[Federal Register Volume 72, Number 55 (Thursday, March 22, 2007)]
[Rules and Regulations]
[Pages 13429-13436]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-5188]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 563e

[No. 2007-03]
RIN 1550-AC08


Community Reinvestment Act--Interagency Uniformity

AGENCY: Office of Thrift Supervision, Treasury (OTS), Treasury.

ACTION: Final rule.

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SUMMARY: In this final rule, OTS is changing its Community Reinvestment 
Act (CRA) regulations in four areas to reestablish uniformity between 
its regulations and those of the other federal banking agencies. OTS is 
making these revisions to its CRA rule to promote consistency and help 
facilitate objective evaluations of CRA performance across the banking 
and thrift industries. Consistent standards will allow the public to 
make more effective comparisons of bank and thrift CRA performance. 
Additionally, OTS is incorporating changes that reinforce CRA 
objectives consistent with the ongoing performance of savings 
associations in meeting the financial services needs of the communities 
they serve.
    To advance these objectives OTS is aligning its CRA rule with the 
rule adopted by the banking agencies by: (1) Eliminating the option of 
alternative weights for lending, investment, and service under the 
large, retail savings association test; (2) defining small savings 
associations with between $250 million and $1 billion in assets as 
``intermediate small savings associations'' and establishing a new 
community development test for them; (3) indexing the asset threshold 
for small and intermediate small savings associations annually based on 
changes to the Consumer Price Index (CPI); and (4) clarifying the 
impact on a savings association's CRA rating if OTS finds evidence of 
discrimination or other illegal credit practices.

DATES: This rule is effective on July 1, 2007.

FOR FURTHER INFORMATION CONTACT: Celeste Anderson, Senior Project 
Manager, Compliance and Consumer Protection, (202) 906-7990; Richard 
Bennett, Counsel, Regulations and Legislation Division, (202) 906-7409, 
Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

A. Background

    The CRA requires the federal banking and thrift agencies to assess 
the record of each insured depository institution of meeting the credit 
needs of its entire community, including low- and moderate-income 
neighborhoods, consistent with the safe and sound operation of the 
institution, and to take that record into account when evaluating an 
application by the institution for a deposit facility. 12 U.S.C. 2903. 
In 1995, when OTS, the Office of the Comptroller of the Currency (OCC), 
the Board of Governors of the Federal Reserve System (Board), and the 
Federal Deposit Insurance Corporation (FDIC) (collectively, the four 
agencies) adopted major

[[Page 13430]]

amendments to regulations implementing the CRA, they committed to 
reviewing the amended regulations in 2002 for their effectiveness in 
placing performance over process, promoting consistency in evaluations, 
and eliminating unnecessary burden. 60 FR 22156, 22177 (May 4, 1995). 
The four agencies indicated that they would determine whether and, if 
so, how the regulations should be amended to better evaluate financial 
institutions' performance under the CRA, consistent with the Act's 
authority, mandate, and intent.
    The four agencies initiated their public review in July 2001 with 
publication in the Federal Register of an advance notice of proposed 
rulemaking (ANPR). 66 FR 37602 (July 19, 2001). In the ANPR, the 
agencies requested comment on whether the regulations were effective in 
meeting the stated goals of the 1995 rulemaking and whether any changes 
should be made to the rules. The agencies also solicited comment on a 
wide variety of issues including the large retail institution test, the 
small institution test, the community development test for limited 
purpose and wholesale institutions, strategic plans, performance 
context, assessment areas, affiliate activities, and data collection 
and maintenance of public files.
    After nearly three years of discussions, in February 2004, the four 
agencies published a notice of proposed rulemaking. 69 FR 5729 (Feb. 6, 
2004). Through it, the Agencies proposed to raise the small institution 
asset threshold to $500 million without regard to holding company 
affiliation; to amend the regulations to provide that certain 
discriminatory, illegal, or abusive credit practices would adversely 
affect the evaluation of the institution's CRA performance; and to 
enhance the data disclosed in CRA public evaluations and CRA disclosure 
statements.
    On July 16, 2004, the OCC and the Board announced that they would 
not proceed with their respective February 2004 proposals. The OCC did 
not formally withdraw the proposal, but did not adopt it. The Board 
formally withdrew its proposal.
    On August 18, 2004, OTS published a final rule that raised the 
small savings association asset threshold to $1 billion without regard 
to holding company affiliation effective October 1, 2004. 69 FR 51155 
(Aug. 18, 2004).
    On August 20, 2004, the FDIC issued another proposed rule. 69 FR 
51611 (Aug. 20, 2004). The FDIC proposed to raise the small institution 
asset threshold to $1 billion, while adding a community development 
activity criterion to the small institution test for banks with assets 
greater than $250 million up to $1 billion. It also proposed to expand 
the definition of ``community development'' to encompass a broader 
range of activities in rural areas.
    On November 24, 2004, OTS proposed further CRA regulatory reforms. 
69 FR 68257 (Nov. 24, 2004). Like the FDIC, it proposed to expand the 
definition of ``community development'' to encompass certain community 
development activities in underserved nonmetropolitan areas. OTS also 
solicited comment on expanding the definition of ``community 
development'' to encompass certain community development activities in 
areas affected by natural or other disasters or other major community 
disruptions without regard to whether those areas or the individuals 
served were low- or moderate-income. Further, OTS solicited comment on 
providing additional flexibility in the CRA examinations of large 
retail institutions.
    On March 2, 2005, OTS adopted a final rule effective April 1, 2005, 
that provided additional flexibility under the large retail savings 
association test allowing savings associations to choose to be 
evaluated under weights that differed from the standard previously 
adopted by the agencies whereby approximately 50 percent weight was 
placed on lending, 25 percent weight on services, and 25 percent weight 
on investments. 70 FR 10023 (Mar. 2, 2005).
    After OTS adopted final rules on CRA regulatory reform, the other 
agencies also amended their CRA rules. On August 2, 2005, following 
their publication of a notice of proposed rulemaking (70 FR 12148, 
12149 (Mar. 11, 2005)), the OCC, the Board, and the FDIC (collectively, 
the three agencies) issued a joint final rule amending their CRA 
regulations. 70 FR 44256 (Aug. 2, 2005). The three agencies' August 
2005 final rule extended eligibility for streamlined lending 
evaluations and the exemption from data reporting to banks under $1 
billion, without regard to holding company assets. The three agencies' 
final rule expanded the definition of ``community development'' to 
include certain activities in underserved rural areas and disaster 
areas.
    The three agencies' final rule contained some differences from 
provisions OTS had proposed or finalized. It provided that the three 
agencies would separately evaluate and rate the community development 
records of institutions between $250 million and $1 billion (termed 
``intermediate small banks'' by the three agencies), but under a new, 
more streamlined basis than under the large retail institution test. 
Under this new test, the three agencies no longer require an 
intermediate small bank to collect and report data on small business or 
small farm loans or on the location of certain nonmetropolitan mortgage 
loans. However, the new test contains two components, a lending test 
and a community development test.
    The three agencies' final rule also refined one aspect of the 
February 2004 joint proposal to provide that evidence of discrimination 
or evidence of credit practices that violate an applicable law, rule, 
or regulation could adversely affect an agency's evaluation of a bank's 
CRA performance. The final rule included an illustrative list of such 
practices. Further, it provided that the asset thresholds would be 
adjusted annually for inflation, based on changes to the Consumer Price 
Index.
    On April 12, 2006, OTS adopted a further final rule revising the 
definition of ``community development'' to reduce burden and provide 
greater flexibility to meet community needs. The revised definition is 
the same as the definition that the Board, OCC, and FDIC adopted in 
their August 2, 2005 final rule.

B. OTS's November 2006 Proposal

    On November 24, 2006, OTS issued a new proposed rule. In the 
SUPPLEMENTARY INFORMATION to that rule, OTS stated its belief that its 
rule changes over the past three years had achieved regulatory burden 
reduction. All four agencies have reduced the regulatory burden 
associated with the CRA regulations through steps such as amending the 
definition of small bank. However, OTS also stated its belief that 
consistent standards applied equally across the banking and thrift 
industries could facilitate objective evaluations of CRA performance 
and ensure accurate assessments of institutions that operate in the 
same market. As a result, OTS proposed to align its CRA regulation with 
those of the other federal banking agencies to best serve the interests 
of insured depository institutions and their communities by providing 
for consistency in regulation and compliance.
    In issuing the proposal, OTS noted that savings associations have 
an excellent record in the provision of credit, investments, and 
services in their markets, particularly in low- to moderate-income 
communities. OTS observed that in its experience, as a percentage of 
their total assets, savings associations far outdistance banks and 
other lenders in originating multi-family

[[Page 13431]]

housing loans, a vehicle frequently utilized to provide affordable 
housing.\1\ OTS stated its belief that savings associations would 
continue to serve their markets, including low- and moderate-income 
communities, regardless of the applicable CRA rules.
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    \1\ OTS calculated that as of June 30, 2006, savings association 
had 4.41% of their assets in multifamily loans whereas commercial 
banks had only 1.03% of their assets in multifamily loans.
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    OTS proposed changes to its CRA regulations in four areas. While 
the preamble addressed each area in turn, the SUPPLEMENTARY INFORMATION 
highlighted that the overriding question OTS posed to commenters with 
respect to each area was whether the benefits of greater regulatory 
uniformity and any other benefits outweigh any potential disadvantages. 
OTS also invited comment on all aspects of the proposal, including 
whether OTS should make any variations to the approach adopted by the 
other federal banking agencies in any of these areas.

1. Alternative Weights

    OTS's March 2005 final rule provided additional flexibility for the 
weights given to lending, services, and investments for each 
examination under the large retail savings association test. OTS issued 
guidance on April 7, 2005, explaining the methodology it would apply 
through Thrift Bulletin 85 (April 7, 2005). The other three agencies 
have not adopted this approach.
    In its November 24, 2006 proposal, OTS proposed to eliminate 
alternative weights to facilitate uniformity in the assessment of CRA 
performance between banks and thrifts. Most large institutions elected 
to continue to allocate weights under the three performance categories 
of lending, investments, and services.
    OTS noted that if the agency eliminated the alternative weight 
option for large savings associations, large savings associations would 
retain flexibility to focus their CRA efforts with emphasis on lending, 
just as they have in the past. For example, a savings association with 
outstanding performance in lending and services would still receive an 
``outstanding'' CRA rating overall, even if it makes few or no 
qualified investments. Additionally, a savings association with a poor 
record on the service test and few or no qualified investments would 
still receive a ``satisfactory'' CRA rating overall if its lending is 
at least highly satisfactory.
    The SUPPLEMENTARY INFORMATION recounted how a savings association 
with a strong lending record has always been able to receive at least a 
``low satisfactory'' rating on the investment test while making few or 
no qualified investments due to limits on savings associations' 
investment authority. This policy originated in the preamble to 1995 
CRA rule. Because of differences between savings associations and other 
financial institutions (e.g., the qualified thrift lender test and 
lending and investment limits on commercial loans and community 
development investments) a savings association could receive at least a 
``low satisfactory'' rating on the investment test without making 
qualified investments depending upon its lending performance. 60 FR at 
22163. Similarly, the 2001 Interagency Q&A Regarding Community 
Reinvestment indicates that a savings association that has made few or 
no qualified investments due to its limited investment authority may 
still receive a satisfactory rating under the investment test if it has 
a strong lending record. Q&A 21(b)(4), 66 FR 36620, 36631 (July 12, 
2001). The SUPPLEMENTARY INFORMATION explained that if OTS were to 
eliminate the alternative weight option, these principles would 
continue to apply.
    The SUPPLEMENTARY INFORMATION also pointed out that a savings 
association that would like OTS to evaluate its performance based on 
even more flexible criteria could opt for a strategic plan. While a 
strategic plan for a large retail savings association should generally 
address all three performance categories (lending, service, and 
investment), a different emphasis, including a focus on one or more 
performance categories, may be appropriate. The CRA rule specifically 
provides--and would continue to provide--that such a focus may be 
appropriate if responsive to the characteristics and credit needs of 
its assessment area, considering public comment and the savings 
association's capacity and constraints, product offerings, and business 
strategy. 12 CFR 563e.27(f)(ii).

2. Community Development Test

    OTS's August 2004 final rule raised the small savings association 
asset threshold from $250 million to $1 billion and eliminated 
consideration of holding company affiliation. This change enabled OTS 
to evaluate the CRA performance of savings associations with $250 
million or more, but less than $1 billion, in assets under the small 
savings association test. In contrast to OTS, the other three agencies 
imposed a different community development test for institutions with 
$250 million or more, but less than $1 billion, in assets, called 
``intermediate small banks.'' Under their test, the three agencies 
evaluate an intermediate small bank's lending performance under the 
small bank lending criteria, but they also evaluate the bank's 
community development performance under the following criteria:
     The number and amount of community development loans;
     The number and amount of qualified investments;
     The extent to which the bank provides community 
development services; and
     The bank's responsiveness through such activities to 
community development lending, investment, and services needs.
    OTS proposed to adopt the intermediate small institution test. In 
the supplementary information to the November 24, 2006 proposal, OTS 
stated its belief that intermediate small savings associations are 
responsive to the community development needs within the communities 
they serve. The adoption of the intermediate small institution test 
would provide a more comprehensive framework for assessing the 
community development performance of intermediate small savings 
associations than the small savings association performance criteria. 
In addition, adopting the intermediate small institution test would 
assist the public in making a reasonable comparison of community 
development performance between banks and savings associations 
operating in the same market.
    OTS explained that it anticipated that if it adopted this test, it 
would allow flexibility. This proposal did not prescribe a required 
threshold for community development loans, qualified investments, and 
community development services. Instead, OTS explained that based on 
the savings association's assessment of community development needs in 
its assessment area(s), it would be able to engage in those categories 
of community development activities that are responsive to observed 
needs and consistent with the savings association's capacity. Savings 
associations that have been providing community development loans and 
services, would find that OTS would continue to give those activities 
credit when OTS evaluates compliance under the new test.
    Further, as under the large retail institution test, examiners 
would take into account statutory and supervisory limitations on a 
savings association's ability to engage in any lending, investment, and 
service activities. For

[[Page 13432]]

example, OTS could still deem a savings association that has made few 
or no qualified investments due to limits on investment authority to 
have satisfied the criterion in the community development component of 
the test regarding ``the number and amount of qualified investments'' 
if the institution has a strong lending record.

3. Indexing Asset Thresholds

    The SUPPLEMENTARY INFORMATION to the November 24, 2006 proposal 
pointed out that OTS had not previously proposed to index the relevant 
asset thresholds for purposes of determining whether an institution is 
small or large. In contrast, the three agencies' final rule provides 
that they annually adjust the asset thresholds for small and 
intermediate small banks based on changes to the Consumer Price Index 
(CPI). Therefore, to ensure consistency in the standards for evaluating 
small and intermediate savings associations, OTS proposed to index the 
asset threshold consistent with the approach adopted by the other 
federal banking agencies.
    As the three agencies explained in the preamble to their March 11, 
2005 proposed rule (70 FR at 12151), there is precedent for indexing 
asset thresholds to the CPI. Under the Home Mortgage Disclosure Act, 12 
U.S.C. 2801 et seq., institutions under a certain asset threshold are 
exempt from HMDA requirements. The threshold is adjusted annually to 
the CPI and rounded to the nearest multiple of $1 million. 12 U.S.C. 
2808.

4. Discriminatory or Other Illegal Credit Practices

    The SUPPLEMENTARY INFORMATION to the November 24, 2006 proposal 
referred to the preamble to OTS's August 2004 final rule, which 
explained why OTS had withdrawn one part of its portion of the February 
2004 joint proposed rule. The withdrawn language would have added 
regulatory text providing that evidence that an institution or 
affiliate engages in discriminatory, illegal, or abusive credit 
practices would adversely affect the evaluation of the institution's 
CRA performance. Opposition came from financial institutions and 
consumer groups. OTS indicated in August 2004 that it would continue to 
rely on the more general provision in its rule that evidence of 
discriminatory or other illegal credit practices adversely affects the 
performance evaluation as interpreted in interagency Q&A 28(c)-1, 66 FR 
at 36640.
    The language adopted by the other three agencies in their August 
2005 final rule stated that with respect to discrimination in affiliate 
lending, the three agencies would reduce a rating based on 
discrimination in an affiliate's loans made inside the institution's 
assessment area where the loans have been considered as part of the 
institution's lending performance. The three agencies explained in the 
preamble to their August 2, 2005 final rule (70 FR at 44263) that a 
bank may not elect to include as part of its CRA evaluation affiliate 
loans outside the bank's assessment area. OTS proposed to amend its CRA 
rule to reflect this approach.

C. The Comments

1. Overview of the Comments

    OTS received 66 comments in total on the proposed rule from: One 
member of Congress in support; three trade associations, one in support 
(or at least not opposed) and two opposed; three savings associations 
opposed; 58 from individuals and organizations dedicated to consumer, 
affordable housing, and community development causes in support; and 
one national bank in support.
    Fifty-four commenters supported all aspects of the proposal. 
Another six supported everything except indexing of asset thresholds. 
One trade association did not oppose the proposal and supported 
indexing of asset thresholds. Two other trade associations supported 
indexing of asset thresholds; one of these also supported the provision 
on discriminatory or other illegal credit practices.
    In contrast, two trade associations and two large savings 
associations opposed eliminating alternative weights. Those trade 
associations and one intermediate small savings association (as defined 
by the final rule) opposed imposing the new community development test 
on intermediate small institutions.
    Most who commented recommend that the changes take effect right 
away. In contrast, one trade association supported a two-year 
transition period for large and intermediate small savings 
associations. Another trade association requested a transition period 
of at least one examination cycle for intermediate small institutions 
if OTS changes its rule. One organization that advocates for community 
reinvestment said it did not object to OTS waiting six months to a year 
before conducting more exams for large or intermediate small savings 
associations.

2. Comments in Support of Proposal

    Many of the commenters who supported the proposal raised similar 
points. The member of Congress who supported all aspects of the 
proposal, explained that it would restore uniformity and eliminate 
temptation to flip charters based on different CRA standards. That 
letter urged OTS to adopt the proposed changes as soon as possible.
    The industry trade association that supported (or at least did not 
oppose) the proposal explained that while it prefers OTS's approach on 
alternative weights and would have preferred that the other federal 
banking agencies had adopted OTS's rule, it realizes that the other 
federal banking agencies have not done so. It credited OTS with 
breaking the interagency logjam and allowing much needed progress on 
CRA. But it explained that given the position of the other agencies, it 
understood OTS's desire to make its rule uniform with the others. It 
added that uniformity would eliminate confusion for bankers and 
examiners and that consistency among the agencies would outweigh the 
benefits of only OTS offering alternative weights. This commenter 
supported indexing asset thresholds and did not oppose the provision on 
discriminatory or other illegal credit practices for uniformity. This 
commenter urged OTS, however, to provide a two-year transition period 
for large thrifts that relied on alternate weights and intermediate 
small thrifts that relied on the streamlined lending test to give them 
time to adjust their policies and procedures.
    One national organization that advocates for community reinvestment 
submitted a detailed letter and its comments were echoed by dozens of 
others dedicated to consumer protection, affordable housing, and 
community development causes. This organization supported all aspects 
of the proposal for several reasons including: (1) It would increase 
lending, investing, and services in low- and moderate-income 
communities; (2) establishing the same CRA standards are necessary for 
the public to be able to effectively compare performance; (3) weaker 
standards for thrifts make it difficult to hold thrifts accountable for 
responding to community needs; (4) different standards increase the 
possibility of some shirking their CRA obligations; (5) the large bank 
test has worked well; (6) the anti-predatory lending provision is 
necessary to penalize thrifts through lower CRA ratings if they engage 
in illegal, discriminatory, and abusive lending practices; (7) research 
demonstrates that OTS's different rule resulted in declines by thrifts 
in community development lending, investments, and the number of

[[Page 13433]]

branches in low- and moderate-income communities; and (8) there is more 
CRA exam rating grade inflation for thrifts under OTS's rule. (A few 
other comment letters referred to this research as well.) While most of 
this organization's supporters urged OTS to make the changes effective 
immediately, the organization said that it did not object to OTS 
waiting six months to a year before conducting any more exams for mid-
size and large thrifts to let them adjust to the new exams and find and 
execute community development financing and service activities. It also 
suggested that OTS could use performance context to take into account 
that a thrift's community development activities might be on the low 
side for the period in which the thrift was covered by the different 
rules because of the rules that existed during that period.
    One national organization that advocates for affordable housing 
lending supported all aspects of the proposal. It stated that 
consistency among regulators helps communities and institutions 
maximize the opportunities to make loans and sell services and that 
consistency among regulators avoids a regulatory ``race to the 
bottom.'' Many other commenters echoed these sentiments.
    OTS also received several letters from housing authorities 
supporting the proposal except for indexing asset thresholds. These 
commenters argued that over time, indexing would exempt more large 
thrifts from the large retail exam and more intermediate small thrifts 
from the new community development test.

3. Comments Opposed to Proposal

    The industry trade associations that opposed eliminating 
alternative weights and imposing the new community development test for 
intermediate small thrifts made several arguments: (1) Uniformity is 
not necessary to ensure that savings associations meet the credit needs 
of their communities; (2) OTS's current rule significantly reduces 
burden, which outweighs potential benefits, if any, of uniformity; and 
(3) the extensive narratives in OTS's examination reports make savings 
associations' performance readily comparable to banks' even if the 
tests applied are different. These commenters advocated that the other 
federal banking agencies should adopt OTS's rule to create uniformity.
    With specific regard to alternative weights, they commented that it 
is necessary and appropriate for large savings association to have a 
flexible test given differences between the thrift charter and bank 
charters. This flexibility simply recognizes that thrifts have always 
been evaluated somewhat differently from banks under the OTS policy of 
granting savings associations with strong lending records at least a 
low satisfactory rating on the investment test even if they make few or 
no qualified investments.
    One trade association specifically criticized the new CD test for 
creating an additional layer of regulatory complexity. Another urged 
OTS to provide a transition period of at least one examination cycle 
for those intermediate small institutions that had reallocated their 
CRA activities relying on the ability to comply with the streamlined 
lending test.
    One trade association concluded, based on its analysis, that 
applying the small institution test to savings associations up to $1 
billion in assets had not resulted in a reduction of their commitments 
to their communities. Another indicated, however, that if OTS changed 
its rule to realign with the other federal banking agencies, the change 
would not have a negative effect on the way savings associations are 
already meeting the credit needs of their communities. These commenters 
both supported indexing asset thresholds; one also supported the 
provision on discriminatory or other illegal credit practices.
    The thrifts that commented made similar arguments. One also 
expressed a specific concern about relying on the OTS policy of 
granting savings associations with strong lending records at least a 
low satisfactory rating on the investment test even if they make few or 
no qualified investments due to limits on savings associations' 
investment authority. This thrift suggested that unless the alternative 
weight option is retained in the rule, OTS might, at any time, 
discontinue the policy or begin requiring a savings association to make 
an individualized showing of how restrictions on investment authority 
have limited that particular thrift's investments.

D. Today's Final Rule

    The comments largely supported the proposal. Having carefully 
considered the comments, OTS is revising its rule for the same reasons 
it issued the proposal as discussed in part B of this SUPPLEMENTARY 
INFORMATION. OTS believes the revisions will promote consistency and 
help facilitate objective evaluations of CRA performance across the 
banking and thrift industries. Consistent standards will allow the 
public to make more effective comparisons of bank and thrift CRA 
performance. Additionally, the revisions reinforce principal objectives 
of the CRA.
    OTS would like to address some of the specific comments. While some 
commenters submitted information to support claims that alternative 
weights and the extension of the streamlined small institution test to 
institutions with assets of less than $1 billion had a negative impact 
on community development, others submitted information to support 
claims that changes did not have a negative impact. OTS believes the 
experience with these innovations was too brief to be conclusive either 
way. However, the revisions reinforce CRA objectives consistent with 
long standing performance of savings associations in providing access 
to credit, making investments, and providing services that support the 
communities they serve.
    Regarding the elimination of alternative weights, OTS wishes to 
reassure the commenter who expressed concern about relying on the OTS 
policy of granting savings associations with strong lending records at 
least a low satisfactory rating on the investment test even if they 
make few or no qualified investments due to limits on savings 
associations' investment authority. OTS notes--as discussed in detail 
in part B.1. of this SUPPLEMENTARY INFORMATION--that this policy is 
long-standing. Further, it is a direct outgrowth of section 563e.21(b) 
of the CRA rule, which addresses the performance context. As discussed 
in part B.2. of this SUPPLEMENTARY INFORMATION, OTS will apply a 
similar approach under the new community development test for 
intermediate small savings associations.
    OTS highlights that in one small respect, today's final rule 
departs slightly from the proposal. That departure concerns indexing 
asset thresholds. As proposed, the regulation provides that OTS will 
publish annual adjustments to these dollar figures based on the year-
to-year change in the average of the Consumer Price Index for Urban 
Wage Earners and Clerical Workers (CPIW), not seasonally adjusted, for 
each twelve-month period ending in November, with rounding to the 
nearest million. 12 CFR 563e.12(u)(2).
    Since OTS's proposal, however, the OCC, Board, and FDIC updated 
their regulations to make this annual adjustment. 71 FR 78335 (December 
29, 2006). The preamble to their joint rule noted that during the one-
year period ending November 2006, the CPIW increased by 3.32 percent. 
As a result, they revised their rule to provide that beginning January 
1, 2007, banks that,

[[Page 13434]]

as of December 31 of either of the prior two calendar years, had assets 
of less than $1.033 billion are ``small banks.'' Small banks with 
assets of at least $258 million as of December 31 of both of the prior 
two calendar years and less than $1.033 billion as of December 31 of 
either of the prior two calendar years are ``intermediate small 
banks.''
    To enable OTS to adjust the asset thresholds applicable for savings 
associations consistently with the other federal banking agencies, the 
rule text provides that savings associations that, as of December 31 of 
either of the prior two calendar years, had assets of less than $1.033 
billion are ``small savings associations.'' Small savings associations 
with assets of at least $258 million as of December 31 of both of the 
prior two calendar years and less than $1.033 billion as of December 31 
of either of the prior two calendar years are ``intermediate small 
savings associations.'' These inflation-adjusted asset thresholds will 
take effect once today's final rule takes effect on July 1, 2007.\2\
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    \2\ Until July 1, 2007, the small savings association asset 
threshold OTS applies remains at $1 billion.
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E. Effective Date

    Today's final rule takes effect July 1, 2007. The rule changes will 
apply to examinations that begin in the third quarter of 2007.
    However, OTS recognizes that some savings associations may have 
adjusted their CRA-related programs in reliance on the availability of 
the alternative weight option under the large retail savings 
association test and on the availability of the streamlined small 
institution test for institutions with up to $1 billion in assets 
(inflation adjusted). Rather than providing a long delay in effective 
date as a few commenters requested, OTS will provide relief in another 
way. OTS examiners will take the elimination of the alternative weight 
option under the large retail savings association test and the 
elimination of the streamlined small institution test for institutions 
with $250 million to $1 billion in assets (inflation adjusted) into 
consideration as part of the performance context when conducting 
examinations of savings associations affected, since these regulatory 
changes could have impacted their operations. Section 563e.21(b) of the 
CRA rule provides that OTS applies the CRA tests in the context of 
various factors including ``(7) Any other information deemed relevant 
by the OTS.'' OTS deems these two changes to its CRA relevant for 
performance context purposes.
    The period during which OTS's rules allow for alternative weights 
under the large retail savings association test started April 1, 2005 
and ends July 1, 2007. Accordingly, for CRA examinations under the 
large retail savings associations test that encompass all or part of 
this period, OTS examiners will take into account in performance 
context that a reduction in investment or service performance during 
this period could be attributable in part to reliance on the 
alternative weight option.
    The period during which OTS's rules applied the small savings 
association test to savings associations between $250 million and $1 
billion in assets started October 1, 2004 and ends July 1, 2007. For 
CRA examinations of intermediate small savings associations under the 
new community development test that encompass all or part of this 
period, OTS examiners will take into account in performance context 
that a reduction in investment or service performance during this 
period could be attributable in part to reliance on the availability of 
the small savings association test.
    OTS further notes that under section 563e.21(a)(3), savings 
associations that prefer to be evaluated under the large retail savings 
association test have that option, but only if they collect and report 
data required under section 563e.42. The large retail savings 
association test applied to savings associations with between $250 
million and $1 billion in assets before October 1, 2004. Thus, 
evaluation under the large retail savings association test would be an 
option available to intermediate small savings associations if they 
collected and reported data for each year covered by the performance 
evaluation.

Regulatory Analysis

Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995, OTS may not conduct or sponsor, and a respondent is not 
required to respond to, an information collection unless it displays a 
currently valid Office of Management and Budget (OMB) control number. 
This collection of information is currently approved under OMB Control 
Number 1550-0012. This final rule would not change the collection of 
information.

Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act, OTS 
certifies that the final rule will not have a significant economic 
impact on a substantial number of small entities. None of the 
provisions impose any additional paperwork or regulatory reporting 
requirements. Eliminating the option of alternative weights only 
affects savings associations with assets of $1 billion or more. 
Imposing a community development test for intermediate small savings 
associations only affects savings associations with assets of $250 
million up to $1 billion. Likewise, indexing the asset thresholds only 
affect savings associations with around $250 million in assets or more. 
In contrast, the Small Business Administration (SBA) has defined 
``small entities'' for banking purposes as those with assets of $165 
million or less. 13 CFR 121.201.
    Incorporating language into the rule regarding discriminatory or 
illegal credit practices has no impact whatsoever. It does not change 
the laws or regulations applicable to savings associations that 
prohibit discriminatory or illegal conduct. It simply affects the way 
OTS considers noncompliance with these laws and regulations as part of 
the CRA performance evaluation.

Executive Order 12866 Determination

    OTS has determined that this proposal is not a significant 
regulatory action under Executive Order 12866.

Unfunded Mandates Reform Act of 1995 Determination

    Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
104-4 (Unfunded Mandates Act) requires that an agency prepare a 
budgetary impact statement before promulgating a rule that includes a 
Federal mandate that may result in expenditure by State, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year. If a budgetary impact statement is 
required, section 205 of the Unfunded Mandates Act also requires an 
agency to identify and consider a reasonable number of regulatory 
alternatives before promulgating a rule. OTS has determined that this 
rule will not result in expenditures by State, local, and tribal 
governments, or by the private sector, of $100 million or more. 
Accordingly, OTS has not prepared a budgetary impact statement nor 
specifically addressed the regulatory alternatives considered.

List of Subjects in 12 CFR Part 563e

    Community development, Credit, Investments, Reporting and 
recordkeeping requirements, Savings associations.

[[Page 13435]]

Office of Thrift Supervision

12 CFR Chapter V

0
For the reasons outlined in the preamble, the Office of Thrift 
Supervision amends part 563e of chapter V of title 12 of the Code of 
Federal Regulations as set forth below:

PART 563e--COMMUNITY REINVESTMENT

0
1. The authority citation for part 563e continues to read as follows:

    Authority: 12 U.S.C. 1462a, 1463, 1464, 1467a, 1814, 1816, 
1828(c), and 2901 through 2907.



0
2. In Sec.  563e.12 revise paragraph (u), to read as follows:


Sec.  563e.12  Definitions.

* * * * *
    (u) Small savings associations--(1) Definition. Small savings 
association means a savings association that, as of December 31 of 
either of the prior two calendar years, had assets of less than $1.033 
billion. Intermediate small savings association means a small savings 
association with assets of at least $258 million as of December 31 of 
both of the prior two calendar years and less than $1.033 billion as of 
December 31 of either of the prior two calendar years.
    (2) Adjustment. The dollar figures in paragraph (u)(1) of this 
section shall be adjusted annually and published by the OTS, based on 
the year-to-year change in the average of the Consumer Price Index for 
Urban Wage Earners and Clerical Workers, not seasonally adjusted, for 
each twelve-month period ending in November, with rounding to the 
nearest million.
* * * * *


Sec.  563e.21  [Amended]

0
3. Amend Sec.  563e.21(a)(1) by removing ``, and to the extent 
consistent with Sec.  563e.28(d)''.

0
4. Revise Sec.  563e.26 to read as follows:


Sec.  563e.26  Small savings association performance standards.

    (a) Performance criteria--(1) Small savings associations with 
assets of less than $250 million. The OTS evaluates the record of a 
small savings association that is not, or that was not during the prior 
calendar year, an intermediate small savings association, of helping to 
meet the credit needs of its assessment area(s) pursuant to the 
criteria set forth in paragraph (b) of this section.
    (2) Intermediate small savings associations. The OTS evaluates the 
record of a small savings association that is, or that was during the 
prior calendar year, an intermediate small savings association, of 
helping to meet the credit needs of its assessment area(s) pursuant to 
the criteria set forth in paragraphs (b) and (c) of this section.
    (b) Lending test. A small savings association's lending performance 
is evaluated pursuant to the following criteria:
    (1) The savings association's loan-to-deposit ratio, adjusted for 
seasonal variation, and, as appropriate, other lending-related 
activities, such as loan originations for sale to the secondary 
markets, community development loans, or qualified investments;
    (2) The percentage of loans and, as appropriate, other lending-
related activities located in the savings association's assessment 
area(s);
    (3) The savings association's record of lending to and, as 
appropriate, engaging in other lending-related activities for borrowers 
of different income levels and businesses and farms of different sizes;
    (4) The geographic distribution of the savings association's loans; 
and
    (5) The savings association's record of taking action, if 
warranted, in response to written complaints about its performance in 
helping to meet credit needs in its assessment area(s).
    (c) Community development test. An intermediate small savings 
association's community development performance also is evaluated 
pursuant to the following criteria:
    (1) The number and amount of community development loans;
    (2) The number and amount of qualified investments;
    (3) The extent to which the savings association provides community 
development services; and
    (4) The savings association's responsiveness through such 
activities to community development lending, investment, and services 
needs.
    (d) Small savings association performance rating. The OTS rates the 
performance of a savings association evaluated under this section as 
provided in Appendix A of this part.

0
5. Amend Sec.  563e.28 by:
0
a. Removing ``paragraphs (b), (c), and (d) of this section'' in 
paragraph (a) and by adding in lieu thereof ``paragraphs (b) and (c) of 
this section'';
0
b. Removing paragraph (d);
0
c. Revising paragraph (c) to read as follows:


Sec.  563e.28  Assigned ratings.

* * * * *
    (c) Effect of evidence of discriminatory or other illegal credit 
practices. (1) The OTS's evaluation of a savings association's CRA 
performance is adversely affected by evidence of discriminatory or 
other illegal credit practices in any geography by the savings 
association or any affiliate whose loans have been considered as part 
of the savings association's lending performance. In connection with 
any type of lending activity described in Sec.  563e.22(a), evidence of 
discriminatory or other credit practices that violate an applicable 
law, rule, or regulation includes, but is not limited to:
    (i) Discrimination against applicants on a prohibited basis in 
violation, for example, of the Equal Credit Opportunity Act or the Fair 
Housing Act;
    (ii) Violations of the Home Ownership and Equity Protection Act;
    (iii) Violations of section 5 of the Federal Trade Commission Act;
    (iv) Violations of section 8 of the Real Estate Settlement 
Procedures Act; and
    (v) Violations of the Truth in Lending Act provisions regarding a 
consumer's right of rescission.
    (2) In determining the effect of evidence of practices described in 
paragraph (c)(1) of this section on the savings association's assigned 
rating, the OTS considers the nature, extent, and strength of the 
evidence of the practices; the policies and procedures that the savings 
association (or affiliate, as applicable) has in place to prevent the 
practices; any corrective action that the savings association (or 
affiliate, as applicable) has taken or has committed to take, including 
voluntary corrective action resulting from self-assessment; and any 
other relevant information.

0
6. In Appendix A to part 563e, revise paragraph (d) to read as follows:

Appendix A to Part 563e--Ratings

* * * * *
    (d) Savings associations evaluated under the small savings 
association performance standards.--(1) Lending test ratings. (i) 
Eligibility for a satisfactory lending test rating. The OTS rates a 
small savings association's lending performance ``satisfactory'' if, 
in general, the savings association demonstrates:
    (A) A reasonable loan-to-deposit ratio (considering seasonal 
variations) given the savings association's size, financial 
condition, the credit needs of its assessment area(s), and taking 
into account, as appropriate, other lending-related activities such 
as loan originations for sale to the secondary markets and community 
development loans and qualified investments;
    (B) A majority of its loans and, as appropriate, other lending-
related activities, are in its assessment area;
    (C) A distribution of loans to and, as appropriate, other 
lending-related activities for individuals of different income 
levels (including low- and moderate-income

[[Page 13436]]

individuals) and businesses and farms of different sizes that is 
reasonable given the demographics of the savings association's 
assessment area(s);
    (D) A record of taking appropriate action, when warranted, in 
response to written complaints, if any, about the savings 
association's performance in helping to meet the credit needs of its 
assessment area(s); and
    (E) A reasonable geographic distribution of loans given the 
savings association's assessment area(s).
    (ii) Eligibility for an ``outstanding'' lending test rating. A 
small savings association that meets each of the standards for a 
``satisfactory'' rating under this paragraph and exceeds some or all 
of those standards may warrant consideration for a lending test 
rating of ``outstanding.''
    (iii) Needs to improve or substantial noncompliance ratings. A 
small savings association may also receive a lending test rating of 
``needs to improve'' or ``substantial noncompliance'' depending on 
the degree to which its performance has failed to meet the standard 
for a ``satisfactory'' rating.
    (2) Community development test ratings for intermediate small 
savings associations.--(i) Eligibility for a satisfactory community 
development test rating. The OTS rates an intermediate small savings 
association's community development performance ``satisfactory'' if 
the savings association demonstrates adequate responsiveness to the 
community development needs of its assessment area(s) through 
community development loans, qualified investments, and community 
development services. The adequacy of the savings association's 
response will depend on its capacity for such community development 
activities, its assessment area's need for such community 
development activities, and the availability of such opportunities 
for community development in the savings association's assessment 
area(s).
    (ii) Eligibility for an outstanding community development test 
rating. The OTS rates an intermediate small savings association's 
community development performance ``outstanding'' if the savings 
association demonstrates excellent responsiveness to community 
development needs in its assessment area(s) through community 
development loans, qualified investments, and community development 
services, as appropriate, considering the savings association's 
capacity and the need and availability of such opportunities for 
community development in the savings association's assessment 
area(s).
    (iii) Needs to improve or substantial noncompliance ratings. An 
intermediate small savings association may also receive a community 
development test rating of ``needs to improve'' or ``substantial 
noncompliance'' depending on the degree to which its performance has 
failed to meet the standards for a ``satisfactory'' rating.
    (3) Overall rating.--(i) Eligibility for a satisfactory overall 
rating. No intermediate small savings association may receive an 
assigned overall rating of ``satisfactory'' unless it receives a 
rating of at least ``satisfactory'' on both the lending test and the 
community development test.
    (ii) Eligibility for an outstanding overall rating. (A) An 
intermediate small savings association that receives an 
``outstanding'' rating on one test and at least ``satisfactory'' on 
the other test may receive an assigned overall rating of 
``outstanding.''
    (B) A small savings association that is not an intermediate 
small savings association that meets each of the standards for a 
``satisfactory'' rating under the lending test and exceeds some or 
all of those standards may warrant consideration for an overall 
rating of ``outstanding.'' In assessing whether a bank's performance 
is ``outstanding,'' the OTS considers the extent to which the 
savings association exceeds each of the performance standards for a 
``satisfactory'' rating and its performance in making qualified 
investments and its performance in providing branches and other 
services and delivery systems that enhance credit availability in 
its assessment area(s).
    (iii) Needs to improve or substantial noncompliance overall 
ratings. A small savings association may also receive a rating of 
``needs to improve'' or ``substantial noncompliance'' depending on 
the degree to which its performance has failed to meet the standards 
for a ``satisfactory'' rating.
* * * * *

    Dated: March 16, 2007.

    By the Office of Thrift Supervision.
John M. Reich,
Director.
 [FR Doc. E7-5188 Filed 3-21-07; 8:45 am]
BILLING CODE 6720-01-P