The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency issued a Notice of Proposed Rulemaking (NPR) to strengthen and modernize regulations implementing the Community Reinvestment Act (CRA) . The Tri-Bank proposal updates how ARC activities qualify, where ARC activities are considered, and how ARC activities are assessed. It aims to address significant changes in the banking industry since the last CRA updates in 1995 and 2005.
The proposal includes provisions to support financial intermediaries that primarily lend or facilitate loans to promote community development, including minority depository institutions (MDIs), women’s depository institutions (WDIs), credit unions low-income (LICU) and the US Department of Treasury. certified Community Development Financial Institutions (CDFIs).* These provisions respond to feedback from external stakeholders supporting a greater emphasis on community development finance and services that support MDIs, WDIs, LICUs and CDFIs, including equity investments, long-term debt financing term, technical assistance and contributions to affiliated non-profit organizations. In order to ensure that the ARC modernization process continues to reflect the needs of stakeholders, the three bank branches are now seeking additional comments on a number of points, including the following provisions.
Define minority depository institution
Under current CRA regulations, financial institutions that are not minority or women-owned can receive credit from the CRA for investments, loan participation and other activities conducted in cooperation with intermediaries. such as MDIs and WDIs, provided that these activities contribute to meeting the credit criteria. needs of the communities in which such entities are constituted. The three bank branches use a consistent definition of WDI but apply slightly different definitions of MDI. For clarity, the agencies offer the following definition specific to metered-dose inhalers:
A minority depository institution is a depository institution:
- in which (i) more than 50% of the ownership or control is held by one or more minority individuals and (ii) of which more than 50% of the net profit or net loss accrues to one or more minority individuals,
- As defined in Section 308 of the Financial Institutions Reform, Recovery and Enforcement Act 1989, or
- Considered as such by the relevant federal banking agency.
The agencies are seeking feedback from stakeholders on the following related question (numbered as it appears in the RNP, which contains a total of 180 questions for consideration):
Q25. Should agencies also include in the definition of MDIs insured credit unions considered MDIs by the National Credit Union Administration?
Increase certainty in the treatment of bank-intermediary partnerships
To increase certainty around the treatment of activities that support financial intermediaries, including MDIs, WDIs, LICUs and CDFIs, the agencies are proposing two further changes:
- First, investments, loan participations and other undertakings undertaken by any bank, including MDIs and WDIs, in cooperation with other MDIs, other WDIs or LICUs, would be considered for credit of the ARC.
- Second, the agencies propose that all activities with CDFIs (known as Treasury Department certificates) are eligible ARC activities. Specifically, the lending, investing and servicing activities of any bank undertaken in relation to CDFIs, at the time of the activity, would be presumed to be eligible for CRA credit since such organizations would have to meet specific criteria established by the Treasury Department.
Separately, the three bank branches propose that activities undertaken by any bank under a CDFI not certified by the Treasury Department may also be considered by the CRA if the activity separately met the eligibility criteria specified. another part of the CRA’s definition of community development. . For example, a banking business with a non-certified CDFI to fund a publicly subsidized rental housing project that serves low-to-middle income people would qualify by meeting one stream of the definition of affordable housing.
Given the suggested changes, the three bank branches are seeking feedback from stakeholders on the following question:
Q26. Should agencies consider activities undertaken by an MDI or WDI to promote its own sustainability and profitability? If so, should additional eligibility criteria be considered to ensure that investments will more directly benefit low- and moderate-income communities and other underserved communities?
Encourage ARC activities with an additional impact review factor
Current guidelines allow examiners at the three bank branches to determine whether a certain community development activity meets the credit needs of low- and middle-income people, small businesses and small farms very well. In the interest of consistency and transparency, the agencies now offer a list of impact assessment factors for the qualitative assessment of community development activities. They further propose that one of the impact review factors be activities that support or are carried out in partnership with MDIs, WDIs, LICUs or CDFIs, since these financial intermediaries have missions very much aligned with the primary objective of the ARC. By including activities related to MDIs, WDIs, LICUs and CDFIs, the agencies hope to place more emphasis on partnering with these entities. The agencies are seeking feedback from stakeholders on the following related question:
Q35. Should the proposed factor focusing on activities supporting Treasury Department-certified MDIs, WDIs, LICUs, and CDFIs exclude short-term deposit investments, and should all other activities be excluded? Should the criterion focus specifically on equity investments, long-term debt financing, donations and services, and should the focus be on other activities?
In addition, as part of a major bank’s retail product and service test, the three bank branches will consider credit products and programs that are conducted in cooperation with certified MDIs, WDIs, LICUs, or CDFIs. by the Treasury Department in a safe and sound manner as reagents. to help meet the credit needs of low to middle income individuals, small businesses and small operations. For example, this would apply to home mortgages and small business loans that banks purchase from Treasury Department-certified MDIs, WDIs, LICUs, and CDFIs. These bank purchases can provide needed liquidity to these financial intermediaries and expand their ability to provide loans to low- and middle-income people, low- and middle-income areas, small businesses and small farms. Credit products and programs conducted in cooperation with these intermediaries are one of three categories of responsive credit products and programs that are currently included in the Qualitative Review proposal. The agencies are seeking comments on a related question:
Q105. Should agencies provide more specific guidance on which credit products and programs can be considered particularly responsive, or is it better to provide general criteria so as not to discourage a bank from pursuing impactful and responsive activities that can deviate from specific examples?
How to comment on these issues
Agencies are seeking feedback on the current proposal, to help them refine its provisions to better serve low- and moderate-income communities. Interested parties should seriously consider submitting comments, as the outcome of the NPR process will dictate the scope of ARC reviews for the foreseeable future. To provide feedback on the issues detailed here, or any other issue addressed in the NPR, submit a written comment no later than August 5, 2022. A comment submission link and additional information about the NPR publication are available at the Federal Reserve. Council website.