Implementation of the Community Reinvestment Act by the Office of the Comptroller of the Currency

Implementation of the Community Reinvestment Act by the Office of the Comptroller of the Currency

June 29, 2021
Implementation of the Community Reinvestment Act by the
Office of the Comptroller of the Currency
Introduction
Regardless of the CRA framework, small and intermediate
The Community Reinvestment Act (CRA; P.L. 95-128)
banks may still use the CRA Illustrative List, which lists
addresses how banking institutions meet the credit needs of
“CRA activities” or “qualifying activities” eligible for CRA
the areas they serve, particularly in low- and moderate-
credit. (The OCC is to provide a CRA illustrative list of
income (LMI) neighborhoods. The federal banking
activities that would be updated annually and published in
regulatory agencies—the Federal Reserve, the Federal
the Federal Register every three years.) Small and
Deposit Insurance Corporation (FDIC), and the Office of
intermediate banks must also delineate their assessment
the Comptroller of the Currency (OCC)—currently
areas under the revised framework. Assessment areas under
implement the CRA. The regulators issue CRA credits, or
the revised framework consist of two parts. The first part is
points, to banks participating in qualifying activities (e.g.,
a facility-based assessment area, which is based upon a
mortgage, consumer, and business lending; community
bank’s geographical presence where it originates or
investments; and low-cost services that would benefit LMI
purchases a substantial portion of its retail loans. If a bank
areas and entities) that occur within their designated
receives 50% or more of its retail domestic deposits from
assessment areas, locations where they collect deposits.
geographic areas outside of its facility-based assessment
These credits are then used to issue a composite rating of a
area, then a second part—a deposit-based assessment
bank’s performance. The CRA requires these ratings to be
area(s) consisting of (non-overlapping) areas where at least
taken into account when banks apply for branches, mergers,
5% of total retail deposits are sourced—is added.
and acquisitions, among other things.
The Revised General Performance
While federal bank regulators typically engage in joint
Standards and Presumptive Rating
CRA rulemaking, the OCC on June 5, 2020, published a
The OCC’s updated general performance standards
final rule updating its CRA framework that applies only to
framework consist of three tests: a CRA evaluation test, a
the banks it directly supervises. On May 18, 2021, the OCC
retail lending distribution test, and a community
announced that it would reconsider the rule. The OCC
development (CD) minimum test. The three test results are
initially had different periods of compliance with the final
compiled to determine the presumptive rating.
rule and amendments that were generally effective on
October 1, 2020. While this reconsideration is ongoing, the
The CRA Evaluation Test
OCC stated that it will not object to the suspension of
The CRA evaluation metric is computed using the formula:
activities related to compliance with later dates. This
[(aggregate value of all CRA qualifying activities)/(retail
InFocus discusses how the CRA presumptive ratings for a
domestic deposits) + 0.01(branches in specified
bank would be constructed under the OCC’s updated
areas)/(total branches)]. The first ratio in the formula—
framework that is currently under reconsideration. (On
(aggregate value of all CRA qualifying activities)/(retail
September 21, 2020, the Federal Reserve released an
domestic deposits)—represents the percentage of a bank’s
Advanced Notice of Proposed Rulemaking to obtain
deposits used to support all CRA activities. The numerator
feedback on its tentative plans to update the CRA
consists of the aggregate dollar value of eligible CRA
framework for the banking entities it supervises. The
activities—CRA loans, CRA investments, and CRA
existing CRA framework that remains in place by the
services, which may (or may not) be included on the CRA
Federal Reserve and the FDIC is discussed in CRS Report
Illustrative List—conducted by the bank over the
R43661, The Effectiveness of the Community Reinvestment
examination period. The denominator consists of domestic
Act, by Darryl E. Getter.)
retail (non-brokered) deposits. The second ratio represents
the bank’s social presence and economic impact in targeted
OCC Banks Covered by Final Rule
areas. The numerator of the ratio consists of a bank’s
Small and intermediate banks are generally exempted from
branches in specific areas (e.g., LMI areas, Indian country,
being evaluated under the OCC’s updated framework, but
underserved areas, and distressed areas). The denominator
they may opt in. Small banks are defined as having assets of
consists of a bank’s total branches. Hence, the second ratio
$600 million or less; intermediate banks are defined as
is the percentage of a bank’s branches in targeted areas
having more assets than a small bank but less than $2.5
relative to all of its branches. After multiplying the second
billion in assets. In the final rule, small banks and
ratio by 0.01 and adding the product to the first ratio, the
intermediate banks may continue to comply with the
sum equals the CRA evaluation measure.
existing CRA performance standards and receive composite
ratings. Large banks, defined as having more than $2.5
The final rule allows for the use of multipliers to adjust the
billion in assets, must be evaluated under the new general
dollar values of certain CRA activities for various
performance standards and receive presumptive ratings.
circumstances. The multipliers would be applied to the
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Implementation of the Community Reinvestment Act by the Office of the Comptrol er of the Currency
numerator of the first ratio used in the calculation of the
Community Development (CD) Minimum Test
CRA evaluation measure. For example, suppose a bank
The CD minimum test requires that a ratio—defined as the
engages in three CRA activities over the CRA examination
total amount of CD loans and CD investments divided by a
period, with one eligible for a multiplier, such that:
bank’s retail domestic deposits—should not be less than
(aggregate value of all CRA qualifying activities) = (value
2%. Unlike the first component of the CRA evaluation test,
of CRA activity 1) + (value of CRA activity 2) +
CD services are not included in the numerator; only CD
[(multiplier with values ranging from 2 to 4)*(value of
loans and investments are. Under OCC’s updated CRA
CRA activity 3)]. The OCC’s final rule provides the
framework, the definition of CD investments will be
following guidance with respect to the use of multipliers :
expanded to include banks’ legally binding commitments to
lend and invest.
 A bank is not eligible for multipliers until the quantified
dollar values of its current-period CD activities are
The Presumptive Rating
approximately equal to the quantified dollar values of
After conducting the three previous performance tests, the
CD activities considered in its prior evaluation period.
scores would be tabulated to assign banks one of the
following presumptive ratings:
 The final rule adds retail loans generated by branches in
LMI census tracts and CD services to the list of
 Outstanding: The average of a bank’s annual assessment
activities eligible for a two-times (2x) multiplier.
area CRA evaluation measures meets or exceeds 11%
(selected from a range of 11%-15%). A bank meets the
 The final rule includes a 2x multiplier for qualifying
established thresholds for all the retail lending
activities of minority depository institutions, women’s
distribution tests for its major retail lending product
depository institutions, or low-income credit unions to
lines in that assessment area. The quantified value of the
the communities they serve.
CD minimum test meets or exceeds 2%.
 The final rule includes an additional 2x multiplier for
 Satisfactory: The average of a bank’s annual assessment
qualifying activities in CRA deserts (or hotspots). A
area CRA evaluation measures meets or exceeds 6%
CRA desert is a location where banks do not have a
(selected from a range of 6%-10%). A bank meets the
large concentration of deposits. The CRA desert
established thresholds for all the retail lending
multiplier applies to all CRA activities conducted in a
distribution tests for its major retail lending product
hotspot, and it would be in addition to the multipliers
lines in that assessment area. The quantified value of the
that already apply to certain qualifying activities or
CD minimum test meets or exceeds 2%.
generated by a branch in an LMI census tract. A bank
must request confirmation from the OCC that an area is
 Needs Improvement: The average of a bank’s annual
a hotspot before it receives a hotspot multiplier.
assessment area CRA evaluation measures meets or
exceeds 3%, but the sum of the three evaluation tests
 The OCC has discretion to increase a multiplier up to 4x
falls below 6%.
its quantified dollar value based upon its evaluation of
the responsiveness, innovativeness, or complexity of
 Substantial Non-Compliance: The average of a bank’s
certain qualifying activities eligible for multipliers.
annual assessment area CRA evaluation measures is less
than 3%.
Multipliers can be used, for example, to provide incentives
for banks to make small-dollar loans without penalizing the
The OCC generally conducts CRA examinations every
first ratio component of the CRA evaluation measure.
three years. The examination for banks with $250 million or
Multipliers, however, may provide incentives to reduce
less in assets that achieve an outstanding rating is no sooner
lending activity once banks have met their minimum
than 60 months after the most recent examination and no
threshold objectives. Therefore, banks must demonstrate
sooner than 48 months after the most recent examination
comparable amounts of lending activity from one CRA
for those that achieve a satisfactory rating.
examination period to the next before applying multipliers.
Additional Resources
Retail Lending Distribution Test
OCC, “Community Reinvestment Act Regulations,” 85
For all major retail product lines in a bank’s assessment
Federal Register 34734-34834, June 5, 2020.
area consisting of at least 20 loans per year, the retail
lending distribution test evaluates the geographic
OCC, “CRA Illustrative List,” https://www.occ.treas.gov/
distribution of lending in LMI areas and the distribution of
topics/consumers-and-communities/cra/cra-qualifying-
lending to LMI borrowers or small businesses or small
activities.pdf.
farms. The minimum threshold of at least 20 loans per year
ensures that a certain lending activity is part of a bank’s
OCC, “Community Reinvestment Act: Implementation of
overall business strategy. A bank can pass the test by
the June 2020 Final Rule,” OCC Bulletin 2021-24, May 18,
meeting or exceeding a threshold associated with a
2021, https://www.occ.gov/news-issuances/bulletins/2021/
demographic or peer comparator. The OCC will establish
bulletin-2021-24.html.
the demographic and peer comparator numerical values. Its
examiners, rather than the banks, will calculate whether a
Darryl E. Getter, Specialist in Financial Economics
bank passes the retail lending distribution test.
IF11865
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Implementation of the Community Reinvestment Act by the Office of the Comptrol er of the Currency

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