1
Statement by Martin J. Gruenberg,
Member, FDIC Board of Directors; Notice
of Proposed Rulemaking: Community
Reinvestment Act Regulations
Introduction
The Notice of Proposed Rulemaking (NPR) before the FDIC Board today is a deeply
misconceived proposal that would fundamentally undermine and weaken the
Community Reinvestment Act.i For that reason I will vote against this NPR.
The Community Reinvestment Act was signed into law over forty years ago. Over the
course of its history it has become the foundation of finance for low- and moderate-
income communities in the United States. As the preamble to this NPR states, "Since
becoming law in 1977, the Community Reinvestment Act (CRA) has encouraged
insured depository institutions (banks) to invest trillions of dollars into the communities
they serve, including low- and moderate-income (LMI) neighborhoods."ii
The regulation implementing CRA has not been significantly revised since 1995. Given
the evolution of the banking industry over that period, there is certainly reason to
consider revisions to the CRA regulation to enhance and strengthen its effectiveness.
For example, there is general agreement that, as technology has expanded
opportunities for access to financial services, consideration should be given to how CRA
could be adapted to include communities in which banks do substantial business but do
not fall within existing branch-based assessment areas.
In addition, under the current CRA regulation, community development is considered in
the lending, services, and investment tests. It may make sense to create a single
community development test that would include lending, services, and investment,
complemented by a retail test, which would include lending and services.
Further, finding ways to ensure greater consistency and predictability in CRA
evaluations would also have value. Providing greater certainty to bankers and
community organizations as to whether proposed investments or loans would receive
CRA credit is a commonly shared goal, although it poses challenges in practice.
The NPR before the FDIC Board today would seek to address these issues. However it
would do so in a misconceived, unworkable, and damaging way to CRA.
The Proposed CRA Evaluation Framework
Statement by Martin J. Gruenberg,
Member, FDIC Board of Directors; Notice
of Proposed Rulemaking: Community
Reinvestment Act Regulations
Introduction
The Notice of Proposed Rulemaking (NPR) before the FDIC Board today is a deeply
misconceived proposal that would fundamentally undermine and weaken the
Community Reinvestment Act.i For that reason I will vote against this NPR.
The Community Reinvestment Act was signed into law over forty years ago. Over the
course of its history it has become the foundation of finance for low- and moderate-
income communities in the United States. As the preamble to this NPR states, "Since
becoming law in 1977, the Community Reinvestment Act (CRA) has encouraged
insured depository institutions (banks) to invest trillions of dollars into the communities
they serve, including low- and moderate-income (LMI) neighborhoods."ii
The regulation implementing CRA has not been significantly revised since 1995. Given
the evolution of the banking industry over that period, there is certainly reason to
consider revisions to the CRA regulation to enhance and strengthen its effectiveness.
For example, there is general agreement that, as technology has expanded
opportunities for access to financial services, consideration should be given to how CRA
could be adapted to include communities in which banks do substantial business but do
not fall within existing branch-based assessment areas.
In addition, under the current CRA regulation, community development is considered in
the lending, services, and investment tests. It may make sense to create a single
community development test that would include lending, services, and investment,
complemented by a retail test, which would include lending and services.
Further, finding ways to ensure greater consistency and predictability in CRA
evaluations would also have value. Providing greater certainty to bankers and
community organizations as to whether proposed investments or loans would receive
CRA credit is a commonly shared goal, although it poses challenges in practice.
The NPR before the FDIC Board today would seek to address these issues. However it
would do so in a misconceived, unworkable, and damaging way to CRA.
The Proposed CRA Evaluation Framework
2
At the core of this proposal is the establishment of a single metric CRA ratio or "CRA
evaluation measure"iii, at the bank and assessment area level, that would be the
ultimate determinant of CRA performance.
Under the proposal, there would be a "bank-level CRA evaluation measure" and an
"assessment area CRA evaluation measure."iv
The bank-level and assessment area measures would be the sum of the value of all of
the CRA qualifying activities divided by the value of retail domestic deposits at the bank
and assessment area levels respectively.v5
The proposed rule prescribes presumptive measures to determine a bank's CRA rating.
For example, at the bank and assessment area level, a CRA evaluation measure of 11
percent would be required for an outstanding rating, 6 percent for a satisfactory rating, 3
percent for a needs to improve rating, and less than 3 percent for a substantial
noncompliance rating.vi
In addition, the bank would need to achieve a rating of outstanding or satisfactory in a
"significant portion" of its assessment areas in order to receive an overall outstanding or
satisfactory rating. The proposed regulation does not define the term "significant
portion", but the preamble suggests "such as more than 50 percent."vii
The proposal provides for pass-fail retail lending and community development tests, but
these are really supplements to the CRA evaluation measure.viii
It is the presumptive CRA evaluation measure or single metric that is the dominant
determinant of the CRA rating.
Problems with the Proposed CRA Evaluation Framework
As the preamble to the proposed rule points out in regard to the commenters on the
Advance Notice of Proposed Rulemaking on CRA that the OCC issued, "The majority
support objective measurement of CRA performance, although they oppose a single
metric."ix
Yet a single metric at the bank and assessment area level is the foundation of the
evaluation framework for this proposed rule.
It is problematic in several ways.
First, under this single metric approach, a bank must calculate the value of its CRA
qualifying activities, at the bank and assessment area level, based on the dollar value of
qualifying activities originated, made, and purchased by the bank.x
The problem with this approach is that adding up the dollar value of qualifying activities -
- lending, community development investments, and community development services -
At the core of this proposal is the establishment of a single metric CRA ratio or "CRA
evaluation measure"iii, at the bank and assessment area level, that would be the
ultimate determinant of CRA performance.
Under the proposal, there would be a "bank-level CRA evaluation measure" and an
"assessment area CRA evaluation measure."iv
The bank-level and assessment area measures would be the sum of the value of all of
the CRA qualifying activities divided by the value of retail domestic deposits at the bank
and assessment area levels respectively.v5
The proposed rule prescribes presumptive measures to determine a bank's CRA rating.
For example, at the bank and assessment area level, a CRA evaluation measure of 11
percent would be required for an outstanding rating, 6 percent for a satisfactory rating, 3
percent for a needs to improve rating, and less than 3 percent for a substantial
noncompliance rating.vi
In addition, the bank would need to achieve a rating of outstanding or satisfactory in a
"significant portion" of its assessment areas in order to receive an overall outstanding or
satisfactory rating. The proposed regulation does not define the term "significant
portion", but the preamble suggests "such as more than 50 percent."vii
The proposal provides for pass-fail retail lending and community development tests, but
these are really supplements to the CRA evaluation measure.viii
It is the presumptive CRA evaluation measure or single metric that is the dominant
determinant of the CRA rating.
Problems with the Proposed CRA Evaluation Framework
As the preamble to the proposed rule points out in regard to the commenters on the
Advance Notice of Proposed Rulemaking on CRA that the OCC issued, "The majority
support objective measurement of CRA performance, although they oppose a single
metric."ix
Yet a single metric at the bank and assessment area level is the foundation of the
evaluation framework for this proposed rule.
It is problematic in several ways.
First, under this single metric approach, a bank must calculate the value of its CRA
qualifying activities, at the bank and assessment area level, based on the dollar value of
qualifying activities originated, made, and purchased by the bank.x
The problem with this approach is that adding up the dollar value of qualifying activities -
- lending, community development investments, and community development services -