WASHINGTON — Proposed changes to Community Reinvestment Act regulations could put as much as 85% of current community development activity at risk among major banks supervised by the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation, according to a new analysis by the National Community Reinvestment Coalition.
NCRC said its analysis of 69 OCC- and FDIC-supervised institutions among the nation’s 100 largest banks found they currently provide about $102 billion annually in community development lending, investments and grants within the areas where they are evaluated under the CRA.
If those banks instead provided only the amount represented by a proposed regulatory benchmark tied to Tier 1 capital, the total would fall to about $14.8 billion, or approximately 85% below current levels, NCRC said.
The coalition cautioned that its analysis does not mean the proposed rule would require banks to reduce community development activity by that amount. Instead, NCRC argues the proposed benchmark could become a de facto target that reduces incentives for banks to continue investing at current levels.
NCRC Raises Concern Over 0.625% Benchmark
Under one option in the proposed CRA regulations, large banks generally could receive consideration for community development activity outside their assessment areas after meeting a benchmark equal to 0.625% of Tier 1 capital allocated to their assessment areas. The benchmark would apply separately to community development loans and investments and grants, according to NCRC.
Tier 1 capital generally measures a bank’s core financial strength, including common equity and retained earnings.
The proposal does not say that reaching the 0.625% threshold would be sufficient for a bank to receive a passing CRA rating. Regulators have said the benchmark is a minimum threshold for allowing broader geographic consideration and would not by itself determine a bank’s community development performance.
NCRC, however, argues that establishing a specific numerical threshold could influence how banks set their community development budgets and priorities.
‘Significant Consequences’
The coalition said regulators describe the proposed standards as generally reflecting the minimum community development activity a bank would be expected to conduct, absent other factors, to avoid a “Needs to Improve” rating.
NCRC President and CEO Jesse Van Tol said the organization believes that could have significant consequences for communities that rely on CRA-related investment.
“We continue to analyze these proposed changes, and everywhere we look we find new reasons for alarm,” Van Tol said. “Our new analysis shows that up to 85% of community development activity could be at risk among top OCC and FDIC regulated banks.”
Current Activity Far Exceeds Benchmark
NCRC based its analysis on the most recent publicly available CRA performance evaluations for 69 OCC- and FDIC-supervised banks among the 100 largest U.S. banks.
The coalition calculated that those institutions currently provide approximately $59.1 billion annually in community development lending within their assessment areas and another $42.9 billion in qualified investments and grants, for a combined $102 billion.
Applying the proposed 0.625% Tier 1 capital benchmark to the same institutions would produce about $7.4 billion in each category, or $14.8 billion combined, NCRC said.
The coalition said its analysis also found that median community development lending among the banks currently equals about 6.83% of Tier 1 capital — nearly 11 times the proposed benchmark. Qualified investments and grants equal about 3.58% of Tier 1 capital at the median, nearly six times the proposed threshold.
‘Unofficial Target’ Risk
NCRC argues that the disparity creates a risk that banks currently operating well above the proposed threshold could begin treating 0.625% as an unofficial target.
Van Tol said the coalition is urging community groups, financial institutions and others to participate in the regulatory process surrounding the proposal.
“This proposal threatens to weaken investment, lending and accountability in the very communities the Community Reinvestment Act was enacted to protect,” he said.
