The rule also establishes new criteria for designating bank assessment areas, including. Those performance standards generally continue the performance standards under the rule, as revised rule. GPS banks will be required to collect, maintain, and report certain data related to their qualifying activities, certain non-qualifying activities, retail domestic deposits, performance context, and assessment areas.
Banks evaluated under a strategic plan will be required to collect, maintain, and report certain data related to their qualifying activities, certain non-qualifying activities, retail domestic deposits, performance context, and assessment areas, unless otherwise determined in writing by the OCC.
Wholesale and limited purpose banks will be required to collect, maintain, and report certain data related to their qualifying activities, retail domestic deposits, performance context, and assessment areas. The June rule establishes three compliance dates. Banks must comply with certain provisions of the June rule as of the effective date of October 1, , while other provisions have compliance dates of either January 1, , or January 1, , depending on the bank type.
The OCC is conducting outreach activities to provide banks with more information regarding how the agency will administer the transition to the June rule, beginning with those provisions in the rule that have an October 1, , compliance date. The OCC will continue to conduct outreach and training on other aspects of the June rule during the transition period.
Search CRA Evaluations. Submit a comment on licensing applications. See CRA ratings and performance evaluations by month and year. Get a list of national banks operating under approved CRA strategic plans and a reference to the authorizing regulation.
Get a list of banks designated as wholesale or limited purpose, definitions for these terms, and a reference to the authorizing regulation. Get resources for information on national banks, savings and loans, state-chartered banks, bank holding companies, credit unions.
What are you searching for in OCC. For example, if a bank extends only small business or consumer loans from its LPOs and those products constitute a major product line as discussed in Section VI, only those types of loans would be subject to evaluation. Similarly, community development expectations could also be based on the bank's capacity to engage in community development financing and community development services.
This approach could provide banks with CRA consideration for, and thereby incentivize, retail lending and community development activity potentially without some of the complexity associated with deposit- or lending-based assessment areas discussed below. Additionally, the Board is proposing to give banks the option of delineating facility-based assessment areas around deposit-taking ATMs, but they would not be required to do so.
Some stakeholders have expressed the view that the current requirement for banks to delineate an assessment area around a deposit-taking ATM is outdated now that customers can use smartphones and other technologies to make deposits. However, if deposits from deposit-taking ATMs generate considerable bank deposits or comprise a comparatively large market share within a community, it may still be appropriate to delineate assessment areas around them.
Question 3. Given the CRA's purpose and its nexus with fair lending laws, what changes to Regulation BB would reaffirm the practice of ensuring that assessment areas do not reflect illegal discrimination and do not arbitrarily exclude LMI census tracts? Question 4. How should the Board provide more clarity that a small bank would not be required to expand the delineation of assessment area s in parts of counties where it does not have a physical presence and where it either engages in a de minimis amount of lending or there is substantial competition from other institutions, except in limited circumstances?
Question 5. Should facility-based assessment area delineation requirements be tailored based on bank size, with large banks being required to delineate facility-based assessment areas as, at least, one or more contiguous counties and smaller banks being able to delineate smaller political subdivisions, such as portions of cities or townships, as long as they consist of whole census tracts?
Question 6. Would delineating facility-based assessment areas that surround LPOs support the policy objective of assessing CRA performance where banks conduct their banking business? Question 7. Should banks have the option of delineating assessment areas around deposit-taking ATMs or should this remain a requirement?
For certain large banks that engage in considerable business beyond their branch-based assessment areas, the Board is exploring alternative deposit-based and lending-based ways to delineate additional assessment areas. In considering options for creating new assessment areas that are not facility-based, the Board is also considering the types of banks to which these additional assessment area requirements should apply.
The Board would be inclined to require such an approach only for internet banks that do not have physical locations and banks that partner with online lenders that do not have physical loan-making locations. The Board is also considering which approaches should apply to hybrid banks that have traditional branch-based assessment areas but also conduct a substantial majority of lending and deposit-taking beyond their assessment areas. For these banks, the Board is considering whether there is a certain threshold of outside activity that would prompt new assessment areas.
The Board is considering the option of establishing deposit-based assessment areas for large banks that provide all or a substantial majority of their products and services entirely via mobile and internet channels. There are currently deposits data gaps that make it difficult to understand how this option would affect banks with different business models and asset sizes and which communities it would impact.
Additionally, deposit-based assessment areas also raise considerations of how much burden would be associated with deposits data collection, as discussed in Section XI. Subject to the deposits data limitations discussed above, one option for deposit-based assessment areas would be to trigger the delineation of additional assessment areas when a large bank exceeds a certain threshold of deposits outside of its facility-based assessment areas.
Given some of the data challenges with adding deposit-based assessment areas, an alternative approach could be to base additional assessment areas for large banks on concentrations of lending activity. One advantage of lending-based assessment areas is that it is possible to analyze their impact given the availability of HMDA and CRA reporter data, reflecting home mortgage, small business, and small farm lending activity.
The Board conducted two separate analyses of possible approaches to delineating additional assessment areas based on concentrations of lending activity outside of branches. The second utilized the concentration of lending outside of banks' branch-based assessment areas. The Board analyzed how lending-based assessment areas might work for large banks that conduct a substantial majority 75 percent or greater of their lending outside of their facility-based assessment areas.
Such an approach would be intended to capture a subset of bank business models, including banks that do not rely principally on branches for extending loans. The analysis indicated that this approach for delineating lending-based assessment areas may not meet the Board's policy objectives for defining additional assessment areas. The analysis revealed that additional assessment areas would be required for only 33 banks across all three lending categories.
Additionally, as with deposit-based assessment areas, this approach may exacerbate the discrepancies in CRA activity between CRA hot spots and deserts, because the new assessment areas identified under this approach tended to be located in high-density metropolitan areas with multiple active banks. Finally, the analysis indicates that this approach may not substantially increase banks' lending to LMI borrowers in the new assessment areas because the percentage of LMI borrowers is similar between banks that would add new lending-based assessment areas and banks that already have existing facility-based assessment areas.
The second lending-based approach analyzed by the Board would require a bank to delineate additional assessment areas in counties with sufficient concentrations of lending, regardless of how many loans it makes outside of its branch-based assessment areas. This analysis revealed that of 3, banks analyzed, only banks would be required to delineate at least one additional assessment area using a threshold of mortgages loans and only 65 banks would be required to delineate at least one additional assessment area using a threshold of mortgage loans.
It is important to recognize that these numbers could increase over time as banks expand their reliance on mobile and online platforms. Question 8. Should delineation of new deposit- or lending-based assessment areas apply only to internet banks that do not have physical locations or should it also apply more broadly to other large banks with substantial activity beyond their branch-based assessment areas?
Is there a certain threshold of such activity that should trigger additional assessment areas? The Board is considering whether to allow internet banks to delineate nationwide assessment areas. Currently, these banks' assessment areas are based on the location of the bank's solitary main office. This results in assessment areas that are much smaller than the bank's actual business footprint. Additionally, the number of new assessment areas triggered for internet banks using the deposit-based or lending-based assessment area approach would vary and, for some of these banks, could be limited.
The Board's above-referenced lending-based assessment area analysis indicated that many banks' dispersion of lending activity would make it challenging to delineate additional assessment areas in specific counties. In contrast, nationwide assessment areas would be based holistically on an internet bank's overall business activity. The designation of a nationwide assessment area would require determining how to conduct performance evaluations for this approach, including for retail and community development activities.
Such an approach would also require defining an internet bank for CRA purposes. In the extreme, the definition of internet bank could be limited to banks that exclusively use an online business model to deliver products and services. A hybrid definition might instead allow limited branch-related activity in combination with a substantial majority of activity conducted through online channels.
Question 9. Should nationwide assessment areas apply only to internet banks? If so, should internet banks be defined as banks deriving no more than 20 percent of their deposits from branch-based assessment areas or by using some other threshold? Should wholesale and limited purpose banks, and industrial loan companies, also have the option to be evaluated under a nationwide assessment area approach? Question How should retail lending and community development activities in potential nationwide assessment areas be considered when evaluating an internet bank's overall CRA performance?
Retail and community development activities are both fundamental to CRA and essential for meeting the core purpose of the statute. Separately evaluating these activities in a Retail Test and a Community Development Test helps ensure that these activities are appropriately taken into consideration. Having a separate Retail Test and Community Development Test also provides the ability to tailor which tests and subtests Start Printed Page apply to banks based on asset size and other factors.
Finally, separate tests facilitate using metrics and benchmarks that are customized to different activities, which allows the use of available data to the greatest extent possible and thereby minimizes burden. Treatment of Small and Large Retail Banks. The Board proposes giving small retail banks the option to be evaluated solely under the Retail Lending Subtest, while applying all four subtests to larger retail banks.
A bank would receive a conclusion for each applicable subtest in each of its assessment areas. Accordingly, a small bank that chooses to opt in would receive a Retail Lending Subtest conclusion in each assessment area, and a large bank would receive four subtest conclusions in each assessment area. These subtest conclusions in assessment areas would form the foundation for state, multistate MSA, and institution CRA ratings.
The approach described above would establish small bank and large bank categories of retail banks based on institution asset size, and would eliminate the current intermediate small bank category to reduce complexity and create more consistent evaluation standards.
Although increasing the small bank threshold above the existing limit might result in fewer banks' community development activities evaluated for purposes of CRA, it would also better tailor the compliance and data implications of the proposed Community Development Test only to banks with substantial community development activity. Small Bank Considerations. The Board proposes that small retail banks under the Board's proposed threshold would, by default, have their retail lending activities evaluated under the qualitative approach used in the current examination procedures for small banks, rather than the metrics-based approach proposed in Section V.
Small banks would also have the ability to opt in to the metrics-based approach at their choosing. The default approach of evaluation under the current qualitative framework would allow for continuity of examination procedures and would more fully account for qualitative performance context factors that may be especially relevant for smaller banks, such as capacity constraints.
However, the default option would not deliver the consistency and predictability of the evaluation process desired by many banks and other stakeholders and would increase overall complexity because it requires multiple performance evaluation frameworks.
Another consideration is allowing small banks to have the option of requesting that retail services, community development activities, or both, be considered in addition to the Retail Lending Subtest conclusions when developing CRA ratings. Small banks could opt to have these activities evaluated on a qualitative basis to improve their overall ratings and would not be required to collect the data necessary to be evaluated under the Retail Services Subtest and the Community Development Test. Section X discusses ratings for small banks in greater detail.
Wholesale and Limited Purpose Banks. The Board has also considered how to tailor evaluation standards to wholesale and limited purpose banks. Because these banks, by definition, do not conduct retail lending as a significant part of their business, the Board proposes evaluating these banks using only the Community Development Test. The Board anticipates that the evaluation approach used for the Community Development Test, however, would be applied differently to wholesale and limited purpose banks than retail banks.
Specifically, although the Board is proposing a community development financing metric that incorporates deposits as a measure of a large retail bank's capacity within an assessment area, the Board is considering alternate measures of capacity for wholesale and limited purpose banks, such as total assets. In addition, as with any bank, wholesale and limited purpose banks would continue to have the option to be evaluated under an approved strategic plan, which allows for tailoring to their unique business models and strategies.
Is it preferable to make the default approach for small banks the current framework, with the ability to opt in to the metrics-based approach, as proposed, or instead the metrics-based approach, with the ability to opt out and remain in the current framework? Should small retail banks that opt in to the proposed framework be evaluated under only the Retail Lending Subtest?
Should the regulation contain an automatic mechanism for allowing that threshold to adjust with aggregate national inflation over time? The Board proposes using a Retail Lending Subtest—utilizing a metrics-based approach—to evaluate retail lending performance for all large retail banks and small retail banks that opt into the new framework.
This approach would result in a small retail bank receiving a Retail Lending Subtest conclusion in each of its assessment areas. The Board also seeks feedback on a Retail Services Subtest, which would apply only to large banks above a specified asset threshold.
A large bank would receive separate Retail Lending Subtest and Retail Services Subtest conclusions in each of its assessment areas. This section proposes a metrics-based approach to a Retail Lending Subtest that leverages practices currently used in CRA examinations combined with more transparent performance expectations. At the heart of this analysis would be evaluating how well a bank serves LMI census tracts, LMI borrowers, small businesses, and small farms.
The retail lending distribution metrics comprises two metrics: a A geographic distribution metric that would evaluate how well a bank is serving LMI census tracts; and b a borrower distribution metric that would evaluate how well a bank is serving LMI borrowers, small businesses, and small farms in their assessment area overall, regardless of geography. The Board believes that providing a dashboard—using data through the previous quarter or year, depending on the data source—to show the thresholds for specific assessment areas would facilitate ease of use and enable banks to track their performance over the course of an evaluation period.
In current CRA examinations, retail lending performance is examined under a lending test that differs based on a bank's asset size category small, intermediate small, and large. Currently, the purpose of evaluating lending activity for both small and large banks is the same—to determine whether a bank has a sufficient aggregate value of lending in its assessment area s in light of a bank's performance context, including its capacity and the lending opportunities available in its assessment area s.
For small banks, examiners make a loan-to-deposit calculation based on the balance sheet dollar values at the institution level, and review the number of loans made inside and outside of assessment area s. For large banks, examiners consider the number and dollar amount of loans in assessment area s and the number of loans inside and outside of assessment area s.
These approaches rely on examiner judgment to draw a conclusion about a bank's level of lending. Pursuant to Regulation BB, CRA examinations today also include an evaluation of the geographic distribution and borrower distribution of a bank's retail lending.
For the geographic distribution analysis, examiners evaluate the distribution of a bank's retail loans in low-income, moderate-income, middle-income, and upper-income census tracts. Examiners review the geographic distribution of home mortgage loans by income category and compare the percentage distribution of lending to the percentage of owner-occupied housing units in the census tracts.
Similarly, in each income category of census tract, examiners compare small business lending to the percentage distribution of small businesses; small farm lending to the percentage distribution of small farms; and consumer lending to the percentage distribution of households in each category of census tract, as applicable.
For the borrower distribution analysis, examiners evaluate the distribution of a bank's retail loans based on specified borrower characteristics, such as the income level of borrowers for home mortgage lending. Examiners complement these distribution analyses by also reviewing the dispersion of a bank's loans throughout census tracts of different income levels in its assessment area s to determine if there are conspicuous lending gaps.
Although many stakeholders expressed support for the consideration of performance context and the qualitative aspects of CRA performance, they raised concerns about a lack of transparency and predictability regarding the amount and nature of retail lending activity required to achieve a particular rating. As explained above, Regulation BB and the related examination procedures require evaluations based on the number and dollar amount of loans, but without a formalized way of translating that analysis into performance expectations.
Stakeholders have also expressed the need for greater consistency across CRA performance standards. CRA evaluations are tailored based on bank size and business strategy; however, these differences can be confusing as banks cross asset thresholds and are subject to different examination procedures. For example, as noted, overall lending activity is evaluated using a loan-to-deposit ratio criterion for small banks and by reviewing the number and amount of loans in a bank's assessment area s for large banks.
As a first step to evaluating a bank's retail lending, the Board proposes using a retail lending screen. In each assessment area, the retail lending screen would measure the average annual dollar amount of a bank's originations and purchases of retail loans in the numerator—including home mortgage, small business, and small farm loans—relative to its deposits in the denominator. Both the numerator and denominator of the retail lending screen would be measured in dollars.
The retail lending screen would be measured against a market benchmark that reflects the level of retail lending by other banks in the same assessment area, indicating the aggregate dollar amount of lending a typical bank might be expected to engage in given its level of retail deposits.
Specifically, the proposed market benchmark for the retail lending screen would be the percentage of retail lending in dollars by all HMDA and CRA reporter banks in an assessment area compared to the aggregate amount of deposits for those banks in that same assessment area. To ensure that banks' ability to pass this retail lending screen would not depend on their business strategy e.
Instead, examiners would review the bank's aggregate lending, geographic distribution, and borrower distribution in combination with performance context and qualitative aspects of performance. Is the retail lending screen an appropriate metric for assessing the level of a bank's lending? For each product line evaluated under the Retail Lending Subtest, the Board proposes evaluating bank activity using both a geographic distribution metric and a borrower distribution metric, with each designed to evaluate different but complementary aspects of a bank's retail lending performance, similar to the focus of current examinations.
The geographic distribution metric would measure the number of a bank's loans in LMI census tracts within an assessment area. For each of the bank's major product lines, the geographic distribution metric would calculate the total number of the bank's originated or purchased loans in LMI census tracts numerator relative to the total number of the bank's originated or purchased loans in the assessment area overall denominator.
For mortgage and consumer loans, this would include loans to borrowers of any income level but located within an LMI census tract. For instance, assuming that a bank originated or purchased 25 home mortgage loans in one of its assessment areas during the evaluation period and that five of these were located in LMI census tracts, the geographic distribution metric for home mortgage loans would be:.
The borrower distribution metric would measure a bank's loans to LMI individuals for home mortgages or consumer loans, respectively or to small businesses for small business loans or small farms for small farm loans within an assessment area relative to the total number of the bank's corresponding loans in that category in the assessment area overall.
For each of the bank's major product lines, the borrower distribution metric would be calculated separately. Options for revising the thresholds for small business lending and small farm lending are discussed in Section VI. Assuming that a bank originated or purchased home mortgage loans in one of its assessment areas during the evaluation period, and that 20 of these went to LMI borrowers, the borrower distribution metric would be:.
To calculate the retail lending distribution metrics, the Board's proposed approach would use the number of a bank's loans, not the dollar amount of those loans, in order to treat different-sized loans equally within product categories. This approach emphasizes the number of households, small businesses, and small farms served, and avoids weighting larger loans more heavily than smaller loans, as would occur when using dollar amounts. This better captures the importance and responsiveness of smaller dollar loans to the needs of lower-income borrowers and smaller businesses and farms, and does not provide an incentive to make larger loans to reach performance levels.
For each product line evaluated using the retail lending distribution metrics, the Board proposes aggregating the calculation of the retail lending distribution metrics in certain aspects for simplicity and clarity. This would be a change from current practice, whereby examiners separately evaluate a bank's performance in each income category low-, moderate-, middle-, and upper- ; each loan category within a product line e.
The proposed approach would combine low- and moderate-income categories under a single metric calculation. The proposed approach would also aggregate all categories of home mortgage loans together when evaluating home mortgage lending, all categories of small business loans together when evaluating small business lending, and all types of small farm loans together when evaluating small farm lending.
By comparison, the Board believes that there could be different considerations for evaluating consumer loan categories separately e. Lastly, the Board proposes to combine all years of the evaluation period together under a single metric calculation. Another benefit of aggregating the metrics in this manner is that, for small banks and rural banks with relatively fewer retail loan originations, this approach would more likely capture a sufficient number of loans for use in the metrics.
The greater simplicity would also have some drawbacks. Combining low- and moderate-income categories together could potentially reduce the focus on lending in low-income census tracts and to low-income borrowers relative to lending to moderate-income tracts and moderate-income borrowers. A potential drawback to combining all home mortgage lending products into one category is that the evaluation of home purchase lending could be obscured when combined with home refinance loans, particularly when levels of home mortgage refinancing increase.
The Board proposes using two different kinds of benchmarks for each distribution metric as the building blocks for setting quantitative thresholds for the retail lending distribution metrics. First, a community benchmark would reflect the demographics of an assessment area, such as the number of owner-occupied units, the percentage of low-income families, or the percentage of small businesses or small farms. Second, a market benchmark would reflect the aggregate lending to targeted areas or targeted borrowers by all lenders operating in the same assessment area.
Using these two kinds of benchmarks will help tailor the Retail Lending Subtest to the lending opportunities, needs, and overall lending taking place in an assessment area. Importantly, the Board believes that these benchmarks will focus CRA evaluations on the local communities being served by banks and will incorporate aspects of performance context directly into the metrics.
Benchmarks grounded in local data are used today in CRA examinations, and the Board's approach seeks to translate these comparators into performance expectations in a consistent and transparent way. The market benchmark is currently referred to as the aggregate comparator.
Within each retail lending product line evaluated under the Retail Lending Subtest, the geographic distribution metric would be compared to a community benchmark and a market benchmark, and the borrower distribution metric would be compared to a community benchmark and a market benchmark. Table 1 provides an overview of the benchmarks under consideration by the Board and their respective data sources. To limit data burden for small banks that opt in to the metrics-based approach, the Board proposes using HMDA and CRA reporter data to construct the market benchmark for mortgage, small business, and small farm product lines.
In calculating the market benchmark for mortgage lending, the Board also proposes including all mortgage lenders, not just depository institutions. This is intended to capture the full breadth of lending to LMI borrowers in constructing the benchmark. As noted in Table 1, the Board has not yet identified a data source for the market benchmark for consumer loans due to the lack of consistent data collection on consumer lending.
The Board is considering the use of commercially available data from one or more of the nationwide credit reporting agencies to establish a market benchmark for the geographic distribution metric based on the rate of new account openings in LMI census tracts. This could facilitate a metrics-based approach to evaluate consumer lending without additional data reporting requirements.
A downside of this approach is that it would not provide a measure of consumer lending to LMI borrowers that is necessary to create a market benchmark for the borrower distribution metric for consumer lending. However, it could be used to create a market benchmark for the geographic distribution metric for certain consumer lending products, such as motor vehicle loans and credit cards.
Alternatively, consumer lending could continue to be evaluated under current examination procedures, which do not incorporate a standardized benchmark, or the Board could consider other data sources to develop benchmarks for consumer lending. This calibration would involve multiplying each benchmark by a fixed percentage. The Board would then refer to the calibrated benchmarks as the community threshold and market threshold, respectively.
While the same fixed percentage would be used to calibrate each benchmark in each assessment area, the resulting thresholds would, in fact, be tailored for local community and market conditions Start Printed Page because the benchmarks are based on local data specific to each assessment area.
For each distribution metric, the lower of the community threshold or market threshold would be selected as the binding threshold. For example, for the geographic distribution metric, if the community threshold was 30 percent and the market threshold was 35 percent, then the community threshold of 30 percent would be used as the binding threshold for this metric.
One benefit would be providing a bank with greater certainty about CRA performance expectations in an assessment area because the thresholds would be tailored to the different conditions in different local communities across the country.
Rather than setting a static threshold level across the country that might be too high or too low in certain areas, this customized approach would facilitate a bank's ability to rely on the thresholds in each of its assessment areas. Another benefit is that the Board's approach would automatically adjust the threshold levels over time in a way that reflects changes in the business cycle because the market benchmarks reflect overall lending activity in each assessment area.
This approach could reduce the instances in which the Board would need to adjust the threshold levels through a rulemaking or other regulatory action. If, for example, a market downturn affected an assessment area by making LMI lending more difficult, the downturn would likely have a similar effect on all lenders in an area, thereby causing the market benchmark to decline.
Because the proposed approach would set a threshold by selecting the lower of the community threshold or market threshold, the decline in the market threshold itself during a downturn could have the effect of lowering the applicable threshold.
Conversely, if overall LMI lending opportunities expanded, the threshold associated with the lower of the community threshold or market threshold may increase, creating greater expectations of local banks to make loans in LMI tracts, to LMI borrowers, and to small businesses and small farms.
An approach that set performance standards too low could fail to fulfill one of the core purposes of CRA, which is to encourage banks to serve LMI communities. Additionally, given CRA's nexus with fair lending laws and the broader context of CRA as one of several complementary laws that address inequities in credit access, the Board is also mindful of analyzing how the proposed approach to setting thresholds would impact majority-minority assessment areas relative to other assessment areas.
As part of its ongoing analysis of threshold options, the Board intends to closely analyze these issues. An approach that allowed such a bank to receive the presumption based on only one of its retail lending product lines could result in overlooking major product lines where the bank failed to serve LMI communities or LMI borrowers. Some stakeholders have expressed concern that requiring banks to pass a series of thresholds in an assessment area could be onerous and complex for banks evaluated under multiple retail lending product lines.
The Board seeks to lessen this concern by only evaluating major product lines under the Retail Lending Subtest, which is discussed in more detail in Section VI. The proposed approach is intended to help advance the objectives of certainty and transparency in setting CRA performance expectations for retail lending, and the Board is interested in ways to make the approach easy to adopt for banks and for the public.
To this end, the Board is exploring providing banks with an online portal with dashboards, as shown in Figure 1, that would show thresholds for each major product line for a specific assessment area, with updates made on a quarterly or annual basis, as applicable. This would enable banks to track their own performance throughout an evaluation period against the relevant standards. Discrimination and other illegal credit practices can be indicative of performance that is lower than the metrics and quantitative thresholds would otherwise indicate.
The process for rebutting a presumption in an assessment area would not change the process for potentially downgrading a rating for an institution overall. Discrimination and other illegal credit practices would also be considered separately under the ratings provisions, as discussed in Section X.
Are the retail lending distribution metrics appropriate for all retail banks, or are there adjustments that should be made for small banks? Is it preferable to retain the current approach of evaluating consumer lending levels without the use of standardized community and market benchmarks, or to use credit bureau data or other sources to create benchmarks for consumer lending?
Threshold levels that are set too high could be seen as unachievable and provide few banks with the certainty of obtaining a presumption. An example illustrates this approach using the borrower distribution metric for mortgage lending. If the community benchmark shows that 30 percent of families in an assessment area are LMI, then the community threshold would be If the market benchmark shows that 35 percent of mortgage originations in the assessment area are to LMI borrowers, then the market threshold would be Because the community threshold is lower than the market threshold, a bank's performance on the borrower distribution metric for mortgage lending which measures the percentage of a bank's mortgage lending to LMI borrowers would need to meet or exceed the binding threshold of These data tables combine publicly available information, proprietary data, and data that the Board compiled from past CRA performance evaluations.
In total, the CRA Data Analytics Tables include data from a stratified random sample of approximately 6, performance evaluations from to , with the sampling designed to capture the range of bank sizes, regulatory agencies, stages of the business cycle, and performance ratings. To understand instances where threshold levels would have provided a different result compared to past examinations, the Board also undertook a review of a sample of performance evaluations where the CRA examination conclusions on past examinations did not match the presumption approach using the retail lending distribution metrics.
Substantive fair lending or unfair or deceptive acts or practices violations also explained some of these outliers. For example, in some cases, a high percentage of loans in LMI geographies was viewed as making up for a low percentage of loans to LMI borrowers. This analysis supports the conclusion that the proposed approach, in combination with the retail lending screen and the limited rebuttals of a presumption, would follow the same criteria and guidelines that banks would have been evaluated under in the past, but would do so with improved clarity, transparency and consistency.
To better understand the potential impact of a threshold level set at 65 percent of the community benchmark and 70 percent of the market benchmark, the Board also analyzed how the proposed threshold level would perform for banks of different sizes, locations, and market conditions. Results of these comparisons are shown in Table 2. Examination years from through are defined as falling in a boom period, from through are defined as falling in a downturn period, and from through are defined as falling in a recovery period.
Performance evaluations generally cover lending over a period of years prior to the actual examination date, so performance evaluations even into were covering loans made prior to the financial crisis. Assessment areas were defined as metropolitan if they were located in a metropolitan statistical area and as nonmetropolitan if they were not. Start Printed Page The share of assessment areas meeting this potential presumption standard falls slightly over the course of the previous economic cycle from boom, to downturn, to recovery period, starting at 66 percent and falling to 61 percent.
Metropolitan and nonmetropolitan bank assessment areas met the potential presumption standard in 64 and 62 percent of cases, respectively. Finally, there was some variation in the share of assessment areas meeting the standard across bank sizes, without a clear pattern by size. Is the approach to setting the threshold levels and a potential threshold level set at 65 percent of the community benchmark and at 70 percent of the market benchmark appropriate?
Performance ranges could be used to help reach Retail Lending Subtest conclusions in two ways. In these two situations, the recommended conclusions developed through the performance ranges approach could be combined with an examiner's review of specific performance context factors along with any details about the bank's specific activities to reach a final conclusion for the Retail Lending Subtest.
However, while the presumption test would combine low- and moderate-income groups for each distribution metric, the performance ranges would assess performance separately for low-income and moderate-income Start Printed Page borrowers. This would focus more attention that of banks, examiners, and interested members of the community on how a bank is serving the low-income segment of the population, in addition to the broader LMI category.
The Board would compute a weighted average to determine how well the bank performed on different components of the retail lending distribution metrics relative to the performance ranges in order to reach an overall recommended assessment area conclusion on the Retail Lending Subtest. In addition to seeking greater clarity in CRA performance evaluations, stakeholders have also expressed support for considering performance context and other qualitative aspects in CRA examinations.
Although the approach to setting thresholds described in this section already incorporates key aspects of performance context information through the use of the quantitative benchmarks for each assessment area that are calibrated to local data, it is also important to consider the limited aspects of performance context not considered in the metrics, including qualitative information about performance.
Under the proposed approach, examiners would consider a combination of factors showing responsiveness, such as the margin by which a bank surpasses the thresholds applicable to the retail lending distribution metrics, flexible or innovative lending products and programs, activities undertaken in cooperation with MDIs, women-owned financial institutions, or low-income credit unions that help meet the credit needs of local communities in which these institutions are respectively chartered, [ 79 ] and the bank's record of taking action, if warranted, in response to written comments submitted to the bank about its performance in responding to the credit needs in its assessment area s.
Unlike current examination procedures, this approach would specifically exclude using performance context based on economic or other conditions affecting the assessment area as a whole. Any such factors that would either limit or bolster lending in LMI tracts, or to LMI borrowers or small businesses or farms, would generally already be reflected in the benchmarks. As a result, examiners would be restricted to using bank-specific performance context factors that affect the bank being evaluated differently than its in-market peers.
Should adjustments to the recommended conclusion under the performance ranges approach be incorporated based on examiner judgment, a predetermined list of performance context factors, specific activities, or other means to ensure qualitative aspects and performance context are taken into account in a limited manner? The Board proposes a Retail Services Subtest that would use a predominately qualitative approach, while incorporating new quantitative measures, and that would apply only to large retail banks.
In contemplating how to evaluate retail services, the Board seeks to encourage banks to offer important services in LMI communities; to increase transparency of evaluation criteria; and to account for changes in the way some customers interact with their banks, including the widespread use of mobile or online banking and the declining number of bank branches. As many banks nationwide closed their branch lobbies in response to the COVID pandemic, consumers have relied more on self-service delivery channels such as ATMs, online banking, and mobile banking services.
At the same time, branches remain a vital component of providing banking services to many LMI communities, as well as many rural communities. Retail services are currently evaluated only for large retail banks under the large bank service test. The evaluation of retail services incorporates quantitative and qualitative criteria, but does not specify a level of retail services activity that is tied to certain performance conclusions. The primary emphasis for the large bank retail services test is on branches.
Examiners evaluate the distribution of branches by comparing the percentage of branches and ATMs among low-, moderate-, middle-, and upper-income census tracts to the percentage of the population that resides in these tracts, particularly LMI tracts.
Examiners also consider the reasonableness of business hours and services offered at branches and whether there is any notable difference between hours of operation and services offered at branches in LMI tracts compared to branches in middle- and upper-income tracts.
Lastly, examiners analyze a bank's record of opening and closing branches relative to its current branch distribution and the impact of branch openings and closings, particularly on LMI census tracts or individuals.
The evaluation of retail banking services relies on quantitative data from the bank's public file to assess the number of branches in an assessment area and the banking services provided, including the hours of operation and available products at each branch. Examiners have discretion to review these data in light of performance context, but there is little guidance on the factors that should be considered.
Under current examination procedures, non-branch delivery channels are considered only to the extent that these channels are effective alternatives in providing services to LMI individuals and to LMI census tracts. In addition to delivery systems, examiners consider any other information provided by a bank related to both retail products and services, such as the range of products and services generally offered at their branches, transaction fees, and the degree to which services are tailored to meet the needs of particular geographies.
Examiners will also review data regarding the costs and features of deposit products, account usage and retention, geographic location of accountholders, and any other relevant information available demonstrating that a bank's services are tailored to meet the convenience and needs of its assessment area s , particularly LMI geographies or LMI individuals. Additionally, banks typically collect this type of information on products and services at the institution level. As a result, examiners do not typically have the data needed to evaluate differences in products and services across assessment areas and this component receives minimal weight in determining assessment area conclusions for the service test.
Some community group stakeholders expressed support for CRA's role in encouraging banks to maintain branches in LMI communities and for the current structure of the retail services evaluation. Community group and industry stakeholders expressed support for clearer standards for evaluating products and a more robust analysis of products, and advocated for an approach to evaluating retail services that relies on more data and standard measures of performance.
Community group stakeholders have expressed a range of opinions regarding the primary emphasis on branches in the current retail services evaluation based on their historic importance in providing consumers, particularly LMI individuals, with home mortgage loans and basic banking services and providing credit to small businesses.
This is supported by research findings that current CRA requirements are associated with a lower risk of branch closure, particularly in neighborhoods with fewer branches and in major metropolitan areas. Industry stakeholders have suggested that greater weight should be placed on the evaluation of non-branch delivery channels given ongoing trends in the banking industry.
Although branches were still the most widely used bank channel prior to the COVID pandemic, branch usage overall has declined in recent years. Community group stakeholders expressed support for giving a bank more credit for non-branch delivery channels if the bank maintains data demonstrating corresponding benefits to LMI consumers.
Community group stakeholders have also expressed concern that a reduced focus on retail services could result in banks offering fewer products and services to LMI individuals and in LMI census tracts. These stakeholders expressed support for an enhanced evaluation of banking products that places greater emphasis on assessing deposit account features and their usage, with a particular focus on products and services for LMI individuals.
Some community group stakeholders also suggested that banks should be assessed on the impact of their products, not simply upon usage. The Board proposes a Retail Services Subtest for large banks that would evaluate retail services under two components: 1 Delivery systems; and 2 deposit products.
For the delivery systems component, the Board proposes evaluating the distribution of a bank's branches, branch-based services e. This approach is intended to recognize the importance of branches, particularly for LMI individuals and LMI communities, while also ensuring that CRA is flexible enough to give credit to other delivery channels and services that promote accessibility and usage.
For the deposit products component, the Board proposes evaluating a bank's deposit products, including checking and savings accounts, focusing on those tailored to meet the needs of LMI individuals. Compared to how evaluations are currently conducted, this proposed approach would elevate Start Printed Page the focus on deposit products offered and the degree to which these products are available and responsive to the needs of LMI individuals and LMI communities.
The Board is also exploring the option of requiring the very largest banks to provide a strategic statement in advance of their CRA examinations outlining their business strategy for offering deposit products that are responsive to the needs of LMI and other underserved communities.
The approach of dividing the Retail Services Subtest into delivery systems and deposit products would more clearly articulate the different components of the evaluation of retail services and how they relate to one another. Additionally, the proposed approach would leverage quantitative benchmarks to evaluate a bank's branch distribution.
Lastly, the Board is considering what additional quantitative information could best facilitate transparent and meaningful evaluations of delivery systems and deposit products, while taking into account the objective of minimizing data burden for institutions where possible. The Board proposes evaluating the full breadth of bank delivery systems by maintaining the emphasis on the importance of branches and increasing the focus on non-branch delivery channels.
The proposed approach would evaluate all four current branch-related evaluation factors branch distribution, the record of opening and closing branches, branch-related services, and non-branch delivery systems under the delivery systems component of the retail services evaluation. The proposal also would leverage quantitative benchmarks to inform the branch distribution analysis.
Additionally, the Board is exploring whether banks should receive additional consideration for operating branches in banking deserts. As part of modernizing the CRA framework, the Board also proposes more fully evaluating non-branch delivery systems to address the trend toward greater use of online and mobile banking. Under the proposed Retail Services Subtest, analyzing the distribution of bank branches across census tracts of different income levels would continue to be a core part of evaluating delivery systems.
The Board is considering incorporating several quantitative benchmarks that would complement a qualitative evaluation in order to provide greater transparency in evaluations and to provide a more comprehensive picture of the physical distribution of branches in assessment areas. The record of opening and closing branches would continue to rely on examiner judgment to determine whether changes in branch locations affected the accessibility of branch delivery channels, particularly in LMI areas or to LMI individuals.
Branch Distribution Benchmarks. The Board is proposing using data specific to individual assessment areas, referred to as benchmarks, as points of comparison for examiners when evaluating a bank's branch distribution. Building on current practice, three community benchmarks and one market benchmark would be used in conjunction with examiner judgment and performance context information to assess a bank's branch distribution.
Table 3 describes the proposed community benchmarks and their respective data sources. These benchmarks would allow examiners to compare a bank's branch distribution to local data to help determine whether branches are accessible in LMI communities, to individuals of different income levels, and to businesses in the assessment area, and would standardize examiner practice that is used today in some evaluations. The Board is also considering a new aggregate measurement of branch distribution—referred to as a market benchmark—that would measure the distribution of all bank branches in the same assessment area by tract income.
Table 4 provides an overview of the proposed market benchmark and the associated data source. The use of a market benchmark could improve the branch distribution analysis in several ways. First, making such a comparison could give examiners more context for determining how much opportunity exists for providing retail services in tracts of different income levels.
Second, examiners may be able to identify assessment areas with a relatively low concentration of branches in LMI areas, which could be indicative of a banking desert. If a bank has a branch in a low-income or moderate-income census tract where few other lenders have branches, this could indicate particularly responsive or meaningful branch activity for the bank.
Public input and discourse fuels continuous improvement, and we look forward to reviewing the comments for potential insight into our own rulemaking that applies to national banks and savings associations. We are encouraged by our fellow regulators joining us in recognizing that we need to act to improve upon a system that was not working and to encourage banks to do more to support the communities they serve.
The Office of the Comptroller of the Currency finalized its rule modernizing and strengthening the CRA framework that applies to national banks and savings associations on May 20, The rule followed a multiyear process that formally began with the issuance of an ANPR in August The final rule reflects the thousands of helpful comments from stakeholders of all kinds on the ANPR and following Notice of Proposed Rulemaking that was issued with the Federal Deposit Insurance Corporation in December The rule improves upon the previous status quo by clarifying what qualifies for CRA consideration, by evaluating bank activity more objectively, by requiring banks to lend and invest wherever they take the majority of their deposits, and by making reporting and recordkeeping timelier and more transparent.
The rule increased and established new benefits for low and moderate-income populations, Indian Country, disabled populations, small and family-owned farms, and small business owners with the intent of driving more investment, lending, and services where they are needed most.
Mirrors the statutory directives to the agencies summarized above. Also identifies the institutions to which the regulation applies. Also states that the Board applies these tests and standards, and considers whether to approve a strategic plan, in the context of information about matters such as the bank's capacity and constraints and its past performance.
Further states that the Board assigns each bank a rating--of "outstanding," "satisfactory," "needs to improve," or "substantial noncompliance"--reflecting its record in helping to meet the credit needs of its community. Clarifies that Regulation BB and the CRA do not require banks to take actions inconsistent with safe and sound operations. Specifies the criteria by which the Board evaluates a bank's lending performance. Also sets forth the rules governing the Board's treatment, in a bank's evaluation, of lending by the bank's affiliates, by consortia in which the bank participates, or by third parties in which the bank has invested.
Finally, cross-references appendix A, which describes how the Board rates a bank's performance, including its lending performance. Bars double-counting of activities under the lending or service test and the investment test. Sets forth the rules governing the Board's treatment, in a bank's evaluation, of investments by the bank's affiliates.
Also clarifies how the Board treats a bank's donation of certain branch premises to a minority depository institution or a women's depository institution; sale of such premises on favorable terms to such an institution; or provision of such premises rent-free to such an institution. Specifies the criteria by which the Board evaluates a bank's investment performance, and cross-references the ratings scheme in appendix A.
Explains that community development services must benefit a bank's assessment area s or a broader statewide or regional area that includes the assessment area s. Sets forth the rules governing the Board's treatment, in a bank's evaluation, of community development services provided by affiliates of the bank. Cross-references the ratings scheme in appendix A. Explains how a bank can be designated as wholesale or limited-purpose.
Also sets forth the criteria by which the Board evaluates such a bank's community development performance. Clarifies how the Board will treat, for purposes of the community development test, lending, investments, and services provided by affiliates of the bank, consortia in which it participates, or third parties in which it invests.
Provides that the Board considers qualified investments, community development loans, and community development services that benefit areas within the bank's assessment area s or a broader statewide or regional area that includes the assessment area s and, in addition, that the Board considers these activities outside the bank's assessment area s if the bank has adequately addressed the needs of its assessment area s.
Finally, cross-references the ratings scheme in appendix A. Indicates that examiners will consider 1 the bank's loan-to-deposit ratio, 2 the percentage of loans and, as appropriate, other lending-related activities located in the bank's assessment area s , 3 the bank's record of lending to and, as appropriate, engaging in other lending-related activities for borrowers of different income levels and for businesses and farms of different sizes, 4 the geographic distribution of the bank's loans, and 5 the bank's record of taking action, if warranted, in response to written complaints about its performance in helping to meet credit needs in its assessment area s.
Also cross-references the ratings scheme in appendix A. Explains that the Board's approval of a plan does not affect the bank's obligation, if any, to report data under section Describes the permissible and required features of a plan and how a bank must develop a plan. Also clarifies how the Board decides whether to approve a plan and how a bank may amend a plan.
Clarifies how the Board develops an overall rating from ratings under the lending, investment, and service tests respectively. Clarifies that evidence of discriminatory or other illegal credit practices adversely affects the Board's evaluation of a bank's performance.
Explains that in considering the bank's CRA performance in such an application, the Board takes account of any views expressed by interested parties that are submitted in accordance with the Board's Rules of Procedure. States that a bank's record of performance may be the basis for denying or conditioning approval of one of the specified types of application. Finally, cross-references definitions in the Bank Holding Company Act.