terms of employee size or
some other measure. However, if the government plan, program, or
initiative does not define a size standard for small businesses or
small farms that it supports then the gross annual revenue consistent
with the small business and small farm definitions in Sec. __.12
(gross annual revenue of $5 million or less), would apply.
The agencies are not adopting a maximum gross annual revenue
threshold of $5 million for all small businesses and small farms under
Sec. __.13(c)(1)(i) because the agencies believe that standards vary
across different government plans, programs, and initiatives to address
various community development and small business or farm needs; the
standards in the final rule are designed to accommodate the ways in
which these plans, programs, and initiatives may be tailored to respond
to community needs. The agencies understand that government plans,
programs, and initiatives will likely identify the standard for the
size of business or farm supported and believe it is appropriate to
maintain flexibility. However, for clarity, the final rule provides
that, in the absence of a size standard established by the government
program, plan, or initiative, the business or farm supported by the
government program, plan, or initiative must meet the definition of
``small business'' or ``small farm'' as defined in Sec. __.12.
The agencies considered the feedback provided by commenters
advocating for a higher or lower threshold for various reasons,
including views that the proposed approach would eliminate credit or
stifle growth for many businesses or would create a disincentive for
banks to support very small businesses and minority-owned businesses.
The agencies, however, believe the size standards established by the
government program or as provided in the definition for small business
and small farms in Sec. __.12 will capture activities that support a
broad range of small businesses and small farms, while providing
clarity. The agencies also note that support for small businesses and
small farms under final Sec. __.13(c)(2) and (3) is more targeted, to
small businesses and small farms with gross annual revenues of $5
million or less, which the agencies believe will appropriately focus
those activities on smaller businesses. In addition, the impact and
responsiveness review under final Sec. __.15 includes as a review
factor support for small businesses or small farms with gross annual
revenues of $250,000 or less.\378\
---------------------------------------------------------------------------
\378\ See final Sec. __.15(b)(6) and the accompanying section-
by-section analysis.
---------------------------------------------------------------------------
Section __.13(c)(1)(ii) Direct Loans to Small Businesses and Small
Farms
The agencies are adopting a second subcomponent in final Sec.
_.13(c)(1)(ii) to provide consideration of certain direct loans to
small businesses and small farms. Specifically, under final Sec.
__.13(c)(1)(ii), the economic development category of community
development would include loans by a bank directly to businesses or
farms, including, but not limited to, loans in conjunction or
syndicated with an SBDC or SBIC, that meet the following size and
purpose criteria:
Size eligibility standard. The loans must be to businesses
and farms that meet the size eligibility standards of the SBDC or SBIC
programs or that meet the definition of small business or small farm in
Sec. __.12 (final Sec. __.13(c)(1)(ii)(A)).
Purpose test. The loans must have the purpose of promoting
permanent job creation or retention for low- or moderate-income
individuals or in low- or moderate-income census tracts (final Sec.
__.13(c)(1)(ii)(B)).
The agencies considered broad commenter feedback that loans made to
small businesses and small farms should be considered under economic
development and that a ``size'' and ``purpose'' test should be retained
for various reasons. The agencies understand commenter concerns that
certain loans to small businesses do have a community development
purpose and should be considered as community development loans. The
agencies are also sensitive to expressed concerns about the potential
reduction in qualifying loans if direct lending to small businesses is
not included in the economic development category of the final rule. As
stated in the proposal, the
[[Page 6663]]
agencies believe that loans to small business and small farm are
generally more suitable for consideration under the Retail Lending
Test. However, the agencies have carefully considered the many comments
on this issue, and believe there are certain loans to small businesses
and small farms that would align with the goals of community
development.
The first eligibility criterion--that the loans are made in
conjunction or in syndication with a government plan, program, or
initiative--is the same standard that applies to activities under final
Sec. __.13(c)(1)(i) that are not direct loans to small businesses and
small farms. As stated previously, the agencies believe that this
criterion helps to demonstrate that the loans are responsive to
identified community needs and support articulated community
development goals. In addition, this criterion will increase certainty
and transparency by setting a clear standard for determining that an
activity qualifies as community development. This provision further
specifies that loans in conjunction or syndication with SBDCs and
SBICs, and that meet the size and purpose criteria, are considered to
qualify as economic development under final Sec. __.13(c)(1)(ii). As
similarly discussed in the section-by-section analysis of final Sec.
__.13(c)(1)(i), the agencies believe that noting these programs in the
rule text provides helpful clarity and transparency, as well as
assurance that loans in conjunction or syndication with these programs,
which serve an important role within the ecosystem of small business
and small farm lending, will continue to qualify as economic
development under the final rule.
Size eligibility standard. On consideration of the comments on a
size eligibility standard for economic development and further
deliberation, the agencies are adopting a size eligibility standard for
direct loans to small businesses or small farms that aligns with the
current CRA framework's size standard, discussed above--namely, the
size standards of the SBDC or SBIC programs--in addition to including
loans supporting businesses of gross annual revenues of $5 million or
less. The agencies believe that adopting these size standards for
direct lending to small businesses under the economic development
category of community development will provide consistency with the
current CRA framework, which will foster certainty and predictability
for banks engaging in this lending.
Purpose test. The agencies are also adopting a purpose test to
qualify certain direct loans to small businesses and small farms under
final Sec. __.13(c)(1)(ii)(B). As previously noted, loans that may be
considered to be economic development under final Sec. __.13(c)(1)(ii)
must have the purpose of promoting permanent job creation or retention
for low- or moderate-income individuals or in low- or moderate-income
census tracts. The agencies carefully considered commenter feedback on
a purpose test for qualifying economic development activities. As
discussed above, many commenters supported retaining job creation,
retention, and improvement as a component of the economic development
category. The agencies acknowledge feedback indicating that the current
purpose test is helpful for encouraging jobs-focused activities, and
have deliberated further on commenter concerns that the proposed
approach to evaluate loans to small businesses and farms under the
Retail Lending Test might not sufficiently recognize job-related
activities benefiting low- and moderate-income individuals and
communities. At the same time, the agencies have considered feedback
that elimination of the purpose test provides greater flexibility and
opens up the possibility of more activities meeting a wider range of
small business and small farm credit needs to qualify as economic
development.
On balance, the agencies determined it appropriate to retain
consideration of direct loans to small businesses and small farms, in
conjunction or syndication with a government plan, program, or
initiative, and to apply a purpose test to this subcomponent of
economic development, which is intended generally to align with the
current purpose test and to be responsive to suggestions and concerns
raised by commenters. Recognizing the benefits that commenters have
noted of removing the purpose test from the economic development
category of community development, however, the agencies are not
applying the purpose test to final Sec. __.13(c)(1)(i) or (c)(2) or
(3).
In adopting the purpose test for permanent job creation and
retention for final Sec. __.13(c)(1)(ii)(B), the agencies sought to
recognize the contributions of small businesses and small farms in
communities, particularly with respect to long-term job opportunities
for low- or moderate-income individuals. In addition to considering
prior stakeholder feedback and comments on the proposal, the agencies
considered their own supervisory experience regarding the complexities
involved under the current purpose test in determining whether small
business and small farm loans support permanent job creation,
retention, or improvement for low- or moderate-income individuals and
low- or moderate-income census tracts. In addition, the agencies
considered feedback that eliminating the purpose test from the final
rule on economic development entirely could result in different
standards for community development investments versus PWIs.\379\
---------------------------------------------------------------------------
\379\ The agencies have noted comments on the proposal related
to PWIs, and will continue to be aware of intersections between the
CRA and PWI frameworks in supervising banks.
---------------------------------------------------------------------------
The purpose test adopted in final Sec. __.13(c)(1)(ii)(A) requires
that the loan proceeds are applied for the purpose of promoting
permanent job creation or retention for low- or moderate-income
individuals or in low- or moderate-income census tracts. As noted,
loans that are made by a bank directly to small businesses or small
farms in conjunction or in syndication with an SBDC or SBIC
presumptively qualify under this prong but are not the exclusive loans
that qualify; other loans that are made in conjunction or in
syndication with other government programs, plans, or initiatives and
that meet the size and purpose criteria could also qualify. For
example, an SBA 7(a) loan \380\ extended for the purpose of purchasing
new long-term machinery and that would allow a small business to hire
additional employees could qualify, provided it also met other required
criteria. A loan to support a facility improvement in conjunction with
a State loan guarantee program associated with the State Small Business
Credit Initiative could qualify provide it met all necessary
criteria.\381\ A working capital loan in conjunction with a State
program that is for the purpose of retaining employees could qualify
provided other required criteria are met. However, loans that fund
general business operations would be less likely to qualify without
additional information on whether the loan proceeds would be applied
for the purpose of job creation or retention. The agencies believe that
the purpose test under the final rule aligns appropriately with the
current purpose test, with clarifying modifications discussed below, to
provide continued encouragement of banks in extending
[[Page 6664]]
loans to small businesses and small farms as a community development
activity.
---------------------------------------------------------------------------
\380\ See SBA, ``7(a) Loans,'' https://www.sba.gov/funding-programs/loans/7a-loans.
\381\ See U.S. Dept. of Treasury, ``State Small Business Credit
Initiative,'' https://home.treasury.gov/policy-issues/small-business-programs/state-small-business-credit-initiative-ssbci.
---------------------------------------------------------------------------
In keeping with current guidance, the purpose test in the final
rule focuses on job-related benefits for low- or moderate-income
individuals and low- or moderate-income census tracts.\382\ Other items
mentioned in the guidance--areas targeted for redevelopment by Federal,
State, local, or tribal governments; intermediaries supporting small
businesses and small farms; and technical assistance to small business
and small farms--are incorporated elsewhere in the final rule
provisions regarding community development.\383\
---------------------------------------------------------------------------
\382\ See Q&A Sec. __.12(g)(3)-1.
\383\ See id. See also, e.g., final Sec. __.13(e) and (j)(2)
(revitalization or stabilization activities in targeted census
tracts and in Native Land Areas, respectively), (c)(2) (intermediary
support for small businesses and small farms), and (c)(3) (other
assistance for small businesses and small farms).
---------------------------------------------------------------------------
As explained above, under the current purpose test, a loan for the
purpose of job improvement could qualify under economic development as
long the loan met other criteria. The agencies are not adopting ``job
improvement'' as a factor under the purpose test in this final rule.
Although the agencies did not receive comments specific only to ``job
improvement'' in feedback concerning the purpose test or economic
development in general, based on supervisory experience, the agencies
believe that difficulties arise in demonstrating and determining
whether a loan promotes job improvement, presenting challenges to
establishing predictable and workable standards for both compliance and
supervision. In addition, the amount of time, resources, and expertise
needed to fairly evaluate the quality of jobs could be overly
burdensome for both the bank and examiners. However, job improvement is
closely tied to workforce development and training programs and the
agencies believe in the importance of the contributions these programs
make into communities. Therefore, the final rule provides that
workforce development or training programs can be considered community
development as a community supportive service pursuant to Sec.
__.13(d), discussed in more detail in the section-by-section analysis
of Sec. __.13(d).
Relatedly, the final rule does not incorporate particular standards
regarding the quality of jobs for low- and moderate-income individuals,
including wage levels and other wage-related considerations. The
agencies considered views and suggestions offered by commenters on this
topic, and have determined that it would be difficult to address job
quality in the rule in a manner that would effectively and consistently
account for the many diverse types of small businesses and small farms
in different industry sectors.
The agencies believe that the final rule's purpose test, focused on
job creation and retention, will provide greater clarity relative to
the current purpose test, thereby facilitating bank lending under this
subcomponent of the final rule on economic development, and improved
consistency and transparency in the agencies' evaluations of this
lending.
Consideration of Loans to Small Businesses and Small Farms Under the
Retail Lending Test and Community Development Financing Test
Final Sec. __.13(c)(1)(ii) recognizes certain direct loans to
small businesses and small farms that benefit local communities and
have specific community development goals, but that are not evaluated
under the Retail Lending Test.\384\ In addition, the final rule
provides that certain direct loans by banks to small businesses or
small farms may be considered under both the Community Development
Financing Test and the Retail Lending Test, if they qualify for
consideration under both tests. This approach is a change from the
current rule where, as discussed above, loans to businesses with an
origination amount of $1 million or less and loans to farms with an
origination amount of $500,000 or less generally are evaluated only
under the lending test, while loans that exceed the applicable loan
amount can be considered as a community development loan if they meet
the current size and purpose test. However, unlike under the current
rule, which provides that the same loan cannot be counted as both a
retail loan and a community development loan, the final rule allows
small business and small farm loans to qualify under both the Retail
Lending Test and Community Development Financing Test. This is also
different from the agencies' proposal, which would have considered
reported loans made directly to small businesses and small farms under
the Retail Lending Test.
---------------------------------------------------------------------------
\384\ For discussion of the standards for evaluating loans under
the Retail Lending Test, see the section-by-section analysis of
Sec. __.22.
---------------------------------------------------------------------------
The agencies believe that this approach is appropriate because the
Retail Lending Test and Community Development Financing Test generally
focus on a different aspect of a bank's direct lending to small
businesses and small farms: in general, under the Retail Lending Test's
distribution analysis, the share of loans (based on loan count) to
small businesses and small farms at different revenue levels is
considered,\385\ while under the Community Development Financing Test,
the dollar volume of loans is considered, as well as their impact and
responsiveness.\386\ With respect to direct loans to small businesses
and small farms that qualify as economic development under final Sec.
__.13(c)(1)(ii), the agencies believe that this approach allows for a
holistic evaluation of bank engagement in this lending.
---------------------------------------------------------------------------
\385\ See final Sec. __.22(e) and the accompanying section-by-
section analysis. The agencies note that, consistent with the
proposal, the dollar volume of small business and small farm lending
would be considered in the Retail Lending Volume Screen of the final
rule. See final Sec. __.22(c) and the accompanying section-by-
section analysis.
\386\ See final Sec. __.24 and the accompanying section-by-
section analysis.
---------------------------------------------------------------------------
Section __.13(c)(2) Intermediary Support for Small Businesses and Small
Farms
The Agencies' Proposal
Under proposed Sec. __.13(c)(2), the second component of the
proposed economic development category would comprise ``[s]upport for
financial intermediaries that lend to, invest in, or provide technical
assistance to businesses or farms with gross annual revenues of $5
million or less.'' This provision was intended to promote and
facilitate access to capital for smaller businesses and farms. The
agencies proposed to use the same gross annual revenue standard for
small businesses and farms in this provision as in other parts of the
proposal for simplicity and consistency.
The current regulation and interagency guidance on community
development activities does not specifically address financial
intermediaries that increase access to capital for small businesses and
small farms; proposed Sec. __.13(c)(2) was intended to respond to
stakeholder feedback emphasizing, and the agencies' recognition of, the
importance of these intermediaries. Examples of financial
intermediaries that the agencies intended this provision to cover
included a Community Development Corporation that provides technical
assistance to recently formed small businesses, or a CDFI that provides
lending to support sustainability of small farms.
Comments Received
Many commenters provided a range of views on proposed Sec.
__.13(c)(2),
[[Page 6665]]
including a variety of suggestions for revisions. Some commenters
expressly supported proposed Sec. __.13(c)(2) without any further
suggestions for additions or clarifications. Several commenters
suggested that CDFIs be considered an eligible financial intermediary
under this component. Several other commenters raised concerns that the
removal of the current ``size'' test and ``purpose'' test would result
in certain financial intermediaries being excluded from the economic
development category and that this would limit access to capital for
small businesses. Some of these commenters suggested including support
for financial intermediaries or loan funds that are not licensed or
certified by the SBA but that lend to or invest in small businesses
that meet the size eligibility standards of the SBA's SBIC or SBDC
programs (which might exceed $5 million in gross annual revenues).
Another commenter similarly and more specifically requested that the
agencies include in the definition of economic development financial
intermediaries that lend to, invest in, or provide technical assistance
to businesses that: (1) have more than $5 million in gross annual
revenues but still meet the size eligibility standards of the SBDC or
SBIC Programs; and (2) support permanent job creation, retention, and/
or improvement for low- and moderate-income individuals, in low- and
moderate-income areas, or in areas targeted for redevelopment.
Some commenters who supported retaining job creation, retention, or
improvement suggested that the final rule should clearly include
consideration of investments and loans to financial intermediaries that
support small business and small farms for the demonstrable purposes of
job creation, retention, or improvement for low- and moderate-income
individuals. Another commenter suggested that this component should
also consider loans and investments made to CDFIs to support small
businesses with less than $5 million gross annual revenues, as these
also help to create jobs. A commenter suggested that consideration for
loans and investments to Community Action Agencies \387\ be presumed to
advance economic development through workforce development, indicating
that workforce development has been central to the creation and
function of these entities.\388\ Another commenter suggested that the
proposal for financial intermediary support should also recognize loans
and investments made to support projects using NMTCs,\389\ as well as
activities that support economic development initiatives of
universities and local chambers of commerce.
---------------------------------------------------------------------------
\387\ See Economic Opportunity Act of 1964, tit. II, Public Law
88-452, 78 Stat. 516-24 (1964).
\388\ See Q&A Sec. __.12(g)(3)-1 (providing that activities are
considered to promote economic development if they support
``Federal, state, local, or tribal economic development initiatives
that include provisions for creating or improving access by low- or
moderate-income person to jobs or to job training or workforce
development programs'').
\389\ See, e.g., Internal Revenue Service (IRS), LMSB-04-0510-
016, ``New Markets Tax Credits'' (May 2010), https://www.irs.gov/pub/irs-utl/atgnmtc.pdf.
---------------------------------------------------------------------------
Some commenters emphasized that many financial intermediaries that
are not certified SBICs, are minority-led and women-led and that such
entities play an important role in providing access to capital for
minority- and women-owned businesses. One of these commenters noted
that many of these companies that fund small businesses in underserved
communities face challenges becoming SBICs and suggested that the
agencies provide consideration for non-SBICs that are owned by
minorities and women as long as these companies adhere to SBIC net
worth and after-tax income size limits. Another commenter suggested
that loans to minority-owned small businesses should be presumed to
promote economic development and receive CRA credit.
An additional commenter similarly suggested that the agencies
should clarify that banks can receive credit for economic development
activities that include investments and loans in a minority-owned small
business or minority-owned financial intermediaries and that, at a
minimum, these activities should count for credit if they achieve
impact outcomes like job creation, retention, or improvement for low-
to moderate-income persons or areas. Other feedback included concerns
that, without more clarifications about the intended coverage of
proposed Sec. __.13(c)(2), banks would tend to favor activities with
SBICs under proposed Sec. __.13(c)(1), and that this would
disadvantage minority-owned enterprises and first-time fund managers.
At least one commenter supported coverage of activities with financial
intermediaries that are not SBICs in the economic development category
if these activities create, retain or improve jobs. A commenter
suggested that this prong also include investments in Qualified
Opportunity Funds that include low- and moderate-income census tracts
in designated Opportunity Zones.\390\
---------------------------------------------------------------------------
\390\ See, e.g., IRS, ``Opportunity Zones,'' FS-2020-13 (updated
Apr. 2022), https://www.irs.gov/newsroom/opportunity-zones
(discussing both Opportunity Zones and Qualified Opportunity Funds).
---------------------------------------------------------------------------
On a technical note, a commenter requested that the term
``support'' in the proposed regulatory text be further clarified to
mean loans, investments, and services to financial intermediaries.
Another commenter stated that the proposal did not specifically address
financial intermediaries that increase access to capital for small
businesses, asserting that determining business size later in the
process would be inappropriate. Both industry and community group
stakeholders have stressed the importance of financial intermediaries,
such as loan funds, in providing access to financing for small
businesses that are not ready for traditional bank financing. In
addition, some commenters recommended clarifying that the size of the
small business or small farm be determined at the time of the
investment by the financial intermediary, noting that because the
purpose of these investments is to support the growth of the business.
Final Rule
For the reasons discussed below, the agencies are finalizing
proposed Sec. __.13(c)(2) to include in the economic development
category intermediaries that support small businesses and small farms;
however, the final rule expands the type of intermediaries considered
under this component and adopts several revisions for clarity and
consistency with other prongs in the economic development category.
Additionally, the final rule provides examples of the types of support
an intermediary can provide to a small business or small farm.
Specifically, final Sec. __.13(c)(2) provides that loans, investments,
or services provided to intermediaries that lend to, invest in, or
provide assistance, such as financial counseling, shared space,
technology, or administrative assistance, to small businesses or small
farms can be considered under economic development.
The final rule broadens the types of intermediaries that may be
considered under this category beyond financial intermediaries, by
removing the word ``financial'' from the description of this category.
Instead, under the final rule, non-financial intermediaries such as
business incubators and small business assistance providers can be
considered along with financial intermediaries such as nonprofit
revolving loan funds. The agencies intend that the expansion of the
types of intermediaries that can be included under this component will
[[Page 6666]]
help address commenter concerns about some intermediaries that could be
covered under the current rule potentially being excluded under the
proposal, such as those that support primarily support businesses with
gross annual revenue above $5 million, and better ensure recognition of
the range of intermediaries providing support for small businesses and
small farms. The agencies intend that many of the intermediaries that
could be considered under the current rule would continue to qualify
under this component if they support small businesses and farms through
loans, services, and investments. The agencies recognize that there are
many types of intermediaries, including those that support minority-
owned small businesses, as mentioned by commenters, and that financial
intermediaries play a critical role in providing access to capital for
small businesses and small farms when traditional bank financing might
not be possible. For more information and discussion regarding the
agencies' consideration of comments recommending adoption of additional
race- and ethnicity-related provisions in this final rule, see section
III.C of this SUPPLEMENTARY INFORMATION.
To address commenter requests for clarification regarding the
coverage of the proposed financial intermediary prong, the agencies
note that, consistent with the proposal, the intermediaries under final
Sec. __.13(c)(2) are distinct from intermediaries that provide
government-related support to small businesses and small farms under
final Sec. __.13(c)(1)(i); this allows for non-SBIC and other non-
government-related intermediaries to be included in the economic
development category. The agencies also recognize that intermediaries
can provide support to businesses or farms of all sizes; however,
consistent with the proposal, support for intermediaries under final
Sec. __.13(c)(2) is focused on intermediary lending to, investments
in, and services to businesses and farms with gross annual revenues of
$5 million or less.\391\ The agencies believe that, for non-government-
related aspects of economic development, a gross annual revenue
threshold of $5 million for supported businesses and farms will foster
clarity regarding the availability and consistency in application. The
agencies also believe that this size standard will allow support for a
wide range of financing, including the smallest businesses. For further
discussion of the definition of the definition of small business and
small farm in the final rule, see final Sec. __.12 (``small business''
and ``small farm'') and accompanying section-by-section analysis.
---------------------------------------------------------------------------
\391\ The standards for banks to receive full credit for these
loans, investments, and services are discussed further in the
section-by-section analysis of final Sec. __.13(a). See, e.g.,
final Sec. __.13(a)(1)(i)(B)(3).
---------------------------------------------------------------------------
The final rule also clarifies that ``support'' for intermediaries
means loans, investments, or services provided to intermediaries that
lend to, invest in, or provide assistance to small businesses or small
farms. As noted, in response to commenter concern that the term
``support'' in the proposal was not clear. Examples of activities that
could be considered under this category are provided in the final rule
and include financial counseling, shared space, technology, or
administrative assistance.
The agencies did not adopt in the final rule a specific criterion
for the point in time when the size of the small business or small farm
should be determined, as suggested by some commenters. However, the
agencies generally believe that this determination should be based on
the size of the small business or small farm at the time of the
activity undertaken by the intermediary.
The agencies also decline to specify that CDFIs are considered an
eligible financial intermediary under this prong. The agencies
recognize that CDFIs are important financial intermediaries, but rather
than list them as qualified intermediaries for multiple community
development categories, the agencies have adopted in the final rule
that a bank will receive community development consideration if a loan,
investment, or service involves a CDFI as specified under final Sec.
__.13(k). In addition, the final rule establishes, as an impact and
responsiveness review factor, consideration of whether a loan,
investment, or services supports a CDFI.\392\
---------------------------------------------------------------------------
\392\ For further discussion of the final rule provisions on
CDFIs, see the section-by-section analysis of final Sec. __.13(k)
and final Sec. __.15(b)(4).
---------------------------------------------------------------------------
The agencies decline to include in this prong investments in
Qualified Opportunity Funds that support projects in designated
Opportunity Zones.\393\ The agencies do not believe that such
activities are specifically designed or structured to support small
businesses and small farms and therefore, loans or investments in
Qualified Opportunity Funds would not likely meet criteria for economic
development. However, the activity may qualify for community
development credit under other categories of community development,
such as revitalization and stabilization under Sec. __.13(e), so long
as the activity meets the criteria for the relevant community
development category.
---------------------------------------------------------------------------
\393\ See IRS, ``Opportunity Zones,'' FS-2020-13 (Aug. 2020;
updated Apr. 2022) (discussing both Opportunity Zones and Qualified
Opportunity Funds), https://www.irs.gov/newsroom/opportunity-zones.
---------------------------------------------------------------------------
Section __.13(c)(3) Other Support for Small Businesses and Small Farms
The Agencies' Proposal
Proposed Sec. __.13(c)(3) would have established a third prong of
the economic development category: ``[p]roviding technical assistance
to support businesses or farms with gross annual revenues of $5 million
or less, or providing services such as shared space, technology, or
administrative assistance to such businesses or farms or to
organizations that have a primary purpose of supporting such businesses
or farms.'' This provision would have included services such as
``shared space, technology, or administrative assistance'' and codified
current guidance highlighting these services.\394\ The agencies
proposed this provision in recognition that some small businesses and
small farms might not be prepared to obtain traditional bank financing
and might need technical assistance and other services, including
technical assistance and services provided directly by a bank, to
obtain credit in the future.
---------------------------------------------------------------------------
\394\ See Q&A Sec. __.12(g)(3)-1 (providing that loans,
investments, or services are considered to ``promote economic
development'' if they ``support permanent job creation, retention,
and/or improvement . . . through technical assistance or supportive
services for small businesses or farms, such as shared space,
technology, or administrative assistance'').
---------------------------------------------------------------------------
Comments Received
Commenters on proposed Sec. __.13(c)(3) broadly supported it. A
commenter asserted that this component would fill a gap in needed
services for small businesses and small farms and play a critical role
in helping a small business and small farm grow and thrive. Another
commenter suggested including consideration in this economic
development category for financial literacy training, community-owned
real estate financing, and financial products and programs for
immigrant and immigrant-owned businesses.
Final Rule
For the reasons discussed below, the final rule adopts, with
clarifying edits, proposed Sec. __.13(c)(3) to provide clarity
regarding support for small
[[Page 6667]]
businesses and small farms that is not provided through intermediaries.
Specifically, final Sec. __.13(c)(3) states that assistance, such as
financial counseling, shared space, technology, or administrative
assistance, provided to small businesses and small farms can be
considered economic development. To distinguish these activities from
government-related support and intermediary support, these activities
are referred to as ``other support for small businesses and small
farms'' under the final rule, and are intended to include such services
that are provided directly by a bank.
The agencies made several clarifying edits to the proposal for this
component in the final rule. First, the agencies removed ``technical''
from the rule text out of recognition that providing access to space or
technology goes beyond technical assistance and that this term might be
applied and understood inconsistently. Second, the agencies removed the
$5 million gross annual revenues when referring to small businesses and
small farms because these terms are defined in final Sec. __.12
(discussed further in the section-by-section analysis of final Sec.
__.12). Finally, the agencies removed ``primary purpose'' to reference
the level of support to businesses or farms to be consistent with the
majority standard as described in final Sec. __.13(a), discussed
further in the section-by-section analysis of final Sec. __.13(a).
The agencies acknowledge commenter feedback that some small
businesses and small farms may not be in a position to obtain
traditional bank financing and, as such, may need assistance to obtain
credit in the future. The agencies believe that providing CRA
consideration for assistance that supports small businesses and small
farms will afford banks with recognition for the positive role they
play in facilitating small business and small farm credit access. The
agencies have noted through past experience that banks can play an
important role in supporting, and directly providing the types of
assistance that help small businesses and small farms obtain financing,
which in turn strengthens small businesses and small farms,\395\
fostering their growth and durability.
---------------------------------------------------------------------------
\395\ See, e.g., OCC, ``Community Development Loan Funds:
Partnership Opportunities for Banks,'' Community Development
Insights (Oct. 2014), https://www.occ.gov/publications-and-resources/publications/community-affairs/community-developments-insights/pub-insights-oct-2014.pdf; Financial Services Forum,
``Supporting Historically Underserved Communities,'' https://fsforum.com/our-impact/supporting-underserved-communities.
---------------------------------------------------------------------------
In response a commenter's suggestion that banks should receive
consideration for providing financial literacy training, community-
owned real estate financing, and financial products and programs for
immigrant and immigrant-owned businesses, the agencies note that
financial counseling is specified as an example of the type of
assistance that could be considered under final Sec. __.13(c)(3).
Additionally, the final rule provides that banks may receive community
development consideration for other types of financial literacy
programs under final Sec. __.13(l), discussed further in the section-
by-section analysis of Sec. __.13(l). The other items suggested by the
commenter could also be considered under the economic development
category, or other community development categories, assuming that the
activities meet the appropriate criteria.
Evaluation Approach Prior to Section 1071 Data Availability
The Agencies' Proposal and Comments Received
The agencies sought feedback on whether loans made directly by
banks to small businesses and small farms that are currently evaluated
as community development loans should continue to be considered
community development loans until these loans are assessed as reported
loans under the Retail Lending Test. Most commenters who opined on this
question asserted that loans to small businesses and small farms should
be considered community development loans during this transition
period. For example, a commenter suggested that current guidance should
be used to qualify loans to small businesses and small farms under the
Community Development Finance Test until loans are evaluated as
reported loans under the proposed Retail Lending Test.\396\ Similarly,
a few commenters suggested that loans larger than $1 million to small
businesses and small farms should be considered community development
loans, as they are currently, until section 1071 data are available,
and these loans are evaluated as reported loans under the proposed
Retail Lending Test.\397\ A few commenters suggested that during the
transition period, banks should have the option of having loans
evaluated under the proposed Community Development Financing Test or
under the proposed Retail Lending Test. Another commenter suggested
that banks should always have the option to report small business loans
as community development loans if the economic development criteria are
met.
---------------------------------------------------------------------------
\396\ Q&A Sec. __.12(g)(3)-1.
\397\ Id.
---------------------------------------------------------------------------
Other commenters expressed concern with allowing banks to receive
community development credit for loans that will be considered under
the Retail Lending Test once section 1071 data are available and used
in CRA evaluations. A commenter suggested that a bank should not be
allowed to have these loans considered as community development loans
only if the majority of the bank's examination cycle took place before
the final rule was implemented. Along the same lines, a commenter
expressed concern that evaluating loans to small businesses and small
farms as community development activities until they are assessed as
reported loans under the Retail Lending Test could allow banks to
receive credit for the same activity multiple times, and suggested that
the loans should count only once, unless there is some change or
expansion of the activity, such as an increased loan amount or new loan
payment deferment option.
Final Rule
The agencies appreciate feedback from commenters regarding whether
to continue to evaluate loans to small businesses and small farms as
community development loans, if such loans meet the current specified
criteria, prior to the availability of section 1071 data. The agencies
considered the comments, including those that suggested providing banks
the option to select consideration for these loans under either the
proposed Community Development Financing Test or proposed Retail
Lending Test during this interim period, or continuing to evaluate the
loans under current interagency guidance until the CFPB section 1071
data are available and the reported loans can be evaluated under the
proposed Retail Lending Test. On further consideration of this issue,
the agencies have determined that continuing with the current
evaluation approach or developing an interim approach for evaluating
loans to small businesses and small farms loans during the interim
period between the applicability date for final Sec. __.13(c) and
availability and use in CRA evaluations of section 1071 data is not
necessary. As discussed above regarding final Sec. __.13(c)(1)(ii),
the final rule provides consideration of certain direct loans to small
businesses and small farms as community development loans. This
approach would enable certain government-related direct loans to
businesses and farms that meet the criteria in final Sec.
__.13(c)(1)(ii)
[[Page 6668]]
considered under economic development as soon as this provision of the
final rule becomes effective. The agencies believe that this approach
will provide greater clarity and reduce potential confusion and
complexity during the interim period rather than continuing to apply
current standards for considering loans to small businesses and small
farms to be community development loans.\398\ The agencies note that,
except for certain loans to small businesses and small farms as
explained above, most lending to small businesses and small farms will
be evaluated under the Retail Lending Test, and that the definitions
for small business and small farm loans are subject to the final rule's
transition amendments.\399\
---------------------------------------------------------------------------
\398\ For a discussion of the final rule's incorporation of
loans to small businesses and small farms into the economic
development category of community development, see the section-by-
section analysis of final Sec. __.13(c)(1)(ii). For a discussion of
the final rule's consideration of small business and small farm
lending under the Retail Lending Test, see the section-by-section
analysis of final Sec. __.22(d).
\399\ The final rule's transition amendments will amend the
definitions of ``small business'' and ``small farm'' to instead
cross-reference to the definition of ``small business'' in the CFPB
section 1071 regulation. This will allow the CRA regulatory
definitions to adjust if the CFPB increases the threshold in the
CFPB section 1071 regulatory definition of ``small business.'' This
is consistent with the agencies' intent articulated in the preamble
to the proposal and elsewhere in this final rule to conform these
definitions with the definition in the CFPB section 1071 regulation.
The agencies will provide the effective date of these amendments in
the Federal Register once section 1071 data are available.
---------------------------------------------------------------------------
Regarding the concern expressed by a commenter that evaluating
loans to small businesses and small farms as community development
until such loans are assessed under the Retail Lending Test would allow
banks to get credit for the same activity multiple times, the agencies
acknowledge, as discussed above, that some loans to small businesses
and small farms that meet the criteria under final Sec.
__.13(c)(1)(ii) will be considered under both the Retail Lending Test
and Community Development Financing Test. However, the agencies do not
believe that this would result in double counting because the final
rule provides that different aspects of such loans would be considered
under the applicable test.
Workforce Development and Job Training
The current regulations do not mention workforce development and
training programs in the definition of community development \400\
(including the economic development category of that definition \401\),
but the Interagency Questions and Answers provide that loans,
investments, and services supporting these activities for businesses
and farms that meet the ``size'' test discussed above are considered to
``promote economic development.'' \402\ The agencies proposed to
consider workforce development and job training program activities
under the community supportive services category of community
development and this was generally supported by commenters who opined
on this issue. Therefore, the agencies are adopting workforce
development and job training as proposed as a community supportive
services category under final Sec. __.13(d). See the section-by-
section analysis of community supportive services in final Sec.
__.13(d) below for additional discussion of the comments received and
final rule.
---------------------------------------------------------------------------
\400\ See 12 CFR __.12(g).
\401\ See 12 CFR __.12(g)(3).
\402\ See Q&A Sec. __.12(g)(3)-1.
---------------------------------------------------------------------------
Additional Issues
The agencies received other comments related to the economic
development category. A few commenters suggested adding certain types
of activities to those that could be considered for CRA credit under
the economic development category. For example, a commenter suggested
that loan referrals made by banks to CDFIs for small business loans
should qualify and also suggested that loan referrals made by banks to
non-bank lenders or fintech companies that have a mission of economic
development that is consistent with the goals of the CRA should also
qualify as economic development; this commenter asserted that
partnerships between traditional and non-traditional lenders could
increase access to capital for low-income geographic areas.
A few commenters suggested that if loans to small business and
small farms are considered under the proposed Retail Lending Test,
loans to minority-owned small businesses should nonetheless be
considered separately as a qualifying activity under the economic
development category of community development. Lastly, a commenter
stated that the agencies' proposal was innovative but suggested that
training for nonprofit organizations could be needed, as activities
that are currently considered as community development might be
considered under different performance tests.
The agencies decline to add a prong to the economic development
category under final Sec. __.13(c) to provide specific consideration
for additional types of activities, such as loan referrals made by
banks to CDFIs or those made by banks to nonbank lenders, as suggested
by commenters. The agencies understand from commenters that
partnerships between traditional and nontraditional lenders are
important because of the potential to increase capital to small
businesses and small farms. As discussed further in the section-by-
section analysis of final Sec. __.23(c), such activities may qualify
for consideration under the Retail Services and Products Test as such
activities may help facilitate responsive credit products and
programs.\403\
---------------------------------------------------------------------------
\403\ See final Sec. __.23 and the accompanying section-by-
section analysis.
---------------------------------------------------------------------------
Regarding commenter suggestions that loans to minority-owned small
businesses should be considered separately as a qualifying activity
under the economic development category of community development, the
agencies note that the final rule adopts a provision that certain
direct loans to small businesses and small farms, which includes direct
loans made to minority-owned small businesses, will be considered under
the economic development category. See the section-by-section analysis
of final Sec. __.13(c)(1)(ii) above. Additionally, the agencies have
adopted an impact factor described in final Sec. __.15 for activities
that benefit small businesses with gross annual revenue under $250,000,
which will serve to highlight activities with smaller businesses, which
would include minority-owned businesses with gross annual revenue under
$250,000. For more information and discussion regarding the agencies'
consideration of comments recommending adoption of additional race- and
ethnicity-related provisions in this final rule, see section III.C of
this SUPPLEMENTARY INFORMATION.
The agencies appreciate commenter feedback regarding the potential
need for examiner training as the proposed approach to the evaluation
of certain activities that would currently be considered only under
community development may be considered under a different test or
multiple tests. The agencies will take this feedback under advisement
as the agencies develop implementation plans.
Section __.13(d) Community Supportive Services
Current Approach
The CRA regulations currently define community development to
include ``community services targeted to low- or
[[Page 6669]]
moderate-income individuals,'' \404\ but the regulations do not further
define community services. The Interagency Questions and Answers
provide several examples of community services and characteristics of
those services to assist institutions in determining whether the
service is ``targeted to low- or moderate-income individuals.'' \405\
Interagency guidance also clarifies that ``investments, grants,
deposits, or shares in or to . . . [f]acilities that . . . provid[e]
community services for low- and moderate-income individuals, such as
youth programs, homeless centers, soup kitchens, health care
facilities, battered women's shelters, and alcohol and drug recovery
centers'' are considered community development investments eligible for
CRA credit.\406\
---------------------------------------------------------------------------
\404\ See 12 CFR __.12(g)(2).
\405\ See Q&A Sec. __.12(g)(2)-1.
\406\ Q&A Sec. __.12(t)-4.
---------------------------------------------------------------------------
The Agencies' Proposal
In proposed Sec. __.13(d), the agencies replaced the current
community development category of ``community services targeted to low-
or moderate-income individuals'' with ``community supportive
services.'' \407\ Specifically, incorporating and building on aspects
of current guidance noted above, proposed Sec. __.13(d) defined
community supportive services as ``general welfare services that serve
or assist low- or moderate-income individuals, including, but not
limited to, childcare, education, workforce development and job
training programs, and health services and housing services programs.''
---------------------------------------------------------------------------
\407\ The proposed term ``community supportive services''
encompassed different activities than those proposed under the
concept of ``community development services,'' which is described
further in the section-by-section analysis of Sec. __.25(d)
(proposed Community Development Services Test), below, and generally
refers to volunteer service hours that meet any one of the community
development purposes in final Sec. __.13.
---------------------------------------------------------------------------
The agencies proposed to consider workforce development and job
training program activities under the community supportive services
category of community development, rather than under economic
development (where workforce development and job training programs are
generally considered today). Existing guidance regarding economic
development generally limits what can be considered an economic
development activity (including workforce development and job training)
to support for small businesses meeting certain size standards.\408\
Under the proposal to consider these activities under the reconfigured
``community supportive services'' category, activities that support
workforce development and job training programs would receive
consideration if the program's participants are low- or moderate-income
individuals, without regard to the size of any business associated with
the activity.\409\
---------------------------------------------------------------------------
\408\ See proposed Sec. __.13(d); compare with 12 CFR
__.12(g)(3) and Q&A Sec. __.12(g)(3)-1.
\409\ See id.
---------------------------------------------------------------------------
The agencies also proposed to build on current guidance by both
clarifying and expanding upon a non-exclusive list of examples of
community services and characteristics of those services that banks can
use to demonstrate that a program or organization primarily serves low-
or-moderate income individuals. Seven of the eight examples in proposed
Sec. __.13(d) reflected current guidance with certain technical edits,
as follows:
Activities conducted with a nonprofit organization that
has a defined mission or purpose of serving low- or moderate-income
individuals or is limited to offering community supportive services
exclusively to low- or moderate-income individuals (proposed Sec.
__.13(d)(1));
Activities conducted with a nonprofit organization located
in and serving low- or moderate-income census tracts (proposed Sec.
__.13(d)(2));
Activities conducted in low- or moderate-income census
tracts and targeted to the residents of the census tract (proposed
Sec. __.13(d)(3));
Activities offered to individuals at a workplace where the
majority of employees are low- or moderate-income, based on readily
available U.S. Bureau of Labor Statistics data for the average wage for
workers in that particular occupation or industry (proposed Sec.
__.13(d)(4));
Services provided to students or their families through a
school at which the majority of students qualify for free or reduced-
price meals under the USDA's National School Lunch Program (proposed
Sec. __.13(d)(5));
Services that have a primary purpose of benefiting or
serving individuals who receive or are eligible to receive Medicaid
(proposed Sec. __.13(d)(6)); and
Activities that benefit or serve recipients of government
assistance plans, programs, or initiatives that have income
qualifications equivalent to, or stricter than, the definitions of low-
and moderate-income (as defined in the proposed rule). Examples
include, but are not limited to, HUD's section 8, 202, 515, and 811
programs or the USDA's section 514, 516, and Supplemental Nutrition
Assistance programs (proposed Sec. __.13(d)(8)).\410\
---------------------------------------------------------------------------
\410\ Q&A Sec. __.12(g)(2)-1.
---------------------------------------------------------------------------
The agencies also proposed an additional example not reflected in
current guidance: activities that benefit or serve individuals who
receive or are eligible to receive Federal Supplemental Security
Income, Social Security Disability Insurance, or support through other
Federal disability assistance programs.\411\ This proposed example
reflected a suggested additional example raised in the Board CRA ANPR
that received wide stakeholder support.\412\
---------------------------------------------------------------------------
\411\ Proposed Sec. __.13(d)(7).
\412\ See 85 FR 66410, 66446 (Oct. 19, 2020). The example was
also adopted in the illustrative list published with the OCC 2020
CRA Final Rule.
---------------------------------------------------------------------------
Comments Received
The agencies received comments on the community supportive services
proposal from many different commenter types, raising a wide range of
issues. Most of these commenters generally supported the agencies'
proposal. A few commenters, for example, expressed that the community
development services proposal would elevate the importance of community
services and provide more clarity about what types of activities are
included. In contrast, a commenter that disagreed with the proposal
stated that the proposal would create unnecessary confusion and
complexity and limit flexibility. This commenter expressed the view
that the current community services definition should be retained,
asserting that it better allows banks to tailor the provision of
services to the specific needs of each community.
Regarding the general definition of community supportive services
in proposed Sec. __.13(d), many commenters expressed their support for
including ``health'' or ``healthcare services.'' Several commenters
also expressed support for the proposal to include workforce
development and job training as community supportive services. A few of
these commenters noted that doing so could allow banks to receive
credit for supporting activities in connection with a wider range of
businesses than under the current CRA framework.
Commenters also shared views on the list of examples in proposed
Sec. __.13(d)(1) through (8). For example, a commenter that expressed
support for the proposal to include ``[a]ctivities conducted with a
nonprofit organization located in and serving low- or moderate-income
census tracts,'' \413\ noted that these types of organizations often
serve the community in which they are
[[Page 6670]]
located. With respect to proposed Sec. __.13(d)(7), regarding
activities that benefit or serve individuals who receive or are
eligible to receive Federal disability assistance, many civil rights
and consumer advocacy groups for individuals with disabilities
requested that the agencies also explicitly include vocational
rehabilitation services and Medicaid-waiver funded home and community-
based services. One commenter stated that, as not all individuals with
disabilities receive Federal benefits, the agencies should consider
including other activities that support individuals with disabilities,
such as a loan to upgrade equipment in a public library to accommodate
low- and moderate-income disabled individual patrons.
---------------------------------------------------------------------------
\413\ Proposed Sec. __.13(d)(2).
---------------------------------------------------------------------------
Commenters also encouraged the agencies to add a variety of
examples to the list in Sec. __.13(d)(1) through (8). For instance, a
few commenters suggested adding activities that promote digital
inclusion or digital literacy, indicating that those activities can
improve access to important community services. Additional examples
suggested included, among others: food access and sustainability
projects; activities that house the homeless; higher education career
courses or programming; activities that support service members,
veterans, and their families; and activities that support consumers
with limited English proficiency.
Final Rule
As discussed in more detail below, the final rule revises the
general definition of ``community supportive services'' in proposed
Sec. __.13(d) to provide greater clarity about the meaning of this
community development category. The final rule also adopts the non-
exhaustive list of examples in Sec. __.13(d)(1) through (8) generally
as proposed, with certain technical revisions.
Specifically, the final rule defines ``community supportive
services'' as activities that assist, benefit, or contribute to the
health, stability, or well-being of low- or moderate-income
individuals, such as childcare, education, workforce development and
job training programs, health services programs, and housing services
programs. The definition in proposed Sec. __.13(d) is thus revised by
replacing the phrase ``general welfare activities that serve or assist
low- or moderate-income individuals'' with ``activities that assist,
benefit, or contribute to the health, stability, or well-being of low-
or moderate-income individuals.'' As noted in the proposal, the
agencies believe that adopting a community supportive services category
that revises the existing ``community services'' category and
associated guidance will provide clearer standards in the regulation
for identifying the kind of activities that qualify as community
development. Upon further consideration and in light of comments
received, the agencies are concerned about potential confusion as to
what constitutes ``general welfare activities'' in the proposed
provision. The final rule's revised language focusing on the ``health,
stability, or well-being'' of low- or moderate-income individuals is
intended to better achieve the agencies' goal of providing clarity in
outlining the kinds of activities that are eligible for consideration
under this category, accounting for the types of benefits and services
that many commenters highlighted.
The agencies are adopting as proposed the community supportive
services listed in the proposed general definition--childcare,
education, workforce development and job training programs, health
services programs, and housing services programs; these are intended to
be illustrative of the kinds of services that can meet the criterion of
assisting, benefiting, or contributing to the health, stability, or
well-being of low- or moderate-income individuals and, as noted above,
were generally supported by commenters. As also discussed above,
considering workforce development and job training activities under the
community supportive services category of community development
clarifies that bank support for workforce development and job training,
whose participants are low- or moderate-income individuals, is eligible
for CRA consideration, regardless of the size of the businesses that
may be associated with those activities.
The final rule also adopts the non-exclusive list of examples of
community supportive services in Sec. __.13(d)(1) through (8),
generally as proposed, with certain revisions as follows:
Proposed Sec. __.13(d)(1) is revised to refer to
activities that are ``conducted with a mission-driven nonprofit
organization.'' This change in final Sec. __.13(d)(1) reflects that
the final rule adopts a new definition of ``mission-driven nonprofit
organization'' in Sec. __.12, in order to support the term's use
across multiple provisions in Sec. __.13. As noted in the section-by-
section analysis of Sec. __.12 above, the final definition is intended
to be consistent with the types of organizations that the agencies
proposed would be partners with banks in conducting community
development.
Proposed Sec. __.13(d)(2) through (5) are adopted
generally as proposed, with non-substantive technical edits to align
the regulatory text structure.
Proposed Sec. __.13(d)(6), referencing activities that
``have a primary purpose of benefiting or serving individuals who
receive or are eligible to receive Medicaid'' (emphasis added) is
revised to reference activities that ``Primarily benefit or serve
individuals who receive or are eligible to receive Medicaid'' (emphasis
added), with no substantive change intended. This revision is a
conforming change consistent with proposed Sec. __.13(a) that
eliminates proposed references to the phrase ``primary purpose of
community development,'' as discussed in the section-by-section
analysis of Sec. __.13(a).
Proposed Sec. __.13(d)(7) and (8) are revised to add the
term ``primarily,'' so that, as adopted, they refer to activities that
``Primarily benefit or serve individuals who receive or are eligible to
receive'' Federal disability assistance (final Sec. __.13(d)(7)) and
``Primarily benefit or serve recipients of government assistance plans,
programs, or initiatives . . . .'' (final Sec. __.13(d)(8)). This
addition is intended to provide consistency with the language in final
Sec. __.13(d)(6) described above, and to align with the agencies'
intent to provide examples of activities that are specifically focused
on benefiting or serving the individuals described in these examples.
As discussed above, the examples in Sec. __.13(d)(1) through (6)
and (8) are adapted from existing guidance to promote clarity and
consistency regarding the types of services that could be considered to
be targeted to low- or moderate-income individuals. The agencies
believe that the adopted examples will facilitate banks' ability to
document and demonstrate that a program or organization assists,
benefits, or contributes to the health, stability, or well-being of
low- or moderate-income individuals as set forth in Sec. __.13(d). For
example, with respect to Sec. __.13(d)(2), the agencies believe that
qualified activities performed in conjunction with ``a nonprofit
organization located in and serving low- or moderate-income census
tracts'' are likely to assist, benefit, or contribute to the health,
stability, or well-being of low- or moderate-income individuals due to
the geographic location and service-orientation of the nonprofit
organization on low- or moderate-income census tracts. Accordingly, the
agencies believe that this example will facilitate banks'
identification of qualified community
[[Page 6671]]
supportive services and opportunities to serve needs in their
communities.\414\
---------------------------------------------------------------------------
\414\ Final Sec. __.13(d)(2) is distinguishable from final
Sec. __.13(d)(1). Section __.13(d)(1) references the narrower
defined term of mission-driven nonprofit organizations, but is not
geographically focused; while Sec. __.13(d)(2) references nonprofit
organizations more broadly, but is focused on particular census
tracts. Both examples are intended to facilitate banks' ability to
identify and document that an activity is a qualified community
supportive service.
---------------------------------------------------------------------------
In adopting the example in proposed Sec. __.13(d)(7), related to
activities for individuals receiving or eligible to receive Federal
disability assistance, the agencies understand that many disability
programs are means-tested, and that and research has found that
households that include any working-age people with disabilities are
more likely to have substantially lower incomes than those without any
disabilities.\415\ Accordingly, the agencies believe that the example
in Sec. __.13(d)(7) will serve as another key proxy for activities
that assist, benefit, or contribute to the health, stability, or well-
being of low- or moderate-income individuals, and will facilitate
banks' ability to identify clear and consistent examples of community
supportive services.
---------------------------------------------------------------------------
\415\ See, e.g., William Erickson, Camille Lee, and Sarah von
Schrader, ``2021 Disability Status Report: United States,'' Cornell
University Yang-Tan Institute on Employment and Disability, 40
(2023), https://www.disabilitystatistics.org/report/pdf/2021/2000000.
---------------------------------------------------------------------------
The agencies also considered and appreciate additional examples of
community supportive services offered by commenters, including
additional suggestions noted above to supplement Sec. __.13(d)(7)
regarding other activities that benefit or serve individuals with
disabilities. As discussed above, the list of examples in Sec.
__.13(d)(1) through (8) is non-exclusive. The agencies believe that the
list of examples adopted in the final rule address a wide range of
qualified community supportive services and do not believe that it
would be possible or practicable to capture every kind of community
supportive service in the regulation. The agencies note that, to the
extent that any other activity meets the general definition set forth
in Sec. __.13(d), it would be considered a community supportive
service. While the agencies are not adding mention of specific
additional community supportive services activities to the final rule,
the agencies will take commenters' recommended examples under
advisement as the agencies develop the illustrative list anticipated by
Sec. __.14(a).
Section __.13(e) Through (j) Place-Based Community Development
Current Approach
The current regulation defines ``community development'' to include
``activities that revitalize or stabilize'' the following four types of
geographic areas:
Low- or moderate-income census tracts;
Designated disaster areas;
Distressed nonmetropolitan middle-income census tracts;
and
Underserved nonmetropolitan middle-income census
tracts.\416\
---------------------------------------------------------------------------
\416\ 12 CFR __.12(g)(4). The current regulation provides that
distressed or underserved nonmetropolitan middle-income census
tracts are ``designated by [the Board, FDIC, and OCC] based on--(A)
Rates of poverty, unemployment, and population loss; or (B)
Population size, density, and dispersion.'' 12 CFR __.12(g)(4)(iii).
The regulation further provides that ``[a]ctivities revitalize and
stabilize [census tracts] designated based on population size,
density, and dispersion if they help to meet essential community
needs, including needs of low- and moderate-income individuals.''
Id.
---------------------------------------------------------------------------
The Interagency Questions and Answers further elaborate on
revitalization and stabilization activities in these geographic
areas.\417\ With respect to low- and moderate-income census tracts,
designated disaster areas, and distressed nonmetropolitan middle-income
census tracts, current guidance states that revitalization and
stabilization activities are those that help to ``attract new, or
retain existing, businesses or residents'' in that geographic
area.\418\ Current guidance for the same three targeted geographic
areas also states that an activity will be presumed to revitalize or
stabilize a geographic area if the activity is consistent with a
government plan for the revitalization or stabilization of the
area.\419\
---------------------------------------------------------------------------
\417\ See Q&A Sec. __.12(g)(4)(i)-1 (regarding low- or
moderate-income census tracts), Q&A Sec. __.12(g)(4)(ii)-2
(regarding designated disaster areas), Q&A Sec. __.12(g)(4)(iii)-3
(regarding distressed nonmetropolitan middle-income census tracts),
and Q&A Sec. __.12(g)(4)(iii)-4 (regarding underserved
nonmetropolitan middle-income census tracts). Activities considered
to revitalize and stabilize a designated disaster area must also be
``related to disaster recovery.'' See Q&A Sec. __.12(g)(4)(ii)-2.
\418\ See Q&A Sec. __.12(g)(4)(i)-1 (regarding low- or
moderate-income geographies), Q&A Sec. __.12(g)(4)(ii)-2 (regarding
designated disaster areas), and Q&A Sec. __.12(g)(4)(iii)-3
(regarding distressed nonmetropolitan middle-income census tracts).
The ``attract new or retain existing businesses or residents''
language is not in the guidance on revitalization and stabilization
activities for underserved nonmetropolitan middle-income census
tracts. See Q&A Sec. __.12(g)(4)(iii)-4.
\419\ See Q&A Sec. __.12(g)(4)(i)-1 (regarding low- or
moderate-income census tracts), Q&A Sec. __.12(g)(4)(ii)-2
(regarding designated disaster areas), and Q&A Sec.
__.12(g)(4)(iii)-3 (regarding distressed nonmetropolitan middle-
income census tracts).
---------------------------------------------------------------------------
Further, in designated disaster areas and distressed
nonmetropolitan middle-income census tracts, current guidance specifies
that examiners will consider all activities that revitalize or
stabilize a census tract but give greater weight to those activities
that are most responsive to community needs, including the needs of
low- or moderate-income individuals or neighborhoods.\420\ In
determining whether an activity revitalizes or stabilizes a low- or
moderate-income census tract, in the absence of a Federal, State,
local, or tribal government plan, guidance instructs examiners to
evaluate activities based on the actual impact on the census tract, if
that information is available.\421\ If not, examiners will determine
whether the activity is consistent with the community's formal or
informal plans for the revitalization and stabilization of the low- or
moderate-income census tract.\422\
---------------------------------------------------------------------------
\420\ See Q&A Sec. __.12(g)(4)(ii)-2 (regarding designated
disaster areas) and Q&A Sec. __.12(g)(4)(iii)-3 (regarding
distressed nonmetropolitan middle-income census tracts).
\421\ See Q&A Sec. __.12(g)(4)(i)-1.
\422\ See id.
---------------------------------------------------------------------------
Regarding underserved nonmetropolitan middle-income census tracts,
current guidance focuses on clarifying the regulatory provision stating
that activities in census tracts designated by the agencies as
underserved based on ``population size, density, and dispersion'' are
considered to be revitalization and stabilization activities ``if they
help to meet essential community needs, including needs of low- and
moderate-income individuals.'' \423\ To this end, the Interagency
Questions and Answers state that activities such as ``financing for the
construction, expansion, improvement, maintenance, or operation of
essential infrastructure or facilities for health services, education,
public safety, public services, industrial parks, affordable housing,
or communication services'' in underserved nonmetropolitan middle-
income census tracts will be evaluated to determine whether they meet
essential community needs.\424\ The guidance also provides several
examples of projects that may be considered to meet essential community
needs, such as hospitals, industrial parks, rehabilitated sewer lines,
mixed-income housing, and renovated schools--as long as the population
served includes
[[Page 6672]]
low- and moderate-income individuals.\425\
---------------------------------------------------------------------------
\423\ 12 CFR __.12(g)(4)(iii)(B).
\424\ Q&A Sec. __.12(g)(4)(iii)-4.
\425\ See id.
---------------------------------------------------------------------------
Overview of the Proposal
The agencies' proposal replaced the current revitalization and
stabilization activities component of the community development
definition with six separate categories of activities:
Revitalization activities undertaken in conjunction with a
government plan, program, or initiative; \426\
---------------------------------------------------------------------------
\426\ See proposed Sec. __.13(e).
---------------------------------------------------------------------------
Essential community facilities activities; \427\
---------------------------------------------------------------------------
\427\ See proposed Sec. __.13(f).
---------------------------------------------------------------------------
Essential community infrastructure activities; \428\
---------------------------------------------------------------------------
\428\ See proposed Sec. __.13(g).
---------------------------------------------------------------------------
Recovery activities in designated disaster areas; \429\
---------------------------------------------------------------------------
\429\ See proposed Sec. __.13(h).
---------------------------------------------------------------------------
Disaster preparedness and climate resiliency activities;
\430\ and
---------------------------------------------------------------------------
\430\ See proposed Sec. __.13(i).
---------------------------------------------------------------------------
Qualifying activities in Native Land Areas.\431\
---------------------------------------------------------------------------
\431\ See proposed Sec. __.13(k).
---------------------------------------------------------------------------
Each of the proposed categories included requirements to benefit
residents of targeted geographic areas, as discussed in more detail
below, and thus are referred to as ``place-based categories'' (and the
activities defined within the categories as ``place-based activities'')
throughout this SUPPLEMENTARY INFORMATION. Each of the proposed place-
based categories also generally shared three other common required
eligibility criteria (with adjustments specific to certain categories).
Specifically, relevant activities must:
Benefit or serve residents of the targeted geographic
area, including low- or moderate-income individuals;
Not displace or exclude low- or moderate-income
individuals; and
Be conducted in conjunction with a Federal, State, local,
or tribal government plan, program, or initiative that includes an
explicit focus on benefiting or serving the targeted geographic area.
These criteria are generally referred to as ``place-based
criteria'' throughout this SUPPLEMENTARY INFORMATION. By refining and
further clarifying the current regulation and guidance regarding the
revitalization and stabilization category of community development, the
agencies intended to provide greater certainty about what activities
are considered to revitalize and stabilize communities, and thus be
considered community development.
This section-by-section analysis first discusses the three place-
based criteria noted above, including general comments received and
general revisions made in the final rule. An analysis of each of the
six place-based community development categories follows, under which
specific final place-based criteria provisions and revisions are
discussed. As will be discussed below, the final rule generally retains
the three common place-based criteria proposed for each of the six
place-based categories, with some modifications. The analysis of the
place-based criteria below generally follows the order of the proposal;
as discussed under the analysis of each of the specific place-based
categories, the final rule reorganizes the common place-based criteria
to establish a consistent parallel structure across the categories.
Benefits or Serves Residents, Including Low- or Moderate-Income
Individuals, of Targeted Geographic Areas
The Agencies' Proposal
Across all place-based categories, the agencies proposed that
activities supported by a bank's loans, investments, or services would
be considered community development only in relation to particular
geographic areas. Specifically, revitalization activities in
conjunction with a government plan, program or initiative, essential
infrastructure activities, essential community facilities activities,
and disaster preparedness and climate resiliency activities would be
community development under the proposal if they benefited or served
residents, including low- or moderate-income residents, of one or more
``targeted census tracts,'' defined in proposed Sec. __.12 to mean
low- or moderate-income census tracts and distressed or underserved
nonmetropolitan middle-income census tracts.\432\ Similarly, essential
community facilities, essential infrastructure, and disaster
preparedness and climate resiliency activities would also be required
to be ``conducted in'' targeted census tracts.\433\
---------------------------------------------------------------------------
\432\ See proposed Sec. __.13(e) (revitalization activities),
(f) (essential community facilities activities), (g) (essential
community infrastructure activities), and (i) (disaster preparedness
and climate resiliency activities). For further discussion of the
definition of ``targeted census tract,'' see the section-by-section
analysis of Sec. __.12 (``targeted census tract'').
\433\ See proposed Sec. __.13(f) (essential community
facilities activities), (g) (essential community infrastructure
activities), and (i) (disaster preparedness and climate resiliency
activities).
---------------------------------------------------------------------------
Under the proposal, recovery activities in designated disaster
areas qualified in census tracts of all income levels, provided that
the activities benefited or served residents, including low- or
moderate-income residents, in an area subject to a Federal Major
Disaster Declaration (excluding Major Disaster Categories A and
B).\434\ Activities in Native Land Areas would qualify as community
development if they were ``specifically targeted to and conducted in
Native Land Areas'' and ``benefited residents of Native Land Areas,
including low- or moderate-income residents.'' \435\
---------------------------------------------------------------------------
\434\ See proposed Sec. __.13(h)(1).
\435\ See proposed Sec. __.13(l). The definition of ``Native
Land Area'' is discussed further in the section-by-section analysis
of Sec. __.12.
---------------------------------------------------------------------------
The agencies also proposed requirements regarding the beneficiaries
of place-based activities--specifically, that they benefit or serve
residents of the relevant targeted geographic area, including low- or
moderate-income residents. The express inclusion of ``low- or moderate-
income residents'' incorporated an emphasis on benefits for low- and
moderate-income individuals reflected in the current regulation and
guidance on revitalization and stabilization activities, as well as the
CRA statute.\436\ The agencies sought feedback on how place-based
activities can focus on benefiting residents in targeted census tracts
and ensure that the activities benefit low- or moderate-income
residents.
---------------------------------------------------------------------------
\436\ See, e.g., 12 CFR __.12(g)(4); Q&A Sec. __.12(g)(4)(i)-1
(regarding low- or moderate-income geographies), Q&A Sec.
__.12(g)(4)(ii)-2 (regarding designated disaster areas), Q&A Sec.
__.12(g)(4)(iii)-3 (regarding distressed nonmetropolitan middle-
income census tracts), and Q&A Sec. __.12(g)(4)(iii)-4 (regarding
underserved nonmetropolitan middle-income census tracts); 12 U.S.C.
2903(a) and 2906(a)(1).
---------------------------------------------------------------------------
Comments Received
Commenters offered various views on how to focus place-based
activities on benefiting residents in targeted geographic areas, and
how to ensure that the activities benefit low- or moderate-income
residents. Comments specific to whether activities should be directly
conducted in targeted geographic areas are generally discussed under
the section-by-section analyses for the respective place-based
categories, where applicable. Several commenters suggested that the
agencies adopt quantitative measures for evaluating benefits, such as
requiring a majority of the beneficiaries to be low- or moderate-income
in the targeted geographic area, or requiring a majority of
beneficiaries to be low- or moderate-income minorities. Some commenters
recommended that data on benefits to low- and moderate-income residents
[[Page 6673]]
should be part of community development data submissions, such as
documentation regarding the number and percent of low- and moderate-
income persons in the census tract(s) of the target area and a
narrative explaining how the activity would benefit them, or other
evidence of community benefit such as job creation, living wages, fair
lease payments, or sound land-use planning practices. In contrast, a
commenter suggested that the agencies also allow for consideration of
activities where benefits to low- or moderate-income individuals are
not readily quantifiable, but otherwise demonstrable. This commenter
cautioned that ``means testing'' would complicate community development
financing and might not be possible, potentially discouraging bank
investment, but suggested that projects located in low- and moderate-
income or distressed census tracts were likely to serve residents of
those tracts and others in the area.
Some commenters suggested requiring community input to demonstrate
that activities benefit residents, including low- or moderate-income
residents, of targeted census tracts. For instance, commenters
recommended that banks document (and the agencies consider) public
feedback provided by community groups; public attestations; or
community benefit agreements (CBAs). Several commenters recommended
that examiners use their judgment to determine whether qualifying
activities benefit low- and moderate-income residents, indicating, for
example, that different types of activities will warrant different
types of evidence to demonstrate benefit to low- and moderate-income
residents. Other commenters suggested that a statement from a bank's
public or nonprofit organization partners could provide evidence of a
place-based activity's impact on low- and moderate-income communities.
Final Rule
The final rule generally retains the three common place-based
criteria proposed for each of the six place-based categories, with some
modifications. Generally applicable language and revisions are
addressed here, with category-specific language described under each
category below in this section-by-section analysis.
Consistent with the proposal, each of the final place-based
categories adopts a specific focus on targeted geographic areas,
discussed in each of the section-by-section analyses of the place-based
categories below. Under the final rule, the geographic area focus for
each category is as follows:
For revitalization or stabilization (Sec. __.13(e)),
essential community facilities (Sec. __.13(f)), essential community
infrastructure (Sec. __.13(g)), and disaster preparedness and weather
resiliency (Sec. __.13(i)): ``targeted census tracts.'' Consistent
with the proposal, targeted census tracts are defined in final Sec.
__.12 as low- and moderate-income census tracts, as well as distressed
or underserved nonmetropolitan middle-income census tracts;
For recovery of designated disaster areas (Sec.
__.13(h)): ``areas subject to a Federal Major Disaster Declaration,
excluding Major Disaster Categories A and B''; and
For qualified activities in Native Land Areas (Sec.
__.13(j)): ``residents of Native Land Areas.'' \437\
---------------------------------------------------------------------------
\437\ The term ``Native Land Area'' is separately defined in
section Sec. __.12 and discussed in detail in the accompanying
section-by-section analysis.
---------------------------------------------------------------------------
For each place-based category, the final rule also adopts
substantially as proposed the place-based criterion that activities
benefit or serve residents, including low- or moderate-income
individuals, in the targeted geographic areas, including the proposed
criterion that revitalization activities in Native Land Areas must have
``substantial benefits for low- and moderate-income residents.'' \438\
The final rule revises the proposed language of this criterion, with no
substantive change intended, to reference ``low- or moderate-income
individuals'' rather than ``low- or moderate-income residents,'' which
aligns with usage of the word ``individuals'' in the definitions of
low-income and moderate-income in final Sec. __.12 and is generally
consistent with usage of the term ``low- or moderate-income
individuals'' throughout the rule. As discussed in the proposal, this
criterion establishes a consistent expectation that residents in the
relevant targeted geographic areas will benefit from the qualifying
activity and that the residents benefiting from the activity will
include low- and moderate-income individuals. To further the purposes
of CRA, the agencies believe it important that loans, investments, and
services considered in a bank's community development performance
evaluation support place-based activities that provide direct benefit
to the people living in targeted geographic areas rather than solely
supporting redevelopment these geographic areas more generally.
Together with the other common place-based criteria discussed in more
detail below, the agencies believe that this criterion will ensure a
strong connection between activities and community needs.
---------------------------------------------------------------------------
\438\ See proposed Sec. __.13(l)(1)(i)(A) (``revitalization
activities in Native Land Areas'') and final Sec. __.13(j)(2)(ii)
(revised to refer to ``revitalization or stabilization activities in
Native Land Areas'').
---------------------------------------------------------------------------
The agencies have considered, but are not adopting, additional
quantitative standards or criteria in final Sec. __.13(e) through (j),
including a requirement that a majority of the beneficiaries of a
qualifying activity in the proposed (and final) targeted geographic
areas be low- or moderate-income individuals, minorities, or other
underserved individuals. The agencies understand and appreciate the
concerns giving rise to commenter suggestions for more precisely
defining qualifying community development activities to focus on these
individuals and communities. For this reason, as noted in the proposal,
the agencies also considered a criterion that place-based activities
benefit or serve solely low- or moderate-income individuals.
On further consideration, however, the agencies believe that the
final criterion (``benefits or serves residents, including low- or
moderate-income residents'' \439\) is appropriately adaptable,
providing needed flexibility to address the wide range of community
development needs that may exist in the areas targeted in the proposed
and final rule's place-based community development categories. Rather
than adding quantitative limitations or other parameters to this
proposed criterion, the agencies intend, in adopting this criterion
generally as proposed, to maintain flexibility for activities to meet
multiple types of community needs in the areas targeted by place-based
activities--while also requiring the inclusion of low- or moderate-
income individuals as beneficiaries. This flexibility remains
particularly important in distressed and underserved nonmetropolitan
middle-income census tracts, which can have fewer low- or moderate-
income residents. The agencies further believe that this criterion, as
adopted, is consistent with the CRA statute, which is focused on
meeting the credit needs of an entire community, including low- and
moderate-income needs.\440\ In addition,
[[Page 6674]]
the agencies note that, under the majority standard discussed in the
section-by-section analysis of Sec. __.13(a), loans, investments, or
services supporting placed-based community development may receive
community development consideration only if the majority of the
beneficiaries are, or the majority of the dollars benefit or serve,
residents of the targeted geographic areas.\441\
---------------------------------------------------------------------------
\439\ The final rule adopts different language for
revitalization or stabilization activities in Native Land Areas,
which must benefit or serve residents of Native Land Areas, ``with
substantial benefits for low- or moderate-income individuals''
(emphasis added). See final Sec. __.13(j)(2)(ii), discussed in the
section-by-section analysis of Sec. __.13(j).
\440\ See 12 U.S.C. 2903(a) and 2906(a)(1).
\441\ See final Sec. __.13(a)(1)(i)(B)(4) through (6).
---------------------------------------------------------------------------
The agencies are also not adopting additional criteria, recommended
by some commenters, for demonstrating and evaluating the benefits of
place-based activities, such as through suggested data points or
requiring community input. On further deliberation, the agencies are
concerned that requiring specific ways of demonstrating benefits to
residents could add complexity and burden, potentially dissuading banks
from supporting place-based activities. The agencies further believe
that maintaining some flexibility in the regulation is necessary to
accommodate varying community needs and relationships that banks have
with communities. At the same time, the agencies recognize that data
and community input could be helpful in demonstrating and evaluating
benefits of activities to residents of targeted geographic areas,
including low- and moderate-income individuals; the final rule does not
preclude banks and examiners from using an array of useful information
in this regard.
As was noted by commenters, examiner judgment will continue to have
a role in agency determinations regarding whether activities benefit
residents of targeted geographic areas, including low- or moderate-
income individuals. However, by adopting the criterion requiring
activities to benefit or serve residents, including low- or moderate-
income individuals, in combination with other place-based criteria, the
agencies intend to clarify expectations and to promote consistency in
application across place-based categories of community development.
Prohibits Displacement or Exclusion of Low- or Moderate-Income
Individuals
The Agencies' Proposal
The agencies proposed that eligible place-based activities could
not lead to the displacement or exclusion of low- or moderate-income
residents in relevant geographic areas.\442\ For example, the proposal
noted that, if a project to build commercial development to revitalize
an area involved demolishing housing occupied by low- or moderate-
income individuals, then the project would not meet this criterion and
loans, investments, or services supporting it would be ineligible for
CRA credit. In proposing this criterion, the agencies sought to ensure
that qualifying activities do not have a detrimental effect on low- or
moderate-income individuals or communities or on other underserved
communities. The agencies sought feedback on how considerations about
whether an activity would displace or exclude low- or moderate-income
residents should be reflected in the rule.
---------------------------------------------------------------------------
\442\ See proposed Sec. __.13(e)(2) (revitalization), (f)(2)
(essential community facilities), (g)(2) (essential community
infrastructure), (h)(2) (recovery in designated disaster areas),
proposed (i)(2) (disaster preparedness and climate resiliency), and
(l)(1)(i)(B) and (l)(2)(i) (Native Land Areas).
---------------------------------------------------------------------------
Comments Received
Most commenters supported requiring that qualifying place-based
activities not displace or exclude low- and moderate-income residents.
Many of these commenters asserted that the anti-displacement and anti-
exclusion criterion should be extended to other categories of community
development, with a number of commenters advocating for an extension of
the criterion to the proposed category for affordable housing under
proposed Sec. __.13(b), including the naturally occurring affordable
housing prong in proposed Sec. __.13(b)(2).\443\
---------------------------------------------------------------------------
\443\ See proposed Sec. __.13(b), discussed above.
---------------------------------------------------------------------------
A variety of commenters asserted that the criterion should be
strengthened, and offered suggestions for demonstrating or measuring
non-displacement and non-exclusion for activities supported by a bank's
loans, investments, or services. Suggestions included, for example,
that a bank:
Demonstrate compliance with tenant protections, local
health and habitability codes, civil rights and other relevant laws;
Conduct due diligence to determine whether a project
involves any concerns relating to eviction, harassment, complaints,
rent increases, or habitability violations;
Demonstrate that projects did not reduce affordable
housing units or displace small businesses or farms;
Evidence support for resident retention through lending in
low- and moderate-income communities or minority communities to ensure
non-displacement of those communities; or
Provide attestations from public sector or nonprofit
partners that displacement did not occur, or require other
documentation of the community engagement process.
Other commenters focused on gentrification concerns more expressly.
For example, commenters recommended that the agencies: (1) consider
whether an activity would promote gentrification and displacement of
existing low- and moderate-income residents through increased rents.;
(2) recognize both physical displacement, such as in the proposal's
example of affordable housing being demolished to create housing
serving higher-income households, and more general displacement from
inflationary pressures caused by rapid growth or gentrification; and
(3) closely evaluate the demographics of financial institutions'
financing practices in relation to gentrification. Other commenters
indicated that impact on minorities within identified census tracts
should be accounted for, or that the agencies should expand CRA
discrimination downgrade criteria to include incidents of displacement
of, or harm to, low- and moderate-income communities and/or minorities.
Some commenters supported the goal of preventing displacement but
suggested that the proposed criterion was too broad and thus might
inadvertently disqualify activities that would otherwise align with
community development goals. Accordingly, some commenters recommended
that the criterion be revised to, for instance: (1) allow for
activities that result in displacement, if mitigation of displacement
is incorporated into the project, such as voluntary agreements that
provide for compensation, alternative housing in or near the relevant
community, or other similar benefits to displaced residents; (2)
provide other carve-outs from the criterion, such as for temporary
relocations or limited displacement; or (3) include only involuntary or
forced displacement, to permit, for example, voluntary relocation from
climate-impacted areas.
Other commenters opposed the proposal to include an anti-
displacement or anti-exclusion criterion as part of place-based
community development activities, with some explicitly opposed to a
criterion disallowing exclusion of low- and moderate-income
individuals. Some of these commenters expressed concern about an
undefined, overbroad, or subjective standard, with some suggesting that
the proposed criterion would be difficult to demonstrate and for
examiners to evaluate. A commenter suggested that meeting this
criterion
[[Page 6675]]
would be especially difficult in advance of, or shortly after the
completion of, the activity, and indicated that banks might not be able
to predict or control the long-term effects of projects. This commenter
asserted that the proposal would add inconsistency and uncertainty to
CRA evaluations and potentially chill beneficial community development
projects in low- or moderate-income communities.
Several commenters suggested that the agencies omit the
displacement and exclusion prohibition and instead weigh the overall
impact of activities on targeted census tracts (and other relevant
geographic areas, as applicable). For example, commenters suggested
that activities could have larger community benefits even if some
displacement results, such as a commercial mixed-use project that
results in some displacement of low- and moderate-income residents but
includes housing for low- and moderate-income residents. A commenter
also suggested that the proposed anti-displacement criterion was
inconsistent with the criterion that a project be ``in conjunction
with'' a government plan, indicating that government revitalization
plans sometimes involve the removal of apartment buildings that have
sub-standard units.
Final Rule
In the final rule, the agencies are adopting a revised version of
the proposal to include a place-based criterion that activities may not
``directly result in the forced or involuntary relocation of low- or
moderate-income individuals'' in the targeted geographic areas. This
criterion is designed to ensure that qualifying activities do not have
a direct detrimental effect on low- or moderate-income individuals or
communities in the relevant targeted geographic areas. The agencies
believe that qualifying place-based community development activities
that deny such populations the benefits of those activities through
forced or involuntary relocation out of the targeted geographic area
would be inconsistent with the purpose of the CRA to encourage banks to
help serve the credit needs of their communities, including low- or
moderate-income populations.
The agencies have considered and are persuaded by comments that
refinements to the proposed criterion are appropriate so as not to
disqualify responsive community development activities that align with
the purpose of the CRA. In particular, the agencies have considered
concerns raised by some commenters based on their view of the breadth
of the proposed standard. The agencies recognize, for example, that
otherwise qualifying disaster recovery or disaster preparedness
activities with widespread benefits for a community could involve
voluntary relocation residents due to environmental conditions such as
an increased risk of significant flooding. Therefore, the agencies have
revised the proposal to focus the final rule's criterion on prohibiting
activities that would result in the forced or involuntary physical
displacement of low- or moderate-income individuals as a direct result
of the activity.
The final rule's criterion on displacement does not include the
proposal's specific prohibition on ``exclud[ing]'' low- and moderate-
income residents. As noted above, the final rule includes a criterion
that place-based activities must benefit or serve residents of a
targeted geographic area, including low- or moderate-income individuals
(with revitalization or stabilization activities in Native Land Areas
requiring ``substantial benefits for low- or moderate-income
individuals'' \444\). Given that the requirement to benefit or serve a
targeted geographic area must include low- or moderate-income
individuals (and therefore cannot exclude those individuals), on
further consideration, the agencies believe that the exclusion language
is redundant. However, the agencies do not intend a substantive change
relative to the proposal. Thus, if low- or moderate-income individuals
were not able to access or benefit from an activity, then the activity
would not include low- or moderate-income individuals and therefore
would not qualify as community development under the final rule.
---------------------------------------------------------------------------
\444\ See final Sec. __.13(j)(2)(ii).
---------------------------------------------------------------------------
Under the final rule, ``forced or involuntary relocation'' could
encompass both overt activities such as demolishing a building, as well
as actions directly resulting in conditions for remaining in place
being infeasible or undesirable, such as uninhabitable conditions.
Accordingly, under the final rule, a project that involves demolishing
a multifamily building in which low- or moderate-income individuals
reside, thereby forcibly removing residents, would not qualify as
community development under the place-based categories. In contrast,
projects involving relocation of individuals could conceivably qualify
as community development where residents agree to voluntary relocation.
Regarding the concern that the proposed anti-displacement standard
could conflict with government plans, the agencies believe that the
revisions to the proposal--to focus on ``forced or involuntary
relocation''--will help mitigate this concern by adding greater
specificity to the provision. For example, if a government plan
involves demolishing a building that has suffered substantial hurricane
damage, and all tenants are willing to relocate, the relocation of
those tenants would not be disqualifying under this place-based
criterion.
Additionally, the final rule states that activities may not
``directly'' result in forced or involuntary relocation. Accordingly,
to be disqualified, an activity must directly relate to the involuntary
relocation. For example, if a commercial development project to
revitalize an area involved demolishing housing occupied by low- or
moderate-income individuals, this project would directly result in the
relocation of those occupants. Depending on the facts and
circumstances, if the relocation were forced or involuntary, then the
loans, investments, or services supporting the project would be
ineligible for CRA consideration. In contrast, while the agencies note
commenter feedback regarding future market pressures on rents and other
costs resulting from neighborhood redevelopment and share these
concerns, the agencies do not believe such pressures generally would
directly result in forced or involuntary relocation, and thus generally
would not be disqualifying under the final criterion. Further, the
agencies believe that evaluating the impact of a particular project on
the broader market in the future, such as the possibility of general
rent increases across the market, could be challenging or speculative,
resulting in inconsistencies in application and decreased certainty as
to which projects may qualify as community development.
For similar reasons, the agencies are not incorporating specific
displacement and relocation mitigation options as part of this
criterion in the final rule. The agencies are concerned that doing so
could create a need for a complex set of parameters regarding
appropriate mitigation for otherwise qualifying activities. Further,
determining when mitigation efforts are sufficient in all cases could
be difficult or impracticable, as facts and circumstances can vary
widely.
Likewise, on further consideration, the agencies are not adopting
additional commenter-recommended standards or criteria to measure or
otherwise demonstrate or determine whether an activity displaces
residents. As with the above place-based criterion to benefit or
[[Page 6676]]
serve residents of a targeted geographic area, including low- and
moderate-income individuals, the agencies are concerned that specific
evidentiary requirements or required methods to demonstrate or
determine whether an activity displaces residents could add complexity
and burden, potentially dissuading banks from engaging in place-based
activities. The agencies further recognize that the range of
circumstances and contexts of potentially qualifying projects could
have implications for whether specific measures pertaining to
displacement determinations are appropriate, and might not be
foreseeable.
The agencies have also considered commenter suggestions to
incorporate this particular criterion into other community development
categories, but believe that this criterion is most appropriate for
place-based activities. The agencies believe that the criterion is
appropriate specifically for place-based activities to ensure that
activities designed to benefit a targeted geographic area do not have
direct detrimental impacts on the residents the activities are intended
to serve. Further, the relocation impacts of a particular activity can
be more easily identified relative to a particular targeted geographic
area, which are well-defined in, and the focus of, place-based
community development activities in the final rule. Regarding comments
encouraging expansion of the criterion to the affordable housing
category, particularly naturally occurring affordable housing in Sec.
__.13(b)(2), the agencies note that, under the final rule, this type of
affordable housing is designed to create units or facilitate
maintenance of existing units of affordable housing, and examiners will
retain discretion to consider whether an activity reduces the number of
housing units affordable to low- or moderate-income individuals. This
design thus indirectly includes anti-displacement guardrails.\445\ The
criterion is also less appropriate for other community development
categories, such as community supportive services and financial
literacy, that are unlikely to result in the direct relocation of
residents.\446\
---------------------------------------------------------------------------
\445\ For further discussion, see final Sec. __.13(b)(2) and
the accompanying section-by-section analysis.
\446\ See final Sec. __.13(d) and (k), respectively, and the
accompanying section-by-section analyses.
---------------------------------------------------------------------------
Regarding comments that the rule should permit downgrades for
activities that result in displacement, the agencies note that under
the final rule, as currently, evidence of illegal credit practices is
the basis of a rating downgrade.\447\ The agencies have given serious
consideration to the types of practices that should result in a ratings
downgrade, in light of significant comments on this topic. For further
discussion of the types of practices that can lead to a ratings
downgrade under the final rule, see the section-by-section analysis of
final Sec. __.28(d). The agencies also emphasize that, under the final
rule, no place-based activity directly resulting in forced or
involuntary relocation of low- or moderate-income individuals will
qualify as community development, so no bank may receive community
development consideration for loans, investments, or services
supporting those activities.
---------------------------------------------------------------------------
\447\ See current 12 CFR __.28(c), proposed Sec. __.28(d), and
final Sec. __.28(d).
---------------------------------------------------------------------------
Finally, the agencies are not removing this criterion from the
final rule or revising the rule to weigh overall impacts to a market,
such as net benefits of an activity to a particular market, accounting
for displacement. The agencies have considered comments suggesting
removal or revision in this regard, but believe that granting
consideration for loans, investments, or services that support projects
directly resulting in forced or involuntary relocation of low- or
moderate-income residents of targeted geographic areas, even in
conjunction with a government plan, would be inconsistent with the
express focus of the CRA on the needs of low- or moderate-income
populations.
Overall, the agencies believe that the final criterion as adopted
offers a more precise standard relative to the proposal that
appropriately balances encouraging activities that provide community
benefits to residents of a targeted geographic area, including low- and
moderate-income residents of targeted geographic areas, while
discouraging activities that have detrimental effects on the residents
of those targeted geographic areas, including low- or moderate-income
individuals. The agencies recognize commenter concerns that the
proposed rule was overbroad or could be difficult to evaluate, and
believe that the final rule regulatory text on this criterion more
accurately expresses the intent of the proposal and will be more
practicable to establish than the proposed language.
Conducted in Conjunction With a Government Plan, Program, or Initiative
The Agencies' Proposal
The agencies proposed that activities eligible under the place-
based community development categories would need to be undertaken ``in
conjunction with a [F]ederal, [S]tate, local, or tribal government
plan, program, or initiative'' that, for most proposed placed-based
activities, would have to include ``an explicit focus'' on benefiting
the relevant targeted geographic area.\448\ The agencies sought
feedback on whether any or all place-based definition activities should
be required to be conducted in conjunction with a government plan,
program, or initiative and include an explicit focus of benefiting the
targeted geographic area. In addition, the agencies sought feedback on
appropriate standards for government plans, programs, or initiatives
and asked about alternative options for determining whether place-based
activities meet identified community needs.
---------------------------------------------------------------------------
\448\ See proposed Sec. __.13(e) (revitalization), (f)(3)
(essential community facilities), (g)(3) (essential community
infrastructure), (h)(3) (recovery in designated disaster areas),
(i)(3) (disaster preparedness and climate resiliency), and (l)(1)(i)
(revitalization in Native Land Areas). Proposed Sec.
__.13(l)(2)(ii) (essential community facilities and essential
community infrastructure in Native Land Areas) and (l)(3)(ii)
(disaster preparedness and climate resiliency in Native Land Areas)
did not include the ``explicit focus'' language.
---------------------------------------------------------------------------
Comments Received
Some commenters supported the proposed common criterion to require
that place-based community development be conducted in conjunction with
a government plan, program, or initiative. These comments included, for
example, a commenter asserting that banks' lending should be aligned
with government efforts to ensure investments reach underserved
communities and have the highest impact, and expressing the view that
the proposed language ``in conjunction with'' would ensure that
alignment. Several commenters supportive of the proposed criterion
suggested adding other criteria as well, such as showing that a plan,
program, or initiative has broad community support, to ensure that the
government plan, program or initiative is responsive to community
needs, or involves consultation and partnership with community- and
faith-based organizations in targeted communities to determine how best
to tailor activities. Commenter recommendations also included that
banks should have to demonstrate that the underlying government plan or
program includes goals and standards appropriately aligned with a
community development category under CRA; and that qualifying plans
should be included in an official government document that is readily
available to the public and has
[[Page 6677]]
been subject to a formal community review process.
However, a majority of commenters opposed or expressed concerns
about requiring place-based activities to be conducted in conjunction
with a government plan, program, or initiative as proposed, with some
commenters suggesting eliminating the requirement altogether, or
expanding the government plan, program, or initiative criteria to
include other options for defining eligible activities. Some commenters
viewed the criterion as too limiting, given that communities do not
always have government plans, programs, or initiatives in place for
community development. Commenters stated, for example, that: local
governments in areas most in need of stabilization and revitalization,
including small towns and rural areas, might not always have a plan,
program, or initiative for the targeted census tract; consolidated
plans developed at the State level often do not target rural areas at
the census tract level; the requirement could prevent activities where
banks are unable to find a government partner or to know in advance if
one will be available for a prospective project; and, more generally,
the requirement could lead to a contraction rather than an expansion of
community development activities. A few commenters expressed concern
that the proposed criterion would exclude impactful activities with
nonprofit organizations or in the private sector that are not
associated with a formal government plan but could effectuate the same
community development purposes. A commenter expressed concern that
banks could be penalized for supporting activities in areas without a
plan and suggested that, at a minimum, the agencies should instead
require only that an activity be conducted ``consistent with'' such a
government plan, program, or initiative. Particularly regarding the
proposed disaster preparedness and climate resiliency category of
community development,\449\ a commenter suggested that if the
government plan requirement were retained, the final rule should
clarify that plans developed by local utilities are included.
---------------------------------------------------------------------------
\449\ See final Sec. __.13(i), discussed in detail in the
accompanying section-by-section analysis.
---------------------------------------------------------------------------
Other commenters asserted that government plans that do exist do
not always match community goals or, similar to comments mentioned
above, may unevenly address community needs. For instance, a commenter
suggested that a local agency plan or initiative might not be
responsive to needs of modest-income residents or minorities, or might
be harmful to their interests. With respect to climate activities, a
number of commenters argued that government plans may be inadequate or
slow to respond to community needs. A few commenters noted that
government programs regarding climate change often lack a racial
justice focus.
Some commenters supported broadening this criterion to include
place-based activities in partnership with not only governments, but
also local community organizations with plans, programs, or
initiatives, particularly organizations that have knowledge of, and a
successful record of working within, the relevant community; or,
similarly, community-led plans and plans conducted in conjunction with
community development organizations and nonprofit organizations that
benefit low- and moderate-income individuals and communities. For
example, a commenter recommended that bank lending and investment in
low- and moderate-income communities working with mission-driven
lenders should receive community development consideration. Another
commenter emphasized the importance of including in any criterion the
activities of Black developers or community organizers that engage in
place-based activities outside of government plans--as long as such
activities still meet the explicit focus of benefiting the targeted
census tract, including low- and moderate-income residents.
Other commenters suggested that place-based activities should
instead simply qualify as community development if clearly supported by
documentation that the activity meets a need in the community. For
example, a commenter expressing concern regarding the level of required
government engagement advocated for giving banks more flexibility to
engage with non-government partners in projects that also met community
needs, without the need to have a government plan in place. Several
commenters suggested that the key qualification standard for place-
based activities should be whether intended beneficiaries are low- and
moderate-income census tract residents or other low- and moderate-
income individuals.
Some commenters supported the agencies' goals to create clear
standards for qualification of place-based activities, but recommended
alternatives to a requirement that place-based activities be conducted
in conjunction with a government plan, program, or initiative. For
example, several commenters suggested that, rather than requiring a
nexus to a government, plan, program, or initiative, the final rule
should incorporate impact scoring to boost consideration of activities
undertaken in conjunction with a government plan, or that government
plans should serve as evidence that an activity is responsive to local
needs.
A few commenters recommended a qualitative approach to assessing
the value of place-based activities to the community, such as through
examiner analysis of performance context or a CBA to determine
community needs and whether activities respond to them. Additionally, a
few commenters suggested that the agencies consider activities with a
race-conscious objective or develop a ranking of activities that
emphasize working in conjunction with government plans, programs, and
initiatives that have a race conscious objective.
Final Rule
The final rule adopts the proposed criterion that activities be
conducted in conjunction with a government plan, program, or
initiative, with revisions to: (1) broaden the criterion to include
activities undertaken in conjunction with a mission-driven nonprofit
organization; and (2) to generally delete the word ``explicit'' where
applicable when referencing the focus of the government plan on the
relevant community development activity in a particular geographic
area.\450\ Accordingly, the final rule generally adopts as a criterion
that activities be undertaken in conjunction with a Federal, State,
local, or tribal government or a mission-driven nonprofit organization,
where the plan, program, or initiative includes a focus on, for
example, ``revitalizing or stabilizing targeted census tracts.'' \451\
---------------------------------------------------------------------------
\450\ As noted, the ``explicit focus'' language for the
government plan, program, or initiative appeared the provisions for
all proposed placed-based categories of community development, other
than essential community facilities, essential community
infrastructure, and disaster preparedness and climate resiliency
activities in Native Land Areas.
\451\ See final Sec. __.13(e)(1)(i) (revitalization and
stabilization), (f)(1) (essential community facilities), (g)(1)
(essential community infrastructure), (h)(1)(i) (disaster recovery),
and (i)(1) (disaster preparedness and weather resiliency). The
``explicit focus'' language is adopted regarding qualifying
activities in Native Land Areas. See final Sec. __.13(j)(2)(i) and
(j)(3)(i).
---------------------------------------------------------------------------
In general. As discussed in the proposal, the agencies intend this
criterion to achieve several objectives. First, the criterion will help
ensure that place-based activities are responsive to identified
community needs. Government plans, programs, or initiatives provide a
mechanism for ensuring that activities are intentional
[[Page 6678]]
and support articulated community development goals, with a specific
tie to the relevant geographic areas. The agencies believe that these
plans, programs, and initiatives are general indicators of community
needs. As discussed in more detail below, expanding the criterion to
plans, programs, and initiatives of mission-driven nonprofit
organizations will provide another mechanism to ensure a nexus between
an activity and community needs in a particular geographic area, given
these organizations' knowledge and record of working within, and with
residents of, targeted geographic areas. Including mission-driven
nonprofit organizations in the criterion also will help address
commenter feedback that government plans, programs, and initiatives are
not always available or are not always responsive to or inclusive of
all of the needs in a particular geographic area.
Second, the final rule is intended to improve consistency,
certainty, and transparency, which will give banks and other
stakeholders more upfront clarity on how activities may qualify, prior
to banks engaging in those activities. The criterion will increase
consistency relative to current practice, where standards are complex
and vary across geographic areas, including related to how banks can
rely on a government plan to demonstrate qualification.\452\ The rule
will also increase certainty and transparency in that this criterion
sets forth a clear standard for determining whether a place-based
activity qualifies as community development and a bank's community
development loans, investments, or services supporting it could receive
community development consideration.
---------------------------------------------------------------------------
\452\ For example, under current guidance an activity in a
distressed nonmetropolitan middle-income geography is presumed to
revitalize or stabilize the area if the activity is consistent with
a bona fide government revitalization or stabilization plan (see Q&A
Sec. __.12(g)(4)(iii)-3), while an activity in a low- or moderate-
income census tract is presumed to revitalize or stabilize the area
if the activity has been approved by the governing board of an
Enterprise Community or Empowerment Zone (designated pursuant to 26
U.S.C. 1391) and is consistent with the board's strategic plan, or
if the activity has received similar official designation as
consistent with a Federal, State, local, or tribal government plan
for the revitalization or stabilization of the low- or moderate-
income census tract. See Q&A Sec. __.12(g)(4)(i)-1.
---------------------------------------------------------------------------
Finally, the agencies believe that the final rule will provide
additional clarity relative to current guidance by permitting
consideration for activities in conjunction with a program or
initiative, even if not part of a plan. The agencies believe that the
adopted criterion will allow for consideration of activities related to
a wide range of government plans, programs, and initiatives, including
those found in all types of communities within the targeted geographic
areas of the place-based community development categories. For example,
a grant to support a park in a low-income census tract could qualify if
undertaken in conjunction with a citywide government program or
initiative to expand green space in low- or moderate-income areas, even
if support for that park is not outlined in a particular plan. The
final rule does not further specify the kinds of plans, programs, or
initiatives that meet the criterion, nor the types of government
entities, as these can vary by community and Federal, State, or local
law.
Mission-driven nonprofit organization plan, program, or initiative.
The final rule broadens the proposed criterion to include activities
undertaken in conjunction with plans, programs, or initiatives of not
only governments, but also mission-driven nonprofit organizations. (For
a more detailed discussion of the definition of mission-driven
nonprofit organization, see the section-by-section analysis of Sec.
__.12 (``mission-driven nonprofit organization'')). In reaching a
determination on this final rule provision, the agencies considered
commenter views that the proposed government plan, program, or
initiative criterion is too narrow or limited. The agencies are
persuaded by points raised by some commenters that not all communities
have government plans, programs, or initiatives in place or that plans
may vary in their level of application to different geographic areas.
The agencies also considered comments that government plans do not
always match the goals of all members of the community. Further, the
agencies considered commenter views that the proposed requirement for
activities to be conducted in conjunction with a government plan,
program, or initiative could exclude impactful activities that are not
associated with a formal government plan but that could also bring
benefits to residents of a targeted geographic area.
As defined in the final rule, mission-driven nonprofit
organizations have knowledge of geographic areas that are the focus of
place-based activities under the final rule, and a successful record of
working within and with residents of these areas to meet community
needs. Further, these organizations can be identified and evaluated
through demonstrable and consistent standards (as discussed in more
detail in the section-by-section analysis of Sec. __.12).
The agencies believe that expanding this criterion to include
mission-driven nonprofit organizations will facilitate community
partnerships between banks and these organizations. Moreover, the
agencies believe that this expansion is consistent with ensuring that
activities remain place-based and benefit or serve residents of
targeted census tracts, designated disaster areas, and Native Land
Areas, as applicable. In addition, the agencies believe that many
commenters' specific suggestions will be addressed through this
revision, such as suggestions to broaden the rule to allow for
qualifying activities in connection with community organizations or
community plans, programs, or initiatives.
The agencies also recognize commenter suggestions to include
activities with a range of organizations and entities, such as Black
developers, community organizers, or other specific groups other than
government entities, for determining qualification under the place-
based categories. While not specifically included in the final rule,
the agencies believe that the revised adopted criterion will both allow
for and encourage partnerships with many such organizations. The final
rule does not expand this criterion to include all private sector
partners, as the agencies believe that these entities can have varying
goals and missions that do not always align with the goals of CRA.
Instead, by adding mission-driven nonprofit organizations as defined in
the final rule, the agencies believe that the final rule will
appropriately broaden the kinds of plans, programs, and initiatives
that can count for place-based activities, while continuing to ensure a
focus on activities that are aligned with the goals of CRA.
Additional considerations. The agencies have carefully considered
but are not adopting further revisions related to commenter feedback
regarding whether to require this criterion; the appropriate standards
for this criterion; and alternative options. This includes comments
suggesting additional requirements for this criterion such as
demonstrations related to formal community review; advocating for a
more qualitative approach emphasizing examiner judgment for assessing
the value of place-based activities to the community in lieu of this
criterion; or suggesting that proposed government plans, programs, or
initiatives be a method for demonstrating that an activity meets
community needs rather than a requirement.
Regarding comments that any plan be included in a publicly
available
[[Page 6679]]
document and/or be subject to formal community review process, or
requiring community inputs as an additional criterion, the agencies are
concerned that specific requirements of these types could be overly
burdensome and limiting, and dissuade banks from engaging in place-
based activities. However, the agencies expect that many government
plans, programs, and initiatives will involve a public input process.
Regarding comments advocating for a more qualitative approach or
that a government plan, program, or initiative be considered on an
evidentiary rather than a mandatory basis, the agencies believe that
including the adopted criterion--expanded to allow for activities in
conjunction with mission-driven nonprofit organization plans, programs,
and initiatives--is important to ensuring that activities qualifying
under place-based community development categories are strongly linked
to relevant local community needs in the targeted geographic areas.
In addition, as noted regarding other place-based criteria
discussed above, the agencies recognize commenter feedback to consider
activities with a race-conscious objective or to develop a ranking that
favors encouraging work in conjunction with government plans, programs,
and initiatives that are ``racially-conscious.'' While these provisions
are not included in the final rule, the agencies intend that the
revised adopted criterion provides standards for ensuring that a broad
range of residents in targeted geographic areas benefit and are served
by place-based activities. For more information and discussion
regarding the agencies' consideration of comments recommending adoption
of additional race- and ethnicity-related provisions in this final
rule, see section III.C of this SUPPLEMENTARY INFORMATION. On balance,
the agencies believe the adopted criterion achieves an appropriate
balance between a flexible standard that will ensure that place-based
activities are designed to benefit or serve residents of targeted
geographic areas, while also promoting clarity and consistency about
eligible place-based activities.
``Explicit focus'' and ``in conjunction with''--in relation to a
plan, program, or initiative. Other than for plans, programs, or
initiatives related to activities in Native Land Areas,\453\ the final
rule removes the term ``explicit'' from the proposed regulatory text,
which would have required that the ``explicit focus'' of the government
plan, program, or initiative be on, for example, revitalizing targeted
census tracts.\454\ The agencies recognize that plans, programs, or
initiatives may cover broader range of community development needs than
those related to a specific category of place-based activities. In
addition, the agencies are concerned that too narrow a focus on the
specific wording in the type of plan, program, or initiative could
potentially and inadvertently disqualify otherwise eligible activities
that align with the community development goals of CRA. The agencies do
not intend that removal of the word ``explicit'' has any substantive
implications for the requirement that a plan, program, or initiative
under this criterion include a focus on, for example, revitalizing or
stabilizing a targeted census tract, or on disaster preparedness or
weather resiliency activities in a targeted census tract. For further
discussion of the inclusion of ``explicit focus'' in the final rule
provisions on activities in Native Land Areas, see the section-by-
section analysis of Sec. __.13(j).
---------------------------------------------------------------------------
\453\ See final Sec. __.13(j)(2)(i) and (j)(3)(i).
\454\ See proposed Sec. __.13(e).
---------------------------------------------------------------------------
Finally, the agencies considered feedback to change the proposed
requirement that an activity be ``in conjunction with'' a government
plan, program, or initiative, to ``consistent with'' a plan, program,
or initiative, but determined that ``consistent with'' would not
provide sufficient clarity in determining when an activity meets the
required standard. The agencies believe that finalizing a requirement
for activities to be ``in conjunction with'' a government or mission-
driven nonprofit organization plan, program, or initiative will provide
greater clarity relative to current guidance by expressly connecting
the eligible activity to the applicable plan, program, or initiative.
Currently, as noted, standards are complex and vary across the targeted
geographic areas, including guidance related to how banks can rely on a
government plan to demonstrate that an activity helps to attract or
retain residents. Under the final rule, a uniform standard will apply
to all activities, with flexibility to cover a range of government and
nonprofit entities, as well as varying types of plans, programs, and
initiatives.
Regarding comments that any plan be included in a publicly
available document and/or be subject to formal community review
process, or requiring community inputs as an additional criterion, the
agencies are concerned that a specific requirement in the regulation
could be overly burdensome and limiting, and dissuade banks from
engaging in place-based activities. However, the agencies expect that
many government plans, programs, and initiatives will involve a public
input process.
Section __.13(e) Revitalization or Stabilization Activities
The Agencies' Proposal
In proposed Sec. __.13(e), the agencies proposed a category of
community development for revitalization activities undertaken in
conjunction with a Federal, State, local, or tribal government plan,
program, or initiative that includes an explicit focus on revitalizing
or stabilizing targeted census tracts.\455\ The plan, program, or
initiative would also specifically need to include the targeted census
tracts, although the goals of a plan, program or initiative could
include stabilization or revitalization of other geographic areas.
---------------------------------------------------------------------------
\455\ See proposed Sec. __.12 (defining ``targeted census
tract'' to mean: ``(1) A low-income census tract or a moderate-
income census tract; or (2) A distressed or underserved
nonmetropolitan middle-income census tract'').
---------------------------------------------------------------------------
In addition to the targeted geographic focus and government plan,
program, or initiative common criterion, the agencies proposed that
activities under this category would need to meet the two other common
place-based elements: proposed Sec. __.13(e)(1) required activities to
benefit or serve residents, including low- or moderate-income
residents, in one or more of the targeted census tracts, while proposed
Sec. __.13(e)(2) required that activities not displace or exclude low-
or moderate-income residents in the targeted census tracts. Proposed
Sec. __.13(e) also provided several representative examples to clarify
the type of activities that could be considered under this category,
including adaptive reuse of vacant or blighted buildings, brownfield
redevelopment, or activities consistent with a plan for a business
improvement district or main street program.
The agencies proposed to exclude housing-related activities from
the category of revitalization activities in proposed Sec. __.13(e).
Currently, pursuant to interagency guidance, activities that support
housing for middle- and upper-income residents can receive community
development credit if they revitalize or stabilize a distressed
nonmetropolitan middle-income census tract or a designated disaster
area, with greater weight given to activities that are most responsive
to community needs, including needs of low- or moderate-income
individuals or
[[Page 6680]]
neighborhoods.\456\ Based in part on prior stakeholder feedback that
housing that benefits middle- or upper-income individuals, particularly
in a low- or moderate-income census tract, can lead to displacement of
existing residents,\457\ the agencies proposed that, under the
``affordable housing'' category of community development in Sec.
__.13(b), as discussed above, activities that promote housing
exclusively for middle- or upper-income residents would not be eligible
for CRA credit as affordable housing, regardless of the type of
geographic area benefited.\458\ The agencies considered that additional
clarity could come from qualifying most housing-related community
development activities under the affordable housing category. The
agencies also recognized that affordable housing activities are often
components of government plans, programs, and initiatives to revitalize
communities, and therefore sought feedback on whether housing-related
revitalization activities should be considered under the affordable
housing category or the revitalization activities category, and under
what circumstances.
---------------------------------------------------------------------------
\456\ See Q&A Sec. __.12(g)(4)-2.
\457\ See 87 FR 33884, 33904 (June 3, 2022). Stakeholder
feedback considered for the proposal also included that
revitalization or stabilization activities do not always provide
direct benefits to low- or moderate-income individuals. See id. at
33902.
\458\ See proposed Sec. __.13(b).
---------------------------------------------------------------------------
Comments Received
Comments regarding the three common place-based criteria are
discussed above. Remaining comments on proposed Sec. __.13(e)
primarily focused on the agencies' request for feedback on whether
certain housing activities should be considered eligible under the
revitalization category of community development. Many commenters
supported including consideration for housing activities under Sec.
__.13(e), consistent with current guidance.\459\ Some commenters
asserted that these activities are central to overall community
revitalization efforts, without specifying which housing activities
should be included. A commenter suggested that limiting housing
activities to the affordable housing category would create uncertainty
for banks considering mixed-use revitalization projects that include
both affordable housing and commercial revitalization. A few commenters
suggested that affordable housing should be allowed to count under
categories such as revitalization and climate resiliency, but should
not be double-counted, as counting twice could lead to decreases in
investment. A commenter suggested that housing should be included as an
eligible revitalization activity and should be counted in all
geographic areas, while another commenter stated that limiting
consideration of housing activities under the revitalization category
to activities serving high poverty or high vacancy geographic areas may
not be necessary, as pockets of distress exist in otherwise prosperous
communities.
---------------------------------------------------------------------------
\459\ See 12 CFR __.12(g)(4) and Q&A Sec. __.12(g)(4)-2.
---------------------------------------------------------------------------
Some commenters seeking to include housing under Sec. __.13(e)
expressed support for including a variety of types of housing
activities under the revitalization category as a crucial component of
comprehensive, equitable neighborhood revitalization. Suggestions
included, for example, eligibility for activities that support: (1) the
construction or rehabilitation of owner-occupied homes (including
condominiums and cooperatives), if the homes are in certain census
tracts and the sales price is capped; (2) rehabilitation or
reconstruction of owner-occupied homes if the owner is low-, moderate-,
or middle-income; (3) the disposition, rehabilitation, or replacement
of vacant and foreclosed homes, to create new opportunities for
affordable homeownership for low- and moderate-income households; (4)
supportive housing development, operation, and services in any
geographic area, because the need for supportive housing outweighs
supply (citing the impact of supportive housing due to lack of stable
affordable housing with wrap-around services); and (5) home repair and
mitigation activities for low- and moderate-income homeowners.
Other commenters supported including mixed-income or mixed-used
housing under the revitalization category. For example, a commenter
suggested that mixed-income and mixed-use housing developments should
qualify: (1) if in low- and moderate-income census tracts, and (2) if
in higher-cost areas, and rent is limited to 60 percent of the area
median income. This commenter suggested that high-cost neighborhoods
are often the least accessible to low- and moderate-income individuals,
but because these neighborhoods often offer the greatest access to
jobs, higher performing schools, transportation, and other necessities,
increasing access to these neighborhoods should be considered a
revitalization activity. A few commenters recommended including housing
developments that have onsite or co-located childcare and early
education programs as eligible revitalization activities.
Alternatively, several commenters stated that place-based
revitalization activities and housing activities should be separately
considered under the rule, or with limited exceptions. For example, a
commenter suggested that considering housing activities solely as part
of the affordable housing category would help clarify whether
disparities in non-housing resources and investments are being
adequately addressed, which this commenter asserted is particularly
important because affordable and subsidized housing is often
concentrated in low-resourced areas. A few commenters similarly
indicated that areas targeted for revitalization activities are often
areas where low-income housing is already concentrated, and housing
activities undertaken as part of revitalization efforts can risk
perpetuating economic and racial segregation. A commenter generally
supportive of qualifying housing activities outside of the
revitalization category also supported an exception for housing being
removed or demolished as part of a broader community revitalization
effort.
Commenters also addressed proposed Sec. __.13(e) beyond the
question of whether to include housing. For example, a commenter
expressed the view that the proposed rule's definitions of
revitalization and stabilization activities would help direct more of
the benefits of CRA-focused investment to low- and moderate-income
communities and individuals. Another commenter suggested that any
community revitalization plan or activity should include assurances
that low- and moderate-income households will be able to remain in the
neighborhood and enjoy the benefits of revitalization (through CBAs,
support of community land trusts, or inclusionary zoning).
A few commenters suggested certain activities that should be
considered revitalization activities, such as broadband; sustainability
projects including those related to food access, food and water source
protection; renewable energy investments; and private investment in
land banking activities.
Final Rule
The agencies are adopting proposed Sec. __.13(e), reorganized for
clarity and consistency with the structures of other place-based
categories, and further modified as described below. The final rule
makes a technical revision to the name of the proposed community
development category from
[[Page 6681]]
``revitalization'' to ``revitalization or stabilization'' for
consistency with the current regulation and to reflect the agencies'
intent to retain the concept of ``stabilization'' in this community
development category. Final Sec. __.13(e)(1) provides the general
definition of the types of activities included in this category of
community development. These activities must also meet specific place-
based eligibility criteria in Sec. __.13(e)(i) through (iii). Final
Sec. __.13(e)(2) adds a new provision for mixed-use revitalization or
stabilization projects.
Section __.13(e)(1) In General
Similar to the proposal, under final Sec. __.13(e)(1),
revitalization or stabilization comprises activities that support
revitalization or stabilization of targeted census tracts, including
adaptive reuse of vacant or blighted buildings, brownfield
redevelopment, support of a plan for a business improvement district or
main street program, or any other activity that supports revitalization
or stabilization. Final Sec. __.13(e)(1) incorporates the technical
revision from ``revitalization'' to ``revitalization or stabilization''
and other non-substantive edits.
Consistent with the proposal, the final rule incorporates some
aspects of existing guidance for revitalization and stabilization, but
no longer focuses eligibility of activities on the extent to which an
activity helps to attract or retain residents or businesses in targeted
geographic areas. Consistent with prior stakeholder feedback and as
noted in the proposal, the agencies have determined that the standard
in current interagency guidance that an activity ``attract new, or
retain existing, businesses or residents'' has proven difficult for
banks, community groups, and the agencies to apply, resulting in
inconsistent outcomes. Under the ``attract or retain'' standard, banks
and other stakeholders lacked upfront clarity about which loans,
services, or investments would be eligible for consideration, and the
standard also sometimes allowed for development that did not align with
the purpose of the CRA, such as housing for higher-income individuals,
without benefits to low- or moderate-income individuals. Thus, the
final rule focuses instead on revitalization and stabilization
activities benefiting or serving targeted census tracts, and includes
the other place-based criterion discussed in detail above. As further
discussed below, the agencies believe that final Sec. __.13(e) will
provide stakeholders with a better upfront understanding of the types
of activities that will qualify as revitalization and stabilization,
and result in more consistency in community development consideration
for loans, investments, and services supporting these activities.
The final rule adopts the proposed focus on activities in targeted
census tracts, in alignment with current guidance. The agencies
considered commenter suggestions to qualify revitalization or
stabilization activities in all geographic areas, but believe that the
geographic nexus to targeted census tracts--defined in final Sec.
__.12 to include low-income census tracts, moderate-income census
tracts, or distressed or underserved nonmetropolitan middle-income
census tracts--is an important standard to align the final rule with a
longstanding geographic focus of CRA implementation, consistent with
the CRA's emphasis on communities of need. The agencies believe that
final Sec. __.13(e) will allow activities to qualify across a range of
community types with varying needs, including distressed and
underserved nonmetropolitan middle-income census tracts without
significant low- or moderate-income populations, as well as more
densely populated metropolitan census tracts with a greater
concentration of low- or moderate-income individuals.
The examples of revitalization or stabilization in the final rule
(as described above, adaptive reuse of vacant or blighted buildings,
brownfield redevelopment, and support of a plan for a business
improvement district or main street program) are drawn from current
guidance and intended to clarify the types of activities that might be
considered eligible under this category. However, these illustrative
examples are intended to be non-exhaustive; the final rule clarifies
that eligible activities include ``any other activity that supports
revitalization or stabilization.'' The agencies recognize commenter
suggestions to include specific activities under the revitalization or
stabilization category, such as food access, renewable energy projects,
or other sustainability projects, and believe that many of these types
of projects could be included for consideration within this category
upon meeting the required criteria. For example, a project to build a
new supermarket within a low- or moderate-income census tract of a
small town would qualify as a revitalization or stabilization activity
if the activity met the required criteria. Similarly, the agencies
recognize commenter support for including land banking and disposition
of vacant or foreclosed land under revitalization, and believe that
these activities would qualify provided they met other criteria in
Sec. __.13(e), as these are often central elements of neighborhood
redevelopment efforts.
The agencies note that some activities raised by commenters might
qualify in other categories; for example, broadband is provided as an
example under final Sec. __.13(g) regarding essential community
infrastructure. Other activities suggested by commenters might qualify
under final Sec. __.13(b) regarding affordable housing, such as
financing that assists low- or moderate-income individuals to
rehabilitate or reconstruct their owner-occupied homes (excluding loans
by a bank directly to one or more owner-occupants of such
housing),\460\ or alternatively, the financing of a supportive housing
development and operation that meets applicable requirements in Sec.
__.13(b).\461\ In response to comments suggesting co-located childcare
and early education should qualify, the agencies believe this activity
may, depending on the circumstances, qualify as a community supportive
service (final Sec. __.13(d)) or an essential community facility
(final Sec. __.13(f)), provided the activity meets all relevant
criteria.
---------------------------------------------------------------------------
\460\ See final Sec. __.13(b)(4) and the accompanying section-
by-section analysis.
\461\ See final Sec. __.13(b)(1) and (2) and the accompanying
section-by-section analyses.
---------------------------------------------------------------------------
Section __.13(e)(1)(i) Through (iii) Place-Based Criteria
The final rule adopts the three proposed common place-based
eligibility criteria for revitalization or stabilization activities,
reorganized to be in a consistent parallel order across all place-based
categories, and with the revisions described in the discussion of the
place-based criteria above in this section-by-section analysis.
Accordingly, under the final rule, revitalization or stabilization
activities are those that: are undertaken in conjunction with a plan,
program, or initiative of a Federal, State, local, or tribal government
or a mission-driven nonprofit organization, where the plan, program, or
initiative includes a focus on revitalizing or stabilizing targeted
census tracts (final Sec. __.13(e)(1)(i)); benefit or serve residents,
including low- or moderate-income individuals, of targeted census
tracts (final Sec. __.13(e)(1)(ii)); and do not directly result in the
forced or involuntary relocation of low- or moderate-income individuals
in targeted census tracts (final Sec. __.13(e)(1)(iii)).
As noted, the reasons for adopting these final criteria, and for
revisions to
[[Page 6682]]
the proposed criteria, are collectively discussed above in this
section-by-section analysis. With respect to the revitalization or
stabilization category in particular, the agencies note that final
Sec. __.13(e)(1)(iii) is revised from the proposal to prohibit
activities that directly result in forced or involuntary relocation of
low- and moderate-income individuals in targeted census tracts.
Accordingly, the agencies are not incorporating into the final rule a
commenter suggestion that community revitalization plans include
assurances that low- and moderate-income households will not be
displaced. The agencies believe that adopting the common place-based
criteria, combined with the majority standard set forth in Sec.
__.13(a),\462\ will adequately ensure that qualifying revitalization or
stabilization activities benefit and serve the residents of targeted
tracts, including low- and moderate-income individuals.
---------------------------------------------------------------------------
\462\ For a detailed discussion of the majority standard in
relation to when community development loans, investments, and
services are eligible for full or partial credit, see the section-
by-section analysis of final Sec. __.13(a).
---------------------------------------------------------------------------
Section __.13(e)(2) Mixed Use Revitalization or Stabilization Project
On consideration of feedback regarding whether housing-related
revitalization activities should be considered under the revitalization
category, the agencies are adopting a provision that brings certain
mixed-used revitalization or stabilization projects under the
revitalization and stabilization category of community development.
Specifically, Sec. __.13(e)(2) incorporates into this community
development category projects to revitalize or stabilize targeted
census tracts that include both commercial and residential components,
if: (1) the project meets all other criteria in Sec. __.13(e)(1),
including all place-based criteria (final Sec. __.13(e)(2)(i)); and
(2) more than 50 percent of the project is non-residential, as measured
by the percentage of total square footage or dollar amount of the
project (final Sec. __.13(e)(2)(i)).
The final rule is designed to take into account some commenters'
views that mixed-use housing can be central to revitalization projects.
However, the agencies do not intend to include in this category
projects that are primarily comprised of housing, particularly mixed-
use developments with housing that is targeted to middle- or upper-
income individuals, including such projects in low- or moderate-income
census tracts. The agencies have considered that this type of
development might not clearly benefit existing residents of the
targeted census tracts, particularly low- or moderate-income residents,
and can sometimes lead to displacement of existing residents. On
further consideration of comments, the agencies are adopting this
revision to better allow for needed comprehensive redevelopment efforts
in targeted census tracts that involve mixed-use properties comprised
of some, but not primarily, housing.
The agencies considered several alternative thresholds for the
percentage of a mixed-use comprehensive redevelopment project that can
be residential for the project to qualify as under Sec. __.13(e), and
are adopting a threshold requiring that more than 50 percent of the
project must be non-residential as measured by the percentage of total
square footage or dollar amount of the project (corresponding to a
threshold of 50 percent or lower for the residential component of the
project). The agencies believe that the adopted percentage threshold
provides appropriate additional flexibility for mixed-use development
under the final rule's revitalization and stabilization category. In
this regard, the agencies considered that a lower residential
percentage threshold would exclude several types of mixed-use projects
central to overall community revitalization efforts. On the other hand,
the agencies believe that activities inclusive of a higher percentage
threshold of housing within a project (i.e., above 50 percent) are more
appropriately considered under the affordable housing category in
section Sec. __.13(b), as those projects are primarily housing.
An example of housing activity that could qualify under final Sec.
__.13(e)(2), as long as all criteria are met, would be a main street
mixed-use project to revitalize a series of vacant buildings to include
60 percent commercial space and 40 percent apartments serving middle-
income residents. An example that would not qualify under Sec.
__.13(e)(2) would include a condominium project that is 100 percent
apartments that are affordable exclusively to higher-income residents
in a targeted census tract. Likewise, the agencies recognize comments
regarding supportive housing in any geographic area, and reconstruction
or rehabilitation of owner-occupied homes in low- or moderate-income
census tracts or distressed or underserved middle-income census tracts.
These activities may qualify as affordable housing (final Sec.
__.13(b)) and would qualify under Sec. __.13(e) if they meet criteria
as part of a comprehensive mixed-use revitalization project. Banks
subject to the rule are permitted to qualify activities under any
applicable category, but those activities may count only once for the
purposes of calculating the Community Development Financing Metric.
Section __.13(f) Essential Community Facilities
Current Approach and the Agencies' Proposal
Currently, in low- or moderate-income census tracts, distressed
nonmetropolitan middle-income census tracts, and designated disaster
areas, bank support for community facilities and infrastructure
generally can receive community development consideration to the extent
that these activities help to attract or retain residents or
businesses.\463\ However, among these three geographic areas, these
activities are only explicitly mentioned in current guidance for
distressed nonmetropolitan middle-income areas \464\ (with guidance on
designated disaster areas mentioning ``essential community-wide
infrastructure'' but not facilities \465\). Regarding underserved
nonmetropolitan middle-income census tracts, as noted earlier, the
current CRA regulation provides that activities qualify for community
development consideration in these areas ``if they help to meet
essential community needs, including needs of low- and moderate-income
individuals.'' \466\ To clarify this provision, the Interagency
Questions and Answers states that activities such as ``financing for
the construction, expansion, improvement, maintenance, or operation of
essential infrastructure or facilities for health services, education,
public safety, public services, industrial parks, affordable housing,
or communication services'' in underserved nonmetropolitan middle-
income census tracts will be evaluated to determine whether they meet
essential community needs.\467\
---------------------------------------------------------------------------
\463\ See Q&A Sec. __.12(g)(4)(i)--1 (regarding low- or
moderate-income census tracts), Q&A Sec. __.12(g)(4)(ii)--2
(regarding designated disaster areas), and Q&A Sec.
__.12(g)(4)(iii)--3 (for distressed nonmetropolitan middle-income
census tracts).
\464\ See Q&A Sec. __.12(g)(4)(iii)--3 (``Qualifying activities
may include, for example, . . . activities that provide financing or
other assistance for essential infrastructure or facilities
necessary to attract or retain businesses or residents.'').
\465\ See Q&A Sec. __.12(g)(4)(ii)--2.
\466\ 12 CFR __.12(g)(4)(iii)(B).
\467\ Q&A Sec. __.12(g)(4)(iii)--4. As also noted, the guidance
provides several examples of projects that may be considered to meet
essential community needs in underserved nonmetropolitan middle-
income census tracts, such as hospitals, industrial parks,
rehabilitated sewer lines, mixed-income housing, and renovated
schools--as long as the population served includes low- and
moderate-income individuals. See id.
---------------------------------------------------------------------------
[[Page 6683]]
The agencies' proposal aimed to provide more clarity, certainty,
and consistency regarding CRA consideration for activities that support
essential community facilities and infrastructure. To this end,
proposed Sec. __.13(f) (essential community facilities) and proposed
Sec. __.13(g) (essential community infrastructure, discussed further
below in this section-by-section analysis) built on the current
Interagency Questions and Answers to clarify that essential community
facilities and essential community infrastructure would be considered
community development if they were conducted in and benefit or serve
residents of targeted census tracts, defined in proposed Sec. __.12 to
mean low- or moderate-income census tracts, as well as distressed or
underserved nonmetropolitan middle-income census tracts.
Specifically, the agencies proposed a category of community
development for essential community facilities, defined as activities
that provide financing or other support for public facilities that
provide essential services generally accessible by a local community.
Proposed Sec. __.13(f) included the following non-exhaustive examples
of the types of facilities that would fall into this category: schools,
libraries, childcare facilities, parks, hospitals, healthcare
facilities, and community centers. The proposal further defined
essential community facilities as activities conducted in targeted
census tracts (as defined in proposed Sec. __.12) that also meet the
other place-based criteria discussed above: that activities benefit or
serve residents, including low- or moderate-income residents (proposed
Sec. __.13(f)(1)); that activities do not displace or exclude low- or
moderate-income residents in the targeted census tracts (proposed Sec.
__.13(f)(2)); and that an activity that finances or supports essential
community facilities must be conducted in conjunction with a Federal,
State, local, or tribal government plan that includes an explicit focus
on benefiting or serving the targeted census tracts (proposed Sec.
__.13(f)(3)).
Comments Received
Most commenters offering feedback on the agencies' proposal
regarding essential community facilities were generally supportive. A
few commenters supported the agencies' decision not to propose the
current requirement that community facilities must also attract or
retain businesses and residents.
Commenters offered different views on the examples in the proposed
essential community facilities category. Some commenters expressly
supported the proposed examples of essential community facilities.
Others sought clarity on the types of activities that would qualify
under this community development category, or advocated for including
additional types of activities in the regulation. For example, a number
of commenters highlighted the proposed examples of hospitals and other
healthcare-related facilities, noting this may encourage new investment
in healthcare access, while others noted the inclusion of childcare
facilities, citing a wide variety of community benefits.
Others sought clarity on the types of activities that would qualify
under this community development category, or advocated for including
additional types of activities in the regulation. Several commenters
suggested that the agencies add supermarkets and other food-related
facilities to the proposed list of examples, including because low- and
moderate-income communities are disproportionately more likely to be
food deserts.\468\ Other comments included: a suggestion to clarify
that the financing of retail service businesses, including grocery
stores, pharmacies, and other neighborhood-scale services, are eligible
facilities, regardless of the size of the occupant business, as these
facilities bring convenience, jobs, physical revitalization, and lower
prices for consumers; and suggested eligibility for financing grocery
stores larger than the size standards in the proposed Retail Lending
Test or proposed economic development category of community
development. Another commenter cautioned the agencies against defining
all examples of essential community facilities and essential community
infrastructure in the regulation, stating that doing so could cause
banks to limit activities based on the list and limit creativity in
responding to local needs.
---------------------------------------------------------------------------
\468\ Suggestions also included adding support for grocery
stores to the illustrative list of eligible activities in proposed
Sec. __.14(a). For discussion of the proposed and final rules
regarding the illustrative list of eligible community development
loans, investments, and services, see the section-by-section
analysis of final Sec. __.14(a).
---------------------------------------------------------------------------
A number of commenters also responded to the agencies' request for
feedback regarding whether the proposed category should incorporate
additional requirements to help ensure that essential community
facilities activities include a benefit to low- or moderate-income
residents in the communities served by these projects. Several
commenters asserted that CRA credit should be given only to essential
community facilities activities that serve critical community needs
directly in low- and moderate-income areas that are otherwise unable to
attract funding. One of these commenters stated that CRA credit should
be limited if the market is already fully able to serve such needs.
Another commenter recognized the challenges of determining the specific
population of people who benefit from a public investment, but argued
for identifying a set of characteristics or parameters to distinguish
certain projects beneficial to low- and moderate-income residents from
those where financing would be readily available at reasonable terms
notwithstanding CRA eligibility.
Other commenters emphasized that the goal for qualifying activities
under this category should be to provide benefits to low- and moderate-
income residents. Commenter recommendations in support of this goal
included, among others, that the final rule should: require banks to
explain how low- and moderate-income residents benefit from an
activity; include a primary purpose standard for qualifying bank
support for essential community facilities under which a majority of
the dollars invested by the bank would have to be directed toward
supporting low- and moderate-income residents; and establish guardrails
to ensure financing goes directly to low- and moderate-income
communities, including metrics to measure benefits of these projects,
such as jobs created for low- and moderate-income individuals and
contracts with local companies, and growth in median income for census
tract residents. A commenter recommended that any facility be presumed
to serve low- and moderate-income residents if it is open to all
residents of a targeted census tract, with fees (if any) that are
affordable to low- and moderate-income persons.
A few commenters opposed adding other criteria to the essential
community facilities category to ensure that low- and moderate-income
communities and residents benefit. These commenters asserted that
activities should qualify if they benefit the entire community,
including but without a specific focus on low- and moderate-income
residents. A commenter recommended that essential community facilities
should qualify, at least for partial credit, if located outside of
targeted census tracts, if and to the extent they benefit low- and
moderate residents of the targeted geographic areas.
Final Rule
The agencies are adopting proposed Sec. __.13(f), reorganized for
clarity and
[[Page 6684]]
consistency with the structures of other place-based categories and
modified as described below. Consistent with the proposal, final Sec.
__.13(f) provides the general definition of the types of activities
included in this category of community development, and requires that
these activities must also meet specific place-based eligibility
criteria in final Sec. __.13(f)(1) through (3).
Section __.13(f) In General
Under final Sec. __.13(f), essential community facilities are
public facilities that provide essential services generally accessible
by a local community, including, but not limited to, schools,
libraries, childcare facilities, parks, hospitals, healthcare
facilities, and community centers that benefit or serve targeted census
tracts. The final rule reflects technical edits for readability, but is
substantively consistent with the proposal. As noted in the discussion
of the revitalization or stabilization category in Sec. __.13(e)
above, the agencies believe that the final rule, with the common place-
based criteria discussed throughout the section-by-section analysis of
Sec. __.13(e) through (j), will provide stakeholders with a better
upfront understanding of the types of essential community facilities
that will qualify as community development relative to an ``attract or
retain'' standard, resulting in more consistency in application.
Further, the agencies believe that, relative to current practice, the
final rule will better ensure that loans, investments, and services
support activities aligned with the purposes of CRA to meet the credit
needs of entire communities, including low- or moderate-income
individuals.
The proposed rule defined essential community facilities as those
that are ``conducted in'' targeted census tracts; the final rule
revises the proposal to define essential community facilities as those
that ``benefit or serve'' residents of targeted census tracts,
including low- and moderate-income individuals. The agencies proposed
the ``conducted in'' standard to facilitate a bank's demonstration that
activities are benefiting and serving the residents of a targeted
census tract. Based on comments and on further consideration, however,
the agencies believe that the ``conducted in'' standard could exclude
facilities located in close proximity to a targeted census tract that
nonetheless benefit and serve residents of that census tract, including
low- and moderate-income individuals. For example, under the proposal,
a construction loan to build a fire station located just outside but
primarily serving residents of a targeted census tract would have not
qualified for consideration. Under the final rule, that construction
loan could be considered, provided the rule's other criteria are met.
The agencies believe that the requirement as revised--to require that
essential community facilities benefit or serve targeted census
tracts--will ensure a strong connection between essential community
facilities and community needs in targeted census tracts, and that this
connection will be further bolstered by the other two place-based
criteria (e.g., undertaken with a plan, program, or initiative that
includes a focus on benefiting or serving the targeted census tract and
not directly resulting in the forced or involuntary displacement of
low- or moderate-income individuals in the targeted census tract). The
agencies note that banks will be expected to be able to demonstrate
that a project benefits the targeted census tracts in accordance with
the rule.
The agencies considered but are not adopting the suggestion for a
presumption that any facility open to all residents of targeted census
tracts with affordable fees serves low- and moderate residents, given
the variety of potential facts and circumstances. The agencies believe,
however, that a facility will qualify for consideration if a bank
demonstrates that the facility is public and provides essential
services, serves low- or moderate-income residents in the targeted
census tract, and meets the rule's other required criteria. Similarly,
the agencies are not adopting the commenter suggestion that activities
qualify if they benefit the entire community without specific inclusion
of low- and moderate-income individuals. The agencies believe that
qualifying essential community facility activities should be
demonstrably inclusive of low- and moderate-income individuals, in
alignment with the CRA's express focus on encouraging banks to meet
low- and moderate-income community needs in the communities they serve.
Final Sec. __.13(f) adopts the proposed list of examples of
essential community facilities: schools, libraries, childcare
facilities, parks, hospitals, healthcare facilities, and community
centers, which are generally consistent with examples found in current
guidance. The agencies believe that these examples provide adequate
clarity to illustrate the types of activities that may qualify under
this category. The list is intended to help clarify, for instance, that
a loan to help build a public school or a community center that serves
residents of a targeted census tract would qualify for community
development consideration, provided all other criteria of Sec.
__.13(f) are met. While the final rule does not adopt other examples
raised by commenters, the agencies note that the list of examples is
illustrative and non-exhaustive. The final rule does not preclude
agency consideration of investments, loans, or services supporting
other types of essential community facilities meeting the criteria set
forth in Sec. __.13(f). The agencies do not believe that identifying
every kind of essential community facility in the regulation is
practicable or possible. However, the agencies will take commenters'
suggestions under advisement as the agencies develop the illustrative
list contemplated by Sec. __.14(a).
Additionally, activities mentioned by commenters that might not
qualify as essential community facilities under the final rule might
qualify under other categories of community development. For example, a
loan to finance a public road or sewer could qualify for consideration
as supportive of essential community infrastructure under Sec.
__.13(g), if all of the rule's criteria were met, while a grant to
support a food bank that opens a food pantry could qualify under Sec.
__.13(d) as supportive of a community supportive service. Financing of
retail service businesses such as grocery stores, retail pharmacies,
and other neighborhood-scale services are generally private sector
facilities, and thus are not considered essential community facilities,
which are defined as public facilities. However, these retail services
may qualify as revitalization or stabilization activities under Sec.
__.13(e), should they meet the criteria of that provision.
On consideration of the comments and further deliberation, the
agencies are not adopting additional or alternative requirements to
help ensure that essential community facilities include a benefit to
low- or moderate-income residents in the communities served by these
projects. For example, regarding comments that the rule should qualify
only activities supporting critical community needs, the agencies
believe that this approach could be overly limiting in light of
communities' varying needs and different views about which needs are
critical. The agencies intend the final rule to maintain sufficient
flexibility for banks and communities to address a wide range of needs
that communities consider important.
Regarding comments that the rule should require activities to have
a primary purpose of serving low- and moderate-income residents in
targeted
[[Page 6685]]
census tracts, the final rule seeks to maintain flexibility for
activities to meet a range of community needs, while also requiring the
inclusion of low- or moderate-income individuals as beneficiaries. As
noted, this flexibility remains particularly important in distressed
and underserved nonmetropolitan middle-income census tracts, which can
have fewer low- or moderate-income residents. On the other hand, the
agencies are also not adopting the suggestion to qualify facilities
open to the entire community without specific inclusion of low- and
moderate-income individuals. The agencies believe that the final
criterion, as adopted, is tailored and consistent with the CRA statute,
which focuses on benefits to communities, including to low- or
moderate-income populations. The agencies believe that the rule as
finalized, combined with the majority standard set forth in Sec.
__.13(a),\469\ appropriately ensures inclusion of low- or moderate-
income residents.
---------------------------------------------------------------------------
\469\ For further discussion of the standards for receiving full
credit for a loan, investment, or service supportive of essential
community facilities or essential community infrastructure, and
related public comments, see the section-by-section analysis of
Sec. __.13(a). Loans, investments, or services supporting community
development under final Sec. __.13(f) meet the ``majority
standard'' for receiving full credit it the majority of the
beneficiaries are, or the majority of dollars benefit or serve,
residents of targeted census tracts. See final Sec.
__.13(a)(1)(i)(B)(4).
---------------------------------------------------------------------------
For similar reasons, the agencies are also not incorporating into
final Sec. __.13(f) metrics for measuring the benefits of essential
community facility activities to low- and moderate-income individuals.
The agencies are concerned that specific metrics-related requirements
or methodologies for demonstrating low- or moderate-income benefits of
essential community facilities could be overly burdensome and complex
to apply, potentially dissuading banks from supporting essential
community facilities and limiting the adaptability of the rule to
accommodate a variety of activities over time. However, banks will be
expected to demonstrate that essential community facilities benefit or
serve residents of targeted census tracts, including low- and moderate-
income individuals. Finally, as discussed further in the section-by-
section analysis of Sec. __.13(a), the agencies are not adopting a
partial consideration option in Sec. __.13(f). The agencies believe
the primary focus of activities should be to benefit or serve residents
of targeted tracts and an alternative option providing partial
consideration would allow for qualification of activities that do not
share this focus as an intentional goal.
Section __.13(f)(1) Through (3) Place-Based Criteria
The final rule adopts the three common place-based eligibility
criteria for essential community facilities, reorganized to be in a
consistent parallel order across all place-based categories, and with
the revisions described in the discussion of the place-based criteria
above in this section-by-section analysis. Accordingly, under the final
rule, essential community facilities are public facilities that: are
undertaken in conjunction with a plan, program, or initiative of a
Federal, State, local, or tribal government or a mission-driven
nonprofit organization, where the plan, program, or initiative includes
a focus on benefiting or serving targeted census tracts (final Sec.
__.13(f)(1)); benefit or serve residents, including low- or moderate-
income individuals, of targeted census tracts (final Sec.
__.13(f)(2)); and do not directly result in the forced or involuntary
relocation of low- or moderate-income individuals in targeted census
tracts (final Sec. __.13(f)(3)). As noted, the reasons for adopting
these final criteria, and for revisions to the proposed criteria, are
collectively discussed above in this section-by-section analysis.
Section __.13(g) Essential Community Infrastructure
The Agencies' Proposal
In proposed Sec. __.13(g), the agencies proposed a category of
community development for essential community infrastructure
activities, defined as activities that provide financing and other
support for infrastructure, including, but not limited to broadband,
telecommunications, mass transit, water supply and distribution, and
sewage treatment and collection systems. The proposal further defined
essential community infrastructure as activities conducted in targeted
census tracts (as defined in proposed Sec. __.12 and discussed above)
that also meet the other place-based criteria discussed above: that
activities benefit or serve residents, including low- or moderate-
income residents (proposed Sec. __.13(g)(1)); that activities do not
displace or exclude low- or moderate-income residents in the targeted
census tracts (proposed Sec. __.13(g)(2)); and that an activity that
finances or supports essential community infrastructure must be
conducted in conjunction with a Federal, State, local, or tribal
government plan that includes an explicit focus on benefiting or
serving the targeted census tracts (proposed Sec. __.13(g)(3)). Thus,
under the proposal, support for larger infrastructure projects could be
eligible for community development consideration if the project is
conducted in relevant targeted census tracts, demonstrably benefits the
residents of the targeted census tracts, and it is evident that, in
particular, low- or moderate-income residents, of the targeted census
tracts would benefit and not be excluded from the larger-scale
improvements.
Comments Received
Many comments on proposed Sec. __.13(g) provided feedback on the
types of infrastructure that should be considered essential community
infrastructure, with a number requesting clarification about specific
types of infrastructure projects. Many commenters expressly supported
the proposed consideration for broadband activities, emphasizing, among
other things, the importance of broadband access in community
resilience, closing the digital divide, and creating access to
financial services, jobs, healthcare, and education, and noting the
role of CRA in overcoming broadband investment costs. Additional
commenter feedback included support for qualification of broadband
infrastructure only if reliable, affordable, and locally controlled;
and support for qualifying only the infrastructure examples included as
part of the proposal. Other commenters generally highlighted the
importance of investments made in functioning roadways, internet,
health, and safety, with additional suggestions that the regulation
specify a range of activities that qualify as essential community
infrastructure, including renewable energy projects; transit-oriented
infrastructure, including road and technology infrastructure; hospital
construction; jail renovations; and refuse services.
The agencies also received a number of comments in response to the
agencies' request for feedback regarding whether the proposed category
should incorporate additional criteria to help ensure that essential
community infrastructure activities include a benefit to low- or
moderate-income residents in the communities served by these projects.
Some commenters opposed additional criteria for community development
consideration of infrastructure projects (or community facilities),
indicating that activities benefiting all residents, including persons
of any income level, should qualify. As discussed in more detail below,
other commenters on this aspect
[[Page 6686]]
of the proposal supported an emphasis on benefits to low- and moderate-
income residents, with some suggesting additional criteria for ensuring
that community infrastructure projects qualifying as community
development under the CRA benefit low- and moderate-income residents.
Some commenters asserted that essential community infrastructure
activities should be focused on benefiting low- and moderate-income
residents of targeted census tracts (or other relevant geographic
areas). For example, a commenter expressed concerns about certain
proposed infrastructure examples such as broadband, water, and sewage,
as greatly expanding the number and types of eligible activities
without a clear benefit to low- and moderate-income people and places.
A few commenters recommended that essential community infrastructure be
limited to activities with a clear and demonstrable benefit to, or
primary purpose of serving, low- and moderate-income people and
geographic areas. Several commenters suggested that CRA credit for
infrastructure should be limited based on a strong correlation with
benefits to low- and moderate-income individuals and families because
reasonable financing is already available for most essential
infrastructure projects. Commenters also asserted that CRA credit
should be given only to essential community infrastructure activities
that serve critical community needs directly in low- and moderate-
income areas and are otherwise unable to attract funding. A few
commenters recommended that essential community infrastructure be
limited to activities with a clear and demonstrable benefit to, or
primary purpose of serving, low- and moderate-income people and
geographies. Another commenter emphasized that qualifying activities in
this category should have a clear objective of meeting needs in
targeted communities.
Other comments on ensuring benefits for ensuring benefit for low-
and moderate-income individuals and communities included support for
limiting CRA consideration to those activities with a strong
correlation to benefits for low- and moderate-income individuals and
families, such as a project in a majority low- and moderate-income
population census tract. Suggestions for measuring the benefits of
infrastructure projects to low- and moderate-income communities
included considering jobs created for low- and moderate-income
individuals; contracts with local companies; economic growth-related
metrics such as growth in median income for census tract residents; and
environmental improvements, such as greenhouse gas emissions and/or
pollution reductions, increases in the amount of greenspace, community
health benefits, and climate adaptation strategies.
Citing the impact of historical disinvestment in basic
infrastructure on many low- and moderate-income communities,
particularly minority communities, a commenter suggested that the CRA
framework should prioritize ensuring that all communities have a
minimum standard of infrastructure, including protective
infrastructure, over enhancing infrastructure in areas that already
have a standard level of investment. Another commenter suggestion was
that the agencies consider a bank's activities supporting essential
community infrastructure in light of the overall balance of activities
that comprise a bank's portfolio, to ensure that a significant portion
of the bank's community development activities are targeting places and
populations of high need with products that are not otherwise likely to
be offered by the bank. This commenter further suggested that that
agencies cap the volume of essential community infrastructure that
could be included in the proposed Community Development Financing
Metric,\470\ asserting that essential community infrastructure projects
are often relatively safe investments to make but might not necessarily
be directly targeted to low- and moderate-income persons or
communities.
---------------------------------------------------------------------------
\470\ See proposed Sec. __.24. See also final Sec. __.24 and
the accompanying section-by-section analysis.
---------------------------------------------------------------------------
As also discussed above in the section-by-section analysis of Sec.
__.13(a), a few commenters expressed support for giving partial credit
for essential community infrastructure activities. Citing the large-
scale nature of many infrastructure projects and concerns about the
potential difficulty of applying the proposed primary purpose
standard,\471\ commenters recommended various approaches to a partial
credit framework for essential community infrastructure. These included
partial credit based on the percentage of low- and moderate-income
census tracts served by the activity, or based on whether the
infrastructure project meets or exceeds a minimum threshold of serving
low- and moderate-income census tracts, residents, or small businesses
or farms. A commenter separately suggested granting at least partial
credit for infrastructure (and facilities) located outside of targeted
census tracts, as long as the infrastructure benefits residents of
those census tracts. In contrast, at least one commenter expressly
opposed providing partial credit for bank support of essential
community infrastructure, noting concerns that these activities tend to
be large dollar transactions that are not necessarily targeted at low-
and moderate-income residents with intentionality, and thus partial
credit could allow for more projects to qualify and potentially
comprise a significant portion of a bank's community development
finance metric numerator at the expense of smaller, more impactful
investments. However, this commenter recommended an exception for
partial credit for activities in rural communities and cities with low
bond ratings and thus that might not otherwise receive financing
support.
---------------------------------------------------------------------------
\471\ See proposed Sec. __.13(a). See also final Sec. __.13(a)
and the accompanying section-by-section analysis.
---------------------------------------------------------------------------
Final Rule
The agencies are adopting proposed Sec. __.13(g), reorganized for
clarity and consistency with the structures of other place-based
categories and modified as described below. Consistent with the
proposal, final Sec. __.13(g) provides the general definition of the
types of activities included in this category of community development,
and requires that they meet specific place-based eligibility criteria
in final Sec. __.13(g)(1) through (3).
Section __.13(g) In General
Under final Sec. __.13(g), essential community infrastructure
comprises activities benefiting or serving targeted census tracts,
including but not limited to broadband, telecommunications, mass
transit, water supply and distribution, and sewage treatment and
collection systems. Thus, final Sec. __.13(g) makes no substantive
changes to the proposal other than technical edits for readability. As
with other place-based categories, the agencies believe that final
Sec. __.13(g), with the common place-based criteria discussed in more
detail elsewhere in the section-by-section analysis of Sec. __.13,
will provide stakeholders with a better upfront understanding of the
types of essential community infrastructure that will qualify as
community development relative to the current approach based on an
``attract or retain'' standard. Additionally, consistent with the
proposal, the final rule clarifies that essential community
infrastructure is a community development category that applies across
all targeted census tracts (i.e., low-income, moderate-income,
distressed or underserved middle-
[[Page 6687]]
income census tracts), whereas, as noted, current guidance explicitly
references infrastructure only in the context of distressed or
underserved nonmetropolitan middle-income census tracts. Further, the
agencies believe that, relative to current practice, the final rule
will better ensure that loans, investments, and services support
activities that align with the purposes of CRA to meet the credit needs
of entire communities, including low- or moderate-income individuals.
As noted, proposed Sec. __.13(g) defined essential community
infrastructure as those that are ``conducted in'' targeted census
tracts; the final rule revises the proposal to define essential
community infrastructure activities as those that ``benefit or serve''
residents of targeted census tracts, including low- or moderate-income
individuals, similar to revisions made with respect to the essential
community facilities category under Sec. __.13(f). As with proposed
Sec. __.13(f), the agencies proposed the ``conducted in'' standard to
facilitate a bank's demonstration that essential community
infrastructure activities are benefiting and serving the residents of a
targeted census tract. Based on comments and on further consideration,
the agencies believe that the ``conducted in'' standard could exclude
infrastructure projects located in close proximity to a targeted census
tract that nonetheless benefit and serve residents of that tract,
including low- and moderate-income individuals. The agencies also
intend this revision to strengthen the emphasis on benefits to
residents of targeted census tracts, including low- or moderate-income
individuals, in the event that infrastructure projects ``conducted in''
a targeted census tract might have only ancillary if any benefits for
the targeted census tract. For example, a project to build a sewer line
that connects services to a middle- or upper-income housing development
but passes through a low- or moderate-income census tract without
connecting needed sewer services to that community generally would not
qualify as essential community infrastructure under the final
rule.\472\ In contrast, a project to improve water supply to residents
of targeted census tracts could qualify as community development even
if the water supply improvements were made outside of those census
tracts, provided that the bank could demonstrate the project benefits
the targeted census tracts in accordance with the rule. The agencies
believe that the requirement as revised--to require that essential
community infrastructure benefit or serve targeted census tracts--will
ensure a strong connection between essential community infrastructure
and community needs in targeted census tracts, and that this connection
will be further bolstered by the other two common place-based criteria.
The agencies further note that banks will be expected to be able to
demonstrate that a project benefits the targeted census tracts in
accordance with the rule.
---------------------------------------------------------------------------
\472\ See also Q&A Sec. __.12(g)(4)(iii)--4.
---------------------------------------------------------------------------
As noted above, the final rule adopts the proposed non-exhaustive
list of examples of essential community infrastructure: broadband,
telecommunications, mass transit, water supply and distribution, and
sewage treatment and collection systems. On consideration of the
comments and further review, the agencies continue to believe that the
proposed examples provide adequate clarity for the types of activities
that could be considered essential community infrastructure under final
Sec. __.13(g), and also note that they generally align with current
guidance, discussed above. Accordingly, examples of the types of loans,
investments, and services that support essential community
infrastructure under Sec. __.13(g) could include a municipal bond to
help fund a transit improvement within targeted census tracts, or
financing of a project to provide residents of targeted census tracts
access to broadband, subject to the other criteria being met.
Regarding other examples raised by commenters, the agencies note
that the list of examples is illustrative and non-exhaustive. Thus, the
final rule does not preclude agency consideration of investments,
loans, or services supporting other types of essential community
infrastructure that meet the criteria set forth in Sec. __.13(g). The
agencies do not believe that identifying every kind of essential
community infrastructure in the regulation is practicable or possible.
However, the agencies will take commenters' suggestions under
advisement as the agencies develop the illustrative list contemplated
by Sec. __.14(a).
The agencies also considered the suggestion to limit the provision
to only those activities listed in Sec. __.13(g), but believe that
this approach would be too restrictive; communities may have differing
infrastructure needs, and limitations could deter new or innovative
essential community infrastructure projects. Additionally, activities
that are not essential community infrastructure may qualify under other
categories of community development. For example, a project to
redevelop vacant brownfield lots into buildable land would not qualify
as essential community infrastructure in section Sec. __.13(g), but
might qualify as a revitalization or stabilization activity pursuant to
section Sec. __.13(e).
On consideration of the comments and further deliberation, the
agencies believe that final Sec. __.13(g), combined with the majority
standard set forth in Sec. __.13(a),\473\ appropriately ensures a
focus on low- or moderate-income residents of targeted census tracts.
Accordingly, the agencies have determined not to adopt additional or
alternative requirements to help ensure that essential community
infrastructure activities include a benefit to low- or moderate-income
residents in the communities served by these projects. Having carefully
reviewed commenter suggestions, the agencies are concerned that
additional criteria might be overly limiting, such as qualifying only
activities supporting critical community needs, or particular
activities only under specified conditions, such as limited costs or
local control. The agencies recognize that community needs can vary
widely across communities, and therefore intend the final rule to be
sufficiently adaptable for banks and communities to address those
needs. While the agencies note that infrastructure projects in higher
income areas tend to be sufficiently resourced, the agencies believe
that the final rule will provide recognition of bank support for a
variety of needed activities in targeted census tracts, including those
projects that would be less likely to be funded otherwise.
---------------------------------------------------------------------------
\473\ See final Sec. __.13(a)(1)(i)(B)(4) (providing that
loans, investments, or services supporting community development
under final Sec. __.13(f) and (g) meet the ``majority standard''
for receiving full credit it the majority of the beneficiaries are,
or the majority of dollars benefit or serve, residents of targeted
census tracts), discussed in the section-by-section analysis of
final Sec. __.13(a)(1).
---------------------------------------------------------------------------
In addition, the agencies are not adopting comments suggesting that
the rule should require activities to primarily serve low- and
moderate-income residents in targeted census tracts; to strongly
correlate to the benefit to low- and moderate-income individuals; or to
limit eligible activities to census tracts with majority low- or
moderate-income populations. The final rule seeks to maintain
flexibility for activities to meet a range of community needs, while
also requiring the inclusion of low- or moderate-income individuals as
beneficiaries. As noted in the discussion of essential community
facilities (final Sec. __.13(f)), the agencies believe that this
flexibility remains particularly important in distressed or
[[Page 6688]]
underserved nonmetropolitan middle-income census tracts, which can have
fewer low- or moderate-income residents. Thus, the final rule is
intended to balance a number of considerations by specifically
requiring that essential community infrastructure under Sec. __.13(g)
benefit or serve residents of these census tracts, or low- or moderate-
income census tracts, but also requiring that low- or moderate-income
individuals within those census tracts benefit from the project. At the
same time, the agencies are declining to expand the rule to qualify
activities benefiting all residents without regard to income level, as
the agencies believe it is important that there be some demonstrated
benefit to low- and moderate-income individuals.
For similar reasons, the agencies are also not adopting in the
regulation recommended methods for measuring the benefits of these
projects to low- and moderate-income individuals. The agencies are
concerned that specific requirements in this regard could be overly
burdensome and add a level of complexity to the rule that could run
counter to facilitating partnerships between banks and communities to
meet essential community infrastructure needs. The agencies further
believe that there is a need to maintain flexibility in the rule, as
noted above, for qualifying a range of infrastructure projects that
meet varying community needs. However, banks will be expected to
demonstrate that all of the criteria in Sec. __.13(g) have been met,
notably the criterion in Sec. __.13(g)(2) that essential community
infrastructure benefits or serves residents of targeted census tracts,
including low- and moderate-income individuals.
The agencies have also considered comments suggesting an option to
provide partial credit for activities under Sec. __.13(g), but
continue to believe that not including a partial credit option for
essential community infrastructure will better facilitate clarity and
consistency in the consideration of essential community infrastructure.
In addition, the agencies are concerned that providing partial credit
could allow for qualification of projects without a specific focus on
benefiting and serving residents of targeted census tracts, and might
allow for activities with only tangential benefits to the targeted
census tracts. The agencies recognize commenter concerns that the
criteria for essential community infrastructure could result in support
for larger infrastructure projects not qualifying for CRA credit, but
believe that these larger projects are likely to have financing options
even if they have only ancillary benefits to residents of targeted
census tracts. The place-based criteria adopted under the final rule
thus are designed to help ensure that community development under the
CRA includes larger infrastructure projects that provide clear and
meaningful benefits to residents of targeted census tracts, and that
smaller projects benefiting residents of targeted census tracts have
needed financial support. Larger scale infrastructure projects will
qualify if they meet all required criteria, including that there is a
demonstrated majority benefit for residents of targeted census
tracts.\474\ Thus, a bank could purchase a bond to fund improvements
for a citywide water treatment project that is consistent with a city's
capital improvement plan; this bond purchase would qualify if the
majority of the project benefits or serves residents in the eligible
census tracts, includes low- or moderate-income residents, and meets
the other criteria of Sec. __.13(g).
---------------------------------------------------------------------------
\474\ See final Sec. __.13(a)(1)(i)(B)(4) and the accompanying
section-by-section analysis.
---------------------------------------------------------------------------
Section __.13(g)(1) Through (3) Place-Based Criteria
The final rule adopts the three common place-based eligibility
criteria for essential community infrastructure, reorganized to be in a
consistent parallel order across all place-based categories, and with
the revisions described in the discussion of the place-based criteria
above in this section-by-section analysis. Accordingly, under the final
rule, essential community infrastructure are activities that: are
undertaken in conjunction with a plan, program, or initiative of a
Federal, State, local, or tribal government or a mission-driven
nonprofit organization, where the plan, program, or initiative includes
a focus on benefiting or serving targeted census tracts (final Sec.
__.13(g)(1)); benefit or serve residents, including low- or moderate-
income individuals, of targeted census tracts (final Sec.
__.13(g)(2)); and do not directly result in the forced or involuntary
relocation of low- or moderate-income individuals in targeted census
tracts (final Sec. __.13(g)(3)). As noted, the reasons for adopting
these final criteria, and for revisions to the proposed criteria, are
collectively discussed above in this section-by-section analysis.
Section __.13(h) Recovery Activities in Designated Disaster Areas
Current Approach and the Agencies' Proposal
Similar to the current CRA regulations and guidance regarding
support for designated disaster areas,\475\ proposed Sec. __.13(h)
would establish recovery activities in designated disaster areas as a
category of community development. Specifically, proposed Sec.
__.13(h)(1) stated that these recovery activities comprised activities
that revitalize or stabilize geographic areas subject to a Major
Disaster Declaration administered by the Federal Emergency Management
Agency (FEMA). Consistent with current guidance, the proposed provision
expressly excluded activities that revitalize or stabilize counties
designated to receive only FEMA Public Assistance Emergency Work
Category A (Debris Removal) and/or Category B (Emergency Protective
Measures), but modified the exclusion by providing that the agencies
may determine to grant a temporary exception for these areas.\476\ Also
aligned with current guidance, the proposal provided that activities
promoting the revitalization or stabilization of designated disaster
areas would be eligible for CRA consideration for 36 months after a
Major Disaster Declaration unless that period is extended by the
agencies.\477\
---------------------------------------------------------------------------
\475\ See 12 CFR __.12(g)(4)(ii). See also Q&A Sec.
__.12(g)(4)(ii)-1 and -2.
\476\ See proposed Sec. __.13(h)(1); compare with Q&A Sec.
__.12(g)(4)(ii)-1.
\477\ See id.
---------------------------------------------------------------------------
The proposal further defined recovery activities in designated
disaster areas as activities that also meet the other place-based
criteria discussed above: that activities benefit or serve residents,
including low- or moderate-income residents (proposed Sec.
__.13(h)(2)); not displace or exclude low- or moderate-income
residents, of these geographic areas (proposed Sec. __.13(h)(2)); be
conducted in conjunction with a Federal, State, local, or tribal
government disaster plan that includes an explicit focus on benefiting
the designated disaster area (proposed Sec. __.13(h)(3)). Under the
proposal, activities in designated disaster areas that meet these
eligibility standards could be considered regardless of the income
level of the designated census tracts.
Comments Received
Comments on the proposal regarding recovery activities in
designated disaster areas generally focused on the agencies' specific
request for feedback on whether they should consider any additional
criteria to ensure that activities in this category benefit low- or
moderate-income individuals and communities. Some commenters, for
example, indicated support for additional criteria for this category to
focus the benefits of
[[Page 6689]]
recovery activities in disaster areas on low- and moderate-income
individuals and communities and to avoid recovery efforts being
concentrated in higher-income areas. Commenters noted that disasters
disproportionately impact low-income communities, and pointed to the
inequitable distribution of recovery resources following a disaster.
Several of these commenters recommended metrics to help ensure low- and
moderate-income community benefit of disaster recovery activities, such
as: (1) requiring that a specific percentage of benefits inure to low-
and moderate-income residents; (2) use of a Social Vulnerability Index
to help determine and assess low- and moderate-income benefit; or (3)
consideration of criteria used in the Census Bureau's Community
Resilience Estimates, which focus on various factors that could impact
a community's ability to survive and rebound from declared
disasters.\478\ A few commenters further suggested that the agencies
give credit for activities that serve displaced residents who were
forced to migrate, as well as the census tracts that receive those
displaced residents; or require that recovery activities in designated
disaster areas benefit low- and moderate-income communities, minority
communities, or both, in order to be eligible for CRA consideration.
Another commenter similarly suggested that the focus of disaster
recovery should be expanded to include minority communities, to ensure
the agencies are fulfilling their obligation under the Fair Housing
Act's affirmatively furthering fair housing provision.\479\ This
commenter suggested that minority individuals and communities are
especially vulnerable to disasters and are also the least likely to
have access to the resources needed to recover from disasters.
Commenter feedback also included a recommendation to qualify activities
that primarily benefit low- and moderate-income communities affected by
a natural disaster without requiring a FEMA declaration or disaster
plan for that community.
---------------------------------------------------------------------------
\478\ See, e.g., U.S. Census Bureau, ``Community Resilience
Estimates'' (May 30, 2023), https://www.census.gov/programs-surveys/community-resilience-estimates.html.
\479\ See 42 U.S.C. 3608. See also, e.g., 24 CFR 5.150 through
5.180, as proposed to be amended in 88 FR 8516 (Feb. 9, 2023).
---------------------------------------------------------------------------
In lieu of additional criteria, a few commenters advocated for
using the proposed impact review to give positive treatment for bank
financing activities for disaster recovery based on the extent to which
low- and moderate-income individuals or neighborhoods benefit.\480\ For
instance, a commenter suggested that CRA performance evaluations should
specifically factor in the degree to which these activities benefit
low- and moderate-income populations, with higher scores assigned to
projects benefiting low- and moderate-income residents than other
projects.
---------------------------------------------------------------------------
\480\ See proposed Sec. __.15(b). See also final Sec. __.15(b)
and the accompanying section-by-section analysis.
---------------------------------------------------------------------------
Some commenters supported qualifying recovery activities in
designated disaster areas, regardless of income level, or otherwise
opposed additional criteria to ensure benefits for low- and moderate-
income individuals and communities in designated disaster areas. For
example, a commenter supported considering disaster recovery activities
as responsive to community needs and suggested that such activities in
middle- and upper-income areas can benefit low- and moderate-income
persons. A few commenters suggested that the agencies rely on the
expertise of the bank's CRA professional to create a case for the
activity and demonstrate that the activity is in direct response to a
natural disaster. Another commenter referenced current guidance on
disaster recovery activities under the CRA that are not income-
limited,\481\ and asserted that, to ensure that disaster recovery
efforts are effective, all members of any community who have
experienced economic dislocation due to a disaster must continue to be
able to benefit from the community development activities undertaken by
the financial institution, regardless of income.
---------------------------------------------------------------------------
\481\ See Q&A Sec. __.12(g)(4)(ii)-1 and -2.
---------------------------------------------------------------------------
Final Rule
Final Sec. __.13(h) adopts proposed Sec. __.13(h), reorganized
for clarity and consistency with the structures of other place-based
categories, and modified as described below. Consistent with the
proposal, final Sec. __.13(h)(1) provides the general definition of
the types of activities included in this category of community
development and specifies that they must also meet the common place-
based eligibility criteria (final Sec. __.13(h)(1)(i) through (iii)).
Final Sec. __.13(h)(2) contains the proposed exclusion from
consideration for loans, investments, and services supporting disaster
recovery in counties designated to receive only FEMA Public Assistance
Emergency Work Category A (Debris Removal) and/or Category B (Emergency
Protective Measures), and the timeframe for eligibility for
consideration.
Section __.13(h)(1) Recovery of Designated Disaster Areas
Under final Sec. __.13(h)(1), activities that promote recovery of
a designated disaster area are those that revitalize or stabilize
geographic areas subject to a Major Disaster Declaration administered
by FEMA. The final rule relocates the proposed additional parameters
for qualification from proposed Sec. __.13(h)(1) to final Sec.
__.13(h)(2), described below. The final rule is intended to describe
eligible disaster recovery activities more clearly, as a stand-alone
community development category of community development in the
regulation, rather than including disaster recovery activities as a
subcategory of revitalization and stabilization. Examples of bank
activities for CRA credit as supportive of disaster recovery activities
under final Sec. __.13(h) include, but are not limited to, assistance
with rebuilding infrastructure; financing to retain businesses that
employ local residents; and recovery-related housing or financial
assistance to individuals in the designated disaster areas. As with the
other place-based categories, the agencies believe that the final rule
on disaster recovery activities, with the common place-based criteria
discussed in more detail above, will provide stakeholders with a better
upfront understanding of the types of disaster recovery activities that
will qualify as community development relative to the current ``attract
or retain'' standard.
The agencies have considered commenter suggestions for additional
or alternative criteria to help ensure that designated disaster
recovery activities include a benefit to low- or moderate-income
residents in the communities served by these projects. In particular,
the agencies are sensitive to commenter concerns that disasters can
often more severely impact low- and moderate-income individuals. At the
same time, given the disparate and widespread impacts that major
disasters can involve, the agencies are concerned about unduly limiting
qualification of activities under this category and possibly qualifying
fewer disaster recovery activities than under the current rule. Thus,
the agencies are not adopting commenter suggestions that the rule
should require that a majority of, or all, of disaster recovery
activity benefits go to low- or moderate-income residents and
communities, or other similar limitations noted in the summary of
comments above. The agencies continue to believe that activities that
promote the recovery of designated disaster areas should benefit
[[Page 6690]]
the entire community, including, but not limited to, low- or moderate-
income individuals and communities, consistent with the purposes of
CRA. Further, the agencies believe that the common place-based criteria
adopted under the final rule will ensure a strong connection to
community needs in designated disaster areas. Specifically, while
activities in all census tract income levels may be considered, these
activities must benefit or serve residents of the census tracts
included in the designated disaster area, including low- or moderate-
income individuals, and must not directly result in forced or
involuntary relocation of individuals in designated disaster areas.
The agencies are also not adopting the suggestion to include under
disaster recovery those activities that are not tied to specific FEMA
Major Disaster Declarations or disaster recovery plans. The agencies
believe that revising the current (and proposed) rule to take a more
expansive approach to designating eligibility under the disaster
recovery category would be overbroad and could require supplemental
eligibility criteria that would add complexity to the final rule,
potentially detracting from the increased clarity and transparency for
stakeholders and examiners that the final rule is designed to achieve.
Incorporating State disaster declarations, for example, would pose
compliance and implementation challenges due to varying standards and
the large volume of such declarations.
The agencies believe that generally retaining current and proposed
parameters related to disaster recovery activities, including the focus
on federally designated disaster areas and a nexus to a plan, program,
or initiative,\482\ benefits stakeholders by providing consistency and
predictability. The agencies also believe that the final rule's tie to
geographic areas subject to a FEMA Major Disaster Area Declaration will
provide recognition for a wide range of projects benefiting communities
in crisis across the United States within appropriately far-reaching,
yet clearly defined, geographic areas. The agencies also note that
there have been a significant number of FEMA Major Disaster
Declarations in recent years, further indicating that the final rule
approach has an appropriate scope for considering a wide range of
activities assisting many specifically impacted communities.
---------------------------------------------------------------------------
\482\ See proposed Sec. __.13(h); see also Q&A Sec.
__.12(g)(4)(ii)-1 and -2.
---------------------------------------------------------------------------
Finally, the agencies are declining to adopt specific methods to
measure benefits as suggested by some commenters. As with similar
suggestions for other place-based categories, the agencies are
concerned that specific requirements could be difficult to implement
and dissuade banks from engaging in these activities. The agencies
further aim to support adaptability of the rule and recognize that
different facts and circumstances could give rise to a wide range of
appropriate ways to demonstrate that an activity meets the disaster
recovery standards in final Sec. __.13(h). As noted elsewhere,
however, banks will be expected to demonstrate that they have met all
of the criteria in Sec. __.13(h) for activities in designated disaster
areas, notably that the activities benefit residents, including low- or
moderate-income individuals, of designated disaster areas.
Section __.13(h)(1)(i) Through (iii) Place-Based Criteria
The final rule adopts the three common place-based eligibility
criteria for disaster recovery activities, reorganized to be in a
consistent parallel order across all place-based categories, and with
the revisions described in the discussion of the place-based criteria
above in this section-by-section analysis. Under the final rule,
activities that promote recovery from a designated disaster are
activities that: are undertaken in conjunction with a disaster plan,
program, or initiative of a Federal, State, local, or tribal government
or a mission-driven nonprofit organization, where the plan, program, or
initiative includes a focus on benefiting or serving the designated
disaster area (final Sec. __.13(h)(1)(i)); benefit or serve residents,
including low- or moderate-income individuals, of the designated
disaster area (final Sec. __.13(h)(1)(ii)); and do not directly result
in the forced or involuntary relocation of low- or moderate-income
individuals in the designated disaster area (final Sec.
__.13(h)(1)(iii)). As noted, the reasons for adopting these final
criteria, and for revisions to the proposed criteria, are collectively
discussed above in this section-by-section analysis.
Section __.13(h)(2) Eligibility Limitations for Loans, Investments, or
Services Supporting Recovery of a Designated Disaster Area
Final Sec. __.13(h)(2) relocates and adopts, with non-substantive
clarifications, the additional eligibility parameters in proposed Sec.
__.13(h)(1). Specifically, under Sec. __.13(h)(2)(i), loans,
investments, or services that support activities promoting recovery
from a designated disaster in counties designated to receive only FEMA
Public Assistance Emergency Work Category A (Debris Removal) and/or
Category B (Emergency Protective Measures) are not eligible for
consideration under Sec. __.13(h), unless the agencies announce a
temporary exception. Section __.13(h)(2)(ii) states that loans,
investments, and services that support activities under Sec. __.13(h)
are eligible for consideration up to 36 months after a Major Disaster
Declaration, unless that time period is extended by the agencies.
The agencies continue to believe that activities covered under
Categories A and B are generally short-term recovery activities that
would significantly expand the number of designated disaster
areas,\483\ and that longer-term activities are more likely to provide
sustained benefits to impacted communities and thus are a more
appropriate focus under the CRA. The agencies are therefore generally
adopting the definition of designated disaster areas included in the
Interagency Questions and Answers,\484\ and permitting the agencies to
consider exceptions on a case-by-case basis, such as disaster
declarations for the COVID-19 pandemic. Similarly, consistent with the
proposal and current guidance, the agencies are adopting a time frame
in Sec. __.13(h)(2)(ii) making loans, investments, and services that
support activities under Sec. __.13(h) eligible for consideration up
to 36 months after a Major Disaster Declaration. Thus, for example,
providing a loan for rebuilding a commercial property 24 months after a
declaration could qualify, even if the project continues to be financed
past 36 months. Overall, the agencies believe that adopting these
criteria will recognize comments that supported a continuance of
current practice for this category and provide clarity for banks on the
qualification of activities.
---------------------------------------------------------------------------
\483\ See, e.g., FEMA, ``Public Assistance Fact Sheet'' (Oct.
2019), https://www.fema.gov/sites/default/files/2020-07/fema_public-assistance-fact-sheet_10-2019.pdf.
\484\ See Q&A Sec. __.12(g)(4)(ii)-1.
---------------------------------------------------------------------------
Section __.13(i) Disaster Preparedness and Weather Resiliency
Activities
Current Approach
The agencies' CRA regulations have allowed CRA consideration for
certain activities that help communities recover from natural
disasters, including activities that help to revitalize and stabilize
designated disaster areas, as discussed above. On a limited basis,
activities that help designated disaster areas mitigate the impact of
future disasters may be considered under CRA
[[Page 6691]]
if Hazard Mitigation Assistance is included in the FEMA disaster
declaration.\485\ Outside of activities related to disaster recovery,
the Interagency Questions and Answers provide examples of ``community
development loans'' that include loans financing ``renewable energy,
energy-efficient, or water conservation equipment or projects that
support the development, rehabilitation, improvement, or maintenance of
affordable housing or community facilities.'' \486\ However, the
current regulations and guidance do not expressly identify as eligible
for CRA credit activities related to helping low- or moderate-income
individuals, low- or moderate-income communities, small businesses, or
small farms prepare for disasters or build resilience to future
weather-related events.
---------------------------------------------------------------------------
\485\ See Q&A Sec. __.12(g)(4)(ii)-1 and FEMA, ``How a Disaster
Gets Declared'' (Apr. 25, 2023), https://www.fema.gov/disaster/how-declared.
\486\ Q&A Sec. __.13(h)-1.
---------------------------------------------------------------------------
The Agencies' Proposal
In proposed Sec. __.13(i), the agencies proposed to establish a
separate category of community development for activities that assist
individuals and communities to prepare for, adapt to, and withstand
natural disasters, weather-related disasters, or climate-related risks.
As with other proposed place-based categories of community development,
eligibility under this category would be conditioned on meeting the
proposed common place-based criteria. Specifically, the proposal stated
that disaster preparedness and climate resiliency activities are those
conducted in targeted census tracts and that: benefit or serve
residents, including low- or moderate-income residents, in one or more
of the targeted census tracts (proposed Sec. __.13(i)(1)); do not
displace or exclude low- or moderate-income residents in the targeted
census tracts (proposed Sec. __.13(i)(2)); and are conducted in
conjunction with a Federal, State, local, or tribal government plan,
program, or initiative focused on disaster preparedness or climate
resiliency that includes an explicit focus on benefiting a geographic
area that includes the targeted census tracts (proposed Sec.
__.13(i)(3)).
Comments Received
General comments. Most commenters addressing proposed Sec.
__.13(i) generally supported adding this category of activities under
the community development definition, as an appropriate step to
encourage financial institutions to support disaster preparedness and
climate resilience activities. A number of commenters asserted that
these activities can mitigate risks that disproportionately impact low-
and moderate-income communities, as well as indigenous communities and
communities of color. For example, a commenter stated that low- and
moderate-income communities are particularly vulnerable to extreme
weather and other natural disasters because they are more likely to be
sited in locations that have not benefited from investment in hazard
mitigation. A few commenters highlighted the importance of proactive
investment in communities as consistent with mission of the CRA, in
addition to post-disaster funding. A few commenters asserted that
climate resilience is a critical foundation for community health and
economic stability and growth, while another noted that the proposed
category could help communities understand what kinds of climate-
related investments they can seek financing for, and help financial
institutions understand which activities can receive CRA credit. In
contrast, a commenter opposed the proposal to include this category of
activities in the community development definition, arguing that such
activities are inconsistent with the CRA.
As discussed in more detail below, while most commenters expressed
general support for proposed Sec. __.13(i), many of these commenters
urged the agencies to clarify or broaden the scope and types of
activities that would qualify under the proposed category as a way to
strengthen the rule. Commenters also offered suggestions for revising
the proposed category's required elements for place-based activities
under proposed Sec. __.13(i)(1) through (3), described in more detail
below. Commenters also addressed miscellaneous topics outside the scope
of the proposed provisions, discussed at the end of this section-by-
section analysis.
Qualifying activities: scope and examples. The agencies requested
comment on whether the proposed disaster preparedness and climate
resiliency category appropriately defined qualifying activities in
proposed Sec. __.13(i) as those that assist individuals and
communities to prepare for, adapt to, and withstand natural disasters,
weather-related disasters, or climate-related risks. The proposal also
provided various examples of eligible activities contemplated by this
proposed provision. While commenters generally supported proposed Sec.
__.13(i), many of those commenters requested the agencies provide
additional clarity; provide additional, non-exhaustive examples of
eligible qualifying activities; and/or broaden the types of eligible
activities.
For example, some commenters supported the term ``climate-related
risks,'' but asserted that the agencies should interpret the term to
include not only natural hazards or weather-related risks, but also
environmental health and other risks exacerbated by climate change,
such as those related to air quality, pest increases, and warming
waters. A few commenters suggested State law climate mitigation
frameworks as reference points. Other commenters suggested that the
final rule specify, or provide as examples, a variety of activities
they recommended should qualify, such as development of community solar
and microgrids, battery storage, residential electrification, energy
and water efficiency measures, green technology, broad environmental
initiatives such as the creation and expansion of green jobs,
greenhouse emission mitigation and decarbonization, and toxic waste and
industrial site clean-up, among others. One commenter cautioned the
agencies against being overly prescriptive, recommending that the final
rule maintain definitions broadly associated with essential
infrastructure, rather than list specific activities that could become
obsolete.
Categorizing activities that promote energy efficiency. The
agencies sought comment on whether activities that promote energy
efficiency should be included as a component of the disaster
preparedness and climate resiliency category, or whether those
activities should be considered under other categories, such as
affordable housing (Sec. __.13(b)) and essential community facilities
(Sec. __.13(f)). The agencies also sought feedback on whether certain
activities that support energy efficiency should be included as an
explicit component of the definition. Most commenters addressing the
question supported the agencies' inclusion of energy efficiency-
promoting activities as a component of the disaster preparedness and
climate resiliency category. For example, a commenter stated that
energy efficiency activities can insulate low-income individuals from
price inflation and fluctuations resulting from disasters and climate
change impacts. Another commenter noted that in addition to decreased
utility costs, many energy-efficient techniques support climate
resiliency because they help maintain habitable conditions when power
is disrupted. A commenter recommended that energy
[[Page 6692]]
efficiency promoting activities be included as a component of the rule,
but consideration for the activities should be conditioned on whether
the activities benefited low- or moderate-income individuals or
communities. In contrast, one commenter expressed that the agencies
should not include activities that promote energy efficiency as a
component of disaster preparedness and climate resiliency, asserting
that these activities are outside the scope of the CRA and are more
appropriate for environmental, social, and corporate governance
guidance.
Several commenters also suggested that the agencies should take a
broad view of what constitutes an eligible energy efficiency-promoting
activity, with some suggesting mitigation efforts be considered.
Examples include, among others: energy-efficient upgrades (or new
installation) for residential and commercial buildings, such as
appliance and fixture replacements, weatherization, improved
insulation, window replacements, heat pump and HVAC system purchase and
installation; and electrification or decarbonization measures that
would help stabilize home energy costs; and water efficiency measures.
A number of commenters suggested that energy efficiency-promoting
activities should be considered a component of other proposed community
development categories, such as affordable housing, community
facilities, and/or community infrastructure. For example, several
commenters observed that there will be circumstances where energy
efficiency improvements can benefit affordable housing and community
facilities and this approach would ensure such activities are targeted
to the most underserved populations.
In contrast, a few commenters supported including energy
efficiency-promoting activities only under the proposed disaster
preparedness and resiliency category, to facilitate initiatives that
co-optimize the use of energy efficiency and weatherization with other
related activities, to reduce confusion, or to prevent double-counting.
Other energy-related activities. The agencies sought comment on
whether, distinct from energy efficiency improvements, other energy-
related activities should be included in the disaster preparedness and
climate resiliency category. Of those that responded, many commenters
supported including other energy-related activities as activities that
assist individuals and communities in preparing for, adapting to, and
withstanding weather, natural disasters, and climate-related risks.
Commenters offered various examples of such activities including, among
others: renewable energy (including financing of solar panels in low-
and moderate-income census tracts or on homes for low- and moderate-
income homeowners, community solar installation, or a neighborhood-wide
microgrid or district energy system); flood control and water run-off
measures; decarbonization activities; energy storage systems;
distribution grid modernization; and electric vehicle charging
infrastructure. A commenter suggested that the CRA should prioritize
clean energy related lending and investment and do so in a manner akin
to how LIHTCs are prioritized under the current rule.
Utility-scale projects. While the agencies noted in the proposal
that proposed Sec. __.13(i) was not intended to include utility-scale
projects, the agencies also sought comment on whether to include
utility-scale projects, such as certain solar projects, that would
benefit residents in targeted census tracts.
Some commenters asserted that utility-scale projects could benefit
low- and moderate-income areas through expanded capital investment and
likely displacement of fossil fuel burning plants, which are more
likely to be located in such areas; or to give clean energy options to
residents who cannot install renewable energy on their homes (e.g., due
to cost or because they are renters). A few commenters asserted that
utility-scale projects such, as renewable energy plants developed
outside of a targeted geography, should still be eligible for credit,
if benefits accrue to residents of targeted census tracts. A commenter
suggested that by definition, utility-scale clean energy should be
considered to benefit residents in targeted census tracts, noting that
clean energy, regardless of location, benefits the climate everywhere
and that even utility-scale clean energy projects located physically
outside the geographical borders of a low- and moderate-income
community still benefits the environment, health, and welfare of low-
and moderate-income persons and communities.
Other commenters supported including utility-scale projects,
conditioned on criteria such as a certain percentage of benefits
accruing to low- and moderate-income census tracts; physical location
in low- and moderate-income communities; or if documentation showed
specific benefits to targeted geographies or to low- or moderate-income
individuals. A few commenters raised offering partial credit for
dollars going to low- or moderate-income neighborhoods or benefiting
low- or moderate-income individuals, or for projects providing
demonstrable financial benefits to those communities.
In contrast, some commenters responded that utility-scale projects
should not be included as eligible activities. These commenters offered
various reasons for this view, including that the benefits of utility-
scale projects are not sufficiently directed to low- and moderate-
income communities and conventional financing is more likely to be
available for these projects (i.e., these projects would occur without
a CRA incentive). Another commenter expressed the view that including
utility-scale projects would dilute the intended core focus of the CRA,
due to the broad application of such projects, and the large dollar
amounts involved.
Final Rule
Section __.13(i) In General
The final rule adopts proposed Sec. __.13(i), renamed and
reorganized from the proposal for clarity, including for consistency
with the structure of other place-based categories, and with other
modifications discussed below. Final Sec. __.13(i) uses the term
``weather resiliency'' instead of ``climate resiliency'' to clarify the
types of activities that qualify under this category of community
development. Under final Sec. __.13(i), disaster preparedness and
weather resiliency activities are defined as those that assist
individuals and communities to prepare for, adapt to, and withstand
natural disasters or weather-related risks or disasters. As discussed
below, final Sec. __.13(i) is revised to state that disaster
preparedness and weather resiliency activities benefit or serve
targeted census tracts and meet the common place-based criteria in
Sec. __.13(i)(1) through (3).
As noted by commenters and highlighted in a growing body of
[[Page 6693]]
literature, lower-income households and communities are especially
vulnerable to the impact of natural disasters and weather-related risks
and disasters.\487\ Low- and moderate-income communities are more
likely to be located in areas or buildings that are particularly
vulnerable to disasters or weather-related risks, such as storm shocks
or drought.\488\ Because residents of affordable housing are more
likely to be low-income, and affordable housing tends to be older and
of poorer quality, low- and moderate-income households are more likely
to have housing that is susceptible to disaster-related damage.\489\
Additionally, lower-income households tend to have fewer financial
resources, making them less resilient to the temporary loss of income,
property damage, displacement costs, and health challenges they face
from disasters.\490\ Finally, low- and moderate-income communities are
often disproportionately affected by the health impacts associated with
natural disasters and weather-related events.\491\ For these reasons,
the agencies believe adding a disaster preparedness and weather
resiliency category furthers the purpose of the CRA.
---------------------------------------------------------------------------
\487\ See, e.g., Federal Reserve Bank of New York, ``Reducing
Climate Risk for Low-Income Communities'' (Nov. 19, 2020), https://www.newyorkfed.org/newsevents/events/regional_outreach/2020/1119-2020 (referencing, for example, low-income communities'
vulnerability to weather-related events such as wildfires and
hurricanes); Jesse M. Keenan and Elizabeth Mattiuzzi, ``Climate
Adaptation Investment and the Community Reinvestment Act,''
Community Development Research Briefs (June 16, 2019), https://www.frbsf.org/community-development/wp-content/uploads/sites/3/climate-adaptation-investment-and-the-community-reinvestment-act.pdf
(stating that ``shocks from extreme weather . . . exacerbate
existing vulnerabilities associated with,'' for example, affordable
housing, household wealth and savings, and economic mobility).
\488\ See, e.g., Eleanor Kruse and Richard V. Reeves,
``Hurricanes hit the poor the hardest,'' Brookings Institute (Sept.
18, 2017), https://www.brookings.edu/blog/social-mobility-memos/2017/09/18/hurricanes-hit-the-poor-the-hardest/; Bev Wilson, ``Urban
Heat Management and the Legacy of Redlining,'' 86 J. Am. Planning
Ass'n 443-57(2020), https://www.tandfonline.com/doi/full/10.1080/01944363.2020.1759127.
\489\ See, e.g., Maya K. Buchanan et al., ``Sea level rise and
coastal flooding threaten affordable housing,'' Environ. Res. Lett.
15 124020 (2020), https://iopscience.iop.org/article/10.1088/1748-9326/abb266/pdf (providing estimates of the expected number of
affordable housing units that may be at risk of flooding due to
exposure to extreme coastal water levels); Patrick Sisson, ``In Many
Cities, Climate Change Will Flood Affordable Housing'' Bloomberg
(Dec. 1, 2020), https://www.bloomberg.com/news/articles/2020-12-01/how-climate-change-is-targeting-affordable-housing (referencing
significant projected losses of affordable housing in the United
States due to repeated flooding and noting, for example, that
``[o]lder homes tend to be poorer quality, suffer from deferred
maintenance, and are more physically vulnerable to flooding damage
(not to mention rising heat), all while housing a disproportionate
amount of disabled, elderly and otherwise at-risk residents'').
\490\ See, e.g., U.S. Global Change Research Program, ``Fourth
National Climate Assessment, Volume II: Impacts, Risks, and
Adaptation in the United States'' (2018), https://nca2018.globalchange.gov/(``People who are already vulnerable,
including lower-income and other marginalized communities, have
lower capacity to prepare for and cope with extreme weather and
climate-related events and are expected to experience greater
impacts.''); and Eleanor Kruse and Richard V. Reeves, ``Hurricanes
hit the poor the hardest,'' Brookings Institution (Sept. 18, 2017),
https://www.brookings.edu/blog/social-mobility-memos/2017/09/18/hurricanes-hit-the-poor-the-hardest.
\491\ Eleanor Kruse and Richard V. Reeves, ``Hurricanes hit the
poor the hardest,'' Brookings Institution (Sept. 18, 2017), https://www.brookings.edu/blog/social-mobility-memos/2017/09/18/hurricanes-hit-the-poor-the-hardest; U.S. Global Change Research Program,
``Fourth National Climate Assessment, Volume II: Impacts, Risks, and
Adaptation in the United States'' (2018), https://nca2018.globalchange.gov/(referencing increasing impacts from
extreme weather on ``the health and well-being of the American
people, particularly populations that are already vulnerable'').
---------------------------------------------------------------------------
While the proposed rule defined disaster preparedness and climate
resiliency activities as those that are ``conducted in'' targeted
census tracts, final Sec. __.13(i) is revised to define ``disaster
preparedness and weather resiliency'' activities as those that
``benefit or serve'' targeted census tracts. The agencies recognize
that while a ``conducted in'' standard could facilitate a bank's
demonstration that activities are benefiting and serving the residents
of targeted census tracts, it could exclude disaster preparedness and
weather resiliency activities located in close proximity to a targeted
census tract that nonetheless are demonstrably designed to benefit and
serve residents of that census tract, including low- or moderate-income
individuals. Thus, under the final rule, a project to finance a levee
specifically intended to prevent flooding in a targeted census tract
could qualify for consideration, even if the levee were not located
directly within the census tract, presuming all criteria of the rule
were met.
Qualifying activities under the final rule; examples; additional
criteria. The agencies have considered commenter feedback on the scope
and types of activities that might qualify under this category, and
commenter responses to whether activities that promote energy-
efficiency and other energy-related activities should be explicitly
included in the definition. For the reasons discussed below, the
agencies are finalizing the proposal's high-level, comprehensive
approach regarding the scope and types of activities that qualify under
this category, such as activities that assist individuals and
communities to prepare for, adapt to, and withstand natural disasters
or weather-related risks or disasters. The agencies believe the final
rule will encompass a wide variety of activities that help low- or
moderate-income individuals and communities proactively prepare for,
adapt to, or withstand the effect of natural disasters or weather-
related risks or disasters, such as earthquakes, severe storms,
droughts, flooding, and forest fires. For example, potentially eligible
activities under the final rule, include, but are not limited to, the
construction of flood control systems in a flood prone low- or
moderate-income or underserved or distressed nonmetropolitan middle-
income census tract; and retrofitting multifamily affordable housing to
withstand future disasters or weather-related events. Additional
examples of potentially eligible qualifying activities include, but are
not limited to: promoting green space in targeted census tracts in
order to mitigate the effects of extreme heat, particularly in urban
areas; weatherization upgrades to affordable housing such as more
efficient heating and air-cooling systems or more energy-efficient
appliances; community solar projects, microgrid and battery projects
that could help ensure access to power to an affordable housing project
in the event of severe storms; financing community centers that serve
as cooling or warming centers in low- or moderate-income census tracts
that are more vulnerable to extreme temperatures; and assistance to
small farms to adapt to drought challenges.
The agencies believe that the final definition provides banks the
flexibility needed to encourage investments in a range of activities
that promote disaster preparedness and weather resiliency, particularly
given that communities face different types of risks across the
country. To the extent that activities meet the definition and the
common place-based criteria in final Sec. __.13(i), as well as meet
the majority standard in final Sec. __.13(a), such activities would
qualify for community development consideration. For this reason, while
the agencies intend that the final rule will encompass some energy-
efficiency and other energy-related activities (e.g., those mentioned
above), the agencies believe it is unnecessary to more specifically
reference those activities in the final rule. With respect to these and
other activities raised by commenters, the agencies are concerned that
a more prescriptive rule that either designates or provides examples of
precise qualifying activities could be overly limiting for this
category, become obsolete, or discourage innovative activities in an
evolving area of community development. However, the agencies will take
commenters' suggestions under advisement as the agencies develop the
illustrative list contemplated by Sec. __.14.
While the agencies believe the final rule provides broad
flexibility, the agencies are also declining to further expand
community development under this category, for example, to incorporate
all environmental health threats and other risks that could be
exacerbated by climate conditions, all
[[Page 6694]]
activities to mitigate climate risks, such as those that promote
decarbonization, or activities that facilitate the transition to clean
energy generally. The agencies believe it is important that the final
rule clearly link qualifying disaster preparedness and weather
resiliency activities to those activities that benefit or serve
residents of a targeted census tract, to ensure that these activities
provide the community benefit in alignment with the CRA. The agencies
are concerned that broadening the rule as suggested by some commenters
would make it difficult for banks to demonstrate that nexus, as well as
to meet the majority standard in Sec. __.13(a).
Energy efficiency activities and other community development
categories. The agencies have also considered comments on whether to
include activities that promote energy efficiency in the disaster
preparedness and weather resiliency category, or under other community
development categories, such as affordable housing or essential
community facilities. On further consideration, the agencies believe
that energy efficiency-promoting activities are generally consistent
with the final definition of disaster preparedness and weather
resiliency, and therefore should be included within this category.
However, the agencies do recognize that some energy efficiency-
promoting activities could potentially be considered under other
community development categories. For example, and as discussed in more
detail in the proposal, certain weatherization improvements might also
benefit affordable housing or essential community facilities. Banks
subject to the rule are permitted to qualify activities under any
applicable community development category, but those activities may
count only once for the purposes of calculating the Community
Development Financing Metric.
Utility-scale projects. Relatedly, the agencies appreciate the
varying views on whether to include utility-scale projects that benefit
residents of targeted census tracts within the scope of the rule. After
considering the comments, the agencies reaffirm that final Sec.
__.13(i) is not intended to include utility-scale projects. Utility-
scale projects tend to be large, even regional projects. In addition,
given their nature and function, the agencies believe it would be
difficult for utility-scale projects to meet the definition and place-
based criteria described below; in particular, the agencies believe it
would be difficult for banks to clearly demonstrate such projects
benefit or serve specific groups of residents in targeted census
tracts. The agencies further believe it would be difficult for utility-
scale projects to meet the majority standard described in Sec.
__.13(a).
The agencies also considered comments suggesting partial
consideration be available for those utility-scale activities
benefiting low- or moderate-income individuals or communities, but are
not revising the rule in that regard. The agencies believe that partial
consideration could allow for qualification of activities that are not
primarily focused on benefiting or serving residents of targeted census
tracts, and could allow for activities with only accessory benefits to
targeted census tracts.
Section __.13(i)(1) Through (3) Placed-Based Criteria
The Agencies' Proposal
The proposal defined disaster preparedness and climate resiliency
activities as those conducted in targeted census tracts and that:
benefit or serve residents, including low- or moderate-income
residents, in one or more of the targeted census tracts (proposed Sec.
__.13(i)(1)); do not displace or exclude low- or moderate-income
residents in the targeted census tracts (proposed Sec. __.13(i)(2));
and are conducted in conjunction with a Federal, State, local, or
tribal government plan, program, or initiative focused on disaster
preparedness or climate resiliency that includes an explicit focus on
benefiting a geographic area that includes the targeted census tracts
(proposed Sec. __.13(i)(3)).
Comments Received
Comments regarding the common place-based criteria are generally
discussed in the introduction to this section-by-section analysis. The
agencies additionally sought comment on questions specific to this
category, as noted below.
Criteria to ensure targeted benefits. The agencies sought feedback
on other options for determining whether disaster preparedness and
climate resiliency activities are appropriately targeted; how
qualifying activities should be tailored to directly benefit low- or
moderate-income communities and distressed or underserved
nonmetropolitan middle-income areas; and whether other criteria are
needed to ensure those activities benefit low- or moderate-income
individuals and communities. Additionally, the agencies sought feedback
on whether energy efficiency standards should be used to determine if
an activity provides sufficient benefit to targeted census tracts,
including low- and moderate-income residents. Several commenters
concurred that the proposal would appropriately require activities to
be targeted to ensure benefits to low- and moderate-income individuals
and communities. Some commenters further recommended that qualifying
activities be evaluated to ensure that they provide clear, direct,
targeted, meaningful, and/or proven benefit to low- and moderate-income
and historically disinvested individuals or communities. Other
commenters expressed concern that the proposal was not sufficiently
targeted, and urged the rule be revised to state that activities must
directly benefit low- and moderate-income communities, Native
communities, and minority communities to be eligible for CRA
consideration, to prevent funding from going to higher-income areas.
Some commenters offered specific views on whether additional
tailoring is needed for eligible activities that benefit or serve low-
and moderate-income individuals. A commenter encouraged the agencies to
consider socially and environmentally beneficial activities even if the
transaction does not directly involve a low- and moderate-income party,
such as investments in broad environmental initiatives, green
technology, and State programs to combat climate change. The commenter
asserted that this would allow for financial institutions to more
holistically serve low- and moderate-income communities. Another
commenter noted that, as disasters do not target low- and moderate-
income communities and impact all income levels, further tailoring is
unnecessary. In contrast, a commenter stated that activities that are
generically responsive to climate change such as wind farms or carbon
capture efforts should not be eligible for CRA consideration as they
lack the targeted benefit.
Commenters also suggested various criteria for the agencies to
consider including in the final rule to ensure disaster preparedness
and climate resiliency activities benefit low- or moderate-income
individuals and communities. Examples of criteria suggested included,
among others, considering the mission or focus of the organization
owning or controlling the project and whether they have a focus on
serving residents of low- and moderate-income communities; whether a
project leads to expected energy reduction for low- and moderate-income
individuals and communities; or whether a project expands low- and
moderate-income household access to
[[Page 6695]]
renewable energy. Other commenters suggested eligibility criteria, such
as requiring renewable energy projects to have a certain percentage of
low- and moderate-income subscribers, or prorating CRA credit for
activities based on the portion of funds dedicated to low- and
moderate-income individuals and communities.
Additional prong for activities benefiting low- and moderate-income
individuals regardless of geographic location. The agencies also sought
comment on whether to include a separate prong of the disaster
preparedness and climate resiliency category for activities that
benefit low- and moderate-income individuals, regardless of whether
they reside in one of the targeted census tracts; and if so, what types
of activities should be included in this component. In response,
commenters generally supported including a prong to qualify activities
that benefit low- and moderate-income individuals, regardless of where
they live, if there is a clear benefit to low- and moderate-income
individuals or communities or minority communities. Various commenters
noted that not all low- and moderate-income individuals live in low-
and moderate-income areas and so may be subject to increased
displacement risk or physical and financial impacts. Another commenter
observed that poverty is not concentrated in rural regions in the same
way as in metropolitan areas. In contrast, a commenter suggested that
fewer and more inclusive prongs would avoid confusion.
Examples of activities that might fit under such a prong submitted
by commenters included, among others: activities that promote energy
efficiency activities for low- or moderate-income individuals,
regardless of where they live, and activities that facilitate
improvements and recovery assistance for homes owned or rented by low-
and moderate-income households.
Consideration of activities in designated disaster areas. The
agencies also requested feedback on whether to qualify activities
related to disaster preparedness and climate resiliency in designated
disaster areas, and if so, whether additional criteria are needed to
ensure benefits accrue to communities with fewest resources to address
the impacts of future disasters and climate-related risks. Most
commenters addressing this question opposed including designated
disaster areas as targeted geographic areas for these activities. These
commenters noted that Federal disaster areas often include higher-
income census tracts that have access to greater resources to finance
activities that promote disaster preparedness and climate resiliency,
and that CRA should encourage resources to go to communities with
limited resources and greater needs. A few commenters offered support,
but only if low- and moderate-income individuals or targeted census
tracts would be the beneficiaries, with defined constraints, such as
demonstrable requirements to have low- and moderate-income census
tracts comprise a high percentage of the total geography for the
project financed. A few commenters offered support for specified
activities in designated disaster areas (such as emergency protective
measures), and one commenter suggested that credit could be pro-rated
based on the portion of low- and moderate-income census tracts that
benefit.
Final Rule
The final rule adopts the common place-based eligibility criteria,
reorganized to be in a consistent parallel order across all place-based
categories, and with the revisions described in the discussion of the
place-based criteria above in this section-by-section analysis. Under
the final rule, disaster preparedness and weather resiliency activities
benefit or serve targeted census tracts and: are undertaken in
conjunction with a plan, program, or initiative of a Federal, State,
local, or tribal government or a mission-driven nonprofit organization,
where the plan, program, or initiative includes a focus on benefiting
or serving targeted census tracts (final Sec. __.13(i)(1)); benefit or
serve residents, including low- or moderate-income individuals, of
targeted census tracts (final Sec. __.13(i)(2)); and do not directly
result in the forced or involuntary relocation of low- or moderate-
income individuals residing in targeted census tracts (final Sec.
__.13(i)(3)).
As discussed in more detail above, the final rule expands the
government plan criterion adopted in Sec. __.13(i)(1) to include
mission-driven nonprofit organizations and deletes ``explicit'' from
the requirement for the plan, program, or initiative to have a focus on
benefiting or serving targeted census tracts. In particular, the
agencies recognize that, consistent with feedback from some commenters,
the Federal, State or local governments may not have disaster
preparedness or weather resiliency plans or programs currently in place
for some targeted census tracts. Additionally, some government plans
may not be specifically focused on, or described as, disaster
preparation or weather resiliency. The agencies also note that the
Federal Government as well as more State and local governments are
developing disaster preparedness or weather resiliency-related plans,
and the agencies anticipate these plans will become more widespread
over time.
The criterion adopted in Sec. __.13(i)(2) is substantially similar
to the proposed criterion, with a revision from ``low- or moderate-
income residents'' to ``low- or moderate-income individuals.'' The
criterion adopted in Sec. __.13(i)(3) is revised to prohibit
activities that directly result in forced or involuntary relocation of
low- and moderate-income individuals residing in the targeted census
tracts. The agencies believe that the common place-based criteria,
combined with the majority standard set forth in Sec. __.13(a), will
adequately ensure that disaster preparedness and weather resiliency
activities benefit and serve the residents of targeted census tracts,
including low- and moderate-income individuals. Reasons for adopting
these final criteria, and for the revisions made, are generally
discussed above in this section-by-section analysis. Responses to
comments on specific questions asked regarding this community
development category follow below.
Criteria to ensure targeted benefits. The agencies appreciate
commenters' thoughtful responses on potential additional eligibility
criteria to ensure targeted benefits to low- or moderate-income
individuals and communities of activities under this category of
community development. The agencies have considered the suggestions and
believe the adopted standard is adequately calibrated to provide needed
flexibility for qualifying activities to support varying community
development needs across different types of communities. In addition,
the agencies are concerned that it may be burdensome to have to
demonstrate that a project meets suggested criteria and could deter
investments under this category. Therefore, the agencies are not
adopting additional eligibility criteria. The agencies believe that the
final rule is appropriately tailored to ensure a focus on low- and
moderate-income residents in targeted census tracts and will facilitate
banks' ability to find opportunities to serve targeted communities.
The agencies are also not adopting the suggestion to condition
consideration of energy efficiency activities under the rule on
specific benefits to low- or moderate-income individuals or
communities, or specific energy
[[Page 6696]]
efficiency standards. The agencies have considered that such standards
are continuously evolving and believe it would be impracticable to
incorporate and enforce such standards in the final rule over time. In
addition, the agencies have considered that, given the many different
types of activities that could qualify, setting energy efficiency
standards could result in standards that are not calibrated to the full
breadth of qualifying activities. However, banks may find information
showing that activities meet energy efficiency standards to be helpful
in demonstrating that a particular activity meets the relevant criteria
in Sec. __.13(i).
Additional prong for targeted activities, regardless of geographic
location. Similarly, the agencies are declining to expand the proposed
rule to adopt an additional prong for activities directed to low- or
moderate-income individuals, regardless of geographic location.
Although the agencies recognize that not all low- and moderate-income
individuals live in targeted census tracts, as discussed above, the
agencies believe that this category should remain place-based and thus
focused on activities that benefit or serve targeted census tracts.
Adopting an additional basis for qualifying activities in this category
would also reduce consistency across the place-based categories and in
that regard could increase the final rule's complexity.
Consideration of activities in designated disaster areas. The
agencies are also declining to expand the criterion in final Sec.
__.13(i)(2) to include activities in designated disaster areas. In
response to commenter concerns and upon further consideration, the
agencies believe that the rule as finalized, combined with the majority
standard in Sec. __.13(a), will appropriately help ensure a focus on
low- or moderate-income residents and targeted census tracts. The
agencies also note that, to the extent a designated disaster area
already encompasses one or more targeted census tracts, that area would
already be eligible under final Sec. __.13(i)(2). The agencies are
concerned that expanding this category beyond targeted census tracts to
include designated disaster areas would detract from ensuring that
these activities continue to have a benefit for all residents,
including low- and moderate-income residents, since designated disaster
areas often include higher-income census tracts. The agencies also
believe that many activities with long-term benefits for designated
disaster areas could qualify under the separate category of community
development focused on recovery for designated disaster areas.\492\ The
agencies believe the rule as finalized, combined with the majority
standard set forth in Sec. __.13(a), sufficiently and appropriately
ensures a focus on low- or moderate-income residents.
---------------------------------------------------------------------------
\492\ See final Sec. __.13(h), discussed further in the
accompanying section-by-section analysis.
---------------------------------------------------------------------------
Additional comments. Beyond the specific elements of proposed Sec.
__.13(i), commenters also offered a variety of other suggestions
related to the proposed disaster preparedness and climate resiliency
category of community development. For example, a few commenters
suggested the final rule should indicate the kinds of public data and
tools available for banks to identify and/or quantify climate
vulnerable communities and risks, to assess whether proposed
investments align with known demographic and environmental conditions,
and to prioritize investments to maximize benefits to targeted
communities. For example, some commenters suggested leveraging the U.S.
EPA's Environmental Justice Screening and Mapping Tool (EJScreen) and
White House Council on Environmental Quality's Climate and Economic
Justice Screening Tool (CEJST). While the agencies appreciate these
suggestions, the agencies are aware that public data and tools are
continuously evolving, and therefore are declining to adopt or
reference specific tools in the final rule. As the agencies note in the
section-by-section analysis of Sec. __.21, the agencies intend to make
tools and information available to banks and the public on performance
context related information and will take these comments into
consideration as the agencies implement the final rule.
Commenters also addressed topics such as how the climate impacts of
a bank's activities should be factored into a bank's CRA performance
evaluation. For example, some commenters stated that banks should be
scrutinized and/or downgraded for financing activities that increase
greenhouse gas emissions, asserting that such activities
disproportionately impact low- and moderate-income communities or
minority communities, while at least one commenter expressed concern
about such an approach. A few commenters suggested that the agencies
should avoid awarding CRA credit to programs or products that may take
advantage of or otherwise be unaffordable to low- and moderate-income
or other underserved homeowners or consumers. In this regard, the
agencies note that under the final rule, as currently, evidence of
illegal credit practices can be the basis of a rating downgrade.\493\
For more information on the final rule's approach to rating downgrades,
see the section-by-section analysis of Sec. __.28.
---------------------------------------------------------------------------
\493\ See current Sec. __.28(c), proposed Sec. __.28(d), and
final Sec. __.28(d).
---------------------------------------------------------------------------
Several commenters suggested that the final rule encourage banks to
provide financial services for climate resiliency activities in low-
income, indigenous, and minority communities. Specifically, one
commenter suggested that the agencies develop a race and ethnicity
disclosure framework for community development activities, similar to
the proposed disclosure of race and ethnicity data for mortgage lending
under the Retail Lending Test. Another commenter asserted that race
should be explicitly used as a metric to ensure that climate vulnerable
communities receive improved access to credit and services. For more
information and discussion regarding the agencies' consideration of
comments recommending adoption of additional race- and ethnicity-
related provisions in this final rule, see section III.C of this
SUPPLEMENTARY INFORMATION.
A few commenters suggested that an impact factor for climate
resiliency-related activities could be developed, to recognize, among
others, activities such as energy efficiency improvements that also
benefit affordable housing and essential community facilities (if not
explicitly eligible under those categories); decarbonization features
of otherwise qualified activities; or activities undertaken in line
with community-based plans or in collaboration with public agencies.
For example, a commenter suggested that the final rule offer additional
CRA credit specifically for making investments in CDFIs or other
institutions that directly invest in rural-based resilience and
adaptation programs or projects. The commenter observed that rural
communities, particularly rural coastal regions, face a greater threat
from climate change than more-urbanized areas because they often lack
the resources, infrastructure and adaptive capacity of city centers.
While the final rule does not adopt a specific impact factor for
these types of activities, as suggested above, the agencies note that
certain activities associated with commenter-recommended impact factors
could potentially already be counted under one of the twelve impact and
responsiveness factors adopted in final Sec. __.15(b). These could
include, for example, factors for community
[[Page 6697]]
development loans, investments, and services in specific geographic
areas with significant community development needs (Sec. __.15(b)(1)
through (3)), that support an MDI, WDI, LICU, or CDFI (Sec.
__.15(b)(4)), or that serve low-income individuals or families (Sec.
__.15(b)(5)). Impact and responsiveness factors are discussed in more
detail in the section-by-section analysis of Sec. __.15.
Section __.13(j) Revitalization or Stabilization, Essential Community
Facilities, Essential Community Infrastructure, and Disaster
Preparedness and Weather Resiliency in Native Land Areas
Current Approach
The current CRA regulations do not include a specific category of
community development for activities in Native or tribal lands,
although current guidance encompasses ``revitalization and
stabilization'' activities consistent with a tribal government plan if
the activities are located in low- or moderate-income census
tracts.\494\ The OCC 2020 CRA Final Rule adopted definitions of both
``Indian country'' and ``other tribal and Native lands,'' and
designated certain activities as qualifying for consideration in these
geographic areas.\495\
---------------------------------------------------------------------------
\494\ See 12 CFR __.12(g)(4) and Q&A Sec. __.12(g)(4)(i)-1
(regarding activities in low- or moderate-income census tracts
designated ``as consistent with a Federal, state, local, or tribal
government plan for the revitalization or stabilization of the low-
or moderate-income [census tract]''). See also Q&A Sec.
__.12(g)(4)(ii)-2 (regarding activities in designated disaster areas
``consistent with a bona fide government revitalization or
stabilization plan'') and Q&A Sec. __.12(g)(4)(iii)-3 (regarding
activities in distressed nonmetropolitan middle-income census tracts
``consistent with a bona fide government revitalization or
stabilization plan'').
\495\ See, e.g., 85 FR 34734, 34771, 34794-34796 (June 5, 2020).
---------------------------------------------------------------------------
Discussed in greater detail below, to help address challenges
specific to Native lands, the agencies proposed in Sec. __.13(l), a
new category of qualifying community development activities related to
revitalization, essential community facilities, essential community
infrastructure, and disaster preparedness and climate resiliency that
are specifically targeted to and conducted in Native Land Areas (as
defined in Sec. __.12, discussed in the corresponding section-by-
section analysis above). The final rule renumbers proposed Sec.
__.13(l) as Sec. __.13(j), revises and reorganizes the section for
clarity, and makes other modifications described below.
The Agencies' Proposal
Under proposed Sec. __.13(l), activities in Native Land Areas
related to the following would comprise a distinct category of
community development: revitalization, essential community facilities;
\496\ essential community infrastructure; and disaster preparedness and
climate resiliency.\497\ Consistent with other proposed place-based
categories of community development, the agencies proposed that
essential community facilities, essential community infrastructure, and
disaster preparedness and climate resiliency activities in Native Land
Areas must: benefit or serve residents of Native Land Areas, including
low- or moderate-income residents of Native Land Areas; \498\ not
displace or exclude low- or moderate-income residents of Native Land
Areas; \499\ and be conducted in conjunction with a Federal, State,
local, or tribal government plan, program, or initiative that benefits
or serves residents of Native Land Areas.\500\
---------------------------------------------------------------------------
\496\ The proposal's regulatory text used the term ``eligible''
community infrastructure, which was a typographical error. The final
rule corrects the language to ``essential community
infrastructure.''
\497\ Under the proposal, other community development activities
(i.e., affordable housing or economic development) could still
qualify for consideration if those activities took place in Native
Land Areas, provided that they otherwise meet the eligibility
standards for that particular activity under another paragraph of
Sec. __.13.
\498\ See proposed Sec. __.13(l)(2)(i) and (l)(3)(i).
\499\ See proposed Sec. __.13(l)(2)(i) and (l)(3)(i).
\500\ See proposed Sec. __.13(l)(2)(ii) and (l)(3)(ii).
---------------------------------------------------------------------------
Separately, the agencies proposed that revitalization activities in
Native Land Areas have a more specific focus on low- and moderate-
income individuals. Specifically, the agencies proposed that
revitalization activities must benefit or serve residents of Native
Land Areas, with substantial benefits for low- or moderate-income
residents; \501\ and must not displace or exclude low- or moderate-
income residents.\502\ Revitalization activities in Native Land Areas
also would need to be undertaken in conjunction with a Federal, State,
local, or tribal government plan, program, or initiative with ``an
explicit focus on revitalizing or stabilizing Native Land Areas and a
particular focus on low- or moderate-income households.'' \503\
---------------------------------------------------------------------------
\501\ See proposed Sec. __.13(l)(1)(i)(A).
\502\ See proposed Sec. __.13(l)(1)(i)(B).
\503\ Proposed Sec. __.13(1)(1)(i).
---------------------------------------------------------------------------
Comments Received
Commenters offered views on establishing a category of community
development for activities in Native Land Areas, as well as feedback on
the types of activities that would qualify for CRA consideration under
the Native Land Areas category of community development and additional
ways to facilitate activities in Native Land Areas. Comments on the
proposed definition of Native Land Areas are discussed in the section-
by-section analysis of that definition in Sec. __.12.
General comments. Overall, commenters generally expressed wide
support for including a new community development category for
activities in Native Land Areas, with some indicating that the proposal
would facilitate addressing unmet credit needs in geographical areas
that have traditionally lacked access to CRA loans and investments, as
well as bank branches in those areas. Comments included that the CRA
should ensure capital is deployed to Native Land Areas, given
persistent lending gaps in these areas; that the proposal could be an
important step toward addressing housing needs and persistent poverty
in these communities; and that a strengthened and targeted provision
would incentivize banks to do more to promote prosperity in rural and
Native communities throughout the country.
Additional eligibility requirements. Commenters expressed a range
of views in response to the agencies' request for feedback on whether
the agencies should consider additional eligibility requirements for
activities in Native Land Areas to ensure that community development
activities benefit or serves low- or moderate-income residents of
Native Land Areas. A few commenters expressed general support for
additional criteria to ensure that community development benefits
accrue to low- and moderate-income residents of Native Land Areas. One
such commenter, however, also wanted to ensure that CRA requirements do
not place more burden on Native persons than others. Another commenter
expressed support for focusing activities on low- and moderate-income
residents, but asserted that low- and moderate-income resident benefit
should not be a requirement for qualification.
A number of commenters more specifically objected to including
income limits on beneficiaries for activities to receive CRA
consideration in Native Land Areas. Reasons offered included, among
others, that: (1) AMI in these areas is often very low and credit
challenges are not limited to those with below 80 percent AMI; (2)
middle-income Native communities often experience gaps in services and
funding opportunities; (3) income limits could deter investments; and
(4) revitalization across the income spectrum can have
[[Page 6698]]
far-reaching positive community impacts across Native communities.
Additional commenter feedback included: urging the agencies to make
eligibility requirements as inclusive as possible, with various
commenters noting the Federal Government's trust and treaty obligations
or the historic underinvestment in tribal communities; stating that
consideration of activities should focus on how an investment benefits
the tribal community, and expressing concern that additional
requirements would add to the complexity of determining whether a
project would qualify prior to a CRA examination; and emphasizing that
investments in businesses owned by higher-income Native individuals
with a broader impact on tribal community and economic development can
help avoid an unintended consequence of maintaining islands of poverty
without amenities.
Finally, on the topic of requirements for qualifying activities on
Native Land Areas more generally, a commenter asserted that tribal
organizations are best positioned to determine community development
needs of their communities and advocated that the agencies incorporate
into the CRA framework the ability for tribal nations to determine what
constitutes a qualifying community development activity in tribal
communities. This commenter also recommended that the rule focus on
loans to individuals as well as investments in tribal nations, as
individual tribal citizens residing on tribal lands have difficulty
obtaining lines of credit, loans, and other financial services.
Tribal association or tribal designee plans, programs, or
initiatives. As discussed in the proposal, tribal government designees
such as tribal housing authorities, tribal associations and intertribal
consortiums are central to economic development and community planning
efforts in many Native Land Areas. Accordingly, the agencies sought
feedback on whether to expand the government plan eligibility criteria
to activities in Native Land Areas undertaken in conjunction with
tribal association or tribal designee plans, programs, or initiatives.
Most commenters on this topic expressed support for broadening
qualification to include an option for activities in conjunction with
tribal associations or designees. For example, a commenter stated that
tribal associations and tribal designees offer and manage many services
and programs on tribal lands and for tribal members. Another commenter
noted the lack of capacity of tribal governments and indicated that
full consent to these proposed activities may therefore be
unreasonable; this commenter suggested that broader investment
opportunities would be possible if they did not have to be undertaken
in conjunction with an explicitly established tribal government
initiative.
Commenters also offered views on how the rule could define what
tribal associations or designees would be included in an expanded
government plan eligibility criterion. Some suggested requiring that a
tribal designee be led by or work closely with tribal members, or
requiring that tribal association and designee plans be majority
Native-led and endorsed by the tribal government or at least not
actively opposed by a tribal government. A few commenters asserted that
consortia should be included, while other commenters suggested that
tribal charters, other Native-led organizations, Native CDFIs and TDHEs
could fall within this category, with a commenter noting that tribes
rely on federally funded TDHEs to drive housing development. One
commenter suggested that regulators should be prepared to allow banks
to invest in the activities of Native organizations even though the
organizations may have an unfamiliar legal structure.
Other recommendations for Native Land Area activities. Commenters
also requested various clarifications or additions to the proposed
rule. Suggestions included ensuring consideration for (1) activities
that impactfully improve access to Native business loans, mortgage
loans, and disaster loans; (2) investments in Native CDFIs to help make
more micro loans and provide financing for larger, more complex
development projects; and (3) high impact activities in Native Land
Areas, such as bond and debt issuances for tribal government entities.
Other recommendations included emphasizing climate resiliency or
renewable energy with regard to activities in Native communities, as
well as broadband and digital equity access for Native Americans.
A few commenters suggested that the agencies provide express
presumptions of eligibility for activities such as those carried out by
or in conjunction with a tribal government or its agencies, tribal
associations or designee plans, or where the primary beneficiaries are
members of a federally or State-recognized Indian tribe. Several
commenters, including tribal commenters, further asserted that the
agencies should consult with tribes to exchange information, build
relationships, and receive guidance and recommendations on reforming
and implementing the CRA framework. Other commenters addressed tribal
consultations with respect to activities that potentially would qualify
under proposed Sec. __.13(l). Comments included, for example, a
suggestion that the agencies explicitly state that meaningful
consultation should always be undertaken with the goal of obtaining
tribal informed consent when a project would have an impact on tribal
lands or resources, either on or off the reservation.
Final Rule
General Rule (Sec. __.13(j)(1))
The agencies are adopting proposed Sec. __.13(l), renumbered as
Sec. __.13(j), with revisions as follows. The final rule is
reorganized for clarity and consistency with the structures of other
place-based categories. Final Sec. __.13(j)(1) sets forth the types of
activities included in this category of community development:
generally consistent with the proposal, this provision states that
revitalization or stabilization (termed ``revitalization'' in the
proposal), essential community facilities, essential community
infrastructure, and disaster preparedness and weather resiliency
activities in Native Land areas are activities specifically targeted to
and conducted in Native Land Areas. The final rule also adopts a
conforming change from ``climate resiliency'' to ``weather resiliency''
for consistency with final Sec. __.13(i).These activities must also
meet specific place-based eligibility criteria in Sec. __.13(j)(2) or
(3), as applicable: final Sec. __.13(j)(2) describes place-based
eligibility criteria for revitalization or stabilization activities in
Native Land Areas, while final Sec. __.13(j)(3) collectively describes
place-based eligibility criteria for essential community facilities,
essential community infrastructure, and disaster preparedness and
weather resiliency in Native Land Areas. These place-based eligibility
criteria are discussed in more detail below.
The final rule also makes other technical edits. Section
__.13(j)(1) and (2) now reference ``revitalization or stabilization,''
instead of ``revitalization'' as proposed, for consistency with
revisions to Sec. __.13(e). Further, for clarity and to simplify the
regulatory text, Sec. __.13(j)(3) now cross-references the definitions
of essential community facilities, essential community infrastructure,
and disaster preparedness and weather resiliency found in final Sec.
__.13(f), (g), and (i), respectively.
[[Page 6699]]
The agencies believe that adopting a community development category
for specified activities in Native Land Areas will further the purpose
of the CRA to encourage banks to meet the credit needs of their entire
communities, including those of low- and moderate-income communities.
Available data indicate that Native and tribal communities face
significant and unique community development challenges. For example,
the poverty rate among Native individuals on reservations is 35
percent, and exceeds 50 percent in some communities.\504\ Banking and
credit access remains a chronic barrier for tribal economic inclusion.
Seven percent of American Indian or Alaska Native households were
unbanked in 2021, much higher than the 2.1 percent among White, non-
Hispanic households.\505\ Majority-Native American counties have an
average of two bank branches compared to the nine-branch average in
nonmetropolitan counties and well below the 27-branch overall average
for all counties.\506\ In addition, basic infrastructure in tribal
areas significantly lags behind that of the rest of the country, with
over one-third of Native households in tribal areas affected by major
physical problems with their housing, including deficiencies with
plumbing, heating, or electric--a share nearly five times greater than
for the United States population as a whole.\507\ In addition, rates of
broadband and cellular access are low in many tribal lands, with 21
percent of all tribal lands and 35 percent of rural tribal lands
lacking broadband and cellular access.\508\ Given these challenges, and
as noted in more detail in the place-based criteria discussion, the
agencies believe it is particularly important that community
development consideration under this category be directly linked to
Native Land Areas. For this reason, the agencies are finalizing in
Sec. __.13(j)(1) the proposed requirement that all qualifying
activities under Sec. __.13(j) be ``targeted to and conducted in''
Native Land Areas, even where the cross-referenced community
development category (e.g., essential community facilities in Sec.
__.13(f)) does not itself have a ``targeted to and conducted in''
requirement.
---------------------------------------------------------------------------
\504\ The Federal Reserve Bank of Minneapolis' Center for Indian
Country Development (CICD) calculated poverty rates for the American
Indian and Alaska Native population living on federally recognized
reservations and off-reservation trust lands using the U.S. Census
Bureau's American Community Survey 5-Year 2017-2021 data. Twenty-
five of these land units had American Indian and Alaska Native
poverty rates above 50 percent. Under the more expansive U.S. Census
Bureau definition of Native lands, this number grows to 56 land
units.
\505\ FDIC, ``National Survey of Unbanked and Underbanked
Households,'' Table 3.1 (2021), https://www.fdic.gov/analysis/household-survey/2021report.pdf.
\506\ Information calculated using FDIC's Summary of Deposits
(2020).
\507\ HUD, ``Housing Needs of American Indians and Alaska
Natives in Tribal Areas: A Report from the Assessment of American
Indian, Alaska Native, and Native Hawaiian Housing Needs'' (2017),
https://www.huduser.gov/portal/publications/HNAIHousingNeeds.html.
This study is based on a survey of 38 ``tribal areas'' that are
considered Native Land Areas under the final rule.
\508\ Federal Communications Commission, ``Fourteenth Broadband
Deployment Report'' 28 (2021), https://docs.fcc.gov/public/attachments/FCC-21-18A1.pdf. As calculated by the Federal Reserve
Bank of Minneapolis' CICD using U.S. Census Bureau American
Community Survey 5-Year 2017-2021 data, nearly 1 in 5 households
(17%) in Native geographic areas do not have access to the internet,
compared to 1 in 10 households (10%) nationally. See also, e.g.,
Matthew T. Gregg, Anahid Bauer, and Donn. L. Feir, ``The Tribal
Digital Divide: Extent and Explanations'' (revised June 2022),
https://www.minneapolisfed.org/-/media/assets/papers/cicdwp/2021/cicd-wp-2021-03.pdf (providing more detail on internet access
challenges in Native geographic areas).
---------------------------------------------------------------------------
Based on comments received and upon further consideration, the
agencies are not adopting additional eligibility requirements for
activities in Native Land Areas to ensure that community development
activities benefit or serve low- or moderate-income individuals
residing in those areas, beyond those proposed and finalized. As
discussed above, tribal communities in Native Land Areas face
particular challenges related to access to credit. The agencies are
concerned that additional income limitations or requirements could
deter investments under this category. The agencies further believe
that the rule as finalized is sufficiently tailored to ensure a focus
on low- and moderate-income residents in Native Land Areas, and will
accordingly encourage banks to find opportunities to serve low- and
moderate-income communities in areas that can be more difficult to
serve.
The agencies are also not expanding the regulation to address
commenter suggestions that tribal organizations determine what
constitutes qualifying community development activities in Native Land
Areas. The final rule is intended in part to ensure that stakeholders
have a clear upfront understanding of what constitutes a qualifying
activity, in order to encourage investment and greater certainty for
banks and those they serve in undertaking community development.
However, the final rule incorporates as an eligibility criterion that
activities must be undertaken in conjunction with plans, programs, or
initiatives of governments (including tribal governments) or mission-
driven nonprofit organizations, as discussed further below, and in the
section-by-section analysis of the common criteria for placed-based
activities, above. In this way, the final rule better incorporates
recognition of the importance of tribal government and tribal nonprofit
organizations in identifying, understanding, and addressing the needs
of their communities, relative to the proposal.
The agencies have also considered comments recommending additions
or clarifications to the rule, such as to provide additional emphasis
on various specific impactful activities or to provide presumptions of
eligibility as described above. The agencies have decided not to adopt
these recommendations specifically, but note that activities meeting
the eligibility criteria in the full range of community development
categories adopted in final Sec. __.13, and that meet the majority
standard in Sec. __.13(a), would qualify for community development
consideration. For the reasons explained in this section-by-section
analysis, the agencies believe that the common place-based criteria are
all important to ensuring that the place-based categories provide the
intended community benefit, and thus are not adopting presumptions of
eligibility in final Sec. __.13(j) for select activities on Native
Land Areas that might not satisfy those criteria. The agencies also
emphasize that the final rule adopts twelve impact and responsiveness
factors under Sec. __.15 that highlight key areas of concern raised by
stakeholders, including an impact and responsiveness factor expressly
focused on activities that benefit or serve residents of Native Land
Areas (final Sec. __.15(b)(8), discussed in the accompanying section-
by-section analysis below).
Regarding comments seeking consultation with tribal stakeholders,
the agencies engaged in significant outreach prior to issuing the NPR
and received feedback from many stakeholders that informed the proposal
and final rule, including from those that would be affected by the
inclusion of activities in Native Land Areas. Moreover, ongoing
engagement with the wide range of stakeholders, including tribes,
related to community reinvestment and community development is a
central element of agency practice and will continue to be over the
course of CRA implementation. Further, the agencies continue to believe
that limiting qualification under Sec. __.13(j) to only those
activities where tribal governments had been consulted could be overly
restrictive and impractical to implement, and
[[Page 6700]]
could diminish the scope of the activities that would qualify as
community development, due to the time and resource constraints of
tribal governments. However, as discussed in more detail below, the
final rule recognizes the importance of tribal governments and other
tribal organizations; in particular, and as discussed below, the
agencies are adopting the proposal to require that activities in Native
Land Areas must be conducted in conjunction with a government plans,
programs, and initiatives, including a tribal government plan, program,
or initiative, as well as by expanding the ways that this requirement
can be met by allowing for activities undertaken in conjunction with a
mission-based nonprofit organization.\509\
---------------------------------------------------------------------------
\509\ See final Sec. __.13(j)(2)(i) and (j)(3)(i).
---------------------------------------------------------------------------
Definitions and place-based criteria (Sec. __.13(j)(2)
(revitalization or stabilization activities) and (3) (essential
community facilities, essential community infrastructure, and disaster
preparedness and weather resiliency)). The final rule adopts place-
based eligibility criteria for the community development category
focused on activities in Native Land Areas in Sec. __.13(j)(2)
(revitalization or stabilization activities) and (3) (essential
community facilities, essential community infrastructure, and disaster
preparedness and weather resiliency). These sections are reorganized
from the proposal to be in a consistent parallel order with other
place-based categories, with certain features specific to the Native
Land Areas category that are substantially similar to those in the
proposal.
Government plan, program, or initiative (Sec. __.13(j)(2)(i) and
(j)(3)(i)). Consistent with other place-based community development
categories, the final rule adopts a criterion in each of Sec.
__.13(j)(2)(i) and (j)(3)(i) requiring an activity to be undertaken
``in conjunction with a plan, program, or initiative of a Federal,
State, local, or tribal government or a mission-driven nonprofit
organization.'' For clarity, and as described in the section-by-section
analysis for Sec. __.12, the final rule adopts a definition of
``tribal government.'' The agencies believe that including a government
plan criterion in each of Sec. __.13(j)(2)(i) and (j)(3)(i) will help
ensure that community development activities under Sec. __.13(j)
remain responsive to identified community needs, and that the addition
of allowing activities with mission-driven nonprofit organizations will
appropriately allow for and recognize the value and importance of
targeted non-government-related activities that can serve communities
in Native Land Areas.
Final Sec. __.13(j)(2)(i) adopts the proposed requirement that the
relevant plan, program, or initiative include an ``explicit focus'' on
revitalizing or stabilizing Native Land Areas, while final Sec.
__.13(j)(3)(i) is revised to include the requirement that the relevant
plan, program, or initiative include an ``explicit focus'' on
benefiting or serving Native Land Areas. While other final place-based
categories are adopted without an ``explicit focus'' requirement (as
described elsewhere in the section-by-section analysis of Sec. __.13),
the agencies believe this standard is important for this category of
community development, to establish that plans, programs, or
initiatives have an intentional link to Native Land Areas, which as
discussed above are particularly underserved geographic areas. Thus,
for example, this category would qualify a flood mitigation project
that is specifically designed to benefit residents of a Native Land
Area (presuming all other criteria are met).
Regarding revitalization or stabilization activities, final Sec.
__.13(j)(2)(i) further requires that the plan, program, or initiative
include ``a particular focus on low- or moderate-income households.''
As discussed in the proposal, the agencies are adopting a more targeted
criterion for revitalization or stabilization activities, because
Native Land Areas include some middle- and upper-income census tracts
that are not designated as distressed or underserved nonmetropolitan
middle-income census tracts. This criterion allows consideration for
activities conducted in geographic areas that include middle- and
upper-income census tracts, but retains the focus on low- and moderate-
income households. Based on supervisory experience, the agencies
believe that the types of projects that could qualify as revitalization
and stabilization activities are more feasibly and likely to be
developed to target specific income levels than other categories of
place-based activities covered in final Sec. __.13(j) (i.e., community
facilities, infrastructure, and disaster preparedness and weather
resiliency activities), which are more likely to be utilized by the
community as a whole. Therefore, the agencies believe that it is
appropriate to establish an express nexus between these activities and
benefits to low- and moderate-income households in Native Land Areas,
to better ensure direct benefits to low- and moderate-income components
of the community.
As discussed above, the final rule expands the government plan
criterion in each of Sec. __.13(j)(2)(i) and (j)(3)(i) from the
proposal to include plans, programs, or initiatives of mission-driven
nonprofit organizations. Regarding the Native Land Area category of
community development in particular, the agencies believe that this
expanded government plan criterion will generally capture plans,
programs, and initiatives of qualifying Native CFDIs, Native Hawaiian
organizations, TDHEs, Indian Health Centers, consortia, and other key
Native designees focused on low- and moderate-income individuals and
communities. For this reason, the agencies do not believe that
expanding this criterion to include tribal associations or designees
specifically is necessary. Further, based on the agencies' research and
commenter views on the proposal, the agencies are concerned that
defining qualifying tribal associations or designees appropriately for
the rule would be difficult. Rather, the agencies believe that defining
and adding to this criterion mission-driven nonprofit organizations
will remove potential ambiguity regarding which organizations would be
eligible tribal associations or designees under this criterion,
increasing clarity and transparency for stakeholders.
Benefit or serve residents, including low- or moderate-income
individuals (Sec. __.13(j)(2)(ii) and (j)(3)(ii)). Final Sec.
__.13(j)(2)(ii) and (j)(3)(ii) each contain the place-based criterion
generally requiring benefits to residents in Native Land Areas. For the
same reasons discussed above with respect to the government plan
criterion, the agencies are adopting a more targeted criterion for
revitalization or stabilization activities. Specifically, under Sec.
__.13(j)(2)(ii), revitalization or stabilization activities ``must
benefit or serve residents of Native Land Areas and must include
substantial benefits for low- or moderate-income residents.'' For
example, a bank's purchase of a bond to fund a distribution center in a
Native Land Area, where a substantial number of employment
opportunities are expected to be filled by low- or moderate-income
residents of the Native Land Area, may qualify for consideration if the
activity met other required criteria.
Under final Sec. __.13(j)(3)(ii), essential community facilities,
essential community infrastructure, and disaster preparedness and
weather resiliency activities in Native Land Areas must benefit or
serve residents, including
[[Page 6701]]
low- or moderate-income individuals, in Native Land Areas. The reasons
for adopting this criterion and general revisions from the proposal are
discussed above in this section-by-section analysis regarding the
common place-based criteria.
Forced or involuntary relocation (Sec. __.13(j)(2)(iii) and
(j)(3)(iii)). Final Sec. __.13(j)(2)(iii) and (j)(3)(iii) require that
revitalization or stabilization activities and essential community
facilities, essential community infrastructure, and disaster
preparedness and weather resiliency activities in Native Land Areas,
respectively, do not directly result in the forced or involuntary
relocation of low- or moderate-income individuals residing in Native
Land Areas. The reasons for adopting this criterion and general
revisions from the proposal are discussed above in this section-by-
section analysis regarding the common place-based criteria.
Section __.13(k) Activities With MDIs, WDIs, LICUs, or CDFIs
Current Approach
Under the CRA statute and current regulations, nonminority- and
nonwomen-owned banks can receive CRA credit for ``capital investment,
loan participation, and other ventures'' undertaken in cooperation with
MDIs, WDIs, and LICUs, provided that these activities help meet the
credit needs of local communities in which the MDIs, WDIs, and LICUs
are chartered.\510\ These activities need not also benefit the bank's
assessment areas or the broader statewide or regional area that
includes the bank's assessment areas.\511\ While CDFIs are not
separately highlighted in the statute or regulations, activities with
CDFIs can qualify as community development under various provisions of
the current regulations pursuant to current guidance.\512\
---------------------------------------------------------------------------
\510\ See 12 U.S.C. 2903(b), implemented at 12 CFR __.21(f).
\511\ See 12 CFR __.21(f); see also Q&A Sec. __.21(f)-1.
\512\ See, e.g., Q&A Sec. __.12(t)(4) and Sec. __.21(h)-1.
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed to establish a category of community
development for activities with MDIs, WDIs, LICUs, and U.S. Treasury
Department-certified CDFIs. Specifically, a community development
category in proposed Sec. __.13(j) included:
Investments, loan participations, and other ventures
undertaken by any bank, including by MDIs and WDIs, in cooperation with
other MDIs, other WDIs, or LICUs; \513\ and
---------------------------------------------------------------------------
\513\ Proposed Sec. __.13(j)(1).
---------------------------------------------------------------------------
Lending, investment, and service activities undertaken in
connection with a U.S. Treasury Department-certified CDFI,\514\ which
the proposed rule expressly indicated would be presumed to qualify for
favorable community development consideration.\515\
---------------------------------------------------------------------------
\514\ Proposed Sec. __.13(j)(2).
\515\ Id.
---------------------------------------------------------------------------
As discussed above in the section-by-section analysis of Sec.
__.12, the proposal defined the term MDI to ensure consistency with the
CRA statute and incorporate existing flexibility for each agency to
define MDI as it determines appropriate. In this way, the agencies
intended the proposal to ensure that activities conducted in
cooperation with banks owned by minority individuals would receive
consideration, and also provided consideration for activities conducted
in cooperation with banks that the agencies have long considered to be
MDIs.\516\ The agencies sought comment on whether the MDI definition
should include insured credit unions considered to be MDIs by the NCUA.
As also discussed in the section-by-section analysis of Sec. __.12,
the proposal defined WDI by cross-reference to the definition of the
term in the CRA.\517\
---------------------------------------------------------------------------
\516\ See OCC, ``Policy Statement on Minority Depository
Institutions'' (July 26, 2022), https://www.occ.gov/news-issuances/news-releases/2022/nr-occ-2022-92a.pdf; Board, SR 21-6/CA 21-4,
``Highlighting the Federal Reserve System's Partnership for Progress
Program for Minority Depository Institutions and Women's Depository
Institutions'' (Mar. 5, 2021), https://www.federalreserve.gov/supervisionreg/srletters/SR2106.htm; FDIC, ``Statement of Policy
Regarding Minority Depository Institutions,'' 86 FR 32728 (June 23,
2021).
\517\ 12 U.S.C. 2907(b)(2), defining the term ``women's
depository institution'' to mean a depository institution (as
defined in 12 U.S.C. 1813(c)) in which: (i) more than 50 percent of
the ownership or control is held by one or more women; (ii) more
than 50 percent of the net profit or loss of which accrues to one or
more women; and (iii) a significant percentage of senior management
positions are held by women. See also the section-by-section
analysis of final Sec. __.12 (``women's depository institution'').
---------------------------------------------------------------------------
In the proposal, the agencies noted stakeholder feedback indicating
support for a stronger emphasis on community development financing and
services that support these institutions, including equity investments,
long-term debt financing, technical assistance, and contributions to
nonprofit affiliates. Some stakeholders previously suggested the need
to increase certainty surrounding the treatment of activities in
partnership with MDIs, WDIs, LICUs, and CDFIs. For example,
stakeholders noted that examiners might require extensive documentation
that a CDFI assists low-income populations, even though CDFI
certification by the U.S. Treasury Department's Community Development
Financial Institutions Fund is an indication of having a mission of
community development.\518\ In the proposal, the agencies also noted
stakeholder support for conferring automatic CRA community development
consideration for community development activities with U.S. Treasury
Department-certified CDFIs, to provide a stronger incentive and reduce
burden.
---------------------------------------------------------------------------
\518\ See U.S. Dept. of Treasury, Community Development
Financial Institutions Fund, ``CDFI Certification,'' https://www.cdfifund.gov/programs-training/certification/cdfi.
---------------------------------------------------------------------------
The proposal clarified that investments, loan participations, and
other ventures undertaken not only by nonminority institutions, but
also by MDIs and WDIs, in cooperation with other MDIs, WDIs, and LICUs,
would qualify for consideration under this category. This would expand
on the current rule, which focuses on providing consideration for these
activities when conducted by nonminority institutions.\519\
---------------------------------------------------------------------------
\519\ See 12 CFR __.21(f) (implementing 12 U.S.C. 2903(b)).
---------------------------------------------------------------------------
The agencies also sought feedback on whether activities undertaken
by an MDI or WDI to promote its own sustainability and profitability
should qualify for consideration. The agencies considered that allowing
these activities to qualify could encourage new investments to bolster
the financial positions of these banks, allowing them to deploy
additional resources to help meet the credit needs of their
communities. The agencies further sought comment on whether additional
eligibility criteria should be considered to ensure investments by MDIs
or WDIs in themselves would ultimately benefit low- and moderate-income
and other underserved communities.
The proposal to provide a presumption of favorable CRA
consideration for lending, investment, and service activities with U.S.
Treasury Department-certified CDFIs was based on the agencies'
recognition that these CDFIs already undergo specific certification
processes and evaluations of CDFIs' ongoing outputs and outcome goals
in award-making processes to demonstrate that they have a mission of
promoting community development and providing financial products and
services to low- or moderate-income individuals and communities.\520\
---------------------------------------------------------------------------
\520\ See U.S. Dept. of Treasury, Community Development
Financial Institutions Fund, ``CDFI Certification,'' https://www.cdfifund.gov/programs-training/certification/cdfi.
---------------------------------------------------------------------------
[[Page 6702]]
Comments Received
General. The agencies received comments on proposed Sec. __.13(j)
from a wide range of commenters. Overall, most commenters addressing
proposed Sec. __.13(j) supported including this category of community
development under proposed Sec. __.13, and most commenters supported
both prongs of the proposal. Commenters noted, for example, that these
organizations' missions to serve (and record of serving) underserved or
historically disadvantaged communities, is consistent with the goals of
CRA; that the proposed category would provide clarity regarding the
treatment of bank activities with MDIs, WDIs, LICUs, and CDFIs under
the CRA; and that the proposal would encourage activities that would
reinforce and build the capacity of these entities. As discussed in
more detail below, some commenters recommended that the agencies apply
additional eligibility criteria to proposed Sec. __.13(j), while
others suggested that additional entities be included within the scope
of proposed Sec. __.13(j). As discussed in more detail below, some
commenters sought additional clarity on the types of activities
included in the rule.
Comments regarding MDIs, WDIs, and LICUs (proposed Sec.
__.13(j)(1)). Most commenters addressing proposed Sec. __.13(j)(1)
supported recognizing ``investments, loan participations, and other
ventures'' undertaken by any bank, including by MDIs and WDIs, in
cooperation with other MDIs, other WDIs, or LICUs, as community
development. Similarly, several commenters noted that these entities
are mission-driven and share a focus consistent with the purpose of
CRA. For example, a commenter stated that MDIs have proven to advance
economic mobility in Black communities, citing an FDIC study that
included findings that an estimated 6 out of 10 people living in the
service area of Black-owned banks are Black, and that MDIs originate a
greater share of mortgage loans than non-MDIs to borrowers in low- and
moderate-income census tracts and in census tracts with larger shares
of minority populations.\521\ Another commenter stated that in many
minority communities, MDIs offer safe and affordable banking services
where other institutions may not, and that most MDIs provide vital
deposit and credit access services in communities that large financial
institutions avoid.
---------------------------------------------------------------------------
\521\ FDIC, ``Minority Depository Institution: Structure,
Performance, and Social Impact'' (May 2019), https://www.fdic.gov/regulations/resources/minority/2019-mdi-study/full.pdf.
---------------------------------------------------------------------------
Commenters asserted that MDIs need increased capital investments to
serve their communities and that the agencies should incentivize bank
activities with MDIs that have a proven record of lending to minority
consumers and in low- and moderate-income and minority communities. In
this regard, a few commenters asserted that the agencies should
specifically encourage activities with MDIs and minority-led or
minority-owned CDFIs and credit unions in order to increase racial
equity in historically underserved communities.
Several commenters suggested additional eligibility criteria for
activities with MDIs and WDIs, based on concerns that MDIs and WDIs
might not always serve low- or moderate-income individuals or
communities. A few commenters suggested that CRA credit for activities
with MDIs be connected to the MDI's record of serving borrowers in
minority communities. For example, to ensure that minority communities
are served, a commenter suggested that activities with MDIs or WDIs
with assets over $1 billion be subject to additional data requirements
for transparency, as well as other guardrails. Another commenter
suggested incorporating into the CRA regulations a Federal statutory
definition of ``minority lending institution,'' requiring that a
majority of both the number and dollar volume of arm's-length, on-
balance sheet financial products be directed at minorities or majority
minority census tracts or equivalents.\522\ Another commenter asserted
that activities with CDFIs are more responsive and impactful than
deposits or investments into MDIs and WDIs, and that automatic
consideration should not be conferred for activities with MDIs or WDIs;
instead, examiners should consider what the MDI or WDI does with a
deposit or investment prior to granting CRA credit.
---------------------------------------------------------------------------
\522\ Consolidated Appropriations Act, 2021, tit. V, subtitle B,
section 523(c)(4)(A), Public Law 116-260, 134 Stat. 2088-89 (Dec.
27, 2020).
---------------------------------------------------------------------------
Commenters separately addressed the proposed definition of MDI,
including in response to the agencies' question on whether to include
in the definition minority insured credit unions recognized by the
NCUA. These comments and the agencies' response are addressed in the
section-by-section analysis for the MDI definition in Sec. __.12.
Comments regarding CDFIs (proposed Sec. __.13(j)(2)). Most
commenters addressing proposed Sec. __.13(j)(2) supported qualifying
``lending, investment, and service activities'' undertaken in
connection with a U.S. Treasury Department-certified CDFI as community
development under the rule, including the proposed presumption that
such activities qualify for favorable community development
consideration. Commenters supporting the provision noted that CDFIs are
responsible, mission-based lenders and investors. For example, a
commenter stated that CDFIs are very active in the NMTC program and
work closely with banks to produce the thoughtful and impactful
revitalization efforts. Some commenters emphasized that CDFIs can help
support small businesses, especially minority- and women-owned small
businesses, and continue to partner with banks to make credit
accessible in low- and moderate-income communities across the country.
Some commenters sought clarifications in the final rule related to
CDFIs. Several commenters recommended that the final rule clarify that
a bank's activities with CDFIs would receive equal consideration to
activities with MDIs, WDIs and LICUs, with some noting that this should
apply regardless of a CDFI's location relative to a bank's assessment
area. As noted above, one commenter suggested CDFIs are more impactful
than MDIs, WDIs, or LICUs, and, accordingly, that only activities with
CDFIs should receive automatic consideration. Some commenters also
suggested that the final rule ensure uniform treatment of all kinds of
CDFIs (e.g., loan funds, banks, and credit unions). A number of
commenters suggested that the final rule explicitly include ``CDFI
banks,'' based on concerns that the proposal was not clear that CDFI
banks were ``banks'' and that activities between CDFI banks and MDIs,
WDIs, and LICUs would be covered for CRA consideration under this
category. Other commenters raised concerns about the potential impact
of giving similar community development consideration to all CDFIs. For
example, a few commenters expressed concern that allowing CRA
consideration for bank activities in conjunction with a CDFI regardless
of where the CDFI exists could have the effect of encouraging bank
activities with only the largest CDFIs, thus redirecting capital
resources away from smaller CDFIs with a primary mission of serving
local communities. Thus, a commenter recommended that regulators should
incentivize substantial participation with local CDFIs, as a condition
precedent to an ``Outstanding'' rating.
Activities undertaken by an MDI or WDI to promote its own
sustainability and profitability; eligibility criteria.
[[Page 6703]]
Most commenters responding to the question of whether the agencies
should consider activities undertaken by an MDI or WDI to promote its
own sustainability and profitability stated that these activities
should be considered. Commenters cited the importance of keeping these
institutions in business so that they may better serve their
communities. Commenters further suggested clear language expressly
allowing CDFI banks to receive CRA consideration for activities that
promote their own sustainability and profitability.
A few commenters responded to a related question posed by the
agencies on whether additional eligibility criteria should be
considered to ensure that investments by an MDI or WDI in itself
provide benefit to low- and moderate-income and other underserved
communities. A commenter stated that the investments should show an
ancillary benefit to low- and moderate-income populations or low- and
moderate-income areas served by the institution. Some commenters stated
that no additional eligibility criteria should apply to WDI and MDI
investments in themselves, but suggested that enhanced consideration
should be given to investments that directly benefit low- and moderate-
income and underserved communities.
A few commenters opposed giving CRA consideration to activities
undertaken by an MDI or WDI to promote its own sustainability and
profitability, or suggested limits on consideration of these types of
investments. For example, a commenter stated that MDIs or WDIs that are
small or intermediate banks should receive CRA consideration for well-
defined investments in building their capacity, but that this should
not extend to large banks that are MDIs or WDIs.
Other requests for clarification. Commenters also sought
clarification on various other aspects of the rule. A commenter
suggested that the proposal generally did not clearly articulate what
activities would be eligible for consideration under proposed Sec.
__.13(j), and thus would not provide sufficient incentive for banks to
engage in these partnerships. Some commenters sought clarity on whether
specific types of activities would qualify, such as, among others, CDFI
products designed to address racial inequity, or loan participations
that banks sold to or purchased from MDIs and CDFIs. Some commenters
suggested that all bank investments or loans, including equity
investments in or to certified CDFIs be eligible to receive CRA credit,
and that the final rule provide full CRA credit for loans originated to
unbanked and underbanked borrowers that are originated by nonbank CDFIs
(even if sold immediately to third-party investors). Commenters also
recommended clarifying that investments, loans, or grants, and other
support to subsidiaries or entities controlled or wholly-owned by U.S.
Treasury Department-certified CDFIs be given the same CRA consideration
as those supporting the CDFI.
Additional entities. Some commenters recommended that community
development consideration under proposed Sec. __.13(j) be extended to
activities with other entities, such as those undertaken with chartered
NeighborWorks organizations, HUD-designated Community Housing
Development Organizations, HUD-approved Housing Counseling
Organizations, and Certified Development Companies (CDCs). In
particular, commenters highlighted the rigor required for entities to
maintain these certifications. Commenters also suggested adding a wide
range of other entities that offer important community supports, such
as Community Action Agencies (CAAs), Housing Partnership Network
partners, Mutual Self-Help Housing grantees under the USDA Rural
Development section 523 program, and other community-based
organizations. Some commenters expressed concern that the proposal to
grant automatic consideration to CDFIs could discourage similar support
to CDCs and other non-CDFI-certified community-based organizations. A
commenter suggested that providing CRA consideration for activities
with community development venture capital funds and formative funds or
entities seeking certified CDFI status would encourage bank support of
valuable CDEs prior to certification, while another expressed support
for the agencies' clarification in the proposal that non-CDFI certified
activities could be considered under another community development
category (assuming criteria are met).
Final Rule
The final rule renumbers proposed Sec. __.13(j) as Sec. __.13(k)
and revises it as discussed below. Under the final rule, activities
with MDIs, WDIs, LICUs, or CDFIs are ``loans, investments, or services
undertaken by any bank, including by an MDI, WDI, or CDFI bank
evaluated under [the agencies' CRA regulations], in cooperation with an
MDI, WDI, LICU, or CDFI.'' Final Sec. __.13(k) covers activities with
the same types of entities as those proposed, but the language
referencing eligible types of activities with those entities is revised
and simplified, with no substantive change intended, to refer to
``loans, investments, and services.'' This change is a clarification
for consistency with the activities considered under the Community
Development Financing Test in final Sec. __.24, the Community
Development Services Test in final Sec. __.25, and the Community
Development Financing Test for Limited Purpose Banks in final Sec.
__.26. Additionally, the final rule states that these activities do not
include investments by an MDI, WDI, or CDFI bank in itself.
The final rule is intended to build on and clarify important
community development financing and services through MDIs, WDIs, LICUs,
and CDFIs that qualify under the current CRA framework. The agencies
believe that, by establishing a clear and straightforward standard that
allows a bank's loans, investments, and services with MDIs, WDIs,
LICUs, and CDFIs to receive community development consideration, the
final rule will increase certainty and transparency concerning
treatment of activities in partnership with these entities relative to
current practice. The final rule is also expected to reduce
documentation burden associated with demonstrating, for example, that
CDFIs serve low- and moderate-income populations or otherwise have a
community development mission, as commenters noted this can create
challenges in engaging in these activities. Instead, the final rule is
intended to streamline banks' engagement with MDIs, WDIs, LICUs, and
CDFIs by providing automatic community development consideration for
loans, investment, and services with these entities.\523\
---------------------------------------------------------------------------
\523\ See also final Sec. __.13(a)(1)(iii) regarding credit for
community development activities under final Sec. __.13(k) and the
accompanying section-by-section analysis.
---------------------------------------------------------------------------
The agencies believe that the mission of MDIs, WDIs, LICUs, and
CDFIs in meeting the credit needs of low- and moderate-income and other
underserved individuals, communities, and small businesses is highly
aligned with CRA's core purpose of encouraging banks to meet the credit
needs of their entire community, including low- and moderate-income
populations. Emphasizing partnerships with MDIs, WDI, and LICUs in the
final rule is consistent with the CRA's express provision highlighting
``capital investment, loan participation, and other ventures'' by banks
in cooperation with MDIs, WDIs and LICUs.\524\ As reflected in the
current CRA framework,
[[Page 6704]]
CDFIs have long been recognized by the agencies as financial
institutions that, like MDIs, WDIs, and LICUs, are critical to the
lending and capital access ecosystem of low- or moderate-income
communities.\525\ Based on the agencies' supervisory experience,
stakeholder feedback over the years of rulemaking leading to this final
rule, and other relevant sources, the agencies believe that MDIs, WDIs,
LICUs, and CDFIs often have intimate knowledge of local community
development needs and opportunities, allowing them to conduct highly
responsive activities.\526\ These entities also generally undergo
rigorous and verifiable certification processes.\527\
---------------------------------------------------------------------------
\524\ 12 U.S.C. 2903(b).
\525\ See, e.g., Q&A Sec. __.12(t)(4) and Sec. __.21(h)-1. See
also, e.g., 81 FR 48506, 48508-48510 (July 25, 2016).
\526\ See also, e.g., U.S. Government Accountability Office
(GAO), ``Paycheck Protection Program: Program Changes Increased
Lending to Small Businesses and Underserved Businesses,'' 13 (Mar.
16, 2022), https://www.gao.gov/assets/gao-22-105788.pdf (estimating,
for example, that 69 percent of Paycheck Protection Loans by MDIs
and CDFIs went to businesses in high-minority counties).
\527\ See, e.g., OCC, ``Policy Statement on Minority Depository
Institutions'' (July 26, 2022), https://www.occ.gov/news-issuances/news-releases/2022/nr-occ-2022-92a.pdf; Board, SR 21-6/CA 21-4,
``Highlighting the Federal Reserve System's Partnership for Progress
Program for Minority Depository Institutions and Women's Depository
Institutions'' (Mar. 5, 2021), https://www.federalreserve.gov/supervisionreg/srletters/SR2106.htm; FDIC, ``Statement of Policy
Regarding Minority Depository Institutions,'' 86 FR 32728 (June 23,
2021); U.S. Dept. of Treasury, Community Development Financial
Institutions Fund, ``CDFI Certification,'' https://www.cdfifund.gov/programs-training/certification/cdfi. See also 12 CFR 701.34 (NCUA
standards for designating a Federal credit union as a ``low-income
credit union'').
---------------------------------------------------------------------------
Loans, investments, or services include, for instance, equity
investments in and loan participations with MDIs, WDIs, and LICUs, and
CDFIs. Consistent with current guidance, this would include, for
example, loan participations that a bank purchased from a CDFI, loaning
an officer or providing other technical expertise to assist an MDI in
improving its lending policies and practices, or providing financial
support for a WDI to partner with a local educational institution to
provide financial literacy programming.\528\ The rule takes this broad
approach in order to provide flexibility for banks to engage in a range
of activities that will meet differing local needs across communities.
---------------------------------------------------------------------------
\528\ See Q&A Sec. __.21(f)-1. The final rule expands on
current guidance to include CDFIs. Donating a branch, selling a
branch on favorable terms, or making branches available on a rent-
free basis to MDIs, WDIs, and LICUs pursuant to section 801 of the
CRA would also qualify for consideration under this prong, based on
the final rule's definition of ``community development investment,''
discussed further in the section-by-section analysis of that
definition in final Sec. __.12.
---------------------------------------------------------------------------
Inclusion of CDFIs. The agencies have also considered comments
regarding how CDFIs should be considered relative to MDIs, WDIs, and
LICUs. The agencies believe that creating a single standard for CDFIs,
MDIs, WDIs, and LICUs is not only simpler, but also serves to
acknowledge the importance of CDFIs as critical providers of capital to
low- or moderate-income communities. The agencies also believe that the
construction of the final rule as it relates to activities with CDFIs
is preferable since it more directly states that these activities are
eligible under final Sec. __.13(k), as compared to the proposed rule's
approach of providing a presumption of credit for CDFIs in proposed
Sec. __.13(j)(2). The agencies determined that the presumption
language raised unintended uncertainty about whether activities with
CDFIs would actually count for community development consideration.
The final rule also references CDFIs instead of U.S. Treasury
Department-certified CDFIs, as the definition of CDFI in the final rule
is clarified to mean U.S. Treasury Department-certified CDFIs. See the
section-by section analysis of Sec. __.12 for discussion of the
definition of ``Community Development Financial Institution (CDFI)''.
This definitional change affirms the agencies' intent to ensure that,
beyond MDIs, WDIs, and LICUs, the entities with which a bank may engage
for automatic consideration of loans, investments, and services have
undergone the U.S. Treasury Department's CDFI certification process and
meet requirements for maintaining that certification. The agencies
consider this a critical guardrail to ensuring that community
development on an inclusive community basis is the focus of bank loans,
investments, and services in cooperation with these CDFIs.
Activities conducted by MDIs, WDIs, and CDFI banks with other MDIs,
WDIs, LICUs, and CDFIs. Under final Sec. __.13(k), any loans,
investments, or services undertaken by any bank, including by an MDI,
WDI, or CDFI bank, in cooperation with an MDI, WDI, LICU, or CDFI will
qualify as community development. As noted in the proposal, in this
regard the final rule expands on the current rule, which focuses on
crediting these activities when conducted by nonminority
institutions.\529\ As MDI, WDI, and CDFI banks are themselves subject
to CRA evaluations, the agencies believe that this expansion is
appropriate to ensure that the loans, investments, and services of
these institutions receive the same treatment as nonminority
institutions. CDFI banks. The final rule also clarifies that loans,
investments, and services by ``any bank'' include not only majority
institutions, but also those by an MDI, WDI, or ``CDFI bank'' that is
evaluated under the CRA. The definition of ``CDFI'' in final (and
proposed) Sec. __.12 is general and thus includes both depository and
non-depository CDFIs; however, the agencies intend with the reference
to a ``CDFI bank'' in final Sec. __.13(k) to address commenter
concerns that the proposal was not clear that CDFI bank loans,
investments, and services in cooperation with MDIs, WDIs, LICUs, and
other CDFIs could qualify for consideration under this provision.
---------------------------------------------------------------------------
\529\ See current 12 CFR __.21(f) (implementing 12 U.S.C.
2903(b)).
---------------------------------------------------------------------------
Additional eligibility criteria. The agencies have considered
commenter suggestions to add additional eligibility criteria for MDIs
and WDIs under the final rule, such as criteria concerning how
investments in MDIs and WDIs are used, or an MDI's record of service to
minority communities. On further deliberation, the agencies believe
that an additional layer of criteria would be overly complex to define
and apply, potentially dampening the range and quantity of activities
beneficial to communities that could otherwise qualify under this
provision. For similar reasons, the agencies also are using their
statutory authority not to include in final Sec. __.13(k) the
reference in the statute and current regulation to activities that help
meet the credit needs of ``local communities in which [MDIs, WDIs, and
LICUs] are chartered.'' \530\ As discussed above, based on the
agencies' supervisory experience, stakeholder feedback over the years
of rulemaking leading to this final rule, and other relevant sources,
MDIs, WDIs, LICUs, and CDFIs have robust knowledge about the needs of
their local communities and records of serving these needs. The
agencies believe that the structure and orientation of these entities
provide needed guardrails to ensure that activities in cooperation with
them will be consistent with the CRA's community focus in the final
regulation.
---------------------------------------------------------------------------
\530\ See 12 U.S.C. 2903(b), implemented by current 12 CFR
__.21(f). See also 12 U.S.C. 2901(b), 2903(a) and (b), and 2905.
---------------------------------------------------------------------------
Relatedly, under the final rule, activities with CDFIs are treated
similarly to those with MDIs, WDIs, and LICUs, regardless of a CDFI's
location or size. The agencies are mindful of concerns expressed by
some commenters that this approach could direct bank investment away
from smaller, local CDFIs in favor of larger
[[Page 6705]]
CDFIs. On further consideration, the agencies believe that adding size
or location criteria regarding CDFIs with which banks may engage for
CRA credit under this provision would diminish the flexibility needed
for a range of activities meeting differing local needs across
communities. The agencies also note the final rule's adoption of an
impact and responsiveness review under Sec. __.15, including an impact
and responsiveness factor under Sec. __.15(b)(4) for loans,
investments, and services that support an MDI, WDI, LICU, or CDFI
(excluding certificates of deposit with a term of less than one year)
will allow the agencies to consider the extent to which such activities
are highly impactful or responsive to the needs of underserved areas
and populations.\531\
---------------------------------------------------------------------------
\531\ See final Sec. __.15 and the accompanying section-by-
section analysis.
---------------------------------------------------------------------------
Activities undertaken by an MDI or WDI to promote its own
sustainability and profitability. The agencies have considered comments
responding to the question on whether an MDI or WDI should receive
consideration for activities that promote an MDI's or WDI's own
sustainability and profitability, and are adopting a final rule that
excludes investments by MDIs, WDIs, or CDFI banks in themselves.\532\
The agencies appreciate commenter views on the importance of investment
support for these entities to bolster their financial position so that
they can better serve their communities, as well as the need to
consider ways to ensure that these investments benefit low- and
moderate-income and underserved communities. On further consideration,
the agencies are concerned that the linkage between such investments
and benefits to low- or moderate-income communities may be attenuated
and thus difficult to determine, in turn making establishment and
application of clear and consistent guardrails to ensure benefits to
low- and moderate-income communities unduly challenging. At the same
time, the agencies believe that the final rule provides robust avenues
of support for the sustainability and profitability of MDIs and WDIs
through other CRA-evaluated banks, including other MDIs and WDIs.
---------------------------------------------------------------------------
\532\ While the agencies requested comment only on investments
by MDIs and WDIs, the final rule also excludes similar investments
by CDFIs for parity.
---------------------------------------------------------------------------
Definition of MDIs; minority credit unions. The agencies considered
comments in response to the agencies' request for feedback regarding
whether minority credit unions should be included in the definition of
MDI for the final rule and conducted further research on this matter.
The agencies note that there is a large overlap between minority credit
unions and LICUs.\533\ Thus, a bank's loans, investments, and services
with a large percentage of minority credit unions will be eligible for
community development consideration under final Sec. __.13(k), based
on the minority credit union's LICU status. For this and other reasons,
the agencies have decided not to add minority credit unions to the
proposed definition of MDI. The question of whether to include minority
credit unions in the final rule's definition of MDI, as well as other
aspects of the final rule's definition of MDI, is discussed in more
detail in the section-by-section analysis of Sec. __.12 (``minority-
depository institution (MDI)'').
---------------------------------------------------------------------------
\533\ NCUA, ``Minority Depository Institutions Annual Report to
Congress,'' 2 (2021), https://ncua.gov/files/publications/2021-mdi-congressional-report.pdf (indicating that 81 percent of minority
credit unions are designated as LICUs).
---------------------------------------------------------------------------
Additional entities. The agencies have also considered comments
recommending that the final rule include additional types of entities
with which banks could collaborate in order to receive community
development consideration, and have decided not to include additional
entities in Sec. __.13(k). The agencies have considered that entities
such as NeighborWorks America's network organizations, HUD's Community
Housing Development Organizations, and other community-based
organizations perform important functions in communities, as do
community development venture funds and formative funds, or other
entities seeking certified CDFI status. However, because qualifying
activities under Sec. __.13(k) are eligible for community development
consideration without additional eligibility criteria, the agencies
believe that narrowly tailoring the entities considered under the final
rule is especially important and, accordingly, that focusing final
Sec. __.13(k) on MDIs, WDIs, LICUs, and CDFIs is appropriate. As
outlined above, MDIs, WDIs, LICUs, and CDFIs generally have missions
and track records that directly align with the CRA's mandate of
providing credit to entire communities, including to low- or moderate-
income communities; undergo rigorous and verifiable certification
processes; and are financial institutions that provide critical capital
access and credit to underserved communities. The agencies further
believe that emphasizing partnerships with the entities covered by
final Sec. __.13(k) is consistent with the CRA's express emphasis on
cooperation with MDIs, WDIs and LICUs, as well as with the key role
CDFIs play in the capital and financial ecosystem in low- or moderate-
income communities. The agencies also note and expect that loans,
investments, and services supporting activities performed by other
entities suggested by commenters may be eligible for community
development consideration under other provisions in Sec. __.13.
The agencies have also considered comments that activities with
subsidiaries or entities controlled or wholly-owned by CDFIs be
eligible for community development consideration under Sec. __.13(k).
The agencies note that subsidiaries or entities controlled or wholly-
owned by MDIs, WDIs, or LICUs are not referenced in current Sec.
__.21(f) or proposed Sec. __.13(j) \534\ Similarly, final Sec.
__.13(k) does not include activities with these subsidiaries or
affiliates, as the agencies believe an automatic grant of community
development consideration should remain narrowly tailored. However,
activities with subsidiaries or affiliates could be considered under
other categories of community development, to the extent they would
meet the criteria of those categories.
---------------------------------------------------------------------------
\534\ The relevant CRA statutory provision also does not
reference subsidiaries or controlled entities of MDIs, WDIs, or
LICUs. See 12 U.S.C. 2903(b).
---------------------------------------------------------------------------
Section __.13(l) Financial Literacy
Current Approach
Currently, activities related to financial literacy may qualify for
CRA credit as ``community development services.'' \535\ These
activities must be targeted to low- or moderate-income
individuals.\536\ Examples of community development services provided
in current guidance include, among others: (1) ``[p]roviding credit
counseling, home-buyer and home maintenance counseling, financial
planning or other financial services education to promote community
development and affordable housing, including credit counseling to
assist low- or moderate-income borrowers in avoiding foreclosure on
their homes,'' as well as (2) ``[e]stablishing school savings programs
or developing or teaching financial education or literacy curricula for
low- or moderate-income individuals.'' \537\
---------------------------------------------------------------------------
\535\ See 12 CFR __.12(i) (defining ``community development
service'').
\536\ See Q&A Sec. __.12(i)-3, Q&A Sec. __.12(h)-8.
\537\ See Q&A Sec. __.12(i)-3.
---------------------------------------------------------------------------
[[Page 6706]]
The Agencies' Proposal
Proposed Sec. __.13(k) established a separate category of
community development for ``[a]ctivities that promote financial
literacy,'' defined as activities that ``assist individuals and
families, including low- or moderate-income individuals and families,
to make informed financial decisions regarding managing income,
savings, credit, and expenses, including with respect to
homeownership.'' Under the proposed rule, a bank would receive
consideration for these activities without requiring them to focus
specifically on low- and moderate-income beneficiaries. The proposed
approach was intended to encourage investments that have broad benefits
across income levels and that support the economic well-being of entire
communities, as well as to simplify qualification by limiting the need
for banks to obtain documentation to demonstrate that the activity is
targeted to low- or moderate-income individuals or families, which can
be particularly difficult to obtain for non-customers. However,
proposed Sec. __.13(k) specified that the individuals and families
assisted by financial literacy activities must ``includ[e] low- or
moderate-income individuals and families.'' The agencies requested
comment on whether CRA consideration of financial literacy activities
should be expanded from current practice to include activities that
benefit individuals and families of all income levels, or be limited to
activities that have a primary purpose of benefiting low- or moderate-
income individuals or families.
Comments Received
The agencies received many comments on the proposed financial
literacy category of community development from a variety of
commenters, as discussed in more detail below.
Financial literacy activities that benefit individuals and families
of all income levels, including low- and moderate-income. Commenters
generally supported creating a community development category for
financial literacy activities. In response to the agencies' request for
comment on whether the financial literacy category should apply to all
income levels or only to low- and moderate-income individuals and
families, some commenters supported applying the community development
category to all income levels as proposed. Commenters asserted, for
example, that financial literacy is useful and important to peoples of
all income levels; that the proposed approach would ensure that other
underserved populations, including seniors, veterans, and rural
communities, would benefit from financial literacy activities; and that
the proposed approach would allow banks to expand financial literacy
activities more broadly and efficiently to schools and students,
without restricting activities to only those students that are low- or
moderate-income. In this regard, one commenter asserted that targeting
financial literacy activities to only low- or moderate-income students
can be difficult in rural areas because there are very few schools with
a majority of students that meet this criterion. A few commenters also
noted that expanding the provision to all income levels would allow
banks to better reach low- or moderate-income populations, including by
providing an incentive for bank employees to offer financial literacy
sessions to mixed-income groups, and by reducing burden for banks by
streamlining the process for determining whether financial literacy
activities qualify.
In contrast, other commenters raised a range of concerns regarding
the proposed approach to consider financial literacy activities that
benefit individuals and families of all income levels. Of those
commenters, many asserted that there is a scarcity of resources and
support for financial literacy activities, and expressed concern that
expanding eligible financial literacy activities to include those for
all income levels would divert resources from low- and moderate-income
individuals and families that are in greater need. Commenter feedback
included, for example: that the proposed approach would not be aligned
with the intention and goals of the CRA to ensure that low- and
moderate-income consumers are adequately served by the banking system;
disagreement with assertions that income level documentation is a
significant burden to financial institutions, noting that nonprofit
organizations track the income level of their clientele; and that banks
should be required to demonstrate that the primary purpose of the
financial literacy activities it supports is benefiting low- and
moderate-income individuals or families.
Some commenters suggested that financial literacy activities for
other populations or in other specific areas should qualify.
Suggestions included financial literacy activities serving underserved
populations, first-time homebuyers, small businesses, minorities or
minority-owned businesses of all income levels, Native communities, or
activities in and around Native Land Areas. A commenter suggested that
the agencies consider any financial literacy activity provided by a
HUD-approved housing counseling agency or intermediary, as a way to
address concerns about income verification burden on banks.
Financial literacy activities. While many commenters supported the
proposal without suggested changes or revisions to the activities
indicated as qualifying under this category, other commenters suggested
the agencies clarify or add a range of other activities considered
eligible under this category, such as financial coaching, various
digital education products, and other specific financial literacy
education programs, products, and services. For example, a commenter
suggested that the agencies clarify that credit counseling is an
eligible activity under the financial literacy category, asserting that
nonprofit credit counseling and debt management counseling are critical
to support low- and moderate-income consumers. A few commenters
suggested that the agencies specify that grants and loans made to
nonprofit organizations that support eligible activities under the
proposed financial literacy category qualify for consideration.
Housing-related comments. A number of commenters had suggestions
regarding consideration for housing and homeownership-related
counseling activities. In particular, several commenters suggested that
additional emphasis be given to activities that focus on housing
counseling. Commenters generally noted the unique, vital, and effective
role housing counseling can play in helping consumers meet their
financial goals. A few commenters noted that HUD-certified housing
counselors provide several critical services to renters and first-time
homebuyers that help mitigate barriers related to income, race, and
ethnicity, and asserted that the agencies should recognize and provide
additional credit for activities that support those counselors. A group
of commenters separately suggested that housing counseling should be
recognized as a community development activity distinct from the
financial literacy category. These commenters expressed concern that
including activities related to housing counseling along with other
activities in a single financial literacy category could result in
banks focusing on non-housing activities in that category.
Some commenters recommended that the final rule specifically
recognize
[[Page 6707]]
lender fee-for-service payments for housing counseling services by HUD-
approved housing counseling agencies as an eligible activity, with some
commenters recommending recognition of fee-for-service payments for
housing counseling services specifically assisting low- and moderate-
income borrowers. For example, one commenter asserted that
consideration for lender fee-for-service payments to housing counseling
providers serving low- or moderate-income clientele would help ensure
that those organizations would be able to continue providing housing
counseling services. This commenter indicated that such organizations
traditionally rely on grants to fund those activities, which can
present a challenge for their long-term stability. Another commenter
suggested that fee-for-service payments for housing counseling services
should be recognized as an eligible activity if the bank can
demonstrate that this service is being offered to low- or moderate-
income borrowers.
Additional approaches to qualifying eligible financial literacy
activities. Several commenters emphasized that the rule should
encourage banks to partner with nonprofit organizations to ensure that
financial literacy activities are relevant to the community and
marketed successfully, and suggested that qualifying programs or
activities should have a stated purpose of engaging low- and moderate-
income residents. A few commenters suggested that banks should receive
enhanced credit for supporting financial literacy activities targeted
to low- and moderate-income individuals and families, including through
a multiplier scoring system correlated to the percentage of low- and
moderate-income beneficiaries supported by an eligible activity.
Final Rule
The final rule adopts the proposal on financial literacy
substantially as proposed, renumbered as Sec. __.13(l). Under the
final rule, activities that promote financial literacy are those that
``assist individuals, families, and households, including low- or
moderate-income individuals, families, and households, to make informed
financial decisions regarding managing income, savings, credit, and
expenses, including with respect to homeownership.'' The final rule
makes technical edits from the proposal by adding ``and households'' as
a conforming edit consistent with edits made in other community
provisions in final Sec. __.13. The agencies that believe
incorporating financial literacy activities into the regulation as a
separate regulatory category of community development will provide
banks with certainty and clarity regarding how these activities will
qualify for CRA consideration, and that this, in turn, will benefit a
wide range of individuals and families in need of financial literacy
services.
The agencies have carefully considered commenter views on whether
the financial literacy category should be limited to activities
targeted to low- and moderate-income individuals and families. On
balance, for the reasons discussed below, the agencies believe that the
rule as finalized, without such limitation, will ensure low- and
moderate-income individuals, families, and households benefit from
financial literacy activities, while further encouraging banks'
involvement in such activities. The final rule will reduce barriers to
offering financial literacy activities by permitting a broader range of
mixed-income activities to qualify relative to current practice, and
will reduce burden by limiting the need for banks to track income
levels of participants (which, as noted above, can be particularly
difficult with respect to non-customers). As discussed in the proposal,
prior stakeholder feedback also has suggested that financial literacy
activities are, in practice, primarily delivered to low- or moderate-
income individuals, which may be another factor that reduces the need
to obtain income documentation. The language of the final rule
providing that individuals, families, and households assisted by
financial literacy activities must include low- or moderate-income
individuals, families, and households will also ensure that financial
literacy activities will not be eligible for CRA credit if they solely
benefit middle- and upper-income individuals, families, or households.
The agencies further believe that financial literacy can build
economic resilience at all income levels, particularly where there may
be evidence that financial literacy is lacking, or financial
instability exists. The agencies are sensitive to concerns about the
scarcity of available resources for financial literacy activities, and
believe that the final rule's approach will more broadly share the
benefits of these activities across communities and open up greater
opportunities for underserved populations, including seniors, students,
veterans, and rural communities to benefit from financial literacy
activities. In the agencies' experience, financial literacy activities
can provide important tools for all individuals and families to
maintain or improve upon their financial status, which benefit
communities as a whole. As such, the agencies believe that the final
rule is consistent with the intent of CRA to serve the credit needs of
a bank's entire community, including low- and moderate-income
communities.\538\
---------------------------------------------------------------------------
\538\ See, e.g., 12 U.S.C. 2903(a)(1).
---------------------------------------------------------------------------
Regarding commenters' suggestions that the agencies revise the
regulation to explicitly qualify specific activities, the agencies
believe that the broader approach in the final rule will allow banks
more flexibility, as any activities meeting the criteria in Sec.
__.13(l) will qualify. Activities that the agencies view as consistent
with the language in Sec. __.13(l) will generally include activities
such as financial education, financial coaching and counseling, small
business education, and housing counseling. For example, a financial
planning seminar with senior citizens, including low- and moderate-
income seniors, or a financial education program for children in a
middle-income school district would both be activities that would
qualify for consideration. Similarly, credit counseling for residents
of a rural area or grants and loans to nonprofits related to financial
literacy would generally qualify for consideration. The agencies will
take commenters' recommended examples under advisement as the agencies
develop the illustrative list anticipated by Sec. __.14(a), discussed
below.
The agencies do not believe that direct marketing of specific bank
products alone would constitute a financial literacy activity that
``assist[s] individuals, families, and households, including low- or
moderate-income individuals, families, and households, to make informed
financial decisions,'' and therefore would not meet the criteria for
qualification in Sec. __.13(l). However, a lender fee-for-service
financial education program focused on savings and the benefits of
savings, through which a bank provides information on its low-cost
savings accounts (such as through a BankOn program \539\) or allows
participants to prepare for and access a sustainable home mortgage, as
is done in many homebuyer programs with HUD-certified housing
counselors, would likely qualify for consideration under Sec.
__.13(l). The agencies note that when engaging in activities under
Sec. __.13(l), banks are expected to comply with all applicable laws,
[[Page 6708]]
including, among others, section 8 of the Real Estate Settlement
Procedures Act of 1974.\540\
---------------------------------------------------------------------------
\539\ See BankOn, ``Account Standards,'' https://bankon.wpenginepowered.com/wp-content/uploads/2022/08/Bank-On-National-Account-Standards-2023-2024.pdf.
\540\ 12 U.S.C. 2607.
---------------------------------------------------------------------------
The agencies have also considered commenter suggestions that
various specific activities related to housing counseling should be
recognized within a separate category of qualifying activities or that
they should otherwise be given extra emphasis on examinations,
including suggestions to give enhanced credit for activities targeted
to low- and moderate-income individuals. The agencies understand the
importance of housing-related financial literacy activities and, on
further deliberation, believe that the final rule appropriately
recognizes housing counseling activities by expressly identifying
activities that assist individuals, families, and households to making
informed financial decisions regarding ``homeownership'' as one key
type of qualifying activity within a new, separate community
development category for financial literacy overall. The agencies note
that activities that assist individuals, families, and households to
make informed financial decisions about homeownership are part of a
wide range of available qualifying financial literacy activities that
offer critical support for the economic well-being of communities. With
respect to comments suggesting extra emphasis, the agencies also note
that the final rule creates a non-exhaustive list of specific impact
and responsiveness factors that will recognize certain activities,
including factors for activities serving persistent poverty counties
and higher poverty census tracts (Sec. __.15(b)(1) and (2)), low-
income individuals, families, and households (Sec. __.15(b)(5)), and
affordable housing in High Opportunity Areas (Sec. __.15(b)(7)). See
the section-by-section analysis of Sec. __.15, below.
Section __.14 Community Development Illustrative List; Confirmation of
Eligibility
Current Approach
Under the current regulations, the agencies do not jointly maintain
a standalone list of examples of loans, investments, and services that
qualify for CRA community development consideration. However, the OCC
maintains an illustrative list of activities as a reference for
determining whether activities conducted while the OCC 2020 CRA Final
Rule was in effect were eligible for consideration under that
rule.\541\ The Interagency Questions and Answers also include certain
examples of eligible community development loans, investments, and
services.\542\
---------------------------------------------------------------------------
\541\ The OCC maintains an illustrative list on its website as a
reference for national banks, Federal savings associations, and
other interested parties to determine whether activities that they
conducted while the OCC 2020 CRA Final Rule was in effect were
eligible for CRA consideration. Activities on this illustrative list
may not receive consideration if conducted after January 1, 2022,
when the rescission of the OCC 2020 CRA Final Rule became effective.
See OCC, ``CRA Illustrative List of Qualifying Activities,'' https://www.occ.treas.gov/topics/consumers-and-communities/cra/cra-illustrative-list-of-qualifying-activities.pdf.
\542\ See, e.g., Q&A Sec. __.12(g)-1 through __.12(g)(4)(iii)-
4, Q&A Sec. __.12(h)-1 through __.12(h)-8, and Q&A Sec. __.12(i)-1
through __.12(i)-3.
---------------------------------------------------------------------------
Relatedly, the OCC previously established a confirmation process,
not currently codified in its CRA regulation, through which national
banks, Federal savings associations, and other interested parties may
request confirmation that a loan, investment, or service qualifies for
CRA consideration.\543\ The Board and the FDIC do not currently have
similar mechanisms for State banks or State savings associations.
Currently, as part of their CRA examinations, banks submit community
development activities that were undertaken without an assurance these
activities are eligible. Knowing that an activity previously qualified
can frequently provide banks with some confidence that the same types
of activities are likely to receive consideration in the future.
However, banks assessing a new, less common, more complex, or
innovative activity may not know whether that activity is eligible for
CRA consideration until a determination is made by an examiner as part
of the bank's CRA examination--after the bank has made a decision about
whether to provide a loan, investment, or service. The determination
requires examiner judgment and the use of performance context, which
may further complicate a bank's ability to predict what activities
could qualify.
---------------------------------------------------------------------------
\543\ See OCC, ``CRA Qualifying Activity Confirmation Request,''
https://www.occ.treas.gov/topics/consumers-and-communities/cra/qualifying-activity-confirmation-request/index-cra-qualifying-activities-confirmation-request.html.
---------------------------------------------------------------------------
Section __.14(a) Illustrative List
Section __.14(a)(1) Issuing and Maintaining The Illustrative List
The Agencies' Proposal
To provide increased certainty regarding what community development
activities qualify for CRA consideration, the agencies proposed in
Sec. __.14(a) to maintain a publicly available, non-exhaustive
illustrative list of examples of community development activities that
qualify for CRA consideration. As noted in the proposal, prior
stakeholders had indicated broad support for an illustrative list
similar to the list associated with the OCC 2020 CRA Final Rule. In the
proposal, the agencies indicated that stakeholders supported this
approach as a way to highlight loans, investments, and services that
meet the CRA community development criteria, while also noting that
those criteria remain the determinative factors in qualifying community
development activities (as opposed to whether a particular activity
appears on the illustrative list). The agencies sought feedback on
whether the benefit of greater certainty would outweigh the potential
that the list might limit innovation by unintentionally leading banks
to focus primarily on activities on the list. The agencies sought
comment on whether, in addition to maintaining an illustrative list of
qualifying activities under Sec. __.14(a), the agencies should also
maintain a non-exhaustive list of activities that do not qualify for
CRA consideration as a community development activity.
Comments Received
General. Most commenters on this aspect of the proposal expressed
support for the agencies maintaining a non-exhaustive illustrative list
of qualifying activities, as set forth in proposed Sec. __.14(a). In
general, commenters stated that an illustrative list would simplify
compliance, and provide more regulatory certainty regarding community
development activities that meet the requirements for CRA credit.
Commenters also generally stated that an illustrative list would
promote consistency among agencies and examiners, with at least one
commenter stating that the list should be universally accepted across
all agencies and deployed consistently across examiners. Other
commenters highlighted the benefits of an illustrative list in
connection with a timely pre-approval process. For example, a commenter
indicated that a clearly-articulated illustrative list could allow
transactions to be structured between banks and partner organizations
with more information earlier in the process. Commenters also suggested
that the agencies clarify further that the list is not exhaustive.
Some commenters expressed concerns about the potential breadth and
impact of the proposed illustrative list. For instance, some commenters
stated their concern that a lengthy list of qualifying activities could
encourage banks to
[[Page 6709]]
participate in the easiest and least impactful community development
activities. Accordingly, commenters emphasized that the list should be
focused on those activities that are most impactful to low- and
moderate-income communities or closely tied to local needs, or that a
listed activity would not automatically qualify if it resulted in
displacement of low- and moderate-income individuals or minorities.
Several commenters raised concerns that providing an illustrative list
could stifle innovation to the extent that banks default to engaging
only in listed activities. Another commenter stated that examiner
judgment and the use of performance context would still be warranted as
new, innovative activities arise. Several other commenters proposed
that the agencies instead adopt a principles-based list, with a few
raising concerns that an extensive list could evolve into an
overwhelming ad hoc list.
Many commenters offered a variety of suggestions regarding how the
agencies should develop, issue, and maintain an illustrative list. For
example, a few commenters recommended that the list be published in the
Federal Register. In addition, several commenters recommended that the
agencies maintain an interactive database with various features,
including, among others, topical organization and searchability; case
studies; or guidance and examples of documentation. Several commenters
suggested that any list be developed and updated in coordination with
relevant stakeholders.
Finally, commenters also offered a variety of suggestions on
specific activities that should be included or expanded upon in an
illustrative list. Several commenters recommended that the agencies
adopt the list of qualifying activities found in the OCC 2020 CRA Final
Rule. Other commenters offered specific suggested activities,
including, among many others, various activities pertaining to
environmental and climate resilience; impacting disabled persons, as
relevant to the community supportive services category; and promoting
digital inclusion. At least one commenter suggested that an
illustrative list be expanded to include innovative and responsive
retail product and service offerings in addition to community
development activities.
List of activities that do not qualify for CRA consideration. As
noted above, the agencies sought comment on whether, in addition to
maintaining an illustrative list of qualifying activities under Sec.
__.14(a), the agencies should also maintain a non-exhaustive list of
activities that do not qualify for CRA consideration as a community
development activity. Many commenters supported maintaining a non-
exhaustive illustrative list of activities that do not qualify for CRA
consideration, with several arguing, for example, that a list of non-
qualifying activities would provide increased transparency and prevent
banks from allocating time to non-qualifying activities. Commenters
also shared suggestions on how the agencies might develop a non-
qualifying illustrative list. However, other commenters opposed or
expressed concerns about maintaining a non-exhaustive list of non-
qualifying activities. For example, one commenter cautioned that a list
of ineligible activities could be misinterpreted, causing banks to
avoid partnerships with entire entities instead of certain activities.
Another commenter noted that eligibility for CRA consideration can
depend on specific circumstances and unique facts, detracting from the
usefulness of maintaining a list of non-qualifying activities.
Final Rule
The final rule renumbers proposed Sec. __.14(a) as Sec.
__.14(a)(1), and reflects the technical edits and revisions from the
proposal discussed below. The final rule clarifies that the agencies
not only will maintain, but will jointly issue a publicly available
illustrative list of non-exhaustive examples of loans, investments, and
services that qualify for community development consideration as
provided in Sec. __.13. For the reasons stated in the proposal and on
consideration of comments, the agencies believe that establishing an
illustrative list will promote transparency and consistency, provide
banks and other stakeholders with greater certainty, and help clarify
the application of criteria for community development categories. These
examples are intended to help banks make more informed decisions
regarding what loans, investments, and services would qualify for
community development consideration.
The revision in the final rule confirming that the list will be
jointly issued by the OCC, Board, and FDIC is partly intended to
support commenters' interest in consistency across agencies and
examinations. Whether to include (or add under final Sec. __.14(a)(2),
discussed below) an activity to the illustrative list is subject to the
agencies' discretion. The final rule also makes conforming edits to
replace ``community development activities that qualify for CRA
consideration'' with ``loans, investments, and services that qualify
for community development consideration,'' consistent with other
revisions in the final rule, and edits to clarify that Sec. __.14(a)
is specifically applicable to the types of activities that are
described in Sec. __.13.
In adopting the final rule, the agencies considered feedback on
whether the benefit of greater certainty would outweigh the potential
that the list might limit innovation by unintentionally leading banks
to focus primarily on examples on the list. The agencies believe that,
on balance, the benefit of greater certainty, transparency, and clarity
outweigh this potential concern. The agencies also believe that
updating the illustrative list periodically pursuant to final Sec.
__.14(a)(2)(i), described below, will further mitigate concerns by
allowing for new, innovative examples to be added over time.
The agencies similarly considered commenter concerns and
recommendations related to the potential breadth of the illustrative
list. The agencies are concerned that adopting a principles-based list
as suggested would not provide sufficient clarity or specificity, which
would limit the informational benefits of an illustrative list for
banks regarding what kinds of loans, investments, and services would
qualify as community development. In developing the illustrative list,
the agencies expect to consider what steps the agencies can take to
promote ease of use by banks and the public, and to provide context to
complex issues as feasible. Regarding the suggestion that the agencies
clarify further that the list is not exclusive, the agencies reaffirm
that the illustrative list is intended to be non-exhaustive;
accordingly, the final rule retains proposed language expressly stating
that the illustrative examples are non-exhaustive.
The agencies also appreciate commenters' thoughtful views on how
the agencies should develop and issue an illustrative list, as well as
the types of activities that should populate the list. Subsequent to
this rulemaking, the agencies expect to jointly develop the process for
issuing, maintaining, and updating the illustrative list. The agencies
will continue to take all of these comments under advisement as this
process moves forward.
The agencies are not adopting suggested revisions to final Sec.
__.14(a)(1), as follows. Regarding commenter concerns that activities
on the list be focused on particular community needs and not result in
displacement, the agencies note that, as a threshold matter, any
activity on the
[[Page 6710]]
illustrative list would still need to qualify under the relevant
criteria of a particular community development category in Sec. __.13,
including any applicable criteria for any place-based community
development activity. As discussed in the section-by-section analyses
of Sec. __.13(e) through (j), above, one placed-based criteria is that
the activity ``not directly result in the forced or involuntary
relocation of low- or moderate-income individuals'' in the relevant
geographic area.\544\ Further, as needed, examiners will still exercise
judgment and review performance context in evaluating an activity under
the applicable facts and circumstances.
---------------------------------------------------------------------------
\544\ See final Sec. __.13(e)(1)(iii), (f)(3), (g)(3),
(h)(1)(iii), (i)(3), (j)(2)(iii), and (j)(3)(iii).
---------------------------------------------------------------------------
The agencies also considered the suggestion to expand the
illustrative list to include innovative and responsive retail services
and products offerings, in addition to community development
activities. The agencies are not expanding the illustrative list in
this manner, as the agencies have not observed as many questions
necessitating upfront clarification regarding eligible retail services
and products. In deliberating further on this matter in light of the
comments, the agencies determined that, at this time, the illustrative
list will best serve the purpose of clarity and transparency by being
focused on community development activities as the area in which the
agencies observe and hear from stakeholders there is the most need for
clarity.
Finally, the agencies considered commenter feedback on whether to
maintain a separate list of activities that do not qualify for
community development consideration. Upon further consideration of
comments received, the agencies are concerned that such a list might
inadvertently deter banks from pursuing eligible loans, investments,
and services, and accordingly, the agencies are not adopting a
provision to maintain a list of non-qualifying activities. The agencies
also believe that resources will be more effectively and efficiently
deployed if focused on providing a resource for banks seeking new
opportunities to serve community needs. Nonetheless, the agencies note
that the confirmation process adopted in final Sec. __.14(b),
discussed below, will provide a related venue for confirming
eligibility, which should help banks reduce unintended allocation of
time and resources to non-qualifying loans, investments, and services.
Section __.14(a)(2) Modifying the Illustrative List
The Agencies' Proposal
To ensure flexibility and incorporation of new activities, the
agencies proposed in Sec. __.14(b)(1) to update the illustrative list
periodically. The agencies also proposed in Sec. __.14(b)(2) that, if
the agencies determine that an activity on the illustrative list is no
longer eligible for CRA community development consideration, the owner
of the loan or investment at the time of the determination would
continue to receive CRA consideration for the remaining term or period
of the loan or investment. However, the loan or investment would not be
eligible for consideration for any purchasers of that loan or
investment post-determination.
Comments Received and Final Rule
Commenters provided views on various aspects of proposed Sec.
__.14(b), addressing how the agencies might update and remove items
from the illustrative list, and the timeline for doing so. Commenters
generally suggested regular monitoring and updating, with several
offering suggested timelines (for example: as new innovations arise and
circumstances warrant; biannually; or triennially). Commenter feedback
included that: the agencies should regularly seek public comment as the
most transparent and fair way to update the illustrative list; all
stakeholders should be permitted to submit suggestions for issuing and
modifying the illustrative list; banks should work with their primary
regulator to provide submissions to the illustrative list, and agency
staff should also be allowed to submit activities to the list arising
through outreach or the examination process; and banks should still
receive consideration for any previous investment that remains on the
bank's books even if the activity is deemed ineligible later.
The final rule adopts Sec. __.14(b) substantially as proposed,
renumbered as Sec. __.14(a)(2), with technical edits to replace
``activities'' with ``loans, investments, or services'' and other
conforming edits. Final Sec. __.14(a)(2)(i) provides that the agencies
will periodically update the illustrative list in Sec. __.14(a)(1).
Consistent with the proposal, final Sec. __.14(a)(2)(ii) states that,
in the event the agencies determine that a loan or investment on the
illustrative list is no longer eligible for community development
consideration, the owner of the loan or investment at the time of the
determination will continue to receive community development
consideration for the remaining term or period of the loan or
investment. However, these loans or investments will not be considered
eligible for community development consideration for any purchasers of
that loan or investment after the determination.
The agencies believe that providing for periodic updates to the
illustrative list under Sec. __.14(a)(2)(i) offers the agencies
flexibility and will promote innovation by allowing the agencies to add
new and innovative examples over time. This provision also will allow
the agencies' understanding of community development activities to
evolve as banks' activities and community development needs shift. The
agencies' ability to update the list periodically is also intended to
help address some commenter concerns regarding Sec. __.14(a)(1), that
an illustrative list could limit innovation by leading banks to focus
primarily on examples found on the list.
As noted above, subsequent to this rulemaking, the agencies expect
to jointly develop the process for issuing, maintaining, and updating
the illustrative list, and will consider commenter suggestions for that
process, including those regarding modifying and removing items from
the illustrative list, and the timeline for doing so. Regarding
commenter concerns about treatment of loans and investments later
removed from the list, the agencies note that final Sec.
__.14(a)(2)(ii) is intended to provide certainty that a bank (albeit
not subsequent purchasers) will continue to receive consideration for
their loans and investments even if those examples are later removed
from the list. Accordingly, in circumstances where examples are later
removed from the list, a bank's credit for those loans and investments
would not be retroactively impacted.
Section __.14(b) Confirmation of Eligibility
The Agencies' Proposal
The agencies proposed in Sec. __.14(c) and (d) a formal mechanism
for banks subject to the CRA regulations to request confirmation that
an activity is eligible for CRA consideration. Under proposed Sec.
__.14(c), a bank could submit a request to its appropriate Federal
financial supervisory agency for confirmation that an activity is
eligible for CRA consideration. When the agencies confirmed that an
activity is or is not eligible for CRA consideration, the supervisory
agency would notify the requestor, and the agencies might add
[[Page 6711]]
the activity to the publicly available illustrative list of activities,
incorporating any conditions imposed, if applicable.
Proposed Sec. __.14(d)(1) provided that a bank could request that
the appropriate Federal financial supervisory agency confirm that an
activity is eligible for CRA consideration by submitting a request to
its Federal financial supervisory, in a format prescribed by the
agency. Proposed Sec. __.14(d)(2) provided that, in responding to a
confirmation request, the agencies would consider: (1) the information
provided to describe and support the request; (2) whether the activity
is consistent with the safe and sound operation of the bank; and (3)
any other information that the agencies deem relevant. The agencies
further proposed in Sec. __.14(d)(3) that the agencies may impose any
conditions on that confirmation, in order to ensure consistency with
the requirements of the CRA and the CRA regulations. The agencies
solicited comment on the process for accepting submissions for
confirming qualifying community development activities, and on
establishing a timeline for review. The agencies also solicited comment
on processes involving joint actions by the agencies, as well as
alternative processes and actions, such as consultation among the
agencies, that would be consistent with the purposes of the CRA.
Comments Received
Commenters generally supported the agencies' proposal in Sec.
__.14(c) and (d) to create an established process for banks to request
confirmation that an activity is eligible for CRA consideration.
Commenters noted that such a process could help banks focus their
community development activities, increase clarity, reduce uncertainty,
improve transparency, and offer a centralized resource for vetting
projects. For example, a commenter noted that an illustrative list,
coupled with a confirmation process, would give banks the tools to plan
community development activities and still be innovative when
warranted. Some commenters stated that the agencies should expand the
scope of proposed Sec. __.14(c) and (d)(1) to permit submissions by
stakeholders other than banks, so as not to deter the development of
qualified, responsive, and innovative activities. Another commenter
suggested that financial institutions should be allowed to request
confirmation of activities that may have been presented to them by
other stakeholders.
Commenters shared a variety of suggestions in response to the
agencies' request for feedback on the process for accepting submissions
for confirming qualifying community development activities. For
example, a commenter emphasized the importance of a confirmation
process that is published and public, while another recommended that
the agencies adopt a clear process for frequency of updates, factors
considered in adding new activities, and the process for alerting banks
to any modifications. Another commenter recommended that there be a
process for confirming eligibility of qualifying activities both in
advance and after an activity is completed.
Commenters further offered feedback on processes involving joint
actions by the agencies. Several commenters offered ideas for the
review process, including establishing a joint interagency review and
determination process; involving stakeholders (e.g., through a
stakeholder advisory board or through a joint agency and stakeholder
committee); and/or an automated review and approval process. A few
commenters suggested coordination with State agencies or consideration
of State CRA frameworks in the confirmation process. Several other
commenters underscored the need for consistency among regulators'
approval or denial for similar opportunities. A commenter that
encouraged interagency coordination also recommended that only a
requestor's primary Federal regulator should make the determination,
rather than the feedback being a joint undertaking of the three
agencies.
Commenters also addressed timelines for the review and confirmation
process. Some commenters stated that the process would need to be
timely to be helpful, including because competition and customer
expectations require institutions to move quickly, and because slow
feedback can hinder projects and investments. A few commenters
cautioned that a preapproval process should not require major
investments of time or effort.
Commenters suggested different review timeline ranges. Many
commenters recommended a maximum 30-day timeframe for answering
preapproval requests, with some noting this timeframe would allow for
dialogue between the agency and financial institution, as well as time
for regulators to coordinate with one another for purposes of
consistency. Another group of commenters suggested that a 60-day
timeframe would be appropriate. Other suggested timelines generally
ranged from 24 hours to six months, with a commenter suggesting that a
lack of response from the agency within a standard time should be taken
as an approval of the activity.
Commenters also addressed technical aspects of the submission
process, such as submission through an email system, portal, and/or
template, with details regarding acknowledgment and response times.
Some commenters offered ideas to increase transparency, including, for
example, making requests and decisions public, and implementing
technology such as an online request tracking system. Among other
process-related topics, commenters encouraged training and expectation-
setting for agency staff to promote expertise and consistency, and
suggested documentation of the structure and flow of the confirmation
process.
Final Rule
Consistent with the proposal, the final rule establishes a formal
mechanism for banks to submit a request for confirmation that an
activity is eligible for community development consideration. Proposed
Sec. __.14(c) and (d) are renumbered as Sec. __.14(b)(1) through (3),
reflecting reorganization of the proposed regulatory text to follow a
more chronological order of the confirmation process. As described more
specifically below, final Sec. __.14(b)(1) describes how banks subject
to the CRA regulations may request a confirmation of eligibility from
the appropriate Federal financial supervisory agency. Final Sec.
__.14(b)(2) describes the process for determining eligibility of an
activity, which includes the types of information the appropriate
Federal financial supervisory agency will consider and a statement that
the appropriate Federal financial supervisory agency will work in close
coordination with the other agencies to make eligibility
determinations. Final Sec. __.14(b)(2) also includes the proposal
clarifying that the supervisory agency may impose limitations or
requirements on a determination for consistency with the requirements
of the CRA final rule. Final Sec. __.14(b)(3) reflects proposed Sec.
__.14(c), stating that the appropriate Federal financial supervisory
agency will notify the requestor and other agencies of its
determination.
The agencies believe that establishing a confirmation process as
set forth in final Sec. __.14(b) will accomplish the desired goal of
increased certainty and clarity for banks by allowing them to seek an
upfront determination that a loan, investment, or service will be
eligible for community development consideration (subject to
limitations or
[[Page 6712]]
conditions set by agencies in the confirmation process, such as the
legality of the activity). Together with the illustrative list process
in Sec. __.14(a), the agencies believe that the confirmation process
in Sec. __.14(b) will assist banks with planning and will facilitate
banks' support of newer, less common, more complex, or innovative
activities. The agencies further believe that the confirmation process
will improve a bank's transparency into its supervisory agency's views
on a particular request, and will help banks focus their community
development resources and engagements. The agencies have considered
comments on the confirmation submission and review process, including
views on joint confirmation determinations, and have adopted a revised
rule taking that feedback into account, as described in more detail
below.
The agencies note that the confirmation process anticipated by
Sec. __.14(b) is an optional tool designed to provide more upfront
certainty to banks. However, the final rule does not prevent banks from
seeking informal, nonbinding feedback from the appropriate Federal
financial supervisory agency on particular activities, or prevent an
examiner from affirming in the normal course of an examination that an
activity does or does not qualify for community development
consideration based upon review of all facts and circumstances.
Section __.14(b)(1) Request for confirmation of eligibility. As
noted, final Sec. __.14(b)(1) provides that a bank subject to the CRA
regulations may request that the appropriate Federal financial
supervisory agency confirm that a loan, investment, or service is
eligible for community development consideration by submitting a
request to, and in a format prescribed by, that agency. To streamline
the regulation and reduce redundancy, the final rule combines proposed
Sec. __.14(c) and (d) in final Sec. __.14(b)(1) through (3). Final
Sec. __.14(b) does not include the reference in proposed Sec.
__.14(c) to updating the illustrative list, as duplicative of final
Sec. __.14(a)(2). The agencies expect to consider whether to add
confirmed eligible loans, investments, and services to the illustrative
list as part of the periodic list update process.
The agencies are declining to expand the confirmation process to
permit stakeholders beyond banks subject to the CRA regulations to
submit confirmation requests to the agencies, as suggested by some
commenters. The agencies appreciate the strong interest that other
stakeholders such as community groups may have in confirming whether
particular activities qualify for CRA consideration; at the same time,
they are not subject to CRA examinations. The agencies believe that
limiting the confirmation submission process to banks will ensure that
agency resources are most efficiently deployed to considering
eligibility for activities with confirmed interest from the banks that
would be seeking CRA consideration. Additionally, the agencies
emphasize that public input, including community contacts, and other
tools for stakeholder involvement remain a key part of the CRA
examination process.\545\
---------------------------------------------------------------------------
\545\ See, e.g., final Sec. __.46, regarding public engagement,
and the accompanying section-by-section analysis.
---------------------------------------------------------------------------
Section __.14(b)(2) Determination of eligibility. Final Sec.
__.14(b)(2) describes the eligibility determination process, which has
been revised from proposed Sec. __.14(d)(2). Final Sec.
__.14(b)(2)(i) provides the criteria the agencies will use in
determining the eligibility of a loan, investment, or service for a
request submitted under Sec. __.14(b)(1). Specifically, the
appropriate Federal financial supervisory agency will consider
information that describes and supports the bank's request (final Sec.
__.14(b)(2)(i)(A)) and any other information that the agency deems
relevant (final Sec. __.14(b)(2)(i)(B)).
Final Sec. __.14(b)(2)(i) clarifies proposed Sec. __.14(d)(2) by
stating that the appropriate Federal financial supervisory agency will
consider these factors ``[t]o determine the eligibility of a loan,
investment, or service for which a request has been submitted under
paragraph (b)(1)'' (as opposed to considering these factors ``[i]n
response to a request for confirmation'' \546\). In final Sec.
__.14(b)(2)(i)(A) and (B), the agencies are adopting provisions
proposed regarding information that the appropriate Federal financial
supervisory agency will consider in determining whether an activity is
eligible for CRA consideration under the individualized confirmation
process.\547\ Final Sec. __.14(b)(2)(i) does not incorporate the
proposed provision stating that the agencies will consider ``[w]hether
the activity is consistent with the safe and sound operation of the
bank.'' \548\ On further consideration, the agencies believe that
information in relation to the safe and sound operation of the bank is
covered under the language ``any other information that the [Agency]
deems relevant'' in final Sec. __.14(b)(2)(i)(B), so is unnecessary.
However, the agencies do not intend to substantively change the final
rule in this regard, and note that the CRA emphasizes meeting community
credit needs ``consistent with the safe and sound operation of such
institutions.'' \549\
---------------------------------------------------------------------------
\546\ See proposed Sec. __.14(d)(2).
\547\ See proposed Sec. __.14(d)(2)(i) and (iii).
\548\ Proposed Sec. __.14(d)(2)(ii).
\549\ 12 U.S.C. 2901(b).
---------------------------------------------------------------------------
Final Sec. __.14(b)(2)(ii) states that the agencies expect and are
presumed to jointly determine eligibility of a loan, investment, or
service to promote consistency across the agencies. This provision
further states that, before making a determination of eligibility, the
appropriate Federal financial supervisory agency will consult with the
other agencies regarding the eligibility of a loan, investment, or
service. On further deliberation, the agencies determined that it was
important to clarify the provisions regarding confirmation of
eligibility to reflect each agency's authority to make decisions about
its own supervised entities. At the same time, the final rule
incorporates the agencies' obligation to consult with one another and
work together in making eligibility determinations.
Proposed Sec. __.14(d)(3) is finalized as Sec. __.14(b)(2)(iii),
with technical edits and revisions to clarify that the appropriate
Federal financial supervisory agency (rather than all three agencies)
may impose limitations or requirements on a determination of the
eligibility of a loan, investment, or service of its regulated bank, to
ensure consistency with the CRA regulations.
In considering the appropriate provisions for final Sec.
__.14(b)(2), the agencies particularly noted commenters' views on the
importance of an efficient, timely confirmation process, as well as
commenters' interest in promoting consistency across the agencies
concerning similar opportunities. The agencies also considered that
confirmation requests may be highly varied by type, complexity, and
scope. The final rule thus emphasizes the agencies' commitment to
jointly consider and make decisions on confirmation requests in
consultation with one another, while allowing the Federal financial
supervisory agency to consider relevant factors and make a final
determination based on its particular supervisory knowledge of the
requesting bank and the agency's supervisory experience with the CRA.
Based on that knowledge and experience, the agencies believe it
appropriate to clarify that the appropriate Federal financial
supervisory agency (as opposed to all
[[Page 6713]]
three agencies together, as proposed) may impose limitations or
requirements on any determination. The agencies believe that the final
rule thus appropriately balances commenters' interests in efficiency
and consistency.
The agencies note that any determination of eligibility under final
Sec. __.14(b) is not a determination of legal permissibility or
compliance with applicable laws and regulations. A bank requesting a
determination remains responsible for ensuring that the loan,
investment, or service is legally permissible and complies with
applicable laws and regulations.
Section __.14(b)(3) Notification of eligibility. Final Sec.
__.14(b)(3) states that the Federal financial supervisory agency will
provide a written notification to the requestor and to the other
agencies of any eligibility determination, as well as the rationale for
such determination. The final rule expands on the proposal (proposed
Sec. __.14(c)) to clarify that a requestor can expect to receive the
rationale for an agency's determination, and to ensure that the
agencies remain collectively informed of the final dispensation of
requests, which will help promote interagency consistency and support
future confirmation request determinations. As each confirmation
request is dependent on individual facts and circumstances, and could
contain confidential information from the requesting bank, the agencies
do not intend to make their confirmation decisions public. However, as
noted above, the agencies will consider confirmation decisions when
periodically updating the illustrative list contemplated by Sec.
__.14(a).
Additional process issues. The final rule does not adopt specific
timelines or other more detailed points of process at this time. The
agencies appreciate commenters' additional feedback in response to
questions on the confirmation submission process and timelines,
including regarding process development, stakeholder engagement, and
technical suggestions. As with the illustrative list in Sec. __.14(a),
subsequent to this rulemaking, the agencies expect to jointly develop
the confirmation process in connection with final Sec. __.14(b). The
agencies in particular recognize commenter feedback on timelines, and
intend to implement a timely and efficient process. The agencies will
take these comments under advisement as that process development moves
forward.
Section __.15 Impact and Responsiveness Review of Community Development
Loans, Community Development Investments, and Community Development
Services
Current Approach
Currently, the agencies' qualitative assessment of a bank's
community development performance takes into account the responsiveness
of the bank's activities to credit and community development needs and,
if applicable, the innovativeness and complexity of the
activities.\550\ As part of these considerations, examiners also
consider the degree to which the activities serve as a catalyst for
other community development activities.\551\
---------------------------------------------------------------------------
\550\ See Q&A Sec. __.21(a)-2.
\551\ See id.
---------------------------------------------------------------------------
The terms ``responsiveness'' and ``innovativeness'' are generally
described in the Interagency Questions and Answers. Regarding
``responsiveness,'' for example, the Interagency Questions and Answers
explains that an examiner will consider both quantitative and
qualitative aspects of a bank's community development activities.\552\
Thus, in addition to considering the volume and type of activities,
examiners may consider some activities to be more responsive than
others if an activity effectively meets identified credit and community
development needs.\553\ ``Innovativeness'' takes into account, for
example, whether a bank implements meaningful improvements to products,
services, or delivery systems to respond to community needs.\554\ These
qualitative aspects of the bank's community development activities can
be assessed based on information provided by the bank and other sources
about the performance context and information about credit and
community development needs and opportunities.\555\
---------------------------------------------------------------------------
\552\ See Q&A Sec. __.21(a)--3.
\553\ See id.
\554\ See Q&A Sec. __.21(a)--4. The Interagency Questions and
Answers also indicate that ``innovativeness'' may include banks
introducing existing products, services, or delivery systems to
``low- or moderate-income customers or segments of consumers or
markets not previously served.'' Id. This guidance further states,
``Practices that cease to be innovative may still receive
qualitative consideration for being flexible, complex, or
responsive.'' Id.
\555\ See id.
---------------------------------------------------------------------------
While current guidance emphasizes the importance of a qualitative
review of a bank's community development activities and recognizes that
certain activities are more responsive than others, there are no clear
standards for how these factors are identified or measured. As a
result, the qualitative evaluation currently relies heavily on examiner
judgment.
As the agencies discussed in the proposal, some stakeholders have
suggested that the current approach for the qualitative evaluation of
community development activities could be more transparent and
consistent, and stakeholders have expressed that the qualitative
assessment could have a stronger focus on the impact and responsiveness
of a bank's community development activities and, relatedly, that it
could be more clearly linked to CRA's core purpose of serving low- and
moderate-income individuals and communities.
Section __.15(a) Impact and Responsiveness Review, in General
The Agencies' Proposal
Proposed Sec. __.15(a) would incorporate into the regulation an
impact review of community development activities under the Community
Development Financing Test,\556\ the Community Development Services
Test,\557\ and the Community Development Financing Test for Wholesale
or Limited Purpose Banks.\558\ The impact review would qualitatively
evaluate the impact and responsiveness of qualifying activities with
respect to community credit needs and opportunities through the
application of a series of review factors. Specifically, as proposed in
Sec. __.15(b) and discussed below, the evaluation of a community
development activity's impact and responsiveness would include, but
would not be limited to, a set of ten specific qualitative factors. In
addition, proposed Sec. __.15(a) stated that the agencies would
consider, as applicable, performance context information set forth in
proposed Sec. __.21(e), which would include information demonstrating
an activity's impact on and responsiveness to local community
development needs, such as detailed information about a bank's
activities, local data regarding community needs, and input from
community stakeholders.\559\ The impact and responsiveness review would
provide appropriate community development recognition for loans,
investments, and services that are considered to be especially
impactful and responsive to community needs, including loans and
investments that
[[Page 6714]]
may be relatively small in dollar amount.
---------------------------------------------------------------------------
\556\ Proposed Sec. __.24.
\557\ Proposed Sec. __.25.
\558\ Proposed Sec. __.26.
\559\ Proposed Sec. __.21(e) is renumbered final Sec.
__.21(d), discussed in detail in the accompanying section-by-section
analysis below.
---------------------------------------------------------------------------
Comments Received
Commenters on the proposed community development impact review
generally supported adding an impact review as proposed in Sec.
__.15(a). As discussed in more detail below, commenters also generally
favored adopting the proposed impact review factors in proposed Sec.
__.15(b), while expressing a range of views regarding how particular
proposed impact factors should be implemented. Numerous commenters also
recommended that the agencies adopt a variety of additional impact
factors.
Scope of impact factor review. Several commenters urged the
agencies to expand the scope of the impact factor review to include
activities under the proposed Retail Lending Test and Retail Services
and Product Test. These comments are discussed in the section-by-
section analysis of final Sec. Sec. __.22 and __.23.
Clarifications and impact factor review process.\560\ Some
commenters recommended that the agencies provide further clarity and
processes concerning how the agencies would review, weigh, and apply
impact factors in examinations and ratings determinations. A number of
commenters highlighted the need for a clear and transparent impact
factor review process, with commenters offering a range of suggestions,
including recommending additional public engagement, such as a public
comment process. Some commenters expressed concern about what they
viewed as a lack of specificity, regulatory uncertainty, and the risk
of examination inconsistency in the proposed impact factor review
process, while others emphasized the need for examiner training to
promote rigorous analysis, development of requisite expertise, and
consistency. A number of commenters also offered views on whether the
agencies also should permit activities with harmful features to be
evaluated negatively. Other commenters suggested that the impact review
also consider the impact of a bank's historical discriminatory
practices. A few commenters recommended that the agencies clarify that
institutions would not be penalized if they do not conduct a sufficient
number of activities associated with an enumerated impact factor.
---------------------------------------------------------------------------
\560\ See the section-by-section analysis of Sec. __.24 for
further discussion of the commenters' requested clarifications to
the impact and responsiveness review component in the final rule,
other than those noted herein.
---------------------------------------------------------------------------
Some commenters suggested that the agencies consider a
quantitative, metrics-based approach to an impact review in addition to
a qualitative review. Various commenters suggested that impact factor
reviews include points, weighting, and ratings, such as score weighting
for the most impactful investments, and a few commenters provided
examples of potential metrics for consideration. A few commenters, in
suggesting an analytical framework for evaluating the impact factors in
proposed Sec. __.15(b)(1) and (2) relating to persistent poverty areas
and areas with low levels of community development financing (discussed
below), noted that it would take several years before the agencies
would have sufficient data to incorporate impact factors as a
quantitative element of the examination process. Separately, another
commenter cautioned that a quantitative approach could lead to
unrealistic activity targets in some instances.
Final Rule
The final rule adopts proposed Sec. __.15(a) with clarifying and
technical revisions. The final rule states that, under the Community
Development Financing Test in Sec. __.24, the Community Development
Services Test in Sec. __.25, and the Community Development Financing
Test for Limited Purpose Banks in Sec. __.26, the relevant agency
evaluates the extent to which a bank's community development loans,
investments, and services are impactful and responsive in meeting
community development needs in each facility-based assessment area and,
as applicable, each State, multistate MSA, and the nationwide area. The
final rule renames the review as the ``impact and responsiveness
review'' to clarify the agencies' intent that impact should be
considered in conjunction with how responsive an activity is to
community needs. As discussed below, the final rule is further revised
from the proposal to clarify the agencies' intent for the impact and
responsiveness review and associated factors. Additionally, the final
rule makes technical edits to: (1) remove the reference to ``Wholesale
Banks'' to conform with revisions made elsewhere in the regulation; (2)
replace ``activities'' with ``loans, investments, and services,''
consistent with revisions made elsewhere in the regulation (with
parallel edits made in Sec. __.15(b)); and (3) update the performance
context cross-reference to Sec. __.21(d).
As discussed in more detail in the section-by-section analysis of
Sec. __.24, the approach of identifying specific impact and
responsiveness review factors as part of the qualitative evaluation is
intended to promote clear and consistent criteria. As a result, the
agencies believe that providing the impact and responsiveness review
factors in final Sec. __.15(b) will result in a more standardized
qualitative evaluation relative to current practices, in combination
with the standardized Community Development Financing Metrics and
benchmarks adopted in the final rule. In addition, this approach is
intended to foster transparency by providing the categories the
agencies will consistently review in considering the impact and
responsiveness of a bank's community development loans, investments,
and services. The agencies believe that this approach will advance the
purpose of the CRA by ensuring a strong emphasis on the impact and
responsiveness of community development loans, investments, and
services in meeting community needs, including loans and investments
that may be relatively small in dollar amount.
Consistent with the proposal, the final rule also states that the
relevant agency evaluates the impact and responsiveness of a bank's
community development loans, investments, or services based on Sec.
__.15(b), discussed in detail below, and may also take into account
performance context information pursuant to Sec. __.21(d).\561\ The
agencies recognize that assessing the impact and responsiveness of a
bank's community development loans, investments, and services may
necessitate considering activities and factors outside of Sec.
__.15(b), and the agencies have provided for this through the reference
to Sec. __.21(d). Accordingly, the final rule's approach of
considering the standardized categories in Sec. __.15(b) in
conjunction with the ability to consider broader performance context
information pursuant to Sec. __.21(d) is intended to help ensure
recognition of activities with a high degree of impact on and
responsiveness to the needs of low- or moderate-income communities.
Consistent with the proposal, the final list of impact and
responsiveness factors in Sec. __.15(b) is non-exhaustive, which will
also allow examiners to consider other highly impactful or responsive
loans, investments, or services that support
[[Page 6715]]
community development under Sec. __.13.
---------------------------------------------------------------------------
\561\ For further discussion of final Sec. __.21, see the
corresponding section-by-section analysis below.
---------------------------------------------------------------------------
The agencies have considered comments requesting additional detail
on the impact review process, various specific suggestions for the
process, and how the impact review might enhance or lower the bank's
performance conclusion. The final rule clarifies the agencies' intent
that, for purposes of the community development tests in Sec. Sec.
__.24 through __.26, the relevant agency will evaluate the extent to
which a bank's community development loans, investments, and services
are impactful and responsive in meeting community development needs. As
part of this evaluation, the agencies may consider the volume and type
of activities undertaken by a bank, applying the factors in Sec.
__.15(b) and performance context considerations. However, the agencies
also recognize that some community development activities that are
considered especially impactful and responsive to community needs may
be comparatively smaller in dollar amount. As such, the agencies may
consider more than the dollar volume or percentage of activities
meeting an impact and responsiveness factor category in Sec. __.15(b)
when assessing the extent to which a bank's community development
activities are impactful and responsive. The agencies will provide a
summary of a bank's impact and responsiveness review data, such as the
volume of activities by impact and responsiveness review category, and
incorporate the impact and responsiveness review into the performance
conclusions and the written performance evaluation.
The agencies view the impact and responsiveness review as one
component of a comprehensive evaluation in the community development
tests under Sec. Sec. __.24 through __.26. Under the final rule,
metrics, benchmarks, and impact and responsiveness reviews are
considered, as applicable, holistically in arriving at a performance
conclusion for each of these community development-focused tests. As a
result, the impact and responsiveness evaluation is not designed to
raise or lower a conclusion that is based solely on other components of
the performance tests under Sec. Sec. __.24 through __.26, such as the
bank's Community Development Financing Metric under Sec. __.24.
Rather, pursuant to the final rule, the impact and responsiveness
evaluation is one of several components of the applicable tests, and
all of these components are considered together to result in any of the
five conclusion categories.
The agencies have considered, but decline to adopt, an approach
that would assign a separate impact score. The agencies believe that
developing a consistent and consistently applied method of scoring the
impact and responsiveness of a bank's community development activities
factors could be particularly challenging without additional data, as
also noted below, and given that the list of factors in Sec. __.15(b)
is non-exhaustive. When considering a bank's performance under the
Community Development Financing Test in Sec. __.24, the final rule
specifies that the agency must consider the applicable Community
Development Financing Metric, benchmark(s), and impact and
responsiveness review. As a result, the impact and responsiveness
review is directly incorporated into a Community Development Financing
Test conclusion, which reflects the agencies' view that it is important
to consider both quantitative data points and more qualitative
considerations in assessing a bank's community development performance.
See the section-by-section analysis of Sec. __.24 for additional
discussion regarding the overall qualitative nature of the Community
Development Financing Test evaluation.
The agencies also considered commenter suggestions to implement a
quantitative, metrics-based approach to conducting an impact review.
The agencies are not in this final rule adding any specific impact and
responsiveness metrics, thresholds, or multipliers for community
development financing or services activity due to a lack of relevant
community development data. The agencies will continue to consider what
additional guidance may be provided in the future regarding the impact
and responsiveness review, and will take these comments under
advisement.
The agencies have considered, but are not adopting, a commenter
recommendation to include in the impact and responsiveness review an
assessment of a bank's historical discriminatory practices on the
communities that it serves. In making this determination, the agencies
considered that, under the final rule, as currently, evidence of
discrimination and other illegal credit practices can be the basis of a
rating downgrade.\562\
---------------------------------------------------------------------------
\562\ See current Sec. __.28(c), proposed Sec. __.28(d), and
final Sec. __.28(d), discussed in the section-by-section analysis
of final Sec. __.28(d) below.
---------------------------------------------------------------------------
Regarding comments recommending that the impact and responsiveness
review be expanded to the proposed Retail Lending Test and Retail
Services and Products Test, the agencies are not revising the final
rule in that regard. As is discussed in the section-by-section analyses
of Sec. Sec. __.22 and __.23, the Retail Lending Test and the Retail
Services and Products Test, taken together, have other mechanisms in
place to evaluate qualitative aspects of responsive products and
programs and incorporate factors appropriate for those evaluations.
Section __.15(b) Impact and Responsiveness Review Factors
Section __.15(b)(1) Benefits or Serves One or More Persistent Poverty
Counties
Section __.15(b)(2) Benefits or Serves One or More Census Tracts With a
Poverty Rate of 40 Percent or Higher
Section __.15(b)(3) Benefits or Serves One or More Geographic Areas
With Low Levels of Community Development Financing
The Agencies' Proposal
In Sec. __.15(b)(1) and (2), the agencies proposed impact factors
for activities serving specific geographic areas with significant
community development needs: ``persistent poverty counties,'' (proposed
Sec. __.15(b)(1)); and ``areas with low levels of community
development financing'' (proposed Sec. __.15(b)(2)). The agencies
considered that serving these geographic areas would reflect a high
level of responsiveness because the activities could increase economic
opportunity in areas with high needs and such activities may involve a
high degree of complexity and more intensive engagement on the part of
the bank.
Under proposed Sec. __.15(b)(1), whether an activity serves
``persistent poverty counties'' would be an impact factor. The agencies
proposed to define persistent poverty counties as counties or county-
equivalents with a poverty rate of at least 20 percent for the past 30
years as measured by the most recent decennial censuses.\563\ Under
proposed Sec. __.15(b)(2), whether an activity serves ``areas with low
levels of community development financing'' would be an impact factor.
By incorporating local CRA community development financing data into
the designation, this approach would highlight areas where CRA capital
is most limited. Because comprehensive
[[Page 6716]]
CRA community development financing data is not currently available at
local levels, the proposal noted that the agencies would first collect
and analyze data under a revised CRA regulation and would then
determine the appropriate approach for identifying areas with low
levels of qualified community development activities. The agencies also
sought feedback on whether to include activities in census tracts with
a current poverty rate of at least 40 percent (as referenced in the
proposal, a ``high poverty census tract'') as an impact factor. As
noted in the proposal, the agencies considered that this approach would
draw attention to economically distressed geographic areas that are
smaller than an entire county and not located in a persistent poverty
county, such as high poverty neighborhoods in densely populated urban
areas. The agencies noted that a census tract approach would offer the
advantage of emphasizing activities that specifically serve
communities, including individual neighborhoods, with significant
community development needs, and where barriers to credit access and
opportunity are often the greatest.
---------------------------------------------------------------------------
\563\ The Congressional Research Service identifies 407 counties
that meet the criteria for persistent poverty county using poverty
rate estimates from the 1990 Census, the 2000 Census, and the 2019
Small Area Income and Poverty Estimates. See Congressional Research
Service, ``The 10-20-30 Provision: Defining Persistent Poverty
Counties'' (Apr. 2022), https://sgp.fas.org/crs/misc/R45100.pdf.
---------------------------------------------------------------------------
The agencies sought feedback on whether the proposed impact review
factors for activities serving geographic areas with high community
development needs should include persistent poverty counties, high
poverty census tracts, areas with low levels of community development
financing, or some combination thereof. The agencies also sought
feedback on what considerations should be taken in defining these
categories and in updating a list of geographic areas for these
categories. The agencies indicated in the proposal that expressly
highlighting both persistent poverty counties and high poverty census
tracts may be appropriate to capture a balance of high needs areas in
both metropolitan and nonmetropolitan areas.
Comments Received
Commenters on this aspect of the proposal generally supported
proposed Sec. __.15(b)(1) and (2), and offered views on whether to
include high poverty census tracts as an impact factor. Several
commenters argued that all three areas have significant needs and would
benefit from community development activities. Other commenters
emphasized the importance of including both persistent poverty counties
and high poverty census tracts, asserting that persistent poverty
counties are largely rural, and that focusing only on such counties
would neglect many urban and suburban neighborhoods. Another commenter
stated that the inclusion of an impact factor for both persistent
poverty counties and high poverty census tracts might help address
racial and ethnic inequities. One commenter raised concerns that a high
poverty census tract approach focused on a 40 percent poverty rate
might not encourage activities in less dense rural areas where poverty
is diluted in census tracts.
Some commenters recommended alternative geographic impact factors
to those proposed. For example, commenters suggested that income-based
measures for delineating geographic areas for impact factors might be a
more equitable and consistent approach than poverty-based measures.
These commenters explained that focusing on ``low-income'' geographic
areas would result in investment opportunities that are more equally
spread out across the nation because income levels are set relative to
the area median income of each geographic area, whereas poverty levels
are based on a nationwide standard. Thus, these commenters asserted
that areas with lower area median incomes would have greater shares of
high-poverty census tracts than areas with higher area median incomes,
and investments in high-cost areas (that nonetheless might have high
community development needs) would not be incentivized. In this regard,
commenters recommended that the agencies recognize activities serving
low-income census tracts, which the commenters stated are more
challenging to serve than moderate-income census tracts.
Other commenters proposed that the agencies expand on or add to the
geographic areas included under proposed Sec. __.15(b)(1) and (2), or
select alternative definitions. Commenters recommended, for example,
that the agencies include or give more emphasis to activities in
particular communities, regardless of assessment area, such as
activities in majority-minority geographic areas, or activities in the
following areas with persistent poverty: Native communities, the
Mississippi Delta, Central Appalachia, and the Texas/Mexico Border.
Several other commenters recommended that ``rural'' communities be a
separate impact category, and emphasized that ``rural'' is not
synonymous with ``nonmetropolitan areas.'' These commenters noted that
some experts are turning to alternative density-based measures like
population per square mile to better identify communities.
Commenters also provided other suggestions related to proposed
Sec. __.15(b)(1) and (2). Comments included, for instance, that:
counties in all U.S. territories, such as Puerto Rico and the U.S.
Virgin Islands, be included on a list of persistent poverty counties;
high poverty census tracts, areas of low community development
financing, and persistent poverty counties should all be evaluated
separately so that projects that meet multiple criteria receive more
credit; and the agencies should consider giving additional
consideration for grants and donations to CDCs in persistent poverty
counties.
Lastly, commenter feedback regarding the inclusion of areas with
low levels of community development financing in proposed Sec.
__.15(b)(2) included, for example: opposing or expressing concern, in
part because these low levels may be related to extenuating factors;
suggesting that a demonstration of responsiveness to unmet needs should
also be required; and encouraging the agencies to provide additional
credit for community development activities in especially vulnerable
census tracts, such as those that are low income, highly segregated,
have distressed housing stock, or have significantly lower levels of
community development financing than other areas within designated
areas of need.
Final Rule
For the reasons discussed below, the agencies are adopting in the
final rule:
Proposed Sec. __.15(b)(1), with revisions discussed
below, providing as an impact and responsiveness factor whether a
bank's qualifying community development loan, investment, or service
benefits or serves one or more persistent poverty counties. The
definition of persistent poverty counties has been revised and
relocated to the definitions section Sec. __.12, as discussed below;
\564\
---------------------------------------------------------------------------
\564\ See Sec. __.12 (``persistent poverty county'') and the
corresponding section-by-section analysis.
---------------------------------------------------------------------------
A new impact and responsiveness factor in Sec.
__.15(b)(2) for whether a loan, investment, or service benefits or
serves one or more census tracts with a poverty rate of 40 percent or
higher; and
Proposed Sec. __.15(b)(2) substantially as proposed,
renumbered as final Sec. __.15(b)(3), providing as an impact and
responsiveness factor whether a loan, investment, or service benefits
or serves one or more geographic areas with low levels of community
development financing.
The final rule makes technical revisions from ``serves'' to
``benefits or serves'' in each of final Sec. __.15(b)(1)
[[Page 6717]]
through (3) for consistency with the language used in the community
development categories under Sec. __.13. Each of these factors is
discussed in more detail below.
The agencies believe that these factors capture three distinct,
though interrelated, aspects of unmet community development needs. The
impact and responsiveness factors in final Sec. __.15(b)(1) and (2) in
the final rule cover different dimensions of poverty, as discussed in
more detail in each section below. Persistent poverty counties, as
covered under Sec. __.15(b)(1), represent more dispersed, often
nonmetropolitan areas where a substantial share of residents have
experienced poverty over many years. Census tracts with a poverty rate
of 40 percent or higher, as covered under Sec. __.15(b)(2), are
disproportionately located in metropolitan areas. These census tracts
also represent areas with highly concentrated poverty within a more
recent timeframe that might not otherwise be captured by the persistent
poverty county definition. The agencies believe that expressly adopting
impact and responsiveness factors regarding both persistent poverty
counties and census tracts with a poverty rate of 40 percent or higher
appropriately captures a balance of high need areas in both
metropolitan and nonmetropolitan areas, as well as a balance of more
long-standing and more recent, higher levels of economic hardship.
Additionally, the impact and responsiveness factor in final Sec.
__.15(b)(3) highlights areas where there is a low level of community
development financing, which could be found in both metropolitan and
nonmetropolitan areas. Collectively, the agencies believe the final
impact and responsiveness factors in Sec. __.15(b)(1) through (3) will
recognize loans, investments, and services in communities with
significant community development needs. The agencies have considered
comments, but for the reasons discussed below, are not adopting
additional or alternative geographic designations, such as an impact
and responsiveness factor based on area median income.
Benefits or serves one or more persistent poverty counties (Sec.
__.15(b)(1)). With respect to persistent poverty counties under final
Sec. __.15(b)(1), final Sec. __.12 defines the term as meaning a
county that has had poverty rates of 20 percent or more for 30 years,
as publicly designated by the Board, FDIC, and OCC, compiled in a list,
and published annually by the FFIEC. Under the final rule, the agencies
are adopting a standard for measuring persistent poverty counties that
is consistent with common practice at other Federal agencies,\565\ and
that is designed to provide for statistical reliability while also
allowing for regular data updates as conditions change. The final rule
has been revised from the proposal (referencing the decennial census)
to provide the agencies additional flexibility to adapt to changing or
new data sources, including the ability to recognize how data on
poverty rates may change over time, without having to modify the
regulation. Doing so will also allow the agencies to adapt to a more
standardized Federal agency definition of persistent poverty county
over time, as recommended by the Government Accountability Office.\566\
The agencies intend to base an initial standard on data from the U.S.
Census Bureau's American Community Survey and decennial censuses. In
addition, the agencies expect to use equivalent statistical products to
measure persistent poverty in areas not covered by both the American
Community Survey and decennial census, such as Puerto Rico, the U.S.
Virgin Islands, Guam, the Marshall Islands, and American Samoa, which
should address the commenter recommendation to include U.S. territories
in the definition.
---------------------------------------------------------------------------
\565\ See, e.g., USDA Economic Research Service, ``Poverty Area
Measures'' (Aug. 8, 2023), https://www.ers.usda.gov/data-products/poverty-area-measures/.
\566\ GAO, ``Areas with High Poverty: Changing How the 10-20-30
Funding Formula Is Applied Could Increase Impact in Persistent
Poverty Counties'' (May 2021), https://www.gao.gov/assets/gao-21-470.pdf.
---------------------------------------------------------------------------
Currently, the agencies estimate that 5.6 percent of the U.S.
population lives in persistent poverty counties.\567\ Persistent
poverty counties are disproportionately nonmetropolitan, with an
estimated 13.6 percent of the population of nonmetropolitan areas
living in persistent poverty counties.\568\ Mapping of persistent
poverty counties shows that many are in the Mississippi Delta,
Appalachia, ``colonias'' in the Rio Grande River valley, and American
Indian and Alaska Native Areas as designated by the U.S. Census
Bureau.\569\ As noted in the proposal, Congress has directed other
agencies, including the U.S. Department of the Treasury's Community
Development Financial Institutions Fund, the USDA, the U.S. Economic
Development Administration, and the U.S. Environmental Protection
Agency, to allocate funding to persistent poverty counties.
---------------------------------------------------------------------------
\567\ Statistics used to characterize persistent poverty
counties and census tracts with a poverty rate of 40 percent or
higher are based on data in the 2015-2019 American Community Survey
and classifications of persistent poverty counties from Poverty Area
Measures published by the USDA Economic Research Service in November
2022.
\568\ See id.
\569\ Id.; T. M. Tonmoy Islam, Jenny Minier, and James P.
Ziliak, ``On Persistent Poverty in a Rich Country,'' 81 S. Econ. J.
653-78 (2015).
---------------------------------------------------------------------------
The agencies continue to believe that the impact and responsiveness
factor for persistent poverty counties as adopted will recognize and
encourage loans, investments, and services in areas that have
experienced high levels of economic hardship over many years, and where
community development needs can be significant. Additionally, the
agencies believe that designating geographic areas at the county level
offers a high degree of clarity and simplicity regarding which
qualifying activities would meet the criterion.
Benefits or serves one or more census tracts with a poverty rate of
40 percent or higher (Sec. __.15(b)(2)). For the reasons noted above
and upon consideration of comments received, the agencies are adopting
as an additional impact and responsiveness factor in final Sec.
__.15(b)(2) to consider whether a loan, investment, or service benefits
or serves one or more census tract with a poverty rate of 40 percent or
higher. This impact and responsiveness factor is intended to complement
the impact and responsiveness factor regarding persistent poverty
counties. The agencies believe that expressly including census tracts
with a poverty rate of 40 percent or higher captures high need areas
with particularly high levels of spatially concentrated poverty. Census
tracts covered by this factor might not be captured by the persistent
poverty definition for various reasons. For example, these census
tracts might have experienced high levels of poverty only in more
recent years rather than over the past 30 years; or these census tracts
might experience high poverty levels but are located in a county that
is not a persistent poverty county, such as a high poverty neighborhood
in a densely populated urban area. Census tracts with a poverty rate of
40 percent or higher are severely disadvantaged to a degree that is
reflected in several outcomes, even when compared with persistent
poverty counties. The agencies estimate that employment rates are
lower, a higher share of housing units are vacant, and median household
incomes are lower than they are in persistent poverty counties, on
average.\570\ The agencies further believe
[[Page 6718]]
40 percent is an appropriate benchmark for the impact and
responsiveness factor, as it is double the 20 percent threshold used in
the persistent poverty definition in Sec. __.15(b)(1),\571\ is
consistent with readily available statistical measures,\572\ and has
been used in research on the effects of concentrated poverty.
---------------------------------------------------------------------------
\570\ Statistics on employment rates, housing vacancies, and
median household incomes are from the 2015-2019 American Community
Survey and are reported as weighted averages across tracts.
Statistics used to characterize persistent poverty counties and
census tracts with a poverty rate of 40 percent or higher are based
on data in the 2015-2019 American Community Survey and
classifications of persistent poverty counties from Poverty Area
Measures published by the USDA Economic Research Service in November
2022.
\571\ USDA Economic Research Service, ``Poverty Area Measures''
(Aug. 8, 2023), https://www.ers.usda.gov/data-products/poverty-area-measures/.
\572\ See, e.g., HUD Office of Policy Development and Research,
``Moving to Opportunity for Fair Housing Demonstration Program:
Interim Impacts Evaluation'' (Sept. 2003), https://www.huduser.gov/portal//Publications/pdf/MTOFullReport.pdf.
---------------------------------------------------------------------------
Adopting an impact and responsiveness factor for census tracts with
more than 40 percent poverty is intended in part to help address
commenter concerns that persistent poverty counties are
disproportionately nonmetropolitan. Relative to persistent poverty
counties, which as noted above are disproportionately nonmetropolitan,
agency staff estimate that census tracts with a poverty rate of 40
percent or higher are disproportionately metropolitan; 3.1 percent of
the population of metropolitan areas lives in one of these extreme
poverty census tracts, compared with 2.4 percent of the population of
nonmetropolitan areas.\573\ Overall, 3.0 percent of the population
lives in census tracts with a poverty rate of 40 percent or
higher.\574\
---------------------------------------------------------------------------
\573\ See id.
\574\ See id.
---------------------------------------------------------------------------
The agencies acknowledge that there is some overlap between
persistent poverty counties and census tracts with a poverty rate of 40
percent or higher. Accounting for this overlap, 7.8 percent of the U.S.
population lives in either a persistent poverty county or a census
tract with a poverty rate of 40 percent or higher.\575\ Thus, the
agencies believe that adopting both of these impact and responsiveness
review factors will more comprehensively recognize activities in areas
of economic distress where loans, investments, or services will be
particularly impactful or responsive.
---------------------------------------------------------------------------
\575\ Id.
---------------------------------------------------------------------------
Benefits or serves one or more geographic areas with low levels of
community development financing (Sec. __.15(b)(3)). Finally, to
highlight areas where CRA community development capital is more
limited, the agencies are adopting the proposed impact and
responsiveness factor for areas with low levels of community
development financing, renumbered from the proposal as Sec.
__.15(b)(3). As discussed in the proposal, because comprehensive CRA
community development financing data is not currently available at
local levels, the agencies expect first to analyze data collected
pursuant to the final rule, and will then determine the appropriate
approach for identifying areas with low levels of community development
loans, investments, and services, and making that information
available. The agencies acknowledge commenter views that extenuating
circumstances may contribute to low levels of community development
financing, such as limited opportunities or few organizations actively
engaged in community development. Additionally, some areas could be
areas with few needs. However, the agencies believe it is important to
highlight these geographic areas as areas where there may be
opportunities to try to develop the community development ecosystem
needed to effectively deploy community development financing resources
when appropriate.
Additional commenter suggestions on geographic designations. The
agencies have considered comments suggesting additional or alternative
geographic designations, but are not adopting alternative or expanded
definitions such as those based on incomes relative to area median
income, or adopting alternative impact and responsiveness factors such
as a separate factor for rural communities. The agencies believe that
the impact and responsiveness factors adopted in Sec. __.15(b)(1)
through (3) appropriately capture high needs areas taking into account
both areas with either high and persistent or exceptionally high levels
of poverty and areas with low levels of community development financing
activity.
The agencies believe that using poverty rates appropriately
captures areas where incomes are low, since poverty is itself defined
based on household incomes. As census tracts with a poverty rate of 40
percent or higher contain a substantial share of households earning low
incomes, the agencies believe that adopting this impact and
responsiveness factor is responsive to comments emphasizing that it is
more challenging to serve areas where incomes are generally low.
Furthermore, area median incomes may be depressed across broad areas
with high levels of need.
On balance, the agencies believe that poverty measures are a useful
and appropriate measure, as shown by their widespread use. At the same
time, the agencies acknowledge commenter concerns about high needs
areas in higher income areas. The agencies believe that the inclusion
of an impact and responsiveness factor for areas with low levels of
community development financing activity also should mitigate commenter
concerns about a lack of incentives in high cost areas, because this
impact and responsiveness factor is not tied to determinations of
income or poverty levels,\576\ and a low level of community development
financing could be a reflection of its high cost in a particular area.
As relevant data will inform the identification of these areas, the
agencies believe that a separate demonstration that activities in these
areas meet unmet needs should not be necessary.
---------------------------------------------------------------------------
\576\ Bank loans, investments, and services subject to the
impact and responsiveness review would need, prima facie, to support
community development under final Sec. __.13, incorporating
relevant criteria for the applicable community development category.
See final Sec. __.13 and the corresponding section-by-section
analysis.
---------------------------------------------------------------------------
With respect to rural areas, the agencies believe that the approach
adopted in the final rule multiple impact and responsiveness factors
addressing community development needs on a geographic and demographic
basis recognizes activities benefiting many rural areas. As discussed
above and below, these include factors focusing on areas where there is
a demonstrated high level of need, such as persistent poverty counties.
The agencies recognize that there are many ways to define ``rural,''
and are sensitive to the diversity of experiences in rural areas.
However, the agencies do not believe that an impact and responsiveness
factor for activities in all rural areas would be appropriate, since a
designation as rural is not necessarily synonymous with having a high
level of need.
The agencies have determined not to adopt an impact factor for
activities in majority-minority census tracts as suggested by
commenters. For more information and discussion regarding the agencies'
consideration of comments recommending adoption of additional race- and
ethnicity-related provisions in this final rule, see section III.C of
this SUPPLEMENTARY INFORMATION.
Additionally, to the extent that community development loans,
investments, and services in a particular geographic area do not fall
under one of the adopted geographic-based impact and responsiveness
factors, the agencies note that those activities could potentially be
considered under other
[[Page 6719]]
impact and responsiveness factors, such as those serving low-income
individuals, families, or households (Sec. __.15(b)(5)) or supporting
small businesses or small farms (Sec. __.15(b)(6)). Finally, as noted
above, the list of impact and responsiveness factors is non-exhaustive.
To the extent that an activity in a particular geographic area is not
directly covered by one of the adopted impact and responsiveness
factors, yet is still highly impactful or responsive, it could still be
considered as such under Sec. __.15.
Section __.15(b)(4) Supports an MDI, WDI, LICU, or CDFI, Excluding
Certificates of Deposit With a Term of Less Than One Year
The Agencies' Proposal
In Sec. __.15(b)(3), the agencies proposed an impact factor for
bank activities that support MDIs, WDIs, LICUs, and U.S. Treasury
Department-certified CDFIs.\577\ The agencies highlighted in the
proposal these organizations' missions of meeting the credit needs of
low- and moderate-income and other underserved individuals,
communities, and small businesses; the community development needs and
communities served by these organizations; as well as the statute's
express emphasis on cooperation with MDIs, WDIs, and LICUs.
---------------------------------------------------------------------------
\577\ See U.S. Dept. of Treasury, Community Development
Financial Institutions Fund, ``CDFI Certification,'' https://www.cdfifund.gov/programs-training/certification/cdfi.
---------------------------------------------------------------------------
The agencies solicited comment on whether proposed Sec.
__.15(b)(3) should exclude placements of short-term deposits or other
activities. The agencies also solicited feedback on whether criteria
for review under this proposed impact factor should specifically
emphasize equity investments, long-term debt financing, donations, and
services, and whether other activities should be emphasized.
Comments Received
Commenters generally supported the proposed impact factor for
activities supporting MDIs, WDIs, LICUs, and CDFIs. A number of
commenters emphasized their support for including CDFIs, highlighting
the critical role that these institutions play in meeting the unique
credit and capital needs of underserved communities, and emphasizing
the need for CDFIs to raise capital for community development projects.
A few commenters stated that the rule should incentivize investments
into CDFIs that are minority lending institutions.
Additional entities in scope. Some commenters suggested that
additional entities be included in the proposed impact factor, given
the communities and needs served by some other entities. Commenter
suggestions included, for example, extending eligibility in this impact
factor for activities supporting or in partnership with nonprofit
organizations holding a NeighborWorks charter, land banks and land
banking activities, minority credit unions, community development
credit unions, cooperatives with a focus on revenue share or dividend-
based equity investments, SBICs, and RBICs.
Activities in scope. Commenters offered varying views on whether
proposed Sec. __.15(b)(3) should exclude placements of short-term
deposits or other activities. Several commenters supported including
short-term deposits, asserting, for example, that short-term deposits
can offer important and needed liquidity to lend, maintain asset size,
and represent a commitment of capital to under-resourced institutions
that can have a positive community benefit. In contrast, other
commenters asserted that short-term deposits should not be considered
in the impact factor, in part because underwriting community
development activities often requires long-term and patient debt
capital, and projects can take several years to become economically
viable. Further, these commenters asserted that short-term deposits do
not add as much value to communities compared to equity and equity-like
investments. Many commenters stated that all types of investments
should be considered as part of the proposed impact factor, although
some of these commenters suggested that long-term investments,
including long-term deposits, should receive greater impact
consideration.
A number of commenters supported an emphasis on equity investments,
and long-term debt financing, donations, and services as particularly
responsive, noting the greater impact of these forms of support on low-
and moderate-income individuals and communities. Some commenters also
suggested that particular activities within the proposed impact factor
should receive more emphasis to recognize their impact and value, such
as investments in smaller MDIs, WDIs, LICUs, and CDFIs, equity
investments in MDIs and equity investments in LICUs serving low-income
minority communities or communities with significant unmet community
development needs.
Final Rule
The final rule adopts proposed Sec. __.15(b)(3), renumbered as
Sec. __.15(b)(4), as an impact and responsiveness factor considering
whether loans, investments, and services support an MDI, WDI, LICU, or
CDFI, but revised from the proposal to exclude certificates of deposit
with a term of less than one year. The final rule also makes a
conforming edit to eliminate the express reference to ``Treasury
Department-certified'' CDFIs, because CDFI is now defined in final
Sec. __.12, meaning a U.S. Treasury Department-certified CDFI.\578\ As
noted in the proposal, and as also discussed in the section-by-section
analysis of final Sec. __.13(k), the agencies believe that these
organizations' missions of and track record in meeting the credit needs
of low- or moderate-income and other underserved individuals and
communities, as well as small businesses, are highly aligned with CRA's
core purpose of encouraging banks to meet the credit needs of their
entire community, including low- and moderate-income populations. These
organizations often also have intimate knowledge of local community
development needs and opportunities, allowing them to conduct highly
responsive activities.
---------------------------------------------------------------------------
\578\ See final Sec. __.12 (``Community Development Financial
Institution (CDFI)'') and the corresponding section-by-section
analysis above.
---------------------------------------------------------------------------
The agencies have considered comments but are not adding additional
entities to the final impact and responsiveness factor, for reasons
also discussed in the section-by-section analysis to Sec. __.13(k). In
addition to their mission and track record, noted above, MDIs, WDIs,
LICUs, and CDFIs generally undergo rigorous and verifiable
certification processes \579\ and are financial institutions that
provide critical capital access and credit to underserved communities.
The agencies further believe that emphasizing partnerships with the
entities covered by Sec. __.15(b)(4) is consistent with the CRA's
express emphasis on cooperation
[[Page 6720]]
with MDIs, WDIs and LICUs,\580\ as well as with the key role that
CDFIs--like MDIs, WDIs, and LICUs--play in the capital and financial
ecosystem in low- or moderate-income communities.\581\
---------------------------------------------------------------------------
\579\ See, e.g., OCC, ``Policy Statement on Minority Depository
Institutions'' (July 26, 2022), https://www.occ.gov/news-issuances/news-releases/2022/nr-occ-2022-92a.pdf; Board, SR 21-6/CA 21-4,
``Highlighting the Federal Reserve System's Partnership for Progress
Program for Minority Depository Institutions and Women's Depository
Institutions'' (Mar. 5, 2021), https://www.federalreserve.gov/supervisionreg/srletters/SR2106.htm; FDIC, ``Statement of Policy
Regarding Minority Depository Institutions,'' 86 FR 32728 (June 23,
2021); U.S. Dept. of Treasury, Community Development Financial
Institutions Fund, ``CDFI Certification,'' https://www.cdfifund.gov/programs-training/certification/cdfi. See also 12 CFR 701.34 (NCUA
standards for designating a Federal credit union as a ``low-income
credit union'').
\580\ See 12 U.S.C. 2903(b) (providing that the agencies may
consider, in assessing a bank's record of meeting the credit needs
of its community, the bank's activities in cooperation with MDIs,
WDIs, and LICUs). See also 12 U.S.C. 2907(a) (providing that CRA
credit may be granted to banks for donating, selling on favorable
terms, or making available on a rent-free basis to any branch that
is located in a predominantly minority neighborhood of an MDI or
WDI).
\581\ See, e.g., Anna Alvarez Boyd, Board of Governors of the
Federal Reserve System, and Charlene Van Dijk, Federal Reserve Bank
of Atlanta, ``An Overview of Community Development Financial
Institutions,'' Consumer Compliance Outlook, Federal Reserve System
(2022), https://www.consumercomplianceoutlook.org/2022/first-issue/overview-of-community-development-financial-institutions/.
---------------------------------------------------------------------------
The agencies also considered comments received that discussed
whether to exclude short-term deposits from this impact and
responsiveness factor. On consideration of the comments and further
deliberation, the agencies are excluding certificates of deposit with
terms of less than one year from this impact and responsiveness review
factor in the final rule. The agencies recognize that certificates of
deposit with terms of less than one year may provide less benefit for
community development projects financed by CDFIs, MDIs, WDIs and LICUs
than do other types of capital investment structures, as some
commenters noted. Limiting consideration under the impact and
responsiveness review factor in this manner is intended to recognize
activities that are more impactful and responsive to community credit
needs, including other types of certificates of deposit that provide
more stable, longer-term funding to CDFIs, MDIs, WDIs and LICUs. In
addition, the agencies believe that, as some commenters noted, certain
short-term deposits can provide important needed liquidity to lend and
maintain asset size, and can represent a commitment of capital to
under-resourced institutions that can have a positive community
benefit. Accordingly, the final rule provides the flexibility to
provide recognition under the impact and responsiveness review factor
for other forms of short-term deposits. The agencies also note that
exclusion from this impact and responsiveness factor does not preclude
certificates of deposits with a term of less than one year that support
a MDI, WDI, LICU, or CDFI from qualifying for community development
consideration under Sec. __.13(k).\582\
---------------------------------------------------------------------------
\582\ The agencies note that certificates of deposit may also
qualify for community development consideration if they meet of one
or more of the other community development categories in Sec.
__.13, regardless of term length.
---------------------------------------------------------------------------
Further, the agencies considered commenter feedback regarding
adopting specific criteria within Sec. __.15(b)(4) to further
emphasize equity investments, long-term debt financing, donations, and
services. The agencies appreciate that these types of activities can be
important to community development efforts; on balance, however, the
agencies believe that the final rule should provide flexibility to
encourage a range of activities that will meet differing local needs
across communities. In addition, the final rule emphasizes some of
these community development loans, investments, and services in other
parts of the CRA evaluation. For example, the Community Development
Financing Test (Sec. __.24) is adopting a Bank Nationwide Community
Development Investment Metric for large banks with assets over $10
billion, which will specifically measure the dollar volume of the
bank's community development investments, excluding mortgage-backed
securities, that benefit or serve all or part of the nationwide area
compared to the deposits located in the nationwide area for the
bank.\583\
---------------------------------------------------------------------------
\583\ For further detail regarding this provision, see final
Sec. __.24(e)(2)(iii) and the accompanying section-by-section
analysis below. See also, e.g., final Sec. __.15(b)(10) and the
accompanying section-by-section analysis below, regarding the impact
and responsiveness factor for investments in projects financed with
LIHTCs or NMTCs.
---------------------------------------------------------------------------
Section __.15(b)(5) Benefits or Serves Low-Income Individuals,
Families, or Households
The Agencies' Proposal
Proposed Sec. __.15(b)(4) established an impact factor for
activities that serve low-income individuals and families, generally
defined under proposed Sec. __.12 as those with an income of less than
50 percent of the area median income in a census tract.\584\ The
agencies sought feedback on an alternative approach of defining this
factor to include only those activities that serve individuals with an
income of less than 30 percent of the area median income. The
alternative would have been intended to ensure that the focus of this
factor is on activities that serve the individuals that are most
vulnerable to the challenges described above, such as housing
instability and unemployment.
---------------------------------------------------------------------------
\584\ See also final Sec. __.12 (definition of ``income level''
and, within that definition, ``low-income'') and the accompanying
section-by-section analysis above.
---------------------------------------------------------------------------
Comments Received
Of those commenting on this aspect of the proposal, some supported
the impact factor as proposed, including because households with
incomes below 50 percent of the area median income are harder to serve
and, relatedly, the 50 percent threshold fills a gap that is often
unmet by the market. A few commenters expressed concern with the
proposed 50 percent threshold and the 30 percent alternative as both
being potentially too low, with a commenter suggesting a multiplier to
recognize activities reaching individuals or families with incomes at
30 percent of the area median income or below. Relatedly, a few other
commenters noted that the thresholds could exclude the share of units
within a LIHTC property that are affordable at 60 percent or 80 percent
of the area median income. Some commenters stated that the agencies
should not lower the threshold to 30 percent of area median income
because providing affordable housing opportunities to very low-income
families is especially difficult in high-cost markets.
Final Rule
The final rule adopts proposed Sec. __.15(b)(4), renumbered as
Sec. __.15(b)(5), and revised to state that the agencies consider
whether a community development loan, investment, or service ``benefits
or serves low-income individuals, families, or households.'' The final
rule makes technical edits from the proposal from ``serves'' to
``benefits or serves'' for consistency with the language used in the
community development categories under Sec. __.13, and adds ``or
households'' for clarity, to conform with edits made to other community
development provisions in the final rule. The definition of ``low-
income'' has been revised, as discussed in the section-by-section
analysis of Sec. __.12, but still generally references an income that
is less than 50 percent of the area median income.
The agencies note that, by focusing on low-income individuals,
families, and households, final Sec. __.15(b)(5) is intended to be
consistent with the Retail Lending Test approach, in that the Retail
Lending Test evaluates closed-end home mortgage lending and automobile
lending using borrower distribution metrics that separately consider
lending to low-income individuals.\585\ The agencies are also
[[Page 6721]]
adopting this impact and responsiveness factor in order to take into
account that low-income individuals, families, and households have high
community development needs and can experience challenges obtaining
basic financial products and services, securing stable employment
opportunities, finding affordable housing, and accessing digital
infrastructure.\586\ The agencies also recognize that community
development loans, investments, and services supporting activities that
serve low-income individuals, families, or households often entail a
high level of effort and complexity on the part of the bank and
community partners.
---------------------------------------------------------------------------
\585\ See final Sec. __.22(d) and the accompanying section-by-
section analysis below, discussing the separate analyses under the
Retail Lending Test of retail lending to low-income individuals and
to middle-income individuals.
\586\ See, e.g., FDIC, ``How America Banks: Household Use of
Banking and Financial Services, 2019 FDIC Survey'' (Oct. 2020)
(hereinafter ``How America Banks''), https://www.fdic.gov/analysis/household-survey/2019report.pdf; Federal Reserve Bank of Dallas,
``Closing the Digital Divide: A Framework for Meeting CRA
Obligations'' (July 2016), https://www.dallasfed.org/~/media/
documents/cd/pubs/digitaldivide.pdf; Joint Center for Housing
Studies of Harvard University, ``America's Rental Housing 2022''
(2022), https://www.jchs.harvard.edu/sites/default/files/reports/files/Harvard_JCHS_Americas_Rental_Housing_2022.pdf; Nicole Bateman
and Martha Ross, ``The Pandemic Hurt Low Wage Workers the Most and
So-Far, the Recovery has Helped Them the Least'' Brookings
Institution (July 2021), https://www.brookings.edu/articles/the-pandemic-hurt-low-wage-workers-the-most-and-so-far-the-recovery-has-helped-them-the-least/; Kelly D. Edmiston, Federal Reserve Bank of
Kansas City, ``Why Aren't More People Working in Low- and Moderate-
Income Areas?'' (Jan. 2, 2020), https://www.kansascityfed.org/Economic%20Review/documents/919/2019-Why%20Aren't%20More%20People%20Working%20in%20Low-%20and%20Moderate-
Income%20Areas%3F.pdf/.
---------------------------------------------------------------------------
The agencies have considered comments that the 50 percent area
median income threshold used for this impact and responsiveness factor
in the final rule will exclude some impactful and responsive activities
from consideration under this provision, including certain LIHTC
activity designed for affordability at 60 percent or 80 percent of the
area median income. However, the agencies continue to believe that
using a 50 percent area median income standard for low-income
throughout the regulation is important to reduce complexity and
confusion, and that a 50 percent of area median income appropriately
tailors the impact and responsiveness factor to address hard-to-serve
community development needs, as discussed above. Additionally, the
agencies note that such activities may be included under other impact
and responsiveness factors, such as the added impact and responsiveness
factor in Sec. __.15(b)(10) regarding projects financed with LIHTCs
and NMTCs.
The agencies have also considered the alternative approach of
setting an income threshold of less than 30 percent of the area median
income. In determining not to adopt this approach, the agencies have
considered that, while a lower threshold could put more of a focus on
the activities that serve the most vulnerable, there also might be
comparatively fewer community development opportunities for banks that
would primarily serve individuals, families, or households in this
income category. The agencies have also considered that a lower
threshold could exclude from consideration under this impact and
responsiveness factor activities that are responsive to needs of low-
income communities, such as affordable housing opportunities to low-
income (30-50 percent area median income) families in high-cost
markets. Similar to the discussion above, such activities may be
included under other impact and responsiveness factors, such as the
impact and responsiveness factor addressing High Opportunity Areas in
Sec. __.15(b)(7) and discussed further below.
Section __.15(b)(6) Supports Small Businesses or Small Farms with Gross
Annual Revenues of $250,000 or Less
The Agencies' Proposal
Proposed Sec. __.15(b)(5) set forth an impact factor for
activities that support small businesses or small farms with gross
annual revenues of $250,000 or less. This factor was intended to
recognize bank activities that address the unique credit needs of the
smallest businesses and farms, in alignment with the Retail Lending
Test approach in proposed Sec. __.22(d)(2)(iii), which would
separately evaluate a bank's distribution of loans to small businesses
and small farms with gross annual revenues of $250,000 or less.\587\
The agencies sought feedback on whether this impact factor should
instead be set at a higher gross annual revenue threshold, for example
at $500,000; or lower, for example at $100,000. The agencies also
solicited comment on how to weigh the importance of using a consistent
threshold for identifying smaller businesses and smaller farms both for
the Retail Lending Test and for this proposed impact factor.
---------------------------------------------------------------------------
\587\ The proposed Retail Lending Test approach in Sec.
__.22(d)(2) would also separately evaluate a bank's distribution of
loans to small businesses and farms with gross annual revenues of
more than $250,000, but less than or equal to $1 million. See final
Sec. __.22(d) and the accompanying section-by-section analysis.
---------------------------------------------------------------------------
Comments Received
Commenters generally supported including an impact factor for
activities supporting small businesses or small farms, but commenters
provided a variety of views on the proposed gross annual revenue
threshold. Some commenters expressed support for the proposed standard
of gross annual revenue of $250,000 or less because, for instance, the
threshold would incorporate many family care and childcare businesses
into this impact factor. Other commenters expressed support for the
proposed standard, but urged the agencies to consider a tiered approach
under which the agencies would separately evaluate activities that
support businesses with revenues less than $100,000 and that support
businesses with revenues between $100,000 to $250,000 in order to help
ensure that the smallest businesses are served, an approach they
favored as consistent with current CRA small business lending reporting
requirements.\588\ Several commenters noted that businesses with
revenues under $100,000 are more likely to be startups and owned by
women or people of color.
---------------------------------------------------------------------------
\588\ See, e.g., current 12 CFR __.42(b)(1).
---------------------------------------------------------------------------
A few commenters expressed support for the lower alternative
threshold of $100,000 or less, to allow the agencies to better target
very small businesses and small farms. One commenter recommended the
proposed standard align with SBA criteria for Small Disadvantaged
Businesses \589\ and the USDA definition for socially disadvantaged
farm or farmer.\590\
---------------------------------------------------------------------------
\589\ See, e.g., SBA, ``Small Disadvantaged Business'' (Sept.
28, 2023), https://www.sba.gov/federal-contracting/contracting-assistance-programs/small-disadvantaged-business.
\590\ See, e.g., USDA Economic Research Service, ``Socially
Disadvantaged, Beginning, Limited Resource, and Female Farmers and
Ranchers'' (Mar. 22, 2023), https://www.ers.usda.gov/topics/farm-economy/socially-disadvantaged-beginning-limited-resource-and-female-farmers-and-ranchers/.
---------------------------------------------------------------------------
Some commenters expressed support for higher thresholds, such as
the alternative contemplated in the proposal of $500,000 gross annual
revenues or less, or higher thresholds ranging from $1 million to $5
million. In this regard, one commenter stated, for example, that a
higher threshold would be more appropriate from the standpoint of risk
to the bank.
Finally, a commenter urged consistency between the impact factor
threshold and the threshold used in the Retail Lending Test, stating
there would be no discernable benefit from having different thresholds,
and that consistency would promote compliance.
[[Page 6722]]
More generally, a commenter suggested that small business-related
provisions should focus on the number of small business loans made,
rather than the total dollar volume.\591\
---------------------------------------------------------------------------
\591\ For further discussion of the consideration of dollar
volume under the Community Development Financing Test, see the
section-by-section analysis of Sec. __.24.
---------------------------------------------------------------------------
Final Rule
The final rule adopts proposed Sec. __.15(b)(5), renumbered as
Sec. __.15(b)(6), establishing an impact and responsiveness factor for
loans, investments, or services that support small businesses or small
farms with gross annual revenues of $250,000 or less. In deliberating
on whether to finalize this impact and responsiveness factor, the
agencies considered commenter feedback regarding the appropriate
threshold as well as the feedback on the threshold used in the Retail
Lending Test.\592\ As is also discussed in the section-by-section
analysis of Sec. __.22, on balance, the agencies believe that the
$250,000 gross annual revenue threshold adopted under the final rule
will recognize activities that are particularly responsive and
impactful to smaller businesses and farms. The impact and
responsiveness factor under final Sec. __.15(b)(6) will apply to a
small business loan or small farm loan that qualifies as a community
development loan under Sec. __.13 (which could include a loan that is
also separately considered under the Retail Lending Test).
---------------------------------------------------------------------------
\592\ See final Sec. __.22(e)(2)(ii) and the accompanying
section-by-section analysis below.
---------------------------------------------------------------------------
The adopted threshold is intended to recognize a focus on the small
business and small farm borrowers with high credit needs and that can
be the most difficult to serve. The agencies believe that a higher
threshold might not sufficiently encourage banks to seek out activities
serving smaller businesses or farms. At the same time, the agencies
considered that, while a lower gross annual revenue threshold might
focus on businesses and farms with the greatest unmet credit needs, the
adopted threshold will encourage banks to help meet the credit needs of
a larger share and greater diversity of small businesses with
significant credit needs in their communities.
The agencies also considered commenter feedback suggesting
alternative criteria or a tiered evaluation approach for this impact
and responsiveness factor, but, on further deliberation, decided not to
adopt these suggestions. The agencies believe that uniform thresholds
across the final rule will promote clarity, align bank data
requirements, and facilitate identifying opportunities and needs for
CRA activity. The impact and responsiveness factor in final Sec.
__.15(b)(6) will help accomplish these objectives by aligning with the
lowest tier threshold adopted under the Retail Lending Test, evaluating
bank lending to smaller businesses and smaller farms, identified as
those having gross annual revenues of $250,000 or less.\593\ The
agencies also believe that the final rule's simple and straightforward
impact and responsiveness factor regarding smaller businesses and farms
will support greater certainty and transparency for banks and other
stakeholders.
---------------------------------------------------------------------------
\593\ See final Sec. __.22(e)(2)(ii)(C) and (E) and the
accompanying section-by-section analysis below.
---------------------------------------------------------------------------
Section __.15(b)(7) Directly Facilitates the Acquisition, Construction,
Development, Preservation, or Improvement of Affordable Housing in High
Opportunity Areas
The Agencies' Proposal
The agencies also proposed an impact factor for activities that
directly facilitate the acquisition, construction, development,
preservation, or improvement of affordable housing in High Opportunity
Areas (proposed Sec. __.15(b)(6)). The proposal defined High
Opportunity Areas to align with the FHFA definition of High Opportunity
Areas, including: (1) areas designated by HUD as a ``Difficult
Development Area'' (DDA); or (2) areas designated by a State or local
Qualified Allocation Plan as High Opportunity Areas, and where the
poverty rate falls below 10 percent (for metropolitan areas) or 15
percent (for nonmetropolitan areas).\594\ The agencies also solicited
comment on whether the proposed approach to use the FHFA definition of
``High Opportunity Areas'' is appropriate, and whether there are other
options for defining High Opportunity Areas. Responsive comments are
discussed in the section-by-section analysis of final Sec. __.12
regarding the definition of High Opportunity Area.
---------------------------------------------------------------------------
\594\ See proposed Sec. __.12 (``High opportunity area''); see
also final Sec. __.12 (``High Opportunity Area'') and the
accompanying section-by-section analysis.
---------------------------------------------------------------------------
Comments Received
Commenters addressing this aspect of the proposed rule generally
supported it, with feedback including that High Opportunity Areas
feature better schools, jobs, and opportunities, and that affordable
housing in such areas represents an important step in addressing
neighborhood segregation. One commenter supportive of the proposal
nonetheless cautioned against designing the CRA final rule in a way
that diminishes support for housing developments in areas that are not
designated as high opportunity, but that are typically in dire need of
investments.
Various commenters also suggested that specific activities be given
increased consideration under the proposed impact factor, including,
among others, homeownership opportunities for low- and moderate-income
individuals in High Opportunity Areas and financing that supports units
with higher percentages of low-income tenants in high-cost-burdened
geographic areas and areas with low vacancy rates. Some commenters
offered suggestions for additional impact factors related to affordable
housing, such as projects that are especially affordable or have longer
affordability terms and covenants; and housing counseling and mobility
counseling designed to connect consumers with these housing
opportunities, among others.
Final Rule
The final rule adopts proposed Sec. __.15(b)(6), renumbered as
Sec. __.15(b)(7), which provides an impact and responsiveness review
factor that considers whether loans, investments, or services directly
facilitate the acquisition, construction, development, preservation, or
improvement of affordable housing in High Opportunity Areas. As
explained in more detail in the section-by-section analysis of Sec.
__.12, under the final rule, a High Opportunity Area is defined as an
area identified by the FHFA for purposes of the Duty to Serve
Underserved Markets regulation in 12 CFR part 1282, subpart C. This
definition generally includes geographic areas where the cost of
residential development is high \595\ and affordable housing
opportunities may be limited.
---------------------------------------------------------------------------
\595\ See, e.g., HUD, Office of Policy Development and Research,
``Qualified Census Tracts and Difficult Development Areas'' (2022),
https://www.huduser.gov/portal/datasets/qct.html.
---------------------------------------------------------------------------
As noted by the agencies in the proposal, the agencies consider
affordable housing in High Opportunity Areas to have a high level of
impact and responsiveness. This impact and responsiveness factor is
intended to recognize qualifying homeownership opportunities for low-
and moderate-income individuals in High Opportunity Areas and also to
include qualifying loans, investments, and services that support
projects with high percentages
[[Page 6723]]
of low-income tenants in high-cost-burdened geographic areas or areas
with low vacancy rates in High Opportunity Areas.
The agencies do not believe that inclusion of this impact and
responsiveness factor diminishes support for housing developments in
areas that are not designated as High Opportunity Areas, particularly
in light of other aspects of the proposal. The final rule includes a
separate category of community development focused more broadly on
loans, investments, and services that support affordable housing,
discussed in detail in the section-by-section analysis of final Sec.
__.13(b). In addition, the agencies believe that other impact and
responsiveness factors will recognize affordable housing in other ways,
such as the impact and responsiveness factor adopted in Sec.
__.15(b)(10) regarding investments in projects financed with LIHTCs or
NMTCs, and the impact and responsiveness factors in Sec. __.15(b)(1)
through (3) for loans, investments, and services in specific geographic
areas with significant community development needs. The agencies also
believe that these aspects of the proposal may help to address
suggestions by other commenters for additional impact factors related
to affordable housing.
Section __.15(b)(8) Benefits or Serves Residents of Native Land Areas
The Agencies' Proposal
Under Sec. __.15(b)(7), the agencies proposed as an impact factor
whether bank activities ``[b]enefit Native communities, such as
qualifying activities in Native Land Areas under [proposed] Sec.
__.13(l).'' This factor was intended to recognize the credit and
community development needs of Native and tribal communities as
discussed in the proposal, which make bank activities that serve these
communities especially responsive.
This proposed impact factor would include all eligible community
development activities taking place in Native Land Areas. This includes
activities as defined under proposed Sec. __.13(l) (finalized as Sec.
__.13(j)), as well as other eligible community development activities
that benefit or serve Native Land Areas and meet other eligibility
criteria in Sec. __.13. For example, an affordable housing project
that is located in a Native Land Area or an activity in a Native Land
Area undertaken with a CDFI would be included under this proposed
impact factor.
The agencies sought feedback on whether this proposed impact factor
should be defined to include activities benefiting Native communities
not located in Native Land Areas, and if so, how to define those
activities. Such an approach would be intended to recognize that many
tribal members reside in areas outside of the proposed definition of
Native Land Areas, as a result of a number of factors, including past
Federal policies.\596\
---------------------------------------------------------------------------
\596\ See, e.g., The Indian Relocation Act of 1956, Public Law
84-959, 70 Stat. 986; National Archives, ``American Indian Urban
Relocation,'' https://www.archives.gov/education/lessons/indian-relocation.html.
---------------------------------------------------------------------------
Comments Received
Commenters generally supported proposed Sec. __.15(b)(7).
Commenters noted, among other reasons, that Native communities and
tribal lands are consistently underserved and have unique priorities
and needs, which can make lenders more reluctant to serve those areas.
Commenters also generally supported including activities benefiting
Native and tribal communities that are not located in Native Land
Areas. For example, a commenter stated that the proposed approach is an
effective way to provide certainty to lenders in the evaluation and
``scoring'' process, while encouraging projects that may require
investments both on and off Native Land Areas. Another commenter
observed that some tribal citizens reside in areas outside of Tribal
Nation jurisdictional boundaries, but still receive essential services
provided by the commenter, and that tribal governments, businesses, or
corporations are the main employers of those residents not living in
Native Land Areas.
A few commenters suggested other ways to provide an increased
emphasis for activities benefiting Native Land Areas, as defined in the
proposed rule. For instance, a commenter suggested that in order to
incentivize projects in Native Land Areas, activities that benefit
Native Land Areas should be given greater weight than those that
benefit Native communities. Other commenters suggested alternative ways
to define activities that could be considered under the impact factor,
such as activities that primarily benefit low- or moderate-income
Native individuals; or that primarily benefit tribal members in general
(in that regardless of income, activities should be considered high-
impact and responsive). Other commenters suggested partial
consideration be provided for activities provided to Native communities
and Black Native Freemen, regardless of residence, even if less than 50
percent of beneficiaries are low- and moderate-income; or greater
emphasis for activities in hard-to-reach areas, given barriers to entry
due to land ownership, tax status, and other constraints.
Some commenters gave suggestions on how to define ``Native
communities.'' Among suggestions, commenters suggested defining
``community'' to include membership in a government-recognized Native
or tribal community, and/or otherwise qualifying for government
resources; organizations that are recipients of Federal funds intended
to enroll Natives in urban areas; or U.S. territories.\597\
---------------------------------------------------------------------------
\597\ For a more detailed discussion of public comments on the
definition of ``Native Land Area,'' see the section-by-section
analysis of Sec. __.12.
---------------------------------------------------------------------------
Final Rule
The final rule, renumbered as Sec. __.15(b)(8), adopts as an
impact and responsiveness factor whether loans, investments, and
services benefit or serve residents of Native Land Areas. The final
rule revises the proposed impact factor from ``Native communities'' to
``residents of Native Land Areas,'' (as defined in Sec. __.12), and
does not adopt the cross-reference to Sec. __.13(j).
In arriving at the final rule, the agencies considered the unique
status of and credit and community development needs in Native Land
Areas. As discussed in more detail elsewhere in this SUPPLEMENTARY
INFORMATION, Native Land Areas in particular have often experienced
limited benefits from bank access or investments, which the agencies
believe make bank loans, investments, and services in these geographic
areas particularly impactful and responsive. For example, complex land
ownership structures associated with Native Land Areas can make
economic development in those lands particularly difficult, which the
agencies believe supports incorporating a more specific focus and
emphasis on those geographic areas in modernized CRA regulations. For
further discussion on these challenges, see the section-by-section
analysis of the Native Land Areas category of community development in
Sec. __.13(j). The final rule is thus revised to clarify and
strengthen the nexus to residents of Native Land Areas.
Additionally, as discussed in more detail in the section-by-section
analysis of Sec. __.12 (``Native Land Area''), the Native Land Area
definition is designed to be comprehensive, to align with
[[Page 6724]]
existing Federal Indian Law regarding lands and communities with unique
political status, and to support application of the rule with durable,
publicly available data sources. The proposed impact factor contained
an undefined term (``Native communities''), which comments suggested
could have different meanings. Rather than defining ``Native
communities'' in one or a combination of several ways some commenters
suggested, the agencies believe that revising the final rule with
reference to Native Land Areas, a term used elsewhere in the rule
consistent with existing law, will facilitate compliance and
supervision and make banks' ability to engage in and track activities
that might be considered under this impact and responsiveness factor
more practicable.
The final rule also no longer cross-references the Native Land
Areas community development category finalized in Sec. __.13(j), for
simplicity and to ensure clarity that the impact and responsiveness
review factor is available with respect to any community development
loan, investment, or service that qualifies under Sec. __.13, provided
that the loan, investment, or service benefits or serves residents of
Native Land Areas. Examples of activities that might be considered
under this impact factor include: a project to finance a tribal health
care facility \598\ that qualifies as an essential community facility
under Sec. __.13(f) and that benefits or serves residents of a Native
Land Area, or a housing project financed with a Native CDFI that
qualifies under Sec. __.13(k) and that benefits or serves residents of
a Native Land Area.
---------------------------------------------------------------------------
\598\ See U.S. Dept. of Health & Human Svc, Indian Health
Service, ``Health Facilities Construction'' (Oct. 2016), https://www.ihs.gov/newsroom/factsheets/healthfacilitiesconstruction/.
---------------------------------------------------------------------------
The agencies have carefully considered comments suggesting that the
proposed impact and responsiveness factor be defined in the final rule
to include loans, investments, or services benefiting or serving Native
communities located outside of Native Land Areas. The agencies
recognize that many Native communities live outside of Native Land
Areas, and are sensitive to the many complexities and needs underlying
and associated with these communities. However, for the reasons
discussed above, the agencies believe that adopting an impact and
responsiveness factor recognizing loans, investments, and services
addressing the particular and significant community development needs
in Native Land Areas is appropriate and will provide a greater degree
of clarity and consistency across the rule and in its application.
Relatedly, the agencies have taken into account potentially
considerable practical challenges of implementing a broader impact and
responsiveness factor focused on a highly dispersed population.\599\
---------------------------------------------------------------------------
\599\ See also the section-by-section analysis of final Sec.
__.12 (``Native Land Area''), regarding consideration of
incorporating into the definition of Native Land Area areas outside
of geographic areas enumerated in the final rule definition.
---------------------------------------------------------------------------
The agencies believe that other impact and responsiveness factors
adopted under the final rule will recognize activities that benefit or
serve Native communities more broadly. These include impact and
responsiveness factors discussed above focused on activities in other
geographic areas with high community development needs (final Sec.
__.15(b)(1) through (3)); low-income individuals, families, and
households (final Sec. __.15(b)(5)); and businesses and farms with
gross annual revenues of $250,000 or less (final Sec. __.15(b)(6)).
These also include the impact and responsiveness factor adopted in
Sec. __.15(b)(4) regarding loans, investments, and services supporting
an MDI, WDI, LICU, or CDFI, a subset of which are focused on serving
Native communities, such as Native MDIs or Native CDFIs as designated
by the CDFI Fund.\600\
---------------------------------------------------------------------------
\600\ See CDFI Fund, ``Native Initiatives,'' https://www.cdfifund.gov/programs-training/programs/native-initiatives.
---------------------------------------------------------------------------
The agencies have also considered comments encouraging additional
emphasis for other particular activities within this impact and
responsiveness factor, but are not otherwise revising the rule. The
agencies believe that the combination of the new community development
category for loans, investments, and services in Native Land Areas in
final Sec. __.13(j) and the final impact and responsiveness factor in
Sec. __.15(b)(8), along with other provisions in the final rule that
would recognize bank investments benefiting Native communities, such as
the impact and responsiveness factors noted above, appropriately help
encourage banks to meet credit needs in these harder to serve parts of
banks' communities. The agencies believe that these components of the
final rule facilitate flexibility to address the diverse and myriad
needs of Native communities.
Section __.15(b)(9) Is a Grant or Donation
The Agencies' Proposal
Proposed Sec. __.15(b)(8) included qualifying grants or
contributions as an impact factor. As noted in the proposal, the
Community Development Financing Metric in proposed Sec. __.24(b) would
be based on the dollar amount of financing activities (including loans,
investments, and grants or contributions) relative to deposits, and
thus would not account for the fact that a grant has no repayment
obligation, unlike a typical community development loan or qualifying
investment. The impact factor was designed to account for high-impact,
smaller dollar transactions to complement their inclusion in the
Community Development Financing Metric, recognizing that grants or
donations are often smaller dollar volumes than community development
loans or investments. Additionally, the impact factor was intended to
recognize banks that provide important sources of capital that help
community development organizations to build capacity and maintain
sustainability.
Comments Received
Commenters offered varying views on the agencies' proposal to
include as an impact factor activities that are a qualifying grant or
donation. Some commenters supported including qualifying grant
contributions as an impact factor. A few commenters noted that grants
are especially impactful, while another highlighted the importance of
grant capital for funding CDFIs. One commenter noted that grant
interventions can be particularly effective during crises for small
businesses. Other commenters, however, raised questions about the
proposed impact factor. For example, one commenter expressed concern
about an over-emphasis on grants, asserting that grants do not directly
expand access to credit, while loans are directly related to credit.
Some commenters also offered suggested modifications or
clarifications to the proposal. A few commenters remarked that the
current CRA framework values loans over grants and donations and
suggested additional emphasis, an outcome-based metric, or multipliers
that would better account for the impact of grants to the organizations
that depend on them. Commenters further suggested that to best
encourage making grants, separate impact factors should be created for
grants to nonprofit organizations, community-based organizations,
CDFIs, and grant investments that serve low- or moderate-income
households.
Final Rule
For the reasons described in the proposal and as noted above, the
final
[[Page 6725]]
rule adopts proposed Sec. __.15(b)(8), renumbered as Sec.
__.15(b)(9), generally as proposed, to recognize whether a loan,
investment, or service is a grant or donation. As noted above and
consistent with comments received, this final rule impact and
responsiveness factor is intended to recognize that grants or donations
tend to be smaller in dollar amount relative to larger-dollar volume
financing activities, but often are particularly impactful. The
agencies believe that an impact and responsiveness factor is
appropriate to ensure grants continue to receive appropriate
recognition when considered along with all other community development
financing activities. The final rule deletes the word ``qualifying''
from the proposal as superfluous, as the impact and responsiveness
review only considers grants or donations that qualify as community
development under Sec. __.13.
The agencies have considered comments suggesting modifications or
clarifications to the proposed rule, including that the rule should
give special emphasis to or create separate impact factors for various
kinds of grants or donations. The agencies believe that the broader
impact and responsiveness factor in the final rule is appropriate to
afford flexibility needed to address the different needs of various
communities. On balance, the agencies believe that the simplicity of
the final impact and responsiveness factor for grants or donations will
better foster clarity and certainty than alternatives suggested. The
agencies have also considered that identifying for special emphasis
grants or donations to specific types of organizations or that meet
specific community development categories would be challenging or
impracticable, noting that different stakeholders may have varying and
equally valid views on which grants or donations, organizations, or
community development categories are more impactful than others.
Section __.15(b)(10) Is an Investment in Projects Financed With LIHTCs
or NMTCs
Comments Received
As discussed in more detail below, commenters suggested a wide
variety of additional types of activities that should be included as
impact factors. Among these, a number of commenters recommended adding
investments in LIHTCs and NMTCs. Among other points, commenters
asserted that the LIHTC program is one of the most important policy
tools for creating affordable rental housing. Commenters noted that
LIHTCs are distributed through a highly competitive process to the most
impactful properties meeting the State or locality's affordable housing
needs. One commenter raised concerns that insufficient CRA credit has
deterred investors from LIHTC investments. A few commenters stated that
creating a separate impact factor recognizing LIHTC investments would
increase investor demand for these investments and thus increase equity
yield for projects to offset rising construction costs. Other
commenters noted that including an impact factor focused on LIHTC and
NMTC investments could also be an important mitigating factor to
counteract removal of the separate investment test or lack of a
Community Development Financing Investment subtest for
investments.\601\
---------------------------------------------------------------------------
\601\ See final Sec. __.24 and the accompanying section-by-
section analysis below.
---------------------------------------------------------------------------
Several commenters stated that banks should receive extra
consideration for syndicating and/or sponsoring funds supporting LIHTC
and NMTC projects, consistent with the OCC 2020 CRA Final Rule.
Commenters also suggested other types of investments designed to meet
community needs for inclusion as impact factor categories, including
Opportunity Zone investments and Historic Tax Credits.
Final Rule
Upon consideration of commenter feedback, the final rule adopts a
new impact and responsiveness review factor in Sec. __.15(b)(10) for
an investment in projects financed with LIHTCs or NMTCs. The agencies
believe that adding an impact and responsiveness factor for these
investments will mitigate commenter concerns about the final rule
potentially discouraging tax credit transactions relative to the
current CRA regulations, by eliminating the separate investment test in
the current CRA evaluation framework for large banks, in favor of
evaluating community development loans and investments together in the
Community Development Financing Metric.\602\ As discussed further in
the section-by-section analysis of Sec. __.24, the agencies appreciate
concerns about the importance of and need for community development
investments. In addition, the agencies understand that, as some
commenters suggested, CRA-motivated capital is one of the primary
sources of funding for LIHTC and NMTC transactions. Accordingly, the
agencies are adopting an impact and responsiveness factor for these
project types to recognize these investments. This impact and
responsiveness factor is part of a holistic consideration of a bank's
community development financing performance, which also includes, for
banks with assets greater than $10 billion, a Bank Nationwide Community
Development Investment Metric and a Nationwide Community Development
Benchmark.\603\ The investment metric and benchmark are designed to
better understand the level of community development investments that
banks are making, as discussed further in the section-by-section
analysis of Sec. __.24.
---------------------------------------------------------------------------
\602\ For further discussion of the final rule's approach to
community development investments, see final Sec. __.24 and the
accompanying section-by-section analysis.
\603\ See final Sec. __.24(e)(2)(iii) and (iv) and the
accompanying section-by-section analysis.
---------------------------------------------------------------------------
The agencies have considered but are not adopting commenter
suggestions to adopt an impact and responsiveness factor addressing tax
credits and investments other than LIHTCs and NMTCs. LIHTCs and NMTCs,
as defined in final Sec. __.12, are Federal programs that the agencies
believe are clearly aligned with the intent of the CRA, and have a
demonstrated impact in providing affordable housing and encouraging
community development and economic growth.\604\ While other types of
tax credits or investments, such as Historic Tax Credits or investments
in Opportunity Zone funds can help finance projects that have important
community benefits, these programs have varying criteria that may not
always align with the intent of CRA. For example, Historic Tax Credits
can be used to finance the renovation of historic properties in any
community, and there is no requirement that these projects be located
in low- or moderate-income tracts or benefit low- or moderate-income
individuals or small businesses.\605\ However, the agencies note that
projects financed by other types of tax credits or investments might be
covered by other impact and responsiveness factors, depending on
[[Page 6726]]
the geographic area in which they are located and the purpose of the
project or the population served. For example, a community development
project financed with Historic Tax Credits located in a census tract
with greater than 40 percent poverty could be covered by Sec.
__.15(b)(3) if it otherwise met the criteria in Sec. __.13, such as if
the project is done in conjunction with LIHTCs under Sec. __.13(b)(1)
or if it is a revitalization or stabilization project that meets the
criteria of Sec. __.13(e).
---------------------------------------------------------------------------
\604\ See OCC, ``Low-Income Housing Tax Credits: Affordable
Housing Investment Opportunities for Banks,'' Community Development
Insights (Mar. 2014), https://www.occ.gov/publications-and-resources/publications/community-affairs/community-developments-insights/pub-insights-mar-2014.pdf (2014); NYU Furman Center, ``The
Effects of the Low-Income Housing Tax Credit (LIHTC)'' (May 2017)
https://furmancenter.org/files/NYUFurmanCenter_LIHTC_May2017.pdf;
U.S. Dept. of Treasury, Community Development Financial Institutions
Fund, ``The Urban Institute's New Markets Tax Credit Program
Evaluation: Key Findings and Lessons for Future Evaluations,''
https://www.cdfifund.gov/sites/cdfi/files/documents/urban-institute-summary-cover-memo.pdf.
\605\ See U.S. National Park Svc., ``Historic Preservation Tax
Incentives,'' https://www.nps.gov/subjects/taxincentives/index.htm.
---------------------------------------------------------------------------
Section __.15(b)(11) Reflects Bank Leadership Through Multi-Faceted or
Instrumental Support
The Agencies' Proposal
The agencies proposed to consider as an impact factor whether bank
activities reflect bank leadership through multi-faceted or
instrumental support (proposed Sec. __.15(b)(9)). The agencies
explained that multi-faceted support would include activities that
entail multiple forms of support provided by the bank for a particular
program or initiative, such as a loan to a community-based organization
that serves low- or moderate-income individuals, coupled with a service
supporting that organization in the form of technical assistance that
leverages the bank's financial expertise. Instrumental support would
include activities that involve a level of support or engagement on the
part of the bank such that a program or project would not have come to
fruition, or the intended outcomes would not have occurred, without the
bank's involvement.
Comments Received
Commenters offering views on proposed Sec. __.15(b)(9) supported
this impact factor. For example, one commenter emphasized the role that
deeper technical assistance and capacity building can play for
organizations that serve low- or moderate-income communities, and that
these efforts cannot be adequately captured by looking solely at the
associated dollar value. The commenter asserted that an impact factor
is critical to ensuring that financial institutions are adequately
incentivized. Another commenter stated that emphasizing multi-faceted
support would help encourage financial institutions to engage in
activities that can make a lasting impact on a community's development
and affordable homeownership opportunities. A separate commenter stated
that an impact review should recognize activities that reflect multi-
faceted partnerships, leadership, and innovation, based on data
relating to whether the activity involved one or more forms of
financing or technical assistance, whether the bank was in a leadership
position, or whether the activity was innovative for the bank or
geographic area.
Final Rule
The final rule, renumbered as Sec. __.15(b)(11), adopts as
proposed an impact and responsiveness factor for loans, investments,
and services that reflect bank leadership through multi-faceted or
instrumental support. In adopting this impact and responsiveness
factor, the agencies intend to incorporate into the final rule
considerations regarding complexity and leadership under the current
CRA regulations, but with greater specificity and a more direct tie to
impact and responsiveness. The agencies note that activities involving
multi-faceted or instrumental support often require significant efforts
by the bank, reflect a high degree of engagement with community
partners, and are highly responsive to community needs. Further, as
noted by a commenter, bank efforts cannot always be adequately captured
by looking solely at the associated dollar value of an activity.
Section __.15(b)(12) Is a New Community Development Financing Product
or Service That Addresses Community Development Needs for Low- or
Moderate-Income Individuals, Families, or Households
The Agencies' Proposal
Under proposed Sec. __.15(b)(10), the agencies would consider
whether an activity results in a new community development financing
product or service that addresses community development needs for low-
or moderate-income individuals and families. This proposed impact
factor built upon the emphasis on the innovativeness of activities
under the current community development evaluation framework,\606\ and
was intended to ensure that bank activities are also impactful and
responsive to the needs of low- and moderate-income populations.
Consideration afforded under this proposed impact factor would help to
encourage banks and community partners to conceive of new strategies
for addressing community development needs, especially needs that
existing products and services do not adequately address. The proposed
emphasis on activities that support developing new products and
services was intended to ensure that the CRA continually improves the
landscape of product offerings for low- or moderate-income individuals
and families.
---------------------------------------------------------------------------
\606\ See current 12 CFR __.24(e)(2) and Q&A Sec. __.24(e)-2.
See also current 12 CFR __.22(b)(5) and Q&A Sec. __.21(a)-2 and
(a)-4 and Q&A Sec. __.22(b)(5)-1.
---------------------------------------------------------------------------
Comments Received
Commenters that addressed proposed Sec. __.15(b)(10) generally
supported the proposal, but suggested modifications. For example, one
commenter stated that the proposed impact factor would encourage
innovation and solution-oriented CRA activities, and suggested that
financial institutions helping to create or commit to a new fund or
activity, with greater risks and benefits, should receive more
favorable CRA consideration. Another commenter suggested that the
agencies clarify that activities currently considered to be
``innovative,'' ``complex,'' or ``flexible'' under the existing CRA
regulations would receive a greater impact score even though the
proposal used different terminology. On the other hand, one commenter
cautioned that the proposed review factor should include safeguards to
ensure that predatory or usurious products are not given consideration,
while another commenter stated that consideration should be explicitly
granted for products that assist low- and moderate-income borrowers to
reduce their reliance on predatory products.
Final Rule
The final rule adopts proposed Sec. __.15(b)(10), renumbered as
Sec. __.15(b)(12), to establish an impact and responsiveness factor
for loans, investments, and services that result in a new community
development financing product or service that addresses community
development needs for low- or moderate-income individuals, families, or
households. The final rule makes technical edits from the proposal by
adding ``or households'' for clarity, to conform with edits made to
other community development provisions in the final rule. The agencies
believe that the impact and responsiveness factor as adopted will
appropriately help encourage banks to meet the credit needs of their
entire communities by continually improving the landscape of product
offerings for low- or moderate-income individuals, families, and
households that are new to the bank or to a particular market. Further,
the agencies believe that this impact and responsiveness factor will
facilitate bank-community partnerships to identify new strategies for
addressing community development needs, especially those not adequately
addressed by existing products. For
[[Page 6727]]
example, a loan or investment that provides financing for the
acquisition of land for a shared equity housing project that brings
permanent affordable housing to a community could meet this impact and
responsiveness factor, to the extent that it involves a new strategy to
meet a community development need. The final rule is also consistent
with the current CRA framework to provide consideration for activities
that are innovative.
The agencies intend for this particular impact and responsiveness
factor to recognize innovation broadly, but are sensitive to commenter
concerns regarding predatory or usurious products. Under the final
rule, the agencies determine whether a loan or investment supports
community development when the loan or investment is originated, made,
or purchased. If the agencies later identify that the community
development loan or investment involves evidence of discriminatory or
other illegal credit practices pursuant to Sec. __.28(d), the agencies
will consider that information in the bank's CRA evaluation.\607\
Further, loans, investments, or services that assist low- and moderate-
income borrowers in reducing reliance on predatory products could
qualify under this impact and responsiveness factor if such products
are new and meet community needs.
---------------------------------------------------------------------------
\607\ See current Sec. __.28(c), proposed Sec. __.28(d), and
final Sec. __.28(d). See also the section-by-section analysis of
final Sec. __.28(d) for further discussion of practices that can
lead to a ratings downgrade.
---------------------------------------------------------------------------
Additional Comments on Proposed Sec. __.15
In addition to the impact and responsiveness factors discussed
above, commenters recommended that the agencies adopt a wide range of
additional factors. For example, a number of commenters recommended
adding an impact factor for special purpose credit programs, such as
those that focus on consumer or home mortgage lending, and community
development special purpose credit programs. The agencies note that
special purpose credit programs are largely covered under the Retail
Services and Products Test in Sec. __.23(c)(2)(v) in the evaluation of
credit products and programs, as discussed in greater detail in the
section-by-section analysis of Sec. __.23(c)(2).
Other commenter recommendations included adding an impact factor
for activities benefiting low- or moderate-income individuals with
disabilities, with commenters offering this idea also suggesting that
specific weighting of the impact factors analysis in comparison to
community development metrics would be helpful; an impact factor
related to health initiatives, with the agencies encouraged to improve
data collection and pursue routine partnerships with healthcare and
public health entities to obtain data; and an impact factor for
activities that support increasing the supply of high quality,
affordable early childhood education and care facilities, which were
emphasized as having compounding consequences for family stability,
economic opportunity, and child health and development.
Regarding these recommendations from commenters, the agencies note
that many of these activities may qualify for CRA consideration under
Sec. __.13, to the extent that they meet the relevant eligibility
criteria. For instance, the above-noted activities benefiting low- or
moderate-income individuals with disabilities may qualify under the
community supportive services category in Sec. __.13(d), and
healthcare and childcare facilities may qualify under the essential
community facilities category in Sec. __.13(f). Additionally,
depending on the particular facts and circumstances, other impact and
responsiveness factors adopted under the final rule may already cover
these kinds of activities, such as Sec. __.15(b)(5) for loans,
investments, and services that serve low-income individuals, families,
or households, and Sec. __.15(b)(9) for grants or donations.
Similar considerations apply to other potential impact factors
recommended by commenters. These include, among others, impact factors
recognizing: land bank investments; disaster preparedness and climate
resiliency activities (including those in the most vulnerable low- and
moderate-income minority communities); local community needs; deep
impact lending; military communities and qualifying activities on
military installations; collaboration with public agencies; broadband
and digital inclusion projects; community engagement strategies;
activities that support mission-driven nonprofit developers; loans for
first generation homebuyers; and particularly responsive community
development activities that fight involuntary relocation. Some
commenters recommended impact factors for activities that close wealth
gaps and promote economic activities, with suggestions including, among
others, impact factors for engaging in activities that are particularly
impactful for borrowers and minorities; for investments in historically
redlined communities or that impact racial segregation; and for
activities that close wealth gaps for racial, ethnic, national origin,
limited English proficiency, lesbian, gay, bisexual, transgender, and
queer (LGBTQ), or other underserved groups.
The agencies have considered these recommendations from commenters
and acknowledge that there are many types of loans, investments, or
services that may be responsive or impactful to a community. As
suggested above, many activities associated with commenter-recommended
impact factors could potentially already be recognized under one of the
twelve impact and responsiveness factors adopted in final Sec.
__.15(b). In addition, the agencies believe that the impact and
responsiveness factor categories specified in Sec. __.15(b) reflect an
appropriate set of categories to consider as part of evaluating a
bank's community development performance, in furtherance of the purpose
of the CRA. The adopted factors are ones that are supported by clear
standards, tend to involve a higher degree of complexity and effort by
a bank, and as noted above, tend to be particularly responsive and
impactful. For more information and discussion regarding the agencies'
consideration of comments recommending adoption of additional race- and
ethnicity-specific provisions in this final rule, see section III.C of
this SUPPLEMENTARY INFORMATION.
The list of impact and responsiveness factors adopted in the final
rule covers a wide range of potentially impactful and responsive
activities but, as noted above, is not intended to be exhaustive. The
agencies do not believe that identifying every kind of impactful and
responsive activity in this section of the regulation is practicable or
possible. The adopted impact and responsiveness factors are intended to
standardize a set of categories that will be consistently reviewed as a
part of an impact and responsiveness review, but they do not preclude
agency consideration of other factors and activities.
Sections __.16 Through __.19 Assessment Areas and Areas for Eligible
Community Development Activity
Current Approach
Under the CRA, banks have a continuing and affirmative obligation
to help meet the credit needs of the local communities in which they
are chartered,\608\ and the agencies are required to assess a bank's
record of meeting the credit needs of its entire community, including
low- and
[[Page 6728]]
moderate-income neighborhoods.\609\ Accordingly, one of the CRA
regulations' core requirements is that each bank delineate areas within
which its CRA performance will be assessed, referred to in the current
CRA regulations as the bank's assessment areas.\610\
---------------------------------------------------------------------------
\608\ See 12 U.S.C. 2901(a)(3).
\609\ See 12 U.S.C. 2903(a)(1). See also 12 U.S.C. 2906(a)(1).
\610\ See current 12 CFR __.41(a).
---------------------------------------------------------------------------
Current CRA regulations require a bank, other than a wholesale or
limited purpose bank, to delineate one or more assessment areas that
include the geographies in which the bank's main office, branches, and
deposit-taking ATMs are located, as well as the surrounding geographies
in which the bank has originated or purchased a substantial portion of
its loans.\611\ These assessment areas are generally required to
consist of one or more MSAs or metropolitan divisions, or one or more
contiguous political subdivisions, such as counties, cities, or
towns.\612\
---------------------------------------------------------------------------
\611\ See current 12 CFR __.41(c)(2). For this purpose, the
agencies define geography as a census tract delineated by the U.S.
Bureau of the Census in the most recent decennial census. See
current 12 CFR __.12(k). Loans considered for determining assessment
areas under this provision ``includ[e] home mortgage loans, small
business and small farm loans, and any other loans the bank chooses,
such as those consumer loans on which the bank elects to have its
performance assessed.'' See current 12 CFR __.41(c)(2).
\612\ See current 12 CFR __.41(c)(1).
---------------------------------------------------------------------------
For a wholesale or limited purpose bank, the current CRA
regulations require such a bank to delineate assessment areas generally
consisting of one or more MSAs or metropolitan divisions or one or more
contiguous political subdivisions, such as counties, cities, or towns,
in which the bank has its main office, branches, and deposit-taking
ATMs.\613\
---------------------------------------------------------------------------
\613\ See current 12 CFR __.41(b).
---------------------------------------------------------------------------
Within certain limitations, a bank may adjust the boundaries of an
assessment area to include only the portion of a political subdivision
that it reasonably can be expected to serve.\614\ Limitations
applicable to the delineation of assessment areas include that each
bank assessment area: (1) must consist only of whole geographies (i.e.,
census tracts), and (2) may not extend substantially beyond an MSA
boundary or beyond a State boundary unless the assessment area is
located in a multistate MSA.\615\ Further, the current CRA regulations
provide that each assessment area may not reflect illegal
discrimination and may not arbitrarily exclude low- or moderate-income
census tracts.\616\ These provisions work congruently with ECOA and the
Fair Housing Act, to combat redlining. Consequently, it is crucial that
a bank delineate assessment areas that accurately reflect the
communities it serves.
---------------------------------------------------------------------------
\614\ See current 12 CFR __.41(d).
\615\ See current 12 CFR __.41(e)(1) and (4).
\616\ See current 12 CFR __.41(e)(2) and (3).
---------------------------------------------------------------------------
As an exception to these requirements, a bank whose business model
predominantly consists of serving the needs of military personnel or
their dependents who are not located within a defined geographic area
may delineate its entire deposit customer base as its assessment
area.\617\
---------------------------------------------------------------------------
\617\ Current 12 CFR __.41(f); see also 12 U.S.C. 2902(4).
---------------------------------------------------------------------------
The agencies use the assessment areas delineated by a bank in the
evaluation of the bank's performance unless the agencies determine that
the assessment areas do not comply with the requirements of the current
regulation.\618\
---------------------------------------------------------------------------
\618\ See current 12 CFR __.41(g).
---------------------------------------------------------------------------
Currently, assessment areas are used in different ways in CRA
examinations. Examiners evaluate a bank's retail lending and retail
services performance within assessment areas under the lending test;
retail lending outside of a bank's assessment areas is not evaluated
using the lending test criteria. However, under existing guidance,
examiners will give consideration for loans to low- and moderate-income
persons and small business and farm loans outside of a bank's
assessment area(s) provided that the bank has adequately addressed the
needs of borrowers within its assessment area(s). Pursuant to the
guidance, such loans will not compensate for poor lending performance
within the bank's assessment areas.\619\ With respect to the evaluation
of a bank's community development performance--including community
development loans, investments, and services--examiners consider a
bank's activities within its assessment area(s) or within the broader
statewide or regional area that includes the bank's assessment
area(s).\620\ Broader consideration of a bank's community development
performance reflects the agencies' view that community development
organizations and programs are efficient and effective ways for banks
to promote community development, and that these organizations and
programs often operate on a statewide or even multistate basis.\621\
For this reason, the bank's assessment area(s) need not receive an
immediate or direct benefit from the bank's participation in the
organization or activity, provided that the purpose, mandate, or
function of the organization or activity includes serving geographies
or individuals located within the bank's assessment area(s).\622\ In
addition, the agencies may consider community development activities in
broader statewide or regional areas that do not benefit the assessment
area if the bank has been responsive to community development needs and
opportunities in its assessment area(s).\623\
---------------------------------------------------------------------------
\619\ See Q&A Sec. __.22(b)(2) and (3)-4.
\620\ See current 12 CFR __.12(h)(2)(ii) (community development
loans); __.23(a) (community development investments); __.24(b)
(community development services); see also current 12 CFR
__.25(e)(2) (community development loans, investments, and services
made by wholesale or limited purpose banks); Q&A Sec. __.26(d)-2
(community development loans, investments, and services made by
intermediate small banks).
\621\ See Q&A Sec. __.12(h)-6.
\622\ See id.
\623\ See id.
---------------------------------------------------------------------------
The agencies proposed to revise the current assessment area
framework by requiring all banks evaluated under the CRA to continue to
delineate facility-based assessment area(s) as discussed in the
section-by-section analysis of final Sec. __.16, and requiring large
banks to delineate a new type of assessment area referred to as retail
lending assessment area(s), as discussed in the section-by-section
analysis of final Sec. __.17. In addition, the agencies proposed to
evaluate the retail lending performance of large banks, and certain
intermediate banks, in their outside retail lending areas, as discussed
in the section-by-section analysis of final Sec. __.18. The agencies
also proposed to consider qualifying community development loans,
investments, and services outside of a bank's facility-based assessment
areas within the states and multistate MSAs in which the bank has a
facility-based assessment area, and in the nationwide area, as
discussed in the section-by-section analysis of final Sec. __.19.
Section __.16 Facility-Based Assessment Areas
The agencies proposed generally to maintain the current requirement
that a bank delineate assessment areas where the bank has its main
office, branches, and deposit-taking ATMs, with certain
modifications.\624\ The agencies intended the proposal to reflect the
fact that a bank's facilities remain an essential way of defining the
local communities that are part of a bank's entire community.
Accordingly, the agencies referred to these assessment areas in the
proposal as ``facility-based assessment areas,'' distinguishing them
from the retail lending assessment areas in proposed Sec. __.17.
---------------------------------------------------------------------------
\624\ See current 12 CFR __.41.
---------------------------------------------------------------------------
[[Page 6729]]
Relative to the current rule, the modifications proposed by the
agencies included: (1) replacing the term ``deposit-taking ATM'' with
``deposit-taking remote service facility;'' and (2) requiring a large
bank to delineate a facility-based assessment area consisting of a
single MSA, one or more contiguous counties within an MSA, or one or
more contiguous counties within the nonmetropolitan area of a State,
but consistent with the current rule, permitting a small or
intermediate bank to delineate a facility-based assessment area that
includes part of, but not the entirety of, one or more counties.
The agencies received numerous comments on the facility-based
assessment area proposal from many different types of commenters. As
discussed in greater detail below, many commenters supported the
facility-based assessment area proposal, including the modifications
relative to the current rule. However, other commenters expressed
concerns, especially regarding the types of bank facilities that would
trigger the facility-based assessment area requirement, and the
requirement for large banks to delineate facility-based assessment
areas composed of whole counties.
The agencies are adopting the facility-based assessment area
proposal with certain changes, as discussed below.
Section __.16(a) In General
As under the current rule, proposed Sec. __.16(a) required that a
bank delineate one or more facility-based assessment areas within which
the agencies evaluate the bank's record of helping to meet the credit
needs of its community pursuant to the standards in the proposed rule.
Further, proposed Sec. __.16(a) stated that the agencies do not
evaluate the bank's delineation of its facility-based assessment areas
as a separate performance criterion, but the agencies review the
delineation for compliance with the requirements of this section.
A number of commenters expressed general support for the agencies'
facility-based assessment area proposal. However, the agencies
generally did not receive comments on the specific language of Sec.
__.16(a).
The agencies are finalizing the first sentence of Sec. __.16(a)
substantially as proposed, with some technical changes. Specifically,
final Sec. __.16(a) refers to a bank's record of helping to meet the
credit needs of its entire community (rather than just its
``community'' as proposed) to better track the language of the
statute.\625\ In addition, final Sec. __.16(a) states more precisely
that the agencies evaluate a bank within in its facility-based
assessment areas pursuant to the performance tests and strategic plan
described in Sec. __.21 (rather than pursuant to ``the standards in
this part'' as proposed).
---------------------------------------------------------------------------
\625\ See 12 U.S.C. 2903(a)(1).
---------------------------------------------------------------------------
The agencies determined that the second sentence of proposed Sec.
__.16(a) is not necessary because, as discussed below, final Sec.
__.16(e) specifies that the agencies use the facility-based assessment
areas delineated by a bank in its evaluation of the bank's CRA
performance unless the agencies determine that a facility-based
assessment areas does not comply with the requirements of Sec. __.16.
For this reason, the agencies are not adopting the second sentence of
proposed Sec. __.16(a). The agencies note that this change is not
intended to alter any requirement pertaining to facility-based
assessment areas or how these areas are used in CRA evaluations.
Section __.16(b)(1) Geographic Requirements for Facility-Based
Assessment Areas--Facilities Triggering Delineation
The Agencies' Proposal
Proposed Sec. __.16(b)(1) provided that banks must delineate
facility-based assessment areas that include each county in which a
bank has a main office, a branch, any other staffed bank facility that
accepts deposits, or a deposit-taking remote service facility, as well
as the surrounding geographies in which the bank has originated or
purchased a substantial portion of its loans (including home mortgage
loans, small business loans, small farm loans, and automobile loans).
In addition, the proposal specified that facilities in paragraph (b)
refers to those that are open to the general public and excludes
nonpublic facilities. The agencies stated that the addition of other
staffed bank facilities, together with proposed changes to the
``branch'' definition, were intended to capture new bank business
models, regardless of how the bank refers to such staffed physical
locations, when those locations are open to the public and collect
deposits from customers. The agencies requested comment on how to treat
bank business models where staff assist customers to make deposits on
their phone or mobile device while the customer is onsite.
The proposal did not require delineation of a facility-based
assessment area based solely on the existence of a loan production
office.
Comments Received
A number of commenters provided feedback on the types of facilities
that should trigger the facility-based assessment area requirement.
Main office and branches. Several commenters expressed support for
retaining the current rule's requirement that a bank must delineate
facility-based assessment areas based on the location of its main
office and branches. In addition, several commenters addressed what
should constitute a branch for purposes of the CRA regulations. These
comments are discussed in the section-by-section analysis of Sec.
__.12.
Any other staffed bank facilities that accept deposits. In general,
commenters who addressed this aspect of the proposal supported the
proposal to require banks to delineate facility-based assessment areas
in counties in which the bank has any other staffed bank facility that
accepts deposits, other than a main office, branch, or deposit-taking
remote service facility. Commenters that supported this aspect of the
proposal noted that requiring banks to delineate facility-based
assessment areas based on the location of other staffed bank facilities
that accept deposits aligns with the premise of the CRA that a bank
absorbing deposits from a community has certain obligations to serve
that community.
A number of commenters responded to the agencies' request for
comment on the treatment of business models where bank staff assist
customers with making deposits on their phones or mobile devices while
customers are onsite at a staffed physical location. A few commenters
noted generally that this business model represents an innovation in
banking that allows bank employees to spend more time on customer
services (such as financial education, consulting, and investment
services) rather than engaged in transactions.
Many of the commenters that addressed this issue stated that the
agencies should require a bank to delineate a facility-based assessment
area around locations where bank staff assist on-site customers with
making deposits on the customers' phones or mobile devices. For
example, a few commenters emphasized that bank staff at such locations
acquire knowledge of community needs, and thus that the bank should be
held accountable for serving those needs. At least one commenter went
further, stating that any remote location at which bank staff offer
products and services available at a branch should be considered a
branch for purposes of delineating facility-
[[Page 6730]]
based assessment areas. On the other hand, a commenter warned against
strictly construing any requirement to delineate a facility-based
assessment area where bank staff assist on-site customers with making
deposits on the customers' mobile devices so as not to discourage
community development activities, such as mobile branches on wheels.
However, many other commenters opposed requiring delineation of a
facility-based assessment area where bank staff assist on-site
customers with making deposits on the customers' phones or mobile
devices. For example, one commenter noted that it was not aware of any
instances of bank staff assisting a customer with making a deposit on a
customer-owned mobile device while the customer is on-site, and thus
believed that requiring the delineation of facility-based assessment
areas on this basis was unnecessary. Other commenters that opposed
requiring delineation of a facility-based assessment area in this
situation stated that if bank staff assist customers in making deposits
on their mobile devices, these deposits should be treated as
originating from the customer's home or business address if the
deposits are sent electronically.
Deposit-taking remote service facility. A number of commenters
addressed the proposed requirement to delineate facility-based
assessment areas based on the location of deposit-taking remote service
facilities.\626\ Some of these commenters expressed support for the
agencies' proposal to require banks to delineate facility-based
assessment areas around deposit-taking remote services facilities. A
few commenters recommended that, for purposes of delineating facility-
based assessment areas, the definition of remote service facility
should be sufficiently broad to capture innovations in banking services
traditionally offered through physical branches.
---------------------------------------------------------------------------
\626\ Commenters also discussed the proposed definition of
``remote service facility.'' These comments are discussed in greater
detail in the section-by-section analysis of final Sec. __.12.
---------------------------------------------------------------------------
However, a few commenters opposed requiring a bank to delineate a
facility-based assessment area based solely on the location of its
deposit-taking remote service facilities. A few commenters asserted
that a deposit-taking remote service facilities should not trigger the
full lending, service, and community development obligations of a
facility-based assessment area because, among other reasons, banks
typically do not have staff physically present in those areas to be
able to generate loans or carry out community development financing
activities or services. A commenter noted that requiring delineation of
a facility-based assessment area based solely on a remote service
facility would limit a bank's ability to place a deposit-taking remote
service facility in a market as part of a strategy to transition toward
a broader range of services in that market, or to serve only a specific
market segment, such as business customers at a loan production office.
Other commenters suggested placing certain limitations on when a
remote service facility would trigger a facility-based assessment area.
For example, a few commenters recommended that a deposit-taking remote
service facility in a county that is immediately adjacent to a county
where the bank already has a branch presence should not require the
delineation of a new facility-based assessment area because the remote
service facility was likely placed there in order to serve existing
bank customers who work in or travel to the neighboring county.
However, these commenters noted that where a bank establishes deposit-
taking remote service facilities in a county that is not adjacent to
the county where the bank has an existing facility-based assessment
area, then the bank should be required to delineate a facility-based
assessment area in that county based solely on the presence of deposit-
taking remote service facilities.
A few commenters recommended that a bank should have the option,
rather than be required, to delineate a facility-based assessment area
based on the location of its deposit-taking remote service facilities.
At least one of these commenters reasoned that requiring delineation of
a facility-based assessment area provides a strong disincentive against
establishing temporary remote deposit facilities, such as in the case
of a natural disaster or a special event.
Non-proprietary remote service facilities. As discussed in the
section-by-section analysis of Sec. __.12, commenters disagreed on
whether the proposed requirement to delineate facility-based
assessments areas based on where a bank maintains deposit-taking remote
service facilities should extend to remote service facilities not owned
or operated by, or operated exclusive for, a bank, such as third-party
ATM networks.
Loan production offices. Several commenters noted that the proposal
for delineating facility-based assessment areas would generally exclude
loan production offices, insofar as such facilities do not accept
deposits or are not open to the general public. A majority of these
commenters recommended including loan production offices as a facility
for purposes of delineating facility-based assessment areas. These
commenters noted that loan production offices factor into a bank's
overall lending performance in low- or moderate-income communities.
These commenters also noted that loan production offices are often the
only lending or banking-related presence in rural areas and small
towns, suggesting their presence should confer a CRA obligation. Some
of these commenters argued that, alternatively, if loan production
offices do not trigger the delineation of a facility-based assessment
area, the presence of loan production offices should trigger the
delineation of at least a retail lending assessment area.
However, a few commenters supported the agencies' proposal not to
include loan production offices as a facility for purposes of
delineating a facility-based assessment area. At least one of these
commenters noted that loan production offices are not branches and are
sometimes used by a bank to help determine whether a branch should be
established in a new area.
Final Rule
The agencies are adopting a modified version of proposed Sec.
__.16(b)(1). Final Sec. __.16(b)(1) provides that, except as provided
in paragraph (b)(3), a bank's facility-based assessment areas must
include each county in which a bank has a main office, a branch, or a
deposit-taking remote service facility, as well as the surrounding
counties in which the bank has originated a substantial portion of its
loans (including home mortgage loans, multifamily loans, small business
loans, small farm loans, and automobile loans). Unlike under the
proposal, final Sec. __.16(b)(1) does not require a bank to delineate
a facility-based assessment area based on the location of any other
staffed bank facility that accepts deposits (other than a main office,
branch, or deposit-taking remote service facility).
In addition to this substantive change, final Sec. __.16(b)(1)
incorporates several technical changes relative to the proposal.
Specifically, final Sec. __.16(b)(1) clarifies that paragraph (b)(3)
(which, as discussed below, permits small and intermediate banks to
delineate facility-based assessment areas composed of partial counties)
is an exception to the ``each county'' requirement. Further, the final
rule adds multifamily loans to the parenthetical
[[Page 6731]]
list of loan types so that this list includes all of the product lines
included in the retail lending volume screen portion of the Retail
Lending Test; these same types of loans may also be considered under
the Small Bank Lending Test.\627\ Finally, the final rule refers to
``surrounding counties,'' rather than ``surrounding geographies'' as
proposed, consistent with the county-based geographic requirements
described below.
---------------------------------------------------------------------------
\627\ See final Sec. __.22(c) and final Sec. __.29.
---------------------------------------------------------------------------
Any other staffed bank facilities that accept deposits. The final
rule does not include the proposed requirement that a bank's facility-
based assessment areas include each county in which the bank has any
other staffed bank facility that accepts deposits (other than a main
office, branch, or deposit-taking remote service facility). The
agencies believe that the remaining list of bank facilities that
trigger facility-based assessment area delineation requirements (i.e.,
main office, branch, deposit-taking remote service facility) is
sufficiently comprehensive that it is not necessary to include other
staffed bank facilities that accept deposits. In particular, the
agencies are not aware of the existence of a staffed bank facility that
accepts deposits that would not qualify as a main office or branch. The
agencies will continue to monitor whether other types of deposit-taking
facilities emerge in the future that do not qualify as a main office,
branch, or deposit-taking remote service facility, and that may warrant
addition to the list of facilities that trigger the facility-based
assessment area delineation requirement.
For similar reasons, the agencies are declining to specify whether
a facility where bank staff assist customers with making a deposit on a
mobile phone or other mobile device triggers the facility-based
assessment area delineation requirement. The agencies believe that,
depending on the facts and circumstances, such a facility may qualify
as a branch pursuant to the appropriate agency's licensing policies.
Further, to the extent that such a facility does not qualify as a
branch, the agencies do not want to disincentive bank staff from
providing incidental support to customers at non-branch facilities. The
agencies will continue to monitor banking developments and provide
additional guidance as appropriate.
Deposit-taking remote service facilities. The final rule also
retains the proposed requirement that a bank's facility-based
assessment areas include each county in which the bank has a deposit-
taking remote service facility.\628\ The agencies believe that
requiring a bank to delineate a facility-based assessment area based on
where it maintains a deposit-taking remote service facility is
consistent with the statute because of the statutory definition of
``domestic branch,'' discussed above, which includes other deposit-
taking facilities.\629\
---------------------------------------------------------------------------
\628\ The final rule's definition of ``remote service facility''
is discussed in greater detail in the section-by-section analysis of
final Sec. __.12.
\629\ 12 U.S.C. 2906(e)(1).
---------------------------------------------------------------------------
The agencies have considered concerns raised by some commenters
that a bank may need to delineate two separate facility-based
assessment areas if it maintains, for example, a branch in one county
and a deposit-taking remote service facility in an adjacent county.
However, under the geographic requirements of the final rule discussed
below, this result would be required only in cases where (1) one county
is a metropolitan county (i.e., located within an MSA) and the other
county is a nonmetropolitan county, or (2) the counties are
nonmetropolitan counties in adjoining states. By contrast, if both
counties are located in the same MSA, or if both counties are located
in the nonmetropolitan area of the same State, then the bank could
delineate a single facility-based assessment area that includes both
counties. The agencies note that the CRA statute requires the agencies,
in the written evaluation of a bank for each State in which it
maintains one or more branches, to separately present conclusions for
each metropolitan area in which the bank maintains a branch, and
conclusions for the nonmetropolitan area of the State if the bank
maintains a branch in such nonmetropolitan area.\630\ The agencies
believe that allowing a single facility-based assessment area to
consist of both metropolitan and nonmetropolitan areas, as in the case
described above, would create challenges in assigning conclusions
consistent with this statutory requirement because the agencies would
not be able to distinguish between a bank's metropolitan area and
nonmetropolitan area performance within a State.
---------------------------------------------------------------------------
\630\ See 12 U.S.C. 2906(d)(3)(A).
---------------------------------------------------------------------------
Non-proprietary remote service facilities. As discussed in the
section-by-section analysis of Sec. __.12, the term ``remote service
facility'' includes only those remote service facilities that are owned
or operated by, or operated exclusively for, a bank. As such, the final
rule does not require a bank to delineate a facility-based assessment
area based on the location of other remote service facilities, such as
a network ATM operated by third party.
Loan production offices. The final rule does not require banks to
delineate facility-based assessment areas based solely on the location
of loan production offices. The agencies considered commenter feedback
that indicated a loan production office should trigger a facility-based
assessment area delineation because it is a bank facility and may be
part of the bank's strategy to meet the credit needs of the community
it serves. However, based on the agencies' supervisory experience, the
agencies believe that loan production offices vary widely in terms of
service and product offerings, the number of customers served, and the
capacity and resources to meet community credit needs. For example, a
loan production office may not offer the types of loans evaluated under
the Retail Lending Test, may not accept deposits, and may not be open
to the public. For this reason, the agencies are declining to apply the
facility-based assessment area requirement based solely on the location
of a loan production office. However, under the final rule Retail
Lending Test, the agencies will evaluate the major product lines of
certain large banks in retail lending assessment areas where they have
concentrations of closed-end home mortgage and small business
loans.\631\ Similarly, the agencies will evaluate the major product
lines of large and certain intermediate and small banks in the bank's
outside retail lending area (i.e., the nationwide area outside of the
bank's facility-based assessment areas and retail lending assessment
areas).\632\ Thus, under the final rule, a geographic area in which a
bank maintains loan production offices may be delineated as a retail
lending assessment or included in the bank's outside retail lending
area, as applicable.
---------------------------------------------------------------------------
\631\ Retail lending assessment areas are discussed in the
section-by-section analysis of final Sec. __.17.
\632\ Outside retail lending areas are discussed in the section-
by-section analysis of final Sec. __.18.
---------------------------------------------------------------------------
Section __.16(b)(2) and (3) Geographic Requirements for Facility-Based
Assessment Areas--Boundaries
The Agencies' Proposal
Proposed Sec. __.16(b)(2) required that a bank's facility-based
assessment area consist of one or more MSAs or metropolitan divisions
or one or more contiguous counties within an MSA, a metropolitan
division, or the nonmetropolitan area of a State. In addition,
consistent with current
[[Page 6732]]
guidance,\633\ proposed Sec. __.16(b)(2) specified that a facility-
based assessment area may not extend beyond an MSA boundary or beyond a
State boundary unless the facility-based assessment area is located in
a multistate MSA or combined statistical area.
---------------------------------------------------------------------------
\633\ See current 12 CFR __.41(e)(4); see also Q&A Sec.
__.41(e)(4)-1 and -2.
---------------------------------------------------------------------------
However, proposed Sec. __.16(b)(3) provided an exception for an
intermediate or small bank by which such a bank may adjust the
boundaries of its facility-based assessment areas to include only the
portion of a county that it reasonably can be expected to serve,
provided that a facility-based assessment area that includes a partial
county consists only of whole census tracts, and complies with the
limitations discussed below in Sec. __.16(c). As a result, under the
proposal, large banks would no longer be allowed to delineate a partial
county for facility-based assessment areas, as under the current
rule.\634\ The agencies reasoned that this change would create a more
consistent delineation standard for the delineation of assessment areas
for large banks; encourage these banks to serve low- or moderate-income
individuals and census tracts in counties where their deposit-taking
facilities are located; help safeguard and support fair lending; and
support the proposed use of metrics and associated data to evaluate
bank performance. The agencies requested feedback on whether both small
and intermediate banks should continue to have the option of
delineating partial counties or whether they should be required to
delineate whole counties as facility-based assessment areas to increase
consistency across banks.
---------------------------------------------------------------------------
\634\ See current 12 CFR __.41(d).
---------------------------------------------------------------------------
Comments Received
Numerous commenters offered views on the proposed geographic
requirements that would apply to the delineation of facility-based
assessment areas.
Whole-county requirement for large banks. Many commenters
addressing the proposed geographic requirements for large banks'
facility-based assessment areas supported this aspect of the proposal,
including the proposed requirement that large banks' facility-based
assessment areas consist of one or more MSAs, metropolitan divisions,
or contiguous counties within an MSA, metropolitan division, or the
nonmetropolitan area of a State. In general, these commenters expressed
that partial-county delineations may result in the geographic scope of
a bank's CRA evaluation not accurately reflecting the area that a large
bank can reasonably be expected to serve, and that partial-county
delineations could allow a large bank to reduce its lending in low- or
moderate- income and majority-minority census tracts. A commenter
stated that requiring large banks to delineate facility-based
assessment areas composed of whole counties would facilitate peer
comparison and simplify analysis from a metrics standpoint.
However, most commenters that addressed the proposed geographic
requirement for large banks' facility-based assessment areas opposed
this aspect of the proposal, with some suggesting that some or all
large banks should continue to have the option to delineate facility-
based assessment areas composed of partial counties. These commenters
pointed to a variety of reasons supporting the view that large banks
should retain the ability to delineate a facility-based assessment area
composed of partial counties. For example, some commenters noted that
certain bank characteristics, including a limited capacity to serve an
entire county, a limited branch network in a county, and the location
of the bank's branch or branches, could make it challenging to serve an
entire county. In another example, a commenter suggested that serving a
facility-based assessment area composed of whole counties would be so
challenging that it would require the bank to divert resources from
other programs, including those that serve low- or moderate-income
communities.
Commenters also noted that characteristics of a county could make
it challenging to serve the entirety of that county, including the
geographic size or other geographic characteristics, economic
characteristics, the population and population density, and the level
of competition among other banks in the county. A commenter described
the proposed whole-county delineation requirement for large banks as
mandating an unrealistic facility-based assessment area, which would
lead to unrealistic benchmarks and conclusions. Specifically, the
commenter cited the example of Los Angeles County, stating that several
large banks operate three or fewer branches in the county, and that
those banks would be required to delineate the whole county as a
facility-based assessment area. The commenter stated that the county
consists of approximately 2,500 census tracts, and questioned how these
large banks can be asked to serve a whole county of this size with so
few branches.
Some commenters that criticized the proposed whole-county
delineation requirement for large banks suggested that the whole-county
requirement could be appropriate for large banks of a higher asset
threshold, but that large banks of a smaller asset size, such as those
below $5 billion or $10 billion in assets, should have the flexibility
to define assessment area using partial counties.
Partial-county allowance for small and intermediate banks. A
majority of commenters that addressed the proposed geographic
requirements for facility-based assessment areas of small and
intermediate banks supported the proposal to continue to allow these
banks to delineate facility-based assessment areas that include only
the portion of a county that such a bank reasonably can be expected to
serve. These commenters generally noted that small and intermediate
banks are less likely to have the capacity and resources to serve an
entire county.
However, many other commenters recommended that small and
intermediate banks be held to the same whole-county delineation
standard for facility-based assessment area delineation as proposed for
large banks. In general, these commenters expressed that partial-county
delineations may result in the geographic scope of the bank's CRA
evaluation not accurately reflecting the area the bank can reasonably
be expected to serve. In addition, some commenters expressed concerns
that partial-county delineations could result in redlining by allowing
a bank to exclude low- or moderate-income and majority-minority census
tracts. In addition, a few commenters noted that small and intermediate
banks are often the only banks present in rural counties, and that
partial-county delineations for these banks could result in underserved
rural areas being excluded from facility-based assessment areas.
Final Rule
The agencies are adopting the geographic requirements for facility-
based assessment areas in proposed Sec. __.16(b)(2) and (3) with some
modifications. Final Sec. __.16(b)(2) provides that, except as
provided in paragraph (b)(3), each of a bank's facility-based
assessment areas must consist of a single MSA, one or more contiguous
counties within an MSA, or one or more contiguous counties within the
nonmetropolitan area of a State.
Relative to the proposal, final Sec. __.16(b)(2) incorporates some
clarifications and non-substantive changes to streamline the drafting
of
[[Page 6733]]
proposed Sec. __.16(b)(2). First, the final rule specifies that the
geographic requirements of this paragraph apply to each of a bank's
facility-based assessment areas. Second, the final rule omits the
proposed references to metropolitan divisions; the agencies believe
these references are superfluous because metropolitan divisions consist
of whole counties, and banks are not required to follow metropolitan
division boundaries when delineating facility-based assessment areas.
Third, and as discussed below, the final rule eliminates the proposed
language concerning the circumstances under which a facility-based
assessment area is permitted to extend beyond an MSA boundary or a
State boundary. As a result, under the final rule, a facility-based
assessment may not extend beyond an MSA boundary and may not extend
beyond a State boundary unless the facility-based assessment area is
located within a multistate MSA.
Final Sec. __.16(b)(3) provides that an intermediate or a small
bank may adjust the boundaries of its facility-based assessment areas
to include only the portion of a county that it reasonably can be
expected to serve, subject to the limitations in paragraph (c). Final
Sec. __.16(b)(3) also provides that a facility-based assessment area
that includes a partial county must consist of contiguous whole census
tracts. The agencies believe that the requirement that partial-county
delineations must consist of contiguous census tracts was implicit in
the proposal, but that it is appropriate to make this requirement
explicit in the final rule, paralleling the contiguous county
requirement in final Sec. __.16(b)(2).
MSA and State boundaries. Under the final rule, a bank may not
delineate a facility-based assessment area that extends beyond an MSA
boundary, and a bank may not delineate a facility-based assessment area
that extends beyond a State boundary unless the facility-based
assessment area is located in a multistate MSA. By contrast, the
proposal would have permitted facility-based assessment areas located
in combined statistical areas to extend beyond an MSA or State
boundary. The agencies have reconsidered the issue and, for the reasons
discussed below, are adopting a final rule that is consistent with
current Sec. __.41(e)(4), which provides that an assessment area may
not extend substantially beyond an MSA boundary or beyond a State
boundary unless the assessment area is located in a multistate
MSA.\635\
---------------------------------------------------------------------------
\635\ The agencies acknowledge that current guidance suggests
that banks may delineate assessment areas that extend beyond MSA
boundaries in a combined statistical area. See Q&A Sec.
__.41(e)(4)-1.
---------------------------------------------------------------------------
The agencies believe that allowing a facility-based assessment area
to consist of an entire combined statistical area would create
challenges in assigning conclusions consistent with statutory
requirements. Specifically, the statute requires the agencies, in the
written evaluation of a bank, to present conclusions separately for
each metropolitan area in which the bank maintains a branch.\636\
Further, the statute requires the agencies to present, in the written
evaluation of an interstate bank's performance within a State,
conclusions separately for each metropolitan area in which the bank
maintains a branch, and for the remainder of the nonmetropolitan area
of the State if the bank maintains one or more branches in such
nonmetropolitan area.\637\ Because a combined statistical area may
include a combination of metropolitan and nonmetropolitan counties, or
may contain multiple distinct MSAs, the agencies would need to assign
conclusions to one or more subparts of a facility-based assessment area
consisting of a combined statistical area. For similar reasons, the
agencies believe that applying the Community Development Financing Test
in a facility-based assessment area consisting of a combined
statistical area would be challenging because the Community Development
Financing Test involves separate benchmarks for metropolitan and
nonmetropolitan areas.\638\
---------------------------------------------------------------------------
\636\ See 12 U.S.C. 2906(b)(1)(B).
\637\ See 12 U.S.C. 2906(d)(2).
\638\ These benchmarks are discussed in greater detail in the
section-by-section analysis of Sec. __.24(b)(2).
---------------------------------------------------------------------------
Whole- and partial-county delineations. Under the final rule, large
banks must delineate facility-based assessment areas composed of whole
counties, but small and intermediate banks are permitted to adjust the
boundaries of their facility-based assessment areas to include only
those contiguous census tracts within a county that such banks can
reasonably be expected to serve. The agencies' determination that large
banks, but not small and intermediate banks, should be required to
delineate facility-based assessment areas composed of whole counties
balances multiple competing considerations.
On the one hand, the agencies believe that requiring large banks to
delineate facility-based assessment areas composed of whole counties
helps to encourage those banks to serve low- or moderate-income
individuals and census tracts in counties where the bank's deposit-
taking facilities are located and helps to safeguard and support fair
lending. In particular, requiring a bank to delineate facility-based
assessment areas composed of whole counties could reduce the risk that
a facility-based assessment area may exclude low- or moderate-income or
majority-minority census tracts from the facility-based assessment
area. In addition, and as discussed in greater detail in the section-
by-section analysis of final Sec. __.24, whole-county delineations
facilitate the application of the Community Development Financing Test
because the relevant metrics and benchmarks are calculated at the
county level, and cannot be calculated at the census tract level
without increasing the reporting burden on banks. Similarly, and as
discussed in the section-by-section analysis of Sec. __.28, whole-
county delineations for large banks facilitate the final rule's
approach to weighting facility-based assessment area conclusions
because these weights are based on a combination of a bank's retail
loan and deposits data, and deposits data are reported at the county
level for large banks with assets of over $10 billion, pursuant to
final Sec. __.42(b)(3). Under an alternative approach in which large
banks are able to delineate partial-county facility-based assessment
areas, to calculate a weight for each area, large banks with assets
over $10 billion would need to report deposits data at a more granular
geographic level, such as census tracts, which the agencies believe
would increase burden and privacy concerns.
On the other hand, the agencies have considered that requiring
banks to delineate facility-based assessment areas composed of whole
counties could result in facility-based assessment areas that are
challenging for some large banks to serve, and may have an impact on
compliance burden, such as costs associated with monitoring the bank's
performance in and relevant benchmarks across the entire county, rather
than a smaller geographic area. This is particularly the case with very
large counties or counties with dividing geographic features (e.g., a
large body of water that divides the county in two) in which a bank has
a limited presence.
The agencies believe that the final rule strikes an appropriate
balance between these competing considerations. In circumstances in
which large banks cannot serve their whole counties due to geographic
barriers, limited presence, or other factors, the agencies would take
these factors into consideration as performance context when evaluating
a large bank's performance in such a
[[Page 6734]]
facility-based assessment area, as is generally the case under existing
standards. Accordingly, the agencies believe that the application of
performance context appropriately mitigates these concerns with respect
to this final rule's whole-county delineation requirement for large
banks, while retaining the benefits of the overall approach as
described above. For these reasons, final Sec. __.16(b)(2) requires
large banks to delineate facility-based assessment areas composed of
whole counties.
By contrast, final Sec. __.16(b)(3) allows small and intermediate
banks to delineate partial-county facility-based assessment areas, as
under the current rule, because these banks generally have less
capacity than large banks to serve whole counties and to adapt to new
regulatory requirements. The agencies have considered commenters'
concerns that allowing partial-county delineations could result in the
exclusion of low- or moderate-income, majority-minority, underserved,
or rural census tracts from a facility-based assessment area. However,
the agencies believe that other provisions of the final rule, including
the limitations in final Sec. __.16(c), discussed below, sufficiently
address this risk.
Section __.16(c) Other Limitations on the Delineation of a Facility-
Based Assessment Area
The Agencies' Proposal
Proposed Sec. __.16(c) would retain the current rule that a bank's
facility-based assessment areas may not reflect illegal discrimination
and may not arbitrarily exclude low- or moderate-income census tracts,
taking into account the bank's size and financial condition. The
agencies stated in the proposal that these prohibitions affirm a bank's
CRA obligation to serve its entire community, including low- or
moderate-income individuals and census tracts, and should remain a
vital component of the assessment area framework.
Comments Received
Several commenters provided feedback regarding the proposed
limitations on the delineation of facility-based assessment areas in
proposed Sec. __.16(c). These commenters generally recommended that
the agencies strengthen the prohibitions that a bank's facility-based
assessment areas may not reflect illegal discrimination and may not
arbitrarily exclude low- or moderate-income census tracts. For example,
a commenter recommended clarifying under what circumstances a bank's
assessment areas would be deemed to reflect illegal discrimination and
suggested that the agencies establish a rebuttable presumption that a
bank's facility-based assessment area reflects illegal discrimination
where its facility-based assessment area consists of a partial
political subdivision that excludes contiguous neighborhoods of color.
Many commenters stated that racial demographics should be considered
when delineating facility-based assessment areas, emphasizing that
minority communities should not be arbitrarily excluded. For example, a
commenter suggested that where a small or intermediate bank delineates
a facility-based assessment areas containing part of a county,
examiners should review the partial-county delineation to ensure that
it does not unreasonably exclude minority communities; if examiners
determine the bank has unreasonably excluded minority communities, this
finding should adversely impact the bank's CRA rating.
Final Rule
The agencies are adopting the limitations on the delineation of
facility-based assessment areas in proposed Sec. __.16(c)
substantially as proposed. Relative to the proposal, the final rule
includes drafting changes to clarify that the bank's capacity and
constraints, including its size and financial condition, are
considerations that the agencies will take into account in determining
whether a facility-based assessment area arbitrarily excludes low- or
moderate-income census tracts.\639\
---------------------------------------------------------------------------
\639\ See Q&A Sec. __.41(e)(3)-1.
---------------------------------------------------------------------------
The agencies acknowledge comments that recommended more specific
and stringent standards to safeguard against illegal discrimination and
arbitrary exclusion. Whether a facility-based assessment area reflects
illegal discrimination is a fact-and-circumstances-specific
determination, and for this reason, the agencies are not adopting more
specific standards, such as the rebuttable presumption suggested by
some commenters, within the regulatory text. The agencies note that
other parts of the final rule, such as the adverse effect of
discriminatory or other illegal credit practices provided in final
Sec. __.28(d), help safeguard and support fair lending, consistent
with the agencies' goal of confirming that CRA and fair lending
responsibilities are mutually reinforcing. Moreover, consistent with
current CRA examination procedures, examiners will continue to review a
bank's delineation of any facility-based assessment areas, whether
composed of partial or whole counties, for compliance with the
requirements of Sec. __.16, which includes ensuring that the facility-
based assessment area does not reflect illegal discrimination and does
not arbitrarily exclude any low- or moderate-income areas.\640\
---------------------------------------------------------------------------
\640\ See, e.g., Large Institution CRA Examination Procedures
(April 2014) at 4. In addition, examiners review a bank's CRA
assessment areas as part of the redlining analysis in fair lending
examinations. Specifically, the redlining analysis considers the
following indicators of potential discriminatory redlining, among
others: (1) explicit demarcation of credit product markets that
excludes MSAs, political subdivisions, census tracts, or other
geographic areas within the bank's lending market or CRA assessment
areas and having relatively high concentrations of minority
residents, and (2) the bank's CRA assessment area appears to have
been drawn to exclude areas with relatively high concentrations of
minority residents. See Interagency Fair Lending Examination
Procedures (August 2009) at 10-11.
---------------------------------------------------------------------------
Section __.16(d) Military Banks
The Agencies' Proposal
Proposed Sec. __.16(d) would retain the flexibility in the current
rule afforded to a military bank whose customers are not located within
a defined geographic area to delineate its entire deposit customer base
as its assessment area, consistent with the CRA statute.\641\
---------------------------------------------------------------------------
\641\ See 12 U.S.C. 2902(4). See also current 12 CFR __.41(f).
The agencies proposed to define ``military bank'' to mean a bank
whose business predominately consists of serving the needs of
military personnel who serve or have served in the Armed Forces
(including the U.S. Air Force, U.S. Army, U.S. Coast Guard, U.S.
Marine Corps, and U.S. Navy) or dependents of military personnel.
See proposed Sec. __.12.
---------------------------------------------------------------------------
Comments Received
As discussed in the section-by-section analysis of Sec. __.12, a
commenter recommended expanding the proposed definition of ``military
bank'' to include a branch located on a military installation so that
such a branch could delineate its entire deposit customer base as an
assessment area, as provided in proposed Sec. __.16(d), regardless of
whether the bank as a whole qualifies as a military bank. As an
alternative to expanding the ``military bank'' definition in this way,
the commenter suggested allowing a bank that operates a branch on a
military installation to delineate a geographic-based facility-based
assessment area defined by the boundaries of the military installation.
The commenter explained that one of these alternatives is necessary
because it can be challenging for a branch located on a military
installation to serve a broader geographic area given
[[Page 6735]]
restrictions on public access to military installations.
Final Rule
The agencies are finalizing a modified version of proposed Sec.
__.16(d). The final rule provides that, notwithstanding the other
requirements of Sec. __.16, a military bank whose customers are not
located within a defined geographic area may delineate the entire
United States and its territories as its sole facility-based assessment
area. The final rule uses the defined term ``facility-based assessment
area,'' rather than ``assessment area'' as proposed, to clarify that
the area is not a retail lending assessment area or outside retail
lending area, which would be evaluated only under the Retail Lending
Test. In addition, the agencies believe that the term ``sole''
clarifies that a military bank that elects to delineate its facility-
based assessment area pursuant to Sec. __.16(d) would have only one
facility-based assessment area, and would not delineate other
geographic areas for evaluation.\642\
---------------------------------------------------------------------------
\642\ The evaluation of military banks under the final rule is
discussed in greater detail in the section-by-section analysis of
final Sec. __.21(a)(5).
---------------------------------------------------------------------------
The agencies considered the challenges identified by commenters
regarding the operation of branches on military installations. However,
the agencies have determined not to modify the facility-based
assessment area delineation requirements for these branches. The
agencies believe that the final rule approach is sufficiently flexible
such that banks that operate branches on military installations, or in
other areas where public access is restricted, would not be penalized
for doing so. In particular, the agencies expect that examiners would
consider the public accessibility of a branch as performance context
when evaluating the bank's performance in the facility-based assessment
area surrounding the branch. Other areas of the final rule also permit
examiners the flexibility to consider the unique circumstances of
branches on military installations. For example, pursuant to final
Sec. __.22(c), in the case of a bank that operates a branch on a
military installation but that does not meet or surpass the Retail
Lending Volume Screen threshold in the facility-based assessment area,
examiners could consider the restrictions on public access to the
branch as part of the bank's institutional capacity and
constraints.\643\
---------------------------------------------------------------------------
\643\ See final Sec. __.22(c)(3)(i)(B).
---------------------------------------------------------------------------
Section __.16(e) Use of Facility-Based Assessments Areas
As under the current rule, proposed Sec. __.16(e) stated that the
agencies use the facility-based assessment areas delineated by a bank
in their evaluation of the bank's CRA performance unless the agencies
determine that the facility-based assessment areas do not comply with
the requirements of proposed Sec. __.16.
The agencies did not receive any comments on this aspect of the
proposal. As such, the agencies are finalizing Sec. __.16(e) as
proposed.
Section __.17 Retail Lending Assessment Areas
In proposed Sec. __.17, the agencies proposed a new requirement
for large banks to delineate retail lending assessment areas where a
large bank has concentrations of home mortgage or small business loans
outside of its facility-based assessment areas. The agencies proposed
to evaluate a large bank's performance in retail lending assessment
areas under the proposed Retail Lending Test, but not under other
performance tests. As stated in the proposal, the agencies intended the
proposed retail lending assessment area approach, as with facility-
based assessment areas, to establish local communities in which a bank
is evaluated for its CRA performance, and to reflect ongoing changes in
the banking industry. The agencies further stated in the proposal that
evaluating large banks' retail lending performance on a local basis in
retail lending assessment areas would accord with CRA's focus on a
bank's local performance in helping to meet community credit needs,
promote transparency by providing useful information to the public and
banks regarding their performance in specific markets, and improve
parity between banks that lend primarily through branches and those
banks with different business models.
The agencies received a significant amount of feedback related to
the retail lending assessment area proposal from a wide array of
commenters. Commenters expressed a range of views regarding the overall
retail lending assessment area approach, with many commenters
supporting the proposal, and many other commenters opposing it,
especially due to concerns about the compliance burden of the proposal.
Commenters also provided feedback on specific aspects of the retail
lending assessment area proposal, including which large banks should be
required to delineate retail lending assessment areas, geographic
requirements for retail lending assessment areas, and the number and
types of retail loans that would trigger the retail lending assessment
area requirement.
For the reasons discussed below, the agencies are including the
retail lending assessment area approach in the final rule. However, in
response to commenter feedback, the agencies are adopting several
modifications to the retail lending assessment area proposal to better
align the retail lending assessment area approach with the agencies'
policy objectives. In particular, and as described below, the final
rule (1) tailors the retail lending assessment area requirement by
exempting large banks that conduct more than 80 percent of their retail
lending in facility-based assessment areas from the retail lending
assessment area requirement; (2) reduces the number of retail lending
assessment areas that affected large banks will need to delineate by
increasing the proposed home mortgage loan and small business loan
count thresholds for triggering retail lending assessment areas; (3)
reduces the number of product lines evaluated in retail lending
assessment areas by modifying the evaluation of a large bank's retail
lending performance in retail lending assessment areas so that only
closed-end home mortgage loans and small business loans are evaluated,
and only if they exceed the applicable loan count threshold; and (4)
narrows the geographic scope of certain retail lending assessment areas
by tailoring the proposed geographic requirements for retail lending
assessment areas in the nonmetropolitan area of a State to exclude any
counties in which a large bank did not originate any reported closed-
end home mortgage loans or small business loans.
Overall Retail Lending Assessment Area Approach
The Agencies' Proposal
To facilitate evaluation of whether and to what extent banks are
meeting the credit needs of their entire communities, proposed Sec.
__.17 complemented the existing framework for evaluating large banks'
retail lending in facility-based assessment areas by requiring large
banks to delineate retail lending assessment areas where they have
concentrations of certain retail loans (i.e., home mortgage loans or
small business loans) outside of facility-based assessment areas. The
agencies proposed to evaluate a large bank's performance in retail
lending assessment areas under the proposed
[[Page 6736]]
Retail Lending Test, but not under other performance tests.
Comments Received
Numerous commenters addressed the overall retail lending assessment
area approach. Many commenters expressed support for establishing
retail lending assessment areas, but many others either opposed the
concept altogether or recommended changes to reduce the compliance
burden associated with retail lending assessment areas. Additionally,
some commenters offered views on alternative ways to evaluate retail
lending outside of facility-based assessment areas.
Support for retail lending assessment areas. A number of commenters
expressed support for the agencies' proposal to require retail lending
assessment areas where large banks do not maintain deposit-taking
facilities but have concentrations of home mortgage loans and/or small
business loans. Many of these commenters asserted that the agencies'
proposal represents an appropriate response to changes in banking over
time, such as the increase in retail lending offered via non-branch-
based delivery channels and would improve parity in the same geographic
area between banks that operate via branches and banks that begin to
make loans in the same market without establishing a branch. For
example, some commenters stated that the proliferation of online
lending and other non-branch-based delivery channels increasingly
allows for a bank to serve a local community without the presence of a
deposit-taking facility located within the community, and that the CRA
evaluation framework should evolve to reflect this development. Other
commenters noted that the retail lending assessment area approach would
ensure that a large bank that closes its deposit-taking facilities in a
geographic area but continues to conduct a significant volume of retail
lending through online or other channels in that area, would continue
to have that retail lending evaluated on a local basis. A few
commenters also stated that evaluating banks in retail lending
assessment areas would be consistent with the purpose and principles of
the CRA statute.
Commenters that supported the overall retail lending assessment
area approach also pointed to various benefits that they believe would
follow from the approach. For example, some commenters noted that the
proposed retail lending assessment area approach, together with the
proposed outside retail lending area approach, would result in the
majority of bank retail lending being evaluated under the CRA, and
would increase bank accountability for serving low- and moderate-income
communities as a result. A number of commenters stated that the
proposed retail lending assessment area approach would improve CRA
coverage in underserved geographic areas, with various commenters
suggesting that rural areas, banking deserts, impoverished communities,
majority-minority communities, and Native Land areas would particularly
benefit from the proposed approach. A few commenters stated that
expanding assessment areas beyond facility-based assessment areas would
likely result in more lending to low- and moderate-income borrowers and
communities, noting that research demonstrates that banks make a higher
percentage of their loans to low- and moderate-income borrowers and in
low- and moderate-income census tracts in their assessment areas
compared to areas not designated as assessment areas.
Policy concerns with retail lending assessment areas. Conversely,
many commenters opposed or raised significant concerns with the
proposed retail lending assessment area approach.
First, many of the commenters that opposed or expressed concerns
with the proposed retail lending assessment area approach asserted that
the addition of retail lending assessment areas would introduce
significant complexity into CRA evaluations and impose substantial
compliance burdens on banks. Several of these commenters estimated
that, under the proposal, some banks would be required to delineate
large numbers of new retail lending assessment areas and expressed that
monitoring where a bank might trigger retail lending assessment areas,
including retail lending performance metrics and performance ranges in
those areas, would entail significant compliance costs. A few
commenters stated that the compliance burden associated with the retail
lending assessment area proposal would be particularly acute for
smaller large banks (e.g., large banks with assets under $10 billion),
which these commenters said are not currently staffed or equipped with
appropriate technology to satisfy CRA requirements in retail lending
assessment areas. At least one commenter stated that the compliance
burden of the proposed retail lending assessment area approach was not
worth the relatively low weight that retail lending assessment areas
would typically receive under the proposed Retail Lending Test, based
on lower levels of bank retail lending and deposit dollar volumes in
these markets.
Some commenters that emphasized the compliance burdens associated
with the retail lending assessment area proposal offered suggestions
for how the agencies could modify the proposal to reduce the compliance
impact. For example, many of these commenters supported an exemption
from the retail lending assessment area requirements for primarily
branch-based banks and increased loan count thresholds for triggering
retail lending assessment areas, as described below. At least one
commenter suggested including a cap on the number of retail lending
assessment areas that a large bank must delineate to mitigate concerns
that some banks would be required to delineate a large number of retail
lending assessment areas. At least one other commenter suggested that
the agencies should create data and mapping tools to assist banks with
delineating assessment areas.
Second, some commenters that opposed or expressed concerns with the
proposed retail lending assessment area approach warned of unintended
consequences that they believed would result from retail lending
assessment areas. For example, many commenters expressed concerns that
the proposed retail lending assessment areas could result in banks
limiting retail lending activity, which some of these commenters
asserted would be contrary to the intent of the CRA and the agencies'
proposal. In particular, commenters warned that banks might curtail
their retail lending outside of facility-based assessment areas, such
as by closing loan production offices and reducing indirect lending, to
avoid surpassing the loan count thresholds that would trigger the
delineation of retail lending assessment areas. Further, commenters
warned that banks that have already surpassed the loan count thresholds
and would therefore be required to delineate retail lending assessment
areas might withdraw from these geographic areas, particularly if it
would be too challenging to meet performance standards in a retail
lending assessment area without a physical presence or local community
knowledge or expertise.
Other commenters identified other potential unintended consequences
of retail lending assessment areas. For example, several commenters
asserted that the addition of retail lending assessment areas would
competitively disadvantage banks relative to nonbank lenders and credit
unions who are not subject to the CRA, thereby exacerbating trends of
home mortgage and small business lending shifting outside the regulated
banking system. A few
[[Page 6737]]
commenters stated that as banks dedicate more resources to serve retail
lending assessment areas, banks' capacity to be responsive to community
needs within facility-based assessment areas would necessarily be
reduced. A few commenters suggested that the proposed retail lending
assessment area approach could cause banks to rethink their business
models, including by slowing their deposit and loan growth through
digital channels. Another commenter stated that expanding assessment
areas would make it even harder for low-income areas that need banking
services to be served, noting that many low-income individuals are
disadvantaged when relying on online services.
Third, some commenters expressed concerns that the retail lending
assessment area proposal would not target geographic areas with the
greatest needs and would not benefit low- or moderate-income and
underserved communities. For example, a few commenters made the point
that subjecting digital banks to retail lending assessment areas would
not target underserved geographies with the greatest credit needs, with
at least one such commenter recommending that the agencies focus on
incentivizing digital lenders to conduct CRA activities where there is
the most need. Other commenters asserted that retail lending assessment
areas would be located predominantly in large cities and would not
benefit underserved areas outside of these cities. At least one
commenter indicated that retail lending assessment areas would not
address the problem of a bank taking deposits from a market but not
lending in that market, and would not prevent a bank from engaging in
redlining.
Legal concerns regarding retail lending assessment area proposal.
Some commenters opposed to the proposed retail lending assessment area
approach raised legal concerns regarding this aspect of the proposal.
First, some commenters questioned whether the agencies' analysis
supporting the retail lending assessment area proposal was legally
adequate under the Administrative Procedure Act. Several commenters
suggested that the agencies' justification for the retail lending
assessment area proposal did not demonstrate that the agencies engaged
in reasoned decision-making, for example, stating that the agencies
failed to demonstrate the potential benefits of retail lending
assessment areas would exceed the significant burden they would impose
on banks or otherwise did not provide an adequate rationale for
specific aspects of the retail lending assessment area proposal. A few
commenters stated that the proposal did not include enough information
for commenters to be able to assess the impact of the retail lending
assessment area proposal, such as where particular retail lending
assessment areas would be located.
Second, some commenters questioned whether the agencies have the
legal authority under the CRA to evaluate banks' retail lending in
geographic areas where they do not maintain deposit-taking facilities.
For example, these commenters pointed to certain provisions of the
statute to support the proposition that a bank's community refers only
to the geographic areas around deposit-taking facilities, including
references to banks' local communities in the findings and purpose
section of the statute,\644\ the provisions of the statute regarding
written evaluations,\645\ and the provision concerning banks that serve
military personnel.\646\
---------------------------------------------------------------------------
\644\ See, e.g., 12 U.S.C. 2901(a)(3) (referring to banks'
obligation to ``help meet the credit needs of the local communities
in which they are chartered'').
\645\ See, e.g., 12 U.S.C. 2906(b)(1)(B) (requiring the agencies
to present certain information related to a bank's performance
``separately for each metropolitan area in which a regulated
depository institution maintains one or more domestic branches'').
\646\ See 12 U.S.C. 2902(4) (permitting a bank ``whose business
predominately consists of serving the needs of military personnel
who are not located within a defined geographic'' to ``define its
`entire community' to include its entire deposit customer base
without regard to geographic proximity'').
---------------------------------------------------------------------------
Alternatives to retail lending assessment areas. Some commenters
that opposed or expressed concerns with retail lending assessment areas
suggested a variety of alternative approaches for evaluating banks'
retail lending outside of facility-based assessment area.
First, some commenters suggested evaluating all of a large bank's
retail lending outside of its facility-based assessment areas at a
broader geographic level, such as at the State or institution level
only. In general, these commenters stated that an institution-wide
evaluation would: (1) provide a more complete view of a bank's retail
lending distributions; (2) maximize geographic coverage; and (3) afford
neutral treatment to a bank's business model, consistent with the
agencies' goals for CRA modernization. At least one of these commenters
suggested that an institution-level evaluation could be supplemented by
providing banks positive consideration for strong lending performance
in underserved geographic areas.
Second, other commenters suggested evaluating large banks in retail
lending assessment areas only at a bank's option, emphasizing the
compliance burden of the retail lending assessment area proposal.
Third, some commenters suggested that banks should be required to
delineate assessment areas in geographic areas with the greatest need,
such as rural areas, majority-minority areas, and Native Land areas.
These commenters generally expressed concerns that, under the proposed
approach, retail lending assessment areas would not necessarily cover
these geographic areas, and thus would not necessarily incentivize
banks to increase lending in the areas of greatest need.
Finally, many commenters recommended requiring banks to delineate
an assessment area where they have concentrations of deposits outside
of facility-based assessment areas, either as an alternative or in
addition to the agencies' proposed retail lending assessment areas.
Some of these commenters provided the view that, compared to retail
lending assessment areas, deposit-based assessment areas would be more
consistent with the CRA's emphasis on banks' reinvesting in the
communities from which they draw deposits. Some commenters added that
deposit-based assessment areas would be especially important for
capturing banks whose business models involve collecting deposits
through non-branch channels, but that do not necessarily engage in
lending in the communities from which those deposits are drawn. A few
commenters suggested that the agencies could wait until the proposed
deposit data collection and reporting provisions are implemented, and
then revisit the issue of whether to require delineation of deposit-
based assessment areas. In contrast, another commenter opposed
establishing deposit-based assessment areas because it would require
deposit data collection and reporting requirements for all large banks.
Final Rule
For the reasons discussed below, the agencies are including the
retail lending assessment area approach in the final rule. However, in
response to commenter feedback and in consideration of the agencies'
policy objectives, the agencies are also adopting several modifications
to the retail lending assessment area proposal. Specifically, the final
rule: (1) tailors the retail lending assessment area requirement to a
narrower subset of large banks by exempting large banks that conduct
more than 80 percent of
[[Page 6738]]
their retail lending in facility-based assessment areas from the retail
lending assessment area requirement; (2) reduces the number of retail
lending assessment areas that affected large banks will need to
delineate by increasing the proposed home mortgage loan and small
business loan count thresholds for triggering retail lending assessment
areas; (3) reduces the number of product lines evaluated in retail
lending assessment areas by modifying the evaluation of a large bank's
retail lending performance in retail lending assessment areas so that
only closed-end home mortgage loans and small business loans are
evaluated, and only if they exceed the applicable loan count threshold;
and (4) narrows the geographic scope of certain retail lending
assessment areas by tailoring the proposed geographic requirements for
retail lending assessment areas in the nonmetropolitan area of a State
to exclude any counties in which a large bank did not originate any
reported closed-end home mortgage loans or small business loans. These
modifications to the proposal are discussed in detail below.
Legal authority. The agencies have considered all of the issues
raised by commenters regarding their legal authority to require large
banks to delineate retail lending assessment areas and to evaluate the
retail lending performance of large banks in those areas. Consistent
with the agencies' views stated in the proposal, and upon further
deliberation and consideration, the agencies have concluded that the
CRA authorizes the agencies to evaluate large banks' retail lending
performance in geographic areas where banks have concentrations of
retail loans. In particular, the CRA requires the agencies to assess a
bank's record of meeting the credit needs of its entire community,
without defining what constitutes a bank's entire community.\647\
Further, the references to a bank's local communities in the
congressional findings and purpose section of the statute do not define
what geographic areas constitute a bank's local communities.\648\
---------------------------------------------------------------------------
\647\ See 12 U.S.C. 2903(a)(1) (requiring that the agencies
``assess [an] institution's record of meeting the credit needs of
its entire community'').
\648\ See 12 U.S.C. 2901(a)(3) (finding that ``regulated
financial institutions have continuing and affirmative obligation to
help meet the credit needs of the local communities in which they
are chartered'') and 12 U.S.C. 2901(b) (stating that the purpose of
the CRA is ``encourage such institutions to help meet the credit
needs of the local communities in which they are chartered
consistent with the safe and sound operation of such
institutions.'').
---------------------------------------------------------------------------
The CRA includes provisions that specifically relate to the
preparation of written evaluations that support the conclusion that the
geographic areas where a bank maintains deposit-taking facilities are
considered part of the bank's entire community.\649\ However, nothing
in these provisions indicates that a bank's entire community consists
of only these geographic areas. Similarly, the provision of the statute
concerning banks that serve the needs of military personnel, also cited
by some commenters, does not support the view that other types of
banks' local communities or entire communities are limited to areas
with geographic proximity to a deposit-taking facility.\650\
---------------------------------------------------------------------------
\649\ E.g., 12 U.S.C. 2906 (requiring the agencies to prepare a
written evaluation of a bank's CRA performance for each metropolitan
area and, in the case of an interstate bank, each State and/or
multistate metropolitan area in which the bank maintains a branch).
\650\ See 12 U.S.C. 2902(4) (authorizing a bank whose business
predominately consists of serving the needs of military personnel
who are not located within a defined geographic area to define ``its
entire deposit customer base without regard to geographic
proximity'' as ``its `entire community' '').
---------------------------------------------------------------------------
The CRA delegates authority to the agencies to prescribe
regulations to carry out the purposes of the CRA.\651\ To achieve its
purposes, the CRA requires the agencies to assess whether a bank is
meeting the credit needs of all parts of the communities it serves,
without excluding the low- and moderate-income neighborhoods in those
communities.\652\ The agencies have determined, based on their
supervisory experience and expertise, that a large bank's ``entire
community'' can reasonably be considered to include areas where the
bank is conducting meaningful banking activity by making a substantial
number of retail loans. The agencies have concluded that retail lending
assessment areas fall within the requirements imposed on the agencies
by the CRA to assess a bank's record of meeting the credit needs of its
entire community, and properly further the purpose of the statute to
encourage banks to meet the credit needs of all parts of communities in
which they meaningfully operate and that they serve.
---------------------------------------------------------------------------
\651\ See 12 U.S.C. 2905.
\652\ See 12 U.S.C. 2903(a).
---------------------------------------------------------------------------
Policy objectives of retail lending assessment areas. In developing
the overall retail lending assessment area approach in the proposed and
final rules, the agencies seek to achieve several different policy
objectives.
First, the overall retail lending assessment area approach adapts
to ongoing changes to the banking industry. The current CRA regulations
generally define assessment areas in connection with a bank's main
office, branches, and deposit-taking ATMs. However, the agencies
recognize that changes in technology and in bank business models have
resulted in banks' entire communities extending beyond the geographic
footprint of the bank's main office, branches, and other deposit-taking
facilities. To reflect these changes in banking, and to make the
assessment area framework more durable over time, the agencies are
complementing the existing facility-based assessment area framework in
the final rule with a retail lending assessment area requirement
tailored to certain large banks.
Second, the retail lending assessment area approach improves parity
in the evaluation framework for large banks with different business
models. For example, under the current approach, a bank that maintains
branches in multiple States and conducts retail lending in the
geographic areas served by those branches would have its retail lending
evaluated in multiple assessment areas based on the location of its
branches; however, an online bank that conducts a similar amount of
retail lending in the same geographic areas would not be required to
delineate assessment areas in these areas under current standards, and
would only be evaluated in one assessment area based on the location of
the bank's main office. Under the retail lending assessment area
approach of the final rule, however, the online bank may be required to
delineate retail lending assessment areas in the geographic areas where
it makes a concentration of retail loans, or these loans may be
included in the bank's outside retail lending area evaluation,
resulting in more comparable CRA evaluations for both banks despite
their different business models.
Third, in accounting for ongoing changes to the banking industry
and improving parity in the evaluation framework for large banks with
different business models, the agencies also seek to retain an emphasis
on a large bank's performance in meeting the credit needs of the local
communities it serves, consistent with the focus of the CRA.
Specifically, the agencies seek to emphasize performance in specific
geographic areas by assigning conclusions that reflect the large bank's
retail lending performance in those areas, rather than only assigning
conclusions at an aggregate level. For example, under the retail
lending assessment area approach, a bank that is not meeting the retail
credit needs of a specific geographic area in which it has
[[Page 6739]]
made a significant volume of retail loans will receive a conclusion of
``Needs to Improve'' or ``Substantial Noncompliance'' in that retail
lending assessment area, reflecting the bank's performance in that
specific geographic area. As discussed below, the agencies considered
an alternative approach in which all of a large bank's retail lending
outside of its facility-based assessment areas would only be evaluated
in the aggregate (i.e., assigning a single conclusion that reflects the
bank's performance with respect to all of its retail lending outside of
its facility-based assessment areas), rather than assigning conclusions
that reflect the bank's performance in specific geographic areas
outside of the bank's facility-based assessment areas where the bank
has concentrations of retail lending. For the reasons discussed below,
the agencies are not adopting this alternative approach.
Fourth, the retail lending assessment area approach, in combination
with the outside retail lending area approach discussed in the section-
by-section analysis of final Sec. __.18, increases the share of retail
lending by large banks that is considered in CRA evaluations. Under the
current approach, retail lending conducted outside of a bank's
assessment areas is not evaluated using the Lending Test criteria; this
lending is only considered if the bank has adequately addressed the
needs of borrowers within its assessment areas, and does not compensate
for poor lending performance within the bank's assessment areas.\653\
The retail lending assessment area approach in the final rule applies a
metrics-based evaluation approach to retail loans in retail lending
assessment areas (and outside retail lending areas) and generally
increases the share of retail lending by banks that is evaluated in
this manner.
---------------------------------------------------------------------------
\653\ See Q&A Sec. __.22(b)(2) and (3)-4.
---------------------------------------------------------------------------
Finally, the agencies seek to achieve the policy objectives
described above while also appropriately adjusting for the level of
complexity and impact on large banks that would have new retail lending
assessment area evaluations. The agencies acknowledge that the retail
lending assessment area approach may result in additional compliance
costs for large banks; in particular, the agencies have considered
feedback from industry commenters that the compliance costs related to
the retail lending assessment area approach include costs associated
with identifying and delineating retail lending assessment areas, costs
associated with reporting the location of retail lending assessment
areas, potential costs associated with monitoring performance in retail
lending assessment areas, and potential costs associated with meeting
performance standards in retail lending assessment areas. The agencies
believe that aggregate compliance costs related to the retail lending
assessment area approach is correlated with the number of large banks
that are required to delineate one or more retail lending assessment
areas, the total number of retail lending assessment areas overall, and
the number of product lines evaluated within retail lending assessment
areas. The retail lending assessment area approach in the final rule is
intended to address compliance cost concerns, while simultaneously
ensuring that the agencies' other objectives, described above, are
achieved.
Modifications to the proposed retail lending assessment area
approach. In developing the final rule, the agencies have considered
the proposed retail lending assessment area approach in light of the
policy objectives described above and public comments on this aspect of
the proposal. The agencies continue to believe that evaluating the
retail lending performance of certain large banks in geographic areas
where they have concentrations of retail loans accomplishes the
agencies' policy objectives; accordingly, the final rule includes a
retail lending assessment area approach. However, as noted above, the
final rule includes several modifications to the retail lending
assessment area proposal to better align the retail lending assessment
area approach with the agencies' policy objectives.
First, and as described below in the section-by-section analysis of
final Sec. __.17(a), the agencies are adopting the alternative
approach discussed in the proposal of exempting from the retail lending
assessment area requirement large banks that conduct more than 80
percent of their retail lending in facility-based assessment
areas.\654\ The agencies believe that this exemption appropriately
narrows the scope of the retail lending assessment area requirement to
large banks that conduct a significant portion (i.e., 20 percent or
more) of their retail lending outside of facility-based assessment
areas. This exemption further recognizes that conclusions assigned to
the retail lending performance of predominantly branch-based banks in
their facility-based assessment areas typically already capture a large
majority of these banks' retail lending. In addition, the agencies
believe this exemption aligns with the other objectives of adapting to
changes in the banking landscape, improving parity in the evaluation
framework for branch-based and non-branch based large banks, and
minimizing the number of retail lending assessment areas and the number
of affected large banks while still achieving the agencies' other
policy objectives.
---------------------------------------------------------------------------
\654\ See final Sec. __.17(a)(2) and final appendix A,
paragraph II.a.1.
---------------------------------------------------------------------------
Second, and as described below in the section-by-section analysis
of final Sec. __.17(c), the agencies are increasing, relative to the
proposal, the respective loan count thresholds in the final rule for
triggering the requirement to delineate retail lending assessment areas
from the proposed levels to 150 closed-end home mortgage loans and 400
small business loans. In response to changes to the major product lines
evaluated under the Retail Lending Test discussed in the section-by-
section analysis of final Sec. __.22(d), the agencies are also
limiting the proposed home mortgage loan count threshold to closed-end
home mortgage loans only. In comparison to the proposal, which would
have required a large bank to delineate a retail lending assessment
area if it originated at least 100 home mortgage loans (i.e., open-end
home mortgage loans or closed-end home mortgage loans) or 250 small
business loans in a geographic area, the final rule increases these
loan count thresholds by 50 percent (for closed-end home mortgage loans
only) and 60 percent for small business loans. The agencies believe
that these revised loan count thresholds in the final rule strike an
appropriate balance between, on the one hand, increasing the share of
retail lending that is considered in CRA evaluations and the share of
retail lending with respect to which a bank's performance is assigned a
conclusion in a specific geographic area, and on the other hand,
minimizing the number of retail lending assessment areas and affected
large banks while still achieving the agencies' other policy
objectives.
Third, and as described below in connection with the section-by-
section analysis of final Sec. __.17(d), the agencies are modifying
the evaluation of a large bank's retail lending performance in retail
lending assessment areas so that the only retail product lines that may
evaluated as a major product line in a retail lending assessment area
are closed-end home mortgage loans and small business loans. Further,
closed-end home mortgage loans or small business loans are major
product lines in a retail lending assessment area only if the product
line exceeds the applicable loan
[[Page 6740]]
count threshold in the retail lending assessment area (i.e., 150
closed-end home mortgage loans, and 400 small business loans). As a
result, the number of product lines evaluated in retail lending
assessment areas will decrease relative to the proposed approach. The
agencies believe that this modification will appropriately focus the
retail lending evaluation in retail lending assessment areas on the
particular concentration of retail loans responsible for triggering the
retail lending assessment area and, in so doing, will reduce the
potential compliance costs associated with monitoring performance in
these areas.
Finally, and as described below with the section-by-section
analysis of final Sec. __.17(b), the agencies are tailoring the
geographic requirements for retail lending assessment areas located in
the nonmetropolitan area of a State to exclude any counties in which a
large bank did not originate any reported closed-end home mortgage
loans or small business loans during the calendar year. As a result,
the geographic scope of these retail lending assessment areas will be
more focused in comparison to the proposed approach and will limit the
evaluation of a large bank's performance in these retail lending
assessment areas to the counties in which a bank has conducted retail
lending.
Impact of modifications to the proposed retail lending assessment
area approach. To assess the cumulative impact of the modifications to
the proposed retail lending assessment area approach, the agencies
conducted an analysis of the proposed retail lending assessment area
approach and the final rule approach using data from the 2018, 2019,
and 2020 calendar years.\655\ Specifically, assuming that the proposed
approach and the final rule approach had been in effect during those
years, the agencies calculated the number and share of large banks that
would have had to delineate one or more retail lending assessment areas
in any of those three years (``affected large banks''), and the number
of retail lending assessment areas that would have been delineated in
aggregate across all affected large banks under the proposed and final
rule approaches, respectively. This analysis, shown in Table 1, showed
that the modifications adopted in the final rule, relative to the
proposal, would have reduced the number and percentage of affected
large banks by about half, from 125 to 63 large banks, and from 33.5
percent to 16.9 percent of large banks in the sample. In addition, the
modifications adopted in the final rule approach would have reduced the
number of retail lending assessment areas delineated across all
affected large banks by almost half, from 1,591 to 863 retail lending
assessment areas.
---------------------------------------------------------------------------
\655\ The agencies used closed-end home mortgage and small
business data from the CRA Analytics Data Tables for the years 2016-
2020 to perform an analysis of the final rule retail lending
assessment area approach and potential alternative approaches. The
sample for the analysis included all CRA reporters, except for
wholesale, limited purpose, and strategic plan banks which are
excluded.
---------------------------------------------------------------------------
The agencies also analyzed the distribution of the number of retail
lending assessment areas across affected large banks that would have
been delineated had the proposed approach and the final rule approach
been in effect during the 2018, 2019, and 2020 calendar years. As shown
in Table 2, among large banks that would have had been required to
delineate one or more retail lending assessment areas during the period
from 2018 to 2020, most affected large banks would have been required
to delineate five or fewer retail lending assessment areas. Under the
final rule approach, 24 affected large banks would have been required
to delineate more than five retail lending assessment areas, compared
to 38 affected large banks under the proposed approach.
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P
[GRAPHIC] [TIFF OMITTED] TR01FE24.000
[[Page 6741]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.001
BILLING CODE 4810-33-C; 6210-01-C; 6714-01-C
Availability of data tools. The agencies recognize that large banks
that are not exempt from the requirement to delineate retail lending
assessment areas will bear some compliance costs, such as costs
associated with identifying and delineating retail lending assessment
areas, and the costs associated with reporting the location of retail
lending assessment areas. In addition, large banks may expend further
resources to monitor their performance and meet performance standards
in retail lending assessment areas. The agencies will develop and make
freely available tools that would leverage reported loan data to help
banks identify geographic areas where retail lending assessment areas
may be required, and to calculate the retail lending distribution
benchmarks that applied to those retail lending assessment areas in
recent years. The agencies believe that such tools would also be
responsive to some commenters' concerns that large banks may lack the
technology and staffing necessary to satisfy CRA requirements in retail
lending assessment areas.
Impact of retail lending assessment areas on retail lending outside
of facility-based assessment areas. The agencies acknowledge that
commenters disagreed on the likely impact of the proposed overall
retail lending assessment area approach. In particular, some commenters
stated that the approach would incentivize banks to improve their
retail lending performance in retail lending assessment areas. Other
commenters predicted that banks would reduce their retail lending
outside of facility-based assessment areas to avoid the requirement to
delineate retail lending assessment areas.
As further described in the section-by-section analysis of final
Sec. __.22, the agencies conducted an analysis using historical data
to estimate the recommended conclusions that banks would have received
had the final rule Retail Lending Test been in effect in 2018-2020.
Regarding large banks'
[[Page 6742]]
performance in retail lending assessment areas, the agencies estimate
that 77.7 percent of retail lending assessment areas delineated by
large banks included in the analysis would have received either a ``Low
Satisfactory,'' ``High Satisfactory,'' or ``Outstanding'' recommended
conclusion, which the agencies believe demonstrates that a ``Low
Satisfactory'' or higher conclusion is generally attainable for large
banks in retail lending assessment areas. The agencies further note
that, while an estimated 20.6 percent of retail lending assessment
areas would have received recommended conclusions of ``Needs to
Improve,'' and 1.8 percent would have received a recommended conclusion
of ``Substantial Noncompliance,'' only approximately 7 percent of large
banks included in the analysis would have received a ``Needs to
Improve'' Retail Lending Test conclusion when overall retail lending
performance is calculated at the institution level (and no large banks
included in the analysis would have received a ``Substantial
Noncompliance'' conclusion at the institution level). This analysis
informs the agencies' belief that the retail lending assessment area
approach is reasonable and not unduly burdensome, because the retail
lending of a significant majority of affected banks in this analysis is
consistent with a ``Low Satisfactory,'' ``High Satisfactory,'' or
``Outstanding'' estimated conclusion, both for retail lending
assessment areas, and at the institution level.
Alternatives to retail lending assessment areas. In developing the
overall retail lending assessment area approach in the proposed and
final rules, the agencies considered alternative ways of modernizing
the CRA evaluation framework to provide a more comprehensive evaluation
of a large bank's retail lending, including in areas outside of
facility-based assessment areas.\656\
---------------------------------------------------------------------------
\656\ This discussion focuses on approaches to evaluating the
retail lending of large banks outside of facility-based assessment
areas. The final rule approach for evaluating intermediate and small
banks' retail lending outside of facility-based assessment areas is
discussed further in the section-by-section analysis of final Sec.
__.18.
---------------------------------------------------------------------------
First, as suggested by some commenters, the agencies considered an
approach under which a large bank's retail lending outside of its
facility-based assessment areas would be evaluated only at a broader
geographic level, such as at the State or institution level. The
agencies decided not to adopt this approach for large banks for several
reasons. Under this approach, a bank would not receive a conclusion
reflecting its retail lending performance in any specific geographic
area outside of its facility-based assessment areas, including specific
geographic areas in which it originated a significant number of loans.
Compared to such an aggregate approach, the agencies believe that
assigning conclusions that reflect a large bank's retail lending
performance in retail lending assessments area comports with the CRA's
focus on a bank meeting the credit needs of the local communities it
serves. Further, assigning conclusions that reflect a large bank's
performance in geographic areas where it has concentrations of retail
loans provides more specific information to the bank and the public
regarding the bank's performance particular geographic areas.
Additionally, an institution-level only approach to evaluating a large
bank's retail lending outside of its facility-based assessment areas
would not achieve the agencies' objective of improving parity in the
CRA evaluation framework for large banks with different business
models. For example, under the institution-level only approach, a large
branch-based bank would have much of its retail lending evaluated
within its facility-based assessment areas, and would be assigned
conclusions reflecting the bank's retail lending performance in those
areas, with only its remaining retail lending evaluated on an aggregate
basis at the institution level. By contrast, a large online bank with a
similar volume and geographic dispersion of retail lending would have
most of its retail lending (i.e., all of its retail lending outside the
sole assessment area around the bank's main office) evaluated on an
aggregate basis, with no conclusions that reflect performance in
specific areas. Under the retail lending assessment area approach of
the final rule, however, the large online bank may be required to
delineate retail lending assessment areas, and the agencies would
assign conclusions reflecting the large bank's retail lending
performance in these retail lending assessment areas, resulting in more
comparable CRA evaluations for both banks despite their different
business models.
Second, the agencies considered making retail lending assessment
areas optional but not required, as some commenters requested. However,
the agencies believe that an optional evaluation approach would not
achieve the agencies' policy objectives since banks could opt out of
retail lending assessment areas entirely under this alternative. The
agencies are concerned that over time, an optional retail lending
assessment area approach would make the assessment area framework less
durable to ongoing changes in the banking industry, particularly with
any expansion of digital banking. Specifically, if an increasing share
of large bank retail lending occurs outside of facility-based
assessment areas, and if the agencies could evaluate that lending in
retail lending assessment areas only at a bank's option, the policy
objectives of increasing the share of retail lending that is considered
in CRA evaluations and that is evaluated in specific geographic areas
would be undermined. Further, the policy objective of improving parity
in the evaluation framework for banks with different business models
would be undermined if, for example, non-branch-based banks could opt
out of the retail lending assessment area approach.
Third, as suggested by some commenters, the agencies considered
requiring large banks to delineate assessment areas in geographic areas
with the greatest credit needs, rather than delineating retail lending
assessment areas. However, the agencies note that CRA encourages banks
to help meet the credit needs of the local communities they serve, and
does not require banks to begin serving communities they do not already
serve.\657\ In addition, the agencies believe it is appropriate to
evaluate banks' retail lending performance in the communities it
serves, regardless of the presence of other banks in those communities.
Further, regarding the concern expressed by commenters that retail
lending assessment areas would only be located in large cities, the
agencies' analysis of the impact of the final rule Retail Lending Test
using historical data indicates that there would have been a mixture of
both metropolitan and nonmetropolitan areas in which one or more retail
lending assessment areas were located.\658\
---------------------------------------------------------------------------
\657\ See 12 U.S.C. 2901(b).
\658\ The agencies' analysis using historical data estimated
that 18 percent of the RLAAs that would have been delineated during
the 2018-2020 evaluation period would have been located in the
nonmetropolitan area of a State.
---------------------------------------------------------------------------
Finally, the agencies considered requiring large banks to delineate
deposit-based assessment areas in geographic areas outside of facility-
based assessment areas where the bank draws a certain volume of
deposits. The agencies have considered that there may be benefits to
deposit-based assessment areas. However, the deposits data necessary to
assess the potential impact of a potential deposit-based assessment
area approach are not currently available because the FDIC's Summary
[[Page 6743]]
of Deposits, which is the only source of information available on the
geographic dispersion of bank deposits, apportions each bank's total
deposits across its main office and its branches, all of which are
located within its facility-based assessment areas, even when the
deposits are collected from depositors outside of the bank's facility-
based assessment areas. As a result, deposits collected from beyond a
bank's facility-based assessment areas are assigned in the Summary of
Deposits to branches within its facility-based assessment areas, making
it impossible to determine how much of a bank's deposits were sourced
outside of its facility-based assessment areas or from where those
deposits were collected. Without such data, the agencies cannot
determine, under various potential thresholds, the number of deposit-
based assessment areas, the number of affected large banks, or the
degree to which deposit-based assessment areas may capture retail
lending outside of facility-based assessment areas. In addition, due to
the lack of deposits data, the agencies are not able to analyze
different policy options related to deposit-based assessment areas,
such as whether the threshold for requiring delineation of a deposit-
based assessment area should be a certain percentage of a large bank's
total deposits in a geographic area, a certain dollar volume of
deposits in a geographic area, a certain number of depositors in a
geographic area, or based on other factors. For these reasons, the
agencies did not adopt the deposit-based assessment area approach.
Section __.17(a) In General--Banks Subject to the Retail Lending
Assessment Area Requirement
The Agencies' Proposal
The agencies proposed to apply the retail lending assessment area
requirement solely to large banks, including large banks that elect to
be evaluated under an approved strategic plan.\659\ In addition, the
agencies also sought feedback on an alternative approach that would
tailor the retail lending assessment area requirement by exempting
large banks from the requirement to delineate retail lending assessment
areas if such banks conduct a significant majority of their retail
lending, such as more than 80 or 90 percent of their retail loans,
inside their facility-based assessment areas. This exemption would
exclude banks that are primarily branch-based from the retail lending
assessment area requirement, reflecting the view that such banks'
overall Retail Lending Test conclusion could be reasonably derived by
focusing on the activity within their facility-based assessment areas.
Under this alternative, the retail loans of an exempt bank outside of
the bank's facility-based assessment areas would not be evaluated
within a retail lending assessment area, but the agencies would
evaluate this lending under the proposed outside retail lending area
approach discussed in the section-by-section analysis of final Sec.
__.18.
---------------------------------------------------------------------------
\659\ See proposed Sec. __.17(a).
---------------------------------------------------------------------------
Comments Received
Numerous commenters addressed the types of banks that should be
subject to the proposed requirement to delineate retail lending
assessment areas.
Tailoring of retail lending assessment area requirement by bank
size. Some commenters supported the proposal not to apply the retail
lending assessment area requirement to small and intermediate banks. As
noted previously, a few commenters stated that the compliance burden
associated with the retail lending assessment area proposal would be
particularly acute for smaller large banks, with at least one such
commenter recommending that the retail lending assessment area
requirement should apply only to large banks with at least $10 billion
in assets.
Conversely, a few commenters suggested expanding the universe of
banks subject to retail lending assessment area requirement. Some of
these commenters favored requiring at least some intermediate banks to
delineate retail lending assessment areas. For example, at least one
commenter asserted that intermediate banks, especially those with over
$1 billion in assets, have sufficient capacity and knowledge of local
markets to serve retail lending assessment areas. A few other
commenters suggested that intermediate banks should be required to
delineate retail lending assessment areas if they are not primarily
branch-based. A few commenters asserted that all banks, including small
banks and intermediate banks, should be evaluated in retail lending
assessment areas because banks of any size may conduct a significant
amount of lending activity outside of their facility-based assessment
areas.
Tailoring of retail lending assessment area requirement by business
model. Many commenters favored some form of an exemption from the
requirement to delineate retail lending assessment areas for large
banks that lend primarily within their facility-based assessment areas.
In general, these commenters stated that it is not necessary to
evaluate primarily branch-based banks in retail lending assessment
areas because their retail lending is already concentrated in facility-
based assessment areas. These commenters also stated that the retail
lending assessment area requirement is appropriately applied to online
banks but should not impose additional burden on traditional branch-
based banks. These commenters offered various suggestions in terms of
the percentage of retail lending that a large bank must conduct within
its facility-based assessment areas to benefit from any exemption, with
commenter suggestions generally ranging from 50 to 90 percent.
However, several other commenters opposed providing any exemption
from the retail lending assessment area requirement for large banks
that primarily lend within facility-based assessment areas. These
commenters generally stated that large banks should be evaluated for
their retail lending performance in all areas where they conduct a
meaningful amount of lending, and that an exemption could result in
substantial amounts of retail lending for which a conclusion is not
assigned in a specific geographic area, especially in rural areas. At
least one commenter stated that it is not necessary to exempt primarily
branch-based banks from the retail lending assessment area requirement
because the proposed approach would appropriately account for
differences in bank business models by giving more weight to those
assessment areas where a bank's retail lending is concentrated, while
still holding banks accountable for performance wherever they conduct
retail lending business.
Beyond an exemption for primarily branch-based banks, a few
commenters offered alternative approaches for tailoring the retail
lending assessment area requirement based on a large bank's business
model. A few commenters suggested that the agencies should
qualitatively assess a large bank's business model and practices to
identify and exempt those banks whose lending and account-opening
activities are not conducted through a branch network. At least one
commenter asserted that the agencies should exempt strategic plan banks
from the retail lending assessment area requirement to preserve the
flexibility of the strategic plan option.
Final Rule
The agencies are adopting a modified version of proposed Sec.
__.17(a). Similar to the proposal, final Sec. __.17(a)(1) provides
that, based upon the criteria described in Sec. __.17(b) and (c), a
large bank must delineate retail lending assessment areas within which
the
[[Page 6744]]
agencies evaluate the bank's record of helping to meet the credit needs
of its entire community pursuant to the Retail Lending Test.
However, as discussed below, the agencies are adopting an exemption
from the retail lending assessment area requirement for large banks
that conduct a substantial majority of their retail lending in
facility-based assessment areas. Specifically, final Sec. __.17(a)(2)
provides that a large bank is not required to delineate retail lending
assessment areas for a particular calendar year if, in the prior two
calendar years, the large bank originated or purchased within its
facility-based assessment areas more than 80 percent of its home
mortgage loans, multifamily loans, small business loans, small farm
loans, and automobile loans (if automobile loans are a product line for
the large bank), as described in paragraph II.a.1 of final appendix A.
In addition, final Sec. __.17(a)(3) provides that if, in a retail
lending assessment area delineated pursuant to Sec. __.17(c), the
large bank did not originate or purchase any reported loans in any of
the product lines that formed the basis of the retail lending
assessment area delineation pursuant to Sec. __.17(c)(1) or (2) (i.e.,
the closed-home mortgage loan and small business loan count
thresholds), the agencies will not consider the retail lending
assessment area to have been delineated for that calendar year. The
agencies believe this limitation was implicit in the proposal, but that
it is helpful for the final rule to explicitly state that the agencies
will not evaluate a bank's retail lending performance in a retail
lending assessment area in which a large bank did not originate or
purchase any reported closed-end home mortgage loans or small business
loans, as applicable, in the calendar year.
Application to large banks. The agencies continue to believe that
it is appropriate to apply the retail lending assessment area
requirement to large banks, but not small or intermediate banks. The
agencies see significant benefits to increasing the share of retail
lending for which a conclusion is assigned reflecting the bank's
performance in a specific geographic area. However, the agencies
believe that these benefits must be weighed against the potential
additional compliance burden of the approach, such as compliance costs
associated with identifying and delineating retail lending assessment
areas, and reporting the location of retail lending assessment areas.
On balance, the agencies believe it is appropriate to tailor the retail
lending assessment area requirement to large banks, recognizing that
large banks generally have more resources and therefore greater
capacity than small and intermediate banks to adapt to new regulatory
provisions such as retail lending assessment areas. The agencies note
that, as discussed in the section-by-section analysis of final Sec.
__.18, under the final rule, the agencies will evaluate the retail
lending performance of an intermediate bank, and a small bank that opts
to be evaluated under the Retail Lending Test, in its outside retail
lending area if the bank conducts a majority of its retail lending
outside of its facility-based assessment areas.
The agencies have carefully considered comments regarding the
potential burden that the retail lending assessment area approach may
impose on large banks, including specific commenter suggestions for
further tailoring the proposed requirement to a narrower subset of
large banks. The agencies appreciate these concerns and suggestions
and, as described below, are adopting an exemption to the retail
lending assessment area requirements for primarily branch-based large
banks.
Exemption for primarily branch-based large banks. To further tailor
the application of the retail lending assessment area requirement,
final Sec. __.17(a)(2) sets forth an exemption from the retail lending
assessment area requirement for certain large banks. Specifically, a
large bank is not required to delineate retail lending assessment areas
in a particular calendar year if, in the previous two calendar years,
the large bank originated or purchased within its facility-based
assessment areas more than 80 percent of its home mortgage loans,
multifamily loans, small business loans, small farm loans, and
automobile loans (if automobile loans are a product line for the large
bank). The 80 percent calculation is further described in paragraph
II.a.1 of final appendix A.
The agencies believe that it is appropriate to exempt primarily
branch-based large banks from the retail lending assessment area
requirement for two main reasons. First, such an exemption would tailor
the approach by focusing the retail lending assessment area framework
on those large banks for which facility-based assessment area
evaluations alone do not capture the vast majority of the bank's retail
lending. For large banks conducting 80 percent or less of their retail
lending within facility-based assessment areas, the agencies believe
that evaluating retail lending performance in retail lending assessment
areas is an appropriate way to update where large banks are locally
evaluated for their retail lending performance. For large banks that
conduct more than 80 percent of their retail lending within facility-
based assessment areas, the agencies believe that a sufficient share of
the bank's retail lending is already evaluated, and conclusions are
already assigned reflecting the bank's retail lending performance, in
specific geographic areas. The agencies note that, under the final
rule, large banks that are exempt from the retail lending assessment
area requirement will still be evaluated for their retail lending
performance outside of their facility-based assessment areas through
the outside retail lending area evaluation, as discussed in the
section-by-section analysis of final Sec. __.18.
Second, such an exemption would have the benefit of resulting in a
significant number of large banks no longer having any retail lending
assessment area requirement, compared to the proposed approach. The
agencies believe this will reduce the aggregate compliance burden
associated with the retail lending assessment area approach, as
discussed above.
80 percent threshold. Under the final rule, as discussed above,
large banks that conduct more than 80 percent of their retail lending,
based on a combination of loan dollars and loan count as defined in
Sec. __.12, within their facility-based assessment areas are exempt
from the retail lending assessment area requirement. In determining the
level of the 80 percent threshold, the agencies considered a number of
factors. The agencies considered commenter suggestions for lower
thresholds and, as a preliminary matter, considered that a threshold
below 50 percent would mean that, for up to half of a large bank's
retail lending, the bank would not be assigned any conclusions that
reflect the bank's retail lending performance in specific geographic
areas. The agencies believe that evaluating up to half of a large
bank's retail lending (i.e., the retail lending outside of the large
bank's facility-based assessment areas) only in the aggregate through
the outside retail lending area evaluation could provide a misleading
picture of the large bank's overall retail lending performance if, for
example, strong performance in parts of the outside retail lending area
obscured poor performance in other parts of the outside retail lending
area. For this reason, the agencies are adopting a heightened standard
rather than a simple majority standard.
In addition, the agencies believe that the 80 percent threshold,
compared to other potential threshold levels, achieves an appropriate
balance of
[[Page 6745]]
increasing the share of a large bank's retail lending for which a
conclusion is assigned reflecting the bank's performance in a specific
geographic area while limiting the number of large banks required to
delineate retail lending assessment areas. In making this
determination, the agencies considered, for a range of potential
thresholds, the number of large banks that would be required to
delineate at least one retail lending assessment area, the total share
of retail lending across large banks that would have been evaluated
within retail lending assessment areas, and the share of closed-end
home mortgage and small business lending across large banks outside of
their facility-based assessment areas that would have been evaluated in
retail lending assessment areas had the final rule retail lending
assessment area approach been in effect in the 2018, 2019, and 2020
calendar years. The agencies noted that a 90 percent threshold,
relative to an approach with no exemption, only slightly reduced the
number of affected large banks, from 88 to 83 large banks, while an 80
percent threshold provided a more significant reduction to 63 large
banks. The agencies further noted that the 80 percent threshold reduced
the percentage of closed-end home mortgage lending outside of facility-
based assessment areas that would have been evaluated within retail
lending assessment areas from 35.9 to 23.0 percent, and for small
business lending, a more modest reduction from 45.3 to 39.3 percent.
While threshold options of 50, 60, and 70 percent would have further
reduced the number of affected banks, these thresholds would also have
resulted in lower percentages of closed-end home mortgage and small
business lending outside of facility-based assessment areas being
evaluated within retail lending assessment areas.
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P;
[[Page 6746]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.002
BILLING CODE 4810-33-C; 6210-01-C; 6714-01-C
Calculation of 80 percent threshold. Under the final rule, and as
specified in paragraph II.a.1 of final appendix A, the 80 percent
threshold is calculated based on the share of a large bank's retail
loans originated or purchased in its facility-based assessment areas,
out of the bank's retail loans originated and purchased overall over
the prior two calendar years. The retail loans included in this
calculation are the large bank's originated and purchased home mortgage
loans, multifamily loans, small business loans, small farm loans, and
automobile loans if automobile loans are a product line for the large
bank.\660\ The
[[Page 6747]]
retail loans included in the calculation of the 80 percent threshold
are thus identical to the loans included in the numerator of the Bank
Volume Metric calculated for purposes of the Retail Lending Volume
Screen in final Sec. __.22(c). The agencies believe that it is
important to harmonize the measures of a bank's retail lending used for
various calculations where appropriate to simplify the final rule to
the extent possible. Further, the agencies believe that these retail
product lines can be viewed as a reasonable reflection of a bank's
overall business model for a bank that is not a limited-purpose bank,
and thus, it is appropriate to look to these loans for purposes of
determining whether a large bank is primarily branch-based.
---------------------------------------------------------------------------
\660\ Under the final rule, and as discussed in the section-by-
section analysis of final Sec. __.12 (definition of ``product
line''), automobile loans are a product line for a bank if the bank
is a majority automobile lender or opts to have its automobile loans
evaluated pursuant to the Retail Lending Test.
---------------------------------------------------------------------------
Under the final rule, the 80 percent threshold is calculated over
the two calendar years preceding each calendar year. The agencies
believe that calculating the 80 percent threshold over the two
preceding calendar years will provide greater certainty to large banks
regarding whether they qualify for the exemption, compared to a
calculation based on a one-year lookback period.
The 80 percent threshold is calculated based on a combination of
loan dollars and loan count as defined in final Sec. __.12.
Specifically, the agencies calculate the share of the large bank's
retail lending within its facility-based assessment areas based on loan
dollars, and the same percentage based on loan count, then take the
simple average of the two percentages. Using a combination of loan
dollars and loan count is consistent with various other calculations in
the final rule, and is intended to reflect both the total dollars of
loans originated and purchased as well as the number of borrowers
served, which the agencies believe appropriately reflects the degree to
which a bank is serving a geographic area.
Alternative methods of identifying primarily branch-based banks.
The agencies considered the alternative methods suggested by commenters
for identifying primarily branch-based large banks. In particular, the
agencies considered adopting a qualitative approach to identifying
large banks that rely on non-branch delivery channels. However, the
agencies believe that such an approach would be inconsistent with the
agencies' goal of providing greater clarity and consistency in the
application of the CRA regulations.
The agencies also considered exempting strategic plan banks from
the retail lending assessment area requirement but decline to do so in
the final rule. As discussed above, the agencies intend the retail
lending assessment area approach, together with facility-based
assessment areas, to establish the local communities in which a large
bank is evaluated for its CRA performance, and the agencies believe
that inconsistency with respect to such a core aspect of the CRA
evaluation framework would not be desirable. The agencies do not
believe it would be appropriate to create an incentive for banks to
seek approval under a strategic plan to avoid otherwise applicable
requirements to delineate retail lending assessment areas. As described
in the section-by-section analysis of final Sec. __.27, the final rule
includes other provisions that facilitate a customized approach to
evaluating strategic plan banks; however, the retail lending
performance of strategic plan banks will still be evaluated in retail
lending assessment areas where applicable.\661\
---------------------------------------------------------------------------
\661\ See final Sec. __.27(c)(3) and (g)(1).
---------------------------------------------------------------------------
Section __.17(b) Geographic Requirements for Retail Lending Assessment
Areas
The Agencies' Proposal
Under proposed Sec. __.17(b)(1), large banks would be required to
delineate retail lending assessment areas consisting of either: (1) the
entirety of a single MSA, excluding counties inside their facility-
based assessment areas; or (2) all of the counties in a single State
that are not included in an MSA, excluding counties inside their
facility-based assessment areas, aggregated into a single retail
lending assessment area. Similar to the proposal for facility-based
assessment areas,\662\ and consistent with the current
regulations,\663\ proposed Sec. __.17(b)(2) specified that a retail
lending assessment area may not extend beyond an MSA boundary or beyond
a State boundary unless the assessment area is located in a multistate
MSA or combined statistical area.
---------------------------------------------------------------------------
\662\ See proposed Sec. __.16(b)(2).
\663\ See current 12 CFR __.41(e)(4).
---------------------------------------------------------------------------
The agencies sought feedback on what should happen if a bank's
retail lending assessment area is located in the same MSA (or
nonmetropolitan area of a State) where a smaller facility-based
assessment area is located. Specifically, the agencies asked whether a
bank in this case should be required to expand its facility-based
assessment area to the whole MSA (or nonmetropolitan area of a State),
or whether the bank should have the option to designate the portion of
the MSA that excludes the facility-based assessment area as a new
retail lending assessment area.
Comments Received
Geographic requirements. Some commenters expressed concerns that
the proposed geographic requirements for retail lending assessment
areas may not accurately reflect where a bank conducts retail lending
business, potentially leading to unrealistic and misleading performance
conclusion. For example, a few commenters recommended that only those
counties within which a bank has a certain minimum number or percentage
of retail loans should be included in a retail lending assessment area.
Several commenters provided views specific to retail lending
assessment areas located in the nonmetropolitan area of a State. For
example, at least one commenter expressed support for the proposed
requirement that a retail lending assessment area in the
nonmetropolitan area of a State must consist of that entire area,
noting that this approach would help capture underserved
nonmetropolitan areas. However, a few commenters suggested that the
entire nonmetropolitan area of a State would often be too large for a
bank to serve, especially in states with large rural geographic areas,
due to limited bank capacity. At least one commenter indicated that it
would be challenging for the agencies to consider performance context
for an entire nonmetropolitan area of a State because these areas may
vary considerably.
Retail lending assessment areas and facility-based assessment areas
in the same MSA or nonmetropolitan area of a State. Some commenters
addressed what should happen if a large bank's retail lending
assessment area is located in the same MSA or the nonmetropolitan area
of a State where a facility-based assessment area is located. Some of
these commenters supported allowing banks to designate the portion of
the MSA or the nonmetropolitan area of the State that is not part of
the bank's existing facility-based assessment area as a new retail
lending assessment area, consistent with the proposal. Other commenters
supported the alternative approach of requiring banks that maintain a
facility-based assessment area in the same MSA or nonmetropolitan area
of a State where a retail lending assessment area is located to expand
their facility-based assessment areas to encompass the entire MSA or
nonmetropolitan area of a State. Some of these commenters favorably
noted that the alternative approach would mean that a large bank would
be evaluated under all four
[[Page 6748]]
applicable performance tests in the entire MSA or nonmetropolitan area
of the State due to expansion of its facility-based assessment area,
rather than only evaluating the large bank in the retail lending
assessment area under the proposed Retail Lending Test. At least one
commenter recommended that the agencies apply either the proposed or
the alternative approach depending, in each case, on which option would
increase retail lending to underserved communities.
Legal concerns regarding geographic requirements. Some commenters
raised legal concerns that the geographic requirements for retail
lending assessment areas may not be consistent with the CRA. For
example, at least one commenter stated that the agencies did not
explain in the proposal how an MSA or the nonmetropolitan area of a
State would constitute a ``local community.'' Commenter feedback
included the observation that these retail lending assessment areas
often cover relatively large geographic areas. The commenter also noted
that the agencies did not discuss why smaller geographic base units for
retail lending assessment areas were not considered.
Final Rule
The agencies are adopting, with revisions, the proposed geographic
requirements for retail lending assessment areas. Specifically, final
Sec. __.17(b)(1) provides that a retail lending assessment area must
consist of either:
1. The entirety of a single MSA (using the MSA boundaries that were
in effect as of January 1 of the calendar year in which the delineation
applies), excluding any counties inside the large bank's facility-based
assessment areas, or
2. All of the counties in the nonmetropolitan area of a State
(using the MSA boundaries that were in effect as of January 1 of the
calendar year in which the delineation applies), excluding any counties
included in the large bank's facility-based assessment areas, and
excluding any counties in which the large bank did not originate any
closed-end home mortgage loans or small business loans that are
reported loans during that calendar year.
In addition, the agencies are modifying the proposed prohibition on
retail lending assessment areas extending beyond a State boundary.
Specifically, final Sec. __.17(b)(2) provides that a retail lending
assessment area may not extend beyond a State boundary unless the
retail lending assessment area consists of counties in a multistate
MSA. Final Sec. __.17(b)(2) does not permit a retail lending
assessment area to extend beyond a State boundary on the basis that the
retail lending assessment area consists of counties located in a
combined statistical area.
Legal considerations. The agencies considered commenter feedback
that requiring retail lending assessment areas to consist of an entire
MSA or the entire nonmetropolitan area of a State may not be consistent
with the statute. However, the agencies concluded that the geographic
requirements for retail lending assessment areas in the final rule are
within the scope of authority granted to the agencies under the CRA. As
noted above, the CRA requires the agencies to assess a bank's record of
meeting the credit need of its entire community, without defining what
geographic areas constitute a bank's ``entire community.'' \664\ The
statute further does not define what geographic units the agencies
should use in assessing a bank's record of meeting the credit needs of
its entire community. References to a bank's local communities in the
congressional findings and purpose section of the statute, cited by
some commenters, similarly do not specify what geographic area or
geographic units constitute a local community.\665\
---------------------------------------------------------------------------
\664\ See 12 U.S.C. 2903(a)(1).
\665\ See 12 U.S.C. 2901(a)(3) and 2901(b).
---------------------------------------------------------------------------
Accordingly, the agencies conclude that it is reasonable to
interpret ``entire community'' for a large bank to include retail
lending assessment areas consisting of an entire MSA or the
nonmetropolitan area of a State. The agencies note that the statute
clearly demonstrates that Congress intended the agencies to distinguish
between a bank's performance in metropolitan areas and nonmetropolitan
areas.\666\ Further, Congress explicitly contemplated assigning
conclusions that reflect a bank's performance in an entire MSA or in
the entire nonmetropolitan area of a State, notwithstanding that the
geographic scope of these areas.\667\ As such, the agencies believe
that using MSAs and the nonmetropolitan areas of States as the
geographic base units for delineating retail lending assessment areas
is consistent with the statute.
---------------------------------------------------------------------------
\666\ See 12 U.S.C. 2906(b)(1)(B) and 2906(d)(3)(A).
\667\ See id.
---------------------------------------------------------------------------
Geographic base units. In addition to these legal considerations,
the agencies believe that using MSAs and nonmetropolitan areas of
States as the geographic base units for delineating retail lending
assessment areas is appropriate for other reasons. Using MSAs and the
nonmetropolitan area of a State as geographic base units avoids having
multiple retail lending assessment areas in a single MSA or in the
nonmetropolitan area of a single State, which the agencies believe
would add complexity. Further, and particularly in the case of the
nonmetropolitan area of a State, using larger geographic base units (as
opposed to counties or census tracts) ensures that a larger number of
retail loans, including loans across multiple counties, are captured in
a retail lending assessment area and helps to ensure that credit needs
and opportunities in nonmetropolitan areas are taken into account when
the agencies evaluate a bank's retail lending performance. Relatedly,
the agencies considered that larger geographic base units may provide
banks with greater flexibility and more opportunities to originate and
purchase small business loans and small farm loans, and loans made to
low- and moderate-income borrowers and in low- and moderate-income
census tracts.
Entire-MSA retail lending assessment areas. The agencies believe it
is appropriate to require retail lending assessment areas to consist of
an entire MSA, excluding any counties inside facility-based assessment
areas. Although some commenters expressed concern that a retail lending
assessment area consisting of an entire MSA may not accurately reflect
where a bank conducts retail lending business, the agencies believe
that the benchmarks used to evaluate a large bank's retail lending
performance should reflect the lending opportunities and credit needs
of the entire MSA. For example, if a large bank makes loans only in an
upper-income portion of an MSA, then excluding other portions of the
MSA from the retail lending assessment area would result in relatively
low benchmarks, even if the remainder of the MSA has significant
lending opportunities and credit needs. Further, the agencies note that
unlike in facility-based assessment areas (which are evaluated using
the Retail Lending Volume Screen), a large bank is not required to
conduct a certain amount of lending in a retail lending assessment area
to achieve a particular performance conclusion, and the agencies will
not consider as an additional factor the dispersion of a bank's closed-
end home mortgage or small business lending within the retail lending
assessment area. Thus, requiring a retail lending assessment area to
consist of an entire MSA should not result in a requirement for a large
bank to serve an area larger than its capacity to serve. Finally, the
agencies note that the entire MSA
[[Page 6749]]
approach for retail lending assessment areas is analogous to the
approach under the current CRA regulations that permit assessment areas
to consist of an entire MSA.
Retail lending assessment areas in the nonmetropolitan area of a
State. Upon consideration of the comments, the agencies have decided in
the final rule to exclude from all retail lending assessment areas in
the nonmetropolitan area of a State any counties in which a large bank
did not originate any reported closed-end home mortgage loans or small
business loans during that calendar year. As a result, retail lending
assessment areas in the nonmetropolitan area of a State will be more
targeted, relative to the proposal, to where a large bank conducts
retail lending business in nonmetropolitan areas. In making this
change, the agencies have considered feedback from some commenters that
the proposed requirement to delineate a retail lending assessment area
consisting of the entire nonmetropolitan area of a State may result in
retail lending assessment areas that are very expansive, particularly
in geographically large states. The agencies have also considered
commenter feedback that the proposed approach could result in
benchmarks that are based on an entire nonmetropolitan area of a State
that is not aligned with the actual geographies served by the bank. For
example, the agencies considered that a bank might have a retail
lending assessment area in the nonmetropolitan area of a State due to
lending across two counties where it does not maintain deposit-taking
facilities and that are adjacent to a facility-based assessment area of
the bank. In this example, the agencies believe that benchmarks based
on the entire nonmetropolitan area of the State would not accurately
reflect the lending opportunities reasonably available to the bank, and
that setting benchmarks based on only the counties in which the bank
made loans is more appropriate. Further, the agencies have also
considered that it could be challenging for the agencies to consider
performance context in evaluating a large bank's retail lending
performance in the entire nonmetropolitan area of a State. In light of
these considerations, the agencies believe it may not be reasonable to
evaluate a bank's retail lending performance in nonmetropolitan
counties in which it did not originate any reported closed-end home
mortgage loans or small business loans in a retail lending assessment
area.
Combined statistical area retail lending assessment areas. Unlike
under the proposal, the final rule does not permit a large bank to
delineate a retail lending assessment area consisting of a combined
statistical area. As with the proposal regarding retail lending
assessment areas in the nonmetropolitan area of a State, the agencies
have determined that retail lending assessment areas consisting of a
combined statistical area may be too expansive--both for the
appropriateness of the benchmarks used to evaluate the bank, and for
the agencies to appropriately consider performance context. Further,
evaluating a large bank's performance at the combined statistical area
level may not provide as useful information regarding the bank's
performance in specific geographic areas if, for example, the combined
statistical area included multiple distinct MSAs. Finally, and as
described in the section-by-section analysis of final Sec. __.16(b),
allowing a retail lending assessment area to extend beyond an MSA
boundary in a combined statistical area would create challenges in
assigning conclusions consistent with statutory requirements.
Retail lending assessment areas and facility-based assessment areas
in the same MSA or nonmetropolitan area of a State. Where a large
bank's retail lending assessment area is located in the same MSA or
nonmetropolitan area of a State where a smaller facility-based
assessment area is located, the agencies considered requiring the large
bank to expand its facility-based assessment area to include the entire
MSA or entire nonmetropolitan area of the State. However, the final
rule retains the proposed approach of allowing the large bank to
designate the portion of the MSA or nonmetropolitan area of the State
that excludes the facility-based assessment area as a retail lending
assessment area. The agencies believe that this approach adequately
captures the bank's retail lending performance in the MSA or
nonmetropolitan area of a State. Further, in retaining the proposed
approach, the agencies sought to preserve the current standard for
delineating assessment areas around a bank's deposit-taking facilities,
under which standard a bank must include the surrounding geographies in
which the bank has originated or purchased a substantial portion of its
loans. In particular, a bank might originate or purchase a substantial
portion of its loans around a deposit-taking facility located in an MSA
or the nonmetropolitan area of a State, and also originate or purchase
a significant, but comparably smaller, portion of its loans in the
remaining portion of the MSA or nonmetropolitan area of a State.
Requiring such a large bank to expand its facility-based assessment
area to include these remaining portions of the MSA or the
nonmetropolitan area of the State would result in the large bank
becoming subject to all four large bank performance tests in the entire
MSA or nonmetropolitan area of the State, including in geographic areas
where the large bank does not maintain deposit-taking facilities. The
agencies believe this may result in additional burden, and that the
final rule approach adequately captures a large share of retail lending
within CRA evaluations without imposing this additional burden.
Section __.17(c) Delineation of Retail Lending Assessment Areas
The Agencies' Proposal
Under proposed Sec. __.17(c), a large bank would be required to
delineate a retail lending assessment area in any MSA or in the
nonmetropolitan area of any State in which it originated, as of
December 31 of each of the two preceding calendar years, in that
geographic area: (1) at least 100 home mortgage loans outside of its
facility-based assessment areas; or (2) at least 250 small business
loans outside of its facility-based assessment areas. In proposing
these loan count thresholds, the agencies considered what thresholds
would appropriately align with the amount of lending typically
evaluated in a facility-based assessment area. The agencies also
considered what loan count thresholds would result in a substantial
percentage of loans that a bank makes outside of facility-based
assessment areas being evaluated within a retail lending assessment
area. The agencies stated that retail lending should be evaluated
within a local context wherever feasible, based on a sufficient volume
of loans and the size and business model of the bank.
Comments Received
A number of commenters provided feedback on whether the requirement
to delineate a retail lending assessment area should be triggered by
loan count thresholds or an alternative type of trigger. In addition,
with respect to the proposed loan count thresholds, numerous commenters
discussed the number and types of loans that should trigger the retail
lending assessment area.
Use of loan count thresholds. Several commenters supported the
proposed use of loan counts thresholds to trigger the retail lending
assessment area requirement. However, numerous commenters opposed using
loan count
[[Page 6750]]
thresholds to trigger the retail lending assessment area requirement.
For example, a few commenters stated that loan count thresholds could
be manipulated and that large banks would cap their lending just below
these thresholds to avoid triggering a retail lending assessment area.
At least one commenter recommended that, if the final rule retains the
use of loan count thresholds, the agencies should penalize banks that
manipulate their retail lending activity to avoid triggering retail
lending assessment areas. A few commenters asserted that using loan
count thresholds could make it challenging for banks to identify which
markets might trigger retail lending assessment areas due to
fluctuations in retail lending volume.
Many commenters opposed to using loan count threshold offered
alternative approaches for consideration, with some such commenters
advocating for hybrid versions of the alternative approaches described
below.
First, a number of commenters recommended a market share approach
to triggering the retail lending assessment area requirement. These
commenters suggested requiring delineation of a retail lending
assessment area only when a bank's market share of retail lending
surpasses a certain percentage, with some commenters suggesting 1 or 2
percent of aggregate lending. Arguments supporting this approach
centered on eliminating retail lending assessment areas where a bank's
lending was not material to the local market and decreasing the number
of retail lending assessment areas required and the associated
compliance burden for banks. Some commenters that supported the market
share approach asserted that using a market share measure instead of
the proposed loan count thresholds to trigger retail lending assessment
area delineation would help to create retail lending assessment areas
in smaller communities. At least one commenter stated that the market
share approach is preferable to using loan count threshold because the
latter might trigger retail lending assessment areas in areas that are
already well-served by other lenders.
Second, some commenters suggested requiring a retail lending
assessment area only when a bank's retail lending in the geographic
area constitutes a certain minimum percentage of the bank's overall
retail lending nationwide, with commenter suggestions ranging from 0.5
percent to 10 percent. In general, these commenters emphasized that
such an approach would appropriately target retail lending assessment
areas to those geographic areas where banks conduct material levels of
lending activity. In addition, some of these commenters indicated that
this approach would eliminate retail lending assessment areas where a
bank's retail lending volume was not high enough to impact the bank's
overall CRA retail lending performance, which would in turn reduce
associated compliance burden for banks.
Finally, some commenters suggested other alternative standards for
requiring delineation of retail lending assessment areas. For example,
at least one commenter suggested that a threshold based on the dollar
amount of retail lending, would better ensure that retail lending
assessment areas were delineated in areas where banks have a material
level of activity. At least one other commenter suggested that a bank
should not be required to delineate a retail lending assessment area
unless it draws a certain level of deposits from the geography,
pointing to the CRA's focus on banks reinvesting in communities from
which banks draw deposits. A few commenters suggested replacing the
loan count thresholds with what they described as a clearer and more
stable indicator of a bank's relevant activity, such as the presence of
a loan production office. Similarly, some commenters recommended that
if the agencies do not require a facility-based assessment area based
on the presence of a loan production office then, at a minimum, the
presence of a loan production office should trigger delineation of a
retail lending assessment area.
Loan types considered in loan count thresholds. A number of
commenters expressed views about the types of loans that should be
included in or excluded from the proposed loan counts thresholds used
to trigger retail lending assessment areas. For example, many
commenters requested that the agencies count loans made by non-bank
partners of the bank toward the proposed loan counts thresholds to hold
banks more accountable for serving low- and moderate-income borrowers.
A few commenters similarly recommended that loans of bank affiliates
should count toward the loan count thresholds for triggering a retail
lending assessment area.
With respect to the proposed home mortgage loan count threshold, a
few commenters recommended excluding certain types of home mortgage
loans from the threshold. For example, at least one commenter stated
that counting second mortgage loans toward the loan count threshold for
triggering a retail lending assessment area could discourage banks from
engaging in this activity, which would be detrimental because many
banks offer second mortgages to cover down payment and closing costs in
conjunction with affordable home mortgage programs, such as State
housing finance agency programs. A few commenters noted that home
mortgage refinance lending volume is highly sensitive to interest rates
and cannot reasonably be controlled by a bank, making these loans
unsuitable for counting toward the home mortgage loan count threshold.
At least one of these commenters stated that the lower interest rates
of recent years have resulted in significant refinance activity, which
could result in more banks being required to delineate retail lending
assessment areas.
With respect to the proposed small business loan count threshold, a
few commenters suggested not counting indirect small business loans.
These commenters stated that delineating a retail lending assessment
area based on a loan count threshold that includes indirect small
business loans would be inappropriate because a third-party dealer or
seller markets and originates these loans. Further, at least one of
these commenters asserted that banks do not have control over the
geographic distribution of these borrowers, nor are they in a position
to conduct outreach to low- or moderate-income borrowers in the areas
where the dealers are located. At least one other commenter recommended
that the agencies consider whether to count small business credit card
loans toward the small business loan count threshold, cautioning that
this type of lending can be predatory and that distinguishing small
business credit card accounts from personal credit card accounts may be
difficult.
Some commenters suggested that the loan count thresholds for
triggering retail lending assessment requirement should include other
types of loans beyond home mortgage and small business loans. A few
commenters recommended that the agencies adopt a consumer loan count
threshold for triggering retail lending assessment areas (in addition
to the proposed home mortgage and small business loan count
thresholds), with one such commenter stating that 100 consumer loans
should trigger the retail lending assessment area requirement. In
general, these commenters asserted that adopting a consumer loan count
threshold would result in retail lending assessment areas that more
accurately reflect where a bank conducts business. Another commenter
stated that the agencies should adopt separate loan count thresholds
for credit card loans and
[[Page 6751]]
non-credit card consumer loans. At least one commenter stated that the
agencies did not provide sufficient justification in the proposal as to
why home mortgage and small business loans, but not other types of
retail loans, were appropriate for triggering retail lending assessment
areas.
Loan count threshold levels. A number of commenters discussed the
level of home mortgage and small business lending that should trigger
the retail lending assessment area requirement. A few commenters
asserted that the agencies did not provide sufficient rationale for why
the proposed loan count thresholds were set at 100 home mortgage loans
and 250 small business loans, and requested that the agencies provide
more supporting data and analysis.
A few commenters suggested that the proposed loan count thresholds
of 100 home mortgage loans and 250 small business loans were too high.
Some of these commenters suggested lower loan count thresholds, such as
50 home mortgage loans and 100 small business loans, stating that lower
thresholds would incorporate more rural geographic areas into retail
lending assessment areas. Other commenters suggested that large banks
should be evaluated in every geographic area in which they conduct any
volume of retail lending and that, accordingly, no loan count
thresholds are necessary.
However, many commenters recommended increasing the proposed home
mortgage and small business loan count thresholds to decrease the
number of retail lending assessment areas required, and to ensure that
retail lending assessment areas reflect those geographic areas where a
bank conducts a meaningful amount of retail lending. Most of these
commenters suggested alternative loan count thresholds ranging from 250
to 500 home mortgage loans, and 350 to 750 small business loans.
Final Rule
Section __.17(c) of the final rule provides that, subject to the
geographic requirements in Sec. __.17(b), a large bank must delineate,
for a particular calendar year, a retail lending assessment area in any
MSA or the nonmetropolitan area of any State in which it originated at
least 150 closed-end home mortgage loans that are reported loans in
each year of the prior two calendar years, or at least 400 small
business loans that are reported loans in each year of the prior two
calendar years. The final rule thus differs from the proposal in that
it: (1) includes only closed-end home mortgage loans in, excludes open-
end home mortgage loans from, the home mortgage loan count threshold;
and (2) increases the loan count thresholds from the proposed loan
count thresholds of 100 home mortgage loans and 250 small business
loans.
Use of loan count thresholds. After considering public comments,
the agencies believe that it is appropriate to use loan count
thresholds to trigger the retail lending assessment area requirement.
The agencies believe that loan count thresholds remain the most
transparent and straightforward approach to identifying geographic
areas in which a large bank has concentrations of closed-end home
mortgage and small business lending outside of its facility-based
assessment areas. The number of loans is a reasonable proxy for a large
bank's presence in a particular market, as each loan generally
corresponds to one or more borrowers served by the bank.
The agencies considered comments about the potential variability of
retail lending assessment area delineations over time. However, the
agencies believe that the proposed approach of requiring a large bank
to delineate a retail lending assessment area only when it has met the
applicable loan count threshold in each year of the two prior calendar
years will generally provide greater certainty and reduce variability,
relative to an approach in which a single year of lending is sufficient
to trigger a retail lending assessment area. In addition, the agencies
intend to explore the development of data tools to help large banks
monitor those geographic areas where they may be required to delineate
a retail lending assessment area and monitor the retail lending
distribution benchmarks for such geographic areas.
The agencies considered several alternatives to the use of loan
count thresholds suggested by commenters. First, the agencies
considered, but did not adopt, a market share approach in place of or
in combination with the proposed loan count thresholds. Under such an
approach, a large bank would be required to delineate a retail lending
assessment area only if the bank's market share of retail lending in
the geographic area met a certain threshold. The agencies believe that
such an approach would be more complex to administer relative to the
loan count threshold approach. In addition, under a market share
approach, whether a bank is required to delineate a retail lending
assessment area would depend on factors outside of the bank's control,
namely the activity of other lenders in the market. Further, the
threshold for triggering delineation of a retail lending assessment
area could vary considerably from year to year depending on the total
number of loans in the market, making retail lending assessment area
delineations less predictable. Finally, under the market share
approach, the number of loans that would be sufficient to trigger the
retail lending assessment area requirement in particular MSAs or the
nonmetropolitan areas of States could differ drastically depending on
the total number of loans in the market. As a result, the retail
lending performance of a large bank could be assigned a conclusion in
one specific geographic area, but not another geographic area, despite
having a similar number of loans in both geographic areas. The agencies
believe that it is more desirable to have consistency in the number of
loans used to designate retail lending assessment areas. For these
reasons, the agencies have decided to not adopt a market share approach
to delineating retail lending assessment areas.
Second, the agencies considered, but are not adopting, a bank-
specific lending share approach in place of or in combination with the
proposed loan count thresholds. Under such an approach, a large bank
would be required to delineate a retail lending assessment area only if
the bank's loans in the geographic area represented a certain
percentage of the bank's overall retail lending nationwide. The
agencies believe that the lending share approach would be somewhat more
complex than using loan count thresholds, and would result in
inconsistent standards for different banks. For example, under the
lending share approach, two large banks could make the same number of
closed-end home mortgage or small business loans within the same
geographic area, but only one such bank could be required to delineate
a retail lending assessment area. The agencies believe that banks
engaged in a similar volume of lending in the same market should
generally be evaluated in a consistent manner. For these reasons, the
agencies have decided not to adopt the lending share approach.
Third, the agencies considered, but are not adopting, a deposit
share approach in combination with the proposed loan count thresholds.
Under such an approach, a large bank would be required to delineate a
retail lending assessment area only if it meets an applicable loan
count threshold and has a certain number of depositors in or draws a
certain volume of deposits from a geographic area. However, as
discussed above in connection with the potential deposit-based
assessment area
[[Page 6752]]
approach, the full range of deposits data needed to assess the
potential impact of a deposit share approach to triggering the retail
lending assessment area requirement is not currently available.
However, the agencies note that, under the final rule, for large banks
over $10 billion in assets and other banks that elect to report
deposits data, the amount of the bank's deposits in a retail lending
assessment area will affect the weighting of the retail lending
assessment area in assigning conclusions at the State, multistate MSA,
and institution levels, pursuant to section VIII of final appendix A.
As a result, the weight assigned to each retail lending assessment area
will reflect the volume of deposits that the bank draws from the
geographic area.
Finally, the agencies considered requiring a large bank to
delineate a retail lending assessment area in geographic areas where it
maintains loan production offices. The final rule does not adopt this
approach. The agencies believe that the products and services offered
in, and the number of borrowers served by, a bank's loan production
offices vary widely, and as such, it is preferable to use established
loan count thresholds to delineate retail lending assessment areas. For
example, the agencies note that a bank may establish a loan production
office as an initial step to gain a foothold in a new market where the
bank has made few or no loans. The agencies also note that, once a loan
production office outside of a bank's facility-based assessment area
becomes established and the office originates closed-end home mortgage
loans or small business loans in a particular area, the final rule loan
count thresholds will ultimately capture the loans originated from the
office in a retail lending assessment area if the loan count thresholds
are met.
Loan types considered. Under the final rule, only a large bank's
closed-end home mortgage and small business loans would be considered
for purposes of determining whether the retail lending assessment area
requirement is triggered. Regarding feedback from some commenters that
additional types of loans, particularly consumer loans, should count
toward the loan count thresholds, the agencies have considered this
feedback and determined that adopting additional loan count thresholds
would necessitate additional data collection and reporting
requirements. For example, the agencies believe that individual loan
data collection and reporting for consumer loans, or potentially only
automobile loans, would be necessary in order to use those product
lines to establish loan count thresholds for the purposes of
establishing retail lending assessment areas. As discussed further in
the section-by-section analysis of final Sec. __.42, the agencies have
determined to only require automobile lending data collection and
maintenance, but not reporting, for large banks for which automobile
loans are a product line (i.e., majority automobile lenders, and banks
that opt to have their automobile loans evaluated pursuant to the
Retail Lending Test). Further, the agencies believe that the focus on
closed-end home mortgage and small business lending is appropriate
given the central importance of these products to meeting community
credit needs and given the agencies' objective to minimize compliance
costs by limiting data collection and reporting requirements. The
agencies also note that consumer loans other than automobile loans will
generally not be evaluated under the Retail Lending Test, but rather,
will be considered under the responsive credit products component of
the Retail Services and Products Test, as discussed in the section-by-
section analysis of final Sec. __.23(c).
With respect to the home mortgage loan count threshold, the final
rule would only consider a bank's closed-end home mortgage loans, and
not open-end home mortgage loans as proposed. As discussed in the
section-by-section analysis of final Sec. __.22(d), under the final
rule, the geographic and borrower distributions of a bank's open-end
home mortgage loans will not be evaluated under the Retail Lending
Test. For this reason, the agencies removed open-end home mortgage
loans from the home mortgage loan count threshold for purposes of
triggering the retail lending assessment area requirement. For a large
bank that originates open-end home mortgage loans, this change has the
effect of making it less likely that the large bank's home mortgage
lending meets any particular loan count threshold triggering the retail
lending assessment area delineation requirement. For example, a large
bank that originated 150 home mortgage loans in an MSA in each year of
the prior two calendar years, 100 of which were open-end home mortgage
loans and 50 of which were closed-end home mortgage loans, would have
been required to delineate a retail lending assessment area under the
proposed approach, but would not be required to delineate a retail
lending assessment area under the final rule approach due to the
exclusion of open-end home mortgage loans from the final rule loan
count thresholds.
However, beyond the exclusion of open-end home mortgage loans, the
agencies are not excluding other types of home mortgage or small
business loans from the respective loan count thresholds, as some
commenters suggested. The agencies believe that excluding certain types
of loans--such as affordable housing loans, home mortgage refinance
loans, indirect small business loans, or small business credit card
loans--from the loan count thresholds would produce a less
comprehensive picture of a large bank's lending in a particular
geographic area. Finally, the agencies believe that aligning the
closed-end home mortgage and small business loans considered in the
loan count thresholds with reported loan data simplifies the loan count
threshold calculation.
The agencies are also not adopting the suggestions by some
commenters to require that loans originated by a large bank's
affiliates or non-bank partners, other than a bank's operations
subsidiaries or operating subsidiaries, count toward the loan count
thresholds in final Sec. __.17(c). However, as discussed further in
the section-by-section analysis of final Sec. __.21(b), the final rule
does include the activities of a bank's operations subsidiaries or
operating subsidiaries in a bank's evaluation, including with respect
to loan counts for determining a large bank's retail lending assessment
area delineations.
In addition, final Sec. __.21(b)(3)(iv) provides that if a large
bank opts to have the agencies consider the closed-end home mortgage
loans or small business loans that are originated or purchased by any
of the bank's affiliates in any Retail Lending Test Area, the agencies
will consider the closed-end home mortgage loans or small business
loans originated by all of the bank's affiliates in the nationwide area
toward the loan count thresholds in final Sec. __.17(c). The agencies
believe that this approach affords an appropriate degree of flexibility
for bank business models that involve affiliates other than operations
subsidiaries or operating subsidiaries, as discussed in the section-by-
section analysis of Sec. __.21(b).
Loan count threshold levels. Under the final rule, a large bank
that is not exempt from the retail lending assessment area requirement
must delineate a retail lending assessment area in an MSA or the
nonmetropolitan area of a State in which it has originated at least 150
closed-end home mortgage loans that are reported loans or at least 400
small business loans that are reported loans in each year of the prior
two calendar years. The loan count thresholds in the final rule
represent an increase from the proposed loan count
[[Page 6753]]
thresholds of 100 home mortgage loans and 250 small business loans.
As discussed above, in determining the loan count thresholds in the
final rule, the agencies considered commenter feedback as well as
different objectives. Specifically, the agencies considered how to
balance the objective of increasing the share of retail lending outside
of facility-based assessment areas that would be evaluated within
retail lending assessment areas, with the objective of limiting the
number of retail lending assessment areas and the number of affected
large banks. The agencies also considered that retail lending
assessment areas would help to adapt the CRA evaluation framework to
changes in the banking landscape, and noted the potential challenges
associated with monitoring where retail lending assessment areas are
required, and monitoring performance within those areas.
The agencies also analyzed data from the 2018, 2019, and 2020
calendar years, summarized in Table 4, to assess how different loan
count thresholds would have impacted (1) the number and percentage of
affected large banks, (2) the number of retail lending assessment
areas, (3) the percentage of lending outside of facility-based
assessment areas that would have been evaluated within retail lending
assessment areas, and (4) the number of large banks that would have had
to delineate at least 100 retail lending assessment areas over the
three calendar years. For all threshold options included in Table 4,
the analysis assumed that the final rule retail lending assessment area
approach had been in effect during those calendar years, including the
exemption for large banks that conduct more than 80 percent of their
retail lending within their facility-based assessment areas, the
inclusion of only closed-end home mortgage loans (and not open-end home
mortgage loans), and the final rule approach to identifying major
product lines in retail lending assessment areas.
Based on this analysis, the agencies believe that the increased
loan count thresholds in the final rule appropriately tailor the retail
lending assessment area requirement while also ensuring that the
overall retail lending assessment area approach continues to cover a
meaningful percentage of retail lending taking place outside of
facility-based assessment areas. Relative to an alternative approach
that retained the proposed loan count threshold levels but incorporated
the final rule's other modifications to the retail lending assessment
area proposal, the final rule loan count thresholds would have
significantly decreased the number of affected large banks, from 81 to
63, and the total number of retail lending assessment areas, from 1,301
to 863. In addition, relative to the proposed loan count threshold
levels, the historical analysis shows that the final rule loan count
thresholds would have decreased the percentage of retail lending
outside of facility-based assessment areas that is evaluated in retail
lending assessment areas by about 4 percentage points for closed-end
home mortgage lending, and by about 5 percentage points for small
business lending. The agencies note that, under the final rule, a large
bank's retail lending outside of its facility-based assessment areas
and retail lending assessment areas is evaluated on an aggregate basis
through the outside retail lending area evaluation, discussed in the
section-by-section analysis of final Sec. __.18.
Table 4 also includes the loan count threshold option of 50 closed-
end home mortgages and 100 small business loans, as suggested by some
commenters. The agencies note that while these decreased thresholds
would have increased the share of retail lending outside of facility-
based assessment areas that is captured in retail lending assessment
areas, they also would have significantly increased the number of
affected banks relative to the proposed threshold levels, from 81 to
114, and the total number of retail lending assessment areas, from
1,301 to 2,421. Based on the results of this analysis, and in light of
comments regarding the compliance burden associated with retail lending
assessment areas, the agencies do not believe that these lower loan
count thresholds would appropriately balance the agencies' objectives.
In addition, Table 4 includes two loan threshold options higher
than the ones adopted in the final rule. For the potential loan count
thresholds of 250 closed-end home mortgage loans or 500 small business
loans, the agencies' historical analysis found that, compared to the
final rule thresholds, these thresholds would have further decreased
the number of affected large banks, from 63 to 50, and the total number
of retail lending assessment areas, from 863 to 629. Furthermore, these
thresholds would have resulted in a decrease in the percentage of
closed-end home mortgage lending outside of facility-based assessment
areas that would have been evaluated within retail lending assessment
areas, from 23.0 percent to 17.2 percent, relative to the proposed
levels, and would have decreased to a lesser extent the percentage of
small business lending outside of facility-based assessment areas that
would have been evaluated within retail lending assessment areas, from
39.3 percent to 37.3 percent, relative to the proposed levels. While on
the one hand, these loan count thresholds would have further reduced
the number of affected large banks and the total number of retail
lending assessment areas, the agencies do not believe that these
thresholds would evaluate a sufficient share of large banks' retail
lending outside of facility-based assessment areas in specific
geographic areas.
Finally, Table 4 also included loan thresholds of 500 closed-end
home mortgage loans or 750 small business loans. The agencies'
historical analysis indicates that these loan count thresholds would
have resulted in only 10.7 percent of large banks' closed-end home
mortgage lending outside of facility-based assessment areas being
evaluated in retail lending assessment areas, and only 32.7 percent of
small business lending. As with the higher potential loan count
threshold discussed above, the agencies do not believe that these
threshold levels, or any higher threshold levels, would achieve the
objective of modernizing the assessment area framework to account for
changes in banking.
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P
[[Page 6754]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.003
BILLING CODE 4810-33-C; 6210-01-C; 6714-01-C
Section __.17(d) Use of Retail Lending Assessments Areas
The Agencies' Proposal
The agencies proposed in Sec. __.17(d) to use retail lending
assessment areas delineated by a large bank in the evaluation of the
bank's retail lending performance unless the agencies determine that
the retail lending assessment areas do not comply with requirements of
Sec. __.17. The agencies did not propose to evaluate other aspects of
a bank's performance, including its community development activities,
in retail lending assessment areas.
To create parity between the evaluation of a large bank's major
product lines in facility-based assessment areas and retail lending
assessment areas, the agencies proposed to use the same approach to
identify
[[Page 6755]]
major product lines in both geographic areas, as discussed in the
section-by-section analysis of final Sec. __.22(d). The agencies
intended for this approach to ensure that the retail loans that would
be evaluated under the distribution analysis component of the Retail
Lending Test in both facility-based assessment areas and retail lending
assessment areas are those product lines in which the bank specialized
locally.
However, the agencies sought feedback on alternative approaches to
evaluating a large bank's retail lending performance in retail lending
assessment areas. Specifically, the agencies suggested an alternative
approach under which the retail lending performance of large banks
would be evaluated in retail lending assessment areas with respect to
home mortgage lending only if the bank met the proposed 100 home
mortgage loans threshold, and with respect to small business lending
only if the bank met the proposed 250 small business loans threshold.
This alternative approach would differ from the proposed approach in
that, under the proposed approach, all of a bank's major product lines
would be evaluated under the distribution analysis component of the
Retail Lending Test in a retail lending assessment area if the bank
surpassed at least one of the proposed loan count thresholds.\668\ The
agencies explained that the alternative approach would more narrowly
tailor the evaluation of a large bank's retail lending performance in
retail lending assessment areas.
---------------------------------------------------------------------------
\668\ See proposed Sec. Sec. __.17(c) and __.22(a)(4).
---------------------------------------------------------------------------
Comments Received
Product lines evaluated in retail lending assessment areas.
Numerous commenters addressed the product lines that should be
evaluated in retail lending assessment areas under the distribution
analysis component of the Retail Lending Test.
A few commenters supported the proposal to evaluate the geographic
and borrower distributions of all of a large bank's major product lines
in retail lending assessment areas. In general, these commenters stated
that a large bank that meets either of the proposed loan count
thresholds would be a major lender in the particular market, and that
evaluating all of the bank's major product lines would be necessary to
fully assess the bank's retail lending impact. At least one commenter,
noted that the proposed approach to weighting different major product
lines would ensure that there is an appropriate emphasis on a bank's
most relevant product lines in CRA evaluations.
However, most commenters on this topic recommended evaluating the
geographic and borrower distributions a more limited set of product
lines in retail lending assessment areas. Of these commenters, most
recommended only evaluating home mortgage loans or small business loans
in a retail lending assessment area, and only if the bank met the
relevant loan count threshold, as contemplated as an alternative in the
proposal.
Some commenters suggested other approaches for determining which of
a large bank's product lines should be evaluated under the distribution
analysis component of the Retail Lending Test in a retail lending
assessment area. For example, one commenter suggested evaluating the
geographic and borrower distributions of only the top two product lines
in each retail lending assessment area. Many of the commenters that
recommended using a market share or lending share approach for
triggering the retail lending assessment area requirement also
recommended applying the same standard for purposes of determining what
product lines are evaluated in a retail lending assessment area.
Evaluation of activities beyond retail lending. A number of
commenters recommended that CRA evaluations in retail lending
assessment areas should go further than the proposal by including an
assessment of not only retail lending activities evaluated under the
proposed Retail Lending Test, but also other types of bank activities,
particularly community development lending. Several of these commenters
stated that evaluating a bank's community development activities in
retail lending assessment areas would improve bank responsiveness to
the needs of rural communities. At least one commenter stated that
banks acquire knowledge of the markets and needs of their retail
lending assessments by virtue of doing business there, and thus, it
would be appropriate to evaluate a large bank's community development
activities in these areas. At least one other commenter stated that
banks should not be required to conduct community development
activities in retail lending assessment areas, but should receive CRA
credit if they do conduct activities in these areas.
Final Rule
The agencies are adopting with revisions, the proposed use of
retail lending assessment areas in final Sec. __.17(d). As under the
proposal, the final rule states that the agencies use the retail
lending assessment areas delineated by a large bank, unless the
agencies determine that a retail lending assessment area does not
comply with the requirements of final Sec. __.17. However, the
agencies are narrowing the scope of the evaluation of a large bank's
retail lending performance in retail lending assessment areas, relative
to the proposal. Specifically, under the final rule approach, only a
large bank's closed-end home mortgage loans and small business loans
could be evaluated under the distribution analysis component of the
Retail Lending Test in a retail lending assessment area. Further, under
the final rule approach, the agencies will evaluate these product lines
in a retail lending assessment area only to the extent that the large
bank meets the applicable loan count thresholds in the retail lending
assessment area.
Product lines evaluated. The agencies proposed to evaluate the
geographic and borrower distributions of all of a large bank's major
product lines in retail lending assessment areas to comprehensively
assess whether a bank is meeting the credit needs of the entirety of
its retail lending assessment areas. As discussed above, the agencies
are persuaded that the benefits of the retail lending assessment
approach are outweighed by the complexity of, and compliance burden
associated with, the approach as proposed. To simplify the retail
lending assessment area framework and reduce the compliance burden
associated with retail lending assessment areas, the final rule adopts
the alternative approach contemplated in the proposal under which only
a large bank's closed-end home mortgage lending and small business
lending could be evaluated under the distribution analysis component of
the Retail Lending Test in a retail lending assessment area, and only
to the extent that the large bank meets the applicable loan count
threshold for triggering the retail lending assessment area
requirement. In other words, if a large bank meets the loan count
thresholds for either or both closed-end home mortgage loans or small
business loans and thus must delineate a retail lending assessment
area, the product lines responsible for triggering the retail lending
assessment area are automatically considered a major product line in
the retail lending assessment area.
The agencies also considered alternative approaches suggested by
commenters. In particular, the agencies considered only evaluating the
geographic and borrower distributions of a large bank's top two product
lines in a retail lending assessment area, but
[[Page 6756]]
determined that this approach would add complexity and could undermine
predictability, particularly if a large bank has several product lines
of a similar size in a retail lending assessment area. The agencies
also considered using a market share or lending share threshold to
determine which of a large bank's product lines to evaluate under the
distribution analysis component of the Retail Lending Test in a retail
lending assessment area. However, as discussed above in connection with
the use of loan count thresholds, the agencies determined these
approaches would add complexity and may fail to capture product lines
consisting of a significant number of loans in a retail lending
assessment area.
In determining whether to apply the same major product line
standard for facility-based assessment areas and outside retail lending
areas to retail lending assessment areas as proposed, or whether to
adopt the alternative approach of evaluating the geographic and
borrower distributions of only the product line or product lines that
triggered the retail lending assessment area requirement, the agencies
analyzed data from the 2018, 2019, and 2020 calendar years, summarized
in Table 5, to assess the percentage of large banks' retail lending
outside of facility-based assessment areas that would have been
evaluated within retail lending assessment areas, and the average
number of major product lines per retail lending assessment area, had
either approach been in effect during those calendar years. In
comparing the options, the agencies note that the final rule approach
of evaluating only the product line or product lines that triggered the
retail lending assessment area would have resulted in a small reduction
in the percentage of closed-end home mortgage lending outside of
facility-based assessment areas that would have been evaluated within
retail lending assessment areas from 27.5 to 23.0 percent. The final
rule approach would have resulted in the same percentage of small
business lending outside of facility-based assessment areas that would
have been evaluated in retail lending assessment areas (39.3 percent)
but a decrease in the share of small farm lending that would have been
evaluated, from 0.7 to 0 percent. Finally, the final rule approach
would have resulted in a significant decrease in the average number of
product lines that would have been evaluated in a retail lending
assessment area, from 1.4 to 1.1. The agencies believe that lowering
the number of product lines evaluated in retail lending assessment
areas will decrease the potential complexity and burden of the retail
lending assessment area approach, and that this decreased complexity
and burden outweighs the potential loss of coverage for closed-end home
mortgage, small business, and small farm lending evaluated within
retail lending assessment areas.
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P
[[Page 6757]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.004
BILLING CODE 4810-33-C; 6210-01-C; 6714-01-C
Performance tests applied in retail lending assessment areas. The
agencies acknowledge comments that CRA evaluations in retail lending
assessment areas should not be limited to the Retail Lending Test, and
that evaluations in these areas should also consider large banks'
community development activities. However, the agencies believe that
retail lending assessment area evaluations should be specific to retail
lending, and that the proposed Retail Services and Products Test,
Community Development Financing Test, and Community Development
Services Test appropriately consider other large bank activities
outside of facility-based assessment areas. Under the final rule, and
as discussed in the section-by-section analysis of final Sec. __.19, a
large bank will receive consideration for community development loans,
community development investments, and community development services
outside of the facility-based assessment areas when determining the
bank's conclusion at the State, multistate MSA, and institution levels.
In addition, and as discussed in the section-by-section analysis of
final Sec. _.23, a large bank may receive consideration for applicable
retail banking services outside of its facility-based assessment areas
as certain components of the Retail Services and Products Test are not
restricted to a bank's facility-based assessment areas. Specifically,
in the case of a large bank with assets greater
[[Page 6758]]
than $10 billion in both of the prior two calendar years, a large bank
with assets less than or equal to $10 billion in either of the prior
two calendar years and that does not operate branches, or any other
large bank at the bank's option, the agencies will evaluate the large
bank's digital and other delivery systems at the institution level. In
addition, at the institution level, a large bank may receive positive
consideration for its credit products and programs, and a large bank
with assets of $10 billion or more in both of the prior two calendar
years, or any other large bank at the bank's option, may receive
positive consideration for its responsive deposit products. The
agencies believe that it is appropriate to consider these activities at
the State, multistate MSA, and institution levels rather than within
specific retail lending assessment areas because it provides greater
flexibility for a large bank to identify areas with unmet community
development and retail services needs that the bank has the capacity
and expertise to address. In contrast, a large bank conducting retail
lending in a retail lending assessment area has demonstrated capacity
to lend in that geographic area, and therefore, the agencies believe
that it is appropriate to evaluate the extent to which the bank is
meeting the credit needs of the entirety of its retail lending
assessment areas.
Section __.18 Outside Retail Lending Areas
In proposed Sec. __.22(a)(2)(ii) and (a)(3), respectively, the
agencies proposed to evaluate large banks and certain intermediate
banks \669\ under the Retail Lending Test in ``outside retail lending
areas.'' Under the proposal, a bank's outside retail lending area would
consist of the nationwide area outside of the bank's facility-based
assessment areas and, as applicable, retail lending assessment areas.
In proposing the outside retail lending area approach, the agencies
intended to comprehensively assess large banks' and certain
intermediate banks' lending to low- and moderate-income census tracts
and borrowers, and small businesses and small farms, by ensuring that
retail lending that is too geographically dispersed to be evaluated
within a facility-based assessment area or retail lending assessment
area would still be considered under the Retail Lending Test.
---------------------------------------------------------------------------
\669\ The proposal provided that an intermediate bank that
originates and purchases more than 50 percent of its retail loans
(by dollar amount) outside of its facility-based assessment areas
over the relevant evaluation period would be evaluated in its
outside retail lending area. See proposed Sec. __.22(a)(3).
---------------------------------------------------------------------------
Numerous commenters provided feedback on the proposed outside
retail lending area approach. Commenters expressed a variety of views
regarding the outside retail lending area proposal, with some
commenters supporting the proposed approach and others opposing the
proposed approach. Commenters also provided feedback on specific
aspects of the outside retail lending area proposal, especially views
on which banks should be evaluated under the outside retail lending
area approach.
For the reasons discussed below, the final rule adopts the proposed
outside retail lending area approach with some modifications.
Consistent with the proposal, the final rule provides that the agencies
evaluate on a mandatory basis the retail lending performance of a large
bank, and certain other banks, in the bank's outside retail lending
area. The final rule also provides that the outside retail lending area
generally consists of the nationwide area outside of the bank's
facility-based assessment areas and retail lending assessment areas.
However, in a change from the proposal, and as described below, the
final rule: (1) adjusts the standard used to determine when an
intermediate bank's outside retail lending area is evaluated on a
mandatory basis, and applies the same standard to a small bank that
opts to be evaluated under the Retail Lending Test; (2) permits an
intermediate bank or small bank that does not meet this standard to opt
to have its outside retail lending area evaluated; and (3) tailors the
proposed geographic standard for outside retail lending areas to
exclude those nonmetropolitan counties in which a bank did not
originate or purchase any closed-end home mortgage loan, small business
loan, small farm loan, or automobile loan (if automobile loans are a
product line for the bank). In addition, the agencies are codifying the
outside retail lending area approach is new Sec. __.18 for better
clarity and organization.
Overall Outside Retail Lending Area Approach
The Agencies' Proposal
To complement the agencies' evaluation of a bank's retail lending
in its facility-based assessment areas and retail lending assessment
areas, as applicable, the agencies proposed in Sec. __.22(a) to
evaluate the retail lending performance of large banks and certain
intermediate banks in the bank's outside retail lending area. As
defined in proposed Sec. __.12, the bank's outside retail lending area
would be the nationwide area outside of the bank's facility-based
assessment areas and retail lending assessment area.
Comments Received
Several commenters supported the agencies' proposal to evaluate the
retail lending of certain banks in their outside retail lending areas
as an appropriate complement to the proposed facility-based assessment
area and retail lending assessment area frameworks. At least one of
these commenters stated that evaluating a bank's retail lending in its
outside retail lending area was necessary to develop a complete picture
of the bank's retail lending performance. Another commenter favorably
noted that the outside retail lending area approach would increase CRA
coverage of rural lending activity outside of a bank's facility-based
assessment areas.
Some commenters opposed or expressed significant concerns with the
proposed outside retail lending area approach. These commenters opposed
the outside retail lending area proposal for several reasons, including
commenter views that: the outside retail lending area approach is not
aligned with the CRA statute's purpose of encouraging reinvestment of
deposits in local communities where banks are chartered to do business;
evaluation of a bank's retail lending performance in its outside retail
lending area could offset or distract from the bank's retail lending
performance in its facility-based assessment areas; and the benefits of
evaluating a bank's retail lending in its outside retail lending area
would not outweigh the complexity and compliance burden associated with
the outside retail lending area evaluation, particularly because the
share of the bank's retail loans originated outside of facility-based
assessment areas or retail lending assessment areas is small for most
banks.
At least one commenter stated that the outside retail lending area
evaluation should include not only a bank's retail loans made outside
of its facility-based assessment areas and retail lending assessment
areas, but also retail loans made within its facility-based assessment
areas and retail lending assessment areas that are not evaluated as
major product lines.
A few commenters recommended that the evaluation of a bank's retail
lending performance in its outside retail lending area include
consideration of qualitative factors and performance context, including
the bank's ability and opportunities to serve the markets in this area.
[[Page 6759]]
Final Rule
For the reasons discussed below, the agencies are adopting the
outside retail lending area approach in the final rule. However, in
response to commenter feedback and in consideration of the agencies'
policy objectives, the agencies are also adopting several modifications
to the outside retail lending area proposal. Specifically, the final
rule (1) adjusts the calculation of the 50 percent standard used to
determine when an intermediate bank's outside retail lending area is
evaluated on a mandatory basis, and applies the same standard to a
small bank that opts to be evaluated under the Retail Lending Test; (2)
permits an intermediate bank or small bank that does not meet this
standard to opt to have its outside retail lending area evaluated; and
(3) tailors the proposed geographic standard for outside retail lending
areas to exclude those nonmetropolitan counties in which a bank did not
originate or purchase any closed-end home mortgage loan, small business
loan, small farm loan, or automobile loan (if automobile loans are a
product line for the bank). In addition, the agencies are codifying the
outside retail lending area approach is new Sec. __.18 for better
clarity and organization.\670\ These modifications to the proposal are
discussed throughout this section-by-section analysis of Sec. __.18.
---------------------------------------------------------------------------
\670\ The agencies are renumbering proposed Sec. __.18 as final
Sec. __.19.
---------------------------------------------------------------------------
Legal authority. The agencies have considered all of the issues
raised by commenters regarding their legal authority to evaluate the
retail lending performance of certain banks in their outside retail
lending areas. Consistent with the agencies' views stated in the
proposal, and upon further deliberation and consideration, the agencies
have concluded that the CRA authorizes the agencies to evaluate at
least certain banks' retail lending performance in their outside retail
lending areas. As discussed above in the section-by-section analysis of
Sec. __.17, the CRA requires the agencies to assess a bank's record of
meeting the credit needs of its entire community, without defining what
constitutes a bank's ``entire community.'' \671\ Moreover, as described
in the section-by-section analysis of Sec. __.17, although the CRA
includes provisions that specifically relate to the preparation of
written evaluations that support the conclusion that the geographic
areas where a bank maintains deposit-taking facilities are considered
part of the bank's entire community,\672\ the statute does not indicate
that a bank's entire community consists of only these geographic areas.
---------------------------------------------------------------------------
\671\ See 12 U.S.C. 2903(a)(1) (requiring that the agencies
``assess [an] institution's record of meeting the credit needs of
its entire community'').
\672\ See, e.g., 12 U.S.C. 2906 (requiring the agencies to
prepare a written evaluation of a bank's CRA performance for each
metropolitan area and, in the case of an interstate bank, each State
and/or multistate metropolitan area in which the bank maintains a
branch).
---------------------------------------------------------------------------
The CRA delegates authority to the agencies to prescribe
regulations to carry out the purposes of the CRA.\673\ To achieve its
purposes, the CRA requires the agencies to assess whether a bank is
meeting the credit needs of all parts of the communities it serves,
without excluding the low- and moderate-income neighborhoods in those
communities.\674\ The agencies have determined, based on their
supervisory experience and expertise, that for at least certain banks,
the bank's ``entire community'' can reasonably be considered to include
those geographic areas where the bank's retail loan borrowers are
located. The agencies have concluded that evaluating the retail lending
performance of such banks in their outside retail lending areas falls
within the requirements imposed on the agencies by the CRA to assess a
bank's record of meeting the credit needs of its entire community, and
properly furthers the purpose of the statute to encourage banks to meet
the credit needs of all parts of the communities they serve. In
addition, the agencies believe that the combination of facility-based
assessment areas, retail lending assessment areas, and outside retail
lending areas will allow the agencies to achieve a more comprehensive
evaluation of the bank's performance across its entire community.
---------------------------------------------------------------------------
\673\ See 12 U.S.C. 2905.
\674\ See 12 U.S.C. 2903(a).
---------------------------------------------------------------------------
Policy objectives of outside retail lending areas. In developing
the overall outside retail lending area approach in the proposed and
final rules, the agencies seek to achieve several different policy
objectives. First, the outside retail lending area approach adapts to
ongoing changes to the banking industry. The current CRA regulations
generally define assessment areas in connection with a bank's main
office, branches, and deposit-taking ATMs. However, the agencies
recognize that changes in technology and in bank business models have
resulted in banks' entire communities extending beyond the geographic
footprint of the bank's main office, branches, and other deposit-taking
facilities. To reflect these changes in banking, and to make the
assessment area framework more durable over time, the agencies are
complementing the existing facility-based assessment area framework in
the final rule with a retail lending assessment area and outside retail
lending area requirements tailored to certain banks.
Second, the outside retail lending area approach improves parity in
the evaluation framework for banks with different business models. For
example, under the current approach, a bank that maintains branches in
multiple States and conducts retail lending in the geographic areas
served by those branches would have its retail lending evaluated in
multiple assessment areas based on the location of its branches;
however, a bank that operates exclusively online would only have its
retail lending performance evaluated in one assessment area based on
the location of the bank's main office, which may not be representative
of the bank's overall retail lending performance. Under the final rule
approach, however, the online bank's retail lending performance in
other areas may be evaluated as part of the retail lending assessment
area evaluation or outside retail lending area evaluation, resulting in
more comparable CRA evaluations for both banks despite their different
business models.
Third, the outside retail lending area approach, in combination
with the retail lending assessment area approach for large banks
discussed in the section-by-section analysis of final Sec. __.17,
increases the share of retail lending that is considered in CRA
evaluations for certain banks. Under the current approach, retail
lending conducted outside of a bank's assessment areas is not evaluated
using the lending test criteria; this lending is only considered if the
bank has adequately addressed the needs of borrowers within its
assessment areas, and does not compensate for poor lending performance
within the bank's assessment areas.\675\ The outside retail lending
area approach in the final rule applies a metrics-based evaluation
approach to retail loans in certain banks' outside retail lending
areas, and generally increases the share of retail lending by banks
that is evaluated in this manner.
---------------------------------------------------------------------------
\675\ See Q&A Sec. __.22(b)(2) and (3)-4.
---------------------------------------------------------------------------
Finally, the agencies seek to achieve the policy objectives
described above while also appropriately adjusting for the level of
complexity and impact on banks that would be evaluated in new outside
retail lending areas. The outside retail lending area approach in the
final
[[Page 6760]]
rule is intended to address compliance cost concerns, while
simultaneously ensuring that the agencies' other objectives, described
above, are achieved.
The agencies have considered comments that the outside retail
lending area approach will add complexity and compliance burden to CRA
evaluations, as well as commenter views that the outside retail lending
area approach may result in banks redirecting resources from serving
their facility-based assessment areas. The agencies recognize that
banks that are evaluated in outside retail lending areas under the
final rule approach may bear some potential compliance costs, such as
the potential costs associated with monitoring their performance and
meeting performance standards in outside retail lending areas. However,
the agencies believe that the final rule outside retail lending area
approach is appropriately calibrated to achieve the agencies' policy
objectives described above. In addition, the agencies believe that the
compliance costs associated with the final rule outside retail lending
area approach are reasonable because the outside retail lending area
evaluation consolidates all of a bank's retail lending outside of its
facility-based assessment areas and retail lending assessment areas
into one evaluation area, such that there is one set of metrics and
benchmarks for the entire outside retail lending area. Further, because
the outside retail lending area does not assign conclusions to specific
areas, the agencies believe that this approach provides flexibility by
allowing a bank to compensate for relatively lower performance in one
component geographic area with stronger performance in another
component geographic area, without receiving a conclusion that reflects
poor performance in any specific area.
As discussed further in the section-by-section analysis of Sec.
__.17, the agencies will develop and make freely available tools that
would leverage reported loan data to calculate the retail lending
distribution benchmarks that applied to a bank's outside retail lending
area in recent years. The agencies believe that these data tools will
help to address commenter concerns regarding the potential complexity
and compliance burden associated with the outside retail lending area
approach.
Retail loans included in the outside retail lending area. The
agencies considered, but have determined not to adopt, the alternative
suggested by at least one commenter of including additional retail
loans in the outside retail lending area. Specifically, in addition to
the retail lending conducted outside of facility-based assessment areas
and retail lending assessment areas, the agencies considered including
in the outside retail lending area those retail loans within facility-
based assessment areas and retail lending assessment areas that are not
evaluated as a major product line. Although the agencies have
considered that such an approach would increase the total amount of
retail lending that is evaluated under the Retail Lending Test, the
agencies believe the increase in coverage is likely to be minimal in
comparison to the final rule approach.\676\ In addition, the agencies
believe that such an approach would add complexity because it would
result in distinct outside retail lending areas for each product line
(i.e., closed-end home mortgage loans, small business loans, small farm
loans, and automobile loans if automobile loans are a product line for
the bank). Instead, the agencies believe that a single outside retail
lending area for all product lines would be reduce complexity for both
the agencies and affected banks and potential compliance burden for
affected banks, while still achieving the agencies' policy objectives.
---------------------------------------------------------------------------
\676\ The agencies performed an analysis of retail lending data
using the CRA Analytics Data Tables for 2018-2020 and determined
that over 98 percent of both closed-end home mortgage and small
business lending would have been evaluated under the proposed final
rule major product line approach had the approach been in effect
during those years. The figure for small farm lending would have
been considerably lower, at around 40 percent, but the agencies note
that the number of small farm loans and the weight assigned to the
small farm loan product line is generally small overall.
---------------------------------------------------------------------------
Codification in Sec. __.18. The agencies determined that it is
appropriate to codify the outside retail lending area approach in new
Sec. __.18 to increase clarity and improve organization of the final
rule. Describing the details of the outside retail lending area
approach in a separate section of regulatory text reflects that the
outside retail lending area is one type of Retail Lending Test Area
that is used in the Retail Lending Test evaluation, alongside facility-
based assessment areas (as described in Sec. __.16) and retail lending
assessment areas (as described in Sec. __.17).
Section __.18(a) In General--Banks Evaluated in Outside Retail Lending
Areas
The Agencies' Proposal
In proposed Sec. __.22(a)(2)(ii), the agencies proposed to
evaluate the retail lending performance of all large banks in their
outside retail lending areas. The agencies sought feedback on whether
all large banks should have their retail lending in their outside
retail lending areas evaluated, or whether the agencies should exempt
large banks that make more than a certain percentage, such as 80
percent, of their retail loans within facility-based assessment areas
and retail lending assessment areas.
In proposed Sec. __.22(a)(3), the agencies proposed to evaluate
the retail lending performance of certain intermediate banks in their
outside retail lending areas. Specifically, the agencies proposed to
evaluate an intermediate bank's retail lending performance in its
outside retail lending area if the intermediate bank originated and
purchased over 50 percent of its retail loans, by dollar amount,
outside of its facility-based assessment areas over the relevant
evaluation period.
Comments Received
Application to large banks. Some commenters addressed the
applicability of the outside retail lending area approach to large
banks. For example, at least one commenter suggested only evaluating a
large bank on a mandatory basis in its outside retail lending area if
the large bank has at least $10 billion in assets, but that a large
bank with less than $10 billion in assets should have the option to
have its outside retail lending area evaluated. Another commenter
stated that the outside retail lending area evaluation should be
optional for all banks.
Several commenters recommended exempting large banks that lend
primarily or predominantly within their facility-based assessment
areas, or within their facility-based assessment areas and retail
lending assessment areas, from evaluation in their outside retail
lending areas. These commenters offered a range of suggestions
regarding the percentage at which such an exemption should apply
(measured in terms of the percentage of the bank's retail loans that
must be within facility-based assessment areas, or within their
facility-based assessment areas and retail lending assessment areas),
ranging from 50 to 98 percent. Some of these commenters emphasized that
if the majority or substantial majority of a bank's retail lending is
within its facility-based assessment areas, the evaluation of retail
lending in outside retail lending areas would have little bearing on
the bank's overall evaluation, and yet would require the bank to spread
its CRA resources outside of its local footprint.
In contrast, several commenters opposed providing large banks that
lend
[[Page 6761]]
primarily within their facility-based assessment areas, or within their
facility-based assessment areas and retail lending assessment areas, an
exemption from being evaluated on their retail lending in outside
retail lending areas. Commenters opposed to exempting banks from the
outside retail lending area evaluation asserted that the proposal would
not be unduly burdensome because the agencies' proposed approach for
weighting assessment area and outside retail lending area retail
lending performance to determine institution-level performance would
appropriately tailor the outside retail lending area evaluation to
different business models. These commenters further noted that banks
that make significant numbers of home mortgage or small business loans
outside of their facility-based assessment areas and/or retail lending
assessment areas should have an obligation to low- and moderate-income
communities in those areas.
Application to intermediate banks. A commenter recommended that all
intermediate banks should be evaluated in outside retail lending areas,
rather than limiting the outside retail lending area evaluation to
those intermediate banks that originate or purchase at least 50 percent
of their retail loans outside of their facility-based assessment areas.
Another commenter stated that the outside retail lending area
evaluation should be optional for all banks.
Final Rule
Overview. With respect to large banks, the agencies are adopting
the proposal to evaluate the retail lending performance of all large
banks in their outside retail lending area. As such, final Sec.
__.18(a)(1) provides that the agencies evaluate a large bank's record
of helping to meet the credit needs of its entire community in its
outside retail lending area pursuant to Sec. __.22. Final Sec.
__.18(a)(1) clarifies that the agencies will not evaluate a large bank
in its outside retail lending area if it did not originate or purchase
loans in any products lines in the outside retail lending area during
the evaluation period. The agencies believe that this limitation was
implicit in the proposal, but believe that it is appropriate to make
this limitation explicit in the final rule to promote clarity and
transparency.
With respect to other banks, the agencies are adjusting the
standard used to determine when an intermediate bank's outside retail
lending area is evaluated on a mandatory basis, and are applying this
same standard to a small bank that opts to be evaluated under the
Retail Lending Test. In addition, the agencies are permitting an
intermediate bank or small bank that does not meet this standard to opt
to have its outside retail lending area evaluated. As such, final Sec.
__.18(a)(2) provides that the agencies evaluate the record of an
intermediate bank, or a small bank that opts to be evaluated under the
Retail Lending Test, of helping to meet the credit needs of its entire
community in its outside retail lending area pursuant to Sec. __.22,
for a particular calendar year, if either (1) the bank opts to have its
major product lines evaluated in its outside retail lending area, or
(2) in the prior two calendar years, the bank originated or purchased
outside the bank's facility-based assessment areas more than 50 percent
of the bank's home mortgage loans, multifamily loans, small business
loans, small farm loans, and automobile loans if automobile loans are a
product line for the bank, as described in paragraph II.a.2 of final
appendix A.
Application to large banks. The agencies continue to believe that
it is appropriate to evaluate the retail lending performance of all
large banks in their outside retail lending areas. The agencies believe
that evaluating large banks in their outside retail lending areas is
important to achieving the agencies' policy objectives of adapting to
ongoing changes to the banking industry, improving parity in the
evaluation framework for banks with different business models, and
increasing the share of retail lending that is considered in CRA
evaluations, discussed above. Further, the agencies believe that the
final rule outside retail lending area approach is appropriately
calibrated to achieve the agencies' policy objectives while minimizing
the additional complexity and compliance burden associated with outside
retail lending areas. On balance, the agencies believe it is
appropriate to tailor the outside retail lending area requirement to
all large banks, but only certain other banks, recognizing that large
banks generally have more resources and therefore greater capacity than
small and intermediate banks to adapt to new regulatory provisions such
as outside retail lending areas.
To complement the facility-based assessment area approach and
retail lending assessment area approach, the outside retail lending
area approach would evaluate a large bank's retail lending that is too
dispersed to be evaluated within a specific geographic area (i.e., in a
facility-based assessment area or outside retail lending area). For
example, if a large bank originated 50 closed-end home mortgages and
300 small business loans in an MSA in each year of the prior two years,
the large bank would not be required to delineate a retail lending
assessment area in the MSA pursuant to the loan count thresholds in
final Sec. __.17(c), but the MSA would be included in the large bank's
outside retail lending area. As a result, this lending would be
considered as part of the large bank's Retail Lending Test evaluation.
However, a conclusion would be assigned to the entirety of the bank's
outside retail lending area, rather than for the specific MSA. The
agencies believe that this approach is appropriate because, the sum of
the large bank's retail lending outside of its facility-based
assessment areas and retail lending assessment areas may constitute a
significant percentage of a bank's overall lending, and that this
retail lending should be considered under the Retail Lending Test to
ensure a comprehensive evaluation of a large bank's retail lending
performance. The agencies emphasize that the outside retail lending
area approach is especially important for comprehensively evaluating
the retail lending performance of predominantly branch-based large
banks that qualify for the exemption from the retail lending assessment
area requirement pursuant to final Sec. __.17(a)(2).
The agencies considered, but are not adopting, the alternative
approach suggested by commenters to exempt large banks that conduct at
least a certain percentage, such as 50 percent, of their retail lending
within their facility-based assessment areas, or within their facility-
based assessment areas and retail lending assessment areas, from the
outside retail lending area evaluation. For the reasons stated above,
the agencies believe it is appropriate to evaluate the retail lending
performance of all large banks in their outside retail lending areas.
The agencies note that the final rule approach accounts for cases where
a bank has only a small amount of retail lending in its outside retail
lending area, because the amount of retail lending in the bank's
outside retail lending area is one component of the weighting that the
outside retail lending area performance conclusion receives in
determining the bank's overall Retail Lending Test conclusion, as
discussed in the section-by-section analysis of Sec. __.22(h).
Finally, the agencies note that a large bank with a relatively small
share of lending in its outside retail lending area overall could still
have a significant number of loans in one or more component geographic
areas of its outside retail lending area; the agencies believe that it
is important to evaluate
[[Page 6762]]
the extent to which the bank has met the retail lending credit needs of
those areas.
The agencies also considered, but are not adopting, the alternative
approach suggested by commenters to make the evaluation of all or
certain large banks in their outside retail lending areas optional.
However, the agencies believe that an optional evaluation approach
would not achieve the agencies' policy objectives since some or all
large banks could opt out of outside retail lending areas entirely
under this alternative. The agencies are concerned that over time, an
optional outside retail lending area approach would make the assessment
area framework less durable to ongoing changes in the banking industry,
particularly with any expansion of digital banking. Specifically, if an
increasing share of large bank retail lending occurs outside of
facility-based assessment areas and retail lending assessment areas,
and if the agencies could evaluate that lending in outside retail
lending areas only at a bank's option, the policy objectives of
increasing the share of retail lending that is considered in CRA
evaluations and would be undermined.
Application to intermediate banks and small banks. The final rule
retains the proposed approach evaluating intermediate banks in their
outside retail lending areas on a mandatory basis if the intermediate
bank conducts a majority of its retail lending outside of its facility-
based assessment areas. This tailored approach recognizes that
intermediate banks generally have fewer resources and therefore less
capacity than large banks to adapt to new regulatory provisions such as
a Retail Lending Test evaluation in outside retail lending areas. At
the same time, the agencies believe that evaluating certain
intermediate banks in their outside retail lending areas is important
to achieving the agencies' policy objectives of adapting to ongoing
changes to the banking industry, improving parity in the evaluation
framework for banks with different business models, and increasing the
share of retail lending that is considered in CRA evaluations,
discussed above.
The final rule's 50 percent threshold, the calculation of which is
discussed below, reflects the agencies' belief that an intermediate
bank's CRA evaluation should capture at least a majority of the bank's
retail lending. The agencies believe that evaluating less than a
majority of an intermediate bank's retail lending could result in
Retail Lending Test conclusions that are not representative of the
intermediate bank's overall retail lending performance. The agencies
also considered that a threshold level higher than 50 percent would
result in more comprehensive evaluations for more intermediate banks;
however, a higher exemption threshold level would also increase the
number of affected intermediate banks, including intermediate banks
that already have a majority of their retail lending evaluated within
facility-based assessment areas. In addition, the agencies considered
that for these intermediate banks, the outside retail lending area
evaluation would generally carry less weight in determining the
intermediate bank's overall Retail Lending Test conclusion.
While the proposed rule did not provide that a small bank would be
evaluated in its outside retail lending area, the agencies determined
that it is appropriate to treat small banks that opt into the Retail
Lending Test consistently with intermediate banks under the final rule.
In reaching this determination, the agencies considered that it is
important that the Retail Lending Test evaluation capture at least a
majority of a bank's lending. If a small bank that opts into the Retail
Lending Test conducts a majority of its retail lending outside of its
facility-based assessment areas, the agencies believe that the outside
retail lending area evaluation should apply to the small bank to ensure
that the Retail Lending Test conclusion for the institution is
representative of the bank's overall retail lending performance. The
agencies do not believe that this approach should significantly
increase the compliance burden of the final rule on small banks because
the Retail Lending Test evaluation remains optional for these banks.
Finally, the agencies determined that intermediate banks, and small
banks that opt into the Retail Lending Test, should have the option to
be evaluated in their outside retail lending areas even if they do not
conduct a majority of their retail lending outside their facility-based
assessment areas. The agencies believe this option provides flexibility
for an intermediate bank or small bank to consider the potential
complexity and compliance burden associated with the outside retail
lending area evaluation, and the impact on the bank's retail lending
performance. The agencies also considered that without providing this
option, an intermediate bank, or a small bank that opts into the Retail
Lending Test, that does not conduct a majority of its retail lending
outside of its facility-based assessment areas that prefers to have its
outside retail lending area evaluated could need to seek approval of a
strategic plan, which could increase the complexity of the final rule
approach. In addition, the agencies considered that making the outside
retail lending area evaluation optional for these banks would be
consistent with current evaluation practices, whereby banks may receive
consideration for retail lending outside of their assessment
areas.\677\
---------------------------------------------------------------------------
\677\ See Q&A Sec. __.22(b)(2) and (3)-4
---------------------------------------------------------------------------
Calculation of 50 percent standard. The final rule adopts a
modified version of the proposed 50 percent standard used to determine
when an intermediate bank (or a small bank that opts into the Retail
Lending Test) is evaluated on a mandatory basis in its outside retail
lending area. As specified in paragraph II.a.2 of final appendix A, the
50 percent threshold is calculated over the prior two calendar years,
and is based on a combination of loan dollars and loan count, as
defined in final Sec. __.12. The agencies are adopting these changes
to conform the calculation of the 50 percent outside retail lending
area standard to the calculation approach used for the 80 percent
threshold to identify those predominantly branch-based large banks that
are exempt from the retail lending assessment area requirement. In
addition, the agencies note that the calculation of the 50 percent
standard, like the calculation of the 80 percent standard for retail
lending assessment areas, includes originated or purchased home
mortgage loans, multifamily loans, small business loans, small farm
loans, and automobile loans if automobile loans are a product line for
the bank. The agencies' rationale for this calculation is further
described in the section-by-section analysis of final Sec. __.17(a).
Section __.18(b) Geographic Requirements of Outside Retail Lending
Areas
The Agencies' Proposal
In proposed Sec. __.12, the agencies defined the outside retail
lending area as the nationwide area outside of a bank's facility-based
assessment areas and, as applicable, retail lending assessment areas.
To evaluate a bank's retail lending performance in its outside retail
lending area, and as discussed further in the section-by-section
analysis of Sec. __.22(e), the agencies proposed in Sec.
__.22(b)(2)(ii) and paragraphs III.2.c and d and IV.2.c and d of
proposed appendix A, to calculate tailored retail lending distribution
benchmarks for a bank's outside retail lending area, by taking a
weighted average of the benchmarks calculated for each MSA and the
nonmetropolitan
[[Page 6763]]
area of each State included in the bank's outside retail lending area.
Comments Received
The agencies did not receive comments that specifically discussed
the geographic requirements for outside retail lending areas. However,
as discussed above, the agencies received a number of comments on the
overall outside retail lending area approach. In addition, the agencies
received comments on the proposed approach to calculating tailored
distribution benchmarks for a bank's outside retail lending area; these
comments are discussed further in the section-by-section analysis of
final Sec. __.22(e).
Final Rule
For the reasons discussed below, the agencies are adopting a
tailored version of the proposed geographic requirements for outside
retail lending areas. Specifically, relative to the proposal, a bank's
outside retail lending area no longer includes nonmetropolitan counties
in which the bank did not conduct any retail lending. As such, final
Sec. __.18(b)(1) provides that a bank's outside retail lending area
consists of the nationwide area, excluding (1) the bank's facility-
based assessment areas and retail lending assessment areas; and (2) any
county in a nonmetropolitan area in which the bank did not originate or
purchase any closed-end home mortgage loans, small business loans,
small farm loans, or automobile loans (if automobile loans are a
product line for the bank). In addition, the agencies are specifying in
final Sec. __.18(b)(2) that the outside retail lending area is
comprised of component geographic areas, and that a component
geographic area is any MSA or the nonmetropolitan area of any State, or
portion thereof, included within the outside retail lending area.
Exclusion of certain nonmetropolitan counties. Upon consideration
of commenter feedback, the agencies believe it is appropriate to
exclude nonmetropolitan counties in which a bank did not originate or
purchase any retail loans from the bank's outside retail lending area.
As a result, outside retail lending areas are more targeted, relative
to the proposal, to where a bank conducts retail lending business in
nonmetropolitan areas. The agencies note that the final rule adopts a
similar exclusion of these counties from retail lending assessment
areas located in the nonmetropolitan area of a State, and that the
agencies' rationale for the retail lending assessment area exclusion,
described further in the section-by-section analysis of final Sec.
__.17(b), generally also applies to outside retail lending areas.
Component geographic areas. The agencies determine that specifying
the component geographic areas of the outside retail lending area in
regulatory text in final Sec. __.18(b)(2) provides clarity. The
agencies note that sections III and IV of final appendix A consistently
use the term ``component geographic areas'' in describing the
calculation of the retail lending distribution benchmarks for a bank's
outside retail lending area. This calculation is discussed further in
the section-by-section analysis of final Sec. __.22(e).
Section __.19 Areas for Eligible Community Development Loans, Community
Development Investments, and Community Development Services
Current Approach
Under the current rule, in addition to considering a bank's
community development loans, investments, and services conducted within
the bank's assessment areas, the agencies may provide consideration for
loans, investments, and services conducted in a broader statewide or
regional area that includes one or more assessment areas.\678\ Whether
an activity receives consideration and the geographic level to which
the activity is allocated depends on whether the organization or
activity has a purpose, mandate, or function of serving one or more
assessment areas. Specifically, an activity that has a purpose,
mandate, or function that includes serving one or more assessment areas
is considered as part of the evaluation of: (1) one assessment area,
when it benefits and is targeted to a single assessment area; (2) the
State or multistate MSA, when the activity benefits or is targeted to
two or more assessment areas, or the State or multistate MSA; and (3)
the institution level, when the activity benefits or is targeted to a
regional area of two or more States not in a multistate MSA or a
regional area that includes but is larger than one multistate MSA. An
activity that does not have a purpose, mandate, or function that
includes serving an assessment area may enhance performance at the
State, multistate MSA, or institution level if: (1) the bank has been
responsive to community development needs and opportunities in its
assessment areas; and (2) the activity benefits census tracts or
individuals located in a State, multistate MSA, or broader regional
area that includes one or more of a bank's assessment areas (even
though the activity does not benefit, and is not targeted to, one or
more assessment areas).\679\
---------------------------------------------------------------------------
\678\ See 12 CFR __.12(h); see also Q&A Sec. __.12(h)-6.
\679\ See Q&A Sec. __.21(a)-3.
---------------------------------------------------------------------------
The Agencies' Proposal
Under proposed Sec. __.18, a bank would receive consideration for
community development loans, community development investments, and
community development services (which the proposal referred to
collectively as ``community development activities'') conducted in its
facility-based assessment areas. In addition, proposed Sec. __.18
provided that a bank would also receive consideration for community
development loans, community development investments, and community
development services provided outside of its facility-based assessment
areas within the States and multistate MSAs in which the bank has a
facility-based assessment area and in a nationwide area, as provided in
proposed Sec. Sec. __.21, __.24 through __.26, and __.28 and proposed
appendices C and D. The cross-references in proposed Sec. __.18 did
not include proposed Sec. __.29; as a result, the consideration of
community development activities outside of facility-based assessment
areas would not have applied to small banks or intermediate banks that
did not opt into the Community Development Financing Test. Under the
proposal, community development loans, community development
investments, and community development services conducted outside of a
bank's facility-based assessment areas would be considered to inform
conclusions for the State, multistate MSA, and institution.
Recognizing that the current approach to considering community
development loans, investments, and services in broader statewide and
regional areas has afforded banks flexibility but sometimes contributed
to uncertainty about whether such loans, investments, or services will
qualify, the agencies aimed with the proposal to retain and enhance
this flexibility while also providing greater certainty. To this end,
the agencies included a clear statement in proposed Sec. __.18 that a
bank will also receive consideration for community development loans,
investments, and services conducted outside of a bank's facility-based
assessment areas--not only within the States and multistate MSAs in
which the bank has a facility-
[[Page 6764]]
based assessment area, but also in the nationwide area.\680\
---------------------------------------------------------------------------
\680\ See proposed Sec. __.18. See also proposed Sec. Sec.
__.21, __.24 through __.26, and __.28 and proposed appendices C and
D (cross-referenced in proposed Sec. __.18).
---------------------------------------------------------------------------
The agencies sought feedback on the proposed approach, and on
alternative approaches that would encourage banks that choose to
conduct community development activities outside of their facility-
based assessment areas, such as requiring banks to delineate specific
geographic areas where they would focus their community development
outside of facility-based assessment areas. The agencies also asked
whether all banks, including all intermediate banks, small banks, and
banks that elect to be evaluated under an approved strategic plan,
should have the option to have community development activities outside
of facility-based assessment areas considered.
Comments Received
General feedback. The agencies received numerous comments on the
proposal regarding the areas eligible for community development loans,
investments, or services outside of facility-based assessment areas,
under proposed Sec. __.18. Many commenters supported the proposal. In
general, these commenters expressed that broadening the geographic
eligibility of community development activities will allow banks to
target community development loans, investments, and services to areas
with the greatest community development needs, regardless of whether
they are in proximity to a bank branch. For example, a number of
commenters stated that the proposal would increase community
development activities in underserved areas such as economically
distressed areas, rural areas, and Native lands where there are few
banks. Similarly, some commenters supported the proposal because they
noted that bank branches do not always align with the neighborhoods in
need of investment and that the flexibility of the proposal can help
bring community development capital to these neighborhoods. Another
commenter suggested that consideration of community development
activities anywhere in the United States would allow banks to conduct
community development activities that best align with the bank's
mission, and to seek out the most advantageous financial investments.
Other commenters supported the proposal because it provided
flexibility for banks that have limited control over the availability
of community development projects in their facility-based assessment
areas. For example, commenters noted that in some areas, opportunities
to conduct community development loans, investments, and services are
subject to intense competition between lenders and investors.
Commenters also described other benefits of the proposed approach.
Some commenters noted that credit for community development activities
outside of facility-based assessment areas would be particularly
helpful for the growing number of banks with a limited number of
branches. One of these commenters also noted that smaller State and
regional development organizations would also benefit from this aspect
of the proposal. Other commenters indicated that the proposal provides
much-needed certainty to banks because it allows banks to get credit
for community development activities outside of their facility-based
assessment areas without first having to demonstrate that they have
been responsive to the needs of their assessment areas.
Other commenters suggested additional analysis or other
modifications to the approach. A commenter requested that the agencies
track banks' community development activities conducted outside of its
assessment area to see if banks take advantage of the proposed changes.
Another commenter indicated that community development activities
outside of assessment areas should be optional for positive
consideration.
Other commenters expressed concerns regarding the proposal, with
some suggesting alternatives that would limit or give less emphasis to
community development activities outside of facility-based assessment
areas relative to activities within facility-based assessment areas.
These commenters generally stated that it would be important to
maintain a focus on banks meeting local community needs. Commenters
provided a range of specific recommendations including that: (1)
community development activities should receive CRA credit only in
facility-based assessment areas and anywhere the bank has a CRA
obligation to serve a local community under an applicable performance
test; (2) the agencies should provide only partial credit for community
development activities conducted outside of a bank's assessment areas;
(3) credit for outside facility-based assessment area community
development activities should be weighted or emphasized less than what
is provided inside facility-based assessment areas; and (4)
consideration should be given only for community development activities
outside of a bank's assessment areas if the bank received a certain
rating, such as ``Satisfactory'' or ``Low Satisfactory,'' on its
previous CRA exam. Some commenters expressed the sentiment that to
receive any credit for community development activities outside of a
bank's assessment areas, banks should be required to first meet the
credit needs of their assessment areas. For example, a commenter
suggested that banks provide evidence to the agencies that they had
unsuccessfully bid on multiple community development financing
activities within their facility-based assessment areas before
receiving consideration for their community development activities
outside of its facility-based assessment areas.
Consideration of specific types of community development loans,
community development investments, or community development services. A
few commenters stated that allowing banks to receive CRA consideration
for investments outside of facility-based assessment areas would
support and expand affordable housing investments in underserved CRA
markets. Some commenters pointed out that expanding consideration for
community development financing outside of facility-based assessment
areas would help smooth existing LIHTC pricing discrepancies between
CRA hotspots and CRA deserts. A commenter further recommended that
credit for LIHTC investments outside of assessment areas should be
limited to the greater statewide or regional area in which the bank has
an assessment area.
Other commenters requested that the agencies support CRA credit for
investments or loans with multistate CDFIs, with CDFI loan funds, or
generally with CDFIs or MDIs outside of a bank's assessment areas.
However, another commenter voiced concern that full consideration of
investments with CDFIs regardless of geographic location could drain
capital away from local CDFIs to large national CDFIs. Other activities
that commenters suggested should receive CRA community development
credit include lending outside of assessment areas conducted through a
fintech partnership, activities relating to digital inclusion that
target or benefit underserved urban and rural communities, and bank
employee volunteer activities unrelated to the provision of financial
services if the services are provided in any low- or moderate-income
area.
[[Page 6765]]
Geographic areas in which community development loans, investments,
and services are considered. Some commenters recommended specific
geographic areas in which a bank's community development activities
should be considered. Some commenters suggested limiting consideration
of community development activities that are beyond facility-based
assessment areas to low- and moderate-income communities where a bank
conducts business, or to four categories of geographic areas where
commenters stated that community development needs are greater: Native
lands, the Mississippi Delta, Central Appalachia, and the Texas-Mexico
border.
Several commenters also stated that consideration of a bank's
community development activities should be restricted to specific
geographic areas identified under the proposed community development
impact and responsiveness review factors.\681\ One of these commenters
further suggested that the agencies should apply this restriction
specifically to branch-based banks when they seek to invest outside of
a State where they have branches. Conversely, another commenter noted
that the community development impact and responsiveness factors would
incentivize banks to focus on underserved and other high-priority
communities, so any geographic restriction on making community
development loans, investments, and services outside of facility-based
assessment areas would be unnecessary and counterproductive.
---------------------------------------------------------------------------
\681\ See proposed Sec. __.15(b).
---------------------------------------------------------------------------
Delineation of specific geographic areas outside of facility-based
assessment areas for community development loans, investments, and
services. Some commenters addressed the agencies' request for views on
whether banks should be required to delineate specific geographic areas
where they will focus their outside facility-based assessment area
community development loans, investments, and services. A few
commenters stated that banks should not be required to delineate
specific geographic areas because it would reduce flexibility for banks
and it may not be feasible for banks to anticipate where there will be
community development opportunities. In addition, some commenters
raised concerns that requiring banks to designate areas for community
development loans, investments, and services outside of facility-based
assessment areas could give banks too much latitude to designate easy-
to-invest areas.
However, some commenters supported the idea of requiring banks to
delineate specific geographic areas for community development
activities. For example, a commenter supported the delineation of
geographic areas for community development activities as an alternative
to providing full consideration for activities in the entire statewide
area for States in which a bank has one or more branches. This
commenter further recommended that community development areas, if
adopted, should be composed primarily of distressed, underserved, or
low- or moderate-income census tracts. Another commenter stated
generally that the approval of such community development geographic
areas should be public, consistent, and transparent across banks, and
that an impact review process should be developed that identifies a
specific community need and requires banks to explain how they plan to
meet those needs. Yet another commenter suggested that the agencies
develop a way to define ``credit deserts'' where banks can receive
extra credit even if the bank does not maintain a branch office in that
community.
Credit for outside assessment area community development loans,
investments, and services--small banks, intermediate banks, and
strategic plan banks. Commenters also responded to the agencies'
request for comment on whether all banks should have the option to have
community development loans, investments, and services outside of
facility-based assessment areas considered, including intermediate
banks, small banks, and banks that elect to be evaluated under a
strategic plan. All commenters addressing this question supported
giving banks the option to have CRA consideration outside of facility-
based assessment areas regardless of a bank's size or whether the bank
elects to be evaluated under a strategic plan. Many of these commenters
stated that the final rule should encourage as much community
development activity as possible, indicating that there is little or no
reason to limit consideration of community development activities
outside of assessment areas only to large, wholesale, and limited
purpose banks.
A few commenters emphasized that consideration of community
development activities outside of a bank's assessment areas would be
beneficial to small banks. A commenter indicated that small lenders are
often in the best position to engage in loans, investments, or services
in underserved areas. Another commenter stated that smaller banks may
struggle to find community development opportunities, particularly when
they have smaller assessment areas.
Final Rule
The agencies are adopting proposed Sec. __.18, renumbered as final
Sec. __.19, with certain revisions discussed below. Final Sec. __.19
states that the agencies may consider a bank's community development
loans, community development investments, and community development
services provided outside of its facility-based assessment areas, as
provided in the agencies' CRA regulations. Relative to the proposal,
the final rule expands application of this provision to include small
and intermediate banks that do not opt into the Community Development
Financing Test. With this expanded eligibility, the final rule in Sec.
__.19 eliminates the proposed cross references to proposed Sec. Sec.
__.21, __.24 through __.26, and __.28 and proposed appendices C and D
in proposed Sec. __.18. This change, which is also discussed in the
section-by-section analysis of Sec. __.29 (regarding small bank
performance evaluation) and the section-by-section analysis of Sec.
__.30 (regarding intermediate bank performance evaluation), allows any
bank the ability to receive consideration for qualifying community
development activities outside of its facility-based assessment areas
without regard to asset size or business model.
In adopting the final rule approach, the agencies considered
several potential benefits of broadening the geographic scope of
community development loans, investments, and services relative to the
current approach. As noted by some commenters, the agencies are aware
that community development opportunities in certain areas may be
limited or subject to competition among banks. Principally, the
agencies believe that the final rule approach will: (1) allow
appropriate flexibility for banks to conduct community development
loans, investments, and services in a variety of geographic areas; (2)
help banks receive consideration for community development activities
in areas with significant unmet credit needs, including areas where few
banks maintain deposit-taking facilities; and (3) allow banks to
identify community development opportunities that align with their
business model and expertise, including opportunities outside of a
bank's facility-based assessment areas.
The final rule approach builds on and provides greater certainty
than the
[[Page 6766]]
current approach, which, as noted, considers a bank's community
development activities outside of facility-based assessment areas only
for activities with a purpose, mandate, or function that includes
serving geographic areas or individuals in the bank's assessment areas;
or if activities benefit a broader statewide or regional area and the
bank has been responsive to community development needs and
opportunities in its assessment areas.\682\ Under the final rule
approach, banks evaluated under the Community Development Financing
Test in Sec. __.24 or Community Development Financing Test for Limited
Purpose Banks in Sec. __.26 will receive consideration for eligible
community development activities, regardless of the geographic scope of
the activities. These performance tests emphasize meeting the community
development needs of facility-based assessment areas while also
considering activities outside of these areas. Thus, the agencies do
not believe that a condition of having met the needs of facility-based
assessment areas is necessary because a bank's performance within
facility-based assessment areas will always be separately taken into
account under the Community Development Financing Test and Community
Development Financing Test for Limited Purpose Banks.\683\ In contrast,
for small banks, the final rule retains conditions on the consideration
of community development activities outside of facility-based
assessment areas that are similar to the current approach, as discussed
further below. Under the final rule, community development activities
for intermediate banks will also be considered regardless of the
geographic scope of the activities. However, the extent of that
consideration will depend on how well the intermediate bank has met the
needs of their facility-based assessment areas.
---------------------------------------------------------------------------
\682\ See Q&A Sec. __.12(h)-6.
\683\ For further detail on these tests, see the section-by-
section analyses of final Sec. Sec. __.24 and __.26. See also final
Sec. __.25 (Community Development Services Test) and the
accompanying section-by-section analysis.
---------------------------------------------------------------------------
The agencies also considered the benefits of the final rule
approach of considering community development activities outside of
facility-based assessment areas for banks with a variety of business
models. For example, the agencies believe that expanded geographic
eligibility of community development activities will support banks that
operate primarily or entirely without branches since these banks may
have fewer community development opportunities within their facility-
based assessment areas.
The final rule approach revises the proposed language from stating
that a bank ``will'' receive consideration for activities outside of
its facility-based assessment areas in proposed Sec. __.18 to instead
stating that a bank ``may'' receive consideration for these activities
in final Sec. __.19. This change reflects the consideration of
community development activities for small banks. For these banks,
consideration of community development loans, investments, and services
outside of facility-based assessment areas is dependent on other
factors. Under Sec. __.29(b), the agencies may adjust the rating of a
small bank evaluated under the Small Bank Lending Test from
``Satisfactory'' to ``Outstanding'' at the institution level based on
making community development investments and providing community
development services without regard to whether the activity is in one
or more of the bank's facility-based assessment areas. Thus, in effect,
the small bank would have to perform well in serving community credit
needs in its facility-based assessment areas before receiving
additional credit for community development activities irrespective of
geographic location. Accordingly, for a small bank with an institution
rating of ``Needs to Improve,'' community development investments and
services would not be considered, including those outside of the bank's
facility-based assessment areas. Moreover, as detailed in Sec.
__.30(a)(2)(ii) of the final rule for intermediate banks evaluated
under the Intermediate Bank Community Development Test, the extent of
the consideration of community development activities outside of the
bank's facility-based assessment area(s) will depend on the adequacy of
the bank's responsiveness to the needs and opportunities for community
development activities within the bank's facility-based assessment
areas and applicable performance context information.
Final Sec. __.19 does not limit the geographic areas outside of
facility-based assessment areas in which community development loans,
investments, and services can receive consideration, as suggested by
some commenters noted above. For example, final Sec. __.19 does not
restrict consideration for community development to only specific
geographic areas identified under the proposed community development
impact and responsiveness review factors, or to only Native lands, the
Mississippi Delta, Central Appalachia, and the Texas-Mexico border, as
some commenters suggested. The agencies believe that this suggested
approach would limit community development opportunities, particularly
for banks without access or relationships with community development
providers in these areas. More generally, the agencies believe that
limiting consideration of community development loans, investments, and
services outside of facility-based assessment areas to any geographic
areas could restrict the flow of community development financing to any
area that has not been designated as eligible to receive consideration
for community development.
Relatedly, under final Sec. __.19 banks will not be required to
delineate specific geographic areas outside facility-based assessment
areas in which to make community development loans, investments, and
services, as suggested by some commenters. The agencies believe that
prescriptive delineated areas would inappropriately constrain bank
flexibility to pursue community development activities where the need
is greatest. In determining not to adopt this suggestion, the agencies
also weighed the comments that banks may not be able to fully
anticipate in advance where community development needs and
opportunities may be available.
Under final Sec. __.19, the agencies are also not establishing
restrictions on the consideration of community development loans,
investments, or services conducted outside of facility-based assessment
areas for certain types of activities, as suggested by some commenters.
For example, the final rule does not limit credit for LIHTC investments
outside of facility-based assessment areas to the greater statewide or
regional area in which the bank has a presence, and does not limit
consideration of activities outside of facility-based assessment areas
to those that expand affordable housing investments in underserved CRA
markets. The agencies believe that the final rule approach allows banks
to identify community development opportunities where its business
model, strategy, and expertise are well aligned with a community need.
The agencies considered, but are not adopting, commenter
suggestions to allow consideration of activities outside of facility-
based assessment areas only if the bank provides evidence to the
agencies that the bank had unsuccessfully bid on multiple community
development financing activities within their facility-based assessment
areas. The agencies considered that this approach may help
[[Page 6767]]
to encourage banks to prioritize seeking out opportunities within their
facility-based assessment areas. However, the agencies determined that
the approach might be difficult to enforce and increase burden as a
result of additional documentation requirements, and may result in
banks expending resources pursuing community development opportunities
that are already being met by other banks in the area.
The agencies also considered suggestions to limit consideration of
community development activities outside of facility-based assessment
areas to instances in which a bank received a certain overall rating,
or Community Development Financing Test conclusion on its previous CRA
examination, such as ``Satisfactory'' or ``Low Satisfactory.'' As noted
above and in the section-by-section analyses of Sec. Sec. __.29 and
__.30, the final rule includes similar provisions for evaluating
community development performance under the small and intermediate bank
performance evaluations, but applied to the bank's current, rather than
prior, evaluation period. Specifically, for a small bank, community
development investments and services inside or outside of a bank's
facility-based assessment area are considered only for potentially
enhancing the bank's overall rating from a ``Satisfactory'' to an
``Outstanding.'' For intermediate banks evaluated under the
Intermediate Bank Community Development Test, community development
activities outside of facility-based assessment areas are considered
without regard to whether the activity is made in one or more of the
bank's facility-based assessment areas; any additional consideration to
adjust a bank's rating will depend on the adequacy of the bank's
responsiveness to community development needs and opportunities within
its facility-based assessment areas and applicable performance context
information. The agencies believe that it is preferable to apply these
conditions to the current evaluation period, rather than the prior
evaluation period, to ensure that a bank's community development
activities are evaluated in relation to the needs and opportunities
that existed when the bank conducted these activities.
The final rule approach does not adopt alternative suggestions to
assign only partial credit for community development activities
conducted outside of a bank's facility-based assessment areas, or to
weight such activities less than activities inside facility-based
assessment areas. However, the final rule includes specific weighting
of facility-based assessment area conclusions on the Community
Development Financing Test, the Community Development Financing Test
for Limited Purpose Banks, and the Community Development Services Test,
as described further in the section-by-section analysis of final Sec.
__.28.
Section __.21 Evaluation of CRA Performance in General
Under the current CRA regulations, the examination process is
tailored to a bank's asset size and business model.\684\ Large banks
are evaluated under three performance tests: \685\ a lending test,
which assesses retail and community development loans; \686\ an
investment test,\687\ which assesses community development investments;
and a service test, which assesses retail services and community
development services.\688\ Intermediate small banks are evaluated under
a lending test and a community development test, which assesses
community development loans, community development investments, and
community development services.\689\ Small banks are evaluated under a
single lending test.\690\ Both intermediate small banks and small banks
may elect to be evaluated under the large bank performance tests if
they collect and report the CRA data required of large banks.\691\
Wholesale and limited purpose banks are evaluated under a single
community development test, which assesses community development loans,
community development investments, and community development
services.\692\ In addition, any bank may seek agency approval to be
evaluated under a strategic plan.\693\
---------------------------------------------------------------------------
\684\ See generally current 12 CFR __.12 and __.21 through
__.27.
\685\ See current 12 CFR __.21(a)(1).
\686\ See current 12 CFR __.22.
\687\ See current 12 CFR __.23.
\688\ See current 12 CFR __.24.
\689\ See current 12 CFR __.21(a)(1) and __.26(a)(2).
\690\ See current 12 CFR __.21(a)(1) and __.26(a)(1).
\691\ See current 12 CFR __.21(a)(3).
\692\ See current 12 CFR __.21(a)(2) and __.25.
\693\ See current 12 CFR __.21(a)(4) and __.27.
---------------------------------------------------------------------------
In recognition of the importance that bank size, business model,
and local conditions play when evaluating a bank's CRA performance, the
agencies proposed tailoring the CRA evaluation framework based on three
updated bank size categories for large banks, intermediate banks, and
small banks. The agencies also proposed a tailored approach to
evaluations for wholesale banks, limited purpose banks, and banks
operating under an approved strategic plan. Overall, proposed Sec.
__.21 described the following: performance standards for each bank
category; treatment of bank subsidiaries, affiliates, consortia, and
third parties; performance context information that would be considered
in CRA evaluations; categories for bank conclusions and ratings; and
the requirement that bank CRA activities be conducted in a safe and
sound manner.
The agencies are finalizing Sec. __.21 with non-substantive
changes. Specifically, the agencies are: revising the section heading
and, as necessary, paragraph headings; streamlining the regulation
text, including removing proposed Sec. __.21(a) from the final rule as
duplicative; removing duplicative information from final Sec. __21(e);
adding section headings and cross-references for clarity and ease of
reference; and making other clarifying and conforming changes.
Section __.21(a) Application of Performance Tests and Strategic Plans
Current Approach
Similar to the current CRA regulations, the agencies set out an
evaluation framework in proposed Sec. __.21(a) and (b) that is
tailored to a bank's asset size and business model.\694\ As explained
below, the agencies are finalizing the broader evaluation framework as
proposed, with modifications to the individual performance tests and
standards.
---------------------------------------------------------------------------
\694\ See proposed Sec. __.21(a) and (b); see also proposed
Sec. Sec. __.12 and __.22 through __.29.
---------------------------------------------------------------------------
Section __.21(a)(1) Large Banks
The Agencies' Proposal
In Sec. __.21(b)(1), the agencies proposed to apply four
performance tests to large banks: the Retail Lending Test in proposed
Sec. __.22; the Retail Services and Products Test in proposed Sec.
__.23; the Community Development Financing Test in proposed Sec.
__.24; and the Community Development Services Test in proposed Sec.
__.25. The agencies intended that each of these performance tests would
measure a different aspect of how responsive a bank's retail and
community development activities are to the credit needs of the bank's
communities.
As discussed in more detail in the section-by-section analysis of
the Retail Lending Test in Sec. __.22, the agencies proposed that the
Retail Lending Test rely on a set of metrics and community and market
benchmarks grounded in local data to measure how well a bank's retail
lending meets the credit needs of
[[Page 6768]]
low- and moderate-income individuals, small businesses and small farms,
and low- and moderate-income geographies through an analysis of lending
volume and geographic and borrower lending distributions.\695\ More
specifically, the agencies proposed that the bank's retail lending
distribution metrics, calculated using the bank's number of loans, be
compared to community and market benchmarks.\696\ The agencies also
proposed that additional factors be considered when evaluating a bank's
retail lending performance.\697\ The agencies proposed that conclusions
for the Retail Lending Test be assigned for each of a large bank's
facility-based assessment areas, retail lending assessment areas, and
outside retail lending area, as well as at the State, multistate MSA,
and institution levels, as applicable.\698\
---------------------------------------------------------------------------
\695\ See proposed Sec. __.22(d) and proposed appendix A.
\696\ See id.
\697\ See proposed Sec. __.22(e).
\698\ See proposed Sec. __.22(f)(1).
---------------------------------------------------------------------------
The agencies proposed that the Community Development Financing Test
assess how well a bank meets community development financing needs,
using dollar-based metrics and benchmarks to standardize the review of
community development loans and community development investments,
while also incorporating a qualitative impact review of community
development financing activities to complement the metrics and
benchmarks.\699\ Conclusions would reflect the agencies' qualitative
assessments of a bank's community development financing metric relative
to the benchmarks and the impact review. The proposed conclusions for
the Community Development Financing Test would be assigned for each of
a bank's facility-based assessment areas, States, and multistate MSAs,
and at the institution level, as applicable.\700\
---------------------------------------------------------------------------
\699\ See generally proposed Sec. __.24 and proposed appendix
B.
\700\ See proposed Sec. __.24(d)(1).
---------------------------------------------------------------------------
The agencies' proposed Retail Services and Products Test and
Community Development Services Test would evaluate how well a bank's
products and services, respectively, meet community credit and
community development needs.\701\ The agencies proposed revised
standards for these performance tests to reflect changes in banking
over time and to introduce standardized metrics,\702\ as well as
benchmarks for the Retail Services and Products Test,\703\ to allow a
more consistent evaluation approach. For both performance tests, the
proposed conclusions would be assigned for each of a bank's facility-
based assessment areas, States, and multistate MSAs, and at the
institution level, as applicable.\704\
---------------------------------------------------------------------------
\701\ See generally proposed Sec. __.23, proposed appendix A,
proposed Sec. __.25, and proposed appendix B.
\702\ See generally proposed Sec. Sec. __.23 and __.25.
\703\ See proposed Sec. __.23(b)(1)(i)(B).
\704\ See proposed Sec. Sec. __.23(d)(1) and __.25(e)(1).
---------------------------------------------------------------------------
To reflect the increased resources and capacity of large banks that
had assets greater than $10 billion, the agencies proposed additional
tailoring of the Retail Services and Products Test, the Community
Development Services Test, and the data collection and reporting
requirements.\705\ For large banks that had assets greater than $10
billion, the agencies proposed requiring a full evaluation under the
Retail Services and Products Test, including the bank's digital and
other delivery systems \706\ and deposit products responsive to the
needs of low- and moderate-income individuals.\707\ Similarly, for the
Community Development Services Test, the agencies proposed that only
large banks that had assets of more than $10 billion would be required
to be evaluated under a community development service hours
metric.\708\
---------------------------------------------------------------------------
\705\ See generally proposed Sec. Sec. __.23, __.25, and __.42.
\706\ See proposed Sec. __.23(b)(3).
\707\ See proposed Sec. __.23(c)(2).
\708\ See proposed Sec. __.25(b)(2).
---------------------------------------------------------------------------
In addition to requiring large banks that had assets greater than
$10 billion to collect and maintain data for digital and other delivery
systems and responsive deposit products,\709\ the agencies also
proposed that these banks collect, maintain, and report deposits,\710\
community development services,\711\ and automobile lending data.\712\
---------------------------------------------------------------------------
\709\ See proposed Sec. __.42(a)(4)(ii) and (iii).
\710\ See proposed Sec. __.42(a)(7) and (b)(5).
\711\ See proposed Sec. __.42(a)(6) and (b)(4).
\712\ See proposed Sec. __.42(a)(2) and (b)(2).
---------------------------------------------------------------------------
Comments Received
The agencies received numerous comments on the application of the
four proposed tests to large banks. Many commenters offered general
support for the proposed four-test framework, with reasons for support
including increased test rigor, additional quantitative standards for
assessing performance, and permitting a more comprehensive evaluation
of CRA activities.
Many commenters also stated that the proposed four-performance test
framework for large banks offered significant improvements in
performance test rigor, but that the improvements are not consistent.
In particular, some commenters were concerned that the Retail Services
and Products Test, the Community Development Financing Test, and the
Community Development Services Test may replicate the high pass rates
and ratings that banks currently receive, leading to ``grade
inflation,'' and may not necessarily reveal significant distinctions in
performance. These commenters suggested that the agencies extend the
rigor of the Retail Lending Test to the other three performance tests.
To guard against ratings inflation and ensure test rigor, several
commenters recommended that the agencies develop guidelines for
examiners on how to use the performance measures for some of the large
bank performance tests such as the Community Development Financing Test
and the Community Development Services Test.
Some commenters made recommendations to the agencies to revise the
proposed large bank framework of performance tests by adding to,
eliminating, or reconfiguring one or more of the four performance
tests. A commenter expressed support for the current large bank three-
performance-test evaluation regime with distinct lending, investment,
and service tests, stating that this three-performance-test regime is a
more equitable method to measure CRA performance; prevents bank
lending, investment, and services from competing against each other for
supremacy; and ensures that banks continue to have a focused incentive
to meet the needs of low- and moderate-income communities.
Some commenters suggested that the agencies eliminate the Community
Development Services Test after combining it with the Retail Lending
Test, the Community Development Financing Test, the Retail Services and
Products Test, or a combination of the performance tests. These
commenters explained that: the proposed Community Development Services
Test was not sufficiently weighted by itself to incentivize bank
performance; the proposed eligible service activities are limited and
had minimal impacts; and the activities that would be evaluated under
the performance test would be better allocated to either the Community
Development Financing Test or the Retail Services and Products Test.
For large banks, a commenter suggested that the agencies should
consider combining the Community Development Financing Test and the
Community Development Services Test, and separately combining the
Retail Lending Test and the Retail Services and Products Test, with
each
[[Page 6769]]
combined performance test having a 50 percent weight.
Another commenter suggested that the agencies make the Community
Development Services Test more of a ``tie-breaker'' by providing
minimal credit for community development services. Another commenter
suggested that the agencies eliminate the Community Development
Services Test in full and instead evaluate these services as an impact
review factor.
A few commenters suggested that the agencies maintain separate
evaluations for community development lending and community development
investments. The commenters stated that, by combining community
development lending and community development investment into a single
performance test, banks may retreat from investments because they can
be more complex and provide a lower rate of return than community
development lending. For similar reasons, a commenter recommended that
the agencies create a lending subtest and an equity investment subtest
within the Community Development Financing Test with equal weighting
for both subtests.
Many commenters offered suggestions on additional tailoring for the
large bank performance test framework. For example, a few commenters
suggested that large banks that had less than $10 billion in assets
should have the ability to choose an evaluation under the proposal or
under the current examination framework.
Many commenters objected to the fact that, under the proposal,
large banks that had assets between $2 billion and $10 billion would
have different and lesser obligations compared to banks that had over
$10 billion in assets. These differences existed within: (1) the Retail
Services and Products Test with respect to the evaluation of digital
and other delivery systems and the evaluation of deposit products
responsive to the needs of low- and moderate-income individuals; (2)
the Community Development Services Test with respect to the metric for
community development services hours; and (3) the related data
requirements for retail services and products, community development
services, and deposits. These commenters stated that financial
institutions classified as a large bank should have all the CRA
responsibilities of a large bank with no differential treatment.
Final Rule
After considering these comments, the agencies are finalizing the
overall evaluation framework for large banks as proposed with the four
performance tests described above. Under Sec. __.21(a)(1) of the final
rule, large banks are subject to: the Retail Lending Test in final
Sec. __.22; the Retail Services and Products Test in final Sec.
__.23; the Community Development Financing Test in final Sec. __.24;
and the Community Development Services Test in final Sec. __.25.
However, as discussed in the section-by-section analysis to final Sec.
__.28, ``Assigned Conclusions and Ratings,'' the agencies are revising
the weight of each of the four performance tests so that the two retail
performance tests and the two community development performance tests
collectively each have a respective weight of 50 percent.
The agencies note that, rather than three performance tests under
the current rule, they proposed the four performance tests for large
banks to more easily tailor examinations by bank asset size and
business model. This tailoring allows the agencies to use specific data
for each performance test, including data which are already available.
Further, the agencies believe that each individual performance test
measures a unique aspect of how responsive a bank's retail and
community development activities are to the credit needs of their
communities, and that collapsing one or more of the performance tests
to evaluate lending, investment, and services would result in a less
robust large bank evaluation framework. Retaining the Community
Development Services Test and the Retail Services and Products Test as
separate performance tests for large banks appropriately emphasizes
large bank service performance under each respective performance test.
Maintaining the Community Development Financing Test and Community
Development Services Test as separate performance tests underscores the
importance of community development services for fostering partnerships
among different stakeholders, building capacity, and creating the
conditions for effective community development, including in rural
areas. Further, the Community Development Financing Test and the
Community Development Services Test each evaluate different aspects of
the responsiveness of a bank's community development activities to the
credit needs of its local communities. Maintaining two separate
community development performance tests in the final rule emphasizes
the benefits and importance of community development financing
activities and community development services and acknowledges that, in
comparison to smaller banks, large banks have additional capacity to
conduct both types of activities.
The agencies are not adopting the suggestions to make the Community
Development Services Test more of a ``tie-breaker'' or to instead
evaluate community development services as an impact review factor
because these suggestions are inconsistent with the agencies' intent to
emphasize the significance of community development service activities,
as noted above.
The agencies are keeping the evaluation of both community
development lending and community development investments activities
under the Community Development Financing Test. The agencies
acknowledge the importance of investments, such as the LIHTC, to help
support the creation of affordable rental housing. For that reason, as
discussed in the section-by-section analysis of Sec. __.24, the final
rule establishes a separate community development investment metric in
Sec. __.24(e)(2)(iii) and (iv) to identify and consider these types of
investment activities within the broader performance test. With this
addition, the agencies believe that these activities can be evaluated
in a single performance test without a diminution of either lending or
investments. In addition, if the agencies observe any developments in
which banks favor community lending or community investments to a point
where there is an appreciable decline in one type of activity in favor
of the other, the agencies will reevaluate whether any additional
measures are needed, such as separate tests or distinct evaluations of
each activity under the same test. However, agency experience does not
indicate that the de-emphasis of community development lending or
community investment under a single test is likely to be a significant
concern as evidenced by the current intermediate small bank community
development test which evaluates both loans and investments.
Further, the agencies believe that the proposed four performance
test framework for large banks, which uses objective and quantitative
measures to inform bank performance conclusions and ratings and reduces
potential opportunities for subjective judgment, is appropriately
calibrated to evaluate the performance of large banks. Specifically,
the framework uses metrics and benchmarks to evaluate community
development loans and investments under the Community Development
Financing Test and bank delivery systems under the Retail Services and
Products Test. The Retail Lending Test
[[Page 6770]]
uses distribution metrics and benchmarks to make evaluations more
transparent, including by specifying quantitative standards for lending
consistent with achieving, for example, a ``Low Satisfactory'' or
``Outstanding'' conclusion in a Retail Lending Test Area. Although the
Community Development Services Test adopted in the final rule does not
include any metrics or benchmarks, the agencies' supervisory experience
will permit the use of the information and data evaluated under the
performance test to make meaningful distinctions in bank performance.
Further explanation of this change is discussed in the section-by-
section analysis of Sec. __.25.
The agencies agree with commenters' perspective with respect to
developing guidelines for examiners on how to use the performance
measures for some of the large bank performance tests. As the agencies
implement the final rule, they will consider what internal guidance
will be helpful for agency staff to accurately evaluate bank
performance.
In connection with each applicable performance test, the agencies
considered the possibility of fully eliminating the proposed
distinctions between large banks that had assets greater than $10
billion and large banks that had assets between $2 billion and $10
billion in the final rule, as requested by some commenters. While all
of these proposed distinctions are not finalized,\713\ the agencies are
adopting some of the proposed distinctions in the final rule because
the agencies find that, although it is appropriate to apply all four
performance tests to large banks that had assets less than $10 billion
in assets, large banks that had assets between $2 billion and $10
billion have a more limited capacity to comply with some requirements
and data provisions in comparison to their counterparts that had assets
greater than $10 billion. These provisions include the consideration of
digital delivery systems, other delivery systems, and deposit products
responsive to the needs of low and moderate-income individuals under
the Retail Services and Products Test \714\ as well as the data
requirements with respect to digital delivery systems, other delivery
systems, and deposits.\715\ Further, the agencies believe that large
banks that had assets greater than $10 billion is an appropriate
threshold at which to apply the additional requirements described
above. All three of the agencies have considerable experience in using
$10 billion in bank assets as a demarcating boundary for heightened
supervisory expectations or additional requirements.\716\ Furthermore,
the agencies note that Federal legislation also uses $10 billion in
bank assets on a frequent basis as a threshold for making certain
requirements applicable to financial institutions.\717\ Finally, the
agencies note that, under the final rule, large banks that had assets
between $2 billion and $10 billion may opt into any of the proposed
requirements applicable to large banks that had assets greater than $10
billion. For example, a large bank with assets between $2 billion and
$10 billion may opt to collect and maintain deposits data that is
required for large banks that had assets greater than $10 billion.
---------------------------------------------------------------------------
\713\ Provisions include the Bank Assessment Area Community
Development Service Hours Metric for the Community Development
Services Test that the agencies did not adopt from the proposal,
along with the associated data collection, maintenance, and
reporting requirements. The agencies also did not adopt the proposed
distinction with respect to the requirement to collect, maintain,
and report automobile lending data and replaced it instead with a
requirement to collect the data if automobile loans are a product
line for the bank.
\714\ See final Sec. __.23(b)(1)(iii), (b)(4), (c)(1)(ii), and
(c)(3).
\715\ See final Sec. __.42(a)(4)(ii) and (iii), (a)(7), and
(b)(3).
\716\ See, e.g., Board, ``Community & Regional Financial
Institutions'' (Sept. 15, 2021), https://www.federalreserve.gov/supervisionreg/community-and-regional-financial-institutions.htm
(indicating that the Board ``defines community banking organizations
as those with less than $10 billion in assets'' for general
supervisory purposes); OCC, ``Community Bank Supervision'' (Sept.
30, 2019), https://www.occ.gov/publications-and-resources/publications/comptrollers-handbook/files/community-bank-supervision/pub-ch-community-bank-supervision.pdf (providing that ``banks with
assets of $10 billion or less are'' typically ``characterized as
community banks'' as a general supervision category); 12 CFR
327.8(f) and 327.16(b) (FDIC regulations generally defining a large
institution as a ``depository institution with assets of $10 billion
or more'' and using a separate methodology to calculate risk-based
deposit insurance assessments for the Deposit Insurance Fund).
\717\ See, e.g., 12 U.S.C. 1851(h)(1)(B) (making the Volcker
Rule requirements applicable to banks with more $10 billion in total
consolidated assets) and 12 U.S.C. 5515 (providing the CFPB with
authority to examine banks with more than $10 billion to assess
compliance with Federal consumer finance laws); 15 U.S.C. 1693o-
2(a)(6) (exempting banks with less than $10 billion in assets from
regulations on interchange transaction fees with respect to an
electronic debit transaction).
---------------------------------------------------------------------------
The agencies also considered the suggestion that large banks that
had assets less than $10 billion should have the ability to choose an
evaluation under the proposal or under the current examination
framework. However, implementing this suggestion could remove a
significant number of large banks that play a significant role in
fulfilling low- and moderate-income credit needs in local areas from
the more comprehensive evaluation included in the final rule's large
bank evaluation approach. The agencies estimate that there are
approximately 372 banks that had assets between $2 billion and $10
billion, representing approximately 8.0 percent of all banks with CRA
obligations and 7.3 percent of deposits.\718\ In addition, the agencies
continue to believe that, with appropriate tailoring incorporated in
the final rule for large banks that had assets between $2 billion and
$10 billion, these banks otherwise have the requisite capacity to
engage in the range of activities that will be evaluated under the
proposed four performance test framework.
---------------------------------------------------------------------------
\718\ These numbers are based on 2021 and 2022 Call Report data.
---------------------------------------------------------------------------
Section __.21(a)(2) Intermediate Banks
The Agencies' Proposal
In Sec. __.21(b)(2), the agencies proposed that intermediate banks
be evaluated under the following tests: (1) the Retail Lending Test
applicable to all intermediate banks; and (2) either the current
intermediate small bank community development test in proposed Sec.
__.29(b)(2) as a default or, at the bank's option, the Community
Development Financing Test. The agencies explained in the proposal that
intermediate banks would be evaluated under the Retail Lending Test to
improve clarity, consistency, and transparency in the evaluation of
retail lending, and provided options for community development
evaluation in recognition of the fact that, in comparison to large
banks, intermediate banks have a relatively more limited capacity to
conduct community development activities.
Under proposed Sec. __.21(b)(2)(ii)(A), if an intermediate bank
chose to be evaluated under the Community Development Financing Test,
the agencies would continue to evaluate the bank under the performance
test until the bank opted out. Proposed Sec. __.21(b)(2)(ii)(B)
provided that the agencies may adjust an intermediate bank's
institution rating from ``Satisfactory'' to ``Outstanding'' if the
bank: (1) chose to be evaluated under the Community Development
Financing Test; (2) requested additional consideration for activities
that qualify under the Retail Services and Products Test or the
Community Development Services Test; and (3) the bank would have
received a ``Satisfactory'' before the additional consideration.
Similar to the current CRA requirements, the proposal would not
have required intermediate banks to collect or report any additional
data.\719\
[[Page 6771]]
However, when an intermediate bank chose to be evaluated under the
Community Development Financing Test, it would be required to collect
and maintain the same data required of large banks for community
development loans and community development investments, but in the
format used by the bank in the normal course of business, until the
completion of the bank's next CRA examination.\720\
---------------------------------------------------------------------------
\719\ See proposed Sec. __.42.
\720\ See proposed Sec. __.42(a)(5)(i)(B).
---------------------------------------------------------------------------
Comments Received
The agencies received numerous comments on the application of the
tests to intermediate banks. Some commenters supported the agencies'
proposal for intermediate banks because it provided important
flexibilities, specifically stating that the ability to opt into the
Community Development Financing Test appropriately balances regulatory
burden.
Other commenters suggested additional changes for the intermediate
bank performance evaluation framework. A few commenters requested that
the final rule give intermediate banks the ability to also opt into the
Retail Lending Test. Some commenters recommended that intermediate
banks should have the option to continue to be evaluated under all of
the current standards applicable to intermediate small banks, including
the current small bank lending test.
With respect to the evaluation of intermediate bank community
development loans, investments, and services, commenters offered a
variety of perspectives. A few commenters stated that community
development services should be a mandatory part of the intermediate
bank community development evaluation. Some commenters stated that the
same community development obligations that apply to large banks should
apply to all banks, an approach that would include all intermediate
banks under the Community Development Financing Test and Community
Development Services Test. A commenter suggested that intermediate
banks should be required to be evaluated under a Community Development
Financing Test and a Community Development Services Test that are
customized for intermediate banks.
A commenter stated that all banks, including intermediate banks,
should have essential retail service activities reviewed, including but
not limited to the accessibility of their products, services, and
branch network for low- and moderate-income individuals and
communities.
Another commenter recommended that the agencies provide more
guidance on how community development services could optionally be
incorporated into the evaluations of intermediate banks.
Final Rule
After considering the comments, the agencies are adopting the
evaluation framework for intermediate banks as proposed. Specifically,
Sec. __.21(a)(2)(i) of the final rule provides that the agencies will
evaluate intermediate banks under the Retail Lending Test in Sec.
__.22 and the Intermediate Bank Community Development Test in Sec.
__.30(a)(2) (renamed from the ``intermediate bank community development
evaluation'' in the proposal), unless an intermediate bank chooses to
have its community development loans and investments evaluated under
the Community Development Financing Test in Sec. __.24. Final Sec.
__.21(a)(2)(ii) provides that, if an intermediate bank opts to be
evaluated under the Community Development Financing Test, the agencies
will continue to evaluate the bank under the performance test until the
bank opts out; if the intermediate bank opts out of the Community
Development Financing Test, the agency reverts to evaluating the bank
pursuant to the Intermediate Bank Community Development Test, starting
with the evaluation period preceding the bank's next CRA examination.
Furthermore, final Sec. __.21(a)(2)(iii) provides that, pursuant to
final Sec. __.30(b), intermediate banks may request additional
consideration for the services and products that qualify under the
Retail Services and Products Test or the Community Development Services
Test. In contrast to proposed Sec. __.21(b)(2)(ii)(B), which provided
additional consideration only to intermediate banks choosing an
evaluation under the Community Development Financing Test, final Sec.
__.21(a)(2)(iii) permits additional consideration for any intermediate
bank and references the substantive provisions concerning the
evaluation of intermediate banks.
As proposed, intermediate banks generally do not have any required
data collection, maintenance, or reporting requirements under the final
rule.\721\
---------------------------------------------------------------------------
\721\ The only exception is the requirement that if an
intermediate bank chooses to be evaluated under the Community
Development Financing Test, it must collect and maintain community
development loans and community development investments data. See
final Sec. __.42(a)(5)(i)(B).
---------------------------------------------------------------------------
The agencies believe that applying the Retail Lending Test to
intermediate banks will improve the clarity, consistency, and
transparency of retail lending evaluations. Further, the agencies
believe it is appropriate to apply the Retail Lending Test to
intermediate banks because they generally have fewer capacity
constraints than small banks, putting them in a better position to
comply with Retail Lending Test requirements.
The agencies also note that various aspects of the Retail Lending
Test are tailored in the final rule to accommodate intermediate banks.
For example, relative to large banks, the final rule minimizes the data
intermediate banks must collect and maintain for evaluation under the
Retail Lending Test; \722\ limits the geographic scope in which the
performance test applies; \723\ and provides additional accommodations
for intermediate banks on various components of the test, such as the
Retail Lending Volume Screen.\724\
---------------------------------------------------------------------------
\722\ See generally final Sec. __.42(a) and (b) (primarily
exempting intermediate banks from the requirements to collect,
maintain, or report data used to assess Retail Lending Test
performance).
\723\ See final Sec. Sec. __.17 (making retail lending
assessment applicable to large banks only) and __.18 (exempting
intermediate banks and small banks that opt into the Retail Lending
Test from the outside retail lending area evaluation requirements if
more than 50 percent of the relevant loans were purchased or
originated inside the bank's facility-based assessment areas over
the previous two calendar years).
\724\ See final Sec. __.22(c)(3)(iii)(B) (intermediate banks
lacking an acceptable basis for not meeting the Retail Lending
Volume Screen in the facility-based assessment area receive a Retail
Lending Test recommended conclusion).
---------------------------------------------------------------------------
Commenters noted that the proposed the Retail Lending Test would
apply to some intermediate small banks that are currently evaluated
under the small bank lending test. However, the agencies are finalizing
the proposal to apply the Retail Lending to all intermediate banks to
confer greater clarity, consistency, and transparency to evaluations of
retail lending. The agencies believe this approach is appropriate
considering that some aspects of the Retail Lending Test are tailored
to intermediate banks. In making this decision, the agencies considered
whether banks with assets of more than $600 million in assets but less
than $1.503 billion could reasonably be expected to transition from the
status quo small bank lending test to the Retail Lending Test and have
determined that, based on supervisory experience, these banks have the
capacity and resources to comply with all applicable aspects of the
test.
[[Page 6772]]
The agencies considered whether they should require intermediate
banks to be evaluated under the Community Development Financing Test as
suggested by commenters. Although the agencies concluded that requiring
intermediate banks to participate in the Community Development
Financing Test provided the added benefit of metrics and benchmarks for
community development activities, the agencies also believe that the
additional burden from requiring the transition to the Community
Development Financing Test could not be justified for all intermediate
banks, some of which have more limited capacity.
The agencies also considered whether, similar to the approach taken
for the Retail Lending Test, they could tailor the Community
Development Financing Test for intermediate banks so that the
performance test could be applied to all intermediate banks. Although
the agencies saw potential in this approach, they were unable to make
modifications to the point that could simultaneously accommodate the
capacity constraints of some intermediate banks and maintain a set of
metrics and benchmarks that permitted a meaningful comparison amongst
all banks under the test. The agencies believe that the more prudent
approach in the final rule is to retain the Intermediate Bank Community
Development Test as the default evaluation method for intermediate
banks.
The agencies also considered whether the Community Development
Services Test should apply to intermediate banks as a required part of
their CRA performance evaluation. The agencies decided that the
application was not necessary. For intermediate banks subject to the
default Intermediate Bank Community Development Test, ``community
development services'' is already one of the four criteria described in
final Sec. __.30(a)(2), making simultaneous evaluation under the
Community Development Services Test redundant. The agencies also
explained in the proposal that, for the default evaluation, they would
retain the expectation that intermediate banks may not ignore one or
more of the categories of community development activities covered by
the criteria, such as community development services, and that the
appropriate levels of each activity would depend on the bank's capacity
and business strategy, along with community development needs and
opportunities that are identified by the bank.\725\ This expectation
also applies under the final rule.
---------------------------------------------------------------------------
\725\ See Q&A Sec. __.26(c)-1.
---------------------------------------------------------------------------
For intermediate banks choosing an evaluation under the Community
Development Financing Test, although community development services are
not evaluated under the performance test, the final rule permits these
banks to submit activities that qualify under the Community Development
Services Test for additional consideration if the bank has an overall
institution rating of ``Satisfactory.'' Although this does not make the
evaluation of community development services mandatory, the agencies
have decided that this tailoring is appropriate to avoid the
application of an additional new performance test for intermediate
banks with more pronounced capacity constraints than their large bank
counterparts. The agencies agree that additional guidance on how
community development services could optionally be incorporated into
the evaluations of intermediate banks may be appropriate, and will
consider issuing such guidance in the future.
Although the agencies do not believe that the Retail Services and
Products Test should be applied to all intermediate banks because of
capacity constraints, the agencies have created an evaluation framework
that allows the agencies to consider any retail services an
intermediate bank may conduct when certain conditions are met. An
intermediate bank evaluated under either the Intermediate Bank
Community Development Test or the Community Development Financing Test
may request additional consideration for retail banking services and
retail products and programs that qualify under the Retail Services and
Products Test, provided the bank achieves an overall institution rating
of at least ``Satisfactory.'' \726\
---------------------------------------------------------------------------
\726\ See final Sec. Sec. __.21(a)(2)(iii) and __.30(b)(2).
---------------------------------------------------------------------------
Section __.21(a)(3) Small Banks
The Agencies' Proposal
In Sec. __.21(b)(3)(i), the agencies proposed to evaluate small
banks under the current lending test for small banks as the default
evaluation method; however, small banks could opt instead to be
evaluated under the Retail Lending Test. The agencies explained in the
preamble to the proposed rule that this approach not only recognized
that small banks have capacity constraints and a more targeted focus on
retail lending than larger banks, but it also made a metrics-based
approach available to small banks as an option to increase the clarity,
consistency, and transparency of how their retail lending is evaluated.
If a small bank chose to be evaluated under the Retail Lending
Test, the agencies proposed in Sec. __.21(b)(3)(ii)(A) to evaluate the
small bank under all Retail Lending Test provisions applicable to an
intermediate bank, with the exception that no small bank would be
evaluated on its retail lending outside of its facility-based
assessment areas. This exception was intended by the agencies to tailor
the Retail Lending Test to small banks' more limited capacities.
Proposed Sec. __.21(b)(3)(ii)(B) provided that the agencies would
continue to evaluate a small bank that chose to be evaluated under the
Retail Lending Test under that performance test until the bank opted
out. If a small bank opted out of the Retail Lending Test, the agency
would revert to evaluating the bank under the small bank performance
standards as provided in proposed Sec. __.29(a), starting with the
entire evaluation period preceding the bank's next CRA
examination.\727\
---------------------------------------------------------------------------
\727\ See proposed Sec. __.21(b)(3)(ii)(B).
---------------------------------------------------------------------------
In addition, proposed Sec. __.21(b)(3)(ii)(C) provided that a
small bank that chose to be evaluated under the Retail Lending Test may
request additional consideration for activities that qualify under the
Retail Services and Products Test, the Community Development Financing
Test, or the Community Development Services Test and, after considering
the activities, the agencies may adjust the bank's rating from
``Satisfactory'' to ``Outstanding'' at the institution level.\728\
Guidance for the current regulations contains a similar provision with
respect to community development activities or retail services
activities.\729\
---------------------------------------------------------------------------
\728\ See also proposed Sec. __.29(a)(2).
\729\ See Q&A Sec. [thinsp]__.26(d)-1.
---------------------------------------------------------------------------
Similar to current CRA requirements, the agencies proposed that
small banks would have no prescribed data collection or reporting
requirements.\730\
---------------------------------------------------------------------------
\730\ See proposed Sec. __.42.
---------------------------------------------------------------------------
Comments Received
The agencies received many comments on the application of the
proposed test to small banks. Although some commenters supported the
proposed evaluation framework for small banks, other commenters
suggested alternative or additional performance tests. A commenter
suggested that the agencies apply the Retail Lending Test to all small
banks and, if necessary, provide accommodations, such as a longer
transition period. Another commenter
[[Page 6773]]
suggested that the final rule require the evaluation of small bank
retail service activities. A commenter requested that the final rule
apply the same community development obligations to small banks as to
large banks. Another commenter stated that the agencies should scale
community development activities appropriately for small banks, which
should not be totally exempt from having these activities evaluated. A
commenter recommended that the agencies provide more guidance on how
community development services could optionally be incorporated into
the evaluations of small banks. A commenter suggested that all banks,
including small banks, should have incentives to engage in community
development financing. Another commenter suggested that, at a minimum,
intermediate small banks under the current CRA regulations that become
small banks under the proposal should continue to have their community
development activities evaluated.
Final Rule
After considering the comments, the agencies are adopting the
performance test framework for small banks with some modifications to
accommodate other changes in the final rule. Specifically, Sec.
__.21(a)(3)(i) of the final rule provides that the agencies apply the
Small Bank Lending Test (renamed from the ``small bank performance
standards'' in the proposal) in final Sec. __.29(a)(2), unless the
bank opts to be evaluated under the Retail Lending Test in final Sec.
__.22. If a small bank opts to be evaluated under the Retail Lending
Test, final Sec. __.21(a)(3)(ii)(A) specifies that the agencies use
the same provisions used to evaluate intermediate banks pursuant to the
Retail Lending Test. As discussed further in the section-by-section
analysis of Sec. __.18 and, in comparison to the proposal, this
provision modifies the treatment of small banks evaluated under the
Retail Lending Test by extending uniform treatment to small banks and
intermediate banks with respect to the bank's outside retail lending
area.\731\ This modification ensures that small banks with significant
concentrations of home mortgage loans, multifamily loans, small
business loans, small farm loans, or automobile loans outside of their
facility-based assessment areas are subject to evaluation of any
product lines which meet the major product line standards, described
further in the section-by-section analysis of Sec. __.22.
---------------------------------------------------------------------------
\731\ See final Sec. __.18(a)(2); see also final appendix A,
paragraph II.a.2.
---------------------------------------------------------------------------
Final Sec. __.21(a)(3)(ii)(B) indicates that small banks that opt
to be evaluated under the Retail Lending Test will be evaluated under
this test for the evaluation period preceding the bank's next CRA
examination and will continue to be evaluated under that performance
test until the bank opts out; if the small bank opts out, the bank will
be evaluated under the Small Bank Lending Test, starting with the
evaluation period preceding the bank's next CRA examination.
In addition, final Sec. __.21(a)(3)(iii) provides that, pursuant
to final Sec. __.29(b), a small bank may request additional
consideration for loans, investments, services, products, and other
activities described in that paragraph. In contrast to proposed Sec.
__.21(b)(3)(ii)(C), which would have provided additional consideration
only to small banks choosing an evaluation under the Retail Lending
Test, final Sec. __.21(a)(3)(iii) permits additional consideration for
any small bank and references the substantive provisions concerning the
evaluation of small banks.
As proposed, and similar to the current CRA requirements, small
banks have no required data collection, maintenance, or reporting
requirements under the final rule.\732\
---------------------------------------------------------------------------
\732\ See final Sec. __.42.
---------------------------------------------------------------------------
The agencies decline to apply the Retail Lending Test to all small
banks because the agencies believe that providing small banks the
option to have their retail lending evaluated under either the Retail
Lending Test or the Small Bank Lending Test better recognizes the
capacity constraints of small banks. If a particular small bank prefers
to be evaluated under the Retail Lending Test's metrics-based approach,
the final rule provides the flexibility for that bank to be evaluated
under that performance test in a manner which accommodates the bank's
asset size.
The agencies also decline to apply the Community Development
Financing Test and the Community Development Services Test to small
banks because these performance tests are specifically tailored to
evaluate the community development loans, investments, and services of
larger banks. The Community Development Financing Test in the final
rule includes metrics and benchmarks primarily focused on the
performance of large banks; and both the Community Development
Financing Test and the Community Development Services Test require
banks to collect, maintain, or report data to assess bank performance.
The agencies do not believe that the benefit of imposing new community
development investment or community development service requirements on
small banks outweighs the potential burden that this change would
impose on those banks. However, in recognition of their limited
capacities, the agencies continue to believe that any considerations of
small bank community development loans, investments, or services should
be optional and that the better approach is to allow small banks the
ability to request additional consideration for any community
development loans, investments, or services they conduct. As described
in final Sec. __.29, the optional consideration of these community
development loans, community development investments, and community
development services will result in positive consideration only, so
that small banks that do not engage in (or do not receive additional
consideration for) these activities will not experience an adverse
assessment of their CRA performance.
The agencies note that they will consider providing guidance with
respect to how community development services could optionally be
incorporated into the evaluations of small banks, as recommended by a
commenter.
For similar reasons, the final rule does not require the evaluation
of a small bank's retail banking services or retail banking products.
Instead, small banks may request that the agencies consider retail
banking services or retail banking products that they provide. However,
given the limited capacity of small banks the agencies believe that it
would not be appropriate to impose a mandatory evaluation with respect
to small bank retail banking services or retail banking products
performance.
Section __.21(a)(4) Limited Purpose Banks
The Agencies' Proposal
The agencies proposed in Sec. __.21(b)(4)(i) to evaluate wholesale
and limited purpose banks under a Community Development Financing Test
for Wholesale and Limited Purpose Banks.\733\ The agencies proposed in
Sec. __.21(b)(4)(ii) to give wholesale and limited purpose banks the
option to have activities that qualify under the Community Development
Services Test considered for a possible adjustment from
``Satisfactory'' to ``Outstanding'' for the bank's overall institution
rating.
---------------------------------------------------------------------------
\733\ See also proposed Sec. __.26.
---------------------------------------------------------------------------
[[Page 6774]]
Comments Received
The agencies received many comments on the application of the
proposed test to wholesale and limited purpose banks. Commenters
expressed a variety of views on whether the wholesale and limited
purpose bank designations should continue with an independent test.
Several commenters expressed support for continued designations and
evaluations under a Community Development Financing Test for Wholesale
and Limited Purpose Banks because some banks have business models that
do not align with the proposal's otherwise generally applicable
performance tests based on asset size. These commenters also explained
that they supported continuation of the wholesale and limited purpose
bank category because these types of banks frequently have retail
products that represent minimal amounts in comparison to the bank's
loans or assets. Other commenters expressed concern that the proposed
wholesale and limited purpose bank designation and proposed performance
test could permit some banks to avoid evaluation of retail products,
such as credit cards.
Final Rule
After considering the comments, the agencies are adopting as
proposed the limited purpose bank provision in Sec. __.21(a)(4)(i) of
the final rule, with technical edits. As noted in the section-by-
section analysis to Sec. __.12, the agencies have combined the
``wholesale bank'' definition with the ``limited purpose bank''
definition and eliminated the former definition. Final Sec.
__.21(a)(4)(i) provides that limited purpose banks are evaluated
pursuant to the Community Development Financing Test for Limited
Purpose Banks in Sec. __.26. In Sec. __.21(a)(4)(ii), the final rule
provides that, pursuant to Sec. __.26(b)(2), a limited purpose bank
may request additional consideration for low-cost education loans and
services described in that paragraph. In contrast to proposed Sec.
__.21(b)(4)(ii), which provided additional consideration for wholesale
or limited purpose bank activities qualifying under the community
development services test, final Sec. __.21(a)(4)(ii) references the
substantive provisions concerning the evaluation of limited purpose
banks.
The agencies believe the limited purpose bank category and test
appropriately accommodates banks with unique business models and the
particular products they offer under those models by accurately
measuring a bank's volume of community development loans and
investments relative to its capacity. Because limited purpose banks do
not typically offer the loans evaluated under the Retail Lending Test,
the evaluation of the bank focused primarily on community development
loans and community development investments represents an effective
means to assess the bank's record of serving the credit needs of its
communities.
The agencies are sensitive to commenter concerns that the Community
Development Financing Test for Limited Purpose Banks should not become
a means for banks to avoid an evaluation of their retail lending
products that would otherwise be subject to an evaluation under the
Retail Lending Test. For that reason, the agencies have revised the
definition of ``Limited purpose bank'' in Sec. __.12 to only include
banks that do not offer the types of loans evaluated under the Retail
Lending Test or otherwise provide the loans solely on an incidental and
accommodation basis.
Section __.21(a)(5) Military Banks
The Agencies' Proposal
In addition to proposing a definition for the term ``military
bank'' in Sec. __.12, the agencies proposed in Sec. __.16(d) that
they would continue the practice of allowing a bank to delineate its
entire customer deposit base as its assessment area, provided that the
bank's business predominantly consists of serving the needs of military
personnel or their dependents who are not located within a defined
geographic area. While this aspect of the proposal preserved a
flexibility available to these banks that exists in the current CRA
regulations \734\ and is required by CRA statute,\735\ the agencies did
not comprehensively explain how this option would be operationalized
with respect to the applicable performance tests and standards. The
agencies also did not describe how they would approach the evaluation
of a military bank with a single assessment area.
---------------------------------------------------------------------------
\734\ See current 12 CFR __.41(f).
\735\ See 12 U.S.C. 2902(4).
---------------------------------------------------------------------------
Comments Received
On the issue of military banks as they relate to the overall
evaluation framework, a commenter stated that while military banks
should not necessarily be given a distinct bank classification, such as
was done in the proposal for wholesale and limited purpose banks, the
agencies should clarify that, in comparison to other banks, the
military banks' business models may be significantly more narrow in
scope. The commenter also indicated that the agencies should
accommodate the unique business models of military banks that are often
tailored to the specific needs of military and veteran communities.
Final Rule
In response to this comment, and to provide additional clarity
regarding the treatment of military banks in the final rule, the
agencies are adopting a new paragraph (a)(5) in Sec. __.21 of the
final rule.\736\ First, to clarify that military banks are not a
distinct bank category with their own unique set of performance tests,
final Sec. __.21(a)(5)(i) provides that the agencies evaluate a
military bank pursuant to the applicable performance tests described in
Sec. __.21(a); military banks are evaluated as a large bank,
intermediate bank, small bank, or limited purpose bank, as appropriate.
The agencies also note that, as with other banks, a military bank may
be evaluated pursuant to an approved strategic plan. Second, if a
military bank delineates the entire United States and its territories
as its sole facility-based assessment area pursuant to final Sec.
__.16(d), final Sec. __.21(a)(5)(ii) provides that the agencies
evaluate the bank exclusively at the institution level based on its
performance in its sole facility-based assessment area. This provision
is intended by the agencies to minimize potential ambiguity regarding
how the performance evaluation is conducted.
---------------------------------------------------------------------------
\736\ See also the section-by-section analysis of final Sec.
__.12 (discussing definition of ``military bank'').
---------------------------------------------------------------------------
The agencies considered commenter suggestions to accommodate
military bank business models. The agencies believe that by permitting
military banks to continue to designate a single facility-based
assessment area when their customer base is dispersed accommodates the
unique business model of these banks that is primarily focused on
meeting the credit needs of servicemembers, veterans, or their
dependents. In addition, the agencies believe that the performance
tests applicable to military banks permit a comprehensive evaluation of
the military bank's record of serving its communities. The agencies'
approach in the final rule also accommodates the ability of military
banks to designate a single facility-based assessment area.
Section __.21(a)(6) Banks Operating Under a Strategic Plan
The Agencies' Proposal
Proposed Sec. __.21(b)(5) retained the current rule's strategic
plan option by
[[Page 6775]]
providing that the agencies would evaluate the CRA performance of a
bank that chooses to be evaluated under a CRA strategic plan approved
under Sec. __.27 in accordance with the goals set forth in such
plan.\737\ The agencies explained that retaining this alternative
evaluation method would give banks flexibility to meet their CRA
obligations in a manner that is tailored to community needs and
opportunities as well as to their own capacities, business strategies,
and expertise. To ensure that banks evaluated under a strategic plan
meet their CRA obligations, the agencies proposed that the plans: (1)
in most circumstances, incorporate the metrics-based analysis of all of
the performance tests that would otherwise apply without a plan; \738\
(2) include the same geographic areas that would be included in the
absence of a plan; \739\ and (3) require banks to report the same data
required in Sec. __.42 as would be required in the absence of a
plan.\740\
---------------------------------------------------------------------------
\737\ See proposed Sec. Sec. __.21(b)(5) and __.27.
\738\ See proposed Sec. __.27(f)(1).
\739\ See proposed Sec. __.27(f)(2).
\740\ See proposed Sec. __.27(b).
---------------------------------------------------------------------------
Comments Received
Many commenters provided feedback on the proposed framework for
strategic plans. Almost all of these commenters expressed support for
the strategic plan option and recommended that the option remain
available to banks in a final rule. These commenters believed that the
strategic plan could be useful for many banks, especially banks with
unique business models or particular business strategies.
Another commenter, however, suggested that the agencies fully
eliminate the strategic plan option because it adds complexity to the
evaluation framework. This commenter questioned whether the option
should be kept if banks must keep the same assessment areas and
performance test requirements that would otherwise apply without a
strategic plan. Another commenter suggested that the strategic plan
option should only be made available to banks that persuade their
regulator that they would fail the traditional examination process
through no fault of their own.
Final Rule
After considering comments on the proposed strategic plan
framework, the agencies are retaining the option for banks to be
evaluated under an approved strategic plan in Sec. __.21(a)(6) of the
final rule. The agencies believe this approach provides banks
additional flexibility to meet their CRA obligations in a manner that
is tailored to community credit needs and opportunities and the bank's
own capacity, business strategy, and expertise. The agencies believe
that retaining this flexibility outweighs any concern regarding
potential complexity associated with an additional performance
standard. The agencies note that they have revised the strategic plan
provision in the final rule based on comments received, as discussed in
the section-by-section analysis to Sec. __.27, Strategic Plans.
The agencies have made clarifying and technical changes to final
Sec. __.21(a)(6) to conform with the strategic plan provisions in
final Sec. __.27. Specifically, the agencies are indicating that they
evaluate the performance of a bank that has an approved strategic plan
as provided in Sec. __.27. The agencies have also removed references
to strategic plan goals that were previously included because, under
final Sec. __.27, although a bank may include goals in its plan, goals
are not required in plans.
Additional Comments on the Evaluation Framework
A few commenters suggested that the final rule evaluation framework
should be further tailored to account for other types of financial
institutions.
A commenter recommended that the agencies consider the business
model of CDFI banks in the CRA framework, stating that it would be
appropriate to tailor evaluation aspects for CDFI banks given the
complementary goals of CRA and the CDFI program. Although the agencies
agree that the CRA and CDFI program have complementary goals, they also
believe that the applicable performance tests and strategic plan in the
final rule are drafted to apply appropriately to CDFI banks that
provide financial services in low- and moderate-income communities and
to persons with limited access to financing. Consequently, the agencies
anticipate minimal benefits from introducing additional complexity in
the form of provisions specific to CDFI banks.
Another commenter suggested that specific CRA consideration should
be given for banks organized under mutual holding companies because
their depositors are ultimately the members or owners of the bank, and
these institutions provide unique services for their customers and
communities. As with CDFI banks, the agencies do not believe that
tailored evaluations are required for these banks. Instead, the final
rule performance tests and standards are appropriate for evaluating
whether these institutions meet the credit needs of their communities.
Section __.21(b) Loans, Investments, Services, and Products of
[Operations Subsidiaries or Operating Subsidiaries] and Other
Affiliates
Current Approach
Under the current CRA regulations, the agencies define an
``affiliate'' as a company that controls, is controlled by, or is under
common control with another company.\741\ In subsequent guidance, the
agencies have clarified that bank subsidiaries are a type of
affiliate.\742\
---------------------------------------------------------------------------
\741\ Current 12 CFR __.12(a).
\742\ See Q&A Sec. __.12(a)-1.
---------------------------------------------------------------------------
The current evaluation framework provides large banks the option to
include affiliate lending,\743\ community development investments,\744\
and community development services,\745\ as applicable, in the bank's
evaluation. Similar options to include affiliate loans, investments,
and services are also available for wholesale and limited purpose
banks,\746\ banks evaluated under an approved strategic plan,\747\ and
small and intermediate small banks.\748\ If a bank elects to include
affiliate lending, investments, or services in its evaluation, the bank
must collect, maintain, and report the affiliate data if the bank is
subject to the data collection and reporting requirements,\749\ or
maintain sufficient information for examiners to evaluate the activity
if it is not subject to those requirements.\750\
---------------------------------------------------------------------------
\743\ See current 12 CFR __.22(c). A bank may elect to have only
a particular category of its affiliate's lending considered. The
basic categories of loans that can be considered are home mortgage
loans, small business loans, small farm loans, community development
loans and the five categories of consumer loans (automobile loans,
credit card loans, home equity loans, other secured loans, and other
unsecured loans). See Q&A Sec. __.22(c)(1)-1.
\744\ See current 12 CFR __.23(c).
\745\ See current 12 CFR __.24(c).
\746\ See current 12 CFR __.25(d).
\747\ See current 12 CFR __.27(c)(3).
\748\ See Q&A Sec. __.26-1.
\749\ See current 12 CFR __.42(d).
\750\ See Q&A Sec. __.26-1.
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed in Sec. __.21(c) to require the inclusion of
relevant activities of a State member bank's ``operations
subsidiaries'' and the ``operating subsidiaries'' of a national bank,
Federal savings association, State non-member bank, or State savings
association in the evaluation of the relevant bank's CRA performance,
unless the bank subsidiary is independently subject to its own CRA
[[Page 6776]]
requirements or another bank claims, for purposes of CRA, the same
qualifying activity.\751\ The agencies explained that because banks
exercise a high level of ownership, control, and management of their
subsidiaries, the activities of those subsidiaries should reasonably be
attributable to the bank.
---------------------------------------------------------------------------
\751\ See proposed Sec. __.21(c) introductory text and (c)(1).
---------------------------------------------------------------------------
The agencies also proposed to maintain the current flexibility for
banks to choose to include the relevant activities of other bank
affiliates that are not operations subsidiaries or other subsidiaries
unless the affiliate is independently subject to its own CRA
requirements or another bank claims, for purposes of CRA, the same
qualifying activity.\752\ The agencies also proposed that, with respect
to the activities of other bank affiliates, if a bank elected to have
the agencies consider retail loans within a particular retail loan
category made by one or more of the bank's affiliates in a particular
facility-based assessment area, retail lending assessment area, or its
outside retail lending area, the bank must elect to have the agencies
consider all of the retail loans within that loan category made by all
of the bank's affiliates in that particular facility-based assessment
area, retail lending assessment area, or in its outside retail lending
area.\753\
---------------------------------------------------------------------------
\752\ See proposed Sec. __.21(c) introductory text and (c)(2).
The terms ``operating subsidiary'' and ``operations subsidiary''
were defined in the Board's, the FDIC's, and the OCC's respective
versions of proposed Sec. __.12.
\753\ See proposed Sec. __.21(c)(2)(iii).
---------------------------------------------------------------------------
The proposal also required banks to collect, maintain, and report
data on the activities of operations subsidiaries and operating
subsidiaries and pursuant to proposed Sec. __.42.\754\ Pursuant to
proposed Sec. __.42, if the bank chose to include other affiliate
activity in its evaluation, the proposal required banks to collect,
maintain, and report data on the activities of the other
affiliate.\755\
---------------------------------------------------------------------------
\754\ See proposed Sec. __.21(c)(1); see also proposed Sec.
__.42(c).
\755\ See proposed Sec. __.21(c)(2)(ii); see also proposed
Sec. __.42(d).
---------------------------------------------------------------------------
The agencies sought feedback on what other factors, if any, the
agencies should consider with respect to requiring the inclusion of
activities of a bank's operations subsidiaries and operating
subsidiaries as part of its CRA evaluation. The agencies also requested
feedback regarding whether, when a bank chooses to have the agencies
consider retail loans within a retail loan category that are made or
purchased by one or more of the bank's affiliates in a particular
assessment area, the agencies should consider: (1) all of the retail
loans within that retail loan category made by all of the bank's
affiliates only in that particular assessment area; or (2) all of the
retail loans made by all of the bank's affiliates within that retail
loan category in all of the bank's assessment areas.
Comments Received
The agencies received numerous comments addressing the proposed
treatment of operations subsidiaries, operating subsidiaries, and other
affiliates.
Operations Subsidiaries and Operating Subsidiaries. Some commenters
supported the proposal's automatic inclusion of the activities of bank
operations subsidiaries and operating subsidiaries in CRA examinations.
A commenter stated that when the degree of separation between banks and
their subsidiaries is nonexistent, the activities of the subsidiary
should be considered activities of the bank. Another commenter
suggested that the agencies should allow the subsidiaries sufficient
time to obtain a level of operating efficiency with respect to new
products and services before including them in a bank's performance
evaluation. The commenter indicated that it takes a bank about two
years to achieve efficient, mature operations for new products and
markets. A commenter recommended that loans made or purchased via
subsidiaries should automatically count towards the major product line
calculations and towards the delineation of retail lending assessment
areas. Another commenter recommended that, when multiple options are
available, banks should retain the flexibility to elect which
performance test applies to the activities of an evaluated subsidiary.
A few commenters did not support the mandatory inclusion of
activities conducted by a bank's applicable subsidiaries because, from
their perspective, it reduces flexibility in comparison to the current
regulations. Another commenter argued that the agencies should exempt
functionally regulated subsidiaries from the mandatory inclusion of
operating or operations subsidiary activities in a bank's performance
evaluation and data collection and reporting requirements because the
mandatory inclusion of these subsidiaries within CRA examinations would
exceed the agencies' statutory authority under 12 U.S.C. 1831v(a). A
commenter suggested that the final rule should not expand data
collection and reporting requirements to operations subsidiaries or
operating subsidiaries that are required by other regulations. Another
commenter stated that it was not clear in the proposal how community
development financing would be considered in the context of
subsidiaries.
Other Affiliates. A few commenters expressed support for the
agencies' proposal to continue the current practice of providing banks
with the option to have the CRA activities of other affiliates (that
are not operations subsidiaries or operating subsidiaries) considered
because it provides banks with flexibility and accommodates different
bank business models. However, other commenters stated that the
agencies should require all bank affiliates to be subject to CRA
evaluations, with no optionality, because the affiliates are engaging
in particular types of activities on behalf of the bank and banks
should not be able to choose which affiliate activities they include or
exclude from an evaluation.
A few commenters stated that, when a bank chooses to have the
agencies consider qualifying retail loans by one or more of a bank's
affiliates, loans purchased by the affiliate should not be able to
compensate for the absence of bank loan origination activity. The
commenters suggested that these loans purchased by an affiliate should
have less relevance in evaluating a bank's CRA performance than loans
that were actually made by its affiliates. A commenter suggested that a
bank's affiliate's loans should be given a lower qualitative weight in
the CRA evaluation. Some commenters noted that because the agencies did
not propose evaluating limited purpose credit card banks on the
distribution or impact of their credit card loans, these banks should
not be allowed to exclude those activities by affiliate lenders.
Another commenter stated that it is not clear in the proposal how
community development financing would be considered in the context of
affiliates and recommended that any community development financing
activity engaged in by an affiliate should be included at the bank's
request.
Some commenters supported the alternative suggested by the agencies
that would consider all of the retail loans within a particular retail
loan category made by all bank affiliates within all of the bank's
assessment areas, if a bank elects to have an affiliate's retail
lending considered. Commenters stated that this alternative would
include a more comprehensive evaluation of retail lending activity and
would limit opportunities for banks to conceal poor performance.
Another commenter stated that it preferred the agencies' proposal to
consider all of an
[[Page 6777]]
affiliate's retail loans within a particular retail loan category made
in specific assessment areas. Another commenter recommended that loans
made or purchased via subsidiaries and affiliates should automatically
count towards the major product line calculations and towards the
delineation of retail lending assessment areas.
Some commenters addressed third-party activities with respect to
affiliates. A commenter suggested that the agencies clarify that their
proposal does not prohibit consideration for a loan that an affiliate
originates and a third party purchases, or vice versa, consistent with
the treatment of activities conducted directly by the bank. A number of
commenters stated that the agencies should extend CRA requirements to
third-party partnerships, such as those between banks and non-bank
entities to make loans and offer other services. Other commenters
similarly stated that CRA requirements should extend to any retail
lending that uses the bank's underwriting or benefits from use of the
bank's charter. Other commenters stated that considering third-party
bank lending relationships could help to address ``rent-a-bank''
schemes or situations where a lender collaborates with a bank to offer
products or services in order to avoid State interest rate limits.
Final Rule
Operations Subsidiaries and Operating Subsidiaries. The agencies
are adopting the proposal's approach to operations subsidiaries and
operating subsidiaries in paragraphs (b)(1) and (2) of Sec. __.21 of
the final rule with technical and conforming changes.\756\ For example,
the agencies are referring to the loans, investments, services, and
products of subsidiaries to conform to paragraphs (c) and (d) of final
Sec. __.42 and more precisely describe the ``qualifying activities''
the agencies indicated that they would consider under the proposal. The
agencies are also adding an ``as applicable'' indicator after the first
reference to operations subsidiaries, operating subsidiaries, and other
affiliates in final Sec. __.21(b)(1) to indicate that the substantive
provisions apply to either subsidiaries or other affiliates that are
not subsidiaries. Furthermore, the agencies are integrating the
definition of ``depository institution'' in final Sec. __.21(b)(1) so
that a bank does not receive consideration for loans, investments,
services, or products if they are already claimed by another depository
institution. Additional discussion of ``depository institution'' is
included in the section-by-section analysis of Sec. __.12.
---------------------------------------------------------------------------
\756\ See supra note 145.
---------------------------------------------------------------------------
In final Sec. __.21(b)(2), the agencies provide that they will
consider the loans, investments, services, and products of a bank's
operations subsidiaries or operating subsidiaries unless the bank's
subsidiary is independently subject to the CRA.\757\ To prevent the
simultaneous allocation of a particular loan, investment, service, or
product across multiple bank charters, the agencies specify in final
Sec. __.21(b)(1) that this consideration does not apply if a different
bank, operations subsidiary, operating subsidiary, or other affiliate
already claims the loan, investment, service, or product in a CRA
performance evaluation. In final Sec. __.21(b)(2), the bank must
collect, maintain, and report data on the loans, investments, services,
and products of its operations subsidiaries or operating subsidiaries,
as provided in final Sec. __.42(c) so that relevant loans,
investments, services, and products of the subsidiaries are included in
the CRA evaluation.
---------------------------------------------------------------------------
\757\ If an operations subsidiary or operating subsidiary is
independently subject to the CRA because it is a financial
institution, the agencies are required by CRA statute to assess the
subsidiaries' record of meeting the credit needs of its entire
community. See 12 U.S.C. 2903(a).
---------------------------------------------------------------------------
In a technical edit to final Sec. __.21(b)(2), the agencies are
correcting the second reference to operations subsidiaries and
operating subsidiaries to read as ``[operations subsidiary or operating
subsidiary].'' The proposed regulation text in Sec. __.21(c)(1)
errantly referred to ``operations subsidiary'' twice.
The agencies believe that their final rule approach appropriately
captures the activities of bank operations subsidiaries and operating
subsidiaries over which the bank exerts a significant degree of
ownership, control, and management. The agencies acknowledge that
evaluating the loans, investments, services, and products of an
operations subsidiary or an operating subsidiary in a bank's
performance evaluation reduces some flexibilities available to banks
relative to the current CRA regulations, which permit banks to
optionally include the activities under the affiliate activities
provisions. However, the agencies believe that this concern is
outweighed by the benefits of including these subsidiaries as part of a
more comprehensive review of a bank's record of serving the credit
needs of its communities through both activities conducted by the bank
and activities that are appropriately ascribed to the bank.
The agencies disagree with commenter suggestions to provide
subsidiaries more time to become operationally familiar with new
products and services before including them in a bank's CRA evaluation.
The agencies believe that this would be inconsistent with the final
rule's approach to evaluating loans, investments, services, and
products conducted during an evaluation period and would delay a more
holistic consideration of a bank's activities. The agencies also
believe that, as appropriate, they may consider through performance
context the concerns identified by the commenter, such as information
that a subsidiary has recently entered a market or is offering a new
product or service.
The agencies agree with commenter recommendations that, for banks
subject to the Retail Lending Test, loans made or purchased by an
operations subsidiary or operating subsidiary should count towards the
thresholds for delineation of retail lending assessment areas and
identifying major product lines. Subject to the requirements of the
regulation text in paragraphs (b)(1) and (2) in final Sec. __.21, as
well as Sec. __.17 and appendix A, the closed-end home mortgage loans
and small business loans of a bank's operations subsidiary or operating
subsidiary are considered in the delineation of Retail Lending
Assessment Areas. And subject to the requirements of paragraphs (b)(1)
and (2) in final Sec. __.21, as well as the Sec. __.12 definition of
``product line'', Sec. __.22, and appendix A, the closed-end home
mortgage loans, small business loans, small farm loans, and automobile
loans of a bank's operations subsidiary or operating subsidiary are
considered in determining a bank's major product lines in a Retail
Lending Test Area.
Regarding commenter input that the agencies lack statutory
authority under 12 U.S.C. 1831v(a) to include the CRA activities of
functionally regulated subsidiaries in a bank's evaluation, the
agencies note that as written, 12 U.S.C. 1831v(a) makes the provisions
of 12 U.S.C. 1844(c) applicable to the Board, the FDIC, and the OCC
with respect to functionally regulated subsidiaries.\758\
[[Page 6778]]
While 12 U.S.C. 1844(c) limits the authority of the Board ``to require
reports, make examinations, impose capital requirements, or take any
other direct or indirect action with respect to any functionally
regulated affiliate of a depository institution, subject to the same
standards and requirements as are applicable to the Board under those
provisions,'' section 1844(c) itself does not prohibit the Board from
examining functionally regulated subsidiaries. Instead, the statute
requires the Board to, whenever possible, minimize the duplication of
efforts with other relevant State and Federal regulators by using
existing reports and other supervisory information.\759\ Section
1844(c) also provides that the Board must coordinate with the
appropriate State and Federal regulators by providing notice to, and
consulting with, them before beginning an examination of an entity that
is a functionally regulated subsidiary.\760\ Because the requirements
applicable to the Board in section 1844(c) also apply to the FDIC and
the OCC due to the requirements of section 1831v(a), all three agencies
will comply with these statutory requirements when considering the
loans, investments, services, and products provided by operations
subsidiaries and operating subsidiaries that are functionally regulated
subsidiaries.
---------------------------------------------------------------------------
\758\ See 12 U.S.C. 1831v(a) (providing that the provisions of
12 U.S.C. 1844(c) that limit the authority of the Board of Governors
of the Federal Reserve System to require reports from, to make
examinations of, or to impose capital requirements on holding
companies and their functionally regulated subsidiaries or that
require deference to other regulators shall also limit whatever
authority that a Federal banking agency might otherwise have under
any statute or regulation to require reports, make examinations,
impose capital requirements, or take any other direct or indirect
action with respect to any functionally regulated affiliate of a
depository institution, subject to the same standards and
requirements as are applicable to the Board under those
provisions.); see also 12 U.S.C. 1813(z) (defining ``Federal banking
agency'' to mean ``the Comptroller of the Currency, the Board of
Governors of the Federal Reserve System, or the Federal Deposit
Insurance Corporation'').
\759\ See 12 U.S.C. 1844(c)(1) and (c)(2).
\760\ 12 U.S.C. 1844(c)(2)(C).
---------------------------------------------------------------------------
The agencies note that final Sec. __.21(b) does not expand the
data collection, maintenance, or reporting requirements for operations
subsidiaries or operating subsidiaries by imposing requirements that
are required by other regulations. The final rule only imposes parallel
data requirements in Sec. __.42(c) that align with the data
requirements applicable to banks under Sec. __.42(a) and (b).
With respect to commenter uncertainty regarding how community
development financing will be considered in the context of operations
subsidiaries or operating subsidiaries, the agencies' position is that
because all of their relevant activities are attributed to the bank
itself, they will be considered in the bank's performance evaluation,
pursuant to final Sec. __.21(b)(2). Specifically, community
development loans and community development investments made by a
bank's operations subsidiary or operating subsidiary would be combined
and collectively evaluated with the bank's loans and investments
pursuant to the community development performance test applicable to
the bank.
With respect to commenter concerns regarding the need for
flexibility in the application of performances tests to a bank's
operations subsidiary or operating subsidiary, the agencies believe
that the final rule approach that applies the same performance tests
which apply to the bank is the better approach. The significant degree
of ownership, control, and management a bank exerts over an operations
subsidiary or operating subsidiary makes the inclusion of the
subsidiary's loans, investments, services or products under the bank's
applicable performance tests a reasonable requirement. For that reason,
the agencies do not believe the usage of alternative performance tests
is warranted to evaluate the loans, investments, services, or products
conducted in the subsidiary.
Other Affiliates. The agencies are finalizing the proposed
provisions regarding the optional evaluation of a bank's other
affiliates that are not operations subsidiaries or operating
subsidiaries in the bank's evaluation, with some technical and
conforming changes noted below. As with paragraphs (b)(1) and (2) of
final Sec. __.21, the agencies are referring to the loans,
investments, services, and products of affiliates in final Sec.
__.21(b)(3) to conform with final Sec. __.42(d) and more precisely
describe the ``qualifying activities'' the agencies indicated that they
would consider under the proposal.
Pursuant to final Sec. __.21(b)(3), the agencies will consider the
loans investments, services, and products of affiliates of a bank that
are not operations subsidiaries or operating subsidiaries, at the
bank's option. This optional consideration is subject to three primary
requirements applicable to the loans, investments, services, and
products. First, as required by final Sec. __.21(b)(1), a different
depository institution may not claim the loan, investment, service, or
product in a CRA evaluation. This requirement prevents the simultaneous
allocation of a particular loan, investment, service, or product across
multiple bank charters. Second, as required by final Sec.
__.21(b)(3)(i), the affiliate may not be independently subject to the
CRA.\761\ Third, as required by final Sec. __.21(b)(3)(ii), the bank
must collect, maintain, and report data on the loans, investments,
services, and products of its affiliate, as provided in Sec. __.42(d).
---------------------------------------------------------------------------
\761\ This requirement is informed by the consideration that if
a bank's affiliate is independently subject to the CRA because it is
a financial institution, the agencies are required by CRA statute to
assess the affiliates' record of meeting the credit needs of its
entire community. See 12 U.S.C. 2903(a).
---------------------------------------------------------------------------
For banks that opt to have affiliate loans that are closed-end home
mortgage loans, small business loans, small farm loans, or automobile
loans considered under the Retail Lending Test, the agencies are
adopting final Sec. __.21(b)(3)(iii) with conforming changes to
maintain consistency with the Retail Lending Test. Final Sec.
__.21(b)(3)(iii) provides that, under the Retail Lending Test, a bank
may opt to have an agency consider closed-end home mortgage loans,
small business loans, small farm loans, or automobile loans that the
bank's affiliate originated or purchased.\762\ When a bank opts for
this consideration, the particular loans are included in all aspects of
the Retail Lending Test.\763\
---------------------------------------------------------------------------
\762\ To conform with the Retail Lending Test, the agencies
revised ``retail loans within a retail lending category'' in
proposed Sec. __.21(c)(2)(iii) to specify the particular types of
loans evaluated under the Retail Lending Test in final Sec.
__.21(b)(3)(iii): closed-end home mortgage loans, small business
loans, small farm loans, or automobile loans. The agencies also
revised proposed Sec. __.21(c)(2)(iii) to indicate that the loans
can be ``originated or purchased'' as opposed to ``made or
purchased,'' another change intended to conform to the applicable
test.
\763\ This approach is the same as in proposed Sec.
__.21(c)(2)(iii).
---------------------------------------------------------------------------
More specifically, final Sec. __.21(b)(3)(iii) provides that the
agencies consider the loans in the bank's particular Retail Lending
Test Area, as defined in final Sec. __.12, that potentially includes a
bank's facility-based assessment areas, and, as applicable, retail
lending assessment areas and outside retail lending area.\764\
Furthermore, as proposed, final Sec. __.21(b)(3)(iii) specifies that
for a given bank product line (closed-end home mortgage loans, small
business loans, small farm loans, or automobile loans) in a particular
Retail Lending Test Area, the agencies will consider all of the loans
made by all of the bank's
[[Page 6779]]
affiliates in that product line and in that particular Retail Lending
Test Area.\765\
---------------------------------------------------------------------------
\764\ The agencies revised the two references to ``facility-
based assessment area, retail lending assessment area, outside
retail lending area, state, or multistate MSA, or nationwide'' in
proposed Sec. __.21(c)(2)(iii) to refer instead to ``Retail Lending
Test Area'' in final Sec. __.21(b)(3)(iii). This change covers the
same geographic areas that contribute to the bank's ratings at the
state, multistate MSA, and for the institution.
\765\ This requirement substantively adopts the same requirement
contained in proposed Sec. __.21(c)(2)(iii). The requirement also
reflects agency practice in the current CRA regulations requiring
agency consideration of all affiliate loans from all affiliates with
respect to a particular lending category in a particular assessment
area. See current 12 CFR __.22(c)(2)(ii); see also Q&A Sec.
[thinsp]__.22(c)(2)(ii)-1.
---------------------------------------------------------------------------
Based on commenter input, the agencies are making an additional
substantive and clarifying change by adding final Sec.
__.21(b)(3)(iv). The agencies are specifying that, if a large bank opts
to have an affiliate's closed-end home mortgage loans or small business
loans considered in any Retail Lending Test Area, the agencies will
consider all of the closed-end home mortgage loans or small business
loans originated by all of the bank's affiliates in the nationwide area
when delineating retail lending assessment areas pursuant to final
Sec. __.17(c). This change ensures that, if a bank opts to have an
affiliate's closed-end home mortgage loans or small business loans
considered, then the closed-end home mortgage loans or small business
loans of all of its affiliates are also attributed to the bank and are
used to determine the bank's obligations to delineate retail lending
assessment areas.
The agencies also considered the commenter suggestion that
affiliate loans considered by the agencies should be used to determine
the bank's major product lines in the geographic area evaluated. The
agencies note that because major product line determinations are part
of the Retail Lending Test, Sec. __.21(b)(3)(iii) of the final rule
incorporates affiliate loans in those determinations.
Further, in response to commenter input requesting additional
clarity regarding consideration of affiliate community development
financing activity, the agencies are adding Sec. __.21(b)(3)(v) to the
final rule, which specifies that, at the bank's option, the agencies
will consider community development loans or investments that are
originated, purchased, refinanced, or renewed by one or more of the
bank's affiliates in the bank's evaluation pursuant to the community
development performance test or strategic plan applicable to the bank.
This provision also indicates that the consideration only applies if
the affiliate is not independently subject to the CRA and the bank
collects, maintains, and reports the data as provided in Sec.
__.42(d).
The agencies believe the final rule approach regarding affiliates
preserves important flexibility for banks that is available under the
current CRA rule. The agencies do not believe a mandatory approach to
considering affiliate loans, investments, services, and products is
appropriate because, relative to operations subsidiaries and operating
subsidiaries, a bank may have a lesser degree of ownership, control,
and management over a non-subsidiary affiliate. Requiring mandatory
evaluation of every affiliate loan, investment, service, or product
could also potentially include activities that cannot reasonably be
attributed to the bank in every circumstance. The agencies believe
that, as under the current CRA regulations, banks should continue to
have the ability to determine whether affiliate loans, investments,
services, and products are evaluated, in order to accommodate diverse
bank corporate structures and business models.
The agencies considered, but are not adopting, the more stringent
alternative described in the proposal that would consider all affiliate
retail loans for a select product line within all of the bank's Retail
Lending Test Areas if a bank elects to have an affiliate's retail
lending considered. The agencies believe the proposed approach to
include all affiliate loans for a select product line within a selected
facility-based assessment area, retail lending assessment area, or
outside retail lending area provides banks with appropriate flexibility
while safeguarding against a bank ``cherry-picking'' affiliate loans
for consideration.\766\
---------------------------------------------------------------------------
\766\ See Q&A Sec. [thinsp]__.22(c)(2)(ii)-1.
---------------------------------------------------------------------------
The agencies also decline to alter the weight attributed to loans
evaluated under the Retail Lending Test on the basis of whether they
were originated or purchased by a bank or an affiliate. The agencies
believe that such an approach would introduce unnecessary complexity
into the evaluation process. Further, the agencies do not agree with
altering the weight of an otherwise identical loan, investment,
service, or product solely on the basis that it was conducted by the
bank itself or by an affiliate; the agencies do not believe alteration
of the weights is warranted in the situation described because the
loan, investment, service, or product has an equivalent impact,
regardless which entity originated or purchased the loan or investment
or performed the service. Likewise, the agencies do not agree with
commenter input that loans purchased by an affiliate are less relevant
to evaluating a bank's CRA performance than loans that were originated
by that or another bank affiliate. An affiliate's purchased loans, like
any institution's purchased loans, can provide liquidity to banks and
other lenders and increase their ability to originate additional retail
loans. In addition, the agencies believe that they have established
adequate safeguards in the final rule to discourage ``loan churning''
and similar practices that could manipulate Retail Lending Test
conclusions. The final rule allows for consideration of retail loans
purchased by a bank affiliate.
Further, while the agencies understand commenter suggestions that
it would be preferable to evaluate all or most of the loans,
investments, services, and products in a bank's affiliates to the
fullest extent possible (such as the consideration of affiliate credit
card loans in the context of a limited purpose bank), the final rule
does not except affiliates' relevant loans, investments, services, or
products from consideration under any applicable performance tests or
otherwise treat the activity differently than it would be considered if
the bank had performed the same activity. The agencies believe that a
simplified approach where all relevant affiliate loans, investment,
services, or products may be considered at a bank's option is
preferable to a more complex approach where some affiliate activities
receive differential treatment based on a particular bank type,
applicable performance test or standard, or affiliate activity.
In response to commenter input, the agencies are confirming that
the final rule does not prohibit consideration for a loan that an
affiliate originates and a third party purchases, or vice versa,
provided that no other bank claims that loan for CRA consideration.
Additionally, with respect to comment sentiment regarding third-party
relationships, the agencies note that although third-party risk
management is outside the scope of this rulemaking, they do expect
banks to have an appropriate third-party risk management compliance
framework and controls.
Section __.21(c) Community Development Lending and Community
Development Investment by a Consortium or a Third Party
Current Approach
Under the current CRA regulations, community development loans
originated or purchased by a consortium in which the bank participates
or by a third party in which the bank has invested are considered at
the bank's
[[Page 6780]]
option.\767\ If the bank requests consideration for these activities,
the bank must report the data pertaining to these loans.\768\
---------------------------------------------------------------------------
\767\ See current 12 CFR __.22(d) and __.25(d)(2); see also Q&A
Sec. [thinsp]__.26(b)-3 (indicating that small and intermediate
small banks may also receive consideration of community development
loans originated or purchased by a consortium or third party).
\768\ See current 12 CFR __.42(e); see also Q&A Sec.
[thinsp]__.26(b)--3 (indicating that, to receive consideration,
small and intermediate small banks must maintain sufficient
information for examiners to evaluate community development loans
originated or purchased by a consortium or third party).
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed to retain the current flexibility regarding
consideration for community development loans and investments by a
consortium in which the bank participates or by a third party in which
the bank has invested. Consistent with current regulations, the
agencies proposed that a bank's community development loans or
community development investments as part of a consortium or by a third
party in which the bank invests may be considered, at a bank's
option,\769\ subject to the following requirements: (1) the activity
may not be claimed by another participant or investor; \770\ (2) the
bank may claim only its percentage share of the total activity made by
the consortium or third party; \771\ and (3) the bank must collect,
maintain, and report the lending and investments data.\772\
---------------------------------------------------------------------------
\769\ See proposed Sec. __.21(d).
\770\ See proposed Sec. __.21(d)(ii).
\771\ See proposed Sec. __.21(d)(iii).
\772\ See proposed Sec. Sec. __.21(d)(i) and __.42(e).
---------------------------------------------------------------------------
Comments Received
The agencies received several comments on the treatment of
community development loans and community development investments by a
consortium or a third party. A number of commenters supported the
agencies' proposed approach to community development financing by a
consortium or a third party. A commenter specifically stated that it
supported the aspect of the proposal that provides banks the option to
choose to take pro rata credit for the investments or loans of a fund
into underlying portfolio companies or projects. Another commenter
stated that it supported retaining CRA consideration on a pro rata
basis according to a bank's percentage share of community development
loans and investments made by third-party entities.
Some commenters suggested that the agencies clarify certain issues
surrounding community development financing by a consortium or a third
party. A few commenters recommended that the agencies permit the bank
or recipient to identify a reasonable geographic allocation for the
loan or investment such as location of the recipient, where the
recipient has historically worked, or where the recipient intends to
work. Some commenters recommended that, for community development
financing by a consortium or third party, the agencies preserve the
practice of allowing banks to rely on the use of side letters from the
CDFI, consortium, or fund sponsor to provide additional detail on the
geographic distribution of activities allocated to the bank.
A commenter suggested that, when banks provide working capital to
CDFIs through a consortium or third party, the working capital provided
to the CDFI should count at the point in time when the commitment of
funds to the recipient is made, irrespective of when the funds are
deployed. The commenter explained that their suggested approach would
give banks certainty that they will receive CRA consideration and
provide CDFIs with flexibility to use funds consistent with business
needs and avoid pressure to draw on specific lines by specific dates.
Another commenter suggested that the agencies clarify that, in
relation to consortia and third parties, the agencies are not
restricting two financial institutions from receiving CRA consideration
for the same loan or investment if the loan or investment is sold from
one institution to the other.
Final Rule
The agencies are finalizing as proposed the provisions on the
consideration of community development loans and investments by a
consortium in which the bank participates or by a third party in which
the bank has invested, with technical and conforming changes. In final
Sec. __.21(c), the agencies are adding ``invests in'' to the
regulation text in recognition that a bank may invest in a consortium
that engages in community development loans or community development
investments. Similarly, the agencies are revising ``makes'' in Sec.
__.21(c) to ``originates, purchases, refinances, or renews'' to conform
with the applicable community development financing performance tests
and more precisely indicate that a consortium or a third party that a
bank invests in or participates in may originate, purchase, refinance,
or renew community development loans or community development
investments.
Accordingly, final Sec. __.21(c) provides that if a bank invests
in or participates in a consortium that originates, purchases,
refinances, or renews community development loans or community
development investments, or if a bank invests in a third party that
originates, purchases, refinances, or renews such loans or investments,
either those loans or investments may be considered, at the bank's
option. The consideration is subject to certain limitations: (1) the
bank must collect, maintain, and report the data pertaining to these
community development loans and community development investments
pursuant to Sec. __.42(e), as applicable; \773\ (2) if the
participants or investors choose to allocate the community development
loans or community development investments among themselves for
consideration under this section, no participant or investor may claim
a loan origination, loan purchase, or investment for community
development consideration if another participant or investor claims the
same loan origination, loan purchase, or investment; and (3) the bank
may not claim community development loans or community development
investments accounting for more than its percentage share, based on the
level of its participation or investment, of the total loans or
investments made by the consortium or third party.\774\ Under final
Sec. __.21(c), the agencies do not intend to provide CRA consideration
for particular community development loans or community development
investments in a manner that would consider the same loan or investment
more than once or provide consideration in excess of the bank's share
or level of participation in the consortium or third party.
---------------------------------------------------------------------------
\773\ In final Sec. __.21(c)(1), the agencies are making a
conforming edit to state that a bank must ``collect, maintain, and
report'' data as required in final Sec. __.42(e). Furthermore, in
recognition that final Sec. __.42(e) only requires the bank to
collect, maintain, and report data on community development
financing by a consortium or a third party if the data must be
collected, maintained or reported pursuant to paragraph (a)(5) or
(b)(2) of final Sec. __.42, the agencies are adding an ``as
applicable'' indicator.
\774\ In paragraphs (c)(2) and (3) of final Sec. __.21, the
agencies are removing the word ``qualifying'' from the proposed
regulation text that preceded ``loans or investments.'' The agencies
are making this change because community development loans and
community development investments are defined terms that have a
fixed meaning under the final rule.
---------------------------------------------------------------------------
The agencies believe that this approach, as with the current
regulations, provides banks with flexibility to make community
development loans and community
[[Page 6781]]
development investments while maintaining the safeguards against more
than one institution claiming CRA consideration for the same loan or
investment at the same time.
The agencies are not adding specific provisions regarding the
allocation of community development financing activities in Sec.
__.21(c) of the final rule, as requested by a commenter, because the
allocation of these loans and investments is already addressed in
appendix B of the final rule. Further, the agencies do not believe that
it is appropriate to make alternative provisions that depart from the
uniform rules of allocation for community development loans or
investments. The agencies believe that the methodology described in
appendix B provides a reasonable methodology for the geographic
allocation of community development loans or investments by a
consortium or a third party.
With respect to commenter input regarding side letters, the
agencies are maintaining their current practice with respect to side
letters, which are not required but remain a permissible means through
which to facilitate receiving CRA consideration for a loan or
investment. The agencies also note that allocations made via side
letters must conform with the allocation requirements for community
development loans or investments described in appendix B of this final
rule.
Regarding input on timing considerations around commitment of funds
to a recipient, the agencies agree with commenter sentiment that
working capital provided to a CDFI by a bank through a consortium or
third party should count at the point in time when the commitment of
funds to the recipient is made, irrespective of when the funds are
deployed. This is why final appendix B includes a reference to legally
binding commitments to extend credit or to invest.\775\ The definitions
of ``community development investment'' and ``community development
loan'' in the final rule also leverage the concept of a legally binding
commitment to determine whether a particular loan or investment
qualifies for CRA consideration.
---------------------------------------------------------------------------
\775\ See final paragraph of appendix B, paragraph I.a.1.i.A.
---------------------------------------------------------------------------
Regarding commenter concerns about the agencies restricting two or
more financial institutions from receiving CRA consideration for the
same community development loan or community development investment if
the loan or investment is sold from one institution to the other, the
agencies' intent in the proposal was to prevent banks from
simultaneously claiming and receiving credit for the same loan or
investment. The agencies did not intend to eliminate CRA credit for
sequential transactions in such a way that one bank could not receive
any CRA credit for a loan or investment if the loan or investment was
purchased from another bank. Final Sec. __.21(c)(2) provides that, if
participants or investors choose to allocate loans or investments among
themselves for consideration, no participant or investor may claim a
loan origination, loan purchase, or investment for community
development consideration if another participant or investor claims the
same loan or investment. However, if one participant or investor
transfers the loan or investment to another participant or investor and
relinquishes any ongoing claim to the loan or investment for CRA
purposes, the participant to which the loan or investment is
transferred may then receive agency consideration of the loan or
investment. As with other types of loans or investments, the agencies
may consider whether loans and investments are purchased or sold a
number of times for purposes of artificially inflating CRA
performance.\776\
---------------------------------------------------------------------------
\776\ See final Sec. __.21(d)(7).
---------------------------------------------------------------------------
Section __.21(d) Performance Context Information Considered
Current Approach
Under the current CRA regulations, the agencies consider specific
performance context factors in the application of relevant performance
tests and standards and in the decision to approve a bank's strategic
plan.\777\ The factors encompass a broad range of economic,
demographic, and institution- and community-specific information that
an examiner reviews to understand the context in which a bank's record
of performance should be evaluated.\778\
---------------------------------------------------------------------------
\777\ See current 12 CFR __.21(b).
\778\ See Q&A Sec. __.21(b)-1.
---------------------------------------------------------------------------
The Agencies' Proposal
In proposed Sec. __.21(e), the agencies identified the performance
context information that they would consider in applying performance
tests and standards, as well as in determining whether to approve a
strategic plan.\779\ Consistent with performance context information
considered under the current CRA framework, the agencies proposed that
consideration may be given to: (1) a bank's institutional capacity and
constraints; (2) a bank's past performance; (3) demographic data
pertaining to the geographic areas in which the bank is evaluated; (4)
retail banking and community development needs in the geographic area
in which the bank is evaluated; (5) the bank's business strategy and
product offerings; (6) information in the bank's public file, including
oral and written comments submitted to the bank or the agency; and (7)
any other information deemed relevant by the agency.\780\ Given that
the proposed performance tests, including relevant metrics and
benchmarks, were designed to incorporate certain key performance
context considerations, the agencies expressly proposed to consider
performance context information to the extent that it is not otherwise
considered as part of a proposed performance test.\781\ For example,
the proposed community benchmarks for the Retail Lending Test metrics,
as described in section IX of the preamble to the proposed rule, would
reflect information about an assessment area, such as the percentage of
owner-occupied housing units, the percentage of low-income families,
and the percentage of small businesses or small farms. Similarly, the
proposed market benchmarks for the Retail Lending Test would reflect
the aggregate lending to targeted geographic areas or targeted
borrowers by all lenders operating in the same assessment area.
---------------------------------------------------------------------------
\779\ See proposed Sec. __.21(e).
\780\ See proposed Sec. __.21(e)(1) through (7).
\781\ See proposed Sec. __.21(e).
---------------------------------------------------------------------------
The agencies requested feedback on the performance context factors
in proposed Sec. __.21(e), including ways to bring greater clarity to
the use of performance context factors as applied to different
performance tests.
Comments Received
The agencies received many comments with respect to the agencies'
proposal to consider performance context information. Many of these
commenters expressed general support for the agencies' proposal to
apply performance context information in performance tests, standards,
and strategic plan approval determinations.
A commenter stated that the agencies should not direct examiners to
consider performance context information only to the extent that it is
not otherwise considered as part of a proposed performance test. The
commenter indicated that this approach appears to deemphasize
performance context by implying that a broad range of information and
circumstances are already covered by the applicable performance tests
and standards; to address this issue, the commenter
[[Page 6782]]
recommended removing this language from the proposal and clarifying
that performance context factors are considered in addition to the
proposed performance tests and standards, consistent with the current
regulations. Other commenters made related suggestions, stating that
the proposal's emphasis on quantitative factors such as metrics and
thresholds deemphasized performance context in potentially undesirable
ways.
A commenter suggested that the agencies should fully integrate
performance context into all bank conclusions and ratings.
Some commenters offered suggestions on additional performance
context factors that the agencies could potentially add to proposed
Sec. __.21(d). For example, a commenter requested that the agencies
allow examiners to consider innovative and responsive credit products
and programs as beneficial performance context across any of the
performance tests to which they are relevant. Another commenter
requested that the agencies incorporate a measure of the availability
and affordability of childcare facilities as performance context. A
commenter stated that a final rule should explicitly document that CDFI
certification must be considered as a fundamental and essential element
of CRA performance context for a CDFI bank and the factor should be
considered before and after the application of performance tests.
Another commenter suggested that the agencies use performance context
to determine whether an activity qualifies for CRA purposes, especially
for newer, less common, more complex, or innovative activities. The
commenter also suggested that examiner judgment and performance context
could be helpful when a bank engages in an activity that is not already
on the agencies' proposed illustrative list of activities eligible for
CRA consideration.
A commenter recommended that the agencies apply the following
performance context factors: whether a substantial majority or a
significant portion of the bank's retail activities are loan products
and services not defined as major product lines for purposes of the
Retail Lending Test and, therefore, not included in the quantitative
metrics and benchmarks; the bank's business strategy; geographic
dispersion of retail loan products and services; data anomalies; and
institutional capacity and constraints.
Some commenters requested that the agencies leverage performance
context data that succinctly summarizes conditions in localities and
suggested these could include measures such as: housing vacancy rates;
housing cost burden ratios; unemployment levels; poverty rates; levels
of segregation; and measures of health and environmental quality
standards. Similarly, to clarify the use of performance context
factors, a commenter suggested that the agencies implement models that
measure a community's capacity and demand for investment, financial
services, and financial products and publish the results in banks'
performance evaluations.
A number of commenters suggested that performance context should be
used by the agencies as an additional means to encourage stakeholder
participation in CRA examinations and that the agencies could solicit
comment from local stakeholders, including historically underserved
groups, on local community needs and whether banks are meeting those
needs. The commenters noted that responses to those questions could
then be considered by the agencies as additional performance context
information that enables examiners to conduct additional analysis if
significant concerns are raised that impact a bank's ratings.
A commenter stated that performance context should be defined and
updated in real time in conjunction with banks, with a particular
emphasis on research-based understanding of the credit and community
development needs and opportunities. The commenter stated this could
help banks evaluate their own performance and tailor their services.
Some commenters noted that the agencies will need dedicated staff
with specific training to correctly apply performance context. A few
commenters stated that trained experienced staff would be able to
consider performance context and evaluate CRA performance relative to a
bank's size, business strategy, and other relevant information. Another
of these commenters asked the agencies to centralize performance
context with a comprehensive community needs assessment; the commenter
also suggested that the agencies could have dedicated staff to analyze
public input, local data, and local studies.
A commenter requested that the agencies limit examiner discretion
to adjust scores downward based on performance context factors, such as
by requiring the agencies to provide a bank with prior notice and the
opportunity to respond if such downward adjustments would adversely
affect the bank's institution rating.
A commenter expressed concern that the proposed performance context
factors do not offer assurances that banks with unique business models
will be able to pass their CRA examinations under the proposed
framework.
A commenter indicated that it supported the creation of a data-
driven performance context dashboard.
Final Rule
After considering the comments, the agencies are adopting the
proposed performance context factors in the final rule, with technical
and conforming changes. In final Sec. __.21(d), the agencies are
clarifying that performance context may be considered when applying the
performance tests or strategic plans pursuant to final Sec. __.21(a)
and when determining whether to approve a strategic plan pursuant to
final Sec. __.27(h). In final Sec. __.21(d)(1), the agencies are also
clarifying that the ``retail banking or community development
activities'' described in the proposal include ``retail lending, retail
banking services and retail banking products, community development
loans, community development investments, or community development
services.''
In final Sec. __.21(d)(1), the agencies are removing the reference
to ``facility-based assessment areas'' that was included in the
proposal. Similarly, in paragraphs (d)(3) and (4) of final Sec. __.21,
the agencies are removing the references to ``the geographic areas in
which the bank is evaluated.'' By removing all three of these
references to specific geographic areas, the agencies' intention is to
permit the consideration of all of the performance factors in any
relevant geographic area. Similar to the current CRA regulations, this
approach allows the consideration of performance context factors where
a bank's actual performance is evaluated. The agencies believe that
this approach preserves important flexibility for the agencies to
consider relevant performance context as needed.
In final Sec. __.21(d)(6), with respect to performance context
related to the bank's public file, the agencies are removing the
reference to ``oral'' comments that was included in the proposal. After
further consideration, the agencies have decided that, consistent with
the current CRA regulations, it is preferable to only accept written
comments submitted to the bank or the agency for the bank's public
file. The agencies believe that use of written comments in relation to
the public file better ensures the accuracy of the comments and
eliminates additional processing steps associated with oral comments.
The agencies note that this change from the proposal does not affect
the use of community contacts and
[[Page 6783]]
other oral sources of public feedback used in CRA examinations.
With these changes, final Sec. __.21(d) provides that, when
applying performance tests and strategic plans pursuant to final Sec.
__.21(a), and when determining whether to approve a strategic plan
pursuant to final Sec. __.27(h), the agencies may consider the
following performance context information to the extent that it is not
considered as part of the tests and standards: (1) a bank's
institutional capacity and constraints, including the size and
financial condition of the bank, safety and soundness limitations, or
any other bank-specific factors that significantly affect the bank's
ability to provide retail lending, retail banking services and retail
banking products, community development loans, community development
investments, or community development services; (2) the bank's past
performance; (3) demographic data on income levels and income
distribution, nature of housing stock, housing costs, economic climate,
or other relevant data; (4) any information about retail banking and
community development needs and opportunities provided by the bank or
other relevant sources, including but not limited to members of the
community, community organizations, State, local, and tribal
governments, and economic development agencies; (5) the bank's business
strategy and product offerings; (6) the bank's public file, including
any written comments about the bank's CRA performance submitted to the
bank or appropriate agency and the bank's responses to those comments;
and (7) any other information deemed relevant by the agency.
The agencies have considered commenter suggestions to remove
proposed language stating that the agencies will consider performance
context factors to the extent they are not already considered as part
of performance tests or standards. The agencies are retaining this
language in the final rule because certain performance context
information is now incorporated in the tests and standards, and the
agencies believe that this practice places an appropriate emphasis on
performance context information. For example, the Retail Lending Test
metrics and benchmarks incorporate data on income levels and income
distribution, as is also noted in Sec. __.21(d)(3). The agencies
emphasize, however, that performance context will continue to be
considered by the agencies in evaluating all banks, as the agencies
recognize that diverse banks operate in a wide variety of circumstances
that quantitative measures alone might not capture. Similarly, while
data about an economic downturn or economic conditions precipitating a
decline in lending would fall within the scope of Sec. __.21(d)(3),
the agencies anticipate that this information would usually not be used
to adjust a Retail Lending Test conclusion because it generally would
already be reflected in the relevant Retail Lending Test market
benchmarks; however, the agencies also believe there might be some
unique circumstances in which data about economic conditions are not
fully reflected in the relevant Retail Lending Test market benchmarks.
The agencies acknowledge that the current CRA regulations consider
performance context in addition to the applicable performance tests and
standards. However, to accommodate new aspects of the final rule
framework, such as the quantitative approach implemented through
standardized metrics and benchmarks, the agencies believe that
performance context should fully yield to an applicable performance
test when a performance context factor considers the same information
that is incorporated in the performance test or standard. This approach
ensures that performance context and the applicable tests function in a
complementary and consistent manner. The agencies believe that this
approach better maintains the integrity of the performance tests and
standards and prevents similar or even redundant information from
obfuscating analysis included in the performance tests or standards.
Regarding commenter sentiment that performance context should be
fully integrated into conclusions and ratings, the agencies agree with
this suggestion and have integrated the consideration of final Sec.
__.21(d) performance context factors in each applicable performance
test. To accomplish this, the agencies have expressly described the
role that the final Sec. __.21(d) performance context factors play in
the ``conclusions and ratings'' paragraph of each respective
performance test adopted under the final rule framework.
Regarding commenter suggestions that innovative and responsive
credit products should be considered under performance context
considerations, the agencies note that the final rule incorporates
assessments of responsiveness in the Retail Services and Products Test,
the Community Development Financing Test, the Community Development
Financing Test for Limited Purpose Banks and the Community Development
Services Test. Specifically, the final Retail Services and Products
Test considers the responsiveness of a bank's credit products and
programs. For this reason, the final Retail Lending Test does not also
consider the responsiveness of a bank's credit products. Similarly, an
impact and responsiveness review pursuant to final Sec. __.15 is
captured in the evaluations of the Community Development Financing Test
in final Sec. __.24, the Community Development Services Test in final
Sec. __.25, and the Community Development Financing Test for Limited
Purpose Banks in final Sec. __.26. As discussed elsewhere in this
SUPPLEMENTARY INFORMATION, the final rule does not adopt the term
``innovative'' or otherwise use the term.
The agencies have considered commenter feedback with respect to
including the availability and affordability of childcare facilities as
performance context, and the agencies have determined not to adopt this
suggestion because bank activities that support childcare or childcare
facilities qualify as community development activities, as described in
the section-by-section analysis of Sec. __.13. Similarly, the agencies
believe that it is not necessary to make CDFI certification a
performance context factor because final Sec. __.21(d)(5) considers
the business strategy and product offerings of a bank.
The agencies also decline to adopt commenter suggestions to use
performance context to determine whether an activity qualifies for CRA
purposes, especially for newer, less common, more complex, or
innovative activities that may not be already on the agencies' proposed
illustrative list of activities eligible for CRA consideration. The
agencies note that other final rule provisions specify the particular
retail and community development activities that qualify for CRA
consideration. The agencies believe that the use of performance context
to create exceptions to these requirements for qualifying activities
would compromise the clarity and transparency of the framework,
introduce additional complexity, and potentially minimize the incentive
for banks to meet the requirements of the regulations.
However, the agencies agree with commenter sentiment that if a
significant portion of a bank's retail lending activities are loan
products that are potentially evaluated under the Retail Lending Test
but that do not qualify as major product lines, the loan products could
be considered as part of performance context information under Sec.
__.21(d)(5) of the final rule.
With respect to commenter suggestions that the agencies consider a
bank's business strategy and a bank's institutional capacity and
constraints as performance context, the agencies note
[[Page 6784]]
that these considerations are included as performance context factors
under paragraphs (d)(1) and (5) of final Sec. __.21.
The agencies considered whether they should add performance context
factors for the geographic dispersion of retail loan products and data
anomalies. The agencies are not adding a performance context factor for
the geographic dispersion of retail loans and products because the
Retail Lending Test and Small Bank Lending Test already evaluate the
distribution of the loan products under each respective test. With
respect to data anomalies, the Retail Lending Test already considers
missing or faulty data as an additional factor under Sec. __.22(g)(4).
With respect to other applicable tests, data anomalies may be
considered as other potentially relevant information under Sec.
__.21(d)(7) of the final rule.
In response to commenter suggestions that the agencies should
consider localized data focused on particular community needs, the
agencies note that under final Sec. __.21(d)(4), State, local, and
tribal governments, and economic development agencies may submit any
information regarding retail banking and community development needs
and opportunities. Under this approach, the agencies would consider
this variety of information to the extent that it is not already
considered in relevant performance tests.
After considering comments on the importance of stakeholder
feedback, the agencies have decided to preserve feedback from
stakeholders as part of a bank's relevant performance context as
proposed. To achieve this, paragraphs (d)(4) and (6) of final Sec.
__.21 permit the agencies to consider relevant stakeholder feedback
submitted: directly to the agencies on retail banking and community
development needs and opportunities; directly to the agencies via
written comments on the bank's CRA performance; indirectly via comments
included in the bank's public file; or indirectly via bank response to
a written comment.
With respect to commenter suggestions that the performance context
should be updated with the most recent information possible, the
agencies note that they intend to apply the most recent performance
context information that is available at the time of the examination.
In relation to suggestions that the agencies should have dedicated
staff with specific training on applying performance context, the
agencies plan to provide dedicated training to supervisory staff on all
aspects of the final rule, including performance context. As the final
rule is implemented, the agencies will make determinations as to which
particular staff are best situated to consider and apply performance
context information and what specific, additional training would be
helpful to achieve agency objectives.
The agencies also expect that their quantitative approach to
assessing bank performance will provide additional transparency and
consistency in the examination process. To provide further
predictability and transparency, the agencies will consider the
possibility of additional interagency guidance with respect to their
discretion to adjust a bank's conclusions or ratings through
performance context consistent with Sec. __.21(d). However, at this
time, the agencies do not find it appropriate to limit examiner
discretion in the final rule to adjust scores downward. In relation to
a comment that the proposed performance context factors do not offer
assurances that banks with unique business models will be able to pass
their CRA examinations under the proposed framework, the agencies note
that the proposed performance context factors were not intended to
provide assurances of how a bank will perform in a CRA examination. In
addition, the final rule also provides banks with the option to seek
approval to be evaluated under a strategic plan, and the option to seek
limited purpose bank designations, both of which are a means of
accommodating banks with unique business models that might otherwise
experience challenges with being evaluated under otherwise applicable
performance tests or standards.
The agencies will work together to provide greater performance
context information to the public, including to banks. This will
include tools to provide information on factors that may impact
community credit needs. As noted in the SUPPLEMENTARY INFORMATION of
the agencies' proposal, the agencies believe that this information will
help provide greater consistency and transparency, while also enhancing
public participation. In addition, as noted elsewhere, the agencies
will provide online tools that will leverage reported data and provide
information related to metrics and benchmarks.
Section __.21(e) Conclusions and Ratings
Current Approach
Pursuant to the CRA statute,\782\ the current CRA regulations
provide that a bank is assigned a rating of ``Outstanding,''
``Satisfactory,'' ``Needs to Improve,'' or ``Substantial
Noncompliance'' at the institution level.\783\ The assigned rating
reflects the bank's record of helping to meet the credit needs of its
entire community, including low- and moderate-income neighborhoods.
---------------------------------------------------------------------------
\782\ See 12 U.S.C. 2906(b)(2).
\783\ See current 12 CFR __.21(c).
---------------------------------------------------------------------------
The Agencies' Proposal
In proposed Sec. __.21(f), the agencies proposed to assign banks
conclusions, ratings, and performance scores. Specifically, pursuant to
Sec. __.21(f)(1), the agencies would assign conclusions to banks for
the bank's performance on applicable performance tests and standards.
For large banks, intermediate banks, and wholesale and limited purpose
banks, these conclusions would be ``Outstanding,'' ``High
Satisfactory,'' ``Low Satisfactory,'' ``Needs to Improve,'' or
``Substantial Noncompliance.'' For small banks, these conclusions would
be ``Outstanding,'' ``Satisfactory,'' ``Needs to Improve,'' or
``Substantial Noncompliance.''
Pursuant to proposed Sec. __.21(f)(2), the agencies would assign a
bank a rating of ``Outstanding,'' ``Satisfactory,'' ``Needs to
Improve,'' or ``Substantial Noncompliance'' regarding its overall CRA
performance, as applicable, in each State, in each multistate MSA, and
for the institution that reflected the bank's record of helping to meet
the credit needs of its entire community, including low- and moderate-
income neighborhoods, consistent with the safe and sound operation of
the bank. This paragraph retained existing language from the current
CRA rule.
Proposed Sec. __.21(f)(3) provided that the agencies would develop
performance scores in connection with assigning conclusions and ratings
for a bank, other than a small bank evaluated under the small bank
performance standards, a wholesale or limited purpose bank evaluated
under the Community Development Financing Test for Wholesale or Limited
Purpose Banks, or a bank evaluated based on an approved strategic plan.
As described further in appendices C and D of the proposal, the
agencies proposed a scoring system based on the following 10-point
scale: ``Outstanding'' (10 points); ``High Satisfactory'' (7 points);
``Low Satisfactory'' (6 points); ``Needs to Improve'' (3 points); or
``Substantial Noncompliance'' (0 points). The agencies intended for the
performance scores to provide greater transparency regarding a bank's
overall performance.
[[Page 6785]]
Comments Received
The agencies received many comments on the agencies' proposal with
respect to conclusions, ratings, and performance scores. Some
commenters supported the conclusions, ratings, and performance score
approach in the proposed rule. A few commenters stated that they
appreciated the additional transparency and precision that the agencies
proposed regarding ratings by assigning both a conclusion and a score
for each performance test at the assessment area level, with one of
these commenters noting that the change will provide additional clarity
as to how well banks are performing. A commenter supported the
proposal's increased rigor in the form of assigning points to the
ratings in the CRA's subtests, as detailed in the proposed appendices C
and D. Another commenter stated that it would welcome clearer
expectations for each of the four proposed ratings.
Some commenters expressed support for the proposed 10-point
performance scoring system but also suggested changes to point values
corresponding to various ratings. For example, a few commenters
suggested that, to provide more distinction between the conclusions,
the agencies could adopt an alternative scale where an ``Outstanding''
receives 10 points, a ``High Satisfactory'' receives 8 points, a ``Low
Satisfactory'' receives 5 points, and a ``Needs to Improve'' receives 2
points. Similarly, some commenters encouraged the agencies to otherwise
make a greater distinction between the ``Low Satisfactory'' and ``High
Satisfactory'' conclusions to incentivize better bank performance and
to ensure poor bank performance does not result in a rating above
``Needs to Improve.'' Some commenters requested that the agencies adopt
a point system that better reveals distinctions in performance and
minimizes the potential for CRA grade inflation. For example, a
commenter suggested an approach where the agencies would assign a
numeric score between 1 and 100 and assign ratings relative to the
scale.
Another commenter recommended that the agencies separate banks into
one of the following three equally weighted categories for CRA scores:
``below average,'' ``average,'' and ``above average.'' From there, the
commenter suggested that the agencies could identify a subset of banks
from the below average category for ``Needs to Improve'' results and a
subset of banks from the above average category for ``Outstanding''
results. A few commenters recommended a scoring system that makes
receiving an ``Outstanding'' rating more easily achievable under the
applicable performance tests.
Final Rule
After reviewing and considering the comments, the agencies are
adopting the proposed approach to conclusions and ratings. As described
in further detail in the section-by-section analysis of Sec. __.28
(``Assigned conclusions and ratings'') the agencies believe that the
final rule approach creates a consistent and quantifiable framework for
assigning conclusions for bank performance and State, multistate MSA,
and institution ratings. The agencies believe that their adopted
approach will increase transparency and provide clarity regarding a
bank's CRA performance.
To streamline the regulation text of the final rule, the agencies
are making a series of technical edits to Sec. __.21(e). With respect
to conclusions in final Sec. __.21(e)(1), the agencies are specifying
that, for all banks, conclusions are assigned pursuant to final Sec.
__.28. The agencies are also indicating in final Sec. __.21(e)(1)
that: for large banks and limited purpose banks, conclusions are
assigned pursuant to final appendix C; for intermediate banks and small
banks, conclusions are assigned pursuant to final appendices C and E;
and for banks with a strategic plan, conclusions are assigned pursuant
to paragraph g of final appendix C. Furthermore, because the
information is also covered in final Sec. __.28(a)(1), the agencies
are not including references to specific conclusions such as
``Outstanding'' and ``Needs to Improve.''
In final Sec. __.21(e)(2), the agencies are indicating that, as
provided in final Sec. __.28 and final appendices D and E, they assign
an overall CRA institution performance rating to a bank. As applicable,
overall CRA performance ratings are also assigned for each State and
each multistate MSA. Because the information is already included in
final Sec. __.28, the agencies have removed the reference to the
specific ratings that may be assigned to a bank, as well as the
statement that the ratings reflect the bank's record of helping to meet
the credit needs of the bank's entire community, including low- and
moderate-income neighborhoods, consistent with the safe and sound
operation of the bank.
The agencies are not adopting proposed Sec. __.21(f)(3) in final
Sec. __.21 pertaining to performance scores. The agencies believe that
the performance scores are appropriately described in paragraphs (a)
and (b) of final Sec. __.28 and additional discussion in final Sec.
__.21 would be duplicative.
The agencies have considered the performance scoring system
alternatives suggested by commenters involving more granular scoring
systems or systems that would lend themselves to more distinct
gradations. However, the agencies are adopting the proposed 10-point
scale in the final rule because the agencies believe it provides
appropriate transparency and facilitates a greater understanding of
bank performance in comparison to other alternatives. With specific
reference to commenter input suggesting the need for a more detailed
performance scoring approach, such as a 100-point scale, the agencies
believe that doing so would provide at best a limited benefit because
both the proposal and final rule approach involve translating
performance scores into an ``Outstanding,'' ``High Satisfactory,''
``Low Satisfactory,'' ``Needs to Improve,'' or ``Substantial
Noncompliance'' conclusion or rating. In addition, the agencies believe
that the potential for CRA grade inflation with respect to performance
scores is minimized with established performance thresholds in the
Retail Lending Test and by the direct roll-up of assessment area
performance scores to conclusions at the State level, multistate MSA
level, and for the institution in all large bank performance tests. To
the extent examiner judgment is involved in assigning a performance
score, the agencies also believe that examiner training and guidance
will minimize potential ``grade inflation'' risks.
The agencies have also considered alternatives suggested by
commenters to assign different point values within the 10-point
performance scoring system to correspond with a particular conclusion
or rating. However, the agencies believe that finalizing the point
value as proposed is preferable because it produces a more accurate
overall score when there are variations in subcomponent performance.
Additionally, these point values result in appropriate aggregation of
geographic area conclusions into State, multistate MSA, and institution
conclusions and ratings. Regarding comments to develop a scale with a
greater difference in the number of points assigned to ``Low
Satisfactory'' and ``High Satisfactory,'' the agencies believe that the
proposed approach is appropriate. Specifically, the agencies consider
``Low Satisfactory'' and ``High Satisfactory'' performance to be less
distinct from one another than other neighboring categories, such as
``Needs to Improve''
[[Page 6786]]
and ``Low Satisfactory.'' Further, the agencies do not agree with
commenter input that the 10-point system inhibits strong performance by
banks. Instead, the agencies believe that the 10-point scoring
methodology appropriately identifies distinctions in bank performance
and assists the agencies in assigning corresponding conclusions and
ratings.
Section __.21(f) Safe and Sound Operations
Current Approach
Pursuant to the CRA statute and the current CRA regulations, a bank
is not required to make loans or investments or to provide services
that are inconsistent with the safe and sound operation of the
bank.\784\ Instead, current CRA regulations specify that banks are
expected by the agencies to provide safe and sound loans, investments,
and services on which they expect to make a profit.\785\ Furthermore,
banks may only develop and apply flexible underwriting standards for
loans that benefit low- or moderate-income geographies or individuals
if the standards are consistent with safe and sound operations.\786\
---------------------------------------------------------------------------
\784\ See 12 U.S.C. 2901(b) and 2903(a); see also current 12 CFR
__.11(b) and __.21(d).
\785\ See current 12 CFR __.21(d).
\786\ See id.
---------------------------------------------------------------------------
The Agencies' Proposal
In proposed Sec. __.21(g), the agencies retained the current
regulatory provision that provides that neither the CRA statute nor the
CRA regulations require a bank to make loans or investments or to
provide services that are inconsistent with safe and sound banking
practices, with the proposed clarification that this includes the
bank's underwriting standards.\787\ Similarly, the agencies also
proposed to retain the language in that provision indicating that,
although banks may employ flexible underwriting standards for lending
that benefits low- or moderate-income individuals and low- or moderate-
income census tracts, they must also be consistent with safe and sound
operations.\788\ The agencies proposed certain revisions to the
language in this section for clarity, including an express statement
that banks may employ flexible underwriting standards for not only
loans that benefit low- or moderate-income individuals and low- or
moderate-income census tracts, but also for loans that benefit small
businesses or small farms, if consistent with safe and sound
operations.\789\ The agencies proposed to eliminate the statement that
they anticipate that banks will provide safe and sound loans,
investments, and services on which they expect to make a profit because
they deemed this to be redundant to include.
---------------------------------------------------------------------------
\787\ See proposed Sec. __.21(g).
\788\ See current 12 CFR __.21(d) and proposed Sec. __.21(g).
\789\ See proposed Sec. __.21(g).
---------------------------------------------------------------------------
Comments Received
The agencies received a few comments that offered general support
for the agencies' proposed safety and soundness requirements. A
commenter stated that because operating in a safe and sound manner is a
prudent business practice and a regulatory requirement, a final CRA
rule should not lose sight of, or compromise, the ability of banks to
operate in such a manner. Another commenter stated that the agencies
should not abandon safe and sound safeguards against systemic risk.
Final Rule
The agencies are adopting the safe and sound operations requirement
in Sec. __.21(f) of the final rule with a single technical change. The
agencies are revising ``make'' in the first sentence to ``originate or
purchase'' in order to more precisely indicate that banks originate or
purchase loans or investments. The requirements in final Sec. __.21(f)
reinforces the statutory requirement that banks meet the credit needs
of their communities in a manner that is consistent with the safe and
sound operation of the bank. This requirement has general applicability
to the entire CRA framework.
Section __.22 Retail Lending Test
Section __.22 Overview of the Retail Lending Test Approach
Current Approach
Under the current CRA regulations, the large bank lending test
includes both quantitative and qualitative criteria. The agencies
consider originations and purchases of loans in the following
categories of retail lending: home mortgage loans; small business
loans; and small farm loans.\790\ These categories of retail lending
are generally evaluated if the bank has originated or purchased loans
in the category. In addition, consumer loans, which include motor
vehicle loans, credit card loans, other secured consumer loans, or
other unsecured consumer loans, are considered at the bank's option, or
if these loans constitute a substantial majority of the bank's
business.\791\
---------------------------------------------------------------------------
\790\ See current 12 CFR __.22(a)(1) and (2). For this purpose,
home mortgage loans include home purchase loans, home improvement
loans, home refinance loans, multifamily loans, and loans for the
purchase of manufactured homes. See Q&A Sec. __.12(l)-1.
\791\ See current 12 CFR __.22(a)(1); current 12 CFR __.12(j)
(definition of ``consumer loan''). The agencies interpret
``substantial majority'' to be so significant a portion of the
institution's lending activity by number and dollar volume of loans
that the lending test evaluation would not meaningfully reflect its
lending performance if consumer loans were excluded. See Q&A Sec.
__.22(a)(1)-2.
---------------------------------------------------------------------------
The agencies evaluate large banks' retail lending based on three
primary criteria: lending activity; geographic distribution; and
borrower characteristics. The lending activity criterion considers the
volume of retail lending, in terms of the number and dollar amount of
home mortgage loans, small business loans, small farm loans, and
consumer loans, as applicable, within a bank's assessment areas.\792\
The agencies identify the number and dollar amount of loans in
assessment areas and evaluate the bank's lending volume considering the
bank's resources, business strategy, and other performance context
information.\793\
---------------------------------------------------------------------------
\792\ See current 12 CFR __.22(b)(1).
\793\ See Interagency Large Institution CRA Examination
Procedures (April 2014) at 6.
---------------------------------------------------------------------------
In addition, to consider whether the bank is helping to meet the
credit needs of low- and moderate-income census tracts, and of low- and
moderate- income individuals, small businesses, and small farms, the
agencies review the geographic distribution and borrower distribution
of those loans.\794\
---------------------------------------------------------------------------
\794\ See current 12 CFR __.22(b)(2) and (3).
---------------------------------------------------------------------------
For the geographic distribution criterion, the agencies evaluate
the proportion of the bank's lending in the bank's assessment areas,
the dispersion of lending in the bank's assessment areas, and the
number and amount of a bank's retail loans in low-, moderate-, middle-,
and upper-income geographies in the bank's assessment areas.\795\ The
agencies review the geographic distribution of home mortgage loans by
income category and compare the percentage distribution of lending to
the percentage of owner-occupied housing units in the census tracts.
Similarly, in each geographic income category, the agencies compare:
small business lending to the percentage distribution of businesses;
small farm lending to the percentage distribution of farms; and
consumer lending to the percentage distribution of households in each
geographic income category, as applicable. The agencies supplement
these distribution analyses by also reviewing the dispersion of a
bank's loans throughout geographies of different income levels in its
assessment areas to determine if there are
[[Page 6787]]
unexplained conspicuous lending gaps.\796\
---------------------------------------------------------------------------
\795\ See current 12 CFR __.22(b)(2).
\796\ See Interagency Large Institution CRA Examination
Procedures (April 2014) at 7.
---------------------------------------------------------------------------
For the borrower distribution criterion, the agencies evaluate the
distribution of a bank's retail loans across borrower incomes or gross
annual revenues of small businesses and small farms.\797\ The agencies
use the following demographic comparators to inform the borrower
distribution analysis: for home mortgage lending, families by income
level; for small business lending, businesses with gross annual
revenues of $1 million or less; for small farm lending, farms with
gross annual revenues of $1 million or less; and for consumer lending,
households by income level.
---------------------------------------------------------------------------
\797\ See current 12 CFR __.22(b)(3).
---------------------------------------------------------------------------
The agencies evaluate small banks and intermediate small banks
using similar, but simplified, standards that do not rely on required
data collection or reporting.\798\ Specifically, a small bank or an
intermediate small bank is evaluated on: the bank's loan-to-deposit
ratio (based on the balance sheet dollar values at the institution
level); the percentage of its loans and lending-related activities
within the bank's assessment areas; the bank's record of lending to
and, as appropriate, engaging in other lending-related activities for
borrowers of different income levels and businesses and farms of
different sizes; the geographic distribution of the bank's loans; and
the bank's record of taking action in response to written complaints
about its performance in helping to meet credit needs in its assessment
areas.\799\ The geographic and borrower distribution evaluation for
small banks and intermediate small banks is similar to that of large
banks, but may use bank data collected in the ordinary course of
business or information obtained through loan samples.\800\ For small
banks, the agencies evaluate the same categories of retail lending as
for other banks, except that only those consumer loan categories that
are considered primary products are evaluated.
---------------------------------------------------------------------------
\798\ See current 12 CFR __.26.
\799\ See current 12 CFR __.26(b).
\800\ See Interagency Small Institution CRA Examination
Procedures (July 2007) at 5; Interagency Intermediate Small
Institution CRA Examination Procedures (July 2007) at 6.
---------------------------------------------------------------------------
The purpose of evaluating lending activity for small banks,
intermediate small banks, and large banks is the same--to determine
whether a bank has a sufficient volume and distribution of lending in
its assessment areas in light of a bank's performance context,
including its capacity and the lending opportunities in its assessment
areas.\801\ The current approach, however, does not specify what level,
or percentage, of lending is sufficient to achieve ``Outstanding'' or
``Satisfactory'' performance, for example, and relies on examiner
discretion to draw a conclusion about a bank's level of lending using
the descriptions of performance under each of the criteria and ratings
categories.\802\
---------------------------------------------------------------------------
\801\ See current 12 CFR __.21(b), __.22(a)(1), and__.26(a).
\802\ See, e.g., current appendix A to part __(Ratings).
---------------------------------------------------------------------------
Retail lending conducted outside of assessment areas is not
evaluated using the lending test criteria. However, the Interagency
Questions and Answers allow for consideration of loans to low- and
moderate-income individuals, small business loans, and small farm loans
outside of a bank's assessment areas.\803\
---------------------------------------------------------------------------
\803\ See Q&A Sec. __.22(b)(2) and Q&A Sec. __.22(b)(3)-4.
---------------------------------------------------------------------------
The Agencies' Proposal--Overview
The agencies proposed a Retail Lending Test in Sec. __.22 to
measure how well a bank's retail lending meets the credit needs of its
facility-based assessment areas, retail lending assessment areas, and
outside retail lending area, as applicable, through an analysis of the
bank's retail lending volume and retail lending distribution.\804\ The
proposed Retail Lending Test used a metrics-based approach that
incorporated specific quantitative standards in order to increase
consistency in evaluations and provide improved transparency and
predictability regarding the retail lending performance needed to
achieve a particular conclusion, ranging from ``Outstanding'' to
``Substantial Noncompliance.''
---------------------------------------------------------------------------
\804\ See generally proposed Sec. __.22.
---------------------------------------------------------------------------
Under the proposed Retail Lending Test, the agencies would apply
two sets of metrics. First, in facility-based assessment areas, the
agencies proposed to apply a retail lending volume screen to assess a
bank's retail lending volume, calculated as a bank volume metric,
relative to peer banks in the facility-based assessment area,
calculated as a market volume benchmark. Specifically, the agencies
proposed a bank volume metric calculated as the ratio of a bank's total
dollars of closed-end home mortgage loans, open-end home mortgage
loans, multifamily loans, small business loans, small farm loans, and
automobile loans compared to the bank's dollars of deposits in the
facility-based assessment area. The proposed market volume benchmark
was the aggregate ratio of retail lending compared to deposits among
all large banks that operated a branch in the facility-based assessment
area.
Under the proposal, a bank with a bank volume metric that met or
surpassed the Retail Lending Volume Threshold--30 percent of the market
volume benchmark--would be assigned a recommended conclusion for the
facility-based assessment area based on the proposed distribution
analysis described below. For a bank with a bank volume metric that did
not meet or surpass the threshold, the agencies proposed to consider a
set of factors to determine whether the bank had an acceptable basis
for not meeting or surpassing the threshold. Under the proposed
approach, a large bank that lacked an acceptable basis for not meeting
or surpassing the threshold would be limited to receiving a Retail
Lending Test conclusion of ``Needs to Improve'' or ``Substantial
Noncompliance'' for that facility-based assessment area.
Second, the agencies proposed to evaluate the geographic and
borrower distributions of a bank's major product lines in its facility-
based assessment areas, retail lending assessment areas, and outside
retail lending area, as applicable. Under the proposal, a bank's
originated and purchased closed-end home mortgage loans, open-end home
mortgage loans, multifamily loans, small business loans, and small farm
loans would qualify as a major product line in a particular area if the
loans in the product line comprised 15 percent or more, by dollar
amount, of the bank's retail lending in the area. In addition, a bank's
originated and purchased automobile loans would qualify as a major
product line in a particular area if the bank's automobile loans
comprised 15 percent or more of the bank's retail lending in the area,
based on a combination of the dollar amount and number of loans.
For a large bank, the agencies proposed to evaluate the geographic
and borrower distributions of the bank's major product lines in its
facility-based assessment areas, retail lending assessment areas, and
outside retail lending area. For an intermediate bank, or a small bank
that opted to be evaluated under the Retail Lending Test, the agencies
proposed to evaluate the geographic and borrower distributions of the
intermediate bank's or small bank's major product lines in its
facility-based assessment areas. In addition, if an intermediate bank
conducted a majority of its retail lending, by dollar amount, outside
of its facility-based assessment areas, the agencies would evaluate the
intermediate bank's
[[Page 6788]]
geographic and borrower distributions in its outside retail lending
area.
To evaluate the geographic and borrower distributions of a bank's
major product lines, the agencies proposed a series of bank metrics and
benchmarks covering a total of four categories of lending for each
major product line: low-income census tracts; moderate-income census
tracts; low-income borrowers (or small businesses or small farms with
gross annual revenues of less than $250,000); and moderate-income
borrowers (or small businesses or small farms with gross annual
revenues of greater than $250,000 but less than or equal to $1
million).\805\ For the geographic distribution analysis, the proposed
bank metrics would measure the level of the bank's lending in low- and
moderate-income census tracts in the facility-based assessment area,
retail lending assessment area, or outside retail lending area, as
applicable. For the borrower distribution analysis, the proposed bank
metrics would measure the level of the bank's lending to low- and
moderate-income borrowers, respectively, and to lower-revenue small
businesses and small farms, respectively, in the area. The proposed
geographic and borrower bank metrics would be compared to:
---------------------------------------------------------------------------
\805\ See the section-by-section analysis of final Sec.
__.22(f) for additional detail.
---------------------------------------------------------------------------
Market benchmarks that reflect the aggregate lending to
low- and moderate-income census tracts or low- and moderate-income
borrowers and lower-revenue small businesses and small farms in the
area by reporting lenders; and
Community benchmarks that reflect local demographic data.
Under the proposal, a bank's geographic and borrower distribution
analyses (evaluating the four categories of lending described above for
each major product line) would be translated into a performance
conclusion using multipliers and performance ranges. Specifically, for
each distribution with respect to each major product line evaluated in
a facility-based assessment area, retail lending assessment area, or
outside retail lending area, the agencies proposed to assign the
performance conclusion that corresponds to:
The relevant market benchmark, multiplied by a specified
multiplier; or
The relevant community benchmark, multiplied by a
specified multiplier, whichever is lower.
For example, under the proposal, if the geographic bank metric for
closed-end home mortgage loans in low-income census tracts in a
particular facility-based assessment area just exceeded (1) 110 percent
of the corresponding geographic market benchmark or (2) 90 percent of
the corresponding geographic community benchmark, whichever is lower,
then the agencies would assign a ``High Satisfactory'' conclusion to
the bank's performance on the particular geographic distribution in the
facility-based assessment area.
The agencies proposed a transparent approach for combining the four
performance conclusions assigned to each of a bank's major product
lines in an area pursuant to the geographic and borrower distribution
analyses. Under the proposed approach, for a particular major product
line, the two geographic distribution performance conclusions would be
combined using a weighted average calculation to determine a geographic
performance score and the two borrower distribution performance
conclusions would be combined using a weighted average calculation to
determine a borrower performance score. Then, these geographic and
borrower performance scores would be averaged to develop a product line
average for each major product line.
Next, the agencies would develop a recommended conclusion for the
Retail Lending Test for each facility-based assessment area, retail
lending assessment area, and outside retail lending area. This
recommended conclusion would be developed by combining the product line
averages for all of a bank's major product lines in the facility-based
assessment area, retail lending assessment area, or outside retail
lending area. For purposes of combining the product line averages, the
agencies proposed to weight each of a bank's major product lines by the
dollar volume of lending the bank engaged in for the product line in
the area. The resulting recommended conclusion would serve as the basis
for the performance conclusion on the Retail Lending Test in the
particular facility-based assessment area, retail lending assessment
area, or outside retail lending area under the proposed approach.
Recognizing that the proposed distribution metrics and benchmarks
may not capture all factors that should be considered when evaluating a
bank's retail lending performance, the agencies proposed a set of
additional factors that examiners may consider with respect to a bank's
retail lending performance in a particular area. Based on the Retail
Lending Test recommended conclusion, the additional factors, and the
bank's performance on the retail lending volume screen (in the case of
a facility-based assessment area), examiners would assign a Retail
Lending Test conclusion to each of a bank's facility-based assessment
areas, retail lending assessment areas, and its outside retail lending
area, as applicable, under the proposed approach. The agencies would
also consider applicable performance context factors not included in
the metrics-based framework.
Finally, the agencies proposed a transparent and standardized
approach for combining Retail Lending Test conclusions assigned to a
bank's facility-based assessment areas, retail lending assessment
areas, and outside retail lending areas, as applicable, to calculate
Retail Lending Test conclusions for the bank at the State, multistate
MSA, and institution levels. For example, to calculate a large bank's
Retail Lending Test conclusion for a particular State, the agencies
proposed to combine the Retail Lending Test conclusions for each of the
large bank's facility-based assessment areas and retail lending
assessment areas in the State, weighting each assessment area
conclusion based on a combination of the percentage of the large bank's
retail loans made in the particular facility-based assessment area or
retail lending assessment area and the percentage of the bank's
deposits sourced from the particular facility-based assessment area or
retail lending assessment area.
Summary of Final Rule Retail Lending Test
Overview. The agencies are finalizing the proposed Retail Lending
Test, with substantive modifications, clarifications, and technical
revisions, as described throughout the section-by-section analysis of
final Sec. __.22. The final rule retains the overall structure and key
features of the proposed Retail Lending Test, including:
A Retail Lending Volume Screen applied to facility-based
assessment areas, pursuant to final Sec. __.22(c);
A major product line standard to identify a bank's most
significant retail product lines in its facility-based assessment
areas, retail lending assessment areas, and outside retail lending
area--individually and collectively referred to as ``Retail Lending
Test Areas'' in the final rule--pursuant to final Sec. __.22(d);
Metrics and benchmarks, drawn from the current approach,
used to evaluate the following four categories of lending for each of a
bank's major product lines in each Retail Lending Test Area, pursuant
to final Sec. __.22(e):
[cir] Loans in low-income census tracts;
[cir] Loans in moderate-income census tracts;
[[Page 6789]]
[cir] Loans to low-income borrowers (or to businesses or farms with
gross annual revenues of $250,000 or less); \806\ and
---------------------------------------------------------------------------
\806\ For purposes of evaluating a bank's small business lending
performance under the Retail Lending Test, the agencies consider the
bank's loans to non-farm businesses only, and do not consider the
bank's loans to farms. A bank's loans to farms are considered in the
evaluation of the bank's small farm lending performance.
---------------------------------------------------------------------------
[cir] Loans to moderate-income borrowers (or to businesses or farms
with gross annual revenues greater than $250,000 but less than or equal
to $1 million).\807\
---------------------------------------------------------------------------
\807\ The transition amendments included in this final rule
will, once effective, amend the definitions of ``small business''
and ``small farm'' to instead cross-reference to the definition of
``small business'' in the CFPB Section 1071 Final Rule. This will
allow the CRA regulatory definitions to adjust if the CFPB increases
the threshold in the CFPB Section 1071 Final Rule definition of
``small business.'' This is consistent with the agencies' intent
articulated in the preamble to the proposal and elsewhere in this
final rule to conform these definitions with the definition in the
CFPB Section 1071 Final Rule. The agencies will provide the
effective date of these transition amendments in the Federal
Register after section 1071 data is available.
---------------------------------------------------------------------------
Multipliers and performance ranges, based on the
benchmarks described above, that determine a bank's supporting
conclusion for each of the four categories of lending for certain major
product lines, pursuant to final Sec. __.22(f);
Product line scores for a bank's performance on each major
product line--by averaging together the supporting conclusions for each
of the four categories of lending for a major product line--in a Retail
Lending Test Area;
A recommended conclusion for each Retail Lending Test Area
based on the bank's product line scores on all major product lines in
that area, pursuant to final Sec. __.22(f);
Additional factors that the agencies consider to
supplement the geographic and borrower distribution analyses, pursuant
to final Sec. __.22(g); and
Conclusions assigned to each Retail Lending Test Area, and
a weighted average approach to determine Retail Lending Test
conclusions at the State, multistate MSA, and institution levels,
pursuant to final Sec. __.22(h).
The final rule also includes key modifications from the proposed
Retail Lending Test, discussed in further detail below, including:
A reduction in the number of major product lines by
removing multifamily loans and open-end home mortgage loans from the
distribution analysis and by narrowing the standard for when automobile
loans are evaluated;
Changes to the methodology for determining a bank's major
product lines in its facility-based assessment areas and outside retail
lending area, namely by considering a combination of loan dollars and
loan count, as defined in final Sec. __.12;
Changes to the methodology for determining a large bank's
major product lines in retail lending assessment areas, based on
whether the large bank made a sufficient number of closed-end home
mortgage loans or small business loans to trigger the retail lending
assessment area delineation requirement, as described further in the
section-by-section analysis of final Sec. __.17;
For automobile lending, limiting the evaluation to
majority automobile lenders, as described below, and to banks that opt
to have their automobile lending evaluated, and eliminating the
proposed data reporting requirements, market benchmarks, and
performance ranges;
A reduction in several of the multiplier values used to
calculate performance ranges, to ensure that the performance ranges are
generally attainable and appropriately aligned with the conclusion
categories; \808\
---------------------------------------------------------------------------
\808\ See the section-by-section analysis of final Sec.
__.22(f) and the below discussion of the analysis of the final rule
using historical data.
---------------------------------------------------------------------------
Changes to the methodology for combining performance in
each major product line to determine the recommended conclusion in each
Retail Lending Test Area, namely by considering a combination of loan
dollars and loan count;
Additions and revisions to the proposed additional factors
to account for more circumstances in which adjustments to the
recommended conclusion for a Retail Lending Test Area may be warranted;
and
Changes to the approach for calculating a weighted average
of Retail Lending Test Area conclusions to determine conclusions at the
State, multistate MSA, and institution levels.
In addition to these substantive changes, the final rule adopts
non-substantive clarifications and technical revisions to the
regulatory text, including final appendix A, to improve readability and
enhance clarity.
Retail lending volume screen. As under the proposal, the final rule
Retail Lending Test applies two sets of metrics. First, in facility-
based assessment areas only, the agencies will apply the Retail Lending
Volume Screen to assess a bank's retail lending volume relative to its
volume of deposits compared to peer lenders in the area. Specifically,
under the final rule, a bank's Bank Volume Metric is the ratio of the
bank's total dollars of lending in specified categories (closed-end
home mortgage loans, open-end home mortgage loans, multifamily loans,
small business loans, small farm loans, and automobile loans, as
applicable), compared to the bank's dollars of deposits in the
facility-based assessment area. The Bank Volume Metric is compared to
the aggregate ratio of retail lending to deposits among all banks that
operated a branch in the area, as measured by a Market Volume
Benchmark. The Bank Volume Metric and Market Volume Benchmark under the
final rule are substantially similar to the proposal, except that: (1)
a bank's automobile loans are only included in the Bank Volume Metric
if the bank is a majority automobile lender or opts to have its
automobile loans evaluated under the Retail Lending Test; and (2)
automobile lending is not included in the Market Volume Benchmark.
As under the proposal, the final rule provides that a bank with a
Bank Volume Metric that meets or surpasses a Retail Lending Volume
Threshold of 30 percent of the Market Volume Benchmark will be assigned
a recommended conclusion for the facility-based assessment area based
on the distribution analysis described below. With respect to a bank
with a Bank Volume Metric that does not meet the Retail Lending Volume
Threshold in a facility-based assessment area, the agencies will
consider a set of factors to determine whether the bank has an
acceptable basis for not meeting the threshold. As under the proposal,
under the final rule a large bank that lacks an acceptable basis for
not meeting the threshold is limited to receiving a Retail Lending Test
conclusion of ``Needs to Improve'' or ``Substantial Noncompliance'' for
the facility-based assessment area. An intermediate bank, or a small
bank that opted into being evaluated under the Retail Lending Test,
that lacks an acceptable basis for not meeting the threshold would
remain eligible for all possible conclusion categories.
Geographic and borrower distribution analysis. Consistent with the
proposal, the agencies will next evaluate the geographic and borrower
distributions of a bank's major product lines in its Retail Lending
Test Areas. The final rule adopts a revised approach to determine what
is a major product line for facility-based assessment areas and outside
retail lending areas. In a facility-based assessment area or outside
retail lending area, a bank's originated and purchased closed-end home
mortgage loans, small business loans, small farm loans, and automobile
loans, as applicable, would qualify as a major product line if the
[[Page 6790]]
loans in the product line comprise 15 percent or more, based on a
combination of loan dollars and loan count, of the bank's lending
across all these product lines in the area. The final rule also adopts
a revised approach for determining what is a major product line for
retail lending assessment areas. In a retail lending assessment area, a
large bank's originated and purchased closed-end home mortgage loans or
small business loans, respectively, would qualify as a major product
line if the large bank originated a sufficient number of closed-end
home mortgage loans or small business loans to require delineation of a
retail lending assessment area pursuant to final Sec. __.17 (i.e., at
least 150 reported closed-end home mortgage loans or at least 400
reported small business loans in each year of the prior two calendar
years). As noted above, unlike in the proposal, the distribution of a
bank's open-end home mortgage loans and multifamily loans are not
evaluated under the final Retail Lending Test.
As under the proposal, the agencies will evaluate the geographic
and borrower distributions of a large bank's major product lines in its
facility-based assessment areas, retail lending assessment areas, and
outside retail lending area. For an intermediate bank, or a small bank
that opts to be evaluated under the Retail Lending Test, the agencies
evaluate the geographic and borrower distributions of the bank's major
product lines in its facility-based assessment areas. Furthermore, an
intermediate bank or a small bank is evaluated in its outside retail
lending area if the bank conducts a majority of its retail lending, by
a combination of loan dollars and loan count outside of its facility-
based assessment areas, or at the bank's option. For a small bank that
opts to be evaluated under the Retail Lending Test, the final rule
treats these small banks the same as intermediate banks with respect to
the Retail Lending Test Areas in which the small bank's major product
lines are evaluated.
As under the proposal, the agencies will calculate a series of bank
metrics and benchmarks to evaluate the geographic and borrower
distributions of a bank's major product lines. The final rule generally
adopts the geographic and borrower distribution metrics and benchmarks
as proposed, evaluating four separate categories of lending for each
major product line in each Retail Lending Test Area:
Low-income census tracts;
Moderate-income census tracts;
Low-income borrowers or businesses or farms with gross
annual revenues of less than $250,000; and
Moderate-income borrowers or businesses or farms with
gross annual revenues of greater than $250,000 but less than or equal
to $1 million.
The bank's metrics are compared to:
Market benchmarks that reflect the aggregate lending to
low- and moderate-income census tracts or low- and moderate-income
borrowers or lower-revenue small businesses or small farms in the
Retail Lending Test Area by reporting lenders; and
Community benchmarks that reflect local demographic data.
As in the proposal, the final rule evaluates a bank's performance
on the geographic and borrower distribution analyses for closed-end
home mortgage loans, small business loans, and small farm loans using
performance ranges calculated with benchmarks and multipliers.
Specifically, for each category of lending that is evaluated as part of
a major product line in a Retail Lending Test Area, the agencies assign
a supporting conclusion that corresponds to a performance range
determined by: (1) the relevant market benchmark, multiplied by a
specified multiplier; and (2) the relevant community benchmark,
multiplied by a specified multiplier, whichever is lower.
Relative to the proposal, the final rule adjusts several of the
proposed multiplier values downward; the agencies believe that the
final rule multipliers are appropriately aligned with supporting
conclusions, and that supporting conclusions of ``Outstanding,'' ``High
Satisfactory,'' and ``Low Satisfactory'' are generally attainable. For
example, the market multiplier for a ``High Satisfactory'' was adjusted
from the proposed value of 110 percent to 105 percent, and the
community multiplier for a ``High Satisfactory'' was adjusted from the
proposed value of 90 percent to 80 percent. As a result, under the
final rule, if the Geographic Bank Metric for closed-end home mortgage
loans in low-income census tracts in a particular facility-based
assessment area just exceeded (1) 105 percent of the corresponding
Geographic Market Benchmark or (2) 80 percent of the corresponding
Geographic Community Benchmark, whichever is lower, then the agencies
would assign a ``High Satisfactory'' supporting conclusion to the
bank's performance on closed-end home mortgage lending to low-income
census tracts in the facility-based assessment area.
Product line score. The final rule generally adopts the proposed
approach to combining the four supporting conclusions assigned to each
of a bank's major product lines in a Retail Lending Test Area pursuant
to the geographic and borrower distribution analyses. For each major
product line, the agencies will combine these four supporting
conclusions as follows. First, the agencies will determine a geographic
distribution average using a weighted average calculation of the
performance scores associated with the two geographic distribution
supporting conclusions. For example, the agencies would combine a
bank's closed-end home mortgage lending performance in low-income
census tracts and moderate-income census tracts. Second, the agencies
will determine a borrower distribution average using a weighted average
of performance scores associated with the two borrower distribution
supporting conclusions. For example, the agencies would combine a
bank's closed-end home mortgage lending performance to low-income
borrowers and moderate-income borrowers. Lastly, the agencies will
average together the geographic and borrower distribution averages to
arrive at a product line score (renamed from the proposed term
``product line average'').
Recommended conclusion for a Retail Lending Test Area. Next, the
product line scores for all of a bank's major product lines in a Retail
Lending Test Area are combined to produce a recommended conclusion for
the Retail Lending Test Area. For purposes of combining product line
scores, under the final rule, a bank's major product lines are weighted
based on a combination of loan dollars and loan count in the product
line, rather than by the volume of loan dollars alone, as under the
proposal. The resulting Retail Lending Test recommended conclusion
serves as the basis for the conclusion on the Retail Lending Test in
the particular Retail Lending Test Area.
Additional factors and performance context. As in the proposal, the
final rule recognizes that the distribution metrics and benchmarks may
not capture all factors that should be considered when evaluating a
bank's retail lending performance. For this reason, the final rule
adopts an expanded set of additional factors in final Sec. __.22(g)
relative to the proposal that the agencies may consider with respect to
a bank's retail lending performance in a particular Retail Lending Test
Area. The agencies will assign a Retail Lending Test conclusion to each
of a bank's Retail Lending Test Areas based on the bank's performance
on the Retail Lending Volume Screen (in the case of a facility-based
assessment area), the Retail Lending
[[Page 6791]]
Test recommended conclusion, performance context factors provided in
final Sec. __.21(d), and these additional factors.
Retail Lending Test conclusions for a State, multistate MSA, and
institution. Lastly, the final rule generally adopts the proposed
approach for combining Retail Lending Test conclusions assigned to a
bank's Retail Lending Test Areas using a weighted average calculation
to develop conclusions for the bank at the State, multistate MSA, and
institution levels. For example, to calculate a large bank's Retail
Lending Test conclusion for a particular State, the agencies will
combine the Retail Lending Test conclusions for each of the large
bank's facility-based assessment areas and retail lending assessment
areas in the State. Each Retail Lending Test Area's conclusion will be
weighted using a combination of the percentage of the large bank's
product line loans (using a combination of loan dollars and loan count)
in the area and deposits in the area. Under this example for a
conclusion in a State, the percentages of the bank's product line loans
and deposits in each area are calculated relative to the bank's total
product line loans and deposits sourced from facility-based assessment
areas and retail lending assessment areas in the State.
Retail Lending Test--General Topics
This section discusses topics that relate to the Retail Lending
Test as a whole or to multiple aspects of the Retail Lending Test.
Topics specific to a particular aspect of the Retail Lending Test are
discussed in more detail in the section-by-section analysis below.
Overall Metrics-Based Approach
Comments Received
Metrics-Based Approach Generally. The agencies received numerous
comments supportive of the proposed metrics-based approach to
evaluating banks' retail lending performance. Many of these commenters
indicated that the retail lending metrics would provide rigor on the
proposed Retail Lending Test, address what some commenters referred to
as CRA grade inflation, and incentivize banks to increase lending to
underserved communities.
Conversely, many other commenters raised concerns about the
proposed metrics-based approach to evaluating retail lending. As
described below, these commenters stated that the Retail Lending Test
was overly complex, did not sufficiently account for differences in
bank business models, was overly stringent, and did not incorporate
qualitative factors that should be considered in connection with a
bank's retail lending performance.
Complexity of the metrics-based approach. Some commenters stated
that the metrics-based Retail Lending Test approach was overly complex,
with feedback including the recommendation that the agencies instead
consider a less complicated approach with thresholds that can be
modified by examiners based on performance context. Some commenters
noted that the complexity of the proposed Retail Lending Test
necessitated a more extended comment period to allow commenters time to
fully understand the approach and its potential impact.
In addition to comments concerning the complexity of the Retail
Lending Test as a whole, the agencies received numerous comments
concerning the complexity of particular aspects of the performance
test, such as the retail lending distribution metrics and benchmarks.
These comments are discussed in the section-by-section analysis of
final Sec. __.22(e) below.
Application of metrics-based approach to different bank business
models. Other commenters stated that the Retail Lending Test did not
sufficiently account for differences in banks' business models. For
example, a commenter asserted that a bank primarily focused on
commercial lending and with little retail lending would be unable to
perform well on the Retail Lending Test.
Retail Lending Test stringency. Many commenters stated that banks
would have difficulty achieving an ``Outstanding'' conclusion on the
Retail Lending Test due to the performance test's stringency. In
addition to comments concerning the stringency of the Retail Lending
Test as a whole, the agencies received numerous comments concerning the
stringency of particular aspects of the performance test, such as the
multipliers used to establish performance ranges. These comments are
discussed in the section-by-section analysis of final Sec. __.22(f)
below.
Inclusion of qualitative factors. Some commenters suggested that
the proposed Retail Lending Test lacked sufficient consideration of
qualitative factors, including performance context, that should be
considered in connection with a bank's retail lending performance. In
this regard, a commenter asserted that the agencies' proposed metrics-
based approach was too heavy on quantitative metrics and left little
room for necessary qualitative analysis. Relatedly, other commenters
conveyed that the proposed metrics-based approach would overshadow the
qualitative aspects of retail lending that are beneficial to low- and
moderate-income individuals and communities. Likewise, a commenter
warned against overly standardizing the evaluation process with
quantitative measurements at the expense of capturing more qualitative
impacts, which could stifle creativity and diversity in the CRA market.
Several commenters recommended that the agencies incorporate impact
factor reviews proposed for use with the Community Development
Financing Test and the Community Development Services Test into the
Retail Lending Test (as well as the Retail Services and Products Test).
Relatedly, a commenter suggested that, to increase the incentive for
banks to engage in community development financing activities, the
agencies should provide banks with the option of receiving qualitative
consideration for community development lending under the Retail
Lending Test.
Numerous commenters asserted that the agencies' evaluation of home
mortgage loans should not be a purely quantitative evaluation, and
should consider qualitative factors related to the responsiveness of a
bank's lending. Some commenters advocated for an impact review of home
mortgage lending, with some of these commenters expressing the view
that home purchase loans should receive more credit than other types of
home mortgage lending. A few commenters urged the agencies to continue
to evaluate a bank's use of innovative or flexible lending practices to
address credit needs of low- and moderate-income individuals and
geographic areas. Several commenters opined on the importance of home
mortgage loans, particularly to minority, low-, moderate-, and middle-
income individuals, and first-generation homebuyers, with a few
commenters asserting that loans to these borrowers should receive extra
consideration. A commenter stated that the agencies should award
``extra credit'' to banks for originating home mortgages involving
community land trusts because such programs are designed to preserve
affordable housing and prevent displacement. Another commenter
suggested that banks should receive consideration for home mortgage
products that address barriers to homeownership for underserved
communities, such as appraisal bias and lack of down payment
assistance. A commenter suggested that certain income-restricted
mortgage assistance loans, including those made to middle-income
borrowers, should receive positive consideration to incentivize
[[Page 6792]]
banks to continue participating in these programs.
Some commenters asserted that the agencies should employ analysis
of loan pricing and product terms to ensure that products are meeting
local needs instead of extracting wealth. These commenters further
recommended that the agencies evaluate how well loan products match
local needs. Some commenters also suggested that the agencies should
review the affordability and quality of loan terms in Retail Lending
Test evaluations. Several of these commenters noted that banks should
be penalized for offering high-cost loans that exceed State usury caps
and borrowers' abilities to repay. A commenter emphasized that the
agencies should review banks' small business lending and small farm
lending qualitatively for predatory characteristics such as exorbitant
interest rates or prepayment penalties.
Final Rule
The agencies are finalizing the proposed Retail Lending Test, with
substantive modifications, clarifications, and technical revisions as
described throughout the section-by-section analysis of final Sec.
__.22. As in the proposal, the Retail Lending Test adopted in the final
rule generally incorporates metrics, but also includes qualitative
aspects. Under the final rule, this metrics-based approach is
supplemented with consideration of qualitative factors that are
relevant to evaluating a bank's lending performance or lending
opportunities, but that are not captured in the metrics, including the
performance context factors in final Sec. __.21(d) and the additional
factors in final Sec. __.22(g). In addition, as discussed in the
section-by-section analysis of final Sec. __.23, the agencies note
that the responsiveness of a bank's credit products and programs is
considered under the Retail Services and Products Test.
Metrics-based Approach Generally. The agencies believe that it is
appropriate to adopt a Retail Lending Test that leverages metrics. In
particular, the agencies believe that the approach adopted in the final
rule will facilitate robust examinations and positively increase
transparency and consistency in retail lending evaluations compared to
the current regulations. For example, the final rule sets clearer
retail lending performance expectations by incorporating performance
ranges for evaluating the distribution of a bank's closed-end home
mortgage loans, small business loans, and small farm loans. These
performance ranges incorporate market and community benchmarks to set
thresholds for conclusion categories. Although this approach to use
performance ranges represents a change from the current regulations,
the agencies note that the final rule distribution metrics and
benchmarks closely resemble the metrics and benchmarks used in CRA
evaluations today.\809\
---------------------------------------------------------------------------
\809\ See Interagency Large Institution CRA Examinations
Procedures (April 2014) at 6-8; Interagency Intermediate Small
Institution CRA Examination Procedures (July 2007) at 4-6;
Interagency Small Institution CRA Examination Procedures (July 2007)
at 4-6.
---------------------------------------------------------------------------
Complexity of the metrics-based approach. The agencies have
considered concerns expressed by a number of commenters regarding the
complexity of the proposed Retail Lending Test. The agencies believe
that the final rule Retail Lending Test appropriately balances the
agencies' objectives of ensuring that CRA evaluations of retail lending
performance are robust and comprehensive, providing greater consistency
and transparency, and limiting overall complexity. As discussed
throughout the section-by-section analysis of final Sec. __.22, the
final rule includes various changes, relative to the proposal, to
simplify the Retail Lending Test while still achieving the agencies'
objectives. For example, the final rule reduces the number of product
lines considered under the Retail Lending Test and, for large banks,
the number of product lines that would be evaluated in any retail
lending assessment area. However, the agencies believe that certain
aspects of the Retail Lending Test that were viewed by some commenters
as complex are necessary to advance the agencies' objectives of
increasing the consistency and transparency of CRA evaluations and
maintaining robust evaluation standards that take into account the
performance context of an area, including the local credit needs and
opportunities. In particular, these aspects include the evaluation of
the geographic and borrower distributions of a bank's major product
lines, the use of performance ranges to translate the bank's
performance with respect to certain major product lines into supporting
conclusions, and a standardized approach to developing Retail Lending
Test conclusions for each Retail Lending Test Area and at the State,
multistate MSA, and institution levels.
To further address concerns regarding the complexity of the Retail
Lending Test, the agencies intend to develop data tools that will
provide banks and the public with CRA information on specific Retail
Lending Test Areas, including Retail Lending Test metrics, benchmarks,
and performance ranges based on recent data. The agencies believe that
these data tools will help banks monitor their retail lending
performance relative to benchmarks and increase their familiarity with
operation of the Retail Lending Test.
Application of metrics-based approach to different bank business
models. The agencies have also considered feedback from some commenters
that the proposed Retail Lending Test does not sufficiently account for
differences in banks' business models. The agencies believe that the
final rule Retail Lending Test approach appropriately accounts for
differences in bank business models while also affirming the statute's
focus on banks helping to meet the credit needs of their entire
communities. In particular, the agencies believe that multiple elements
of the final rule Retail Lending Test help to account for differences
in bank business models, such as the following:
Tailored approaches to delineating retail lending
assessment areas for large banks and to evaluating small banks and
intermediate banks in their outside retail lending areas, depending on
a bank's asset size and percentage of lending within its facility-based
assessment areas, as discussed in the section-by-section analyses of
final Sec. Sec. __.16 through __.18;
Tailored evaluation of automobile loans for banks that are
majority automobile lenders or that opt to have their automobile loans
evaluated under the Retail Lending Test, as discussed below;
Consideration of all of a bank's home mortgage loans,
multifamily loans, small business loans, small farms loans, and
automobile loans, as applicable, under the Retail Lending Volume
Screen, as discussed in the section-by-section analysis of final Sec.
__.22(c);
For a bank that does not meet or surpass the Retail
Lending Volume Threshold in a facility-based assessment area,
consideration of the bank's business strategy as one of several
``acceptable basis'' factors, as discussed in the section-by-section
analysis of final Sec. __.22(c)(3);
Major product line standards that identify a bank's most
significant product lines in a Retail Lending Test Area for evaluation
under the distribution analysis, as discussed in the section-by-section
analysis of final Sec. __.22(d);
Calculation of bank distribution metrics based on the
percentage, rather than the absolute number, of the bank's loans in a
major product line in
[[Page 6793]]
categories of designated census tracts and to categories of designated
borrowers, as discussed in the section-by-section analysis of final
Sec. __.22(e);
Weighting a bank's performance on each of its major
product lines based on a combination of loan dollars and loan count, as
discussed in the section-by-section analysis of final Sec. __.22(f);
Consideration of performance context and additional
factors in assigning Retail Lending Test conclusions, as discussed in
the section-by-section analyses of final Sec. __.22(g) and (h); and
Retention of the strategic plan option, which could result
in appropriate modifications to the Retail Lending Test, as discussed
in the section-by-section analysis of final Sec. __.27.
Retail Lending Test stringency. The agencies have considered
commenters' concerns that the proposed Retail Lending Test as a whole
was overly stringent and that achieving Retail Lending Test conclusions
of ``Outstanding,'' ``High Satisfactory,'' or ``Low Satisfactory''
would be overly difficult. The agencies analyzed historical CRA data to
estimate the distribution of institution-level Retail Lending Test
conclusions across banks, as well as recommended conclusions for
different Retail Lending Test areas. A large majority of banks included
in the historical analysis are estimated to have performed at a level
consistent with an institution-level conclusion of ``Outstanding,''
``High Satisfactory,'' or ``Low Satisfactory'' based on the final rule
provisions. The analysis informed the agencies' determination that the
performance ranges for a ``Low Satisfactory'' or higher conclusion are
generally attainable across a variety of circumstances, such as
different Retail Lending Test Areas, bank asset-size categories,
metropolitan and nonmetropolitan areas, and time periods. This analysis
and results are discussed further in the historical analysis subsection
of this section of this SUPPLEMENTARY INFORMATION. In addition, the
agencies have considered the stringency of particular aspects of the
Retail Lending Test, such as the Retail Lending Volume Screen,
discussed further in the section-by-section analysis of final Sec.
__.22(c), and the multipliers used to establish performance ranges,
discussed further in the section-by-section analysis of final Sec.
__.22(f).
Inclusion of qualitative factors. Although the agencies believe the
Retail Lending Test should generally be informed by metrics, they also
believe that a purely metrics-based approach to evaluating a bank's
retail lending performance could be inflexible and provide an
incomplete picture of a bank's retail lending performance. For this
reason, the final rule supplements the use of metrics with
consideration of qualitative additional factors that are relevant to
evaluating a bank's lending performance or lending opportunities, but
that are not captured in the metrics or benchmarks, as discussed in the
section-by-section analyses of final Sec. __.22(c)(3) and (g).
Additionally, the final rule specifies that the agencies will consider
applicable performance context factors included in final Sec. __.21(d)
when assigning Retail Lending Test conclusions, as discussed in the
section-by-section analysis of final Sec. __.22(h). Together, the
agencies believe that these qualitative aspects of the Retail Lending
Test will enhance examiners' evaluation of a bank's performance as
captured by the Retail Lending Test's metrics and provide a more
accurate picture of the bank's overall retail lending performance.
The agencies considered commenter suggestions that specific
qualitative factors, such as impact factors, should be incorporated
into the Retail Lending Test, such as consideration of retail loan
pricing and product terms and accounting for retail loans with
predatory lending characteristics. The agencies believe that these
considerations are appropriately addressed in other parts of the final
rule. For example, the final rule includes a qualitative evaluation of
a bank's responsive credit products and programs under the Retail
Services and Products Test.\810\ In addition, examiners may consider
the affordability and quality of retail loan terms in consumer
compliance examinations, and discriminatory or other illegal credit
practices identified in these examinations would be taken into
consideration in assigning a bank's CRA ratings, as discussed in the
section-by-section analysis of final Sec. __.28(d).
---------------------------------------------------------------------------
\810\ As discussed in the section-by-section analyses of final
Sec. Sec. __.21, __.23, __.29, and __.30, large banks are subject
to the Retail Services and Products Test, with banks of other sizes
optionally subject to evaluation of credit and deposit products.
---------------------------------------------------------------------------
In addition, the agencies considered commenter feedback to provide
banks with the option of receiving qualitative consideration for
community development lending under the Retail Lending Test. However,
the agencies believe that community development lending is
appropriately, and comprehensively, considered under the Community
Development Financing Test, the Community Development Financing Test
for Limited Purpose Banks, the Intermediate Bank Community Development
Test, and the Small Bank Lending Test, as applicable. For this reason,
the final rule does not include qualitative consideration of community
development loans under the Retail Lending Test. However, under the
final rule, certain home mortgage loans, small business loans, and
small farm loans considered under the distribution analysis of the
Retail Lending Test may also be considered under the Community
Development Financing Test or the Intermediate Bank Community
Development Financing Test, as discussed in the section-by-section
analyses of final Sec. Sec. __.24 and __.30.
Banks Evaluated for Automobile Lending
The Agencies' Proposal
The agencies proposed to evaluate automobile lending for banks
evaluated under the proposed Retail Lending Test. Specifically, under
the proposed Retail Lending Volume Screen, discussed further in the
section-by-section analysis of final Sec. __.22(c), a bank's
originated and purchased automobile loans in a facility-based
assessment area would have been included in the Bank Volume Metric,
which would be compared to a Market Volume Benchmark that would have
included all originated automobile loans in counties wholly or
partially within the facility-based assessment area reported by large
banks that operated a branch in those counties.\811\ In addition, under
the proposed retail lending distribution analysis, discussed further in
the section-by-section analysis of final Sec. __.22(d) through (f),
the agencies would have evaluated the geographic and borrower
distributions of a bank's automobile loans in a facility-based
assessment area, retail lending assessment area, or outside retail
lending area in which the bank's automobile loans constituted a major
product line.
---------------------------------------------------------------------------
\811\ The agencies proposed to require large banks with assets
greater than $10 billion to collect, maintain, and report to the
agencies certain automobile lending data, as discussed further in
the section-by-section analysis of final Sec. __.42.
---------------------------------------------------------------------------
Comments Received
As discussed further in the section-by-section analysis of final
Sec. __.22(d), the agencies received numerous comments concerning the
proposed evaluation approach for automobile lending under the Retail
Lending Test, with some commenters supporting the evaluation of
automobile loans using the
[[Page 6794]]
proposed metrics-based approach but with most commenters opposing or
expressing significant concerns with the proposed approach.
A few commenters specifically addressed the applicability of the
proposed Retail Lending Test evaluation approach for automobile loans
to different types of banks. These commenters stated that the metrics-
based approach should only apply to automobile loans at a bank's option
or, according to one commenter, if automobile loans constituted a
majority of a bank's retail lending.
Final Rule
The agencies are finalizing the proposal to evaluate banks'
automobile lending under the Retail Lending Test, with substantive
modifications including a narrower standard for when a bank is required
to be evaluated for automobile lending relative to the proposed
approach. Specifically, under the final rule, the agencies will
evaluate automobile loans under the Retail Lending Test only if the
bank is a majority automobile lender, or the bank opts to have its
automobile loans evaluated.\812\ For banks that meet these criteria,
automobile loans are included in their Bank Volume Metric in a
facility-based assessment area, as discussed further in the section-by-
section analysis of final Sec. __.22(c). In addition, the agencies
will evaluate the distribution of these banks' automobile loans in a
facility-based assessment area or outside retail lending area in which
automobile loans are a major product line, as discussed further in the
section-by-section analysis of final Sec. __.22(d).
---------------------------------------------------------------------------
\812\ As discussed in the section-by-section analysis of final
Sec. __.12 (definition of ``product line''), automobile loans are a
Retail Lending Test product line for a majority automobile lender or
a bank that opts to have its automobile loans evaluated.
---------------------------------------------------------------------------
Majority automobile lenders. As discussed further in the section-
by-section analysis of final Sec. __.12, the agencies have decided
that the Retail Lending Test evaluation of automobile lending will be
mandatory for banks that are majority automobile lenders. In
incorporating the majority automobile lending standard, the agencies
considered that the ``substantial majority'' standard in the current
regulations applies to all consumer loans for large banks \813\ and
that a majority standard is, therefore, appropriate for evaluating
automobile loans, which are a component of consumer loans. In addition,
in deciding on a majority standard for when an evaluation of a bank's
automobile lending is required, the agencies sought to balance the
benefits of achieving a more comprehensive evaluation of a bank's
retail lending, recognizing that adding automobile lending as a major
product line would require an affected bank to collect and maintain
automobile lending data, and considering that evaluations of consumer
lending are currently only required for banks that meet a substantial
majority standard. As a result of employing a majority standard,
relative to a lower standard and to the proposed approach, the agencies
believe that the final rule approach will reduce complexity because the
automobile lending evaluation and related data requirements will apply
to a smaller number of banks. Furthermore, the agencies further believe
that the final rule provision to allow banks that are not a majority
automobile lender to opt into the evaluation automobile loans
appropriately increases flexibility for banks.
---------------------------------------------------------------------------
\813\ See current 12 CFR __.22.
---------------------------------------------------------------------------
The agencies considered, but are not adopting, an alternative
approach to remove automobile lending entirely from the Retail Lending
Test, or to make evaluation of automobile lending optional for all
banks. The agencies believe that while this alternative approach would
even further reduce complexity and data requirements for certain banks
compared to the final rule approach, it could also result in evaluating
a majority automobile lender under the Retail Lending Test without
considering the bank's automobile loans. The agencies determined that
evaluating the automobile lending of a majority automobile lender is
important for an accurate and comprehensive evaluation of these banks,
and that this approach appropriately takes into consideration the
different tradeoffs discussed above.\814\
---------------------------------------------------------------------------
\814\ Similarly, the agencies consider a bank's consumer loans
under the current lending test if consumer lending constitutes a
substantial majority of a bank's business. See Q&A Sec.
__.22(a)(1)-2 (interpreting the ``substantial majority'' standard in
current 12 CFR __.22(a)(1)).
---------------------------------------------------------------------------
Based on supervisory experience and analysis of available data, the
agencies anticipate that only a small number of banks are majority
automobile lenders that would be required to have this product line
evaluated under the Retail Lending Test.\815\
---------------------------------------------------------------------------
\815\ For example, the agencies estimate that five banks with
assets greater than $2 billion would currently meet the majority
automobile lender standard based on Call Report automobile loan
data, loans secured by residential properties, loans to small
businesses, and loans to small farms from 2021-2022. Because of a
lack of publicly available data on automobile loan originations and
purchases, this analysis estimates the number of majority automobile
lenders using Call Report data on the dollar value of outstanding
loans on bank balance sheets, instead of the data on loans
originated or purchased during the two years preceding the start of
the evaluation period as described in final appendix A, paragraph
II.b.3.
---------------------------------------------------------------------------
As discussed further in the section-by-section analysis of final
Sec. __.12, the agencies will consider a bank to be a majority
automobile lender if the following ratio, calculated at the institution
level, exceeds 50 percent, based on a combination of loan dollars and
loan count:
The sum, over the two calendar years preceding the first
year of the evaluation period, of the bank's automobile loans
originated or purchased overall; divided by
The sum, over the two calendar years preceding the first
year of the evaluation period, of the bank's automobile loans, home
mortgage loans, multifamily loans, small business loans, and small farm
loans originated or purchased overall.
The agencies believe that this approach should promote consistency
and predictability by ensuring that a bank with an anomalously high
volume of automobile loans in a single year is not automatically
considered a majority automobile lender.
Banks that opt to have their automobile lending evaluated. The
agencies believe it is appropriate to provide banks that are not
majority automobile lenders the flexibility to opt to have their
automobile loans evaluated because this product line can meaningfully
serve low- and moderate-income individuals and communities and may be
an important part of a bank's strategy for meeting community credit
needs. Further, the agencies believe that providing this option will
help tailor examinations to account for differences in bank business
models, consistent with the agencies' objectives for CRA modernization.
Exclusion of Consumer Loans Other Than Automobile Loans
The Agencies' Proposal
The agencies did not include consumer loans other than automobile
loans as a major product line on the Retail Lending Test in proposed
Sec. __.22(a)(4)(i). Specifically, consumer credit card loans and
other types of consumer loans that are not automobile loans would not
be evaluated under the proposed Retail Lending Test, neither as part of
the Retail Lending Volume Screen in facility-based assessment areas,
nor within the distribution analysis of each of a bank's major product
lines in a facility-based assessment area, retail lending assessment
area, or outside retail
[[Page 6795]]
lending area. The agencies explained in the preamble to the proposed
rule that consumer loans other than automobile loans span several
product categories that are heterogeneous in meeting low- or moderate-
income credit needs and are difficult to evaluate on a consistent
quantitative basis under the Retail Lending Test. Further, the agencies
stated that credit card lending is concentrated among a relatively
small number of lenders (with many currently designated as limited
purpose banks), and that evaluating consumer credit card loans using a
metrics-based approach under the Retail Lending Test may require new
data collection and reporting requirements because banks may not
currently retain or have the capability to capture borrower income (at
origination or subsequently as cardholders maintain their accounts),
location, or other data fields relevant to constructing appropriate
benchmarks for credit card lending. For these reasons, the agencies
proposed to consider consumer loans other than automobile loans only
under the responsive credit products and programs evaluation of the
Retail Services and Products Test; this evaluation would assess whether
a bank's credit products and programs are, in a safe and sound manner,
responsive to the needs of low- and moderate-income individuals, and
would not include a distribution analysis.\816\
---------------------------------------------------------------------------
\816\ See the section-by-section analysis of final Sec. __.23.
---------------------------------------------------------------------------
The agencies requested feedback on whether consumer credit card
loans should be included in CRA evaluations, whether those credit card
loans should be evaluated quantitatively under the proposed Retail
Lending Test or only qualitatively under the proposed Retail Services
and Products Test, and whether data collection and reporting challenges
for consumer credit card loans could adversely affect the accuracy of
metrics. The agencies also sought feedback on whether they should adopt
a qualitative approach to evaluate consumer loans and whether the
qualitative evaluation should be limited to certain consumer loan
categories or types.
Comments Received
General comments on the evaluation of consumer loans other than
automobile loans. Many commenters opined generally on the importance of
consumer loans to low- and moderate-income individuals and communities,
with several commenters suggesting that responsible consumer lending by
banks can be a valuable alternative to predatory lending (such as
payday loans, pawn shop loans, and high-cost credit card loans) and can
help borrowers build credit. For example, a commenter stated that
consumer loans can provide a record of payment-reporting to credit
bureaus and can be an introduction to the banking system for the
unbanked, benefitting low- and moderate-income borrowers. A commenter
recommended consideration for consumer loan products that help low- and
moderate-income borrowers refinance high-cost or predatory consumer
loans. Another commenter stated that consumer loan products that banks
develop collaboratively with MDIs, WDIs, LICUs, and CDFIs should
receive full consideration, whereas consumer loan products developed in
collaboration with fintechs should receive credit only if the borrower
is low- or moderate-income or is located in a low- or moderate-income
or underserved geographic area.
Other commenters expressed general concerns with consumer loan
programs offered by banks in cooperation with third parties. For
example, several commenters stated that the agencies should scrutinize
consumer loans that banks offer through partnerships with fintechs,
especially so-called ``rent-a-bank'' partnerships, which commenters
said could be used to evade interest rate caps and consumer protections
established under State laws. Some of these commenters stated that such
partnerships should be banned, while another commenter characterized
these partnerships as wealth-stripping. A commenter also recommended
that intermediate bank consumer lending should be evaluated, because
many banks that partner with non-banks to engage in indirect consumer
lending would fall into the new intermediate bank asset-size category.
Support for a quantitative evaluation of consumer loans. Some
commenters supported consideration of consumer loans under the Retail
Lending Test, and addressed how one or more of these loan categories
should be evaluated as a major product line under the Retail Lending
Test. For example, recommendations included: evaluating consumer loans
and a category for small-dollar loans; combining automobile loans,
credit card loans, and other consumer loans into a single major product
line; evaluating automobile loans, credit card loans, and small-dollar
loans each as a separate product line; evaluating direct and indirect
consumer loans as a major product line under the Retail Lending Test;
and including only direct consumer loans as a major product line. In
addition, a commenter stated that, to incentivize banks to provide
small-dollar loans to low- and moderate-income borrowers, the agencies
should allow a bank to elect which subset of its consumer loans in any
category are evaluated, without requiring the bank to have all loans in
that category evaluated. A commenter stated that the agencies should
ensure that small-dollar loans with interest rates above 36 percent are
included in CRA evaluations and offered the view that examiners exclude
these loans under the current rule, thus discouraging banks from
offering these products. Conversely, another commenter recommended
adding unsecured personal loans as a distinct major product line on the
Retail Lending Test (separate from automobile loans, credit card loans,
and other secured or unsecured loans), but defining this category to
exclude ``covered loans'' under the CFPB's Payday Lending Rule to avoid
incentivizing high-cost personal loans with annual percentage rates
above 36 percent. This commenter also offered the perspective that
automobile loans and personal loans have similarities, and that both
should be evaluated under the Retail Lending Test using a distribution
analysis; the commenter further stated that the proposal represented a
step backward compared to the current rule under which consumer loans
are evaluated under the lending test if consumer lending constitutes a
substantial majority of a bank's business or at the bank's option.
With respect to factors that should trigger an evaluation of
consumer loan products as a major product line under the Retail Lending
Test, commenters generally recommended a number of options. First, some
commenters suggested that consumer loans should be evaluated only at
the bank's option. For example, a commenter stated that making the
evaluation of consumer loans optional would keep the focus of the
Retail Lending Test on products that have been historically
underrepresented in low- and moderate-income communities (namely, home
mortgage loans, small business loans, and small farm loans). Second,
some commenters stated that consumer loans should be automatically
evaluated if they constitute a substantial portion or a majority of a
bank's business, with a few commenters recommending retaining the
current practice of evaluating consumer loans when they constitute a
substantial majority or if a bank elects to have consumer loans
considered and has collected and maintained the data.
[[Page 6796]]
Third, some commenters recommended applying a version of the proposed
approach for other product lines tailored specifically to consumer
loans. For example, a commenter recommended that consumer loans should
trigger a major product line if they represent at least 30 percent of a
bank's retail loans by number and 15 percent by dollar volume within an
assessment area. A group of commenters suggested that the major product
line standard for consumer loans should be the lesser of 15 percent by
lending dollars or 50 loans. Another commenter recommended using an
average of loan count and lending dollars in light of the fact that
consumer loans tend to be smaller in loan amount.
Support for a qualitative evaluation of consumer loans other than
automobile loans. Some commenters supported the proposal to
qualitatively evaluate consumer loans other than automobile loans only
under the Retail Services and Products Test, rather than also
evaluating these loans quantitatively under the Retail Lending Test.
For example, a commenter specified that consumer loans should be
evaluated under the Retail Services and Products Test because that
performance test allows for greater consideration of performance
context, such as whether a bank ensures that a student loan borrower
has exhausted any available Federal funds before taking out private
loans. A few commenters also stated that evaluating consumer loans
qualitatively allows the agencies to ascertain the purpose of consumer
loans, emphasizing that minority business owners are more likely to
request personal lines of credit and consumer loans for small business
purposes and more likely to own businesses without employees.
Support for an evaluation of consumer loans under both the Retail
Lending Test and the Retail Services and Products Test. Some commenters
supported the evaluation of consumer loans other than automobile loans
under both the Retail Lending Test and the Retail Services and Products
Test. These commenters recommended a quantitative evaluation for
consumer loans under the Retail Lending Test in combination with a
qualitative evaluation under the proposed Retail Services and Products
Test. These commenters offered a variety of rationales in support of
this approach. For example, a few commenters stated that evaluating
consumer loans under both performance tests would increase competition
in the market for consumer loans to low- and moderate-income consumers
and communities. Another commenter stated that the number and volume of
consumer loans is considerable and that the importance of well-designed
consumer loans to low- and moderate-income communities is substantial,
making a qualitative-only evaluation of these loans inappropriate. A
commenter expressed concern that evaluating consumer loans only under
the Retail Services and Products Test, and not also under the Retail
Lending Test, would result in insufficient consideration of these
loans, particularly given the low proposed weighting assigned to that
performance test. Another commenter reasoned that a quantitative
analysis would help determine whether a bank is making consumer loans
equitably in terms of geography and borrower income level, whereas a
qualitative analysis would reveal whether the bank offers consumer
loans that are accessible and affordable to low- and moderate-income
borrowers and responsive to their credit needs.
Most commenters responding to the agencies' request for feedback
specifically on how to evaluate consumer credit card loans also
recommended that the agencies evaluate consumer credit card loans under
both the Retail Services and Products Tests and, when credit card loans
constitute a major product line, under the proposed Retail Lending
Test. In general, these commenters stated that a purely quantitative
evaluation of consumer credit card loans would be insufficient and
could encourage unaffordable and abusive high-interest credit card
lending. As such, some commenters that supported the hybrid evaluation
of consumer credit card loans identified specific factors that should
be included in the qualitative evaluation, including repayment rates,
the affordability of terms (e.g., interest rates, fees, and penalties),
and safeguards or features that minimize adverse credit outcomes.
Another commenter identified difficulties in obtaining information that
the commenter viewed as necessary for evaluating the responsiveness of
a consumer credit card loan, such as how and why a consumer is using a
credit card loan (as opposed to another loan product), whether the
credit card loan terms are responsive to the consumer's needs, and how
equitable the terms are for low- and moderate-income and minority
consumers compared to other consumers.
A few commenters that supported evaluation of consumer credit card
loans under the Retail Lending Test and Retail Services and Product
Test addressed the agencies' request for feedback on what data
collection and reporting challenges, if any, might exist for credit
cards that could adversely affect the accuracy of metrics and
benchmarks. These commenters disputed the proposal's suggestion that
banks may not currently retain or have the capability to capture credit
card borrower income, at origination or subsequently, as the reason not
to evaluate this product line under the Retail Lending Test. These
commenters asserted that banks generally collect borrower income
information on consumer credit card applications or at the time a
credit card is issued, and suggested that the benefits of a metrics-
based approach to evaluating consumer credit card lending (including
more competition and better rates for low- and moderate-income
consumers) would outweigh the modest cost of requiring banks to report
this data. However, a commenter, opposing credit card lending in CRA
evaluations altogether, expressed a different view that banks make
underwriting decisions primarily based on an applicant's
creditworthiness as revealed through credit bureaus, and borrower
income information is not usually validated by banks; this commenter
further stated that the operational nature of credit card lending would
not easily support the need for data collection and reporting.
Opposition to CRA evaluation of consumer lending. There were also
commenters that expressed opposition to the consideration of consumer
loans under either the Retail Lending Test or the Retail Services and
Products Test. For example, a few commenters opposed the proposal to
qualitatively evaluate consumer loans and suggested that consumer loans
should not be evaluated in CRA examinations. These commenters
emphasized that a bank's consumer loans are already subject to
examination under consumer lending laws, and asserted that evaluating
these same loans under the CRA would be duplicative and cause
inefficiencies for both bank staff and the agencies. Additionally, a
few commenters specifically advocated for the exclusion of consumer
credit card lending from CRA evaluations. These commenters argued that
including consumer credit card loans in CRA evaluations could
incentivize banks to provide this high-cost form of financing to
consumers. One of these commenters additionally stated that including
consumer credit card loans would distract from more important wealth-
building credit products, such as home mortgage loans, small business
loans, and small farm loans. Relatedly, a commenter advised that the
agencies should carefully assess
[[Page 6797]]
whether to include consumer credit card loans in CRA evaluations,
weighing the desire for a comprehensive evaluation of a bank's lending
performance against the risk of supporting lending that may be harmful
to households.
Final Rule
For the reasons discussed below, final Sec. __.22(d)(1) retains
the proposed approach of not including consumer loans other than
automobile loans as a major product line for evaluation using
distribution metrics in the Retail Lending Test. Under the final rule,
as under the proposal, consumer loans other than automobile loans by
large banks will be evaluated under the Retail Services and Products
Test (see the section-by-section analysis of final Sec. __.23(c)(2)).
Also, as proposed, intermediate banks, and small banks that opt into
the Retail Lending Test, may seek additional consideration for consumer
lending products and programs that qualify for evaluation under the
Retail Services and Products Test.\817\ Additionally, these loans are
not quantitatively considered in the Retail Lending Volume Screen,
although they may be considered as an acceptable basis for not meeting
the Retail Lending Volume Threshold pursuant to final Sec.
__.22(c)(3)(i)(A).
---------------------------------------------------------------------------
\817\ See the section-by-section analysis of final Sec. __.21.
---------------------------------------------------------------------------
The agencies have considered, but decline to adopt, commenter
feedback either to evaluate consumer loans other than automobile loans
only under the Retail Lending Test or to evaluate these loans under
both the Retail Lending Test and the Retail Services and Products Test.
In determining that consumer loans other than automobile loans should
be evaluated only under the Retail Services and Products Test, the
agencies considered challenges and downsides of a quantitative
distribution analysis of these loans under the Retail Lending Test. The
agencies continue to believe that the heterogeneity of consumer loan
products other than automobile loans would make these products
challenging to evaluate appropriately under a distribution analysis. In
particular, to evaluate consumer loans other than automobile loans
under the Retail Lending Test, the agencies would need to define one or
more categories of consumer loan products that may be reasonably
compared across banks, so that bank metrics and corresponding
benchmarks are sufficiently comparable. The agencies believe that the
diversity of consumer product line delineations suggested by commenters
illustrates the challenge of this approach. In addition, even if
consumer loan products other than automobile loans could be reasonably
disaggregated into discrete categories, doing so may introduce multiple
new product lines into the Retail Lending Test, with the possibility
that the bank has too few loans of any specific category to evaluate as
a major product line. The additional product lines would involve
additional metrics, benchmarks, and weights, thereby increasing the
complexity of the evaluation. The agencies considered that including
consumer loans other than automobile loans as a major product line
under the Retail Lending Test would impose additional data collection
and maintenance requirements on banks. Specifically, for the agencies
to evaluate these loans using a distribution analysis, banks would need
to collect and maintain data including borrower income and census
tract, among other indicators, for each loan. The agencies also
considered the potential unintended effects of a distribution analysis
if these loans were evaluated under the Retail Lending Test--for
example, evaluation under a distribution analysis could inadvertently
encourage a bank to issue credit cards to customers who already have
access to a consumer credit card, which may not be responsive to
community credit needs. In addition, the agencies considered that a
distribution analysis would not account for any fees or interest rates
associated with these products, which the agencies believe is important
to determining whether the products are serving the credit needs of the
community.
In determining to evaluate consumer loans other than automobile
loans under the Retail Services and Products Test, rather than
excluding these loans entirely from the CRA evaluation, the agencies
have considered the importance of these loans to consumers.
Specifically, the agencies have considered feedback from some
commenters noting the importance of credit card and personal loans,
including that these loans can represent a foundational credit product
that serves as a point of access to the banking system, by which
consumers can build a positive credit history and that these loans can
further serve as an alternative to higher-priced financing options
provided by non-banks. Conversely, the agencies have also considered
that some commenters disagreed with evaluating these loans under the
Retail Services and Products Test, with a few suggesting that other
consumer lending laws are sufficient and that an evaluation would be
duplicative, that providing small-dollar and personal loans would not
be incentivized, and that evaluating credit cards would distract from
more wealth-building products (e.g., home mortgage loans, small
business loans, and small farm loans). However, the agencies believe
that a qualitative evaluation of consumer lending, including consumer
loans other than automobile loans, would contribute to an evaluation of
whether a bank is meeting the credit needs of its entire community.
In adopting the final rule approach, the agencies have also
determined that the responsive credit product evaluation in the Retail
Services and Products Test is well suited to consider the different
aspects of a bank's consumer loans other than automobile loans,
including aspects of these loans raised by commenters. The final rule
approach in the Retail Service and Products Test includes a responsive
credit products and programs evaluation that qualitatively reviews a
bank's responsiveness to community credit needs, including low- and
moderate-income individuals and communities; this provision is
discussed in more detail in the section-by-section analysis of final
Sec. __.23(c)(2). For example, under the Retail Services and Products
Test, the agencies will review the responsiveness of a bank's consumer
loans, which may include the type of consumer product offered, the
number of low- and moderate-income customers served, and whether the
loan product has any accommodative features such as alternative credit
scoring or underwriting. The responsive credit products evaluation
could also consider other factors, such as whether the bank offers
small-dollar loans with reasonable terms, offers credit-building
opportunities via secured credit cards or secured personal loans, or
engages in responsible cash flow-based underwriting for customers with
thin or no credit files. The agencies have considered commenter
feedback that there will not be adequate information to assess the
responsiveness of a consumer credit product or program. However, the
agencies expect that examiners will have the necessary information for
this evaluation, including by obtaining information from banks at the
time of their examination, as is the case in examinations today, as
well as considering public feedback and other available information.
The agencies have also considered commenter feedback that the final
rule approach for consumer loans that are not automobile loans is a
step backward,
[[Page 6798]]
as well as commenter feedback that there will be insufficient
consideration of consumer loans with a 15 percent weight assigned to
the proposed Retail Services and Products Test. The agencies believe
that the final rule takes an appropriate approach to evaluating
consumer loans that are not automobile loans, as discussed above. In
addition to the points raised above, the agencies have also considered
that banks with a sizeable consumer lending portfolio that would meet
the agencies' substantial majority standard under current guidance may
elect an alternative evaluation under the final rule. For example, a
bank that does a significant amount of consumer lending could seek
approval under the strategic plan option.\818\ Under an approved
strategic plan, a bank may add additional product lines outside those
that are considered under the Retail Lending Test, in its plan, such as
consumer lending products other than automobile loans. Alternatively, a
bank, such as a credit card lender may request designation as a limited
purpose bank as provided in final Sec. __.26(a), the Community
Development Financing Test for Limited Purpose Banks. If approved, the
bank would only be evaluated under the Community Development Financing
Test for Limited Purpose Banks and consumer lending would not be
considered in evaluating the bank's performance. For further discussion
of this aspect of the final rule, see the section-by-section analyses
of final Sec. Sec. __.12 (definition of ``limited purpose bank'') and
__.26.
---------------------------------------------------------------------------
\818\ See final Sec. __.27(g)(1) and the accompanying section-
by-section analysis.
---------------------------------------------------------------------------
The agencies have considered commenter concerns about requiring the
evaluation of an intermediate bank's consumer lending, citing that many
banks that partner with non-banks to engage in indirect consumer
lending would fall into the new intermediate bank asset-size category.
The agencies note that, under final Sec. __.21(a)(2)(i), intermediate
banks will be evaluated under Retail Lending Test and the Intermediate
Bank Community Development Test, unless an intermediate bank chooses to
have its community development loans and investments evaluated under
the Community Development Financing Test. Therefore, consumer lending
other than automobile lending will only be evaluated if an intermediate
bank opts for additional consideration \819\ under the Retail Services
and Products Test as this test does not apply to intermediate banks.
The agencies believe that the final rule approach for intermediate
banks balances the agencies' objectives of tailoring performance
standards for banks of different sizes while still allowing appropriate
consideration of consumer loans, other than automobile loans, under the
Retail Services and Products Test.
The agencies have also considered commenter sentiment to limit
consideration provided for consumer loan programs offered in
cooperation with third parties, specifically with fintechs, when there
is not an explicit purpose to serve low- and moderate-income census
tracts and borrowers or if the third party provides loans at rates
higher than State laws allow. The agencies note that, as part of
evaluating credit product and programs as responsive under the Retail
Services and Products Test, examiners would consider whether loan terms
are affordable for low-and moderate-income consumers. The agencies also
note that evaluation of banks' third-party risk management is outside
the scope of this rulemaking.
Inclusion of Purchased Loans
The Agencies' Proposal
The agencies proposed to include a bank's purchased loans in a
bank's metrics for purposes of the Retail Lending Test.\820\
Specifically, under the proposal, a bank's purchased loans would be
included in the bank volume metric used in the retail lending volume
screen and the retail lending distribution metrics used to evaluate a
bank's major product lines.\821\
---------------------------------------------------------------------------
\820\ The agencies consider a bank's origination and purchase of
loans under the current lending test. See current 12 CFR
__.22(a)(2).
\821\ However, as discussed in the section-by-section analyses
of final Sec. __.22(c) and (e), the agencies proposed to exclude
purchased loans from the market benchmarks against which a bank's
metrics would be compared.
---------------------------------------------------------------------------
In proposing to include purchased loans in a bank's Retail Lending
Test metrics, the agencies explained that purchased loans can provide
liquidity to banks and other lenders, such as CDFIs, and extend their
capacity to originate loans to low- and moderate-income individuals and
in low- and moderate-income areas. The agencies noted that banks may
also purchase loans to develop business opportunities in markets where
they otherwise lack the physical presence to originate loans.
At the same time, the agencies acknowledged stakeholder concerns
that purchased loans should not receive the same consideration as
originated loans under the Retail Lending Test, because purchases
require fewer business development and borrower outreach resources than
originations. In addition, the agencies noted that despite their
potential value in increasing secondary market liquidity, loan
purchases may do less to extend the availability of credit than new
originations, especially where loan purchases do not directly provide
liquidity to the originator.\822\
---------------------------------------------------------------------------
\822\ Further, the agencies specifically acknowledged the
possibility that loans made to low- or moderate-income borrowers or
in low- or moderate-income census tracts could be purchased and sold
repeatedly by different banks, with each bank receiving credit under
the Retail Lending Test equivalent to the bank that originated the
loans. In such cases, the agencies noted that the repurchase of
loans would not provide additional liquidity to the originating bank
nor additional benefit for low- and moderate-income borrowers and
areas. For this reason, the agencies proposed to consider as an
additional factor in assigning Retail Lending Test conclusions
whether a bank purchased retail loans for the sole or primary
purpose of influencing its retail lending performance evaluation.
This proposed additional factor is discussed further in the section-
by-section analysis of final Sec. __.22(g).
---------------------------------------------------------------------------
The agencies sought feedback on whether retail loan purchases
should be treated as equivalent to loan originations in a bank's
metrics for purposes of the Retail Lending Test. If so, the agencies
asked whether only certain loan purchases should be included, such as
loans purchased from a CDFI or directly purchased from the originator,
and whether other restrictions should be placed on the inclusion of
purchased loans in a bank's Retail Lending Test metrics.
Comments Received
The agencies received feedback on the proposed inclusion of
purchased loans in a bank's Retail Lending Test metrics from a variety
of commenters, summarized below.
Support for including purchased loans in a bank's Retail Lending
Test metrics. Many commenters generally supported including purchased
loans in a bank's metrics for purposes of the retail lending volume
screen and the distribution analysis component of the Retail Lending
Test. These commenters pointed to various reasons why purchased loans
should be included in a bank's Retail Lending Test metrics, including
that: purchased loans provide essential liquidity to the affordable
housing finance ecosystem and extend the capacity of mission-driven
lenders; including purchased loans encourages banks to serve as
correspondent lenders and allows banks to test and learn about business
opportunities in markets where they lack on-the-ground resources to
originate loans, ultimately increasing credit availability; and banks
purchasing seasoned delinquent loans from other lenders and acting as
loan servicers can help borrowers maintain homeownership. A few
commenters
[[Page 6799]]
suggested that excluding purchased loans from a bank's metrics would
force some banks to alter their safe and sound business plans because
they have few options other than to purchase loans to obtain CRA
credit. Commenters also indicated that originating CRA-qualifying loans
(e.g., loans to low-income borrowers) in certain high-cost areas can be
difficult for some banks due to significant market competition for
those loans.
Some commenters stressed the importance of including particular
types of purchased loans in a bank's metrics for purposes of the Retail
Lending Test, especially home mortgage loans. For example, a commenter
warned that banks would exit the home mortgage market if purchased home
mortgage loans do not receive positive CRA credit. A commenter noted
that excluding purchased small business loans from a bank's metrics
would punish certain banks that provide indirect commercial automobile
loans, which are categorized as purchased loans.
Limitations on the inclusion of purchased loans in a bank's Retail
Lending Test metrics. Many commenters stated that the inclusion of
purchased loans in a bank's Retail Lending Test metrics should be
subject to limitations. In general, these commenters stated that only
certain purchased loans should be included in a bank's metrics,
depending on characteristics of the purchased loan, including its
impact, or the originating lender.
Several commenters stated generally that the Retail Lending Test
should prioritize loan originations over loan purchases. A few
commenters recommended weighting purchased loans less than originations
in a bank's metrics for purposes of the Retail Lending Test, with some
of these commenters emphasizing that originating a loan requires more
time and effort than purchasing a loan, particularly in the case of
low-income borrowers and minority borrowers. Additionally, one of these
commenters pointed out that purchased loans have lower upfront
investment costs. A few commenters recommended evaluating purchased
loans separately from originations under the Retail Lending Test, with
one of these commenters stating that purchased loans should be a
separate major product line under the distribution analysis component
and receive less weight than originations in determining a bank's
Retail Lending Test conclusions.
Some commenters stated that any evaluation of purchased loans under
the Retail Lending Test should focus on their impact on communities,
including how purchased loans facilitate wealth-building and increase
access to credit for low- and moderate-income and minority borrowers.
Some commenters expressed the view that most purchased loans should be
excluded from a bank's Retail Lending Test metrics, but that an
exception should be made for purchased loans that result in a
demonstrable benefit to low- and moderate-income borrowers, such as
more favorable loan terms or a reduction in loan principal.
Other commenters suggested different treatment of purchased loans
based on the extent of secondary market access of the originating
lender. For example, a commenter suggested that loans purchased from an
originator with limited access to the secondary market should be
weighted equally to a bank's originations for purposes of a bank's
Retail Lending Test metrics, while loans purchased from an originator
with access to the secondary markets should be weighted less than loans
originated by the bank.
A number of commenters recommended that only retail loans purchased
from mission-driven lenders, such as CDFIs, MDIs, and WDIs, should be
included in a bank's metrics for purposes of the Retail Lending Test.
One of these commenters stated that mission-driven lenders face
liquidity challenges that inhibit their ability to make non-housing
loans, given the lack of maturity and smaller scale of these markets,
and that giving banks CRA credit for the purchase of such loans would
free up balance sheet space for mission-driven lenders to make
additional housing loans. A commenter explained that including loans
purchased from CDFIs in a bank's metrics would be appropriate because
CDFIs are certified for their ability to reach underserved borrowers,
while another commenter suggested that including such purchased loans
in a bank's metrics would encourage banks to enter into broader
partnerships with mission-driven lenders that support small businesses
where they operate.
Some commenters recommended that only retail loans purchased from
the originator, but not subsequent purchases, should be included in a
bank's Retail Lending Test metrics, with a commenter noting that this
treatment would ensure a sufficient level of liquidity without
inappropriately promoting loan purchases. A few commenters stated that
including the initial purchase of a retail loan in a bank's metrics
would benefit banks that serve as master servicer to state housing
finance programs, which commenters indicated is a vital service for
low- and moderate-income areas. In a similar vein, a few commenters
suggested that initial loan purchases should be included in a bank's
Retail Lending Test metrics as equivalent to loan originations, but
subsequent purchases should receive less credit in order to eliminate
the incentive to continually resell the same loans. For example, a
commenter stated that retail loans should not be included in a bank's
Retail Lending Test metrics beyond the second purchase (excluding any
initial, contractually required purchase by the bank from a vendor-
originator), stating that this limit would accommodate intermediaries
that frequently purchase loans to enhance the liquidity of the
originator. Another commenter stated that the agencies should establish
a reasonable limit on the number of times a loan could be sold before
the loan would cease to be included in a purchasing bank's Retail
Lending Test metrics.
Finally, other commenters suggested different parameters regarding
the inclusion of purchased loans in a bank's metrics for purposes of
the Retail Lending Test, including a recommendation to exclude loans
purchased from nonbank originators. For example, a commenter noted that
including purchased loans with excessively high interest rates in a
bank's metrics would undermine the goals of the CRA, citing as an
example small business loans with extremely high annual percentage
rates purchased by banks from fintech companies. The same commenter
also suggested excluding purchased loans for which the risk of loss is
effectively maintained at the originating lender, such as when the
purchasing bank has the right to request a substitution of the loan if
the borrower defaults without providing any additional capital to the
originating lender.
Opposition to including purchased loans in a bank's Retail Lending
Test metrics. A few commenters opposed including any purchased loans in
a bank's metrics for purposes of the Retail Lending Test, with some of
these commenters stating that a bank should not be allowed to buy its
way to a passing CRA rating, and that by including both loan
originations and loan purchases in the Retail Lending Test metrics, the
agencies would be double counting the same loans. Commenters also
indicated that purchased loans are generally less responsive to the
credit needs of low- and moderate-income areas than originations. For
example, a commenter pointed to a research paper indicating that the
inclusion of purchased loans in
[[Page 6800]]
CRA examinations did not increase access to credit for low- and
moderate-income borrowers and communities.\823\ Another commenter
similarly stated that purchased loans originated by another bank are
low-impact activities that should be ineligible for CRA credit.
---------------------------------------------------------------------------
\823\ See Kenneth P. Brevoort, Bd. of Governors of the Fed.
Rsrv. Sys., ``Does Giving CRA Credit for Loan Purchases Increase
Mortgage Credit in Low-to-Moderate Income Communities?'' Finance and
Economics Discussion Series 2022-047 (June 7, 2022), https://www.federalreserve.gov/econres/feds/files/2022047pap.pdf.
---------------------------------------------------------------------------
Treatment of purchased small business loans. Several commenters
requested clarification regarding whether purchased small business
loans would be included in a bank's Retail Lending Test metrics
following the transition to using section 1071 data because the CFPB
Section 1071 Proposed Rule stated that purchased loans would not be
reported.\824\ A few of these commenters suggested that the agencies
should give banks the option to report purchased small business loans
for inclusion in the bank's Retail Lending Test metrics if the CFPB's
final rule does not include purchased loans.
---------------------------------------------------------------------------
\824\ See 86 FR 56356, 56413 (Oct. 8, 2021).
---------------------------------------------------------------------------
Final Rule
For the reasons discussed below, the agencies are finalizing the
proposal to include purchased loans in a bank's metrics for purposes of
the Retail Lending Test. Specifically, under the final rule, a bank's
purchased loans are included in the Bank Volume Metric used in the
Retail Lending Volume Screen as well as in the bank's metrics used in
the distribution analysis of the bank's major product lines.\825\
---------------------------------------------------------------------------
\825\ As discussed in the section-by-section analysis of final
Sec. __.22(e), purchased loans are excluded from the market
benchmarks against which the bank's metrics are compared, consistent
with the proposal. In addition, as discussed in the section-by-
section analysis of final Sec. __.22(g), in assigning Retail
Lending Test conclusions to a bank, the agencies consider
information indicating that the bank purchased closed-end home
mortgage loans, small business loans, small farm loans, or
automobile loans for the sole or primary purpose of inappropriately
enhancing its retail lending performance.
---------------------------------------------------------------------------
Including purchased loans in a bank's metrics for purposes of the
Retail Lending Test reflects the agencies' belief that purchased loans
can support originations of loans to low- and moderate-income
individuals and in low- and moderate-income census tracts.
Specifically, loan purchases can enhance the liquidity of originated
loans and thereby make capital available for lenders that are actively
originating loans to low- and moderate-income borrowers and in low- and
moderate-income census tracts, when their capacity to originate
additional loans might otherwise be constrained. The agencies believe
that excluding purchased loans from a bank's metrics could potentially
disadvantage originating lenders that have limited access to the
secondary market, such as a lender that is not an approved seller or
servicer with Fannie Mae or Freddie Mac. In addition, the agencies
considered that including purchased loans in evaluating retail lending
performance is consistent with the current lending test evaluation
approach.
As in the proposal, the final rule includes both originated loans
and purchased loans in a bank's metrics without assigning greater
weight to loan originations. In reaching this determination, the
agencies considered commenter sentiment that purchased loans should
receive a lower weight than originations because of the viewpoint that
they require less effort and upfront investment costs compared to
originations and that they may be less impactful than originated loans.
However, the agencies also considered that weighting loan originations
and purchases differently would make the Retail Lending Test metrics
more complex and may have unintended consequences of reducing liquidity
for loans to low- and moderate-income borrowers and communities, as
noted above. The agencies also considered that it would be challenging
to determine a fixed weight to assign to purchased loans that
appropriately reflects the impact of those purchases relative to
originated loans because the impact of a bank's originations and
purchases of loans could vary based on a number of factors, including
the credit needs and opportunities of the community. Furthermore, to
address the potential downsides of including purchased loans in the
Retail Lending Test metrics used to evaluate a bank, the agencies have
included an additional factor in final Sec. __.22(g)(1), which is
discussed in the section-by-section analysis of final Sec. __.22(g).
In addition, the agencies have also considered the impact of
including purchased loans in a bank's metrics for purposes of the
Retail Lending Test (and weighting loan purchases equal to loan
originations) using historical data from 2018-2020. In this analysis,
the agencies compared the distribution of estimated Retail Lending Test
conclusions across facility-based assessment areas that would have
resulted had the final rule approach been in effect during those years
to the distribution of estimated conclusions that would have resulted
from including only loan originations in a bank's distribution metrics.
Based on the agencies' estimates, roughly similar percentages of
facility-based assessment areas for banks included in the analysis
would have received higher recommended conclusions (6.5 percent) or
lower recommended conclusions (8.2 percent) if loan purchases were not
included in the bank's metrics.\826\ Given these results, the agencies
have concluded that the impact of removing purchased loans from the
Retail Lending Test bank metrics could have different impacts on
different banks. As discussed above, the agencies have determined to
include purchased loans in bank metrics, coupled with the additional
factor in final Sec. __.22(g)(1). The agencies believe that this
approach strikes an appropriate balance of avoiding unintended
consequences of reducing liquidity for loans to low- and moderate-
income borrowers and communities while also putting in place provisions
to help ensure that loan purchases are not used for the purpose of
inappropriately enhancing a bank's retail lending performance.
---------------------------------------------------------------------------
\826\ This analysis was calculated over the 2018-2020 period for
a set of intermediate banks and large banks that are both CRA and
HMDA reporters. Bank asset size was determined using 2019 and 2020
year-end assets data. Wholesale banks, limited purpose banks,
strategic plan banks, and banks that did not have at least one
facility-based assessment area in a U.S. State or the District of
Columbia were excluded from the analysis. Facility-based assessment
areas that were not delineated in 2020 were also excluded. The
analysis used home mortgage lending, small business lending, small
farm lending, and deposits data from the CRA Analytics Data Tables.
This analysis did not incorporate the Retail Lending Volume Screen.
---------------------------------------------------------------------------
The agencies considered, but are not adopting, a commenter
suggestion to disaggregate loan originations from loan purchases by
evaluating purchased loans as a separate major product line under the
distribution analysis component of the Retail Lending Test. The
agencies believe that disaggregating originations from purchases is
contrary to the intent discussed above in deciding to evaluate a bank's
originations and purchased loans as part of the same analysis. In
addition, the agencies believe that evaluating purchased loans as a
separate product line would add to the complexity of the distribution
analysis without sufficiently compensating benefits. The agencies also
considered that there may not be sufficient data to construct robust
market benchmarks based on only purchased small business and small farm
loans once the agencies transition to using section 1071 data, which
will not include purchased loans.
The agencies also considered, but are not adopting, alternative
approaches suggested by commenters of including only certain purchased
loans in a bank's
[[Page 6801]]
Retail Lending Test metrics, or excluding certain purchased loans from
a bank's Retail Lending Test metrics. The agencies believe that
identifying particular types of purchased loans and either including or
excluding these loan purchases from the banks' metrics adds a level of
complexity to the Retail Lending Test and the reporting of purchased
loans, and presents implementation challenges due to data availability.
For example, loans originated or purchased by a financial institution
that is not a HMDA reporter are not captured in HMDA data, and as a
result, it is not possible to consistently identify how many times a
purchased loan has been purchased since its origination, or identify
the initial originator of the loan. Similarly, HMDA data do not
identify the extent of access to the secondary market for all
originating lenders that banks may be purchasing loans from. CRA small
business and small farm data are even more limited in that these data
do not identify the originating lender of a small business loan that is
purchased by a bank, and do not indicate the number of times a loan has
been sold.
With respect to comments suggesting that any evaluation of
purchased loans should focus on community impact, such as increasing
access to credit for low- and moderate-income and minority borrowers,
or increasing loans purchased from mission-driven lenders, the agencies
recognize the importance of supporting such institutions in their
efforts to provide access to credit and other financial services in
traditionally underserved communities. The agencies note that the final
rule includes as part of the Retail Services and Products Test an
evaluation of whether a bank's credit products and programs--including
loans purchased from MDIs, WDIs, LICUs, and CDFIs--are, in a safe and
sound manner, responsive to the needs of low- and moderate-income
individuals, residents of low- and moderate-income census tracts, small
businesses, and small farms. This provision is discussed further in the
section-by-section analysis of final Sec. __.23(c). In addition to
considering the responsiveness of a bank's purchased loans
qualitatively under the Retail Services and Products Test, the agencies
believe that it is also important to evaluate a bank's purchased loans
quantitatively under the Retail Lending Test because loan purchases may
help to meet the credit needs of low- and moderate-income borrowers,
small businesses and small farms, and low- and moderate-income census
tracts.
Treatment of purchased small business loans and small farm loans.
As discussed further in the section-by-section analysis of final Sec.
__.42, the final rule provides that once section 1071 data is used in
CRA evaluations, a bank may, at its option, have purchased small
business loans included in its Retail Lending Test metrics if the bank
collects and maintains data on these loans. The agencies have
considered that the CFPB Section 1071 Final Rule does not require the
reporting of purchased loans.\827\ However, the agencies determined
that it is appropriate to provide banks with the option to collect and
maintain data on their purchased small business loans and small farm
loans for consideration in Retail Lending Test metrics once the
agencies transition to using section 1071 data for CRA evaluations. The
agencies believe that the optional inclusion of purchased small
business loans and small farm loans in a bank's metrics appropriately
tailors the evaluation approach to different bank business models,
including those that involve purchases of these loan types as part of
the bank's strategy for meeting the credit needs of the community. In
addition, the agencies believe the final rule approach of allowing
banks to continue to include purchased small business and small farm
loans in the bank's metrics once the agencies transition to using
section 1071 data will provide continuity with the current approach,
which includes purchased small business loans in a bank's distribution
metrics.
---------------------------------------------------------------------------
\827\ A covered entity under the CFPB Section 1071 Final Rule
will not be required to report small business lending data on
purchased loans because purchased loans are not considered ``covered
credit transactions.'' See 12 CFR 1002.104(b) and associated
Official Interpretation.
---------------------------------------------------------------------------
Section __.22(a) and (b) Retail Lending Test--In General and
Methodology Overview
The Agencies' Proposal
Proposed Sec. __.22(a) addressed the scope of the Retail Lending
Test. Proposed Sec. __.22(a)(1) provided that the Retail Lending Test
would evaluate a bank's record of helping to meet the credit needs of
its facility-based assessment areas through a bank's origination and
purchase of retail loans in each facility-based assessment area. In
addition, proposed Sec. __.22(a) set forth the geographic areas in
which large banks and intermediate banks would be evaluated under the
proposed Retail Lending Test and the major product lines that would
have been evaluated under the distribution analysis. The proposed major
product line standard is discussed in the section-by-section analysis
of final Sec. __.22(d).
Proposed Sec. __.22(b) described the methodology of the proposed
Retail Lending Test. Specifically, proposed Sec. __.22(b)(1) provided
that the agencies would first review numerical metrics, developed under
proposed Sec. __.22(c), regarding a bank's retail lending volume in
each facility-based assessment area. Proposed Sec. __.22(b)(2)
provided that the agencies would also employ numerical metrics,
developed under proposed Sec. __.22(d), to evaluate the geographic and
borrower distribution of a bank's major product lines in each facility-
based assessment area, retail lending assessment area, and outside
retail lending area, as applicable. Proposed Sec. __.22(b)(3) provided
that the agencies would also use the additional factors described in
proposed Sec. __.22(e) to evaluate a bank's retail lending performance
in its facility-based assessment areas.
Comments Received
Although the agencies received numerous comments, discussed above,
on the overall Retail Lending Test framework, including the use of a
metrics-based approach in general, the agencies did not receive
comments on the specific language of proposed Sec. __.22(a) and(b).
Final Rule
The agencies are finalizing a modified version of proposed Sec.
__.22(a) and (b). Similar to the proposal, final Sec. __.22(a) and (b)
address the general scope and methodology of the Retail Lending Test.
However, the agencies have modified final Sec. __.22(a) and (b) from
the proposal to reflect changes to the Retail Lending Test framework
discussed throughout the section-by-section analysis of final Sec.
__.22.
Final Sec. __.22(a)--Retail Lending Test--clarifies which
product lines will be evaluated pursuant to the Retail Lending Test and
further clarifies when automobile loans will be evaluated.
Specifically, final Sec. __.22(a)(1)--In general--provides generally
that the Retail Lending Test evaluates a bank's record of helping to
meet the credit needs of its entire community through the bank's
origination and purchase of home mortgage loans, multifamily loans,
small business loans, and small farm loans.
Final Sec. __.22(a)(2)--Automobile loans--provides that
the Retail Lending Test also evaluates a bank's record of helping to
meet the credit needs of its entire community through the bank's
origination and purchase of automobile
[[Page 6802]]
loans if the bank is a majority automobile lender or if the bank opts
to have it automobile loans evaluated under the Retail Lending Test.
Final Sec. __.22(b)--Methodology overview--describes the
Retail Lending Test's methodology with additional detail than provided
in proposed Sec. __.22(b) in order to increase clarity.
Final Sec. __.22(b)(1)--Retail Lending Volume Screen--
provides that the agencies consider whether a bank meets or surpasses
the Retail Lending Volume Threshold in each facility-based assessment
area pursuant to the Retail Lending Volume Screen in final Sec.
__.22(c).
Final Sec. __.22(b)(2)--Retail lending distribution
analysis--provides that except as provided in final Sec. __.22(b)(5),
the agencies evaluate the geographic and borrower distributions of each
of a bank's major product lines in each Retail Lending Test Area, as
provided in final Sec. __.22(d) and (e).
Final Sec. __.22(b)(3)--Retail Lending Test recommended
conclusions--provides that except as provided in final Sec.
__.22(b)(5), the agencies develop a Retail Lending Test recommended
conclusion pursuant to final Sec. __.22(f) for each Retail Lending
Test Area.
Final Sec. __.22(b)(4)--Retail Lending Test conclusions--
provides that the agencies' determination of a bank's Retail Lending
Test conclusion for a Retail Lending Test Area is informed by the
bank's Retail Lending Test recommended conclusion for the Retail
Lending Test Area, performance context factors as provided in final
Sec. __.21(d), and the additional factors provided in final Sec.
__.22(g).
Final Sec. __.22(b)(5)--Exceptions--describes two
exceptions to the general four-step methodology discussed above.
Final Sec. __.22(b)(5)(i)--No major product line--
provides that if a bank has no major product line in a facility-based
assessment area, the agencies assign the bank a Retail Lending Test
conclusion for that facility-based assessment area based upon the
bank's performance on the Retail Lending Volume Screen pursuant to
final Sec. __.22(c), the performance context factors provided in final
Sec. __.21(d), and the additional factors provided in final Sec.
__.22(g). This final rule provision specifies that the distribution
analysis in final Sec. __.22(d) through (f) does not apply to a
facility-based assessment area in which there are no major product
lines. There may not be a major product line, for example, where a bank
maintains a deposit-taking facility and only conducts consumer lending
other than automobile lending. The agencies determined that this
provision adds clarity regarding evaluation procedures in cases where
the proposed distribution analysis does not apply to a bank's business
model in a facility-based assessment area.
Final Sec. __.22(b)(5)(ii)--Banks that lack an acceptable
basis for not meeting the Retail Lending Volume Threshold--provides how
the agencies assign a Retail Lending Test conclusion for a facility-
based assessment area in which a bank lacks an acceptable basis for not
meeting the Retail Volume Threshold. Consistent with the proposed
approach, these facility-based assessment areas do not receive a Retail
Lending Test recommended conclusion based on a distribution analysis.
The agencies have revised the final's rule regulatory text relative to
the proposal to make more clear that, as described in the section-by-
section analysis of final Sec. __.22(c)(3)(iii), the agencies will
instead consider such a bank's performance on the Retail Lending Volume
Screen, the distribution analysis, the performance context factors in
final Sec. __.21(d), and the additional factors in final Sec.
__.22(g) in assigning a conclusion. As discussed in the section-by-
section analysis of Sec. __.22(c), and consistent with the proposed
approach, a large bank that lacks an acceptable basis for not meeting
the screen is limited to a Retail Lending Test conclusion of either
``Needs to Improve'' or ``Substantial Noncompliance'' in that facility-
based assessment area. An intermediate bank, or a small bank that opts
to be evaluated under the Retail Lending Test, that lacks an acceptable
basis for not meeting the screen is eligible for any Retail Lending
Test conclusion in that facility-based assessment area.
Section __.22(c) Retail Lending Volume Screen
In final Sec. __.22(c) and section I of final appendix A, the
agencies are adopting the proposal to incorporate in the evaluation of
a bank's retail lending performance a Retail Lending Volume Screen,
which will measure the total dollar amount of a bank's retail lending
relative to its presence and capacity to lend, based on deposits, in a
facility-based assessment area compared to other lenders.\828\ The
agencies developed the Retail Lending Volume Screen to provide more
rigor, clarity, consistency, and transparency in the evaluation of
retail lending for banks evaluated under the final Retail Lending Test.
---------------------------------------------------------------------------
\828\ See final Sec. __.22(c) and final appendix A, section I;
see also supra note 145.
---------------------------------------------------------------------------
The final rule's Retail Lending Volume Screen reflects certain
substantive, technical, and clarifying revisions to the proposed Retail
Lending Volume Screen, as discussed below. The agencies have also
reorganized the proposed regulatory text to provide additional clarity
and consistency by: (1) in final Sec. __.22(c)(1), defining the volume
screen components; (2) in final Sec. __.22(c)(2), outlining the
agencies' approach regarding banks that meet or surpass the volume
screen's threshold; and (3) in final Sec. __.22(c)(3), outlining the
agencies' approach regarding banks that do not meet the screen's
threshold.
Consistent with the proposal, final Sec. __.22(c)(1) provides
that, for a bank evaluated under to the Retail Lending Test, the Retail
Lending Volume Screen will measure the bank's lending volume relative
to its deposits in a facility-based assessment area, calculated as a
Bank Volume Metric, and compare the Bank Volume Metric to a Market
Volume Metric, which measures the lending of all banks in the facility-
based assessment area relative to their deposits. The bank will meet
the Retail Lending Volume Threshold in that facility-based assessment
area if the bank has a Bank Volume Metric of 30 percent or greater of
the Market Volume Benchmark.
Final Sec. __.22(c)(2) and (c)(3)(ii) provide that, for a bank
that meets or surpasses the Retail Lending Volume Threshold in a
facility-based assessment area, or that has an acceptable basis for not
meeting or surpassing the threshold--as provided in final Sec.
__.22(c)(3)(i) and discussed further below-- the agencies will develop
a Retail Lending Test recommended conclusion for the facility-based
assessment area, which could range from ``Outstanding'' to
``Substantial Noncompliance.'' \829\
---------------------------------------------------------------------------
\829\ See final Sec. __.22(d) and (f) and the accompanying
section-by-section analyses.
---------------------------------------------------------------------------
Additionally, final Sec. __.22(c)(3)(iii)(A) provides that large
banks that lack an acceptable basis for not meeting the Retail Lending
Volume Threshold will be limited to receiving a ``Needs to Improve'' or
``Substantial Noncompliance'' Retail Lending Test conclusion in a
facility-based assessment area, determined based upon: the large bank's
retail lending volume and the extent by which it did not meet the
threshold; the distribution analysis in final Sec. __.22(d) and (f);
the performance context factors in final Sec. __.21(d); and
consideration of the
[[Page 6803]]
additional factors in final Sec. __.22(g).\830\
---------------------------------------------------------------------------
\830\ For detailed information about the referenced final rule
provisions, see the section-by-section analyses of final Sec. Sec.
__.21(d) and __.22(d), (f), and (g).
---------------------------------------------------------------------------
Final Sec. __.22(c)(3)(iii)(B) provides that for intermediate
banks, and small banks that opt to be evaluated under the Retail
Lending Test, which lack an acceptable basis for not meeting the Retail
Lending Volume Threshold, the agencies will consider a bank's
performance under the lending distribution analysis in final Sec.
__.22(d) and (f) before assigning a Retail Lending Test recommended
conclusion--which could range from ``Outstanding'' to ``Substantial
Noncompliance.'' The agencies will also consider a bank's retail
lending volume and the extent by which it did not meet the threshold,
along with performance context factors and the additional factors,
before assigning a Retail Lending Test conclusion.
Overall Retail Lending Volume Screen Approach
The Agencies' Proposal
In proposed Sec. __.22(c), the agencies provided for a retail
lending volume screen that would measure the total dollar volume of a
bank's retail lending relative to its presence and capacity to lend in
a facility-based assessment area compared to peer banks.\831\ The
agencies indicated that the screen would serve to ensure that a bank's
performance evaluation reflects the amount of a bank's retail lending
relative to its presence and lending capacity in an assessment area.
They also indicated that a bank would fail to meet the credit needs of
its entire community if it makes too few loans relative to its
community presence, capacity, and local opportunities, even if those
loans happened to be concentrated among, for example, low- and
moderate-income borrowers and low- and moderate-income census tracts.
---------------------------------------------------------------------------
\831\ See proposed Sec. __.22(c).
---------------------------------------------------------------------------
Comments Received
The agencies received many comments on the proposed ``retail
lending volume screen'' from a variety of stakeholders.
Many commenters that addressed the proposed retail lending volume
screen supported its inclusion in the proposed Retail Lending Test,
with a number of these commenters recommending a more stringent Retail
Lending Volume Threshold than proposed by the agencies, as discussed
below. Many of these commenters asserted that a retail lending volume
screen would help to reduce perceived ratings inflation in CRA
evaluations.
However, many other commenters that addressed the proposed retail
lending volume screen opposed it or raised concerns about the screen,
with some suggesting modifications to the proposed screen and its
incorporation into the CRA framework. For example, some commenters
expressed concerns that the proposed retail lending volume screen would
not account for all bank business strategies and that certain types of
banks could have difficulty passing the screen. Points made by these
commenters included, for example, that: a bank that operates without
branches could have trouble meeting the screen in the facility-based
assessment area delineated around its home office; the screen would
disadvantage depository CDFIs that maintain branches in economically
distressed areas where there is less demand for large loans; the screen
would penalize and disadvantage banks with business models that do not
focus on retail lending; and (banks that specialize in consumer lending
might fail the screen because they did not engage in sufficient home
mortgage lending, small business lending, and small farm lending.
A commenter suggested that the agencies apply a materiality
standard such that the retail lending volume screen would not apply if
a bank did not have a sufficient volume of both retail lending and
deposits in a facility-based assessment area. Another commenter
suggested that banks should be exempt from the retail lending volume
screen if they demonstrate that their business structure is
incompatible with originating a meaningful number of loans as a
percentage of their deposits in facility-based assessment areas.
Various commenters expressed concerns that applying the retail
lending volume screen might discourage banks from maintaining branches
with low deposits even though those branches provide services to low-
deposit customers. Commenters suggested that this could discourage
banks from maintaining facilities in rural markets or markets that are
incidental to the banks' business strategies or lead to consolidation
or branch closures among banks, including depository CDFIs, serving
rural or underserved areas. Concerns were also raised that the retail
lending volume screen represented a pass/fail approach that would lead
to banks prioritizing retail lending dollar volume at the expense of
developing innovative products and services responsive to unbanked or
underbanked consumers and microbusinesses.
A few commenters raised concerns that some lenders in certain
markets could face challenges in meeting the threshold due to local
lending conditions. For example, a commenter stated that in some rural
and economically challenged assessment areas, loan demand is low, which
could cause a bank to fail the proposed retail lending screen even if
the bank is committed to providing a range of banking services to these
communities. A commenter indicated that the screen would not account
for a variety of scenarios that are common in suburban, exurban, and
urban areas where large banks have high concentrations of deposits.
Some commenters also raised legal arguments with respect to the
retail lending volume screen. A commenter suggested that the retail
lending volume screen exceeds the agencies' statutory authority because
it is not explicitly authorized by the CRA statute. Other commenters
stated that the retail lending volume screen would conflict with
congressional intent because section 109 of the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (section 109) instructs
the agencies to use a loan-to-deposit ratio to determine whether a bank
engaged in interstate branching meets the credit needs of the
communities it serves.\832\ In addition, a commenter suggested that if
the retail lending volume screen prompts banks to close any branches to
avoid adverse consequences under the Retail Lending Test the outcome
would be contrary to the statutory purposes of the CRA.
---------------------------------------------------------------------------
\832\ See Public Law 103-328, sec. 109, 12 U.S.C. 1835a, as
amended (section 109), implemented by subpart E to 12 CFR part 25
(OCC), 12 CFR 208.7 (Board), and 12 CFR part 369 (FDIC). Section
109(c)(1) specifies a threshold of ``half the average of total loans
in the host State relative to total deposits from the host State.''
---------------------------------------------------------------------------
Final Rule
As noted above, final Sec. __.22(c) and section I of final
appendix A adopt the proposed Retail Lending Volume Screen, with
certain clarifying, technical, and substantive edits described in more
detail below. Based on the agencies' consideration of the comments and
further analysis and deliberation, the agencies continue to believe
that the Retail Lending Volume Screen is an appropriate baseline
measure of the amount of a bank's retail lending relative to its
presence and lending capacity in a facility-based assessment area, as
indicated by the volume of deposits received from the
[[Page 6804]]
area surrounding the bank's deposit-taking facilities. The agencies
also believe that a holistic evaluation of whether a bank is meeting
the credit needs of its facility-based assessment areas necessarily
includes consideration of not only a bank's loan distribution, but also
the bank's lending volume relative to its presence and capacity.
The final rule reflects the agencies' view that the Retail Lending
Volume Screen and the distribution metrics are both important to
ensuring a complete and accurate evaluation of whether a bank has met
the credit needs of its community. Specifically, the agencies generally
do not believe that a bank with lending levels well below its community
presence and capacity is meeting the credit needs of its entire
community, regardless of the bank's distribution of loans to low- and
moderate-income borrowers and low- and moderate-income census tracts.
In this regard, the agencies considered that removing the screen from
the Retail Lending Test approach for evaluating facility-based
assessment areas would mean that a bank could achieve ``Outstanding''
performance by making only a very small number of loans relative to the
bank's capacity, if a high percentage of those loans are to designated
borrowers (i.e., low-income borrowers, moderate-income borrowers,
businesses with gross annual revenues of $250,000 or less, businesses
with gross annual revenues of more than $250,000 but less than or equal
to $1 million, farms with gross annual revenues of $250,000 or less, or
farms with gross annual revenues of more than $250,000 but less than or
equal to $1 million) and designated census tracts (i.e., low-income
census tracts or moderate-income census tracts).
The Retail Lending Volume Screen is based on standardized metrics
and will apply across banks evaluated in facility-based assessment
areas under the Retail Lending Test, to ensure clarity, consistency,
and transparency in this important volume-based assessment of a bank's
retail lending. The agencies considered that the final rule approach
builds upon the current evaluation approach, under which the agencies
consider a bank's volume of retail lending in an assessment area
without quantitative benchmarks or thresholds indicating what level of
lending is adequate.
The agencies considered comments that it could be challenging for a
bank to meet the Retail Lending Volume Threshold in markets with low
levels of retail lending demand. However, the agencies determined that
the final rule approach accounts for this concern both through the
Market Volume Benchmark and the acceptable basis factors for not
meeting the threshold, finalized in final Sec. __.22(c)(3)(i) and
discussed in more detail further below. Specifically, the Market Volume
Benchmark is based on retail loans and deposits from all banks with a
branch in a geographic area, which will reflect the level of credit
demand in that area. In addition, the acceptable basis factors include
performance context information that could explain a bank's low level
of lending in an area, such as the bank's business strategy and any
other circumstances unique to a facility-based assessment area. These
factors are designed to help address scenarios raised by commenters
such as that of an internet bank not meeting the Retail Lending Volume
Threshold in a headquarters facility-based assessment area and of a
CDFI bank serving an area with lower loan demand.
The agencies understand that banks operate in variable conditions,
and that they have different characteristics, business strategies, and
customer bases. For this reason, the Retail Lending Volume Screen--both
as proposed and as finalized--does not operate on a ``pass/fail''
basis. Rather, the Retail Lending Volume Screen is one aspect of the
agencies' evaluation of a bank's retail lending performance; it
functions as a key piece of the framework under which the agencies
determine the appropriate approach for evaluating the retail lending
performance of a particular bank in its facility-based assessment
areas. For example, for a bank with a Bank Volume Metric above the
Retail Lending Volume Threshold in a facility-based assessment area,
the agencies believe it is appropriate to determine a recommended
conclusion based on a distribution analysis of the bank's retail
lending. In contrast, for a bank with a Bank Volume Metric below the
Retail Lending Volume Threshold in a facility-based assessment area,
the agencies believe it is important to first assess whether the bank
had an acceptable basis for exhibiting a very low level of retail
lending prior to applying the distribution analysis. The acceptable
basis factors will address a variety of circumstances that could limit
a bank's ability to lend in a facility-based assessment area.
Accordingly, the agencies have not included any references in final
Sec. __.22(c) to a bank ``failing'' to meet the Retail Lending Volume
Threshold, as the agencies acknowledge that a bank may have a
relatively low Bank Volume Metric due to the bank's business model or
other acceptable basis factors that are not indicative of ``failing''
performance.
The agencies also considered, but are not adopting, a commenter
suggestion to apply a materiality standard such that the Retail Lending
Volume Screen would not apply if a bank did not have a sufficient
volume of both retail lending and deposits in a facility-based
assessment area. The agencies determined that it is beneficial to have
consistent standards that apply to all facility-based assessment areas
such that, for each bank evaluated in its facility-based assessment
areas under the Retail Lending Test, a volume-based assessment of a
bank's lending is a component of evaluating whether a bank is meeting
the retail lending needs of these communities. In addition, the
agencies believe that applying a materiality standard could result in
less robust evaluation standards in smaller markets, rural areas, and
low-income areas where banks may tend to conduct less lending and
source lower volumes of deposits.
The agencies also considered, but are not adopting, a commenter
suggestion that banks should be exempt from the Retail Lending Volume
Screen if they demonstrate that their business structure is
incompatible with originating a meaningful number of loans as a
percentage of their deposits in facility-based assessment areas. Based
on further consideration of this suggestion, the agencies determined
that the variety of bank business strategies and structures presents
significant challenges to establishing an appropriate exemption. Thus,
the agencies believe that it is preferable to apply the Retail Lending
Volume Screen and, if warranted, determine whether a bank has an
acceptable basis for not meeting the Retail Lending Volume Threshold.
As discussed elsewhere in this section-by-section analysis, the
acceptable basis factors in final Sec. __.22(c)(3)(i) include
consideration of a bank's business strategy and other aspects of the
performance context of the area.
The agencies have also carefully reviewed and considered comments
presenting legal considerations. The CRA statute's grant of rulemaking
authority to the agencies empowers them to carry out the purpose of the
statute.\833\ As discussed in section I of
[[Page 6805]]
this SUPPLEMENTARY INFORMATION, in enacting the CRA, Congress was
focused on the relationship between a bank's deposit-taking activity in
an area and its lending activity, and on ensuring that banks meet not
only the deposit needs but also the credit needs of their
communities.\834\ Thus, the agencies view consideration of a bank's
loan-to-deposit ratios as within the appropriate purview of the
agencies' approach to CRA examinations. The agencies also note that
this reflects a longstanding position of the agencies; for example,
since 1995, the agencies have used loan-to-deposit ratios as a
criterion to evaluate small bank performance.\835\ Further, based on
supervisory experience, the agencies believe that the loan-to-deposit
ratios of other banks in a facility-based assessment area are
informative of credit needs in a community, and thus a useful point of
comparison as part of a larger framework for determining whether a bank
is meeting the credit needs of its community.
---------------------------------------------------------------------------
\833\ See 12 U.S.C. 2905. See also 12 U.S.C. 2901(b) (``It is
the purpose of this title to require each appropriate Federal
financial supervisory agency to use its authority when examining
financial institutions, to encourage such institutions to help meet
the credit needs of the local communities in which they are
chartered consistent with the safe and sound operation of such
institutions.'').
\834\ See 12 U.S.C. 2901(a). See also 123 Cong. Rec. 17630
(1977) (statement of Sen. Proxmire) (discussing enactment of the CRA
as a response to banks taking their deposits from a community
without reinvesting them in that community).
\835\ See current 12 CFR __.26(b)(1).
---------------------------------------------------------------------------
Regarding commenters' mention of provisions of section 109, the
agencies have considered the distinct policy objectives, calculation
methodologies, and applications of section 109 and of the CRA, and do
not believe that section 109 precludes the agencies from implementing
the Retail Lending Volume Screen in the final rule. First, section 109
was enacted 17 years after the CRA statute, but did not change or
displace the agencies' CRA rulemaking authority. Second, although the
section 109 loan-to-deposit ratios used by the agencies may have some
conceptual similarities with the Retail Lending Volume Screen, their
distinct policy objectives, calculation methodologies, and applications
require separate metrics to achieve their respective purposes, as
discussed in more detail further below. Congress enacted section 109 to
ensure that a bank's interstate branches would not take deposits from a
host state (or other host jurisdiction) without the bank reasonably
helping to meet the credit needs of that host state. The application of
section 109 requirements involves a loan-to-deposit ratio test that
measures the lending and deposit activities of a bank's interstate
branches and then compares the bank's statewide loan-to-deposit ratio
with the relevant host state's loan-to-deposit ratio, which is based on
host state banks' lending and deposits volumes.\836\ If the bank's
statewide loan-to-deposit ratio is at least one-half of the relevant
host state loan-to-deposit ratio, the bank passes the section 109
evaluation and no further review is required.\837\ If the bank fails
the loan-to-deposit ratio test (or the loan-to-deposit ratio cannot be
calculated because data are not sufficient or are not reasonably
available), the agencies will determine whether the bank is reasonably
helping to meet the credit needs of the communities served by the bank
in the host state--this step requires examiners to review the
activities of the bank, such as its performance under the CRA.\838\ The
Retail Lending Volume Screen is therefore a complement to, and not a
substitute for, the section 109 evaluation of whether a bank with
interstate branches impermissibly uses those branches to primarily
engage in deposit production rather than serving the credits needs of
its communities. Accordingly, the agencies do not believe that the
Retail Lending Volume Screen intrudes on or otherwise conflicts with
prior congressional decisions on interstate banking prescribed in
statute.
---------------------------------------------------------------------------
\836\ See 12 CFR 25.63 (OCC), 208.7(c) (Board), and 369.3
(FDIC).
\837\ Id.
\838\ See 12 CFR 25.64 (OCC), 208.7(d) (Board), and 369.4
(FDIC).
---------------------------------------------------------------------------
The agencies have also considered commenter sentiment that the
Retail Lending Volume Screen is onerous and would therefore result in
banks closing branches in markets where their Bank Volume Metric may
not meet the Retail Lending Volume Threshold. However, in considering
these comments and additional agency analysis, the agencies believe
that the Retail Lending Volume Screen is appropriately calibrated and
that the Retail Lending Volume Threshold is generally attainable. In
reaching this determination, the agencies considered a number of
factors. First, the agencies considered that the current evaluation
framework includes assessing a bank's volume of retail lending, and for
small banks includes a loan-to-deposit ratio. The agencies believe that
the Retail Lending Volume Screen is therefore grounded in the current
approach and will not introduce significant new burden or complexity
for banks. Second, the agencies considered that based on estimates
using available data from 2018-2020, and as discussed more fully below,
the Bank Volume Metric exceeds the Retail Lending Volume Threshold in
approximately 96 percent of banks' facility-based assessment areas. The
agencies also considered that this analysis was applied to years when
the screen was not in effect. In future years when the screen is in
effect, banks will have access to information such as recent estimates
of relevant metrics and benchmarks in different geographic areas, which
could be used to help monitor performance. Third, the agencies
considered that the acceptable basis factors in final Sec.
__.22(c)(3)(i) cover circumstances in which a bank's Bank Volume Metric
does not meet the Retail Lending Volume Threshold due to performance
context factors or other legitimate business reasons, such as a bank's
business model. Taking into account these considerations, the agencies
anticipate that the screen will appropriately evaluate whether a bank
has conducted retail lending that is commensurate with peer lending in
facility-based assessment areas, and is not unduly complex or
burdensome.
Specific components of the Retail Lending Volume Screen are
discussed below in the section-by-section analysis of final Sec.
__.22(c)(1). The section-by-section analyses of final Sec. __.22(c)(2)
and (3) address the ways in which a bank's performance on the Retail
Lending Volume Screen informs the blend of quantitative and qualitative
factors considered by the agencies in determining a bank's Retail
Lending Test conclusion in a facility-based assessment area.
Section __.22(c)(1) Retail Lending Volume Threshold
Consistent with the proposal, final Sec. __.22(c)(1) and section I
of final appendix A provide that, for a bank evaluated under to the
Retail Lending Test, the Retail Lending Volume Screen will compare its
Bank Volume Metric against a Market Volume Benchmark in a facility-
based assessment area. The bank will meet or surpass the Retail Lending
Volume Threshold in that facility-based assessment area with a Bank
Volume Metric of 30 percent or greater of the Market Volume Benchmark.
The Bank Volume Metric, the Market Volume Benchmark, and the 30 percent
threshold are discussed in turn below.
Bank Volume Metric
The Agencies' Proposal
To provide a consistent measure of how much of a bank's local
capacity has been oriented toward retail lending, the agencies proposed
that the retail lending volume screen would consist, in part, of a
``bank volume metric.'' \839\ The
[[Page 6806]]
proposed bank volume metric would be calculated as a ratio comparing
bank lending against bank deposits. The numerator would have included
the annual average of the year-end dollar amount of a bank's originated
and purchased automobile loans, closed-end home mortgage loans, open-
end home mortgage loans, multifamily loans, small business loans, and
small farm loans in a facility-based assessment area.\840\
---------------------------------------------------------------------------
\839\ See proposed Sec. __.22(c)(3) and proposed appendix A,
section I.
\840\ See proposed appendix A, section I.
---------------------------------------------------------------------------
The denominator would include the annual average amount of the
bank's deposits in that facility-based assessment area over the
evaluation period, if the bank collected and maintained this data.\841\
Specifically, the agencies proposed that collecting and maintaining
deposits data would be required for large banks with assets of over $10
billion and would be optional for large banks with assets of $10
billion or less, intermediate banks, and small banks that opted to be
evaluated under to the Retail Lending Test.\842\ For any bank evaluated
under to the Retail Lending Test that did not collect and maintain
deposits data, the agencies proposed to use the deposits assigned to
the banks' branches in each assessment area as reported in the FDIC's
Summary of Deposits data to calculate the local deposit base, in the
denominator.\843\ The agencies requested feedback on using alternative
sets of deposits data than proposed, based on bank asset size, to
construct the bank volume metric.
---------------------------------------------------------------------------
\841\ See id.
\842\ See proposed Sec. __.42(a)(7) and (b)(5); see also
proposed Sec. __.12 (defining ``small bank,'' ``intermediate
bank,'' and ``large bank''). For further discussion of the final
rule on deposits and deposits data collection, maintenance, and
reporting, see the section-by-section analyses of final Sec. Sec.
__.12 (``deposits'' and ``deposit location'') and __.42(a)(7)
(deposits data collection and maintenance) and (b)(3) (deposits data
reporting).
\843\ See proposed appendix A, section I.
---------------------------------------------------------------------------
Comments Received
Numerator. Some commenters offered suggestions and requested
clarification regarding the numerator of the proposed bank volume
metric. A commenter indicated that the numerator should include
personal loans, credit card loans, and other non-automobile consumer
loans, while another commenter similarly expressed the view that the
bank volume metric numerator should include personal loans, because
some small business owners, particularly self-employed individuals,
often use personal loans for commercial purposes.
Another commenter indicated that the agencies needed to clarify
whether loan renewals would be considered in the bank volume metric
numerator, asserting that the exclusion of loan renewals could
adversely affect banks' performance under the Retail Lending Test (as
well as under the Community Development Financing Test). Other
commenters asserted that the proposal was unclear as to whether loans
originated and sold before year-end would be included in the numerator,
with a commenter specifically emphasizing a lack of clarity in the
proposed numerator's description (``the annual average of the year-end
total dollar amount of the bank's originated and purchased . . .
loans'').
A commenter expressed concern that banks whose core retail lending
businesses are excluded from the numerator of the bank volume metric
may not meet the Retail Lending Volume Threshold as proposed.\844\
Another commenter asserted that calculating the bank volume metric
using dollar amounts would negatively affect small business lending,
which the commenter stated represents only a small portion of overall
retail lending, on a dollar amount basis, for some banks.
---------------------------------------------------------------------------
\844\ As discussed in the section-by-section analysis of final
Sec. __.22(d), the agencies proposed to consider home mortgage
loans, multifamily loans, small business loans, small farm loans,
and automobile loans under the proposed Retail Lending Test.
---------------------------------------------------------------------------
Denominator. Regarding the denominator for the proposed bank volume
metric, a few commenters indicated that a bank's deposit base was not
an appropriate measure of a bank's capacity and obligation to conduct
retail lending.\845\
---------------------------------------------------------------------------
\845\ See the section-by-section analyses of final Sec. Sec.
__.12 (``deposits'') and __.42(a)(7) and (b)(3), for an overview of
deposits considerations in general and deposits data collection,
maintenance, and reporting considerations in particular.
---------------------------------------------------------------------------
Some other commenters supported requiring large banks of all sizes
to collect and maintain deposits data, including for calculating the
bank volume metric, with one commenter expressly supporting this
requirement for intermediate banks as well. Another commenter asserted
that applying the deposits data collection and reporting requirements
to all large banks would improve the accuracy of the bank volume metric
because, as proposed, the metric mixed bank-collected data with the
FDIC's Summary of Deposits data that is less accurate in capturing
depositor location.
A commenter expressed concern that the proposal to give large banks
with assets of $10 billion or less the option of separately collecting
and maintaining deposits data would result in banks in predominantly
rural communities feeling compelled to collect and maintain deposits
data despite relatively limited resources. This commenter believed that
collecting and maintaining deposits data might represent the only way
that these banks might be able to pass the retail lending volume
screen, as otherwise they might be adversely impacted by their
relatively low retail lending volume when compared to their deposit
volume in a facility-based assessment area based on the FDIC's Summary
of Deposits data.
Some commenters suggested alternative ways to compute bank deposits
(for large banks reporting deposits, as opposed to banks for which the
FDIC's Summary of Deposits data would be used). A number of these
commenters argued for removing corporate deposits from the bank volume
metric based on their view that including corporate deposits could
unfavorably skew a bank's performance on the retail lending volume
screen, making it more difficult for a bank to pass the screen in the
corresponding facility-based assessment area. These commenters pointed
to various reasons to exclude corporate deposits, including that they
can be large and fluctuate unpredictably and are typically centralized
in a single branch location, as well as that commercial lending to
larger entities would not be included in the numerator. Other
commenters also suggested that including corporate deposits could lead
to additional CRA hot spots in, or banks otherwise diverting lending
to, urban areas at the expense of rural and suburban areas, because
banks would endeavor to increase retail lending in these urban areas
(where they have more deposits) to avoid failing the screen.
Some commenters made similar arguments for excluding government
deposits from the proposed bank volume metric denominator. A commenter
recommended that the agencies include bank deposits from domestic
limited liability companies and trusts in a bank's bank volume metrics,
noting that these are domestic deposits in substance and thus
appropriately considered as part of a CRA metrics framework. A
commenter noted that health savings account deposits that lack
depositor location should be excluded from the bank volume metric and
other relevant metrics.
Final Rule
Final Sec. __.22(c)(1) and paragraph I.a of final appendix A adopt
the proposal to employ a Bank Volume Metric as the measure of how much
of a bank's local capacity has been oriented toward retail lending. In
light of comments received
[[Page 6807]]
and based on further deliberations, the agencies are making
substantive, technical, conforming, and clarifying edits in the final
rule to increase clarity and consistency when calculating the Bank
Volume Metric.
Numerator. As provided in paragraph I.a.1 of final appendix A, the
numerator of the Bank Volume Metric will be the sum of the annual
dollar volume of a bank's originations and purchases of all volume
metric loans for the facility-based assessment area over the years in
the evaluation period. The bank's annual dollar volume of volume metric
loans is the total dollar volume of all home mortgage loans,
multifamily loans, small business loans, small farm loans,\846\ and
automobile loans (for banks for which automobile lending is a product
line) originated or purchased by the bank in the facility-based
assessment area in that year. The agencies are finalizing a calculation
based on the sum of the annual dollar volume of lending over the years
in the evaluation period, rather than an annual average of the year-end
dollar total amount as proposed, to reduce complexity in the
calculation of the Bank Volume Metric by reducing the number of steps
required without affecting the result of the calculations. The use of
the term volume metric loans is intended to increase clarity.
---------------------------------------------------------------------------
\846\ The transition amendments included in this final rule
will, once effective, amend the definitions of ``small business''
and ``small farm'' to instead cross-reference to the definition of
``small business'' in the CFPB Section 1071 Final Rule. This will
allow the CRA regulatory definitions to adjust if the CFPB increases
the threshold in the CFPB Section 1071 Final Rule definition of
``small business.'' This is consistent with the agencies' intent
articulated in the preamble to the proposal and elsewhere in this
final rule to conform these definitions with the definition in the
CFPB Section 1071 Final Rule. The agencies will provide the
effective date of these transition amendments in the Federal
Register after section 1071 data is available.
---------------------------------------------------------------------------
The numerator of the Bank Volume Metric is based on the dollar
volume of a bank's lending instead of the number of loans (as is the
numerator of the Market Volume Benchmark). The agencies understand
commenter concerns about the potential for a bank that makes a high
volume of small-dollar loans and few or no larger dollar loans to have
a relatively low Bank Volume Metric. For this reason, as discussed in
further detail below, the agencies selected a Retail Lending Volume
Threshold level that is significantly below the Market Volume Benchmark
(specifically, 30 percent of the Market Volume Benchmark). In addition,
the agencies note that the acceptable basis factors would include
consideration of a bank's business model, such as a bank's
specialization in small-dollar lending. In light of these
considerations, the agencies believe that lending volume metrics
comparing both loans and deposits in terms of dollars is an effective
and appropriate measure of how fully a bank has utilized its lending
capacity, and is also consistent with the CRA's emphasis on banks
reinvesting their deposits back into their communities.
With respect to commenter sentiment indicating that the proposal
was unclear as to whether loans originated and sold before year-end
would be included in the numerator, the agencies are clarifying that
the dollar volume of a bank's originations and purchases of all volume
metric loans for the facility-based assessment area in any year of the
evaluation period may be included in the Bank Volume Metric, even those
loans that are subsequently sold. The agencies believe that this
approach will appropriately give positive consideration to loan
originations made through a variety of bank business models, including
banks that sell originated loans on the secondary market to increase
liquidity, which can increase a bank's capacity to lend and further
meet the credit needs of the community.
Once the agencies have transitioned to using section 1071 data, as
discussed in the section-by-section analyses of final Sec. Sec. __.12
and __.51, the numerator will include purchased small business loans
and small farm loans only at the bank's option (because section 1071
data does not include loan purchases). Specifically, a bank may opt to
have the agencies include in its Bank Volume Metric numerator purchases
of loans that meet the definition of a ``covered credit transaction''
under the CFPB Section 1071 Final Rule. The agencies believe that the
inclusion of purchased small business loans and small farm loans
reflects the different ways in which banks may meet the credit needs of
communities. Once the agencies transition to using section 1071 data,
the agencies have determined that the inclusion of these loan purchases
should be optional to reduce data collection and maintenance
requirements.
The agencies are also clarifying that, consistent with the
treatment of reportable business loans pursuant to the CFPB Section
1071 Final Rule, once that data is used by the agencies, small business
loan renewals and small farm loan renewals will be counted in the Bank
Volume Metric only if the renewal increases the credit amount or credit
line amount.\847\ Generally, home mortgage loan renewals are not
reportable pursuant to HMDA; \848\ consistent with this standard, the
agencies will not include home mortgage loan renewals in the Bank
Volume Metric.
---------------------------------------------------------------------------
\847\ See 12 CFR 1002.103(a)(1).
\848\ See 12 CFR 1003.2 and supplement I to part 1003, comment
2(o)-2.
---------------------------------------------------------------------------
In the final rule, automobile loans are included in the bank's
annual dollar amount of volume metric loans only if automobile loans
are a product line for the bank (i.e., if the bank is a majority
automobile lender or opts to have its automobile loans evaluated). For
those banks that collect and maintain automobile lending data pursuant
to final Sec. __.42(a)(2), the numerator will include the annual
dollar amount of the bank's originated and purchased automobile loans.
The agencies determined that automobile loans should only be included
in a bank's Bank Volume Metric for banks that have their automobile
lending evaluated as a product line, in order to ensure a comprehensive
evaluation. As a result, a bank that has automobile lending considered
as part of the Bank Volume Metric would also have its automobile
lending evaluated under the distribution analysis pursuant to final
Sec. __.22(e) and (f) if its automobile lending is a major product
line in one or more facility-based assessment areas or its outside
retail lending area. The agencies determined that an alternative
approach of considering automobile loans as part of the Bank Volume
Metric for a bank that does not have automobile lending as a product
line would result in a less comprehensive evaluation because the bank
would receive favorable consideration for these loans in the Bank
Volume Metric without any evaluation of the distribution of those loans
to low- and moderate-income borrowers or in low- and moderate-income
census tracts.
As in the proposal, the numerator of the Bank Volume Metric does
not include non-automobile consumer loans. This decision reflects the
lack of non-automobile consumer lending data and is also intended to
align the Bank Volume Metric's numerator with the final rule's
treatment of non-automobile consumer loans--namely, that they will not
be evaluated as a product line under the Retail Lending Test, but will
be considered pursuant to the Retail Services and Products Test. This
aspect of the final rule is discussed in more detail in the section-by-
section analyses of final Sec. Sec. __.22(d) and __.23. To the extent
that commenters expressed concerns that not including non-automobile
consumer lending in the
[[Page 6808]]
numerator of the Bank Volume Metric would disadvantage banks, the
agencies note that they will apply the acceptable basis factors in
final Sec. __.22(c)(3)(i), as discussed below, as part of the
operation of the Retail Lending Volume Screen for banks that do not
meet the Retail Lending Volume Threshold. Specifically, pursuant to
final Sec. __.22(c)(3)(i)(A), the agencies will take into account a
bank's dollar volume of non-automobile consumer loans.
Denominator. The agencies are also making substantive, technical,
and clarifying edits in the final rule regarding calculating the
denominator of the Bank Volume Metric. As provided in paragraph I.a.2
of final appendix A, the denominator of the Bank Volume Metric will be
the sum of a bank's annual dollar volume of deposits from that
facility-based assessment area over the years in the evaluation period.
The agencies are making revisions that clarify that a bank's annual
dollar volume of deposits is: for a bank that reports deposits data
pursuant to final Sec. __.42(b)(3), the total of annual average daily
balances of deposits reported by the bank in counties in the facility-
based assessment area in that year; and, for all other banks, the total
of deposits assigned to branches reported by the bank in the FDIC's
Summary of Deposits data in counties in the facility-based assessment
area in that year. The agencies are finalizing a calculation based on
the sum of the annual dollar volume of deposits over the years in the
evaluation period, rather than an annual average as proposed, to reduce
complexity in the calculation of the Bank Volume Metric by reducing the
number of steps required without affecting the result of the
calculations.
Pursuant to final Sec. __.42(a)(7) and (b)(3), collecting,
maintaining, and reporting deposits data will be required for large
banks with assets greater than $10 billion. Deposits data collection
and maintenance will be optional for large banks with assets less than
or equal to $10 billion, intermediate banks, and small banks that opt
into the Retail Lending Test. Should a bank with assets less than or
equal to $10 billion elect to collect and maintain deposits data
pursuant to final Sec. __.42(a)(7), the bank will be required to
report deposits data pursuant to final Sec. __.42(b)(3). The agencies
have considered comments recommending that they modify their proposal
to require large banks with assets greater than $10 billion to collect,
maintain, and report deposits data and to allow large banks with assets
less than or equal to $10 billion the option to collect and maintain
this data. The agencies are finalizing this element of the Retail
Lending Volume Screen as proposed, to appropriately balance the trade-
off between maximizing the accuracy of the screen and corresponding
data burden.
Deposits data that are collected and reported pursuant to final
Sec. __.42(b)(3) will facilitate metrics that accurately reflect a
bank's deposits inside and outside of its facility-based assessment
areas. By contrast, the FDIC's Summary of Deposits data necessarily
assigns all deposits to bank branch locations and does not identify the
amount or percentage of deposits sourced from outside of a bank's
facility-based assessment areas. As a result, a bank with assets less
than or equal to $10 billion that sources deposits from outside of its
facility-based assessment areas that elects to collect, maintain, and
report deposits data could meaningfully increase its Bank Volume Metric
in a facility-based assessment area by decreasing the dollar amount of
deposits included in the denominator of the metric. Conversely,
electing not to collect and maintain deposits for such a bank may
result in a lower Bank Volume Metric, because deposits sourced from
outside of the facility-based assessment area would then be included in
the denominator of the metric.
Regarding comments that requiring all intermediate banks, and large
banks with assets less than or equal to $10 billion, to report deposits
data would improve the accuracy and consistency of the Bank Volume
Metric, to balance data collection burden the agencies decline to
require these banks to all collect, maintain, and report deposits data.
The agencies again note, however, that if a large bank with assets less
than or equal to $10 billion, intermediate bank, or small bank that
opts into the Retail Lending Test wishes to use more specific deposits
data in the Retail Lending Test, then the bank must collect, maintain,
and report this data.
With respect to comments recommending using the FDIC's Summary of
Deposits data across all large banks to inform the Bank Volume Metric,
the agencies decline to adopt this approach. The agencies considered
that although this alternative approach would reduce data burden, the
FDIC's Summary of Deposits data alone would be less accurate in
capturing the location of depositors than the final rule's combination
of bank-collected deposits and the FDIC's Summary of Deposits data. As
discussed below, using the FDIC's Summary of Deposits data for all
large banks would also result in the inclusion of U.S. Government
deposits, state and local government deposits, domestically held
deposits of foreign governments or official institutions, or
domestically held deposits of foreign banks or other foreign financial
institutions in deposit calculations for these banks. The combination
of these two factors, in conjunction with the fact that large banks
with assets greater than $10 billion hold over 80 percent of all
deposits,\849\ would have a disruptive impact on the functioning of the
Retail Lending Volume Screen, both with regard to their own metrics and
the impact of their deposits on construction of Market Volume
Benchmarks.
---------------------------------------------------------------------------
\849\ See FDIC, ``Summary of Deposits'' (June 2020), https://www7.fdic.gov/sod/sodMarketBank.asp?barItem=2.
---------------------------------------------------------------------------
The agencies have considered comments recommending that, when
possible, government and foreign deposits should be excluded from the
Bank Volume Metric. The agencies note that the definition of
``deposits'' in proposed Sec. __.12 specifically excluded: U.S.
Government deposits; state and local government deposits; domestically
held deposits of foreign governments or official institutions; or
domestically held deposits of foreign banks or other foreign financial
institutions. Accordingly, under the proposal, the denominator of the
bank volume metric did not include government or foreign deposits for
banks with assets of greater than $10 billion. As described further in
the section-by-section analysis of final Sec. __.12, the final rule's
definition of ``deposits'' continues to exclude these types of
deposits. However, the agencies are not excluding government and
foreign deposits from the Bank Volume Metric for banks that do not
collect and report deposits data (i.e., banks that use deposits
reported under the FDIC's Summary of Deposits data). This is because
these government and foreign deposits are included in the FDIC's
Summary of Deposits data at the aggregate (institution) level, without
any information regarding how government and foreign deposits are
distributed across a bank's individual branches or across the counties
where these branches are located. This information about how these
deposits are distributed would be necessary to accurately remove the
deposits from the facility-based assessment areas for which Bank Volume
Metrics are calculated. The agencies note that any bank that takes the
position that it might be materially disadvantaged by the inclusion of
these government and foreign deposits may choose to collect and report
the more
[[Page 6809]]
limited set of deposits data for use in the Retail Lending Volume
Screen and elsewhere in the CRA regulations.
The agencies are not excluding corporate deposits, health savings
account deposits, and trust deposits from the Bank Volume Metric. The
agencies find that in cases where large corporate or health savings
account deposits or government or foreign deposits unfavorably skew a
bank's performance on the Retail Lending Volume Screen, examiners could
consider this factor as an acceptable basis pursuant to final Sec.
__.22(c)(3)(i)(E) and (F) for a bank not meeting the Retail Lending
Volume Threshold in a facility-based assessment area.
Market Volume Benchmark
The Agencies' Proposal
To assess the level of a bank's retail lending volume relative to
local opportunities in a facility-based assessment area, the agencies
proposed to compare the bank volume metric to a ``market volume
benchmark.'' \850\ As provided in paragraph I.2 of proposed appendix A,
the market volume benchmark would have been comprised of the annual
average of the year-end total dollar amount of automobile loan, closed-
end home mortgage loan, open-end home mortgage loan, multifamily loan,
small business loan, and small farm loan originations in the facility-
based assessment area by all large banks that operated a branch in
counties wholly or partially within the facility-based assessment area,
in the numerator, divided by the annual average amount of deposits
collected by those same banks from that facility-based assessment area,
in the denominator.\851\ The dollars of deposits in the denominator
would have been based on: the annual average of deposits in counties in
the facility-based assessment area reported by all large banks with
assets greater than $10 billion that operate a branch in the assessment
area in the years of the evaluation period during which they operated a
branch at the end of the year; and the annual average of deposits
assigned to branches in the facility-based assessment area by all large
banks with assets less than or equal to $10 billion, according to the
FDIC's Summary of Deposits data, over the evaluation period.\852\
---------------------------------------------------------------------------
\850\ See proposed Sec. __.22(c)(3) and proposed appendix A,
paragraphs I.2 and I.3.
\851\ See proposed appendix A, paragraph I.2.
\852\ See id.
---------------------------------------------------------------------------
The agencies requested feedback on using alternative sets of
deposits data than proposed, based on bank asset size, to construct the
market volume benchmark.
Comments Received
Some commenters expressed concerns that the market volume benchmark
would be based on the lending and deposits of a limited subset of
banks--large banks with branches in the relevant facility-based
assessment area--rather than the total number of banks active in a
facility-based assessment area.\853\ In this regard, one commenter
asserted that setting the market volume benchmark based on a subset of
market participants would make the market volume benchmark susceptible
to collusion, and indicated that the agencies would need to guard
against such market manipulation.
---------------------------------------------------------------------------
\853\ See the section-by-section analyses of Sec. Sec. __.12
(``deposits'') and __.42(a)(7) and (b)(3) for an overview of
deposits considerations in general and deposits data collection,
maintenance, and reporting considerations in particular.
---------------------------------------------------------------------------
Other commenters contended that the market volume benchmark, as
proposed, would fail to provide banks or other stakeholders with
appropriate notice regarding performance expectations. Some of these
commenters expressed concerns that banks would not have the ability to
adjust performance during an evaluation period, because the benchmark
would be unknown until their evaluation periods have ended and their
CRA examinations have started.
Commenters also raised concerns that the market volume benchmark
would not sufficiently capture unique characteristics of a given
market. For example, some commenters asserted that, in areas with one
or a few dominant lenders, other lenders would be disadvantaged in
meeting the proposed Retail Lending Volume Threshold, while another
commenter suggested that the market volume benchmark should account for
market loan demand.
Final Rule
In final Sec. __.22(c)(1) and section I.b of final appendix A, the
agencies are making clarifying, technical, and substantive edits to the
proposal to use a Market Volume Benchmark, to increase clarity,
consistency, and readability.
Numerator. As provided in paragraph I.b.1 of final appendix A, the
numerator of the Market Volume Benchmark will be the annual dollar
volume of volume benchmark loans originated in the facility-based
assessment area and reported by benchmark banks, over the years in the
evaluation period.\854\ Volume benchmark loans are the total dollar
volume of all closed-end home mortgage loans, open-end home mortgage
loans, multifamily loans, small business loans, and small farm loans
originated in the facility-based assessment area in that calendar year
that are reported loans originated by benchmark banks. A benchmark bank
for a particular year is a bank that, in that year, was subject to
reporting pursuant to final Sec. __.42(b)(1), 12 CFR part 1003, or
both, and operated a facility included in the FDIC's Summary of
Deposits data in the facility-based assessment area. In contrast to the
proposed approach, benchmark banks under the final rule will include
small banks, intermediate banks, and large banks that report loan data.
---------------------------------------------------------------------------
\854\ For a discussion of the exclusion of purchased loans from
market benchmarks, see the section-by-section analysis of final
Sec. __.22(e).
---------------------------------------------------------------------------
The agencies believe that this approach will increase the amount of
data included in the Market Volume Benchmark and will result in a more
robust and representative benchmark, without any increase in data
burden or complexity, since there are no additional data requirements
associated with this change. The use of the sum of the dollar volume
rather than annual average of the year-end total dollar amount, as
provided in the proposal, and the focus on banks that operated a
facility included in the FDIC's Summary of Deposits data during a
calendar year, rather than banks that operated a branch at year-end of
a calendar year, represent changes from the proposal intended to
increase clarity and reduce complexity in the calculation of the Market
Volume Benchmark. The use of the terms benchmark bank and volume
benchmark loans is intended to increase clarity.
The agencies are also specifying that the numerator of the Market
Volume Benchmark is comprised of reported loan originations, and not
all originations as proposed. The agencies are making this change to
ensure the operability of the metrics-based approach, because data on
loan originations that are not reported would not be available to
include in the calculation of the benchmark. Accordingly, automobile
loan originations would not be included. The agencies have determined
that this approach appropriately balances the trade-off between, on the
one hand, including automobile loans in this benchmark to support a
more comprehensive analysis that accounts for different bank business
models and
[[Page 6810]]
strategies and, on the other hand, limiting the data collection,
maintenance, and reporting requirements for automobile lending data.
The agencies have determined that including the activity of
reporting small banks and intermediate banks, and not just large banks
as proposed, in the Market Volume Benchmark numerator will make the
Market Volume Benchmark more reflective of the aggregate lending
activity of the facility-based assessment area. As noted earlier, this
only applies to small banks and intermediate banks that already
reported data pursuant to CRA small business loan or small farm loan
reporting requirements (or section 1071 data once the transition
provisions discussed in the section-by-section analysis of Sec. __.51
take effect) or HMDA reporting requirements, and as a result this
approach does not add any new data reporting requirements to these
institutions.
Denominator. As described in paragraph I.b.2 of final appendix A,
the denominator of the Market Volume Benchmark will be the sum over the
years in the evaluation period of the annual dollar volume of deposits
for benchmark banks. The annual dollar volume of deposits for benchmark
banks is the sum across benchmark banks of: (1) the total of annual
average daily balances of deposits reported by banks that report
deposits data pursuant to final Sec. __.42(b)(3) in counties in the
facility-based assessment area in that year; and (2) the total of
deposits assigned to branches reported by banks in the FDIC's Summary
of Deposits data in counties in the facility-based assessment area in
that year for benchmark banks that do not report deposits data pursuant
to final Sec. __.42(b)(3). As above, the agencies are finalizing a
calculation based on the sum of the annual dollar volume of deposits
over the years in the evaluation period, rather than an annual average
as proposed, and with a focus on banks that operated a facility
included in the FDIC's Summary of Deposits data during a calendar year,
rather than banks that operated a branch at year-end of a calendar year
as proposed, to increase clarity and to reduce complexity in the
calculation of the Market Volume Benchmark, including because it would
be difficult to determine based upon available data whether a branch
was in operation at year-end. Furthermore, as noted above, the agencies
have considered the comments that the proposed benchmark was limited by
only including large bank data and that they should consider the
lending and deposits data of a larger universe of banks.
The agencies acknowledge trade-offs in this adopted approach for
establishing the denominator of the Market Volume Benchmark using both
reported deposits data and the FDIC's Summary of Deposits data instead
of requiring deposits data to be reported by all banks. The agencies
believe, however, that the approach incorporated in the final rule
strikes an appropriate balance between the additional precision
provided by deposits data reporting relative to the FDIC's Summary of
Deposits data and data reporting burden. The combination of reported
deposits data and the FDIC's Summary of Deposits data will provide for
the construction of more comprehensive and beneficial aggregate
deposits data against which to measure bank performance.
The agencies have also considered comments that the Market Volume
Benchmark, as proposed, would not provide banks with adequate notice
regarding performance expectations, and that banks would not know the
precise Market Volume Benchmark in advance of an evaluation period. The
agencies believe that it is important that the Market Volume Benchmark
reflect the level of retail credit needs and opportunities in the
facility-based assessment area during the bank's evaluation period.
Employing benchmarks that reflect the performance context of a
facility-based assessment area further decreases the need to rely on
examiner discretion to interpret bank retail lending performance. The
agencies determined that the final rule approach will therefore result
in greater consistency and standardization compared to an alternative
approach in which the Market Volume Benchmark is calculated using years
of data prior to the bank's evaluation period. Conversely, the agencies
considered that under such an alternative, the benchmarks may not
reflect the needs and opportunities of the facility-based assessment
area and would not align with the years of data used to calculate the
bank's Bank Volume Metric. The agencies note that Market Volume
Benchmarks for facility-based assessment areas will be published in
performance evaluations or through other means, such as data tools, to
provide a historical guideline for retail lending activity.
In addition, the agencies note that under the final rule approach,
the agencies would not automatically assign a ``Needs to Improve'' or
``Substantial Noncompliance'' conclusion for a bank with a Bank Volume
Metric below the Retail Lending Volume Threshold; instead, the final
rule provides for an evaluation of whether a bank has an acceptable
basis for not meeting the threshold. The agencies note that the
acceptable basis factors, discussed below, may address certain
circumstances that result in relatively sudden changes in the Market
Volume Benchmark, which the agencies believe may help to address the
advance notice concerns described by commenters. For example, if a
large competitor lender enters into, or exits from, a bank's facility-
based assessment area, resulting in a significant change in the bank's
lending opportunities or in the Market Volume Benchmark, the agencies
may consider this circumstance as an acceptable basis for not meeting
the Retail Lending Volume Screen pursuant to final Sec.
__.22(c)(3)(i)(C).
Retail Lending Volume Threshold
The Agencies' Proposal
The agencies proposed that banks would meet or surpass the retail
lending volume screen in a facility-based assessment area with a bank
volume metric of 30 percent or more of the market volume
benchmark.\855\ The agencies provided that, in the absence of an
acceptable basis for failing to meet the Retail Lending Volume
Threshold pursuant to proposed Sec. __.22(c)(2)(iii), banks that do
not meet at least 30 percent of the market volume benchmark are
substantially underperforming their peers in terms of meeting the
credit needs of their communities.\856\ The agencies proposed to set
the threshold at a level that is well below local averages so that
banks with various business strategies could meet the threshold,
including banks that generally hold loans on their balance sheet rather
than selling loans on the secondary market. This threshold was also
informed by agency analysis of historical lending data. The agencies
also requested feedback on whether it would be appropriate for banks
with retail lending volume performance that falls below a threshold
lower than the proposed 30 percent threshold--such as a 15 percent
threshold--to receive a Retail Lending Test recommended conclusion of
``Substantial Noncompliance'' in that facility-based assessment area.
---------------------------------------------------------------------------
\855\ See proposed Sec. __.22(c)(3) and paragraph proposed
appendix A, paragraph I.3.
\856\ See 87 FR 33884, 33935 (June 3, 2022).
---------------------------------------------------------------------------
Comments Received
Many commenters supported a Retail Lending Volume Threshold of at
least 30 percent, with several advocating for
[[Page 6811]]
certain adjustments. Some recommended that the agencies should adjust
the threshold upward from 30 percent for underserved communities
identified through statistical or other methods, with several
commenters recommending that the proposed 30 percent threshold should
be raised to at least 50 percent to more effectively ensure that banks
are deploying their deposits. One of these commenters indicated that a
threshold of 60 percent or 70 percent would be feasible and would help
to prevent deposit harvesting and redlining. A number of commenters
jointly stated their view that the 30 percent threshold would be too
low based on their comparison of this threshold to the much higher
threshold for lending activity provided in section 109, which requires
interstate banks to meet certain statewide (or other jurisdiction)
loan-to-deposit ratios with respect to their operations outside of
their home states. Some commenters stated that if the agencies
establish a retail lending volume screen, they should incorporate the
section 109 standards into CRA.
Other commenters generally opposed the 30 percent threshold,
indicating that it was set too high. A few commenters indicated that a
30 percent threshold was unreasonable, particularly for banks with
substantial personal loan originations. Another commenter noted that it
would be difficult for banks to meet the 30 percent threshold in
facility-based assessment areas with high market penetration and
dominant lenders. Relatedly, a commenter recommended that the 30
percent threshold be lowered in rural or economically distressed
assessment areas with low loan demand.
Several commenters suggested alternative threshold levels. For
example, a commenter suggested that the agencies set two thresholds--30
percent and 15 percent--and provide that no bank that surpassed the 15
percent threshold would receive a ``Substantial Noncompliance''
conclusion, with another commenter suggesting somewhat more stringent
corresponding thresholds of 34 percent and 17 percent of the market
volume benchmark. Another commenter proposed that the agencies set
ranges for performance conclusions--for example, 30 percent would
reflect ``Low Satisfactory'' performance and 35 percent would reflect
``Satisfactory'' performance--with examiners having the ability to
adjust these results based upon performance context. A commenter also
argued for separate Retail Lending Volume Thresholds based on bank
size, with different thresholds for large banks with $10 billion or
less in assets and large banks with over $10 billion in assets; this
commenter indicated that the largest banks could unfavorably impact the
results of the retail lending volume screen for other banks in urban
areas where they have high concentrations of retail lending. Another
commenter expressed the view that a bank that passes the screen in a
facility-based assessment area should receive a presumption of at least
``Satisfactory'' Retail Lending Test performance in that assessment
area. A commenter indicated that the proposed retail lending volume
screen was insufficient because it was based on a bank's loan-to-
deposit ratio benchmarked against other banks in the same geographic
area. The commenter indicated that, consequently, banks would all pass
the screen if they collectively reduced their lending volume. Instead,
this commenter indicated, the agencies should base a screen on the
``loan price'' of deposits--for example, that a bank's annual loan
origination value in a geography should exceed 10 percent of its annual
average deposits.
Other commenters questioned whether the proposed 30 percent
threshold was based on quantitative analysis, and expressed concern
that neither banks nor other stakeholders currently have access to
market volume benchmarks in order to self-assess how they would perform
pursuant to the retail lending volume screen.
Final Rule
As provided in final Sec. __.22(c)(1) and section I.c of final
appendix A, the agencies are finalizing their proposal that banks will
meet or surpass the Retail Lending Volume Threshold in a facility-based
assessment area with a Bank Volume Metric of 30 percent or greater of
the Market Volume Benchmark. Pursuant to final Sec. __.22(c)(2), if a
bank meets or surpasses the applicable threshold the agencies will
develop a Retail Lending Test recommended conclusion pursuant to the
distribution analysis in final Sec. __.22(d) through (f).
The agencies have considered commenter suggestions for both a
higher or lower Retail Lending Volume Threshold, as well as alternative
approaches for setting a threshold such as basing it on the loan price
of deposits, and the reasons offered for these suggestions. On balance,
the agencies believe that the final rule's threshold, set at 30 percent
of the Market Volume Benchmark, provides a meaningful baseline measure
of whether a bank is meeting the credit needs of its community, while
necessarily accounting for the wide variety of bank business strategies
that exist today and that will evolve in the future. The agencies note
that the 30 percent threshold is set well below the Market Volume
Benchmark, which is the local marketwide average loan-to-deposit ratio.
The agencies determined that by setting a 30 percent threshold rather
than a threshold closer to the Market Volume Benchmark, such as 50
percent or 70 percent, banks with various business strategies could
reasonably be expected to meet or surpass the threshold.
In further considering an appropriate threshold, the agencies
conducted a quantitative analysis of historical lending data on
approximately 6,600 intermediate bank and large bank facility-based
assessment areas from 2018-2020, summarized in Table 6. The analysis
showed that bank performance in 96.4 percent of these facility-based
assessment areas would have met or surpassed a 30 percent Retail
Lending Volume Threshold during this period. Moreover, the same
analysis showed that the share of these banks' facility-based
assessment areas that would meet or surpass the threshold declines
materially as the threshold is increased from 30 percent. For example,
applying a 50 percent threshold to this same data results in 89.2
percent of these banks' facility-based assessment areas meeting or
surpassing the threshold, and applying a threshold of 70 percent of the
Market Volume Benchmark results in 79.8 percent of these banks'
facility-based assessment areas meeting or surpassing the threshold.
The agencies intend the Retail Lending Volume Screen to identify only
those situations in which banks are far below average in terms of their
lending relative to deposits in a facility-based assessment area. The
agencies believe that applying a relatively narrow standard for
identifying such banks is more consistent with current practice under
the lending test, which primarily bases conclusions on the retail
lending distribution analysis. As discussed earlier, the agencies
believe that the screen helps to supplement the distribution analysis,
and should not itself be the primary basis for assigning conclusions
for the Retail Lending Test for a substantial segment of banks
evaluated under this performance test. Accordingly, the agencies
believe that the higher threshold alternatives recommended by some
commenters would potentially overemphasize the screen relative to the
distribution analysis.
[[Page 6812]]
By contrast, based on the same quantitative analysis, the agencies
determined that decreasing the Retail Lending Volume Threshold below 30
percent would further increase the numbers of these banks' facility-
based assessment areas that meet or surpass the threshold. More
specifically regarding comments suggesting that the threshold be set at
or near 15 percent (either as a stand-alone threshold or as one
threshold of a tiered threshold approach), the agencies found that the
rate at which facility-based assessment areas for banks included in the
analysis met or surpassed a threshold of least 15 percent was 98.8
percent (versus 96.4 percent for a 30 percent threshold, as noted
above).
The agencies' analysis of historical data also suggests that
facility-based assessment areas of large banks included in the analysis
with assets less than or equal to $10 billion are slightly more likely
to fall below the Retail Lending Volume Threshold than those of large
banks included in the analysis with assets greater than $10 billion.
The same analysis reflected that the facility-based assessment areas of
intermediate banks included in the analysis were the least likely to
fall below the Retail Lending Volume Threshold. At the final rule
threshold of 30 percent, historical data suggests that approximately
2.4 percent of facility-based assessment areas of intermediate banks
included in the analysis and 4.2 percent of facility-based assessment
areas of large banks included in the analysis with assets less than or
equal to $10 billion would not meet or surpass the Retail Lending
Volume Threshold. In contrast, approximately 4.1 percent of facility-
based assessment areas of large banks included in the analysis with
assets of $10 billion to $50 billion and 3.3 percent of facility-based
assessment areas of large banks included in the analysis with assets
greater than $50 billion would not meet or surpass the Retail Lending
Volume Threshold. The agencies therefore believe that the 30 percent
threshold is appropriate, and is generally attainable, including for
intermediate banks and large banks of all asset sizes.
BILLING CODE 4810-33-P;6714-01-P
[[Page 6813]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.005
BILLING CODE 4810-33-C;6714-01-C
In considering commenter feedback, the agencies have also
reevaluated whether a 30 percent Retail Lending Volume Threshold
accomplishes the policy objective of identifying banks for which retail
lending is extraordinarily low, such that additional qualitative
analysis of these banks' loans is warranted. In this regard, the
agencies' quantitative analysis supports a conclusion that the 30
percent threshold establishes a material distinction between banks that
meet or surpass this threshold and banks that do not. Specifically, the
agencies' analysis showed that the median Bank Volume Metric of 15
percent for facility-based assessment areas of banks included in the
analysis meeting or surpassing a 30 percent threshold was more than
seven times greater than the median Bank Volume Metric of 2 percent for
facility-based assessment areas of banks included in the analysis that
would not have met the threshold, as a result indicating that banks
that do not meet the threshold generally exhibit very low levels of
retail lending relative to deposits. Barring information considered
pursuant to the final rule in determining whether the bank has an
acceptable basis in not meeting the threshold, banks that do not meet a
Retail Lending Volume Threshold set at 30 percent or greater of the
Market Volume Benchmark are substantially underperforming their peers
in terms of meeting the credit needs of their communities.
The agencies have also reevaluated the analysis included in the
proposal
[[Page 6814]]
that used historical data to compare the actual assessment area
conclusions received by banks on the current lending test with how
those banks would have performed if they were evaluated under the
Retail Lending Volume Screen at different threshold levels, including
the proposed level of 30 percent of the Market Volume Benchmark. This
updated analysis includes additional historical performance evaluation
data compiled by the agencies. The agencies' updated analysis found
that a 30 percent threshold is associated with a significant
distinction between bank assessment areas that received
``Satisfactory'' conclusions and bank assessment areas that received
``Needs to Improve'' conclusions on prior evaluations under the current
lending test.\857\ Some threshold levels greater than 30 percent were
associated with an even greater distinction between bank conclusion
categories on past examinations under the current Lending Test.
However, for the reasons described above, the agencies have concluded
that it is appropriate to retain the proposed level of 30 percent,
rather than increase the threshold level. Additionally, the agencies
believe that retaining the proposed level of 30 percent will account
for banks that are adequately meeting the credit needs of their
communities but that have a business model or strategy that results in
a lower-than-average loan-to-deposit ratio. The agencies continue to
believe that setting the Retail Lending Volume Threshold at 30 percent
is both appropriate and provides a meaningful baseline measure for
identifying banks whose retail lending volume in a facility-based
assessment area is extraordinarily low.
---------------------------------------------------------------------------
\857\ The agencies found that, when replicating the analysis
included in the proposal using the same historical performance
evaluation data that was available at the time of the original
analysis, the distinction at the 30 percent threshold level was
slightly lower than the distinction at other, higher threshold
levels. Nevertheless, the distinction in passing rates at the 30
percent threshold level was significant.
---------------------------------------------------------------------------
The agencies will apply the Retail Lending Volume Screen to all
banks evaluated in facility-based assessment areas under the Retail
Lending Test, including banks with different business strategies; as a
result, as commenters noted, some banks may perform differently on the
screen relative to others. However, as discussed above, the Retail
Lending Volume Threshold is set so as to ensure that meeting the
threshold will be reasonably achievable for banks with a range of
business strategies. The screen is intended to identify those facility-
based assessment areas where a bank may be lending significantly below,
rather than moderately or slightly below, its presence and capacity.
Although the 30 percent Retail Lending Volume Threshold is designed
to account for a wide range of bank business strategies, the agencies
are sensitive to concerns raised by commenters that some banks might
have difficulty meeting the 30 percent threshold, particularly in
facility-based assessment areas with high market penetration and
dominant lenders. The agencies have considered commenter feedback that
market circumstances particular to rural or economically distressed
assessment areas with low retail loan demand could affect a bank's
ability to meet the 30 percent threshold. For these reasons, the
agencies are finalizing an approach whereby examiners will determine
whether a bank has an acceptable basis for not meeting the threshold,
by considering specified acceptable basis factors as provided in final
Sec. __.22(c)(3)(i). This aspect of the Retail Lending Volume Screen
is discussed in greater detail below.
The agencies have considered, but decline to adopt, suggestions
that large banks should receive a Retail Lending Test conclusion of
``Substantial Noncompliance'' for performance below the 30 percent
threshold in a facility-based assessment area as well as, conversely,
suggestions that a large bank with performance above the 30 percent
threshold should receive a presumption of a ``Satisfactory'' conclusion
or should never receive a ``Substantial Noncompliance'' conclusion, in
a facility-based assessment area. The agencies have determined that it
is preferable to retain discretion to assign a conclusion based on a
range of factors relevant to a bank's retail lending performance. As
discussed above, the agencies expect banks to demonstrate a baseline
level of lending relative to their presence and capacity, which the
agencies believe is reasonably demonstrated by meeting or surpassing
the 30 percent threshold. Additionally, as explained earlier, the
agencies believe that a holistic evaluation of whether a bank is
meeting the credit needs of its facility-based assessment areas should
generally include consideration of a bank's lending volume relative to
presence and capacity and the distribution of its loans. For example,
the agencies believe that a ``Substantial Noncompliance'' conclusion
could be warranted for a bank that meets or surpasses the Retail
Lending Volume Threshold, but has substantial deficiencies in its loan
distribution performance in the facility-based assessment area pursuant
to final Sec. __.22(d) through (f).
The agencies believe that large banks that do not meet the Retail
Lending Volume Threshold and lack an acceptable basis for this should
receive a final Retail Lending Test conclusion not exceeding ``Needs to
Improve'' in a facility-based assessment area. However, the agencies
believe that either a ``Substantial Noncompliance'' or ``Needs to
Improve'' conclusion could be appropriate. Specifically, which of these
two conclusions a large bank receives for a facility-based assessment
area will be determined as provided in final Sec. __.22(c)(3)(iii)(A),
as discussed below.
The agencies also considered comments that the Retail Lending
Volume Screen would allow all banks to pass if they collectively
reduced their lending volume because of the use of the market benchmark
and an alternative approach, suggested by a commenter, to set a
threshold based on a fixed number rather than a market benchmark. The
agencies believe that the Market Volume Benchmark coupled with the
applicable threshold reflects the credit needs and opportunities of an
area, in contrast to a fixed performance standard, such as an
expectation that the Bank Volume Metric always exceed 10 percent in
every facility-based assessment area, as suggested by the commenter.
However, the agencies acknowledge that the Market Volume Benchmark and
Retail Lending Volume Threshold would both adjust downward in the event
that all banks in a facility-based assessment area reduced their
lending volume relative to deposits. The agencies note that the
additional factor provided in final Sec. __.22(g)(7) allows the
agencies to take into account ``information indicating that the credit
needs of the facility-based assessment area or retail lending
assessment area are not being met by lenders in the aggregate, such
that the relevant benchmarks do not adequately reflect community credit
needs.'' This could include circumstances in which all banks in a
facility-based assessment area have significantly reduced their lending
levels such that the Market Volume Benchmark does not reflect community
credit needs. In addition, the agencies intend to continue to monitor
this issue and would consider appropriate steps to take if this emerged
as an issue warranting further consideration.
The agencies also considered comments that neither banks nor other
stakeholders currently have access to benchmarks in order to self-
assess how they would perform pursuant to the
[[Page 6815]]
Retail Lending Volume Screen. The agencies intend to create data tools
that would provide information such as estimates of the Market Volume
Benchmark in different geographic areas based on recent data.
Initially, prior to the availability of reported deposits data, the
agencies would estimate these benchmarks using the FDIC's Summary of
Deposits data.
Finally, the agencies have considered comments that section 109
standards be used in lieu of the Retail Lending Volume Screen or that
the threshold for the screen should be based on loan-to-deposit ratios
used under section 109. Upon consideration of the comments, the
agencies have determined that importation of, or reliance on, section
109 standards would not effectuate the same evaluation that the screen
is designed to further as part of the Retail Lending Test. As discussed
above, Congress enacted section 109 to serve a specific purpose--
namely, to prohibit interstate banks from acquiring or establishing a
branch outside of their home state (or other jurisdiction) primarily
for the purpose of deposit production, which is distinct from the
agencies' CRA evaluations to assess whether a bank is meeting the
credit needs of its entire community. In addition, as discussed
earlier, the specified calculations used to derive the loan-to-deposit
ratios pursuant to section 109 do not align with the specific approach
adopted in the final rule for measuring a bank's volume of retail
lending in a facility-based assessment area against its capacity to
lend in that facility-based assessment area. For example, section 109
standards do not apply to a bank in its home state, are geographically
limited in how they are calculated to the host state level, and do not
incorporate non-host state banks in their benchmark calculations. As
discussed above, section 109 has a specific focus on ensuring that a
bank's interstate branches do not take deposits from a host state (or
other host jurisdiction) without the bank reasonably helping to meet
the credit needs of that host state.
Section __.22(c)(2) Banks That Meet or Surpass the Retail Lending
Volume Threshold in a Facility-Based Assessment Area
The Agencies' Proposal
The agencies proposed to evaluate a bank's major product lines
pursuant to the distribution metrics approach, if the bank met or
surpassed the Retail Lending Volume Threshold.\858\ The bank would then
be eligible for any Retail Lending Test recommended conclusion in that
facility-based assessment area.
---------------------------------------------------------------------------
\858\ See proposed Sec. __.22(c)(1).
---------------------------------------------------------------------------
Comments Received
The agencies did not receive any comments that were directly
responsive to this component of the proposal.
Final Rule
As provided in final Sec. __.22(c)(2), the agencies are finalizing
the proposal that, for a bank that meets or surpasses the Retail
Lending Volume Threshold in a facility-based assessment area, the
agencies will develop a Retail Lending Test recommended conclusion for
the facility-based assessment area pursuant to final Sec. __.22(d)
through (f). The bank will be eligible for any Retail Lending Test
recommended conclusion in that facility-based assessment area.
Section __.22(c)(3) Banks That Do Not Meet the Retail Lending Volume
Threshold in a Facility-Based Assessment Area
Section __.22(c)(3)(i) Acceptable Basis Factors
The Agencies' Proposal
The agencies proposed that if the bank volume metric for a
particular bank was less than 30 percent of the market volume benchmark
in a facility-based assessment area the agencies would determine
whether the bank had an acceptable basis for not meeting the 30 percent
threshold \859\ by reviewing qualitative factors that might have
affected the bank's ability to lend in the facility-based assessment
area.\860\ The proposal recognized that not all performance context
factors are captured in the metrics and, as a result, the agencies
proposed specified additional factors that might serve as an acceptable
basis for why a bank did not meet the threshold. Specifically,
examiners would consider institutional capacity and constraints--
including the financial condition of a bank, the presence or lack
thereof of other lenders in the geographic area, safety and soundness
limitations, the bank's business strategy, and other factors that limit
the bank's ability to lend in the facility-based assessment area.\861\
If the qualitative assessment concluded that the bank had an acceptable
basis for not meeting the threshold, the agencies would then evaluate
the retail loan distribution for each of the bank's major product
lines.\862\
---------------------------------------------------------------------------
\859\ See proposed Sec. __.22(c)(2)(i).
\860\ See proposed Sec. __.22 (c)(2)(iii).
\861\ Id.
\862\ See proposed Sec. __.22(c)(2)(i).
---------------------------------------------------------------------------
If these qualitative factors did not account for the bank's
insufficient volume of bank retail lending in the facility-based
assessment area, the agencies proposed to consider the bank to not have
an acceptable basis for failing to meet the threshold.
Comments Received
The agencies received a few comments on this component of the
proposal. Those commenters raised concerns that the proposal lacked
clarity regarding how examiners would consider the qualitative factors
that the agencies had proposed when determining whether a bank had an
acceptable basis for failing the screen.
Final Rule
As provided in final Sec. __.22(c)(3)(i), the agencies are
adopting their proposal that if a bank does not meet the Retail Lending
Volume Threshold in a facility-based assessment area, the agencies will
determine whether the bank has an acceptable basis for not meeting the
Retail Lending Volume Threshold by considering specific qualitative
factors. Specifically, final Sec. __.22(c)(3)(i) provides that the
agency will consider: the bank's dollar volume of non-automobile
consumer loans; the bank's institutional capacity and constraints,
including the financial condition of the bank; the presence or lack of
other lenders in the facility-based assessment area; safety and
soundness limitations; the bank's business strategy; and other factors
that limit the bank's ability to lend in the facility-based assessment
area.
Recognizing that not all relevant performance context factors are
captured in the Retail Lending Volume Screen, the agencies believe that
this qualitative review will allow examiners to consider a bank's
performance on the screen within the larger context of a bank's overall
circumstances, which in turn may reveal appropriate grounds for why a
bank's retail lending volume was otherwise insufficient relative to the
Retail Lending Volume Threshold.
The agencies have added to the final rule's list of acceptable
basis factors consideration of a bank's dollar volume of non-automobile
consumer loans in the facility-based assessment area. This aspect of
the final rule will allow the agencies to account for instances in
which a bank has engaged in a substantial amount of such unreported
lending (e.g., personal loans) that is not otherwise considered under
the Retail Lending Test, but has very few, if any, closed-end home
mortgage loans, small business loans, small farm loans, or automobile
loans.
[[Page 6816]]
With respect to commenter concerns regarding clarity about
application of the acceptable basis factors, the agencies intend to
routinely consider these qualitative factors in all instances where a
bank does not meet the threshold in a facility-based assessment area.
The agencies' consideration of acceptable basis factors will
necessarily be situation-specific, with the objective in each instance
being that of determining whether there were sufficient grounds to
explain the bank's lack of lending volume relative to the threshold.
Section __.22(c)(3)(ii) Banks That Have an Acceptable Basis for Not
Meeting the Retail Lending Volume Threshold in a Facility-Based
Assessment Area
The Agencies' Proposal
That agencies proposed that if they determined that a bank had an
acceptable basis for not meeting the Retail Lending Volume Threshold
they would then consider the distribution metrics pursuant to proposed
Sec. __.22(d) in order to assign a Retail Lending Test recommended
conclusion and consider the additional factors provided in proposed
Sec. __.22(e) to determine whether to adjust that recommended
conclusion.\863\ A bank with an acceptable basis for not meeting the
threshold would be eligible for all possible recommended conclusions:
``Outstanding,'' ``High Satisfactory,'' ``Low Satisfactory,'' ``Needs
to Improve,'' and ``Substantial Noncompliance.'' As discussed above,
this approach would allow examiners to consider performance context
factors that may not necessarily be captured in the metrics, such as
institutional capacity and constraints.
---------------------------------------------------------------------------
\863\ See proposed Sec. __.22(c)(2)(i).
---------------------------------------------------------------------------
Comments Received
The agencies did not receive any comments that were directly
responsive to this component of the proposal.
Final Rule
The agencies are finalizing this provision in final Sec.
__.22(c)(3)(ii). The final rule provision does not include specific
references to assignment and adjustment of Retail Lending Test
recommended conclusions because this is provided for in final Sec.
__.22(f) and (g).
Section __.22(c)(3)(iii)(A) Banks That Lack an Acceptable Basis for Not
Meeting the Retail Lending Volume Threshold in a Facility-Based
Assessment Area--Large Banks
Section __.22(c)(3)(iii)(B) Banks That Lack an Acceptable Basis for Not
Meeting the Retail Lending Volume Threshold in a Facility-Based
Assessment Area--Intermediate Banks or Small Banks
The Agencies' Proposal
The agencies proposed that if an agency determined that a large
bank did not have an acceptable basis for failing to meet the Retail
Lending Volume Threshold, the agency would assign the bank a Retail
Lending Test conclusion in that facility-based assessment area of
either ``Needs to Improve'' or ``Substantial Noncompliance'' based on
three factors: (1) the bank's retail lending volume and the extent by
which it failed to meet the Retail Lending Volume Threshold; (2) the
bank's retail loan distribution for each major product line pursuant to
proposed Sec. __.22(d); and (3) the additional factors provided in
proposed Sec. __.22(e).\864\
---------------------------------------------------------------------------
\864\ See proposed Sec. __.22(c)(2)(ii)(A).
---------------------------------------------------------------------------
The agencies proposed for intermediate banks, or small banks that
opt to be evaluated under the Retail Lending Test, that failed to pass
the Retail Lending Volume Threshold in a facility-based assessment area
with no acceptable basis for doing so that the agency would review the
bank's performance relative to the Retail Lending Volume Threshold as
an additional indicator of lending performance when determining the
bank's Retail Lending Test recommended conclusion in the facility-based
assessment area.\865\ Unlike a large bank without an acceptable basis
for failing to meet the threshold, the agencies proposed that if an
intermediate bank, or a small bank that opted into the Retail Lending
Test, did not have an acceptable basis, the bank would not be limited
to receiving only a conclusion of ``Needs to Improve'' or ``Substantial
Noncompliance'' in that facility-based assessment area. The agencies
explained that the proposed approach resulting in differential
treatment of large banks compared with intermediate banks and small
banks was justified because: the agencies recognized that intermediate
banks and small banks have less capacity to ensure that their lending
is commensurate with their deposits in comparison to large banks; and
the agencies recognized that the FDIC's Summary of Deposits data used
as the default in the bank volume metric calculations for intermediate
banks and small banks may not always accurately reflect the location of
depositors.
---------------------------------------------------------------------------
\865\ See proposed Sec. __.22(c)(2)(ii)(B).
---------------------------------------------------------------------------
Comments Received
Some commenters supported the agencies' proposal that an
intermediate bank or a small bank that did not pass the retail lending
volume screen would have the outcome reviewed as an additional
indicator of lending performance when determining the bank's Retail
Lending Test recommended conclusion in the facility-based assessment
area. A few other commenters asserted that the agencies should extend
this same treatment to large banks that did not pass the screen.
Final Rule
Large banks that lack an acceptable basis for not meeting the
Retail Lending Volume Threshold. Final Sec. __.22(c)(3)(iii)(A)
provides that if, after reviewing the factors in final Sec.
__.22(c)(3)(i), the agencies determine that a large bank lacks an
acceptable basis for not meeting the Retail Lending Volume Threshold in
a facility-based assessment area, the agencies will assign the bank a
Retail Lending Test conclusion of ``Needs to Improve'' or ``Substantial
Noncompliance'' for the facility-based assessment area. In determining
whether ``Needs to Improve'' or ``Substantial Noncompliance'' is the
appropriate conclusion, the agency considers: the bank's retail lending
volume and the extent by which it fell short of the threshold; the
bank's distribution analysis pursuant to final Sec. __.22(d) through
(f); the performance context factors in Sec. __.21(d); and the
additional factors in final Sec. __.22(g).
The agencies' reason for the different treatment of large banks
that lack an acceptable basis for not meeting the Retail Lending Volume
Screen remains that large banks have greater capacity than intermediate
banks and small banks to ensure that their lending is commensurate with
their deposits and to voluntarily collect and maintain deposits data in
cases where the bank's FDIC's Summary of Deposits data do not
accurately reflect the location of their depositors.
The agencies have considered commenter feedback that the Retail
Lending Volume Screen should be employed solely as performance context,
including for large banks. For intermediate banks and small banks that
opt into the Retail Lending Test, the screen already serves as an
additional indicator of lending performance when
[[Page 6817]]
determining the bank's Retail Lending Test recommended conclusion in a
facility-based assessment area. The agencies believe that adopting that
approach would not be desirable for large banks that significantly
underperform relative to their presence and capacity to lend and lack
an acceptable basis for doing so. The agencies find it unnecessary to
provide additional examiner discretion for large banks with respect to
assigning facility-based assessment area conclusions. The agencies note
that the fact that a large bank does not meet the Retail Lending Volume
Threshold does not automatically lead to assignment of any conclusion
in any facility-based assessment area. Rather, as provided in final
Sec. __.22(c)(3)(i), the agencies will also consider whether a bank
meets any of the acceptable basis factors.
Intermediate and small banks that lack an acceptable basis for not
meeting the Retail Lending Volume Threshold. Final Sec.
__.22(c)(3)(iii)(B) provides that if, after reviewing the factors in
final Sec. __.22(c)(3)(i), the agencies determine that an intermediate
bank, or a small bank that opts to be evaluated under the Retail
Lending Test, lacks an acceptable basis for not meeting the Retail
Lending Volume Threshold in a facility-based assessment area, the
agencies will develop a Retail Lending Test recommended conclusion for
the facility-based assessment area pursuant to final Sec. __.22(d)
through (f). In turn, the agencies' determination of the bank's Retail
Lending Test conclusion for the facility-based assessment area is
informed by: the bank's Retail Lending Test recommended conclusion for
the facility-based assessment area; the bank's retail lending volume
and the extent by which it did not meet the Retail Lending Volume
Threshold; performance context factors provided in final Sec.
__.21(d); and the additional factors in final Sec. __.22(g).
Consistent with the proposal, unlike large banks, these banks will not
be limited to receiving a conclusion of ``Needs to Improve'' or
``Substantial Noncompliance'' in the facility-based assessment area.
The agencies believe that this approach accounts for the lower
capacity of intermediate banks and small banks that opt into the Retail
Lending Test to ensure that their lending is commensurate with their
deposits. In addition, this approach would account for the proposed use
of the FDIC's Summary of Deposits data to calculate the Bank Volume
Metric for intermediate banks and for small banks (if these banks do
not voluntarily collect and maintain deposits data pursuant to final
Sec. __.42(a)(7) and, in turn, report that data pursuant to final
Sec. __.42(b)(3)).
Section Sec. __.22(d) Scope of Retail Lending Distribution Analysis
Section Sec. __.22(d)(1) Product Lines Evaluated in a Retail Lending
Test Area
To evaluate a bank's retail lending performance in its facility-
based assessment areas, retail lending assessment areas, and outside
retail lending area, as applicable, under the Retail Lending Test, the
agencies proposed in Sec. __.22(a)(4) to identify a bank's major
product lines in a geographic area from among six retail lending
categories: closed-end home mortgage loans, open-end home mortgage
loans, multifamily loans, small business loans, small farm loans, and
automobile loans. For purposes of identifying a bank's major product
lines in a geographic area, the agencies proposed to use a 15 percent
standard based on loan dollars for closed-end home mortgage loans,
open-end home mortgage loans, multifamily loans, small business loans,
and small farm loans; the agencies proposed to use a 15 percent
standard based on a combination of loan dollars and loan count for
automobile loans. The agencies would evaluate the geographic and
borrower distributions of a bank's major product lines under the
distribution analysis component of the Retail Lending Test described in
proposed Sec. __.22(d).
The agencies received numerous comments regarding each of the
proposed retail lending product lines, and the proposed standards for
identifying a bank's major product lines. Comments regarding each of
the six proposed retail lending products are discussed in turn below.
Comments regarding the proposed major product line standards as
discussed in the section-by-section analysis of final Sec.
__.22(d)(2), below.
For the reasons discussed below, the agencies are modifying,
relative to the proposal, the scope of the distribution analysis
component of the final rule Retail Lending Test. Under the final rule,
only four retail product lines--closed-end home mortgage loans, small
business loans, small farm loans, and automobile loans \866\--may be
evaluated under the distribution analysis in a facility-based
assessment area or outside retail lending area. The agencies will not
evaluate open-end home mortgage loans and multifamily loans under the
distribution analysis in final Sec. __.22(e).\867\ In addition, only
closed-end home mortgage loans and small business loans may be
evaluated as a major product line in a large bank's retail lending
assessment areas.\868\
---------------------------------------------------------------------------
\866\ As discussed in introduction to the section-by-section
analysis of final Sec. __.22, automobile loans are only evaluated
under the Retail Lending Test if the bank is a majority automobile
lender or the bank opts to have its automobile loans evaluated under
the Retail Lending Test.
\867\ However, open-end home mortgage loans and multifamily
loans are included in the bank's metrics for purposes of the Retail
Lending Volume Screen, as discussed in the section-by-section
analysis of final Sec. __.22(c).
\868\ For further discussion of the product lines that may be
evaluated in a retail lending assessment area, see the section-by-
section analysis of final Sec. __.17(d).
---------------------------------------------------------------------------
As such, final Sec. __.22(d)(1) provides that in each applicable
Retail Lending Test Area, the agencies evaluate originated and
purchased loans in each of the following product lines that is a major
product line, as described in Sec. __.22(d)(2): \869\
---------------------------------------------------------------------------
\869\ The agencies have determined that it is appropriate to
relocate the provisions describing the scope of the distribution
analysis component of the Retail Lending Test from proposed Sec.
__.22(a) to final Sec. __.22(d), so that these scoping provisions
immediately precede the regulatory text regarding the distribution
analysis itself in final Sec. __.22(e).
---------------------------------------------------------------------------
Closed-end home mortgage loans in a bank's facility-based
assessment areas and, as applicable, retail lending assessment areas
and outside retail lending area;
Small business loans in a bank's facility-based assessment
areas and, as applicable, retail lending assessment areas and outside
retail lending area;
Small farm loans in a bank's facility-based assessment
areas and, as applicable, outside retail lending area; and
Automobile loans in a bank's facility-based assessment
areas and, as applicable, outside retail lending area.
Each of the four product lines included in the final rule Retail
Lending Test distribution analysis is discussed in turn below.
Following this discussion, the two product lines excluded from the
final rule Retail Lending Test distribution analysis are discussed.
Product Lines Included in the Retail Lending Test Distribution Analysis
Section __.22(d)(1)(i) Closed-End Home Mortgage Loans
In final Sec. __.22(d)(1)(i), the agencies are adopting with
certain substantive, clarifying, and technical revisions their proposed
approach of evaluating closed-end home purchase, home refinance, home
improvement, and other purpose home mortgage loans as a single major
product line under the Retail Lending Test's distribution analysis. The
[[Page 6818]]
agencies have decided that open-end home mortgage loans will not be
evaluated under the Retail Lending Test, but rather, responsive open-
end home mortgage loans will be considered under the Retail Services
and Products Test, as discussed in the section-by-section analysis of
final Sec. __.23.
The Agencies' Proposal
As discussed above, the agencies currently evaluate a bank's ``home
mortgage'' lending under the lending test, which includes both closed-
end home mortgage loans and open-end home mortgage loans.\870\ The
agencies proposed to evaluate closed-end home mortgage loans secured by
a one-to-four family dwelling as a single major product line under the
Retail Lending Test.\871\ As proposed, this category would include one-
to-four family closed-end home mortgage loans of all purposes,
including home purchase loans, home refinance loans, home improvement
loans, and other purpose closed-end home mortgage loans, but not
including multifamily loans.\872\ The agencies noted that, in
comparison to a potential alternative in which closed-end home mortgage
loans with different purposes are evaluated separately, the proposed
rule would consolidate closed-end home mortgage loans in a single major
product line, thereby streamlining the evaluation process and reducing
complexity. As a major product line, the proposal contemplated that
closed-end home mortgage loans would be evaluated using the
distribution metrics included in the Retail Lending Test.\873\
---------------------------------------------------------------------------
\870\ See current 12 CFR __.12(l) and __.22(a)(1).
\871\ See proposed Sec. __.22(a)(4)(i)(A). The agencies
proposed in proposed Sec. __.12 to define ``closed-end home
mortgage loan'' to have ``the same meaning given to the term
`closed-end mortgage loan' in 12 CFR 1003.2(d)'' (the CFPB's
Regulation C, implementing HMDA), but excluding multifamily loans.
For further discussion of the definition of ``closed-end home
mortgage loan'' under the final rule, see the section-by-section
analysis of final Sec. __.12 (``closed-end home mortgage loan'').
\872\ See proposed Sec. __.22(a)(4)(i)(A). As under the CFPB's
Regulation C, ``other purpose'' refers to any loan purpose other
than home purchase, refinance, or home improvement. See also 12 CFR
1003.4(a)(3) and associated Official Interpretations.
\873\ See proposed Sec. __.22(b) through (d).
---------------------------------------------------------------------------
The agencies sought feedback on whether to evaluate closed-end home
mortgage loans of different purposes individually or collectively given
that the factors driving demand for home purchase loans, home refinance
loans, home improvement loans, and other purpose home mortgage loans
can vary over time. In addition, the agencies noted that these closed-
end home mortgage products can meet different credit needs for low- and
moderate-income borrowers and communities. The agencies also requested
feedback on whether aggregation could lead to less transparency in the
reported metrics when one loan purpose category takes prominence over
another. For example, a bank's home purchase lending performance could
be obscured during periods of high home mortgage refinance lending, and
a bank's home mortgage refinance lending performance could be similarly
obscured during periods of high home purchase lending activity. The
agencies sought feedback on the magnitude of this risk, and whether it
outweighs the efficiency gained from more streamlined closed-end home
mortgage lending evaluations.
The agencies also sought feedback on whether to evaluate home
improvement loans and other purpose closed-end home mortgage loans
reported under HMDA under both the Retail Lending Test and the Retail
Services and Products Test or only under the Retail Services and
Products Test. In addition, the agencies sought commenter views on the
proposal to continue the current practice of evaluating closed-end home
mortgage loans secured by one-to-four family owner-occupied properties
and non-owner-occupied properties together.\874\
---------------------------------------------------------------------------
\874\ See proposed Sec. __.22(a)(4)(i)(A). This treatment would
have obtained for the proposed separately evaluated open-end home
mortgage lending product line as well. See proposed Sec.
__.22(a)(4)(i)(B).
---------------------------------------------------------------------------
Comments Received
The agencies received many comments on evaluating closed-end home
mortgage lending and open-end home mortgage lending pursuant to a CRA
final rule.
Aggregation of closed-end home mortgage loans regardless of loan
purpose. A number of commenters supported the proposed evaluation of
all closed-end home mortgage loans on a combined basis, regardless of
loan purpose. Some commenters expressed concerns that evaluating
closed-end home mortgage loans separately by different loan purposes
would introduce additional complexity into the proposed Retail Lending
Test. A few commenters questioned whether, on balance, separating home
purchase loans and refinance loans would affect a bank's performance
sufficiently to offset added complexity. Other commenters preferred
evaluating closed-end home mortgage loans as a single category because
demand for closed-end home mortgage loans of different purposes varies
over time for reasons beyond a bank's control.
However, other commenters expressed a preference for separately
evaluating closed-end home mortgage loans of different purposes. In
general, these commenters emphasized that different home mortgage
products meet different credit needs and demand for such products can
vary based on market conditions over time, with some highlighting the
differences between home purchase loans and home refinance loans. These
commenters favored separate evaluation of these products as a way to
allow for more precise measurement of whether banks are meeting the
needs of low- and moderate-income borrowers. For example, a commenter
suggested that the agencies separately evaluate different types of
closed-end home mortgage loans to avoid obscuring important differences
among loan types; however, this commenter acknowledged that such
disaggregation might not be possible in all assessment areas,
especially rural areas with insufficient loan activity for separate
evaluation. Another commenter recommended separately evaluating four
categories of closed-end home mortgage loans--home purchase loans, home
refinance loans, home improvement loans, and other purpose home
mortgage loans--without distinguishing between closed-end home mortgage
loans and open-end home mortgage loans, stating that this approach
would promote a more standard comparison between like transactions. In
addition, a commenter that supported disaggregating home purchase and
home refinance loans suggested that the agencies should also separate
cash-out refinances from rate-term refinances or remove cash-out
refinances entirely from the Retail Lending Test because such loans
could be used for equity stripping.
Home improvement and other purpose closed-end home mortgage loans.
Many commenters supported the agencies' proposal to include home
improvement loans and other purpose home mortgage loans as part of the
closed-end home mortgage loan major product line. A number of
commenters emphasized the ways in which home improvement loans can
benefit low- and moderate-income borrowers and communities, such as by
increasing the value of homes owned by low- and moderate-income
borrowers and meeting significant credit needs. For example, a
commenter emphasized the critical updating and maintenance needs of
aging affordable housing stock and asserted that products such as
combined purchase-rehabilitation loans
[[Page 6819]]
are important for supporting sustainable homeownership. Another
commenter stated that considering home improvement and other purpose
loans only under the Retail Services and Products Test would reduce the
level of quantitative rigor applied to their evaluation. In addition, a
number of commenters noted that evaluating home improvement loans and
other purpose loans under the Retail Lending Test would create greater
incentives for banks to offer these products to low- and moderate-
income borrowers and to develop innovative products. However, another
commenter suggested that home improvement loans and other purpose home
mortgage loans should only be evaluated under the Retail Lending Test
if the bank can demonstrate that the loans were made to increase home
value, improve livability and accessibility, generate income through
business space, allow for services in the home, or make the home more
energy efficient. In addition, a number of commenters recommended that
home improvement loans and other purpose home mortgages should be
evaluated both quantitatively under the Retail Lending Test and
qualitatively under the Retail Services and Products Test, which one
commenter noted could consider the innovativeness of a bank's lending
products.
A few commenters addressed whether the agencies should establish a
separate product line under the Retail Lending Test for home
improvement loans and other purpose home mortgage loans, noting that
these loans are distinct from home purchase loans and refinancing
loans. A commenter recommended that home improvement loans and other
purpose home mortgage loans lending should be considered separately in
a third category if the agencies determined to consider home purchase
loans and refinance loans separately. Another commenter suggested that
home improvement loans be evaluated either separately or together with
other retail loans under the Retail Lending Test, if there is a
sufficient volume of these loans.
A few commenters opposed the evaluation of home improvement loans
and other purpose home mortgage loans under the Retail Lending Test.
Some of these commenters stated that the Retail Lending Test should
focus on home purchase loans and refinance loans. Other commenters
stated that home improvement loans and other purpose home mortgage
loans should be evaluated solely under the Retail Services and Products
Test, with a commenter noting that these loans would rarely trigger a
major product line. Another commenter supported evaluating these loans
only qualitatively, but recommended the agencies consider implementing
a quantitative evaluation if demand for this type of loan increases.
Non-owner-occupied home mortgage loans. A few commenters supported
the proposal to include loans secured by one-to-four family non-owner-
occupied housing in the closed-end home mortgage loan product line,
noting that these loans represent an investment in low- and moderate-
income communities and play an important role in ensuring access to
naturally occurring affordable housing.
However, many other commenters opposed including non-owner-occupied
housing loans in the evaluation of closed-end home mortgage loans. Some
commenters stated that non-owner-occupied housing loans should be
excluded altogether because such loans do not represent access to
credit for low- and moderate-income individuals and can fuel
gentrification and displacement. Another commenter similarly raised
concerns that granting credit for non-owner-occupied housing loans to
investors would not address inequities in credit access for minority
individuals and communities.
Several commenters provided other suggestions related to the
evaluation of non-owner-occupied housing loans. A few commenters
recommended that non-owner-occupied home loans should be evaluated
under the Retail Services and Products Test. Some commenters stated
generally that owner-occupied home loans should be prioritized over
loans secured by investor-owned properties. For example, a commenter
suggested that the agencies include non-owner-occupied housing loans in
the Retail Lending Test, but assign them less weight than loans secured
by owner-occupied homes; this commenter also supported non-owner-
occupied housing loans being considered under the Community Development
Financing Test. Some commenters also advocated for an impact review of
non-owner-occupied home loans to ensure that these loans build wealth
and do not displace or harm low- and moderate-income or minority
individuals. Relatedly, a number of commenters recommended that only
certain non-owner-occupied housing loans be included in the bank's
evaluation, such as loans made to low- and moderate-income, minority,
or mission-driven nonprofit organization borrowers, or loans originated
by mission-driven nonprofit organizations.
Other closed-end home mortgage loan products. Several commenters
provided feedback related to evaluating other specific closed-end home
mortgage loan products. For example, a commenter encouraged the
agencies to evaluate manufactured housing loans as a separate category
under the Retail Lending Test to incentivize more manufactured home
lending. This commenter stated that manufactured homes tend to be
affordable options for low- and moderate-income individuals and
suggested that the agencies separately track home mortgage loans titled
as personal property.
A few commenters submitted feedback regarding construction loans. A
commenter stated that the agencies should include construction loans to
home builders and borrowers for the construction of one-to-four family
residential properties under the Retail Lending Test to incentivize
banks to make more construction loans and increase the housing supply.
A few commenters suggested that construction loans be eligible for CRA
consideration even if the occupant is not a low- or moderate-income
individual, as long as the home sale price does not exceed four times
the area median family income. These commenters indicated that this
would help address the lack of supply of affordable starter homes and
encourage community stabilization and revitalization.
A few commenters offered views on the treatment of reverse mortgage
loans. For example, a commenter asserted that reverse mortgage loans
are essential to aging borrowers and stated that banks should consider
the needs of their aging deposit customers with reverse mortgages to
avoid foreclosure and displacement. In contrast, another commenter
suggested that reverse mortgage loans should not be encouraged and
should be excluded from the Retail Lending Test because they have the
potential to impact the borrower negatively.
A commenter suggested that certain income-restricted home mortgage
assistance loans and programs, such as downpayment assistance, should
be counted as closed-end home mortgage loans under the Retail Lending
Test to incentivize banks to continue participating in these special
programs. Another commenter stated that the agencies should award
``extra credit'' to banks for originating home mortgages involving
community land trusts because such programs are designed to preserve
affordable housing and prevent displacement.
Final Rule
Final Sec. __.22(d)(1)(i) adopts the proposed approach of
evaluating closed-
[[Page 6820]]
end home purchase, home refinance, home improvement, and other purpose
home mortgage loans as a single major product line pursuant to the
Retail Lending Test's distribution analysis.\875\
---------------------------------------------------------------------------
\875\ As discussed in the section-by-section analysis of final
Sec. __.12, the final rule defines ``closed-end home mortgage
loan'' as follows: ``Closed-end home mortgage loan has the same
meaning given to the term `closed-end mortgage loan' in 12 CFR
1003.2, excluding loan transactions set forth in 12 CFR 1003.3(c)(1)
through (10) and (13) and multifamily loans as defined in [Sec.
__.12].''
---------------------------------------------------------------------------
Aggregation of closed-end home mortgage loans regardless of loan
purpose. The agencies' decision to adopt the proposal is based on a
number of factors. First, the agencies believe that a combined
evaluation of closed-end home purchase loans, home refinance loans,
home improvement loans, and other purpose home mortgage loans allows
for an appropriate degree of flexibility for a bank to meet the closed-
end home mortgage credit needs of its community, accounting for diverse
bank business models and strategies. Under this approach, a bank may
achieve strong performance in the closed-end home mortgage product line
by serving low- and moderate-income borrowers and low- and moderate-
income census tracts through any combination of home purchase loans,
home refinance loans, home improvement loans, or other purpose closed-
end home mortgage loans.
The agencies also believe that a combined evaluation of closed-end
home mortgage loans will result in greater stability and consistency of
associated metrics and benchmarks over time. The agencies determined
that, as some commenters noted, a combined market benchmark may be less
volatile than separate market benchmarks for home purchase loans and
home refinance loans.
Additionally, the agencies believe that a combined evaluation of
closed-end home mortgage loans is more consistent with the current
regulations and introduces fewer complexities than separately
evaluating home mortgage loans of different purposes. For example,
agency analysis of lending data from 2018-2020 demonstrated that
evaluating home purchase loans and refinance loans as separate product
lines would likely result in an increase in the number of major product
lines for approximately 4,040 facility-based assessment areas, which is
approximately 58 percent of all large bank and intermediate bank
facility-based assessment areas.\876\
---------------------------------------------------------------------------
\876\ This analysis is based on a set of intermediate and large
banks that are both CRA and HMDA reporters. Wholesale banks, limited
purpose banks, strategic plan banks, and banks that do not have at
least one facility-based assessment area in a U.S. State or District
of Columbia are excluded from the analysis.
---------------------------------------------------------------------------
Finally, the agencies considered that establishing separate product
lines for closed-end home purchase, home refinance, home improvement,
and other purpose home mortgage loans could result in instances where a
bank does not have a sufficient number of loans in one or more of these
individual categories to conduct a robust distribution analysis. For
example, the agencies believe that in evaluation years in which home
mortgage refinance activity is relatively low, some banks might have
too little activity to count as a separate product line. However, a
combined approach will ensure that these loans are subject to a
distribution analysis as part of a larger aggregate category for
closed-end home mortgage loans. The agencies also note that if separate
product lines were created for home purchase loans and home refinance
loans, a similar potential loss of coverage from a distribution
analysis might occur for home improvement loans and other purpose home
mortgage loans, because these loans too would by default then need to
be evaluated separately.
The agencies also considered the potential benefits of an
alternative approach of separately evaluating closed-end home mortgage
loans based on loan purpose. In particular, as some commenters noted,
home purchase, home refinance, home improvement, and other purpose home
mortgage loans fulfill different purposes. For example, home purchase
loans facilitate access to homeownership, while home refinance loans
can help borrowers to obtain a lower monthly payment when interest
rates fall. A separate evaluation of these categories could provide
more specific visibility into a bank's record of meeting important yet
distinct closed-end home mortgage credit needs, clarifying instances in
which a bank had lower relative performance for either home purchase
lending or home refinance lending. The agencies also considered that
different benchmarks, thresholds, and performance ranges for these
categories might reflect differences in the credit needs and
opportunities in an area more specifically than a combined product line
category for all closed-end home mortgage lending, thus informing the
efforts of the agencies, banks, and other stakeholders to identify and
address community credit needs.
However, on balance, the agencies have determined that these
potential benefits of separately evaluating home purchase, home
refinance, home improvement, and other purpose home mortgage loans are
outweighed by the considerations discussed above. These include the
agencies' determination that designating a combined closed-end home
mortgage loan category is more adaptive to a diversity of both bank
business models and community credit needs. At the same time, the
agencies appreciate the potential benefits of greater precision in
understanding the ways that banks meet community credit needs, and note
that they will consider ways to provide information to the public about
the breakdown of home purchase and home refinance loans within the
combined closed-end home mortgage loan category.
Home improvement and ``other purpose'' closed-end home mortgage
loans. The final rule also adopts the proposed approach of including
closed-end home improvement loans and other purpose home mortgage loans
as part of the overall closed-end home mortgage loan product line under
the Retail Lending Test's distribution analysis. The agencies believe
that this approach is appropriate because low- and moderate-income
borrowers and communities have needs for closed-end home improvement
loans and other purpose home mortgage loans. Furthermore, the agencies
have considered commenter feedback that evaluating these loans under
the Retail Lending Test will help to emphasize bank activities that
address these needs. Evaluating home improvement loans and other
purpose home mortgage loans as part of a combined closed-end home
mortgage loan product line will ensure that these tools for meeting
community credit needs are accounted for under the Retail Lending Test
distribution metrics and benchmarks.
The agencies also considered an alternative approach of creating
separate product line categories for home improvement and other purpose
home mortgage loans, or a product line category combining home
improvement loans and other purpose home mortgage loans. However, the
agencies believe that the number of home improvement loans and other
purpose home mortgage loans for many banks and Retail Lending Test
Areas could often be insufficient for robust evaluation as a separate
product line. For example, a separate evaluation would include
constructing market benchmarks based solely on home improvement loans
and other purpose home mortgage loans, which the agencies note are
significantly less prevalent than home purchase and home refinance
loans. Furthermore, the agencies considered that these alternative
approaches would
[[Page 6821]]
increase the complexity of the distribution analysis due to the
additional product lines and associated metrics, benchmarks,
performance ranges, weighting, and other quantitative components of the
evaluation. In light of these considerations, the agencies determined
that the increased complexity resulting from creating a separate
product line category for home improvement loans and other purpose home
mortgage loans is not warranted.
The agencies also considered commenter sentiment that home
improvement loans and other purpose home mortgage loans be evaluated
under the Retail Lending Test only if a bank can demonstrate that these
loans were made to increase home value, improve livability and
accessibility, generate income through business space, allow for
services in the home, or make the home more energy efficient. The
agencies believe that the Retail Lending Test is appropriately focused
upon evaluating a bank's distribution of loans to low- and moderate-
income borrowers and low- and moderate-income census tracts, and that
the credit products component of the Retail Services and Products Test
will effectively evaluate whether a bank's credit products and programs
are, consistent with safe and sound operations, responsive to the
credit needs of the bank's entire community, including the needs of
low- and moderate-income individuals, residents of low- and moderate-
income census tracts, small businesses, and small farms.
Non-owner-occupied home mortgage loans. The agencies considered,
but are not adopting, commenter sentiment that non-owner-occupied home
mortgage loans should either be excluded from evaluation under the
Retail Lending Test or afforded less weight than owner-occupied home
mortgage loans. In making this determination, the agencies considered a
number of factors.
The agencies considered that including loans secured by non-owner-
occupied properties in a bank's borrower and geographic distribution
analyses provides a more complete picture of the bank's closed-end home
mortgage lending activity and capacity in light of opportunities in the
area. For example, where a bank has made a large number of non-owner-
occupied closed-end home mortgage loans, including these loans in the
distribution analyses would better demonstrate the extent to which a
lender is meeting the needs of low- and moderate-income individuals and
low- and moderate-income census tracts relative to its capacity to
lend. In contrast, excluding the bank's non-owner-occupied loans from
the Retail Lending Test evaluation would result in metrics that would
not as accurately reflect the bank's capacity to lend to low- or
moderate-income individuals and in low- or moderate-income census
tracts.
The agencies also considered that loans secured by non-owner-
occupied properties can support access to credit and fulfill a credit
need in low- and moderate-income census tracts. The agencies considered
that lower credit availability in these geographic areas might
negatively affect local housing markets due to the difficulty of
obtaining home-secured financing in these areas to buy, sell,
refinance, or improve a home. Furthermore, home mortgage loans secured
by non-owner-occupied properties may support expanded affordable
housing options.
In addition, the agencies are concerned that separately evaluating
or differentially weighting one-to-four family closed-end home mortgage
loans secured by non-owner-occupied properties to reflect the impact of
these loans would introduce undue compliance and examination
complexity. Differential weighting would be challenging to calibrate
and implement, because a range of factors could affect the level of
impact that loans for non-owner-occupied and owner-occupied properties
have on a community. The agencies considered that an alternative
approach of assigning lower weighting to loans for non-owner-occupied
properties could inadvertently discourage a bank from meeting credit
needs for such loans in a community. Furthermore, the agencies
considered that there may be insufficient data to support a separate
distribution analysis of these loans in many Retail Lending Test Areas.
The agencies considered commenter concerns regarding the
responsiveness and affordability of home mortgage loans secured by non-
owner-occupied properties. The agencies note that the final rule also
evaluates home mortgage loans secured by non-owner-occupied properties
under final Sec. __.23(c)(2) of the Retail Services and Products Test
for responsiveness to community credit needs, including the needs of
low- and moderate-income borrowers and low- and moderate-income census
tracts. Also, as discussed further in the section-by-section analysis
of final Sec. __.13(b)(3), the final rule provides that certain one-
to-four family rental housing with affordable rents in nonmetropolitan
census tracts qualifies as a community development activity for which a
bank could receive CRA consideration.
The agencies considered, but are not adopting, an alternative
approach to only include non-owner-occupied home mortgage loans made to
low- and moderate-income, minority, or mission-driven nonprofit
organization borrowers, or loans originated by mission-driven nonprofit
organizations. As discussed above, the agencies determined that non-
owner-occupied closed-end home mortgage loans reflect a bank's capacity
to conduct retail lending and are a way that a bank can meet the credit
needs of a community. In addition, the agencies believe that applying
additional exclusions to certain categories of non-owner-occupied home
mortgage loans would add complexity to the evaluation of this product
line. For more information and discussion regarding the agencies'
consideration of comments recommending adoption of additional race- and
ethnicity-related provisions in this final rule, see section III.C of
this SUPPLEMENTARY INFORMATION.
Other closed-end home mortgage loan products. The final rule
retains the proposal's approach to include product lines that would be
reportable as closed-end home mortgage loans in HMDA data. In making
this determination, the agencies considered comments regarding
including other specific types of loan products in the closed-end home
mortgage loan product line evaluation. As a general matter, the
agencies believe that including closed-end home mortgage loans that are
reportable in HMDA data in CRA evaluations promotes consistency across
regulations, which in turn facilitates compliance and consistent
information within a cohesive banking regulatory framework.
The agencies considered, but are not adopting in the final rule,
commenter sentiment to include rate-term refinances, and to exclude
cash-out refinances, in the Retail Lending Test evaluation of closed-
end home mortgage lending. The agencies believe that all refinance
types can be an important credit source for individuals and that there
could be unintended consequences to limiting the refinance mortgages
that are determined to meet community credit needs. For example, the
agencies have considered that excluding specific categories of home
mortgage refinance loans from the closed-end home mortgage product line
could reduce the flexibility of banks to serve the community in a way
that accords with the bank's business model and strategy. Accordingly,
the final rule maintains the proposed approach of
[[Page 6822]]
including all closed-end home mortgage loans, including all closed-end
home refinance loans, in the closed-end home mortgage product line.
As proposed, the final rule includes closed-end manufactured
housing loans in the closed-end home mortgage loan product line. As
noted above and discussed in the section-by-section analysis of final
Sec. __.12, the final rule defines ``closed-end home mortgage loan''
as equivalent to the term ``closed-end mortgage loan'' in Regulation C.
A closed-end mortgage loan under Regulation C is an extension of credit
that is secured by a lien on a ``dwelling'' and that is not an open-end
line of credit.\877\ Regulation C defines a ``dwelling'' as ``a
residential structure, whether or not attached to real property'' that
``includes but is not limited to . . . a manufactured home or other
factory-built home.'' \878\ The agencies note that loans for
manufactured housing may be titled as real estate (generally secured by
a manufactured home and the land on which it is sited) or as personal
property (generally secured by the manufactured home only).
Manufactured home loans titled as real estate and those titled as
personal property are both secured by a dwelling and thus both closed-
end mortgage loans included in the HMDA data; as such, both of these
manufactured loan types will be used for evaluating the closed-end home
mortgage product line under the Retail Lending Test.
---------------------------------------------------------------------------
\877\ See 12 CFR 1003.2(d) (defining ``closed-end mortgage
loan'') and (o) (defining ``open-end line of credit'').
\878\ See 12 CFR 1003.2(f).
---------------------------------------------------------------------------
The agencies believe that including manufactured housing loans in
the closed-end home mortgage product line is appropriate for several
reasons. The agencies believe that these loans may help meet community
credit needs, especially in certain areas where affordable housing is
limited and where manufactured housing may be relatively common.
Further, the agencies considered that in markets where a significant
share of low- and moderate-income households own manufactured housing,
excluding loans made to these households could result in market
benchmarks that do not appropriately reflect the credit needs and
opportunities of the area. The agencies also considered that the
responsive credit products component of the Retail Services and
Products Test will enable the agencies to make informed determinations
about the responsiveness of a bank's manufactured housing lending.
Finally, the agencies considered that it may not be feasible for
Retail Lending Test evaluations to exclude, or separately consider,
manufactured housing that is titled as personal property because the
HMDA data field identifying these loans may not be complete for banks
that are partially exempt from HMDA reporting. In addition, the
agencies considered that the number of these loans may be too low to
conduct a robust separate analysis, including developing market
benchmarks in Retail Lending Test Areas.\879\
---------------------------------------------------------------------------
\879\ Certain data points reported in HMDA, including the
manufactured housing secured property type, are exempt if the
transaction is covered by a partial exemption. See generally 12 CFR
1003.3(d) and associated Official Interpretations.
---------------------------------------------------------------------------
Regarding construction loans, under the final rule, the agencies
will evaluate only closed-end construction loans that are reported
under HMDA, consistent with the agencies' proposal. The agencies
considered, but decline to adopt, an alternative suggested by some
commenters to evaluate all construction-only loans, including those not
reported under HMDA, for one-to-four family residential properties in
the closed-end home mortgage loan product line under the Retail Lending
Test. A construction-only loan that is designed to be replaced by
permanent financing is considered temporary financing and excluded from
HMDA reporting.\880\ The agencies have determined that this temporary
financing should not be included in the closed-end home mortgage
product line of the Retail Lending Test, because the borrower of a
construction-only loan may be a commercial entity, and it is not clear
how the borrower distribution analysis would apply to these loans.
Including these loans in the distribution analysis could impact the
evaluation of closed-end home mortgage loans because the metrics and
benchmarks would reflect lending in multiple substantially different
loan product types. Thus, construction-only loans considered temporary
financing under the HMDA reporting requirements will not be evaluated
in the closed-end home mortgage product line. In contrast, a combined
construction-to-permanent loan based on a single legal obligation is
reportable pursuant to HMDA, and the agencies believe that they should
be included with other HMDA-reportable closed-end home mortgage loans
to avoid increasing the complexity of the Retail Lending Test
evaluation. In addition, the agencies note that certain construction
loans and other temporary financing could be considered as community
development loans, if the loan meets a community development definition
pursuant to Sec. __.13.
---------------------------------------------------------------------------
\880\ See 12 CFR 1003.3(c)(3) and associated Official
Interpretations.
---------------------------------------------------------------------------
Regarding reverse mortgage loans, the agencies have also considered
commenter sentiment that these loans should not be evaluated under the
Retail Lending Test because of commenter views that these loans may
vary considerably in their responsiveness to low- and moderate- income
borrowers and low- and moderate-income communities in ways are not
contemplated by the proposed distribution analysis. In considering how
best to evaluate reverse mortgage loans, the agencies note that a large
majority of these loans are open-end home mortgage loans.\881\ The
agencies believe that the final rule approach, discussed below, of
evaluating open-end home mortgages only under the Retail Services and
Products Test's responsive credit products and programs component in
final Sec. __.23(c)(2), and not also under the Retail Lending Test,
appropriately focuses the evaluation of the significant majority of
reverse mortgage loans on their responsiveness to low- and moderate-
income individuals and low- and moderate-income census tracts.
---------------------------------------------------------------------------
\881\ Board analysis of HMDA Loan/Application Register (LAR)
data from 2018-2020 showed that approximately 80 percent of all
reverse mortgages were open-end; among depository institutions only,
84 percent of reverse mortgages were open-end.
---------------------------------------------------------------------------
The agencies believe that including the relatively small share of
reverse mortgage loans that are closed-end home mortgages within the
closed-end home mortgage loan product line on the Retail Lending Test
is appropriate for a number of reasons. The agencies note that closed-
end reverse mortgage loans typically provide borrowers with a specified
amount of money upfront that cannot be subsequently increased over time
and generally feature a fixed interest rate.\882\ The agencies believe
that these features make closed-end reverse mortgage loans more like
the forward closed-end home mortgage loans with which they are
aggregated under the final rule's closed-end home mortgage loan product
line, compared to open-end reverse mortgage loans, which the final rule
would not evaluate as a major product line. The agencies also note that
they have issued detailed guidance to the banks they supervise
regarding the consumer financial protection laws and regulations that
[[Page 6823]]
apply to reverse mortgage lending, and setting forth supervisory
expectations related to ensuring the protection of reverse mortgage
loan consumers.\883\
---------------------------------------------------------------------------
\882\ See CFPB, ``Reverse Mortgages: Report to Congress'' 98
(June 28, 2012), https://files.consumerfinance.gov/a/assets/documents/201206_cfpb_Reverse_Mortgage_Report.pdf.
\883\ See OCC, Board, FDIC, NCUA, U.S. Dept. of Treasury Office
of Thrift Supervision, ``Reverse Mortgage Products: Guidance for
Managing Compliance and Reputation Risks,'' 75 FR 50801 (Aug. 17,
2010).
---------------------------------------------------------------------------
Additionally, the agencies note that, due to HMDA partial
exemptions available to certain banks,\884\ reverse mortgages are not
consistently identifiable under HMDA, which would make it challenging
to identify and remove reverse mortgages from a bank's reported closed-
end home mortgages. Finally, the agencies believe that the inclusion of
closed-end reverse mortgages allows for an appropriate degree of
flexibility for a bank to meet the closed-end home mortgage credit
needs of its community, accounting for diverse bank business models and
strategies. Permitting banks to receive consideration for these loans
preserves an additional means for banks to meet community credit needs.
---------------------------------------------------------------------------
\884\ A transaction may be partially exempt if a bank is
eligible for partial exemptions. A bank eligible for partial
exemptions does not need to collect and report certain data on HMDA
reportable transactions. See generally 12 CFR 1003.3(d) and
associated Official Interpretations.
---------------------------------------------------------------------------
The agencies considered commenter sentiment that certain income-
restricted home mortgage assistance loans and programs, such as
downpayment assistance, should be counted as closed-end home mortgage
loans under the Retail Lending Test. Under the final rule, the agencies
note that income-restricted home mortgage assistance programs could
receive consideration under the Retail Services and Products Test as a
responsive credit product and program. Under the final rule, the
agencies also note that if such programs involve originating or
purchasing closed-end home mortgage loans, those loans would be
evaluated under the Retail Lending Test. For example, a program focused
on originating home mortgages involving community land trusts could
receive qualitative consideration under the Retail Services and
Products Test and any closed-end home mortgages originated under this
program would also be evaluated under the Retail Lending Test's
distribution analysis, provided that closed-end home mortgage loans are
a major product line for the bank. The agencies believe this approach
appropriately evaluates a range of bank activities that serve community
credit needs while maintaining a metrics-based approach for evaluating
retail lending.
Section __.22(d)(1)(ii) and (iii) Small Business Loans and Small Farm
Loans
In final Sec. __.22(d)(1)(ii) and (iii) and (d)(2) and in
paragraphs II.b.1 and II.b.2 of final appendix A, the agencies are
adopting their proposal to evaluate the distribution of a bank's
originated and purchased small business loans and small farm loans as
separate major product lines under the Retail Lending Test.
The Agencies' Proposal
In proposed Sec. __.22(a)(4)(i), the agencies provided that they
would evaluate the distribution of small business loans and small farm
loans as separate major product lines under the Retail Lending
Test,\885\ and sought feedback on the corresponding evaluation
framework. As discussed further in the section-by-section analysis of
final Sec. __.12, the agencies sought feedback on definitions and size
standards for ``small business,'' ``small business loan,'' ``small
farm,'' and ``small farm loan.'' The agencies also sought comments on
sunsetting the current small business loan and small farm loan
definitions when transitioning to using section 1071 data for CRA
evaluations (discussed in the section-by-section analyses of final
Sec. Sec. __.12 and __.22(e)).
---------------------------------------------------------------------------
\885\ See proposed Sec. __.22(a)(4)(i)(D) and (E).
---------------------------------------------------------------------------
Comments Received
The agencies received many comments on different aspects of
evaluating small business lending and small farm lending as major
product lines under the proposed Retail Lending Test, including the
aspects of the proposal related to the section 1071 rulemaking.\886\
The section-by-section analysis of final Sec. __.12 discusses feedback
on the proposed definitions of small business, small business loan,
small farm, and small farm loan.
---------------------------------------------------------------------------
\886\ The agencies also received comments on evaluating small
business lending as a community development activity, which, along
with the agencies' proposed and final rules on the economic
development category of community development, are discussed in the
section-by-section analysis of final Sec. __.13(c). In addition,
the section-by-section analysis in of final Sec. __.12 discusses
comments on the proposed definitions of small business, small
business loan, small farm, and small farm loan.
---------------------------------------------------------------------------
In general. A few commenters specifically addressed the designation
of small business loans and small farm loans as major product lines,
evaluated under the Retail Lending Test's distribution analysis, with
most generally favoring continuing to evaluate these loans. Some
commenters noted that such an evaluation of a bank's small business
loans and small farm loans, along with home mortgage loans, is
consistent with longstanding interpretation of the core focus of the
CRA and regulatory practice. Some commenters suggested that the
agencies consolidate the six proposed major product lines into a
smaller number--between two and four product line types--including some
sentiment that small business loans and small farm loans could be
considered as a combined product line category. As discussed above in
the section-by-section analysis of final Sec. __.22(d)(2), commenters
advocating for evaluation of fewer product lines under the Retail
Lending Test generally indicated that this would simplify the Retail
Lending Test evaluation and lessen regulatory burden. Some commenters
stated that small farm loans are functionally considered a type of
business loan, such that a combined evaluation would be appropriate.
Evaluation of small business credit card loans. A few commenters
offered views on evaluating small business credit card loans as part of
a bank's small business lending under the distribution analysis of the
Retail Lending Test. A commenter stated generally that the agencies
should carefully consider whether business credit cards are a good form
of small business lending or are near-predatory. This commenter also
expressed concerns that, although some banks market credit cards to
small businesses, these credit card loans might not be easily
distinguished from consumer credit card loans if data collection
requirements are not revised.
A few commenters suggested that small business credit card loans
should not be evaluated as small business loans. A commenter suggested
that credit cards in general, including small business credit cards,
should not be in CRA evaluations. This commenter more specifically
objected to small business credit card renewals counting as new
originations, indicating in support of this objection that small
business credit card loans are typically renewed on an annual basis.
Another commenter recommended that small business credit card loans
should generally not be evaluated as small business loans, but also
suggested that larger banks engaging in direct small business credit
card lending should retain an option to have these credit card loans
evaluated as small business loans. This commenter raised concerns about
treating small business credit card loans the same for larger banks as
for smaller community banks, due to the different business models these
banks may have with respect to this product line. In
[[Page 6824]]
particular, the commenter thought that evaluating small business credit
card loans as small business loans in a uniform manner across banks
would disadvantage smaller banks that engage in indirect credit card
lending with affiliates or partner lenders, compared with larger banks
that have small business credit card direct lending programs.
Some commenters supported qualitative evaluation of small business
credit card lending. A commenter stated that the agencies should
analyze the pricing and terms of all loans, including small business
credit card loans, to ensure that these products are meeting local
needs and not extracting wealth. A few commenters indicated similar
interest in ensuring that small business credit card loans be subject
to a qualitative evaluation, expressing support for evaluating small
business credit card loans under both the proposed Retail Lending Test
and the proposed Retail Services and Products Test. One of these
commenters specifically stated that the agencies should consider
factors such as repayment rates and the affordability of credit card
terms in evaluating small business credit card loans.
Final Rule
In general.\887\ In final Sec. __.22(d)(1)(ii) and (iii), the
agencies have provided that they will evaluate the distribution of a
bank's originated and purchased small business loans and small farm
loans as separate major product lines under the Retail Lending Test.
Specifically, the agencies will evaluate the distribution of a bank's
small business loans and small farm loans in facility-based assessment
areas and in an outside retail lending area in which small business
loans and small farm loans constitute major product lines.
Additionally, as discussed in the section-by-section analysis of final
Sec. __.17, the agencies will evaluate the distribution of a bank's
small business lending as a major product line in retail lending
assessment areas if small business loans meet or exceed the delineation
threshold provided in final Sec. __.17(c)(2).
---------------------------------------------------------------------------
\887\ The transition amendments included in this final rule
will, once effective, amend the definitions of ``small business''
and ``small farm'' to instead cross-reference to the definition of
``small business'' in the CFPB Section 1071 Final Rule. This will
allow the CRA regulatory definitions to adjust if the CFPB increases
the threshold in the CFPB Section 1071 Final Rule definition of
``small business.'' This is consistent with the agencies' intent
articulated in the preamble to the proposal and elsewhere in this
final rule to conform these definitions with the definition in the
CFPB Section 1071 Final Rule. The agencies will provide the
effective date of these transition amendments in the Federal
Register after section 1071 data is available.
---------------------------------------------------------------------------
Separate evaluation of small business loans and small farm loans.
In determining to evaluate small business loans and small farm loans as
separate major product lines under the Retail Lending Test, the
agencies considered that this approach is consistent with the current
large bank lending test \888\ and ensures continuity in the evaluation
of these two product lines. Additionally, the agencies believe that
small business loans and small farm loans should be evaluated
separately because these products can serve distinct borrower groups
with different challenges and credit needs.\889\ The agencies believe
that the additional visibility provided by separate evaluations of a
bank's small business loans and small farm loans better facilitates
determining whether a bank is helping to serve the credit needs of
small businesses and small farm as part of the bank's entire community.
The agencies expect that the final rule's distribution analysis for
small business loans to small businesses and small farm loans to small
farms with gross annual revenues of $250,000 or less and for small
business loans to small businesses and to small farm loans to small
farms with gross annual revenues of greater than $250,000 but less than
or equal to $1 million, as discussed in the section-by-section analysis
of final Sec. __.22(e)(2)(ii)(C) and (D), will provide additional
clarity regarding how banks are serving the needs of these different
types of borrowers.
---------------------------------------------------------------------------
\888\ See current 12 CFR __.22(a).
\889\ Data analysis conducted by the agencies of market
benchmarks in facility-based assessment areas where small business
and/or small farm were a major product line indicated that the
median benchmarks for small business lending and small farm lending
differed significantly, reinforcing the agencies' view that the
credit needs and opportunities associated with the two lending
product lines are distinct and should be evaluated separately.
---------------------------------------------------------------------------
The agencies considered, but are not adopting, an alternative
approach of combining small business loans and small farm loans into a
single major product line category, and evaluating the distribution of
these loans on a combined basis. The agencies considered that this
alternative approach would reduce complexity for banks that would
otherwise have both a small business and small farm product line, by
reducing the total number of product lines and associated metrics,
benchmarks, and performance ranges. However, as discussed above, the
agencies determined that defining small business loans and small farm
loans as separate categories would bring the important benefits
discussed above of consistency with the current approach, and provide
greater visibility into how a bank has served the credit needs of its
community. In light of these considerations, the final rule maintains
the current and proposed approach of evaluating small business loans
and small farm loans as separate major product lines.
Evaluation of small business credit card loans. The final rule
retains the current and proposed approaches of including small business
credit card loans as small business loans when evaluating a bank's
retail lending. The agencies believe that evaluating small business
credit card loans is important due to the role these loans can play in
providing short-term financing for small businesses and small farms.
Based on supervisory experience, the agencies believe that small
business credit card loans can provide liquidity to small businesses
and small farms that addresses key short-term credit needs, such as
providing working capital, facilitating cash flow, and meeting
unexpected expenses. As a result, the agencies believe that considering
small business and small farm financing comprehensively is important
for a broader understanding of how banks are meeting the credit needs
of their communities. In addition, the agencies considered that
including small business credit card loans in the distribution analysis
of a bank's small business lending allows appropriate flexibility for a
bank to meet community credit needs in a way that accords with the
bank's business model and strategy. For these reasons, as well as for
simplicity, clarity, and consistency with the current framework, the
agencies will continue to consider small business credit card loans as
part of the small business product line.
Regarding treatment of small business credit card renewals in
particular, the agencies note that the final rule is consistent with
current guidance, which provides that a bank should collect and report
its refinanced or renewed small business loans and small farm loans as
loan originations, but that a bank may only report one origination per
loan per year, unless an increase in the loan amount is granted.\890\
When the agencies transition to using section 1071 data for CRA
evaluations (as discussed
[[Page 6825]]
in the section-by-section analyses of final Sec. Sec. __.12 and
__.22(e)), renewals will be considered to the extent that they are
reported under section 1071.\891\
---------------------------------------------------------------------------
\890\ Renewals of lines of credit for small businesses and small
farms are treated in the same manner as renewals of small business
loans and small farm loans. See Q&A Sec. __.42(a)--5. The treatment
of renewals and refinancings pursuant to the Community Development
Financing Test (and the Community Development Financing Test for
Limited Purpose Banks and Intermediate Bank Community Development
Evaluations) is discussed in the section-by-section analysis of
final Sec. __.24.
\891\ See 12 CFR 1002.104.
---------------------------------------------------------------------------
The agencies considered, but are not adopting, a commenter
suggestion to separately evaluate direct and indirect small business
credit card loans. The agencies believe that evaluating small business
loans and small farm loans conducted through both direct and indirect
channels contributes to a more comprehensive and consistent review of
the ways in which a bank is meeting its community's credit needs. As
similarly discussed in the section-by-section analysis of Sec.
__.22(d)(1)(iv), regarding automobile lending, not distinguishing
between direct and indirect small business loans is intended to ensure
consistency across product lines, facilitating certainty,
predictability, and transparency regarding distribution analysis. At
the same time, the agencies recognize that performance context,
including a bank's business strategy and product offerings, is a key
factor to consider in assessing a bank's CRA performance. For this
reason, the agencies may consider performance context factors that are
not accounted for in the Retail Lending Test's metrics and benchmarks,
including consideration of whether a bank's lending in a major product
line was primarily through direct or indirect channels, when assigning
Retail Lending Test conclusions.\892\
---------------------------------------------------------------------------
\892\ See, e.g., the section-by-section analysis of final
Sec. Sec. __.21(d) and __.22(e) and (g).
---------------------------------------------------------------------------
In determining to evaluate small business credit card loans within
the small business product line as part of the Retail Lending Test
distribution analysis, the agencies also considered that the Retail
Services and Products Test will evaluate other aspects of a bank's
small business credit card lending. Specifically, as explained in the
section-by-section analysis of final Sec. __.23, the agencies will
qualitatively evaluate whether a bank's credit products and programs,
which may include small business credit card lending, are responsive to
the needs of the bank's community, consistent with safe and sound
operations.\893\
In addition, the agencies considered commenter sentiment that small
business credit card lending may not in all cases appropriately serve
the credit needs of a bank's community. The agencies note that these
considerations are part of the agencies' consumer compliance
examinations and, where applicable, pursuant to final Sec. __.28(d),
the agencies' evaluation of a bank's CRA performance would take into
consideration evidence of discriminatory or other illegal credit
practices.
In determining to include small business credit card loans within
the small business product line, the agencies have also considered how
the mixture of different product types included in the small business
product line could impact the Retail Lending Test distribution analysis
for different banks. For example, the agencies considered that when
evaluating the small business lending of a bank that primarily offers
one small business loan product and does not offer small business
credit cards, the market benchmarks used in the bank's distribution
analysis may not reflect the bank's product offerings. In such
circumstances, the agencies may consider the bank's business strategy
and product offerings, pursuant to Sec. __.21(d)(5), when assigning
Retail Lending Test conclusions for this bank, which the agencies
believe will address cases in which additional considerations are
necessary to inform the distribution analysis.
Section __.22(d)(1)(iv) Automobile Loans
The agencies proposed to evaluate the distribution of a bank's
automobile loans using a metrics-based approach under the Retail
Lending Test. Under the proposed approach, automobile loans would be
evaluated in a facility-based assessment area, retail lending
assessment area, or outside retail lending area if the bank's
originated and purchased automobile loans are a major product line in
such facility-based assessment area, retail lending assessment area, or
outside retail lending area.
The agencies received feedback on the proposal to evaluate the
distribution of a bank's automobile loans under the Retail Lending Test
from a variety of commenters expressing a range of views regarding
whether the agencies should evaluate automobile loans under the
distribution analysis component of the Retail Lending Test when
automobile loans constitute a major product line, with some commenters
supporting the proposed approach, and other commenters recommending an
alternative approach for evaluating automobile loans, such as a
qualitative evaluation approach. Some commenters also disagreed about
the types of automobile loans that the agencies should be considered in
the distribution analysis, especially indirect automobile loans.
The agencies are adopting the proposal to evaluate the distribution
of a bank's automobile loans under the Retail Lending Test, with
certain changes. Specifically, under the final rule, the agencies only
evaluate automobile loans under the distribution analysis component of
the Retail Lending Test if (1) automobile lending constitutes a
majority of the bank's retail lending, or (2) the bank opts to have its
automobile loans evaluated. In these cases, the agencies evaluate the
distribution of a bank's originated and purchased automobile loans,
including indirect automobile loans, in facility-based assessment areas
or outside retail lending area in which automobile loans constitute a
major product line.
---------------------------------------------------------------------------
\894\ Under the proposal, automobile loans and other types of
consumer loans could also be considered under the responsive retail
lending products and programs prong of the Retail Services and
Products Test. The proposed treatment of automobile loans and other
consumer loans would thus depart from the practice of the current
CRA regulations, under which the geographic and borrower
distributions of a bank's motor vehicle, credit card, other secured,
and unsecured loans are evaluated as separate consumer loan
categories under the lending test if consumer lending constitutes a
substantial majority of a bank's business. See current 12 CFR
__.22(a)(1). Current interagency guidance on when to consider large
banks' consumer lending states, ```[t]he Agencies interpret
`substantial majority' to be so significant a portion of the
institution's lending activity by number and dollar volume of loans
that the lending test evaluation would not meaningfully reflect its
lending performance if consumer loans were excluded.'' See Q&A Sec.
__.22(a)(1)-2.
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed in Sec. __.22(a)(4)(i)(F) to include a
bank's automobile lending in the distribution analysis under the Retail
Lending Test if automobile loans constitute a major product line in a
facility-based assessment area, retail lending assessment area, or
outside retail lending area. Under the proposal, automobile loans would
be the sole consumer loan type evaluated under the distribution
analysis component of the Retail Lending Test.\894\ The agencies
explained in the preamble to the proposed rule that automobile loans
should be evaluated under the Retail Lending Test because automobile
loans can be important in areas where jobs are located a significant
distance away from an individual's residence, particularly where public
transportation is not readily available. The agencies also explained
that automobile loans can serve as a means for consumers to build a
credit history.
The agencies requested feedback on whether the benefits of
evaluating automobile lending under the distribution analysis component
of the
[[Page 6826]]
Retail Lending Test would outweigh other considerations such as the
impact of data collection and reporting requirements on banks. The
agencies also asked whether they should instead adopt a qualitative
approach to evaluating automobile lending for all banks.
Comments Received
Evaluation of automobile loans under the Retail Lending Test
distribution analysis. A few commenters expressed support for
evaluating the distribution of a bank's automobile loans under the
Retail Lending Test as proposed. In general, these commenters stated
that including automobile lending in the distribution analysis would
make the evaluation of a bank's retail lending more comprehensive and
would encourage this type of lending to low- or moderate-income
borrowers.
Other commenters recommended that the agencies pair the metrics-
based evaluation of automobile lending with a qualitative assessment
that considers whether a bank's automobile lending program is, for
example, conducted in a safe and sound manner, compliant with consumer
lending laws, meeting consumer needs, and promoting climate resiliency.
However, most commenters that addressed the evaluation approach for
automobile loans opposed or expressed significant concerns with
evaluating automobile loans under the distribution analysis of the
Retail Lending Test as proposed. Many of these commenters explicitly
stated that the agencies should evaluate automobile lending purely
qualitatively, with several commenters specifying that the evaluation
should take place only under the Retail Services and Products Test.
Another commenter observed that banks lack a historical foundation to
estimate expected performance for new retail product lines that the
agencies proposed to evaluate under the distribution analysis component
of the Retail Lending Test, such as automobile lending and multifamily
lending.
Commenters that opposed or expressed concerns with evaluating the
distribution of a bank's automobile loans under the Retail Lending Test
discussed a number of issues, including the nature and composition of
the automobile finance market; potential data issues associated with a
metrics-based approach; the objectives of the CRA; and possible
unintended consequences with the proposed quantitative approach.
First, a number of these commenters asserted that the banking
industry represents a relatively small percentage of the overall
automobile lending market and described the market as being heavily
composed of nonbanks, credit unions, and captive finance companies,
none of which are subject to CRA. Further, these commenters stated that
most banks conduct automobile lending primarily through indirect
channels via partnerships with third parties that remain primarily
responsible for marketing, originating sales, and financing for
customers. For these reasons, these commenters asserted that banks have
limited control over the geographic and borrower distributions of
automobile loans. Thus, these commenters stated that automobile loans
are unsuitable for a metrics-based evaluation under the proposed Retail
Lending Test.
Second, some commenters stated that the agencies' proposal to limit
data collection and reporting requirements for automobile lending to
banks with assets of over $10 billion would create a universe of
reporters that would capture only a small segment of total bank
automobile lending. These commenters stated that this incomplete
dataset would lead to inaccurate market benchmarks under the proposed
Retail Lending Test for this product line. To address this issue at
least one commenter recommended expanding the automobile lending data
requirements to all large banks, and to wholesale and limited purpose
banks with assets over $10 billion.
Third, some commenters asserted that the proposed approach for
evaluating a bank's automobile lending performance would be
inconsistent with their view of the CRA's historic focus and mission,
and with the evaluation of consumer loans under the current rule.
Specifically, these commenters expressed that the CRA focuses on home
mortgage and small business loans for low- or moderate-income
individuals, communities, and small businesses, and not on depreciable
assets such as automobiles. These commenters further maintained that
adding automobile lending as a major product line would deemphasize
other wealth-building products. For this reason, a few commenters
recommended that, if the metrics-based approach to evaluating
automobile loans is retained, the agencies should cap the weight and
impact of automobile loans in each assessment area so as not to dilute
the impact of more important loan products, especially home mortgage
and small business loans. Relatedly, a few commenters stated that the
agencies did not provide supporting data or analysis demonstrating that
automobile loans facilitate job access and credit building, or
otherwise justifying the special treatment of automobile loans compared
to other types of consumer loan products.
Finally, a few commenters shared viewpoints on potential unintended
consequences that could result from the evaluation of the distribution
of a bank's automobile loans under the proposed Retail Lending Test.
For example, some of these commenters warned that banks may elect to
scale back their automobile lending, may exit the automobile lending
market entirely, or may become less attractive to automobile dealers
than nonbank providers if banks require dealers to take certain actions
to comply with CRA. As a result, these commenters stated that the
proposal would lead to a reduction in the availability of safe,
responsible automobile loans, and ultimately leave the automobile
lending market to nonbank lenders not subject to the CRA.
Types of automobile loans considered. A number of commenters
addressed the types of automobile loans that the agencies should
include or exclude from consideration if automobile loans are evaluated
under the distribution analysis component of the Retail Lending Test.
For example, a commenter encouraged the agencies to define automobile
lending as all automobile lending, including automobile purchase loans,
loans to consumers for household purposes that are secured by
automobiles, and automobile refinance lending, stating that all of
these loan products are important means of establishing and building
credit for low- or moderate-income individuals.
Several commenters recommended excluding, or otherwise expressed
concerns with, indirect automobile loans due to the limited role that
banks play in indirect automobile lending. At least one such commenter
recommended that if the agencies do not exclude indirect automobile
loans from evaluation, then the agencies should evaluate direct and
indirect automobile loans as separate product lines under the
distribution analysis. At least one other commenter recommended that
the agencies consider performance context and qualitative factors to a
greater extent when evaluating indirect automobile loans. A different
commenter similarly stated that it would be unfair to compare a direct
to an indirect automobile lender, and recommended that the agencies
consider a bank's automobile lending volume and business model in
determining whether and how to evaluate the bank's automobile lending,
including what
[[Page 6827]]
automobile lending data requirements apply to the bank.
By contrast, a few commenters stated that the agencies should
consider and scrutinize a bank's indirect automobile lending,
emphasizing that indirect automobile loans may be predatory.
Final Rule
For the reasons discussed below, the agencies are adopting the
proposal, with substantive modifications, to evaluate the distribution
of a bank's automobile loans under the Retail Lending Test pursuant to
final Sec. __.22(d)(1)(iv). As discussed above in the introduction to
the section-by-section analysis of Sec. __.22, under the final rule,
automobile loans are only evaluated under the Retail Lending Test,
including the distribution analysis, if the bank is a majority
automobile lender, as defined in Sec. __.12, or if the bank opts to
have its automobile loans evaluated. In these cases, under the final
rule the agencies will evaluate the distribution of a bank's originated
and purchased automobile loans, including indirect automobile loans, in
the bank's facility-based assessment areas and, as applicable, outside
retail lending area.\895\
---------------------------------------------------------------------------
\895\ The agencies proposed to also evaluate the distribution of
a large bank's automobile loans in retail lending assessment areas
if such loans constitute a major product line. However, as discussed
in greater detail in the section-by-section analysis related to
Sec. __.17(d), under the final rule, only closed-end home mortgage
loans and small business loans are evaluated in retail lending
assessment areas.
---------------------------------------------------------------------------
Evaluation of automobile loans under the Retail Lending Test
distribution analysis. The agencies believe it is appropriate to
evaluate the distribution of a bank's automobile loans for certain
banks using an approach that leverages metrics under the Retail Lending
Test. While some commenters expressed that automobile loans are not a
wealth-building credit product, the agencies believe that access to
automobile loans may increase the incomes and economic mobility of low-
and moderate-income individuals through improved access to education,
vocational training, and employment opportunities in geographic areas
where public transportation is not readily available. Furthermore,
automobile loans represent the second largest category of household
debt in terms of total debt outstanding, after home mortgages, and
slightly greater than student loans.\896\ Inclusion of automobile loans
in the retail lending distribution analysis thus reflects the
importance of this product line to low- and moderate-income borrowers
and communities.
---------------------------------------------------------------------------
\896\ See Federal Reserve Bank of New York, Center for
Microeconomic Data, ``Total Household Debt Reaches $17.06 Trillion
in Q2 2023; Credit Card Debt Exceeds $1 Trillion'' (Aug. 8, 2023),
https://www.newyorkfed.org/newsevents/news/research/2023/20230808;
see also Household Debt and Credit Report (Q2 2023), https://www.newyorkfed.org/microeconomics/hhdc.
---------------------------------------------------------------------------
The agencies considered adopting a purely qualitative approach,
without a distribution analysis, to evaluating automobile loans, as
some commenters suggested. However, the agencies believe that a
qualitative approach would be less transparent and less predictable
than a distribution analysis, and thus, would not be consistent with
the agencies' objectives. In addition, and as discussed in the section-
by-section analysis of final Sec. __.23(c), automobile loans may also
be qualitatively evaluated under the Retail Services and Products Test,
which considers whether a bank's credit products and programs are,
consistent with safe and sound operations, responsive to the credit
needs of the bank's entire community, including the needs of low- and
moderate-income individuals and residents of low- and moderate-income
census tracts. The Retail Services and Products Test would therefore
allow the agencies to assess qualitative aspects of a bank's automobile
lending (such as affordability), as many commenters recommended.
The agencies have considered other commenter concerns regarding the
significant role that nonbank lenders represent in the automobile
lending market, and regarding the banking industry's relatively small
percentage of the automobile lending market. However, based on
supervisory experience and agency analysis, the agencies are aware
that, for a particular bank, automobile lending may be a significant
share of its retail lending. Therefore, the agencies believe it is
appropriate to evaluate the distribution of certain banks' automobile
loans to ensure these banks are meeting the automobile financing credit
needs of their entire communities.
The agencies have also considered some commenters' concerns that
the market benchmarks that the agencies proposed to use in evaluating
the distribution of a bank's automobile loans could be incomplete or
skewed due to the limited applicability of the proposed automobile
lending data requirements or the differences between the business
models of banks that make automobile loans. As discussed further in the
section-by-section analysis of Sec. __.22(e), the agencies have
determined that there would be insufficient bank automobile lending
data necessary to construct suitable market benchmarks and
corresponding performance ranges. In light of this determination, under
the final rule, a bank's geographic and borrower distributions with
respect to automobile lending are compared only to community
benchmarks, and not to market benchmarks. Thus, the agencies will
develop supporting conclusions regarding the distribution of a bank's
automobile lending without the use of performance ranges, similar to
how the agencies evaluate consumer loans in CRA examinations under the
current regulation. The agencies believe the changes in the final rule,
relative to the proposal, resolve the potential issues noted by
commenters regarding the reliability of the market benchmarks for
automobile lending, because market benchmarks will not be used under
the final rule approach for automobile lending.
The agencies also considered the range of views expressed by
commenters about the potential impact of evaluating the distribution of
a bank's automobile loans under the Retail Lending Test, with some
commenters predicting that such an evaluation approach would encourage
more automobile lending, and other commenters warning that banks would
withdraw from the automobile loan market. As discussed above, however,
under the final rule, evaluation of automobile loans under the
distribution analysis component of the Retail Lending Test is optional
for the vast majority of banks. For this reason and based on the other
changes to the evaluation approach to automobile lending discussed
above, the agencies believe that the final rule approach to evaluating
automobile lending is reasonable and appropriately tailored.
Treatment of indirect automobile loans. Under the final rule
approach, the agencies evaluate the distribution of a bank's automobile
loans without regard to whether the loans are originated or purchased
through direct or indirect channels. In making this determination, the
agencies have considered commenter concerns regarding indirect
automobile loans, including commenters recommending that indirect
automobile loans be excluded from the distribution analysis. However,
based on supervisory experience, the agencies are aware that indirect
automobile loans may represent a significant majority of automobile
loans for certain banks, and that excluding indirect automobile loans
from evaluation may therefore provide an incomplete picture of a bank's
[[Page 6828]]
automobile lending.\897\ In addition, excluding indirect loans from the
automobile loan product line would be inconsistent with other major
product lines evaluated under the distribution analysis of the Retail
Lending Test, which do not exclude indirect loans.
---------------------------------------------------------------------------
\897\ See Andreas Grunwald, Jonathan Lanning, David Low, and
Tobias Salz, ``Auto Dealer Loan Intermediation: Consumer Behavior
and Competitive Effects,'' National Bureau of Economic Research
Working Paper 28136 (Nov. 2020), https://www.nber.org/system/files/working_papers/w28136/w28136.pdf.
---------------------------------------------------------------------------
The agencies have also determined that an alternative approach of
separately evaluating the distribution of a bank's direct and indirect
automobile loans would increase complexity in the Retail Lending Test
evaluation and could require setting separate major product line
thresholds for these two types of automobile lending. Furthermore, the
agencies note that aggregating direct and indirect automobile loans is
consistent with how a bank reports its automobile loans on its Call
Report, which does not distinguish direct and indirect lending.
Product Lines Excluded From Retail Lending Distribution Analysis
Open-End Home Mortgage Loans
The Agencies' Proposal
The agencies proposed to evaluate all open-end home mortgage loans
secured by a one- to four-unit dwelling as a separate product line
under the Retail Lending Test.\898\ The agencies proposed that this
product line would include home equity lines of credit and other open-
end lines of credit secured by a dwelling, excluding multifamily
loans.\899\ The agencies explained that they recognized that closed-end
home mortgage loans and open-end home mortgage loans serve distinct
purposes for low- and moderate-income borrowers and communities and are
sufficiently different to warrant separate evaluation.
---------------------------------------------------------------------------
\898\ See proposed Sec. __.22(a)(4)(i)(B). The agencies
proposed in proposed Sec. __.12 to define ``open-end home mortgage
loan'' to have ``the same meaning as given to the term `open-end
line of credit' in 12 CFR 1003.2(o), excluding multifamily loans as
defined in [Sec. __.12].''
\899\ See proposed Sec. __.22(a)(4)(i)(B).
---------------------------------------------------------------------------
The agencies proposed to use a distribution analysis to evaluate
all open-end home mortgage loans under the approach described in the
Retail Lending Test.\900\ However, the agencies also sought feedback on
whether to instead solely evaluate open-end home mortgage loans
qualitatively under the proposed Retail Services and Products Test. The
agencies noted that a qualitative review under the Retail Services and
Products Test would focus on the responsiveness of open-end home
mortgage loans, which might be appropriate given the range of potential
uses for an open-end home mortgage loan. Similarly, the agencies noted
that lower lending volumes for open-end home mortgage loans might limit
the usefulness of market benchmarks under the Retail Lending Test for
an open-end home mortgage product line, particularly in assessment
areas with limited open-end home mortgage lending.
---------------------------------------------------------------------------
\900\ See proposed Sec. __.22(b) through (d).
---------------------------------------------------------------------------
Comments Received
A few commenters supported the proposal to evaluate open-end home
mortgage loans quantitatively under the proposed Retail Lending Test. A
commenter stated that evaluating open-end mortgage loans only under the
Retail Services and Products Test would be too subjective. Another
commenter emphasized the importance of open-end home mortgage loans for
providing ready access to capital for home improvement or emergency
repairs.
A few commenters expressed support for the proposed approach of
evaluating open-end home mortgage loans under both the Retail Lending
Test and the Retail Services and Products Test. A commenter favored
evaluating the distribution of a bank's open-end home mortgage lending
under the proposed Retail Lending Test and whether these products have
features responsive to low- and moderate-income community needs under
the proposed Retail Services and Products Test. Another commenter
suggested that the agencies evaluate open-end home mortgage loans
qualitatively under the Retail Services and Products Test due to lower
volumes, but also include open-end home mortgage loans in the retail
lending volume screen and ensure a quantitative evaluation of the
distribution of these loans if demand for these loans increases.
Another commenter supported evaluating the distribution of a bank's
open-end home mortgage loans and also recommended evaluating pricing
and terms of home equity loans, suggesting that home equity lines of
credit can be wealth-extracting.
In contrast, several commenters suggested that open-end home
mortgage loans should not be evaluated quantitatively under the
proposed Retail Lending Test and should be evaluated solely under the
proposed Retail Services and Products Test. Some of these commenters
reasoned that evaluating the distribution of open-end home mortgage
loans is not appropriate because many banks are not required to report
these loans under HMDA, which would limit the usefulness of Retail
Lending Test market benchmarks. A commenter asserted that open-end home
mortgage loans would be unlikely to qualify as a Retail Lending Test
major product line. Another commenter reasoned that market conditions
can vary significantly among local geographic areas and that market
uncertainty can be accounted for under a qualitative approach but not
under a quantitative approach. This commenter also warned that some
lenders use risk-based pricing and high loan-to-value ratios to
underwrite home equity loans, raising safety and soundness concerns.
Other commenters suggested that the agencies should conduct more
research to analyze the extent to which open-end home mortgage lending
is critical for low- and moderate-income households in meeting needs
and whether such lending is affordable and sustainable before
determining whether open-end home mortgage loans should be evaluated
under the proposed Retail Lending Test or the proposed Retail Services
and Products Test.
Final Rule
Under the final rule, the agencies will not evaluate a bank's open-
end home mortgage lending using the Retail Lending Test's distribution
analysis.\901\ The agencies will evaluate all of a large bank's retail
lending, including its open-end and closed-end home mortgage lending,
for responsiveness to the credit needs of its community under the
Retail Services and Products Test in final Sec. __.23 (discussed in
detail in the section-by-section analysis of final Sec. __.23).
Closed-end home mortgage lending would also be evaluated under the
Retail Lending Test distribution analysis, as discussed above, while
open-end home mortgage lending would not be included in this analysis.
Additionally, intermediate banks and small banks may request additional
consideration for responsive retail products and programs, including
open- and closed-end home mortgage products and programs.\902\
Consistent with the proposal, the final rule also provides that
originations and purchases of open-end home mortgage loans will
continue to be quantitatively considered as part of the Bank Volume
Metric of the Retail
[[Page 6829]]
Volume Lending Screen applied in facility-based assessment areas for
all banks subject to the Retail Lending Test.\903\
---------------------------------------------------------------------------
\901\ As discussed in the section-by-section analysis of final
Sec. __.12, the final rule defines ``open-end home mortgage loan''
as follows: ``Open-end home mortgage loan has the same meaning given
to the term ``open-end line of credit'' in 12 CFR 1003.2, excluding
loan transactions set forth in 12 CFR 1003.3(c)(1) through (10) and
(13) and multifamily loans as defined in [Sec. __.12].''
\902\ See the section-by-section analysis of final Sec. __.21.
\903\ See the section-by-section analysis of final Sec.
__.22(c); final appendix A, paragraph I.a.1.
---------------------------------------------------------------------------
In determining to evaluate open-end home mortgage lending under the
Retail Services and Products Test and not also as a major product line
under the distribution analysis of the Retail Lending Test, the
agencies considered a number of factors. First, the agencies considered
that, although open-end home mortgage loans can help to meet important
community credit needs, these products may involve unique risks, in
part because they are designed to allow borrowers to reduce equity in
their homes at irregular intervals and often involve variable interest
rates. These risks are not considered under the Retail Lending Test
distribution analyses. In addition, the agencies also considered that
open-end home mortgage loans include a heterogeneous mixture of unique
product types that are designed to serve a wide variety of consumer
credit needs. As a result, evaluating all open-end home mortgage loans
as a single product line would include a mixture of product types
within a single product line, such as open-end home equity lines of
credit and open-end reverse mortgage loans. Evaluating these products
on a combined basis may result in market benchmarks that are not an
appropriate point of comparison for a bank that specializes in only one
specific open-end home mortgage loan product type. Alternatively,
further separating open-end home mortgage loans into additional product
lines would increase the complexity of the Retail Lending Test approach
and may result in instances where a bank has too few loans in any
specific open-end home mortgage loan product line to evaluate as a
major product line.
The agencies also believe that excluding open-end home mortgage
loans from the distribution analysis in the final rule appropriately
reduces complexity associated with the Retail Lending Test, and is
responsive to commenter concerns in that regard.\904\ However, the
agencies acknowledge commenter feedback that evaluating open-end home
mortgages solely under a qualitative approach in the Retail Services
and Products Test would result in additional subjectivity relative to a
quantitative approach. While a distribution analysis of open-end home
mortgage lending may support a more consistent and standardized
evaluation compared to a fully qualitative approach, for the reasons
discussed above, the agencies believe it is preferable not to designate
open-end home mortgage loans as a product line subject to a
distribution analysis. At the same time, the agencies believe that
retaining some measure of a quantitative evaluation of open-end home
mortgage loans is appropriate. The final rule achieves this balance by
evaluating these loans qualitatively under the Retail Services and
Products Test and quantitatively under the Retail Lending Test, by
incorporating them into the Retail Lending Volume Screen for all banks
subject to the Retail Lending Test in their facility-based assessment
areas. The agencies believe that considering a bank's open-end mortgage
lending under the credit products and programs component of the Retail
Services and Products Test will best focus evaluations on whether these
products are responsive to the credit needs of communities, including
low- and moderate-income individuals and census tracts.
---------------------------------------------------------------------------
\904\ Analysis of historical lending data showed that excluding
open-end home mortgage loans reduced the number of major product
lines for approximately 1,500 facility-based assessment areas
(approximately 20 percent of facility-based assessment areas for
large banks and intermediate banks included in the analysis), in
which open-end home mortgage lending would have been a major product
line under the proposal. This analysis used 2018-2020 data for
facility-based assessment areas from the CRA Analytics Data Tables.
The number of facility-based assessment areas with fewer product
lines is calculated as the number of facility-based assessment areas
that would have fewer product lines when removing open-end mortgages
from the major product line calculation, compared to an approach
with four product lines (closed-end home mortgage loans, open-end
home mortgage loans, small business loans, and small farm loans).
Major product lines were determined in this analysis using the final
rule major product line threshold of at least 15 percent of a bank's
retail lending based on the average of loan count and loan amount.
---------------------------------------------------------------------------
Exclusion of Multifamily Loans
In the final rule, the agencies have decided that they will not
evaluate multifamily lending under the distribution analysis of the
Retail Lending Test. Rather, as discussed in the section-by-section
analyses of Sec. Sec. __.13, __.23, and __.24, multifamily lending may
be evaluated under the Retail Services and Products Test, the Community
Development Financing Test, the Community Development Financing Test
for Wholesale and Limited Purpose Banks, the Intermediate Bank
Community Development Test, and the Small Bank Lending Test, as
applicable.
The Agencies' Proposal
The agencies proposed in Sec. __.22(a)(4)(i)(C) to evaluate
multifamily loans as a major product line using the distribution
metrics under the proposed Retail Lending Test.\905\ The agencies noted
that this approach would recognize the role of multifamily loans in
helping to meet community credit needs, such as financing housing in
different geographies and for tenants of different income levels. In
addition, the agencies sought feedback on standards for determining
when to evaluate multifamily loans under the Retail Lending Test, if
included as a major product line in the final rule approach. As
discussed further in the section-by-section analyses of final
Sec. Sec. __.13 and __.22, and consistent with the approach under the
current CRA regulations,\906\ the agencies also proposed: (1)
consideration of multifamily loans that provide affordable housing to
low- or moderate-income individuals under the proposed Community
Development Financing Test, the Community Development Financing Test
for Wholesale or Limited Purpose Banks, or the intermediate bank
community development evaluation; and (2) that an intermediate bank
that is not required to report a home mortgage loan, a small business
loan, or a small farm loan may opt to have the loan considered under
the Retail Lending Test, or, if the loan is a qualifying activity
pursuant to proposed Sec. __.13, under the Community Development
Financing Test or the intermediate bank community development
performance standards.\907\
---------------------------------------------------------------------------
\905\ The agencies proposed in proposed Sec. __.12 to define
``multifamily loan'' to mean ``a loan for a `multifamily dwelling'
as defined in 12 CFR 1003.2(n).''
\906\ See current 12 CFR __.12(g)(1) and (h) and __.22(b)(4).
\907\ See proposed Sec. __.12 (definition of ``community
development loan''); see also proposed Sec. __.22(a)(5).
---------------------------------------------------------------------------
The agencies proposed that a bank's multifamily lending performance
under the Retail Lending Test would be evaluated using loan count, as
was the case under the proposal for other major product lines evaluated
using the Retail Lending Test's distribution analysis.\908\ The
agencies proposed to evaluate multifamily loans using only geographic
distribution analysis and not borrower distribution analysis. As a
result, under the proposal, borrower income, tenant income, and housing
affordability would not factor into the evaluation of multifamily loans
under the Retail
[[Page 6830]]
Lending Test.\909\ Given the general lack of available borrower income
data with respect to multifamily loans, and that many are made to
entities that do not report personal income, the agencies explained
that distribution analysis based on borrower income would not
meaningfully measure whether multifamily loans met community credit
needs. The agencies sought feedback on whether an alternative measure
of geographic loan distribution for multifamily lending would be
preferable, such as the number of units a bank's multifamily lending
financed in low- and moderate-income census tracts. The agencies
suggested that this measure may better accord with the benefit the
bank's lending brought to its community.
---------------------------------------------------------------------------
\908\ See proposed appendix A, paragraph III.1.
\909\ See proposed Sec. __.22(d)(2)(ii) and (iii) (including
multifamily lending in the geographic distribution analysis and
excluding multifamily lending from the borrower distribution
analysis).
---------------------------------------------------------------------------
Alternatively, the agencies sought feedback on whether to evaluate
multifamily loans only under the Community Development Financing Test.
In raising this alternative, the agencies identified potential concerns
with evaluating multifamily loans under the Retail Lending Test.
Specifically, the agencies noted that the Retail Lending Test
distribution analysis of multifamily loans, which would include a
geographic distribution and not a borrower distribution, may not
effectively measure a bank's record of serving the credit needs of its
community. For example, the geographic distribution of a bank's
multifamily loans would not indicate whether low- and moderate-income
individuals benefit from those loans. Relatedly, the proposal noted
that the number of multifamily loans made in low- and moderate-income
census tracts may not adequately reflect their value to the community.
Unlike home mortgage loans, one multifamily loan could represent
housing for anywhere from five households to hundreds of households,
which could make loan count an inadequate measure for how multifamily
loans benefit local communities. The agencies noted that, under the
Community Development Financing Test, examiners could evaluate
affordability and the degree to which multifamily loans serve low-or
moderate-income tenants. The agencies stated that this approach would
also avoid double-counting of multifamily lending under the Retail
Lending Test and applicable community development financing performance
tests. The agencies sought feedback on whether an alternative Retail
Lending Test measure of geographic loan distribution for multifamily
lending under the Retail Lending Test would be preferable. For example,
the agencies could evaluate the number of units a bank's multifamily
lending financed in low- and moderate-income census tracts. The
agencies suggested that this measure may better accord with the benefit
the bank's lending brought to its community.
The agencies requested additional feedback on whether banks that
are primarily multifamily lenders should be designated as limited
purpose banks and have their multifamily lending evaluated only under
the Community Development Financing Test.
Comments Received
The agencies received a number of comments regarding evaluating
multifamily lending under the proposed Retail Lending Test and/or under
other performance tests.
Community Development Financing. Most commenters addressing how
multifamily loans should be evaluated supported evaluating multifamily
loans under the Community Development Financing Test and not under the
distribution analysis of the Retail Lending Test, with some of these
commenters stating that multifamily loans are largely commercial loans
and not retail loans. A number of commenters indicated that the
Community Development Financing Test would more appropriately place
focus on the affordability of multifamily units to low- and moderate-
income residents, rather than on their geographic distribution as would
be required under the Retail Lending Test. A few commenters asserted
that banks typically have little control over where multifamily loans
are located, and that uneven market demand in low- and moderate-income
and other areas alike is driven by market trends and governmental
incentives. A commenter also emphasized that the geographic
distribution analysis would not exclude upscale housing targeted to
middle- and upper-income residents.
Some commenters also raised other concerns with evaluating
multifamily loans under the Retail Lending Test distribution analysis.
For example, a commenter stated that evaluating multifamily loans under
the Retail Lending Test would produce a distorted picture of a bank's
retail lending performance because multifamily loans have much larger
dollar amounts. Another commenter stated that because most banks
consider multifamily loans to be commercial loans, there could be
logistical challenges in how banks manage the impact of CRA Retail
Lending Test distribution requirements on multifamily product lines,
such as subjecting a commercial lending business to CRA evaluations for
the first time. This same commenter stated that the evaluation of
multifamily loans under the Retail Lending Test would be a departure
from the agencies' previous focus on home mortgage loans and small
business loans, and asserted that, unlike multifamily loans, home
mortgage loans and small business loans have been proven to help
borrowers and their communities create and sustain wealth. Another
commenter raised a concern that evaluating multifamily loans under the
Retail Lending Test would cause banks to favor financing multifamily
rental properties before making retail loans to low- and moderate-
income borrowers or to borrowers in historically low-income geographic
areas. In addition, a few commenters stated that HMDA data are too
limited to support a reliable Retail Lending Test distribution analysis
for evaluating multifamily loans. Some commenters asserted that using
loan counts for evaluating multifamily loans under the Retail Lending
Test would not allow for sound analysis of loans for different
properties. Another commenter stated that a Retail Lending Test
geographic distribution analysis of multifamily loans would
inappropriately focus on the location of the corporate borrower and not
the location of the actual property benefitting and moderate-income
individuals.
Some commenters expressed concerns regarding the proposed major
product line thresholds and the inclusion of multifamily loans as a
major product line. Several commenters stated that multifamily lending
for most banks would not exceed the proposed Retail Lending Test's 15
percent major product line threshold, underscoring the importance of
evaluating multifamily loans under the Community Development Financing
Test. In contrast, a different commenter stated that the large dollar
size of multifamily loans may account for a significant percentage of a
bank's loan volume, potentially making it less likely for other product
lines of the bank to surpass the major product line standard.
Dual Consideration. Some commenters supported multifamily loans
being evaluated under both the Retail Lending Test and the Community
Development Financing Test. These commenters generally suggested that
evaluating multifamily loans under both proposed performance tests
would appropriately reflect the importance of this product line to low-
and moderate-
[[Page 6831]]
income communities and would not be duplicative because each
performance test would evaluate different aspects of a bank's
multifamily lending. A commenter urged the agencies to evaluate both
the geographic and borrower distributions of a bank's multifamily
lending, noting that there is evidence that minority developers are
less likely to receive financing from traditional banks. Another
commenter suggested that the agencies consider additional Retail
Lending Test evaluation criteria for multifamily lending that would
generally focus on the affordability, stability, and quality of the
housing (by considering, for example, whether the housing is
subsidized, unsubsidized, rent-regulated, or market rate, as well as
housing conditions and eviction rates). A commenter recommended that
the agencies evaluate multifamily loans financing unsubsidized
properties under the Retail Lending Test and multifamily loans
financing subsidized properties under the Community Development
Financing Test. This commenter noted that unsubsidized properties are
not part of a concerted government preservation or revitalization
strategy and do not have long-term affordability restrictions.
In contrast, several commenters suggested that evaluating
multifamily loans under both the Retail Lending Test and the Community
Development Financing Test would create undesirable incentives for
banks. For example, a commenter warned that consideration under both
performance tests could incentivize banks to finance multifamily
housing in low- and moderate-income census tracts regardless of
affordability and whether it would help or hurt low- and moderate-
income individuals and communities. A few other commenters expressed
the view that considering multifamily loans under both performance
tests would incentivize banks to make affordable housing loans over
equity investments. These commenters noted that equity investments in
affordable housing are generally more responsive to low- and moderate-
income community needs compared to affordable housing loans and involve
more complex bank involvement.
Evaluation of multifamily loans under either the Retail Lending
Test or the Community Development Financing Test. A few commenters
stated that it would be appropriate to evaluate multifamily loans under
either the Retail Lending Test or the Community Development Financing
Test, but not both. For example, a commenter recommended that
multifamily loans that qualify for consideration under the Community
Development Financing Test should be evaluated only under that
performance test so as not to reduce banks' incentives to finance
specific types of housing, such as naturally occurring affordable
rental housing. Another commenter recommended evaluating multifamily
loans solely under the Community Development Financing Test for most
banks, but suggested that banks that specialize in multifamily lending
should be given the option to classify multifamily loans as either
retail loans or community development loans due to the proposed heavy
weighting of the Retail Lending Test.
Multifamily lenders evaluated as limited purpose banks. Some
commenters addressed whether banks that are primarily multifamily
lenders should be evaluated as limited purpose banks and should have
their multifamily lending evaluated only under the Community
Development Financing Test for Wholesale or Limited Purpose Banks. A
few commenters supporting this approach suggested that banks that are
engaged in 60 percent or more of a certain activity, such as
multifamily lending, should be measured against other limited purpose
banks so as not to dilute peer group data, which would allow for a more
appropriate comparison to peer data. A commenter stated that banks that
are primarily multifamily lenders should be designated as limited
purpose banks, except that such banks should also be evaluated under
the Retail Services and Products Test to the extent that they operate
branches and take deposits from, or otherwise serve, the general
public. Commenters opposed to evaluating banks that are primarily
multifamily lenders as limited purpose banks stated that such banks
should be evaluated under the Retail Lending Test to ensure that the
geographic distribution of their multifamily lending does not exclude
low- and moderate-income communities.
Qualitative factors. Several commenters provided general feedback
about multifamily housing, and noted certain considerations that should
factor into the CRA evaluation of multifamily lending. In general,
these commenters advocated for a more holistic review of a bank's
multifamily lending to ensure that it serves low- and moderate-income
communities and minority communities. A few of these commenters
highlighted that high-cost multifamily housing located in low- and
moderate-income areas should not result in displacement of low- and
moderate-income individuals. Several of these commenters stated that
banks should not finance multifamily housing that displaces or
otherwise harms low- and moderate-income and minority tenants (e.g.,
multifamily housing that does not comply with local housing and civil
rights codes, and other applicable laws).
Final Rule
Based on consideration of commenter input and further deliberation,
the agencies have decided that they will not evaluate multifamily
lending under the distribution analysis of the Retail Lending
Test.\910\ The agencies have determined that the proposed geographic
distribution analysis would not sufficiently evaluate the
responsiveness of multifamily lending to community credit needs,
including low- and moderate-income credit needs. In particular, the
evaluation of a bank's geographic distribution of multifamily loans
would not account for housing affordability or whether low- and
moderate-income families benefit from these loans, which the agencies
believe are essential factors for determining whether a bank's
multifamily lending is responsive to local credit needs. In order to
consider affordability and benefits to low- and moderate-income
communities of multifamily lending within the framework of the Retail
Lending Test, the agencies believe it would be necessary to construct
market and community benchmarks for these evaluation factors, which the
agencies believe would add complexity to the evaluation. In addition,
such an approach may be constrained by data limitations, as the
agencies are not aware of comprehensive market data on multifamily loan
originations and purchases that includes information on the rents
charged and income levels of the tenants of the properties financed.
---------------------------------------------------------------------------
\910\ Accordingly, the agencies are not including the referenced
exclusions included in proposed Sec. __.22(a)(5) that would have
allowed multifamily loans to qualify for both retail lending and
community development consideration in certain circumstances.
---------------------------------------------------------------------------
In the absence of benchmarks for housing affordability and benefits
to low- and moderate-income families, the agencies believe that a
Retail Lending Test evaluation based on a geographic distribution
analysis alone would not accurately reflect the responsiveness of a
bank's multifamily lending. For example, originating multifamily loans
for affordable housing in middle- and upper-income census tracts might
be highly responsive to community needs, but a geographic distribution
analysis alone would not identify these loans as
[[Page 6832]]
serving low- and moderate-income individuals and communities.
In addition, the agencies recognize that there are other challenges
associated with evaluating multifamily lending under the Retail Lending
Test using a distribution analysis. These challenges include that: a
limited number of multifamily loan originations in smaller facility-
based assessment areas may not support a robust geographic distribution
benchmark; the use of loan counts may not reflect the number of housing
units supported by multifamily loans; and that multifamily lending may
not meet the major product line standard for evaluation for many banks.
The agencies also considered comments that the proposed rule's
inclusion of six product lines on the Retail Lending Test could create
significant challenges for banks due to the potential complexity of
monitoring numerous metrics and benchmarks for each potential major
product line. To consider how excluding multifamily lending as a
product line on the Retail Lending Test might address these concerns,
the agencies analyzed historical lending data. The analysis showed
that, applying the final rule's major product line standard to
intermediate bank and large bank retail lending during the 2018-2020
period, for banks included in the analysis, approximately 400 facility-
based assessment areas would have fewer product lines when multifamily
lending is excluded.\911\ Consequently, excluding multifamily lending
from evaluation under the Retail Lending Test would reduce the number
of major product lines evaluated in these bank facility-based
assessment areas.
---------------------------------------------------------------------------
\911\ The agencies calculated the number of facility-based
assessment areas in the 2018-2020 retail lending test sample that
would have fewer major product lines when moving from a product line
calculation with four major products (i.e., including multifamily
lending) to a product line calculation with only three major
products (only closed-end home mortgage, small business, and small
farm).
---------------------------------------------------------------------------
For the reasons described above, the agencies believe that the
Retail Lending Test framework is not sufficiently suited to evaluating
multifamily lending, neither in combination with the community
development performance tests, nor as the sole performance test that
evaluates these loans. Instead, the agencies determined that
multifamily lending is more appropriately and effectively evaluated
solely as community development lending. Accordingly, the final rule
provides that if a multifamily loan is a community development loan,
the agencies will: (1) for large banks, evaluate the multifamily loan
under the Community Development Financing Test; (2) for intermediate
banks, evaluate the loan under the Intermediate Bank Community
Development Test, or alternatively, under the Community Development
Financing Test; (3) for small banks, evaluate the loan under the
renamed Small Bank Lending Test; and (4) for limited purpose banks,
evaluate the loan under the renamed Community Development Financing
Test for Limited Purpose Banks.
The agencies considered, but are not adopting, an approach
whereunder banks specializing in multifamily lending would be given the
option to classify multifamily loans as either retail loans or
community development loans. As discussed above, based on analysis and
supervisory experience, the agencies have determined that multifamily
lending is not conducive to a distribution analysis under the Retail
Lending Test. In addition, as discussed in the section-by-section
analysis of final Sec. __.28 the Community Development Financing Test
and Retail Lending Test will be equally weighted at 40 percent each
under the final rule, which the agencies believe helps to ensure that a
bank's multifamily lending meeting the standards in Sec. __.13(b) is
appropriately factored into its overall ratings.
The agencies have also determined to not evaluate banks that are
primarily multifamily lenders as limited purpose banks. As discussed in
the section-by-section analyses of final Sec. Sec. __.12 and __.26, a
bank, such as a primary multifamily lender, may request designation as
a limited purpose bank and, if the relevant agency approves the
designation, will be evaluated under the Community Development
Financing Test for Limited Purpose Banks. The agencies believe that
multifamily lenders designated as limited purpose banks will be
appropriately evaluated because a community development financing
framework provides a more robust assessment of a bank's overall
multifamily lending performance and its responsiveness to serving its
communities, including low-and moderate-income communities, than would
the Retail Lending Test.
Finally, with respect to qualitative evaluation of multifamily
loans, the agencies will evaluate a large bank's multifamily lending
for responsiveness to the credit needs of its community under the
Retail Services and Products Test in final Sec. __.23(c)(2).
Additionally, intermediate banks and small banks may request additional
consideration for their responsive retail products and programs.\912\
---------------------------------------------------------------------------
\912\ See the section-by-section analysis of final Sec. __.21.
---------------------------------------------------------------------------
Section __.22(d)(2) Major Product Line Standards
The agencies proposed in Sec. __.22(d) to evaluate the geographic
and borrower distributions of a bank's major product lines in its
facility-based assessment areas, retail lending assessment areas, and
outside retail lending area as applicable, under the Retail Lending
Test. To focus the distribution analysis of a bank's retail lending on
those products with a greater importance to the bank and its community,
the proposal provided that closed-end home mortgage loans, open-end
home mortgage loans, multifamily loans, small business loans, or small
farm loans are a major product line in a facility-based assessment
area, retail lending assessment area, or outside retail lending area if
the product line comprised 15 percent or more of a bank's retail
lending in the particular area, by dollar amount, over the relevant
evaluation period. For automobile loans, the agencies proposed to
calculate the 15 percent standard using a combination of the dollar
amount and number of loans, recognizing that automobile loans are
generally lower in dollar amount compared to other products. The
agencies sought feedback on the proposed major product line standards,
including whether an alternative standard should apply to multifamily
loans in particular.
Commenters submitted a range of feedback on the proposed major
product line standards, with a few commenters supporting the proposed
major product line approach, but most commenters expressing concerns
with or offering alternatives to the proposed approach. In general,
these commenters warned that the proposed major product line standards
would not necessarily ensure that a bank's major product lines reflect
the bank's business model and core product offerings. Some of these
commenters recommended alternative major product line standards, such
as a standard based on loan counts, a standard based on both loan
dollars and loan counts, a market share approach, or an institution-
level approach. Commenters also expressed a range of views on the
proposed major product line standard for multifamily loans, including
for monoline multifamily lenders.
For the reasons discussed below, the final rule adopts a modified
version of the proposed major product line
[[Page 6833]]
approach. Under the final rule, closed-end home mortgage loans, small
business loans, small farm loans, or automobile loans (if automobile
loans are a product line for the bank) are major product lines in a
facility-based assessment area or outside retail lending area if the
bank's loans in the product line comprise 15 percent or more of the
bank's loans across all of the bank's product lines in the area.\913\
This 15 percent standard is calculated based on a combination of loan
dollars and loan count, as described further in the section-by-section
analysis related to Sec. __.12 (definition of ``combination of loan
dollars and loan count''). In addition, under the final rule, closed-
end home mortgage loans or small business loans are a major product
line in a retail lending assessment area in any year of the evaluation
period in which the bank delineates a retail lending assessment area
based on its closed-end home mortgage loans or small business loans as
determined by the standard in final Sec. __.17(c) (i.e., at least 150
reported closed-end home mortgage loans, or at least 400 reported small
business loans in each of the two preceding calendar years).
---------------------------------------------------------------------------
\913\ Under the final rule, automobile loans are a product line
for the bank if the bank is a majority automobile lender as defined
in final Sec. __.12, or if the bank opts to have its automobile
loans evaluated pursuant to final Sec. __.22.
---------------------------------------------------------------------------
The Agencies' Proposal
In proposed Sec. __.22(d), the agencies proposed to evaluate the
geographic and borrower distributions of a bank's major product lines
in its facility-based assessment areas, retail lending assessment
areas, and outside retail lending area as applicable, under the Retail
Lending Test. Proposed Sec. __.22(a)(4)(i) defined major product line
as retail lending in each of the following six categories: closed-end
home mortgage loans, open-end home mortgage loans, multifamily loans,
small business loans, small farm loans, and automobile loans. Proposed
Sec. __.22(a)(4)(ii) specified that closed-end home mortgage loans,
open-end home mortgage loans, multifamily loans, small business loans,
and small farm loans are considered a major product line if such loans
comprise 15 percent or more of a bank's retail lending in a particular
facility-based assessment area, retail lending assessment area, or
outside retail lending area, by dollar amount, over the relevant
evaluation period. By contrast, proposed Sec. __.22(a)(4)(iii)
specified that automobile loans are considered a major product line if
such loans comprise 15 percent or more of a bank's retail lending in a
particular facility-based assessment area, retail lending assessment
area, or outside retail lending area, based on a combination of the
dollar amount and number of loans, over the relevant evaluation
period.\914\
---------------------------------------------------------------------------
\914\ Specifically, the agencies proposed that automobile loans
would be considered a major product line if the average of the
percentage of automobile lending dollars out of total retail lending
dollars and the percentage of automobile loans by loan count out of
all total retail lending by loan count is 15 percent or greater in a
particular facility-based assessment area, retail lending assessment
area, or outside retail lending area. See proposed Sec.
__.22(a)(4)(iii)(B).
---------------------------------------------------------------------------
The agencies proposed these major product line standards to focus
the evaluation of a bank's retail lending products on those products
with a greater importance to the bank in a specific community. The
agencies further reasoned that the proposed major product line
standards would offer increased predictability.
Under the proposal, the major product line standards would apply at
the level of a facility-based assessment area, retail lending
assessment area, or outside retail lending area, as applicable. For
example, a large bank that primarily extends home mortgage loans and
small business loans but also specializes in small farm loans in a
handful of rural facility-based assessment areas would, under the
proposal, have the geographic and borrower distributions of its small
farm loans evaluated in those rural facility-based assessment areas
(assuming the small farm lending exceeds 15 percent of the bank's
retail lending in those facility-based assessment areas by dollar
volume), but not in facility-based assessment areas or retail lending
assessment areas where the large bank makes few or no small farm loans.
The agencies stated in the proposal that applying the major product
line standard at the level of a facility-based assessment area, retail
lending assessment area, or outside retail lending area would capture
lending that affects local communities, even if such lending might not
meet a 15 percent standard at the institution level.
Because the proposed Retail Lending Test divided retail lending
into six distinct categories, every facility-based assessment area,
retail lending assessment area, or outside retail lending area in which
a bank conducts retail lending would have at least one product that
represents at least 16.6 percent (or one-sixth) of the dollar volume of
its total retail lending in that geographic area. For this reason, the
agencies proposed setting the major product line standards at 15
percent--below the 16.6 percent mark--to preclude the possibility of a
bank having no major product lines.
In the preamble to the proposed rule, the agencies sought feedback
about whether they should use a different standard for determining when
to evaluate a bank's closed-end home mortgage loans, open-end home
mortgage loans, multifamily loans, small business loans, and small farm
loans under the distribution analysis of the Retail Lending Test, and
if so, what should that standard be and why. Additionally, the agencies
asked whether they should use a different standard for determining when
to evaluate multifamily loans under the distribution analysis of the
Retail Lending Test. For example, the agencies suggested that
multifamily lending could be considered a major product line only where
the bank is a monoline multifamily lender or where the bank is
predominantly a multifamily lender within the applicable facility-based
assessment area, retail lending assessment area, or outside of
facility-based assessment area, as applicable, or at the institution
level. The agencies further suggested that ``predominantly'' could mean
that multifamily lending ranks first in the dollar amount of a bank's
retail lending in a geographic area or that it accounts for a
significant percentage of the dollar volume of a bank's retail lending,
for example 50 percent. The agencies noted that using a different
standard for determining whether multifamily lending is a major product
line would help ensure that the agencies assess a bank's relevant
multifamily lending performance under the Retail Lending Test.
With respect to automobile loans, the agencies proposed to apply
the 15 percent standard using a combination of dollar amount and number
of loans, rather than using dollar amount alone. For example, if a
bank's automobile lending accounted for 10 percent of its total retail
lending dollars and 22 percent of its total retail loans by loan count
in a facility-based assessment area, retail lending assessment area, or
outside retail lending area, as applicable, its combined percentage
would be 16 percent, and automobile lending would be evaluated as a
major product line under the distribution analysis component of the
Retail Lending Test. The agencies proposed this modified major product
line standard for automobile loans in recognition of the fact that
automobile loans are generally lower in dollar amount compared to other
products. As such, the agencies were concerned that a threshold of 15
percent of a bank's retail lending calculated based on dollar
[[Page 6834]]
amount alone may rarely result in automobile loans being identified as
a major product line. By considering both the average of dollar amount
and loan count, the agencies' proposal would treat automobile loans as
a major product line for banks that would not otherwise meet a standard
that considers only dollar volume. The agencies stated in the proposal
that this approach recognized that automobile loans can fulfill unique
and important credit needs for low- and moderate-income borrowers and
communities. The agencies sought feedback in the proposal on whether
they should use a different standard for determining when to evaluate
automobile loans.
Comments Received
Support for proposed major product line standards. A few commenters
supported the proposed major product line standards without
modification. For example, at least one commenter stated that the
proposed major product line standards would ensure more consistent
Retail Lending Test evaluations, provide clarity to banks, reduce
reliance on examiner judgment, and ensure that the agencies evaluate
the geographic and borrower distributions of all significant areas of a
bank's retail lending portfolio.
Concerns with proposed major product line standards. Most
commenters that addressed the proposed major product line standards
expressed concerns with the proposed approach. While some of these
commenters opposed having a major product line standard at all, others
supported a major product line standard in concept, but expressed
concerns with different aspects of the proposed approach. Many of these
commenters suggested alternative approaches to determining whether a
product line is a major product line, as discussed below.
In general, commenters that expressed concerns with the proposed
major product line standards stated that the proposed standards would
not necessarily ensure that a bank's major product lines reflect the
bank's business model and core product offerings. For example, a number
of commenters stated that the proposed threshold of 15 percent could
inadvertently capture products that a bank offers to customers as an
accommodation, but that do not represent a core offering of the bank.
Several commenters warned that the proposed major product line
standards would result in the agencies evaluating a relatively low
percentage of small business lending under the distribution analysis of
the Retail Lending Test. For example, a commenter cited an analysis
showing that the small business lending of some of the most significant
small business lenders in a particular assessment area would not
constitute a major product line under the proposed approach. Another
commenter estimated that, under the proposed approach, the number of
its assessment areas in which the agencies would evaluate the
geographic and borrower distributions of its small business lending
would decrease from nearly all assessment areas to less than 20 percent
of assessment areas. The same commenter noted that the loan amounts
associated with a bank's home mortgage lending may be much larger than
a bank's small business lending, and, as such, the bank's small
business lending might not trigger a major product line, even if the
bank has relatively large small business lending market share in its
assessment area.
A few commenters emphasized a different concern with the proposed
major product line standards, stating that the proposed approach would
create uncertainty because banks would not know which products
constituted major product lines until examination time, and, as a
result, banks' ability to implement credit programs responsive to
community needs would be impeded. At least one of these commenters
stated that increasing the proposed major product line threshold from
15 percent to a higher threshold would reduce volatility in the
application of the distribution analysis component of the proposed
Retail Lending Test.
Alternative major product line approaches suggested by commenters.
Commenters that opposed or expressed concerns with the proposed major
product line standards generally suggested one of four alternative
approaches (with some commenters suggesting combinations of these
approaches) for determining whether a particular loan product
constitutes a major product line in a facility-based assessment area,
retail lending assessment area, or outside retail lending area: (1)
using loan counts; (2) using both loan dollars and loan counts; (3)
using a market share approach; or (4) using an institution-level
approach.
First, some commenters recommended that the agencies use loan
counts, rather than a loan dollar standard as proposed for certain
product lines, to determine whether a bank has a major product line in
a facility-based assessment area, retail lending assessment area, or
outside retail lending area. Many of these commenters suggested that a
major product line should be triggered where a bank makes more than a
threshold number of loans of a particular type in a geographic area,
with suggestions ranging from a de minimis number of loans (to capture
any bank that routinely makes loans in the product line) to 150 loans
per evaluation period. Other commenters that supported using loan
counts suggested other alternate approaches. For example, a commenter
suggested a major product line standard based on whether: (1) the bank
makes more than 30 loans (for small banks) or 50 loans (for large
banks) in the product line in the geographic area; or (2) loans in the
product line represent at least 15 percent of the bank's retail loans
by loan count in the relevant geographic area.
Second, some commenters supported using both loan dollars and loan
counts to determine all of a bank's major product lines, instead of
only using this approach for automobile lending as proposed. At least
one commenter recommended that the agencies apply the proposed major
product line standard for automobile loans to all other product types.
Several other commenters suggested a major product line standard based
on whether: (1) the bank made more than 50 loans in the product line in
the geographic area (without specifying whether this threshold would
apply annually or over the evaluation period); or (2) loans in the
product line represent at least 15 percent of the bank's retail loans
by loan dollars in the geographic area. A commenter recommended using a
15 percent threshold by loan dollars in geographic areas where home
mortgage loans are similar in size to small business and small farm
loans, but using a 15 percent threshold by loan count in other
geographic areas.
Third, at least one commenter suggested that the major product line
standard should be based on the bank's market share in the facility-
based assessment area, retail lending assessment area, or outside
retail lending area. Specifically, the commenter stated that a major
product line should be triggered if a bank's loans in a geographic area
account for more than 20 percent of the loans in the product line in
the geographic area across all banks. The commenter asserted that,
absent such an approach, an important segment of a local credit market
would not be evaluated, particularly in geographic areas with low
retail lending volumes overall.
Finally, a number of commenters suggested that a bank's major
product lines should be determined at the institution level. These
commenters generally believed that this approach would ensure
consistent evaluations across a bank's facility-based assessment areas,
retail lending assessment areas,
[[Page 6835]]
and outside retail lending areas and enable a bank to know at the
beginning of an exam cycle which product lines the agencies will
evaluate under the distribution analysis component of the Retail
Lending Test. Commenters suggested various approaches for the
institution-level determination, with some commenters favoring an
institution-level determination based on loan count, and other
commenters favoring an institution-level determination based on loan
dollars. In addition, at least one commenter suggested that banks
should designate the product lines that will be evaluated as a major
product line, so long as there is sufficient volume.
Major product line standard for multifamily loans. Several
commenters addressed the agencies' request for feedback regarding the
proposed standard for determining when to evaluate multifamily loans as
a major product line, particularly in relation to monoline multifamily
lenders and lenders predominantly engaged in multifamily lending. A few
commenters stated that the agencies should finalize the proposal to use
the same major product line standard for multifamily loans as for other
product lines. A commenter stated that the agencies should adopt the
proposed standard for most multifamily lenders but develop a different
standard for monoline multifamily lenders to ensure that the
predominant multifamily lender in a geographic area, and particularly
in rural markets, is not overlooked.
Several other commenters expressed concerns with the proposed major
product line standard for multifamily loans and suggested a different
major product line standard for multifamily loans than for other
product lines. In general, these commenters warned that very few
multifamily loans would be evaluated under the distribution analysis
component of the Retail Lending Test using the proposed standard,
despite the ongoing affordable housing shortage. To address this issue,
a commenter suggested a qualitative approach to determining when to
evaluate multifamily lending as a major product line, stating that most
banks cannot compete with the very large lenders that dominate the
multifamily loan market. Another commenter stated that the agencies
should evaluate the geographic and borrower distributions of a bank's
multifamily loans under the proposed Retail Lending Test regardless of
the predominance of this product type.
Many other commenters did not support evaluating the geographic and
borrower distributions of a bank's multifamily lending under the Retail
Lending Test, which would eliminate the need to designate a major
product line standard for this product line. This feedback is discussed
further in the section-by-section analysis of final Sec. __.22(d)
above.
Final Rule
For the reasons discussed below, the agencies are adopting a
modified version of the proposed major product line approach. Under
final Sec. __.22(d)(2)(i), closed-end home mortgage loans, small
business loans, small farm loans, or automobile loans (if automobile
loans are a product line for the bank) are a major product line in a
facility-based assessment area or outside retail lending area if the
bank's loans in the product line comprise 15 percent or more of the
bank's loans across all of the bank's product lines in the facility-
based assessment area or outside retail lending area over the years of
the evaluation period.\915\ As specified in paragraph II.b.1 of final
appendix A, this 15 percent standard is calculated based on a
combination of loan dollars and loan count, as described further in the
section-by-section analysis related to Sec. __.12 (definition of
``combination of loan dollars and loan count''). In addition, under
final Sec. __.22(d)(2)(ii), closed-end home mortgage loans or small
business loans are a major product line in a retail lending assessment
area in any year in the evaluation period in which the bank delineates
a retail lending assessment area based on its closed-end home mortgage
or small business loans, respectively, as determined by the standard in
final Sec. __.17(c) (i.e., closed-end home mortgage loans are a major
product line in a retail lending assessment area with at least 150
reported closed-end home mortgage loans in each of the two preceding
calendar years, and small business loans are a major product line in a
retail lending assessment area with at least 400 reported small
business loans in each of the two preceding calendar years).
---------------------------------------------------------------------------
\915\ Under the final rule, automobile loans are a product line
for the bank if the bank is a majority automobile lender as defined
in final Sec. __.12, or if the bank opts to have its automobile
loans evaluated pursuant to final Sec. __.22.
---------------------------------------------------------------------------
Exclusion of open-end home mortgage loans and multifamily loans. As
discussed in the section-by-section analysis related to final Sec.
__.22(d) above, under the final rule, the geographic and borrower
distributions of a bank's open-end home mortgage loans and multifamily
loans are not evaluated under the Retail Lending Test. For this reason,
the agencies are not adopting a major product line standard for
multifamily loans, or an alternative standard for monoline multifamily
lenders, as raised in the proposal and recommended by some commenters.
Major product line standard in facility-based assessment areas and
outside retail lending areas--single standard. Under the final rule, in
a facility-based assessment area or outside retail lending area, a
bank's closed-end home mortgage, small business, small farm, or
automobile loans (if automobile loans are a product line for the bank)
are a major product line if the bank's loans in the product line
comprise 15 percent or more of the bank's loans across all of the
bank's product lines in the geographic area over the years in the
evaluation period. In developing this aspect of the final rule, the
agencies determined that it was appropriate to establish a major
product line threshold, and that the same threshold should apply to all
product lines evaluated under the distribution analysis component of
the Retail Lending Test in facility-based assessment areas and outside
retail lending areas.
First, the agencies believe that a major product line threshold is
appropriate. Although under the current rule a large bank is generally
evaluated on all home mortgage, small business, and small farm loans,
the agencies believe that it is appropriate to focus the evaluation on
product lines in a geographic area that meet a materiality standard. In
addition, product lines that represent a relatively low percentage of a
bank's retail lending in an area and would receive less weight than the
bank's more significant product lines when determining the bank's
Retail Lending Test conclusion. Specifically, as discussed in the
section-by-section analysis related to final Sec. __.22(f) and section
VII of final appendix A, in developing a Retail Lending Test
recommended conclusion for a facility-based assessment area or outside
retail lending area, the agencies combine the product line scores for
the major product lines evaluated in the area. For this purpose, each
product line score is weighted by the ratio of the bank's loans in the
major product line to its loans in all major product lines in the area,
based on a combination of loan dollars and loan count. Because each
major product line is weighted based on this share, a major product
line that represents only a small percentage of the bank's retail
lending relative to other major product lines in a facility-based
assessment area or outside retail lending area would have relatively
little impact on the bank's Retail Lending Test recommended conclusion
in the area. For this reason, the agencies believe
[[Page 6836]]
that, rather than evaluating every product line in every facility-based
assessment area or outside retail lending area, only those product
lines that cross a threshold of materiality (i.e., the major product
line threshold) in a particular area should be evaluated under the
distribution analysis of the Retail Lending Test in that area. The
agencies also considered that a major product line threshold will help
to limit complexity because product lines that do not meet the major
product line standard would not be subject to a distribution analysis
and associated metrics, benchmarks, and performance ranges. In
addition, based on the agencies' supervisory experience, the agencies
believe that some major product line standard is appropriate because
not all product lines have a sufficient amount of lending to conduct a
meaningful distribution analysis.
Second, the agencies believe that a single major product line
threshold should apply to all product lines evaluated in facility-based
assessment areas and outside retail lending areas. The agencies believe
that this approach limits additional complexity associated with
monitoring which of a bank's product lines may exceed the major product
line standard, because a uniform standard is applied to all product
lines. The agencies considered, but are not adopting, an alternative
approach of adopting different major product line standards for
different product lines. As shown in Table 7, the agencies note that
adopting different major product line standards for different product
lines could increase the percentage of loans evaluated under the
distribution analysis component of the Retail Lending Test in certain
product lines, such as small farm loans. However, the agencies believe
that, on balance, the benefits of a single approach to the major
product line standard in facility-based assessment areas and outside
retail lending areas outweigh the increased Retail Lending Test
coverage that could result from adopting different major product line
standards for different product lines. Regarding small farm lending in
particular, the agencies also considered that while the percentage of
small farm loans evaluated under the distribution analysis component of
the Retail Lending Test is estimated to be lower than other product
lines, small farm lending is a relatively small percentage of all
retail lending.
Major product line standard in facility-based assessment areas and
outside retail lending areas--15 percent threshold. In considering
which major product line threshold should apply, the agencies note that
the major product line threshold should not exceed 30 percent (i.e.,
just under one-third or 33 percent) to eliminate the possibility that
no product line would be evaluated in a facility-based assessment area
or outside retail lending area. For example, a bank (other than a
majority automobile lender or a bank that opts to have its automobile
lending evaluated) with an equal share of closed-end home mortgage,
small business, and small farm lending in a facility-based assessment
area, based on a combination of loan dollars and loan count, would have
no major product line if the agencies selected a major product line
threshold greater than 33 percent.
BILLING CODE 4810-33-P
[[Page 6837]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.006
BILLING CODE 4810-33-C
As shown in Table 7, the agencies considered a range of potential
major product line thresholds, and the effect that each such threshold
would have on (1) the coverage of the Retail Lending Test distribution
analysis, measured as the share of the closed-end home mortgage
lending, small business lending, and small farm lending across banks
that would have been evaluated as a major product line in a facility-
based assessment area or outside retail lending area, and (2) the
number of facility-based assessment areas and outside retail lending
areas in which each product line would have been evaluated as a major
product line. Based on the agencies' review of this data, for banks
included in the analysis, the agencies determined that adopting a
higher major product line threshold (e.g., 25 percent or 30 percent,
based on a combination of loan dollars and loan count), would have
resulted in a lower share of small farm lending being evaluated as a
major product line in facility-based assessment areas and outside
retail lending areas. On the other hand, the agencies took into
[[Page 6838]]
consideration that adopting a lower major product line threshold (e.g.,
10 percent, based on a combination of loan dollars and loan count)
would result in a larger number of facility-based assessment areas and
outside retail lending areas in which each product line would have been
evaluated as a major product line.
The agencies believe that, on balance, the final rule major product
line threshold of 15 percent captures an adequate share of closed-end
home mortgage, small business, and small farm lending, while also
limiting the number of product lines evaluated in facility-based
assessment areas and outside retail lending areas relative to options
with a lower threshold. Specifically, based on historical data, for
banks included in the analysis, the 15 percent threshold captured
almost all closed-end home mortgage and small business lending, and
nearly half of small farm lending in facility-based assessment areas
and outside retail lending areas.
Major product line standard in facility-based assessment areas and
outside retail lending areas--combination of loan dollars and loan
count. Under the final rule, whether a product line meets the 15
percent major product line standard in a facility-based assessment area
or outside retail lending area is determined based on a combination of
loan dollars and loan count. Specifically, a bank's closed-end home
mortgage, small business, small farm, or automobile loans (if
automobile loans are a product line for the bank) are a major product
line in a facility-based assessment area or outside retail lending area
if the average of the following two figures is 15 percent or more for
the product line:
Loan dollars: The share of lending that the product line
represents across all these product lines in the facility-based
assessment area or outside retail lending area, by loan dollars; and
Loan count: The share of lending that the product line
represents across all these product lines in the facility-based
assessment area or outside retail lending area, by loan count.
The agencies determined that using a combination of loan dollars
and loan count to determine whether a product line is designated as a
major product in a facility-based assessment area or outside retail
lending area is appropriate for all product lines, rather than only
automobile loans as proposed, for two reasons. First, using a
combination of loan dollars and loan count reflects two different
measures of impact--the dollar amount of credit provided in a
particular facility-based assessment area or outside retail lending
area, and the number of borrowers benefitted in the facility-based
assessment area or outside retail lending area--both of which the
agencies view as important, and both of which the agencies believe
should be accounted for in determining whether a product line is a
major product line. Second, the agencies believe that using a
combination of loan dollars and loan count better facilitates
comparison between product lines with significant differences in the
average loan amount, and thus does not overly diminish the importance
of small-dollar loans. In particular, several commenters noted that
using loan dollars alone would diminish the importance of small
business loans due to the generally smaller size of small business
loans relative to other product lines, especially closed-end home
mortgage. As shown in Table 8, analysis based on historical data shows
that, for banks included in the analysis, using a combination of loan
dollars and loan count would have resulted in substantially greater
coverage of small business loans evaluated as a major product line
within facility-based assessment areas and outside retail lending areas
in 2018-2020 relative to using loan dollars alone. In this way, the
agencies believe that using a combination of loan dollars and loan
count accommodates banks with different bank business models (e.g.,
different mixes of small business and closed-end home mortgage
lending), consistent with one of the agencies' goals for CRA
modernization.
[[Page 6839]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.007
Major product line standard in facility-based assessment areas and
outside retail lending areas--absence of collected, maintained, or
reported loan data. Pursuant to paragraph II.b.1.iii of final appendix
A, if a bank has not collected, maintained, or reported loan data on a
product line in a facility-based assessment area or outside retail
lending area for one or more years of an evaluation period, the product
line is a major product line if the agencies determine that the product
line is material to the bank's business in the facility-based
assessment area or outside retail lending area. The agencies believe
this provision is necessary to appropriately evaluate a bank that has
conducted lending in a product line but for which, due to a lack of
collected, maintained, or reported loan data, the agencies cannot
calculate whether the product line meets or exceeds the 15 percent
threshold discussed above. In such cases, the agencies would consider
any information indicating that the bank's lending in the particular
product line is significant enough to be considered a major product
line. For example, the agencies may consider estimates provided by the
bank of the number and dollar amount of loans in the product line
originated and purchased in the area, and could determine based on
these estimates whether the product line represents approximately 15
percent of the bank's retail loans in the area. The agencies believe
that this approach helps address situations where a bank is not
required to collect, maintain or report this data without adding new
data collection or reporting requirements.
Uncertainty regarding major product line delineations. The agencies
considered comments that the proposed major product line standard would
create uncertainty for banks regarding which product lines would be
evaluated under the distribution analysis of the Retail Lending Test.
The agencies believe that the final rule approach reduces this
uncertainty by reducing the maximum number of potential major product
lines from six to four, and by establishing a narrower standard for
when automobile lending is evaluated on the Retail Lending Test. The
final rule approach also narrows the potential major product lines in
retail lending assessment areas to closed-end home mortgage loans and
small business loans. In addition, the agencies considered that a bank
may use its own lending data to estimate which product lines are likely
to meet a 15 percent standard in the bank's facility-based assessment
areas and outside retail lending area, or to meet the thresholds
[[Page 6840]]
for delineating a retail lending assessment area. In light of these
considerations, the agencies believe that the final major product line
standard is appropriate, and reduces potential uncertainty relative to
the proposed approach.
Major product line standard in facility-based assessment areas and
outside retail lending areas--other alternatives considered. The
agencies considered, but are not adopting, several alternatives to the
proposed major product line standards in facility-based assessment
areas and outside retail lending areas suggested by commenters. These
alternatives, and the agencies reasons for not adopting them, are
described below.
First, the agencies considered using numerical loan count
thresholds to determine whether a product line constitutes a major
product line. Under this approach, a product line would be considered a
major product line if the number of loans in the product line in the
facility-based assessment area or outside retail lending area exceeded
a specified number of loans. However, the agencies believe that using a
15 percent standard, based on a combination of loan dollars and loan
count, is preferable to using numerical loan counts for the purposes of
designating those product lines that are material to the bank's
business in a particular geographic area. For example, if the agencies
were to adopt a numerical loan count threshold of 50 loans over the
evaluation period, then a bank with 51 small business loans in the
geographic area during that time period would have its small business
loans evaluated as a major product line regardless of how much lending
it undertook in other product lines. Under this example, the 51 small
business loans could constitute all of a bank's lending in a geographic
area, or a small fraction of its overall lending if the bank also
originated, for example, over 600 closed-end home mortgage loans over
the same time period in the same geographic area. Further, as discussed
above, the agencies believe that a major product line standard that
uses a combination of loan dollars and loan count is more appropriate
than a standard that uses loan count alone because using a combination
of loan dollars and loan count reflects two different measures of
impact. By contrast, using loan count alone would reflect only the
number of borrowers benefitted, without regard for the dollar amount of
credit provided. Finally, the agencies believe that using numerical
loan count thresholds alone could result in a greater number of major
product lines evaluated in specific geographic areas, many of which
could have minimal influence on a bank's Retail Lending Test conclusion
given the final rule's weighting approach. This is particularly the
case if the agencies were to adopt a de minimis loan count threshold,
as some commenters suggested. On the other hand, the agencies
acknowledge that using loan counts alone could increase the share of
small farm lending across banks that would be evaluated as a majority
product line.\916\ On balance, however, the agencies believe that using
a 15 percent standard, based on combination of loan dollars and loan
count, is a more appropriate method of determining whether a product
line constitutes a major product line than using loan count alone for
the reasons stated above.
---------------------------------------------------------------------------
\916\ The agencies analyzed the percentage of closed-end home
mortgage loans, small business loans, and small farm loans that
would have been evaluated as a major product line in a facility-
based assessment area or outside retail lending area under various
numerical loan count thresholds, using historical data from CRA and
HMDA reporter banks for 2018-2020. For example, using a 50-loan
count threshold would have resulted in higher coverage of small farm
loans for these banks, almost 90 percent, compared to only around 45
percent under the final rule approach.
---------------------------------------------------------------------------
Relatedly, the agencies have considered that the major product line
standard for facility-based assessment areas and outside retail lending
areas in the final rule could result in major product lines consisting
of a small number of loans. The agencies have addressed this issue in a
different part of the final rule. As discussed in the section-by-
section analysis related to Sec. __.22(g)(5), the final rule provides
that the agencies would consider as an additional factor whether the
Retail Lending Test recommended conclusion does not accurately reflect
the bank's performance in a Retail Lending Test Area in which one or
more of the bank's major product lines consists of fewer than 30 loans.
Second, the agencies considered, but did not adopt, a market share
approach to determining whether a product line constitutes a major
product line, as at least one commenter suggested. Under this approach,
a product line would be considered a major product line if the bank's
loans in the product line in the facility-based assessment area or
outside retail lending area represented a certain share of the lending
market for the product line in the geographic area. As discussed in the
section-by-section analysis related to Sec. __.17(c), the agencies
also considered a market share approach for triggering the retail
lending assessment area requirement, at the suggestion of some
commenters. However, as in the case of retail lending assessment areas,
the agencies believe that using a market share approach to determine
whether a product line is a major product line would be complex to
administer and would make it more challenging for a bank to determine
which of the bank's product lines the agencies will consider a major
product line in a particular facility-based assessment area or outside
retail lending area. In addition, this alternative approach could
result in designating a major product line that constitutes a very
small share of the bank's retail lending in an area; in such a case,
the agencies considered that the evaluation would not focus on a bank's
most significant product lines, and would include a major product line
that receives very little weight when determining the bank's Retail
Lending Test conclusion in an area. The agencies therefore considered
that this alternative would add complexity without a corresponding
improvement in the robustness of the bank's evaluation. For these
reasons, the agencies declined to adopt a market share approach.
Third, the agencies considered, but did not adopt, an institution-
level approach, as suggested by some commenters. Under this approach, a
bank's major product lines would be determined at the institution level
(e.g., the bank's top two product lines, based on a combination of loan
dollars and loan count), and those major product lines would be
evaluated in every facility-based assessment and outside retail lending
area with a non-zero number of such loans. However, the agencies
believe that an institution-level approach to determining a bank's
major product lines in a facility-based assessment area could overlook
products that do not meet a threshold nationwide but are nonetheless
significant in particular markets. For example, a bank for which small
farm lending is determined not to be a major product line at the
institution level would never have its small farm lending evaluated in
specific geographic areas, even in facility-based assessment areas
where the bank has made a significant number of small business loans.
The agencies believe that the final rule's major product line standard
for facility-based assessment areas and outside retail lending areas
will capture those product lines that are material to the bank's
business in the geographic areas in which the bank is evaluated. For
these reasons, the agencies declined to adopt a market share approach.
Major product line standard in retail lending assessment areas.
Under the final rule, the 15 percent major product
[[Page 6841]]
line standard applicable in facility-based assessment areas and outside
retail lending areas does not apply in retail lending assessment areas.
Rather, under the final rule, a large bank's closed-end home mortgage
and small business lending in a retail lending assessment area is
evaluated under the distribution analysis component of the Retail
Lending Test only if such lending surpasses the applicable loan count
threshold for triggering the retail lending assessment area requirement
in final Sec. __.17(c). As discussed in the section-by-section related
to final Sec. __.17(d), the agencies determined that applying a
separate major product line standard in addition to the loan count
thresholds for triggering the retail lending assessment area would be
overly complex and may impose additional compliance burden by making it
more difficult for large banks to monitor their retail lending
performance in retail lending assessment areas. For example, a large
bank could have a sufficient number of small business loans in a
geographic area to trigger a retail lending assessment area in a
particular calendar year, but the large bank's small business lending
could represent less than 15 percent of the large bank's retail lending
in the retail lending assessment area, in which case, the small
business loans that triggered the retail lending assessment area would
not be evaluated as a major product line. Conversely, a large bank's
small business loans in an MSA or the nonmetropolitan area of a State
could represent more than 15 percent of the large bank's retail lending
in that geographic area, but the number of small business loans could
be insufficient to trigger a retail lending assessment area. The
agencies believe that the final rule's retail lending assessment area
approach accomplishes the agencies' policy objectives (discussed in the
section-by-section analysis related to final Sec. __.17) without
adding this unnecessary complexity.
In addition, the agencies believe that the loan count thresholds
for triggering the retail lending assessment area requirement in the
final rule are sufficiently high such that, if a large bank makes
enough closed-end home mortgage loans or small business loans in an MSA
or the nonmetropolitan area of a State to exceed the applicable loan
count threshold triggering the retail lending assessment area
requirement, the product line is more likely to be material to the bank
and to the retail lending assessment area. As such, the agencies
believe that it is appropriate to always evaluate the product line as a
major product line.
Section __.22(e) Retail Lending Distribution Analysis
Section __.22(e)(1) Distribution analysis in general
Overall Retail Lending Distribution Analysis Approach
The Agencies' Proposal
In proposed Sec. [thinsp]__.22(d), the agencies proposed to use a
set of retail lending distribution metrics to measure a bank's
performance with respect to each of its major product lines in each of
its facility-based assessment areas and retail lending assessment
areas, and in its outside retail lending area, as applicable. The
proposed geographic distribution metrics would measure the level of
bank lending in low-income and moderate-income census tracts in an
area. The proposed borrower distribution metrics would measure the
level of bank lending to borrowers of different income levels and to
small businesses or small farms of varying sizes, measured in gross
annual revenues. As a result, each major product line would be
evaluated in four categories of lending. For example, for a bank's
closed-end home mortgage lending major product line in a facility-based
assessment area, retail lending assessment area, or outside retail
lending area, the agencies would evaluate the following categories,
similar to the current evaluation approach: for the geographic
distribution analysis, (1) loans in low-income census tracts and (2)
loans in moderate-income census tracts; and for the borrower
distribution analysis, (3) loans to low-income borrowers and (4) loans
to moderate-income borrowers.
After calculating the relevant metrics for each of a bank's major
product lines in a facility-based assessment area, retail lending
assessment area, or outside retail lending area, the agencies proposed
to compare these metrics to a set of benchmarks intended to reflect the
extent of local lending opportunities. The proposed benchmarks included
both community benchmarks and market benchmarks. The proposed community
benchmarks reflect the demographics of an area, such as the percentage
of owner-occupied housing units that are in census tracts of different
income levels, the percentage of families that are low-income, and the
percentage of small businesses or small farms of different revenue
levels in an area, which are similar to benchmarks used in current
practice. The proposed market benchmarks reflect the aggregate lending
to targeted areas or targeted borrowers in an area by all reporting
lenders, also similar to benchmarks used in current practice. Under the
proposal, a bank's performance (as measured by relevant metrics)
relative to relevant benchmarks forms the basis of its Retail Lending
Test conclusion in the area.\917\
---------------------------------------------------------------------------
\917\ The development of Retail Lending Test conclusions is
discussed further in the section-by-section analysis of final Sec.
__.22(f).
---------------------------------------------------------------------------
Comments Received
The agencies received a number of comments regarding the overall
retail lending distribution analysis approach proposed by the agencies,
with many commenters supporting the proposed approach, and other
commenters raising concerns with the proposed approach. Some commenters
recommended incorporating consideration of race and ethnicity into the
retail lending distribution analysis. Other commenters offered
alternatives to the proposed retail lending distribution benchmarks.
Support for overall retail lending distribution analysis approach.
Many commenters supported the agencies' proposed metrics-based approach
to evaluating the geographic and borrower distributions of a bank's
major product lines. Many of these commenters indicated that the retail
lending distribution metrics would provide rigor on the proposed Retail
Lending Test, address what some commenters referred to as ``grade
inflation'' in CRA performance conclusions, and incentivize banks to
increase lending to underserved communities. A few commenters also
specifically supported the agencies' proposal to evaluate a bank's
lending to small businesses and farms under the proposed Retail Lending
Test using metrics and benchmarks.
Concerns regarding overall retail lending distribution analysis
approach. Conversely, many commenters raised concerns about the
proposed metrics-based approach to evaluating the geographic and
borrower distributions of a bank's major product lines.
Several commenters raised concerns regarding the complexity of the
overall retail lending distribution analysis approach. For example, at
least one commenter stated that the agencies' proposed combination of
metrics, benchmarks, and the proposed use of performance ranges to
develop Retail Lending Test conclusions, was too complex, and perhaps
too finely calibrated and sensitive. Some commenters expressed concern
[[Page 6842]]
regarding the large number of calculations that banks would have to
make to monitor performance on the Retail Lending Test across many
areas, and the complexity of meeting performance expectations under the
proposed approach. For example, a commenter noted that the proposed
rule's distribution metrics would require banks to collect, maintain,
analyze, and report voluminous amounts of data on deposits, loans, peer
data, and market demographic data, much of which is not collected
today, greatly adding to the regulatory burden and requiring a
substantial increase in staffing. Another commenter indicated that,
given the complexity of the proposed distribution analysis, banks will
need to conduct pre-examination analysis to support incremental
adjustments to ensure they are meeting the credit needs of their
communities and within the regulatory thresholds in advance of the
finality of an examination. Another commenter stated that the real-life
experience of attempting the proposed calculations with real data and
real examiners will likely prove daunting, and that the complexity of
the proposed distribution metrics and benchmarks would produce no
benefit to local communities. The commenter suggested that the agencies
conduct a beta test of the proposed Retail Lending Test approach using
data from banks across the country, and publish a detailed comparison
of the time, costs, new software or tools, and final results of the
beta test and existing examination method.
Other commenters raised concerns that the proposed retail lending
distribution analysis approach is inflexible and would not give
sufficient consideration to performance context. For example, at least
one commenter recommended that the agencies allow examiners to modify
applicable thresholds based on performance context. A commenter also
expressed concern that while the conditions, opportunities, and
circumstances vary in assessment areas, the performance thresholds
under the proposal would remain largely constant.
Another commenter stated that the proposed retail lending
distribution benchmarks rely on a number of assumptions--for example,
that the demand for credit between low- and moderate-income and other
income areas is substantially similar, or that the potential for wealth
building between low- and moderate-income and other income areas is
substantially similar--that the agencies should monitor and verify in
the long term.
Consideration of race and ethnicity. Many commenters that supported
explicit consideration of race and ethnicity in CRA evaluations
asserted that the agencies should develop race-based lending metrics
and then compare a bank's metrics with demographic benchmarks and peer
banks' aggregate performance in the bank's assessment areas. For
example, several commenters suggested that the agencies could measure
the share of a bank's total loans in an area that are located in census
tracts with a relatively high minority share of the population, such as
majority-minority census tracts. Under this alternative, if the bank
extended a lower share of its retail loans to such census tracts, the
bank's evaluation would be adversely impacted. Likewise, a bank's
performance evaluation would be positively impacted if the bank
extended a higher share of its retail loans to such census tracts. In
addition, a commenter suggested that CRA evaluations should take race
and ethnicity into consideration by measuring the percentage of a
bank's home mortgage loans made to minority families, the percentage of
a bank's small business loans made to minority businesses, as well as
the percentage of a bank's retail loans made in majority-minority
census tracts, and that the agencies should assign performance scores
on this basis. This commenter added that the bank's retail lending
performance conclusion should be based on a combination of these
performance scores and the low- and moderate-income performance scores
or, alternatively, that a high performance score on the racial
distribution analysis could be evaluated as a factor that improves the
performance conclusion for the institution's rating overall. A
different commenter similarly suggested that race- and ethnicity-based
retail lending metrics could be used only to potentially enhance a
bank's retail lending performance conclusion, alongside evaluation of
low- and moderate-income retail lending metrics. Another commenter
stated generally that there should be a focus on publicly available
section 1071 data, which will include information concerning the race
and ethnicity of small business loan applicants and borrowers, to
ensure equal access to credit for businesses with less than $1 million
in revenue and women and minority-owned businesses.
Alternative approaches to retail lending distribution benchmarks.
Some commenters recommended alternative approaches to the proposed
retail lending distribution benchmarks. For example, a commenter
recommended that the agencies develop a complementary benchmark to the
proposed benchmarks that would be based on a bank's contributions to
the financial health of a community. Other commenters opposed use of
community benchmarks to evaluate a bank's retail lending distributions,
indicating that only market benchmarks appropriately reflect local
demand because they measure the actual loan distribution that results
from the aggregate lending in an assessment area.
Final Rule
For the reasons discussed below, the agencies are adopting the
general approach of using retail lending distribution metrics and
benchmarks to evaluate a bank's performance with respect to its major
product lines. As such, final Sec. __.22(e) provides that the agencies
evaluate a bank's Retail Lending Test performance in each of its Retail
Lending Test Areas (i.e., facility-based assessment areas, retail
lending assessment areas, and outside retail lending area) by
considering the geographic and borrower distributions of the bank's
loans in its major product lines. Final Sec. __.22(e)(1)(i) more
specifically provides that for closed-end home mortgage loans, small
business loans, and small farm loans, respectively, the agencies
compare a bank's geographic and borrower distributions to performance
ranges based on the applicable market and community benchmarks, as
provided in final Sec. __.22(f) and section VI of final appendix A.
Final Sec. __.22(e)(1)(ii) (regarding the distribution analysis for
automobile loans) is discussed further below.
Use of distribution metrics and benchmarks in general. The agencies
believe that the final rule approach to geographic and borrower
distribution analysis of a bank's retail lending will further the
agencies' objectives of evaluating whether a bank has met the retail
credit needs of a community in a consistent and transparent manner.
Specifically, the distribution analyses examine a bank's percentage of
loans to different categories of borrowers and census tracts relative
to benchmarks that are based on local data. For example, a bank would
be evaluated for its closed-end home mortgage lending to (1) low-income
census tracts; (2) moderate-income census tracts; (3) low-income
borrowers; and (4) moderate-income borrowers, respectively. The
categories of lending that would be evaluated for each major product
line are shown in Table 9 below.
BILLING CODE 4810-33-P; 6210-01-P
[[Page 6843]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.008
BILLING CODE 4810-33-C; 6210-01-C
The agencies determined that a distribution analysis is necessary
to evaluate a bank's efforts to meet the retail credit needs of a
community. Specifically, the metrics in the distribution analysis
reflect the extent to which a bank is lending to different categories
of borrowers and census tracts, taking into account the bank's overall
level of lending in each major product line. The benchmarks for each
category of borrowers and census tracts reflect the credit needs and
opportunities of those borrowers and census tracts by incorporating
demographic data, such as the percentage of low- or moderate-income
households in an area, as well as data on the level of lending in the
area among all reporting lenders. As discussed further in this section,
the distribution benchmarks therefore reflect differences in the credit
needs and opportunities across different areas, as well as differences
over time in response to changing economic conditions or changes in the
local population. As a result, the agencies believe that the use of
quantitative benchmarks will account for local performance context and
increase the consistency in evaluating performance.
The agencies also considered that analyzing distributions of bank
retail lending is consistent with current practice under the lending
test.\918\ As discussed in the section-by-section analysis of Sec.
__.22(f), the final rule builds upon current practice by establishing
performance ranges to increase the clarity and transparency of the
distribution analysis. The agencies considered that alternative
approaches to a distribution analysis, such as evaluating retail
lending qualitatively without the use of metrics, or without
[[Page 6844]]
benchmarks, would result in a less robust analysis and inconsistent
application of the performance standards.
---------------------------------------------------------------------------
\918\ See current 12 CFR __.22(b)(2) and (3).
---------------------------------------------------------------------------
Section __.22(e) of the final rule retains the proposed approach of
evaluating both the geographic and borrower distribution of a bank's
lending. As discussed in the agencies' proposal, the approach of
evaluating both lending to different categories of census tracts, and
lending to different categories of borrowers, is consistent with
current practice. The agencies believe that a bank's record of
providing credit both to borrowers of different income and revenue
levels as well as neighborhoods of different income levels are
important aspects of its overall record of helping to meet the credit
needs of its entire community. For the geographic distribution
analysis, this approach recognizes the importance of lending that
benefits low-income and moderate-income communities, regardless of the
income or revenue size of the particular borrower. For the borrower
distribution analysis, the final rule approach similarly recognizes the
importance of lending that benefits low-income and moderate-income
individuals and smaller farms and businesses, regardless of where they
are located.
Section __.22(e)(3)(ii) and (iii) and (e)(4)(ii) and (iii) of the
final rule also retain the proposed approach of establishing both a
community benchmark and a market benchmark for each metric for closed-
end home mortgage loans, small business loans, and small farm loans,
which is also consistent with current practice. The community
benchmarks approximately reflect the potential lending opportunities in
the area for each corresponding metric. For example, the community
benchmark for evaluating a bank's closed-end home mortgage lending to
moderate-income borrowers is the percentage of families in the area
that are moderate-income. The agencies believe that the community
benchmark can provide important information for evaluating a bank's
metric. For example, as discussed in the section-by-section analysis of
Sec. __.22(f), if a bank's metric equals the community benchmark, that
indicates that the bank's lending to the relevant category of borrowers
or census tracts is proportionate to that group's share of the
population of the area. Under current practice, as well as under the
proposed and final rule, the agencies would consider this a strong
indicator that the bank has met the credit needs of the entire
community.
The market benchmarks, which are also used in current evaluations,
are the aggregate share of originations made to the category of
borrowers or census tracts for each metric. For example, the market
benchmark for evaluating a bank's closed-end home mortgage lending in
an area to moderate-income borrowers is the percentage of all
originations of closed-end home mortgage loans in the area made to
moderate-income borrowers. The agencies believe that the market
benchmark provides important information about the level of credit
needs and opportunities in an area that complements the information
provided by the community benchmark. For example, in an area that has a
very low homeownership rate among moderate-income families due to a
shortage of affordable properties available for purchase, the market
benchmark may indicate a relatively small percentage of loans made to
moderate-income families, even though the community benchmark indicates
that these families make up a substantial percentage of the families in
the area. In addition, the agencies believe that the market benchmarks
are particularly important for taking into account changes in economic
conditions. For example, the market benchmark could reflect an
increased share of loans made to moderate-income borrowers due to a
change in interest rates.
Consistent with the proposed approach, the market benchmarks would
include only loan originations, and not loan purchases, as detailed in
paragraphs III.b and IV.b of appendix A of the final rule. The agencies
believe that excluding loan purchases results in benchmarks that more
accurately represent the credit needs and opportunities of an area.
Specifically, the agencies considered that including purchased loans
would allow a single loan to be counted multiple times in the market
benchmark, even though the loan reflects a single borrower.
Objectives in establishing distribution metrics and benchmarks. In
response to comments stating that the proposed Retail Lending Test was
too complex, the agencies believe that the final rule balances ensuring
that CRA evaluations of retail lending are appropriately robust and
comprehensive, providing greater consistency and transparency, and
reducing overall complexity relative to the proposed approach. The
agencies have considered that a metrics-based evaluation approach that
captures the multitude of ways that a bank may serve the credit needs
of an area necessarily entails a degree of complexity. Specifically,
complexity arises from the number of quantitative components of the
approach and the detail needed to define and explain each component;
data collection, maintenance, and reporting requirements that are
necessary to produce the metrics and benchmarks; and the potential need
to monitor performance on these metrics over time. However, the
agencies believe that each of these aspects offers significant
benefits, including accurate measurement of bank metrics; directly
incorporating the performance context of an area into the performance
standards through the use of thresholds based on local benchmark data;
eliminating the use of limited scope assessment areas and
comprehensively evaluating a bank's major product lines; appropriately
tailoring for different bank business models, geographic footprints,
and market conditions; increased standardization and consistency in
performance standards and examination procedures; greater transparency
regarding how conclusions and ratings are determined; and the ability
to monitor performance over time relative to specific performance
standards.
Furthermore, as discussed throughout the section-by-section
analysis of Sec. __.22, the agencies have sought to limit the overall
complexity of the Retail Lending Test. Relative to the proposed
approach, the agencies have reduced the number of product lines
evaluated under the Retail Lending Test from six to four, have created
a more tailored, higher standard for when an evaluation of automobile
lending is required (discussed in more detail in the introduction to
the section-by-section analysis of final Sec. __.22, above), and more
narrowly targeted retail lending assessment area delineations, as
discussed in the section-by-section analysis of Sec. __.17, which
reduces the overall number of Retail Lending Test Areas relative to the
proposed approach. In addition, the agencies have tailored the approach
for small and intermediate banks, including by making the Retail
Lending Test optional for small banks, as was proposed; making the
outside retail lending area component of the evaluation under the
Retail Lending Test optional for small and intermediate banks that have
less than 50 percent of their retail lending outside of their facility-
based assessment areas; and not applying retail lending assessment
areas to intermediate banks, or to small banks that opt into the Retail
Lending Test. Also, the agencies believe that the metrics and
benchmarks finalized in the Retail Lending Test limit complexity by
mirroring those used under the current approach, with the addition of
specific
[[Page 6845]]
thresholds corresponding to each conclusion category, such as ``High
Satisfactory.'' As a result, the agencies believe that banks and other
stakeholders are already familiar with many of the components of the
final rule approach. In addition, the agencies will develop data tools
that provide banks and the public with recent historical data
concerning the retail lending distribution benchmarks. The agencies
believe that all of these aspects of the final approach help to limit
the overall complexity and burden.
Consideration of race and ethnicity. The agencies are not
incorporating race-based lending metrics and benchmarks in the
geographic and borrower distribution analysis and are not adopting
other commenter suggestions regarding incorporating race and ethnicity
into the final rule Retail Lending Test. For more information and
discussion regarding the agencies' consideration of comments
recommending adoption of additional race- and ethnicity-related
provisions in this final rule, see section III.C of this SUPPLEMENTARY
INFORMATION.
Alternatives considered. The agencies considered, but are not
adopting, an alternative approach to eliminate the community benchmark,
and rely only on the market benchmark. The agencies have considered the
commenter sentiment that the community benchmark may not reflect the
credit needs and opportunities of an area, because a category of
borrowers may have relatively low or relatively high credit demand
regardless of their share of the population. However, the agencies
determined that the combination of a community benchmark and market
benchmark is preferable to relying solely on a market benchmark. In
particular, the agencies considered that in an area where the market
benchmark is higher than the community benchmark, a bank whose metric
is above the community benchmark has achieved strong performance even
if its metric is below the market benchmark, because the bank's lending
to the category of borrowers or census tracts is proportionate with the
population. Using only a market benchmark in this scenario could
effectively require a bank to lend disproportionately to the category
of borrowers or census tracts relative to other borrowers and census
tracts in order to earn a strong conclusion, which the agencies do not
believe is consistent with the purpose of CRA.
The agencies also considered, but are not adopting, an alternative
approach to create separate market benchmarks for banks of different
asset sizes, such as large banks with assets greater than $10 billion.
In reaching this determination, the agencies considered that this
approach could allow for additional tailoring to different size banks,
but that it would result in benchmarks that may not fully reflect the
overall credit needs and opportunities in the area, because only a
subset of lenders would be included. Relatedly, the agencies also
considered that this alternative could lead to more instances in which
there is insufficient data to compute a robust market benchmark due to
a small number of banks in each asset category.
The agencies are also not adopting a commenter suggestion to
develop a benchmark based on a bank's contributions to the financial
health of a community. The agencies do not believe that comprehensive
data is available to create such a benchmark. The agencies believe that
the final performance tests will effectively consider the various ways
that a bank may contribute to the financial health of a community,
including through retail lending, retail services and products,
community development financing, and community development services. In
addition, the agencies considered that developing a benchmark based on
a bank's contributions to the financial health of a community would
increase the complexity of the Retail Lending Test approach.
Construction of Retail Lending Distribution Metrics and Benchmarks
The Agencies' Proposal
In proposed Sec. __.22(d) and sections III and IV of proposed
appendix A, the agencies proposed to calculate bank distribution
metrics based on the number of the bank's originated and purchased
loans in a major product line in a facility-based assessment area,
retail lending assessment area, or outside retail lending area. For
example, the Borrower Bank Metric to closed-end home mortgage loans
would be calculated by dividing the total number of the bank's
originated and purchased closed-end home mortgage loans to low-income
borrowers or moderate-income borrowers, respectively, in the geographic
area by the total number of the bank's originated and purchased closed-
end home mortgage loans in that geographic area overall. The agencies
stated in the proposal that using the number of loans, rather than the
dollar amount of loans, to construct the retail lending distribution
metrics would emphasize that smaller-value loans can help meet the
credit needs of low- and moderate-income communities.
To evaluate the geographic and borrower distributions of a bank's
major product lines, the bank's retail lending distribution metrics
would be compared against two types of distribution benchmarks: market
benchmarks that reflect the aggregate lending of reporting lenders in
the area, and community benchmarks that reflect demographic data. The
agencies proposed to calculate the retail lending distribution
benchmarks in the same manner for all banks, regardless of the bank's
business model or asset size.
In calculating the geographic market benchmarks and borrower market
benchmarks, the agencies proposed to include all loan originations in a
particular geographic area, including loans made by banks with or
without a branch presence, as well as loans made by nonbank lenders.
However, the agencies did not propose to include purchased loans in the
market benchmarks, stating that the agencies do not consider the
aggregate level of loan purchases to reflect the extent of local
lending opportunities.
Comments Received
The agencies received a number of comments related to the
construction of the retail lending distribution metrics and benchmarks.
Treatment of purchased loans. Commenters provided a range of
feedback regarding the proposed inclusion of purchased loans in a
bank's retail lending distribution metrics. These comments are
discussed further in the introduction to the section-by-section
analysis of Sec. __.22.
At least one commenter supported the agencies' proposal to exclude
purchased loans from the retail lending distribution benchmarks,
reasoning that the purchases of peer lenders are not reflective on the
loan market in which banks are competing and seeking opportunities to
serve low- and moderate-income borrowers.
Same market benchmarks for all banks. Some commenters addressed the
agencies' proposal to calculate the retail lending market benchmarks in
the same manner for all banks. For example, at least one commenter
recommended using different market benchmarks for banks of different
asset sizes so that banks are assessed relative to similarly sized
peers. Alternatively, the commenter suggested that banks should be
compared to a benchmark based on the performance of ``near-peer''
banks, for example those within 15 percent of the bank's asset size.
Other commenters stated that banks that are primarily branch-based
and those that primarily lend through non-
[[Page 6846]]
branch channels should not be evaluated using the same market
benchmarks. These commenters asserted that it would be inappropriate to
evaluate a non-branch-based bank in a retail lending assessment area by
comparing its performance to that of banks with a branch presence in
the same market. A number of commenters similarly expressed that such
comparison would be inappropriate in the case of the market benchmarks
used to evaluate the distribution of a bank's lending in its outside
retail lending area. In both cases, commenters emphasized that the
proposed approach would not appropriately account for a bank's lack of
branches in an area where competitors may maintain branches, and that
it would be challenging for banks to alter their balance of retail
lending in areas where they have no physical presence.
Inclusion of nonbank lenders. Another commenter specifically
recommended removing loans made by nonbank lenders from the home
mortgage lending distribution benchmarks to ensure that banks are
measured against achievable thresholds, noting that nonbank home
mortgage lenders outperformed banks in lending to low- and moderate-
income borrowers in some geographic areas.
Final Rule
For the reasons discussed below, the agencies are adopting
generally the same approach to constructing the retail lending
distribution metrics and benchmarks as was proposed. In addition,
substantive changes to the approach for evaluating the distribution of
a bank's automobile loans are discussed in a subsequent part of this
section.
Use of number of loans. The agencies are finalizing their proposal
regarding calculating distribution metrics and benchmarks using the
number of loans. For example, the numerator of the metric for closed-
end home mortgage lending to low-income borrowers in a facility-based
assessment area would include the bank's number of purchased and
originated closed-end home mortgage loans to low-income borrowers in
the area. The denominator would include the bank's total number of
purchased and originated closed-end home mortgage loans to all
borrowers in the area. For this metric, a closed-end home mortgage loan
with a balance of $150,000 made to a low-income borrower and a closed-
end home mortgage loan with a balance of $75,000 made to a low-income
borrower would each count as one loan, with no differential weighting
based on the different loan amounts.
This approach ensures appropriate emphasis in the distribution
analysis on relatively small dollar loans, which the agencies believe
can play an important role in fulfilling community credit needs in low-
and moderate-income census tracts and for low- and moderate-income
borrowers. For example, access to relatively small dollar mortgage
loans can be particularly important for first-time homebuyers, low-
income borrowers, and borrowers in areas where home prices are
relatively low. In addition, the agencies considered that this approach
is consistent with how retail lending distribution metrics and
benchmarks are calculated under the current evaluation approach. In
addition, under an alternative approach in which the distribution
analysis were based on loan amount, rather than loan count, the
agencies believe that a bank may be able to achieve strong performance
in the distribution analyses through serving a relatively small number
of borrowers with large loan amounts. This may be especially likely on
the geographic distribution analysis, which includes loans to borrowers
of all income levels, or to all small businesses, in a low- or
moderate-income census tract. For example, under the alternative of
using loan amount for the distribution metrics, a $500,000 closed-end
home mortgage loan made to an upper-income borrower in a moderate-
income census tract would count equally as five $100,000 closed-end
home mortgage loans made in a moderate-income census tract for the
geographic distribution analysis. For these reasons, the agencies
believe that the final rule approach appropriately accounts for a
bank's retail lending to all borrowers, including those with a need for
relatively small loans, rather than giving greater emphasis to
borrowers receiving relatively larger loans.
Lending included in market benchmarks. Pursuant to final Sec.
__.22(e)(3)(ii) and (e)(4)(ii) and the corresponding calculations set
forth in paragraphs III.b and IV.b of final appendix A, to calculate
market benchmarks for the borrower and geographic distribution analysis
in a Retail Lending Test Area, the agencies are adopting the proposed
approach of using loan originations, but not loan purchases. Further,
the agencies use loan originations from all reporting lenders,
including nonbank lenders, regardless of whether the reporting lender
has a deposit-taking facility in the area. This approach would not be
applicable to automobile lending given that there are no data reporting
requirements or market benchmarks associated with automobile loans.
The final rule approach applies to the market benchmarks used in
all Retail Lending Test Areas, and includes loan originations in the
relevant product line from banks with and without deposit-taking
facilities in the area and from nonbank lenders. The agencies believe
that using loan originations from all reporting lenders in a Retail
Lending Test Area when constructing market benchmarks provides a more
comprehensive view of local credit needs and opportunities. In
addition, regarding the exclusion of purchased loans from these
benchmarks, the agencies determined that this approach avoids the
possibility of double-counting the same loan in the market benchmark.
In determining that the market benchmarks for the distribution
metrics should include all reported loan originations in an area, the
agencies considered a number of factors. Specifically, the agencies
believe that the total number of reported loan originations in an area
reflect the extent of local credit needs, regardless of whether those
needs are being met by banks with branches in the area, banks with
other business models, or by nonbank lenders, as discussed below.
Furthermore, the local credit needs do not depend on the delivery
channels that lenders employ in helping to meet those needs. As a
result, using an alternative approach in which the market benchmarks
for Retail Lending Test Areas are calculated based only on originations
by banks that have no branches in the local market would provide a less
comprehensive and possibly inaccurate picture of the extent of local
credit needs because it would exclude information about credit needs
that were satisfied by other lenders. In addition, the agencies believe
that excluding certain reporting lenders from the market benchmarks
would result in more instances in which the number of lenders included
in the market benchmarks in an area is insufficient for a robust
distribution analysis, in which case the agencies would rely more
heavily on qualitative adjustments to the distribution analysis,
pursuant to final Sec. __.22(g)(3). While the agencies recognize that
a bank's business model may influence its opportunities to lend, the
agencies have determined that it is preferable, on balance, for the
market benchmarks to remain neutral in terms of bank business model and
to use all available loan origination data. As part of this
determination, the agencies considered that the presence or absence of
a branch in a community is just one
[[Page 6847]]
way that business models may differ between banks, and that
establishing separate benchmarks for different bank business models
would be complex and would result in inconsistent performance
standards. For example, the agencies also considered that this
alternative would result in multiple different market benchmarks
applying to different banks in the same geographic area for the same
category of lending.
As noted above, the final rule also retains the proposed inclusion
of both bank and nonbank reported loan originations in the market
benchmarks in all Retail Lending Test Areas. As a result, whether
nonbank loan originations are included in the market benchmarks is
dependent on whether those loan originations are reported. For closed-
end home mortgage loans, nonbank loan originations are currently
reported and included in HMDA data. By contrast, small business and
small farm lending data is currently reported only by banks, which
would continue under the final rule, pursuant to Sec. __.42, until the
transition to using section 1071 data. Because the section 1071 data
will include small business loans and small farm loans originated by
both banks and nonbanks, once the agencies transition to using section
1071 data, the market benchmarks will include nonbank loan
originations.
Data Used for Distribution Analysis of Small Business and Small Farm
Loans
The Agencies' Proposal
To evaluate the geographic and borrower distributions of a bank's
small business loans or small farm loans, the agencies proposed to
compare a bank's small business or small farm lending distribution
metrics against market benchmarks that reflect the aggregate lending of
reporting lenders in the area, and community benchmarks that reflect
demographic data. To calculate the small business loan and small farm
loan distribution metrics, the agencies proposed to use the small
business loan and small farm loan data that is used under the current
approach (i.e., small business loan and small farm loan data collected,
maintained, and reported by a large bank pursuant to Sec. __.42, or
the bank's own data). To calculate the small business and small farm
lending market benchmarks, the agencies proposed to initially use small
business loan and small farm loan data that would be collected,
maintained, and reported pursuant to Sec. __.42. During this initial
period, ``small business loan'' and ``small farm loan'' would be
defined by reference to Call Report instructions. Specifically, ``small
business loan'' would include a loan to a business in an amount of $1
million or less that is secured by nonfarm nonresidential properties or
categorized as a commercial or industrial loan. ``Small farm loan''
would include a loan to a farm in amount of $500,000 or less that is
secured by farmland or categorized as a loan to finance agricultural
production or other loan to farmers.
However, as discussed further in the section-by-section analysis of
final Sec. Sec. __.12, __.42(a)(1) and (b)(1), and __.51, the agencies
also proposed to transition to using section 1071 data to calculate the
small business and small farm lending distribution metrics for banks
that are section 1071 reporters, and to calculate the small business
and small farm lending market benchmarks. Following this transition,
``small business loan'' would be defined as a loan to a small business
(defined by reference to section 1071 definitions), and ``small farm
loan'' would be defined as a loan to a small farm (defined by reference
to section 1071 definitions).
To calculate the small business and small farm lending community
benchmarks--which are based on the number of businesses or farms in a
geographic area--the agencies proposed to use data sources comparable
to those used in evaluations today.
Comments Received
Use of CRA data and section 1071 data. A number of comments
addressed the agencies' proposal to initially use the small business
loan and small farm loan data that is used under the current approach
to calculate the small business and small farm lending distribution
metrics and market benchmarks until as the agencies transition to using
section 1071 data. These comments, including input regarding the impact
on Retail Lending Test evaluations of transitioning to using section
1071 data, are summarized in the section-by-section analysis of final
Sec. __.42(a)(1) and (b)(1).
Data source for community benchmarks. At least one commenter noted
that the proposal did not identify a third-party data provider that
would provide the demographic data on small businesses and small farms
that the agencies would use to calculate the small business and small
farm lending community benchmarks.\919\ This commenter stated that
disclosing the data provider used is important. Additionally, the
commenter noted that in the data collected by one third-party provider,
approximately 30 percent of businesses report gross annual revenues as
``not applicable'' or ``not known.''
---------------------------------------------------------------------------
\919\ See 87 FR 33884, 33941, Table 6 (June 3, 2022).
---------------------------------------------------------------------------
Final Rule
The agencies are adopting the proposed approach to evaluating the
distribution of a bank's small business and small farm lending,
including the proposed data sources used to calculate the small
business and small farm lending distribution metrics, market
benchmarks, and community benchmarks, and corresponding changes to the
definitions of ``small business loan'' and ``small farm loan.'' As
such, and as described further in the section-by-section analysis of
final Sec. Sec. __.12 and __.42(a)(1) and (b)(1), the agencies will
initially use the small business and small farm lending data used under
the current approach (i.e., small business loan and small farm loan
data collected, maintained, and reported by a large bank pursuant to
Sec. __.42, or the bank's own data) to calculate the small business
and small farm lending distribution metrics, and will use the small
business loan and small farm loan data collected, maintained, and
reported pursuant to Sec. __.42 to calculate the small business and
small farm lending market benchmarks. During this period, the Call
Report definitions of ``small business loan'' and ``small farm loan''
will apply. As discussed further in the section-by-section analysis of
Sec. __.42(a)(1), the agencies are also adding indicators for: loans
to businesses or farms with gross annual revenues of $250,000 or less;
loans to businesses or farms with gross annual revenues of greater than
$250,000 but less than or equal to $1 million; loans to businesses or
farms with gross annual revenues of greater than $1 million; and loans
to businesses or farms for which gross annual revenues are not known by
the bank.
However, after section 1071 data becomes available, the agencies
will publish a notice in the Federal Register announcing the effective
date of the section 1071-related transition amendments. These
transition amendments are included in the final rule but are
indefinitely delayed. Once effective, these transition amendments will
modify various provisions of the final rule to implement the agencies'
transition to using section 1071 data in CRA evaluations.
Following this transition, the agencies will use section 1071 data
to calculate the small business and small farm lending distribution
metrics for section 1071 reporters, and will use section 1071 data to
calculate the market benchmarks. As a result of the section
[[Page 6848]]
1071-related transition amendments, ``small business loan'' will be
defined as a loan to a small business (defined by reference to section
1071 definitions), and ``small farm loan'' will be defined as a loan to
a small farm (defined by reference to section 1071 definitions).
The agencies emphasize that the transition from using the small
business and small farm lending data that is currently used in CRA
evaluations (and associated definitions based on the Call Report) to
using section 1071 data and associated definitions will impact the
calculations of metrics and benchmarks in numerous ways due to
differences in the parameters used to define which small business loans
and small farm loans are subject to CRA data requirements and required
to be reported under section 1071. In particular, small business loans
and small farm loans subject to CRA data requirements differ from the
small business loans and small farm loans reported under section 1071
in two respects: (1) small business loans and small farm loans subject
to CRA data requirements are limited to loans in an amount of $1
million or less and $500,000 or less, respectively, but small business
loans and small farm loans reported under section 1071 are not subject
to any limitation on loan amount; and (2) small business loans and
small farm loans subject to CRA data requirements are not subject to
any limitation on the size of the business or farm, but small business
loans and small farm loans reported under section 1071 are limited to
loans to businesses or farms with gross annual revenues of $5 million
or less in the preceding fiscal year.\920\ In addition, whereas only
banks subject to CRA report small business loans and small farm loans
pursuant to Sec. __.42(b), any entity engaged in any financial
activity (including nonbank lenders) must report section 1071 data if
the entity exceeds the reporting threshold.\921\ The differences will
impact the loans included in the small business lending and small farm
lending distribution metrics and market benchmarks.
---------------------------------------------------------------------------
\920\ As described further in the section-by-section analysis of
Sec. __.12, following the transition to using section 1071 data,
``small business loan'' will be defined as a loan to a small
business, and ``small farm loan'' will be defined as a loan to a
small farm, with ``small business'' and ``small farm'' being defined
by reference to the ``small business'' definition in the CFPB
Section 1071 Final Rule. The CFPB Section 1071 Final Rule currently
defines ``small business'' as a small business concern (as defined
by the Small Business Act as implemented by the SBA) with gross
annual revenues of $5 million or less in its preceding fiscal year.
The $5 million gross annual revenue threshold will be adjusted for
inflation every five years after January 1, 2025. See 12 CFR
1002.106(b).
\921\ See 12 CFR 1002.105 (defining ``covered financial
institution'').
---------------------------------------------------------------------------
The agencies believe that transitioning to using section 1071 data
will offer a number of benefits. First, in contrast to using small
business and small farm lending data collected, maintained, and
reported pursuant to Sec. __.42, section 1071 data will allow for
consideration of large loans to small businesses or small farms (i.e.,
those in an amount greater than $1 million or $500,000, respectively),
which the agencies believe can help meet the credit needs of a
community. Second, the agencies note that because small business loans
and small farm loans subject to CRA data requirements are not limited
to firms under a certain gross annual revenue threshold, small business
loans and small farm loans to large businesses or large farms in low-
or moderate-income census tracts initially (and under the current
approach) receive positive consideration under the geographic
distribution analysis; however, following the transition to using
section 1071 data, only loans to small businesses and small farms will
be included in the geographic distribution metrics and benchmarks, and
loans to businesses with gross annual revenue of greater than $5
million will not be included. Third, as discussed in the section-by-
section analysis of final Sec. __.42(a)(1) and (b)(1), the agencies
believe that transitioning to section 1071 data will reduce data
collection, maintenance, and reporting requirements, because the
agencies will be able to phase out the existing data requirements once
the agencies transition to using section 1071 data. Finally, section
1071 data will include data reported by banks as well as nonbank
institutions, which will allow for market benchmarks that more
comprehensively reflect the small business and small farm credit needs
and opportunities of an area.
Data source for community benchmarks. For purposes of calculating
the community benchmarks for small business and small farm lending, the
agencies intend to continue using the data sources that are used in
current evaluations for these calculations. Although the agencies
believe that the data used in current evaluations are sufficiently
comprehensive and reliable, the agencies are mindful that the
availability of this data could change over time, and that more robust
data sources could emerge in the future. For this reason, the agencies
decline to establish a requirement to continue using a particular data
source for the small business and small farm lending community
benchmarks.
The agencies have considered that not all businesses or farms make
their gross annual revenues known. As such, the community benchmarks
for small business and small farm lending--which are based on the
number of businesses or farms in a geographic area--could be impacted
by incomplete data. However, pursuant to final Sec. __.22(g)(4), the
agencies may consider missing or faulty data as an additional factor
when assigning a bank's Retail Lending Test conclusion in a Retail
Lending Test Area. For example, if a bank made a significant number of
loans to businesses for which gross annual revenue information was
unavailable, the agencies might determine, based on information
presented by the bank, that some number of those loans were likely made
to small businesses. The agencies could then consider whether the
number of small business loans with missing gross annual revenue
information was sufficient to warrant adjusting the bank's conclusion
relative to the recommended conclusion.
Section __.22(e)(1)(ii) Distribution Analysis for Automobile Loans
The Agencies' Proposal
The agencies proposed to use generally the same approach for
evaluating the geographic and borrower distributions of all of a bank's
major product lines, including automobile loans. Specifically, the
agencies proposed to compare a bank's automobile lending distribution
metrics against two types of distribution benchmarks: market benchmarks
that reflect the aggregate lending of reporting lenders in the area,
and community benchmarks that reflect demographic data. The agencies
proposed to develop automobile lending market benchmarks using data
collected pursuant to the proposed new automobile lending data
requirements applicable to large banks with assets over $10 billion.
Comments Received
Commenters expressed different views about the appropriateness of
using market benchmarks to evaluate automobile loans, given that these
market benchmarks would be based on data collected only from banks with
assets of over $10 billion. A commenter supported the agencies'
proposal to evaluate automobile lending for all banks using the
proposed market benchmarks and asserted that it was important to
establish automobile lending market benchmarks, even if based only on
partial market data. However, other commenters opposed
[[Page 6849]]
the agencies' proposal to evaluate all banks' automobile lending using
market benchmarks developed using data collected only from banks with
assets over $10 billion on the grounds that these benchmarks would not
be reliable given the amount of automobile market lending data that
would not be captured, including due to the prevalence of nonbank
automobile lending.
Final Rule
The agencies are adopting a modified approach to evaluating the
distribution of a bank's automobile loans when automobile loans are a
major product line for a bank. Under the final rule, the agencies
compare a bank's automobile lending distribution metrics to community
benchmarks, as under the proposal. Unlike under the proposal, however,
the final rule does not include comparison of a bank's automobile
lending distribution metrics to market benchmarks. Further, and as
described further in the section-by-section analysis of Sec. __.22(f),
performance ranges are not used to develop supporting conclusions
regarding a bank's automobile lending under the final rule. As such,
final Sec. __.22(e)(1)(ii) provides that for automobile loans, the
agencies compare a bank's geographic and borrower distributions to the
applicable community benchmarks, as provided in Sec. __.22(f) and
section VI of final appendix A.
Upon consideration of commenter feedback, the agencies believe that
using market benchmarks to evaluate a bank's automobile lending
geographic and borrower distributions is not feasible given the final
rule's automobile lending data requirements, discussed further in the
section-by-section analysis of Sec. __.42, which apply only to large
banks that are majority automobile lenders or that opt to have their
automobile loans evaluated under the Retail Lending Test, and do not
require the reporting of automobile loan data. Further, even if
automobile lending data were reported to the agencies under the final
rule, the agencies have considered that such data would reflect only
the portion of the automobile lending market represented by banks, and
would exclude nonbank lenders. For these reasons, the agencies
determined that market benchmarks for automobile lending would not be
fully reflective of the potential credit needs and opportunities for
automobile lending in a facility-based assessment area or retail
lending assessment area. In addition to these potential challenges with
establishing market benchmarks for automobile loans, the agencies also
considered that the final rule approach reduces complexity and data
requirements relative to the proposed approach because it does not
require reporting of automobile data for any banks. As such, under the
final rule, community benchmarks are used to qualitatively evaluate a
bank's automobile lending distributions.
Section __.22(e)(2) Categories of Lending Evaluated
The Agencies' Proposal
As specified in proposed Sec. __.22(d)(2)(ii), the agencies
proposed to evaluate the geographic distribution of a bank's major
product lines by separately evaluating the distribution of the bank's
loans in (1) low-income census tracts and (2) moderate-income census
tracts within the facility-based assessment area, retail lending
assessment area, or outside retail lending area.
As specified in Sec. __.22(d)(2)(iii), the agencies proposed to
evaluate the borrower distribution of a bank's major product lines by
separately evaluating the distribution of the bank's loans to different
categories of borrowers in the facility-based assessment area, retail
lending assessment area, or outside retail lending area. Specifically,
to evaluate the borrower distribution of a bank's closed-end home
mortgage loans, open-end home mortgage loans, or automobile loans, the
agencies would separately evaluate the distribution of the bank's loans
to (1) low-income borrowers and (2) moderate-income borrowers in the
area. To evaluate the borrower distribution of a bank's small business
loans, the agencies would separately evaluate the distribution of the
bank's loans to (1) small businesses with gross annual revenues of
$250,000 or less and (2) small businesses with gross annual revenues of
more than $250,000 but less than or equal to $1 million. To evaluate
the borrower distribution of a bank's small farm loans, the agencies
would separately evaluate the distribution of the bank's loans to (1)
small farms with gross annual revenues of $250,000 or less and (2)
small farms with gross annual revenues of more than $250,000 but less
than or equal to $1 million.
Comments Received
The agencies received numerous comments related to the proposal to
separately evaluate the distribution of a bank's major product lines to
low- and moderate-income census tracts and to various categories of
borrowers.
Separate evaluation of different income and revenue categories. A
number of commenters shared views on the proposal to evaluate low-
income and moderate-income retail lending separately when calculating
the bank geographic distribution metrics and bank borrower distribution
metrics, with some supporting the proposed approach. For example, a
commenter conducted empirical analysis showing that separating these
income categories would better enable banks, regulators, and
communities to understand how banks fulfill their CRA obligations. This
commenter asserted that separating these income categories would
acknowledge the fundamental differences between low-income and
moderate-income consumers and low-income and moderate-income
communities in relation to how much they are underserved and their
racial composition.
However, other commenters supported combining one or both of the
following approaches to reduce the complexity of the proposed Retail
Lending Test: (1) combine the distribution metrics for the low- and
moderate-income census tracts; or (2) combine the distribution metrics
for low- and moderate-income borrowers, and for small businesses and
small farms in different gross annual revenue categories, respectively.
One commenter stated that combining the low- and moderate-income
categories would allow banks to tailor their approach to retail lending
in particular assessment areas so as to ensure the overall safety and
soundness of their portfolios and to better address needs in each
community. Another commenter explained that combining the low- and
moderate-income categories could make the retail lending benchmarks
more meaningful, particularly in places where the low-income benchmarks
lack robustness. Another commenter stated that combining the income and
revenue categories would reduce the number of measures that banks must
track and seek to achieve, which would reduce overall complexity.
Furthermore, the commenter noted that the income and revenue categories
are ultimately combined when calculating product line averages and
recommended conclusions, making separate categories unnecessary.
Other commenters noted that retail lending to low-income borrowers
or in low-income census tracts should be considered as beneficial
performance context or the basis for a performance conclusion
qualitative upgrade.
Geographic distribution analysis--underserved census tracts. Some
[[Page 6850]]
commenters recommended that CRA retail lending evaluations should
include analysis of a bank's retail lending distributions in
underserved neighborhoods, as an alternative or addition to analysis of
a bank's retail lending distributions in low- and moderate-income
census tracts, respectively. These commenters asserted that underserved
neighborhoods could be defined as census tracts with low levels of
retail lending based on loans per capita. The commenters stated that
such an approach would incentivize retail lending and other banking
activities in majority-minority communities.
Borrower distribution analysis--small business and small farm
revenue thresholds. Some commenters supported the proposal to
separately evaluate a bank's record of lending to small businesses or
small farms with gross annual revenues of $250,000 or less and those
with gross annual revenues of between $250,000 and $1 million under the
Retail Lending Test. For example, a commenter stated that the
thresholds would help examiners understand the extent of small business
credit needs being served by banks. Another commenter indicated that
the gross annual revenue threshold of $250,000 is appropriate.
However, many commenters recommended that the agencies separately
calculate a bank's record of lending to small businesses or small farms
based on varying revenue categories other than those included in the
agencies' proposal. A number of commenters recommended three gross
annual revenue categories, specifically: $100,000 or less, between
$100,000 and $250,000, and above $250,000. In general, these commenters
asserted that small businesses and small farms with gross annual
revenues under $100,000 are particularly likely to have unmet credit
needs, and that adding a third revenue category would not introduce
substantial incremental burden. For example, a commenter recommended
evaluation criteria for small businesses with revenues of $100,000 or
less and suggested that the agencies share borrower demographic data.
This commenter also stated that small business owners and entrepreneurs
with disabilities continue to face challenges accessing credit. Another
commenter suggested that the threshold should be revised down to
$100,000 and that the same figure should be used for the impact review
factor relating to community development activities that support
smaller businesses and farms. At least one commenter supported an
analysis of loans to businesses with gross annual revenues under
$250,000 and a category for businesses with gross annual revenues under
$100,000 to encourage lending to the smallest businesses and minority-
owned businesses.
Several commenters recommended increasing the gross annual revenue
thresholds for categorizing different sizes of small businesses
relative to the proposed levels. A few commenters recommended raising
the proposed $250,000 gross annual revenues threshold to $500,000, with
one such commenter suggesting that this revenue threshold would be more
representative of main street businesses. A commenter stated that, if
the agencies adopt two categories, those categories should be loans to
businesses with less than $1 million in gross annual revenue and loans
to businesses with between $1 million and $2.5 million in gross annual
revenue. This commenter reasoned that although banks understand the
importance of helping the smallest category of small businesses, for
most banks, that is not often done through traditional small business
loans. At least one commenter asked that the threshold for identifying
smaller businesses and farms be increased to gross annual revenue of $2
million or less to reflect current market conditions and to adjust for
inflation since 1995. Another commenter suggested the agencies combine
the two proposed revenue categories--loans to businesses with gross
annual revenues less than $250,000 and loans to businesses with gross
annual revenues between $250,000 and $1 million--into a single revenue
category and consider loans to business with gross annual revenues of
less than $250,000 as a positive qualitative factor.
Some commenters recommended that the agencies conduct additional
analyses to inform the small business and small farm revenue
thresholds. For example, one commenter encouraged the agencies to
gather data for businesses at different revenue thresholds before
setting a specific threshold. Another commenter stated it was not clear
on what criteria the agencies based the proposed $250,000 gross annual
revenues threshold. This commenter urged the agencies to determine how
to use the same criteria or algorithms used by banks to identify unmet
credit needs for purposes of marketing loans, such as credit scores,
financial analysis, and other factors that support identifying which
consumers would be candidates for a bank's loan products. Another
commenter stated that, because section 1071 data has not yet become
available, neither the public nor researchers know whether larger small
businesses with gross annual revenues closer to $5 million are
significantly more successful in accessing loans than their smaller
counterparts; therefore, at least in the first few years of having the
finalized section 1071 data, the commenter recommended more rather than
fewer performance measures to more accurately measure credit
availability to different-sized businesses in low- or moderate-income
census tracts and to encourage banks to serve businesses with different
revenue sizes.
A few commenters suggested alternative ways of evaluating a bank's
small business and small farm lending borrower distributions beyond
fixed gross annual revenue thresholds. One commenter encouraged
examiner discretion and an assessment of qualitative factors to
determine appropriate gross annual revenue thresholds given that credit
needs vary from market to market, rather than fixed thresholds that
apply to all Retail Lending Test Areas. Another commenter suggested
that businesses owned by women or historically disadvantaged minorities
should be exempt from the gross annual revenue thresholds so that banks
could receive positive consideration for loans to these businesses
regardless of the size of these businesses.
Final Rule
For the reasons discussed below, the agencies are finalizing the
proposal to separately evaluate the distribution of a bank's major
product lines to low- and moderate-income census tracts and to various
categories of borrowers. As such, final Sec. __.22(e)(2)(i) provides
that for each major product line in each Retail Lending Test Area, the
agencies evaluate the geographic distributions separately for low-
income census tracts and moderate-income census tracts. Final Sec.
__.22(e)(2)(ii) provides that for each major product line in each
Retail Lending Test Area, the agencies evaluate the borrower
distributions separately for, as applicable; low-income borrowers,
moderate-income borrowers, businesses with gross annual revenues of
$250,000 or less, businesses with gross annual revenues greater than
$250,000 but less than or equal to $1 million, farms with gross annual
revenues of $250,000 or less, and farms with gross annual revenues
greater than $250,000 but less than or equal to $1 million.
Separate evaluation of retail lending to different income
categories. The final rule maintains the proposed approach of
separately evaluating retail lending in
[[Page 6851]]
low-income and moderate-income categories. The agencies considered that
establishing separate metrics for these categories would appropriately
evaluate and emphasize bank performance in meeting the credit needs of
the entire community, including low-income borrowers and low-income
census tracts. For example, the use of separate income categories of
metrics would help to identify whether a bank engaged in lending to
moderate-income borrowers and census tracts but did not lend to low-
income borrowers and census tracts. The agencies believe that even
though performance on these separate metrics will ultimately be
combined to reach an overall product line score and conclusion for each
Retail Lending Test Area, the separate metrics will provide important
visibility into and emphasis on meeting the credit needs of the bank's
entire community. In addition, in making this determination, the
agencies considered comments that low-income borrowers and low-income
communities in particular may have significant unmet credit needs and
opportunities.
The agencies also considered, but are not adopting, an alternative
approach of using a single set of distribution metrics that combine
performance for low-income and moderate-income borrowers, respectively.
The agencies considered, as some commenters noted, that such an
alternative could simplify the Retail Lending Test by reducing the
number of metrics, benchmarks, and performance ranges associated with
each product line. However, on balance, the agencies believe that the
separate distribution analyses for different income categories, while
adding additional metrics and steps to the small business and small
farm evaluation, leads to a more robust evaluation that provides
transparency about lending performance to a bank's entire community.
Separate evaluation of retail lending to different small business
and small farm revenue categories. As noted above, under the final
rule, the agencies will analyze a bank's borrower distribution of
lending to small businesses and to small farms in two separate gross
annual revenue categories: businesses and farms with gross annual
revenue of $250,000 or less, and businesses and farms with gross annual
revenue greater than $250,000 but less than or equal to $1 million.
This is in contrast to the current approach, which analyzes a bank's
distribution of lending to a single gross annual revenue category of $1
million or less. As discussed in the agencies' proposal, the agencies
believe that firms with gross annual revenue of $250,000 or less have
significant unmet credit needs and challenges securing financing.\922\
Consistent with suggestions by some commenters, the agencies have
determined that this additional category will better enable the
agencies to understand the extent of small business and small farm
credit needs served by banks. Conversely, the agencies believe that an
approach with a single revenue category would allow a bank to achieve
strong performance through serving only businesses and farms with gross
annual revenues of between $250,000 and $1 million, and not meeting the
needs of relatively smaller small businesses. Similar to the
determination to separate low- and moderate-income categories discussed
above, the agencies believe that the additional complexity of separate
distribution analyses for different gross annual revenue categories is
worth the benefits of a more robust evaluation that provides needed
transparency about lending performance to a bank's entire community.
Further, the agencies note that the final rule approach of separately
evaluating a bank's small business and small farm lending to small
businesses and small farms of different revenue categories is no more
complex than separately evaluating a bank's closed-end home mortgage
and automobile lending to borrowers of different incomes. The section-
by-section analysis of final Sec. __.42(a)(1) discusses the data
collection, maintenance, and reporting provisions that will enable the
agencies to analyze small business and small farm lending borrower
distributions for both of the gross annual revenue categories described
above.
---------------------------------------------------------------------------
\922\ See 87 FR 33938 (discussing the Federal Reserve's 2022
Small Business Credit Survey).
---------------------------------------------------------------------------
Regarding comments that separately evaluating loans to businesses
with gross annual revenue of $250,000 or less could raise safety and
soundness concerns, the agencies note that CRA does not require a bank
to originate or purchase loans that are inconsistent with its safe and
sound operation, and consideration of the constraints of safe and sound
banking practices will be considered as part of a bank's performance
context, pursuant to Sec. __.21(d)(1), as warranted. As a result, in
the event that a bank for which small business lending is a major
product line is unable to serve businesses with gross annual revenue of
under $250,000 due to safety and soundness considerations, the agencies
would take these circumstances into account when evaluating the bank's
Retail Lending Test performance. In addition, the agencies believe that
the design of the Borrower Market Benchmark helps to ensure that the
Retail Lending Test does not encourage lending that is inconsistent
with safe and sound banking practices. Specifically, the Borrower
Market Benchmark is based on the share of loans made to businesses or
farms by other lenders. As a result, a bank's performance expectations
in a particular Retail Lending Test Area reflect the credit needs and
opportunities associated with firms in that area that received a loan.
In addition, the agencies also note that, as discussed in the section-
by-section analysis of Sec. __.22(f), the multiplier for ``Low
Satisfactory'' performance based on the market benchmarks would be 80
percent. As a result, banks that are below the Borrower Market
Benchmark by as much as 20 percentage points would receive at least a
``Low Satisfactory'' supporting conclusion for their lending to firms
with revenue of under $250,000.
Small business and small farm revenue thresholds--alternative
thresholds considered. In finalizing the proposed approach of creating
separate revenue categories based on gross annual revenue thresholds of
$250,000 and $1 million, the agencies also considered, but declined to
adopt, alternative gross annual revenue threshold levels suggested by
commenters, such as a threshold of $100,000 or $500,000 instead of
$250,000, and a threshold of $2 million instead of $1 million.
Regarding the final rule gross annual revenue threshold of
$250,000, the agencies considered the potential benefits and tradeoffs
of selecting an alternative threshold either higher or lower than the
proposed level and believe that the proposed level appropriately
balances the agencies' policy objectives. The agencies determined that
a lower threshold could emphasize lending to the businesses and farms
with the greatest unmet credit needs. According to the 2023 Report on
Employer Firms: Findings from the 2022 Small Business Credit Survey,
employer firms with total annual revenues less than $100,000 were
substantially more likely to experience difficulties obtaining
financing than larger employer firms. However, based on the set of
businesses included in the survey data, these businesses are less
likely to be employers, which may indicate that a lower threshold could
detract focus from small businesses that are employers and that have
unmet credit needs. Furthermore, employer firms with total annual
revenues less than
[[Page 6852]]
$250,000 also reported a greater likelihood of experiencing
difficulties obtaining financing than larger employer firms, suggesting
unmet credit needs among this group as well.\923\
---------------------------------------------------------------------------
\923\ See Federal Reserve Banks, ``2023 Report on Employer
Firms: Findings from the 2022 Small Business Credit Survey'' (Mar.
2023), https://www.fedsmallbusiness.org/survey/2023/report-on-employer-firms. The cited data points were drawn from the data
appendix of the report, available here: https://www.fedsmallbusiness.org/survey.
---------------------------------------------------------------------------
Additionally, the agencies have considered that lending to
businesses and farms with revenue of less than $100,000 may not align
with some bank business models. For example, as noted by at least one
commenter, some banks may serve firms with revenues of less than
$100,000 primarily through products that do not qualify as small
business loans, such as home equity lines of credit and consumer credit
cards. Furthermore, the agencies considered that a gross annual revenue
threshold of $100,000 may not be suitable for analysis in higher cost
markets where small business revenues are generally higher.
On the other hand, regarding a higher alternative gross annual
revenue threshold level, such as $500,000, the agencies considered that
this category would reduce the emphasis of the Retail Lending Test on
smaller firms, which may be more likely to have unmet credit needs that
CRA is intended to help address, as discussed above. On balance, the
agencies believe that the $250,000 threshold will emphasize small
business credit needs and opportunities while broadly comporting with
bank business models and Retail Lending Test Areas.
Regarding commenter suggestions to consider a gross annual revenue
threshold of $2 million or $2.5 million rather than $1 million, the
agencies believe that the proposed threshold level is appropriate, and
that increasing this threshold would reduce the emphasis of evaluations
on smaller firms, which the agencies believe may have greater unmet
credit needs than relatively larger small businesses and farms, as
discussed above. In addition, the agencies considered that the proposed
gross annual revenue threshold of $1 million is consistent with current
examination procedures, which evaluate a bank's share of loans to
businesses and farms with gross annual revenue of less than $1 million.
Alternative approaches to evaluating small business and small farm
lending borrower distributions. The agencies considered several
alternative approaches, suggested by commenters, to evaluating the
borrower distributions of a bank's small business and small farm
lending. First, the agencies considered, but decline to adopt,
suggestions to make the gross annual revenue threshold levels subject
to agency discretion, or to incorporate other factors into the
distribution analysis beyond the gross annual revenue of the firms
served by a bank. For example, regarding commenter feedback on an
option that would allow gross annual revenue threshold levels to vary
across Retail Lending Test Areas, subject to agency discretion, the
agencies believe this would introduce considerable uncertainty and
inconsistency into the evaluation process, and that it is preferable to
use consistent categories of small businesses and small farms for all
CRA examinations. Consistent gross annual revenue categories also have
the benefit of providing a bank with clarity and transparency into how
its small business and small farm lending will be evaluated.
Second, the agencies also considered comments suggesting that the
agencies establish thresholds based on the same criteria or algorithms
used by banks to identify unmet credit needs, such as credit scores,
financial analysis, and other factors. However, the agencies believe
that gross annual revenue is an appropriate way of categorizing small
businesses and small farms, and is consistently available. Furthermore,
the agencies note that gross annual revenue is used in CRA evaluations
currently, and that use of other criteria such as credit scores or
other financial characteristics could require additional data reporting
and could result in additional burden of adjusting to a new evaluation
approach. In addition, the agencies considered that gross annual
revenue information will be included in section 1071 data, and that
loans will be reported under section 1071 based on a gross annual
revenue threshold.
Third, the agencies considered giving positive consideration in the
borrower distribution analysis to business loans or farm loans made to
women-owned or minority-owned businesses or farms, regardless of the
size of the business or farm (as measured in gross annual revenues).
However, the agencies believe that such an approach would be complex to
administer, and would be a departure from the current approach. In
addition, the agencies note that the statute requires the agencies to
assess a bank's record of meeting the credit needs of its entire
community, expressly including low- and moderate-income
communities.\924\
---------------------------------------------------------------------------
\924\ See 12 U.S.C. 2903(a)(1); see also 12 U.S.C. 2906(a)(1).
---------------------------------------------------------------------------
Finally, the agencies considered, but decline to adopt, a third
revenue category of businesses and farms with gross annual revenues
less than $100,000. In reaching this determination, the agencies
considered the additional complexity that this approach would entail,
including metrics, benchmarks, performance ranges, and weights that
would apply to the third category. In addition, the agencies believe
that a two-category approach affords appropriate flexibility to banks
to meet small business and small farm credit needs, while a three-
category approach would create more granular and specific performance
expectations, including having performance evaluated in a third
``middle'' revenue category. The agencies believe that a two-category
approach appropriately balances limiting complexity while ensuring a
robust evaluation of a bank's small business and small farm lending.
Geographic distribution analysis--underserved census tracts. Under
the final rule, the agencies evaluate the geographic distribution of a
bank's major product lines to low- and moderate-income census tracts,
respectively. The agencies considered the alternative or additional
approach, suggested by some commenters, of evaluating the geographic
distribution of a bank's retail lending in underserved census tracts.
However, the agencies determined that evaluating a bank's geographic
distributions with respect to low- and moderate-income census tracts
leverages the metrics and benchmarks utilized under the current
approach. In addition, the agencies note that evaluating a bank's
retail lending performance in low- and moderate-income census tracts
comports with the statutory requirement that the agencies assess a
bank's record of meeting the credit needs of its entire community,
including low- and moderate-income neighborhoods.\925\ In contrast, the
agencies believe that for purposes of evaluating lending distributions
under Sec. __.22(e), identifying underserved neighborhoods based on
criteria other than income would be a departure from the current
approach and would add complexity.
---------------------------------------------------------------------------
\925\ See 12 U.S.C. 2903(a)(1); see also 12 U.S.C. 2906(a)(1).
---------------------------------------------------------------------------
[[Page 6853]]
Section __.22(e)(3) Geographic Distribution Measures
The Agencies' Proposal
As discussed above, the agencies proposed to evaluate the
geographic distributions of a bank's major product lines by using
certain metrics and benchmarks. Specifically, the proposed Geographic
Bank Metrics compare the number of a bank's loans in a particular major
product line that are located in low-income and moderate-income census
tracts, respectively, to the total number of the bank's originated and
purchased loans in the major product line in the facility-based
assessment area, retail lending assessment area, or outside retail
lending area. As discussed in greater detail in the section-by-section
analysis of final Sec. __.22(f), the agencies proposed to compare the
Geographic Bank Metric for each distribution for each major product
line to performance ranges calculated based on two benchmarks: a
Geographic Market Benchmark that reflects the aggregate loan
originations in low- and moderate-income census tracts across reporting
lenders within a facility-based assessment area, retail lending
assessment area, or outside retail lending area; and a Geographic
Community Benchmark that reflects the potential lending opportunities
in low- or moderate-income census tracts within a facility-based
assessment area, retail lending assessment area, or outside retail
lending area.
Comments Received
The agencies received numerous comments, discussed above, on the
use of distribution metrics and benchmarks generally. In addition, the
agencies received several comments that specifically addressed the
proposed geographic distribution metrics and benchmarks.
Treatment of loans to middle- and upper-income borrowers. The
agencies received comments related to the types of loans included in
the Geographic Bank Metrics. Some commenters expressed concerns that
the geographic distribution analysis as proposed would give positive
consideration to home mortgage loans to middle- and upper-income
borrowers located in low- and moderate-income census tracts. Commenter
recommendations included excluding such loans from consideration to
avoid contributing to displacement and gentrification. At least one
commenter suggested excluding from consideration retail loans made to
non-minority, middle-, and upper-income borrowers to better address
displacement and gentrification in low- and moderate-income census
tracts.
Use of census tracts. Another commenter stated that, for the home
mortgage loan geographic distribution metrics and benchmarks, the
agencies should use census block groups instead of census tracts, to
avoid overlooking rural census tracts that may include areas of
concentrated poverty apparent only at the census block group level.
Final Rule
For the reasons discussed below, the agencies are adopting the
geographic distribution metrics and benchmarks generally as proposed.
Final Sec. __.22(e)(3)(i) provides that for each major
product line, a Geographic Bank Metric is calculated pursuant to
paragraph III.a of final appendix A.
Final Sec. __.22(e)(3)(ii) provides that for each major
product line except automobile loans, a Geographic Market Benchmark is
calculated pursuant to, as applicable, paragraph III.b of final
appendix A for facility-based assessment areas and retail lending
assessment areas, and paragraph III.d of final appendix A for outside
retail lending areas.
Final Sec. __.22(e)(3)(iii) provides that for each major
product line, a Geographic Community Benchmark is calculated pursuant
to, as applicable, paragraph III.c of final appendix A for facility-
based assessment areas and retail lending assessment areas, and
paragraph III.e of final appendix A for outside retail lending areas.
A summary of these calculations for facility-based assessment area
and retail lending assessment areas can be found in the following table
for each product line. Following a discussion of some preliminary
issues, each of these metrics and benchmarks is discussed in more
detail below.
BILLING CODE 4810-33-P
BILLING CODE 6210-01-P
BILLING CODE 6714-01-P
[[Page 6854]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.009
[[Page 6855]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.010
BILLING CODE 4810-33-C
BILLING CODE 6210-01-C
BILLING CODE 6714-01-C
Treatment of loans to middle- and upper-income borrowers. The final
rule adopts the proposed approach under which the geographic
distribution metrics and benchmarks include all originated loans (and,
for the geographic distribution metrics, purchased loans) in the major
product line, including loans to middle- and upper-income borrowers
located in low- and moderate-income census tracts. For example, the
numerator of the Geographic Bank Metric for closed-end home mortgage
loans in low-income census tracts would include all of a bank's closed-
end home mortgages to borrowers of any income level in low-income
census tracts in the Retail Lending Test Area, including loans to
middle- and upper-income borrowers. Similarly, the denominator would
include all of the bank's closed-end home mortgage loans in all census
tracts in the Retail Lending Test Area, including loans to middle- and
upper-income borrowers.
The agencies considered commenter feedback that by including all
loans located in low- and moderate-income census tract regardless of
borrower income, the proposed approach would give undue consideration
to loans made to middle- and upper-income borrowers and may encourage
displacement and gentrification. However, the agencies believe that
there are potential benefits to including these loans in the geographic
distribution metrics and benchmarks, and that the combination of the
geographic distribution and borrower distribution analyses
appropriately balances consideration for loans made to low- and
moderate-income borrowers with consideration for loans made in low- and
moderate-income census tracts. Specifically, the agencies considered
that while a loan made to a middle- or upper-income borrower located in
a low-income census tract would count in both the numerator and
denominator of the Geographic Bank Metric, such a loan would count in
only the denominator of the Borrower Bank Metric. In this way, the
agencies believe the combination of the geographic distribution
analysis with the borrower distribution analysis helps to address
commenter concerns that the approach would encourage gentrification and
displacement.
In addition, the agencies considered that loans made to borrowers
of any income level located in low- and moderate-income census tracts
help to meet a credit need in a low- or moderate-income community. The
agencies believe that positively considering such loans is consistent
with the CRA statute's requirement that the agencies assess the
institution's record of meeting the credit needs of its entire
community, including low- and moderate-income neighborhoods. Relatedly,
the agencies have considered that a low- or moderate-income census
tract where borrowers of all income levels had difficulty obtaining a
closed-end home mortgage to purchase or refinance an existing home
would indicate that community credit needs are not being met. For
example, the agencies have considered that the ability of prospective
homebuyers of any income level to obtain a closed-end home mortgage to
purchase a home, renovate an existing property, or refinance an
existing home mortgage in a low-income census tract can promote home
values, help revitalize the existing housing stock, and forestall
disinvestment in low-income communities. The agencies have considered
commenter feedback that loans to middle- or upper-income
[[Page 6856]]
households in some low- and moderate-income census tracts could result
in gentrification that leads to displacement and significantly
decreases affordability over time. While the agencies are sensitive to
the potential for gentrification and the accompanying challenges it
presents for low- and moderate-income communities, the agencies believe
that in conducting evaluations of lending in low- and moderate-income
census tracts, the potential risks of gentrification need to be
balanced against the potential harms that may come from unmet credit
needs in low- and moderate-income communities.
Use of census tracts. The agencies are finalizing the use of census
tracts, rather than census blocks or block groups, to construct
geographic distribution metrics and benchmarks. Although the agencies
considered that using census blocks or block groups could provide
greater precision, the agencies believe that the operational challenges
and privacy concerns created by this alternative approach outweigh the
potential benefits. Specifically, the agencies believe it would not be
possible to construct market and community benchmarks for census blocks
or block groups, given that certain public data sources necessary to
compute these benchmarks are not available at the census block group
level. For example, section 1071 data will include census tract
information, but will not include address, census block, or census
block groups. In addition, the agencies believe that it would be more
difficult for banks to target lending to specific census blocks or
block groups, which are geographically smaller areas than census
tracts, and may consist of a portion of a neighborhood. Furthermore,
the agencies considered that this alternative may introduce privacy
concerns regarding specific loan recipients as the loan-level data
collected for closed-end home mortgages, small business, and small farm
loans would have to be reported and collected at the census block or
block group level, which would increase the re-identification risk for
these data.
Geographic Bank Metrics. As set forth in paragraph III.a of final
appendix A, the Geographic Bank Metrics are calculated as the
percentage of a bank's loans in a particular major product line that
are located in low- and moderate-income census tracts, respectively.
This calculation is based on originated and purchased loans in a
specific Retail Lending Test Area over the years in the evaluation
period. For example, if a bank originated or purchased 25 total closed-
end home mortgage loans in a facility-based assessment area over the
years in the evaluation period and 5 of those loans were in low-income
census tracts, its Geographic Bank Metric for closed-end home mortgage
loans in low-income census tracts would be 0.2, or 20 percent.
[GRAPHIC] [TIFF OMITTED] TR01FE24.011
Under the final rule, for each major product line, the agencies
separately calculate a Geographic Bank Metric for low-income census
tracts and for moderate-income census tracts, as discussed above. The
agencies note that calculating the Geographic Bank Metrics in this way
is consistent with current practice for evaluating a bank's lending in
low- and moderate-income census tracts.
Geographic Market Benchmarks--closed-end home mortgage loans, small
business loans, and small farm loans. As set forth in paragraph III.b
of final appendix A, the Geographic Market Benchmarks for facility-
based assessment areas and retail lending assessment areas is
calculated as the percentage of closed-end home mortgage loans, small
business loans, or small farm loans that are located in low-income
census tracts or moderate-income census tracts, respectively. This
calculation is based on originated loans in the facility-based
assessment area or retail lending assessment area over the years in the
evaluation period reported by all lenders.
BILLING CODE 4810-33-P
BILLING CODE 6210-01-P
BILLING CODE 6714-01-P
[GRAPHIC] [TIFF OMITTED] TR01FE24.012
[[Page 6857]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.013
[[Page 6858]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.014
BILLING CODE 4810-33-C
BILLING CODE 6210-01-C
BILLING CODE 6714-01-C
For the outside retail lending area, the Geographic Market
Benchmarks for closed-end home mortgage loans, small business loans,
and small farm loans are determined by first calculating the benchmark
for each individual MSA and for the nonmetropolitan area of a State
that is part of the outside retail lending area (known as the
``component geographic areas,'' pursuant to final Sec. __.18(b)(2)),
and then calculating a weighted average of the benchmarks for those
areas. Specifically, as set forth in paragraph III.d of final appendix
A, the Geographic Market Benchmarks for outside retail lending areas
are established by calculating, for each major product line--other than
automobile loans--in each component geographic area of the outside
retail lending area, a benchmark in low- or moderate-income census
tracts, respectively. Calculation of these benchmarks for each
component geographic area follows the method described above for
calculating Geographic Market Benchmarks for facility-based assessment
areas and retail lending assessment areas, as applicable. The
benchmarks calculated for each component geographic area are then
averaged, weighting each component geographic area by the number of the
bank's loans in the major product line originated and purchased in the
component geographic area, relative to the number of the bank's loans
in the major product line originated and purchased in the outside
retail lending area. More discussion of the process for creating
benchmarks used in the outside retail lending area analysis follows
later in this section.
Consistent with the proposed approach, the Geographic Market
Benchmarks are intended to show the overall level of lending for each
product line taking place in the Retail Lending Test Area in low- and
moderate-income census tracts by all reporting lenders. The agencies
note that calculating Geographic Market Benchmarks in this way is
consistent with current practice for evaluating a bank's lending in
low- and moderate-income census tracts.
Geographic Community Benchmarks--closed-end home mortgage loans. As
set forth in paragraphs III.c.1 and III.c.2 of final appendix A, the
Geographic Community Benchmarks for closed-end home mortgage loans in
facility-based assessment areas and retail lending assessment areas are
calculated as the percentage of owned-occupied housing units in low-
and moderate-income census tracts, respectively. This calculation is
based on owner-occupied housing units in the facility-based assessment
area or retail lending assessment area over the years in the evaluation
period. Additional details regarding the calculations of community
benchmarks, and an example, are provided below in this section.
[[Page 6859]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.015
For the outside retail lending area, the Geographic Community
Benchmarks for closed-end home mortgage loans are determined by first
calculating the benchmark for each component geographic area and then
calculating a weighted average of the benchmarks for those areas.
Specifically, as set forth in paragraph III.e of final appendix A, the
Geographic Community Benchmarks for closed-end home mortgage loans in
outside retail lending areas are established by calculating, in each
component geographic area of the outside retail lending area, a
benchmark for closed-end home mortgage loans in low- or moderate-income
census tracts, respectively. Calculation of these benchmarks for each
component geographic area follows the method described above for
calculating Geographic Community Benchmarks for closed-end home
mortgage loans in facility-based assessment areas and retail lending
assessment areas. The benchmarks calculated for each component
geographic area are then averaged, weighting each component geographic
area by the number of the bank's closed-end home mortgage loans
originated and purchased in the component geographic area, relative to
the number of the bank's closed-end home mortgage loans originated and
purchased in the outside retail lending area. More discussion of the
process for creating benchmarks used in the outside retail lending area
analysis follows later in this section.
Consistent with the proposal, the Geographic Community Benchmarks
for closed-end home mortgage loans are based on the share of owner-
occupied housing units in the Retail Lending Test Area that are in low-
or moderate-income census tracts. Similar to the other Geographic
Community Benchmarks, the agencies believe that the share of owner-
occupied housing units in low- or moderate-income census tracts is an
indicator of the potential lending opportunities for closed-end home
mortgage loans in low- or moderate-income census tracts. Further, the
agencies note that using the share of owner-occupied housing units in
low- or moderate-income census tracts is consistent with current
practice for evaluating a bank's closed-end home mortgage lending in
low- or moderate-income census tracts.
Geographic Community Benchmarks--small business loans and small
farm loans. As set forth in paragraphs III.c.3 through III.c.6 of final
appendix A, the Geographic Community Benchmarks for small business
loans or small farm loans in facility-based assessment areas and retail
lending assessment areas, as applicable, are calculated as the
percentage of businesses or farms in low- or moderate-income census
tracts, respectively.\926\ This calculation is based on businesses or
farms in the facility-based assessment area or retail lending
assessment area over the years in the evaluation period. Additional
details regarding the calculations of community benchmarks, and an
example, are provided below in this section.
---------------------------------------------------------------------------
\926\ For purposes of the Geographic Community Benchmarks for
small business loans, the agencies exclude farms from the
calculation of the percentage of businesses in low- or moderate-
income census tracts, respectively.
---------------------------------------------------------------------------
BILLING CODE 4810-33-P
BILLING CODE 6210-01-P
BILLING CODE 6714-01-P
[[Page 6860]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.016
[[Page 6861]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.017
BILLING CODE 4810-33-C
BILLING CODE 6210-01-C
BILLING CODE 6714-01-C
For the outside retail lending area, the Geographic Community
Benchmarks for small business loans and small farm loans are determined
by first calculating the benchmark for each component geographic area,
and then calculating a weighted average of the benchmarks for those
areas. Specifically, as set forth in paragraph III.e of final appendix
A, the Geographic Community Benchmarks for small business loans or
small farm loans in outside retail lending areas are established by
calculating, in each component geographic area of the outside retail
lending area, a benchmark for small business loans or small farm loans
in low- or moderate-income census tracts, respectively. Calculation of
these benchmarks for each component geographic area follows the method
described above for calculating Geographic Community Benchmarks for
small business loans or small farm loans in facility-based assessment
areas and retail lending assessment areas, as applicable. The
benchmarks calculated for each component geographic area are then
averaged, weighting each component geographic area by the number of the
bank's small business loans or small farm loans originated and
purchased in the component geographic area, relative to the number of
the bank's small business loans or small farm loans originated and
purchased in the outside retail lending area. More discussion of the
process for creating benchmarks used in the outside retail lending area
analysis follows later in this section.
Consistent with the proposal, the Geographic Community Benchmarks
for small business loans or small farm loans are based on the share of
small businesses or small farms in the Retail Lending Test Area that
are in low- or moderate-income census tracts. For example, the
Geographic Community Benchmark for small business loans in low-income
census tracts in a facility-based assessment area would be the
percentage of all businesses in the area that are located in a low-
income census tract, based on available data that the agencies intend
to disclose in aggregated form on a regular basis. Similar to the other
Geographic Community Benchmarks, the agencies believe that the share of
small businesses or small farms in low- or moderate-income census
tracts is an indicator of the potential lending opportunities for small
business loans or small farm loans in low- or moderate-income census
tracts. Further, the agencies note that using the share of small
businesses or small farms in low- or moderate-income census tracts is
consistent with current practice for evaluating a bank's small
[[Page 6862]]
business or small farm lending in low- or moderate-income census
tracts.
Following the transition to using section 1071 data,\927\ the
agencies would then adjust the methodology used to calculate the
Geographic Community Benchmark to reflect changes in what businesses
and farms are included in the section 1071 data relative to the
existing CRA small business and small farm data. Specifically, prior to
the use of section 1071 data, this benchmark would be based on the
share of all businesses and farms that are located in each category of
designated census tracts. Once section 1071 data is used in CRA
evaluations, this benchmark would be the share of small businesses and
small farms with gross annual revenue of $5 million or less that are
located in each category of designated census tracts. This change
reflects that section 1071 data include only loans made to businesses
and farms with gross annual revenue of $5 million or less, and ensures
that the bank metrics and benchmarks are calculated in a consistent
fashion.\928\
---------------------------------------------------------------------------
\927\ The transition amendments included in this final rule
will, once effective, amend the definitions of ``small business''
and ``small farm'' to instead cross-reference to the definition of
``small business'' in the CFPB Section 1071 Final Rule. This will
allow the CRA regulatory definitions to adjust if the CFPB increases
the threshold in the CFPB Section 1071 Final Rule definition of
``small business.'' This is consistent with the agencies' intent
articulated in the preamble to the proposal and elsewhere in this
final rule to conform these definitions with the definition in the
CFPB Section 1071 Final Rule. The agencies will provide the
effective date of these transition amendments in the Federal
Register after section 1071 data is available.
\928\ The agencies acknowledge that proposed appendix A,
paragraph III.2.b specified that the Geographic Community Benchmarks
for small business loans and small farm loans, prior to the
transition to using section 1071 data, would be based on the share
of small businesses or small farms in an area that are located in
low- or moderate-income census tracts. However, the final rule
specifies that these Geographic Community Benchmarks, prior to the
transition to using section 1071 data, are based on the share of
businesses or farms in an area that are located in low- or moderate-
income census tracts, regardless of the size of these businesses and
farms. The final rule approach is intended to ensure that the bank
metrics and benchmarks are calculated in a consistent fashion.
---------------------------------------------------------------------------
Geographic Community Benchmarks--automobile loans. As set forth in
paragraphs III.c.7 and III.c.8 of final appendix A, the Geographic
Community Benchmarks for automobile loans in facility-based assessment
areas are calculated as the percentage of households in low- and
moderate-income census tracts, respectively. This calculation is based
on households in the facility-based assessment area over the years in
the evaluation period. Additional details regarding the calculations of
community benchmarks, and an example, are provided below in this
section.
[GRAPHIC] [TIFF OMITTED] TR01FE24.018
For the outside retail lending area, the Geographic Community
Benchmarks for automobile loans (and all other retail lending
benchmarks) are determined by first calculating the benchmark for each
component geographic area, and then calculating a weighted average of
the benchmarks for those areas. Specifically, as set forth in paragraph
III.e of appendix A, the Geographic Community Benchmarks for automobile
loans in an outside retail lending areas are established by
calculating, in each component geographic area of the outside retail
lending area, a benchmark for automobile loans in low- or moderate-
income census tracts, respectively. Calculation of these benchmarks for
each component geographic area follows the method described above for
calculating Geographic Community Benchmarks for automobile loans in
facility-based assessment areas. The benchmarks calculated for each
component geographic area are then averaged, weighting each component
geographic area by the number of the bank's automobile loans originated
and purchased in the component geographic area, relative to the number
of the bank's automobile loans originated and purchased in the outside
retail lending area. More discussion of the process for creating
benchmarks used in the outside retail lending area analysis follows
later in this section.
Consistent with the proposal, the Geographic Community Benchmarks
for automobile loans are based upon the share of households the Retail
Lending Test Area that are in in low- or moderate-income census tracts.
Similar to the other Geographic Community Benchmarks, the agencies
believe that
[[Page 6863]]
the share of households in low- or moderate-income census tracts is an
indicator of the potential lending opportunities for automobile loans
in low- or moderate-income census tracts. The agencies considered using
the share of families in low- or moderate-income census tracts as the
Borrower Community Benchmark, but determined that of the two options,
the share of households has the benefit of carrying forward the current
approach.
Section __.22(e)(4) Borrower Distribution Measures
The Agencies' Proposal
As discussed above, the agencies proposed to evaluate the borrower
distributions of a bank's major product lines by using certain metrics
and benchmarks. Specifically, the proposed Borrower Bank Metrics are
calculated as the percentage of a bank's loans to borrowers at varying
income levels or gross annual revenue thresholds, relative to the total
number of the bank's loans in the facility-based assessment area,
retail lending assessment area, or outside retail lending area. As
discussed in greater detail in the section-by-section analysis of final
Sec. __.22(f), the agencies proposed to compare the Borrower Bank
Metric for each distribution for each major product line to performance
ranges calculated based on two benchmarks: a Borrower Market Benchmark
that reflects the aggregate lending to borrowers at varying income
levels or gross annual revenue thresholds across lenders within a
facility-based assessment area, retail lending assessment area, or
outside retail lending area; and a Borrower Community Benchmark that
reflects the potential lending opportunities at varying income levels
or gross annual revenue thresholds within a facility-based assessment
area, retail lending assessment area, or outside retail lending area.
Comments Received
The agencies received numerous comments, discussed above, on the
use of distribution metrics and benchmarks generally. In addition, the
agencies received several comments that specifically addressed the
proposed borrower distribution metrics and benchmarks.
Treatment of purchased loans. A few commenters sought clarity on
the treatment of purchased loans with respect to the borrower
distribution metrics and benchmarks when income and revenue information
is not reported or not available, such as for certain seasoned
government mortgage loans. For example, some commenters recommended
including purchased loans in the numerator of the Borrower Bank Metric
when the bank has information demonstrating that the borrower is low-
or moderate-income or has gross annual revenues of less than $1
million, and excluding purchased loans from the numerator and
denominator of the Borrower Bank Metric if the bank does not have
borrower income or revenue information.
Borrower Community Benchmark for home mortgage loans. A number of
commenters raised concerns about the agencies' proposal to use low- and
moderate-income family counts to establish community benchmarks for
analyzing the borrower distribution of home mortgage lending. For
example, a few commenters suggested that the Borrower Community
Benchmark for home mortgage loans should be based on the share of
owner-occupied housing units in an area that are occupied by low- and
moderate-income households, instead of the share of low- and moderate-
income families. These commenters explained that using low- and
moderate-income households that are owner-occupants, rather than low-
and moderate-income families, would better account for differences in
home prices and homeownership opportunities across the country. In
addition, at least one commenter stated that the agencies may want to
consider a Borrower Community Benchmark for home mortgage loans that is
based on the low- and moderate-income share of households, including
households that are not owner-occupants, as this would capture
unrelated people sharing rental housing units who could become
homeowners.
Another commenter generally regarded the proposed borrower
distribution analysis favorably, but expressed concern that the
Borrower Community Benchmark for closed-end home mortgage lending to
low-income borrowers would greatly overestimate credit demand among
these borrowers because incomes are too low relative to home prices in
many parts of the country. The commenter conducted an analysis
indicating that the proposed Borrower Community Benchmark for closed-
end home mortgage loans to low-income borrowers was consistently higher
than the corresponding Borrower Market Benchmark across 354 MSAs, such
that the performance ranges calculated for closed-end home mortgage
loans to low-income borrowers would always be based on the market
benchmarks in these markets. Accordingly, the commenter suggested that
the agencies consider alternative community benchmarks and alternative
calibrations of the benchmarks to potentially create a better incentive
for banks to improve performance. The commenter also suggested that
because the proposed Borrower Community Benchmark for closed-end home
mortgage loans overestimates credit demand among low-income borrowers,
it also underestimates credit demand among moderate-income borrowers.
Final Rule
For the reasons discussed below, the agencies are adopting the
proposed borrower distribution metrics and benchmarks generally as
proposed.
Final Sec. __.22(e)(4)(i) provides that for each major
product line, a Borrower Bank Metric is calculated pursuant to
paragraph IV.a of final appendix A.
Final Sec. __.22(e)(4)(ii) provides that for each major
product line except automobile loans, a Borrower Market Benchmark is
calculated pursuant to, as applicable, paragraph IV.b of final appendix
A for facility-based assessment areas and retail lending assessment
areas, and paragraph IV.d of final appendix A for outside retail
lending areas.
Final Sec. __.22(e)(4)(iii) provides that for each major
product line, a Borrower Community Benchmark is calculated pursuant to,
as applicable, paragraph IV.c of appendix A for facility-based
assessment areas and retail lending assessment areas, and paragraph
IV.e of appendix A for outside retail lending areas.
A summary of these calculations for facility-based assessment area
and retail lending assessment areas, as applicable, can be found in the
following table for each product line. Following a discussion of some
preliminary issues, each of these metrics and benchmarks is discussed
in more detail below.
[[Page 6864]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.019
[[Page 6865]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.020
Treatment of purchased loans. Consistent with the agencies'
proposal, under the final rule approach, purchased loans for which
borrower income or revenue data are unavailable are counted in the
denominator of the borrower distribution metrics and benchmarks, and
not in the numerator of the borrower distribution metrics and
benchmarks. If a bank provides the agencies with information indicating
that purchased loans for which borrower income or revenue data are
unavailable were in fact made to low- or moderate-income borrowers or
borrowers with gross annual revenues below $1 million, the agencies may
adjust the bank's recommended conclusion, as discussed in the section-
by-section analysis of Sec. __.22(g)(4). The agencies considered
comments suggesting that if borrower income data are unavailable for
purchased loans, then the loans should be excluded from the numerator
and denominator of the borrower distribution metrics. However, the
final rule does not adopt this
[[Page 6866]]
approach because the agencies believe that such an approach could allow
a bank to purchase middle- and upper-income loans for which income
information is not available without factoring into the bank's
distribution metrics. In addition, the agencies believe that it is
preferable to include all of a bank's loans in its distribution
metrics, and to consider potential adjustments to the bank's Retail
Lending Test conclusions pursuant to Sec. Sec. __.22(g)(4) and
__.21(d) as needed, to ensure that the distribution metrics
comprehensively account for a bank's retail lending.
The final rule continues the current practice of using borrower
income or revenue information at the time of the credit decision for
purchased loans. As a result, a loan originated to a low- or moderate-
income borrower, if sold to a third-party bank, would receive
consideration as a low- or moderate-income loan for the purchasing bank
regardless of the borrower's income at the time of purchase. The
agencies believe that this approach will help to support liquidity for
lenders that lend to low- or moderate-income borrowers and census
tracts, in accord with the CRA's objective of encouraging banks to meet
the credit needs of their entire communities. Furthermore, the agencies
understand that it may not be feasible to obtain updated borrower
income information for purchased loans.
Borrower Bank Metrics. As set forth in paragraph IV.a of appendix
A, the Borrower Bank Metrics are calculated as the percentage of a
bank's loans in a particular major product line to borrowers in each
applicable income or revenue category, respectively. This calculation
is based on originated and purchased loans in a specific Retail Lending
Test Area over the years in the evaluation period. For example, if a
bank originated or purchased 100 total closed-end home mortgage loans
in a facility-based assessment area over the years in an evaluation
period, and 20 of those loans were to low-income borrowers, then its
Borrower Bank Metric for closed-end home mortgage loans to low-income
borrowers would be 0.2, or 20 percent.
BILLING CODE 4810-33-P
BILLING CODE 6210-01-P
BILLING CODE 6714-01-P
[GRAPHIC] [TIFF OMITTED] TR01FE24.021
For closed-end home mortgage loans and automobile loans, the
agencies separately calculate the Borrower Bank Metric for low-income
borrowers and moderate-income borrowers. For small business loans and
small farm loans, the agencies separately calculate the Borrower Bank
Metric for businesses or farms with gross annual revenues of: (1)
$250,000 or less; and (2) greater than $250,000 but less than or equal
to $1 million. The agencies note that calculating the Borrower Bank
Metrics in this way is generally consistent with the current practice
for measuring a bank's lending to borrowers of various income and
revenue categories.
Borrower Market Benchmarks--closed-end home mortgage loans, small
business loans, and small farm loans. As set forth in paragraph IV.b of
final appendix A, the Borrower Market Benchmarks for facility-based
assessment areas and retail lending assessment areas are calculated as
the percentage of closed-end home mortgage loans, small business loans,
or small farm loans to borrowers in each income or revenue category, as
applicable. This calculation is based on originated loans in the
facility-based assessment area or retail lending assessment area over
the years in the evaluation period reported by all lenders.
[GRAPHIC] [TIFF OMITTED] TR01FE24.022
[[Page 6867]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.023
[[Page 6868]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.024
BILLING CODE 4810-33-C
BILLING CODE 6210-01-C
BILLING CODE 6714-01-C
For the outside retail lending area, the Borrower Market Benchmarks
for closed-end home mortgage loans, small business loans, and small
farm loans are determined by first calculating the benchmark for each
component geographic area, and then calculating a weighted average of
the benchmarks for those areas. Specifically, as set forth in paragraph
IV.d of final appendix A, the Borrower Market Benchmarks for outside
retail lending areas are established by calculating, for each major
product line--other than automobile loans--in each component geographic
area of the outside retail lending area, a benchmark for each
applicable income and revenue category, respectively. Calculation of
these benchmarks for each component geographic area follows the method
described above for calculating Borrower Market Benchmarks for
facility-based assessment areas and retail lending assessment areas, as
applicable. The benchmarks for each component geographic area are then
averaged, weighting each component geographic area by the number of the
bank's loans in the major product line originated and purchased in the
component geographic area, relative to the number of the bank's loans
in the major product line originated and purchased in the outside
retail lending area. More discussion of the process for creating
benchmarks used in the outside retail lending area analysis follows
later in this section.
Consistent with the proposed approach, the Borrower Market
Benchmarks are intended to show the overall level of lending for each
product line taking place in the Retail Lending Test Area to borrowers
of each applicable income and revenue category by all reporting
lenders. The agencies note that calculating Borrower Market Benchmarks
in this way is consistent with current practice for evaluating a bank's
lending to borrowers of various income and revenue categories.
Borrower Community Benchmarks--closed-end home mortgage loans. As
set forth in paragraphs IV.c.1 and IV.c.2 of final appendix A, the
Borrower Community Benchmarks for closed-end home mortgage loans to
low- and moderate-income borrowers, respectively, in facility-based
assessment areas and retail lending assessment areas are calculated as
the percentage of all families that are low- and moderate-income
families, respectively. This calculation is based on families in the
facility-based assessment area or retail lending assessment area over
the years in the evaluation period. Additional details regarding the
calculations of community benchmarks, and an example, are provided
below in this section.
[[Page 6869]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.025
For the outside retail lending area, the Borrower Community
Benchmarks for closed-end home mortgage loans (and all other retail
lending benchmarks) are determined by first calculating the benchmark
for each component geographic area, and then calculating a weighted
average of the benchmarks for those areas. Specifically, as set forth
in paragraph IV.e of final appendix A, the Borrower Community
Benchmarks for closed-end home mortgage loans in outside retail lending
areas are established by calculating, in each component geographic area
of the outside retail lending area, a benchmark for closed-end home
mortgage loans to low- or moderate-income borrowers, respectively.
Calculation of these benchmarks for each component geographic area
follows the method described above for calculating Borrower Community
Benchmarks for closed-end home mortgage loans to low- or moderate-
income borrowers in facility-based assessment areas and retail lending
assessment areas. The benchmarks calculated for each component
geographic area are then averaged together, weighting each component
geographic area by the share of the bank's closed-end home mortgage
loans originated and purchased in the component geographic area,
relative to the bank's closed-end home mortgage loans originated and
purchased in the outside retail lending area, calculated using loan
count. More discussion of the process for creating benchmarks used in
the outside retail lending area analysis follows later in this section.
Consistent with the proposal, the Borrower Community Benchmarks for
closed-end home mortgage loans are based on the share of families in
the Retail Lending Test Area that are low- or moderate-income. Similar
to the other Borrower Community Benchmarks, the agencies believe that
the share of low- or moderate-income families is an indicator of the
potential lending opportunities for closed-end home mortgage loans to
low- or moderate-income borrowers. In deciding to define the benchmark
as comprising low- or moderate-income families, as opposed to
households, the agencies have placed significant weight on the fact
that this is consistent with current practice for evaluating a bank's
closed-end home mortgage lending to low- or moderate-income borrowers.
The agencies believe this will aid in implementation and familiarity
with the final rule approach. However, the agencies recognize that this
benchmark would, therefore, not include individuals that the American
Community Survey defines as comprising households but are not included
in its definition of families, such as adults living alone, unmarried
couples, and unrelated adults living as roommates.\929\ As a result,
this benchmark would not capture some households that are mortgage
borrowers or will become mortgage borrowers in the future. The agencies
considered using the share of low- or moderate-income households as the
Borrower Community Benchmark, but determined that of the two options,
the share of low- or moderate-income families has the benefit of
carrying forward the current approach. The agencies note that there is
no distinction or consideration in the distribution analysis of whether
a bank's home mortgage loans were made to borrowers that are family
households or to borrowers that are non-family households; rather, the
bank metrics reflect the bank's percentages of all loans to low- and
moderate-income borrowers. Moreover, the agencies note that the
decision to use family households to construct these community
benchmarks is not intended to convey a preference for lending to family
households rather than to non-family households. During and following
implementation of the final rule, the agencies will continue to monitor
this and other benchmarks to determine whether other indicators would
better estimate the potential lending opportunities for each product
line.
---------------------------------------------------------------------------
\929\ According to the Census Glossary, a household includes
``the related family members and all the unrelated people, if any,
such as lodgers, foster children, wards, or employees who share the
housing unit. A person living alone in a housing unit, or a group of
unrelated people sharing a housing unit such as partners or roomers,
is also counted as a household.'' Further information related to how
households and families are defined in the American Community Survey
can be found in the Census Glossary at https://www.census.gov/glossary/?term=Household.
---------------------------------------------------------------------------
The agencies considered comments that the Borrower Community
Benchmark for closed-end home mortgage loans to low-income borrowers--
proposed as being low-income families as noted above--may overestimate
potential demand for closed-end home mortgage loans among low-income
families. However, the agencies believe that the benchmark adopted in
the final rule accords with
[[Page 6870]]
the CRA's emphasis on meeting the credit needs of the bank's entire
community, which includes low-income families. For this reason, the
agencies determined not to modify the Borrower Community Benchmark for
closed-end home mortgage loans to low-income borrowers in a way that
universally assumes significantly lower credit needs for these
borrowers. In addition, as discussed in the section-by-section analysis
for __.22(f), the agencies determined that the combination of the
market and community benchmarks, and final rule multiplier values,
result in appropriately calibrated performance ranges, and that Retail
Lending Test conclusions of ``Low Satisfactory'' or higher are
generally attainable.
Borrower Community Benchmarks--small business loans and small farm
loans. As set forth in paragraphs IV.c.3 through IV.c.6 of final
appendix A, the Borrower Community Benchmarks for small business loans
or small farm loans in facility-based assessment areas and retail
lending assessment areas, as applicable, are calculated as the
percentage of businesses or farms with gross annual revenues of more
than $250,000 but less than or equal to $1 million, and with gross
annual revenues of $250,000 or less, respectively.\930\ This
calculation is based on businesses or farms in the facility-based
assessment area or retail lending assessment area over the years in the
evaluation period. Additional details regarding the calculations of
community benchmarks, and an example, are provided below in this
section.
---------------------------------------------------------------------------
\930\ For purposes of the Borrower Community Benchmarks for
small business loans, the agencies exclude farms from the
calculation of the percentage of businesses in each gross annual
revenues category.
---------------------------------------------------------------------------
BILLING CODE 4810-33-P
BILLING CODE 6210-01-P
BILLING CODE 6714-01-P
[GRAPHIC] [TIFF OMITTED] TR01FE24.026
[[Page 6871]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.027
BILLING CODE 4810-33-C
BILLING CODE 6210-01-C
BILLING CODE 6714-01-C
[[Page 6872]]
For the outside retail lending area, the Borrower Community
Benchmarks for small business loans and small farm loans (and all other
retail lending benchmarks) are determined by first calculating the
benchmark for each component geographic area, and then calculating a
weighted average of the benchmarks for those areas. Specifically, as
set forth in paragraph IV.e of final appendix A, the Borrower Community
Benchmarks for small business loans or small farm loans in outside
retail lending areas are established by calculating, in each component
geographic area of the outside retail lending area, a benchmark for
small business loans or small farm loans to small businesses or small
farms of each applicable revenue category, respectively. Calculation of
these benchmarks for each component geographic area follows the method
described above for calculating Borrower Community Benchmarks in
facility-based assessment areas and retail lending assessment areas, as
applicable. The benchmarks calculated for each component geographic
area are then averaged, weighting each component geographic area by the
number of the bank's small business loans or small farm loans
originated and purchased in the component geographic area, relative to
the number of the bank's small business loans or small farms originated
and purchased in the outside retail lending area. More discussion of
the process for creating benchmarks used in the outside retail lending
area analysis follows later in this section.
Consistent with the proposal, the Borrower Community Benchmarks for
small business loans or small farm loans are based on the share of
businesses and farms in the Retail Lending Test area in different
revenue categories. For example, the Borrower Community Benchmark for
small business loans with gross annual revenue of less than $250,000 in
a facility-based assessment area is the share of all businesses in the
area with gross annual revenue of less than $250,000. Similar to the
other Borrower Community Benchmarks, the agencies believe that the
share of businesses or farms of different sizes is an indicator of the
potential lending opportunities for small business loans or small farm
loans in the Retail Lending Test Area. Further, the agencies note that
using the share of businesses or farms of different sizes is generally
consistent with current practice for evaluating a bank's small business
and small farm lending.
As described above with respect to the Geographic Community
Benchmarks, following the transition to using section 1071 data,\931\
the agencies will adjust the methodology used to calculate the Borrower
Community Benchmark to reflect changes in what businesses and farms are
included in the section 1071 data relative to the existing CRA small
business and small farm data. Specifically, prior to the use of section
1071 data, this benchmark would be based on the share of all businesses
and farms that are designated borrowers. Once section 1071 data is used
in CRA evaluations, this benchmark would be the share of small
businesses and small farms (i.e., those with gross annual revenue of $5
million or less) that are designated borrowers. This change reflects
that section 1071 data include only loans made to small businesses and
small farms, and ensures that the bank metrics and benchmarks are
calculated in a consistent manner.\932\
---------------------------------------------------------------------------
\931\ The transition amendments included in this final rule
will, once effective, amend the definitions of ``small business''
and ``small farm'' to instead cross-reference to the definition of
``small business'' in the CFPB Section 1071 Final Rule. This will
allow the CRA regulatory definitions to adjust if the CFPB increases
the threshold in the CFPB Section 1071 Final Rule definition of
``small business.'' This is consistent with the agencies' intent
articulated in the preamble to the proposal and elsewhere in this
final rule to conform these definitions with the definition in the
CFPB Section 1071 Final Rule. The agencies will provide the
effective date of these transition amendments in the Federal
Register after section 1071 data is available.
\932\ The agencies acknowledge that proposed appendix A,
paragraph IV.2.b, specified that the Borrower Community Benchmarks
for small business loans and small farm loans, prior to the
transition to using section 1071 data, would be based on the share
of businesses or farms of different sizes out of all small
businesses or small farms in an area. However, the final rule
specifies that these Borrower Community Benchmarks, prior to the
transition to using section 1071 data, are based on the share of
businesses or farms of different sizes out of all businesses or
farms in an area, regardless of the size of these businesses and
farms.
---------------------------------------------------------------------------
Borrower Community Benchmarks--automobile loans. As set forth in
paragraphs IV.c.7 and IV.c.8 of final appendix A, the Borrower
Community Benchmarks for automobile loans to low- and moderate-income
borrowers, respectively, in facility-based assessment areas are
calculated as the percentage of low- or moderate-income households,
respectively. This calculation is based on households in the facility-
based assessment area over the years in the evaluation period.
Additional details regarding the calculations of community benchmarks,
and an example, are provided below in this section.
[GRAPHIC] [TIFF OMITTED] TR01FE24.028
[[Page 6873]]
For the outside retail lending area, the Borrower Community
Benchmarks for automobile loans (and all other retail lending
benchmarks) are determined by first calculating the benchmark for each
component geographic area, and then calculating a weighted average of
the benchmarks for those areas. Specifically, as set forth in paragraph
IV.e of final appendix A, the Borrower Community Benchmarks for
automobile loans in outside retail lending areas are established by
calculating, in each component geographic area of the outside retail
lending area, a benchmark for automobile loans to low- or moderate-
income borrowers, respectively. Calculation of these benchmarks for
each component geographic area follows the method described above for
calculating Borrower Community Benchmarks for automobile loans to low-
or moderate-income borrowers in facility-based assessment areas. The
benchmarks calculated for each component geographic area are then
averaged together, weighting each component geographic area by the
share of the bank's automobile loans originated and purchased in the
component geographic area, relative to the bank's automobile loans
originated and purchased in the outside retail lending area, calculated
using loan count. More discussion of the process for creating
benchmarks used in the outside retail lending area analysis follows
later in this section.
The agencies believe that the share of low- or moderate-income
households is an indicator of the potential lending opportunities for
automobile loans in low- or moderate-income census tracts. The agencies
considered using the share of families, rather than households, but
determined that of the two options, the share of households has the
benefit of carrying forward the current approach.
Section __.22(e)(3)(ii) and (iii) and (e)(4)(ii) and (iii) Benchmark
Timing
The Agencies' Proposal
In the proposal, the agencies addressed the issues of when the
market and community benchmarks should be set for the evaluation period
and which years of data to use to calculate the benchmarks. The
agencies indicated that they were considering whether to calculate the
community benchmarks using the most recent data available as of the
first day of a bank's CRA examination. However, the agencies noted that
these data may not become available until during or after the
evaluation period, and as a result, under this approach, the values of
the community benchmarks may not be known at the outset of the
evaluation period. The agencies requested feedback on alternative
approaches to the timing of when the community benchmarks would be set
for a bank's evaluation.
Furthermore, the agencies indicated that they were considering
whether to calculate the market benchmarks using all available reported
data from the years of a bank's evaluation period, recognizing that
some evaluation periods could include a year for which reported data is
not yet available at the time of the bank's examination. The agencies
also indicated that they were considering an alternative approach,
under which the bank distribution metrics would be based on data only
from the same years over which the market distribution benchmarks are
able to be measured. The agencies noted that this approach would have
the advantage of setting performance standards for banks that
correspond to the period, and the economic conditions during that
period, over which an agency is evaluating a bank's performance.
However, this approach would have the disadvantage of, in some
circumstances, not fully covering a bank's recent lending.
Comments Received
A number of commenters provided specific feedback on timing issues
related to the data used to calculate the proposed retail lending
metrics and benchmarks. Some commenters raised concerns about the
delayed availability, incompleteness, lack of transparency, or sources
of the proposed benchmark data against which bank borrower distribution
and geographic distribution metrics would be measured under the
agencies' proposal.
Bank metrics and market benchmarks. Several commenters supported
the agencies' proposal to base the bank distribution metrics on all of
the data from the bank's evaluation period, while the market
distribution benchmarks would be based on reported data that is
available at the time of the examination. For example, a commenter
asserted that all of a bank's reported data for the evaluation period
should be used, even if all corresponding market data was not available
at the time of the examination. Likewise, another commenter stated
that, generally, bank volume and bank distribution metrics should be
based on an average of a bank's annual performance over the evaluation
period. Another commenter that supported the agencies' proposal
stressed the importance of leveraging examiner discretion and
performance context to evaluate lending where any bank volume or bank
distribution data is unavailable. A commenter suggested that all data
should be representative of the community at the time that the loan,
investment, or service was originated or provided.
Community benchmarks. Some commenters did not support the option
the agencies stated was under consideration to set community benchmarks
using the most recent data available as of the first day of a bank's
CRA examination. A commenter noted that setting community benchmarks
with the most recent data at the time of the bank's examination may
contribute to banks clustering CRA qualifying activities around
examination time rather than throughout the evaluation period. This
commenter and several others instead recommended that benchmarks be set
with data from throughout the evaluation period. A commenter suggested
that using a five-year average of available data could avoid the
effects of sudden, sometimes unpredictable swings in demographic data
on community benchmarks. Another commenter stated that the agencies
should calculate the community benchmarks based on data that pertains
to the years of the evaluation period, and did not support setting the
community benchmarks based on data available prior to the evaluation
period, or at the time of the bank's examination. Other commenters
suggested that the benchmarks could instead be set annually. These
commenters suggested that this approach would provide banks with
appropriate notice about retail lending performance expectations.
Some commenters recommended making community benchmark data
available in advance of evaluation periods. For example, a commenter
recommended that a bank's community benchmarks be established at the
beginning of each examination cycle and remain consistent throughout
the evaluation period. Another commenter stated that as a matter of
fairness and due process, banks should know the benchmarks prior to
being evaluated, so that they can plan and structure their CRA programs
accordingly. A commenter similarly recommended that benchmarks be
established based on the year prior to the start of an examination to
allow for more consistency and alignment with the bank's metrics.
Additionally, this commenter noted that in the event that circumstances
have dramatically changed, such as in a global pandemic, an examiner
could request more recent data.
Several commenters also suggested that, after being established at
the beginning of an evaluation period,
[[Page 6874]]
community benchmarks should decrease (``float down'') if demographic
data collected during the evaluation period would lead to lower
benchmarks. These commenters variously noted that economic recessions,
natural disasters, pandemics, significant variances in real estate
prices, and other events could warrant a downward adjustment to the
community benchmarks.
Several commenters expressed concern that certain community
benchmark data, including FFIEC data, would not be available at the
start of an examination. One of the commenters noted that this lag
would result in banks being measured against inaccurate community
benchmarks, and that the agencies should clearly explain how they would
account for this. Another commenter suggested a transition period
during which banks could opt in to being evaluated using the community
benchmarks in order to allow the agencies to assess whether the
benchmarks adequately reflected economic conditions. Another commenter
recommended that the agencies retain the current CRA practices for
flexibly establishing and considering community benchmarks (based on
data from the time of a bank's evaluation period, but which are not
published in advance of the evaluation period) in evaluations given
their familiarity to bankers and examiners.\933\
---------------------------------------------------------------------------
\933\ See, e.g., Interagency Large Institution CRA Examination
Procedures (April 2014) at 6-8.
---------------------------------------------------------------------------
Timing issues affecting both the market and community benchmarks.
Several commenters expressed concerns regarding the availability of
benchmark information, or lack thereof, prior to a bank's evaluation
period. A commenter argued that not having benchmark data upon
implementation of the final rule would be contrary to the agencies'
stated objectives of clarity and certainty. This commenter and another
commenter raised concerns about the ability of banks to collect, track,
and analyze CRA performance using the proposed metrics, given the
delayed availability of benchmark information, both currently and after
the final rule is implemented. Likewise, other commenters stated that
not knowing the benchmarks against which a bank's performance would be
assessed before the bank's CRA evaluation periods would prevent the
bank from engaging in appropriate, necessary planning. A commenter
described the benchmarks as moving targets based on dated peer
performance that could obscure the full story of a bank's performance.
Another commenter expressed concern regarding the number of
calculations used to arrive at the metrics and benchmarks, noting the
many different data sources used to construct the metrics and
benchmarks, and the varying timing of when these data are available. As
a result, the commenter stated, the benchmarks will be subjective, as
the bank will not know what data sources the examiners will use to
establish them.
Some commenters addressed the proposal to establish benchmarks that
would cover an entire evaluation period. For example, a commenter
warned against aggregating data from a bank's entire evaluation period
because a bank's major product lines or MSA delineations could change
from one year to the next. This commenter stated that conducting
examinations using annual data for metrics and benchmarks, without
combining and averaging that annual data, would better ensure that a
bank's retail lending performance is measured against appropriate
demographic and market data. Another commenter stated that banks can
have evaluation periods that are shorter or longer than three years,
and that it would be problematic to always set benchmarks only for
three-year periods. This commenter also indicated that the agencies'
proposed approach was further complicated by the fact that, during an
evaluation period, low- and moderate-income census tracts can become
middle- and upper-income census tracts, and vice versa.
Final Rule
The agencies have considered commenter feedback on this issue and
have included provisions in sections V and VI of final appendix A that
address the approach to setting, and the data used to calculate,
community and market benchmarks. Specifically, the agencies intend to
disclose the data used to calculate community benchmarks on an annual
basis, in advance of each calendar year of an evaluation period. The
agencies will calculate the market benchmarks at the time of the bank's
examination using data that corresponds to the years of a bank's
evaluation period. For purposes of a bank's evaluation over a full
evaluation period, each benchmark would be calculated for the entire
evaluation period, rather than calculating separate benchmarks for each
individual calendar year of the evaluation period. For both sets of
benchmarks, the agencies intend to annually disclose the annual
component of the benchmark that corresponds to each calendar year, and
that would be used to calculate the benchmark for the entire evaluation
period. For the community benchmarks, this disclosure would occur in
advance of each calendar year, and for the market benchmarks, the
disclosure would occur after a calendar year once reported data for
that year is available.
Community benchmarks. Under the final rule approach, the agencies
intend to disclose the annual components of the data used to calculate
the community benchmarks in advance of each calendar year. At the time
of a bank's examination, the agencies will calculate the community
benchmarks for the evaluation period, pursuant to the methodology in
sections III and IV of final appendix A. For example, for a three-year
evaluation period, for each community benchmark, the agencies intend to
disclose available annual data in advance of each of the three calendar
years of the evaluation period, and at the time of the bank's
examination, the agencies would calculate the community benchmarks
based on three years of data.
[[Page 6875]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.029
In determining that community benchmark data would be set in
advance of each calendar year of the evaluation period, the agencies
have considered how to balance the objective of providing certainty to
banks regarding performance standards with incorporating the most up-
to-date performance context information into the metrics-based
approach. The agencies believe this approach will provide appropriate
advance notice of benchmarks and performance expectations to banks;
each year a bank would have advance notice of the annual component of
the community benchmark for that specific year, which a bank can use to
monitor performance. As described above, the agencies would use an
average of these annual data points to determine each community
benchmark for the entire evaluation period. Under this approach, the
agencies note that a bank would have access to all of the annual
components of the community benchmark by the beginning of the final
calendar year of each evaluation period, when the annual component of
the benchmark for the final calendar year would be disclosed.
Furthermore, as discussed in the section-by-section analysis of final
Sec. __.22(f), applicable performance ranges are based on the lower of
the calibrated market benchmark and the calibrated community benchmark.
As a result of disclosing the annual components of the community
benchmarks, banks would have insight into the maximum level of retail
lending to designated borrowers and in designated census tracts
necessary to meet the performance ranges for each conclusion category.
While the performance ranges used in an examination could be lower than
those calculated by the community benchmark, they cannot exceed those
based on the community benchmarks.
In addition, as a result of this approach, the agencies have
considered that the data used for the community benchmarks
approximately reflect the characteristics of the community during the
bank's evaluation period. Prior to the beginning of each calendar year,
the agencies intend to disclose annual components of the community
benchmarks for the coming year of an evaluation period based on data
sources that the agencies determine best reflect local conditions at
the time, consistent with current practice of calculating community
benchmarks based on data provided annually by the FFIEC.
The agencies also considered that the final rule approach will
account for potential changes in the delineation of a Retail Lending
Test Area during an evaluation period, because the community benchmark
data for each calendar year would reflect the geographic composition of
the Retail Lending Test Area in that year. For example, the agencies
considered an example of a bank whose facility-based assessment area
expands from a single county in the first calendar year of the
evaluation period to a total of two counties in the second and third
calendar years. The community benchmark data for the first calendar
year would reflect the single county delineation, and the community
benchmark data for the second and third calendar years would reflect
the two-county designation. The agencies determined that calculating a
multiyear ratio reflecting all years in a bank's performance evaluation
will result in a community benchmark that accounts for the changes in
the bank's facility-based assessment area delineation without requiring
any additional adjustments or weighting. The agencies considered this
to be an important benefit of the proposed approach, since the
delineations of facility-based assessment areas, retail lending
assessment areas, and outside retail lending areas may change on an
annual basis due to a variety of factors, such as changes in MSA
definitions, or expansion of a bank's service area in a particular MSA.
The agencies also considered, but decline to adopt, an alternative
approach of designating the final community benchmark levels in advance
of the first year of the evaluation period. Under this alternative, a
final community benchmark would be published prior to the bank's
evaluation period based on data available at that time. As a result,
this alternative approach would not involve calculating a multiyear
ratio of
[[Page 6876]]
annual community benchmark data released over the course of the
evaluation period. The agencies considered that this alternative
approach could provide additional certainty regarding the level of this
benchmark. However, the agencies also considered that such an approach
would necessitate using older data to construct the community
benchmarks for each year in the bank's evaluation period, as noted by
some commenters, which could result in certain performance context
information not being incorporated into the community benchmarks. For
example, the community benchmark data available at the beginning of the
first year of a bank's evaluation period may reflect the composition of
the population from two or more calendar years prior. By the beginning
of the third calendar year of the bank's evaluation period, the
community benchmark data could reflect the composition of the
population from four or more calendar years prior. As a result, changes
to, for example, the population or to the number of businesses or farms
in those intervening years would not be accounted for in the older
community benchmark data. In addition, the agencies considered that
designating the final community benchmark in advance of a bank's
evaluation period would not be possible in instances where MSA
definitions change during an evaluation period, a Retail Lending Test
Area expands or contracts during the evaluation period, or in which new
census tract delineations are published and go into effect during the
evaluation period. Consequently, the agencies determined that there
would be significant operational challenges with an alternative
approach of setting and fixing community benchmarks entirely in advance
of the evaluation period.
The agencies also considered, but decline to adopt, an alternative
approach of calculating benchmarks at the time of a bank's examination
using data available at that time, and not setting the benchmark or
providing data used to calculate the benchmark at any point in advance
of the bank's examination. The agencies considered that, while this
alternative approach would allow the community benchmarks to more
closely reflect the composition of the population during the evaluation
period, it would also significantly limit the information available to
banks and the public regarding Retail Lending Test performance
expectations in advance. In contrast, the agencies determined that the
final rule approach of providing the annual components of the community
benchmarks in advance of each calendar year of the evaluation period
will more effectively provide advance notice of benchmark levels.
The agencies considered comments expressing timing concerns about
the availability of the data used to compute community benchmarks and
the timing of the bank's evaluation period. In adopting their final
rule approach, the agencies intend to explore ways of streamlining data
availability (such as updating data on a more frequent basis than is
currently done) to ensure that timely data is used to construct
community benchmarks.
Market benchmarks. Pursuant to the final rule, the agencies will
calculate the market benchmarks using the retail lending data from the
years of the bank's evaluation period, and not from years prior to the
evaluation period. This approach has the advantage of setting
performance standards for banks based on contemporaneous data that
reflect economic conditions during the period over which an agency is
evaluating a bank's performance. The agencies have considered that this
approach is consistent with existing practices, under which benchmarks
are generally calculated based on data from the time of a bank's
evaluation period and are not published in advance of the evaluation
period. The agencies further believe that this approach is especially
important to maintain in the final rule for the market benchmarks,
which are intended to capture aspects of the performance context of an
area that may emerge during the evaluation period, such as changes in
economic conditions that may affect the demand for credit among low-
and moderate-income households. The agencies determined that basing the
market benchmarks on data from the evaluation period will appropriately
contribute to standardization and transparency regarding evaluations of
retail lending performance, because examiners generally would not need
to qualitatively consider economic conditions that are already
accounted for in the market benchmarks.
The agencies considered, but are not adopting, approaches
recommended by some commenters to set the market benchmarks in advance
of the evaluation period, or in advance of each calendar year of the
evaluation period. The agencies considered that such alternative
approaches would provide greater certainty to banks and the public
regarding quantitative performance standards. However, the agencies
have also considered that these alternative approaches would result in
benchmarks that may not account for the performance context of an area
in a specific year, because the data used to compute the market
benchmarks would precede the bank's evaluation period and would not
correspond to the overall lending in a community during a specific time
period. As a result, under these alternative approaches, the agencies
have considered that the market benchmarks would not provide the same
function of incorporating performance context data into the metrics
approach and could necessitate more often using qualitative
considerations and agency discretion to account for changes in economic
conditions or other changes in the market that occur during an
evaluation period. The agencies have also considered that greater use
of qualitative factors would counteract any potential increase in
certainty derived from providing the benchmarks in advance. In
addition, consistent with current practice, the agencies note that
banks could consider recent market benchmarks for their Retail Lending
Test Areas, in concert with census data and their own lending data, as
part of their planning prior to and during a CRA evaluation period.
While the agencies' proposal also discussed alternative approaches
for specifying in the regulation which years of data would be used to
calculate a bank's metrics and market benchmarks in a given
examination, the final rule does not specify such alternatives.
However, in implementing the final rule, the agencies intend to take
the approach described in the proposal of basing the metrics and market
benchmarks on the same years of data, rather than allowing the market
benchmarks to be based on data from a subset of the years of the
evaluation period if data for the last year of an evaluation period is
not yet available. In practice, for each major product line, the scope
of the Retail Lending Test evaluation would be limited to those years
in which the necessary data is available to calculate the relevant
metrics and benchmarks. The agencies considered that this approach
ensures that the benchmarks reflect the performance context of the
evaluation period. The agencies determined that this timing issue is
more appropriately resolved in implementation, because a degree of
flexibility is warranted to account for future changes in underlying
data sources used to construct metrics and benchmarks, such as changes
to the timing of when certain data is published.
Alternative to set benchmarks in advance and adjust at time of
[[Page 6877]]
examination. For both the community benchmarks and the market
benchmarks, the agencies considered, but are not adopting, an
alternative ``float-down'' approach of setting each benchmark. This
alternative would entail establishing each benchmark in advance of the
evaluation period, recalculating that benchmark at the time of the
bank's examination using more current data, and selecting the lower of
the two benchmarks for use in the evaluation. The agencies determined
that this approach could result in a misalignment between the data used
to calculate the metrics and corresponding benchmarks (e.g., if a bank
made a loan in a moderate-income census tract that was then
reclassified to middle-income during an evaluation period) and would
increase uncertainty regarding the ultimate level of the benchmarks. In
addition, the agencies considered that this approach would introduce
significant operational complexity for banks and the agencies due to
the large number of data points that are necessary to construct
multiple sets of benchmarks at different points in time for a single
examination, and the varied timing of when the data sources are
updated. The agencies also considered that under any approach of
adjusting the benchmarks at the time of a bank's examination, two banks
with the same evaluation period whose examinations occur at different
times could potentially have different benchmarks calculated for the
same Retail Lending Test Area and evaluation period due to differences
in the data available at the time of the two examinations. The agencies
believe that these considerations outweigh any potential benefits of
advance notice of benchmark levels achieved through this alternative.
The agencies considered, but are not adopting, the alternative
approach suggested by some commenters to construct metrics and
benchmarks that would apply to each calendar year of an evaluation
period, rather than one set of metrics and benchmarks that apply to the
entire evaluation period. The agencies determined that this
alternative, on balance, would increase complexity. For example, for a
three-year evaluation period, this alternative would require
approximately three times as many metrics and benchmarks and associated
calculations as the final rule approach. Furthermore, the agencies
determined that the alternative approach would require an additional
weighted average calculation for combining the performance of each
individual calendar year into a conclusion for the overall evaluation
period. The agencies determined that this alternative approach would
therefore be inconsistent with commenter feedback suggesting reducing
the complexity of the proposed Retail Lending Test.
The agencies have considered comments that under the proposed
approach, the exact data sources used to designate the benchmarks would
be unknown prior to a bank's evaluation period. In implementing the
final rule, the agencies intend to provide regular updates to banks and
the public regarding the data applicable to CRA evaluations, as well as
historical data regarding benchmarks in different areas. The agencies
decided not to include specific data sources for community benchmarks
in the final rule, or specific requirements for which years of data
will be used to calculate community benchmarks, because exact data
sources and timing may change over time. The agencies believe it is
preferable to assess data sources and availability on an ongoing basis,
and to regularly update CRA stakeholders, signaling any potential
changes with as much advance notice as possible. The agencies believe
this approach is consistent with current practice, in that the exact
data sources and timing of the various inputs for metrics and
benchmarks under the current approach are subject to change.
Distribution Benchmarks in Outside Retail Lending Areas
The Agencies' Proposal
The agencies proposed to evaluate the distribution of a bank's
major product lines in its facility-based assessment areas, retail
lending assessment areas, and outside retail lending area, as
applicable. The agencies further proposed to use generally the same
approach to calculating the proposed distribution metrics and
benchmarks in all three types of Retail Lending Test Areas.
However, in evaluating the distribution of a bank's major product
lines in its outside retail lending area, the agencies proposed to
tailor performance expectations for outside retail lending areas to
match the opportunities in the geographic regions in which the bank
lends, which may vary considerably across the country. In particular,
the agencies proposed to tailor performance expectations by setting
bank-specific tailored benchmarks, which would then be used to
establish thresholds and performance ranges. These tailored benchmarks
would be calculated as the average of local market and community
benchmarks across the country, weighted by the respective percentage of
the bank's total retail lending, by dollar amount, in each MSA and in
the nonmetropolitan portion of each State outside of assessment areas
in which the bank engages in each region.
The agencies sought feedback on whether the proposed tailored
benchmarks appropriately set performance standards for outside retail
lending areas, and on potential alternatives. The agencies discussed an
alternative proposal to create nationwide market and community
benchmarks that would apply to all banks, regardless of where their
lending is concentrated. These nationwide benchmarks could be
calculated using all census tracts in the nation as the geographic
base. Another alternative on which the agencies invited commenter views
was to tailor benchmarks using weights that would be individualized by
the dollar amount of lending specific to each major product line,
rather than the sum of all of a bank's outside-assessment area retail
lending. Under this alternative, if a bank did a majority of its
outside-assessment area closed-end home mortgage lending in MSA A, and
a majority of its outside-assessment area small business lending in MSA
B, the closed-end home mortgage tailored benchmarks would be weighted
towards the benchmarks from MSA A, while the small business tailored
benchmarks would be weighted toward MSA B.
Comments Received
Several commenters addressed the agencies' proposal to establish
tailored benchmarks for outside retail lending areas that would be
based on a bank's level of retail lending in different markets. Some
commenters supported the proposed tailored benchmark approach. One of
these commenters also indicated that the benchmarks could be more
precisely tailored by calculating unique weights for each specific
product line rather than calculating one set of weights for all product
lines based on a bank's overall dollar volume of retail lending in each
market as proposed.
Other commenters expressed a preference for uniform, nationwide
benchmarks instead of the proposed tailored benchmarks, noting that
tailored benchmarks would be overly complex and could be burdensome for
smaller banks evaluated in these areas. Another commenter recommended
the agencies consider a separate approach of a nationwide analysis
while also designating underserved communities that banks must
demonstrate they are serving through their lending. A commenter
suggested the agencies
[[Page 6878]]
provide a separate approach to evaluating outside retail lending areas
for internet-based banks akin to the evaluation for limited purpose
banks. Several other commenters suggested the agencies permit examiners
more discretion to apply performance context when evaluating outside
retail lending areas and particularly when developing Retail Lending
Test conclusions at the state level.
Final Rule
The agencies are adopting certain technical and substantive changes
to the proposed benchmarks for outside retail lending areas.
For clarifying purposes in describing the calculations of metrics
and benchmarks, the agencies use the term ``component geographic area''
in final Sec. __.18 and appendix A to refer to any MSA or the
nonmetropolitan area of any State, or portion thereof included within
the outside retail lending area. As discussed in the section-by-section
analysis of Sec. __.18, component geographic areas of a bank's outside
retail lending area are the MSAs or the nonmetropolitan areas of any
State, excluding: (1) the bank's facility-based assessment areas and
retail lending assessment areas; and (2) in a nonmetropolitan area, any
county in which the bank did not originate or purchase any closed-end
home mortgage loans, small business loans, small farm loans, or
automobile loans if automobile loans are a product line for the bank.
Pursuant to paragraphs III.d and e and IV.d and e of appendix A,
under the final rule, the agencies determine each benchmark for the
outside retail lending area by calculating a weighted average of the
benchmarks for each component geographic area. The weights for this
calculation are based on the bank's number of loans in each component
geographic area in the relevant major product line.
Following this approach, the agencies calculate benchmarks
for the outside retail lending area as follows: The agencies first
calculate a benchmark in each component geographic area for the
relevant major product line, distribution analysis, and income category
following the same method to calculate benchmarks in facility-based
assessment areas and retail lending assessment areas. For example, for
a bank that has closed-end home mortgage loans as a major product line
in its outside retail lending area, a community and a market benchmark
would be calculated for closed-end home mortgage loans to low-income
borrowers in each component geographic area of the outside retail
lending area, and for closed-end home mortgage loans to moderate-income
borrowers in each component geographic area of the outside retail
lending area.
The agencies then calculate the percentage of the bank's
originated and purchased loans in the outside retail lending area for
the relevant major product line, such as closed-end home mortgage
loans, that are within each component geographic area by loan count.
These percentages serve as the weights applied to the component
geographic area.
Finally, the agencies use these percentages to calculate a
weighted average of the component geographic area benchmarks to produce
a benchmark applicable to the outside retail lending area for the
specific major product line, distribution analysis, and income
category, such as the community and market benchmarks for evaluating a
bank's closed-end home mortgage loans to moderate-income borrowers.
For example, if a bank engaged in closed-end home mortgage lending
in two different MSAs outside of its facility-based assessment areas
and retail lending assessment areas, these MSAs are component
geographic areas for purposes of constructing benchmarks for the
outside retail lending area. In this example, the market benchmark for
the closed-end home mortgage moderate-income borrower distribution is
10 percent in the first area, and 8 percent in the second area. Of the
bank's closed-end home mortgage loan originations and purchases in the
outside retail lending area, 75 percent by loan count are in the first
area, and 25 percent are in the second area. The bank's outside retail
lending area benchmark is calculated using a weighted average of the
component area benchmarks with the weighting based on the bank's
percentage of closed-end home mortgage lending in each area by loan
count. The bank's outside retail lending area benchmark for closed-end
home mortgage lending to moderate-income borrowers is (0.10 x 0.75) +
(0.08 x 0.25) = 0.095, or 9.5 percent. This example is also reflected
in Table 21:
[[Page 6879]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.030
The agencies determined that weighting by loan count, rather than
by loan dollar volume, is appropriate for calculating outside retail
lending area benchmarks because this approach would result in better
alignment between the metrics and benchmarks than the proposed
approach. Specifically, the agencies considered that distribution
metrics for the outside retail lending area--as well as for facility-
based assessment area and retail lending assessment areas--are
calculated based on loan count, as discussed above in this section. The
distribution metrics for the outside retail lending area do not
incorporate the concept of weighting by loan dollars, or by deposit
dollars; because the metrics are based on loan count, the outside
retail lending area metrics effectively give greater weight to those
component geographic areas in which the bank made a larger number of
loans. To ensure consistency between the distribution metrics and
benchmarks, the agencies therefore determined that it is preferable to
use loan count when weighting the benchmarks of the component
geographic areas.
The agencies also considered how to weight each component
geographic area when calculating the benchmarks for the outside retail
lending area and decided to adopt an alternative approach described in
the proposal. Specifically, the agencies will calculate weights for the
component geographic areas separately for each of a bank's major
product lines in the outside retail lending area, rather than
calculating one set of weights that would apply to the benchmarks for
all major product lines. As noted by one commenter, the agencies
determined that this alternative allows for the benchmarks to be more
precise and more tailored for banks with multiple product lines in an
outside retail lending area. The agencies believe that constructing the
market and community benchmarks by weighting at the individual product
line level will more accurately reflect the market conditions the bank
actually faces in the geographic areas beyond its facility-based
assessment areas and retail lending assessment areas than would
benchmarks based on a combination of all of a bank's retail lending.
For example, a bank might extend closed-end home mortgage loans
nationwide by originating loans through brokers, while its small
business and small farm originations might be more closely tied to
branch-based delivery channels and thus only extend to geographic areas
just beyond the periphery of its facility-based assessment areas and
retail lending assessment areas. In this example, constructing
benchmarks by weighting at the individual product level allows the
benchmarks for small business and small farm lending to reflect market
conditions in the geographic areas around the bank's assessment areas,
while the benchmarks for closed-end home mortgage lending reflect
conditions in a broader national footprint. This distinction more
accurately tailors the benchmarks to reflect the opportunities
available to the bank than would a benchmark based on a combination of
all of its small business, small farm, and closed-end home mortgage
lending would.
While this alternative introduces some additional complexity due to
the need to calculate a separate set of weights for each major product
line, the agencies determined that the added accuracy and tailoring of
this alternative outweighs the additional complexity. In addition, the
agencies also considered that, for a bank with a single major product
line in its outside retail lending area, the alternative approach is
generally less complex than the proposed approach. Specifically, under
the final rule approach, the agencies would calculate one set of
weights for the component geographic areas per product line, based on
only the loans in that product line. In contrast, under the proposed
approach, the weights for the component geographic areas would be based
on all of the bank's product lines. For banks with two major product
lines in the outside retail lending area, the agencies considered that
the alternative approach would be moderately more complex, because the
bank would have
[[Page 6880]]
two sets of weights for the geographic component areas of its outside
retail lending area. For banks with three or four major product lines
in the outside retail lending area, the agencies considered that the
alternative approach would add to this complexity. However, based on
available data for closed-end home mortgage, small business, and small
farm lending (automobile lending data is not available to include in
this analysis), the agencies believe that a small percentage,
approximately 7 percent, of banks would have all three of these product
lines that meet the major product line standard in outside retail
lending areas.
The agencies considered, but are not adopting, the alternative
approach of setting uniform benchmarks for the outside retail lending
area for all banks, without tailoring to the specific geographies in
which a bank originated or purchased loans within its outside retail
lending area. For example, this could include an alternative in which
the benchmarks for the outside retail lending area would be calculated
at the nationwide level, without averaging together the benchmarks for
a bank's specific component geographic areas. The agencies determined
that, while this approach would reduce the complexity of the outside
retail lending area evaluation, the benchmarks under this alternative
would not reflect a bank's actual markets, which may vary substantially
in retail credit needs and opportunities. For example, if a large
bank's lending in its outside retail lending area is primarily in one
component geographic area, the market and community benchmarks for that
component geographic area may be substantially different from
benchmarks calculated at the nationwide level. In contrast, the
tailored benchmark approach adopted by the agencies is intended to set
expectations for a bank's outside-assessment area retail lending to
match the opportunities in the markets in which it lends. Under this
approach, the agencies determined that component geographic areas with
more of a bank's lending would appropriately carry greater weight in
calculating the agencies' performance expectations for the outside
retail lending area as a whole. In addition, markets in which the bank
did zero lending would receive zero weight when calculating the outside
retail lending area benchmarks, and hence have no influence on the
bank's Retail Lending Test evaluation.
The agencies also acknowledge comments that performance context
information may be relevant to assessing lending in outside retail
lending areas, to the extent it is not already considered as part of
the Retail Lending Test. Pursuant to final Sec. __.21(d), the agencies
would consider performance context information when applying the
performance tests, including the Retail Lending Test. In addition,
pursuant to final Sec. __.22(g), the agencies would consider the
specified additional factors when determining Retail Lending Test
conclusions.
The agencies considered, but are not adopting, an alternative of
creating a separate approach to the outside retail lending area
evaluation for internet banks. The agencies also believe that
constructing benchmarks by weighting lending in each individual product
line provides sufficient flexibility in representing the market
conditions in the geographic areas outside of a bank's assessment areas
that a separate and unique approach to constructing benchmarks for
internet banks is unnecessary. To the extent that the geographic areas
covered by an internet bank's closed-end home mortgage, small business,
or small farm lending differs from those of branch-based banks, the
product-specific weighting approach used to construct benchmarks for
outside retail lending areas will reflect those differences.
Section __.22(f) Retail Lending Test Recommended Conclusions
Section __.22(f)(1) In general
Section __.22(f)(2)(i) Geographic distribution supporting conclusions--
geographic distribution supporting conclusions for closed-end home
mortgage loans, small business loans, and small farm loans
Section __.22(f)(3)(i) Borrower distribution supporting conclusions--
borrower distribution supporting conclusions for closed-end home
mortgage loans, small business loans, and small farm loans
The Agencies' Proposal
For each of a bank's distribution metrics for each major product
line, the agencies proposed to compare a bank's level of lending to
specific quantitative standards.\934\ These standards would be set by a
methodology that uses data for the geographic area matching the
relevant distribution metric and maintains some key parts of how
examiners currently conduct examinations. In addition, the agencies
proposed to standardize and make performance expectations more
transparent relative to current CRA examinations. The agencies noted
that current CRA guidance and examination procedures do not specify how
much lending is necessary to achieve each conclusion.
---------------------------------------------------------------------------
\934\ See proposed Sec. __.22(d)(2)(ii) and (iii) and proposed
appendix A, sections II through IV.
---------------------------------------------------------------------------
The agencies proposed that each bank geographic and borrower
distribution metric would be compared to a set of performance ranges
that correspond to different conclusion categories: ``Outstanding,''
``High Satisfactory,'' ``Low Satisfactory,'' ``Needs to Improve,'' and
``Substantial Noncompliance.'' \935\ As provided in the proposal,
separate performance ranges would apply to geographic and borrower
distribution metrics for each proposed major product line, with the
exception of multifamily lending, and for each income level or revenue
level, as applicable.\936\
---------------------------------------------------------------------------
\935\ See proposed appendix A, section V.
\936\ See proposed Sec. __.22(d)(2)(ii)(D)(2) and proposed
appendix A, paragraphs V.2.b and V.2.c (geographic distribution
metrics) and proposed Sec. __.22(d)(2)(iii)(D)(2) and proposed
appendix A, paragraphs V.2.d and V.2.e (borrower distribution
metrics).
---------------------------------------------------------------------------
The agencies proposed that the thresholds for these performance
range categories would be calculated using community benchmarks and
market benchmarks. Specifically, the agencies proposed to use the
benchmarks to establish thresholds separating the conclusion
categories.\937\ The agencies proposed that the benchmarks would be
calibrated using multipliers, which are defined percentages for
aligning the benchmarks with the agencies' performance expectations for
specific supporting conclusions.\938\ For each major product line and
income category, the agencies proposed the process for determining
thresholds illustrated in Table 22:\939\
---------------------------------------------------------------------------
\937\ See proposed appendix A, paragraphs V.2.b (geographic
distribution performance) and V.2.d (borrower distribution
performance).
\938\ See id.; see also Table 8 to proposed Sec. __.22.
\939\ See id. The agencies explained their justifications for
the thresholds. After considering alternatives of 25 percent and 50
percent for the ``Needs to Improve'' threshold, the agencies arrived
at the conclusion that performance serving less than 33 percent of
the market or community benchmark was an appropriate threshold to
distinguish performance low enough to warrant the lowest conclusion
category and performance that is not satisfactory but is more
appropriately recognized as needing improvement. After considering
alternative market benchmark thresholds of 75 percent and 70 percent
and an alternative community threshold of 55 percent, the agencies
arrived at a market benchmark threshold of 80 percent and the
community benchmark threshold of 65 percent for the ``Low
Satisfactory'' threshold in the proposal, reflecting performance
that is adequate relative to opportunities. The agencies proposed
the ``High Satisfactory'' threshold at 110 percent for the market
benchmark in order to reserve the conclusion for banks that are not
just average, but a meaningful increment above the average of local
lenders. Similarly, a community benchmark threshold of 90 percent in
the proposal established a ``High Satisfactory'' conclusion if a
bank achieved close to per capita parity in its lending across
different income groups. The agencies selected a market benchmark
threshold of 125 percent for an ``Outstanding'' conclusion, setting
a threshold well in excess of the average of local lenders, while
simultaneously maintaining an attainable target for better bank
performance. The agencies explained further that a market benchmark
threshold of 125 percent ensures that an ``Outstanding'' conclusion
is awarded only to banks that have demonstrated an exceptional level
of performance. Finally, the agencies explained that setting the
community benchmark threshold at 100 percent would be an appropriate
aspirational goal for an ``Outstanding'' conclusion because bank
metrics and market benchmarks are usually below the community
benchmark and this benchmark threshold would represent equal per
capita lending to communities of different income levels.
---------------------------------------------------------------------------
[[Page 6881]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.031
The agencies analyzed historical bank lending data based on the
proposed multipliers and estimated the recommended conclusions banks
would have received. The agencies asked for feedback on alternatives to
the proposed market and community multipliers for each conclusion
category.
The agencies also noted in the proposal that the Board developed a
search tool, which includes illustrative examples of the thresholds and
performance ranges in a given geographic area, using historical lending
data.\940\ This tool provides illustrative examples of the thresholds
for the relevant performance ranges in each MSA, metropolitan division,
and county based on historical lending from 2017-2019.\941\
---------------------------------------------------------------------------
\940\ See Board, Community Reinvestment Act (CRA), ``Proposed
Retail Lending Test Thresholds Search Tool,'' https://www.federalreserve.gov/consumerscommunities/performance-thresholds-search-tool.htm.
\941\ See id.
---------------------------------------------------------------------------
The agencies proposed to use the lesser of the two calibrated
benchmarks (i.e., the calibrated market benchmark and the calibrated
community benchmark) to determine the applicable conclusion.\942\ In
addition, for the ``Outstanding,'' ``High Satisfactory,'' and ``Low
Satisfactory'' thresholds, the proposed multiplier for the market
benchmark would be higher than the multiplier for the community
benchmark. The agencies explained that using the lesser of the two
calibrated benchmarks would prevent the thresholds from becoming too
stringent in markets with fewer opportunities to lend to lower-income
communities or smaller establishments. The agencies also believed that
this approach would tend to assign more favorable recommended
conclusions in geographic areas where more banks were meeting the
credit needs of the community. The agencies requested feedback on
whether the proposed approach would set performance expectations too
low in places where all lenders, or a significant share of lenders, are
underserving the market and failing to meet community credit needs.
---------------------------------------------------------------------------
\942\ See proposed appendix A, paragraphs V.2.b (proposed
geographic distribution performance) and V.2.d (proposed borrower
distribution performance).
---------------------------------------------------------------------------
Comments Received
Approach to using the market and community benchmarks. The agencies
received a range of comments regarding the proposal to use the lower of
the calibrated benchmarks (the calibrated benchmark calculated using
the market benchmark and the calibrated benchmark calculated using the
community benchmark) when determining performance ranges--with a number
of commenters supporting the proposed approach.
In contrast, a commenter indicated that using the lower of the
calibrated
[[Page 6882]]
benchmarks may fail to incentivize banks to provide small-dollar home
mortgage loans that would better meet the credit needs of homebuyers in
relatively low-cost low- and moderate-income communities. Another
commenter indicated that the approach of using the lower of the two
calibrated benchmarks would result in performance ranges that do not
reflect credit demand in an area, and that it would be preferable to
base the performance ranges on only the market benchmark.
A number of commenters offered alternative suggestions for
developing the performance ranges, based upon using a weighted average
of the calibrated market benchmark and the calibrated community
benchmark, instead of using the lower of the two. For example, a
commenter suggested that the agencies aggregate all calibrated
benchmarks for a total CRA score or use a weighted average and consider
all calibrated benchmarks to provide a range of comparators to evaluate
how banks are meeting the needs of low- and moderate-income consumers.
Another commenter suggested that selecting the lower calibrated
benchmark, as proposed, could result in lower thresholds that inflate
CRA ratings; for example, in an assessment area where the calibrated
market benchmark is considerably lower than the calibrated community
benchmark, all banks could be underperforming in making retail loans to
low- and moderate-income borrowers and communities. To address this
concern, this commenter also recommended that, in cases where the
calibrated market benchmark is considerably lower than the calibrated
community benchmark and where that gap is not explained by performance
context, the agencies should calculate a weighted average of the two
benchmarks and reduce the weight of the market benchmark, taking into
account how much the benchmarks diverge and whether performance context
factors explain part of the discrepancy. Another commenter similarly
recommended that when the calibrated market benchmark is lower than the
calibrated community benchmark, the threshold should be a weighted
average of the two calibrated benchmarks, with 30 percent weight on the
market benchmark and 70 percent weight on the community benchmark.
Stringency of performance ranges. The agencies received a number of
comments regarding the multipliers and performance ranges in evaluating
a bank's retail lending performance. Several commenters generally
supported the agencies' proposed multipliers to align the market and
community benchmarks with the agencies' performance expectations. For
example, one commenter indicated that the agencies' proposed approach
would result in conclusions that would meaningfully reflect
distinctions in performance and avoid contributing to ratings
inflation.
On the other hand, many other commenters stated that the proposed
multipliers would set the thresholds for favorable conclusions overly
stringently such that they would be unachievable. For example, a
commenter opposed the performance ranges on the grounds that there has
been no indication that banks' CRA activities and performance have
declined in recent years and pointed out that Congress has not
authorized the agencies to increase the stringency of CRA performance
standards. This commenter suggested that the agencies should ensure
that the final rule does not lead to a dramatic downward shift in the
proportion of banks that receive ``Outstanding'' or ``Satisfactory''
conclusions and ratings, assuming that banks' underlying CRA retail
lending performance remains on par with current levels. The commenter
also stated it would be arbitrary and capricious to downgrade the
ratings for a broad portion of the industry. Relatedly, another
commenter indicated that the agencies should better recognize the
amount of effort that banks with favorable CRA conclusions and ratings
put in pursuant to the requirements of the current CRA regulations.
Another commenter asserted that the performance ranges should be set so
as to roughly match the current distribution of retail lending
performance conclusions. A number of commenters asserted that the
proposed approach would depress banks' overall Retail Lending Test
conclusions, and that banks would routinely have to surpass their prior
favorable retail lending performance levels, pursuant to the current
regulations, to ensure that they would not receive ``Needs to Improve''
or ``Substantial Noncompliance'' conclusions pursuant to the proposed
approach. A commenter questioned whether the agencies intentionally
proposed multipliers to cause a sharp increase in ``Low Satisfactory''
and ``Needs to Improve'' conclusions, as the commenter asserted was
reflected in the analysis presented in appendix A of the proposal.
A number of commenters asserted that the proposed performance
ranges would make it mathematically impossible for all banks in a given
assessment area to achieve favorable conclusions. A commenter expressed
concern that the proposed benchmarks, although based on a consistent
formula and set of data points, could create an unachievable target for
many banks. This commenter indicated that it would be mathematically
impossible for all of the banks in an assessment area to meet the
proposed thresholds for ``Outstanding'' and ``High Satisfactory''
conclusions, and the proposal would instead result in a ratings
distribution where more than one-third of banks failed. Another
commenter stated that the proposal would make it increasingly
challenging for banks to meet high thresholds year-over-year as they
focus on increasing their retail lending in the same markets. A
commenter expressed concern that it would be difficult for a financial
institution with a small geographic footprint and no low-income or
moderate-income census tracts within its assessment areas to achieve
better than ``Low Satisfactory'' conclusions.
Some commenters stated that the performance ranges approach was
inappropriate because a bank's metric could be compared to the
performance of other banks based on the market benchmark, which these
commenters described as equivalent to grading banks on a curve. A
commenter noted that banks should be evaluated without regard to how
other banks performed, and that all banks should be able to achieve an
``Outstanding'' or a ``Satisfactory'' conclusion.
A few commenters added that, in turn, the proposed performance
ranges could incentivize unsafe and unsound risk-taking as banks
competed more intensely against competitors in pursuit of favorable
performance conclusions. For example, a commenter stated that the
agencies should recalibrate the proposed performance ranges to be
ratings-neutral for large banks, so that banks would not be
incentivized to lower their standards of creditworthiness and
potentially experience credit quality issues.
Several commenters suggested alternative multiplier formulations
for establishing performance ranges. For example, commenters proposed
that the community benchmark multipliers be calibrated differently by
product line to reflect how different loan types serve low- and
moderate-income consumers and communities differently. A commenter
supported the agencies' proposed multipliers but also recommended using
the multipliers as a threshold compared to a ``parity ratio'' with the
objective of reducing complexity. Under this suggestion, a bank's
metric would be calculated as a ratio of the bank's percentage of loans
to certain borrowers or census tracts
[[Page 6883]]
relative to the corresponding benchmark. For example, if 11 percent of
the bank's closed-end home mortgage loans were to low-income borrowers,
and the corresponding benchmark for this category is 10 percent, the
bank's ratio under this approach would be 110 percent. This ratio could
be compared directly to the multipliers to determine the bank's
conclusion.
Another commenter suggested replacing the market and community
benchmarks altogether with an evaluation system based on statistical
confidence levels. Rather than evaluate a bank's performance based on
the difference between a bank's metric and the market or community
benchmark, this commenter suggested that the evaluation be based on the
likelihood that the difference between the bank's metric and the market
benchmark was the result of random chance. In effect, this would
replace the uniform thresholds that the proposed rule would apply to
all banks in the same assessment area with ones that vary based upon
the number of loans each bank originates or purchases in that
assessment area and on the number of loans originated by the market as
a whole.
Comments on specific conclusion thresholds and performance ranges.
Other commenters expressed that the proposed performance ranges
essentially put achieving ``Outstanding'' retail lending performance
out of reach and would reduce banks' incentives to increase retail
lending to improve their retail lending performance. For example, a
commenter noted that the high bar for an ``Outstanding'' conclusion
would, contrary to the agencies' goals, discourage banks from striving
for ``Outstanding'' performance because they would have little
incentive to develop or initiate responsive credit programs beyond
those that will produce a ``Satisfactory'' conclusion. Another
commenter noted that the benchmark for an ``Outstanding'' conclusion
disadvantages banks with substantial market share compared to banks
with smaller market share, which could more easily improve their
lending distributions. A commenter stated that fewer than two percent
of current banking system assets would currently meet or exceed the
market benchmark threshold for an ``Outstanding'' conclusion, so most
banks would be motivated to seek only a ``Satisfactory.'' Another
commenter noted that the proposed Retail Lending Test would account for
75 percent of retail performance, yet the performance ranges for Retail
Lending Test are prohibitively high such that lowering them may
encourage banks to strive for ``Outstanding'' performance. Another
commenter stated that banks would not have a reasonable chance of
attaining an ``Outstanding'' conclusion and also asserted that, based
on the agencies' own analysis, no bank with assets exceeding $50
billion would achieve an ``Outstanding.''
A number of commenters recommended specific alternative multiplier
values for certain performance ranges or suggested adjustments to how
the agencies would apply the performance ranges. A commenter suggested
lowering multiplier values and, in turn, the thresholds for the
performance ranges so that the ``Outstanding'' performance range would
correspond to between 90 percent and 100 percent of the market
benchmark and the ``High Satisfactory'' performance range would
correspond to between 80 percent and 90 percent of the market
benchmark. Another commenter recommended adjusting the performance
ranges to more reasonably allow for a bank to achieve an
``Outstanding'' rating (and also to ensure that banks that achieve 100
percent of the market benchmark receive more than a ``Low
Satisfactory'' conclusion). Another commenter suggested lowering some
of the proposed multipliers for the market and community benchmarks.
This commenter suggested that, for example, an ``Outstanding''
conclusion should correspond to the lesser of 110 percent or higher of
the market benchmark or 100 percent or higher of the community
benchmark. Conversely, another commenter suggested raising the ``Needs
to Improve'' multiplier for the market benchmarks from 33 percent to 48
percent, so the community benchmark, unchanged at 33 percent, would be
binding more often. This commenter also proposed to set the community
benchmark for ``Outstanding'' higher than 100 percent to maintain a
meaningful distinction between the benchmarks. Another commenter
proposed alternative multiplier values to measure, and terminology to
describe, retail lending performance. This commenter proposed to use
the term ``Adequate'' to correspond to performance between 70 percent
to 89 percent of market and community benchmarks, the term ``Good'' to
correspond to performance between 90 percent and 109 percent of the two
benchmarks, and the term ``Excellent'' to correspond to performance at
110 percent or more of the benchmarks.
Some commenters expressed that the distribution analysis should
involve qualitative considerations and not be based solely on the
performance ranges. For example, a commenter stated that the agencies
should consider calculations with simpler thresholds that can be
modified by examiners as informed by performance context. Another
commenter further recommended that the agencies issue guidance stating
that market benchmarks are not absolute criteria for conclusions.
One commenter stated that the agencies should develop guidance and
a new appendix to replace proposed appendix A with more detailed
descriptions of how ratings would correlate to how a bank's performance
compares against the benchmarks.
Final Rule
Section __.22(f) Retail Lending Test Recommended Conclusions
Section __.22(f)(1) In General
Final Sec. __.22(f)(1) indicates that, with two exceptions, the
agencies develop a Retail Lending Test recommended conclusion for each
of a bank's Retail Lending Test Areas based on the distribution
analysis described in final Sec. __.22(e) and using performance
ranges, supporting conclusions, and product line scores. Consistent
with the proposed approach, the agencies will develop a separate
supporting conclusion for each category of designated census tracts and
designated borrowers described in paragraphs V.a and VI.a of final
appendix A. However, as specified in final Sec. __.22(b)(5)(i) and
(c)(3)(iii)(A), the agencies do not develop a Retail Lending Test
recommended conclusion if a bank has no major product lines in a Retail
Lending Test Area or if a large bank lacks an acceptable basis for not
meeting the Retail Lending Volume Threshold in a facility-based
assessment area.
The term ``supporting conclusion'' represents a technical revision
from the proposal intended to provide additional clarity regarding the
agencies' approach for developing Retail Lending Test recommended
conclusions. The agencies believe this term helps to distinguish
between: supporting conclusions that are assigned to each product line
for each category of designated census tracts and designated borrowers;
recommended conclusions that are assigned to each Retail Lending Test
Area; and conclusions that are assigned to each Retail Lending Test
Area, State, multistate MSA, and to the institution. Additionally, the
agencies have employed the terms ``designated census tract'' (i.e.,
low-income census tracts or moderate-income census tracts, as
applicable) and ``designated
[[Page 6884]]
borrower'' (i.e., low-income borrowers; moderate-income borrowers;
businesses with gross annual revenues of $250,000 or less; businesses
with gross annual revenues of more than $250,000 but less than or equal
to $1 million; farms with gross annual revenues of $250,000 or less;
and farms with gross annual revenues of more than $250,000 but less
than or equal to $1 million, as applicable) to streamline the
regulatory text and increase clarity.
Section __.22(f)(2)(i) Geographic distribution supporting conclusions
for closed-end home mortgage loans, small business loans, and small
farm loans
Section __.22(f)(3)(i) Borrower distribution supporting conclusions for
closed-end home mortgage loans, small business loans, and small farm
loans
Overview
As provided in final Sec. __.22(f)(2)(i) and (f)(3)(i) and section
V of final appendix A, the agencies are finalizing the core methodology
of their proposal to translate the proposed benchmarks into the four
supporting conclusion performance thresholds for three product lines:
closed-end home mortgage loans; small business loans; and small farm
loans. Upon consideration of commenter input and additional analysis,
the final rule includes modifications to several of the proposed
multiplier values, and as a result, ``Outstanding,'' ``High
Satisfactory,'' and ``Low Satisfactory'' Retail Lending Test
conclusions are generally more attainable relative to the proposed
approach.\943\
---------------------------------------------------------------------------
\943\ In addition, as discussed in the section-by-section
analysis of final Sec. __.22(d), unlike in the proposal, the
agencies will not evaluate open-end home mortgage lending and
multifamily lending as major product lines; consequently, the
agencies will not employ multipliers and performance ranges with
respect to evaluating these loans. As discussed below, although the
agencies will evaluate automobile lending as a product line, as
applicable, the agencies will not evaluate automobile lending using
same methodology as proposed or as applied to other product lines
pursuant to final Sec. __.22(f).
---------------------------------------------------------------------------
Table 23 compares the proposed multipliers to those adopted in the
final rule.
[GRAPHIC] [TIFF OMITTED] TR01FE24.032
Approach to using the market and community benchmarks. Consistent
with the agencies' proposal, under the final rule, the performance
ranges are set by establishing thresholds for each conclusion category.
Each threshold is determined by selecting the lesser of the following:
The result of multiplying the market benchmark by the
market multiplier (i.e., the calibrated market benchmark); and
The result of multiplying the community benchmark by the
community multiplier (i.e., the calibrated community benchmark).
The agencies would compare each metric to the performance ranges,
and assign the corresponding supporting conclusion based on the lesser
of calibrated community benchmark and the calibrated market benchmark.
This approach is reflected in Table 24.
[[Page 6885]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.033
The agencies believe that as a result of the approach of using the
lesser of the two calibrated benchmarks, coupled with the comparatively
higher market multipliers relative to the community multipliers, ``Low
Satisfactory'' and higher conclusions are generally attainable.
Furthermore, the agencies believe this approach effectively
distinguishes between ``Outstanding, ``High Satisfactory,'' and ``Low
Satisfactory'' performance. For example, as discussed below, the
agencies believe that a bank metric equal to 100 percent of the
community benchmark represents ``Outstanding'' performance because it
reflects a level of lending that is proportionate with the potential
borrowers in the area. However, the agencies determined that a bank
metric equal to 100 percent of the market benchmark does not represent
``Outstanding'' performance if the community benchmark is higher than
the market benchmark. In this scenario, the bank's performance is
exactly average among lenders in the area, and the bank's lending is
not proportionate with the potential borrowers in the area because the
relevant metric is lower than the community benchmark. Setting the
market multipliers for an ``Outstanding'' supporting conclusion
comparatively higher than the corresponding community multipliers
therefore recognizes banks that are significantly exceeding, rather
than only equaling, the market average in areas where the market
benchmark is lower than the community benchmark. Likewise, for other
supporting conclusion categories, setting the market multipliers higher
than corresponding community multipliers reflects that, depending on
market conditions and the performance context of an area, meeting or
surpassing market benchmarks may generally be more attainable for a
bank than meeting or surpassing community benchmarks.
In finalizing the proposed approach of selecting the lesser of the
threshold based on the calibrated market benchmark and the threshold
based on the calibrated community benchmark, the agencies also
considered alternatives raised by commenters, including the suggestion
to calculate an average of the two calibrated benchmarks rather than
selecting the lesser of the two. The agencies have considered that
calculating the average of the calibrated benchmarks could potentially
address a scenario in which the calibrated market benchmark is
significantly lower than the calibrated community benchmark due to
lenders in the area not meeting the credit needs of the community,
which could result in performance ranges that are unduly low. However,
the agencies believe that averaging the two calibrated benchmarks could
also result in performance ranges that are too stringent, especially in
areas where the calibrated market benchmark is lower than the
calibrated community benchmark. For example, in an area that lacks
housing that is affordable for low-income families, the calibrated
market benchmarks for closed-end home mortgage lending may be
considerably lower than the corresponding calibrated community
benchmarks, and the agencies believe that averaging the two calibrated
benchmarks together could result in performance expectations that are
set too high. The agencies also recognize that an approach suggested by
commenters to average the two benchmarks only when the calibrated
market benchmark is significantly lower than the calibrated community
benchmark could partially address this concern, but would present other
challenges. Specifically, the agencies believe that averaging the two
benchmarks only under certain conditions would increase the complexity
of the Retail Lending Test and would be counter to the agencies'
objectives of increasing the transparency and predictability of
evaluations. Moreover, the agencies believe that the scenario of a
Retail Lending Test Area in which lenders in the aggregate are not
meeting community credit needs can be addressed through the application
of the additional factor in final Sec. __.22(g)(7). As discussed in
the section-by-section analysis of final Sec. __.22(g)(7), this
additional factor provides that when determining Retail Lending Test
conclusions, the agencies may consider ``information indicating that
the credit
[[Page 6886]]
needs of the facility-based assessment area or retail lending
assessment area are not being met by lenders in the aggregate, such
that the relevant benchmarks do not adequately reflect community credit
needs.'' As suggested by commenters, the application of this additional
factor may take into account the performance context of a Retail
Lending Test Area.
Regarding the commenter view that this additional factor could be
applied based on the difference between the actual and predicted market
benchmarks, the agencies are not adopting this approach in the final
rule because further analysis is necessary to develop statistical
models that calculate a predicted market benchmark, as discussed in the
section-by-section analysis of final Sec. __.22(g)(7).
Multiplier Values. In the final rule, as provided in section V of
final appendix A, the agencies are adjusting downward certain proposed
market multipliers and community multipliers applicable to closed-end
home mortgage loans, small business loans, and small farm loans. As a
result of these changes, the agencies believe that the final rule
performance ranges are appropriately aligned with the conclusion
categories and that the ``Low Satisfactory'' and higher conclusion
categories on the Retail Lending Test are generally attainable. In
making these adjustments, the agencies considered the comments
discussed above that offered different perspectives on the stringency
of the proposed Retail Lending Test. The agencies believe that the
adjustments to multiplier values are responsive to comments that
``Outstanding'' and ``High Satisfactory'' conclusions would not be
attainable under the proposed approach and that the proposed multiplier
values would deter retail lending and raise safety and soundness risk.
Specifically, as informed by additional agency analysis described
in the historical analysis section, below, the agencies have determined
that ``Outstanding,'' ``High Satisfactory,'' and ``Low Satisfactory''
Retail Lending Test conclusions are generally attainable under the
final rule approach. When applying the final rule approach to the 2018-
2020 period, the agencies estimated that approximately 90 percent of
banks included in the analysis would have achieved an ``Outstanding,''
``High Satisfactory,'' or ``Low Satisfactory'' Retail Lending Test
conclusion for the institution, and that a ``High Satisfactory''
conclusion would have been the most frequently assigned conclusion.
Similarly, when calculating Retail Lending Test recommended conclusions
for facility-based assessment areas based on the performance ranges
approach, approximately 87 percent of facility-based assessment areas
for banks included in the analysis would have received an
``Outstanding,'' ``High Satisfactory,'' or ``Low Satisfactory''
recommended conclusion, and a ``High Satisfactory'' would have been the
most frequently assigned recommended conclusion.\944\ The Retail
Lending Test recommended conclusions assigned in retail lending
assessment areas and outside retail lending areas would have been
somewhat lower than in facility-based assessment areas, based on the
agencies' estimates; approximately 78 percent of retail lending
assessment areas, and 71 percent of outside retail lending areas, for
banks included in the analysis, would have received an ``Outstanding,''
``High Satisfactory,'' or ``Low Satisfactory'' recommended conclusion.
The agencies considered a number of data limitations and other factors
when interpreting the results of the analysis of Retail Lending Test
performance based on historical data, as discussed in the historical
analysis section.
---------------------------------------------------------------------------
\944\ The agencies did not estimate recommended conclusions for
facility-based assessment areas in which the Bank Volume Metric did
not surpass the Retail Lending Volume Threshold, which was
approximately 3 percent of facility-based assessment areas in this
analysis.
---------------------------------------------------------------------------
The agencies also considered comments that suggested that Retail
Lending Test conclusions under the proposed approach would be
significantly lower than those under the current approach, as well as
those comments that the agencies should set multiplier values that
result in a similar distribution of conclusions to the current
approach. The agencies believe that the final rule multiplier values
are appropriately aligned with the conclusion categories and that ``Low
Satisfactory'' or higher Retail Lending Test conclusions are generally
attainable. As also noted by some commenters, the agencies also believe
that the performance ranges approach will more effectively distinguish
between different levels of performance than the current approach,
which lacks specific defined thresholds corresponding to each
supporting conclusion category. Additionally, as noted above, the
agencies intend to disclose data on the benchmarks and performance
ranges that would assist banks in identifying Retail Lending Test Areas
in which the bank may be underperforming, such that a bank may improve
its performance accordingly.
The agencies also considered comments stating that it would be
mathematically impossible for banks to meet the proposed thresholds or
to achieve ``Outstanding'' or ``High Satisfactory'' conclusions. The
agencies believe that the historical analysis indicates that
``Outstanding,'' ``High Satisfactory,'' and ``Low Satisfactory''
conclusions are generally attainable. Furthermore, the agencies
considered that, as a result of the approach of using the lower of the
two calibrated benchmarks to set the performance threshold for a given
supporting conclusion, a bank surpassing the calibrated community
benchmark for a given supporting conclusion will always receive at
least that supporting conclusion. For example, a bank whose metric
exceeds the calibrated community benchmark for ``High Satisfactory''
will receive a supporting conclusion of either ``Outstanding'' or
``High Satisfactory'' for the associated distribution test, even if the
bank metric does not exceed the calibrated market benchmark for a
``High Satisfactory'' supporting conclusion. In addition, the agencies
note that the final rule market multiplier for ``Low Satisfactory'' is
80 percent, consistent with the proposal. As a result, banks are never
required to exceed the average of all lenders in a Retail Lending Test
Area to achieve a ``Low Satisfactory'' supporting conclusion, and it is
possible for all banks in a Retail Lending Test Area to exceed the
``Low Satisfactory'' threshold for any distribution. The agencies also
determined that the level of the ``Low Satisfactory'' market multiplier
reduces the possibility that the market benchmarks will increase over
time in a manner that makes the performance ranges unattainable,
because banks are not required to exceed the market average to attain a
``Low Satisfactory'' supporting conclusion.
Relatedly, the agencies believe that the final rule approach
addresses concerns from some commenters that a bank with significant
market share in an area would be unable to exceed the threshold for an
``Outstanding'' or ``High Satisfactory'' supporting conclusion that is
based on the calibrated market benchmark. First, the agencies have
adjusted the market multiplier for an ``Outstanding'' supporting
conclusion from 125 percent to 115 percent. As a result, in a Retail
Lending Test Area in which the ``Outstanding'' supporting conclusion
performance range is based upon the calibrated market benchmark, a bank
must exceed the market benchmark by 15 percent, rather than the
proposed margin of 25 percent, to achieve an ``Outstanding'' supporting
conclusion. The agencies believe that
[[Page 6887]]
this change helps to make the ``Outstanding'' supporting conclusion
more attainable relative to the proposal, particularly in areas where
barriers to serving low- and moderate-income borrowers and low- and
moderate census tracts make it challenging to surpass the calibrated
community benchmark. Second, the agencies believe that the additional
factor in final Sec. __.22(g)(3)--the number of lenders whose reported
home mortgage loans, multifamily loans, small business loans, and small
farm loans and deposits data are used to establish the applicable
Retail Lending Volume Threshold, geographic distribution market
benchmarks, and borrower distribution market benchmarks--would allow
the agencies to consider the scenario identified by commenters in
which, due to a limited number of lenders included in the market
benchmark for the area, the bank's own lending comprises a significant
share of the loans included in the market benchmark.\945\ Finally, as
noted above, the agencies determined that the market multipliers do not
mathematically limit a bank with a large market share in an area to any
particular conclusion level, because surpassing the calibrated
community benchmark for a given supporting conclusion ensures that a
bank receives a supporting conclusion of at least that level.
---------------------------------------------------------------------------
\945\ See also the section-by-section analysis of final Sec.
__.22(g).
---------------------------------------------------------------------------
Use of thresholds over time. The agencies also considered comments
suggesting that the final rule's performance ranges will increase and
become unattainable over time as a result of banks attempting to exceed
the market benchmarks. However, the agencies determined that the
approach of using the lower of the calibrated market benchmark and the
calibrated community benchmark addresses this concern. For example, in
the event that the market benchmark increases over time, such that 115
percent times the market benchmark (i.e., the calibrated market
benchmark) exceeds 100 percent times the community benchmark (i.e., the
calibrated community benchmark), then the ``Outstanding'' supporting
conclusion threshold would be based on the calibrated community
benchmark. Any further increase in the market benchmark would not
affect the performance range for an ``Outstanding'' supporting
conclusion, since the calibrated market benchmark exceeds the
calibrated community benchmark. In addition, as noted above, the market
multiplier for a ``Low Satisfactory'' supporting conclusion under the
final rule approach is 80 percent. As a result, a bank is never
required to exceed the market benchmark in order to earn at least a
``Low Satisfactory'' supporting conclusion, and it is mathematically
possible for all banks in a Retail Lending Test Area to earn a ``Low
Satisfactory'' or higher supporting conclusion.
Peer comparisons. The final rule retains the proposed approach of
using both market benchmarks and community benchmarks to develop
performance ranges, and does not adopt suggestions from commenters to
remove peer comparisons from the Retail Lending Test evaluation
approach to avoid what some commenters described as ``grading on a
curve.'' The agencies note that the market and community benchmarks
leverage current practice. The agencies' proposal incorporates specific
threshold calculations for each supporting conclusion category in order
to reduce the potential for inconsistency that can occur without clear
performance expectations when comparing a bank's metrics and
benchmarks, as well as to increase the transparency of evaluations. In
addition, the agencies believe that the market benchmark is an
essential component of the Retail Lending Test because it incorporates
certain performance context information into the performance ranges in
a manner that is consistent and transparent. Specifically, the agencies
determined that the market benchmark reflects the credit needs and
opportunities of an area, and can adjust to changes in those credit
needs and opportunities over time in response to economic circumstances
and other factors.
Furthermore, the agencies find that the final rule's use of the
lesser of the calibrated market benchmark and the calibrated community
benchmark to set performance ranges does not constrain a bank's Retail
Lending Test recommended conclusion and does not require a certain
percentage of banks to receive any particular recommended conclusion in
a Retail Lending Test Area. For example, because the performance
threshold for each performance range is based on the lower of the
calibrated market benchmark and the calibrated community benchmark,
surpassing the calibrated community benchmark for an ``Outstanding''
supporting conclusion always results in an ``Outstanding'' supporting
conclusion, regardless of the value of the calibrated market benchmark.
In addition, the agencies find that even when all performance ranges
are based on the calibrated market benchmarks it is possible for all
banks in a Retail Lending Test Area to exceed the ``Low Satisfactory''
supporting conclusion threshold.
Safe and sound lending. The agencies considered comments that the
proposed multipliers and performance ranges would potentially encourage
banks to lend in an unsafe and unsound manner. However, as discussed
above, the agencies believe that ``Low Satisfactory'' and higher
conclusions are generally attainable under the final rule approach, and
that banks can meet the credit needs of the community without resorting
to unsafe and unsound lending. Specifically, the agencies' analysis
indicates that applying the final rule approach to historical lending
data from 2018-2020 approximately 90 percent of banks included in the
analysis would have received an overall Retail Lending Test conclusion
of ``Low Satisfactory'' or higher at the institution level, with ``High
Satisfactory'' the most frequent conclusion. In addition, final Sec.
__.21(d)(1) provides that the agencies will consider performance
context reflecting whether a bank's Retail Lending Test performance was
constrained by safety and soundness limitations when assigning
conclusions.
Lack of low- and moderate-income census tracts. The agencies
considered a comment that in a facility-based assessment area with no
low- or moderate-income census tracts a bank would not be able to
achieve higher than a ``Low Satisfactory'' conclusion. The agencies
note that under the proposed and final rule alike there would be no
geographic distribution analysis in a Retail Lending Test Area with no
low- and moderate- income census tracts, and the recommended conclusion
would be based solely on the borrower distribution analysis. As a
result, a lack of low- and moderate- income census tracts does not
limit a bank's recommended conclusion to a ``Low Satisfactory.'' In
addition, as discussed in the section-by-section analysis of final
Sec. __.22(g), final Sec. __.22(g)(6) provides that the agencies
would consider whether there were very few or no low- and moderate-
income census tracts when determining a bank's conclusion in a
nonmetropolitan facility-based assessment area or nonmetropolitan
retail lending assessment area.
Separate multipliers for each product line. As proposed, the final
rule incorporates one community multiplier and one market multiplier in
determining each performance range threshold, applicable to all product
lines (although market benchmarks and multipliers would not apply in
automobile lending evaluations). The agencies considered, but are not
[[Page 6888]]
adopting, a commenter suggestion that the agencies develop a separate
set of multipliers for each product line. The agencies considered that
separate multipliers for each product line might help to account for
differences in low- and moderate-income credit needs and opportunities
across different types of products. However, the agencies determined
that the approach of using a single set of multipliers for all product
lines appropriately calibrates performance expectations and that the
potential advantages of separate multipliers for each product line
would be outweighed by the additional complexity of this approach.
Specifically, the agencies considered that the proposed and final rule
approaches include a single set of eight multipliers (four community
multipliers and four market multipliers) while the alternative approach
could include as many as 24 multipliers (eight multipliers each for
closed-end home mortgage loans, small business loans, and small farm
loans), and that the larger number of multipliers would increase the
complexity of the Retail Lending Test.
``Parity ratio'' and ``statistical confidence'' alternatives. The
agencies are finalizing the proposed approach of comparing a bank's
metric to the performance ranges, and are not adopting the ``parity
ratio'' or ``statistical confidence'' alternatives suggested by
commenters. The agencies believe that it is more transparent and less
complex to use bank metrics that reflect the bank's percentage of loans
to designated borrowers--rather than to use alternative bank metrics
that are: (1) based on the bank's percentage of loans to designated
borrowers divided by the market benchmark or the community benchmark;
or (2) based on the likelihood that the difference between the bank's
metric and the market benchmark was the result of random chance.
The agencies determined that the ``parity ratio'' alternative
approach would reduce the transparency of the performance standards of
the Retail Lending Test. The agencies believe that it is more
transparent to calculate the metrics, benchmarks, and performance
ranges in terms of the percentage of loans to designated census tracts
and to designated borrowers. The parity ratio alternative would employ
ratios that would need to be recalculated in order to assess what
percentage of loans to designated census tracts and to designated
borrowers, respectively, is needed in order to meet or surpass each
performance range threshold.
The agencies also considered, but are not adopting, the
``statistical confidence'' approach, in which the performance ranges
would be based on the likelihood that the difference between a bank's
metric and the market benchmark was the result of random chance. The
agencies determined that, in addition to adding complexity, this
approach would result in inconsistent performance standards for
different banks. For example, in an MSA like the Baltimore-Columbia-
Towson MSA, where 8.5 percent of closed-end home mortgage loans were to
low-income borrowers, a bank whose metric of 7.0 percent was based on
100 loans would be estimated to receive a ``Low Satisfactory''
supporting conclusion because the probability that the difference
between its metric and the market benchmark is the result of random
chance exceeds 10 percent. But other banks with the same metrics that
originate or purchase 1,000 or 10,000 closed-end home mortgage loans
would receive supporting conclusions of ``Needs to Improve'' or
``Substantial Noncompliance,'' respectively, because their metrics are
less likely to have been caused by random chance on account of their
larger loan counts.\946\ The agencies instead determined that it is
preferable to apply the same benchmarks and performance ranges to all
banks in the same Retail Lending Test Area.
---------------------------------------------------------------------------
\946\ This example is based on data from the CRA Analytics
Tables for the Baltimore-Columbia-Towson MSA. During the 2018-2020
evaluation period, there were 263,261 closed-end mortgages
originated of which 22,281 were to low-income borrowers. The
probabilities were calculated for the banks using a hypergeometric
distribution, as suggested by the commenter. Supporting conclusions
were assigned using the suggested thresholds of 1 percent for a
``Needs to Improve'' supporting conclusion and 10 percent for a
``Low Satisfactory'' supporting conclusion.
---------------------------------------------------------------------------
Multipliers for ``Outstanding'' Supporting Conclusion. The
agencies' multipliers for the calibrated benchmarks used to determine
the ``Outstanding'' supporting conclusion threshold are shown in Table
25.
[GRAPHIC] [TIFF OMITTED] TR01FE24.034
As indicated in section V of final appendix A, the agencies are
setting the market multiplier at 115 percent for the calibrated market
benchmark for an ``Outstanding'' supporting conclusion, which is 10
percentage points lower than the proposed level of 125 percent. In
deciding to decrease the market multiplier for ``Outstanding''
performance, the agencies considered comments that the proposed level
of 125 percent represents performance that is so significantly above
average in an area that some banks may determine that it is not
attainable, inadvertently discouraging such banks from pursuing an
``Outstanding'' conclusion. The agencies also considered comments that
in a Retail Lending Test Area in which a bank holds significant market
share, and in which the bank's own lending is
[[Page 6889]]
therefore a significant component of the market benchmark, it would be
difficult to surpass the proposed level of 125 percent of the market
benchmark.
In determining the appropriate level of the final rule's
``Outstanding'' market multiplier, the agencies considered options
suggested by commenters that performance greater than or equal to the
average of all lenders in the area should receive an ``Outstanding''
supporting conclusion, including in an area in which the market
benchmark is less than the community benchmark. However, the agencies
generally do not believe that the ``Outstanding'' supporting conclusion
should correspond to performance that is merely average among all
lenders, unless the bank's metric also surpasses the community
benchmark (i.e., unless the market benchmark is close to or greater
than the community benchmark, and therefore the threshold for an
``Outstanding'' supporting conclusion is based on the community
benchmark). Rather, in cases where the ``Outstanding'' threshold is
based on the market benchmark, the agencies believe that an
``Outstanding'' supporting conclusion should correspond to performance
that is meaningfully above average. In reaching this determination, the
agencies also considered comments that supported the proposed
multiplier values as appropriately rigorous. Consequently, the agencies
believe that the final rule multiplier value of 115 percent represents
an appropriate reduction from the proposed levels that would address
the concerns expressed by commenters, while also ensuring the
``Outstanding'' performance range corresponds to performance that is
meaningfully above average in an area.
Consistent with the proposed approach, as indicated in section V of
final appendix A the agencies are setting community multiplier for an
``Outstanding'' supporting conclusion at 100 percent. The agencies
believe that setting this multiplier at 100 percent is appropriate
because it represents lending to borrowers and census tracts of
different income levels in equal proportion to community benchmarks
reflecting the potential lending opportunities for designated borrowers
and designated tracts of the same income (or gross annual revenue)
levels, which aligns with CRA's emphasis on serving the credit needs of
the entire community. For example, if a bank's metric for the moderate-
income closed-end home mortgage borrower distribution in a Retail
Lending Test Area is 20 percent and the community benchmark (i.e., the
percentage of families in the Retail Lending Test Area that are
moderate-income families) is also 20 percent, then the bank's share of
lending to moderate-income families was proportionate to the share of
moderate-income families in the area. A community multiplier greater
than 100 percent would represent that a bank's share of lending to
designated borrowers and designated census tracts in a Retail Lending
Test Area must be disproportionately high relative to the presence of
those borrowers and census tracts in the area in order to merit an
``Outstanding'' supporting conclusion, which the agencies do not
believe is an appropriate standard.
Multipliers for ``High Satisfactory'' Supporting Conclusion. The
agencies' multipliers for the calibrated benchmarks used to determine
the ``High Satisfactory'' supporting conclusion threshold are shown in
Table 26.
[GRAPHIC] [TIFF OMITTED] TR01FE24.035
As indicated in section V of final appendix A, the agencies are
setting the market multiplier for the calibrated market benchmark used
to determine a ``High Satisfactory'' supporting conclusion at 105
percent, five percentage points lower than the proposed level of 110
percent. The agencies decided to decrease this multiplier from the
proposed level is based on similar reasons as those discussed above
with regard to the ``Outstanding'' market multiplier. In addition, the
agencies believe that a ``High Satisfactory'' market multiplier at the
proposed level of 110 percent would result in a ``High Satisfactory''
performance range that is overly narrow, ranging from 110 percent to
115 percent. The agencies also considered setting this multiplier at
100 percent so that the difference between the ``Outstanding'' and
``High Satisfactory'' market multipliers would be similar to the
difference between the ``High Satisfactory'' and ``Low Satisfactory''
market multipliers. However, the agencies determined that the ``High
Satisfactory'' market multiplier should result in a calibrated market
benchmark that is at least slightly above the market benchmark, rather
than equal to the market benchmark. In making this determination, the
agencies decided that in an area where the performance ranges are based
on the market benchmark, bank performance that is exactly equal to the
market average, or only marginally above the market average, should
correspond to a ``Low Satisfactory.'' The agencies believe that
defining the ``High Satisfactory'' supporting conclusion category in
this way will appropriately distinguish
[[Page 6890]]
higher performance from performance that is average.
Consistent with the proposal, as indicated in section V of final
appendix A, the agencies are setting the ``High Satisfactory''
community multiplier at 80 percent. Based on supervisory experience,
the agencies believe that this multiplier appropriately represents a
level of lending that is somewhat less than proportionate to the share
of designated borrowers or designated census tracts in the Retail
Lending Test Area, and sufficiently distinguishes a ``High
Satisfactory'' supporting conclusion from an ``Outstanding'' supporting
conclusion. This determination takes into consideration that
opportunities to lend to designated borrowers or designated census
tracts may be constrained to a level below the community benchmark. For
example, the agencies note that some share of low-income families may
not be in the marketplace for closed-end home mortgage loans for
reasons beyond any ability of banks or other home mortgage lenders to
market or structure loans that might meet their financial situations;
accordingly, if 10 percent of families in a Retail Lending Test Area
are low-income, for example, then a calibrated community benchmark of 8
percent is appropriate to set the threshold for a ``High Satisfactory''
supporting conclusion. Additionally, the agencies believe that lowering
this multiplier below 80 percent would result in an overly broad
performance range for a ``High Satisfactory'' supporting conclusion.
Multipliers for ``Low Satisfactory'' Supporting Conclusion. The
agencies' multipliers for the calibrated benchmarks used to determine
the ``Low Satisfactory'' supporting conclusion threshold are shown in
Table 27.
[GRAPHIC] [TIFF OMITTED] TR01FE24.036
Consistent with the proposed approach, as indicated in section V of
final appendix A the agencies are setting the market multiplier for the
calibrated market benchmark used to determine a ``Low Satisfactory''
supporting conclusion at 80 percent. The agencies believe that this
multiplier value appropriately represents lending to designated
borrowers or designated census tracts that is adequate, but that is
also below average. The agencies considered alternative market
multipliers of 75 percent and 70 percent, but decided that these levels
would be too far below average to demonstrate adequately meeting
community credit needs. In addition, the agencies considered that
decreasing the multiplier would result in a ``Low Satisfactory''
performance range that is overly broad compared to the ``High
Satisfactory'' performance range. The agencies also considered
thresholds higher than 80 percent, such that ``Low Satisfactory''
supporting conclusions would be reserved for performance that is at
least close to average. However, as discussed above, the agencies
considered that setting the ``Low Satisfactory'' threshold at or close
to the market average might impede the ability of all banks to obtain a
``Low Satisfactory'' or higher supporting conclusion in an area where
the performance ranges are based on the market benchmark. Instead, at
the final rule market multiplier value of 80 percent, the agencies
believe that ``Low Satisfactory'' or higher performance is generally
attainable for all banks.
As indicated in section V of final appendix A, the agencies are
setting the community multiplier for ``Low Satisfactory'' at 60
percent, five percentage points lower than the proposed level of 65
percent. The agencies believe that a downward adjustment from the
proposed level of this multiplier is appropriate to address commenter
concerns regarding the stringency of the Retail Lending Test. The
agencies also considered a community multiplier of 55 percent for a
``Low Satisfactory'' supporting conclusion, but determined that the
multiplier should be meaningfully greater than 50 percent to reflect a
bank adequately meeting community credit needs.
As noted above, in determining the market and community multiplier
values for ``Low Satisfactory'' performance, the agencies considered
that the ``Low Satisfactory'' conclusion reflects that a bank is
adequately meeting the credit needs of its community. This is distinct
from the ``Needs to Improve'' and ``Substantial Noncompliance''
conclusion categories, both of which reflect that a bank is not
adequately meeting the credit needs of its community. The agencies note
that both ``High Satisfactory'' and ``Low Satisfactory'' performance
correspond to the overall ``Satisfactory'' rating category.
Multipliers for ``Needs to Improve'' Supporting Conclusion. The
agencies' multipliers for the calibrated benchmarks used to determine
the ``Needs to Improve'' supporting conclusion threshold are shown in
Table 28.
[[Page 6891]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.037
Consistent with the proposed approach, as indicated in section V of
final appendix A, the agencies are setting the market multiplier for
the calibrated market benchmark used to determine a ``Needs to
Improve'' supporting conclusion at 33 percent. The agencies believe
that a ``Substantial Noncompliance'' supporting conclusion should be
reserved for performance that is extremely inadequate, and determined
that approximately one-third of the market benchmark is an appropriate
standard. The agencies considered, but are not adopting, a suggested
multiplier of 48 percent because the agencies believe that would result
in assigning a ``Substantial Noncompliance'' supporting conclusion in
cases where a bank's performance is lacking, but is not extremely
inadequate.
As indicated in section V of final appendix A, the agencies are
setting the community multiplier for a ``Needs to Improve'' supporting
conclusion at 30 percent, three percentage points lower than the
proposed level of 33 percent. The agencies believe that this adjustment
is appropriate because for all of the other supporting conclusion
categories the community multiplier is a lower value than the market
multiplier, which reflects that the community benchmark is often
greater than the market benchmark.
Examples of Performance Ranges Methodology
The following outlines how the performance ranges would be
calculated and applied to a geographic distribution for closed-end home
mortgage loans in moderate-income census tracts:
Geographic Bank Metric: A bank that originated or purchased 16
closed-end home mortgage loans in moderate-income census tracts out of
100 total closed-end home mortgage loans that the bank originated or
purchased overall in the Retail Lending Test Area would have a
Geographic Bank Metric of 16 percent.
[GRAPHIC] [TIFF OMITTED] TR01FE24.038
Benchmarks: In a Retail Lending Test Area where 30 percent of
owner-occupied housing units and 25 percent of all originated closed-
end home mortgage loans were in moderate-income census tracts, the
moderate-income Geographic Community Benchmark and Geographic Market
Benchmarks for closed-end home mortgage loans would be 30 percent and
25 percent, respectively.
[[Page 6892]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.039
Performance ranges: The agencies calculate the thresholds for the
relevant performance ranges using the corresponding benchmarks and
multipliers below:
[GRAPHIC] [TIFF OMITTED] TR01FE24.040
[GRAPHIC] [TIFF OMITTED] TR01FE24.041
[[Page 6893]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.042
In this example, the bank would receive a ``Needs to Improve''
supporting conclusion for closed-end home mortgage lending in moderate-
income census tracts because the Geographic Bank Metric (16 percent)
falls between the ``Needs to Improve'' supporting conclusion
performance range threshold (8.25 percent) and the ``Low Satisfactory''
supporting conclusion performance range threshold (18 percent).
Section __.22(f)(2)(ii) Geographic Distribution Supporting Conclusions
for Automobile Loans
Section __.22(f)(3)(ii) Borrower Distribution Supporting Conclusions
for Automobile Loans
Final Sec. __.22(f)(2)(ii) and (f)(3)(ii) provide that the
agencies will develop supporting conclusions for a bank's automobile
lending based on a comparison of its bank metrics to geographic
distribution and borrower distribution community benchmarks, as
provided in final Sec. __.22(e)(1)(ii) and section VI of final
appendix A. The agencies are not establishing performance ranges for
automobile lending in the final rule. The agencies believe that there
would not be sufficient bank automobile lending data to construct
robust market benchmarks and also that requiring data reporting to
facilitate construction of market benchmarks would increase data
reporting burden without a corresponding significant increase in the
consistency and rigor of CRA evaluations, as is discussed further in
the section-by-section analysis for final Sec. Sec. __.22 and __.42.
The agencies further believe that it would not be appropriate to
develop automobile lending performance ranges based solely on community
benchmarks, which do not account for changes in credit needs and
opportunities in a Retail Lending Test Area over time in the same way
as an approach that also uses market benchmarks. Consequently, under
the final rule, the agencies will assign supporting conclusions for
automobile lending performance by comparing bank metrics to community
benchmarks.
Supporting conclusions for automobile lending will be assigned
separately for: (1) lending in low-income census tracts; (2) lending in
moderate-income census tracts; (3) lending to low-income borrowers; and
(4) lending to moderate-income borrowers. However, unlike for other
major product lines, the agencies are not setting specific thresholds
distinguishing each supporting conclusion category for automobile
lending.
Specifically, the agencies will identify appropriate supporting
conclusions based on a comparison of the Geographic Bank Metric for
automobile lending in each category of designated census tracts to the
corresponding Geographic Community Benchmark. Similarly, the agencies
will identify the appropriate supporting conclusion based on a
comparison of the Borrower Bank Metric for automobile lending in each
category of designated borrowers to the corresponding Borrower
Community Benchmark.
This agencies' approach to evaluating automobile lending
necessarily involves a greater degree of agency discretion than an
approach that uses performance ranges, as is the case for other major
product lines. The agencies believe that such discretion is appropriate
given the relatively limited data available regarding automobile
lending and the importance of performance context to evaluating a
bank's automobile lending, such as whether the bank's loans were
originated through direct or indirect channels. In addition, this
approach is generally consistent with the current evaluation methods
when consumer lending is evaluated, in which the agencies analyze the
borrower and geographic distributions of a bank's consumer lending
using a community benchmark without specific thresholds or performance
ranges.\947\
---------------------------------------------------------------------------
\947\ See, e.g., Interagency Large Institution CRA Examination
Procedures (April 2014) at 6-8.
---------------------------------------------------------------------------
Developing Product Line Scores in Each Retail Lending Test Area
Section __.22(f)(4) Development of Retail Lending Test Recommended
Conclusions
Section __.22(f)(4)(i) Assignment of Performance Scores
The Agencies' Proposal
The agencies proposed to use a product line average to combine
lending performance in the geographic and borrower distribution metrics
for each major product line in a facility-based assessment area, retail
lending assessment area, or outside retail lending area, as
applicable.\948\ For
[[Page 6894]]
example, a bank's closed-end home mortgage product line average in a
facility-based assessment area would reflect its lending within four
categories: (1) in low-income census tracts; (2) in moderate-income
census tracts; (3) to low-income borrowers; and (4) to moderate-income
borrowers.\949\ Similarly, if a bank had two major product lines in the
facility-based assessment area--closed-end home mortgage loans and
small business loans--the bank would receive a product line average for
its closed-end home mortgage lending and a separate product line
average for its small business lending.\950\ By calculating lending
performance for each major product line in the same facility-based
assessment area, retail lending assessment area, or outside retail
lending area, as applicable, the agencies intended to provide greater
transparency and enable stakeholders to better understand a bank's
performance for each separate product line. The product line averages
would also serve as the basis for determining a bank's recommended
conclusion in each such area.
---------------------------------------------------------------------------
\948\ See proposed appendix A, paragraphs V.2.c (geographic
distribution performance) and V.2.e (borrower distribution
performance).
\949\ See id.
\950\ See proposed appendix A, paragraph V.3.
---------------------------------------------------------------------------
To calculate the product line average, the agencies proposed to
first assign a performance score to each supporting conclusion, using a
10-point scale that associates each conclusion level with a score:
``Outstanding'' (10 points); ``High Satisfactory'' (7 points); ``Low
Satisfactory'' (6 points); ``Needs to Improve'' (3 points);
``Substantial Noncompliance'' (0 points). The agencies would then
compute a borrower income average and a geographic income average.
The proposal provided that the geographic income average would be a
weighted average of the performance scores for the two geographic
distribution supporting conclusions (i.e., for low-income census tracts
and moderate-income census tracts). The weights for this calculation
would be the applicable community benchmark for the product line and
income or revenue category to make the weight of the scores
proportional to the population of potential borrowers in the assessment
area.
For example, for closed-end home mortgage lending, the
weight for the low-income geographic distribution performance score
would be:
[cir] The percentage of owner-occupied housing units in low-income
census tracts in the area (i.e., the Geographic Community Benchmark for
low-income census tracts) as a percentage of;
[cir] The sum of the percentage of owner-occupied housing units in
low-income census tracts (i.e., the Geographic Community Benchmark for
low-income census tracts) and the percentage of owner-occupied housing
units in moderate-income census tracts (i.e., the Geographic Community
Benchmark for moderate-income census tracts).
Likewise, for example, for closed-end home mortgage
lending the weight for the moderate-income geographic distribution
performance score (i.e., the Geographic Community Benchmark for
moderate-income census tracts) would be:
The percentage of owner-occupied housing units in
moderate-income census tracts in the area as a percentage of;
The sum of the percentage of owner-occupied housing units
in low-income census tracts (i.e., the Geographic Community Benchmark
for low-income census tracts) and the percentage of owner-occupied
housing units in moderate-income census tracts (i.e., the Geographic
Community Benchmark for moderate-income census tracts).
The proposal provided that the borrower income average would be
calculated in the same way, weighting the two income categories
included in the borrower distribution analysis (e.g., for closed-end
home mortgages, the agencies would weight low-income borrowers and
moderate-income borrowers) by the corresponding community benchmarks
for each category (e.g., for closed-end home mortgages, these are low-
income families and moderate-income families).
The agencies would then calculate the average of the borrower
income average and geographic income average to produce the product
line average for each major product line in a facility-based assessment
area, retail lending assessment area, or outside retail lending area,
as applicable. In calculating each product line average, the agencies
requested feedback on whether the borrower and geographic distributions
for a specific product line should be weighted equally, or whether
borrower distributions should be weighted more heavily than the
geographic distributions, either in general or depending on the
performance context of the area.
Comments Received
Many commenters offered views on the agencies' Retail Lending Test
proposal to develop product line averages based on borrower and
geographic distribution conclusions for each of a bank's major product
lines in its facility-based assessment areas, retail lending areas, and
its outside retail lending area, as applicable. These commenters
generally addressed whether the borrower income average and geographic
income average for a specific product line should be weighted equally,
or whether more weight should be assigned to the borrower income
average compared to the geographic income average.
Comments regarding the approach to assigning a score to each
supporting conclusion based on the proposed 10-point scale are
summarized in the section-by-section analysis of final Sec. __.21(e).
Comments on calculating borrower income average and geographic
income average. A few commenters addressed the proposed approach for
weighting the different income or revenue categories when calculating
the borrower income average and the geographic income average. One
commenter expressed support for the proposed approach of weighting the
low- and moderate-income categories based on the community benchmarks,
stating that these weights would reflect the demographics of the
community. Another commenter instead stated that the agencies should
prioritize low-income borrowers and census tracts over moderate-income
borrowers and census tracts. Another commenter stated that it is not
appropriate to strictly weight based on the percentage of low-income
individuals. This commenter noted that many community banks will be
more successful targeting activity to low- and moderate-income
geographies rather than individuals, as individuals are not pre-
screened by income level. Another commenter suggested that the agencies
allow excellent performance in one distribution to compensate for less
impressive performance in another.
Comments on calculating product line averages. A number of comments
addressed the agencies' proposal to calculate each product line average
by weighting borrower and geographic distribution scores equally, with
some expressing support for the proposed approach.
Other commenters supported the proposed equal weighting generally,
but recommended greater emphasis on the borrower distributions in
certain circumstances, such as in rural areas and nonmetropolitan areas
with few low- and moderate-income census tracts, or based on other
performance context information. For example, one commenter suggested
that in rural areas, the agencies should weight borrower distributions
more heavily than
[[Page 6895]]
geographic distributions. Another commenter suggested that, in
determining the weighting approach, the agencies should consider that
many low- and moderate-income individuals cannot afford to purchase
homes or automobiles in poor states with very low median incomes, and
that in high-cost and high-density urban areas many low- and moderate-
income individuals live in rental housing and use public transportation
instead of their own automobiles.
Other commenters stated that borrower distributions should
generally be given more weight than geographic distributions in
determining product line averages. One commenter stated that the
borrower distributions should be weighted more heavily than the
geographic distributions if the intended outcome is increased access to
lending opportunities for low- and moderate-income borrowers regardless
of geographic boundaries. Other commenters recommended that the
agencies weight the borrower distributions at 60 percent and the
geographic distributions at 40 percent. One of these commenters
asserted that employing this approach would better reflect the
importance of lending to low- and moderate-income consumers as well as
to low- and moderate-income communities. Some commenters stated that
greater weighting on the borrower distribution would help to limit
potential unintended consequences of gentrification and displacement.
These commenters expressed that weighting the geographic distributions
too heavily would create incentives for lending to higher-income
borrowers in low- and moderate-income census tracts, which over time
could result in displacement of low- and moderate-income residents.
Another commenter noted that applying a greater weight to the borrower
distributions would promote integration by emphasizing lending to low-
and moderate-income individuals regardless of their location.
Although many commenters supported weighting borrower distributions
more heavily, one commenter indicated that the agencies should weight
geographic distributions more heavily in rural areas and areas with few
low- and moderate-income census tracts, citing the lower demand for
credit and other financial services in these areas.
Final Rule
Final Sec. __.22(f)(4)(i) and sections V, VI, and VII of final
appendix A provide that the agencies will calculate a product line
score for each major product line in a Retail Lending Test Area in
order to combine lending performance based on geographic and borrower
distribution supporting conclusions and corresponding performance
scores. The use of term ``product line score'' represents a clarifying
change from the term in the proposal--``product line average''--in
order to provide a more accurate description of what is being
calculated, without any change in meaning from the proposal. This
approach will serve to differentiate lending performance for each major
product line in the same Retail Lending Test Area, providing
transparency regarding why a bank received a particular Retail Lending
Test recommended conclusion.
Scoring Approach. The agencies are finalizing the proposal that
each supporting conclusion will be associated with a performance score
with the following point values: ``Outstanding'' (10 points); ``High
Satisfactory'' (7 points); ``Low Satisfactory'' (6 points); ``Needs to
Improve'' (3 points); ``Substantial Noncompliance'' (0 points). This
scoring approach is discussed in detail in the section-by-section
analysis of final Sec. __.21(e).
Calculating the geographic distribution average and borrower
distribution average. The final rule retains the proposed approach for
calculating a geographic distribution average and a borrower
distribution average. The use of the terms ``geographic distribution
average'' and ``borrower distribution average'' represent clarifying
changes from the respective terms in the proposal--``geographic income
average'' and ``borrower income average''--in order to provide a more
accurate description of what is being averaged without any change in
meaning. Each distribution average reflects the result of the
geographic distribution analysis and borrower distribution analysis,
respectively, and the agencies also note that the borrower distribution
analysis does not involve ``income'' for small business loans and small
farm loans. Accordingly, the agencies believe it is preferable not to
use ``income'' in these terms.
For the geographic distribution average for all product lines, the
agencies will calculate a weighted average of the performance scores
corresponding to the supporting conclusion for lending in designated
census tracts: (1) the supporting conclusion for lending in low-income
census tracts; and (2) the supporting conclusion for lending in
moderate-income census tracts. This is illustrated in Table 29.
[GRAPHIC] [TIFF OMITTED] TR01FE24.043
For the borrower distribution average for closed-end home mortgage
loan and automobile loan product lines, the agencies will calculate a
weighted average of the performance scores corresponding to lending to
relevant
[[Page 6896]]
categories of designated borrowers: (1) the supporting conclusion for
lending to low-income borrowers; and (2) the supporting conclusion for
lending to moderate-income borrowers.
For the borrower distribution average for small business loans and
small farm loans, the agencies will likewise calculate a weighted
average of the performance scores corresponding to lending to relevant
categories of designated borrowers: (1) the supporting conclusion for
lending to businesses with gross annual revenues of $250,000 or less;
(2) the supporting conclusion for lending to businesses with gross
annual revenues of greater than $250,000 but less than or equal to $1
million; (3) the supporting conclusion for lending to farms with gross
annual revenues of $250,000 or less; and (4) the supporting conclusion
for lending to farms with gross annual revenues of greater than
$250,000 but less than or equal to $1 million. This is illustrated in
Table 30.
[GRAPHIC] [TIFF OMITTED] TR01FE24.044
When calculating a weighted average of these two components, the
weights for each component would be based on Retail Lending Test Area
demographics, a clarifying change in terminology from the proposal's
use of ``community benchmarks'' in order to more precisely describe the
relevant calculations, as illustrated in Examples A-11 and A-12 in
section VII of final appendix A. The agencies believe that the weighted
average approach appropriately tailors the weighting approach to the
characteristics of the Retail Lending Test Area in determining the
weight to assign to each income or revenue category, as one commenter
noted. Regarding the suggestion to assign greater weight to the low-
income categories rather than the moderate-income categories, the
agencies believe this could result in a weighting approach that does
not reflect the relative level of credit needs and opportunities among
low-income and moderate-income borrowers and census tracts. Regarding
the suggestion not to strictly weight in the proposed method, the
agencies believe that it is preferable to employ a consistent,
quantitative approach to developing product line scores, to increase
the predictability and transparency of evaluations and to limit agency
discretion where possible. As described below, the agencies have made
several non-substantive technical changes to section VII of final
appendix A to clarify and add further detail to how the weights are
calculated for purposes of computing the geographic distribution
average and borrower distribution average.
Combining the geographic distribution average and borrower
distribution average to develop a product line score. The final rule
retains the proposed approach of combining the geographic distribution
average and the borrower distribution average to calculate an overall
score for each major product line. The agencies considered comments
suggesting that they assign greater weight to the borrower income
average than the geographic income average, but continue to believe
that both the geographic and borrower distributions are important
measures of how a bank is meeting its community's credit needs and that
equal weighting ensures that both distributions are important to
overall conclusions.
The agencies also considered comments that the weight assigned to
the geographic income average and borrower income average should vary
depending on the performance context of an area. The agencies
determined that the final rule weights for geographic distributions and
borrower distributions will provide greater consistency and
standardization, and that allowing the weights to vary depending on
performance context would necessitate greater agency discretion that
could increase complexity and increase uncertainty in evaluations. In
addition, the agencies believe the approach of using weighted averages
of a bank's performance in different categories of lending to calculate
each product line score will appropriately allow somewhat stronger
performance in certain categories of lending to compensate for somewhat
less strong performance in other categories. The agencies believe this
affords appropriate
[[Page 6897]]
flexibility to banks in meeting the credit needs of their community.
Regarding comments that some nonmetropolitan areas may not have
low- or moderate-income census tracts, the agencies note that the
additional factor in final Sec. __.22(g)(6) may be considered when
determining the bank's conclusion, as discussed in the section-by-
section analysis of final Sec. __.22(g). In addition, consistent with
the agencies' proposal, in Retail Lending Test Areas with no low- and
moderate-income census tracts, and hence no geographic distribution
scores, the agencies will set the product line score equal to the
borrower distribution average.
Using Weighted Average of Product Line Scores for Retail Lending Test
Recommended Conclusions
Section __.22(f)(4)(ii) Combination of Performance Scores
Section __.22(f)(4)(iii) Retail Lending Test Recommended Conclusions
The Agencies' Proposal
The agencies proposed that the Retail Lending Test recommended
conclusion for a facility-based assessment area, retail lending
assessment area, or outside retail lending area, as applicable, would
be derived by taking a weighted average of all of the product line
averages. The weight for each product line average would be the
percentage of the dollar volume of originations and purchases of that
product line for the bank in a facility-based assessment area, retail
lending assessment area, or outside retail lending area. This
percentage would be calculated out of the total dollar volume of
originations and purchases from all product lines for the bank in that
facility-based assessment area, retail lending assessment area, or
outside retail lending area.\951\ The agencies believed that this
approach would give proportionate weight to a bank's product offerings,
with more prominent product lines, as measured in dollars, having more
weight on the bank's overall conclusion in an assessment area.\952\
---------------------------------------------------------------------------
\951\ See proposed appendix A, paragraphs V.c and V.d.
\952\ 87 FR 33884, 33947 (June 3, 2022).
---------------------------------------------------------------------------
The agencies believed that pursuant to this approach, the Retail
Lending Test would be tailored to individual bank business models, as
evaluations would be based on the lending a bank specializes in
locally. Moreover, the agencies believed that weighting product lines
by the dollar volume of lending recognizes the continued importance of
home mortgage lending and small business lending to low- and moderate-
income communities, which has been a focus of the CRA, while also
accounting for the importance of consumer loans to low- and moderate-
income individuals. The agencies requested feedback on whether loan
count should be used in conjunction with, or in place of, dollar volume
in weighting product line conclusions to determine the Retail Lending
Test recommended conclusion, and corresponding performance score, in a
facility-based assessment area, retail lending assessment area, or
outside retail lending area.
Comments Received
A number of commenters addressed the agencies' proposal for
combining a bank's product line averages for each major product line to
determine its Retail Lending Test recommended conclusion for each
facility-based assessment area, retail lending assessment area, or
outside retail lending area. Commenters on this topic responded to the
agencies' request for feedback on whether the weight assigned to each
product line average should be based on the dollar volume of loans in
each product line, the number of loans in each product line, or a
combination of the two. Nearly all commenters on this topic favored
some form of consideration for retail loan counts in weighting product
line averages to determine the Retail Lending Test recommended
conclusion in a facility-based assessment area, retail lending
assessment area, or outside retail lending area.
Concerns with proposed approach. A number of commenters expressed
concerns regarding the proposed approach of weighting product line
averages solely based on the dollar volume of loans within each product
line, with some expressing support for weighting based on the number of
loans. One commenter indicated that using dollar volume alone would
give less impact to lending activity in rural areas where home values
are lower. Other commenters stated that the agencies' proposal would
disadvantage banks that are meeting low- and moderate-income credit
needs by originating more small-dollar loans. For example, one
commenter asserted that the agencies' proposed weighting approach
contradicted the CRA's purpose of focusing on low- and moderate-income
lending by overemphasizing large- dollar closed-end home mortgage
loans. Other commenters expressed a related concern that the proposed
approach would underweight small business lending and consumer lending,
given that small business loans and consumer loans are generally
smaller in dollar value than home mortgage loans.
Alternative of weighting by combination of loan dollars and loan
count. A number of commenters recommended basing the weight assigned to
each product line average on a combination of the dollar amount and
number of loans in each product line. A few commenters suggested that,
under such an approach, smaller transactions could receive more weight
in the distribution analysis, including small- dollar home mortgage
loans. Another commenter stated that this approach would better account
for the differences in the impact of a bank's lending across
communities. For example, this commenter noted that even a relatively
small number of loans could have substantial impact in communities with
unmet credit needs. Other commenters emphasized that this approach
would recognize bank lending that serves more consumers and businesses,
as well as variations across different lending products. Another
commenter tentatively supported (citing lack of visibility into the
issue) using a combination of dollar volume and loan count because the
approach would otherwise assign too much weight to home mortgage
lending.
Alternative of weighting solely by loan count. A number of
commenters cautioned against an alternative approach of weighting
product lines scores solely based on the number of loans in each
product line, without considering dollar volume. One commenter stated
that this alternative could result in overemphasizing small business
loans and credit card loans in the Retail Lending Test evaluation.
Another commenter asserted that weighting product line averages by loan
counts only would incorrectly discount the potential contribution of
larger dollar loans made in areas with few opportunities.
Other alternative weighting approaches. A few commenters offered
other alternative weighting methodologies. For example, one commenter
indicated that if the agencies retained the proposed dollar volume
weighting approach, they should also apply a multiplier to lower dollar
value categories, such as automobile lending and other consumer
lending, to increase parity among different types of retail lending
products. Additionally, a commenter suggested the weighting should
provide approximately a 40 percent-40 percent-20 percent weighting to
home mortgage lending, small business lending, and consumer lending
[[Page 6898]]
respectively, and suggested that the agencies use data to determine if
this type of result is best achieved by dollar volume alone or dollar
volume in combination with loan count. Further, this commenter
expressed that weighting by loan count would equalize loans made to
low- and moderate-income borrowers and more affluent borrowers that
often have larger dollar home mortgage loans. However, in cases in
which a bank has a very high volume of small-dollar consumer loans in
combination with sizable numbers of home mortgage loans and small
business loans, the commenter suggested that a combination of dollar
amount and loan counts may better prioritize home mortgage lending and
small business lending.
Final Rule
As provided in final Sec. __.22(f)(4)(ii) and (iii) and in section
VII of final appendix A, with the exception of a facility-based
assessment area of a large bank in which it lacked an acceptable basis
for not meeting the Retail Lending Volume Threshold,\953\ the agencies
will develop a Retail Lending Test recommended conclusion for each
Retail Lending Test Area by calculating an average of the product line
scores that the bank received on each of its major product lines in
that Retail Lending Test Area. These product line scores are based on
combining the performance scores for each supporting conclusion for
each major product line. As noted above, the use of the term ``product
line score'' rather than the term used in the proposal--``product line
average''--is a clarifying change intended to provide a more accurate
description of what is being calculated without any change in meaning.
---------------------------------------------------------------------------
\953\ See final Sec. __.22(c)(3)(iii)(A).
---------------------------------------------------------------------------
Based on agency consideration of related comments, the final rule
weights each product line score based on a combination of loan dollars
and loan count associated with the product line, in contrast to the
proposed approach of weighting each product line score solely by dollar
amount. For example, if a major product line contained 50 percent of a
bank's loans in a Retail Lending Test Area in dollar amount and 30
percent of a bank's loans in that area in loan count then the weight
assigned to the product line score would be 40 percent. In reaching
this determination, the agencies believe that the final rule approach
would appropriately consider both the dollar amount of credit extended
as well as the number of borrowers served. The agencies recognize that
both dollar amount and loan count are important aspects of how a bank
meets the credit needs of a community. The agencies considered comments
that such an approach would assign relatively greater weight to product
lines with large loan counts and small loan amounts, compared to the
proposed approach. Some commenters suggested that this may be
especially important for small business lending because small business
loans could have smaller loan amounts than closed-end home mortgage
loans, on average, depending on a bank's strategy and product
offerings. Although use of the combination of loan dollars and loan
count involves somewhat more complex calculations than the proposed
approach, the agencies believe that the benefits of the final rule, in
terms of additional equity among major product lines, merit
incorporating that additional complexity.
The weighted average of all product line scores is converted into a
Retail Lending Test Area Score. The use of the term ``Retail Lending
Test Area Score'' rather than the term in the proposal--``geographic
product average''--is both intended to more accurately describe what is
being calculated and also to reduce potential confusion with the term
``product line score.''
Consistent with the proposed approach, the agencies will then
develop a Retail Lending Test recommended conclusion corresponding with
the conclusion category that is nearest to the Retail Lending Test Area
Score, as follows: ``Outstanding'' (8.5 or more); ``High Satisfactory''
(6.5 or more but less than 8.5); ``Low Satisfactory'' (4.5 or more but
less than 6.5); ``Needs to Improve'' (1.5 or more but less than 4.5);
``Substantial Noncompliance'' (less than 1.5).\954\
---------------------------------------------------------------------------
\954\ See also the section-by-section analysis of final Sec.
__.28.
---------------------------------------------------------------------------
Section __.22(g) Additional Factors Considered When Evaluating Retail
Lending Performance
As provided in final Sec. __.22(g), the agencies are finalizing
their proposal, with certain clarifying, substantive, and technical
changes, regarding consideration of additional factors when assigning a
bank's Retail Lending Test conclusions.\955\ The seven additional
factors in the final rule account for circumstances in which the
prescribed metrics may not accurately or fully reflect a bank's lending
distributions or in which the benchmarks may not appropriately
represent the credit needs and opportunities in an area. The agencies
will consider these additional factors in determining a bank's Retail
Lending Test conclusions, in addition to the bank's recommended
conclusion and performance context information in final Sec. __.21(d),
as described in final Sec. __.22(h)(1)(ii) and in paragraph VII.d of
final appendix A.
---------------------------------------------------------------------------
\955\ See supra note 145.
---------------------------------------------------------------------------
As described further below, final Sec. __.22(g) adopts the four
proposed additional factors, with certain clarifying and technical
changes, as well as three other additional factors.
Furthermore, pursuant to final Sec. __.22(g), certain additional
factors will be considered when evaluating a bank's performance in, as
applicable, its retail lending assessment areas and its outside retail
lending area --and not solely, as proposed, when evaluating the bank's
performance in its facility-based assessment areas.
The Agencies' Proposal
The agencies proposed to consider certain additional factors that
are indicative of a bank's lending performance or lending
opportunities, but which are not captured in the metrics and
benchmarks, when reaching Retail Lending Test conclusions for facility-
based assessment areas.\956\ Specifically, in proposed Sec. __.22(e),
the agencies provided that in addition to considering how a bank
performs relative to the Retail Lending Volume Threshold described in
proposed Sec. __.22(c) and the performance ranges described in
proposed Sec. __.22(d), the agencies would evaluate the retail lending
performance of a bank in each facility-based assessment area by
considering four additional factors. These factors could inform the
agencies adjusting upward or downward a Retail Lending Test recommended
conclusion in a facility-based assessment area:
---------------------------------------------------------------------------
\956\ See proposed Sec. __.22(e).
---------------------------------------------------------------------------
Information indicating that a bank has purchased retail
loans for the sole or primary purpose of inappropriately influencing
its retail lending performance evaluation, including but not limited to
subsequent resale of some or all of those retail loans or any
indication that some or all of the loans have been considered in
multiple banks' CRA evaluations; \957\
---------------------------------------------------------------------------
\957\ See proposed Sec. __.22(e)(1).
---------------------------------------------------------------------------
The dispersion of retail lending within the facility-based
assessment area to determine whether there are gaps in lending not
explained by performance context; \958\
---------------------------------------------------------------------------
\958\ See proposed Sec. __.22(e)(2).
---------------------------------------------------------------------------
The number of banks whose reported retail lending and
deposits data is used to establish the applicable Retail Lending Volume
Threshold, geographic
[[Page 6899]]
distribution thresholds, and borrower distribution thresholds; \959\
and
---------------------------------------------------------------------------
\959\ See proposed Sec. __.22(e)(3).
---------------------------------------------------------------------------
Missing or faulty data that would be necessary to
calculate the relevant metrics and benchmarks or any other factors that
prevent the agencies from calculating a recommended conclusion.\960\
---------------------------------------------------------------------------
\960\ See proposed Sec. __.22(e)(4).
---------------------------------------------------------------------------
The agencies sought feedback on whether to consider a different or
broader set of additional factors than those reflected in proposed
Sec. __.22(e), including oral or written comments about a bank's
retail lending performance, as well as the bank's responses to those
comments, in developing Retail Lending Test conclusions.
The agencies also sought feedback on whether to engage in ongoing
analysis of HMDA data to identify banks that appear to engage in
significant churning of home mortgage loans. Additionally, the agencies
sought feedback regarding whether evidence of loan churning should be
considered as an additional factor in evaluating a bank's retail
lending performance.
Additionally, the agencies sought feedback on whether the
distribution of retail lending in distressed and underserved census
tracts should be considered qualitatively.
The agencies also requested feedback on whether to identify
assessment areas where lenders may be underperforming in the aggregate
and the credit needs of substantial parts of the community are not
being met. The agencies would consider additional information to
account for the possibility that the market benchmarks for the area may
underestimate the credit needs and opportunities of the area. The
agencies suggested that one manner in which they could identify such
assessment areas would be by developing statistical models that
estimate the level of the market benchmark that would be expected in
each assessment area based on its demographics, such as income
distributions or household compositions, as well as housing market
conditions and economic activity. In seeking feedback on this approach,
the agencies also suggested that a model could be constructed using
data at the census tract or county level that are collected nationwide,
and that an assessment area in which market benchmarks fell
significantly below their expected levels could be considered
underperforming for the relevant product line, distribution test, and
income level.
Finally, the agencies sought feedback on whether to consider other
factors, such as oral or written comments about a bank's retail lending
performance, as well as the bank's responses to those comments, in
developing Retail Lending Test conclusions. Additionally, the agencies
suggested that they could identify underperforming markets using a
relative standard or an absolute standard. Finally, the agencies
suggested that, rather than designating a specific set of
underperforming markets, they could use the difference between the
actual and expected market benchmarks as an additional factor to
consider in every assessment area.
Comments Received
Comments on proposed Sec. __.22(e) generally addressed: whether to
consider information indicating that a bank has purchased retail loans
for the sole or primary purpose of inappropriately influencing its
retail lending performance; whether and how markets in which lenders
overall are underperforming in meeting community credit needs should be
factored into the evaluation of bank performance; and whether the
agencies should consider other factors regarding a bank's retail
lending performance that were not proposed, such as oral or written
comments about the bank's performance and the bank's responses to those
comments.
Purchased retail loans for the sole or primary purpose of
inappropriately enhancing retail lending performance. The agencies
received numerous comments regarding the proposed additional factor
allowing for adjustment of a Retail Lending Test recommended conclusion
based on ``information indicating that a bank has purchased retail
loans for the sole or primary purpose of inappropriately influencing
its retail lending performance evaluation, including but not limited to
subsequent resale of some or all of those retail loans or any
indication that some or all of the loans have been considered in
multiple banks' CRA evaluations.''
As described in the introduction to the section-by-section analysis
of final Sec. __.22, numerous commenters opposed consideration of
purchased loans in the retail lending distribution analysis under the
Retail Lending Test or recommended limiting consideration of purchased
loans to specific types or purchased loans or specific circumstances.
In addition, several commenters expressed that the proposed
additional factor was vague and would leave examiners with too much
discretion to determine when retail loans were purchased solely or
primarily for the purpose of inappropriately influencing the bank's
retail lending performance evaluation. A few commenters recommended
that the agencies establish a series of presumptions that would enable
a bank to establish that its retail loan purchases do not meet the
proposed additional factor. For example, a commenter suggested that a
bank that sells loans extended to low- and moderate-income borrowers at
the same rate that it sells loans extended to middle- and upper-income
borrowers, should be presumed to not be engaged in activity that meets
the proposed additional factor. Another commenter suggested that the
agencies should impose a more stringent standard on large banks to
prevent them from repeatedly purchasing and selling retail loans
amongst one another to meet their CRA obligations; however, this
commenter further stated that the agencies should balance the need for
liquidity with the potential for repeated loan purchases by banks.
Several commenters suggested the agencies impose seasoning
requirements where a bank must hold a particular loan for a certain
time period to receive CRA consideration. Commenters varied on the
suggested length of a seasoning period, ranging from 30 days to one
year. In contrast, another commenter opposed any seasoning requirements
because of the added liquidity and interest rate risk.
Alternatively, some commenters recommended that certain purchased
retail loans should not be deemed to be inappropriately influencing a
bank's Retail Lending Test performance evaluation. For example, a few
commenters stated that the purchase of retail loans from a community
organization should never reflect poorly on a bank because these loan
purchases effectively double such organizations' lending capacity.
Another commenter stated that loans originated then sold to a housing
finance agency or similar organization in connection with affordable
housing programs should not be considered as inappropriately
influencing a bank's Retail Lending Test performance evaluation, as
these programs rely on correspondent lenders.
A few commenters opposed inclusion of this proposed additional
factor in Sec. __.22(e)(1), asserting that it would be difficult to
discern a bank's motive for purchasing loans, and that, regardless of a
bank's purpose, purchased loans can create liquidity and have a
positive impact on low- and moderate-income borrowers and communities.
A few other commenters recommended that, if
[[Page 6900]]
this proposed additional factor is retained in the final rule, the
agencies include in the regulatory text an explicit statement that
purchased loans would not result in any penalty for banks under the
Retail Lending Test absent clear evidence that the purchases met the
additional factor.
Lenders overall underperforming in meeting community credit needs
of facility-based assessment areas. A few commenters supported the
identification of facility-based assessment areas in which lenders in
the aggregate are underperforming such that the market benchmarks are
too low. These commenters supported the agencies creating a statistical
model to identify those underperforming facility-based assessment areas
or to calculate the predicted market benchmark.
These commenters also raised points related to how to adopt or
implement an additional factor that identifies facility-based
assessment areas in which lenders in the aggregate are underperforming
in meeting community credit needs. Another commenter suggested that
after identifying such facility-based assessment areas with market
benchmarks that are significantly lower than predicted by statistical
models, the agencies could adjust impact factors to incentivize bank
lending in these assessment areas. Another commenter stated that the
agencies should consider this information as a factor in favor of
adjusting banks' Retail Lending Test conclusions downwards in such
facility-based assessment areas. This commenter suggested this approach
would incentivize banks to improve their retail lending performance
there. A commenter encouraged the agencies to implement a methodology
to identify areas in which lenders in the aggregate are underperforming
in meeting community credit needs, and recommended adjusting the
borrower and geographic performance thresholds upwards in those areas.
A different commenter raised concerns about how the agencies would
determine that lenders in the aggregate are underperforming in an area.
A commenter asserted that it would be difficult to identify these areas
by comparing peer lenders alone; instead, the commenter recommended
identifying facility-based assessment areas where market benchmarks are
significantly lower than the predicted market benchmarks based on
statistical models. Relatedly, a commenter encouraged the agencies to
conduct further empirical research to identify underperforming markets
based on the divergence between actual and predicted market benchmarks.
This commenter recommended that, to motivate banks to better meet
communities' retail lending needs, the agencies should use the
predicted market benchmarks for evaluating banks' retail lending
performance in the worst quartile of underperforming markets, and in
the second worst quartile they should use a weighted average of the
actual market benchmarks and the predicted market benchmarks.
Some commenters recommended specific information that the agencies
should consider when identifying underperforming markets. For example,
a commenter recommended that the agencies consider similarly sized
markets based on population, gross domestic product, and total number
of businesses, and other variables that would allow facility-based
assessment area comparisons in order to identify underperforming
markets. This commenter supported defining an underperforming market as
those markets measured at 65 percent or less of the expected value of
the market benchmark--the same threshold as the proposed Retail Lending
Test community benchmark for ``Low Satisfactory'' performance. Another
commenter asserted that when identifying facility-based assessment
areas in which lenders may be underperforming in the aggregate the
agencies should employ factors not captured in the Retail Lending Test
metrics and benchmarks; this commenter indicated that such factors
could include consideration of the prevalence of alternative financing
in a market, such as land contracts and rent-to-own arrangements, and
low levels of small-dollar home mortgage lending in a market. In
addition, a commenter asserted that the agencies should work with
relevant stakeholders to develop data points to identify and model
underperforming markets. This commenter also noted that some
underperformance may be driven by a lack of demand for home mortgage
lending and small business lending, noting that, for example, low- and
moderate-income consumers might elect to rent housing in markets with
high home prices.
A few commenters that agreed there is a potential for the market
benchmarks to be artificially low as a result of collective
underperformance also acknowledged the challenges associated with
identifying these markets and developing a solution. For example, a
commenter sought clarification on how appropriately identifying
underperforming markets could counter the possibility that the market
benchmarks might be set too low in some facility-based assessment
areas, and others suggested the agencies should propose a solution for
public comment.
Oral and written comments about a bank's retail lending
performance. Most commenters addressing this issue expressed support
for the agencies considering other factors, such as oral and written
comments submitted about a bank's retail lending performance and the
bank's responses to those comments, in developing Retail Lending Test
conclusions. A commenter noted that the agencies currently consider
written comments in a bank's public file regarding its retail lending
and other CRA performance. In addition to submitted oral and written
comments, other commenters suggested that the agencies consider any
comments or complaints housed in other Federal repositories, and bank
responses to stakeholder questions and comments, into their Retail
Lending Test conclusions.
Some commenters addressed the effect that should be given to oral
and written comments regarding a bank's retail lending performance. A
commenter suggested the agencies should issue draft CRA performance
evaluations that identify the weight and consideration given to certain
comments versus others. This commenter also said banks should be given
the opportunity to review and rebut comments considered by the
agencies. Similarly, other commenters emphasized that disclosing
whether a Retail Lending Test conclusion was adjusted up or down based
on feedback would incentivize stakeholder input and encourage banks'
accountability to the public. A commenter suggested that the agencies'
community affairs teams should combine any submitted oral and written
comments with data, news articles, and other research for examiners to
develop Retail Lending Test conclusions. This commenter added that it
was imperative that the agencies clearly explain how Retail Lending
Test adjustments might be made based upon community affairs teams'
input.
On the other hand, a commenter stated that the agencies should only
consider written comments required to be included in a bank's CRA
public file in developing Retail Lending Test conclusions to limit the
potential effect of social media posts and other potentially spurious
claims. Although acknowledging the value of community input, the
commenter suggested this value must be balanced with the subjectivity
of comments and the risk of creating an inaccurate representation of
[[Page 6901]]
a bank's performance. This commenter highlighted the need for examiner
training and suggested that examiners should only consider written
comments where a bank has been given a reasonable opportunity to
respond.
Evaluation of performance in distressed and underserved middle-
income census tracts for banks with few or no low- and moderate-income
census tracts. Commenters on this topic generally supported including a
quantitative evaluation of the geographic distribution of retail
lending in distressed and underserved middle-income census tracts for
banks with few or no low- and moderate-income census tracts in their
assessment areas. For example, commenters noted the importance of this
approach to rural areas and nonmetropolitan areas, where poverty may
exist outside of low- and moderate-income census tracts. A commenter
noted that, primarily in rural areas, treating distressed and
underserved census tracts like low- or moderate-income tracts would be
preferable to conducting a qualitative review of these tracts. Another
commenter suggested that evaluating bank activities in distressed and
underserved middle-income census tracts would better help address
gentrification relative to the current CRA regulations. A commenter
indicated that the agencies should assess whether in rural areas with
few low- and moderate-income census tracts including distressed and
underserved middle-income census tracts, would truly increase the
number of census tracts in which a bank could receive credit for
lending within the geographic distribution analysis. This commenter
added that the agencies' proposal regarding delineation of retail
lending assessment areas in the nonmetropolitan areas of States might
result in an overall sufficient number of low- and moderate-income
census tracts in those assessment areas for a geographic distribution
analysis. Relatedly, another commenter suggested that in assessment
areas containing few or no low- and moderate-income census tracts,
examiners could compare the median income in a given census tract to
the state median income to determine whether a census tract was
distressed or underserved during the evaluation period.
Final Rule
Additional factors, in general. The agencies continue to believe
that the Retail Lending Test evaluation should include additional
factors for consideration when determining Retail Lending Test
conclusions for Retail Lending Test Areas. These additional factors and
their application to the Retail Lending Test are provided in final
Sec. __.22(g) and (h)(1)(ii), and in paragraph VII.d of final appendix
A.
The agencies have made substantive and technical changes in final
Sec. __.22(g). First, to clarify the role of the additional factors in
the Retail Lending Test, the introductory text to final Sec. __.22(g)
states that the additional factors, as appropriate, inform the
agencies' determination of a bank's Retail Lending Test conclusion for
each Retail Lending Test Area. The agencies intend the included
language ``inform the [Agency]'s determination of a bank's Retail
Lending Test conclusion'' to be a clarifying change from the proposal
that more explicitly links the additional factors to the determination
of Retail Lending Test conclusions. In contrast, proposed Sec.
__.22(e) did not specifically refer to the determination of conclusions
in the introductory text. Additionally, although the proposed
introductory text stated that the additional factors may apply in
evaluating a bank's performance in facility-based assessment areas, the
final rule does not maintain this limitation. Instead, certain
additional factors may apply in, as applicable, a bank's facility-based
assessment areas, retail lending assessment areas, and outside retail
lending area, as discussed below.
The additional factors included in final Sec. __.22(g) allow the
agencies to account for circumstances in which the prescribed metrics
in final Sec. __.22(e) may not accurately or fully reflect a bank's
lending distributions or in which the benchmarks may not appropriately
represent the credit needs and opportunities in the area. The agencies
believe that it is preferable to state as specifically as possible the
circumstances in which the agencies may assign a Retail Lending Test
conclusion that is different from the Retail Lending Test recommended
conclusion. Specifying these circumstances is intended to increase the
consistency and certainty of Retail Lending Test evaluations, compared
to an alternative in which such circumstances are unspecified and are
left entirely to examiner discretion.
As discussed in the section-by-section analysis of final Sec. Sec.
__.21(d) and __.22(h), the agencies will also consider performance
context factors when assigning Retail Lending Test conclusions. As in
the proposal, pursuant to final Sec. __.21(d), performance context
related to a bank's retail lending performance that is not reflected in
the distribution analysis can inform Retail Lending Test conclusions.
For example, the agencies could consider a bank's past performance and
safety and soundness limitations.
The final rule maintains, with certain clarifying and substantive
changes discussed below, the four proposed additional factors. In
consideration of comments received and additional agency analysis, the
agencies have also added three new additional factors to final Sec.
__.22(g), relating to consideration of: (1) major product lines in
retail lending assessment areas and outside retail lending areas with
fewer than 30 loans; (2) lending in distressed or underserved
nonmetropolitan middle-income census tracts where a bank's facility-
based assessment area or retail lending assessment area includes very
few or no low- and moderate-income census tracts; and (3) retail
lending assessment areas and facility-based assessment areas where
lenders in the aggregate are underperforming.
Section __.22(g)(1)
Pursuant to final Sec. __.22(g)(1), the agencies may consider
information indicating that a bank purchased closed-end home mortgage
loans, small business loans, small farm loans, or automobile loans for
the sole or primary purpose of inappropriately enhancing its retail
lending performance, including, but not limited to, information
indicating subsequent resale of such loans or any indication that such
loans have been considered in multiple banks' CRA evaluations, in which
case the agencies do not consider such loans in the bank's performance
evaluation.
The agencies have incorporated clarifying changes into this
additional factor. For clarity, the final rule specifies that this
factor applies to the distribution analyses of closed-end home mortgage
loans, small business loans, small farm loans, and automobile loans--
rather than simply ``retail loans,'' as stated in the proposal. For
additional clarity and specificity regarding the concept of a bank
seeking to purchase loans in order to inappropriately improve its
conclusions and ratings, the agencies have also changed the standard
from a bank ``inappropriately influencing,'' as provided in the
proposal, to a bank ``inappropriately enhancing'' its retail lending
performance.
The final rule provides that if the agencies have determined that
certain lending meets this additional factor, then the agencies will
not consider those loans in a bank's performance evaluation. The
agencies believe this provision gives appropriate additional
[[Page 6902]]
detail regarding how this additional factor will be applied, and is
consistent with the discussion in the agencies' proposal that the
additional factor would be used to adjust conclusions when there is
evidence of inappropriate loan purchasing activity. The agencies
believe that exclusion of such loans from the distribution analysis is
appropriate because loans that a bank purchases and quickly resells for
the sole or primary purpose of inappropriately enhancing the bank's
evaluation may distort the distribution analysis and are not responsive
to community credit needs.
In determining whether inappropriate purchasing activity has
occurred, the agencies may consider a number of factors, including: (1)
the bank's business strategy; (2) the timing of the purchases; (3) the
timing of the resale of these loans relative to the purchases; and (4)
the materiality of the purchases to the bank's Retail Lending Test
recommended conclusion.
Additionally, the final rule does not limit application of this
additional factor to a bank's facility-based assessment areas, as was
proposed. Rather, the additional factor may also be considered in, as
applicable, a bank's retail lending assessment areas and its outside
retail lending area. The agencies believe that this flexibility is
appropriate because inappropriate purchasing activity is not
necessarily restricted to a bank's facility-based assessment areas.
In determining to include an additional factor addressing certain
purchased loans that may inappropriately enhance a bank's recommended
conclusion, the agencies considered commenter feedback regarding the
potential benefits and tradeoffs of such a factor, including concerns
from some commenters about the potential for multiple banks to receive
CRA consideration for the same loans. The agencies believe that the
additional factor in final Sec. __.22(g)(1) will help to account for
certain loan purchase activity that is not responsive to community
credit needs, and will support a robust distribution analysis without
removing purchased loans from the distribution analysis.
The agencies also considered comments that this additional factor
may create uncertainty due to a lack of clear standards regarding when
purchased loans would be deemed to be inappropriately enhancing a
bank's evaluation. The agencies believe that it is appropriate to
define this factor with sufficient flexibility to apply to different
ways that a bank could potentially purchase loans to inappropriately
enhance its evaluation. However, as discussed above, the agencies
expect that this factor will be applied rarely. At the same time, the
agencies believe that this factor is important for ensuring a robust
distribution analysis in the rare instances in which it would be
applied.
The agencies also believe that inclusion of this factor will not
deter banks from purchasing loans for other reasons. The agencies will
not apply this additional factor in instances where a bank has a
business strategy of purchasing loans, for example, as a way of
providing liquidity to originating lenders that lack secondary market
access or purchasing distressed closed-end home mortgage loans from
Ginnie Mae servicers. However, the agencies may, for example, consider
this factor in the case of a bank that purchases 100 small business
loans that it sells immediately or shortly after the close of the
evaluation period, if the bank otherwise routinely purchases one or two
small business loans each month during an evaluation period.
Regarding whether to analyze HMDA data to identify banks and Retail
Lending Test Areas that have suspicious purchase activity, the agencies
believe that such an analysis could facilitate targeted consideration
in support of the additional factor in final Sec. __.22(g)(1). If this
analysis identified any bank Retail Lending Test Areas with suspicious
purchase activity, the agencies would review those purchases more
closely.
Regarding the suggestion that the agencies establish a series of
presumptions that would enable a bank to establish that its retail loan
purchases do not reflect inappropriate loan purchasing activity, the
agencies believe that the evaluation of retail loan purchases and
whether they reflect inappropriate loan purchasing activity are best
handled on a case-by-case basis, given the flexibility of final Sec.
__.22(g)(1) as a qualitative additional factor.
Relatedly, the agencies decline to adopt in the final rule a
minimum holding period after which a purchased loan would no longer be
considered an inappropriately purchased loan. The agencies are
sensitive to the possibility that imposing a minimum holding period
(e.g., from 30 days to one year, as suggested by commenters) may
increase liquidity and interest rate risk. In addition, the agencies
believe that not satisfying a minimum holding period does not
necessarily indicate that a loan was purchased to inappropriately
enhance a bank's performance evaluation. For example, a bank may
purchase a loan from an originating lender that lacks secondary market
access and then relatively shortly thereafter sell that loan to a
government-sponsored enterprise, providing liquidity for the
originating lender to make further loans, which would not constitute
inappropriate loan purchasing activity. Finally, the agencies note that
they face data limitations that would prevent consistent application of
a minimum holding period, since this information is not consistently
available to the agencies.
For the reasons stated above, the agencies believe that final Sec.
__.22(g)(1) appropriately addresses concerns about inappropriate loan
purchasing activity in a manner that will serve to discourage
intentional manipulation of a bank's CRA evaluation through loan
purchases while more generally including loan purchases in the Retail
Lending Test analysis.
Section __.22(g)(2)
Final Sec. __.22(g)(2) includes a provision that the agencies may
consider the dispersion of a bank's closed-end home mortgage, small
business, small farm, or automobile lending within a facility-based
assessment area to determine whether there are gaps in lending that are
not explained by performance context. For example, under this
additional factor, a Retail Lending Test recommended conclusion may be
lowered where geographic lending patterns exhibit gaps in low- or
moderate-income census tracts that cannot be explained by performance
context.
The agencies believe that this factor is necessary because the
geographic distribution analysis in facility-based assessment areas is
conducted on an aggregate basis across an entire facility-based
assessment area, and does not consider whether there are gaps in a
bank's lending in certain census tracts. For example, this factor may
be considered if a bank has a substantial number of loans in all census
tracts within a facility-based assessment area except for several
contiguous low- and moderate-income census tracts in the center of the
facility-based assessment area in which the bank made zero loans,
despite there being credit needs and opportunities in those census
tracts as demonstrated by loans made by other lenders.
This additional factor is consistent with the current CRA
regulations,\961\ in which the agencies may evaluate the extent to
which a bank is serving geographies in each income category
[[Page 6903]]
and whether there are conspicuous gaps unexplained by performance
context. Consistent with current practice, the agencies note that banks
are not required to lend in every census tract in a facility-based
assessment area, and that performance context may explain why a bank
was not able to serve one or more census tracts.
---------------------------------------------------------------------------
\961\ See, e.g., current 12 CFR __.22(b).
---------------------------------------------------------------------------
Consistent with the proposal, the agencies will apply this factor
only in facility-based assessment areas. The agencies have determined
that this additional factor is best applied to facility-based
assessment areas because the dispersion analysis can take into account
where the bank's deposit-taking facilities are located.
The final rule includes a conforming change to precisely reference
applicable loan categories, specifying that this additional factor
applies to reviews of closed-end home mortgage, small business, small
farm, and automobile lending--rather than simply to reviews of ``retail
loans,'' as provided in the proposal. The agencies note that these
products are the potential Retail Lending Test major product lines that
may be included in a distribution analysis, and that open-end home
mortgage loans and multifamily loans will not be evaluated using a
distribution analysis pursuant to the Retail Lending Test, as discussed
further in the section-by-section analysis of final Sec. __.22(d).
Section __.22(g)(3)
Consistent with the proposal, final Sec. __.22(g)(3) provides,
with some technical edits, that the agencies may consider the number of
lenders whose reported home mortgage loans, multifamily loans, small
business loans, and small farm loans and deposits data are used to
establish the applicable Retail Lending Volume Threshold, geographic
distribution market benchmarks, and borrower distribution market
benchmarks. Specifically, the agencies believe that where there are
very few banks reporting lending and deposits data, or where one bank
has an outsized market share, the benchmarks may not provide an
accurate measure of local opportunities. For example, in a facility-
based assessment area where a bank's closed-end home mortgage loans are
a major product line and no other lenders have a meaningful number of
closed-end home mortgage loans it may be nearly impossible for the bank
to meaningfully exceed the market benchmark, because the market
benchmark in this instance would be almost entirely based on the bank's
own lending. In such a scenario, the agencies may consider, for
example, the bank's performance relative to the community benchmark as
well as performance context factors to determine the bank's conclusion.
The agencies made a conforming change to replace ``retail lending''
with the more specific lending that would be included: home mortgage
lending (i.e., closed-end home mortgage lending and open-end home
mortgage lending), multifamily lending, small business lending, and
small farm lending--rather than simply ``retail lending,'' as provided
in the proposal.
The agencies are also clarifying that this additional factor
relates to geographic distribution benchmarks and borrower distribution
benchmarks--rather than ``geographic distribution, and borrower
distribution thresholds,'' as provided in the proposal. The agencies
made this change because both the proposed and final rule Retail
Lending Test approach includes geographic and borrower distribution
``benchmarks,'' and does not use the term ``thresholds'' to refer to
these evaluation criteria.
Additionally, the final rule provides that this additional factor
is based on the number of ``lenders'' rather than the number of
``banks'' whose data is used in the Retail Lending Test calculations.
The geographic distribution and borrower distribution market benchmarks
include all lenders in an area, and may not be limited to banks,
depending on the specific data sources used for these analyses. The
agencies believe that considering all reporting lenders as part of this
additional factor is appropriate because it is possible that an area
may have a sufficient number of lenders to calculate reliable market
benchmarks even if only one or two of those lenders are banks.
Final Sec. __.22(g)(3) expands the application of this additional
factor from solely a bank's facility-based assessment areas, as
proposed, to also include, as applicable, its retail lending assessment
areas and its outside retail lending area. This change accounts for
potential circumstances in which a bank has a retail lending assessment
area or outside retail lending area in which there are few or no other
lenders, which may make the geographic and borrower distribution
benchmarks less robust. For example, the hypothetical provided above
for a facility-based assessment area could also occur in a retail
lending assessment area in which a bank is the only lender that
originated loans in a certain product line during the evaluation
period.
Section __.22(g)(4)
Consistent with the proposal, final Sec. __.22(g)(4) provides that
the agencies may consider missing or faulty data that would be
necessary to calculate the relevant metrics and benchmarks or any other
factors that prevent the agencies from calculating a Retail Lending
Test recommended conclusion. In such a case, the final rule provides
that if unable to calculate a Retail Lending Test recommended
conclusion, the agencies assign a Retail Lending Test conclusion based
on consideration of the relevant available data. For example, a Retail
Lending Test Area with a small number of owner-occupied housing units
in low-income census tracts could be reported in the American Community
Survey as having zero such units if none of those owner-occupied
housing units were randomly selected to be part of the sample that
received a survey. In such cases, it will not be possible to conduct a
geographic distribution analysis using the otherwise prescribed
approach for low-income census tracts even when the bank originated or
purchased closed-end home mortgage loans in those low-income census
tracts.
The agencies believe that this additional factor addresses
commenter concerns regarding the evaluation of closed-end home mortgage
loans in which borrower income is missing or unavailable. The agencies
have considered commenter feedback that a bank may have a large volume
of such loans, depending on the bank's business model and strategy. For
example, banks that specialize in non-owner-occupied closed-end home
mortgage loans, or that originate a large number of streamlined closed-
end home mortgage refinancings, may have many loans for which borrower
income is not available. As noted by some commenters, the borrower
distribution metrics would count loans with missing or unavailable
income information in the denominator, and not in the numerator, of the
metric, which may result in the bank receiving a lower recommended
conclusion than if these loans were excluded from the analysis or were,
in fact, made to low- or moderate-income borrowers and had the
requisite income information. For this additional factor, if the
agencies have reason to believe that certain loans with missing or
unavailable borrower income information were made to low- or moderate-
income borrowers, then the agencies may consider this fact pattern when
determining the Retail Lending Test conclusion. For example, this may
include the situation raised by some commenters where a bank has
[[Page 6904]]
purchased a portfolio of distressed Ginnie Mae closed-end home mortgage
loans from a loan servicer. In this situation, based on available
information, the agencies may determine that because a significant
number of the loans for which borrower income was unavailable were
likely made to low- or moderate-income borrowers, it is therefore
appropriate to assign a higher conclusion than the bank's recommended
conclusion. The use of this additional factor may also include a bank
that purchased a large number of non-owner-occupied closed-end home
mortgage loans with missing or unavailable income information, if the
bank is able to provide information to the agencies that some of the
loans in question were made to low- or moderate-income borrowers.
Additionally, pursuant to the final rule, the agencies will apply
this factor in a bank's facility-based assessment areas, as proposed--
and, as applicable, its retail lending assessment areas and its outside
retail lending area. The agencies believe that it is appropriate and
necessary to account for any missing and faulty data that could impact
the calculation of the Retail Lending Test metrics and benchmarks in
any Retail Lending Test Area to ensure a robust evaluation.
For additional clarity, the agencies have changed two proposed
references from ``recommended conclusion'' to ``Retail Lending Test
recommended conclusion.''
Section __.22(g)(5)
Newly added final Sec. __.22(g)(5) provides that the agencies may
consider whether the Retail Lending Test recommended conclusion does
not accurately reflect the bank's performance in a Retail Lending Test
Area in which one or more of the bank's major product lines consists of
fewer than 30 loans.
Inclusion of this additional factor provides flexibility for
instances in which a small number of loans constitutes a major product
line. Because the major product line threshold approach in facility-
based assessment areas and outside retail lending areas is based on the
percentage of a bank's loans in a certain product line, a bank may have
a small number of loans that constitute a major product line. For
example, if a bank originated 20 small business loans in a facility-
based assessment area, and had no other retail loans there, then small
business loans would constitute a major product line in that facility-
based assessment area and would be evaluated pursuant to the
distribution analysis.
Based on supervisory experience and statistical analysis, the
agencies believe that it is appropriate to consider additional
information when interpreting and drawing conclusions from a
distribution analysis of a very small number of loans. The agencies
note that it is conceivable that a single loan origination or purchase
could change a bank's recommended conclusion by multiple levels if the
bank's total number of loans is very small, depending on the applicable
performance ranges. For instance, the agencies considered the example
of a bank with 20 loans in its small business loan major product line,
in which one loan represents 5 percent of the bank's lending by loan
count. As part of this example, the agencies assumed that the borrower
distribution performance ranges for lending to businesses with gross
annual revenues of $250,000 or less include a ``Low Satisfactory''
threshold of 11 percent and a ``High Satisfactory'' threshold of 14
percent. In this example, the bank would fall into the ``Needs to
Improve'' recommended conclusion category if two of its small business
loans were to businesses with gross annual revenues of $250,000 or less
and into the ``High Satisfactory'' recommended conclusion category if
three of its loans were to businesses with gross annual revenues of
$250,000 or less. The agencies believe that the change in the example
bank's recommended conclusion based on only a single loan warrants
consideration of other available information and potentially assigning
a different conclusion than the recommended conclusion.
The agencies considered supervisory experience and simulated
examples such as the hypothetical described above in determining that
30 loans is an appropriate threshold for when this additional factor
should apply. The agencies note that 30 units is a common minimum
guideline for a sample to be considered ``large'' for statistical
testing purposes.\962\ The agencies emphasize that application of this
additional factor does not mean that distribution results for major
product lines consisting of fewer than 30 loans would be disregarded;
rather, for Retail Lending Test Areas with major product lines
consisting of fewer than 30 loans, the additional factor in final Sec.
__.22(g)(5) allows for additional discretion in determining the Retail
Lending Test conclusion.
---------------------------------------------------------------------------
\962\ Although the number of observations necessary for a
statistical analysis can vary with the context and the statistical
method being used, a common rule of thumb is that 30 observations is
necessary for a large sample because the mean of 30 randomly drawn
values will have a distribution that is approximately normal. See
Sheldon M. Ross, Introductory Statistics, Fourth Edition 398
(Academic Press, 2017) and Robert V. Hogg, Elliot A. Tanis, and Dale
L. Zimmerman, Probability and Statistical Inference, Ninth Edition
303 (Pearson Education, 2015).
---------------------------------------------------------------------------
Section __.22(g)(6)
Newly added final Sec. __.22(g)(6) specifies that the agencies may
consider a bank's closed-end home mortgage, small business, small farm,
or automobile lending in distressed and underserved nonmetropolitan
middle-income census tracts where a bank's nonmetropolitan facility-
based assessment area or nonmetropolitan retail lending assessment area
includes very few or no low- and moderate-income census tracts.
In deciding to include this additional factor in the final rule,
the agencies considered that certain facility-based assessment areas
and retail lending assessment areas, particularly in nonmetropolitan
areas, may have very few or no low- and moderate-income census tracts
within their boundaries. In such circumstances, the agencies believe
that considering lending in distressed and underserved nonmetropolitan
census tracts may provide for a more fulsome evaluation of the bank's
retail lending. The agencies narrowly tailored this additional factor
to instances in which there are very few or no low- and moderate-income
census tracts to ensure that the geographic distribution analysis
emphasizes low- and moderate-income census tracts and so that banks do
not lend in distressed and underserved nonmetropolitan middle-income
census tracts at the expense of lending in low- and moderate-income
census tracts. The agencies considered specifying an exact number of
low- and moderate-income census tracts at which this additional factor
may be considered, but determined that a standard of ``very few or no''
will more appropriately allow for consideration of the performance
context of an area, such as the percentage of census tracts in the area
that are low- and moderate-income census tracts, the presence of
lending opportunities in those census tracts, and the proximity of
those census tracts to the bank's facilities, if any. The agencies
therefore believe that the ``very few or no'' standard provides
appropriate flexibility while also narrowly tailoring application of
this standard.
Final Sec. __.22(g)(6) considers closed-end home mortgage lending,
small business lending, small farm lending, and automobile lending in
distressed and underserved nonmetropolitan middle-income census tracts
as an
[[Page 6905]]
additional factor rather than as a quantitative component of the
geographic distribution analysis. The agencies believe that qualitative
consideration is appropriate because the amount of emphasis given to a
bank's lending in distressed and underserved nonmetropolitan middle-
income census tracts will depend on the performance context of the
facility-based assessment area or retail lending assessment area, such
as the lending needs and opportunities in any low- and moderate-income
census tracts and the capacity of the bank to serve borrowers in any
low- and moderate-income census tracts.
Final Sec. __.22(g)(6) applies in nonmetropolitan facility-based
assessment areas and nonmetropolitan retail lending assessment areas in
which there are very few or no low- and moderate-income census tracts.
The agencies do not believe that this additional factor should be
considered in an outside retail lending area because outside retail
lending areas are defined as the entire nationwide area outside of a
bank's facility-based assessment areas and retail lending assessment
areas, and as a result will generally contain multiple low- and
moderate-income census tracts.
Section __.22(g)(7)
Overall. Final Sec. __.22(g)(7) provides that the agencies will
consider information indicating that the credit needs of the facility-
based assessment area or retail lending assessment area are not being
met by lenders in the aggregate, such that the relevant benchmarks do
not adequately reflect community credit needs. The agencies believe
that information indicating that the credit needs of a particular
facility-based assessment area or retail lending assessment area are
not being met by lenders in the aggregate could be sourced from, for
example, research publications, other data sources accessible to the
agencies, community contacts, and other performance context information
pertaining to a facility-based assessment area or retail lending
assessment area. In such facility-based assessment areas and retail
lending assessment areas, the agencies may determine that the market
benchmark is not an accurate measure of the credit needs and
opportunities of low- and moderate-income borrowers, small businesses,
or small farms, because lenders as a whole are not meeting their
obligations to meet the credit needs of the entire community. Under
this additional factor, the agencies will apply additional qualitative
review of retail lending in areas where credit needs are identified as
not being met by lenders in the aggregate, and the results of this
additional qualitative review could inform Retail Lending Test
conclusions.
In deciding to include this additional factor, the agencies
considered the design of the retail lending distribution analysis and
the results of such distribution analysis in a market where lenders may
be underperforming in the aggregate and the credit needs of substantial
parts of the community are not being met. As discussed in the section-
by-section analysis of final Sec. __.22(f), the agencies note that the
performance ranges used to develop recommended conclusions under the
final rule are based on the lower of the calibrated market benchmark
and calibrated community benchmark. Moreover, the market benchmark is
calculated from originated or purchased closed-end home mortgage loans,
small business loans, and small farm loans in a facility-based
assessment area that are reported by all lenders. As a result, in an
area that is broadly underserved and where the calibrated market
benchmark is lower than the calibrated community benchmark, the market
benchmark may significantly underestimate the credit needs and
opportunities in the area but would nonetheless be the basis for the
performance ranges. This additional factor reflects that, in such an
instance, the distribution analysis may not appropriately assess
whether a bank has met the credit needs of the community, and the
recommended conclusion may warrant adjustment based on consideration of
performance context and other available information that speaks to
credit needs and opportunities in the facility-based assessment area or
retail lending assessment area.
The final rule provides that this additional factor may apply in
facility-based assessment areas and in retail lending assessment areas,
but not in an outside retail lending area. The agencies do not believe
that it is necessary, or feasible, to consider this factor in an
outside retail lending area because the lending in these areas is
generally dispersed across multiple metropolitan and nonmetropolitan
areas.
Statistical model. The final rule does not include a statistical
model to identify underperforming areas in the final rule. However, the
agencies intend to develop statistical models that would be designed to
predict the level of the market benchmarks that would be expected in
each facility-based assessment area and retail lending assessment area
if it had adequately been served by lenders in general. The agencies
acknowledge commenter feedback about the potential benefits and
challenges of developing such a model. A statistical model could be
used to determine whether the market benchmarks for a facility-based
assessment area or retail lending assessment area were significantly
below levels that would otherwise be expected based on its demographics
(e.g., income distributions, household compositions), housing market
conditions (e.g., housing affordability, the share of housing units
that are rentals), and economic activity (e.g., employment growth, cost
of living). Market benchmarks that were found to be significantly lower
than their expected levels would indicate that those market benchmarks
could be underestimating the credit needs in that facility-based
assessment area or retail lending assessment area. The agencies could
use this information to help determine whether lenders as a whole were
underperforming in a specific assessment area, which could inform the
agencies' determination of a bank's Retail Lending Test conclusion. The
agencies are considering how to develop an appropriate statistical
model and would solicit additional feedback from the public in
developing such a model.
Oral and written comments. The agencies have considered, but
decline to adopt, commenter suggestions supporting inclusion of oral or
written comments about a bank's retail lending performance as an
additional factor as part of final Sec. __.22(g) to inform Retail
Lending Test conclusions. The agencies determined that oral or written
comments about a bank's performance are appropriately accounted for
under final Sec. __.21(d). Specifically, final Sec. __.21(d)(6)
maintains the proposed performance context factor for ``[t]he bank's
public file, as provided in Sec. __.43, including any written comments
about the bank's CRA performance submitted to the bank or the [Agency]
and the bank's responses to those comments.'' Including written public
comments as a consideration in final Sec. __.21(d)(6) allows the
agencies the ability to consider public comments in light of a bank's
overall performance context and to apply consideration of those
comments to the appropriate performance test or tests--including the
Retail Lending Test--and to the appropriate geographic level or levels.
Additionally, final Sec. __.21(d)(4) indicates that the agencies may
consider oral and written comments about retail banking and community
development needs and opportunities provided by the bank or other
relevant sources, including, but not limited to, members of the
community and community
[[Page 6906]]
organizations. The agencies believe that it is preferable to consider
public comments as part of a bank's overall performance context rather
than specifically within final Sec. __.22(g), which applies only to
Retail Lending Test recommended conclusions for, as applicable,
facility-based assessment areas, retail lending assessment areas, and
outside retail lending areas, because public comments could relate to
one or more performance tests as well as to a state, multistate MSA, or
institution-level conclusion.
The agencies considered comments that the agencies should draft CRA
performance evaluations that identify the weight and consideration
given to certain comments versus others. Pursuant to final Sec.
__.21(d), the agencies will consider public comments as part of a
bank's overall performance context in applying the performance tests
and determining conclusions. In addition, the agencies note that CRA
performance evaluations must include the facts and data informing a
bank's conclusions and ratings; therefore, if information gleaned from
public comments is part of the basis of a bank's conclusions, the
agencies would include that information in performance evaluations.
Regarding the commenter suggestion that banks should be given the
opportunity to review and rebut comments considered by the agencies,
the final rule does not adopt this as part of the regulatory text for
the applicable provision. However, the agencies believe that, at the
time of a bank's examination, banks have the opportunity to provide the
agencies with additional data and information related to any aspect of
the bank's evaluation, including topics raised in public comments.
The agencies also considered the commenter suggestion that the
agencies' community affairs teams should combine any submitted oral and
written comments with data, news articles, and other research for
examiners to develop Retail Lending Test conclusions. The agencies
believe that final Sec. __.21(d)(6) will allow the agencies to
consider oral and written comments in conjunction with other data, news
articles, and research as part of a bank's performance context.
The agencies also considered a commenter suggestion that the
agencies should only consider written comments required to be included
in a bank's CRA public file in developing Retail Lending Test
conclusions, to limit the potential effect of social media posts and
other potentially spurious claims. Pursuant to the public file
requirements in final Sec. __.43, submitted written comments, whether
submitted directly to a bank or to an agency, will be available both
for consideration and response by a bank and for public review. The
agencies note that it may often not be feasible or appropriate to
consider social media posts as information included as part of a bank's
performance context; in additional to practical challenges, the
agencies believe it could be challenging to determine whether remarks
made by members of the public on social media were intended or
appropriate for the agencies to consider in the bank's CRA evaluation.
However, the agencies have discretion pursuant to final Sec.
__.21(d)(4) and (7) to consider oral and written comments, including
those made to the agencies as part of the community contacts process;
data made available through social media posts, if relevant to a bank's
evaluation, could also be considered as performance context information
as determined to be appropriate. As discussed further in the section-
by-section analysis of final Sec. __.46, the agencies note that they
encourage the public to submit comments on bank performance either to
the agency or to the bank so it can be included in the bank's public
file as noted above.
Section __.22(h) Retail Lending Test Performance Conclusions and
Ratings
In final Sec. __.22(h) and section VIII of final appendix A, the
agencies are adopting, with certain substantive, clarifying, and
technical edits: the proposed approach for assigning performance scores
to a bank's facility-based assessment areas, retail lending assessment
areas, and outside retail lending area, as applicable, based on the
bank's retail lending performance in those Retail Lending Test Areas;
and calculating a weighted average of those performance scores to
determine Retail Lending Test conclusions at the State, multistate MSA,
and institution levels.
The Agencies' Proposal
Section __.22(h)(1) Conclusions
With reference to proposed Sec. __.28 and proposed appendix C,
proposed Sec. __.22(f)(1) provided that the agencies would assign
Retail Lending Test conclusions for a bank's performance in its
facility-based assessment areas, retail lending assessment areas, and
outside retail lending area, as applicable. As described in section VI
of proposed appendix A and proposed appendix C, conclusions assigned
for a bank's performance in facility-based assessment areas and retail
lending assessment areas, as applicable, would form the basis for
State, multistate MSA, and institution Retail Lending Test conclusions.
Conclusions in a bank's outside retail lending area would also factor
into the institution Retail Lending Test conclusion.\963\
---------------------------------------------------------------------------
\963\ See proposed Sec. __.22(a) and proposed appendix C.
---------------------------------------------------------------------------
As also described in section VI of proposed appendix A, the
agencies intended to combine the performance scores for a bank's
facility-based assessment areas, retail lending assessment areas, and
its outside retail lending area, as applicable, using a standardized
weighted average approach, to develop State, multistate MSA, and
institution conclusions. The proposed approach aimed to ensure that the
bank's retail lending performance in every one of its markets would
influence conclusions at the State, multistate MSA, and institution
levels, as appropriate.
In addition, the agencies proposed that the weights for State and
multistate MSA conclusions would be calculated by averaging together
the performance in each facility-based assessment area and retail
lending assessment area, as applicable. In doing so, the bank's
performance in each assessment area (facility-based assessment area or
retail lending assessment area, as applicable) would be weighted by
calculating the simple average of:
The dollars of deposits that the bank sourced from a
facility-based assessment area or retail lending assessment area, as a
percentage of all of the bank's deposits sourced from facility-based
assessment areas or retail lending assessment areas, as applicable, in
the State or multistate MSA; and
The dollars of the bank's retail lending in a facility-
based assessment area or retail lending assessment area, as a
percentage of all of the bank's retail loans in facility-based
assessment areas and retail lending assessment areas, as applicable, in
the State or multistate MSA.\964\
---------------------------------------------------------------------------
\964\ See proposed appendix A, section VI.
---------------------------------------------------------------------------
When evaluating retail lending performance for the institution, the
agencies proposed considering performance in a bank's outside retail
lending area, as applicable, in addition to performance in a bank's
facility-based assessment areas and retail lending assessment areas, as
applicable. Specifically, the agencies proposed that the weights
assigned to each geographic area for purposes of calculating
institution conclusions would be the simple average of:
[[Page 6907]]
The percentage reflecting the dollars of deposits that the
bank sourced from each area (a facility-based assessment area, retail
lending assessment area, or outside retail lending area) relative to
all of the bank's deposits; and
The percentage reflecting the dollars of the bank's retail
lending in each area (a facility-based assessment area, retail lending
assessment area, or its outside retail lending area) relative to all of
a bank's retail lending.\965\
---------------------------------------------------------------------------
\965\ See id.
---------------------------------------------------------------------------
For Retail Lending Test conclusions in a State and multistate MSA,
as applicable, and for the institution, the agencies proposed to tailor
the approach for deposits data used for these weights, as discussed
further in the section-by-section analyses of Sec. Sec. __.12 and
__.42(a)(7) and (b)(3). For deposits data, the agencies proposed to use
the annual average amount of a bank's deposits collected from each area
averaged over the years of the relevant evaluation period, if the bank
collected and maintained this data.\966\ For any banks evaluated under
the Retail Lending Test that did not collect deposits data, the
agencies proposed to use the deposits assigned to the banks' branches
in each area, as reported in the FDIC's Summary of Deposits data,
averaged over the years of the relevant evaluation period.\967\
---------------------------------------------------------------------------
\966\ See id.
\967\ See id.
---------------------------------------------------------------------------
Section __.22(h)(2) Ratings
With reference to proposed Sec. __.28 and proposed appendix D,
proposed Sec. __.22(f)(2) provided that the agencies would incorporate
a bank's Retail Lending Test conclusions into a bank's State,
multistate MSA, and institution ratings.
Comments Received
Commenters that addressed proposed Sec. __.22(f) and section VI of
proposed appendix A generally focused on the proposed weights assigned
to facility-based assessment area, retail lending assessment area, and
outside retail lending area conclusions, as applicable.
Several commenters supported the proposal to calculate weights for
a bank's facility-based assessment area, retail lending assessment
area, and outside retail lending area conclusions, as applicable, based
on the average of a bank's combined share of deposits and retail loans
within each area. For example, a commenter representing rural areas
indicated that the weighting approach is reasonable as it reflects a
bank's service area as measured by deposits and loans, notwithstanding
that rural areas might not often receive a large weight. Another
commenter expressed support for the agencies' approach, including
displaying a bank's Retail Lending Test performance score as it would
add transparency and reveal further distinction into a bank's
performance.
However, other commenters expressed concerns with the agencies'
proposed approach, including that it would result in outside retail
lending areas receiving too much weight or that it was overly complex.
Some commenters recommended that the agencies consider emphasizing
facility-based assessment areas by assigning them greater weight than
retail lending assessment areas. In addition, a commenter indicated
that the agencies' proposed approach involving ``rounding'' of raw
performance scores as part of developing State, multistate MSA, and
institution conclusions could cause a bank's institution Retail Lending
Test conclusion to deviate significantly from the bank's actual
performance. This commenter noted a hypothetical scenario in which a
bank's Retail Lending Test Area performance score of 4.49 would be
rounded to 4.5 and, in turn, rounded up to a 6 (``Low Satisfactory''
conclusion) whereas a similar Retail Lending Test Area performance
score of 4.44 would be rounded down to 4.4 and, in turn, rounded down
to a 3 (``Needs to Improve'' conclusion)--and indicated that if the
second rounding dynamic occurred across multiple Retail Lending Test
Areas (or even in a single heavily-weighted Retail Lending Test Area)
the effect on the bank's Retail Lending Test conclusions and overall
rating could potentially be significant.
Some commenters suggested alternatives, including: simplifying the
calculations to allow banks to better understand their performance and
course correct as needed; weighting facility-based assessment area
performance based upon the relative share of bank deposits or the
amount of retail lending, by loan count, and separately evaluating non-
facility-based assessment area lending at the institution level; and
basing weighting of different areas on examiners' assessment of banks'
retail lending patterns and their judgment regarding how much weight to
assign outside retail lending area lending.
Final Rule
Overview of Sec. __.22(h) and Section VIII of Appendix A
In final Sec. __.22(h)(1), the agencies are adopting the proposed
approach to assigning conclusions for a bank's Retail Lending Test
performance, with edits to reflect final rule revisions to other Retail
Lending Test sections. Final Sec. __.22(h)(1) includes references to
final Sec. __.28, section VIII of final appendix A, and final appendix
C. In final Sec. __.22(h) and section VIII of final appendix A, the
agencies modified the final rule approach for calculating a bank's
percentage of retail lending in each Retail Lending Test Area for
purposes of determining these weights and also made minor wording
changes to improve readability and increase consistency with other
performance test conclusions and ratings provisions throughout the
final rule.
The final rule provides, in section VIII of final appendix A, the
following:
Performance scores for Retail Lending Test Areas. The
agencies translate the Retail Lending Test conclusion for each Retail
Lending Test Area (facility-based assessment areas, retail lending
assessment areas, and an outside retail lending area, as applicable)
into a numerical performance score.
Performance scores for States and multistate MSAs. The
agencies take a weighted average of performance scores across facility-
based assessment areas and retail lending assessment areas, as
applicable, to calculate a performance score for each state and
multistate MSA.
Performance score for the institution. The agencies take a
weighted average of performance scores across all applicable Retail
Lending Test Areas to calculate a performance score for the
institution.
Conclusions for states, multistate MSAs, and the institution: The
agencies develop a conclusion corresponding with the conclusion
category that is nearest to the Retail Lending Test performance score
for each state, multistate MSA, and for the institution. As discussed
further below, the weighted average of each Retail Lending Test Area is
calculated using the following: (1) percentage of deposits in the
specific geographic area out of all the deposits in Retail Lending Test
Areas in the State, Multistate MSA, or institution, as applicable; and
(2) percentage of lending in the specific geographic area out of all
the lending in product lines in Retail Lending Test
[[Page 6908]]
Areas in the State, Multistate MSA, or institution.\968\
---------------------------------------------------------------------------
\968\ See final appendix A, section VIII.
---------------------------------------------------------------------------
Use of performance scores. As noted, the final rule approach
retains a system of assigning performance scores to a bank's facility-
based assessment areas, retail lending assessment areas, and outside
retail lending area, as applicable, based on the bank's retail lending
performance in those Retail Lending Test Areas. Under the final rule,
the agencies then calculate a weighted average of those performance
scores to determine Retail Lending Test conclusions at the State and
multistate MSA levels and for the institution.
With respect to commenter perspectives that the agencies' proposed
approach required an excessive number of calculations and was overly
complex, the agencies believe that the methodology adopted in the final
rule is appropriate for transparently, comprehensively, and
consistently assessing a bank's retail lending performance when
assigning conclusions. In particular, the agencies believe that the use
of a standardized quantitative approach to weighting Retail Lending
Test Areas is preferable to the current evaluation approach, which does
not assign a specific weight to assessment area conclusions in a
standardized manner, including in limited-scope assessment areas.
The final rule retains the proposed approach of assigning a
performance score to each Retail Lending Test Area based on the
conclusion assigned for the bank's retail lending performance in that
area, as follows: ``Outstanding'' (10 points); ``High Satisfactory'' (7
points); ``Low Satisfactory'' (6 points); ``Needs to Improve'' (3
points); ``Substantial Noncompliance'' (0 points).\969\ The agencies
have considered concerns from some commenters regarding the use of
these five performance score values corresponding to each conclusion
category. However, the agencies believe that it is appropriate to use
these performance scores when determining a bank's conclusions at the
State, multistate MSA, and institution levels, rather than to use the
Retail Lending Test Area Score (which could be, for example, 6.5 or 8)
that is calculated pursuant to final Sec. __.22(f) (i.e., after
combining all of a bank's product line scores in a Retail Lending Test
Area for purposes of determining Retail Lending Test recommended
conclusions). The agencies note that the Retail Lending Test Area Score
does not take into account the additional factors provided in final
Sec. __.22(g), which would be considered when assigning the Retail
Lending Test Area conclusion. In addition, pursuant to final Sec.
__.21(d), the agencies may consider performance context information
before assigning a conclusion. As a result, the agencies believe that
it is appropriate to use the performance score associated with the
bank's conclusion, rather than the bank's Retail Lending Test Area
Score, to determine State, multistate MSA, and institution conclusions.
Consequently, although Retail Lending Test Area Scores will play a
significant role when the agencies assign conclusions, the agencies
will also take qualitative considerations into account, and these
considerations may, where appropriate, lead to adjustments of the
conclusions that the agencies would otherwise have assigned.
---------------------------------------------------------------------------
\969\ See the section-by-section analysis of final Sec.
__.21(f) for a more detailed discussion of the specific scoring for
each conclusion category.
---------------------------------------------------------------------------
Using both deposits and retail lending to weight Retail Lending
Test performance in different Retail Lending Test Areas. The final rule
retains the proposed approach of weighting each Retail Lending Test
Area in a standardized, quantitative manner, and does not adopt
alternatives suggested by commenters to qualitatively adjust these
weights or to assign greater weights to certain areas based on factors
other than the bank's deposits and retail lending. As discussed further
below, the agencies modified the final rule approach for calculating a
bank's percentage of retail lending in each Retail Lending Test Area
for purposes of determining these weights.
The agencies believe that the final rule approach reflects that a
bank's presence in a particular Retail Lending Test Area--and hence the
importance of its performance in that Retail Lending Test Area in an
overall evaluation of its retail lending--is grounded in its customer
bases for both deposits and retail loans. Accordingly, the agencies
have determined that both a bank's deposit customer base and its retail
lending customer base in a particular Retail Lending Test Area should
inform the weight assigned to the performance score for that area when
determining conclusions at the State, multistate MSA, and institution
levels.
The agencies believe that the final rule approach provides greater
consistency, predictability, and transparency than some suggested
alternatives, which would introduce a certain amount of inconsistency
due to the increased role of agency discretion in assigning weights to
Retail Lending Test Area conclusions. The agencies also considered, but
decline to adopt, an alternative to base Retail Lending Test Area
weights purely on deposits, rather than on a combination of deposits
and retail lending. In making this determination, the agencies
considered that basing Retail Lending Test Area weights purely on
deposits would mean that, if a bank did a very large amount of its
retail lending in a market from which it drew few deposits, its lending
performance there would only have a small influence on its overall
Retail Lending Test conclusion. Alternatively, basing weights purely on
retail lending could result in a bank's record of serving the credit
needs of the communities from which it draws only a small amount of
deposits having little bearing on its overall conclusion. For example,
under a retail lending-only weighting alternative, if a bank performed
poorly in a facility-based assessment area due to making fewer retail
loans than necessary to meet the Retail Lending Volume Threshold that
low level of lending would mean that the resulting facility-based
assessment area conclusion would carry little weight in the
corresponding State, multistate MSA, or institution conclusions, even
if the bank draws a significant proportion of its deposits from that
facility-based assessment area.
Pursuant to the section VIII of final appendix A, the agencies will
determine the percentage of a bank's deposits in a specific Retail
Lending Test Area as follows: (1) for a bank that collects, maintains,
and reports deposits data as provided in final Sec. __.42, the
calculation is determined using the bank's annual average daily balance
of deposits reported by the bank in counties in the Retail Lending Test
Area; and (2) for a bank that does not collect, maintain, and report
deposits data as provided in final Sec. __.42, this calculation is
determined using the deposits assigned to facilities reported by the
bank in the Retail Lending Test Area in the FDIC's Summary of Deposits
data.\970\
---------------------------------------------------------------------------
\970\ See final appendix A, paragraphs VIII.a.1 and VIII.b.1.
---------------------------------------------------------------------------
Because the FDIC's Summary of Deposits data assigns all deposits to
facility locations, and all facilities will be located in a facility-
based assessment area, the deposits assigned to retail lending
assessment area and outside retail lending area performance scores for
banks that do not collect and maintain deposits data will always be
zero. The weight of the retail lending assessment area and outside
retail lending area performance score for such a bank will, therefore,
be one-half of the percentage of retail lending the bank conducted in a
given retail lending
[[Page 6909]]
assessment area. As a result, for a bank not required to collect
deposits data that obtains deposits from outside of its facility-based
assessment areas, electing to collect deposits data for use in the
bank's evaluation may increase the weight placed on the bank's
performance in its retail lending assessment areas and outside retail
lending area and decrease the weight placed on its facility-based
assessment areas, as the concentration of deposits attributed there may
be reduced to some degree. The agencies determined that this approach
allows appropriate flexibility to banks with assets less than or equal
to $10 billion to decide whether to collect deposits data for the
purposes of CRA evaluations. Such a bank may take into consideration
the areas from which the bank sources deposits, and the potential
burden and complexity associated with additional data collection,
maintenance, and reporting for the bank. Such a bank may also take into
consideration the broader definition of deposits (including U.S.,
State, and local government deposits and deposits from foreign
entities) that are included in the FDIC's Summary of Deposits data, as
compared to the narrower definition of deposits data used for banks
that collect, maintain, and report deposits data.
Pursuant to section VIII of final appendix A, the agencies will
determine the percentage of a bank's retail lending in a specific
Retail Lending Test Area using not only a bank's dollar amount of
retail lending but, rather--as discussed in the section-by-section
analysis of final Sec. __.12--a combination of loan dollars and loan
count. Specifically, the agencies will use the average of: (1) the
ratio calculated using loans measured in dollar amount; and (2) the
ratio calculated using loans measured in number of loans, to determine
the percentage of a bank's originated and purchased closed-end home
mortgage loans, small business loans, small farm loans, and automobile
loans (if automobile loans are a product line for the bank) in a
facility-based assessment area, retail lending assessment area, or
outside retail lending area, as applicable.
As explained in the section-by-section analysis of final Sec.
__.12, adopting a combination of loan dollars and loan count-based
approach for weighting conclusions better tailors the Retail Lending
Test to accommodate individual bank business models, insofar as the
agencies have determined that use of this combination helps to account
for differences across product lines, bank strategies, and geographic
areas, relative to an approach that uses only loan dollars or only loan
count. Additionally, the agencies believe that both loan dollars and
loan count reflect different aspects of how a bank has served the
credit needs of a community, with loan dollars representing the total
amount of credit provided and loan count representing the number of
borrowers served.
Section __.22(h)(1)(i) In General
Section __.22(h)(1)(ii) Retail Lending Test Area Conclusions
Retail Lending Test Conclusions for States and Multistate MSAs
With some modifications relative to the proposal, section VIII of
final appendix A describes the agencies' methodology for assigning a
bank's Retail Lending Test conclusions for the State and multistate MSA
levels. Specifically, the agencies will develop a bank's Retail Lending
Test conclusions for States and multistate MSAs based on Retail Lending
Test conclusions for its facility-based assessment areas and retail
lending assessment areas, as applicable, in those States and multistate
MSAs. In addition to incorporating the combination of loan dollars and
loan count definition, the agencies have made certain clarifying and
technical changes to the proposal to streamline the description of the
methodology and improve readability.
As provided in paragraph VIII.b of final appendix A, the agencies
will calculate a bank's Retail Lending Test performance score based on
a weighted average of performance scores from facility-based assessment
areas and retail lending assessment areas, as applicable, within each
respective State or multistate MSA. Specifically, the weights for each
facility-based assessment area and retail lending assessment area in
this calculation will be the simple average of the following two
percentages, calculated over the years in the evaluation period:
The percentage of deposits that the bank draws from the
area, out of all of the dollars of deposits in the bank drawn from
facility-based assessment areas and retail lending assessment areas in
the respective State or multistate MSA, pursuant to final Sec.
__.28(c); and
Based on a combination of loan dollars and loan count, the
percentage of the bank's loans in the area, as a percentage of all of
the bank's loans in facility-based assessment areas and retail lending
assessment areas in the respective State or multistate MSA, pursuant to
final Sec. __.28(c). The loans included in this calculation will be
originations and purchases of closed-end home mortgage loans, small
business loans, small farm loans, and automobile loans (if automobile
loans are a product line for the bank).
As proposed and as provided in paragraph VIII.c of final appendix
A, based on this performance score, the agencies will develop a Retail
Lending Test conclusion corresponding with the conclusion category that
is nearest to the Retail Lending Test performance score for each State
or multistate MSA, as illustrated in Table 31 below. The agencies will
then consider relevant performance context factors provided in final
Sec. __.21(d) before assigning a Retail Lending Test conclusion for
the State or multistate MSA.
[[Page 6910]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.045
Institution Retail Lending Test Conclusions
With some modifications relative to the proposal, paragraphs VIII.b
through VIII.d of final appendix A describes the agencies' methodology
for assigning a bank's Retail Lending Test conclusions for the
institution. Paragraphs VIII.b and VIII.c of final appendix A provide
that the agencies will develop a bank's Retail Lending Test conclusion
for the institution based on its Retail Lending Test conclusions for
its facility-based assessment areas, retail lending assessment areas,
and outside retail lending area, as applicable. The agencies made
certain changes to the proposal to incorporate the combination of loan
dollars and loan count definition and streamline the description of the
methodology and improve readability.
As provided in paragraph VIII.c of final appendix A, the agencies
will calculate a bank's Retail Lending Test performance score for the
institution based on a weighted average of performance scores from all
applicable Retail Lending Test Areas. Specifically, the weights for
each Retail Lending Test Area in this calculation will be the simple
average of the following two percentages, calculated over the years in
the evaluation period:
The percentage of deposits the bank draws from each Retail
Lending Test Area out of all of the dollars of deposits in all of the
bank's Retail Lending Test Areas; and
Based on a combination of loan dollars and loan count, the
percentage of the bank's loans in each Retail Lending Test Area, as a
percentage of all of the bank's loans in all of the bank's Retail
Lending Test Areas. The loans included in this calculation will be
originations and purchases of closed-end home mortgage loans, small
business loans, small farm loans, and automobile loans (if automobile
loans are a product line for the bank).
As proposed and as provided in paragraphs VIII.c and VIII.d of
final appendix A, based on this performance score, the agencies will
develop a Retail Lending Test conclusion corresponding with the
conclusion category that is nearest to the Retail Lending Test
performance score for the institution, as illustrated in Table 31
above. The agencies will then consider relevant performance context
factors provided in final Sec. __.21(d) before assigning a Retail
Lending Test conclusion for the institution.
Examples A-16 and A-17 in section VIII of appendix A illustrates
how facility-based assessment area, retail lending assessment area, and
outside retail lending area conclusions, as applicable, will be
weighted in order to develop institution conclusions.
Section __.22(h)(1)(ii)(A) and (B) Exceptions
Section __.22(h)(1)(ii)(A) Facility-based Assessment Areas With no
Major Product Line
Section __.22(h)(1)(ii)(B) Facility-based Assessment Areas in Which a
Bank Lacks an Acceptable Basis for not Meeting the Retail Lending
Volume Threshold
Final Sec. __.22(h)(1)(ii)(A) and (B) provide for two exceptions
to the general Retail Lending Test conclusions methodology described in
final Sec. __.22(h)(1)(i).
First, final Sec. __.22(h)(1)(ii)(A) provides that the agencies
will assign a bank a Retail Lending Test conclusion for a facility-
based assessment area in which it has no major product line--and,
consequently, the agencies are not able to apply the distribution
analysis in final Sec. __.22(d) through (f)--based upon its
performance on the Retail Lending Volume Screen, the performance
context factors information in final Sec. __.21(d), and the additional
factors in Sec. __.22(g).
Second, final Sec. __.22(h)(1)(ii)(B) provides that the agencies
will assign a bank a Retail Lending Test conclusion for a facility-
based assessment area in which the bank lacks an acceptable basis for
not meeting the Retail Lending Volume Threshold pursuant to final Sec.
__.22(c)(3)(iii).\971\
---------------------------------------------------------------------------
\971\ See the section-by-section analysis of final Sec.
__.22(c) for additional information regarding how the agencies
assign facility-based assessment area conclusions for large banks
and, separately, for intermediate banks and small banks that opt to
be evaluated under the Retail Lending Test where these banks lack an
acceptable basis for not meeting the Retail Lending Volume
Threshold.
---------------------------------------------------------------------------
Section __.22(h)(2) Ratings
With reference to final Sec. __.28 and final appendix D, final
Sec. __.22(h)(2) adopts the agencies' proposal to incorporate a bank's
Retail Lending Test conclusions for, as applicable, the State,
multistate MSA, and institution levels into, as applicable, its State,
multistate MSA, and institution ratings.
Analysis of the Final Rule Using Historical Data
The agencies analyzed historical bank lending performance under the
final rule Retail Lending Test approach, including final rule
provisions for the Retail Lending Volume Screen and the performance
ranges as applied to the distribution metrics, using historical data on
bank retail lending and other information in the CRA Analytics Data
Tables. The analysis used data from
[[Page 6911]]
2018-2020 to calculate bank metrics, benchmarks, and weights, except
where otherwise noted. Using this historic data, the agencies:
Estimated recommended conclusions for Retail Lending Test
Areas;
Estimated Retail Lending Test conclusions at the
institution level;
Compared bank performance based on the proposed multiplier
values to performance based on the final rule multiplier values; and
Compared performance across different bank asset size
categories, metropolitan and nonmetropolitan areas, and time periods.
The analysis informed the agencies' decisions regarding the Retail
Lending Test approach in various ways. Specifically, the analysis
informed the agencies' determination that the final rule multiplier
values produce performance ranges that are generally attainable for
``Outstanding,'' ``High Satisfactory,'' or ``Low Satisfactory''
performance. As described further below, a large majority of banks
included in this historical analysis are estimated to have performed at
a level consistent with an institution-level conclusion of
``Outstanding,'' ``High Satisfactory,'' or ``Low Satisfactory'' based
on the final rule provisions. In addition, the analysis informed the
agencies' determination that the performance ranges for a ``Low
Satisfactory'' or higher conclusion are generally attainable across a
variety of circumstances, such as different Retail Lending Test Areas,
bank asset-size categories, metropolitan and nonmetropolitan areas, and
time periods.
Description of analysis. The agencies considered a number of
factors in interpreting the results of this analysis, including certain
data limitations that result in the analysis diverging from the final
rule approach to calculating metrics and benchmarks.
First, the agencies considered that the analysis is retrospective
and, therefore, not a prediction of future evaluation results. In this
regard, the agencies believe that the analysis estimates how banks
would have performed in recent years under the final rule but does not
necessarily describe how banks will perform in future years. For
example, the agencies considered that, once the final rule is
implemented, the increased consistency and transparency of the CRA
examination process under the final rule may result in banks altering
their behavior in ways that cause their metrics and the market
benchmarks to deviate from the patterns observed historically. In
addition, the agencies considered that macroeconomic conditions and
banking practices in the future may differ from those in the historical
periods that are examined here.
Second, the agencies considered that the set of banks included in
this analysis differ from the full group of banks that will be
evaluated under the Retail Lending Test. Specifically, the analysis is
limited to intermediate and large banks (based on the asset-size
categories in the final rule) that reported both CRA small business and
small farm loan data and HMDA data and does not include unreported
loans in any bank metrics calculated in the analysis. The agencies do
not have data to evaluate unreported loans, and therefore determined
not to estimate the recommended conclusions and overall conclusions of
banks that may have unreported closed-end home mortgage, small
business, or small farm lending. Most large banks are reporters for
both CRA small business and small farm loan data and HMDA data, but
most intermediate banks are non-reporters of either CRA small business
and small farm loan data, HMDA data, or both.\972\ As a result, the set
of banks included in the analysis is not necessarily representative of
all banks that will be evaluated under the Retail Lending Test, in
particular intermediate banks that may be underrepresented because they
are less likely to report both CRA and HMDA data. The set of banks
analyzed also does not include banks that were, during the timeframe of
the analysis, designated as wholesale or limited purpose banks--because
these banks will generally not be evaluated under the Retail Lending
Test--or banks evaluated under an approved strategic plan.
---------------------------------------------------------------------------
\972\ See current 12 CFR __.42(b)(1). See also, e.g., 12 CFR
1003.3.
---------------------------------------------------------------------------
Third, the agencies could not analyze loans to businesses and farms
with gross annual revenues of $250,000 or less, because existing data
does not include an indicator identifying loans to small businesses and
small farms at this gross annual revenue level. Instead, the analysis
estimates performance using a single designated borrower category for
loans made to businesses or farms with gross annual revenues of $1
million or less. Furthermore, the agencies note that the analysis does
not take into account the potential impact of transitioning to section
1071 data, which, as described in the section-by-section analysis of
final Sec. Sec. __.22(e) and __.51, would result in changes to the
population of small business and small farm loans considered in the
metric and benchmark calculations.
Fourth, because the deposits data that will be collected for large
banks with assets greater than $10 billion is not yet available, this
analysis used the FDIC's Summary of Deposits data as the sole source of
deposits data for all banks, since this data is available both for each
bank as a whole and also reflects bank deposits assigned to branch
locations. As a result, the analysis likely overestimates the deposits
of the largest banks because the FDIC's Summary of Deposits data uses a
broader definition of deposits, in that it includes deposits from
governments and foreign entities, than the data collected under the
final rule for large banks with assets greater than $10 billion. In
addition, because the FDIC's Summary of Deposits does not report
deposits data based on a depositor's location, the analysis assigned
all bank deposits to facility-based assessment areas, even when the
deposits might have been collected from depositors in retail lending
assessment areas or outside retail lending areas. As a result, because
deposits data is used as part of the final rule approach to weighting
different Retail Lending Test Area performance, the analysis likely
assigns less weight to performance in retail lending assessment areas
and outside retail lending areas than will be assigned under the final
rule for banks that are required to report deposits data pursuant to
final Sec. __.42(b)(3) or that opt to report this data.
Fifth, because the HMDA data collected prior to the 2018 calendar
year do not distinguish originated or purchased home mortgage loans
that were closed-end from those that were open-end, all home mortgage
loans reported in HMDA for years prior to 2018 were assumed to be
closed-end home mortgage loans.\973\
---------------------------------------------------------------------------
\973\ While home mortgage lenders were not required to report
open-end home mortgage loans in HMDA prior to 2018, they had the
option of doing so. Consequently, some of the reported loans may
have been open-end home mortgage loans, though it is not possible to
ascertain for certain how many of the reported loans were open-end
home mortgage loans.
---------------------------------------------------------------------------
Sixth, the analysis does not incorporate the final rule's
requirement that large banks delineate facility-based assessment areas
that consist of at least one or more whole counties, as discussed in
the section-by-section analysis of final Sec. __.16. In contrast, the
current regulations allow large banks to delineate partial-county
assessment areas. Rather than make assumptions regarding how facility-
based assessment area delineations might change under the final rule
[[Page 6912]]
relative to current practice, the analysis uses the actual assessment
areas designated by both large and intermediate banks at the time to
delineate each bank's facility-based assessment areas, including when a
large bank's assessment area delineation includes a partial county.
Seventh, the analysis does not incorporate any evaluation of
automobile lending, due to the unavailability of automobile lending
data necessary to include in the analysis. This limitation impacts any
bank that would have been designated as a majority automobile lender
during the analysis period pursuant to the final rule standard and any
bank that might have opted to have its automobile lending evaluated
during the analysis period.
Finally, this analysis does not take into account aspects of the
final rule that would involve agency discretion, such as the Retail
Lending Volume Screen acceptable basis factors provided in final Sec.
__.22(c)(3)(i), the additional factors provided in final Sec.
__.22(g), and performance context information provided in final Sec.
__.21(d).
As a result of the factors, including data limitations, discussed
above, the agencies consider the results of this analysis to be
estimates, and the results described here should be understood to only
approximate how banks included in these analyses would have performed
under the final rule Retail Lending Test.
Final Rule Multipliers. As discussed in more detail in the section-
by-section analysis of final Sec. __.22(f), the final rule uses lower
values for some of the Retail Lending Test multipliers relative to
those proposed in the NPR. The analysis of the changes to the
multipliers are provided in Table 32, which shows a higher estimated
distribution of institution-level conclusions on the Retail Lending
Test during the 2018-2020 time period using the multipliers for the
final rule compared to those proposed in the NPR. Specifically, using
the final rule multipliers, more banks included in the analysis
received ``Outstanding'' or ``High Satisfactory'' estimated conclusions
and fewer banks received ``Low Satisfactory'' or ``Needs to Improve''
estimated conclusions. As noted in the section-by-section analysis of
final Sec. __.22(f), the agencies consider ``Low Satisfactory''
performance to represent that a bank is adequately meeting the credit
needs of its community and consider ``High Satisfactory'' and ``Low
Satisfactory'' conclusions to both correspond to the overall rating
category of ``Satisfactory.'' Aside from the different multiplier
values, the Retail Lending Test approach was applied as described in
the final rule--both as applied to the NPR multipliers and the final
rule multipliers--subject to the limitations listed above. To better
focus on the impact of changing the multipliers on the estimated
recommended conclusions assigned for each bank's loan distributions,
the Retail Lending Volume Screen was not applied in this part of the
analysis.
[[Page 6913]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.046
Table 33 shows the results of the same analysis when the Retail
Lending Volume Screen was applied to facility-based assessment areas of
large banks included in the analysis; under this analysis, a ``Needs to
Improve'' conclusion was assigned to those banks' facility-based
assessment areas that do not meet the Retail Lending Volume Threshold
and that would have otherwise received a conclusion of ``Low
Satisfactory'' or higher based on the distribution analysis.
Specifically, this part of the analysis shows that fewer banks would
have received conclusions of ``Outstanding'' or ``High Satisfactory,''
and more banks would have received ``Needs to Improve'' conclusions,
compared to the analysis that did not incorporate the Retail Lending
Volume Screen, regardless of whether the multipliers used are from the
NPR or the final rule. Table 33 also shows that the multipliers from
the final rule resulted in more banks receiving conclusions of ``High
Satisfactory'' or ``Outstanding'' and fewer receiving conclusions of
``Needs to Improve'' than using the NPR multipliers, even when the
Retail Lending Volume Screen was applied.
The agencies note that this part of the analysis does not take into
account the acceptable basis factors in final Sec. __.22(c)(3)(i), and
therefore may overestimate the frequency at which a bank would have
been assigned a ``Needs to Improve'' conclusion in facility-based
assessment areas where the Bank Volume Metric was lower than the Retail
Lending Volume Threshold.\974\ The analysis does not incorporate the
Retail Lending Volume Screen for intermediate banks, because, under the
final rule, facility-based assessment areas of intermediate banks in
which the Bank Volume Metric is below the Retail Lending Volume
Threshold are assigned a recommended conclusion that more directly
includes consideration of the lending distribution analysis.\975\
---------------------------------------------------------------------------
\974\ The agencies also note that if a bank would have received
a ``Substantial Noncompliance'' conclusion based on the distribution
analysis then the agencies have assigned it a ``Substantial
Noncompliance'' conclusion for purposes of this analysis. Otherwise,
for purposes of this analysis as noted above, a bank that did not
meet the Retail Lending Volume Threshold was assigned a ``Needs to
Improve'' conclusion.
\975\ See final Sec. __.22(c)(3)(iii)(B) and the accompanying
section-by-section analysis.
---------------------------------------------------------------------------
[[Page 6914]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.047
Bank Asset Size. Consistent with the agencies' proposal, in the
final rule, the Retail Lending Test will apply to large and
intermediate banks, and to small banks that elect to be evaluated under
this performance test. Accordingly, the agencies' have considered
estimates for the Retail Lending Test conclusions at the institution
level for banks of different asset sizes.
Specifically, Table 34 shows the results of an analysis of
performance under the Retail Lending Test approach in the final rule
for banks included in the analysis in three different asset-size
categories: intermediate banks; large banks with assets less than or
equal to $10 billion; and large banks with assets greater than $10
billion. As with Tables 32 and 33, the results in Table 34 reflect
performance on the Retail Lending Test at the institution level. The
Retail Lending Volume Screen is not applied in this institution-level
analysis.
As shown in Table 34, estimated performance was similar across the
asset-size groups, with the majority of banks in each group receiving
either a ``High Satisfactory'' or ``Low Satisfactory'' estimated
conclusion, with ``High Satisfactory'' being somewhat more common than
``Low Satisfactory.'' Intermediate banks more frequently received
estimated conclusions of ``Outstanding'' or ``Needs to Improve'' than
large banks, and one intermediate bank was the only bank in the set of
banks analyzed to receive an estimated conclusion of ``Substantial
Noncompliance.'' The share of intermediate banks included in the
analysis receiving a ``Needs to Improve'' or ``Substantial
Noncompliance'' estimated conclusion is somewhat higher than for large
banks. Approximately 88 percent of intermediate banks, 92 percent of
large banks with assets less than or equal to $10 billion, and 95
percent of large banks with assets greater than $10 billion received an
estimated conclusion ``Outstanding,'' ``High Satisfactory,'' or ``Low
Satisfactory.'' Over 60 percent of intermediate banks, 51 percent of
large
[[Page 6915]]
banks with assets less than or equal to $10 billion, and 67 percent of
large banks with assets greater than $10 billion received an estimated
conclusion of ``Outstanding'' or ``High Satisfactory.'' The agencies
have determined, based on this data, that the final rule performance
ranges for estimated conclusions of ``Low Satisfactory'' or higher are
generally attainable for intermediate and large banks. In addition, as
noted above, this analysis does not reflect the performance context
considerations in final Sec. __.21(d) or the additional factors in
final Sec. __.22(g), which will inform conclusions under the final
rule.
[GRAPHIC] [TIFF OMITTED] TR01FE24.048
Table 35 shows the same analysis broken out by different bank
asset-size categories--intermediate banks, large banks with assets less
than or equal to $10 billion, and large banks with greater than $10
billion in assets--using the NPR multipliers. The impact of the change
to the multipliers in the final rule relative to the proposed
multipliers was generally consistent across bank sizes. As demonstrated
by comparing Tables 34 and 35, across all three asset-size groups, the
final rule multipliers increased the estimated share of banks receiving
an ``Outstanding'' conclusion between 2.5 to 4 percentage points and
reduced the estimated share of banks receiving a ``Needs to Improve''
conclusion by 1 to 3 percentage points.
[[Page 6916]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.049
Retail Lending Assessment Areas and Outside Retail Lending Areas.
As discussed in more detail in the section-by-section analysis of final
Sec. __.17 and throughout the section-by-section analysis of final
Sec. __.22, under the final rule the agencies will evaluate the retail
lending performance of certain large banks in retail lending assessment
areas. The agencies will also evaluate the retail lending of large
banks (as well as that of certain intermediate and small banks) in
their outside retail lending area. To understand how banks may have
performed in 2018-2020 in these areas under the final rule approach,
Table 34 shows the estimated distribution of Retail Lending Test
recommended conclusions that banks included in the analysis would have
received in facility-based assessment areas, retail lending assessment
areas, and outside retail lending areas. Specifically, the analysis
shows that at least two-thirds of these banks are estimated to receive
an ``Outstanding,'' ``High Satisfactory,'' or ``Low Satisfactory''
recommended conclusion, with banks receiving a higher proportion of
``Needs to Improve'' conclusions in outside retail lending areas (28
percent) and in retail lending assessment areas 20.6 percent) when
compared to facility-based assessment areas (8.8 percent).
The agencies considered several aspects of these results. First,
the agencies considered that, while performance under the final rule
provisions are lower in retail lending assessment areas and outside
retail lending areas, a significant majority of banks included in the
analysis received conclusions of ``Outstanding,'' ``High
Satisfactory,'' or ``Low Satisfactory in these areas. The agencies
believe that this is an indication that the final rule performance
ranges are generally attainable, because historical bank performance is
relatively strong when applying the final rule evaluation standards.
The agencies also considered that estimated bank conclusions at the
institution level reflect strong overall performance, with
approximately 90 percent of banks in the data set receiving an ''
``Outstanding,'' ``High Satisfactory,'' or ``Low Satisfactory''
estimated conclusion at the institution
[[Page 6917]]
level as shown above in Table 32. This reflects the final rule Retail
Lending Test approach that allows for stronger performance in some
geographic areas to potentially compensate for weaker performance in
other geographic areas. This can take place because the institution-
level Retail Lending Test conclusion is based on a weighted average of
a bank's performance in each facility-based assessment area, each
retail lending assessment area, and the outside retail lending area, as
applicable. As a result, for a bank with multiple Retail Lending Test
Areas, receiving a ``Needs to Improve'' conclusion in one or more areas
may, depending on the weight of each area, be compensated for by strong
performance in other geographic areas. The agencies also note that the
requirement that a large bank receive at least a ``Low Satisfactory''
conclusion in 60 percent of its facility-based assessment areas and
retail lending assessment areas in order to receive a ``Satisfactory''
institution-level rating can impact whether stronger performance in
some areas may compensate for weaker performance in other areas. As
shown in Table 36, the agencies note that at an aggregate level for all
banks included in this analysis, 74 percent of bank lending by dollar
volume was in facility-based assessment areas, 18 percent was in
outside retail lending areas, and 8 percent was in retail lending
assessment areas.
The agencies also note that, under the current approach, banks are
generally not evaluated for retail lending performance outside of areas
where they maintain deposit-taking facilities. As a result, the
analysis does not include any changes that could have resulted in bank
performance under this approach.
[[Page 6918]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.050
Table 37 shows the same analysis broken out by different Retail
Lending Test Areas--facility-based assessment areas, retail lending
assessment areas, and outside retail lending areas--using the NPR
multipliers. Similar patterns
[[Page 6919]]
are observed when the analysis is conducted using the multipliers
proposed in the NPR (Table 37). The analysis shown in Table 37, as with
the other analyses described above, indicates that the multipliers
included in the final rule produce a higher estimated distribution of
recommended conclusions than the multipliers proposed in the NPR.
[GRAPHIC] [TIFF OMITTED] TR01FE24.051
Facility-Based Assessment Area Location. Under the final rule, the
agencies will apply the Retail Lending Test metrics, benchmarks, and
performance ranges across different metropolitan and nonmetropolitan
[[Page 6920]]
geographic areas, and the approach is intended to adjust for
differences in credit needs and opportunities in different areas. Table
38 compares the estimated distribution of recommended Retail Lending
Test conclusions for facility-based assessment areas located in MSAs
and those located in the nonmetropolitan portion of States for banks
included in the analysis. Specifically, the analysis shows that the
distributions in MSAs and nonmetropolitan areas are similar overall.
This analysis informed the agencies' determination that the performance
ranges are generally attainable in both metropolitan and
nonmetropolitan areas.
[GRAPHIC] [TIFF OMITTED] TR01FE24.052
Time Period. Table 39 shows the distribution of estimated
institution-level conclusions on the Retail Lending Test for banks
included in the analysis for five three-year time periods: 2006-2008;
2009-2011; 2012-2014; 2015-2017; and 2018-2020. For this analysis, the
agencies applied the final rule approach for calculating the metrics,
performance ranges, and weights to all five periods, to gain further
insight into historical bank performance over different time periods
under this approach. Because the benchmarks are based on community and
market data from each evaluation period, the resulting performance
ranges applied to a specific Retail Lending Test Area vary
[[Page 6921]]
across evaluation periods. As discussed in the section-by-section
analysis of final Sec. __.22(e), the agencies believe that this
approach to setting benchmarks allows the performance ranges to reflect
changes in credit needs and opportunities over time.
As shown in Table 39, the share of banks included in the analysis
that would have received institution-level conclusions of ``High
Satisfactory'' is estimated to have remained relatively stable over
time at around 48 percent on average (ranging from 42.6 percent to 53.2
percent). In addition, the analysis shows a trend of declining
``Outstanding'' estimated conclusions and increasing ``Low
Satisfactory'' and ``Needs to Improve'' estimated conclusions at the
institution level over this time period.
Supplementary analyses conducted by the agencies suggest that the
decline in ``Outstanding'' estimated conclusions over time is
associated with changing small business lending patterns. As shown in
Table 40, between the 2006-2008 and 2018-2020 time periods, the share
of Retail Lending Test Areas where the estimated product line score for
small business lending was consistent with an ``Outstanding''
conclusion (i.e., the product line score is 8.5 or higher) declined by
22 percentage points from 56.9 percent to 33.9 percent. In contrast, as
shown in Table 41, for closed-end home mortgage loans, the estimated
product line scores consistent with an ``Outstanding'' conclusion were
comparatively flat (increasing slightly from 22.3 percent in 2006-2008
to 24.4 percent in 2018-2020.
[GRAPHIC] [TIFF OMITTED] TR01FE24.053
[[Page 6922]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.054
[[Page 6923]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.055
Section __.23 Retail Services and Products Test
Section __.23(a)(1) Retail Services and Products Test--In General
Section __.23(a)(2) Main Offices
Section __.23(a)(3) Exclusion
Current Approach
Under current CRA regulations, the service test, which only applies
to large banks, establishes four criteria for evaluating retail
services: (1) the current distribution of branches among low-,
moderate-, middle-, and upper-income census tracts; \976\ (2) a bank's
record of opening and closing branches, particularly branches in low-
or moderate-income geographies or that primarily serve low- or
moderate-income individuals; \977\ (3) the availability and
effectiveness of alternative systems for delivering retail banking
services (or non-branch delivery systems) in low- and moderate-income
geographies and to low- and moderate-income individuals; \978\ and (4)
the range of services provided in low-, moderate-, middle-, and upper-
income geographies and the degree to
[[Page 6924]]
which the services are tailored to meet the needs of those
geographies.\979\
---------------------------------------------------------------------------
\976\ See current 12 CFR __.24(d)(1).
\977\ See current 12 CFR __.24(d)(2).
\978\ See current 12 CFR __.24(d)(3). Under the OCC's CRA
regulation, current 12 CFR 25.24(d)(3) provides that alternative
delivery systems include ``ATMs, ATMs not owned or operated
exclusively for the bank or savings association, banking by
telephone or computer, loan production offices, and bank-at-work or
bank-by-mail programs.'' Under the Board's CRA regulation, current
12 CFR 228.24(d)(3) provides that alternative delivery systems
include ``ATMs, ATMs not owned or operated by or exclusively for the
bank, banking by telephone or computer, loan production offices, and
bank-at-work or bank-by-mail programs.'' Under the FDIC's CRA
regulation, current 12 CFR 345.24(d)(3) describes alternative
delivery systems as ``RSFs [remote service facilities], RSFs not
owned or operated by or exclusively for the bank, banking by
telephone or computer, loan production offices, and bank-at-work or
bank-by-mail programs.''
\979\ See current 12 CFR __.24(d)(4).
---------------------------------------------------------------------------
The Agencies' Proposal
In Sec. __.23(a)(1), the agencies proposed a new Retail Services
and Products Test that would evaluate the following for large banks:
(1) delivery systems and (2) credit and deposit products responsive to
the needs of low- and moderate-income individuals and census
tracts.\980\ Under this test, the agencies proposed to use a
predominately qualitative approach while incorporating quantitative
measures as guidelines. For the first part of the test, in Sec.
__.23(b), the proposal sought to achieve a balanced evaluation
framework that, depending on bank asset size, considered the following
bank delivery systems: (1) branch availability and services; (2) remote
service facility availability; and (3) digital and other delivery
systems.\981\ For the second part of the test, in Sec. __.23(c), the
proposal aimed to evaluate a bank's efforts to offer credit and deposit
products responsive to the needs of low- and moderate-income
individuals, small businesses, and small farms depending on bank asset
size.\982\ The agencies also proposed in Sec. __.23(a)(2) that
activities considered for a bank under the Community Development
Services Test may not also be considered under the Retail Services and
Products Test. (For a discussion of the evaluation of community
development services, see the section-by-section analysis for the
Community Development Services Test in Sec. __.25.)
---------------------------------------------------------------------------
\980\ See proposed Sec. __.23(a)(1).
\981\ See proposed Sec. __.23(b).
\982\ See proposed Sec. __.23(c).
---------------------------------------------------------------------------
The agencies proposed a tailored approach to the Retail Services
and Products Test based on a large bank's asset size. As discussed in
more detail in the section-by-section analysis of Sec. __.23(b) and
(c), for large banks with assets of $10 billion or less in both of the
prior two calendar years, based on the assets reported on its four
quarterly Call Reports for each of those calendar years, the agencies
proposed making certain components optional to reduce the data burden
of new data collection requirements for banks within this asset
category. For large banks with assets of over $10 billion, the agencies
proposed requiring the full evaluation under the proposed Retail
Services and Products Test.
Comments Received
Many of the commenters addressing the Retail Services and Products
Test generally supported the agencies' proposal, although there were
differences among commenters on how to apply the test, with several of
these commenters making recommendations on how the test could be
improved. A few commenters argued that the test's quantitative
guidelines do not add value in measuring bank performance, but
supported the use of both qualitative and quantitative approaches if
banks are given the opportunity to explain performance that falls short
of the targets. Other commenters recommended that the test include a
more rigorous assessment of retail banking and services, with two
commenters noting that, while there are improvements to the service
test, the test needs further developing to guide examiners against
ratings inflation. Two commenters believed the test should be applied
to small and intermediate banks to determine the effectiveness and
impact of retail services and products, with one of these commenters
believing application to these banks would be critical to ensuring
branches are present in low-income communities and communities of
color. One other commenter suggested that some activities included
under the proposed Community Development Services Test--financial
literacy and technical assistance to small businesses--should instead
be included under the Retail Services and Products Test. A few other
commenters recommended that direct and indirect consumer lending be
evaluated quantitatively in the Retail Lending Test, but also
qualitatively in the Retail Services and Products Test.
A few commenters recommended that aspects of the test be more
flexible to address different business models and account for recent
and future changes in digital banking. One of these commenters
expressed concern that the proposed Retail Services and Products Test
could be interpreted as requiring a bank to provide particular products
and services deemed to be beneficial to low- and moderate-income people
and requested clarification that this was not intended. This commenter
also believed that the test would be inconsistent with both the
agencies' stated goal of tailoring the framework to different business
models and the safe and sound statutory requirement. A few commenters
also suggested that the agencies avoid making peer-based comparisons
under the final rule in which one particular bank is penalized for not
offering a particular product or service that is offered by another
bank.
Some commenters provided recommendations for incorporating race and
ethnicity into the proposed Retail Services and Products Test. One
commenter asserted that all elements of the agencies' proposed Retail
Services and Products Test applicable to low- and moderate-income
consumers and communities could also be applied to minority consumers
and communities. This commenter indicated, for example, that in
addition to evaluating branching in low- and moderate-income
communities the agencies could evaluate branching in minority
communities. Another commenter asserted that the banking industry
increasingly resorts to providing digital access to financial services
and products and services to reduce costs, but in doing so risks
further excluding minority consumers and communities given that they
then have both less access to branches and more limited digital
capabilities than white consumers and communities. A commenter
expressed the view that the agencies should expand qualitative reviews
in the Retail Services and Products Test to provide consideration for
activities that close the racial wealth gap by affirmatively serving
racial minority consumers and communities. This commenter provided
examples such as special purpose credit programs targeted to minority
consumers, affirmative marketing and offering of affordable products to
minority consumers, and responsible lending practices to prevent
displacement. Another commenter proposed that positive consideration be
given for special purpose credit programs, small-dollar home mortgage
programs, limited English proficiency products, and products for first-
generation homebuyers, indicating that they all contributed to racial
equity in housing. This commenter added that incentivizing bank
activities with first-time, socially disadvantaged homebuyers would
meaningfully address the racial minority home ownership gap. One
commenter stated that the agencies, when evaluating the distribution of
services and products to low- and moderate-income consumers and
communities, should assess a bank's strategies and initiatives to
serve, and the responsiveness of the bank's services and products to,
the needs of minority consumers and communities. Another commenter
asserted that the CRA regulations should incentivize banks to meet the
credit needs of minority communities in a variety of ways, including by
creating products and services specifically responsive to minority
community needs, placing branches in majority-minority neighborhoods,
and investing in
[[Page 6925]]
community development projects that serve minority communities. A
commenter asserted that banks that only offer expensive products that
do not serve community needs should be adversely rated. Another
commenter stated that agencies should evaluate the qualitative impact
of all bank lending, and prohibit predatory practices like negative
amortization, interest-only loans, and adjustable-rate mortgages. A
number of commenters asserted that whether a bank maintains branches in
minority communities should be a performance factor. For example, a
commenter stated that the agencies should consider a bank's branch
distribution across tracts with different racial demographics,
including majority-minority census tracts, in comparison to the
aggregate distribution. The agencies have considered these comments and
are addressed in section III.C of this SUPPLEMENTARY INFORMATION.
Final Rule
For the reasons discussed below, the agencies are adopting, with
certain revisions, the proposed scope and framework of the Retail
Services and Products Test in Sec. __.23(a)(1). More specifically, the
agencies are revising the description of the scope of final Sec.
__.23(a)(1) by clarifying that the test evaluates the availability and
accessibility of a bank's retail banking services and products and the
responsiveness of those services and products to the needs of the
bank's entire community, including but not limited to low- and
moderate-income individuals, families, or households and low- and
moderate-income census tracts, as well as the needs of small businesses
and small farms. In response to comments, the agencies are also
removing the word ``targeted'' from the regulatory text in this
paragraph to make clear that this evaluation does not mandate that
banks make available certain products or services or target certain
populations. In addition, as explained in more detail in the section-
by-section analysis of Sec. __.23(b) (retail banking services) and (c)
(retail banking products), the agencies are making certain revisions to
the components of the Retail Services and Products Test upon
consideration of the comments received.
The agencies are also adding clarity in final Sec. __.23(a)(2)
that branches, for the purposes of the Retail Services and Products
Test, also include a main office of a bank, if the main office is open
to, and accepts deposits from, the general public. It was the intent of
the agencies to consider a main office that offers deposits and is open
to the general public as part of the test. No change in meaning is
intended and this addition is meant to provide clarity to the
evaluation.
Finally, to ensure that bank activities that are considered under
the Retail Services and Products Test are not also considered under the
Community Development Services Test, the agencies are retaining the
exclusion as proposed in final Sec. __.23(a)(3), with a technical edit
to change the word ``activities'' to ``services.'' The agencies believe
the use of the word ``services'' rather than ``activities'' more
clearly represents the types of activities evaluated under both the
Community Development Services Test and the Retail Services and
Products Test.
As explained in the proposal, the agencies are drawing on the
existing approach used to evaluate a bank's retail services, while also
updating and standardizing the evaluation criteria to reflect the now
widespread use of mobile and online banking. Although some commenters
expressed concern with how benchmarks are applied, the agencies believe
that utilizing both a quantitative and qualitative approach to the test
achieves the goals of maintaining the current approach to retail
services while better standardizing the evaluation criteria. The
agencies are sensitive to concerns about examiner judgment and
understand the need to provide examiners guidance on applying the test.
The agencies note that, while examiner judgment is an important part of
the CRA evaluation process, the agencies will endeavor to minimize
unnecessary subjectivity and increase consistency among examiners by
providing updated guidance, training, and standards applicable to
evaluations under this test while also attempting to guard against
ratings inflation. The agencies believe that measured examiner judgment
is necessary to account for the unique characteristics of a bank,
including its constraints, business model, and the needs of its
community. The agencies are also clarifying that the intent of the
Retail Services and Products Test is not to mandate that a bank offer
particular products or programs or to evaluate or penalize a bank based
on the types of products or services its peers offer. Rather, the
agencies intend to measure the availability and responsiveness of a
bank's retail services to the needs of its communities.
The agencies also considered commenters' recommendation to require
the evaluation of the Retail Services and Products Test for small and
intermediate banks. As explained in the section-by-section analysis of
Sec. Sec. __.21 (performance tests), __.29 (small banks), and __.30
(intermediate banks), these banks have more limited capacities and are
less able to offer as wide a range of retail services and products as
their larger counterparts. Requiring this test would increase the
burden on these banks without sufficient compensating benefits. The
agencies believe that additional consideration for activities under the
Retail Services and Products Test for small and intermediate banks
without a requirement to collect additional data is appropriate, as it
may encourage additional activities in low- and moderate-income
communities, without imposing additional burden. The agencies also
considered commenters' recommendations with respect to the evaluation
of other activities, such as financial literacy and technical
assistance to small businesses. The agencies, however, believe that
services such as these are best evaluated under the Community
Development Services Test. Evaluating community development services
separately from the Retail Services and Products Test underscores the
importance of these services for fostering partnerships among different
stakeholders, building capacity, and creating the conditions for
effective community development.
Section __.23(b) Retail Banking Services
Section __.23(b)(1) Scope of Evaluation
The Agencies' Proposal
For large banks with assets of over $10 billion, the agencies
proposed in Sec. __.23(b), to evaluate the full breadth of a bank's
delivery systems by both maintaining an emphasis on branches and
increasing the focus on digital and other delivery channels.
Specifically, the agencies proposed to evaluate three components of the
bank's performance: (1) branch availability and services in proposed
Sec. __.23(b)(1); (2) remote service facility availability in proposed
Sec. __.23(b)(2); and (3) digital and other delivery systems in
proposed Sec. __.23(b)(3). The proposal required large banks with
assets of $10 billion or less to be evaluated only under the first two
components of delivery systems, unless the bank requested additional
consideration of its digital and other delivery systems and collected
the requisite data.\983\ The agencies asked for feedback on whether the
evaluation of digital and other delivery systems
[[Page 6926]]
should be optional or required for banks with assets of $10 billion or
less as proposed, or alternatively, whether the agencies should
maintain current evaluation standards for alternative delivery systems
for banks within this tier. The current evaluation standards include,
for example, the ease of access and use, reliability of the system,
range of services delivered, cost to consumers as compared with the
bank's other delivery systems, and rate of adoption and use.
---------------------------------------------------------------------------
\983\ See proposed Sec. Sec. __.23(b) and __.42(a)(4)(ii).
---------------------------------------------------------------------------
Comments Received
Most commenters that addressed branch availability and services,
and remote service facility availability agreed that branches remain an
important component in the evaluation of a bank's delivery systems,
with some of these commenters noting that availability of branches
curtails the proliferation and use of predatory lenders in those areas.
Other commenters questioned the application of the evaluation to
digital banks with relatively few or no branches or remote service
facilities.
Some commenters suggested that banks deemed to be performing at a
``High Satisfactory'' or ``Outstanding'' level on the proposed Retail
Lending Test should receive a presumption that their distribution
channels are sufficiently serving low- and moderate-income communities,
or at least receive a relatively perfunctory evaluation of their
channels of distribution. One commenter asked for clarity on how the
evaluation criteria will be used to assess branch availability and
services, remote service facility availability, digital alternatives,
and other delivery systems in practice. Another commenter expressed
concern that banks maintaining branches in underserved areas with
little commercial or lending activity would be unable to pass the
Retail Lending Volume Screen forcing these banks to close branches in
these underserved areas and disincentivizing potential new market
entrants from growing into rural markets. Two other commenters asked
that the agencies consider the following: clarify that delivery
services would be evaluated holistically to consider whether all
delivery channels together effectively meet the needs of a bank's
customers and communities; mitigate business-related factors behind
branch closures; determine the weight of each type of delivery system,
including branches, based on the bank business model and in proportion
to the bank's use of such systems; provide favorable consideration for
branch openings in low- and moderate-income communities and other areas
of need; and apply a totality of the circumstances approach that
includes, e.g., the availability and responsiveness of the bank's
branches and services in low- or moderate-income census tracts and to
low- or moderate-income individuals, customer complaints or
testimonials, and the bank's own policies and procedures.
One commenter argued that the proposal over-emphasizes delivery
systems without acknowledging that banks are effectively meeting the
needs of low- and moderate-income consumers through existing delivery
channels. This commenter further stated that the emphasis on physical
branches makes it likely that the rule would need to be updated again,
as digital banking becomes more common. Another commenter asserted that
the proposed framework to evaluate the distribution of a bank's
branches and remote service facilities penalizes banks that primarily
operate through their branch and ATM network and appears to favor a
business model with few or no branches. This commenter urged the
agencies to consider, instead, an evaluation of branches and ATMs that
can only be favorably considered in a bank's Retail Services and
Products Test conclusion.
Most commenters that addressed the agencies' request for comment on
whether large banks with assets of $10 billion or less should be
subject to an evaluation of their digital and other delivery systems
recommended that all large banks, including those with assets of $10
billion or less, should be subject to this evaluation. A few of these
commenters suggested that, at minimum, the agencies should consider
evaluating large banks with assets of $10 billion or less under this
component, if a certain amount of their deposit activity (e.g., one
third) is generated from digital channels. One commenter recommended
that the evaluation should be optional for banks in the intermediate
bank category and above. Another commenter recommended that military
banks or banks serving military and veteran customers that have assets
of $10 billion or less have the ability to request additional
consideration of its digital delivery systems and other delivery
systems. Another commenter suggested that CRA modernization should be
used to encourage small and intermediate banks to incorporate digital
channels and capabilities, including through partnerships with
fintechs, to better reach low- and moderate-income consumers and small
businesses. By contrast, some commenters recommended that evaluation of
digital and other delivery systems should remain optional for all large
banks. One other commenter stated that the asset threshold for optional
evaluation of this component of $10 billion or less was too low and
recommended that it be increased to $100 billion or less.
Final Rule
The final rule adopts Sec. __.23(b) with technical edits related
to the organization of the retail banking services evaluation.
Specifically, final Sec. __.23(b) renames the section header from
``delivery systems'' to ``retail banking services'' and adds the same
terminology throughout the regulatory text where appropriate. No change
in meaning is intended and this revision is meant to provide clarity
that the evaluation measures the availability and accessibility of a
bank's retail banking services, including through delivery systems such
as branches. The final rule also includes a revision related to the
consideration of digital delivery systems and other delivery systems
for large banks with assets of $10 billion or less as of December 31 in
either of the prior two calendar years that do not operate branches or
remote service facilities. The agencies are also making the
clarification that the respective evaluations of bank branches or
remote service facilities only apply to a particular bank if the bank
has one or more branches or remote service facilities. Specifically,
the final rule requires large banks with assets of over $10 billion to
be evaluated for their delivery systems under: final Sec. __.23(b)(2)
(branch availability and services), if the bank operates one or more
branches, final Sec. __.23(b)(3) (remote service facility
availability), if the bank operates one or remote service facilities,
and final Sec. __.23(b)(4) (digital delivery systems and other
delivery systems) (see the section-by-section analysis of Sec.
__.23(b)(2) through (4) for additional details). Large banks, including
military banks,\984\ with assets of $10 billion or less that have
[[Page 6927]]
branches will be evaluated only under the first two components unless
they opt for consideration of digital delivery systems and other
delivery systems. Further, military banks that are small and
intermediate banks may also request consideration for digital and other
delivery systems pursuant to Sec. __.29(b) or Sec. __.30(b), as
applicable.
---------------------------------------------------------------------------
\984\ As discussed in the section-by-section analysis of final
Sec. __.21(a)(5), the agencies are adopting a new paragraph in the
final rule to clarify the evaluation of military banks. Under the
final rule, the agencies will evaluate a military bank that chooses
to delineate the entire United States and its territories as its
sole facility-based assessment area because its customers are not
located within a defined geographic area, as specified in final
Sec. __.16(d), exclusively at the institution level based on the
bank's performance in its sole facility-based assessment area. For
purposes of the final Retail Services and Products Test, the
agencies will evaluate these banks at the facility-based assessment
area level pursuant to the provisions of final Sec. __.16 for
retail banking services, and, as with other large banks with assets
of $10 billion or less, military banks can request the evaluation of
digital delivery systems and other delivery systems at the
institution level.
---------------------------------------------------------------------------
In response to comments, the final rule clarifies that a large bank
that had assets of $10 billion or less as of December 31 in either of
the prior two calendar years and that does not operate branches will be
evaluated only for its digital delivery systems and other delivery
systems under Sec. __.23(b)(4). This is a change from the proposal,
which required the evaluation of this component only for large banks
with assets of over $10 billion. The agencies believe requiring the
evaluation of digital delivery systems and other delivery channels for
branchless large banks with assets of $10 billion or less is
appropriate, recognizing that such banks do not deliver retail services
to their customers through branches.
However, the agencies decline to require in the final rule an
evaluation of digital delivery systems and other delivery systems for
all large banks as suggested by some commenters. The agencies remain
sensitive to the impact of new data collection requirements for large
banks with assets of $10 billion or less, and believe it is preferable
to only require this evaluation component for such banks with no
branches as described above. The agencies believe requiring evaluation
of the digital delivery systems and other delivery systems of
branchless banks with assets of $10 billion or less ensures that the
delivery systems of such banks are evaluated, while appropriately
tailoring the approach for banks with assets of $10 billion or less,
which may have less capacity to meet new data collection requirements.
The agencies note that the approach used in the final rule for
evaluating a large bank's retail banking services would leverage
quantitative benchmarks to inform the branch and remote service
facility availability analysis and provide favorable qualitative
consideration for branch locations in certain geographic areas. In
comparison to the current CRA regulations, the final rule also more
fully evaluates digital and other delivery systems, as applicable, in
recognition of the trend toward greater use of online and mobile
banking.
The agencies decline to adopt the recommendation from some
commenters that a large bank receiving a ``High Satisfactory'' or
``Outstanding'' level of performance on the Retail Lending Test should
be exempted in some way from a Retail Services and Products Test
evaluation or be awarded a presumptive conclusion under the Retail
Services and Products Test. The agencies believe that a high level of
performance in the Retail Lending Test does not obviate the importance
of evaluating how well the bank serves its community through branches
and other delivery systems. The agencies believe that the branch
distribution and availability, remote services availability, and
digital delivery systems and other delivery systems evaluations are
important components in evaluating how well a bank is meeting the
credit needs of its communities, including low- and moderate-income
individuals, families, or households and low- and moderate-income
census tracts. The agencies note that in determining how well the bank
serves its communities through retail services and products, as
explained in more detail in the section-by-section analysis of Sec.
__.23(d), the final rule considers the bank's business model and other
performance context factors when evaluating the bank's retail banking
services. Examiners will account for, among other things, mitigating
factors for closing branches and whether the bank's delivery channels
are meeting the needs of the bank's communities and customers.
Section __.23(b)(2) Branch Availability and Services
Section __.23(b)(2)(i) Branch Distribution
Section __.23(b)(2)(i)(A) Branch Distribution Metrics
Section __.23(b)(2)(i)(B) Benchmarks
Current Approach
Under the current CRA regulations, the service test performance
criteria for retail banking services place primary emphasis on full
service branches while still considering alternative delivery
systems.\985\ Interagency guidance explains that the principal focus is
on an institution's current distribution of branches and its record of
opening and closing branches, particularly branches located in low- or
moderate-income geographies or that primarily serve low- or moderate-
income individuals.\986\ An evaluation of a large bank's branch
locations involves a review primarily of information gathered from a
bank's public file.\987\ Using various methods, the agencies evaluate
the distribution of branches across census tracts of different income
levels relative to the percentage of census tracts by income level,
households (or families), businesses, and population in the census
tracts.
---------------------------------------------------------------------------
\985\ See current 12 CFR __.24(d).
\986\ See Q&A Sec. __.24(d)--1.
\987\ See Interagency Large Institution CRA Examination
Procedures (Apr. 2014).
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed to evaluate a large bank's distribution of
branches among low-, moderate-, middle-, and upper-income census
tracts, compared to a series of quantitative benchmarks \988\ that
reflect community and market characteristics as the first component of
the delivery systems evaluation. Specifically, the agencies proposed,
in Sec. __.23(b)(1)(i)(A), to consider the number and percentage of
the bank's branches within low-, moderate-, middle-, and upper-income
census tracts, referred to as branch distribution metrics, using the
data in proposed Sec. __.23(b)(1)(i)(B), referred to as benchmarks, to
evaluate a bank's branch distribution among low-, moderate-, middle-,
and upper-income census tracts.\989\ The agencies further proposed that
consideration of the branch distribution metrics in a facility-based
assessment area would be informed by benchmarks for the distribution of
census tracts, households, total businesses, and all full-service bank
branches by census tract income level.\990\ Each income level and data
point (census tracts, households, businesses, and branches) would have
a benchmark, specific to each assessment area.\991\ The agencies asked
for feedback on whether the agencies should use the percentage of
families and total population in an assessment area by census tract
income level in addition to the other comparators listed (i.e., census
tracts, households, and businesses) for the assessment of branches and
remote service facilities.
---------------------------------------------------------------------------
\988\ See proposed Sec. __.23(b)(1)(i)(B).
\989\ See proposed Sec. __.23(b)(1)(i)(A) and (B).
\990\ See proposed Sec. __.23(b)(1)(i)(B)(1) through (4).
\991\ See id.
---------------------------------------------------------------------------
As explained more fully below, in the section-by-section analysis
of Sec. __.23(b)(1)(i)(C), the agencies also proposed to consider the
availability of branches in low or very low branch access census
tracts, middle- and upper-income census tracts in which branches
deliver services to low- and moderate-income individuals, distressed or
underserved nonmetropolitan middle-income census tracts, and Native
Land Areas.
[[Page 6928]]
Comments Received
Several commenters supported the application of branch distribution
metrics and benchmarks, and recommended removal of examiner judgment by
providing examiners with enough guidance on how to apply the metrics
and weigh the distribution of benchmarks to guard against ratings
inflation. Commenters also expressed a range of views in response to
the agencies' request for feedback on whether the percentage of
families and total population should be used as additional comparators
to those in the proposal to assess branches and remote service
facilities. A vast majority of commenters that responded to this
request stated that introducing these additional data points would be
unnecessary and redundant given the comparators proposed in the rule
such as census tracts, households, and businesses. One commenter
believed the use of total population in an assessment area by census
tract would be an unreliable indicator due to population income shifts
over time. Another commenter recommended instead that the agencies
consider external factors, such as commuting patterns, which may impact
branch access. One commenter suggested broadening the criteria for
evaluating a bank's branch distribution so that the agencies consider
the population density and amount of economic activity in a particular
census tract. Another commenter suggested information such as public
transportation and accessibility should also be considered. One
commenter requested clarification on how the agencies arrived at the
benchmarks for branch distribution as they appeared to be arbitrary.
Final Rule
The agencies are adopting proposed Sec. __.23(b)(1)(i)(A) (branch
distribution metrics) and (B) (benchmarks), renumbered in the final
rule as Sec. __.23(b)(2)(i)(A) and (B), respectively, with minor word
changes for clarity and with no change in meaning intended.\992\ The
agencies believe that the analysis of a bank's branch distribution
through the use of metrics and benchmarks is appropriate to promote
more transparency and consistency in the evaluation process and are
incorporating and building upon on current practices. Examiners will be
able to compare a bank's branch distribution to local data to help
determine whether branches are accessible in low- or moderate-income
communities, to households of different income levels, and to
businesses in the assessment area.
---------------------------------------------------------------------------
\992\ See supra note 145.
---------------------------------------------------------------------------
In light of the comments received, the agencies have determined
that the benchmarks sufficiently measure branch distribution. As a
result, the agencies believe that other external data factors such as
commuting patterns, public transportation, population density, and
other factors are not necessary for this analysis. The agencies plan to
provide guidance to examiners on how to consider market and demographic
benchmarks when comparing to branch distribution. However, the agencies
note that examiners will continue to have the ability to consider
qualitative factors to inform the analysis of a bank's branch
distribution.
In response to the commenter that requested the agencies provide
clarification on how they arrived at the benchmarks, as explained in
the proposal, the agencies believe that the three community benchmarks
are important to provide additional context for each assessment area.
The percentage of census tracts in a facility-based assessment area by
income level enables the agencies to compare a bank's distribution of
branches in census tracts of each income level to the overall
percentage of those census tracts in the assessment area. For example,
if 20 percent of a bank's branches are located in low-income census
tracts in an assessment area, and 10 percent of census tracts in the
assessment area are low-income, the agencies may consider the bank to
have a relatively high concentration of branches in low-income census
tracts. The percentage of households and the percentage of total
businesses in the facility-based assessment area by census tract income
level are important complements to the percentage of census tracts in a
facility-based assessment area by income level, because households,
businesses, and farms reflect a bank's potential customer base, and may
not be distributed evenly across census tracts. Therefore, the agencies
would consider all benchmark levels to inform a judgment about the
bank's branch distribution in the market.
As further explained in the proposal, the agencies also believe
that using a new aggregate measurement of branch distribution--referred
to as a market benchmark \993\--that would measure the distribution of
all full-service bank \994\ branches in the same facility-based
assessment area by census tract income, would improve the branch
distribution analysis in several ways. First, having such data would
give examiners more information for determining the extent that branch
services are provided in census tracts of different income levels.
Second, examiners would have market data on branches within facility-
based assessment areas to identify the extent that census tracts of
various income levels are served by other banks' branches relative to
community benchmarks. For example, if few other banks have branches in
low-income or moderate-income census tracts within a given area, then a
bank's higher share would indicate responsive or meaningful branch
activity relative to their peers.
---------------------------------------------------------------------------
\993\ The aggregate number of branches in an assessment area
figure in a market benchmark is comprised of full-service and
limited-service branch types as defined in the FDIC's Summary of
Deposits.
\994\ The agencies intend to issue guidance to explain the term
``full-service bank'' and how the agencies will apply the term.
---------------------------------------------------------------------------
Section __.23(b)(2)(i)(C) Geographic Considerations Access
The Agencies' Proposal
In addition to the consideration of branch metrics in Sec.
__.23(b)(1)(i)(A) and benchmarks in Sec. __.23(b)(1)(i)(B) for the
evaluation of a bank's branch distribution analysis, the agencies also
proposed to consider the availability of branches in the following
geographic areas: (1) low or very low branch access census tracts; (2)
middle- and upper-income census tracts in which branches deliver
services to low- and moderate-income individuals; (3) distressed or
underserved nonmetropolitan middle-income census tracts; and (4) Native
Land Areas.
In Sec. __.23(b)(1)(i)(C)(1), the agencies proposed providing
favorable consideration for banks that operate branches in ``low branch
access census tracts'' or ``very low branch access census tracts.''
\995\ The agencies proposed definitions for these two types of census
tracts.\996\ A census tract would qualify as low branch access or very
low branch access based on the number of bank branches, including
branches of commercial banks, savings and loan associations, and credit
unions found within a certain distance of the census tract's center of
population.\997\ Low branch access census tracts would have been those
in which there is only one branch within this distance or within the
census tract itself, and very low branch access census tracts would
have been those in which there are no
[[Page 6929]]
branches within this distance or within the census tract itself.\998\
---------------------------------------------------------------------------
\995\ See proposed Sec. __.23(b)(1)(i)(C)(1).
\996\ See proposed Sec. __.12.
\997\ See id.
\998\ See id.
---------------------------------------------------------------------------
The agencies indicated in the proposal that they were considering
two distance-based approaches: (1) the proposed ``fixed distance
approach;'' and (2) the alternative ``local approach,'' to determine
the relevant distance threshold for each census tract. The agencies
also considered a second, more qualitative alternative, which did not
set specific geographic distances in the identification of areas that
may experience limited access to branches.
Proposed approach to low and very low branch access (fixed distance
approach). In the proposed approach, a fixed distance threshold would
be established based on whether the census tract is in an urban,
suburban, or rural area.\999\ Urban areas would have a distance
threshold of two miles, suburban areas would have a distance threshold
of five miles, and rural areas would have a distance threshold of 10
miles.\1000\ The agencies proposed providing the following scenarios
with favorable consideration: (1) a bank opens a branch that alleviates
one or more census tracts' very low branch access status; or (2) a bank
maintains a branch in one or more census tracts' low branch access
status. In addition, the agencies proposed assessing whether a bank
provides effective alternatives for reaching low- and moderate-income
individuals, communities, and businesses when closing a branch that
would lead to one or more census tracts being designated low or very
low branch access. The agencies sought feedback on how narrowly
designations of low branch access and very low branch access should be
tailored so that banks may target additional retail services
appropriately.
---------------------------------------------------------------------------
\999\ See proposed Sec. __.12.
\1000\ See id.
---------------------------------------------------------------------------
Alternative approach to low and very low branch access (local
alternative approach). In the alternative approach described by the
agencies in the SUPPLEMENTARY INFORMATION of the proposal, a separate
local area would be identified for each set of central counties of a
metropolitan area and metropolitan division, the outlying counties of
each metropolitan area and metropolitan division, and the
nonmetropolitan counties of each State, as defined by the Office of
Management and Budget. This alternative approach would determine the
distance thresholds for defining low and very low branch access census
tracts relative to local variation in population density and land-use
patterns, and would adjust over time as branches open and close. The
agencies sought feedback on how geographies should be divided to
appropriately identify different distance thresholds and whether a
fixed distance standard, such as that in the proposed approach, or a
locally determined distance threshold, such as in the alternative
approach, would be most appropriate when identifying areas with limited
branch access.
Qualitative alternative approach to evaluating areas with few or no
branches (qualitative alternative approach). Under a qualitative
alternative approach described by the agencies in the SUPPLEMENTARY
INFORMATION of the proposal, the agencies would not define a ``low
branch access census tract,'' a ``very low branch access census
tract,'' or any similar term. Instead, in addition to considering the
bank's branch distribution metrics compared to benchmarks and record of
opening and closing branches for each facility-based assessment area,
the agencies would undertake a qualitative consideration of certain
factors related to low- and moderate-income census tracts with few or
no branches. These factors may include considering the availability of
a bank's branches; the bank's actions to maintain branches; the bank's
actions to otherwise deliver banking services; and specific and
concrete actions by a bank to open branches in these areas.
Under the proposed and alternative approaches, the agencies
proposed providing the following scenarios with favorable
consideration: (1) a bank opens a branch that alleviates one or more
census tracts' very low branch access status; or (2) a bank maintains a
branch in one or more census tracts' low branch access status. In
addition, the agencies proposed assessing whether a bank provides
effective alternatives for reaching low- and moderate-income
individuals, communities, and businesses when closing a branch that
would lead to one or more census tracts being designated low or very
low branch access. The agencies sought feedback on how narrowly
designations of low branch access and very low branch access should be
tailored so that banks may target additional retail services
appropriately.
Lastly, the agencies sought feedback on whether the presence of
credit unions should be considered under any of the proposed
approaches, and on other alternative approaches or definitions that
should be considered in designating places with limited branch access.
Comments Received
In response to the agencies' proposed fixed distance approach and
the alternative local distance approach, commenters were divided in
their views on which of the two approaches would be most appropriate to
use in determining the relevant distance threshold for census tracts
proposed to be defined as low or very low branch access. Several
commenters supported the fixed distance approach, with one commenter
stating it would create a more consistent framework. This commenter
argued that the local approach may disincentivize banks from adding
branches in low branch access areas as it would result in the distance
threshold decreasing in the next evaluation. By contrast, other
commenters argued that the local approach would be preferable, with one
of these commenters stating that the local approach has a broader reach
and is a more precise measure due to the local context. A few other
commenters asked for clarification on how low and very low branch
access would be considered in the examination, with one of these
commenters further noting that the concept lacked clarity with respect
to the impact opening or closing of branches would have on these
geographies. One commenter suggested that a smaller distance, such as a
quarter mile, should be used in densely populated areas. Another
commenter suggested that the definitions of ``low'' and ``very low''
branch access should connect to branches per population and rates of
unbanked and underbanked populations, and that the agencies should
consider community input in making a final determination.
Commenters' views on how geographies should be divided were
generally in line with the proposed approach. However, one commenter
recommended that the agencies use existing data tools to delineate or
divide geographies for each distance threshold. For example, the
agencies could use a combination of the FFIEC's guidance on census
tracts to delineate or divide geographies for each distance threshold
and the USDA's Economic Research Service, which provides rural-urban
codes to classify how commutable certain rural and urban census tracts
are based on urbanization, population density, and daily commuting
patterns.
In response to how often local distances for the alternative local
distance approach, if adopted, should be updated, some commenters
recommended different frequencies including: updating in real-time
using geographic mapping applications;
[[Page 6930]]
annually; over a period of under three years; and no more frequently
than every five years so as not to exacerbate issues regarding distance
thresholds decreasing, and the resulting increase in areas being
designated as low branch access.
Some commenters expressed a range of views with respect to whether
credit union branches should be considered in the geographic
considerations. Most of these commenters believed that credit union
locations should not be considered for several reasons, including that
credit unions are not subject to CRA, have limitations in their
membership that could disqualify members of the community from
utilizing their services, and pursue very different models from banks.
Two commenters believed credit union locations should be included, with
one commenter stating that credit union product offerings are very
similar to those of banks. One commenter noted that if activities
evaluated under the CRA are offered by credit unions, then their
locations should be considered.
Final Rule
The agencies are not finalizing proposed Sec. __.23(b)(1)(i)(C)(1)
to provide consideration for the availability of branches in low or
very low branch access census tracts in the evaluation of a bank's
branch distribution analysis. In making this determination, the
agencies considered several points. As noted by some commenters, the
agencies considered that while each of the approaches identified by the
agencies had benefits, there were also downsides to each approach. The
decision to remove these criteria is responsive to comments received
regarding limitations of each of the methodologies proposed in terms of
including local context, minimizing unnecessary complexity in the final
rule, and avoiding unintended effects. Furthermore, the agencies
believe that, without direct consideration of low and very low branch
access areas, the final rule already includes sufficient consideration
for branches in additional geographic areas which supplement the
benchmarks based on tract-level median incomes. The final rule includes
additional geographic considerations for areas that include: middle-
and upper-income census tracts with branches delivering services used
by low- and moderate-income individuals, families, or households;
distressed or underserved nonmetropolitan middle-income census tracts
that are defined, in part, based on being remote and lacking population
density; and Native Land Areas. These additional geographic
considerations are discussed below.
Section __.23(b)(2)(i)(C)(1) Middle- and Upper-Income Census Tracts
Section __.23(b)(2)(i)(C)(2) Distressed or Underserved Nonmetropolitan
Middle-Income Census Tracts
Section __.23(b)(2)(i)(C)(3) Native Land Areas
The Agencies' Proposal
In addition to the agencies' proposal to designate low and very low
branch access census tracts, the agencies proposed providing
qualitative consideration for banks operating branches in other
geographic areas.\1001\ These areas would be favorably considered when
evaluating overall accessibility of delivery systems, including to low-
and moderate-income populations.
---------------------------------------------------------------------------
\1001\ See proposed Sec. __.23(b)(1)(i)(C)(2) through (4).
---------------------------------------------------------------------------
Specifically, in Sec. __.23(b)(1)(i)(C)(2), the agencies proposed
providing qualitative consideration for retail branching in middle- and
upper-income census tracts if a bank can demonstrate that branch
locations in these geographies deliver services to low- or moderate-
income individuals.\1002\ The agencies sought feedback on what
information banks should be required to provide to demonstrate the
delivery of such services to low- or moderate-income individuals.
---------------------------------------------------------------------------
\1002\ See proposed Sec. __.23(b)(1)(i)(C)(2).
---------------------------------------------------------------------------
In addition, in Sec. __.23(b)(1)(i)(C)(3), the agencies proposed
providing qualitative consideration for banks that operate branches in
a ``distressed or underserved nonmetropolitan middle-income census
tract'' as defined in proposed Sec. __.12. The agencies sought
feedback on whether branches in distressed or underserved
nonmetropolitan middle-income census tracts should receive qualitative
consideration without additional bank documentation that the branch
provides services to low- or moderate-income individuals. Finally, in
Sec. __.23(b)(1)(i)(C)(4), the agencies proposed providing qualitative
consideration if banks operate branches in ``Native Land Areas'' as
defined in proposed Sec. __.12.
Comments Received
With respect to providing consideration for retail branching in
middle- and upper-income census tracts, several commenters supported
favorable qualitative consideration based on proximity to low- or
moderate-income census tracts or if a bank can demonstrate with data
that these locations deliver services to low- and moderate-income
individuals. However, a few commenters opposed giving qualitative
consideration for retail branching in higher-income census tracts, with
one commenter stating that it could be used to avoid opening branches
in low- or moderate-income census tracts. A few other commenters also
opposed giving qualitative credit for branches in middle- and upper-
income census tracts on the basis that it would be redundant, with one
commenter explaining that if the agencies adopt the proposal to
consider deposit products used by customers residing in low- or
moderate-income census tracts, regardless of the location of the branch
providing the product, that performance measures would already capture
branches in non-low- or moderate-income census tracts that effectively
offer deposit products to customers residing in low- or moderate-income
census tracts.
Some commenters generally supported favorable qualitative
consideration for branches located in distressed and underserved
nonmetropolitan middle-income census tracts. A few commenters supported
consideration only if documentation is provided that demonstrates these
branches serve low- or moderate-income individuals. Two of these
commenters noted that deposits data could be utilized to support usage
by low- or moderate-income individuals. Other commenters supported the
addition of positive consideration for banks that operated branches in
Native Land Areas. One commenter requested that U.S. military
installations be added to the list of geographies where banks could
receive additional consideration if they have branches placed in these
geographies.
Final Rule
After considering the comments received, the agencies are adopting
proposed Sec. __.23(b)(1)(i)(C)(2) through (4), renumbered in the
final rule as Sec. __.23(b)(2)(i)(C)(1) through (3), largely as
proposed with clarifying edits. In evaluating the overall accessibility
of retail banking services, including to low- and moderate-income
individuals, families, or households and low- and moderate-income
census tracts, the agencies believe it appropriate to provide
qualitative consideration for operating branches in: (1) middle- and
upper-income census tracts in which branches deliver services to low-
and moderate-income individuals, families, or households to
[[Page 6931]]
the extent that low- and moderate-income individuals, families, or
households use the services offered; (2) distressed and underserved
nonmetropolitan middle-income census tracts; and (3) Native Land Areas.
The agencies believe that it is appropriate to extend qualitative
consideration to bank branches providing retail banking services to
low- and moderate-income individuals, families, or households because
access to those services is integral to the financial well-being of
low- and moderate-income individuals, families, or households wherever
they reside. Furthermore, the agencies agree with the commenters'
recommendation that, to ensure that the services provided confer an
actual benefit to low- and moderate-income individuals, families, or
households, the consideration of branches in middle- and upper-income
census tracts should include a requirement that banks demonstrate the
extent to which low- and moderate- income individuals, families, or
households utilize the services at these branch locations. Accordingly,
the final rule provides that if a bank seeks consideration for a branch
located in a middle- or upper-income census tract, the bank should be
prepared to provide documentation that indicates the extent to which
low- or moderate-income individuals, families, or households use the
services offered. To the extent helpful, the agencies will consider
providing additional guidance to banks or examiners regarding how banks
could demonstrate both that their branches in middle- or upper-income
tracts deliver services to low- or moderate-income individuals,
families, or households, and the extent to which low- and moderate-
income individuals, families, or households use the services offered.
The agencies expect banks to use available information to
demonstrate the degree to which bank branch services in middle- and
upper-income census tracts are used by low- and moderate-income
individuals, families, or households. However, in response to
commenters who suggested the use of deposits data for these purposes,
the agencies note that the deposits data reported to the agencies at
the county level under final Sec. __.42(b)(3) does not have the
necessary information for the agencies to use that data in making a
determination whether branches are used by low- or moderate-income
individuals, families, or households. In addition, deposits data
reported to the agencies under final Sec. __.42(b)(3) will be reported
only by large banks with assets over $10 billion, as well as other
banks that may opt in to reporting these data. As a result, these data
will not be useful for determining the income level of the census
tracts where depositors live or the depositors' income level. However,
despite the limitations of deposits data, the agencies encourage banks
to use information available to the bank to demonstrate that branches
outside of low- and moderate-income census tracts are serving low- and
moderate-income individuals, families, or households.
The agencies also believe that qualitative consideration should be
given to the availability of branches in distressed or underserved
nonmetropolitan middle-income census tract because, given the economic
characteristics of these areas, residents, businesses, and farms may
have limited access to financial services. Additionally, in facility-
based assessment areas where there are few or no low- and moderate-
income census tracts, the consideration of bank branch availability in
distressed or underserved census tracts could provide examiners with
additional insight into the bank's overall branch availability.
The agencies also recognize that branch access is limited for many
Native communities and consider it appropriate to emphasize bank
placement of branches in Native Land Areas.\1003\ As previously
discussed in the section-by-section analysis of Sec. __.13(j),
majority-Native American counties have an average of two bank branches
compared to the nine-branch average in nonmetropolitan counties and
well below the 27-branch overall average for all counties.\1004\ For
that reason, the final rule provides additional qualitative
consideration for bank branches located in Native Land Areas. In
response to one commenter who suggested additional consideration of
branches on military installations the agencies note that statistics
from the 2015 to 2019 American Community Survey show that current
active-duty and reserve members of the military, as well as veterans
live in households with higher incomes than households that do not
contain veterans and decline the inclusion of this addition to the
final rule.
---------------------------------------------------------------------------
\1003\ See Miriam Jorgensen and Randall K.Q. Akee, ``Access to
Capital and Credit in Native Communities: A Data Review, Native
Nations Institute'' (Feb. 2017), https://www.novoco.com/sites/default/files/atoms/files/nni_find_access_to_capital_and_credit_in_native_communities_020117.pdf.
\1004\ Information calculated using the FDIC's Summary of
Deposits (2020).
---------------------------------------------------------------------------
Finally, the agencies believe that other changes to the final rule
regarding the positive consideration of deposits products address
concerns raised by some commenters regarding the redundancies of
considering deposits products used by customers in low- and moderate-
income census tracts, regardless of branch location.
Section __.23(b)(2)(ii) Branch Openings and Closings
Section __.23(b)(2)(iii) Branch Hours of Operation and Services
Current Approach
Under current CRA regulations, the agencies evaluate a bank's
branch openings and closings during the evaluation period relative to
the bank's branch distribution and consider if any changes impacted
low- or moderate-income census tracts and accessibility for low- or
moderate-income individuals.\1005\
---------------------------------------------------------------------------
\1005\ See current 12 CFR __.24(d)(2); see also Q&A Sec.
__.24(d)-1.
---------------------------------------------------------------------------
The Agencies' Proposal
In reviewing a bank's branch availability and services, in proposed
Sec. __.23(b)(1)(ii), the agencies proposed to evaluate a bank's
record of opening and closing branch offices in facility-based
assessment areas since the previous examination to inform the degree of
accessibility of banking services to low- and moderate-income
individuals and in low- and moderate-income census tracts.
Specifically, the agencies proposed to include an assessment of whether
branch openings and closings improved or adversely affected the
accessibility of its delivery systems, particularly in low- and
moderate-income census tracts and to low- and moderate-income
individuals.
In proposed Sec. __.23(b)(1)(iii)(A), the agencies proposed to
evaluate the reasonableness of branch hours in low- and moderate-income
census tracts compared to middle- and upper-income census tracts,
including but not limited to whether branches offer extended and
weekend hours. The agencies also proposed in Sec. __.23(b)(1)(iii)(B)
to evaluate the range of services provided at branch locations that
improve access to financial services or decrease costs for low- or
moderate-income individuals. The agencies proposed further that
examples of such services could include, but are not limited to:
Providing bilingual/translation services; \1006\
---------------------------------------------------------------------------
\1006\ See proposed Sec. __.23(b)(1)(iii)(B)(1).
---------------------------------------------------------------------------
Free or low-cost check cashing services, including
government and payroll check cashing services; \1007\
---------------------------------------------------------------------------
\1007\ See proposed Sec. __.23(b)(1)(iii)(B)(2).
---------------------------------------------------------------------------
[[Page 6932]]
Reasonably priced international remittance services;
\1008\ and
---------------------------------------------------------------------------
\1008\ See proposed Sec. __.23(b)(1)(iii)(B)(3).
---------------------------------------------------------------------------
Electronic benefit transfer accounts.\1009\
---------------------------------------------------------------------------
\1009\ See proposed Sec. __.23(b)(1)(iii)(B)(4).
---------------------------------------------------------------------------
The agencies sought feedback on whether there are other branch-
based services that could be considered as responsive to low- and
moderate-income needs. The agencies also proposed in Sec.
__.23(b)(1)(iii)(C) to evaluate the degree to which branch services are
responsive to the needs of low- and moderate-income individuals in a
bank's facility assessment area.
Comments Received
Several commenters emphasized the importance of branches, with some
recommending additional consideration as an incentive for banks that
operate and maintain branches in low- or moderate-income, rural,
minority, or Native communities. Other commenters recommended stronger
consequences, including negative consideration, such as penalties, for
banks closing branches in low- and moderate-income and majority-
minority communities, including Native American communities. Some
commenters recommended that the agencies analyze branch closures over a
period of time that is longer than the examination period and implement
related quantitative performance metrics. Another commenter believed
that qualitative factors should be used, as it would be unreasonable to
draw conclusions about branch accessibility by relying only on
quantitative calculations of physical branch distribution. Two
commenters requested guidance related to how a disproportionate number
of closings or openings in a low- or moderate-income census tract would
impact the service test score.
Commenters provided a variety of examples of other branch-based
services that could be considered responsive to low- and moderate-
income needs. Examples of such services included language services
geared to individuals with limited English proficiency, including at
ATM and other remote facilities; other culturally appropriate services
and resources; individual tax identification number (ITIN) accounts;
credit-builder loans; other products and services targeting low- and
moderate-income consumers, including but not limited to low- and
moderate-income consumers with disabilities; free notary services; free
or low-cost money orders; access for people with prior banking issues,
such as those flagged in ChexSystems; and activities that address
potential fraud. One commenter suggested the ability to come into a
branch while also being able to meet with a loan officer virtually as
an example of a branch-based service that should receive consideration.
Other commenters suggested that deposit-taking automated services and
ATMs/interactive teller machines could be considered responsive branch-
based services, with one of these commenters particularly noting those
in banking deserts could be considered responsive to low branch access
areas. A few commenters expressed support for, and noted the importance
of, banking services including hours of operation and services
responsive to low- and moderate-income individuals and in low- and
moderate-income communities. Other commenters requested that when
evaluating banking services such as extended hours and ATM placement,
the agencies should consider different business models (e.g., a grocery
store in middle- or upper-income areas) and clarify that a bank would
not be expected to offer such hours at branches located in low- or
moderate-income census tracts if the bank does not do so at similarly-
situated branches located in middle- or upper-income census tracts.
Final Rule
The agencies are finalizing Sec. __.23(b)(1)(ii) (branch openings
and closings) and (iii) (branch hours of operation and services) as
proposed, renumbered in the final rule as Sec. __.23(b)(2)(ii) and
(iii), respectively, with technical edits not intended to have a change
in meaning, including revisions of the language with respect to ``check
cashing services'' and ``electronic benefit transfer accounts.''
Regarding branch openings and closings, the final rule builds on
the agencies' current practice in which the evaluation includes an
assessment of whether branch openings and closings improved or
adversely affected the accessibility of the bank's retail banking
services, particularly to low- and moderate-income census tracts and
low- and moderate-income individuals, families, or households. In
response to commenters who recommended using incentives for banks
opening or penalties for closing branches in communities of need, the
agencies note that the quantitative measures of final Sec.
__.23(b)(1)(ii) are a single aspect of the branch availability
evaluation that, similar to the current CRA regulations, extends
positive consideration for branch openings increasing accessibility of
banking services to low- and moderate-income individuals, families, or
households and census tracts. Similarly, branch closings that limit or
otherwise restrict the availability of retail banking for the same
individuals and geographies are also considered in evaluating bank
performance. Under the final rule, examiners will also use qualitative
factors, such as performance context, to draw conclusions regarding a
bank's openings and closings of branches, which may impact a bank's
performance for this evaluation. Importantly, although not considered
for purposes of the CRA evaluation, the agencies do consider opening
and closing branches in minority areas for purposes of fair lending
reviews.
Also in response to comments, the agencies further note that
evaluating branch opening and closings over a different time period
than the time period during which other activities are evaluated with
respect to the Retail Services and Products Test and other tests would
make it difficult to measure the bank's overall CRA performance within
the set evaluation period. The agencies believe that accounting for
branch openings and closings within the same evaluation period as all
other bank activities gives a clear overall picture of how well the
bank is serving its community within a set time period.
With respect to the bank's hours of operation and services in low-
and moderate-income census tracts, the agencies considered comments
regarding the consideration of different business models and branch
hours expectations in the final rule. The agencies believe the
evaluation should remain qualitative and that it is not appropriate to
require that branches offer extended or weekend hours. For that reason,
final Sec. __.23(b)(1)(iii)(A) considers the reasonableness of bank
branch hours in low- and moderate-income census tracts in comparison to
middle-and upper-income census tracts as the primary qualitative
consideration. Whether a branch offers extended or weekend hours is
only one means through which the bank can demonstrate the
reasonableness of its hours in low- and moderate-income census tracts.
During their review, examiners will consider a range of qualitative
factors, including the bank's business model.
The agencies received a variety of suggestions from commenters as
to additional responsive branch-based services and considered whether
these suggested services should be added to the agencies' proposed list
of services considering the range of services in final Sec.
__.23(b)(1)(iii)(B). However, the agencies do not believe that it is
[[Page 6933]]
necessary to add the additional examples suggested by commenters to the
list provided in the final rule because it is not an exhaustive list.
The agencies note that examiners may consider additional services
provided at bank branches in low-, moderate-, middle-, and upper-income
census tracts. Moreover, with respect to some recommendations made by
commenters, such as providing CRA consideration for language services
for individuals with limited English proficiency and other culturally
appropriate services and resources, the agencies agree that this type
of activity should be eligible for CRA credit; therefore, the Retail
Services and Products Test includes bilingual and translation services
in the evaluation of branch services. Other recommendations, such as
placement of ATMs and extended hours are also already considered in the
Retail Services and Products Test. The agencies are adopting Sec.
__.23(b)(1)(iii)(C) as proposed with minor edits as commenters
supported responsive retail banking services.
Section __.23(b)(3) Remote Service Facility Availability
Current Approach
Currently, examiners determine whether a large bank's non-branch or
alternative delivery systems,\1010\ such as ATMs, are available and
effective in providing retail banking services in low- and moderate-
income areas and to low- and moderate-income individuals.\1011\ With
respect to alternative delivery systems, examiners consider factors
such as: the ease of access and use; reliability of the system; range
of services delivered; cost to consumers as compared with the bank's
other delivery systems; and the rate of adoption and use.\1012\
Examiners also consider any information a bank maintains and provides
to examiners to demonstrate that the bank's alternative delivery
systems are available to, and used by, low- or moderate-income
individuals, such as data on customer usage or transactions.\1013\
Although examiners may consider several factors, evaluations of non-
branch delivery systems generally focus on the distribution of the
bank's ATMs across low-, moderate-, middle-, and upper-income census
tracts, and a comparison of that distribution to the percentage of
census tracts by income level, households (or families), businesses, or
populations across these census tracts, particularly low- and moderate-
income census tracts. Examiners also review the types of services
offered by a bank's ATMs (i.e., deposit-taking and cash-only) and
consider other qualitative factors that improve access to ATMs in low-
and moderate-income census tracts.
---------------------------------------------------------------------------
\1010\ The Board's and OCC's current CRA regulations provide a
non-exhaustive list of alternative systems for delivering retail
banking services which include: ``ATMs, ATMs not owned or operated
by or exclusively for the bank, banking by telephone or computer,
loan production offices, and bank-at-work or bank-by-mail
programs.'' See current 12 CFR __.24(d)(3). Under the FDIC's CRA
regulations, current 12 CFR 345.24(d)(3) describes alternative
delivery systems as ``RSFs, RSFs not owned or operated by or
exclusively for the bank, banking by telephone or computer, loan
production offices, and bank-at-work or bank-by-mail programs.''
\1011\ See Interagency Large Institution CRA Examination
Procedures; see also Q&A Sec. __.24(d)(3)-1.
\1012\ See Q&A Sec. __.24(d)(3)-1.
\1013\ See id.
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed to separately evaluate a large bank's remote
service facility availability \1014\ from the bank's digital and other
delivery systems in order to focus on the availability of these
facilities and leverage community benchmarks in the evaluation. In
comparison to the current CRA regulations, the agencies proposed an
independent evaluation of remote service facilities to underscore the
effects these facilities have on low- and moderate- income individuals
and communities.
---------------------------------------------------------------------------
\1014\ The agencies define ``remote service facility'' to mean
an automated, virtually staffed, or unstaffed banking facility owned
or operated by, or operated exclusively for, the bank, such as an
ATM, interactive teller machine, cash dispensing machine, or other
remote electronic facility at which deposits are received, cash
dispersed, or money lent. See proposed Sec. __.12.
---------------------------------------------------------------------------
As with the branch distribution analysis, the agencies proposed to
evaluate the bank's distribution of remote service facilities among
low-, moderate-, middle-, and upper-income census tracts in Sec.
__.23(b)(2)(i), referred to as metrics, compared to the three data
points in Sec. __.23(b)(2)(ii), referred to as benchmarks, which would
complement a qualitative evaluation. The agencies proposed that an
evaluation of a bank's remote service facilities distribution metrics
would be informed by comparing those metrics to the following
benchmarks, which are specific to each facility-based assessment area:
(1) the percentage of census tracts in the facility-based assessment
area that are low-, moderate-, middle-, and upper-income census tracts;
\1015\ (2) the percentage of households in the facility-based
assessment area that are in low-, moderate-, middle-, and upper-income
census tracts; \1016\ and (3) the percentage of total businesses in the
facility-based assessment area that are in low-, moderate-, middle-,
and upper-income census tracts.\1017\ The evaluation would also include
an assessment of remote service facilities in low- and moderate-income
census tracts and changes to the placement of remote service facilities
since the previous examination.
---------------------------------------------------------------------------
\1015\ See proposed Sec. __.23(b)(2)(ii)(A).
\1016\ See proposed Sec. __.23(b)(2)(ii)(B).
\1017\ See proposed Sec. __.23(b)(2)(ii)(C).
---------------------------------------------------------------------------
In addition to using the community benchmarks, in Sec.
__.23(b)(2)(iii), the agencies proposed to consider whether the bank
offers customers fee-free access to out-of-network ATMs in low- and
moderate-income census tracts.
Comments Received
There was no consensus among commenters regarding the evaluation of
remote service facilities such as ATMs. A few commenters did not
support the consideration of ATMs when evaluating a bank's presence in
low- or moderate-income communities, with one of these commenters
noting that ATMs are not the same as full-service branches. A few other
commenters made specific recommendations for CRA consideration, which
included considering ATM placement in low- and moderate-income
geographies on an optional basis or providing favorable consideration
in the Retail Services and Products Test conclusion but not downgrading
a bank if it does not place a certain number of ATMs in low- and
moderate-income census tracts, and favorably considering a bank's
policy to reimburse fees when customers access out-of-network ATMs or
partner with third-party ATM networks that have robust coverage of low-
and moderate-income areas. One commenter asked for clarification on how
seasonal ATMs would be considered in the evaluation.
Final Rule
The agencies are adopting proposed Sec. __.23(b)(2)(i) and (ii),
renumbered in the final rule as Sec. __.23(b)(3)(i) and (ii),
pertaining to the remote service facilities distribution metrics and
benchmarks, respectively, with a revision to add the availability of
remote service facilities in other geographies and other technical
edits, as explained below. The agencies believe that the use of metrics
and benchmarks will allow for the comparison of a bank's remote service
facilities availability to local data (i.e., percentage of census
tracts, households, and total businesses) to help determine whether
remote service facilities are accessible in low- or moderate-income
communities, to
[[Page 6934]]
individuals of different income levels, and to businesses in the
assessment area and are incorporating and building on current practice.
The agencies believe this type of comparison requires robust data that
would not be generated with an optional evaluation. Accordingly, the
agencies decline to follow commenters' suggestion to make this an
optional evaluation for large banks.
The agencies agree with commenter suggestions that both branches
and remote service facilities remain an important component in the
evaluation of a bank's delivery systems as a means to obtain credit and
banking services. For that reason, the agencies are further adopting
final Sec. __.23(b)(3)(i)(C) with respect to additional geographic
considerations to mirror the other geographic areas considered for
branches in final Sec. __.23(b)(2)(i)(C). The agencies also agree that
while both are important, remote service facilities are not the same as
branches and retained the remote service facility evaluation
independent from the branch evaluation. The agencies believe that
commenters' concerns that bank performance on the Retail Services and
Products Test may be downgraded if it does not have ATMs in low- or
moderate-income census tracts will also be addressed by the additional
consideration of remote service facilities in: (1) middle- and upper-
income census tracts in which a remote service facility delivers
services to low- and moderate-income individuals, families, or
households, to the extent that low- and moderate-income individuals,
families, or households use the services offered; (2) distressed or
underserved nonmetropolitan middle-income census tracts; and (3) Native
Land Areas.
Finally, the agencies are adopting Sec. __.23(b)(2)(iii),
renumbered in the final rule as Sec. __.23(b)(3)(ii), as proposed. As
explained in the proposal, the agencies believe that bank partnerships
with out-of-network ATM providers may contribute to expanded access to
financial services and may assist with lowering access costs, which can
be particularly important in low- and moderate-income census tracts.
The agencies changed the heading to the paragraph to conform to the
regulatory text which referenced ATMs. A commenter's suggestion to
consider seasonal ATMs may be considered in future guidance.
Section __.23(b)(4) Digital Delivery Systems and Other Delivery Systems
Current Approach and the Agencies' Proposal
Currently, examiners determine whether a large bank's non-branch or
alternative delivery systems, such as mobile and online banking
services, and telephone banking are available and effective in
providing retail banking services in low- and moderate-income areas and
to low- and moderate-income individuals. Examiners consider factors
such as the ease of access and use, reliability of the system, range of
services delivered, cost to consumers as compared with the bank's other
delivery systems, and rate of adoption and use. Examiners also consider
any information a bank maintains to demonstrate that the bank's
alternative delivery systems are available to, and used by, low- or
moderate-income individuals, such as data on customer usage or
transactions.
The agencies proposed to evaluate the availability and
responsiveness of a bank's digital delivery systems (e.g., mobile and
online banking services) and other delivery systems (e.g., telephone
banking, bank-by-mail, and bank-at-work programs), including to low-
and moderate-income individuals, as the third component of the delivery
systems evaluation in proposed Sec. __.23(b)(3). The agencies proposed
to require this evaluation for large banks with assets over $10
billion, and to permit large banks with assets of $10 billion or less
to opt to have this component of delivery systems evaluated under the
Retail Services and Products Test.\1018\
---------------------------------------------------------------------------
\1018\ See proposed Sec. __.23(b).
---------------------------------------------------------------------------
The agencies explained in the proposal that they believe that it is
important to evaluate a bank's retail banking services and products
comprehensively and recognize that banks deliver services beyond branch
and remote service facilities. Because usage of online and mobile
banking delivery systems by households is pervasive and is expected to
continue to grow, the agencies further explained that these trends
support a renewed focus on the evaluation of digital and other delivery
systems while also recognizing that many consumers continue to rely on
branches.
The agencies proposed using three factors to evaluate the
availability and responsiveness of a bank's digital and other delivery
systems: (1) digital activity by individuals in low-, moderate-,
middle-, and upper-income census tracts; \1019\ (2) the range of
digital and other delivery systems; \1020\ and (3) the bank's strategy
and initiatives to serve low- and moderate-income individuals with
digital and other delivery systems.\1021\ Regarding the first factor,
the agencies proposed to measure digital activity by individuals in
low-, moderate-, middle-, and upper-income census tracts and provided
examples of information that could be used to inform this
analysis.\1022\ The proposal included examples such as the number of
checking and savings accounts opened digitally, and accountholder usage
data by type of digital and other delivery system.\1023\ The agencies
proposed evaluating this data using census tract income level since
banks have stated that they do not routinely collect customer income
data at account opening.\1024\ With respect to the second factor, the
agencies proposed to qualitatively consider the range of a bank's
digital and other delivery systems, including but not limited to:
online banking; mobile banking; and telephone banking.\1025\ In
addition, the agencies proposed to consider a bank's strategies and
initiatives to meet low- and moderate-income consumer needs through
digital and other delivery systems.\1026\ The agencies explained that
these strategies and initiatives could include, for example, marketing
and outreach activities to increase uptake of these channels by low-
and moderate-income individuals or partnerships with community-based
organizations serving targeted populations.
---------------------------------------------------------------------------
\1019\ See proposed Sec. __.23(b)(3)(i).
\1020\ See proposed Sec. __.23(b)(3)(ii).
\1021\ See proposed Sec. __.23(b)(3)(iii).
\1022\ See proposed Sec. __.23(b)(3)(i).
\1023\ See proposed Sec. __.23(b)(3)(i)(A) and (B).
\1024\ See proposed Sec. __.23(b)(3)(i).
\1025\ See proposed Sec. __.23(b)(3)(ii).
\1026\ See proposed Sec. __.23(b)(3)(iii).
---------------------------------------------------------------------------
The agencies sought feedback on additional ways to evaluate the
digital activity of individuals in low-, moderate-, middle-, and upper-
income census tracts, as part of a bank's digital and other delivery
systems evaluation. Additionally, the agencies sought feedback on
whether affordability should be one of the factors used in evaluating
digital and other delivery systems and, if so, what data the agencies
should consider. Finally, the agencies sought feedback on comparators
that could be considered to assess the degree to which a bank is
reaching individuals in low- or moderate-income census tracts through
digital and other delivery systems.
[[Page 6935]]
Comments Received
Some commenters expressed concern that the data and methodology for
reviewing a bank's digital and other delivery systems would be too
rigid when considering the quantitative metrics and the use of proxies
(such as the number of checking accounts opened digitally in low- or
moderated-income areas). These commenters further raised concerns that
these metrics do not assess whether a bank's delivery systems are
accessible to low- or moderate-income consumers. One commenter
supported the evaluation of mobile and online banking. One commenter,
while supportive of the agencies' proposal, noted that there are
limitations in evaluating a number of the proposed activities at a
census-tract level, particularly in nonmetropolitan areas, and urged
the agencies to provide, instead, full qualitative consideration for
this component. A few commenters generally stated that accessibility
and responsiveness of a bank's digital and other delivery systems are
not accurately measured by account opening and usage rates. One of
these commenters suggested the final rule should focus on evaluation of
the accessibility of a bank's digital and other delivery systems and
the bank's approaches for serving low- or moderate-income individuals
with these systems, rather than focusing on account opening and usage
rates associated with these systems. Other commenters recommended
comparative data such as customer location, click rates on promotional
emails, broadband access, and Federal Communications Commission data to
assess the degree to which a bank is reaching low- or moderate-income
consumers through digital and other delivery systems.
A number of commenters responded to the agencies' request for
feedback on ways to further evaluate the digital activity by
individuals in low-, moderate-, middle-, and upper-income census tracts
as part of the agencies' evaluation of a bank's digital and other
delivery systems. Some commenters suggested the agencies should
consider product design, marketing, and product uptake via delivery
systems on a qualitative basis. Another commenter recommended assessing
how active digital accounts are across income levels, comparing a bank
to its peers with a market benchmark, displaying data on digital
activity in the CRA performance evaluation tables, and verifying
representations that modes of access to digital services are available
to low- or moderate-income census tracts.
A majority of commenters responding to the agencies' request for
feedback agreed that affordability should be a factor in evaluating
digital and other delivery systems. Most of these commenters
recommended that data on costs and fees, such as overdraft, monthly
account maintenance, minimum balance, and dormant account fees, among
others, should be collected to determine affordability, with one
commenter suggesting low- and moderate-income individuals should be
charged lower or no fees for digital services. One commenter
recommended considering the difference in fees between in-person
application and digital applications to determine if these fees allow
for a different level of digital access. One commenter indicated that
the agencies should develop specific standards to require banks engaged
in digital banking to avoid discriminatory or predatory practices.
Final Rule
Throughout final Sec. __.23(b)(4), the agencies are adopting new
definitions of ``digital delivery system'' and ``other delivery
system'' (based on the substantive provision of proposed Sec.
__.23(b)(3)) in order to distinguish and make clear the types of
systems encompassed in each delivery channel. The final rule defines
``digital delivery system'' to mean a ``channel through which banks
offer retail banking services electronically, such as online banking or
mobile banking.'' \1027\ Under the final rule ``other delivery system''
is defined to mean a ``channel, other than branches, remote services
facilities, or digital delivery systems, through which banks offer
retail banking services.'' \1028\ This may include telephone banking,
bank-by-mail, or bank-at-work.\1029\ In addition, the agencies are
clarifying in final Sec. __.23(b)(4) that the evaluation of digital
delivery systems and other delivery systems is conducted at the
institution level. This change is also consistent with the proposed and
final rule approaches described in appendix C.\1030\
---------------------------------------------------------------------------
\1027\ See final Sec. __.12.
\1028\ See id.
\1029\ See id.
\1030\ See proposed appendix C, paragraph c.3.i.A.2; see also
final appendix C, paragraph c.2.iv.A.2.
---------------------------------------------------------------------------
Specifically, the agencies are finalizing as proposed Sec.
__.23(b)(3)(ii), renumbered in the final rule as Sec. __.23(b)(4)(i),
regarding the agencies' evaluation of the range of services and
products offered by a large bank. Final Sec. __.23(b)(4)(i) provides
that, when evaluating the availability and responsiveness of a bank's
digital delivery systems and other delivery systems, the agencies
consider the range of retail banking services and retail banking
products offered through digital delivery systems and other delivery
systems. By considering the range of digital delivery systems and other
delivery systems, the agencies may then consider additional detail
related to those systems, such as the bank's strategy and initiatives
to serve low- and moderate-income individuals, families, or households
and activity by individuals, families, or households related to those
systems.
The agencies are revising proposed Sec. __.23(b)(3)(iii),
renumbered in the final rule as Sec. __.23(b)(4)(ii), with additional
language in response to commenter feedback that the bank's strategy and
initiatives to serve low- and moderate-income individuals, families, or
households with digital delivery systems and other delivery systems
should be evaluated by considering factors such as cost, features, and
marketing. This list of non-exhaustive factors adopted by the agencies
were some of the factors recommended by commenters to measure the
affordability of digital delivery systems or other delivery systems or
otherwise measure the effectiveness of the bank's strategy or
initiatives related to those systems. The agencies believe this
modification is appropriate and enables consideration of affordability
and effectiveness of digital and delivery systems without increasing
the data collection burden.
Further, the agencies are revising proposed Sec.
__.23(b)(3)(i)(A), renumbered in the final rule as Sec.
__.23(b)(4)(iii)(A), to clarify that the number of checking and savings
accounts opened during each calendar year of the evaluation period
digitally and through other delivery systems are considered by the
agencies as evidence of digital delivery systems and other delivery
systems. The agencies are also revising proposed Sec.
__.23(b)(3)(i)(B) in response to comments, renumbered in the final rule
as Sec. __.23(b)(4)(iii)(B), to provide that the agencies will
consider the number of checking and savings accounts opened digitally
and through other delivery systems that are active at the end of each
calendar year during the evaluation period as evidence of digital
delivery systems and other delivery systems, rather than require banks
to provide accountholder usage data, by type, of digital delivery
systems and other delivery systems. The agencies believe this revision
will reduce the burden for banks providing these data and will build on
other data elements in the rule. To provide further clarity, certainty,
and consistency in the
[[Page 6936]]
required information for this evaluation, the agencies removed the
``such as'' language in proposed Sec. __.23(b)(3)(i), renumbered in
the final rule as Sec. __.23(b)(4)(iii), because the agencies consider
the checking and savings account information described in paragraphs
(b)(3)(i)(A) and (B) of final Sec. __.23. In final Sec.
__.23(b)(4)(iii)(C), the agencies indicate that they will consider any
other bank data that indicates that bank digital delivery systems and
other delivery systems are available to low- and moderate-income
individuals, families, or households and low- and moderate-income
census tracts.
In response to the commenter that suggested the agencies should
provide a fully qualitative consideration for digital and other
delivery systems, the agencies decline to implement this recommendation
because a strictly qualitative review, without standardized data,
limits the evaluation of this component across banks by not providing
certainty and consistency in elements reviewed under this component. In
addition, without specific data elements, the data banks provide may
not support the accessibility and usage of digital delivery systems and
other delivery systems. The agencies believe that the quantitative
consideration of digital delivery systems and other delivery systems
activity, informed by specific data points, combined with the
qualitative consideration of the bank's range of services and products
and their strategies and initiatives strikes the right balance to
evaluate this component fully. The agencies believe this evaluation is
especially important for banks that will not be evaluated under the
other components of retail banking services such as branches and remote
service facilities.
Although commenters expressed concerns about the rigidity of the
data and methodology for reviewing a bank's digital delivery systems
and other delivery systems, and that the measures do not adequately
represent accessibility or usage of digital delivery systems and other
delivery systems by low- or moderate-income individuals, families, or
households, the agencies believe these measures are sufficient without
additional data collection requirements other than the data collection
requirements in the final rule. Moreover, given that banks have stated
that they do not typically collect customer income data at account
opening for deposit customers, the agencies believe using census tract
income level is an appropriate approach.
In response to these concerns and commenters' feedback for other
data that may be used to measure availability of digital delivery
systems and other delivery systems, the agencies are adopting new Sec.
__.23(b)(4)(iii)(C) to allow banks to provide any other data, other
than the data required in final paragraphs (b)(4)(iii)(A) and (B) of
the section, to demonstrate that their digital delivery systems and
other delivery systems are available to individuals and in census
tracts of different income levels, including low- and moderate-income
individuals, families, or households, and low- and moderate-income
census tracts. The agencies believe this addition will allow banks the
flexibility to provide additional information along with the data
proposed.
The agencies have carefully considered other recommendations made
by commenters, including click rates on promotional emails, broadband
access, and others, but have determined, in their supervisory
experience, that the data points as finalized will achieve the
agencies' goal to provide clarity, consistency, and transparency in the
evaluation of a bank's digital delivery systems and other delivery
systems without significantly increasing burden to banks.
Section __.23(c) Retail Banking Products Evaluation
Section __.23(c)(1) Scope of Evaluation
Current Approach
Under the current CRA regulations, retail credit products and
programs are qualitatively evaluated under the large bank lending test.
A bank's lending performance is evaluated by, among other things, its
``use of innovative or flexible lending practices in a safe and sound
manner to address the credit needs of low- and moderate-income
individuals or geographies.'' \1031\ Current interagency guidance
provides examples that illustrate the range of practices that examiners
may consider when evaluating the innovativeness or flexibility of a
bank's lending practices and notes that when evaluating such practices,
examiners will not be limited to reviewing the overall variety and
specific terms and conditions of the credit product themselves.\1032\
Examiners also consider whether, and the extent to which, innovative or
flexible terms or products augment the success and effectiveness of the
bank's loan programs that are intended to address the credit needs of
low- or moderate-income geographies or individuals.\1033\
---------------------------------------------------------------------------
\1031\ See current 12 CFR __.22(b)(5).
\1032\ See Q&A Sec. __.22(b)(5)-1.
\1033\ See id.
---------------------------------------------------------------------------
A bank's retail deposit products and services are evaluated under
the current service test for large banks, which as explained in the
section-by-section analysis of Sec. __.23(a)(1), establishes four
criteria for evaluating retail services.\1034\ The fourth criterion of
the service test--the range of services provided in low-, moderate-,
middle-, and upper-income geographies and the degree to which the
services are tailored to meet the needs of those geographies \1035\--is
the primary consideration given to deposit products in the current
test. Examiners consider information from the bank's public file and
other information provided by the bank that are related to the range of
services generally offered at their branches, such as loan and deposit
products, and the degree to which services are tailored to meet the
needs of particular geographies.\1036\ Current interagency guidance
also explains that examiners will consider retail banking services that
improve access to financial services or decrease costs for low- or
moderate-income individuals.\1037\ More specifically, interagency
guidance identifies low-cost deposit accounts among the examples of
retail banking services that improve access to financial services, or
decrease costs, for low- or moderate-income individuals.\1038\
Examiners also review data regarding the costs and features of deposit
products, account usage and retention, geographic location of
accountholders, and any other relevant information available, which
demonstrates that a bank's services are tailored to meet the
convenience and needs of its assessment areas, particularly in low- and
moderate-income geographies or to low- and moderate-income
individuals.\1039\
---------------------------------------------------------------------------
\1034\ See current 12 CFR __.24(d).
\1035\ See current 12 CFR __.24(d)(4).
\1036\ See Interagency Large Institution CRA Examination
Procedures; see also Q&A Sec. __.24(d)(4)-1.
\1037\ See Q&A Sec. __.24(a)-1.
\1038\ See id.
\1039\ See Q&A Sec. __.24(d)(4)-1.
---------------------------------------------------------------------------
The Agencies' Proposal
In the second part of the Retail Services and Products Test, the
agencies proposed in Sec. __.23(c), an evaluation that focused on
large bank: (1) credit products and programs responsive to the needs of
low- and moderate-income individuals, small businesses, and small
farms; and (2) deposit products responsive to the needs of low- and
moderate-income individuals. When
[[Page 6937]]
applicable to a particular bank, bank performance on both the credit
products and programs and the deposit products components of the Retail
Services and Products Test would be assessed at the institution
level.\1040\ Evaluation of both these components would be required for
large banks with assets over $10 billion in both of the prior two
calendar years, based on the assets reported on its four quarterly Call
Reports for each of those calendar years.\1041\ The proposal required
evaluation of only the first component--the responsiveness of credit
products and programs--for banks with assets of $10 billion or
less,\1042\ while all large banks with assets of $10 billion or less
could request additional consideration for their responsive deposit
products.
---------------------------------------------------------------------------
\1040\ See proposed appendix C, paragraph c.3.i.
\1041\ See id.; see also proposed Sec. __.23(c).
\1042\ See proposed Sec. __.23(c).
---------------------------------------------------------------------------
Comments Received
A variety of commenters commented on the proposal to evaluate the
responsiveness of credit products and programs and deposit products.
Overall, most of these commenters supported the general concepts of the
proposal and provided a variety of suggestions for how best to evaluate
a bank's credit and deposit products. A few commenters urged the
agencies to provide both a quantitative and qualitative review of
responsive credit and deposit products, with a few commenters stating
that all features of credit and deposit products should be evaluated
including, for example, terms, rates, fees, defaults, and collections.
A few other commenters also recommended that the agencies: review the
quality of all bank credit and deposit products; evaluate not only the
bank's offering of products, but also how effectively banks connect
consumers to these products; consider programs that measure the
financial health of consumers; and evaluate all products and programs
offered by bank affiliates, subsidiaries, and partnerships for
potential evasion of usury caps and other abusive practices. One
commenter stated that accessibility and affordability of responsive
products and services in low- and moderate-income neighborhoods should
be compared against responsive products and services in middle- and
upper-income neighborhoods at the assessment area level. Another
commenter suggested that the agencies make the focus of the examination
not on whether a bank has responsive products ``on the shelf,'' but the
extent to which such products are marketed to, and used by, low- and
moderate-income and underserved individuals and communities.
Final Rule
In the final rule, the agencies are adopting Sec. __.23(c) largely
as proposed, to evaluate the responsiveness of a bank's credit products
and programs and deposit products, with technical edits related to the
overall organization of the scope of the evaluation of retail banking
products and revisions to conform to changes made throughout the final
rule to provide clarity regarding how the agencies will consider these
retail banking products in the evaluation of the Retail Services and
Products Test.
Specifically, final Sec. __.23(c) renames the section header from
``credit products and programs and deposit products'' to ``retail
banking products evaluation'' for conciseness and added the same
terminology in the regulatory text where appropriate. No change in
meaning is intended with this revision since the evaluation of retail
banking products includes credit products and programs and deposit
products. The agencies note, however, that the evaluation of retail
banking products does not include an evaluation of other products and
programs that are not credit products or programs and deposit products
such as insurance and financial investment products. In addition, new
final Sec. __.23(c)(1) reorganizes and clarifies the scope of the
evaluation of credit products and programs in final Sec. __.23(c)(2)
and deposit products in final Sec. __.23(c)(3) to conform to
organizational changes made to the evaluation of delivery systems in
Sec. __.23(b) and to other tests in the final rule.
Specifically, final Sec. __.23(c)(1) provides that the agencies
evaluate a bank's retail banking products under paragraphs (c)(2) and
(3) of the section at the institution level. Final Sec. __.23(c)(1)(i)
provides that the agencies will evaluate the credit products and
programs of all large banks. Final Sec. __.23(c)(1)(ii) provides that
the agencies will evaluate the deposit products of large banks that had
assets over $10 billion as of December 31 in both of the prior two
calendar years.\1043\ Moreover, consistent with the proposal, under the
final rule, the agencies will evaluate the deposit products of large
banks that had assets of $10 billion or less as of December 31 in
either of the prior two calendar years only at the bank's option.\1044\
---------------------------------------------------------------------------
\1043\ See final Sec. __.23(c)(1)(ii)(A).
\1044\ See final Sec. __.23(c)(1)(ii)(B).
---------------------------------------------------------------------------
As explained in the proposal, evaluating credit products and
programs and deposit products together in the same test, which as
explained above is a change from the current practice, is intended to
provide a more holistic evaluation of credit products and program and
deposit products that work in tandem to facilitate credit access for
low- and moderate-income individuals, families, or households. The
agencies believe this change will facilitate a more robust evaluation
of a bank's performance with respect to meeting the credit needs of its
community, as this evaluation also incorporates important qualitative
factors that capture a bank's commitment to serving low- and moderate-
income individuals, families, or households, residents of low- and
moderate-income census tracts, small businesses, and small farms.
While the agencies agree with commenters perspective that
quantitative factors can play a role in determining whether a product
or service is responsive, the agencies also believe that a qualitative
evaluation should be the predominate method of measuring the
responsiveness of retail banking products because it allows for a well-
rounded review of the bank's retail banking products, as well as the
consideration of the impact such products and programs have on low- and
moderate-income individuals, families, or households, and low- and
moderate-income census tracts. Although the agencies intend to address
many of commenters' suggestions for how to best evaluate a bank's
retail banking products through examination procedures and interagency
guidance, the agencies also note that examiners may qualitatively
consider aspects of retail banking products, such as the features,
accessibility, and affordability of such products and programs, to
determine whether they are responsive to the needs of low- and
moderate-income individuals, families, and households. The agencies
believe that, as finalized, Sec. __.23(c) is consistent with the
agencies' goal of encouraging the availability of responsive products
to low- and moderate-income individuals, families, or households.
The agencies are also making additional revisions to Sec.
__.23(c)(2) (credit products and programs) and (3) (deposit products)
that are described below in the respective section-by-section analysis.
[[Page 6938]]
Section __.23(c)(2) Credit Products and Programs
Current Approach
As discussed above, the current CRA regulations provide
consideration for a bank's use of innovative or flexible lending
practices in a safe and sound manner to address the credit needs of
low- and moderate-income individuals or geographies.\1045\
---------------------------------------------------------------------------
\1045\ See current 12 CFR __.22(b)(5)
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed in Sec. __.23(c)(1), to qualitatively
evaluate the responsiveness of a large bank's credit products and
programs to the needs of low- and moderate-income individuals
(including through low-cost education loans), small businesses, and
small farms.\1046\ The agencies also proposed in Sec. __.23(c)(1) that
they would evaluate whether the bank's credit products and programs are
conducted in a safe and sound manner. To qualify for consideration, the
agencies proposed to consider relevant information about a bank's
credit products and programs, including information provided by the
bank and from the bank's public file.\1047\
---------------------------------------------------------------------------
\1046\ See proposed Sec. __.23(c)(1).
\1047\ See proposed Sec. Sec. __.23(c)(1) and __.43(a)(5).
---------------------------------------------------------------------------
The proposal did not provide a specific list of retail lending
products and programs that qualified under this provision.\1048\
Instead, in proposed Sec. __.23(c)(1)(i) through (iii), the agencies
proposed an illustrative list of broader categories of responsive
credit products and programs that may be responsive to the needs of
low- and moderate-income individuals, small businesses, and small
farms. Consistent with safe and sound operations, responsive credit may
include, but is not limited to, credit products and programs that, in a
safe and sound manner: (1) facilitate home mortgage and consumer
lending for low- or moderate-income borrowers; \1049\ (2) meet the
needs of small businesses and small farms, including to the smallest
businesses and smallest farms; \1050\ and (3) are conducted in
cooperation with MDIs, WDIs, LICUs, or Treasury Department-certified
CDFIs.\1051\
---------------------------------------------------------------------------
\1048\ See proposed Sec. __.23(c)(1).
\1049\ See proposed Sec. __.23(c)(1)(i).
\1050\ See proposed Sec. __.23(c)(1)(ii).
\1051\ See proposed Sec. __.23(c)(1)(iii).
---------------------------------------------------------------------------
The agencies requested feedback regarding whether the CRA
regulations should list special purpose credit programs as an example
of a responsive credit product or program that facilitates home
mortgage and consumer lending targeted to low- or moderate-income
borrowers. The agencies also requested feedback on whether there are
other categories of responsive credit products and programs, offered in
a safe and sound manner, that should be taken into consideration when
deciding whether to give qualitative consideration to credit products
and programs, and whether the agencies should provide specific or
general guidance regarding what credit products and programs may be
considered especially responsive.
Comments Received
Comments regarding how to evaluate credit products and programs.
Several commenters supported the agencies' proposal to evaluate credit
products and programs under the Retail Services and Products Test. Some
commenters identified what they viewed as shortcomings in the proposal
and requested clarification or offered suggestions for improvement. For
instance, a few commenters asserted that a final rule needs to define,
and include an analysis of, affordability based on interest rate caps
and/or fees, or establish standards for both consumer and mortgage
loans to determine the appropriate level of CRA consideration to grant
a financial institution.
Commenters also urged the agencies to develop an ability-to-repay
standard, with some noting that the agencies need to regulate third
party out-of-state bank partnerships with entities such as payday loan
dealers to address what was characterized as evasion of usury limits. A
few commenters suggested evaluating credit products, including mortgage
and home equity loans that address existing barriers to homeownership,
such as stringent underwriting criteria, appraisal bias, and other
factors. One of these commenters also suggested that credit products
must be offered responsibly and sustainably to small business owners,
such as by examining the product's annual percentage rate.
In addition, several commenters urged the agencies to expand the
scope of the impact factor review to also include the proposed Retail
Services and Product Test. These commenters suggested that the agencies
incorporate an analysis of loan pricing and consumer product terms to
ensure that retail products are meeting local needs instead of
extracting wealth, and further recommended that the agencies evaluate
how well loan products match local needs and give credit to activities
that close the racial wealth gap by affirmatively serving communities
of color. A few commenters stated that CRA rules should clearly
penalize branch closures and poor coverage in low- and moderate-income,
BIPOC and rural communities. Other commenters stated that the agencies
should include in impact scoring branch openings in low- and moderate-
income communities, communities of color, and rural communities. These
comments are also discussed in the section-by-section analysis of Sec.
__.15.
A few commenters objected to the inclusion of credit products,
particularly consumer loans, in the evaluation, with one commenter
stating that the agencies did not provide implementation guidelines,
while the other commenters expressed concern that the public did not
have a meaningful opportunity to understand and comment on the
requirement to evaluate consumer loans within this test. One commenter
suggested that the agencies' proposed analysis of consumer loans as a
type of credit product or program would be a departure from the CRA's
historical focus on home mortgage and small business loans because
consumer loans do not provide the type of foundational, wealth-building
credit that the CRA has traditionally focused on promoting and
incentivizing; the commenter also indicated that consumer loans may be
a poor fit for meeting the needs of low-and moderate-income
communities. One commenter recommended that the agencies provide
further clarity on how banks will be evaluated for responsiveness under
this test.
Comments regarding consumer loans other than automobile loans.
Several commenters recommended a qualitative evaluation of consumer
loans and made suggestions about the nature and scope of the
qualitative evaluation. In general, these commenters expressed that
examiners should perform a qualitative analysis to ensure that a bank's
consumer lending is responsible and sustainable, such as loan
marketing, language access, repayment rates, loan terms, loan pricing
(including interest and fees), delinquency and default rates, and
collection practices. A commenter suggested that the agencies conduct
an analysis of the annual percentage rate (APR) that a bank charges on
its consumer loans and compare the bank's APR to the average APR for
the relevant market. Another commenter recommended that the agencies
harmonize their CRA regulations as much as possible with the
Interagency Lending Principles for Offering Responsible Small-Dollar
Loans to further signal regulatory stability and encourage banks to
offer more small-dollar loan products, which the commenter
characterized as a net
[[Page 6939]]
benefit to consumers.\1052\ In contrast, another commenter encouraged
the agencies to consider expanded metrics under the Retail Services and
Products Test for evaluating the impact of unsecured consumer debt,
including loan modifications directly negotiated between the bank and
the borrower (without the involvement of a for-profit debt settlement
company), as well as a bank's repayment policies regarding concessions
to borrowers experiencing financial hardships.
---------------------------------------------------------------------------
\1052\ See OCC, FDIC, Board, NCUA, ``Interagency Lending
Principles for Offering Responsible Small-Dollar Loans'' (May 2020),
https://www.fdic.gov/news/press-releases/2020/pr20061a.pdf.
---------------------------------------------------------------------------
Comments regarding other categories of responsive credit products.
The agencies received a number of comments and suggestions regarding
additional categories and examples of responsive credit products and
programs for consideration. Beyond the proposed products and programs
to be considered, the categories suggested by commenters included:
affordable products geared to borrowers with limited English
proficiency; programs that use alternative data such as rent,
utilities, and telecom payments to assist in loan decisioning for
applicants who would not otherwise be eligible for mortgage loans based
on traditional credit scores; and small dollar mortgages and small loan
alternatives to payday lending. Commenters also suggested: credit
products offering lower rates after a borrower establishes a payment
history; mortgage and home improvement loans with low down payment
requirements for first generation homebuyers; mortgage products that
are equivalent to the loan products of the Federal Housing
Administration, Veteran Affairs, Federal Home Loan Banks, and Housing
Financing Agencies; auto and other consumer lending that reduce
reliance on high-cost predatory debt; other lending programs and
underwriting that do not discriminate against individuals with criminal
records; microfinance products and small business lending products that
incorporate an evaluation of loan quality and pricing; affordable small
installment loan programs; responsive loan products offered by
NeighborWorks affiliates; debt repayment and modification programs and
policies; negative consideration for predatory activities; responsive
loan products that finance equitable media; and personal loans for
manufactured housing. Other commenters stated that purchased loans from
institutions that do not have the ability to sell loans to the GSEs, or
other access to secondary markets, should receive favorable
consideration under the Retail Services and Products Test to encourage
banks to set up purchasing programs for these loans. One commenter
discouraged the agencies from including additional regulatory
requirements that have not been specifically vetted in the proposal.
Instead, this commenter encouraged the agencies to adopt a final
regulation that will allow future guidance to address new approaches as
they are developed.
Comments regarding whether the agencies should provide specific or
general guidance regarding categories of credit products and programs
considered most responsive. Commenters addressing this request for
feedback expressed mixed views. Some commenters noted that it was
preferable to provide general criteria so as not to discourage a bank
from pursuing impactful and responsive activities that may deviate from
the specific examples. One commenter stated that guidance should be
left general and institutions should be allowed to self-certify
responsive products and then justify their choices.
In contrast, other commenters expressed support for specific
guidance. For instance, one commenter supported specific guidance on
types of credit products and programs considered especially responsive,
with the stipulation that the bank may pursue other impactful or
responsive activities that may not be included in the guidance.
Commenters urged the agencies to incorporate into the rule: a local
qualitative analysis of credit products (and usage) to assure banks
meet local needs; reviews of bank lending that include an affordability
analysis; penalties such as downgrades for abusive products and
practices; and an evaluation of retail credit products that emphasizes
the extent to which responsive products are marketed to and used by
low- and moderate-income and underserved individuals and communities.
Another commenter stated that banks should not be able to pass their
CRA examination if they only offer expensive products that do not
actually serve the needs of the community. Two commenters suggested
that banks should be downgraded for harm such as discrimination,
displacement, and fee gouging. A few commenters also suggested that the
agencies consider the environmental and climate impact of bank credit
products. Some commenters recommended that the CRA framework include
scrutiny of bank financing of polluting activities and the associated
disparate impact on access to credit in low- and moderate-income
communities and communities of color. These comments also suggested the
agencies should impose penalties for financing industries that
contribute to climate change, particularly in low- and moderate-income
neighborhoods, while not financing renewable or clean energy. Other
commenters recommended that the agencies provide an illustrative and
non-exhaustive list of what the agencies deem to be products and
programs that are especially responsive and, when possible, include
products that specifically will not qualify as responsive. Commenters
suggested the agencies include a submission process, similar to the
agencies' proposed confirmation process for community development
activities, with one commenter recommending that there be a clear
process for banks and strategic partners to seek pre-approval on a
given program before fully implementing new ideas. Another commenter
suggested that the agencies recommend specific credit products if they
have research or studies that support their recommendation.
Comments regarding special purpose credit products. Commenters
universally supported the final rule listing special purpose credit
programs as an example of a responsive credit product or program that
facilitates mortgage and consumer lending targeted to low- or moderate-
income borrowers. Some commenters requested that the final rule specify
that special purpose credit programs can include programs that focus on
either people or communities of color. These commenters supported
favorable consideration for special purpose credit programs in CRA
examinations and asserted that the agencies should more explicitly
recognize the importance of special purpose credit programs as a
critical way for banks to serve minority communities. A commenter
recommended that the agencies clarify that special purpose credit
programs targeted to the needs of minority consumers and communities,
and not solely to low- and moderate-income consumers and communities,
are highly responsive programs for CRA purposes. Another commenter
suggested that the agencies confer ``impact points'' across all CRA
performance tests for banks with special purpose credit programs
targeted to racial, ethnic, and other underserved groups. This
commenter also suggested that each bank should be required to offer at
least one special purpose credit program. Another commenter indicated
that special purpose credit programs should be targeted to Black low-
and moderate-
[[Page 6940]]
income consumers and communities and not to other low- and moderate-
income consumers and communities that have historically benefited more
from CRA. Some of these commenters noted that special purpose credit
programs are an important part of the remedy for targeting formerly
redlined neighborhoods and people of color. Other commenters
recommended that the final rule specify that special purpose credit
products can include home mortgage lending, small business lending,
consumer lending, or deposit products. One commenter believed that an
explicit provision in the final rule that banks will receive CRA credit
for qualified special purpose credit programs at both the bank level,
and when targeted geographically to specific areas, at the assessment
area level, would encourage more banks to utilize special purpose
credit programs as a tool to help disadvantaged individuals. Another
commenter addressed the significant uncertainty that exists with
special purpose credit programs, noting that the rules could change in
the future, leaving them exposed to risk of fair lending violations,
and asked for clearer guidance from regulators and examiners. However,
two commenters noted that the inclusion of special purpose credit
programs would be consistent with recent HUD guidance that the use of
such programs in accordance with ECOA and 12 CFR part 202 (Regulation
B) is lawful under the Fair Housing Act.
Final Rule
The agencies are adopting Sec. __.23(c)(1), renumbered in the
final rule as Sec. __.23(c)(2), largely as proposed pertaining to the
evaluation of a bank's credit products and programs, with clarifying
edits. Moreover, and as discussed in more detail below, the agencies
are also finalizing as proposed the categories of responsive credit
products and programs in final Sec. __.23(c)(2)(i) through (iii). The
agencies are also adopting new paragraphs (c)(2)(iv) and (v) to include
low-cost education loans and special purpose credit programs,
respectively, as separate categories of responsive credit products and
programs.
In final Sec. __.23(c)(2), the agencies are retaining the
expectation that the bank's credit products and programs are conducted
in a safe and sound manner. The agencies are also adding regulatory
text that provides they evaluate whether a bank's credit products and
programs are responsive to the credit needs of the bank's entire
community as well as the residents of low- and moderate-income census
tracts. Consequently, final Sec. __.23(c)(2) provides that the
agencies evaluate whether a bank's credit products and programs are,
consistent with safe and sound operations, responsive to the credit
needs of the bank's entire community, including the needs of low- and
moderate-income individuals, families, or households, residents of low-
and moderate-income census tracts, small businesses, or small farms.
Final Sec. __.23(c)(2) then provides a non-exhaustive list of credit
products and programs that the agencies consider responsive.
Qualitative evaluation of responsive credit products and programs.
The final rule in Sec. __.23(c)(2) retains a qualitative evaluation of
responsive credit products and programs in the Retail Services and
Products Test. As explained in the proposal, the agencies believe that
using responsiveness as part of the evaluation standard instead of the
current innovative and flexible standard better captures the focus on
community credit needs. The agencies also believe that using the term
responsiveness helps improve consistency of terminology throughout the
final rule. The agencies further believe this approach is preferable to
including it as part of the more metrics-based Retail Lending Test
because it pairs a qualitative evaluation of the responsiveness of a
bank's lending products and programs with other qualitative criteria
under the Retail Services and Products Test. The agencies believe that
the qualitative consideration of credit products and programs is
consistent with the intent to emphasize the impact of the product or
program in helping to meet the credit needs of low- and moderate-income
individuals, families, or households, residents of low- and moderate-
income census tracts, small businesses, and small farms.
The agencies considered the comments asserting that the agencies
need to define, and include an analysis of, affordability based on
interest rate caps and/or fees, or establish standards for both
consumer and mortgage loans to determine the appropriate level of CRA
consideration to grant a financial institution, and the comments urging
the agencies to develop an ability-to-repay standard. The agencies also
considered a commenter's recommendation to harmonize the CRA
regulations as much as possible with the existing principles for
offering responsible small-dollar loans. As an initial matter, the
agencies note that the CRA statute does not give the agencies the
authority to impose substantive requirements on the types of credit
products and programs a bank offers as recommended by commenters.
Instead, the agencies' focus under the CRA is on the bank's record of
meeting community credit needs consistent with safe and sound
operations, which includes sound underwriting practices for all
lending. For example, in May 2020, the agencies, together with the
NCUA, issued a set of principles to encourage supervised banks, savings
associations, and credit unions to offer responsible small-dollar loans
to customers for both consumer and small business purposes to meet
customers' short-term credit needs.\1053\ Banks are assessed for
compliance with numerous consumer laws, including section 5 of the
Federal Trade Commission Act \1054\ and others. Banks that make loans
in violation of laws, rules, or regulations, either directly or as a
result of failing to properly manage relationships with third parties,
may be subject to enforcement action. As a result of any such
violations, banks may also be subject to a downgrade of their CRA
rating pursuant to final Sec. __.28, if they engage in discriminatory
or other illegal credit practices with respect to their credit products
and programs.
---------------------------------------------------------------------------
\1053\ See id.
\1054\ See 15 U.S.C. 45.
---------------------------------------------------------------------------
In response to commenter suggestions to expand metrics for
evaluating the impact of unsecured consumer debt under the Retail
Services and Products Test, the agencies note that to the extent that
certain loan products and services are responsive to the needs of low-
and moderate-income individuals, households, or families, small
businesses, and small farms, they may be given consideration. In
addition, the agencies believe that the qualitative approach to
evaluation under final Sec. __.23(c)(2) is a better measure of the
responsiveness of credit products.
After considering the comments, the agencies determined that a
separate category to evaluate barriers to homeownership was
unnecessary. The final rule provides that credit products that overcome
barriers to homeownership for low- and moderate-income first-time
homebuyers are responsive credit products falling within the category
of ``credit products and programs that facilitate home mortgage lending
for low- and moderate-income borrowers.''
In response to the commenter that asked for additional clarity on
how the agencies will evaluate banks for responsiveness under this
test, the agencies intend to evaluate responsiveness consistent with
current interagency guidance. More specifically, when evaluating
responsiveness,
[[Page 6941]]
examiners will consider three important factors: quantity, quality, and
performance context. Examiners will evaluate the volume and type of an
institution's activities, for example, loans and services, as a first
step in evaluating the institution's responsiveness the needs of the
bank's communities, including the needs of low- and moderate-income
individuals, families, or households, residents of low- and moderate-
income census tracts, small businesses, and small farms. In addition,
an assessment of ``responsiveness'' will encompass the qualitative
aspects of performance, including the effectiveness of the activities.
For example, some activities require specialized expertise or effort on
the part of the institution or provide a benefit to the community that
would not otherwise be made available. In some cases, a smaller loan
may have more benefit to a community than a larger loan. In other
words, when evaluated qualitatively, some activities are more
responsive than others. Activities are more responsive if they are
successful in meeting identified credit and community development
needs. Examiners also evaluate the responsiveness of an institution's
activities to credit and community development needs in light of the
institution's performance context, as explained in more detail in the
section-by-section analysis of Sec. __.21(d). That is, examiners
consider the institution's capacity, its business strategy, the needs
of the community, and the opportunities for lending and services in the
community.
In response to the comments that suggested that the public did not
have a meaningful opportunity to understand and comment on the
requirement to evaluate consumer loans within this test, the agencies
note that they explicitly indicated in the proposal their intent to
potentially consider consumer loans as a type of credit product and
provided opportunity to comment on this approach. The 90-day comment
period is consistent with the requirements of the Administrative
Procedures Act and, in the agencies' supervisory experience, provided
sufficient time for public consideration and comment. Indeed, the
agencies received many detailed and thoughtful comments on the issue of
whether consumer loans should be considered as credit products.
The agencies have considered concerns described by commenters that
considering the responsiveness of consumer loans under credit products
and programs departs from prior agency practice that traditionally
focuses on wealth-building products such as home mortgages and small
business loans. The agencies conclude that they are authorized by the
CRA to evaluate a bank's consumer loans in assessing a bank's record of
meeting the credit needs of their entire community, including low- and
moderate-income census tracts. The agencies also do not agree with the
commenter's suggestion that reviewing the responsiveness of consumer
loans should be limited because they have a limited usefulness for low-
and moderate-income communities.
The agencies considered commenter suggestions to expand the scope
of the impact and responsiveness factors to include such review in the
Retail Services and Product Test. The agencies believe that the test in
the final rule sufficiently considers qualitative factors, including
the responsiveness and availability of products and services to low-
and moderate-income individuals, families, or households; residents of
low- and moderate-income census tracts; small businesses; and small
farms. To the extent retail banking products and retail banking
services are responsive to the needs of these groups, the agencies may
provide CRA consideration.
Categories of responsive credit products and programs. With respect
to the categories of responsive credit products and programs, as noted
above, the agencies are adopting, with technical edits, proposed Sec.
__.23(c)(1)(i), renumbered in the final rule as Sec. __.23(c)(2)(i)
(credit products and programs that facilitate home mortgage and
consumer lending); proposed Sec. __.23(c)(1)(ii), renumbered in the
final rule as Sec. __.23(c)(2)(ii) (credit products and programs that
meet the credit needs of small businesses and small farms); and
proposed Sec. __.23(c)(1)(iii), renumbered in the final rule as Sec.
__.23(c)(2)(iii) (credit products and programs that are conducted in
cooperation with MDIs, WDIs, LICUs, or CDFIs). Specifically, final
Sec. __.23(c)(2)(i) through (iii) removes ``in a safe and sound
manner'' from each of the categories of responsive credit products and
programs. The agencies determined the references were unnecessary and
repetitive of the reference to ``in a safe and sound manner'' in final
Sec. __.23(c)(2). In addition, the agencies are making a clarifying
revision to Sec. __.23(c)(2)(ii) changing ``smallest businesses'' and
smallest farms'' to those ``with gross annual revenue of $250,000 or
less.''
The agencies believe that inclusion of these categories of credit
products and programs is important because they outline broader
categories of non-exhaustive examples of credit products and programs
that are responsive to community credit needs. The final rule
recognizes the unique needs of low- and moderate-income borrowers,
small businesses, and small farms, and attempts to encourage the
provision of credit to these groups. Under the final rule, the agencies
are retaining Sec. __.23(c)(2)(i), credit products and programs that
``facilitate mortgage and consumer lending targeted to low- or
moderate-income borrowers,'' as one category of responsive credit
products and programs. Small-dollar mortgages and consumer lending
programs that utilize alternative credit histories in a manner that
would benefit low- or moderate-income individuals could be examples of
a responsive credit product or program in this category. The agencies
are revising final Sec. __.23(c)(2)(ii), to encompass credit products
and programs that ``meet the needs of small businesses and small farms,
including small businesses and small farms with gross annual revenues
of $250,000 or less,'' as another category of responsive credit
products or programs. Examples in this category include microloans
(such as loans of $50,000 or less) and patient capital to entrepreneurs
through longer-term loans. Finally, the agencies are also retaining
Sec. __.23(c)(2)(iii), credit products and programs that are conducted
in cooperation with MDIs, WDIs, LICUs, or CDFIs, as a category of
responsive credit products and programs. Examples include home mortgage
loans and small business loans that banks purchase from MDIs, WDIs,
LICUs, and CDFIs. The agencies acknowledge the importance of supporting
institutions such as CDFIs, MDIs, CDFIs, and LICUs in their efforts to
provide access to credit and other financial services in traditionally
underserved communities. Bank purchases of MDI, WDI, LICU, and CDFI
loans can provide necessary liquidity to these lenders and extend their
capability to originate loans to low- and moderate-income individuals,
families, or households, in low- and moderate-income census tracts, and
to small businesses and small farms.
The agencies have considered the recommendations made by commenters
regarding other categories of responsive credit products and programs.
As discussed above, the agencies are finalizing Sec. __.23(c)(2)
without a more detailed list of categories of responsive credit
products or programs. The agencies agree with commenters who do not
believe that a more detailed list of
[[Page 6942]]
products and programs is warranted in the regulation. The agencies
believe that the approach taken is appropriate because the proposed
list is broad and recognizes that bank credit products and programs may
vary to meet the needs of different communities and may be dependent on
a bank's business model and focus. Moreover, given that the list of
categories of responsive credit products and programs is not
exhaustive, the list permits examiners to consider additional products
and programs and allows sufficient flexibility for the agencies to
consider new approaches as they are developed.
The agencies appreciate other recommendations, such as programs to
provide affordable credit products to individuals with limited English
proficiency, and note that some suggestions may also qualify as a
responsive credit product or program. For instance, in the proposal,
the agencies listed examples of credit products that can be challenging
for consumers to obtain because they generate less revenue for a bank
than larger loans, because borrowers do not have sufficient down
payments, or because consumers have limited conventional credit
histories.\1055\ Some of the suggested products also contain these
characteristics. Other suggestions, such as responsive loan products
that finance equitable media, fall outside of the scope of this
regulation.
---------------------------------------------------------------------------
\1055\ See 87 FR 33884, 33966 (June 2022).
---------------------------------------------------------------------------
The agencies note that commenter suggestion to consider purchased
loans under the Retail Services and Products Test is unnecessary given
that these loans are already considered under the Retail Lending Test
(which addresses liquidity support for institutions raised by this
comment). However, purchased loans could potentially be considered
under this component of the Retail Services and Products Test if a bank
purchased a responsive credit product identified in Sec. __.23(c)(2);
for example, a loan that was purchased from an MDI or CDFI would be
considered.
The agencies are sensitive to concerns from some commenters who
believe that a detailed list or specific guidance is needed to provide
banks with certainty, which is often needed before implementing new
ideas. However, as explained in the proposal, the agencies believe that
a specific list of retail lending products and programs within the
regulation could have the unintended consequence of constraining bank
efforts to meet the credit needs of its communities and pursuing more
impactful activities that may deviate from the specific examples.
Nevertheless, the agencies acknowledge that a more detailed list of
examples of responsive credit products and programs could be provided
outside of the regulation and will continue exploring the feasibility
of whether such a list would be helpful to provide banks and partners
with additional certainty regarding qualifying activities under the
Retail Services and Products Test. Similarly, in reference to
suggestions from commenters that the agencies develop and provide a
non-exhaustive illustrative list of qualifying activities, the agencies
have committed to assessing whether to provide additional guidance
regarding qualifying responsive credit products outside of the
regulation.
Regarding recommendations from commenters on evaluating credit
products that impact the environment or lead to displacement, the
agencies have developed a criterion under final Sec. __.13(i) that
will qualify loans and investments that help improve the disaster
preparedness and weather resiliency of such communities. The agencies
did not find it appropriate to restrict the types of consumer products
and programs because the agencies did not find persuasive evidence that
consumer products and programs had environmental or displacement
impacts.
Low-Cost Education Loans. To clarify that low-cost education loans,
as defined in final Sec. __.12, are an example of responsive credit
products and programs under the Retail Services and Products Test, the
agencies are adopting new final Sec. __.23(c)(2)(iv) as a fourth
category of responsive credit products and programs. Although the
agencies proposed ``evaluating the responsiveness of a large bank's
credit products and programs to the needs of low- and moderate-income
individuals (including through low-cost education loans),'' the
agencies believe it is appropriate to separately enumerate low-cost
education loans given the explicit CRA statutory requirement that the
agencies consider low-cost education loans provided by banks to low-
income borrowers as a factor when evaluating the bank's record of
meeting community credit needs.\1056\
---------------------------------------------------------------------------
\1056\ See 12 U.S.C. 2903(d).
---------------------------------------------------------------------------
Special Purpose Credit Products. In response to comments received,
the agencies are also adopting new final Sec. __.23(c)(2)(v), which
adds special purpose credit programs under 12 CFR 1002.8 as a fifth
category of responsive credit programs, regardless of whether the
special purpose credit programs includes income limitations. In
response to comments and the agencies' internal considerations, the
agencies decided to add this category rather than to include special
purpose credit program as an example of a program that facilitates
mortgage and consumer lending targeted to low- or moderate-income
borrowers. This decision is based on the fact that not all special
purpose credit programs have income limitations, and some do not
necessarily target low- and moderate-income borrowers, which means that
these programs may be ineligible under final Sec. __.23(c)(2)(i).
Moreover, as banks consider how they may expand access to credit to
better address specific social needs, the agencies believe including
special purpose credit programs as a category of responsive credit
products and programs eligible for CRA consideration will encourage
creditors to explore opportunities to develop these programs consistent
with applicable law, including, but not limited to, ECOA and Regulation
B, as well as applicable safe and sound lending principles. The
inclusion of special purpose credit programs is particularly important
given that in February 2022, several Federal agencies issued an
interagency statement to remind creditors of the ability under ECOA and
Regulation B to establish special purpose credit programs to meet the
credit needs of specified classes of persons.\1057\ Importantly, the
agencies do not determine whether a program qualifies for special
purpose credit program status, banks with questions about any aspect of
ECOA and Regulation B's special purpose credit program provisions may
consult their appropriate regulatory agencies.
---------------------------------------------------------------------------
\1057\ See Board, FDIC, NCUA, OCC, CFPB, HUD, U.S. Dept. of
Justice, Federal Housing Finance Agency, ``Interagency Statement on
Special Purpose Credit Programs Under the Equal Credit Opportunity
Act and Regulation B'' (Feb. 22, 2022), https://www.fdic.gov/news/financial-institution-letters/2022/fil22008a.pdf.
---------------------------------------------------------------------------
Section __.23(c)(3) Deposit Products
Current Approach
As discussed above, a bank's retail deposit products and services
are evaluated under the current service test for large banks, primarily
as part of the range of services provided in low-, moderate-, middle-,
and upper-income geographies and the degree to which the services are
tailored to meet the needs of those geographies.\1058\
---------------------------------------------------------------------------
\1058\ See current 12 CFR __.24(d)(4); see also Q&A Sec.
__.24(d)(4)-1.
---------------------------------------------------------------------------
The Agencies' Proposal
In proposed Sec. __.23(c)(2) the agencies proposed modernizing the
[[Page 6943]]
existing evaluation of a bank's deposit products and services by adding
a more explicit focus on the financial inclusion of deposit products
and by adding specific measures for evaluation, such as availability
and usage.\1059\ Specifically, for large banks with assets of over $10
billion in both of the prior two calendar years, based on the assets
reported on its four quarterly Call Reports for each of those calendar
years, the agencies proposed to evaluate the availability and usage of
a bank's deposit products that are responsive to the needs of low- and
moderate-income individuals.\1060\ This evaluation would be optional
for large banks with assets of $10 billion or less, though the agencies
requested feedback on whether the evaluation should be required for
these banks.\1061\
---------------------------------------------------------------------------
\1059\ See proposed Sec. __.23(c)(2).
\1060\ See proposed Sec. __.23(c) introductory text
(application to large banks with assets of over $10 billion) and
(c)(2)(i) (availability) and (ii) (usage).
\1061\ See proposed Sec. __.23(c).
---------------------------------------------------------------------------
Comments Received
The agencies received a number of comments addressing the proposed
evaluation of deposit products responsive to the needs of low- and
moderate-income individuals. The commenters were generally supportive
of the proposal, although some provided recommendations for
improvement. For instance, one commenter urged the agencies to also
evaluate the responsiveness of deposit products for small businesses
and claimed that their exclusion from the test would disadvantage banks
with a small business lending model. A few commenters suggested that
the agencies consider the quality of the products offered as measured,
for example, by the deposit account revenue derived from overdraft or
insufficient fund fees. One commenter urged the agencies to require the
collection of the income of the consumers receiving responsive deposit
accounts; however, two commenters opposed such a requirement stating
that large banks do not collect income information related to the
opening of accounts, and even if they did, the data collected would
have to be updated regularly. Another commenter recommended that the
agencies mirror the 1995 CRA rules' performance standards by evaluating
the responsiveness of deposit products using qualitative factors, while
allowing banks to support their evaluation of performance. Another
commenter recommended expanding consideration of deposit products to
the needs of military personnel, veterans, and their families.
In contrast, a few commenters opposed the inclusion of a bank's
deposit products in the evaluation of the test altogether. These
commenters asserted that: there is no statutory basis in the CRA for
evaluating the features of bank deposit products; there is no statutory
basis for regulating these products under the CRA; the CRA is not the
appropriate vehicle through which to regulate a bank's product
offerings and associated fees; and the proposed approach contains no
apparent limiting principle and leaves unanswered key questions
regarding the scope of agency authority to evaluate deposit products.
One of these commenters suggested the evaluation of deposit products
should serve only as performance context, but not as a mandatory
element or minimum requirement.
In response to the agencies' request for feedback on whether, in
addition to deposit accounts, there are other products or services that
encourage retail banking activities that may increase credit access,
the agencies received several comments which provided suggestions on
other retail services or products that may increase access to credit in
addition to deposit accounts. The most common recommendation across the
variety of commenters was financial counseling. Other commenters
suggested products or services such as: credit-building loans; small
dollar loans for homeowners and small businesses; GSE pilot programs;
community land trusts; direct deposit advances; secured credit cards;
and refund transfers.
The agencies received several comments in response to the request
for feedback on whether large banks with assets of $10 billion or less
should be subject to a responsive deposit products evaluation with
mixed views. Two commenters argued that this component should be
required for large banks with assets of $10 billion or less as it is
for large banks with assets of over $10 billion, with one suggesting
that intermediate banks should be provided with a formal option for
electing to be considered under the proposed Retail Services and
Products Test. A few commenters went further and suggested that this
component should be required for banks of all asset sizes, as they all
should be responsive to the deposit needs of people in the bank's
delineated assessment areas in order to ensure that low- and moderate-
income families have easy access to banking products. In contrast,
other commenters favored the proposal's optionality for large banks
with assets of $10 billion or less stating it is an important factor
that should be maintained. One commenter noted that while larger banks
can have a disproportionate impact because of their ability to scale
products more effectively, requiring this additional evaluation could
hinder scaling innovative products. Another commenter suggested that
banks with assets $10 billion or less have the option of a qualitative
review with the focus on product design and demonstration of products
being openly available.
Final Rule
As explained below, the agencies are finalizing Sec. __.23(c)(2),
renumbered in the final rule as Sec. __.23(c)(3), largely as proposed
to provide for the evaluation of the availability of deposit products
responsive to low- and moderate-income individuals, families, or
households, renumbered in the final rule as Sec. __.23(c)(3)(i), and
the usage of deposit products, renumbered in the final rule as Sec.
__.23(c)(3)(ii). The agencies also made clarifying changes, including
but not limited to a change to the heading.
The agencies conclude that they have statutory authority to
evaluate responsive large bank deposit products under the final rule.
While the operational provisions of the CRA instructs the agencies to
evaluate a bank's record of meeting the credit needs of its
communities,\1062\ the agencies have found that there is a sufficient
nexus between deposit products and the provision of credit such that,
to comprehensively assess large bank performance for banks with more
than $10 billion in assets, it is appropriate to evaluate deposit
accounts responsive to the needs of low- and moderate-income
individuals, families, or households. For the reasons described below,
the availability of bank deposit products that meet the needs of low-
and moderate-income individuals, families, or households frequently
assume a foundational role in the ability for individuals to access
credit responsive to their particular needs.
---------------------------------------------------------------------------
\1062\ See 12 U.S.C. 2903(a)(1) and 2906(a)(1).
---------------------------------------------------------------------------
First, the agencies believe that deposit products are important for
supporting the credit needs of low- and moderate-income individuals,
families, or households because they increase credit access by helping
individuals improve their financial stability and build wealth through
deposit accounts.\1063\ A greater
[[Page 6944]]
focus on responsive deposit products could strengthen a bank's ability
to serve the credit needs of its communities.
---------------------------------------------------------------------------
\1063\ See, e.g., Ryan M. Goodstein, Alicia Lloro, Sherrie L.
Rhine, & Jeffrey M. Weinstein, ``What accounts for racial and ethnic
differences in credit use?'', 55 J. of Consumer Affairs 389-416
(2021); FDIC, ``2017 FDIC National Survey of Unbanked and
Underbanked Households'' (October 2018), https://www.fdic.gov/analysis/household-survey/2017/; Michael Barr, Jane K.
Dokko, & Benjamin J. Keys, ``And Banking for All?'' Board Finance
and Economics Discussion Series Working Paper No. 2009-34 (Aug,
2009), https://www.federalreserve.gov/pubs/feds/2009/200934/200934pap.pdf.
---------------------------------------------------------------------------
Second, deposit products can help consumers qualify for loans by
facilitating consumers' savings so that they can post collateral and to
pay transactions costs. Consumers frequently rely on deposit accounts
to save for and then fund the down payment for a house, the money down
on a car, or the initial capital for a small business. Deposit products
may also assist consumers in improving their credit scores. Features
like scheduled recurring or automatic bill payments, check writing
privileges, and quick availability of funds make it much easier for
consumers to make payments on time and build their credit scores. Data
from consumers' use of deposit accounts are also sometimes included in
credit evaluations as ``alternative data.'' While the use of these data
is not currently widespread, the agencies have encouraged the
responsible use of alternative data and noted that it could expand the
availability of credit.
Finally, deposit products are a pathway for a bank customer to
establish an ongoing relationship with a bank. Customers who hold
deposit products have contact with a bank--either physically or
electronically--every time they perform a transaction. Banks can use
various touch points to market credit products, explain how credit
products can help consumers meet financial needs, and provide services
to improve consumers' financial literacy. The bank also obtains
valuable information from interactions with their customers. Some banks
rely on ``relationship lending,'' or using this ``soft'' data based on
an ongoing relationship with a customer to make underwriting
decisions.\1064\
---------------------------------------------------------------------------
\1064\ Elyas Elyasiani & Lawrence G. Goldberg, Relationship
lending: a survey of the literature, 56 J. Econ. & Bus. 315-330
(2004).
---------------------------------------------------------------------------
Data and empirical studies support the idea that deposit accounts
facilitate lending and improved financial outcomes. A 2019 study
provides some causal evidence that increases in consumers' access to
deposit accounts led to increased savings, increased net worth, and
increased holdings of various types of credit.\1065\ The effects could
be more important for low-income consumers, since the increases in bank
access they study were larger in places where incomes were lower. There
also is a strong correlation between deposit accounts and mainstream
credit, though this correlation could be for several other reasons as
well.\1066\
---------------------------------------------------------------------------
\1065\ Claire Celerier & Adrien Matray, Bank-Branch Supply
Financial Inclusion and Wealth Accumulation, 32 Rev. of Fin. Stud.
4767-4809 (Dec. 2019); A related study uses a different design to
provide evidence that exposure to banking as a child leads to higher
credit scores and lower delinquency rates as an adult: James R.
Brown, J. Anthony Cookson & Rawley Z. Heimer, Growing up without
finance, 134 J. Fin. Econ. 591-616 (Dec. 2019).
\1066\ One reason why there could be a correlation without
causation is omitted variable bias. Consumers who have bank accounts
could also be more likely to have credit because of some other
characteristic that would lead to both. For example, consumers with
higher incomes are more likely to own bank accounts and higher
incomes also make it easier for consumers to borrow. For the
statistic, see FDIC, Table 10.1, ``Use of Credit by Bank Account
Ownership, 2017-2021,'' of the ``2021 FDIC National Survey of
Unbanked and Underbanked Households'' (Oct. 2022), https://www.fdic.gov/analysis/household-survey/2021report.pdf.
---------------------------------------------------------------------------
The agencies note that deposit products are considered under the
existing CRA framework.\1067\ The agencies retain discretion under the
final rule to consider other factors and features in determining if a
deposit product is responsive to low- and moderate-income individuals,
families, or households. Examples of products that meet the
responsiveness standard include accounts certified by the Cities for
Financial Empowerment as meeting the Bank On National Account standard,
which precludes overdraft and insufficient funds fees, and ``second-
chance accounts.'' Savings accounts targeted toward low- or moderate-
income individuals, families, or households such as Family Self-
Sufficiency Accounts are another example of a product that would be
considered responsive. These are not exclusive examples, and the
agencies will be able to consider other factors. The agencies decided
not to require the collection of income for consumers opening accounts
to help determine responsiveness because the burden could present a
barrier to bank participation in offering such products.
---------------------------------------------------------------------------
\1067\ See e.g., current 12 CFR __.24(d)(4); see also Q&A Sec.
__.24(a)-1 and Q&A Sec. __.24(d)(4)-1.
---------------------------------------------------------------------------
In response to the recommendation that the agencies mirror the 1995
CRA rules' performance standards, the agencies believe that the
approach taken in the final rule modernizes the existing evaluation of
a bank's products and services by adding a more explicit focus on the
financial inclusion potential of these products and by adding specific
measures for evaluation, such as availability and usage.
The agencies are sensitive to concerns raised by some commenters
that the final rule should not operate in a way that regulates or
otherwise requires banks to provide certain deposit products. The
agencies note that evaluation of deposit product in final Sec.
__.23(c)(3) does not regulate or set the prices of a bank's product
offerings and associated fees. Furthermore, as described below in Sec.
__.23(d)(1), the evaluation of a banks deposit products only
contributes positively to a bank's Retail Services and Products Test
conclusion.
The agencies have considered the comments, and after further
analysis, the agencies have decided against requiring a responsive
deposit product assessment for banks with assets of $10 billion or
less, but instead retain it as an option for such banks. The agencies
are sensitive to concerns that institutions with assets of $10 billion
or less may not have sufficient resources for the data collection
contemplated by this assessment. Additionally, the required data
collection for this evaluation could be burdensome.
The agencies decline commenter suggestions to make the
consideration of deposit accounts a type of performance context or
otherwise make it a type of evaluation in the Retail Services or
Products Test an optional requirement for all large banks. As discussed
above, because the agencies believe that deposit accounts responsive to
the needs of low- and moderate-income individuals play a vital role in
the access to credit products, it is appropriate to require the
consideration for banks with assets greater than $10 billion and
provide banks with assets of $10 billion or less an option to have
their responsive deposit accounts considered.
The agencies considered the comments on whether, in addition to
deposit accounts, there are other products or services that encourage
retail banking activities that may increase credit access. While the
agencies believe that most suggestions provided by commenters in
response to the question may actually increase access to credit, these
recommendations are generally captured in other parts of the rule. For
example, a bank may receive consideration for financial counseling as a
type of community development service under final Sec. Sec. __.13(1)
and __.25.
[[Page 6945]]
Section __.23(c)(3)(i) Availability of Deposit Products Responsive to
the Needs of Low- and Moderate-Income Individuals, Families, or
Households
The Agencies' Proposal
The agencies proposed to evaluate in Sec. __.23(c)(2)(i) whether a
bank offers deposit products that have features and cost
characteristics that, consistent with safe and sound operations,
include, but are not limited to: (1) low-cost features; \1068\ (2)
features facilitating broad functionality and accessibility; \1069\ and
(3) features facilitating inclusivity of access.\1070\ The agencies
proposed taking these three types of features into consideration when
evaluating whether a particular deposit product has met the
``responsiveness to low- and moderate-income needs'' standard.
---------------------------------------------------------------------------
\1068\ See proposed Sec. __.23(c)(2)(i)(A).
\1069\ See proposed Sec. __.23(c)(2)(i)(B).
\1070\ See proposed Sec. __.23(c)(2)(i)(C).
---------------------------------------------------------------------------
The agencies requested comment on whether the features of cost,
functionality, and inclusion of access are appropriate for establishing
whether a deposit product is responsive to the needs of low- and
moderate-income individuals or whether other features or characteristic
should be considered. The agencies also requested comment on whether a
minimum number of features should be met in order to be considered
``responsive.''
Comments Received
The agencies received several comments in response to their request
for feedback on whether there are other features or characteristics
that the agencies should consider. These commenters were generally
supportive of the proposed features to determine if a deposit product
is responsive. Most commenters generally agreed that considering the
features of cost, functionality, and accessibility to determine if a
deposit product is responsive to the needs of low- and moderate-income
individuals is appropriate. Some commenters made additional
recommendations. For example, one commenter agreed with the list of
features, but urged the agencies to clarify that a responsive product
needs to be both low-cost and accessible. Another commenter supported
the approach but recommended that the agencies include a fourth
feature--wealth enabling opportunities, such as financial wellness
coaching, wealth building advice, credit repair, money management
assistance, and bank career training opportunities. A few commenters
suggested that banks should be evaluated not only for offering, for
example, Bank On accounts, which preclude the assessment of overdraft
and insufficient funds fees, but for actually connecting consumers with
such accounts. Other commenters recommended expanding the features to
consider whether the deposit product: is inclusive of immigrant
communities or is part of the Veterans Benefits Banking Program;
provides noncustodial accounts for foster youth; ensures that people
with disabilities and older adults have equal access to the products;
if the deposit product is a checking account, is free, with no
overdraft fees, and with features such as bill pay and debit cards; or
is a second chance account that requires no ChexSystems approval and
has no, or low, fees.
A few commenters expressed concern about the proposed cost
features. Some of these commenters urged the agencies to ensure that
the evaluation of a bank's deposit products would not depend on a
comparison to peer banks, while a few other commenters warned the
agencies against regulating costs and fees, asserting that the statute
does not authorize the agencies to do so. Two commenters encouraged the
agencies to omit the evaluation of deposit products or at least clarify
that the enumerated factors will be reviewed holistically and will not
serve as a checklist. Similarly, another commenter noted that the
analysis of low-cost features could force banks to offer certain
products at particular prices and fees and urged the agencies to
implement safeguards to prevent the evaluation from causing such a
result.
Only a few commenters addressed whether a certain number of
features should be met. These commenters stated that setting a minimum
threshold for consideration of responsiveness was not necessary, with
one of these commenters explaining that product design offsets may be
required to ensure a product is viable in a marketplace and that, in
the course of an examination, a bank should be able to explain how the
product is responsive to the needs of its particular community.
However, one of the commenters urged the agencies to also compare a
bank's products to their peers' offerings. A few commenters expressed
concern that the proposed list of relevant features implies that any
one feature would make a product responsive, and therefore requested
that the agencies clarify that in order to be responsive to the needs
of underserved consumers, deposit products must be both low-cost and
accessible, and that low-cost refers both to front-end fees and back-
end fees.
Final Rule
The agencies are finalizing Sec. __.23(c)(2)(i), renumbered in the
final rule as Sec. __.23(c)(3)(i), as proposed, to evaluate whether a
bank offers deposit products that have features and characteristics
responsive to the needs of low- and moderated-income individuals,
families, or households, including low-cost features, features
facilitating broad functionality and accessibility, and features
facilitating inclusivity of access.
The agencies believe the proposed features are appropriate and
sufficient. For instance, consideration of deposit products with low-
cost features is consistent with current guidance, and cost issues
remain a prevalent reason cited by unbanked individuals as to why they
do not have a bank account.\1071\ As such, the agencies believe that
low-cost should remain a feature of responsive deposit product despite
concerns expressed by some commenters.
---------------------------------------------------------------------------
\1071\ See FDIC, ``2021 FDIC National Survey of Unbanked and
Underbanked Households'' (Oct. 2022), https://www.fdic.gov/analysis/household-survey/2021report.pdf.
---------------------------------------------------------------------------
Similarly, the agencies are retaining in the final rule features
facilitating broad functionality and accessibility and facilitating
inclusivity of access, which are also consistent with current
guidance.\1072\ The agencies believe that the ability to conduct
transactions and access funds in a timely manner is highly relevant for
lower-income individuals or unbanked and underserved individuals, who
otherwise might acquire financial services at a higher cost from
predatory sources, and that research indicates that prior bank account
problems remain barriers for consumers who are unbanked.\1073\
---------------------------------------------------------------------------
\1072\ See Q&A Sec. __.24(a)-1; Q&A Sec. __.24(d)(4)-1.
\1073\ See FDIC, ``How America Banks: Household Use of Banking
and Financial Services,'' 2019 FDIC Survey (Oct. 2020), https://www.fdic.gov/analysis/household-survey/2019report.pdf; Federal
Reserve Bank of Dallas, ``Closing the Digital Divide: A Framework
for Meeting CRA Obligations'' (July 2016), https://
www.dallasfed.org/~/media/documents/cd/pubs/digitaldivide.pdf.
---------------------------------------------------------------------------
While some of the recommended additional features suggested by
commenters may be helpful in establishing responsiveness, the agencies
believe that the features in the final rule are sufficient without
adding burden. The proposed standards for responsiveness, in addition
to being consistent with current guidance, also align with the national
account standards issued by the Cities for
[[Page 6946]]
Financial Empowerment Fund's Bank On program, which are regarded with
favorable CRA consideration today.\1074\ The Bank On national account
standards were informed by the FDIC's Model Safe Accounts Template, a
set of guidelines for offering cost-effective transactional and savings
accounts that are safe and affordable, and meet the needs of
underserved consumers.\1075\
---------------------------------------------------------------------------
\1074\ See Q&A Sec. __.24(a)-1; Cities for Financial
Empowerment Fund, ``Bank On National Account Standards (2023-
2024),'' https://bankon.wpenginepowered.com/wp-content/uploads/2022/08/Bank-On-National-Account-Standards-2023-2024.pdf.
\1075\ See FDIC, ``FDIC Model Safe Accounts Pilot'' (Apr. 5,
2012), https://www.fdic.gov/consumers/template/; FDIC, ``FDIC Model
Safe Accounts Template'' (Apr. 2012), https://www.fdic.gov/consumers/template/template.pdf.
---------------------------------------------------------------------------
The agencies note that, in response to the commenter that
recommended adding wealth-enabling opportunities as a fourth feature,
this section focuses on deposit products that are responsive to low-
and moderate-income individuals, families, or households. The agencies
believe that the features listed in the regulation, which are not
exclusive, do create opportunities to build wealth. In addition, a
number of the commenter suggested additions would be considered under
the Community Development Services Test. Lastly, the list in the
regulation is broad and not exhaustive; therefore, it allows examiners
the flexibility to consider some of the additional features recommended
by commenters that are not explicitly listed.
With respect to commenter suggestions that the agencies set a
minimum number of features for consideration of responsiveness, the
agencies do not believe it is necessary. In reaching this decision, the
agencies balanced concerns about being overly prescriptive in
establishing standards, while recognizing that categories, including
cost and broad functionality and accessibility, are important
considerations in determining responsiveness. However, the agencies are
noting that in order to be responsive to the needs of underserved
consumers, deposit products should have both low-cost and accessible
characteristics, and that low-cost features should refer both to front-
end fees and back-end fees.
Section __.23(c)(3)(ii) Usage of Deposit Products Responsive to the
Needs of Low- and Moderate-Income Individuals, Families, or Households
The Agencies' Proposal
The agencies also proposed in Sec. __.23(c)(2)(ii), to evaluate
usage of responsive deposit products in Sec. __.23(c)(2)(ii)(A)
through (C), by considering, for example: (1) the number of responsive
accounts opened and closed during each year of the evaluation period in
low-, moderate-, middle-, and upper-income census tracts, respectively;
\1076\ (2) the percentage of total responsive deposit accounts compared
to total deposit accounts for each year of the evaluation period;
\1077\ and (3) marketing, partnerships, and other activities that the
bank has undertaken to promote awareness and use of responsive deposit
accounts by low- and moderate-income individuals.\1078\ The agencies
also proposed considering outreach activity undertaken to promote
awareness and use of responsive deposit accounts by low- and moderate-
income individuals. In particular, the agencies proposed giving
qualitative consideration to marketing, partnerships, and other
activities to attract low- and moderate-income individuals.
---------------------------------------------------------------------------
\1076\ See proposed Sec. __.23(c)(2)(ii)(A).
\1077\ See proposed Sec. __.23(c)(2)(ii)(B).
\1078\ See proposed Sec. __.23(c)(2)(ii)(C).
---------------------------------------------------------------------------
The agencies requested feedback regarding whether the proposed
usage factors are appropriate for an evaluation of responsive deposit
products and whether the agencies should consider the total number of
active deposit products relative to all active consumer deposit
accounts offered by the bank, which was proposed in Sec.
__.23(c)(2)(ii)(B) as an example of a usage feature. The agencies also
requested feedback on whether the agencies should take other
information into consideration when evaluating the responsiveness of a
bank's deposit products under proposed Sec. __.23(c)(2)(ii), such as
the location where the responsive deposit products are made available.
Comments Received
Comments related to the appropriateness of usage factors. The
agencies received several comments expressing differing opinions in
response to whether the proposed usage factors are appropriate for an
evaluation of responsive deposit products and whether the agencies
should consider the total number of active deposit products relative to
all active consumer deposit accounts offered by the bank. Commenters
were overwhelmingly in support of the general usage factors even though
many also suggested additions to, and clarifications of, the factors.
Another commenter urged the agencies to create a market benchmark to
compare a bank's percentage of accounts in low- and moderate-income
census tracts to peer data and also suggested that openings and
closings are a useful indicator that should be paired with evaluation
of transaction activity, marketing, and partnerships. Another commenter
suggested the agencies should add analysis of higher-cost products and
fees, including overdraft, ATM, and maintenance fees by geography.
By contrast, some commenters believed the proposed usage factors
were not appropriate and requested that the agencies measure deposit
products qualitatively and only require an optional, if any, evaluation
of the usage factors. One of these commenters asserted that
quantitative factors such as usage are not appropriate for a
qualitative assessment of deposit products nor are they an accurate
measure to assess the responsiveness of deposit products. Other
commenters urged the agencies to provide optional evaluation of usage
rates and account openings by people in low- and moderate-income census
tracts as a means for banks to show that they are reaching low- and
moderate-income individuals given that these rates are an imperfect
proxy for actual rates of usage by low- and moderate-income
individuals. A few of these commenters also noted that it may be
extremely burdensome to try to accurately evaluate or monitor these
factors quantitatively. For instance, two commenters suggested that
usage of deposit products in low- and moderate-income areas cannot
accurately reflect the overall ``responsiveness'' and ``availability''
of a bank's deposit products to low- and moderate-income individuals,
with one of these commenters stating that there is no data that
suggests low- and moderate-income individuals live only, or primarily,
in low- and moderate-income census tracts, and the other commenter
noting there is data that suggests there are significantly more low-
and moderate-income individuals living in middle- and upper-income
tracts combined, than low- and moderate-income people living in low-
and moderate-income tracts combined.
Comments related to the consideration of total number of active
responsive deposit products relative to all active consumer deposit
accounts offered by the bank. There was similar disagreement with
respect to whether the agencies should consider the total number of
active responsive deposit products relative to all active consumer
deposit accounts offered by the bank as proposed in Sec.
__.23(c)(2)(ii)(B). A few commenters opposed this approach for several
reasons, including that the approach lacks accuracy, since low- and
[[Page 6947]]
moderate-income individuals do not necessarily have the resources to
open multiple accounts compared to middle- and upper-income
individuals, which: skews comparison; would be too complex and
challenging for most non-CDFI institutions; is not probative of whether
a bank is adequately serving low- and moderate-income individuals
because there may be valid reasons for closing accounts; and is more
qualitative than it is quantitative. Another commenter expressed
concern about whether the total number of active responsive deposit
products relative to all active consumer deposit accounts offered by
the bank would be an indicator of responsiveness because, if a bank
offers an account opening reward, there could be a surge in account
openings and a drop after the reward is no longer offered. Instead,
this commenter recommended that the agencies consider deposit account
closures in the same manner as deposit account openings are evaluated
in terms of responsiveness. Conversely, two other commenters generally
supported the proposal and agreed that the ratio of active responsive
deposit products relative to all active deposit accounts would be an
appropriate metric for evaluation, with one of these commenters also
noting that this metric must also be compared to the performance of
peers. Another group supported considering the number of responsive
accounts opened and closed during each year of the evaluation period in
low-, moderate-, middle- and upper-income census tracts.
Comments related to the review of marketing, partnerships, and
other activities to promote awareness and use of responsive deposit
accounts. Various commenters supported the review of marketing
materials. One commenter agreed with assessing whether products are
marketed to and used by low- and moderate-income individuals and
communities. Another commenter recommended that examiners engage
community stakeholders in this assessment to better assess the extent
and rigor of the bank's activities.
Comments related to whether other information, such as location,
should be taken into consideration in the evaluation of responsive
deposit accounts. A variety of commenters discussed whether other
information, such as location, should be taken into consideration when
evaluating the responsiveness of a bank's deposit products under
proposed Sec. __.23(c)(2)(ii). A few commenters were supportive of
including a review of the location where the responsive deposit product
is made available. For instance, a commenter noted that location of a
product's availability is reflective of its responsiveness, but
cautioned that a product offered in-branch in a low-income census tract
is unlikely to be responsive if the product is not marketed or staff
are not trained in its design and purpose. Another commenter encouraged
the agencies to also consider how a customer's inability to access a
location, and perceived safety near a location, influences how and when
they make deposits. Another commenter recommended that the agencies
assess whether responsive deposit products are offered in branches and
at remote service facilities in low- and moderate-income census tracts.
Two other commenters suggested the agencies look to the Federal Reserve
Bank of St. Louis' Bank On National Data Hub for workable metrics for
account engagement and whether a deposit product is responsive to the
needs of low- and moderate-income communities.
However, a commenter cautioned the agencies against using geography
as a primary factor in determining whether a bank's deposit products
and delivery channels are serving low- and moderate-income individuals,
because some low- and moderate-income individuals reside outside low-
and moderate-income areas and there is a lower concentration of low-
and moderate-income individuals in census tracts outside metropolitan
areas. Instead, this commenter urged the agencies to focus the
evaluation on qualitative factors, such as a bank's strategies and
initiatives for reaching low- and moderate-income individuals as well
as an assessment of whether the bank's deposit offerings are responsive
to their needs, and consider performance context when evaluating
products and services. A commenter expressed the view that the agencies
should always consider additional information, but cautioned against
stipulating a requirement because it could have the unintended
consequence of limiting innovation. This commenter further noted that
full impact of a responsive product should be subject to examiner
judgement based on location and other limiting factors in order to
encourage credit for particularly impactful products without adding to
reporting burden. Other commenters provided recommendations on useful
information to review including affordability of deposit accounts for
low- and moderate-income communities by comparing and refining, if
necessary, fee information collected in Call Report data.
Final Rule
The agencies are finalizing proposed Sec. __.23(c)(2)(ii),
renumbered in the final rule as Sec. __.23(c)(3)(ii), by retaining the
usage factors in renumbered Sec. __.23(c)(3)(ii)(A) through (C). The
usage factors include the consideration of the percentage of responsive
deposit accounts compared to total deposit accounts for each year in
final Sec. __.23(c)(3)(ii)(B). The agencies are adopting new Sec.
__.23(c)(3)(ii)(D) in the final rule. This provision is intended to
offer banks the flexibility to provide any other information not
captured by paragraphs (c)(3)(ii)(A) through (C) of final Sec. __.23
that demonstrates usage of deposit products responsive to the needs of
low- and moderate-income individuals, families, or households. The
agencies are also making clarifying edits.
Regarding the usage factors and in response to commenters' concerns
about burden, the agencies will require examiners to rely on data
provided by banks and will not include depositor income levels. The
agencies agree with commenters who assert that the usage factors are
appropriate.
For instance, the information about deposit account openings and
closings could be an approximate indicator of the extent to which the
needs in low- and moderate-income areas are being met. The comparison
of responsive deposit accounts to total deposit accounts is intended to
give a sense of the magnitude of the commitment to broadening the
customer base to include low- and moderate-income individuals,
families, or households. Also, bank outreach and marketing may
contribute to the successful take-up of deposit products targeted to
low- and moderate-income individuals, families, or households. These
factors are important criteria to help facilitate evaluating whether a
bank's deposit products are responsive to the needs of low- and
moderate-income individuals, families, or households.
Although the agencies considered the commenters' recommendations,
such as the creation of a market benchmark, comparison of performance
to peers, and concerns that the usage features of account opening by
people in low- and moderate-income geographies is not a perfect measure
of actual usage by low- and moderate-income individuals, the agencies
believe that the approach taken in the final rule balances the needs
for flexibility against the increased burden that may result from
enhanced data collection and monitoring of low- and moderate-income
individual's, family's, or household's usage of the accounts.
[[Page 6948]]
The agencies also decided not to adopt commenter suggestions to
only measure deposit products qualitatively. Quantitative data such as
information on account openings could be used to measure the
penetration or usage of the responsive product in low- and moderate-
income areas. Lastly, the agencies believe that focusing on the income
level of census tracts (even with its limitations), rather than
depositor income, reflects stakeholder feedback that banks do not
collect depositor income levels for deposit accounts.
As noted above, the agencies are also adopting new Sec.
__.23(c)(3)(ii)(D) as a catchall provision that offers banks the
flexibility to provide any additional information that ``demonstrates
usage of the bank's deposit products that have features and cost
characteristics responsive to the needs of low- and moderate-income
individuals, families, or households and low- and moderate-income
census tracts.'' The agencies carefully considered the contrasting
comments that responded to the agencies' request for feedback on the
consideration of other information and were persuaded by commenter
statements regarding the value of reviewing all information, including
location, to determine whether a bank's deposit products are serving
low- and moderate-income individuals, families, or households.
The agencies are sensitive to concerns regarding the use of
geography as a primary factor in determining whether a bank's deposit
products serve low- and moderate-income individuals, families, or
households and agree that many low- and moderate-income individuals
reside outside of low- and moderate-income areas and there is less
concentration of low- and moderate-income individuals, families, or
households by census tracts outside metropolitan areas. However, on
balance, the agencies believe that using geography as a proxy is the
best measure of responsiveness of a bank's products in reaching and
serving low- and moderate-income individuals, families, or households
given available data and the need to minimize burden.
The agencies recognize that some of the additional recommended
information suggested by commenters could be helpful in determining
responsiveness, and believe that the approach taken in the final
regulation provides flexibility for agency consideration without adding
burden. The agencies will continue the practice of reviewing public
file information for the locations of available services and products.
The information needed to make a determination is in the public file,
and examiners can use bank management interviews to confirm findings
and inquire as to any discrepancy in offerings or terms, without adding
burden. Additionally, the review of responsive deposit products will
consider performance context.
Section __.23(d) Retail Services and Products Test Performance
Conclusions and Ratings
Section __.23(d)(1) Conclusions
Current Approach
Currently, Sec. __.24(d) of the CRA regulation requires the
agencies to evaluate the availability and effectiveness of a bank's
systems for delivering retail banking services and the extent and
innovativeness of its community development services.\1079\ The
conclusions assigned by the agencies are informed by a qualitative
evaluation, are determined at the assessment area level, and are
descriptive of the bank's performance relating to: (1) accessibility of
delivery systems, (2) its record of opening and closing branches, (3)
business hours and services, and (4) its community development
services. Based on a bank's performance in these four areas, examiners
reach an overall assessment area conclusion for the service test.
---------------------------------------------------------------------------
\1079\ See current 12 CFR __.24(d)(1) through (4).
---------------------------------------------------------------------------
The Agencies' Proposal
In proposed Sec. __.23(d)(1), the agencies proposed to assign
conclusions for a bank's Retail Services and Products Test performance
in each facility-based assessment area, State, multistate MSA, and at
the institution level in accordance with proposed Sec. __.28 and
proposed appendix C of the CRA regulations. The agencies proposed, in
appendix C, that a bank's conclusions for its performance in the bank's
facility-based assessment areas would form the basis for conclusions at
the State, multistate MSA, and institution levels. As applicable, a
bank's performance conclusion at the institution level would have also
been informed by the bank's performance regarding digital and other
delivery systems under proposed Sec. __.23(b)(3) and credit products
and programs and deposit products under proposed Sec. __.23(c).\1080\
---------------------------------------------------------------------------
\1080\ See proposed appendix C, paragraph c.
---------------------------------------------------------------------------
Facility-based Assessment Area Retail Services and Products Test
Conclusion. The agencies proposed, in paragraph c.1.i of proposed
appendix C, to reach a single conclusion for a bank's performance under
the Retail Services and Products Test in each of the bank's facility-
based assessment areas based on two of the delivery systems components:
(1) branch availability and services, and (2) remote service facility
availability. The agencies would evaluate these two components
qualitatively using community and market benchmarks (as described above
in the section-by-section analysis of Sec. __.23(b)(1) and (2)) to
inform the conclusions along with performance context for each
facility-based assessment area. Based on an assessment of the
evaluation criteria associated with branch availability, branch-based
services, and remote service facility availability, the bank would be
assigned a conclusion corresponding with the conclusion category
nearest to the performance score as follows: ``Outstanding'' (10
points); ``High Satisfactory'' (7 points); ``Low Satisfactory'' (6
points); ``Needs to Improve'' (3 points); or ``Substantial
Noncompliance'' (0 points).\1081\
---------------------------------------------------------------------------
\1081\ See proposed appendix C, paragraph c.1.ii.
---------------------------------------------------------------------------
State and Multistate MSA Retail Services and Products Test
Conclusions. The agencies proposed, in paragraph c.2 of appendix C, to
develop State and multistate MSA level conclusions for the Retail
Services and Products Test based exclusively on the bank's performance
in its facility-based assessment areas. The agencies would then
calculate the simple weighted average of a bank's conclusions across
its facility-based assessment areas in each relevant State and
multistate MSA. The point value assigned to each assessment area
conclusion would be weighted by its average share of loans and share of
deposits of the bank within the assessment area, out of all the bank's
dollars of retail loans and dollars of deposits in facility-based
assessment areas in the State or multistate MSA area, as applicable, to
derive a State-level score.\1082\ Similar to the proposed weighting
approach for assigning Retail Lending Test conclusions, pursuant to
proposed Sec. __.42(a)(7), deposits would be based on collected and
maintained deposits data for banks that collect deposits data, and on
the FDIC's Summary of Deposits for banks that do not collect deposits
data.\1083\ The State level score would then be rounded to the nearest
conclusion category point value to determine the Retail Services and
Products Test conclusion for the State or multistate MSA.\1084\
---------------------------------------------------------------------------
\1082\ See proposed appendix C, paragraph c.2.
\1083\ See id.; see also proposed appendix A, section VII.1.
\1084\ See proposed appendix C, paragraph c.2.
---------------------------------------------------------------------------
Institution Retail Services and Products Test Conclusion. The
agencies proposed to assign a Retail Services and
[[Page 6949]]
Products Test conclusion for the institution based on the combined
assessment of both parts of the test: delivery systems and credit and
deposit products.\1085\
---------------------------------------------------------------------------
\1085\ See proposed appendix C, paragraph c.3.i.
---------------------------------------------------------------------------
Delivery systems evaluation. The agencies proposed in paragraphs
c.3.i.A.1 and 2 of proposed appendix C that a bank's delivery systems
evaluation would be based on the three proposed parts of the delivery
systems evaluation, as applicable: (1) branch availability and
services; (2) remote service facility availability; and (3) digital and
other delivery systems. The first two parts of the evaluation would
apply for all large banks at the facility-based assessment area and
aggregated to form a branch and remote service facilities subcomponent
conclusion at the institution level. For large banks with assets of
over $10 billion and large banks with assets of $10 billion or less
that elect to have digital and other delivery systems considered, the
agencies proposed evaluating digital and other delivery systems at the
institution level. For large banks with assets of $10 billion or less
that do not elect to have their digital and other delivery systems
considered, the institution-level delivery systems evaluation would be
based exclusively on the bank's branch availability and services and
remote service facility availability.
The agencies proposed that examiners would derive the institution
delivery systems evaluation by considering the bank's performance for
each of the three parts of the delivery system evaluation and allowing
for examiner discretion to determine the appropriate weight that should
be given to each part. The agencies also indicated that examiners would
take into account a bank's business model and strategies when
determining the appropriate weighting.
Credit products and programs and deposit products evaluation. The
agencies proposed in paragraph c.3.i.B of proposed appendix C, that a
bank's credit and deposit products evaluation would be based on the
performance for the applicable parts of the credit and deposit products
evaluation, which are: (1) the responsiveness of credit products and
programs to the needs of low- and moderate-income individuals, small
businesses, and small farms; and (2) deposit products responsive to the
needs of low- and moderate-income individuals. The agencies proposed to
apply the first part of the evaluation to all large banks at the
institution level. The agencies also proposed evaluating the bank's
deposit products at the institution level for large banks with assets
of over $10 billion and for large banks with assets of $10 billion or
less electing to have their responsive deposit products considered. For
large banks with assets of $10 billion or less that do not elect to
have their responsive deposit products considered, the institution-
level credit products and programs and deposit products evaluation
would be based exclusively on the responsiveness of a bank's credit
products and programs to the needs of low- and moderate-income
individuals, small businesses, and small farms.
As with the delivery systems evaluation, the agencies proposed that
examiners, considering performance context, would reach a determination
at the institution level for the credit and deposit products evaluation
of: ``Outstanding'' (10 points); ``High Satisfactory'' (7 points);
``Low Satisfactory'' (6 points); ``Needs to Improve'' (3 points); or
``Substantial Noncompliance'' (0 points).\1086\
---------------------------------------------------------------------------
\1086\ See proposed appendix C, paragraph c.3.ii.
---------------------------------------------------------------------------
Retail Services and Products Test conclusion for the institution.
The agencies proposed to assign a Retail Services and Products Test
conclusion based on a combined assessment of the bank's delivery
systems evaluation and the credit and deposit products evaluation, as
applicable. The agencies proposed that examiner judgment would be
relied upon to determine the appropriate weighting between these two
parts of the Retail Services and Products Test for purposes of
assigning the institution conclusion, in recognition of the importance
of local community credit needs and bank business model and strategy in
determining the amount of emphasis to give delivery systems and credit
and deposit products, respectively. Based on this consideration, the
agencies would assign an institution-level conclusion on the Retail
Services and Products Test. This conclusion would be translated into a
performance score using the following mapping: ``Outstanding'' (10
points); ``High Satisfactory'' (7 points); ``Low Satisfactory'' (6
points); ``Needs to Improve'' (3 points); or ``Substantial
Noncompliance'' (0 points).
The agencies requested feedback on a series of questions regarding
the proposed approach. With respect to the evaluation of delivery
systems, the agencies asked whether branches and remote services
facilities should be evaluated at the assessment area level and digital
and other delivery systems at the institution level, as proposed. The
agencies also asked whether the proposed weighting of the digital and
other delivery systems component relative to the physical delivery
systems according to bank business model, as demonstrated by the share
of consumer accounts opened digitally, was appropriate; whether
weighting should be based on performance context; or whether a
different approach was appropriate. With respect to the evaluation of
credit and deposit products, the agencies requested feedback on whether
the two subcomponents (credit and deposit products) should receive
equal weight, or should be based on examiner judgement and performance
context. The agencies also asked whether each subcomponent should
receive its own conclusion that would be combined with the delivery
systems evaluation for an overall institution conclusion, or whether
favorable performance in the credit and deposit products evaluation
should be used solely to upgrade the delivery systems conclusion. The
agencies further asked how test conclusions should be determined for
banks with assets of $10 billion or less that opt to be evaluated on
their digital delivery systems and deposit products. Finally, the
agencies requested feedback on whether each part of the Retail Services
and Products Test should receive equal weighting.
Comments Received
Delivery systems evaluation. There was no consensus among the
commenters responding to the agencies' request for feedback regarding
the appropriateness of the proposed approach to evaluate the bank's
delivery systems (branches and remote service facilities) at the
assessment area level, and their digital and other delivery systems at
the institution level. A few commenters supported evaluating each
subcomponent as proposed by the agencies. One of these commenters noted
that this approach would be appropriate, particularly given that
digital delivery systems are consistent across the institution and that
the institution-level assessment provides the best allocation of a
limited regulatory burden budget given the cost of developing,
promoting, and maintaining high quality systems. Some commenters
supported evaluating both subcomponents at the same level, and at both
the assessment area and institution levels, with another commenter
stating local responsiveness to needs is best evaluated at the
assessment area level.
With respect to the agencies' proposal to weight the digital and
other delivery systems component relative to the physical delivery
systems and according to the bank's business model (as
[[Page 6950]]
demonstrated by the share of consumer accounts opened digitally),
commenters were also divided. One commenter was supportive of the
agencies' approach and found the proposal appropriate, while commenters
preferred that weighting be determined based on performance context,
stating that it is key to understanding the position of a bank. A few
other commenters asserted that the weighting should be determined based
on both business model and performance context, while another commenter
recommended that weighting should be appropriate to the bank's business
model. Two commenters were of the view that, because low- and moderate-
income customers rely more heavily on branches, the physical delivery
component should weigh more (e.g., a bank that gathers 50 percent or
more of its deposits from branches should have a weight for their
physical delivery systems and their digital delivery systems of two-
thirds and one-third, respectively). One commenter recommended that the
agencies offer flexible weighting based on a bank's business model for
the three types of delivery systems (branches, remote service
facilities, and digital and other). Several other commenters
recommended that banks with few or no physical branches or remote
service facilities should be evaluated on their primary delivery
channels, e.g., their digital delivery systems. Another commenter
stated that the share of consumer accounts opened digitally should be
the metric and that it is not clear why physical delivery systems are
relevant and how much a bank's business model should be factored into
the evaluation unless the bank offers no digital banking services.
Credit and deposit products evaluation. In response to how the
agencies should weight the two subcomponents of the credit and deposit
products evaluation, commenters provided a variety of recommendations.
Two commenters recommended that the two subcomponents generally receive
equal weighting, with one commenter recommending that if a bank is
mostly a lender, credit products should be weighted more heavily, and
conversely, if the bank mostly offers deposit services, deposit
products should be weighted more heavily. This commenter also
recommended that examiners should not determine weights since it would
be too subjective, and that the agencies should develop a table of
weights based on business models. Another commenter similarly
recommended that examiners should not determine the weights, but
recommended that credit products receive greater weight, expressing the
view that providing credit has a more significant beneficial impact on
the community. Two commenters expressed a different view, stating that
examiner judgment and performance context should be used to determine
the relative weight of the two subcomponents, with one of these
commenters stating that doing so would impart flexibility with regard
to a bank's business model, assessment area characteristics, and
product demand. Two other commenters believed weighting should be
determined based on the business model and performance context, and
another commenter asserted that weighting should also depend on the
importance of each product to the communities in the assessment area.
A few commenters addressed the agencies' request for feedback
concerning how the credit and deposit products evaluation should be
considered when developing a bank's overall Retail Services and
Products Test conclusion. Most of these commenters recommended that the
evaluation should have its own conclusion rather than use the
evaluation to upgrade the delivery systems conclusion, with one
commenter stating that the credit and deposit products evaluation
should be considered a qualitative factor in the Retail Lending Test.
Weighting the components to derive the institution conclusion. A
small number of commenters responded to the agencies' request for
comment on whether each part of the Retail Services and Products Test
should receive equal weighting to derive the institution's conclusion
or vary the weight based on business model and performance context. A
few commenters supported weighting each part of the test based on
business model and performance context, with one of these commenters
stating it would encourage responsiveness and innovation. Another one
of these commenters also stated that weighting should be treated much
like the current innovative and flexible lending test to supplement the
rating. Another commenter supported an overall institution conclusion
with the appropriate weighting of each composite evaluation and
recommended that the agencies weight delivery systems conclusions less
than the other systems conclusions if they are deemed less critical.
Two other commenters generally supported equal weight for each part of
the test, with one of these commenters also recommending consideration
of business model but not relying on examiner judgment to establish the
weight. Some commenters expressed concern that digital banks may not
have data or products to be evaluated under this test and, given the
great deal of examiner judgment provided under the proposal, that it is
unknown whether examiners would disregard those tests, adding
significant uncertainty for the assessed institution. Other commenter
recommendations included the following: the delivery systems portion of
the test should be given more weight, and if the agencies provide
additional guidance on the impact and responsiveness of an activity,
then each part of the test should be weighted according to the specific
guidance; a clearly-defined grading system should be created that
emphasizes lending, branches, fair lending performance, and responsible
loan products for working class families; and banks should not be
permitted to pass if they fail to serve communities with branches and
affordable and accessible products, and provide banking and deposit
products equitably, as can happen with strict numerical weighting
systems.
Final Rule
The agencies are adopting Sec. __.23(d)(1) largely as proposed,
assigning conclusions for a bank's Retail Services and Products Test in
each facility-based assessment area, State, multistate MSA, and at the
institution level in accordance with final Sec. __.28 and final
appendix C of the CRA regulations. As explained in more detail below,
the agencies are also revising proposed appendix C to provide that the
agencies will consider the bank's performance regarding its retail
banking products, as applicable, to determine whether the bank's
performance contributes positively to the bank's overall Retail
Services and Products Test conclusion. The agencies are also clarifying
in appendix C that consideration of a bank's retail banking products
evaluated at the institution level may include retail banking products
offered in facility-based assessment areas and nationwide. As a result
of the revisions made in the final rule to the proposed conclusions for
retail banking products, the agencies are also revising proposed
appendix C with respect to a bank's overall institution Retail Services
and Products Test conclusion. Specifically, paragraph c.2.iv.B.3 of
final appendix C clarifies that ``[t]he bank's lack of responsive
retail products does not adversely affect the bank's Retail Services
and Products Test performance conclusion.'' Final
[[Page 6951]]
Sec. __.23(d)(1) is also revised to add that ``[i]n assigning
conclusions under this performance test, the [Agency] may consider
performance context information as provided in Sec. __.21(d). The
evaluation of a bank's retail banking products under paragraph (c) of
this section may only contribute positively to the bank's Retail
Services and Products Test conclusion.''
Delivery systems conclusion. Conclusions in the final rule with
respect to the delivery systems, component of the test are based on the
conclusions for each of the three parts of the delivery systems
evaluation: branch availability and services, remote service facility
availability, and digital and other delivery systems. Consistent with
the proposal, the final rule evaluates branches and remote service
facilities for all large banks at the facility-based assessment area
level and then aggregates those conclusions to form a branch
availability and services and remote service facility availability
subcomponent conclusion at the institution level, as provided in
paragraph c.1 of final appendix C.
The final rule evaluates digital and other delivery systems for
large banks with assets of over $10 billion, large banks with assets of
$10 billion or less that have no branches, and large banks with assets
of $10 billion or less that elect to have digital and other delivery
systems considered. The agencies will develop an institution-level
conclusion for these banks' digital and other delivery systems
subcomponent. The agencies believe it is appropriate to evaluate
digital and other delivery systems at the institution level because the
features of this subcomponent are generally not place-based and may
extend beyond facility-based assessment areas. Digital and other
delivery systems are also generally consistent across the institution.
In the final rule, the institution-level delivery systems
conclusion for large banks with assets of $10 billion or less that have
branches and do not elect to have their digital and other delivery
systems considered will be based exclusively on the evaluation of such
bank's branch availability and services and remote service facility
availability.
The final rule also contemplates that examiner judgment will be
relied upon to determine the appropriate weight that should be given to
each subcomponent of delivery systems at the institution level based on
the bank's business model and performance context. As noted in the
proposal, this approach for developing delivery systems conclusions is
intended to provide the agencies with the flexibility to take into
account the unique business models and strategies of different banks.
For example, if a majority of the bank's new deposit accounts are
opened via digital channels during the evaluation period, then the
agencies may give more weight to the digital and other delivery systems
conclusion.
The agencies considered and appreciate commenters' suggestions
regarding how weighting of the subcomponents of delivery systems should
be determined. The agencies note that the final rule will not require
weighting as demonstrated by the share of consumer accounts opened
digitally. As noted above, the final rule adds consideration of
performance context, which is important to understanding the bank's
business model and strategy. The agencies believe that dictating the
specific measures in the regulation for how to derive conclusions for
delivery systems could also be limiting. On balance, the agencies
believe that the approach in the final rule will provide flexibility to
banks and examiners to consider other factors, while minimizing burden.
Retail banking products conclusion. In response to comments, and to
conform to changes made in the test, the agencies will evaluate the
bank's performance regarding its retail banking products and determine
whether the bank's performance contributes positively to the bank's
Retail Services and Products Test. Under the final rule, examiner
judgment and performance context will be considered in determining the
responsiveness of a bank's retail banking products.
The lack of responsive retail banking products will not adversely
affect the evaluation of the bank's Retail Services and Products Test
performance. If the bank presents and has the data to support that its
credit products and programs are responsive to the needs of low- and
moderate-income individuals, families, or households, residents of low-
and moderate-income census tracts, small businesses and small farms,
and are offered and used, such data will be presented in the CRA
performance evaluation. However, if a bank does not offer or originate,
or does not provide for consideration, any credit products and programs
responsive to the credit needs of low- and moderate-income individuals,
families, or households, residents of low- and moderate-income census
tracts, small businesses, or small farms, the CRA performance
evaluation will state as such.
If the bank presents and has the data to support that its deposit
products are responsive to the needs of low- and moderate-income
individuals, families, or households, and are offered and used, the
agencies will evaluate such data for positive consideration under this
test. If the agencies provide positive consideration of deposit
products, such consideration will be presented in the CRA performance
evaluation. If the bank does not offer any deposit products responsive
to the needs of low- or moderate-income individuals, families, or
households, such information will not be reflected in the CRA
performance evaluation.
The agencies believe that permitting agency discretion and
performance context to be used to determine the impact of any positive
consideration of retail banking products is appropriate because it
would impart flexibility to consider a bank's business model and
strategy. The agencies determined that evaluating the retail banking
products solely for positive consideration rather than weighting was
appropriate given the nature of the review. The agencies also
acknowledge concerns about examiner subjectivity, but on balance, the
agencies believe that the approach in the final rule will allow banks
more flexibility and will take into consideration bank sizes, business
models, and the retail banking product needs of the local communities
served by the bank. The agencies also disagree with comments that
recommended that credit or deposit products should receive greater
weight in the final rule. The agencies believe that both credit
products and programs and deposit products have a beneficial impact on
the community and that the agencies should not be constrained in
evaluating banks with varying business models.
In response to commenters that suggested including retail banking
products as a qualitative factor in the Retail Lending Test, the
agencies disagree and believe that the Retail Lending Test should
maintain its primarily quantitative approach to evaluating retail
lending. The agencies believe further that the Retail Services and
Products Test is the appropriate place to evaluate these products and
programs qualitatively. The quantitative approach to the Retail Lending
Test is discussed more in-depth in that section of the preamble.
Retail Services and Products Test Conclusion. For the reasons
stated above, the agencies are not finalizing an institution-level
conclusion based on conclusions derived for delivery systems and credit
and deposit products as proposed. Instead, the delivery systems
evaluation will receive a conclusion, and the agencies will determine
whether the retail banking products evaluation contributes
[[Page 6952]]
positively to the bank's Retail Services and Products Test conclusion.
The agencies will consider a bank's retail banking products offered in
facility-based assessment areas and nationwide in determining whether
the evaluation of retail banking products contributes positively to the
bank's Retail Services and Products Test. The agencies believe that
this consideration supports the agencies' objectives to adapt to
changes in the banking industry as banks offer products and programs
beyond their branch locations.
The final rule also provides for agency discretion, considering a
bank's business model and other performance context factors, to
determine the appropriate weight to give each subcomponent of the
retail banking services evaluation and to assess the responsiveness of
a bank's retail banking products. The agencies agree with commenters
who supported weighting each part of the test based on business model
and performance context because the flexibility could encourage
responsiveness and innovation. The agencies disagree, however, with the
recommendations to establish definitive weighting for each part of the
test or a strict numerical grading system. While the agencies are
sensitive to concerns that relying on agency discretion, bank business
model, and performance context may run counter to the stated objective
of more certainty, the agencies believe that this approach is
appropriate because it allows for flexibility without increased burden
on banks.
Section __.23(d)(2) Ratings
Current Approach and the Agencies' Proposal
Current Sec. __.24(f) of the CRA regulations provides that the
agencies rate each large bank's service test performance pursuant to
current appendix A. Under current appendix A, each bank's performance
is assigned of the following five ratings: ``Outstanding,'' ``High
Satisfactory,'' ``Low Satisfactory,'' ``Needs to Improve,'' or
``Substantial Noncompliance.'' As noted above, retail services are part
of the overall service test rating along with community development
services. Therefore, retail services do not get their own rating in the
current regulations. Instead, the ratings for retail services are
determined pursuant to paragraphs (b)(3)(i) through (v) of current
appendix A. The ratings are determined at the State, multistate MSA,
and institution levels.
The agencies proposed to incorporate a bank's Retail Services and
Products Test conclusions into its State, multistate MSA, and its
institution ratings as provided in Sec. __.28 and appendices C and D.
Final Rule
The agencies received no comments related to the specific language
in Sec. __.23(d)(2) about the agencies' proposal to assign ratings and
are finalizing Sec. __.23(d)(2) as proposed, with technical edits not
intended to have a change in meaning. The final rule incorporates the
changes in conclusions noted above into the ratings for the Retail
Services and Products Test pursuant to final Sec. __.28 and final
appendices C and D. The agencies are clarifying that business model and
performance context are considered when assigning conclusions as well
as the ratings for the bank's performance under the Retail Services and
Products Test. Also, included specifically for the evaluation of a
bank's retail banking products, the agencies will determine whether the
bank's performance contributes positively to the bank's Retail Services
and Products Test conclusion and rating.
Section __.24 Community Development Financing Test
Section __.24 In General
Current Approach
Under current CRA regulations and interagency examination
procedures, the agencies assess community development loans and
community development investments (community development financing
activities) differently based on the asset size and business model of a
bank.\1087\ For small banks, the agencies consider community
development investments only at a bank's option for consideration of an
``Outstanding'' rating for the institution overall.\1088\ The agencies
may consider a small bank's community development loans as part of
lending-related activities under the lending test applicable to small
banks as discussed in the section-by-section analysis of Sec. __.29.
For intermediate small banks and wholesale and limited purpose banks,
the agencies consider community development loans, community
development investments, and community development services together
under the applicable community development test.\1089\
---------------------------------------------------------------------------
\1087\ The current performance tests and standards are included
in subpart B of the current rule.
\1088\ See current appendix A (Ratings); Q&A Sec. __.26(d)-1.
\1089\ See current 12 CFR __.25(c) and __.26(c).
---------------------------------------------------------------------------
For large banks, the agencies consider community development loans
together with retail loans as part of the lending test, while the
agencies consider community development investments separately in the
investment test.\1090\ A large bank receives consideration for both the
number and dollar amount of community development loans originated and
community development investments made during the evaluation period, as
well as the remaining book value of community development investments
the bank made during prior evaluation periods that remain on the bank's
balance sheet. Under the current evaluation framework, banks do not
receive consideration for community development loans that remain on a
bank's balance sheet from prior evaluation periods.
---------------------------------------------------------------------------
\1090\ See current 12 CFR __.22 and __.23.
---------------------------------------------------------------------------
For banks that are not small banks, the current rule also includes
consideration of qualitative factors, including the innovativeness and
complexity of community development financing activities, the
responsiveness of the bank to credit needs in its assessment areas, and
the degree of leadership the bank exhibits through its activities. The
agencies assign conclusions at the assessment area level based on both
the number and dollar amount of community development financing
activities, as well as the qualitative factors.
The current approach emphasizes community development financing
activities that serve one or more of a bank's assessment areas but also
allows for flexibility in the geographic scope and focus of activities,
subject to certain conditions. A community development financing
activity that specifically serves an assessment area receives
consideration, as does a community development financing activity that
serves a broader statewide or regional area containing one or more of a
bank's assessment areas.\1091\ For a bank with a nationwide footprint,
this could include community development loans and investments that are
nationwide in scope.\1092\ In addition, if a bank has met the community
development needs of its assessment areas, it may also receive
consideration for community development financing activities within a
broader statewide or regional area that includes an assessment area
that do not benefit its assessment area.\1093\
---------------------------------------------------------------------------
\1091\ See current 12 CFR __.12(h)(2)(ii); see also Q&A Sec.
__.12(h)--6.
\1092\ Q&A Sec. __.23(a)-2.
\1093\ Q&A Sec. __.12(h)-6.
---------------------------------------------------------------------------
The Agencies' Proposal
In Sec. __.24 of the NPR, the agencies proposed a new Community
[[Page 6953]]
Development Financing Test applicable to large banks and any
intermediate bank that opted to be evaluated under this test.\1094\ The
proposed Community Development Financing Test consisted of community
development financing metrics, applicable benchmarks, and an impact
review. The agencies proposed using these components to evaluate banks'
community development loans and investments in facility-based
assessment areas, States and multistate MSAs where banks have facility-
based assessment areas, and in the nationwide area. These metrics, as
compared to benchmarks and the impact reviews, would inform conclusions
at those levels.
---------------------------------------------------------------------------
\1094\ The agencies also proposed evaluating wholesale and
limited purpose banks under the Community Development Financing Test
for Wholesale and Limited Purpose Banks, as discussed in proposed
Sec. __.26.
---------------------------------------------------------------------------
The agencies proposed using the bank community development
financing metrics to measure the dollar value of a bank's community
development loans \1095\ and community development investments \1096\
together, relative to the bank's capacity, as reflected by the dollar
value of deposits. The proposed benchmarks would reflect local context,
including the amount of community development financing activities in
the applicable area by other banks, as well as national context that
would provide additional information for the evaluation of facility-
based assessment areas. The agencies would use the benchmarks in
conjunction with the metrics to assess a bank's performance. The
proposed metrics and benchmarks would provide additional consistency
and clarity in evaluating a bank's community development financing
activities under the otherwise qualitative evaluation under the
proposed Community Development Financing Test.
---------------------------------------------------------------------------
\1095\ See proposed Sec. __.12.
\1096\ Id.
---------------------------------------------------------------------------
The impact review, in proposed Sec. __.15, would evaluate the
impact and responsiveness of a bank's community development loans and
investments through the application of a series of specific qualitative
factors described in more detail in the section-by-section analysis of
Sec. __.15. The impact review would provide appropriate recognition
under the Community Development Financing Test of community development
loans and investments that are considered to be particularly impactful
and responsive to community needs, including loans and investments that
may be relatively small in dollar amount.
Comments Received
The agencies received many comments on the proposed Community
Development Financing Test in Sec. __.24 from a variety of commenters.
Although some commenters supported parts of the proposed Community
Development Financing Test, other commenters objected to certain
aspects of the proposed performance test, including some commenters
that opined that the proposed performance test was too complicated,
would weaken the CRA rule, or would water down community development
investments. Some of these commenters offered alternative options for
the agencies to consider. The proposed rule, comments received, and
final rule are described in more detail below.
Final Rule
The agencies considered the comments on proposed Sec. __.24 and
are finalizing the Community Development Financing Test with the
substantive, conforming, clarifying, and technical revisions discussed
below.\1097\ As with the proposal, the final Community Development
Financing Test applies to large banks, and to intermediate banks that
opt into the test. Consistent with the current rule and the proposal,
the Community Development Financing Test is a qualitative evaluation;
however, the final rule builds on the current rule by introducing
standardized metrics and benchmarks that examiners will use to inform
their evaluation of bank's capacity to engage in community development
financing activity. The metrics and benchmarks included in the final
Community Development Financing Test increase consistency by providing
examiners with standardized information to evaluate bank community
development financing performance. Nonetheless, the final Community
Development Financing Test is a qualitative evaluation of banks'
community development loans and investments in facility-based
assessment areas, States, and multistate MSAs (as applicable pursuant
to Sec. __.28(c)),\1098\ and the nationwide area because the final
rule does not include thresholds for determining conclusions.\1099\
---------------------------------------------------------------------------
\1097\ See supra note 145.
\1098\ Final Sec. __.28(c) explains when the agencies evaluate
and conclude on a bank's performance in a State or multistate MSA.
See the section-by-section analysis of final Sec. __.28(c).
\1099\ As discussed below, the agencies could consider adding
thresholds to the Community Development Financing Test in the future
after reviewing and analyzing data on community development loans
and investments and once they have experience applying the new
metrics and benchmarks.
---------------------------------------------------------------------------
In addition to the proposed metrics and benchmarks that the
agencies are adopting in the final rule, in response to comments, the
agencies included an additional investment metric and benchmark for
evaluating community development investments in the nationwide area for
large banks that had assets greater than $10 billion. The final rule
also includes consideration of the impact and responsiveness of banks'
community development loans and investments. The final rule does not
prescribe weighting for community development loans or investments
within the Community Development Financing Test, nor does it prescribe
weighting for the metrics and benchmarks or impact and responsiveness
review components.
Banks Subject to the Community Development Financing Test
Current Approach
Under the current rule, the agencies evaluate community development
loans and investments for both large banks and intermediate small banks
under the tests applicable to those banks. As discussed above, the
agencies evaluate large banks' community development lending and
investments under the lending test in current Sec. __.22 and the
investment test in current Sec. __.23. The agencies evaluate
intermediate small banks' community development loans, community
development investments, and community development services under the
community development test in current Sec. __.26(c).
The Agencies' Proposal
The proposed Community Development Financing Test, in Sec. __.24,
applicable to large banks and to intermediate banks that opted into the
test, combined the evaluation of community development loans and
investments into a single test. As proposed, the agencies would
continue to evaluate intermediate banks' community development loans,
community development investments, and community development services
using a community development test modeled on the community development
test in current Sec. __.26(c). The proposal provided, however, that
intermediate banks could elect evaluation under proposed Sec. __.24.
Comments Received
As discussed above in the section-by-section analysis of Sec.
__.21, the agencies received comments on the applicability of the
performance tests
[[Page 6954]]
and standards to different sizes and types of banks. For example, a
commenter suggested that the proposal to eliminate the community
development test for certain banks would eliminate those banks'
accountability for providing community development financing activities
and branches in underserved communities and lacks justification.
Another commenter stated that the agencies should require intermediate
banks to be evaluated under the proposed Community Development
Financing Test, as opposed to making it optional. The commenter
suggested that subjecting both large and intermediate banks to the new
test would create consistency among banks and examiners and provide
others in the community development industry with a common
understanding of how the agencies evaluate banks.
Final Rule
The agencies are finalizing these provisions of the rule as
proposed; the final Community Development Financing Test will apply to
all large banks and to intermediate banks that opt into the performance
test. The agencies included clarifying edits in Sec. __.24 of the
final rule to reference intermediate banks that opt into the test.
Although the agencies understand the concerns raised by the commenters,
as discussed in greater detail above in the section-by-section analysis
of Sec. __.21, the agencies believe that the additional burden of
requiring the Community Development Financing Test for intermediate
banks was not justified after accounting for these banks' more limited
capacity to engage in community development loans and investments.
Further, for the reasons discussed above, the agencies also believe
that the changes to the asset size thresholds for banks appropriately
balance the burden of meeting the requirements of the Community
Development Financing Test with the need to assess a bank's record of
helping to meet the credit needs of its community.
Combined Consideration of Community Development Loans and Investments
Current Approach
Under the current rule, as discussed above, the agencies separately
evaluate large banks' community development loans and investments. The
agencies evaluate a large bank's community development loans under the
lending test in current Sec. __.22 along with its retail lending. The
agencies evaluate a large bank's community development investments
under the investment test in current Sec. __.23. For intermediate
small banks, as noted above, the agencies evaluate community
development loans, community development investments, and community
development services under a single community development test in
current Sec. __.26(c) of the current rule.
The Agencies' Proposal
In Sec. __.24 of the NPR, the agencies proposed to evaluate
community development loans and investments together under the
Community Development Financing Test to allow banks to make the
community development loans or investments that are best suited to
their expertise and most needed for the community development projects
the banks are financing. The agencies intended for the proposed
approach to simplify the evaluation of community development loans and
investments while addressing concerns expressed by some stakeholders
that the current approach favors one form of financing over another.
The agencies believed that the proposed metrics would appropriately
measure both community development loans and investments. As discussed,
the agencies would also consider the impact and responsiveness of
community development loans and investments as part of the proposed
impact review.
Comments Received
The agencies received many comments on the proposal to combine the
evaluation of community development lending and investments into a
single Community Development Financing Test in proposed Sec. __.24.
The majority of commenters objected to the combined evaluation of
community development loans and investments under a single test or
urged the agencies to retain separate evaluations for these activities
within the Community Development Financing Test.
Some commenters supported combining the evaluation of community
development loans and investments into a single Community Development
Financing Test. Reasons provided by these commenters for supporting a
single Community Development Financing Test include that it: (1) can be
challenging for smaller banks to make community development
investments; (2) would eliminate the unintended consequences of a
mismatch in the type of funds a project needs and the funding banks
will receive credit for providing; (3) would allow banks to have the
flexibility to create and implement a broader variety of business
plans, while serving low- and moderate-income individuals and
communities in a more efficient manner; (4) can be difficult to
distinguish between whether a financing activity is equity or debt,
such as with investment structures that are credit-enhanced loans; (5)
would avoid privileging one type of funding over the other, allowing
the needs of the project to dictate the financing vehicle; (6) would
provide banks with greater flexibility in determining the most
effective financing structures for developments; and (7) would allow
banks to meet community development needs in local communities through
lending if 12 CFR part 24 requirements restrict a bank's ability to
make investments. Even amongst the commenters that supported the
combined evaluation of community development loans and investments,
however, certain commenters noted sensitivity to concerns about banks
overlooking community development investments.
In contrast, most commenters on this issue objected to the combined
evaluation of community development loans and investments and
predominantly focused on the potential disruptive or negative impact
that the proposed test could have on community development investment
markets. Commenters expressed concern that the proposal would allow
banks to meet their CRA obligations through community development
lending, instead of through community development investments, the
latter of which are often harder to make. For example, commenters
stated that banks may engage in fewer community development investments
because equity investments generally require more costly capital, have
a longer term and higher origination costs, are more illiquid, and
carry greater risk. Other commenters expressed concern that banks may
make fewer grants and donations because these activities, even with
consideration as an impactful and responsive factor pursuant to final
Sec. __.15, are smaller dollar activities that will not factor
significantly in the proposed metrics and benchmarks. One of these
commenters suggested the agencies consider grants under the Community
Development Services Test with a metric specific to grants and
contributions to nonprofit organizations.
Commenters also noted that combining the evaluation of community
development loans and investments may not result in the best financing
for a particular community or project. A commenter expressed concern
that the proposed Community Development Financing Test may incentivize
[[Page 6955]]
financial institutions to select one financing option over the other,
without considering which option would be more beneficial for the
project. The commenter noted that capital stacks required for community
development initiatives vary from one project to another, and impactful
projects may be delayed if the proper capital cannot be obtained.
Many of the commenters that objected to the combined evaluation of
community development loans and investments expressed concern that
eliminating the current, separate tests could have a particularly
negative impact on the equity tax credit markets. Certain commenters
expressed concern that the proposed approach could disincentivize or
result in banks making fewer LIHTC or NMTC investments because these
investments are often more complex and may have lower returns than
community development loans. Other commenters noted that the current
investment test has served as an incentive for banks to engage in these
types of loans and investments and banks make up a large portion of the
LIHTC and NMTC markets. Further, a few commenters asserted that any
decrease in the appetite for LIHTC will likely result in fewer
affordable housing deals, as well as higher costs, which will translate
into decreased affordability for projects that do get built.
Other commenters focused on the potential impact that eliminating
the current investment test could have on CDFI investments, with some
stating that eliminating the current investment test could cause a
shift in banks' CRA activity away from making equity investments in, or
providing grants to, CDFIs, which are labor and time intensive but
impactful. A commenter also stated that eliminating the current
investment test could discourage bank investment in community
development venture capital funds and other CDFIs that provide flexible
risk capital to businesses and projects in low-income communities,
noting that these funds cannot be prudently capitalized with debt.
Other commenters said that focusing primarily on the dollar volume
of lending and investment transactions, without also evaluating the
number of transactions and originations, favors larger loans that are
easier to make instead of more impactful, and generally smaller,
investments and loans. Further, at least one individual and a community
development organization stated that combining consideration of
community development loans and investments into a single test would
remove longstanding precedent where the agencies base a portion of
banks' CRA performance on community development investments.
Suggestions for Addressing Concerns With Combined Evaluation of
Community Development Loans and Investments. To address their concerns
about combined evaluation of community development loans and
investments, commenters provided several suggestions for revisions or
alternatives to the proposed Community Development Financing Test. As
discussed below, commenter suggestions included retaining the current
performance evaluation tests, adding subtests to the proposed Community
Development Financing Test, and implementing other methods of ensuring
banks continue to make community development investments, such as
specifying weightings and minimums. Certain commenters also focused
their suggestions on particular aspects of the community development
investment markets, including the tax credit markets, grants, and
mortgage-backed securities.
Certain commenters suggested retaining versions of the current
performance tests, which evaluate community development loans and
investments separately. Specifically, a commenter supported retaining
the current large bank three-test evaluation, where the agencies
evaluate the relative merits of lending, investments, and services
separately. A few commenters, suggested that the agencies should
consider all lending under the Retail Lending Test and all investments
under the Community Development Financing Test.
Other commenters suggested that the agencies incorporate separate
community development lending and community development investment
subtests into the Community Development Financing Test. Some of these
commenters suggested that including separate subtests would encourage
banks to make LIHTC investments, grants, and equity equivalent
investments. These commenters also suggested weighting for the tests
ranging from 15 percent to greater than 50 percent for the investment.
As discussed in the section-by-section analysis of Sec. __.21(a),
other commenters recommended a single community development test and
certain of these commenters recommended weighting for the subtests as
follows, community development lending (weighted 25 percent), community
development investments (weighted 20 percent), and community
development services (weighted 5 percent).
Commenters also provided other suggestions for ensuring that
community development investments receive appropriate emphasis under
the final rule. Some commenters suggested that, to ensure that banks
still make community development investments, the agencies should
require a minimum amount of community development financing activities
to be in the form of equity investments. One of these commenters stated
that a portion of this investment minimum should not be tied to tax
credits. Another commenter suggested as an alternative that the
agencies should not assign a bank an ``Outstanding'' rating without an
adequate level of equity investments.
Instead of including an investment minimum in the Community
Development Financing Test, certain commenters suggested that the
agencies include investment-based metrics and benchmarks in the
performance test. Commenters stated the Community Development Financing
Test should include some or all of the following: (1) an institution-
level equity metric and benchmark; (2) a measurement of the new
institution-level equity investments over time to identify reductions;
or (3) a high-impact metric and benchmark. Some of these commenters
believe that banks should not receive a higher score on the Community
Development Financing Test than on this recommended equity investment
metric. Certain commenters suggested structuring the investment metric
like the proposed institution-level Community Development Financing
Metric, to measure community development equity investments in the
numerator and deposits in the bank in the denominator. A few of these
commenters recommended excluding mortgage-backed securities from the
metric or benchmark.
Commenters also offered suggestions for how the agencies could
incorporate the metrics or benchmarks into the Community Development
Financing Test. Certain commenters recommended the agencies use an
equity benchmark based on a comparison of investments to deposits as a
peer comparator and assign higher Community Development Financing Test
ratings to banks that devote a larger portion of their community
development financing activities to equity investments. One of these
commenters also suggested the agencies use a benchmark that measures
total equity investments--exclusive of mortgage-backed securities--as a
percentage of a bank's total community development loans and
investments as a peer comparator. A commenter further suggested that a
high equity metric
[[Page 6956]]
could be considered as a factor for an ``Outstanding'' rating.
Some commenters also suggested that the agencies monitor levels of
equity investments compared to the current baseline level, both for
individual banks and nationwide, and take action to prevent reductions
in equity investments, with certain commenters focusing specifically on
reductions in tax credit investments. One of these commenters also
encouraged examiners to potentially downgrade banks that have
significantly cut back their investments without a reasonable
explanation. Relatedly, a commenter suggested that, in lieu of a
separate investment test, the agencies could require data collection on
community development loans and investments to identify imbalances
between the categories.
Commenters also made other recommendations for how the agencies
could continue to ensure that banks participate in the affordable
housing and tax credit markets. In the absence of a separate investment
test, commenters strongly urged the agencies to: (1) put mitigating
factors in place to protect LIHTC investments; (2) establish another
robust mechanism to motivate both intermediate and large banks to
participate in the equity markets for NMTCs and other effective
community development tax credit investments; or (3) otherwise
implement strong mechanisms to preserve impactful equity investments in
affordable housing and community development. For example, a commenter
requested that the agencies ensure that the rule reviews separately and
helps increase affordable housing tax credits investments and lending.
Other commenters recommended that the agencies limit credit for
investments in mortgage-backed securities so that the mortgage-backed
securities investment option does not overwhelm the Community
Development Financing Test. Commenter recommendations included: (1)
limiting credit for mortgage-backed securities to 20-25 percent of the
institution-level Community Development Financing Test conclusions and
ratings; (2) requiring a two-year holding period for mortgage-backed
securities, with a retrospective review of the holding period applied
to the next bank examination; (3) counting only the first or second
purchase of mortgage-backed securities; or (4) counting only the value
of affordable loans in a qualifying mortgage-backed security, rather
than the full value of the security.
Final Rule
The agencies are adopting the Community Development Financing Test
as proposed with the combined evaluation of community development loans
and investments. To address commenter concerns, however, the final rule
includes a Bank Nationwide Community Development Investment Metric
\1100\ and a Nationwide Community Development Investment
Benchmark,\1101\ for large banks that have assets greater than $10
billion, discussed in greater detail below in the section-by-section
analysis of Sec. __.24(e).
---------------------------------------------------------------------------
\1100\ See final Sec. __.24(e)(2)(iii).
\1101\ See final Sec. __.24(e)(2)(iv).
---------------------------------------------------------------------------
The agencies carefully considered commenters' concerns about the
potential negative or disruptive impact that combining the evaluation
of community development loans and investments could have on banks'
provision of community development investments, including tax credit
investments, CDFI investments, affordable housing investments, and
grants and other small dollar investments and loans. The agencies also
considered the reasons for combining consideration of community
development loans and investments, both those articulated in the
proposal and provided by commenters.
After weighing the potential benefits and consequences of adopting
the Community Development Financing Test as proposed, the agencies
continue to believe that the combined evaluation of community
development loans and investments will best serve the interests of
banks and communities by providing flexibility for banks to focus on
the community development financing methods most consistent with their
expertise. The combined evaluation of community development loans and
investments also will enable banks to identify the financing most
needed for a community development project without regard to how that
loan or investment would affect the bank's CRA evaluation. Further, the
agencies considered that there are circumstances in which banks are not
competitive for certain types of community development loans or
investments or there are limited opportunities in particular markets
for one or the other type of financing. Combining the evaluation of
community development loans and investments into a single Community
Development Financing Test will reduce the consequences of these supply
and demand issues on banks' CRA evaluations.
Nonetheless, the agencies understand that certain community
development investments involve significant time and effort, are
complex, and play an important role in supporting much-needed community
development, including affordable rental housing and economic
development in low- and moderate-income communities and other
underserved communities. The agencies did not intend for the proposed
Community Development Financing Test to incentivize banks to make fewer
impactful investments. To mitigate the potential risk that banks may
put less emphasis on community development investments, the final rule
includes both a Bank Nationwide Community Development Investment Metric
and a Nationwide Community Development Investment Benchmark for banks
with assets greater than $10 billion. Under the final rule, the new
investment metric and benchmark may only contribute positively to a
bank's performance under the Community Development Financing Test.
Several commenters suggested that if the agencies retained a single
Community Development Financing Test, the test should incorporate an
investment metric and benchmark. The agencies agree that including
these components in the Community Development Financing Test would
allow the agencies to better understand the level of community
development investments that banks are making, both individually and
collectively. The agencies considered the other more specific
suggestions provided by commenters for addressing the potential
negative impact of eliminating the current investment test and
determined that the addition of the Bank Nationwide Community
Development Investment Metric and the Nationwide Community Development
Investment Benchmark will provide sufficient additional information
within the otherwise qualitative evaluation envisaged under the
Community Development Financing Test. These metrics and benchmarks are
part of a holistic consideration of a bank's community development
financing performance; some of the more specific recommendations are
better addressed through the impact and responsiveness review in Sec.
__.15 (e.g., implementing a mechanism to recognize tax credit
investments) or could inappropriately emphasize a particular type of
community development investment that may not--in an examiner's view--
be appropriate or necessary for a particular bank or community (e.g.,
recognizing a particular type of equity
[[Page 6957]]
investment for a bank that does not have the expertise to engage in
that activity). The structure and applicability of the Bank Nationwide
Community Development Investment Metric and the Nationwide Community
Development Investment Benchmark are discussed below.
Community Development Loan and Investment Evaluation Methodology, in
General Inclusion of Metrics and Benchmarks in the Community
Development Financing Test
Current Approach
As noted above, the agencies currently evaluate large bank
community development loans and investments in their assessment areas
under the lending test in Sec. __.22 and the investment test in Sec.
__.23. In contrast, the agencies consider intermediate small bank
community development activities under a single community development
test in current Sec. __.26 that assesses loans, investments, and
services. The applicable tests include performance criteria for
evaluating the number and amount of a bank's community development
loans and community development investments.
For banks that are not small banks, the current approach also
includes the evaluation of certain qualitative factors, such as the
innovativeness and complexity of the bank's community development loans
and investments. The current approach relies on examiner judgment to
conclude on bank performance. Examiners apply the performance criteria
in accordance with the CRA regulations, interagency examination
procedures, and the agencies' guidance (including the Interagency
Questions and Answers).\1102\
---------------------------------------------------------------------------
\1102\ See Q&A Sec. __.21(a)--1.
---------------------------------------------------------------------------
Under the current rule, the agencies do not use standard metrics or
benchmarks for evaluating community development loans and investments.
Rather, the agencies weight community development financing activities
based on how responsive the loans and investments are to community
needs.\1103\ Banks with a smaller dollar volume of highly responsive
community development loans or investments may receive similar
conclusions and ratings as banks with a larger dollar volume of less
responsive loans and investments. In the absence of standard metrics
and benchmarks, however, stakeholders have noted that there is
substantial variability between agencies and between examiners within
the same agency in how much weight a particular community development
loans or investment receives.
---------------------------------------------------------------------------
\1103\ See Q&A Sec. __.21(a)--2.
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies sought to address some of the criticism of the current
performance tests and standards by introducing standardized metrics and
benchmarks in proposed Sec. __.24(b) and (c) of the Community
Development Financing Test, which applied to facility-based assessment
areas, States and multistate MSAs, as applicable, and the nationwide
area.\1104\ Although the agencies included metrics and benchmarks to
the Community Development Financing Test, due to the currently limited
data on community development lending and lack of data on community
development investments, the agencies did not include thresholds in the
test. As a result, the proposed Community Development Financing Test
remained a qualitative evaluation informed by the proposed metrics and
benchmarks that would continue to rely on examiner judgment to assess
the dollar volume of community development loans and investments and
conclude on bank performance. The agencies believed the use of uniform
metrics and benchmarks would improve the consistency and clarity of
evaluations as compared to the current approach. Further, the agencies
introduced a more formalized impact review in the proposal for
assessing performance under the Community Development Financing Test.
---------------------------------------------------------------------------
\1104\ The Community Development Financing Test metrics and
benchmarks as they apply to specific geographic areas are discussed
in greater detail below.
---------------------------------------------------------------------------
Comments Received
Some commenters that addressed the Community Development Financing
Test stated that the proposed test included improvements compared to
the current approach. Specifically, a few of these commenters
identified the inclusion of metrics and benchmarks in the Community
Development Financing Test as an improvement on the current framework.
A commenter stated that using consistent metrics and benchmarks would
provide greater uniformity and clarity under this test.
However, a few commenters, including some commenters that supported
the proposed revisions, expressed concern that the Community
Development Financing Test did not contain sufficient rigor, structure,
or standards to guide examiner judgment in assigning performance scores
and ratings. A few commenters stated that the Community Development
Financing Test needed to be further developed to prevent ratings
inflation and to make CRA evaluations more consistent and less
subjective. Commenters also recommended that the agencies issue
guidance illustrating how performance under the Community Development
Financing Metric would correspond to a performance score.
Other commenters urged the agencies to extend the rigor of the
proposed large bank lending test \1105\ to the other tests or suggested
how the agencies could evaluate performance under the Community
Development Financing Test. For example, a commenter stated that the
Community Development Financing Test should incorporate thresholds tied
directly to conclusions in the quantitative portion of the evaluation--
similar to the Retail Lending Test--and stated that the agencies should
add structure to the qualitative portion of the evaluation, including
how the Community Development Financing Test maps to facility-based
assessment area conclusions. The commenter provided, as an example,
that if a bank had a much higher score than other banks on either the
local or national benchmarks, it would likely score an ``Outstanding.''
At least one local government commenter recommended the agencies base
the Community Development Financing Test on the lower of a bank's
nationwide area or facility-based assessment area performance. Further,
a commenter stated that an appendix could more clearly explain how
performance under the Community Development Financing Test relates to
ratings.\1106\
---------------------------------------------------------------------------
\1105\ The commenters referenced the ``large bank lending
test;'' however, the agencies understand these commenters to be
referring to the Retail Lending Test in proposed Sec. __.22.
\1106\ For a discussion of how performance test scores are
aggregated to develop ratings under the final rule, see the section-
by-section analysis of final Sec. __.28.
---------------------------------------------------------------------------
Other commenters emphasized the importance of flexibility or
tailoring in evaluating a bank's community development loans and
investments. Specifically, a financial institution expressed concern
that many MSAs and counties do not have sufficient community
development lending and investment opportunities, particularly in rural
areas; therefore, the commenter stated, any metrics or measurements
included in the final rule must be flexible. A commenter also
recommended that the agencies consider community needs in determining
the relevance of a bank's performance using the proposed
[[Page 6958]]
Community Development Financing Metric.
Final Rule
After considering the comments on the structure and rigor of the
Community Development Financing Test, the agencies have decided to
finalize the test as proposed without adding thresholds for measuring
banks' performance under the metrics and the applicable benchmarks. The
agencies continue to believe the use of uniform metrics and benchmarks
will improve the consistency and clarity of CRA evaluations relative to
the current approach because they provide standard data that examiners
can use to inform conclusions. While the agencies also believe that
consistency could be improved using thresholds in the Community
Development Financing Test, current data limitations \1107\ preclude
the agencies' ability to explore including thresholds in the test at
this time. The agencies note that they could consider thresholds in a
future rulemaking once they have accumulated data and have experience
applying the metrics and benchmarks. For now, the agencies intend to
issue guidance to further clarify how they will apply the Community
Development Financing Test.
---------------------------------------------------------------------------
\1107\ Currently, the CRA rule requires data collection on the
aggregate number and aggregate amount of community development loans
originated or purchased. The current rule does not require data
collection for community development investments. See current 12 CFR
__.42(b)(2).
---------------------------------------------------------------------------
The agencies also note the importance of flexibility in evaluating
bank performance under the Community Development Financing Test,
including the importance of considering the particular circumstances of
individual banks and the needs and opportunities of the communities
where banks operate. The Community Development Financing Test generally
remains qualitative in nature with standardized metrics and benchmarks
to promote consistency. The agencies considered that the dollar volume
of a loan or investment does not always provide a complete picture of
the impact that a loan or investment has on a community. In
consideration of comments received, and based on supervisory
experience, the agencies believe that in some instances, a small dollar
loan or investment that is targeted to a specific community need can
have a greater impact than a larger dollar loan or investment that is
less targeted, such as a mortgage-backed security. Therefore,
regardless of whether the agencies consider adding thresholds to the
Community Development Financing Test after they have analyzed data
collected under Sec. __.42 of the final rule, qualitative
consideration of community development loans and investments will
remain an integral part of the Community Development Financing
Test.\1108\ In particular, the Community Development Financing Test
includes the impact and responsiveness review discussed in the section-
by-section analyses of Sec. Sec. __.15 and __.24(b), which provides
enhanced qualitative consideration for certain community development
loans and investments. In addition, performance context remains a part
of an examiner's evaluation of a bank's performance under the Community
Development Financing Test. Therefore, the agencies are adopting the
proposed framework for the evaluation of community development
financing performance as proposed for facility-based assessment areas,
States and multistate MSAs, and the nationwide area with the
substantive and clarifying edits discussed in this section-by-section
analysis along with other conforming and technical edits.
---------------------------------------------------------------------------
\1108\ See the section-by-section analysis of final Sec. __.21
for discussion of performance context consideration, and the
section-by-section analysis of final Sec. __.15 for a discussion of
the impact and responsiveness review.
---------------------------------------------------------------------------
Section __.24(a)(1) In General
Current Approach and Proposal
The current rule generally provides that retail loans, except
multifamily affordable housing loans (i.e., multifamily loans that meet
the definition of community development in 12 CFR __.12(g)), may not be
considered as community development loans.\1109\ However, for current
intermediate small banks that are not subject to HMDA reporting, a home
mortgage loan, small business loan, and a small farm loan may be
considered, at the bank's option, as a community development loan,
provided it meets the definition of ``community development.'' \1110\
Consistent with the current approach, the agencies proposed to exclude
retail loans receiving consideration under the proposed Retail Lending
Test from receiving consideration under the proposed Community
Development Financing Test as a general principle.\1111\ Also
consistent with the current approach, the proposal provided an
exception in which a multifamily loan described in proposed Sec.
__.13(b) may be considered under both the Retail Lending Test and the
Community Development Financing Test.\1112\ In addition, the proposed
rule allowed that an intermediate bank that is not required to report a
home mortgage loan, a small business loan, or a small farm loan may opt
to have the home mortgage loan, small business loan, or small farm loan
considered either under the Retail Lending Test in Sec. __.22 or, if
the loan is a qualifying activity pursuant to Sec. __.13, under the
Community Development Financing Test or the intermediate bank community
development evaluation in Sec. __.29, as applicable. The agencies
aimed to reduce the potential for double counting a loan, thereby
potentially skewing results.
---------------------------------------------------------------------------
\1109\ See current 12 CFR __.23(b) and Q&A Sec. __.42(b)(2)--1.
See also Q&A Sec. __.12(h)--2.
\1110\ Q&A Sec. __.12(h)--3.
\1111\ See proposed Sec. __.24(a)(2)(i).
\1112\ See proposed Sec. __.24(a)(2)(ii).
---------------------------------------------------------------------------
Comments Received
A few commenters suggested that the agencies eliminate the
exclusion set forth in proposed Sec. __.24(a)(2)(i) for considering
retail loans with a community development purpose under the Community
Development Financing Test. Reasons provided for eliminating the
exclusion included that the proposed exclusion of retail loans could
produce unintended results once the agencies replace the CRA definition
of ``small business loan'' with a definition based on the CFPB's
Section 1071 Final Rule. One of the commenters explained that many
community development loans are made to special purpose, startup, or
nonprofit entities that do not have gross annual revenues of more than
$5 million. The commenter suggested that the proposed Retail Lending
Test would incentivize banks to distribute their small business loans
in a particular way but would not provide incentives for banks to make
small business loans that satisfy the community development definition,
which can be especially impactful loans. The commenter further
explained that there would be no ``double counting'' of small business
loans if the Community Development Financing Test allowed for certain
small business loans to qualify as community development loans because
the Retail Lending Test and the Community Development Financing Test
would evaluate different aspects of the same qualifying small business
loan.
Final Rule
In the final rule, the agencies eliminated the exclusion for
considering certain types of retail loans under the Community
Development Financing Test consistent with the changes to the community
development loan and
[[Page 6959]]
community development investment definitions and the Retail Lending
Test in final Sec. __.22, discussed above.\1113\ The Retail Lending
Test and the Community Development Financing Test generally considers
different aspects of a bank's lending. For example, in the agencies'
view, considering loans that meet the definition of ``small business
loan'' for purposes of the Retail Lending Test under the Community
Development Financing Test if those loans support community development
would not result in double counting. The Retail Lending Test focuses on
the distribution of the number of loans while the Community Development
Financing Test considers the dollar volume of loans.
---------------------------------------------------------------------------
\1113\ Along with eliminating the exclusion, the agencies
eliminated the exceptions (in proposed Sec. __.24(a)(2)(ii) and
(iii)) to the exclusions as they are no longer necessary.
---------------------------------------------------------------------------
The agencies also considered commenters' suggestions that the
Community Development Financing Test consider the number of community
development loans and investments in addition to the dollars to ensure
that smaller loans and investment are not ignored. The agencies did not
modify the Community Development Financing Test to include this
suggestion. As is discussed elsewhere, the agencies also believe that
smaller, more impactful loans and investments are an important way of
helping to meet community credit needs. However, the mechanism in the
final rule for incentivizing those types of loans and investments is
the impact and responsiveness review. Further, under performance
context, examiners can consider any information about retail banking
and community development needs and opportunities provided by the bank
or other relevant sources, including, but not limited to, members of
the community, community organizations, State, local, and tribal
governments, and economic development agencies.\1114\ If a bank fails
to meet identified community needs and only engages in large dollar,
low-impact community development loans and investments, the agencies
could consider that information when concluding on a bank's
performance. Finally, as discussed above, the agencies determined that
they would remove the exclusion under the Community Development
Financing Test for certain retail loans with a community development
purpose because the tests evaluate different aspects of a bank's
lending. If the agencies incorporated consideration of the number of
community development loans and investments into the Community
Development Financing Test, it would eliminate this distinction and the
rationale for the agencies supporting the removal of the exclusion.
---------------------------------------------------------------------------
\1114\ See final Sec. __.21(d)(4).
---------------------------------------------------------------------------
Section __.24(a)(2) and Section I of Appendix B
Inclusion of Prior Period Loans and Valuation of Community Development
Financing Activities
Valuation and Allocation of Community Development Loans and Investments
Current Approach
The agencies currently consider the dollar value of community
development loans based on their origination or purchase value. Because
the agencies do not consider community development loans originated or
purchased during a prior evaluation period that remain on a bank's
balance sheet (prior period community development loans) under the
current framework, a renewed or refinanced loan is valued as an
origination based on the value of the loan in the year it was renewed
or refinanced. Under the current rule, the agencies consider community
development investments based on (1) the value of the investment in the
year it was made for investments made during the current evaluation
period and (2) the outstanding book value of the investment at the end
of the evaluation period for investments made during a prior evaluation
period. The agencies also consider the total value of legally binding
commitments to extend credit or invest. As explained in the Interagency
Questions and Answers, the agencies currently provide guidance on the
valuation of equity type or equity equivalent investments, which allows
banks to consider a portion of these investments under the current
lending \1115\ and investment tests.\1116\ The current rule does not
include metrics and benchmarks that are calculated on an annual basis;
therefore, the agencies consider the dollar value of each community
development loan or investment qualitatively for the evaluation period.
---------------------------------------------------------------------------
\1115\ See current 12 CFR __.22.
\1116\ See current 12 CFR __.23; see also Q&A Sec. __.22(d)--1
and Q&A Sec. __.23(b)--1.
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed that the Community Development Financing Test
would consider the dollar value of community development loans and
investments originated or made during the evaluation period, as well as
prior period loans and investments that remain on a bank's balance
sheet.\1117\ The proposal included consideration of prior period
community development loans, in addition to investments, to incentivize
banks to provide patient capital and to disincentivize unnecessary
short-term lending and churning loans by refinancing, renewing, or
modifying a loan each evaluation period to receive ongoing credit for
the activity. Further, the proposed change would improve internal
consistency in the rule by treating prior period loans the same as
prior period investments, which receive consideration under the current
rule. In appendix B, the proposal described the numerator for the
metrics and benchmarks used in Sec. Sec. __.24 and __.26, which
includes: (1) community development loans originated and community
development investments made; (2) the increase in an existing community
development loan that is renewed or modified; and (3) the outstanding
value of community development loans originated or purchased and
community development investments made in previous years that remain on
the bank's balance sheet.
---------------------------------------------------------------------------
\1117\ See proposed appendix B, section 1.
---------------------------------------------------------------------------
Comments Received
Inclusion of new and prior period community development loans and
investments. Several commenters provided feedback on the inclusion of
both new community development loans and investments and prior period
community development loans and investments in the proposed Community
Development Financing Test metrics and benchmarks. Commenters' views on
this issue varied. Certain commenters supported the proposal to
consider both new and prior period community development loans and
investments on a bank's balance sheet in the metrics and benchmarks.
These commenters noted that the proposal would reduce artificial
inflation of banks' balance sheets, lessen the incentive for CRA-
motivated loan churn, and remove the incentive to provide artificially
short terms for community development loans and investments, which can
impede community groups' ability to project capital availability.
Other commenters suggested that the agencies should be careful in
how they implement the inclusion of new and prior period lending in the
community development ratio.\1118\ Some of these
[[Page 6960]]
commenters acknowledged the importance of providing credit for prior
period loans to incentivize long-term patient capital but asserted that
the agencies should not allow banks to substantially reduce
originations of impactful loans. A few commenters stated that banks
should be incentivized to make new community development loans and
investments in each evaluation period, noting that a significant drop
in new financing should be a cause for concern. A few other commenters
suggested limiting the inclusion of prior period community development
lending to loans from the previous examination cycle. A commenter also
asserted that the agencies should not give repeated credit for loans
with low impact or harmful features (e.g., a loan for a property where
the landlord maintains the building in poor condition).
---------------------------------------------------------------------------
\1118\ The agencies understand the commenter's reference to
``community development ratio'' to be a reference to the proposed
community development financing metrics.
---------------------------------------------------------------------------
Other commenters opposed consideration of prior period community
development loans. One of these commenters stated that allowing banks
to carry prior period community development loans and investments into
their current review period will disincentivize new investment,\1119\
cutting down overall CRA investment in historically disinvested
communities. At least one commenter recommended the agencies limit
credit for prior period loans to nonprofits and use the impact and
responsiveness review to incentivize meeting unmet longer-term credit
needs elsewhere.
---------------------------------------------------------------------------
\1119\ The agencies understand the commenter's reference to
``investment'' to be a reference to the flow of new money into the
community; not to the defined term ``community development
investment.''
---------------------------------------------------------------------------
Lastly, a commenter requested that the agencies develop a
streamlined process for inclusion of prior period activities during
subsequent CRA examinations. The commenter believed that redundancies
in ``re-proving'' a loan or investment in each examination cycle, after
it has already been qualified by an examiner, is inefficient and the
elimination of the need to ``re-prove'' could aid both the bank and its
regulator.
Community development loan and investment valuation. The agencies
received a few comments on how to value community development loans and
investments. These commenters identified certain forms of community
development lending and investment that they believed should be valued
in certain ways. A few commenters recommended that the full value of
legally binding commitments to lend or invest, rather than the amount
drawn, receive CRA consideration in the final rule. One of these
commenters explained that if banks do not receive CRA consideration for
commitments to fund future affordable housing projects, such
commitments would evaporate and cause a decrease in new affordable
housing units.
Commenters also provided feedback on the valuation of equity
equivalent investments, particularly in CDFIs. Specifically, a
commenter supported the creation of a mechanism for recognizing banks'
equity equivalent investments in CDFIs. The commenter noted that the
proposed quantitative measures in the Community Development Financing
Test would treat equity equivalent investments in CDFIs the same as
standard debt products.
A commenter stated that the agencies should grant extra credit to
banks that syndicate or sponsor funds supporting LIHTC or NMTC
projects, consistent with the now-rescinded OCC 2020 CRA Final Rule.
Commenters also requested that the agencies clarify how they would
consider different loans and investments under a new CRA rule.
A few commenters expressed that the rule needs to be clear about
the treatment of purchased and renewed community development loans. A
commenter suggested that: (1) ``purchased'' community development loans
and investments should be treated the same as ``originated'' community
development loans and investments; and (2) renewals (with full
underwriting) of lines of credit should receive consideration as
``originated'' loans.
Final Rule
Inclusion of new and prior period community development loans and
investments. Under the final rule, banks will receive consideration for
new community development loans and investments and community
development loans and investments that remain on a bank's balance
sheet.\1120\ The agencies considered the comments about including prior
period community development loans and investments in the Community
Development Financing Test metrics and benchmarks and determined to
finalize the rule as proposed. The agencies believe that providing
consideration for both new originations and purchases and community
development loans and investments that remain on a bank's balance sheet
is a more accurate reflection of a bank's financing efforts and strikes
the appropriate balance between incentivizing new community development
loans and patient capital for community development projects. As
discussed below, under the current framework, to receive credit for
community development loans in each evaluation period, banks would need
to renew or refinance the loans. In contrast, the agencies currently
consider community development investments that remained on a bank's
balance sheet in an evaluation period.
---------------------------------------------------------------------------
\1120\ See final appendix B, paragraph I.a.1. The method for
valuing community development loans and investments is discussed
below.
---------------------------------------------------------------------------
The agencies understand that the practice of renewal and
refinancing of community development loans for the purpose of getting
additional CRA consideration presented practical planning challenges
for organizations engaged in community development projects because the
financing was unpredictable. By providing consideration for both
community development loans or investments that remain on a bank's
balance sheet, the agencies believe the final rule will incentivize
banks to engage in new loans and provide the length and type of
financing that is most appropriate for the community development
project and the bank's business model and expertise.
The agencies determined not to limit consideration for community
development loans and investments that remain on a bank's balance sheet
to loans and investments originated or purchased during the prior
evaluation cycle or to loans and investments with nonprofit
organizations because these limitations would not further the goal of
incentivizing banks to provide patient capital matched to the needs of
the organization engaging in the community development project. With
respect to limiting the length of consideration to community
development loans and investments made in the prior evaluation period,
the agencies note that CRA evaluation periods are typically about three
years in length.\1121\ Based on the agencies' experience, it can take
much longer than three years for an organization to raise capital and
bring a community development project to completion. Limiting
consideration for prior period community development loans and
investments to the evaluation period following the one in which the
loans or investments were originated, purchased, or made would
perpetuate the mismatch between the needs of the community development
project and the financing provided by banks. In addition, the length of
evaluation
[[Page 6961]]
periods, rather than the length of time the activity had an impact on
the community benefited or served, may impact the consideration that
banks receive for community development loans and investments.
---------------------------------------------------------------------------
\1121\ There is some variation in the length of evaluation
periods between agencies and due to bank size or specific bank
circumstances; however, in general, CRA evaluation periods are at
least two years and not longer than five years in length.
---------------------------------------------------------------------------
With respect to community development financing activities
involving nonprofit organizations, the agencies also do not believe
that there is a reason to treat community development loans and
investments involving nonprofit organizations differently than other
types of community development loans and investments. As discussed in
the section-by-section analysis for Sec. __.13, the agencies gave
considerable thought to the types of loans and investments that support
community development. In Sec. __.13 of the final rule, the agencies
specify whether an activity must involve a nonprofit organization for
the agencies to consider it to support community development. If a loan
or investment meets the requirements of Sec. __.13, the agencies do
not believe it is appropriate to impose further limitations on the
amount of credit a bank receives for that loan or investment. The
agencies believe that all community development loans and investments
are designed to help meet community needs; to the extent that a
community development loan or investments is particularly impactful or
responsive, the mechanism for addressing that in a CRA evaluation is
the impact and responsiveness review in Sec. __.15, not limitations on
the length of time that the bank can get credit for the community
development loan or investment that remains on the bank's balance
sheet.
In response to commenters concerns about providing repeated credit
for lower impact or harmful community development loans and
investments, the agencies do not believe this is a reason for limiting
credit for prior period community development loans or investments.
Under the final rule, the appropriate Federal financial supervisory
agency determines whether a loan or investment supports community
development when the loan or investment is originated, made, or
purchased. If the appropriate Federal financial supervisory agency
later identifies that there is evidence of discriminatory or other
illegal credit practices pursuant to Sec. __.28(d), it will consider
that information in the bank's CRA evaluation.
Community development loan and investment valuation. After
considering the comments regarding valuing community development loans
and investments, the agencies are finalizing an annual valuation
methodology; however, the agencies are clarifying this aspect of the
proposal to explain how the final rule values different forms of
community development loans and investments.
The agencies believe that annual valuation of community development
loans and investments is appropriate because banks receive
consideration for the full dollar volume of the loan or investment in
the year that it is originated, purchased, or made and the remaining
value on a bank's balance sheet in other years. This valuation
methodology helps to incentivize new loans and investments by both
giving full credit for new loans and investments and diminishing the
value as the loan or investment is paid off or changes value. Annual
valuation also allows the agencies to calculate the metrics and
benchmarks for banks with different evaluation periods because they can
include the annual value in the appropriate calculations, which
enhances consistency in the consideration of community development
loans and investments.
The agencies added further detail to paragraph I.a of appendix B in
two areas. First, the agencies clarified the general description of the
inputs for the numerator \1122\ and added a description for the inputs
for the denominator for the metrics and benchmark calculations in
Sec. Sec. __.24 and __.26. These descriptions provide the annual
building blocks for the metrics and benchmark calculations in the
Community Development Financing Test (i.e., the annual dollar volume
\1123\ of community development loans and community development
investments and the annual dollar volume of deposits).\1124\
---------------------------------------------------------------------------
\1122\ Final Sec. __.24 provides that the Community Development
Financing Test evaluates a bank's record of helping to meet the
credit needs of its entire community through community development
loans and community development investments. As provided in final
Sec. __.21, under certain circumstances this evaluation will
include community development loans and investments of operations
subsidiaries or operating subsidiaries, as applicable, other
affiliates, consortiums, and third parties. To ensure that the rule
clearly provides that the agencies will consider community
development loans and investments from all of these entities when
appropriate, not just those of a bank or its operations subsidiaries
or operating subsidiaries, as applicable, final appendix B,
paragraph I.a, clarifies that the agencies include community
development loans and community development investments ``attributed
to the bank pursuant to Sec. __.21(b) and (c)'' in the numerator of
the metrics and benchmarks in the Community Development Financing
Test. This is a clarifying revision that is not intended to have a
substantive effect.
\1123\ As discussed in the section-by-section analysis of final
Sec. __.24(b)(1), for purposes of consistency in the final rule,
the agencies changed the description in the final rule to use only
the word ``volume'' instead ``value'' in final Sec. __.24 and final
appendix B. The agencies do not intend this to be a substantive
change.
\1124\ For use in the metrics and benchmarks calculations in
final Sec. __.26, final appendix B, paragraph I.a.2.ii, also
includes a description of the ``annual dollar volume of assets.''
---------------------------------------------------------------------------
Second, the agencies clarified how to value different forms of
community development loans and investments for purposes of calculating
the metrics and benchmarks, including by adding additional detail and
explaining that the calculations are determined annually. The proposal
described determining the value of community development loans
originated and community development investments made, the increase in
an existing community development loan that is renewed or modified, and
the outstanding value of community development loans originated or
purchased and community development investments made in previous years
that remain on the bank's balance sheet.\1125\ As was clear from the
comments, this description did not sufficiently explain how the
agencies would value all forms of community development loans and
investments or for what period the agencies would value the loans and
investments. Under the final rule, and consistent with the proposal,
banks value community development loans and investments annually as of
December 31 of each calendar year. The annual dollar volume of a
community development loan or investment will depend on whether the
loan or investment is new to the bank that year or is a loan or
investment from a prior year.
---------------------------------------------------------------------------
\1125\ See proposed appendix B, section 1.
---------------------------------------------------------------------------
The agencies also clarified in paragraph I.a of appendix B of the
final rule that they will treat purchased loans the same as loans
originated and investments made in a year. In proposed appendix B, the
agencies explained how they would value purchased community development
loans that remain on a bank's balance sheet. Commenters noted that the
agencies should also explain how to value a community development loan
purchased by a bank in the year of purchase. Consistent with current
practice, under the final rule, appendix B explains that the agencies
will value a purchased community development loan the same way as an
origination in the year the bank originated the loan. In the agencies'
experience, a secondary market for community development loans ensures
that banks can manage their balance sheets based on their business
models and capacity and are not disincentivized from seeking out new
opportunities because they cannot
[[Page 6962]]
free up capital to pursue those opportunities. The final rule also
provides additional detail on the valuation of legally binding
commitments to lend and invest. The agencies determined that banks
should receive credit for the full dollar volume committed for all
legally binding commitments to extend credit and legally binding
commitments to invest. However, the agencies also determined that after
the commitment is made the valuation depends on whether the commitment
has been drawn upon.
The agencies considered that valuing a commitment to extend credit
or invest only on the drawn portion of the commitment would put banks
that entered into commitments at a disadvantage because these banks
would have committed resources and may not have capacity to originate,
purchase, or make other community development loans and investments.
Further, the agencies consider legally binding commitments to extend
credit or invest a necessary tool in financing certain community
development projects, and, for that reason, included commitments in the
definition of community development loan and community development
investment. If the agencies limited credit for commitments to extend
credit or invest to the drawn portion of the commitment, the
disadvantage created could disincentivize banks from making
commitments, which could impact the viability of certain community
development projects. However, the agencies also recognize that once a
commitment has been drawn upon, the drawn portion of a commitment to
extend credit or invest is no longer a ``commitment'' but is an
outstanding loan or investment. Therefore, to give appropriate value to
commitments, non-drawn commitments are valued based on the full dollar
volume committed, but commitments that have been drawn upon are valued
based on a combination of both the outstanding dollar volume of the
commitment and the drawn portion of the commitment. Specifically, final
appendix B includes a footnote that the dollar volume of a legally
binding commitment to extend credit or legally binding commitment to
invest in any given calendar year is (1) the full dollar volume
committed; or (2) if drawn upon, the combined dollar volume of the
outstanding commitment and any drawn portion of the commitment.\1126\
---------------------------------------------------------------------------
\1126\ See footnote 1 to final appendix B, paragraph I.a.1.i.A.
---------------------------------------------------------------------------
The final rule also clarifies how the agencies will value
refinances and renewals in the year of the refinance or renewal and in
subsequent years.\1127\ The agencies' clarifications to the valuation
of refinances and renewals are to ensure that banks receive
consideration for these loans or investments without incentivizing
banks to churn loans solely for the purpose of receiving credit in each
evaluation period. Under the final rule, the agencies will provide
banks with credit for the dollar volume of any increase in the calendar
year to an existing community development loan that is refinanced or
renewed and in an existing community development investment that is
renewed.\1128\
---------------------------------------------------------------------------
\1127\ The agencies note that refinances and renewals are
treated differently under the Retail Lending Test in final Sec.
__.22 and the Community Development Financing Test in final Sec.
__.24 because of differences between the performance tests.
Specifically, because the Community Development Financing Test
considers the dollar volume of community development loans and
investments, it was necessary that the rule provide a method for
valuing refinances and renewals that balanced the incentives for new
originations and patient capital. Therefore, for purposes of the
Community Development Financing Test, refinances and renewals are
addressed and valued separately from originations and purchases.
\1128\ See final appendix B, paragraph I.a.1.i.B.
---------------------------------------------------------------------------
Banks will receive credit for the outstanding dollar volume of
community development loans originated or purchased in previous
calendar years and community development investments made in previous
calendar years, as of December 31 of each calendar year that the loan
or investment remains on the bank's balance sheet.\1129\ Banks will
also receive credit for the outstanding dollar volume, less any
increase in the same calendar year, of a community development loan a
bank refinanced or renewed in a calendar year subsequent to the
calendar year of origination or purchase, as of December 31 for each
calendar year that the loan remains on the bank's balance sheet, and an
existing community development investment renewed in a calendar year
subsequent to the calendar year of the investment, as of December 31
for each calendar year that the investment remains on the bank's
balance sheet.\1130\ As discussed above, the agencies believe that
these valuation methods strike the appropriate balance between
incentivizing new community development loans and investments and
encouraging patient capital.
---------------------------------------------------------------------------
\1129\ See final appendix B, paragraph I.a.1.i.C.
\1130\ See final appendix B, paragraph I.a.1.i.D.
---------------------------------------------------------------------------
The agencies proposed to value the outstanding value of community
development loans originated or purchased and community development
investments made in previous years based on the value that remained on
the bank's balance sheet on the last day of each quarter of the year,
averaged across the four quarters of the year. The final rule instead
values these community development loans and investments based on the
value as of December 31 of each calendar year that the loan or
investment remains on the bank's balance sheet. The agencies made this
revision in response to overall comments received about the complexity
and burden of the proposed rule. The agencies believe this change
simplifies the rule and appropriately balances burden associated with
data collection under the final rule with the need for data to
calculate the metrics and benchmarks.
The agencies determined not to treat equity equivalent investments
and syndications differently than other community development loans and
investments. Under the final rule, community development loans and
investments are considered in the single Community Development
Financing Test. This contrasts with the current rule where large banks
are separately evaluated under different tests for community
development loans and investments. Therefore, the final rule eliminates
the motivation for accounting for a portion of an equity equivalent
investment as a loan and a portion as an investment to receive
consideration under each of the current lending and investment
tests.\1131\ Under the final rule, if an equity equivalent investment
supports community development pursuant to Sec. __.13, the agencies
will provide consideration for the full value of the investment under
the Community Development Financing Test. Further, if the equity
equivalent investment or syndication is consistent with one of the
impact and responsiveness factors, banks will receive additional
qualitative consideration for the investment. The agencies believe that
this combined quantitative and qualitative consideration of equity
equivalent investments and syndications under the Community Development
Financing Test appropriately accounts for the value of these
investments and further enhanced valuations are not necessary.
---------------------------------------------------------------------------
\1131\ See current 12 CFR __.22 and __.23.
---------------------------------------------------------------------------
With respect to the comments regarding ``re-proving'' in a later
evaluation period that a loan or investment that remains on a bank's
balance sheet supports community development, the agencies expect that
they will engage in data integrity assessments under the final rule
consistent with their current practices. In general, the agencies take
a measured approach to data integrity to reduce
[[Page 6963]]
burden. Under the final rule, community development loans and
investments generally remain qualifying for a bank as long as the loan
or investment remains on the bank's balance sheet, even if the agency
has determined that the loan or investment no longer meets the
requirements of Sec. __.13.\1132\ For this reason, in most
circumstances banks need only maintain the information used to
substantiate that the loan or investment supported community
development at the time it was originated, purchased, or made.
---------------------------------------------------------------------------
\1132\ See final Sec. __.14(a)(2)(ii).
---------------------------------------------------------------------------
Denominator for the Community Development Financing Test, Paragraph I.a
of Appendix B
In considering the comments on the valuation of community
development loans and investments, as well as other comments about the
metric and benchmark calculations, the agencies determined that
additional information regarding the inputs to the calculations would
help clarify the rule. Therefore, in addition to the revisions and
clarifications that the agencies made to the numerator of the metrics
and benchmarks in final paragraph I.a of appendix B, the agencies also
provided additional clarifications to the denominator for the metrics
and benchmarks.
The final rule provides in paragraph I.a.2.i of appendix B that for
purposes of the metrics and benchmarks in Sec. __.24, the appropriate
Federal financial supervisory agency calculates an annual dollar volume
of deposits in a bank that is specific to each metric or benchmark for
each calendar year in the evaluation period. The final rule describes
this as the annual dollar volume of deposits and that term is used in
the calculations for the Community Development Financing Test. The
final rule goes on to reference the source of deposits for banks based
on the definition of deposit in Sec. __.12. Specifically, the final
rule states that for a bank that (1) collects, maintains, and reports
deposits data as provided in Sec. __.42, the annual dollar volume of
deposits is determined using the annual average daily balance of
deposits in the bank as provided in bank statements (e.g., monthly, or
quarterly) based on the deposit location and (2) does not collect,
maintain, and report deposits data as provided in Sec. __.42, the
annual dollar volume of deposits is determined using the deposits
assigned to each branch pursuant to the FDIC's Summary of Deposits
data.
Section __.24(a)(2) Allocation of Community Development Financing
Activities (and Paragraph I.b of Appendix B)
Current Approach
Under the current rule, community development loans and investments
must benefit a bank's assessment areas or a broader statewide or
regional area that includes at least one of a bank's assessment
areas.\1133\ The current rule does not include specific provisions for
the allocation of the dollar value of community development loans and
investments in circumstances where a bank cannot clearly attribute the
loan or investment to one or more of its assessment areas.\1134\
---------------------------------------------------------------------------
\1133\ See Q&A Sec. __.12(h)--6.
\1134\ See Interagency Large Institution CRA Examination
Procedures (April 2014) at appendix.
---------------------------------------------------------------------------
The Agencies' Proposal
In Sec. __.24 and section 14 of appendix B of the NPR, the
agencies proposed an approach to consistently allocate the dollar value
of community development loans and investments for the purpose of
calculating the metrics and benchmarks used in the Community
Development Financing Test. The agencies intended that the proposed
approach would attribute the dollar value of community development
loans and investments to the geographic areas benefited or served by
the loan or investment and provide certainty that community development
loans and investments benefiting geographic areas outside of a bank's
facility-based assessment areas would receive consideration, as
provided for in the proposed rule.
The agencies proposed that banks would allocate the dollar amount
of community development loans and investments to one or more
counties,\1135\ States, or the nationwide area, depending on specific
documentation or the geographic scope of the activity. As proposed, at
the facility-based assessment area level, the agencies would sum the
dollar value of community development loans and investments assigned to
the counties within the facility-based assessment area in calculating
the Bank Assessment Area Community Development Financing Metric and the
benchmarks applicable to facility-based assessment areas, which would
inform the facility-based assessment area conclusions. In States in
which a bank has at least one facility-based assessment area, the
agencies would sum the dollar value of community development loans and
investments allocated to the State and to any counties within the State
to calculate the Bank State Community Development Financing Metric and
the benchmark applicable to the State. In multistate MSAs in which a
bank has at least one facility-based assessment area, the agencies
would sum the dollar value of community development loans and
investments allocated to the multistate MSA and to any counties within
the multistate MSA to calculate the Bank Multistate MSA Community
Development Financing Metric and the benchmark applicable to the
multistate MSA. In the nationwide area, the agencies would sum the
dollar value of all of a bank's community development loans and
investments--those allocated to counties, States, multistate MSAs, and
the nationwide area--to calculate the Bank Nationwide Community
Development Financing Metric and the proposed benchmark applicable to
the nationwide area.
---------------------------------------------------------------------------
\1135\ Under the proposal and the final rule, ``county'' means
``any county or statistically equivalent entity as defined by the
U.S. Census Bureau.'' See proposed Sec. __.12 and final Sec.
__.12.
---------------------------------------------------------------------------
The agencies believed this approach would allow for metrics that
consistently measure performance at the different levels and was
intended to support a balance between emphasizing facility-based
assessment area performance and considering community development loans
and investments that benefit geographic areas outside of those
assessment areas. The agencies intended that the proposed approach
would emphasize facility-based assessment area performance because it
would allow the agencies to measure the dollar value of community
development loans and investments that specifically serve a facility-
based assessment area, distinct from community development loans and
investments that serve a broader geographic area or that primarily
serve other areas. At the same time, the proposal also would have
considered all community development loans and investments in the
nationwide metric.\1136\ The agencies believed this would provide
additional certainty and flexibility relative to the current approach
and allow banks the opportunity to conduct impactful and responsive
community development loans and investments in areas that may have few
assessment areas.
---------------------------------------------------------------------------
\1136\ See proposed Sec. __.24(c)(4)(ii)(A).
---------------------------------------------------------------------------
The agencies proposed to determine the geographic scope of a
community loan or investment based on information provided by the bank,
and as needed, publicly available information and information provided
by government or community sources that demonstrates
[[Page 6964]]
that the activity serves individuals or census tracts located within
the area. Proposed Sec. __.24 also cross-referenced proposed section
14 of appendix B, where the agencies proposed to allocate a community
development loan or investment that benefited a single county to that
county. For an activity that benefited multiple counties, the agencies
proposed two options for allocating the dollar value of the activity.
Under the first proposed option, if a bank produced documentation for
an activity specifying the appropriate dollar amount to assign to the
counties benefited by the activity, then the bank would allocate the
dollar value of the activity accordingly at the county level. In the
alternative, if a bank did not produce documentation specifying how to
allocate the loan or investment to the geographic area benefited or
served by the particular activity, the bank would allocate the dollar
amount based on the proportion of low- and moderate-income families in
the applicable areas.
Under the second proposed option, for a community development loan
or investment that served multiple counties but not an entire statewide
area, the agencies proposed that banks would allocate the dollar amount
of the loan or investment across the counties served, in proportion to
the percentage distribution of low- and moderate-income families across
those counties.\1137\ The agencies proposed that community development
loans or investments that served one or more States, but not the entire
nation, would be allocated at the State level, and not to specific
counties within the State, based on the proportion of low- and
moderate-income families in each State.\1138\ Lastly, the agencies
proposed that for a community development loan or investment with a
nationwide scope, for which the bank did not provide documentation, the
bank would allocate loan or investment to the institution level and not
to specific States or counties.\1139\ The agencies believed the use of
demographic data for allocating the dollar value of community
development loans and investments without documentation of locations
served would provide certainty and consistency compared to the current
approach and would reflect the population served by community
development financing activities.
---------------------------------------------------------------------------
\1137\ See proposed appendix B, section 14.
\1138\ Id.
\1139\ Id.
---------------------------------------------------------------------------
The agencies sought feedback on other data points that the agencies
could use for allocating community development loans and investments
and may more appropriately reflect the population served, such as total
population or number of small businesses. The agencies also sought
feedback regarding whether community development loans and investments
that cannot be allocated to a specific county or State should be
considered at the highest geographic level benefited or served by a
loan or investment instead of being allocated to multiple counties or
counties within States based upon the distribution of all low- and
moderate-income families. In addition, the agencies sought feedback on
what methodology should be used to allocate the dollar value of
activities to specific counties for activities that serve multiple
counties (i.e., allocate based on the distribution of low- and
moderate-income families or some other method).
Comments Received
In general, commenters that provided feedback on the allocation of
community development loans and investments did not object to including
an allocation method in the rule. Commenters' opinions varied, however,
on how to allocate these community development loans and investments. A
commenter generally supported the proposed geographic flexibility for
allocating the dollar value of community development loans and
investments under the Community Development Financing Test, which the
commenter stated could help bring community development capital to more
neighborhoods away from areas where banks have branches--especially
Native and rural communities.
Commenters expressed differing views on whether to allocate
community development loans and investments based on the percentage of
low- and moderate-income families when banks did not provide specific
documentation for allocating a loan or investment. A few commenters
supported the agencies proposed approach of allocating community
development loans or investments in proportion to the percentage of
low- and moderate-income families. Other commenters instead recommended
that the agencies allocate community development financing activities
based on the distribution of low- and moderate-income households. One
of these commenters supported its position by explaining that this
allocation method reflects the intended beneficiaries of CRA. As an
alternative, a commenter suggested that the agencies could use a
simpler approach of allocating community development loans and
investments based on the distribution of all families. Another
commenter recommended the agencies use an allocation approach based on
the proportion of low- and moderate-income families, small businesses,
and small farms. The commenter also recommended the agencies conduct
targeted impact assessments using surveys and other research tools that
gauge how much and which residents or businesses benefit the most from
banks' community development loans and investments in each assessment
area.
Commenters also provided opposing views on whether, in the absence
of specific documentation, the agencies should allocate community
development loans and investments at the highest geographic level. A
few commenters objected to allocating community development financing
activities at the highest geographic level. For example, a state
government commenter stated that the Community Development Financing
Test is intended to measure banks' loans and investments against
benchmarks that reflect local context, which the commenter asserted is
incongruous with the idea that a bank with a nationwide footprint could
include community development loans and investments that are nationwide
in scope. The commenter believes that banks should have the burden of
demonstrating local-, county-, or State-level impact. Another commenter
requested that banks receive credit at the assessment area level for
housing credit investments made anywhere in the State where a bank has
more than one assessment area.
Commenters offered several alternatives to allocating at the
highest geographic level including that the agencies should: (1) make
best efforts to ensure that they assign community development loans and
investments in a manner that is consistent with the bank's preferences,
as well as with standard industry practices; (2) permit geographic
allocation based on allocation or side letters; (3) base allocations on
the capital committed for an investment, even if the fund has not
identified all of its specific development sites or other projects; (4)
allocate loans and investments to each assessment area as the loan or
investment indicates or equally to each applicable assessment area
served; (5) allocate based on the purpose, mandate, or function of the
organization or activity, including which geographic areas are served;
or (6) permit the bank and the recipient of the loan or investment to
identify a reasonable geographic allocation (e.g., allow banks to rely
on geographic
[[Page 6965]]
allocations provided by the recipient or consortium).
In contrast, a few commenters supported allocating community
development loans and investments that cannot be allocated to a certain
area at the highest geographic level, whether that be the State,
multistate MSA, or institution level. One of these commenters noted
that, if the community development loans and investments are broad
reaching, the State, county, or regional planning commission may have
accompanying metrics the agencies could use in assessing the impact on
a State or county. Another commenter expressed that allocating a
community development loan or investment across multiple counties would
create an impossible burden for many of the local (and often nonprofit)
bank partners that help banks serve their communities. Some commenters
recommended allocating community development loans and investments at
the institution level.
Final Rule
The agencies are finalizing the allocation provisions included in
the proposed rule with certain revisions to clarify how banks will
allocate community development loans and investments. Section
__.24(a)(2) of the final rule provides that the agencies consider
community development loans and investments allocated pursuant to
paragraph I.b of appendix B. Final paragraph I.b of appendix B includes
the specific allocation provisions that were included in proposed
section 14 of appendix B, with clarifying revisions.\1140\
---------------------------------------------------------------------------
\1140\ The Community Development Financing Test for Limited
Purpose Banks includes a similar provision for allocation in final
Sec. __.26(c)(2), which also cross-references final appendix B,
paragraph I.b.
---------------------------------------------------------------------------
The agencies determined that permitting banks to choose between
allocating community development loans and investments based on
specific documentation or the geographic scope of an activity provided
the appropriate level of flexibility. As such, the final rule retains
both options. The agencies considered feedback from certain commenters
noting that banks should have flexibility in allocating community
development loans and investments. Further, the agencies considered the
options provided by commenters for allocating community development
loans and investments, including permitting the use of side letters,
considering allocation information from the recipient, or basing
allocations on the purpose, mandate, or function of the recipient of
the loan or investment.
The agencies continue to believe it is important that banks can
receive consideration in specific geographic areas if they are able to
demonstrate that a community development loan or investment, or a
portion of a loan or investment, benefited or served a particular area.
Allowing for allocation based on specific documentation enhances the
accuracy of the metrics and benchmarks in the Community Development
Financing Test. Further, it provides an incentive for banks to serve
particular communities by including a method for the bank to get
consideration for the whole or a specific portion of a community loan
or investment in the area benefited or served.
Under the final rule, the agencies would consider any documentation
provided by the bank that specifies the appropriate dollar volume of a
community development loan or investment to assign to each county, such
as the specific addresses and dollar volume associated with each
address, or other information that indicates the specific dollar volume
of the loan or investment that benefited or served each county.
Consistent with commenters' suggestions, specific documentation could
include, but would not be limited to, side or allocation letters;
information on the purpose, mandate, or function of the organization
that received the community development loan or investment; or any
other information that reasonably demonstrates the specific dollar
volume of the activity that benefited or served a county. The agencies
removed the word ``accounting'' before ``information'' to clarify that
they did not intend to limit the type of information considered
strictly to information related to accounting; information could also
include, for example, a mission statement for the organization that
received the community development loan or investment.
If a bank does not provide specific documentation, the agencies
determined it is appropriate to allocate a community development loan
or investment to the highest geographic level that the activity
benefits or serves (i.e., county, State, multistate MSA,\1141\ or
nationwide area) based on the geographic scope \1142\ of the loan or
investment and in proportion to the percentage of low- and moderate-
income families in the area benefited or served by the loan or
investment. Following consideration of the comments, the agencies
determined that allocating at the highest geographic level benefited or
served appropriately balances the burden of allocating community
development loans and investments at a more granular level with the
desire for accuracy of the metrics and benchmarks. If a community
development loan or investment has a geographic scope of benefiting or
serving one or more entire States, multistate MSAs, or the nationwide
area and the bank cannot attribute the loan or investment to any
particular county, then the loan or investment will be allocated to the
State(s) or multistate MSA(s) that the activity benefits or serves or,
if the activity benefits or serves the nationwide area, to the
nationwide area. Consequently, a bank will not receive consideration
for community development loans or investments allocated to a State,
multistate MSA, or the nationwide area in its lower geographic-level
evaluations. For the purposes of allocating community development loans
and investments, the agencies consider low- or moderate-income families
to be located in a State or multistate MSA, as applicable, consistent
with final Sec. __.28(c). The agencies determined that this was
appropriate because allocating community development financing
activities to the county, State, or multistate MSA level in the absence
of specific documentation that the loan or investment benefited or
served that area could result in an artificial inflation of the metrics
and benchmarks because the loan or investment may not have benefited or
served one of the geographic areas where the agencies are allocating a
portion of the dollar value. Further, allocating part of a community
development loan or investment to a county, State, or multistate MSA
that did not actually benefit from that loan or investment may
disincentivize banks from engaging in more targeted loans and
investments that do benefit or serve those areas.
---------------------------------------------------------------------------
\1141\ The NPR discussed allocating at the multistate MSA level.
The agencies did not include this level of allocation in proposed
appendix B. The final rule includes allocation at the multistate MSA
level because allocation at this level is necessary based on the
structure of the proposal and the final rule.
\1142\ The agencies determine the highest geographic level for
allocating a community development financing activity based on the
geographic scope of the activity. For example, the agencies would
allocate an investment in a statewide economic development fund for
which the bank does not have specific documentation identifying
projects financed at the county level to the State--not the
nationwide area.
---------------------------------------------------------------------------
The agencies also considered the comments suggesting alternatives
to the proposed approach of allocating community development loans and
[[Page 6966]]
investments in proportion to the percentage of low- and moderate-income
families in the geographic area benefited or served. The agencies are
finalizing allocation based on the percentage of low- and moderate-
income families because they believe this: (1) is consistent with the
CRA statute's and CRA regulations' focus on helping to meet the credit
needs of a bank's entire community, including low- and moderate-income
communities; and (2) it does not introduce additional complexity that
would result from allocating based on a combination of low- and
moderate-income families, small businesses, and small farms. The
agencies determined that other options for allocating community
development loans or investments, such as allocation based on all
families or dividing between facility-based assessment areas, lacked
the connection to low- and moderate-income communities that the
agencies believe is at the core of the CRA. Further, the agencies
considered commenter feedback and determined that it was not
appropriate to allocate one type of activity, such as housing tax
credit investments, differently than other types of activities because
the mechanism for recognizing particularly impactful activities under
the final rule is the impact and responsiveness review. The final rule
includes the following table outlining how community development loans
and investments will be allocated:
[GRAPHIC] [TIFF OMITTED] TR01FE24.103
Final paragraph I.b.2.ii.B of appendix B also includes a footnote
explaining that for purposes of allocating community development loans
and investments, the agencies consider low- or moderate-income families
to be located in a State or multistate MSA, as applicable, consistent
with final Sec. __.28(c). As noted above, the agencies also made
several clarifying edits to proposed Sec. __.24(a) and paragraph I.b
of appendix B. The agencies divided proposed Sec. __.24(a) into two
paragraphs, so that the allocation paragraph \1143\ is independent of
the general paragraph describing the performance test.\1144\ The
agencies removed the portion of proposed Sec. __.24(a) referencing the
[[Page 6967]]
documentation that banks can provide, or the agencies will use, to
support the allocation of community development loans and investments
because this concept is adequately addressed in paragraph I.b of
appendix B of the final rule. Under the final rule, paragraph I.b.1 of
appendix B provides that, as appropriate, the appropriate Federal
financial supervisory agency may also consider publicly available
information and information provided by government or community sources
that demonstrates that a community development loan or community
development investment benefits or serves a facility-based assessment
area, State, or multistate MSA, or the nationwide area. The agencies
intend that these changes will clarify, but not substantively alter,
the proposal.
---------------------------------------------------------------------------
\1143\ See final Sec. __.24(a)(2).
\1144\ See final Sec. __.24(a)(1).
---------------------------------------------------------------------------
Further, the agencies reorganized paragraph I.b of appendix B and
added additional detail to explain the allocation process for community
development loans and investments. First, following the paragraphs on
valuation in paragraph I.a.i of appendix B, paragraph I.a.ii explains
that to calculate the metrics and benchmarks provided in Sec. Sec.
__.24 and __.26, the agency includes all community development loans
and community development investments that are allocated to the
specific facility-based assessment area, State, multistate MSA, or
nationwide area, respectively, in the numerator for the metric and
benchmarks applicable to that geographic area and then cross references
paragraph I.b of appendix B, which includes the allocation provisions.
Second, the agencies included in paragraph I.b.1 of appendix B cross
references to Sec. __.42(a)(5)(ii)(D) and (E), which explain the data
a bank must provide to support the allocation of a community
development loan or investment. The agencies also made other conforming
revisions.
Section __.24(b) Facility-Based Assessment Area Evaluation
Current Rule and the Agencies' Proposal
As discussed above, the agencies currently evaluate banks'
community development performance in banks' assessment areas. The
agencies proposed to continue evaluation of community development
financing activities in facility-based assessment areas consistent with
the current rule.
Comments Received
Commenters generally supported the continued evaluation of
community development financing performance in facility-based
assessment areas. The comments regarding specific aspects of the
proposed facility-based assessment area evaluation, including the
applicable metrics, benchmarks, impact review, and conclusions are
discussed below in the relevant section-by-section analyses.
Final Rule \1145\
---------------------------------------------------------------------------
\1145\ As discussed in the section-by-section analysis of final
Sec. __.21(a)(5), the agencies are adopting a new paragraph in the
final rule to clarify the evaluation of military banks. Under the
final rule, the agencies will evaluate a military bank that chooses
to delineate the entire United States and its territories as its
sole facility-based assessment area because its customers are not
located within a defined geographic area, as specified in final
Sec. __.16(d), exclusively at the institution level based on the
bank's performance in its sole facility-based assessment area. For
purposes of the final Community Development Financing Test, the
agencies will evaluate these banks pursuant to the facility-based
assessment area provisions in final Sec. __.24(b).
---------------------------------------------------------------------------
Under the final rule, the appropriate Federal financial supervisory
agency evaluates a bank's community development financing performance
in a facility-based assessment areas using (1) the Bank Assessment Area
Community Development Financing Metric in Sec. __.24(b)(1); (2) the
applicable benchmarks, which include the Assessment Area Community
Development Financing Benchmark and the MSA and Nonmetropolitan
Nationwide Community Development Financing Benchmarks (referred to as
the local and national benchmarks in the section-by-section analysis of
Sec. __.24(b)(2)); and (3) the impact and responsiveness review in
Sec. __.24(b)(3). The final rule also provides that the agency assigns
conclusions for a bank's facility-based assessment areas pursuant to
paragraph d.1 of appendix C. This section includes conforming and
technical edits to update the numbering in the rule and other wording
for purposes of consistency and clarity that are not intended to have a
substantive effect.
Section __.24(b)(1) Bank Assessment Area Community Development
Financing Metric
The Agencies' Proposal
The agencies proposed in Sec. __.24(b)(1) to use a Bank Assessment
Area Community Development Financing Metric to measure the dollar value
of a bank's community development loans and investments compared to
deposits from the bank's deposit accounts \1146\ in the facility-based
assessment area. As discussed below, the agencies also proposed
comparing this metric to certain benchmarks for the purpose of
informing the evaluation of bank performance.\1147\
---------------------------------------------------------------------------
\1146\ See proposed Sec. __.12 (defining ``deposits'').
\1147\ See proposed Sec. __.24(b)(2).
---------------------------------------------------------------------------
Bank Assessment Area Community Development Financing Metric--
Numerator. The agencies proposed in Sec. __.24(b)(1) and section 2 of
appendix B that the Bank Assessment Area Community Development
Financing Metric would be the ratio of a bank's community development
financing dollars (the numerator) that serve the facility-based
assessment area, averaged over the years of the evaluation period,
relative to the dollar value of the deposits from the bank's deposit
accounts (the denominator) in a bank's facility-based assessment area,
averaged over the evaluation period.
The agencies proposed that the numerator of the Bank Assessment
Area Community Development Financing Metric would be a bank's annual
average of dollars of community development loans and investments that
serve a facility-based assessment area.\1148\ As discussed above, for
each year in an evaluation period this calculation would include the
dollar amount of all community development loans originated and
community development investments made in that year. The agencies also
proposed to include the dollar amount of any increase in an existing
community development loan that is renewed or modified in that
year.\1149\ The proposed numerator would also include the quarterly
average value of community development loans and community development
investments originated or purchased in a prior year that remained on a
bank's balance sheet on the last day of each quarter during the
evaluation period.\1150\ Considering the outstanding balance of a loan
or investment in bank's metric on an annual basis would make long-term
financing beneficial to a bank's metric.
---------------------------------------------------------------------------
\1148\ See proposed Sec. __.24(b)(1) and proposed appendix B,
section 1.
\1149\ See proposed appendix B, section 1.
\1150\ Id.
---------------------------------------------------------------------------
Bank Assessment Area Community Development Financing Metric--
Denominator. The proposed denominator of the Bank Assessment Area
Community Development Financing Metric would be a bank's annual average
dollar amount of deposits from the bank's deposit accounts sourced from
a facility-based assessment area during the evaluation period.\1151\ As
proposed in Sec. __.42, collecting and maintaining deposits data would
be required for banks with assets
[[Page 6968]]
greater than $10 billion as of December 31 in both of the prior two
calendar years and optional for banks with assets of $10 billion or
less as of December 31 of either of the prior two calendar years.\1152\
Under the proposal, banks that collected and maintained deposits data
under proposed Sec. __.42 would compute the average deposits
(calculated based on average daily balances as provided in statements
such as monthly or quarterly statements, as applicable) for depositors
located in the assessment area.\1153\ An annual average would then be
computed across the years of the evaluation period. The agencies
proposed that, for banks that do not collect and maintain deposits data
under proposed Sec. __.42, CRA evaluations would use the FDIC's
Summary of Deposits data in order to tailor data requirements for these
banks.
---------------------------------------------------------------------------
\1151\ Id.
\1152\ The proposed rule was silent as to whether intermediate
banks that opted into the Community Development Financing Test could
opt to collect and maintain deposits data for purposes of
calculating the Community Development Financing Test metrics.
\1153\ See proposed Sec. __.42(b)(5).
---------------------------------------------------------------------------
This denominator was an indicator of a bank's financial capacity to
conduct community development loans and investments because deposits
are a major source of bank funding for loans and investments. The
agencies considered that, in their view, the greater a bank's volume of
deposits, the greater its capacity and CRA obligation to lend and
invest would become.\1154\ Therefore, the proposed approach for the
Bank Assessment Area Community Development Financing Metric would
establish a proportionately greater obligation to serve facility-based
assessment areas for banks with a greater presence in that market.
---------------------------------------------------------------------------
\1154\ See 12 U.S.C. 2901.
---------------------------------------------------------------------------
As an alternative, the agencies considered basing the Bank
Assessment Area Community Development Financing Metric denominator on
the share of a bank's depositors residing in a facility-based
assessment area. Using this alternative, the agencies would calculate
the denominator by multiplying the bank's institution level deposits by
the percentage of the bank's depositors that reside in a facility-based
assessment area. For example, if the bank had a total of $100,000,000
in deposits and one percent of the bank's depositors resided in a given
facility-based assessment area, then the denominator for that
assessment area's metric would be $100,000,000 x .01 = $1,000,000. The
objective of this alternative approach would be to more evenly allocate
a bank's CRA obligations across markets, including less affluent
markets in which a bank's depositors hold relatively small amounts of
deposits, because deposits would be allocated to facility-based
assessment areas in proportion to the number of depositors. However,
the agencies considered that this option would require all large banks
and any intermediate banks that opt into the Community Development
Financing Test to collect and maintain the number of depositors
residing in each of their facility-based assessment areas and in other
geographic areas because this information is not available from
existing data such as the FDIC's Summary of Deposits data.
Comments Received
The agencies received several comments on the proposed Bank
Assessment Area Community Development Financing Metric.\1155\
Commenters generally supported the proposed metric; however, at least
one commenter objected and recommended the agencies use only the number
of loans and investments and consider their overall impact in assessing
banks' CRA performance. Further, some comments on the proposed metric
may reflect a misunderstanding of the proposed calculations.
---------------------------------------------------------------------------
\1155\ The agencies note that comments on the Bank Assessment
Area Community Development Financing Metric related to the
calculation of the metric apply equally to the other metrics in the
Community Development Financing Test. These comments will not be
separately discussed when considering the other metrics in this
performance test.
---------------------------------------------------------------------------
Bank Assessment Area Community Development Financing Metric--
numerator. With respect to the proposed calculation of the numerator of
the Bank Assessment Area Community Development Financing Metric, the
agencies received several comments expressing differing views on the
proposal for averaging banks' on balance sheet community development
loans and investments for purposes of the Bank Assessment Area
Community Development Financing Test Metric numerator. A commenter
objected to using a three-year average of community development loans
and investments because the loan values would likely decrease over that
time, which the commenter stated would devalue community development
loans. The commenter urged the agencies to consider an approach where
the Bank Assessment Area Community Development Financing Test Metric
numerator is the sum of: (1) the annual average of community
development loans and investments originated or purchased in a prior
evaluation period that remain on a bank's balance sheet; and (2) the
total of all of community development loans and investments originated
or purchased during the current evaluation period, without annual
averaging.\1156\ The commenter stated this approach would promote the
provision of long-term capital since banks would still receive credit
for remaining balances in the next evaluation period while encouraging
community development financing generally by allowing banks to realize
the full value of their community development loans and investments in
the current evaluation period.
---------------------------------------------------------------------------
\1156\ The agencies note that the commenter's suggestion is
generally consistent with the proposal.
---------------------------------------------------------------------------
Another commenter stated that the proposed methodology of the Bank
Assessment Area Community Development Financing Metric would
artificially inflate the numerator by giving consideration during the
current review period for activities in each year. The commenter
suggested that a better way of encouraging patient capital would be to
consider ``past'' loans and investments to refer only to prior
evaluation period activities. Notwithstanding these concerns, the
commenter suggested that if the agencies proceed with finalizing the
current proposal, the final rule should include three additional
ratios: (1) current community development financing activity divided by
deposits; (2) past community development financing activity divided by
deposits; and (3) total community development financing activity
divided by deposits. Another commenter also expressed concern that
providing consideration for current review period activities each year
would limit the number of new loan originations.
Bank Assessment Area Community Development Financing Metric--
denominator. Commenters that provided feedback on the denominator for
the Bank Assessment Area Community Development Financing Metric and
other metrics in the Community Development Financing Test generally
expressed a preference for using the dollar value of deposits as
proposed. Commenters generally did not support the alternative of using
the share of bank depositors residing in a facility-based assessment
area as the Bank Assessment Area Community Development Financing Metric
denominator.
Commenters provided several reasons for their objection to the
alternative denominator. One commenter noted that obtaining accurate
data on the actual share of bank depositors residing
[[Page 6969]]
in an assessment area would be difficult. Another commenter stated that
the agencies' proposed approach of using deposits as the Bank
Assessment Area Community Development Financing Metric denominator was
simpler and offered a more realistic chance for obtaining accurate
data. Another commenter stated that it understood the agencies' desire
to account for population and resource differences across assessment
areas but that it was not clear the alternative approach would
accomplish this goal. Lastly, a commenter noted that the spirit of the
CRA includes how well banks are lending compared to where they are
taking deposits.
The agencies also sought feedback regarding whether the source of
deposits data for the Bank Assessment Area Community Development
Financing Metric denominator should be collected deposits data or the
FDIC's Summary of Deposits data for banks with assets less than or
equal to $10 billion. Some commenters supported the proposed use of
Summary of Deposits data for the denominator for banks with assets of
$10 billion or less. A commenter also recommended that all banks, not
just banks with assets less than or equal to $10 billion, use Summary
of Deposits data for the Bank Assessment Area Community Development
Financing Metric denominator. This commenter suggested that banks may
voluntarily collect and maintain deposits data for the sake of ensuring
accurate metrics and weights.
Alternatively, some commenters preferred using collected deposits
data for the denominator. Specifically, certain commenters recommended
that the agencies should require deposits data collection for all large
banks for use in determining the denominator. One of these commenters
stated that collected deposits data more accurately reflect bank
performance under the Community Development Financing Test. Another
commenter recommended allowing banks to rely on the FDIC's Summary of
Deposits data to mitigate compliance burden but suggested that banks
may opt to collect and report deposits data to offset the risk of
inaccuracy associated with the use of Summary of Deposits data.
Final Rule
After considering the comments, the agencies are finalizing the
Bank Assessment Area Community Development Financing Metric as proposed
with certain revisions, including clarifying and conforming revisions,
to final Sec. __.24(b)(1) and paragraph II.a of final appendix B
(proposed as section 2 of appendix B).
Bank Assessment Area Community Development Financing Metric--
numerator. With respect to the numerator of the Bank Assessment Area
Community Development Financing Metric, the commenters focused on: (1)
the types of loans and investments included in the numerator; (2) when
banks originated, purchased, or made those loans and investments; and
(3) whether they were averaged annually over the evaluation period. As
discussed in the section-by-section analysis of Sec. __.24(a), the
agencies considered how to value community development loans and
investments to encourage patient capital while still giving appropriate
consideration for new community development loans and investments and
believe that the final rule strikes the right balance.
The agencies considered the alternatives suggested by commenters,
including averaging only the annual value of prior period community
development loans and investments and adding additional metrics if the
rule is finalized as proposed. The agencies determined not to adopt
these or other alternatives. Because the same metrics and benchmarks
apply to all banks evaluated under the Community Development Financing
Test, banks that want to differentiate themselves will need to increase
their community development lending and investments in comparison to
their peers. Banks that substantially reduce the amount of new
community development lending and investments will likely perform
poorly in comparison to peers that maintain or increase their level of
community development lending and investment. For this reason, the
introduction of standard metrics and benchmarks will encourage banks to
increase their community development lending and investment.
The agencies also note that the Community Development Financing
Test includes consideration of the performance context information
provided in Sec. __.21(d), as further discussed in that section-by-
section analysis. Performance context that the agencies may consider
under the final rule includes: (1) information regarding a bank's past
performance; (2) any information about community development needs and
opportunities; and (3) any other information the appropriate Federal
financial supervisory agency deems relevant. Given that the agencies
will use the metrics and benchmarks to inform a qualitative assessment
of a bank's community development financing performance, an examiner
could consider these performance context factors in concluding on a
bank's performance in circumstances where the bank has substantially
reduced the amount of new community development loans and investments
during an evaluation period.
Bank Assessment Area Community Development Financing Metric--
denominator. The agencies considered commenter feedback on the Bank
Assessment Area Community Development Financing Metric denominator and
for this purpose, deposits are an indicator of a bank's financial
capacity to conduct community development loans and investments because
deposits are a major source of bank funding for loans and investments.
Although the alternative described in the proposal of using the share
of a bank's depositors residing in an facility-based assessment area
for the denominator may have allowed the agencies to more evenly
allocate a bank's CRA obligations across markets--including less
affluent markets in which the bank's depositors hold relatively small
amounts of deposits--the burden associated with this option outweighs
the benefit of using depositors as the denominator because it would
require data collection for all banks evaluated under the Community
Development Financing Test. Using deposits as the denominator is
consistent with the spirit of the CRA because it enables the agencies
to assess the extent to which banks are reinvesting in the communities
where they take deposits.
The agencies also considered the comments regarding the use of
deposits data collected pursuant to Sec. __.42 as opposed to the
FDIC's Summary of Deposits data in the denominator for the Bank
Assessment Area Community Development Financing Metric. The split in
commenters' views on this issue reflects the inherent tradeoffs
associated with each option. While use of collected deposits data would
make the Bank Assessment Area Community Development Financing Metric
more accurate, collecting data on deposits would be a new data
collection requirement that imposes burden on banks. In contrast,
although using Summary of Deposits data in the denominator eliminates
the burden on banks to collect data, it may not accurately reflect the
dollar volume of deposits drawn from a particular geographic area. The
agencies are adopting the final rule as proposed because it balances
the tradeoff between increased burden associated with collecting,
maintaining, and reporting
[[Page 6970]]
deposits data and the accuracy of the deposits data.
The final rule requires banks that had assets greater than $10
billion to collect, maintain, and report deposits data. It is important
to tailor the requirement to collect, maintain, and report deposits
data in order to only apply to banks with greater resources. The
agencies determined that, due to the greater resources of banks that
had assets greater than $10 billion, these banks have the capacity to
collect, maintain, and report more accurate data and the benefit of
more accurate deposits data outweighs the burden of collecting,
maintaining, and reporting that data. See the section-by-section
analysis of Sec. __.42. For banks that had assets less than or equal
to $10 billion, the final rule uses the FDIC's Summary of Deposits data
in the denominator, thereby limiting the burden for these banks.
Nonetheless, because certain banks that had assets of less than or
equal to $10 billion may have dispersed deposits or the assignment of
the banks' deposits under the Summary of Deposits data may not reflect
the actual location of the deposits, the final rule provides these
banks with the option to collect, maintain, and report deposits data.
Providing this option mitigates the potential negative consequences of
using Summary of Deposits data in the denominator because banks that
would not perform well compared to their peers using Summary of
Deposits data will be able to choose to collect, maintain, and report
deposits data pursuant to final Sec. __.42 to provide a fuller and
more accurate picture of their community development lending and
investment.
Section __.24(b)--clarifying, conforming, and technical revisions
to the facility-based assessment area evaluation. Although the agencies
are finalizing the facility-based assessment area evaluation, including
the Bank Assessment Area Community Development Financing Metric,
substantively as proposed, as noted by commenters, the structure of
proposed Sec. __.24 and appendix B may be confusing. To address that
concern, the agencies revised aspects of the final rule for clarity and
consistency. With respect to the facility-based assessment area
evaluation, the agencies included technical revisions to cross
reference the sections of the final rule that include the metrics,
benchmarks, and the impact and responsiveness review as well as how the
agencies assign conclusions.\1157\ The agencies also enhanced the
descriptions of the metrics and benchmarks in final Sec. __.24 and
clarified the calculations in appendix B by segmenting the descriptions
into steps and adding sample formulas to the examples. These edits are
intended to eliminate unintended inconsistencies and inaccuracies in
the calculations in the final rule and improve the ability to
understand and apply the metrics and benchmarks in the final Community
Development Financing Test.
---------------------------------------------------------------------------
\1157\ See, e.g., final Sec. __.24(b).
---------------------------------------------------------------------------
Under the final rule, Sec. __.24(b)(1) provides that the Bank
Assessment Area Community Development Financing Metric measures the
dollar volume of a bank's community development loans and community
development investments \1158\ that benefit or serve a facility-based
assessment area compared to those deposits in the bank that are located
in the facility-based assessment area, calculated pursuant to paragraph
II.a of appendix B.
---------------------------------------------------------------------------
\1158\ The agencies consider a bank's community development
loans and investments to include those community development loans
and investments that the bank is required or elects to have the
agencies consider under final Sec. __.21(b) and (c) (i.e.,
community development loans and investments conducted by operations
subsidiaries or operating subsidiaries, as applicable, other
affiliates, third parties, or consortiums).
---------------------------------------------------------------------------
Paragraph I.a.1 of appendix B of the final rule provides that the
appropriate Federal financial supervisory agency calculates an annual
dollar volume of community development loans and community development
investments based on the annual dollar volume of these loans and
investments. Paragraph I.a.2.i of appendix B of the final rule provides
that the agency also determines the annual dollar volume of deposits.
The agencies use the annual dollar volume of community development
loans and investments and the annual dollar volume of deposits to
calculate the Bank Assessment Area Community Development Financing
Metric pursuant to paragraph II.a of appendix B. Paragraph II.a of
appendix B includes the three steps for calculating the Bank Assessment
Area Community Development Financing Metric. Specifically, the agency
calculates the Bank Assessment Area Community Development Financing
Metric by: (1) summing the bank's annual dollar volume of community
development loans and community development investments that benefit or
serve the facility-based assessment area for each year in the
evaluation period (sum of community development loans and investments);
(2) summing the annual dollar volume of deposits located in the
facility-based assessment area (sum of deposits); and (3) dividing the
result of the sum of community development loans and investments by the
sum of deposits.
The agencies made a technical change to consistently use the term
``dollar volume'' when describing community development loans and
investments and deposits in the Bank Assessment Area Community
Development Financing Metric. The agencies also revised the phrase used
to describe deposits in the Bank Assessment Area Community Development
Financing Metric. In the proposal, community development loans were
compared to ``deposits from the bank's deposit accounts.'' The agencies
determined that this description could be misinterpreted to mean the
bank's own accounts (i.e., accounts containing the bank's money). To
clarify the denominator, the final rule uses the phrase ``deposits in
the bank.''
The agencies made conforming revisions to the remainder of final
Sec. __.24 and final appendix B to reflect these clarifying,
conforming, and technical revisions.
Section __.24(b)(2) Benchmarks
The Agencies' Proposal
The agencies proposed establishing local \1159\ and national \1160\
benchmarks for each facility-based assessment area. To help develop
facility-based assessment area conclusions, the agencies would compare
the Bank Assessment Area Community Development Financing Metric to both
(1) an Assessment Area Community Development Financing Benchmark (local
benchmark) and, as applicable, (2) a Metropolitan or a Nonmetropolitan
Nationwide Community Development Financing Benchmark (national
benchmarks).\1161\ These benchmarks would enable the agencies to
compare an individual bank's community development financing
performance to other banks in a clear and consistent manner. The
agencies based the proposed benchmarks on the aggregate amount of
community development loans and investments and the total dollar value
of deposits in the bank's facility-based assessment area or nationwide
area, among all large banks.
---------------------------------------------------------------------------
\1159\ See proposed Sec. __.24(b)(2)(i) and proposed appendix
B, section 3.
\1160\ See proposed Sec. __.24(b)(2)(ii) and proposed appendix
B, section 4.
\1161\ See proposed Sec. __.24(b)(2)(i) and (ii).
---------------------------------------------------------------------------
As proposed, the aggregate amounts of deposits for these benchmarks
would be based on reported deposits data for banks that had assets
greater than $10 billion and the FDIC's Summary of Deposits data for
banks that had assets less than or equal to $10 billion, using
[[Page 6971]]
the deposits assigned to branches located in each assessment area for
which the benchmark is calculated.\1162\ The agencies sought feedback
on the proposed approach to using the Summary of Deposits data for
calculating community development financing benchmarks, the tradeoffs
of the proposed approach, and potential alternatives to the proposed
approach.
---------------------------------------------------------------------------
\1162\ See proposed Sec. __.12 (defining ``deposits'') and
proposed appendix B, sections 3 and 4.
---------------------------------------------------------------------------
The proposed approach of using both local and national benchmarks
would provide the agencies, banks, and the public with additional
context about the local level of community development lending and
investment that could help to interpret and set goals for performance.
For example, a bank whose metric fell short of the local benchmark, in
a facility-based assessment area where the local benchmark is much
lower than the national benchmark, could be considered to have
conducted a relatively low volume of loans and investments. The
agencies also intended the national benchmarks to provide a baseline
for evaluating the level of a particular bank's community development
loans and investments in a facility-based assessment area with few or
no other large banks from which to calculate a local benchmark. In the
preamble to the proposed rule, the agencies suggested the benchmarks
would be made publicly available, for example, in dashboards.
Assessment Area Community Development Financing Benchmark.\1163\
The agencies provided in section 3 of proposed appendix B that the
numerator for the Assessment Area Community Development Financing
Benchmark would be the annual average dollar amount of all large banks'
community development financing activities in the facility-based
assessment area during the evaluation period. Under this proposed
section, the denominator for the Assessment Area Community Development
Financing Benchmark would be the annual average of the total dollar
amount of all deposits held in the assessment area by large banks. The
agencies proposed that the deposits in the facility-based assessment
area would be the sum of: (1) the annual average of deposits in
counties in the facility-based assessment area by all banks that had
assets greater than $10 billion over the evaluation period, as reported
under proposed Sec. __.42; and (2) the annual average of deposits
assigned to branches in the facility-based assessment area by all large
banks that had assets less than or equal to $10 billion, according to
the FDIC's Summary of Deposits data, over the evaluation period.\1164\
---------------------------------------------------------------------------
\1163\ The agencies note that many of the comments on the
Assessment Area Community Development Financing Benchmark apply
equally to the other benchmarks in the Community Development
Financing Test. This SUPPLEMENTARY INFORMATION does not separately
discuss these comments when considering the other benchmarks in this
performance test.
\1164\ See proposed appendix B, section 2.
[GRAPHIC] [TIFF OMITTED] TR01FE24.105
The Assessment Area Community Development Financing Benchmark would
reflect local conditions that vary across assessment areas, such as the
level of competition from other banks and the availability of community
development opportunities, which may contribute to differences in the
level of community development lending and investment across
communities and within a community across time. The agencies considered
that using a standard local benchmark would improve the consistency of
the current evaluation approach, which does not include consistent data
points that reflect local levels of community development lending and
investment.
Metropolitan and Nonmetropolitan Nationwide Community Development
Financing Benchmarks. In Sec. __.24(b)(2)(ii), the agencies proposed
to develop separate nationwide community development financing
benchmarks for all metropolitan areas and all nonmetropolitan areas
(the national benchmarks), respectively. The agencies would apply one
of these national benchmarks to each facility-based assessment area,
depending on whether the facility-based assessment area was located in
a metropolitan area or nonmetropolitan area.\1165\ Based on the
agencies' analysis, the ratio of banks' community development loans and
investments to deposits is higher in metropolitan facility-based
assessment areas than in nonmetropolitan assessment areas.\1166\ The
agencies proposed setting the national benchmark separately for
metropolitan and nonmetropolitan areas to help account for differences
in the level of community development opportunities in these areas.
---------------------------------------------------------------------------
\1165\ See proposed Sec. __.24(b)(2)(ii) and proposed appendix
B, section 4.
\1166\ The analysis used a sample of 5,735 assessment areas from
large retail bank performance evaluation records from 2005 to 2017
in the Board's CRA Analytics Data Tables, which note the dollar
volume of current period community development loan originations, as
well as current period and prior period community development
investments in each assessment area. The total dollar volume of
community development loans and investments was divided by the
length in years of each examination evaluation period, to produce an
annual average for each assessment area evaluation. The FDIC's
Summary of Deposits data was used to identify the dollar volume of
deposits associated with the corresponding bank's branches in the
assessment area, which is the best available approach for estimating
the dollar volume of deposits associated with each of a bank's
assessment areas. The aggregate ratio of annualized dollars of
community development loans and investments to dollar volume of
deposits was computed separately for all metropolitan assessment
areas and all nonmetropolitan assessment areas in the sample,
respectively. Under this analysis, the metropolitan ratio was 1.4
percent, and the nonmetropolitan ratio was 0.9 percent, based on
exams from 2014 to 2017. The metropolitan ratio remained
significantly larger than the nonmetropolitan ratio when limiting
the sample to only full-scope examinations, across different periods
of the sample, and when computing the median ratio of all
examinations, rather than a mean.
---------------------------------------------------------------------------
The agencies proposed that the numerator for the national
benchmarks would be the annual average of the total dollar amount of
all large banks' community development loans and investments (in either
metropolitan or nonmetropolitan areas, depending on the facility-based
assessment area) during the evaluation period. The
[[Page 6972]]
proposed denominator was the annual average of the total dollar amount
of deposits (again, either in metropolitan or nonmetropolitan areas)
during the evaluation period. Under the proposal, the deposits in the
metropolitan or nonmetropolitan areas would be the sum of: (1) the
annual average of deposits in counties in the metropolitan or
nonmetropolitan areas reported by all banks that had assets greater
than $10 billion over the evaluation period (as reported under proposed
Sec. __.42); and (2) the annual average of deposits assigned to
branches in the metropolitan or nonmetropolitan areas by all banks that
had assets less than or equal to $10 billion, according to the FDIC's
Summary of Deposits data, over the evaluation period.\1167\
---------------------------------------------------------------------------
\1167\ See proposed Sec. __.24(b)(2)(ii) and proposed appendix
B, section 4.
[GRAPHIC] [TIFF OMITTED] TR01FE24.106
Timing of benchmark data. The agencies also considered whether they
should calculate and fix the benchmarks based on community development
lending, community development investment, and deposits data that are
available at least one year in advance of the end of the evaluation
period. For example, for a three-year evaluation period ending in
December 2024, the agencies could determine the benchmarks for that
evaluation period using data over the three-year timeframe spanning
from 2021 to 2023. This alternative would have provided additional
certainty that the benchmarks that a bank would be compared to would
not change in the final year of an evaluation period. However, the
agencies did not propose this alternative because they believed the
benchmarks to which a bank is compared under this alternative may not
reflect the credit needs and opportunities in the assessment area to
the same degree as the proposed approach, which calculated the
benchmarks based on the years in the evaluation period, especially if
there were significant changes in community development opportunities
during the final year of the evaluation period.
Comments Received
Local and national benchmarks. Commenters that addressed the
agencies' proposal to compare the Bank Assessment Area Community
Development Financing Metric to both local and national benchmarks
expressed varying views regarding the use of the proposed benchmarks.
Certain commenters supported the use of local and national benchmarks
stating that the benchmarks would create more transparency and
consistency across performance evaluations and more certainty as to
whether banks will receive credit for community development loans and
investments outside of facility-based assessment areas. For example, a
commenter expressed the view that the local and national benchmarks
would encourage more investments in underserved communities, as well as
in statewide and national funds.
A few other commenters expressed support for the inclusion of the
local benchmarks in the Community Development Financing Test but
opposed or expressed reservations about the national benchmarks. These
commenters provided several reasons for objecting to the use of
national benchmarks, including that: (1) they would compare a regional
bank's performance against that of much larger, nationwide banks,
thereby requiring regional banks to attempt to make up for quantitative
deficiencies in the comparison of the bank's metric to the benchmarks
through qualitative considerations; (2) the availability of community
development loans and investments varies considerably from region to
region; and (3) they fail to account for peculiarities or limitations
in an assessment area or factors beyond a bank's control. One of these
commenters requested that if the agencies retain the nationwide area
benchmarks,\1168\ the final rule should allow banks the option of a
nationwide area review. A few commenters expressed concern that a
formulaic approach for the use of benchmarks may have unintended
consequences due to its lack of nuance. One of these commenters stated
that a national benchmark is not appropriate in facility-based
assessment areas with low levels of community development lending and
investments because opportunities in these areas tend to be limited and
a national benchmark could be unduly demanding. The commenter noted
that, on the other hand, use of a national benchmark in facility-based
assessment areas with high levels of community development lending and
investment opportunities could be unduly lenient.
---------------------------------------------------------------------------
\1168\ The agencies understand the commenter to be referring to
the proposed national benchmarks.
---------------------------------------------------------------------------
The agencies also asked for feedback on the appropriate method for
using the local and national benchmarks. Commenters generally supported
allowing examiner judgement regarding the use of benchmarks. However,
consistent with the comments on enhancing the rigor of the Community
Development Financing Test, discussed above, other commenters preferred
that the agencies standardize the use of benchmarks, with one commenter
stating that the agencies should only use
[[Page 6973]]
examiner judgement until they collect community development lending and
investment data and identify patterns.
Other commenters requested that the agencies provide examiners with
guidelines for using the local and national benchmarks. For example, a
few commenters expressed concern that the proposal failed to provide
enough guidelines for comparing the Bank Assessment Area Community
Development Financing Metric to either the local or national benchmarks
making it possible for an examiner to inflate a rating by choosing the
lowest comparator benchmark.
Certain comments suggested additional guidelines for the local and
national benchmarks. A few commenters suggested the agencies establish
the following guidelines: (1) weight the national benchmark at 60
percent and local benchmark at 40 percent in facility-based assessment
areas where the local benchmark is lower than the national benchmark to
motivate banks to exceed the local benchmark; and (2) weight the local
benchmark at 60 percent and the national benchmark at 40 percent in
facility-based assessment areas where the local benchmark is higher
than the national benchmark. These commenters further suggested that
the agencies could refine these weights by determining the distribution
of local benchmarks as measured by percentiles or other distances from
the median or mean benchmarks. A commenter suggested that examiners
could tailor the weighting of the local and national benchmarks to
emphasize the stronger of the two ratios for a bank's facility-based
assessment areas.
Timing of benchmark data. The agencies also sought feedback on what
other considerations they could undertake to ensure clarity and
consistency in the benchmark calculations. Specifically, the agencies
sought feedback on whether they should calculate the benchmarks based
on data available prior to the end of the evaluation period or align
calculation of the benchmarks with data available at the beginning and
end of the evaluation period.
In response, a few commenters supported aligning data with the
evaluation period while others noted that the agencies should set
benchmarks based on data that are available prior to a bank's
evaluation period. One of the commenters that supported aligning the
benchmark calculations with the beginning and end of the evaluation
period specified that the agencies should do so in the initial year
implementing the new CRA regulations to determine changes in
performance levels. The commenter suggested, however, that the agencies
may not need this process in subsequent periods.
In contrast to the commenters that supported using data from the
evaluation period to establish the benchmarks, other commenters
requested that the agencies make the benchmarks known to banks in
advance of evaluation periods. One of these commenters stated that this
approach would ensure that banks know the target to which they are
being held, and the community would have a clear standard to which they
can hold banks accountable. Another commenter stated that it is a
fundamental matter of fairness and due process that banks know the
benchmarks the agencies will use to evaluate banks' performance prior
to the evaluation period.
Certain commenters offered alternatives to using data as of the end
of the evaluation period. A few of these commenters recommended that
the benchmarks be set annually, based on the most recent year that data
are available, which would align with the proposed annual assessment.
For example, data from year one would be available in year two, and the
agencies could use that data to set the benchmarks for year three.
These commenters stated that this approach would provide banks more
transparency and predictability and avoid applying different benchmarks
to comparable banks depending on the timing of their evaluation
periods. To offer greater clarity, another commenter suggested the
agencies use data available by the start of every year, even if it
means the agencies use lagging data. To calculate the benchmarks, a
commenter recommended that the agencies average data for the
examination period to best reflect any market shifts or changing
circumstances. The commenter also recommended that the agencies should
use the maximum amount of data available for the CRA examination even
if the available market data do not match up perfectly in terms of
availability at the time of the examination.
Final Rule
After considering the comments on the local and national
benchmarks, the agencies are finalizing the benchmarks as proposed with
certain clarifying revisions. The final rule provides in Sec.
__.24(b)(2) that the appropriate Federal financial supervisory agency
compares the Bank Assessment Area Community Development Financing
Metric \1169\ to (1) the Assessment Area Community Development
Financing Benchmark \1170\ and (2) either the MSA or Nonmetropolitan
Nationwide Community Development Financing Benchmark, depending on
whether the facility-based assessment area is within an MSA or a
nonmetropolitan area.\1171\
---------------------------------------------------------------------------
\1169\ See final Sec. __.24(b)(1).
\1170\ See final Sec. __.24(b)(2)(i).
\1171\ See final Sec. __.24(b)(2)(ii).
---------------------------------------------------------------------------
The agencies considered commenters' concerns with applying the
national benchmark to evaluate community development lending and
investments in facility-based assessment areas. However, the local and
national benchmarks are both useful tools for examiners and will help
to improve consistency in CRA performance evaluations. As explained in
the proposal, the local and national benchmarks provide useful
information for understanding how a bank's community development
lending and investment compares to other banks in their local markets
and nationwide. In particular, the local benchmark is based on
community development lending and investment in a facility-based
assessment area for large banks, and, therefore, provides insight into
the performance of other banks operating in the same community, while
the national benchmark provides a baseline comparator for the
nationwide performance of all large banks in MSAs or nonmetropolitan
areas, as applicable.
The agencies are sensitive to the concerns raised by commenters
about variations in lending and investment between regions, economic
cycles, and types of banks. For this reason, the agencies emphasize
that the benchmarks provide standardized data points that the agencies
will consider in evaluating banks' community development lending and
investment, but performance context remains an important part of CRA
performance evaluations. Through performance context, examiners can
consider any variations in lending and investment among banks and the
reasons for those variations, such as those noted by commenters, and
account for a bank's particular circumstances in concluding on
performance in a facility-based assessment area. In those circumstances
where the local benchmarks may lack robust data due to limited market
participants, the agencies may rely more heavily on the national
benchmark because the local benchmark may provide less meaningful
information against which to compare a bank's performance. The agencies
may also rely more heavily on supervisory experience
[[Page 6974]]
and performance context, particularly market opportunities and bank
capacity and constraints, in considering a bank's performance under the
Community Development Financing Test in these circumstances.
The agencies also determined that, under the final rule, they will
calculate the local and national benchmarks using data from the
evaluation period, as proposed with clarifying revisions. The agencies
understand commenters' concerns that using community development
lending and investment and deposits data that correspond to the years
in the evaluation period would mean that banks would not know the
benchmarks in advance of conducting the community development lending
and investments that the agencies will compare to those benchmarks.
However, lagging benchmarks (i.e., benchmarks based on data from before
the evaluation period) would be an inappropriate measure given that
they would not reflect lending and investment conducted contemporaneous
to the community development loans and investments considered in a
bank's CRA performance evaluation. Based on our supervisory experience,
the agencies have observed that changes in economic cycles and other
external factors influence the level of community development lending
and investment that banks engage in during a given year. For that
reason, using more timely data for comparison, coupled with
consideration of performance context, will result in the most useful
information for evaluating bank performance under the Community
Development Financing Test.
Consistent with the revisions to the Bank Assessment Area Community
Development Financing Metric, the agencies made conforming revisions to
streamline the discussion of the benchmarks in final Sec. __.24(b)(2)
and clarify the calculation of the benchmarks in paragraphs II.b and
II.c of final appendix B. The agencies intend for these revisions to
clarify the final rule and eliminate inconsistencies that were present
in the proposal.
The local benchmark is provided in final Sec. __.24(b)(2)(i),
which applies in each facility-based assessment area. Under the final
rule, the Assessment Area Community Development Financing Benchmark
measures the dollar volume of community development loans and
investments that benefit or serve the facility-based assessment area
for all large banks compared to deposits located in the facility-based
assessment area for all large banks. The appropriate Federal financial
supervisory agency calculates the local benchmark pursuant to paragraph
II.b of final appendix B, which provides that the agency calculates the
Assessment Area Community Development Financing Benchmark for each
facility-based assessment area by: (1) summing all large banks' annual
dollar volume of community development loans and investments that
benefit or serve the facility-based assessment area for each year in
the evaluation period (sum of community development loans and
investments); (2) summing all large banks' annual dollar volume of
deposits located in the facility-based assessment area for each year in
the evaluation period (sum of deposits); and (3) dividing the result of
the sum of community development loans and investments by the result of
the sum of deposits.
The final rule includes the national benchmarks in final Sec.
__.24(b)(2)(ii). The MSA Nationwide Community Development Financing
Benchmark \1172\ applies to a bank's facility-based assessment areas
within an MSA. The MSA Nationwide Community Development Financing
Benchmark measures the dollar volume of community development loans and
investments that benefit or serve MSAs in the nationwide area for large
banks compared to deposits located in the MSAs in the nationwide area
for all large banks. The Nonmetropolitan Nationwide Community
Development Financing Benchmark \1173\ applies to a bank's facility-
based assessment areas within a nonmetropolitan area. The
Nonmetropolitan Nationwide Community Development Financing Benchmark
measures the dollar volume of community development loans and
investments that benefit or serve nonmetropolitan areas in the
nationwide area for large banks compared to deposits located in
nonmetropolitan areas in the nationwide area for all large banks. The
appropriate Federal financial supervisory agency calculates the MSA and
Nonmetropolitan Nationwide Community Development Financing Benchmarks
pursuant to paragraph II.c of final appendix B.\1174\
---------------------------------------------------------------------------
\1172\ See final Sec. __.24(b)(2)(ii)(A). In the proposal, this
benchmark was described as the Metropolitan Nationwide Community
Development Financing Benchmark. In the final rule, the agencies
retitled this benchmark the MSA Nationwide Community Development
Financing Benchmark to more accurately reflect the geographic areas
included in the calculation.
\1173\ See final Sec. __.24(b)(2)(ii)(B).
\1174\ See final Sec. __.24(b)(2)(ii)(C).
---------------------------------------------------------------------------
The agency calculates the MSA and Nonmetropolitan Nationwide
Community Development Financing Benchmarks by: (1) summing all large
banks' annual dollar volume of community development loans and
investments that benefit or serve MSAs or nonmetropolitan areas in the
nationwide area for each year in the evaluation period (sum of
community development loans and investments); (2) summing all large
banks' annual dollar volume of deposits located in MSAs or
nonmetropolitan areas in the nationwide area for each year in the
evaluation period (sum of deposits); and (3) dividing the result of the
sum of community development loans and investments by the result of the
sum of deposits.\1175\
---------------------------------------------------------------------------
\1175\ See final appendix B, paragraph II.c.
---------------------------------------------------------------------------
Section __.24(b)(3), (c)(2)(iii), (d)(2)(iii), and (e)(2)(v) Impact and
Responsiveness Review
Current Approach
Under the current rule, the performance criteria in the large bank
lending test and investment test and the community development test
applicable to intermediate small banks include several qualitative
components. The lending test includes consideration of a bank's use of
innovative or flexible lending practices in a safe and sound manner to
address the credit needs of low- or moderate-income individuals or
census tracts.\1176\ The agencies consider, under the investment test:
(1) the innovativeness or complexity of community development
investments; and (2) the responsiveness of community development
investments to credit and community development needs.\1177\ For
intermediate small banks, the community development test includes
consideration of a bank's responsiveness to community development
lending, investment, and service needs through community development
loans, investments, and services.\1178\ These qualitative performance
criteria are components of the current performance tests and standards
and the agencies consider these components in conjunction with the
bank's performance context in evaluating a bank's community development
lending and investment.
---------------------------------------------------------------------------
\1176\ See current 12 CFR __.22(b)(5). The current rule uses the
defined term ``geographies,'' which means census tracts.
\1177\ See current 12 CFR __.23(e)(2) and (3).
\1178\ See current 12 CFR __.26(c)(4).
---------------------------------------------------------------------------
The interagency examination procedures reference these performance
criteria without elaborating on how to identify whether certain
community development loans or investments are particularly innovative,
flexible,
[[Page 6975]]
complex, or responsive, as applicable. Over time, stakeholders
indicated that these concepts were not well understood, and the
agencies endeavored to provide additional clarity through the
Interagency Questions and Answers.\1179\ Although these Interagency
Questions and Answers provided some additional guidance, questions
remained as to what types of community development loans, investments,
or services were considered most responsive or impactful to a community
because of the extent or manner in which they helped to meet community
needs.
---------------------------------------------------------------------------
\1179\ See Q&A Sec. __.21(a)--3 and Q&A Sec. __.21(a)-4.
---------------------------------------------------------------------------
The Agencies' Proposal
To complement the community development financing metrics and
benchmarks, the agencies proposed evaluating the impact and
responsiveness of a bank's community development loans and investments
in facility-based assessment areas, States and multistate MSAs, as
applicable, and the nationwide area.\1180\ The qualitative evaluation
in proposed Sec. __.24 would draw on the impact factors defined in
proposed Sec. __.15, and on any other performance context information,
as provided in proposed Sec. __.21(e), considered by the agencies to
determine how the bank's community development loans and investments
were responsive to the geographic area's community development needs
and opportunities. This approach would advance the CRA's purpose by
ensuring a strong emphasis on the impact and responsiveness of
community development loans and investments in meeting community credit
needs; increase consistency in the evaluation of qualitative factors
relative to the current approach by creating clear factors to consider;
and foster transparency for banks and the public by providing
information about the type and purpose of community development loans
and investments considered to be particularly impactful or responsive.
---------------------------------------------------------------------------
\1180\ See proposed Sec. __.24(b) and (c).
---------------------------------------------------------------------------
Consideration of qualitative factors as a supplement to the dollar-
based metrics and benchmarks was aligned with the CRA's purpose of
strengthening low- and moderate-income communities by more fully
accounting for factors that may reflect the overall impact or
responsiveness of a community development loan or investment. First, a
qualitative review could consider the responsiveness of community
development loans and investments to local context, including community
development needs and opportunities that vary from one community to
another. Banks and their community partners may make great effort to
design a community development loan or investment to reflect this
context and address specific credit needs of the community, which can
further the loan's or investment's impact or responsiveness.
Second, a qualitative evaluation was important for emphasizing
relatively small loans or investments that nonetheless have a
significant positive impact on the communities served. For example,
grants and other monetary or in-kind donations that support
organizations providing assistance to small businesses tend to have
small dollar balances relative to loans to larger businesses, but they
are critically important for addressing small business credit needs.
Third, the qualitative evaluation could emphasize community development
loans and investments that serve low- and moderate-income populations
and census tracts that have especially high community development
needs, which often entail greater complexity and effort on the part of
the bank. This emphasis helps to encourage community development loans
and investments that reach a broad range of low- and moderate-income
communities, including those that are more challenging to serve.
Finally, the qualitative review could emphasize specific categories of
community development loans and investments aligned with the CRA's
purpose of strengthening credit access for a bank's communities,
including low- and moderate-income communities, such as loans and
investments that support specified mission-driven financial
institutions.
To promote greater consistency and transparency in the evaluation
approach, the agencies noted in the NPR that they would consider
whether a bank's community development loans and investments met the
impact factors defined in proposed Sec. __.15,\1181\ based on
information provided by the bank, local community data, community
feedback, and other performance context information.
---------------------------------------------------------------------------
\1181\ Id.
---------------------------------------------------------------------------
Given the current lack of data to set thresholds, the agencies
proposed that this process initially would be qualitative in nature.
Specifically, the agencies explained in the proposed rule that they
would consider a bank's community development loans and investments
that meet each impact factor but would not use multipliers or specific
thresholds to directly tie the impact review factors to specific
conclusions. Under the proposed rule, a more significant volume of
community development loans and investments that align with the impact
review factors would positively affect conclusions. In the proposed
rule, the agencies indicated that after banks report and the agencies
analyze additional community development lending and investment data,
the agencies could consider whether the agencies should implement
additional approaches, such as quantitative measures, to evaluate
impact and responsiveness.
Comments Received
Impact and responsiveness review, in general. The agencies received
several comments on the inclusion of an impact review in the Community
Development Financing Test. Certain commenters supported this aspect of
the proposed rule; however, other commenters expressed concerns, in
particular with the lack of clarity regarding its application as
discussed further in the section-by-section analysis of Sec. __.15.
Specifically, a few commenters stated that the proposal's
incorporation of an impact and responsiveness review in the Community
Development Financing Test would encourage high-quality community
development loans and investments. A commenter stated that the impact
review should expressly incorporate the actual quality of a community
development loan or investment, rather than a simple categorical
assessment. This commenter, as well as another, stated that the
agencies should use the impact review to uplift impactful or innovative
small-dollar activities that banks might otherwise perceive as too
risky, complex, or small to pursue.
Other commenters expressed concerns with the lack of clarity on how
the impact review would affect conclusions. For example, certain
commenters stated that it was unclear how the agencies would apply the
impact review and whether the impact and responsiveness factors would
have enough of an effect on banks' actions to mitigate disincentives
created by the proposed Community Development Financing Test. Another
commenter supported greater transparency in the impact review and
generally more transparency in the methodologies and considerations
used by examiners in forming performance context, as well as some of
the justifications banks provide to support the inclusion of community
development loans and investments in their Community Development
Financing Test evaluation.
[[Page 6976]]
Weighting of the Metrics and Benchmarks and the Impact and
Responsiveness Review Components. The proposal asked what approaches
would enhance the clarity and consistency for assigning conclusions
under the Community Development Financing Test, such as assigning
separate conclusions for the metric and benchmarks component and the
impact review component. The agencies also sought feedback from
commenters regarding the appropriate weighting for each of these
components. The agencies asked, for example, if they should weight both
components equally or weight the metric and benchmarks component more
than the impact review component.
In response to these questions, commenters provided varying views
on the appropriate weighting of the metrics and benchmarks and the
impact review components of the Community Development Financing Test. A
few commenters advocated for weighting one component more than the
other. Certain commenters stated that the agencies should give
significant weight to the impact review component. One of these
commenters stated that, in general, the impact review component should
carry the most weight because smaller investments have an outsized
impact and should carry more weight than higher dollar investments that
have materially less impact. In contrast, certain commenters favored
weighting the metrics and benchmarks component more, with a commenter
stating that a higher weight for the metrics and benchmarks component
would ensure banks conduct reasonable amounts of community development
lending and investments while still providing qualitative
consideration.
Some commenters suggested specific weighting for the metrics and
benchmarks and the impact review components of the Community
Development Financing Test. A few commenters supported a weight of 60
percent for the metrics and benchmarks component and 40 percent for the
impact review component, explaining that assigning more weight to the
metrics and benchmarks ensures a minimal level of community development
financing activity in each assessment area. At least one of these
commenters, however, stated that the agencies should also consider the
provision of small dollar, high impact financing that can be more
responsive to community needs. Another commenter stated that it would
support a slightly heavier weight for the metrics and benchmarks
component, of between 55 to 75 percent, and a lower weight for the
impact review component, of between 25 to 45 percent.
Alternatively, certain commenters supported a more flexible
approach, with one commenter recommending that the agencies, rather
than assigning separate conclusions for the metric and benchmarks and
the impact review components, consider using them to assess performance
trends or patterns across banks. Nonetheless, the commenter stated
that, if the agencies derive separate conclusions for these components,
they could weight each component and then reduce or increase the
overall bank performance score based on the outcome.
Impact review metrics. The agencies also sought feedback on whether
they should consider publishing standard metrics in performance
evaluations, such as the percentage of a bank's activities that meet
one or more impact criteria. Commenters expressed different views on
incorporating performance standards into the impact review.
Certain commenters supported developing standards or metrics for
the impact review. For example, a commenter suggested that developing
metrics for the impact review would provide greater consistency and
transparency. Another commenter stated that the agencies should
consider both the dollar volume and number of activities in an impact
review metric to give credit to small-scale loans and investments.
Other commenters agreed with adding metrics to the impact review,
noting that, as currently constructed, the impact review could lead to
the inconsistent or careless application of examiner discretion. At
least one of the commenters that supported the inclusion of impact
metrics expressed concern about how these metrics would be
designed.\1182\ The commenter believes that without additional data, it
is infeasible to develop an effective model to measure the
responsiveness of impactful activities or to incorporate the impact
factors into the quantitative Community Development Financing Test.
Once additional data are collected, the commenter supports ultimately
publishing standard metrics outlining the percentage of a bank's
activity that meet an impact factor, as well as additional relevant
qualitative data.
---------------------------------------------------------------------------
\1182\ Another commenter strongly encouraged the agencies to
commit to additional public engagement around the impact and
responsiveness factors as community development lending and
investment data are collected over the coming years.
---------------------------------------------------------------------------
A few commenters provided suggestions for an impact review metric.
Specifically, commenters suggested that the agencies could improve the
impact review by: (1) including a metric based on the percentage of a
bank's community development loans and investments that meet one or
more of the specific impact factors; \1183\ (2) adding a score, rating,
and weight to the review as part of the Community Development Financing
Test; or (3) adding a quantitative measure of community development
financing in persistent poverty counties and counties with low levels
of finance and including the percentage of activities that involved
collaboration and partnerships with public agencies and community-based
organizations.
---------------------------------------------------------------------------
\1183\ The commenter also stated that a system for weighting
specific impact and responsiveness review factors and assigning
points could be developed over time as more data become available to
add more rigor and clarity to the impact and responsiveness review
component.
---------------------------------------------------------------------------
A few commenters shared views on how the agencies should count
activities with MDIs, WDIs, LICUs, and CDFIs as part of a bank's CRA
evaluation. For example, although not phrased as a metric for the
impact review, a few commenters recommended that a ``multiplier'' be
applied to activities with CDFIs and MDIs, with an additional commenter
recommending that additional multiplier consideration be considered for
MDIs that are CDFIs.\1184\ Certain commenters also recommended that the
final rule tie activities with CDFIs, MDIs, WDIs, LICUs, and variations
of these entities to banks receiving an ``Outstanding'' rating.
---------------------------------------------------------------------------
\1184\ Certain commenters also recommended that the final rule
tie activities with CDFIs, MDIs, WDIs, LICUs, or variations of these
entities to banks receiving an ``Outstanding'' rating. The agencies
note that community development activities with these entities are
included as impact and responsiveness review factors under final
Sec. __.15. See the section-by-section analysis of Sec. __.15 for
additional information.
---------------------------------------------------------------------------
On the other hand, certain commenters expressed reservations with
adding metrics to the impact review. A commenter suggested that metrics
alone do not tell the complete story of a bank's CRA efforts and
recommended that the agencies retain performance context in some
capacity in evaluating a bank's performance. Another commenter noted
that the need for greater clarity and consistency should be balanced
with examiner discretion and formal metrics could lead to unintentional
credit allocation. The commenter noted that the risk of government
credit allocation was a central concern of the CRA authors and plays a
prominent role in the legislative history of the statute.
Other commenters offered additional suggestions for how to
encourage greater consistency and clarity in the impact
[[Page 6977]]
review. A commenter suggested that the agencies consider how the CDFI
Fund and CDFIs conduct impact reviews and determine if they should
replicate these reviews for CRA examinations. The commenter also
recommended that the agencies conduct a review of examiners to
determine how equitable and consistent they are at reviewing for
community development impact.
Final Rule
The agencies considered the comments on the proposed impact review
as it applies to the Community Development Financing Test and are
finalizing the test to include this component as proposed with
technical revisions, including renaming the component ``the impact and
responsiveness review'' as discussed in the section-by-section analysis
of Sec. __.15. As such, under the final rule, the impact and
responsiveness review component will be a qualitative assessment
applied by examiners and considered in conjunction with the metric and
benchmarks component. Further, as discussed in the section-by-section
analysis of Sec. __.15, the agencies determined it was not appropriate
to add a score, or to establish metrics or a weighting framework for
this component of the Community Development Financing Test at this
time. However, as noted in the NPR, a more significant volume of
community development loans and investments that align with the impact
and responsiveness review factors will positively affect conclusions.
Under the final rule, the appropriate Federal financial supervisory
agency will review the impact and responsiveness of the bank's
community development loans and community development investments that
benefit or serve a facility-based assessment area, as provided in final
Sec. __.15. The final rule includes the impact and responsiveness
component as a separate paragraph to make clear that this component is
distinct from the metrics and benchmarks component. Further, the
agencies consider the impact and responsiveness review to be one
component of a comprehensive evaluation, with metrics, benchmarks, and
impact and responsiveness reviews considered holistically in developing
a performance conclusion.
As discussed above, one of the agencies' objectives in issuing the
NPR was to provide greater clarity and consistency in the application
of the regulations. The agencies believe that providing a list of
impact and responsiveness factors in final Sec. __.15 is a strong
first step in that direction. As discussed in the section-by-section
analysis of Sec. __.15, the approach of identifying specific factors
in Sec. __.15(b) will result in a more standardized qualitative
evaluation relative to current practice. In addition, this approach is
intended to foster transparency by providing the categories the
agencies will consistently review in considering the impact and
responsiveness of a bank's community development activities. The final
rule's impact and responsiveness review draws on decades of supervisory
experience in applying the qualitative performance criteria in the
current rule. Based on that experience, the agencies identified the
factors that, in general, indicate that a particular loan or investment
not only has a community development purpose as required under final
Sec. __.13, but is likely to be especially effective in helping to
meet community needs associated with that community development
purpose.
Although the agencies considered commenters' concerns about, and
recommendations for, clarifying the application of the impact and
responsiveness review, the current data limitations preclude
introducing a score, additional standards, metrics, or weights into the
rule at this time. In the absence of data, the agencies cannot assess
the overall extent to which banks are engaging in impactful or
responsive community development loans and investments. Further, given
the lack of available data, the agencies do not have insight into:
whether it is reasonable for banks to engage in limited impactful or
responsive community development loans or investments; whether it is
the dollar volume or number of impactful or responsive loans and
investments that is most relevant; or whether there are other criteria
that the agencies should consider in evaluating the impact and
responsiveness of a bank's community development loans and investments,
as an assessment of the level of impact or responsiveness of a
community development loan or investment. Under final Sec. __.42,
large banks will be required to collect, maintain, and report
information related to the impact and responsiveness factors, which
will provide the agencies with useful data going forward.\1185\
---------------------------------------------------------------------------
\1185\ See final Sec. __.42(a)(5)(ii)(C) and (b)(2).
---------------------------------------------------------------------------
Nonetheless, the agencies believe that some of the suggestions
provided by commenters would be useful to examiners in their
consideration of the impact and responsiveness of a bank's community
development loans and investments. To that end, the agencies will
consider issuing guidance for examiners to help improve clarity
regarding the application of the impact and responsiveness review
component in the near term. The agencies anticipate that guidance might
include examples of criteria that examiners could consider in
evaluating the impact and responsiveness of a bank's community
development loans and investments, including: (1) the percentage of a
bank's community development loans and investments that meet one or
more impact and responsiveness factors; (2) the dollar volume and
number of community development loans that meet one or more impact and
responsiveness factors; and (3) reasons for providing more or less
weight to the impact and responsiveness component of the Community
Development Financing Test. Further, the agencies note that adding
metrics, weighting for the metrics and benchmarks and impact and
responsiveness components, points for conclusions, or other mechanisms
to improve clarity could be considered in a future rulemaking once data
are collected and analyzed, which would provide an opportunity for
additional public engagement on this topic.
Section __.24(b) and (f) Facility-Based Assessment Area Conclusions
Under the current rule, and as discussed in greater detail in the
section-by-section analysis of Sec. __.28, the agencies conclude on
banks' performance for each performance test or standard in each MSA
and nonmetropolitan portion of each State with an assessment
area.\1186\
---------------------------------------------------------------------------
\1186\ See e.g., Interagency Large Institution CRA Examination
Procedures (April 2014).
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed to assign a Community Development Financing
Test conclusion in a facility-based assessment area by considering the
Bank Assessment Area Community Development Financing Metric relative to
the local and national benchmarks, in conjunction with the impact
review of the bank's activities.\1187\ Based on an assessment of these
factors, the bank would receive a conclusion of ``Outstanding,'' ``High
Satisfactory,'' ``Low Satisfactory,'' ``Needs to Improve,'' or
``Substantial Noncompliance'' in each facility-based assessment area.
---------------------------------------------------------------------------
\1187\ See proposed Sec. Sec. __.24(d) and __.28 and proposed
appendix C, paragraph d.
---------------------------------------------------------------------------
The agencies also considered approaches that would automatically
combine the metric, benchmarks, and impact review to assign conclusions
in a standardized way. However, as
[[Page 6978]]
discussed above in the section-by-section analysis of Sec. __.24(a),
the community development financing data that are currently available
are not sufficient to determine an approach that includes specific
thresholds and weights for different components. Instead, the agencies
explained in the proposed rule that the approach for combining these
standardized factors would initially rely on examiners' judgment. The
agencies further explained that analysis of community development data
collected under a new rule eventually may allow for developing
additional quantitative procedures for developing conclusions.
Comments Received
As explained above, the agencies received numerous comments
suggesting that they include additional standards, thresholds, or other
mechanisms in the Community Development Financing Test that would allow
for greater standardization in concluding on performance under the
Community Development Financing Test. Several commenters also provided
feedback on the agencies' proposal to include quantitative and
qualitative components in the proposed Community Development Financing
Test. Certain commenters supported inclusion of both quantitative and
qualitative components. Further, a commenter stated that it hopes that
a metrics-based approach will not overshadow qualitative aspects of
bank community development lending and investments.\1188\
---------------------------------------------------------------------------
\1188\ Other comments related to the assignment of conclusions
under the applicable performance tests are addressed in the section-
by-section analysis of Sec. __.28.
---------------------------------------------------------------------------
Final Rule
The agencies are finalizing the conclusion provision for facility-
based assessment area performance under the Community Development
Financing Test as proposed with technical and clarifying revisions. The
agencies addressed the comments related to the rigor of the Community
Development Financing Test, including the extent to which it should be
quantitative or qualitative in design above in the section-by-section
analysis of Sec. __.24(a). Further, as discussed above, the agencies
determined that the Community Development Financing Test should remain
a qualitative evaluation informed by standardized metrics and
benchmarks, as well as an impact and responsiveness review with
standardized factors, to improve consistency across banks and the
agencies.
Final Sec. __.24(f)(1), therefore, provides that, pursuant to
Sec. __.28 and appendix C, the appropriate Federal financial
supervisory agency assigns conclusions for a bank's Community
Development Financing Test performance in each facility-based
assessment area. Consistent with the other performance tests in the
final rule, final Sec. __.24(f) clarifies that in assigning
conclusions under the Community Development Financing Test, the agency
may consider performance context information as provided in Sec.
__.21(d) to make clear that performance context remains an important
part of examiners' evaluation of community development financing
performance.
Section __.24(c) State Community Development Financing Evaluation
Current Approach
As discussed above, the current rule considers community
development loans and investments that serve a bank's assessment areas
or the broader statewide or regional areas that include a bank's
assessment areas. The agencies base statewide community development
performance, in part, on consideration of community development loans
and investments in: (1) the bank's assessment areas in the State; and
(2) a broader statewide or regional area that includes the bank's
assessment areas in the State and that support organizations or
activities with a purpose, mandate, or function that includes serving
individuals or geographies in the bank's assessment areas. For banks
that have been responsive to the needs of their assessment areas, the
agencies will also consider any community development loans and
community development investments in the broader statewide or regional
area that includes the institution's assessment areas in the State but
that do not: (1) directly benefit an assessment area in the state; or
(2) support organizations or activities with a purpose, mandate, or
function that includes serving geographies or individuals located
within the bank's assessment area.\1189\
---------------------------------------------------------------------------
\1189\ See Q&A Sec. __.12(h)-6.
---------------------------------------------------------------------------
The Agencies' Proposal
To evaluate a bank's State community development financing
performance, the agencies proposed in Sec. __.24(c)(2) and section 15
of appendix B to consider a weighted average of the bank's performance
in facility-based assessment areas within a State, as well as the
bank's performance on a statewide basis, via a statewide score. The
statewide score would account for the totality of the bank's community
development loans and investments in the State--combining community
development loans and investments that are inside and outside of
facility-based assessment areas--relative to the bank's total deposits
across the State. The agencies believed the combination of these two
components would emphasize facility-based assessment area performance,
while still allowing banks the option to conduct and receive
consideration for community development loans and investments outside
of facility-based assessment areas in the State.
Weighted average of facility-based assessment area performance. The
agencies proposed averaging a bank's Community Development Financing
Test conclusions across its facility-based assessment areas in each
State, as one component of the bank's Community Development Financing
Test conclusion at the State level.\1190\ The conclusion assigned to
each facility-based assessment area would be mapped to a point value,
consistent with the approach explained for assigning Retail Lending
Test conclusions: ``Outstanding'' (10 points); ``High Satisfactory'' (7
points); ``Low Satisfactory'' (6 points); ``Needs to Improve'' (3
points); ``Substantial Noncompliance'' (0 points).\1191\ The proposed
resulting score for each facility-based assessment area would be
assigned a weight, calculated as the average of the percentage of
retail loans, and the percentage of deposits associated with the
facility-based assessment area (both measured in dollars), out of all
of the bank's retail loans, as defined in the proposal, and deposits in
facility-based assessment areas in the State.\1192\ Similar to the
proposed weighting approach for assigning Retail Lending Test
conclusions, the agencies would base deposits on collected and
maintained deposits data for banks that collect this data, and on the
FDIC's Summary of Deposits data for banks that do not collect deposits
data pursuant to this rule.\1193\ Using these weights and scores, the
agencies would calculate the weighted average of the facility-based
assessment area scores as one
[[Page 6979]]
component to determine the State conclusion.\1194\
---------------------------------------------------------------------------
\1190\ See proposed Sec. __.24(c)(2)(i) and proposed appendix
B, sections 15 and 16.
\1191\ See the section-by-section analysis of Sec. __.22(h) for
discussion of the point scale.
\1192\ See proposed appendix B, section 7.
\1193\ See proposed appendix B, section 5.
\1194\ See proposed Sec. __.24(c)(2)(i) and proposed appendix
B, sections 15 and 16.
---------------------------------------------------------------------------
The agencies believed the proposed approach would ensure that they
incorporated performance in all facility-based assessment areas into
the State conclusion, proportionate to the bank's amount of business
activity in each facility-based assessment area. The agencies further
believed that incorporating conclusions for all facility-based
assessment areas into the State conclusion would create a clear
emphasis on facility-based assessment area performance, including
smaller markets.
The agencies proposed that examiners would also assign a statewide
score for each State in which a bank delineates a facility-based
assessment area that the agencies did not consider as part of a
multistate MSA score.\1195\ Under the proposal, the statewide score
would be assigned after considering the bank's Bank State Community
Development Financing Metric, the State Community Development Financing
Benchmark, and a statewide impact review.
---------------------------------------------------------------------------
\1195\ See proposed Sec. __.24(c)(2)(ii) and proposed appendix
B, section 15.
---------------------------------------------------------------------------
Bank State Community Development Financing Metric. The agencies
proposed in Sec. __.24(c)(2)(ii)(A) and section 5 of appendix B that
they would calculate the Bank State Community Development Financing
Metric using the same formula as the Bank Assessment Area Community
Development Financing Metric and would include all of a bank's
community development loans and investments and deposits in the State
without distinguishing between those inside or outside of the bank's
facility-based assessment areas.
For example, the agencies proposed that if a bank conducted an
annual average of $200,000 in qualifying community development loans
and investments and had an annual average of $10 million in deposits
associated with a State during an evaluation period, the Bank State
Community Development Financing Metric for that evaluation period would
be 2.0 percent.
[GRAPHIC] [TIFF OMITTED] TR01FE24.104
The inclusion of all community development loans and investments
and deposits in the State evaluation reflected the agencies'
expectation that a bank should conduct a volume of community
development loans and investments commensurate with its total capacity
in a State. Therefore, the agencies explained in the proposed rule that
the proposed metric would provide the option for, but would not
require, banks to conduct and receive consideration for community
development loans and investments outside of facility-based assessment
areas, but within the States that include those facility-based
assessment areas. The proposed metric did not distinguish between
community development loans and investments conducted inside and
outside a facility-based assessment area. However, if a bank was unable
to conduct sufficient community development loans and investments
within facility-based assessment areas due to lack of opportunity or
high competition, the proposed metric permitted the bank to receive
consideration for community development loans and investments conducted
within the State but outside of facility-based assessment areas.
State Community Development Financing Benchmarks. Similar to the
facility-based assessment area approach described above, the agencies
proposed establishing benchmarks that would allow examiners to compare
a bank's performance to other banks in comparable areas. The proposed
benchmarks included: (1) a statewide benchmark called the State
Community Development Financing Benchmark; \1196\ and (2) a benchmark
that the proposed rule tailored to each bank's facility-based
assessment areas called the State Weighted Assessment Area Community
Development Financing Benchmark.\1197\ The agencies intended the use of
two benchmarks to provide examiners with additional context and points
of comparison on which to base the statewide score. For example, for a
bank that primarily collects deposits or conducts community development
loans and investments outside of its facility-based assessment areas in
a State, the agencies may rely primarily on the State Community
Development Financing Benchmark. In contrast, for a bank that collects
deposits and conducts community development loans and investments
primarily within its facility-based assessment areas, the agencies may
rely more heavily on the State Weighted Assessment Area Community
Development Financing Benchmark, which is tailored to the bank's
facility-based assessment areas to account for the level of competition
and available opportunities in those areas.
---------------------------------------------------------------------------
\1196\ See proposed appendix B, section 6.
\1197\ See proposed appendix B, sections 7 and 17.
---------------------------------------------------------------------------
The agencies proposed that the first benchmark, the State Community
Development Financing Benchmark,\1198\ would be defined similarly to
the local benchmark used for the facility-based assessment area
evaluation and it would include all community development loans and
investments and deposits across the entire State. Under the proposal,
the numerator would include the dollars of community development loans
and investments by all large banks across the State, and the
denominator would include the dollars of deposits held by all large
banks across the State. The proposal provided that deposits in the
State would be the sum of: (1) the annual average of deposits in
counties in the State reported by all large banks that had assets
greater than $10 billion over the evaluation period (as reported under
proposed Sec. __.42); and (2) the annual average of deposits assigned
to branches in the State by all large banks that had assets less than
or equal to $10 billion, according to the FDIC's Summary of Deposits
data, over the evaluation period.\1199\
---------------------------------------------------------------------------
\1198\ See proposed Sec. __.24(c)(2)(ii)(B)(1) and proposed
appendix B, section 6.
\1199\ See proposed Sec. __.24(c)(2)(ii)(B)(1) and proposed
appendix B, section 6.
---------------------------------------------------------------------------
The agencies proposed that the rule would define the second
benchmark, the State Weighted Assessment Area Community Development
Financing Benchmark, as the weighted average of Assessment Area
Community Development Financing Benchmarks across all of the bank's
facility-based
[[Page 6980]]
assessment areas in the State.\1200\ The proposal weighted each local
benchmark based on the facility-based assessment area's percentage of
retail loans, as defined in the proposal, and the percentage of
deposits (both measured in dollars) within the facility-based
assessment areas of the State, the same weighting approach as described
for the weighted average of the bank's facility-based assessment area
conclusions.\1201\
---------------------------------------------------------------------------
\1200\ See proposed Sec. __.24(c)(2)(ii)(B)(2) and proposed
appendix B, sections 7 and 17.
\1201\ See proposed Sec. __.24(c)(2)(ii)(B)(2) and proposed
appendix B, sections 7 and 17.
---------------------------------------------------------------------------
The agencies proposed to evaluate the impact and responsiveness of
a bank's community development loans and investments for each State at
a statewide level, using the same impact review approach as described
previously for facility-based assessment areas.\1202\ The agencies
proposed that the impact review would encompass all community
development loans and investments in a State, including those inside
and outside of facility-based assessment areas. Pursuant to the
proposed impact review, examiners would consider the extent to which
the bank's community development loans and investments met the impact
factors, based on information provided by the bank, local community
data, community feedback, and other performance context information.
---------------------------------------------------------------------------
\1202\ See proposed Sec. __.24(c)(1)(ii) and proposed appendix
B, section 15.
---------------------------------------------------------------------------
Comments Received 1203
---------------------------------------------------------------------------
\1203\ As discussed above, commenters generally did not
distinguish between geographic areas when discussing their views on
the metrics, benchmarks, and impact and responsiveness review in the
proposed Community Development Financing Test. With noted
exceptions, these aspects of the performance test are similarly
structured regardless of geographic area. Therefore, in considering
the State, multistate MSA, and nationwide area evaluation, the
agencies considered the comments on the metrics, benchmarks, and
impact and responsiveness review discussed in the section-by-section
analysis of final Sec. __.16 and made conforming revisions to other
aspects of the final rule as appropriate. This section and the
sections that follow, therefore, address additional comments
specific to the relevant provision of the proposed and final rule.
---------------------------------------------------------------------------
The agencies sought feedback on the proposal to weight a bank's
facility-based assessment area Community Development Financing Test
performance in States, multistate MSAs, and the nationwide area by the
average share of loans and deposits. Most commenters that provided
feedback supported the proposed approach. However, a commenter stated
that weighting Community Development Financing Test performance by the
share of loans and deposits in a facility-based assessment area may
result in larger areas disproportionately contributing to the overall
rating. The commenter also requested that the agencies provide clearer
guidance on how to weight performance in large metropolitan areas,
smaller metropolitan areas, and rural counties. Another commenter
suggested that the agencies should encourage, rather than allow,
community development lending and investment outside of a bank's
facility-based assessment areas by ensuring those activities receive
equal weight in the upper-level considerations.\1204\ A commenter
strongly encouraged the agencies to integrate an impact and
responsiveness review into each level of the Community Development
Financing Test.
---------------------------------------------------------------------------
\1204\ By ``upper-level considerations'' the agencies understand
the commenter to be referring to the State, multistate MSA, and
nationwide area conclusions and ratings.
---------------------------------------------------------------------------
Final Rule
The agencies considered the commenters' feedback and determined to
finalize the State Community Development Financing Test evaluation as
proposed, including with respect to weighting facility-based assessment
area performance, with clarifying revisions and certain conforming
edits. Under the final rule, Sec. __.24(c) includes the provisions
related to the evaluation of community development loans and
investments in a State.
After considering the comments, the agencies are adopting a
methodology to calculate the weighted average of facility-based
assessment area performance, which retains consistency in the weighting
of facility-based assessment areas across the four performance
tests.\1205\ The agencies based the approach in the final rule on the
proposed approach but included conforming revisions consistent with the
revisions discussed in the section-by-section analysis of Sec.
__.22(h) and appendix A. The agencies considered the comments that
expressed concerns related to the proposed weighting methodology,
particularly as those comments relate to the revised weighting
methodology in the final rule. The agencies continue to believe that
promoting internal consistency with respect to the Retail Lending Test
is appropriate and that limiting variation in weighting methodologies
limits unnecessary complexity and ensures that the agencies consider
community development loans and investments in the geographic areas
where banks are operating.
---------------------------------------------------------------------------
\1205\ See the section-by-section analysis of Sec. __.22(h) for
a discussion of the weighting methodology based on deposits and a
combination of loan count and loan amount. The weighting methodology
applies to the weighted average of facility-based assessment area
performance conclusions in a State (final Sec. __.24(c)(1)), and
the State Weighted Assessment Area Community Development Financing
Benchmark (final Sec. __.24(c)(2)(ii)(B)).
---------------------------------------------------------------------------
Under Sec. __.24(c) of the final rule, the appropriate Federal
financial supervisory agency will evaluate a bank's community
development financing performance in a State, pursuant to final
Sec. Sec. __.19 and __.28(c), using two components. Final Sec.
__.24(c) also provides that the agency will assign a conclusion for
each State based on a weighted combination of those components. The
agencies added a cross reference to Sec. __.19 for clarity and to
improve consistency with final Sec. __.25. Under the final rule, the
agencies clarified in final Sec. __.28(c) the scope of State and
multistate MSA evaluations based on where the agencies conclude on
performance.\1206\
---------------------------------------------------------------------------
\1206\ See the section-by-section analysis of Sec. __.28.
---------------------------------------------------------------------------
Component one is the weighted average of facility-based assessment
area performance conclusions in a State.\1207\ Under this component,
the appropriate agency considers the weighted average of a bank's
Community Development Financing Test conclusions for its facility-based
assessment areas within a State, pursuant to section IV of appendix B.
This section of appendix B provides that the agency calculates
component one of the combined performance score, as set forth in
paragraph II.p.2.i of final appendix B, for the Community Development
Financing Test in final Sec. __.24 \1208\ in each State by translating
the Community Development Financing Test conclusions for facility-based
assessment areas into numerical performance scores consistent with the
table below.
---------------------------------------------------------------------------
\1207\ See final Sec. __.24(c)(1).
\1208\ Final appendix B, section IV, also applies to the
Community Development Services Test in final Sec. __.25.
---------------------------------------------------------------------------
[[Page 6981]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.056
Section IV of final appendix B provides that the appropriate
Federal financial supervisory agency calculates the weighted average of
facility-based assessment area performance scores for a State. To
determine the weighted average for a State, the agency considers
facility-based assessment areas in the State pursuant to final Sec.
__.28(c).
Under the final rule, each facility-based assessment area
performance score is weighted by the average the following two ratios:
(1) The ratio measuring the share of the bank's deposits in the
facility-based assessment area, calculated by:
(a) summing, over the years in the evaluation period, the bank's
annual dollar volume of deposits \1209\ in the facility-based
assessment area;
---------------------------------------------------------------------------
\1209\ Under the final rule, for a bank that reports deposits
data pursuant to final Sec. __.42(b)(3), the bank's annual dollar
volume of deposits in a facility-based assessment area is the total
of annual average daily balances of deposits reported by the bank in
counties in the facility-based assessment area for that year.
Further, for a bank that does not report deposits data pursuant to
final Sec. __.42(b)(3), the bank's annual dollar volume of deposits
in a facility-based assessment area is the total of deposits
assigned to facilities reported by the bank in the facility-based
assessment area in the FDIC's Summary of Deposits for that year.
---------------------------------------------------------------------------
(b) summing, over the years in the evaluation period, the bank's
annual dollar volume of deposits in all facility-based assessment areas
in the State; and
(c) dividing the result of the first calculation by the result of
the second calculation; and
(2) The ratio measuring the share of the bank's loans in a
facility-based assessment area, based on the combination of loan
dollars and loan count, as defined in Sec. __.12, calculated by
dividing:
(a) the bank's closed-end home mortgage loans, small business
loans, small farm loans, and, if a product line for the bank,
automobile loans in the facility-based assessment area originated or
purchased during the evaluation period; by
(b) the bank's closed-end home mortgage loans, small business
loans, small farm loans, and, if a product line for the bank,
automobile loans in all facility-based assessment areas in the State
originated or purchased during the evaluation period.\1210\
---------------------------------------------------------------------------
\1210\ Final appendix B, section IV, also applies to the
multistate MSA and nationwide area evaluations as provided in final
Sec. __.24(d) and (e).
---------------------------------------------------------------------------
Component two of the final rule's State evaluation is State
performance. Under component two, the appropriate Federal financial
supervisory agency considers a bank's community development financing
performance in a State using the State metric and benchmarks and a
review of the impact and responsiveness of the bank's community
development loans and investments.\1211\ Specifically, the agency will
consider the Bank State Community Development Financing Metric,
calculated pursuant to paragraph II.d of appendix B,\1212\ compared to
the (1) State Community Development Financing Benchmark, calculated
pursuant to paragraph II.e of appendix B \1213\ and (2) State Weighted
Assessment Area Community Development Financing Benchmark, calculated
pursuant to paragraph II.f of appendix B. In addition, the agency will
consider the impact and responsiveness review of the bank's community
development loans and investments within the State as part of component
two.\1214\
---------------------------------------------------------------------------
\1211\ For a discussion of the final impact and responsiveness
review in the Community Development Financing Test, see the section-
by-section analysis of Sec. __.24(b)(3), (c)(2)(iii), (d)(2)(iii),
(e)(2)(v).
\1212\ See final Sec. __.24(c)(2)(i).
\1213\ See final Sec. __.24(c)(2)(ii)(A).
\1214\ See final Sec. __.24(c)(2).
---------------------------------------------------------------------------
The agencies made conforming edits to the Bank State Community
Development Financing Metric and State Community Development Financing
Benchmark and related sections of final appendix B consistent with the
changes made to the similar metric and benchmarks applicable in
facility-based assessment areas. The agencies also clarified, for
purposes of calculating the State metrics and benchmarks, when
community development loans, community development investments, and
deposits in a bank are included in the State-level metric and benchmark
calculations by cross referencing final Sec. __.28(c).\1215\
---------------------------------------------------------------------------
\1215\ Whether the agencies include community development loans
and investments in the State evaluation depends on whether the bank
has a facility-based assessment area in the State and whether the
State is located in a multistate MSA. For additional discussion, see
the section-by-section analysis of Sec. __.28(c).
---------------------------------------------------------------------------
[[Page 6982]]
The agencies also made clarifying and conforming edits to the State
Weighted Assessment Area Community Development Financing Benchmark to
simplify the description, to make it easier to understand, and to
promote consistency in the weighting methodology across performance
tests. Under the final rule, the State Weighted Assessment Area
Community Development Financing Benchmark is the weighted average of
the bank's Assessment Area Community Development Financing Benchmarks
for each facility-based assessment area within the State, calculated
pursuant to paragraph II.f of final appendix B. The appropriate Federal
financial supervisory agency calculates the final State Weighted
Assessment Area Community Development Financing Benchmark by averaging
all of the bank's Assessment Area Community Development Financing
Benchmarks \1216\ in a State for the evaluation period, after weighting
each pursuant to paragraph II.o of final appendix B.
---------------------------------------------------------------------------
\1216\ See final appendix B, paragraph II.b.
---------------------------------------------------------------------------
Under final paragraph II.o of final appendix B, for State
evaluations, the appropriate agency calculates the weighted average of
Assessment Area Community Development Financing Benchmarks for a bank's
facility-based assessment areas in each State by considering the
facility-based assessment areas in a State pursuant to final Sec.
__.28(c).
The agencies weight the Assessment Area Community Development
Financing Benchmarks in the final rule by the average of the following
two ratios:
(1) The ratio measuring the share of the bank's deposits in the
facility-based assessment area, calculated by:
(a) summing, over the years in the evaluation period, the bank's
annual dollar volume of deposits \1217\ in the facility-based
assessment area;
---------------------------------------------------------------------------
\1217\ As provided above in the discussion of final appendix B,
section IV, for a bank that reports deposits data pursuant to final
Sec. __.42(b)(3), the bank's annual dollar volume of deposits in a
facility-based assessment area is the total of annual average daily
balances of deposits reported by the bank in counties in the
facility-based assessment area for that year. For a bank that does
not report deposits data pursuant to final Sec. __.42(b)(3), the
bank's annual dollar volume of deposits in a facility-based
assessment area is the total of deposits assigned to facilities
reported by the bank in the facility-based assessment area in the
FDIC's Summary of Deposits for that year.
---------------------------------------------------------------------------
(b) summing, over the years in the evaluation period, the bank's
annual dollar volume of deposits in all facility-based assessment areas
in the State; and
(c) dividing the result of the calculation in (a) by the result of
the calculation in (b); and
(2) The ratio measuring the share of the bank's loans in a
facility-based assessment area, based on the combination of loan
dollars and loan count, as defined in Sec. __.12, calculated by
dividing:
(a) the bank's closed-end home mortgage loans, small business
loans, small farm loans, and, if a product line for the bank,
automobile loans in the facility-based assessment area originated or
purchased during the evaluation period; by
(b) the bank's closed-end home mortgage loans, small business
loans, small farm loans, and, if a product line for the bank,
automobile loans in all facility-based assessment areas in the State
originated or purchased during the evaluation period.
The agencies are also adopting the impact and responsiveness review
as part of component two of the State evaluation as proposed with
clarifying and conforming revisions discussed in the section-by-section
analysis of Sec. Sec. __.15 and __.24(b)(3). In response to the
commenters' questions, the agencies note that, under the proposed and
final Community Development Financing Test, the agencies would apply
the impact and responsiveness review to the evaluation of community
development loans and investment for all geographic levels.\1218\ The
agencies believe that it is appropriate to consider the impact and
responsiveness at all geographic levels because it ensures that
impactful or responsive community development loans and investments
conducted outside of a bank's facility-based assessment areas are
considered. Further, given the weighting methodology for the State,
multistate MSA, and nationwide area performance scores, the agencies
consider a portion of the impact and responsiveness of a community
development loan or investment conducted in a facility-based assessment
area in the weighted average of facility-based assessment area
performance and a portion is considered in the State.\1219\
---------------------------------------------------------------------------
\1218\ See final Sec. __.24(c)(2)(iii), (d)(2)(iii), and
(e)(2)(v).
\1219\ Under the final rule, the same is true for the
consideration of the impact and responsiveness review under the
multistate evaluation in final Sec. __.24(d) and nationwide area
evaluation in final Sec. __.24(e).
---------------------------------------------------------------------------
Section __.24(c) and (f) State Performance Score and Conclusion
Assignment (and Paragraph II.p of Appendix B)
The Agencies' Proposal
The agencies proposed to assign statewide Community Development
Financing Test conclusions, as applicable.\1220\ Section 15 of proposed
appendix B provided that statewide conclusions would reflect two
components, with weights on both components tailored to reflect the
bank's business model, which would result in a state performance score
for the applicable State. Pursuant to the proposal, the two components
were: (1) the bank's weighted average assessment area performance
score; and (2) the bank's statewide score. The agencies proposed in
section 15 of appendix B that they would assign a statewide score
corresponding to the conclusion categories described above:
``Outstanding'' (10 points); ``High Satisfactory'' (7 points); ``Low
Satisfactory'' (6 points); ``Needs to Improve'' (3 points);
``Substantial Noncompliance'' (0 points). The statewide score would
reflect a comparison of the Bank State Community Development Financing
Metric to the state community development financing benchmark and the
state weighted average community development financing benchmark, as
well as the impact review of the bank's activities.
---------------------------------------------------------------------------
\1220\ See proposed Sec. Sec. __.24(d) and __.28, proposed
appendix B, section 15, and proposed appendix C, paragraph d.
---------------------------------------------------------------------------
Under the proposal, the amount of weight that the agencies would
apply to the facility-based assessment area performance and to the
statewide performance would depend on the bank's percentage of deposits
(based on collected deposits data and on the FDIC's Summary of Deposits
data, as applicable) and retail loans, as defined in the
proposal.\1221\
---------------------------------------------------------------------------
\1221\ See proposed appendix B, section 15.
---------------------------------------------------------------------------
The agencies proposed to tailor the weighting of the average
assessment area performance and the statewide score to the individual
bank's business model, while still preserving the option for every bank
to be meaningfully credited for activities outside of its facility-
based assessment areas.\1222\ For a bank that does most of its retail
lending and deposit collection within its facility-based assessment
areas, for example, the agencies viewed those facility-based assessment
areas as the primary community a bank serves. The
[[Page 6983]]
agencies therefore believed the average facility-based assessment area
performance deserved a larger portion of the weight in the combined
state performance score.
---------------------------------------------------------------------------
\1222\ Id.
---------------------------------------------------------------------------
To ensure that the agencies also meaningfully credited any
community development loans and investments a bank undertakes outside
of its facility-based assessment areas, the agencies proposed to give
equal weight to the average assessment area performance and statewide
score for banks whose business model is strongly branch-based.\1223\
Because community development loans and investments that serve
facility-based assessment areas would contribute both to the statewide
score as well as in the weighted average of facility-based assessment
area conclusions, equally weighting these two components effectively
would give greater weight to assessment area performance while still
meaningfully considering those community development loans and
investments that banks conduct outside of their facility-based
assessment areas.
---------------------------------------------------------------------------
\1223\ Id.
---------------------------------------------------------------------------
On the other end, for banks with retail lending and deposit
collection that occurs almost entirely outside of the bank's facility-
based assessment areas (such as primarily online lenders), the agencies
believed those assessment areas largely do not represent the entire
community the bank serves. The agencies, therefore, proposed to weight
the statewide score more heavily than the weighted average assessment
area performance score for such a bank.\1224\ The agencies also
proposed that banks with business models in between these two ends
would use weights that are correspondingly in between.
---------------------------------------------------------------------------
\1224\ Id.
---------------------------------------------------------------------------
Specifically, to determine the relative weighting as described in
Table 45, the agencies proposed to use the simple average of: (1) the
percentage of a bank's retail loans in a State, by dollar volume, that
the bank made in its facility-based assessment areas in that State, and
(2) the percentage of a bank's deposits from a State, by dollar volume,
that the bank sourced from its facility-based assessment areas in that
State.
The agencies further proposed that banks that have a low percentage
of deposits and retail loans within their facility-based assessment
areas would have a greater emphasis placed on their statewide
performance compared to the weighted average of their facility-based
assessment area performance.\1225\ Conversely, the agencies would place
more equal weight on statewide performance and the weighted average of
facility-based assessment area performance for banks that have a high
percentage of deposits and retail loans within their facility-based
assessment areas. Thus, to develop the State Community Development
Financing Test conclusion, the agencies proposed the State performance
score to be the score that would result from averaging: (1) the bank's
weighted average facility-based assessment area performance score; and
(2) the bank's statewide score. The agencies would then round the State
performance score to the nearest point value corresponding to a
conclusion category: ``Outstanding'' (10 points); ``High Satisfactory''
(7 points); ``Low Satisfactory'' (6 points); ``Needs to Improve'' (3
points); ``Substantial Noncompliance'' (0 points).
---------------------------------------------------------------------------
\1225\ Id.
---------------------------------------------------------------------------
The agencies believed that taking into account both the bank's
facility-based assessment area performance and its statewide
performance would build off of the current approach to considering
community development loans and investments in broader statewide and
regional areas that include a banks' assessment areas and aimed to
achieve a balance of objectives. First, considering assessment area
performance encourages banks to serve the communities where they have a
physical presence and where their knowledge of local community
development needs and opportunities is often strongest. Second,
considering statewide performance provides banks the option to pursue
impactful community development opportunities that may be located
partially or entirely outside of their facility-based assessment areas,
without requiring them to do so. Third, because facility-based
assessment area activities are considered in the State evaluation as
well, the proposed approach would give greater emphasis to activities
within facility-based assessment areas than to activities outside of
assessment areas, but the amount of weight would be tailored to each
bank's business model in the state. As a result, the agencies believed
the proposal would encourage banks that are primarily branch-based to
focus on serving their facility-based assessment areas, while banks
that have few loans and deposits in facility-based assessment areas,
such as banks that operate primarily through online delivery channels,
would be evaluated mostly on a statewide basis.
Under the proposal, the percentage of deposits assigned to
facility-based assessment areas for banks that do not collect and
maintain deposits data would always be 100 percent because the FDIC's
Summary of Deposits data attributes all deposits to bank branches. The
average of the percentage of home mortgage loans, small business loans,
and small farm loans and deposits in facility-based assessment areas
for such a bank would, therefore, not account for the bank's depositors
that are located outside of its facility-based assessment areas. In the
proposal, the agencies recognized that this would generally result in a
higher weight on the bank's assessment area performance score unless
the bank chooses to collect and maintain these data.
Comments Received
Certain commenters offered suggestions for determining Community
Development Financing Test performance scores and conclusions. A
commenter suggested that in addition to weighting facility-based
assessment area performance, the agencies should: (1) set a threshold
for smaller facility-based assessment areas that requires that they
have a low satisfactory or higher rating to ensure those facility-based
assessment areas receive sufficient attention; and (2) require banks
with 60 percent or more of their community development loans and
investments in facility-based assessment areas to also have a 50
percent weight for facility-based assessment area performance. Another
commenter similarly stated that the agencies should place more than the
proposed weight on facility-based assessment area performance. Lastly,
a commenter stated that if a bank fails in any of its assessment areas,
it should receive a rating of ``Needs to Improve'' or below.
Final Rule
The agencies are finalizing the provisions for determining the
State performance score and corresponding conclusion as proposed with
certain clarifying and conforming revisions.\1226\ In considering the
importance of facility-based assessment area performance within a
State, the agencies determined that it was not appropriate to place
additional weight on performance in facility-based assessment areas
relative to performance outside of facility-based assessment areas
because, as discussed above: (1) the agencies evaluate facility-based
assessment areas separately under final Sec. __.24(b); (2) the
agencies consider facility-based assessment area community development
financing performance under component one of the State evaluation of
the Community
---------------------------------------------------------------------------
\1226\ See final Sec. __.24(c) and (f), and final appendix B,
paragraph II.p.
---------------------------------------------------------------------------
[[Page 6984]]
Development Financing Test; \1227\ and (3) community development loans
and investments in facility-based assessment areas are included in the
Bank State Community Development Financing Metric. In the agencies'
view, these three levels of consideration for community development
loans and investments in facility-based assessment areas provide
appropriate emphasis while still allowing banks to receive
consideration for loans and investments outside of these areas.
Further, the agencies believe that this flexibility will incentivize
banks to engage in community development lending and investments in
underserved areas that may not be proximate to many bank branches. For
a bank that focuses its community development lending and investments
on its facility-based assessment areas, performance in facility-based
assessment areas and in the State will be equivalent. The agencies
believe that the proposed weighting of facility-based assessment area
performance \1228\ and statewide performance \1229\ in determining
State performance scores and assigning conclusions emphasizes the
importance of banks helping to meet the credit needs of their facility-
based assessment areas while still permitting consideration of
community development loans and investments outside of those areas. As
discussed in the proposal, the agencies believe this approach builds
off the current approach to considering community development loans and
investments in the broader statewide and regional areas that include a
banks' assessment areas and aims to achieve a balance of objectives.
Further, this approach creates more certainty for banks regarding
whether they will receive consideration for community development loans
and investments outside of facility-based assessment areas.
---------------------------------------------------------------------------
\1227\ See final Sec. __.24(c)(1).
\1228\ Id.
\1229\ See final Sec. __.24(c)(2).
---------------------------------------------------------------------------
The final rule balances the objectives of encouraging banks to
serve the communities where they have a physical presence and where
their knowledge of local community development needs and opportunities
is often strongest with the ability to pursue impactful community
development opportunities that may be located partially or entirely
outside of their facility-based assessment areas.\1230\ As such, the
final rule gives greater emphasis to community development loans and
investments within facility-based assessment areas because those loans
and investments are included in the State performance score and tailors
the amount of weight to each bank's business model in the State. The
agencies believe this approach will encourage banks that are primarily
branch-based to focus on serving their facility-based assessment areas,
while banks that have few loans and deposits in facility-based
assessment areas, such as banks that operate primarily through online
delivery channels, will have greater emphasis on their statewide
community development loans and investments.
---------------------------------------------------------------------------
\1230\ As with the proposal, under the final rule, banks may,
but are not required to, engage in community development lending and
investment outside of facility-based assessment areas because loans
and investments in those areas are included in the statewide
evaluation.
---------------------------------------------------------------------------
The agencies also considered the comments about ensuring that
smaller facility-based assessment areas receive sufficient attention.
The agencies addressed this issue in the final rule through a
requirement that large banks with a combined total of 10 or more
facility-based assessment areas and retail lending assessment areas in
any State may not receive a rating of ``Satisfactory'' or
``Outstanding'' in the respective State unless the bank received an
overall facility-based assessment area or retail lending assessment
area conclusion of at least ``Low Satisfactory'' in 60 percent or more
of the total number of its facility-based assessment areas and retail
lending assessment areas in that State.\1231\
---------------------------------------------------------------------------
\1231\ See the section-by-section analysis of final Sec.
__.28(b)(4)(ii) and final appendix D, paragraph g.2.ii. As discussed
in final appendix D, these requirements also apply to conclusions
for multistate MSAs and for the institution. See also the section-
by-section analysis of Sec. __.51 (this requirement only applies to
facility-based assessment areas for purposes of the first evaluation
under this final rule).
---------------------------------------------------------------------------
Under the final rule, the appropriate Federal financial supervisory
agency calculates a performance score for the State Community
Development Financing Test based on the weighted combination of the two
components, pursuant to paragraph II.p of final appendix B.\1232\ The
agency then assigns a conclusion corresponding with the conclusion
category that is nearest to the performance score for a bank's
performance under the Community Development Financing Test in each
State pursuant to final Sec. __.28(c) as shown in the table
below.\1233\
---------------------------------------------------------------------------
\1232\ As provided in final appendix B, paragraph II.p, the
combined score also applies to the multistate MSA evaluation and the
nationwide evaluation, with certain differences for the nationwide
area discussed in the section-by-section analysis of final Sec.
__.24(e).
\1233\ See final appendix B, paragraph II.p.1.
---------------------------------------------------------------------------
[[Page 6985]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.057
Specifically, under paragraph II.p.2 of final appendix B, the
appropriate Federal financial supervisory agency bases the Community
Development Financing Test combined performance score for a State on:
(1) component one--the weighted average of the bank's performance
scores corresponding to facility-based assessment area conclusions in
that State; \1234\ and (2) component two--the bank score for metric and
benchmark analyses and the impact and responsiveness review.\1235\ For
component one, the final rule provides that the agency derives
performance scores based on a weighted average of the performance
scores corresponding to conclusions for facility-based assessment areas
in each State, calculated pursuant to section IV of final appendix B.
For component two, the final rule provides that for each State, the
agency determines a statewide performance score corresponding to a
conclusion category (shown in the table below) by considering the
relevant metric and benchmarks and a review of the impact and
responsiveness of the bank's community development loans and community
development investments.\1236\
---------------------------------------------------------------------------
\1234\ See final appendix B, paragraph II.p.2.i.
\1235\ See final appendix B, paragraph II.p.2.ii.
\1236\ See id.
---------------------------------------------------------------------------
Using the results of components one and two, the appropriate agency
determines a combined performance score corresponding to a conclusion
category by taking the weighted average of two components.\1237\ The
two components the agencies use to determine weighting are: (1) the
percentage, calculated using the combination of loan dollars and loan
count, of the bank's total originated and purchases closed-end home
mortgage lending, small business lending, small farm lending, and
automobile lending, as applicable, in its facility-based assessment
areas out of all of the bank's originated and purchased closed-end home
mortgage lending, small business lending, small farm lending, and
automobile lending, as applicable, in the State during the evaluation
period; \1238\ and (2) the percentage of the total dollar volume of
deposits in its facility-based assessment areas out of all of the
deposits in the bank in the State during the evaluation period.\1239\
The weighting is calculated as provided in the table below (see
paragraph II.p.2.iii.B of final appendix B).
---------------------------------------------------------------------------
\1237\ See final appendix B, paragraph II.p.2.iii.
\1238\ See final appendix B, paragraph II.p.2.iii.A.1.
\1239\ See final appendix B, paragraph II.p.2.iii.A.2. For
purposes of this paragraph, ``deposits'' excludes deposits reported
under final Sec. __.42(b)(3)(ii).
---------------------------------------------------------------------------
[[Page 6986]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.058
The agencies believe that a weighting of 50 percent on the average
facility-based assessment area performance score and 50 percent on the
statewide score is appropriate for banks whose deposits and retail
lending occurs predominantly or entirely within their facility-based
assessment areas. As described above, community development loans and
investments that benefit the bank's facility-based assessment areas
would also contribute to the statewide score, so the agencies believe
any weighting on the statewide score of less than 50 percent would not
provide meaningful credit for activities that occur outside the bank's
facility-based assessment areas. For a branch-based bank that conducts
most of its community development financing activity within its
facility-based assessment areas, the statewide score would largely, or
entirely, reflect the performance inside its facility-based assessment
areas. Relatedly, the agencies also believe that a bank whose deposits
and retail lending occurs predominantly or entirely within their
facility-based assessment areas have the capacity to engage in
community development financing activity there, and so a weight of less
than 50 percent on the average facility-based assessment area
performance score would also be inappropriate.
Starting from that baseline of 50 percent weighting of the
statewide score for banks that are predominantly or entirely focused on
serving its facility-based assessment areas, the agencies believe that
increasing the weight on the statewide score proportionately with the
extent of the bank's retail lending and deposit taking outside of its
facility-based assessment areas appropriately tailors the weights to
individual banks' business models. This proportionate increase in the
weight on the statewide score is reflected in the increasing
percentages in the weight on component 2 column of Table 45 as the
percentage of the bank's loans and deposits from facility-based
assessment areas falls. To reduce the complexity of the rule, the
agencies are categorizing the weights into five segments as shown in
Table 45. The weight on the statewide score grows steadily as the
percentage of the bank's retail loans and deposits inside its facility-
based assessment areas falls, until banks whose retail lending and
deposit taking is predominantly or entirely outside its facility-based
assessment areas receive a Community Development Financing Test State
performance score based almost entirely on their statewide score. The
agencies again note that the statewide score also reflects performance
within a bank's facility-based assessment areas, in addition to
community development financing activities in other parts of the
applicable State.
The State performance score and conclusion provisions include
conforming revisions to improve consistency across the final rule,
including the use of the combination of loan dollars and loan count in
the weighting methodology, conforming revisions to final Sec.
__.24(f)(1) consistent with the revisions to the facility-based
assessment area conclusion discussion above, and other formatting and
technical changes.
The agencies are also finalizing the State ratings provisions in
final Sec. __.24(f)(2) as proposed.
Section __.24(d) Multistate MSA Community Development Financing Test
Evaluation
Current Approach
The agencies currently evaluate a bank's performance in a
multistate MSA when the bank has a main office, branch, or deposit-
taking ATM in two or more States in the multistate MSA. The current
approach to evaluating community development activities in a multistate
MSA is consistent with the process for evaluating performance in a
State, discussed above.
The Agencies' Proposal
In Sec. __.24(c)(3) of the NPR, the agencies proposed evaluating
performance under the Community Development Financing Test in a
multistate MSA consistent with the approach to evaluating performance
in a State. The agencies proposed to assign Community Development
Financing Test conclusions for multistate MSAs in which a bank has
branches in two or more states of the multistate MSA.\1240\ The
agencies proposed to employ the
[[Page 6987]]
same approach for assigning conclusions for States to multistate MSAs,
with the same components as the State evaluation.\1241\ The proposed
multistate MSA conclusion would reflect a weighted average of facility-
based assessment area conclusions within the multistate MSA, and would
also reflect: (1) a Bank Multistate MSA Community Development Financing
Metric; (2) a Multistate MSA Community Development Financing Benchmark;
(3) a Multistate MSA Weighted Assessment Area Community Development
Financing Benchmark; and (4) an impact review.
---------------------------------------------------------------------------
\1240\ See proposed Sec. Sec. __.24(d) and __.28, proposed
appendix B, section 15, and proposed appendix C, paragraph d.
\1241\ See proposed appendix B, section 16.
---------------------------------------------------------------------------
Comments Received
The agencies did not receive comments that were specific to the
proposed evaluation of community development loans and investments in
multistate MSAs.
Final Rule
The agencies are finalizing the proposed multistate MSA Community
Development Financing Test evaluation with clarifying and conforming
revisions consistent with the State evaluation. The agencies renumbered
proposed Sec. __.24(c)(3) to final Sec. __.24(d) consistent with the
other formatting revisions to final Sec. __.24. Under final Sec.
__.24(d), the appropriate Federal financial supervisory agency will
evaluate banks' community development lending and investments in
multistate MSAs, pursuant to final Sec. Sec. __.19 and __.28(c), using
the same two components as the State evaluation. Specifically, the
agency will evaluate a bank's community development financing
performance in a multistate MSA based on the: (1) weighted average of
facility-based assessment area performance in the multistate MSA;
\1242\ and (2) multistate MSA performance.\1243\
---------------------------------------------------------------------------
\1242\ See final Sec. __.24(d)(1).
\1243\ See final Sec. __.24(d)(2).
---------------------------------------------------------------------------
Under the final rule, the appropriate agency assigns a conclusion
for a bank's performance in each multistate MSA, as applicable, based
on a weighted combination of these two components pursuant to final
paragraph II.p of final appendix B and the weighting in section IV of
appendix B of the final rule. As noted in the proposal, the multistate
MSA Community Development Financing Test provisions are consistent with
the State Community Development Financing Test provisions and the
agencies made additional conforming revisions throughout final Sec.
__.24(d) and paragraphs II.g, II.h, and II.i of final appendix B.
Section __.24(e) Nationwide Area Community Development Financing Test
Evaluation
Current Approach
Currently, the agencies assign institution-level ratings for the
applicable performance tests based on a bank's performance in the
States and multistate MSAs where the bank has assessment areas. Banks'
community development loans and investments are considered at the
assessment area-, State-, multistate MSA-, or institution-level
depending on whether the loan or investment has a purpose, mandate, or
function of serving an assessment area or the broader statewide or
regional areas that include a bank's assessment areas.\1244\ The
agencies also determine the relative significance of performance in the
different States and multistate MSAs and factor that performance into
the institution-level ratings based on: (1) the significance of the
institution's community development loans, investments, and services
compared to (a) the institution's overall activities; (b) the number of
other institutions and the extent of their lending, investments, and
services in the relevant areas; and (c) the lending, investment, and
service opportunities in the relevant areas; and (2) demographic and
economic conditions in the relevant areas.\1245\
---------------------------------------------------------------------------
\1244\ See, e.g., Interagency Large Institution CRA Examination
Procedures (April 2014) at appendix.
\1245\ See, e.g., Interagency Large Institution CRA Examination
Procedures (April 2014).
---------------------------------------------------------------------------
The Agencies' Proposal
In proposed Sec. Sec. __.24(c) and __.28, section 15 of proposed
appendix B, and section d of proposed appendix C, the agencies proposed
to evaluate a bank's community development lending and investments in
the nationwide area and assign Community Development Financing Test
conclusions for the institution-level using a similar approach to that
for evaluating performance and assigning conclusions at the State
level. The proposed approach would use a combination of a weighted
average of facility-based assessment area conclusions in the nationwide
area and a nationwide area score that reflects: (1) a Bank Nationwide
Community Development Financing Metric; (2) a Nationwide Community
Development Financing Benchmark; (3) a Nationwide Weighted Assessment
Area Community Development Financing Benchmark; and (4) an impact and
responsiveness review.
Weighted average of facility-based assessment area performance. The
agencies proposed, in Sec. __.24(c)(4)(i), considering a weighted
average of a bank's Community Development Financing Test conclusions
across all of its facility-based assessment areas as one component of
the bank's Community Development Financing Test institution-level
conclusion.\1246\ As with the State evaluation approach, the agencies
intended that this approach would emphasize facility-based assessment
area performance by directly linking a bank's facility-based assessment
area conclusions to the institution conclusion. Under the proposal, the
conclusion assigned to each assessment area would be mapped to a point
value as follows: ``Outstanding'' (10 points); ``High Satisfactory'' (7
points); ``Low Satisfactory'' (6 points); ``Needs to Improve'' (3
points); ``Substantial Noncompliance'' (0 points). The agencies
proposed that this resulting score for each facility-based assessment
area would be assigned a weight, calculated as the average of the
percentage of retail loans and the percentage of deposits of the bank
within the facility-based assessment area (both measured in dollars),
out of all of the bank's retail loans and deposits in facility-based
assessment areas (based on collected deposits data and on the FDIC's
Summary of Deposits data, as applicable).\1247\ Using these weights and
scores, the agencies would calculate the weighted average of the
facility-based assessment area scores to determine the institution-
level performance score. The weighted average approach would ensure
that performance in each facility-based assessment area is incorporated
into the institution conclusion, with greater emphasis given to the
areas where a bank has a greater business presence.
---------------------------------------------------------------------------
\1246\ See proposed Sec. __.24(c)(4)(i).
\1247\ See proposed appendix B, section 16.
---------------------------------------------------------------------------
Nationwide area score. The agencies proposed in Sec.
__.24(c)(4)(ii) that examiners would assign a nationwide area score for
the institution based on a Bank Nationwide Community Development
Financing Metric, the nationwide benchmarks, and a nationwide impact
review.
Bank Nationwide Community Development Financing Metric. The
agencies proposed that examiners would calculate the Bank Nationwide
Community Development Financing Metric \1248\ using the same formula
for the State metric, including all of a bank's community development
loans
[[Page 6988]]
and investments, and deposits in the bank in the numerator and
denominator, respectively.
---------------------------------------------------------------------------
\1248\ See proposed Sec. __.24(c)(4)(ii)(A).
---------------------------------------------------------------------------
Nationwide Community Development Financing Benchmarks. In proposed
Sec. __.24(c)(4)(ii)(B), the agencies proposed establishing benchmarks
that would allow examiners to compare a bank's performance to other
banks in similar areas. The proposed benchmarks included a single
nationwide benchmark applied to all banks called the Nationwide
Community Development Financing Benchmark and a benchmark that was
tailored to each bank's facility-based assessment areas called the
Nationwide Weighted Assessment Area Community Development Financing
Benchmark. The agencies intended the use of two benchmarks to provide
additional context and points of comparison in order to develop the
nationwide area score.\1249\
---------------------------------------------------------------------------
\1249\ The agencies note that the proposal included Metropolitan
and Nonmetropolitan Nationwide Community Development Financing
Benchmarks applicable to the evaluation of community development
lending and investments in facility-based assessment areas,
described as ``national benchmarks.'' The proposed nationwide area
Community Development Financing Test evaluation would not use these
national benchmarks because it evaluates a bank's community
development financing performance in all geographic areas in the
nationwide area, irrespective of whether the banks' community
development loans or investments are in MSAs or nonmetropolitan
areas, and factors in facility-based assessment area performance
through the weighted assessment area benchmarks.
---------------------------------------------------------------------------
Under the proposal, the agencies would develop the proposed
nationwide benchmarks in the same way as the proposed statewide
benchmarks. The proposed Nationwide Community Development Financing
Benchmark included all community development loans and investments
reported by large banks in the numerator, and all deposits in those
banks in the denominator. Under the proposal, the deposits in the
nationwide area would be the sum of: (1) the annual average of deposits
in counties in the nationwide area reported by all large banks with
assets of over $10 billion over the evaluation period (as reported
under proposed Sec. __.42); and (2) the annual average of deposits
assigned to branches in the nationwide area by all large banks with
assets of $10 billion or less, according to the FDIC's Summary of
Deposits data, over the evaluation period.
The agencies proposed to define the Nationwide Weighted Assessment
Area Community Development Financing Benchmark as the weighted average
of the facility-based assessment area community development financing
benchmarks across all of the bank's facility-based assessment areas and
the agencies would weight the benchmark based on the facility-based
assessment area's percentage of retail loans and percentage of deposits
(both measured in dollars) within the facility-based assessment areas
of the State using the same weighting approach as described for the
weighted average of the bank's facility-based assessment area
conclusions.\1250\
---------------------------------------------------------------------------
\1250\ See proposed Sec. __.24(c)(4)(ii)(B)(2).
---------------------------------------------------------------------------
Impact review. Similar to the proposed State evaluation approach,
the agencies proposed in Sec. __.24(c)(4)(ii) and section 15 of
appendix B to evaluate the impact and responsiveness of a bank's
community development loans and investments at the institution level,
using the same impact review approach as described above for facility-
based assessment areas and States. The agencies proposed to conduct an
institution-level impact review in order to assess the impact and
responsiveness of all of an institution's community development loans
and investments, including those inside and outside of facility-based
assessment areas. The agencies considered this to be especially
important for the evaluation of a bank that elects to conduct community
development loans and investments that serve areas outside of its
facility-based assessment areas, so that the impact and responsiveness
of those activities is considered. As described above, the agencies
would consider the impact and responsiveness of the bank's community
development loans and investments to community needs, and would
consider the impact review factors, among other information.
Nationwide area score assignment. As provided in section 15 of
proposed appendix B, the agencies proposed to assign a nationwide area
score that reflected the bank's overall dollar volume of community
development loans and community development investments and overall
impact and responsiveness of those loans and investments, corresponding
to the conclusion categories as follows: ``Outstanding'' (10 points);
``High Satisfactory'' (7 points); ``Low Satisfactory'' (6 points);
``Needs to Improve'' (3 points); ``Substantial Noncompliance'' (0
points). This nationwide area score would reflect a comparison of the
Bank Nationwide Community Development Financing Metric to the
nationwide and weighted assessment area benchmarks, as well as the
impact review of the bank's community development financing activities.
Comments Received
Other than the comments discussed above, the agencies did not
receive comments specific to the evaluation of a bank's community
development loans and investments in the nationwide area or conclusions
at the institution level. However, certain comments discussed above are
relevant to these evaluations and conclusions. Specifically, some
commenters objected to consideration of community development lending
and investment outside of facility-based assessment areas because they
believe that consideration of lending and investments in broader
geographic areas is not consistent with the CRA statute's focus on
local communities. Further, as discussed in the section-by-section
analysis of Sec. __.24(a), many commenters expressed concern with the
absence of an investment test as a separate test or a component of the
Community Development Financing Test overall.
Final Rule
In final Sec. __.24(e) (renumbered proposed section Sec.
__.24(c)(4)), the agencies are finalizing the proposed nationwide area
evaluation of the Community Development Financing Test with certain
revisions. Consistent with the proposal, the final rule includes two
components for the nationwide area evaluation. The first component
consists of the weighted average of facility-based assessment area
performance in the nationwide area. The second component consists of an
evaluation of all of the bank's community development lending and
investments in the nationwide area--both inside and outside of a bank's
facility-based assessment areas. As with the proposal, and discussed in
greater detail below, the agencies will base consideration of a bank's
nationwide area performance under the second component on a Bank
Nationwide Community Development Financing Metric, the two nationwide
community development financing benchmarks, and an impact and
responsiveness review with conforming revisions consistent with the
changes discussed above related to the State and multistate MSA
Community Development Financing Test evaluations.
The agencies continue to believe, as discussed above, that it is
appropriate to consider community development loans and investments
outside of banks' facility-based assessment areas. The agencies believe
that the construction of the nationwide area evaluation puts
appropriate emphasis on banks' lending and investment in banks'
facility-based
[[Page 6989]]
assessment areas while also permitting banks to help meet the credit
needs of their entire communities, particularly underserved areas with
limited bank presence. This framework is aimed at ensuring that banks
reinvest in the communities from which they draw deposits while also
eliminating barriers in the current framework that have resulted in a
mismatch in the supply and demand of community development financing
activities in certain geographic areas.
As discussed above in the section-by-section analysis of Sec.
__.24(a), to respond to commenters concerns about the potential that
banks may shift away from conducting community development investments
in favor of community development loans, the final rule also includes a
Bank Nationwide Community Development Investment Metric and a
Nationwide Community Development Investment Benchmark as part of the
nationwide area performance considerations for large banks that have
assets greater than $10 billion. In the agencies' view, including an
investment metric and benchmark for the nationwide area is appropriate
because it serves as a check on the level of banks' overall community
development investments. The agencies determined that including an
investment metric in the evaluation of facility-based assessment areas,
States, or multistate MSAs may impose an incentive on banks to make a
community development investment instead of a community development
loan solely to perform well against the metric as compared to the
benchmark, even if that investment was not in the best interest of the
particular community or project. By limiting consideration of the Bank
Nationwide Community Development Investment Metric and Nationwide
Community Development Investment Benchmark to the nationwide area
evaluation, banks have the flexibility to engage in the most
appropriate type of financing for each community development project
while still giving the agencies a view into how a bank's overall
community development investment activity compares to its peers.
After considering commenter feedback, the agencies determined that
the Bank Community Development Investment Metric and the Nationwide
Community Development Investment Benchmark should exclude mortgage-
backed securities. Although mortgage-backed securities serve a purpose
in creating liquidity and helping banks to meet the credit needs of
their communities, these types of community development investments do
not involve the complexities associated with certain other community
development investments. Further, given the existing markets for
mortgage-backed securities, banks may readily engage in these types of
investments if appropriate for their business model. For these reasons,
the agencies believe that the consideration of community development
investments within the nationwide area evaluation should focus on the
extent to which banks are making community development investments
other than mortgage-backed securities, which may involve competitive
challenges, significant lead times, or otherwise be more complex for a
bank to make.
The agencies also determined that the Bank Nationwide Community
Development Investment Metric as compared to the Nationwide Community
Development Investment Benchmark may only contribute positively to a
bank's Community Development Financing Test conclusion for the
institution.\1251\ The agencies considered that there may be
circumstances in which banks are not competitive for, or have limited
opportunities to make, community development investments in particular
geographic areas; however, provided that the agencies determine that
banks are helping to meet community development needs overall based on
the application of the Community Development Financing Test (exclusive
of the investment metric and benchmark comparison), banks should be
able to receive the conclusion and rating that the agency determines is
appropriate. Nonetheless, the agencies believe the Bank Nationwide
Community Development Investment Metric will incentivize banks to meet
community needs and opportunities through community development
investments because it: (1) adds transparency regarding a bank's level
of community development investments; and (2) provides additional
information that the agencies can consider positively in assessing a
bank's performance under the Community Development Financing Test that
may provide a more nuanced perspective on the bank's performance.
---------------------------------------------------------------------------
\1251\ See final Sec. __.24(e)(2)(iv) and final appendix B,
paragraph II.p.2.ii.
---------------------------------------------------------------------------
Section __.24(e)(1) Nationwide Area Evaluation--component One
Under final Sec. __.24(e)(1)--the weighted average of facility-
based assessment area performance in the nationwide area--the
appropriate Federal financial supervisory agency consider the weighted
average of the performance scores corresponding to a bank's conclusions
for the Community Development Financing Test for its facility-based
assessment areas within the nationwide area, calculated pursuant to
section IV of final appendix B.
Section __.24(e)(2) Nationwide Area Evaluation--Component Two
Under final Sec. __.24(e)(2)--nationwide area performance--the
appropriate Federal financial supervisory agency considers a bank's
community development financing performance in the nationwide area
using a community development financing metric and benchmarks that
consider all community development loans and investments in the
nationwide area and, in the case of banks with over $10 billion in
assets, a metric and benchmark focused on community development
investments in the nationwide area. Component two also includes
consideration of the impact and responsiveness of the bank's community
development loans and investments.
Specifically, under the final rule, component two includes a Bank
Nationwide Community Development Investment Metric in Sec.
__.24(e)(2)(iii). The appropriate agency applies this metric to large
banks that had assets greater than $10 billion. The Bank Nationwide
Community Development Investment Metric measures the dollar volume of
the bank's community development investments that benefit or serve all
or part of the nationwide area, excluding mortgage-backed securities,
compared to the deposits located in the nationwide area for the bank.
The agency calculates this metric pursuant to paragraph II.m of final
appendix B. The formula for calculating the Bank Nationwide Community
Development Investment Metric is consistent with the other metrics
included in the Community Development Financing Test.
Under final Sec. __.24(e)(2)(iv), the appropriate agency compares
the Bank Nationwide Community Development Investment Metric to the
Nationwide Community Development Investment Benchmark that measures the
dollar volume of community development investments that benefit or
serve all or part of the nationwide area, excluding mortgage-backed
securities, of all large banks that had assets greater than $10 billion
compared to deposits located in the nationwide area for all such banks.
The agency calculates this benchmark pursuant to paragraph II.n of
final appendix B. The formula for calculating the Nationwide Community
[[Page 6990]]
Development Investment Benchmark is consistent with the other
benchmarks included in the Community Development Financing Test. As
noted above, final Sec. __.24(e)(2)(iv) provides that this comparison
may only contribute positively to the bank's Community Development
Financing Test conclusion for the institution.
As noted above, in the final rule, paragraph II.p.2.ii of appendix
B also provides that in the nationwide area, for large banks with
assets greater than $10 billion, the agency considers whether the
bank's performance under the Nationwide Community Development
Investment Metric, compared to the Community Development Investment
Benchmark, contributes positively to the bank's Community Development
Financing Test conclusion.
Lastly, the agencies are finalizing the impact and responsiveness
review in final Sec. __.24(e)(2)(v) in the nationwide area as proposed
with conforming edits. As noted in the proposal and above, the
nationwide area Community Development Financing Test provisions are
generally consistent with the State and multistate MSA Community
Development Financing Test provisions. The agencies made additional
conforming revisions throughout final Sec. __.24(e) and paragraphs
II.j, II.k, II.l of final appendix B.
Section __.24(e) and (f) Nationwide Area Evaluation and Community
Development Financing Test Performance Conclusions and Ratings
The Agencies' Proposal
The agencies proposed that a bank's weighted average assessment
area performance score would be averaged with its nationwide area score
to produce an institution performance score, with weights on both
components tailored to reflect the bank's business model.\1252\ As
proposed for the calculation of the State score, the amount of weight
applied to the facility-based assessment area performance and to the
nationwide area performance would depend on the bank's percentage of
deposits and retail loans that are within its facility-based assessment
areas. Under the proposal, the agencies used weights equivalent to
those proposed for calculating the combined State performance score, to
tailor the weighting to the bank's business model while still allowing
all banks to receive meaningful credit for activities outside their
facility-based assessment areas.\1253\ The agencies intended the
proposed weighting approach for the nationwide area evaluation to
achieve the same balance as the State weighting approach by emphasizing
facility-based assessment area performance, allowing flexibility to
receive consideration for activities outside of facility-based
assessment areas, and tailoring the amount of weight on facility-based
assessment area performance to bank business model. Banks that have a
low percentage of deposits and retail loans within their facility-based
assessment areas would have a stronger emphasis on their nationwide
area score than on their weighted average of facility-based assessment
area conclusions. Conversely, banks that have a high percentage of
deposits and retail loans within their facility-based assessment areas
would have approximately equal weight on their nationwide area score
and on their weighted average of facility-based assessment area
conclusions. The agencies proposed that they would then round the
institution performance score to the nearest point value corresponding
to a conclusion category: ``Outstanding'' (10 points); ``High
Satisfactory'' (7 points); ``Low Satisfactory'' (6 points); ``Needs to
Improve'' (3 points); ``Substantial Noncompliance'' (0 points), to
develop the Institution Community Development Financing Test
conclusion.
---------------------------------------------------------------------------
\1252\ See proposed appendix B, section 15.
\1253\ See id.
---------------------------------------------------------------------------
Comments Received
Other than the comments discussed above regarding the evaluation of
community development loans and investments outside of banks' facility-
based assessment areas, the agencies did not receive specific comments
on the calculation of the institution conclusion.
Final Rule
The agencies are finalizing the institution conclusion provisions
for the Community Development Financing Test as proposed with
conforming revisions. Final Sec. __.24(e) provides that the
appropriate Federal financial supervisory agency evaluates a bank's
community development financing performance in the nationwide area,
pursuant to final Sec. __.19,\1254\ using the two components discussed
above and assign a conclusion for the institution based on the weighted
combination of the two components discussed above and as provided in
paragraph II.p of final appendix B and the weighting of conclusions as
provided in section IV of final appendix B. As noted in the proposal,
the nationwide area Community Development Financing Test provisions are
consistent with the State and multistate MSA Community Development
Financing Test provisions and the agencies made conforming revisions
throughout final Sec. __.24(e) and paragraphs II.j, II.k, II.l of
final appendix B.
---------------------------------------------------------------------------
\1254\ The cross-references to final Sec. __.19 are consistent
with similar revisions to the State evaluation in final Sec.
__.24(c) and the multistate MSA evaluation in final Sec. __.24(d).
Unlike those paragraphs, final Sec. __.24(e) does not cross-
reference final Sec. __.28(c) because those provisions are not
applicable to the institution conclusions.
---------------------------------------------------------------------------
Under the final rule, Sec. __.24(f)(1) provides that the agency
assigns performance conclusions for the Community Development Financing
Test for the institution pursuant to final Sec. __.28 and final
appendix C. Further, final Sec. __.24(f)(2) provides that pursuant to
final Sec. __.28 and appendix D, the agency incorporates a bank's
Community Development Financing Test conclusions into its institution
ratings.
Miscellaneous Comments and Technical and Conforming Changes
Comments Received
The agencies received several comments on miscellaneous portions of
the Community Development Financing Test. The agencies also discuss
various conforming changes to the Community Development Financing Test
below.
A commenter recommended that the agencies not only consider the
dollar volume of community development transactions, but also the units
or number of transactions undertaken by the bank during any given year
or examination cycle. The commenter explained that counting the number
of units or transactions closed by the institution in any given cycle
can be compared year-to-year and cycle-to-cycle to inform the picture
of a bank's community development financing performance. Similarly, a
commenter suggested that if the Community Development Financing Test is
retained, the agencies should require that a reasonable number of
transactions and originations be maintained and considered under the
performance test to limit the moral hazard of banks pursuing the
largest loans and avoiding rural America.
A commenter also suggested the following modifications to the
Community Development Financing Test: (1) calculating the percentage of
community development loans and investments that were committed to
persistent poverty counties and counties with low levels of financing;
and (2) reporting the percentage of community development loans and
investments that involved collaboration and partnerships
[[Page 6991]]
with public agencies and community-based organizations.
Final Rule
The agencies did not add to the final rule a metric measuring the
percentage of community development loans and investments that were
committed to persistent poverty counties and counties with low levels
of financing. The agencies structured the Community Development Test to
have different components that serve distinct purposes. Under the final
Community Development Financing Test, the impact and responsiveness
review is the mechanism for considering community development loans and
investments in persistent poverty counties and other underserved
geographic areas. The agencies believe that the impact and
responsiveness review is the appropriate means of considering these
types of loans and investments because it provides an incentive through
enhanced consideration as opposed to a comparison across banks. Banks
operate in different markets with different business strategies and
community needs and opportunities. A such, where some banks may be
positioned to engage in community development lending and investment in
persistent poverty counties, other banks may not have similar
opportunities. Therefore, the suggested metric likely would not provide
useful information for the agencies' evaluation of performance under
the Community Development Financing Test.\1255\
---------------------------------------------------------------------------
\1255\ For the agencies to determine if such a metric could
usefully inform evaluation of bank performance under the Community
Development Financing Test, the agencies would need to analyze data
on lending and investments in these areas, which are unavailable at
this time.
---------------------------------------------------------------------------
The agencies similarly did not add a requirement for reporting the
percentage of community development loans and investments that involved
collaboration and partnerships with public agencies and community-based
organizations. The agencies do not believe that this information is
necessary for assessing bank performance under the Community
Development Financing Test. Further, as discussed above, the agencies
determined not to consider the number of transactions under the
Community Development Financing Test.\1256\
---------------------------------------------------------------------------
\1256\ See the section-by-section analysis of Sec. __.24(a).
---------------------------------------------------------------------------
Other Technical and Conforming Changes
In addition to the changes discussed above, the agencies made
several non-substantive technical and conforming changes to the final
Community Development Financing Test in final Sec. __.24 and final
appendix B. The agencies' intent in making these changes, along with
the other technical, clarifying, or conforming revisions discussed
through this section-by-section analysis, was to be responsive to the
overarching comments that the proposal was too complex and difficult to
understand. First, the agencies reformatted final Sec. __.24(a) to
delineate the different components of the paragraph. The agencies also
revised the terminology to be more consistent both within final Sec.
__.24 and throughout the rule. For example, the final rule uses the
phrase ``benefits or serves'' in all places where the proposal had used
one of those terms or the combined phrase. These and similar types of
changes are not intended to have a substantive effect; rather, the
agencies intend for these changes to clarify the rule by eliminating
unnecessary variation that could introduce ambiguity.
Second, the agencies revised the format of the Community
Development Financing Test by restructuring proposed Sec. __.24(c) to
separate the State, multistate MSA, and nationwide area evaluations
into distinct paragraphs in final Sec. __.24.\1257\ As discussed
above, the agencies also streamlined the description of the metrics and
benchmarks throughout final Sec. __.24 and clarified the calculation
of the metrics and benchmarks in final appendix B by describing each
step in the calculation separately and adding sample formulas for
clarity. The agencies made additional clarifying revisions to final
appendix B, including: (1) reformatting and reorganizing the appendix
to include sections with subparagraphs; and (2) adding summary
paragraphs describing the inputs for the numerators and denominators of
the metrics and benchmarks included in final Sec. Sec. __.24 and
__.26.
---------------------------------------------------------------------------
\1257\ See final Sec. __.24(c) (State), (d) (multistate MSA),
and (e) (nationwide area).
---------------------------------------------------------------------------
Third, similar to the revisions made to final appendix A to improve
clarity and readability, the agencies reorganized final appendix B into
four separate sections. These sections are organized by topic and the
sections of the final rule to which they relate. The substantive
aspects of these sections are discussed above. The sections of final
appendix B are as follows:
Section I--Community Development Financing Tests--
Calculation Components and Allocation of Community Development Loans
and Community Development Investments. This section includes the inputs
for the metrics and benchmarks numerators and denominators in final
Sec. Sec. __.24 and __.26 and the methods for valuing and allocating
community development loans and investments.
Section II--Community Development Financing Test in final
Sec. __.24--Calculations for Metrics, Benchmarks, and Combining
Performance Scores. This section includes all the calculations for the
metrics and benchmarks in the Community Development Financing Test in
final Sec. __.24. The section also includes methodology for
calculating the combined score for facility-based assessment area
conclusions, the metrics and benchmarks analyses, and the impact and
responsiveness reviews.
Section III--Community Development Financing Test for
Limited Purpose Banks in final Sec. __.26--Calculations for Metrics
and Benchmarks. This section of final appendix B relates to the
Community Development Financing Test for Limited Purpose Banks and is
discussed in the section-by-section analysis of final Sec. __.26.
Section IV--Weighting of Conclusions. This section applies
to the development of conclusions for a bank's performance under the
Community Development Financing Test in final Sec. __.24 and the
Community Development Services Test in final Sec. __.25. The section
provides the methodology for weighting the performance scores
corresponding to conclusions in each State or multistate MSA, as
applicable, pursuant to final Sec. __.28(c), and the nationwide area.
In summary, the agencies are adopting final Sec. __.24 and final
appendix B with the revisions discussed above.
Section __.25 Community Development Services Test
Current Approach
The agencies currently evaluate a large bank's provision of
community development services, along with retail banking services, as
part of the service test.\1258\ For intermediate small banks and
wholesale and limited purpose banks, the agencies evaluate community
development services, community development loans, and community
development investments under a single community development
test.\1259\ Generally, the agencies do not evaluate
[[Page 6992]]
community development services for small banks.\1260\
---------------------------------------------------------------------------
\1258\ See current 12 CFR __.24(a).
\1259\ See current 12 CFR __.26(c) (intermediate small banks)
and __.25 (wholesale and limited purpose banks).
\1260\ See current 12 CFR __.26.
---------------------------------------------------------------------------
The current service test is largely qualitative and evaluates the
extent to which a bank provides community development services and the
extent to which those services are innovative or responsive to
community needs.\1261\ Examiners may consider measures including the
number of: (1) low- and moderate-income participants; (2) organizations
served; (3) sessions sponsored; and (4) bank staff hours
dedicated.\1262\ The agencies assess innovation and responsiveness by
considering whether a community development service requires special
expertise and effort by the bank, the impact of a particular activity
on community needs, and the benefits received by a community.\1263\
---------------------------------------------------------------------------
\1261\ See, e.g., current 12 CFR __.24(e).
\1262\ See Q&A Sec. __.24(e)--2.
\1263\ See id.
---------------------------------------------------------------------------
Under the current rule, the agencies consider services performed by
a third party on the bank's behalf under the service test if the
community development services provided enable the bank to help meet
the credit needs of its communities.\1264\ Indirect community
development services that enhance a bank's ability to deliver credit
products or deposit services within its community and that can be
quantified may be considered under the current service test if those
services have not been considered already under the lending or
investment test.\1265\
---------------------------------------------------------------------------
\1264\ Q&A Sec. __.24(e)--1.
\1265\ Id.
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed in Sec. __.25 to separately evaluate a large
bank's performance of community development services under the
Community Development Services Test. For all large banks, the agencies
proposed to evaluate each facility-based assessment area based on (1)
the extent to which a bank provides community development services and
(2) the impact and responsiveness of those services pursuant to
proposed Sec. __.15.\1266\ In addition, the agencies proposed a
quantitative metric (the Bank Assessment Area Community Development
Service Hours Metric), described further below, for large banks with
average assets of more than $10 billion.\1267\
---------------------------------------------------------------------------
\1266\ See proposed Sec. __.25(b).
\1267\ See id.
---------------------------------------------------------------------------
Under the proposal, the facility-based assessment area conclusions
would form the basis of conclusions for each State, multistate MSA, and
the nationwide area.\1268\ For each of these areas, conclusions would
be based on two components: (1) a bank's weighted average of its
community development services performance in its facility-based
assessment areas within a State, multistate MSA, and nationwide area;
and (2) an evaluation of its community development services outside its
facility-based assessment areas but within the State, multistate MSA,
and nationwide area.\1269\
---------------------------------------------------------------------------
\1268\ See proposed Sec. __.25(c).
\1269\ See proposed Sec. __.25(c) and proposed appendix B,
section 16.
---------------------------------------------------------------------------
Unlike the current approach,\1270\ the proposal did not provide for
community development services consideration where a third party (other
than an affiliate) performs those services pursuant to an agreement in
which the bank pays for those services.\1271\ The proposal also
included a definition of community development services in proposed
Sec. __.25(d), which is discussed in the section-by-section analysis
of Sec. __.12.
---------------------------------------------------------------------------
\1270\ See Q&A Sec. __.24(e)--1.
\1271\ See proposed Sec. __.21(c) (outlining when community
development services performed by an affiliate may be considered).
---------------------------------------------------------------------------
Comments Received
The agencies received many comments on proposed Sec. __.25. A few
commenters generally supported the proposed Community Development
Services Test. However, many commenters believed the proposed test
would facilitate misplaced examiner discretion and urged the agencies
to develop guidelines to ensure consistency. Several commenters stated
that the proposed Community Development Services Test is insufficiently
robust, with at least one of these commenters asserting the scope of
activities is too narrow. In addition, a few commenters expressed
concern that the test was inappropriately focused on the number of
volunteer hours and not the type or quality of the volunteer
activities, and advocated for a qualitative consideration of community
development services.
Some commenters suggested that if the agencies do not establish a
consolidated community development test (i.e., one performance test
that considers community development financing and community
development services),\1272\ the agencies should strengthen the
Community Development Services Test by making the test more closely
resemble the ``responsiveness'' consideration proposed in the Retail
Services and Products Test. At least one commenter reasoned that the
proposed Community Development Services Test has a disproportionately
high weight for a limited number of eligible or impactful activities.
---------------------------------------------------------------------------
\1272\ See the section-by-section analysis of final Sec.
__.21(a) for discussion on creating a single consolidated community
development performance test that evaluates community development
loans, investments, and services.
---------------------------------------------------------------------------
Final Rule
The agencies are adopting the Community Development Services Test
with substantive, technical, clarifying, and conforming edits discussed
below. In addition, the agencies made revisions to the proposed
definition of ``community development services'' and moved the
definition to final Sec. __.12, which is discussed in the section-by-
section analysis of Sec. __.12.
As adopted, the Community Development Services Test remains largely
qualitative and does not include the proposed Bank Assessment Area
Community Development Service Hours Metric. The performance test also
maintains the proposed consideration of the impact and responsiveness
of a bank's community development services. The agencies believe the
final rule provides greater consistency compared to the current rule
and is responsive to commenter concerns about the potential for
inconsistent application of the tests. For example, final Sec.
__.25(b) and (c) formalize agency considerations in determining the
extent to which a bank provides community development services (e.g.,
the total hours of community development services performed by the
bank; the capacities in which bank employees or board members served)
and creates a standard set of data points to facilitate the review in
final Sec. __.42(a)(6). In contrast to the current rule, the agencies
added clarity by outlining types of community development services
deemed impactful and responsive in final Sec. __.15.\1273\
---------------------------------------------------------------------------
\1273\ See the section-by-section analysis of final Sec. __.15
for additional discussion specific to the impact and responsiveness
consideration.
---------------------------------------------------------------------------
Further, the agencies believe, based on supervisory experience,
that a qualitative evaluation of community development services is
appropriate and consistent with how the agencies currently evaluate
community development services. Community development services do not
lend themselves easily to a metrics-based approach because, as
described further below, the evaluation includes consideration of the
needs and opportunities available in a particular area, as well as a
bank's resources and business model. To limit potentially misplaced
discretion and rating
[[Page 6993]]
inflation, the agencies intend to provide guidance and training to
examiners on the Community Development Services Test, such as how to
apply the impact and responsiveness review, and when to apply the
upward adjustment in final Sec. __.25(c)(2). In response to commenter
feedback regarding responsiveness, the final rule requires community
development services evaluated under the Community Development Services
Test to support community development, as described in final Sec.
__.13, and to be related to the provision of financial services.\1274\
---------------------------------------------------------------------------
\1274\ See the section-by-section analysis of Sec. __.12 for
discussion of the definition of community development services.
---------------------------------------------------------------------------
The agencies did not receive comments on the proposal's exclusion
of CRA consideration for community development services performed by a
non-affiliate third party. The agencies believe paying such a party to
perform service hours does not qualify as ``the performance of
volunteer services by a bank's or affiliate's board members or
employees.'' However, this sort of activity may qualify as a community
development investment as a ``monetary or in-kind donation.'' \1275\
Thus, the final rule maintains this exclusion.\1276\
---------------------------------------------------------------------------
\1275\ See the section-by-section analysis of Sec. __.12 for
discussion on whether community development services performed by a
third party may qualify as a ``monetary or in-kind donation'' within
the definition of ``community development investment.''
\1276\ See the section-by-section analysis of Sec. __.21(b) for
discussion on treatment of services performed by affiliates.
---------------------------------------------------------------------------
Section __.25(a) Community Development Services Test
The Agencies' Proposal
The agencies proposed in Sec. __.25(a) to evaluate a bank's record
of helping to meet the community development services needs of the
bank's facility-based assessment areas, States, multistate MSA, and
nationwide area. The agencies defined community development services in
proposed Sec. __.25(d) and explained that the agencies would consider
publicly available information and information provided by the bank,
government, or community sources that demonstrates that the activity
includes serving individuals or census tracts located within the
facility-based assessment area, State, multistate MSA, or nationwide
area, as applicable.
Comments Received and Final Rule
The agencies received one comment specific to this proposed
paragraph. This commenter suggested that the scope of community
development services in proposed Sec. __.25(a) should specifically
include that ``[f]or military banks and banks serving military and
veteran communities, these community development services may occur on
or near military installations and worldwide.'' The agencies do not
believe these proposed edits are warranted. As discussed in the
section-by-section analysis of Sec. __.16(d), military banks whose
customers are not located within a defined geographic area may
delineate a single facility-based assessment area consisting of the
entire United States and its territories. For banks that elect this
delineation pursuant to final Sec. __.16(d) and are also subject to
the Community Development Services Test, the agencies will evaluate
community development services in its facility-based assessment area,
which would include military installations within the United States and
its territories. The agencies do not include military installations
worldwide, consistent with the other parts of the final rule where the
agencies only consider activities within the United States and its
territories.
The agencies are adopting proposed Sec. __.25(a) with conforming,
clarifying, and technical edits. Specifically, the agencies conformed
the language in each introductory paragraph across the performance
tests so that the language mirrors the statute by replacing the
proposed references to the bank's facility-based assessment areas,
States, multistate MSAs, and the nationwide area with ``the entire
community.'' \1277\ In addition, the agencies eliminated the reference
to where to find the definition of community development services
within proposed Sec. __.25 because all definitions are now in final
Sec. __.12.
---------------------------------------------------------------------------
\1277\ See final Sec. __.25(a)(1).
---------------------------------------------------------------------------
Similar to the proposed approach in Sec. __.25(a), the final rule,
renumbered as Sec. __.25(a)(2), provides that the agencies consider
information provided by the bank and may consider publicly available
information and information provided by government or community sources
that demonstrates that a community development service benefits or
serves a facility-based assessment area, State, multistate MSA, or the
nationwide area. The agencies made clarifying edits to the proposed
provision to specify that while the agencies will consider information
provided by the bank to determine whether a particular community
development service benefits or serves a particular area, the agencies
may, at their option, consider publicly available information or
information from government or community sources.
Section __.25(b) Facility-Based Assessment Area Evaluation
The Agencies' Proposal
The agencies proposed in Sec. __.25(b)(1) to review a bank's
provision of community development services by considering one or more
of the following types of information: (1) the total number of
community development services hours performed by the bank; (2) the
number and type of community development services activities offered;
(3) for nonmetropolitan areas, the number of activities related to the
provision of financial services; (4) the number and proportion of
community development services hours completed by, respectively,
executives and other employees of the bank; (5) the extent to which
community development services are used, as demonstrated by information
such as the number of low- or moderate-income participants,
organizations served, and sessions sponsored; or (6) other evidence
that the bank's community development services benefit low- or
moderate-income individuals or are otherwise responsive to community
development needs.
For large banks with average assets greater than $10 billion, the
agencies proposed in Sec. __.25(b)(2) a quantitative metric--the Bank
Assessment Area Community Development Service Hours Metric--to measure
the average number of community development service hours per full-time
equivalent employee. The agencies proposed calculating the metric by
dividing a bank's aggregate hours of community development services
activity during the evaluation period in a facility-based assessment
area by the number of full-time equivalent employees in a facility-
based assessment area. The proposal did not include a peer benchmark in
which to compare the Bank Assessment Area Community Development Service
Hours Metric. However, the agencies stated in the proposed rule that
the collection and analysis of community development service hours data
under the proposed rule might allow for future development of peer
benchmarks.
The agencies also proposed to evaluate the impact and
responsiveness of the bank's community development services in a
facility-based assessment area pursuant to proposed Sec. __.15.
Comments Received
Commenters offered varying feedback on the proposed evaluation of
community development services in facility-based assessment areas,
[[Page 6994]]
including, but not limited to, the Bank Assessment Area Community
Development Service Hours Metric and whether the benefit associated
with using the metric exceeded the burden of collecting and reporting
this data point. A few commenters supported the proposed metric,
noting, generally, that the metric's value would exceed any burden to
the bank, or that the metric imposed limited burden to the bank. A
commenter highlighted the metric's ability to provide meaningful
comparison at the local level but suggested further refinement to the
calculation so that the metric would consider the number of months in
the evaluation period. At least a few commenters supporting the metric
said that reporting the data would not be burdensome to banks because
they already collect these data. Another commenter stressed that the
collection of community development services data is fundamental to
evaluating performance under the performance test.
Other commenters opposed the Bank Assessment Area Community
Development Service Hours Metric. These commenters generally believed
the metric's benefit did not outweigh the burden of reporting the
additional data. A commenter questioned the utility of the metric where
the proposed community development services evaluation would include
other non-quantitative bases and examiner discretion. Further, the
commenter found the metric duplicative of other parts of the proposed
Community Development Services Test, such as the consideration of the
number of hours for all community development services performed by a
bank as well as the proportion of community development service hours
completed by bank executives and other bank employees. Another
commenter believed the proposed test without the metric would be
sufficient.
In response to the agencies' question in the proposed rule on
whether to apply the Bank Assessment Area Community Development Service
Hours Metric to all large banks, including those with average assets of
$10 billion or less, a few commenters endorsed requiring all large
banks to report this metric, with a couple of these commenters also
endorsing the application of the metric to intermediate small
banks.\1278\ One commenter opposed requiring banks with assets $10
billion or less to report the Bank Assessment Area Community
Development Service Hours Metric, though it expressed general support
for recording volunteer hours.
---------------------------------------------------------------------------
\1278\ The proposed rule did not include the term ``intermediate
small bank.''
---------------------------------------------------------------------------
A few commenters raised concerns about operationalizing the metric,
such as challenges related to employees self-reporting and tracking
hours, recording the location of a community development services
provided virtually, and defining a full-time equivalent employee. A few
commenters supported the inclusion of executives in the definition of
full-time equivalent employee. Other commenters suggested that the
agencies should not discount service hours for part-time employees, or
that the metric should exclude ``non-exempt staff'' from the definition
of full-time equivalent employment if the final rule requires community
development services be related to the provision of financial services.
A couple of commenters cautioned that the increasing prevalence of
remote working arrangements and back-office locations would make
allocating full-time equivalent bank employees to a particular
geographic area challenging and could lead to anomalous results.
A few commenters responded specifically on whether the agencies
should develop benchmarks and thresholds to compare the Bank Assessment
Area Community Development Service Hours Metric once such data are
available. In general, some commenters opposed the development of such
benchmarks and thresholds because they would be too burdensome, whereas
other commenters tended to support developing benchmarks to facilitate
comparison across banks. One commenter believed the metric's comparison
to a peer benchmark should greatly influence the conclusions.
The agencies also sought feedback on whether to include an
additional executive-only metric in which the agencies would assess
community development service hours per executive for large banks with
assets of over $10 billion. The agencies received only a few comments
about this metric, each of which noted that a separate metric for
executive service hours would not add any rigor to the performance
test.
A couple of commenters suggested prescribed weighting within the
facility-based assessment area to promote consistency and rigor. For
example, a commenter suggested assigning a 50 percent weight for the
Bank Assessment Area Community Development Service Hours Metric and a
50 percent weight for the qualitative factors in proposed Sec.
__.25(b)(1). Another commenter suggested that hours spent volunteering
as a board member or in other leadership roles for a community
development organization should be weighted more heavily than other
community development services because the former requires a greater
commitment.
Final Rule
Final Sec. __.25(b) adopts the proposed qualitative approach to
evaluate a large bank's community development services in a facility-
based assessment area with substantive, clarifying, and technical
changes. As mentioned previously, the final rule does not include the
Bank Assessment Area Community Development Service Hours Metric in the
Community Development Services Test. Upon consideration of the
comments, the agencies believe the metric would have increased the
rule's complexity and burden with limited benefit to assessing
community development services, particularly since the agencies do not
have sufficient data to establish a peer benchmark for comparison with
the Bank Assessment Area Community Development Service Hours Metric.
The agencies recognize the challenges identified by commenters in
defining a full-time equivalent employee and recognize that a bank's
full-time equivalent employees may not be an appropriate measure or
proxy for the expectation of the amount of community development
services a bank should provide. A bank's decision on the number and
types of employees (e.g., full-time, part-time, contract, seasonal)
could be driven by many factors other than community development
services capacity. Relatedly, the agencies asked whether the final rule
should include a definition of ``full-time employee.'' This definition
is no longer necessary because the final rule does not include the
proposed Bank Assessment Area Community Development Service Hours
Metric, which used this term.
The final rule does not include an executive-only metric in
response to commenter feedback that the metric would not add rigor to
the test. Correspondingly, the agencies removed a related
consideration--the number and proportion of community development
services hours performed by executives and other bank employees--from
the list of considerations when evaluating a bank's provision of
community development services in a facility-based assessment
area.\1279\
---------------------------------------------------------------------------
\1279\ See proposed Sec. __.25(b)(1)(iv). Final Sec. __.12
requires that all community development services be related to the
provision of financial services. See the section-by-section analysis
of Sec. __.12 for discussion of the definition of community
development services.
---------------------------------------------------------------------------
[[Page 6995]]
The agencies streamlined and reorganized the list of considerations
in proposed Sec. __.25(b)(1). The final rule does not include the
proposed consideration--the number of activities related to the
provision of financial services in nonmetropolitan areas--because this
concept is inherent in the definition of community development services
in final Sec. __.12.\1280\ Further, the agencies condensed the
proposed considerations in Sec. __.25(b)(1)(v) and (vi) into final
Sec. __.25(b)(4). Proposed Sec. __.25(b)(1)(v)--the extent to which
community development services are used, as demonstrated by information
such as the number of low- and moderate-income participants,
organizations served, and sessions sponsored, as applicable--provided
examples of the catch-all provision in proposed Sec. __.25(b)(1)(vi).
Thus, final Sec. __.25(b)(4) incorporates both concepts without an
intended change in meaning. Final Sec. __.25(b)(4) provides that the
review of community development services in a facility-based assessment
area may include ``[a]ny other evidence demonstrating that the bank's
community development services are responsive to community development
needs, such as the number of low- and moderate-income individuals that
are participants, or number of organizations served.''
---------------------------------------------------------------------------
\1280\ See proposed Sec. __.25(b)(1)(iii).
---------------------------------------------------------------------------
The agencies made other conforming edits to track the data
collection and maintenance requirements in final Sec. __.42(a)(6),
which requires the collection and maintenance of community development
services data regarding the capacity in which a bank employee or board
member served.\1281\ The final rule explicitly identifies this
consideration in Sec. __.25(b)(2). The aligning of this provision to
the data collection and maintenance requirements in the final rule
results in replacing ``executive'' with ``board member.'' Bank
executives remain included in the term ``employee,'' and the agencies
clarified that consideration of the capacity served also applies to
board members. In addition, proposed Sec. __.25(b)(1)(ii) would have
included the number and type of community development services offered.
Consistent with the terminology in data collection and maintenance in
the final rule,\1282\ the agencies clarified in final Sec. __.25(b)(1)
that the agencies may consider, as appropriate, the number of community
development services attributable to each type of community development
described in Sec. __.13(b) through (l). Finally, the agencies changed
the outline levels to clarify that the impact and responsiveness review
in final Sec. __.15 may be among the considerations in assigning a
conclusion for a facility-based assessment area.\1283\
---------------------------------------------------------------------------
\1281\ Final Sec. __.42(a)(6)(i)(E).
\1282\ See final Sec. __.42(a)(6).
\1283\ See final Sec. __.25(b)(5).
---------------------------------------------------------------------------
The final rule does not prescribe a specific weighting for the
Community Development Services Test evaluation of each facility-based
assessment area. Without the proposed Bank Assessment Area Community
Development Service Hours Metric, the commenter suggestions for
weighting the metric compared to other considerations in the facility-
based assessment area are no longer necessary. The agencies considered
establishing weighting within the performance test or otherwise
reducing examiner discretion but determined that examiner discretion is
appropriate. For example, it is difficult to conclude, as suggested by
a commenter, that hours volunteering as a board member for an
organization that supports community development is always more
impactful and responsive than hours volunteering in a non-leadership
capacity. Instead, the agencies believe that they should base the
impact and responsiveness of a community development service on the
needs of a particular community. Examiner discretion in this test is
also consistent with current practice and consistent with the final
Community Development Financing Test and the Retail Services and
Product Test.\1284\
---------------------------------------------------------------------------
\1284\ See also discussion above under Community Development
Services Test--In General.
---------------------------------------------------------------------------
Section __.25(c) State, Multistate MSA, or Nationwide Area Evaluation
Section __.25(d) Community Development Services Test Performance
Conclusions and Ratings
The Agencies' Proposal
The proposal provided that the facility-based assessment area
conclusions would form the basis of conclusions at the State,
multistate MSA, and nationwide area.\1285\ Pursuant to proposed Sec.
__.25(c) and paragraph 16 of proposed appendix B, for each of these
areas, the agencies would develop conclusions based on two components:
(1) a bank's weighted average of its community development services
performance conclusions in its facility-based assessment areas within a
State, multistate MSA, or the nationwide area, as applicable under
Sec. __.18; and (2) an evaluation of a bank's community development
services outside its facility-based assessment areas but within the
State, multistate MSA, and nationwide area. The agencies recognized
that the current rule includes beneficial flexibility that can also
result in uncertainty about which community development services will
qualify for CRA consideration. For example, under the current approach,
if examiners determine that a bank conducted a community development
service in a broader statewide or regional area that does not benefit
an assessment area and that the bank has not been responsive to the
needs of its assessment areas, the bank will not receive consideration
for that activity.\1286\ This aspect of the current approach caused
uncertainty for banks because they would not know if examiners had
determined they were responsive to the needs of their assessment areas
until the point of their CRA examination, after the bank had engaged in
the activities considered in the examination. With the proposed rule,
the agencies intended to achieve a balance between prioritizing
facility-based assessment area performance, and providing certainty
that the agencies would consider community development services in
other areas.
---------------------------------------------------------------------------
\1285\ See proposed Sec. __.25(c).
\1286\ See Q&A Sec. __.12(h)--(6).
---------------------------------------------------------------------------
Under proposed Sec. __.25(c), the agencies would base weighting
under the first component on the average of two numbers: the bank's
share of retail loans within the facility-based assessment area
compared to the applicable geographic area (State, multistate MSA, or
nationwide area); and a bank's share of deposits within the facility-
based assessment area compared to the applicable geographic area.\1287\
Paragraph 16 of proposed appendix B provided the calculations for
weighting conclusions in a State, for a multistate MSA, and for the
institution, respectively. In a State, the agencies would weight a
bank's performance test conclusion in each facility-based assessment
area using the simple average of the percentages of, respectively,
statewide bank deposits associated with the facility-based assessment
area and statewide retail loans that the bank originated or purchased
in the facility-based assessment area. The statewide percentages of
deposits and retail loans associated with each facility-based
assessment area would be based upon, respectively, the dollar volumes
of deposits and loans in each facility-based assessment area compared
with,
[[Page 6996]]
respectively, the statewide dollar totals of deposits and loans within
facility-based assessment areas of that State. Put another way, the
proposal provided that the agencies would weight conclusions at the
State-level by averaging: (1) the dollar volume of deposits in a
facility-based assessment area within the State divided by the dollar
volume of deposits in the bank in that State; and (2) a bank's dollar
volume of retail loans in a facility-based assessment area within the
State divided by the dollar volume of retail loans in that State. The
agencies would use the same approach for weighting conclusions for the
multistate MSA and institution.
---------------------------------------------------------------------------
\1287\ See also proposed appendix B, section 16.
---------------------------------------------------------------------------
The second component in proposed Sec. __.25(c)(2) provided that
any upward adjustment of the performance score derived from the
weighted average of the facility-based assessment area performance
(i.e., component one) would be based on an evaluation of community
development services performed outside the facility-based assessment
area. That evaluation could include: the number, hours, and type of
community development service activities; the proportion of activities
related to the provision of financial services, as described in
proposed Sec. __.25(d)(3); and the impact and responsiveness of these
activities.\1288\
---------------------------------------------------------------------------
\1288\ See proposed Sec. __.25(c)(2).
---------------------------------------------------------------------------
Finally, proposed Sec. __.25(e)(1) provided that the agencies
assign community development services conclusions at the facility-based
assessment area, the State, multistate MSA, and institution level, as
provided in proposed Sec. __.28 and appendix C. Proposed Sec.
__.25(e)(2) provided that the agencies incorporate those conclusions
into its State, multistate MSA, and institution ratings.
Comments Received
A commenter expressed concern with the lack of guidelines for
potential upward adjustments based on community development services
performed outside of facility-based assessment areas. This commenter
recommended establishing a minimal level of service that must be
performed outside a facility-based assessment area to be eligible for
an upward adjustment, and recommended prohibiting banks with a ``Needs
to Improve'' or ``Substantial Noncompliance'' in its facility-based
assessment areas from receiving this upward adjustment. In addition,
this commenter said the performance of community development services
outside of facility-based assessment areas should clearly exceed the
performance within facility-based assessment areas as measured by hours
per employee or impact.
Final Rule
The agencies adopt final Sec. __.25(c) as proposed with technical
and conforming edits. To ensure consistency with final Sec. __.25(b),
the agencies replaced the considerations list in proposed Sec.
__.25(c)(2) with a reference to the similar factors in final Sec.
__.25(b)(1) through (5). This change adds a catch-all provision
(described further in the section-by-section analysis of Sec.
__.25(b)) to ensure the agencies may consider other evidence
demonstrating that the bank's community development services outside
facility-based assessment areas are responsive to community development
needs. In addition, the replacement of the consideration list in
proposed Sec. __.25(c)(2) with final Sec. __.25(c)(2) removes
consideration of the proportion of community development services
related to the provision of financial services \1289\ because the final
rule requires all community development services to be related to the
provision of financial services (see the section-by-section analysis of
Sec. __.12).
---------------------------------------------------------------------------
\1289\ Compare proposed Sec. __.25(c)(2)(ii), with final Sec.
__.25(c)(2).
---------------------------------------------------------------------------
Consistent with the proposal, the final rule permits an upward
adjustment based on the consideration of community development services
outside of a bank's facility-based assessment area; however, banks
subject to final Sec. __.25 are not required to provide such services
outside their facility-based assessment areas.\1290\ Consideration of
community development services in areas outside of the facility-based
assessment area recognizes impactful community development
opportunities that serve areas with high unmet community development
needs, including those areas in which few banks have a facility-based
assessment area or a concentration of loans subject to final Sec.
__.22.
---------------------------------------------------------------------------
\1290\ See final Sec. __.25(c)(2).
---------------------------------------------------------------------------
The final rule does not impose additional limitations or
restrictions on when the upward adjustment may be applied, as suggested
by a few commenters. In general, banks perform community development
services in areas where employees or board members are located (i.e.,
main office and branches), which is also generally where a facility-
based assessment area must be delineated. Thus, the agencies do not
believe additional limitations or restrictions are necessary.
The agencies also made conforming edits to clarify that the
agencies evaluate performance in the nationwide area but conclude at
the institution level. The final rule removes two errant references to
proposed Sec. __.18, the consideration of community development
services outside of a bank's facility-based assessment areas, in
proposed Sec. __.25(c) introductory text and (c)(1). The reference to
this consideration, renumbered as final Sec. __.19, should be limited
to component two in final Sec. __.25(c)(2). The weighting of the
conclusions remains substantively comparable to the proposed weighting
in paragraph 16 of proposed appendix B but includes clarifying edits in
final appendix B. See the section-by-section analysis of Sec. __.24(c)
and (d) for additional discussion on the Weighting of Conclusions in
section IV of final appendix B, which also applies to the final
Community Development Financing Test.
The agencies adopt the proposed conclusions and ratings provision
as final Sec. __.25(d) with technical and conforming edits. Final
Sec. __.25(d)(1) provides that the agencies will assign conclusions
under this test in each facility-based assessment area, State, or
multistate MSA, and institution, pursuant to final Sec. __.28 and
paragraph e of final appendix C. In addition, final Sec. __.25(d)(1)
includes conforming edits to clarify that the agencies may consider
performance context as provided in final Sec. __.21(d) when assigning
conclusions.\1291\ Final Sec. __.25(d)(2) provides that the agencies
incorporate conclusions under this performance test into the State or
multistate MSA ratings, as applicable, and its institution rating
pursuant to final Sec. __.28 and appendix D.
---------------------------------------------------------------------------
\1291\ See the section-by-section analysis of Sec. __.21(d) for
additional discussion.
---------------------------------------------------------------------------
Section __.26 Limited Purpose Banks
Current Approach
Under current Sec. __.25, the agencies evaluate a wholesale or
limited purpose bank's community development loans, community
development investments, and community development services under one
community development test.\1292\ The agencies give consideration to
the number and dollar amount of community development loans, community
development investments, and community development services,\1293\ both
inside a bank's assessment areas or in a broader statewide or regional
area that includes the bank's assessment areas, and outside
[[Page 6997]]
of its assessment areas if the needs of the bank's assessment areas are
adequately addressed.\1294\ The qualitative factors include the
innovativeness or complexity of these activities, the bank's
responsiveness to credit and community development needs, and the
extent to which investments are not routinely provided by private
investors.\1295\ In addition, the evaluation under the current test
considers performance context, including, but not limited to, a bank's
capacity and constraints and the performance of similarly situated
lenders.\1296\ A wholesale or limited purpose bank may provide
examiners with any information it deems relevant to the evaluation of
its community development lending, investment, and service
opportunities in its assessment areas.\1297\
---------------------------------------------------------------------------
\1292\ See current 12 CFR __.25(a).
\1293\ See current 12 CFR __.25(c)(1).
\1294\ See current 12 CFR __.25(e)(1) and (2).
\1295\ See current 12 CFR __.25(c)(2) and (3).
\1296\ See current 12 CFR __.21(b).
\1297\ See Q&A Sec. __.21(b)(2)-1.
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed in Sec. __.26 to maintain a wholesale or
limited purpose bank designation and that these banks would be
evaluated under the proposed Community Development Financing Test for
Wholesale or Limited Purpose Banks.\1298\
---------------------------------------------------------------------------
\1298\ See proposed Sec. __.26.
---------------------------------------------------------------------------
Final Rule
As discussed in the section-by-section analysis of Sec. __.12, the
final rule eliminates the proposed definition of ``wholesale bank'' and
revises the proposed definition of ``limited purpose bank'' to
encompass banks generally considered either ``limited purpose banks''
or ``wholesale banks'' under the current or proposed regulations. The
final rule replaces references to wholesale banks in the proposal with
limited purpose banks. The final rule maintains the option for a bank
to request designation as a limited purpose bank with evaluation
pursuant to the Community Development Financing Test for Limited
Purpose Banks in final Sec. __.26. This test employs qualitative and
quantitative factors similar to current examination procedures. In
addition, the institution-level conclusion will consider a community
development financing metric and certain benchmarks, as well as a
community development investment metric and benchmark.
The agencies received several comments on various aspects of
proposed Sec. __.26 from a diverse group of commenters.\1299\ These
comments, and the final rule, are discussed in detail below.\1300\
---------------------------------------------------------------------------
\1299\ A few commenters supported maintaining existing guidance
for wholesale and limited purpose banks from the Interagency
Questions and Answers. The agencies plan to review the applicability
of existing Interagency Questions and Answers during the transition
period.
\1300\ See supra note 145.
---------------------------------------------------------------------------
Section __.26(a) Bank Request for Designation as a Limited Purpose Bank
Current Approach
To receive a designation as a wholesale or limited purpose bank
under the current rule, current Sec. __.25(b) provides that a bank
shall file a request in writing to the appropriate Federal financial
supervisory agency at least three months prior to its desired
designation. If approved, the designation remains in effect until the
bank requests revocation of the designation or until one year after the
appropriate agency notifies the bank that its designation has been
revoked.\1301\
---------------------------------------------------------------------------
\1301\ See current 12 CFR __.25(b).
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed in Sec. __.26(a) to maintain the current
designation provision with technical edits. The proposal maintained the
option to file a written request to be designated as a wholesale or
limited purpose bank.\1302\ An approved designation would remain in
effect until the bank requests revocation or until one year after the
bank was notified that the appropriate Federal financial supervisory
agency has revoked the designation on its own initiative.\1303\
---------------------------------------------------------------------------
\1302\ See proposed Sec. __.26(a).
\1303\ See id.
---------------------------------------------------------------------------
Comments Received and Final Rule
A few commenters asked that the agencies clarify that those banks
designated as wholesale or limited purpose banks under the current rule
do not need to reapply to receive such a designation under the new
framework. The agencies confirm that banks currently designated as
wholesale or limited purpose banks do not need to reapply under the
final rule. As is the case under the current rule, the appropriate
Federal financial supervisory agency may notify a bank that the
designation has been revoked pursuant to final Sec. __.26(a) if the
agency determines the bank no longer qualifies for the limited purpose
bank designation, or the bank may request revocation.\1304\ The
agencies did not receive other comments specific to proposed Sec.
__.26(a), and therefore adopt Sec. __.26(a) as proposed with technical
and conforming edits, including a nomenclature change from ``wholesale
or limited purpose banks'' to ``limited purpose banks.'' \1305\
---------------------------------------------------------------------------
\1304\ Banks designated as wholesale banks under the current
regulation will automatically be considered limited purpose banks
under the final rule unless the appropriate Federal financial
supervisory agency notifies the bank that the designation has been
revoked pursuant to final Sec. __.26(a) or the bank requests
revocation.
\1305\ See the section-by-section analysis of Sec. __.12 for
additional discussion on the nomenclature change.
---------------------------------------------------------------------------
Section __.26(b) Performance Evaluation
Current Approach
The current community development test for wholesale or limited
purpose banks in Sec. __.25 evaluates community development loans,
community development investments, and community development services
under one performance test. Wholesale or limited purpose banks have
flexibility to satisfy their CRA obligation by engaging in any
combination of community development lending, investments, or services,
but are not required to engage in each activity.\1306\ Consequently, in
theory, a wholesale or limited purpose bank could receive a
``Satisfactory'' rating by performing only community development
services. In practice, under the current rule, the agencies'
supervisory experience suggests it would be unusual for a bank to
receive a ``Satisfactory'' rating based solely or even primarily on
community development services. Based on the agencies' supervisory
experience, more commonly, community development loans and community
development investments are the predominant activities that determine
community development ratings for wholesale or limited purpose banks.
---------------------------------------------------------------------------
\1306\ See Q&A Sec. __.25(f)--1.
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed to evaluate a wholesale or limited purpose
bank's community development loans and community development
investments under the Community Development Financing Test for
Wholesale or Limited Purpose Banks in proposed Sec. __.26.\1307\
Wholesale or limited purpose banks could request additional
consideration for community development services that would qualify
under the proposed Community Development Services Test, which the
appropriate Federal financial supervisory agency could consider to
adjust the bank's institution rating from
[[Page 6998]]
``Satisfactory'' to ``Outstanding.'' \1308\ Thus, under the proposal,
wholesale or limited purpose banks would not be able to rely solely on
community development services to obtain a ``Satisfactory'' rating.
---------------------------------------------------------------------------
\1307\ See proposed Sec. __.26(c).
\1308\ See proposed Sec. __.26(b)(2).
---------------------------------------------------------------------------
Comments Received
A few commenters raised concerns related to the elimination of the
ability of wholesale banks to rely on community development services to
achieve a baseline ``Satisfactory'' rating. These commenters opined
that this change may require wholesale banks to make significant
changes to their business models or seek a costly strategic plan. One
of these commenters stated that the agencies neglected to consider the
safety and soundness implications of eliminating the ability of
wholesale banks to rely on community development services to achieve a
``Satisfactory'' rating. Further, this commenter argued that the
agencies failed to provide a reasoned analysis for the policy change
and failed to weigh wholesale banks' reliance interests on the ability
to use community development services to achieve a ``Satisfactory''
rating compared to the agencies' policy objectives. In particular, this
commenter questioned why wholesale banks would not be afforded the same
ability as large banks to rely on community development services to
achieve a baseline ``Satisfactory'' rating.
Some commenters responded directly to the question in the proposed
rule on whether wholesale or limited purpose banks should have the
option to submit services to be reviewed on a qualitative basis at the
institution level without having to opt into the Community Development
Services Test, as proposed, or whether wholesale or limited purpose
banks that wish to receive consideration for community development
services should be required to opt into the proposed Community
Development Services Test. A few commenters supported consideration of
community development services without having to opt into the Community
Development Services Test. One of these commenters supported the
consideration of community development services for wholesale or
limited purpose banks regardless of a bank's institution rating under
the modified Community Development Financing Test. Another of these
commenters suggested the agencies should clarify that the performance
of community development services is not required for wholesale or
limited purpose banks to receive an overall rating of ``Outstanding''
if that bank otherwise demonstrates outstanding community development
financing performance.
In contrast, a few commenters disagreed with the proposed approach
to consider community development services if a wholesale or limited
purpose bank requests consideration. These commenters believed that the
agencies should evaluate community development services for all banks
and eliminate the provision that allows requesting additional
consideration. One of these commenters warned that the proposal would
increase subjectivity and could reduce nationwide community development
services.
Final Rule
The agencies adopt in final Sec. __.26(b)(2)(i) the proposed
treatment of community development services for limited purpose banks.
Under this approach, limited purpose banks have the option to submit
community development services for consideration; however, these banks
will not be able to rely solely or primarily on community development
services to obtain a ``Satisfactory'' rating under the final Community
Development Financing Test for Limited Purpose Banks. The agencies
acknowledge commenter concerns that final Sec. __.26 may restrict some
flexibility available to limited purpose banks under the current rule;
however, the agencies' supervisory experience indicates it would be
unusual for a wholesale or limited purpose bank under the current rule
to achieve a ``Satisfactory'' rating by relying solely or primarily on
community development services, as opposed to community development
lending or investments. Moreover, the treatment of community
development services in final Sec. __.26(b)(2)(i) achieves the
agencies' longstanding goal of emphasizing community development loans
and investments. Understanding that limited purpose banks are not
subject to the Retail Lending Test, the agencies place greater emphasis
on community development loans and investments to ensure equity across
business models. The agencies do not believe that there is a safety and
soundness implication related to the inability of a limited purpose
bank to rely on community development services to achieve a
``Satisfactory'' rating. Consistent with the proposal, the final rule
in Sec. __.21(f) does not require a bank to originate or purchase
loans or investments or to provide services that are inconsistent with
safe and sound banking practices.
The agencies acknowledge the final rule's different treatment of
community development services between limited purpose banks and large
banks. The final rule provides that the agencies evaluate a large
bank's community development services regardless of performance under
the Community Development Financing Test in final Sec. __.24, whereas
the agencies consider a limited purpose bank's community development
services if that bank requests consideration and only where the
institution rating would otherwise be ``Satisfactory.'' The agencies do
not believe limited purpose banks are disadvantaged by this
distinction. The consideration of community development services for
limited purpose banks can only positively affect the institution
rating, but in order to prioritize community development loans and
investments, the agencies limited the application of this consideration
to banks that would otherwise have a ``Satisfactory'' institution
rating. In contrast, the rule does not apply an expectation that
limited purpose banks conduct community development services. For large
banks, which generally have business models better structured to
perform community development services due to larger branch networks
and more employees, there is an expectation that they perform community
development services, and therefore the evaluation can negatively
affect a large bank's institution rating.
The agencies considered the comments related to whether a bank
should be required to opt into the Community Development Services Test
to receive consideration for community development services. Under such
a scenario, the agencies would evaluate a limited purpose bank pursuant
to the Community Development Services Test, which could negatively
affect the bank's conclusions and ratings. The agencies decline to
require limited purpose banks seeking consideration for community
development services to opt into the Community Development Services
Test because the agencies want to encourage performance of community
development services without creating the expectation that these banks
must perform community development services. Because limited purpose
banks generally have a smaller branch network and limited branch staff
to perform community development services compared to large banks, the
agencies adopt the proposed approach for community development
services--a limited purpose bank need not opt into the Community
Development Services
[[Page 6999]]
Test, but it may request, at its option, additional consideration for
community development services if it would otherwise receive a
``Satisfactory'' rating at the institution level.\1309\ The agencies
limit the consideration to banks that would otherwise receive a
``Satisfactory'' rating to prioritize community development loans and
investments.
---------------------------------------------------------------------------
\1309\ See final Sec. __.26(b)(2)(i).
---------------------------------------------------------------------------
The agencies confirm that submitting community development services
for consideration is not necessary for a limited purpose bank to
receive an ``Outstanding'' rating where that bank's community
development financing performance under final Sec. __.26 by itself is
otherwise ``Outstanding.''
In addition, the agencies clarified that a limited purpose bank may
receive additional consideration at the institution level for providing
low-cost education loans to low-income borrowers, regardless of the
limited purpose's bank's overall institution rating.\1310\ The agencies
made this revision to ensure consistency with the CRA statute, which
provides that for all banks, regardless of bank type, the agencies
shall consider, as a factor, such low-cost education loans.\1311\
---------------------------------------------------------------------------
\1310\ See final Sec. __.26(b)(2)(ii).
\1311\ See 12 U.S.C. 2903(d).
---------------------------------------------------------------------------
Section __.26(c) Community Development Financing Test for Limited
Purpose Banks--In General
The Agencies' Proposal
Proposed Sec. __.26(c) provided for the evaluation of wholesale
and limited purpose banks based on the banks' record of helping to meet
the community development financing needs in facility-based assessment
areas, States, multistate MSAs, and the nationwide area through the
banks' provision of community development loans and community
development investments. Further, the agencies would consider
information provided by the bank and could consider, as needed,
publicly available information and information provided by government
or community sources. The agencies proposed that community development
loans and investments should be allocated pursuant to section 14 of
proposed appendix B, which would be consistent with the allocation
provisions under the Community Development Financing Test in proposed
Sec. __.24.
Comments Received and Final Rule
The agencies did not receive comments specific to the proposed
scope provision in Sec. __.26(c). The agencies, therefore, adopt this
provision with technical and conforming edits. Specifically, as with
final Sec. Sec. __.24 and __.25, the final rule removes the proposed
references to the bank's facility-based assessment areas, States, and
multistate MSAs in which the bank has facility-based assessment areas,
as applicable, and the nationwide area, including consideration of
performance context to conform the language to the statute and across
the introductory paragraphs in the final performance tests. The final
rule moves the proposed language on what documentation the agencies
will or may consider to paragraph I.b of appendix B of the final rule,
where the allocation discussion is more fully described. Final Sec.
__.26(c)(2) updates the cross-reference to the allocation method in
paragraph I.b of appendix B, which is the same allocation method as the
Community Development Financing Test in final Sec. __.24. See the
section-by-section analysis of Sec. __.24(a) for additional discussion
of comments and the final rule related to the allocation method.
Finally, the final rule updates headings and terminology for clarity
and consistency.
Section __.26(d) Facility-Based Assessment Area Evaluation
Section __.26(e) State or Multistate MSA Evaluation
The Agencies' Proposal
For each facility-based assessment area, the agencies proposed to
evaluate a wholesale or limited purpose bank based on the total dollar
value of a bank's community development loans and community development
investments (i.e., community development financing activity) that serve
the facility-based assessment area for each year and a review of the
impact of those activities in the facility-based assessment area under
proposed Sec. __.15.\1312\ As discussed in more detail below, the
facility-based assessment area conclusions would form the basis of the
conclusion at the State, multistate MSA, and nationwide area level,
along with review of the bank's community development financing
activity that serves the State or multistate MSA during the evaluation
period.\1313\
---------------------------------------------------------------------------
\1312\ See proposed Sec. __.26(d).
\1313\ See proposed Sec. __.26(e)(1) and (f)(1).
---------------------------------------------------------------------------
For each State or multistate MSA conclusion, the agencies proposed
to assign a conclusion based on a combination of two components: (1) a
wholesale or limited purpose bank's community development financing
performance in its facility-based assessment areas in the State or
multistate MSA area; and (2) the dollar value of community development
financing performance that serves the State or multistate MSA during
the evaluation period, and a review of the impact of these activities
in the State or multistate MSA under Sec. __.15.\1314\ Unlike the
Community Development Financing Test in proposed Sec. __.24, the
proposed Community Development Financing Test for Wholesale or Limited
Purpose Banks did not include prescribed weighting for considering
these two components, and the proposed evaluation in a facility-based
assessment area, State, or multistate MSA did not include a metric. The
agencies proposed the Wholesale or Limited Purpose Bank Community
Development Financing Metric for the nationwide area only (as opposed
to the facility-based assessment area, State, or multistate MSA)
because of the difficulties associated with apportioning bank assets to
specific facility-based assessment areas, States, or multistate MSAs.
---------------------------------------------------------------------------
\1314\ See proposed Sec. __.26(e).
---------------------------------------------------------------------------
The agencies sought feedback on how to increase certainty in the
evaluation of a wholesale or limited purpose bank's community
development financing performance for a facility-based assessment area,
including whether to apply a metric and what the denominator should be.
Comments Received
In response to the agencies' request for feedback on whether to
apply a metric and what the denominator should be, a few commenters
supported establishing a metric for facility-based assessment areas.
One of these commenters suggested the agencies use a variation of the
OCC's procedure for allocating Tier 1 Capital across assessment areas.
Similarly, another commenter stated that a model currently exists
within CRA whereby a percentage of a bank's Tier 1 Capital that is
dedicated to community development investment activity is used as a
benchmark for performance. The commenter believed this approach would
not be complicated. A few commenters advocated for using deposits in
the denominator in response to this question.
One commenter that supported including a metric for facility-based
assessment areas also supported establishing a benchmark. This
commenter suggested that for banks with over $10 billion in assets, the
benchmark could be based on the share
[[Page 7000]]
of the bank's deposits it collects from a facility-based assessment
area multiplied by the bank's institution community development
financing benchmark. For banks with assets of $10 billion or less, the
commenter suggested that the benchmark should be based upon the share
of the U.S. population (or alternatively, the share of the U.S. low-
and moderate-income population) residing in the facility-based
assessment area, multiplied by the bank's community development
financing benchmark.
Final Rule
The final rule adopts Sec. __.26(d) and (e) as proposed with
certain technical and conforming edits, including reorganizing text,
adding paragraph headers, and clarifying the text. The agencies
evaluate in each facility-based assessment area a bank's dollar volume
of community development loans and investments that benefit or serve
the facility-based assessment area and the impact and responsiveness
review of these loans and investments.\1315\ In each State or
multistate MSA, the agencies evaluate and assign a conclusion based on
the facility-based assessment area conclusion and the dollar volume of
the limited purpose bank's community development loans and investments
that serve the State or multistate MSA and the impact and
responsiveness review of these loans and investments.\1316\ Also,
consistent with the proposal, the final rule does not include a metric
for the evaluation of the facility-based assessment area, State, or
multistate MSA because a limited purpose bank's total assets cannot be
easily apportioned to those areas.
---------------------------------------------------------------------------
\1315\ See final Sec. __.26(d).
\1316\ See final Sec. __.26(e).
---------------------------------------------------------------------------
The agencies considered alternatives suggested by commenters to
establish a metric with another denominator, such as capital or
deposits, which would allow for the application of a metric at a level
other than the nationwide area. However, the agencies determined that
these alternatives were not appropriate for several reasons. First, the
agencies do not believe capital would be an appropriate denominator to
evaluate limited purpose banks in any area.\1317\ A bank's capital
levels are driven by several factors that do not relate to CRA, such as
lower risk tolerance or higher risk exposure. In this way, capital
would not be an accurate or consistent measure of a bank's capacity to
meet its community's needs. Second, the agencies concluded that a
denominator of deposits is not an appropriate or useful measure because
at least some limited purpose banks accept deposits on a limited basis
or not at all, as discussed in detail in the section-by-section
analysis of Sec. __.26(f) below. Without a metric for facility-based
assessment areas, States, or multistate MSAs, there is limited benefit
to establishing a corresponding benchmark. Thus, the agencies are not
establishing a metric or benchmark to evaluate community development
financing performance in an area other than the nationwide area for
limited purpose banks.
---------------------------------------------------------------------------
\1317\ The agencies acknowledge that examiners, in some cases,
may have considered capital as an informal measure of a wholesale or
limited purpose bank's community development financing capacity, as
was asserted by a few commenters. However, such practice was neither
consistently applied across agencies, nor was it consistently
applied within any agency.
---------------------------------------------------------------------------
Section __.26(f) Nationwide Area Evaluation
Nationwide Area Evaluation--In General
Proposed Sec. __.26(f) provided for the evaluation of community
development financing performance of a wholesale and limited purpose
bank in a nationwide area based on that bank's community development
financing performance in all of its facility-based assessments areas,
the Wholesale or Limited Purpose Bank Community Development Financing
Metric, and a review of the impact of the bank's nationwide community
development activities. Section 18 of proposed appendix B provided
additional detail on how the agencies would calculate the Wholesale or
Limited Purpose Bank Community Development Financing Metric. The
agencies did not propose a benchmark in which to compare the Wholesale
or Limited Purpose Bank Community Development Financing Metric. The
agencies received numerous comments on various aspects of this proposed
provision, which are discussed below along with the final provision.
Limited Purpose Bank Community Development Financing Metric--Numerator
The Agencies' Proposal and Comments Received
Proposed Sec. __.26(f) provided that the numerator of the
Wholesale or Limited Purpose Bank Community Development Financing
Metric measured the average total dollar value of a bank's community
development loans and community development investments over the
evaluation period as specified in section 18 of proposed appendix
B.\1318\ A commenter requested clarification that the numerator would
be measured consistent with how non-wholesale and limited purpose banks
are measured, as set forth in paragraph 1 of proposed appendix B.\1319\
---------------------------------------------------------------------------
\1318\ See proposed appendix B, paragraph 8.i.
\1319\ Proposed appendix B, section 1, provided, in relevant
part, that the annual community development financing activity for
purposes of proposed Sec. __.24 included: (1) the dollar amount of
all community development loans originated and community development
investments made in that year; (2) the dollar amount of any increase
in an existing community development loan that is renewed or
modified in that year; and (3) the outstanding value of community
development loans originated or purchased and community development
investments made in previous years that remain on the bank's balance
sheet on the last day of each quarter of the year, averaged across
the four quarters of the year.
---------------------------------------------------------------------------
Final Rule
The final rule provides that the metric's numerator measures the
dollar volume of a limited purpose bank's community development loans
and community development investments that benefit or serve all or part
of the nationwide area, and updates the cross-reference to paragraph
III.a of final appendix B.\1320\ As described more fully in the
section-by-section analysis of Sec. __.24(a)(3) and section I of
appendix B, the final rule more clearly describes how the agencies will
value different forms of community development loans and community
development investments.\1321\ In addition, the final rule confirms the
inputs to the numerator are the same for the metrics in final
Sec. Sec. __.24 and __.26.\1322\
---------------------------------------------------------------------------
\1320\ See final Sec. __.26(f)(2)(i).
\1321\ See final appendix B, paragraph I.a.1.i.
\1322\ See id.
---------------------------------------------------------------------------
Limited Purpose Bank Community Development Financing Metric--
Denominator
The Agencies' Proposal and Comments Received
The denominator of the Wholesale or Limited Purpose Bank Community
Development Financing Metric in proposed Sec. __.26(f) consisted of
the bank's quarterly average total assets.\1323\ The agencies reasoned
that the unique business models of wholesale and limited purpose banks,
particularly the fact that at least some wholesale and limited purpose
banks accept deposits only on a limited basis or not at all,
necessitate a different denominator from large banks.
---------------------------------------------------------------------------
\1323\ See proposed Sec. __.26(f)(2) and proposed appendix B,
section 18.
---------------------------------------------------------------------------
A majority of those commenting on the denominator supported using
total assets, rather than deposits, in the denominator. One of these
commenters
[[Page 7001]]
agreed that total assets is a better measure of the capacity of
wholesale and limited purpose banks to perform community development
financing activities. Another commenter stated that if assets are not
used, the absolute dollar amount of community development financing
activity loses meaning since wholesale and limited purpose banks will
have differing amounts of assets and thus differing capacities to
engage in community development financing activities. A few other
commenters stated that deposits as the denominator may not work well
for all wholesale and limited purpose banks, particularly those that do
not collect deposits on a large scale. Another commenter identified a
potential discrepancy related to the denominator of the proposed
Wholesale or Limited Purpose Bank Community Development Financing
Metric where there is a reference to weighting by deposits in proposed
appendix B.\1324\
---------------------------------------------------------------------------
\1324\ Specifically, this commenter noted that proposed appendix
B, paragraph 18.iii references proposed appendix B, paragraph
16.iii, which provides weighting by total assets. However, proposed
appendix B, paragraph 18.iii otherwise indicates weighting by
deposits.
---------------------------------------------------------------------------
A few commenters recommended the denominator be based on ``CRA-
eligible assets.'' One of these commenters explained that although they
supported the elimination of the use of a deposits-based metric for
wholesale and limited purpose banks, a denominator of total assets may
result in a metric that fails to account for broad differences in
business models. The commenters supporting use of CRA-eligible assets
suggested excluding foreign assets, central bank placements, and short-
term extensions of credit from total assets. These commenters conveyed
that these particular assets do not increase a bank's capacity to
provide community development financing. One of these commenters
remarked that it has been the agencies' supervisory practice to exclude
certain assets like central bank placements from the denominator used
to determine some wholesale or limited purpose banks' CRA obligations
under the current community development test. This commenter also
identified the exclusion of foreign deposits from the denominator of
the Community Development Financing Metric for large banks in proposed
Sec. __.24 as evidence that the agencies recognize that CRA
obligations should not be tied to a bank's foreign business activity.
A few commenters supported deposits as the denominator for the
metric. One of these commenters believed that deposits--in particular,
domestic deposits--would be a more accurate measure of the capacity of
wholesale banks, given their limited retail lending business, and that
using deposits would be consistent with the Community Development
Financing Metric for large retail banks.
Without providing details, a few commenters also stated that the
complex method proposed to calculate balances quarterly to achieve
additional credit could be simplified and still materially represent
CRA performance of these banks.
Final Rule
After considering the comments, the agencies determined that
assets, rather than deposits or another measure, represent a more
appropriate and consistent measure of community development financing
capacity for limited purpose banks. The agencies have determined that a
denominator based on either deposits or ``CRA-eligible assets'' would
not represent a useful measure of the expectation of community
development financing volume for a limited purpose bank. Some limited
purpose banks accept deposits on a limited basis or not at all, which
would result in an artificially low community development financing
expectation. Further, limiting the denominator to CRA-eligible assets
would defeat the goals of the Limited Purpose Bank Community
Development Financing Metric. Although the agencies recognize that not
all bank assets would or could be used for community development (e.g.,
fixed assets or reserve requirements), the goal of the metric is to
create a standard measure of what percentage of the bank's assets were
loaned or invested in community development. To the extent the metric
is not representative of a particular bank's performance, the final
rule provides examiners with discretion in drawing conclusions from the
metric and the metric's comparison to the benchmarks, as described
below.
Moreover, the agencies do not believe that foreign assets and
short-term credit should reduce a bank's capacity to engage in
community development loans or investments, or reduce a bank's
expectation of the amount of such lending or investing. The agencies
also do not believe that the exclusion of foreign deposits from the
Community Development Financing Metric's denominator in final Sec.
__.24 suggests that the agencies recognize that CRA obligations should
not be tied to a bank's foreign business activity. The exclusion of
foreign deposits from the definition of deposits in final Sec. __.12
should not be compared to the inclusion of foreign assets in the
denominator of the Limited Purpose Bank Community Development Financing
Metric. First, the metrics in final Sec. __.24 have a denominator of
``deposits,'' which, for the majority of banks subject to those
metrics, has an exclusion narrower than all foreign deposits.\1325\
Second, the exclusion from the definition of deposits is tied to a
category in the Call Report definition of deposits. The commenter did
not specify what category ``foreign assets'' would represent, nor do
the agencies believe there is an asset category in the Call Report
comparable to foreign government deposits that would warrant a similar
exclusion.
---------------------------------------------------------------------------
\1325\ The denominator excludes domestically held deposits of
foreign governments or official institutions, or domestically held
deposits of foreign banks or other foreign financial institutions.
See the section-by-section analysis of Sec. __.12 (defining
``deposits'').
---------------------------------------------------------------------------
In regard to the assertion from a commenter that current
supervisory practice excludes certain assets like central bank
placements from determining wholesale or limited purpose banks'
community development lending and investment capacity, the agencies
acknowledge that in some cases examiners may have considered assets as
an informal measure of a wholesale or limited purpose bank's community
development capacity and may have excluded certain assets from the
informal measure; however, such practice was not consistently applied
across or within agencies. The selection of assets for the denominator
of Limited Purpose Bank Community Development Financing Metric aims to
provide that missing consistency across and within the agencies.
Therefore, the agencies adopt a denominator for the Limited Purpose
Bank Community Development Financing Metric in final Sec. __.26(f)(2)
based on assets, as proposed, with conforming and non-substantive
changes. Specifically, the final rule references ``assets,'' as opposed
to the proposal's ``total assets,'' which conforms to the new
definition of assets in final Sec. __.12. In addition, final Sec.
__.26(f)(2) updates the reference for calculating the metric to the
applicable appendix provision to paragraph III.a of final appendix B.
As provided in the final rule, the denominator continues to be a bank's
annual dollar volume of assets for each year in the evaluation
period.\1326\ Annual dollar volume of assets continues to be calculated
by
[[Page 7002]]
averaging the assets for each quarter in the calendar year.\1327\
---------------------------------------------------------------------------
\1326\ See final Sec. __.26(f)(2) and final appendix B,
paragraph III.a.3.
\1327\ See final appendix B, paragraph I.a.2.ii.
---------------------------------------------------------------------------
In summary, the final rule includes clarifying edits to the
numerator and denominator of the Limited Purpose Bank Community
Development Financing Metric in final Sec. __.26(f) as well as
technical and conforming edits consistent with above discussions.
Limited Purpose Bank Community Development Financing Benchmarks
The Agencies' Proposal
The proposal did not include benchmarks associated with the
proposed Wholesale or Limited Purpose Bank Community Development
Financing Metric; however, the agencies asked in the proposed rule
whether a benchmark should be established to measure a wholesale or
limited purpose bank's community development financing performance at
the institution level. If so, the agencies also asked whether the
proposed Wholesale or Limited Purpose Bank Community Development
Financing Metric should be compared to the Nationwide Community
Development Financing Benchmark applicable to all large banks or
whether the agencies should establish a benchmark tailored to wholesale
and limited purpose banks. The agencies explained that a tailored
benchmark would be based on the community development financing
activity of all wholesale and limited purpose banks compared to assets
of all wholesale and limited purpose banks.
Comments Received
A few commenters supported a tailored benchmark, as described by
the agencies, in which wholesale and limited purpose banks would be
grouped to establish a benchmark. This group of commenters believed the
approach would ensure a more representative peer comparison and a more
accurate evaluation of a wholesale and limited purpose bank's CRA
performance.
Most commenters on this topic opposed applying the nationwide
community development financing benchmark to wholesale and limited
purpose banks and instead favored a benchmark tailored by business
model if the agencies include a benchmark in the final rule. Many of
these commenters highlighted the significant differences of business
models compared to large banks and the significant differences in
business models among those banks approved as wholesale and limited
purpose banks. For example, a commenter said it would be inappropriate
to implement a benchmark that would compare community development
financing activities of a custody bank with those of a credit card
bank. Another commenter stated that using the nationwide metric
applicable to all large banks would undermine the intention of the
agencies to create a framework that recognizes differences in business
models.
A small number of commenters opposed the establishment of a
benchmark of any kind in Sec. __.26. One such commenter opined that it
would be difficult to establish a meaningful and fair benchmark for
wholesale or limited purpose banks because the population of these
banks is relatively small and their business models varied.
Prior to establishing any benchmark for wholesale and limited
purpose banks, a couple of commenters urged the agencies to collect and
evaluate appropriate data. In this way, these commenters suggested that
the data would allow agencies to determine whether peer comparisons
should be confined to other wholesale and limited purpose banks or
whether a comparator can include all large banks.
Final Rule
The agencies are adopting a final rule that compares the Limited
Purpose Bank Community Development Financing Metric to two benchmarks--
the Nationwide Limited Purpose Bank Community Development Financing
Benchmark and the Nationwide Asset-Based Community Development
Financing Benchmark.\1328\ The Nationwide Limited Purpose Community
Development Financing Benchmark measures the dollar volume of limited
purpose banks' community development loans and community development
investments reported pursuant to final Sec. __.42(b) that benefit and
serve all or part of the nationwide area compared to assets for those
limited purpose banks, calculated pursuant to paragraph III.b of final
appendix B.\1329\ Specifically, the agencies will divide: (1) the sum
of limited purpose banks' annual dollar volume of community development
loans and community development investments reported pursuant to final
Sec. __.42(b) that benefit or serve all or part of the nationwide area
for each year in the evaluation period; by (2) the sum of the annual
dollar volume of assets of limited purpose banks that reported
community development loans and community development investments
pursuant to final Sec. __.42(b) for each year in the evaluation
period.\1330\
---------------------------------------------------------------------------
\1328\ See final Sec. __.26(f)(2)(ii)(A) and (B).
\1329\ See final Sec. __.26(f)(2)(ii)(A).
\1330\ See final appendix B, paragraph III.b.
---------------------------------------------------------------------------
The Nationwide Asset-Based Community Development Financing
Benchmark measures the dollar volume of community development loans and
community development investments that benefit or serve all or part of
the nationwide area of all banks that reported pursuant to final Sec.
__.42(b) compared to assets of those banks, calculated pursuant to
paragraph III.c of final appendix B.\1331\ Specifically, the agencies
will divide: (1) the sum of the annual dollar volume of community
development loans and community development investments of all banks
that reported pursuant to final Sec. __.42(b) that benefit or serve
all or part of the nationwide area for each year in the evaluation
period; by (2) the sum of the annual dollar volume of assets of all
banks that reported community development loans and community
development investments pursuant to final Sec. __.42(b) for each year
in the evaluation period.\1332\
---------------------------------------------------------------------------
\1331\ See final Sec. __.26(f)(2)(ii)(B).
\1332\ See final appendix B, paragraph III.c.
---------------------------------------------------------------------------
The agencies believe that benchmarks would be a useful tool to
evaluate performance. The agencies also recognize the varied business
models among limited purpose banks and agree that a single benchmark
may not be a strong comparator or accurate representation of the amount
of community development financing activity that should be performed by
each bank. Thus, the agencies adopt two benchmarks, both of which will
serve as comparators or reference tools and will be considered along
with performance context and the impact and responsiveness review.
These benchmarks are not intended to be thresholds that a bank must
meet or exceed to obtain a ``Satisfactory'' or higher rating. For this
same reason, the agencies do not believe it is necessary to postpone
implementation of the benchmark to collect additional data.
The agencies decline to establish a benchmark for each business
model. Currently, the population of limited purpose banks and wholesale
banks is limited. A further subdivision of those banks by business
model would create categories with very few banks from which to
construct the benchmarks, which would not create a robust comparison.
[[Page 7003]]
Limited Purpose Bank Community Development Investment Metric and
Benchmark
The Agencies' Proposal, Comments Received, and Final Rule
The proposed Community Development Financing Test for Wholesale
Banks and Limited Purpose Banks did not include an investment-related
metric or benchmark; however, a number of commenters that addressed the
proposed Community Development Financing Test in Sec. __.24 were
concerned that the structure of that performance test provided
insufficient incentive to make community development investments.\1333\
In response to those comments, and as described further in the section-
by-section analysis of Sec. __.24(e), the final rule includes an
investment metric and benchmark--the Bank Nationwide Community
Development Investment Metric and Nationwide Community Development
Investment Benchmark--in the final Community Development Financing
Test.\1334\ To maintain consistency with the Community Development
Financing Test applicable to large banks, the agencies adopt a similar
investment metric and benchmark in the Community Development Financing
Test for Limited Purpose Banks that is applicable to limited purpose
banks with assets greater than $10 billion.\1335\ For limited purpose
banks with assets greater than $10 billion as of December 31 in both of
the prior two calendar years, the final rule provides that the agencies
will consider the Limited Purpose Bank Community Development Investment
Metric and the Nationwide Asset-Based Community Development Investment
Benchmark in evaluating the nationwide area.\1336\ Further, the
comparison of the Limited Purpose Bank Community Development Investment
Metric to the Nationwide Asset-Based Community Development Investment
Benchmark may only contribute positively to the bank's Community
Development Financing Test for Limited Purpose Banks conclusion for the
institution.\1337\ See the section-by-section analysis of final Sec.
__.24(e) for a discussion of why the agencies limited this comparison
to a positive contribution.
---------------------------------------------------------------------------
\1333\ See the section-by-section analysis of Sec. __.24(e).
\1334\ See final Sec. __.24(e)(2)(iii) and (iv).
\1335\ See final Sec. __.26(f)(2)(iii) and (iv).
\1336\ See final Sec. __.26(f)(2)(iii) and (iv).
\1337\ See final Sec. __.26(f)(2)(iv)(A).
---------------------------------------------------------------------------
The Limited Purpose Bank Community Development Investment Metric
measures the dollar volume of the bank's community development
investments that benefit or serve all or part of the nationwide area,
excluding mortgage-backed securities, compared to the bank's assets,
calculated pursuant to paragraph III.d of final appendix B.\1338\
Specifically, the agencies calculate the Limited Purpose Bank Community
Development Investment Metric by dividing: (1) the sum of the bank's
annual dollar volume of community development investments, excluding
mortgage-backed securities, that benefit or serve the nationwide area
for each year in the evaluation period; by (2) the sum of the bank's
annual dollar volume of assets for each year in the evaluation
period.\1339\
---------------------------------------------------------------------------
\1338\ See final Sec. __.26(f)(2)(iii).
\1339\ See final appendix B, paragraph III.d.
---------------------------------------------------------------------------
The agencies compare the Limited Purpose Bank Community Development
Investment Metric to the Nationwide Asset-Based Community Development
Investment Benchmark, which measures the dollar volume of community
development investments that benefit or serve all or part of the
nationwide area, excluding mortgage-backed securities, of all banks
that had assets greater than $10 billion, compared to assets for those
banks, calculated pursuant to paragraph III.e of final appendix
B.\1340\ Specifically, the agencies calculate the Nationwide Asset-
Based Community Development Investment Benchmark by dividing: (1) the
sum of the annual dollar volume of community development investments,
excluding mortgage-backed securities, of all banks that had assets
greater than $10 billion, as of December 31 in both of the prior two
calendar years, that benefit or serve all or part of the nationwide
area for each year in the evaluation period; by (2) the sum of the
annual dollar volume of assets of all banks that had assets greater
than $10 billion, as of December 31 in both of the prior two calendar
years, for each year in the evaluation period.
---------------------------------------------------------------------------
\1340\ See id.
---------------------------------------------------------------------------
The Nationwide Asset-Based Community Development Investment
Benchmark includes all banks, including limited purpose banks and banks
subject to an approved strategic plan, with assets greater than $10
billion. Because there is a limited number of limited purpose banks
with assets greater than $10 billion, the agencies determined it is
necessary to include all banks with assets greater than $10 billion to
ensure a robust benchmark.
Section __.26(g) Community Development Financing Test for Limited
Purpose Banks Performance Conclusions and Ratings
The Agencies' Proposal
Proposed Sec. __.26(g) provided that the agencies assign
conclusions for a wholesale or limited purpose bank's community
development financing performance in each facility-based assessment
area, State, multistate MSA, and the nationwide area, as provided in
proposed Sec. __.28 and appendix C. Further, the agencies proposed
that these conclusions would be incorporated into the State, multistate
MSA, and institution ratings. Although the proposed Community
Development Financing Test for Wholesale or Limited Purpose Banks did
not include a specific reference to performance context, proposed Sec.
__.21(d) provided that the agencies may consider performance context
information in applying the performance tests to the extent that
performance context is not considered as part of the tests.
Comments Received and Final Rule
A few commenters addressing the performance test, in general,
underscored the importance of performance context. These commenters
specified that the agencies should ensure that the final rule does not
rely solely on the proposed Wholesale or Limited Purpose Bank Community
Development Financing Metric, but rather should apply a broader view
that considers the unique and varying circumstances under which
wholesale and limited purpose banks operate.
In response to commenter requests for additional clarity on
performance context, the agencies clarified in final Sec. __.26(g)(1)
that the agencies may consider the performance context as provided in
final Sec. __.21(d) when assigning conclusions.\1341\ Other than the
comments on performance context, the agencies did not receive comments
on this paragraph. Therefore, the agencies adopt Sec. __.26(g) as
proposed with the additional clarifying edit that the agencies may
consider performance context in assigning conclusions as well as
technical and conforming edits.
---------------------------------------------------------------------------
\1341\ See the section-by-section analysis of Sec. __.21(d) for
additional discussion.
---------------------------------------------------------------------------
[[Page 7004]]
Section __.27 Strategic Plan
Section __.27(a) Alternative Election
Current Approach
Currently, the strategic plan option is available to all types of
banks,\1342\ although it has been used mainly by nontraditional banks
\1343\ and banks that make a substantial portion of their loans beyond
their branch-based assessment areas. The strategic plan option is
intended to provide banks flexibility in meeting their CRA obligations
in a manner that is responsive to community needs and opportunities and
appropriate considering their capacities, business strategies, and
expertise. The current CRA regulations require the agencies to assess a
bank's record of helping to meet the credit needs of its assessment
areas under a strategic plan if: the bank has submitted the plan for
regulatory approval; the plan has been approved; the plan is in effect;
and the bank has been operating under an approved plan for at least one
year.\1344\
---------------------------------------------------------------------------
\1342\ See current 12 CFR __.21(a)(4) and __.27(a).
\1343\ Non-traditional banks are those that do not extend retail
loans (small business, small farm, home mortgage loans, and consumer
loans) as major product lines or deliver banking services
principally from branches.
\1344\ See current 12 CFR __.27(a)(1) through (4).
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed retaining the strategic plan option as an
alternative method for evaluation under the CRA,\1345\ and requested
feedback on whether the option should continue to be available to all
banks. The agencies proposed that banks electing to be evaluated under
a plan would continue to be required to request approval for the plan
from the appropriate Federal financial supervisory agency.\1346\ The
agencies proposed to add clarity to the existing rule by including that
the agencies will assess a bank's record of helping to meet the credit
needs of its facility-based assessment areas and, as applicable, its
retail lending assessment areas and other geographic areas served by
the bank at the institution level under a plan.
---------------------------------------------------------------------------
\1345\ See proposed Sec. __.27(a).
\1346\ See id.
---------------------------------------------------------------------------
Comments Received
Most commenters addressing the strategic plan option agreed that a
strategic plan option should remain available to all banks,
particularly for branchless banks and banks with unique business
models. A few commenters did not support the proposed strategic plan
option. One of the commenters stated that the option should only be
available to those banks that provide evidence that they would fail the
``traditional'' CRA examination process through no fault of their own.
Another commenter objected to the strategic plan option and recommended
phasing it out entirely. This commenter argued that the strategic plan
option adds a level of complexity to the CRA framework and noted that
it is unclear why the option should be made available when the proposed
plan requirements have the same assessment area requirements and
performance test standards that would apply to any other bank. One
other commenter recommended that the agencies either eliminate or
significantly improve the strategic plan option in the proposal.
Final Rule
The agencies are adopting in the final rule the proposed strategic
plan option as an alternative method of evaluation in Sec. __.27(a)
with one technical change. Specifically, the final rule removes the
requirement in proposed Sec. __.27(a)(1) that a bank submit ``the plan
to the [Agency] as provided for in this section,'' as
duplicative.\1347\ The agencies believe it is unnecessary to include a
separate requirement in final Sec. __.27(a), given that ``Submission
of a draft plan'' is a required element of Sec. __.27(f) and must be
performed prior to plan approval (see the section-by-section analysis
of Sec. __.27(f)). As a result of this change, proposed Sec.
__.27(a)(2) through (4) is renumbered in the final rule as Sec.
__.27(a)(1) through (3).
---------------------------------------------------------------------------
\1347\ See proposed Sec. __.27(a)(1).
---------------------------------------------------------------------------
The agencies believe that the strategic plan option should continue
to be available to any bank if the bank sufficiently justifies that the
appropriate Federal financial supervisory agency should evaluate it
under a plan rather than the performance tests that would apply in the
absence of an approved plan. The agencies believe that it is
appropriate to use strategic plans to evaluate banks with business
models that are not conducive to evaluation under the performance tests
that would apply in the absence of an approved plan. These may include,
for example, banks that do not offer--or only nominally offer--product
lines as defined in the rule, do not maintain traditional delivery
systems, or only offer niche products to a targeted market.
The agencies have considered the recommendation from a few
commenters to eliminate the strategic plan as an option for evaluating
a bank's performance under the CRA and have decided to retain the
option. Even though banks that elect evaluation under a plan would be
subject to the same performance tests that would apply in the absence
of an approved plan, the agencies believe the strategic plan option is
appropriate because it can afford a bank the opportunity to offer
modifications or additions that would more meaningfully reflect a
bank's record of helping meet the credit needs of its community, so
long as the bank also justifies why its business model is outside the
scope of, or is inconsistent with, one or more aspects of the otherwise
applicable performance tests, as discussed further in the section-by-
section analysis of Sec. __.27(d). In response to the commenter that
believed the strategic plan option needed to be improved in order for
it to continue to be offered, the agencies note that they made
significant revisions to this option in the final rule to ensure that
it is clear when the performance tests that would apply in the absence
of an approved plan are appropriately applied and represent a
meaningful measure of the bank's CRA performance, while allowing
tailored modifications and additions for those few banks that maintain
a business model that is outside the scope of, or is inconsistent with,
one or more aspects of the performance tests.
Lastly, the agencies do not believe a bank should need to fail or
provide evidence that it would fail the performance tests before
submitting a request for evaluation under an approved strategic plan.
The agencies have been careful to adopt a set of performance tests that
the agencies believe are tailored to provide a meaningful evaluation of
the vast majority of banks under the CRA. However, the agencies also
recognize that there is a population of banks that maintain unique
business models and whose record of serving their communities would be
more appropriately evaluated under a plan. Although it has been the
agencies' experience that banks that do not perform satisfactorily
under the current performance tests and standards are more likely to
choose the strategic plan option, the agencies believe it would be
inappropriate to establish this as a criterion for a bank to elect the
option. The agencies believe that the incorporation of the performance
tests in a plan pursuant to Sec. __.27(c)(2), clearer justification
requirements pursuant to Sec. __.27(d)(1), and clearer justification
elements pursuant to Sec. __.27(d)(2), will prevent widespread
adoption of the strategic plan option as
[[Page 7005]]
a way for banks to avoid a metrics-based evaluation approach.
Section __.27(b) Data Requirements
Current Approach and the Agencies' Proposal
Currently, the agencies' approval of a plan does not affect the
bank's obligation, if any, to report data as required by current Sec.
__.42.\1348\ The agencies did not propose any substantive changes to
current Sec. __.27(b) pertaining to the data reporting requirements of
a bank evaluated under an approved plan.
---------------------------------------------------------------------------
\1348\ See current 12 CFR __.27(b).
---------------------------------------------------------------------------
Comments Received
A few commenters addressed the agencies' proposed data requirements
for banks evaluated under an approved plan. One commenter stated that
the agencies' proposal effectively eliminates the strategic plan option
by defaulting to a rigid one-size-fits-all by requiring, among other
things, the same data collection and reporting requirements that would
otherwise apply to the bank. Another commenter recommended adding
language to the proposed data reporting requirements that would allow
banks to request exemptions for data requirements through the plan
submission process.
Final Rule
The agencies are adopting Sec. __.27(b) as proposed with a
retitling to reflect a technical change. While proposed as ``data
reporting,'' the agencies are retitling this paragraph as ``data
requirements'' to reflect that banks that do not operate under a plan
not only have data reporting obligations, but requirements to collect
and maintain the data as well.
The agencies believe that the benefits of capturing consistent data
(regardless of whether a bank is under a strategic plan) outweigh the
burden to banks electing the strategic plan option of collecting,
maintaining, and reporting the data. Also, as banks under a plan are
generally subject to the same performance tests that would apply in the
absence of an approved plan, the availability of data remains a
critical element of the plan evaluation process. As not all data in
final Sec. __.42 are required to be reported, the agencies are making
a technical change in final Sec. __.27(b) to add that the obligation
to collect and maintain data required by final Sec. __.42, in addition
to obligation to report data, is not affected by the agency's approval
of a plan.
Similarly, the agencies have determined not to allow exemptions
from the data requirements for banks evaluated pursuant to a strategic
plan. The agencies have considered commenter feedback that the
maintenance of data under the plan limits the flexibility of the
strategic plan option; however, the agencies believe the data provide
them with the necessary tools to effectively evaluate the bank's
performance under the applicable performance tests incorporated into
the strategic plan, as it does with respect to the performance tests
generally. Further, the agencies do not believe there is a scenario
under which the data under final Sec. __.42 would not provide value to
the plan evaluation process. Finally, the required data collection,
maintenance, and reporting preserves the bank's ability to revert to
evaluation under the performance tests in final Sec. Sec. __.22
through __.26, __.29, and __.30, as appropriate, in the event the bank
desires to terminate the plan during the term due to a change in
circumstances.
Section __.27(c) Plans in General
Current Approach
Currently, plans may have a term of no more than five years and any
multi-year plan must include annual interim measurable goals under
which the agencies would evaluate the bank's performance.\1349\ A bank
with more than one assessment area may prepare either a single plan for
all of its assessment areas or multiple plans for one or more of its
assessment areas.\1350\ Affiliated institutions may prepare a joint
plan if the plan provides measurable goals for each institution, and
activities may be allocated among institutions at the institutions'
option, provided that the same activities are not considered for more
than one institution.\1351\
---------------------------------------------------------------------------
\1349\ See current 12 CFR __.27(c)(1).
\1350\ See current 12 CFR __.27(c)(2).
\1351\ See current 12 CFR __.27(c)(3).
---------------------------------------------------------------------------
The Agencies' Proposal
Consistent with the current rule, the agencies proposed in Sec.
__.27(c)(1) that plans have a term of no more than five years and any
multi-year plan must include annual interim measurable goals under
which the agencies would evaluate the bank's performance. The agencies
also proposed in Sec. __.27(c)(2) that a bank with more than one
assessment area could prepare: (1) a single plan for all of its
facility-based assessment areas and, as applicable, retail lending
assessment areas and geographic areas outside of its facility-based
assessment areas and retail lending assessment areas at the institution
level, with goals for each geographic area; or (2) separate plans for
one or more of its facility-based assessment areas and, as applicable,
retail lending assessment areas, and geographic areas outside of its
facility-based assessment areas and retail lending assessment areas at
the institution level.\1352\
---------------------------------------------------------------------------
\1352\ See proposed Sec. __.27(c)(2)(i) and (ii).
---------------------------------------------------------------------------
Lastly, in proposed Sec. __.27(c)(3), the agencies specified the
requirements for the treatment of activities of a bank's operations
subsidiaries or operating subsidiaries, as applicable, and other
affiliates. First, proposed Sec. __.27(c)(3)(i) clarified that the
activities of the bank's operations subsidiaries or operating
subsidiaries must be included in its plan or be evaluated under the
performance tests that would apply in the absence of an approved plan,
unless the subsidiary is already subject to CRA requirements. Second,
proposed Sec. __.27(c)(3)(ii) provided that at the bank's option:
activities of other affiliates may be included in a plan as long as
those activities are not claimed by another institution subject to the
CRA; affiliated banks could prepare a joint plan if the plan provides
measurable goals for each institution; and banks may allocate affiliate
activity among institutions, as long as the activities are not claimed
by more than one institution subject to the CRA. Finally, proposed
Sec. __.27(c)(3)(iii) stated that the allocation methodology among
affiliate institutions must reflect a reasonable basis and must not be
designed solely to artificially enhance any bank's performance.
Comments Received
The agencies did not receive specific comments on the term of a
strategic plan or the requirement for interim measurable goals for
multi-year plans. Commenters also did not provide specific feedback on
whether banks should prepare single plans or separate plans for
different assessment areas or include affiliate activities in their
strategic plans.
The agencies did, however, receive several comments on their
proposal to require that a bank evaluated under an approved plan
delineate retail lending assessment areas. One commenter opposed being
required to delineate retail lending assessment areas under the
strategic plan option altogether. Several other commenters supported
banks having the ability to negotiate and justify whether to delineate
retail lending assessment areas with the appropriate Federal financial
supervisory agency. A commenter
[[Page 7006]]
supported retail lending assessment area delineations for a bank under
a strategic plan based on concentrations of lending without a
particular numerical threshold. Another commenter indicated that
intermediate banks pursuing the strategic plan option should have the
same requirement for delineating retail lending assessment areas as
large banks. Another commenter agreed that, while there may be
situations where it is appropriate for a strategic plan bank to be
evaluated in facility-based assessment areas and retail lending
assessment areas, a more flexible approach should be encouraged.
Similarly, a commenter also requested that, to increase flexibility,
strategic plan banks should be allowed to choose the geographies they
serve beyond facility-based assessment areas.
Final Rule
The agencies are finalizing proposed Sec. __.27(c) with several
modifications in each of the four areas covered in this paragraph,
including substantial reorganization to provide additional
clarity.\1353\
---------------------------------------------------------------------------
\1353\ See supra note 145.
---------------------------------------------------------------------------
The agencies received no comments regarding the term of plans in
proposed Sec. __.27(c)(1) and are finalizing this provision as
proposed with respect to the requirement to limit the length of a plan
term to no more than five years; however, the requirement in proposed
Sec. __.27(c)(1) that a multi-year plan must include annual interim
measurable goals has been removed to reflect the fact that goals are
not expected with respect to every evaluation component of the
performance test, as plans may also include performance criteria and
other measurements that correspond to unmodified performance tests and
are not tied to specific goals. Nevertheless, the agencies continue to
expect annual measurable goals with respect to any components that are
established in conjunction with eligible modifications and additions to
the performance tests as explained further in the section-by-section
analysis of Sec. __.27(g).
Although no comments were directed specifically at this area, the
agencies are also finalizing proposed Sec. __.27(f)(1), renumbered in
the final rule as Sec. __.27(c)(2), pertaining to the requirement that
a bank include the same performance tests in a plan, as required in
Sec. __.27(g)(1), with certain technical changes and restructuring for
additional clarity. While originally proposed in the plan content
section under Sec. __.27(f), the principle that a bank's plan must
include the same performance tests that would apply in the absence of
an approved plan, subject to certain eligible modifications and
additions, was moved to final Sec. __.27(c), which discusses plans in
general, given that it serves as a foundational tenet of the strategic
plan option. This provision references the plan content provision as
discussed in more detail in the section-by-section analysis of Sec.
__.27(g), where the requirement to include a performance test, any
adjustments, optional evaluation components, modifications, and
additions to the performance tests allowed by the agencies are
memorialized.
Under the current regulation, many banks that have chosen to
utilize the strategic plan option have done so as their banks conduct a
significant volume of activities outside of their assessment area(s).
As the performance tests adopted in the final rule expand the
consideration of loans, investments, services, and products outside of
the facility-based assessment areas, the agencies believe that many of
the banks that are currently operating under plans may no longer need
to utilize the strategic plan option. Even for banks that will continue
to pursue the strategic plan option because they possess a business
model that is outside the scope of, or is inconsistent with, one or
more aspects of the performance tests that would apply in the absence
of an approved plan, the agencies believe those banks should continue
to be evaluated under the aspects of the performance tests that the
agencies would otherwise apply to the bank.
Importantly, proposed Sec. __.27(f)(1) also included a requirement
that the plan specify how many of the bank's activities were outside
the scope of otherwise applicable performance tests and why being
evaluated pursuant to a plan would be a more appropriate means to
assess its record of helping to meet the credit needs of its community
than if it were evaluated pursuant to the otherwise applicable
performance tests. This aspect of the proposal was adopted in the final
rule as Sec. __.27(d) with clarifying revisions and conforming
changes, and is explained in more detail below in the section-by-
section analysis of that section.
The agencies are finalizing proposed Sec. __.27(c)(2), renumbered
in the final rule as Sec. __.27(c)(3), pertaining to the preparation
of a plan for banks with multiple assessment areas, with revisions to
clarify and streamline the language in the final rule. More
specifically, final Sec. __.27(c)(3)(i) continues to permit banks to
prepare a single plan or develop separate plans for its facility-based
assessment areas, retail lending assessment areas, outside retail
lending area, or other geographic areas (such as the State, multistate
MSA, or the institution level overall) that would be evaluated in the
absence of an approved plan.
The final rule also adopts new Sec. __.27(c)(3)(ii) to clarify
that any of these geographic areas that are not included in the
approved plan but would be evaluated in the absence of a plan, will be
evaluated pursuant to the performance tests that would apply in the
absence of an approved plan. For example, a large bank that maintains
one facility-based assessment area and two retail lending assessment
areas could seek and obtain approval for a strategic plan that covers
only the facility-based assessment area. In this case, the two retail
lending assessment areas would be evaluated pursuant to the Retail
Lending Test without any modifications or additions. The agencies
believe adding this provision to the final rule will provide a bank
with multiple assessment areas clarity on how the agencies will apply
the applicable performance tests in areas outside of the plan. This
also addresses commenters' sentiment that the agencies adopt a more
flexible approach by allowing a strategic plan to cover some but not
all bank assessment areas.
Further, in response to commenter feedback suggesting that banks
should be able to justify the exclusion or elimination of retail
lending assessment areas altogether, the agencies believe that banks
that opt to be evaluated under an approved plan must be evaluated under
the same geographic areas (facility-based assessment areas, retail
lending assessment areas, outside retail lending area, States, and
multistate MSAs, if applicable) the bank would be evaluated if it had
not chosen to operate under an approved plan.
In response to commenters' feedback that the threshold for
establishing retail lending assessment areas should be adjusted for
banks under a plan, the agencies believe it is more equitable to
maintain parity in the treatment of banks, whether operating under a
plan or not. The agencies do not believe there is a reason for treating
banks operating under a strategic plan differently than other banks if
they meet the requirements for delineating a retail lending assessment
area. Retail lending assessment areas are already limited to large
banks that meet minimum loan reporting thresholds in these areas;
therefore, the agencies believe that in these circumstances the
evaluation of banks' performance for these geographies would be
valuable. It should also be noted that the threshold
[[Page 7007]]
for establishing retail lending assessment areas in general was
modified upon consideration of commenter feedback as explained in more
detail in the section-by-section analysis of Sec. __.17.
The agencies received no comments regarding proposed Sec.
__.27(c)(3), renumbered in the final rule as Sec. __.27(c)(4),
pertaining to the treatment of activities of a bank's operations
subsidiaries or operating subsidiaries and other affiliates for a bank
evaluated under a plan, and are finalizing as proposed with several
technical changes. Specifically, consistent with the proposal, final
Sec. __.27(c)(4)(i) requires activities of an operations subsidiary or
operating subsidiary to be included in the bank's plan (unless the
subsidiary is a bank that is independently subject to CRA). However,
final Sec. __.27(c)(4)(ii) provides separate provisions for other
affiliate activities: final Sec. __.27(c)(4)(ii)(A) clarifies that a
bank may include loans, investments, services, and products of any
affiliate in their plan (as long as they are not included in the CRA
performance of any other bank); and final Sec. __.27(c)(4)(ii)(B)
addresses joint plans for affiliated banks. Affiliated banks may
develop joint plans provided they specify how the applicable
performance tests and eligible modifications and additions apply to
each bank. The final rule also clarifies that the consideration of
affiliate activities under a plan must be consistent with the general
restrictions in final Sec. __.21(b)(3), such as the bank's need to
collect, maintain, and report data on affiliate activities, as
applicable. Finally, the agencies are finalizing, with technical
changes, proposed Sec. __.27(c)(3)(iii), renumbered in the final rule
as Sec. __.27(c)(4)(ii)(C), pertaining to the methodology for
allocating affiliate loans, investments, services, and products for a
bank evaluated under a plan. The final rule requires that, with respect
to a bank affiliate's loans, investments, services, and products
included in a bank's plan, or a joint plan of affiliated banks: (1) the
loans, investments, services, and products may not be included in the
CRA performance evaluation of another bank; and (2) the allocation of
affiliates' loans, investments, services, and products to a bank, or
among affiliated banks, must reflect a reasonable basis for the
allocation and may not be for the sole or primary purpose of
inappropriately enhancing any bank's CRA evaluation.
Section __.27(d) Justification and Appropriateness of Plan Election
The Agencies' Proposal
Proposed Sec. __.27(f)(1), required banks that elect to be
evaluated under a strategic plan to include the same performance tests
and standards that would otherwise be applied under the proposed rule,
unless the bank is substantially engaged in activities outside the
scope of these tests. The agencies also proposed to require banks to
specify in their draft plan why being evaluated pursuant to a plan
would be a more appropriate means to assess its record of helping to
meet the credit needs of its community than if it were evaluated
pursuant to the otherwise applicable performance tests and standards.
Comments Received
A few commenters addressed this aspect of the agencies' proposal. A
commenter stated that the agencies' proposal effectively eliminates the
strategic plan option by defaulting to rigid one-size-fits-all
assessment area delineation requirements (including retail lending
assessment areas), data collection and reporting requirements, and
performance standards that would otherwise apply to the bank unless it
provides an acceptable rationale for alternative consideration (such as
being substantially engaged in activities outside the scope of these
performance tests). Relatedly, a few commenters indicated that the
agencies should provide additional information on the justification
that would be required to pursue the strategic plan option.
Final Rule
In response to commenters requesting that the agencies provide
clarity on the justification required to pursue a strategic plan
option, the agencies are adopting new Sec. __.27(d), which addresses
the requirement that the draft plan provide a justification regarding
how the bank's activities are outside the scope of, or are inconsistent
with, the performance tests that would apply in the absence of an
approved plan, and why being evaluated pursuant to a plan would more
meaningfully reflect its record of helping to meet the credit needs of
its community than if it were evaluated in the absence of a plan. In
the final rule, Sec. __.27(d) more comprehensively explains how a bank
can justify its use of the strategic plan option. More specifically,
Sec. __.27(d)(1) requires that the plan must include justifications
for each of the following aspects of the plan due to the bank's
business model if included in the bank's plan: optional evaluation
components; eligible modifications or additions to the applicable
performance tests; additional geographic areas; and the ratings and
conclusions methodology (see the section-by-section analysis of Sec.
__.27(g)).\1354\
---------------------------------------------------------------------------
\1354\ See final Sec. __.27(d)(1)(i) through (iv).
---------------------------------------------------------------------------
Further, Sec. __.27(d)(2) in the final rule clarifies that each
justification must specify the following elements:
Why the bank's business model is outside the scope of, or
inconsistent with, one or more aspects of the performance tests that
would apply in the absence of a plan. In order for a bank to eliminate
or modify any aspect of the otherwise applicable performance tests and
be evaluated under different standards than those banks that are not
operating under a plan, the agencies believe it is important that the
bank supports how their business model is inconsistent with the
performance tests;
Why evaluating the bank pursuant to any aspect of a plan
in Sec. __.27(d)(1) would be more meaningful than if it was evaluated
in the absence of an approved plan. Beyond demonstrating how one or
more aspects of the otherwise applicable performance tests are
inconsistent with their business model, the agencies believe it is also
critical to support how any optional evaluation components, eligible
modifications or additions, additional geographic areas, and rating and
conclusions methodologies that are laid out in the plan offer a
superior evaluation than the performance tests that would apply in the
absence of a plan; and
Why the optional performance components and eligible
modifications or additions in the plan meet the standards of Sec.
__.27(g)(1) and (2) as applicable. This aspect of the justification
makes it clear that the bank must provide a justification for each
optional performance component and eligible modification or addition
that is made part of the plan.\1355\
---------------------------------------------------------------------------
\1355\ See final Sec. __.27(d)(2)(i) through (iii).
---------------------------------------------------------------------------
For example, with respect to the last element, if a plan consisted
of modifications and additions in the form of (1) adjusted performance
test weightings, (2) the addition of a review of open-end home mortgage
lending under the Retail Lending Test, and (3) established goals
related to the bank's community development financing metric under the
Community Development Financing Test, the draft plan must include
justifications for each of these three modifications and additions.
In response to commenter feedback regarding the rigidity of the
performance
[[Page 7008]]
standards and other aspects of the proposed rule in the absence of an
acceptable rationale for alternative consideration, the agencies
believe that the final rule benefits from a more consistent approach to
evaluating banks with multiple performance tests that correspond to the
size and business model of the large variety of banks found throughout
the nation. While the strategic plan option was designed to offer
flexibility for banks with unique business models, the agencies believe
that a robust justification provision fosters parity and consistency in
the CRA evaluation of banks of all sizes. Further, the agencies believe
this provision provides greater clarity for banks and agency
supervisory staff, and ensures that strategic plan banks are held to
the same standards as non-strategic plan banks.
Section __.27(e) Public Participation in Initial Draft Plan Development
Current Approach
Currently, the regulation has three public participation
requirements for a bank to complete during the development of a plan.
First, the bank must informally seek suggestions from the public in the
assessment area(s) covered by the plan while developing the plan.\1356\
Second, once the plan is initially developed, the bank must formally
solicit public comment on the plan for at least 30 days by publishing
notice in at least one newspaper of general circulation in each
assessment area covered by the plan.\1357\ Finally, during the formal
public comment period, the bank must make copies of the plan available
for review by the public at no cost in all bank offices in any
assessment area covered by the plan, as well as provide copies upon
request for a reasonable fee to cover copying and mailing, if
applicable.\1358\
---------------------------------------------------------------------------
\1356\ See current 12 CFR __.27(d)(1).
\1357\ See current 12 CFR __.27(d)(2).
\1358\ See current 12 CFR __.27(d)(3).
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed in Sec. __.27(d)(1) to continue to require a
bank to informally seek input from members of the public in its
facility-based assessment areas covered by the plan while developing
the plan. The agencies also proposed in Sec. __.27(d)(2) that, once a
bank had developed a draft plan, the bank would be required to submit
the initial draft plan for publication on its appropriate Federal
financial supervisory agency's website, as well as publish the draft
plan on their own website if the bank has a website (or if the bank
does not maintain a website by publishing notice in at least one print
newspaper or digital publication of general circulation in each
facility-based assessment area covered by the plan, or for military
banks in at least one print newspaper or digital publication of general
circulation targeted to members of the military) for a period of at
least 30 days. The proposal also clarified that the draft plan should
include instructions to the public on how they could submit comments
both electronically and at a postal address.\1359\ Proposed Sec.
__.27(d)(3) continued to require banks to make copies of the plan
available during the formal comment period at all offices in areas
covered by the plan and upon request for a reasonable copying and
mailing fee.
---------------------------------------------------------------------------
\1359\ See id.
---------------------------------------------------------------------------
Lastly, the agencies sought feedback regarding whether the agencies
should announce pending plans in the same manner as they announce
upcoming CRA examination schedules and completed CRA examinations and
ratings.
Comments Received
Most commenters were generally supportive of the agencies'
proposal, with some commenters offering modifications or alternatives.
A commenter expressed the view that a bank should be given the option
of whether to post its plan notice and draft plan on its website or to
publish the notice in at least one print newspaper or digital
publication of general circulation. Other recommendations concerning
publishing plans included suggestions that the agencies circulate plans
over email to ensure a high level of community engagement and avoid
incorporating any more restrictive announcements, postings, or
requirements into the final rule for strategic plans.
One commenter stated that banks should make an affirmative effort
to engage community-based organizations led by people of color and
women as well as a range of advocacy organizations working on behalf of
communities and should document how many and which of these
organizations they engaged. Several other commenters indicated that a
bank should be able to give greater weight to input received on a draft
plan from organizations serving or located in regions represented
within the plan.
Final Rule
The agencies are finalizing proposed Sec. __.27(d), renumbered in
the final rule as Sec. __.27(e), pertaining to the public
participation requirements, with a revision to expand the timeframe for
formally soliciting public comment and several technical and clarifying
changes. While the current and proposed rule allowed for a 30-day
period for the bank to formally solicit public comments on the initial
draft plan, the agencies believe that the public participation
component of the plan development process is critical and that
additional time is appropriate to ensure that members of the public
have the time to review the initial draft plan and provide informed
input to a bank. Consistent with the desire to increase public
participation in the plan development process, the agencies are
expanding the formal public comment period to 60 days.\1360\
---------------------------------------------------------------------------
\1360\ See final Sec. __.27(e)(1)(ii).
---------------------------------------------------------------------------
While a few commenters advocated for more flexibility or for the
agencies to limit any new announcement or posting requirements, the
agencies believe the proposed modifications that add requirements to
post initial draft plans on the appropriate Federal financial
supervisory agency's website and bank's website, if the bank maintains
one, are necessary as this is the most convenient and efficient way for
most members of the public to become aware of and access initial draft
plans. As discussed in the proposal, the expansion of the availability
of initial draft plans online is important, as it has been the
agencies' experience that plans rarely garner public comments when
distributed solely through notifications in the local newspaper.
The agencies are also adopting in the final rule a new requirement
in Sec. __.27(e)(1)(ii)(A) and (B), which requires banks with websites
to publish their initial draft plans on their website and for all banks
(including those with websites) to publish notice in at least one
newspaper of general circulation in each facility-based assessment
area. Although the agencies did not propose requiring banks with a
website to also provide notice in a print newspaper, the agencies
believe this change is consistent with the agencies' objective to
promote transparency and enhance public participation with respect to
draft plans and to acknowledge that notice in a newspaper is how the
rule has made the public aware of plans for decades under the current
regulation and there may be stakeholders that continue to rely on that
form of notice.\1361\ The agencies believe that further distribution
through other mechanisms, as recommended by commenters (such as through
email),
[[Page 7009]]
would not be practical and would cause unnecessary burden without
sufficient benefit.
---------------------------------------------------------------------------
\1361\ See current 12 CFR __.27(d)(2).
---------------------------------------------------------------------------
Further, while the agencies sought feedback on the advantages and
disadvantages of announcing pending or draft plans using the same means
the agencies use to announce upcoming examination schedules or
completed CRA examinations and CRA ratings, the agencies received no
comments directly addressing this issue. After weighing the benefits
and burden of announcing initial draft plans, the agencies determined
that announcing initial draft plans (for example, through an agency
press release) would be impractical, as it would need to occur in real
time in order to be useful given the 60-day comment period. As
discussed previously, the final rule includes a requirement to publish
initial draft plans on the bank's and appropriate agency's website, and
community groups and other members of the public have demonstrated an
ability to monitor the agencies' websites to access other similar
information to participate in the CRA feedback process (such as
announcements of pending bank applications).
With respect to proposed Sec. __.27(d)(1), a technical change was
made to the language, which suggested that seeking informal suggestions
was limited to members of the public in the bank's facility-based
assessment areas. In final Sec. __.27(e)(1)(i), the reference to
facility-based assessment areas was removed to make clear that it may
be appropriate for banks to seek informal input from other members of
the public depending on the circumstance, such as organizations that
serve public stakeholders nationally or in retail lending assessment
areas. Also, the agencies do not believe that that they should dictate
specifically how a bank should seek input or suggestions from members
of the public. While commenters suggested that the regulation should
state an affirmative obligation to engage with or place greater weight
on input from certain types of organizations (such as those led by
women or people of color, or organizations that serve the region
covered by the plan), the agencies believe that each bank and its
public stakeholders are unique; therefore, it would be inappropriate
for the agencies to dictate from whom and how banks solicit and
consider public input in conjunction with plan development.
The final rule also clarifies the public engagement requirements
for military banks.\1362\ In addition to the website publishing
requirements under final Sec. __.27(e)(1)(ii)(A), and instead of the
newspaper publishing requirements in final Sec. __.27(e)(1)(ii)(B),
the final rule requires that a military bank publish notice in at least
one print newspaper of general circulation targeted to members of the
military, if available. Otherwise, the military bank must publish
notice in a digital publication targeted to members of the military.
---------------------------------------------------------------------------
\1362\ See final Sec. __.27(e)(1)(ii)(C).
---------------------------------------------------------------------------
Lastly, final Sec. __.27(e)(1)(iii) provides that a bank must
include on its website and in a newspaper notice, a means by which
members of the public can electronically submit and mail comments to
the bank on its initial draft plan.\1363\ Also, the agencies are
finalizing proposed Sec. __.27(d)(3), renumbered as Sec. __.27(e)(2),
with minor clarifying technical changes, with no change in meaning
intended. Consistent with the current rule,\1364\ during the formal
public comment solicitation period, a bank must make copies of the
initial draft plan available for review at no cost in any facility-
based assessment area covered by the plan, and provide copies of the
plan upon request for a reasonable fee to cover copying and mailing.
---------------------------------------------------------------------------
\1363\ See final Sec. __.27(e)(1)(iii).
\1364\ See current 12 CFR __.27(d)(3).
---------------------------------------------------------------------------
Section __.27(f) Submission of a Draft Plan
Current Approach
Currently, the regulation requires a bank to submit its plan to its
appropriate Federal financial supervisory agency at least three months
prior to the proposed effective date of the plan and to include a
description of its efforts to seek suggestions from the public, any
written comments received, and the initial draft plan (if it was
revised in light of the comments received).\1365\
---------------------------------------------------------------------------
\1365\ See current 12 CFR __.27(e).
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed to maintain the requirements in current Sec.
__.27(e) with additional clarifications regarding some aspects of those
requirements. Consistent with the current rule, proposed Sec. __.27(e)
required the same three-month submission timeframe from banks prior to
the proposed effective date of the plan. The proposal also maintained
the current requirement that the submission of the plan include a
description of the bank's efforts to seek suggestions from the public
but clarified that this must include who was contacted and how the
information was gathered. Lastly, the proposal also expanded the
request for any written comments to include more broadly any written or
other input on the plan that was received by the public and the initial
draft plan if it was revised in light of the input.
Comments Received
The agencies received one comment addressing this aspect of the
proposal. Specifically, a commenter indicated that the information a
bank submits should also include a comprehensive list of the comments
and recommendations it received and the bank's response to this input.
Final Rule
The agencies are finalizing proposed Sec. __.27(e), renumbered in
the final rule as Sec. __.27(f), with several technical changes to
reflect the timing requirements in days and to more clearly identify
the materials that a bank must submit to the appropriate Federal
financial supervisory agency in conjunction with the draft plan.
Consistent with other timing requirements in the final rule that are
based on calendar days, the three-month timeframe for submission of the
plan before it is proposed to become effective has been changed to a
substantially equivalent 90 days. Also, consistent with the other
documentation to support public participation in the proposal (e.g.,
description of efforts to seek public input, written and other public
input received, initial draft plan before it was revised in light of
public input), the agencies added the following to the list of items
that must be submitted in conjunction with a draft plan, as applicable:
proof of notice notification; any written comments or other public
input received; an explanation of any relevant changes made to the
initial plan in light of public input received; and an explanation for
why any suggestions or concerns received by the public regarding the
plan were not addressed.\1366\ These changes are responsive to the
commenter that addressed this aspect of the proposal, as the final rule
requires the bank to submit any written or other input received and to
add explanations of how this input was or was not integrated into the
plan, which will serve as the bank's response to this input. As
discussed previously, the agencies believe public participation is
critical to the plan development process, and the additional items
added to accompany the plan submission allow the agencies to ensure
that the requirements under final Sec. __.27(e) are met, and to better
[[Page 7010]]
understand how public input was considered and integrated into the
plan.
---------------------------------------------------------------------------
\1366\ See final Sec. __.27(f)(1) through (4).
---------------------------------------------------------------------------
Section __.27(g) Plan Content
Current Approach
The current regulation requires a bank to specify measurable goals
in its plan for helping meet the credit needs of each assessment area
covered by the plan, particularly the needs of low- and moderate-income
geographies (i.e., census tracts) and individuals, through lending,
investment, and services, as appropriate.\1367\ A bank must address all
three performance categories and, unless the bank has a wholesale or
limited purpose designation, shall emphasize lending and lending-
related activities.\1368\ Further, the current regulation permits banks
to submit additional information to its appropriate Federal financial
supervisory agency on a confidential basis, provided the goal plans are
sufficiently specific to enable the appropriate Federal financial
supervisory agency and the public to judge the merits of the
plan.\1369\
---------------------------------------------------------------------------
\1367\ See current 12 CFR __.27(f)(1)(i).
\1368\ See current 12 CFR __.27(f)(1)(ii).
\1369\ See current 12 CFR __.27(f)(2).
---------------------------------------------------------------------------
The current regulation also requires a bank to specify measurable
goals in its plan that constitute ``satisfactory'' performance and to
optionally establish goals that constitute ``outstanding''
performance.\1370\ If the bank submits goals for both levels of
performance and the appropriate agency approves the plan, the agency
will consider the bank eligible for an ``outstanding'' rating. If the
bank does not substantially meet the plan goals, the bank also has the
option to elect in its plan to have its performance evaluated under the
performance test or standards that would otherwise apply in the absence
of a plan.\1371\
---------------------------------------------------------------------------
\1370\ See current 12 CFR __.27(f)(3).
\1371\ See current 12 CFR __.27(f)(4).
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed revisions to current Sec. __.27(f),
including substantive and technical changes. In proposed Sec.
__.27(f)(1), the agencies required that a bank's draft plan include the
same performance tests and standards that would otherwise be applied
under the CRA regulations, unless the bank is substantially engaged in
activities outside of the scope of the performance tests. The proposal
required that the draft plan specify how these activities are outside
the scope of the otherwise applicable performance tests and standards
and why being evaluated pursuant to a plan would be a more appropriate
means to assess the bank's record of helping to meet the credit needs
of its community than if it were evaluated pursuant to the otherwise
applicable performance tests and standards.
Proposed Sec. __.27(f)(2) required that the draft plan incorporate
measurable goals for all geographical areas that would be included
pursuant to the performance tests and standards that would otherwise
apply in the absence of approved plan.
Proposed Sec. __.27(f)(3)(i) required a bank, pursuant to these
tests and standards, to specify measurable goals in its draft plan for
helping to meet the following, as applicable:
retail lending needs of, as applicable, its facility-based
assessment areas, retail lending assessment areas, and outside retail
lending area that are covered by the draft plan;
retail services and products needs of its facility-based
assessment areas and at the institution level that are covered by the
draft plan;
community development financing needs of its facility-
based assessment areas, States, multistate MSAs, and nationwide areas
that are covered by the draft plan; and
community development services needs of its facility-based
assessment areas and other geographic areas served by the bank that are
covered by the draft plan.
In a bank's draft plan, the agencies proposed that a bank must
consider public comments and its capacity and constraints, product
offerings, and business strategy in developing goals in these four
performance test areas.\1372\ The proposal also required that the
bank's draft plan include a focus on the credit needs of low- and
moderate-income individuals, small businesses, small farms, and low-
and moderate-income census tracts, and explain how the plan's
measurable goals are responsive to the characteristics and credit needs
of, as applicable, the assessment areas and geographic areas served by
the bank, considering public comment and the bank's capacity and
constraints, product offerings, and business strategy.\1373\
---------------------------------------------------------------------------
\1372\ See proposed Sec. __.27(f)(3)(ii).
\1373\ See proposed Sec. __.27(f)(3)(iii).
---------------------------------------------------------------------------
In developing measurable goals related to retail lending, the
agencies proposed that a bank incorporate measurable goals in its draft
plan for each major product line. However, banks have the option to
develop additional goals that cover other lending-related activities
based on the bank's specific business strategy.\1374\ Moreover,
proposed Sec. __.27(f)(3)(v) provided that if the bank's plan goals
related to retail lending do not incorporate the Retail Lending Test's
metric-based methodology, the bank must explain why incorporation of
the methodology is not appropriate. Further, for banks that would
otherwise have community development loan and community development
investment requirements, proposed Sec. __.27(f)(3)(vi) required that a
bank include an explanation as to why measurable goals do not
incorporate, as applicable, the metric-based methodology in the
Community Development Financing Test or the Community Development
Financing Test for Wholesale or Limited Purpose Banks as described in
proposed Sec. Sec. __.24 and __.26, respectively, or the community
development performance standards for intermediate banks as provided in
proposed Sec. __.29(b)(2).
---------------------------------------------------------------------------
\1374\ See proposed Sec. __.27(f)(3)(iv).
---------------------------------------------------------------------------
The agencies proposed in Sec. __.27(f)(4) to retain the current
regulatory language with respect to a bank's ability to submit
additional information regarding the plan to the agencies on a
confidential basis. Further, the agencies proposed similar language to
the current regulation that requires banks to specify in its plan
measurable goals that constitute ``Satisfactory'' performance and
provides them the option to specify goals for ``Outstanding''
performance. Lastly, in proposed Sec. __.27(f)(6), the agencies
continued to provide the option for banks to be evaluated under the
performance tests and standards that would otherwise apply in the
absence of a plan if the bank failed to substantially meet its plan
goals.
Comments Received
Many commenters agreed that flexibility, particularly with regard
to assessment areas, performance tests and standards, and the
establishment of goals, should be maintained. These commenters did not
share the concern expressed by other commenters that banks could use
the strategic plan option to avoid more stringent CRA requirements,
noting that appropriate guardrails, such as public comment and
regulatory approval, would be in place.
At least one commenter believed the proposed regulatory text would
discourage banks from selecting the strategic plan option, stating this
could result in changing the bank's business strategy. To avoid this
unintended consequence, this commenter recommended deleting the word
``substantially,'' and instead include language that a different
approach may
[[Page 7011]]
be more appropriate for a bank's business model. In addition, when
referencing that a plan must address all performance tests and
standards that would otherwise be applied, the commenter requested that
the agencies retain the language under the current regulations that ``a
different emphasis, including a focus on one or more performance
categories, may be appropriate if responsive to the characteristics and
credit needs of its assessment area(s), considering public comment and
the bank's or savings association's capacity and constraints, product
offerings, and business strategy.''
A number of commenters expressed concern that the agencies'
strategic plan option proposal lacks flexibility and, thereby, defeats
the original purpose of plans. Some of these commenters recommended
that the agencies preserve the flexible features afforded plans under
the current CRA regulations. In particular, these commenters identified
assessment areas, in-scope products, measurable goals, and test weights
as current areas of flexibility. Some of these commenters made
recommendations, including that the agencies: explicitly state in the
final rule that not all performance tests would be required for banks
where they are not applicable and that banks that are primarily
consumer lenders be allowed to include consumer loans under their
plans; provide flexibility for weighting the four main performance
tests at the institution level for all strategic plan banks if the
final rule does not provide that accommodation for all banks; and
clarify whether banks may continue to use self-executing provisions
that allow certain changes to take effect upon the occurrence of a
particular event. Another commenter believed that the proposed changes
to the plan would shift its focus from meeting community needs,
including community development investments and community engagement,
to meeting strict tests and monitoring generic benchmarks.
Final Rule
In response to comments that advocated for greater flexibility in
the development of plans, the agencies made significant revisions aimed
to clarify the plan content requirements in proposed Sec. __.27(f),
renumbered as final Sec. __.27(g). These revisions also ensure that
there are guardrails to prevent banks from opting out of a ``more
stringent'' evaluation under the applicable default performance tests,
including to retain parity among banks not evaluated under an approved
strategic plan and those that are. The agencies believe the revisions
in the final rule provide stakeholders with more objective rules under
the strategic plan option that define when the standard performance
tests apply and when eligible additions and modifications are allowed
and appropriate. Also, while proposed Sec. __.27(f) consistently
referenced ``draft plan'' when addressing plan content requirements,
final Sec. __.27(g) omits the term ``draft'' to clarify that these
plan content requirements also apply to approved plans. As a draft plan
is developed solely for the purpose of obtaining agency approval, all
of the requirements of final Sec. __.27(g) would apply at the draft
stage as well.
Proposed Sec. __.27(f)(1) provided that ``[a] bank's draft plan
must include the same performance tests and standards that would
otherwise be applied under this part, unless the bank is substantially
engaged in activities outside the scope of these tests,'' and must
specify how these activities are outside the scope of the performance
tests and why being evaluated under a plan would be more appropriate.
As explained above, the concepts in proposed Sec. __.27(f)(1) were
restructured in the final rule and are now discussed in final Sec.
__.27(c) and (d), which detail plans in general and the justification
and appropriateness of plan election, respectively (see the section-by-
section analysis of Sec. __.27(c) and (d)). As a result, final Sec.
__.27(g) requires that the plan must meet the requirements of final
Sec. __.27(g), as well as those outlined in final Sec. __.27(c) and
(d). In response to the commenter that expressed concern that the
proposed regulatory text would force a bank to change its business
model, the agencies believe the revisions proposed in Sec. __.27(f)
provide sufficient flexibility to accommodate different business
models. By requiring justifications for any modifications and additions
and relating them to areas where the performance tests that would apply
in the absence of an approved plan are outside the scope of, or are
inconsistent with, the bank's business model, the agencies believe that
they have provided sufficient flexibility while also providing
guardrails to prevent a bank from inappropriately eliminating
performance tests for which it has the capacity to deliver results.
Final Sec. __.27(g)(1) adopts the language that was proposed in
Sec. __.27(f)(3)(iii) to require the draft plan to focus on the credit
needs its entire community, including low- and moderate-income
individuals, families, and households; low- and moderate-income census
tracts; and small businesses and small farms, and to describe how the
plan is responsive to the characteristics and credit needs of its
facility-based assessment areas, retail lending assessment areas,
outside retail lending area, and other geographic areas served by the
bank with a technical edit. The reference in proposed Sec.
__.27(f)(3)(iii) explaining how the plan's measurable goals are
responsive to these areas was revised to reflect that the bank's
responsiveness can be demonstrated by any component of the plan,
including those components that are not tied to measurable goals. This
provision, in conjunction with the variety of eligible modifications
and additions permitted under final Sec. __.27(g)(2), is responsive to
the commenter that expressed concern that the strategic plan option
would shift focus from meeting credit needs to a strict adherence to
the tests and benchmarks.
In final Sec. __.27(g)(1), the agencies are also clarifying that a
bank must specify the components in the plan for helping meet various
needs, as applicable, in the various geographical areas served by the
bank. These needs are similar to the ones that were delineated in
proposed Sec. __.27(f)(3) and include those related to retail lending,
retail banking services and retail banking products, community
development loans, community development investments, and community
development services. However, the language was amended from the
proposal to reflect that the plan must specify any components of the
draft plan that help meet these needs--not only measurable goal
components.
Also, upon consideration of perspectives of commenters that had
concerns that the strategic plan option would be used to avoid more
stringent CRA requirements and those that urged the maintenance of
flexible criteria under the option (including giving banks the ability
to eliminate a performance test, if not applicable), the agencies added
more specificity to the requirements in final Sec. __.27(g)(1)(i)
through (iv) that detail the components that a bank must include in its
plan depending on the size of the bank and the bank's product
offerings. The agencies believe these provisions clarify the agencies'
proposal and keep the bank accountable for results under the applicable
performance tests that can be reasonably applied to the bank, while
offering appropriate flexibility when the bank's business model is
outside the scope of, or is inconsistent with, one or more of the
performance tests that
[[Page 7012]]
would apply in the absence of an approved plan, which include limited
circumstances that may justify the elimination of a performance test.
For instance, in order to assess its efforts in helping meet retail
lending needs, final Sec. __.27(g)(1)(i) requires a bank that
originates or purchases loans in a product line evaluated under the
Retail Lending Test in final Sec. __.22 or originates or purchases
loans evaluated pursuant to the Small Bank Lending Test in final Sec.
__.29(a)(2) to include the applicable test in its strategic plan. A
large bank that offers residential mortgage loans that would be
considered under the Retail Lending Test would need to include that
performance test in its plan. In contrast, a bank that originates
consumer loans, and does not originate any other loans considered under
the Retail Lending Test, would not be required to include the Retail
Lending Test in its plan. Also, a large bank would not need to include
in its strategic plan the Retail Services and Products Test if it does
not maintain any delivery systems \1375\ or the Community Development
Services Test in a facility-based assessment area where the large bank
has no employees.\1376\ It is important to note that all banks (other
than small banks that have no community development requirements under
Sec. __.29) must include the otherwise applicable community
development test in their plan,\1377\ as the agencies do not believe
there are circumstances where these banks do not have the capacity to
deliver some volume of community development investments or loans.
Also, final Sec. __.27(g)(1)(ii) through (iv) make it clear that any
bank can add a component of a performance test that relates to a need
that is not covered in the performance tests that would apply in the
absence of an approved plan. For example, although large banks
generally are required to include community development services,
delivery systems, credit products or programs, and deposit products,
any other bank may also include a component of these in its plan.
Additionally, a small bank could add goals related to community
development loans and community development investments to its plan.
While these banks would not be required to perform in these areas under
the performance tests that would apply in the absence of an approved
plan, a bank may wish to add these components to compensate for the
elimination or modifications of other performance test components in
their plan.
---------------------------------------------------------------------------
\1375\ See final Sec. __.27(g)(1)(ii)(A).
\1376\ See final Sec. __.27(g)(1)(iv)(A).
\1377\ See final Sec. __.27(g)(1)(iii)(A) through (C).
---------------------------------------------------------------------------
In response to commenters that urged flexibility regarding the
development of plans and the agencies' desire to add clarity regarding
the requirements in final Sec. __.27(g)(1) related to the elimination
or additions to the applicable performance tests, the agencies are
adopting new Sec. __.27(g)(2) to detail the eligible modifications or
additions that may be made to the components within the performance
tests that would apply in the absence of an approved plan if justified
under final Sec. __.27(d). Similar to final Sec. __.27(g)(1), final
Sec. __.27(g)(2)(i) through (iv) detail the modifications and
additions that the rule would allow in the four areas of retail
lending, retail banking services and products, community development
loans and investments, and community development services. For
instance, with respect to retail lending, small banks may be able to
support the omission of the loan-to-deposit or assessment area
concentration performance criteria pursuant to Sec. __.29, as well as
add annual measurable goals for its retail lending activity.\1378\ As
an example, a small bank that originates residential mortgage lending
throughout the country (with a nominal concentration of loans in its
facility-based assessment area) may be able to justify the elimination
of the assessment area concentration performance criterion and develop
goals that correspond to its geographic and borrower distribution in
nationwide residential mortgage lending. For a bank otherwise evaluated
under the Retail Lending Test, in its plan, a bank may add additional
products outside those that are considered pursuant to final Sec.
__.22 (e.g., closed-end home mortgage loans, small business loans,
small farm loans, and automobile loans).\1379\ For example, this
flexibility allows a bank to be evaluated with respect to its consumer
loan products. As an additional example, a large bank could add open-
end home mortgage lending with accompanying goals that would be
considered under the plan in addition to the major product lines that
are already required pursuant to Sec. __.22.
---------------------------------------------------------------------------
\1378\ See final Sec. __.27(g)(2)(i)(A)(1) and (2).
\1379\ See final Sec. __.27(g)(2)(i)(B)(1).
---------------------------------------------------------------------------
When adding measurable goals related to additional products or sub-
products, final Sec. __.27(g)(2)(i)(B)(2) permits the bank to apply
different product weights that allow for averaging together the
performance across the added products in combination with the other
standard major product lines required to be evaluated under the Retail
Lending Test or including those loan products in the numerator of the
Bank Volume Metric. For example, if a bank justifies the addition of
open-end home mortgage loans under the Retail Lending Test in its plan
to be evaluated in conjunction with its product lines, the bank could
treat the open-end home mortgage loans as an additional product line
and calculate a weighted average based on a combination of loan dollars
and loan count across all major product lines consistent with section
VII of final appendix A.
Under the plan option, final Sec. __.27(g)(2)(i)(B)(3) also allows
the bank to use alternative weighting when combining the borrower and
geographic distribution analyses. Under the Retail Lending Test, these
two measures each account for 50 percent of the recommended conclusion
unless there are no low- and moderate-income census tracts; however,
under a plan, a bank may adjust these weightings for a specific product
line if it can justify why the standard weighting does not represent
the most appropriate evaluation of these criteria. For example, an
intermediate bank may be able to support lowering the weight of the
geographic distribution measure (and therefore increase the weighting
of the borrower distribution measure) related to performance in a
facility-based assessment area that is comprised of 60 census tracts
and only one census tract is considered low- or moderate-income. In
this circumstance, it may be appropriate to adjust weighting to account
for the lack of economic diversity in the geographic areas that make up
the bank's assessment area.
Additional modifications and additions are allowed for retail
banking services and retail banking products pursuant to final Sec.
__.27(g)(2)(ii) if a bank can provide sufficient justification. First,
a large bank may add a measurable goal for any component of the Retail
Services and Product Test.\1380\ For example, a bank may establish a
goal to maintain branches in low- and moderate-income census tracts
within its sole facility-based assessment area that mirror or exceed
the corresponding percentages of households in those tracts. Second, a
large bank may remove a component of the Retail Services and Products
Test in limited circumstances. For example, if the bank does not offer
any remote service facilities, the bank could remove that component
from the test.\1381\ Third, pursuant to final
[[Page 7013]]
Sec. __.27(g)(2)(ii)(C), large banks may assign specific weights to
the applicable components of the test to reach a conclusion. In final
Sec. __.23, there are no defined weightings to consider in formulating
conclusions or ratings for the Retail Services and Products Test;
however, a bank may establish weightings that clarify how the existing
and modified components are combined to arrive at conclusions or
ratings under the plan. Finally, as only large banks must comply with
the Retail Services and Products Test, final Sec. __.27(g)(2)(ii)(D)
clarifies that banks other than large banks may include retail banking
services and retail banking products components and accompanying
measurable goals in their plans at their option. For instance, an
intermediate bank could establish a goal for delivering Bank On-
certified accounts to consumers in its facility-based assessment area
to compensate for modifications it made with respect to the Retail
Lending Test.
---------------------------------------------------------------------------
\1380\ See final Sec. __.27(g)(2)(ii)(A).
\1381\ See final Sec. __.27(g)(2)(ii)(B).
---------------------------------------------------------------------------
Additional modifications and additions are allowed for community
development loans and community development investments pursuant to
final Sec. __.27(g)(2)(iii). First, a bank ``may specify annual
measurable goals for community development loans, community development
investments, or both.'' \1382\ This provision requires that any
measurable goals in this area must be based on a percentage or ratio of
the bank's community development loans and community development
investments, presented either on a combined or separate basis, relative
to the bank's capacity (typically reflected as deposits or assets),
accounting for the community development needs and opportunities in an
applicable geographic area. For instance, while the final rule does not
establish specific thresholds to evaluate a bank's community
development financing metric relative to comparable benchmarks for the
Community Development Financing Test, a large bank could set an annual
goal in the form of a target percentage (based on the benchmark or some
other reasonable measure). For instance, a large bank could establish
an annual goal of 1.25 percent for its Bank Assessment Area Community
Development Financing Metric, which would mean the bank's community
development loans and community development investments were 1.25
percent of the bank's deposits in that assessment area. Alternatively,
the bank could establish an annual goal for this metric as a percentage
of the corresponding benchmark, such as 125 percent of the Assessment
Area Community Development Financing Benchmark. A bank could also
establish measurable goals for all or just a particular type of a
bank's community development loans or community development
investments. As another example, a large bank could establish annual
measurable goals based on the dollar volume of its purchase or
maintenance of LIHTC investments relative to the bank's deposits. Other
modifications in this area include using assets (in lieu of deposits)
as an alternative denominator \1383\ or additional benchmarks \1384\ to
evaluate a community development financing metric. For example, if a
large bank can justify why the deposits figure used in calculating the
metric does not adequately capture the bank's capacity to make
investments and loans in its facility-based assessment areas, the bank
could propose to use a metric that is calculated using the bank's
assets. Lastly, as the small bank performance evaluation does not
include any criteria related to a community development financing
requirement, final Sec. __.27(g)(2)(iii)(D) clarifies that small banks
may include a community development loan or community development
investment component and accompanying measurable goals in their plans.
---------------------------------------------------------------------------
\1382\ See final Sec. __.27(g)(2)(iii)(A).
\1383\ See final Sec. __.27(g)(2)(iii)(B).
\1384\ See final Sec. __.27(g)(2)(iii)(C).
---------------------------------------------------------------------------
With respect to community development services, final Sec.
__.27(g)(2)(iv)(A) allows a bank to specify annual measurable goals for
these activities. While any reasonable measure can be used if
justified, this section provides examples of goals that could include
the number of activities or the number of activity hours against some
measure of bank capacity, such as full-time equivalent employees. Also,
since only large banks are subject to the Community Development
Services Test, final Sec. __.27(g)(2)(iv)(B) clarifies that banks
other than large banks may, at their option, include a community
development services component and accompanying goals in their plan.
As many of the performance tests assign weights to various
components of the tests (including the geographical areas, products,
and criteria), the final rule contains language to outline the
circumstances under which adjustments to weighting are allowed with
justification under final Sec. __.27(d). As discussed previously,
weighting of products and borrower and geographic analyses under to the
Retail Lending Test are addressed in final Sec. __.27(g)(2)(i)(B)(2)
and (3), respectively.
With respect to geographical weighting, final Sec. __.27(g)(2)(v)
allows a bank to specify alternative weights for averaging test
performance across assessment areas or other geographical areas with
justification based on the bank's level of activity and capacity in
specific geographic areas. For example, while facility-based assessment
area weighting is typically calculated as an average of loans and
deposits, an intermediate bank may propose an alternative weighting for
its facility-based assessment areas if there are anomalies in the
geographical distribution of its deposits (as calculated by the FDIC's
Summary of Deposits data). For instance, a bank with a large warehouse
lending operation may maintain all of its associated escrow deposits,
which represent the majority of its deposits, in one branch. If, as a
result, the assessment area that corresponds to this branch receives
disproportionate weight in assessing the bank's lending performance,
the bank may be able to justify an alternative weighting methodology in
its plan.
With respect to combining the various applicable performance tests
to develop ratings in States and multistate MSAs, as applicable, and
for the institution under the plan, final Sec. __.27(g)(2)(vi)(A)
allows a bank to request an alternative weighting method. This
alternative weighting provision would also apply to combined assessment
area conclusions developed for the purposes of determining whether a
large bank met the 60 percent standard specified in final Sec.
__.28(b)(4)(ii)(B). In making these clarifications, the agencies have
considered commenter feedback advocating for flexibility under the
strategic plan option. Similar to the current rule,\1385\ the
alternative test weighting method must emphasize retail lending,
community development financing, or both, as well as be responsive to
the characteristics and credit needs of a bank's assessment area(s),
public comments, and the bank's capacity and constraints, product
offerings, and business strategy. Under the final rule, however, if an
alternative test weighting methodology is requested, a bank must
compensate for decreasing the weight under one performance test by
committing to enhance its efforts to help meet the credit needs of its
community under another performance test.\1386\ For example, if a large
bank that conducted limited retail lending activity submitted
[[Page 7014]]
a draft plan that reduced the weight of the Retail Lending Test from 40
percent to 20 percent with a corresponding increase in the weight of
the Community Development Financing Test to 60 percent, the agencies
would expect the plan to include enhancements for its performance under
the Community Development Financing Test taking this increased
performance test weight into consideration. The bank should explain its
rationale for why its performance under a test with an increased weight
meets the required standard. In an example involving increased weight
for the Community Development Financing Test, as noted above, the bank
could describe its performance relative to relevant benchmarks provided
under that performance test (such as by setting ``Satisfactory'' goals
for the community development financing metric that exceeded the
benchmark by a specific percentage).
---------------------------------------------------------------------------
\1385\ See current 12 CFR __.27(f)(1)(ii).
\1386\ See final Sec. __.27(g)(2)(vi)(B).
---------------------------------------------------------------------------
The agencies received differing views on the geographic coverage of
plans in proposed Sec. __.27(f)(2), feedback which was also discussed
in regard to final Sec. __.27(c)(3)(ii). As discussed previously, all
of these comments related to the proposal for banks to include retail
lending assessment areas in their plan if these areas would otherwise
be required in the absence of an approved plan. While a few commenters
favored allowing banks to justify or negotiate away the requirement to
include retail lending assessment areas, the other commenters that
addressed this issue supported the inclusion of these areas. After
considering these comments, the agencies are finalizing proposed Sec.
__.27(f)(2), renumbered as Sec. __.27(g)(3), pertaining to the
requirement that a bank may not eliminate the evaluation of its
performance in any geographic area that would be included in its
performance evaluation in the absence of an approved plan (including
retail lending assessment areas and the outside retail lending area).
In addition, several technical changes and expanded language are
included to explain that performance evaluation components and goals
may be added to the plan for additional geographic areas and to address
how retail lending assessment area designations that change subsequent
to the approval of the plan will be handled. As the requirement for
designating a retail lending assessment area is limited to a subset of
large banks that are not exempted under final Sec. __.17(a)(2), which
addresses whether a bank has more than 80 percent of its lending inside
of its facility-based assessment areas, and that also meets the
specified lending thresholds for closed-end home mortgage loans or
small business loans,\1387\ the agencies believe that it is appropriate
for these banks to be evaluated in these areas in their plans. This
also maintains parity among large banks, whether they are evaluated
under a strategic plan or not. As discussed previously, final Sec.
__.27(c)(3)(i) requires that a bank's plan incorporate each assessment
area (including both facility-based and retail lending) and other
geographic areas (such as an outside retail lending area, States,
multistate MSAs, or nationwide) that would otherwise be evaluated in
the absence of an approved plan. This language was modified from
proposed Sec. __.27(f)(2) in that it removes the reference to
requiring measurable goals, consistent with the fact that a bank's
performance under a plan may be evaluated exclusively on a performance
component that is not guided by a goal.
---------------------------------------------------------------------------
\1387\ See final Sec. __.17.
---------------------------------------------------------------------------
In the proposal, the agencies sought feedback on whether
intermediate banks electing to be evaluated under a plan should be
allowed to delineate retail lending assessment areas, whether small
banks electing to be evaluated under a plan should be allowed to
delineate retail lending assessment areas and outside retail lending
areas, and what criteria should apply to small and intermediate banks
delineating such assessment areas under a plan. The agencies did not
receive any comments in response; however, the agencies believe this
issue should be addressed in the final rule. The final rule adopts new
Sec. __.27(g)(3)(i), which clarifies that evaluation components and
accompanying goals may be added to a plan at the bank's option. For
example, a small bank may opt to incorporate retail lending goals for
areas outside of its facility-based assessment areas. If additional
performance evaluation components with accompanying goals are included
with the plan, a bank must specify the geographic areas where those
components and goals apply.\1388\
---------------------------------------------------------------------------
\1388\ See final Sec. __.27(g)(3)(iii).
---------------------------------------------------------------------------
With respect to retail lending assessment areas that are identified
in a plan but are no longer required due to the large bank not meeting
the associated lending thresholds under final Sec. __.17, the agencies
will not review performance in that area for any applicable year in
which the threshold is not met.\1389\ Conversely, if a retail lending
assessment area is not required at the time of plan approval, but would
otherwise be established during the term of an approved plan due to a
bank's increased lending meeting the thresholds, the bank would not be
required to amend an existing plan to establish those geographies as a
new retail lending assessment area.
---------------------------------------------------------------------------
\1389\ See final Sec. __.27(g)(3)(ii).
---------------------------------------------------------------------------
The agencies have also considered commenter feedback recommending
that the agencies clarify whether banks may continue to use self-
executing provisions that allow certain changes to take effect upon the
occurrence of a particular event. While it is noted that the concept of
a ``self-executing provision'' is not discussed in the current,
proposed, or final rule, the agencies do not believe that a specific
clarification with respect to such provisions would be necessary
because the standards in Sec. __.27 are sufficiently flexible to
permit them assuming the other requirements are met (including that an
adequate justification is supported and the self-executing provision is
consistent with the eligible modifications and additions). As an
example, a bank may establish in its plan that any new facility-based
assessment areas delineated during the plan term would be subject to
performance tests that would otherwise apply in the absence of a plan.
The agencies did not receive comments regarding the submission of
confidential information with the draft plan and are adopting proposed
Sec. __.27(f)(4), renumbered in the final rule as Sec. __.27(g)(4),
as proposed. Additionally, no comments were received regarding proposed
Sec. __.27(f)(5), renumbered in the final rule as Sec. __.27(g)(5),
related to the requirement that a bank specify measurable goals that
constitute ``Satisfactory'' performance with the option to specify
goals that constitute ``Outstanding'' performance (if the bank wants to
be eligible for an ``Outstanding'' rating). The agencies are finalizing
this section as proposed, with a technical change to reflect that this
only applies to modified or additional performance evaluation
components with accompanying goals, as not all performance test
components will have goals associated with them.
The agencies are not finalizing proposed Sec. __.27(f)(6), which
would have allowed a bank to elect in its draft plan evaluation of the
bank's performance under the performance tests that would otherwise
apply in the absence of an approved plan if the bank failed to meet
substantially its plan goals for a ``Satisfactory'' rating. While no
comments were received on this
[[Page 7015]]
provision, given that the final rule requires the inclusion of any
applicable performance tests under the strategic plan option (provided
a bank cannot provide a justification for not including one of the test
as provided in final Sec. __.27(g)(1)), the agencies do not believe
there is a need for this provision, as the bank's poor performance
under the plan would likely mirror its performance under the
performance tests that would apply in the absence of a plan. A plan is
approved by the agency under the premise that the plan represents a
more meaningful reflection of a bank's record of helping to meet the
credit needs of its community than if it were evaluated in the absence
of an approved plan. If a bank no longer considers the plan to be a
more meaningful reflection of the bank's record, the agencies believe
the bank should terminate its plan and revert to an evaluation under
the performance tests that would apply in the absence of a plan.
Lastly, although not included in the proposed plan content section,
the agencies are adopting new final Sec. __.27(g)(6) to clarify that
the bank must specify a conclusions and ratings methodology in its
plan. This addition is necessary given the agencies' shift from a
purely goals-based performance evaluation to one that is flexible and
recognizes that plans accommodate the performance tests under final
Sec. __.21. As plans must include the performance tests required under
Sec. __.27(g)(1) (which may not have goals associated with the
evaluation components) in combination with eligible modifications and
additions to those tests with accompanying goals, the plans need to
specify how the appropriate Federal financial supervisory agency will
combine these components to arrive at conclusions at each applicable
geographic area level and ratings in each State or multistate MSA, as
applicable, and at the institution level.
Pursuant to final Sec. __.27(g)(6), a bank must specify in its
plan how all of the plan elements covered in Sec. __.27(g)(1) through
(5) will be considered in conjunction with any other applicable
performance tests not included in the approved plan. For example, if an
intermediate bank that opted into the strategic plan option were to add
evaluation components that relate to the opening of Bank On deposit
accounts for low- and moderate-income individuals and the maintenance
of delivery systems in targeted census tracts, the plan would need to
establish annual measurable goals related to each component consistent
with Sec. __.27(g)(5), and could also provide adjusted performance
test weighting that accounts for the retail banking services and retail
banking products components. For instance, if justified under final
Sec. __.27(d), the plan could establish a 45 percent weight under the
Retail Lending Test, a 45 percent weight under the Intermediate Bank
Community Development Test (or, alternatively, the Community
Development Financing Test as provided in Sec. __.24), and 10 percent
weight on the retail banking services and retail banking products
components.
Final Sec. __.27(g)(6) clarifies that conclusions and ratings are
assigned pursuant to the general conclusions and ratings requirements
in Sec. __.28 and that more specific guidance regarding assigning
conclusions and ratings is detailed, respectively, in paragraph g of
final appendix C \1390\ and in paragraphs f and g of final appendix
D.\1391\ Final Sec. __.27(g)(6)(i) further clarifies that performance
context information as provided in Sec. __.21(d) may also be
considered in assigning conclusions under the plan.
---------------------------------------------------------------------------
\1390\ See final Sec. __.27(g)(6)(i).
\1391\ See final Sec. __.27(g)(6)(ii).
---------------------------------------------------------------------------
A new paragraph g was added to final appendix C to clarify that the
appropriate agency will assign conclusions in each of these applicable
geographical areas. This became necessary as the proposal contemplated
a strictly goal-based structure to formulating ratings for banks under
the strategic plan option and did not include a discussion of this
performance evaluation method in appendix C, which addresses
performance test conclusions. However, as plans must include the
performance tests that would apply in the absence of an approved plan
pursuant to final Sec. __.27(c)(2)(i), conclusions for each facility-
based assessment area, retail lending assessment area, outside retail
lending area, State, and multistate MSA, as applicable, and the
institution will be formulated under the respective performance tests.
In assigning the conclusions under the performance tests and any
optional evaluation components, the appropriate agency will consider
the annual measurable goals (for ``Satisfactory'' performance and, if
identified in the plan, for ``Outstanding'' performance) and the
conclusion methodology required under final Sec. __.27(g)(6).\1392\
---------------------------------------------------------------------------
\1392\ See final appendix C, paragraph g.
---------------------------------------------------------------------------
Paragraph g of final appendix C explains further that, for elements
of the plan that correspond to the otherwise applicable performance
tests, the plan should include a conclusions methodology that is
generally consistent with paragraphs b through f of appendix C. For
example, if a large bank included the Community Development Financing
Test in its plan without any modifications or additions, the
conclusions for that performance test must be formulated using the same
methodology detailed in paragraph d of final appendix C. However, if
that same bank's plan included an eligible modification under the
Community Development Services Test (e.g., establishing annual
measurable goals for community development service hours relative to
the number of full-time employees), the plan must include a conclusions
methodology that accounts for those goals and generally aligns with the
methodology detailed in paragraph e of final appendix C. For instance,
a bank could establish a range of goals that align with the five
conclusion categories (and corresponding performance scores) for each
facility-based assessment area that would be used to assign the
conclusion in lieu of the qualitative evaluation that is performed in
each of these areas under the Community Development Services Test.
Under this methodology, the goal thresholds could inform conclusions
under the performance test corresponding with the conclusion category
nearest to the performance score as follows: ``Outstanding'' (10
points); ``High Satisfactory'' (7 points); ``Low Satisfactory'' (6
points); ``Needs to Improve'' (3 points); or ``Substantial
Noncompliance'' (0 points).
With respect to the formulation of ratings, the agencies proposed
to approve ``Satisfactory'' goals and, if identified in the plan,
``Outstanding'' goals, and would determine if the bank met these goals
to assess a bank's performance under the plan.\1393\ Consistent with
the removal of a strictly goals-based plan evaluation structure,
paragraph f of appendix D was revised significantly and finalized to
state that the agency evaluates the bank's performance under an
approved plan consistent with the ratings methodology specified in the
plan pursuant to final Sec. __.27(g)(6). Similar to the banks rated
under any of the other evaluation methods, ratings are a product of
performance test conclusions discussed under final appendix C with an
adjustment for any optional evaluation components that a bank chooses
to add to an approved plan.
---------------------------------------------------------------------------
\1393\ See proposed appendix D, paragraph f.
---------------------------------------------------------------------------
Lastly, paragraph f of final appendix D clarifies that the
appropriate agency assigns a rating under the plan rating
[[Page 7016]]
methodology using one of the following categories: ``Outstanding,''
``Satisfactory,'' ``Needs to Improve,'' or ``Substantial
Noncompliance.''
Section __.27(h) Draft Plan Evaluation
Current Approach
Current Sec. __.27(g) require the agencies to act upon a plan
within 60 calendar days after receipt of a complete plan and the
following materials required under current Sec. __.27(e): a
description of the bank's informal efforts to seek suggestions from the
public; any written public comments received; and, if the plan was
revised in light of these comments, the initial plan as released for
public comment.\1394\ If the appropriate Federal financial supervisory
agency fails to act within this time period and does not extend it for
good cause, the plan is deemed approved. The appropriate agency
evaluates the plan goals in consideration of the results of the public
participation process.\1395\
---------------------------------------------------------------------------
\1394\ See current 12 CFR __.27(g)(1).
\1395\ See current 12 CFR __.27(g)(2).
---------------------------------------------------------------------------
The agency evaluates a plan's measurable goals based on: the extent
and breadth of lending or lending-related activities; the amount and
innovativeness, complexity, and responsiveness of the bank's community
development investments; and the availability and effectiveness of the
bank's systems for delivering retail banking services and the extent
and innovativeness of the bank's community development services.\1396\
---------------------------------------------------------------------------
\1396\ See current 12 CFR __.27(g)(3).
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed in Sec. __.27(g)(1) to extend the time
period for acting on a complete plan and the accompanying material
required under current Sec. __.27(e) to 90 calendar days, and
preserved the automatic approval of plans that are not acted upon
within that time frame unless extended by the agencies for good cause.
In proposed Sec. __.27(g)(2), the agencies clarified that they would
consider the following when evaluating the bank's draft plan's goals:
public involvement in formulating the plan (including specific
information regarding the members of the public and organizations the
bank contacted; how the bank collected information relevant to the
draft plan; the nature of the public input, and whether the bank
revised the draft plan in light of public input); written public
comments; and any bank responses to these comments.
Proposed Sec. __.27(g)(3) outlined the criteria that the agencies
would use to evaluate the draft plan's measurable goals. The agencies
clarified the evaluation would include the appropriateness of these
goals and information provided in proposed Sec. __.27(e) and (f) and
would be based on the bank's capacity, product offerings, and business
strategy. Similar to the current regulation, the criteria included the
following, as appropriate: the extent and breadth of retail lending or
retail lending-related activities to address credit needs; the dollar
amount and qualitative aspects of the bank's community development
loans and community development investments in light of the
corresponding needs; the availability of bank retail products and the
effectiveness of the bank's systems for delivering retail banking
services; and the number, hours, and type of community development
services performed by the bank and the extent to which these services
are impactful.
Lastly, while the proposal required the posting of draft plans on
the appropriate Federal financial supervisory agency's and bank's
websites, the agencies asked for feedback on whether the approved plans
should also be posted on those websites.
Comments Received and Final Rule
The only comment on this section related to a commenter that
requested banks be permitted to post approved plans on the bank's
website at the bank's option. The agencies are finalizing proposed
Sec. __.27(g), renumbered as Sec. __.27(h), largely as proposed with
revisions as explained in more detail below, including a revision to
the paragraph's header from Plan approval to Draft plan evaluation to
more broadly capture the areas covered by final Sec. __.27(h).
The agencies are adopting the timing requirements in proposed Sec.
__.27(g)(1), renumbered in the final rule as Sec. __.27(h)(1), for
submitting a plan to the agencies with one modification. Consistent
with the proposal, the final rule establishes a 90 calendar-day
timeframe for the agencies to review a complete draft plan and other
required materials once received from the bank. However, rather than
establishing an automatic approval for plans that are not acted upon
within the 90-day period, the final rule requires the appropriate
Federal financial supervisory agency to communicate to the bank the
rationale for the delay and an expected timeframe for a decision on the
draft plan. This revision in the final rule (removing the automatic
approval) acknowledges both the importance of the agencies making an
affirmative decision on the plan and that some plans may require more
than the 90-day timeframe to evaluate. Under the current and proposed
regulation, the agencies maintained the ability to extend the
evaluation time period for good cause; however, it has been the
agencies' experience that extensions were rarely, if ever, needed once
a complete plan was received. The agencies will strive to provide a
decision on all plans within the 90-day timeframe; however, removal of
the automatic approval will ensure that the agencies will complete the
evaluation of each plan, while requiring communication of the rationale
and expected timeframe for any delays on plan approval decisioning
beyond the typical timeframe.
The agencies did not receive any comments related to the
consideration of public participation in the evaluation of the plan and
are finalizing Sec. __.27(g)(2), renumbered in the final rule as Sec.
__.27(h)(2), as proposed with several technical changes and the
addition of a new provision. More specifically, final Sec.
__.27(h)(2)(i) removes the language ``the nature of the public input''
and ``whether the bank revised the draft plan in light of public
input,'' as specific examples of public participation information the
agencies would consider in evaluating the plan. The agencies considered
this language duplicative as these considerations are already addressed
more broadly in final Sec. __.27(h)(2)(ii) and (iii). Further, final
Sec. __.27(h)(2)(ii) and (iii) reflect the agencies' commitment to
public input such that all forms of public input (and the bank's
corresponding responses) that are available during the plan development
and evaluation process will be considered--not just written comments.
Finally, although not proposed, the agencies are adopting new final
Sec. __.27(h)(2)(iv) to clarify that the agencies will consider
whether to solicit additional public input or require the bank to
provide any additional response to public input already received. As
stated previously, the agencies believe that the public participation
process is a critical element of the plan evaluation process;
therefore, they believe it is appropriate to solicit additional public
comment or bank responses if they find the public participation
obligation has not been fully satisfied prior to the submission of the
draft plan.
The agencies did not receive any comments related to the specific
criteria for evaluating the plan and are finalizing proposed Sec.
__.27(g)(3), renumbered as Sec. __.27(h)(3), with several technical
changes and additions to conform to previously discussed
[[Page 7017]]
revisions to the structure of the strategic plan option. First, the
language in the proposal related to evaluating a draft plan's
measurable goals and the appropriateness of those goals has been
removed to acknowledge the fact that a plan, while it may include goals
related to its eligible modifications and additions, must also
generally include the performance tests that would apply in the absence
of a plan, which are not all goals-based. In lieu of the references to
goals, the agencies revised the final rule to add two additional
criteria that the agencies must consider in the evaluation of a plan:
the extent to which the plan meets the standards in Sec. __.27 \1397\
and the extent to which the plan has provided a justification under
Sec. __.27(d).\1398\ Rather than restating all of the plan criteria
that are established in the various provisions of Sec. __.27, the
agencies believe it is more effective and efficient to make a reference
to the entire section to make it clear that all of the standards
introduced in the section are considered under the approval criteria.
Also, consistent with the agencies' desire to limit the strategic plan
option only to those banks where the applicable performance tests would
not provide a meaningful evaluation of the bank and to create parity
with other banks that do not avail themselves of the option, the
agencies have clarified in the final rule that the justification under
Sec. __.27(d) will be an evaluation criterion.
---------------------------------------------------------------------------
\1397\ See final Sec. __.27(h)(3)(i)(A).
\1398\ See final Sec. __.27(h)(3)(i)(B).
---------------------------------------------------------------------------
The remaining four plan evaluation criteria \1399\ proposed in
Sec. __.27(g)(3)(i) through (iv), renumbered in the final rule as
Sec. __.27(h)(3)(ii), are finalized with clarifying edits. These
criteria are differentiated from the criteria outlined in final Sec.
__.27(h)(3)(i) in that they are evaluated, as applicable, depending on
the performance tests that would apply in the absence of a plan and
whether the bank has added an optional evaluation component. Each of
these criteria are considered in conjunction with relevant performance
context information pursuant to Sec. __.21(d) and relate to the
performance test areas: retail lending; retail banking services and
retail banking products; community development loans and community
development investments; and community development services. In the
final rule, the agencies added an updated reference to the applicable
performance tests at the conclusion of each of the corresponding
provisions. For example, the retail lending criterion \1400\ provides a
reference to the two sections, Sec. Sec. __.22 and__.29, that detail
the evaluation standards for retail lending for small, intermediate,
and large banks.
---------------------------------------------------------------------------
\1399\ See final Sec. __.27(h)(3)(ii)(A) through (D).
\1400\ See final Sec. __.27(h)(3)(ii)(A).
---------------------------------------------------------------------------
While the proposal did not include a provision that specifically
addressed the plan decision-making process, the agencies are adopting
new Sec. __.27(h)(4) to better clarify the circumstances under which
the agencies will approve or deny a draft plan that has been submitted
by a bank. Simply, final Sec. __.27(h)(4)(i) confirms that the
appropriate Federal financial supervisory agency may approve a plan
after considering the criteria in final Sec. __.27(h)(3) and if it
determines that an adequate justification for the plan and each aspect
of the plan in Sec. __.27(d) has been provided. The paragraph also
details the circumstances under which the appropriate agency may deny a
request for a plan or part of a plan.\1401\ These circumstances
include: the agency making a determination that there is a lack of an
adequate justification pursuant to Sec. __.27(d); the evaluation under
the plan would not provide a more meaningful reflection of the bank's
record of helping to meet the credit needs of its community; the plan
does not demonstrate responsiveness to public comment or otherwise
fails to meet the requirements of Sec. __.27; or the bank does not
provide information requested by the agency that is necessary to make
an informed decision on the draft plan.
---------------------------------------------------------------------------
\1401\ See final Sec. __.27(h)(4)(ii)(A) through (E).
---------------------------------------------------------------------------
The agencies received limited feedback on whether an approved plan
should be published on a bank's and the appropriate agency's websites;
however, the agencies are adopting new final Sec. __.27(h)(5) which
requires the appropriate agency to publish approved plans on its
website. The agencies believe that most stakeholders find it more
convenient to access information online and further believe posting
this information on the appropriate agency's websites will further the
agencies' goal of increasing public participation in, and awareness of,
the strategic plan process. While the only commenter suggested that
publishing the approved plan on the bank's website should be optional,
pursuant to Sec. __.43(b)(4) of the final rule, the approved plan must
be included in the bank's public file. As explained in more detail in
the section-by-section analysis of Sec. __.43 (content and
availability of the public file), the agencies are finalizing revisions
that require banks that maintain a website to include all information
in the public file on the bank's website.\1402\ Therefore, as part of a
bank's requirement to maintain its public file on the bank's website,
if the bank maintains one, a bank will be required to post an approved
strategic plan on the bank's website if the bank maintains one.
---------------------------------------------------------------------------
\1402\ See final Sec. __.43(c)(1).
---------------------------------------------------------------------------
Section __.27(i) Plan Amendment
Current Approach
Current Sec. __.27(h) provides that during the term of a plan, a
bank may request the appropriate Federal financial supervisory agency
to approve an amendment to the plan on the grounds that there has been
a material change in circumstance since the plan was previously
approved. Any amendment to a plan must be developed in accordance with
the public participation requirements in current Sec. __.27.
The Agencies' Proposal
The agencies proposed to revise the CRA regulations to be more
transparent about when plan amendments would be required. In proposed
Sec. __.27(h), the agencies provided that during the term of a plan, a
bank must amend its plan goals if a material change in circumstances:
impedes its ability to substantially meet approved plan
goals, such as financial constraints caused by significant events that
impact the local or national economy; or
significantly increases its financial capacity and
ability, such as through a merger or consolidation, to engage in retail
lending, retail services and products, community development financing,
or community development services.\1403\
---------------------------------------------------------------------------
\1403\ See proposed Sec. __.27(h)(1).
---------------------------------------------------------------------------
The agencies also proposed that a bank that requests an amendment
to a plan in the absence of a material change in circumstances must
provide an explanation regarding why it is necessary and appropriate to
amend its plan goals.\1404\ Lastly, the agencies proposed that any
amendment to a plan must be developed in accordance with the public
participation requirements in Sec. __.27(e).\1405\
---------------------------------------------------------------------------
\1404\ See proposed Sec. __.27(h)(2).
\1405\ See proposed Sec. __.27(h)(3).
---------------------------------------------------------------------------
Comments Received and Final Rule
No comments were received with respect to the circumstances under
which plan amendments are required, although a commenter requested that
the agencies clarify whether banks would be required to delineate
retail
[[Page 7018]]
lending assessment areas before a pre-existing plan's expiration.
The agencies are finalizing proposed Sec. __.27(h)(1), renumbered
as Sec. __.27(i)(1), with retitling of this provision and one
technical change. More specifically, this provision was retitled
Mandatory plan amendment to clarify that these are the circumstances
under which an amendment is required and to differentiate it from the
bank's discretion to optionally amend its plan pursuant to final Sec.
__.27(i)(2). Also, the proposal required a plan amendment if a material
change in circumstance impeded the bank's ability to substantially meet
approved goals; \1406\ however, as goals are not a required element of
each component of the plan in the final rule, the language was changed
to reflect circumstances that impede the bank's ability to perform at a
satisfactory level under the plan. This change acknowledges that a plan
may need to be amended for circumstances that not only adversely impact
a bank's ability to meet any goals associated with an approved plan,
but also could impede its ability to perform satisfactorily under the
performance tests, which are not always goals based. The agencies
believe plan amendments are necessary if either of the conditions in
final Sec. __.27(i)(1)(i) or (ii) exist.
---------------------------------------------------------------------------
\1406\ See proposed Sec. __.27(h)(1)(i).
---------------------------------------------------------------------------
The only commenter regarding this provision inquired as to whether
a bank would be required to delineate a retail lending assessment area
under the strategic plan option created during the term of a pre-
existing approved plan. While not contemplated in the proposal or
specifically addressed in the final rule, an amendment may be necessary
when a facility-based assessment area changes (for example, when a bank
adds a new assessment area that encompasses a branch it opens in a new
MSA in which it previously did not have a presence). When facility-
based assessment areas are added or changed significantly during the
term of an approved plan, an amendment would be necessary unless the
existing plan already appropriately addresses how new facility-based
assessment areas are to be evaluated during the term of the plan. With
respect to the commenter's question regarding the addition of new
retail lending assessment areas that are established after plan
approval, but during the term of the plan, final Sec. __.27(i) does
not require the bank to amend its plan to evaluate any new retail
lending assessment areas, as discussed previously in the section-by-
section analysis of Sec. __.27(g)(3). Therefore, in the absence of a
discussion of the treatment of new retail lending assessment areas in
the approved plan, the agencies would not evaluate a large bank's
performance in these areas pursuant to Sec. __.22(a). This approach
allows for certainty in the evaluation of the plan and would be less
burdensome, as it would not necessitate amendments to the plan if the
retail lending assessment areas were to fluctuate on an annual basis.
An approved plan would already include the overall evaluation framework
for examiners to consider at the time of the evaluation--including the
applicable performance tests, optional evaluation components, and any
eligible modifications and additions. Lastly, any of the bank's lending
outside of facility-based assessment areas or active retail lending
assessment areas that are included in the approved plan could still be
captured in the bank's outside retail lending area, as applicable.
The agencies did not receive any comments regarding the elective
revision of a plan in proposed Sec. __.27(h)(2) and are adopting it as
proposed, renumbered as Sec. __.27(i)(2), with retitling and a
technical change. Consistent with the language used throughout the
paragraph, the heading of this provision was changed from Elective
revision of plan to Elective plan amendment. Additionally, proposed
Sec. __.27(h)(2)(ii), which required a bank to provide an explanation
for any elective plan amendment, was moved to a newly created Sec.
__.27(i)(3) to more broadly establish the requirements for all
amendments--whether mandatory or elective. The agencies believe that
this new provision will provide greater clarity regarding bank
requirements with respect to all plan amendments. In addition to
providing an explanation for why an elective plan amendment is
necessary and appropriate, the final rule also requires a bank to
explain any material circumstances that necessitated an amendment
pursuant to final Sec. __.27(i)(1)(i) or (ii). The final rule also
adopts new Sec. __.27(i)(3)(ii) to clarify that any amendment, whether
mandatory or elective, must comply with all relevant requirements of
the section.
Lastly, the agencies are not finalizing Sec. __.27(h)(3),
pertaining to the public participation considerations with respect to a
plan revision because this provision was unnecessary given the
inclusion of new final Sec. __.27(i)(3)(ii). Because plan amendments
must comply with all relevant requirements of this section, this would
include the public participation provisions. Therefore, proposed Sec.
__.27(h)(3) is not needed under the final rule. The agencies
acknowledge that some plan amendments are very limited and do not
benefit materially from a full public participation process as required
by final Sec. __.27(e). Also, consistent with stakeholder feedback in
the proposal, some stakeholders suggested minor changes through an
amendment should only require approval by the appropriate agency, while
a major change would require public comment in addition to approval. To
address these comments, new Sec. __.27(i)(3)(ii) allows the agencies
to use their discretion to waive a requirement of the strategic plan
provisions, such as the public participation requirements under final
Sec. __.27(e). As a result, prior to submitting a plan amendment for
approval, banks should contact their appropriate Federal financial
supervisory agency to seek guidance on whether the bank must complete
the public participation requirements of the final rule in advance of
the submission.
Section __.27(j) Performance Evaluation Under a Plan
Current Approach
Under the current CRA regulation, the agencies approve a bank's
measurable goals and assess a bank's performance under paragraph (e) of
current appendix A,\1407\ which prescribes that the agencies approve
``satisfactory'' measurable goals that adequately help meet the credit
needs of the bank's assessment area(s). If the plan identifies separate
measurable goals that substantially exceed the levels approved as
``satisfactory,'' the agencies will approve those goals as
``outstanding.'' The agencies assess the bank's performance based on
whether it substantially achieves these goals. Alternatively, if the
bank fails to substantially meet the goals for a satisfactory rating,
the appropriate agency will rate the bank as either ``needs to
improve'' or ``substantial noncompliance,'' depending on the extent to
which it falls short of its plan goals, unless the bank has elected to
be evaluated otherwise as provided in Sec. __.27(f)(4).
---------------------------------------------------------------------------
\1407\ See current 12 CFR __.27(i).
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed to approve the goals and assess performance
under a plan as provided in proposed appendix D.\1408\ Further, in
determining whether a bank has substantially met its plan goals, the
agencies proposed to consider the number of unmet goals; the degree to
which the goals were not met; the
[[Page 7019]]
importance of those unmet goals to the plan as a whole; and any
circumstances beyond the control of the bank.\1409\ Paragraph f of
proposed appendix D provided guidance substantially similar to that
identified in paragraph (e) of appendix A in the current regulation, as
detailed above.
---------------------------------------------------------------------------
\1408\ See proposed Sec. __.27(k)(1).
\1409\ See proposed Sec. __.27(h)(2).
---------------------------------------------------------------------------
The agencies also requested comment on whether they should continue
to evaluate strategic plan banks based on whether they have
``substantially met'' their plan goals and, if so, what criteria should
be applied.
Comments Received
A few commenters addressed the agencies' request for feedback
regarding whether the ``substantially met'' standard used to assess
performance under a plan should be maintained and, if so, how it should
be defined. A commenter stated that the standard for measuring plan
goals should be rigorous and applied to each goal with a 95 percent
attainment standard. Furthermore, if attainment is not achieved on 67
percent of its goals, the commenter stated that the bank should fail
its exam and be required to submit an improvement plan. Another
commenter recommended incorporating a rating system that emulates the
default CRA ratings framework. Both of these commenters suggested that
an improvement plan should be required if the bank did not
substantially meet its stated goals. A few commenters indicated the
standard was adequate and that there should be no prescribed evaluation
weights for strategic plans.
Final Rule
Under the final rule, the header for proposed Sec. __.27(i),
renumbered as Sec. __.27(j), was revised from Plan assessment to
Performance evaluation under a plan to better clarify that this
paragraph covers the evaluation of the bank under an approved plan
rather than an assessment of the plan itself.
Based on the comments received and the aforementioned changes in
plan requirements, particularly a departure from required goals for all
components of the plan, the agencies are finalizing proposed Sec.
__.27(i)(1), renumbered as Sec. __.27(j)(1), with revisions to
correspond with the general restructuring of this section. First, the
language in final Sec. __.27(j)(1) is changed to reflect that a bank's
performance is no longer based exclusively on approved goals and is now
based on the applicable performance tests, any optional evaluation
components, and the eligible modifications and additions to the
applicable performance tests set forth in the bank's plan. As discussed
previously, goals may still be a component of a plan but will now be
considered in conjunction with performance tests.
The agencies are also finalizing proposed Sec. __.27(i)(2),
renumbered in the final rule as Sec. __.27(j)(2), with several
modifications. First, the agencies removed the reference to the
``substantially met'' language when referring to the evaluation of plan
goals. Since the strategic plan option under the final rule is no
longer exclusively based on measurable goals, a determination on
whether a bank ``substantially met'' its plan goals is not necessarily
the primary consideration when a bank's performance is assessed under
an approved plan. Further, since goals are not required for each plan
evaluation component and each plan will rely on the achievement of
goals to a different degree (including the potential that no goals are
added to a plan), the establishment of a required attainment standard
(such as 95 percent of plan goals), as suggested by a few commenters,
would not be appropriate. As a result, final Sec. __.27(j)(2) was
revised to indicate that the agencies will consider the factors listed
in this provision to the extent that the bank has established goals and
does not meet its satisfactory goals in one or more of them. The
agencies finalized three of the four consideration factors that were
proposed in Sec. __.27(i)(2). More specifically, when determining the
effect of unmet goals on a bank's CRA performance, the final rule
includes consideration of the degree to which the goals were not met;
the importance of those unmet goals to the plan as a whole; and any
circumstances beyond the control of the bank.\1410\ The proposal to
include ``number of unmet goals'' was removed as a consideration
factor, consistent with the previously discussed restructuring of the
strategic plan option away from the exclusive use of goals to evaluate
a bank's performance under the plan.
---------------------------------------------------------------------------
\1410\ See final Sec. __.27(j)(2)(i) through (iii).
---------------------------------------------------------------------------
The agencies decline to adopt the commenters' suggestion that an
improvement plan be required if the bank did not substantially meet its
stated goals. Since final Sec. __.43(b)(5) (content and availability
of the public file) requires that a bank that received a less than
``Satisfactory'' rating during its most recent examination must include
in its public file a description of its current efforts to improve its
performance in helping to meet the credit needs of its entire
community, the agencies believe this provision covers the suggested
``improvement plan'' made by commenters.
Similar to the proposal,\1411\ final Sec. __.27(j)(3) provides
guidance for assessing and rating the performance of a bank evaluated
under a plan in appendix D. In addition to the general rating
information in paragraph a of final appendix D that applies to all
banks (including those evaluated under an approved plan), the
information for assessing ratings specific to the strategic plan option
is maintained in paragraph f of final appendix D. As discussed
previously, the paragraph provides that the appropriate Federal
financial supervisory agency evaluates a bank's performance under a
plan consistent with the rating methodology specified in the plan
pursuant to final Sec. __.27(g)(6). Finally, to the extent it meets
the size requirements therein, a bank evaluated under the strategic
plan option is subject to the minimum performance test conclusion
requirements in paragraph g of final appendix D that would apply to the
bank in the absence of an approved plan.
---------------------------------------------------------------------------
\1411\ See proposed Sec. __.27(i)(1).
---------------------------------------------------------------------------
Section __.28 Assigned Conclusions and Ratings
Consistent with the CRA statute, the current CRA regulations
provide that the agencies assign a bank an institution rating of
``Outstanding,'' ``Satisfactory,'' ``Needs to Improve,'' or
``Substantial Noncompliance'' in connection with a CRA
examination.\1412\ The agencies also assign ratings for a bank's
performance in each State in which the bank maintains one or more
branches or other facilities that accept deposits and in each
multistate MSA in which the bank maintains branches or other facilities
that accept deposits in two or more states within the multistate
MSA.\1413\ Prior to reaching these overall ratings, the agencies assign
performance test ratings at the State, multistate MSA, and institution
level for each applicable performance test (i.e., lending, investment,
and service tests; community development test; small bank performance
standards). With one exception, the current rating scale used for
performance test ratings mirrors that
[[Page 7020]]
of the four statutory institution-level ratings. For large banks,
however, the agencies bifurcate the ``Satisfactory'' rating for each of
the three performance tests into ``High Satisfactory'' and ``Low
Satisfactory.'' \1414\ In addition, the agencies separately summarize
conclusions regarding the institution's performance in each MSA and the
nonmetropolitan portion of each State.\1415\
---------------------------------------------------------------------------
\1412\ 12 U.S.C. 2906(b)(2), implemented by current 12 CFR
__.28(a). The narrative descriptions of the ratings for performance
under each evaluation method are in appendix A to the current CRA
regulations. See also Q&A appendix A to part __--Ratings.
\1413\ 12 U.S.C. 2906(d). If the agencies assign a bank a rating
for a multistate MSA, any rating assigned for a State does not take
into account the bank's performance in the multistate MSA.
\1414\ See Q&A Sec. __.28(a)--3; current appendix A, paragraph
(b); Interagency Large Institution CRA Examination Procedures.
\1415\ See Interagency Large Institution CRA Examination
Procedures; Interagency Intermediate Small Institution CRA
Examination Procedures; Interagency Small Institution CRA
Examination Procedures.
---------------------------------------------------------------------------
Current examination procedures allow for assessment areas to be
reviewed pursuant to either a full-scope or a limited-scope review.
Full-scope reviews employ both quantitative and qualitative factors,
while limited-scope reviews are primarily quantitative and generally
carry less weight in determining the overall State, multistate MSA, or
institution rating.\1416\ The agencies primarily base a bank's
component ratings on the bank's performance in each assessment area
examined using full-scope examination procedures. For large banks,
performance conclusions in assessment areas not examined using the
full-scope procedures are expressed as ``exceeds,'' ``is consistent
with,'' or ``is below'' the institution's performance in the relevant
MSA or nonmetropolitan portion of the State, in the State, or overall,
as applicable.\1417\ For small banks and intermediate small banks,
examiners consider facts and data related to the institution's
activities to ensure that performance conclusions in assessment areas
not examined using the full-scope procedures are ``not inconsistent
with'' the conclusions based on the assessment areas that received
full-scope reviews.\1418\
---------------------------------------------------------------------------
\1416\ See id.
\1417\ Interagency Large Institution CRA Examination Procedures.
\1418\ Interagency Small Institution CRA Examination Procedures;
Interagency Intermediate Small Institution CRA Examination
Procedures.
---------------------------------------------------------------------------
Under the current approach, the agencies use a fact-specific review
to determine whether an overall institution CRA rating should be
downgraded due to evidence of discriminatory or other illegal credit
practices including, but not limited to, evidence of violations of laws
listed in current Sec. __.28(c)(1).\1419\
---------------------------------------------------------------------------
\1419\ See current 12 CFR __.28(c).
---------------------------------------------------------------------------
Proposed Sec. __.28 described how conclusions and ratings would be
assigned under the proposed CRA framework using a consistent,
quantifiable approach. The proposal distinguished between
``conclusions''--which generally referred to the bank's performance on
a particular performance test for each assessment area; each State and
multistate MSA, as applicable; and the institution--and ``ratings''--
which generally referred to a bank's overall CRA performance across
performance tests for each State and multistate MSA, as applicable, and
the institution. Generally, under the proposed framework, the agencies
would develop conclusions for a bank's performance on each applicable
performance test for: each assessment area; each State and multistate
MSA, as applicable; and the institution. Subject to test-specific
variations as described in the section-by-section analysis of
Sec. Sec. __.22 through __.26, __.29, and __.30, the agencies
generally proposed to assign both a conclusion (e.g., ``Low
Satisfactory'') and a performance score (e.g., 5.7) based on a bank's
performance under a particular performance test. To determine an
intermediate bank or large bank rating for the State, multistate MSA,
or the institution, the agencies proposed to aggregate a bank's
performance scores for each applicable performance test, with specific
weights assigned to the performance score of each performance test.
Unlike under the current approach, the proposed CRA framework did not
provide for limited-scope reviews.
Numerous commenters weighed in on the provisions related to
assigned conclusions and ratings in proposed Sec. __.28.
Final Sec. __.28 generally adopts the proposed framework for
assigned conclusions and ratings discussed above, with revisions
discussed in the more detailed section-by-section analysis below.
Section __.28(a) Conclusions
Under the current CRA regulations, the agencies assign performance
test ratings for the performance tests that apply to the bank at the
institution level. The agencies also assign performance test ratings at
the State and multistate MSA level and summarize conclusions regarding
a bank's performance in each MSA and the nonmetropolitan portion of
each State with an assessment area.\1420\
---------------------------------------------------------------------------
\1420\ See 12 U.S.C. 2906(b), (d).
---------------------------------------------------------------------------
Under final Sec. __.28(a), ``conclusions'' generally refer to bank
performance on a particular performance test for a specific geographic
area (e.g., assessment areas, States, and multistate MSAs, as
applicable) and the institution overall. The agencies assign
conclusions and associated test performance scores for the performance
of a bank in each State and multistate MSA, as applicable, and for the
institution based on a weighted average of assessment area conclusions,
as well as consideration of additional performance test-specific
factors at each level.\1421\ These performance scores are mapped to
conclusion categories to provide performance test conclusions for
specific geographic areas and the institution overall. As explained
below, the agencies are finalizing Sec. __.28(a) with edits to specify
how the agencies will assign conclusions for banks operating under a
strategic plan, the geographic areas where the agencies will assign
conclusions, consistent with the statute, and other clarifying edits.
---------------------------------------------------------------------------
\1421\ See the section-by-section analyses of Sec. Sec. __.22
through __.26, __.29, and __.30 for detailed discussion of how the
agencies develop conclusions and performance scores for each
performance test. The section-by-section analyses of Sec. Sec.
__.15 and __.21, respectively, also discuss the impact and
responsive review for community development loans, investments, and
services and the agencies' consideration of performance context.
---------------------------------------------------------------------------
The Agencies' Proposal
Proposed Sec. __.28(a)(1) provided that, other than for a small
bank evaluated under the small bank performance standards in proposed
Sec. __.29(a), the agencies would assign one of five conclusions for a
bank's performance under the respective performance tests that apply to
the bank: ``Outstanding''; ``High Satisfactory''; ``Low Satisfactory'';
``Needs to Improve''; or ``Substantial Noncompliance.'' Under proposed
Sec. __.28(a)(2), for small banks evaluated under the small bank
performance standards in proposed Sec. __.29(a), the agencies would
assign lending evaluation conclusions of ``Outstanding,''
``Satisfactory,'' ``Needs to Improve,'' or ``Substantial
Noncompliance'' based on the bank's lending performance in each
facility-based assessment area. Proposed appendix C, as well as
proposed appendix E for small banks and intermediate banks, specified
how the agencies would develop conclusions for each performance test
that applies to a bank, as discussed in the section-by-section analysis
of Sec. Sec. __.22 through __.26, above, and __.29 and __.30, below.
Comments Received
The agencies received a few comments regarding proposed Sec.
__.28(a), all of which related to the proposed bifurcation of the
``Satisfactory'' conclusion category into ``High Satisfactory'' and
``Low
[[Page 7021]]
Satisfactory'' conclusions. A few commenters expressly supported the
proposal to assign conclusions of ``High Satisfactory'' and ``Low
Satisfactory.'' In contrast, another commenter stated that the agencies
did not articulate a sufficient justification for bifurcating the
``Satisfactory'' conclusion category into ``High Satisfactory'' and
``Low Satisfactory.'' This commenter stated that a single
``Satisfactory'' category is sufficient for community bank examinations
and reporting purposes; therefore, if ``High Satisfactory'' and ``Low
Satisfactory'' conclusions are retained, they should only apply to the
very largest banks. Alternatively, a few commenters suggested assigning
conclusions of ``High Satisfactory'' or ``Satisfactory'' within the
``Satisfactory'' range because ``Low Satisfactory'' has a negative
connotation and will unnecessarily subject banks with ``Low
Satisfactory'' conclusions to criticism and a misperception about their
satisfactory performance in serving the needs of their customers and
communities.
Final Rule
In final Sec. __.28(a), the agencies are adopting the proposal
with clarifying revisions, including to the structure of proposed Sec.
__.28(a). Specifically, final Sec. __.28(a)(1) addresses State,
multistate MSA, and institution test conclusions and performance
scores. The agencies are adopting final Sec. __.28(a)(1)(i),
renumbered from proposed Sec. __.28(a)(1), with clarifying revisions.
Specifically, final Sec. __.28(a)(1)(i) provides that, in general, for
each of the applicable performance tests pursuant to final Sec. Sec.
__.22 through __.26 and __.30, the agencies assign conclusions and
associated test performance scores of ``Outstanding,'' ``High
Satisfactory,'' ``Low Satisfactory,'' ``Needs to Improve,'' or
``Substantial Noncompliance'' for the performance of a bank in each
State and multistate MSA, as applicable pursuant to Sec. __.28(c), and
for the institution.\1422\ As reflected in paragraph b of final
appendix C, this includes a small bank that opts to be evaluated under
the Retail Lending Test in Sec. __.22. Final Sec. __.28(a)(1)(ii),
consistent with proposed Sec. __.28(a)(2), provides that the agencies
assign conclusions of ``Outstanding,'' ``Satisfactory,'' ``Needs to
Improve,'' or ``Substantial Noncompliance'' for the performance of a
small bank evaluated under the Small Bank Lending Test in final Sec.
__.29(a)(2) in each State and multistate MSA, as applicable pursuant to
Sec. __.28(c), and for the institution. The agencies are also adopting
new Sec. __.28(a)(1)(iii) in the final rule, which provides that the
agencies assign conclusions for the performance of a bank operating
under a strategic plan pursuant to Sec. __.27 in each State and
multistate MSA, as applicable pursuant to Sec. __.28(c), and for the
institution in accordance with the methodology of the bank's strategic
plan and final appendix C. See the section-by-section analysis of Sec.
__.27 for additional information.
---------------------------------------------------------------------------
\1422\ Refer to the section-by-section analysis of Sec. __.21
for additional discussion of the performance score scale.
---------------------------------------------------------------------------
After consideration of the comments, the agencies are finalizing
the proposed bifurcation of the ``Satisfactory'' conclusion category
into ``High Satisfactory'' and ``Low Satisfactory'' conclusions for all
banks except small banks evaluated under the Small Bank Lending Test in
final Sec. __.29(a)(2). The proposed ``High Satisfactory'' and ``Low
Satisfactory'' conclusions will allow the agencies to better
differentiate between performance on the higher end or on the lower end
of the ``Satisfactory'' range, as compared to developing conclusions
with only four categories, including a single ``Satisfactory''
category. Further, applying the same conclusion categories to all
banks, except small banks evaluated under final Sec. __.29(a)(2), will
allow the agencies to apply a quantifiable method of assigning
conclusions and ratings consistently and uniformly (i.e., assigning a
``High Satisfactory'' conclusion a performance score of ``7'' and a
``Low Satisfactory'' conclusion of performance score of ``6'' and
weighting conclusions as prescribed) to these banks.
The agencies did not adopt commenter suggestions to rename the
``Low Satisfactory'' conclusion category as ``Satisfactory'' because
the agencies believe that the bifurcated ``Satisfactory'' conclusion
category is well understood to reflect performance within a
satisfactory range, and because changing this long-standing terminology
could cause confusion.
The agencies are also adopting final Sec. __.28(a)(2), a new
provision, to clarify that, pursuant to 12 U.S.C. 2906, the agencies
will provide conclusions separately for metropolitan areas in which a
bank maintains one or more domestic branch offices (defined in the
statute to mean any branch office or other facility of a regulated
financial institution that accepts deposits, located in any State
\1423\) and for the nonmetropolitan area of a State if a bank maintains
one or more domestic branch offices in such nonmetropolitan area. The
agencies added this provision to provide a cross-reference to this
statutory requirement in the final rule.
---------------------------------------------------------------------------
\1423\ See 12 U.S.C. 2906(e)(1).
---------------------------------------------------------------------------
Section __.28(b) Ratings
Similar to the current CRA regulations, final Sec. __.28(b)
describes how the agencies will assign ratings for each State and
multistate MSA, as applicable, and for the institution using the four
rating categories established by statute. As proposed, however, the
agencies have updated the ratings framework to assign performance
scores to each applicable performance test that are combined using a
prescribed weighting methodology to assign ratings, and that are
subject to adjustment based on additional considerations,
discriminatory or other illegal credit practices, and past performance,
as applicable.
Many commenters provided comments on the current rating framework
and identified issues they perceived with the current approach.
Specifically, many commenters stated that there is ratings inflation
under the current CRA framework, noting that 98 percent of banks
receive at least a ``Satisfactory'' rating, with 90 percent of banks
receiving a ``Satisfactory'' rating, specifically. A few of these
commenters noted that it was implausible that such a large number of
banks were performing in the same manner, with a commenter stating that
this was impossible given that racism and discriminatory lending
persist. A few commenters suggested that the agencies should address
these concerns by incorporating additional quantitative tools into the
performance tests, improving examination rigor, or increasing
objectivity in performance measures. In contrast, a commenter disagreed
with the idea that CRA is flawed because of the high percentage of
banks that receive at least a ``Satisfactory'' rating, emphasizing that
the ratings reflect that most banks are community banks that treat
their customers and communities fairly and do not discriminate.
Many commenters also conveyed that the rating system under the
current regulations does not effectively capture distinctions in
performance. These commenters appeared to believe that more distinction
would result in more banks being identified as significantly lagging
behind their peers, which would motivate them to increase their
reinvestment activity and improve their ratings.
As described below, the agencies are finalizing Sec. __.28(b) as
proposed with
[[Page 7022]]
revisions, including adjusting the weights assigned to the performance
tests for large banks and more fully explaining the ratings framework
in Sec. __.28(b).
Section __.28(b)(1) and (2) in General, State, Multistate MSA, and
Institution Ratings and Overall Performance Scores
Consistent with the CRA statute, the agencies currently assign
ratings for each State and multistate MSA, as applicable, and for the
institution. As described below, the agencies proposed in Sec.
__.28(b)(1) and (2) that they generally will assign ratings based on an
overall performance score for the State, multistate MSA, and
institution derived by combining the bank's performance scores on
applicable performance tests. The agencies are generally finalizing the
general ratings framework in Sec. __.28(b)(1) and (2) as proposed,
with revisions discussed below.
The Agencies' Proposal
Proposed Sec. __.28(b)(1) provided that the agencies would assign
ratings for a bank's overall performance at the State, multistate MSA,
and institution level of ``Outstanding,'' ``Satisfactory,'' ``Needs to
Improve,'' or ``Substantial Noncompliance.'' Other than for a small
bank evaluated under the small bank performance standards in Sec.
__.29(a), a wholesale or limited purpose bank evaluated under the
Community Development Financing Test for Wholesale or Limited Purpose
Banks in Sec. __.26, and a bank evaluated based on a strategic plan
under Sec. __.27, the agencies proposed in Sec. __.28(b)(2) to assign
a rating based on the bank's overall performance at the State,
multistate MSA, and institution levels, respectively, and a related
performance score, derived as provided in proposed appendix D. As
provided in appendix D, the agencies proposed to aggregate a bank's
performance scores for each applicable performance test, with specific
weights assigned to the performance score of each performance test, to
derive the bank's rating. The same weighting approach would be used to
develop ratings for each State and multistate MSA and for the
institution. As described in proposed appendix D, the agencies would
assign a rating corresponding with the rating category that is nearest
to the aggregated performance score, as follows: a performance score of
less than 1.5 would result in a rating of ``Substantial
Noncompliance''; a performance score of 1.5 or more but less than 4.5
would result in a rating of ``Needs to Improve''; a performance score
of 4.5 or more but less than 8.5 would result in a rating of
``Satisfactory''; and a performance score of 8.5 or more would result
in a rating of ``Outstanding.'' The agencies also specified in proposed
Sec. __.28(b)(2) that the bank's rating could be adjusted based on
evidence of discriminatory or other illegal practices in accordance
with Sec. __.28(d).
Comments Received
A few commenters remarked at a high level on the clarity,
complexity, and challenges of the proposed rating system. Specifically,
a commenter expressed that the proposal provided a more transparent and
consistent approach to determining a bank's overall CRA rating. Another
commenter stated, however, that the proposed rating system appeared to
be overly complicated, and a ``Satisfactory'' rating may be
unachievable for some banks. This commenter recommended further testing
of the proposal prior to implementation due to the number of unknowns.
A commenter requested that the agencies improve the proposal by
enabling banks to calculate and determine a presumptive rating prior to
an examination for all bank sizes and models. In contrast, another
commenter asked the agencies to carefully consider the overall
structure of the scoring and weighting of various activities under CRA
before finalizing a dramatic change, expressing concern that the
transparency and predictability that both community groups and banks
have requested might have the unintended consequence of starting a race
to the bottom.
A few commenters asserted that the CRA ratings framework should
better reflect distinctions in performance. One commenter asserted that
the proposal did not describe the proposal's impact on CRA ratings
except to hint that banks may continue to receive the same ratings.
Another commenter conveyed that allowing the vast majority of banks to
continue to pass their CRA examinations will not result in banks
engaging in serious efforts to positively impact communities of color
and low- and moderate-income neighborhoods. A few commenters suggested
a five-tier overall rating system, for example, by differentiating
between ``Low Satisfactory'' and ``High Satisfactory'' overall ratings,
to better distinguish performance. These commenters suggested that
doing so would distinguish between merely adequate activity, reasonably
good activity, and truly superior banking efforts, and would motivate
banks to be more responsive to COVID-19 recovery needs. Another
commenter recommended a point system that would show more distinctions.
A few commenters recommended that the agencies assign a conclusion and
performance score for each performance test at the assessment area
level and provide performance scores at the overall rating level to
accurately depict distinctions in performance.
A few commenters also suggested that the CRA ratings framework
should better incentivize high ratings. One commenter stated that the
agencies have made it more difficult to achieve ``Satisfactory'' and
``Outstanding'' ratings, which could lead to reduced incentives to
strive for such ratings and, consequently, undermine the goals of CRA.
Another commenter expressed that the overly simplistic formula proposed
for rating banks means that more complicated affordable housing deals--
those that help seniors, disabled persons, and rural communities--will
not happen. A commenter stated that, under the proposal, more
incentives are needed to motivate banks to achieve an ``Outstanding''
rating, which would help distinguish their performance against peers.
Another commenter remarked that when all banks essentially receive the
same rating, the motivation to improve dissipates. Another commenter
specified that the proposal should provide some financial motivation
for an ``Outstanding'' rating (e.g., reduced taxes, reduced deposit
insurance assessments, reduced borrowing rates from the Federal Reserve
discount window) because being downgraded from an ``Outstanding'' to a
``Satisfactory'' is not much of a disincentive as 90 percent of banks
receive ``Satisfactory'' ratings.
Many commenters offered ideas on how findings regarding race and
ethnicity should appropriately be factored into a bank's rating. One
commenter generally indicated that, regarding racial and ethnic
equality, the CRA examination process should incorporate both
incentives for positive activities and deterrents and penalties for
harmful practices. More specifically, another commenter stated that
material decreases in performance by race argue for a ``Needs to
Improve'' rating and material increases in performance should be a
factor in earning an ``Outstanding'' rating.
Another commenter suggested providing for a presumptive
``Satisfactory'' rating for U.S. Department of the Treasury-certified
CDFIs, given the existing annual certification requirements in place
for these institutions.
[[Page 7023]]
Final Rule
The agencies are adopting final Sec. __.28(b)(1) and (2) largely
as proposed, but with some revisions for clarity discussed below. Final
Sec. __.28(b)(1) provides that the agencies assign a rating for a
bank's overall CRA performance of ``Outstanding,'' ``Satisfactory,''
``Needs to Improve,'' or ``Substantial Noncompliance'' in each State
and multistate MSA, as applicable pursuant to Sec. __.28(c), and for
the institution. These ratings reflect the bank's record of helping to
meet the credit needs of its entire community, including low- and
moderate-income neighborhoods, consistent with the safe and sound
operation of the bank.
The agencies carefully considered comments that both suggested the
proposed CRA rating framework was overly complicated and overly
simplistic and, ultimately, believe that the proposed rating system
appropriately balances the need for a clear and objective rating system
with the need to effectively capture and distinguish between bank
performances. Further, the agencies believe that the final rule
provides for a quantifiable, consistent approach to assigning
conclusions and ratings. The agencies also considered comments that
suggested that the CRA ratings framework should be transparent and
objective and should recognize distinctions in performance.
Final Sec. __.28(b)(2) addresses ratings and overall performance
scores. Under the finalized ratings approach, the agencies will
generally assign ratings for each State and multistate MSA, as
applicable pursuant to Sec. __.28(c), and for the institution using
performance scores associated with a bank's assigned conclusions. For
large banks and intermediate banks, the agencies will use established
weights, as discussed further in the section-by-section analysis of
Sec. __.28(b)(3), to aggregate performance scores associated with the
assigned conclusions for each performance test and, in turn, calculate
a performance score associated with the bank's assigned rating. For
large banks, intermediate banks, small banks that opt into the Retail
Lending Test, and limited purpose banks, final Sec. __.28(b)(2)(i)
specifies that the agencies will calculate and disclose the bank's
overall performance score for each State and multistate MSA, as
applicable, and the institution overall. Final Sec. __.28(b)(2)(i)
further provides that the agencies will use the overall performance
score to assign a rating for the bank's overall performance in each
State and multistate MSA, as applicable, and for the institution,
subject to adjustments based on evidence of discriminatory or other
illegal credit practices pursuant to final Sec. __.28(d) and
consideration of past performance pursuant to Sec. __.28(e). The
agencies added final Sec. __.28(b)(2)(ii) to clarify that a bank's
overall performance scores are based on the bank's performance score
for each applicable performance test and derived as provided in Sec.
__.28(b)(3), as applicable and as discussed below, and in final
appendix D. The agencies also anticipate disclosing the performance
scores associated with the bank's assigned conclusions for each
performance test. The agencies expect that this will provide banks and
the public with meaningful information about each bank's CRA
performance. The agencies believe this approach is responsive to
several comments that suggested the agencies assign and provide
performance scores or develop a points system to depict distinctions in
performance. The agencies acknowledge that banks will not be able to
calculate and determine a presumptive rating prior to a CRA
examination. The agencies decline to adopt this suggestion because such
an approach would hamper the agencies' ability to evaluate qualitative
components of a bank's CRA performance.
In response to commenter suggestions to build more distinctions in
performance into the CRA rating framework, the agencies note that 12
U.S.C. 2906(b)(2) prescribes the four-tier ratings framework under the
current approach and the final rule. The agencies believe, however,
that publishing performance scores associated with the bank's assigned
conclusions and ratings will provide meaningful information about
distinctions in bank performance because performance scores may be more
nuanced than assigned conclusions and ratings. For example, if a large
bank's overall performance score for the institution, derived based on
the bank's performance score for each applicable test, is an 8.1, the
agencies would assign the bank an institution rating of
``Satisfactory,'' subject to Sec. __.28(d), but the performance score
would indicate that that the bank's performance is on the higher end of
the ``Satisfactory'' range.
The agencies also believe that the final CRA framework adequately
incentivizes banks to strive to achieve an ``Outstanding'' rating by
disclosing performance scores, conclusions, ratings, and other
information about a bank's CRA performance to the public. For example,
a bank may indicate to its community that the agencies have evaluated
its CRA performance as ``Outstanding,'' as applicable. The agencies
note that providing financial incentives under other statutes and
regulations for banks that achieve ``Outstanding'' CRA ratings (e.g.,
reduced taxes, reduced deposit insurance assessments, reduced borrowing
rates from the Federal Reserve discount window), as suggested by one
commenter, is outside the scope of this rulemaking and, at least in
some cases, would not be within the agencies' statutory authority.
The agencies decline to make additional revisions to the CRA
ratings framework to address how findings regarding race and ethnicity
should be factored into a bank's rating. For more information and
discussion regarding the agencies' consideration of comments
recommending adoption of additional race- and ethnicity-related
provisions in this final rule, see section III.C of this SUPPLEMENTARY
INFORMATION.
Although the agencies recognize that CDFIs play an important role
in promoting community development and helping to meet the credit needs
of low- or moderate-income individuals and communities, the agencies do
not think it would be appropriate to create a presumption that a U.S.
Department of the Treasury-certified CDFI subject to CRA would receive
a ``Satisfactory'' rating. The CRA and the U.S. Treasury Department's
CDFI Fund advance similar objectives but have distinct requirements.
Moreover, the agencies are required by statute to assess a bank's
record of meeting the credit needs of its entire community,\1424\
including low- and moderate-income neighborhoods, and the agencies
believe it would not be appropriate for the agencies to rely on the
Treasury Department's certification to fulfill their statutory
obligation.
---------------------------------------------------------------------------
\1424\ See 12 U.S.C. 2903(a).
---------------------------------------------------------------------------
For these reasons, the agencies are adopting final Sec.
__.28(b)(1) and (2) with clarifying revisions from the proposal. The
agencies added a sentence in final Sec. __.28(b)(1) that states that
the ratings assigned reflect the bank's record of helping to meet the
credit needs of its entire community, including low- and moderate-
income neighborhoods, consistent with the safe and sound operation of
the bank, which reflects statutory requirements. The agencies proposed
a similar statement in Sec. __.21 and believe it is appropriate to
include this statement in Sec. __.28 as well, to reinforce the
statutory foundation for bank ratings. The agencies also reworded Sec.
__.28(b)(1)
[[Page 7024]]
for clarity. As discussed above, the agencies also made revisions to
proposed Sec. __.28(b)(2) in the final rule, including restructuring
Sec. __.28(b)(2) to include paragraphs (b)(2)(i) and (ii) to clarify
that the agencies will disclose a bank's overall performance score in
each State and multistate MSA, as applicable, and for the institution,
and will use the overall performance scores as the basis for the bank's
ratings, subject to Sec. __.28(d) and (e). Final Sec. __.28(b)(2)(i)
also clarifies the banks for which the agencies will calculate and
disclose performance scores, with one change from the proposal. The
agencies believe it is appropriate to calculate and disclose a limited
purpose bank's overall performance score for each State and multistate
MSA, as applicable, and the institution, which will be based on the
bank's performance score on the Community Development Financing Test
for Limited Purpose Banks.
Section __.28(b)(3) Weighting of Performance Scores
Under current large bank CRA examination procedures, examiners use
a rating scale in the Interagency Questions and Answers to convert
ratings assigned for each performance test into point values; examiners
then add those point values together to determine the overall
institution rating.\1425\ The agencies do not publish, however, the
points assigned to each performance test and the overall points that
correspond to the bank's overall rating in its performance evaluation.
With the exception of this rating scale for large banks, the process of
combining performance test ratings to determine the State, multistate
MSA, or institution ratings relies primarily on examiner judgment,
guided by quantitative and qualitative factors outlined in the current
regulations. For example, exceptionally strong performance in some
aspects of a particular rating profile may compensate for weak
performance in others.\1426\
---------------------------------------------------------------------------
\1425\ See Q&A Sec. __.28(a)--3; current appendix A, paragraph
(b); see also Interagency Large Institution CRA Examination
Procedures.
\1426\ See Q&A Appendix A to part __--1.
---------------------------------------------------------------------------
For large banks, paragraph b of proposed appendix D provided that
the agencies would determine a large bank's State, multistate MSA, and
institution ratings by combining the bank's performance scores across
all four performance tests applicable to large banks. Similarly, for
intermediate banks, paragraph c of proposed appendix D provided that to
determine an intermediate bank's State, multistate MSA, and institution
ratings, the agencies would combine an intermediate bank's performance
scores for its State, multistate MSA, and institution performance under
the Retail Lending Test and the intermediate bank community development
evaluation or, if the bank opts in, the Community Development Financing
Test. For both large banks and intermediate banks, the agencies
proposed to consistently weight the respective performance tests
applicable to each bank when assigning ratings for each State and
multistate MSA, as applicable, and the institution.
Section __.28(b)(3)(i) Large Bank Performance Test Weights
Under the current rating scale for large banks, although there is
some variation based on the points assigned for each performance test
rating, the lending test generally accounts for 50 percent and the
investment test and service test each generally account for 25 percent
of a large bank's rating.\1427\ In paragraph b of proposed appendix D,
the agencies proposed to weight the performance score for each
performance test applicable to a large bank by multiplying it by a
percentage established for the performance test. The agencies have
generally retained this approach in final Sec. __.28(b)(3)(i) and have
described the approach in more detail in paragraph b of final appendix
D. As described below, the agencies are adopting in the final rule
weights, with revisions relative to the proposal, for the Retail
Lending Test, the Retail Services and Products Test, and the Community
Development Financing Test, as well as revisions to streamline
paragraph b of appendix D. The agencies are finalizing the proposed
weight for the Community Development Services Test.
---------------------------------------------------------------------------
\1427\ See id.
---------------------------------------------------------------------------
The Agencies' Proposal and Comments Received
For large banks, the agencies proposed to weight performance scores
for each test as follows: Retail Lending Test at 45 percent; Community
Development Financing Test at 30 percent; Retail Services and Products
Test at 15 percent; and Community Development Services Test at 10
percent.\1428\
---------------------------------------------------------------------------
\1428\ See proposed appendix D, paragraph b.
---------------------------------------------------------------------------
The agencies received many comments on the proposed weighting of
the large bank performance tests from a broad range of commenter types.
Most of these commenters discussed the proposed weighting of retail
activities, reflected in the Retail Lending Test and Retail Services
and Products Test conclusions, compared to the weighting of community
development activities, reflected in the Community Development
Financing Test and Community Development Services Test conclusions.
Generally, these commenters expressed concerns that community
development activities were weighted too lightly and that the proposed
weighting would disincentivize community development activities. Many
commenters suggested that retail activities and community development
activities be weighted equally, while some commenters provided specific
suggestions for the weighting of the large bank performance tests.
Finally, a few commenters suggested that the agencies incorporate
flexibility into the weighting framework.
A commenter expressed support for the proposed weighting for large
banks, stating that the proposed weighting places appropriate emphasis
on the most important aspects of a bank's CRA activities.
Weighting of community development activities compared to retail
activities. Most commenters who commented on the proposed weighting of
the performance tests conveyed concerns that the proposed weighting of
the large bank performance tests overweighted a bank's retail
activities compared to its community development activities. These
commenters asserted that the proposed weighting would disincentivize
and could lessen impactful community development activities. A
commenter expressed that the proposed unequal weighting could lead
banks to focus more on their retail activities, which also tend to be
less expensive and a larger part of their business models. A few
commenters stated that the proposed weights would not provide an
adequate incentive for banks to meet the community development needs of
rural and high-need areas. Moreover, one commenter asserted that there
was a lack of an empirical basis for assigning community development
activities a lower weight.
Most commenters on the proposed weighting of the large bank
performance tests remarked that, due to the heavy weighting of retail
activities, it would be extremely difficult or impossible to attain an
``Outstanding'' rating without an ``Outstanding'' performance
conclusion on the Retail Lending Test. The majority of these commenters
stated that, due to such weighting, the difficulty of achieving an
``Outstanding'' rating would disincentivize banks to pursue this
standard. For example, a commenter explained that the proposed
[[Page 7025]]
weighting for the Retail Lending Test was too high because, for CRA to
be effective in providing incentives for institutions to stretch, all
banks should have a reasonable opportunity to achieve an
``Outstanding'' rating.
Some commenters expressed concerns that the proposed weighting
would disincentivize banks from seeking an ``Outstanding'' conclusion
for their community development performance, which a commenter stated
would be counter to the intent of the original legislation and decades
of established practice and investment. One of these commenters
expressed concern that the proposed approach may render the Community
Development Financing Test immaterial to a bank's ultimate rating and
create a race to the bottom when coupled with peer-based performance
evaluations.
Many commenters noted that, under the proposal, banks could receive
a ``Satisfactory'' rating even if they performed poorly on the
Community Development Financing Test, including receiving a ``Needs to
Improve'' conclusion. A few commenters stated that this aspect of the
proposal places low value on community development activities and risks
banks deprioritizing community development, running counter to the
intent of the CRA statute. Lastly, a commenter believed that the
proposed weighting, which would allow a bank to receive an overall
``Satisfactory'' rating even if it received a ``Needs to Improve''
conclusion on the Community Development Financing Test as long as it
received ``Low Satisfactory'' conclusion on the Retail Lending Test,
sets an incredibly low bar that most banks would clear and could
disincentivize banks from pursuing community development activities.
Some commenters expressed concerns about the impact the proposed
weighting would have on certain community development activities,
particularly that the proposed weighting would reduce community
development equity financing, including participation in the LIHTC and
NMTC programs, and would negatively impact affordable housing.
Additionally, one commenter suggested that the proposed weighting would
significantly diminish the community finance ecosystem and the CDFI
industry. Another commenter expressed concern that the proposed
weighting of the Community Development Financing Test would risk
reducing the amount of long-term, patient capital flowing to essential
projects in the form of community development investments.
Some commenters remarked on the potential negative effect of the
proposed weighting on bank risk profiles and certain business models. A
few commenters stated that the high weight placed on the Retail Lending
Test would disadvantage business models that do not focus on retail
lending in particular geographies or overall. Other commenters noted
that the high weight for the Retail Lending Test would encourage
excessive risk-taking to meet CRA standards and adversely impact safety
and soundness. One commenter suggested that a commercial bank could
feel pressured by the weighting to compete with credit unions for
certain personal products, creating more risk in its portfolio. Another
commenter stated that the proposal failed to adequately consider that
many banks are not structured to offer large retail loans due to the
specific needs of their markets. This commenter asserted that a bank
with a business model of small-dollar retail lending with an
innovative, complex, and responsible community development lending and
investment strategy would not be positioned to earn an ``Outstanding''
rating. Another commenter stated that proposed weight of the Retail
Lending Test would be detrimental to its overall CRA rating and would
essentially take staff away from helping low- and moderate-income
individuals in its community.
Suggestions to adjust the proposed weighting of the performance
tests for large banks. Many commenters suggested weighting retail and
community development activities equally, with one commenter explaining
that this would ensure that resources are more effectively directed to
underserved communities. A community development organization stated
that the Community Development Financing Test should carry the same, if
not more, weight relative to any other performance test, including the
Retail Lending Test. Another community development organization
likewise supported a stronger role for community development lending
and investment over retail lending.
A number of commenters proposed specific alternatives to achieve
the equal weighting of retail and community development activities. To
achieve equal weight, a few commenters suggested weighting the Retail
Lending Test and the Community Development Financing Test each at 40
percent and the Retail Services and Products Test and the Community
Development Services Test each at 10 percent. A few other commenters
suggested weighting the Retail Lending Test and the Community
Development Financing Test each at 35 percent and the Retail Services
and Products Test and the Community Development Services Test each at
15 percent. Another commenter suggested that the Community Development
Financing Test should be increased to 45 percent, with 25 percent for
community development lending and 20 percent for community development
investments, and the weight assigned to the Community Development
Services Test should be reduced to five percent as many community
development services are eligible to be considered under the Retail
Services and Products Test. Another commenter suggested that the
agencies weight the Retail Lending Test at 35 percent, the Retail
Services and Products Test at 15 percent, the Community Development
Financing Test at either 40 percent or 45 percent, and the Community
Development Services Test at either 10 percent or 5 percent, with the
Community Development Services Test receiving the higher weight if
grants are included in that performance test.
A few commenters recommended weighting alternatives that did not
provide retail and community development activities equal weight, but
which generally increased the weight afforded to community development
activities. Specifically, one commenter suggested weighting the Retail
Lending Test and the Community Development Financing Test each at 40
percent, the Retail Services and Products Test at 15 percent, and the
Community Development Services Test at five percent. A commenter
recommended weighting community development activities at 60 percent
for all banks. Another commenter suggested that the agencies give
community development activities a 75 percent weight and retail
activities a 25 percent weight, as CRA community development activities
have been attributed to reducing the depth of the nation's poverty
levels.
A few commenters had additional comments regarding the weighting of
community development services. Several commenters stated that the
Community Development Services Test is weighted too heavily at 10
percent. One commenter suggested that the Community Development
Services Test should be weighted at 5 percent. In contrast, a few
commenters suggested that the proposed weight for the Community
Development Services Test should be raised as it is too light to
encourage effective development of community development services.
These commenters suggested weights between 15 percent and 30 percent,
although one commenter noted that increasing the weighting of community
development services could result in
[[Page 7026]]
less importance associated with community development lending and
investments. A commenter remarked that the weighting of the Community
Development Services Test at 10 percent provided large banks with
little incentive to strive for an ``Outstanding'' over a
``Satisfactory'' performance conclusion.
A few commenters expressed concern regarding the weighting of
retail services and products relative to their importance in assisting
communities. A commenter expressed concern that combining all of these
critical components of CRA--meaningful access to branches, accounts,
and responsive credit products--would give them insufficient
consideration in a performance test representing only 15 percent of a
bank's CRA rating. One commenter recommended that the rating system
emphasize lending, branches, fair lending performance, and responsible
loan products for working class families. Another commenter believed
that the proposed rating system would devalue the importance of
maintaining branches in low- and moderate-income neighborhoods.
Weighting suggestions based on different performance test
frameworks. Commenters also suggested weighting based on changes to the
four-test framework. For example, a commenter suggested combining the
retail performance tests into one performance test and the community
development performance tests into one performance test and then giving
these combined tests equal weight. A few commenters suggested combining
the community development performance tests into one performance test
and weighting the combined performance test at 45 percent or 50
percent. Another commenter suggested eliminating the Community
Development Services Test and weighting the Community Development
Financing Test at 50 percent. Alternatively, a CDFI proposed a five-
test weighting scheme with the Retail Lending Test weighted at 35
percent, the Retail Services and Products Test at 15 percent, a
Community Development Lending Test at 20 percent, a Community
Development Investment Test at 20 percent, and the Community
Development Services Test at 10 percent (with grants included under the
Community Development Services Test). A few other commenters suggested
establishing a Community Development Test weighted at 50 percent, with
weighted subtests within the Community Development Test for
investments, lending, and services.
Comments regarding weighting flexibility. A few commenters
recommended incorporating flexibility in the weighting framework for
large banks. A commenter suggested that applying the same weighting to
the four large bank tests regardless of how important retail banking is
to the bank being evaluated could lead to a disproportionate emphasis
on retail loans for banks that focus on other business lines and
primarily serve low- and moderate-income people through their community
development activities, so the agencies should allow flexibility to
accommodate banks with different business models. This commenter
suggested, at a minimum, permitting weighting flexibility in strategic
plans. Other commenters supported weighting flexibility to allow for
other factors such as the availability of funding and variations in
market demand and opportunities. A commenter suggested that examiners
should have leeway to consider performance context in weighting.
Final Rule
The agencies have considered the many comments that expressed
concerns about the proposed weighting of the large bank performance
tests and made suggestions to revise the weighting to ensure that
community development activities receive appropriate weight. After
careful consideration of these comments and further reflection on the
proposal, the agencies are adopting modified weighting for the
performance tests for large banks in final Sec. __.28(b)(3)(i) and
paragraph b of final appendix D, which will result in equal weighting
for community development activities and retail activities.
Specifically, in calculating ratings for large banks at the State,
multistate MSA, and institution level, the agencies will weigh the
performance scores for the applicable performance tests for large banks
as follows:\1429\ the Retail Lending Test at 40 percent; the Community
Development Financing Test at 40 percent; the Retail Services and
Products Test at 10 percent; and the Community Development Services
Test at 10 percent. In order to increase the weight of the Community
Development Financing Test by 10 percent (from 30 percent to 40
percent), the agencies will reduce by 5 percent the weights for both
the Retail Lending Test (from 45 percent to 40 percent) and the Retail
Service and Products Test (from 15 percent to 10 percent). The agencies
considered a number of weighting alternatives, including those
suggested by commenters, and determined that the weighting for large
bank performance test scores adopted in the final rule most
appropriately balances the many considerations involved in establishing
these weights. As discussed below, this change will also mean that
retail activities and community development activities will be equally
weighted for both intermediate banks and large banks under the
respective weighting for applicable performance tests.
---------------------------------------------------------------------------
\1429\ Refer to the section-by-section analysis of Sec. Sec.
__.22 through __.25 for discussion of how the agencies derive the
performance score for each performance test applicable to a large
bank. Generally, performance scores are presented as unrounded or
rounded numbers, depending on the applicable performance test, on
the 10-point scale described in the section-by-section analysis of
Sec. __.21.
---------------------------------------------------------------------------
The agencies expect that increasing the weights of the community
development tests so that the combined weight of the Community
Development Financing Test and the Community Development Services Test
accounts for half of a large bank's ratings, and the Community
Development Financing Test, in particular, accounts for 40 percent of a
large bank's ratings, will address many concerns expressed by
commenters. Specifically, the increased weight will more strongly
incentivize community development loans and investments, including
certain community development activities that commenters identified as
particularly impactful. The agencies also believe that the weighting
under the final rule will encourage banks to pursue ``Outstanding''
ratings based on ``Outstanding'' performance on either the Community
Development Financing Test or the Retail Lending Test, or both, as
appropriate based on the bank's capacity and business model. Similarly,
the finalized weighting will make it more difficult for a bank to
obtain an ``Outstanding'' or ``Satisfactory'' rating with a ``Needs to
Improve'' conclusion on the Community Development Financing Test.
Further, the increased weight placed on community development lending
and investment recognizes that not all community credit needs can be
met through retail lending. For example, affordable housing is a
widespread community need that banks generally may not be able to
address through retail lending.
After extensive consideration of the comments, the agencies also
believe that the corresponding reduction in the assigned weight for the
Retail Lending Test from 45 percent to 40 percent is appropriate. The
agencies note that, although the lending test generally receives 50
percent weight under the current CRA rating framework, the final
[[Page 7027]]
Retail Lending Test does not have the same scope as the current lending
test. For example, community development lending, which is currently
considered under the large bank lending test, will be considered with
community development investments under the Community Development
Financing Test. Under the final rule, multifamily lending also will be
exclusively evaluated under the Community Development Financing Test.
Further, as discussed in the section-by-section analysis of Sec.
__.28(b)(4) below, the final rule retains the requirement that a bank
receive a minimum performance test conclusion of a ``Low Satisfactory''
on the Retail Lending Test for a State, multistate MSA, or institution,
to receive a ``Satisfactory'' rating for, respectively, the State,
multistate MSA, or the institution. Between the final weighting and
this requirement, the agencies believe the final rule contains
appropriate safeguards to ensure that a bank must meet the retail
credit needs of its community to receive an ``Outstanding'' or
``Satisfactory'' rating.
As noted above, the final rule reduces the weight assigned to the
Retail Services and Products Test from 15 percent to 10 percent. After
considering all comments on the weighting of the large bank performance
tests, including those regarding the weighting of retail services and
products, the agencies believe this change best facilitates an increase
in the weight of the Community Development Financing Test, as discussed
above. Further, the final rule adopts the proposal to weight the
Community Development Services Test at 10 percent. Therefore, the final
rule will weight a bank's retail and community development activities
equally with respect to retail and community development lending and
investment and retail and community development services. The agencies
believe this balance in the weighting will appropriately encourage CRA
activities of all kinds and will provide flexibility for banks. The
combined 20 percent weighting of the Retail Services and Products Test
and the Community Development Services Test will remain similar to the
effect of the current service test on a large bank's rating under the
current rating scale, which is generally 25 percent of a large bank's
rating.
The agencies believe that equally weighting both the Retail Lending
Test and the Community Development Financing Test at 40 percent and
both the Retail Services and Products Test and the Community
Development Services Test at 10 percent recognizes the historical focus
of CRA on retail and community development lending and investment and
is consistent with the statutory purpose of CRA to encourage banks to
help meet the credit needs of their local communities.\1430\ The
agencies also believe the 10 percent weight assigned to both the Retail
Services and Products Test and Community Development Services Test will
ensure these performance tests have sufficient weight in the
calculation of the bank's overall rating to be meaningful.
---------------------------------------------------------------------------
\1430\ See 12 U.S.C. 2901(b).
---------------------------------------------------------------------------
For the reasons described in the section-by-section analysis of
final Sec. __.21, the agencies have determined to finalize the general
framework of four performance tests for large banks as proposed. Thus,
suggested weighting schemes based on a different performance test
framework, such as those involving the combination, elimination, or
addition of performance tests, would not align with the final rule.
The agencies have determined to assign a fixed weight for each of
the performance tests applicable to a large bank. For large banks, the
agencies believe the benefits of weighting flexibility for banks with
different communities, business models, and capacity are outweighed by
an interest in ensuring an objective, quantifiable, and consistent
method to assign large bank ratings. The agencies note that the
performance tests for large banks have elements tailored to a bank's
size and business model and allow for flexibility in considering and
weighting components, as appropriate. As discussed in the section-by-
section analysis of final Sec. __.21, the agencies will also consider
performance context under final Sec. __.21(d) in assigning the
conclusions and associated performance scores that factor into a bank's
assigned ratings. Finally, as discussed in the section-by-section
analysis of final Sec. __.27, the final rule permits weighting
flexibility for banks evaluated under an approved strategic plan
pursuant to final Sec. __.27.
In addition to the revisions discussed above, the agencies added
final Sec. __.28(b)(3)(i) to address the weighting of performance
scores for large bank ratings in final Sec. __.28. The agencies also
made revisions to streamline paragraph b of final appendix D compared
to the proposal.
Section __.28(b)(3)(ii) Intermediate Bank Performance Test Weights
Under the current ratings approach for intermediate small banks,
the agencies have not established a rating scale to aggregate an
intermediate small bank's performance under the lending test and the
community development test. Current practice with respect to
intermediate small banks, however, typically gives equal weight to
retail lending and community development activities.\1431\
---------------------------------------------------------------------------
\1431\ Under the current approach, an intermediate small bank's
performance on the lending test and the community development test
are generally treated equally. For example, an intermediate small
bank may not receive an assigned overall rating of ``Satisfactory''
unless it receives a rating of at least ``Satisfactory'' on both the
lending test and the community development test. An intermediate
small bank that receives an ``Outstanding'' rating on one test and
at least ``Satisfactory'' on the other test may receive an assigned
overall rating of ``Outstanding.'' See current appendix A, paragraph
(d)(3); Interagency Intermediate Small Institution CRA Examination
Procedures.
---------------------------------------------------------------------------
In paragraph c of proposed appendix D, similar to the proposal with
respect to large banks, the agencies proposed to weight the performance
score, presented on a 10-point scale as described in the section-by-
section analysis of Sec. __.21, for each performance test applicable
to an intermediate bank by multiplying it by a percentage established
for the performance test. As described below, the agencies generally
adopted this approach in final Sec. __.28(b)(3)(ii) and as described
in more detail in paragraph c of final appendix D. The agencies also
made revisions to streamline paragraph c of final appendix D compared
to the proposal.
The Agencies' Proposal and Comments Received
For intermediate banks, the agencies proposed to weight the Retail
Lending Test at 50 percent and the intermediate bank community
development evaluation, or, for intermediate banks that opt in, the
Community Development Financing Test, at 50 percent.\1432\ The agencies
sought feedback on whether it would be more appropriate to weight
retail lending activity at 60 percent and community development
activity at 40 percent in developing the overall rating for an
intermediate bank to maintain the CRA's focus on meeting community
credit needs through home mortgage loans, small business loans, and
small farm loans.
---------------------------------------------------------------------------
\1432\ See proposed appendix D, paragraph c.
---------------------------------------------------------------------------
As discussed above in the section-by-section analysis of Sec.
__.28(b)(3)(i), many commenters addressed the appropriate weighting of
a bank's community development activities relative to its retail
activities. Many commenters specifically recommended that a bank's
community development activities and retail activities should be
equally weighted. Although many of
[[Page 7028]]
these comments were specific to the agencies' proposed weighting for
the large bank performance tests, other commenters did not specify
whether their comments applied to large banks or intermediate banks.
A few commenters specifically addressed the proposed weighting for
intermediate banks. The commenters supported equal weighting for the
Retail Lending Test and the intermediate bank community development
evaluation based on the idea that community development services are
assessed in the intermediate bank community development evaluation. One
of the commenters stated that if community development services are
optional for intermediate banks, however, the Retail Lending Test
weight should be increased to 55 or 60 percent to encourage more
lending.
Final Rule
In final Sec. __.28(b)(3)(ii) and paragraph c of final appendix D,
after considering the comments and alternatives to the proposed
weighting for intermediate bank performance scores, the agencies are
finalizing as proposed the weights for both the Retail Lending Test and
the renamed Intermediate Bank Community Development Test (i.e.,
referred to as the ``intermediate bank community development
evaluation'' in the proposal) or, for intermediate banks that opt in,
the Community Development Financing Test.
As discussed above with respect to large banks, the agencies
believe that equally weighting a bank's retail lending and community
development lending appropriately emphasizes retail lending and
community development lending and investments as key parts of a bank's
CRA activities. As discussed above, equal weighting is generally
consistent with the agencies' current approach to intermediate small
banks. Because the final rule also generally adopts equal weighting for
the retail and community development activities of large banks,
adopting equal weighting for an intermediate bank's retail and
community development activities will establish a consistent standard
for banks evaluated under multiple performance tests and subject to
weighting of performance scores.
The agencies also considered the impact of the additional
consideration for other activities, including community development
services, on the weighting of the performance tests applicable to
intermediate banks. As discussed further in the section-by-section
analysis of final Sec. __.30, however, the agencies believe that the
flexibility intermediate banks have to decide which community
development approach better fits their bank will allow banks that
currently participate heavily in community development services to
continue to be evaluated for these services under the Intermediate Bank
Community Development Test, or to have these community development
services given additional consideration if they opt into the Community
Development Financing Test. As such, the agencies did not increase the
Retail Lending Test weight based on commenter input.
In addition to the revisions discussed above, the agencies added
final Sec. __.28(b)(3)(ii) to address the weighting of performance
scores for intermediate banks ratings in final Sec. __.28. The
agencies also made revisions to streamline paragraph c of final
appendix D.
Section __.28(b)(4) Minimum Conclusion Requirements
In addition to the weighting approach above, final Sec.
__.28(b)(4) establishes requirements, as proposed in paragraph g of
appendix D, for minimum performance test conclusions for a large bank
or an intermediate bank to be eligible for an ``Outstanding'' or
``Satisfactory'' rating. The agencies intended these requirements to be
additional safeguards, in addition to the rating developed by
aggregating and weighting a bank's performance test scores, to ensure
that a bank receiving an ``Outstanding'' or ``Satisfactory'' rating is
meeting the credit needs of its community.
Under the current approach, the agencies assign ratings for large
banks assessed under the lending, investment, and service tests in
accordance with several principles. First, a large bank that receives
an ``Outstanding'' rating on the lending test receives an assigned
rating of at least ``Satisfactory.'' \1433\ Second, a large bank that
receives an ``Outstanding'' rating on both the service test and the
investment test and at least a ``High Satisfactory'' rating on the
lending test receives an assigned rating of ``Outstanding.'' \1434\
Finally, a large bank cannot receive an assigned rating of
``Satisfactory'' or higher unless it receives at least a ``Low
Satisfactory'' rating on the lending test.\1435\ The current rating
scale for large banks reflects these principles.
---------------------------------------------------------------------------
\1433\ Current 12 CFR __.28(b)(1).
\1434\ Current 12 CFR __.28(b)(2).
\1435\ Current 12 CFR __.28(b)(3).
---------------------------------------------------------------------------
In addition, under the current approach, an intermediate small bank
may not receive an overall ``Satisfactory'' rating unless it receives
at least a ``Satisfactory'' on both the lending test and the community
development test.\1436\ An intermediate small bank that receives an
``Outstanding'' on one test and at least ``Satisfactory'' on the other
test may receive an overall rating of ``Outstanding.'' \1437\
---------------------------------------------------------------------------
\1436\ See current appendix A, paragraph (d)(3)(i).
\1437\ See current appendix A, paragraph (d)(3)(ii)(A).
---------------------------------------------------------------------------
Section __.28(b)(4)(i) Retail Lending Test Minimum Conclusion
Consistent with a current approach, final Sec. __.28(b)(4)(i)
adopts the requirement, proposed in paragraph g.1 of appendix D, that
an intermediate bank or a large bank must receive at least a ``Low
Satisfactory'' Retail Lending Test conclusion to be eligible for an
``Outstanding'' or ``Satisfactory'' rating for a State, multistate MSA,
or the institution overall.
The Agencies' Proposal and Comments Received
The agencies proposed in paragraph g.1 of appendix D to retain the
current requirement that an intermediate bank or a large bank must
receive at least a ``Low Satisfactory'' Retail Lending Test conclusion
at, respectively, the State, multistate MSA, or institution level to
receive an overall State, multistate MSA, or institution rating of
``Outstanding'' or ``Satisfactory.'' \1438\ A commenter specifically
supported this part of the proposal with respect to intermediate banks.
---------------------------------------------------------------------------
\1438\ See proposed appendix D, paragraph g.1. The agencies did
not, however, propose to retain, for intermediate banks, the current
requirement that intermediate small banks must receive a
``Satisfactory'' rating on both the Retail Lending Test and
intermediate bank community development evaluation.
---------------------------------------------------------------------------
The agencies did not propose minimum conclusion requirements for
other performance tests, such as the current requirement that an
intermediate small bank must receive a ``Satisfactory'' on both the
current lending test and the current community development test to
receive an overall ``Satisfactory'' rating. The agencies also did not
propose specific minimum conclusion requirements for a bank to receive
an ``Outstanding'' rating. Some commenters suggested, however, that the
agencies impose minimum conclusion requirements for other performance
tests for a bank to receive an ``Outstanding'' rating.
Community development test minimum conclusions. Some commenters
recommended that the agencies should also require at least a ``Low
Satisfactory'' on the community
[[Page 7029]]
development performance tests in order to receive an overall
``Satisfactory'' rating. Further, a few commenters suggested that a
bank should not receive a higher overall rating than the conclusion it
receives on the community development tests. Some commenters
specifically recommended that no bank should receive a ``Satisfactory''
rating unless it receives at least a ``Low Satisfactory'' conclusion on
the Community Development Financing Test. A commenter specifically
opposed eliminating, for intermediate banks, the current requirement
that intermediate small banks receive a ``Satisfactory'' on the
community development performance test to earn a ``Satisfactory''
rating, stating this would have the perverse outcome of reducing
overall levels of community developing financing.
Other requirements for a ``Satisfactory'' rating. Some commenters
suggested that the agencies consider failing a bank overall if the bank
receives a ``Needs to Improve'' on any of the performance tests. A
group of commenters suggested that a passing score for a bank should be
based on high scores for each component of its CRA examinations.
Another commenter believed that all of a bank's CRA ``activity areas''
and sub-activity areas should be evaluated separately, with a high
minimum threshold of activity, calculated as a percentage of deposits,
in each area, and that no CRA activity area should be abandoned or
allowed to underperform.
More generally, a commenter proposed that no bank should pass its
CRA examination if it fails to serve communities with branches, and
affordable and accessible products. Additionally, a few commenters
expressed that banks should not pass their CRA examinations if they are
not lending to minorities or if HMDA data show that they have otherwise
failed to serve the entire community.
Requirements related to an ``Outstanding'' rating. A few commenters
suggested allowing a bank to achieve an overall rating of
``Outstanding'' by receiving an ``Outstanding'' conclusion for its
community development activities and at least a ``High Satisfactory''
conclusion for its retail activities. A commenter recommended not
precluding banks with a ``High Satisfactory'' conclusion on either the
Retail Lending Test or the Community Development Financing Test from an
overall ``Outstanding'' rating. Another commenter suggested that a
large bank that receives a ``High Satisfactory'' conclusion on the
Retail Lending Test and ``Outstanding'' conclusions for the other three
performance tests should receive an ``Outstanding'' rating overall.
Another commenter suggested that a large bank that receives an
``Outstanding'' conclusion on the Community Development Financing Test
or on the Retail Lending Test should receive an overall ``Outstanding''
rating if it received at least a ``High Satisfactory'' conclusion on
the other performance tests. A few other commenters stated that no bank
should receive an ``Outstanding'' rating without demonstrating improved
measures of direct responses to the needs of low- and moderate-income
populations with disabilities within and across assessment areas.
Final Rule
The agencies are adopting paragraph g.1 of final appendix D as
proposed. Consistent with the agencies' determination to include more
detail about how bank ratings will be assigned in Sec. __.28, as
discussed above, the final rule also adopts in Sec. __.28(b)(4)(i) the
requirement that an intermediate bank or a large bank must receive at
least a ``Low Satisfactory'' Retail Lending Test conclusion for the
State, multistate MSA, or institution to be eligible for an
``Outstanding'' or ``Satisfactory'' rating for, respectively, that
State, multistate MSA, or institution.
The commenter that specifically addressed the minimum performance
conclusion requirement for the Retail Lending Test expressed support
for the agencies' proposal. The agencies also continue to believe this
minimum performance conclusion requirement emphasizes the importance of
retail loans to low- and moderate-income communities. Finalizing this
requirement will ensure that banks are required to meet the retail
lending credit needs of their communities to receive an ``Outstanding''
or ``Satisfactory'' rating for each State, multistate MSA, or the
institution.
As proposed, the final rule does not establish minimum performance
conclusion requirements for performance tests other than the Retail
Lending Test. Generally, the agencies believe that the final rule's
consistent and objective weighting for the performance tests under
Sec. __.28(b)(3) will result in banks being assigned the appropriate
rating category. For example, the agencies expect more nuanced
performance scores for each performance test and the overall CRA
ratings as a result of the methodology for weighting bank performance
across applicable geographic areas.
With respect to commenter suggestions that the agencies impose a
similar minimum performance conclusion requirement for the Community
Development Financing Test as that established for the Retail Lending
Test, the agencies considered and decided not to adopt this suggestion.
In the final rule, as discussed above in the section-by-section
analysis of final Sec. __.28(b)(3), the agencies revised the proposed
weighting of the performance tests for large banks to equally weight
the Community Development Financing Test and the Retail Lending Test.
The agencies believe this change sufficiently addresses commenter
concerns that the proposal did not sufficiently emphasize community
development loans and investments, and do not believe that adding an
additional requirement outside of the weighting framework is necessary.
Also as proposed, the final rule does not adopt the current
requirement that an intermediate bank must receive a ``Satisfactory''
rating on both the Retail Lending Test and either the Intermediate Bank
Community Development Test or, if the bank opts in, the Community
Development Financing Test, to receive an ``Outstanding'' or
``Satisfactory'' rating. The agencies continue to believe eliminating
this requirement for intermediate banks allows intermediate banks to
meet community development credit needs consistent with their more
limited capacity.
The agencies decline to adopt revisions based on commenter
suggestions that the agencies should consider failing a bank overall if
the bank receives a ``Needs to Improve'' on any of the performance
tests. The agencies generally want to encourage banks to compensate for
weaker performance in one area with stronger performance in another,
and the commenter's approach may discourage a bank that receives a
``Needs to Improve'' conclusion on one performance test from striving
for higher conclusions on other performance tests. The agencies believe
this is consistent with the statutory purpose of CRA to encourage banks
to help meet the credit needs of their communities.\1439\ The agencies
intend that the weighting of performance scores for applicable
performance tests for large banks and intermediate banks, subject to
the minimum performance requirement for the Retail Lending Test
reflects a bank's
[[Page 7030]]
overall performance in a State or multistate MSA or for the
institution.
---------------------------------------------------------------------------
\1439\ See 12 U.S.C. 2901(b).
---------------------------------------------------------------------------
With respect to comments suggesting requirements for
``Outstanding'' ratings, the agencies believe that the established
weighting for performance test scores will appropriately identify when
a bank demonstrates ``Outstanding'' performance. The agencies also
believe that the weighting for ratings under the final rule, which
will, in general, equally weight a bank's retail activities and
community development activities, addresses the commenter concerns that
led to some of these suggestions. For example, a large bank will
generally need to receive an ``Outstanding'' performance conclusion on
one or more performance tests, including either or both of the ``Retail
Lending Test'' or Community Development Financing Test, to receive an
``Outstanding'' rating.
Section __.28(b)(4)(ii) Minimum of ``Low Satisfactory'' Overall
Facility-Based Assessment Area And Retail Lending Assessment Area
Conclusion
Final Sec. __.28(b)(4)(ii) adopts the requirement, modified from
that proposed in paragraph g.2. of appendix D, that a large bank with a
combined total of 10 or more facility-based assessment areas and retail
lending assessment areas in any State or multistate MSA, as applicable,
or for the institution, as applicable, may not receive a rating of
``Satisfactory'' or ``Outstanding'' in that State or multistate MSA, as
applicable, or for the institution, unless the bank receives an overall
conclusion of at least ``Low Satisfactory'' in 60 percent or more of
the total number of its facility-based assessment areas and retail
lending assessment areas in that State or multistate MSA, as
applicable, or for the institution. The current regulations do not
include a similar requirement. The final rule adopts paragraph g.2. of
proposed appendix D, with clarifying revisions and one modification to
phase in this requirement as described below, and also includes this
requirement in new final Sec. __.28(b)(4)(ii).
The Agencies' Proposal
In paragraph g.2 of proposed appendix D, the agencies provided that
a large bank with 10 or more facility-based assessment areas and retail
lending assessment areas combined in a State, in a multistate MSA, or
nationwide would not be eligible to receive a ``Satisfactory'' or
higher rating for, respectively, the State, multistate MSA, or
institution unless the bank achieved at least an overall ``Low
Satisfactory'' conclusion in at least 60 percent of its facility-based
assessment areas and retail lending assessment areas.\1440\ For
purposes of this requirement, the overall conclusion in a facility-
based assessment area would be based on the performance scores for the
conclusions that the large bank received on each performance test in
that assessment area.\1441\ For each facility-based assessment area,
the agencies proposed to develop a facility-based assessment area
performance score, for purposes of this requirement only, by
calculating a weighted average of the performance scores for each
performance test using the same test-specific weights as the agencies
would use to calculate ratings.\1442\ If the weighted average of the
performance scores for each test was 4.5 or greater, the large bank
would be considered to have an overall conclusion of at least ``Low
Satisfactory'' in the facility-based assessment area.\1443\ For each
retail lending assessment area, for purposes of this requirement only,
the bank's overall conclusion would be equivalent to its Retail Lending
Test conclusion.\1444\
---------------------------------------------------------------------------
\1440\ See proposed appendix D, paragraph g.2.i.
\1441\ See proposed appendix D, paragraph g.2.ii.B.
\1442\ See proposed appendix D, paragraph g.2.ii.C.
\1443\ See proposed appendix D, paragraph g.2.ii.D.
\1444\ See proposed appendix D, paragraph g.2.ii.A.
---------------------------------------------------------------------------
The agencies requested feedback on whether the proposed requirement
that a large bank with 10 or more facility-based assessment areas and
retail lending assessment areas would receive at most a ``Needs to
Improve'' rating unless the bank achieved at least an overall ``Low
Satisfactory'' conclusion in at least 60 percent of its facility-based
assessment areas and retail lending assessment areas should apply to
facility-based assessment areas and retail lending assessment areas or
only to facility-based assessment areas. Additionally, the agencies
sought feedback about: whether 10 facility-based assessment areas and
retail lending assessment areas was the right threshold to trigger this
requirement; and whether 60 percent of facility-based assessment areas
and retail lending assessment areas was the right threshold to satisfy
this requirement. Finally, the agencies requested feedback on the
impact that this requirement would have on branch closures.
Comments Received
Most commenters expressed concern about the proposed 60 percent
threshold. Many commenters suggested that the 60 percent threshold
would not effectively incentivize CRA activities in rural areas or
smaller urban areas, noting that because smaller areas could represent
a minority of assessment areas a bank could pass the 60 percent
threshold by focusing on the larger areas.
Some commenters stated that no bank should be allowed to pass its
CRA examination if it fails nearly 40 percent of its assessment areas
or to pass in an assessment area where it fails one of the performance
tests, especially in cases where there is displacement financing or
branch closures in already underserved low- and moderate-income and
minority communities. Similarly, some commenters expressed that banks
should be required to serve all areas, and not just 60 percent of
areas, where they take deposits and lend. Moreover, a commenter did not
support assigning a percentage threshold to the number of assessment
areas required for passing and, along with another commenter, suggested
that if a bank failed in any assessment area, it should be deemed not
to be serving the needs of its community in a satisfactory manner.
A few commenters proposed increasing the 60-percent threshold, with
at least one commenter suggesting each of 67 percent, 70 percent, 75
percent, and 90 percent as an appropriate threshold. One commenter
explained that a higher threshold would encourage banks to meet the
credit needs of a larger share of their customers and communities.
Commenters also proposed alternative ways to implement the 60-
percent threshold. Many commenters suggested requiring the threshold be
met for different types of assessment areas (e.g., large metropolitan,
small metropolitan, and rural assessment areas; or metropolitan and
nonmetropolitan assessment areas). One of these commenters indicated
that this should be in addition to increasing the threshold to 70
percent for all assessment areas. A few commenters recommended that a
lender with 10 or more rural assessment areas should be required to
earn a ``Satisfactory'' conclusion in the majority of its rural
assessment areas in order to achieve an overall rating of
``Outstanding'' or ``Satisfactory.''
A few commenters encouraged having a ``Satisfactory'' rating
threshold that is weighted across different types of assessment areas
to help all communities experience the intended effect of the CRA, with
one commenter suggesting that the weights assigned to each assessment
area be reversed according to the assessment area size. The latter
commenter also suggested a combination of requiring that the threshold
be met for different types of assessment areas and incorporating
weighting. This commenter suggested
[[Page 7031]]
that the proposed unweighted 60 percent threshold would impose a
``cliff'' that could encourage banks to stop activities in certain
areas or avoid expansion to new areas to be eligible for a
``Satisfactory'' rating, which may affect competition. The commenter
also suggested that according to its analysis, a simplified version of
the Retail Lending Test without the 60 percent requirement could
produce the same aggregate outcome with less potentially adverse
incentives.
Regarding the agencies' request for feedback on the 10 facility-
based assessment area and retail lending assessment area threshold, one
commenter suggested lowering the threshold from 10 to five assessment
areas, because the proposed threshold implies that a bank can fail in
four assessment areas before receiving a ``Needs to Improve'' rating. A
few commenters stated that this threshold should be fewer than 10
assessment areas without suggesting a specific number.
A few other commenters suggested a broader implementation of this
requirement. Specifically, a commenter suggested expanding the group of
banks subject to this requirement from large banks to all banks.
Another commenter suggested that the requirement should also apply to
be eligible for an ``Outstanding'' rating, such that a bank with 10 or
more assessment areas would need a conclusion of Outstanding in at
least 60 percent of its assessment areas to achieve an overall
conclusion of Outstanding.
Some other commenters supported the 60 percent threshold only for
facility-based assessment areas. For example, one commenter suggested
not including retail lending assessment areas because it is much harder
for banks to meet low- and moderate-income credit needs where they do
not have a local branch presence and to compete with banks that have
branches.
A few commenters opposed the requirement generally. A commenter
explained that banks should strive to serve all of their markets, but
that there is variation in a bank's ability to serve any given
assessment area. This commenter explained that branch presence, tenure
in the community, and economic conditions all impact CRA performance
and cautioned that the 60 percent requirement could cause banks to
close branches in their weaker markets, causing the loss of competitive
financial services in areas where they are needed but are in decline.
Another commenter suggested that the prospect of negative publicity
from poor performance in a significant number of assessment areas would
already provide banks sufficient incentive to perform satisfactorily in
as many of their assessment areas as possible.
Final Rule
The final rule adopts the 60 percent requirement proposed in
paragraph g.2 of appendix D with one modification, a phased
implementation of the requirement, as well as clarifying revisions.
Specifically, under final Sec. __.51(e) and as discussed in the
section-by-section analysis of Sec. __.51(e), in a large bank's first
examination under the final rule, the requirement will only apply where
a bank has 10 or more facility-based assessment areas in any State or
multistate MSA, or for the institution, as applicable. Therefore, final
Sec. __.28(b)(4)(ii)(B) and paragraph g.2.i of final appendix D,
provide that the requirement applies except as provided in final Sec.
__.51(e).
After careful consideration of commenters' suggestions, the
agencies are finalizing the 60 percent threshold. The agencies proposed
this requirement to ensure that large banks receiving a
``Satisfactory'' rating meet the credit needs of their entire community
and not just densely populated markets with high levels of lending and
deposits that will factor heavily into the calculation of a bank's
ratings based on how assessment area conclusions will be weighted to
develop a bank's performance test conclusions, which, in turn, will be
used to develop a bank's ratings. The agencies note that the
requirement that a large bank receive at least a ``Low Satisfactory''
in 60 percent of facility-based assessment areas and retail lending
assessment areas will apply in addition to calculating the bank's
rating as described in final Sec. __.28(b)(2) and (3). Therefore, to
receive an ``Outstanding'' or ``Satisfactory'' rating, a bank will need
to satisfy the 60 percent threshold in addition to earning an
``Outstanding'' or ``Satisfactory'' rating based on the weighting of
performance test conclusions.
The agencies believe that the 60 percent threshold ensures that
large banks receiving an ``Outstanding'' or ``Satisfactory'' rating are
meeting the credit needs of their entire community while acknowledging
limitations that may impact bank performance, such as business model,
capacity, opportunities to lend, and changes in a bank's assessment
areas. The agencies note that, under the final rule, the agencies will
examine a bank's performance under the applicable performance tests in
the same manner in all facility-based assessment areas and retail
lending assessment areas, which is a change from the current approach
that permits limited-scope reviews. The agencies believe that a higher
threshold--such as 67 percent, 70 percent, 75 percent, 90 percent, or
all assessment areas, as suggested by commenters--may establish a
requirement that would be too onerous for some banks to meet consistent
with safety and soundness requirements. Further, the agencies are also
sensitive to the concerns expressed by a commenter that a threshold
that establishes too onerous of a requirement could lead banks to close
branches in certain facility-based assessment areas or reduce lending
in certain facility-based assessment areas or retail lending assessment
areas.
The agencies have considered commenter suggestions to require banks
to meet the 60 percent threshold for different types of assessment
areas (such as large metropolitan, small metropolitan, and rural
assessment areas, or metropolitan and nonmetropolitan assessment areas)
or adopt weights for assessment areas associated with this requirement.
The agencies have concerns, however, that these suggestions would be
overly complex and difficult to implement. Some suggested types of
facility-based assessment areas and retail lending assessment areas--
for example, rural assessment areas--do not have clear and consistent
definitions. Further, the agencies note that the 60 percent requirement
to receive a ``Satisfactory'' rating is intended to be an additional
guardrail supplementing the final rule approach to developing bank
conclusions under the applicable performance tests. This approach
generally includes consideration of a weighted average of the bank's
facility-based assessment area performance, and calculates a bank's
rating by weighting the bank's performance scores on applicable
performance tests. For these reasons, the agencies are not adopting
these suggestions in the final rule.
The agencies believe that analysis provided by one commenter on the
impact of the 60 percent threshold omits important aspects of the
Retail Lending Test calculations and therefore does not align with the
final rule in fundamental respects. For example, the analysis described
by the commenter did not consider CRA small business and small farm
lending data and was applied to individual counties instead of
facility-based assessment areas. In addition, the analysis applied the
60 percent threshold to Retail Lending Test conclusions, in contrast to
the proposed and final rule approach, which applies
[[Page 7032]]
this threshold to overall conclusions of facility-based assessment
areas and retail lending assessment areas. Applying the 60 percent
threshold to Retail Lending Test conclusions represents a significant
departure from the proposed and final rule approach, because for
facility-based assessment areas, overall conclusions reflect a bank's
conclusions on all four performance tests, not only the Retail Lending
Test.
Finally, the agencies acknowledge comments that described
variations in a bank's ability to serve any given facility-based
assessment area or retail lending assessment area. The agencies
determined, however, that the 60 percent threshold provides sufficient
flexibility to account for challenges regarding a bank's performance.
The agencies are also finalizing the proposed threshold for the
number of combined facility-based assessment areas and retail lending
assessment areas in a State, a multistate MSA, or nationwide at 10
facility-based assessment areas and retail lending assessment areas.
Based on the agencies' supervisory experience, the agencies believe
this threshold balances the need for a guardrail for banks with a
larger footprint with the agencies' intent to provide flexibility to
smaller institutions. The agencies are finalizing the same threshold
for States, multistate MSAs, and nationwide to reduce complexity and so
that this requirement will apply at more levels as a bank's footprint
increases. For example, in its second examination under the final rule,
a bank with 10 combined facility-based assessment areas and retail
lending assessment areas nationwide in two or more states or multistate
MSAs will only be subject to this requirement for its institution
rating. A bank with 10 combined facility-based and retail lending
assessment areas in each of several States or multistate MSAs will be
subject to this requirement for each applicable State rating,
multistate MSA rating and for its institution rating. The agencies also
have opted not to apply this requirement to intermediate banks or small
banks. In the agencies' experience, it is unlikely that many
intermediate banks or small banks would have 10 or more facility-based
assessment areas and retail lending assessment areas in any State,
multistate MSA, or nationwide. The agencies also decline to adopt a
requirement that a bank obtain an ``Outstanding'' conclusion in 60
percent of its facility-based assessment areas and retail lending
assessment areas to receive an ``Outstanding'' rating. The agencies
believe this would add complexity, and the weighting of performance
test conclusions will provide sufficient guardrails related to
eligibility for ``Outstanding'' ratings.
Section __.28(c) Conclusions and Ratings for States and Multistate MSAs
Section __.28(c) addresses when, consistent with statutory
requirements, the agencies will evaluate and assign conclusions and
ratings for a bank's CRA performance in a State or multistate MSA. The
CRA statute requires that the agencies separately evaluate a bank's CRA
performance for each State where the bank maintains a branch office or
other facility that accepts deposits.\1445\ If a bank maintains a
branch office or other facility that accepts deposits in two or more
States of a multistate metropolitan area (i.e., a multistate MSA), the
agencies must instead evaluate a bank's CRA performance for the
multistate MSA.\1446\ If the agencies evaluate a bank's CRA performance
for a multistate MSA, the statute also requires that the agencies
adjust their evaluation of a bank's CRA performance in any State
accordingly.\1447\ The agencies' current approach to conclusions and
ratings reflects these statutory requirements.
---------------------------------------------------------------------------
\1445\ See 12 U.S.C. 2906(d)(1).
\1446\ See 12 U.S.C. 2906(d)(2).
\1447\ Id.
---------------------------------------------------------------------------
The Agencies' Proposal
Proposed Sec. __.28(c) provided that the agencies would evaluate a
bank's performance in any State in which the bank maintains one or more
facility-based assessment areas and in any multistate MSA in which the
bank maintains a branch in two or more States within the multistate
MSA. In assigning conclusions and ratings for a State, the agencies
would not consider a bank's activities in that State that are evaluated
for a multistate MSA.
Final Rule
The agencies did not receive any comments on proposed Sec.
__.28(c). The agencies are adopting final Sec. __.28(c) with
modifications from the proposal, however, to clarify how the agencies
will assign conclusions and ratings for geographic areas consistent
with statutory requirements. In final Sec. __.28(c)(1)(i) and (c)(2),
the agencies revised the proposed provision to clarify that the
agencies will evaluate a bank and assign both conclusions and ratings
for each State and multistate MSA, as applicable.
The agencies made several additional revisions to proposed Sec.
__.28(c)(1) related to State conclusions and ratings in the final rule.
First, the agencies are adopting final Sec. __.28(c)(1)(i) with
revisions to the proposal to provide that, except as provided in Sec.
__.28(c)(1)(ii) regarding States with multistate MSAs for which the
agencies assign conclusions and ratings to the multistate MSA (i.e.,
rated multistate MSA), the agencies assign conclusions and ratings for
any State in which the bank maintains a main office, branch, or
deposit-taking remote service facility. The agencies believe this
language better reflects the statute--which refers to each State in
which a bank maintains one or more domestic branches, defined to
include any branch or other facility of a bank that accepts deposits
\1448\--than referring to a facility-based assessment area, as
proposed. Final Sec. __.28(c)(1)(i) also aligns with final Sec.
__.16, regarding facility-based assessment areas.
---------------------------------------------------------------------------
\1448\ See 12 U.S.C. 2906(d)(1)(B), (e)(1).
---------------------------------------------------------------------------
Second, the agencies are adopting final Sec. __.28(c)(1)(ii) with
revisions to the proposal to clarify that the agencies will evaluate
and assign conclusions or ratings for a State only if a bank maintains
a main office, branch, or deposit-taking remote service facility
outside the portion of the State comprising any rated multistate MSA.
Similar to the proposal, final Sec. __.28(c)(1)(ii) further states
that the agencies will not consider activities to be in the State if
those activities take place in the portion of the State comprising any
multistate MSA. This reflects statutory requirements.\1449\ The
agencies note that in calculating metrics, benchmarks, and weighting
performance scores in a State for any bank, the agencies will only
include activities considered to be in that State pursuant to Sec.
__.28(c)(1) for purposes of the agencies' evaluation of that bank.
---------------------------------------------------------------------------
\1449\ See 12 U.S.C. 2906(d)(2) (requiring that, if an agency
evaluates a bank's performance in a multistate metropolitan area,
the agency must adjust the scope of its evaluation of a bank's
performance in a State accordingly).
---------------------------------------------------------------------------
Third, the agencies are adopting final Sec. __.28(c)(1)(iii), a
new provision, to clarify the agencies' consideration of a bank's
performance for States with multistate MSAs for which the agencies do
not assign conclusions and ratings to the multistate MSA (i.e., non-
rated multistate MSA).\1450\ Specifically, final Sec. __.28(c)(1)(iii)
provides that, if a bank's facility-based assessment area comprises a
geographic area spanning two or more States within a non-rated
[[Page 7033]]
multistate MSA, the agencies will consider activities in the entire
facility-based assessment area to be in the State in which the bank
maintains--within the multistate MSA--a main office, branch, or
deposit-taking remote service facility. Consider, for example, a
particular bank with a branch located in a multistate MSA. In this
example, although the bank's branch is located in a county in one State
within the multistate MSA, the bank delineates a facility-based
assessment area in the multistate MSA that includes, consistent with
final Sec. __.16(b)(2), a county in a second State within the
multistate MSA where the bank originated or purchased a substantial
portion of its loans but does not have a branch or other facility that
accepts deposits. Under this example, for purposes of evaluating the
bank and assigning conclusions and ratings--including calculating
metrics, benchmarks, and weighting performance scores--the agencies
would consider activities in the bank's entire facility-based
assessment area within the multistate MSA to be in the one State where
the bank has a branch. Final Sec. __.28(c)(1)(iii) also clarifies
that, in evaluating a bank and assigning conclusions and ratings for a
State, the agencies will not consider activities to be in a State if
those activities take place in any facility-based assessment area
considered to be in another State.
---------------------------------------------------------------------------
\1450\ Consistent with 12 U.S.C. 2906(d)(2) and pursuant to
final Sec. __.28(c)(2), discussed below, the agencies evaluate a
bank's performance in a multistate MSA if the bank maintains a main
office, a branch, or a deposit-taking remote service facility in two
or more States within that multistate MSA.
---------------------------------------------------------------------------
Fourth, the agencies are adopting final Sec. __.28(c)(1)(iv), a
new provision, to clarify the agencies' consideration of a bank's
performance in retail lending assessment areas that span multiple
States in a multistate MSA (i.e., multistate retail lending assessment
areas). Specifically, pursuant to final Sec. __.28(c)(1)(iv), the
agencies will not consider activities that take place in a multistate
retail lending assessment area to be in any State for purposes of
assigning Retail Lending Test conclusions to a bank pursuant to final
Sec. __.22 and final appendix A. The agencies note that, if a
multistate retail lending assessment area is in a rated multistate MSA,
the agencies will consider activities in the multistate retail lending
assessment area for purposes of assigning a bank's Retail Lending Test
conclusions and ratings for the multistate MSA. To the extent a
multistate retail lending assessment area is not in a rated multistate
MSA, however, activities in that multistate retail lending assessment
area would be considered only in the bank's conclusions and ratings for
the institution.
The agencies also made revisions to proposed Sec. __.28(c)(2)
related to multistate MSA conclusions and ratings in the final rule.
Final Sec. __.28(c)(2) specifies that the agencies will evaluate a
bank and assign conclusions and ratings in any multistate MSA in which
the bank maintains a main office, a branch, or a deposit-taking remote
service facility in two or more States within that multistate MSA. The
agencies believe this language better reflects the statutory
requirement--which refers to each State in which a bank maintains one
or more domestic branches, defined to include any branch or other
facility of a bank that accepts deposits \1451\--than referring to a
facility-based assessment area, as proposed. Final Sec. __.28(c)(2)
also aligns with final Sec. __.16, regarding facility-based assessment
areas.
---------------------------------------------------------------------------
\1451\ See 12 U.S.C. 2906(d)(1)(B), (e)(1).
---------------------------------------------------------------------------
Section __.28(d) Effect of Evidence of Discriminatory or Other Illegal
Credit Practices
Current Approach
Current Sec. __.28(c) generally provides that the agencies'
evaluation of a bank's CRA performance is adversely affected by
evidence of discriminatory or other illegal credit practices in any
geography by the bank or in any assessment area by any affiliate whose
loans have been considered as part of the bank's lending performance.
In connection with any type of lending activity evaluated under the
current lending test, evidence of discriminatory or other credit
practices that violate an applicable law, rule, or regulation includes,
but is not limited to, violations of certain enumerated laws.\1452\
Current Sec. __.28(c)(2) provides certain factors the agencies
consider in determining the effect of discriminatory or other illegal
credit practices on a bank's assigned rating, including: the nature,
extent, and strength of the evidence of the practices; policies and
procedures the bank has in place to prevent the practices; corrective
action; and any other relevant information.
---------------------------------------------------------------------------
\1452\ In guidance, the agencies have stated that violations of
other provisions of the consumer protection laws generally will not
adversely affect an institution's CRA rating but may warrant the
inclusion of comments in an institution's performance evaluation.
See Q&A Sec. __.28(c)-1.
---------------------------------------------------------------------------
The Agencies' Proposal and Final Rule
Similar to the approach under the current regulations, the agencies
proposed in Sec. __.28(d)--and are now finalizing with certain
modifications from the proposal described below--that a bank's CRA
performance would be adversely affected by evidence of discriminatory
or other illegal practices. Although, under the proposal, evidence of
any discriminatory or other illegal practices would have adversely
affected a bank's CRA performance, the final rule, like the current
regulations, limits consideration to credit practices. Similar to the
current approach and the proposal, the agencies will consider certain
factors under the final rule in determining the effect of evidence of
discriminatory or other illegal credit practices on a bank's assigned
rating. The section-by-section analysis below describes the agencies'
proposal, including proposed changes from the current approach, and
final Sec. __.28(d) in detail.
Section __.28(d)(1) Scope
The Agencies' Proposal
Proposed Sec. __.28(d)(1) expanded consideration of evidence of
discriminatory or other illegal practices to include practices beyond
credit practices. Specifically, proposed Sec. __.28(d)(1) provided
that the agencies' evaluation of a bank's CRA performance would be
adversely affected by evidence of any discriminatory or other illegal
practices. As proposed, evidence of discriminatory or other illegal
practices could be related to deposit products or other bank products
and services. Unlike current Sec. __.28(c)(1), which limits the
agencies consideration of discriminatory or other illegal practices to
those in connection with any type of lending activity evaluated under
the current lending test, consideration of discriminatory or other
illegal practices under proposed Sec. __.28(d)(1) would no longer be
limited to certain credit products. Proposed Sec. __.28(d)(1) also
provided for downgrades of a bank's State or multistate MSA rating, in
addition to downgrades of the institution rating, based on
discriminatory or other illegal practices.
Proposed Sec. __.28(d)(1)(i) provided that evidence of
discriminatory or other illegal practices in any geographic area by a
bank, including its operations subsidiaries or operating subsidiaries,
could result in a downgrade to the bank's CRA rating. Proposed Sec.
__.28(d)(1)(ii) further provided that evidence of discriminatory or
other illegal practices in any facility-based assessment area, retail
lending assessment area, or outside retail lending area by any
affiliate whose retail loans are considered as part of the bank's
lending performance could result in a downgrade to the bank's CRA
rating.
[[Page 7034]]
Comments Received
Many commenters expressed strong support for downgrading banks that
engage in discriminatory or other illegal practices. Some of these
commenters suggested that the agencies severely punish banks under CRA
if they are found to have violated civil rights, fair lending, or fair
housing laws. Relatedly, one commenter stated that ``Outstanding'' or
``Satisfactory'' ratings should meaningfully demonstrate a bank's
commitment to treating its customers fairly in a manner consistent with
the law.
Some commenters expressly supported expanded consideration of
evidence of discriminatory or other illegal practices to include
practices beyond credit practices. For example, a commenter stated that
the agencies' proposal represented an effective way to hold banks
accountable for discrimination and other illegal practices. Another
commenter noted that this expansion could help ensure there is no
unintended discrimination in loan servicing. Commenters cautioned,
however, that this expansion would only be as helpful as the agencies'
willingness and capacity to diligently identify discrimination and then
downgrade banks.
In contrast, some commenters raised concerns regarding the expanded
consideration of evidence of discriminatory or other illegal practices
to include practices beyond credit practices and supported limits on
the type of practices that could lead to CRA rating downgrades. A few
commenters asserted that broadening discriminatory or other illegal
practices to include more than just illegal credit practices was
inconsistent with the CRA statute. A few commenters also expressed
concern that expanding discriminatory or other illegal practices could
include issues unrelated to Congress's intent in enacting CRA, such as
anti-money laundering and safety and soundness issues. One commenter
stated that because discriminatory and other illegal practices are
comprehensively addressed by other examinations (e.g., safety and
soundness, fair lending, consumer reporting, and consumer debt
collection), CRA downgrades are not necessary to remediate prior
violations or prevent future discriminatory or other illegal practices.
A commenter suggested that expanding the types of violations that could
lead to a downgrade could disincentivize banks from seeking an
``Outstanding'' rating by expanding CRA activities out of fear of
adverse rating impacts from tangential or technical issues. A few
commenters also suggested that expansion of practices considered could
lead to an increase in adverse ratings and harm consumers and
communities, noting that projects to provide new products or services
that respond to customer needs, LIHTC or NMTC projects, and opening
branches could be negatively impacted if a bank receives a rating below
``Satisfactory.''
Some commenters supported retaining the current standard or
adopting other limitations on when discriminatory or other illegal
practices could be considered. Some commenters recommended restricting
downgrades to products and services considered in CRA evaluations, with
a few commenters also suggesting that only violations directly related
to the treatment of consumers should be considered. Another commenter
proposed limiting downgrades to illegal practices that have a nexus to
the provision of financial products and services. A few commenters
stated that the proposal would create uncertainty as to what types of
practices would result in a rating downgrade and requested that the
agencies provide more clarity and guidance on the types of practices
that could lead to a downgrade.
A few commenters suggested that the agencies apply all downgrades
to a bank's institution rating, rather than to State or multistate MSA
ratings. Relatedly, a commenter stated that a bank that has been found
to engage in discriminatory practices in one geographic area is likely
to have engaged in similar practices elsewhere and has exposed that it
lacks the internal controls to prevent illegal activity. Another
commenter suggested that the agencies could instead increase
transparency by providing greater detail on the geographic scope of any
violation in a bank's performance evaluation and by providing guidance
on the specific impact of downgrades applied to State or multistate MSA
rating on the institution rating.
One commenter stated that the agencies should automatically include
any discriminatory or other illegal practices by an operations
subsidiary or operating subsidiary, or affiliate.
Final Rule
In final Sec. __.28(d)(1), the agencies are adopting the proposed
provision regarding consideration of evidence of discriminatory or
other illegal practices without the proposed expansion from the current
approach to include practices beyond credit practices. Specifically,
under final Sec. __.28(d)(1), for each State and multistate MSA, as
applicable, and the institution, the evaluation of a bank's CRA
performance is adversely affected by evidence of discriminatory or
other illegal credit practices, as provided in final Sec. __.28(d)(2).
As discussed further below, final Sec. __.28(d)(2) provides that
discriminatory or other illegal credit practices consist of violations
of specified laws, including any other violation of a law, rule, or
regulation consistent with the types of violations listed, as
determined by the agencies. Final Sec. __.28(d)(1) further provides
that the agencies will consider evidence of discriminatory or other
illegal credit practices by: (1) the bank, including by an operations
subsidiary or operating subsidiary of the bank, without limitation; and
(2) any other affiliate related to any activities considered in the
evaluation of the bank.
After considering many comments that supported proposed Sec.
__.28(d)(1) and many that raised concerns, the agencies believe that
final Sec. __.28(d)(1) appropriately modifies the proposed regulatory
text regarding discriminatory or other illegal practices that may lead
to a CRA rating downgrade. As reflected in the agencies' CRA
regulations and supervisory practices, the agencies have long
considered that a bank's CRA rating should reflect whether it has
engaged in discrimination or otherwise treated consumers in a manner
inconsistent with laws, rules, or regulations. The agencies carefully
considered, however, comments that raised concerns that discriminatory
or other illegal practices, without further qualification, would be too
broad and would potentially allow consideration of violations of laws,
rules, regulations generally unrelated to CRA, such as anti-money
laundering and safety and soundness issues. In response to these
comments and after further consideration, the agencies revised Sec.
__.28(d)(1) to state that the evaluation of a bank's performance under
the rule is adversely affected by evidence of discriminatory or other
illegal credit practices as provided in Sec. __.28(d)(2). The agencies
believe that maintaining a limitation, also reflected in the current
regulations, to consider only discriminatory or other illegal practices
related to credit practices is responsive to commenters' concerns.
The final rule also reflects a modification in the scope of
evidence of discriminatory or other illegal credit practices the
agencies will consider in a bank's CRA evaluation, compared to the
proposal, to specify that the evidence of discriminatory or illegal
credit practices the agencies will consider are those
[[Page 7035]]
practices provided in final Sec. __.28(d)(2) (discussed further in the
section-by-section analysis of final Sec. __.28(d)(2)). Unlike the
current approach, which provides that evidence of discriminatory or
other credit practices are those in connection with any type of lending
activity described the current lending test,\1453\ final Sec.
__.28(d)(1) does not limit the types of credit practices that may be
considered as evidence of discriminatory or illegal credit practices.
---------------------------------------------------------------------------
\1453\ See current 12 CFR __.28(c)(1).
---------------------------------------------------------------------------
Some commenters suggested alternative limitations on the
discriminatory or other illegal practices that could be considered in a
bank's CRA evaluation. The agencies carefully considered these
alternatives and believe that the revisions in the final rule will
generally serve the same objectives as many of the commenters'
suggestions.
Regarding commenter sentiment that rating downgrades should only be
applied to a bank's institution rating, the agencies determined to
finalize this part of Sec. __.28(d)(1) as proposed. Although the
agencies agree that issues may be widespread and that the agencies can
improve transparency by providing additional information about the
geographic area where discriminatory or other illegal practices
occurred, the agencies believe that allowing for downgrades to a bank's
State, multistate MSA, or institution rating will provide greater
clarity and transparency about the geographic area in which relevant
violations occurred and flexibility for the agencies to consider the
geographic scope of those violations. With respect to whether evidence
of discriminatory or other illegal credit practices will impact a
bank's State, multistate MSA, or institution rating, the agencies
intend to consider the adverse effect of evidence of discriminatory or
other illegal credit practices at each rating level based on the
geographic scope of relevant violations and the factors in final Sec.
__.28(d)(3), as discussed below.
The agencies are also adopting final Sec. __.28(d)(1) with
modifications from the proposal related to the circumstances in which
the agencies will consider evidence of discriminatory or other illegal
credit practices by a bank, including by an operations subsidiary or
operating subsidiary of the bank, or any other affiliate. Specifically,
the agencies removed language that would have provided that the
agencies would consider evidence of discriminatory or other illegal
credit practices by the bank, including by an operations subsidiary or
operating subsidiary of the bank, ``in any census tract'' as
unnecessary. For other affiliates--although under the proposal the
agencies would have considered evidence of discriminatory or other
illegal activities in any facility-based assessment area, retail
lending assessment area, or outside retail lending area by any
affiliate whose retail loans are considered as part of the bank's
lending performance--the agencies believe it is appropriate to remove
references to the geographic areas where an affiliate's discriminatory
or other illegal credit practices may be considered and not to limit
such consideration to an affiliate whose retail loans are considered as
part of the bank's lending performance. Under the final rule, and as
provided in Sec. __.21(b)(3), the agencies may consider an affiliate's
activities in any geographic area at the bank's option, pursuant to the
applicable performance test. In addition, the agencies believe, given
the scope of the agencies' consideration of evidence of discriminatory
or other illegal credit practices and the affiliate activities that may
be included in a bank's CRA evaluation, it is appropriate to consider
evidence of discriminatory or other illegal credit practices by any
affiliate related to any activities considered in the evaluation of the
bank. Finally, the agencies do not think it would be appropriate to
consider evidence of discriminatory or other illegal credit practices
by a bank affiliate that are wholly unrelated to activities considered
in the bank's performance evaluation, and thus did not make revisions
in the final rule based on this commenter's suggestion.
Therefore, the agencies are finalizing Sec. __.28(d)(1) with the
modifications from the proposal addressed above.
Section __.28(d)(2) Discriminatory or Other Illegal Credit Practices
The Agencies' Proposal
Proposed Sec. __.28(d)(2) provided a non-exhaustive list of
examples of evidence of discriminatory or other illegal practices that
violate an applicable law, rule, or regulation. Similar to the current
approach, proposed Sec. __.28(d)(2) included the following among the
list of examples: discrimination against applicants on a prohibited
basis in violation, for example, of ECOA or the Fair Housing Act;
violations of the Home Ownership and Equity Protection Act; violations
of section 5 of the Federal Trade Commission Act; violations of section
8 of the Real Estate Settlement Procedures Act; and violations of the
Truth in Lending Act (TILA) provisions regarding a consumer's right of
rescission. For added clarity, the agencies also proposed to add the
following to the list of examples: violations of the prohibition
against unfair, deceptive, or abusive acts or practices in 12 U.S.C.
5531; violations of the Military Lending Act; and violations of the
Servicemembers Civil Relief Act.\1454\
---------------------------------------------------------------------------
\1454\ See proposed Sec. __.28(d)(2)(iv) and (vii) through
(viii).
---------------------------------------------------------------------------
Comments Received
Some commenters addressed violations of specific laws, rules, or
regulations listed in proposed Sec. __.28(d)(2), generally to express
support for their inclusion on the list. A few commenters specifically
supported the proposal to continue to allow rating downgrades for fair
lending violations. Some commenters supported the proposed addition of
violations of the prohibition against unfair, deceptive, or abusive
acts or practices in 12 U.S.C. 5531, with one of these commenters
stating that this would be a check against unfair and abusive practices
like predatory lending, unfair loan fees, and mark-ups that often harm
low- and moderate-income individuals and communities. A few commenters
supported the proposed addition of the Military Lending Act to the
list.
Some commenters also recommended that the agencies add violations
of other laws, rules, or regulations to the list of discriminatory or
other illegal practices. Specifically, some commenters recommended that
the agencies add the Americans with Disabilities Act (ADA) \1455\ to
the list. Another commenter also provided other examples of illegal
practices, such as violations of consumer and civil rights laws
governing deposit products and HMDA. Some commenters asserted that the
agencies should consider evidence of discrimination obtained by State
and local agencies. Another commenter conveyed that the agencies should
factor successful discrimination lawsuits and other punitive legal
measures into a bank's CRA rating.
---------------------------------------------------------------------------
\1455\ 42 U.S.C. 12101 et seq.
---------------------------------------------------------------------------
Suggestions regarding specific bank practices. Some commenters
discussed specific bank practices that they thought should be
considered discriminatory or other illegal practices. For example, some
commenters expressed support for downgrading banks for conduct harmful
to consumers, including fee gouging; charging high fees; offering high-
cost or
[[Page 7036]]
predatory products, investments, or services; or having unreasonably
high delinquency rates. Some of these commenters stated that the
agencies should consider products that banks offer in partnership with
nonbanks and whether loans exceeded State usury caps and borrowers'
abilities to repay. One commenter encouraged expanding the
discriminatory practices that result in a rating downgrade to include
bank activities that have high rates of defaults and delinquencies.
Similarly, another commenter suggested that evidence of illegal
practices should include banks offering unsuitable credit to consumers
or banks earning a disproportionately high share of their revenues from
overdraft and insufficient funds fees. Another commenter recommended
that an agency's finding that a bank's consumer credit card lending is
not fair, affordable, and sustainable should result in a ratings
downgrade, depending on the extent of the harm to consumers. A few
commenters emphasized that the agencies should scrutinize banks'
multifamily lending programs, including those conducted in partnership
with third-party nonbank institutions, for illegal practices. A
commenter recommended downgrading ratings where there is demonstrable
evidence that lenders have invested or renewed investments in which
property owners were engaging in tenant harassment of which lenders
have notice. One commenter urged the agencies to assign a ``Substantial
Noncompliance'' rating to any bank that lends its charter to fintech
companies to enable them to circumvent State usury laws. Another
commenter stated that given the rise in mobile and online banking,
specific standards should be developed to regulate digital banking to
avoid discriminatory or predatory practices.
A few commenters also provided examples of the type of conduct they
believed should be considered discriminatory or other illegal
practices, such as: a pattern or practice of discriminating and failing
to serve communities equitably, regardless of whether these disparate
negative impacts are the result of intentional or unintentional bias;
misleading customers in order to sell products; discriminating against
certain categories of borrowers in the price or availability of home
mortgage lending; or illegally foreclosing on homeowners. Relatedly,
another commenter proposed that the agencies consider ways to address
discriminatory practices against low- and moderate-income and LGBTQ+
communities.
Final Rule
In final Sec. __.28(d)(2), the agencies are adopting the proposal
with several revisions, as described below, in addition to making
conforming changes to refer to ``discriminatory or other illegal credit
practices,'' as discussed above. First, the final rule provides that
discriminatory or other illegal credit practices consist of the listed
violations of laws, rules, or regulations. This is a change from the
proposal, which would have provided a non-exhaustive list of examples
of discriminatory or other illegal practices. Second, the final rule
adopts new Sec. __.28(d)(2)(ix), which adds to the list of
discriminatory or other illegal credit practices any other violation of
a law, rule, or regulation consistent with the types of violations in
Sec. __.28(d)(2)(i) through (viii) as determined by the appropriate
Federal financial supervisory agency. Finally, the final rule adopts
revisions to the discriminatory or other illegal credit practices
included in the current list to cover any discrimination on a
prohibited basis in violation, for example, of ECOA or the Fair Housing
Act and any violation of TILA.
The agencies believe that the first and second revisions, taken
together, clarify the agencies' intent regarding the types of evidence
of violations of laws, rules, or regulations, that they consider
evidence of discriminatory or other illegal credit practices. As
discussed above, although the list of violations of laws, rules, and
regulations in current Sec. __.28(d)(1) is a non-exhaustive list, the
agencies have generally stated that, under the current rule, evidence
of violations of other provisions generally will not adversely affect
an institution's CRA rating.\1456\ From time to time, the agencies have
considered evidence of discriminatory or other illegal credit practices
beyond the listed violations of laws, rules, or regulations where those
practices are sufficiently similar in nature to items on the list. The
agencies intend that revisions to the list in final Sec. __.28(d)(2)
will codify this practice, so that the agencies will consider evidence
of the listed violations of laws, including their implementing rules or
regulations, and other violations of laws, rules, or regulations
consistent with the types of violations listed.
---------------------------------------------------------------------------
\1456\ See Q&A Sec. __.28(c)-1.
---------------------------------------------------------------------------
The final rule also adopts the proposal to add the following to the
listed discriminatory or other illegal practices: violations of the
prohibition against unfair, deceptive, or abusive acts or practices in
12 U.S.C. 5531; violations of the Military Lending Act (10 U.S.C. 987);
and violations of the Servicemembers Civil Relief Act (50 U.S.C. 3901
et seq.). The final rule adopts two other minor revisions to the
proposed list of discriminatory or other illegal practices. First,
final Sec. __.28(d)(2)(i) would apply to any discrimination on a
prohibited basis in violation, for example, of ECOA or the Fair Housing
Act. This is a clarifying change. Second, final Sec. __.28(d)(2)(vi)
would include any violations of TILA. This change, to include
violations of TILA beyond those involving consumer's right of
rescission, is appropriate so as to incorporate TILA amendments to
include additional substantive provisions since the agencies adopted
current Sec. __.28(c)(1)(v). The agencies also made technical
revisions to the listed laws to add citations to the United States
Code, as applicable.
The agencies note that their consideration of discriminatory or
other illegal credit practices listed in Sec. __.28(d)(2) will include
consideration of information received from other Federal agencies and,
as applicable, State agencies, with responsibility for enforcing
compliance with relevant laws and regulations, including the U.S.
Department of Justice, HUD, and the CFPB. The final rule does not limit
the sources for evidence of discriminatory or other illegal credit
practices that can be considered by examiners in a CRA evaluation.
Moreover, the agencies note that, pursuant to Sec. __.28(d)(1), a
bank's CRA performance is adversely affected by ``evidence of''
discriminatory or other illegal credit practices, which consist of the
practices listed in Sec. __.28(d)(2). The agencies believe that
``evidence of'' discriminatory or other illegal credit practices,
consistent with the current approach, provides flexibility and
acknowledges that other agencies may use different terms or act on
information in different ways. The agencies may consider, for example,
information that leads to a settlement of claims and a consent order
under ECOA or the Fair Housing Act as evidence of discriminatory or
other illegal credit practices.
The agencies have decided not to add violations of certain laws,
rules, or regulations suggested by commenters, specifically violations
of ADA or HMDA, to the list in Sec. __.28(d)(2). With regard to the
ADA, the agencies believe that although some violations of ADA could
involve credit practices that affect consumers, small businesses, and
small farms and be considered by the agencies, the explicit inclusion
in the
[[Page 7037]]
list may have the effect of including practices unrelated to a bank's
CRA performance, such as conduct related to a bank's role as an
employer. HMDA includes many technical requirements, and the agencies
believe there are other ways of addressing HMDA violations, such as not
considering inaccurate HMDA data submitted by a bank in its CRA
examination.
Finally, regarding commenter suggestions that various specific
types of acts or practices be considered discriminatory or other
illegal practices that would adversely affect a bank's CRA performance
evaluation, the agencies note that whether specific acts or practices
violate applicable laws, rules or regulations requires analysis based
on the individual facts and circumstances and the requirements of each
law, rule, or regulation. Therefore, the agencies decline to state
whether specific acts or practices would violate listed laws, rules, or
regulations.
Section __.28(d)(3) Agency Considerations
The Agency's Proposal
The agencies proposed in Sec. __.28(d)(3) updated considerations
in determining the effect of evidence of discriminatory and other
illegal practices on a bank's assigned CRA ratings: the root cause of
any violations of law; the severity of any consumer harm resulting from
the violations; the duration of time over which the violations
occurred; and the pervasiveness of the violations. In addition, the
agencies proposed in Sec. __.28(d)(3) that examiners would also
consider the degree to which the bank, a subsidiary, or an affiliate,
as applicable, has established an effective compliance management
system across the institution to self-identify risks and to take the
necessary actions to reduce the risk of noncompliance and consumer
harm. Accordingly, a range of consumer compliance violations would be
considered during a CRA examination, although some might not lead to a
CRA rating downgrade.
Comments Received
A few commenters expressly suggested requiring downgrades if
consumer financial protection violations are cited. For example, a
commenter stated that any evidence of illegal and abusive lending found
during fair lending examinations must be penalized via lower ratings.
Some commenters suggested that the proposal provides too much
discretion to examiners, and the agencies should automatically issue a
failing rating when a bank is found to have engaged in discriminatory
practices. For example, commenters suggested that a bank be
automatically downgraded to ``Needs to Improve'' if it is found to have
violated any civil rights, equal protection, or consumer protection
laws--even if it settles without admitting guilt or if the violations
are dated--or if the agencies determine that there is reason to believe
that the bank engaged in a pattern or practice of discrimination,
regardless of the bank's asset size or amount of restitution. A
commenter asserted that the agencies' proposal to consider the severity
of consumer harm resulting from relevant violations and the duration of
time over which the violations occurred would serve to reduce the
adverse impact of a bank's illicit behavior on its CRA rating.
A few commenters requested that the agencies provide more clarity
and guidance regarding the scope and severity of a violation that would
warrant a downgrade and the discretion that examiners would have to
determine whether a violation has occurred. Further, a few commenters
suggested the agencies codify OCC Policies and Procedures Manual (PPM)
5000-43, as amended by OCC Bulletin 2018-23, which requires, as a
prerequisite to any downgrade predicated on evidence of discriminatory
or other illegal credit practices by a bank: (1) a logical nexus
between the bank's assigned rating and the practices; and (2) full
consideration of remedial actions taken by the bank.
Final Rule
The agencies are adopting proposed Sec. __.28(d)(3) with revisions
to expand the agencies' consideration of the severity and risk of harm
to consumers to include harm to ``communities, individuals, small
businesses, and small farms.'' The agencies believe that this change
better aligns the agencies' considerations in final Sec. __.28(d)(3)
with bank activities considered under CRA. As discussed above, the
agencies are also adopting Sec. __.28(d)(3) with a conforming change,
compared to the proposal, to refer to ``discriminatory or other illegal
credit practices.''
The agencies have considered commenter sentiment that the agencies
should automatically downgrade a rating or assign a rating of ``Needs
to Improve'' for evidence of discriminatory or other illegal practices.
As provided in final Sec. __.28(d)(1), evidence of discriminatory or
other illegal credit practices will adversely impact the agencies'
evaluation of a bank's CRA performance, but evidence of discriminatory
or other illegal credit practices will not always lead to a ratings
downgrade. The agencies believe that automatically downgrading a bank's
rating would be inappropriate based on the range of potential
discriminatory or other illegal credit practices listed in final Sec.
__.28(d)(2). Instead, consistent with the current approach, the
agencies believe that it is important to consider the factors listed in
final Sec. __.28(d)(3) in determining how evidence of discriminatory
or other illegal credit practices may impact a bank's CRA performance.
The agencies believe that final Sec. __.28(d)(3) sufficiently
describes the factors to be considered in assessing the effect of
discriminatory or other illegal credit practices. The agencies may
consider providing additional guidance in the future, as needed and
appropriate. In the final rule, the agencies are also reformatting
final Sec. __.28(d)(3) to number the factors the agencies will
consider as Sec. __.28(d)(3)(i) through (vi).
Ratings Downgrades for Other Harms
Comments Received
Many commenters suggested that the final rule should provide for
the possibility of downgrades based on harms other than discriminatory
or other illegal practices described in Sec. __.28(d), such as
financing displacement, activities that harm the environment, or harm
that disproportionately impacts minority communities. Some of these
commenters also suggested that the agencies should consider additional
conduct as discrimination because of the impact on low- and moderate-
income and minority communities. Some commenters also asserted that
findings of discrimination, including disparate impact related to
displacement financing, fee gouging, or climate degradation, should
always result in automatic CRA rating downgrades.
Displacement. Several commenters suggested downgrading banks for
financing that causes displacement. Some commenters suggested that
displacement financing should be considered discrimination because it
often has a disparate impact on minority communities and that such
action should trigger rating downgrades and subject banks to potential
enforcement actions.
Environmental harm. Some commenters suggested that disproportionate
impacts that contribute to climate change and impair access to credit
for communities should be considered in CRA examinations. Further, some
commenters suggested
[[Page 7038]]
that the agencies should consider downgrades for financing that funds
activities or industries that are harmful to the climate. One commenter
suggested the agencies should consider lower performance conclusions or
ratings if a bank is financing fossil fuel facilities in low- and
moderate-income or minority communities while not financing renewable
or clean energy projects. Some commenters suggested that banks be
downgraded for the financing of pollution-causing activities (e.g., the
building of gas pipelines) that can threaten tribal rights when these
activities occur without informed consent. Some commenters proposed
that climate harm be considered discrimination because it
disproportionately impacts minority communities and that such action
should subject banks to CRA rating downgrades. A few commenters
suggested that financing of harmful projects like landfills and fossil
fuel facilities in low- and moderate-income and minority communities
must be penalized by lowering Community Development Financing Test
performance conclusions.
Conduct that disproportionately impacts minority communities.
Several commenters recommended downgrades for harm that
disproportionately impacts minority communities, such as branch
closures, harmful landlord practices, and higher-cost products. One of
these commenters suggested that the agencies should require action
plans to correct and mitigate such harms. Another commenter conveyed
that banks that prioritize larger businesses, bypass minority or
immigrant communities, or rely only on credit card loans should be
downgraded. A commenter asserted that the agencies should include an
affirmative statement in their CRA regulations regarding banks'
obligations to fairly serve all races and ethnicities. One commenter
indicated that the agencies should assess whether banks make loans to
minority individuals and that this assessment should impact CRA
ratings, while another commenter suggested that home mortgage lending
and small business lending data disaggregated by race, ethnicity,
gender, and community should impact CRA ratings.
Final Rule
The agencies have considered these commenters and are not adopting
additional provisions to provide for ratings downgrades. The agencies
believe that Sec. __.28(d) provides an appropriate mechanism to
consider the types of harm raised by commenters when they involve
evidence of discriminatory or other illegal credit practices. For
example, the agencies believe that some conduct that commenters have
identified that may disproportionately impact minority or low- or
moderate-income communities is addressed by other legal frameworks
applicable to banks and included in the listed laws, rules, and
regulations in Sec. __.28(d)(2), such as fair lending laws and
consumer protection laws.
The agencies also believe that the final rule addresses some of the
concerns raised by commenters through other means. As discussed in the
section-by-section analysis of Sec. __.13(e) through (j) (regarding
place-based community development categories), the final rule includes
protections to ensure that banks do not receive consideration for
place-based community development activities that involve forced or
involuntary relocation of low- or moderate-income individuals. Further,
as discussed in the section-by-section analysis of Sec. __.13(i)
(regarding disaster preparedness and weather resiliency), the final
rule provides community development consideration for disaster
preparedness and weather resiliency activities that assist individuals
and communities to prepare for, adapt to, and withstand natural
disasters or weather-related risks or disasters. The agencies also
believe that some of the conduct that commenters have identified as
conduct that may disproportionately impact minority communities may be
considered under other provisions of the final rule. For example, the
agencies will consider a bank's record of opening and closing branches
under the Retail Services and Products Test, as applicable. For more
information and discussion regarding the agencies' consideration of
comments recommending adoption of additional race- and ethnicity-
related provisions in this final rule, see section III.C of this
SUPPLEMENTARY INFORMATION.
Section __.28(e) Consideration of Past Performance
The Agencies' Proposal
Proposed Sec. __.28(e) provided that the agencies would consider
past performance when assigning ratings. Specifically, if a bank's
prior rating was ``Needs to Improve,'' the agencies may determine that
a ``Substantial Noncompliance'' rating is appropriate where the bank
failed to improve its performance since the previous evaluation period,
with no acceptable basis for such failure.
Comments Received
The agencies received one comment on proposed Sec. __.28(e). The
commenter stated that a downgrade from ``Needs to Improve'' to
``Substantial Noncompliance'' should be made by examiners only with
full consideration of performance context and should not be automatic.
Final Rule
A downgrade from ``Needs to Improve'' to ``Substantial
Noncompliance'' pursuant to Sec. __.28(e) would not be automatic. Of
note, proposed Sec. __.28(e) specifies that the agencies would
consider whether the bank has an acceptable basis for its failure to
improve its performance. Therefore, the agencies believe that proposed
Sec. __.28(e) adequately addresses the commenter's suggestion.
Accordingly, the agencies are finalizing Sec. __.28(e) as proposed.
Section __.29 Small Bank Performance Evaluation
Section __.29(a) Small Bank Performance Evaluation
Current Approach
The current category of small banks that are not intermediate banks
includes those banks with assets of less than $376 million as of
December 31 of the prior two calendar years.\1457\ Pursuant to the
current CRA regulations, a small bank that is not an intermediate small
bank is evaluated under the lending test of the small bank performance
standards, unless the bank elects to be assessed under the lending,
investment, and service tests and collects and reports the data
required for large and other banks.\1458\ Specifically, the agencies
evaluate a small bank's lending performance pursuant to the following
criteria: (1) the bank's loan-to-deposit ratio, adjusted for seasonal
variation, and, as appropriate, other lending-related activities, such
as loan originations for sale to the secondary markets, community
development loans, or community development investments; (2) the
percentage of loans
[[Page 7039]]
and, as appropriate, other lending-related activities located in the
bank's assessment areas; (3) the bank's record of lending to and, as
appropriate, engaging in other lending-related activities for borrowers
of different income levels and businesses and farms of different sizes;
(4) the geographic distribution of the bank's loans; and (5) the bank's
record of taking action, if warranted, in response to written
complaints about its performance in helping to meet credit needs in its
assessment areas.\1459\
---------------------------------------------------------------------------
\1457\ The agencies publish annual adjustments to these dollar
figures based on the year to-year change in the average of the CPI-
W, not seasonally adjusted, for each 12-month period ending in
November, with rounding to the nearest million. See current 12 CFR
228.12(u)(2) and 345.12(u)(2); 70 FR 44256 (Aug. 2, 2005). The
agencies update this threshold annually based on the year-to-year
change in the average of the Consumer Price Index for Urban Wage
Earners and Clerical Workers, not seasonally adjusted. See current
12 CFR __.12(u).
\1458\ See current 12 CFR __.21(a)(3). The small bank may also
make an alternative election to be evaluated under the community
development test for wholesale or limited purpose banks or operate
under an approved strategic plan. See id.
\1459\ See current 12 CFR __.26(b)(1) through (5).
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed to revise current Sec. __.26(b), renumbered
in the proposal as Sec. __.29(a), to maintain the criteria required to
evaluate a small bank's lending performance. Specifically, in Sec.
__.29(a), the agencies proposed to continue evaluating small banks
under the current small bank lending test. As discussed further in the
section-by-section analysis of Sec. __.12, the agencies defined
``small bank'' in proposed Sec. __.12 as a bank with average assets of
less than $600 million in either of the prior two calendar years. The
proposal also provided that a small bank could opt into the proposed
Retail Lending Test described above in the section-by-section analysis
of final Sec. __.22.\1460\ In proposed Sec. __.29(a)(2), the agencies
described how small banks could request consideration for additional
CRA activities to elevate a small bank rating from ``Satisfactory'' to
``Outstanding.'' In Sec. __.29(a)(3), the agencies outlined their
proposed approach to small bank performance ratings. The agencies also
requested feedback on other ways to tailor the evaluation for small
banks and, when determining a small bank's institution rating, whether
additional consideration should be provided to small banks that conduct
activities that would be considered under the Retail Services and
Products Test, Community Development Financing Test, or Community
Development Services Test.
---------------------------------------------------------------------------
\1460\ See the section-by-section analysis of Sec. __.22.
---------------------------------------------------------------------------
Comments Received
The agencies received a range of comments addressing the proposed
performance standards for small banks. Several of these commenters
supported the agencies' proposal to evaluate small banks under the
current small bank lending test, with an option for the bank to choose
an evaluation under the proposed Retail Lending Test. A commenter
applauded the agencies' decision not to require any new data collection
and reporting requirements. Another commenter stated that the ability
to opt into certain performance tests is critical for small banks and
urged the agencies to retain this provision. In this regard, a
commenter stated that many community banks and their communities may
benefit most from being allowed to opt into the proposed Retail Lending
Test rather than being evaluated under the small bank lending
evaluation; however, this commenter viewed the agencies' proposal as
complex and questioned whether these banks would have enough resources
and time to adequately consider the benefits of being evaluated under
the new performance test. This commenter also expressed concern that
the proposal may effectively encourage banks to maintain their status
quo examination approach, which the commenter believed would be a
suboptimal outcome if the community would have benefitted most from a
bank being evaluated under the new performance test.
The agencies received a few comments in response to the agencies'
request for feedback on other ways to tailor the evaluation for small
banks. These commenters provided several recommendations, including,
among other things, that the agencies: use community affairs
departments to coach small banks; make the Retail Services and Products
Test and the Retail Lending Test, with certain adjustments, such as
implementation after a two-to-three year transition period among
others, mandatory for small banks; ensure in the regulations that
supervisory constraints imposed on small banks, including CDFIs and
MDIs, do not adversely affect their ability to meet community credit
needs in difficult times; outline a transition plan with a specified
future date or exam cycle in which to require small banks to be
evaluated under the Community Development Financing Test and the Retail
Lending Test; and apply the more rigorous Retail Lending Test when
community needs indicate it is warranted while considering, as part of
performance context, how the bank's business model might affect
performance under the performance test.
Final Rule
The agencies are adopting proposed Sec. __.29(a) introductory text
and (a)(1) with one technical change. Unlike the proposal, which
referred to the ``small bank performance standards'' to differentiate
from the current CRA regulation's ``small bank lending test,'' the
final rule refers to the default standards for small banks as the
``Small Bank Lending Test.'' The agencies determined that, because the
test in the current CRA regulations and in the final rule are so
similar, it is appropriate to refer to them by the same name.
The agencies carefully considered all comments received and
appreciate the recommendations made. The agencies believe that, while
requiring the metrics-based approach in the Retail Lending Test for
small banks may provide additional transparency regarding performance
standards, it is appropriate to continue to evaluate small banks under
the current framework to provide regulatory flexibility given their
more limited capacity and resources. Consistent with the current rule,
the agencies will use data that small banks maintain in their own
format or report under other regulations. In addition, the agencies
anticipate that, for small banks that do not opt into the Retail
Lending Test, the final rule includes minimal, if any, regulatory
changes to small banks' current CRA evaluations.
The agencies are sensitive to commenters' concerns about small
banks' limited resources and time to adequately consider the benefits
of being evaluated under the new Retail Lending Test. However, given
that small banks have the option to be evaluated under the approach
that best suits the bank's needs, whether it be an evaluation under the
Small Bank Lending Test (formerly, the ``small bank lending test'') or,
if the bank chooses, an evaluation under the Retail Lending Test, the
agencies believe a small bank will have sufficient time to consider the
benefits of being evaluated under the Retail Lending Test and can
choose to be evaluated under this performance test if the bank
determines that it is in its interest to do so. Permitting this option
will ensure that small banks have available a metrics-based approach to
increase the clarity, consistency, and transparency regarding how their
retail lending is evaluated. The agencies believe this is consistent
with the objective to tailor the evaluation approach according to a
bank's size and business model.
Regarding other ways in which to tailor small bank evaluations,
given the limited resources and capacity of small banks the agencies
believe that, as finalized, the evaluation approach for small banks
strikes the appropriate balance between effectively evaluating CRA
activity for small banks and the agencies' intention to minimize the
impact of changing regulatory
[[Page 7040]]
requirements. For this reason, the agencies do not believe that
requiring an evaluation under the Retail Services and Products Test, or
the Retail Lending Test, even with certain adjustments, is necessary
for small banks. Continuing to evaluate small banks under the current
framework maintains a strong emphasis on retail lending performance
while minimizing changes for these smaller banks. The agencies believe
the decision on whether to request additional consideration for
activities that qualify under the Retail Services and Products Test in
Sec. __.23, or be evaluated under the Retail Lending Test in Sec.
__.22, is better determined by the individual bank.
The agencies agree with commenters that additional consideration
for activities that qualify under the Retail Services and Products Test
may be appropriate for a small bank rating adjustment from
``Satisfactory'' to ``Outstanding.'' As explained in the section-by-
section analysis of Sec. __.29(b), the agencies have made revisions to
proposed Sec. __.29(a)(2), renumbered in the final rule as Sec.
__.29(b), to allow banks to seek additional consideration for certain
activities regardless of whether the small bank is evaluated under the
Small Bank Lending Test or the bank opts into the Retail Lending Test.
Regarding commenters' suggestion that the agencies use their
community affairs departments to coach or train small banks, the
agencies note that they already provide significant outreach to banks
and the communities they serve and will continue to do so, regardless
of the bank's size. The agencies' community affairs programs provide,
among other things, information and technical assistance to banks to
assist them in responding to the credit and banking needs of the
communities they serve, including low- and moderate-income individuals
and communities. The agencies continue to encourage all banks to reach
out to the community affairs department of the bank's regulator as well
as supervisory staff for CRA guidance and other assistance to support
efforts to develop strategies that are responsive to the credit,
service, and investment needs of the banks' communities.
The agencies also note that because they are making no substantive
changes to the Small Bank Lending Test criteria, the agencies do not
believe that the evaluation framework for small banks will impose any
additional supervisory constraints on small banks, including but not
limited to those that are also CDFIs or MDIs, that will affect these
banks' ability to meet the credit needs of their communities during
difficult times, such as market downturns or changes in the business
cycle.
Section __.29(b) Additional Consideration
Current Approach and the Agencies' Proposal
As provided in current appendix A, small banks, that are not
intermediate small banks, evaluated under the existing small bank
performance standards and that meet the standards for a
``Satisfactory'' rating may warrant consideration for an overall rating
of ``Outstanding.'' \1461\ In assessing whether a bank's performance is
``Outstanding,'' the agencies consider the extent to which the bank
exceeds each of the performance standards for a ``Satisfactory'' rating
and its performance in making community development investments and in
providing branches and other services and delivery systems that enhance
credit availability in its assessment areas.\1462\
---------------------------------------------------------------------------
\1461\ See current 12 CFR __.29(d) and current appendix A.
\1462\ See current appendix A, paragraph (d)(3)(ii)(B).
---------------------------------------------------------------------------
In proposed Sec. __.29(a)(2), the agencies proposed to revise the
ratings approach to memorialize current interagency guidance that the
agencies may adjust a small bank's rating from ``Satisfactory'' to
``Outstanding'' at the institution level, where a small bank requests
and receives consideration for its performance in making community
development investments and services and in providing branches and
other services and delivery systems that enhance credit availability in
the bank's assessment areas. The agencies requested feedback on whether
additional consideration should be provided to small banks that conduct
activities that would be considered under the Retail Services and
Products Test, Community Development Financing Test, or Community
Development Services Test when determining the bank's overall
institution rating.
Comments Received
The majority of commenters that addressed the agencies' request for
feedback regarding whether additional consideration should be provided
for activities that could be considered under the proposal's Retail
Services and Products Test, the Community Development Financing Test,
or the Community Development Services Test when determining a small
bank's overall institution rating were generally supportive. For
example, a commenter believed that providing such additional
consideration could encourage additional activities that serve low- and
moderate-income individuals and communities. Some commenters supported
such additional consideration as a way to increase a small bank's CRA
rating from a ``Satisfactory'' to an ``Outstanding.'' A commenter
suggested that the agencies should encourage small banks to increase
their community impacts as practice before becoming a larger bank.
Another commenter stated that, if the agencies provide additional
consideration for small banks, they should initially collect any data
on activities conducted that fall under any of the relevant performance
tests in a format provided by the bank to limit burden.
Final Rule
After consideration of these comments, the agencies are finalizing
the revisions in proposed Sec. __.29(a)(2), with certain modifications
related to the consideration of additional activities. Specifically,
the agencies are renumbering proposed Sec. __.29(a)(2) as Sec.
__.29(b)(1) and are adopting an additional provision in Sec.
__.29(b)(2). In Sec. __.29(b)(1), for small banks evaluated under the
Small Bank Lending Test, the final rule provides that in addition to
requesting and receiving additional consideration for the activities
described in proposed Sec. __.29(a)(2), a small bank may also request
additional consideration for the following activities without regard to
whether these activities are in one or more of the bank's facility-
based assessment areas: making community development investments;
providing community development services; and providing branches and
other services, digital delivery systems and other delivery systems,
and deposit products responsive to the needs of low- or moderate-income
individuals, families, or households, small businesses, and small
farms. The agencies note that credit products responsive to the needs
of low- and moderate-income individuals, families, or households, small
businesses, and small farms are considered under the Small Bank Lending
Test, and not separately as an additional consideration activity. The
agencies believe that these changes provide additional clarity and
specificity for small banks on the types and location of activities
that may qualify for additional consideration. The final rule maintains
the proposal's requirements that the bank's rating may
[[Page 7041]]
be adjusted from ``Satisfactory'' to ``Outstanding'' at the institution
level.
The final rule also adopts an additional provision in Sec.
__.29(b)(2) to provide that, for small banks that opt to be evaluated
under the Retail Lending Test, where a small bank requests and receives
additional consideration for activities that qualify under the Retail
Services and Products Test in Sec. __.23, the Community Development
Financing Test in Sec. __.24, or the Community Development Services
Test in Sec. __.25, the bank's rating may be adjusted from
``Satisfactory'' to ``Outstanding'' at the institution level. The
agencies believe that, in comparison to the proposal, the specific
references to the remaining three large bank performance tests provides
additional certainty and clarity for small banks that opt into the
Retail Lending Test.
As in the proposal, and consistent with the current regulations,
the agencies will not consider these additional activities to adjust a
``Needs to Improve'' rating to a ``Satisfactory'' or to an
``Outstanding'' rating so as to maintain a strong emphasis on retail
lending performance. The agencies continue to believe that additional
activities should not compensate for, or otherwise minimize poor retail
lending performance. The agencies note that in the final rule, as in
the current regulations, a small bank can continue to achieve any
rating, including ``Outstanding,'' based on its retail lending
performance alone and would not be required to be evaluated on other
activities.
The agencies have also added new final Sec. __.29(b)(3) to clarify
that notwithstanding the requirement that a small bank have a
``Satisfactory'' or ``Outstanding'' rating for the consideration of
additional activities under paragraphs (b)(1) and (2) of the section,
small banks may receive consideration for activities with MDIs, WDIs,
and LICUs, and for low-cost education loans without regard to the small
bank's rating. The agencies added this additional consideration to
provide clarity about how these activities and loans may be considered
in compliance with the requirements of the CRA.
The agencies considered comments suggesting that the agencies
should collect data on activities eligible for additional
consideration. On balance, the agencies believe that additional
consideration for such activities without a requirement to collect any
additional data or opt into any additional performance test beyond the
current small bank lending test may encourage additional activities for
low- and moderate-income individuals and communities and may encourage
small banks to increase their community impacts without increasing
regulatory burden. The agencies will, however, review appropriate
information related to the activities for which a small bank is
requesting additional consideration in a format of the bank's choosing.
Section __.29(c)(1) Small Bank Performance Conclusions
Section __.29(c)(2) Small Bank Performance Ratings
Current Approach
Current Sec. __.26(d) and current appendix A provide that the
agencies assign one of four ratings based on the performance of a bank
evaluated under the small bank performance standards: ``Outstanding,''
``Satisfactory,'' ``Needs to Improve,'' or ``Substantial
Noncompliance.'' \1463\ The agencies rate a small bank's lending
performance as ``Satisfactory'' if, in general, the bank demonstrates a
reasonable loan-to-deposit ratio; a majority of loans are in its
assessment area; a distribution of loans to, and for, individuals of
different income levels and businesses and farms of different sizes
that is reasonable given the demographics of the bank's assessment
areas; a record of taking appropriate action in response to written
complaints, if any, about the bank's performance in helping to meet the
credit needs of its assessment areas; and a reasonable geographic
distribution of loans given the bank's assessment areas.\1464\ Small
banks may be eligible for an ``Outstanding'' lending test rating if the
bank meets each of the standards for a ``Satisfactory'' rating
described above, and exceeds some or all of those standards.\1465\ A
small bank may also receive a lending test rating of ``Needs to
Improve'' or ``Substantial Noncompliance'' depending on the degree to
which its performance has failed to meet the standard for a
``Satisfactory'' rating.\1466\
---------------------------------------------------------------------------
\1463\ See current appendix A, paragraph (d)(1).
\1464\ See id. at paragraphs (d)(1)(i)(A) through (E).
\1465\ See id. at paragraph (d)(1)(ii).
\1466\ See id. at paragraph (d)(1)(iii).
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed to revise Sec. __.26(d), renumbered in the
proposal as Sec. __.29(a)(3), and to replace current appendix A with
proposed appendix E. Although current appendix A addresses performance
ratings for all banks, appendix E proposed to address small bank
conclusions and ratings as well as intermediate bank community
development evaluation conclusions to provide consistency with other
performance tests. Proposed appendix E provided that, unless a small
bank opts to be evaluated under the Retail Lending Test, the agencies
assign conclusions of ``Outstanding,'' ``Satisfactory,'' ``Needs to
Improve,'' or ``Substantial Noncompliance'' based on the small bank's
performance under Sec. __.29 in each facility-based assessment area to
arrive at the bank's overall rating assigned by the agencies. Proposed
appendix E also provided that, unless a small bank opts to be evaluated
under the Retail Lending Test, consistent with current appendix A, the
agencies would evaluate a small bank's performance under the applicable
performance criteria in the regulations and assign a rating of
``Outstanding,'' ``Satisfactory,'' ``Needs to Improve,'' or
``Substantial Noncompliance'' for the bank's performance. Under the
proposal, a small bank that meets each of the standards for a
``Satisfactory'' rating under the lending evaluation and exceeds some
or all of those standards would warrant consideration for an overall
rating of ``Outstanding.'' In assessing whether a bank's performance is
``Outstanding,'' the agencies proposed that they would consider the
extent to which the bank exceeds each of the performance standards for
a ``Satisfactory'' rating and its performance in making community
development investments and services and its performance in providing
branches and other services and delivery systems that enhance credit
availability in its facility-based assessment areas. A small bank would
also have received an overall bank rating of ``Needs to Improve'' or
``Substantial Noncompliance'' depending on the degree to which its
performance failed to meet the standards for a ``Satisfactory'' rating.
With respect to a small bank that opted to be evaluated under the
Retail Lending Test, the agencies proposed to evaluate the small bank
as provided for intermediate banks in proposed appendix D, with the
exception that no small bank would be evaluated on its retail lending
outside of its assessment areas, regardless of the amount of such
lending.
In appendix D, the agencies also proposed that a small bank
evaluated under the Retail Lending Test may request additional
consideration for its community development investments and services
and its performance in providing branches and other services and
delivery systems that enhance credit availability in its facility-based
assessment areas.
[[Page 7042]]
Final Rule
The agencies received no comments specifically related to the
revisions in proposed Sec. __.29(a)(3), renumbered in the final rule
as Sec. __.29(c)(1) and (2), pertaining to a small bank's conclusions
and ratings. Accordingly, the agencies are finalizing these provisions
as proposed. The agencies are also making certain revisions for clarity
and to conform to other changes made in Sec. __.29. Specifically,
final Sec. __.29(c)(1) clarifies that, except for a small bank that
opts to be evaluated under the Retail Lending Test, the agencies assign
conclusions in connection with a small bank evaluated pursuant to Sec.
__.29 as provided in appendix E. Final appendix E provides that the
agencies assign conclusions of ``Outstanding,'' ``Satisfactory,''
``Needs to Improve,'' or ``Substantial Noncompliance'' for a small
bank's test performance in each facility-based assessment area, in each
State or multistate MSA, as applicable, and for the institution as
provided in Sec. __.29. For a small bank that opts to be evaluated
under the Retail Lending Test, the agencies will assign conclusions
regarding the small bank's Retail Lending Test performance as provided
in final appendix C.
Final Sec. __.29(c)(2) provides that the agencies rate the
performance of a small bank evaluated under the Small Bank Lending
Test, as provided in appendix E. If the small bank opts to be evaluated
under the Retail Lending Test, the agencies rate the performance of the
small bank as provided by appendix D. In turn, final appendix D
provides that the agencies determine a small bank's rating for each
State or multistate MSA pursuant to Sec. __.28(c), and for the
institution based on the performance score for the bank's Retail
Lending Test conclusions for the State, multistate MSA, or institution,
respectively. In addition, the final rule removes the proposal's
exception that no small bank would be evaluated on its retail lending
outside of its assessment areas. As described in more detail in the
section-by-section analysis of Sec. __.22, to be consistent with
intermediate banks, the agencies will treat the outside retail lending
of a small bank the same as intermediate banks.
Section __.30 Intermediate Bank Performance Evaluation
Section __.30(a)(1) Intermediate Bank Performance Evaluation
Section __.30(a)(2) Intermediate Bank Community Development Test
Current Approach
Currently, the agencies define intermediate small banks as having
assets of at least $376 million as of December 31 of both of the prior
two calendar years and less than $1.503 billion as of December 31 of
either of the prior two calendar years.\1467\ The agencies evaluate
intermediate small banks under the small bank performance standards as
provided in current Sec. __.26(a)(2). Specifically, intermediate small
banks are currently evaluated under two performance tests: (1) the
small bank lending test in current Sec. __.26(b),\1468\ described
above in the section-by-section analysis of Sec. __.29(a); and (2) the
community development test in current Sec. __.26(c) that applies
exclusively to intermediate small banks. The test evaluates the
intermediate small bank's community development performance pursuant to
the following criteria: (1) the number and amount of a bank's community
development loans; (2) the number and amount of community development
investments; (3) the extent to which the bank provides community
development services; and (4) the bank's responsiveness through such
activities to community development lending, investment, and services
needs.\1469\ An intermediate small bank may allocate its resources
among community development lending, investment, and services in
amounts that the bank reasonably determines are the most responsive to
community development needs and opportunities.\1470\ However, an
intermediate small bank may not simply ignore one or more of these
categories of community development.\1471\ Neither the current
regulations nor the guidance prescribe a required threshold for each
category; instead, appropriate levels of each community development
category depend on the capacity and business strategy of the bank,
community needs, and the number and types of opportunities available
for community development within the bank's assessment areas.\1472\
---------------------------------------------------------------------------
\1467\ See current 12 CFR __.12(u). As noted above, the agencies
update this threshold annually based on the year-to-year change in
the average of the Consumer Price Index for Urban Wage Earners and
Clerical Workers, not seasonally adjusted.
\1468\ See also current 12 CFR __.21(a)(3).
\1469\ See current 12 CFR __.26(c)(1) through (4).
\1470\ See Q&A Sec. __.26(c)--1.
\1471\ See id.
\1472\ See id.
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed to revise current Sec. __.26(a)(2),
renumbered in the proposal as Sec. __.29(b), with respect to
evaluating intermediate small banks. First, the agencies proposed to
create a new ``intermediate bank'' category to replace the
``intermediate small bank'' category. The agencies proposed to define
intermediate banks in proposed Sec. __.12 to include banks with
average assets of at least $600 million as of December 31 of both of
the prior two calendar years and less than $2 billion as of December 31
of either of the prior two calendar years.\1473\ Second, in Sec.
__.29(b)(1), the agencies proposed to continue evaluating an
intermediate bank under two performance tests. Specifically, the
agencies proposed to evaluate intermediate banks under: (1) the
proposed Retail Lending Test; and (2) the current community development
test, unless the bank opts to be evaluated under the proposed Community
Development Financing Test in proposed Sec. __.24.\1474\
---------------------------------------------------------------------------
\1473\ See the section-by-section analysis of Sec. __.12 for a
discussion of the ``intermediate bank'' definition.
\1474\ See the section-by-section analysis of Sec. __.24.
---------------------------------------------------------------------------
In proposed Sec. __.29(b)(1), the agencies indicated that
intermediate banks would be evaluated under the Retail Lending Test, in
a manner tailored to intermediate banks (as further described in the
section-by-section analysis of Sec. __.22). The agencies did not
propose any new data collection, maintenance, or reporting requirements
for intermediate banks under the Retail Lending Test.\1475\ Consistent
with the current regulations, the agencies proposed to use data that
intermediate banks maintain in a format of their choosing or report
under other regulatory requirements.
---------------------------------------------------------------------------
\1475\ For a discussion of proposed retail lending data
requirements, see the section-by-section analysis of Sec. __.42.
---------------------------------------------------------------------------
In proposed Sec. __.29(b)(1), the agencies also provided that the
community development activities of intermediate banks be evaluated
using the intermediate bank community development evaluation, unless
the intermediate bank chose to be evaluated under the Community
Development Financing Test in proposed Sec. __.24.\1476\ As discussed
in more detail in the section-by-section analysis
[[Page 7043]]
of Sec. __.42(a)(5), the agencies proposed that an intermediate bank
that opts to be evaluated under the Community Development Financing
Test must collect and maintain the same data required of large banks,
but in the format used by the bank in the normal course of business.
---------------------------------------------------------------------------
\1476\ See the section-by-section analysis of Sec. __.24.
---------------------------------------------------------------------------
The agencies requested feedback on ways to further tailor the
Retail Lending Test for intermediate banks. The agencies also requested
comment on whether all banks, including intermediate banks, should have
the option to have their community development activities outside of
facility-based assessment areas considered. In addition, the agencies
requested feedback on whether intermediate banks should continue to
have the flexibility to have small business, small farm, and home
mortgage loans considered as community development loans, provided that
those loans have a primary purpose of community development pursuant to
proposed Sec. __.13 and the bank is not required to report those
loans. Relatedly, the agencies also requested feedback on whether an
intermediate bank should have the ability to have its small business or
small farm loans considered under the Retail Lending Test or, if they
have a primary purpose of community development pursuant to proposed
Sec. __.13, under the applicable community development evaluation,
regardless of the reporting status of these loans.
Comments Received
The agencies received a range of comments addressing the proposed
performance standards for intermediate banks from a wide variety of
commenters. Of the commenters that addressed the agencies' proposal to
evaluate intermediate banks under the Retail Lending Test, a few
supported this approach, while a majority recommended that the agencies
apply the Retail Lending Test to large banks only and continue to
evaluate intermediate banks, or give these banks the option to be
evaluated, under the lending test applicable to intermediate small
banks under the current CRA regulations. Some of these commenters
explained that significant implementation costs for intermediate banks
justified making the Retail Lending Test optional. A commenter stated
that the ability to opt into certain performance tests is critical for
intermediate banks (as well as small banks) and urged the agencies to
retain this provision. Another commenter stated that many community
banks and their communities may benefit most from being allowed to opt
into the proposed Retail Lending Test; however, this commenter viewed
the agencies' proposal as complex and questioned whether these banks
would have enough resources and time to adequately consider the
benefits of being evaluated under the new performance test. This
commenter also expressed concern that the proposal may effectively
encourage intermediate banks (and small banks) to maintain their status
quo examination approach, which the commenter believed would be a
suboptimal outcome if the community would have benefitted most from a
bank being evaluated under the new performance test.
Most commenters addressing the agencies' proposals for intermediate
banks commented on the proposed requirement to evaluate these banks
under the intermediate bank community development test. These
commenters expressed a range of views. For example, several of these
commenters suggested that the Community Development Financing Test
should not be optional but, instead, be required for intermediate banks
to create consistency among banks and examiners and to provide other
interested parties with a common understanding with respect to CRA
community development requirements. Other commenters, however,
supported providing intermediate banks with the flexibility to opt into
the Community Development Financing Test. As the Community Development
Financing Test does not include a review of community development
services, a few commenters expressed corresponding concerns, with one
commenter indicating that the overall level of intermediate banks'
community development services would decrease and another commenter
stating that intermediate banks should all be evaluated regarding
community development services activities even if they opt into being
evaluated under the Community Development Financing Test. Another
commenter suggested that the agencies should provide intermediate banks
with a formal option for electing to be evaluated under the Retail
Services and Products Test.
Regarding the agencies' request for feedback on ways to further
tailor the Retail Lending Test for intermediate banks, several
commenters provided recommendations. A commenter stated that
performance context should weigh more than positioning amongst peers in
an intermediate bank's evaluation. Several other commenters supported
tailoring that reduces Retail Lending Test data reporting requirements.
For example, one commenter applauded the agencies' decision to not
require any new data collection and reporting requirements. Other
commenters also recommended that, to the extent data reporting is
required, the agencies ought to use data already submitted by these
banks. A few other commenters expressed a contrary view, stating that
tailoring the Retail Lending Test with respect to data reporting
requirements would lead to data gaps and inconsistencies in assessing
activities and difficulties in comparing data across the agencies'
supervised banks. One of these commenters asserted that all
intermediate banks should be mandatory Retail Lending Test data
reporters, citing minimal burden and public benefit. Another commenter
recommended an alternative approach requiring that intermediate banks
provide Retail Lending Test data that they already collect on
activities across all assessment areas and for the agencies to, in
turn, conduct qualitative assessments in accordance with each relevant
performance test. According to this commenter, this approach would also
provide the agencies with data that could be used to assess what
systems and procedures would be needed to allow intermediate banks to
report data in accordance with the corresponding proposed large bank
requirements. Another commenter recommended that all Retail Lending
Test requirements applicable to large banks be applied to intermediate
banks, and noted that, although this would be more rigorous for
intermediate banks it would also be more predictable and add
transparency. A few commenters indicated that only large banks should
be subject to the Retail Lending Test.
Several commenters responded to the agencies' request for feedback
on questions about counting retail loans under the applicable community
development test for intermediate banks. Most of these commenters
expressed support for intermediate banks having flexibility to have
small business, small farm, and home mortgage loans considered as
community development loans regardless of a loan's reporting status. A
few of these commenters also suggested that intermediate banks needed
to be provided with targeted performance standards to help decide
whether a loan should be evaluated under the Retail Lending Test or
under either the intermediate bank community development test or, at
the bank's option, the Community Development Financing Test. However,
another
[[Page 7044]]
commenter did not support providing community development consideration
for retail loans on the basis that retail lending and community
development lending serve different purposes, and recommended that if
an intermediate bank wants credit for retail lending it should
voluntarily report that lending for consideration under the Retail
Lending Test.
As noted above, the agencies requested comment on whether all
banks, including intermediate banks, should have the option to have
their community development activities outside of facility-based
assessment areas considered. A few commenters addressing this question
supported giving all banks the option to receive such consideration,
regardless of their size or whether they elect to be evaluated under a
strategic plan. A commenter indicated that small lenders are often in
the best position to engage in community development activities in
underserved areas, but are not required to do so; accordingly, it would
be beneficial to give them the option to engage in such activities
outside of their facility-based assessment areas, including through the
incentive of possibly receiving an ``Outstanding'' rating.
Final Rule
For the reasons stated below, the agencies are finalizing proposed
Sec. __.29(b)(1), renumbered as Sec. __.30(a)(1) in the final rule,
pertaining to the evaluation of an intermediate bank's retail lending
performance under the Retail Lending Test, and its community
development activities under the intermediate bank community
development evaluation (in proposed Sec. __.29(b)(2), renumbered as
Sec. __.30(a)(2)(i))--renamed in the final rule as Intermediate Bank
Community Development Test--unless an intermediate bank opts to be
evaluated under the Community Development Financing Test. The agencies
are also making technical changes to improve the clarity and
organization of this paragraph. Specifically, the agencies are
clarifying the criterion in proposed Sec. __.29(b)(2)(iv), renumbered
as Sec. __.30(a)(2)(i)(D), that the agencies' evaluation of the
responsiveness of the bank's activities is informed by information
provided by the bank and may be informed by the impact and
responsiveness review factors described in Sec. __.15(b). The agencies
believe that providing some of the specific factors they will consider
when evaluating the degree of responsiveness of intermediate bank's
community development loans, investments, and services improves the
ability of stakeholders to assess the qualitative impact of the
activities. The agencies also note that renumbering of this section
serves to separate the performance standards for small banks in Sec.
__.29 from the performance standards for intermediate banks in new
Sec. __.30. The agencies believe that this revision improves
organizational clarity and readability.
With respect to the Retail Lending Test, the agencies believe
applying this performance test to intermediate banks is appropriate
because evaluating an intermediate bank under the Retail Lending Test,
rather than the Small Bank Lending Test in Sec. __.29, provides
intermediate banks (and the public) with increased clarity,
consistency, and transparency on applicable supervisory expectations,
and standards for evaluating their retail lending performance. In
addition, as the asset size of intermediate banks increased to between
$600 million and less than $2 billion in assets,\1477\ the agencies
believe that banks in this asset-size category should have sufficient
resources and capacity to adjust to the Retail Lending Test,
particularly as no new data reporting and no delineation of retail
lending assessment areas are required. In addition, as described
further in the section-by-section analysis of Sec. __.22, intermediate
banks are treated differently related to the retail lending volume
screen and the outside retail lending assessment area. This approach
also supports an easier potential transition to the large bank category
later, as these intermediate banks will be familiar with certain Retail
Lending Test requirements applicable to large banks and would need to
adjust to a smaller set of additional requirements.
---------------------------------------------------------------------------
\1477\ See the section-by-section analysis of Sec. __.12.
---------------------------------------------------------------------------
The agencies considered comments that a tailored approach to the
Retail Lending Test for intermediate banks might lead to corresponding
data gaps, inconsistencies in assessing activities, and difficulties in
comparing data across banks. Under the final rule, the agencies have
sought to achieve a balance between ensuring a standardized evaluation
approach that is informed by metrics, and limiting additional
complexity and burden, in particular for small and intermediate banks,
as discussed in the section-by-section analysis of Sec. __.42. In
light of these objectives, the agencies believe it is appropriate to
tailor data collection and reporting requirements for intermediate
banks, recognizing that any data requirements for these banks would
create additional burden. Additionally, for those banks that do not
have data collection and maintenance requirements, the agencies may use
bank data collected in the ordinary course of business, or may use
sampling techniques to compute metrics for the bank.
With respect to an intermediate bank's community development
evaluation, the agencies believe that retaining the flexibility for
these banks to be evaluated under the Intermediate Bank Community
Development Test or, at the bank's option, to be evaluated under the
Community Development Financing Test, recognizes these banks' more
limited capacity compared to larger banks. The agencies believe
tailoring the evaluation for intermediate banks is necessary to
appropriately reflect their resources and capacity relative to large
banks, and the focus of their business models, which is generally on
their facility-based assessment areas. Moreover, although the agencies
recognize commenter concerns that requiring intermediate banks to be
evaluated under the Community Development Financing Test may promote
greater consistency among banks and examiners, the agencies are not
persuaded that the additional Community Development Financing Test data
collection, maintenance, and reporting burden would in all cases
outweigh the additional benefits. In addition, the agencies believe
that providing intermediate banks with flexibility to opt into the
Community Development Financing Test best supports the agencies'
objective of tailoring the evaluation to best fit an intermediate
bank's size, business model, and business strategy. Of note, both the
Intermediate Bank Community Development Test and the Community
Development Financing Test are intended to consider and evaluate
intermediate bank community development loans and community development
investments. In addition, the agencies note that the Intermediate Bank
Community Development Test includes community development services,
while community development services are considered at the bank's
option for intermediate banks evaluated under the Community Development
Financing Test. So, too, the results of the agencies' evaluation of an
intermediate bank's community development activities, evaluated under
in either performance test, will be presented in the public portion of
the bank's CRA performance evaluation. This, in turn, will assist
stakeholders to
[[Page 7045]]
understand how these community development activities are assessed and
regulated.
The agencies also believe that the flexibility of permitting
intermediate banks to opt to have their retail services and products
considered in order to potentially elevate an overall rating from a
``Satisfactory'' to an ``Outstanding'' makes it unnecessary to
incorporate a formal intermediate bank opt-in to the Retail Services
and Products Test.
The agencies acknowledge the importance of performance context in
the CRA evaluation of any bank. However, the agencies do not believe
that it is appropriate to weight an intermediate bank's performance
context considerations more than its actual retail lending and
community development activities given the CRA's strong emphasis on
retail lending and community development performance in order to meet
community needs. Examiners will continue to consider a bank's capacity,
business model, business strategy, and other performance context
factors when evaluating the overall performance of intermediate and
other banks, as discussed in the section-by-section analysis of Sec.
__.21.
Upon consideration of the comments, the agencies have decided to
permit an intermediate bank to receive consideration for retail loans
that have a community development purpose under both the Retail Lending
Test (under which the number of such loans will be considered) and
under either the Intermediate Bank Community Development Test or, at
the bank's option, the Community Development Financing Test (under
which the dollar amount of such loans will be considered). To
accomplish this, the agencies are removing the provision in proposed
Sec. __.22(a)(5) that made the consideration of retail loans for
intermediate banks exclusive to the Retail Lending Test. The agencies
believe that it is appropriate to consider a retail loan as a community
development loan if the retail loan meets the definition of a community
development loan pursuant to final Sec. Sec. __.12 and __.13, given
the different considerations applicable to these loans pursuant to the
relevant performance tests. For example, closed-end home mortgage loans
considered under the Retail Lending Test are excluded from community
development consideration unless these loans are one-to-four family
home mortgage loans for rental housing with affordable rents in
nonmetropolitan census tracts. The agencies also believe that the
decision regarding which retail loans to request consideration for as a
community development loan should be left to the bank using the
criteria provided in Sec. __.13 to determine whether a retail loan has
a community development purpose as described in that section.
Section __.30(a)(2)(ii) Consideration of Community Development
Activities Outside Facility-Based Assessment Areas
The agencies are persuaded by commenters' recommendations that all
banks' community development activities, including those of an
intermediate bank, be considered without regard to whether the activity
is conducted in the bank's facility-based assessment areas.
Accordingly, the agencies are revising final Sec. __.19 to provide
that all banks, including intermediate banks, may receive consideration
for community development loans, investments, or services provided
outside of their facility-based assessment areas. The agencies believe
providing consideration for community development activities outside a
bank's facility-based assessment areas adds certainty and will
contribute to higher levels of community development activities. The
agencies also believe consideration for these outside activities will
encourage activities in areas with high community development needs,
such as underserved areas, while not increasing burden since banks
would not be required to serve these areas if not otherwise required to
do so. This provision includes intermediate banks that opt to be
evaluated under the Community Development Financing Test in final Sec.
__.24.
The agencies are also adopting an additional provision in Sec.
__.30(a)(2)(ii) to provide that community development activities of an
intermediate bank evaluated under either the Intermediate Bank
Community Development Test or, at the bank's option, the Community
Development Financing Test, are considered regardless of whether the
activity is conducted in one or more of the bank's facility-based
assessment areas. The extent of the consideration given to community
development activities outside of an intermediate bank's facility-based
assessment areas will depend on the adequacy of the bank's
responsiveness to the needs and opportunities for community development
activities within the bank's facility-based assessment areas and
applicable performance context information. The agencies believe that
providing consideration for community development activities outside of
a bank's facility-based assessment areas introduces additional
certainty that will incentivize higher levels of community development
activities. The agencies also believe that consideration for these
outside activities will encourage activities in areas with high
community development needs, such as underserved areas, while not
increasing regulatory burden as banks would not be required to serve
these areas. Further, the agencies believe that these activities would
not supplant facility-based assessment area community development
activities but could instead provide banks with the flexibility to
engage in outside activities, particularly when there are limited
opportunities for such community development activities in a bank's
facility-based assessment area.
Section __.30(b) Additional Consideration
Current Approach and the Agencies' Proposal
As explained in the section-by-section analysis of Sec.
__.30(a)(1) and (2), an intermediate small bank is currently subject to
the small bank lending test and a community development test, which
includes consideration of community development lending, investments,
and services. The agencies proposed in Sec. __.29(b)(3) that if an
intermediate bank opts to be evaluated under the Community Development
Financing Test the bank would have the option to request additional
consideration for activities that qualify under the Retail Services and
Products Test and the Community Development Services Test for possible
adjustment of an overall rating of ``Satisfactory'' to ``Outstanding.''
The agencies did not propose to provide additional consideration for
retail services and products and community development services for
intermediate banks evaluated under the intermediate bank community
development evaluation in proposed Sec. __.29(b)(2), because, as
explained in the proposal, the agencies believed this section already
incorporated those activities in the status quo intermediate bank
community development evaluation.
Final Rule
The agencies received no specific comments related to the provision
for additional consideration of an intermediate bank's activities that
qualify under other performance tests. Accordingly, the agencies are
finalizing proposed Sec. __.29(b)(3), renumbered as Sec. __.30(b),
with a few revisions for
[[Page 7046]]
clarity. Specifically, the agencies are clarifying their intent that,
if an intermediate bank requests and receives consideration for
additional activities, the agencies may adjust the bank's rating from a
``Satisfactory'' to an ``Outstanding,'' regardless of whether the bank
is evaluated under the Intermediate Bank Community Development Test or
the Community Development Financing Test.
In the preamble to the proposed rule, the agencies explained that
additional consideration for retail services and products and community
development services would not be appropriate for an intermediate bank
that is evaluated under the intermediate bank community development
evaluation because proposed Sec. __.29(b)(2) already incorporated
those activities. However, the agencies note that proposed Sec.
__.29(b)(2) did not address additional consideration for certain retail
services and products included under the Retail Services and Products
Test, even though the agencies intended to provide such consideration.
Accordingly, the agencies are finalizing Sec. __.30(b)(1) to make
clear that an intermediate bank evaluated under the Intermediate Bank
Community Development Test may also request and receive additional
consideration for activities that qualify under the Retail Services and
Products Test, provided the bank achieves an overall institution rating
of at least ``Satisfactory.'' It is not necessary to provide these
intermediate banks with additional consideration for community
development services because the Intermediate Bank Community
Development Test already incorporates an evaluation of community
development services.
The final rule also revises proposed Sec. __.29(b)(3), renumbered
as Sec. __.30(b)(2), to clarify that an intermediate bank that opts to
be evaluated under the Community Development Financing Test must
achieve an overall institution level rating of at least
``Satisfactory'' to request and receive additional consideration for
activities that qualify under the Retail Services and Products Test,
the Community Development Services Test, or both.
Similar to the requirements for small banks, the agencies will
consider these activities to potentially elevate a bank's overall
institution rating from ``Satisfactory'' to ``Outstanding, but would
not elevate a ``Needs to Improve'' rating to a ``Satisfactory'' or an
``Outstanding'' rating. Additionally, an intermediate bank could
likewise continue to achieve any rating, including an ``Outstanding''
rating, based on its retail lending and community development
performance alone, and would not be required to be evaluated on other
activities eligible for additional consideration.
The agencies have also added new final Sec. __.30(b)(3) to clarify
that notwithstanding the requirement that an intermediate bank must
achieve a ``Satisfactory'' or ``Outstanding'' rating for the
consideration of additional activities under paragraphs (b)(1) and (2)
of the section, intermediate banks may receive additional consideration
for low-cost education loans without regard to the intermediate bank's
overall institution rating. The agencies added this additional
consideration to provide clarity about how low-cost education loans may
be considered in compliance with the requirements of the CRA.\1478\
---------------------------------------------------------------------------
\1478\ See 12 U.S.C. 2903(d).
---------------------------------------------------------------------------
Section __.30(c) Intermediate Bank Performance Conclusions and Ratings
Current Approach
Current Sec. __.26(d) provides that the agencies assign the
performance of a bank evaluated under the small bank performance
standards one of four ratings, as set forth in current appendix A:
``Outstanding,'' ``Satisfactory,'' ``Needs to Improve,'' or
``Substantial Noncompliance.'' \1479\
---------------------------------------------------------------------------
\1479\ Current appendix A, paragraph (d)(1).
---------------------------------------------------------------------------
Under current appendix A, the agencies assign intermediate small
banks evaluated under the small bank lending test conclusions of
``Outstanding,'' ``Satisfactory,'' ``Needs to Improve,'' or
``Substantial Noncompliance'' based on the bank's lending performance.
The agencies rate an intermediate small bank's lending performance as
``Satisfactory'' if, in general, the bank demonstrates a reasonable
loan-to-deposit ratio; a majority of loans are in its assessment areas;
a distribution of loans to, and for individuals of, different income
levels and businesses and farms of different sizes that is reasonable
given the demographics of the bank's assessment areas; a record of
taking appropriate action, in response to written complaints, if any,
about the bank's performance in helping to meet the credit needs of its
assessment areas; and a reasonable geographic distribution of loans
given the bank's assessment areas. An intermediate small bank that
meets each of the standards for a ``Satisfactory'' rating under the
lending test and exceeds some or all of those standards may warrant
consideration for a lending test rating of ``Outstanding.''
Under the current intermediate small bank community development
test, the agencies rate the bank's community development performance
``Satisfactory'' if the bank demonstrates adequate responsiveness to
the community development needs of its assessment areas through
community development loans, community development investments, and
community development services. The adequacy of the bank's response
will depend on its capacity for such community development activities,
its assessment areas' need for such community development activities,
and the availability of such opportunities for community development in
the bank's assessment areas. The agencies rate an intermediate small
bank's community development performance ``Outstanding'' if the bank
demonstrates excellent responsiveness to community development needs in
its assessment areas through community development loans, community
development investments, and community development services, as
appropriate, considering the bank's capacity and the need and
availability of such opportunities for community development in the
bank's assessment areas.
The agencies may assign an intermediate small bank a community
development test rating of ``Needs to Improve'' or ``Substantial
Noncompliance'' depending on the degree to which its performance has
failed to meet the standards for a ``Satisfactory'' rating.
Pursuant to current appendix A, an intermediate small bank may not
receive an assigned overall rating of ``Satisfactory'' unless it
receives a rating of at least ``Satisfactory'' on both the lending test
and the community development test.\1480\ An intermediate small bank
that receives an ``Outstanding'' rating on one test and at least
``Satisfactory'' on the other test may receive an assigned overall
rating of ``Outstanding.'' \1481\
---------------------------------------------------------------------------
\1480\ Id.
\1481\ See current appendix A, paragraph (d)(3)(ii)(A).
---------------------------------------------------------------------------
The Agencies' Proposal
For intermediate banks, the agencies proposed to revise current 12
CFR __.26(d) (Small bank performance rating), renumbered in the
proposal as proposed Sec. __.29(b)(4) (Intermediate bank performance
ratings), to provide that the agencies would rate the performance of an
intermediate bank as provided in proposed appendices D (Ratings) and E
(Small Bank Conclusions and Ratings and Intermediate Bank Community
[[Page 7047]]
Development Evaluation Conclusions). In proposed appendix E, the
agencies proposed to rate an intermediate bank's performance as
described in appendix D.\1482\ Pursuant to proposed appendix D, for
intermediate banks evaluated under the Retail Lending Test and the
Community Development Financing Test, the agencies proposed to combine
an intermediate bank's raw performance scores for its State or
multistate MSA performance under the Retail Lending Test and the
Community Development Financing Test to determine the bank's rating at
the State or multistate MSA level and for the institution.\1483\ The
agencies proposed to weight the performance scores equally: Retail
Lending Test (50 percent) and Community Development Financing Test (50
percent). The agencies proposed to multiply each of these weights by
the bank's corresponding performance score on the respective
performance test, and then add the resulting values together to develop
a State, multistate MSA, or institution performance score. For this
calculation, the performance score for the Retail Lending Test and the
Community Development Test alike corresponds to the conclusion
assigned, as follows: ``Outstanding'' (10 points); ``High
Satisfactory'' (7 points); ``Low Satisfactory'' (6 points); ``Needs to
Improve'' (3 points); ``Substantial Noncompliance'' (0 points). The
agencies would then assign a rating corresponding to the rating
category that is nearest to the State, multistate MSA, or institution
performance score, as provided in proposed appendix D.
---------------------------------------------------------------------------
\1482\ See proposed appendix E, paragraph b.2.
\1483\ See proposed appendix D, paragraph c.
---------------------------------------------------------------------------
Proposed appendix D further provided that the agencies may adjust
an intermediate bank's institution rating from ``Satisfactory'' to
``Outstanding'' where the bank requests and receives sufficient
additional consideration for activities that qualify under the Retail
Services and Products Test, the Community Development Services Test, or
both.
Pursuant to proposed appendix E, for intermediate banks evaluated
under the Retail Lending Test and the intermediate bank community
development performance evaluation, the agencies proposed to assign
conclusions for an intermediate bank's community development
performance of ``Outstanding,'' ``High Satisfactory,'' ``Low
Satisfactory,'' ``Needs to Improve,'' or ``Substantial Noncompliance.''
The agencies proposed to assign an intermediate bank's community
development performance a ``Low Satisfactory'' conclusion if the bank
demonstrated adequate responsiveness, and a ``High Satisfactory''
conclusion if the bank demonstrated good responsiveness, to the
community development needs of its facility-based assessment areas
through community development loans, community development investments,
and community development services. The agencies proposed that their
determination of the adequacy of the bank's response would depend on
the bank's capacity for such community development activities, its
facility-based assessment areas' need for such community development
activities, and the availability of such opportunities for community
development in the bank's facility-based assessment areas. The agencies
proposed to consider an intermediate bank's retail banking services and
products activities as community development services if they provide
benefit to low- and moderate-income individuals.
Additionally, the agencies proposed to assign an intermediate
bank's community development performance an ``Outstanding'' conclusion
if the bank demonstrated excellent responsiveness to community
development needs in its facility-based assessment areas through
community development loans, community development investments, and
community development services, as appropriate, considering the bank's
capacity and the need and availability of such opportunities for
community development in the bank's facility-based assessment areas.
The agencies proposed to assign an intermediate bank's community
development performance a ``Needs to Improve'' or ``Substantial
Noncompliance'' conclusion depending on the degree to which the bank's
performance had failed to meet the standards for a ``Satisfactory''
conclusion.
Comments Received
The agencies received a few comments specifically related to an
intermediate bank's conclusions and ratings. Related to the equal 50
percent weighting between the Retail Lending Test and the intermediate
bank community development evaluation, these commenters supported equal
weighting under the assumption that community development services are
part of the intermediate bank community development evaluation. One of
the commenters stated that if community development services are
optional, the Retail Lending Test weight should be increased to 55 or
60 percent to leverage more lending.
The agencies also received comments on what should constitute an
overall passing score (i.e., an overall ``Satisfactory'') for a bank's
CRA performance. A commenter agreed with the proposal that intermediate
banks must have at least a ``Low Satisfactory'' on the Retail Lending
Test to pass overall, but opposed eliminating the requirement that
banks have a ``Satisfactory'' rating on the community development test
to have ``Satisfactory'' rating overall, stating that there is no
justification for removing this requirement.
Final Rule
The agencies are finalizing proposed Sec. __.29(b)(4), renumbered
in the final rule as Sec. __.30(c)(1) and (2), pertaining to an
intermediate bank's performance conclusions and ratings, with revisions
to provide separate provisions for conclusions and ratings.
Specifically, the agencies are finalizing Sec. __.30(c)(1), which
provides that the agencies assign a conclusion for the performance of
an intermediate bank evaluated pursuant to final Sec. __.30 as
provided in final appendices C and E. The agencies are also finalizing
Sec. __.30(c)(2), which provides that the agencies rate the
performance of an intermediate bank evaluated pursuant to final Sec.
__.30 as provided in final appendix D.
The agencies are also finalizing as proposed the respective weights
of the Retail Lending Test at 50 percent and either the Intermediate
Bank Community Development Test or, at the bank's option, the Community
Development Financing Test, also at 50 percent. The agencies note that
they considered various weighting combinations to apply to a two
performance-test analysis; however, the agencies have ultimately
determined that the weights as finalized are appropriate, and did not
increase the Retail Lending Test weight. The agencies continue to
believe that the weight for each test, as finalized, reflects the CRA's
emphasis on retail lending and the importance of community development
activities in meeting community credit needs. In comparison to
alternatives where a greater emphasis is placed on one of the two
applicable performance tests, the agencies determined that an equal
weighting on both tests best recognizes bank performance for both
retail lending and community development and avoids diminution of one
type of performance in favor of the other. The agencies also note that
the weighting of the performance tests in the final rule is consistent
with the current practice for
[[Page 7048]]
intermediate small banks, which gives equal weight to retail lending
and community development activities.
For the final rule, the agencies also considered the impact of the
additional consideration of other activities, including community
development services, on the weight of the performance tests. The
agencies continue to believe that the flexibility intermediate banks
have to decide which community development performance test better fits
their bank will allow banks that currently participate heavily in
community development services to continue to have these services
evaluated under the Intermediate Bank Community Development Test or to
have these community development services given additional
consideration under the Community Development Financing Test. In
addition, the agencies also believe that maintaining consistency in the
evaluation framework outweighs additional adjustments based on which
community development performance test applies to the intermediate
bank.
The agencies are also finalizing as proposed the requirement that
an intermediate bank receive at least a ``Low Satisfactory'' on the
Retail Lending Test for the bank to receive an overall ``Satisfactory''
rating. As the agencies explained in the proposal, this requirement
serves to prevent a bank from receiving a ``Satisfactory'' or higher
rating at the State or multistate MSA level or for the institution if
it fails to meet its community's credit needs for retail loans.
Consistent with current practice, the agencies are finalizing this
requirement to emphasize the importance of retail loans to low- and
moderate-income individuals, and in low- and moderate-income
communities.
Finally, the agencies believe that removal of the requirement that
an intermediate bank receive a ``Satisfactory'' on both applicable
performance tests in order to receive an overall ``Satisfactory'' CRA
rating will allow intermediate banks to best determine how to meet
community credit needs consistent with their more limited capacities.
Moreover, the agencies believe this aspect of the final rule provides
parity between intermediate and large banks, as this requirement is
only applicable to intermediate small banks in the current rule, which
holds these banks to a higher standard of performance than their larger
counterparts.
Section __.31 Effect of CRA Performance on Applications
Current Approach
Under the current CRA regulations, the agencies take into account a
bank's CRA performance when considering certain applications, including
but not limited to: the establishment of a domestic branch; a merger,
consolidation, acquisition of assets, or assumption of liabilities; the
relocation of a main office or branch; a deposit insurance request; and
transactions subject to the Bank Merger Act, the Bank Holding Company
Act, or the Home Owners' Loan Act.\1484\ In considering these
applications, the agencies also take into account any views expressed
by interested parties that are submitted in accordance with the
applicable comment procedures.\1485\
---------------------------------------------------------------------------
\1484\ See current 12 CFR 25.29(a) (OCC), 228.29(a) (Board), and
345.29(a) (FDIC). The agencies' respective CRA regulations include
provisions that relate directly to each of their specific
authorities with regard to banking applications.
\1485\ See current 12 CFR 25.29(c) (OCC), 228.29(b) (Board), and
345.29(c) (FDIC).
---------------------------------------------------------------------------
A bank's record of CRA performance may be the basis for denying or
conditioning approval of an application.\1486\ In reviewing
applications in which CRA performance is a relevant factor, information
from a bank's CRA examination is a particularly important, and often
controlling, factor in the consideration of a bank's record.\1487\ The
agencies' consideration of CRA performance on applications implements
the statutory requirement that the agencies take into account a bank's
record of meeting the credit needs of its entire community, including
low- and moderate-income neighborhoods, consistent with the safe and
sound operation of such bank, in evaluating applications for a deposit
facility by such bank.\1488\
---------------------------------------------------------------------------
\1486\ See current 12 CFR 25.29(d) (OCC), 228.29(c) (Board), and
345.29(d) (FDIC).
\1487\ See Q&A Sec. __.29(a)-1.
\1488\ See 12 U.S.C. 2903(a); see also 12 U.S.C. 2902(3).
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed to renumber current Sec. __.29 to proposed
Sec. __.31 but did not propose any substantive changes to current
Sec. __.29.\1489\ The agencies sought feedback on the sufficiency of
the agencies' current policies for considering CRA performance in
connection with applications and whether any changes could make the
process more effective.
---------------------------------------------------------------------------
\1489\ Each agency proposed, and is finalizing, final Sec.
__.31 as part of its agency-specific amendments.
---------------------------------------------------------------------------
Comments Received
The agencies received comments related to proposed Sec. __.31 from
a variety of stakeholders. Some commenters provided input specifically
on the effect of a bank's CRA rating on an application. One commenter
stated that current policies related to the effect of CRA performance
on applications are sufficient, with other commenters suggesting
changes. Some of these commenters stated that an ``Outstanding'' CRA
rating must not be considered evidence that a merging bank has
satisfied the public benefits legal requirement \1490\ because the CRA
rating is retrospective and does not consider the resulting bank,
whereas another commenter suggested that the agencies deem a bank with
an ``Outstanding'' CRA rating to have satisfied the convenience and
needs standard for purposes of the application's processing to
incentivize banks to achieve an ``Outstanding'' rating. Further, a
commenter stated that banks with a poor CRA rating should be prevented
from merging and another commenter suggested banks rated
``Outstanding'' should be reviewed more closely when purchasing banks
rated less than ``Outstanding.'' In a similar vein, a commenter
supported efforts to hold banks accountable if they fail CRA
examinations or wish to acquire a bank with a better CRA rating. Other
commenters specifically called for greater public and regulatory
scrutiny of applications by banks with a ``Low Satisfactory'' CRA
rating and for a requirement that these banks submit a plan to improve
their CRA rating. One commenter urged the agencies to state how a
``Needs to Improve'' CRA rating would affect applications.
---------------------------------------------------------------------------
\1490\ The agencies believe that the commenter is likely
referring to the convenience and needs standard under the Bank
Merger Act. See 12 U.S.C 1828(c)(5); see also 12 CFR
5.33(e)(1)(ii)(C).
---------------------------------------------------------------------------
Many commenters that provided input on proposed Sec. __.31 also
discussed the agencies' processes and standards for reviewing merger
applications. Many of these commenters stated that the agencies must
scrutinize mergers more closely to ensure that community credit needs,
convenience and needs, and public benefits standards are met.
Specifically, many of these commenters supported holding more frequent
public meetings or soliciting more public comments when considering
merger applications or suggested that public meetings should be held as
a matter of course for all mergers; for all large bank merger
applications; or whenever there are public comments, a request for a
public
[[Page 7049]]
meeting, or for any applicants with less than an ``Outstanding'' CRA
rating. Some commenters stated there should be at least 90 days in
which to comment on a merger. In addition, some commenters stated that
the agencies' review of mergers should include review of consumer
complaints, community comments, and CFPB and other agency
investigations. Many commenters suggested that the agencies should deny
mergers unless an applicant demonstrates how a merger will benefit the
community. Other commenters raised specific concerns about application
delays associated with public comments, which they stated can result in
significant increased costs and talent retention concerns.
The agencies also received several comments relating to CBAs and
community benefit plans (CBPs). Most commenters supported considering
or otherwise encouraging CBAs or CBPs to be part of merger application
reviews or endorsed requiring applicants to submit a CBA or CBP as part
of the merger application process. Some commenters requested that the
agencies monitor and enforce compliance with CBAs and CBPs.
Final Rule
The agencies are adopting final Sec. __.31 as proposed with one
technical edit. Consistent with Federal Register drafting guidelines,
the Agencies have replaced the word ``shall'' with the word ``must.''
\1491\
---------------------------------------------------------------------------
\1491\ See National Archives, Office of the Federal Register,
``Principals of Clear Writing,'' https://www.archives.gov/federal-register/write/legal-docs/clear-writing.html.
---------------------------------------------------------------------------
The agencies believe that the current rule as well as final Sec.
__.31 appropriately implement the statutory requirement that the
agencies take a bank's CRA record into account in evaluating
applications. As noted above, the current rule as well as final Sec.
__.31 provide that a bank's record of performance under the CRA
examination may be the basis for denying or conditioning approval of an
application. Further, a bank's CRA performance is often a controlling
factor in the consideration of a bank's record when reviewing
applications in which CRA performance is a relevant factor.\1492\ The
agencies also note that current regulations generally provide expedited
application review for banks rated at least ``Satisfactory.'' \1493\
---------------------------------------------------------------------------
\1492\ Q&A Sec. __.29(a)-(1). See, e.g., 12 CFR 5.39(i)(5)
(OCC), 208.75 (Board), and 362.18(b) (FDIC).
\1493\ See 12 CFR parts 5 (OCC), 208 and 225 (Board), and 303
(FDIC).
---------------------------------------------------------------------------
The agencies note that CRA examinations are a retrospective
evaluation of a bank's record of meeting the credit needs of its
community, while a convenience and needs assessment under the Bank
Merger Act is prospective and, as such, considers how the combined
institution will serve the needs of its communities following
consummation of the proposed transaction. Further, the agencies review
a bank's CRA record comprehensively and believe that each application
should be reviewed according to its specific facts and circumstances.
In some cases, the CRA examination might not be recent, or a specific
issue raised in the application process might not be reflected in the
CRA rating (although it might be generally relevant to a CRA
evaluation), such as a bank's progress in addressing weaknesses noted
by examiners or implementing commitments previously made to the
reviewing agency. In addition, pursuant to final Sec. __.31(c), the
agencies review public comments received on the application. Therefore,
agency discretion is necessary during the application process with
respect to taking into account a bank's CRA performance.
The agencies appreciate the feedback on the Bank Merger Act
application process and CBAs and CBPs, but note that these comments are
outside the scope of this rulemaking.\1494\
---------------------------------------------------------------------------
\1494\ Id. The comments on bank mergers are more applicable to
the agencies' merger regulations and related processes. See 12 CFR
parts 5 (OCC), 208 and 225 (Board), and 303 (FDIC).
---------------------------------------------------------------------------
Section __.42 Data Collection, Reporting, and Disclosure
Current Approach--Generally
Current Data Collection and Reporting Requirements
Current Data Used for Deposits. The current CRA regulations do not
require banks to collect or report deposits data. Instead, for small
banks, total deposits and total loans data from the Call Report are
used to calculate the loan-to-deposit ratio for the entire bank. Total
deposits allocated to each branch from the FDIC's Summary of Deposits
are used for performance context for banks of any size. Deposits data
by depositor location are not currently collected or reported.
Current Small Bank and Intermediate Small Bank Data Standards for
Retail Lending. The current CRA regulations do not require small banks
and intermediate small banks to collect, maintain, or report loan data,
unless they opt to be evaluated under the lending, investment, and
service tests that apply to large banks.\1495\ Examiners generally use
information for a bank's major loan products gathered from individual
loan files or maintained on the bank's internal operating systems,
including data reported pursuant to HMDA, if applicable.
---------------------------------------------------------------------------
\1495\ See current 12 CFR __.42(f).
---------------------------------------------------------------------------
Current Large Bank Data Standards for Retail Lending and Community
Development Financing. Under the current CRA regulations, large banks
collect and report certain lending data for home mortgages, small
business loans, small farm loans, and community development loans,
pursuant to either HMDA or the CRA regulation.\1496\ CRA data reporting
requirements are based on bank size, not type of exam.\1497\ If a bank,
such as a wholesale or limited purpose bank, does not engage in lending
of a particular type, current regulations do not require reporting such
data. Examiners use this lending data and other supplemental data to
evaluate CRA performance. A bank may use the software provided by the
FFIEC for data collection and reporting or develop its own programs.
Retail lending data collection and reporting requirements differ based
on the product line.
---------------------------------------------------------------------------
\1496\ See current 12 CFR __.42.
\1497\ See Q&A Sec. __.42-1.
---------------------------------------------------------------------------
For large banks that do not report HMDA data, examiners use home
mortgage information maintained on the bank's internal operating
systems or from individual loan files. The data elements for home
mortgage loans used for CRA evaluations include loan amount at
origination, location, and borrower income. For small business loans
and small farm loans, the CRA regulations require large banks to
collect and maintain the loan amount at origination, loan location, and
an indicator of whether a loan was to a business or farm with gross
annual revenues of $1 million or less.\1498\ Large banks report
aggregate small business and small farm data at the census tract
level.\1499\
---------------------------------------------------------------------------
\1498\ See current 12 CFR __.42(a).
\1499\ See current 12 CFR __.42(b)(1).
---------------------------------------------------------------------------
Large banks are not required to collect or report data on consumer
loans. However, if a large bank opts to have consumer loans considered
as part of its CRA evaluation, it must collect and maintain this
information based on the category of consumer loan and include it in
its public file.\1500\
---------------------------------------------------------------------------
\1500\ See current 12 CFR __.42(c)(1).
---------------------------------------------------------------------------
The current CRA regulations also require large banks to report the
aggregate number and dollar amount of their community development loans
[[Page 7050]]
originated or purchased during the evaluation period, but not
information for individual community development loans.\1501\ A bank
must, however, provide examiners with sufficient information to
demonstrate its community development performance.\1502\ The CRA
regulations do not currently require the reporting or collection of
community development loans that remain on the bank's books or the
collection and reporting of any information about qualified community
development investments. As a result, the total amount (originated and
on-balance sheet) of community development loans and investments
nationally, or within specific geographies, is not available through
reported data. Consequently, examiners supplement reported community
development loan data with additional information provided by a bank at
the time of an examination, including the amount of investments, the
location or areas benefited by these activities and information
describing the community development purpose.
---------------------------------------------------------------------------
\1501\ See current 12 CFR __.42(b)(2).
\1502\ See Q&A Sec. __.12(h)-8, which states, in relevant part,
``Financial institutions that want examiners to consider certain
activities should be prepared to demonstrate the activities'
qualifications.''
---------------------------------------------------------------------------
Data Currently Used for CRA Retail Services and Community
Development Services Analyses. There are no specific data collection or
reporting requirements in the current CRA regulations for retail
services or community development services. A bank must, however,
provide examiners with sufficient information to demonstrate its
performance in these areas, as applicable. A bank's CRA public file is
required to include a list of bank branches, with addresses and census
tracts; \1503\ a list of branches opened or closed; \1504\ and a list
of services, including hours of operation, available loan and deposit
products, transaction fees, and descriptions of material differences in
the availability or cost of services at particular branches, if
any.\1505\
---------------------------------------------------------------------------
\1503\ See current 12 CFR __.43(a)(3).
\1504\ See current 12 CFR __.43(a)(4).
\1505\ See current 12 CFR __.43(a)(5).
---------------------------------------------------------------------------
Banks have the option of including information regarding the
availability of alternative systems for delivering services.\1506\
Banks may also provide information on community development services,
such as the number of activities, bank staff hours dedicated, or the
number of financial education sessions offered.
---------------------------------------------------------------------------
\1506\ See id.
---------------------------------------------------------------------------
The Agencies' Proposal--Generally
As discussed in more detail in the section-by-section analysis of
Sec. __.42, the agencies proposed data collection and reporting
requirements to increase the clarity, consistency, and transparency of
the evaluation process through the use of standard metrics and
benchmarks. The agencies also recognized the importance of using
existing data sources where possible and tailoring data requirements
based on bank size where appropriate. The agencies proposed that all
large banks, defined in proposed Sec. __.12 as banks with assets of at
least $2 billion in both of the prior two calendar years, would be
subject to certain data requirements. Specifically, the agencies
largely retained the existing large bank data collection and reporting
requirements for small business and small farm lending in proposed
Sec. __.42(a)(1) and (b)(1), although the agencies proposed replacing
these data with CFPB's section 1071 data once those data became
available. The agencies also proposed that large banks collect and
maintain data for branches and remote service facilities under proposed
Sec. __.42(a)(4)(i) and collect and report community development
financing data under proposed Sec. __.42(a)(5) and (b)(3). The
proposal also provided updated standards for all large banks to report
the delineation of their assessment areas under proposed Sec.
__.42(f).
The agencies also proposed new data requirements that would only
apply to large banks with assets of over $10 billion. Specifically, the
proposed rule required additional data collection and reporting for
these large banks for automobile lending under proposed Sec.
__.42(a)(2) and (b)(2); data collection for retail services and
products under proposed Sec. __.42(a)(4)(ii) (digital and other
delivery systems) and under proposed Sec. __.42(a)(4)(iii) (responsive
deposit products); data collection and reporting for community
development services under proposed Sec. __.42(a)(6) and (b)(4); and
data collection and reporting of deposits data under proposed Sec.
__.42(a)(7) and (b)(5).
Under the proposal, banks operating under an approved wholesale or
limited purpose bank designation would not be required to collect or
report deposits data or report retail services or community development
services information. Intermediate banks, as defined in proposed Sec.
__.12, would not be required to collect or report any additional data
compared to current requirements, unless they opt into the proposed
Community Development Financing Test. In addition, small banks, as
defined in proposed Sec. __.12, would not be required to collect or
report any data beyond current requirements.
Comments Received
The agencies received numerous comments that generally addressed
the agencies' proposed data collection, reporting, and disclosure
requirements. Many of these commenters expressed concern regarding the
expected burden and utility of the data proposed to be collected and
reported, but many also noted that the proposed rule's data
requirements would improve the agencies' and the public's understanding
of how banks serve their communities.
Several commenters suggested that banks should be able to use data
that they currently submit to government agencies in lieu of data that
the agencies would require them to collect, maintain, and report for
CRA purposes. These comments included the request that CDFI banks be
permitted to submit CDFI Fund Annual Certification and Data Collection
Report Forms in lieu of their CRA data requirements.
A few commenters addressed the agencies' request for feedback on
what data collection and reporting challenges, if any, exist for credit
cards that could adversely affect the accuracy of metrics and
benchmarks for credit card lending. For example, a few commenters
disputed the proposal's suggestion that banks may not currently retain
or have the capability to capture credit card borrower income at
origination or subsequently. These commenters asserted that banks
generally collect borrower income information on consumer credit card
applications or at the time a credit card is issued, and suggested that
the benefits of a metrics-based approach to evaluating consumer credit
card lending (including more competition and better rates for low- and
moderate-income consumers) would outweigh the modest cost of requiring
banks to report this data. However, another commenter stated that the
operational nature of credit card lending would not easily support the
need for data collection and reporting; this commenter agreed that
borrower income information is typically collected as part of the
underwriting process, but noted that banks make underwriting decisions
primarily based on an applicant's creditworthiness as revealed through
credit bureaus, and borrower income information is not usually
validated by banks. Another commenter identified difficulties in
obtaining information that the
[[Page 7051]]
commenter views as necessary for evaluating the responsiveness of a
consumer credit card loan, such as how and why a consumer is using a
credit card loan (as opposed to another loan product), whether the
credit card loan terms are responsive to the consumer's needs, and how
equitable the terms are for low- and moderate-income and BIPOC
consumers compared to other consumers.
Final Rule
The agencies are finalizing the data collection and reporting
requirements for large banks with several modifications to the data
collection requirements. The data collection and reporting requirements
in the final rule are necessary for the construction of the various
metrics and benchmarks used in the Retail Lending Test, the Retail
Services and Products Test, the Community Development Financing Test,
and the Community Development Services Test, as well as various
weighting calculations, all of which are at the core of the effort to
modernize the CRA regulations. Additionally, the specific data
collection and reporting requirements are an important component of the
effort to increase consistency and transparency in the new rule--having
consistently defined data for bank activities enables more consistent
treatment of those activities in the examination process. The agencies
are tailoring data collection and reporting requirements with regard to
bank size and other characteristics with the intention of creating
minimal additional burden.
Regarding commenter suggestions that data already reported to
government agencies be used in lieu of data required for CRA purposes,
the agencies believe that the data requirements specified in the final
rule are critical components to developing metrics and benchmarks. As
such, the agencies believe that having different data requirements for
a subset of institutions could create confusion and could impact the
consistency of metrics and completeness of benchmarks.
The agencies have considered the comments related to credit card
lending. However, the agencies have determined to not evaluate consumer
credit card lending in the Retail Lending Test, which is addressed in
the section-by-section analysis of Sec. __.22. Therefore, collection
and maintenance of consumer credit card lending data will not be
required.
Section __.42(a)(1) Information Required To Be Collected and
Maintained--Small Business and Small Farm Loan Data
Section __.42(b)(1) Information Required To Be Reported--Small Business
and Small Farm Loan Data
Current Approach
The CRA regulations in current Sec. __.42(a) require a bank,
except a small bank, to collect, and maintain in prescribed machine
readable form until the completion of the bank's next CRA examination,
the following data for each small business or small farm loan
originated or purchased by the bank: (1) a unique number or alpha-
numeric symbol that can be used to identify the relevant loan file; (2)
the loan amount at origination; (3) the loan location; and (4) an
indicator whether the loan was to a business or farm with gross annual
revenues of $1 million or less.\1507\
---------------------------------------------------------------------------
\1507\ See current 12 CFR __.42(a)(1) through (4).
---------------------------------------------------------------------------
The regulations in current Sec. __.42(b) also require that a bank,
except a small bank or a bank that was a small bank during the prior
calendar year, report annually by March 1 in machine readable form, to
the appropriate agency, small business and small farm loan data. The
current regulations require the bank to report for each geography in
which the bank originated or purchased a small business or small farm
loan, the aggregate number and amount of loans: (1) with an amount at
origination of $100,000 or less; (2) with an amount at origination of
more than $100,000 but less than or equal to $250,000; (3) with an
amount at origination of more than $250,000; and (4) to businesses and
farms with gross annual revenues of $1 million or less (using the
revenues that the bank considered in making its credit decision).
The Agencies' Proposal
The agencies proposed to expand the data requirements in current
Sec. __.42(a)(1) by expanding the collection and maintenance of the
following data related to small business loan and small farm loan
originations and purchases by the bank: (1) a unique number or alpha-
numeric symbol that can be used to identify the relevant loan file; (2)
an indicator for the loan type as reported on the bank's Call Report;
(3) the date of the loan origination or purchase; (4) loan amount at
origination or purchase; (5) the loan location (State, county, census
tract); (6) an indicator for whether the loan was originated or
purchased; and (7) an indicator for whether the loan was to a business
or farm with gross annual revenues of $1 million or less.
The agencies also proposed to revise current Sec. __.42(b)(1) to
require that all large banks report by April 1 on an annual basis the
aggregate number and amount of small business loans and small farm
loans for the prior calendar year for each census tract in which the
bank originated or purchased a small business or small farm loan by
loan amounts in the categories of $100,000 or less, more than $100,000
but less than or equal to $250,000, and more than $250,000. This
proposed provision also required large banks to report the aggregate
number and amount of small business and small farm loans to businesses
and farms with gross annual revenues of $1 million or less (using the
revenues that the bank considered in making its credit decision). The
proposed gross annual revenue data would allow the agencies to conduct
a borrower distribution analysis that shows the level of lending to
small businesses of different revenue sizes.
The agencies also requested feedback on whether banks should be
required to collect and report an indicator on loans made to businesses
or farms with gross annual revenues of $250,000 or less or whether
another gross annual revenue threshold should be collected that better
represents lending to the smallest businesses or farms during the
interim period before the CFPB Section 1071 Final Rule comes into
effect.
Comments Received
Several commenters addressed the agencies' proposed alignment of
the CRA definitions of ``small business'' and ``small farm'' to the
CFPB's section 1071 definition of ``small business.'' A few of these
commenters addressed the impact this alignment would have on purchases
of small business and small farm loans. More specifically, a commenter
sought clarification about how banks could count purchases of small
business and small farm loans in the CRA evaluation when the CFPB's
definition would only include originations. This commenter requested
that the agencies consider including purchased loans even if not
accounted for in a bank's CFPB's section 1071 data reporting
requirements. Another commenter expressed concern that such alignment
would penalize banks that rely heavily on purchases of indirect small
business loans from dealers, such as commercial automobile loans. This
commenter urged the agencies to wait until the CFPB's Section 1071
Proposed Rule is finalized to determine its implications on a bank's
CRA performance before implementing portions of the final rule
[[Page 7052]]
that would require such data. A few other commenters addressed the
alignment of the CRA definitions of ``small business'' and ``small
farm'' to the CFPB's section 1071 definition of ``small business,''
with mixed views. A commenter supported the agencies' proposed
alignment of the definitions and the resulting increase in reported
business loans stating it would be beneficial by providing a more
comprehensive picture of credit supply in communities. This commenter
also recommended including in the CRA evaluation small business loans
that are supported by personal guarantees secured by liens on
residential property. This commenter noted that currently these loans
are not reported under either HMDA or CRA, resulting in a significant
underreporting of small business loan volume. By contrast, multiple
other commenters did not support the agencies' proposal because it
would mean that every loan made by a community bank would be a small
business loan or small farm loan, subject to reporting. These
commenters argued that doing so would impose significant new data
collection and reporting requirements on community banks that opt-in to
the Retail Lending Test. Several commenters further emphasized the
importance of reconciling the differences between the CRA definitions
and the CFPB's section 1071 definition, with one commenter noting that
aligning the CRA definitions of ``small business'' and ``small farm''
to the CFPB's Section 1071 Final Rule would be confusing for banks that
would still be required to report small business loans for purposes of
the Call Report. This commenter recommended that the agencies retain
the current definition so that it aligns with the Call Report
definition. Another commenter stated that because businesses may be
serving multiple locations, identifying a single location for purposes
of geocoding small business loans may not be feasible (same as with
community development loans).
Commenters that addressed the agencies request for feedback on
whether banks should collect and report an indicator on loans made to
businesses or farms with gross annual revenues of $250,000 or less or
whether another gross annual revenue threshold should be collected that
better represents lending to the smallest businesses or farms during
the interim period before the CFPB's Section 1071 Final Rule comes into
effect, expressed mixed views. A few of the commenters supported no
additional indicators during the transition, while a few other
commenters supported the indicator in the interim. The commenters that
supported establishing the gross annual revenue amount at $250,000 or
less also supported adding a second indicator for businesses with
revenues of $100,000 and less. A few other commenters made other
recommendations. For example, a commenter suggested that banks should
collect an indicator for loans made to a business or farm that
identifies the size of the business or farm using the ``small
business'' definition from section 8(d) of the Small Business Act or
section 3(p) of the Small Business Act (``qualified HUBZone small
business concern'') rather than gross annual revenues of $250,000.
Another commenter recommended that banks should report indicators for
the smallest of businesses with gross annual revenues of $500,000 and
that providing indicators for businesses of various sizes should be
encouraged if that is similar or the same as to how the CFPB's Section
1071 Final Rule is structured. Finally, a commenter asked the agencies
to clarify that in the case of a small business loan, a bank could rely
on gross annual revenue information provided by third-party sources if
the banks does not (and is not otherwise required to) collect that
information directly from the borrower.
Final Rule
The agencies are adopting Sec. __.42(a)(1) (collection and
maintenance) and Sec. __.42(b)(1) (reporting) largely as proposed,
with some revisions upon consideration to comments.
Specifically, the agencies are revising the data collection and
maintenance requirements for small business and small farm loans by
revising proposed Sec. __.42(a)(1)(vii) to indicate whether a loan was
to a business or farm with gross annual revenues of $250,000 or less,
rather than $1 million or less as proposed. The agencies are also
adopting new Sec. __.42(a)(1)(viii) through (x) to indicate,
respectively, whether a loan was to a business or farm with gross
annual revenues greater than $250,000 but less than or equal to $1
million; whether the loan was to a business or farm with gross annual
revenues greater than $1 million; and whether the loan was to a
business or farm for which gross annual revenues are not known by the
bank. As a result of the changes made to the small business and small
farm loan data collection and maintenance, the agencies are also making
conforming changes to the information required to be reported for these
data by adopting new Sec. __.42(b)(1)(v) through (vii). Finally, the
agencies are requiring that a large bank must collect and maintain
these data until the completion of the bank's next CRA examination in
which the data are evaluated.
The agencies believe incorporating the new indicators to the data
collection and reporting of small business and small farm lending will
facilitate and add efficiency to the distribution analysis under the
Retail Lending Test. Specifically, the new indicators will allow the
agencies to calculate metrics and market benchmarks used to evaluate a
bank's distribution of lending to small businesses and small farms in
different gross annual revenues categories ($250,000 or less, and
between $250,000 and $1 million) prior to the agencies' use of section
1071 data. As discussed in the section-by-section analysis of final
Sec. __.22(e), the agencies believe that evaluating a bank's
distribution of lending to small businesses and small farms of
different sizes, based on gross annual revenues, will support a more
comprehensive evaluation. The agencies determined that the additional
indicators in the final rule would not be especially burdensome,
because large banks already collect and maintain small business and
small farm data that includes similar data points, such as indicating
whether a loan is made to a business or farm with gross annual revenues
of $1 million or less. Furthermore, once banks must comply with
reporting small business loan data under the section 1071, they will be
required to collect and maintain gross annual revenues information for
small business and small farm borrowers, which is consistent with the
new indicators in the final rule approach. In light of these
considerations, the agencies determined that these new required
indicators for large banks are appropriate and will result in more
comprehensive evaluations of retail lending performance.
Regarding required data fields for the loan amount at origination
or purchase, loan location, and whether the loan was either originated
or purchased by the bank, the agencies determined that these data
points are substantively consistent with current data collection
procedures for large banks, and will allow the agencies to calculate
the various metrics, benchmarks, and other quantitative components of
the Retail Lending Test evaluation.
For small and intermediate banks, consistent with the current
evaluation approach and the agencies' proposal, the final rule does not
require data collection, maintenance, or reporting of small business
loan or small farm loan data. For banks that do not collect and
[[Page 7053]]
maintain these data in electronic form, the agencies may evaluate the
banks' distribution of lending to low- and moderate-income census
tracts, small businesses, and small farms, using the bank's own data,
or using sampling of a bank's own records, as under current examination
procedures. The agencies believe it is appropriate to maintain the
current approach for small and intermediate bank data requirements in
order to limit additional burden and complexity for these banks, in
recognition that they may have lower capacity to adjust to regulatory
changes.
The agencies have determined not to add an indicator for loans made
to small businesses or small farms with revenues of $100,000 or less.
The agencies determined that an indicator for $250,000 gross annual
revenue threshold rather than the $100,000 gross annual revenue
threshold was appropriate primarily to achieve consistency between the
categories of small businesses and small farms in the Retail Lending
Test and the impact and responsiveness review factors used in
evaluating community development activities, which considers activities
supporting small businesses or small farms with gross annual revenues
of $250,000 or less.
Similarly, the agencies have determined not to add an indicator for
loans made to a business or farm using the Small Business Act's
definition of ``small business.'' The multiple approaches that the
Small Business Act uses to define small businesses would add
unnecessary complexity and would add burden to banks by requiring them
to collect additional data to that required under the CFPB's section
1071 process, in order to determine whether businesses or farms qualify
as small businesses. Rather, the agencies have determined that using
the gross annual revenue criteria defined in the CFPB's Section 1071
Final Rule as the basis for identifying small businesses and small
farms for purposes of CRA is appropriate. This approach supports the
CRA final rule's goals of consistency and transparency.
In response to comments regarding the alignment of the agencies'
CRA definitions of ``small business'' and ``small farm'' to the section
1071 definition of ``small business'' and the impact on purchases of
small business and small farm loans, the final rule would allow banks
to include purchases of small business and small farm loans in the
numerator of their relevant retail lending metrics, at the bank's
option, once the transition to section 1071 data occurs.\1508\ However,
because purchases would not be included in the CFPB's section 1071
data, banks electing to include such loans in their relevant retail
lending metrics would need to collect and maintain these data. The bank
would provide the collected data to the examiner to incorporate into
the metric and the subsequent distribution analysis. These data would
not be reported and would not be included in any aggregate data used
for the creation of benchmarks. Allowing banks, at their option, to
include these purchases of small business and small farm loans would
maintain consistency in the Retail Lending Test regarding treatment of
closed-end home mortgage loans and small business and small farm loans.
---------------------------------------------------------------------------
\1508\ The transition amendments included in this final rule
will permit the agencies to transition the CRA data collection,
maintenance, and reporting requirements for small business loans and
small farm loans to section 1071 data. This is consistent with the
agencies' intent articulated in the preamble to the proposal and
elsewhere in this final rule to transition to 1071 data for small
business loan and small loan data under the CRA regulations. The
agencies will provide notice of the effective date of this amendment
in the Federal Register once section 1071 data are available.
---------------------------------------------------------------------------
The agencies are sensitive to commenters' concerns regarding the
potential burden imposed on community banks created by the agencies'
alignment of the definitions of ``small business'' and ``small farms''
to the CFPB's definition of ``small business'' and the potential
confusion created for banks that will be required to report small
business loans for purposes of CRA using the Call Report definition
during the transition period. While some banks may have to collect and
report data for both regulations for a limited amount of time, the
agencies note that once the agencies transition to using section 1071
data, under the CRA final rule, small business and small farm loans
will only be reported in accordance with the definition and reporting
requirement of the CFPB's Section 1071 Final Rule. After the transition
to the section 1071 data takes effect, there is no additional data
reporting burden created by the CRA final rule with regard to small
business and small farm lending data. In addition, the agencies
acknowledge commenter sentiment that aligning the CRA definitions of
``small business'' and ``small farm'' to the CFPB's section 1071 rule
would be confusing for banks. The agencies note that banks will be
required to report data using both the CFPB's section 1071 definition
and Call Report definition regardless of whether the CRA regulation
aligns to either of them. The agencies believe that the CFPB's section
1071 definition is a more appropriate definition of small businesses
and small farms for the purposes of identifying small business lending
and small farm lending. The Call Report and current CRA definitions
define these loans on the basis of the size of the loan, rather than on
the basis of characteristics of the borrower (such as the gross annual
revenue of the business). As such, ``small business loans'' included in
the Call Reports and in CRA evaluations may be made to companies and
farms that could reasonably be considered large businesses and large
farms (which sought loans small enough to be reported on the Call
Report and the CRA evaluations). Given that the CFPB's section 1071
definition and reporting requirement exists as a result of the CFPB's
Section 1071 Final Rule, and the Call Report definition exists as a
result of the existing Call Report reporting requirements, the CRA
final rule does not create any additional burden as a result of which
definition it uses between those two.
The agencies have determined not to adopt the commenter's
recommendation that the agencies retain the current definition so that
it aligns with the Call Report definition. The definition used by the
CFPB's section 1071 process is preferable because it is better targeted
towards loans to small businesses and small farms and provides data
regarding a broader set of small business and small farm lenders.
The agencies are also clarifying that the data reported through the
CFPB's section 1071 process will be used as the foundation of small
business and small farm data collection. The CFPB's Section 1071 Final
Rule requires that if a financial institution is unable to collect or
determine the gross annual revenue of the applicant through applicant-
provided data, the financial institution is required to report that the
gross annual revenue is ``not provided by applicant and otherwise
undetermined.'' \1509\
---------------------------------------------------------------------------
\1509\ 88 FR 35150, 35553 (May 31, 2023).
---------------------------------------------------------------------------
Finally, the agencies acknowledge commenter sentiments that there
are situations in which identifying a single location for the purposes
of geocoding small business loans can be difficult, such as when a
small business has multiple locations. The agencies have addressed this
situation in the current data reporting guide.\1510\ A small business
or small farm loan is located in the geography where the main business
facility or farm is located or where the
[[Page 7054]]
loan proceeds otherwise will be applied, as indicated by the
borrower.\1511\
---------------------------------------------------------------------------
\1510\ See FFIEC, ``A Guide to CRA Data Collection and
Reporting'' (2015), https://www.ffiec.gov/cra/pdf/2015_CRA_Guide.pdf.
\1511\ See id.
---------------------------------------------------------------------------
Section __.42(a)(2) Information Required To Be Collected and
Maintained--Consumer Loans Data--Automobile Loans
Under the CRA current regulations, banks are not required to
collect, maintain, or report data for consumer loans under current
Sec. __.42(c)(1). Current Sec. __.42(c)(1) provides that a bank may
collect and maintain data for consumer loans originated or purchased by
the bank for consideration under the lending test. A bank may maintain
data for one or more of the following categories of consumer loans:
motor vehicle, credit card, other secured, and other unsecured. If the
bank maintains data for loans in a certain category, it must maintain
the data for all loans originated or purchased within that category,
and must collect and maintain the data in machine readable form as
prescribed by the appropriate agency. The data must be maintained
separately for each category of loans including for each loan: (1) a
unique number or alpha-numeric symbol that can be used to identify the
relevant loan file; (2) the loan amount at origination or purchase; (3)
the loan location; and (4) the gross annual income of the borrower that
the bank considered in making its credit decision. The data collected
and maintained are not reported but provided to examiners at the time
of the bank's CRA examination.
The Agencies' Proposal
The agencies proposed in Sec. __.42(a)(2) that automobile loans
would be the only consumer loan category with data collection and
reporting requirements. Specifically, the agencies proposed that banks
with assets of over $10 billion in both of the prior two calendar years
would be required to collect and maintain, until the completion of the
bank's next CRA examination, the following data for automobile loans
originated or purchased by the bank during the evaluation period: (1) a
unique number or alpha-numeric symbol that can be used to identify the
relevant loan file; (2) the date of loan origination or purchase; (3)
the loan amount at origination or purchase; (4) the loan location
(State, county, census tract); (5) an indicator for whether the loan
was originated or purchased by the bank; and (6) the borrower's annual
income the bank relied on when making its credit decision.
Proposed Sec. __.42(b)(2) required a bank with average assets of
over $10 billion in both of the prior two calendar years to report
annually by April 1 to the appropriate agency, the aggregate number and
amount of automobile loans for each census tract in which the bank
originated or purchased an automobile loan and the number and amount of
those loans made to low- and moderate-income borrowers. The proposal
required that these banks report the data in machine readable form, as
prescribed by the agencies. The agencies did not propose to make
reported automobile lending data publicly available.
Comments Received
A few commenters addressed the agencies' proposal to require
automobile lending data, generally. A commenter asked for clarification
on whether the data would be submitted in aggregate form as it would be
required for community development loans, or whether it would be
required in CRA Loan Application Register format. Other commenters
recommended that the agencies reconsider the requirement to collect
automobile lending data. A commenter stated that if consumer data is
wanted, then general information should be required to be reported, but
drilling down to a particular consumer product is too extensive and
burdensome. Another commenter supported the agencies' proposal to
require new automobile lending data collection and reporting by banks
with assets of over $10 billion; the commenter further suggested that
the data would allow for better analysis of automobile lending patterns
compared to existing data sources, such as credit reporting agency
data. This commenter also supported optional data collection for small
banks and intermediate banks that elect evaluation under the Retail
Lending Test given suggested data collection and reporting burden banks
might face with respect to automobile lending data requirements.
Another commenter argued that the statutory authority for this data
collection was thin, and that dropping automobile lending from the
Retail Lending Test would eliminate the need for this data collection.
The agencies solicited specific feedback on whether the final rule
should also include automobile loan data requirements for large banks
with assets of $10 billion or less. Most commenters were in favor of
expanding this requirement to all large banks, rather than only make
this a requirement for banks with assets of over $10 billion. One of
these commenters stated that expanding the requirement to banks with
$10 billion or less in assets would better support a fair lending
analysis and ensure that banks are providing consumers with fair and
affordable automobile loans. Another commenter recommended expanding
the automobile lending data requirements to all large banks and all
wholesale and limited purpose banks with assets over $10 billion. Many
commenters noted that including automobile loan data only from banks
with assets above $10 billion would create an incomplete and misleading
impression of the automobile lending market.
Several commenters recommended an expansion in the data collected
to include consumer lending more broadly, with a commenter suggesting
that banks with assets of $10 billion or less should have the option to
collect, maintain, and report these data. A few commenters did not
support expansion of automobile loan data collection to large banks
with assets of $10 billion or less, with one commenter noting the
associated burden and cost. The other commenter did not support
additional reporting of automobile lending for any large bank.
The agencies also sought specific feedback on whether they should
streamline any of the proposed data fields for collecting and reporting
automobile data. A few of the commenters addressing this question felt
that the proposed data fields were minimal, and they could not identify
how it could be further streamlined, while a few suggested further
streamlining or using as few fields as possible. Another commenter
asked the agencies to investigate the use of market sources for
automobile lending data and that data collected should include the full
cost of the loan to the consumer.
The agencies did not propose to publish automobile lending data for
individual banks in the form of a data set because the agencies were
mindful of having appropriate limits on the use of collected and
reported automobile lending data. However, the agencies sought feedback
on whether it would be useful to consider publishing county-level
automobile lending data in the form of a data set. Most of the
commenters addressing this question urged the agencies to make all the
data publicly available. Some commenters expressed the view that the
availability of these data would hold banks accountable for their
lending to underserved communities and minorities. In addition, two
commenters wanted the county-level data to include information on
whether the borrower lived in low- or moderate-income
[[Page 7055]]
census tracts or was a low- or moderate-income individual. A commenter
wanted the data to be provided at the lowest geographic level (ideally,
census tracts). Another commenter favored the release of the county-
level data because it would be helpful in self-evaluation of CRA
performance.
Final Rule
The agencies have considered the comments received and are adopting
Sec. __.42(a)(2) pertaining to the collection and maintenance of
automobile lending data, with significant modifications narrowing the
number of banks that would be subject to this requirement.
Specifically, the agencies are revising proposed Sec. __.42(a)(2),
renumbered in the final rule as Sec. __.42(a)(2)(i) to require the
collection and maintenance of automobile loan data, as detailed below,
for a large bank for which automobile loans are a product line (i.e.,
if the bank is a majority automobile lender or opts to have its
automobile loans evaluated pursuant to Sec. __.22). The agencies are
also adopting new Sec. __.42(a)(2)(ii) which provides that a bank,
other than a large bank, for which automobile loans are a product line
may collect and maintain the automobile loan data required of large
banks as detailed below.
The data collection and maintenance requirement is a change from
the proposal, which would have required automobile lending data for all
large banks with assets of over $10 billion. This change limits the
required collection of automobile loan data to only those large banks
for which automobile lending is the majority of their retail lending or
which opt to have their automobile loans evaluated pursuant to Sec.
__.22. Not adding a data collection requirement for smaller banks is
consistent with the agencies' goal of requiring no new data collection
and reporting for small and intermediate banks. The agencies continue
to believe it is important for large banks for which automobile lending
is a product line to collect and maintain data for automobile loans
because these data will help enable the agencies to calculate the
bank's distribution metrics under the Retail Lending Test. For example,
the agencies would use loan location and borrower income information to
calculate borrower distribution metrics, and would use loan amount
information to calculate the Bank Volume Metric and various weights
used to develop Retail Lending Test conclusions. The agencies would use
information regarding whether a loan was purchased or originated in
conjunction with the final Sec. __.22(g)(1) additional factor. The
agencies would also use loan location and loan count data as the basis
for weighting component geographic areas for the construction of
weighted average benchmarks for a bank's outside retail lending area.
The agencies note that they considered various options regarding
whether and how to collect automobile lending data. This included using
third-party sources for automobile lending data. In order to evaluate
automobile lending, the agencies believe it is appropriate to require
the collection of automobile lending data from large banks for which
automobile loans are a product line, due to the unavailability of these
data from any source other than the banks themselves.
The agencies are finalizing the data to be collected and maintained
in proposed Sec. __.42(a)(2)(i) through (vi), renumbered in final as
Sec. __.42(a)(2)(iii)(A) through (F) for each automobile loan
originated or purchased by the bank until the completion of the bank's
next CRA examination in which the data are evaluated. The agencies
believe the data fields, as finalized, are sufficient for purposes of
the evaluation of automobile lending in the Retail Lending Test.
The agencies have considered commenter feedback that suggests
requiring additional data, such as the full cost of the loan to the
consumer. The agencies have determined to not add this data point among
the set of data collected for the Retail Lending Test. The agencies
note that under current CRA and the final rule, the retail lending
evaluation focuses on distributional analyses of lending to low- and
moderate-income census tracts and low- and moderate-income borrowers
(and small businesses and small farms).
In response to comments, the agencies believe that focusing the
collection and maintenance of automobile lending data on large banks
for which the majority of their retail lending is automobile lending,
or which opt to have their automobile loans evaluated pursuant to Sec.
__.22, strikes an appropriate balance between minimizing burden,
tailoring requirements for banks of different sizes and business
models, and enabling an appropriate evaluation of banks' retail
lending. In the final rule, data collection and maintenance of
automobile lending remains optional for intermediate banks, and small
banks that opt to be evaluated under the Retail Lending Test, for which
automobile loans are a product line.
The agencies considered the comments regarding requiring automobile
loan data for large banks with assets of $10 billion or less. After
weighing the costs and benefits from requiring data from a broader
range of banks, as explained above, the agencies decided to tailor the
data collection requirement according to bank size and whether
automobile lending constituted the majority of a bank's lending. The
agencies will evaluate automobile lending for all banks evaluated under
the Retail Lending Test for which automobile lending is the majority of
their lending or which opt to have their automobile loans evaluated
pursuant to Sec. __.22. Large banks (not just large banks with assets
above $10 billion) meeting these criteria will be required to collect
and maintain these data. This will provide a more complete evaluation
of automobile lending by banks, while still limiting the data burden
for smaller banks and for banks for which automobile lending is not the
majority of their lending. In response to the commenter that suggested
expanding this data requirement to banks with assets of $10 billion or
less to better support a fair lending analysis, the agencies note that
fair lending analyses are not part of the CRA evaluation process.
In response to commenters suggesting an expansion of data
collection to include all consumer lending products, the agencies have
determined not to add this recommendation to the regulation. While
consumer lending products are important in fulfilling credit needs of
low- and moderate-income borrowers, the agencies continue to believe
that consumer loans span multiple product categories that are
heterogeneous in meeting low- and moderate-income credit needs and are
difficult to evaluate on a consistent quantitative basis. Therefore, in
the final rule, the agencies will consider the qualitative aspects of
all other consumer loans, apart from automobile loans, under the Retail
Services and Products Test without data collection and maintenance
requirements specified in Sec. __.42, as explained in more detail in
the section-by-section analysis of Sec. __.23.
Regarding the agencies' statutory authority to collect automobile
lending data, the agencies believe that the CRA's provision, which
requires the agencies to ``assess the institution's record of meeting
the credit needs of its entire community, including low- and moderate-
income neighborhoods, consistent with the safe and sound operation of
such institution'' \1512\ is sufficiently broad to cover the evaluation
of a bank's automobile
[[Page 7056]]
lending in the Retail Lending Test and, therefore, believe collection
of these data will serve the purposes of the CRA.
---------------------------------------------------------------------------
\1512\ 12 U.S.C. 2903(a)(1).
---------------------------------------------------------------------------
Finally, the final rule does not adopt the reporting requirement
for automobile lending in proposed Sec. __.42(b)(2). The agencies also
explored the availability of market sources for data on banks'
automobile lending to use, as suggested by a commenter, and were unable
to find any reliable source appropriate for the applications needed for
the Retail Lending Test. In response to comments received, inadequacy
of available data, and the agencies' further analysis, the agencies
have determined not to establish market benchmarks for automobile
lending, as discussed further in the section-by-section analysis of
Sec. __.22.
The agencies have also considered comments received regarding the
publication of automobile loan data. As explained above, the final rule
does not adopt a reporting requirement for automobile lending data. As
such, any consideration of public disclosure of these data has
effectively been removed.
Section __.42(a)(3) Information Required To Be Collected and
Maintained--Home Mortgage Loan Data
Current Approach
The CRA regulations in current Sec. __.42(b)(3) require a bank,
except for a small bank or a bank that was a small bank during the
prior calendar year, to report annually by March 1 to the Board, FDIC,
or OCC, as applicable, and in machine readable form as prescribed by
that agency, the location of each home mortgage loan application,
origination, or purchase outside the MSAs in which the bank has a home
or branch office (or outside any MSA) in accordance with the
requirements of 12 CFR part 1003. Interagency guidance explains that
institutions that are not required to collect home mortgage loan data
by HMDA need not collect home mortgage loan data under this provision
of CRA.\1513\ If a bank wants to ensure that examiners consider all of
its home mortgage loans, the institution may collect and maintain the
data on these loans.
---------------------------------------------------------------------------
\1513\ See Q&A Sec. __.42(b)(3)-1.
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed to revise current Sec. __.42(b)(3),
renumbered in the proposal as Sec. __.42(a)(3), to require certain
banks to collect and maintain certain home mortgage loan data, similar
to current practice. Specifically, if a bank is a HMDA reporter, the
agencies proposed to require a bank (other than a small bank or
intermediate bank) to collect and maintain, in machine readable form as
prescribed by the Board, FDIC, or OCC, as applicable, until the
completion of its next CRA examination, the location of each home
mortgage loan application, origination, or purchase outside of the MSAs
in which the bank has a home or branch office (or outside any MSA) in
accordance with the requirements of 12 CFR part 1003.
The agencies sought feedback on whether certain banks that are not
mandatory reporters under HMDA should be required to collect and
maintain, or report, mortgage loan data if they engage in a minimum
volume of home mortgage lending. The agencies described an option that
would require any large bank that is not a mandatory HMDA reporter due
to the locations of its branches, but that otherwise meets the HMDA
size and lending activity requirements, to collect, maintain, and
report the mortgage loan data necessary to calculate the retail lending
volume screen and distribution metrics in the proposed Retail Lending
Test in Sec. __.22.
The agencies also solicited specific feedback on whether the
benefits of requiring home mortgage loan data collection and reporting
by non-HMDA reporter large banks that engage in a minimum volume of
mortgage lending outweigh the burden associated with the data
collection, and whether the further benefit of requiring these data to
be reported outweighs the additional burden of reporting.
Comments Received
The agencies received comments on several aspects of data
collection and maintenance for home mortgage lending data. A majority
of commenters supported expanding home mortgage loan data collection,
maintenance, and reporting to non-HMDA reporter large banks that engage
in a minimum volume of mortgage lending. These commenters generally
believed the benefits would outweigh the burden associated with such a
requirement. In support of this view, one of these commenters stated
that even with limited volume mortgage lending there could be high
denial rates and disparities in loan terms that the agencies need to
review. A few commenters also noted that in addition to expanding the
data, the data should be available by race and ethnicity, while another
commenter noted that the benefit of added transparency for rural areas
of collecting and publishing these data would outweigh the burden
placed on these large banks.
By contrast, a commenter argued against expanding HMDA data
collection to non-HMDA reporting banks because this would exacerbate an
existing regulatory imbalance between banks' and non-bank mortgage
lenders' level of regulatory scrutiny. Finally, several of the
commenters addressing this issue of requiring HMDA data collection to
non-HMDA reporting banks also stated that the previous reporting
threshold of 25 closed-end loans should be implemented.
Final Rule
The agencies are finalizing proposed Sec. __.42(a)(3), renumbered
in the final rule as Sec. __.42(a)(3)(i) with a few wording changes.
Similar to the current rule, the final rule requires large banks that
are HMDA reporters to collect and maintain the location of each home
mortgage loan application, origination, or purchase outside the MSAs in
which the bank has a home or branch office, or outside any MSAs. The
agencies believe this requirement is appropriate and consistent with
current practice. In addition, the agencies are adopting new Sec.
__.42(a)(3)(ii) to implement certain data requirements for certain non-
HMDA reporters. Specifically, final Sec. __.42(a)(3)(ii) requires a
large bank that is not a mandatory HMDA reporter due to the location of
its branches but that otherwise meets the HMDA size and lending
activity requirements, to collect and maintain the mortgage loan data
necessary to calculate the retail lending volume screen and
distribution metrics. Such large banks will be required to collect and
maintain in electronic form, as prescribed by the Board, FDIC, or OCC,
as applicable, until the completion of the bank's next CRA examination
in which the data are evaluated, the following data for each closed-end
home mortgage loan, excluding multifamily loans, originated or
purchased during the evaluation period: (1) A unique number or alpha-
numeric symbol that can be used to identify the relevant loan file; (2)
the date of the loan origination or purchase; (3) the loan amount at
origination or purchase; (4) the location of each home mortgage
origination or purchase, including county, State and census tract; (5)
the gross annual income the bank relied on in making the credit
decision; and (6) an indicator for whether the loan was originated or
purchased by the bank. The agencies believe these data fields
sufficiently allow for the calculation of all the bank's retail lending
metrics for mortgage lending, clarify expectations for banks, and
facilitate a more complete
[[Page 7057]]
and accurate analysis by including this information in the bank
metrics.
In recognition of their more limited capacities and to avoid unduly
burdening small banks and intermediate banks, the new requirements in
Sec. __.42(a)(3)(ii) only apply to certain large banks. In this
regard, the agencies are requiring HMDA-equivalent data collection only
for a very limited set of large banks, including only those banks that
would otherwise be required to report HMDA data but for a bank having
no branches within metropolitan areas. The agencies believe this
strikes an appropriate balance by evaluating mortgage lending data for
all large banks with sufficient mortgage lending activity to trigger
HMDA reporting requirements.
In reaching this determination, the agencies have considered
commenter feedback on the issue of whether to expand the collection and
maintenance of certain mortgage loan data for non-HMDA reporters. The
agencies believe this decision strikes an appropriate balance between
the need to collect and evaluate data from banks with substantial
mortgage lending in an area and the importance of tailoring data
collection burden to bank size. In response to the comments regarding
the impact this change would have on the existing imbalance between
banks' and non-bank mortgage lenders' level of regulatory scrutiny, the
agencies note that non-bank mortgage lenders are not subject to
evaluation under CRA. Additionally, to minimize data burden and
restrict data collection to relevant areas, the agencies have
determined not to collect appraisals data as suggested by one
commenter. Although an important part of the mortgage lending process,
appraisals are not conducted by banks; appraisal companies are not
covered by the CRA and thus any collection or evaluation of appraisal
data would be beyond the scope of this regulation.
In reaching the determination to add the new requirements for
certain large banks in Sec. __.42(a)(3)(ii), the agencies considered
that this is a targeted data collection and maintenance requirement for
closed-end home mortgages that only includes data necessary for the
evaluation of home mortgage lending under the Retail Lending Test.
In addition, the agencies note that the final rule provision does
not include requirements for home mortgage lending data related to
borrower race and ethnicity. Therefore, because the agencies will not
have information on race and ethnicity related to these expanded data,
the agencies cannot publish said information as suggested by
commenters. The agencies note, however, that the final rule will
include publication of HMDA data by income level, race, and ethnicity
in final Sec. __.42(j). As explained in more detail in the section-by-
section analysis of Sec. __.42(j), the relevant agency will publish on
its website on an annual basis, certain HMDA data reported by large
banks under 12 CFR part 1003 by income level, race, and ethnicity.
The agencies also note, in response to commenters suggesting that
the agencies implement the reporting threshold of 25 closed-end loans
under HMDA, that as of the date of this final rule, the reporting
threshold under 12 CFR part 1003 is 25 closed-end loans.\1514\
---------------------------------------------------------------------------
\1514\ The CFPB issued a technical amendment, effective December
21, 2022, to reflect the closed-end mortgage loan reporting
threshold of 25 mortgage loans in each of the two preceding calendar
years. See 87 FR 7790 (Dec. 21, 2022).
---------------------------------------------------------------------------
Section __.42(a)(4) Information Required To Be Collected and
Maintained--Retail Services and Products Data
Current Approach
Under the current CRA regulations, there are no specific data
collection or reporting requirements for retail services and products.
Examiners, however, review information provided by a bank at the time
of the examination and the bank's CRA public file that demonstrates its
performance in these areas, as applicable.\1515\ A bank's CRA public
file is required to include, among other things, a list of bank
branches with addresses and census tracts; \1516\ a list of branches
opened or closed; \1517\ and a list of services, including hours of
operation, available loan and deposit products, transaction fees, and
descriptions of material differences in the availability or cost of
services at particular branches, if any.\1518\ Banks have the option of
including information in the public file regarding the availability of
alternative systems for delivering services.\1519\
---------------------------------------------------------------------------
\1515\ See Q&A Sec. __.24(d)(4)-1.
\1516\ See current 12 CFR __.43(a)(3).
\1517\ See current 12 CFR __.43(a)(4).
\1518\ See current 12 CFR __.43(a)(5).
\1519\ See id.
---------------------------------------------------------------------------
Section __.42(a)(4) Overview
The Agencies' Proposal
In Sec. __.42(a)(4), the agencies proposed that large banks
collect and maintain information to support the analysis of a bank's
delivery systems and deposit products under the proposed Retail
Services and Products Test in Sec. __.23 based on the large bank's
asset size. The agencies proposed to require that large banks with
assets of over $10 billion collect and maintain the data for both
branches and remote service facilities under Sec. __.42(a)(4)(i), data
for digital and other delivery systems under Sec. __.42(a)(4)(ii), and
responsive deposit products under Sec. __.42(a)(4)(iii).
To reduce the data burden of new data collection requirements for
large banks with assets of $10 billion or less, the agencies proposed
collecting and maintaining only the data for branches and remote
service facilities under Sec. __.42(a)(4)(i). The agencies invited
feedback on this approach, as described below.
The agencies also proposed that banks with assets of $10 billion or
less that request additional consideration for digital and other
delivery systems under Sec. __.23(b)(3) collect and maintain data for
digital and other delivery systems under Sec. __.42(a)(4)(ii). The
agencies further proposed that small banks and intermediate banks
seeking additional consideration for retail services and products
activities provide the data in the format used in the bank's normal
course of business.
Comments Received
Several commenters responded to the agencies' request for feedback
on tailoring data collection and maintenance requirements related to
digital and other delivery systems and to responsive deposit products
for large banks with assets of $10 billion or less. A few of these
commenters supported a requirement for all large banks to collect and
maintain these data, with one of the commenters suggesting also that
these requirements also apply to intermediate banks. One of the
commenters stated that large banks with assets of $10 billion or less
should be permitted to report these data at their option. Another
commenter indicated that the agencies should review the responsiveness
of deposit products for large banks with assets of $10 billion or less
and that any bank that cannot collect and maintain these data within
the 12-month period should describe in its capacity building plan how
it will comply with the data collection requirements within a 24-month
period. This commenter also noted that communities should be involved
with product responsiveness reviews by being invited to provide ratings
to the agencies of product responsiveness, and that there may be other
stakeholders that would benefit from greater transparency of the data
reported by banks and of the ratings provided by consumers (if this
occurs).
[[Page 7058]]
Final Rule
After consideration of the comments received and further internal
analysis, the agencies have determined not to extend the data
collection and maintenance of digital delivery systems and other
delivery systems and deposit products to large banks with assets of $10
billion or less and that operate one or more branches, to reduce burden
on the industry. However, as discussed in greater detail below, the
agencies have determined to extend data requirements for digital
delivery systems and other delivery systems to banks with $10 billion
or less that do not maintain branches. The agencies believe this
approach appropriately tailors the data requirements to large banks
based on their business model. Moreover, and in recognition of their
more limited capacity, the agencies have determined not to extend any
data requirements to small and intermediate banks.
Section __.42(a)(4)(i) Branch and Remote Service Facility Availability
Data
The Agencies' Proposal
The agencies proposed in Sec. __.42(a)(4)(i) to require large
banks to collect and maintain, until the completion of the bank's next
CRA examination, the following information: (1) number and location of
branches and remote service facilities; (2) whether branches are full-
service facilities (by offering both credit and deposit services) or
limited-service facilities, and for each remote service facility
whether it is deposit-taking, cash-advancing, or both; (3) locations
and dates of branch and remote service facility openings and closings,
as applicable; (4) hours of operation of each branch and remote service
facility, as applicable; and (5) services offered at each branch that
are responsive to low- and moderate-income individuals and low- and
moderate-income census tracts. While this branch information is
consistent with the information currently provided in a bank's public
file,\1520\ the proposed requirement to collect remote service
facilities data would be a change from the current practice, under
which banks are not required, but have the option, to provide ATM
location data in a bank's public file.\1521\
---------------------------------------------------------------------------
\1520\ See current 12 CFR __.43(a).
\1521\ See current 12 CFR __.43(a)(5).
---------------------------------------------------------------------------
The agencies sought specific feedback on whether to require
collection and maintenance of branch and remote service facility
availability data as proposed or, alternatively, whether to continue
with the current practice of reviewing the data from the bank's public
file (i.e., requiring branch data but keeping remote service facility
availability data optional).
Comments Received
The agencies received several comments in response to their request
for feedback on whether, instead of requiring branch and remote service
facility availability data, the agencies should continue the current
practice of reviewing the data from the bank's public file. A few
commenters supported the agencies' proposal to require banks to report
data on branch and remote service facility availability under a
standardized process. Commenter sentiment in support of the proposal
included noting that banks should collect and report these data
publicly to permit evaluation of usefulness to underserved communities.
Additionally, commenter sentiment included that the agencies should use
these data towards the creation of industry and market benchmarks.
By contrast, a few commenters indicated that the current practice
of reviewing these data from the bank's public file should continue
rather than separately requiring banks to collect and maintain these
data pursuant to Sec. __.42. Another commenter noted that branch and
remote service facility data are ``widely and publicly'' available
through most banks' websites, so current practices should continue.
This commenter also noted that the FDIC's Summary of Deposits data
should be sufficient for identifying most banks' branch locations and
that separately collecting and reporting data on branch distribution
within the proposed rule seems redundant and burdensome for banks due
to the FDIC's current comprehensive process. Another commenter
recommended that the agencies determine whether they could perform an
evaluation with data from the bank's public file and other reliable
sources before requiring a new data collection; otherwise, the agencies
should require collection and maintenance of the data as proposed.
Final Rule
For the reasons discussed below, the agencies are finalizing Sec.
__.42(a)(4)(i) substantially as proposed, with technical edits to
revise the heading of this paragraph and to update the reference of
``machine readable'' to ``electronic.'' No substantive change is
intended. In addition, as explained below, the agencies are revising
Sec. __.42(a)(4)(i) to conform to changes made in the final rule with
respect to the inclusion of ``main office'' and the availability of
branches and remote service facilities in Sec. __.23(b)(2) and (3),
respectively, in the Retail Services and Products Test.
The agencies are finalizing the requirement that all large banks
collect and maintain, as prescribed by the appropriate Federal
financial supervisory agency, until the completion of the bank's next
CRA examination in which the data are evaluated, retail banking
services and retail banking products data, which includes the branches
and remote service facilities data as proposed in Sec. __.42(a)(4)(i).
The agencies are also including the same data collection requirements
for the bank's main office if it meets the requirements of final Sec.
__.23(a)(2). After careful consideration of the comments, the agencies
believe that requiring the collection and maintenance of this
information appropriately supports the analysis of a bank's branch,
applicable main office, and remote service facility availability and
the establishment of benchmarks required for the Retail Services and
Products Test. A data collection and maintenance requirement will
ensure that the agencies have the information they need to evaluate the
availability of branches and remote service facilities, and also
provides examiners with consistent data across all agencies. For banks,
the agencies believe that a data collection requirement minimizes
ambiguity as to what data the agencies will use in their evaluations.
The agencies note that the final rule largely codifies in final Sec.
__.42(a)(4) certain information that banks are currently required to
provide in their public file, including, among other things, the
locations of current branches and their street address, and branches
opened or closed by the bank during the calendar year. In response to
comments that the agencies should continue the current practice of
reviewing the data from the bank's public file, the agencies believe
that the data requirements are justified as the best means to obtain
accurate and uniform data to evaluate a bank's retail banking services.
In addition, the final Sec. __.42(a)(4)(i) also requires banks to
collect and maintain remote service facility information, which is
currently included in the bank's public file on an optional basis.
However, the data will be standardized in a template to be developed by
the agencies, as described below. As a result, the agencies believe
that requiring collection of these data would not add significant
burden to banks. In addition, final
[[Page 7059]]
Sec. __.42(a)(4)(i) requires large banks to collect and maintain an
indicator of whether each branch is full-service or limited-service,
and whether each remote service facility is deposit-taking, cash-
advancing, or both.
The agencies have considered commenter feedback that the agencies
should rely on the FDIC's Summary of Deposits data, rather than require
the data collection under Sec. __.42(a)(4)(i) as proposed. The
agencies do not believe the evaluation of branches and remote service
facilities under the Retail Services and Products Test can be
accomplished using the FDIC's Summary of Deposits. First, the data
required in Sec. __.42(a)(4)(i) provides additional detailed
information required to conduct the analysis under the Retail Services
and Products Test, including hours of operation and services offered at
each branch that are responsive to low- and moderate-income individuals
and census tracts. Second, the FDIC's Summary of Deposits does not
include remote service facilities and is not timely in that it is
reported at the conclusion of each calendar year consistent with most
other CRA data.\1522\ In response to the comment suggesting that the
collected data be used towards the creation of industry and market
benchmarks, the agencies note that relevant community and market
benchmarks for the evaluation of branch and remote service facility
will be drawn from the American Community Survey and industry data, as
proposed.
---------------------------------------------------------------------------
\1522\ FDIC's Summary of Deposits data is reported as of June 30
of each year.
---------------------------------------------------------------------------
Section __.42(a)(4)(ii) Digital Delivery Systems and Other Delivery
Systems Data
The Agencies' Proposal
The agencies proposed data collection and maintenance requirements
that would facilitate a review of whether digital and other delivery
systems are responsive to the needs of low- and moderate-income
individuals. Specifically, proposed Sec. __.42(a)(4)(ii) would require
a large bank with assets of over $10 billion in both of the prior two
calendar years and a large bank that had assets of $10 billion or less
in either of the prior two calendar years that requests additional
consideration for digital and other delivery systems, to collect and
maintain the information required in proposed Sec. __.42(a)(4)(ii)(A)
and (B) as follows: (1) the range of services and products offered
through digital and other delivery systems and (2) digital activity by
individuals in low-, moderate-, middle-, and upper-income census
tracts, respectively, such as the number of savings and checking
accounts opened through digital and other delivery systems and
accountholder usage of digital and other delivery systems. The agencies
also proposed Sec. __.42(a)(4)(ii)(C), a general provision that would
permit banks to optionally provide any information that demonstrated
that digital and other delivery systems serve low- and moderate-income
individuals and low- and moderate-income census tracts. The agencies
sought feedback on whether the agencies should determine which data
points a bank should collect and maintain to demonstrate responsiveness
to low- and moderate-income individuals via the bank's digital and
other delivery systems, or whether to allow banks the flexibility to
determine which data points to collect, maintain, and provide for
evaluation.
Comments Received
Most commenters addressing the agencies' request for comments on
whether or not to prescribe the data a bank should collect and maintain
to demonstrate responsiveness to low- and moderate-income individuals
through digital and other delivery systems, were generally supportive
of the agencies determining the required data points. A few commenters
recommended that the data the agencies collect and maintain should
align with the Bank On program.\1523\ A commenter also noted that
standardized fields would be needed if the agencies were to create
benchmarks and compare an institution's performance against those
benchmarks. Another commenter recommended that, to maintain
consistency, no flexibility should be given to banks in determining
which data points to collect and maintain.
---------------------------------------------------------------------------
\1523\ See Bank On, ``Open a no-overdraft Bank On certified
account now!,'' https://bankononline.org/?gclid=EAIaIQobChMI_5yN1PiogQMVSsvICh3n9Qu7EAAYASAAEgJ3FfD_BwE/.
---------------------------------------------------------------------------
By contrast, a few commenters indicated that banks should have
flexibility to demonstrate responsiveness, with guidance provided in
the form of examples. One of these commenters suggested that for CDFI
banks the agencies defer to the process banks use to demonstrate the
effectiveness of their delivery systems for the purposes of CDFI
certification, and for non-CDFI banks, the agencies could provide a
schedule of baseline data to ensure consistency between exams, and
grant banks flexibility with regard to any additional data points they
might collect and maintain for evaluation. Some commenters suggested
that the agencies make any information that the agencies collect on
digital and other delivery systems publicly available.
Final Rule
As discussed below, the agencies are finalizing proposed Sec.
__.42(a)(4)(ii), renumbered in the final rule as Sec.
__.42(a)(4)(ii)(A), with substantive, conforming, and technical edits.
The agencies are finalizing as proposed the data collection and
maintenance requirements pertaining to digital delivery systems and
other delivery systems \1524\ for large banks with assets greater than
$10 billion and for large banks with assets of $10 billion or less that
request additional consideration pursuant to Sec. __.23(b)(4).
---------------------------------------------------------------------------
\1524\ See final Sec. __.12 for the definitions of ``digital
delivery systems'' and ``other delivery systems.''
---------------------------------------------------------------------------
Additionally, the agencies are revising Sec. __.42(a)(4)(ii)(A) to
require that a subset of large banks with assets of $10 billion or less
as of December 31 in either of the prior two calendar years that do not
operate any branches collect and maintain digital delivery systems and
other delivery systems data. The agencies are revising this paragraph
to conform to changes made in the final rule with respect to the
evaluation of a bank's digital delivery systems and other delivery
systems in the Retail Services and Products Test, which will only
evaluate these banks for their digital delivery systems and other
delivery systems under Sec. __.23(b)(4) due to their lack of
branches.\1525\ As a result, these banks will only be required to
collect and maintain delivery system data for their digital delivery
systems and other delivery systems under Sec. __.42(a)(4)(ii).
---------------------------------------------------------------------------
\1525\ See the section-by-section analysis in Sec. __.23(b)(4).
---------------------------------------------------------------------------
The agencies are also making edits to conform to changes made to
the definition of a ``large bank'' and making technical edits to better
distinguish the data points that are required from those that are
optional, including technical edits to renumber the paragraphs
pertaining to the data banks will collect and maintain under the final
rule. With respect to the conforming and technical edits, the agencies
do not intend substantive changes.
The agencies are finalizing the data banks are required to collect
and maintain in proposed Sec. __.42(a)(4)(ii)(A) and (B), renumbered
in the final rule as Sec. __.42(a)(4)(ii)(B)(1) (range of retail
banking services and retail banking products) and (2) (digital delivery
[[Page 7060]]
systems and other delivery systems activity by individuals),
substantially as proposed, with clarifying edits. Specifically, the
agencies are finalizing as proposed the data banks are required to
collect and maintain for a bank's range of retail banking services and
retail banking products in Sec. __.42(a)(4)(ii)(B)(1), but are
modifying the requirement in Sec. __.42(a)(4)(ii)(B)(2), the digital
delivery systems and other delivery systems activity by individuals,
families, or households in low-, moderate-, middle-, and upper-income
census tracts. In particular, the agencies are clarifying that banks
evidence digital delivery systems and other delivery systems activity
under Sec. __.42(a)(4)(ii)(B)(2) by providing data on the number of
checking and savings accounts opened through digital delivery systems
and other delivery systems by census tract income level for each
calendar year and the number of checking and savings accounts opened
digitally and through other delivery systems that are active at the end
of each calendar year by census tract income level for each calendar
year (rather than by accountholder usage as initially proposed). By
requiring the number of active accounts rather than account usage as
proposed, the agencies believe that the final rule reduces the burden
for banks, as the number of accounts is generally less complex to
monitor in bank data systems relative to account usage, and because
account usage could be defined in numerous ways. The use of number of
active accounts also builds on other data elements in the final rule.
The agencies are also finalizing proposed Sec. __.42(a)(4)(ii)(C),
which provides that banks required to collect and maintain digital
delivery systems and other delivery systems data may collect and
maintain additional information that demonstrates that the bank's
digital delivery systems and other delivery systems serve low- and
moderate-income individuals, families, or households and low- and
moderate-income census tracts.
The agencies believe that requiring large banks with assets greater
than $10 billion and those with assets of $10 billion and less with no
branches to collect and maintain digital delivery systems and other
delivery systems data is appropriate given that these data are required
in the analysis of the evaluation of digital delivery systems and other
delivery systems for these banks under the Retail Services and Products
Test.\1526\ Collecting and maintaining these data will assist the
agencies in standardizing the evaluation criteria. Additionally, given
the widespread use of online and mobile banking delivery systems and
the expected continued growth of these systems, collection of these
data supports the agencies' evaluation of digital delivery systems and
other delivery systems and, accordingly, updates the agencies'
evaluation of a bank's delivery systems performance. The agencies also
believe that requiring the collection of these data for only these
banks strikes the appropriate balance of: (1) facilitating a useful and
effective review of whether digital delivery systems and other delivery
systems are responsive to the needs of low- and moderate-income
individuals, families, or households; (2) evaluating the delivery
systems of banks with different business models, including those with
national digital footprints; and (3) minimizing burden.
---------------------------------------------------------------------------
\1526\ See the section-by-section analysis of Sec. __.23(b)(4).
---------------------------------------------------------------------------
The agencies considered commenters' recommendations regarding which
data the agencies should require banks to collect and maintain for
digital delivery systems and other delivery services. The agencies
believe that, as finalized, the data required by the agencies will
provide consistency with respect to the evaluation of the
responsiveness of digital delivery systems and other delivery systems
to low- and moderate-income individuals, families, or households and
communities. The data collected will also help the agencies better
understand how banks continue to serve their communities as technology
and bank business models evolve.
Recognizing that banks have different methods and means for
assessing the effectiveness of their digital delivery systems and other
delivery systems to low- and moderate-income individuals, families, or
households as noted above, the final rule also permits banks the
ability to provide additional information that demonstrates that
digital and other delivery systems serve low- and moderate-income
individuals, families, or households, thus providing certain
flexibility to banks.
Banks will not report the data on digital delivery systems and
other delivery systems; therefore, the agencies will make this
information publicly available only to the extent it is discussed in
the bank's CRA performance evaluation.
Finally, in response to comments and the agencies' own
determination, the agencies intend to explore options to provide banks
with interagency guidance on the submission of these data to promote
clarity, consistency, and transparency, which is discussed further
below.
Section __.42(a)(4)(iii) Data for Deposit Products Responsive to the
Needs of Low- and Moderate-Income Individuals
The Agencies' Proposal
For deposit products responsive to the needs of low- and moderate-
income individuals, proposed Sec. __.42(a)(4)(iii) required large
banks with assets of over $10 billion to collect and maintain data
concerning: (1) the number of responsive deposit accounts that were
opened and closed for each calendar year in low-, moderate-, middle-,
and upper income census tracts, respectively; (2) the percentage of
responsive deposit accounts compared to total deposit accounts for each
year of the evaluation period; and (3) optionally, any additional
information regarding the responsiveness of deposit products to the
needs of low- and moderate-income individuals and low- and moderate-
income census tracts. Further, the agencies also proposed in Sec.
__.42(a)(4)(iii) that this data would also be required for large banks
with assets of $10 billion or less that request additional
consideration for deposit products responsive to the needs of low- and
moderate-income individuals. The agencies sought feedback on the
appropriateness of the proposed data collection requirements, including
whether to grant banks the flexibility to determine which data points
to collect and maintain for evaluation.
Comments Received
With regard to the appropriateness of the agencies' proposed data
collection elements for the evaluation of the responsiveness of deposit
products, a few commenters indicated that the proposed elements were
appropriate, with two of these commenters also suggesting that the
agencies must standardized these elements. A commenter also opined that
the proposed elements closely track what many banks already report to
the National Data Hub at the St. Louis Federal Reserve for Bank On
products.\1527\ Two other commenters indicated that the agencies could
group
[[Page 7061]]
deposit accounts by account terms and direct deposit requirements. One
commenter proposed that direct deposit affordability should be
determined by the FFIEC median family income data for the assessment
area (MSA, etc.) and the favorability of the account terms. This
commenter further recommended that, if the monthly direct deposit
threshold for the accounts with the most favorable terms is more than
80 percent of the area median family income, then the deposit account
would not be considered affordable. The other commenter suggested that
direct deposit affordability should be determined by the FFIEC MSA
income threshold for the branch location. This commenter further
suggested that if the monthly direct deposit threshold is more than 80
percent of the area median family income and more than 30 percent of
the customer's income on a monthly basis, the deposit product should
not be considered affordable.
---------------------------------------------------------------------------
\1527\ See BankOn, ``Open a no-overdraft Bank On certified
account now!,'' https://bankononline.org/?gclid=EAIaIQobChMI_5yN1PiogQMVSsvICh3n9Qu7EAAYASAAEgJ3FfD_BwE/; see
also Federal Reserve Bank of St. Louis, ``Bank On National Data
Hub,'' https://www.stlouisfed.org/community-development/bank-on-national-data-hub.
---------------------------------------------------------------------------
Final Rule
The agencies are finalizing Sec. __.42(a)(4)(iii) largely as
proposed pertaining to the collection and maintenance of data on
responsive deposit products required for banks with assets greater than
$10 billion and large banks with assets of $10 billion or less that
request additional consideration for their responsive deposit products
under the Retail Services and Products in Sec. __.23(c)(3). The
agencies are also making technical edits, format changes, and other
minor word changes, with no substantive change in meaning intended. For
instance, the final rule changes the format of the data that is
required to be collected and maintained from ``machine readable'' to
``electronic'' form.
The agencies carefully balanced considerations of regulatory burden
against the benefit of more clarity, consistency, and transparency with
respect to CRA evaluations, while still providing banks flexibility. In
particular, banks must collect and maintain the data described above,
and are permitted to provide any other information that demonstrates
the availability and usage of the bank's deposit products responsive to
the needs of low- and moderate-income individuals and low- and
moderate-income census tracts. In the final rule, the agencies
clarified that ``a bank may opt to collect and maintain additional data
pursuant to paragraph (a)(4)(iii)(C) of this section in a format of the
bank's choosing.'' In addition, the agencies added clarifying language
that optional data collected and maintained must ``demonstrate the
availability and usage'' of the bank's responsive deposit products.
As discussed below, the agencies also plan to provide guidance for
banks on the submission of these data to promote the clarity,
consistency, and transparency of this information.
After considering the commenters' recommendations, the agencies
have decided to finalize the data elements as proposed. The agencies
decline to incorporate commenters' recommendations regarding grouping
deposit accounts together by account terms and including direct deposit
affordability as one of the elements to consider for responsive deposit
accounts. With regard to commenters that suggested the agencies group
deposit accounts by account terms and direct deposit requirements, the
agencies believe deposit accounts are relatively heterogeneous and
different banks may take different approaches in how they organize
their deposit accounts with regard to affordability. With regard to
commenters that suggested the agencies should use direct deposit
threshold as a proxy for the depositors' median income to determine
product affordability, the agencies note that banks take different
approaches with regard to how their direct deposit features are
structured, and depositors take different approaches with regard to how
they deposit their funds, whether using direct deposit for all, part,
or none of their deposits across one or more accounts. The agencies
believe that banks are best positioned to determine how to present the
affordability of the direct deposit features of their deposit accounts,
as relevant for their distinct customer bases. Nevertheless, the
agencies will take commenters' recommendations under advisement to
determine if they could be used as examples examiners can consider in
the evaluation.
Additional Issues
The Agencies' Proposal
The agencies invited comment on whether the proposed retail
services data exist in a format that is transferrable to data
collection or whether the agencies should require a standardized
template to facilitate the collection and maintenance of data for the
Retail Services and Products Test. The agencies considered that a
template would potentially offer flexibility for providing quantitative
and qualitative information, which may be particularly relevant for
aspects of retail services that banks have not consistently provided to
the agencies previously, or that may change over time. The agencies
also invited public feedback on steps that could be taken to minimize
burden of the proposed information collection requirements while still
ensuring adequate information to inform the evaluation of services.
Comments Received
Comments regarding the format for information collection. In
response to the agencies' request for comment on whether the proposed
retail services data exist in a format that is transferable to data
collection or whether a required template provided by the agencies
would be sufficient in the collection of retail services and products
information, several commenters provided feedback. All commenters
indicated that the agencies should develop and provide a template to
ensure that the data are standardized, with two of these commenters
also suggesting that, prior to implementation, the agencies should
release the template for public input. Another commenter indicated that
the response could vary by bank, which is why the commenter supports
making a template available if it is not feasible to transfer the data
collection.
Comments related to burden reduction. In response to the agencies'
request for feedback on what steps could be taken to reduce burden of
the proposed information collection requirements, the agencies received
recommendations from several commenters. Commenters' suggestions
included that the agencies create templates for data requirements and
to provide technical assistance and training, particularly for MDIs,
and small and intermediate banks. Other recommendations included
providing guides, manuals, and training programs; standardizing and
automating data collection, with as much data as possible drawn from
``authoritative sources of bank profiles and community development
data;'' providing strong resources to help navigate differences in
definitions of various regulations, and creating a portal or listing of
qualifying activities; distributing a questionnaire to banks to collect
feedback on how data burden might be reduced; and requesting consistent
data that provides insights about income, race, ethnicity, and
location.
A few commenters generally addressed the burden related to the data
requirements for retail services and products. Commenter views included
that this requirement would be costly and disproportionately burdensome
relative to the small impact this test would have on a bank's overall
CRA rating. A commenter stated that the
[[Page 7062]]
incremental burdens associated with maintaining data needed for the
proposed test will be significant because much of these data are not
currently being captured or maintained by banks. Another commenter
listed reasons data will be challenging and burdensome (e.g., hard to
determine accurate location of customer of a particular product) and
stated that the burden is not worth it. This commenter also stated that
digital banking data at census tract level is inconsistent with the
deposits data proposal, which aggregates data at the county level.
Final Rule
Regarding the commenter that expressed concerns that reporting data
at the census tract level would be burdensome because of the difficulty
in determining the accurate location of customers of a particular
product, the agencies' supervisory expectations are that banks maintain
current addresses for their accountholders. Geocoding technology for
associating addresses with census tracts is widely available and used
in the banking industry. As a result, the agencies do not expect that
the requirement for large banks to collect and maintain data for their
digital and other delivery systems at the census tract level will
create a significant increase in burden.
Regarding the inconsistency between the deposits data collected and
maintained at the county level, which the agencies will use for the
purpose of calculating metrics for the Retail Lending Test and the
Community Development Financing Test, and the digital delivery systems
or other delivery systems data collected and maintained at the census
tract level, which the agencies will use to evaluate the degree to
which these products are serving low- and moderate-income individuals
and low- and moderate-income census tracts, the agencies note that
these data are used for different purposes. The deposits volume data at
the county level are used for constructing weights and metrics; they
are not evaluated with regard to the income characteristics of
underlying census tracts. On the other hand, the agencies will evaluate
data on accounts opened by digital delivery systems and other delivery
systems with regard to the income level of the census tracts where
consumers reside, as well as other data that banks may provide
indicating the income levels of consumers of these products. It is
appropriate that banks collect these data at different geographic
levels.
Upon consideration of the comments received, the agencies intend to
develop various materials for banks including data reporting guides and
other technical assistance to assist banks in understanding supervisory
expectations with respect to the data requirements for retail banking
services and retail banking products, navigating through various
definitions, and the types of responsive deposit products that could
qualify for CRA consideration. In addition, the agencies intend to
develop a template for the submission of data for digital delivery
systems and other delivery systems as well as responsive deposit
products to increase consistency for the collection and maintenance of
the data and will continue to explore other tools to reduce burden. The
agencies decline to publish a complete listing of retail banking
services or retail banking products that could qualify for
consideration, as the agencies are concerned that doing so may narrow
the potential for innovative deposit products a bank could develop or
offer to their customer base. However, the agencies will consider
including illustrative examples of retail banking services and retail
banking products in any future guides and technical assistance the
agencies issue outside of the final rule. Importantly, responsive
deposit products are dependent on the needs of the community which can
differ. With respect to other recommendations, the agencies will
continue to explore the possibility of including them in guidance,
outside of this final rule.
Section __.42(a)(5) Information Required To Be Collected and
maintained--Community Development Loans and Community Development
Investments Data
Section __.42(b)(2) Information Required To Be Reported--Community
Development Loans and Community Development Investments Data
Current Approach
Current Sec. __.42(b)(2) requires that a bank, except a small bank
(including an intermediate small bank) or a bank that was a small bank
during the prior calendar year, report annually by March 1 to the
Board, FDIC, or OCC, as applicable, the aggregate number and dollar
amount of community development loans originated or purchased by the
bank during the prior calendar year. Current agency guidance provides
that a large bank or intermediate small bank that seeks consideration
for community development activities must be prepared to demonstrate
the activities' qualifications but this can be provided in a format of
the bank's choosing.\1528\
---------------------------------------------------------------------------
\1528\ See Q&A Sec. __.12(h)-8; see also current 12 CFR __.21
and __.26.
---------------------------------------------------------------------------
Regarding data about a bank's individual community development
loans and community development investments, as well as prior period
information about a bank's community development investments, examiners
currently rely on loan level and investment level information provided
by a bank at the time of an examination, including the number and
dollar amount of loans and investments, the location of or areas
benefited by these activities, and information describing the community
development purpose for each community development loan and
investment.\1529\ Data collection, maintenance, and reporting
requirements for this information is currently not included in the CRA
regulations. In addition, the CRA regulations do not currently consider
community development loans from prior periods that remain on the
bank's books; therefore, there is no requirement for the collection and
reporting of these data. As a result of the lack of data collection and
reporting of individual community development loans and community
development investments, the total number and dollar amount (originated
and on-balance sheet) of such loans and investments nationally, or
within specific geographies, is not available through reported data.
---------------------------------------------------------------------------
\1529\ See Q&A Sec. __.22(b)(4)-1.
---------------------------------------------------------------------------
The Agencies' Proposal
Proposed Sec. __.42(a)(5)(i)(A) required a bank, except a small or
an intermediate bank, to collect and maintain the data on individual
community development loans and investments in proposed Sec.
__.42(a)(5)(ii), in machine readable form, as prescribed by the
agencies. Data to be collected and maintained about each individual
community development loan or investment included: (1) general
information on the loan or investment; \1530\ (2) specific information
on the loan or investment, such as the name of organization or entity,
type (loan or investment), community development purpose, and community
development loan or investment detail, which could include, for
example, whether the loan or investment was a low-income housing tax
credit investment or a multifamily mortgage loan; \1531\ (3) indicators
of the impact of the community development
[[Page 7063]]
loan or investment; \1532\ (4) location information; \1533\ (5) other
details relevant to the determination that the loan or investment meets
the standards in proposed Sec. __.13, including indicators of whether
the bank has retained certain types of documentation, such as rent
rolls, to assist with verifying the eligibility of the loan or
investment; \1534\ and (6) the allocation of the dollar value of the
community development loan or investment to specific geographic areas,
if available.\1535\
---------------------------------------------------------------------------
\1530\ Proposed Sec. __.42(a)(5)(ii)(A).
\1531\ Proposed Sec. __.42(a)(5)(ii)(B).
\1532\ Proposed Sec. __.42(a)(5)(ii)(C).
\1533\ Proposed Sec. __.42(a)(5)(ii)(D).
\1534\ Proposed Sec. __.42(a)(5)(ii)(E).
\1535\ Proposed Sec. __.42(a)(5)(ii)(F).
---------------------------------------------------------------------------
Proposed Sec. __.42(a)(5)(i)(B) required an intermediate bank that
opted to be evaluated under the Community Development Financing Test in
Sec. __.24 to collect and maintain the data in Sec. __.42(a)(5)(ii),
but could do so in the format used by the bank during the normal course
of business.\1536\ The agencies did not propose to require small banks
to collect, maintain, or report any data on community development loans
and investments, even if the small bank requested consideration for
such activities.
---------------------------------------------------------------------------
\1536\ The agencies also noted in the proposal that intermediate
banks evaluated under the status quo intermediate bank community
development evaluation would not be required to collect and maintain
data.
---------------------------------------------------------------------------
The agencies also proposed to revise current Sec. __.42(b)(2),
renumbered in the proposal as Sec. __.42(b)(5), to require a bank,
except a small or an intermediate bank, to report annually by April 1
all the individual loan and investment data collected and maintained
discussed above under Sec. __.42(a)(5)(ii), with the exception of the
name of the organization or entity supported.
The agencies requested comment regarding several aspects of the
agencies' proposal to collect, maintain, and report community
development lending and investment data. With respect to collection of
the data, the agencies sought feedback on other steps they could take,
or what procedures they could develop, to reduce the burden of the
collection of additional community development lending and investment
data fields while still ensuring adequate data to inform the evaluation
of the bank's community development loans and investments. The agencies
also sought feedback on how a data template could be designed to
promote consistency and reduce burden. With respect to reporting of the
data, the agencies sought feedback on how the format and level of data
reporting requirements might affect those banks required to report
community development lending and investment data, as well as the
usefulness of the data. For example, the agencies sought feedback on
whether it would be appropriate and less burdensome to require
reporting of community development lending and investment data
aggregated at the county-level as opposed to the individual loan- or
investment-level.
Comments Received
Comments related to collection and maintenance of community
development loans and investments data. Several commenters provided
general comments on the agencies' proposed community development
lending and investment data requirements. These commenters were
generally supportive of the agencies' proposed strategy, with one
commenter noting that the proposed community development lending and
investment data would make the Community Development Financing Test in
Sec. __.24 more rigorous by allowing examiners to compare a bank
against its peers to determine whether the bank is especially
responsive to local needs. This commenter further noted that the
community development lending and investment data would help
stakeholders more accurately determine areas that are receiving
considerable amounts of community development lending and investment
financing and which areas are not. One commenter noted that the new
data requirements would highlight gaps in financial services in
underserved communities and was hopeful it would spur economic
activity.
A few other commenters offered additional suggestions on how to
improve data collection for community development lending and
investments. For instance, a few commenters suggested that the agencies
could improve data collection for the impact review section of the
Community Development Financing Test in Sec. __.24, noting for
example, that capturing contextual data on the factors, such as the
number of beds in health facilities or the number of housing units that
had lead paint abatement, might better capture the importance of
funding health initiatives and better motivate banks to invest in those
initiatives. A commenter suggested that the final rule might implement
data collection and reporting requirements on the race and ethnicity of
the beneficiaries of community development loans, investments, and
services. Another commenter asked that the agencies make all the data
publicly available.
Commenters also provided feedback on what steps the agencies might
take to reduce the burden of collecting additional community
development lending and investment data, including the design of a
template to promote consistency and reduce burden. Most commenters who
opined on this question agreed that providing a template would be
useful. These commenters also provided other suggestions on how to
reduce the burden of collecting community development lending and
investment data. For example, one commenter suggested that the agencies
should automate the template and provide it to CRA software vendors. A
few commenters noted the importance of standardizing and automating
data collection to minimize duplication of effort and more efficiently
implement data collection using existing sources, with one of these
commenters also noting that data sharing tools including standard
visualizations for the bank's community and Application Programing
Interface (API) for researchers would also be beneficial. A few other
commenters noted that, in addition to developing the template, the
agencies should develop training materials and programs for banks and
the public and provide sufficient time for the industry to implement
the reporting process. One other commenter suggested that a template
for collecting community development lending and investment data should
include data fields to record geographical targeting, partnerships, and
other features that might help the qualitative evaluation become more
quantitative and objective.
A few other commenters provided other recommendations to streamline
data collection. For example, a commenter suggested that banks should
have the flexibility to classify small business loans with a primary
purpose of community development as community development loans and
investments. This commenter noted that documentation for these
activities could then be drawn from data to be required as part of the
CFPB's section 1071 process. Similarly, another commenter noted that
SBA documentation through various forms includes fields on job creation
and retention, similar to those likely to be needed for CRA purposes.
The agencies aim to use readily available data whenever possible.
Comments related to reporting of community lending and investment
data. Several commenters responded to the agencies' request for
feedback on whether the format and level of data
[[Page 7064]]
required to be reported might affect the burden on banks required to
report community development lending and investment data as well as the
usefulness of the data. A majority of these commenters supported the
proposed rule's requirement that banks report community development
lending and investment data at the individual loan or investment level.
Rationale provided by these commenters varied. A few of these
commenters asserted that loan or investment level data would allow for
more precise tracking of community development loan or investment data,
including the number and percentages of activities that met one or more
of the impact review factors or specific community development
categories, such as affordable housing activities. Another one of these
commenters observed that large banks would have to collect individual
loan- or investment-level data whether or not the data are reported at
the activity level. This commenter noted that reporting at the loan- or
investment-level would give the agencies and the public more granular
data with which to compare banks with other banks. One commenter, while
agreeing that large banks should collect and report loan- or
investment-level community development data, also, suggested that banks
should have the option to report data annually, with the perspective
that quarterly reporting would be overly burdensome. This commenter
misunderstood the proposal, as the proposal included the option to
report data annually.
A few commenters provided other recommendations including that the
agencies: require reporting of community development lending and
investment data at an aggregated level, without reporting individual
loans and investments; review the format and level of data reported by
CDFIs to the Treasury data system called Awards Management Information
System (AMIS), in the hopes that there might be an opportunity to
capture the full profile of a bank's community development lending and
investments in one system leveraging this existing reporting system to
facilitate data standardization, exchange, and consolidation; include
an indicator of whether a product is targeted or offered in a low- or
moderate-income location or targeted to a broader low- or moderate-
income community; and require banks to collect and report community
development lending and investment data for activities in Native Land
Areas and with entities such as Native CDFIs and tribal governments.
Publication of community development lending and investment data. A
number of commenters suggested that the agencies publish community
development lending and investment data. For example, one commenter
encouraged the agencies to disclose data on the community development
purpose of activities, even if such data are published at the aggregate
level, as publication would allow the public to have greater insight
into how community development lending and investment dollars are
allocated and to compare trends over time. This commenter, along with a
few others, also requested that community development lending and
investment data be made available on a census tract level so that
members of the public can determine which neighborhoods are receiving
an adequate amount of community development lending and investment and
which neighborhoods need more.
Final Rule
The agencies are adopting Sec. __.42(a)(5)(i)(A) largely as
proposed with technical and clarifying edits. Specifically, the
agencies are revising this paragraph to update the reference from
``machine readable'' to ``electronic.'' No substantive change is
intended. In addition, to conform to changes made in Sec. __.24, the
agencies are clarifying that the data to be collected and maintained in
Sec. __.42(a)(5)(ii) applies to community development loans and
investments originated and purchased, as originally proposed, as well
the refinance, renewal, or modification of a loan or investment.
The agencies are not finalizing the requirement in proposed Sec.
__.42(a)(5)(i)(C) that banks collect and maintain the outstanding
dollar volume of community development loans and investments for
previous years that are still held on the balance sheet at the end of
each quarter, by March 31, June 30, September 30, and December 30.
Instead, to reduce burden, the agencies are finalizing proposed Sec.
__.42(a)(5)(i)(C), renumbered as Sec. __.42(a)(5)(ii)(A)(4)(iii), to
require the bank to collect and maintain the outstanding balance of
community development loan originated, purchased, refinanced, or
renewed in previous years that remain on the bank's balance sheet as of
December 31 of the calendar year for each year the loan remains on the
bank's balance sheet; or an existing community development investment
made or renewed in a year subsequent to the year of the investment as
of December 31 for each year that the investment remains on the bank's
balance sheet. This change requires the bank to collect and maintain
these data based on the end of year balance instead of the average of
the quarterly balance, which the agencies believe will be easier for
banks to comply with. The agencies have also made technical and
conforming edits to the remainder of this paragraph.
The agencies are revising proposed Sec. __.42(a)(5)(ii)(A) to
conform to the revisions made to proposed Sec. __.42(a)(5)(i)(C), as
described above, and Sec. __.24 and for organizational and clarifying
purposes. The agencies are also making changes to proposed Sec.
__.42(a)(5)(ii)(C) to conform to the changes made to Sec. __.15(b),
including adding to the list of indicators of the impact and
responsiveness of the activity whether an activity benefits or serves
one or more census tracts with a poverty rate of 40 percent or higher
or the activity is an investment in a project financed with LIHTCs or
NMTCs. In response to commenters and the agencies' further review, the
agencies are revising proposed Sec. __.42(a)(5)(ii)(D) to include the
census tract as part of the data a bank is required to collect and
maintain for the specific location information of the community
development loan or investment. Finally, other technical and
organizational changes were made to Sec. __.42(a)(5)(ii) with no
change in meaning intended.
The agencies are finalizing proposed Sec. __.42(b)(3), renumbered
in the final rule as Sec. __.42(b)(2), largely as proposed pertaining
to the reporting of community development lending and investment data
collected and maintained in Sec. __.42(a)(5)(ii), with revisions and
minor technical and conforming edits. Specifically, in addition to
finalizing Sec. __.42(b)(2) to exclude from reporting the name of the
organization or entity supported in Sec. __.42(a)(5)(ii)(B)(1), in the
final rule the agencies are also excluding the specific location
information of the community development loan or investment in Sec.
__.42(a)(5)(ii)(D)(1) through (5) to further address potential privacy
issues. The agencies are further revising Sec. __.42(b)(2) to require
that banks subject to the data reporting requirements in Sec.
__.42(b)(2) report the census tract location of the community
development loan or investment in new Sec. __.42(a)(5)(ii)(D)(6). This
requirement, which was included upon consideration of commenter
feedback, is intended to assist the agencies in determining if the loan
or investment qualifies as community development.
[[Page 7065]]
As explained in the proposal, the agencies believe collecting and
reporting community development lending and investment data at the
loan- or investment-level is necessary to construct community
development lending and investment metrics and benchmarks. Requirements
for data collection and maintenance will also aid the agencies in
conducting data integrity evaluations, and the agencies anticipate
addressing data integrity procedures as part of interagency guidance.
The agencies note that, under the final rule, banks will be required to
report annually, by April 1, the data required to be collected and
maintained on an annual basis until the completion of the bank's next
examination period. The agencies believe some commenters may have
misunderstood that the required data were to be reported on a quarterly
basis, rather than reported on an annual basis using the quarterly
average of the data. To clarify, the agencies are simplifying the data
collection and reporting by requiring annual reporting of new money and
year-end balances of activities that remain on the bank's balance sheet
from prior years as opposed to quarterly averages.
In response to commenters that suggested that banks record a small
business loan with a community development purpose as a community
development loan or investment to receive consideration, the agencies
will allow consideration of small business and small farm loans under
the Retail Lending Test, as well as the relevant community development
tests applicable to the bank, subject to meeting the necessary criteria
(see the section-by-section analysis of Sec. __.13 for additional
details).
Regarding comments to make community development lending and
investments data publicly available, the agencies believe that this
information will be disclosed in a number of ways, including through
CRA Disclosure Statements, aggregate disclosure statements, and public
performance evaluation reports. Public performance evaluations would
include the metrics and benchmarks used to determine conclusions on the
Community Development Financing Test for each facility-based assessment
area, multistate MSA, State, and institution. The agencies believe the
information in these statements and reports will provide stakeholders
greater insight into how community development lending and investment
dollars are allocated and compare trends over time to assist with the
identification of areas where capital is most needed.
Upon consideration of the comments, the agencies are not including
data on the race and ethnicity of the beneficiaries of community
development activities as the agencies believe this would increase
burden without providing a corresponding benefit that would assist the
agencies in effectuating the rule, as finalized.
To assist banks with the collection and maintenance of community
development lending and investment data, the agencies intend to develop
a standardized template to gather the data in a consistent manner.
Gathering of standardized data will also assist the agencies in
understanding the impact and responsiveness of community development
loans and investments when applying the impact and responsiveness
review. The electronic form will include the impact and responsiveness
factors for consistency and to reduce burden. Banks will be permitted
to provide examiners additional contextual and qualitative information
on community development loans and investments during the CRA
examination, consistent with current practices.
The agencies will take into consideration other commenter
suggestions for simplifying data collection, including the automation
of the template when developing the tools and resources to implement
the new rule. Under the final rule, use of the template will be
required for large banks and limited purpose banks that would be large
based on the asset size described in the definition of large bank. The
agencies believe that requiring these banks to use the prescribed
template will, in addition to reducing burden, improve the consistency
of the data collected. An intermediate bank that opts to be evaluated
under the Community Development Financing Test in Sec. __.24 may
provide community development lending and investment data in the format
used by the bank in the normal course of business, or may use the
standardized template provided by the agencies. In addition, the
agencies intend to develop other materials to assist banks with
community development data collection. As suggested by commenters, the
agencies are considering developing training materials and programs for
banks and the public, and a data reporting guide to assist in accurate
data reporting.
Section __.42(a)(6) Information Required To Be Collected and
Maintained--Community Development Services Data
Current Approach
There are no specific data collection or reporting requirements in
the current CRA regulations for community development services.
However, current interagency guidance explains that a bank should
provide examiners with sufficient information to demonstrate its
performance in these areas, as applicable,\1537\ such as by providing
the number of activities, bank staff hours dedicated, or the number of
financial education sessions offered.\1538\
---------------------------------------------------------------------------
\1537\ See Q&A Sec. __.12(h)-8.
\1538\ See Q&A Sec. __.24(e)-2.
---------------------------------------------------------------------------
The Agencies' Proposal
To facilitate the proposed evaluation of a bank's community
development services activities and the use of the proposed Bank
Assessment Area Community Development Services Hours metric, proposed
Sec. __.42(a)(6) required large banks with assets of over $10 billion
to collect and maintain, until the completion of the bank's next CRA
examination, the following community development services information,
in machine readable form, as prescribed by the agencies: (1) number of
full-time equivalent employees at the facility-based assessment area,
State, multistate MSA, and institution levels; \1539\ (2) total number
of community development services hours performed by the bank in each
facility-based assessment area, State, multistate MSA, and in total;
\1540\ (3) date of community development activity; \1541\ (4) name of
organization or entity; \1542\ (5) community development purpose;
\1543\ (6) capacity served; \1544\ (7) whether the activity is related
to the provision of financial services; \1545\ (8) the location of the
activity; \1546\ and (9) whether the bank is seeking consideration at
the assessment area, statewide, or nationwide level.\1547\ Although not
expressly stated in proposed Sec. __.42(a)(6), the agencies explained
in the proposal that large banks with assets of $10 billion or less
would have the option, but would not be required, to collect and
maintain the same community development services data in Sec.
__.42(a)(6). However, these
[[Page 7066]]
banks would have the option to collect and maintain data in their own
format, or to use the template prescribed by the agencies.
---------------------------------------------------------------------------
\1539\ Proposed Sec. __.42(a)(6)(i)(A).
\1540\ Proposed Sec. __.42(a)(6)(i)(B).
\1541\ Proposed Sec. __.42(a)(6)(ii)(A).
\1542\ Proposed Sec. __.42(a)(6)(ii)(B).
\1543\ Proposed Sec. __.42(a)(6)(ii)(C).
\1544\ Proposed Sec. __.42(a)(6)(ii)(D).
\1545\ Proposed Sec. __.42(a)(6)(ii)(E).
\1546\ Proposed Sec. __.42(a)(6)(iii)(A) through (E).
\1547\ Proposed Sec. __.42(a)(6)(iii)(F).
---------------------------------------------------------------------------
To compute the Bank Assessment Area Community Development Services
Hours Metric proposed in Sec. __.25(b)(2), proposed Sec. __.42(b)(4)
would have required large banks with assets of over $10 billion to
report annually by April 1: (1) the number of full-time equivalent
employees at the facility-based assessment area, State, multistate MSA,
and institution levels; and (2) the total number of community
development services hours performed by the bank in each facility-based
assessment area, State, multistate MSA, and in total.
In addition, the agencies asked for feedback regarding whether
large banks with assets of $10 billion or less should be required to
collect and maintain community development services data in machine
readable form, as prescribed by the agencies, equivalent to the data
required to be collected and maintained by large banks with assets of
over $10 billion. Under this alternative, the agencies asked whether
large banks with assets of $10 billion or less should have the option
of using a standardized template or collecting and maintaining the data
in their own format, and whether a longer transition period for these
banks to begin to collect and maintain deposits data (such as an
additional 12 or 24 months beyond the transition period for large banks
with assets of over $10 billion) would make this alternative more
feasible. The agencies further asked whether the added value from being
able to use these data in the construction of a metric outweighs the
burden involved in requiring data collection by these banks. The
agencies also asked for feedback regarding whether large banks with
assets of over $10 billion should be required to collect, maintain, and
report data on the number of full-time equivalent employees in order to
develop a standardized metric to evaluate community development service
performance for these banks.
Comments Received
A few commenters provided general feedback on the agencies'
community development services data requirements. One of these
commenters noted that requiring large banks to report community
development data on an individual activity level would be one of the
most impactful changes in the proposed rule. The other commenter
suggested that the agencies clarify that there is no need to collect
and report community development services data in which a bank does not
intend to seek CRA credit.
Several commenters expressed differing views on whether large banks
with assets of $10 billion or less should be required to collect
community development services data, and if so, whether banks should
have the option of using the standardized template or their own format.
Many of these commenters supported requiring that all large banks
report these data in the manner prescribed for banks with assets over
$10 billion, with a few of these commenters also supporting a
requirement that data be reported in machine-readable form. One
commenter thought that intermediate banks should have the flexibility
to collect and maintain data either in their own format or in a
template provided by the agencies. Another commenter suggested that
large banks with assets of $10 billion or less should have the option
of using a standardized template or their own format, but in either
case, the format should be in a machine-readable form. This commenter
further noted that although a longer transition period is always
desirable, the added value of using these data in the construction of a
metric outweighs the burden involved in requiring data collection by
these banks. Another commenter expressed an opposing view with respect
to requiring these banks to provide data in a machine-readable form,
noting that banks should maintain the data internally but not have to
report it externally. One commenter did not support additional
reporting of these data points for any large bank because of what the
commenter deemed to be excessive cost burden.
Regarding the agencies' request for feedback on whether large banks
with assets over $10 billion should collect, maintain, and report data
on the number of full-time equivalent employees at the assessment area,
State, multistate MSA, and institution level in order to develop a
standardized metric to evaluate community development service
performance, a few commenters supported the proposal. One of these
commenters also noted that if a standardized metric is developed by the
agencies, it would be important that data be sufficient to evaluate
community development services performance. This commenter further
suggested that requiring banks to report data on the number of full-
time equivalent employees would help complete the profile of the bank's
investment in community development services. Another commenter
expressed the view that the requirement to report data on the number of
full-time equivalent employees should apply to all large banks and
intermediate banks, and that the performance evaluation should include
a copy of the institution's most recent Employment Information Report
(EEO-1) Component Data report to evaluate a bank's diversity and
inclusion.
One commenter noted that it would be difficult for banks to
collect, maintain, and report these data. One commenter objected to the
requirement that large banks with assets of over $10 billion collect,
maintain, and report these data while not requiring the same of all
other banks. In this commenter's view, there is no logical reason for
the different treatment. The commenter urged the agencies not to impose
what they described as sweeping, burdensome, and inefficient data
collection requirements.
Final Rule
After consideration of the comments, the agencies are adopting
Sec. __.42(a)(6) pertaining to the data collection and maintenance of
community development services, with changes, including technical and
conforming changes. Specifically, because final Sec. __.25 requires
all large banks to be evaluated under the Community Development
Services Test (see the section-by-section analysis of Sec. __.25), the
agencies are conforming proposed Sec. __.42(a)(6) to require all large
banks to collect and maintain the community development services data
in final Sec. __.42(a)(6)(i) and (ii). The agencies believe collection
and maintenance of the community development services data for all
large banks is necessary to facilitate evaluation under the Community
Development Services Test. The agencies further believe that requiring
these data of all large banks, rather than just banks with assets over
$10 billion, will provide more consistency and clarity in the
evaluation of community development services for all large banks,
without significantly increasing burden. The agencies note from prior
supervisory experience that many large banks already collect and
maintain these data for CRA examination purposes.
However, to reduce burden and provide flexibility while maintaining
consistency in the data elements, the final rule permits all large
banks to collect and maintain these data in a format of the bank's
choosing or in a standardized format as provided by the Board, FDIC, or
OCC, as applicable, until the completion of the bank's next CRA
examination. The agencies note that they intend to develop a
standardized template for community
[[Page 7067]]
development services data to improve consistency in evaluations. Large
banks will have the choice to use the template or their own format.
Finally, the agencies note that small banks and intermediate banks
that request consideration for community development services are not
required to collect and maintain these data in a manner equivalent to
large banks. However, consistent with current practice, small and
intermediate banks should be prepared to provide examiners with
sufficient information to demonstrate that the activities qualify as
community development services, such as the number of activities, bank
staff hours dedicated, or the number of financial education sessions
offered.
The agencies are also making changes to the data required to be
collected and maintained to conform to changes made in final Sec.
__.25. Specifically, the agencies are not adopting the proposed Bank
Community Development Services Hours Metric for banks with assets over
$10 billion. As a result, the data regarding the number of full-time
equivalent employees at the facility-based assessment area, State,
multistate MSA, and institution levels in proposed Sec.
__.42(a)(6)(i)(A) are no longer necessary. In addition, the agencies
further revised Sec. __.42(a)(6)(i) by removing the total number of
community development services hours performed by the bank in each
facility-based assessment area, state, multistate MSA, and in total.
This was removed because the number of board member or employee service
hours was added to the list of community development services
information, proposed as Sec. __.42(a)(6)(ii)(A) and renumbered as
Sec. __.42(a)(6)(i). The agencies will be able to add the number of
total service hours based on the hours provided for each community
development service.
The agencies added Sec. __.42(a)(6)(i)(F) to require the
collection and maintenance of the indicators of the impact and
responsiveness of the activity, as applicable, to be consistent with
final Sec. __.15(b). The agencies note that while the impact factors
were not specifically included in the data collection, these data are
required for the evaluation of the Community Development Services Test
pursuant to Sec. __.25(c)(5). Final Sec. __.42(a)(6)(i)(F)(1) through
(10) provides the indicators required to be collected and maintained
for community development services consistent with Sec. __.15(b).
The agencies have also revised proposed Sec. __.42(a)(6)(ii)(E) by
removing the indicator for whether the activity is related to the
provision of financial services. As explained in the section-by-section
analysis of Sec. __.25, the agencies determined that this requirement
is not necessary because the final rule requires all community
development services activities to be related to the provision of
financial services. Therefore, collection of this indicator in proposed
Sec. __.42(a)(6)(ii)(E) is no longer necessary.
The agencies have also renumbered and streamlined the data
requirements for the location information of the activity in proposed
Sec. __.42(a)(6)(iii)(A) through (F). Specifically, the final rule
replaces the requirement to collect and maintain the specific location
of the activity, street address, city, county, State, and zip code in
proposed Sec. __.42(a)(6)(iii)(A) through (E), with a list of the
geographic areas served by the activity, specifying any census tracts,
county, counties, State, States, or nationwide area served. This
revised list is renumbered in the final rule as Sec.
__.42(a)(6)(ii)(A). In addition, the geographic level for which the
bank seeks consideration for the community development services
activity in proposed Sec. __.42(a)(6)(iii)(F) has been renumbered in
the final rule as Sec. __.42(a)(6)(ii)(B).
The agencies are not finalizing the requirement that banks with
asset over $10 billion must report the number of full-time equivalent
employees proposed Sec. __.42(b)(4). As stated above, the agencies are
not requiring that banks collect and maintain the number of full-time
equivalent employees at the facility-based assessment area, State,
multistate MSA, and institution levels collected in proposed Sec.
__.42(a)(6)(i)(A). As a result, the requirement to report these data no
longer applies.
Because the final rule does not require that data for community
development services be reported, the agencies will not publish
community development services data as suggested by one commenter. With
respect to the data collection requirement, and in response to a
comment, while the agencies are not specifying in the final rule that
if a bank does not intend to seek CRA credit the bank need not collect
community development services data, the agencies note that there are
no data requirements if the bank does not engage in a particular
product or service that requires data collection, maintenance, or
reporting under Sec. __.42.
Section __.42(a)(7) Information Required To Be Collected and
Maintained--Deposits Data
Section __.42(b)(3) Information Required To Be Reported--Deposits Data
Current Approach
The current CRA regulations do not require banks to collect,
maintain, or report deposits data.\1548\ Instead, for small banks,
total deposits and total loans data from the bank's Call Report are
used to calculate the loan-to-deposit ratio for the entire bank. For
banks of any size, the agencies may use total deposits allocated to
each branch from the FDIC's Summary of Deposits for performance
context. Further, deposits data by depositor location are not currently
required to be collected or reported, but may have been used by
examiners for performance context at the bank's request, if available.
---------------------------------------------------------------------------
\1548\ See current 12 CFR __.42.
---------------------------------------------------------------------------
The Agencies' Proposal
As explained below, the agencies proposed that deposits data would
be used for several evaluation metrics, benchmarks, and weights under
the applicable performance tests. In Sec. __.42(a)(7) (collection and
maintenance) and (b)(5) (reporting), the agencies proposed an approach
for the deposits data requirements tailored to different bank sizes.
Deposits Data Collection and Maintenance Requirements
Large Banks with Assets of Over $10 Billion. The agencies proposed
in Sec. __.42(a)(7) to require large banks that had average assets of
over $10 billion in both of the prior two calendar years, based on the
assets reported on its four quarterly Call Reports for each of those
calendar years, to collect annually and maintain until the completion
of the bank's next CRA examination the dollar amount of the bank's
deposits at the county level, based on the addresses associated with
accounts and calculated based on the average daily balances as provided
in statements, such as monthly or quarterly statements. The proposal
also indicated that deposits data must be collected and maintained in
machine readable form prescribed by the Agency.\1549\ Further, the
proposed deposits data would not be assigned to branches but would
instead reflect the county-level dollar amount of the bank's deposit
base.\1550\ As a result, county-level deposits data would be based on
the county in which the depositor's
[[Page 7068]]
account address is located, rather than on the location of the bank
branch to which the deposits are assigned as is the case with the
FDIC's Summary of Deposits.\1551\ The agencies explained in the
preamble to the proposal that this approach would allow for more
precise measurement of a bank's local deposits by county. Furthermore,
the agencies noted that banks generally collect and maintain depositor
location data to comply with Customer Identification Program
requirements and as part of their ordinary course of business.
---------------------------------------------------------------------------
\1549\ See proposed Sec. __.42(a)(7).
\1550\ See id.
\1551\ See id.
---------------------------------------------------------------------------
The agencies also explained in the preamble to the proposal that
the current approach of associating deposits with the location of the
branch to which they are assigned would raise challenges under the
proposed evaluation framework for large banks with assets of over $10
billion. The agencies explained that the proposed collection and
maintenance of deposits data at the county level for large banks with
assets of over $10 billion would permit the agencies to more
accurately: (1) construct the bank volume metric and community
development financing metric for each bank at the facility-based
assessment area, State, multistate MSA, and institution levels, as
applicable; (2) construct the market benchmarks used for the retail
lending volume screen and the community development financing metric at
the facility-based assessment area, State, multistate MSA, and
institution levels, as applicable; and, (3) implement a standardized
approach for deriving State-, multistate MSA-, and institution-level
conclusions and ratings by weighting facility-based assessment area
conclusions, retail lending assessment area conclusions, and outside
retail lending area conclusions through a combination of deposits and
lending volumes.
The agencies did not believe it was practicable to implement their
proposal using the FDIC's Summary of Deposits data for all large banks,
particularly with respect to banks with more than $10 billion in
assets. For example, the agencies noted that the FDIC's Summary of
Deposits data is not always an accurate measure of a bank's deposit
base within an assessment area. Specifically, deposits assigned to a
branch in the FDIC's Summary of Deposits data may have been deposited
by a customer located outside of the assessment area where the branch
is located, such as in a different assessment area of the bank or
outside of any of the bank's assessment areas.\1552\ The agencies noted
that this limitation could introduce imprecision when using the FDIC's
Summary of Deposits data to weight performance conclusions in retail
lending assessment areas, outside retail lending areas, and areas for
eligible community development activity. For large banks with assets of
over $10 billion, the agencies believed that the benefits of precision,
given the range of important measurements which are dependent on these
data, outweighed the burden of requiring the collection and reporting
of deposits data.
---------------------------------------------------------------------------
\1552\ See FDIC ``Summary of Deposits Reporting Instructions'' 3
(June 30, 2022), https://www.fdic.gov/resources/bankers/call-reports/summary-of-deposits/summary-of-deposits-reporting-instructions.pdf (``Institutions should assign deposits to each
office in a manner consistent with their existing internal record-
keeping practices. The following are examples of procedures for
assigning deposits to offices: Deposits assigned to the
office in closest proximity to the accountholder's address.
Deposits assigned to the office where the account is most active.
Deposits assigned to the office where the account was
opened. Deposits assigned to offices for branch manager
compensation or similar purposes. Other methods that logically
reflect the deposit gathering activity of the financial
institution's branch offices may also be used. It is recognized that
certain classes of deposits and deposits of certain types of
customers may be assigned to a single office for reasons of
convenience or efficiency. However, deposit allocations that diverge
from the financial institution's internal record-keeping systems and
grossly misstate or distort the deposit gathering activity of an
office should not be utilized.'').
---------------------------------------------------------------------------
The agencies sought feedback on whether the proposed approach of
requiring only large banks with assets of over $10 billion to collect,
maintain, and report deposits data creates the appropriate balance
between tailoring data requirements and ensuring accuracy of the
proposed metrics. The agencies also sought feedback on whether large
banks with assets of $10 billion or less that elect to collect and
maintain deposits data also should be required to report deposits data.
Relatedly, the agencies sought feedback on an alternative approach in
which all large banks with assets of $10 billion or less are required
to collect, maintain, and report deposits data, with the standards and
requirements for these data as proposed for large banks with assets of
over $10 billion. Additionally, the agencies sought feedback on whether
a longer transition period (such as an additional 12 or 24 months
beyond the transition period for large banks with assets of over $10
billion) to begin collecting, maintaining, and reporting deposits data
for large banks with assets of $10 billion or less would make this
alternative more feasible. The agencies also sought comment on whether
it would be preferable to require deposits data collected as a year- or
quarter-end total, rather than an average annual deposit balance
calculated based on average daily balances from monthly or quarterly
statements.
Under the proposal, for deposit account types for which
accountholder location information is not generally available, the
aggregate dollar amount of deposits for these accounts would be
included at the overall institution level and not at other geographic
levels.\1553\ The agencies explained in the preamble to the proposal
that they expected that the aggregate dollar amount of deposits for
accounts associated with pre-paid debit cards or Health Savings
Accounts would likely be included at the institution level. The
agencies sought feedback on additional clarifications regarding what
deposit account types may not be appropriate to include at a county
level and whether these deposits should be included at the institution
level. The agencies also requested feedback on whether brokered
deposits should be reported at the institution level.
---------------------------------------------------------------------------
\1553\ See proposed Sec. __.42(a)(7) and (b)(5).
---------------------------------------------------------------------------
For large banks with more than $10 billion in assets that collect,
maintain, and report deposits data, agencies proposed in Sec. __.12 a
definition of deposits based on two subcategories of the Call Report
category of Deposits in Domestic Offices: (1) deposits of individuals,
partnerships, and corporations; and (2) commercial banks and other
depository institutions in the United States. The agencies proposed
these two subcategories of deposits, which constitute the majority of
deposit dollars captured overall in the Call Report categories of
Deposits in Domestic Offices, because they best reflect a bank's
capacity to lend and invest. The proposed definition excluded
domestically held deposits of foreign banks and of foreign governments
and institutions because these deposits are not derived from a bank's
domestic customer base. The proposed definition also excluded United
States, State, and local government deposits because these deposits are
sometimes subject to restrictions and may be periodically rotated among
different banks, causing fluctuations in the level of deposits over
time.
The agencies sought feedback on whether deposits for which the
depositor is a commercial bank or other depository institution should
be excluded from the definition and whether other categories of
deposits should be included in these deposits
[[Page 7069]]
data. The agencies explained that while these deposits may augment a
bank's capacity to lend and invest, they are primarily held in banker's
banks and credit banks, many of which are exempt from CRA, or operate
under the Community Development Financing Test tailored for limited
purpose banks, which does not use deposits data. Further, the agencies
sought feedback on the appropriate treatment of non-brokered reciprocal
deposits in order to appropriately measure an institution's amount of
deposits, avoid double counting of deposits, and ensure that
accountholder location information for deposit accounts is available to
the bank that would be collecting and maintaining the data. The
agencies stated that a non-brokered reciprocal deposit as defined in 12
U.S.C. 1831f(i)(2)(E) for the institution sending the non-brokered
reciprocal deposit would qualify under the proposed deposits definition
in Sec. __.12, but such deposit for the institution receiving the non-
brokered reciprocal deposit would not qualify under the proposed
definition. The agencies also sought feedback on whether bank
operational systems needed to be upgraded to permit the collection at
the county level based on a depositor's address and, if upgrades were
needed, what would be the associated costs.
Small Banks, Intermediate Banks, and Large Banks with Assets of $10
Billion or Less. Under proposed Sec. __.42(a)(7), small banks,
intermediate banks, and large banks with assets of $10 billion or less
would not be required to collect deposits data. Instead, the agencies
proposed in Sec. __.22(c)(3) and appendix A that the FDIC's Summary of
Deposits data would be used for calculating the retail lending volume
screen, as applicable, for small banks, intermediate banks, and large
banks with assets of $10 billion or less, if they do not elect to
collect and maintain deposits data. Under proposed Sec. __.24(b) and
appendix B, the FDIC's Summary of Deposits data also would be used for
calculating the community development financing metric for large banks
with assets of $10 billion or less and for intermediate banks that opt
into the Community Development Financing Test. Under proposed Sec.
__.28 and appendix C, the Summary of Deposits data also would be used
for the weights assigned to each facility-based assessment area when
calculating performance scores at the State, multistate MSA, and
institution levels, as applicable. The agencies believed that this
approach would minimize the data collection burden on banks with assets
of less than $10 billion, in recognition that large banks with assets
of over $10 billion have more capacity to collect and report new
deposits data.
The agencies explained in the preamble to the proposal that small
banks, intermediate banks, and large banks with assets of $10 billion
or less could choose to collect and maintain deposits data on a
voluntary basis. Proposed Sec. __.42(a)(7) required large banks with
assets of $10 billion or less that elect to collect deposits data to do
so in a machine readable form provided by the agencies. Small banks and
intermediate banks would have the option to collect deposits data in
the bank's own format. The agencies indicated in the preamble to the
proposal that, if a small or intermediate bank opted to collect
deposits data, the agencies would use the bank's collected data instead
of the FDIC's Summary of Deposits data to calculate the bank's metrics
and weights for all applicable tests and evaluation areas. The agencies
explained that a bank with a significant percentage of deposits drawn
from outside of assessment areas may prefer to collect and maintain
deposits data to reflect performance more accurately under the retail
lending volume screen and the community development financing metrics,
and to have weights given to the bank's assessment areas in a way that
more accurately reflects the bank's deposit base when assigning
ratings.
Wholesale Banks and Limited Purpose Banks. Under proposed Sec.
__.42(a)(7), wholesale and limited purpose banks would not be required
to collect or maintain deposits data.
Deposits Data Reporting Requirements
Large Banks with Assets of Over $10 Billion. The agencies proposed
in Sec. __.42(b)(5) that large banks with assets of over $10 billion
would be required to report, by April 1 of each year, the aggregate
dollar amount of deposits at the county, State, multistate MSA, and
institution level based on average annual deposits (calculated based on
average daily balances as provided in statements such as monthly or
quarterly statements, as applicable) from the respective geography. The
agencies intended for this approach to appropriately account for
deposits that vary significantly over short time periods or seasonally.
The reported deposits data would inform bank metrics, benchmarks, and
weighting procedures for the Retail Lending Test and Community
Development Financing Test.
The agencies sought feedback on requiring large banks to report the
number of depositors at the county level. The agencies explained that
such data would be used to support the agencies' analysis of deposits
data and could be used to support an alternative approach of using the
proportion of a bank's depositors in each county to calculate the
bank's deposit dollars for purposes of the community development
financing metrics and benchmarks. The agencies also sought comment on
whether there are steps the agencies could take or further guidance or
reporting tools that the agencies could develop to reduce burden while
still ensuring adequate data to inform the metrics approach.
Finally, the agencies proposed not to make deposits data reported
under Sec. __.42(b)(5) publicly available in the form of a data set
for all reporting lenders; nevertheless, the agencies requested
feedback on whether they should consider an alternative approach of
publishing a data set containing county-level deposits data in order to
provide greater insight into bank performance.
Large Banks with Assets of $10 Billion or Less, Intermediate Banks,
Small Banks, and Wholesale and Limited Purpose Banks. Under proposed
Sec. __.42(b)(5), large banks with assets of $10 billion or less,
intermediate banks, small banks, and wholesale and limited purpose
banks would not be required to report deposits data. Under proposed
Sec. Sec. __.22(c)(3) and __.24(b) and appendices A and B, the FDIC's
Summary of Deposits data would be used for measuring the deposits of
large banks with assets of $10 billion or less for purposes of
calculating the proposed market volume benchmark and community
development financing benchmarks, even if a bank chose to collect and
maintain deposits data for purposes of calculating its metrics and
weights. The agencies explained that not requiring these banks to
report these data would reduce their new data burden.
Comments Received
Comments were mixed regarding the agencies' proposed deposits data
collection and reporting requirements. Some commenters were generally
supportive of the agencies' proposal; while others expressed concern
that the deposits data collection and reporting requirements would be
overly burdensome for large banks.
Many of the commenters that expressed support for the deposits data
collection and reporting requirements also suggested that the deposits
data collection and reporting requirements should be expanded beyond
large banks
[[Page 7070]]
with assets of over $10 billion to include all large banks. Multiple
commenters described multiple limitations of the FDIC's Summary of
Deposits data and as a result, supported the proposed requirement that
banks with assets of over $10 billion collect and report deposits data
based on the counties in which depositors' addresses are located. One
commenter noted that, although this would include a relatively small
number of banks, it would include the great majority of deposits. This
commenter also recommended that the Summary of Deposits data should be
comprehensively reformed to better support the CRA as well as for other
regulatory purposes. Another commenter was supportive of not only
making deposits data collection and reporting a requirement for all
large banks, but also for intermediate banks.
Another commenter asserted that deposits data requirements would
not further the CRA's objectives regardless of what deposit types are
included. Citing economic conditions as an example, the commenter
stated that during an economic downturn, an individual's savings
increases while spending decreases, which would have an impact in the
demand for certain banking products and services. As a result, the
commenter expressed that using a deposit-based benchmark would
artificially inflate a bank's CRA performance standards during this
economic downturn that may not be achievable or sustainable.
By contrast, most industry commenters that addressed the proposed
deposits data collection and reporting requirements believed such
requirements would be complex to implement, as well as costly and
burdensome, and that as a result the deposits data already collected
should instead be used. For example, a few of these commenters
suggested that the deposits data already reported through the annual
FDIC's Summary of Deposits data collection and reporting process should
be sufficient. Another commenter noted that subjecting banks with
assets of just over $10 billion to the same deposits data collection
and reporting requirements as their much larger counterparts places
these smaller large banks at a significant resource disadvantage, which
in turn may reduce their ability to engage in community development
activities. The commenter also suggested that the requirements would be
a significant burden for even the largest banks because those banks
will also need to make significant changes to their systems, programs,
and procedures to collect the data and report it accurately. This
commenter also noted that many of the data collection and reporting
requirements in the proposal would require that the data be provided in
a machine-readable form that has yet to be prescribed by the agencies.
Another commenter stated that it may need to collect deposit data to
pass the Retail Lending Test, even though the data collection and
reporting requirements would not apply to the bank, because the FDIC's
Summary of Deposits data may not be fully representative of its deposit
sourcing for a market. The commenter noted that the burden to collect
these data would be significant. A few other commenters expressed
support for limiting any new data burden for these banks by maintaining
the option as proposed.
One commenter stated that the agencies failed to address why
requiring county-level deposits data based on the depositor's address
rather than on the location of the bank branch to which the deposits
are assigned is relevant to recognizing a bank's support of low- and
moderate-income communities. Absent a reliable means of determining
which approach is more accurate, the commenter believes the compliance
costs associated with gathering depositor address data are unwarranted.
As such, the commenter suggested that the agencies maintain the branch
assignment method, make address-based reporting optional, and place
more importance on data that provide a better picture of a community's
needs.
Some commenters suggested alternatives to the agencies' proposed
method of averaging annual deposits based on average daily balances
included in monthly or quarterly statements. One commenter expressed
that the proposed approach was burdensome, and instead suggested to
collect deposits as of the beginning of the examination period and
allow banks to provide performance context information to the extent
there are significant changes to deposits distribution during the
examination period. Another commenter recommended that deposits data
should be collected and reported based on end-of-quarter or end-of-year
balances. This commenter further suggested that the agencies consider
creating an online platform akin to the CFPB's HMDA Loan Application
Register formatting tool to provide banks with a direct and efficient
manner to submit the required deposits data.
A number of commenters addressed the technical requirements of
collecting, maintaining, and reporting deposits data, including the
need for banks to geocode depositor addresses so that the data can be
summarized at the county level. One commenter asserted that some banks
complain that deposits data collection and reporting would create data
burden when, in reality, they already geocode their deposits. Two other
commenters suggested that deposits data should be collected at the
census tract level rather than at the county level, which would provide
greater insight into the patterns of reinvestment observed. These
commenters further stated that there may be significant data quality
issues with deposits data that have not been addressed in the proposed
rule, for example when a customer might open a deposit account with an
address which does not reflect where the customer lives. These
commenters also noted that deposits data will not be subject to the
same data integrity standards as HMDA data, and that requiring such
accuracy would be overly burdensome to depository institutions.
Several commenters asked that the agencies incorporate exemptions
to the deposits data requirements. For example, two commenters
suggested that branch-based banks of any size should be exempt from
tracking deposits by location or delineating deposits-based assessment
areas. Other commenters similarly suggested that the deposits data
collection and reporting requirements should not apply to banks with
facility-based models, with one of these commenters asserting that
banks that are mainly internet-based banks, without a brick-and-mortar
presence, should be required to collect and report deposits data. A few
of commenters also noted that additional guidance would be needed with
regard to deposits data collection and reporting, with one of the
commenters noting that there would need to be significant guidance
provided for non-standard situations, such as when the physical address
on record for a deposit account is very old (and has not been updated),
when the recorded address is a P.O. Box, where the customer spends part
of the year at one address and part of the year at a different address,
or for when mail to the depositor is returned and there is no accurate
address on file. Another commenter stated that the FDIC's Summary of
Deposits data should be used for all banks except those that generate a
substantial portion of their deposits digitally.
Regarding alternative approaches to deposits data collection and
reporting requirements the agencies could consider to minimize
additional data burden, commenters made several recommendations
including: permit banks to use the FDIC's Summary of Deposits data
rather than require them
[[Page 7071]]
to geocode, collect, and report deposits data based on the residence of
their depositors; collect and report deposits data based on an average
annual deposit balance based on average daily balances from quarterly
statements rather than from monthly statements; and have the option to
determine the frequency by which they would collect and report deposits
data (and requiring banks to commit to one specific method/frequency
for each CRA examination cycle). One commenter suggested that the
agencies should ``stress test'' this issue, to determine whether a
quarterly average is almost as accurate as average daily balances
computed monthly or quarterly, which might indicate that quarterly
averages would be a viable alternative. Another commenter suggested the
agencies should work with the financial industry to determine the best
balance between accuracy and burden with respect to data collection,
reporting, and associated metrics' calculations. One other commenter
suggested that, as an alternative, banks could upload summary records
they keep for qualitative analysis in the interim while they work
towards building capacity to collect, maintain, and report deposits
data at the appropriate interval (quarterly, semi-annually, or
annually).
Regarding whether deposits sourced from commercial banks or other
depository institutions should be excluded from the proposed deposits
data collection and reporting requirements, multiple commenters
suggested that all deposits, including those from commercial banks and
other depository institutions, should be included in the deposits data.
Another commenter suggested that deposits from commercial banks should
not be included unless these commercial banks are designated as small,
disadvantaged business enterprises or some similar category. However,
this commenter also suggested that deposits sourced from minority
depository institutions should be included in the deposits data.
Another commenter suggested that ``mission deposits'' or non-brokered
reciprocal deposits should be excluded from the deposits data, and
noted that it could be problematic to identify these deposits among
deposits from commercial banks or other depository institutions.
Another commenter suggested that neither commercial bank deposits nor
deposits from other depository institutions, such as credit unions,
should be excluded. Finally, one commenter indicated that corporate,
commercial bank, and other depository institution deposits should be
excluded from the deposits data.
Regarding whether brokered deposits and other types of deposit
accounts such as prepaid debit card accounts and Health Savings
Accounts that may not include depositor location information should be
reported at the institution level, commenters generally agreed that
deposits without depositor location data should be reported at the
institution level. A few commenters suggested that accounts for which
Customer Identification Program information is not required are
unlikely to have customer location data and might be treated as a
category at the institution level. One of these commenters suggested
that banks could include depositor information for deposit accounts for
which Customer Identification Program information is collected. Another
commenter also noted how consideration of prepaid debit card accounts
can be complicated because many are one-time use cards; they can be
sold in retail establishments with no collection of customer
information; and geographic mobility is a feature of these accounts.
This commenter suggested that the agencies should consider the purpose
of the deposit products, for example if a CDFI bank were to raise
prepaid card deposits from across the United States with the intention
of using those deposits to fund a national lending program to help low-
and moderate-income individuals improve their credit, rather than the
geographic location from which deposits are collected or products
delivered. Another commenter suggested that these types of accounts
should have some locational information, whether location of sale or
location of employer, and that the agencies should investigate
available data on these types of products to see if a more specific
geography can be attributed to these products than at the institution
level. Another commenter suggested that the agencies should conduct
research to determine whether deposit location might be identified at
the county level, but if not, this commenter stated that these types of
deposits should be considered at the institution level.
Regarding the appropriate treatment of non-brokered reciprocal
deposits, the few commenters that addressed this issue agreed with the
proposed approach. These commenters noted that non-brokered reciprocal
deposits should be considered as a deposit for the bank sending the
non-brokered reciprocal deposit, but they should not be considered as a
deposit for the bank receiving the reciprocal deposit. Two of these
commenters indicated that they supported this approach to ensure CDFI
banks are not penalized for accepting CRA and impact-motivated
deposits. Multiple other commenters stated they supported the approach
to prevent double-counting of deposits included in these transactions.
A commenter offered a technical suggestion to align terminology used in
the CRA regulation with that included in the Federal Deposit Insurance
Act (FDI Act) and corresponding FDIC regulations, which do not speak in
terms of institutions sending non-brokered (or brokered) reciprocal
deposits and instead describe an agent institution sending or placing a
``covered deposit'' through a deposit placement network and receiving
reciprocal deposits in the same aggregate amount. The commenter
therefore suggested that the final rule exclude all reciprocal deposits
(whether or not brokered) that a bank receives and include all covered
deposits that a bank places on a reciprocal basis (whether or not they
become non-brokered reciprocal deposits for the receiving institution)
to provide a more workable description of ``deposits'' for purposes of
the CRA metrics.
In response to the question regarding whether bank operations
systems currently permit the collection of deposit information at the
county-level, commenters expressed different views. A commenter
indicated that its operations systems would need to be modified to
capture this information because they do not currently geocode
depositors' addresses, noting that the cost for such modifications
would need to be determined through vendor due diligence. Another
commenter suggested that the capacity to collect the information and
its associated costs may vary by bank, but it is important for the
agencies to get available data that can be used for branch level
assessments. One more commenter indicated that CDFI banks report that
the cost of modifying and upgrading operations systems would be
significant (with one member financial institution indicating a cost
between $30,000 and $50,000). In contrast, a few commenters indicated
that bank systems exist for collecting these sorts of data (such as
those used for reporting Bank On account data), that many banks already
geocode their deposits data, and that it should not be burdensome or
costly for financial institutions that do not already utilize these
systems to do so.
Regarding steps the agencies might take to reduce the burden
associated with the reporting of deposits data, a few commenters made
several recommendations. Two commenters
[[Page 7072]]
suggested the agencies develop a geocoding platform. Other commenters
suggested the agencies provide sufficient transition time for the
existing financial services data systems providers that currently
collect, geocode, validate, and report data for CRA and fair lending
compliance purposes to create deposits data-based applications. This
commenter indicated its expectation that as an ``add on'' function,
this solution should not be particularly expensive. One other commenter
suggested that CDFIs should be able to rely on information they already
submit related to their annual CDFI certification. The commenter also
suggested that the agencies provide technical assistance grants to help
banks below $1 billion obtain the technological resources necessary to
comply with the proposed data collection, recordkeeping, and reporting
requirements with priority, or a potential set aside, for MDIs or
CDFIs. Two commenters suggested the agencies should coordinate with
other agencies to standardize data definitions and formats in order to
both use data already collected when possible and to otherwise automate
reporting through integration of existing software and file types. One
other commenter similarly recommended that the agencies automate
reporting with integration of current software or develop a certain
file type so that the data can be parsed by the agencies' systems
uniformly. Another commenter suggested that the agencies should clarify
that in the case of an omnibus account (e.g., in a sweep program or
prepaid program) a bank can treat the depositor's address as that of
the accountholder of record. Similarly, this commenter suggested the
agencies clarify that a bank can rely on a depositor's address in its
system of records, which is typically collected at account opening, and
that the CRA regulations' proposed data collection requirements do not
impose a new obligation on banks to periodically request current
address information from customers.
Nearly all comments received responding to whether the agencies
should consider the alternative approach of publishing a dataset
containing county-level deposits data were supportive of the agencies
publishing such a dataset. Several commenters indicated that the
agencies not proposing to publish these data limits the public's
ability to hold banks accountable. Other commenters made various
recommendations concerning the manner in which the data should be
published, including that, if possible, the data should be published at
the lowest available level of aggregation, such as at the census tract
or zip code level. One of these commenters also asserted that the
agencies should consider publishing data by income category of census
tracts or by census tracts with respect to percentages of minority
consumers. Another commenter stated that the more granular the data,
the more the data can help with identifying performance gaps of a
specific branch. This commenter also stated that if an alternative
approach can help with this effort, then the agencies should consider
it, but that, since these data would be used to support agency analysis
of deposits data in devising alternative approaches, the agencies
should determine if the data collection is still needed after the
analysis has been completed. Another commenter suggested the agencies
consider the alternative with publication of Geographic Information
Systems maps of the assessment area. One other commenter suggested that
the agencies provide deposit market-share data as it is today; use
deposits data to develop customer physical location data internally;
and decide whether to anonymize depositor data or provide that deposits
data collection requirements do not result in privacy violations
between banks and their customers.
Final Rule
The agencies are adopting proposed Sec. __.42(a)(7) regarding the
collection and maintenance of deposits data substantially as proposed
with technical edits for clarification and to conform to other changes
made in the final rule. Specifically, the agencies are revising this
paragraph to update the reference ``machine readable'' to
``electronic'' with no change in meaning intended.
The agencies are also revising this paragraph to clarify that the
dollar amount of deposits at the county level is based on ``deposit
location'' as defined in Sec. __.12, and to conform to the definition
of deposit location in the final rule, which provides more detailed
guidance to banks regarding how to determine the location of deposits
associated with deposit accounts. In addition, to clarify how banks are
to collect and maintain deposits data for account types for which a
deposit location is not available, the agencies are adding language
stating that such deposits data must be collected and maintained at the
nationwide area. Specifically, recognizing that there is no reasonable
method for assigning deposits to a local area in cases where a
depositor address is not available, the agencies determined that it is
appropriate to consider these deposits at the nationwide area. These
deposits would not be included in calculations for bank-specific
metrics or aggregate benchmarks for any local geographic area, but
would be included in calculations at the nationwide area or institution
level (e.g., for the community development investment metric). An
alternative to collecting, maintaining, and reporting these data at the
nationwide area is to not consider them at all, which the agencies did
not consider appropriate given that these deposits are financial
resources available to the bank.
The agencies are revising this paragraph to indicate that a large
bank that had assets greater than $10 billion as of December 31 in both
of the prior two calendar years must collect and maintain deposits
data. This change was made to conform to changes made in Sec. __.12
regarding how assets data are used in the definitions of large bank,
intermediate bank, and small bank.
The agencies are also adding to this paragraph the phrase ``in
which the data are evaluated,'' to clarify how long a bank must collect
and maintain the deposits data. More specifically, the final rule
clarifies that these data must be maintained ``until the completion of
the bank's next CRA examination in which the data are evaluated,''
rather than ``until the completion of the bank's next CRA
examination,'' as provided under the proposal. This clarification is
made to ensure that these data are maintained until they are evaluated
in a CRA examination, which may not be the bank's next CRA examination.
Lastly, the agencies are revising this paragraph to indicate that
``any other bank'' that opts to collect and maintain deposits data must
do so in the same form and for the same duration as is required of
large banks with assets greater than $10 billion. This is an expansion
of the proposed language, which required these data only for ``a large
bank that had average assets of $10 billion or less.'' This change was
made to improve the efficiency and accuracy of calculations using
deposits data, including those for bank metrics and benchmarks used in
the Retail Lending Test and Community Development Financing Test, as
well as for the weighting calculations used for creating benchmarks and
conclusions. Deposits data collection and maintenance requirements
remain optional for banks with assets of $10 billion or less, but if
they do opt to collect and maintain these data, as just noted, they
must do so in the same form and for the same
[[Page 7073]]
duration as is required of large banks with assets greater than $10
billion.
The agencies are also adopting proposed Sec. __.42(b)(5)
substantially as proposed, renumbered in the final rule as Sec.
__.42(b)(3)(i) and (ii), regarding the reporting of deposits data. The
agencies are making one substantive addition, requiring banks with
assets of $10 billion or less that opt to collect and maintain deposits
data to also report these data. The agencies are also making technical
edits for clarification and removal of superfluous language in the
regulatory text. Specifically, the agencies are clarifying in new Sec.
__.42(b)(3)(ii) that the data collected and maintained by large banks
in Sec. __.42(a)(7) for which deposit location is not available must
be reported at the nationwide area. This clarification is necessary to
ensure that the full set of deposits are reported for banks included in
this paragraph. Specifically, the agencies are revising this paragraph
to update the reference ``machine readable'' to ``electronic'' with no
change in meaning intended.
The agencies are adding a requirement for banks with assets of $10
billion or less that opt to collect and maintain deposits data that
they must also report these data. The agencies made this change to
improve the efficiency and accuracy of calculations using deposits
data, including those for bank metrics and benchmarks used in the
Retail Lending Test and Community Development Financing Test, as well
as for the weighting calculations used for creating benchmarks and
conclusions. The data reporting requirement remains optional for banks
with assets of $10 billion or less, but if they do opt to collect and
maintain these data, they must also report these data in the same form
and for the same duration as is required of large banks with assets
greater than $10 billion.
The agencies are also revising this paragraph to indicate that a
large bank that had assets greater than $10 billion as of December 31
in both of the prior two calendar years must report deposits data. This
change was made to conform to changes in Sec. __.12 regarding how
assets data are used in the definitions of large banks, intermediate
banks, and small banks.
Additionally, the agencies added language to this paragraph
indicating that a bank that reports deposits data for which a deposit
location is not available must report these deposits at the nationwide
area, conforming with the requirement for collecting and maintaining
these data in final Sec. __.42(a)(7). These deposits would not be
included in calculations for bank-specific metrics or aggregate
benchmarks for any local geographic area, but would be included in
calculations at the nationwide area or institution level (e.g., for the
community development investment metric). An alternative to reporting
these data at the nationwide area is not reporting them at all, which
the agencies did not consider appropriate given that these deposits are
financial resources available to the bank.
The final rule does not include the language in proposed Sec.
__.42(b)(5) which stated that the agencies ``will not make deposits
data reported under this paragraph publicly available in the form of a
data set for all reporting banks.'' The agencies do not intend this as
a substantive change from the proposed approach. Instead, the agencies
realize that it is not necessary or appropriate for the final rule to
indicate what is not included in the examination and evaluation
process, or, in this case, what data will not be published as part of
the evaluation process.
Lastly, the agencies revised this paragraph to indicate that ``any
other bank'' that opts to collect and maintain deposits data must
report these data in the same form and for the same duration as
described in this paragraph for large banks with assets greater than
$10 billion. This is an expansion to the proposed language indicating
this data requirement is only for ``a large bank that had average
assets of $10 billion or less.'' This change was made to improve the
efficiency and accuracy of calculations using deposits data, including
those for bank metrics and benchmarks used in the Retail Lending Test
and the Community Development Financing Test, as well as for the
weighting calculations used for creating benchmarks and conclusions.
This deposits data collection and reporting requirement remains
optional for banks with assets of $10 billion or less, but if they do
opt to collect and maintain these data, they must do so in the same
form and for the same duration as is required of large banks with
assets greater than $10 billion.
Deposits data requirements--generally. The final rule maintains the
proposed approach to require data collection, maintenance, and
reporting only for banks with assets of over $10 billion. Upon
consideration of the comments, the agencies have determined that this
approach achieves an appropriate balance between the burden required to
collect and report these data and the benefit that will result from
using these data in the final rule. The agencies believe that large
banks with assets greater than $10 billion have the capacity to
collect, maintain, and report these data.
The agencies believe that including the distribution of these
banks' deposits by depositor location is an important aspect of the
effort to modernize CRA. Banking has evolved over the past several
decades, particularly since the advent of the internet, to the point
that physical bank branch locations are no longer a sole proxy for the
local communities served by banks, with the exception of banks that
remain primarily branch-based in their operations, which are likely to
be smaller institutions.
As discussed in the agencies' proposal, the final rule approach
leverages these data in a number of ways that the FDIC's Summary of
Deposits data do not allow for, including assigning weights to Retail
Lending Test and Community Development Financing Test performance in
areas outside of facility-based assessment areas. In addition, the
agencies believe that the collected, maintained, and reported deposits
data will more accurately reflect the location of a bank's depositors
than would the FDIC's Summary of Deposits data, which will result in
more accurate metrics and benchmarks. The agencies believe that the
approach adopted in the final rule will capture a substantial majority
of all bank deposits data,\1554\ thereby significantly improving the
accuracy of aggregate benchmarks that use deposits data, such as the
Market Volume Benchmark used for the Retail Lending Volume Screen, and
the benchmarks used for the Community Development Financing Test.
---------------------------------------------------------------------------
\1554\ See FDIC analysis of 2015-2020 FDIC's Summary of Deposits
data shows that in each of these years, deposits in banks with
assets greater than $10 billion comprised over 80 percent of
deposits in all banks. See Joseph R. Harris III, Caitlyn R. Kasper,
Camille A. Keith, and Derek K. Thieme, ``2020 Summary of Deposits
Highlights,'' Table 3 (2021), https://www.fdic.gov/analysis/quarterly-banking-profile/fdic-quarterly/2021-vol15-1/article2.pdf.
---------------------------------------------------------------------------
The agencies considered, but are not adopting, an alternative
approach of extending the deposits data collection and reporting
requirement to all large banks, including those with assets of $10
billion or less and intermediate banks. The agencies determined that
this approach would place a significant burden on these banks and would
only yield the enhanced data for a relatively small additional share of
industry deposits.\1555\ The agencies believe that these banks may have
lesser capacity than large banks with assets of over $10 billion to
comply with the requirement, such as the ability to geocode depositor
[[Page 7074]]
addresses and summarize depositor data at the county level on an
ongoing basis.
---------------------------------------------------------------------------
\1555\ See id.
---------------------------------------------------------------------------
In the final rule, banks with assets of $10 billion or less may
elect to collect, maintain, and report deposits data as required of
larger banks. Under the proposed rule, in contrast, such a bank would
have the option to collect and maintain deposits data, but would not
have been required to report deposits data that the bank elected to
collect and maintain. The agencies believe that requiring banks that
elect to collect and maintain deposits data to also report these data
will enhance the consistency of reporting requirements and allow these
data to be incorporated into aggregate benchmarks. This will result in
any bank opting into having collected and maintained deposits data
included in their metrics also having their deposits data included in
the benchmarks against which they are evaluated. The agencies do not
believe that this change increases complexity or burden, because
collecting and maintaining deposits data would remain optional for
banks with assets of $10 billion or less, as in the proposed approach.
The agencies considered, but are not adopting, suggestions to use
the FDIC's Summary of Deposits data for large banks with assets of over
$10 billion to reduce complexity, instead of requiring deposits data
collection, maintenance, and reporting. The agencies believe that large
banks with assets of over $10 billion are likely to already have
systems in place for geocoding deposits or, due to existing
requirements to geocode HMDA loans, small business loans, and small
farm loans, systems that can be adapted to produce these data. The
agencies believe that using Summary of Deposits data for these banks
may inflate these banks' deposits in areas where branches are located
and dilute deposits in areas where these banks do not have branches but
where their depositors are located. Because the great majority of
industry deposits are held by these banks, the agencies believe this
would have a distorting effect on the creation of benchmarks for all
banks as well as on the creation of metrics for these banks. Finally,
the agencies considered that Summary of Deposits data include deposits
from government and foreign sources, which the agencies believe is
preferable to exclude from CRA evaluations, as discussed below.
The agencies have considered commenter feedback that suggested
requiring these data of large banks with assets only slightly over $10
billion places these banks at a disadvantage with regards to their
ability to engage in community development activities. However, the
agencies believe that most large banks, and particularly most large
banks with assets of over $10 billion, have access to systems capable
of identifying the addresses of their depositors and systems capable of
geocoding addresses. As mentioned above, banks of this size are
typically required to geocode addresses of their small business loans
and small farm loans, as well as HMDA loans (for those required to
report HMDA data). To the extent there are any such banks that do not
already possess the systems needed to handle these data requirements,
bank service providers are capable of providing support to banks.
Therefore, the agencies do not believe that this requirement would
impact a bank's ability to engage in community development activities
or any other type of CRA activity. With regard to addressing the
limitations of the FDIC's Summary of Deposits data, these limitations
are known to the agencies; the agencies believe that addressing such
limitations is outside the scope of this final rule.
The agencies are sensitive to concerns that there may be banks with
assets of $10 billion or less that may be disadvantaged by using the
FDIC's Summary of Deposits data, particularly with regard to the Bank
Volume Metric used in the Retail Lending Volume Screen as part of the
Retail Lending Test, and the metrics used in the Community Development
Financing Test. The agencies considered that, as noted by multiple
commenters, the Summary of Deposits data may not accurately represent a
bank's deposits in a market, which could impact the bank's metrics. In
addition, the agencies considered that the inclusion of government
deposits and deposits from foreign entities in the Summary of Deposits
data could negatively impact a bank's metrics relative to a bank that
is collecting and reporting deposits data, since government and foreign
entity deposits are excluded from the collected and reported data. For
these reasons, the agencies are permitting banks with assets of $10
billion or less to opt to collect, maintain, and report deposits data.
The agencies believe that this option addresses concerns that Summary
of Deposits data could negatively impact a bank's metrics, because a
bank with assets of $10 billion or less can determine whether the
benefit of collecting and reporting these data is in their best
interest. The agencies believe this decision is best left to each
individual bank in this size category, based on their own
circumstances, rather than imposing a requirement for these banks.
With respect to the alternative approach discussed in the proposal
to publish a county-level deposits data set in order to provide greater
insight into bank performance, the final rule does not provide that the
agencies publish bank-specific deposit information at the county level
in a published data set. While the agencies considered that this
alternative could increase the transparency of CRA evaluations, and
that such a data set could help to inform other policies and community
development efforts beyond CRA, the agencies determined that the
potential benefits are outweighed by other considerations. These
considerations stem from an overarching intent by the agencies to make
data publicly available as necessary for transparency in the
examination process, but otherwise to protect privacy and competitive
concerns for consumers and banks by not publishing data that is not
necessary to support transparency. This concern is particularly
important for data that has not been collected and reported previously,
such as deposits data. The agencies intend to develop tools to provide
information regarding metrics, benchmarks, and weights in different
geographic areas using reported lending and deposits data. In addition,
the agencies believe that the information included in a bank's public
CRA performance evaluation will provide sufficiently detailed
information on bank performance. While the final rule does not provide
that the agencies would publish a county-level deposits data set, the
agencies note that deposits information pertaining to facility-based
assessment areas, which may consist of a single county, would be
included in performance evaluations and in data tools for the purpose
of calculating metrics, benchmarks and weights.
The agencies considered a comment that the agencies failed to
address why requiring county-level deposits data based on depositor's
address rather than the location of the bank branch to which the
deposits are assigned is relevant to recognizing a bank's support of
low- and moderate-income communities. The agencies believe that
collecting and reporting these deposits data is necessary for large
banks with assets over $10 billion for the construction of metrics,
benchmarks, and weights, which inform the conclusions and ratings that
reflect a bank's support of low- and moderate-income communities. The
agencies believe that deposits data aggregated at the county level,
based on depositor addresses, will provide a better measure of the
volume
[[Page 7075]]
of deposits sourced by the bank from depositors in that area, than
would deposits aggregated at the location of the bank branch to which
they are assigned. The agencies consider deposits in a bank from an
area to be representative of a bank's capacity to conduct retail
lending and community development financing in that area.
The agencies also considered an approach of summarizing deposits
data at an even finer geographic level, such as census tracts. While
this would enable better identification of deposits in low- and
moderate-income communities, the agencies recognize the need to protect
depositor privacy and to limit bank data collection and reporting
burden. Additionally, the agencies note that although deposits data are
used to calculate metrics, benchmarks, and weights, the rule does not
use deposits data collected pursuant to Sec. __.42(a)(7) to evaluate
the distribution of deposits themselves, including by the low- or
moderate-income characteristics of areas from which deposits are
received. This distinction explains why the agencies require some other
data for which these distributions are evaluated to be reported at a
finer geographic scale (i.e., by census tract income level), but such
specificity is not necessary for these deposits data. Finally, pursuant
to Sec. Sec. __.16 and __.17, under the final rule approach, large
bank facility-based assessment areas and retail lending assessment
areas must consist of at least an entire county. As a result, census
tract-level deposits data are not necessary to calculate metrics,
benchmarks, and weights pertaining to large banks.
In response to the commenter that argued against requiring deposits
data due to the impact of economic cycles (downturns) on the
appropriateness of using deposits in benchmarks, the agencies note that
the data used for an individual bank's metrics and the market
benchmarks against which that bank's metrics are compared are always
drawn from the same geographic areas and for the same time period. Any
impact of economic cycles would impact both individual bank metrics and
market benchmarks. The amount of community development financing
activity (or retail lending activity) that a bank would need to report
in order to perform well in comparison to benchmarks would fluctuate in
tandem with economic changes impacting all banks reporting data for the
benchmark for the same geographic area. This is an important feature of
how these benchmarks function, and is very much a benefit, rather than
a liability, of using deposits data in these benchmarks.
Averaging annual deposits based on average daily balances. The
agencies are also finalizing deposits data collection as proposed with
regard to basing deposit amounts on average annual deposits based on
average daily balances included in monthly or quarterly statements. The
agencies believe it is important to include the most timely and
accurate deposit amounts as reasonably possible in calculations used in
the final rule. The final rule approach reflects seasonal changes that
may occur over the course of a year, as well as year-to-year changes
over the course of an evaluation period. In addition, the final rule
approach would ensure that the timing of the deposits data incorporated
into a bank's evaluation aligns with the timing of the retail lending
and community development financing data. For example, the agencies
considered that the Retail Lending Volume Screen should measure a
bank's retail lending over the evaluation period relative to its
deposits over the evaluation period. Alternatives suggested by
commenters to use deposit information at the time of the bank's
examination, or from end-of-quarter or end-of year balances during the
evaluation period rather than average daily balances, could result in a
mismatch in the timing of the deposits data and timing of other data
that are incorporated in the same metrics and benchmarks. Furthermore,
the agencies considered that banks typically calculate average daily
balances at monthly or quarterly intervals to support issuing banking
statements, which reduces the potential burden of the final rule
approach.
The agencies considered a comment to create an online platform for
banks to submit their deposits data. The agencies expect that the final
rule approach of requiring deposits data collection and reporting using
an electronic form, as prescribed by the agencies, will achieve many of
the same efficiencies that would be achieved by creating an online
platform, such as ensuring consistent data formatting and enabling data
integrity checks during the submission process. Although the agencies
have not finalized the specific mechanism through which banks will
submit their reported deposits data, the agencies will take commenter
feedback into consideration as they develop this mechanism.
Exemptions to deposits data requirements. As noted above, the
agencies are finalizing the deposits data collection and reporting for
large banks with assets of over $10 billion, and are not providing
exemptions based on whether a bank is primarily branch-based, as
suggested by some commenters. The agencies believe that having deposits
data at the county level based on depositor addresses is an important
and appropriate aspect of the modernization of the CRA regulations, is
responsive to changes in the geographic distribution of bank customers
relative to bank branches, and resolves other challenges with the use
of the FDIC's Summary of Deposits data discussed above. These changes
are relevant to branch-based banks as well as banks with a more
digitally-based business model. The agencies also believe that the
proposed approach of using depositor addresses included in the Customer
Identification Program or another documented address is an appropriate
strategy for identifying depositor locations; banks are expected to
maintain timely and accurate information regarding their
accountholders.
Data integrity. The agencies are sensitive to commenter concerns
that deposits data will not be subject to the same data integrity
standards as data reported pursuant to the HMDA requirements. The
agencies believe that deposits data based on depositor location will be
accurate, because this information is required by the Customer
Identification Program regulation, and because banks have important
business reasons to maintain accurate addresses beyond compliance with
the final rule. The agencies acknowledge that there are situations in
which a customer may use an address that does not reflect the location
of where they live, such as a place of work, or a P.O. Box, but believe
that customer address information is generally accurate.
The agencies note, in response to comments regarding the need for
additional guidance for banks required to report deposits data, that
they already produce a data guide for CRA, which they intend to update
in accordance with the changes in the final rule. The agencies will
consider whether additional guidance is necessary outside of the final
rule to address non-standard situations such as when the physical
address on record for a deposits account has not been updated for a
significant amount of time or when the customer spends part of the year
at one address and part of the year at a different address.
Other approaches to deposits data collection to reduce burden. The
agencies appreciate the recommendations made by commenters on different
approaches to reduce burden. However, after further
[[Page 7076]]
consideration, the agencies believe that the strategies to use
depositor addresses included in the CIP, which is a part of a bank's
requirements through the Bank Secrecy Act, or other documented address,
and to include deposits for which there is no available address at the
nationwide area, sufficiently reduce the burden of this approach. The
agencies believe that the decision to use deposits data that banks are
already maintaining, as well as the decision to extend the
applicability of the new deposits data collection and maintenance
requirements to January 1, 2026, as discussed in the section-by-section
analysis of Sec. __.51, should address commenter concerns that a
longer transition time might be necessary for collecting and reporting
these deposits data.
In addition, the agencies note that there is an ongoing effort by
the FFIEC, which the agencies are a part of, to develop and deliver an
improved geocoding system. As noted, the agencies believe that banks
that are subject to the requirements to collect, maintain, and report
deposits data under the final rule already have access to geocoding
systems adaptable to geocode depositor addresses, and thus any residual
burden, if any, is relatively incremental. The agencies believe that
the transition times are sufficient for any adaptations or development
that may be necessary for these systems.
In response to the comments received suggesting that CDFIs should
be able to rely on information they already submit related to their
annual CDFI certification to meet the deposits data reporting
requirement, and that the agencies should coordinate with other
agencies to standardize data definitions and formats in order to both
use data already collected when possible, the agencies are unaware of
any existing data reporting requirements by other agencies, including
the CDFI Fund, that are similar to the deposits data collection
included in the final rule. To the extent that the CDFI certification
process includes information about CDFI bank deposits or depositors,
the agencies note that the vast majority of banks are not certified
CDFIs, so there would be little benefit in attempting to use data
included in the CDFI certification process.
The agencies do not believe it appropriate to require ``stress
testing,'' as suggested by a commenter, to determine whether reporting
quarterly average deposits data might be as accurate as average daily
balances computed monthly or quarterly, thereby reducing reporting
burden. The agencies considered that banks already calculate and
maintain monthly or quarterly account balances based on average daily
balances for the purposes of generating account statements, and as a
result, the agencies believe that it is reasonable to use these data in
CRA evaluations. Also, in response to a comment suggesting an
alternative approach of requiring banks to upload summary deposits
records they keep for qualitative analysis as an interim approach while
they build capacity to collect, maintain, and report deposits data, the
agencies believe that summary records of deposits data would not enable
the agencies to construct metrics, benchmarks, and weights required
under the performance tests, and that it is appropriate to use county-
level data as provided in the final rule.
Treatment of deposit accounts which do not have depositor
addresses. Consistent with most commenters responding to how to handle
deposit accounts that do not have depositor addresses, the agencies
believe that these concerns are appropriately addressed by
incorporating deposit accounts for which no depositor address is
available at the institution level, reported to the nationwide area.
The agencies believe that this approach is preferred relative to the
alternative of requiring banks to identify locations where accounts
were opened (e.g., where prepaid cards were purchased) or to identify
specific locations to assign to these deposit accounts. In addition,
the agencies note that including these deposit accounts at the
nationwide area ensures that these deposits are included in the Bank
Nationwide Community Development Financing Metric and Benchmark, as
well as the Bank Nationwide Community Development Investment Metric and
Benchmark.
Appropriate treatment of non-brokered, reciprocal deposits.
Regarding non-brokered, reciprocal deposits, under the final rule,
these deposits will be collected and reported by the sending bank,
which is the bank that would have collected the deposits from their
original depositors and thus would have the associated relationships
with the depositors' communities. Banks receiving these reciprocal
deposits do not need to collect and report associated depositor
location data for CRA purposes. The rationale for this decision is that
the underlying deposits included in the reciprocal deposit transaction
are already accounted for by the sending bank; for that reason, these
transactions are better considered as transfers between banks than as
deposits. In addition, because the sending bank originally collected
the deposits from customers, the agencies believe that the sending bank
is more able to collect, maintain, and report depositor location
information than the receiving bank.
In response to a commenter's concern with the specific terminology
used in the regulation with regard to non-brokered, reciprocal
deposits, the agencies note that reciprocal deposits are not mentioned
in the final rule; therefore, there is no issue with (or possibility
of) using terminology from the FDI Act or other regulations. However,
effectively, these deposits will be handled in a manner consistent with
what the commenter is suggesting.
Bank operations systems. The agencies understand the concern by
some commenters regarding the potential burden created by the need to
upgrade bank operations systems. However, the agencies believe that
banks with assets of over $10 billion will generally possess either
internal capabilities or vendor relationships with capabilities to
aggregate deposits data at the county level, as required in the final
rule. The agencies believe that large banks, especially those with
assets of over $10 billion, typically possess in-house data systems or
use vendor data systems with geocoding capabilities. For example,
geocoding is routinely used to identify the census tracts in which
mortgage loans, small business loans, and small farm loans are located.
In response to commenters that argued banks have systems for
reporting deposits data, such as those used for reporting Bank On
account data, the agencies note that Bank On data is reported at the
zip code level--part of the depositor's street address--and does not
require geocoding. For banks that do not already have access to
geocoding systems that are required or opt to collect and report
deposits data, such systems are readily available in the marketplace.
Regarding the suggestion from commenters that the agencies provide
sufficient time for financial service data systems providers to create
deposits data-based applications, the final rule provides for a longer
transition period than proposed. As explained in the section-by-section
analysis of final Sec. __.51, the agencies believe that providing
additional time for transitioning to the provisions balances the
concerns raised by commenters for an adequate transition period with
the needs of banks' communities, including low- and moderate-income
neighborhoods, to benefit from modernized CRA regulations.
The agencies also considered the comments regarding the use of
deposit data collected pursuant to Sec. __.42 as opposed to the FDIC's
Summary of Deposits data in the denominator for the
[[Page 7077]]
Bank Assessment Area Community Development Financing Metric. The split
in commenters' views on this issue reflects the inherent tradeoffs
associated with each option. While use of collected deposits data would
make the Bank Assessment Area Community Development Financing Metric
more accurate, collecting data on deposits would be a new data
collection requirement that results in additional burden on banks. In
contrast, although using Summary of Deposits data in the denominator
eliminates the burden on banks to collect data, it may not accurately
reflect the amount of deposits drawn from a particular geographic area.
The agencies are adopting the final rule as proposed because it
balances the tradeoff between increased burden associated with
collecting, maintaining, and reporting deposits data and the accuracy
of the deposits data. Under the final rule, large banks with assets of
over $10 billion as of December 31 in both of the prior two calendar
years will be required to collect, maintain, and report deposits data.
The agencies believe that it is important to tailor the requirement to
require collection, maintenance, and reporting of deposits data in
order to limit this requirement for smaller banks with fewer resources.
The agencies have determined that, due to the greater resources of
banks over $10 billion, these banks generally have the capacity to
collect, maintain, and report more accurate deposits data. Furthermore,
the agencies have considered the significant downsides of not having
accurate deposits data for banks with assets above $10 billion. For
example, as noted above, deposits in these banks constitute a
substantial majority of deposits in all banks; the agencies considered
that use of collected deposits data for these banks therefore supports
accurate calculation of benchmarks. For banks with $10 billion or less
in assets as of December 31 of either of the prior two calendar years,
the final rule uses FDIC's Summary of Deposits data in the denominator,
thereby limiting the burden for these banks.
Nonetheless, because certain banks with $10 billion or less in
assets as of December 31 of either of the prior two calendar years may
have dispersed deposits or the assignment of their deposits under the
FDIC's Summary of Deposits may not reflect the actual location of the
deposits, the final rule provides these banks with the option to
collect, maintain, and report deposits data. The agencies believe that
providing this option mitigates the potential negative consequences of
using FDIC's Summary of Deposits data in the denominator because banks
that would not perform well compared to their peers using Summary of
Deposits data will have an incentive to collect, maintain, and report
deposits data pursuant to Sec. __.42.
Section __.42(c) Data on Operations Subsidiaries or Operating
Subsidiaries
Section __.42(d) Data on Other Affiliates
Current Approach
Under the current CRA regulations, a bank is not required to
include the activities of any of its affiliates even if the affiliate
is an operations subsidiary or operating subsidiary \1556\ of the bank.
Instead, the current CRA regulations require that, if a bank elects to
have loans by an affiliate under Sec. __.42(d) considered for purposes
of the lending or community development test or an approved strategic
plan, the bank must also collect, maintain, and report the data for
these loans as if it had originated or purchased these loans directly.
For home mortgage loans, the bank must also be prepared to identify the
home mortgage loans reported under Regulation C \1557\ by the
affiliate.\1558\
---------------------------------------------------------------------------
\1556\ See the section-by-section analysis of Sec. __.21(b).
\1557\ 12 CFR part 1003.
\1558\ See current 12 CFR __.42(d).
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed to require the inclusion of relevant
activities of a bank's operations subsidiaries or operating
subsidiaries, as applicable, for purposes of evaluating the bank's
performance tests. The agencies proposed new Sec. __.42(c) to require
that all banks collect, maintain, and report any retail lending, retail
services and products, community development loans or investments, and
community development services activities of a bank's operations
subsidiaries or operating subsidiaries, as applicable, to the extent
these subsidiaries engage in these activities. Proposed Sec. __.42(c)
also required the bank to identify the home mortgage loans reported by
the operations subsidiaries or operating subsidiaries under Regulation
C,\1559\ if applicable, or collect and maintain home mortgage loans by
these subsidiaries that the bank would have collected and maintained
under proposed Sec. __.42(a)(3) had the loans been originated or
purchased by the bank.
---------------------------------------------------------------------------
\1559\ 12 CFR part 1003.
---------------------------------------------------------------------------
The agencies further proposed to revise current Sec. __.42(d)
pertaining to the collection, maintenance, and reporting of a bank's
affiliate activities. Similar to current Sec. __.42(d), the agencies'
proposal required banks to collect, maintain, and report the data on
loans by an affiliate (other than an operations subsidiary or operating
subsidiary) that they elect to have considered for purposes of the CRA
regulations if the bank would have collected, maintained, and reported
these activities had the bank engaged in them directly. The agencies
also proposed to require the bank to identify the home mortgage loans
reported by an affiliate (other than an operations subsidiary or
operating subsidiary) under Regulation C,\1560\ if applicable, or
collect and maintain such loans as would be required for the bank under
proposed Sec. __.42(a)(3) had the loans been originated or purchased
by the bank.
---------------------------------------------------------------------------
\1560\ Id.
---------------------------------------------------------------------------
Comments Received
A few commenters addressed this aspect of the agencies' proposal.
One of these commenters stated that the agencies should not include
lending by a subsidiary in the bank's CRA evaluation. Another commenter
noted that the proposed rule was unclear with regard to whether the
proposed data collection for operations subsidiaries or operating
subsidiaries, as applicable, and other affiliates was intended as an
expansion of other data reporting requirements, such as home mortgage
loan reporting under Regulation C or small business loan reporting
under Regulation B (Section 1071 Final Rule), even when those separate
regulations would not otherwise require such reporting. Although
supportive of the proposed requirement that activities of operations
and operating subsidiaries should be evaluated as part of a bank's
overall CRA performance, this commenter was opposed to an expansion of
reporting requirements housed in other regulations and also asserted
that banks should retain the flexibility, when multiple options are
available, to elect the performance test under which the agencies
evaluate the activities of an operations or operating subsidiary.
Another commenter asked the agencies to clarify that an affiliate's
activities need to be included in the bank's data collection and
reporting only to the extent that the category of retail or community
development lending or community development investment is included in
the bank's evaluation. This commenter further stated that the agencies
should exempt
[[Page 7078]]
functionally regulated subsidiaries \1561\ from a bank's performance
evaluation and data collection and reporting requirements. The
commenter asserted that mandatory inclusion of these subsidiaries
within CRA examinations would exceed the agencies' statutory authority
under the Gramm-Leach-Bliley Act (GLBA).
---------------------------------------------------------------------------
\1561\ Under 12 U.S.C. 1844(c)(5), the term ``functionally
regulated subsidiary'' means any company--(1) that is not a bank
holding company or a depository institution; and (2) that is--(i) a
broker or dealer that is registered under the Securities Exchange
Act of 1934 (15 U.S.C. 78a et seq.); (ii) a registered investment
adviser, properly registered by or on behalf of either the
Securities and Exchange Commission or any State, with respect to the
investment advisory activities of such investment adviser and
activities incidental to such investment advisory activities; (iii)
an investment company that is registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1 et seq.); (iv) an insurance
company, with respect to insurance activities of the insurance
company and activities incidental to such insurance activities, that
is subject to supervision by a State insurance regulator; or (v) an
entity that is subject to regulation by, or registration with, the
Commodity Futures Trading Commission, with respect to activities
conducted as a futures commission merchant, commodity trading
adviser, commodity pool, commodity pool operator, swap execution
facility, swap data repository, swap dealer, major swap participant,
and activities that are incidental to such commodities and swaps
activities.
---------------------------------------------------------------------------
Final Rule
The agencies are finalizing proposed Sec. __.42(c) and (d)
pertaining to a bank's data requirements related to the activities of
the bank's operations subsidiaries or operating subsidiaries, as
applicable, and its other affiliates, respectively, as proposed, with
non-substantive revisions intended for clarity.
The agencies have determined that, with respect to operations
subsidiaries or operating subsidiaries, as applicable, mandatory data
collection, maintenance, and reporting for these entities is
appropriate to enable the agencies to capture all of the activities of
operations subsidiaries or operating subsidiaries in banks' CRA
evaluations, in recognition that banks exercise a high level of
ownership, control, and management of their operations subsidiaries or
operating subsidiaries. As discussed in the section-by-section analysis
of Sec. __.21(b), the agencies do not believe that mandatory inclusion
of functionally regulated subsidiaries within a bank's CRA examination
would exceed the agencies' statutory authority under GLBA. Therefore,
the activities of a bank's operations subsidiary or operating
subsidiary will be evaluated in the bank's CRA evaluation and the
relevant data requirements will apply, unless the operations subsidiary
or operating subsidiary is independently subject to the CRA.
In response to commenters that expressed concern that these data
requirements would expand the reporting requirements in other
regulations, the agencies are clarifying that the data requirements
under Sec. __.42(c) and (d), for operations subsidiaries or operating
subsidiaries, as applicable, and other affiliates, respectively, are
not intended to, and do not, expand the data reporting requirements for
other regulations such as home mortgage loans under Regulation C or
small business loans under Regulation B (CFPB's Section 1071 Final
Rule) (once section 1071 data become available). The agencies are also
clarifying that the data requirements in Sec. __.42(d) for the bank's
other affiliates are triggered only if the bank elects to have certain
activities of the bank's affiliate considered for purposes of the
bank's CRA evaluation.
Section __.42(e) Data on Community Development Loans and Community
Development Investments by a Consortium or a Third Party
Current Sec. __.42(e), provides that a bank that elects to have
the agencies consider community development loans by a consortium or
third party for purposes of the lending or community development tests
or an approved strategic plan, must report for those loans the data
that the bank would have reported under current Sec. __.42(b)(2) had
the loans been originated or purchased by the bank.
Consistent with the current rule, in proposed Sec. __.42(e), the
agencies required banks that elect to have community development loans
or investments by a consortium or third party considered for purposes
of the CRA regulations, to collect, maintain, and report the community
development lending and investments that the bank would have collected,
maintained, and reported under proposed Sec. __.42(a)(5) and (b)(3)
had the community development loans or investments been originated or
purchased by the bank.
The agencies received no comments regarding the proposed data on
community development loans and investments by a consortium or a third
party in proposed Sec. __.42(e) and are finalizing as proposed, with
minor technical and conforming changes.
Section __.42(f) Assessment Area Data
Current Approach
Under current Sec. __.42(g), a bank, except a small bank or a bank
that was small during the prior calendar year, which includes
intermediate small banks, must collect and report annually by March 1 a
list for each assessment area showing the geographies within the
area.\1562\
---------------------------------------------------------------------------
\1562\ Current 12 CFR __.42(g).
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed to revise current Sec. __.42(g), renumbered
as proposed Sec. __.42(f), to change the date in which banks are
required to collect and report assessment area data, and to provide a
separate provision for data regarding facility-based assessment areas
and retail lending assessment areas. Specifically, the agencies
proposed to change the date banks are required to collect and report
assessment area data from March 1 to April 1. The agencies also
proposed to require in Sec. __.42(f)(1), that a bank, except a small
bank or an intermediate bank, collect and report to the Board, FDIC, or
OCC, as appropriate, annually by April 1 a list for each facility-based
assessment area showing the States, MSAs, county or county equivalents,
and metropolitan divisions within the facility-based assessment area.
Consistent with the current regulations, the proposal required small
banks and intermediate banks to maintain assessment area data in their
CRA public files, including a map of each facility-based assessment
area, but these banks would not be required to report the data under
Sec. __.42(f)(1).\1563\
---------------------------------------------------------------------------
\1563\ See proposed Sec. __.43(a)(6).
---------------------------------------------------------------------------
In proposed Sec. __.42(f)(2), the agencies required large banks to
collect and report to the Board, FDIC, or OCC, as appropriate, annually
by April 1, a list for each retail lending assessment area showing the
MSAs and counties within each retail lending assessment area, as
applicable.
The agencies requested feedback regarding whether small banks that
opt to be evaluated under the metrics-based Retail Lending Test should
be required to collect, maintain, and report related data or whether it
is appropriate to use data that a small bank maintains in its own
format or by sampling the bank's loan files. The agencies also
requested feedback on whether a tool to identify retail lending
assessment areas based on reported data would be useful.
Comments Received
Most commenters addressing the agencies' request for feedback on
whether a retail lending assessment area tool would be useful expressed
support for a number of reasons, including that it could provide
helpful information to the general public and banks. Although
[[Page 7079]]
supportive of a tool, a commenter expressed some concern that
collecting and tailoring the data needed for defining its potential
retail lending assessment areas each year would be a labor-intensive
task.
One commenter responded to the agencies' request for feedback
regarding data requirements should a small bank opt to be evaluated
under the Retail Lending Test. In this commenter's view, if a small
bank opts into the metrics-based test, it would be appropriate for the
agencies to provide the bank the option to use data that it maintains
in its own format or sample the bank's loan files. The agencies
received no other comments regarding the proposed assessment area data.
Final Rule
The agencies received no specific comments regarding the changes in
proposed Sec. __.42(f) pertaining to a bank's data requirements for
facility-based assessment areas in proposed Sec. __.42(f)(1) and
retail lending assessment areas in proposed Sec. __.42(f)(2) or the
change in date for annual reporting, and are finalizing those changes
as proposed, with a few revisions. Specifically, the agencies are
revising the language in proposed Sec. __.42(f)(1) to clarify that the
data collected and reported annually by April 1 for the bank's
facility-based assessment areas is as of December 31 of the prior
calendar year or the last date the facility-based assessment area was
in effect, provided the facility-based assessment area was delineated
for at least six months of that year. While the delineation of
facility-based assessment areas is a continuous process within the
bank, this clarification ensures that the timing of the reported data
for facility-based assessment areas is consistent across banks: either
as of December 31 of the prior calendar year or as of the date that the
facility-based assessment area was most recently delineated.
The language in final Sec. __.42(f)(1), ``provided the facility-
based assessment area was delineated for at least six months of the
prior calendar year,'' was added to ensure that a facility-based
assessment area was in existence for a sufficient time period to
evaluate the lending around a bank's facility. For example, if a bank
closed the sole branch in a county the first part of the year, the
facility-based assessment area would not be evaluated as such for that
year. Similarly, in a situation where a branch is opened in the latter
part of a calendar year which creates a new facility-based assessment
area, that new facility-based assessment area would not be reported. If
those facility-based assessment areas that are not reported for the
year have sufficient lending to trigger a retail lending assessment
area, they should be reported as such for that calendar year.
The agencies are also revising the language in proposed Sec.
__.42(f)(2) to clarify that data collected and reported by April 1 for
the bank's retail lending assessment areas is for the prior calendar
year.
The agencies believe that collection and reporting of data for
facility-based assessment areas and retail lending assessment areas is
appropriate because the agencies measure a bank's performance under the
CRA in these areas. Specifically, these data improve the agencies'
understanding of areas served by a bank and help assess whether the
bank is meeting the credit needs of its communities through an
evaluation of various tests. For example, the agencies require these
data to assist examiners in the analysis of borrower and geographic
distributions under the Retail Lending Test (see the section-by-section
analysis of Sec. __.22), distributions which are needed to construct
the metrics and benchmarks the agencies use to evaluate the bank's
performance.
The agencies considered commenter feedback that including a retail
lending assessment area tool would be useful to banks and to the
general public. The section-by-section analysis of Sec. __.17 includes
discussion of data tools that the agencies intend to make available
regarding retail lending assessment areas.
The agencies have also considered the comment regarding assessment
area data requirements for small banks that opt to be evaluated under
the Retail Lending Test. The agencies have determined that additional
assessment area data requirements for these banks would be burdensome
and would outweigh any potential benefit of requiring the data. Such
data are readily available in the bank's CRA public file, which under
the final rule must be made available on a bank's website, if the bank
maintains one.
Finally, as noted in the proposal, the agencies' proposed change in
date from March 1 to April 1 for annual collection and reporting of
assessment area data is intended to conform to other changes proposed
in Sec. __.42.
Section __.42(g) CRA Disclosure Statement
Under current Sec. __.42(h), the agencies prepare annually a CRA
Disclosure Statement for each bank that reports certain data under
Sec. __.42. The statement provides information on small business and
small farm lending and community development loans with respect to
banks that are subject to those reporting requirements.
The agencies proposed to continue the preparation of the CRA
Disclosure Statement as required in current Sec. __.42(h), renumbered
in the proposal as Sec. __.42(g), with revisions to conform to changes
made throughout the proposal. Specifically, consistent with the current
regulations, the CRA Disclosure Statement would contain, on a State-by-
State basis, specified demographic information about the areas in which
the bank operates. The agencies proposed expanding the CRA Disclosure
Statement to include not only the number and amount of small business
and small farm loans reported by the bank in its facility-based
assessment areas, but also those reported by the bank in its retail
lending assessment areas and outside retail lending areas. Similarly,
the statement would be expanded to not only include the number and
amount of community development loans reported as originated or
purchased by the bank, but would also include community development
investments reported as originated or purchased inside each facility-
based assessment area, each State in which the bank has a branch, each
multistate MSA in which a bank has a branch in two or more States of
the multistate MSA, and nationwide outside of these States and
multistate MSAs.
The agencies received no comments on the changes to proposed Sec.
__.42(g) and are finalizing those changes as proposed, with a technical
change to accurately represent that the responsibilities for
preparation of CRA Disclosure Statements correspond to the agencies' or
the agencies' ``appointed agent.'' The agencies also made conforming
and non-substantive word revisions to this section. The agencies
believe it is appropriate to make the changes described above in
proposed Sec. __.42(g) to conform to other changes made to the data
requirements in Sec. __.42. After the transition to the section 1071
data takes effect, there is no additional data disclosure burden
created by the CRA final rule with regard to small business and small
farm lending data.\1564\
---------------------------------------------------------------------------
\1564\ The transition amendments included in this final rule
will permit the agencies to transition the CRA data disclosure
requirements for small business loans and small farm loans to the
CFPB's section 1071 data. This is consistent with the agencies'
intent articulated in the preamble to the proposal and elsewhere in
this final rule to transition to the CFPB's section 1071 data for
small business loan and small loan data under the CRA regulations.
The agencies will provide notice of the effective date of this
amendment in the Federal Register once the CFPB section 1071 data
are available.
---------------------------------------------------------------------------
[[Page 7080]]
Section __.42(h) Aggregate Disclosure Statement
In current Sec. __.42(i), the agencies prepare an aggregate
disclosure statement for all banks subject to reporting under Sec.
__.42. The aggregate disclosure statements indicate, for each
geography, the number and amount of small business and small farm loans
originated or purchased by all reporting institutions, except that the
agencies may adjust the form of the disclosure, if necessary, because
of special circumstances, to protect the privacy of a borrower or the
competitive position of an institution.\1565\
---------------------------------------------------------------------------
\1565\ See current 12 CFR __.42(i).
---------------------------------------------------------------------------
The agencies proposed to continue the preparation of aggregate
disclosure statements as required in current Sec. __.42(i), renumbered
in the proposal as Sec. __.42(h), with revisions to conform to other
changes made throughout the proposal. Specifically, in addition to the
reporting of small business and small farm loans, as under the current
regulations, for each MSA or metropolitan division (including those
that cross a State boundary) and the nonmetropolitan portion of each
State, the agencies proposed expanding aggregate disclosure statements
to include community development loans and community development
investments for each MSA or metropolitan division and the
nonmetropolitan portion of each State. Similar to the content required
under the current CRA regulations, these aggregate disclosure
statements indicate, for each census tract, and with respect to
community development loans and community development investments for
each county, the number and amount of all small business loans, small
farm loans, community development loans, and community development
investments, originated or purchased by reporting banks. Further, as in
the current rule, the agencies proposed that they may adjust the form
of the disclosure, if necessary, because of special circumstances, to
protect the privacy of a borrower or the competitive position of a
bank.
The agencies received no comments on the changes to proposed Sec.
__.42(h) and are finalizing those changes as proposed, with a technical
revision to accurately represent that the responsibilities regarding
the preparation of aggregate disclosure statements correspond to the
agencies' or the agencies' ``appointed agent.'' The agencies also made
conforming and non-substantive revisions to this section to accurately
describe at what level the aggregate data would be reported. The
agencies believe it is appropriate to make the changes described above
in proposed Sec. __.42(h) to conform to other changes made to the data
requirements in Sec. __.42.\1566\
---------------------------------------------------------------------------
\1566\ See also supra note 145.
---------------------------------------------------------------------------
Section __.42(i) Availability of Disclosure Statements
Under current Sec. __.42(j), the agencies make the individual bank
CRA Disclosure Statements and aggregate disclosure statements
``available to the public at central data depositories'' and ``publish
a list of the depositories at which the statements are available.'' The
agencies proposed to revise current Sec. __.42(j), renumbered as
proposed Sec. __.42(i), to make the CRA Disclosure Statements in
proposed Sec. __.42(g) and aggregate disclosure statements in proposed
Sec. __.42(h) ``available on the FFIEC's website,'' codifying the
current interagency process.
The agencies received no comments on proposed Sec. __.42(i) and
are finalizing as proposed, with a technical change to rename the
heading of this section to ``Availability of disclosure statements''
from ``Central data depositories.'' Because proposed Sec. __.42(i)
replaced ``central data depositories'' in the regulatory text of the
current rule with the FFIEC's website in the regulatory text of the
proposal, the agencies believe the heading in final Sec. __.42(i) more
accurately reflect the new regulatory text.
Section __.42(j) HMDA Data Disclosure
Current Approach and the Agencies' Proposal
CRA performance evaluations do not currently report data on lending
by borrower race or ethnicity. However, for mortgage lending, race and
ethnicity data are collected and reported by most banks subject to the
large bank CRA lending test through HMDA. Tabulations of the HMDA data
by race or ethnicity for each of the reporting banks within their
assessment areas are not easily accessible online, nor are they
currently included in CRA performance evaluations.
In furtherance of the agencies' objective to promote transparency,
the agencies proposed in Sec. __.42(j) a new requirement to disclose
in the CRA performance evaluation of a large bank the distribution of
borrower race and ethnicity of the bank's home mortgage loan
originations and applications in each of the bank's facility-based
assessment areas, and as applicable, in its retail lending assessment
areas. The agencies proposed to disclose this information for each year
of the evaluation period using data currently reported under
HMDA.\1567\ Furthermore, the agencies proposed to disclose the number
and percentage of the bank's home mortgage loan originations and
applications by race and ethnicity and compare that data to the
aggregate mortgage lending of all lenders in the assessment area and
the demographic data in that assessment area.\1568\ Proposed Sec.
__.42(j)(3) provided that the disclosure of race and ethnicity of the
bank's home mortgage loan originations and applications in the bank's
CRA performance evaluation would not impact the conclusions or ratings
of the bank.
---------------------------------------------------------------------------
\1567\ See proposed Sec. __.42(j)(1).
\1568\ See proposed Sec. __.42(j)(2).
---------------------------------------------------------------------------
Comments Received
Most commenters generally supported the agencies' effort to
increase transparency of a bank's mortgage lending operations through
the disclosure of HMDA data by race and ethnicity in CRA exams.
Commenters in support of the agencies' proposal noted that this
disclosure would be an important step towards increasing transparency.
However, several commenters expressed their disappointment in the
agencies' clarification that this disclosure would not impact an
institution's CRA ratings. In these commenters' view, this is a factor
they believe is essential to help combat racial inequities in bank
lending and other banking products and services and suggested that HMDA
data should play a larger role in the CRA examination process and CRA
ratings. Some of these commenters and a few others, noted that simply
disclosing HMDA data that is already public would not provide
meaningful transparency and recommended that the agencies require banks
to publish home lending data tables and maps that show disaggregated
HMDA data by race and ethnicity in a prominent place on their websites.
Several commenters suggested that HMDA data by race and ethnicity
should be presented in all bank CRA exams, not simply those of large
banks, to enable the public to readily compare a bank's performance to
its peers and demographic benchmarks. A few other commenters described
various places
[[Page 7081]]
where HMDA data could be used in the CRA examination process, including
for example, as an explicit lending benchmark or metric when creating
assessment areas, as an impact review factor, and as a justification
for discrimination downgrades. One commenter suggested that the
agencies publicly share HMDA data by race and ethnicity--specifically
American Indians, Alaska Natives, and Native Hawaiians--with interested
stakeholders on an annual basis, and annually provide to these groups
an updated longitudinal analysis of HMDA data trends involving
particular racial and ethnic groups and a discussion of which large
banks are improving and which are not. A few commenters also suggested
disclosing data on non-mortgage loan types based on race and ethnicity
such as CFPB's section 1071 data, once available.
Some commenters opposed the agencies' proposal. Commenters opposed
to the agencies' proposal to disclose HMDA data by race and ethnicity
in CRA performance evaluations stated various reasons for their
opposition. One commenter asserted that the HMDA and the CRA statutory
purposes are different, and that HMDA data should not be commingled
with the CRA. Another commenter stated that HMDA data are used
extensively in fair lending reviews, while the CRA has always focused
on income. A few commenters stated that disclosing demographic data
without appropriate context could be confusing or misleading to the
public. One of these commenters noted that these data could suggest to
the public that the bank is engaging in discrimination while the CFPB
and the FFIEC have stated many times that HMDA data are a screening
tool and cannot alone establish discrimination. Two commenters stated
that, because this information would not be part of the data used for
CRA examinations and thus not part of the written evaluation, requiring
publication of HMDA data would be outside the scope of CRA. One of
these commenters specifically stated that this HMDA provision seeks to
strengthen the purpose of a regulation that falls outside the agencies'
rulemaking authority, is unrelated to a bank's CRA performance and the
agencies' fair lending oversight, and lacks sufficient context by
itself to convey an accurate and comprehensive picture of bank
marketing and advertising practices. One other commenter suggested
that, instead of including HMDA data in the performance evaluation,
examiners should provide a summary of their findings and any
disparities that correlate to, or are offset by, a bank's other
performance metrics. Finally, a few other commenters opposed the
disclosure of HMDA data for other reasons, including that it would be
an unjustified duplication of reporting and would not increase
transparency because HMDA data are already available to the public;
there are already sufficient existing data metrics to measure a bank's
mortgage lending without HMDA data; it could improperly incentivize
banks to allow racial and ethnic characteristics of applicants to
influence credit decisions; and if the data will not be included in CRA
conclusions, it is a burden that is not justified by the regulation.
Final Rule
The final rule adopts proposed Sec. __.42(j), with modifications
as described below. The agencies are not finalizing in proposed Sec.
__.42(j)(1), disclosure of the HMDA data by race and ethnicity required
in final Sec. __.42(j)(2) in the bank's CRA performance evaluation.
Instead, based on the comments received and upon additional agency
consideration, final Sec. __.42(j)(1) provides that the relevant
agency will publish annually, based on the data reported by large banks
under 12 CFR part 1003, the data in Sec. __.42(j)(2) by borrower
income level, race, and ethnicity. In final Sec. __.42(j)(2), the
Board, FDIC, or OCC, as applicable, will publish on their respective
websites, for each large bank's facility-based assessment areas, and as
applicable, its retail lending assessment areas: (1) the number and
percentage of originations and applications of a large bank's home
mortgage loans by borrower or applicant income level, race, and
ethnicity; (2) the number and percentage of originations and
applications of aggregate mortgage lending of all lenders reporting
HMDA data in the facility-based assessment area and as applicable, the
retail lending assessment area; and (3) demographic data of the
geographic area. By publishing this information on their websites, the
agencies are making the existing public data available in a more user-
friendly format. The agencies also continue to believe that public
disclosure of these data in each assessment area will increase the
transparency of a bank's mortgage lending operations.
To increase public awareness that the HMDA data by income level,
race, and ethnicity in Sec. __.42(j)(2) is available, the final rule
adopts two new provisions. First, under Sec. __.42(j)(3) of the final
rule, upon publishing the data required in Sec. __.42(j)(2), the
agencies will ``publicly announce'' that the data has been published on
the agency's website. Second, as explained in the section-by-section
analysis of Sec. __.43(b)(2), the final rule also requires a large
bank to include a written notice in their public file that the HMDA
data published by the agency is available on the agency's website.
Finally, consistent with the agencies' proposed Sec. __.42(j)(3),
renumbered in the final rule as Sec. __.42(j)(4), the final rule
provides that the information published by the agencies with respect to
race and ethnicity will not independently impact the CRA conclusions
and ratings of a large bank. As explained by the agencies in the
proposal, the disclosure in the final rule also would not constitute a
lending analysis for the purpose of evaluating redlining risk factors
as part of a fair lending examination. The agencies will publish the
HMDA data by borrower income level, race, and ethnicity on their own
websites, not in the CRA performance evaluation as initially proposed.
The agencies have determined that this approach appropriately provides
the intended transparency of publishing these data, without adding to
the length and complexity of CRA performance evaluations. Including
these data on the agencies' websites will provide a more user-friendly
way to access the HMDA data--whether by income, race, and ethnicity--in
a single place. In this manner, the data will be readily available to
all stakeholders to analyze trends involving lending to various groups
in the communities served by the bank. HMDA data by income level will
continue to be included in the CRA performance evaluation.
With respect to commenters suggestions that HMDA data by borrower
race and ethnicity should play a larger role in the CRA examination
process and should independently impact a bank's CRA ratings, the
agencies reiterate that the HMDA data is not the only information used
to determine whether a fair lending violation occurred, and would
typically not be sufficient, by itself, to demonstrate that redlining
exists. However, to the extent the HMDA data supports a conclusion that
a violation occurred in the context of a fair lending examination, the
final rule also provides in Sec. __.28 that the agency's evaluation of
a bank's CRA performance rating is adversely affected if the relevant
agency's fair lending examination concludes that discrimination
occurred based on its analysis of the HMDA data.
[[Page 7082]]
The agencies have considered comments opposing the publication of
tabulations of the HMDA data by borrower race and ethnicity for each
bank on the ground that the purposes of the CRA and HMDA are different
in that HMDA data on race or ethnicity are used in fair lending
examinations while the CRA focuses on income. HMDA data by borrower
race and ethnicity are used in fair lending examinations, and the
agencies believe that CRA and fair lending obligations are mutually
reinforcing. For example, under the existing CRA regulations and under
the final rule, the results of the fair lending examination can affect
a bank's CRA rating.\1569\ In addition, the agencies note that they are
not publishing the HMDA data by race and ethnicity in the CRA
performance evaluations as initially proposed, but on their own
websites to provide this already-existing public data in a specific and
user-friendly format. The agencies have also considered commenters
concerns that disclosure of the HMDA data would improperly incentivize
banks to use racial characteristics in credit decisions. The agencies
note that the commenters did not provide evidence for the assertion
that a more accessible presentation of information that is currently
available to the public would result in such an outcome. In addition,
the agencies examine banks to ensure their lending meets safety and
soundness and consumer protection requirements, including fair lending
laws and regulations. The agencies believe that these laws and
regulations, along with examinations to ensure compliance, provide
adequate safeguards against racial characteristics becoming an
impermissible basis for credit decisions under the final rule.
---------------------------------------------------------------------------
\1569\ See current 12 CFR __.28(c)(1)(i) and final Sec.
__.28(d)(3)(i).
---------------------------------------------------------------------------
In response to some commenters that raised issues about potential
burdens related to HMDA data publication, the final rule provides that
the agencies take existing HMDA data and publish it on the agency's
website. The operative provisions of the final rule do not increase
regulatory burden for large banks in a perceptible manner.
The agencies considered commenters suggestion that disclosure of
these tabulations would be duplicative since HMDA data are publicly
available, or that it would not meaningfully increase transparency. The
agencies believe that providing the distribution of the bank's home
mortgage loan originations and applications by income level, race, and
ethnicity in each of the bank's assessment areas will increase the
transparency of a bank's mortgage lending operations. Although the HMDA
data are publicly available, the agencies currently do not provide
these specific tabulations to the public, as previously noted. In
addition, by publishing these tabulations on the relevant agency's
website and publicly announcing that they are available, the agencies
believe the data will be accessible to more stakeholders to analyze
trends involving lending to various groups within the communities
served by the bank.
The agencies are sensitive to commenter concerns that disclosing
HMDA data without appropriate context could be confusing or misleading.
The agencies intend to address this issue in part by providing a
statement, along with the release of the tabulations of the HMDA data
in Sec. __.42(j)(2), regarding some of the limitations of the data.
The agencies also acknowledge that while the information on race and
ethnicity within the HMDA data can be used to analyze and identify fair
lending risks, they are not the only data used to make a determination
of whether a fair lending violation occurred. However, as explained in
the proposal, separate from this disclosure, to the extent that
analysis of HMDA reportable mortgage lending along with additional data
and information evaluated during a fair lending examination leads the
relevant agency to conclude that discrimination occurred, a bank's CRA
rating may be affected (see the section-by-section analysis of Sec.
__.28(d)).
Upon consideration of the comments, the agencies decline to extend
the tabulations by race and ethnicity of HMDA data to all banks, rather
than just large banks. The agencies decided to focus the tabulation of
publication of HMDA data on the agencies' websites on just large banks
because these institutions are the most significant mortgage lenders
among banks.
Finally, regarding commenters' recommendations to disclose data on
non-mortgage lending based on race and ethnicity, such as CFPB's
section 1071 data, the agencies decline to expand disclosure of data
based on race and ethnicity. The agencies' purpose for disclosing HMDA
data by race and ethnicity in the proposal was, and in this final rule
is, to increase transparency in a bank's mortgage lending operations.
Disclosing data for non-mortgage lending by race and ethnicity would be
outside the scope of the agencies' proposal. In addition, racial and
ethnic data on non-mortgage lending, such as the CFPB's section 1071
data, are not available for disclosure at this time. The agencies do
not believe it is a prudent course of action to address the disclosure
of the data before preliminary issues such as access to the data itself
are resolved.
Section __.43 Content and Availability of Public File
Section __.43(a) Information Available to the Public
Current Approach
Under the current CRA regulations, a bank is required to maintain a
public file that includes specific information related to the bank's
branches, services, and performance in helping meet community credit
needs.\1570\ The public file must include all written comments received
from the public for the current year and each of the two prior calendar
years related to the bank's performance in helping to meet community
credit needs, along with any responses by the bank,\1571\ and a copy of
the public section of the bank's most recent CRA performance
evaluation.\1572\ The public file is also required to include: a list
of the bank's current branches, their street addresses, and
geographies; \1573\ a list of branches that have opened or closed
during the current year and each of the prior two calendar years;
\1574\ a list of services generally offered at the bank's branches, and
if a bank chooses, information regarding alternative delivery systems;
\1575\ and a map of each of the bank's assessment areas.\1576\ A bank
may opt to add any other information to its public file.\1577\
---------------------------------------------------------------------------
\1570\ See current 12 CFR __.43(a).
\1571\ See current 12 CFR __.43(a)(1).
\1572\ See current 12 CFR __.43(a)(2).
\1573\ See current 12 CFR __.43(a)(3).
\1574\ See current 12 CFR __.43(a)(4).
\1575\ See current 12 CFR __.43(a)(5).
\1576\ See current 12 CFR __.43(a)(6).
\1577\ See current 12 CFR __.43(a)(7).
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies proposed to maintain the current requirements in Sec.
__.43 regarding information that banks must include in their public
files, with additional clarification regarding specific aspects of
those requirements. Consistent with a technical change throughout the
regulatory text, the agencies proposed replacing the term
``geographies'' with the term ``census tracts'' to specify the
geographic level at which a bank must provide information on its
current branches, and branches that have been opened or closed during
the current year and each of the prior two calendar years.
In addition, the agencies proposed technical changes to current
Sec. __.43(a)(5), regarding the list of services that a bank must
include in its
[[Page 7083]]
public file. Proposed Sec. __.43(a)(5) referred to ``retail banking
services,'' as defined in proposed Sec. __.12,\1578\ rather than
``services'' as it is described in current Sec. __.43(a)(5).\1579\
Current Sec. __.43(a)(5) also states that, ``[a]t its option, a bank
may include information regarding the availability of alternative
systems for delivering retail banking services (e.g., ATMs, banking by
telephone, computer, or mail, loan production offices, and bank-at-work
programs).'' \1580\ Proposed Sec. __.43(a)(5) revised the current
provision to reflect changes to the types of alternative systems
commonly used--specifically, the proposal referred instead to ``mobile
or online banking, loan production offices, and bank-at-work or mobile
branch programs.''
---------------------------------------------------------------------------
\1578\ ``Retail banking services'' was defined in the proposal
to mean, ``retail financial services provided by a bank to
consumers, small businesses, and small farms and includes a bank's
systems for delivering retail financial services.'' Proposed Sec.
__.12.
\1579\ The current regulation describes ``services'' as
including ``hours of operation, available loan and deposit products,
and transaction fees'' that are ``generally offered at the bank's
branches.'' Current 12 CFR __.43(a)(5).
\1580\ Under the FDIC's CRA regulations, current 12 CFR
345.43(a)(5) describes alternative delivery systems as ``RSFs, RSFs
not owned or operated by or exclusively for the bank, banking by
telephone or computer, loan production offices, and bank-at-work or
bank-by-mail programs.''
---------------------------------------------------------------------------
The agencies also proposed changes to the information that large
banks would need to include in their public file related to assessment
areas. Specifically, the agencies proposed to update current Sec.
__.43(a)(6) to replace the reference to ``assessment area'' with
``facility-based assessment area and retail lending assessment area,''
thus requiring a bank to include in its public file ``[a] map of each
facility-based assessment area and retail lending assessment area
showing the boundaries of the area and identifying the census tracts
contained within the area, either on the map or in a separate list.''
\1581\
---------------------------------------------------------------------------
\1581\ See proposed Sec. __.43(a)(6).
---------------------------------------------------------------------------
Comments Received and Final Rule
The agencies received no comments regarding the technical changes
described above in proposed Sec. __.43(a) and are finalizing those
revisions as proposed. In addition, the agencies are clarifying
``current year'' requirements in the following public file provisions:
Section __.43(a)(1), which requires a bank to include in
the public file all written comments received from the public for the
current year and each of the two prior calendar years related to the
bank's performance in helping to meet community credit needs, along
with any responses by the bank; and
Section __.43(a)(4), which requires a list of branches
opened or closed by the bank during the current year and each of the
prior two calendar years.
Specifically, these provisions are revised to require a bank to
update its list of branches opened and closed (Sec. __.43(a)(1)) and
written public comments (Sec. __.43(a)(4)) for the current year ``on a
quarterly basis for the prior quarter by March 31, June 30, September
30, and December 31.'' This is in addition to each of the two prior
calendar years. Based on supervisory experience, the agencies believe
that the term ``current year'' is ambiguous, and therefore, are
clarifying that banks are required to update their public files with
this information on a designated quarterly basis. The agencies believe
that regulatory burden will be reduced by mitigating confusion
regarding whether banks must continuously update the public file with
the list of branches opened and closed, and with comments received
during the current year.
Finally, the agencies received one comment relating to the
assessment area map requirement in proposed Sec. __.43(a)(6).
Specifically, this commenter recommended that the public file maintain
at least five years of assessment area maps that include the majority-
minority census tracts and the original date of the acquisition or
establishment of a branch. After consideration of this comment, the
agencies are finalizing the requirement for assessment areas in Sec.
__.43(a)(6) as proposed with a clarification to make clear that a bank
is required to include in its public file a map of retail lending
assessment areas, ``as applicable.''
The agencies believe that more extensive map requirements beyond
the agencies' proposal, especially maintaining five years of maps,
would be overly burdensome for banks. In addition, the agencies
consider the focus of CRA to be on low- and moderate-income census
tracts, rather than majority-minority census tracts. Finally, the
agencies believe that requiring banks to include the original date of
the acquisition or establishment of a branch is duplicative and
unnecessary, since the establishment date for bank branches is already
publicly available from the FDIC's website.
Section __.43(b) Additional Information Available to the Public
Current Approach
Current additional public file requirements vary based on a bank's
size and circumstances. A bank, except a small bank or a bank that was
a small bank in the prior calendar year, must include in its public
file for each of the prior two calendar years the following information
for the bank and, if applicable, its affiliates: a copy of the bank's
CRA Disclosure Statement \1582\ and, if a bank has elected to have one
or more categories of its consumer loans considered, the number and
amount of each category of consumer loans made by the bank and its
affiliates (1) to low-, moderate-, middle-, and upper-income
individuals; (2) located in low-, moderate-, middle-, and upper-income
census tracts; and (3) located inside the bank's assessment areas and
outside of the bank's assessment areas.\1583\ HMDA reporting
institutions must include a statement in the public file that their
HMDA data may be obtained on the CFPB's website, as well as the name of
any affiliate whose home mortgage lending the bank elected to have
considered in its CRA evaluation and a written notice that the
affiliates' HMDA data may be obtained on the CFPB's website.\1584\
---------------------------------------------------------------------------
\1582\ See current 12 CFR __.43(b)(1)(ii).
\1583\ See current 12 CFR __.43(b)(1)(i).
\1584\ See current 12 CFR __.43(b)(2).
---------------------------------------------------------------------------
Under current requirements, a small bank or a bank that was a small
bank during the prior calendar year must include in its public file the
bank's loan-to-deposit ratio for each quarter of the prior calendar
year \1585\ and, if it elects to be evaluated under the lending,
investment, and service tests, it must include the information that
other banks subject to these tests must report, as provided
above.\1586\ A bank evaluated according to an approved strategic plan
must include a copy of the plan in its public file.\1587\ Finally, a
bank that received less than a ``Satisfactory'' rating during its most
recent examination must include in its public file a description of its
current efforts to improve its performance in helping to meet the
credit needs of its entire community and update the description
quarterly.\1588\
---------------------------------------------------------------------------
\1585\ See current 12 CFR __.43(b)(3)(i). At its option, a bank
may include in its public file additional data on its loan-to-
deposit ratio. See id.
\1586\ See current 12 CFR __.43(b)(3)(ii) (cross-referencing
current 12 CFR __.43(b)(1)).
\1587\ See current 12 CFR __.43(b)(4).
\1588\ See current 12 CFR __.43(b)(5).
---------------------------------------------------------------------------
[[Page 7084]]
The Agencies' Proposal
The agencies proposed to revise current Sec. __.43(b)(1) to
reflect the proposed designations of banks as ``small,''
``intermediate,'' and ``large,'' such that this provision instead would
apply to ``large'' banks. The agencies also proposed to remove current
Sec. __.43(b)(1)(i), because consumer loans would not be considered
under the proposed Retail Lending Test for banks subject to this
provision.
As a result of the proposed removal of current Sec.
__.43(b)(1)(i), the agencies proposed to renumber current Sec.
__.43(b)(1)(ii), requiring a bank (other than a small bank or an
intermediate bank) to include in its public file a copy of the bank's
CRA Disclosure Statement, to Sec. __.43(b)(1). Proposed Sec.
__.43(b)(1) required that banks subject to data reporting requirements
described in proposed Sec. __.42 include in their public file a
written notice that the bank's CRA Disclosure Statement pertaining to
the bank, its operations subsidiaries or operating subsidiaries, and
any other affiliates, if applicable, may be obtained on the FFIEC's
website. This would be a change from current Sec. __.43(b)(1)(ii),
which requires a bank to include the CRA Disclosure Statement itself in
its public file. Proposed Sec. __.43(b)(1) also differed from current
Sec. __.43(b)(1)(ii) in adding reference to the CRA Disclosure
Statement of a bank's operations subsidiaries or operating
subsidiaries, and any other affiliate of the bank, if applicable.
The agencies also proposed to revise current Sec. __.43(b)(2),
pertaining to information that must be available to the public for
banks that are required to report home mortgage loan data under HMDA.
Proposed Sec. __.43(b)(2) referenced not only affiliates whose home
mortgage lending the bank opted to have considered as part of its CRA
evaluation, but also operations subsidiaries or operating subsidiaries
whose home mortgage lending is required to be considered under the
proposal.\1589\
---------------------------------------------------------------------------
\1589\ See proposed Sec. __.21(c)(1).
---------------------------------------------------------------------------
In addition, the agencies proposed to remove current Sec.
__.43(b)(3)(ii), which requires small banks that elected to be
evaluated under the lending, investment, and services test to include
in their public file the information required under current Sec.
__.43(b)(1)(i) and (ii) described above.
Further, the agencies proposed technical revisions to current Sec.
__.43(b)(5), regarding public file requirements for banks with a less
than ``Satisfactory'' rating, for clarity. Proposed Sec. __.43(b)(5)
reflected current Sec. __.43(b)(5), but specified that quarterly
updates must occur by March 31, June 30, September 30, and December 31.
Comments Received and Final Rule
The agencies received no comments regarding the changes in proposed
Sec. __.43(b)(1) or the removal of the requirements under current
Sec. __.43(b)(1)(i) and (b)(3)(ii) and are finalizing these revisions
as proposed. Specifically, with respect to Sec. __.43(b)(1), the
agencies believe adding the reference to the CRA Disclosure Statement
of a bank's operations subsidiaries or operating subsidiaries, and its
other affiliates, if applicable, reflects that in some cases the
activities of operations subsidiaries or operating subsidiaries, as
defined in Sec. __.12 (proposed and final), as well as the activities
of other affiliates, will be considered in a bank's CRA
evaluation.\1590\
---------------------------------------------------------------------------
\1590\ See the section-by-section analysis of Sec. __.21(b).
---------------------------------------------------------------------------
The agencies also believe that retaining current Sec.
__.43(b)(1)(i) and (b)(3)(ii), is unnecessary. With respect to Sec.
__.43(b)(1)(i), in the final rule, consumer loans, with the exception
of automobile loans as specified in the section-by-section analysis of
Sec. __.22, will no longer be considered under the Retail Lending
Test; therefore, a bank is no longer required to include in its public
file the information required in Sec. __.43(b)(1)(i). Instead, the
agencies will consider the qualitative aspects of consumer loans
(except automobile loans) only under the Retail Services and Products
Test as explained in the section-by-section analysis of Sec. __.23.
Therefore, removing current Sec. __.43(b)(1)(i) is appropriate. With
respect to Sec. __.43(b)(3)(ii), with the removal in the final rule of
current Sec. __.43(b)(1)(i), as just explained, the only requirement
remaining in current Sec. __.43(b)(1) would be the CRA Disclosure
Statement in Sec. __.43(b)(1)(ii). Because a small bank is not
required to report CRA loan data under Sec. __.42 (proposed and
final), a CRA Disclosure Statement would not be prepared for a small
bank to place in its public file. Therefore, the requirements in
current Sec. __.43(b)(3)(ii) no longer apply to small banks, making
the provision unnecessary. The agencies also made technical changes to
the inline header of Sec. __.43(b)(1) to make clear that this
paragraph applies to any bank subject to the data reporting
requirements under Sec. __.42 and to update the FFIEC's website link
for where the CRA Disclosure Statement may be obtained.
The agencies are also adopting proposed Sec. __.43(b)(2), with
modifications related to the disclosure of the HMDA data on borrower
race and ethnicity in finalSec. __.42(j). See the section-by-section
analysis of Sec. __.42(j). Proposed Sec. __.43(b)(2) pertains to the
requirement that HMDA-reporting banks include in their public file a
written notice that the bank's HMDA data in Sec. __.42(j) can be
obtained at the CFPB's website. Specifically, the agencies are
renumbering proposed Sec. __.43(b)(2) as Sec. __.43(b)(2)(i), and are
adopting new Sec. __.43(b)(2)(ii), which requires a large bank to
include in their public file a written notice that the HMDA data
published by the Board, FDIC, or OCC, as applicable, under Sec.
__.42(j)(1) is available on the Board's, FDIC's, or OCC's website (see
the section-by-section analysis of Sec. __.42(j)). The agencies are
adopting this new provision to increase transparency and awareness of a
bank's mortgage lending operations. After the transition to the section
1071 data takes effect, banks required to report HMDA data and small-
business lending data will also be required to include in their public
file a written notice that the bank's small business loan and small
farm loan data is available at the CFPB's website.\1591\
---------------------------------------------------------------------------
\1591\ The transition amendments included in this final rule
will permit the agencies to transition the CRA data collection and
reporting requirements for small business loans and small farm loans
to the CFPB's section 1071 data. This is consistent with the
agencies' intent articulated in the preamble to the proposal and
elsewhere in this final rule to transition to the CFPB's section
1071 data for small business loan and small loan data under the CRA
regulations. The agencies will provide notice of the effective date
of this amendment in the Federal Register once the CFPB section 1071
data are available.
---------------------------------------------------------------------------
The agencies are finalizing proposed Sec. __.43(b)(4) with a
technical change to clarify that a bank evaluated under a strategic
plan must include a copy of the plan in its public file while the plan
is in effect.
With respect to proposed Sec. __.43(b)(5), the agencies received
one comment which, as discussed above, pertained to public file
requirements for banks with a less than ``Satisfactory'' rating. The
commenter suggested that when a bank receives a ``Low Satisfactory''
conclusion for an assessment area or a subtest, the bank should be
required to submit a public improvement plan with measurable
performance goals (the same or similar to metrics on CRA examinations)
indicating how a bank will improve its
[[Page 7085]]
performance. The agencies have considered this comment and are
finalizing Sec. __.43(b)(5) as proposed. Since final Sec. __.43(b)(5)
requires that a bank that received a less than ``Satisfactory'' rating
during its most recent examination must include in its public file a
description of its current efforts to improve its performance in
helping to meet the credit needs of its entire community, the agencies
believe this provision covers the suggested ``improvement plan'' made
by the commenter.
Section __.43(c) Location of Public Information
Section __.43(d) Copies
Section __.43(e) Timing Requirements
Current Approach
Under current Sec. __.43(c), a bank's entire public file must be
available for public inspection upon request at no cost: (1) at its
main office; and (2) if a bank operates in more than one State, at one
branch office in each of these States.\1592\ At each branch, upon
request, a bank must make available for inspection the bank's most
recent CRA performance evaluation and a list of services provided by
the branch, as well as, within five calendar days of the request, all
of the information in the public file relating to the branch's
assessment area.\1593\
---------------------------------------------------------------------------
\1592\ See current 12 CFR __.43(c)(1).
\1593\ See current 12 CFR __.43(c)(2).
---------------------------------------------------------------------------
Under current Sec. __.43(d), when requested, a bank must also
provide a copy of its CRA public file either on paper or in another
form acceptable to the person making the request, and may charge a
reasonable fee to cover copying and mailing costs.\1594\
---------------------------------------------------------------------------
\1594\ See current 12 CFR __.43(d).
---------------------------------------------------------------------------
Under current Sec. __.43(e), a bank is required to ensure, unless
otherwise provided in Sec. __.43, that the information required by
Sec. __.43 is current as of April 1 of each year.
The Agencies' Proposal
The agencies proposed to revise current Sec. __.43(c)(1) to
require any bank with a public website to include its CRA public file
on its website to increase accessibility. If a bank does not maintain a
public website, the agencies proposed that a bank would have to
maintain public file information consistent with current rules--namely,
at the main office and, if an interstate bank, at one branch office in
each State.\1595\
---------------------------------------------------------------------------
\1595\ See proposed Sec. __.43(c)(1).
---------------------------------------------------------------------------
Consistent with current Sec. __.43(c)(2)(i), proposed Sec.
__.43(c)(2)(i) required that a bank must make available to the public a
copy of the public section of the bank's most recent CRA performance
evaluation and a list of services provided by the branch.\1596\
Proposed Sec. __.43(c)(2)(ii) required that, within five calendar days
of the request, a bank make available all of the information in the
public file relating to the branch's ``facility-based assessment
area.'' The agencies proposed to refer to ``facility-based assessment
area'' rather than ``assessment area'' to reflect the proposed changes
to the CRA evaluation framework regarding assessment areas. See, e.g.
the section-by-section analysis of Sec. Sec. __.16 and __.17.
---------------------------------------------------------------------------
\1596\ Proposed Sec. __.43(c)(2) should have reflected,
consistent with current Sec. __.43(c)(2), that a bank must make the
information in proposed Sec. __.43(c)(2)(i) and (ii) available to
the public at each branch. The final rule is revised to clarify
this.
---------------------------------------------------------------------------
Proposed Sec. __.43(d) required banks to provide, on request,
either in paper or in a digital form acceptable to the person making
the request, copies of the information in the bank's public file. As
allowed currently, banks would be able to charge reasonable copying and
mailing costs for the provision of paper copies.
In addition, the agencies proposed to revise current Sec. __.43(e)
to require that, except as otherwise provided in proposed Sec. __.43,
a bank ensures that its public file contains the information required
by proposed Sec. __.43 ``for each of the previous three calendar
years, with the most recent calendar year included in its file annually
by April 1 of the current calendar year.''
Comments Received and Final Rule
The agencies are finalizing proposed Sec. __.43(c), pertaining to
the location of information that a bank must make available to the
public, with technical changes for clarity. The agencies received only
a few comments on this section; all commenters supported the agencies'
proposed revisions to Sec. __.43(c). As explained in the proposal, the
agencies believe that updating this provision to allow any bank with a
public website to include its CRA public file on the bank's public
website, will make a bank's CRA public file more readily accessible to
the public.
The agencies are revising proposed Sec. __.43(c)(1) with a
technical change to separate the location requirements for a bank's
public file. Under final Sec. __.43(c)(1), all information required
for the bank's public file must be maintained on the bank's website, if
the bank maintains one. Under final Sec. __.43(c)(2), the agencies are
clarifying the requirements for banks that do not maintain a website.
As proposed, final Sec. __.43(c)(2)(i) requires that a bank must
maintain all the information required for the bank's public file at the
main office, and, if an interstate bank, at one branch office in each
State. Final Sec. __.43(c)(2)(ii) clarifies that at each branch, the
bank is required to maintain a copy of the public section of the bank's
most recent CRA performance evaluation and a list of services provided
by the branch. This clarification is consistent with the requirements
that banks must make available at each branch under current CRA
regulations, as well as the agencies' intent under proposed Sec.
__.43(c)(2), as described in the proposal.\1597\
---------------------------------------------------------------------------
\1597\ See 87 FR 33884, 34004 (June 3, 2022).
---------------------------------------------------------------------------
The agencies are adopting Sec. __.43(d) and (e) as proposed. The
agencies did not receive comments on proposed Sec. __.43(d), regarding
a bank's obligation to provide copies of its CRA public file on
request, and proposed Sec. __.43(e), requiring a bank to maintain
three years of information and ensure that its public file is current
as of April 1 of each year, except as otherwise provided in Sec.
__.43. With respect to the revisions in Sec. __.43(e) to maintain the
information for three years, most banks, with certain exceptions, are
evaluated during a three-year examination cycle, and as a result, the
agencies believe that the public is best served when a bank maintains
the information on its activities and any changes that may have
occurred since the bank's last CRA performance evaluation. The agencies
also believe that this expansion will result in minimal, if any,
associated burden to banks since under the final rule, banks will be
required to maintain their public file in digital form (if the bank
maintains a website), as provided in Sec. __.43(c)(1). The agencies
note that certain provisions in Sec. __.43 have other timing
requirements under which the bank must maintain information in its
public file. For example, as explained in the section-by-section
analysis of Sec. __.43(a)(1), a bank must maintain all written
comments received by the bank and any responses to the comments by the
bank, for the current year, updated on a quarterly basis, and the prior
two calendar years.
Section __.44 Public Notice by Banks
Current Approach
Under the current CRA regulations, a bank must provide in the
public lobby of its main office and each of its
[[Page 7086]]
branches the appropriate public notice, as set forth in appendix B (CRA
Notice), that includes information about the availability of a bank's
public file, the appropriate Federal financial supervisory agency's CRA
examination schedule, and how a member of the public may provide public
comment.\1598\ A branch of a bank having more than one assessment area
must include certain content in the notice for branch offices.\1599\
Bank affiliates of a holding company must include the second to the
last sentence of the notice.\1600\ Bank affiliates of a holding company
that is not prevented by statute from acquiring additional banks must
also include contact information of the bank's Federal regulatory
agency so that the public may request information about applications
covered by the CRA filed by the bank's holding company.\1601\
---------------------------------------------------------------------------
\1598\ See current 12 CFR __.44 and current appendix B.
\1599\ See id. The additional required content is bracketed in
appendix B: ``[If you would like to review information about our CRA
performance in other communities served by us, the public file for
our entire bank is available at (name of office located in state),
located at (address).]''
\1600\ See current 12 CFR __.44 and current appendix B (``We are
an affiliate of (name of holding company), a bank holding
company.'').
\1601\ See current 12 CFR __.44 and current appendix B (``You
may request . . . an announcement of applications covered by the CRA
filed by bank holding companies.'').
---------------------------------------------------------------------------
The Agencies' Proposal
The agencies did not propose substantive changes to the CRA public
notice requirements in current Sec. __.44 and current appendix B,
renumbered in the proposal as appendix F.\1602\ Under proposed Sec.
__.44 and proposed appendix F, banks would continue to be required to
provide in the public area of their main office and each of their
branches the CRA Notice. Consistent with current requirements, only a
branch of a bank having more than one facility-based assessment area
would be required to include certain content in the notice for branch
offices; notices would not be required for proposed retail lending
assessment areas.\1603\ The agencies also proposed retaining the
required content for bank affiliates of a bank holding company.\1604\
To update the notice, the agencies proposed adding instructions for
submitting comments on a bank's performance in meeting community credit
needs not only by mail, but also electronically.\1605\
---------------------------------------------------------------------------
\1602\ See proposed Sec. __.44 and proposed appendix F.
\1603\ See id.
\1604\ See id.
\1605\ See proposed appendix F.
---------------------------------------------------------------------------
Comments Received and Final Rule
The agencies are adopting Sec. __.44 and appendix F substantively
as proposed.\1606\ The agencies received few comments concerning these
proposed CRA public notice provisions. One commenter supported the
agencies' proposal regarding the public notice a bank is required to
post in the public area of its main office and at each of its branches.
Another commenter asked that the agencies consider requiring that banks
post the required notice not only as currently required, but also
prominently display the bank's CRA ratings in branch entrances and on
the bank's public websites to make CRA ratings more transparent and
publicly visible.
---------------------------------------------------------------------------
\1606\ See supra note 145.
---------------------------------------------------------------------------
The agencies have considered comments received on these provisions
and believe that disclosing the bank's CRA rating in the bank's CRA
performance evaluation, which will be available on the bank's public
website, if it maintains one, and on agency websites, is appropriate
and consistent with the requirements of the CRA. Posting a bank's CRA
rating in branch entrances and on the bank's public website could be
misinterpreted without the appropriate context, including, as required
under the statute, a ``statement describing the basis for the rating.''
\1607\
---------------------------------------------------------------------------
\1607\ 12 U.S.C. 2906(b)(1)(A)(iii).
---------------------------------------------------------------------------
Section __.45 Publication of Planned Examination Schedule
Current Approach and the Agencies' Proposal
Under current Sec. __.45, the agencies publish at least 30 days in
advance of the beginning of each calendar quarter a list of banks
scheduled for CRA examinations in that quarter. The agencies proposed
to revise current Sec. __.45 to provide greater specificity and to
reflect the agencies' actual practice of publishing the examination
schedule. Specifically, proposed Sec. __.45 required that the relevant
agency ``publish on its public website, at least 60 days in advance of
the beginning of each calendar quarter, a list of banks scheduled for
CRA examinations for the next two quarters.'' As noted in the proposal,
the agencies intended to provide additional advance notice to the
public of the examination schedule and codify the agencies' current
practice.\1608\
---------------------------------------------------------------------------
\1608\ See 87 FR 33884, 34004 (June 3, 2022).
---------------------------------------------------------------------------
Comments Received
Several commenters supported the proposal stating that it would
facilitate public engagement in the CRA process and enable banks to
better respond to community needs. Several others asked that the
agencies consider providing at least 90 days for the public to comment
on CRA examinations. A few other commenters also recommended that the
agencies provide a registry where interested groups could sign up for
notifications when performance reviews are scheduled so that they can
provide timely comments. One commenter suggested that the agencies
encourage public comments to be made at any time, including outside the
normal CRA schedule. One commenter expressed the view that the current
approach was appropriate and believed there was no need for changes
regarding publishing the planned examination schedule.
Final Rule
In the final rule, the agencies are revising proposed Sec. __.45
to provide that the agencies will publish, 30 days in advance of each
calendar quarter, a list of banks scheduled for CRA examinations for
the next two quarters. As explained in the proposal, the agencies
intended to codify the current practice. The current practice is to
publish a list of banks scheduled for CRA examinations for the next two
quarters at least 30 days in advance of the beginning of each calendar
quarter, not 60 days. Although the current regulation requires
publication of a list of banks scheduled for CRA examinations for the
upcoming calendar quarter at least 30 days in advance of that quarter,
the agencies' practice for several years has been to publish a list of
banks scheduled for CRA examinations for the next two quarters to allow
interested parties more time to review and provide meaningful comments
on a bank's performance before a CRA examination. By publishing a list
of banks scheduled for CRA examinations in the upcoming two calendar
quarters, 30 days in advance of each calendar quarter, the agencies
effectively provide at least 120 days advance notice for upcoming CRA
examinations.
Regarding the recommendation of some commenters that the agencies
provide a registry for interested groups to sign up for notifications
when performance reviews are scheduled so they can provide timely
comments for scheduled examinations, the agencies note that any member
of the public can sign up to receive the agencies' notifications,
including those communicating the next two quarters of scheduled CRA
examinations. As discussed in the section-by-section analysis of Sec.
__.46, the agencies
[[Page 7087]]
recognize that transparency and public engagement are fundamental
aspects of the CRA evaluation process and, therefore, encourage
communication between members of the public and banks before, during,
and after a CRA examination is scheduled.
Section __.46 Public Engagement
Section __.46(a) General
Section __.46(b) Submission of Public Comments
Section __.46(c) Timing of Public Comments
Currently, members of the public may submit comments to the
agencies regarding a bank's CRA performance over the relevant
evaluation period. Members of the public may also submit comments in
connection with banking applications, including in connection with bank
mergers and acquisitions.
The Agencies' Proposal
The agencies proposed a new provision in the CRA regulations to
clarify and promote community engagement in the CRA examination
process. Specifically, proposed Sec. __.46(a) affirmatively stated
that the agencies ``encourage[ ] communication between members of the
public and banks, including through members of the public submitting
written public comments'' and also expressly stated that the agencies
``take these comments into account in connection with the bank's next
scheduled CRA examination.'' \1609\ This new provision specified that
comments encouraged and considered include those that address
``community credit needs and opportunities as well as regarding a
bank's record of helping to meet community credit needs.'' \1610\
Proposed Sec. __.46(b) provided that members of the public may submit
comments electronically to the relevant agency. Proposed Sec. __.46(c)
explained that comments received by the agencies before the close of an
examination would be considered in connection with that examination,
while comments received after the close date of an examination would be
considered in connection with the subsequent CRA examination.
---------------------------------------------------------------------------
\1609\ Proposed Sec. __.46(a).
\1610\ Id. (emphasis added).
---------------------------------------------------------------------------
The agencies requested feedback on other ways the agencies could
encourage public engagement, and whether the agencies should ask for
public comments on community credit needs and opportunities in specific
geographic areas.
Comments Received
Additional ways to encourage public engagement. The agencies
received many comments from a wide range of commenters. In general, the
vast majority of these commenters supported the proposed public
engagement provisions in Sec. __.46, expressing the view that public
input is an important element in the CRA examination process, which the
agencies should routinely solicit. Many of these commenters also argued
that the current CRA rules and the proposal do a poor job of
encouraging and valuing community input, asserting that community
comments on examinations are not solicited and, when provided, are
ignored or not taken seriously. These commenters offered numerous
recommendations intended to promote public engagement and increase
transparency and accountability on the part of examiners to consider
the comments as part of the examination process. Recommendations
included specific actions the agencies could take, for example:
elevating the importance of public comments regarding the extent to
which banks meet community needs; providing public commenters the
ability to submit comments to the appropriate agency's website;
developing clear instructions about to whom to send CRA comments and
when the due date is for comments on specific CRA examinations;
establishing a public registry for stakeholders who opt in to being
contacted by examiners when a CRA evaluation is being conducted in
their communities and service areas and a calendar of examinations with
links for stakeholders to provide comments; and forwarding all public
comments to the appropriate bank and requiring that banks post comments
and their responses on the bank's website.
Commenters also made several other suggestions for agency action,
including the following: publishing a list of organizations that
submitted comments, identified by those led by people of color and
women to encourage input from a diverse range of organizations;
increasing the number of local community interviews and conducting
proactive outreach with a variety of stakeholders, including community
residents and historically-underserved groups, regarding bank
performance and identification of the impact of activities on community
needs; evaluating how well banks solicit and incorporate feedback from
community stakeholders; providing details on how the agencies factor
community input into the CRA evaluation; issuing a guidance document--
similar to the illustrative list of activities--that would help banks
identify vulnerable communities and build relationships to drive
investment to those communities; assembling directors of community
organizations by geographic area; using an opt-in system to notify
interested parties when performance reviews are scheduled; and
including provisions in the regulation that provide for strict actions
against any bank that retaliates against community members because of
any non-related community action, including comments filed under the
proposal.
Commenters also recommended that the agencies impose certain
requirements on banks to increase public engagement, for example:
providing information to customers on how to comment on CRA performance
periodically, including when opening an account; creating community
advisory boards to facilitate public engagement; complying with the
terms of Community Benefits Agreements; soliciting input from community
groups, including climate and environmental organizations on bank
practices relating to climate, displacement, discrimination, and other
harmful practices, as well as how banks can best leverage their
resources to get CRA consideration for community development
activities; requiring documentation detailing public outreach to, and
engagement with, organizations; and, as noted, requiring that banks
post comments and their responses on the bank's website.
By contrast, a few commenters expressed the view that additional
public engagement was not necessary and that the agencies already have
community contacts that are consulted over the course of a CRA
examination.
Comments related to the agencies' request for feedback regarding
public comments on community credit needs and opportunities in specific
geographic areas. Several commenters addressed the agencies' request
for feedback regarding public comments on community credit needs and
opportunities in specific geographic areas. All but one of these
commenters stated that seeking and encouraging public comment in
specific census tracts is necessary to address the particular needs of
each community and provided several recommendations. For example, a few
commenters noted that asking specific questions about community credit
needs and bank performance would be helpful to examiners in probing
whether banks have created specific programs responsive to identified
needs and would be useful in conducting self-
[[Page 7088]]
assessments and identifying unmet credit needs and other opportunities.
Commenter feedback also included that any final rule must include
requirements to ensure that community participation opportunities are
accessible to people with disabilities and people with limited English
proficiency, emphasizing the importance of culturally-appropriate
communications and accessibility with respect to people with
disabilities or limited language skills. Another commenter suggested
that the agencies engage people who live in the specific geographic
areas of interest and that U.S. Treasury Department-certified CDFIs may
be able to help facilitate the process. One commenter noted that
providing the public an opportunity to comment on their community
credit needs and opportunities in specific census tracts might not be
relevant for a small or intermediate bank's assessment areas due to the
size and business model of that bank.
Final Rule
The agencies are adopting proposed Sec. __.46(a) through (c),
providing for the submission and timing of written public comments on
community credit needs and opportunities, as well as the bank's record
of helping meet community credit needs, largely as proposed, with one
revision in Sec. __.46(b). Specifically, the agencies removed the word
``electronically'' to make clear that comments may be provided both
electronically and by mail. The agencies believe that the public
engagement provisions, as finalized, will improve public engagement by
establishing a regulatory process whereby the public can provide input
on community credit needs and opportunities in connection with a bank's
next scheduled CRA examination. This approach would be a compliment to,
not a substitute for, examiners seeking feedback on bank performance
from members of a bank's community through community contacts as part
of the CRA evaluation. The agencies also believe that the final rule
will increase transparency by clarifying the agencies' treatment of
public comments in connection with CRA examinations.
The agencies have considered the comments received and appreciate
the recommendations made. The agencies are sensitive to commenters'
concerns regarding the level of importance given by the agencies to CRA
public comments. Each agency has developed and maintains comprehensive
internal procedures to consider CRA public comments and complaints, and
CRA protests related to covered applications. Further, the agencies'
interagency examination procedures also include requirements for
examiners to review and consider CRA comments received by the bank or
the respective agency. As explained in more detail in the section-by-
section analysis of Sec. __.45, the agencies changed their practice
several years ago, to lengthen the period for advanced notice of
scheduled CRA examinations, and in this final rule are codifying this
practice to give more time for the public to submit comments to the
bank and/or its respective agency.
Regarding commenters' recommendations for increasing public
engagement, the agencies have determined that some of the commenter
recommendations are currently undertaken by the agencies such as
publishing a calendar of examinations with links for stakeholders to
provide comments and the due date and instructions for comments to be
considered on specific CRA examinations. Examiners also accomplish
several of commenters' recommendations related to outreach and
consideration of public comments on the extent to which bank
performance meets community needs by using community contacts in
conjunction with a CRA examination. Examiners conduct interviews with
local community contacts to gather information that assists in the
development of performance context, to determine opportunities for
participation by banks in helping to meet local needs, to understand
perceptions on the performance of banks in helping to meet local credit
needs, and to provide a context on the community to assist in the
evaluation of a bank's CRA performance. While these processes address
some of commenters recommendations related to outreach and the
importance of public comments, the agencies will consider other
recommendations, including the recommendation to factor community input
into CRA examinations when developing training, guidance, and
examination procedures for this final rule. Other recommendations will
be implemented in other sections of this final rule, as discussed
further in the section-by-section analyses of Sec. Sec. __.43 through
__.45.
The agencies believe that other recommendations are appropriately
implemented in Sec. __.46 and other sections of this final rule. For
example, the agencies believe that developing separate instructions
regarding to whom to send comments and when comments are due is
unnecessary. The final rule's provision for public notice by banks in
Sec. __.44 and the provision for submission of public comments in
Sec. __.46(b), instruct the public to send comments to the relevant
agency's via electronically or by mail, as applicable. Thus, commenters
may send their comments to the appropriate agency or to their bank, and
the bank is required to place all comments and the responses to those
comments regarding the bank's CRA performance in its public file as
required under Sec. __.43(a).\1611\ The agencies are sensitive to
commenters' recommendation to require a response to all comments
received; however, the agencies note that a bank response may not be
appropriate in all instances (e.g., complimentary comments, ``off-
topic'' comments).
---------------------------------------------------------------------------
\1611\ For further discussion of final Sec. __.43, see the
corresponding section-by-section analysis above.
---------------------------------------------------------------------------
Similarly, Sec. __.46(c) provides the timing under which comments
will be considered for a particular examination. Although the agencies
considered establishing a specific window or a due date under which
comments would be considered on specific CRA examinations, the agencies
determined that this would carry the potential for inaccuracies, as
well as challenges updating this information in a timely manner, as
examination dates are subject to change depending on a wide variety of
factors. As reflected in the final rule, the agencies believe that, if
a comment is received during an examination, it is appropriate to
consider the comment during that examination as these comments could
contain important information that could affect the evaluation.
The agencies also agree with the commenters' suggestion that all
comments received by the agencies should be forwarded to the
appropriate bank. As explained below in the section-by-section analysis
of Sec. __.46(d), the agencies are required under the final rule to
forward to the bank all public comments received by the agencies
regarding a bank's CRA performance. The agencies note that Sec.
__.43(a)(1), as finalized, requires banks to include in their public
file all written comments and bank responses, if applicable, for the
current year and each of the prior two calendar years that specifically
relate to the bank's performance in helping to meet community credit
needs. The final rule also requires, under Sec. __.43(c)(1), that the
public file must be maintained on the bank's website if the bank
maintains one. Therefore, all comments will be on
[[Page 7089]]
a bank's website to the extent a bank maintains one.\1612\
---------------------------------------------------------------------------
\1612\ See id.
---------------------------------------------------------------------------
Regarding suggestions that the agencies establish a separate public
registry and a calendar of examinations, the agencies note, as
explained above, in the section-by-section analysis of Sec. __.45,
that the public will be able to sign up to receive the agencies'
notification for which calendar quarter examinations are scheduled so
that the public can prepare comments. Also, in Sec. __.45, the final
rule provides that the agencies will publish a list of banks scheduled
for CRA examinations for the next two quarters, 30 days in advance of
each calendar quarter. The agencies believe that these provisions will
help ensure that the public has sufficient time for the public to
prepare and provide comments on upcoming examinations.
Regarding the suggestion that the agencies publish a list of
organizations led by people of color and women, the agencies note that
the race, ethnicity, and gender of the individuals that lead these
organizations is not necessarily known to the agencies, and that
maintaining privacy and confidentiality is essential. For more
information and discussion regarding the agencies' consideration of
comments related to race- and ethnicity-related provisions for the
final rule, see section III.C of this SUPPLEMENTARY INFORMATION.
The agencies believe that other recommendations would be best
addressed outside the final rule. For example, although the agencies
will not, as part of this final rule, be establishing a separate
registry for comments, or developing an illustrative list of vulnerable
communities similar to the illustrative list of community development
activities in Sec. __.14, the agencies will continue to explore
options related to these suggestions outside of the rule. This includes
consideration of developing a portal to accept bank-specific comments
from the public for agencies that do not already provide this tool, and
other ways for the public to provide feedback on community credit needs
and opportunities in specific geographic areas as a complement to, but
distinct from, feedback on individual bank performance. In addition,
each agency has a community affairs department that can be an effective
resource to banks for identifying and connecting with vulnerable
communities and populations. Community affairs departments also have
contacts and conduct outreach with local community organizations
throughout the country.
The agencies have also considered commenters' recommendations that
the agencies evaluate how well banks solicit and incorporate feedback,
and that the agencies impose certain requirements on banks to increase
public engagement. The agencies recognize the critical role of public
engagement in helping banks meet the credit needs of their communities.
In considering these comments and the importance of public engagement,
the agencies note that there are a multitude of ways that a bank can
obtain valuable feedback from the public and its community, and these
mechanisms are not equally effective for all banks and all communities.
For this reason, the agencies believe that effective public engagement
can be promoted by allowing banks to tailor their public engagement
initiatives to their size and the unique characteristics of their
communities, rather than for the agencies to prescribe the manner in
which they must occur. In this regard, the agencies believe that agency
training and outreach with banks can play an important role in
encouraging accessibility to the public participation process with
respect to, for example, people with disabilities or limited language
skills, and will continue to consider ways to encourage inclusive
community participation in the CRA process. Importantly, the CRA
evaluation itself focuses on the results the bank produces from
incorporating public feedback.
Finally, the agencies are appreciative of commenters' suggestions
that public comments on community credit needs and opportunities and
bank performance are necessary and should be provided through a portal
at any time. Each agency will consider whether to establish outside of
this final rule a way for the public to provide feedback on community
credit needs and opportunities in specific geographic areas.
Section __.46(d) Distribution of Public Comments
Consistent with current practice, proposed Sec. __.46(d) provided
that the relevant agency ``forward all public comments received
regarding a bank's CRA performance to that bank.'' Proposed Sec.
__.46(d) also provided that each agency ``may also publish the public
comments on its public website.'' Although the agencies did not receive
any comments specifically addressing this provision, the agencies did
receive comments requesting that the agencies forward public comments
to the appropriate bank as explained above in the section-by-section
analysis of Sec. __.46(a) regarding ways to increase public
engagement. On consideration of the comments and further deliberation,
the agencies are finalizing the portion of proposed Sec. __.46(d)
providing that the agencies will forward all public comments received
regarding a bank's CRA performance to the bank, and removing the
reference to the agencies publishing public comments on their public
websites.
The final rule memorializes the agencies' current practice of
forwarding public comments received by the agencies to the appropriate
bank for review and, if appropriate, a response to the issues raised in
the public comment. The agencies believe that the process of forwarding
the comments to the bank is critical in order to make adjustments and
improvements, if needed, to the bank's efforts to serve its
communities. Providing for the forwarding of these comments in the
final rule will recognize the value of this practice, and help ensure
consistency in its application, which the agencies believe will benefit
banks in their efforts to meet the credit needs of their communities,
as well as the communities they serve.
The agencies are also revising proposed Sec. __.46(d) by removing
language from the regulatory text that states that each agency ``may
also publish the public comments on its public website.'' The agencies
have determined that agency-posted comments represent only a subset of
comments received regarding banks in relation to the CRA and,
therefore, would be incomplete, are redundant to a bank's public
file,\1613\ and further strain agency resources.
---------------------------------------------------------------------------
\1613\ See current 12 CFR__.43(a)(1) and final Sec.
__.43(a)(1), discussed in the section-by-section analysis of final
Sec. __.43(a).
---------------------------------------------------------------------------
In relation to proposed Sec. __.46, the agencies requested
feedback on whether the agencies should publish bank-related data, such
as retail lending and community development financing metrics in
advance of completing an examination to provide additional information
to the public. As discussed below, most commenters responding to the
agencies' request for feedback on this question generally believed that
public availability of data is an important aspect of helping to
determine whether banks are meeting the needs of their communities
under the CRA. However, a few commenters did not support publishing
certain data, including metrics, ahead of the conclusion of an
examination.
As discussed in more detail in the section-by-section analysis of
Sec. __.42, many commenters supported expanding
[[Page 7090]]
the data collection and reporting requirements applicable to banks with
assets of over $10 billion, to all large banks, with some commenters
also recommending that the agencies' proposed deposits, lending, and
community development data be made publicly available. Some of these
commenters also recommended that the agencies develop a list of
economic indicators for metropolitan and rural areas that could be used
by the public to develop comments regarding performance context. Such
economic indicators could include housing cost burdens, vacancy rates,
unemployment rates, and percent of households in poverty, as well as
homeownership and small business ownership rates. One commenter
suggested that demographic indicators should include racial and ethnic
breakdowns. One commenter recommended that the agencies work with the
CFPB to release additional HMDA data, such as the number of units
financed by a multifamily loan. Another commenter suggested the
agencies make publicly available bank Call Reports, assessment area
maps, HMDA data, the CRA public file, and the CFPB's section 1071 data.
Several commenters recommended various ways in which the data could
be published in connection with the examination for added transparency.
For example, some commenters recommended that the data be provided in
various forms, such as, online with descriptions and definitions, as
appropriate, that a lay person could understand; on the bank's website
and on other government websites; and in a dashboard showing bank
performance and benchmarks. Other commenters recommended that certain
metrics in performance evaluations be published, including, for
example, activities that meet one or more impact criteria.
In contrast, several commenters opposed making data publicly
available in connection with an examination for several reasons,
including that: the data is compiled in connection with a CRA
evaluation and should be made public only when the final report of
examination is delivered; and early release could cause misleading
conclusions since the data is not final and adjustments are often made
in response to examiner feedback and to ensure data integrity. One
commenter warned that without a formal process for feedback and how the
specific feedback would impact the final outcome on the bank's CRA
rating, the process of examinations could be delayed and administrative
burdens could be added to the agencies.
The agencies appreciate commenter suggestions and feedback
regarding publication of data and recognize the importance of making
information about a bank performance accessible to the public. The
agencies considered comments suggesting that it would be helpful to
publish metrics in advance of an examination to better inform public
comments on bank performance and promote transparency. However, the
agencies have determined that publishing metrics in connection with an
examination is not feasible with respect to banks that do not report
data, and might add delays to the completion of the CRA examination, or
at minimum, complicate scheduling depending on who prepares the data,
the available systems and tools to calculate the metrics, and how far
in advance the metrics would be made public. Furthermore, bank metrics
are based on data that are typically subject to validation prior to
calculation of metrics and performance analysis. However, the agencies
note that the final CRA evaluation includes data, facts, and
conclusions for public disclosure and will take into account
suggestions on the type of information that could be made available in
the final CRA evaluation, such as information on the impact and
responsiveness review for the Community Development Financing and
Community Development Services Tests.
The agencies also appreciate suggestions regarding publication of
data on economic indicators that could help the public develop comments
regarding performance context. The agencies will consider these
recommendations outside of the rule and will continue exploring the
possibility of publishing additional data to inform public comment.
Section __.51 Applicability Dates and Transition Provisions
The Agencies' Proposal
In proposed Sec. __.51, the agencies included provisions regarding
the transition from the current CRA regulations to amended CRA
regulations. In general, the agencies proposed a final rule effective
date of the first day of the first calendar quarter that begins at
least 60 days after publication in the Federal Register.\1614\
Additionally, the agencies proposed staggered applicability dates for
various provisions of the regulations.\1615\ The agencies also proposed
to begin conducting CRA examinations pursuant to the proposed
performance tests two years after Federal Register publication of the
final rule,\1616\ and that in assessing a bank's CRA performance the
agencies would consider a loan, investment, or service that was
eligible for CRA consideration at the time the bank conducted the
activity or at the time the bank entered into a legally binding
commitment to make the loan or investment.\1617\ Finally, the agencies
proposed timing provisions regarding, respectively, continued
applicability and sunset of the current regulations and applicability
of the proposed regulations with respect to strategic plans.\1618\
---------------------------------------------------------------------------
\1614\ See proposed Sec. __.51(a)(1).
\1615\ See proposed Sec. __.51(a)(2).
\1616\ See proposed Sec. __.51(b)(1).
\1617\ See proposed Sec. __.51(b)(2).
\1618\ See proposed Sec. __.51(c).
---------------------------------------------------------------------------
As discussed further below, the agencies received numerous comments
on these proposed transition provisions from various stakeholders and
have increased the transition periods in the final rule by one year
and, where appropriate, have made other changes to proposed Sec. __.51
in the final rule.
Section __.51(a)(1) Applicability Dates in General
The Agencies' Proposal
In Sec. __.51(a)(1), the agencies proposed that the following
provisions would become applicable to banks, and banks must comply with
any requirements in these provisions, beginning on the first day of the
first calendar quarter that is at least 60 days after publication of
the final rule: (1) authority, purposes, and scope (proposed Sec.
__.11); (2) facility-based assessment areas (proposed Sec. __.16); (3)
performance standards for small banks (proposed Sec. __.29(a)); (4)
intermediate bank community development performance standards (proposed
Sec. __.29(b)(2)); and intermediate bank performance ratings (proposed
Sec. __.29(b)(4)); (5) effect of CRA performance on applications
(proposed Sec. __.31); (6) content and availability of public file
(proposed Sec. __.43); (7) public notice by banks (proposed Sec.
__.44); (8) publication of planned examination schedule (proposed Sec.
__.45); (9) public engagement (proposed Sec. __.46); (10)
applicability dates, and transition provisions (proposed Sec. __.51).
In the proposal, the agencies explained that they believed that setting
an applicability date for these provisions on the final rule's
effective date is appropriate and would not present significant
implementation burden to banks because the agencies proposed
[[Page 7091]]
only minor amendments to these provisions relative to the current CRA
regulations.
Comments Received
The agencies received numerous comments on the proposed
applicability date for these provisions, with most commenters taking
the position that the proposed applicability date provided banks
insufficient time for implementation purposes and some commenters
offering alternatives. Several commenters also stated that the final
rule should be effective at the beginning of a calendar year to avoid
subjecting banks to two regulatory frameworks during a single calendar
year.
Final Rule
After reviewing the comments, the agencies have determined that
establishing the same applicability date for all performance tests
would reduce complexity and confusion for both the banking industry and
agency examiners. Therefore, the agencies are amending the proposal to
provide in final Sec. __.51(a)(2)(i) that the applicability date for
the small bank performance evaluation \1619\ and the intermediate bank
performance evaluation \1620\ will be January 1, 2026--the same date as
for the final rule's other performance tests.
---------------------------------------------------------------------------
\1619\ See proposed Sec. __.29(a).
\1620\ See proposed Sec. __.29(b).
---------------------------------------------------------------------------
The agencies continue to believe, as proposed, that the final
rule's effective date is appropriate for the remaining provisions
listed above in light of the nature of the changes and their limited
transition burden.
The final rule also makes a clarifying change to replace the
language calculating the applicability date with the final rule's
actual effective date. In addition, the agencies are making a technical
change in final Sec. __.51(a)(1) by removing the following phrase
included in the proposal: ``this part is applicable to banks, and banks
must comply with any requirements in this part.'' The agencies
acknowledge that including this phrase would have been inaccurate
because some of the relevant provisions apply to the agencies rather
than banks.
Section __.51(a)(2) Specific Applicability Dates
Section __.51(a)(2)(i)
The Agencies' Proposal
In Sec. __.51(a)(2)(i), the agencies proposed that the following
provisions would be applicable to banks, and that banks must comply
with any requirements in these provisions, one year after publication
of the final rule in the Federal Register: (1) definitions (except for
the definitions of ``small business'' and ``small farm'') (proposed
Sec. __.12); (2) community development definitions (proposed Sec.
__.13); (3) qualifying activities confirmation and illustrative list of
activities (proposed Sec. __.14); (4) impact review of community
development activities (proposed Sec. __.15); (5) retail lending
assessment areas (proposed Sec. __.17); (6) areas for eligible
community development activity (proposed Sec. __.18); (7) performance
tests, standards, and ratings, in general (proposed Sec. __.21); (8)
Retail Lending Test (proposed Sec. __.22); (9) Retail Services and
Products Test (proposed Sec. __.23); (10) Community Development
Financing Test (proposed Sec. __.24); (11) Community Development
Services Test (proposed Sec. __.25); (12) wholesale or limited purpose
banks (proposed Sec. __.26); (13) strategic plan (Sec. __.27); (14)
assigned conclusions and ratings (proposed Sec. __.28); (15) certain
provisions for intermediate banks (proposed Sec. __.29(b)(1) and (3));
(16) certain data collection and data reporting requirements (proposed
Sec. __.42(a) and (c) through (f)); and (17) appendices A through F.
The agencies explained that they believed that a one-year transition
period would provide banks with the appropriate time to implement these
provisions.
Comments Received
The agencies received numerous comments on this provision. The vast
majority of commenters stated that the one-year transition period in
proposed Sec. __.51(a)(2)(i) was insufficient, with many suggesting
alternatives ranging from 18 months to five years. Several commenters
further stated that the proposed one-year transition period would
undermine efforts to modernize and improve the CRA framework and
referenced the scale and complexity of the proposal as the basis for
their concern. Other commenters focused on the time needed for
stakeholders to implement the new regulations, including to build,
test, and operationalize a new CRA program, and to marshal and deploy
the requisite financial, technological, compliance, operational,
administrative, and personnel resources. Several commenters compared
implementing a new CRA framework to the significant undertaking
required to implement HMDA amendments.
Commenters stated that a longer transition period was necessary for
the agencies themselves to prepare for a new CRA framework. These
commenters referenced the need for the agencies to: clarify elements of
the new framework; verify that the final ratings framework is properly
calibrated; proactively engage with stakeholders; and allow any
economic impact from the final rule to normalize. Other commenters
suggested that the agencies use the transition period to focus on
regulatory infrastructure, interagency coordination, examiner
recruitment and training, publication of the list of permissible and
non-permissible community development activities, and standardization
of their resources (e.g., examination procedures and performance
evaluation templates). Another commenter stated that banks should not
be required to implement the final rule until the agencies publish the
final rule's metrics, benchmarks, multipliers, and thresholds.
Commenters also focused on how the proposed transition period would
negatively impact banks of different sizes and stated that all banks
needed more time. One of these commenters suggested that the agencies
tailor the implementation schedule based on bank size. This commenter
stated that if larger banks, which the commenter asserted are the best
equipped to adjust to a final CRA framework, were the first banks
required to implement the new regulations, the agencies could learn
from this experience and address any unintended consequences before
smaller banks were required to implement the new framework.
Many commenters focused on the specific effects that the proposed
rule would have on bank processes, procedures, programs, systems, and
controls and stated that it would take longer than one year to
implement these changes. For example, a commenter stated that it will
need to rebuild virtually all facets of its bank-wide CRA program.
Another commenter stated that the proposal would not provide sufficient
time to coordinate the necessary compliance, financial, operational,
and technological rollout.
Numerous commenters addressed the staffing needs associated with
implementing and administering the new regulations, noting that many
banks would need to hire new staff or reassign existing staff and to
train all staff on the new regulations and related systems. A few
commenters noted that nationwide labor shortages may affect the ability
of banks to transition to a new framework.
Many other commenters noted that, as proposed, banks would be
required to comply with the current CRA framework while implementing a
new
[[Page 7092]]
CRA framework. Some commenters also referenced dual compliance
obligations related to Federal and State CRA laws. Additionally, a
commenter stated that providing banks with an extended transition
period would ensure that credit unions do not benefit from a
comparatively advantageous regulatory environment.
Many commenters addressed the expected concurrent transitioning to
both a new CRA framework and the CFPB's section 1071 framework. Some
noted that the dual CRA and section 1071 transitions could exacerbate
staffing challenges, threaten the integrity of relevant data, present
technological challenges, and lead to unintended consequences. One
commenter noted the budgetary considerations associated with
implementing both frameworks. Other commenters encouraged the agencies
and the CFPB to coordinate on CRA and section 1071 implementation.
Several commenters stated that regulatory requirements should be
designed to avoid dual collection and reporting.
Numerous commenters noted that many stakeholders would need to rely
on third-party vendors to implement a new CRA framework. At least one
commenter noted that in prior rulemakings, banks' ability to test
products and implement the rules was delayed because vendors did not
have enough time to develop the requisite products. Commenters also
noted that the demands on vendors would be exacerbated by the need to
implement both the section 1071 regulations and new CRA regulations.
Several commenters emphasized the importance of ensuring that the
transition period provides sufficient time for training stakeholders on
the new rule and how the agencies would apply it, with at least one
commenter suggesting interagency training. One commenter suggested that
the agencies summarize the final rule's applicability dates to help
with the transition. Another commenter suggested that the comment
period remain open during the training period. Other commenters stated
that the agencies should outline the support they will provide to
banks, especially with respect to assessment area and data collection
provisions.
The agencies also received specific comments about the transition
to implementing the proposed facility-based assessment area and retail
lending assessment area provisions, noting that it will take time for
banks to establish corresponding administrative oversight and to meet
the new benchmarks. Another commenter stated that the agencies should
allow banks to have implementation and compliance flexibility.
Some commenters offered the view that the agencies should evaluate
the final rule after implementation. For example, a commenter stated
the agencies should study what does and does not work with the new
regulations and, as needed, update the CRA framework after
implementation. Other commenters suggested that the agencies test the
final rule on banks of different sizes and then, if necessary, revise
or clarify the final rule. A commenter encouraged the agencies to
invite public comment on the new rule after the first examinations
under the final rule.
Another commenter stated that the Retail Lending Test and the
Community Development Financing Test should not be effective until a
bank's evaluation period that begins at least three years after the
agencies publish the community and market benchmarks necessary to
assess compliance with these performance tests.
Many commenters specifically referenced the proposed data
collection and maintenance requirements when explaining why a one-year
transition period was insufficient. One commenter noted that the
proposal would require banks to collect and format data that they
currently do not collect, while other commenters focused on the
challenges of ensuring the quality and integrity of a bank's data
within the proposed transition period.
Final Rule
After considering the comments received, the agencies are revising
proposed Sec. __.51(a)(2)(i) to provide additional time relative to
the proposal for transitioning to these provisions and to provide that
the applicability date begins at the start of a calendar year. Pursuant
to final Sec. __.51(a)(2)(i), banks will have until January 1, 2026,
to comply with the following: final Sec. Sec. __.12 through __.15,
__.17 through __.30, and __.42(a); the data collection and maintenance
requirements in final Sec. __.42(c) through (f); and final appendices
A through F. The agencies moved this applicability date to the
beginning of the calendar year to align the data collection and
maintenance with evaluation periods, which typically consist of whole
calendar years.
Additionally, the final rule provides that the definitions of
``small business'' and ``small farm'' in final Sec. __.12 take effect
on January 1, 2026, instead of one year after the performance tests as
proposed, to align with the corresponding performance standards. This
change is necessary because the definitions of ``small business'' and
``small farm'' are relevant to, among other things, determining which
loans, investments, or services meet the community development criteria
under final Sec. __.13, evaluating a bank's small business and small
farm lending under the Retail Lending Test, and evaluating a bank's
retail banking services and retail banking products under the Retail
Services and Products Test. In the current regulations, ``small
business'' and ``small farm'' are not explicitly defined, and
therefore, if these definitions are not effective until one year after
the new performance standards are applicable, banks will be unable to
determine with certainty what these terms mean.
The final rule also makes a technical correction to provide that
the data collection and maintenance requirements under final Sec.
__.42(a), but not the data reporting requirements under final Sec.
__.42(b), are applicable on January 1, 2026. As described in the
proposal's preamble, the agencies intended to have the final rule's
reporting requirements take effect one year after the collecting and
maintenance requirements, but this intent was not accurately reflected
in the proposed regulatory text.\1621\ As discussed below, the
reporting requirements under final Sec. __.42(b) through (f) are
applicable one year later, on January 1, 2027, with data reporting
required by April 1 beginning in 2027.
---------------------------------------------------------------------------
\1621\ See 87 FR 33884, 34005 (June 3, 2022) (``Banks that would
be required to collect new data under the proposal starting 12
months after publication of a final rule, would be required to
report such data to the agencies by April 1of the year following the
first year of data collection.'').
---------------------------------------------------------------------------
The agencies also are making the same technical change in final
Sec. __.51(a)(2)(i) and (ii) as discussed above regarding final Sec.
__.51(a)(1) to remove the proposed bank applicability and compliance
language because some of the relevant sections apply to the agencies,
and not to banks.
The agencies believe that providing until January 1, 2026, or
January 1, 2027, as applicable, for these provisions balances the
concerns raised by commenters for an adequate transition period with
the needs of banks' communities, including low- and moderate-income
neighborhoods, to benefit from modernized CRA regulations. Further, the
agencies believe that, with consideration given to bank size, banks
have the resources necessary to adjust to the new regulatory framework
during this revised transition period. As commenters suggested, during
the transition period the agencies will be
[[Page 7093]]
focused on interagency coordination and developing templates, tools,
and training to help banks implement the new CRA framework. The
agencies also note that they provided a shorter transition period for
some of the substantive provisions in the 1995 interagency CRA final
rule.\1622\
---------------------------------------------------------------------------
\1622\ See 60 FR 22156, 22176 (May 4, 1995) (providing a
transition period of less than one year for the data collection
requirements in the 1995 CRA rule).
---------------------------------------------------------------------------
The agencies also believe that the transition periods in the final
rule are appropriate because of the final rule's approach of tailoring
performance standards and data requirements by bank size and business
model. Small banks are generally not subject to the new performance
standards in the CRA final rule unless they opt into the Retail Lending
Test. Intermediate banks and small banks will not be subject to any
additional data collection or reporting requirements under the final
rule, thereby limiting transition burden. Further, the final rule
updates the asset-size thresholds for determining which banks are
considered small banks and which are intermediate banks, such that
approximately 609 banks that would have been designated as intermediate
small banks under the current regulations will now be considered small
banks and 135 banks that would have been large banks under the current
regulations will now be considered intermediate banks.\1623\ Under the
final rule, newly designated intermediate banks that were formerly
large banks will have reduced reporting requirements.\1624\ The
agencies believe that large banks that are subject to any additional
CRA requirements are large enough to manage the transition in the
allotted time. In many cases, such as the requirement to geocode
deposits, the banks likely already collect the requisite data, reducing
the associated challenges that they might otherwise confront.
---------------------------------------------------------------------------
\1623\ See the section-by-section analysis for final Sec. __.12
for more information.
\1624\ Under the current rule, small banks, which include
intermediate small banks, do not have any data collection,
maintenance, or reporting requirements.
---------------------------------------------------------------------------
Further, the agencies believe that the changes made to the final
rule will assist banks in transitioning to the final rule.
Specifically, the final rule includes changes to the provisions
regarding retail lending assessment areas, resulting in fewer banks
having to delineate retail lending assessment areas and, for those that
do, generally having to delineate fewer retail lending assessment
areas.\1625\ Additionally, the final rule revised the proposed Retail
Lending Test such that open-end home mortgage loans and multifamily
loans will not be evaluated as major product lines under that
performance test. The agencies have also reduced burden by revising the
final rule such that a bank subject to the Retail Lending Test will
only have its automobile loans evaluated if the bank is a majority
automobile lender or the bank opts to have its automobile loans
evaluated.
---------------------------------------------------------------------------
\1625\ See the section-by-section analysis for final Sec.
__.17.
---------------------------------------------------------------------------
In response to commenters who suggested a tailored implementation
period, as noted above the default performance test applicable to for
small banks will be the same as under the current regulations. Small
banks will have as much time as necessary to transition to being
evaluated under the Retail Lending Test if they eventually opt to do
so. Additionally, as explained in greater detail in the section-by-
section analysis for final Sec. __.42, the new data collection,
maintenance, and reporting requirements in the final rule apply only to
large banks or, in some cases, only to large banks with assets of
greater than $10 billion. The final rule is tailored to ensure that
only banks with sufficient resources are subject to the data collection
and maintenance requirements that are applicable on January 1, 2026,
and the data reporting requirements that are applicable on January 1,
2027.
The agencies acknowledge that the final rule will impact bank
processes, procedures, programs, systems, and controls. However, as
discussed above, the agencies believe that the final rule's revised
implementation period is sufficient for banks to implement necessary
changes. As noted, the agencies expect to develop tools and training to
help banks transition to and implement the new regulatory requirements.
With regard to staffing concerns, the agencies understand that
banks may need to hire additional staff or that bank staff may need to
be reassigned to work on CRA implementation. However, based on the
agencies' supervisory experience, banks have demonstrated the ability
to comply with major changes to other regulatory requirements. The
agencies believe that implementing the final rule's requirements
represents a comparable transition for banks.
Although the agencies understand that banks must comply with
current CRA regulations while implementing the new CRA framework, this
would be true of any transition period provided in the final
rule.\1626\ The agencies acknowledge that some States have their own
CRA laws and regulations that apply to State-charted banks and savings
associations, but the agencies do not possess authority in connection
with these State laws and regulations or any control over when or if
these States might update their CRA regulations to conform with the
final rule.
---------------------------------------------------------------------------
\1626\ During the period between the final rule's effective date
and the applicability dates in the final rule for certain
provisions, the current CRA regulations will remain applicable for
these provisions. See discussion of Sec. __.51(a)(2)(iii), below.
(The final rule includes each agency's current CRA regulation in new
appendix G and sunsets these appendices as of the final
applicability date, at which time all provisions of the final rule
will be applicable.)
---------------------------------------------------------------------------
The agencies understand that many banks will rely on third-party
vendors to assist with implementing the final rule. The agencies
acknowledge the suggestion that the transition period should be longer
for banks that rely on vendors; however, the agencies believe that
providing a longer transition period for these banks would unfairly
disadvantage other banks that handle the majority, or all, of their
compliance needs internally. The agencies further believe that the
increased transition time in the final rule provides sufficient time
for banks working with vendors to implement the amended regulations.
The agencies also recognize that banks may need to implement both the
Section 1071 Final Rule and the amended CRA regulations on overlapping
timelines. However, for the reasons discussed above, the agencies
believe the transition period provides sufficient time before many
final rule provisions are applicable on January 1, 2026. Moreover, the
agencies eventually intend to leverage section 1071 data, which will
minimize data collection, maintenance, and reporting burden on large
banks.
The agencies are committed to maintaining an open dialogue with
stakeholders during the implementation period. This will allow all
parties, including the agencies, to learn from the implementation
process and develop best practices. As discussed above, the agencies
agree that interagency training will be vital during this period and
intend to develop training for banks, examiners, and other key
stakeholders to ensure that they understand the regulatory
requirements. The agencies expect to issue clarifying guidance to
address relevant issues that arise following publication of the final
rule.
Section __.51(a)(2)(ii)
The Agencies' Proposal
In proposed Sec. __.51(a)(2)(ii), the agencies provided that the
proposed Sec. __.12 definitions of ``small business''
[[Page 7094]]
and ``small farm'' (which are based on the gross annual revenue size)
would be applicable two years after the Federal Register publication of
a final rule. The agencies explained that the applicability date for
these definitions would be on or after the CFPB makes the section 1071
regulations effective. The agencies sought feedback on whether to tie
the applicability date of these definitions to when the CFPB finalized
its section 1071 rulemaking or to provide an additional 12 months after
the CFPB finalized its rulemaking. The agencies also asked when they
should sunset the ``small business loan'' and ``small farm loan''
definitions.
Additionally, the agencies proposed that banks that are required to
collect new CRA data under amended CRA regulations starting 12 months
after publication of the final rule be required to report data to the
appropriate Federal financial supervisory agency two years after
Federal Register publication of a final rule, by April 1 of the year
following the first year of data collection and maintenance. The
agencies believed that the applicability dates for these provisions
would give banks sufficient time to implement the proposed data
collection, maintenance, and reporting framework. The agencies also
proposed that the data disclosure requirements in proposed Sec.
__.42(b) and (g) through (i) would become applicable the year following
the first year of data collection.
Comments Received
Most commenters that provided input on this aspect of the proposal
indicated that they required additional time than proposed to comply
with new small business lending and small farm lending definitions.
Some stated that the new definitions should not be applicable in the
middle of a bank's evaluation period and, in these cases, banks should
be allowed to use the current definitions. With respect to the
agencies' question on the timing of the applicability of the new CRA
small business and small farm definitions in light of the section 1071
rulemaking, commenter views were mixed. Several commenters supported
tying the effective dates to the effective date of the section 1071
rulemaking, but others supported provision of an additional year. A
commenter requested that the agencies exhibit flexibility, while
another explained that providing banks with time for data validation
and analysis using consistent definitions would promote accurate
metrics for both the CRA and section 1071 frameworks. Another commenter
stated that it was difficult to evaluate the agencies' CRA proposal
because the section 1071 rulemaking was not yet final.
With respect to the agencies' question on sunsetting the current
small business loan and small farm loan definitions, commenters'
suggestions included sunsetting the current definitions: at the end of
the calendar year after the new definitions are effective; within 12
months of publication of a CRA final rule; when banks transition to
reporting section 1071 data; one year after banks implement the section
1071 regulations; and when the current small business loan and small
farm definitions are not applicable to any examination data.
Numerous commenters also addressed the transition period for the
data reporting requirements in the rule, stating that the proposed
transition period is insufficient. As with the data collection and
maintenance requirements, many commenters addressed the issues related
to transitioning to both a new CRA framework and the CFPB's section
1071 regulations. Other commenters said that banks should not be
required to report data under two different CRA frameworks in the same
calendar year. Another noted that CDFI banks already have an
unsupportable amount of data reporting due by March 1. One commenter
stated that all banks, particularly large and complex ones, will need
to invest significant resources to set up new data collection,
maintenance, and reporting mechanisms and recommended a longer
transition period for new reporting requirements that is at least 36
months before the beginning of a bank's first evaluation period.
Final Rule
To align the data reporting requirements with the January 1, 2026,
applicability date in the final rule for the data collection and
maintenance requirements, the final rule provides that all data
reporting requirements are applicable on January 1, 2027, instead of
two years after publication in the Federal Register, as proposed.
Because final Sec. __.42(b) provides that banks are required to report
data by April 1 of the year following the collection of data, this
means that banks will have more than three years following the
publication of the final rule before they will need to report data
under the final rule. As with the data collection and maintenance
requirements and as explained in the section-by-section analysis for
final Sec. __.42, the final rule's new data reporting requirements are
applicable to large banks.
As noted above, the agencies are finalizing the proposed Sec.
__.12 definitions of ``small business'' and ``small farm,'' and
changing the applicability date for these definitions to January 1,
2026, to align with the performance standards. Without this change,
there would be ambiguity in the amended regulations in instances where
those defined terms are used, including in final Sec. Sec. __.13,
__.22, and __.23.
With respect to the agencies' transition to using section 1071
data, as indicated in the section-by-section analysis for final Sec.
__.12, the agencies have removed proposed references to section 1071
data in the final rule's regulatory text. Instead, the agencies are
including amendments in the final rule that provide for a transition to
section 1071 small business and small farm lending data once these data
becomes available. These transition amendments implement the intent of
the agencies articulated in the proposal to leverage section 1071 data
while accounting for the current uncertainty surrounding the
availability of that data. Specifically, when effective, these
transition amendments will add appropriate references to the Section
1071 Final Rule, remove references to Call Report-based small business
and small farm data, and make other corresponding changes to the final
rule regulatory text.
The agencies are not including an effective date for these section
1071-related transition amendments in the final rule. Instead, once the
availability of section 1071 data is clarified, the agencies will
provide appropriate notice in the Federal Register of the effective
date of the transition amendments. The agencies expect that the
effective date will be on January 1 of the relevant year to align with
the final rule's data collection and reporting, benchmark calculations,
and performance analysis, which all are based on whole calendar years.
Section __.51(a)(2)(iii)
Because the current CRA regulations will continue to apply until
the above applicability dates take effect, the agencies have included
in their agency-specific amendments a new appendix G that contains the
current CRA regulations. The agencies have also added a new paragraph
(a)(2)(iii) to Sec. __.51 that references this appendix. Specifically,
this paragraph provides that, prior to the applicability dates in
paragraphs (a)(2)(i) and (ii) of the section, banks must comply with
the relevant provisions of the CRA regulations in effect on the day
before the final rule's effective date, as set forth in appendix G.
This paragraph further provides that, the relevant provisions set forth
in appendix G continue to be
[[Page 7095]]
applicable to CRA performance evaluations pursuant to 12 U.S.C.
2903(a)(1) that assess activities that a bank conducted prior to the
date the final rule became applicable, except as provided in paragraphs
(c) and (d), as discussed below. Appendix G will be effective until
January 1, 2031, when the agencies expect the appendix to no longer be
necessary.
Section __.51(b) HMDA Data Disclosures
Section __.51(c) Consideration of Bank Activities
The Agencies' Proposal
Proposed Sec. __.51(b)(1) provided that the agencies would begin
conducting CRA examinations pursuant to the Retail Lending Test, Retail
Services and Products Test, Community Development Financing Test,
Community Development Services Test, and Community Development
Financing Test for Wholesale and Limited Purpose Banks, and for
strategic plan banks, beginning two years after Federal Register
publication of a final rule. The preamble to the proposed rule noted
that examinations conducted after this date would evaluate bank
activities conducted during the prior year, for which the proposal's
requirements related to bank activities would already be effective. The
agencies further explained in the preamble to the proposed rule that
CRA examinations conducted immediately after this date would use
modified procedures until peer data and applicable benchmarks become
available.
Proposed Sec. __.51(b)(1) also provided that the agencies would
comply with the HMDA data disclosure requirements in Sec. __.42(j)
beginning two years after publication of a final rule.
Proposed Sec. __.51(b)(2) provided that in assessing a bank's CRA
performance, the agencies would consider any loan, investment, or
service that was eligible for CRA consideration at the time that the
bank conducted the activity or entered into a legally binding
commitment to make the loan or investment.
Comments Received
The agencies received numerous comments on timing and related
challenges regarding CRA examinations under a final rule, with several
suggesting specific approaches to address these challenges. Some
commenters expressed concern that, for many banks, the next examination
would be based on two different CRA frameworks and that the first banks
to be examined under the new framework would be at a disadvantage.
Another commenter urged the agencies to provide banks with more time to
understand how their performance will be measured in order to make any
necessary course corrections. Many other commenters suggested
alternatives for when examinations under the new framework should
begin. For example, commenters suggested that examinations should begin
when banks have had sufficient time or a full examination cycle to
collect and report data under the amended regulations or in the
calendar year following adequate data collection. Other alternatives
suggested are when the agencies have collected and shared with banks
two or more years of data and 24 months after the data collection
requirements are applicable.
Final Rule
After carefully considering the comments, the agencies are removing
the start dates for examinations pursuant to the amended regulations'
performance tests from final Sec. __.51. This change will allow each
agency to set its own policies and procedures for conducting
examinations under the amended regulations, including those that cover
periods when both CRA frameworks apply. The agencies will carefully
consider the comments received when developing these policies and
procedures. Not including the start dates for examinations in the final
rule also ensures that the new performance standards will not be
applied retroactively to banks' performance in calendar years prior to
2026.
The agencies are revising proposed Sec. __.51(b)(1), renumbered in
the final rule as Sec. __.51(b), to reflect the increased length of
the transition period in the final rule. Final Sec. __.51(b) provides
that each agency will publish HMDA data disclosures pursuant to final
Sec. __.42(j) on its respective website beginning on January 1, 2027.
Final Sec. __.42(j) provides that the Board, FDIC, or OCC, as
applicable, will publish HMDA demographic information for large banks
on their respective websites. See the section-by-section analysis for
Sec. __.42(j).
The agencies are finalizing as proposed final Sec. __.51(b)(2),
renumbered in the final rule as Sec. __.51(c). Under the final rule,
in assessing a bank's CRA performance the agency will consider any
loan, investment, or service, or product that was eligible for CRA
consideration at the time the bank conducted the activity or at the
time that the bank entered into a legally binding commitment to make
the loan or investment.
Section __.51(d) Strategic Plans
Section __.51(d)(1) New and Replaced Strategic Plans
Section __.51(d)(2) Existing Strategic Plans
The Agencies' Proposal
The agencies proposed in Sec. __.51(a)(2)(i) that the strategic
plan provisions in proposed Sec. __.27 would be applicable one year
after publication of a final rule. Proposed Sec. __.51(c) provided
that the current regulations would apply to any new strategic plan
(including a strategic plan that replaces an expired strategic plan)
that is submitted to an agency for approval on or after the date of the
final rule's publication in the Federal Register but before proposed
Sec. __.27 would be applicable. Strategic plans approved under this
paragraph would generally remain in effect until the expiration date of
the plan.\1627\ Proposed Sec. __.51(c) further provided that a
strategic plan in effect as of the publication date of the final rule
would remain in effect until the expiration date of the strategic plan.
---------------------------------------------------------------------------
\1627\ Specifically, the Board and the FDIC proposed in Sec.
__.51(c)(2) that a strategic plan in effect as of the effective date
of a final rule would remain in effect until the expiration date of
that plan, and the OCC proposed in Sec. 25.51 that a strategic plan
in effect as of the publication date of a final rule remains in
effect until the expiration date of the plan, except for provisions
that were not permissible under its CRA regulations as of January 1,
2022.
---------------------------------------------------------------------------
Comments Received
The agencies received only one specific comment on proposed Sec.
__.51(c). This commenter recommended that the effective date of amended
regulations relating to strategic plans be the later of the following:
(1) the day after the bank's current Strategic Plan expires; and (2)
when the asset-size category-based performance tests are applicable to
banks not subject to a strategic plan. The commenter stated that this
will ensure that banks that choose to be evaluated under a strategic
plan are given enough time to comply with the new requirements if
implementation requirements are delayed.
Final Rule
The agencies are revising proposed Sec. __.51(c), renumbered as
final Sec. __.51(d), to provide that the current regulations will
apply to any new strategic plan (including a strategic plan that
replaces an expired strategic plan) that is submitted to an agency for
approval between the date that the final rule is published in the
Federal Register and November 1, 2025. The agencies
[[Page 7096]]
have updated the date in this provision to reflect the increased
transition period in the final rule for Sec. __.27. Additionally, the
agencies are revising final Sec. __.51(d) to provide that the agencies
will not accept any strategic plan submitted on or after November 1,
2025, and before January 1, 2026, the applicability date of the final
Sec. __27. The agencies are making these changes to ensure there is
sufficient time for each agency to make decisions about submitted
strategic plans under the current regulations before the final rule's
strategic plan provisions are applicable. Under the current
regulations, the agencies have 60 days to act on a complete strategic
plan once it is received.\1628\ Therefore, implementing a cut-off date
of November 1, 2025, for strategic plans allows the agencies time to
review a strategic plan under the current regulations before addressing
strategic plans received on or after January 1, 2026, and acting on
such plans under the amended regulations. As a technical change, the
final rule also clarifies that the current regulations will only apply
to such a strategic plan submission that the agency has determined is a
complete plan consistent with the requirements of current 12 CFR __.27.
---------------------------------------------------------------------------
\1628\ See current 12 CFR __.27(g).
---------------------------------------------------------------------------
The agencies are finalizing the provision that a strategic plan
subject to final Sec. __.51(d)(1), instead of approved under the
relevant paragraph of the proposed rule (proposed Sec. __.51(d)(1)),
remains in effect until expiration of the plan. This technical
correction recognizes that the agencies do not approve a strategic plan
under Sec. __.51(d)(1). Similarly, the agencies are finalizing as
proposed Sec. __.51(c)(2), renumbered as final Sec. __.51(d)(2),
providing that a strategic plan in effect as of the publication date of
the final rule in the Federal Register remains in effect until the
expiration date of the plan.
The agencies believe that the final rule appropriately addresses
the commenter's suggestion because a strategic plan approved by the
agencies under the current regulations remains in effect until
expiration of the plan, and the new strategic plan provisions are
applicable on January 1, 2026, the same time that the performance
standards are applicable.
Section __.51(e) First Evaluation Under This Part on or After February
1, 2024
The agencies are revising proposed Sec. __.51 to add a new
paragraph (e), which provides that in its first performance evaluation
under the final rule a large bank that has 10 or more facility-based
assessment areas in any State or multistate MSA, or nationwide, as
applicable, and that was subject to evaluation under the agencies' CRA
regulation prior to February 1, 2024, may not receive a rating of
``Satisfactory'' or ``Outstanding'' in that State or multistate MSA, or
for the institution unless the bank received an overall facility-based
assessment area conclusion, calculated as described in paragraph g.2.ii
of appendix D, of at least ``Low Satisfactory'' in 60 percent or more
of the total number of its facility-based assessment areas in that
State or multistate MSA, or nationwide, as applicable. In a large
bank's second examination under the final rule and thereafter, the
requirement in final Sec. __.28(b)(4)(ii) will apply if a large bank
has a combined total of 10 or more facility-based assessment areas and
retail lending assessment areas in any State, multistate MSA, or
nationwide, as applicable.
The agencies believe this phased approach is appropriate because,
for a large bank's first examination under the final rule, both this
requirement--that a large bank receives an overall assessment area
conclusion of at least ``Low Satisfactory'' in 60 percent or more of
its facility-based assessment areas and retail lending assessment areas
if it meets a threshold number of facility-based assessment areas and
retail lending assessment areas--and the concept of retail lending
assessment areas will be new. Therefore, at first, it is appropriate to
only apply the minimum ``Low Satisfactory'' requirement to large banks
with the most facility-based assessment areas in States, multistate
MSAs, and nationwide, as applicable, as well as to provide banks with
additional time to consider their performance under the Retail Lending
Test in retail lending assessment areas. See the section-by-section
analysis of Sec. __.28(b)(4)(ii) for a detailed discussion of this
requirement.
V. Regulatory Analysis
Regulatory Flexibility Act
Under the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.),
an agency must consider the impact of its rules on small entities.
Specifically, section 3 of the RFA requires an agency to provide a
final regulatory flexibility analysis (FRFA) with a final rule unless
the head of the agency certifies that the rule will not have a
significant economic impact on a substantial number of small entities
\1629\ and publishes this certification and a statement of its factual
basis in the Federal Register.
---------------------------------------------------------------------------
\1629\ Small Business Administration (SBA) regulations currently
define small entities to include banks and savings associations with
total assets of $850 million or less, and trust banks with total
assets of $47.0 million or less.
---------------------------------------------------------------------------
OCC
The OCC currently supervises 1,060 institutions (commercial banks,
trust companies, Federal savings associations, and Federal branches or
agencies of foreign banks, collectively banks),\1630\ of which
approximately 661 are small entities under the RFA.\1631\ The OCC
estimates that the final rule will impact approximately 617 of these
small entities,\1632\ of which the OCC anticipates that 560 entities
will be small banks, 46 entities will be intermediate banks, and 6
entities will be limited purpose banks, as defined under the final
rule, and 5 entities will be evaluated based on an OCC-approved
strategic plan.
---------------------------------------------------------------------------
\1630\ Based on data accessed using FINDRS on August 23, 2023.
\1631\ The OCC bases its estimate of the number of small
entities on the SBA's size thresholds for commercial banks and
savings institutions ($850 million) and trust companies ($47
million). Consistent with the SBA General Principles of Affiliation
in 13 CFR 121.103(a) the OCC counts the assets of affiliated
financial institutions when determining if the OCC should classify
an OCC-supervised institution as a small entity. The OCC uses
December 31, 2022, to determine size because a ``financial
institution's assets are determined by averaging the assets reported
on its four quarterly financial statements for the preceding year.''
13 CFR 121.201 fn. 8.
\1632\ These 617 small entities are those OCC-regulated banks
with total assets of $850 million or less or trust banks with total
assets of $47.0 million or less that are subject to the OCC's CRA
regulation.
---------------------------------------------------------------------------
The OCC estimates the annual cost for small entities to comply with
the final rule will be, on average, approximately $18,304 dollars per
bank (143 hours \1633\ x $128 per hour \1634\). In general, the OCC
classifies the economic impact on
[[Page 7097]]
a small entity as significant if the total estimated impact in one year
is greater than 5 percent of the small entity's total annual salaries
and benefits or greater than 2.5 percent of the small entity's total
non-interest expense. The OCC defines a substantial number as five
percent or more of OCC-supervised small entities, or 31 small entities
for purposes of this final rule. Based on these thresholds, the OCC
estimates the final rule will have a significant economic impact on
approximately 14 small entities, which is not a substantial
number.\1635\ Therefore, the OCC certifies that the final rule will not
have a significant economic impact on a substantial number of small
entities.
---------------------------------------------------------------------------
\1633\ In response to two comment letters the agencies received
on the OCC's RFA analysis of the proposed rule, the OCC revised its
hours per bank estimate in the final rule to 143 hours. The OCC
arrived at this estimate by calculating a weighted average based on
120 hours for small entities classified as small or limited purpose
pursuant to the final rule, 2,200 hours for small entities
classified as strategic plan pursuant to the final rule, and 200
hours for small entities classified as intermediate pursuant to the
final rule.
\1634\ To estimate the compensation rate, the OCC reviewed May
2022 data for wages (by industry and occupation) from the U.S.
Bureau of Labor Statistics (BLS) for credit intermediation and
related activities (NAICS 5220A1). To estimate compensation costs
associated with the rule, the OCC used $128.05 per hour, which is
based on the average of the 90th percentile for six occupations
adjusted for inflation (5.1 percent as of Q1 2023), plus an
additional 34.3 percent for benefits (based on the percent of total
compensation allocated to benefits as of Q4 2022 for NAICS 522:
credit intermediation and related activities).
\1635\ In response to comment letters, the OCC also evaluated
the impact of the final rule using a wage rate $150 per hour. Using
this hourly rate, the OCC estimated the annual cost for small
entities to comply with the final rule will be on average
approximately $21,450 dollars per bank (143 hours x $150 per hour),
and the final rule will have a significant economic impact on 20
small entities, which is not a substantial number.
---------------------------------------------------------------------------
Board
For the reasons described below, the Board is certifying that the
final rule will not have a significant economic impact on a substantial
number of small entities. Board-supervised institutions that will be
subject to the final rule are state member banks (as defined in section
3(d)(2) of the Federal Deposit Insurance Act of 1991), and uninsured
state branches of a foreign bank (other than limited branches)
resulting from certain acquisitions under the International Banking
Act, unless such bank does not perform commercial or retail banking
services by granting credit to the public in the ordinary course of
business.
The Board estimates that approximately 464 Board-supervised RFA
small entities would be subject to the final rule.\1636\ Of these,
approximately 427 would be considered small banks under the final rule,
and approximately 37 would be considered intermediate banks under the
final rule. The final rule defines ``small bank'' to mean a bank that
had average assets of less than $600 million in either of the prior two
calendar years, and would define ``intermediate bank'' to mean a bank
that had average assets of at least $600 million in both of the prior
two calendar years and average assets of less than $2 billion in either
of the prior two calendar years, in each case based on the assets
reported on its four quarterly Call Reports for each of those calendar
years.
---------------------------------------------------------------------------
\1636\ Consistent with the General Principles of Affiliation in
13 CFR 121.103, the assets of all domestic and foreign affiliates
are counted toward the $850 million threshold when determining
whether to classify a depository institution as a small entity. The
Board's estimate is based on total assets reported on Forms FR Y-9
(Consolidated Financial Statements for Holding Companies) and FFIEC
041 (Consolidated Reports of Condition and Income) for 2021.
---------------------------------------------------------------------------
The final rule includes a new evaluation framework for evaluating
the CRA performance of banks that is tailored by bank size and business
model. For example, the final rule establishes an evaluation framework
containing four tests for large retail banks: Retail Lending Test,
Retail Services and Products Test, Community Development Financing
Test, and Community Development Services Test. In addition to the new
CRA evaluation framework, the final rule includes data collection,
maintenance, and reporting requirements necessary to facilitate the
application of various tests.
Because the final rule maintains the current small bank evaluation
process and the small bank performance standards, the final rule does
not generally impose any new requirements with significant burden on
Board-supervised small entities with less than $600 million in assets.
Under the final rule, banks must collect, maintain, and report data on
the activities of their operations subsidiaries or operating
subsidiaries (unless the subsidiaries are independently subject to the
CRA), as applicable. The Board estimates that this requirement impacts
approximately 139 banks with an estimated annual burden of 38 hours per
bank. For supervised small entities that are defined as intermediate
banks under the final rule, i.e., banks with assets between $600
million and $850 million, the final rule would add some additional
compliance burden because these banks would be subject to the new
Retail Lending Test. However, the Board does not believe that these
requirements would impose a significant economic impact on banks.
Specifically, with respect to the Retail Lending Test, these
intermediate banks would not be subject to regulatory data collection
and maintenance requirements for retail loans. In addition, these
intermediate banks would be subject to community development
performance standards that are substantially similar to the criteria
for evaluating community development performance today. However, these
intermediate banks could choose to be evaluated under the Community
Development Financing Test and would then be required to collect and
maintain the loan and investment data applicable to that test.
The agencies' current CRA regulations similarly allow small banks
and intermediate small banks to voluntarily opt into one or more
alternative tests in lieu of the mandatory or default requirements.
However, based on the Board's supervisory experience with its current
CRA regulation, few small banks or intermediate small banks choose to
be evaluated under alternative tests, and the Board expects that this
would continue to be the case under the final rule. For the reasons
described above, the Board is certifying that the final rule would not
have a significant economic impact on a substantial number of small
entities.
FDIC
The RFA generally requires an agency, in connection with a final
rule, to prepare and make available for public comment a FRFA that
describes the impact of the final rule on small entities.\1637\
However, a FRFA is not required if the agency certifies that the final
rule will not have a significant economic impact on a substantial
number of small entities.\1638\ The Small Business Administration (SBA)
has defined ``small entities'' to include banking organizations with
total assets of less than or equal to $850 million.\1639\
---------------------------------------------------------------------------
\1637\ 5 U.S.C. 601 et seq.
\1638\ 5 U.S.C. 605.
\1639\ The SBA defines a small banking organization as having
$850 million or less in assets, where an organization's ``assets are
determined by averaging the assets reported on its four quarterly
financial statements for the preceding year.'' 13 CFR 121.201 (as
amended by 87 FR 69118, effective Dec. 19, 2022). In its
determination, the ``SBA counts the receipts, employees, or other
measure of size of the concern whose size is at issue and all of its
domestic and foreign affiliates.'' 13 CFR 121.103. Following these
regulations, the FDIC uses an insured depository institution's
affiliated and acquired assets, averaged over the preceding four
quarters, to determine whether the insured depository institution is
``'small'' ' for the purposes of RFA.
---------------------------------------------------------------------------
Generally, the FDIC considers a significant economic impact to be a
quantified effect in excess of 5 percent of total annual salaries and
benefits or 2.5 percent of total noninterest expenses. The FDIC
believes that effects in excess of one or more of these thresholds
typically represent significant economic impacts for FDIC-supervised
institutions. While some of the expected effects of the final rule are
difficult to quantify, the FDIC believes that the final rule is
unlikely to have a significant impact on a substantial number of small
entities. Therefore, the FDIC certifies that the final rule will not
have a significant economic effect on a substantial number of small
entities. The FDIC's rationale for its determination is discussed
below.
As of March 31, 2023, the FDIC supervises 3,012 insured depository
institutions (IDIs), of which 2,306 are
[[Page 7098]]
defined as small entities by the SBA (``SBA-small entities'') for
purposes of the RFA.\1640\ The final rule would affect all FDIC-
supervised institutions, therefore the FDIC estimates that the final
rule would affect all 2,306 small entities. To avoid confusion the
small and intermediate size categories of the final rule are referred
to as ``CRA-small'' and ``CRA-intermediate'' to distinguish them from
``SBA-small entities'' in certain places below. Also, as the final rule
renames the current ``intermediate small'' category as
``intermediate,'' for ease of reading the ``intermediate small''
category is referred to below as ``intermediate.''
---------------------------------------------------------------------------
\1640\ Call Report data (Mar. 31, 2023).
---------------------------------------------------------------------------
As discussed in the SUPPLEMENTARY INFORMATION, the final rule would
make CRA examinations more transparent and objective through the use of
quantitative metrics and thresholds, thereby helping ensure that all
relevant activities are considered and that the scope of the
performance evaluation more accurately reflects the communities served
by each institution. The final rule increases the asset size thresholds
for the CRA-small and CRA-intermediate categories. This change will
have an immediate effect on the examination requirements of some of
these banks. Under the final rule, the total asset threshold for CRA-
small IDIs changes from less than $376 million in total assets as of
December 31 in either of the prior two calendar years, to less than
$600 million in total assets as of December 31 in either of the prior
two calendar years. Further, the final rule raises the minimum asset
size for CRA-intermediate IDIs from $376 million in total assets as of
December 31 in both of the prior two calendar years to $600 million in
total assets as of December 31 in both of the prior two calendar years.
Also, under the final rule the maximum asset size for CRA-intermediate
IDIs increases from $1.503 billion in total assets as of December 31 in
either of the prior two calendar years to $2 billion in total assets as
of December 31 in either of the prior two calendar years. The asset
size thresholds would be adjusted annually for inflation under the
final rule, as they are under the current framework. Finally, limited
purpose SBA-small entities, and SBA-small entities operating under
strategic plans, would remain in their respective categories under the
final rule.
Under the current framework, 1,759 of the 2,306 SBA-small entities
are CRA-small, 527 are CRA-intermediate, 17 operate according to
approved strategic plans, and three are designated as wholesale or
limited purpose banks. Under the final rule, 2,104 of the 2,306 SBA-
small entities are CRA-small, 182 are CRA-intermediate, and the number
of institutions operating under strategic plans or that are limited
purpose are unchanged. The final rule's upward adjustment of the asset
size threshold for CRA-small banks reclassifies 345 institutions from
CRA-intermediate to CRA-small.
CRA-small banks under the final rule have the option of continuing
to have their CRA performance evaluated under the current CRA-small
bank lending test or of opting into the Retail Lending Test. Similar to
the current evaluation framework, under the final rule CRA-small banks
rated ``Satisfactory'' may receive additional consideration for
qualifying activities to attempt to achieve an institution-level rating
of ``Outstanding.''
CRA-intermediate banks under the final rule are evaluated under the
new Retail Lending Test and the current framework's community
development test for CRA-intermediate banks, or may opt into the final
rule's Community Development Financing Test. Similar to the current
evaluation framework, under the final rule if rated ``Satisfactory'' an
intermediate bank may receive additional consideration for other
qualifying activities to attempt to achieve an institution-level rating
of ``Outstanding.''
Additionally, SBA-small entities are likely to incur costs
associated with making changes to their policies, procedures, and
internal systems in order to comply with the final rule. However, the
FDIC believes that these costs are likely to be low for the vast
majority of SBA-small entities because, as mentioned previously, under
the final rule CRA-small banks' performance will be evaluated under the
current CRA-small bank lending test. As there are 1,759 SBA-small
banks--representing 76 percent of all 2,306 SBA-small entities--in the
CRA-small category under both the current and final rule's framework,
the FDIC expects the vast majority of SBA-small entities to be only
modestly affected by the final rule.
The agencies received two public comments on the RFA analysis in
the NPR. Both of these commenters asserted that the estimated cost of
complying with the NPR would be substantially higher than what the
OCC--the only agency to provide estimated cost burdens for SBA-small
banks in the NPR--had estimated. While the comments were not directed
at the FDIC, the FDIC reviewed the comments and determined that while
the commenters' claims may reflect their experiences or their
institutions' experiences, the FDIC notes that compliance costs may
vary substantially across institutions and the agencies' estimates are
meant to be overall averages. As previously discussed, the FDIC
incorporated a number of changes into the final rule as a result of
public comments received regarding compliance burden. The agencies
believe the initial burden estimates remain appropriate and have not
made any changes to those estimates for this final rule.
In addition, some commenters addressed the agencies' PRA burden
estimates for the information collection requirements of the proposed
rule. The commenters generally believed that the agencies' estimates of
annual burden were too low. The FDIC notes that PRA burdens, like
compliance costs, may vary across institutions, and the agencies' PRA
burden estimates are meant to be overall averages. The FDIC calculated
the estimated burden associated with the rule, including implementation
costs, based on the agencies' extensive experience with CRA compliance
and estimating associated burden. The FDIC believes the estimates of
burden hours are accurate related to the recordkeeping, reporting, and
disclosure requirements of the final rule.
For the reasons described above, the FDIC certifies that the final
rule will not have a significant effect on a substantial number of
small entities.
Paperwork Reduction Act
Certain provisions of the final rule contain ``collections of
information'' within the meaning of the Paperwork Reduction Act (PRA)
of 1995 (44 U.S.C. 3501 through 3521). In accordance with the
requirements of the PRA, the agencies may not conduct or sponsor, and
the respondent is not required to respond to, an information collection
unless it displays a currently valid OMB control number.
Comments Received
The agencies received four comments that appear to relate to the
PRA addressing the agencies' estimated burden costs on the information
collection requirements of the proposed rule. One commenter stated that
the proposal would generally require considerable additional resources
for implementation and ongoing costs to manage their CRA programs under
the proposed rule. The commenter estimated that it could incur
implementation costs of $150,000. This commenter also believed that
complying with the proposed rule would require substantially more time
than the
[[Page 7099]]
estimated yearly burden of 80 hours per year. Another commenter stated
that the costs associated with implementing the proposal would be
significantly greater than the agencies had estimated and could require
significant investments at covered institutions, potentially including
hiring several additional full-time employees. This commenter requested
that the agencies provide a more detailed explanation of their
estimations of the proposed rule's costs. Another commenter believed
the estimated burden of 80 hours per year was very low, suggesting that
another 500 hours, minimum, would be required for compliance. The
commenter stated that the proposed rule is complex and would require
significant investment by covered institutions to achieve compliance.
An additional commenter stated that the agencies provided insufficient
support for their burden estimates. This commenter requested that the
agencies provide more details on the breakdown of estimated compliance
costs and an analysis of how the potential costs might impact economic
output.
As previously discussed, the agencies incorporated a number of
changes into the final rule as a result of public comments received
regarding compliance burden. The agencies have carefully reviewed their
burden associated with recordkeeping, reporting, and disclosure for
each section of the rule in light of these changes to the final rule
and in consideration of the comments received. The agencies note that,
consistent with the PRA, the PRA burden estimates reflect only the
burden related to recordkeeping, reporting, and disclosure requirements
in the final rule. PRA burdens, like compliance costs, may vary across
institutions, and the agencies' PRA burden estimates are meant to be
overall averages. The agencies do not have detailed data that would
permit the agencies to precisely estimate the quantitative effect of
the final rule for every type of institution. Accordingly, the burden
estimates are shown based on the agencies' extensive experience with
CRA compliance and estimating associated burden. The agencies estimated
the associated burden by referencing the number of entities supervised
by each agency and estimating the frequency of response and the time
per response. The agencies believe the estimates of burden hours are
reasonable considering the recordkeeping, reporting, and disclosure
requirements of the final rule.
Final Rule
Under the final rule, the agencies retained the information
collection provisions of the proposed rule, with certain modifications.
The agencies have included a reporting burden for the community
development illustrative list and confirmation of eligibility process
pursuant to Sec. __.14. The agencies have included a recordkeeping
burden for Home Mortgage Loans pursuant to Sec. __.42(a)(3). The
agencies have also removed reporting requirements for Community
development services pursuant to Sec. __.42(b)(4) and Consumer loans
data--automobile loans pursuant to Sec. __.42(b)(2) Consumer loans
data--automobile loans. However, recordkeeping requirements have been
maintained for both provisions. More thorough discussion for both
topics can be found in the SUPPLEMENTARY INFORMATION associated with
Sec. __.42.
The agencies are extending for three years the information
collections contained in the final rule, with several revisions. The
information collections contained in the final rule have been submitted
to OMB for review and approval by the OCC and FDIC under section
3507(d) of the PRA (44 U.S.C. 3507(d)) and Sec. 1320.11 of OMB's
implementing regulations (5 CFR part 1320). The Board reviewed the
final rule under the authority delegated to the Board by OMB. The Board
will submit information collection burden estimates to OMB, and the
submission will include burden for only Federal Reserve-supervised
institutions.
Title of Information Collection: OCC Community Reinvestment Act
Regulation; Board Reporting, Recordkeeping, and Disclosure Requirements
Associated with Regulation BB; FDIC, Community Reinvestment Act.
OMB Control Numbers: OCC 1557- 0160; Board 7100-0197; FDIC 3064-
0092.
Affected Public: Businesses or other for-profit.
Respondents: OCC: National banks, Federal savings associations,
Federal branches and agencies; FDIC: All insured state nonmember banks,
insured state-licensed branches of foreign banks, insured state savings
associations, and bank service providers; Board: All state member banks
(as defined in 12 CFR 208.2(g)), bank holding companies (as defined in
12 U.S.C. 1841), savings and loan holding companies (as defined in 12
U.S.C. 1467a), foreign banking organizations (as defined in 12 CFR
211.21(o)), foreign banks that do not operate an insured branch, state
branch or state agency of a foreign bank (as defined in 12 U.S.C.
3101(11) and (12)), Edge or agreement corporations (as defined in 12
CFR 211.1(c)(2) and (3)), and bank service providers.
The new or revised information collection requirements in the final
rule are as follows:
Reporting Requirements
Section __.14(b)(1) Request for confirmation of eligibility. A bank
may request that the Board, FDIC, or OCC, confirm, in the format
prescribed by that agency, that a loan, investment, or service is
eligible for community development consideration.
Section __.26 Bank request for designation as a limited purpose
bank. Banks requesting a designation as a limited purpose bank must
file a request in writing with the appropriate Federal financial
supervisory agency at least 90 days prior to the proposed effective
date of the designation.
Section __.27 Strategic plan. Any bank may have its record of
helping meet the credit needs of its entire community evaluated under a
strategic plan, provided the appropriate Federal financial supervisory
agency has approved the plan, the plan is in effect, and the bank has
been operating under an approved plan for at least one year. Section
__.27 of the final rule sets forth the requirements for strategic
plans, including the term of a plan; the treatment of multiple
assessment areas; the treatment of operations subsidiaries or operating
subsidiaries, as applicable, and affiliates that are not operations
subsidiaries or operating subsidiaries; justification requirements;
public participation; submission; content; and required amendments due
to a change in material circumstances. Additionally, during the term of
a plan, a bank could request that the appropriate Federal financial
supervisory agency approve an amendment to the plan in the absence of a
change in material circumstances. A bank that requests such an
amendment must provide an explanation regarding why it is necessary and
appropriate to amend its plan goals.
Section __.42(b)(1) Small business loan and small farm loan data. A
large bank must report annually by April 1 in prescribed electronic
form, certain aggregate data for the prior calendar year for small
business loans or small farm loans for each census tract in which the
bank originated or purchased such loans.
Section __.42(b)(2) Community development loans and community
development investments data. A large bank and a limited purpose bank
that would be a large bank based on the asset size described in the
definition of a
[[Page 7100]]
large bank, must report annually by April 1 in prescribed electronic
form the following community development loan and community development
investment data for the prior calendar year: general information on
community development loans and community development investments;
specific information on the community development loan or investment;
indicators of the impact and responsiveness of the loan or investment;
allocation of the dollar volume of the community development loan or
community development investment to geographic areas served by the loan
or investment; location information; other information relevant to
determining that an activity meets the standards under community
development; and allocation of dollar value of activity to counties
served by the community development activity (if available).
Section __.42(b)(3) Deposits data. A large bank with assets greater
than $10 billion must report annually by April 1 in prescribed
electronic form deposits data for the previous calendar year including
for each county, State, and multistate MSA and for the institution
overall. The reporting includes the average annual deposit balances
(calculated based on average daily balances as provided in statements
such as monthly or quarterly statements, as applicable), in aggregate,
of deposit accounts with associated addresses located in such county,
State or multistate MSA where available, and for the institution
overall. Any other bank that opts to collect and maintain deposits data
must report these data in the same form and for the same duration as
described in this paragraph. A bank that reports deposits data for
which a deposit location is not available must report these deposits at
the nationwide area.
Section __.42(c) Data on operations subsidiaries or operating
subsidiaries. To the extent that its operations subsidiaries, or
operating subsidiaries, as applicable, engage in retail banking
services, retail banking products, community development lending,
community development investments, or community development services, a
bank must collect, maintain, and report data for these activities for
purposes of evaluating the bank's performance. For home mortgage loans,
a bank must be prepared to identify the loans reported by the
operations subsidiary, or operating subsidiary, under 12 CFR part 1003,
if applicable, or collect and maintain home mortgage loans by the
operations subsidiary or operating subsidiary that the bank would have
collected and maintained under Sec. __.42(a)(3) had the loans been
originated or purchased by the bank.
Section __.42(d) Data on other affiliates. A bank that elects to
have retail banking services, retail banking products, community
development lending, community development investments, or community
development services engaged in by an affiliate (that is not an
operations subsidiary or operating subsidiary) considered for purposes
of this part must collect, maintain, and report the loans and
investments, services, or products the bank would have collected,
maintained, and reported under Sec. __.42(a) and (b) had the loans,
investments, services, or products been engaged in by the bank. For
home mortgage loans, the bank must be prepared to identify the home
mortgage loans reported by its affiliate under 12 CFR part 1003, if
applicable, or collect and maintain home mortgage loans by the
affiliate that the bank would have collected and maintained under Sec.
__.42(a)(3) had the loans been originated or purchased by the bank.
Section __.42(e) Data on community development loans and community
development investments by a consortium or a third party. A bank that
elects to have community development loans and community development
investments by a consortium or third party be considered for purposes
of this part must collect, maintain, and report the lending and
investments data they would have collected, maintained, and reported
under Sec. __.42(a)(5) and (b)(2) if the loans or investments had been
originated, purchased, refinanced, or renewed by the bank.
Section __.42(f)(1) Facility-based assessment areas. A large bank
and a limited purpose bank that would be a large bank based on the
asset size criteria described in the definition of a large bank must
collect and report by April 1 of each year a list of each facility-
based assessment area showing the States, MSAs, and counties that make
up each facility-based assessment area, as of December 31 of the prior
calendar year, or the last date the facility-based assessment area was
in effect, provided the facility-based assessment area was delineated
for at least six months of the prior calendar year.
Section __.42(f)(2) Retail lending assessment areas. A large bank
with one or more retail lending assessment area delineated pursuant to
Sec. __.17 must collect and report each year by April 1 a list of
retail lending assessment area showing the States, MSAs and counties in
the retail lending assessment area for the prior calendar year.
Recordkeeping Requirements
Section __.42(a)(1) Small business loans and small farm loans data.
A large bank must collect and maintain in prescribed electronic form,
until the completion of its next CRA examination in which the data are
evaluated, data on small business loans and small farm loans originated
or purchased by the bank during the evaluation period.
Section __.42(a)(2) Consumer loans data--automobile loans. A large
bank for which automobiles are a product line must collect and maintain
in prescribed electronic form, until the completion of the bank's next
CRA examination in which the data are evaluated, data on automobile
loans originated or purchased by the bank during the evaluation period.
A small or intermediate bank for which automobiles are a product line
may collect and maintain the same automobile loan data in a format of
the bank's choosing, including in an electronic form prescribed by the
appropriate Federal financial supervisory agency, until the completion
of the bank's next CRA examination in which the data are evaluated.
Section __.42(a)(3) Home mortgage loans. A large bank subject to 12
CFR part 1003 must collect and maintain in prescribed electronic form,
until the completion of the bank's next CRA examination in which the
data are evaluated, data on home mortgage loan applications,
originations, and purchases outside the MSAs in which the bank has a
home or branch office (or outside any MSA) pursuant to the requirements
in 12 CFR 1003.4(e). A large bank that is not subject to 12 CFR part
1003 due to the location of its branches, but would otherwise meet the
HMDA size and lending activity requirements pursuant to 12 CFR part
1003, must collect and maintain in electronic form, until the
completion of the bank's next CRA examination in which the data are
evaluated, data on closed-end home mortgage loan, excluding multifamily
loans, originated or purchased during the evaluation period.
Section __.42(a)(4) Retail banking services and retail banking
products data. A large bank must collect and maintain in prescribed
electronic form until the completion of its next CRA examination in
which the data are evaluated, data on their retail banking services and
retail banking products. These data include data regarding the bank's
main offices, branches, and
[[Page 7101]]
remote service facilities, and information with respect to retail
banking services and retail banking products offered and provided by
the bank during the evaluation period. Large banks with assets greater
than $10 billion, large banks with assets of less than or equal to $10
billion that do not operate any branches, and large banks that request
additional consideration for digital delivery systems and other
delivery systems, must collect and maintain data on the range of
services and products offered through those systems and digital and
other delivery systems activity by individuals, families, or households
in low-, moderate-, middle-, and upper-income census tracts. Large
banks may also submit any additional information not required that
demonstrates that their digital delivery systems and other delivery
systems serve the needs of low-and moderate-income individuals,
families, or households and low- and moderate-income census tracts.
Large banks with assets greater than $10 billion or large banks with
assets of less than or equal to $10 billion that request additional
consideration for deposit products responsive to the needs of low-and
moderate income individuals, families, or households must collect and
maintain data including the number of responsive deposit products
opened and closed in low-, moderate-, middle-, and upper-income census
tracts, as well as the percentage of responsive deposit accounts in
comparison to total deposit accounts. Pursuant to Sec. __.42(a)(4), a
bank may opt to collect and maintain additional data not required that
demonstrates that digital delivery systems and other delivery systems
serve low- and moderate-income individuals, families, or households and
low- and moderate-income census tracts and any other information that
demonstrates the availability and usage of the bank's deposit products
responsive to the needs of low- and moderate-income individuals,
families, or households and low- and moderate-income census tracts in a
format of the bank's own choosing.
Section __.42(a)(5) Community development loans and community
development investments data. A large bank, a limited purpose bank that
would be a large bank based on the asset size criteria described in the
definition of a large bank, and an intermediate bank that opts to be
evaluated under the Community Development Financing Test, must collect
and maintain until the completion of its next CRA examination in which
the data are evaluated, the following data for community development
loans and community development investments originated, purchased,
refinanced, renewed, or modified by the bank: general information on
community development loans and community development investments;
specific community development loan or investment information;
indicators of the impact and responsiveness of the loan or investment;
allocation of the dollar volume of the community development loan or
community development investment to geographic areas served by the loan
or investment; location information; and other information relevant to
determining that an activity meets the standards of a community
development loan or community development investment. Large banks must
collect and maintain this information in prescribed electronic form
while an intermediate bank that opts to be evaluated under the
Community Development Financing Test, must collect and maintain this
information in the format used by the bank in the normal course of
business.
Section __.42(a)(6) Community development services data. A large
bank must collect and maintain in a format of the bank's choosing or in
a standardized format provided by the agencies until the completion of
its next CRA examination in which the data are evaluated, community
development services data including community development services
information, indicators of the impact and responsiveness of the
activity, and location information.
Section __.42(a)(7) Deposits data. A large bank with assets greater
than $10 billion must collect and maintain annually in prescribed
electronic form until the completion of its next CRA examination in
which the data are evaluated, the dollar amount of its deposits at the
county level based on deposit location. The bank allocates the deposits
for which a deposit location is not available to the nationwide area.
Annual deposits must be calculated based on average daily balances as
provided in statements such as monthly or quarterly statements. Any
other bank that opts to collect and maintain deposits data must collect
and maintain the data in the same form and for the same duration as
described in this paragraph in prescribed electronic form, until the
completion of the bank's next CRA examination in which the data are
evaluated.
Disclosure Requirements
Sections __.43 and __.44. Content and availability of public file
and public notice by banks. Banks must maintain a public file, in
either paper or digital format, that includes the information
prescribed in each part. Banks are required to provide copies on
request, either on paper or in another form acceptable to the person
making the request, of the information in the bank's public file. A
bank is also required to provide in the public area of its main office
and branches the public notice set forth in appendix F.
The totality of the information collection requirements under the
final rule are summarized below:
[[Page 7102]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.059
[[Page 7103]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.060
[[Page 7104]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.061
[[Page 7105]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.062
[[Page 7106]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.063
FDIC
The total estimated annual burden for OMB No. 3064-0092 is 234,974
hours, an increase of 3,392 hours from the most recent PRA
renewal.\1641\
---------------------------------------------------------------------------
\1641\ See FDIC Community Reinvestment Act Information
Collection Request, OMB No. 3064-0092, https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202204-3064-001.
---------------------------------------------------------------------------
OCC
The total estimated annual burden for OMB No. 1557-0160 is 130,891
hours, an increase of 17,540 hours from the most recent PRA
renewal.\1642\
---------------------------------------------------------------------------
\1642\ See OCC Community Reinvestment Act Information Collection
Request, OMB No. 1557-0160, https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202202-1557-003.
---------------------------------------------------------------------------
Board
The total estimated annual burden for OMB No. 7100-0197 is 105,455
hours, an increase of 30,339 hours from the most recent PRA
renewal.\1643\
---------------------------------------------------------------------------
\1643\ See Board Community Reinvestment Act Information
Collection Request, OMB No. 7100-0197, https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202104-7100-002.
---------------------------------------------------------------------------
Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) (2
U.S.C. 1532) requires an agency to prepare a budgetary impact statement
before promulgating a final rule that includes any Federal mandate that
may result in the expenditure by State, local, and tribal governments,
in the aggregate, or by the private sector, of $100 million or more
(adjusted annually for inflation and currently $182 million) in any one
year. If a budgetary impact statement is required, section 205 of the
UMRA (2 U.S.C. 1535) also requires an agency to identify and consider a
reasonable number of regulatory alternatives before promulgating a
rule.
For the final rule, the OCC estimates that expenditures to comply
with mandates during the first 12-month period of the final rule's
implementation will be approximately $91.8 million (approximately $7.9
million associated with increased data collection, recordkeeping or
reporting; $82 million for large banks to collect, maintain, and report
annually geographic data on deposits; and $1.9 million for banks'
strategic plan submissions).\1644\ Therefore, the OCC concludes that
the final rule will not result in an expenditure by State, local, and
tribal governments, in the aggregate, or by the private sector of $100
million or more annually (adjusted for inflation and currently $182
annually) in any one year. Accordingly, the OCC has not prepared the
budgetary impact statement.
---------------------------------------------------------------------------
\1644\ Several commenters addressed the OCC's UMRA analysis of
the proposed rule. Some of these commenters stated that the agency
underestimated burden of the proposed rule, and others noted that
the OCC provided insufficient information about its actual
calculations. In drafting the final rule, the OCC considered these
comments and made changes from the proposal where appropriate.
---------------------------------------------------------------------------
Riegle Community Development and Regulatory Improvement Act of 1994
Pursuant to section 302(a) of the Riegle Community Development and
Regulatory Improvement Act of 1994 (RCDRIA) (12 U.S.C. 4802(a)), in
determining the effective date and administrative compliance
requirements for new regulations that impose additional reporting,
disclosure, or other requirements on insured depository institutions,
an agency must consider,
[[Page 7107]]
consistent with principles of safety and soundness and the public
interest: (1) any administrative burdens that the rule will place on
depository institutions, including small depository institutions and
customers of depository institutions; and (2) the benefits of the rule.
The final rule will impose additional reporting, disclosure, or
other requirements on banks, and the agencies determined the final
rule's effective date and administrative compliance requirements in
accordance with 12 U.S.C. 4802(a). Specifically, the agencies have
considered the changes made by this final rule and believe that the
rule's effective and applicability dates, described in the section-by-
section analysis, will provide banks with adequate time to comply with
the rule's requirements. The agencies also have considered the
administrative burden of the final rule's administrative compliance by
tailoring the final rule's performance standards based on bank size so
that the new performance tests only apply to those banks with the
greatest capacity to meet the rule's requirements and lend to their
communities. For example, under the final rule, the agencies will
continue to evaluate small banks under the small bank performance
standards in the current CRA framework and to evaluate the community
development performance of intermediate banks as under the current
rule. Further, the final rule does not impose any new data requirements
on small and intermediate banks. Further discussion of the
consideration by the agencies of these administrative compliance
requirements, and of the public comment received on these requirements
as proposed, is found in the section-by-section discussion of the final
rule in this SUPPLEMENTARY INFORMATION.
Section 302(b) of RCDRIA (12 U.S.C. 4802(b)) provides that new
regulations and amendments to regulations prescribed by a Federal
banking agency which impose additional reporting, disclosures, or other
new requirements on insured depository institutions must generally take
effect on the first day of a calendar quarter which begins on or after
the date on which the regulations are published in final form.
Consistent with this requirement, this final rule will be effective on
April 1, 2024, which is the first date of a calendar quarter.
Administrative Procedure Act
Section 553(d) of the Administrative Procedure Act (APA) (5 U.S.C.
553(d)) requires that publication or service of a substantive rule
generally be made not less than 30 days before its effective date.
Consistent with this requirement, this final rule will be effective on
April 1, 2024, which is more than 30 days after the final rule's
publication in the Federal Register.
Plain Language
Section 722(a) of the Gramm-Leach-Bliley Act (12 U.S.C. 4809(a))
requires each Federal banking agency to use plain language in its
proposed and final rulemakings. In the proposed rule the agencies
invited but did not receive comments on their use of plain language. In
this final rule, the agencies use plain language.
Congressional Review Act
For purposes of the Congressional Review Act (5 U.S.C. 801 et
seq.), the OMB makes a determination as to whether a final rule
constitutes a ``major rule.'' If a rule is deemed a ``major rule'' by
the OMB, the Congressional Review Act generally provides that the rule
may not take effect until at least 60 days following its publication.
The Congressional Review Act defines a ``major rule'' as any rule that
the Administrator of the Office of Information and Regulatory Affairs
of the OMB finds has resulted in or is likely to result in--(1) an
annual effect on the economy of $100 million or more; (2) a major
increase in costs or prices for consumers, individual industries,
Federal, State, or local government agencies or geographic regions; or
(3) significant adverse effects on competition, employment, investment,
productivity, innovation, or on the ability of United States-based
enterprises to compete with foreign-based enterprises in domestic and
export markets.\1645\ The agencies have submitted the final rule to the
OMB for this major rule determination and the OMB has determined the
final rule to be a major rule. As required by the Congressional Review
Act, the agencies are submitting the appropriate report to Congress and
the Government Accountability Office for review.\1646\
---------------------------------------------------------------------------
\1645\ See 5 U.S.C. 804(2).
\1646\ See 5 U.S.C. 801(a)(1).
---------------------------------------------------------------------------
Text of Common Rule (All Agencies)
0
The text of the agencies' common rule text appears below:
PART ____COMMUNITY REINVESTMENT
Subpart A--General
Sec.
__.11 Authority, purposes, and scope.
__.12 Definitions.
__.13 Consideration of community development loans, community
development investments, and community development services.
__.14 Community development illustrative list; Confirmation of
eligibility.
__.15 Impact and responsiveness review of community development
loans, community development investments, and community development
services.
Subpart B--Geographic Considerations
__.16 Facility-based assessment areas.
__.17 Retail lending assessment areas.
__.18 Outside retail lending areas.
__.19 Areas for eligible community development loans, community
development investments, and community development services.
__.20 [Reserved]
Subpart C--Standards for Assessing Performance
__.21 Evaluation of CRA performance in general.
__.22 Retail lending test.
__.23 Retail services and products test.
__.24 Community development financing test.
__.25 Community development services test.
__.26 Limited purpose banks.
__.27 Strategic plan.
__.28 Assigned conclusions and ratings.
__.29 Small bank performance evaluation.
__.30 Intermediate bank performance evaluation.
__.31 [Reserved]
Subpart D--Records, Reporting, Disclosure, and Public Engagement
Requirements
__.42 Data collection, reporting, and disclosure.
__.43 Content and availability of public file.
__.44 Public notice by banks.
__.45 Publication of planned examination schedule.
__.46 Public engagement.
Subpart E--Transition Rules
__.51 Applicability dates and transition provisions.
Appendix A to Part _-- Calculations for the Retail Lending Test
Appendix B to Part _-- Calculations for the Community Development
Tests
Appendix C to Part _-- Performance Test Conclusions
Appendix D to Part _-- Ratings
Appendix E to Part _-- Small Bank and Intermediate Bank Performance
Evaluation Conclusions and Ratings
Appendix F to Part _-- [Reserved]
PART ____COMMUNITY REINVESTMENT
Subpart A--General
Sec. __.11 Authority, purposes, and scope.
(a) [Reserved]
(b) Purposes. This part implements the requirement in the Community
Reinvestment Act (12 U.S.C. 2901 et
[[Page 7108]]
seq.) (CRA) that the [Agency] assess a bank's record of helping to meet
the credit needs of the local communities in which the bank is
chartered, consistent with the safe and sound operation of the bank,
and to take this record into account in the agency's evaluation of an
application for a deposit facility by the bank. Accordingly, this part:
(1) Establishes the framework and criteria by which the [Agency]
assesses a bank's record of responding to the credit needs of its
entire community, including low- and moderate-income neighborhoods,
consistent with the safe and sound operation of the bank; and
(2) Provides that the [Agency] takes that record into account in
considering certain applications.
(c) [Reserved]
Sec. __.12 Definitions.
For purposes of this part, the following definitions apply:
Affiliate means any company that controls, is controlled by, or is
under common control with another company. The term ``control'' has the
same meaning given to that term in 12 U.S.C. 1841(a)(2), and a company
is under common control with another company if both companies are
directly or indirectly controlled by the same company.
Affordable housing means activities described in Sec. __.13(b).
Area median income means:
(1) The median family income for the MSA (as defined in this
section), if an individual, family, household, or census tract is
located in an MSA that has not been subdivided into metropolitan
divisions, or for the metropolitan division, if an individual, family,
household, or census tract is located in an MSA that has been
subdivided into metropolitan divisions; or
(2) The statewide nonmetropolitan median family income, if an
individual, family, household, or census tract is located in a
nonmetropolitan area.
Assets means a bank's total assets as reported in Schedule RC of
the Consolidated Reports of Condition and Income as filed under 12
U.S.C. 161, 324, 1464, or 1817, as applicable (Call Report), or
Schedule RAL of the Report of Assets and Liabilities of U.S. Branches
and Agencies of Foreign Banks as filed under 12 U.S.C. 1817(a),
3102(b), or 3105(c)(2), as applicable.
Branch means a staffed banking facility, whether shared or
unshared, that the [Agency] approved or authorized as a branch and that
is open to, and accepts deposits from, the general public.
Census tract means a census tract delineated by the U.S. Census
Bureau.
Closed-end home mortgage loan has the same meaning given to the
term ``closed-end mortgage loan'' in 12 CFR 1003.2, excluding loan
transactions set forth in 12 CFR 1003.3(c)(1) through (10) and (13) and
multifamily loans as defined in this section.
Combination of loan dollars and loan count means, when applied to a
particular ratio, the average of:
(1) The ratio calculated using loans measured in dollar volume; and
(2) The ratio calculated using loans measured in number of loans.
Community development means activities described in Sec. __.13(b)
through (l).
Community Development Financial Institution (CDFI) means an entity
that satisfies the definition in section 103(5)(A) of the Community
Development Banking and Financial Institutions Act of 1994 (12 U.S.C.
4702(5)) and is certified by the U.S. Department of the Treasury's
Community Development Financial Institutions Fund as meeting the
requirements set forth in 12 CFR 1805.201(b).
Community development investment means a lawful investment,
including a legally binding commitment to invest, that is reported on
Schedule RC-L of the Call Report or on Schedule L of the Report of
Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks,
as applicable; deposit; membership share; grant; or monetary or in-kind
donation that supports community development, as described in Sec.
__.13.
Community development loan means a loan, including a legally
binding commitment to extend credit, such as a standby letter of
credit, that supports community development, as described in Sec.
__.13. A community development loan does not include any home mortgage
loan considered under the Retail Lending Test in Sec. __.22, with the
exception of one-to-four family home mortgage loans for rental housing
with affordable rents in nonmetropolitan areas under Sec. __.13(b)(3).
Community development services means the performance of volunteer
services by a bank's or its affiliate's board members or employees,
performed on behalf of the bank, where those services:
(1) Support community development, as described in Sec. __.13; and
(2) Are related to the provision of financial services, which
include credit, deposit, and other personal and business financial
services, or services that reflect a board member's or an employee's
expertise at the bank or affiliate, such as human resources,
information technology, and legal services.
Consumer loan means a loan to one or more individuals for
household, family, or other personal expenditures and that is one of
the following types of loans:
(1) Automobile loan, as reported in Schedule RC-C of the Call
Report;
(2) Credit card loan, as reported as ``credit card'' in Schedule
RC-C of the Call Report;
(3) Other revolving credit plan, as reported in Schedule RC-C of
the Call Report; and
(4) Other consumer loan, as reported in Schedule RC-C of the Call
Report.
County means any county, county equivalent, or statistically
equivalent entity as used by the U.S. Census Bureau pursuant to title
13 of the U.S. Code.
Deposit location means:
(1) For banks that collect, maintain, and report deposits data as
provided in Sec. __.42, the address on file with the bank for purposes
of the Customer Identification Program required by 31 CFR 1020.220 or
another documented address at which the depositor resides or is
located.
(2) For banks that do not collect, maintain, and report deposits
data as provided in Sec. __.42, the county of the bank facility to
which the deposits are assigned in the FDIC's Summary of Deposits.
Depository institution means any institution subject to the CRA, as
described in 12 CFR 25.11, 228.11, and 345.11.
Deposits has the following meanings:
(1) For banks that collect, maintain, and report deposits data as
provided in Sec. __.42, deposits means deposits in domestic offices of
individuals, partnerships, and corporations, and of commercial banks
and other depository institutions in the United States as defined in
Schedule RC-E of the Call Report; deposits does not include U.S.
Government deposits, State and local government deposits, domestically
held deposits of foreign governments or official institutions, or
domestically held deposits of foreign banks or other foreign financial
institutions; and
(2) For banks that do not collect, maintain, and report deposits
data as provided in Sec. __.42, deposits means a bank's deposits as
reported in the FDIC's Summary of Deposits as required under 12 CFR
304.3(c).
Digital delivery system means a channel through which banks offer
retail banking services electronically, such as online banking or
mobile banking.
[[Page 7109]]
Distressed or underserved nonmetropolitan middle-income census
tract means a census tract publicly designated as such by the Board of
Governors of the Federal Reserve System (Board), the Federal Deposit
Insurance Corporation (FDIC), and the Office of the Comptroller of the
Currency (OCC), based on the criteria in paragraphs (1) and (2) of this
definition, compiled in a list, and published annually by the Federal
Financial Institutions Examination Council (FFIEC).
(1) A nonmetropolitan middle-income census tract is designated as
distressed if it is in a county that meets one or more of the following
criteria:
(i) An unemployment rate of at least 1.5 times the national
average;
(ii) A poverty rate of 20 percent or more; or
(iii) A population loss of 10 percent or more between the previous
and most recent decennial census or a net population loss of five
percent or more over the five-year period preceding the most recent
census.
(2) A nonmetropolitan middle-income census tract is designated as
underserved if it meets the criteria for population size, density, and
dispersion that indicate the area's population is sufficiently small,
thin, and distant from a population center that the census tract is
likely to have difficulty financing the fixed costs of meeting
essential community needs. The criteria for these designations are
based on the Urban Influence Codes established by the U.S. Department
of Agriculture's Economic Research Service numbered ``7,'' ``10,''
``11,'' or ``12.''
Evaluation period means the period, generally in calendar years,
during which a bank conducted the activities that the [Agency]
evaluates in a CRA examination, in accordance with the [Agency]'s
guidelines and procedures.
Facility-based assessment area means a geographic area delineated
pursuant to Sec. __.16.
High Opportunity Area means an area identified by the Federal
Housing Finance Agency for purposes of the Duty to Serve Underserved
Markets regulation in 12 CFR part 1282, subpart C.
Home mortgage loan means a closed-end home mortgage loan or an
open-end home mortgage loan as these terms are defined in this section.
Income level includes:
(1) Low-income, which means:
(i) For individuals, families, or households, income that is less
than 50 percent of the area median income; or
(ii) For a census tract, a median family income that is less than
50 percent of the area median income.
(2) Moderate-income, which means:
(i) For individuals, families, or households, income that is at
least 50 percent and less than 80 percent of the area median income; or
(ii) For a census tract, a median family income that is at least 50
percent and less than 80 percent of the area median income.
(3) Middle-income, which means:
(i) For individuals, families, or households, income that is at
least 80 percent and less than 120 percent of the area median income;
or
(ii) For a census tract, a median family income that is at least 80
percent and less than 120 percent of the area median income.
(4) Upper-income, which means:
(i) For individuals, families, or households, income that is 120
percent or more of the area median income; or
(ii) For a census tract, a median family income that is 120 percent
or more of the area median income.
Intermediate bank means a bank, excluding a bank designated as a
limited purpose bank pursuant to Sec. __.26, that had assets of at
least $600 million as of December 31 in both of the prior two calendar
years and less than $2 billion as of December 31 in either of the prior
two calendar years. The [Agency] adjusts and publishes the figures in
this definition annually, based on the year-to-year change in the
average of the Consumer Price Index for Urban Wage Earners and Clerical
Workers, not seasonally adjusted, for each 12-month period ending in
November, with rounding to the nearest million.
Large bank means a bank, excluding a bank designated as a limited
purpose bank pursuant to Sec. __.26, that had assets of at least $2
billion as of December 31 in both of the prior two calendar years. The
[Agency] adjusts and publishes the figure in this definition annually,
based on the year-to-year change in the average of the Consumer Price
Index for Urban Wage Earners and Clerical Workers, not seasonally
adjusted, for each 12-month period ending in November, with rounding to
the nearest million.
Large depository institution means any depository institution,
excluding depository institutions designated as limited purpose banks
or savings associations pursuant to 12 CFR 25.26(a) and depository
institutions designated as limited purpose banks pursuant to 12 CFR
228.26(a) or 345.26(a), that meets the asset size threshold of a large
bank.
Limited purpose bank means a bank that is not in the business of
extending closed-end home mortgage loans, small business loans, small
farm loans, or automobile loans evaluated under Sec. __.22 to retail
customers, except on an incidental and accommodation basis, and for
which a designation as a limited purpose bank is in effect, pursuant to
Sec. __.26.
Loan location. A loan is located as follows:
(1) A consumer loan is located in the census tract where the
borrower resides at the time that the borrower submits the loan
application;
(2) A home mortgage loan or a multifamily loan is located in the
census tract where the property securing the loan is located; and
(3) A small business loan or small farm loan is located in the
census tract where the main business facility or farm is located or
where the borrower will otherwise apply the loan proceeds, as indicated
by the borrower.
Low-cost education loan means any private education loan, as
defined in section 140(a)(7) of the Truth in Lending Act (15 U.S.C.
1650(a)(8)) (including a loan under a State or local education loan
program), originated by the bank for a student at an ``institution of
higher education,'' as generally defined in sections 101 and 102 of the
Higher Education Act of 1965 (20 U.S.C. 1001 and 1002), implemented in
34 CFR part 600, with interest rates and fees no greater than those of
comparable education loans offered directly by the U.S. Department of
Education. Such rates and fees are specified in section 455 of the
Higher Education Act of 1965 (20 U.S.C. 1087e).
Low-income credit union (LICU) has the same meaning given to that
term in 12 CFR 701.34.
Low-Income Housing Tax Credit (LIHTC) means a Federal tax credit
for housing persons of low income pursuant to section 42 of the
Internal Revenue Code of 1986 (26 U.S.C. 42).
Major product line means a product line that the [Agency] evaluates
in a particular Retail Lending Test Area, pursuant to Sec. __.22(d)(2)
and paragraphs II.b.1 and II.b.2 of appendix A to this part.
Majority automobile lender means a bank for which more than 50
percent of its home mortgage loans, multifamily loans, small business
loans, small farm loans, and automobile loans were automobile loans, as
determined pursuant to paragraph II.b.3 of appendix A to this part.
Metropolitan area means any MSA.
Metropolitan division has the same meaning as that term is defined
by the Director of the Office of Management and Budget.
[[Page 7110]]
Military bank means a bank whose business predominantly consists of
serving the needs of military personnel who serve or have served in the
U.S. Armed Forces (including the U.S. Air Force, U.S. Army, U.S. Coast
Guard, U.S. Marine Corps, U.S. Navy, and U.S. Space Force) or their
dependents. A bank whose business predominantly consists of serving the
needs of military personnel or their dependents means a bank whose most
important customer group is military personnel or their dependents.
Minority depository institution (MDI) means:
(1) For purposes of activities conducted pursuant to 12 U.S.C.
2907(a), ``minority depository institution'' as defined in 12 U.S.C.
2907(b)(1); and
(2) For all other purposes:
(i) ``Minority depository institution'' as defined in 12 U.S.C.
2907(b)(1);
(ii) ``Minority depository institution'' as defined in section 308
of the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 (FIRREA) (12 U.S.C. 1463 note); or
(iii) A depository institution considered to be a minority
depository institution by the appropriate Federal banking agency. For
purposes of this paragraph (2)(iii), ``appropriate Federal banking
agency'' has the meaning given to it in 12 U.S.C. 1813(q).
Mission-driven nonprofit organization means an organization
described in section 501(c)(3) of the Internal Revenue Code of 1986 (26
U.S.C. 501(c)(3)) and exempt from taxation under section 501(a) of the
Internal Revenue Code that benefits or serves primarily low- or
moderate-income individuals or communities, small businesses, or small
farms.
MSA means a metropolitan statistical area delineated by the
Director of the Office of Management and Budget, pursuant to 44 U.S.C.
3504(e)(3) and (10), 31 U.S.C. 1104(d), and Executive Order 10253 (June
11, 1951).
Multifamily loan means an extension of credit that is secured by a
lien on a ``multifamily dwelling'' as defined in 12 CFR 1003.2.
Multistate MSA means an MSA that crosses a State boundary.
Nationwide area means the entire United States and its territories.
Native Land Area means:
(1) All land within the limits of any Indian reservation under the
jurisdiction of the United States, as described in 18 U.S.C. 1151(a);
(2) All dependent Indian communities within the borders of the
United States whether within the original or subsequently acquired
territory thereof, and whether within or without the limits of a State,
as described in 18 U.S.C. 1151(b);
(3) All Indian allotments, the Indian titles to which have not been
extinguished, including rights-of-way running through the same, as
defined in 18 U.S.C. 1151(c);
(4) Any land held in trust by the United States for tribes or
Native Americans or tribally-held restricted fee land;
(5) Reservations established by a State government for a tribe or
tribes recognized by the State;
(6) Any Native village, as defined in 43 U.S.C. 1602(c), in Alaska;
(7) Lands that have the status of Hawaiian Home Lands as defined in
section 204 of the Hawaiian Homes Commission Act, 1920 (42 Stat. 108),
as amended;
(8) Areas defined by the U.S. Census Bureau as Alaska Native
Village Statistical Areas, Oklahoma Tribal Statistical Areas, Tribal-
Designated Statistical Areas, or American Indian Joint-Use Areas; and
(9) Land areas of State-recognized Indian tribes and heritage
groups that are defined and recognized by individual States and
included in the U.S. Census Bureau's annual Boundary and Annexation
Survey.
New Markets Tax Credit (NMTC) means a Federal tax credit pursuant
to section 45D of the Internal Revenue Code of 1986 (26 U.S.C. 45D).
Nonmetropolitan area means any area that is not located in an MSA.
Open-end home mortgage loan has the same meaning as given to the
term ``open-end line of credit'' in 12 CFR 1003.2, excluding loan
transactions set forth in 12 CFR 1003.3(c)(1) through (10) and (13) and
multifamily loans as defined in this section.
Other delivery system means a channel, other than branches, remote
services facilities, or digital delivery systems, through which banks
offer retail banking services.
Outside retail lending area means the geographic area delineated
pursuant to Sec. __.18.
Persistent poverty county means a county that has had poverty rates
of 20 percent or more for 30 years, as publicly designated by the
Board, FDIC, and OCC, compiled in a list, and published annually by the
FFIEC.
Product line means a bank's loans in one of the following, separate
categories in a particular Retail Lending Test Area:
(1) Closed-end home mortgage loans;
(2) Small business loans;
(3) Small farm loans; and
(4) Automobile loans, if a bank is a majority automobile lender or
opts to have its automobile loans evaluated pursuant to Sec. __.22.
Remote service facility means an automated, virtually staffed, or
unstaffed banking facility owned or operated by, or operated
exclusively for, a bank, such as an automated teller machine (ATM),
interactive teller machine, cash dispensing machine, or other remote
electronic facility, that is open to the general public and at which
deposits are accepted, cash dispersed, or money lent.
Reported loan means:
(1) A home mortgage loan or a multifamily loan reported by a bank
pursuant to the Home Mortgage Disclosure Act, as implemented by 12 CFR
part 1003; or
(2) A small business loan or a small farm loan reported by a bank
pursuant to Sec. __.42.
Retail banking products means credit and deposit products or
programs that facilitate a lending or depository relationship between
the bank and consumers, small businesses, or small farms.
Retail banking services means retail financial services provided by
a bank to consumers, small businesses, or small farms and include a
bank's systems for delivering retail financial services.
Retail lending assessment area means a geographic area delineated
pursuant to Sec. __.17.
Retail Lending Test Area means a facility-based assessment area, a
retail lending assessment area, or an outside retail lending area.
Small bank means a bank, excluding a bank designated as a limited
purpose bank pursuant to Sec. __.26, that had assets of less than $600
million as of December 31 in either of the prior two calendar years.
The [Agency] adjusts and publishes the dollar figure in this definition
annually based on the year-to-year change in the average of the
Consumer Price Index for Urban Wage Earners and Clerical Workers, not
seasonally adjusted, for each 12-month period ending in November, with
rounding to the nearest million.
Small business means a business, other than a farm, that had gross
annual revenues for its preceding fiscal year of $5 million or less.
Small business loan means, notwithstanding the definition of
``small business'' in this section, a loan included in ``loans to small
businesses'' as reported in Schedule RC-C of the Call Report.
Small farm means a farm that had gross annual revenues for its
preceding fiscal year of $5 million or less.
Small farm loan means, notwithstanding the definition of ``small
[[Page 7111]]
farm'' in this section, a loan included in ``loans to small farms'' as
reported in Schedule RC-C of the Call Report.
State means a U.S. State or territory, and includes the District of
Columbia.
Targeted census tract means:
(1) A low-income census tract or a moderate-income census tract; or
(2) A distressed or underserved nonmetropolitan middle-income
census tract.
Tribal government means the recognized governing body of any Indian
or Alaska Native tribe, band, nation, pueblo, village, community,
component band, or component reservation, individually identified
(including parenthetically) in the list most recently published
pursuant to section 104 of the Federally Recognized Indian Tribe List
Act of 1994 (25 U.S.C. 5131).
Women's depository institution (WDI) means ``women's depository
institution'' as defined in 12 U.S.C. 2907(b)(2).
Sec. __.13 Consideration of community development loans, community
development investments, and community development services.
As provided in paragraph (a) of this section, a bank may receive
consideration for a loan, investment, or service that supports
community development as described in paragraphs (b) through (l) of
this section.
(a) Full and partial credit for community development loans,
community development investments, and community development services--
(1) Full credit. A bank will receive credit for its entire loan,
investment, or service if it meets the majority standard in paragraph
(a)(1)(i) of this section; meets the bona fide intent standard in
paragraph (a)(1)(ii) of this section; involves an MDI, WDI, LICU, or
CDFI as provided in paragraph (a)(1)(iii) of this section; or involves
a LIHTC as provided in paragraph (a)(1)(iv) of this section.
(i) Majority standard. A loan, investment, or service meets the
majority standard if:
(A) The loan, investment, or service supports community development
under one or more of paragraphs (b) through (l) of this section; and
(B)(1) For loans, investments, or services supporting community
development under paragraphs (b)(1) through (3) of this section, the
majority of the housing units are affordable to low- or moderate-income
individuals, families, or households;
(2) For loans, investments, or services supporting community
development under paragraphs (b)(4) and (5) and (d) of this section,
the majority of the beneficiaries are, or the majority of dollars
benefit or serve, low- or moderate-income individuals, families, or
households;
(3) For loans, investments, or services supporting community
development under paragraph (c) of this section, the majority of the
beneficiaries are, or the majority of dollars benefit or serve, small
businesses or small farms;
(4) For loans, investments, or services supporting community
development under paragraphs (e), (f), (g), and (i) of this section,
the majority of the beneficiaries are, or the majority of dollars
benefit or serve, residents of targeted census tracts;
(5) For loans, investments, or services supporting community
development under paragraph (h) of this section, the majority of the
beneficiaries are, or the majority of dollars benefit or serve,
residents of designated disaster areas;
(6) For loans, investments, or services supporting community
development under paragraph (j) of this section, the majority of the
beneficiaries are, or the majority of dollars benefit or serve,
residents of Native Land Areas; or
(7) For loans, investments, or services supporting community
development under paragraph (l) of this section, the loan, investment,
or service primarily supports community development under paragraph (l)
of this section.
(ii) Bona fide intent standard. A loan, investment, or service
meets the bona fide intent standard if:
(A) The housing units, beneficiaries, or proportion of dollars
necessary to meet the majority standard are not reasonably quantifiable
pursuant to paragraph (a)(1)(i) of this section;
(B) The loan, investment, or service has the express, bona fide
intent of community development under one or more of paragraphs (b)
through (l) of this section; and
(C) The loan, investment, or service is specifically structured to
achieve community development under one or more of paragraphs (b)
through (l) of this section.
(iii) MDI, WDI, LICU, or CDFI. The loan, investment, or service
supports community development under paragraph (k) of this section.
(iv) LIHTC. The loan, investment, or service supports LIHTC-
financed affordable housing under paragraph (b)(1) of this section.
(2) Partial credit. If a loan, investment, or service supporting
affordable housing under paragraph (b)(1) of this section does not meet
the majority standard under paragraph (a)(1)(i) of this section, a bank
will receive partial credit for the loan, investment, or service in
proportion to the percentage of total housing units in any development
that are affordable to low- or moderate-income individuals.
(b) Affordable housing. Affordable housing comprises the following:
(1) Rental housing in conjunction with a government affordable
housing plan, program, initiative, tax credit, or subsidy. Rental
housing for low- or moderate-income individuals purchased, developed,
financed, rehabilitated, improved, or preserved in conjunction with a
Federal, State, local, or tribal government affordable housing plan,
program, initiative, tax credit, or subsidy.
(2) Multifamily rental housing with affordable rents. Multifamily
rental housing purchased, developed, financed, rehabilitated, improved,
or preserved if:
(i) For the majority of units, the monthly rent as underwritten by
the bank, reflecting post-construction or post-renovation changes as
applicable, does not exceed 30 percent of 80 percent of the area median
income; and
(ii) One or more of the following additional criteria are met:
(A) The housing is located in a low- or moderate-income census
tract;
(B) The housing is located in a census tract in which the median
income of renters is low- or moderate-income and the median rent does
not exceed 30 percent of 80 percent of the area median income;
(C) The housing is purchased, developed, financed, rehabilitated,
improved, or preserved by any nonprofit organization with a stated
mission of, or that otherwise directly supports, providing affordable
housing; or
(D) The bank provides documentation that a majority of the housing
units are occupied by low- or moderate-income individuals, families, or
households.
(3) One-to-four family rental housing with affordable rents in a
nonmetropolitan area. One-to-four family rental housing purchased,
developed, financed, rehabilitated, improved, or preserved in a
nonmetropolitan area that meets the criteria in paragraph (b)(2) of
this section.
(4) Affordable owner-occupied housing for low- or moderate-income
individuals. Assistance for low- or moderate-income individuals to
obtain, maintain, rehabilitate, or improve affordable owner-occupied
housing, excluding loans by a bank directly to one or more owner-
occupants of such housing.
(5) Mortgage-backed securities. Purchases of mortgage-backed
securities where a majority of the underlying loans
[[Page 7112]]
are not loans that the bank originated or purchased and:
(i) Are home mortgage loans made to low- or moderate-income
individuals; or
(ii) Are loans that finance multifamily affordable housing that
meets the requirements of paragraph (b)(1) of this section.
(c) Economic development. Economic development comprises:
(1) Government-related support for small businesses and small
farms. Loans, investments, and services undertaken in conjunction or in
syndication with Federal, State, local, or tribal government plans,
programs, or initiatives that support small businesses or small farms,
as follows:
(i) Loans, investments, and services other than direct loans to
small businesses and small farms. Loans, investments, and services that
support small businesses or small farms in accordance with how small
businesses and small farms are defined in the applicable plan, program,
or initiative, but excluding loans by a bank directly to small
businesses or small farms (either as defined in a government plan,
program, or initiative or in Sec. __.12). If the government plan,
program, or initiative does not identify a standard for the size of the
small businesses or small farms supported by the plan, program, or
initiative, the small businesses or small farms supported must meet the
definition of small business or small farm in Sec. __.12. Loans to,
investments in, or services provided to the following are presumed to
meet the criteria of this paragraph (c)(1)(i):
(A) Small Business Investment Company (13 CFR part 107);
(B) New Markets Venture Capital Company (13 CFR part 108);
(C) Qualified Community Development Entity (26 U.S.C. 45D(c)); or
(D) U.S. Department of Agriculture Rural Business Investment
Company (7 CFR 4290.50).
(ii) Direct loans to small businesses and small farms. Loans by a
bank directly to businesses or farms, including, but not limited to,
loans in conjunction or syndicated with a U.S. Small Business
Administration (SBA) Certified Development Company (13 CFR 120.10) or
Small Business Investment Company (13 CFR part 107), that meet the
following size and purpose criteria:
(A) Size eligibility standard. Loans that may be considered under
paragraph (c)(1)(ii) of this section must be to businesses and farms
that meet the size eligibility standards of the U.S. Small Business
Administration Development Company (13 CFR 121.301) or Small Business
Investment Company (13 CFR 121.301 and 121.201) programs or that meet
the definition of small business or small farm in Sec. __.12.
(B) Purpose test. Loans that may be considered under paragraph
(c)(1)(ii) of this section must have the purpose of promoting permanent
job creation or retention for low- or moderate-income individuals or in
low- or moderate-income census tracts.
(2) Intermediary support for small businesses and small farms.
Loans, investments, or services provided to intermediaries that lend
to, invest in, or provide assistance, such as financial counseling,
shared space, technology, or administrative assistance, to small
businesses or small farms.
(3) Other support for small businesses and small farms. Assistance,
such as financial counseling, shared space, technology, or
administrative assistance, to small businesses or small farms.
(d) Community supportive services. Community supportive services
are activities that assist, benefit, or contribute to the health,
stability, or well-being of low- or moderate-income individuals, such
as childcare, education, workforce development and job training
programs, health services programs, and housing services programs.
Community supportive services include, but are not limited to,
activities that:
(1) Are conducted with a mission-driven nonprofit organization;
(2) Are conducted with a nonprofit organization located in and
serving low- or moderate-income census tracts;
(3) Are conducted in a low- or moderate-income census tract and
targeted to the residents of the census tract;
(4) Are offered to individuals at a workplace where the majority of
employees are low- or moderate-income, based on U.S. Bureau of Labor
Statistics data for the average wage for workers in that particular
occupation or industry;
(5) Are provided to students or their families through a school at
which the majority of students qualify for free or reduced-price meals
under the U.S. Department of Agriculture's National School Lunch
Program;
(6) Primarily benefit or serve individuals who receive or are
eligible to receive Medicaid;
(7) Primarily benefit or serve individuals who receive or are
eligible to receive Federal Supplemental Security Income, Social
Security Disability Insurance, or support through other Federal
disability assistance programs; or
(8) Primarily benefit or serve recipients of government assistance
plans, programs, or initiatives that have income qualifications
equivalent to, or stricter than, the definitions of low- and moderate-
income as defined in this part. Examples include, but are not limited
to, the U.S. Department of Housing and Urban Development's section 8,
202, 515, and 811 programs or the U.S. Department of Agriculture's
section 514, 516, and Supplemental Nutrition Assistance programs.
(e) Revitalization or stabilization--(1) In general. Revitalization
or stabilization comprises activities that support revitalization or
stabilization of targeted census tracts, including adaptive reuse of
vacant or blighted buildings, brownfield redevelopment, support of a
plan for a business improvement district or main street program, or any
other activity that supports revitalization or stabilization, and that:
(i) Are undertaken in conjunction with a plan, program, or
initiative of a Federal, State, local, or tribal government or a
mission-driven nonprofit organization, where the plan, program, or
initiative includes a focus on revitalizing or stabilizing targeted
census tracts;
(ii) Benefit or serve residents, including low- or moderate-income
individuals, of targeted census tracts; and
(iii) Do not directly result in the forced or involuntary
relocation of low- or moderate-income individuals in targeted census
tracts.
(2) Mixed-use revitalization or stabilization project. Projects to
revitalize or stabilize a targeted census tract that include both
commercial and residential components qualify as revitalization or
stabilization activities under this paragraph (e)(2), if:
(i) The criteria in paragraph (e)(1) of this section are met; and
(ii) More than 50 percent of the project is non-residential as
measured by the percentage of total square footage or dollar amount of
the project.
(f) Essential community facilities. Essential community facilities
are public facilities that provide essential services generally
accessible by a local community, including, but not limited to,
schools, libraries, childcare facilities, parks, hospitals, healthcare
facilities, and community centers that benefit or serve targeted census
tracts, and that:
(1) Are undertaken in conjunction with a plan, program, or
initiative of a Federal, State, local, or tribal government or a
mission-driven nonprofit organization, where the plan, program, or
initiative includes a focus
[[Page 7113]]
on benefitting or serving targeted census tracts;
(2) Benefit or serve residents, including low- or moderate-income
individuals, of targeted census tracts; and
(3) Do not directly result in the forced or involuntary relocation
of low- or moderate-income individuals in targeted census tracts.
(g) Essential community infrastructure. Essential community
infrastructure comprises activities benefitting or serving targeted
census tracts, including, but not limited to, broadband,
telecommunications, mass transit, water supply and distribution, and
sewage treatment and collection systems, and that:
(1) Are undertaken in conjunction with a plan, program, or
initiative of a Federal, State, local, or tribal government or a
mission-driven nonprofit organization, where the plan, program, or
initiative includes a focus on benefitting or serving targeted census
tracts;
(2) Benefit or serve residents, including low- or moderate-income
individuals, of targeted census tracts; and
(3) Do not directly result in the forced or involuntary relocation
of low- or moderate-income individuals in targeted census tracts.
(h) Recovery of designated disaster areas--(1) In general.
Activities that promote recovery of a designated disaster area are
those that revitalize or stabilize geographic areas subject to a Major
Disaster Declaration administered by the Federal Emergency Management
Agency (FEMA), and that:
(i) Are undertaken in conjunction with a disaster plan, program, or
initiative of a Federal, State, local, or tribal government or a
mission-driven nonprofit organization, where the plan, program, or
initiative includes a focus on benefitting or serving the designated
disaster area;
(ii) Benefit or serve residents, including low- or moderate-income
individuals, of the designated disaster area; and
(iii) Do not directly result in the forced or involuntary
relocation of low- or moderate-income individuals in the designated
disaster area.
(2) Eligibility limitations for loans, investments, or services
supporting recovery of a designated disaster area. (i) Loans,
investments, or services that support recovery from a designated
disaster in counties designated to receive only FEMA Public Assistance
Emergency Work Category A (Debris Removal) and/or Category B (Emergency
Protective Measures) are not eligible for consideration under this
paragraph (h)(2), unless the Board, the FDIC, and the OCC announce a
temporary exception.
(ii) The [Agency] will consider loans, investments, and services
that support recovery from a designated disaster under this paragraph
(h)(2) for 36 months after a Major Disaster Declaration, unless that
time period is extended by the Board, the FDIC, and the OCC.
(i) Disaster preparedness and weather resiliency. Disaster
preparedness and weather resiliency activities assist individuals and
communities to prepare for, adapt to, and withstand natural disasters
or weather-related risks or disasters. Disaster preparedness and
weather resiliency activities benefit or serve targeted census tracts
and:
(1) Are undertaken in conjunction with a plan, program, or
initiative of a Federal, State, local, or tribal government or a
mission-driven nonprofit organization, where the plan, program, or
initiative includes a focus on benefitting or serving targeted census
tracts;
(2) Benefit or serve residents, including low- or moderate-income
individuals, in targeted census tracts; and
(3) Do not directly result in the forced or involuntary relocation
of low- or moderate-income individuals in targeted census tracts.
(j) Revitalization or stabilization, essential community
facilities, essential community infrastructure, and disaster
preparedness and weather resiliency in Native Land Areas. (1)
Revitalization or stabilization, essential community facilities,
essential community infrastructure, and disaster preparedness and
weather resiliency activities in Native Land Areas are activities
specifically targeted to and conducted in Native Land Areas.
(2) Revitalization or stabilization activities in Native Land Areas
are defined consistent with paragraph (e) of this section, but
specifically:
(i) Are undertaken in conjunction with a plan, program, or
initiative of a Federal, State, local, or tribal government or a
mission-driven nonprofit organization, where the plan, program, or
initiative includes an explicit focus on revitalizing or stabilizing
Native Land Areas and a particular focus on low- or moderate-income
households;
(ii) Benefit or serve residents in Native Land Areas, with
substantial benefits for low- or moderate-income individuals in Native
Land Areas; and
(iii) Do not directly result in the forced or involuntary
relocation of low- or moderate-income individuals in Native Land Areas.
(3) Essential community facilities, essential community
infrastructure, and disaster preparedness and weather resiliency
activities in Native Land Areas are defined consistent with paragraphs
(f), (g), and (i) of this section, respectively, but specifically:
(i) Are undertaken in conjunction with a plan, program, or
initiative of a Federal, State, local, or tribal government or a
mission-driven nonprofit organization, where the plan, program, or
initiative includes an explicit focus on benefitting or serving Native
Land Areas;
(ii) Benefit or serve residents, including low- or moderate-income
individuals, in Native Land Areas; and
(iii) Do not directly result in the forced or involuntary
relocation of low- or moderate-income individuals in Native Land Areas.
(k) Activities with MDIs, WDIs, LICUs, or CDFIs. Activities with
MDIs, WDIs, LICUs, or CDFIs are loans, investments, or services
undertaken by any bank, including by an MDI, WDI, or CDFI bank
evaluated under part 25, 228, or 345 of this title, in cooperation with
an MDI, WDI, LICU, or CDFI. Such activities do not include investments
by an MDI, WDI, or CDFI bank in itself.
(l) Financial literacy. Activities that promote financial literacy
are those that assist individuals, families, and households, including
low- or moderate-income individuals, families, and households, to make
informed financial decisions regarding managing income, savings,
credit, and expenses, including with respect to homeownership.
Sec. __.14 Community development illustrative list; Confirmation of
eligibility.
(a) Illustrative list--(1) Issuing and maintaining the illustrative
list. The Board, the FDIC, and the OCC jointly issue and maintain a
publicly available illustrative list of non-exhaustive examples of
loans, investments, and services that qualify for community development
consideration as provided in Sec. __.13.
(2) Modifying the illustrative list. (i) The Board, the FDIC, and
the OCC update the illustrative list in paragraph (a)(1) of this
section periodically.
(ii) If the Board, the FDIC, and the OCC determine that a loan or
investment is no longer eligible for community development
consideration, the owner of the loan or investment at the time of the
determination will continue to receive community development
consideration for the remaining term or period of the loan or
[[Page 7114]]
investment. However, these loans or investments will not be considered
eligible for community development consideration for any new purchasers
of that loan or investment after the agencies make a determination that
the loan or investment is no longer eligible for community development
consideration.
(b) Confirmation of eligibility--(1) Request for confirmation of
eligibility. A bank subject to this part may request that the [Agency]
confirm that a loan, investment, or service is eligible for community
development consideration by submitting a request to, and in a format
prescribed by, the [Agency].
(2) Determination of eligibility. (i) To determine the eligibility
of a loan, investment, or service for which a request has been
submitted under paragraph (b)(1) of this section, the [Agency]
considers:
(A) Information that describes and supports the request; and
(B) Any other information that the [Agency] deems relevant.
(ii) The Board, the FDIC, and the OCC expect and are presumed to
jointly determine eligibility of a loan, investment, or service under
paragraph (b)(2)(i) of this section to promote consistency. Before
making a determination under paragraph (b)(2)(i) of this section, the
[Agency] consults with the [other Agencies] regarding the eligibility
of a loan, investment, or service.
(iii) The [Agency] may impose limitations or requirements on a
determination of the eligibility of a loan, investment, or service to
ensure consistency with this part.
(3) Notification of eligibility. The [Agency] notifies the
requestor and the [other Agencies] in writing of any determination
under paragraph (b)(2) of this section, as well as the rationale for
such determination.
Sec. __.15 Impact and responsiveness review of community development
loans, community development investments, and community development
services.
(a) Impact and responsiveness review, in general. Under the
Community Development Financing Test in Sec. __.24, the Community
Development Services Test in Sec. __.25, and the Community Development
Financing Test for Limited Purpose Banks in Sec. __.26, the [Agency]
evaluates the extent to which a bank's community development loans,
community development investments, and community development services
are impactful and responsive in meeting community development needs in
each facility-based assessment area and, as applicable, each State,
multistate MSA, and the nationwide area. The [Agency] evaluates the
impact and responsiveness of a bank's community development loans,
community development investments, or community development services
based on paragraph (b) of this section, and may take into account
performance context information pursuant to Sec. __.21(d).
(b) Impact and responsiveness review factors. Factors considered in
evaluating the impact and responsiveness of a bank's community
development loans, community development investments, and community
development services include, but are not limited to, whether the
community development loan, community development investment, or
community development service:
(1) Benefits or serves one or more persistent poverty counties;
(2) Benefits or serves one or more census tracts with a poverty
rate of 40 percent or higher;
(3) Benefits or serves one or more geographic areas with low levels
of community development financing;
(4) Supports an MDI, WDI, LICU, or CDFI, excluding certificates of
deposit with a term of less than one year;
(5) Benefits or serves low-income individuals, families, or
households;
(6) Supports small businesses or small farms with gross annual
revenues of $250,000 or less;
(7) Directly facilitates the acquisition, construction,
development, preservation, or improvement of affordable housing in High
Opportunity Areas;
(8) Benefits or serves residents of Native Land Areas;
(9) Is a grant or donation;
(10) Is an investment in projects financed with LIHTCs or NMTCs;
(11) Reflects bank leadership through multi-faceted or instrumental
support; or
(12) Is a new community development financing product or service
that addresses community development needs for low- or moderate-income
individuals, families, or households.
Subpart B--Geographic Considerations
Sec. __.16 Facility-based assessment areas.
(a) In general. A bank must delineate one or more facility-based
assessment areas within which the [Agency] evaluates the bank's record
of helping to meet the credit needs of its entire community pursuant to
the performance tests and strategic plan described in Sec. __.21.
(b) Geographic requirements for facility-based assessment areas.
(1) Except as provided in paragraph (b)(3) of this section, a bank's
facility-based assessment areas must include each county in which a
bank has a main office, a branch, or a deposit-taking remote service
facility, as well as the surrounding counties in which the bank has
originated or purchased a substantial portion of its loans (including
home mortgage loans, multifamily loans, small business loans, small
farm loans, and automobile loans).
(2) Except as provided in paragraph (b)(3) of this section, each of
a bank's facility-based assessment areas must consist of a single MSA,
one or more contiguous counties within an MSA, or one or more
contiguous counties within the nonmetropolitan area of a State.
(3) An intermediate bank or a small bank may adjust the boundaries
of its facility-based assessment areas to include only the portion of a
county that it reasonably can be expected to serve, subject to
paragraph (c) of this section. A facility-based assessment area that
includes a partial county must consist of contiguous whole census
tracts.
(c) Other limitations on the delineation of a facility-based
assessment area. Each of a bank's facility-based assessment areas:
(1) May not reflect illegal discrimination; and
(2) May not arbitrarily exclude low- or moderate-income census
tracts. In determining whether a bank has arbitrarily excluded low- or
moderate-income census tracts from a facility-based assessment area,
the [Agency] takes into account the bank's capacity and constraints,
including its size and financial condition.
(d) Military banks. Notwithstanding the requirements of this
section, a military bank whose customers are not located within a
defined geographic area may delineate the entire United States and its
territories as its sole facility-based assessment area.
(e) Use of facility-based assessment areas. The [Agency] uses the
facility-based assessment areas delineated by a bank in its evaluation
of the bank's CRA performance unless the [Agency] determines that the
facility-based assessment areas do not comply with the requirements of
this section.
Sec. __.17 Retail lending assessment areas.
(a) In general. (1) Based upon the criteria described in paragraphs
(b) and (c) of this section, a large bank must delineate retail lending
assessment areas within which the [Agency] evaluates the bank's record
of helping to meet the credit needs of its entire community pursuant to
Sec. __.22.
[[Page 7115]]
(2) A large bank is not required to delineate retail lending
assessment areas for a particular calendar year if, in the prior two
calendar years, the large bank originated or purchased within its
facility-based assessment areas more than 80 percent of its home
mortgage loans, multifamily loans, small business loans, small farm
loans, and automobile loans if automobile loans are a product line for
the large bank as described in paragraph II.a.1 of appendix A to this
part.
(3) If, in a retail lending assessment area delineated pursuant to
paragraph (c) of this section, the large bank did not originate or
purchase any reported loans in any of the product lines that formed the
basis of the retail lending assessment area delineation pursuant to
paragraph (c)(1) or (2) of this section, the [Agency] will not consider
the retail lending assessment area to have been delineated for that
calendar year.
(b) Geographic requirements for retail lending assessment areas.
(1) A large bank's retail lending assessment area must consist of
either:
(i) The entirety of a single MSA (using the MSA boundaries that
were in effect as of January 1 of the calendar year in which the
delineation applies), excluding any counties inside the large bank's
facility-based assessment areas; or
(ii) All of the counties in the nonmetropolitan area of a State
(using the MSA boundaries that were in effect as of January 1 of the
calendar year in which the delineation applies), excluding:
(A) Any counties included in the large bank's facility-based
assessment areas; and
(B) Any counties in which the large bank did not originate any
closed-end home mortgage loans or small business loans that are
reported loans during that calendar year.
(2) A retail lending assessment area may not extend beyond a State
boundary unless the retail lending assessment area consists of counties
in a multistate MSA.
(c) Delineation of retail lending assessment areas. Subject to the
geographic requirements in paragraph (b) of this section, a large bank
must delineate, for a particular calendar year, a retail lending
assessment area in any MSA or in the nonmetropolitan area of any State
in which it originated:
(1) At least 150 closed-end home mortgage loans that are reported
loans in each year of the prior two calendar years; or
(2) At least 400 small business loans that are reported loans in
each year of the prior two calendar years.
(d) Use of retail lending assessment areas. The [Agency] uses the
retail lending assessment areas delineated by a large bank in its
evaluation of the bank's closed-end home mortgage lending and small
business lending performance unless the [Agency] determines that the
retail lending assessment areas do not comply with the requirements of
this section.
Sec. __.18 Outside retail lending areas.
(a) In general--(1) Large banks. The [Agency] evaluates a large
bank's record of helping to meet the credit needs of its entire
community in its outside retail lending area pursuant to Sec. __.22.
However, the [Agency] will not evaluate a large bank in its outside
retail lending area if it did not originate or purchase loans in any
product lines in the outside retail lending area during the evaluation
period.
(2) Intermediate or small banks. The [Agency] evaluates the record
of an intermediate bank, or a small bank that opts to be evaluated
under the Retail Lending Test, of helping to meet the credit needs of
its entire community in its outside retail lending area pursuant to
Sec. __.22, for a particular calendar year, if:
(i) The bank opts to have its major product lines evaluated in its
outside retail lending area; or
(ii) In the prior two calendar years, the bank originated or
purchased outside the bank's facility-based assessment areas more than
50 percent of the bank's home mortgage loans, multifamily loans, small
business loans, small farm loans, and automobile loans if automobile
loans are a product line for the bank, as described in paragraph II.a.2
of appendix A to this part.
(b) Geographic requirements of outside retail lending areas--(1) In
general. A bank's outside retail lending area consists of the
nationwide area, excluding:
(i) The bank's facility-based assessment areas and retail lending
assessment areas; and
(ii) Any county in a nonmetropolitan area in which the bank did not
originate or purchase any closed-end home mortgage loans, small
business loans, small farm loans, or automobile loans if automobile
loans are a product line for the bank.
(2) Component geographic area. The outside retail lending area is
comprised of component geographic areas. A component geographic area is
any MSA or the nonmetropolitan area of any State, or portion thereof,
included within the outside retail lending area.
Sec. __.19 Areas for eligible community development loans, community
development investments, and community development services.
The [Agency] may consider a bank's community development loans,
community development investments, and community development services
provided outside of its facility-based assessment areas, as provided in
this part.
Sec. __.20 [Reserved]
Subpart C--Standards for Assessing Performance
Sec. __.21 Evaluation of CRA performance in general.
(a) Application of performance tests and strategic plans--(1) Large
banks. To evaluate the performance of a large bank, the [Agency]
applies the Retail Lending Test in Sec. __.22, the Retail Services and
Products Test in Sec. __.23, the Community Development Financing Test
in Sec. __.24, and the Community Development Services Test in Sec.
__.25.
(2) Intermediate banks--(i) In general. To evaluate the performance
of an intermediate bank, the [Agency] applies the Retail Lending Test
in Sec. __.22 and either the Intermediate Bank Community Development
Test in Sec. __.30(a)(2) or, at the bank's option, the Community
Development Financing Test in Sec. __.24.
(ii) Intermediate banks evaluated under Sec. __.24. If an
intermediate bank opts to be evaluated pursuant to the Community
Development Financing Test in Sec. __.24, the [Agency] evaluates the
intermediate bank for the evaluation period preceding the bank's next
CRA examination pursuant to the Community Development Financing Test in
Sec. __.24 and continues evaluations pursuant to this performance test
for subsequent evaluation periods until the bank opts out. If an
intermediate bank opts out of the Community Development Financing Test
in Sec. __.24, the [Agency] reverts to evaluating the bank pursuant to
the Intermediate Bank Community Development Test in Sec. __.30(a)(2),
starting with the evaluation period preceding the bank's next CRA
examination.
(iii) Additional consideration. An intermediate bank may request
additional consideration pursuant to Sec. __.30(b).
(3) Small banks--(i) In general. To evaluate the performance of a
small bank, the [Agency] applies the Small Bank Lending Test in Sec.
__.29(a)(2), unless the bank opts to be evaluated pursuant to the
Retail Lending Test in Sec. __.22.
[[Page 7116]]
(ii) Small banks evaluated under the Retail Lending Test. If a
small bank opts to be evaluated pursuant to the Retail Lending Test in
Sec. __.22, the following applies:
(A) The [Agency] evaluates the small bank using the same provisions
used to evaluate intermediate banks pursuant to the Retail Lending Test
in Sec. __.22.
(B) The [Agency] evaluates the small bank for the evaluation period
preceding the bank's next CRA examination pursuant to the Retail
Lending Test in Sec. __.22 and continues evaluations under this
performance test for subsequent evaluation periods until the bank opts
out. If a small bank opts out of the Retail Lending Test in Sec.
__.22, the [Agency] reverts to evaluating the bank pursuant to the
Small Bank Lending Test in Sec. __.29(a)(2), starting with the
evaluation period preceding the bank's next CRA examination.
(iii) Additional consideration. A small bank may request additional
consideration pursuant to Sec. __.29(b).
(4) Limited purpose banks--(i) In general. The [Agency] evaluates a
limited purpose bank pursuant to the Community Development Financing
Test for Limited Purpose Banks in Sec. __.26.
(ii) Additional consideration. A limited purpose bank may request
additional consideration pursuant to Sec. __.26(b)(2).
(5) Military banks--(i) In general. The [Agency] evaluates a
military bank pursuant to the applicable performance tests described in
paragraph (a) of this section.
(ii) Evaluation approach for military banks operating under Sec.
__.16(d). If a military bank delineates the entire United States and
its territories as its sole facility-based assessment area pursuant to
Sec. __.16(d), the [Agency] evaluates the bank exclusively at the
institution level based on its performance in its sole facility-based
assessment area.
(6) Banks operating under a strategic plan. The [Agency] evaluates
the performance of a bank that has an approved strategic plan pursuant
to Sec. __.27.
(b) Loans, investments, services, and products of [operations
subsidiaries or operating subsidiaries] and other affiliates--(1) In
general. In the performance evaluation of a bank, the [Agency]
considers the loans, investments, services, and products of a bank's
[operations subsidiaries or operating subsidiaries] and other
affiliates, as applicable, as provided in paragraphs (b)(2) and (3) of
this section, so long as no other depository institution claims the
loan, investment, service, or product for purposes of 12 CFR part 25,
228, or 345.
(2) Loans, investments, services, and products of [operations
subsidiaries or operating subsidiaries]. The [Agency] considers the
loans, investment, services, and products of a bank's [operations
subsidiaries or operating subsidiaries] under this part, unless an
[operations subsidiary or operating subsidiary] is independently
subject to the CRA. The bank must collect, maintain, and report data on
the loans, investments, services, and products of its [operations
subsidiaries or operating subsidiaries] as provided in Sec. __.42(c).
(3) Loans, investments, services, and products of other affiliates.
The [Agency] considers the loans, investments, services, and products
of affiliates of a bank that are not [operations subsidiaries or
operating subsidiaries], at the bank's option, subject to the
following:
(i) The affiliate is not independently subject to the CRA.
(ii) The bank collects, maintains, and reports data on the loans,
investments, services, or products of the affiliate as provided in
Sec. __.42(d).
(iii) Pursuant to the Retail Lending Test in Sec. __.22, if a bank
opts to have the [Agency] consider the closed-end home mortgage loans,
small business loans, small farm loans, or automobile loans that are
originated or purchased by one or more of the bank's affiliates in a
particular Retail Lending Test Area, the [Agency] will consider,
subject to paragraphs (b)(3)(i) and (ii) of this section, all of the
loans in that product line originated or purchased by all of the bank's
affiliates in the particular Retail Lending Test Area.
(iv) Pursuant to the Retail Lending Test in Sec. __.22, if a large
bank opts to have the [Agency] consider the closed-end home mortgage
loans or small business loans that are originated or purchased by any
of the bank's affiliates in any Retail Lending Test Area, the [Agency]
will consider, subject to paragraphs (b)(3)(i) and (ii) of this
section, the closed-end home mortgage loans or small business loans
originated by all of the bank's affiliates in the nationwide area when
delineating retail lending assessment areas pursuant to Sec. __.17(c).
(v) Pursuant to the Community Development Financing Test in Sec.
__.24, the Community Development Financing Test for Limited Purpose
Banks in Sec. __.26, the Intermediate Bank Community Development Test
in Sec. __.30(a)(2), or pursuant to an approved strategic plan in
Sec. __.27, the [Agency] will consider, at the bank's option,
community development loans or community development investments that
are originated, purchased, refinanced, or renewed by one or more of the
bank's affiliates, subject to paragraphs (b)(3)(i) and (ii) of this
section.
(c) Community development lending and community development
investment by a consortium or a third party. If a bank invests in or
participates in a consortium that originates, purchases, refinances, or
renews community development loans or community development
investments, or if a bank invests in a third party that originates,
purchases, refinances, or renews community development loans or
community development investments, the [Agency] may consider, at the
bank's option, either those loans or investments, subject to the
limitations in paragraphs (c)(1) through (3) of this section, or the
investment in the consortium or third party.
(1) The bank must collect, maintain, and report the data pertaining
to the community development loans and community development
investments as provided in Sec. __.42(e), as applicable;
(2) If the participants or investors choose to allocate community
development loans or community development investments among themselves
for consideration under this section, no participant or investor may
claim a loan origination, loan purchase, or investment for community
development consideration if another participant or investor claims the
same loan origination, loan purchase, or investment; and
(3) The bank may not claim community development loans or community
development investments accounting for more than its percentage share
(based on the level of its participation or investment) of the total
loans or investments made by the consortium or third party.
(d) Performance context information considered. When applying
performance tests and strategic plans pursuant to paragraph (a) of this
section, and when determining whether to approve a strategic plan
pursuant to Sec. __.27(h), the [Agency] may consider the following
performance context information to the extent that it is not considered
as part of the performance tests as provided in paragraph (a) of this
section:
(1) Any information regarding a bank's institutional capacity or
constraints, including the size and financial condition of the bank,
safety and soundness limitations, or any other bank-specific factors
that significantly affect the bank's ability to provide retail
[[Page 7117]]
lending, retail banking services and retail banking products, community
development loans, community development investments, or community
development services;
(2) Any information regarding the bank's past performance;
(3) Demographic data on income levels and income distribution,
nature of housing stock, housing costs, economic climate, or other
relevant data;
(4) Any information about retail banking and community development
needs and opportunities provided by the bank or other relevant sources,
including, but not limited to, members of the community, community
organizations, State, local, and tribal governments, and economic
development agencies;
(5) Data and information provided by the bank regarding the bank's
business strategy and product offerings;
(6) The bank's public file, as provided in Sec. __.43, including
any written comments about the bank's CRA performance submitted to the
bank or the [Agency] and the bank's responses to those comments; and
(7) Any other information deemed relevant by the [Agency].
(e) Conclusions and ratings--(1) Conclusions. The [Agency] assigns
conclusions to a large bank's or limited purpose bank's performance on
the applicable tests described in paragraph (a) of this section
pursuant to Sec. __.28 and appendix C to this part. The [Agency]
assigns conclusions to a small bank's or intermediate bank's
performance on the applicable tests described in paragraph (a) of this
section pursuant to Sec. __.28 and appendices C and E to this part.
The [Agency] assigns conclusions to a bank that has an approved
strategic plan pursuant to Sec. __.28 and paragraph g of appendix C to
this part.
(2) Ratings. The [Agency] assigns an overall CRA performance rating
to a bank in each State or multistate MSA, as applicable, and for the
institution pursuant to Sec. __.28 and appendices D and E to this
part.
(f) Safe and sound operations. The CRA and this part do not require
a bank to originate or purchase loans or investments or to provide
services that are inconsistent with safe and sound banking practices,
including underwriting standards. Banks are permitted to develop and
apply flexible underwriting standards for loans that benefit low- or
moderate-income individuals, small businesses or small farms, and low-
or moderate-income census tracts, only if consistent with safe and
sound operations.
Sec. __.22 Retail lending test.
(a) Retail Lending Test--(1) In general. Pursuant to Sec. __.21,
the Retail Lending Test evaluates a bank's record of helping to meet
the credit needs of its entire community through the bank's origination
and purchase of home mortgage loans, multifamily loans, small business
loans, and small farm loans.
(2) Automobile loans. The Retail Lending Test evaluates a bank's
record of helping to meet the credit needs of its entire community
through the bank's origination and purchase of automobile loans if the
bank is a majority automobile lender. A bank that is not a majority
automobile lender may opt to have automobile loans evaluated under this
section.
(b) Methodology overview--(1) Retail Lending Volume Screen. The
[Agency] evaluates whether a bank meets or surpasses the Retail Lending
Volume Threshold in each facility-based assessment area pursuant to the
Retail Lending Volume Screen as provided in paragraph (c) of this
section.
(2) Retail lending distribution analysis. Except as provided in
paragraph (b)(5) of this section, the [Agency] evaluates the geographic
and borrower distributions of each of a bank's major product lines in
each Retail Lending Test Area, as provided in paragraphs (d) and (e) of
this section.
(3) Retail Lending Test recommended conclusions. Except as provided
in paragraph (b)(5) of this section, the [Agency] develops a Retail
Lending Test recommended conclusion pursuant to paragraph (f) of this
section for each Retail Lending Test Area.
(4) Retail Lending Test conclusions. Except as provided in
paragraph (b)(5) of this section, the [Agency]'s determination of a
bank's Retail Lending Test conclusion for a Retail Lending Test Area is
informed by the bank's Retail Lending Test recommended conclusion for
the Retail Lending Test Area, performance context factors provided in
Sec. __.21(d), and the additional factors provided in paragraph (g) of
this section.
(5) Exceptions--(i) No major product line. If a bank has no major
product line in a facility-based assessment area, the [Agency] assigns
the bank a Retail Lending Test conclusion for that facility-based
assessment area based upon its performance on the Retail Lending Volume
Screen pursuant to paragraph (c) of this section, performance context
factors provided in Sec. __.21(d), and the additional factors provided
in paragraph (g) of this section.
(ii) Banks that lack an acceptable basis for not meeting the Retail
Lending Volume Threshold. The [Agency] assigns a Retail Lending Test
conclusion for a facility-based assessment area in which a bank lacks
an acceptable basis for not meeting the Retail Lending Volume Threshold
as provided in paragraph (c)(3)(iii) of this section.
(c) Retail Lending Volume Screen--(1) Retail Lending Volume
Threshold. A bank meets or surpasses the Retail Lending Volume
Threshold in a facility-based assessment area if the bank has a Bank
Volume Metric of 30 percent or greater of the Market Volume Benchmark
for that facility-based assessment area. The [Agency] calculates the
Bank Volume Metric and the Market Volume Benchmark pursuant to section
I of appendix A to this part.
(2) Banks that meet or surpass the Retail Lending Volume Threshold
in a facility-based assessment area. If a bank meets or surpasses the
Retail Lending Volume Threshold in a facility-based assessment area
pursuant to paragraph (c)(1) of this section, the [Agency] develops a
Retail Lending Test recommended conclusion for the facility-based
assessment area pursuant to paragraphs (d) through (f) of this section.
(3) Banks that do not meet the Retail Lending Volume Threshold in a
facility-based assessment area--(i) Acceptable basis factors. If a bank
does not meet the Retail Lending Volume Threshold in a facility-based
assessment area pursuant to paragraph (c)(1) of this section, the
[Agency] determines whether the bank has an acceptable basis for not
meeting the Retail Lending Volume Threshold in the facility-based
assessment area by considering:
(A) The bank's dollar volume of non-automobile consumer loans;
(B) The bank's institutional capacity and constraints, including
the financial condition of the bank;
(C) The presence or lack of other lenders in the facility-based
assessment area;
(D) Safety and soundness limitations;
(E) The bank's business strategy; and
(F) Any other factors that limit the bank's ability to lend in the
facility-based assessment area.
(ii) Banks that have an acceptable basis for not meeting the Retail
Lending Volume Threshold in a facility-based assessment area. If, after
reviewing the factors described in paragraph (c)(3)(i) of this section,
the [Agency] determines that a bank has an acceptable basis for not
meeting the Retail Lending Volume Threshold in a facility-based
assessment area, the [Agency] develops a Retail Lending Test
recommended conclusion for the facility-based assessment area in
[[Page 7118]]
the same manner as for a bank that meets or surpasses the Retail
Lending Volume Threshold under paragraph (c)(2) of this section.
(iii) Banks that lack an acceptable basis for not meeting the
Retail Lending Volume Threshold in a facility-based assessment area--
(A) Large banks. If, after reviewing the factors in paragraph (c)(3)(i)
of this section, the [Agency] determines that a large bank lacks an
acceptable basis for not meeting the Retail Lending Volume Threshold in
a facility-based assessment area, the [Agency] assigns the bank a
Retail Lending Test conclusion of ``Needs to Improve'' or ``Substantial
Noncompliance'' for that facility-based assessment area. In determining
whether ``Needs to Improve'' or ``Substantial Noncompliance'' is the
appropriate conclusion, the [Agency] considers:
(1) The bank's retail lending volume and the extent by which it did
not meet the Retail Lending Volume Threshold;
(2) The bank's distribution analysis pursuant to paragraphs (d)
through (f) of this section;
(3) Performance context factors provided in Sec. __.21(d); and
(4) Additional factors provided in paragraph (g) of this section.
(B) Intermediate or small banks. If, after reviewing the factors in
paragraph (c)(3)(i) of this section, the [Agency] determines that an
intermediate bank, or a small bank that opts to be evaluated under the
Retail Lending Test, lacks an acceptable basis for not meeting the
Retail Lending Volume Threshold in a facility-based assessment area,
the [Agency] develops a Retail Lending Test recommended conclusion for
the facility-based assessment area pursuant to paragraphs (d) through
(f) of this section. The [Agency]'s determination of a bank's Retail
Lending Test conclusion for the facility-based assessment area is
informed by:
(1) The bank's Retail Lending Test recommended conclusion for the
facility-based assessment area;
(2) The bank's retail lending volume and the extent by which it did
not meet the Retail Lending Volume Threshold;
(3) Performance context factors provided in Sec. __.21(d); and
(4) Additional factors provided in paragraph (g) of this section.
(d) Scope of Retail Lending Test distribution analysis--(1) Product
lines evaluated in a Retail Lending Test Area. In each applicable
Retail Lending Test Area, the [Agency] evaluates originated and
purchased loans in each of the following product lines that is a major
product line, as described in paragraph (d)(2) of this section:
(i) Closed-end home mortgage loans in a bank's facility-based
assessment areas and, as applicable, retail lending assessment areas
and outside retail lending area;
(ii) Small business loans in a bank's facility-based assessment
areas and, as applicable, retail lending assessment areas and outside
retail lending area;
(iii) Small farm loans in a bank's facility-based assessment areas
and, as applicable, outside retail lending area; and
(iv) Automobile loans in a bank's facility-based assessment areas
and, as applicable, outside retail lending area.
(2) Major product line standards--(i) Major product line standard
for facility-based assessment areas and outside retail lending areas.
In a facility-based assessment area or outside retail lending area, a
product line is a major product line if the bank's loans in that
product line comprise 15 percent or more of the bank's loans across all
of the bank's product lines in the facility-based assessment area or
outside retail lending area, as determined pursuant to paragraph II.b.1
of appendix A to this part.
(ii) Major product line standards for retail lending assessment
areas. In a retail lending assessment area:
(A) Closed-end home mortgage loans are a major product line in any
calendar year in the evaluation period in which the bank delineates a
retail lending assessment area based on its closed-end home mortgage
loans as determined by the standard in Sec. __.17(c)(1); and
(B) Small business loans are a major product line in any calendar
year in the evaluation period in which the bank delineates a retail
lending assessment area based on its small business loans as determined
by the standard in Sec. __.17(c)(2).
(e) Retail Lending Test distribution analysis. The [Agency]
evaluates a bank's Retail Lending Test performance in each of its
Retail Lending Test Areas by considering the geographic and borrower
distributions of a bank's loans in its major product lines.
(1) Distribution analysis in general--(i) Distribution analysis for
closed-end home mortgage loans, small business loans, and small farm
loans. For closed-end home mortgage loans, small business loans, and
small farm loans, respectively, the [Agency] compares a bank's
geographic and borrower distributions to performance ranges based on
the applicable market and community benchmarks, as provided in
paragraph (f) of this section and section V of appendix A to this part.
(ii) Distribution analysis for automobile loans. For automobile
loans, the [Agency] compares a bank's geographic and borrower
distributions to the applicable community benchmarks, as provided in
paragraph (f) of this section and section VI of appendix A to this
part.
(2) Categories of lending evaluated--(i) Geographic distributions.
For each major product line in each Retail Lending Test Area, the
[Agency] evaluates the geographic distributions separately for the
following categories of census tracts:
(A) Low-income census tracts; and
(B) Moderate-income census tracts.
(ii) Borrower distributions. For each major product line in each
Retail Lending Test Area, the [Agency] evaluates the borrower
distributions separately for, as applicable, the following categories
of borrowers:
(A) Low-income borrowers;
(B) Moderate-income borrowers;
(C) Businesses with gross annual revenues of $250,000 or less;
(D) Businesses with gross annual revenues greater than $250,000 but
less than or equal to $1 million;
(E) Farms with gross annual revenues of $250,000 or less; and
(F) Farms with gross annual revenues greater than $250,000 but less
than or equal to $1 million.
(3) Geographic distribution measures. To evaluate the geographic
distributions in a Retail Lending Test Area, the [Agency] considers the
following measures:
(i) Geographic Bank Metric. For each major product line, a
Geographic Bank Metric, calculated pursuant to paragraph III.a of
appendix A to this part;
(ii) Geographic Market Benchmark. For each major product line
except automobile loans, a Geographic Market Benchmark, calculated
pursuant to paragraph III.b of appendix A to this part for facility-
based assessment areas and retail lending assessment areas, and
paragraph III.d of appendix A to this part for outside retail lending
areas; and
(iii) Geographic Community Benchmark. For each major product line,
a Geographic Community Benchmark, calculated pursuant to paragraph
III.c of appendix A to this part for facility-based assessment areas
and retail lending assessment areas, and paragraph III.e of appendix A
to this part for outside retail lending areas.
(4) Borrower distribution measures. To evaluate the borrower
distributions in a Retail Lending Test Area, the [Agency] considers the
following measures:
(i) Borrower Bank Metric. For each major product line, a Borrower
Bank Metric, calculated pursuant to
[[Page 7119]]
paragraph IV.a of appendix A to this part;
(ii) Borrower Market Benchmark. For each major product line except
automobile loans, a Borrower Market Benchmark, calculated pursuant to
paragraph IV.b of appendix A to this part for facility-based assessment
areas and retail lending assessment areas, and paragraph IV.d of
appendix A to this part for outside retail lending areas; and
(iii) Borrower Community Benchmark. For each major product line, a
Borrower Community Benchmark, calculated pursuant to paragraph IV.c of
appendix A to this part for facility-based assessment areas and retail
lending assessment areas, and paragraph IV.e of appendix A to this part
for outside retail lending areas.
(f) Retail Lending Test recommended conclusions--(1) In general.
Except as described in paragraphs (b)(5)(i) and (c)(3)(iii)(A) of this
section, the [Agency] develops a Retail Lending Test recommended
conclusion for each of a bank's Retail Lending Test Areas based on the
distribution analysis described in paragraph (e) of this section and
using performance ranges, supporting conclusions, and product line
scores as provided in sections V through VII of appendix A to this
part. For each major product line, the [Agency] develops a separate
supporting conclusion for each category of census tracts and each
category of borrowers described in paragraphs V.a and VI.a of appendix
A to this part.
(2) Geographic distribution supporting conclusions--(i) Geographic
distribution supporting conclusions for closed-end home mortgage loans,
small business loans, and small farm loans. To develop supporting
conclusions for geographic distributions of closed-end home mortgage
loans, small business loans, and small farm loans, the [Agency]
evaluates the bank's performance by comparing the Geographic Bank
Metric to performance ranges, based on the Geographic Market Benchmark,
the Geographic Community Benchmark, and multipliers, as described in
paragraphs V.b and V.c of appendix A to this part.
(ii) Geographic distribution supporting conclusions for automobile
loans. To develop supporting conclusions for geographic distributions
for automobile loans, the [Agency] evaluates the bank's performance by
comparing the Geographic Bank Metric to the Geographic Community
Benchmark, as described in paragraph VI.b of appendix A to this part.
(3) Borrower distribution supporting conclusions--(i) Borrower
distribution supporting conclusions for closed-end home mortgage loans,
small business loans, and small farm loans. To develop supporting
conclusions for borrower distributions of closed-end home mortgage
loans, small business loans, and small farm loans, the [Agency]
evaluates the bank's performance by comparing the Borrower Bank Metric
to performance ranges, based on the Borrower Market Benchmark, Borrower
Community Benchmark, and multipliers, as described in paragraphs V.d
and V.e of appendix A to this part.
(ii) Borrower distribution supporting conclusions for automobile
loans. To develop supporting conclusions for borrower distributions for
automobile loans, the [Agency] evaluates the bank's performance by
comparing the Borrower Bank Metric to the Borrower Community Benchmark,
as described in paragraph VI.c of appendix A to this part.
(4) Development of Retail Lending Test recommended conclusions--(i)
Assignment of performance scores. For each supporting conclusion
developed pursuant to paragraphs (f)(2) and (3) of this section, the
[Agency] assigns a corresponding performance score as described in
sections V and VI of appendix A to this part.
(ii) Combination of performance scores. As described in section VII
of appendix A to this part, for each Retail Lending Test Area, the
[Agency]:
(A) Combines the performance scores for each supporting conclusion
for each major product line into a product line score; and
(B) Calculates a weighted average of product line scores across all
major product lines.
(iii) Retail Lending Test recommended conclusions. For each Retail
Lending Test Area, the [Agency] develops the Retail Lending Test
recommended conclusion that corresponds to the weighted average of
product line scores developed pursuant to paragraph (f)(4)(ii)(B) of
this section, as described in section VII of appendix A to this part.
(g) Additional factors considered when evaluating retail lending
performance. The factors in paragraphs (g)(1) through (7) of this
section, as appropriate, inform the [Agency]'s determination of a
bank's Retail Lending Test conclusion for a Retail Lending Test Area:
(1) Information indicating that a bank purchased closed-end home
mortgage loans, small business loans, small farm loans, or automobile
loans for the sole or primary purpose of inappropriately enhancing its
retail lending performance, including, but not limited to, information
indicating subsequent resale of such loans or any indication that such
loans have been considered in multiple depository institutions' CRA
evaluations, in which case the [Agency] does not consider such loans in
the bank's performance evaluation;
(2) The dispersion of a bank's closed-end home mortgage lending,
small business lending, small farm lending, or automobile lending
within a facility-based assessment area to determine whether there are
gaps in lending that are not explained by performance context;
(3) The number of lenders whose home mortgage loans, multifamily
loans, small business loans, and small farm loans and deposits data are
used to establish the applicable Retail Lending Volume Threshold,
geographic distribution market benchmarks, and borrower distribution
market benchmarks;
(4) Missing or faulty data that would be necessary to calculate the
relevant metrics and benchmarks or any other factors that prevent the
[Agency] from calculating a Retail Lending Test recommended conclusion.
If unable to calculate a Retail Lending Test recommended conclusion,
the [Agency] assigns a Retail Lending Test conclusion based on
consideration of the relevant available data;
(5) Whether the Retail Lending Test recommended conclusion does not
accurately reflect the bank's performance in a Retail Lending Test Area
in which one or more of the bank's major product lines consists of
fewer than 30 loans;
(6) A bank's closed-end home mortgage lending, small business
lending, small farm lending, or automobile lending in distressed or
underserved nonmetropolitan middle-income census tracts where a bank's
nonmetropolitan facility-based assessment area or nonmetropolitan
retail lending assessment area includes very few or no low- and
moderate-income census tracts; and
(7) Information indicating that the credit needs of the facility-
based assessment area or retail lending assessment area are not being
met by lenders in the aggregate, such that the relevant benchmarks do
not adequately reflect community credit needs.
(h) Retail Lending Test performance conclusions and ratings--(1)
Conclusions--(i) In general. Pursuant to Sec. __.28, section VIII of
appendix A to this part, and appendix C to this part, the [Agency]
assigns conclusions for a bank's Retail Lending Test performance in
each Retail Lending Test Area, State, and multistate MSA, as
applicable, and for the institution.
[[Page 7120]]
(ii) Retail Lending Test Area conclusions. The [Agency] assigns a
Retail Lending Test conclusion for each Retail Lending Test Area based
on the Retail Lending Test recommended conclusion, performance context
factors provided in Sec. __.21(d), and the additional factors provided
in paragraph (g) of this section, except as provided in paragraphs
(h)(1)(ii)(A) and (B) of this section:
(A) Facility-based assessment areas with no major product line. The
[Agency] assigns a Retail Lending Test conclusion for a facility-based
assessment area in which a bank has no major product line based on the
bank's performance on the Retail Lending Volume Screen pursuant to
paragraph (c) of this section, performance context information provided
in Sec. __.21(d), and the additional factors provided in paragraph (g)
of this section.
(B) Facility-based assessment areas in which a bank lacks an
acceptable basis for not meeting the Retail Lending Volume Threshold.
The [Agency] assigns a Retail Lending Test conclusion for a facility-
based assessment area in which a bank lacks an acceptable basis for not
meeting the Retail Lending Volume Threshold as provided in paragraph
(c)(3)(iii) of this section.
(2) Ratings. Pursuant to Sec. __.28 and appendix D to this part,
the [Agency] incorporates a bank's Retail Lending Test conclusions into
its State or multistate MSA ratings, as applicable, and its institution
rating.
Sec. __.23 Retail services and products test.
(a) Retail Services and Products Test--(1) In general. Pursuant to
Sec. __.21, the Retail Services and Products Test evaluates the
availability of a bank's retail banking services and retail banking
products and the responsiveness of those services and products to the
credit needs of the bank's entire community, including low- and
moderate-income individuals, families, or households, low- and
moderate-income census tracts, small businesses, and small farms. The
[Agency] evaluates the bank's retail banking services, as described in
paragraph (b) of this section, and the bank's retail banking products,
as described in paragraph (c) of this section.
(2) Main offices. For purposes of this section, references to a
branch also include a main office that is open to, and accepts deposits
from, the general public.
(3) Exclusion. If the [Agency] considers services under the
Community Development Services Test in Sec. __.25, the [Agency] does
not consider those services under the Retail Services and Products
Test.
(b) Retail banking services--(1) Scope of evaluation. To evaluate a
bank's retail banking services, the [Agency] considers a bank's branch
availability and services provided at branches, remote service facility
availability, and digital delivery systems and other delivery systems,
as follows:
(i) Branch availability and services. The [Agency] considers the
branch availability and services provided at branches of banks that
operate one or more branches pursuant to paragraph (b)(2) of this
section.
(ii) Remote service facility availability. The [Agency] considers
the remote service facility availability of banks that operate one or
more remote service facilities pursuant to paragraph (b)(3) of this
section.
(iii) Digital delivery systems and other delivery systems. The
[Agency] considers the digital delivery systems and other delivery
systems of banks pursuant to paragraph (b)(4) of this section, as
follows:
(A) The [Agency] considers the digital delivery systems and other
delivery systems of the following banks:
(1) Large banks that had assets greater than $10 billion as of
December 31 in both of the prior two calendar years; and
(2) Large banks that had assets less than or equal to $10 billion
as of December 31 in either of the prior two calendar years and that do
not operate branches.
(B) For a large bank that had assets less than or equal $10 billion
as of December 31 in either of the prior two calendar years and that
operates at least one branch, the [Agency] considers the bank's digital
delivery systems and other delivery systems at the bank's option.
(2) Branch availability and services. The [Agency] evaluates a
bank's branch availability and services in a facility-based assessment
area based on the following:
(i) Branch distribution. The [Agency] considers a bank's branch
distribution using the following:
(A) Branch distribution metrics. The [Agency] considers the number
and percentage of the bank's branches within low-, moderate-, middle-,
and upper-income census tracts.
(B) Benchmarks. The [Agency]'s consideration of the branch
distribution metrics is informed by the following benchmarks:
(1) Percentage of census tracts in the facility-based assessment
area that are low-, moderate-, middle-, and upper-income census tracts;
(2) Percentage of households in the facility-based assessment area
that are in low-, moderate-, middle-, and upper-income census tracts;
(3) Percentage of total businesses in the facility-based assessment
area that are in low-, moderate-, middle-, and upper-income census
tracts; and
(4) Percentage of all full-service depository institution branches
in the facility-based assessment area that are in low-, moderate-,
middle-, and upper-income census tracts.
(C) Additional geographic considerations. The [Agency] considers
the availability of branches in the following geographic areas:
(1) Middle- and upper-income census tracts in which a branch
delivers services to low- and moderate-income individuals, families, or
households to the extent that these individuals, families, or
households use the services offered;
(2) Distressed or underserved nonmetropolitan middle-income census
tracts; and
(3) Native Land Areas.
(ii) Branch openings and closings. The [Agency] considers a bank's
record of opening and closing branches since the previous CRA
examination to inform the degree of accessibility of services to low-
and moderate-income individuals, families, or households, small
businesses, and small farms, and low- and moderate-income census
tracts.
(iii) Branch hours of operation and services. The [Agency]
considers the following:
(A) The reasonableness of branch hours in low- and moderate-income
census tracts compared to middle- and upper-income census tracts,
including, but not limited to, whether branches offer extended and
weekend hours.
(B) The range of services provided at branches in low-, moderate-,
middle-, and upper-income census tracts, respectively, including, but
not limited to:
(1) Bilingual and translation services;
(2) Free or low-cost check cashing services, including, but not
limited to, check cashing services for government-issued and payroll
checks;
(3) Reasonably priced international remittance services; and
(4) Electronic benefit transfers.
(C) The degree to which branch-provided retail banking services are
responsive to the needs of low- and moderate-income individuals,
families, or households in a bank's facility-based assessment areas.
(3) Remote service facility availability. The [Agency] evaluates a
bank's remote service facility availability in a facility-based
assessment area based on the following:
[[Page 7121]]
(i) Remote service facility distribution. The [Agency] considers a
bank's remote service facility distribution using the following:
(A) Remote service facility distribution metrics. The [Agency]
considers the number and percentage of the bank's remote service
facilities within low-, moderate-, middle-, and upper-income census
tracts.
(B) Benchmarks. The [Agency]'s consideration of the remote service
facility distribution metrics is informed by the following benchmarks:
(1) Percentage of census tracts in the facility-based assessment
area that are low-, moderate-, middle-, and upper-income census tracts;
(2) Percentage of households in the facility-based assessment area
that are in low-, moderate-, middle-, and upper-income census tracts;
and
(3) Percentage of total businesses in the facility-based assessment
area that are in low-, moderate-, middle-, and upper-income census
tracts.
(C) Additional geographic considerations. The [Agency] considers
the availability of remote service facilities in the following
geographic areas:
(1) Middle- and upper-income census tracts in which a remote
service facility delivers services to low- and moderate-income
individuals, families, or households to the extent that these
individuals, families, or households use the services offered;
(2) Distressed or underserved nonmetropolitan middle-income census
tracts; and
(3) Native Land Areas.
(ii) Access to out-of-network ATMs. The [Agency] considers whether
the bank offers customers fee-free access to out-of-network ATMs in
low- and moderate-income census tracts.
(4) Digital delivery systems and other delivery systems. The
[Agency] evaluates the availability and responsiveness of a bank's
digital delivery systems and other delivery systems, including to low-
and moderate-income individuals, families, or households at the
institution level by considering:
(i) The range of retail banking services and retail banking
products offered through digital delivery systems and other delivery
systems;
(ii) The bank's strategy and initiatives to serve low- and
moderate-income individuals, families, or households with digital
delivery systems and other delivery systems as reflected by, for
example, the costs, features, and marketing of the delivery systems;
and
(iii) Digital delivery systems and other delivery systems activity
by individuals, families or households in low-, moderate-, middle-, and
upper-income census tracts as evidenced by:
(A) The number of checking and savings accounts opened each
calendar year during the evaluation period digitally and through other
delivery systems in low-, moderate-, middle-, and upper-income census
tracts;
(B) The number of checking and savings accounts opened digitally
and through other delivery systems and that are active at the end of
each calendar year during the evaluation period in low-, moderate-,
middle-, and upper-income census tracts; and
(C) Any other bank data that demonstrates digital delivery systems
and other delivery systems are available to individuals and in census
tracts of different income levels, including low- and moderate-income
individuals, families, or households and low- and moderate-income
census tracts.
(c) Retail banking products evaluation--(1) Scope of evaluation.
The [Agency] evaluates a bank's retail banking products offered in the
bank's facility-based assessment areas and nationwide, as applicable,
at the institution level as follows:
(i) Credit products and programs. The [Agency] evaluates a bank's
credit products and programs pursuant to paragraph (c)(2) of this
section.
(ii) Deposit products. The [Agency] evaluates a bank's deposit
products pursuant to paragraph (c)(3) of this section as follows:
(A) For large banks that had assets greater than $10 billion as of
December 31 in both of the prior two calendar years; and
(B) For large banks that had assets less than or equal to $10
billion as of December 31 in either of the prior two calendar years,
the [Agency] considers a bank's deposit products only at the bank's
option.
(2) Credit products and programs. The [Agency] evaluates whether a
bank's credit products and programs are, consistent with safe and sound
operations, responsive to the credit needs of the bank's entire
community, including the needs of low- and moderate-income individuals,
families, or households, residents of low- and moderate-income census
tracts, small businesses, or small farms. Responsive credit products
and programs may include, but are not limited to, credit products and
programs that:
(i) Facilitate home mortgage and consumer lending targeted to low-
or moderate-income borrowers;
(ii) Meet the needs of small businesses and small farms, including
small businesses and small farms with gross annual revenues of $250,000
or less;
(iii) Are conducted in cooperation with MDIs, WDIs, LICUs, or
CDFIs;
(iv) Are low-cost education loans; or
(v) Are special purpose credit programs pursuant to 12 CFR 1002.8.
(3) Deposit products. The [Agency] evaluates the availability and
usage of a bank's deposit products responsive to the needs of low- and
moderate-income individuals, families, or households as follows:
(i) Availability of deposit products responsive to the needs of
low- and moderate-income individuals, families, or households. The
[Agency] considers the availability of deposit products responsive to
the needs of low- and moderate-income individuals, families, or
households based on the extent to which a bank offers deposit products
that, consistent with safe and sound operations, have features and cost
characteristics responsive to the needs of low- and moderate-income
individuals, families, or households. Deposit products responsive to
the needs of low- and moderate-income individuals, families, or
households include but are not limited to, deposit products with the
following types of features:
(A) Low-cost features, including, but not limited to, deposit
products with no overdraft or insufficient funds fees, no or low
minimum opening balance, no or low monthly maintenance fees, or free or
low-cost check-cashing and bill-pay services;
(B) Features facilitating broad functionality and accessibility,
including, but not limited to, deposit products with in-network ATM
access, debit cards for point-of-sale and bill payments, and immediate
access to funds for customers cashing government, payroll, or bank-
issued checks; or
(C) Features facilitating inclusivity of access by individuals
without banking or credit histories or with adverse banking histories.
(ii) Usage of deposit products responsive to the needs of low- and
moderate-income individuals. The [Agency] considers the usage of a
bank's deposit products responsive to the needs of low- and moderate-
income individuals, families, or households based on the following
information:
(A) The number of responsive deposit accounts opened and closed
during each year of the evaluation period in low-, moderate-, middle-,
and upper-income census tracts;
(B) In connection with paragraph (c)(3)(ii)(A) of this section, the
percentage of responsive deposit
[[Page 7122]]
accounts compared to total deposit accounts for each year of the
evaluation period;
(C) Marketing, partnerships, and other activities that the bank has
undertaken to promote awareness and use of responsive deposit accounts
by low- and moderate-income individuals, families, or households; and
(D) Optionally, any other information the bank provides that
demonstrates usage of the bank's deposit products that have features
and cost characteristics responsive to the needs of low- and moderate-
income individuals, families, or households and low- and moderate-
income census tracts.
(d) Retail Services and Products Test performance conclusions and
ratings--(1) Conclusions. Pursuant to Sec. __.28 and appendix C to
this part, the [Agency] assigns conclusions for a bank's Retail
Services and Products Test performance in each facility-based
assessment area, State and multistate MSA, as applicable, and for the
institution. In assigning conclusions under this performance test, the
[Agency] may consider performance context information as provided in
Sec. __.21(d). The evaluation of a bank's retail banking products
under paragraph (c) of this section may only contribute positively to
the bank's Retail Services and Products Test conclusion.
(2) Ratings. Pursuant to Sec. __.28 and appendix D to this part,
the [Agency] incorporates a bank's Retail Services and Products Test
conclusions into its State or multistate MSA ratings, as applicable,
and its institution rating.
Sec. __.24 Community development financing test.
(a) Community Development Financing Test--(1) In general. Pursuant
to Sec. __.21, the Community Development Financing Test evaluates the
bank's record of helping to meet the credit needs of its entire
community through community development loans and community development
investments (i.e., the bank's community development financing
performance).
(2) Allocation. The [Agency] considers community development loans
and community development investments allocated pursuant to paragraph
I.b of appendix B to this part.
(b) Facility-based assessment area evaluation. The [Agency]
evaluates a bank's community development financing performance in a
facility-based assessment area using the metric in paragraph (b)(1) of
this section, benchmarks in paragraph (b)(2) of this section, and a
review of the impact and responsiveness of the bank's community
development loans and community development investments in paragraph
(b)(3) of this section, and assigns a conclusion for a facility-based
assessment area pursuant to paragraph d.1 of appendix C to this part.
(1) Bank Assessment Area Community Development Financing Metric.
The Bank Assessment Area Community Development Financing Metric
measures the dollar volume of a bank's community development loans and
community development investments that benefit or serve a facility-
based assessment area compared to deposits in the bank that are located
in the facility-based assessment area, calculated pursuant to paragraph
II.a of appendix B to this part.
(2) Benchmarks. The [Agency] compares the Bank Assessment Area
Community Development Financing Metric to the following benchmarks:
(i) Assessment Area Community Development Financing Benchmark. For
each of a bank's facility-based assessment areas, the Assessment Area
Community Development Financing Benchmark measures the dollar volume of
community development loans and community development investments that
benefit or serve the facility-based assessment area for all large
depository institutions compared to deposits located in the facility-
based assessment area for all large depository institutions, calculated
pursuant to paragraph II.b of appendix B to this part.
(ii) MSA and Nonmetropolitan Nationwide Community Development
Financing Benchmarks. (A) For each of a bank's facility-based
assessment areas within an MSA, the MSA Nationwide Community
Development Financing Benchmark measures the dollar volume of community
development loans and community development investments that benefit or
serve MSAs in the nationwide area for all large depository institutions
compared to deposits located in the MSAs in the nationwide area for all
large depository institutions.
(B) For each of a bank's facility-based assessment areas within a
nonmetropolitan area, the Nonmetropolitan Nationwide Community
Development Financing Benchmark measures the dollar volume of community
development loans and community development investments that benefit or
serve nonmetropolitan areas in the nationwide area for all large
depository institutions compared to deposits located in nonmetropolitan
areas in the nationwide area for all large depository institutions.
(C) The [Agency] calculates the MSA and Nonmetropolitan Nationwide
Community Development Financing Benchmarks pursuant to paragraph II.c
of appendix B to this part.
(3) Impact and responsiveness review. The [Agency] reviews the
impact and responsiveness of a bank's community development loans and
community development investments that benefit or serve a facility-
based assessment area, as provided in Sec. __.15.
(c) State evaluation. The [Agency] evaluates a bank's community
development financing performance in a State, pursuant to Sec. Sec.
__.19 and __.28(c), using the two components in paragraphs (c)(1) and
(2) of this section and assigns a conclusion for each State based on a
weighted combination of those components pursuant to paragraph II.p of
appendix B to this part.
(1) Component one--weighted average of facility-based assessment
area performance conclusions in a State. The [Agency] considers the
weighted average of the performance scores corresponding to the bank's
Community Development Financing Test conclusions for its facility-based
assessment areas within the State, pursuant to section IV of appendix B
to this part.
(2) Component two--State performance. The [Agency] considers a
bank's community development financing performance in a State using the
metric and benchmarks in paragraphs (c)(2)(i) and (ii) of this section
and a review of the impact and responsiveness of the bank's community
development loans and community development investments in paragraph
(c)(2)(iii) of this section.
(i) Bank State Community Development Financing Metric. The Bank
State Community Development Financing Metric measures the dollar volume
of a bank's community development loans and community development
investments that benefit or serve all or part of a State compared to
deposits in the bank that are located in the State, calculated pursuant
to paragraph II.d of appendix B to this part.
(ii) Benchmarks. The [Agency] compares the Bank State Community
Development Financing Metric to the following benchmarks:
(A) State Community Development Financing Benchmark. The State
Community Development Financing Benchmark measures the dollar volume of
community development loans and community development investments that
benefit or serve all or part of a State for all large depository
institutions compared to deposits located in the State for all large
depository
[[Page 7123]]
institutions, calculated pursuant to paragraph II.e of appendix B to
this part.
(B) State Weighted Assessment Area Community Development Financing
Benchmark. The State Weighted Assessment Area Community Development
Financing Benchmark is the weighted average of the bank's Assessment
Area Community Development Financing Benchmarks for each facility-based
assessment area within the State, calculated pursuant to paragraph II.f
of appendix B to this part.
(iii) Impact and responsiveness review. The [Agency] reviews the
impact and responsiveness of the bank's community development loans and
community development investments that benefit or serve a State, as
provided in Sec. __.15.
(d) Multistate MSA evaluation. The [Agency] evaluates a bank's
community development financing performance in a multistate MSA,
pursuant to Sec. Sec. __.19 and __.28(c), using the two components in
paragraphs (d)(1) and (2) of this section and assigns a conclusion in
each multistate MSA based on a weighted combination of those components
pursuant to paragraph II.p of appendix B to this part.
(1) Component one--weighted average of facility-based assessment
area performance in a multistate MSA. The [Agency] considers the
weighted average of the performance scores corresponding to the bank's
Community Development Financing Test conclusions for its facility-based
assessment areas within the multistate MSA, calculated pursuant to
section IV of appendix B to this part.
(2) Component two--multistate MSA performance. The [Agency]
considers a bank's community development financing performance in a
multistate MSA using the metric and benchmarks in paragraphs (d)(2)(i)
and (ii) of this section and a review of the impact and responsiveness
of the bank's community development loans and community development
investments in paragraph (d)(2)(iii) of this section.
(i) Bank Multistate MSA Community Development Financing Metric. The
Bank Multistate MSA Community Development Financing Metric measures the
dollar volume of a bank's community development loans and community
development investments that benefit or serve a multistate MSA compared
to deposits in the bank located in the multistate MSA, calculated
pursuant to paragraph II.g of appendix B to this part.
(ii) Benchmarks. The [Agency] compares the Bank Multistate MSA
Community Development Financing Metric to the following benchmarks:
(A) Multistate MSA Community Development Financing Benchmark. The
Multistate MSA Community Development Financing Benchmark measures the
dollar volume of community development loans and community development
investments that benefit or serve a multistate MSA for all large
depository institutions compared to deposits located in the multistate
MSA for all large depository institutions, calculated pursuant to
paragraph II.h of appendix B to this part.
(B) Multistate MSA Weighted Assessment Area Community Development
Financing Benchmark. The Multistate MSA Weighted Assessment Area
Community Development Financing Benchmark is the weighted average of
the bank's Assessment Area Community Development Financing Benchmarks
for each facility-based assessment area within the multistate MSA,
calculated pursuant to paragraph II.i of appendix B to this part.
(iii) Impact and responsiveness review. The [Agency] reviews the
impact and responsiveness of the bank's community development loans and
community development investments that benefit or serve a multistate
MSA, as provided in Sec. __.15.
(e) Nationwide area evaluation. The [Agency] evaluates a bank's
community development financing performance in the nationwide area,
pursuant to Sec. __.19, using the two components in paragraphs (e)(1)
and (2) of this section and assigns a conclusion for the institution
based on a weighted combination of those components pursuant to
paragraph II.p of appendix B to this part.
(1) Component one--weighted average of facility-based assessment
area performance in the nationwide area. The [Agency] considers the
weighted average of the performance scores corresponding to the bank's
conclusions for the Community Development Financing Test for its
facility-based assessment areas within the nationwide area, calculated
pursuant to section IV of appendix B to this part.
(2) Component two--nationwide area performance. The [Agency]
considers a bank's community development financing performance in the
nationwide area using the metrics and benchmarks in paragraphs
(e)(2)(i) through (iv) of this section and a review of the impact and
responsiveness of the bank's community development loans and community
development investments in paragraph (e)(2)(v) of this section.
(i) Bank Nationwide Community Development Financing Metric. The
Bank Nationwide Community Development Financing Metric measures the
dollar volume of the bank's community development loans and community
development investments that benefit or serve all or part of the
nationwide area compared to deposits in the bank located in the
nationwide area, calculated pursuant to paragraph II.j of appendix B to
this part.
(ii) Community Development Financing Benchmarks. The [Agency]
compares the Bank Nationwide Community Development Financing Metric to
the following benchmarks:
(A) Nationwide Community Development Financing Benchmark. The
Nationwide Community Development Financing Benchmark measures the
dollar volume of community development loans and community development
investments that benefit or serve all or part of the nationwide area
for all large depository institutions compared to the deposits located
in the nationwide area for all large depository institutions,
calculated pursuant to paragraph II.k of appendix B to this part.
(B) Nationwide Weighted Assessment Area Community Development
Financing Benchmark. The Nationwide Weighted Assessment Area Community
Development Financing Benchmark is the weighted average of the bank's
Assessment Area Community Development Financing Benchmarks for each
facility-based assessment area within the nationwide area, calculated
pursuant to paragraph II.l of appendix B to this part.
(iii) Bank Nationwide Community Development Investment Metric. For
a large bank that had assets greater than $10 billion as of December 31
in both of the prior two calendar years, the Bank Nationwide Community
Development Investment Metric measures the dollar volume of the bank's
community development investments that benefit or serve all or part of
the nationwide area, excluding mortgage-backed securities, compared to
the deposits in the bank located in the nationwide area, calculated
pursuant to paragraph II.m of appendix B to this part.
(iv) Nationwide Community Development Investment Benchmark. (A) For
a large bank that had assets greater than $10 billion as of December 31
in both of the prior two calendar years, the [Agency] compares the Bank
Nationwide Community Development Investment Metric to the Nationwide
Community Development Investment Benchmark. This comparison may only
contribute positively to the bank's
[[Page 7124]]
Community Development Financing Test conclusion for the institution.
(B) The Nationwide Community Development Investment Benchmark
measures the dollar volume of community development investments that
benefit or serve all or part of the nationwide area, excluding
mortgage-backed securities, of all large depository institutions that
had assets greater than $10 billion as of December 31 in both of the
prior two calendar years compared to deposits located in the nationwide
area for those depository institutions, calculated pursuant to
paragraph II.n of appendix B to this part.
(v) Impact and responsiveness review. The [Agency] reviews the
impact and responsiveness of the bank's community development loans and
community development investments that benefit or serve the nationwide
area, as provided in Sec. __.15.
(f) Community Development Financing Test performance conclusions
and ratings--(1) Conclusions. Pursuant to Sec. __.28 and appendix C to
this part, the [Agency] assigns conclusions for a bank's Community
Development Financing Test performance in each facility-based
assessment area, each State or multistate MSA, as applicable, and for
the institution. In assigning conclusions under this performance test,
the [Agency] may consider performance context information as provided
in Sec. __.21(d).
(2) Ratings. Pursuant to Sec. __.28 and appendix D to this part,
the [Agency] incorporates a bank's Community Development Financing Test
conclusions into its State or multistate MSA ratings, as applicable,
and its institution rating.
Sec. __.25 Community development services test.
(a) Community Development Services Test--(1) In general. Pursuant
to Sec. __.21, the Community Development Services Test evaluates a
bank's record of helping to meet the community development services
needs of its entire community.
(2) Allocation. The [Agency] considers information provided by the
bank and may consider publicly available information and information
provided by government or community sources that demonstrates that a
community development service benefits or serves a facility-based
assessment area, State, or multistate MSA, or the nationwide area.
(b) Facility-based assessment area evaluation. The [Agency]
evaluates a bank's community development services performance in a
facility-based assessment area and assigns a conclusion for a facility-
based assessment area, by considering one or more of the following:
(1) The number of community development services attributable to
each type of community development described in Sec. __.13(b) through
(l);
(2) The capacities in which a bank's or its affiliate's board
members or employees serve (e.g., board member of a nonprofit
organization, technical assistance, financial education, general
volunteer);
(3) Total hours of community development services performed by the
bank;
(4) Any other evidence demonstrating that the bank's community
development services are responsive to community development needs,
such as the number of low- and moderate-income individuals that are
participants, or number of organizations served; and
(5) The impact and responsiveness of the bank's community
development services that benefit or serve the facility-based
assessment area, as provided in Sec. __.15.
(c) State, multistate MSA, or nationwide area evaluation. The
[Agency] evaluates a bank's community development services performance
in a State or multistate MSA, as applicable, or nationwide area, and
assigns a conclusion for those areas, based on the following two
components:
(1) Component one--weighted average of facility-based assessment
area performance in a State, multistate MSA, or nationwide area. The
[Agency] considers the weighted average of the performance scores
corresponding to the bank's Community Development Services Test
conclusions for its facility-based assessment areas within a State,
multistate MSA, or the institution pursuant to section IV of appendix B
to this part.
(2) Component two--evaluation of community development services
outside of facility-based assessment areas. The [Agency] may adjust
upwards the conclusion based on the weighted average derived under
paragraph (c)(1) of this section and an evaluation of the bank's
community development services performed outside of its facility-based
assessment areas pursuant to Sec. __.19, which may consider one or
more of the factors in paragraphs (b)(1) through (5) of this section.
(d) Community Development Services Test performance conclusions and
ratings--(1) Conclusions. Pursuant to Sec. __.28 and appendix C to
this part, the [Agency] assigns conclusions for a bank's Community
Development Services Test performance in each facility-based assessment
area, each State or multistate MSA, as applicable, and for the
institution. In assigning conclusions under this performance test, the
[Agency] may consider performance context information as provided in
Sec. __.21(d).
(2) Ratings. Pursuant to Sec. __.28 and appendix D to this part,
the [Agency] incorporates a bank's Community Development Services Test
conclusions into its State or multistate MSA ratings, as applicable,
and its institution rating.
Sec. __.26 Limited purpose banks.
(a) Bank request for designation as a limited purpose bank. To
receive a designation as a limited purpose bank, a bank must file a
written request with the [Agency] at least 90 days prior to the
proposed effective date of the designation. If the [Agency] approves
the designation, it remains in effect until the bank requests
revocation of the designation or until one year after the [Agency]
notifies a limited purpose bank that the [Agency] has revoked the
designation on the [Agency]'s own initiative.
(b) Performance evaluation--(1) In general. To evaluate a limited
purpose bank, the [Agency] applies the Community Development Financing
Test for Limited Purpose Banks as described in paragraphs (c) through
(f) of this section.
(2) Additional consideration--(i) Community development services.
The [Agency] may adjust a limited purpose bank's institution rating
from ``Satisfactory'' to ``Outstanding'' where a bank requests and
receives additional consideration for services that would qualify under
the Community Development Services Test in Sec. __.25.
(ii) Additional consideration for low-cost education loans. A
limited purpose bank may request and receive additional consideration
at the institution level for providing low-cost education loans to low-
income borrowers pursuant to 12 U.S.C. 2903(d), regardless of the
limited purpose bank's overall institution rating.
(c) Community Development Financing Test for Limited Purpose
Banks--(1) In general. Pursuant to Sec. __.21, the Community
Development Financing Test for Limited Purpose Banks evaluates a
limited purpose bank's record of helping to meet the credit needs of
its entire community through community development loans and community
development investments (i.e., the bank's community development
financing performance).
[[Page 7125]]
(2) Allocation. The [Agency] considers community development loans
and community development investments allocated pursuant to paragraph
I.b of appendix B to this part.
(d) Facility-based assessment area evaluation. The [Agency]
evaluates a limited purpose bank's community development financing
performance in a facility-based assessment area and assigns a
conclusion in the facility-based assessment area based on the
[Agency]'s:
(1) Consideration of the dollar volume of the limited purpose
bank's community development loans and community development
investments that benefit or serve the facility-based assessment area;
and
(2) A review of the impact and responsiveness of the limited
purpose bank's community development loans and community development
investments that benefit or serve a facility-based assessment area, as
provided in Sec. __.15.
(e) State or multistate MSA evaluation. The [Agency] evaluates a
limited purpose bank's community development financing performance in
each State or multistate MSA, as applicable pursuant to Sec. Sec.
__.19 and __.28(c), and assigns a conclusion for the bank's performance
in the State or multistate MSA based on the [Agency]'s consideration of
the following two components:
(1) Component one--facility-based assessment area performance
conclusions in a State or multistate MSA. A limited purpose bank's
community development financing performance in its facility-based
assessment areas in the State or multistate MSA; and
(2) Component two--State or multistate MSA performance. The dollar
volume of the limited purpose bank's community development loans and
community development investments that benefit or serve the State or
multistate MSA and a review of the impact and responsiveness of those
loans and investments, as provided in Sec. __.15.
(f) Nationwide area evaluation. The [Agency] evaluates a limited
purpose bank's community development financing performance in the
nationwide area, pursuant to Sec. __.19, and assigns a conclusion for
the institution based on the [Agency]'s consideration of the following
two components:
(1) Component one--facility-based assessment area performance. The
limited purpose bank's community development financing performance in
all of its facility-based assessment areas; and
(2) Component two--nationwide area performance. The limited purpose
bank's community development financing performance in the nationwide
area based on the following metrics and benchmarks in paragraphs
(f)(2)(i) through (iv) of this section and a review of the impact and
responsiveness of the bank's community development loans and community
development investments in paragraph (f)(2)(v) of this section.
(i) Limited Purpose Bank Community Development Financing Metric.
The Limited Purpose Bank Community Development Financing Metric
measures the dollar volume of a bank's community development loans and
community development investments that benefit or serve all or part of
the nationwide area compared to the bank's assets calculated pursuant
to paragraph III.a of appendix B to this part.
(ii) Community Development Financing Benchmarks. The [Agency]
compares the Limited Purpose Bank Community Development Financing
Metric to the following benchmarks:
(A) Nationwide Limited Purpose Bank Community Development Financing
Benchmark. The Nationwide Limited Purpose Bank Community Development
Financing Benchmark measures the dollar volume of community development
loans and community development investments of depository institutions
designated as limited purpose banks or savings associations pursuant to
12 CFR 25.26(a) or designated as limited purpose banks pursuant to 12
CFR 228.26(a) or 345.26(a) reported pursuant to 12 CFR 25.42(b),
228.42(b), or 345.42(b) that benefit and serve all or part of the
nationwide area compared to assets for those depository institutions,
calculated pursuant to paragraph III.b of appendix B to this part; and
(B) Nationwide Asset-Based Community Development Financing
Benchmark. The Nationwide Asset-Based Community Development Financing
Benchmark measures the dollar volume of community development loans and
community development investments that benefit or serve all or part of
the nationwide area of all depository institutions that reported
pursuant to 12 CFR 25.42(b), 228.42(b), or 345.42(b) compared to assets
for those depository institutions, calculated pursuant to paragraph
III.c of appendix B to this part.
(iii) Limited Purpose Bank Community Development Investment Metric.
For a limited purpose bank that had assets greater than $10 billion as
of December 31 in both of the prior two calendar years, the Limited
Purpose Bank Community Development Investment Metric measures the
dollar volume of the bank's community development investments that
benefit or serve all or part of the nationwide area, excluding
mortgage-backed securities, compared to the bank's assets, calculated
pursuant to paragraph III.d of appendix B to this part.
(iv) Nationwide Asset-Based Community Development Investment
Benchmark. (A) For a limited purpose bank that had assets greater than
$10 billion as of December 31 in both of the prior two calendar years,
the [Agency] compares the Limited Purpose Bank Community Development
Investment Metric to the Nationwide Asset-Based Community Development
Investment Benchmark. This comparison may only contribute positively to
the bank's Community Development Financing Test for Limited Purpose
Banks conclusion for the institution.
(B) The Nationwide Asset-Based Community Development Investment
Benchmark measures the dollar volume of community development
investments that benefit or serve all or part of the nationwide area,
excluding mortgage-backed securities, of all depository institutions
that had assets greater than $10 billion as of December 31 in both of
the prior two calendar years, compared to assets for those depository
institutions, calculated pursuant to paragraph III.e of appendix B to
this part.
(v) Impact and responsiveness review. The [Agency] reviews the
impact and responsiveness of the bank's community development loans and
community development investments that benefit or serve the nationwide
area, as provided in Sec. __.15.
(g) Community Development Financing Test for Limited Purpose Banks
performance conclusions and ratings--(1) Conclusions. Pursuant to Sec.
__.28 and appendix C to this part, the [Agency] assigns conclusions for
a limited purpose bank's Community Development Financing Test for
Limited Purpose Banks performance in each facility-based assessment
area, each State or multistate MSA, as applicable, and for the
institution. In assigning conclusions under this performance test, the
[Agency] may consider performance context information as provided in
Sec. __.21(d).
(2) Ratings. Pursuant to Sec. __.28 and appendix D to this part,
the [Agency] incorporates a limited purpose bank's Community
Development Financing Test for Limited Purpose Banks conclusions into
its State or multistate
[[Page 7126]]
MSA ratings, as applicable, and its institution rating.
Sec. __.27 Strategic plan.
(a) Alternative election. Pursuant to Sec. __.21, the [Agency]
evaluates a bank's record of helping to meet the credit needs of its
entire community under a strategic plan, if:
(1) The [Agency] has approved the plan pursuant to this section;
(2) The plan is in effect; and
(3) The bank has been operating under an approved plan for at least
one year.
(b) Data requirements. The [Agency]'s approval of a plan does not
affect the bank's obligation, if any, to collect, maintain, and report
data as required by Sec. __.42.
(c) Plans in general--(1) Term. A plan may have a term of not more
than five years.
(2) Performance tests in plan. (i) A bank's plan must include the
same performance tests that would apply in the absence of an approved
plan, except as provided in paragraph (g)(1) of this section.
(ii) Consistent with paragraph (g) of this section, a bank's plan
may include optional evaluation components or eligible modifications
and additions to the performance tests that would apply in the absence
of an approved plan.
(3) Assessment areas and other geographic areas--(i) Multiple
geographic areas. A bank may prepare a single plan or separate plans
for its facility-based assessment areas, retail lending assessment
areas, outside retail lending area, or other geographic areas that
would be evaluated in the absence of an approved plan.
(ii) Geographic areas not included in a plan. Any facility-based
assessment area, retail lending assessment area, outside retail lending
area, or other geographic area that would be evaluated in the absence
of an approved plan, but is not included in an approved plan, will be
evaluated pursuant to the performance tests that would apply in the
absence of an approved plan.
(4) [Operations subsidiaries or operating subsidiaries] and
affiliates--(i) [Operations subsidiaries or operating subsidiaries].
The loans, investments, services, and products of a bank's [operations
subsidiary or operating subsidiary] must be included in the bank's
plan, unless the [operations subsidiary or operating subsidiary] is
independently subject to CRA requirements.
(ii) Affiliates--(A) Optional inclusion of other affiliates' loans,
investments, services, and products. Consistent with Sec. __.21(b)(3),
a bank may include loans, investments, services, and products of
affiliates of a bank that are not [operations subsidiaries or operating
subsidiaries] in a plan, if those loans, investments, services, and
products are not included in the CRA performance evaluation of any
other depository institution.
(B) Joint plans. Affiliated depository institutions supervised by
the same Federal financial supervisory agency may prepare a joint plan,
provided that the plan includes, for each bank, the applicable
performance tests that would apply in the absence of an approved plan.
The joint plan may include optional evaluation components or eligible
modifications and additions to the performance tests that would apply
in the absence of an approved plan.
(C) Allocation. The inclusion of an affiliate's loans, investments,
services, and products in a bank's plan, or in a joint plan of
affiliated depository institutions, is subject to the following:
(1) The loans, investments, services, and products may not be
included in the CRA performance evaluation of another depository
institution; and
(2) The allocation of loans, investments, services, and products to
a bank, or among affiliated banks, must reflect a reasonable basis for
the allocation and may not be for the sole or primary purpose of
inappropriately enhancing any bank's CRA evaluation.
(d) Justification and appropriateness of plan election--(1)
Justification requirements. A bank's plan must provide a justification
that demonstrates the need for the following aspects of a plan due to
the bank's business model (e.g., its retail banking services and retail
banking products):
(i) Optional evaluation components pursuant to paragraph (g)(1) of
this section;
(ii) Eligible modifications or additions to the applicable
performance tests pursuant to paragraph (g)(2) of this section;
(iii) Additional geographic areas pursuant to paragraph (g)(3) of
this section; and
(iv) The conclusions and ratings methodology pursuant to paragraph
(g)(6) of this section.
(2) Justification elements. Each justification must specify the
following:
(i) Why the bank's business model is outside the scope of, or
inconsistent with, one or more aspects of the performance tests that
would apply in the absence of an approved plan;
(ii) Why an evaluation of the bank pursuant to any aspect of a plan
in paragraph (d)(1) of this section would more meaningfully reflect a
bank's record of helping to meet the credit needs of its community than
if it were evaluated under the performance tests that would apply in
the absence of an approved plan; and
(iii) Why the optional performance components and eligible
modifications or additions meet the standards of paragraphs (g)(1) and
(2) of this section, as applicable.
(e) Public participation in initial draft plan development--(1) In
general. Before submitting a draft plan to the [Agency] for approval
pursuant to paragraph (h) of this section, a bank must:
(i) Informally seek suggestions from members of the public while
developing the plan;
(ii) Once the bank has developed its initial draft plan, formally
solicit public comment on the initial draft plan for at least 60 days
by:
(A) Submitting the initial draft plan for publication on the
[Agency]'s website and by publishing the initial draft plan on the
bank's website, if the bank maintains one; and
(B)(1) Except as provided in paragraph (e)(1)(ii)(B)(2) of this
section, publishing notice in at least one print newspaper of general
circulation (if available, otherwise a digital publication) in each
facility-based assessment area covered by the plan; and
(2) For a military bank, publishing notice in at least one print
newspaper of general circulation targeted to members of the military
(if available, otherwise a digital publication targeted to members of
the military); and
(iii) Include in the notice required under paragraph (e)(1)(ii) of
this section a means by which members of the public can electronically
submit and mail comments to the bank on its initial draft plan.
(2) Availability of initial draft plan. During the period when the
bank is formally soliciting public comment on its initial draft plan,
the bank must make copies of the initial draft plan available for
review at no cost at all offices of the bank in any facility-based
assessment area covered by the plan and provide copies of the initial
draft plan upon request for a reasonable fee to cover copying and
mailing, if applicable.
(f) Submission of a draft plan. The bank must submit its draft plan
to the [Agency] at least 90 days prior to the proposed effective date
of the plan. The bank must also submit with its draft plan:
(1) Proof of notice publication and a description of its efforts to
seek input from members of the public, including individuals and
organizations the bank
[[Page 7127]]
contacted and how the bank gathered information;
(2) Any written comments or other public input received;
(3) If the bank revised the initial draft plan in response to the
public input received, the initial draft plan as released for public
comment with an explanation of the relevant changes; and
(4) If the bank did not revise the initial draft plan in response
to suggestions or concerns from public input received, an explanation
for why any suggestion or concern was not addressed in the draft plan.
(g) Plan content. In addition to meeting the requirements in
paragraphs (c) and (d) of this section, the plan must meet the
following requirements:
(1) Applicable performance tests and optional evaluation
components. A bank must include in its plan a focus on the credit needs
of its entire community, including low- and moderate-income
individuals, families, or households, low- and moderate-income census
tracts, and small businesses and small farms. The bank must describe
how its plan is responsive to the characteristics and credit needs of
its facility-based assessment areas, retail lending assessment areas,
outside retail lending area, or other geographic areas served by the
bank, considering public comment and the bank's capacity and
constraints, product offerings, and business strategy. As applicable, a
bank must specify components in its plan for helping to meet:
(i) The retail lending needs of its facility-based assessment
areas, retail lending assessment areas, and outside retail lending area
that are covered by the plan. A bank that originates or purchases loans
in a product line evaluated pursuant to the Retail Lending Test in
Sec. __.22 or originates or purchases loans evaluated pursuant to the
Small Bank Lending Test in Sec. __.29(a)(2) must include the
applicable test in its plan, subject to eligible modifications or
additions specified in paragraph (g)(2) of this section.
(ii) The retail banking services and retail banking products needs
of its facility-based assessment areas and at the institution level
that are covered by the plan.
(A) A large bank that maintains delivery systems evaluated pursuant
to the Retail Services and Products Test in Sec. __.23(b) must include
this component of the test in its plan, subject to eligible
modifications or additions specified in paragraph (g)(2) of this
section.
(B) A large bank that does not maintain delivery systems evaluated
pursuant to the Retail Services and Products Test in Sec. __.23(b) may
include retail banking products components in Sec. __.23(c) and
accompanying annual measurable goals in its plan.
(C) A bank other than a large bank may include components of retail
banking services or retail banking products and accompanying annual
measurable goals in its plan.
(iii) The community development loan and community development
investment needs of its facility-based assessment areas, States, or
multistate MSAs, as applicable, and the nationwide area that are
covered by the plan. Subject to eligible modifications or additions as
provided in paragraph (g)(2) of this section:
(A) A large bank must include the Community Development Financing
Test in Sec. __.24 in its plan.
(B) An intermediate bank must include either the Community
Development Financing Test in Sec. __.24 or the Intermediate Bank
Community Development Test in Sec. __.30(a)(2) in its plan.
(C) A limited purpose bank must include the Community Development
Financing Test for Limited Purpose Banks in Sec. __.26 in its plan.
(D) A small bank may include a community development loan or
community development investment component and accompanying annual
measurable goals in its plan.
(iv) The community development services needs of its facility-based
assessment areas served by the bank that are covered by the plan.
(A) A large bank must include the Community Development Services
Test in Sec. __.25 in its plan, subject to eligible modifications or
additions as provided in paragraph (g)(2) of this section, for each
facility-based assessment area where the bank has employees.
(B) A bank other than a large bank may include a community
development services component and accompanying annual measurable goals
in its plan.
(2) Eligible modifications or additions to applicable performance
tests--(i) Retail lending. (A) For a bank that the [Agency] would
otherwise evaluate pursuant to the Small Bank Lending Test in Sec.
__.29(a)(2):
(1) A bank may omit, as applicable, the evaluation of performance
criteria related to the loan-to-deposit ratio or the percentage of
loans located in the bank's facility-based assessment area(s).
(2) A bank may add annual measurable goals for any aspect of the
bank's retail lending.
(B) For a bank the [Agency] would otherwise evaluate pursuant to
the Retail Lending Test in Sec. __.22:
(1) A bank may add additional loan products, such as non-automobile
consumer loans or open-end home mortgage loans, or additional goals for
major product lines, such as closed-end home mortgage loans to first-
time homebuyers, with accompanying annual measurable goals.
(2) Where annual measurable goals for additional loan products or
additional goals for major product lines have been added pursuant to
paragraph (g)(2)(i)(B)(1) of this section, a bank may provide different
weights for averaging together the performance across these loan
products and may include those loan products in the numerator of the
Bank Volume Metric.
(3) A bank may use alternative weights for combining the borrower
and geographic distribution analyses for major product line(s) or other
loan products.
(ii) Retail banking services and retail banking products. (A) A
large bank may add annual measurable goals for any component of the
Retail Services and Products Test in Sec. __.23.
(B) A large bank may modify the Retail Services and Products Test
by removing a component of the test.
(C) A large bank may assign specific weights to applicable
components in paragraph (g)(2)(ii)(A) of this section in reaching a
Retail Services and Products Test conclusion.
(D) A bank other than a large bank may include retail banking
services or retail banking products component(s) and accompanying
annual measurable goals in its plan.
(iii) Community development loans and community development
investments. (A) A bank may specify annual measurable goals for
community development loans, community development investments, or
both. The bank must base any annual measurable goals as a percentage or
ratio of the bank's community development loans and community
development investments for all or certain types of community
development described in Sec. __.13(b) through (l), presented either
on a combined or separate basis, relative to the bank's capacity and
should account for community development needs and opportunities.
(B) A bank may specify using assets as an alternative denominator
for a community development financing metric if it better measures a
bank's capacity.
(C) A bank may specify additional benchmarks to evaluate a
community development financing metric.
[[Page 7128]]
(D) A small bank may include community development loans, community
development investments, or both, and accompanying annual measurable
goals in its plan.
(iv) Community development services. (A) A bank may specify annual
measurable goals for community development services activity, by number
of activity hours, number of hours per full-time equivalent employee,
or some other measure.
(B) A bank other than a large bank may include a community
development services component and accompanying annual measurable goals
in its plan.
(v) Weights for assessing performance across geographic areas. A
bank may specify alternative weights for averaging test performance
across assessment areas or other geographic areas. These alternative
weights must be based on the bank's capacity and community needs and
opportunities in specific geographic areas.
(vi) Test weights. For ratings at the State, multistate MSA, and
institution levels pursuant to Sec. __.28(b) and paragraph g.2 of
appendix D to this part, as applicable:
(A) A bank may request an alternate weighting method for combining
performance under the applicable performance tests and optional
evaluation components. In specifying alternative test weights for each
applicable test, a bank must emphasize retail lending, community
development financing, or both. Alternative weights must be responsive
to the characteristics and credit needs of a bank's assessment areas
and public comments and must be based on the bank's capacity and
constraints, product offerings, and business strategy.
(B) A bank that requests an alternate weighting method pursuant to
paragraph (g)(2)(vi)(A) of this section must compensate for decreasing
the weight under one test by committing to enhance its efforts to help
meet the credit needs of its community under another performance test.
(3) Geographic coverage of plan. (i) A bank may incorporate
performance evaluation components and accompanying annual measurable
goals for additional geographic areas but may not eliminate the
evaluation of its performance in any geographic area that would be
included in its performance evaluation in the absence of an approved
plan.
(ii) If a large bank is no longer required to delineate a retail
lending assessment area previously identified in the plan as a result
of not meeting the required retail lending assessment area thresholds
pursuant to Sec. __.17, the [Agency] will not evaluate the bank for
its performance in that area for the applicable years of the plan in
which the area is no longer a retail lending assessment area.
(iii) A bank that includes additional performance evaluation
components with accompanying annual measurable goals in its plan must
specify the geographic areas where those components and goals apply.
(4) Confidential information. A bank may submit additional
information to the [Agency] on a confidential basis, but the goals
stated in the plan must be sufficiently specific to enable the public
and the [Agency] to judge the merits of the plan.
(5) ``Satisfactory'' and ``Outstanding'' performance goals. A bank
that includes modified or additional performance evaluation components
with accompanying annual measurable goals in its plan must specify in
its plan annual measurable goals that constitute ``Satisfactory''
performance and may specify annual measurable goals that constitute
``Outstanding'' performance.
(6) Conclusions and rating methodology. A bank must specify in its
plan how all elements of a plan covered in paragraphs (g)(1) through
(5) of this section, in conjunction with any other applicable
performance tests not included in an approved strategic plan, should be
considered to assign:
(i) Conclusions. Pursuant to Sec. __.28 and appendix C to this
part, the [Agency] assigns conclusions for each facility-based
assessment area, retail lending assessment area, outside retail lending
area, State, and multistate MSA, as applicable, and the institution. In
assigning conclusions under a strategic plan, the [Agency] may consider
performance context information as provided in Sec. __.21(d).
(ii) Ratings. Pursuant to Sec. __.28 and paragraph f of appendix D
to this part, the [Agency] incorporates the conclusions of a bank
evaluated under an approved plan into its State or multistate MSA
ratings, as applicable, and its institution rating, accounting for
paragraph g.2 of appendix D to this part, as applicable.
(h) Draft plan evaluation--(1) Timing. The [Agency] seeks to act
upon a draft plan within 90 calendar days after the [Agency] receives
the complete draft plan and other materials required pursuant to
paragraph (f) of this section. If the [Agency] does not act within this
time period, the [Agency] will communicate to the bank the rationale
for the delay and an expected timeframe for a decision on the draft
plan.
(2) Public participation. In evaluating the draft plan, the
[Agency] considers:
(i) The public's involvement in formulating the draft plan,
including specific information regarding the members of the public and
organizations the bank contacted and how the bank collected information
relevant to the draft plan;
(ii) Written public comments and other public input on the draft
plan;
(iii) Any response by the bank to public input on the draft plan;
and
(iv) Whether to solicit additional public input or require the bank
to provide any additional response to public input already received.
(3) Criteria for evaluating plan for approval. (i) The [Agency]
evaluates all plans using the following criteria:
(A) The extent to which the plan meets the standards set forth in
this section; and
(B) The extent to which the plan has adequately justified the need
for a plan and each aspect of the plan as required in paragraph (d) of
this section.
(ii) The [Agency] evaluates a plan under the following criteria, as
applicable, considering performance context information pursuant to
Sec. __.21(d):
(A) The extent and breadth of retail lending or retail lending-
related activities to address credit needs, including the distribution
of loans among census tracts of different income levels, businesses and
farms of different sizes, and individuals of different income levels,
pursuant to Sec. Sec. __.22, and__.29, as applicable;
(B) The effectiveness of the bank's systems for delivering retail
banking services and the availability and responsiveness of the bank's
retail banking products, pursuant to Sec. __.23, as applicable;
(C) The extent, breadth, impact, and responsiveness of the bank's
community development loans and community development investments,
pursuant to Sec. Sec. __.24, __.26, and __.30, as applicable; and
(D) The number, hours, and types of community development services
performed and the extent to which the bank's community development
services are impactful and responsive, pursuant to Sec. Sec. __.25 and
__.30, as applicable.
(4) Plan decisions--(i) Approval. The [Agency] may approve a plan
after considering the criteria in paragraph (h)(3) of this section and
if it determines that the bank has provided adequate justification for
the plan and each aspect of the plan as required in paragraph (d) of
this section.
(ii) Denial. The [Agency] may deny a bank's request to be evaluated
under a plan for any of the following reasons:
[[Page 7129]]
(A) The Agency determines that the bank has not provided adequate
justification for the plan and each aspect of the plan as required
pursuant to paragraph (d) of this section;
(B) The [Agency] determines that evaluation under the plan would
not provide a more meaningful reflection of the bank's record of
helping to meet the credit needs of the bank's community;
(C) The plan is not responsive to public comment received pursuant
to paragraph (e) of this section;
(D) The [Agency] determines that the plan otherwise fails to meet
the requirements of this section; or
(E) The bank fails to provide information requested by the [Agency]
that is necessary for the [Agency] to make an informed decision.
(5) Publication of approved plan. The [Agency] will publish an
approved plan on the [Agency]'s website.
(i) Plan amendment--(1) Mandatory plan amendment. During the term
of a plan, a bank must submit to the [Agency] for approval an amendment
to its plan if a material change in circumstances:
(i) Impedes its ability to perform at a satisfactory level under
the plan, such as financial constraints caused by significant events
that impact the local or national economy; or
(ii) Significantly increases its financial capacity and ability to
engage in retail lending, retail banking services, retail banking
products, community development loans, community development
investments, or community development services referenced in an
approved plan, such as a merger or consolidation.
(2) Elective plan amendment. During the term of a plan, a bank may
request the [Agency] to approve an amendment to the plan in the absence
of a material change in circumstances.
(3) Requirements for plan amendments--(i) Amendment explanation.
When submitting a plan amendment for approval, a bank must explain:
(A) The material change in circumstances necessitating the
amendment; or
(B) Why it is necessary and appropriate to amend its plan in the
absence of a material change in circumstances.
(ii) Compliance requirement. An amendment to a plan must comply
with all relevant requirements of this section, unless the [Agency]
waives a requirement as not applicable.
(j) Performance evaluation under a plan--(1) In general. The
[Agency] evaluates a bank's performance under an approved plan based on
the performance tests that would apply in the absence of an approved
plan and any optional evaluation components or eligible modifications
and additions to the applicable performance tests set forth in the
bank's approved plan.
(2) Goal considerations. If a bank established annual measurable
goals and does not meet one or more of its satisfactory goals, the
[Agency] will consider the following factors to determine the effect on
a bank's CRA performance evaluation:
(i) The degree to which the goal was not met;
(ii) The importance of the unmet goals to the plan as a whole; and
(iii) Any circumstances beyond the control of the bank, such as
economic conditions or other market factors or events, that have
adversely impacted the bank's ability to perform.
(3) Ratings. The [Agency] rates the performance of a bank under
this section pursuant to appendix D to this part.
Sec. __.28 Assigned conclusions and ratings.
(a) Conclusions--(1) State, multistate MSA, and institution test
conclusions and performance scores--(i) In general. For each of the
applicable performance tests pursuant to Sec. Sec. __.22 through __.26
and __.30, the [Agency] assigns conclusions and associated test
performance scores of ``Outstanding,'' ``High Satisfactory,'' ``Low
Satisfactory,'' ``Needs to Improve,'' or ``Substantial Noncompliance''
for the performance of a bank in each State and multistate MSA, as
applicable pursuant to paragraph (c) of this section, and for the
institution.
(ii) Small banks. The [Agency] assigns conclusions of
``Outstanding,'' ``Satisfactory,'' ``Needs to Improve,'' or
``Substantial Noncompliance'' for the performance of a small bank
evaluated under the Small Bank Lending Test in Sec. __.29(a)(2) in
each State and multistate MSA, as applicable pursuant to paragraph (c)
of this section, and for the institution pursuant to Sec. __.29 and
appendix E to this part.
(iii) Banks operating under a strategic plan. The [Agency] assigns
conclusions for the performance of a bank operating under a strategic
plan pursuant to Sec. __.27 in each State and multistate MSA, as
applicable pursuant to paragraph (c) of this section, and for the
institution in accordance with the methodology of the plan and appendix
C to this part.
(2) Bank performance in metropolitan and nonmetropolitan areas.
Pursuant to 12 U.S.C. 2906, the [Agency] provides conclusions derived
under this part separately for metropolitan areas in which a bank
maintains one or more domestic branch offices and for the
nonmetropolitan area of a State if a bank maintains one or more
domestic branch offices in such nonmetropolitan area.
(b) Ratings--(1) In general. The [Agency] assigns a rating for a
bank's overall CRA performance of ``Outstanding,'' ``Satisfactory,''
``Needs to Improve,'' or ``Substantial Noncompliance'' in each State
and multistate MSA, as applicable pursuant to paragraph (c) of this
section, and for the institution, as provided in this section and
appendices D and E to this part. The ratings assigned by the [Agency]
reflect the bank's record of helping to meet the credit needs of its
entire community, including low- and moderate-income neighborhoods,
consistent with the safe and sound operation of the bank.
(2) State, multistate MSA, and institution ratings and overall
performance scores. (i) For large banks, intermediate banks, small
banks that opt into the Retail Lending Test in Sec. __.22, and limited
purpose banks, the [Agency] calculates and discloses the bank's overall
performance score for each State and multistate MSA, as applicable, and
for the institution. The [Agency] uses a bank's overall performance
scores described in this section to assign a rating for the bank's
overall performance in each State and multistate MSA, as applicable,
and for the institution, subject to paragraphs (d) and (e) of this
section.
(ii) Overall performance scores are based on the bank's performance
score for each applicable performance test and derived as provided in
paragraph (b)(3) of this section, as applicable, and appendix D to this
part.
(3) Weighting of performance scores. In calculating a large bank's
or intermediate bank's overall performance score for each State and
multistate MSA, as applicable, and the institution, the [Agency]
weights the performance scores for the bank for each applicable
performance test as provided in paragraphs (b)(3)(i) and (ii) of this
section.
(i) Large bank performance test weights. The [Agency] weights the
bank's performance score for the performance tests applicable to a
large bank as follows:
(A) Retail Lending Test, 40 percent;
(B) Retail Services and Products Test, 10 percent;
(C) Community Development Financing Test, 40 percent; and
(D) Community Development Services Test, 10 percent.
[[Page 7130]]
(ii) Intermediate bank performance test weights. The [Agency]
weights the bank's performance score for the performance tests
applicable to an intermediate bank as follows:
(A) Retail Lending Test, 50 percent; and
(B) Intermediate Bank Community Development Test or Community
Development Financing Test, as applicable, 50 percent.
(4) Minimum conclusion requirements--(i) Retail Lending Test
minimum conclusion. An intermediate bank or a large bank must receive
at least a ``Low Satisfactory'' Retail Lending Test conclusion for the
State, multistate MSA, or institution to receive, respectively, a
State, multistate MSA, or institution rating of ``Satisfactory'' or
``Outstanding.''
(ii) Minimum of ``Low Satisfactory'' overall facility-based
assessment area and retail lending assessment area conclusion. (A) For
purposes of this paragraph (b)(4)(ii)(A), the [Agency] assigns a large
bank an overall conclusion for each facility-based assessment area and,
as applicable, each retail lending assessment area, as provided in
paragraph g.2.ii of appendix D to this part.
(B) Except as provided in Sec. __.51(e), a large bank with a
combined total of 10 or more facility-based assessment areas and retail
lending assessment areas in any State or multistate MSA, as applicable,
or for the institution may not receive a rating of ``Satisfactory'' or
``Outstanding'' in that State or multistate MSA, as applicable, or for
the institution, unless the bank receives an overall conclusion of at
least ``Low Satisfactory'' in 60 percent or more of the total number of
its facility-based assessment areas and retail lending assessment areas
in that State or multistate MSA, as applicable, or for the institution.
(c) Conclusions and ratings for States and multistate MSAs--(1)
States--(i) In general. Except as provided in paragraph (c)(1)(ii) of
this section, the [Agency] evaluates a bank and assigns conclusions and
ratings for any State in which the bank maintains a main office,
branch, or deposit-taking remote service facility.
(ii) States with rated multistate MSAs. The [Agency] evaluates a
bank and assigns conclusions and ratings for a State only if the bank
maintains a main office, branch, or deposit-taking remote service
facility outside the portion of the State comprising any multistate MSA
identified in paragraph (c)(2) of this section. In evaluating a bank
and assigning conclusions and ratings for a State, the [Agency] does
not consider activities to be in the State if those activities take
place in the portion of the State comprising any multistate MSA
identified in paragraph (c)(2) of this section.
(iii) States with non-rated multistate MSAs. If a facility-based
assessment area of a bank comprises a geographic area spanning two or
more States within a multistate MSA that is not identified in paragraph
(c)(2) of this section, the [Agency] considers activities in the entire
facility-based assessment area to be in the State in which the bank
maintains, within the multistate MSA, a main office, branch, or
deposit-taking remote service facility. In evaluating a bank and
assigning conclusions and ratings for a State, the [Agency] does not
consider activities to be in the State if those activities take place
in any facility-based assessment area that is considered to be in
another State pursuant to this paragraph (c)(1)(iii).
(iv) States with multistate retail lending assessment areas. In
assigning Retail Lending Test conclusions for a State pursuant to Sec.
__.22(h), the [Agency] does not consider a bank's activities to be in
the State if those activities take place in a retail lending assessment
area consisting of counties in more than one State.
(2) Rated multistate MSAs. The [Agency] evaluates a bank and
assigns conclusions and ratings under this part in any multistate MSA
in which the bank maintains a main office, a branch, or a deposit-
taking remote service facility in two or more States within that
multistate MSA.
(d) Effect of evidence of discriminatory or other illegal credit
practices--(1) Scope. For each State and multistate MSA, as applicable,
and the institution, the [Agency]'s evaluation of a bank's performance
under this part is adversely affected by evidence of discriminatory or
other illegal credit practices, as provided in paragraph (d)(2) of this
section. The [Agency] considers evidence of discriminatory or other
illegal credit practices described in this section by:
(i) The bank, including by an [operations subsidiary or operating
subsidiary] of the bank; or
(ii) Any other affiliate related to any activities considered in
the evaluation of the bank.
(2) Discriminatory or other illegal credit practices. For purposes
of paragraph (d)(1) of this section, discriminatory or other illegal
credit practices consist of the following:
(i) Discrimination on a prohibited basis, including in violation of
the Equal Credit Opportunity Act (15 U.S.C. 1691 et seq.) or the Fair
Housing Act (42 U.S.C. 3601 et seq.);
(ii) Violations of the Home Ownership and Equity Protection Act (15
U.S.C. 1639);
(iii) Violations of section 5 of the Federal Trade Commission Act
(15 U.S.C. 45);
(iv) Violations of section 1031 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act (12 U.S.C. 5531, 5536);
(v) Violations of section 8 of the Real Estate Settlement
Procedures Act (12 U.S.C. 2601 et seq.);
(vi) Violations of the Truth in Lending Act (15 U.S.C. 1601 et
seq.);
(vii) Violations of the Military Lending Act (10 U.S.C. 987);
(viii) Violations of the Servicemembers Civil Relief Act (50 U.S.C.
3901 et seq.); and
(ix) Any other violation of a law, rule, or regulation consistent
with the types of violations in paragraphs (d)(2)(i) through (viii) of
this section, as determined by the [Agency].
(3) Agency considerations. In determining the effect of evidence of
discriminatory or other illegal credit practices described in paragraph
(d)(1) of this section on the bank's assigned State, multistate MSA,
and institution ratings, the [Agency] will consider:
(i) The root cause or causes of any such violations of law, rule,
or regulation;
(ii) The severity of any harm to any communities, individuals,
small businesses, and small farms resulting from such violations;
(iii) The duration of time over which the violations occurred;
(iv) The pervasiveness of the violations;
(v) The degree to which the bank, [operations subsidiary or
operating subsidiary], or affiliate, as applicable, has established an
effective compliance management system across the institution to self-
identify risks and to take the necessary actions to reduce the risk of
noncompliance and harm to communities, individuals, small businesses,
and small farms; and
(vi) Any other relevant information.
(e) Consideration of past performance. When assigning ratings, the
[Agency] considers a bank's past performance. If a bank's prior rating
was ``Needs to Improve,'' the [Agency] may determine that a
``Substantial Noncompliance'' rating is appropriate where the bank
failed to improve its performance since the previous evaluation period,
with no acceptable basis for such failure.
[[Page 7131]]
Sec. __.29 Small bank performance evaluation.
(a) Small bank performance evaluation--(1) In general. The [Agency]
evaluates a small bank's record of helping to meet the credit needs of
its entire community pursuant to the Small Bank Lending Test as
provided in paragraph (a)(2) of this section, unless the small bank
opts to be evaluated pursuant to the Retail Lending Test in Sec.
__.22.
(2) Small Bank Lending Test. A small bank's retail lending
performance is evaluated pursuant to the following criteria:
(i) The bank's loan-to-deposit ratio, adjusted for seasonal
variation, and, as appropriate, other retail and community development
lending-related activities, such as loan originations for sale to the
secondary markets, community development loans, or community
development investments;
(ii) The percentage of loans and, as appropriate, other retail and
community development lending-related activities located in the bank's
facility-based assessment areas;
(iii) The bank's record of lending to and, as appropriate, engaging
in other retail and community development lending-related activities
for borrowers of different income levels and businesses and farms of
different sizes;
(iv) The geographic distribution of the bank's loans; and
(v) The bank's record of taking action, if warranted, in response
to written complaints about its performance in helping to meet credit
needs in its facility-based assessment areas.
(b) Additional consideration--(1) Small banks evaluated pursuant to
the Small Bank Lending Test. The [Agency] may adjust a small bank
rating from ``Satisfactory'' to ``Outstanding'' at the institution
level where the bank requests and receives additional consideration for
the following activities, without regard to whether the activity is in
one or more of the bank's facility-based assessment areas, as
applicable:
(i) Making community development investments;
(ii) Providing community development services; and
(iii) Providing branches and other services, digital delivery
systems and other delivery systems, and deposit products responsive to
the needs of low- and moderate-income individuals, families, or
households, residents of low- and moderate-income census tracts, small
businesses, and small farms.
(2) Small banks that opt to be evaluated pursuant to the Retail
Lending Test in Sec. __.22. The [Agency] may adjust a small bank
rating from ``Satisfactory'' to ``Outstanding'' at the institution
level where the bank requests and receives additional consideration for
activities that would qualify pursuant to the Retail Services and
Products Test in Sec. __.23, the Community Development Financing Test
in Sec. __.24, or the Community Development Services Test in Sec.
__.25.
(3) Additional consideration for activities with MDIs, WDIs, and
LICUs, and for providing low-cost education loans. Notwithstanding
paragraphs (b)(1) and (2) of this section, a small bank may request and
receive additional consideration at the institution level for
activities with MDIs, WDIs, and LICUs pursuant to 12 U.S.C. 2903(b) and
2907(a) and for providing low-cost education loans to low-income
borrowers pursuant to 12 U.S.C. 2903(d), regardless of the small bank's
overall institution rating.
(c) Small bank performance conclusions and ratings--(1)
Conclusions. Except for a small bank that opts to be evaluated pursuant
to the Retail Lending Test in Sec. __.22, the [Agency] assigns
conclusions for the performance of a small bank evaluated under this
section as provided in appendix E to this part. If a bank opts to be
evaluated pursuant to the Retail Lending Test, the [Agency] assigns
conclusions for the bank's Retail Lending Test performance as provided
in appendix C to this part. In assigning conclusions for a small bank,
the [Agency] may consider performance context information as provided
in Sec. __.21(d).
(2) Ratings. For a small bank evaluated under the Small Bank
Lending Test, the [Agency] rates the bank's performance under this
section as provided in appendix E to this part. If a small bank opts to
be evaluated under the Retail Lending Test in Sec. __.22, the [Agency]
rates the performance of a small bank as provided in appendix D to this
part.
Sec. __.30 Intermediate bank performance evaluation.
(a) Intermediate bank performance evaluation--(1) In general. The
[Agency] evaluates an intermediate bank's record of helping to meet the
credit needs of its entire community pursuant to the Retail Lending
Test in Sec. __.22 and the Intermediate Bank Community Development
Test as provided in paragraph (a)(2) of this section, unless an
intermediate bank opts to be evaluated pursuant to the Community
Development Financing Test in Sec. __.24.
(2) Intermediate Bank Community Development Test. (i) An
intermediate bank's community development performance is evaluated
pursuant to the following criteria:
(A) The number and dollar amount of community development loans;
(B) The number and dollar amount of community development
investments;
(C) The extent to which the bank provides community development
services; and
(D) The bank's responsiveness through such community development
loans, community development investments, and community development
services to community development needs. The [Agency]'s evaluation of
the responsiveness of the bank's activities is informed by information
provided by the bank, and may be informed by the impact and
responsiveness review factors described in Sec. __.15(b).
(ii) The [Agency] considers an intermediate bank's community
development loans, community development investments, and community
development services without regard to whether the activity is made in
one or more of the bank's facility-based assessment areas. The extent
of the [Agency]'s consideration of community development loans,
community development investments, and community development services
outside of the bank's facility-based assessment areas will depend on
the adequacy of the bank's responsiveness to community development
needs and opportunities within the bank's facility-based assessment
areas and applicable performance context information.
(b) Additional consideration--(1) Intermediate banks evaluated
pursuant to the Intermediate Bank Community Development Test. The
[Agency] may adjust the rating of an intermediate bank evaluated as
provided in paragraph (a)(2) of this section from ``Satisfactory'' to
``Outstanding'' at the institution level where the bank requests and
receives additional consideration for activities that would qualify
pursuant to the Retail Services and Products Test in Sec. __.23.
(2) Intermediate banks evaluated pursuant to the Community
Development Financing Test. The [Agency] may adjust the rating of an
intermediate bank that opts to be evaluated pursuant to the Community
Development Financing Test in Sec. __.24 from ``Satisfactory'' to
``Outstanding'' at the institution level where the bank requests and
receives additional consideration for activities that would qualify
pursuant to the Retail Services and Products Test in
[[Page 7132]]
Sec. __.23, the Community Development Services Test in Sec. __.25, or
both.
(3) Additional consideration for low-cost education loans.
Notwithstanding paragraphs (b)(1) and (2) of this section, an
intermediate bank may request and receive additional consideration at
the institution level for providing low-cost education loans to low-
income borrowers pursuant to 12 U.S.C. 2903(d), regardless of the
intermediate bank's overall institution rating.
(c) Intermediate bank performance conclusions and ratings--(1)
Conclusions. The [Agency] assigns a conclusion for the performance of
an intermediate bank evaluated pursuant to this section as provided in
appendices C and E to this part. In assigning conclusions for an
intermediate bank, the [Agency] may consider performance context
information as provided in Sec. __.21(d).
(2) Ratings. The [Agency] rates the performance of an intermediate
bank evaluated under this section as provided in appendix D to this
part.
Sec. __.31 [Reserved]
Subpart D--Records, Reporting, Disclosure, and Public Engagement
Requirements
Sec. __.42 Data collection, reporting, and disclosure.
(a) Information required to be collected and maintained--(1) Small
business loans and small farm loans data. A large bank must collect and
maintain in electronic form, as prescribed by the [Agency], until the
completion of the bank's next CRA examination in which the data are
evaluated, the following data for each small business loan or small
farm loan originated or purchased by the bank during the evaluation
period:
(i) A unique number or alpha-numeric symbol that can be used to
identify the relevant loan file;
(ii) An indicator for the loan type as reported on the bank's Call
Report or Report of Assets and Liabilities of U.S. Branches and
Agencies of Foreign Banks, as applicable.
(iii) The date of the loan origination or purchase;
(iv) The loan amount at origination or purchase;
(v) The loan location, including State, county, and census tract;
(vi) An indicator for whether the loan was originated or purchased
by the bank;
(vii) An indicator for whether the loan was to a business or farm
with gross annual revenues of $250,000 or less;
(viii) An indicator for whether the loan was to a business or farm
with gross annual revenues greater than $250,000 but less than or equal
to $1 million;
(ix) An indicator for whether the loan was to a business or farm
with gross annual revenues greater than $1 million; and
(x) An indicator for whether the loan was to a business or farm for
which gross annual revenues are not known by the bank.
(2) Consumer loans data--automobile loans--(i) Large banks. A large
bank for which automobile loans are a product line must collect and
maintain in electronic form, as prescribed by the [Agency], until the
completion of the bank's next CRA examination in which the data is
evaluated, the data described in paragraphs (a)(2)(iii)(A) through (F)
of this section for each automobile loan originated or purchased by the
bank during the evaluation period.
(ii) Intermediate or small banks. An intermediate bank or a small
bank for which automobile loans are a product line may collect and
maintain in a format of the bank's choosing, including in an electronic
form prescribed by the [Agency], until the completion of the bank's
next CRA examination in which the data are evaluated, the data
described in paragraphs (a)(2)(iii)(A) through (F) of this section for
each automobile loan originated or purchased by the bank during the
evaluation period.
(iii) Data collected and maintained. Data collected and maintained
pursuant to paragraph (a)(2)(i) or (ii) of this section include the
following:
(A) A unique number or alpha-numeric symbol that can be used to
identify the relevant loan file;
(B) The date of the loan origination or purchase;
(C) The loan amount at origination or purchase;
(D) The loan location, including State, county, and census tract;
(E) An indicator for whether the loan was originated or purchased
by the bank; and
(F) The gross annual income relied on in making the credit
decision.
(3) Home mortgage loans. (i) If a large bank is subject to
reporting under 12 CFR part 1003, the bank must collect and maintain,
in electronic form, as prescribed by the [Agency], until the completion
of the bank's next CRA examination in which the data are evaluated, the
location of each home mortgage loan application, origination, or
purchase outside the MSAs in which the bank has a home or branch office
(or outside any MSA) pursuant to the requirements in 12 CFR 1003.4(e).
(ii) If a large bank is not subject to reporting under 12 CFR part
1003 due to the location of its branches, but would otherwise meet the
Home Mortgage Disclosure Act (HMDA) size and lending activity
requirements pursuant to 12 CFR part 1003, the bank must collect and
maintain, in electronic form, as prescribed by the [Agency], until the
completion of the bank's next CRA examination in which the data are
evaluated, the following data, for each closed-end home mortgage loan,
excluding multifamily loans, originated or purchased during the
evaluation period:
(A) A unique number or alpha-numeric symbol that can be used to
identify the relevant loan file;
(B) The date of the loan origination or purchase;
(C) The loan amount at origination or purchase;
(D) The location of each home mortgage loan origination or
purchase, including State, county, and census tract;
(E) The gross annual income relied on in making the credit
decision; and
(F) An indicator for whether the loan was originated or purchased
by the bank.
(4) Retail banking services and retail banking products data--(i)
Branches and remote service facilities. A large bank must collect and
maintain in electronic form, as prescribed by the [Agency], until
completion of the bank's next CRA examination in which the data are
evaluated, the following data with respect to retail banking services
and retail banking products offered and provided by the bank during
each calendar year:
(A) Location of branches, main offices described in Sec.
__.23(a)(2), and remote service facilities. Location information must
include:
(1) Street address;
(2) City;
(3) County;
(4) State;
(5) Zip code; and
(6) Census tract;
(B) An indicator for whether each branch is full-service or
limited-service, and for each remote service facility whether it is
deposit-taking, cash-advancing, or both;
(C) Locations and dates of branch, main office described in Sec.
__.23(a)(2), and remote service facility openings and closings, as
applicable;
(D) Hours of operation of each branch, main office described in
Sec. __.23(a)(2), and remote service facility, as applicable; and
(E) Services offered at each branch or main office described in
Sec. __.23(a)(2)
[[Page 7133]]
that are responsive to low- and moderate-income individuals, families,
or households and low- and moderate-income census tracts.
(ii) Digital delivery systems and other delivery systems data--(A)
In general. A large bank that had assets greater than $10 billion as of
December 31 in both of the prior two calendar years, a large bank that
had assets less than or equal to $10 billion as of December 31 in
either of the prior two calendar years that does not operate any
branches or a main office described in Sec. __.23(a)(2), and a large
bank that had assets less than or equal to $10 billion as of December
31 in either of the prior two calendar years that requests additional
consideration for digital delivery systems and other delivery systems
pursuant to Sec. __.23(b)(4), must collect and maintain in electronic
form, as prescribed by the [Agency], until the completion of the bank's
next CRA examination in which the data are evaluated, the data
described in paragraph (a)(4)(ii)(B) of this section. A bank may opt to
collect and maintain additional data pursuant to paragraph
(a)(4)(ii)(C) of this section in a format of the bank's own choosing.
(B) Required data. Pursuant to paragraph (a)(4)(ii)(A) of this
section, a bank must collect and maintain the following data:
(1) The range of retail banking services and retail banking
products offered through digital delivery systems and other delivery
systems; and
(2) The digital delivery systems and other delivery systems
activity by individuals, families, or households in low-, moderate-,
middle-, and upper-income census tracts, as evidenced by:
(i) The number of checking and savings accounts opened digitally
and through other delivery systems by census tract income level for
each calendar year; and
(ii) The number of checking and savings accounts opened digitally
and through other delivery systems that are active at the end of each
calendar year by census tract income level for each calendar year.
(C) Optional data. Pursuant to paragraph (a)(4)(ii)(A) of this
section, a bank may collect and maintain any additional information not
required in paragraph (a)(4)(ii)(B) of this section that demonstrates
that digital delivery systems and other delivery systems serve low- and
moderate-income individuals, families, or households and low- and
moderate-income census tracts.
(iii) Data for deposit products responsive to the needs of low- and
moderate-income individuals, families, or households--(A) In general. A
large bank that had assets greater than $10 billion as of December 31
in both of the prior two calendar years and a large bank that had
assets less than or equal to $10 billion as of December 31 in either of
the prior two calendar years that requests additional consideration for
deposit products responsive to the needs of low- and moderate-income
individuals, families, or households pursuant to Sec. __.23(c)(3),
must collect and maintain in electronic form, as prescribed by the
[Agency], until the completion of the bank's next CRA examination in
which the data are evaluated, the data described in paragraph
(a)(4)(iii)(B) of this section. A bank may opt to collect and maintain
additional data pursuant to paragraph (a)(4)(iii)(C) of this section in
a format of the bank's choosing.
(B) Required data. Pursuant to paragraph (a)(4)(iii)(A) of this
section, a bank must collect and maintain the following data:
(1) The number of responsive deposit accounts opened and closed
during each year of the evaluation period in low-, moderate-, middle-,
and upper-income census tracts; and
(2) In connection with paragraph (a)(4)(iii)(B)(1) of this section,
the percentage of responsive deposit accounts compared to total deposit
accounts for each year of the evaluation period.
(C) Optional data. Pursuant to paragraph (a)(4)(iii)(A) of this
section, a bank may collect and maintain any other information that
demonstrates the availability and usage of the bank's deposit products
responsive to the needs of low- and moderate-income individuals,
families, or households and low- and moderate-income census tracts.
(5) Community development loans and community development
investments data. (i)(A) A large bank and a limited purpose bank that
would be a large bank based on the asset size described in the
definition of a large bank, must collect and maintain in electronic
form, as prescribed by the [Agency], until the completion of the bank's
next CRA examination in which the data are evaluated, the data listed
in paragraph (a)(5)(ii) of this section for community development loans
and community development investments originated, purchased,
refinanced, renewed, or modified by the bank during the evaluation
period.
(B) An intermediate bank that opts to be evaluated under the
Community Development Financing Test in Sec. __.24 must collect and
maintain in the format used by the bank in the normal course of
business, until the completion of the bank's next CRA examination in
which the data are evaluated, the data listed in paragraph (a)(5)(ii)
of this section for community development loans and community
development investments originated, purchased, refinanced, renewed, or
modified by the bank during the evaluation period.
(ii) Pursuant to paragraphs (a)(5)(i)(A) and (B) of this section, a
bank must collect and maintain, on an annual basis, the following data
for community development loans and community development investments:
(A) General information on the loan or investment:
(1) A unique number or alpha-numeric symbol that can be used to
identify the loan or investment;
(2) Date of origination, purchase, refinance, or renewal of the
loan or investment;
(3) Date the loan or investment was sold or paid off; and
(4) The dollar amount of:
(i) A community development loan originated or purchased, or a
community development investment made, including a legally binding
commitment to extend credit or a legally binding commitment to invest,
in the calendar year, as described in paragraph I.a.1.i of appendix B
to this part;
(ii) Any increase in the calendar year to an existing community
development loan that is refinanced or renewed or to an existing
community development investment that is renewed;
(iii) The outstanding balance of a community development loan
originated, purchased, refinanced, or renewed in previous years or
community development investment made or renewed in previous years, as
of December 31 for each year that the loan or investment remains on the
bank's balance sheet; or
(iv) The outstanding balance, less any increase reported in
paragraph (a)(5)(ii)(A)(4)(ii) of this section in the same calendar
year, of a community development loan refinanced or renewed in a year
subsequent to the year of origination or purchase, as of December 31 of
the calendar year for each year that the loan remains on the bank's
balance sheet; or an existing community development investment renewed
in a year subsequent to the year the investment was made as of December
31 for each year that the investment remains on the bank's balance
sheet.
(B) Community development loan or community development investment
information:
(1) Name of organization or entity;
[[Page 7134]]
(2) Activity type (loan or investment);
(3) The type of community development described in Sec. __.13(b)
through (l); and
(4) Community development loan or community development investment
detail, such as the specific type of financing and type of entity
supported (e.g., LIHTC, NMTC, Small Business Investment Company,
multifamily mortgage, private business, or mission-driven nonprofit
organization, mortgage-backed security, or other).
(C) Indicators of the impact and responsiveness, including whether
the community development loan or community development investment:
(1) Benefits or serves one or more persistent poverty counties;
(2) Benefits or serves one or more census tracts with a poverty
rate of 40 percent or higher;
(3) Benefits or serves one or more geographic areas with low levels
of community development financing;
(4) Supports an MDI, WDI, LICU, or CDFI, excluding certificates of
deposit with a term of less than one year;
(5) Benefits or serves low-income individuals, families, or
households;
(6) Supports small businesses or small farms with gross annual
revenues of $250,000 or less;
(7) Directly facilitates the acquisition, construction,
development, preservation, or improvement of affordable housing in High
Opportunity Areas;
(8) Benefits or serves residents of Native Land Areas;
(9) Is a grant or donation;
(10) Is an investment in a project financed with LIHTCs or NMTCs;
(11) Reflects bank leadership through multi-faceted or instrumental
support; or
(12) Is a new community development financing product that
addresses community development needs for low- or moderate-income
individuals, families, or households.
(D) Specific location information, if applicable:
(1) Street address;
(2) City;
(3) County;
(4) State;
(5) Zip code; and
(6) Census tract.
(E) Allocation of the dollar amount of the community development
loan or community development investment to geographic areas served by
the loan or investment:
(1) A list of the geographic areas served by the community
development loan or community development investment, specifying any
county, State, multistate MSA, or nationwide area served; and
(2) Specific information about the dollar amount of the community
development loan or community development investment that was allocated
to each county served by the loan or investment, if available.
(F) Other information relevant to determining that the community
development loan or community development investment meets the
standards pursuant to Sec. __.13.
(6) Community development services data. A large bank must collect
and maintain, in a format of the bank's choosing or in a standardized
format, as provided by the [Agency], until the completion of the bank's
next CRA examination in which the data are evaluated, the following
community development services data:
(i) Community development services information as follows:
(A) Date of service;
(B) Number of board member or employee service hours;
(C) Name of organization or entity;
(D) The type of community development described in Sec. __.13(b)
through (l);
(E) Capacity in which a bank's or its affiliate's board member or
employee serves (e.g., board member of a nonprofit organization,
technical assistance, financial education, general volunteer); and
(F) Indicators of the impact and responsiveness, including whether
the community development service:
(1) Benefits or serves one or more persistent poverty counties;
(2) Benefits or serves one or more census tracts with a poverty
rate of 40 percent or higher;
(3) Benefits or serves one or more geographic areas with low levels
of community development financing;
(4) Supports an MDI, WDI, LICU, or CDFI, excluding certificates of
deposit with a term of less than one year;
(5) Benefits or serves low-income individuals, families, or
households;
(6) Supports small businesses or small farms with gross annual
revenues of $250,000 or less;
(7) Directly facilitates the acquisition, construction,
development, preservation, or improvement of affordable housing in High
Opportunity Areas;
(8) Benefits or serves residents of Native Land Areas;
(9) Reflects bank leadership through multi-faceted or instrumental
support; or
(10) Is a new community development service that addresses
community development needs for low- or moderate-income individuals,
families, or households.
(ii) Location information as follows:
(A) Location list. A list of the geographic areas served by the
activity, specifying any census tracts, counties, States, or nationwide
area served; and
(B) Geographic-level. Whether the bank is seeking consideration in
a facility-based assessment area, State, multistate MSA, or nationwide
area.
(7) Deposits data. A large bank that had assets greater than $10
billion as of December 31 in both of the prior two calendar years must
collect and maintain annually, in electronic form, as prescribed by the
[Agency], until the completion of the bank's next CRA examination in
which the data are evaluated, the dollar amount of its deposits at the
county level based on deposit location. The bank allocates the deposits
for which a deposit location is not available to the nationwide area.
Annual deposits must be calculated based on average daily balances as
provided in statements such as monthly or quarterly statements. Any
other bank that opts to collect and maintain the data in this paragraph
(a)(7) must do so in the same form and for the same duration as
described in this paragraph (a)(7).
(b) Information required to be reported--(1) Small business loan
and small farm loan data. A large bank must report annually by April 1
to the [Agency] in electronic form, as prescribed by the [Agency], the
small business loan and small farm loan data described in paragraphs
(b)(1)(i) through (vii) of this section for the prior calendar year.
For each census tract in which the bank originated or purchased a small
business loan or small farm loan, the bank must report the aggregate
number and dollar amount of small business loans and small farm loans:
(i) With an amount at origination of $100,000 or less;
(ii) With an amount at origination of greater than $100,000 but
less than or equal to $250,000;
(iii) With an amount at origination of greater than $250,000;
(iv) To businesses and farms with gross annual revenues of $250,000
or less (using the revenues relied on in making the credit decision);
(v) To businesses and farms with gross annual revenues greater than
$250,000 but less than or equal to $1 million (using the revenues
relied on in making the credit decision);
(vi) To businesses and farms with gross annual revenues greater
than $1 million; and
(vii) To businesses and farms for which gross annual revenues are
not known by the bank.
[[Page 7135]]
(2) Community development loans and community development
investments data. A large bank and a limited purpose bank that would be
a large bank based on the asset size described in the definition of a
large bank must report annually by April 1 to the [Agency] in
electronic form, as prescribed by the [Agency], the community
development loan and community development investment data described in
paragraph (a)(5)(ii) of this section for the prior calendar year,
except for the data described in paragraph (a)(5)(ii)(B)(1) of this
section and paragraphs (a)(5)(ii)(D)(1) through (5) of this section.
(3) Deposits data. (i) A large bank that had assets greater than
$10 billion as of December 31 in both of the prior two calendar years
must report annually by April 1 to the [Agency] in electronic form, as
prescribed by the [Agency], the deposits data for the prior calendar
year collected and maintained pursuant to paragraph (a)(7) of this
section. This reporting must include, for each county, State, and
multistate MSA, and for the institution overall, the average annual
deposit balances (calculated based on average daily balances as
provided in statements such as monthly or quarterly statements, as
applicable), in aggregate, of deposit accounts with associated
addresses located in such county, State, or multistate MSA, where
available, and for the institution overall. Any other bank that opts to
collect and maintain the data in paragraph (a)(7) of this section must
report these data in the same form and for the same duration as
described in this paragraph (b)(3)(i).
(ii) A bank that reports deposits data pursuant to paragraph
(b)(3)(i) of this section for which a deposit location is not available
must report these deposits at the nationwide area.
(c) Data on [operations subsidiaries or operating subsidiaries]. To
the extent that its [operations subsidiaries or operating subsidiaries]
engage in retail banking services, retail banking products, community
development lending, community development investments, or community
development services, a bank must collect, maintain, and report these
loans, investments, services, and products of its [operations
subsidiaries or operating subsidiaries] pursuant to paragraphs (a) and
(b) of this section, as applicable, for purposes of evaluating the
bank's performance. For home mortgage loans, the bank must identify the
home mortgage loans reported by its [operations subsidiary or operating
subsidiary] under 12 CFR part 1003, if applicable, or collect and
maintain data on home mortgage loans by its [operations subsidiary or
operating subsidiary] that the bank would have collected and maintained
pursuant to paragraph (a)(3) of this section had the bank originated or
purchased the loans.
(d) Data on other affiliates. A bank that elects to have the
[Agency] consider retail banking services, retail banking products,
community development lending, community development investments, or
community development services engaged in by affiliates of a bank
(other than an [operations subsidiary or operating subsidiary]), for
purposes of this part must collect, maintain, and report the data that
the bank would have collected, maintained, and reported pursuant to
paragraphs (a) and (b) of this section had the loans, investments,
services, or products been engaged in by the bank. For home mortgage
loans, the bank must identify the home mortgage loans reported by bank
affiliates under 12 CFR part 1003, if applicable, or collect and
maintain data on home mortgage loans by the affiliate that the bank
would have collected and maintained pursuant to paragraphs (a)(3) of
this section had the loans been originated or purchased by the bank.
(e) Data on community development loans and community development
investments by a consortium or a third party. A bank that elects to
have the [Agency] consider community development loans and community
development investments by a consortium or third party for purposes of
this part must collect, maintain, and report the loans and investments
data that the bank would have collected, maintained, and reported
pursuant to paragraphs (a)(5) and (b)(2) of this section had the bank
originated, purchased, refinanced, or renewed the loans or investments.
(f) Assessment area data--(1) Facility-based assessment areas. A
large bank and a limited purpose bank that would be a large bank based
on the asset size described in the definition of a large bank must
collect and report to the [Agency] annually by April 1 a list of each
facility-based assessment area showing the States, MSAs, and counties
in the facility-based assessment area, as of December 31 of the prior
calendar year or the last date the facility-based assessment area was
in effect, provided the facility-based assessment area was delineated
for at least six months of the prior calendar year.
(2) Retail lending assessment areas. A large bank must collect and
report to the [Agency] annually by April 1 a list of each retail
lending assessment area showing the States, MSAs, and counties in the
retail lending assessment area for the prior calendar year.
(g) CRA Disclosure Statement. The [Agency] or its appointed agent,
prepares annually, for each bank that reports data pursuant to this
section, a CRA Disclosure Statement that contains, on a State-by-State
basis:
(1) For each county with a population of 500,000 persons or fewer
in which the bank reported a small business loan or a small farm loan:
(i) The number and dollar volume of small business loans and small
farm loans reported as originated or purchased located in low-,
moderate-, middle-, and upper-income census tracts;
(ii) A list grouping each census tract according to whether the
census tract is low-, moderate-, middle-, or upper-income;
(iii) A list showing each census tract in which the bank reported a
small business loan or a small farm loan;
(iv) The number and dollar volume of small business loans and small
farm loans to businesses and farms with gross annual revenues of
$250,000 or less; and
(v) The number and dollar volume of small business loans and small
farm loans to businesses and farms with gross annual revenues greater
than $250,000 but less than or equal to $1 million;
(2) For each county with a population in excess of 500,000 persons
in which the bank reported a small business loan or a small farm loan:
(i) The number and dollar volume of small business loans and small
farm loans reported as originated or purchased located in census tracts
with median income relative to the area median income of less than 10
percent, equal to or greater than 10 percent but less than 20 percent,
equal to or greater than 20 percent but less than 30 percent, equal to
or greater than 30 percent but less than 40 percent, equal to or
greater than 40 percent but less than 50 percent, equal to or greater
than 50 percent but less than 60 percent, equal to or greater than 60
percent but less than 70 percent, equal to or greater than 70 percent
but less than 80 percent, equal to or greater than 80 percent but less
than 90 percent, equal to or greater than 90 percent but less than 100
percent, equal to or greater than 100 percent but less than 110
percent, equal to or greater than 110 percent but less than 120
percent, and equal to or greater than 120 percent;
(ii) A list grouping each census tract in the county, facility-
based assessment area, or retail lending assessment area according to
whether the median income in the census tract relative to the area
median income is less than 10 percent, equal to or greater than 10
[[Page 7136]]
percent but less than 20 percent, equal to or greater than 20 percent
but less than 30 percent, equal to or greater than 30 percent but less
than 40 percent, equal to or greater than 40 percent but less than 50
percent, equal to or greater than 50 percent but less than 60 percent,
equal to or greater than 60 percent but less than 70 percent, equal to
or greater than 70 percent but less than 80 percent, equal to or
greater than 80 percent but less than 90 percent, equal to or greater
than 90 percent but less than 100 percent, equal to or greater than 100
percent but less than 110 percent, equal to or greater than 110 percent
but less than 120 percent, and equal to or greater than 120 percent;
and
(iii) A list showing each census tract in which the bank reported a
small business loan or a small farm loan;
(3) The number and dollar volume of small business loans and small
farm loans located inside each facility-based assessment area and
retail lending assessment area reported by the bank and the number and
dollar volume of small business loans and small farm loans located
outside of the facility-based assessment areas and retail lending
assessment areas reported by the bank; and
(4) The number and dollar volume of community development loans and
community development investments reported as originated or purchased
inside each facility-based assessment area, each State in which the
bank has a branch, each multistate MSA in which a bank has a branch in
two or more States of the multistate MSA, and nationwide area outside
of these States and multistate MSAs.
(h) Aggregate disclosure statements. The [Agency] or its appointed
agent, prepares annually, for each MSA or metropolitan division
(including an MSA or metropolitan division that crosses a State
boundary) and the nonmetropolitan portion of each State, an aggregate
disclosure statement of reported small business lending, small farm
lending, community development lending, and community development
investments by all depository institutions subject to reporting under
12 CFR part 25, 228, or 345. These disclosure statements indicate the
number and dollar amount of all small business loans and small farm
loans originated or purchased for each census tract and the number and
dollar amount of all community development loans and community
development investments for each county by reporting banks, except that
the [Agency] may adjust the form of the disclosure if necessary,
because of special circumstances, to protect the privacy of a borrower
or the competitive position of a bank.
(i) Availability of disclosure statements. The [Agency] makes the
individual bank CRA Disclosure Statements, described in paragraph (g)
of this section, and the aggregate disclosure statements, described in
paragraph (h) of this section, available on the FFIEC's website at:
https://www.ffiec.gov.
(j) HMDA data disclosure--(1) In general. For a large bank required
to report home mortgage loan data pursuant to 12 CFR part 1003, the
[Agency] will publish on the [Agency]'s website the data required by
paragraph (j)(2) of this section concerning the distribution of a large
bank's originations and applications of home mortgage loans by borrower
or applicant income level, race, and ethnicity in each of the bank's
facility-based assessment areas, and as applicable, its retail lending
assessment areas. This information is published annually based on data
reported pursuant to 12 CFR part 1003.
(2) Data to be published on the [Agency]'s website. For each of the
large bank's facility-based assessment areas, and as applicable, its
retail lending assessment areas, the [Agency] publishes on the
[Agency]'s website:
(i) The number and percentage of originations and applications of
the large bank's home mortgage loans by borrower or applicant income
level, race, and ethnicity;
(ii) The number and percentage of originations and applications of
aggregate mortgage lending of all lenders reporting HMDA data in the
facility-based assessment area and as applicable, the retail lending
assessment area; and
(iii) Demographic data of the geographic area.
(3) Announcement of data publication. Upon publishing the data
required pursuant to paragraphs (j)(1) and (2) of this section, the
[Agency] will publicly announce that the information is available on
the [Agency]'s public website.
(4) Effect on CRA conclusions and ratings. The race and ethnicity
information published pursuant to paragraphs (j)(1) and (2) of this
section does not impact the conclusions or ratings of the large bank.
Sec. __.43 Content and availability of public file.
(a) Information available to the public. A bank must maintain a
public file, in either paper or digital format, that includes the
following information:
(1) All written comments received from the public for the current
year (updated on a quarterly basis for the prior quarter by March 31,
June 30, September 30, and December 31) and each of the prior two
calendar years that specifically relate to the bank's performance in
helping to meet community credit needs, and any response to the
comments by the bank, if neither the comments nor the responses contain
statements that reflect adversely on the good name or reputation of any
persons other than the bank or publication of which would violate
specific provisions of law;
(2) A copy of the public section of the bank's most recent CRA
performance evaluation prepared by the [Agency]. The bank must include
this copy in the public file within 30 business days after its receipt
from the [Agency];
(3) A list of the bank's branches, their street addresses, and
census tracts;
(4) A list of branches opened or closed by the bank during the
current year (updated on a quarterly basis for the prior quarter by
March 31, June 30, September 30, and December 31) and each of the prior
two calendar years, their street addresses, and census tracts;
(5) A list of retail banking services (including hours of
operation, available loan and deposit products, and transaction fees)
generally offered at the bank's branches and descriptions of material
differences in the availability or cost of services at particular
branches, if any. A bank may elect to include information regarding the
availability of other systems for delivering retail banking services
(for example, mobile or online banking, loan production offices, and
bank-at-work or mobile branch programs);
(6) A map of each facility-based assessment area and, as
applicable, each retail lending assessment area showing the boundaries
of the area and identifying the census tracts contained in the area,
either on the map or in a separate list; and
(7) Any other information the bank chooses.
(b) Additional information available to the public--(1) Banks
subject to data reporting requirements pursuant to Sec. __.42. A bank
subject to data reporting requirements pursuant to Sec. __.42 must
include in its public file a written notice that the CRA Disclosure
Statement pertaining to the bank, its [operations subsidiaries or
operating subsidiaries], and its other affiliates, if applicable, may
be obtained on the FFIEC's website at: https://www.ffiec.gov. The bank
must include the written notice in the public file within three
business days after
[[Page 7137]]
receiving notification from the FFIEC of the availability of the
disclosure statement.
(2) Banks required to report HMDA data--(i) HMDA Disclosure
Statement. A bank required to report home mortgage loan data pursuant
to 12 CFR part 1003 must include in its public file a written notice
that the bank's HMDA Disclosure Statement may be obtained on the
Consumer Financial Protection Bureau's (CFPB's) website at: https://www.consumerfinance.gov/hmda. In addition, if the [Agency] considered
the home mortgage lending of a bank's [operations subsidiaries or
operating subsidiaries] or, at a bank's election, the [Agency]
considered the home mortgage lending of other bank affiliates, the bank
must include in its public file the names of the [operations
subsidiaries or operating subsidiaries] and the names of the affiliates
and a written notice that the [operations subsidiaries' or operating
subsidiaries'] and other affiliates' HMDA Disclosure Statements may be
obtained at the CFPB's website. The bank must include the written
notices in the public file within three business days after receiving
notification from the FFIEC of the availability of the disclosure
statements.
(ii) Availability of bank HMDA data. A large bank required to
report home mortgage loan data pursuant to 12 CFR part 1003 must
include in its public file a written notice that the home mortgage loan
data published by the [Agency] under Sec. __.42(j) are available at
the [Agency]'s website.
(3) Small banks. A small bank, or a bank that was a small bank
during the prior calendar year, must include in its public file the
bank's loan-to-deposit ratio for each quarter of the prior calendar
year and, at its option, additional data on its loan-to-deposit ratio.
(4) Banks with strategic plans. A bank that has been approved to be
evaluated under a strategic plan must include in its public file a copy
of that plan while it is in effect. A bank need not include information
submitted to the [Agency] on a confidential basis in conjunction with
the plan.
(5) Banks with less than ``Satisfactory'' ratings. A bank that
received a less than ``Satisfactory'' institution rating during its
most recent examination must include in its public file a description
of its current efforts to improve its performance in helping to meet
the credit needs of its entire community. The bank must update the
description quarterly by March 31, June 30, September 30, and December
31, respectively.
(c) Location of public information. A bank must make available to
the public for inspection, upon request and at no cost, the information
required in this section as follows:
(1) For banks that maintain a website, all information required for
the bank's public file under this section must be maintained on the
bank's website.
(2) For banks that do not maintain a website:
(i) All the information required for the bank's public file must be
maintained at the main office and, if an interstate bank, at one branch
office in each State; and
(ii) At each branch, the following must be maintained:
(A) A copy of the public section of the bank's most recent CRA
performance evaluation and a list of services provided by the branch;
and
(B) Within five calendar days of the request, all the information
that the bank is required to maintain under this section in the public
file relating to the facility-based assessment area in which the branch
is located.
(d) Copies. Upon request, a bank must provide copies, either on
paper or in digital form acceptable to the person making the request,
of the information in its public file. The bank may charge a reasonable
fee not to exceed the cost of copying and mailing (if not provided in
digital form).
(e) Timing requirements. Except as otherwise provided in this
section, a bank must ensure that its public file contains the
information required by this section for each of the previous three
calendar years, with the most recent calendar year included in its file
annually by April 1 of the current calendar year.
Sec. __.44 Public notice by banks.
A bank must provide in the public area of its main office and each
of its branches the appropriate public notice set forth in appendix F
to this part. Only a branch of a bank having more than one facility-
based assessment area must include the bracketed material in the notice
for branch offices. Only a bank that is an affiliate of a holding
company must include the next to the last sentence of the notices. A
bank must include the last sentence of the notices only if it is an
affiliate of a holding company that is not prevented by statute from
acquiring additional depository institutions.
Sec. __.45 Publication of planned examination schedule.
The [Agency] publishes on its public website, at least 30 days in
advance of the beginning of each calendar quarter, a list of banks
scheduled for CRA examinations for the next two quarters.
Sec. __.46 Public engagement.
(a) In general. The [Agency] encourages communication between
members of the public and banks, including through members of the
public submitting written public comments regarding community credit
needs and opportunities as well as a bank's record of helping to meet
community credit needs. The [Agency] will take these comments into
account in connection with the bank's next scheduled CRA examination.
(b) Submission of public comments. Members of the public may submit
public comments regarding community credit needs and a bank's CRA
performance by submitting comments to the [Agency] at [Agency contact
information].
(c) Timing of public comments. If the [Agency] receives a public
comment before the close date of a bank's CRA examination, the public
comment will be considered in connection with that CRA examination. If
the [Agency] receives a public comment after the close date of a bank's
CRA examination, it will be considered in connection with the bank's
subsequent CRA examination.
(d) Distribution of public comments. The [Agency] will forward all
public comments received regarding a bank's CRA performance to the
bank.
Subpart E--Transition Rules
Sec. __.51 Applicability dates and transition provisions.
(a) Applicability dates--(1) In general. Except as provided in
paragraphs (a)(2), (b), and (d) of this section, this part is
applicable, beginning on April 1, 2024.
(2) Specific applicability dates. The following sections are
applicable as follows:
(i) On January 1, 2026, Sec. Sec. __.12 through __.15, __.17
through __.30, and __.42(a); the data collection and maintenance
requirements in Sec. __.42(c) through (f); and appendices A through F
to this part become applicable.
(ii) On January 1, 2027, Sec. __.42(b) and (g) through (i) and the
reporting requirements in Sec. __.42(c) through (f) become applicable.
(iii) Rules during transition period. Prior to the applicability
dates in paragraphs (a)(2)(i) and (ii) of this section, banks must
comply with the relevant provisions of this part in effect on March 31,
2024, as set forth in appendix G to this part. The relevant
[[Page 7138]]
provisions set forth in appendix G to this part are applicable to CRA
performance evaluations pursuant to 12 U.S.C. 2903(a)(1) that assess
activities that a bank conducted prior to the dates set forth in
paragraphs (a)(2)(i) and (ii) of this section, as applicable, except as
provided in paragraphs (c) and (d) of this section.
(b) HMDA data disclosures. The [Agency] will publish the data
pursuant to Sec. __.42(j) beginning January 1, 2027.
(c) Consideration of bank activities. (1) In assessing a bank's CRA
performance, the [Agency] will consider any loan, investment, service,
or product that was eligible for CRA consideration at the time the bank
conducted the activity.
(2) Notwithstanding paragraph (c)(1) of this section, in assessing
a bank's CRA performance, the [Agency] will consider any loan or
investment that was eligible for CRA consideration at the time that the
bank entered into a legally binding commitment to make the loan or
investment.
(d) Strategic plans--(1) New and replaced strategic plans. The CRA
regulatory requirements in effect on March 31, 2024, as set forth in
appendix G to this part, apply to any new strategic plan, including a
plan that replaces an expired strategic plan, submitted to the [Agency]
for approval on or after April 1, 2024, but before November 1, 2025,
and that the agency has determined is a complete plan consistent with
the requirements under 12 CFR __.27 in effect on March 31, 2024, as set
forth in appendix G to this part. These strategic plans remain in
effect until the expiration date of the plan. The [Agency] will not
accept any strategic plan submitted on or after November 1, 2025, and
before January 1, 2026.
(2) Existing strategic plans. A strategic plan in effect as of
April 1, 2024, remains in effect until the expiration date of the plan.
(e) First evaluation under this part on or after February 1, 2024.
In its first performance evaluation under this part on or after
February 1, 2024, a large bank that has a total of 10 or more facility-
based assessment areas in any State or multistate MSA, or nationwide,
as applicable, and that was a bank subject to evaluation under this
part or [other Agencies' regulations] prior to February 1, 2024, may
not receive a rating of ``Satisfactory'' or ``Outstanding'' in that
State or multistate MSA, or for the institution, unless the bank
received an overall facility-based assessment area conclusion,
calculated as described in paragraph g.2.ii of appendix D to this part,
of at least ``Low Satisfactory'' in 60 percent or more of the total
number of its facility-based assessment areas in that State or
multistate MSA, or nationwide, as applicable.
Appendix A to Part __--Calculations for the Retail Lending Test
This appendix, based on requirements described in Sec. Sec.
__.22 and __.28, includes the following sections:
I. Retail Lending Volume Screen
II. Retail Lending Test Distribution Metrics--Scope of Evaluation
III. Geographic Distribution Metrics and Benchmarks
IV. Borrower Distribution Metrics and Benchmarks
V. Supporting Conclusions for Major Product Lines Other Than
Automobile Lending
VI. Supporting Conclusions for Automobile Lending
VII. Retail Lending Test Conclusions--All Major Product Lines
VIII. Retail Lending Test Weighting and Conclusions for States,
Multistate MSAs, and the Institution
I. Retail Lending Volume Screen
The [Agency] calculates the Bank Volume Metric and the Market
Volume Benchmark for a facility-based assessment area and determines
whether the bank has met or surpassed the Retail Lending Volume
Threshold in that facility-based assessment area.
a. Bank Volume Metric. The [Agency] calculates the Bank Volume
Metric for each facility-based assessment area by:
1. Summing, over the years in the evaluation period, the bank's
annual dollar volume of loans included in the Bank Volume Metric
(i.e., volume metric loans). The bank's annual dollar volume of
volume metric loans is the total dollar amount of all home mortgage
loans, multifamily loans, small business loans, small farm loans,
and automobile loans originated or purchased by the bank in the
facility-based assessment area in that year. Automobile loans are
included in the bank's annual dollar amount of volume metric loans
only if automobile loans are a product line for the bank.
2. Summing, over the years in the evaluation period, the bank's
annual dollar volume of deposits in the facility-based assessment
area. For a bank that reports deposits data pursuant to Sec.
__.42(b)(3), the bank's annual dollar volume of deposits in a
facility-based assessment area is the total of annual average daily
balances of deposits reported by the bank in counties in the
facility-based assessment area for that year. For a bank that does
not report deposits data pursuant to Sec. __.42(b)(3), the bank's
annual dollar volume of deposits in a facility-based assessment area
is the total of deposits assigned to facilities reported by the bank
in the facility-based assessment area in the FDIC's Summary of
Deposits for that year.
3. Dividing the result of paragraph I.a.1 of this appendix by
the result of paragraph I.a.2 of this appendix.
Example A-1: The bank has a three-year evaluation period. The
bank's annual dollar amounts of volume metric loans are $300,000
(year 1), $300,000 (year 2), and $400,000 (year 3). The sum of the
bank's annual dollar amount of volume metric loans in a facility-
based assessment area, over the years in the evaluation period, is
therefore $1 million. The annual dollar volumes of deposits in the
bank located in the facility-based assessment area are $1.7 million
(year 1), $1.6 million (year 2), and $1.7 million (year 3). The sum
of the annual dollar volume of deposits in the facility-based
assessment area, over the years in the evaluation period, is
therefore $5 million. The Bank Volume Metric for the facility-based
assessment area would be $1 million divided by $5 million, or 0.2
(equivalently, 20 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.064
b. Market Volume Benchmark. The [Agency] calculates the Market
Volume Benchmark for the facility-based assessment area. For
purposes of calculating the Market Volume Benchmark, a benchmark
depository institution for a particular year is a depository
institution that, in that year, was subject to reporting pursuant to
12 CFR 25.42(b)(1), 228.42(b)(1), or 345.42(b)(1) or 12 CFR part
1003, and operated a facility included in the FDIC's Summary of
Deposits data in the facility-based assessment area. The [Agency]
calculates the Market Volume Benchmark by:
1. Summing, over the years in the evaluation period, the annual
dollar volume of volume benchmark loans. The annual dollar volume of
volume benchmark loans is the total dollar volume of all home
mortgage loans, multifamily loans, small business loans, and small
farm loans in the facility-based assessment area in that year that
are reported loans originated by benchmark depository institutions.
2. Summing, over the years in the evaluation period, the annual
dollar volume of deposits for benchmark depository institutions in
the facility-based assessment area. The annual dollar volume of
deposits for benchmark depository institutions in the facility-based
assessment area is the sum across benchmark depository institutions
of: (i) for a benchmark depository institution that reports data
pursuant to 12 CFR 25.42(b)(3), 228.42(b)(3), or 345.42(b)(3), the
total of annual average daily balances of
[[Page 7139]]
deposits reported by that depository institution in counties in the
facility-based assessment area for that year; and (ii) for a
benchmark depository institution that does not report data pursuant
to 12 CFR 25.42(b)(3), 228.42(b)(3), or 345.42(b)(3), the total of
deposits assigned to facilities reported by that depository
institution in counties in the facility-based assessment area in the
FDIC's Summary of Deposits for that year.
3. Dividing the result of paragraph I.b.1 of this appendix by
the result of paragraph I.b.2 of this appendix.
Example A-2: With reference to example A-1 to this appendix, the
annual dollar volume of volume benchmark loans is $6 million (year
1), $7 million (year 2), and $7 million (year 3). The sum of the
annual dollar volume of volume benchmark loans, over the years in
the evaluation period, is therefore $20 million. The annual dollar
volume of deposits for benchmark depository institutions is $17
million (year 1), $15 million (year 2), and $18 million (year 3).
The sum of the annual dollar volume of deposits for benchmark
depository institutions, over the years in the evaluation period, is
therefore $50 million. The Market Volume Benchmark for that
facility-based assessment area would be $20 million divided by $50
million, or 0.4 (equivalently, 40 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.065
c. Retail Lending Volume Threshold. For each facility-based
assessment area, the [Agency] calculates a Retail Lending Volume
Threshold by multiplying the Market Volume Benchmark for that
facility-based assessment area by 0.3 (equivalently, 30 percent). A
bank meets or surpasses the Retail Lending Volume Threshold in a
facility-based assessment area if the Bank Volume Metric is equal to
or greater than the Retail Lending Volume Threshold.
Example A-3: Based on examples A-1 and A-2 to this appendix, the
[Agency] calculates the Retail Lending Volume Threshold by
multiplying the Market Volume Benchmark of 40 percent by 0.3, equal
to 0.12 (equivalently, 12 percent). The Bank Volume Metric, 0.2
(equivalently, 20 percent), is greater than the Retail Lending
Volume Threshold. Accordingly, the bank surpasses the Retail Lending
Volume Threshold.
Bank Volume Metric (20%) Retail Lending Volume Threshold
[(40%) x 0.3 = 12%]
II. Retail Lending Distribution Metrics--Scope Of Evaluation
a. Retail Lending Test Areas evaluated. A bank's major product
lines are evaluated in its Retail Lending Test Areas, as provided in
Sec. __.22(d) and as described in paragraphs II.a.1 and 2 of this
appendix.
1. Large banks exempt from evaluation in retail lending
assessment areas. Pursuant to Sec. __.17(a)(2), a large bank is not
required to delineate retail lending assessment areas in a
particular calendar year if the following ratio exceeds 80 percent,
based on the combination of loan dollars and loan count as defined
in Sec. __.12:
i. The sum, over the prior two calendar years, of the large
bank's home mortgage loans, multifamily loans, small business loans,
small farm loans, and automobile loans if automobile loans are a
product line for the large bank, originated or purchased in its
facility-based assessment areas; divided by
ii. The sum, over the prior two calendar years, of the large
bank's home mortgage loans, multifamily loans, small business loans,
small farm loans, and automobile loans if automobile loans are a
product line for the large bank, originated or purchased overall.
Example A-4: A large bank (for which automobile loans are not a
product line) originated or purchased 20,000 closed-end home
mortgage loans, small business loans, and small farm loans in the
prior two calendar years, representing $6 billion in loan dollars.
Of these loans, 18,000 loans, representing $4.5 billion in loan
dollars, were originated or purchased in the large bank's facility-
based assessment areas. As such, the large bank originated or
purchased 75 percent of closed-end home mortgage loans, small
business loans, and small farm loans ($4.5 billion/$6 billion) by
loan dollars and 90 percent (18,000/20,000) of these loans by loan
count within its facility-based assessment areas. The combination of
loan dollars and loan count is 82.5 percent, or (75 + 90)/2. Thus,
this large bank is not required to delineate retail lending
assessment areas pursuant to Sec. __.17(a)(2) in the current
calendar year because the 82.5 percent exceeds the 80 percent
threshold.
2. Small banks and intermediate banks evaluated in outside
retail lending areas. Pursuant to Sec. __.18(a)(2), the [Agency]
evaluates the geographic and borrower distributions of the major
product lines of an intermediate bank, or a small bank that opts to
be evaluated under the Retail Lending Test, in the bank's outside
retail lending area if either:
i. The bank opts to have its major product lines evaluated in
its outside retail lending area; or
ii. The following ratio exceeds 50 percent, based on the
combination of loan dollars and loan count as defined in Sec.
__.12:
A. The sum, over the prior two calendar years, of the bank's
home mortgage loans, multifamily loans, small business loans, small
farm loans, and automobile loans if automobile loans are a product
line for the bank, originated or purchased outside of its facility-
based assessment areas; divided by
B. The sum, over the prior two calendar years, of the bank's
home mortgage loans, multifamily loans, small business loans, small
farm loans, and automobile loans if automobile loans are a product
line for the bank, originated or purchased overall.
b. Product lines and major product lines. In each of a bank's
Retail Lending Test Areas, the [Agency] evaluates each of a bank's
major product lines, as provided in Sec. __.22(d)(2) and as
described in paragraphs II.b.1 through 3 of this appendix.
1. Major product line standard for facility-based assessment
areas and outside retail lending areas. Except as provided in
paragraph II.b.1.iii of this appendix, a product line is a major
product line in a facility-based assessment area or outside retail
lending area if the following ratio is 15 percent or more, based on
the combination of loan dollars and loan count as defined in Sec.
__.12:
i. The sum, over the years of the evaluation period, of the
bank's loans in the product line originated or purchased in the
facility-based assessment area or outside retail lending area;
divided by
ii. The sum, over the years of the evaluation period, of the
bank's loans in all product lines originated or purchased in the
facility-based assessment area or outside retail lending area.
iii. If a bank has not collected, maintained, or reported loan
data on a product line in a facility-based assessment area or
outside retail lending area for one or more years of an evaluation
period, the product line is a major product line if the [Agency]
determines that the product line is material to the bank's business
in the facility-based assessment area or outside retail lending
area.
2. Major product line standard for retail lending assessment
areas. In a retail lending assessment area:
(i) Closed-end home mortgage loans are a major product line in
any calendar year in the evaluation period in which the bank
delineates a retail lending assessment area based on its closed-end
home mortgage loans as determined by the standard in Sec.
__.17(c)(1); and
(ii) Small business loans are a major product line in any
calendar year in the evaluation period in which the bank delineates
a retail lending assessment area based on its small business loans
as determined by the standard in Sec. __.17(c)(2).
3. Banks for which automobile loans are a product line.
i. If a bank's automobile loans are a product line (either
because the bank is a majority automobile lender or opts to have its
automobile loans evaluated pursuant to Sec. __.22), automobile
loans are a product line for the bank for the entire evaluation
period.
ii. A bank is a majority automobile lender if the following
ratio, calculated at the institution level, exceeds 50 percent,
based on the combination of loan dollars and loan count as defined
in Sec. __.12:
A. The sum, over the two calendar years preceding the first year
of the evaluation period, of the bank's automobile loans originated
or purchased overall; divided by
[[Page 7140]]
B. The sum, over the two calendar years preceding the first year
of the evaluation period, of the bank's automobile loans, home
mortgage loans, multifamily loans, small business loans, and small
farm loans originated or purchased overall.
III. Geographic Distribution Metrics and Benchmarks
The [Agency] calculates the Geographic Bank Metric, the
Geographic Market Benchmark, and the Geographic Community Benchmark
for low-income census tracts and for moderate-income census tracts,
respectively, as set forth in this section. For each facility-based
assessment area, retail lending assessment area, and component
geographic area of the bank's outside retail lending area, the
[Agency] includes either low-income census tracts or moderate-income
census tracts (i.e., designated census tracts) in the numerator of
the metrics and benchmarks calculations for a particular year. To
evaluate small banks and intermediate banks without data collection,
maintenance and reporting requirements, the [Agency] will use data
collected by the bank in the ordinary course of business or through
sampling of bank loan data.
a. Calculation of Geographic Bank Metric. The [Agency]
calculates the Geographic Bank Metric for low-income census tracts
and for moderate-income census tracts, respectively, for each major
product line in each Retail Lending Test Area. The [Agency]
calculates the Geographic Bank Metric by:
1. Summing, over the years in the evaluation period, the bank's
annual number of originated and purchased loans in the major product
line in designated census tracts in the Retail Lending Test Area.
2. Summing, over the years in the evaluation period, the bank's
annual number of originated and purchased loans in the major product
line in the Retail Lending Test Area.
3. Dividing the result of paragraph III.a.1 of this appendix by
the result of paragraph III.a.2 of this appendix.
Example A-5: The bank has a three-year evaluation period, and
small farm loans are a major product line for the bank in a
facility-based assessment area (FBAA-1). The bank's annual numbers
of originated and purchased small farm loans (i.e., the bank's
originated and purchased small farm loans) are 100 (year 1), 75
(year 2), and 75 (year 3) in FBAA-1. The sum of the annual numbers
of originated and purchased small farm loans is therefore 250 in the
evaluation period. In the low-income census tracts within FBAA-1,
the bank originated and purchased 25 small farm loans (year 1), 15
small farm loans (year 2), and 10 small farm loans (year 3) (a total
of 50 small farm loans). In FBAA-1, the Geographic Bank Metric for
small farm loans in low-income census tracts would be 50 divided by
250, or 0.2 (equivalently, 20 percent).
In the moderate-income census tracts within FBAA-1, the bank
originated and purchased 30 small farm loans (year 1), 20 small farm
loans (year 2), and 10 small farm loans (year 3) (a total of 60
small farm loans). In FBAA-1, the Geographic Bank Metric for small
farm loans in moderate-income census tracts would be 60 divided by
250, or 0.24 (equivalently, 24 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.066
b. Calculation of Geographic Market Benchmarks for facility-
based assessment areas and retail lending assessment areas. For each
facility-based assessment area and retail lending assessment area,
the [Agency] calculates the Geographic Market Benchmark for
designated census tracts for each major product line, excluding
automobile loans. The [Agency] calculates the Geographic Market
Benchmark by:
1. Summing, over the years in the evaluation period, the annual
number of reported loans in the major product line in designated
census tracts in the facility-based assessment area or retail
lending assessment area originated by all lenders.
2. Summing, over the years in the evaluation period, the annual
number of reported loans in the major product line in the facility-
based assessment area or retail lending assessment area originated
by all lenders.
3. Dividing the result of paragraph III.b.1 of this appendix by
the result of paragraph III.b.2 of this appendix.
Example A-6: The Geographic Market Benchmarks for small farm
loans in FBAA-1 use a three-year evaluation period. Lenders that
report small farm loan data originated 500 small farm loans (year
1), 250 small farm loans (year 2), and 250 small farm loans (year 3)
within FBAA-1. The sum of the annual numbers of originated small
farm loans is therefore 1,000 in the evaluation period. Lenders that
report small farm loan data originated 200 small farm loans (year
1), 100 small farm loans (year 2) and 100 small farm loans (year 3)
in low-income census tracts within FBAA-1. The sum of the annual
numbers of originated small farm loans in low-income census tracts
within FBAA-1 is therefore 400. The Geographic Market Benchmark for
small farm loans in low-income census tracts within FBAA-1 would be
400 divided by 1,000, or 0.4 (equivalently, 40 percent).
Lenders that report small farm loan data originated 100 small
farm loans (year 1), 100 small farm loans (year 2), and 100 small
farm loans (year 3) in moderate-income census tracts within FBAA-1.
The sum of the annual numbers of originated small farm loans in
moderate-income census tracts within FBAA-1 is therefore 300. The
Geographic Market Benchmark for small farm loans in moderate-income
census tracts within FBAA-1 would be 300 divided by 1,000, or 0.3
(equivalently, 30 percent).
[[Page 7141]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.067
c. Calculation of Geographic Community Benchmarks for facility-
based assessment areas and retail lending assessment areas. The
[Agency] calculates the Geographic Community Benchmark for
designated census tracts for each major product line in each
facility-based assessment area or retail lending assessment area.
1. For closed-end home mortgage loans, the [Agency] calculates a
Geographic Community Benchmark for low-income census tracts by:
i. Summing, over the years in the evaluation period, the annual
number of owner-occupied housing units in low-income census tracts
in the facility-based assessment area or retail lending assessment
area.
ii. Summing, over the years in the evaluation period, the annual
number of owner-occupied housing units in the facility-based
assessment area or retail lending assessment area.
iii. Dividing the result of paragraph III.c.1.i of this appendix
by the result of paragraph III.c.1.ii of this appendix.
2. For closed-end home mortgage loans, the [Agency] calculates a
Geographic Community Benchmark for moderate-income census tracts by:
i. Summing, over the years in the evaluation period, the annual
number of owner-occupied housing units in moderate-income census
tracts in the facility-based assessment area or retail lending
assessment area.
ii. Summing, over the years in the evaluation period, the annual
number of owner-occupied housing units in the facility-based
assessment area or retail lending assessment area.
iii. Dividing the result of paragraph III.c.2.i of this appendix
by the result of paragraph III.c.2.ii of this appendix.
3. For small business loans, the [Agency] calculates a
Geographic Community Benchmark for low-income census tracts by:
i. Summing, over the years in the evaluation period, the annual
number of non-farm businesses in low-income census tracts in the
facility-based assessment area or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the annual
number of non-farm businesses in the facility-based assessment area
or retail lending assessment area.
iii. Dividing the result of paragraph III.c.3.i of this appendix
by the result of paragraph III.c.3.ii of this appendix.
4. For small business loans, the [Agency] calculates a
Geographic Community Benchmark for moderate-income census tracts by:
i. Summing, over the years in the evaluation period, the annual
number of non-farm businesses in moderate-income census tracts in
the facility-based assessment area or retail lending assessment
area.
ii. Summing, over the years in the evaluation period, the annual
number of non-farm businesses in the facility-based assessment area
or retail lending assessment area.
iii. Dividing the result of paragraph III.c.4.i of this appendix
by the result of paragraph III.c.4.ii of this appendix.
5. For small farm loans, the [Agency] calculates a Geographic
Community Benchmark for low-income census tracts by:
i. Summing, over the years in the evaluation period, the annual
number of farms in low-income census tracts in the facility-based
assessment area.
ii. Summing, over the years in the evaluation period, the annual
number of farms in the facility-based assessment area.
iii. Dividing the result of paragraph III.c.5.i of this appendix
by the result of paragraph III.c.5.ii of this appendix.
6. For small farm loans, the [Agency] calculates a Geographic
Community Benchmark for moderate-income census tracts by:
i. Summing, over the years in the evaluation period, the annual
number of farms in moderate-income census tracts in the facility-
based assessment area.
ii. Summing, over the years in the evaluation period, the annual
number of farms in the facility-based assessment area.
iii. Dividing the result of paragraph III.c.6.i of this appendix
by the result of paragraph III.c.6.ii of this appendix.
7. For automobile loans, the [Agency] calculates a Geographic
Community Benchmark for low-income census tracts by:
i. Summing, over the years in the evaluation period, the annual
number of households in low-income census tracts in the facility-
based assessment area.
ii. Summing, over the years in the evaluation period, the annual
number of households in the facility-based assessment area.
iii. Dividing the result of paragraph III.c.7.i of this appendix
by the result of paragraph III.c.7.ii of this appendix.
8. For automobile loans, the [Agency] calculates a Geographic
Community Benchmark for moderate-income census tracts by:
i. Summing, over the years in the evaluation period, the annual
number of households in moderate-income census tracts in the
facility-based assessment area.
ii. Summing, over the years in the evaluation period, the annual
number of households in the facility-based assessment area.
iii. Dividing the result of paragraph III.c.8.i of this appendix
by the result of paragraph III.c.8.ii of this appendix.
Example A-7: The Geographic Community Benchmarks for small
business loans in FBAA-1 use a three-year evaluation period. There
were 1,300 non-farm businesses (year 1), 1,300 non-farm businesses
(year 2), and 1,400 non-farm businesses (year 3) in FBAA-1. The sum
of the number of non-farm businesses in FBAA-1 is therefore 4,000 in
the evaluation period. In low-income census tracts within FBAA-1,
there were 200 non-farm businesses (year 1), 150 non-farm businesses
(year 2), and 150 non-farm businesses (year 3) (a total of 500 non-
farm businesses). The Geographic Community Benchmark for small
business loans in low-income census tracts within FBAA-1 would be
500 divided by 4,000, or 0.125 (equivalently, 12.5 percent).
In moderate-income census tracts within FBAA-1, there were 400
non-farm businesses (year 1), 300 non-farm businesses (year 2), and
300 non-farm businesses (year 3) (a total of 1,000 non-farm
businesses). The Geographic Community Benchmark for small business
loans in moderate-income census tracts within FBAA-1 would be 1,000
divided by 4,000, or 0.25 (equivalently, 25 percent).
[[Page 7142]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.068
d. Calculation of Geographic Market Benchmarks for the outside
retail lending area. For a bank's outside retail lending area, the
[Agency] calculates the Geographic Market Benchmark for each major
product line, excluding automobile loans, and for each category of
designated census tracts by taking a weighted average of benchmarks
for each component geographic area as follows:
1. Calculating a benchmark for each category of designated
census tracts and each major product line within each component
geographic area as described in Sec. __.18(b) using the formula for
the Geographic Market Benchmark described in paragraph III.b of this
appendix with the component geographic area in place of the
facility-based assessment area or retail lending assessment area, as
applicable.
2. Calculating the weighting for each component geographic area
and major product line as the percentage of the bank's loans in the
major product line originated or purchased in the outside retail
lending area that are within the component geographic area, based on
loan count.
3. Calculating the weighted average benchmark for the outside
retail lending area using the component geographic area benchmarks
in paragraph III.d.1 of this appendix and associated weightings in
paragraph III.d.2 of this appendix.
e. Calculation of Geographic Community Benchmarks for the
outside retail lending area. For a bank's outside retail lending
area, the [Agency] calculates the Geographic Community Benchmark for
each category of designated census tract and for each major product
line by taking a weighted average of benchmarks for each component
geographic area as follows:
1. Calculating a benchmark for each category of designated
census tracts and each major product line within each component
geographic area as described in Sec. __.18(b) using the formula for
the Geographic Community Benchmark described in paragraph III.c of
this appendix with the component geographic area in place of the
facility-based assessment area or retail lending assessment area, as
applicable.
2. Calculating the weighting for each component geographic area
and major product line as the percentage of the bank's loans in the
major product line originated or purchased in the outside retail
lending area that are within the component geographic area, based on
loan count.
3. Calculating the weighted average benchmark for the outside
retail lending area using the component geographic area benchmarks
in paragraph III.e.1 of this appendix and associated weightings in
paragraph III.e.2 of this appendix.
IV. Borrower Distribution Metrics and Benchmarks
The [Agency] calculates the Borrower Bank Metric, the Borrower
Market Benchmark, and the Borrower Community Benchmark for each
category of borrowers (i.e., designated borrowers), as set forth in
this section.
For closed-end home mortgage loans, the [Agency] calculates
these metrics and benchmarks for each of the following designated
borrowers: (i) low-income borrowers; and (ii) moderate-income
borrowers.
For small business loans, the [Agency] calculates these metrics
and benchmarks for each of the following designated borrowers: (i)
businesses with gross annual revenues of $250,000 or less; and (ii)
businesses with gross annual revenues greater than $250,000 but less
than or equal to $1 million.
For small farm loans, the [Agency] calculates these metrics and
benchmarks for each of the following designated borrowers: (i) farms
with gross annual revenues of $250,000 or less; and (ii) farms with
gross annual revenues greater than $250,000 but less than or equal
to $1 million.
For automobile loans, the [Agency] calculates these metrics and
benchmarks for each of the following designated borrowers: (i) low-
income borrowers; and (ii) moderate income borrowers.
To evaluate small banks and intermediate banks without data
collection, maintenance and reporting requirements, the [Agency]
will use data collected by the bank in the ordinary course of
business or through sampling of bank loan data.
a. Calculation of Borrower Bank Metric. The [Agency] calculates
the Borrower Bank Metric for each major product line and category of
designated borrowers in each Retail Lending Test Area by:
1. Summing, over the years in the evaluation period, the bank's
annual number of originated and purchased loans in the major product
line to designated borrowers in the Retail Lending Test Area.
2. Summing, over the years in the evaluation period, the bank's
annual number of originated and purchased loans in the major product
line in the Retail Lending Test Area.
3. Dividing the result of paragraph IV.a.1 of this appendix by
the result of paragraph IV.a.2 of this appendix.
Example A-8: The bank has a three-year evaluation period, and
closed-end home mortgage loans are a major product line for the bank
in FBAA-1. The bank's annual numbers of originated and purchased
closed-end home mortgage loans (i.e., the bank's originated and
purchased closed-end home mortgage loans) are 30 (year 1), 40 (year
2), and 30 (year 3) in FBAA-1. The sum of the annual numbers of
originated and purchased closed-end home mortgage loans is therefore
100 in the evaluation period. In FBAA-1, the bank originated and
purchased 10 closed-end home mortgage loans to low-income borrowers
(year 1), 3 closed-end home mortgage loans to low-income borrowers
(year 2), and 7 closed-end home mortgage loans to low-income
borrowers (year 3) (a total of 20 closed-end home mortgage loans to
low-income borrowers). In FBAA-1, the Borrower Bank Metric for
closed-end home mortgage loans to low-income borrowers would be 20
divided by 100, or 0.2 (equivalently, 20 percent).
In FBAA-1, the bank also originated and purchased 12 closed-end
home mortgage loans to moderate-income borrowers (year 1), 5 closed-
end home mortgage loans to moderate-income borrowers (year 2), and
13 closed-end home mortgage loans to moderate-income borrowers (year
3) (a total of 30 closed-end home mortgage loans to moderate-income
borrowers). In FBAA-1, the Borrower Bank Metric for closed-end home
mortgage loans to moderate-income borrowers would be 30 divided by
100, or 0.3 (equivalently, 30 percent).
[[Page 7143]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.069
b. Calculation of Borrower Market Benchmarks for facility-based
assessment areas and retail lending assessment areas. For each
facility-based assessment area and retail lending assessment area,
the [Agency] calculates the Borrower Market Metric for each major
product line, excluding automobile loans, and for each category of
designated borrowers by:
1. Summing, over the years in the evaluation period, the annual
number of reported loans in the major product line to designated
borrowers in the facility-based assessment area or retail lending
assessment area originated by all lenders.
2. Summing, over the years in the evaluation period, the annual
number of reported loans in the major product line in the facility-
based assessment area or retail lending assessment area originated
by all lenders.
3. Dividing the result of paragraph IV.b.1 of this appendix by
the result of paragraph IV.b.2 of this appendix.
Example A-9: The Borrower Market Benchmarks for closed-end home
mortgage loans use a three-year evaluation period. Lenders that
report closed-end home mortgage loans originated 500 closed-end home
mortgage loans (year 1), 275 closed-end home mortgage loans (year
2), and 225 closed-end home mortgage loans (year 3). The sum of the
annual numbers of originated closed-end home mortgage loans is
therefore 1,000 in the evaluation period. Lenders that report
closed-end home mortgage loans originated 50 closed-end home
mortgage loans to low-income borrowers (year 1), 20 closed-end home
mortgage loans to low-income borrowers (year 2), and 30 closed-end
home mortgage loans to low-income borrowers (year 3) in FBAA-1. The
sum of the annual numbers of originated closed-end home mortgage
loans to low-income borrowers within FBAA-1 is therefore 100. The
Borrower Market Benchmark for closed-end home mortgage loans to low-
income borrowers would be 100 divided by 1,000, or 0.1
(equivalently, 10 percent).
Lenders that report closed-end home mortgage loans originated
100 loans (year 1), 75 loans (year 2), and 25 loans (year 3) to
moderate-income borrowers. The sum of the annual numbers of
originated closed-end home mortgage loans to moderate-income
borrowers within FBAA-1 is therefore 200. The Borrower Market
Benchmark for closed-end home mortgage loans to moderate-income
borrowers in FBAA-1 would be 200 divided by 1,000, or 0.2
(equivalently, 20 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.070
c. Calculation of Borrower Community Benchmarks for facility-
based assessment areas and retail lending assessment areas. The
[Agency] calculates the Borrower Community Benchmark for each
category of designated borrowers for each major product line in each
facility-based assessment area or retail lending assessment area.
1. For closed-end home mortgage loans, the [Agency] calculates a
Borrower Community Benchmark for low-income borrowers by:
i. Summing, over the years in the evaluation period, the annual
number of low-income families in the facility-based assessment area
or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the annual
number of families in the facility-based assessment area or retail
lending assessment area.
iii. Dividing the result of paragraph IV.c.1.i of this appendix
by the result of paragraph IV.c.1.ii of this appendix.
2. For closed-end home mortgage loans, the [Agency] calculates a
Borrower Community Benchmark for moderate-income borrowers by:
i. Summing, over the years in the evaluation period, the annual
number of moderate-income families in the facility-based assessment
area or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the annual
number of families in the facility-based assessment area or retail
lending assessment area.
iii. Dividing the result of paragraph IV.c.2.i of this appendix
by the result of paragraph IV.c.2.ii of this appendix.
3. For small business loans, the [Agency] calculates a Borrower
Community Benchmark for non-farm businesses with gross annual
revenues of $250,000 or less by:
i. Summing, over the years in the evaluation period, the annual
number of non-farm businesses with gross annual revenues of $250,000
or less in the facility-based assessment area or retail lending
assessment area.
ii. Summing, over the years in the evaluation period, the annual
number of non-farm businesses in the facility-based assessment area
or retail lending assessment area.
iii. Dividing the result of paragraph IV.c.3.i of this appendix
by the result of paragraph IV.c.3.ii of this appendix.
4. For small business loans, the [Agency] calculates a Borrower
Community Benchmark for non-farm businesses with gross annual
revenues greater than $250,000 but less than or equal to $1 million
by:
i. Summing, over the years in the evaluation period, the annual
number of non-farm businesses with gross annual revenues greater
than $250,000 but less than or equal to $1 million in the facility-
based assessment area or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the annual
number of non-farm businesses in the facility-based assessment area
or retail lending assessment area.
[[Page 7144]]
iii. Dividing the result of paragraph IV.c.4.i of this appendix
by the result of paragraph IV.c.1.ii of this appendix.
5. For small farm loans, the [Agency] calculates a Borrower
Community Benchmark for farms with gross annual revenues of $250,000
or less by:
i. Summing, over the years in the evaluation period, the annual
number of farms with gross annual revenues of $250,000 or less in
the facility-based assessment area.
ii. Summing, over the years in the evaluation period, the annual
number of farms in the facility-based assessment area.
iii. Dividing the result of paragraph IV.c.5.i of this appendix
by the result of paragraph IV.c.5.ii of this appendix.
6. For small farm loans, the [Agency] calculates a Borrower
Community Benchmark for farms with gross annual revenues greater
than $250,000 but less than or equal to $1 million:
i. Summing, over the years in the evaluation period, the annual
number of farms with gross annual revenues greater than $250,000 but
less than or equal to $1 million in the facility-based assessment
area.
ii. Summing, over the years in the evaluation period, the annual
number of farms in the facility-based assessment area.
iii. Dividing the result of paragraph IV.c.6.i of this appendix
by the result of paragraph IV.c.6.ii of this appendix.
7. For automobile loans, the [Agency] calculates a Borrower
Community Benchmark for low-income borrowers by:
i. Summing, over the years in the evaluation period, the annual
number of low-income households in the facility-based assessment
area.
ii. Summing, over the years in the evaluation period, the annual
number of households in the facility-based assessment area.
iii. Dividing the result of paragraph IV.c.7.i of this appendix
by the result of paragraph IV.c.7.ii of this appendix.
8. For automobile loans, the [Agency] calculates a Borrower
Community Benchmark for moderate-income borrowers by:
i. Summing, over the years in the evaluation period, the annual
number of moderate-income households in the facility-based
assessment area.
ii. Summing, over the years in the evaluation period, the annual
number of households in the facility-based assessment area.
iii. Dividing the result of paragraph IV.c.8.i of this appendix
by the result of paragraph IV.c.8.ii of this appendix.
Example A-10: The Borrower Community Benchmarks for closed-end
home mortgage loans use a three-year evaluation period. There were
1,300 families (year 1), 1,300 families (year 2), and 1,400 families
(year 3) in FBAA-1. The sum of the number of families in FBAA-1 is
therefore 4,000 in the evaluation period. There were 300 low-income
families (year 1), 300 low-income families (year 2), and 400 low-
income families (year 3) (a total of 1,000 low-income families). The
Borrower Community Benchmark for closed-end home mortgage loans to
low-income families within the FBAA-1 would be 1,000 divided by
4,000, or 0.25 (equivalently, 25 percent).
There were 350 moderate-income families (year 1), 400 moderate-
income families (year 2), and 450 moderate-income families (year 3)
(a total of 1,200 moderate-income families). The Borrower Community
Benchmark for closed-end home mortgage loans to moderate-income
families in FBAA-1 would be 1,200 divided by 4,000, or 0.3
(equivalently, 30 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.071
d. Calculation of Borrower Market Benchmark for the outside
retail lending area. For a bank's outside retail lending area, the
[Agency] calculates the Borrower Market Benchmark for each major
product line, excluding automobile loans, and for each category of
designated borrowers by taking a weighted average of benchmarks for
each component geographic area as follows:
1. Calculating a benchmark for each category of designated
borrowers and each major product line within each component
geographic area as described in Sec. __.18(b) using the formula for
the Borrower Market Benchmark described in section IV.b of this
appendix with the component geographic area in place of the
facility-based assessment area or retail lending assessment area, as
applicable.
2. Calculating the weighting for each component geographic area
and major product line as the percentage of the bank's loans in the
major product line originated or purchased in the outside retail
lending area that are within the component geographic area, based on
loan count.
3. Calculating the weighted average benchmark for the outside
retail lending area using the component geographic area benchmarks
in paragraph IV.d.1 of this appendix and associated weightings in
paragraph IV.d.2 of this appendix.
e. Calculation of Borrower Community Benchmarks for the outside
retail lending area. For a bank's outside retail lending area, the
[Agency] calculates the Borrower Community Benchmark for each major
product line and for each category of designated borrowers in the
bank's outside retail lending area by taking a weighted average of
benchmarks for each component geographic area as follows:
1. Calculating the benchmark for each category of designated
borrowers and each major product line within each component
geographic area as described in Sec. __.18(b) using the formula for
the Borrower Community Benchmark described in paragraph IV.c of this
appendix with the component geographic area in place of the
facility-based assessment area or retail lending assessment area, as
applicable.
2. Calculating the weighting for each component geographic area
and major product line as the percentage of the bank's loans in the
major product line originated or purchased in the outside retail
lending area that are within the component geographic area, based on
loan count.
3. Calculating the weighted average benchmark for the outside
retail lending area using the component geographic area benchmarks
in paragraph IV.e.1 of this appendix and associated weightings
calculated in paragraph IV.e.2 of this appendix.
V. Supporting Conclusions for Major Product Lines Other Than Automobile
Lending
The [Agency] evaluates a bank's Retail Lending Test performance
in each Retail Lending Test Area by comparing the bank's
distribution metrics to sets of performance ranges determined by, as
applicable, the market and community benchmarks, as described in
this section.
a. Supporting conclusions for categories of designated census
tracts and designated borrowers. For each major product line,
excluding automobile lending, the [Agency] develops separate
supporting conclusions for each of the categories outlined in table
1 to this appendix.
[[Page 7145]]
Table 1 to Appendix A--Retail Lending Test Categories of Designated
Census Tracts and Designated Borrowers
------------------------------------------------------------------------
Designated census
Major product line tracts Designated borrowers
------------------------------------------------------------------------
Closed-End Home Mortgage Low-Income Census Low-Income
Loans. Tracts. Borrowers.
Moderate-Income Moderate-Income
Census Tracts. Borrowers.
Small Business Loans........ Low-Income Census Non-farm businesses
Tracts. with Gross Annual
Revenues of
$250,000 or Less.
Moderate-Income Non-farm businesses
Census Tracts. with Gross Annual
Revenues Greater
than $250,000 but
Less Than or Equal
to $1 million.
Small Farm Loans............ Low-Income Census Farms with Gross
Tracts. Annual Revenues of
$250,000 or Less.
Moderate-Income Farms with Gross
Census Tracts. Annual Revenues
Greater than
$250,000 but Less
Than or Equal to $1
million.
------------------------------------------------------------------------
b. Geographic distribution performance ranges. To evaluate a
bank's geographic distributions for each major product line,
excluding automobile lending, the [Agency] compares the relevant
Geographic Bank Metric for each category of designated census tracts
to the applicable set of performance ranges. The performance ranges
are determined by the values of the Geographic Market Benchmark and
the Geographic Community Benchmark, as well as the multipliers
associated with each supporting conclusion category, as follows:
1. The performance threshold for an ``Outstanding'' supporting
conclusion is the lesser of either:
i. The product of 1.0 times the Geographic Community Benchmark;
or
ii. The product of 1.15 times the Geographic Market Benchmark.
The ``Outstanding'' performance range is all potential values of
the Geographic Bank Metric equal to or above the ``Outstanding''
performance threshold.
2. The performance threshold for a ``High Satisfactory'' Retail
Lending Test supporting conclusion is the lesser of either:
i. The product of 0.8 times the Geographic Community Benchmark;
or
ii. The product of 1.05 times the Geographic Market Benchmark.
The ``High Satisfactory'' performance range is all potential
values of the Geographic Bank Metric equal to or above the ``High
Satisfactory'' performance threshold but below the Outstanding
performance threshold.
3. The performance threshold for a ``Low Satisfactory''
supporting conclusion is the lesser of either:
i. The product of 0.6 times the Geographic Community Benchmark;
or
ii. The product of the 0.8 times the Geographic Market
Benchmark.
The ``Low Satisfactory'' performance range is all potential
values of the Geographic Bank Metric equal to or above the ``Low
Satisfactory'' performance threshold but below the High Satisfactory
performance threshold.
4. The performance threshold for a ``Needs to Improve''
supporting conclusion is the lesser of either:
i. The product of 0.3 times the Geographic Community Benchmark;
or
ii. The product of 0.33 times the Geographic Market Benchmark.
The ``Needs to Improve'' performance range is all potential
values of the Geographic Bank Metric equal to or above the ``Needs
to Improve'' performance threshold but below the ``Low
Satisfactory'' performance threshold.
5. The ``Substantial Noncompliance'' performance range is all
potential values of the Geographic Bank Metric below the ``Needs to
Improve'' performance threshold.
c. Geographic distribution supporting conclusions and
performance scores. The [Agency] compares each Geographic Bank
Metric to the performance ranges provided in paragraphs V.b.1
through V.b.5 of this appendix. The geographic distribution
supporting conclusion for each category of designated census tracts
is determined by the performance range within which the Geographic
Bank Metric falls. Each supporting conclusion is assigned a
numerical performance score using the following corresponding points
values:
------------------------------------------------------------------------
Performance
Conclusion score
------------------------------------------------------------------------
Outstanding............................................. 10
High Satisfactory....................................... 7
Low Satisfactory........................................ 6
Needs to Improve........................................ 3
Substantial Noncompliance............................... 0
------------------------------------------------------------------------
d. Borrower distribution performance ranges. To evaluate a
bank's borrower distributions for each major product line, excluding
automobile lending, the [Agency] compares the relevant Borrower Bank
Metric for each category of designated borrowers to the applicable
set of performance ranges. The performance ranges are determined by
the values of the Borrower Market Benchmark and Borrower Community
Benchmark, as well as the multipliers associated with each
supporting conclusion category, as follows:
1. The performance threshold for an ``Outstanding'' supporting
conclusion is the lesser of either:
i. The product of 1.0 times the Borrower Community Benchmark; or
ii. The product of 1.15 times the Borrower Market Benchmark.
The ``Outstanding'' performance range is all potential values of
the Borrower Bank Metric equal to or above the ``Outstanding''
performance threshold.
2. The performance threshold for a ``High Satisfactory''
supporting conclusion is the lesser of either:
i. The product of 0.8 times the Borrower Community Benchmark; or
ii. The product of 1.05 times the Borrower Market Benchmark.
The ``High Satisfactory'' performance range is all potential
values of the Borrower Bank Metric equal to or above the ``High
Satisfactory'' performance threshold but below the Outstanding
performance threshold.
3. The performance threshold for a ``Low Satisfactory''
supporting conclusion is the lesser of either:
i. The product of 0.6 times the Borrower Community Benchmark; or
ii. The product of 0.8 times the Borrower Market Benchmark.
The ``Low Satisfactory'' performance range is all potential
values of the Borrower Bank Metric equal to or above the ``Low
Satisfactory'' performance threshold but below the High Satisfactory
performance threshold.
4. The performance threshold for a ``Needs to Improve''
supporting conclusion is the lesser of either:
i. The product of 0.3 times the Borrower Community Benchmark; or
ii. The product of 0.33 times the Borrower Market Benchmark.
The ``Needs to Improve'' performance range is all potential
values of the Borrower Bank Metric equal to or above the ``Needs to
Improve'' performance threshold but below the ``Low Satisfactory''
performance threshold.
5. The ``Substantial Noncompliance'' performance range is all
potential values of the Borrower Bank Metric below the ``Needs to
Improve'' performance threshold.
e. Borrower distribution supporting conclusions and performance
scores. The [Agency] compares each Borrower Bank Metric to the
performance ranges provided in paragraphs V.d.1 through V.d.5 of
this appendix. The borrower distribution supporting conclusion for
each category of designated borrowers is determined by the
performance range within which the Borrower Bank Metric falls. Each
supporting conclusion is assigned a numerical performance score
using the following corresponding point values:
[[Page 7146]]
------------------------------------------------------------------------
Performance
Conclusion score
------------------------------------------------------------------------
Outstanding............................................. 10
High Satisfactory....................................... 7
Low Satisfactory........................................ 6
Needs to Improve........................................ 3
Substantial Noncompliance............................... 0
------------------------------------------------------------------------
VI. Supporting Conclusions for Automobile Lending
a. Supporting conclusions for categories of designated census
tracts and designated borrowers. For any bank for which automobile
lending is evaluated under Sec. __.22, the [Agency] develops
separate supporting conclusions for each of the categories outlined
in table 2 to this appendix.
Table 2 to Appendix A--Automobile Loans: Categories of Designated Census
Tracts and Designated Borrowers
------------------------------------------------------------------------
Designated census Designated
Major product line tracts borrowers
------------------------------------------------------------------------
Automobile Lending.............. Low-Income Census Low-Income
Tracts. Borrowers.
Moderate-Income Moderate-Income
Census Tracts. Borrowers.
------------------------------------------------------------------------
b. Geographic distribution. The [Agency] develops the supporting
conclusion for a bank's geographic distribution for automobile
lending based on a comparison of the Geographic Bank Metric for
automobile lending in each category of designated census tracts to
the corresponding Geographic Community Benchmark.
c. Borrower distribution. The [Agency] develops the supporting
conclusion for a bank's borrower distribution for automobile lending
based on a comparison of the Borrower Bank Metric for automobile
lending in each category of designated borrowers to the
corresponding Borrower Community Benchmark.
d. Performance scores. Each supporting conclusion is assigned a
numerical performance score using the following corresponding point
values:
------------------------------------------------------------------------
Performance
Conclusion score
------------------------------------------------------------------------
Outstanding............................................. 10
High Satisfactory....................................... 7
Low Satisfactory........................................ 6
Needs to Improve........................................ 3
Substantial Noncompliance............................... 0
------------------------------------------------------------------------
VII. Retail Lending Test Conclusions--All Major Product Lines
a. The [Agency] determines a bank's Retail Lending Test
performance conclusion for a major product line in a Retail Lending
Test Area by calculating a weighted performance score for each major
product line:
1. The [Agency] develops a weighted average performance score
for each major product line in each Retail Lending Test Area as
follows:
i. The [Agency] creates a weighted average performance score
across the categories of designated census tracts (i.e., geographic
distribution average) and a weighted average performance score
across the categories of designated borrowers (i.e., borrower
distribution average).
ii. For the geographic distribution average of each major
product line, the weighting assigned to each category of designated
census tracts is based on the demographics of the Retail Testing
Area as outlined in the following table:
Table 3 to Appendix A--Retail Lending, Test Geographic Distribution
Average--Weights
------------------------------------------------------------------------
Category of
Major product line designated census Weight
tracts
------------------------------------------------------------------------
Closed-End Home Mortgage Loans Low-Income Census Percentage of total
Tracts. number of owner-
occupied housing
units in low- and
moderate-income
census tracts in the
applicable Retail
Lending Test Area
that are in low-
income census
tracts.
Moderate-Income Percentage of total
Census Tracts. number of owner-
occupied housing
units in low- and
moderate-income
census tracts in the
applicable Retail
Lending Test Area
that are in moderate-
income census
tracts.
Small Business Loans.......... Low-Income Census Percentage of total
Tracts. number of non-farm
businesses in low-
and moderate-income
census tracts in the
applicable Retail
Lending Test Area
that are in low-
income census
tracts.
Moderate-Income Percentage of total
Census Tracts. number of non-farm
businesses in low-
and moderate-income
census tracts in the
applicable Retail
Lending Test Area
that are in moderate-
income census
tracts.
Small Farm Loans.............. Low-Income Census Percentage of total
Tracts. number of farms in
low- and moderate-
income census tracts
in the applicable
Retail Lending Test
Area that are in low-
income census
tracts.
Moderate-Income Percentage of total
Census Tracts. number of farms in
low- and moderate-
income census tracts
in the applicable
Retail Lending Test
Area that are in
moderate-income
census tracts.
Automobile Loans.............. Low-Income Census Percentage of total
Tracts. number of households
in low- and moderate-
income census tracts
in the applicable
Retail Lending Test
Area that are in low-
income census
tracts.
Moderate-Income Percentage of total
Census Tracts. number of households
in low- and moderate-
income census tracts
in the applicable
Retail Lending Test
Area that are in
moderate-income
census tracts.
------------------------------------------------------------------------
In the case of a Retail Lending Test Area that contains no low-
income census tracts and no moderate-income census tracts, the bank
will not receive a geographic distribution average for that
assessment area.
Example A-11: A large bank's closed-end home mortgage loans
constitute a major product line for the bank in a facility-based
assessment area. The bank's geographic distribution supporting
conclusions for closed-end home mortgage loans in this
[[Page 7147]]
facility-based assessment area are ``High Satisfactory''
(performance score of 7 points) for low-income census tracts and
``Needs to Improve'' (performance score of 3 points) for moderate-
income census tracts. Owner-occupied housing units in moderate-
income census tracts represents 20 percent of all owner-occupied
housing units in the facility-based assessment area, and owner-
occupied housing units in low-income census tracts represents 5
percent of all owner-occupied housing units in the facility-based
assessment area. Accordingly, the weight assigned to the moderate-
income geographic distribution performance score is 80 percent [20
percent/(20 percent + 5 percent) = 80 percent] and the weight
assigned to the low-income geographic distribution performance score
is 20 percent [5 percent/(20 percent + 5 percent) = 20 percent]. The
bank's geographic distribution average for closed-end home mortgage
loans in this facility-based assessment area is 3.8 [(7 points x 0.2
weight = 1.4) + (3 points x 0.8 weight = 2.4)].
iii. For the borrower distribution average of each major product
line, the weighting assigned to each category of designated
borrowers is based on the demographics of the Retail Lending Test
Area as outlined in the following table:
Table 4 to Appendix A--Retail Lending Test, Borrower Distribution
Average--Weights
------------------------------------------------------------------------
Categories of
Major product line designated Weight
borrowers
------------------------------------------------------------------------
Closed-End Home Mortgage Loans.. Low-Income Percentage of
Borrowers. total number of
low-income and
moderate-income
families in the
applicable Retail
Lending Test Area
that are low-
income families.
Moderate-Income Percentage of
Borrowers. total number of
low-income and
moderate-income
families in the
applicable Retail
Lending Test Area
that are moderate-
income families.
Small Business Loans............ Non-farm Percentage of
businesses with total number of
gross annual non-farm
revenues of businesses with
$250,000 or less. gross annual
revenues of
$250,000 or less
and non-farm
businesses with
gross annual
revenues greater
than $250,000 but
less than or
equal to $1
million in the
applicable Retail
Lending Test Area
that are non-farm
businesses with
gross annual
revenues of
$250,000 or less.
Non-farm Percentage of
businesses with total number of
gross annual non-farm
revenues greater businesses with
than $250,000 and gross annual
less than or revenues of
equal to $1 $250,000 or less
million. and non-farm
businesses with
gross annual
revenues greater
than $250,000 but
less than or
equal to $1
million in the
applicable Retail
Lending Test Area
that are non-farm
businesses with
gross annual
revenues greater
than $250,00 but
less than or
equal to $1
million.
Small Farm Loans................ Farms with gross Percentage of
annual revenues total number of
of $250,000 or farms with gross
less. annual revenues
of $250,000 or
less and farms
with gross annual
revenues greater
than $250,000 but
less than or
equal to $1
million in the
applicable Retail
Lending Test Area
that are farms
with gross annual
revenues of
$250,000 or less.
Farms with gross Percentage of
annual revenues total number of
greater than farms with gross
$250,000 and less annual revenues
than or equal to of $250,000 or
$1 million. less and farms
with gross annual
revenues greater
than $250,000 but
less than or
equal to $1
million in the
applicable Retail
Lending Test Area
that are farms
with gross annual
revenues greater
than $250,000 but
less than or
equal to $1
million.
Automobile Loans................ Low-Income Percentage of
Borrowers. total number of
low-income and
moderate-income
households in the
applicable Retail
Lending Test Area
that are low-
income
households.
Moderate-Income Percentage of
Borrowers. total number of
low-income and
moderate-income
households in the
applicable Retail
Lending Test Area
that are moderate-
income
households.
------------------------------------------------------------------------
Example A-12: Building on example A-11 to this appendix, the
bank's borrower distribution supporting conclusions for closed-end
home mortgage loans in this facility-based assessment area are
``Outstanding'' (performance score of 10 points) for low-income
borrowers and ``Low Satisfactory'' (performance score of 6 points)
for moderate-income borrowers. Low-income families represent 14
percent of all families in the facility-based assessment area and
moderate-income families represent 6 percent of all families in the
facility-based assessment area. Accordingly, the weight assigned to
the low-income borrower distribution performance score is 70 percent
[14 percent/(14 percent + 6 percent) = 70 percent] and the weight
assigned to the moderate-income borrower distribution performance
score is 30 percent [6 percent/(14 percent + 6 percent) = 30
percent]. The bank's borrower distribution average for closed-end
home mortgage loans in this facility-based assessment area is 8.8
[(10 points x 0.7 weight = 7.0) + (6 points x 0.3 weight = 1.8)].
2. For each major product line, the [Agency] calculates the
average of the geographic distribution average and the borrower
distribution average (i.e., product
[[Page 7148]]
line score). If a bank has no geographic distribution average for a
product (due to the absence of both low-income census tracts and
moderate-income census tracts in the geographic area), the product
line score is the borrower distribution average.
Example A-13: Based on examples A-11 and A-12 to this appendix,
the bank's product line score for closed-end home mortgage loans is
6.3 [(3.8 geographic distribution average x 0.5 weight = 1.9) + (8.8
borrower distribution average x 0.5 weight = 4.4)].
b. For each Retail Lending Test Area, the [Agency] calculates a
weighted average of product line scores across all major product
lines (i.e., Retail Lending Test Area Score). For each Retail
Lending Test Area, the [Agency] uses a ratio of the bank's loan
originations and purchases in each major product line to its loan
originations and purchases in all major product lines during the
evaluation period, based on the combination of loan dollars and loan
count as defined in Sec. __.12, as weights in the weighted average.
Example A-14: In addition to the product line score of 6.3 for
closed-end home mortgage loans in example A-13 to this appendix, the
bank has a product line score of 4.2 for small business lending in
the same facility-based assessment area. Among major product lines,
60 percent of the bank's loans in the facility-based assessment area
are closed-end home mortgages and 40 percent are small business
loans based upon the combination of loan dollars and loan count.
Accordingly, the weight assigned to the closed-end home mortgage
product line score is 60 percent and the weight assigned to the
small business product line score is 40 percent. The bank's Retail
Lending Test Area Score for this facility-based assessment area is
5.46 [(6.3 closed-end home mortgage loan product line score x 0.6
weight = 3.78) + (4.2 small business loan product line score x 0.4
weight = 1.68)].
c. The [Agency] then develops a Retail Lending Test recommended
conclusion corresponding with the conclusion category that is
nearest to the Retail Lending Test Area Score, as follows:
------------------------------------------------------------------------
Retail lending test area
Recommended conclusion score
------------------------------------------------------------------------
Outstanding............................... 8.5 or more.
High Satisfactory......................... 6.5 or more but less than
8.5.
Low Satisfactory.......................... 4.5 or more but less than
6.5.
Needs to Improve.......................... 1.5 or more but less than
4.5.
Substantial Noncompliance................. less than 1.5.
------------------------------------------------------------------------
Example A-15: Based on example A-14 to this appendix, the bank's
Retail Lending Test Area Score is associated with a ``Low
Satisfactory'' conclusion, so the bank's Retail Lending Test
recommended conclusion for this facility-based assessment area is
``Low Satisfactory.''
d. Once a recommended conclusion is determined for a Retail
Lending Test Area, the performance context information provided in
Sec. __.21(d) and the additional factors provided in Sec. __.22(g)
inform the [Agency]'s determination of the Retail Lending Test
conclusion for the Retail Lending Test Area. The agency assigns a
Retail Lending Test conclusion for the Retail Lending Test Area of
``Outstanding,'' ``High Satisfactory,'' ``Low Satisfactory,''
``Needs to Improve,'' or ``Substantial Noncompliance.''
VIII. Retail Lending Test Weighting and Conclusions for States,
Multistate MSAs, and the Institution
The [Agency] develops the Retail Lending Test conclusions for
States, multistate MSAs, and the institution as described in this
section.
a. The [Agency] translates Retail Lending Test conclusions for
facility-based assessment areas, retail lending assessment areas,
and as applicable, the outside retail lending area into numerical
performance scores, as follows:
------------------------------------------------------------------------
Performance
Conclusion score
------------------------------------------------------------------------
Outstanding............................................. 10
High Satisfactory....................................... 7
Low Satisfactory........................................ 6
Needs to Improve........................................ 3
Substantial Noncompliance............................... 0
------------------------------------------------------------------------
b. The [Agency] calculates the weighted average of Retail
Lending Test Area performance scores for a State or multistate MSA,
as applicable, and for the institution (i.e., performance score for
the Retail Lending Test). For the weighted average for a State or
multistate MSA, the [Agency] considers facility-based assessment
areas and retail lending assessment areas in the State or multistate
MSA pursuant to Sec. __.28(c). For the weighted average for the
institution, the [Agency] considers all of the bank's facility-based
assessment areas and retail lending assessment areas and, as
applicable, the bank's outside retail lending area. Each Retail
Lending Test Area performance score is weighted by the average of
the following two ratios:
1. The ratio measuring the share of the bank's deposits in the
Retail Lending Test Area, calculated by:
i. Summing, over the years in the evaluation period, the bank's
annual dollar volume of deposits in the Retail Lending Test Area.
ii. Summing, over the years in the evaluation period, the bank's
annual dollar volume of deposits in all Retail Lending Test Areas in
the State, in the multistate MSA, or for the institution, as
applicable.
iii. Dividing the result of paragraph VIII.b.1.i of this
appendix by the result of paragraph VIII.b.1.ii of this appendix.
For a bank that reports deposits data pursuant to Sec.
__.42(b)(3), the bank's annual dollar volume of deposits in a Retail
Lending Test Area is the total of annual average daily balances of
deposits reported by the bank in counties in the Retail Lending Test
Area for that year. For a bank that does not report deposits data
pursuant to Sec. __.42(b)(3), the bank's annual dollar volume of
deposits in a Retail Lending Test Area is the total of deposits
assigned to facilities reported by the bank in the Retail Lending
Test Area in the FDIC's Summary of Deposits for that year.
2. The ratio measuring the share of the bank's loans in the
Retail Lending Test Area, based on the combination of loan dollars
and loan count, as defined in Sec. __.12, calculated by dividing:
i. The bank's closed-end home mortgage loans, small business
loans, small farm loans, and, if a product line for the bank,
automobile loans in the Retail Lending Test Area originated or
purchased during the evaluation period; by
ii. The bank's closed-end home mortgage loans, small business
loans, small farm loans, and, if a product line for the bank,
automobile loans in all Retail Lending Test Areas in the State, in
the multistate MSA, or for the institution, as applicable,
originated or purchased during the evaluation period.
c. The [Agency] develops a conclusion corresponding to the
conclusion category that is nearest to the performance score for the
Retail Lending Test for the State, the multistate MSA, or the
institution, as applicable, as follows:
------------------------------------------------------------------------
Retail lending test
Conclusion performance score
------------------------------------------------------------------------
Outstanding............................... 8.5 or more.
High Satisfactory......................... 6.5 or more but less than
8.5.
Low Satisfactory.......................... 4.5 or more but less than
6.5.
Needs to Improve.......................... 1.5 or more but less than
4.5.
Substantial Noncompliance................. Less than 1.5.
------------------------------------------------------------------------
d. The agency considers relevant performance context information
provided in Sec. __.21(d) to inform the [Agency]'s determination of
the bank's Retail Lending Test conclusion for the State, the
multistate MSA, or the institution, as applicable.
Example A-16: A large bank operates in one State only, and has
two facility-based assessment areas and one retail lending
assessment area in that state and also engages in closed-end home
mortgage lending, small business lending, and small farm lending
(but not automobile lending, as it is not a product line for the
bank) in its outside retail lending area.
Additionally:
i. Facility-based assessment area 1 (FBAA-1) is associated with
75 percent of the deposits in all of the Retail Lending Test Areas
of the bank (based on dollar amount) and 10 percent of the bank's
closed-end home mortgage loans, small business loans, and small farm
loans (based on the combination of loan dollars and loan count as
defined in Sec. __.12). The bank received a ``Needs to Improve'' (3
points) Retail Lending Test conclusion in FBAA-1;
ii. Facility-based assessment area 2 (FBAA-2) is associated with
15 percent of the deposits in all of the Retail Lending Test Areas
of the bank and 20 percent of the bank's closed-end home mortgage
loans, small business loans, and small farm loans (based on the
combination of loan dollars and loan count as defined in Sec.
__.12). The
[[Page 7149]]
bank received a ``Low Satisfactory'' (6 points) Retail Lending Test
conclusion in FBAA-2;
iii. The Retail lending assessment area is associated with 8
percent of the deposits in all of the Retail Lending Test Areas of
the bank and 68 percent of the bank's closed-end home mortgage
loans, small business loans, and small farm loans (based on the
combination of loan dollars and loan count as defined in Sec.
__.12). The bank received an ``Outstanding'' (10 points) Retail
Lending Test conclusion in the retail lending assessment area; and
iv. The bank's outside retail lending area, is associated with 2
percent of the deposits in all of the Retail Lending Test Areas of
the bank and 2 percent of the bank's closed-end home mortgage loans,
small business loans, and small farm loans (based on the combination
of loan dollars and loan count as defined in Sec. __.12). The bank
received a ``High Satisfactory'' (7 points) Retail Lending Test
conclusion in the outside retail lending area.
Calculating weights:
i. For facility-based assessment area 1: weight = 42.5 percent
[(75 percent of deposits + 10 percent of closed-end home mortgage
loans, small business loans, and small farm loans)/2];
ii. For facility-based assessment area 2: weight = 17.5 percent
[(15 percent of deposits + 20 percent of closed-end home mortgage
loans, small business loans, and small farm loans)/2];
iii. For the retail lending assessment area: weight = 38 percent
[(8 percent of deposits + 68 percent of closed-end home mortgage
loans, small business loans, and small farm loans)/2]; and
iv. For the outside retail lending area: weight = 2 percent [(2
percent of deposits + 2 percent of closed-end home mortgage loans,
small business loans, and small farm loans)/2].
Institution Retail Lending Test Performance Score and
Conclusion: Using the relevant points values--``Outstanding'' (10
points); ``High Satisfactory'' (7 points); ``Low Satisfactory'' (6
points); ``Needs to Improve'' (3 points); ``Substantial
Noncompliance'' (0 points)--and based on the illustration in this
example A-16, the bank's Retail Lending Test performance score for
the institution is 6.3 [(0.425 weight x 3 points in facility-based
assessment area 1) + (0.175 weight x 6 points in facility-based
assessment area 2) + (0.38 weight x 10 points in retail lending
assessment area) + (0.02 weight x 7 points in the outside retail
lending area)].
A performance score of 6.3 corresponds with the conclusion
category ``Low Satisfactory,'' so the bank's Retail Lending Test
recommended conclusion at the institution level is ``Low
Satisfactory.'' Relevant performance context information provided in
Sec. __.21(d) may inform the [Agency]'s determination of the bank's
conclusion at the institution level.
Example A-17: An intermediate bank operates in a single State,
has two facility-based assessment areas, and also engages in closed-
end home mortgage lending, small business lending, and small farm
lending (but not automobile lending, as automobile lending is not a
product line for the bank) in its outside retail lending area.
Additionally:
i. Facility-based assessment area 1 (FBAA-1) is associated with
60 percent of the deposits in all of the Retail Lending Test Areas
of the bank and 30 percent of the bank's closed-end home mortgage
loans, small business loans, and small farm loans. The bank received
an ``Outstanding'' (10 points) Retail Lending Test conclusion in
FBAA-1;
ii. Facility-based assessment area 2 (FBAA-2 is) associated with
40 percent of the deposits in all of the Retail Lending Test Areas
of the bank and 10 percent of the bank's closed-end home mortgage
loans, small business loans, and small farm loans. The bank received
a ``High Satisfactory'' (7 points) Retail Lending Test conclusion in
FBAA-2; and
iii. The bank's outside retail lending area is associated with 0
percent of the deposits in all of the Retail Lending Test Areas of
the bank (the bank did not voluntarily collect and maintain
depositor location data, so all deposits in the bank are attributed
to its branches within facility-based assessment areas) and 60
percent of the bank's closed-end home mortgage loans, small business
loans, and small farm loans. The bank received a ``Needs to
Improve'' (3 points) Retail Lending Test conclusion in the outside
retail lending area.
Calculating weights:
i. For FBAA-1: weight = 45 percent [(60 percent of deposits + 30
percent of closed-end home mortgage loans, small business loans, and
small farm loans)/2];
ii. For FBAA-2: weight = 25 percent [(40 percent of deposits +
10 percent of closed-end home mortgage loans, small business loans,
and small farm loans)/2]; and
iii. For the outside retail lending area: weight = 30 percent
[(0 percent of deposits + 60 percent of closed-end home mortgage
loans, small business loans, and small farm loans)/2].
Institution Retail Lending Test Performance Score and
Conclusion: Using the relevant points values--``Outstanding'' (10
points); ``High Satisfactory'' (7 points); ``Low Satisfactory'' (6
points); ``Needs to Improve'' (3 points); ``Substantial
Noncompliance'' (0 points)--and based on the illustration in this
example A-17, the bank's recommended Retail Lending Test performance
score at the institution level is 7.2 [(0.45 weight x 10 points in
FBAA-1) + (0.25 weight x 7 points in FBAA-2) + (0.3 weight x 3
points in the outside retail lending area)].
A performance score of 7.2 corresponds with the conclusion
category ``High Satisfactory,'' so the bank's Retail Lending Test
recommended conclusion at the institution level is ``High
Satisfactory.'' Relevant performance context information provided in
Sec. __.21(d) may inform the [Agency]'s determination of the bank's
conclusion at the institution level.
Appendix B to Part __--Calculations for the Community Development Tests
This appendix, based on requirements described in Sec. Sec.
__.24 through __.26 and __.28, includes the following sections:
I. Community Development Financing Tests--Calculation Components and
Allocation of Community Development Loans and Community Development
Investments
II. Community Development Financing Test in Sec. __.24--
Calculations for Metrics, Benchmarks, and Combining Performance
Scores
III. Community Development Financing Test for Limited Purpose Banks
in Sec. __.26--Calculations for Metrics and Benchmarks
IV. Weighting of Conclusions
I. Community Development Financing Tests--Calculation Components and
Allocation of Community Development Loans and Community Development
Investments
For purposes of the Community Development Financing Test in
Sec. __.24 and Community Development Financing Test for Limited
Purpose Banks in Sec. __.26, the [Agency] identifies the community
development loans and community development investments included in
the numerator of the metrics and benchmarks and the deposits or
assets included in the denominator of the metrics and benchmarks, as
applicable, pursuant to paragraph I.a of this appendix. The [Agency]
determines whether to include a community development loan or
community development investment in the numerator for a particular
metric or benchmark pursuant to the allocation provisions in
paragraph I.b of this appendix.
a. Community development loans and community development
investments, deposits, and assets included in the community
development financing metrics and benchmarks--in general. The
[Agency] calculates the community development financing metrics and
benchmarks in Sec. Sec. __.24 and __.26 using community development
loans and community development investments and deposits or assets,
as follows:
1. Numerator--i. Community development loans and community
development investments considered. The [Agency] includes community
development loans and community development investments originated,
purchased, refinanced, or renewed by a depository institution or
attributed to a depository institution pursuant to Sec. __.21(b)
and (c) (e.g., an affiliate community development loan) in the
numerator of the metrics and benchmarks. The [Agency] calculates the
annual dollar volume of community development loans and community
development investments by summing the dollar volume of the
following community development loans and community development
investments for each calendar year in an evaluation period (i.e.,
annual dollar volume of community development loans and community
development investments):
A. The dollar volume of all community development loans
originated or purchased and community development investments made,
including legally binding commitments to extend credit or legally
[[Page 7150]]
binding commitments to invest,\1\ in that calendar year;
---------------------------------------------------------------------------
\1\ The dollar volume of a legally binding commitment to extend
credit or legally binding commitment to invest in any given year is:
(1) the full dollar volume committed; or (2) if drawn upon, the
combined dollar volume of the outstanding commitment and any drawn
portion of the commitment.
---------------------------------------------------------------------------
B. The dollar volume of any increase in the calendar year to an
existing community development loan that is refinanced or renewed
and in an existing community development investment that is renewed;
C. The outstanding dollar volume of community development loans
originated or purchased in previous calendar years and community
development investments made in previous calendar years, as of
December 31 for each calendar year that the loan or investment
remains on the depository institution's balance sheet; and
D. The outstanding dollar volume, less any increase reported in
paragraph I.a.1.B of this appendix in the same calendar year, of a
community development loan the depository institution refinanced or
renewed in a calendar year subsequent to the calendar year of
origination or purchase, as of December 31 for each calendar year
that the loan remains on the depository institution's balance sheet,
and an existing community development investment renewed in a
calendar year subsequent to the calendar year of the investment, as
of December 31 for each calendar year that the investment remains on
the depository institution's balance sheet.
ii. Community development loan and community development
investment allocation. To calculate the metrics and benchmarks
provided in Sec. Sec. __.24 and _.26, the [Agency] includes all
community development loans and community development investments
that are allocated to the specific facility-based assessment area,
State, multistate MSA, or nationwide area, respectively, in the
numerator for the metric and benchmarks applicable to that
geographic area. See paragraph I.b of this appendix for the
community development financing allocation provisions.
2. Denominator. i. Annual dollar volume of deposits. For
purposes of metrics and benchmarks in Sec. __.24, the [Agency]
calculates an annual dollar volume of deposits in a depository
institution that is specific to each metric or benchmark for each
calendar year in the evaluation period (i.e., annual dollar volume
of deposits). For a depository institution that collects, maintains,
and reports deposits data as provided in 12 CFR 25.42, 228.42, or
345.42, the annual dollar volume of deposits is determined using the
annual average daily balance of deposits in the depository
institution as provided in statements (e.g., monthly or quarterly
statements) based on the deposit location. For a depository
institution that does not collect, maintain, and report deposits
data as provided in 12 CFR 25.42, 228.42, or 345.42, the annual
dollar volume of deposits is determined using the deposits assigned
to each facility pursuant to the FDIC's Summary of Deposits.
ii. Annual dollar volume of assets. For purposes of the metrics
and benchmarks in Sec. ___.26, the [Agency] calculates an annual
dollar volume of assets for each calendar year in the evaluation
period (i.e., the annual dollar volume of assets). The annual dollar
volume of assets is calculated by averaging the assets for each
quarter end in the calendar year.
b. Allocation of community development loans and community
development investments. 1. In general. For the Community
Development Financing Test in Sec. __.24 and the Community
Development Financing Test for Limited Purpose Banks in Sec. __.26,
the [Agency] considers community development loans and community
development investments in the evaluation of a bank's performance in
a facility-based assessment area, State and multistate MSA, as
applicable, and the nationwide area, based on the data provided by
the bank pursuant to Sec. __.42(a)(5)(ii)(E) and the specific
location, if available, pursuant to Sec. __.42(a)(5)(ii)(D). As
appropriate, the [Agency] may also consider publicly available
information and information provided by government or community
sources that demonstrates that a community development loan or
community development investment benefits or serves a facility-based
assessment area, State, or multistate MSA, or the nationwide area.
2. A bank may allocate a community development loan or community
development investment as follows:
i. A community development loan or community development
investment that benefits or serves only one county, and not any
areas beyond that one county, would have the full dollar amount of
the activity allocated to that county.
ii. A community development loan or community development
investment that benefits or serves multiple counties, a State, a
multistate MSA, multiple States, multiple multistate MSAs, or the
nationwide area is allocated according to either specific
documentation that the bank can provide regarding the dollar amount
allocated to each county or based on the geographic scope of the
activity, as follows:
A. Allocation approach if specific documentation is available. A
bank may allocate a community development loan or community
development investment or portion of a loan or investment based on
documentation that specifies the appropriate dollar volume to assign
to each county, such as specific addresses and dollar volumes
associated with each address, or other information that indicates
the specific dollar volume of the loan or investment that benefits
or serves each county.
B. Allocation approach based on geographic scope of a community
development loan or community development investment.\2\ In the
absence of specific documentation, the [Agency] will allocate a
community development loan or community development investment based
on the geographic scope of the loan or investment as follows:
---------------------------------------------------------------------------
\2\ For the purposes of allocating community development loans
and community development investments, the [Agency] considers low-
or moderate-income families to be located in a State or multistate
MSA, as applicable, consistent with Sec. __.28(c).
---------------------------------------------------------------------------
1. Allocate at the county level for a loan or investment with a
geographic scope of one county;
2. Allocate at the county level based on the proportion of low-
and moderate-income families in each county for a loan or investment
with a geographic scope of less than an entire State or multistate
MSA;
3. Allocate at the State or multistate MSA level for a loan or
investment with a geographic scope of the entire State or multistate
MSA, as applicable;
4. Allocate at the State or multistate MSA level, as applicable,
based on the proportion of low- and moderate-income families in each
State or multistate MSA for a loan or investment with a geographic
scope of one or more State(s) or multistate MSA(s), but not the
entire nation; and
5. Allocate at the nationwide area level for a loan or
investment with a geographic scope of the entire Nation.
Table 1 to Appendix B--Community Development Loan or Community
Development Investment Allocation
------------------------------------------------------------------------
Allocation
Community development loan or approach if Allocation
community development investment specific approach based on
benefits or serves documentation is geographic scope
available of activity
------------------------------------------------------------------------
One county...................... Allocate to county NA.
Multiple counties that are part Allocate to Allocate to
of one State or multistate MSA. counties. counties in
proportions
equivalent to the
distribution of
low- and moderate-
income families.
One State or multistate MSA..... Allocate to Allocate to the
counties. State or
multistate MSA.
Multiple States or multistate Allocate to Allocate to the
MSAs, less than the entire counties. States or
nation. multistate MSAs,
as applicable,
based on the
proportion of low-
and moderate-
income families
in each State or
multistate MSA.
[[Page 7151]]
Nationwide area................. Allocate to Allocate to
counties. nationwide area.
------------------------------------------------------------------------
II. Community Development Financing Test in Sec. __.24--Calculations
for Metrics, Benchmarks, and Combining Performance Scores
The calculations for metrics, benchmarks, and combination of
performance scores for Community Development Financing Test in Sec.
__.24 are provided in this section. Additional information regarding
relevant calculation components is set forth in paragraph I.a of
this appendix.
a. Bank Assessment Area Community Development Financing Metric.
The [Agency] calculates the Bank Assessment Area Community
Development Financing Metric in Sec. __.24(b)(1) by:
1. Summing the bank's annual dollar volume of community
development loans and community development investments that benefit
or serve the facility-based assessment area for each year in the
evaluation period.
2. Summing the bank's annual dollar volume of deposits located
in the facility-based assessment area for each year in the
evaluation period.
3. Dividing the result of paragraph II.a.1 of this appendix by
the result of paragraph II.a.2 of this appendix.
Example B-1: The bank has a three-year evaluation period. The
bank's annual dollar volumes of community development loans and
community development investments that benefit or serve a facility-
based assessment area are $35,000 (year 1), $25,000 (year 2), and
$40,000 (year 3). The sum of the bank's annual dollar volumes of
community development loans and community development investments
that benefit or serve a facility-based assessment area is therefore
$100,000. The bank's annual dollar volumes of deposits located in
the facility-based assessment area are $3.1 million (year 1), $3.3
million (year 2), and $3.6 million (year 3). The sum of the bank's
annual dollar volumes of deposits located in the facility-based
assessment is therefore $10 million. For the evaluation period, the
Bank Assessment Area Community Development Financing Metric would be
$100,000 divided by $10 million, or 0.01 (equivalently, 1 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.072
b. Assessment Area Community Development Financing Benchmark.
The [Agency] calculates the Assessment Area Community Development
Financing Benchmark in Sec. __.24(b)(2)(i) for each facility-based
assessment area by:
1. Summing all large depository institutions' annual dollar
volume of community development loans and community development
investments that benefit or serve the facility-based assessment area
for each year in the evaluation period.
2. Summing all large depository institutions' annual dollar
volume of deposits located in the facility-based assessment area for
each year in the evaluation period.
3. Dividing the result of paragraph II.b.1 of this appendix by
the result of paragraph II.b.2 of this appendix.
Example B-2: The applicable benchmark uses a three-year
evaluation period. The annual dollar volumes of community
development loans and community development investments that benefit
or serve a facility-based assessment area for all large depository
institutions are $3.25 million (year 1), $3 million (year 2), and
$3.75 million (year 3). The sum of the annual dollar volumes of
community development loans and community development investments
that benefit or serve the facility-based assessment area conducted
by all large depository institutions is therefore $10 million. The
annual dollar volumes of deposits located in the facility-based
assessment area in all large depository institutions are $330
million (year 1), $330 million (year 2), and $340 million (year 3).
The sum of the annual dollar volumes of deposits located in the
facility-based assessment area in all large depository institutions
is therefore $1 billion. For the evaluation period, the Assessment
Area Community Development Financing Benchmark for the facility-
based assessment area would be $10 million divided by $1 billion, or
0.01 (equivalently, 1 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.073
c. MSA and Nonmetropolitan Nationwide Community Development
Financing Benchmarks. The [Agency] calculates an MSA Nationwide
Community Development Financing Benchmark to be used for each MSA in
which the bank has a facility-based assessment area in the MSA. The
[Agency] calculates a Nonmetropolitan Nationwide Community
Development Financing Benchmark to be used for each nonmetropolitan
area in which the bank has a facility-based assessment area in the
nonmetropolitan area.
1. MSA Nationwide Community Development Financing Benchmark. The
[Agency] calculates the MSA Nationwide Community Development
Financing Benchmark in Sec. __.24(b)(2)(ii)(A) by:
i. Summing all large depository institutions' annual dollar
volume of community development loans and community development
investments that benefit or serve metropolitan areas in the
nationwide area for each year in the evaluation period.
ii. Summing all large depository institutions' annual dollar
volume of deposits located in metropolitan areas in the nationwide
area for each year in the evaluation period.
iii. Dividing the result of paragraph II.c.1.i of this appendix
by the result of paragraph II.c.1.ii of this appendix.
[[Page 7152]]
Example B-3: The applicable benchmark uses a three-year
evaluation period. The annual dollar volumes of community
development loans and community development investments that benefit
or serve metropolitan areas in the nationwide area conducted by all
large depository institutions are $98 billion (year 1), $100 billion
(year 2), and $102 billion (year 3). The sum of the annual dollar
volumes of community development loans and community development
investments that benefit or serve metropolitan areas in the
nationwide area conducted by all large depository institutions is
therefore $300 billion. The annual dollar volumes of deposits
located in metropolitan areas in the nationwide area in all large
depository institutions are $14.9 trillion (year 1), $15 trillion
(year 2), and $15.1 trillion (year 3). The sum of the annual dollar
volumes of deposits located in metropolitan areas in the nationwide
area in all large depository institutions is therefore $45 trillion.
For the evaluation period, the Metropolitan Nationwide Community
Development Financing Benchmark would be $300 billion divided by $45
trillion, or 0.007 (equivalently, 0.7 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.074
2. Nonmetropolitan Nationwide Community Development Financing
Benchmark. The [Agency] calculates the Nonmetropolitan Nationwide
Community Development Financing Benchmark in Sec.
__.24(b)(2)(ii)(B) by:
i. Summing all large depository institutions' annual dollar
volume of community development loans and community development
investments that benefit or serve nonmetropolitan areas in the
nationwide area for each year in the evaluation period.
ii. Summing all large depository institutions' annual dollar
volume of deposits located in nonmetropolitan areas in the
nationwide area for each year in the evaluation period.
iii. Dividing the result of paragraph II.c.2.i of this appendix
by the result of paragraph II.c.2.ii of this appendix.
Example B-4: The applicable benchmark uses a three-year
evaluation period. The annual dollar volumes of community
development loans and community development investments that benefit
or serve nonmetropolitan areas in the nationwide area conducted by
all large depository institutions are $3 billion (year 1), $3.2
billion (year 2), and $3.8 billion (year 3). The sum of the annual
dollar volumes of community development loans and community
development investments that benefit or serve nonmetropolitan areas
in the nationwide area conducted by all large depository
institutions is therefore $10 billion. The annual dollar volumes of
deposits located in nonmetropolitan areas in all large depository
institutions are $330 billion (year 1), $334 billion (year 2), and
$336 billion (year 3). The sum of the annual dollar volumes of
deposits located in nonmetropolitan areas in the nationwide area in
all large depository institutions is therefore $1 trillion. For the
evaluation period, the Nonmetropolitan Nationwide Community
Development Financing Benchmark would be $10 billion divided by $1
trillion, or 0.01 (equivalently, 1 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.075
d. Bank State Community Development Financing Metric. The
[Agency] calculates the Bank State Community Development Financing
Metric in Sec. __.24(c)(2)(i) for each State in which the bank has
a facility-based assessment area by:
1. Summing the bank's annual dollar volume of community
development loans and community development investments that benefit
or serve a State (which includes all activities within the bank's
facility-based assessment areas and outside of its facility-based
assessment areas but within the State) for each year in the
evaluation period.
2. Summing the bank's annual dollar volume of deposits located
in a State for each year in the evaluation period.
3. Dividing the result of paragraphs II.d.1 of this appendix by
the result of paragraph II.d.2 of this appendix.
Example B-5: The bank has a three-year evaluation period. The
bank's annual dollar volumes of community development loans and
community development investments that benefit or serve the State
are $15 million (year 1), $17 million (year 2), and $18 million
(year 3). The sum of the bank's annual dollar volumes of community
development loans and community development investments that benefit
or serve the State conducted by a bank is therefore $50 million. The
bank's annual dollar volumes of deposits located in the State are
$1.5 billion (year 1), $1.6 billion (year 2), and $1.9 billion (year
3). The sum of the bank's annual dollar volumes of deposits located
in the State is therefore $5 billion. For the evaluation period, the
Bank State Community Development Financing Metric would be $50
million divided by $5 billion, or 0.01 (equivalently, 1 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.076
e. State Community Development Financing Benchmark. The [Agency]
calculates the State Community Development Financing Benchmark in
Sec. __.24(c)(2)(ii)(A) by:
1. Summing all large depository institutions' annual dollar
volume of community development loans and
[[Page 7153]]
community development investments that benefit or serve all or part
of a State for each year in the evaluation period.
2. Summing all large depository institutions' annual dollar
volume of deposits located in the State for each year in the
evaluation period.
3. Dividing the result of paragraph II.e.1 of this appendix by
the result of paragraph II.e.2 of this appendix.
Example B-6: The applicable benchmark uses a three-year
evaluation period. The annual dollar volumes of community
development loans and community development investments that benefit
or serve the State conducted by all large depository institutions
are $2.3 billion (year 1), $2.5 billion (year 2), and $2.7 billion
(year 3). The sum of the annual dollar volumes of community
development loans and community development investments that benefit
or serve the State conducted by all large depository institutions is
therefore $7.5 billion. The annual dollar volumes of deposits
located in the State in all large depository institutions are $160
billion (year 1), $170 billion (year 2), and $170 billion (year 3).
The sum of the annual dollar volumes of deposits located in the
State in all large depository institutions is therefore $500
billion. For the evaluation period, the State Community Development
Financing Benchmark would be $7.5 billion divided by $500 billion,
or 0.015 (equivalently, 1.5 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.077
f. State Weighted Assessment Area Community Development
Financing Benchmark. The [Agency] calculates the State Weighted
Assessment Area Community Development Financing Benchmark in Sec.
__.24(c)(2)(ii)(B) by averaging all of the applicable Assessment
Area Community Development Financing Benchmarks (see paragraph II.b
of this appendix) in a State for the evaluation period, after
weighting each pursuant to paragraph II.o of this appendix.
Example B-7: The bank has two facility-based assessment areas
(FBAAs) in a State (FBAA-1 and FBAA-2). The [Agency] does not
evaluate the bank's automobile lending.
In FBAA-1, the Assessment Area Community Development
Financing Benchmark is 3.0 percent. FBAA-1 represents 70 percent of
the combined dollar volume of the deposits in the bank in FBAA-1 and
FBAA-2. FBAA-1 represents 65 percent of the bank's combined dollar
volume of originated and purchased closed-end home mortgage loans,
small business loans, and small farm loans in FBAA-1 and FBAA-2.
FBAA-1 represents 55 percent of the bank's number of originated and
purchased closed-end home mortgage loans, small business loans, and
small farm loans in FBAA-1 and FBAA-2;
In FBAA-2, the Assessment Area Community Development
Financing Benchmark is 5.0 percent. FBAA-2 represents 30 percent of
the combined dollar volume of the deposits in the bank in FBAA-1 and
FBAA-2. FBAA-2 represents 35 percent of the bank's combined dollar
volume of originated and purchased closed-end home mortgage loans,
small business loans, and small farm loans in FBAA-1 and FBAA-2.
FBAA-2 represents 45 percent of the bank's number of originated and
purchased closed-end home mortgage loans, small business loans, and
small farm loans in FBAA-1 and FBAA-2.
------------------------------------------------------------------------
FBAA-1 FBAA-2
------------------------------------------------------------------------
Benchmark............................... 3.0 5.0
% of deposits........................... 70% 30%
% of lending dollar volume.............. 65% 35%
% of number of loans.................... 55% 45%
------------------------------------------------------------------------
Calculating weights for FBAA-1:
[cir] The percent of originated and purchased closed-end home
mortgage lending, small business lending, and small farm lending,
based on the combination of loan dollars and loan count, as defined
in Sec. __.12, for FBAA-1 is 60 percent.
[GRAPHIC] [TIFF OMITTED] TR01FE24.078
[cir] The weight for FBAA-1 is 65 percent.
[GRAPHIC] [TIFF OMITTED] TR01FE24.079
Calculating weights for FBAA-2:
[cir] The percent of originated and purchased closed-end home
mortgage lending, small business lending, and small farm lending,
based on the combination of loan dollars and loan count, for FBAA-2
is 40 percent.
[[Page 7154]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.080
[cir] The weight for FBAA-2 is 35 percent.
[GRAPHIC] [TIFF OMITTED] TR01FE24.081
Applying the calculated weights for FBAA-1 and FBAA-2:
o The bank's State Weighted Assessment Area Community
Development Financing Benchmark is 3.7 percent.
(Weight for FBAA-1 (0.65) x Benchmark in FBAA-1 (3%)) + (Weight
for FBAA-2 (0.35) x Benchmark in FBAA-2 (5%)) = State Weighted
Assessment Area Community Development Financing Benchmark (3.7%)
g. Bank Multistate MSA Community Development Financing Metric.
The [Agency] calculates the Bank Multistate MSA Community
Development Financing Metric in Sec. __.24(d)(2)(i) for each
multistate MSA in which the bank has a facility-based assessment
area by:
1. Summing the bank's annual dollar volume of community
development loans and community development investments that benefit
or serve a multistate MSA (which includes all activities within the
bank's facility-based assessment areas and outside of its facility-
based assessment areas but within the multistate MSA) for each year
in the evaluation period.
2. Summing the bank's annual dollar volume of deposits located
in the multistate MSA for each year in the evaluation period.
3. Dividing the result of paragraph II.g.1 of this appendix by
the result of paragraph II.g.2 of this appendix.
Example B-8: The bank has a three-year evaluation period. The
bank's annual dollar volumes of community development loans and
community development investments that benefit or serve a multistate
MSA are $47 million (year 1), $51 million (year 2), and $52 million
(year 3). The sum of the bank's annual dollar volumes of community
development loans and community development investments that benefit
or serve a multistate MSA conducted by the bank is therefore $150
million. The bank's annual dollar volumes of deposits located in the
multistate MSA are $3.1 billion (year 1), $3.3 billion (year 2), and
$3.6 billion (year 3). The sum of the bank's annual dollar volumes
of deposits located in the multistate MSA is therefore $10 billion.
For the evaluation period, the Bank Multistate MSA Community
Development Financing Metric would be $150 million divided by $10
billion, or 0.015 (equivalently, 1.5 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.082
h. Multistate MSA Community Development Financing Benchmark. The
[Agency] calculates the Multistate MSA Community Development
Financing Benchmark in Sec. __.24(d)(2)(ii)(A) by:
1. Summing all large depository institutions' annual dollar
volume of community development loans and community development
investments that benefit or serve all or part of a multistate MSA
for each year in the evaluation period.
2. Summing all large depository institutions' annual dollar
volume of deposits located in the multistate MSA for each year in
the evaluation period.
3. Dividing the result of paragraph II.h.1 of this appendix by
the result of paragraph II.h.2 of this appendix.
Example B-9: The applicable benchmark uses a three-year
evaluation period. The annual dollar volumes of community
development loans and community development investments that benefit
or serve a multistate MSA for all large depository institutions are
$135 million (year 1), $140 million (year 2), and $145 million (year
3). The sum of the annual dollar volumes of community development
loans and community development investments that benefit or serve a
multistate MSA conducted by all large depository institutions is
therefore $420 million. The annual dollar volumes of deposits
located in the multistate MSA in all large depository institutions
are $4 billion (year 1), $5 billion (year 2), and $6 billion (year
3). The sum of the annual dollar volume of deposits located in the
multistate MSA in all large depository institutions is therefore $15
billion. For the evaluation period, the Multistate MSA Community
Development Financing Benchmark would be $420 million divided by $15
billion, or 0.028 (equivalently, 2.8 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.083
i. Multistate MSA Weighted Assessment Area Community Development
Financing Benchmark. The [Agency] calculates the Multistate MSA
Weighted Assessment Area Community Development Financing Benchmark
in Sec. __.24(c)(3)(ii)(B)(2) by averaging all of the bank's
Assessment Area Community Development Financing Benchmarks (see
paragraph II.b of this appendix) in a multistate MSA for the
evaluation period, after weighting each pursuant to paragraph II.o
of this appendix.
Example B-10: The bank has two facility-based assessment areas
in a multistate MSA (FBAA-1 and FBAA-2). The [Agency] does not
evaluate the bank's automobile lending.
In FBAA-1, the bank's Assessment Area Community
Development Financing
[[Page 7155]]
Benchmark is 3.0 percent. FBAA-1 represents 70 percent of the total
dollar volume of the deposits in the bank in FBAA-1 and FBAA-2.
FBAA-1 represents 65 percent of the bank's combined dollar volume of
originated and purchased closed-end home mortgage loans, small
business loans, and small farm loans in FBAA-1 and FBAA-2. FBAA-1
represents 55 percent of the bank's number of originated and
purchased closed-end home mortgage loans, small business loans, and
small farm loans in FBAA-1 and FBAA-2;
In FBAA-2, the bank's Assessment Area Community
Development Financing Benchmark is 5.0 percent. FBAA-2 represents 30
percent of the total dollar volume of the deposits in the bank in
FBAA-1 and FBAA-2. FBAA-2 represents 35 percent of the bank's
combined dollar volume of originated and purchased closed-end home
mortgage loans, small business loans, and small farm loans in FBAA-1
and FBAA-2. FBAA-2 represents 45 percent of the bank's number of
originated and purchased closed-end home mortgage loans, small
business loans, and small farm loans in FBAA-1 and FBAA-2.
------------------------------------------------------------------------
FBAA-1 FBAA-2
------------------------------------------------------------------------
Benchmark............................... 3.0 5.0
% of deposits........................... 70% 30%
% of lending dollar volume.............. 65% 35%
% of loans.............................. 55% 45%
------------------------------------------------------------------------
Calculating weights for FBAA-1:
[cir] The percent of originated and purchased closed-end home
mortgage lending, small business lending, and small farm lending,
based on the combination of loan dollars and loan count, as defined
in Sec. __.12, for FBAA-1 is 60 percent.
[GRAPHIC] [TIFF OMITTED] TR01FE24.084
[cir] The weight for FBAA-1 is 65 percent.
[GRAPHIC] [TIFF OMITTED] TR01FE24.085
Calculating weights for FBAA-2:
[cir] The percent of originated and purchased closed-end home
mortgage lending, small business lending, and small farm lending,
based on the combination of loan dollars and loan count, as defined
in Sec. __.12, for FBAA-2 is 40 percent.
[GRAPHIC] [TIFF OMITTED] TR01FE24.086
[cir] The weight for FBAA-2 is 35 percent.
[GRAPHIC] [TIFF OMITTED] TR01FE24.087
Applying the calculated weights from FBAA-1 and FBAA-2:
[cir] The bank's Multistate MSA Weighted Assessment Area
Community Development Financing Benchmark is 3.7 percent.
(Weight of FBAA-1 (0.65) x Benchmark in FBAA-1 (3%)) + (weight
of FBAA-2 (0.35) x benchmark in FBAA-2 (5%)) = Multistate MSA
Weighted Assessment Area Community Development Financing Benchmark
(3.7%)
j. Bank Nationwide Community Development Financing Metric. The
[Agency] calculates the Bank Nationwide Community Development
Financing Metric in Sec. __.24(e)(2)(i) for the nationwide area by:
1. Summing the bank's annual dollar volume of community
development loans and community development investments that benefit
or serve the nationwide area (which includes all activities within
the bank's facility-based assessment areas and outside of its
facility-based assessment areas within the nationwide area) for each
year in the evaluation period.
2. Summing the bank's annual dollar volume of deposits located
in the nationwide area for each year in the evaluation period.
3. Dividing the results of paragraph II.j.1 of this appendix by
the results of paragraph II.j.2 of this appendix.
Example B-11: The bank has a three-year evaluation period. The
bank's annual dollar volumes of community development loans and
community development investments that benefit or serve the
nationwide area are $60 million (year 1), $65 million (year 2), and
$75 million (year 3). The sum of the bank's annual dollar volumes of
community development loans and community development investments
that benefit or serve the nationwide area conducted by the bank is
therefore $200 million. The bank's annual dollar volumes of deposits
located in the nationwide area are $2.5 billion (year 1), $2.7
billion (year 2), and $2.8 billion (year 3). The sum of the bank's
annual dollar volumes
[[Page 7156]]
of deposits located in the nationwide area is therefore $8 billion.
For the evaluation period, the Bank Nationwide Community Development
Financing Metric would be $200 million divided by $8 billion, or
0.025 (equivalently, 2.5 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.088
k. Nationwide Community Development Financing Benchmark. The
[Agency] calculates the Nationwide Community Development Financing
Benchmark in Sec. __.24(e)(2)(ii)(A) by:
1. Summing all large depository institutions' annual dollar
volume of community development loans and community development
investments that benefit or serve all or part of the nationwide area
for each year in the evaluation period.
2. Summing all depository institutions' annual dollar volume of
deposits located in the nationwide area for each year in the
evaluation period.
3. Dividing the result of paragraph II.k.1 of this appendix by
the result of paragraph II.k.2 of this appendix.
Example B-12: The applicable benchmark uses a three-year
evaluation period. The annual dollar volumes of community
development loans and community development investments that benefit
or serve the nationwide area for all large depository institutions
are $100 billion (year 1), $103 billion (year 2), and $107 billion
(year 3). The sum of the annual dollar volumes of community
development loans and community development investments that benefit
or serve the nationwide area conducted by all large depository
institutions is therefore $310 billion. The annual dollar volumes of
deposits located in the nationwide area in all large depository
institutions are $15.2 trillion (year 1), $15.3 trillion (year 2),
and $15.5 trillion (year 3). The sum of the annual dollar volumes of
deposits located in the nationwide area in all large depository
institutions is $46 trillion. For the evaluation period, the
Nationwide Community Development Financing Benchmark would be $310
billion divided by $46 trillion, or 0.0067 (equivalently, 0.67
percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.089
l. Nationwide Weighted Assessment Area Community Development
Financing Benchmark. The [Agency] calculates the Nationwide Weighted
Assessment Area Community Development Financing Benchmark in Sec.
__.24(e)(2)(ii)(B) by averaging all of the bank's Assessment Area
Community Development Financing Benchmarks (see paragraph II.b of
this appendix) in the nationwide area, after weighting each pursuant
to paragraph II.o of this appendix.
Example B-13: The bank has three facility-based assessment areas
in the nationwide area (FBAA-1, FBAA-2, and FBAA-3).
In FBAA-1, the bank's Assessment Area Community
Development Financing Benchmark is 2.0 percent. FBAA-1 represents 60
percent of the combined dollar volume of the deposits in the bank in
FBAA-1, FBAA-2, and FBAA-3. FBAA-1 represents 40 percent of the
bank's combined dollar volume of originated and purchased closed-end
home mortgage loans, small business loans, and small farm loans in
FBAA-1, FBAA-2, and FBAA-3. FBAA-1 represents 60 percent of the
bank's number of originated and purchased closed-end home mortgage
loans, small business loans, and small farm loans in FBAA-1, FBAA-2,
and FBAA-3.
In FBAA-2, the bank's Assessment Area Community
Development Financing Benchmark is 3.0 percent. FBAA-2 represents 30
percent of the combined dollar volume of the deposits in the bank in
FBAA-1, FBAA-2, and FBAA-3. FBAA-2 represents 45 percent of the
bank's combined dollar volume of originated and purchased closed-end
home mortgage loans, small business loans, and small farm loans in
FBAA-1, FBAA-2, and FBAA-3. FBAA-2 represents 35 percent of the
bank's number of originated and purchased closed-end home mortgage
loans, small business loans, and small farm loans in FBAA-1, FBAA-2,
and FBAA-3.
In FBAA-3, the bank's Assessment Area Community
Development Financing Benchmark is 4.0 percent. FBAA-3 represents 10
percent of the combined dollar volume of the deposits in the bank in
FBAA-1, FBAA-2, and FBAA-3. FBAA-3 represents 15 percent of the
bank's combined dollar volume of originated and purchased closed-end
home mortgage loans, small business loans, and small farm loans in
FBAA-1, FBAA-2, and FBAA-3. FBAA-3 represents 5 percent of the
bank's number of originated and purchased closed-end home mortgage
loans, small business loans, and small farm loans in FBAA-1, FBAA-2,
and FBAA-3.
----------------------------------------------------------------------------------------------------------------
FBAA-1 FBAA-2 FBAA-3
----------------------------------------------------------------------------------------------------------------
Benchmark....................................................... 2.0 3.0 4.0
% of deposits................................................... 60% 30% 10%
% of lending dollar volume...................................... 40% 45% 15%
% of loans...................................................... 60% 35% 5%
----------------------------------------------------------------------------------------------------------------
Calculating weights for FBAA-1:
[cir] The percent of originated and purchased closed-end home
mortgage lending, small business lending, and small farm lending,
based on the combination of loan dollars and loan count, as defined
in Sec. __.12, for FBAA-1 is 50 percent.
[[Page 7157]]
[GRAPHIC] [TIFF OMITTED] TR01FE24.090
[cir] The weight for FBAA-1 is 55 percent.
[GRAPHIC] [TIFF OMITTED] TR01FE24.091
Calculating weights for FBAA-2:
[cir] The percent of originated and purchased closed-end home
mortgage lending, small business lending, and small farm lending,
based on the combination of loan dollars and loan count, as defined
in Sec. __.12, for FBAA-2 is 40 percent.
[GRAPHIC] [TIFF OMITTED] TR01FE24.092
[cir] The weight for FBAA-2 is 35 percent.
[GRAPHIC] [TIFF OMITTED] TR01FE24.093
Calculating weights for FBAA-3:
[cir] The percent of originated and purchased closed-end home
mortgage lending, small business lending, and small farm lending,
based on the combination of loan dollars and loan count, as defined
in Sec. __.12, for FBAA-3 is 10 percent.
[GRAPHIC] [TIFF OMITTED] TR01FE24.094
[cir] The weight for FBAA-3 is 10 percent.
[GRAPHIC] [TIFF OMITTED] TR01FE24.095
Applying the calculated weights from FBAA-1, FBAA-2,
and FBAA-3:
[cir] The bank's Nationwide Weighted Assessment Area Community
Development Financing Benchmark is 2.55 percent.
(Weight of FBAA-1(0.55) x Benchmark in FBAA-1 (2%)) + (Weight of
FBAA-2 (0.35) x Benchmark FBAA-2 (3%)) + (Weight of FBAA-3 (0.10) x
Benchmark in FBAA-3 (4%)) = Nationwide Weighted Assessment Area
Community Development Financing Benchmark (2.55%)
m. Bank Nationwide Community Development Investment Metric. The
[Agency] calculates the Bank Nationwide Community Development
Investment Metric in Sec. __.24(e)(2)(iii) for the nationwide area
by:
1. Summing the bank's annual dollar volume of community
development investments, excluding mortgage-backed securities, that
benefit or serve the nationwide area (which includes all activities
within the bank's facility-based assessment areas and outside of its
facility-based assessment areas within the nationwide area) for each
year in the evaluation period.
[[Page 7158]]
2. Summing the bank's annual dollar volume of deposits located
in the nationwide area for each year in the evaluation period.
3. Dividing the results of paragraph II.m.1 of this appendix by
the results of paragraph II.m.2 of this appendix.
Example B-14: The bank has a three-year evaluation period. The
bank's annual dollar volumes of community development investments
(excluding mortgage-backed securities) that benefit or serve the
nationwide area are $600 million (year 1), $680 million (year 2),
and $720 million (year 3). The sum of the bank's annual dollar
volumes of community development investments (excluding mortgage-
backed securities) that benefit or serve the nationwide area
conducted by the bank is therefore $2 billion. The bank's annual
dollar volumes of deposits located in the nationwide area are $24
billion (year 1), $27 billion (year 2), and $29 billion (year 3).
The sum of the bank's annual dollar volumes of deposits located in
the nationwide area is therefore $80 billion. For the evaluation
period, the Bank Nationwide Community Development Investment Metric
would be $2 billion divided by $80 billion, or 0.025 (equivalently,
2.5 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.096
n. Nationwide Community Development Investment Benchmark. The
[Agency] calculates the Nationwide Community Development Investment
Benchmark in Sec. __.24(e)(2)(iv) by:
1. Summing the annual dollar volume of community development
investments that benefit or serve all or part of the nationwide
area, excluding mortgage-backed securities, for each year in the
evaluation period for all large depository institutions that had
assets greater than $10 billion as of December 31 in both of the
prior two calendar years.
2. Summing the annual dollar volume of deposits in the
nationwide area for each year in the evaluation period for all large
depository institutions that had assets greater than $10 billion as
of December 31 in both of the prior two calendar years.
3. Dividing the result of paragraph II.n.1 of this appendix by
the result of paragraph II.n.2 of this appendix.
Example B-15: The applicable benchmark uses a three-year
evaluation period. The annual dollar volumes of community
development investments (excluding mortgage-backed securities) that
benefit or serve the nationwide area for all large depository
institutions are $350 billion (year 1), $360 billion (year 2), and
$390 billion (year 3). The sum of the annual dollar volumes of
community development investments (excluding mortgage-backed
securities) that benefit or serve the nationwide area conducted by
all large depository institutions is therefore $1.1 trillion. The
annual dollar volumes of deposits located in the nationwide area in
all large depository institutions are $21.9 trillion (year 1), $22
trillion (year 2), and $22.1 trillion (year 3). The sum of the
annual dollar volumes of deposits located in the nationwide area in
all large depository institutions is therefore $66 trillion. For the
evaluation period, the Nationwide Community Development Investment
Benchmark would be $1.1 trillion divided by $66 trillion, or 0.0167
(equivalently, 1.67 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.097
o. Weighting of benchmarks. The [Agency] calculates a weighted
average of the Assessment Area Community Development Financing
Benchmarks for a bank's facility-based assessment areas in each
State or multistate MSA, as applicable, or the nationwide area. For
the weighted average for a State or multistate MSA, the [Agency]
considers Assessment Area Community Development Financing Benchmarks
for facility-based assessment areas in the State or multistate MSA
pursuant to Sec. __.28(c). For the weighted average for the
nationwide area, the [Agency] considers Assessment Area Community
Development Financing Benchmarks for all of the bank's facility-
based assessment areas. Each Assessment Area Community Development
Financing Benchmark is weighted by the average of the following two
ratios:
1. The ratio measuring the share of the deposits in the bank in
the facility-based assessment area, calculated by:
i. Summing, over the years in the evaluation period, the bank's
annual dollar volume of deposits in the facility-based assessment
area.
ii. Summing, over the years in the evaluation period, the bank's
annual dollar volume of deposits in all facility-based assessment
areas in the State, multistate MSA, or nationwide area, as
applicable.
iii. Dividing the result of paragraph II.o.1.i of this appendix
by the result of paragraph II.o.1.ii of this appendix.
For a bank that reports deposits data pursuant to Sec.
__.42(b)(3), the bank's annual dollar volume of deposits in a
facility-based assessment area is the total of annual average daily
balances of deposits reported by the bank in counties in the
facility-based assessment area for that year. For a bank that does
not report deposits data pursuant to Sec. __.42(b)(3), the bank's
annual dollar volume of deposits in a facility-based assessment area
is the total of deposits assigned to facilities reported by the bank
in the facility-based assessment area in the FDIC's Summary of
Deposits for that year.
2. The ratio measuring the share of the bank's loans in the
facility-based assessment area, based on the combination of loan
dollars and loan count, as defined in Sec. __.12, calculated by
dividing:
i. The bank's closed-end home mortgage loans, small business
loans, small farm loans, and, if a product line for the bank,
automobile loans in the facility-based assessment area originated or
purchased during the evaluation period; by
ii. The bank's closed-end home mortgage loans, small business
loans, small farm loans, and, if a product line for the bank,
automobile loans in all facility-based assessment areas in the
State, multistate MSA, or nationwide area, as applicable, originated
or purchased during the evaluation period.
p. Combined score for facility-based assessment area conclusions
and the metrics and benchmarks analyses and the impact and
responsiveness reviews. 1. As described in Sec. __.24(c) through
(e), the [Agency] assigns a conclusion corresponding to the
conclusion category that is nearest to the performance score
calculated in paragraph p.2.iii of this appendix for a bank's
performance under the Community Development Financing Test in each
State or multistate MSA, as applicable pursuant to Sec. __.28(c),
and for the institution as follows:
------------------------------------------------------------------------
Performance score Conclusion
------------------------------------------------------------------------
8.5 or more............................... Outstanding.
6.5 or more but less than 8.5............. High Satisfactory.
4.5 or more but less than 6.5............. Low Satisfactory.
[[Page 7159]]
1.5 or more but less than 4.5............. Needs to Improve.
Less than 1.5............................. Substantial Noncompliance.
------------------------------------------------------------------------
2. The [Agency] bases a Community Development Financing Test
combined performance score on the following:
i. Component one--Weighted average of the bank's performance
scores corresponding to facility-based assessment area conclusions.
The [Agency] derives a performance score based on a weighted average
of the performance scores corresponding to conclusions for facility-
based assessment areas in each State or multistate MSA, as
applicable, and the nationwide area, calculated pursuant to section
IV of this appendix.
ii. Component two--Bank score for metric and benchmarks analyses
and the impact and responsiveness reviews. For each State or
multistate MSA, as applicable, and the nationwide area, the [Agency]
determines a performance score (as shown in paragraph IV.a of this
appendix) corresponding to a conclusion category by considering the
relevant metric and benchmarks and a review of the impact and
responsiveness of the bank's community development loans and
community development investments. In the nationwide area, for large
banks that had assets greater than $10 billion as of December 31 in
both of the prior two calendar years, the [Agency] also considers
whether the bank's performance under the Nationwide Community
Development Investment Metric, compared to the Community Development
Investment Benchmark, contributes positively to the bank's Community
Development Financing Test conclusion.
iii. Combined score. The [Agency] associates the performance
score calculated pursuant to this paragraph II.p.2.iii with a
conclusion category. The [Agency] derives the combined performance
score corresponding to a conclusion category as follows:
A. The [Agency] calculates the average of two components to
determine weighting:
1. The percentage, calculated using the combination of loan
dollars and loan count, as defined in Sec. __.12, of the bank's
total originated and purchased closed-end home mortgage lending,
small business lending, small farm lending, and automobile lending,
as applicable, in its facility-based assessment areas out of all of
the bank's originated and purchased closed-end home mortgage
lending, small business lending, small farm lending, and automobile
lending, as applicable, in the State or multistate MSA, as
applicable, or the nationwide area during the evaluation period; and
2. The percentage of the total dollar volume of deposits in its
facility-based assessment areas out of all of the deposits in the
bank in the State or multistate MSA, as applicable, or the
nationwide area during the evaluation period. For purposes of this
paragraph II.p.2.iii.A.2, ``deposits'' excludes deposits reported
under Sec. __.42(b)(3)(ii).
B. If the average is:
1. At least 80 percent, then component one receives a 50 percent
weight and component two receives a 50 percent weight.
2. At least 60 percent but less than 80 percent, then component
one receives a 40 percent weight and component two receives a 60
percent weight.
3. At least 40 percent but less than 60 percent, then component
one receives a 30 percent weight and component two receives a 70
percent weight.
4. At least 20 percent but less than 40 percent, then component
one receives a 20 percent weight and component two receives an 80
percent weight.
5. Below 20 percent, then component one receives a 10 percent
weight and component two receives a 90 percent weight.
Table 2 to Appendix B--Component Weights for Combined Performance Score
------------------------------------------------------------------------
Weight on Weight on
Average of the percentage of deposits component 1 component 2
and percentage of loans (percent) (percent)
------------------------------------------------------------------------
Greater than or equal to 80%............ 50 50
Greater than or equal to 60% but less 40 60
than 80%...............................
Greater than or equal to 40% but less 30 70
than 60%...............................
Greater than or equal to 20% but less 20 80
than 40%...............................
Below 20%............................... 10 90
------------------------------------------------------------------------
Example B-16:
Assume that the weighted average of the bank's
performance scores corresponding to its facility-based assessment
area conclusions nationwide is 7.5. Assume further that the bank
score for the metrics and benchmarks analysis and the review of the
impact and responsiveness of the bank's community development loans
and community development investments nationwide is 6.
Assume further that 95 percent of the deposits in the
bank and 75 percent of the bank's originated and purchased closed-
end home mortgage lending, small business lending, small farm
lending, and automobile loans (calculated using the combination of
loan dollars and loan count, as defined in Sec. __.12) during the
evaluation period are associated with its facility-based assessment
areas.
The [Agency] assigns weights for component one and
component two based on the share of deposits in the bank and the
share of the bank's originated and purchased closed-end home
mortgage lending, small business lending, small farm lending, and
automobile lending, calculated using the combination of loan dollars
and loan count, as defined in Sec. __.12, associated with its
facility-based assessment areas: (95 percent of deposits + 75
percent of originated and purchased closed-end home mortgage
lending, small business lending, small farm lending, and automobile
lending, based on the combination of loan dollars and loan count)/2
= 85 percent, which is between 80 percent and 100 percent.
Thus, the weighted average of the bank's facility-based
assessment area conclusions in the nationwide area (component one--
paragraph II.p.2.i of this appendix) receives a weight of 50
percent, and the metrics and benchmarks analysis and the review of
the impact and responsiveness of the bank's community development
loans and community development investments in the nationwide area
(component two--paragraph II.p.2.ii of this appendix) receives a
weight of 50 percent.
Using the point values--``Outstanding'' (10 points);
``High Satisfactory'' (7 points); ``Low Satisfactory'' (6 points);
``Needs to Improve'' (3 points); ``Substantial Noncompliance'' (0
points)--the bank's Community Development Financing Test conclusion
at the institution level is a ``High Satisfactory'': (0.50 weight x
7.5 points for the weighted average of the performance scores
corresponding to the bank's facility-based assessment area
conclusions nationwide) + (0.50 weight x 6 points for the bank score
for metrics and benchmarks analysis and review of the impact and
responsiveness of the bank's community development loans and
community development investments nationwide) results in a
performance score of 6.75, which is closest to the point value (7)
associated with ``High Satisfactory.''
III. Community Development Financing Test for Limited Purpose Banks in
Sec. __.26--Calculations for Metrics and Benchmarks
The calculations for metrics and benchmarks for Community
Development Financing Test for Limited Purpose Banks in Sec. __.26
are provided in this section. Additional information regarding
relevant calculation components is set forth in paragraph I.a of
this appendix.
a. Limited Purpose Bank Community Development Financing Metric.
The [Agency] calculates the Limited Purpose Bank Community
Development Financing Metric provided in Sec. __.26 by:
1. Summing the bank's annual dollar volume of community
development loans and community development investments that benefit
or serve the nationwide area for each year in the evaluation period.
2. Summing the bank's annual dollar volume of the assets for
each year in the evaluation period.
[[Page 7160]]
3. Dividing the result of paragraph III.a.1 of this appendix by
the result of paragraph III.a.2 of this appendix.
b. Nationwide Limited Purpose Bank Community Development
Financing Benchmark. The [Agency] calculates the Nationwide Limited
Purpose Bank Community Development Financing Benchmark by:
1. Summing the annual dollar volume of community development
loans and community development investments of depository
institutions designated as limited purpose banks or savings
associations pursuant to 12 CFR 25.26(a) or designated as limited
purpose banks pursuant to 12 CFR 228.26(a) or 345.26(a) reported
pursuant to 12 CFR 25.42(b), 228.42(b), or 345.42(b) that benefit or
serve all or part of the nationwide area for each year in the
evaluation period.
2. Summing the annual dollar volume of assets of depository
institutions designated as limited purpose banks or savings
associations pursuant to 12 CFR 25.26(a) or designated as limited
purpose banks pursuant to 12 CFR 228.26(a) or 345.26(a) that
reported community development loans and community development
investments pursuant to 12 CFR 25.42(b), 228.42(b), or 345.42(b) for
each year in the evaluation period.
3. Dividing the result of paragraph III.b.1 of this appendix by
the result of paragraph III.b.2 of this appendix.
c. Nationwide Asset-Based Community Development Financing
Benchmark. The [Agency] calculates the Nationwide Asset-Based
Community Development Financing Benchmark by:
1. Summing the annual dollar volume of community development
loans and community development investments of all depository
institutions that reported pursuant to 12 CFR 25.42(b), 228.42(b),
or 345.42(b) that benefit or serve all or part of the nationwide
area for each year in the evaluation period.
2. Summing the annual dollar volume of assets of all depository
institutions that reported community development loans and community
development investments pursuant to 12 CFR 25.42(b), 228. 42(b), or
345.42(b) for each year in the evaluation period.
3. Dividing the result of paragraph III.c.1 of this appendix by
the result of paragraph III.c.2 of this appendix.
d. Limited Purpose Bank Community Development Investment Metric.
The [Agency] calculates the Limited Purpose Bank Nationwide
Community Development Investment Metric, provided in Sec.
__.26(f)(2)(iii), for the nationwide area by:
1. Summing the bank's annual dollar volume of community
development investments, excluding mortgage-backed securities, that
benefit or serve the nationwide area for each year in the evaluation
period.
2. Summing the bank's annual dollar volume of assets for each
year in the evaluation period.
3. Dividing the results of paragraph III.d.1 of this appendix by
the results of paragraph III.d.2 of this appendix.
Example B-17: The bank has a three-year evaluation period. The
bank's annual dollar volumes of community development investments
(excluding mortgage-backed securities) that benefit or serve the
nationwide area are $62 million (year 1), $65 million (year 2), and
$73 million (year 3). The sum of the bank's annual dollar volumes of
community development investments that benefit or serve the
nationwide area conducted by the bank is therefore $200 million. The
bank's annual dollar volumes of assets in the bank are $2.4 billion
(year 1), $2.7 billion (year 2), and $2.9 billion (year 3). The sum
of the bank's annual dollar volumes of assets in the bank over the
evaluation period is therefore $8 billion. For the evaluation
period, the Bank Nationwide Community Development Investment Metric
would be $200 million divided by $8 billion, or 0.025 (equivalently,
2.5 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.098
e. Nationwide Asset-Based Community Development Investment
Benchmark. The [Agency] calculates the Nationwide Asset-Based
Community Development Investment Benchmark, provided in Sec.
__.26(f)(2)(iv), by:
1. Summing the annual dollar volume of community development
investments, excluding mortgage-backed securities, of all depository
institutions that had assets greater than $10 billion, as of
December 31 in both of the prior two calendar years, that benefit or
serve all or part of the nationwide area for each year in the
evaluation period.
2. Summing the annual dollar volume of assets of all depository
institutions that had assets greater than $10 billion, as of
December 31 in both of the prior two calendar years, for each year
in the evaluation period.
3. Dividing the result of paragraph III.e.1 of this appendix by
the result of paragraph III.e.2 of this appendix.
Example B-18: The applicable benchmark uses a three-year
evaluation period. The annual dollar volumes of community
development investments (excluding mortgage-backed securities) that
benefit or serve the nationwide area for all depository institutions
that had assets greater than $10 billion are $35 billion (year 1),
$37 million (year 2), and $38 billion (year 3). The sum of the
annual dollar volumes of community development investments that
benefit or serve the nationwide area conducted by all depository
institutions that had assets greater than $10 billion is therefore
$110 billion. The annual dollar volumes of assets in all depository
institutions that had assets greater than $10 billion are $1.8
trillion (year 1), $2.1 trillion (year 2), and $2.1 trillion (year
3). The sum of the annual dollar volumes of assets in all depository
institutions that had assets greater than $10 billion is therefore
$6 trillion. For the evaluation period, the Nationwide Asset-Based
Community Development Investment Benchmark would be $110 billion
divided by $6 trillion, or 0.0183 (equivalently, 1.83 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.099
[[Page 7161]]
IV. Weighting of Conclusions
The [Agency] calculates component one of the combined
performance score, as set forth in paragraph II.p.2.i of this
appendix, for the Community Development Financing Test in Sec.
__.24 and a performance score for the Community Development Services
Test in Sec. __.25 in each State, multistate MSA, and the
nationwide area, as applicable, as described in this section.
a. The [Agency] translates the Community Development Financing
Test and the Community Development Services Test conclusions for
facility-based assessment areas into numerical performance scores,
as follows:
------------------------------------------------------------------------
Performance
Conclusion score
------------------------------------------------------------------------
Outstanding............................................. 10
High Satisfactory....................................... 7
Low Satisfactory........................................ 6
Needs to Improve........................................ 3
Substantial Noncompliance............................... 0
------------------------------------------------------------------------
b. The [Agency] calculates the weighted average of facility-
based assessment area performance scores for a State or multistate
MSA, as applicable, and for the institution. For the weighted
average for a State or multistate MSA, the [Agency] considers
facility-based assessment areas in the State or multistate MSA
pursuant to Sec. __.28(c). For the weighted average for the
institution, the [Agency] considers all of the bank's facility-based
assessment areas. Each facility-based assessment area performance
score is weighted by the average the following two ratios:
1. The ratio measuring the share of the deposits in the bank in
the facility-based assessment area, calculated by:
i. Summing, over the years in the evaluation period, the bank's
annual dollar volume of deposits in the facility-based assessment
area.
ii. Summing, over the years in the evaluation period, the bank's
annual dollar volume of deposits in all facility-based assessment
areas in the State, in the multistate MSA, or for the nationwide
area, as applicable.
iii. Dividing the result of paragraph IV.b.1.i of this appendix
by the result of paragraph IV.b.1.ii of this appendix.
For a bank that reports deposits data pursuant to Sec.
__.42(b)(3), the bank's annual dollar volume of deposits in a
facility-based assessment area is the total of annual average daily
balances of deposits reported by the bank in counties in the
facility-based assessment area for that year. For a bank that does
not report deposits data pursuant to Sec. __.42(b)(3), the bank's
annual dollar volume of deposits in a facility-based assessment area
is the total of deposits assigned to facilities reported by the bank
in the facility-based assessment area in the FDIC's Summary of
Deposits for that year.
2. The ratio measuring the share of the bank's loans in the
facility-based assessment area, based on the combination of loan
dollars and loan count, as defined in Sec. __.12, calculated by
dividing:
i. The bank's closed-end home mortgage loans, small business
loans, small farm loans, and, if a product line for the bank,
automobile loans in the facility-based assessment area originated or
purchased during the evaluation period; by
ii. The bank's closed-end home mortgage loans, small business
loans, small farm loans, and, if a product line for the bank,
automobile loans in all facility-based assessment areas in the
State, in the multistate MSA, or for the nationwide area, as
applicable, originated or purchased during the evaluation period.
Appendix C to Part __--Performance Test Conclusions
a. Performance test conclusions, in general. For a bank
evaluated under, as applicable, the Retail Lending Test in Sec.
__.22, the Retail Services and Products Test in Sec. __.23, the
Community Development Financing Test in Sec. __.24, the Community
Development Services Test in Sec. __.25, and the Community
Development Financing Test for Limited Purpose Banks in Sec. __.26,
the [Agency] assigns conclusions for the bank's CRA performance
pursuant to these tests and this appendix. In assigning conclusions,
the [Agency] may consider performance context information as
provided in Sec. __.21(d).
b. Retail Lending Test conclusions. The [Agency] assigns Retail
Lending Test conclusions for each applicable Retail Lending Test
Area, each State or multistate MSA, as applicable pursuant to Sec.
__.28(c), and for the institution.
1. Retail Lending Test Area. For each applicable Retail Lending
Test Area, the [Agency] assigns a Retail Lending Test conclusion and
corresponding performance score pursuant to Sec. __.22(h)(1), as
follows:
------------------------------------------------------------------------
Performance
Conclusion score
------------------------------------------------------------------------
Outstanding............................................. 10
High Satisfactory....................................... 7
Low Satisfactory........................................ 6
Needs to Improve........................................ 3
Substantial Noncompliance............................... 0
------------------------------------------------------------------------
2. State, multistate MSA, and institution. The [Agency] assigns
the Retail Lending Test conclusions for a bank's performance in each
State or multistate MSA, as applicable, and for the institution, as
set forth in section VIII of appendix A to this part.
c. Retail Services and Products Test conclusions. The [Agency]
assigns Retail Services and Products Test conclusions for each
facility-based assessment area, for each State or multistate MSA, as
applicable pursuant to Sec. __.28(c), and for the institution. For
a bank that does not operate any branches, a main office described
in Sec. __.23(a)(2), or remote service facilities, the [Agency]
assigns the bank's digital delivery systems and other delivery
systems conclusion as the Retail Services and Product Test
conclusion for the State or multistate MSA, as applicable.
1. Facility-based assessment area. The [Agency] assigns a Retail
Services and Products Test conclusion for a bank's performance in a
facility-based assessment area based on an evaluation of the bank's
branch availability and services and remote services facilities
availability, if applicable, pursuant to Sec. __.23(b)(2) and (3),
respectively.
2. State, multistate MSA, and institution. The [Agency] develops
the Retail Services and Products Test conclusions for States,
multistate MSAs, and the institution as described in this paragraph
c.2.
i. The [Agency] translates Retail Services and Products Test
conclusions for facility-based assessment areas into numerical
performance scores as follows:
------------------------------------------------------------------------
Performance
Conclusion score
------------------------------------------------------------------------
Outstanding............................................. 10
High Satisfactory....................................... 7
Low Satisfactory........................................ 6
Needs to Improve........................................ 3
Substantial Noncompliance............................... 0
------------------------------------------------------------------------
ii. The [Agency] calculates the weighted average of facility-
based assessment area performance scores for a State or multistate
MSA, as applicable, and for the institution. For the weighted
average for a State or multistate MSA, the [Agency] considers
facility-based assessment areas in the State or multistate MSA
pursuant to Sec. __.28(c). For the weighted average for the
institution, the [Agency] considers all of the bank's facility-based
assessment areas. Each facility-based assessment area performance
score is weighted by the average the following two ratios:
A. The ratio measuring the share of the bank's deposits in the
facility-based assessment area, calculated by:
1. Summing, over the years in the evaluation period, the bank's
annual dollar volume of deposits in the facility-based assessment
area.
2. Summing, over the years in the evaluation period, the bank's
annual dollar volume of deposits in all facility-based assessment
areas in the State, in the multistate MSA, or for the institution,
as applicable.
3. Dividing the result of paragraph c.2.ii.A.1 of this appendix
by the result of paragraph c.2.ii.A.2 of this appendix.
For a bank that reports deposits data pursuant to Sec.
__.42(b)(3), the bank's annual dollar volume of deposits in a
facility-based assessment area is the total of annual average daily
balances of deposits reported by the bank in counties in the
facility-based assessment area for that year. For a bank that does
not report deposits data pursuant to Sec. __.42(b)(3), the bank's
annual dollar volume of deposits in a facility-based assessment area
is the total of deposits assigned to facilities reported by the bank
in the facility-based assessment area in the FDIC's Summary of
Deposits for that year.
B. The ratio measuring the share of the bank's loans in the
facility-based assessment area, based on the combination of loan
dollars and loan count, as defined in Sec. __.12, calculated by
dividing:
1. The bank's closed-end home mortgage loans, small business
loans, small farm loans, and, if a product line for the bank,
automobile loans in the facility-based assessment area originated or
purchased during the evaluation period; by
[[Page 7162]]
2. The bank's closed-end home mortgage loans, small business
loans, small farm loans, and, if a product line for the bank,
automobile loans in all facility-based assessment areas in the
State, in the multistate MSA, or for the institution, as applicable,
originated or purchased during the evaluation period.
iii. For a State or multistate MSA, as applicable, the [Agency]
assigns a Retail Services and Products Test conclusion corresponding
to the conclusion category that is nearest to the weighted average
for the State or multistate MSA calculated pursuant to paragraph
c.2.ii of this appendix (i.e., the performance score for the Retail
Services and Products Test for the State or multistate MSA).
------------------------------------------------------------------------
Performance score for the retail services
and products test Conclusion
------------------------------------------------------------------------
8.5 or more............................... Outstanding.
6.5 or more but less than 8.5............. High Satisfactory.
4.5 or more but less than 6.5............. Low Satisfactory.
1.5 or more but less than 4.5............. Needs to Improve.
less than 1.5............................. Substantial Noncompliance.
------------------------------------------------------------------------
iv. For the institution, the [Agency] assigns a Retail Services
and Products Test conclusion based on the bank's combined retail
banking services conclusion, developed pursuant to paragraph
c.2.iv.A of this appendix, and an evaluation of the bank's retail
banking products, pursuant to paragraph c.2.iv.B of this appendix.
The [Agency] translates the Retail Services and Products Test
conclusion for the institution into a numerical performance score,
as follows:
------------------------------------------------------------------------
Performance
Conclusion score
------------------------------------------------------------------------
Outstanding............................................. 10
High Satisfactory....................................... 7
Low Satisfactory........................................ 6
Needs to Improve........................................ 3
Substantial Noncompliance............................... 0
------------------------------------------------------------------------
A. Combined retail banking services conclusion. 1. In general.
The [Agency] evaluates the bank's retail banking services, as
applicable, and assigns a combined retail banking services
conclusion based the weighted average for the institution calculated
pursuant to paragraph c.2.ii of this appendix and a digital and
other delivery systems conclusion, assigned pursuant to paragraph
c.2.iv.A.1 of this appendix. For a large bank without branches, a
main office described in Sec. __.23(a)(2), or remote service
facilities, the [Agency] assigns a combined retail banking services
conclusion based only on a digital delivery systems and other
delivery systems conclusion, assigned pursuant to paragraph
c.2.iv.A.1 of this appendix.
2. Digital delivery systems and other delivery systems
conclusion. The [Agency] assigns a digital delivery systems and
other delivery systems conclusion based on an evaluation of a bank's
digital delivery systems and other delivery systems pursuant to
Sec. __.23(b)(4).
B. Retail banking products evaluation. The [Agency] evaluates
the bank's retail banking products offered in the bank's facility-
based assessment areas and nationwide, as applicable, as follows:
1. Credit products and programs. The [Agency] evaluates the
bank's performance regarding its credit products and programs
pursuant to Sec. __.23(c)(2) and determines whether the bank's
performance contributes positively to the bank's Retail Services and
Products Test conclusion that would have resulted based solely on
the retail banking services conclusion pursuant to paragraph
c.2.iv.A of this appendix.
2. Deposit products. The [Agency] evaluates the bank's
performance regarding its deposit products pursuant to Sec.
__.23(c)(3), as applicable, and determines whether the bank's
performance contributes positively to the bank's Retail Services and
Products Test conclusion that would have resulted based solely on
the combined retail banking services conclusion pursuant to
paragraph c.2.iv.A of this appendix.
3. Impact of retail banking products on Retail Services and
Products Test conclusion. The bank's retail banking products
evaluated pursuant to Sec. __.23(c) may positively impact the
bank's Retail Services and Products Test conclusion. The bank's lack
of responsive retail banking products does not adversely affect the
bank's Retail Services and Products Test performance conclusion.
d. Community Development Financing Test conclusions. The
[Agency] assigns Community Development Financing Test conclusions
for each facility-based assessment area, each State or multistate
MSA, as applicable pursuant to Sec. __.28(c), and for the
institution.
1. Facility-based assessment area. For each facility-based
assessment area, the [Agency] assigns a Community Development
Financing Test conclusion and corresponding performance score based
on the metric and benchmarks as provided in Sec. __.24 and a review
of the impact and responsiveness of a bank's activities as provided
in Sec. __.15 as follows:
------------------------------------------------------------------------
Performance
Conclusion score
------------------------------------------------------------------------
Outstanding............................................. 10
High Satisfactory....................................... 7
Low Satisfactory........................................ 6
Needs to Improve........................................ 3
Substantial Noncompliance............................... 0
------------------------------------------------------------------------
2. State, multistate MSA, and institution. The [Agency] assigns
Community Development Financing Test conclusions for a bank's
performance in each State and multistate MSA, as applicable pursuant
to Sec. __.28(c), and for the institution as set forth in paragraph
II.p of appendix B to this part.
e. Community Development Services Test conclusions. The [Agency]
assigns Community Development Services Test conclusions for each
facility-based assessment area, each State or multistate MSA, as
applicable pursuant to Sec. __.28(c), and for the institution.
1. Facility-based assessment area. For each facility-based
assessment area, the [Agency] develops a Community Development
Services Test conclusion based on the extent to which a bank
provided community development services, considering the factors in
Sec. __.25(b). The [Agency] translates the conclusion for each
facility-based assessment area into a numerical performance score as
follows:
------------------------------------------------------------------------
Performance
Conclusion score
------------------------------------------------------------------------
Outstanding............................................. 10
High Satisfactory....................................... 7
Low Satisfactory........................................ 6
Needs to Improve........................................ 3
Substantial Noncompliance............................... 0
------------------------------------------------------------------------
2. State, multistate MSA, or nationwide area. For each State or
multistate MSA, as applicable pursuant to Sec. __.28(c), and the
nationwide area, the [Agency] develops a Community Development
Services Test conclusion as follows:
i. The [Agency] calculates a weighted average of the performance
scores corresponding to the performance test conclusions pursuant to
section IV of appendix B to this part. The resulting number is the
Community Development Services Test performance score for a State,
multistate MSA, or the institution. Subject to paragraph e.2.ii of
this appendix, the [Agency] assigns a Community Development Services
Test conclusion corresponding to the conclusion category that is
nearest to the performance score for the Community Development
Services Test as follows:
------------------------------------------------------------------------
Performance score for the community
development services test Conclusion
------------------------------------------------------------------------
8.5 or more............................... Outstanding.
6.5 or more but less than 8.5............. High Satisfactory.
4.5 or more but less than 6.5............. Low Satisfactory.
1.5 or more but less than 4.5............. Needs to Improve.
Less than 1.5............................. Substantial Noncompliance.
------------------------------------------------------------------------
ii. The [Agency] may adjust upwards the Community Development
Services Test conclusion assigned under paragraph e.2.i of this
appendix, based on Community Development Services Test activities
performed outside of facility-based assessment areas as provided in
Sec. __.19. If there is no upward adjustment, the performance score
used for the ratings calculations described in paragraph b.1 of
appendix D to this part is the Community Development Services Test
performance score discussed in paragraph e.2.i of this appendix. If
there is an upward adjustment, the [Agency] translates the Community
Development Services Test conclusion into a numerical performance
score, which will be
[[Page 7163]]
used for the ratings calculations described in paragraph b.1 of
appendix D to this part, as follows:
------------------------------------------------------------------------
Performance
Conclusion score
------------------------------------------------------------------------
Outstanding............................................. 10
High Satisfactory....................................... 7
Low Satisfactory........................................ 6
Needs to Improve........................................ 3
Substantial Noncompliance............................... 0
------------------------------------------------------------------------
f. Community Development Financing Test for Limited Purpose
Banks conclusions. The [Agency] assigns conclusions for each
facility-based assessment area, each State or multistate MSA, as
applicable pursuant to Sec. __.28(c), and for the institution.
1. Facility-based assessment area. For each facility-based
assessment area, the [Agency] assigns one of the following Community
Development Financing Test for Limited Purpose Banks conclusions
based on consideration of the dollar volume of a bank's community
development loans and community development investments that benefit
or serve the facility-based assessment area over the evaluation
period, and a review of the impact and responsiveness of the bank's
activities in the facility-based assessment area as provided in
Sec. __.15: ``Outstanding''; ``High Satisfactory''; ``Low
Satisfactory''; ``Needs to Improve''; or ``Substantial
Noncompliance.''
2. State or multistate MSA. For each State or multistate MSA, as
applicable pursuant to Sec. __.28(c), the [Agency] assigns a
Community Development Financing Test for Limited Purpose Banks
conclusion of ``Outstanding,'' ``High Satisfactory,'' ``Low
Satisfactory,'' ``Needs to Improve,'' or ``Substantial
Noncompliance'' based on the following:
i. The bank's facility-based assessment area performance test
conclusions in each State or multistate MSA, as applicable;
ii. The dollar volume of a bank's community development loans
and community development investments that benefit or serve the
State or multistate MSAs, as applicable, over the evaluation period;
and
iii. A review of the impact and responsiveness of the bank's
activities in the State or multistate MSAs, as provided in Sec.
__.15.
3. Institution. For the institution, the [Agency] assigns a
Community Development Financing Test for Limited Purpose Banks
conclusion of ``Outstanding,'' ``High Satisfactory,'' ``Low
Satisfactory,'' ``Needs to Improve,'' or ``Substantial
Noncompliance'' based on the following:
i. The bank's community development financing performance in all
of its facility-based assessment areas;
ii. The [Agency]'s comparison of the bank's Limited Purpose Bank
Community Development Financing Metric to both the Nationwide
Limited Purpose Bank Community Development Financing Benchmark and
the Nationwide Asset-Based Community Development Financing
Benchmark;
iii. The [Agency]'s comparison of the bank's Limited Purpose
Bank Community Development Investment Metric to the Nationwide
Asset-Based Community Development Investment Benchmark; and
iv. A review of the impact and responsiveness of the bank's
activities in a nationwide area as provided in Sec. __.15.
g. Strategic Plan conclusions. The [Agency] assigns conclusions
for a bank that operates under an approved plan in facility-based
assessment areas, retail lending assessment areas, outside retail
lending areas, State or multistate MSA, as applicable pursuant to
Sec. __.28(c), and for the institution. The [Agency] assigns
conclusions consistent with the methodology set forth by the bank in
its plan. For elements of the plan that correspond to performance
tests that would apply to the bank in the absence of an approved
plan, the plan should include a conclusion methodology that is
generally consistent with paragraphs b through f of this appendix.
Appendix D to Part__--Ratings
a. Ratings, in general. In assigning a rating, the [Agency]
evaluates a bank's performance under the applicable performance
criteria in this part, pursuant to Sec. Sec. __.21 and __.28. The
agency calculates an overall performance score for each State and
multistate MSA, as applicable pursuant to Sec. __.28(c), and for
the institution. The [Agency] assigns a rating of ``Outstanding,''
``Satisfactory,'' ``Needs to Improve,'' or ``Substantial
Noncompliance'' for the bank's performance in each State and
multistate MSA, as applicable pursuant to Sec. __.28(c), and for
the institution that is nearest to the overall performance score, as
follows:
------------------------------------------------------------------------
Performance score Rating
------------------------------------------------------------------------
8.5 or more............................... Outstanding.
4.5 or more but less than 8.5............. Satisfactory.
1.5 or more but less than 4.5............. Needs to Improve.
Less than 1.5............................. Substantial Noncompliance.
------------------------------------------------------------------------
The [Agency] also considers any evidence of discriminatory or
other illegal credit practices pursuant to Sec. __.28(d) and the
bank's past performance pursuant to Sec. __.28(e).
b. Large bank ratings at the State, multistate MSA, and
institution levels. Subject to paragraph g of this appendix, the
[Agency] combines a large bank's performance scores for its State,
multistate MSA, or institution-level performance under the Retail
Lending Test in Sec. __.22, Retail Services and Products Test in
Sec. __.23, Community Development Financing Test in Sec. __.24,
and Community Development Services Test in Sec. __.25 to determine
the bank's rating in each State or multistate MSA, as applicable
pursuant to Sec. __.28(c), and for the institution.
1. The [Agency] weights the performance scores as follows:
Retail Lending Test (40 percent); Retail Services and Products Test
(10 percent); Community Development Financing Test (40 percent); and
Community Development Services Test (10 percent). The [Agency]
multiplies each of these weights by the bank's performance score on
the respective performance test, and then adds the resulting values
together to develop a State, multistate MSA, or institution-level
performance score.
2. The [Agency] assigns a rating corresponding with the rating
category that is nearest to the State, multistate MSA, or
institution performance score using the table in paragraph a of this
appendix.
Example D-1: A large bank received the following performance
scores and conclusions in a State:
On the Retail Lending Test, the bank received a 7.3
performance score and a corresponding conclusion of ``High
Satisfactory;''
On the Retail Services and Products Test, the bank
received a 6.0 performance score and a corresponding conclusion of
``Low Satisfactory;''
On the Community Development Financing Test, the bank
received a 5.7 performance score and a corresponding conclusion of
``Low Satisfactory;'' and
On the Community Development Services Test, the bank
received a 3.0 performance score and a corresponding conclusion of
``Needs to Improve.''
Calculating weights:
For the Retail Lending Test, the weight is 40 percent
(or 0.4);
For the Retail Services and Products Test, the weight
is 10 percent (or 0.1);
For the Community Development Financing Test, the
weight is 40 percent (or 0.4); and
For the Community Development Services Test, the weight
is 10 percent (or 0.1).
State Performance Score: Based on the illustration in this
example D-1, the bank's State performance score is 6.1.
(0.4 weight x 7.3 performance score on the Retail Lending Test =
2.92) + (0.1 weight x 6.0 performance score on the Retail Services
and Products Test = 0.6) + (0.4 weight x 5.7 performance score on
the Community Development Financing Test = 2.28) + (0.1 weight x 3.0
performance score on the Community Development Services Test = 0.3).
State Rating: A State performance score of 6.1 is greater than
4.5 but less than 8.5, resulting in a rating of ``Satisfactory.''
c. Intermediate bank ratings. 1. Intermediate banks evaluated
pursuant to the Retail Lending Test and the Community Development
Financing Test. Subject to paragraph g of this appendix, the
[Agency] combines an intermediate bank's performance scores for its
State, multistate MSA, or institution performance under the Retail
Lending Test and the Community Development Financing Test to
determine the bank's rating in each State or multistate MSA, as
applicable pursuant to Sec. __.28(c), and for the institution.
i. The [Agency] weights the performance scores as follows:
Retail Lending Test (50 percent) and Community Development Financing
Test (50 percent). The [Agency] multiplies each of these weights by
the bank's corresponding performance score on the respective
performance test, and then adds the resulting values together to
develop
[[Page 7164]]
a State, multistate MSA, or institution performance score.
ii. The [Agency] assigns a rating corresponding with the rating
category that is nearest to the State, multistate MSA, or
institution performance score, using the table in paragraph a of
this appendix.
iii. The [Agency] may adjust an intermediate bank's institution
rating where the bank has requested and received sufficient
additional consideration pursuant to Sec. __.30(b)(2) and (3).
2. Intermediate banks evaluated pursuant to the Retail Lending
Test and the Intermediate Bank Community Development Test in Sec.
__.30(a)(2). The [Agency] combines an intermediate bank's
performance scores for its State, multistate MSA, or institution
conclusions under the Retail Lending Test and the Intermediate Bank
Community Development Test in Sec. __.30(a)(2) to determine the
bank's rating in each State or multistate MSA, as applicable
pursuant to Sec. __.28(c), and for the institution.
i. The [Agency] weights the performance scores as follows:
Retail Lending Test (50 percent) and Intermediate Bank Community
Development Test (50 percent). The [Agency] multiplies each of these
weights by the bank's corresponding performance score on the
respective performance test, and then adds the resulting values
together to develop a State, multistate MSA, or institution
performance score. For purposes of this paragraph c.2.i, the
performance score for the Intermediate Bank Community Development
Test corresponds to the conclusion assigned, as follows:
------------------------------------------------------------------------
Performance
Conclusion score
------------------------------------------------------------------------
Outstanding............................................. 10
High Satisfactory....................................... 7
Low Satisfactory........................................ 6
Needs to Improve........................................ 3
Substantial Noncompliance............................... 0
------------------------------------------------------------------------
ii. The [Agency] assigns a rating corresponding with the rating
category that is nearest to the State, multistate MSA, or
institution performance score using the table in paragraph a of this
appendix.
iii. The [Agency] may adjust an intermediate bank's institution
rating where the bank has requested and received sufficient
additional consideration pursuant to Sec. __.30(b)(1) and (3).
d. Small bank ratings. 1. Ratings for small banks that opt to be
evaluated pursuant to the Retail Lending Test in Sec. __.22. The
[Agency] determines a small bank's rating for each State or
multistate MSA, as applicable pursuant to Sec. __.28(c), and for
the institution based on the performance score for its Retail
Lending Test conclusions for the State, multistate MSA or
institution, respectively.
i. The [Agency] assigns a rating corresponding with the rating
category that is nearest to the State, multistate MSA, or
institution performance score using the table in paragraph a of this
appendix.
ii. The [Agency] may adjust a small bank's institution rating
where the bank has requested and received sufficient additional
consideration pursuant to Sec. __.29(b)(2) and (3).
2. Ratings for small banks evaluated under the Small Bank
Lending Test pursuant to Sec. __.29(a)(2). The [Agency] assigns a
rating for small banks evaluated under the Small Bank Lending Test
pursuant to Sec. __.29(a)(2) as provided in appendix E to this
part.
e. Limited purpose banks. The [Agency] determines a limited
purpose bank's rating for each State or multistate MSA, as
applicable pursuant to Sec. __.28(c), and for the institution based
on the performance score for its Community Development Financing
Test for Limited Purpose Banks conclusion for the State, multistate
MSA, or the institution, respectively.
1. The [Agency] assigns a rating corresponding with the rating
category that is nearest to the State, multistate MSA, or
institution performance score, respectively, using the table in
paragraph a of this appendix.
2. The [Agency] may adjust a limited purpose bank's institution
rating where the bank has requested and received sufficient
additional consideration pursuant to Sec. __.26(b)(2).
f. Ratings for banks operating under an approved strategic plan.
The [Agency] evaluates the performance of a bank operating under an
approved plan consistent with the rating methodology that is
specified in the plan pursuant to Sec. __.27(g)(6). The [Agency]
assigns a rating according to the category assigned under the rating
methodology specified in the plan: ``Outstanding,''
``Satisfactory,'' ``Needs to Improve,'' or ``Substantial
Noncompliance.''
g. Minimum performance test conclusion requirements. 1. Retail
Lending Test minimum conclusion. An intermediate bank or a large
bank must receive at least a ``Low Satisfactory'' Retail Lending
Test conclusion at, respectively, the State, multistate MSA, or
institution level to receive an overall State, multistate MSA, or
institution rating of ``Satisfactory'' or ``Outstanding.''
2. Minimum of ``low satisfactory'' overall conclusion for 60
percent of facility-based assessment areas and retail lending
assessment areas. i. Except as provided in Sec. __.51(e), a large
bank with a combined total of 10 or more facility-based assessment
areas and retail lending assessment areas in any State, multistate
MSA, or for the institution, as applicable, may not receive a rating
of ``Satisfactory'' or ``Outstanding'' in that State, multistate
MSA, or for the institution unless the bank received an overall
conclusion of at least ``Low Satisfactory'' in 60 percent or more of
the total number of its facility-based assessment areas and retail
lending assessment areas in that State or multistate MSA or for the
institution, as applicable.
ii. Overall conclusion in facility-based assessment areas and
retail lending assessment areas. For purposes of the requirement in
paragraph g.2 of this appendix:
A. The [Agency] calculates an overall conclusion in a facility-
based assessment area by combining a large bank's performance scores
for its conclusions in the facility-based assessment area pursuant
to the Retail Lending Test in Sec. __.22, Retail Services and
Products Test in Sec. __.23, Community Development Financing Test
in Sec. __.24, and Community Development Services Test in Sec.
__.25.
The [Agency] weights the performance scores as follows: Retail
Lending Test (40 percent); Retail Services and Products Test (10
percent); Community Development Financing Test (40 percent); and
Community Development Services Test (10 percent). The [Agency]
multiplies each of these weights by the bank's performance score on
the respective performance test, and then adds the resulting values
together to develop a facility-based assessment area performance
score.
The [Agency] assigns a conclusion corresponding with the
conclusion category that is nearest to the performance score, as
follows:
------------------------------------------------------------------------
Performance score Conclusion
------------------------------------------------------------------------
8.5 or more............................... Outstanding.
6.5 or more but less than 8.5............. High Satisfactory.
4.5 or more but less than 6.5............. Low Satisfactory.
1.5 or more but less than 4.5............. Needs to Improve.
Less than 1.5............................. Substantial Noncompliance.
------------------------------------------------------------------------
B. An overall conclusion in a retail lending assessment area is
the retail lending assessment area conclusion assigned pursuant to
the Retail Lending Test in Sec. __.22 as provided in appendix C to
this part.
Appendix E to Part __--Small Bank and Intermediate Bank Performance
Evaluation Conclusions and Ratings
a. Small banks evaluated under the small bank performance
evaluation. 1. Small Bank Lending Test conclusions. Unless a small
bank opts to be evaluated pursuant to the Retail Lending Test in
Sec. __.22, the [Agency] assigns conclusions for a small bank's
performance pursuant to the Small Bank Lending Test in Sec.
__.29(a)(2) for each facility-based assessment area, in each State
or multistate MSA, as applicable pursuant to Sec. __.28(c), and for
the institution of ``Outstanding,'' ``Satisfactory,'' ``Needs to
Improve,'' or ``Substantial Noncompliance.''
i. Eligibility for a ``Satisfactory'' Small Bank Lending Test
conclusion. The [Agency] assigns a small bank's performance pursuant
to the Small Bank Lending Test a conclusion of ``Satisfactory'' if,
in general, the bank demonstrates:
A. A reasonable loan-to-deposit ratio (considering seasonal
variations) given the bank's size, financial condition, the credit
needs of its facility-based assessment areas, and taking into
account, as appropriate, other lending-related activities such as
loan originations for sale to the secondary markets, community
development loans, and community development investments;
B. A majority of its loans and, as appropriate, other lending-
related activities, are in its facility-based assessment areas;
[[Page 7165]]
C. A distribution of retail lending to and, as appropriate,
other lending-related activities for individuals of different income
levels (including low- and moderate-income individuals) and
businesses and farms of different sizes that is reasonable given the
demographics of the bank's facility-based assessment areas;
D. A reasonable geographic distribution of loans among census
tracts of different income levels in the bank's facility-based
assessment areas; and
E. A record of taking appropriate action, when warranted, in
response to written complaints, if any, about the bank's performance
in helping to meet the credit needs of its facility-based assessment
areas.
ii. Eligibility for an ``Outstanding'' Small Bank Lending Test
conclusion. A small bank that meets each of the standards for a
``Satisfactory'' conclusion under this paragraph a.1.ii. and exceeds
some or all of those standards may warrant consideration for a
lending evaluation conclusion of ``Outstanding.''
iii. ``Needs to Improve'' or ``Substantial Noncompliance'' Small
Bank Lending Test conclusions. A small bank may also receive a
lending evaluation conclusion of ``Needs to Improve'' or
``Substantial Noncompliance'' depending on the degree to which its
performance has failed to meet the standard for a ``Satisfactory''
conclusion.
2. Small bank ratings. Unless a small bank opts to be evaluated
pursuant to the Retail Lending Test in Sec. __.22, the [Agency]
determines a small bank's rating for each State and multistate MSA,
as applicable pursuant to Sec. __.28(c), and for the institution
based on its Small Bank Lending Test conclusions at the State,
multistate MSA, and institution level, respectively.
i. The [Agency] assigns a rating based on the lending evaluation
conclusion according to the category of the conclusion assigned:
``Outstanding,'' ``Satisfactory,'' ``Needs to Improve,'' or
``Substantial Noncompliance.''
ii. The [Agency] may adjust a small bank's institution rating
where the bank has requested and received sufficient additional
consideration pursuant to Sec. __.29(b)(1) and (3).
iii. The [Agency] also considers any evidence of discriminatory
or other illegal credit practices pursuant to Sec. __.28(d) and the
bank's past performance pursuant to Sec. __.28(e).
3. The [Agency] assigns a rating for small banks evaluated
pursuant to the Retail Lending Test in Sec. __.22 as provided in
appendix D to this part.
b. Intermediate banks evaluated pursuant to the Intermediate
Bank Community Development Test in Sec. __.30. Unless an
intermediate bank opts to be evaluated pursuant to the Community
Development Financing Test in Sec. __.24, the [Agency] assigns
conclusions for an intermediate bank's performance pursuant to the
Intermediate Bank Community Development Test in Sec. __.30 for each
State and multistate MSA, as applicable pursuant to Sec. __.28(c),
and for the institution of ``Outstanding,'' ``High Satisfactory,''
``Low Satisfactory,'' ``Needs to Improve,'' or ``Substantial
Noncompliance.''
1. Intermediate Bank Community Development Test conclusions. i.
Eligibility for a ``Satisfactory'' Intermediate Bank Community
Development Test conclusion. The [Agency] assigns an intermediate
bank's community development performance a ``Low Satisfactory''
conclusion if the bank demonstrates adequate responsiveness, and a
``High Satisfactory'' conclusion if the bank demonstrates good
responsiveness, to the community development needs of its facility-
based assessment areas and, as applicable, nationwide area through
community development loans, community development investments, and
community development services. The adequacy of the bank's response
will depend on its capacity for such community development
activities, the need for such community development activities, and
the availability of community development opportunities.
ii. Eligibility for an ``Outstanding'' Intermediate Bank
Community Development Test conclusion. The [Agency] assigns an
intermediate bank's community development performance an
``Outstanding'' conclusion if the bank demonstrates excellent
responsiveness to community development needs in its facility-based
assessment areas and, as applicable, nationwide area through
community development loans, community development investments, and
community development services. The adequacy of the bank's response
will depend on its capacity for such community development
activities, the need for such community development activities, and
the availability of community development opportunities.
iii. ``Needs to Improve'' or ``Substantial Noncompliance''
Intermediate Bank Community Development Test conclusions. The
[Agency] assigns an intermediate bank's community development
performance a ``Needs to Improve'' or ``Substantial Noncompliance''
conclusion depending on the degree to which its performance has
failed to meet the standards for a ``Satisfactory'' conclusion.
2. Intermediate bank ratings. The [Agency] rates an intermediate
bank's performance as provided in appendix D to this part.
Appendix F to Part __[Reserved]
END OF COMMON RULE TEXT
List of Subjects
12 CFR Part 25
Community development, Credit, Investments, National banks,
Reporting and recordkeeping requirements, Savings associations.
12 CFR Part 228
Banks, banking, Community development, Credit, Investments,
Reporting and recordkeeping requirements.
12 CFR Part 345
Banks, Banking, Community development, Credit, Investments,
Reporting and recordkeeping requirements.
Adoption of Common Rule
The adoption of the common rule by the agencies, as modified by the
agency-specific text, is set forth below:
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Chapter I
Authority and Issuance
For the reasons set forth in the common preamble and under the
authority of 12 U.S.C. 93a and 2905, the Office of the Comptroller of
the Currency amends part 25 of chapter I of title 12, Code of Federal
Regulations as follows:
PART 25--COMMUNITY REINVESTMENT ACT AND INTERSTATE DEPOSIT
PRODUCTION REGULATIONS
0
1. The authority citation for part 25 continues to read as follows:
Authority: 12 U.S.C. 21, 22, 26, 27, 30, 36, 93a, 161, 215,
215a, 481, 1462a, 1463, 1464, 1814, 1816, 1828(c), 1835a, 2901
through 2908, 3101 through 3111, and 5412(b)(2)(B).
Subpart E--[Redesignated as Subpart F]
0
2. Redesignate subpart E as subpart F.
0
3. Revise subparts A though D, add a new subpart E, revise appendices A
and B, and add appendices C through F as set forth at the end of the
common preamble.
0
4. Further amend part 25 by:
0
a. Removing ``[Agency]'' and ``[Agency]'s'' wherever they appear and
adding ``appropriate Federal banking agency'' and ``appropriate Federal
banking agency's'' in their places, respectively;
0
b. Except in examples A-1, A-3 through A-5, A-8, and A-11 through A-17
in appendix A, examples B-1, B-5, B-7, B-8, B-10, B-11, B-13, B-14, B-
16, and B-17 in appendix B, and example D-1 in appendix D:
0
i. Removing ``bank'' and ``bank'' wherever they appear and adding
``bank or savings association'' and ``bank or savings association'' in
their places, respectively;
0
ii. Except in the definition of ``large depository institution'' in
Sec. 25.12, removing ``banks'' and ``banks'' wherever they appear and
adding ``banks or savings associations'' and ``banks or savings
associations'' in their places, respectively; and
0
iii. Removing ``bank's'' and ``bank's'' wherever they appear and adding
``bank's or savings association's'' and
[[Page 7166]]
``bank's or savings association's'' in their places, respectively;
0
c. Except in examples A-1, A-3, A-5, and A-8 in appendix A and example
B-1 in appendix B, removing ``Bank'' and ``Banks'' wherever they appear
and adding ``Bank and savings association'' and ``Banks and savings
associations'' in their places, respectively;
0
d. Removing ``[operations subsidiary or operating subsidiary]''
wherever it appears and adding ``operating subsidiary'' in its place;
0
e. Removing ``[operations subsidiaries or operating subsidiaries]'' and
``[operations subsidiaries or operating subsidiaries]'' wherever they
appear and adding ``operating subsidiaries'' and ``operating
subsidiaries'' in their places, respectively;
0
f. Removing ``Bank and savings association Volume Metric'',
``Geographic Bank and savings association Metric'', and ``Borrower Bank
and savings association Metric'' wherever they appear and adding ``Bank
Volume Metric,'' ``Geographic Bank Metric,'' and ``Borrower Bank
Metric'' in their places, respectively;
0
g. Removing ``Community Development Financing Test for Limited Purpose
Banks'' wherever it appears and adding ``Community Development
Financing Test for Limited Purpose Banks and Savings Associations'' in
its place;
0
h. Removing ``Community Development Financing Test for Limited Purpose
Banks and savings associations'' wherever it appears and adding
``Community Development Financing Test for Limited Purpose Banks and
Savings Associations'' in its place;
0
i. Removing ``Intermediate Bank Community Development Test'' wherever
it appears and adding ``Intermediate Bank and Savings Association
Community Development Test'' in its place;
0
j. Removing ``Intermediate Bank and savings association Community
Development Test'' wherever it appears and adding ``Intermediate Bank
and Savings Association Community Development Test'' in its place;
0
k. Removing ``Small Bank Lending Test'' wherever it appears and adding
``Small Bank and Savings Association Lending Test'' in its place;
0
l. Removing ``Small Bank and savings association Lending Test''
wherever it appears and adding ``Small Bank and Savings Association
Lending Test'' in its place;
0
m. Removing ``Limited Purpose Bank and savings association Community
Development Financing Metric'' wherever it appears and adding ``Limited
Purpose Bank Community Development Financing Metric'' in its place; and
0
n. Removing ``Nationwide Limited Purpose Bank and savings association
Community Development Financing Benchmark'' wherever it appears and
adding ``Nationwide Limited Purpose Bank Community Development
Financing Benchmark'' in each place.
0
5. Amend Sec. 25.11 by adding paragraphs (a) and (c) to read as
follows:
Sec. 25.11 Authority, purposes, and scope.
(a) Authority. The authority for this part is 12 U.S.C. 21, 22, 26,
27, 30, 36, 93a, 161, 215, 215a, 481, 1462a, 1463, 1464, 1814, 1816,
1828(c), 1835a, 2901 through 2908, 3101 through 3111, and
5412(b)(2)(B).
* * * * *
(c) Scope--(1) General. (i) This subpart, subparts B through E of
this part, and appendices A through G to this part apply to all banks
and savings associations except as provided in paragraphs (c)(2) and
(3) of this section. Subpart F of this part only applies to banks.
(ii) With respect to this subpart, subparts B through E of this
part, and appendices A through F to this part:
(A) The Office of the Comptroller of the Currency (OCC) has the
authority to prescribe the regulations in this part for national banks,
Federal savings associations, Federal branches of foreign banks, and
State savings associations and has the authority to enforce the
regulations in this part for national banks, Federal branches of
foreign banks, and Federal savings associations; and
(B) The Federal Deposit Insurance Corporation (FDIC) has the
authority to enforce the regulations in this part for State savings
associations.
(2) Federal branches and agencies. (i) This part applies to all
insured Federal branches and to any Federal branch that is uninsured
that results from an acquisition described in section 5(a)(8) of the
International Banking Act of 1978 (12 U.S.C. 3103(a)(8)).
(ii) Except as provided in paragraph (c)(2)(i) of this section,
this part does not apply to uninsured Federal branches, limited Federal
branches, or Federal agencies, as those terms are defined or used in
part 28 of this chapter.
(3) Certain special purpose banks and savings associations. This
part does not apply to special purpose banks or special purpose savings
associations that do not perform commercial or retail banking services
by granting credit to the public in the ordinary course of business,
other than as incident to their specialized operations. These banks or
savings associations include banker's banks, as defined in 12 U.S.C.
24(Seventh), and banks or savings associations that engage only in one
or more of the following activities: providing cash management
controlled disbursement services or serving as correspondent banks or
savings associations, trust companies, or clearing agents.
0
6. Amend Sec. 25.12 by:
0
a. Adding the definitions of ``Appropriate Federal banking agency'' and
``Bank'' in alphabetical order;
0
b. In the definition of ``Depository institution'', removing ``12 CFR
25.11, 228.11, and 345.11'' and adding ``Sec. 25.11 and 12 CFR 228.11
and 345.11'' in its place;
0
c. In the definition of ``Deposits'', in paragraph (1):
0
i. Removing ``commercial banks or savings associations'' and adding
``commercial banks'' in its place; and
0
ii. Removing ``foreign banks or savings associations'' and adding
``foreign banks'' in its place;
0
d. In the definition of ``Distressed or underserved nonmetropolitan
middle-income census tract'', removing ``the Federal Deposit Insurance
Corporation (FDIC), and the Office of the Comptroller of the Currency
(OCC)'' and adding ``the FDIC, and the OCC'' in its place;
0
e. In the definitions of ``Intermediate bank or savings association''
and ``Large bank or savings association'', removing ``appropriate
Federal banking agency'' and adding ``OCC'' in its place;
0
f. In the definition of ``Large Depository Institution'', removing ``12
CFR 25.26(a)'' and adding ``Sec. 25.26(a)'' in its place;
0
g. Adding the definitions of ``Operating subsidiary'' and ``Savings
association'' in alphabetical order; and
0
h. In the definition of ``Small bank and savings association'',
removing ``appropriate Federal banking agency'' and adding ``OCC''.
The additions read as follows:
Sec. 25.12 Definitions.
* * * * *
Appropriate Federal banking agency means, with respect to this
subpart (except in the definition of minority depository institution in
this section), subparts B through E of this part, and appendices A
through E to this part:
(1) The OCC when the institution is a bank or Federal savings
association; and
(2) The FDIC when the institution is a State savings association.
* * * * *
[[Page 7167]]
Bank means a national bank (including a Federal branch as defined
in part 28 of this chapter) with federally insured deposits, except as
provided in Sec. 25.11(c).
* * * * *
Operating subsidiary means an operating subsidiary as described in
12 CFR 5.34 in the case of an operating subsidiary of a national bank
or an operating subsidiary as described in 12 CFR 5.38 in the case of a
savings association.
* * * * *
Savings association means a Federal savings association or a State
savings association.
* * * * *
0
7. Delayed indefinitely, further amend Sec. 25.12 by:
0
a. In the definition of ``Loan location'', revising paragraph (3);
0
b. In the definition of ``Reported loan'', revising paragraph (2); and
0
c. Revising the definitions of ``Small business'', ``Small business
loan'', ``Small farm'', and ``Small farm loan''.
The revisions read as follows:
Sec. 25.12 Definitions.
* * * * *
Loan location * * *
(3) A small business loan or small farm loan is located in the
census tract reported pursuant to subpart B of 12 CFR part 1002.
* * * * *
Reported loan * * *
(2) A small business loan or small farm loan reported by a bank
pursuant to subpart B of 12 CFR part 1002.
* * * * *
Small business means a small business, other than a small farm, as
defined in section 704B of the Equal Credit Opportunity Act (15 U.S.C.
1691c-2) and implemented by 12 CFR 1002.106.
Small business loan means a loan to a small business as defined in
this section.
Small farm means a small business, as defined in section 704B of
the Equal Credit Opportunity Act (15 U.S.C. 1691c-2) and implemented by
12 CFR 1002.106, and that is identified with one of the 3-digit North
American Industry Classification System (NAICS) codes 111-115.
Small farm loan means a loan to a small farm as defined in this
section.
* * * * *
Sec. 25.13 [Amended]
0
8. Amend Sec. 25.13 in paragraph (k) by:
0
a. Removing ``CDFI bank or savings associations'' wherever it appears
and adding ``CDFI bank'' in its place; and
0
b. Removing ``part 25, 228, or 345 of this title'' and adding ``this
part or 12 CFR part 228 or 345'' in its place.
Sec. 25.14 [Amended]
0
9. Amend Sec. 25.14 in paragraphs (b)(2)(ii) and (b)(3) by removing
``[other Agencies]'' and adding ``Board and the FDIC or the Board and
the OCC, as appropriate,'' in its place.
Sec. 25.21 [Amended]
0
10. Amend Sec. 25.21 by:
0
a. In paragraph (b)(1), removing ``12 CFR part 25, 228, or 345'' and
adding ``this part or 12 CFR part 228 or 345'' in its place; and
0
b. In paragraph (f), removing ``Banks'' and adding ``Banks and savings
associations'' in its place.
Sec. 25.22 [Amended]
0
11. Delayed indefinitely, amend Sec. 25.22 by:
0
a. Removing the term ``Businesses'' in paragraphs (e)(2)(ii)(C) and (D)
and adding ``Small businesses'' in its place; and
0
b. Removing the term ``Farms'' in paragraphs (e)(2)(ii)(E) and (F) and
adding ``Small farms'' in its place.
Sec. 25.24 [Amended]
0
12. Amend Sec. 25.24 by:
0
a. In paragraph (b)(1), removing ``Bank and savings association
Assessment Area Community Development Financing Metric'' and adding
``Bank Assessment Area Community Development Financing Metric'' in its
place;
0
b. In paragraph (c)(2)(i), removing ``Bank and savings association
State Community Development Financing Metric'' and adding ``Bank State
Community Development Financing Metric'' in its place;
0
c. In paragraph (d)(2)(i), removing ``Bank and savings association
Multistate MSA Community Development Financing Metric'' and adding
``Bank Multistate MSA Community Development Financing Metric'' in its
place;
0
d. In paragraph (e)(2)(i), removing ``Bank and savings association
Nationwide Community Development Financing Metric'' and adding ``Bank
Nationwide Community Development Financing Metric'' in its place; and
0
e. In paragraph (e)(2)(iii), removing ``Bank and savings association
Nationwide Community Development Investment Metric'' and adding ``Bank
Nationwide Community Development Investment Metric'' in its place.
Sec. 25.26 [Amended]
0
13. Amend Sec. 25.26 by:
0
a. In the section heading, removing ``banks or savings associations''
and adding ``banks and savings associations'' in its place;
0
b. In paragraph (f)(2)(ii)(A), removing ``12 CFR 25.26(a)'' and ``12
CFR 25.42(b), 228.42(b), or 345.42(b)'' and adding ``paragraph (a) of
this section'' and ``Sec. 25.42(b) or 12 CFR 228.42(b) or 345.42(b)''
in their places, respectively; and
0
c. In paragraph (f)(2)(ii)(B), removing ``12 CFR 25.42(b), 228.42(b),
or 345.42(b)'' and adding ``Sec. 25.42(b) or 12 CFR 228.42(b) or
345.42(b)'' in its place.
Sec. 25.29 [Amended]
0
14. Amend Sec. 25.29 in the section heading by removing ``bank or
savings association'' and adding ``bank and savings association'' in
its place.
Sec. 25.30 [Amended]
0
15. Amend Sec. 25.30 in the section heading by removing ``bank or
savings association'' and adding ``bank and savings association'' in
its place.
0
16. Add Sec. 25.31 to read as follows:
Sec. 25.31 Effect of CRA performance on applications.
(a) CRA performance. Among other factors, the appropriate Federal
banking agency takes into account the record of performance under the
CRA of each applicant bank or savings association, and for applications
under 10(e) of the Home Owners' Loan Act (12 U.S.C. 1467a(e)), of each
proposed subsidiary savings association, in considering an application
for:
(1) The establishment of:
(i) A domestic branch for insured banks; or
(ii) A domestic branch or other facility that would be authorized
to take deposits for savings associations;
(2) The relocation of the main office or a branch;
(3) The merger or consolidation with or the acquisition of assets
or assumption of liabilities of an insured depository institution
requiring approval under the Bank Merger Act (12 U.S.C. 1828(c));
(4) The conversion of an insured depository institution to a
national bank or Federal savings association charter; and
(5) Acquisitions subject to section 10(e) of the Home Owners' Loan
Act (12 U.S.C. 1467a(e)).
(b) Charter application. (1) An applicant (other than an insured
depository institution) for a national bank charter must submit with
its application a description of how it will meet its CRA objectives.
The OCC takes the description into account in
[[Page 7168]]
considering the application and may deny or condition approval on that
basis.
(2) An applicant for a Federal savings association charter must
submit with its application a description of how it will meet its CRA
objectives. The appropriate Federal banking agency takes the
description into account in considering the application and may deny or
condition approval on that basis.
(c) Interested parties. The appropriate Federal banking agency
takes into account any views expressed by interested parties that are
submitted in accordance with the applicable comment procedures in
considering CRA performance in an application listed in paragraphs (a)
and (b) of this section.
(d) Denial or conditional approval of application. A bank's or
savings association's record of performance may be the basis for
denying or conditioning approval of an application listed in paragraph
(a) of this section.
(e) Insured depository institution. For purposes of this section,
the term ``insured depository institution'' has the meaning given to
that term in 12 U.S.C. 1813.
Sec. 25.42 [Amended]
0
17. Amend Sec. 25.42 by:
0
a. In paragraph (h), removing ``12 CFR part 25, 228, or 345'' and
adding ``this part or 12 CFR part 228 or 345'' in its place; and
0
b. In paragraph (j)(2), removing ``[Agency]'s'' and adding
``appropriate Federal banking agency's'' in its place.
0
18. Delayed indefinitely, further amend Sec. 25.42 by:
0
a. Revising paragraph (a)(1);
0
b. Removing and reserving paragraph (b)(1); and
0
c. Removing the phrase ``small business loans and small farm loans
reported as originated or purchased'' in paragraphs (g)(1)(i) and
(g)(2)(i) and adding ``small business loans and small farm loans
reported as originated'' in its place.
The revision reads as follows:
Sec. 25.42 Data collection, reporting, and disclosure.
(a) * * *
(1) Purchases of small business loans and small farm loans data. A
bank that opts to have the OCC consider its purchases of small business
loans and small farm loans must collect and maintain in electronic
form, as prescribed by the OCC, until the completion of the bank's next
CRA examination in which the data are evaluated, the following data for
each small business loan or small farm loan purchased by the bank
during the evaluation period:
(i) A unique number or alpha-numeric symbol that can be used to
identify the relevant loan file;
(ii) An indicator for the loan type as reported on the bank's Call
Report or Report of Assets and Liabilities of U.S. Branches and
Agencies of Foreign Banks, as applicable;
(iii) The date of the loan purchase;
(iv) The loan amount at purchase;
(v) The loan location, including State, county, and census tract;
(vi) An indicator for whether the purchased loan was to a business
or farm with gross annual revenues of $250,000 or less;
(vii) An indicator for whether the purchased loan was to a business
or farm with gross annual revenues greater than $250,000 but less than
or equal to $1 million;
(viii) An indicator for whether the purchased loan was to a
business or farm with gross annual revenues greater than $1 million;
and
(ix) An indicator for whether the purchased loan was to a business
or farm for which gross annual revenues are not known by the bank.
* * * * *
Sec. 25.43 [Amended]
0
19. Amend Sec. 25.43 in paragraph (b)(2)(i) by removing ``[operations
subsidiaries' or operating subsidiaries']'' and adding ``operating
subsidiaries''' in its place.
0
20. Delayed indefinitely, further amend Sec. 25.43 by:
0
a. Revising the heading of paragraph (b)(2); and
0
b. Adding paragraph (b)(2)(iii).
The revision and addition read as follows:
Sec. 25.43 Content and availability of public file.
* * * * *
(b) * * *
(2) Banks required to report HMDA data and small business lending
data. * * *
(iii) Small business lending data notice. A bank required to report
small business loan or small farm loan data pursuant to 12 CFR part
1002 must include in its public file a written notice that the bank's
small business loan and small farm loan data may be obtained on the
CFPB's website at: https://www.consumerfinance.gov/data-research/small-business-lending/.
* * * * *
Sec. 25.44 [Amended]
0
21. Amend Sec. 25.44 in the section heading by removing ``banks or
savings associations'' and adding ``banks and savings associations'' in
its place.
Sec. 25.46 [Amended]
0
22. Amend Sec. 25.46 in paragraph (b) by removing ``[Agency contact
information]'' and adding ``[email protected], or by mailing
comments to: Compliance Risk Policy Division, Bank Supervision Policy,
OCC, Washington, DC 20219, for banks and Federal savings associations;
or [email protected], or by mailing comments to the address
of the appropriate FDIC regional office found at https://www.fdic.gov/resources/bankers/community-reinvestment-act/cra-regional-contacts-list.html, for State savings associations'' in its place.
0
23. Amend Sec. 25.51 by:
0
a. In paragraph (a)(2)(iii), in the first sentence, removing ``banks or
savings associations'' and adding ``banks and savings associations'' in
its place;
0
b. Revising paragraph (d)(2); and
0
c. In paragraph (e), removing ``[other Agencies' CRA regulations]'' and
adding ``12 CFR part 228 or 345'' in its place.
The revision reads as follows:
Sec. 25.51 Applicability dates and transition provisions.
* * * * *
(d) * * *
(2) Existing strategic plans. A strategic plan in effect as of
February 1, 2024, remains in effect until the expiration date of the
plan except for provisions that were not permissible under this part as
of January 1, 2022.
* * * * *
Appendix A to Part 25 [Amended]
0
24. Amend appendix A by:
0
a. In paragraph I.b introductory text, removing ``12 CFR 25.42(b)(1),
228.42(b)(1), or 345.42(b)(1) or 12 CFR part 1003'' and adding ``Sec.
25.42(b)(1), 12 CFR 228.42(b)(1) or 345.42(b)(1), or 12 CFR part 1003''
in its place; and
0
b. In paragraph I.b.2, removing ``12 CFR 25.42(b)(3), 228.42(b)(3), or
345.42(b)(3)'' and adding ``Sec. 25.42(b)(3) or 12 CFR 228.42(b)(3) or
345.42(b)(3)'' in its place.
0
25. Delayed indefinitely, further amend appendix A by:
0
a. Adding a sentence at the end of paragraph I.a.1;
0
b. Removing the text ``subject to reporting pursuant to Sec.
25.42(b)(1), 12 CFR 228.42(b)(1) or 345.42(b)(1),'' in paragraph I.b
introductory text and adding in its place the text ``subject to
[[Page 7169]]
reporting pursuant to subpart B of 12 CFR part 1002'';
0
c. Adding a sentence at the end of paragraph III.a.1;
0
d. Revising paragraphs III.c.3.i and ii, III.c.4.i and ii, III.c.5.i
and ii, and III.c.6.i and ii;
0
e. In paragraph III.c.8.iii, revising Example A-7;
0
f. Revising the third and fourth introductory paragraphs to section IV;
0
g. Adding a sentence at the end of paragraph IV.a.1;
0
h. Revising the introductory paragraph to IV.c.3 and paragraphs
IV.c.3.i and ii;
0
i. Revising the introductory paragraph to IV.c.4 and paragraphs
IV.c.4.i and ii;
0
j. Revising the introductory paragraph to IV.c.5 and paragraphs
IV.c.5.i and ii;
0
k. Revising the introductory paragraph to IV.c.6 and paragraphs
IV.c.6.i and ii;
0
l. In section V, in paragraph a, in table 1, revising the entries for
``Small Business Loans'' and ``Small Farm Loans''; and
0
m. In section VII:
0
i. In paragraph a.1.ii, in table 3, revising the entries for ``Small
Business Loans'' and ``Small Farm Loans'';
0
ii. In paragraph a.1.iii, in table 4, revising the entries for ``Small
Business Loans'' and ``Small Farm Loans''.
The additions and revisions read as follows:
Appendix A to Part 25--Calculations for the Retail Lending Test
* * * * *
I. * * *
a. * * *
1. * * * A bank's loan purchases that otherwise meet the
definition of a covered credit transaction to a small business, as
those terms are defined in 12 CFR 1002.104 and 1002.106(b), may be
included in the numerator of the Bank Volume Metric at the bank's
option.
* * * * *
III. * * *
a. * * *
1. * * * A bank's loan purchases that otherwise meet the
definition of a covered credit transaction to a small business, as
provided in 12 CFR 1002.104 and 1002.106(b), may be included in the
numerator of the Geographic Bank Metric at the bank's option.
* * * * *
c. * * *
3. * * *
i. Summing, over the years in the evaluation period, the numbers
of small businesses in low-income census tracts in the facility-
based assessment area or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the
numbers of small businesses in the facility-based assessment area or
retail lending assessment area.
* * * * *
4. * * *
i. Summing, over the years in the evaluation period, the numbers
of small businesses in moderate-income census tracts in the
facility-based assessment area or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the
numbers of small businesses in the facility-based assessment area or
retail lending assessment area.
* * * * *
5. * * *
i. Summing, over the years in the evaluation period, the numbers
of small farms in low-income census tracts in the facility-based
assessment area or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the
numbers of small farms in the facility-based assessment area or
retail lending assessment area.
* * * * *
6. * * *
i. Summing, over the years in the evaluation period, the numbers
of small farms in moderate-income census tracts in the facility-
based assessment area or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the
numbers of small farms in the facility-based assessment area or
retail lending assessment area.
* * * * *
8. * * *
iii. * * *
Example A-7: The applicable benchmark uses a three-year
evaluation period. There were 4,000 small business establishments,
based upon the sum of the numbers of small business establishments
over the years in the evaluation period (1,300 small business
establishments in year 1, 1,300 small business establishments in
year 2, and 1,400 small business establishments in year 3), in a
bank's facility-based assessment area. Of these small business
establishments, 500 small business establishments were in low-income
census tracts, based upon the sum of the numbers of small business
establishments in low-income census tracts over the years in the
evaluation period (200 small business establishments in year 1,150
small business in year 2, and 150 small business establishments in
year 3). The Geographic Community Benchmark for small business loans
in low-income census tracts would be 500 divided by 4,000, or 0.125
(equivalently, 12.5 percent). In addition, 1,000 small business
establishments in that facility-based assessment area were in
moderate-income census tracts, over the years in the evaluation
period (400 small business establishments in year 1,300 small
business establishments in year 2, and 300 small business
establishments in year 3). The Geographic Community Benchmark for
small business loans in moderate-income census tracts would be 1,000
divided by 4,000, or 0.25 (equivalently, 25 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.100
* * * * *
IV. * * *
For small business loans, the appropriate Federal banking agency
calculates these metrics and benchmarks for each of the following
designated borrowers: (i) small businesses with gross annual
revenues of $250,000 or less; and (ii) small businesses with gross
annual revenues of more than $250,000 but less than or equal to $1
million.
For small farm loans, the appropriate Federal banking agency
calculates these metrics and benchmarks for each of the following
designated borrowers: (i) small farms with gross annual revenues of
$250,000 or less; and (ii) small farms with gross annual revenues of
more than $250,000 but less than or equal to $1 million.
* * * * *
a. * * *
1. * * * A bank's loan purchases that otherwise meet the
definition of a covered credit transaction to a small business, as
provided in 12 CFR 1002.104 and
[[Page 7170]]
1002.106(b), may be included in the numerator of the Borrower Bank
Metric at the bank's option.
* * * * *
c. * * *
3. For small business loans, the appropriate Federal banking
agency calculates a Borrower Community Benchmark for small
businesses with gross annual revenues of $250,000 or less by:
i. Summing, over the years in the evaluation period, the numbers
of small businesses with gross annual revenues of $250,000 or less
in the facility-based lending area or retail lending assessment
area.
ii. Summing, over the years in the evaluation period, the
numbers of small businesses in the facility-based lending area or
retail lending assessment area.
* * * * *
4. For small business loans, the appropriate Federal banking
agency calculates a Borrower Community Benchmark for small
businesses with gross annual revenues of more than $250,000 but less
than or equal to $1 million by:
i. Summing, over the years in the evaluation period, the numbers
of small businesses with gross annual revenues of more than $250,000
but less than or equal to $1 million in the facility-based lending
area or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the
numbers of small businesses in the facility-based lending area or
retail lending assessment area.
* * * * *
5. For small farm loans, the appropriate Federal banking agency
calculates a Borrower Community Benchmark for small farms with gross
annual revenues of $250,000 or less by:
i. Summing, over the years in the evaluation period, the numbers
of small farms with gross annual revenues of $250,000 or less in the
facility-based lending area or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the
numbers of small farms in the facility-based lending area or retail
lending assessment area.
* * * * *
6. For small farm loans, the appropriate Federal banking agency
calculates a Borrower Community Benchmark for small farms with gross
annual revenues of more than $250,000 but less than or equal to $1
million by:
i. Summing, over the years in the evaluation period, the numbers
of small farms with gross annual revenues of more than $250,000 but
less than or equal to $1 million in the facility-based lending area
or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the
numbers of small farms in the facility-based lending area or retail
lending assessment area.
* * * * *
V. * * *
a. * * *
Table 1 to Appendix A--Retail Lending Test Categories of Designated
Census Tracts and Designated Borrowers
------------------------------------------------------------------------
Designated census
Major product line tracts Designated borrowers
------------------------------------------------------------------------
* * * * * * *
Small Business Loans.......... Low-Income Census Small businesses with
Tracts. Gross Annual
Revenues of $250,000
or Less.
Moderate-Income Small businesses with
Census Tracts. Gross Annual
Revenues Greater
than $250,000 but
Less Than or Equal
to $1 million.
Small Farm Loans.............. Low-Income Census Small farms with
Tracts. Gross Annual
Revenues of $250,000
or Less.
Moderate-Income Small farms with
Census Tracts. Gross Annual
Revenues Greater
than $250,000 but
Less Than or Equal
to $1 million.
------------------------------------------------------------------------
* * * * *
VII. * * *
a. * * *
1. * * *
ii. * * *
Table 3 to Appendix A--Retail Lending Test, Geographic Distribution
Average--Weights
------------------------------------------------------------------------
Category of
Major product line designated census Weight
tracts
------------------------------------------------------------------------
* * * * * * *
Small Business Loans.......... Low-Income Census Percentage of total
Tracts. number of small
businesses in low-
and moderate-income
census tracts in the
applicable Retail
Lending Test Area
that are in low-
income census
tracts.
Moderate-Income Percentage of total
Census Tracts. number of small
businesses in low-
and moderate-income
census tracts in the
applicable Retail
Lending Test Area
that are in moderate-
income census
tracts.
Small Farm Loans.............. Low-Income Census Percentage of total
Tracts. number of small
farms in low- and
moderate-income
census tracts in the
applicable Retail
Lending Test Area
that are in low-
income census
tracts.
Moderate-Income Percentage of total
Census Tracts. number of small
farms in low- and
moderate-income
census tracts in the
applicable Retail
Lending Test Area
that are in moderate-
income census
tracts.
* * * * * * *
------------------------------------------------------------------------
* * * * *
iii. * * *
[[Page 7171]]
Table 4 to Appendix A--Retail Lending Test, Borrower Distribution
Average--Weights
------------------------------------------------------------------------
Categories of
Major product line designated Weight
borrowers
------------------------------------------------------------------------
* * * * * * *
Small Business Loans.......... Small businesses Percentage of total
with gross number of small
annual revenues businesses with
of $250,000 or gross annual
less. revenues of $250,000
or less and small
businesses with
gross annual
revenues greater
than $250,000 but
less than or equal
to $1 million in the
applicable Retail
Lending Test Area
that are small
businesses with
gross annual
revenues of $250,000
or less.
Small businesses Percentage of total
with gross number of small
annual revenues businesses with
greater than gross annual
$250,000 and revenues of $250,000
less than or or less and small
equal to $1 businesses with
million. gross annual
revenues greater
than $250,000 but
less than or equal
to $1 million in the
applicable Retail
Lending Test Area
that are small
businesses with
gross annual
revenues greater
than $250,00 but
less than or equal
to $1 million.
Small Farm Loans.............. Small farms with Percentage of total
gross annual number of small
revenues of farms with gross
$250,000 or less. annual revenues of
$250,000 or less and
small farms with
gross annual
revenues greater
than $250,000 but
less than or equal
to $1 million in the
applicable Retail
Lending Test Area
that are small farms
with gross annual
revenues of $250,000
or less.
Small farms with Percentage of total
gross annual number of small
revenues greater farms with gross
than $250,000 annual revenues of
and less than or $250,000 or less and
equal to $1 small farms with
million. gross annual
revenues greater
than $250,000 but
less than or equal
to $1 million in the
applicable Retail
Lending Test Area
that are small farms
with gross annual
revenues greater
than $250,000 but
less than or equal
to $1 million.
* * * * * * *
------------------------------------------------------------------------
* * * * *
Appendix B to Part 25 [Amended]
0
26. Amend appendix B by:
0
a. In paragraph I.a.2.i, removing ``12 CFR 25.42, 228.42, or 345.42''
and adding ``Sec. 25.42 or 12 CFR 228.42 or 345.42'' in its place;
0
b. In section II:
0
i. In paragraph a heading, removing ``Bank and savings association
Assessment Area Community Development Financing Metric'' and adding
``Bank Assessment Area Community Development Financing Metric'' in its
place;
0
ii. In paragraph d heading, removing ``Bank and savings association
State Community Development Financing Metric'' and adding ``Bank State
Community Development Financing Metric'' in its place;
0
iii. In paragraph g heading, removing ``Bank and savings association
Multistate MSA Community Development Financing Metric'' and adding
``Bank Multistate MSA Community Development Financing Metric'' in its
place;
0
iv. In paragraph j heading, removing ``Bank and savings association
Nationwide Community Development Financing Metric'' and adding ``Bank
Nationwide Community Development Financing Metric'' in its place; and
0
v. In paragraph m heading, removing ``Bank and savings association
Nationwide Community Development Investment Metric'' and adding ``Bank
Nationwide Community Development Investment Metric'' in its place; and
0
c. In section III:
0
i. In the heading, removing ``BANKS'' and adding ``BANKS AND SAVINGS
ASSOCIATIONS'' in its place;
0
ii. In paragraphs b.1 and 2, removing ``12 CFR 25.26(a)'' and ``12 CFR
25.42(b), 228.42(b), or 345.42(b)'' and adding ``Sec. 25.26(a)'' and
``Sec. 25.42(b) or 12 CFR 228.42(b) or 345.42(b)'' in their places,
respectively; and
0
iii. In paragraphs c.1 and 2, removing ``12 CFR 25.42(b), 228.42(b), or
345.42(b)'' and adding ``Sec. 25.42(b) or 12 CFR 228.42(b) or
345.42(b)'' in its place.
0
27. Amend appendix E by revising the heading to read as follows:
Appendix E to Part 25--Small Bank and Savings Association and
Intermediate Bank and Savings Association Performance Evaluation
Conclusions and Ratings
0
28. Add appendix F to read as follows:
Appendix F to Part 25--CRA Notice
(a) Notice for main offices and, if an interstate bank, one
branch office in each State.
Community Reinvestment Act Notice
Under the Federal Community Reinvestment Act (CRA), the [Office
of the Comptroller of the Currency (OCC) or Federal Deposit
Insurance Corporation (FDIC), as appropriate] evaluates our record
of helping to meet the credit needs of this community consistent
with safe and sound operations. The [OCC or FDIC, as appropriate]
also takes this record into account when deciding on certain
applications submitted by us.
Your involvement is encouraged.
You are entitled to certain information about our operations and
our performance under the CRA, including, for example, information
about our branches, such as their location and services provided at
them; the public section of our most recent CRA Performance
Evaluation, prepared by the [OCC or FDIC, as appropriate]; and
comments received from the public relating to our performance in
helping to meet community credit needs, as well as our responses to
those comments. You may review this information today.
At least 30 days before the beginning of each calendar quarter,
the [OCC or FDIC, as appropriate] publishes a list of the banks that
are scheduled for CRA examination by the [OCC or FDIC, as
appropriate] for the next two quarters. This list is available
through the [OCC's or FDIC's, as appropriate] website at [OCC.gov or
FDIC.gov, as appropriate].
You may send written comments about our performance in helping
to meet community credit needs to (name and address of official at
bank), (title of responsible official), to the [OCC or FDIC Regional
Director, as appropriate, (address)]. You may also submit comments
electronically to the [OCC at [email protected] or FDIC
through the FDIC's website at FDIC.gov/regulations/cra, as
appropriate]. Your written comments, together with any response by
us, will be considered by the [OCC or FDIC, as appropriate] in
evaluating our CRA performance and may be made public.
You may ask to look at any comments received by the [OCC or FDIC
Regional Director, as appropriate]. You may also
[[Page 7172]]
request from the [OCC or FDIC Regional Director, as appropriate] an
announcement of our applications covered by the CRA filed with the
[OCC or FDIC, as appropriate]. [We are an affiliate of (name of
holding company), a bank holding company. You may request from
(title of responsible official), Federal Reserve Bank of
____(address) an announcement of applications covered by the CRA
filed by bank holding companies.]
(b) Notice for branch offices.
Community Reinvestment Act Notice
Under the Federal Community Reinvestment Act (CRA), the [Office
of the Comptroller of the Currency (OCC) or Federal Deposit
Insurance Corporation (FDIC), as appropriate] evaluates our record
of helping to meet the credit needs of this community consistent
with safe and sound operations. The [OCC or FDIC, as appropriate]
also takes this record into account when deciding on certain
applications submitted by us.
Your involvement is encouraged.
You are entitled to certain information about our operations and
our performance under the CRA. You may review today the public
section of our most recent CRA Performance Evaluation, prepared by
the [OCC or FDIC, as appropriate], and a list of services provided
at this branch. You may also have access to the following additional
information, which we will make available to you at this branch
within five calendar days after you make a request to us:
(1) A map showing the facility-based assessment area containing
this branch, which is the area in which the [OCC or FDIC, as
appropriate] evaluates our CRA performance in this community;
(2) Information about our branches in this facility-based
assessment area;
(3) A list of services we provide at those locations;
(4) Data on our lending performance in this facility-based
assessment area; and
(5) Copies of all written comments received by us that
specifically relate to our CRA performance in this facility-based
assessment area, and any responses we have made to those comments.
If we are operating under an approved strategic plan, you may also
have access to a copy of the plan.
[If you would like to review information about our CRA
performance in other communities served by us, the public file for
our entire bank is available on our website (website address) and at
(name of office located in State), located at (address).]
At least 30 days before the beginning of each calendar quarter,
the [OCC or FDIC, as appropriate] publishes a list of the banks that
are scheduled for CRA examination by the [OCC or FDIC, as
appropriate] for the next two quarters. This list is available
through the [OCC's or FDIC's, as appropriate] website at [OCC.gov or
FDIC.gov, as appropriate].
You may send written comments about our performance in helping
to meet community credit needs to (name and address of official at
bank), (title of responsible official), to the [OCC or FDIC Regional
Director, as appropriate (address)]. You may also submit comments
electronically to the [OCC at [email protected] or FDIC
through the FDIC's website at FDIC.gov/regulations/cra, as
appropriate]. Your written comment, together with any response by
us, will be considered by the [OCC or FDIC, as appropriate] in
evaluating our CRA performance and may be made public.
You may ask to look at any comments received by the [OCC or FDIC
Regional Director, as appropriate]. You may also request from the
[OCC or FDIC Regional Director, as appropriate] an announcement of
our applications covered by the CRA filed with the [OCC or FDIC, as
appropriate]. [We are an affiliate of (name of holding company), a
bank holding company. You may request from (title of responsible
official), Federal Reserve Bank of ____(address) an announcement of
applications covered by the CRA filed by bank holding companies.]
0
29. Effective April 1, 2024, through January 1, 2031, add appendix G to
read as follows:
Appendix G to Part 25--Community Reinvestment Act and Interstate
Deposit Production Regulations
Note: The content of this appendix reproduces part 25
implementing the Community Reinvestment Act as of March 31, 2024.
Cross-references to CFR parts (as well as to included sections,
subparts, and appendices) in this appendix are to those provisions
as contained within this appendix and the CFR as of March 31, 2024.
Subpart A--General
Sec. 25.11 Authority, purposes, and scope.
(a) Authority and OMB control number--(1) Authority. The authority
for subparts A, B, C, D, and E is 12 U.S.C. 21, 22, 26, 27, 30, 36,
93a, 161, 215, 215a, 481, 1462a, 1463, 1464, 1814, 1816, 1828(c),
1835a, 2901 through 2908, 3101 through 3111, and 5412(b)(2)(B).
(2) OMB control number. The information collection requirements
contained in this part were approved by the Office of Management and
Budget under the provisions of 44 U.S.C. 3501 et seq. and have been
assigned OMB control number 1557-0160.
(b) Purposes. In enacting the Community Reinvestment Act (CRA), the
Congress required each appropriate Federal financial supervisory agency
to assess an institution's record of helping to meet the credit needs
of the local communities in which the institution is chartered,
consistent with the safe and sound operation of the institution, and to
take this record into account in the agency's evaluation of an
application for a deposit facility by the institution. This part is
intended to carry out the purposes of the CRA by:
(1) Establishing the framework and criteria by which the Office of
the Comptroller of the Currency (OCC) or the Federal Deposit Insurance
Corporation (FDIC), as appropriate, assesses a bank's or savings
association's record of helping to meet the credit needs of its entire
community, including low- and moderate-income neighborhoods, consistent
with the safe and sound operation of the bank or savings association;
and
(2) Providing that the OCC takes that record into account in
considering certain applications.
(c) Scope--(1) General. (i) Subparts A, B, C, and D, and Appendices
A and B, apply to all banks and savings associations except as provided
in paragraphs (c)(2) and (3) of this section. Subpart E only applies to
banks.
(ii) With respect to subparts A, B, C, and D, and Appendices A and
B--
(A) The OCC has the authority to prescribe these regulations for
national banks, Federal savings associations, and State savings
associations and has the authority to enforce these regulations for
national banks and Federal savings associations.
(B) The FDIC has the authority to enforce these regulations for
State savings associations.
(iii) With respect to subparts A, B, C, and D, and appendix A,
references to appropriate Federal banking agency will mean the OCC when
the institution is a national bank or Federal savings association and
the FDIC when the institution is a State savings association.
(2) Federal branches and agencies. (i) This part applies to all
insured Federal branches and to any Federal branch that is uninsured
that results from an acquisition described in section 5(a)(8) of the
International Banking Act of 1978 (12 U.S.C. 3103(a)(8)).
(ii) Except as provided in paragraph (c)(2)(i) of this section,
this part does not apply to Federal branches that are uninsured,
limited Federal branches, or Federal agencies, as those terms are
defined in part 28 of this chapter.
(3) Certain special purpose banks and savings associations. This
part does not apply to special purpose banks or special purpose savings
associations that do not perform commercial or retail banking services
by granting credit to the public in the ordinary course of business,
other than as incident to their specialized operations. These banks or
savings associations include banker's banks, as defined in 12 U.S.C.
24(Seventh), and banks or savings associations that engage only in one
or more of the following activities: Providing cash management
controlled disbursement services or serving as correspondent banks or
savings associations, trust companies, or clearing agents.
[[Page 7173]]
Sec. 25.12 Definitions.
For purposes of subparts A, B, C, and D, and appendices A and B, of
this part, the following definitions apply:
(a) Affiliate means any company that controls, is controlled by, or
is under common control with another company. The term ``control'' has
the meaning given to that term in 12 U.S.C. 1841(a)(2), and a company
is under common control with another company if both companies are
directly or indirectly controlled by the same company.
(b) Area median income means:
(1) The median family income for the MSA, if a person or geography
is located in an MSA, or for the metropolitan division, if a person or
geography is located in an MSA that has been subdivided into
metropolitan divisions; or
(2) The statewide nonmetropolitan median family income, if a person
or geography is located outside an MSA.
(c) Assessment area means a geographic area delineated in
accordance with Sec. 25.41.
(d) Automated teller machine (ATM) means an automated, unstaffed
banking facility owned or operated by, or operated exclusively for, the
bank or savings association at which deposits are received, cash
dispersed, or money lent.
(e)(1) Bank or savings association means, except as provided in
Sec. 25.11(c), a national bank (including a Federal branch as defined
in part 28 of this chapter) with Federally insured deposits or a
savings association;
(2) Bank and savings association means, except as provided in Sec.
25.11(c), a national bank (including a Federal branch as defined in
part 28 of this chapter) with Federally insured deposits and a savings
association.
(f) Branch means a staffed banking facility authorized as a branch,
whether shared or unshared, including, for example, a mini-branch in a
grocery store or a branch operated in conjunction with any other local
business or nonprofit organization.
(g) Community development means:
(1) Affordable housing (including multifamily rental housing) for
low- or moderate-income individuals;
(2) Community services targeted to low- or moderate-income
individuals;
(3) Activities that promote economic development by financing
businesses or farms that meet the size eligibility standards of the
Small Business Administration's Development Company or Small Business
Investment Company programs (13 CFR 121.301) or have gross annual
revenues of $1 million or less; or
(4) Activities that revitalize or stabilize--
(i) Low-or moderate-income geographies;
(ii) Designated disaster areas; or
(iii) Distressed or underserved nonmetropolitan middle-income
geographies designated by the Board of Governors of the Federal Reserve
System, FDIC, and the OCC, based on--
(A) Rates of poverty, unemployment, and population loss; or
(B) Population size, density, and dispersion. Activities revitalize
and stabilize geographies designated based on population size, density,
and dispersion if they help to meet essential community needs,
including needs of low- and moderate-income individuals.
(h) Community development loan means a loan that:
(1) Has as its primary purpose community development; and
(2) Except in the case of a wholesale or limited purpose bank or
savings association:
(i) Has not been reported or collected by the bank or savings
association or an affiliate for consideration in the bank's or savings
association's assessment as a home mortgage, small business, small
farm, or consumer loan, unless the loan is for a multifamily dwelling
(as defined in Sec. 1003.2(n) of this title); and
(ii) Benefits the bank's or savings association's assessment
area(s) or a broader statewide or regional area(s) that includes the
bank's or savings association's assessment area(s).
(i) Community development service means a service that:
(1) Has as its primary purpose community development;
(2) Is related to the provision of financial services; and
(3) Has not been considered in the evaluation of the bank's or
savings association's retail banking services under Sec. 25.24(d).
(j) Consumer loan means a loan to one or more individuals for
household, family, or other personal expenditures. A consumer loan does
not include a home mortgage, small business, or small farm loan.
Consumer loans include the following categories of loans:
(1) Motor vehicle loan, which is a consumer loan extended for the
purchase of and secured by a motor vehicle;
(2) Credit card loan, which is a line of credit for household,
family, or other personal expenditures that is accessed by a borrower's
use of a ``credit card,'' as this term is defined in Sec. 1026.2 of
this title;
(3) Other secured consumer loan, which is a secured consumer loan
that is not included in one of the other categories of consumer loans;
and
(4) Other unsecured consumer loan, which is an unsecured consumer
loan that is not included in one of the other categories of consumer
loans.
(k) Geography means a census tract delineated by the United States
Bureau of the Census in the most recent decennial census.
(l) Home mortgage loan means a closed-end mortgage loan or an open-
end line of credit as these terms are defined under Sec. 1003.2 of
this title, and that is not an excluded transaction under Sec.
1003.3(c)(1) through (10) and (13) of this title.
(m) Income level includes:
(1) Low-income, which means an individual income that is less than
50 percent of the area median income, or a median family income that is
less than 50 percent, in the case of a geography.
(2) Moderate-income, which means an individual income that is at
least 50 percent and less than 80 percent of the area median income, or
a median family income that is at least 50 and less than 80 percent, in
the case of a geography.
(3) Middle-income, which means an individual income that is at
least 80 percent and less than 120 percent of the area median income,
or a median family income that is at least 80 and less than 120
percent, in the case of a geography.
(4) Upper-income, which means an individual income that is 120
percent or more of the area median income, or a median family income
that is 120 percent or more, in the case of a geography.
(n) Limited purpose bank or savings association means a bank or
savings association that offers only a narrow product line (such as
credit card or motor vehicle loans) to a regional or broader market and
for which a designation as a limited purpose bank or savings
association is in effect, in accordance with Sec. 25.25(b).
(o) Loan location. A loan is located as follows:
(1) A consumer loan is located in the geography where the borrower
resides;
(2) A home mortgage loan is located in the geography where the
property to which the loan relates is located; and
(3) A small business or small farm loan is located in the geography
where the main business facility or farm is located or where the loan
proceeds otherwise will be applied, as indicated by the borrower.
(p) Loan production office means a staffed facility, other than a
branch, that is open to the public and that provides lending-related
services, such as loan information and applications.
(q) Metropolitan division means a metropolitan division as defined
by the
[[Page 7174]]
Director of the Office of Management and Budget.
(r) MSA means a metropolitan statistical area as defined by the
Director of the Office of Management and Budget.
(s) Nonmetropolitan area means any area that is not located in an
MSA.
(t) Qualified investment means a lawful investment, deposit,
membership share, or grant that has as its primary purpose community
development.
(u) Small bank or savings association--(1) Definition. Small bank
or savings association means a bank or savings association that, as of
December 31 of either of the prior two calendar years, had assets of
less than $1.322 billion. Intermediate small bank or savings
association means a small bank or savings association with assets of at
least $330 million as of December 31 of both of the prior two calendar
years and less than $1.322 billion as of December 31 of either of the
prior two calendar years.
(2) Adjustment. The dollar figures in paragraph (u)(1) of this
section shall be adjusted annually and published by the appropriate
Federal banking agency, based on the year-to-year change in the average
of the Consumer Price Index for Urban Wage Earners and Clerical
Workers, not seasonally adjusted, for each twelve-month period ending
in November, with rounding to the nearest million.
(v) Small business loan means a loan included in ``loans to small
businesses'' as defined in the instructions for preparation of the
Consolidated Report of Condition and Income.
(w) Small farm loan means a loan included in ``loans to small
farms'' as defined in the instructions for preparation of the
Consolidated Report of Condition and Income.
(x) Wholesale bank or savings association means a bank or savings
association that is not in the business of extending home mortgage,
small business, small farm, or consumer loans to retail customers, and
for which a designation as a wholesale bank or savings association is
in effect, in accordance with Sec. 25.25(b).
Subpart B--Standards for Assessing Performance
Sec. 25.21 Performance tests, standards, and ratings, in general.
(a) Performance tests and standards. The appropriate Federal
banking agency assesses the CRA performance of a bank or savings
association in an examination as follows:
(1) Lending, investment, and service tests. The appropriate Federal
banking agency applies the lending, investment, and service tests, as
provided in Sec. Sec. 25.22 through 25.24, in evaluating the
performance of a bank or savings association, except as provided in
paragraphs (a)(2), (3), and (4) of this section.
(2) Community development test for wholesale or limited purpose
banks and savings associations. The appropriate Federal banking agency
applies the community development test for a wholesale or limited
purpose bank or savings association, as provided in Sec. 25.25, except
as provided in paragraph (a)(4) of this section.
(3) Small bank and savings association performance standards. The
appropriate Federal banking agency applies the small bank or savings
association performance standards as provided in Sec. 25.26 in
evaluating the performance of a small bank or savings association or a
bank or savings association that was a small bank or savings
association during the prior calendar year, unless the bank or savings
association elects to be assessed as provided in paragraphs (a)(1),
(2), or (4) of this section. The bank or savings association may elect
to be assessed as provided in paragraph (a)(1) of this section only if
it collects and reports the data required for other banks or savings
associations under Sec. 25.42.
(4) Strategic plan. The appropriate Federal banking agency
evaluates the performance of a bank or savings association under a
strategic plan if the bank or savings association submits, and the
appropriate Federal banking agency approves, a strategic plan as
provided in Sec. 25.27.
(b) Performance context. The appropriate Federal banking agency
applies the tests and standards in paragraph (a) of this section and
also considers whether to approve a proposed strategic plan in the
context of:
(1) Demographic data on median income levels, distribution of
household income, nature of housing stock, housing costs, and other
relevant data pertaining to a bank's or savings association's
assessment area(s);
(2) Any information about lending, investment, and service
opportunities in the bank's or savings association's assessment area(s)
maintained by the bank or savings association or obtained from
community organizations, state, local, and tribal governments, economic
development agencies, or other sources;
(3) The bank's or savings association's product offerings and
business strategy as determined from data provided by the bank or
savings association;
(4) Institutional capacity and constraints, including the size and
financial condition of the bank or savings association, the economic
climate (national, regional, and local), safety and soundness
limitations, and any other factors that significantly affect the bank's
or savings association's ability to provide lending, investments, or
services in its assessment area(s);
(5) The bank's or savings association's past performance and the
performance of similarly situated lenders;
(6) The bank's or savings association's public file, as described
in Sec. 25.43, and any written comments about the bank's or savings
association's CRA performance submitted to the bank or savings
association or the appropriate Federal banking agency; and
(7) Any other information deemed relevant by the appropriate
Federal banking agency.
(c) Assigned ratings. The appropriate Federal banking agency
assigns to a bank or savings association one of the following four
ratings pursuant to Sec. 25.28 and appendix A of this part:
``outstanding''; ``satisfactory''; ``needs to improve''; or
``substantial noncompliance'' as provided in 12 U.S.C. 2906(b)(2). The
rating assigned by the appropriate Federal banking agency reflects the
bank's or savings association's record of helping to meet the credit
needs of its entire community, including low- and moderate-income
neighborhoods, consistent with the safe and sound operation of the bank
or savings association.
(d) Safe and sound operations. This part and the CRA do not require
a bank or savings association to make loans or investments or to
provide services that are inconsistent with safe and sound operations.
To the contrary, the appropriate Federal banking agency anticipates
banks and savings associations can meet the standards of this part with
safe and sound loans, investments, and services on which the banks and
savings associations expect to make a profit. Banks and savings
associations are permitted and encouraged to develop and apply flexible
underwriting standards for loans that benefit low- or moderate-income
geographies or individuals, only if consistent with safe and sound
operations.
(e) Low-cost education loans provided to low-income borrowers. In
assessing and taking into account the record of a bank or savings
association under this part, the appropriate Federal banking agency
considers, as a factor, low-cost education loans originated by the bank
or savings association to borrowers, particularly in its assessment
area(s),
[[Page 7175]]
who have an individual income that is less than 50 percent of the area
median income. For purposes of this paragraph, ``low-cost education
loans'' means any education loan, as defined in section 140(a)(7) of
the Truth in Lending Act (15 U.S.C. 1650(a)(7)) (including a loan under
a State or local education loan program), originated by the bank or
savings association for a student at an ``institution of higher
education,'' as that term is generally defined in sections 101 and 102
of the Higher Education Act of 1965 (20 U.S.C. 1001 and 1002) and the
implementing regulations published by the U.S. Department of Education,
with interest rates and fees no greater than those of comparable
education loans offered directly by the U.S. Department of Education.
Such rates and fees are specified in section 455 of the Higher
Education Act of 1965 (20 U.S.C. 1087e).
(f) Activities in cooperation with minority- or women-owned
financial institutions and low-income credit unions. In assessing and
taking into account the record of a nonminority-owned and nonwomen-
owned bank or savings association under this part, the appropriate
Federal banking agency considers as a factor capital investment, loan
participation, and other ventures undertaken by the bank or savings
association in cooperation with minority- and women-owned financial
institutions and low-income credit unions. Such activities must help
meet the credit needs of local communities in which the minority- and
women-owned financial institutions and low-income credit unions are
chartered. To be considered, such activities need not also benefit the
bank's or savings association's assessment area(s) or the broader
statewide or regional area(s) that includes the bank's or savings
association's assessment area(s).
Sec. 25.22 Lending test.
(a) Scope of test. (1) The lending test evaluates a bank's or
savings association's record of helping to meet the credit needs of its
assessment area(s) through its lending activities by considering a
bank's or savings association's home mortgage, small business, small
farm, and community development lending. If consumer lending
constitutes a substantial majority of a bank's or savings association's
business, the appropriate Federal banking agency will evaluate the
bank's or savings association's consumer lending in one or more of the
following categories: motor vehicle, credit card, other secured, and
other unsecured loans. In addition, at a bank's or savings
association's option, the appropriate Federal banking agency will
evaluate one or more categories of consumer lending, if the bank or
savings association has collected and maintained, as required in Sec.
25.42(c)(1), the data for each category that the bank or savings
association elects to have the appropriate Federal banking agency
evaluate.
(2) The appropriate Federal banking agency considers originations
and purchases of loans. The appropriate Federal banking agency will
also consider any other loan data the bank or savings association may
choose to provide, including data on loans outstanding, commitments and
letters of credit.
(3) A bank or savings association may ask the appropriate Federal
banking agency to consider loans originated or purchased by consortia
in which the bank or savings association participates or by third
parties in which the bank or savings association has invested only if
the loans meet the definition of community development loans and only
in accordance with paragraph (d) of this section. The appropriate
Federal banking agency will not consider these loans under any
criterion of the lending test except the community development lending
criterion.
(b) Performance criteria. The appropriate Federal banking agency
evaluates a bank's or savings association's lending performance
pursuant to the following criteria:
(1) Lending activity. The number and amount of the bank's or
savings association's home mortgage, small business, small farm, and
consumer loans, if applicable, in the bank's or savings association's
assessment area(s);
(2) Geographic distribution. The geographic distribution of the
bank's or savings association's home mortgage, small business, small
farm, and consumer loans, if applicable, based on the loan location,
including:
(i) The proportion of the bank's or savings association's lending
in the bank's or savings association's assessment area(s);
(ii) The dispersion of lending in the bank's or savings
association's assessment area(s); and
(iii) The number and amount of loans in low-, moderate-, middle-,
and upper-income geographies in the bank's or savings association's
assessment area(s);
(3) Borrower characteristics. The distribution, particularly in the
bank's or savings association's assessment area(s), of the bank's or
savings association's home mortgage, small business, small farm, and
consumer loans, if applicable, based on borrower characteristics,
including the number and amount of:
(i) Home mortgage loans to low-, moderate-, middle-, and upper-
income individuals;
(ii) Small business and small farm loans to businesses and farms
with gross annual revenues of $1 million or less;
(iii) Small business and small farm loans by loan amount at
origination; and
(iv) Consumer loans, if applicable, to low-, moderate-, middle-,
and upper-income individuals;
(4) Community development lending. The bank's or savings
association's community development lending, including the number and
amount of community development loans, and their complexity and
innovativeness; and
(5) Innovative or flexible lending practices. The bank's or savings
association's use of innovative or flexible lending practices in a safe
and sound manner to address the credit needs of low- or moderate-income
individuals or geographies.
(c) Affiliate lending. (1) At a bank's or savings association's
option, the appropriate Federal banking agency will consider loans by
an affiliate of the bank or savings association, if the bank or savings
association provides data on the affiliate's loans pursuant to Sec.
25.42.
(2) The appropriate Federal banking agency considers affiliate
lending subject to the following constraints:
(i) No affiliate may claim a loan origination or loan purchase if
another institution claims the same loan origination or purchase; and
(ii) If a bank or savings association elects to have the
appropriate Federal banking agency consider loans within a particular
lending category made by one or more of the bank's or savings
association's affiliates in a particular assessment area, the bank or
savings association shall elect to have the appropriate Federal banking
agency consider, in accordance with paragraph (c)(1) of this section,
all the loans within that lending category in that particular
assessment area made by all of the bank's or savings association's
affiliates.
(3) The appropriate Federal banking agency does not consider
affiliate lending in assessing a bank's or savings association's
performance under paragraph (b)(2)(i) of this section.
(d) Lending by a consortium or a third party. Community development
loans originated or purchased by a consortium in which the bank or
savings association participates or by a third party in which the bank
or savings association has invested:
(1) Will be considered, at the bank's or savings association's
option, if the
[[Page 7176]]
bank or savings association reports the data pertaining to these loans
under Sec. 25.42(b)(2); and
(2) May be allocated among participants or investors, as they
choose, for purposes of the lending test, except that no participant or
investor:
(i) May claim a loan origination or loan purchase if another
participant or investor claims the same loan origination or purchase;
or
(ii) May claim loans accounting for more than its percentage share
(based on the level of its participation or investment) of the total
loans originated by the consortium or third party.
(e) Lending performance rating. The appropriate Federal banking
agency rates a bank's or savings association's lending performance as
provided in appendix A of this part.
Sec. 25.23 Investment test.
(a) Scope of test. The investment test evaluates a bank's or
savings association's record of helping to meet the credit needs of its
assessment area(s) through qualified investments that benefit its
assessment area(s) or a broader statewide or regional area that
includes the bank's or savings association's assessment area(s).
(b) Exclusion. Activities considered under the lending or service
tests may not be considered under the investment test.
(c) Affiliate investment. At a bank's or savings association's
option, the appropriate Federal banking agency will consider, in its
assessment of a bank's or savings association's investment performance,
a qualified investment made by an affiliate of the bank or savings
association, if the qualified investment is not claimed by any other
institution.
(d) Disposition of branch premises. Donating, selling on favorable
terms, or making available on a rent-free basis a branch of the bank or
savings association that is located in a predominantly minority
neighborhood to a minority depository institution or women's depository
institution (as these terms are defined in 12 U.S.C. 2907(b)) will be
considered as a qualified investment.
(e) Performance criteria. The appropriate Federal banking agency
evaluates the investment performance of a bank or savings association
pursuant to the following criteria:
(1) The dollar amount of qualified investments;
(2) The innovativeness or complexity of qualified investments;
(3) The responsiveness of qualified investments to credit and
community development needs; and
(4) The degree to which the qualified investments are not routinely
provided by private investors.
(f) Investment performance rating. The appropriate Federal banking
agency rates a bank's or savings association's investment performance
as provided in appendix A of this part.
Sec. 25.24 Service test.
(a) Scope of test. The service test evaluates a bank's or savings
association's record of helping to meet the credit needs of its
assessment area(s) by analyzing both the availability and effectiveness
of a bank's or savings association's systems for delivering retail
banking services and the extent and innovativeness of its community
development services.
(b) Area(s) benefitted. Community development services must benefit
a bank's or savings association's assessment area(s) or a broader
statewide or regional area that includes the bank's or savings
association's assessment area(s).
(c) Affiliate service. At a bank's or savings association's option,
the appropriate Federal banking agency will consider, in its assessment
of a bank's or savings association's service performance, a community
development service provided by an affiliate of the bank or savings
association, if the community development service is not claimed by any
other institution.
(d) Performance criteria--retail banking services. The appropriate
Federal banking agency evaluates the availability and effectiveness of
a bank's or savings association's systems for delivering retail banking
services, pursuant to the following criteria:
(1) The current distribution of the bank's or savings association's
branches among low-, moderate-, middle-, and upper-income geographies;
(2) In the context of its current distribution of the bank's or
savings association's branches, the bank's or savings association's
record of opening and closing branches, particularly branches located
in low- or moderate-income geographies or primarily serving low- or
moderate-income individuals;
(3) The availability and effectiveness of alternative systems for
delivering retail banking services (e.g., ATMs, ATMs not owned or
operated by or exclusively for the bank or savings association, banking
by telephone or computer, loan production offices, and bank-at-work or
bank-by-mail programs) in low- and moderate-income geographies and to
low- and moderate-income individuals; and
(4) The range of services provided in low-, moderate-, middle-, and
upper-income geographies and the degree to which the services are
tailored to meet the needs of those geographies.
(e) Performance criteria--community development services. The
appropriate Federal banking agency evaluates community development
services pursuant to the following criteria:
(1) The extent to which the bank or savings association provides
community development services; and
(2) The innovativeness and responsiveness of community development
services.
(f) Service performance rating. The appropriate Federal banking
agency rates a bank's or savings association's service performance as
provided in appendix A of this part.
Sec. 25.25 Community development test for wholesale or limited
purpose banks and savings associations.
(a) Scope of test. The appropriate Federal banking agency assesses
a wholesale or limited purpose bank's or savings association's record
of helping to meet the credit needs of its assessment area(s) under the
community development test through its community development lending,
qualified investments, or community development services.
(b) Designation as a wholesale or limited purpose bank or savings
association. In order to receive a designation as a wholesale or
limited purpose bank or savings association, a bank or savings
association shall file a request, in writing, with the appropriate
Federal banking agency, at least three months prior to the proposed
effective date of the designation. If the appropriate Federal banking
agency approves the designation, it remains in effect until the bank or
savings association requests revocation of the designation or until one
year after the appropriate Federal banking agency notifies the bank or
savings association that it has revoked the designation on its own
initiative.
(c) Performance criteria. The appropriate Federal banking agency
evaluates the community development performance of a wholesale or
limited purpose bank or savings association pursuant to the following
criteria:
(1) The number and amount of community development loans (including
originations and purchases of loans and other community development
loan data provided by the bank or savings association, such as data on
loans outstanding, commitments, and letters of credit), qualified
investments, or community development services;
[[Page 7177]]
(2) The use of innovative or complex qualified investments,
community development loans, or community development services and the
extent to which the investments are not routinely provided by private
investors; and
(3) The bank's or savings association's responsiveness to credit
and community development needs.
(d) Indirect activities. At a bank's or savings association's
option, the appropriate Federal banking agency will consider in its
community development performance assessment:
(1) Qualified investments or community development services
provided by an affiliate of the bank or savings association, if the
investments or services are not claimed by any other institution; and
(2) Community development lending by affiliates, consortia and
third parties, subject to the requirements and limitations in Sec.
25.22(c) and (d).
(e) Benefit to assessment area(s)--(1) Benefit inside assessment
area(s). The appropriate Federal banking agency considers all qualified
investments, community development loans, and community development
services that benefit areas within the bank's or savings association's
assessment area(s) or a broader statewide or regional area that
includes the bank's or savings association's assessment area(s).
(2) Benefit outside assessment area(s). The appropriate Federal
banking agency considers the qualified investments, community
development loans, and community development services that benefit
areas outside the bank's or savings association's assessment area(s),
if the bank or savings association has adequately addressed the needs
of its assessment area(s).
(f) Community development performance rating. The appropriate
Federal banking agency rates a bank's or savings association's
community development performance as provided in appendix A of this
part.
Sec. 25.26 Small bank and savings association performance standards.
(a) Performance criteria--(1) Small banks and savings associations
that are not intermediate small banks or savings associations. The
appropriate Federal banking agency evaluates the record of a small bank
or savings association that is not, or that was not during the prior
calendar year, an intermediate small bank or savings association, of
helping to meet the credit needs of its assessment area(s) pursuant to
the criteria set forth in paragraph (b) of this section.
(2) Intermediate small banks and savings associations. The
appropriate Federal banking agency evaluates the record of a small bank
or savings association that is, or that was during the prior calendar
year, an intermediate small bank or savings association, of helping to
meet the credit needs of its assessment area(s) pursuant to the
criteria set forth in paragraphs (b) and (c) of this section.
(b) Lending test. A small bank's or savings association's lending
performance is evaluated pursuant to the following criteria:
(1) The bank's or savings association's loan-to-deposit ratio,
adjusted for seasonal variation, and, as appropriate, other lending-
related activities, such as loan originations for sale to the secondary
markets, community development loans, or qualified investments;
(2) The percentage of loans and, as appropriate, other lending-
related activities located in the bank's or savings association's
assessment area(s);
(3) The bank's or savings association's record of lending to and,
as appropriate, engaging in other lending-related activities for
borrowers of different income levels and businesses and farms of
different sizes;
(4) The geographic distribution of the bank's or savings
association's loans; and
(5) The bank's or savings association's record of taking action, if
warranted, in response to written complaints about its performance in
helping to meet credit needs in its assessment area(s).
(c) Community development test. An intermediate small bank's or
savings association's community development performance also is
evaluated pursuant to the following criteria:
(1) The number and amount of community development loans;
(2) The number and amount of qualified investments;
(3) The extent to which the bank or savings association provides
community development services; and
(4) The bank's or savings association's responsiveness through such
activities to community development lending, investment, and services
needs.
(d) Small bank or savings association performance rating. The
appropriate Federal banking agency rates the performance of a bank or
savings association evaluated under this section as provided in
appendix A of this part.
Sec. 25.27 Strategic plan.
(a) Alternative election. The appropriate Federal banking agency
will assess a bank's or savings association's record of helping to meet
the credit needs of its assessment area(s) under a strategic plan if:
(1) The bank or savings association has submitted the plan to the
appropriate Federal banking agency as provided for in this section;
(2) The appropriate Federal banking agency has approved the plan;
(3) The plan is in effect; and
(4) The bank or savings association has been operating under an
approved plan for at least one year.
(b) Data reporting. The appropriate Federal banking agency's
approval of a plan does not affect the bank's or savings association's
obligation, if any, to report data as required by Sec. 25.42.
(c) Plans in general--(1) Term. A plan may have a term of no more
than five years, and any multi-year plan must include annual interim
measurable goals under which the appropriate Federal banking agency
will evaluate the bank's or savings association's performance.
(2) Multiple assessment areas. A bank or savings association with
more than one assessment area may prepare a single plan for all of its
assessment areas or one or more plans for one or more of its assessment
areas.
(3) Treatment of affiliates. Affiliated institutions may prepare a
joint plan if the plan provides measurable goals for each institution.
Activities may be allocated among institutions at the institutions'
option, provided that the same activities are not considered for more
than one institution.
(d) Public participation in plan development. Before submitting a
plan to the appropriate Federal banking agency for approval, a bank or
savings association shall:
(1) Informally seek suggestions from members of the public in its
assessment area(s) covered by the plan while developing the plan;
(2) Once the bank or savings association has developed a plan,
formally solicit public comment on the plan for at least 30 days by
publishing notice in at least one newspaper of general circulation in
each assessment area covered by the plan; and
(3) During the period of formal public comment, make copies of the
plan available for review by the public at no cost at all offices of
the bank or savings association in any assessment area covered by the
plan and provide copies of the plan upon request for a reasonable fee
to cover copying and mailing, if applicable.
(e) Submission of plan. The bank or savings association shall
submit its plan to the appropriate Federal banking agency at least
three months prior to the proposed effective date of the plan. The bank
or savings association shall also submit with its plan a description of
its
[[Page 7178]]
informal efforts to seek suggestions from members of the public, any
written public comment received, and, if the plan was revised in light
of the comment received, the initial plan as released for public
comment.
(f) Plan content--(1) Measurable goals. (i) A bank or savings
association shall specify in its plan measurable goals for helping to
meet the credit needs of each assessment area covered by the plan,
particularly the needs of low- and moderate-income geographies and low-
and moderate-income individuals, through lending, investment, and
services, as appropriate.
(ii) A bank or savings association shall address in its plan all
three performance categories and, unless the bank or savings
association has been designated as a wholesale or limited purpose bank
or savings association, shall emphasize lending and lending-related
activities. Nevertheless, a different emphasis, including a focus on
one or more performance categories, may be appropriate if responsive to
the characteristics and credit needs of its assessment area(s),
considering public comment and the bank's or savings association's
capacity and constraints, product offerings, and business strategy.
(2) Confidential information. A bank or savings association may
submit additional information to the appropriate Federal banking agency
on a confidential basis, but the goals stated in the plan must be
sufficiently specific to enable the public and the appropriate Federal
banking agency to judge the merits of the plan.
(3) Satisfactory and outstanding goals. A bank or savings
association shall specify in its plan measurable goals that constitute
``satisfactory'' performance. A plan may specify measurable goals that
constitute ``outstanding'' performance. If a bank or savings
association submits, and the appropriate Federal banking agency
approves, both ``satisfactory'' and ``outstanding'' performance goals,
the appropriate Federal banking agency will consider the bank or
savings association eligible for an ``outstanding'' performance rating.
(4) Election if satisfactory goals not substantially met. A bank or
savings association may elect in its plan that, if the bank or savings
association fails to meet substantially its plan goals for a
satisfactory rating, the appropriate Federal banking agency will
evaluate the bank's or savings association's performance under the
lending, investment, and service tests, the community development test,
or the small bank or savings association performance standards, as
appropriate.
(g) Plan approval--(1) Timing. The appropriate Federal banking
agency will act upon a plan within 60 calendar days after the
appropriate Federal banking agency receives the complete plan and other
material required under paragraph (e) of this section. If the
appropriate Federal banking agency fails to act within this time
period, the plan shall be deemed approved unless the appropriate
Federal banking agency extends the review period for good cause.
(2) Public participation. In evaluating the plan's goals, the
appropriate Federal banking agency considers the public's involvement
in formulating the plan, written public comment on the plan, and any
response by the bank or savings association to public comment on the
plan.
(3) Criteria for evaluating plan. The appropriate Federal banking
agency evaluates a plan's measurable goals using the following
criteria, as appropriate:
(i) The extent and breadth of lending or lending-related
activities, including, as appropriate, the distribution of loans among
different geographies, businesses and farms of different sizes, and
individuals of different income levels, the extent of community
development lending, and the use of innovative or flexible lending
practices to address credit needs;
(ii) The amount and innovativeness, complexity, and responsiveness
of the bank's or savings association's qualified investments; and
(iii) The availability and effectiveness of the bank's or savings
association's systems for delivering retail banking services and the
extent and innovativeness of the bank's or savings association's
community development services.
(h) Plan amendment. During the term of a plan, a bank or savings
association may request the appropriate Federal banking agency to
approve an amendment to the plan on grounds that there has been a
material change in circumstances. The bank or savings association shall
develop an amendment to a previously approved plan in accordance with
the public participation requirements of paragraph (d) of this section.
(i) Plan assessment. The appropriate Federal banking agency
approves the goals and assesses performance under a plan as provided
for in appendix A of this part.
Sec. 25.28 Assigned ratings.
(a) Ratings in general. Subject to paragraphs (b) and (c) of this
section, the appropriate Federal banking agency assigns to a bank or
savings association a rating of ``outstanding,'' ``satisfactory,''
``needs to improve,'' or ``substantial noncompliance'' based on the
bank's or savings association's performance under the lending,
investment and service tests, the community development test, the small
bank or savings association performance standards, or an approved
strategic plan, as applicable.
(b) Lending, investment, and service tests. The appropriate Federal
banking agency assigns a rating for a bank or savings association
assessed under the lending, investment, and service tests in accordance
with the following principles:
(1) A bank or savings association that receives an ``outstanding''
rating on the lending test receives an assigned rating of at least
``satisfactory'';
(2) A bank or savings association that receives an ``outstanding''
rating on both the service test and the investment test and a rating of
at least ``high satisfactory'' on the lending test receives an assigned
rating of ``outstanding''; and
(3) No bank or savings association may receive an assigned rating
of ``satisfactory'' or higher unless it receives a rating of at least
``low satisfactory'' on the lending test.
(c) Effect of evidence of discriminatory or other illegal credit
practices. (1) The appropriate Federal banking agency's evaluation of a
bank's or savings association's CRA performance is adversely affected
by evidence of discriminatory or other illegal credit practices in any
geography by the bank or savings association or in any assessment area
by any affiliate whose loans have been considered as part of the bank's
or savings association's lending performance. In connection with any
type of lending activity described in Sec. 25.22(a), evidence of
discriminatory or other credit practices that violate an applicable
law, rule, or regulation includes, but is not limited to:
(i) Discrimination against applicants on a prohibited basis in
violation, for example, of the Equal Credit Opportunity Act or the Fair
Housing Act;
(ii) Violations of the Home Ownership and Equity Protection Act;
(iii) Violations of section 5 of the Federal Trade Commission Act;
(iv) Violations of section 8 of the Real Estate Settlement
Procedures Act; and
(v) Violations of the Truth in Lending Act provisions regarding a
consumer's right of rescission.
(2) In determining the effect of evidence of practices described in
paragraph (c)(1) of this section on the bank's or savings association's
assigned
[[Page 7179]]
rating, the appropriate Federal banking agency considers the nature,
extent, and strength of the evidence of the practices; the policies and
procedures that the bank or savings association (or affiliate, as
applicable) has in place to prevent the practices; any corrective
action that the bank or savings association (or affiliate, as
applicable) has taken or has committed to take, including voluntary
corrective action resulting from self-assessment; and any other
relevant information.
Sec. 25.29 Effect of CRA performance on applications.
(a) CRA performance. Among other factors, the appropriate Federal
banking agency takes into account the record of performance under the
CRA of each applicant bank or savings association, and for applications
under 10(e) of the Home Owners' Loan Act (12 U.S.C. 1467a(e)), of each
proposed subsidiary savings association, in considering an application
for:
(1) The establishment of:
(i) A domestic branch for insured national banks; or
(ii) A domestic branch or other facility that would be authorized
to take deposits for savings associations;
(2) The relocation of the main office or a branch;
(3) The merger or consolidation with or the acquisition of assets
or assumption of liabilities of an insured depository institution
requiring approval under the Bank Merger Act (12 U.S.C. 1828(c)); and
(4) The conversion of an insured depository institution to a
national bank or Federal savings association charter; and
(5) Acquisitions subject to section 10(e) of the Home Owners' Loan
Act (12 U.S.C. 1467a(e)).
(b) Charter application. (1) An applicant (other than an insured
depository institution) for a national bank charter shall submit with
its application a description of how it will meet its CRA objectives.
The OCC takes the description into account in considering the
application and may deny or condition approval on that basis.
(2) An applicant for a Federal savings association charter shall
submit with its application a description of how it will meet its CRA
objectives. The appropriate Federal banking agency takes the
description into account in considering the application and may deny or
condition approval on that basis.
(c) Interested parties. The appropriate Federal banking agency
takes into account any views expressed by interested parties that are
submitted in accordance with the applicable comment procedures in
considering CRA performance in an application listed in paragraphs (a)
and (b) of this section.
(d) Denial or conditional approval of application. A bank's or
savings association's record of performance may be the basis for
denying or conditioning approval of an application listed in paragraph
(a) of this section.
(e) Insured depository institution. For purposes of this section,
the term ``insured depository institution'' has the meaning given to
that term in 12 U.S.C. 1813.
Subpart C--Records, Reporting, and Disclosure Requirements
Sec. 25.41 Assessment area delineation.
(a) In general. A bank or savings association shall delineate one
or more assessment areas within which the appropriate Federal banking
agency evaluates the bank's or savings association's record of helping
to meet the credit needs of its community. The appropriate Federal
banking agency does not evaluate the bank's or savings association's
delineation of its assessment area(s) as a separate performance
criterion, but the appropriate Federal banking agency reviews the
delineation for compliance with the requirements of this section.
(b) Geographic area(s) for wholesale or limited purpose banks or
savings associations. The assessment area(s) for a wholesale or limited
purpose bank or savings association must consist generally of one or
more MSAs or metropolitan divisions (using the MSA or metropolitan
division boundaries that were in effect as of January 1 of the calendar
year in which the delineation is made) or one or more contiguous
political subdivisions, such as counties, cities, or towns, in which
the bank or savings association has its main office, branches, and
deposit-taking ATMs.
(c) Geographic area(s) for other banks and savings association. The
assessment area(s) for a bank or savings association other than a
wholesale or limited purpose bank or savings association must:
(1) Consist generally of one or more MSAs or metropolitan divisions
(using the MSA or metropolitan division boundaries that were in effect
as of January 1 of the calendar year in which the delineation is made)
or one or more contiguous political subdivisions, such as counties,
cities, or towns; and
(2) Include the geographies in which the bank or savings
association has its main office, its branches, and its deposit-taking
ATMs, as well as the surrounding geographies in which the bank or
savings association has originated or purchased a substantial portion
of its loans (including home mortgage loans, small business and small
farm loans, and any other loans the bank or savings association
chooses, such as those consumer loans on which the bank or savings
association elects to have its performance assessed).
(d) Adjustments to geographic area(s). A bank or savings
association may adjust the boundaries of its assessment area(s) to
include only the portion of a political subdivision that it reasonably
can be expected to serve. An adjustment is particularly appropriate in
the case of an assessment area that otherwise would be extremely large,
of unusual configuration, or divided by significant geographic
barriers.
(e) Limitations on the delineation of an assessment area. Each
bank's or savings associations assessment area(s):
(1) Must consist only of whole geographies;
(2) May not reflect illegal discrimination;
(3) May not arbitrarily exclude low- or moderate-income
geographies, taking into account the bank's or savings association's
size and financial condition; and
(4) May not extend substantially beyond an MSA boundary or beyond a
state boundary unless the assessment area is located in a multistate
MSA. If a bank or savings association serves a geographic area that
extends substantially beyond a state boundary, the bank or savings
association shall delineate separate assessment areas for the areas in
each state. If a bank or savings association serves a geographic area
that extends substantially beyond an MSA boundary, the bank or savings
association shall delineate separate assessment areas for the areas
inside and outside the MSA.
(f) Banks and savings association serving military personnel.
Notwithstanding the requirements of this section, a bank or savings
association whose business predominantly consists of serving the needs
of military personnel or their dependents who are not located within a
defined geographic area may delineate its entire deposit customer base
as its assessment area.
(g) Use of assessment area(s). The appropriate Federal banking
agency uses the assessment area(s) delineated by a bank or savings
association in its evaluation of the bank's or savings association's
CRA performance unless the appropriate Federal banking agency
determines that the assessment area(s)
[[Page 7180]]
do not comply with the requirements of this section.
Sec. 25.42 Data collection, reporting, and disclosure.
(a) Loan information required to be collected and maintained. A
bank or savings association, except a small bank or savings
association, shall collect, and maintain in machine readable form (as
prescribed by the appropriate Federal banking agency) until the
completion of its next CRA examination, the following data for each
small business or small farm loan originated or purchased by the bank
or savings association:
(1) A unique number or alpha-numeric symbol that can be used to
identify the relevant loan file;
(2) The loan amount at origination;
(3) The loan location; and
(4) An indicator whether the loan was to a business or farm with
gross annual revenues of $1 million or less.
(b) Loan information required to be reported. A bank or savings
association, except a small bank or savings association or a bank or
savings association that was a small bank or savings association during
the prior calendar year, shall report annually by March 1 to the
appropriate Federal banking agency in machine readable form (as
prescribed by the appropriate Federal banking agency) the following
data for the prior calendar year:
(1) Small business and small farm loan data. For each geography in
which the bank or savings association originated or purchased a small
business or small farm loan, the aggregate number and amount of loans:
(i) With an amount at origination of $100,000 or less;
(ii) With amount at origination of more than $100,000 but less than
or equal to $250,000;
(iii) With an amount at origination of more than $250,000; and
(iv) To businesses and farms with gross annual revenues of $1
million or less (using the revenues that the bank or savings
association considered in making its credit decision);
(2) Community development loan data. The aggregate number and
aggregate amount of community development loans originated or
purchased; and
(3) Home mortgage loans. If the bank or savings association is
subject to reporting under part 1003 of this title, the location of
each home mortgage loan application, origination, or purchase outside
the MSAs in which the bank or savings association has a home or branch
office (or outside any MSA) in accordance with the requirements of part
1003 of this title.
(c) Optional data collection and maintenance--(1) Consumer loans. A
bank or savings association may collect and maintain in machine
readable form (as prescribed by the appropriate Federal banking agency)
data for consumer loans originated or purchased by the bank or savings
association for consideration under the lending test. A bank or savings
association may maintain data for one or more of the following
categories of consumer loans: Motor vehicle, credit card, other
secured, and other unsecured. If the bank or savings association
maintains data for loans in a certain category, it shall maintain data
for all loans originated or purchased within that category. The bank or
savings association shall maintain data separately for each category,
including for each loan:
(i) A unique number or alpha-numeric symbol that can be used to
identify the relevant loan file;
(ii) The loan amount at origination or purchase;
(iii) The loan location; and
(iv) The gross annual income of the borrower that the bank or
savings association considered in making its credit decision.
(2) Other loan data. At its option, a bank or savings association
may provide other information concerning its lending performance,
including additional loan distribution data.
(d) Data on affiliate lending. A bank or savings association that
elects to have the appropriate Federal banking agency consider loans by
an affiliate, for purposes of the lending or community development test
or an approved strategic plan, shall collect, maintain, and report for
those loans the data that the bank or savings association would have
collected, maintained, and reported pursuant to paragraphs (a), (b),
and (c) of this section had the loans been originated or purchased by
the bank or savings association. For home mortgage loans, the bank or
savings association shall also be prepared to identify the home
mortgage loans reported under part 1003 of this title by the affiliate.
(e) Data on lending by a consortium or a third party. A bank or
savings association that elects to have the appropriate Federal banking
agency consider community development loans by a consortium or third
party, for purposes of the lending or community development tests or an
approved strategic plan, shall report for those loans the data that the
bank or savings association would have reported under paragraph (b)(2)
of this section had the loans been originated or purchased by the bank
or savings association.
(f) Small banks and savings associations electing evaluation under
the lending, investment, and service tests. A bank or savings
association that qualifies for evaluation under the small bank or
savings association performance standards but elects evaluation under
the lending, investment, and service tests shall collect, maintain, and
report the data required for other banks or savings association
pursuant to paragraphs (a) and (b) of this section.
(g) Assessment area data. A bank or savings association, except a
small bank or savings association or a bank or savings association that
was a small bank or savings association during the prior calendar year,
shall collect and report to the appropriate Federal banking agency by
March 1 of each year a list for each assessment area showing the
geographies within the area.
(h) CRA Disclosure Statement. The appropriate Federal banking
agency prepares annually for each bank or savings association that
reports data pursuant to this section a CRA Disclosure Statement that
contains, on a state-by-state basis:
(l) For each county (and for each assessment area smaller than a
county) with a population of 500,000 persons or fewer in which the bank
or savings association reported a small business or small farm loan:
(i) The number and amount of small business and small farm loans
reported as originated or purchased located in low-, moderate-, middle-
, and upper-income geographies;
(ii) A list grouping each geography according to whether the
geography is low-, moderate-, middle-, or upper-income;
(iii) A list showing each geography in which the bank or savings
association reported a small business or small farm loan; and
(iv) The number and amount of small business and small farm loans
to businesses and farms with gross annual revenues of $1 million or
less;
(2) For each county (and for each assessment area smaller than a
county) with a population in excess of 500,000 persons in which the
bank or savings association reported a small business or small farm
loan:
(i) The number and amount of small business and small farm loans
reported as originated or purchased located in geographies with median
income relative to the area median income of less than 10 percent, 10
or more but less than 20 percent, 20 or more but less than 30 percent,
30 or more but less than 40 percent, 40 or more but less
[[Page 7181]]
than 50 percent, 50 or more but less than 60 percent, 60 or more but
less than 70 percent, 70 or more but less than 80 percent, 80 or more
but less than 90 percent, 90 or more but less than 100 percent, 100 or
more but less than 110 percent, 110 or more but less than 120 percent,
and 120 percent or more;
(ii) A list grouping each geography in the county or assessment
area according to whether the median income in the geography relative
to the area median income is less than 10 percent, 10 or more but less
than 20 percent, 20 or more but less than 30 percent, 30 or more but
less than 40 percent, 40 or more but less than 50 percent, 50 or more
but less than 60 percent, 60 or more but less than 70 percent, 70 or
more but less than 80 percent, 80 or more but less than 90 percent, 90
or more but less than 100 percent, 100 or more but less than 110
percent, 110 or more but less than 120 percent, and 120 percent or
more;
(iii) A list showing each geography in which the bank or savings
association reported a small business or small farm loan; and
(iv) The number and amount of small business and small farm loans
to businesses and farms with gross annual revenues of $1 million or
less;
(3) The number and amount of small business and small farm loans
located inside each assessment area reported by the bank or savings
association and the number and amount of small business and small farm
loans located outside the assessment area(s) reported by the bank or
savings association; and
(4) The number and amount of community development loans reported
as originated or purchased.
(i) Aggregate disclosure statements. The OCC, in conjunction with
the Board of Governors of the Federal Reserve System and the FDIC,
prepares annually, for each MSA or metropolitan division (including an
MSA or metropolitan division that crosses a state boundary) and the
nonmetropolitan portion of each state, an aggregate disclosure
statement of small business and small farm lending by all institutions
subject to reporting under this part or parts 228 or 345 of this title.
These disclosure statements indicate, for each geography, the number
and amount of all small business and small farm loans originated or
purchased by reporting institutions, except that the appropriate
Federal banking agency may adjust the form of the disclosure if
necessary, because of special circumstances, to protect the privacy of
a borrower or the competitive position of an institution.
(j) Central data depositories. The appropriate Federal banking
agency makes the aggregate disclosure statements, described in
paragraph (i) of this section, and the individual bank or savings
association CRA Disclosure Statements, described in paragraph (h) of
this section, available to the public at central data depositories. The
appropriate Federal banking agency publishes a list of the depositories
at which the statements are available.
Sec. 25.43 Content and availability of public file.
(a) Information available to the public. A bank or savings
association shall maintain a public file that includes the following
information:
(1) All written comments received from the public for the current
year and each of the prior two calendar years that specifically relate
to the bank's or savings association's performance in helping to meet
community credit needs, and any response to the comments by the bank or
savings association, if neither the comments nor the responses contain
statements that reflect adversely on the good name or reputation of any
persons other than the bank or savings association or publication of
which would violate specific provisions of law;
(2) A copy of the public section of the bank's or savings
association's most recent CRA Performance Evaluation prepared by the
appropriate Federal banking agency. The bank or savings association
shall place this copy in the public file within 30 business days after
its receipt from the appropriate Federal banking agency;
(3) A list of the bank's or savings association's branches, their
street addresses, and geographies;
(4) A list of branches opened or closed by the bank or savings
association during the current year and each of the prior two calendar
years, their street addresses, and geographies;
(5) A list of services (including hours of operation, available
loan and deposit products, and transaction fees) generally offered at
the bank's or savings association's branches and descriptions of
material differences in the availability or cost of services at
particular branches, if any. At its option, a bank or savings
association may include information regarding the availability of
alternative systems for delivering retail banking services (e.g., ATMs,
ATMs not owned or operated by or exclusively for the bank or savings
association, banking by telephone or computer, loan production offices,
and bank-at-work or bank-by-mail programs);
(6) A map of each assessment area showing the boundaries of the
area and identifying the geographies contained within the area, either
on the map or in a separate list; and
(7) Any other information the bank or savings association chooses.
(b) Additional information available to the public--(1) Banks and
savings associations other than small banks or savings associations. A
bank or savings association, except a small bank or savings association
or a bank or savings association that was a small bank or savings
association during the prior calendar year, shall include in its public
file the following information pertaining to the bank or savings
association and its affiliates, if applicable, for each of the prior
two calendar years:
(i) If the bank or savings association has elected to have one or
more categories of its consumer loans considered under the lending
test, for each of these categories, the number and amount of loans:
(A) To low-, moderate-, middle-, and upper-income individuals;
(B) Located in low-, moderate-, middle-, and upper-income census
tracts; and
(C) Located inside the bank's or savings association's assessment
area(s) and outside the bank's or savings association's assessment
area(s); and
(ii) The bank's or savings association's CRA Disclosure Statement.
The bank or savings association shall place the statement in the public
file within three business days of its receipt from the appropriate
Federal banking agency.
(2) Banks and savings associations required to report Home Mortgage
Disclosure Act (HMDA) data. A bank or savings association required to
report home mortgage loan data pursuant part 1003 of this title shall
include in its public file a written notice that the institution's HMDA
Disclosure Statement may be obtained on the Consumer Financial
Protection Bureau's (Bureau's) website at www.consumerfinance.gov/hmda.
In addition, a bank or savings association that elected to have the
appropriate Federal banking agency consider the mortgage lending of an
affiliate shall include in its public file the name of the affiliate
and a written notice that the affiliate's HMDA Disclosure Statement may
be obtained at the Bureau's website. The bank or savings association
shall place the written notice(s) in the public file within three
business days after receiving notification from the Federal Financial
Institutions Examination Council of the availability of the disclosure
statement(s).
[[Page 7182]]
(3) Small banks and savings associations. A small bank or savings
association or a bank or savings association that was a small bank or
savings association during the prior calendar year shall include in its
public file:
(i) The bank's or savings association's loan-to-deposit ratio for
each quarter of the prior calendar year and, at its option, additional
data on its loan-to-deposit ratio; and
(ii) The information required for other banks or savings
associations by paragraph (b)(1) of this section, if the bank or
savings association has elected to be evaluated under the lending,
investment, and service tests.
(4) Banks and savings associations with strategic plans. A bank or
savings association that has been approved to be assessed under a
strategic plan shall include in its public file a copy of that plan. A
bank or savings association need not include information submitted to
the appropriate Federal banking agency on a confidential basis in
conjunction with the plan.
(5) Banks and savings associations with less than satisfactory
ratings. A bank or savings association that received a less than
satisfactory rating during its most recent examination shall include in
its public file a description of its current efforts to improve its
performance in helping to meet the credit needs of its entire
community. The bank or savings association shall update the description
quarterly.
(c) Location of public information. A bank or savings association
shall make available to the public for inspection upon request and at
no cost the information required in this section as follows:
(1) At the main office and, if an interstate bank or savings
association, at one branch office in each state, all information in the
public file; and
(2) At each branch:
(i) A copy of the public section of the bank's or savings
association's most recent CRA Performance Evaluation and a list of
services provided by the branch; and
(ii) Within five calendar days of the request, all the information
in the public file relating to the assessment area in which the branch
is located.
(d) Copies. Upon request, a bank or savings association shall
provide copies, either on paper or in another form acceptable to the
person making the request, of the information in its public file. The
bank or savings association may charge a reasonable fee not to exceed
the cost of copying and mailing (if applicable).
(e) Updating. Except as otherwise provided in this section, a bank
or savings association shall ensure that the information required by
this section is current as of April 1 of each year.
Sec. 25.44 Public notice by banks and savings associations.
A bank or savings association shall provide in the public lobby of
its main office and each of its branches the appropriate public notice
set forth in appendix B of this part. Only a branch of a bank or
savings association having more than one assessment area shall include
the bracketed material in the notice for branch offices. Only an
insured national bank that is an affiliate of a holding company shall
include the next to the last sentence of the notices. An insured
national bank shall include the last sentence of the notices only if it
is an affiliate of a holding company that is not prevented by statute
from acquiring additional banks. Only a savings association that is an
affiliate of a holding company shall include the last two sentences of
the notices.
Sec. 25.45 Publication of planned examination schedule.
The appropriate Federal banking agency publishes at least 30 days
in advance of the beginning of each calendar quarter a list of banks
and savings associations scheduled for CRA examinations in that
quarter.
Subpart D--Transition Provisions
Sec. 25.51 Consideration of Bank Activities.
(a) In assessing a bank's CRA performance, the appropriate Federal
banking agency will consider any loan, investment, or service that was
eligible for CRA consideration at the time the bank conducted the
activity.
(b) Notwithstanding paragraph (a), in assessing a bank's CRA
performance, the appropriate Federal banking agency will consider any
loan or investment that was eligible for CRA consideration at the time
the bank entered into a legally binding commitment to make the loan or
investment.
Sec. 25.52 Strategic Plan Retention.
A bank or savings association strategic plan approved by the
appropriate Federal banking agency and in effect as of December 31,
2021, remains in effect, except that provisions of the plan that are
not consistent with this part in effect as of January 1, 2022, are
void, unless amended pursuant to Sec. 25.27.
Subpart E--Prohibition Against Use of Interstate Branches Primarily
for Deposit Production
Sec. 25.61 Purpose and scope.
(a) Purpose. The purpose of this subpart is to implement section
109 (12 U.S.C. 1835a) of the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (Interstate Act).
(b) Scope. (1) This subpart applies to any national bank that has
operated a covered interstate branch for a period of at least one year,
and any foreign bank that has operated a covered interstate branch that
is a Federal branch for a period of at least one year.
(2) This subpart describes the requirements imposed under 12 U.S.C.
1835a, which requires the appropriate Federal banking agencies (the
OCC, the Board of Governors of the Federal Reserve System, and the
FDIC) to prescribe uniform rules that prohibit a bank from using any
authority to engage in interstate branching pursuant to the Interstate
Act, or any amendment made by the Interstate Act to any other provision
of law, primarily for the purpose of deposit production.
Sec. 25.62 Definitions.
For purposes of this subpart, the following definitions apply:
(a) Bank means, unless the context indicates otherwise:
(1) A national bank; and
(2) A foreign bank as that term is defined in 12 U.S.C. 3101(7) and
12 CFR 28.11(i).
(b) Covered interstate branch means:
(1) Any branch of a national bank, and any Federal branch of a
foreign bank, that:
(i) Is established or acquired outside the bank's home State
pursuant to the interstate branching authority granted by the
Interstate Act or by any amendment made by the Interstate Act to any
other provision of law; or
(ii) Could not have been established or acquired outside of the
bank's home State but for the establishment or acquisition of a branch
described in paragraph (b)(1)(i) of this section; and
(2) Any bank or branch of a bank controlled by an out-of-State bank
holding company.
(c) Federal branch means Federal branch as that term is defined in
12 U.S.C. 3101(6) and 12 CFR 28.11(h).
(d) Home State means:
(1) With respect to a State bank, the State that chartered the
bank;
(2) With respect to a national bank, the State in which the main
office of the bank is located;
(3) With respect to a bank holding company, the State in which the
total
[[Page 7183]]
deposits of all banking subsidiaries of such company are the largest on
the later of:
(i) July 1, 1966; or
(ii) The date on which the company becomes a bank holding company
under the Bank Holding Company Act;
(4) With respect to a foreign bank:
(i) For purposes of determining whether a U.S. branch of a foreign
bank is a covered interstate branch, the home State of the foreign bank
as determined in accordance with 12 U.S.C. 3103(c) and 12 CFR 28.11(n);
and
(ii) For purposes of determining whether a branch of a U.S. bank
controlled by a foreign bank is a covered interstate branch, the State
in which the total deposits of all banking subsidiaries of such foreign
bank are the largest on the later of:
(A) July 1, 1966; or
(B) The date on which the foreign bank becomes a bank holding
company under the Bank Holding Company Act.
(e) Host State means a State in which a covered interstate branch
is established or acquired.
(f) Host state loan-to-deposit ratio generally means, with respect
to a particular host state, the ratio of total loans in the host state
relative to total deposits from the host state for all banks (including
institutions covered under the definition of ``bank'' in 12 U.S.C.
1813(a)(1)) that have that state as their home state, as determined and
updated periodically by the appropriate Federal banking agencies and
made available to the public.
(g) Out-of-State bank holding company means, with respect to any
State, a bank holding company whose home State is another State.
(h) State means state as that term is defined in 12 U.S.C.
1813(a)(3).
(i) Statewide loan-to-deposit ratio means, with respect to a bank,
the ratio of the bank's loans to its deposits in a state in which the
bank has one or more covered interstate branches, as determined by the
OCC.
Sec. 25.63 Loan-to-deposit ratio screen.
(a) Application of screen. Beginning no earlier than one year after
a covered interstate branch is acquired or established, the OCC will
consider whether the bank's statewide loan-to-deposit ratio is less
than 50 percent of the relevant host State loan-to-deposit ratio.
(b) Results of screen. (1) If the OCC determines that the bank's
statewide loan-to-deposit ratio is 50 percent or more of the host state
loan-to-deposit ratio, no further consideration under this subpart is
required.
(2) If the OCC determines that the bank's statewide loan-to-deposit
ratio is less than 50 percent of the host state loan-to-deposit ratio,
or if reasonably available data are insufficient to calculate the
bank's statewide loan-to-deposit ratio, the OCC will make a credit
needs determination for the bank as provided in Sec. 25.64.
Sec. 25.64 Credit needs determination.
(a) In general. The OCC will review the loan portfolio of the bank
and determine whether the bank is reasonably helping to meet the credit
needs of the communities in the host state that are served by the bank.
(b) Guidelines. The OCC will use the following considerations as
guidelines when making the determination pursuant to paragraph (a) of
this section:
(1) Whether covered interstate branches were formerly part of a
failed or failing depository institution;
(2) Whether covered interstate branches were acquired under
circumstances where there was a low loan-to-deposit ratio because of
the nature of the acquired institution's business or loan portfolio;
(3) Whether covered interstate branches have a high concentration
of commercial or credit card lending, trust services, or other
specialized activities, including the extent to which the covered
interstate branches accept deposits in the host state;
(4) The CRA ratings received by the bank, if any;
(5) Economic conditions, including the level of loan demand, within
the communities served by the covered interstate branches;
(6) The safe and sound operation and condition of the bank; and
(7) The OCC's CRA regulations (subparts A through D of this part)
and interpretations of those regulations.
Sec. 25.65 Sanctions.
(a) In general. If the OCC determines that a bank is not reasonably
helping to meet the credit needs of the communities served by the bank
in the host state, and that the bank's statewide loan-to-deposit ratio
is less than 50 percent of the host state loan-to-deposit ratio, the
OCC:
(1) May order that a bank's covered interstate branch or branches
be closed unless the bank provides reasonable assurances to the
satisfaction of the OCC, after an opportunity for public comment, that
the bank has an acceptable plan under which the bank will reasonably
help to meet the credit needs of the communities served by the bank in
the host state; and
(2) Will not permit the bank to open a new branch in the host state
that would be considered to be a covered interstate branch unless the
bank provides reasonable assurances to the satisfaction of the OCC,
after an opportunity for public comment, that the bank will reasonably
help to meet the credit needs of the community that the new branch will
serve.
(b) Notice prior to closure of a covered interstate branch. Before
exercising the OCC's authority to order the bank to close a covered
interstate branch, the OCC will issue to the bank a notice of the OCC's
intent to order the closure and will schedule a hearing within 60 days
of issuing the notice.
(c) Hearing. The OCC will conduct a hearing scheduled under
paragraph (b) of this section in accordance with the provisions of 12
U.S.C. 1818(h) and 12 CFR part 19.
Appendix A to Part 25--Ratings
(a) Ratings in general. (1) In assigning a rating, the appropriate
Federal banking agency evaluates a bank's or savings association's
performance under the applicable performance criteria in this part, in
accordance with Sec. Sec. 25.21 and 25.28. This includes consideration
of low-cost education loans provided to low-income borrowers and
activities in cooperation with minority- or women-owned financial
institutions and low-income credit unions, as well as adjustments on
the basis of evidence of discriminatory or other illegal credit
practices.
(2) A bank's or savings association's performance need not fit each
aspect of a particular rating profile in order to receive that rating,
and exceptionally strong performance with respect to some aspects may
compensate for weak performance in others. The bank's or savings
association's overall performance, however, must be consistent with
safe and sound banking practices and generally with the appropriate
rating profile as follows.
(b) Banks and savings associations evaluated under the lending,
investment, and service tests--(1) Lending performance rating. The
appropriate Federal banking agency assigns each bank's or savings
association's lending performance one of the five following ratings.
(i) Outstanding. The appropriate Federal banking agency rates a
bank's or savings association's lending performance ``outstanding'' if,
in general, it demonstrates:
(A) Excellent responsiveness to credit needs in its assessment
area(s), taking into account the number and amount of home mortgage,
small business, small farm, and consumer loans, if applicable, in its
assessment area(s);
[[Page 7184]]
(B) A substantial majority of its loans are made in its assessment
area(s);
(C) An excellent geographic distribution of loans in its assessment
area(s);
(D) An excellent distribution, particularly in its assessment
area(s), of loans among individuals of different income levels and
businesses (including farms) of different sizes, given the product
lines offered by the bank or savings association;
(E) An excellent record of serving the credit needs of highly
economically disadvantaged areas in its assessment area(s), low-income
individuals, or businesses (including farms) with gross annual revenues
of $1 million or less, consistent with safe and sound operations;
(F) Extensive use of innovative or flexible lending practices in a
safe and sound manner to address the credit needs of low- or moderate-
income individuals or geographies; and
(G) It is a leader in making community development loans.
(ii) High satisfactory. The appropriate Federal banking agency
rates a bank's or savings association's lending performance ``high
satisfactory'' if, in general, it demonstrates:
(A) Good responsiveness to credit needs in its assessment area(s),
taking into account the number and amount of home mortgage, small
business, small farm, and consumer loans, if applicable, in its
assessment area(s);
(B) A high percentage of its loans are made in its assessment
area(s);
(C) A good geographic distribution of loans in its assessment
area(s);
(D) A good distribution, particularly in its assessment area(s), of
loans among individuals of different income levels and businesses
(including farms) of different sizes, given the product lines offered
by the bank or savings association;
(E) A good record of serving the credit needs of highly
economically disadvantaged areas in its assessment area(s), low-income
individuals, or businesses (including farms) with gross annual revenues
of $1 million or less, consistent with safe and sound operations;
(F) Use of innovative or flexible lending practices in a safe and
sound manner to address the credit needs of low- or moderate-income
individuals or geographies; and
(G) It has made a relatively high level of community development
loans.
(iii) Low satisfactory. The appropriate Federal banking agency
rates a bank's or savings association's lending performance ``low
satisfactory'' if, in general, it demonstrates:
(A) Adequate responsiveness to credit needs in its assessment
area(s), taking into account the number and amount of home mortgage,
small business, small farm, and consumer loans, if applicable, in its
assessment area(s);
(B) An adequate percentage of its loans are made in its assessment
area(s);
(C) An adequate geographic distribution of loans in its assessment
area(s);
(D) An adequate distribution, particularly in its assessment
area(s), of loans among individuals of different income levels and
businesses (including farms) of different sizes, given the product
lines offered by the bank or savings association;
(E) An adequate record of serving the credit needs of highly
economically disadvantaged areas in its assessment area(s), low-income
individuals, or businesses (including farms) with gross annual revenues
of $1 million or less, consistent with safe and sound operations;
(F) Limited use of innovative or flexible lending practices in a
safe and sound manner to address the credit needs of low- or moderate-
income individuals or geographies; and
(G) It has made an adequate level of community development loans.
(iv) Needs to improve. The appropriate Federal banking agency rates
a bank's or savings association's lending performance ``needs to
improve'' if, in general, it demonstrates:
(A) Poor responsiveness to credit needs in its assessment area(s),
taking into account the number and amount of home mortgage, small
business, small farm, and consumer loans, if applicable, in its
assessment area(s);
(B) A small percentage of its loans are made in its assessment
area(s);
(C) A poor geographic distribution of loans, particularly to low-
or moderate-income geographies, in its assessment area(s);
(D) A poor distribution, particularly in its assessment area(s), of
loans among individuals of different income levels and businesses
(including farms) of different sizes, given the product lines offered
by the bank or savings association;
(E) A poor record of serving the credit needs of highly
economically disadvantaged areas in its assessment area(s), low-income
individuals, or businesses (including farms) with gross annual revenues
of $1 million or less, consistent with safe and sound operations;
(F) Little use of innovative or flexible lending practices in a
safe and sound manner to address the credit needs of low- or moderate-
income individuals or geographies; and
(G) It has made a low level of community development loans.
(v) Substantial noncompliance. The appropriate Federal banking
agency rates a bank's or savings association's lending performance as
being in ``substantial noncompliance'' if, in general, it demonstrates:
(A) A very poor responsiveness to credit needs in its assessment
area(s), taking into account the number and amount of home mortgage,
small business, small farm, and consumer loans, if applicable, in its
assessment area(s);
(B) A very small percentage of its loans are made in its assessment
area(s);
(C) A very poor geographic distribution of loans, particularly to
low- or moderate-income geographies, in its assessment area(s);
(D) A very poor distribution, particularly in its assessment
area(s), of loans among individuals of different income levels and
businesses (including farms) of different sizes, given the product
lines offered by the bank or savings association;
(E) A very poor record of serving the credit needs of highly
economically disadvantaged areas in its assessment area(s), low-income
individuals, or businesses (including farms) with gross annual revenues
of $1 million or less, consistent with safe and sound operations;
(F) No use of innovative or flexible lending practices in a safe
and sound manner to address the credit needs of low- or moderate-income
individuals or geographies; and
(G) It has made few, if any, community development loans.
(2) Investment performance rating. The appropriate Federal banking
agency assigns each bank's or savings association's investment
performance one of the five following ratings.
(i) Outstanding. The appropriate Federal banking agency rates a
bank's or savings association's investment performance ``outstanding''
if, in general, it demonstrates:
(A) An excellent level of qualified investments, particularly those
that are not routinely provided by private investors, often in a
leadership position;
(B) Extensive use of innovative or complex qualified investments;
and
(C) Excellent responsiveness to credit and community development
needs.
(ii) High satisfactory. The appropriate Federal banking agency
rates a bank's or savings association's investment performance ``high
satisfactory'' if, in general, it demonstrates:
(A) A significant level of qualified investments, particularly
those that are
[[Page 7185]]
not routinely provided by private investors, occasionally in a
leadership position;
(B) Significant use of innovative or complex qualified investments;
and
(C) Good responsiveness to credit and community development needs.
(iii) Low satisfactory. The appropriate Federal banking agency
rates a bank's or savings association's investment performance ``low
satisfactory'' if, in general, it demonstrates:
(A) An adequate level of qualified investments, particularly those
that are not routinely provided by private investors, although rarely
in a leadership position;
(B) Occasional use of innovative or complex qualified investments;
and
(C) Adequate responsiveness to credit and community development
needs.
(iv) Needs to improve. The appropriate Federal banking agency rates
a bank's or savings association's investment performance ``needs to
improve'' if, in general, it demonstrates:
(A) A poor level of qualified investments, particularly those that
are not routinely provided by private investors;
(B) Rare use of innovative or complex qualified investments; and
(C) Poor responsiveness to credit and community development needs.
(v) Substantial noncompliance. The appropriate Federal banking
agency rates a bank's or savings association's investment performance
as being in ``substantial noncompliance'' if, in general, it
demonstrates:
(A) Few, if any, qualified investments, particularly those that are
not routinely provided by private investors;
(B) No use of innovative or complex qualified investments; and
(C) Very poor responsiveness to credit and community development
needs.
(3) Service performance rating. The appropriate Federal banking
agency assigns each bank's or savings association's service performance
one of the five following ratings.
(i) Outstanding. The appropriate Federal banking agency rates a
bank's or savings association's service performance ``outstanding'' if,
in general, the bank or savings association demonstrates:
(A) Its service delivery systems are readily accessible to
geographies and individuals of different income levels in its
assessment area(s);
(B) To the extent changes have been made, its record of opening and
closing branches has improved the accessibility of its delivery
systems, particularly in low- or moderate-income geographies or to low-
or moderate-income individuals;
(C) Its services (including, where appropriate, business hours) are
tailored to the convenience and needs of its assessment area(s),
particularly low- or moderate-income geographies or low- or moderate-
income individuals; and
(D) It is a leader in providing community development services.
(ii) High satisfactory. The appropriate Federal banking agency
rates a bank's or savings association's service performance ``high
satisfactory'' if, in general, the bank or savings association
demonstrates:
(A) Its service delivery systems are accessible to geographies and
individuals of different income levels in its assessment area(s);
(B) To the extent changes have been made, its record of opening and
closing branches has not adversely affected the accessibility of its
delivery systems, particularly in low- and moderate-income geographies
and to low- and moderate-income individuals;
(C) Its services (including, where appropriate, business hours) do
not vary in a way that inconveniences its assessment area(s),
particularly low- and moderate-income geographies and low- and
moderate-income individuals; and
(D) It provides a relatively high level of community development
services.
(iii) Low satisfactory. The appropriate Federal banking agency
rates a bank's or savings association's service performance ``low
satisfactory'' if, in general, the bank or savings association
demonstrates:
(A) Its service delivery systems are reasonably accessible to
geographies and individuals of different income levels in its
assessment area(s);
(B) To the extent changes have been made, its record of opening and
closing branches has generally not adversely affected the accessibility
of its delivery systems, particularly in low- and moderate-income
geographies and to low- and moderate-income individuals;
(C) Its services (including, where appropriate, business hours) do
not vary in a way that inconveniences its assessment area(s),
particularly low- and moderate-income geographies and low- and
moderate-income individuals; and
(D) It provides an adequate level of community development
services.
(iv) Needs to improve. The appropriate Federal banking agency rates
a bank's or savings association's service performance ``needs to
improve'' if, in general, the bank or savings association demonstrates:
(A) Its service delivery systems are unreasonably inaccessible to
portions of its assessment area(s), particularly to low- or moderate-
income geographies or to low- or moderate-income individuals;
(B) To the extent changes have been made, its record of opening and
closing branches has adversely affected the accessibility its delivery
systems, particularly in low- or moderate-income geographies or to low-
or moderate-income individuals;
(C) Its services (including, where appropriate, business hours)
vary in a way that inconveniences its assessment area(s), particularly
low- or moderate-income geographies or low- or moderate-income
individuals; and
(D) It provides a limited level of community development services.
(v) Substantial noncompliance. The appropriate Federal banking
agency rates a bank's or savings association's service performance as
being in ``substantial noncompliance'' if, in general, the bank or
savings association demonstrates:
(A) Its service delivery systems are unreasonably inaccessible to
significant portions of its assessment area(s), particularly to low- or
moderate-income geographies or to low- or moderate-income individuals;
(B) To the extent changes have been made, its record of opening and
closing branches has significantly adversely affected the accessibility
of its delivery systems, particularly in low- or moderate-income
geographies or to low- or moderate-income individuals;
(C) Its services (including, where appropriate, business hours)
vary in a way that significantly inconveniences its assessment area(s),
particularly low- or moderate-income geographies or low- or moderate-
income individuals; and
(D) It provides few, if any, community development services.
(c) Wholesale or limited purpose banks. The appropriate Federal
banking agency assigns each wholesale or limited purpose bank's or
savings association's community development performance one of the four
following ratings.
(1) Outstanding. The appropriate Federal banking agency rates a
wholesale or limited purpose bank's or savings association's community
development performance ``outstanding'' if, in general, it
demonstrates:
(i) A high level of community development loans, community
development services, or qualified investments, particularly
investments that are not routinely provided by private investors;
(ii) Extensive use of innovative or complex qualified investments,
community development loans, or community development services; and
(iii) Excellent responsiveness to credit and community development
needs in its assessment area(s).
[[Page 7186]]
(2) Satisfactory. The appropriate Federal banking agency rates a
wholesale or limited purpose bank's or savings association's community
development performance ``satisfactory'' if, in general, it
demonstrates:
(i) An adequate level of community development loans, community
development services, or qualified investments, particularly
investments that are not routinely provided by private investors;
(ii) Occasional use of innovative or complex qualified investments,
community development loans, or community development services; and
(iii) Adequate responsiveness to credit and community development
needs in its assessment area(s).
(3) Needs to improve. The appropriate Federal banking agency rates
a wholesale or limited purpose bank's or savings association's
community development performance as ``needs to improve'' if, in
general, it demonstrates:
(i) A poor level of community development loans, community
development services, or qualified investments, particularly
investments that are not routinely provided by private investors;
(ii) Rare use of innovative or complex qualified investments,
community development loans, or community development services; and
(iii) Poor responsiveness to credit and community development needs
in its assessment area(s).
(4) Substantial noncompliance. The appropriate Federal banking
agency rates a wholesale or limited purpose bank's or savings
association's community development performance in ``substantial
noncompliance'' if, in general, it demonstrates:
(i) Few, if any, community development loans, community development
services, or qualified investments, particularly investments that are
not routinely provided by private investors;
(ii) No use of innovative or complex qualified investments,
community development loans, or community development services; and
(iii) Very poor responsiveness to credit and community development
needs in its assessment area(s).
(d) Banks and savings associations evaluated under the small bank
and savings association performance standards--(1) Lending test
ratings. (i) Eligibility for a satisfactory lending test rating. The
appropriate Federal banking agency rates a small bank's or savings
association's lending performance ``satisfactory'' if, in general, the
bank or savings association demonstrates:
(A) A reasonable loan-to-deposit ratio (considering seasonal
variations) given the bank's or savings association's size, financial
condition, the credit needs of its assessment area(s), and taking into
account, as appropriate, other lending-related activities such as loan
originations for sale to the secondary markets and community
development loans and qualified investments;
(B) A majority of its loans and, as appropriate, other lending-
related activities, are in its assessment area;
(C) A distribution of loans to and, as appropriate, other lending-
related activities for individuals of different income levels
(including low- and moderate-income individuals) and businesses and
farms of different sizes that is reasonable given the demographics of
the bank's or savings association's assessment area(s);
(D) A record of taking appropriate action, when warranted, in
response to written complaints, if any, about the bank's or savings
association's performance in helping to meet the credit needs of its
assessment area(s); and
(E) A reasonable geographic distribution of loans given the bank's
or savings association's assessment area(s).
(ii) Eligibility for an ``outstanding'' lending test rating. A
small bank or savings association that meets each of the standards for
a ``satisfactory'' rating under this paragraph and exceeds some or all
of those standards may warrant consideration for a lending test rating
of ``outstanding.''
(iii) Needs to improve or substantial noncompliance ratings. A
small bank or savings association may also receive a lending test
rating of ``needs to improve'' or ``substantial noncompliance''
depending on the degree to which its performance has failed to meet the
standard for a ``satisfactory'' rating.
(2) Community development test ratings for intermediate small banks
and savings associations--(i) Eligibility for a satisfactory community
development test rating. The appropriate Federal banking agency rates
an intermediate small bank's or savings association's community
development performance ``satisfactory'' if the bank or savings
association demonstrates adequate responsiveness to the community
development needs of its assessment area(s) through community
development loans, qualified investments, and community development
services. The adequacy of the bank's or savings association's response
will depend on its capacity for such community development activities,
its assessment area's need for such community development activities,
and the availability of such opportunities for community development in
the bank's or savings association's assessment area(s).
(ii) Eligibility for an outstanding community development test
rating. The appropriate Federal banking agency rates an intermediate
small bank's or savings association's community development performance
``outstanding'' if the bank or savings association demonstrates
excellent responsiveness to community development needs in its
assessment area(s) through community development loans, qualified
investments, and community development services, as appropriate,
considering the bank's or savings association's capacity and the need
and availability of such opportunities for community development in the
bank's or savings association's assessment area(s).
(iii) Needs to improve or substantial noncompliance ratings. An
intermediate small bank or savings association may also receive a
community development test rating of ``needs to improve'' or
``substantial noncompliance'' depending on the degree to which its
performance has failed to meet the standards for a ``satisfactory''
rating.
(3) Overall rating--(i) Eligibility for a satisfactory overall
rating. No intermediate small bank or savings association may receive
an assigned overall rating of ``satisfactory'' unless it receives a
rating of at least ``satisfactory'' on both the lending test and the
community development test.
(ii) Eligibility for an outstanding overall rating. (A) An
intermediate small bank or savings association that receives an
``outstanding'' rating on one test and at least ``satisfactory'' on the
other test may receive an assigned overall rating of ``outstanding.''
(B) A small bank or savings association that is not an intermediate
small bank or savings association that meets each of the standards for
a ``satisfactory'' rating under the lending test and exceeds some or
all of those standards may warrant consideration for an overall rating
of ``outstanding.'' In assessing whether a bank's or savings
association's performance is ``outstanding,'' the appropriate Federal
banking agency considers the extent to which the bank or savings
association exceeds each of the performance standards for a
``satisfactory'' rating and its performance in making qualified
investments and its performance in providing branches and other
services and delivery systems that enhance
[[Page 7187]]
credit availability in its assessment area(s).
(iii) Needs to improve or substantial noncompliance overall
ratings. A small bank or savings association may also receive a rating
of ``needs to improve'' or ``substantial noncompliance'' depending on
the degree to which its performance has failed to meet the standards
for a ``satisfactory'' rating.
(e) Strategic plan assessment and rating--(1) Satisfactory goals.
The appropriate Federal banking agency approves as ``satisfactory''
measurable goals that adequately help to meet the credit needs of the
bank's or savings association's assessment area(s).
(2) Outstanding goals. If the plan identifies a separate group of
measurable goals that substantially exceed the levels approved as
``satisfactory,'' the appropriate Federal banking agency will approve
those goals as ``outstanding.''
(3) Rating. The appropriate Federal banking agency assesses the
performance of a bank or savings association operating under an
approved plan to determine if the bank or savings association has met
its plan goals:
(i) If the bank or savings association substantially achieves its
plan goals for a satisfactory rating, the appropriate Federal banking
agency will rate the bank's or savings association's performance under
the plan as ``satisfactory.''
(ii) If the bank or savings association exceeds its plan goals for
a satisfactory rating and substantially achieves its plan goals for an
outstanding rating, the appropriate Federal banking agency will rate
the bank's or savings association's performance under the plan as
``outstanding.''
(iii) If the bank or savings association fails to meet
substantially its plan goals for a satisfactory rating, the appropriate
Federal banking agency will rate the bank or savings association as
either ``needs to improve'' or ``substantial noncompliance,'' depending
on the extent to which it falls short of its plan goals, unless the
bank or savings association elected in its plan to be rated otherwise,
as provided in Sec. 25.27(f)(4).
Appendix B to Part 25--CRA Notice
(a) Notice for main offices and, if an interstate bank and savings
association, one branch office in each state.
Community Reinvestment Act Notice
Under the Federal Community Reinvestment Act (CRA), the [Office of
the Comptroller of the Currency (OCC) or Federal Deposit Insurance
Corporation (FDIC), as appropriate] evaluates our record of helping to
meet the credit needs of this community consistent with safe and sound
operations. The [OCC or FDIC, as appropriate] also takes this record
into account when deciding on certain applications submitted by us.
Your Involvement is Encouraged
You are entitled to certain information about our operations and
our performance under the CRA, including, for example, information
about our branches, such as their location and services provided at
them; the public section of our most recent CRA Performance Evaluation,
prepared by the [OCC or FDIC, as appropriate]; and comments received
from the public relating to our performance in helping to meet
community credit needs, as well as our responses to those comments. You
may review this information today.
At least 30 days before the beginning of each quarter, the [OCC or
FDIC, as appropriate] publishes a nationwide list of the banks and
savings associations that are scheduled for CRA examination in that
quarter. This list is available from the [OCC or FDIC, as appropriate],
at [address]. You may send written comments about our performance in
helping to meet community credit needs to [name and address of official
at bank or savings association] and to the [OCC or FDIC, as
appropriate], at [address]. Your letter, together with any response by
us, will be considered by the [OCC or FDIC, as appropriate] in
evaluating our CRA performance and may be made public.
You may ask to look at any comments received by the [OCC or FDIC,
as appropriate]. You may also request from the [OCC or FDIC, as
appropriate] an announcement of our applications covered by the CRA
filed with the [OCC or FDIC, as appropriate]. We are an affiliate of
[name of holding company], a [bank holding company or savings and loan
holding company, as appropriate]. You may request from the [title of
responsible official], Federal Reserve Bank of [__] [address] an
announcement of applications covered by the CRA filed by [bank holding
companies or savings and loan holding companies, as appropriate].
(b) Notice for branch offices.
Community Reinvestment Act Notice
Under the Federal Community Reinvestment Act (CRA), the
[Comptroller of the Currency (OCC) and Federal Deposit Insurance
Corporation (FDIC), as appropriate] evaluates our record of helping to
meet the credit needs of this community consistent with safe and sound
operations. The [OCC or FDIC, as appropriate] also takes this record
into account when deciding on certain applications submitted by us.
Your Involvement is Encouraged
You are entitled to certain information about our operations and
our performance under the CRA. You may review today the public section
of our most recent CRA evaluation, prepared by the [OCC or FDIC, as
appropriate], and a list of services provided at this branch. You may
also have access to the following additional information, which we will
make available to you at this branch within five calendar days after
you make a request to us: (1) A map showing the assessment area
containing this branch, which is the area in which the [OCC or FDIC, as
appropriate] evaluates our CRA performance in this community; (2)
information about our branches in this assessment area; (3) a list of
services we provide at those locations; (4) data on our lending
performance in this assessment area; and (5) copies of all written
comments received by us that specifically relate to our CRA performance
in this assessment area, and any responses we have made to those
comments. If we are operating under an approved strategic plan, you may
also have access to a copy of the plan.
[If you would like to review information about our CRA performance
in other communities served by us, the public file for our entire [bank
or savings association, as appropriate] is available at [name of office
located in state], located at [address].]
At least 30 days before the beginning of each quarter, the [OCC or
FDIC, as appropriate] publishes a nationwide list of the banks and
savings associations that are scheduled for CRA examination in that
quarter. This list is available from the [OCC or FDIC, as appropriate]
at [address]. You may send written comments about our performance in
helping to meet community credit needs to [name and address of official
at bank or savings association, as appropriate] and to the [OCC or
FDIC, as appropriate] at [address]. Your letter, together with any
response by us, will be considered by the [OCC or FDIC, as appropriate]
in evaluating our CRA performance and may be made public.
You may ask to look at any comments received by the [OCC or FDIC,
as appropriate]. You may also request from the [OCC or FDIC, as
appropriate] an announcement of our applications covered by the CRA
filed with the [OCC or FDIC, as appropriate]. We are an affiliate of
[name of holding company],
[[Page 7188]]
a [bank holding company or savings and loan holding company, as
appropriate]. You may request from the [title of responsible official],
Federal Reserve Bank of [__], [address], an announcement of
applications covered by the CRA filed by [bank holding companies or
savings and loan holding companies, as appropriate].
FEDERAL RESERVE SYSTEM
12 CFR Chapter II
Authority and Issuance
For the reasons discussed in the common preamble, the Board of
Governors of the Federal Reserve System amends part 228 of chapter II
of title 12 of the Code of Federal Regulations as follows:
PART 228--COMMUNITY REINVESTMENT (REGULATION BB)
0
30. The authority citation for part 228 continues to read as follows:
Authority: 12 U.S.C. 321, 325, 1828(c), 1842, 1843, 1844, and
2901 et seq.
0
31. Revise part 228 as set forth at the end of the common preamble.
0
32. Amend part 228 by:
0
a. Removing ``[Agency]'' wherever it appears and adding in its place
``Board'';
0
b. Removing ``[Agency]'s'' wherever it appears and adding in its place
``Board's'';
0
c. Removing ``[operations subsidiary or operating subsidiary]''
wherever it appears and adding in its place ``operations subsidiary'';
0
d. Removing ``[operations subsidiaries or operating subsidiaries]''
wherever it appears and adding in its place ``operations
subsidiaries''; and
0
e. Removing ``[operations subsidiaries or operating subsidiaries]''
wherever it appears and adding in its place ``operations
subsidiaries''.
0
33. Amend Sec. 228.11 by:
0
a. Adding paragraph (a);
0
b. In paragraph (b), removing ``Community Reinvestment Act (12 U.S.C.
2901 et seq.) (CRA)'' and adding in its place ``CRA''; and
0
c. Adding paragraph (c).
The additions read as follows:
Sec. 228.11 Authority, purposes, and scope.
(a) Authority. The Board of Governors of the Federal Reserve System
(the Board) issues this part to implement the Community Reinvestment
Act (12 U.S.C. 2901 et seq.) (CRA). The regulations comprising this
part are issued under the authority of the CRA and under the provisions
of the United States Code authorizing the Federal Reserve:
(1) To conduct examinations of State-chartered banks that are
members of the Federal Reserve System (12 U.S.C. 325);
(2) To conduct examinations of bank holding companies and their
subsidiaries (12 U.S.C. 1844) and savings and loan holding companies
and their subsidiaries (12 U.S.C. 1467a); and
(3) To consider applications for:
(i) Domestic branches by State member banks (12 U.S.C. 321);
(ii) Mergers in which the resulting bank would be a State member
bank (12 U.S.C. 1828(c));
(iii) Formations of, acquisitions of banks by, and mergers of, bank
holding companies (12 U.S.C. 1842);
(iv) The acquisition of savings associations by bank holding
companies (12 U.S.C. 1843); and
(v) Formations of, acquisitions of savings associations by,
conversions of, and mergers of, savings and loan holding companies (12
U.S.C. 1467a).
* * * * *
(c) Scope--(1) General. This part applies to all banks except as
provided in paragraph (c)(3) of this section.
(2) Foreign bank acquisitions. This part also applies to an
uninsured State branch (other than a limited branch) of a foreign bank
that results from an acquisition described in section 5(a)(8) of the
International Banking Act of 1978 (12 U.S.C. 3103(a)(8)). The terms
``State branch'' and ``foreign bank'' have the same meanings as given
to those terms in section 1(b) of the International Banking Act of 1978
(12 U.S.C. 3101 et seq.); the term ``uninsured State branch'' means a
State branch the deposits of which are not insured by the Federal
Deposit Insurance Corporation; the term ``limited branch'' means a
State branch that accepts only deposits that are permissible for a
corporation organized under section 25A of the Federal Reserve Act (12
U.S.C. 611 et seq.).
(3) Certain exempt banks. This part does not apply to banks that do
not perform commercial or retail banking services by granting credit to
the public in the ordinary course of business, other than as incident
to their specialized operations and done on an accommodation basis.
These banks include bankers' banks, as defined in 12 U.S.C. 24
(Seventh), and banks that engage only in one or more of the following
activities: providing cash management controlled disbursement services
or serving as correspondent banks, trust companies, or clearing agents.
0
34. Amend Sec. 228.12 by:
0
a. Revising the definition of ``Affiliate''.
0
b. Adding the definition of ``Bank'' in alphabetical order.
0
c. In the definition of ``Depository institution'', removing ``12 CFR
25.11, 228.11, and 345.11'' and adding ``Sec. 228.11 and 12 CFR 25.11
and 345.11'' in its place.
0
d. In the definition of ``Distressed or underserved nonmetropolitan
middle-income census tract'', removing ``Board of Governors of the
Federal Reserve System (Board)'' and adding ``Board'' in its place;
0
e. In the definition of ``Large depository institution'', removing ``12
CFR 228.26(a) or 345.26(a)'' and adding ``Sec. 228.26(a) or 12 CFR
345.26(a)'' in its place.
0
f. Adding the definition of ``Operations subsidiary'' in alphabetical
order.
The revision and additions read as follows:
Sec. 228.12 Definitions.
* * * * *
Affiliate means any company that controls, is controlled by, or is
under common control with another company. The term ``control'' has the
meaning given to that term in 12 U.S.C. 1841(a)(2), as implemented by
the Board in 12 CFR part 225, and a company is under common control
with another company if both companies are directly or indirectly
controlled by the same company.
* * * * *
Bank means a State member bank as that term is defined in section
3(d)(2) of the Federal Deposit Insurance Act (12 U.S.C. 1813(d)(2)),
except as provided in Sec. 228.11(c)(3), and includes an uninsured
State branch (other than a limited branch) of a foreign bank described
in Sec. 228.11(c)(2).
* * * * *
Operations subsidiary means an organization designed to serve, in
effect, as a separately incorporated department of the bank,
performing, at locations at which the bank is authorized to engage in
business, functions that the bank is empowered to perform directly.
* * * * *
0
35. Delayed indefinitely, further amend Sec. 228.12 by:
0
a. Revising paragraph (3) in the definition of ``Loan location'';
0
b. Revising paragraph (2) in the definition of ``Reported loan''; and
0
c. Revising the definitions of ``Small business'', ``Small business
loan'', ``Small farm'', and ``Small farm loan''.
The revisions read as follows:
Sec. 228.12 Definitions.
* * * * *
[[Page 7189]]
Loan location * * *
(3) A small business loan or small farm loan is located in the
census tract reported pursuant to subpart B of 12 CFR part 1002.
* * * * *
Reported loan means * * *
(2) A small business loan or small farm loan reported by a bank
pursuant to subpart B of 12 CFR part 1002.
* * * * *
Small business means a small business, other than a small farm, as
defined in section 704B of the Equal Credit Opportunity Act (15 U.S.C.
1691c-2) and implemented by 12 CFR 1002.106.
Small business loan means a loan to a small business as defined in
this section.
Small farm means a small business, as defined in section 704B of
the Equal Credit Opportunity Act (15 U.S.C. 1691c-2) and implemented by
12 CFR 1002.106, and that is identified with one of the 3-digit North
American Industry Classification System (NAICS) codes 111-115.
Small farm loan means a loan to a small farm as defined in this
section.
* * * * *
Sec. 228.13 [Amended]
0
36. Amend Sec. 228.13 in paragraph (k) by removing ``part 25, 228, or
345 of this title'' and adding ``this part or 12 CFR part 25 or 345''
in its place.
Sec. 228.14 [Amended]
0
37. Amend Sec. 228.14 in paragraphs (b)(2)(ii) and (b)(3) by removing
``[other Agencies]'' and adding in its place ``OCC and FDIC''.
Sec. 228.21 [Amended]
0
38. Amend Sec. 228.21 in paragraph (b)(1) by removing ``12 CFR part
25, 228, or 345'' and adding ``this part or 12 CFR part 25 or 345'' in
its place.
Sec. 228.22 [Amended]
0
39. Delayed indefinitely, amend Sec. 228.22 by:
0
a. In paragraphs (e)(2)(ii)(C) and (D), removing ``Businesses'' and
adding in its place ``Small businesses''.
0
b. In paragraphs (e)(2)(ii)(E) and (F), removing ``Farms'' and adding
in its place ``Small farms''.
Sec. 228.26 [Amended]
0
40. Amend Sec. 228.26 by:
0
a. In paragraph (f)(2)(ii)(A), removing ``12 CFR 228.26(a) or
345.26(a)'' and ``12 CFR 25.42(b), 228.42(b), or 345.42(b)'' and adding
``paragraph (a) of this section or 12 CFR 345.26(a)'' and ``Sec.
228.42(b) or 12 CFR 25.42(b) or 345.42(b)'' in their places,
respectively; and
0
b. In paragraph (f)(2)(ii)(B), removing ``12 CFR 25.42(b), 228.42(b),
or 345.42(b)'' and adding ``Sec. 228.42(b) or 12 CFR 25.42(b) or
345.42(b)'' in its place.
0
41. Add Sec. 228.31 to read as follows:
Sec. 228.31 Effect of CRA performance on applications.
(a) CRA performance. Among other factors, the Board takes into
account the record of performance under the CRA of:
(1) Each applicant bank for the:
(i) Establishment of a domestic branch by a State member bank; and
(ii) Merger, consolidation, acquisition of assets, or assumption of
liabilities requiring approval under the Bank Merger Act (12 U.S.C.
1828(c)) if the acquiring, assuming, or resulting bank is to be a State
member bank; and
(2) Each insured depository institution (as defined in 12 U.S.C.
1813) controlled by an applicant and subsidiary bank or savings
association proposed to be controlled by an applicant:
(i) To become a bank holding company in a transaction that requires
approval under section 3 of the Bank Holding Company Act (12 U.S.C.
1842);
(ii) To acquire ownership or control of shares or all or
substantially all of the assets of a bank, to cause a bank to become a
subsidiary of a bank holding company, or to merge or consolidate a bank
holding company with any other bank holding company in a transaction
that requires approval under section 3 of the Bank Holding Company Act
(12 U.S.C. 1842);
(iii) To own, control, or operate a savings association in a
transaction that requires approval under section 4 of the Bank Holding
Company Act (12 U.S.C. 1843);
(iv) To become a savings and loan holding company in a transaction
that requires approval under section 10 of the Home Owners' Loan Act
(12 U.S.C. 1467a); and
(v) To acquire ownership or control of shares or all or
substantially all of the assets of a savings association, to cause a
savings association to become a subsidiary of a savings and loan
holding company, or to merge or consolidate a savings and loan holding
company with any other savings and loan holding company in a
transaction that requires approval under section 10 of the Home Owners'
Loan Act (12 U.S.C. 1467a).
(b) Interested parties. In considering CRA performance in an
application described in paragraph (a) of this section, the Board takes
into account any views expressed by interested parties that are
submitted in accordance with the Board's Rules of Procedure set forth
in 12 CFR part 262.
(c) Denial or conditional approval of application. A bank or
savings association's record of performance may be the basis for
denying or conditioning approval of an application listed in paragraph
(a) of this section.
(d) Definitions. For purposes of paragraphs (a)(2)(i) through (iii)
of this section, ``bank,'' ``bank holding company,'' ``subsidiary,''
and ``savings association'' have the same meanings given to those terms
in section 2 of the Bank Holding Company Act (12 U.S.C. 1841). For
purposes of paragraphs (a)(2)(iv) and (v) of this section, ``savings
and loan holding company'' and ``subsidiary'' have the same meaning
given to those terms in section 10 of the Home Owners' Loan Act (12
U.S.C. 1467a).
Sec. 228.42 [Amended]
0
42. Amend Sec. 228.42 by:
0
a. In paragraph (h), removing ``12 CFR part 25, 228, or 345'' and
adding ``this part or 12 CFR part 25 or 345'' in its place; and
0
b. In paragraph (j)(2), removing ``[Agency]'s'' and adding ``Board's''
in its place.
0
43. Delayed indefinitely, further amend Sec. 228.42 by:
0
a. Revising paragraph (a)(1);
0
b. Removing and reserving paragraph (b)(1); and
0
c. In paragraphs (g)(1)(i) and (g)(2)(i), removing ``small business
loans and small farm loans reported as originated or purchased'' and
adding in their place ``small business loans and small farm loans
reported as originated''.
The revision reads as follows:
Sec. 228.42 Data collection, reporting, and disclosure.
(a) * * *
(1) Purchases of small business loans and small farm loans data. A
bank that opts to have the Board consider its purchases of small
business loans and small farm loans must collect and maintain in
electronic form, as prescribed by the Board, until the completion of
the bank's next CRA examination in which the data are evaluated, the
following data for each small business loan or small farm loan
purchased by the bank during the evaluation period:
(i) A unique number or alpha-numeric symbol that can be used to
identify the relevant loan file;
(ii) An indicator for the loan type as reported on the bank's Call
Report or on the bank's Report of Assets and
[[Page 7190]]
Liabilities of U.S. Branches and Agencies of Foreign Banks, as
applicable;
(iii) The date of the loan purchase;
(iv) The loan amount at purchase;
(v) The loan location, including State, county, and census tract;
(vi) An indicator for whether the purchased loan was to a business
or farm with gross annual revenues of $250,000 or less;
(vii) An indicator for whether the purchased loan was to a business
or farm with gross annual revenues greater than $250,000 but less than
or equal to $1 million;
(viii) An indicator for whether the purchased loan was to a
business or farm with gross annual revenues greater than $1 million;
and
(ix) An indicator for whether the purchased loan was to a business
or farm for which gross annual revenues are not known by the bank.
* * * * *
Sec. 228.43 [Amended]
0
44. Amend Sec. 228.43 in paragraph (b)(2)(i) by removing ``[operations
subsidiaries' or operating subsidiaries']'' and adding in its place
``operations subsidiaries'''.
0
45. Delayed indefinitely, further amend Sec. 228.43 by:
0
a. Revising the heading of paragraph (b)(2); and
0
b. Adding paragraph (b)(2)(iii).
The revision and addition read as follows:
Sec. 228.43 Content and availability of public file.
* * * * *
(b) * * *
(2) Banks required to report HMDA data and small business lending
data. * * *
(iii) Small business lending data notice. A bank required to report
small business loan or small farm loan data pursuant to 12 CFR part
1002 must include in its public file a written notice that the bank's
small business loan and small farm loan data may be obtained on the
CFPB's website at: https://www.consumerfinance.gov/data-research/small-business-lending/.
* * * * *
Sec. 228.46 [Amended]
0
46. Amend Sec. 228.46 in paragraph (b) by removing ``[Agency contact
information]'' and adding in its place ``Staff Group: Community
Reinvestment Act at https://www.federalreserve.gov/apps/ContactUs/feedback.aspx, by mail to Secretary of the Board, Board of Governors of
the Federal Reserve System, 20th Street and Constitution Avenue NW,
Washington, DC 20551, or by facsimile at (202) 452-3819''.
Sec. 228.51 [Amended]
0
47. Amend Sec. 228.51 in paragraph (e) by removing ``[other Agencies'
regulations]'' and adding in its place ``12 CFR part 25 or 345''.
Appendix A to Part 228 [Amended]
0
48. Amend appendix A by:
0
a. In paragraph I.b introductory text, removing ``12 CFR 25.42(b)(1),
228.42(b)(1), or 345.42(b)(1) or 12 CFR part 1003'' and adding ``Sec.
228.42(b)(1), 12 CFR 25.42(b)(1) or 345.42(b)(1), or 12 CFR part 1003''
in its place; and
0
b. In paragraph I.b.2, removing ``12 CFR 25.42(b)(3), 228.42(b)(3), or
345.42(b)(3)'' and adding ``Sec. 228.42(b)(3) or 12 CFR 25.42(b)(3) or
345.42(b)(3)'' in its place.
0
49. Delayed indefinitely, further amend appendix A by:
0
a. Adding a sentence at the end of paragraph I.a.1;
0
b. Removing ``subject to reporting pursuant to Sec. 228.42(b)(1), 12
CFR 25.42(b)(1) or 345.42(b)(1),'' in paragraph I.b introductory text
and adding in its place ``subject to reporting pursuant to subpart B of
12 CFR part 1002'';
0
c. Adding a sentence at the end of paragraph III.a.1;
0
d. Revising paragraphs III.c.3.i and ii, III.c.4.i and ii, III.c.5.i
and ii, and III.c.6.i and ii;
0
e. In paragraph III.c.8.iii, revising Example A-7;
0
f. Revising the third and fourth introductory paragraphs to section IV;
0
g. Adding a sentence at the end of paragraph IV.a.1;
0
h. Revising the introductory paragraph to IV.c.3 and paragraphs
IV.c.3.i and ii;
0
i. Revising the introductory paragraph to IV.c.4 and paragraphs
IV.c.4.i and ii;
0
j. Revising the introductory paragraph to IV.c.5 and paragraphs
IV.c.5.i and ii;
0
k. Revising the introductory paragraph to IV.c.6 and paragraphs
IV.c.6.i and ii;
0
l. In section V, in paragraph a, in table 1, revising the entries for
``Small Business Loans'' and ``Small Farm Loans''; and
0
m. In section VII:
0
i. In paragraph a.1.ii, in table 3, revising the entries for ``Small
Business Loans'' and ``Small Farm Loans''; and
0
ii. In paragraph a.1.iii, in table 4, revising the entries for ``Small
Business Loans'' and ``Small Farm Loans''.
The revisions and additions read as follows:
Appendix A to Part 228--Calculations for the Retail Lending Test
* * * * *
I. * * *
a. * * *
1. * * * A bank's loan purchases that otherwise meet the
definition of a covered credit transaction to a small business, as
those terms are defined in 12 CFR 1002.104 and 1002.106(b), may be
included in the numerator of the Bank Volume Metric at the bank's
option.
* * * * *
III. * * *
a. * * *
1. * * * A bank's loan purchases that otherwise meet the
definition of a covered credit transaction to a small business, as
provided in 12 CFR 1002.104 and 1002.106(b), may be included in the
numerator of the Geographic Bank Metric at the bank's option.
* * * * *
c. * * *
3. * * *
i. Summing, over the years in the evaluation period, the numbers
of small businesses in low-income census tracts in the facility-
based assessment area or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the
numbers of small businesses in the facility-based assessment area or
retail lending assessment area.
* * * * *
4. * * *
i. Summing, over the years in the evaluation period, the numbers
of small businesses in moderate-income census tracts in the
facility-based assessment area or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the
numbers of small businesses in the facility-based assessment area or
retail lending assessment area.
5. * * *
i. Summing, over the years in the evaluation period, the numbers
of small farms in low-income census tracts in the facility-based
assessment area or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the
numbers of small farms in the facility-based assessment area or
retail lending assessment area.
* * * * *
6. * * *
i. Summing, over the years in the evaluation period, the numbers
of small farms in moderate-income census tracts in the facility-
based assessment area or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the
numbers of small farms in the facility-based assessment area or
retail lending assessment area.
* * * * *
8. * * *
iii. * * *
Example A-7: The applicable benchmark uses a three-year
evaluation period. There were 4,000 small business establishments,
based upon the sum of the numbers of small business establishments
over the years in the
[[Page 7191]]
evaluation period (1,300 small business establishments in year 1,
1,300 small business establishments in year 2, and 1,400 small
business establishments in year 3), in a bank's facility-based
assessment area. Of these small business establishments, 500 small
business establishments were in low-income census tracts, based upon
the sum of the numbers of small business establishments in low-
income census tracts over the years in the evaluation period (200
small business establishments in year 1,150 small business in year
2, and 150 small business establishments in year 3). The Geographic
Community Benchmark for small business loans in low-income census
tracts would be 500 divided by 4,000, or 0.125 (equivalently, 12.5
percent). In addition, 1,000 small business establishments in that
facility-based assessment area were in moderate-income census
tracts, over the years in the evaluation period (400 small business
establishments in year 1,300 small business establishments in year
2, and 300 small business establishments in year 3). The Geographic
Community Benchmark for small business loans in moderate-income
census tracts would be 1,000 divided by 4,000, or 0.25
(equivalently, 25 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.101
* * * * *
IV. * * *
For small business loans, the Board calculates these metrics and
benchmarks for each of the following designated borrowers: (i) small
businesses with gross annual revenues of $250,000 or less; and (ii)
small businesses with gross annual revenues of more than $250,000
but less than or equal to $1 million.
For small farm loans, the Board calculates these metrics and
benchmarks for each of the following designated borrowers: (i) small
farms with gross annual revenues of $250,000 or less; and (ii) small
farms with gross annual revenues of more than $250,000 but less than
or equal to $1 million.
* * * * *
a. * * *
1. * * * A bank's loan purchases that otherwise meet the
definition of a covered credit transaction to a small business, as
provided in 12 CFR 1002.104 and 1002.106(b), may be included in the
numerator of the Borrower Bank Metric at the bank's option.
* * * * *
c. * * *
3. For small business loans, the Board calculates a Borrower
Community Benchmark for small businesses with gross annual revenues
of $250,000 or less by:
i. Summing, over the years in the evaluation period, the numbers
of small businesses with gross annual revenues of $250,000 or less
in the facility-based lending area or retail lending assessment
area.
ii. Summing, over the years in the evaluation period, the
numbers of small businesses in the facility-based lending area or
retail lending assessment area.
* * * * *
4. For small business loans, the Board calculates a Borrower
Community Benchmark for small businesses with gross annual revenues
of more than $250,000 but less than or equal to $1 million by:
i. Summing, over the years in the evaluation period, the numbers
of small businesses with gross annual revenues of more than $250,000
but less than or equal to $1 million in the facility-based lending
area or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the
numbers of small businesses in the facility-based lending area or
retail lending assessment area.
* * * * *
5. For small farm loans, the Board calculates a Borrower
Community Benchmark for small farms with gross annual revenues of
$250,000 or less by:
i. Summing, over the years in the evaluation period, the numbers
of small farms with gross annual revenues of $250,000 or less in the
facility-based lending area or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the
numbers of small farms in the facility-based lending area or retail
lending assessment area.
* * * * *
6. For small farm loans, the Board calculates a Borrower
Community Benchmark for small farms with gross annual revenues of
more than $250,000 but less than or equal to $1 million by:
i. Summing, over the years in the evaluation period, the numbers
of small farms with gross annual revenues of more than $250,000 but
less than or equal to $1 million in the facility-based lending area
or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the
numbers of small farms in the facility-based lending area or retail
lending assessment area.
* * * * *
V. * * *
a. * * *
Table 1 to Appendix A--Retail Lending Test Categories of Designated
Census Tracts and Designated Borrowers
------------------------------------------------------------------------
Designated census
Major product line tracts Designated
------------------------------------------------------------------------
* * * * * * *
Small Business Loans.......... Low-Income Census Small businesses with
Tracts. Gross Annual
Revenues of $250,000
or Less.
Moderate-Income Small businesses with
Census Tracts. Gross Annual
Revenues Greater
than $250,000 but
Less Than or Equal
to $1 million.
Small Farm Loans.............. Low-Income Census Small farms with
Tracts. Gross Annual
Revenues of $250,000
or Less.
Moderate-Income Small farms with
Census Tracts. Gross Annual
Revenues Greater
than $250,000 but
Less Than or Equal
to $1 million.
------------------------------------------------------------------------
[[Page 7192]]
* * * * *
VII. * * *
a. * * *
1. * * *
ii. * * *
Table 3 to Appendix A--Retail Lending Test, Geographic Distribution
Average--Weights
------------------------------------------------------------------------
Category of
Major product line designated census Weight
tracts
------------------------------------------------------------------------
* * * * * * *
Small Business Loans.......... Low-Income Census Percentage of total
Tracts. number of small
businesses in low-
and moderate-income
census tracts in the
applicable Retail
Lending Test Area
that are in low-
income census
tracts.
Moderate-Income Percentage of total
Census Tracts. number of small
businesses in low-
and moderate-income
census tracts in the
applicable Retail
Lending Test Area
that are in moderate-
income census
tracts.
Small Farm Loans.............. Low-Income Census Percentage of total
Tracts. number of small
farms in low- and
moderate-income
census tracts in the
applicable Retail
Lending Test Area
that are in low-
income census
tracts.
Moderate-Income Percentage of total
Census Tracts. number of small
farms in low- and
moderate-income
census tracts in the
applicable Retail
Lending Test Area
that are in moderate-
income census
tracts.
* * * * * * *
------------------------------------------------------------------------
* * * * *
iii. * * *
Table 4 to Appendix A--Retail Lending Test, Borrower Distribution
Average--Weights
------------------------------------------------------------------------
Categories of
Major product line designated Weight
borrowers
------------------------------------------------------------------------
* * * * * * *
Small Business Loans.......... Small businesses Percentage of total
with gross number of small
annual revenues businesses with
of $250,000 or gross annual
less. revenues of $250,000
or less and small
businesses with
gross annual
revenues greater
than $250,000 but
less than or equal
to $1 million in the
applicable Retail
Lending Test Area
that are small
businesses with
gross annual
revenues of $250,000
or less.
Small businesses Percentage of total
with gross number of small
annual revenues businesses with
greater than gross annual
$250,000 and revenues of $250,000
less than or or less and small
equal to $1 businesses with
million. gross annual
revenues greater
than $250,000 but
less than or equal
to $1 million in the
applicable Retail
Lending Test Area
that are small
businesses with
gross annual
revenues greater
than $250,00 but
less than or equal
to $1 million.
Small Farm Loans.............. Small farms with Percentage of total
gross annual number of small
revenues of farms with gross
$250,000 or less. annual revenues of
$250,000 or less and
small farms with
gross annual
revenues greater
than $250,000 but
less than or equal
to $1 million in the
applicable Retail
Lending Test Area
that are small farms
with gross annual
revenues of $250,000
or less.
Small farms with Percentage of total
gross annual number of small
revenues greater farms with gross
than $250,000 annual revenues of
and less than or $250,000 or less and
equal to $1 small farms with
million. gross annual
revenues greater
than $250,000 but
less than or equal
to $1 million in the
applicable Retail
Lending Test Area
that are small farms
with gross annual
revenues greater
than $250,000 but
less than or equal
to $1 million.
* * * * * * *
------------------------------------------------------------------------
* * * * *
Appendix B to Part 228 [Amended]
0
50. Amend appendix B by:
0
a. In paragraph I.a.2.i, removing ``12 CFR 25.42, 228.42, or 345.42''
and adding ``Sec. 228.42 or 12 CFR 25.42 or 345.42'' in its place;
0
b. In paragraphs III.b.1 and 2, removing ``12 CFR 228.26(a) or
345.26(a)'' and ``12 CFR 25.42(b), 228.42(b), or 345.42(b)'' and adding
``Sec. 228.26(a) or 12 CFR 345.26(a)'' and ``Sec. 228.42(b) or 12 CFR
25.42(b) or 345.42(b)'' in their places, respectively; and
0
c. In paragraphs c.1 and 2, removing ``12 CFR 25.42(b), 228.42(b), or
345.42(b)'' and adding ``Sec. 228.42(b) or 12 CFR 25.42(b) or
345.42(b)'' in its place.
0
51. Add appendix F to read as follows:
Appendix F to Part 228--CRA Notice
(a) Notice for main offices and, if an interstate bank, one
branch office in each State.
Community Reinvestment Act Notice
Under the Federal Community Reinvestment Act (CRA), the Federal
Reserve Board (Board) evaluates our record of helping to meet the
credit needs of this community consistent with safe and sound
operations. The Board also takes this record into account
[[Page 7193]]
when deciding on certain applications submitted by us.
Your involvement is encouraged.
You are entitled to certain information about our operations and
our performance under the CRA, including, for example, information
about our branches, such as their location and services provided at
them; the public section of our most recent CRA Performance
Evaluation, prepared by the Federal Reserve Bank of ____(Reserve
Bank); and comments received from the public relating to our
performance in helping to meet community credit needs, as well as
our responses to those comments. You may review this information
today.
At least 30 days before the beginning of each calendar quarter,
the Federal Reserve System publishes a list of the banks that are
scheduled for CRA examination by the Reserve Bank for the next two
quarters. This list is available from (title of responsible
official), Federal Reserve Bank of ____(address), or through the
Board's website at https://www.federalreserve.gov.
You may send written comments about our performance in helping
to meet community credit needs to (name and address of official at
bank) and (title of responsible official), Federal Reserve Bank of
____(address), or through the Board's website at https://www.federalreserve.gov. Your letter, together with any response by
us, will be considered by the Federal Reserve System in evaluating
our CRA performance and may be made public.
You may ask to look at any comments received by the Reserve
Bank. You may also request from the Reserve Bank an announcement of
our applications covered by the CRA filed with the Reserve Bank. [We
are an affiliate of (name of holding company), a bank holding
company. You may request from (title of responsible official),
Federal Reserve Bank of ____(address) an announcement of
applications covered by the CRA filed by bank holding companies.]
(b) Notice for branch offices.
Community Reinvestment Act Notice
Under the Federal Community Reinvestment Act (CRA), the Federal
Reserve Board (Board) evaluates our record of helping to meet the
credit needs of this community consistent with safe and sound
operations. The Board also takes this record into account when
deciding on certain applications submitted by us.
Your involvement is encouraged.
You are entitled to certain information about our operations and
our performance under the CRA. You may review today the public
section of our most recent CRA evaluation, prepared by the Federal
Reserve Bank of ____(address), and a list of services provided at
this branch. You may also have access to the following additional
information, which we will make available to you at this branch
within five calendar days after you make a request to us: (1) a map
showing the assessment area containing this branch, which is the
area in which the Board evaluates our CRA performance in this
community; (2) information about our branches in this assessment
area; (3) a list of services we provide at those locations; (4) data
on our lending performance in this assessment area; and (5) copies
of all written comments received by us that specifically relate to
our CRA performance in this assessment area, and any responses we
have made to those comments. If we are operating under an approved
strategic plan, you may also have access to a copy of the plan.
[If you would like to review information about our CRA
performance in other communities served by us, the public file for
our entire bank is available at (name of office located in state),
located at (address).]
At least 30 days before the beginning of each calendar quarter,
the Federal Reserve System publishes a list of the banks that are
scheduled for CRA examination by the Reserve Bank for the next two
quarters. This list is available from (title of responsible
official), Federal Reserve Bank of ____(address), or through the
Board's website at https://www.federalreserve.gov.
You may send written comments about our performance in helping
to meet community credit needs to (name and address of official at
bank) and (title of responsible official), Federal Reserve Bank of
____(address), or through the Board's website at https://www.federalreserve.gov. Your letter, together with any response by
us, will be considered by the Federal Reserve System in evaluating
our CRA performance and may be made public.
You may ask to look at any comments received by the Reserve
Bank. You may also request from the Reserve Bank an announcement of
our applications covered by the CRA filed with the Reserve Bank. [We
are an affiliate of (name of holding company), a bank holding
company. You may request from (title of responsible official),
Federal Reserve Bank of ____(address) an announcement of
applications covered by the CRA filed by bank holding companies.]
0
52. Effective April 1, 2024, through January 1, 2031, add appendix G to
part 228 to read as follows:
Appendix G to Part 228--Community Reinvestment Act (Regulation BB)
Note: The content of this appendix reproduces part 228
implementing the Community Reinvestment Act as of March 31, 2024.
Cross-references to CFR parts (as well as to included sections,
subparts, and appendices) in this appendix are to those provisions
as contained within this appendix and the CFR as of March 31, 2024.
Subpart A--General
Sec. 228.11 Authority, purposes, and scope.
(a) Authority. The Board of Governors of the Federal Reserve System
(the Board) issues this part to implement the Community Reinvestment
Act (12 U.S.C. 2901 et seq.) (CRA). The regulations comprising this
part are issued under the authority of the CRA and under the provisions
of the United States Code authorizing the Board:
(1) To conduct examinations of State-chartered banks that are
members of the Federal Reserve System (12 U.S.C. 325);
(2) To conduct examinations of bank holding companies and their
subsidiaries (12 U.S.C. 1844) and savings and loan holding companies
and their subsidiaries (12 U.S.C. 1467a); and(3) To consider
applications for:
(i) Domestic branches by State member banks (12 U.S.C. 321);
(ii) Mergers in which the resulting bank would be a State member
bank (12 U.S.C. 1828(c));
(iii) Formations of, acquisitions of banks by, and mergers of, bank
holding companies (12 U.S.C. 1842);
(iv) The acquisition of savings associations by bank holding
companies (12 U.S.C. 1843); and
(v) Formations of, acquisitions of savings associations by,
conversions of, and mergers of, savings and loan holding companies (12
U.S.C. 1467a).
(b) Purposes. In enacting the CRA, the Congress required each
appropriate Federal financial supervisory agency to assess an
institution's record of helping to meet the credit needs of the local
communities in which the institution is chartered, consistent with the
safe and sound operation of the institution, and to take this record
into account in the agency's evaluation of an application for a deposit
facility by the institution. This part is intended to carry out the
purposes of the CRA by:
(1) Establishing the framework and criteria by which the Board
assesses a bank's record of helping to meet the credit needs of its
entire community, including low- and moderate-income neighborhoods,
consistent with the safe and sound operation of the bank; and
(2) Providing that the Board takes that record into account in
considering certain applications.
(c) Scope--(1) General. This part applies to all banks except as
provided in paragraph (c)(3) of this section.
(2) Foreign bank acquisitions. This part also applies to an
uninsured State branch (other than a limited branch) of a foreign bank
that results from an acquisition described in section 5(a)(8) of the
International Banking Act of 1978 (12 U.S.C. 3103(a)(8)). The terms
``State branch'' and ``foreign bank'' have the same meanings as in
section 1(b) of the International Banking Act of 1978 (12 U.S.C. 3101
et seq.); the term ``uninsured State branch'' means a State branch the
deposits of which are not insured by the Federal Deposit Insurance
Corporation; the term ``limited branch'' means a State branch that
accepts only deposits that are permissible for a corporation organized
under section 25A of the Federal Reserve Act (12 U.S.C. 611 et seq.).
(3) Certain special purpose banks. This part does not apply to
special
[[Page 7194]]
purpose banks that do not perform commercial or retail banking services
by granting credit to the public in the ordinary course of business,
other than as incident to their specialized operations. These banks
include banker's banks, as defined in 12 U.S.C. 24(Seventh), and banks
that engage only in one or more of the following activities: providing
cash management controlled disbursement services or serving as
correspondent banks, trust companies, or clearing agents.
Sec. 228.12 Definitions.
For purposes of this part, the following definitions apply:
(a) Affiliate means any company that controls, is controlled by, or
is under common control with another company. The term ``control'' has
the meaning given to that term in 12 U.S.C. 1841(a)(2), and a company
is under common control with another company if both companies are
directly or indirectly controlled by the same company.
(b) Area median income means:
(1) The median family income for the MSA, if a person or geography
is located in an MSA, or for the metropolitan division, if a person or
geography is located in an MSA that has been subdivided into
metropolitan divisions; or
(2) The statewide nonmetropolitan median family income, if a person
or geography is located outside an MSA.
(c) Assessment area means a geographic area delineated in
accordance with Sec. [thinsp]228.41.
(d) Automated teller machine (ATM) means an automated, unstaffed
banking facility owned or operated by, or operated exclusively for, the
bank at which deposits are received, cash dispersed, or money lent.
(e) Bank means a State member bank as that term is defined in
section 3(d)(2) of the Federal Deposit Insurance Act (12 U.S.C.
1813(d)(2)), except as provided in Sec. [thinsp]228.11(c)(3), and
includes an uninsured State branch (other than a limited branch) of a
foreign bank described in Sec. [thinsp]228.11(c)(2).
(f) Branch means a staffed banking facility approved as a branch,
whether shared or unshared, including, for example, a mini-branch in a
grocery store or a branch operated in conjunction with any other local
business or nonprofit organization.
(g) Community development means:
(1) Affordable housing (including multifamily rental housing) for
low- or moderate-income individuals;
(2) Community services targeted to low- or moderate-income
individuals;
(3) Activities that promote economic development by financing
businesses or farms that meet the size eligibility standards of the
Small Business Administration's Development Company or Small Business
Investment Company programs (13 CFR 121.301) or have gross annual
revenues of $1 million or less; or
(4) Activities that revitalize or stabilize--
(i) Low-or moderate-income geographies;
(ii) Designated disaster areas; or
(iii) Distressed or underserved nonmetropolitan middle-income
geographies designated by the Board, Federal Deposit Insurance
Corporation, and Office of the Comptroller of the Currency, based on--
(A) Rates of poverty, unemployment, and population loss; or
(B) Population size, density, and dispersion. Activities revitalize
and stabilize geographies designated based on population size, density,
and dispersion if they help to meet essential community needs,
including needs of low- and moderate-income individuals.
(h) Community development loan means a loan that:
(1) Has as its primary purpose community development; and
(2) Except in the case of a wholesale or limited purpose bank:
(i) Has not been reported or collected by the bank or an affiliate
for consideration in the bank's assessment as a home mortgage, small
business, small farm, or consumer loan, unless the loan is for a
multifamily dwelling (as defined in Sec. [thinsp]1003.2(n) of this
title); and
(ii) Benefits the bank's assessment area(s) or a broader statewide
or regional area that includes the bank's assessment area(s).
(i) Community development service means a service that:
(1) Has as its primary purpose community development;
(2) Is related to the provision of financial services; and
(3) Has not been considered in the evaluation of the bank's retail
banking services under Sec. [thinsp]228.24(d).
(j) Consumer loan means a loan to one or more individuals for
household, family, or other personal expenditures. A consumer loan does
not include a home mortgage, small business, or small farm loan.
Consumer loans include the following categories of loans:
(1) Motor vehicle loan, which is a consumer loan extended for the
purchase of and secured by a motor vehicle;
(2) Credit card loan, which is a line of credit for household,
family, or other personal expenditures that is accessed by a borrower's
use of a ``credit card,'' as this term is defined in Sec.
[thinsp]1026.2 of this chapter;
(3) Other secured consumer loan, which is a secured consumer loan
that is not included in one of the other categories of consumer loans;
and
(4) Other unsecured consumer loan, which is an unsecured consumer
loan that is not included in one of the other categories of consumer
loans.
(k) Geography means a census tract delineated by the United States
Bureau of the Census in the most recent decennial census.
(l) Home mortgage loan means a closed-end mortgage loan or an open-
end line of credit as these terms are defined under Sec.
[thinsp]1003.2 of this title and that is not an excluded transaction
under Sec. [thinsp]1003.3(c)(1) through (10) and (13) of this title.
(m) Income level includes:
(1) Low-income, which means an individual income that is less than
50 percent of the area median income, or a median family income that is
less than 50 percent, in the case of a geography.
(2) Moderate-income, which means an individual income that is at
least 50 percent and less than 80 percent of the area median income, or
a median family income that is at least 50 and less than 80 percent, in
the case of a geography.
(3) Middle-income, which means an individual income that is at
least 80 percent and less than 120 percent of the area median income,
or a median family income that is at least 80 and less than 120
percent, in the case of a geography.
(4) Upper-income, which means an individual income that is 120
percent or more of the area median income, or a median family income
that is 120 percent or more, in the case of a geography.
(n) Limited purpose bank means a bank that offers only a narrow
product line (such as credit card or motor vehicle loans) to a regional
or broader market and for which a designation as a limited purpose bank
is in effect, in accordance with Sec. [thinsp]228.25(b).
(o) Loan location. A loan is located as follows:
(1) A consumer loan is located in the geography where the borrower
resides;
(2) A home mortgage loan is located in the geography where the
property to which the loan relates is located; and
(3) A small business or small farm loan is located in the geography
where the main business facility or farm is located or where the loan
proceeds otherwise will be applied, as indicated by the borrower.
(p) Loan production office means a staffed facility, other than a
branch, that is open to the public and that provides lending-related
services, such as loan information and applications.
[[Page 7195]]
(q) Metropolitan division means a metropolitan division as defined
by the Director of the Office of Management and Budget.
(r) MSA means a metropolitan statistical area as defined by the
Director of the Office of Management and Budget.
(s) Nonmetropolitan area means any area that is not located in an
MSA.
(t) Qualified investment means a lawful investment, deposit,
membership share, or grant that has as its primary purpose community
development.
(u) Small bank--(1) Definition. Small bank means a bank that, as of
December 31 of either of the prior two calendar years, had assets of
less than $1.384 billion. Intermediate small bank means a small bank
with assets of at least $346 million as of December 31 of both of the
prior two calendar years and less than $1.384 billion as of December 31
of either of the prior two calendar years.
(2) Adjustment. The dollar figures in paragraph (u)(1) of this
section shall be adjusted annually and published by the Board, based on
the year-to-year change in the average of the Consumer Price Index for
Urban Wage Earners and Clerical Workers, not seasonally adjusted, for
each twelve-month period ending in November, with rounding to the
nearest million.
(v) Small business loan means a loan included in ``loans to small
businesses'' as defined in the instructions for preparation of the
Consolidated Report of Condition and Income.
(w) Small farm loan means a loan included in ``loans to small
farms'' as defined in the instructions for preparation of the
Consolidated Report of Condition and Income.
(x) Wholesale bank means a bank that is not in the business of
extending home mortgage, small business, small farm, or consumer loans
to retail customers, and for which a designation as a wholesale bank is
in effect, in accordance with Sec. [thinsp]228.25(b).
Subpart B--Standards for Assessing Performance
Sec. [thinsp]228.21 Performance tests, standards, and ratings, in
general.
(a) Performance tests and standards. The Board assesses the CRA
performance of a bank in an examination as follows:
(1) Lending, investment, and service tests. The Board applies the
lending, investment, and service tests, as provided in Sec. Sec.
[thinsp]228.22 through 228.24, in evaluating the performance of a bank,
except as provided in paragraphs (a)(2), (a)(3), and (a)(4) of this
section.
(2) Community development test for wholesale or limited purpose
banks. The Board applies the community development test for a wholesale
or limited purpose bank, as provided in Sec. [thinsp]228.25, except as
provided in paragraph (a)(4) of this section.
(3) Small bank performance standards. The Board applies the small
bank performance standards as provided in Sec. [thinsp]228.26 in
evaluating the performance of a small bank or a bank that was a small
bank during the prior calendar year, unless the bank elects to be
assessed as provided in paragraphs (a)(1), (a)(2), or (a)(4) of this
section. The bank may elect to be assessed as provided in paragraph
(a)(1) of this section only if it collects and reports the data
required for other banks under Sec. [thinsp]228.42.
(4) Strategic plan. The Board evaluates the performance of a bank
under a strategic plan if the bank submits, and the Board approves, a
strategic plan as provided in Sec. [thinsp]228.27.
(b) Performance context. The Board applies the tests and standards
in paragraph (a) of this section and also considers whether to approve
a proposed strategic plan in the context of:
(1) Demographic data on median income levels, distribution of
household income, nature of housing stock, housing costs, and other
relevant data pertaining to a bank's assessment area(s);
(2) Any information about lending, investment, and service
opportunities in the bank's assessment area(s) maintained by the bank
or obtained from community organizations, state, local, and tribal
governments, economic development agencies, or other sources;
(3) The bank's product offerings and business strategy as
determined from data provided by the bank;
(4) Institutional capacity and constraints, including the size and
financial condition of the bank, the economic climate (national,
regional, and local), safety and soundness limitations, and any other
factors that significantly affect the bank's ability to provide
lending, investments, or services in its assessment area(s);
(5) The bank's past performance and the performance of similarly
situated lenders;
(6) The bank's public file, as described in Sec. [thinsp]228.43,
and any written comments about the bank's CRA performance submitted to
the bank or the Board; and
(7) Any other information deemed relevant by the Board.
(c) Assigned ratings. The Board assigns to a bank one of the
following four ratings pursuant to Sec. [thinsp]228.28 and appendix A
of this part: ``outstanding''; ``satisfactory''; ``needs to improve'';
or ``substantial noncompliance'' as provided in 12 U.S.C. 2906(b)(2).
The rating assigned by the Board reflects the bank's record of helping
to meet the credit needs of its entire community, including low- and
moderate-income neighborhoods, consistent with the safe and sound
operation of the bank.
(d) Safe and sound operations. This part and the CRA do not require
a bank to make loans or investments or to provide services that are
inconsistent with safe and sound operations. To the contrary, the Board
anticipates banks can meet the standards of this part with safe and
sound loans, investments, and services on which the banks expect to
make a profit. Banks are permitted and encouraged to develop and apply
flexible underwriting standards for loans that benefit low- or
moderate-income geographies or individuals, only if consistent with
safe and sound operations.
(e) Low-cost education loans provided to low-income borrowers. In
assessing and taking into account the record of a bank under this part,
the Board considers, as a factor, low-cost education loans originated
by the bank to borrowers, particularly in its assessment area(s), who
have an individual income that is less than 50 percent of the area
median income. For purposes of this paragraph, ``low-cost education
loans'' means any education loan, as defined in section 140(a)(7) of
the Truth in Lending Act (15 U.S.C. 1650(a)(7)) (including a loan under
a state or local education loan program), originated by the bank for a
student at an ``institution of higher education,'' as that term is
generally defined in sections 101 and 102 of the Higher Education Act
of 1965 (20 U.S.C. 1001 and 1002) and the implementing regulations
published by the U.S. Department of Education, with interest rates and
fees no greater than those of comparable education loans offered
directly by the U.S. Department of Education. Such rates and fees are
specified in section 455 of the Higher Education Act of 1965 (20 U.S.C.
1087e).
(f) Activities in cooperation with minority- or women-owned
financial institutions and low-income credit unions. In assessing and
taking into account the record of a nonminority-owned and nonwomen-
owned bank under this part, the Board considers as a factor capital
investment, loan participation, and other ventures undertaken by the
bank in cooperation with minority- and women-owned financial
institutions and low-income credit unions. Such activities must help
[[Page 7196]]
meet the credit needs of local communities in which the minority- and
women-owned financial institutions and low-income credit unions are
chartered. To be considered, such activities need not also benefit the
bank's assessment area(s) or the broader statewide or regional area
that includes the bank's assessment area(s).
Sec. 228.22 Lending test.
(a) Scope of test. (1) The lending test evaluates a bank's record
of helping to meet the credit needs of its assessment area(s) through
its lending activities by considering a bank's home mortgage, small
business, small farm, and community development lending. If consumer
lending constitutes a substantial majority of a bank's business, the
Board will evaluate the bank's consumer lending in one or more of the
following categories: motor vehicle, credit card, other secured, and
other unsecured loans. In addition, at a bank's option, the Board will
evaluate one or more categories of consumer lending, if the bank has
collected and maintained, as required in Sec. [thinsp]228.42(c)(1),
the data for each category that the bank elects to have the Board
evaluate.
(2) The Board considers originations and purchases of loans. The
Board will also consider any other loan data the bank may choose to
provide, including data on loans outstanding, commitments and letters
of credit.
(3) A bank may ask the Board to consider loans originated or
purchased by consortia in which the bank participates or by third
parties in which the bank has invested only if the loans meet the
definition of community development loans and only in accordance with
paragraph (d) of this section. The Board will not consider these loans
under any criterion of the lending test except the community
development lending criterion.
(b) Performance criteria. The Board evaluates a bank's lending
performance pursuant to the following criteria:
(1) Lending activity. The number and amount of the bank's home
mortgage, small business, small farm, and consumer loans, if
applicable, in the bank's assessment area(s);
(2) Geographic distribution. The geographic distribution of the
bank's home mortgage, small business, small farm, and consumer loans,
if applicable, based on the loan location, including:
(i) The proportion of the bank's lending in the bank's assessment
area(s);
(ii) The dispersion of lending in the bank's assessment area(s);
and
(iii) The number and amount of loans in low-, moderate-, middle-,
and upper-income geographies in the bank's assessment area(s);
(3) Borrower characteristics. The distribution, particularly in the
bank's assessment area(s), of the bank's home mortgage, small business,
small farm, and consumer loans, if applicable, based on borrower
characteristics, including the number and amount of:
(i) Home mortgage loans to low-, moderate-, middle-, and upper-
income individuals;
(ii) Small business and small farm loans to businesses and farms
with gross annual revenues of $1 million or less;
(iii) Small business and small farm loans by loan amount at
origination; and(iv) Consumer loans, if applicable, to low-, moderate-,
middle-, and upper-income individuals;
(4) Community development lending. The bank's community development
lending, including the number and amount of community development
loans, and their complexity and innovativeness; and
(5) Innovative or flexible lending practices. The bank's use of
innovative or flexible lending practices in a safe and sound manner to
address the credit needs of low- or moderate-income individuals or
geographies.
(c) Affiliate lending. (1) At a bank's option, the Board will
consider loans by an affiliate of the bank, if the bank provides data
on the affiliate's loans pursuant to Sec. [thinsp]228.42.
(2) The Board considers affiliate lending subject to the following
constraints:
(i) No affiliate may claim a loan origination or loan purchase if
another institution claims the same loan origination or purchase; and
(ii) If a bank elects to have the Board consider loans within a
particular lending category made by one or more of the bank's
affiliates in a particular assessment area, the bank shall elect to
have the Board consider, in accordance with paragraph (c)(1) of this
section, all the loans within that lending category in that particular
assessment area made by all of the bank's affiliates.
(3) The Board does not consider affiliate lending in assessing a
bank's performance under paragraph (b)(2)(i) of this section.
(d) Lending by a consortium or a third party. Community development
loans originated or purchased by a consortium in which the bank
participates or by a third party in which the bank has invested:
(1) Will be considered, at the bank's option, if the bank reports
the data pertaining to these loans under Sec. [thinsp]228.42(b)(2);
and
(2) May be allocated among participants or investors, as they
choose, for purposes of the lending test, except that no participant or
investor:
(i) May claim a loan origination or loan purchase if another
participant or investor claims the same loan origination or purchase;
or
(ii) May claim loans accounting for more than its percentage share
(based on the level of its participation or investment) of the total
loans originated by the consortium or third party.
(e) Lending performance rating. The Board rates a bank's lending
performance as provided in appendix A of this part.
Sec. [thinsp]228.23 Investment test.
(a) Scope of test. The investment test evaluates a bank's record of
helping to meet the credit needs of its assessment area(s) through
qualified investments that benefit its assessment area(s) or a broader
statewide or regional area that includes the bank's assessment area(s).
(b) Exclusion. Activities considered under the lending or service
tests may not be considered under the investment test.
(c) Affiliate investment. At a bank's option, the Board will
consider, in its assessment of a bank's investment performance, a
qualified investment made by an affiliate of the bank, if the qualified
investment is not claimed by any other institution.
(d) Disposition of branch premises. Donating, selling on favorable
terms, or making available on a rent-free basis a branch of the bank
that is located in a predominantly minority neighborhood to a minority
depository institution or women's depository institution (as these
terms are defined in 12 U.S.C. 2907(b)) will be considered as a
qualified investment.
(e) Performance criteria. The Board evaluates the investment
performance of a bank pursuant to the following criteria:
(1) The dollar amount of qualified investments;
(2) The innovativeness or complexity of qualified investments;
(3) The responsiveness of qualified investments to credit and
community development needs; and
(4) The degree to which the qualified investments are not routinely
provided by private investors.
(f) Investment performance rating. The Board rates a bank's
investment performance as provided in appendix A of this part.
Sec. [thinsp]228.24 Service test.
(a) Scope of test. The service test evaluates a bank's record of
helping to
[[Page 7197]]
meet the credit needs of its assessment area(s) by analyzing both the
availability and effectiveness of a bank's systems for delivering
retail banking services and the extent and innovativeness of its
community development services.
(b) Area(s) benefitted. Community development services must benefit
a bank's assessment area(s) or a broader statewide or regional area
that includes the bank's assessment area(s).
(c) Affiliate service. At a bank's option, the Board will consider,
in its assessment of a bank's service performance, a community
development service provided by an affiliate of the bank, if the
community development service is not claimed by any other institution.
(d) Performance criteria--retail banking services. The Board
evaluates the availability and effectiveness of a bank's systems for
delivering retail banking services, pursuant to the following criteria:
(1) The current distribution of the bank's branches among low-,
moderate-, middle-, and upper-income geographies;
(2) In the context of its current distribution of the bank's
branches, the bank's record of opening and closing branches,
particularly branches located in low- or moderate-income geographies or
primarily serving low- or moderate-income individuals;
(3) The availability and effectiveness of alternative systems for
delivering retail banking services (e.g., ATMs, ATMs not owned or
operated by or exclusively for the bank, banking by telephone or
computer, loan production offices, and bank-at-work or bank-by-mail
programs) in low- and moderate-income geographies and to low- and
moderate-income individuals; and
(4) The range of services provided in low-, moderate-, middle-, and
upper-income geographies and the degree to which the services are
tailored to meet the needs of those geographies.
(e) Performance criteria--community development services. The Board
evaluates community development services pursuant to the following
criteria:
(1) The extent to which the bank provides community development
services; and
(2) The innovativeness and responsiveness of community development
services.
(f) Service performance rating. The Board rates a bank's service
performance as provided in appendix A of this part.
Sec. [thinsp]228.25 Community development test for wholesale or
limited purpose banks.
(a) Scope of test. The Board assesses a wholesale or limited
purpose bank's record of helping to meet the credit needs of its
assessment area(s) under the community development test through its
community development lending, qualified investments, or community
development services.
(b) Designation as a wholesale or limited purpose bank. In order to
receive a designation as a wholesale or limited purpose bank, a bank
shall file a request, in writing, with the Board, at least three months
prior to the proposed effective date of the designation. If the Board
approves the designation, it remains in effect until the bank requests
revocation of the designation or until one year after the Board
notifies the bank that the Board has revoked the designation on its own
initiative.
(c) Performance criteria. The Board evaluates the community
development performance of a wholesale or limited purpose bank pursuant
to the following criteria:
(1) The number and amount of community development loans (including
originations and purchases of loans and other community development
loan data provided by the bank, such as data on loans outstanding,
commitments, and letters of credit), qualified investments, or
community development services;
(2) The use of innovative or complex qualified investments,
community development loans, or community development services and the
extent to which the investments are not routinely provided by private
investors; and
(3) The bank's responsiveness to credit and community development
needs.
(d) Indirect activities. At a bank's option, the Board will
consider in its community development performance assessment:
(1) Qualified investments or community development services
provided by an affiliate of the bank, if the investments or services
are not claimed by any other institution; and
(2) Community development lending by affiliates, consortia and
third parties, subject to the requirements and limitations in Sec.
[thinsp]228.22(c) and (d).
(e) Benefit to assessment area(s)--(1) Benefit inside assessment
area(s). The Board considers all qualified investments, community
development loans, and community development services that benefit
areas within the bank's assessment area(s) or a broader statewide or
regional area that includes the bank's assessment area(s).
(2) Benefit outside assessment area(s). The Board considers the
qualified investments, community development loans, and community
development services that benefit areas outside the bank's assessment
area(s), if the bank has adequately addressed the needs of its
assessment area(s).
(f) Community development performance rating. The Board rates a
bank's community development performance as provided in appendix A of
this part.
Sec. [thinsp]228.26 Small bank performance standards.
(a) Performance criteria--(1) Small banks that are not intermediate
small banks. The Board evaluates the record of a small bank that is
not, or that was not during the prior calendar year, an intermediate
small bank, of helping to meet the credit needs of its assessment
area(s) pursuant to the criteria set forth in paragraph (b) of this
section.
(2) Intermediate small banks. The Board evaluates the record of a
small bank that is, or that was during the prior calendar year, an
intermediate small bank, of helping to meet the credit needs of its
assessment area(s) pursuant to the criteria set forth in paragraphs (b)
and (c) of this section.
(b) Lending test. A small bank's lending performance is evaluated
pursuant to the following criteria:
(1) The bank's loan-to-deposit ratio, adjusted for seasonal
variation, and, as appropriate, other lending-related activities, such
as loan originations for sale to the secondary markets, community
development loans, or qualified investments;
(2) The percentage of loans and, as appropriate, other lending-
related activities located in the bank's assessment area(s);
(3) The bank's record of lending to and, as appropriate, engaging
in other lending-related activities for borrowers of different income
levels and businesses and farms of different sizes;
(4) The geographic distribution of the bank's loans; and
(5) The bank's record of taking action, if warranted, in response
to written complaints about its performance in helping to meet credit
needs in its assessment area(s).
(c) Community development test. An intermediate small bank's
community development performance also is evaluated pursuant to the
following criteria:
(1) The number and amount of community development loans;
(2) The number and amount of qualified investments;
[[Page 7198]]
(3) The extent to which the bank provides community development
services; and
(4) The bank's responsiveness through such activities to community
development lending, investment, and services needs.
(d) Small bank performance rating. The Board rates the performance
of a bank evaluated under this section as provided in appendix A of
this part.
Sec. [thinsp]228.27 Strategic plan.
(a) Alternative election. The Board will assess a bank's record of
helping to meet the credit needs of its assessment area(s) under a
strategic plan if:
(1) The bank has submitted the plan to the Board as provided for in
this section;
(2) The Board has approved the plan;
(3) The plan is in effect; and
(4) The bank has been operating under an approved plan for at least
one year.
(b) Data reporting. The Board's approval of a plan does not affect
the bank's obligation, if any, to report data as required by Sec.
[thinsp]228.42.
(c) Plans in general--(1) Term. A plan may have a term of no more
than five years, and any multi-year plan must include annual interim
measurable goals under which the Board will evaluate the bank's
performance.
(2) Multiple assessment areas. A bank with more than one assessment
area may prepare a single plan for all of its assessment areas or one
or more plans for one or more of its assessment areas.
(3) Treatment of affiliates. Affiliated institutions may prepare a
joint plan if the plan provides measurable goals for each institution.
Activities may be allocated among institutions at the institutions'
option, provided that the same activities are not considered for more
than one institution.
(d) Public participation in plan development. Before submitting a
plan to the Board for approval, a bank shall:
(1) Informally seek suggestions from members of the public in its
assessment area(s) covered by the plan while developing the plan;
(2) Once the bank has developed a plan, formally solicit public
comment on the plan for at least 30 days by publishing notice in at
least one newspaper of general circulation in each assessment area
covered by the plan; and
(3) During the period of formal public comment, make copies of the
plan available for review by the public at no cost at all offices of
the bank in any assessment area covered by the plan and provide copies
of the plan upon request for a reasonable fee to cover copying and
mailing, if applicable.
(e) Submission of plan. The bank shall submit its plan to the Board
at least three months prior to the proposed effective date of the plan.
The bank shall also submit with its plan a description of its informal
efforts to seek suggestions from members of the public, any written
public comment received, and, if the plan was revised in light of the
comment received, the initial plan as released for public comment.
(f) Plan content--(1) Measurable goals. (i) A bank shall specify in
its plan measurable goals for helping to meet the credit needs of each
assessment area covered by the plan, particularly the needs of low- and
moderate-income geographies and low- and moderate-income individuals,
through lending, investment, and services, as appropriate.
(ii) A bank shall address in its plan all three performance
categories and, unless the bank has been designated as a wholesale or
limited purpose bank, shall emphasize lending and lending-related
activities. Nevertheless, a different emphasis, including a focus on
one or more performance categories, may be appropriate if responsive to
the characteristics and credit needs of its assessment area(s),
considering public comment and the bank's capacity and constraints,
product offerings, and business strategy.
(2) Confidential information. A bank may submit additional
information to the Board on a confidential basis, but the goals stated
in the plan must be sufficiently specific to enable the public and the
Board to judge the merits of the plan.
(3) Satisfactory and outstanding goals. A bank shall specify in its
plan measurable goals that constitute ``satisfactory'' performance. A
plan may specify measurable goals that constitute ``outstanding''
performance. If a bank submits, and the Board approves, both
``satisfactory'' and ``outstanding'' performance goals, the Board will
consider the bank eligible for an ``outstanding'' performance rating.
(4) Election if satisfactory goals not substantially met. A bank
may elect in its plan that, if the bank fails to meet substantially its
plan goals for a satisfactory rating, the Board will evaluate the
bank's performance under the lending, investment, and service tests,
the community development test, or the small bank performance
standards, as appropriate.
(g) Plan approval--(1) Timing. The Board will act upon a plan
within 60 calendar days after the Board receives the complete plan and
other material required under paragraph (e) of this section. If the
Board fails to act within this time period, the plan shall be deemed
approved unless the Board extends the review period for good cause.
(2) Public participation. In evaluating the plan's goals, the Board
considers the public's involvement in formulating the plan, written
public comment on the plan, and any response by the bank to public
comment on the plan.
(3) Criteria for evaluating plan. The Board evaluates a plan's
measurable goals using the following criteria, as appropriate:
(i) The extent and breadth of lending or lending-related
activities, including, as appropriate, the distribution of loans among
different geographies, businesses and farms of different sizes, and
individuals of different income levels, the extent of community
development lending, and the use of innovative or flexible lending
practices to address credit needs;
(ii) The amount and innovativeness, complexity, and responsiveness
of the bank's qualified investments; and
(iii) The availability and effectiveness of the bank's systems for
delivering retail banking services and the extent and innovativeness of
the bank's community development services.
(h) Plan amendment. During the term of a plan, a bank may request
the Board to approve an amendment to the plan on grounds that there has
been a material change in circumstances. The bank shall develop an
amendment to a previously approved plan in accordance with the public
participation requirements of paragraph (d) of this section.
(i) Plan assessment. The Board approves the goals and assesses
performance under a plan as provided for in appendix A of this part.
Sec. [thinsp]228.28 Assigned ratings.
(a) Ratings in general. Subject to paragraphs (b) and (c) of this
section, the Board assigns to a bank a rating of ``outstanding,''
``satisfactory,'' ``needs to improve,'' or ``substantial
noncompliance'' based on the bank's performance under the lending,
investment and service tests, the community development test, the small
bank performance standards, or an approved strategic plan, as
applicable.
(b) Lending, investment, and service tests. The Board assigns a
rating for a bank assessed under the lending, investment, and service
tests in accordance with the following principles:
(1) A bank that receives an ``outstanding'' rating on the lending
test receives an assigned rating of at least ``satisfactory'';
[[Page 7199]]
(2) A bank that receives an ``outstanding'' rating on both the
service test and the investment test and a rating of at least ``high
satisfactory'' on the lending test receives an assigned rating of
``outstanding''; and
(3) No bank may receive an assigned rating of ``satisfactory'' or
higher unless it receives a rating of at least ``low satisfactory'' on
the lending test.
(c) Effect of evidence of discriminatory or other illegal credit
practices. (1) The Board's evaluation of a bank's CRA performance is
adversely affected by evidence of discriminatory or other illegal
credit practices in any geography by the bank or in any assessment area
by any affiliate whose loans have been considered as part of the bank's
lending performance. In connection with any type of lending activity
described in Sec. 228.22(a), evidence of discriminatory or other
credit practices that violate an applicable law, rule, or regulation
includes, but is not limited to:
(i) Discrimination against applicants on a prohibited basis in
violation, for example, of the Equal Credit Opportunity Act or the Fair
Housing Act;
(ii) Violations of the Home Ownership and Equity Protection Act;
(iii) Violations of section 5 of the Federal Trade Commission Act;
(iv) Violations of section 8 of the Real Estate Settlement
Procedures Act; and
(v) Violations of the Truth in Lending Act provisions regarding a
consumer's right of rescission.
(2) In determining the effect of evidence of practices described in
paragraph (c)(1) of this section on the bank's assigned rating, the
Board considers the nature, extent, and strength of the evidence of the
practices; the policies and procedures that the bank (or affiliate, as
applicable) has in place to prevent the practices; any corrective
action that the bank (or affiliate, as applicable) has taken or has
committed to take, including voluntary corrective action resulting from
self-assessment; and any other relevant information.
Sec. 228.29 Effect of CRA performance on applications.
(a) CRA performance. Among other factors, the Board takes into
account the record of performance under the CRA of:
(1) Each applicant bank for the:
(i) Establishment of a domestic branch by a State member bank; and
(ii) Merger, consolidation, acquisition of assets, or assumption of
liabilities requiring approval under the Bank Merger Act (12 U.S.C.
1828(c)) if the acquiring, assuming, or resulting bank is to be a State
member bank; and
(2) Each insured depository institution (as defined in 12 U.S.C.
1813) controlled by an applicant and subsidiary bank or savings
association proposed to be controlled by an applicant:
(i) To become a bank holding company in a transaction that requires
approval under section 3 of the Bank Holding Company Act (12 U.S.C.
1842);
(ii) To acquire ownership or control of shares or all or
substantially all of the assets of a bank, to cause a bank to become a
subsidiary of a bank holding company, or to merge or consolidate a bank
holding company with any other bank holding company in a transaction
that requires approval under section 3 of the Bank Holding Company Act
(12 U.S.C. 1842);
(iii) To own, control or operate a savings association in a
transaction that requires approval under section 4 of the Bank Holding
Company Act (12 U.S.C. 1843);
(iv) To become a savings and loan holding company in a transaction
that requires approval under section 10 of the Home Owners' Loan Act
(12 U.S.C. 1467a); and
(v) To acquire ownership or control of shares or all or
substantially all of the assets of a savings association, to cause a
savings association to become a subsidiary of a savings and loan
holding company, or to merge or consolidate a savings and loan holding
company with any other savings and loan holding company in a
transaction that requires approval under section 10 of the Home Owners'
Loan Act (12 U.S.C. 1467a).
(b) Interested parties. In considering CRA performance in an
application described in paragraph (a) of this section, the Board takes
into account any views expressed by interested parties that are
submitted in accordance with the Board's Rules of Procedure set forth
in part 262 of this chapter.
(c) Denial or conditional approval of application. A bank or
savings association's record of performance may be the basis for
denying or conditioning approval of an application listed in paragraph
(a) of this section.
(d) Definitions. For purposes of paragraphs (a)(2)(i), (ii), and
(iii) of this section, ``bank,'' ``bank holding company,''
``subsidiary,'' and ``savings association'' have the meanings given to
those terms in section 2 of the Bank Holding Company Act (12 U.S.C.
1841). For purposes of paragraphs (a)(2)(iv) and (v) of this section,
``savings and loan holding company'' and ``subsidiary'' has the meaning
given to that term in section 10 of the Home Owners' Loan Act (12
U.S.C. 1467a).
Subpart C--Records, Reporting, and Disclosure Requirements
Sec. 228.41 Assessment area delineation.
(a) In general. A bank shall delineate one or more assessment areas
within which the Board evaluates the bank's record of helping to meet
the credit needs of its community. The Board does not evaluate the
bank's delineation of its assessment area(s) as a separate performance
criterion, but the Board reviews the delineation for compliance with
the requirements of this section.
(b) Geographic area(s) for wholesale or limited purpose banks. The
assessment area(s) for a wholesale or limited purpose bank must consist
generally of one or more MSAs or metropolitan divisions (using the MSA
or metropolitan division boundaries that were in effect as of January 1
of the calendar year in which the delineation is made) or one or more
contiguous political subdivisions, such as counties, cities, or towns,
in which the bank has its main office, branches, and deposit-taking
ATMs.
(c) Geographic area(s) for other banks. The assessment area(s) for
a bank other than a wholesale or limited purpose bank must:
(1) Consist generally of one or more MSAs or metropolitan divisions
(using the MSA or metropolitan division boundaries that were in effect
as of January 1 of the calendar year in which the delineation is made)
or one or more contiguous political subdivisions, such as counties,
cities, or towns; and
(2) Include the geographies in which the bank has its main office,
its branches, and its deposit-taking ATMs, as well as the surrounding
geographies in which the bank has originated or purchased a substantial
portion of its loans (including home mortgage loans, small business and
small farm loans, and any other loans the bank chooses, such as those
consumer loans on which the bank elects to have its performance
assessed).
(d) Adjustments to geographic area(s). A bank may adjust the
boundaries of its assessment area(s) to include only the portion of a
political subdivision that it reasonably can be expected to serve. An
adjustment is particularly appropriate in the case of an assessment
area that otherwise would be extremely large, of unusual configuration,
or divided by significant geographic barriers.
(e) Limitations on the delineation of an assessment area. Each
bank's assessment area(s):
[[Page 7200]]
(1) Must consist only of whole geographies;
(2) May not reflect illegal discrimination;
(3) May not arbitrarily exclude low- or moderate-income
geographies, taking into account the bank's size and financial
condition; and
(4) May not extend substantially beyond an MSA boundary or beyond a
state boundary unless the assessment area is located in a multistate
MSA. If a bank serves a geographic area that extends substantially
beyond a state boundary, the bank shall delineate separate assessment
areas for the areas in each state. If a bank serves a geographic area
that extends substantially beyond an MSA boundary, the bank shall
delineate separate assessment areas for the areas inside and outside
the MSA.
(f) Banks serving military personnel. Notwithstanding the
requirements of this section, a bank whose business predominantly
consists of serving the needs of military personnel or their dependents
who are not located within a defined geographic area may delineate its
entire deposit customer base as its assessment area.
(g) Use of assessment area(s). The Board uses the assessment
area(s) delineated by a bank in its evaluation of the bank's CRA
performance unless the Board determines that the assessment area(s) do
not comply with the requirements of this section.
Sec. 228.42 Data collection, reporting, and disclosure.
(a) Loan information required to be collected and maintained. A
bank, except a small bank, shall collect, and maintain in machine
readable form (as prescribed by the Board) until the completion of its
next CRA examination, the following data for each small business or
small farm loan originated or purchased by the bank:
(1) A unique number or alpha-numeric symbol that can be used to
identify the relevant loan file;
(2) The loan amount at origination;
(3) The loan location; and
(4) An indicator whether the loan was to a business or farm with
gross annual revenues of $1 million or less.
(b) Loan information required to be reported. A bank, except a
small bank or a bank that was a small bank during the prior calendar
year, shall report annually by March 1 to the Board in machine readable
form (as prescribed by the Board) the following data for the prior
calendar year:
(1) Small business and small farm loan data. For each geography in
which the bank originated or purchased a small business or small farm
loan, the aggregate number and amount of loans:
(i) With an amount at origination of $100,000 or less;
(ii) With amount at origination of more than $100,000 but less than
or equal to $250,000;
(iii) With an amount at origination of more than $250,000; and
(iv) To businesses and farms with gross annual revenues of $1
million or less (using the revenues that the bank considered in making
its credit decision);
(2) Community development loan data. The aggregate number and
aggregate amount of community development loans originated or
purchased; and
(3) Home mortgage loans. If the bank is subject to reporting under
part 1003 of this chapter, the location of each home mortgage loan
application, origination, or purchase outside the MSAs in which the
bank has a home or branch office (or outside any MSA) in accordance
with the requirements of part 1003 of this chapter.
(c) Optional data collection and maintenance--(1) Consumer loans. A
bank may collect and maintain in machine readable form (as prescribed
by the Board) data for consumer loans originated or purchased by the
bank for consideration under the lending test. A bank may maintain data
for one or more of the following categories of consumer loans: motor
vehicle, credit card, other secured, and other unsecured. If the bank
maintains data for loans in a certain category, it shall maintain data
for all loans originated or purchased within that category. The bank
shall maintain data separately for each category, including for each
loan:
(i) A unique number or alpha-numeric symbol that can be used to
identify the relevant loan file;
(ii) The loan amount at origination or purchase;
(iii) The loan location; and
(iv) The gross annual income of the borrower that the bank
considered in making its credit decision.
(2) Other loan data. At its option, a bank may provide other
information concerning its lending performance, including additional
loan distribution data.
(d) Data on affiliate lending. A bank that elects to have the Board
consider loans by an affiliate, for purposes of the lending or
community development test or an approved strategic plan, shall
collect, maintain, and report for those loans the data that the bank
would have collected, maintained, and reported pursuant to paragraphs
(a), (b), and (c) of this section had the loans been originated or
purchased by the bank. For home mortgage loans, the bank shall also be
prepared to identify the home mortgage loans reported under part 1003
of this chapter by the affiliate.
(e) Data on lending by a consortium or a third party. A bank that
elects to have the Board consider community development loans by a
consortium or third party, for purposes of the lending or community
development tests or an approved strategic plan, shall report for those
loans the data that the bank would have reported under paragraph (b)(2)
of this section had the loans been originated or purchased by the bank.
(f) Small banks electing evaluation under the lending, investment,
and service tests. A bank that qualifies for evaluation under the small
bank performance standards but elects evaluation under the lending,
investment, and service tests shall collect, maintain, and report the
data required for other banks pursuant to paragraphs (a) and (b) of
this section.
(g) Assessment area data. A bank, except a small bank or a bank
that was a small bank during the prior calendar year, shall collect and
report to the Board by March 1 of each year a list for each assessment
area showing the geographies within the area.
(h) CRA Disclosure Statement. The Board prepares annually for each
bank that reports data pursuant to this section a CRA Disclosure
Statement that contains, on a state-by-state basis:
(1) For each county (and for each assessment area smaller than a
county) with a population of 500,000 persons or fewer in which the bank
reported a small business or small farm loan:
(i) The number and amount of small business and small farm loans
reported as originated or purchased located in low-, moderate-, middle-
, and upper-income geographies;
(ii) A list grouping each geography according to whether the
geography is low-, moderate-, middle-, or upper-income;
(iii) A list showing each geography in which the bank reported a
small business or small farm loan; and
(iv) The number and amount of small business and small farm loans
to businesses and farms with gross annual revenues of $1 million or
less;
(2) For each county (and for each assessment area smaller than a
county) with a population in excess of 500,000 persons in which the
bank reported a small business or small farm loan:
(i) The number and amount of small business and small farm loans
reported as originated or purchased located in geographies with median
income relative to the area median income of
[[Page 7201]]
less than 10 percent, 10 or more but less than 20 percent, 20 or more
but less than 30 percent, 30 or more but less than 40 percent, 40 or
more but less than 50 percent, 50 or more but less than 60 percent, 60
or more but less than 70 percent, 70 or more but less than 80 percent,
80 or more but less than 90 percent, 90 or more but less than 100
percent, 100 or more but less than 110 percent, 110 or more but less
than 120 percent, and 120 percent or more;
(ii) A list grouping each geography in the county or assessment
area according to whether the median income in the geography relative
to the area median income is less than 10 percent, 10 or more but less
than 20 percent, 20 or more but less than 30 percent, 30 or more but
less than 40 percent, 40 or more but less than 50 percent, 50 or more
but less than 60 percent, 60 or more but less than 70 percent, 70 or
more but less than 80 percent, 80 or more but less than 90 percent, 90
or more but less than 100 percent, 100 or more but less than 110
percent, 110 or more but less than 120 percent, and 120 percent or
more;
(iii) A list showing each geography in which the bank reported a
small business or small farm loan; and
(iv) The number and amount of small business and small farm loans
to businesses and farms with gross annual revenues of $1 million or
less;
(3) The number and amount of small business and small farm loans
located inside each assessment area reported by the bank and the number
and amount of small business and small farm loans located outside the
assessment area(s) reported by the bank; and
(4) The number and amount of community development loans reported
as originated or purchased.
(i) Aggregate disclosure statements. The Board, in conjunction with
the Office of the Comptroller of the Currency and the Federal Deposit
Insurance Corporation, prepares annually, for each MSA or metropolitan
division (including an MSA or metropolitan division that crosses a
state boundary) and the nonmetropolitan portion of each state, an
aggregate disclosure statement of small business and small farm lending
by all institutions subject to reporting under this part or parts 25,
195, or 345 of this title. These disclosure statements indicate, for
each geography, the number and amount of all small business and small
farm loans originated or purchased by reporting institutions, except
that the Board may adjust the form of the disclosure if necessary,
because of special circumstances, to protect the privacy of a borrower
or the competitive position of an institution.
(j) Central data depositories. The Board makes the aggregate
disclosure statements, described in paragraph (i) of this section, and
the individual bank CRA Disclosure Statements, described in paragraph
(h) of this section, available to the public at central data
depositories. The Board publishes a list of the depositories at which
the statements are available.
Sec. 228.43 Content and availability of public file.
(a) Information available to the public. A bank shall maintain a
public file that includes the following information:
(1) All written comments received from the public for the current
year and each of the prior two calendar years that specifically relate
to the bank's performance in helping to meet community credit needs,
and any response to the comments by the bank, if neither the comments
nor the responses contain statements that reflect adversely on the good
name or reputation of any persons other than the bank or publication of
which would violate specific provisions of law;
(2) A copy of the public section of the bank's most recent CRA
Performance Evaluation prepared by the Board. The bank shall place this
copy in the public file within 30 business days after its receipt from
the Board;
(3) A list of the bank's branches, their street addresses, and
geographies;
(4) A list of branches opened or closed by the bank during the
current year and each of the prior two calendar years, their street
addresses, and geographies;
(5) A list of services (including hours of operation, available
loan and deposit products, and transaction fees) generally offered at
the bank's branches and descriptions of material differences in the
availability or cost of services at particular branches, if any. At its
option, a bank may include information regarding the availability of
alternative systems for delivering retail banking services (e.g., ATMs,
ATMs not owned or operated by or exclusively for the bank, banking by
telephone or computer, loan production offices, and bank-at-work or
bank-by-mail programs);
(6) A map of each assessment area showing the boundaries of the
area and identifying the geographies contained within the area, either
on the map or in a separate list; and
(7) Any other information the bank chooses.
(b) Additional information available to the public--(1) Banks other
than small banks. A bank, except a small bank or a bank that was a
small bank during the prior calendar year, shall include in its public
file the following information pertaining to the bank and its
affiliates, if applicable, for each of the prior two calendar years:
(i) If the bank has elected to have one or more categories of its
consumer loans considered under the lending test, for each of these
categories, the number and amount of loans:
(A) To low-, moderate-, middle-, and upper-income individuals;
(B) Located in low-, moderate-, middle-, and upper-income census
tracts; and
(C) Located inside the bank's assessment area(s) and outside the
bank's assessment area(s); and
(ii) The bank's CRA Disclosure Statement. The bank shall place the
statement in the public file within three business days of its receipt
from the Board.
(2) Banks required to report Home Mortgage Disclosure Act (HMDA)
data. A bank required to report home mortgage loan data pursuant part
1003 of this title shall include in its public file a written notice
that the institution's HMDA Disclosure Statement may be obtained on the
Consumer Financial Protection Bureau's (Bureau's) website at
www.consumerfinance.gov/hmda. In addition, a bank that elected to have
the Board consider the mortgage lending of an affiliate shall include
in its public file the name of the affiliate and a written notice that
the affiliate's HMDA Disclosure Statement may be obtained at the
Bureau's website. The bank shall place the written notice(s) in the
public file within three business days after receiving notification
from the Federal Financial Institutions Examination Council of the
availability of the disclosure statement(s).
(3) Small banks. A small bank or a bank that was a small bank
during the prior calendar year shall include in its public file:
(i) The bank's loan-to-deposit ratio for each quarter of the prior
calendar year and, at its option, additional data on its loan-to-
deposit ratio; and
(ii) The information required for other banks by paragraph (b)(1)
of this section, if the bank has elected to be evaluated under the
lending, investment, and service tests.
(4) Banks with strategic plans. A bank that has been approved to be
assessed under a strategic plan shall include in its public file a copy
of that plan. A bank need not include information
[[Page 7202]]
submitted to the Board on a confidential basis in conjunction with the
plan.
(5) Banks with less than satisfactory ratings. A bank that received
a less than satisfactory rating during its most recent examination
shall include in its public file a description of its current efforts
to improve its performance in helping to meet the credit needs of its
entire community. The bank shall update the description quarterly.
(c) Location of public information. A bank shall make available to
the public for inspection upon request and at no cost the information
required in this section as follows:
(1) At the main office and, if an interstate bank, at one branch
office in each state, all information in the public file; and
(2) At each branch:
(i) A copy of the public section of the bank's most recent CRA
Performance Evaluation and a list of services provided by the branch;
and
(ii) Within five calendar days of the request, all the information
in the public file relating to the assessment area in which the branch
is located.
(d) Copies. Upon request, a bank shall provide copies, either on
paper or in another form acceptable to the person making the request,
of the information in its public file. The bank may charge a reasonable
fee not to exceed the cost of copying and mailing (if applicable).
(e) Updating. Except as otherwise provided in this section, a bank
shall ensure that the information required by this section is current
as of April 1 of each year.
Sec. 228.44 Public notice by banks.
A bank shall provide in the public lobby of its main office and
each of its branches the appropriate public notice set forth in
appendix B of this part. Only a branch of a bank having more than one
assessment area shall include the bracketed material in the notice for
branch offices. Only a bank that is an affiliate of a holding company
shall include the next to the last sentence of the notices. A bank
shall include the last sentence of the notices only if it is an
affiliate of a holding company that is not prevented by statute from
acquiring additional banks.
Sec. 228.45 Publication of planned examination schedule.
The Board publishes at least 30 days in advance of the beginning of
each calendar quarter a list of banks scheduled for CRA examinations in
that quarter.
Appendix A to Part 228--Ratings
(a) Ratings in general. (1) In assigning a rating, the Board
evaluates a bank's performance under the applicable performance
criteria in this part, in accordance with Sec. Sec. 228.21 and
228.28. This includes consideration of low-cost education loans
provided to low-income borrowers and activities in cooperation with
minority- or women-owned financial institutions and low-income
credit unions, as well as adjustments on the basis of evidence of
discriminatory or other illegal credit practices.
(2) A bank's performance need not fit each aspect of a
particular rating profile in order to receive that rating, and
exceptionally strong performance with respect to some aspects may
compensate for weak performance in others. The bank's overall
performance, however, must be consistent with safe and sound banking
practices and generally with the appropriate rating profile as
follows.
(b) Banks evaluated under the lending, investment, and service
tests--(1) Lending performance rating. The Board assigns each bank's
lending performance one of the five following ratings.
(i) Outstanding. The Board rates a bank's lending performance
``outstanding'' if, in general, it demonstrates:
(A) Excellent responsiveness to credit needs in its assessment
area(s), taking into account the number and amount of home mortgage,
small business, small farm, and consumer loans, if applicable, in
its assessment area(s);
(B) A substantial majority of its loans are made in its
assessment area(s);
(C) An excellent geographic distribution of loans in its
assessment area(s);
(D) An excellent distribution, particularly in its assessment
area(s), of loans among individuals of different income levels and
businesses (including farms) of different sizes, given the product
lines offered by the bank;
(E) An excellent record of serving the credit needs of highly
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross
annual revenues of $1 million or less, consistent with safe and
sound operations;
(F) Extensive use of innovative or flexible lending practices in
a safe and sound manner to address the credit needs of low- or
moderate-income individuals or geographies; and
(G) It is a leader in making community development loans.
(ii) High satisfactory. The Board rates a bank's lending
performance ``high satisfactory'' if, in general, it demonstrates:
(A) Good responsiveness to credit needs in its assessment
area(s), taking into account the number and amount of home mortgage,
small business, small farm, and consumer loans, if applicable, in
its assessment area(s);
(B) A high percentage of its loans are made in its assessment
area(s);
(C) A good geographic distribution of loans in its assessment
area(s);
(D) A good distribution, particularly in its assessment area(s),
of loans among individuals of different income levels and businesses
(including farms) of different sizes, given the product lines
offered by the bank;
(E) A good record of serving the credit needs of highly
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross
annual revenues of $1 million or less, consistent with safe and
sound operations;
(F) Use of innovative or flexible lending practices in a safe
and sound manner to address the credit needs of low- or moderate-
income individuals or geographies; and
(G) It has made a relatively high level of community development
loans.
(iii) Low satisfactory. The Board rates a bank's lending
performance ``low satisfactory'' if, in general, it demonstrates:
(A) Adequate responsiveness to credit needs in its assessment
area(s), taking into account the number and amount of home mortgage,
small business, small farm, and consumer loans, if applicable, in
its assessment area(s);
(B) An adequate percentage of its loans are made in its
assessment area(s);
(C) An adequate geographic distribution of loans in its
assessment area(s);
(D) An adequate distribution, particularly in its assessment
area(s), of loans among individuals of different income levels and
businesses (including farms) of different sizes, given the product
lines offered by the bank;
(E) An adequate record of serving the credit needs of highly
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross
annual revenues of $1 million or less, consistent with safe and
sound operations;
(F) Limited use of innovative or flexible lending practices in a
safe and sound manner to address the credit needs of low- or
moderate-income individuals or geographies; and
(G) It has made an adequate level of community development
loans.
(iv) Needs to improve. The Board rates a bank's lending
performance ``needs to improve'' if, in general, it demonstrates:
(A) Poor responsiveness to credit needs in its assessment
area(s), taking into account the number and amount of home mortgage,
small business, small farm, and consumer loans, if applicable, in
its assessment area(s);
(B) A small percentage of its loans are made in its assessment
area(s);
(C) A poor geographic distribution of loans, particularly to
low- or moderate-income geographies, in its assessment area(s);
(D) A poor distribution, particularly in its assessment area(s),
of loans among individuals of different income levels and businesses
(including farms) of different sizes, given the product lines
offered by the bank;
(E) A poor record of serving the credit needs of highly
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross
annual revenues of $1 million or less, consistent with safe and
sound operations;
(F) Little use of innovative or flexible lending practices in a
safe and sound manner to address the credit needs of low- or
moderate-income individuals or geographies; and
[[Page 7203]]
(G) It has made a low level of community development loans.
(v) Substantial noncompliance. The Board rates a bank's lending
performance as being in ``substantial noncompliance'' if, in
general, it demonstrates:
(A) A very poor responsiveness to credit needs in its assessment
area(s), taking into account the number and amount of home mortgage,
small business, small farm, and consumer loans, if applicable, in
its assessment area(s);
(B) A very small percentage of its loans are made in its
assessment area(s);
(C) A very poor geographic distribution of loans, particularly
to low- or moderate-income geographies, in its assessment area(s);
(D) A very poor distribution, particularly in its assessment
area(s), of loans among individuals of different income levels and
businesses (including farms) of different sizes, given the product
lines offered by the bank;
(E) A very poor record of serving the credit needs of highly
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross
annual revenues of $1 million or less, consistent with safe and
sound operations;
(F) No use of innovative or flexible lending practices in a safe
and sound manner to address the credit needs of low- or moderate-
income individuals or geographies; and
(G) It has made few, if any, community development loans.
(2) Investment performance rating. The Board assigns each bank's
investment performance one of the five following ratings.
(i) Outstanding. The Board rates a bank's investment performance
``outstanding'' if, in general, it demonstrates:
(A) An excellent level of qualified investments, particularly
those that are not routinely provided by private investors, often in
a leadership position;
(B) Extensive use of innovative or complex qualified
investments; and
(C) Excellent responsiveness to credit and community development
needs.
(ii) High satisfactory. The Board rates a bank's investment
performance ``high satisfactory'' if, in general, it demonstrates:
(A) A significant level of qualified investments, particularly
those that are not routinely provided by private investors,
occasionally in a leadership position;
(B) Significant use of innovative or complex qualified
investments; and
(C) Good responsiveness to credit and community development
needs.
(iii) Low satisfactory. The Board rates a bank's investment
performance ``low satisfactory'' if, in general, it demonstrates:
(A) An adequate level of qualified investments, particularly
those that are not routinely provided by private investors, although
rarely in a leadership position;
(B) Occasional use of innovative or complex qualified
investments; and
(C) Adequate responsiveness to credit and community development
needs.
(iv) Needs to improve. The Board rates a bank's investment
performance ``needs to improve'' if, in general, it demonstrates:
(A) A poor level of qualified investments, particularly those
that are not routinely provided by private investors;
(B) Rare use of innovative or complex qualified investments; and
(C) Poor responsiveness to credit and community development
needs.
(v) Substantial noncompliance. The Board rates a bank's
investment performance as being in ``substantial noncompliance'' if,
in general, it demonstrates:
(A) Few, if any, qualified investments, particularly those that
are not routinely provided by private investors;
(B) No use of innovative or complex qualified investments; and
(C) Very poor responsiveness to credit and community development
needs.
(3) Service performance rating. The Board assigns each bank's
service performance one of the five following ratings.
(i) Outstanding. The Board rates a bank's service performance
``outstanding'' if, in general, the bank demonstrates:
(A) Its service delivery systems are readily accessible to
geographies and individuals of different income levels in its
assessment area(s);
(B) To the extent changes have been made, its record of opening
and closing branches has improved the accessibility of its delivery
systems, particularly in low- or moderate-income geographies or to
low- or moderate-income individuals;
(C) Its services (including, where appropriate, business hours)
are tailored to the convenience and needs of its assessment area(s),
particularly low- or moderate-income geographies or low- or
moderate-income individuals; and
(D) It is a leader in providing community development services.
(ii) High satisfactory. The Board rates a bank's service
performance ``high satisfactory'' if, in general, the bank
demonstrates:
(A) Its service delivery systems are accessible to geographies
and individuals of different income levels in its assessment
area(s);
(B) To the extent changes have been made, its record of opening
and closing branches has not adversely affected the accessibility of
its delivery systems, particularly in low- and moderate-income
geographies and to low- and moderate-income individuals;
(C) Its services (including, where appropriate, business hours)
do not vary in a way that inconveniences its assessment area(s),
particularly low- and moderate-income geographies and low- and
moderate-income individuals; and
(D) It provides a relatively high level of community development
services.
(iii) Low satisfactory. The Board rates a bank's service
performance ``low satisfactory'' if, in general, the bank
demonstrates:
(A) Its service delivery systems are reasonably accessible to
geographies and individuals of different income levels in its
assessment area(s);
(B) To the extent changes have been made, its record of opening
and closing branches has generally not adversely affected the
accessibility of its delivery systems, particularly in low- and
moderate-income geographies and to low- and moderate-income
individuals;
(C) Its services (including, where appropriate, business hours)
do not vary in a way that inconveniences its assessment area(s),
particularly low- and moderate-income geographies and low- and
moderate-income individuals; and
(D) It provides an adequate level of community development
services.
(iv) Needs to improve. The Board rates a bank's service
performance ``needs to improve'' if, in general, the bank
demonstrates:
(A) Its service delivery systems are unreasonably inaccessible
to portions of its assessment area(s), particularly to low- or
moderate-income geographies or to low- or moderate-income
individuals;
(B) To the extent changes have been made, its record of opening
and closing branches has adversely affected the accessibility its
delivery systems, particularly in low- or moderate-income
geographies or to low- or moderate-income individuals;
(C) Its services (including, where appropriate, business hours)
vary in a way that inconveniences its assessment area(s),
particularly low- or moderate-income geographies or low- or
moderate-income individuals; and
(D) It provides a limited level of community development
services.
(v) Substantial noncompliance. The Board rates a bank's service
performance as being in ``substantial noncompliance'' if, in
general, the bank demonstrates:
(A) Its service delivery systems are unreasonably inaccessible
to significant portions of its assessment area(s), particularly to
low- or moderate-income geographies or to low- or moderate-income
individuals;
(B) To the extent changes have been made, its record of opening
and closing branches has significantly adversely affected the
accessibility of its delivery systems, particularly in low- or
moderate-income geographies or to low- or moderate-income
individuals;
(C) Its services (including, where appropriate, business hours)
vary in a way that significantly inconveniences its assessment
area(s), particularly low- or moderate-income geographies or low- or
moderate-income individuals; and
(D) It provides few, if any, community development services.
(c) Wholesale or limited purpose banks. The Board assigns each
wholesale or limited purpose bank's community development
performance one of the four following ratings.
(1) Outstanding. The Board rates a wholesale or limited purpose
bank's community development performance ``outstanding'' if, in
general, it demonstrates:
(i) A high level of community development loans, community
development services, or qualified investments, particularly
investments that are not routinely provided by private investors;
(ii) Extensive use of innovative or complex qualified
investments, community development loans, or community development
services; and
[[Page 7204]]
(iii) Excellent responsiveness to credit and community
development needs in its assessment area(s).
(2) Satisfactory. The Board rates a wholesale or limited purpose
bank's community development performance ``satisfactory'' if, in
general, it demonstrates:
(i) An adequate level of community development loans, community
development services, or qualified investments, particularly
investments that are not routinely provided by private investors;
(ii) Occasional use of innovative or complex qualified
investments, community development loans, or community development
services; and
(iii) Adequate responsiveness to credit and community
development needs in its assessment area(s).
(3) Needs to improve. The Board rates a wholesale or limited
purpose bank's community development performance as ``needs to
improve'' if, in general, it demonstrates:
(i) A poor level of community development loans, community
development services, or qualified investments, particularly
investments that are not routinely provided by private investors;
(ii) Rare use of innovative or complex qualified investments,
community development loans, or community development services; and
(iii) Poor responsiveness to credit and community development
needs in its assessment area(s).
(4) Substantial noncompliance. The Board rates a wholesale or
limited purpose bank's community development performance in
``substantial noncompliance'' if, in general, it demonstrates:
(i) Few, if any, community development loans, community
development services, or qualified investments, particularly
investments that are not routinely provided by private investors;
(ii) No use of innovative or complex qualified investments,
community development loans, or community development services; and
(iii) Very poor responsiveness to credit and community
development needs in its assessment area(s).
(d) Banks evaluated under the small bank performance standards--
(1) Lending test ratings. (i) Eligibility for a satisfactory lending
test rating. The Board rates a small bank's lending performance
``satisfactory'' if, in general, the bank demonstrates:
(A) A reasonable loan-to-deposit ratio (considering seasonal
variations) given the bank's size, financial condition, the credit
needs of its assessment area(s), and taking into account, as
appropriate, other lending-related activities such as loan
originations for sale to the secondary markets and community
development loans and qualified investments;
(B) A majority of its loans and, as appropriate, other lending-
related activities, are in its assessment area;
(C) A distribution of loans to and, as appropriate, other
lending-related activities for individuals of different income
levels (including low- and moderate-income individuals) and
businesses and farms of different sizes that is reasonable given the
demographics of the bank's assessment area(s);
(D) A record of taking appropriate action, when warranted, in
response to written complaints, if any, about the bank's performance
in helping to meet the credit needs of its assessment area(s); and
(E) A reasonable geographic distribution of loans given the
bank's assessment area(s).
(ii) Eligibility for an ``outstanding'' lending test rating. A
small bank that meets each of the standards for a ``satisfactory''
rating under this paragraph and exceeds some or all of those
standards may warrant consideration for a lending test rating of
``outstanding.''
(iii) Needs to improve or substantial noncompliance ratings. A
small bank may also receive a lending test rating of ``needs to
improve'' or ``substantial noncompliance'' depending on the degree
to which its performance has failed to meet the standard for a
``satisfactory'' rating.
(2) Community development test ratings for intermediate small
banks--(i) Eligibility for a satisfactory community development test
rating. The Board rates an intermediate small bank's community
development performance ``satisfactory'' if the bank demonstrates
adequate responsiveness to the community development needs of its
assessment area(s) through community development loans, qualified
investments, and community development services. The adequacy of the
bank's response will depend on its capacity for such community
development activities, its assessment area's need for such
community development activities, and the availability of such
opportunities for community development in the bank's assessment
area(s).
(ii) Eligibility for an outstanding community development test
rating. The Board rates an intermediate small bank's community
development performance ``outstanding'' if the bank demonstrates
excellent responsiveness to community development needs in its
assessment area(s) through community development loans, qualified
investments, and community development services, as appropriate,
considering the bank's capacity and the need and availability of
such opportunities for community development in the bank's
assessment area(s).
(iii) Needs to improve or substantial noncompliance ratings. An
intermediate small bank may also receive a community development
test rating of ``needs to improve'' or ``substantial noncompliance''
depending on the degree to which its performance has failed to meet
the standards for a ``satisfactory'' rating.
(3) Overall rating--(i) Eligibility for a satisfactory overall
rating. No intermediate small bank may receive an assigned overall
rating of ``satisfactory'' unless it receives a rating of at least
``satisfactory'' on both the lending test and the community
development test.
(ii) Eligibility for an outstanding overall rating. (A) An
intermediate small bank that receives an ``outstanding'' rating on
one test and at least ``satisfactory'' on the other test may receive
an assigned overall rating of ``outstanding.''
(B) A small bank that is not an intermediate small bank that
meets each of the standards for a ``satisfactory'' rating under the
lending test and exceeds some or all of those standards may warrant
consideration for an overall rating of ``outstanding.'' In assessing
whether a bank's performance is ``outstanding,'' the Board considers
the extent to which the bank exceeds each of the performance
standards for a ``satisfactory'' rating and its performance in
making qualified investments and its performance in providing
branches and other services and delivery systems that enhance credit
availability in its assessment area(s).
(iii) Needs to improve or substantial noncompliance overall
ratings. A small bank may also receive a rating of ``needs to
improve'' or ``substantial noncompliance'' depending on the degree
to which its performance has failed to meet the standards for a
``satisfactory'' rating.
(e) Strategic plan assessment and rating--(1) Satisfactory
goals. The Board approves as ``satisfactory'' measurable goals that
adequately help to meet the credit needs of the bank's assessment
area(s).
(2) Outstanding goals. If the plan identifies a separate group
of measurable goals that substantially exceed the levels approved as
``satisfactory,'' the Board will approve those goals as
``outstanding.''
(3) Rating. The Board assesses the performance of a bank
operating under an approved plan to determine if the bank has met
its plan goals:
(i) If the bank substantially achieves its plan goals for a
satisfactory rating, the Board will rate the bank's performance
under the plan as ``satisfactory.''
(ii) If the bank exceeds its plan goals for a satisfactory
rating and substantially achieves its plan goals for an outstanding
rating, the Board will rate the bank's performance under the plan as
``outstanding.''
(iii) If the bank fails to meet substantially its plan goals for
a satisfactory rating, the Board will rate the bank as either
``needs to improve'' or ``substantial noncompliance,'' depending on
the extent to which it falls short of its plan goals, unless the
bank elected in its plan to be rated otherwise, as provided in Sec.
228.27(f)(4).
Appendix B to Part 228--CRA Notice
(a) Notice for main offices and, if an interstate bank, one
branch office in each state.
Community Reinvestment Act Notice
Under the Federal Community Reinvestment Act (CRA), the Federal
Reserve Board (Board) evaluates our record of helping to meet the
credit needs of this community consistent with safe and sound
operations. The Board also takes this record into account when
deciding on certain applications submitted by us.
Your involvement is encouraged.
You are entitled to certain information about our operations and
our performance under the CRA, including, for example, information
about our branches, such as their location and services provided at
them; the
[[Page 7205]]
public section of our most recent CRA Performance Evaluation,
prepared by the Federal Reserve Bank of ____(Reserve Bank); and
comments received from the public relating to our performance in
helping to meet community credit needs, as well as our responses to
those comments. You may review this information today.
At least 30 days before the beginning of each quarter, the
Federal Reserve System publishes a list of the banks that are
scheduled for CRA examination by the Reserve Bank in that quarter.
This list is available from (title of responsible official), Federal
Reserve Bank of ____(address). You may send written comments about
our performance in helping to meet community credit needs to (name
and address of official at bank) and (title of responsible
official), Federal Reserve Bank of ____(address). Your letter,
together with any response by us, will be considered by the Federal
Reserve System in evaluating our CRA performance and may be made
public.
You may ask to look at any comments received by the Reserve
Bank. You may also request from the Reserve Bank an announcement of
our applications covered by the CRA filed with the Reserve Bank. We
are an affiliate of (name of holding company), a bank holding
company. You may request from (title of responsible official),
Federal Reserve Bank of ____(address) an announcement of
applications covered by the CRA filed by bank holding companies.
(b) Notice for branch offices.
Community Reinvestment Act Notice
Under the Federal Community Reinvestment Act (CRA), the Federal
Reserve Board (Board) evaluates our record of helping to meet the
credit needs of this community consistent with safe and sound
operations. The Board also takes this record into account when
deciding on certain applications submitted by us.
Your involvement is encouraged.
You are entitled to certain information about our operations and
our performance under the CRA. You may review today the public
section of our most recent CRA evaluation, prepared by the Federal
Reserve Bank of ____(address), and a list of services provided at
this branch. You may also have access to the following additional
information, which we will make available to you at this branch
within five calendar days after you make a request to us: (1) a map
showing the assessment area containing this branch, which is the
area in which the Board evaluates our CRA performance in this
community; (2) information about our branches in this assessment
area; (3) a list of services we provide at those locations; (4) data
on our lending performance in this assessment area; and (5) copies
of all written comments received by us that specifically relate to
our CRA performance in this assessment area, and any responses we
have made to those comments. If we are operating under an approved
strategic plan, you may also have access to a copy of the plan.
[If you would like to review information about our CRA
performance in other communities served by us, the public file for
our entire bank is available at (name of office located in state),
located at (address).]
At least 30 days before the beginning of each quarter, the
Federal Reserve System publishes a list of the banks that are
scheduled for CRA examination by the Reserve Bank in that quarter.
This list is available from (title of responsible official), Federal
Reserve Bank of ____(address). You may send written comments about
our performance in helping to meet community credit needs to (name
and address of official at bank) and (title of responsible
official), Federal Reserve Bank of ____(address). Your letter,
together with any response by us, will be considered by the Federal
Reserve System in evaluating our CRA performance and may be made
public.
You may ask to look at any comments received by the Reserve
Bank. You may also request from the Reserve Bank an announcement of
our applications covered by the CRA filed with the Reserve Bank. We
are an affiliate of (name of holding company), a bank holding
company. You may request from (title of responsible official),
Federal Reserve Bank of ____(address) an announcement of
applications covered by the CRA filed by bank holding companies.
FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Chapter III
Authority and Issuance
For the reasons discussed in the common preamble, the Federal
Deposit Insurance Corporation amends part 345 of chapter III of title
12 of the Code of Federal Regulations as follows:.
PART 345--COMMUNITY REINVESTMENT
0
53. Revise the authority citation for part 345 to read as follows:
Authority: 12 U.S.C. 1814-1817, 1819-1820, 1828, 1831u, 2901-
2908, 3103-3104, and 3108(a).
0
54. Revise part 345 as set forth at the end of the common preamble.
0
55. Amend part 345 by:
0
a. Removing the word ``[Agency]'' wherever it appears and adding
``FDIC'' in its place;
0
b. Removing the word ``[Agency]'s'' wherever it appears and adding
``FDIC's'' in its place;
0
c. Removing ``[operations subsidiary or operating subsidiary]''
wherever it appears and adding ``operating subsidiary'' in its place;
0
d. Removing ``[operations subsidiaries or operating subsidiaries]''
wherever it appears and adding ``operating subsidiaries'' in its place;
and
0
e. Removing ``[operations subsidiaries or operating subsidiaries]''
wherever it appears and adding ``operating subsidiaries'' in its place.
0
56. Amend Sec. 345.11 by:
0
a. Adding paragraph (a);
0
b. In paragraph (b), removing ``FDIC'' and adding ``Federal Deposit
Insurance Corporation (FDIC)'' in its place; and
0
c. Adding paragraph (c).
The additions read as follows:
Sec. 345.11 Authority, purposes, and scope.
(a) Authority. The authority for this part is 12 U.S.C. 1814-1817,
1819-1820, 1828, 1831u, 2901-2908, 3103-3104, and 3108(a).
* * * * *
(c) Scope--(1) General. Except for certain special purpose banks
described in paragraph (c)(3) of this section, this part applies to all
insured State nonmember banks, including insured State branches as
described in paragraph (c)(2) and any uninsured State branch that
results from an acquisition described in section 5(a)(8) of the
International Banking Act of 1978 (12 U.S.C. 3103(a)(8)).
(2) Insured State branches. Insured State branches are branches of
a foreign bank established and operating under the laws of any State,
the deposits of which are insured in accordance with the provisions of
the Federal Deposit Insurance Act. In the case of insured State
branches, references in this part to main office mean the principal
branch within the United States and the term branch or branches refers
to any insured State branch or branches located within the United
States. The facility-based assessment areas and, as applicable, retail
lending assessment areas and outside retail lending area of an insured
State branch is the community or communities located within the United
States served by the branch as described in Sec. 345.16 and, as
applicable, Sec. Sec. 345.17 and 345.18.
(3) Certain special purpose banks. This part does not apply to
special purpose banks that do not perform commercial or retail banking
services by granting credit to the public in the ordinary course of
business, other than as incident to their specialized operations. These
banks include banker's banks, as defined in 12 U.S.C. 24(Seventh), and
banks that engage only in one or more of the following activities:
providing cash management controlled disbursement services or serving
as correspondent banks, trust companies, or clearing agents.
0
57. Amend Sec. 345.12 as follows:
0
a. Adding the definition of ``Bank'' in alphabetical order;
0
b. In the definition of ``Depository institution'', removing ``12 CFR
25.11, 228.11, and 345.11'' and adding ``Sec. 345.11 and 12 CFR 25.11
and 228.11'' in its place;
0
c. In the definition of ``Distressed or underserved nonmetropolitan
middle-
[[Page 7206]]
income census tract'', removing ``the Federal Deposit Insurance
Corporation (FDIC)'' and adding ``the FDIC'' in its place;
0
d. In the definition of ``Large depository institution'', removing ``12
CFR 228.26(a) or 345.26(a)'' and adding ``Sec. 345.26(a) or 12 CFR
228.26(a)'' in its place; and
0
e. Adding the definition of ``Operating subsidiary'' in alphabetical
order.
The additions read as follows:
Sec. 345.12 Definitions.
* * * * *
Bank means a State nonmember bank, as that term is defined in
section 3(e)(2) of the Federal Deposit Insurance Act (FDIA) (12 U.S.C.
1813(e)(2)), with federally insured deposits, except as defined in
Sec. 345.11(c). The term bank also includes an insured State branch as
defined in Sec. 345.11(c).
* * * * *
Operating subsidiary, for purposes of this part, means an operating
subsidiary as described in 12 CFR 5.34.
* * * * *
0
58. Delayed indefinitely, further amend Sec. 345.12 by:
0
a. In the definition of ``Loan location'', revising paragraph (3);
0
b. In the definition of ``Reported loan'', revising paragraph (2); and
0
c. Revising the definitions of ``Small business'', ``Small business
loan'', ``Small farm'', and ``Small farm loan''.
The revisions read as follows:
Sec. 345.12 Definitions.
* * * * *
Loan location * * *
(3) A small business loan or small farm loan is located in the
census tract reported pursuant to subpart B of 12 CFR part 1002.
* * * * *
Reported loan means * * *
(2) A small business loan or small farm loan reported by a bank
pursuant to subpart B of 12 CFR part 1002.
* * * * *
Small business means a small business, other than a small farm, as
defined in section 704B of the Equal Credit Opportunity Act (15 U.S.C.
1691c-2) and implemented by 12 CFR 1002.106.
Small business loan means a loan to a small business as defined in
this section.
Small farm means a small business, as defined in section 704B of
the Equal Credit Opportunity Act (15 U.S.C. 1691c-2) and implemented by
12 CFR 1002.106, and that is identified with one of the 3-digit North
American Industry Classification System (NAICS) codes 111-115.
Small farm loan means a loan to a small farm as defined in this
section.
* * * * *
Sec. 345.13 [Amended]
0
59. Amend Sec. 345.13 in paragraph (k) by removing ``part 25, 228, or
345 of this title'' and adding ``this part or 12 CFR part 25 or 228''
in its place.
Sec. 345.14 [Amended]
0
60. Amend Sec. 345.14 in paragraphs (b)(2)(ii) and (b)(3) by removing
``[other Agencies]'' and adding in its place ``Board and OCC''.
Sec. 345.21 [Amended]
0
61. Amend Sec. 345.21 in paragraph (b)(1) by removing ``12 CFR part
25, 228, or 345'' and adding ``this part or 12 CFR part 25 or 228'' in
its place.
Sec. 345.22 [Amended]
0
62. Delayed indefinitely, amend Sec. 345.22 by:
0
a. Removing the term ``Businesses'' in paragraphs (e)(2)(ii)(C) and (D)
and adding in its place ``Small businesses''; and
0
b. Removing the term ``Farms'' in paragraphs (e)(2)(ii)(E) and (F) and
adding in its place ``Small farms''.
Sec. 345.26 [Amended]
0
63. Amend Sec. 345.26 by:
0
a. In paragraph (f)(2)(ii)(A), removing ``12 CFR 228.26(a) or
345.26(a)'' and ``12 CFR 25.42(b), 228.42(b), or 345.42(b)'' and adding
``paragraph (a) of this section or 12 CFR 228.26(a)'' and ``Sec.
345.42(b) or 12 CFR 25.42(b) or 228.42(b)'' in their places,
respectively; and
0
b. In paragraph (f)(2)(ii)(B), removing ``12 CFR 25.42(b), 228.42(b),
or 345.42(b)'' and adding ``Sec. 345.42(b) or 12 CFR 25.42(b) or
228.42(b)'' in its place.
0
64. Add Sec. 345.31 to read as follows:
Sec. 345.31 Effect of CRA performance on applications.
(a) CRA performance. Among other factors, the FDIC takes into
account the record of performance under the CRA of each applicant bank
in considering an application for approval of:
(1) The establishment of a domestic branch or other facility with
the ability to accept deposits;
(2) The relocation of the bank's main office or a branch;
(3) The merger, consolidation, acquisition of assets, or assumption
of liabilities; and
(4) Deposit insurance for a newly chartered financial institution.
(b) New financial institutions. A newly chartered financial
institution shall submit with its application for deposit insurance a
description of how it will meet its CRA objectives. The FDIC takes the
description into account in considering the application and may deny or
condition approval on that basis.
(c) Interested parties. The FDIC takes into account any views
expressed by interested parties that are submitted in accordance with
the FDIC's procedures set forth in part 303 of this chapter in
considering CRA performance in an application listed in paragraphs (a)
and (b) of this section.
(d) Denial or conditional approval of application. A bank's record
of performance may be the basis for denying or conditioning approval of
an application listed in paragraph (a) of this section.
Sec. 345.42 [Amended]
0
65. Amend Sec. 345.42 by:
0
a. In paragraph (h), removing ``12 CFR part 25, 228, or 345'' and
adding ``this part or 12 CFR part 25 or 228'' in its place; and
0
b. In paragraph (j)(2), removing ``[Agency]'s'' and adding ``FDIC's''
in its place.
0
66. Delayed indefinitely, further amend Sec. 345.42 by:
0
a. Revising paragraph (a)(1);
0
b. Removing and reserving paragraph (b)(1); and
0
c. Removing the phrase ``small business loans and small farm loans
reported as originated or purchased'' in paragraphs (g)(1)(i) and
(g)(2)(i) wherever it appears and adding in its place ``small business
loans and small farm loans reported as originated''.
The revision reads as follows:
Sec. 345.42 Data collection, reporting, and disclosure.
(a) * * *
(1) Purchases of small business loans and small farm loans data. A
bank that opts to have the FDIC consider its purchases of small
business loans and small farm loans must collect and maintain in
electronic form, as prescribed by the FDIC, until the completion of the
bank's next CRA examination in which the data are evaluated, the
following data for each small business loan or small farm loan
purchased by the bank during the evaluation period:
(i) A unique number or alpha-numeric symbol that can be used to
identify the relevant loan file;
(ii) An indicator for the loan type as reported on the bank's Call
Report or on the bank's Report of Assets and Liabilities of U.S.
Branches and
[[Page 7207]]
Agencies of Foreign Banks, as applicable;
(iii) The date of the loan purchase;
(iv) The loan amount at purchase;
(v) The loan location, including State, county, and census tract;
(vi) An indicator for whether the purchased loan was to a business
or farm with gross annual revenues of $250,000 or less;
(vii) An indicator for whether the purchased loan was to a business
or farm with gross annual revenues greater than $250,000 but less than
or equal to $1 million;
(viii) An indicator for whether the purchased loan was to a
business or farm with gross annual revenues greater than $1 million;
and
(ix) An indicator for whether the purchased loan was to a business
or farm for which gross annual revenues are not known by the bank.
* * * * *
Sec. 345.43 [Amended]
0
67. Amend Sec. 345.43 in paragraph (b)(2)(i) by removing ``[operations
subsidiaries' or operating subsidiaries']'' and adding ``operating
subsidiaries' '' in its place.
* * *
0
68. Delayed indefinitely, further amend Sec. 345.43 by:
0
a. Revising the heading of paragraph (b)(2); and
0
b. Adding paragraph (b)(2)(iii).
The revision and addition read as follows:
Sec. 345.43 Content and availability of public file.
* * * * *
(b) * * *
(2) Banks required to report HMDA data and small business lending
data. * * *
(iii) Small business lending data notice. A bank required to report
small business loan or small farm loan data pursuant to 12 CFR part
1002 must include in its public file a written notice that the bank's
small business loan and small farm loan data may be obtained on the
CFPB's website at: https://www.consumerfinance.gov/data-research/small-business-lending/.
* * * * *
Sec. 345.46 [Amended]
0
69. Amend Sec. 345.46 in paragraph (b) by removing ``[Agency contact
information]'' and adding in its place ``[email protected]
or to the address of the appropriate FDIC regional office found at
https://www.fdic.gov/resources/bankers/community-reinvestment-act/cra-regional-contacts-list.html''.
Sec. 345.51 [Amended]
0
70. Amend Sec. 345.51 in paragraph (e) by removing ``[other Agencies'
regulations]'' and adding ``12 CFR part 25 or 228'' in its place.
Appendix A to Part 345 [Amended]
0
71. Amend appendix A by:
0
a. In paragraph I.b introductory text, removing ``12 CFR 25.42(b)(1),
228.42(b)(1), or 345.42(b)(1) or 12 CFR part 1003'' and adding ``Sec.
345.42(b)(1), 12 CFR 25.42(b)(1) or 228.42(b)(1), or 12 CFR part 1003''
in its place; and
0
b. In paragraph I.b.2, removing ``12 CFR 25.42(b)(3), 228.42(b)(3), or
345.42(b)(3)'' and adding ``Sec. 345.42(b)(3) or 12 CFR 25.42(b)(3) or
228.42(b)(3)'' in its place.
0
72. Delayed indefinitely, further amend appendix A by:
0
a. Adding a sentence at the end of paragraph I.a.1;
0
b. Removing the phrase ``subject to reporting pursuant to Sec.
345.42(b)(1), 12 CFR 25.42(b)(1) or 228.42(b)(1),'' in paragraph I.b
introductory text and adding in its place the phrase ``subject to
reporting pursuant to subpart B of 12 CFR part 1002'';
0
c. Adding a sentence at the end of paragraph III.a.1;
0
d. Revising paragraphs III.c.3.i and ii, III.c.4.i and ii, III.c.5.i
and ii, and III.c.6.i and ii;
0
e. In paragraph III.c.8.iii, revising Example A-7;
0
f. Revising the third and fourth introductory paragraphs to section IV;
0
g. Adding a sentence at the end of paragraph IV.a.1;
0
h. Revising the introductory paragraph to IV.c.3 and paragraphs
IV.c.3.i and ii;
0
i. Revising the introductory paragraph to IV.c.4 and paragraphs
IV.c.4.i and ii;
0
j. Revising the introductory paragraph to IV.c.5 and paragraphs
IV.c.5.i and ii;
0
k. Revising the introductory paragraph to IV.c.6 and paragraphs
IV.c.6.i and ii;
0
l. In section V, in paragraph a, in table 1, revising the entries for
``Small Business Loans'' and ``Small Farm Loans''; and
0
m. In section VII:
0
i. In paragraph a.1.ii, in table 3, revising the entries for ``Small
Business Loans'' and ``Small Farm Loans''; and
0
ii. In paragraph a.1.iii, in table 4, revising the entries for ``Small
Business Loans'' and ``Small Farm Loans''.
The additions and revisions read as follows:
Appendix A to Part 345--Calculations for the Retail Lending Test
* * * * *
I. * * *
a. * * *
1. * * * A bank's loan purchases that otherwise meet the
definition of a covered credit transaction to a small business, as
those terms are defined in 12 CFR 1002.104 and 1002.106(b), may be
included in the numerator of the Bank Volume Metric at the bank's
option.
* * * * *
III. * * *
a. * * *
1. * * * A bank's loan purchases that otherwise meet the
definition of a covered credit transaction to a small business, as
provided in 12 CFR 1002.104 and 1002.106(b), may be included in the
numerator of the Geographic Bank Metric at the bank's option.
* * * * *
c. * * *
3. * * *
i. Summing, over the years in the evaluation period, the numbers
of small businesses in low-income census tracts in the facility-
based assessment area or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the
numbers of small businesses in the facility-based assessment area or
retail lending assessment area.
* * * * *
4. * * *
i. Summing, over the years in the evaluation period, the numbers
of small businesses in moderate-income census tracts in the
facility-based assessment area or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the
numbers of small businesses in the facility-based assessment area or
retail lending assessment area.
* * * * *
5. * * *
i. Summing, over the years in the evaluation period, the numbers
of small farms in low-income census tracts in the facility-based
assessment area or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the
numbers of small farms in the facility-based assessment area or
retail lending assessment area.
* * * * *
6. * * *
i. Summing, over the years in the evaluation period, the numbers
of small farms in moderate-income census tracts in the facility-
based assessment area or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the
numbers of small farms in the facility-based assessment area or
retail lending assessment area.
* * * * *
8. * * *
iii. * * *
Example A-7: The applicable benchmark uses a three-year
evaluation period. There were 4,000 small business establishments,
based upon the sum of the numbers of small business establishments
over the years in the evaluation period (1,300 small business
establishments in year 1, 1,300 small business establishments in
year 2, and 1,400
[[Page 7208]]
small business establishments in year 3), in a bank's facility-based
assessment area. Of these small business establishments, 500 small
business establishments were in low-income census tracts, based upon
the sum of the numbers of small business establishments in low-
income census tracts over the years in the evaluation period (200
small business establishments in year 1,150 small business in year
2, and 150 small business establishments in year 3). The Geographic
Community Benchmark for small business loans in low-income census
tracts would be 500 divided by 4,000, or 0.125 (equivalently, 12.5
percent). In addition, 1,000 small business establishments in that
facility-based assessment area were in moderate-income census
tracts, over the years in the evaluation period (400 small business
establishments in year 1,300 small business establishments in year
2, and 300 small business establishments in year 3). The Geographic
Community Benchmark for small business loans in moderate-income
census tracts would be 1,000 divided by 4,000, or 0.25
(equivalently, 25 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.102
* * * * *
IV. * * *
For small business loans, the FDIC calculates these metrics and
benchmarks for each of the following designated borrowers: (i) small
businesses with gross annual revenues of $250,000 or less; and (ii)
small businesses with gross annual revenues of more than $250,000
but less than or equal to $1 million.
For small farm loans, the FDIC calculates these metrics and
benchmarks for each of the following designated borrowers: (i) small
farms with gross annual revenues of $250,000 or less; and (ii) small
farms with gross annual revenues of more than $250,000 but less than
or equal to $1 million.
* * * * *
a. * * *
1. * * * A bank's loan purchases that otherwise meet the
definition of a covered credit transaction to a small business, as
provided in 12 CFR 1002.104 and 1002.106(b), may be included in the
numerator of the Borrower Bank Metric at the bank's option.
* * * * *
c. * * *
3. For small business loans, the FDIC calculates a Borrower
Community Benchmark for small businesses with gross annual revenues
of $250,000 or less by:
i. Summing, over the years in the evaluation period, the numbers
of small businesses with gross annual revenues of $250,000 or less
in the facility-based lending area or retail lending assessment
area.
ii. Summing, over the years in the evaluation period, the
numbers of small businesses in the facility-based lending area or
retail lending assessment area.
* * * * *
4. For small business loans, the FDIC calculates a Borrower
Community Benchmark for small businesses with gross annual revenues
of more than $250,000 but less than or equal to $1 million by:
i. Summing, over the years in the evaluation period, the numbers
of small businesses with gross annual revenues of more than $250,000
but less than or equal to $1 million in the facility-based lending
area or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the
numbers of small businesses in the facility-based lending area or
retail lending assessment area.
* * * * *
5. For small farm loans, the FDIC calculates a Borrower
Community Benchmark for small farms with gross annual revenues of
$250,000 or less by:
i. Summing, over the years in the evaluation period, the numbers
of small farms with gross annual revenues of $250,000 or less in the
facility-based lending area or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the
numbers of small farms in the facility-based lending area or retail
lending assessment area.
* * * * *
6. For small farm loans, the FDIC calculates a Borrower
Community Benchmark for small farms with gross annual revenues of
more than $250,000 but less than or equal to $1 million by:
i. Summing, over the years in the evaluation period, the numbers
of small farms with gross annual revenues of more than $250,000 but
less than or equal to $1 million in the facility-based lending area
or retail lending assessment area.
ii. Summing, over the years in the evaluation period, the
numbers of small farms in the facility-based lending area or retail
lending assessment area.
* * * * *
V. * * *
a. * * *
Table 1 to Appendix A--Retail Lending Test Categories of Designated
Census Tracts and Designated Borrowers
------------------------------------------------------------------------
Designated census
Major product line tracts Designated borrowers
------------------------------------------------------------------------
* * * * * * *
Small Business Loans.......... Low-Income Census Small businesses with
Tracts. Gross Annual
Revenues of $250,000
or Less.
Moderate-Income Small businesses with
Census Tracts. Gross Annual
Revenues Greater
than $250,000 but
Less Than or Equal
to $1 million.
Small Farm Loans.............. Low-Income Census Small farms with
Tracts. Gross Annual
Revenues of $250,000
or Less.
Moderate-Income Small farms with
Census Tracts. Gross Annual
Revenues Greater
than $250,000 but
Less Than or Equal
to $1 million.
------------------------------------------------------------------------
[[Page 7209]]
* * * * *
VII. * * *
a. * * *
1. * * *
ii. * * *
Table 3 to Appendix A--Retail Lending Test, Geographic Distribution
Average--Weights
------------------------------------------------------------------------
Category of
Major product line designated census Weight
tracts
------------------------------------------------------------------------
* * * * * * *
Small Business Loans.......... Low-Income Census Percentage of total
Tracts. number of small
businesses in low-
and moderate-income
census tracts in the
applicable Retail
Lending Test Area
that are in low-
income census
tracts.
Moderate-Income Percentage of total
Census Tracts. number of small
businesses in low-
and moderate-income
census tracts in the
applicable Retail
Lending Test Area
that are in moderate-
income census
tracts.
Small Farm Loans.............. Low-Income Census Percentage of total
Tracts. number of small
farms in low- and
moderate-income
census tracts in the
applicable Retail
Lending Test Area
that are in low-
income census
tracts.
Moderate-Income Percentage of total
Census Tracts. number of small
farms in low- and
moderate-income
census tracts in the
applicable Retail
Lending Test Area
that are in moderate-
income census
tracts.
* * * * * * *
------------------------------------------------------------------------
* * * * *
iii. * * *
Table 4 to Appendix A--Retail Lending Test, Borrower Distribution
Average--Weights
------------------------------------------------------------------------
Categories of
Major product line designated Weight
borrowers
------------------------------------------------------------------------
* * * * * * *
Small Business Loans.......... Small businesses Percentage of total
with gross number of small
annual revenues businesses with
of $250,000 or gross annual
less. revenues of $250,000
or less and small
businesses with
gross annual
revenues greater
than $250,000 but
less than or equal
to $1 million in the
applicable Retail
Lending Test Area
that are small
businesses with
gross annual
revenues of $250,000
or less.
Small businesses Percentage of total
with gross number of small
annual revenues businesses with
greater than gross annual
$250,000 and revenues of $250,000
less than or or less and small
equal to $1 businesses with
million. gross annual
revenues greater
than $250,000 but
less than or equal
to $1 million in the
applicable Retail
Lending Test Area
that are small
businesses with
gross annual
revenues greater
than $250,00 but
less than or equal
to $1 million.
Small Farm Loans.............. Small farms with Percentage of total
gross annual number of small
revenues of farms with gross
$250,000 or less. annual revenues of
$250,000 or less and
small farms with
gross annual
revenues greater
than $250,000 but
less than or equal
to $1 million in the
applicable Retail
Lending Test Area
that are small farms
with gross annual
revenues of $250,000
or less.
Small farms with Percentage of total
gross annual number of small
revenues greater farms with gross
than $250,000 annual revenues of
and less than or $250,000 or less and
equal to $1 small farms with
million. gross annual
revenues greater
than $250,000 but
less than or equal
to $1 million in the
applicable Retail
Lending Test Area
that are small farms
with gross annual
revenues greater
than $250,000 but
less than or equal
to $1 million.
* * * * * * *
------------------------------------------------------------------------
* * * * *
Appendix B to Part 345 [Amended]
0
73. Amend appendix B by:
0
a. In paragraph I.a.2.i, removing ``12 CFR 25.42, 228.42, or 345.42''
and adding ``Sec. 345.42 or 12 CFR 25.42 or 228.42'' in its place;
0
b. In paragraphs III.b.1 and 2, removing ``12 CFR 228.26(a) or
345.26(a)'' and ``12 CFR 25.42(b), 228.42(b), or 345.42(b)'' and adding
``Sec. 345.26(a) or 12 CFR 228.26(a)'' and ``Sec. 345.42(b) or 12 CFR
25.42(b) or 228.42(b)'' in their places, respectively; and
0
c. In paragraphs c.1 and 2, removing ``12 CFR 25.42(b), 228.42(b), or
345.42(b)'' and adding ``Sec. 345.42(b) or 12 CFR 25.42(b) or
228.42(b)'' in its place.
0
74. Add appendix F to read as follows:
Appendix F to Part 345--CRA Notice
(a) Notice for main offices and, if an interstate bank, one
branch office in each State.
Community Reinvestment Act Notice
Under the Federal Community Reinvestment Act (CRA), the Federal
Deposit Insurance Corporation (FDIC) evaluates our record of helping
to meet the credit needs of this community consistent with safe and
sound operations. The FDIC also takes this
[[Page 7210]]
record into account when deciding on certain applications submitted
by us.
Your involvement is encouraged.
You are entitled to certain information about our operations and
our performance under the CRA, including, for example, information
about our branches, such as their location and services provided at
them; the public section of our most recent CRA Performance
Evaluation, prepared by the FDIC; and comments received from the
public relating to our performance in helping to meet community
credit needs, as well as our responses to those comments. You may
review this information today.
At least 30 days before the beginning of each calendar quarter,
the FDIC publishes a nationwide list of the banks that are scheduled
for CRA examination for the next two quarters. This list is
available from the Regional Director, FDIC (address). You may send
written comments about our performance in helping to meet community
credit needs to (name and address of official at bank) and FDIC
Regional Director. You may also submit comments electronically
through the FDIC's website at www.fdic.gov/regulations/cra. Your
letter, together with any response by us, will be considered by the
FDIC in evaluating our CRA performance and may be made public.
You may ask to look at any comments received by the FDIC
Regional Director. You may also request from the FDIC Regional
Director an announcement of our applications covered by the CRA
filed with the FDIC. [We are an affiliate of (name of holding
company), a bank holding company. You may request from the (title of
responsible official), Federal Reserve Bank of _______(address) an
announcement of applications covered by the CRA filed by bank
holding companies.]
(b) Notice for branch offices.
Community Reinvestment Act Notice
Under the Federal Community Reinvestment Act (CRA), the Federal
Deposit Insurance Corporation (FDIC) evaluates our record of helping
to meet the credit needs of this community consistent with safe and
sound operations. The FDIC also takes this record into account when
deciding on certain applications submitted by us.
Your involvement is encouraged.
You are entitled to certain information about our operations and
our performance under the CRA. You may review today the public
section of our most recent CRA evaluation, prepared by the FDIC, and
a list of services provided at this branch. You may also have access
to the following additional information, which we will make
available to you at this branch within five calendar days after you
make a request to us: (1) a map showing the assessment area
containing this branch, which is the area in which the FDIC
evaluates our CRA performance in this community; (2) information
about our branches in this assessment area; (3) a list of services
we provide at those locations; (4) data on our lending performance
in this assessment area; and (5) copies of all written comments
received by us that specifically relate to our CRA performance in
this assessment area, and any responses we have made to those
comments. If we are operating under an approved strategic plan, you
may also have access to a copy of the plan.
[If you would like to review information about our CRA
performance in other communities served by us, the public file for
our entire bank is available at (name of office located in state),
located at (address).]
At least 30 days before the beginning of each calendar quarter,
the FDIC publishes a nationwide list of the banks that are scheduled
for CRA examination for the next two quarters. This list is
available from the Regional Director, FDIC (address). You may send
written comments about our performance in helping to meet community
credit needs to (name and address of official at bank) and the FDIC
Regional Director. You may also submit comments electronically
through the FDIC's website at www.fdic.gov/regulations/cra. Your
letter, together with any response by us, will be considered by the
FDIC in evaluating our CRA performance and may be made public.
You may ask to look at any comments received by the FDIC
Regional Director. You may also request from the FDIC Regional
Director an announcement of our applications covered by the CRA
filed with the FDIC. [We are an affiliate of (name of holding
company), a bank holding company. You may request from the (title of
responsible official), Federal Reserve Bank of _______(address) an
announcement of applications covered by the CRA filed by bank
holding companies.]
0
75. Effective April 1, 2024, through January 1, 2031, add appendix G to
read as follows:
Appendix G to Part 345--Community Reinvestment Regulations
Note: The content of this appendix reproduces part 345
implementing the Community Reinvestment Act as of March 31, 2024.
Cross-references to CFR parts (as well as to included sections,
subparts, and appendices) in this appendix are to those provisions
as contained within this appendix and the CFR as of March 31, 2024.
PART 345--COMMUNITY REINVESTMENT
Subpart A--General
Sec. [thinsp]345.11 Authority, purposes, and scope.
(a) Authority and OMB control number--(1) Authority. The authority
for this part is 12 U.S.C. 1814-1817, 1819-1820, 1828, 1831u and 2901-
2907, 3103-3104, and 3108(a).
(2) OMB control number. The information collection requirements
contained in this part were approved by the Office of Management and
Budget under the provisions of 44 U.S.C. 3501 et seq. and have been
assigned OMB control number 3064-0092.
(b) Purposes. In enacting the Community Reinvestment Act (CRA), the
Congress required each appropriate Federal financial supervisory agency
to assess an institution's record of helping to meet the credit needs
of the local communities in which the institution is chartered,
consistent with the safe and sound operation of the institution, and to
take this record into account in the agency's evaluation of an
application for a deposit facility by the institution. This part is
intended to carry out the purposes of the CRA by:
(1) Establishing the framework and criteria by which the Federal
Deposit Insurance Corporation (FDIC) assesses a bank's record of
helping to meet the credit needs of its entire community, including
low- and moderate-income neighborhoods, consistent with the safe and
sound operation of the bank; and
(2) Providing that the FDIC takes that record into account in
considering certain applications.
(c) Scope--(1) General. Except for certain special purpose banks
described in paragraph (c)(3) of this section, this part applies to all
insured State nonmember banks, including insured State branches as
described in paragraph (c)(2) and any uninsured State branch that
results from an acquisition described in section 5(a)(8) of the
International Banking Act of 1978 (12 U.S.C. 3103(a)(8)).
(2) Insured State branches. Insured State branches are branches of
a foreign bank established and operating under the laws of any State,
the deposits of which are insured in accordance with the provisions of
the Federal Deposit Insurance Act. In the case of insured State
branches, references in this part to main office mean the principal
branch within the United States and the term branch or branches refers
to any insured State branch or branches located within the United
States. The assessment area of an insured State branch is the community
or communities located within the United States served by the branch as
described in Sec. 345.41.
(3) Certain special purpose banks. This part does not apply to
special purpose banks that do not perform commercial or retail banking
services by granting credit to the public in the ordinary course of
business, other than as incident to their specialized operations. These
banks include banker's banks, as defined in 12 U.S.C. 24(Seventh), and
banks that engage only in one or more of the following activities:
providing cash management controlled disbursement services or serving
as correspondent banks, trust companies, or clearing agents.
Sec. [thinsp]345.12 Definitions.
For purposes of this part, the following definitions apply:
[[Page 7211]]
(a) Affiliate means any company that controls, is controlled by, or
is under common control with another company. The term control has the
meaning given to that term in 12 U.S.C. 1841(a)(2), and a company is
under common control with another company if both companies are
directly or indirectly controlled by the same company.
(b) Area median income means:
(1) The median family income for the MSA, if a person or geography
is located in an MSA, or for the metropolitan division, if a person or
geography is located in an MSA that has been subdivided into
metropolitan divisions; or
(2) The statewide nonmetropolitan median family income, if a person
or geography is located outside an MSA.
(c) Assessment area means a geographic area delineated in
accordance with Sec. [thinsp]345.41.
(d) Remote Service Facility (RSF) means an automated, unstaffed
banking facility owned or operated by, or operated exclusively for, the
bank, such as an automated teller machine, cash dispensing machine,
point-of-sale terminal, or other remote electronic facility, at which
deposits are received, cash dispersed, or money lent.
(e) Bank means a State nonmember bank, as that term is defined in
section 3(e)(2) of the Federal Deposit Insurance Act, as amended (FDIA)
(12 U.S.C. 1813(e)(2)), with Federally insured deposits, except as
provided in Sec. [thinsp]345.11(c). The term bank also includes an
insured State branch as defined in Sec. [thinsp]345.11(c).
(f) Branch means a staffed banking facility authorized as a branch,
whether shared or unshared, including, for example, a mini-branch in a
grocery store or a branch operated in conjunction with any other local
business or nonprofit organization. The term ``branch'' only includes a
``domestic branch'' as that term is defined in section 3(o) of the FDIA
(12 U.S.C. 1813(o)).
(g) Community development means:
(1) Affordable housing (including multifamily rental housing) for
low- or moderate-income individuals;
(2) Community services targeted to low- or moderate-income
individuals;
(3) Activities that promote economic development by financing
businesses or farms that meet the size eligibility standards of the
Small Business Administration's Development Company or Small Business
Investment Company programs (13 CFR 121.301) or have gross annual
revenues of $1 million or less; or
(4) Activities that revitalize or stabilize--
(i) Low-or moderate-income geographies;
(ii) Designated disaster areas; or
(iii) Distressed or underserved nonmetropolitan middle-income
geographies designated by the Board of Governors of the Federal Reserve
System, FDIC, and Office of the Comptroller of the Currency, based on--
(A) Rates of poverty, unemployment, and population loss; or
(B) Population size, density, and dispersion. Activities revitalize
and stabilize geographies designated based on population size, density,
and dispersion if they help to meet essential community needs,
including needs of low- and moderate-income individuals.
(h) Community development loan means a loan that:
(1) Has as its primary purpose community development; and
(2) Except in the case of a wholesale or limited purpose bank:
(i) Has not been reported or collected by the bank or an affiliate
for consideration in the bank's assessment as a home mortgage, small
business, small farm, or consumer loan, unless the loan is for a
multifamily dwelling (as defined in Sec. [thinsp]1003.2(n) of this
title); and
(ii) Benefits the bank's assessment area(s) or a broader statewide
or regional area that includes the bank's assessment area(s).
(i) Community development service means a service that:
(1) Has as its primary purpose community development;
(2) Is related to the provision of financial services; and
(3) Has not been considered in the evaluation of the bank's retail
banking services under Sec. [thinsp]345.24(d).
(j) Consumer loan means a loan to one or more individuals for
household, family, or other personal expenditures. A consumer loan does
not include a home mortgage, small business, or small farm loan.
Consumer loans include the following categories of loans:
(1) Motor vehicle loan, which is a consumer loan extended for the
purchase of and secured by a motor vehicle;
(2) Credit card loan, which is a line of credit for household,
family, or other personal expenditures that is accessed by a borrower's
use of a ``credit card,'' as this term is defined in Sec.
[thinsp]1026.2 of this title;
(3) Other secured consumer loan, which is a secured consumer loan
that is not included in one of the other categories of consumer loans;
and
(4) Other unsecured consumer loan, which is an unsecured consumer
loan that is not included in one of the other categories of consumer
loans.
(k) Geography means a census tract delineated by the United States
Bureau of the Census in the most recent decennial census.
(l) Home mortgage loan means a closed-end mortgage loan or an open-
end line of credit as these terms are defined under Sec.
[thinsp]1003.2 of this title and that is not an excluded transaction
under Sec. [thinsp]1003.3(c)(1) through (10) and (13) of this title.
(m) Income level includes:
(1) Low-income, which means an individual income that is less than
50 percent of the area median income or a median family income that is
less than 50 percent in the case of a geography.
(2) Moderate-income, which means an individual income that is at
least 50 percent and less than 80 percent of the area median income or
a median family income that is at least 50 and less than 80 percent in
the case of a geography.
(3) Middle-income, which means an individual income that is at
least 80 percent and less than 120 percent of the area median income or
a median family income that is at least 80 and less than 120 percent in
the case of a geography.
(4) Upper-income, which means an individual income that is 120
percent or more of the area median income or a median family income
that is 120 percent or more in the case of a geography.
(n) Limited purpose bank means a bank that offers only a narrow
product line (such as credit card or motor vehicle loans) to a regional
or broader market and for which a designation as a limited purpose bank
is in effect, in accordance with Sec. [thinsp]345.25(b).
(o) Loan location. A loan is located as follows:
(1) A consumer loan is located in the geography where the borrower
resides;
(2) A home mortgage loan is located in the geography where the
property to which the loan relates is located; and
(3) A small business or small farm loan is located in the geography
where the main business facility or farm is located or where the loan
proceeds otherwise will be applied, as indicated by the borrower.
(p) Loan production office means a staffed facility, other than a
branch, that is open to the public and that provides lending-related
services, such as loan information and applications.
(q) Metropolitan division means a metropolitan division as defined
by the Director of the Office of Management and Budget.
(r) MSA means a metropolitan statistical area as defined by the
Director of the Office of Management and Budget.
[[Page 7212]]
(s) Nonmetropolitan area means any area that is not located in an
MSA.
(t) Qualified investment means a lawful investment, deposit,
membership share, or grant that has as its primary purpose community
development.
(u) Small bank--(1) Definition. Small bank means a bank that, as of
December 31 of either of the prior two calendar years, had assets of
less than $1.503 billion. Intermediate small bank means a small bank
with assets of at least $376 million as of December 31 of both of the
prior two calendar years and less than $1.503 billion as of December 31
of either of the prior two calendar years.
(2) Adjustment. The dollar figures in paragraph (u)(1) of this
section shall be adjusted annually and published by the FDIC, based on
the year-to-year change in the average of the Consumer Price Index for
Urban Wage Earners and Clerical Workers, not seasonally adjusted, for
each twelve-month period ending in November, with rounding to the
nearest million.
(v) Small business loan means a loan included in ``loans to small
businesses'' as defined in the instructions for preparation of the
Consolidated Report of Condition and Income.
(w) Small farm loan means a loan included in ``loans to small
farms'' as defined in the instructions for preparation of the
Consolidated Report of Condition and Income.
(x) Wholesale bank means a bank that is not in the business of
extending home mortgage, small business, small farm, or consumer loans
to retail customers, and for which a designation as a wholesale bank is
in effect, in accordance with Sec. [thinsp]345.25(b).
Subpart B--Standards for Assessing Performance
Sec. [thinsp]345.21 Performance tests, standards, and ratings, in
general.
(a) Performance tests and standards. The FDIC assesses the CRA
performance of a bank in an examination as follows:
(1) Lending, investment, and service tests. The FDIC applies the
lending, investment, and service tests, as provided in Sec. Sec.
345.22 through 345.24, in evaluating the performance of a bank, except
as provided in paragraphs (a)(2), (a)(3), and (a)(4) of this section.
(2) Community development test for wholesale or limited purpose
banks. The FDIC applies the community development test for a wholesale
or limited purpose bank, as provided in Sec. [thinsp]345.25, except as
provided in paragraph (a)(4) of this section.
(3) Small bank performance standards. The FDIC applies the small
bank performance standards as provided in Sec. [thinsp]345.26 in
evaluating the performance of a small bank or a bank that was a small
bank during the prior calendar year, unless the bank elects to be
assessed as provided in paragraphs (a)(1), (a)(2), or (a)(4) of this
section. The bank may elect to be assessed as provided in paragraph
(a)(1) of this section only if it collects and reports the data
required for other banks under Sec. [thinsp]345.42.
(4) Strategic plan. The FDIC evaluates the performance of a bank
under a strategic plan if the bank submits, and the FDIC approves, a
strategic plan as provided in Sec. 345.27.
(b) Performance context. The FDIC applies the tests and standards
in paragraph (a) of this section and also considers whether to approve
a proposed strategic plan in the context of:
(1) Demographic data on median income levels, distribution of
household income, nature of housing stock, housing costs, and other
relevant data pertaining to a bank's assessment area(s);
(2) Any information about lending, investment, and service
opportunities in the bank's assessment area(s) maintained by the bank
or obtained from community organizations, state, local, and tribal
governments, economic development agencies, or other sources;
(3) The bank's product offerings and business strategy as
determined from data provided by the bank;
(4) Institutional capacity and constraints, including the size and
financial condition of the bank, the economic climate (national,
regional, and local), safety and soundness limitations, and any other
factors that significantly affect the bank's ability to provide
lending, investments, or services in its assessment area(s);
(5) The bank's past performance and the performance of similarly
situated lenders;
(6) The bank's public file, as described in Sec. 345.43, and any
written comments about the bank's CRA performance submitted to the bank
or the FDIC; and
(7) Any other information deemed relevant by the FDIC.
(c) Assigned ratings. The FDIC assigns to a bank one of the
following four ratings pursuant to Sec. [thinsp]345.28 and Appendix A
of this part: ``outstanding''; ``satisfactory''; ``needs to improve'';
or ``substantial noncompliance'' as provided in 12 U.S.C. 2906(b)(2).
The rating assigned by the FDIC reflects the bank's record of helping
to meet the credit needs of its entire community, including low- and
moderate-income neighborhoods, consistent with the safe and sound
operation of the bank.
(d) Safe and sound operations. This part and the CRA do not require
a bank to make loans or investments or to provide services that are
inconsistent with safe and sound operations. To the contrary, the FDIC
anticipates banks can meet the standards of this part with safe and
sound loans, investments, and services on which the banks expect to
make a profit. Banks are permitted and encouraged to develop and apply
flexible underwriting standards for loans that benefit low- or
moderate-income geographies or individuals, only if consistent with
safe and sound operations.
(e) Low-cost education loans provided to low-income borrowers. In
assessing and taking into account the record of a bank under this part,
the FDIC considers, as a factor, low-cost education loans originated by
the bank to borrowers, particularly in its assessment area(s), who have
an individual income that is less than 50 percent of the area median
income. For purposes of this paragraph, ``low-cost education loans''
means any education loan, as defined in section 140(a)(7) of the Truth
in Lending Act (15 U.S.C. 1650(a)(7)) (including a loan under a state
or local education loan program), originated by the bank for a student
at an ``institution of higher education,'' as that term is generally
defined in sections 101 and 102 of the Higher Education Act of 1965 (20
U.S.C. 1001 and 1002) and the implementing regulations published by the
U.S. Department of Education, with interest rates and fees no greater
than those of comparable education loans offered directly by the U.S.
Department of Education. Such rates and fees are specified in section
455 of the Higher Education Act of 1965 (20 U.S.C. 1087e).
(f) Activities in cooperation with minority- or women-owned
financial institutions and low-income credit unions. In assessing and
taking into account the record of a nonminority-owned and nonwomen-
owned bank under this part, the FDIC considers as a factor capital
investment, loan participation, and other ventures undertaken by the
bank in cooperation with minority- and women-owned financial
institutions and low-income credit unions. Such activities must help
meet the credit needs of local communities in which the minority- and
women-owned financial institutions and low-income credit unions are
chartered. To be considered, such activities need not also benefit the
bank's assessment area(s) or the broader
[[Page 7213]]
statewide or regional area that includes the bank's assessment area(s).
Sec. 345.22 Lending test.
(a) Scope of test. (1) The lending test evaluates a bank's record
of helping to meet the credit needs of its assessment area(s) through
its lending activities by considering a bank's home mortgage, small
business, small farm, and community development lending. If consumer
lending constitutes a substantial majority of a bank's business, the
FDIC will evaluate the bank's consumer lending in one or more of the
following categories: motor vehicle, credit card, other secured, and
other unsecured loans. In addition, at a bank's option, the FDIC will
evaluate one or more categories of consumer lending, if the bank has
collected and maintained, as required in Sec. [thinsp]345.42(c)(1),
the data for each category that the bank elects to have the FDIC
evaluate.
(2) The FDIC considers originations and purchases of loans. The
FDIC will also consider any other loan data the bank may choose to
provide, including data on loans outstanding, commitments and letters
of credit.
(3) A bank may ask the FDIC to consider loans originated or
purchased by consortia in which the bank participates or by third
parties in which the bank has invested only if the loans meet the
definition of community development loans and only in accordance with
paragraph (d) of this section. The FDIC will not consider these loans
under any criterion of the lending test except the community
development lending criterion.
(b) Performance criteria. The FDIC evaluates a bank's lending
performance pursuant to the following criteria:
(1) Lending activity. The number and amount of the bank's home
mortgage, small business, small farm, and consumer loans, if
applicable, in the bank's assessment area(s);
(2) Geographic distribution. The geographic distribution of the
bank's home mortgage, small business, small farm, and consumer loans,
if applicable, based on the loan location, including:
(i) The proportion of the bank's lending in the bank's assessment
area(s);
(ii) The dispersion of lending in the bank's assessment area(s);
and
(iii) The number and amount of loans in low-, moderate-, middle-,
and upper-income geographies in the bank's assessment area(s);
(3) Borrower characteristics. The distribution, particularly in the
bank's assessment area(s), of the bank's home mortgage, small business,
small farm, and consumer loans, if applicable, based on borrower
characteristics, including the number and amount of:
(i) Home mortgage loans to low-, moderate-, middle-, and upper-
income individuals;
(ii) Small business and small farm loans to businesses and farms
with gross annual revenues of $1 million or less;
(iii) Small business and small farm loans by loan amount at
origination; and
(iv) Consumer loans, if applicable, to low-, moderate-, middle-,
and upper-income individuals;
(4) Community development lending. The bank's community development
lending, including the number and amount of community development
loans, and their complexity and innovativeness; and
(5) Innovative or flexible lending practices. The bank's use of
innovative or flexible lending practices in a safe and sound manner to
address the credit needs of low- or moderate-income individuals or
geographies.
(c) Affiliate lending. (1) At a bank's option, the FDIC will
consider loans by an affiliate of the bank, if the bank provides data
on the affiliate's loans pursuant to Sec. [thinsp]345.42.
(2) The FDIC considers affiliate lending subject to the following
constraints:
(i) No affiliate may claim a loan origination or loan purchase if
another institution claims the same loan origination or purchase; and
(ii) If a bank elects to have the FDIC consider loans within a
particular lending category made by one or more of the bank's
affiliates in a particular assessment area, the bank shall elect to
have the FDIC consider, in accordance with paragraph (c)(1) of this
section, all the loans within that lending category in that particular
assessment area made by all of the bank's affiliates.
(3) The FDIC does not consider affiliate lending in assessing a
bank's performance under paragraph (b)(2)(i) of this section.
(d) Lending by a consortium or a third party. Community development
loans originated or purchased by a consortium in which the bank
participates or by a third party in which the bank has invested:
(1) Will be considered, at the bank's option, if the bank reports
the data pertaining to these loans under Sec. 345.42(b)(2); and
(2) May be allocated among participants or investors, as they
choose, for purposes of the lending test, except that no participant or
investor:
(i) May claim a loan origination or loan purchase if another
participant or investor claims the same loan origination or purchase;
or
(ii) May claim loans accounting for more than its percentage share
(based on the level of its participation or investment) of the total
loans originated by the consortium or third party.
(e) Lending performance rating. The FDIC rates a bank's lending
performance as provided in Appendix A of this part.
Sec. 345.23 Investment test.
(a) Scope of test. The investment test evaluates a bank's record of
helping to meet the credit needs of its assessment area(s) through
qualified investments that benefit its assessment area(s) or a broader
statewide or regional area that includes the bank's assessment area(s).
(b) Exclusion. Activities considered under the lending or service
tests may not be considered under the investment test.
(c) Affiliate investment. At a bank's option, the FDIC will
consider, in its assessment of a bank's investment performance, a
qualified investment made by an affiliate of the bank, if the qualified
investment is not claimed by any other institution.
(d) Disposition of branch premises. Donating, selling on favorable
terms, or making available on a rent-free basis a branch of the bank
that is located in a predominantly minority neighborhood to a minority
depository institution or women's depository institution (as these
terms are defined in 12 U.S.C. 2907(b)) will be considered as a
qualified investment.
(e) Performance criteria. The FDIC evaluates the investment
performance of a bank pursuant to the following criteria:
(1) The dollar amount of qualified investments;
(2) The innovativeness or complexity of qualified investments;
(3) The responsiveness of qualified investments to credit and
community development needs; and
(4) The degree to which the qualified investments are not routinely
provided by private investors.
(f) Investment performance rating. The FDIC rates a bank's
investment performance as provided in Appendix A of this part.
Sec. [thinsp]345.24 Service test.
(a) Scope of test. The service test evaluates a bank's record of
helping to meet the credit needs of its assessment area(s) by analyzing
both the availability and effectiveness of a bank's systems for
delivering retail banking services and the extent and innovativeness of
its community development services.
(b) Area(s) benefited. Community development services must benefit
a bank's assessment area(s) or a broader
[[Page 7214]]
statewide or regional area that includes the bank's assessment area(s).
(c) Affiliate service. At a bank's option, the FDIC will consider,
in its assessment of a bank's service performance, a community
development service provided by an affiliate of the bank, if the
community development service is not claimed by any other institution.
(d) Performance criteria--retail banking services. The FDIC
evaluates the availability and effectiveness of a bank's systems for
delivering retail banking services, pursuant to the following criteria:
(1) The current distribution of the bank's branches among low-,
moderate-, middle-, and upper-income geographies;
(2) In the context of its current distribution of the bank's
branches, the bank's record of opening and closing branches,
particularly branches located in low- or moderate-income geographies or
primarily serving low- or moderate-income individuals;
(3) The availability and effectiveness of alternative systems for
delivering retail banking services (e.g., RSFs, RSFs not owned or
operated by or exclusively for the bank, banking by telephone or
computer, loan production offices, and bank-at-work or bank-by-mail
programs) in low- and moderate-income geographies and to low- and
moderate-income individuals; and
(4) The range of services provided in low-, moderate-, middle-, and
upper-income geographies and the degree to which the services are
tailored to meet the needs of those geographies.
(e) Performance criteria--community development services. The FDIC
evaluates community development services pursuant to the following
criteria:
(1) The extent to which the bank provides community development
services; and
(2) The innovativeness and responsiveness of community development
services.
(f) Service performance rating. The FDIC rates a bank's service
performance as provided in Appendix A of this part.
Sec. [thinsp]345.25 Community development test for wholesale or
limited purpose banks.
(a) Scope of test. The FDIC assesses a wholesale or limited purpose
bank's record of helping to meet the credit needs of its assessment
area(s) under the community development test through its community
development lending, qualified investments, or community development
services.
(b) Designation as a wholesale or limited purpose bank. In order to
receive a designation as a wholesale or limited purpose bank, a bank
shall file a request, in writing, with the FDIC, at least three months
prior to the proposed effective date of the designation. If the FDIC
approves the designation, it remains in effect until the bank requests
revocation of the designation or until one year after the FDIC notifies
the bank that the FDIC has revoked the designation on its own
initiative.
(c) Performance criteria. The FDIC evaluates the community
development performance of a wholesale or limited purpose bank pursuant
to the following criteria:
(1) The number and amount of community development loans (including
originations and purchases of loans and other community development
loan data provided by the bank, such as data on loans outstanding,
commitments, and letters of credit), qualified investments, or
community development services;
(2) The use of innovative or complex qualified investments,
community development loans, or community development services and the
extent to which the investments are not routinely provided by private
investors; and
(3) The bank's responsiveness to credit and community development
needs.
(d) Indirect activities. At a bank's option, the FDIC will consider
in its community development performance assessment:
(1) Qualified investments or community development services
provided by an affiliate of the bank, if the investments or services
are not claimed by any other institution; and
(2) Community development lending by affiliates, consortia and
third parties, subject to the requirements and limitations in Sec.
[thinsp]345.22 (c) and (d).
(e) Benefit to assessment area(s)--(1) Benefit inside assessment
area(s). The FDIC considers all qualified investments, community
development loans, and community development services that benefit
areas within the bank's assessment area(s) or a broader statewide or
regional area that includes the bank's assessment area(s).
(2) Benefit outside assessment area(s). The FDIC considers the
qualified investments, community development loans, and community
development services that benefit areas outside the bank's assessment
area(s), if the bank has adequately addressed the needs of its
assessment area(s).
(f) Community development performance rating. The FDIC rates a
bank's community development performance as provided in Appendix A of
this part.
Sec. [thinsp]345.26 Small bank performance standards.
(a) Performance criteria--(1) Small banks that are not intermediate
small banks. The FDIC evaluates the record of a small bank that is not,
or that was not during the prior calendar year, an intermediate small
bank, of helping to meet the credit needs of its assessment area(s)
pursuant to the criteria set forth in paragraph (b) of this section.
(2) Intermediate small banks. The FDIC evaluates the record of a
small bank that is, or that was during the prior calendar year, an
intermediate small bank, of helping to meet the credit needs of its
assessment area(s) pursuant to the criteria set forth in paragraphs (b)
and (c) of this section.
(b) Lending test. A small bank's lending performance is evaluated
pursuant to the following criteria:
(1) The bank's loan-to-deposit ratio, adjusted for seasonal
variation, and, as appropriate, other lending-related activities, such
as loan originations for sale to the secondary markets, community
development loans, or qualified investments;
(2) The percentage of loans and, as appropriate, other lending-
related activities located in the bank's assessment area(s);
(3) The bank's record of lending to and, as appropriate, engaging
in other lending-related activities for borrowers of different income
levels and businesses and farms of different sizes;
(4) The geographic distribution of the bank's loans; and
(5) The bank's record of taking action, if warranted, in response
to written complaints about its performance in helping to meet credit
needs in its assessment area(s).
(c) Community development test. An intermediate small bank's
community development performance also is evaluated pursuant to the
following criteria:
(1) The number and amount of community development loans;
(2) The number and amount of qualified investments;
(3) The extent to which the bank provides community development
services; and
(4) The bank's responsiveness through such activities to community
development lending, investment, and services needs.
(d) Small bank performance rating. The FDIC rates the performance
of a bank evaluated under this section as provided in appendix A of
this part.
Sec. 345.27 Strategic plan.
(a) Alternative election. The FDIC will assess a bank's record of
helping to meet
[[Page 7215]]
the credit needs of its assessment area(s) under a strategic plan if:
(1) The bank has submitted the plan to the FDIC as provided for in
this section;
(2) The FDIC has approved the plan;
(3) The plan is in effect; and
(4) The bank has been operating under an approved plan for at least
one year.
(b) Data reporting. The FDIC's approval of a plan does not affect
the bank's obligation, if any, to report data as required by Sec.
[thinsp]345.42.
(c) Plans in general--(1) Term. A plan may have a term of no more
than five years, and any multi-year plan must include annual interim
measurable goals under which the FDIC will evaluate the bank's
performance.
(2) Multiple assessment areas. A bank with more than one assessment
area may prepare a single plan for all of its assessment areas or one
or more plans for one or more of its assessment areas.
(3) Treatment of affiliates. Affiliated institutions may prepare a
joint plan if the plan provides measurable goals for each institution.
Activities may be allocated among institutions at the institutions'
option, provided that the same activities are not considered for more
than one institution.
(d) Public participation in plan development. Before submitting a
plan to the FDIC for approval, a bank shall:
(1) Informally seek suggestions from members of the public in its
assessment area(s) covered by the plan while developing the plan;
(2) Once the bank has developed a plan, formally solicit public
comment on the plan for at least 30 days by publishing notice in at
least one newspaper of general circulation in each assessment area
covered by the plan; and
(3) During the period of formal public comment, make copies of the
plan available for review by the public at no cost at all offices of
the bank in any assessment area covered by the plan and provide copies
of the plan upon request for a reasonable fee to cover copying and
mailing, if applicable.
(e) Submission of plan. The bank shall submit its plan to the FDIC
at least three months prior to the proposed effective date of the plan.
The bank shall also submit with its plan a description of its informal
efforts to seek suggestions from members of the public, any written
public comment received, and, if the plan was revised in light of the
comment received, the initial plan as released for public comment.
(f) Plan content--(1) Measurable goals. (i) A bank shall specify in
its plan measurable goals for helping to meet the credit needs of each
assessment area covered by the plan, particularly the needs of low- and
moderate-income geographies and low- and moderate-income individuals,
through lending, investment, and services, as appropriate.
(ii) A bank shall address in its plan all three performance
categories and, unless the bank has been designated as a wholesale or
limited purpose bank, shall emphasize lending and lending-related
activities. Nevertheless, a different emphasis, including a focus on
one or more performance categories, may be appropriate if responsive to
the characteristics and credit needs of its assessment area(s),
considering public comment and the bank's capacity and constraints,
product offerings, and business strategy.
(2) Confidential information. A bank may submit additional
information to the FDIC on a confidential basis, but the goals stated
in the plan must be sufficiently specific to enable the public and the
FDIC to judge the merits of the plan.
(3) Satisfactory and outstanding goals. A bank shall specify in its
plan measurable goals that constitute ``satisfactory'' performance. A
plan may specify measurable goals that constitute ``outstanding''
performance. If a bank submits, and the FDIC approves, both
``satisfactory'' and ``outstanding'' performance goals, the FDIC will
consider the bank eligible for an ``outstanding'' performance rating.
(4) Election if satisfactory goals not substantially met. A bank
may elect in its plan that, if the bank fails to meet substantially its
plan goals for a satisfactory rating, the FDIC will evaluate the bank's
performance under the lending, investment, and service tests, the
community development test, or the small bank performance standards, as
appropriate.
(g) Plan approval--(1) Timing. The FDIC will act upon a plan within
60 calendar days after the FDIC receives the complete plan and other
material required under paragraph (e) of this section. If the FDIC
fails to act within this time period, the plan shall be deemed approved
unless the FDIC extends the review period for good cause.
(2) Public participation. In evaluating the plan's goals, the FDIC
considers the public's involvement in formulating the plan, written
public comment on the plan, and any response by the bank to public
comment on the plan.
(3) Criteria for evaluating plan. The FDIC evaluates a plan's
measurable goals using the following criteria, as appropriate:
(i) The extent and breadth of lending or lending-related
activities, including, as appropriate, the distribution of loans among
different geographies, businesses and farms of different sizes, and
individuals of different income levels, the extent of community
development lending, and the use of innovative or flexible lending
practices to address credit needs;
(ii) The amount and innovativeness, complexity, and responsiveness
of the bank's qualified investments; and
(iii) The availability and effectiveness of the bank's systems for
delivering retail banking services and the extent and innovativeness of
the bank's community development services.
(h) Plan amendment. During the term of a plan, a bank may request
the FDIC to approve an amendment to the plan on grounds that there has
been a material change in circumstances. The bank shall develop an
amendment to a previously approved plan in accordance with the public
participation requirements of paragraph (d) of this section.
(i) Plan assessment. The FDIC approves the goals and assesses
performance under a plan as provided for in Appendix A of this part.
Sec. [thinsp]345.28 Assigned ratings.
(a) Ratings in general. Subject to paragraphs (b) and (c) of this
section, the FDIC assigns to a bank a rating of ``outstanding,''
``satisfactory,'' ``needs to improve,'' or ``substantial
noncompliance'' based on the bank's performance under the lending,
investment and service tests, the community development test, the small
bank performance standards, or an approved strategic plan, as
applicable.
(b) Lending, investment, and service tests. The FDIC assigns a
rating for a bank assessed under the lending, investment, and service
tests in accordance with the following principles:
(1) A bank that receives an ``outstanding'' rating on the lending
test receives an assigned rating of at least ``satisfactory'';
(2) A bank that receives an ``outstanding'' rating on both the
service test and the investment test and a rating of at least ``high
satisfactory'' on the lending test receives an assigned rating of
``outstanding''; and
(3) No bank may receive an assigned rating of ``satisfactory'' or
higher unless it receives a rating of at least ``low satisfactory'' on
the lending test.
(c) Effect of evidence of discriminatory or other illegal credit
practices. (1) The FDIC's evaluation of a bank's CRA performance is
adversely affected by evidence of discriminatory
[[Page 7216]]
or other illegal credit practices in any geography by the bank or in
any assessment area by any affiliate whose loans have been considered
as part of the bank's lending performance. In connection with any type
of lending activity described in Sec. [thinsp]345.22(a), evidence of
discriminatory or other credit practices that violate an applicable
law, rule, or regulation includes, but is not limited to:
(i) Discrimination against applicants on a prohibited basis in
violation, for example, of the Equal Credit Opportunity Act or the Fair
Housing Act;
(ii) Violations of the Home Ownership and Equity Protection Act;
(iii) Violations of section 5 of the Federal Trade Commission Act;
(iv) Violations of section 8 of the Real Estate Settlement
Procedures Act; and
(v) Violations of the Truth in Lending Act provisions regarding a
consumer's right of rescission.
(2) In determining the effect of evidence of practices described in
paragraph (c)(1) of this section on the bank's assigned rating, the
FDIC considers the nature, extent, and strength of the evidence of the
practices; the policies and procedures that the bank (or affiliate, as
applicable) has in place to prevent the practices; any corrective
action that the bank (or affiliate, as applicable) has taken or has
committed to take, including voluntary corrective action resulting from
self-assessment; and any other relevant information.
Sec. [thinsp]345.29 Effect of CRA performance on applications.
(a) CRA performance. Among other factors, the FDIC takes into
account the record of performance under the CRA of each applicant bank
in considering an application for approval of:
(1) The establishment of a domestic branch or other facility with
the ability to accept deposits;
(2) The relocation of the bank's main office or a branch;
(3) The merger, consolidation, acquisition of assets, or assumption
of liabilities; and
(4) Deposit insurance for a newly chartered financial institution.
(b) New financial institutions. A newly chartered financial
institution shall submit with its application for deposit insurance a
description of how it will meet its CRA objectives. The FDIC takes the
description into account in considering the application and may deny or
condition approval on that basis.
(c) Interested parties. The FDIC takes into account any views
expressed by interested parties that are submitted in accordance with
the FDIC's procedures set forth in part 303 of this chapter in
considering CRA performance in an application listed in paragraphs (a)
and (b) of this section.
(d) Denial or conditional approval of application. A bank's record
of performance may be the basis for denying or conditioning approval of
an application listed in paragraph (a) of this section.
Subpart C--Records, Reporting, and Disclosure Requirements
Sec. [thinsp]345.41 Assessment area delineation.
(a) In general. A bank shall delineate one or more assessment areas
within which the FDIC evaluates the bank's record of helping to meet
the credit needs of its community. The FDIC does not evaluate the
bank's delineation of its assessment area(s) as a separate performance
criterion, but the FDIC reviews the delineation for compliance with the
requirements of this section.
(b) Geographic area(s) for wholesale or limited purpose banks. The
assessment area(s) for a wholesale or limited purpose bank must consist
generally of one or more MSAs or metropolitan divisions (using the MSA
or metropolitan division boundaries that were in effect as of January 1
of the calendar year in which the delineation is made) or one or more
contiguous political subdivisions, such as counties, cities, or towns,
in which the bank has its main office, branches, and deposit-taking
ATMs.
(c) Geographic area(s) for other banks. The assessment area(s) for
a bank other than a wholesale or limited purpose bank must:
(1) Consist generally of one or more MSAs or metropolitan divisions
(using the MSA or metropolitan division boundaries that were in effect
as of January 1 of the calendar year in which the delineation is made)
or one or more contiguous political subdivisions, such as counties,
cities, or towns; and
(2) Include the geographies in which the bank has its main office,
its branches, and its deposit-taking RSFs, as well as the surrounding
geographies in which the bank has originated or purchased a substantial
portion of its loans (including home mortgage loans, small business and
small farm loans, and any other loans the bank chooses, such as those
consumer loans on which the bank elects to have its performance
assessed).
(d) Adjustments to geographic area(s). A bank may adjust the
boundaries of its assessment area(s) to include only the portion of a
political subdivision that it reasonably can be expected to serve. An
adjustment is particularly appropriate in the case of an assessment
area that otherwise would be extremely large, of unusual configuration,
or divided by significant geographic barriers.
(e) Limitations on the delineation of an assessment area. Each
bank's assessment area(s):
(1) Must consist only of whole geographies;
(2) May not reflect illegal discrimination;
(3) May not arbitrarily exclude low- or moderate-income
geographies, taking into account the bank's size and financial
condition; and
(4) May not extend substantially beyond an MSA boundary or beyond a
state boundary unless the assessment area is located in a multistate
MSA. If a bank serves a geographic area that extends substantially
beyond a state boundary, the bank shall delineate separate assessment
areas for the areas in each state. If a bank serves a geographic area
that extends substantially beyond an MSA boundary, the bank shall
delineate separate assessment areas for the areas inside and outside
the MSA.
(f) Banks serving military personnel. Notwithstanding the
requirements of this section, a bank whose business predominantly
consists of serving the needs of military personnel or their dependents
who are not located within a defined geographic area may delineate its
entire deposit customer base as its assessment area.
(g) Use of assessment area(s). The FDIC uses the assessment area(s)
delineated by a bank in its evaluation of the bank's CRA performance
unless the FDIC determines that the assessment area(s) do not comply
with the requirements of this section.
Sec. [thinsp]345.42 Data collection, reporting, and disclosure.
(a) Loan information required to be collected and maintained. A
bank, except a small bank, shall collect, and maintain in machine
readable form (as prescribed by the FDIC) until the completion of its
next CRA examination, the following data for each small business or
small farm loan originated or purchased by the bank:
(1) A unique number or alpha-numeric symbol that can be used to
identify the relevant loan file;
(2) The loan amount at origination;
(3) The loan location; and
(4) An indicator whether the loan was to a business or farm with
gross annual revenues of $1 million or less.
(b) Loan information required to be reported. A bank, except a
small bank or
[[Page 7217]]
a bank that was a small bank during the prior calendar year, shall
report annually by March 1 to the FDIC in machine readable form (as
prescribed by the FDIC) the following data for the prior calendar year:
(1) Small business and small farm loan data. For each geography in
which the bank originated or purchased a small business or small farm
loan, the aggregate number and amount of loans:
(i) With an amount at origination of $100,000 or less;
(ii) With an amount at origination of more than $100,000 but less
than or equal to $250,000;
(iii) With an amount at origination of more than $250,000; and
(iv) To businesses and farms with gross annual revenues of $1
million or less (using the revenues that the bank considered in making
its credit decision);
(2) Community development loan data. The aggregate number and
aggregate amount of community development loans originated or
purchased; and
(3) Home mortgage loans. If the bank is subject to reporting under
part 1003 of this title, the location of each home mortgage loan
application, origination, or purchase outside the MSAs in which the
bank has a home or branch office (or outside any MSA) in accordance
with the requirements of part 1003 of this title.
(c) Optional data collection and maintenance--(1) Consumer loans. A
bank may collect and maintain in machine readable form (as prescribed
by the FDIC) data for consumer loans originated or purchased by the
bank for consideration under the lending test. A bank may maintain data
for one or more of the following categories of consumer loans: motor
vehicle, credit card, other secured, and other unsecured. If the bank
maintains data for loans in a certain category, it shall maintain data
for all loans originated or purchased within that category. The bank
shall maintain data separately for each category, including for each
loan:
(i) A unique number or alpha-numeric symbol that can be used to
identify the relevant loan file;
(ii) The loan amount at origination or purchase;
(iii) The loan location; and
(iv) The gross annual income of the borrower that the bank
considered in making its credit decision.
(2) Other loan data. At its option, a bank may provide other
information concerning its lending performance, including additional
loan distribution data.
(d) Data on affiliate lending. A bank that elects to have the FDIC
consider loans by an affiliate, for purposes of the lending or
community development test or an approved strategic plan, shall
collect, maintain, and report for those loans the data that the bank
would have collected, maintained, and reported pursuant to paragraphs
(a), (b), and (c) of this section had the loans been originated or
purchased by the bank. For home mortgage loans, the bank shall also be
prepared to identify the home mortgage loans reported under part 1003
of this title by the affiliate.
(e) Data on lending by a consortium or a third party. A bank that
elects to have the FDIC consider community development loans by a
consortium or third party, for purposes of the lending or community
development tests or an approved strategic plan, shall report for those
loans the data that the bank would have reported under paragraph (b)(2)
of this section had the loans been originated or purchased by the bank.
(f) Small banks electing evaluation under the lending, investment,
and service tests. A bank that qualifies for evaluation under the small
bank performance standards but elects evaluation under the lending,
investment, and service tests shall collect, maintain, and report the
data required for other banks pursuant to paragraphs (a) and (b) of
this section.
(g) Assessment area data. A bank, except a small bank or a bank
that was a small bank during the prior calendar year, shall collect and
report to the FDIC by March 1 of each year a list for each assessment
area showing the geographies within the area.
(h) CRA Disclosure Statement. The FDIC prepares annually for each
bank that reports data pursuant to this section a CRA Disclosure
Statement that contains, on a state-by-state basis:
(1) For each county (and for each assessment area smaller than a
county) with a population of 500,000 persons or fewer in which the bank
reported a small business or small farm loan:
(i) The number and amount of small business and small farm loans
reported as originated or purchased located in low-, moderate-, middle-
, and upper-income geographies;
(ii) A list grouping each geography according to whether the
geography is low-, moderate-, middle-, or upper-income;
(iii) A list showing each geography in which the bank reported a
small business or small farm loan; and
(iv) The number and amount of small business and small farm loans
to businesses and farms with gross annual revenues of $1 million or
less;
(2) For each county (and for each assessment area smaller than a
county) with a population in excess of 500,000 persons in which the
bank reported a small business or small farm loan:
(i) The number and amount of small business and small farm loans
reported as originated or purchased located in geographies with median
income relative to the area median income of less than 10 percent, 10
or more but less than 20 percent, 20 or more but less than 30 percent,
30 or more but less than 40 percent, 40 or more but less than 50
percent, 50 or more but less than 60 percent, 60 or more but less than
70 percent, 70 or more but less than 80 percent, 80 or more but less
than 90 percent, 90 or more but less than 100 percent, 100 or more but
less than 110 percent, 110 or more but less than 120 percent, and 120
percent or more;
(ii) A list grouping each geography in the county or assessment
area according to whether the median income in the geography relative
to the area median income is less than 10 percent, 10 or more but less
than 20 percent, 20 or more but less than 30 percent, 30 or more but
less than 40 percent, 40 or more but less than 50 percent, 50 or more
but less than 60 percent, 60 or more but less than 70 percent, 70 or
more but less than 80 percent, 80 or more but less than 90 percent, 90
or more but less than 100 percent, 100 or more but less than 110
percent, 110 or more but less than 120 percent, and 120 percent or
more;
(iii) A list showing each geography in which the bank reported a
small business or small farm loan; and
(iv) The number and amount of small business and small farm loans
to businesses and farms with gross annual revenues of $1 million or
less;
(3) The number and amount of small business and small farm loans
located inside each assessment area reported by the bank and the number
and amount of small business and small farm loans located outside the
assessment area(s) reported by the bank; and
(4) The number and amount of community development loans reported
as originated or purchased.
(i) Aggregate disclosure statements. The FDIC, in conjunction with
the Board of Governors of the Federal Reserve System and the Office of
the Comptroller of the Currency, prepares annually, for each MSA or
metropolitan division (including an MSA or metropolitan division that
crosses a state boundary) and the nonmetropolitan portion of each
state, an aggregate disclosure statement of small business and small
farm lending
[[Page 7218]]
by all institutions subject to reporting under this part or parts 25,
195, or 228 of this title. These disclosure statements indicate, for
each geography, the number and amount of all small business and small
farm loans originated or purchased by reporting institutions, except
that the FDIC may adjust the form of the disclosure if necessary,
because of special circumstances, to protect the privacy of a borrower
or the competitive position of an institution.
(j) Central data depositories. The FDIC makes the aggregate
disclosure statements, described in paragraph (i) of this section, and
the individual bank CRA Disclosure Statements, described in paragraph
(h) of this section, available to the public at central data
depositories. The FDIC publishes a list of the depositories at which
the statements are available.
Sec. 345.43 Content and availability of public file.
(a) Information available to the public. A bank shall maintain a
public file that includes the following information:
(1) All written comments received from the public for the current
year and each of the prior two calendar years that specifically relate
to the bank's performance in helping to meet community credit needs,
and any response to the comments by the bank, if neither the comments
nor the responses contain statements that reflect adversely on the good
name or reputation of any persons other than the bank or publication of
which would violate specific provisions of law;
(2) A copy of the public section of the bank's most recent CRA
Performance Evaluation prepared by the FDIC. The bank shall place this
copy in the public file within 30 business days after its receipt from
the FDIC;
(3) A list of the bank's branches, their street addresses, and
geographies;
(4) A list of branches opened or closed by the bank during the
current year and each of the prior two calendar years, their street
addresses, and geographies;
(5) A list of services (including hours of operation, available
loan and deposit products, and transaction fees) generally offered at
the bank's branches and descriptions of material differences in the
availability or cost of services at particular branches, if any. At its
option, a bank may include information regarding the availability of
alternative systems for delivering retail banking services (e.g., RSFs,
RSFs not owned or operated by or exclusively for the bank, banking by
telephone or computer, loan production offices, and bank-at-work or
bank-by-mail programs);
(6) A map of each assessment area showing the boundaries of the
area and identifying the geographies contained within the area, either
on the map or in a separate list; and
(7) Any other information the bank chooses.
(b) Additional information available to the public--(1) Banks other
than small banks. A bank, except a small bank or a bank that was a
small bank during the prior calendar year, shall include in its public
file the following information pertaining to the bank and its
affiliates, if applicable, for each of the prior two calendar years:
(i) If the bank has elected to have one or more categories of its
consumer loans considered under the lending test, for each of these
categories, the number and amount of loans:
(A) To low-, moderate-, middle-, and upper-income individuals;
(B) Located in low-, moderate-, middle-, and upper-income census
tracts; and
(C) Located inside the bank's assessment area(s) and outside the
bank's assessment area(s); and
(ii) The bank's CRA Disclosure Statement. The bank shall place the
statement in the public file within three business days of its receipt
from the FDIC.
(2) Banks required to report Home Mortgage Disclosure Act (HMDA)
data. A bank required to report home mortgage loan data pursuant part
1003 of this title shall include in its public file a written notice
that the institution's HMDA Disclosure Statement may be obtained on the
Consumer Financial Protection Bureau's (Bureau's) website at
www.consumerfinance.gov/hmda. In addition, a bank that elected to have
the FDIC consider the mortgage lending of an affiliate shall include in
its public file the name of the affiliate and a written notice that the
affiliate's HMDA Disclosure Statement may be obtained at the Bureau's
website. The bank shall place the written notice(s) in the public file
within three business days after receiving notification from the
Federal Financial Institutions Examination Council of the availability
of the disclosure statement(s).
(3) Small banks. A small bank or a bank that was a small bank
during the prior calendar year shall include in its public file:
(i) The bank's loan-to-deposit ratio for each quarter of the prior
calendar year and, at its option, additional data on its loan-to-
deposit ratio; and
(ii) The information required for other banks by paragraph (b)(1)
of this section, if the bank has elected to be evaluated under the
lending, investment, and service tests.
(4) Banks with strategic plans. A bank that has been approved to be
assessed under a strategic plan shall include in its public file a copy
of that plan. A bank need not include information submitted to the FDIC
on a confidential basis in conjunction with the plan.
(5) Banks with less than satisfactory ratings. A bank that received
a less than satisfactory rating during its most recent examination
shall include in its public file a description of its current efforts
to improve its performance in helping to meet the credit needs of its
entire community. The bank shall update the description quarterly.
(c) Location of public information. A bank shall make available to
the public for inspection upon request and at no cost the information
required in this section as follows:
(1) At the main office and, if an interstate bank, at one branch
office in each state, all information in the public file; and
(2) At each branch:
(i) A copy of the public section of the bank's most recent CRA
Performance Evaluation and a list of services provided by the branch;
and
(ii) Within five calendar days of the request, all the information
in the public file relating to the assessment area in which the branch
is located.
(d) Copies. Upon request, a bank shall provide copies, either on
paper or in another form acceptable to the person making the request,
of the information in its public file. The bank may charge a reasonable
fee not to exceed the cost of copying and mailing (if applicable).
(e) Updating. Except as otherwise provided in this section, a bank
shall ensure that the information required by this section is current
as of April 1 of each year.
Sec. 345.44 Public notice by banks.
A bank shall provide in the public lobby of its main office and
each of its branches the appropriate public notice set forth in
Appendix B of this part. Only a branch of a bank having more than one
assessment area shall include the bracketed material in the notice for
branch offices. Only a bank that is an affiliate of a holding company
shall include the next to the last sentence of the notices. A bank
shall include the last sentence of the notices only if it is an
affiliate of a holding company that is not prevented by statute from
acquiring additional banks.
[[Page 7219]]
Sec. 345.45 Publication of planned examination schedule.
The FDIC publishes at least 30 days in advance of the beginning of
each calendar quarter a list of banks scheduled for CRA examinations in
that quarter.
Appendix A to Part 345--Ratings
(a) Ratings in general. (1) In assigning a rating, the FDIC
evaluates a bank's performance under the applicable performance
criteria in this part, in accordance with Sec. Sec. 345.21 and
345.28. This includes consideration of low-cost education loans
provided to low-income borrowers and activities in cooperation with
minority- or women-owned financial institutions and low-income
credit unions, as well as adjustments on the basis of evidence of
discriminatory or other illegal credit practices.
(2) A bank's performance need not fit each aspect of a
particular rating profile in order to receive that rating, and
exceptionally strong performance with respect to some aspects may
compensate for weak performance in others. The bank's overall
performance, however, must be consistent with safe and sound banking
practices and generally with the appropriate rating profile as
follows.
(b) Banks evaluated under the lending, investment, and service
tests--(1) Lending performance rating. The FDIC assigns each bank's
lending performance one of the five following ratings.
(i) Outstanding. The FDIC rates a bank's lending performance
``outstanding'' if, in general, it demonstrates:
(A) Excellent responsiveness to credit needs in its assessment
area(s), taking into account the number and amount of home mortgage,
small business, small farm, and consumer loans, if applicable, in
its assessment area(s);
(B) A substantial majority of its loans are made in its
assessment area(s);
(C) An excellent geographic distribution of loans in its
assessment area(s);
(D) An excellent distribution, particularly in its assessment
area(s), of loans among individuals of different income levels and
businesses (including farms) of different sizes, given the product
lines offered by the bank;
(E) An excellent record of serving the credit needs of highly
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross
annual revenues of $1 million or less, consistent with safe and
sound operations;
(F) Extensive use of innovative or flexible lending practices in
a safe and sound manner to address the credit needs of low- or
moderate-income individuals or geographies; and
(G) It is a leader in making community development loans.
(ii) High satisfactory. The FDIC rates a bank's lending
performance ``high satisfactory'' if, in general, it demonstrates:
(A) Good responsiveness to credit needs in its assessment
area(s), taking into account the number and amount of home mortgage,
small business, small farm, and consumer loans, if applicable, in
its assessment area(s);
(B) A high percentage of its loans are made in its assessment
area(s);
(C) A good geographic distribution of loans in its assessment
area(s);
(D) A good distribution, particularly in its assessment area(s),
of loans among individuals of different income levels and businesses
(including farms) of different sizes, given the product lines
offered by the bank;
(E) A good record of serving the credit needs of highly
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross
annual revenues of $1 million or less, consistent with safe and
sound operations;
(F) Use of innovative or flexible lending practices in a safe
and sound manner to address the credit needs of low- or moderate-
income individuals or geographies; and
(G) It has made a relatively high level of community development
loans.
(iii) Low satisfactory. The FDIC rates a bank's lending
performance ``low satisfactory'' if, in general, it demonstrates:
(A) Adequate responsiveness to credit needs in its assessment
area(s), taking into account the number and amount of home mortgage,
small business, small farm, and consumer loans, if applicable, in
its assessment area(s);
(B) An adequate percentage of its loans are made in its
assessment area(s);
(C) An adequate geographic distribution of loans in its
assessment area(s);
(D) An adequate distribution, particularly in its assessment
area(s), of loans among individuals of different income levels and
businesses (including farms) of different sizes, given the product
lines offered by the bank;
(E) An adequate record of serving the credit needs of highly
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross
annual revenues of $1 million or less, consistent with safe and
sound operations;
(F) Limited use of innovative or flexible lending practices in a
safe and sound manner to address the credit needs of low- or
moderate-income individuals or geographies; and
(G) It has made an adequate level of community development
loans.
(iv) Needs to improve. The FDIC rates a bank's lending
performance ``needs to improve'' if, in general, it demonstrates:
(A) Poor responsiveness to credit needs in its assessment
area(s), taking into account the number and amount of home mortgage,
small business, small farm, and consumer loans, if applicable, in
its assessment area(s);
(B) A small percentage of its loans are made in its assessment
area(s);
(C) A poor geographic distribution of loans, particularly to
low- or moderate-income geographies, in its assessment area(s);
(D) A poor distribution, particularly in its assessment area(s),
of loans among individuals of different income levels and businesses
(including farms) of different sizes, given the product lines
offered by the bank;
(E) A poor record of serving the credit needs of highly
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross
annual revenues of $1 million or less, consistent with safe and
sound operations;
(F) Little use of innovative or flexible lending practices in a
safe and sound manner to address the credit needs of low- or
moderate-income individuals or geographies; and
(G) It has made a low level of community development loans.
(v) Substantial noncompliance. The FDIC rates a bank's lending
performance as being in ``substantial noncompliance'' if, in
general, it demonstrates:
(A) A very poor responsiveness to credit needs in its assessment
area(s), taking into account the number and amount of home mortgage,
small business, small farm, and consumer loans, if applicable, in
its assessment area(s);
(B) A very small percentage of its loans are made in its
assessment area(s);
(C) A very poor geographic distribution of loans, particularly
to low- or moderate-income geographies, in its assessment area(s);
(D) A very poor distribution, particularly in its assessment
area(s), of loans among individuals of different income levels and
businesses (including farms) of different sizes, given the product
lines offered by the bank;
(E) A very poor record of serving the credit needs of highly
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross
annual revenues of $1 million or less, consistent with safe and
sound operations;
(F) No use of innovative or flexible lending practices in a safe
and sound manner to address the credit needs of low- or moderate-
income individuals or geographies; and
(G) It has made few, if any, community development loans.
(2) Investment performance rating. The FDIC assigns each bank's
investment performance one of the five following ratings.
(i) Outstanding. The FDIC rates a bank's investment performance
``outstanding'' if, in general, it demonstrates:
(A) An excellent level of qualified investments, particularly
those that are not routinely provided by private investors, often in
a leadership position;
(B) Extensive use of innovative or complex qualified
investments; and
(C) Excellent responsiveness to credit and community development
needs.
(ii) High satisfactory. The FDIC rates a bank's investment
performance ``high satisfactory'' if, in general, it demonstrates:
(A) A significant level of qualified investments, particularly
those that are not routinely provided by private investors,
occasionally in a leadership position;
(B) Significant use of innovative or complex qualified
investments; and
(C) Good responsiveness to credit and community development
needs.
[[Page 7220]]
(iii) Low satisfactory. The FDIC rates a bank's investment
performance ``low satisfactory'' if, in general, it demonstrates:
(A) An adequate level of qualified investments, particularly
those that are not routinely provided by private investors, although
rarely in a leadership position;
(B) Occasional use of innovative or complex qualified
investments; and
(C) Adequate responsiveness to credit and community development
needs.
(iv) Needs to improve. The FDIC rates a bank's investment
performance ``needs to improve'' if, in general, it demonstrates:
(A) A poor level of qualified investments, particularly those
that are not routinely provided by private investors;
(B) Rare use of innovative or complex qualified investments; and
(C) Poor responsiveness to credit and community development
needs.
(v) Substantial noncompliance. The FDIC rates a bank's
investment performance as being in ``substantial noncompliance'' if,
in general, it demonstrates:
(A) Few, if any, qualified investments, particularly those that
are not routinely provided by private investors;
(B) No use of innovative or complex qualified investments; and
(C) Very poor responsiveness to credit and community development
needs.
(3) Service performance rating. The FDIC assigns each bank's
service performance one of the five following ratings.
(i) Outstanding. The FDIC rates a bank's service performance
``outstanding'' if, in general, the bank demonstrates:
(A) Its service delivery systems are readily accessible to
geographies and individuals of different income levels in its
assessment area(s);
(B) To the extent changes have been made, its record of opening
and closing branches has improved the accessibility of its delivery
systems, particularly in low- or moderate-income geographies or to
low- or moderate-income individuals;
(C) Its services (including, where appropriate, business hours)
are tailored to the convenience and needs of its assessment area(s),
particularly low- or moderate-income geographies or low- or
moderate-income individuals; and
(D) It is a leader in providing community development services.
(ii) High satisfactory. The FDIC rates a bank's service
performance ``high satisfactory'' if, in general, the bank
demonstrates:
(A) Its service delivery systems are accessible to geographies
and individuals of different income levels in its assessment
area(s);
(B) To the extent changes have been made, its record of opening
and closing branches has not adversely affected the accessibility of
its delivery systems, particularly in low- and moderate-income
geographies and to low- and moderate-income individuals;
(C) Its services (including, where appropriate, business hours)
do not vary in a way that inconveniences its assessment area(s),
particularly low- and moderate-income geographies and low- and
moderate-income individuals; and
(D) It provides a relatively high level of community development
services.
(iii) Low satisfactory. The FDIC rates a bank's service
performance ``low satisfactory'' if, in general, the bank
demonstrates:
(A) Its service delivery systems are reasonably accessible to
geographies and individuals of different income levels in its
assessment area(s);
(B) To the extent changes have been made, its record of opening
and closing branches has generally not adversely affected the
accessibility of its delivery systems, particularly in low- and
moderate-income geographies and to low- and moderate-income
individuals;
(C) Its services (including, where appropriate, business hours)
do not vary in a way that inconveniences its assessment area(s),
particularly low- and moderate-income geographies and low- and
moderate-income individuals; and
(D) It provides an adequate level of community development
services.
(iv) Needs to improve. The FDIC rates a bank's service
performance ``needs to improve'' if, in general, the bank
demonstrates:
(A) Its service delivery systems are unreasonably inaccessible
to portions of its assessment area(s), particularly to low- or
moderate-income geographies or to low- or moderate-income
individuals;
(B) To the extent changes have been made, its record of opening
and closing branches has adversely affected the accessibility its
delivery systems, particularly in low- or moderate-income
geographies or to low- or moderate-income individuals;
(C) Its services (including, where appropriate, business hours)
vary in a way that inconveniences its assessment area(s),
particularly low- or moderate-income geographies or low- or
moderate-income individuals; and
(D) It provides a limited level of community development
services.
(v) Substantial noncompliance. The FDIC rates a bank's service
performance as being in ``substantial noncompliance'' if, in
general, the bank demonstrates:
(A) Its service delivery systems are unreasonably inaccessible
to significant portions of its assessment area(s), particularly to
low- or moderate-income geographies or to low- or moderate-income
individuals;
(B) To the extent changes have been made, its record of opening
and closing branches has significantly adversely affected the
accessibility of its delivery systems, particularly in low- or
moderate-income geographies or to low- or moderate-income
individuals;
(C) Its services (including, where appropriate, business hours)
vary in a way that significantly inconveniences its assessment
area(s), particularly low- or moderate-income geographies or low- or
moderate-income individuals; and
(D) It provides few, if any, community development services.
(c) Wholesale or limited purpose banks. The FDIC assigns each
wholesale or limited purpose bank's community development
performance one of the four following ratings.
(1) Outstanding. The FDIC rates a wholesale or limited purpose
bank's community development performance ``outstanding'' if, in
general, it demonstrates:
(i) A high level of community development loans, community
development services, or qualified investments, particularly
investments that are not routinely provided by private investors;
(ii) Extensive use of innovative or complex qualified
investments, community development loans, or community development
services; and
(iii) Excellent responsiveness to credit and community
development needs in its assessment area(s).
(2) Satisfactory. The FDIC rates a wholesale or limited purpose
bank's community development performance ``satisfactory'' if, in
general, it demonstrates:
(i) An adequate level of community development loans, community
development services, or qualified investments, particularly
investments that are not routinely provided by private investors;
(ii) Occasional use of innovative or complex qualified
investments, community development loans, or community development
services; and
(iii) Adequate responsiveness to credit and community
development needs in its assessment area(s).
(3) Needs to improve. The FDIC rates a wholesale or limited
purpose bank's community development performance as ``needs to
improve'' if, in general, it demonstrates:
(i) A poor level of community development loans, community
development services, or qualified investments, particularly
investments that are not routinely provided by private investors;
(ii) Rare use of innovative or complex qualified investments,
community development loans, or community development services; and
(iii) Poor responsiveness to credit and community development
needs in its assessment area(s).
(4) Substantial noncompliance. The FDIC rates a wholesale or
limited purpose bank's community development performance in
``substantial noncompliance'' if, in general, it demonstrates:
(i) Few, if any, community development loans, community
development services, or qualified investments, particularly
investments that are not routinely provided by private investors;
(ii) No use of innovative or complex qualified investments,
community development loans, or community development services; and
(iii) Very poor responsiveness to credit and community
development needs in its assessment area(s).
(d) Banks evaluated under the small bank performance standards--
(1) Lending test ratings--(i) Eligibility for a satisfactory lending
test rating. The FDIC rates a small bank's lending performance
``satisfactory'' if, in general, the bank demonstrates:
(A) A reasonable loan-to-deposit ratio (considering seasonal
variations) given the bank's size, financial condition, the credit
needs of its assessment area(s), and taking
[[Page 7221]]
into account, as appropriate, other lending-related activities such
as loan originations for sale to the secondary markets and community
development loans and qualified investments;
(B) A majority of its loans and, as appropriate, other lending-
related activities, are in its assessment area;
(C) A distribution of loans to and, as appropriate, other
lending-related activities for individuals of different income
levels (including low- and moderate-income individuals) and
businesses and farms of different sizes that is reasonable given the
demographics of the bank's assessment area(s);
(D) A record of taking appropriate action, when warranted, in
response to written complaints, if any, about the bank's performance
in helping to meet the credit needs of its assessment area(s); and
(E) A reasonable geographic distribution of loans given the
bank's assessment area(s).
(ii) Eligibility for an ``outstanding'' lending test rating. A
small bank that meets each of the standards for a ``satisfactory''
rating under this paragraph and exceeds some or all of those
standards may warrant consideration for a lending test rating of
``outstanding.''
(iii) Needs to improve or substantial noncompliance ratings. A
small bank may also receive a lending test rating of ``needs to
improve'' or ``substantial noncompliance'' depending on the degree
to which its performance has failed to meet the standard for a
``satisfactory'' rating.
(2) Community development test ratings for intermediate small
banks--(i) Eligibility for a satisfactory community development test
rating. The FDIC rates an intermediate small bank's community
development performance ``satisfactory'' if the bank demonstrates
adequate responsiveness to the community development needs of its
assessment area(s) through community development loans, qualified
investments, and community development services. The adequacy of the
bank's response will depend on its capacity for such community
development activities, its assessment area's need for such
community development activities, and the availability of such
opportunities for community development in the bank's assessment
area(s).
(ii) Eligibility for an outstanding community development test
rating. The FDIC rates an intermediate small bank's community
development performance ``outstanding'' if the bank demonstrates
excellent responsiveness to community development needs in its
assessment area(s) through community development loans, qualified
investments, and community development services, as appropriate,
considering the bank's capacity and the need and availability of
such opportunities for community development in the bank's
assessment area(s).
(iii) Needs to improve or substantial noncompliance ratings. An
intermediate small bank may also receive a community development
test rating of ``needs to improve'' or ``substantial noncompliance''
depending on the degree to which its performance has failed to meet
the standards for a ``satisfactory'' rating.
(3) Overall rating--(i) Eligibility for a satisfactory overall
rating. No intermediate small bank may receive an assigned overall
rating of ``satisfactory'' unless it receives a rating of at least
``satisfactory'' on both the lending test and the community
development test.
(ii) Eligibility for an outstanding overall rating. (A) An
intermediate small bank that receives an ``outstanding'' rating on
one test and at least ``satisfactory'' on the other test may receive
an assigned overall rating of ``outstanding.''
(B) A small bank that is not an intermediate small bank that
meets each of the standards for a ``satisfactory'' rating under the
lending test and exceeds some or all of those standards may warrant
consideration for an overall rating of ``outstanding.'' In assessing
whether a bank's performance is ``outstanding,'' the FDIC considers
the extent to which the bank exceeds each of the performance
standards for a ``satisfactory'' rating and its performance in
making qualified investments and its performance in providing
branches and other services and delivery systems that enhance credit
availability in its assessment area(s).
(iii) Needs to improve or substantial noncompliance overall
ratings. A small bank may also receive a rating of ``needs to
improve'' or ``substantial noncompliance'' depending on the degree
to which its performance has failed to meet the standards for a
``satisfactory'' rating.
(e) Strategic plan assessment and rating--(1) Satisfactory
goals. The FDIC approves as ``satisfactory'' measurable goals that
adequately help to meet the credit needs of the bank's assessment
area(s).
(2) Outstanding goals. If the plan identifies a separate group
of measurable goals that substantially exceed the levels approved as
``satisfactory,'' the FDIC will approve those goals as
``outstanding.''
(3) Rating. The FDIC assesses the performance of a bank
operating under an approved plan to determine if the bank has met
its plan goals:
(i) If the bank substantially achieves its plan goals for a
satisfactory rating, the FDIC will rate the bank's performance under
the plan as ``satisfactory.''
(ii) If the bank exceeds its plan goals for a satisfactory
rating and substantially achieves its plan goals for an outstanding
rating, the FDIC will rate the bank's performance under the plan as
``outstanding.''
(iii) If the bank fails to meet substantially its plan goals for
a satisfactory rating, the FDIC will rate the bank as either ``needs
to improve'' or ``substantial noncompliance,'' depending on the
extent to which it falls short of its plan goals, unless the bank
elected in its plan to be rated otherwise, as provided in Sec.
345.27(f)(4).
Appendix B to Part 345--CRA Notice
(a) Notice for main offices and, if an interstate bank, one
branch office in each state.
Community Reinvestment Act Notice
Under the Federal Community Reinvestment Act (CRA), the Federal
Deposit Insurance Corporation (FDIC) evaluates our record of helping
to meet the credit needs of this community consistent with safe and
sound operations. The FDIC also takes this record into account when
deciding on certain applications submitted by us.
Your involvement is encouraged.
You are entitled to certain information about our operations and
our performance under the CRA, including, for example, information
about our branches, such as their location and services provided at
them; the public section of our most recent CRA Performance
Evaluation, prepared by the FDIC; and comments received from the
public relating to our performance in helping to meet community
credit needs, as well as our responses to those comments. You may
review this information today.
At least 30 days before the beginning of each quarter, the FDIC
publishes a nationwide list of the banks that are scheduled for CRA
examination in that quarter. This list is available from the
Regional Director, FDIC (address). You may send written comments
about our performance in helping to meet community credit needs to
(name and address of official at bank) and FDIC Regional Director.
You may also submit comments electronically through the FDIC's
website at www.fdic.gov/regulations/cra. Your letter, together with
any response by us, will be considered by the FDIC in evaluating our
CRA performance and may be made public.
You may ask to look at any comments received by the FDIC
Regional Director. You may also request from the FDIC Regional
Director an announcement of our applications covered by the CRA
filed with the FDIC. We are an affiliate of (name of holding
company), a bank holding company. You may request from the (title of
responsible official), Federal Reserve Bank of
______________(address) an announcement of applications covered by
the CRA filed by bank holding companies.
(b) Notice for branch offices.
Community Reinvestment Act Notice
Under the Federal Community Reinvestment Act (CRA), the Federal
Deposit Insurance Corporation (FDIC) evaluates our record of helping
to meet the credit needs of this community consistent with safe and
sound operations. The FDIC also takes this record into account when
deciding on certain applications submitted by us.
Your involvement is encouraged.
You are entitled to certain information about our operations and
our performance under the CRA. You may review today the public
section of our most recent CRA evaluation, prepared by the FDIC, and
a list of services provided at this branch. You may also have access
to the following additional information, which we will make
available to you at this branch within five calendar days after you
make a request to us: (1) a map showing the assessment area
containing this branch, which is the area in which the FDIC
evaluates our CRA performance in this community; (2) information
about our branches in this assessment area; (3) a list of services
we provide at those locations; (4) data on our lending performance
in this
[[Page 7222]]
assessment area; and (5) copies of all written comments received by
us that specifically relate to our CRA performance in this
assessment area, and any responses we have made to those comments.
If we are operating under an approved strategic plan, you may also
have access to a copy of the plan.
[If you would like to review information about our CRA
performance in other communities served by us, the public file for
our entire bank is available at (name of office located in state),
located at (address).]
At least 30 days before the beginning of each quarter, the FDIC
publishes a nationwide list of the banks that are scheduled for CRA
examination in that quarter. This list is available from the
Regional Director, FDIC (address). You may send written comments
about our performance in helping to meet community credit needs to
(name and address of official at bank) and the FDIC Regional
Director. You may also submit comments electronically through the
FDIC's website at www.fdic.gov/regulations/cra. Your letter,
together with any response by us, will be considered by the FDIC in
evaluating our CRA performance and may be made public.
You may ask to look at any comments received by the FDIC
Regional Director. You may also request from the FDIC Regional
Director an announcement of our applications covered by the CRA
filed with the FDIC. We are an affiliate of (name of holding
company), a bank holding company. You may request from the (title of
responsible official), Federal Reserve Bank of
______________(address) an announcement of applications covered by
the CRA filed by bank holding companies.
Michael J. Hsu,
Acting Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System.
Ann E. Misback,
Secretary of the Board.
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
Dated at Washington, DC, on October 24, 2023.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2023-25797 Filed 1-31-24; 8:45 am]
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P