Federal Deposit Insurance Corp.the CRA into the 21st Century

By Traiger, Warren W. | American Banker, November 4, 2014 | Go to article overview

Federal Deposit Insurance Corp.the CRA into the 21st Century


Traiger, Warren W., American Banker


Byline: Warren W. Traiger

There's a disconnect in the banking agencies' approach to reforming the Community Reinvestment Act.

On the one hand, the Federal Reserve, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. propose moving the CRA into the 21st century by deemphasizing branches as a means of serving lower-income neighborhoods and individuals. In their recent proposal to amend CRA regulatory guidance, the agencies note that there "are effective alternatives [to branches] in providing needed services to low- and moderate- income geographies and individuals." They specifically cite "technological advances in the retail banking industry, such as Internet or online banking, mobile banking, remote deposit capture and 24-hour Internet banking kiosks."

On the other hand, the starting point for determining the communities in which a bank has CRA obligations remains rooted in 1977, the year the law was enacted. A bank's assessment area is delineated based on where a bank has a physical presence. That a bank may engage in nationwide lending or deposit-gathering through the technological advances listed by the regulators is irrelevant to defining its assessment area.

As a result, banks only have formal CRA responsibilities in the areas surrounding their headquarters or deposit-taking facilities. Never mind that a bank may have a single office in an out-of-the-way location. Never mind that the office may not be open to the public. And never mind that a bank may only do a small fraction of its business near the office, while making the vast majority of its loans and receiving deposits in areas hundreds of miles away.

The agencies recognize and understand this issue. Indeed, geographic coverage was the lead issue when they held a series of public hearings "on modernizing the regulations that implement the CRA" back in 2010. The agencies received testimony on questions about whether geographic scope should be defined differently for institutions with limited or no physical deposit-taking facilities and for small, local banks as compared to nationwide banks.

But so far there's been radio silence on the answers to these questions. Instead, the agencies have engaged in regulatory contortions to apply the current assessment area rules to non-traditional institutions.

For example, public performance evaluations of nationwide lenders without meaningful branch networks rationalize the inclusion of out-of-assessment area performance with statements like, "As [the bank] is a nationwide lender, not restricted to any geographic locale and without any physical branches, additional consideration was given to certain activities conducted in a wider regional and nationwide area." Another evaluation explained that "a broader analysis of [the bank's] national lending was conducted to demonstrate that the bank's overall performance was consistent with its lending in the designated assessment area. …

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