WASHINGTON — Federal banking regulators have proposed easing Community Reinvestment Act requirements for smaller banks, saying the changes would reduce regulatory burden while preserving the law’s core mission, but community advocates warned the proposal would significantly weaken lending and investment obligations in low- and moderate-income communities.
The Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. last week jointly proposed revisions to their regulations implementing the Community Reinvestment Act, the 1977 law requiring banks to help meet the credit needs of the communities they serve, including underserved neighborhoods, consistent with safe and sound banking practices.
Under the proposal, banks with $10 billion or less in assets would no longer be subject to certain Community Reinvestment Act data collection, maintenance and reporting requirements and would receive what the agencies described as more flexible supervision. The FDIC approved the proposal through a notation vote without holding a public meeting.
The Proposal
The OCC and FDIC said the proposal would retain the key elements of the regulatory framework that has generally been in place since 1995 while making targeted substantive, technical and procedural changes.
According to the agencies, the proposal would:
- Exempt banks with $10 billion or less in assets from certain CRA data collection, maintenance and reporting requirements.
- Provide more flexible CRA supervision for smaller institutions.
- Increase the emphasis on lending activities.
- Focus community development grants and donations on benefiting intended communities rather than administrative costs.
- Narrow the retail banking services considered in CRA examinations by focusing on credit services rather than deposit services.
- Clarify how banks can receive CRA credit while reducing regulatory burden.
‘Better Alignment’
The agencies said the changes would better align their regulations with the Community Reinvestment Act’s statutory requirements while preserving the law’s requirement that banks meet the credit needs of their entire communities, including low- and moderate-income neighborhoods.
Strong Criticism from Groups
The proposal drew immediate criticism from the National Community Reinvestment Coalition, which said the changes would substantially weaken banks’ obligations to support affordable housing, community development and economic opportunity.
“This proposal dramatically weakens banks’ obligations to invest in working-class communities and threatens to undermine the affordable housing gains in the 21st Century Road to Housing Act entirely,” Jesse Van Tol, the coalition’s president and CEO, said in a statement.
Van Tol said he was particularly concerned with raising the threshold for large-bank treatment to $10 billion in assets, arguing that banks below $1 billion would no longer have community investment obligations and that institutions below the new threshold would face less rigorous examinations.
Will ‘Deepen Our Housing Crisis’
“Bank capital drives the creation of affordable housing in this country, and they do it because of CRA,” Van Tol said. “Now hundreds of banks won’t have the obligation to do so, and hundreds more will have a weaker requirement, which will further deepen our housing crisis.”
The coalition also criticized the proposal’s revised definition of economic development, saying it would allow banks to receive CRA credit for financing small businesses without requiring those projects to create jobs for low- and moderate-income workers.
Van Tol said the changes could redirect billions of dollars in financing away from small businesses that create jobs in working-class communities.
The proposal will be published for public comment before regulators determine whether to adopt the changes.
