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From Banking and Finance Law Daily, April 21, 2014

Interagency Community Reinvestment Act examination procedures for large institutions revised

By Stephanie K. Mann, J.D.

Federal Reserve Board, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency have updated Community Reinvestment Act examination guidance to explain how community development activities that benefit a broader statewide or regional area that includes an institution’s assessment area and investments in nationwide funds will be considered when evaluating an institution’s CRA performance, assigning ratings, and developing public performance evaluations. The “Large Institution CRA Examination Procedures” are posted on the Federal Financial Institution Examination Council’s website.

The revised examination procedures reflect revisions to the Interagency Questions and Answers Regarding Community Reinvestment issued on Nov. 15, 2013. Additionally, the Fed has republished, without change, the interagency Small Institution CRA examination procedures, the interagency Intermediate Small Institution CRA examination procedures, the interagency Wholesale/Limited Purpose CRA examination procedures, the interagency Strategic Plan CRA examination procedures, the Instruction for Writing Public Evaluations, and the FFIEC Community Contact Form.

In its release, the OCC notes that the “Large Institution CRA Examination Procedures” contains guidance and examination procedures applicable to institutions with total assets greater than $1.202 billion as of December 31 of either of the previous two calendar years. However, small and intermediate small banks under OCC supervision may also be examined under these large bank procedures at each bank’s option.

Background. On March 18, 2013, the agencies published for comment proposed clarifications that would revise five questions and answers, which address: (1) community development activities outside an institution’s assessment area, both in the broader statewide or regional area that includes the institution’s assessment area and in nationwide funds; (2) additional ways to determine whether recipients of community services are low- or moderate-income; and (3) technical assistance activities related to the provision of financial services that might be provided to community development organizations.

The agencies also proposed two new Q&As: one addresses the treatment of community development lending performance in determining a large institution’s lending test rating; and the other addresses the quantitative consideration given to a certain type of community development investment.

Together, the agencies received comments from approximately 200 different parties. The commenters represented financial institutions and their trade associations, community development advocates and organizations, and state bank supervisors, among others. The commenters generally noted that the proposed changes were a modest, but beneficial, effort to modernize the implementation of the CRA. Commenters largely supported the intent of the agencies to encourage more community development activity, particularly outside large metropolitan areas that are well served by financial institutions. Many commenters expressed concern nonetheless about potential unintended consequences in the proposed changes and provided suggestions for improvement.

The agencies adopted the five revised and two new Q&As that were proposed, with minor clarifications as appropriate, in response to comments received.

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