The Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) have jointly issued a proposed rule that modernizes the regulations implementing the Community Reinvestment Act (CRA). The CRA requires federal banking regulators to encourage financial institutions to meet the credit needs of the regions in which they operate. ARC includes the credit needs of low- and middle-income neighborhoods in accordance with safe and sound practices. The banking agencies say the proposed rule should provide banks and the public with an updated ARC framework that better meets the credit needs of low- and moderate-income communities. Reviewers must submit a review by August 5, 2022.
Bank agencies responsible for issuing regulations under the CRA have created a regulatory framework that regulates covered banks according to their size. As part of this, regulators assess banks to see if they are meeting the credit needs of the banking community. The proposed rule aims to adjust valuation models to promote community engagement and financial inclusion. Adjusted rating models recognize the difference between small and large banks and allow small banks to remain under one CRA rating model or move to a new model proposed in the rule. Additionally, the updated valuation models seek to emphasize lower-value loans and investments that can have a greater impact on low- and middle-income communities.
Additionally, the proposed rule seeks to adopt a metrics-based approach to CRA’s assessments of retail lending and community development funding, which includes public benchmarks to provide the public with greater clarity, consistency and transparency. . In furtherance of the bank branches’ goal of providing greater clarity to the public, the proposed rule clarifies CRA activities focused on low- and middle-income communities, such as affordable housing. These CRA activities are given new definitions and are assessed differently under the proposed rule’s CRA assessment model.
Finally, the proposed rule also changes the CRA’s assessment to include an assessment of a bank’s mobile and online banking, branchless banking, and hybrid banking models. Here, banking regulators are hoping to modernize ARC to ensure banks stay abreast of modern banking practices.