Recent revisions to Community Reinvestment Act (CRA) rules expand the definition of community development and increase the number of banks designated as "small" by adding "intermediate small banks" to the category.
The changes—approved by the Federal Reserve Board, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency—went into effect Sept. 1, 2005.
The new rules ease the regulatory burden on community banks while making CRA evaluations more effective in persuading banks to meet community development needs.
The final rules are essentially the same as ones the agencies proposed last spring. They increase the asset-size threshold for small banks to less than $1 billion, without regard to holding company affiliation. Intermediate small banks are those with assets of at least $250 million and less than $1 billion. The changes are also intended to encourage banks to provide meaningful community development lending, investment and services.
Under the new rules:
- Intermediate small banks no longer need to collect and report CRA loan data. However, examiners will continue to evaluate bank lending activity in the CRA examinations of intermediate small banks and disclose results in the public evaluation.
- Intermediate small banks will be evaluated under two separately rated tests: the small bank lending test and a flexible new community development test that includes an evaluation of community development loans, investments and services in light of community needs and the capacity of the bank. Satisfactory ratings are required on both tests to obtain an overall satisfactory CRA rating.
In addition, for banks of any size:
- The new rules expand the definition of community development to include activities that revitalize or stabilize designated disaster areas and distressed or underserved rural areas. By including designated distressed or underserved rural areas, the agencies are recognizing and encouraging community development in more rural areas. (Designated distressed or underserved rural areas are to be listed by the agencies on the Federal Financial Institutions Examination Council web site, www.ffiec.gov/cra.)
- The regulations also clarify when discrimination or other illegal credit practices by a bank or its affiliate will adversely affect an evaluation of the bank's CRA performance.