In-Depth: Look Near and Far To Cover CRA Assessment Lending Areas

Kristina Stierholz

Assessment areas are the backbone of a bank’s performance under the Community Reinvestment Act (CRA). The bank is responsible for choosing its assessment area and must review and affirm that choice every year. Every bank’s CRA performance is measured against its lending to low- and moderate-income (LMI) areas and LMI individuals within their assessment area. Because lending outside the assessment area is ignored, it is important to capture as much of the bank’s lending area as the bank reasonably can be expected to serve.

The Board of Governors’ Regulation BB implements CRA. Section 228.41(a) explains that a bank’s assessment area will be used to evaluate its record of helping to meet its community’s credit needs. You can look at your assessment area in a number of ways. Imagine using a telescope to see the farthest edges of your assessment area and a microscope to view individual census tracts.

Let’s start with the telescope. Take a look at all the locations for your bank: main office, branches and deposit-taking ATMs. Regulation BB requires that the assessment area cover all of those locations for your bank. In addition to locations, your bank should include any geographical areas in which you have made or purchased a substantial portion of your loans. Do you have a loan production office (LPO) that results in significant lending in a specific area? While it is not required to be included in your assessment area, an LPO may generate enough loan activity that your bank should include that office’s geographic area.

Then consider how far you should be able to reach. Look at the broadest possible area that the bank could serve, which is a good starting point for considering what would be an appropriate assessment area.

Next, identify the relevant political subdivisions. An assessment area must generally consist of one or more metropolitan statistical areas (MSAs) or one or more contiguous political subdivisions. Is your bank large enough and geographically spread out enough to manage one or more MSAs? Or do you have a small, single-location bank in a rural area? In that case, an MSA won’t be an option and the relevant assessment area may be as small as a township. Most banks fall somewhere in the middle. In that case, you may want to look at a county or counties as the basic political subdivision.

Once you’ve settled on the appropriate political subdivision, it’s time to see if it needs to be adjusted for assessment purposes to reduce the size. Here, we switch from looking through a telescope to looking through a microscope to compare the size of the chosen political subdivision to the bank’s ability to serve that area.

Finally, the regulation limits the reasons and ways that an assessment area can be adjusted. The area must consist only of whole geographic areas (i.e., census tracts), and may not reflect illegal discrimination, arbitrarily exclude low- or moderate-income geographies or extend substantially beyond an MSA boundary or state boundary unless the assessment area is located in a multistate MSA.

Look at the entire picture, including the shape of your assessment area and what is beyond its borders. Is it irregularly shaped? Does it appear to avoid low- and moderate-income geographies? Are there high-minority populations near, but just outside, your assessment area? These are flags for further review and analysis.

Once your review is complete, be sure to document the reasons for choosing the assessment area that you did so that next year’s review can build upon the work you just completed.

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