22156 Federal Register / Vol. 60, No. 86 / Thursday, May 4, 1995 / Rules and Regulations
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 25
[Docket No. 95–07]
RIN 1557–AB32
FEDERAL RESERVE SYSTEM
12 CFR Part 228
[Regulation BB; Docket No. R–0822]
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 345
RIN 3064–AB27
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Part 563e
[Docket No. 95–72]
RIN 1550–AA69
FEDERAL RESERVE SYSTEM
12 CFR Part 203
Community Reinvestment Act
Regulations
AGENCIES: Office of the Comptroller of
the Currency, Treasury (OCC); Board of
Governors of the Federal Reserve
System (Board); Federal Deposit
Insurance Corporation (FDIC); Office of
Thrift Supervision, Treasury (OTS).
ACTION: Joint final rule.
SUMMARY: The OCC, Board, FDIC, and
OTS, (collectively, the Federal financial
supervisory agencies or agencies) are
amending their regulations concerning
the Community Reinvestment Act
(CRA). The agencies published a joint
notice of proposed rulemaking on this
issue on December 21, 1993 (1993
proposal) and again on October 7, 1994
(1994 proposal). This final rule reflects
comments received on both proposals
and the agencies’ further internal
considerations.
The purpose of the CRA regulations is
to establish the framework and criteria
by which the agencies assess an
institution’s record of helping to meet
the credit needs of its community,
including low- and moderate-income
neighborhoods, consistent with safe and
sound operations, and to provide that
the agencies’ assessment shall be taken
into account in reviewing certain
applications.
The final rule seeks to emphasize
performance rather than process, to
promote consistency in evaluations, and
to eliminate unnecessary burden. As
compared to the 1993 and 1994
proposals, the final rule reduces
recordkeeping and reporting
requirements and makes other
modifications and clarifications.
EFFECTIVE DATES: This joint rule is
effective July 1, 1995, except 12 CFR
25.3 through 25.7 and 25.51, 12 CFR
228.3 through 228.7 and 228.51, 12 CFR
345.3 through 345.7 and 345.51, and 12
CFR 563e.3 through 563e.7 and 563e.51
are removed effective July 1, 1997.
FOR FURTHER INFORMATION CONTACT:
OCC: Stephen M. Cross, Deputy
Comptroller for Compliance, (202) 874–
5216; or Matthew Roberts, Director,
Community and Consumer Law
Division, (202) 874–5750, Office of the
Comptroller of the Currency, 250 E
Street, SW., Washington, DC 20219.
Board: Glenn E. Loney, Associate
Director, Division of Consumer and
Community Affairs, (202) 452–3585;
Robert deV. Frierson, Assistant General
Counsel, Legal Division, (202) 452–
3711; or Leonard N. Chanin, Managing
Counsel, Division of Consumer and
Community Affairs, (202) 452–3667,
Board of Governors of the Federal
Reserve System, 20th Street and
Constitution Avenue, NW., Washington,
DC 20551.
FDIC: Bobbie Jean Norris, Chief, Fair
Lending Section, Division of
Compliance and Consumer Affairs,
(202) 942–3090; Robert W. Mooney, Fair
Lending Specialist, Division of
Compliance and Consumer Affairs,
(202) 942–3092; or Ann Hume Loikow,
Counsel, Regulation and Legislation
Section, Legal Division, (202) 898–3796,
Federal Deposit Insurance Corporation,
550 17th Street, NW., Washington, DC
20429.
OTS: Timothy R. Burniston, Assistant
Director for Compliance Policy, (202)
906–5629; Theresa A. Stark, Program
Analyst, Compliance Policy, (202) 906–
7054; or Lewis A. Segall, Senior
Attorney, Regulations and Legislation
Division, Chief Counsel’s Office, (202)
906–6648, Office of Thrift Supervision,
1700 G Street, NW., Washington, DC
20552.
SUPPLEMENTARY INFORMATION:
Introduction
The Federal financial supervisory
agencies jointly are amending their
regulations implementing the CRA (12
U.S.C. 2901 et seq.). The amended
regulations will, when fully effective,
replace the existing regulations in their
entirety.
The CRA is designed to encourage
regulated financial institutions to help
meet the credit needs of their entire
communities, including low- and
moderate-income neighborhoods,
consistent with safe and sound
operations. Despite the CRA’s notable
successes in improving access to credit,
banks and savings and loan institutions,
as well as community and consumer
groups, maintain that its full potential
has not been realized, in large part
because regulatory compliance efforts
have focused on process rather than
performance.
In accordance with a request from the
President, the Federal financial
supervisory agencies have undertaken a
comprehensive effort to reform their
standards for evaluating compliance
with CRA requirements. The final rule
implements this reform effort by
substituting a new system that evaluates
institutions based on their actual
performance in helping to meet their
communities’ credit needs.
Background
In 1977, the Congress enacted the
CRA to encourage banks and thrifts to
help meet the credit needs of their
entire communities, including low- and
moderate-income neighborhoods,
consistent with safe and sound lending
practices. In the CRA, the Congress
found that:
‘‘(1) regulated financial institutions
are required by law to demonstrate that
their deposit facilities serve the
convenience and needs of the
communities in which they are
chartered to do business;
(2) the convenience and needs of
communities include the need for credit
as well as deposit services; and
(3) regulated financial institutions
have continuing and affirmative
obligation[s] to help meet the credit
needs of the local communities in
which they are chartered.’’
(12 U.S.C. 2901(a))
The CRA has come to play an
increasingly important role in
improving access to credit in
communities—both rural and urban—
across the country. Under the impetus
of the CRA, many banks and thrifts
opened new branches, provided
expanded services, and made
substantial commitments to increase
lending to all segments of society.
Despite these successes, the CRA
examination system has been criticized.
Financial institutions have indicated
that policy guidance from the agencies
on the CRA is unclear and that
examination standards are applied
inconsistently. Financial institutions
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 25
[Docket No. 95–07]
RIN 1557–AB32
FEDERAL RESERVE SYSTEM
12 CFR Part 228
[Regulation BB; Docket No. R–0822]
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 345
RIN 3064–AB27
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR Part 563e
[Docket No. 95–72]
RIN 1550–AA69
FEDERAL RESERVE SYSTEM
12 CFR Part 203
Community Reinvestment Act
Regulations
AGENCIES: Office of the Comptroller of
the Currency, Treasury (OCC); Board of
Governors of the Federal Reserve
System (Board); Federal Deposit
Insurance Corporation (FDIC); Office of
Thrift Supervision, Treasury (OTS).
ACTION: Joint final rule.
SUMMARY: The OCC, Board, FDIC, and
OTS, (collectively, the Federal financial
supervisory agencies or agencies) are
amending their regulations concerning
the Community Reinvestment Act
(CRA). The agencies published a joint
notice of proposed rulemaking on this
issue on December 21, 1993 (1993
proposal) and again on October 7, 1994
(1994 proposal). This final rule reflects
comments received on both proposals
and the agencies’ further internal
considerations.
The purpose of the CRA regulations is
to establish the framework and criteria
by which the agencies assess an
institution’s record of helping to meet
the credit needs of its community,
including low- and moderate-income
neighborhoods, consistent with safe and
sound operations, and to provide that
the agencies’ assessment shall be taken
into account in reviewing certain
applications.
The final rule seeks to emphasize
performance rather than process, to
promote consistency in evaluations, and
to eliminate unnecessary burden. As
compared to the 1993 and 1994
proposals, the final rule reduces
recordkeeping and reporting
requirements and makes other
modifications and clarifications.
EFFECTIVE DATES: This joint rule is
effective July 1, 1995, except 12 CFR
25.3 through 25.7 and 25.51, 12 CFR
228.3 through 228.7 and 228.51, 12 CFR
345.3 through 345.7 and 345.51, and 12
CFR 563e.3 through 563e.7 and 563e.51
are removed effective July 1, 1997.
FOR FURTHER INFORMATION CONTACT:
OCC: Stephen M. Cross, Deputy
Comptroller for Compliance, (202) 874–
5216; or Matthew Roberts, Director,
Community and Consumer Law
Division, (202) 874–5750, Office of the
Comptroller of the Currency, 250 E
Street, SW., Washington, DC 20219.
Board: Glenn E. Loney, Associate
Director, Division of Consumer and
Community Affairs, (202) 452–3585;
Robert deV. Frierson, Assistant General
Counsel, Legal Division, (202) 452–
3711; or Leonard N. Chanin, Managing
Counsel, Division of Consumer and
Community Affairs, (202) 452–3667,
Board of Governors of the Federal
Reserve System, 20th Street and
Constitution Avenue, NW., Washington,
DC 20551.
FDIC: Bobbie Jean Norris, Chief, Fair
Lending Section, Division of
Compliance and Consumer Affairs,
(202) 942–3090; Robert W. Mooney, Fair
Lending Specialist, Division of
Compliance and Consumer Affairs,
(202) 942–3092; or Ann Hume Loikow,
Counsel, Regulation and Legislation
Section, Legal Division, (202) 898–3796,
Federal Deposit Insurance Corporation,
550 17th Street, NW., Washington, DC
20429.
OTS: Timothy R. Burniston, Assistant
Director for Compliance Policy, (202)
906–5629; Theresa A. Stark, Program
Analyst, Compliance Policy, (202) 906–
7054; or Lewis A. Segall, Senior
Attorney, Regulations and Legislation
Division, Chief Counsel’s Office, (202)
906–6648, Office of Thrift Supervision,
1700 G Street, NW., Washington, DC
20552.
SUPPLEMENTARY INFORMATION:
Introduction
The Federal financial supervisory
agencies jointly are amending their
regulations implementing the CRA (12
U.S.C. 2901 et seq.). The amended
regulations will, when fully effective,
replace the existing regulations in their
entirety.
The CRA is designed to encourage
regulated financial institutions to help
meet the credit needs of their entire
communities, including low- and
moderate-income neighborhoods,
consistent with safe and sound
operations. Despite the CRA’s notable
successes in improving access to credit,
banks and savings and loan institutions,
as well as community and consumer
groups, maintain that its full potential
has not been realized, in large part
because regulatory compliance efforts
have focused on process rather than
performance.
In accordance with a request from the
President, the Federal financial
supervisory agencies have undertaken a
comprehensive effort to reform their
standards for evaluating compliance
with CRA requirements. The final rule
implements this reform effort by
substituting a new system that evaluates
institutions based on their actual
performance in helping to meet their
communities’ credit needs.
Background
In 1977, the Congress enacted the
CRA to encourage banks and thrifts to
help meet the credit needs of their
entire communities, including low- and
moderate-income neighborhoods,
consistent with safe and sound lending
practices. In the CRA, the Congress
found that:
‘‘(1) regulated financial institutions
are required by law to demonstrate that
their deposit facilities serve the
convenience and needs of the
communities in which they are
chartered to do business;
(2) the convenience and needs of
communities include the need for credit
as well as deposit services; and
(3) regulated financial institutions
have continuing and affirmative
obligation[s] to help meet the credit
needs of the local communities in
which they are chartered.’’
(12 U.S.C. 2901(a))
The CRA has come to play an
increasingly important role in
improving access to credit in
communities—both rural and urban—
across the country. Under the impetus
of the CRA, many banks and thrifts
opened new branches, provided
expanded services, and made
substantial commitments to increase
lending to all segments of society.
Despite these successes, the CRA
examination system has been criticized.
Financial institutions have indicated
that policy guidance from the agencies
on the CRA is unclear and that
examination standards are applied
inconsistently. Financial institutions
22157Federal Register / Vol. 60, No. 86 / Thursday, May 4, 1995 / Rules and Regulations
have also stated that the CRA
examination process encourages them to
generate excessive paperwork at the
expense of providing loans, services,
and investments to their communities.
Community, consumer, and other
groups have agreed with the industry
that there are inconsistencies in CRA
evaluations and that current
examinations overemphasize process
and underemphasize performance.
Community and consumer groups also
have criticized the agencies for failing
aggressively to penalize banks and
thrifts for poor performance.
Noting that the CRA examination
process could be improved, President
Clinton requested in July 1993 that the
Federal financial supervisory agencies
reform the CRA regulatory system. The
President asked the agencies to consult
with the banking and thrift industries,
Congressional leaders, and leaders of
community-based organizations across
the country to develop new CRA
regulations and examination procedures
that ‘‘replace paperwork and
uncertainty with greater performance,
clarity, and objectivity.’’
Specifically, the President asked the
agencies to refocus the CRA
examination system on more objective,
performance-based assessment
standards that minimize compliance
burden while stimulating improved
performance. He also asked the agencies
to develop a well-trained corps of
examiners who would specialize in CRA
examinations. The President requested
that the agencies promote consistency
and even-handedness, improve CRA
performance evaluations, and institute
more effective sanctions against
institutions with consistently poor
performance.
To implement the President’s
initiative, the four agencies held a series
of seven public hearings across the
country in 1993. At those hearings, the
agencies heard from over 250 witnesses.
Nearly 50 others submitted written
statements. The preamble to the 1993
proposal reviewed the results of those
hearings.
The 1993 Proposal
The agencies published proposed
revisions to their CRA regulations on
December 21, 1993. The 1993 proposal
(58 FR 67466) would have eliminated
the twelve assessment factors in the
present CRA regulations and substituted
a more performance-based evaluation
system. Under the 1993 proposal, the
agencies would have evaluated
institutions based on their actual
lending, service, and investment
performance rather than on how well
they conducted their needs assessments,
documented their community outreach,
and implemented other procedural
requirements of the existing regulations.
Generally, large retail institutions
would have been evaluated based on
some combination of lending, service,
and investment tests. Institutions would
have been required to report data on the
basis of the geographic distribution of
applications, denials, originations, and
purchases of loans. Small banks and
thrifts could have elected to be
evaluated under a streamlined method
that would not have required them to
report this data. Every institution also
could have elected to have its
performance evaluated on the basis of a
pre-approved strategic plan.
All banks and thrifts would have been
assigned one of four statutorily
mandated CRA ratings (12 U.S.C.
2906(b)(2)). However, five ratings would
have been used for the lending, service,
and investment tests, with the
satisfactory category split into low
satisfactory and high satisfactory.
Collectively, the agencies received
over 6,700 comment letters on the 1993
proposal. As a general matter, the vast
majority of commenters expressed
support for the agencies’ goal of
developing more objective,
performance-based assessment
standards that minimize burden while
stimulating improved performance.
However, many expressed concern over
aspects of the 1993 proposal that they
viewed as allocating credit to particular
kinds of borrowers. After considering
the comments, the agencies published a
second proposal on October 7, 1994,
which responded to many of the
suggestions in the comments on the
1993 proposal, including concerns
about credit allocation, while preserving
the 1993 proposal’s goal of emphasizing
performance over process.
The 1994 Proposal
The 1994 proposal (59 FR 51232)
retained the principles and structure
underlying the 1993 proposal but made
significant changes to the details in
order to respond to many of the specific
concerns raised in the comment letters.
As in the 1993 proposal, the 1994
proposal would have replaced the
existing regulations’ twelve assessment
factors with a performance-based
evaluation system. The 1994 proposal
retained, but modified, the lending,
investment, and service tests for large
retail institutions; the streamlined
evaluation for small institutions; an
alternative evaluation for limited
purpose and wholesale institutions; and
the pre-approved strategic plan option
available to all institutions.
The 1993 proposal had been criticized
because of certain objective criteria in
the proposal (including market share, a
presumptively reasonable loan to
deposit ratio, loan mix, investment to
capital ratios, and the number of
branches readily accessible to low- and
moderate-income geographies) which
were intended to respond to concerns
about the need for more objective
standards for evaluating compliance
with CRA requirements. Many
commenters viewed these criteria as
calling for credit allocation, although
the agencies did not intend this result.
The 1994 proposal removed these
criteria from the regulatory language
and substituted a broader range of
qualitative and quantitative criteria. A
system for evaluating compliance with
CRA should not eliminate examiner
judgment, even if completely objective
criteria consistently applied were
achievable. Preservation of examiner
judgment to take into account the
unique characteristics and needs of an
institution’s community and the
institution’s own capacity and relevant
constraints are essential for a workable
rule.
At the same time, consistency in
evaluations, reduction in the burden of
compliance, and emphasis on
performance are fully consistent with
assuring a measure of examiner
judgment. The 1994 proposal would
have provided a balance between
objective analysis and subjective
judgment through a series of examiner
decisions relying on detailed data
measuring an institution’s actual
lending, service and investment
performance. In order to minimize
unnecessary subjectivity, the agencies
provided guidance as to the standards
that examiners would have applied in
making the required judgments.
Compared to the 1993 proposal, the
1994 proposal would have reduced data
reporting burdens by streamlining
reporting requirements. The one
significant new reporting requirement
was the collection and reporting of
information on the race and gender of
small business and farm borrowers. The
agencies proposed this provision to
respond to concerns that the 1993
proposal did not give enough weight to
the fair lending aspect of an institution’s
CRA performance.
In order to take into account
community characteristics and needs,
the 1994 proposal would have made
explicit the context in which the tests
and standards would have been applied
to individual institutions. In a specific
effort to reduce burden, the preamble
indicated that the agencies, rather than
institutions, would have collected and
have also stated that the CRA
examination process encourages them to
generate excessive paperwork at the
expense of providing loans, services,
and investments to their communities.
Community, consumer, and other
groups have agreed with the industry
that there are inconsistencies in CRA
evaluations and that current
examinations overemphasize process
and underemphasize performance.
Community and consumer groups also
have criticized the agencies for failing
aggressively to penalize banks and
thrifts for poor performance.
Noting that the CRA examination
process could be improved, President
Clinton requested in July 1993 that the
Federal financial supervisory agencies
reform the CRA regulatory system. The
President asked the agencies to consult
with the banking and thrift industries,
Congressional leaders, and leaders of
community-based organizations across
the country to develop new CRA
regulations and examination procedures
that ‘‘replace paperwork and
uncertainty with greater performance,
clarity, and objectivity.’’
Specifically, the President asked the
agencies to refocus the CRA
examination system on more objective,
performance-based assessment
standards that minimize compliance
burden while stimulating improved
performance. He also asked the agencies
to develop a well-trained corps of
examiners who would specialize in CRA
examinations. The President requested
that the agencies promote consistency
and even-handedness, improve CRA
performance evaluations, and institute
more effective sanctions against
institutions with consistently poor
performance.
To implement the President’s
initiative, the four agencies held a series
of seven public hearings across the
country in 1993. At those hearings, the
agencies heard from over 250 witnesses.
Nearly 50 others submitted written
statements. The preamble to the 1993
proposal reviewed the results of those
hearings.
The 1993 Proposal
The agencies published proposed
revisions to their CRA regulations on
December 21, 1993. The 1993 proposal
(58 FR 67466) would have eliminated
the twelve assessment factors in the
present CRA regulations and substituted
a more performance-based evaluation
system. Under the 1993 proposal, the
agencies would have evaluated
institutions based on their actual
lending, service, and investment
performance rather than on how well
they conducted their needs assessments,
documented their community outreach,
and implemented other procedural
requirements of the existing regulations.
Generally, large retail institutions
would have been evaluated based on
some combination of lending, service,
and investment tests. Institutions would
have been required to report data on the
basis of the geographic distribution of
applications, denials, originations, and
purchases of loans. Small banks and
thrifts could have elected to be
evaluated under a streamlined method
that would not have required them to
report this data. Every institution also
could have elected to have its
performance evaluated on the basis of a
pre-approved strategic plan.
All banks and thrifts would have been
assigned one of four statutorily
mandated CRA ratings (12 U.S.C.
2906(b)(2)). However, five ratings would
have been used for the lending, service,
and investment tests, with the
satisfactory category split into low
satisfactory and high satisfactory.
Collectively, the agencies received
over 6,700 comment letters on the 1993
proposal. As a general matter, the vast
majority of commenters expressed
support for the agencies’ goal of
developing more objective,
performance-based assessment
standards that minimize burden while
stimulating improved performance.
However, many expressed concern over
aspects of the 1993 proposal that they
viewed as allocating credit to particular
kinds of borrowers. After considering
the comments, the agencies published a
second proposal on October 7, 1994,
which responded to many of the
suggestions in the comments on the
1993 proposal, including concerns
about credit allocation, while preserving
the 1993 proposal’s goal of emphasizing
performance over process.
The 1994 Proposal
The 1994 proposal (59 FR 51232)
retained the principles and structure
underlying the 1993 proposal but made
significant changes to the details in
order to respond to many of the specific
concerns raised in the comment letters.
As in the 1993 proposal, the 1994
proposal would have replaced the
existing regulations’ twelve assessment
factors with a performance-based
evaluation system. The 1994 proposal
retained, but modified, the lending,
investment, and service tests for large
retail institutions; the streamlined
evaluation for small institutions; an
alternative evaluation for limited
purpose and wholesale institutions; and
the pre-approved strategic plan option
available to all institutions.
The 1993 proposal had been criticized
because of certain objective criteria in
the proposal (including market share, a
presumptively reasonable loan to
deposit ratio, loan mix, investment to
capital ratios, and the number of
branches readily accessible to low- and
moderate-income geographies) which
were intended to respond to concerns
about the need for more objective
standards for evaluating compliance
with CRA requirements. Many
commenters viewed these criteria as
calling for credit allocation, although
the agencies did not intend this result.
The 1994 proposal removed these
criteria from the regulatory language
and substituted a broader range of
qualitative and quantitative criteria. A
system for evaluating compliance with
CRA should not eliminate examiner
judgment, even if completely objective
criteria consistently applied were
achievable. Preservation of examiner
judgment to take into account the
unique characteristics and needs of an
institution’s community and the
institution’s own capacity and relevant
constraints are essential for a workable
rule.
At the same time, consistency in
evaluations, reduction in the burden of
compliance, and emphasis on
performance are fully consistent with
assuring a measure of examiner
judgment. The 1994 proposal would
have provided a balance between
objective analysis and subjective
judgment through a series of examiner
decisions relying on detailed data
measuring an institution’s actual
lending, service and investment
performance. In order to minimize
unnecessary subjectivity, the agencies
provided guidance as to the standards
that examiners would have applied in
making the required judgments.
Compared to the 1993 proposal, the
1994 proposal would have reduced data
reporting burdens by streamlining
reporting requirements. The one
significant new reporting requirement
was the collection and reporting of
information on the race and gender of
small business and farm borrowers. The
agencies proposed this provision to
respond to concerns that the 1993
proposal did not give enough weight to
the fair lending aspect of an institution’s
CRA performance.
In order to take into account
community characteristics and needs,
the 1994 proposal would have made
explicit the context in which the tests
and standards would have been applied
to individual institutions. In a specific
effort to reduce burden, the preamble
indicated that the agencies, rather than
institutions, would have collected and